Ecuador - Guayaquil and Guayas Province Water Supply Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 6289 PROJECT PERFORMANCE AUDIT REPORT ECUADOR GUAYAQUIL AND GUAYAS PROVINCE WATER SUPPLY PROJECT (LOAN 1030-EC) June 20, 1986 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. It. contents may not otherwise be disclosed without World Bank authorization. MEASURMS 1 mm millimiter = 0.04 inches I cm centimeter = 0.39 inches 1m = meter = 3.28 feet 1 km = kilometer = 0.62 miles 1 1 liter = 0.26 US gallons 1 m3 cubic meter = 264 US gallons 1 m3/sec cubic meter per second = 22.8 million US gallons per day 1 kg/cm2 kilogram per sq. centimeter - 14.22 pounds per square inch FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS EMAP-G - Empresa Municipal de Agua Potable de Gt;yaquil IEOS - Instituto Ecuatoriano de Obras Sanitarias IDB - Inter American Development Bank PAHO - Pan American Health Organization THE WORLD BANK FOR OFFICIAL USE ONLY Washington, D.C. 20433 U.S.A. Office of DirectoeCneral Operatmns Evaluiatki June 20, 1986 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Audit Report on Ecuador - Guayaquil and Guayas Province Water Supply Project (Loan 1030-EC) Attached, for information, is a copy of a report entitled "Project Performance Audit Report on Ecuador - Guayaquil and Guayas Province Water Supply Project (Loan 1030-EC)" prepared by the Operations Evaluation Department. Yves Rovani by Otto Maiss Attachment This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT ECUADOR GUAYAQUIL AND GUAYAS PROVINCE WATER SUPPLY PROJECT (LOAN 1030-EC) TABLE OF CONTENTS Page No. Preface .............................................. .......... i Basic Data Sheet ................................................ ii Evaluation Summary ............................................... iv PROJECT PERFORMANCE AUDIT MEMORANDUM I. THE PROJECT ............................................. 1 Objective ................................................ 1 Physical Accomplishment ................. ........... 1 Santa Elena Peninsula Component .......................... 2 Treatment Plant o............o........................... 3 Timing .............................o...o......o.........o 3 Consultants . ................ ............... 4 Costs **************************************************** 4 II. WATER PROJECTIONS ............................. ........ 5 Population Served ...................................... 5 Unaccounted-for Water .................................... 5 Meter Maintenance and Leak Detection .................. 6 III. FINANCIAL OPERATIONS ..................................... 6 Bank Actions ............................................. 6 Financial Management 7.................................. 7 Non-operating Income .................................. 8 Personnel ************************************************ 8 IV. LESSONS ............................................ 9 Uncertain Data .9.........................***.......... 9 Too Fast and Too Big ..................***.....*** 9 Santa Elena Peninsula ............................. 10 Unaccounted-for Water ....................................0 10 Effective Management ............................ 10 V. ASSESSMENT ............................................... 11 This document has a restricied distribution and may be used by recipients only in the performance of their ofBcal duties. Its contents may not otherwise be disclosed without World Bank authorization. TABLE OF CONTENTS (continued) Page No. PROJECT COMPLETION REPORT I. Introduction ....................... 13 II. Project Preparation and Appraisal ........................ 14 III. Project Implementation .................................. 16 IV. Operating Performance .................................... 19 V. Financial Performance ................................... 20 VI. Institutional Performance and Development ................ 22 VII. Project Justification .................................... 22 VIII. Bank Performance and Conclusions ......................... 23 Annexes: 1. Organizational Chart of EMAP-G ........................... 25 2. Project Description and Percentage of Completion ......... 26 3. Compliance with Loan Covenants ........................... 28 4. Comparative Project Costs ................................ 30 5. Allocation of Funds ..................................... 31 6. Cumulative Schedule of Disbursements ..................... 32 7. Construction Schedule ................................... 33 8. EMAP-G's Balance Sheet and Income Statement .............. 34 9. EMAP-G's Financing Plan .................................. 36 10. Internal Financial Rate of Return ........................ 37 11A. Borrower's Opinion ...................................... 39 - IBRD 10863 PROJECT PERFORMANCE AUDIT REPORT ECUADOR GUAYAQUIL AND GUAYAS PROVINCE WATER SUPPLY PROJECT (LOAN 1030-EC) PREFACE This Project Performance Audit Report (PPAR) represents a perfor- mance audit of the Guayaquil and Guayas Province Water Supply Project. Loan 1030-EC for US$23.2 millioti equivalent for the project was approved on June 25, 1974. The loan was closed on April 9, 1982, fully disbursed. The PPAR consists of a Project Completion Report (PCR), prepared by the staff of the Latin America and the Caribbean Regional Offtce and a Project Performance Audit Memorandum (PPAM), prepared by the Operations Evaluation Department (OED). The borrower contributed to the PCR with two letters which are attached thereto. OED has reviewed the report against the Appraisal and the President's Reports, the loan documents, and the transcript of the Executive Directors' meeting which considered the project. Project files have also been reviewed and discussions held with the Bank staff principally involved in the project. The project was also discussed with staff of the borrower during an OED audit mission to Guayaquil on February 2-8, 1986. The PCR gives, on the whole, a comprehe..sive account of experience under the project. The PPAM elaborates on a number of points that may be useful in drawing lessons from the project. Following OED procedures, copies of the draft PPAR were sent to the Government and the Borrower/Executing Agency for comments. However, no com- ments were received. - ii - PROJECT PERFORMANCE AUDIT BASIC DATA SHEET ECUADOR GUAYAQUIL AND GUAYAS PROVINCE WATER SUPPLY PROJECT (LOAN 1030-EC) BASIC DATA SHEET KEY PnOJECT DATA Appraisal Item Estimates Actual Total Project Cost (US million) 38.30 63.12 /a Loan Amount (US$ million) 23.20 23.20 Disbursed 23.20 23.20 Estimated Economic Rate of Return (%) -- -- Date Physical Components Completed 12/75 12/86 Proportion of Time Overrun (%) -- 325 Institutional Performance Excellent Fair Financial Performance Excellent Fair OTHER PROJECT DATA Original Item Plan Actual First Mentioned in Files or Timetable - 05/73 Appraisal 10/73 10/73 Negotiations -- 04/74 Board Approval 06/74 06/25/74 Loan Agreement -- 07/23/74 Effectiveness 10/23/74 01/29/75 Cl4sing Date 06/30/78 04/09/82 Borrower and Executing Agency EMAP-G Follow-on Project None /b /a Total cost of the revised project (PCR, para. 3.02). /b Government has requested Bank assistance to finance the first stage of the Guayaquil Master Plan. - 111 - MISSION DATA Month/ No. of No. of Staff/ Date of Mission Year Staff Days Days Report Identification 03/73 1 5 5 03/25/73 Preappraisal 07/73 2 1 2 08/03/73 Appraisal 10/73 4 15 60 06/13/74 Supervision 10/74 1 - - 10/31/74 Supervision 02/75 2 - - 04/11/75 Supervision 05/75 2 5 10 06/06/75 Supervision 01/76 2 5 10 01/29/75 Limited Supervision 02/76 1 3 3 02/26/76 Supervision 06/76 2 5 10 06/14/76 Limited Supervision 07/76 1 4 4 08/13/76 Supervision 11/76 3 7 21 11/12/76 Limited Supervision 01/77 1 2 2 01/25/77 Limited Supervision 02/77 1 3 3 02/10/77 Supervision 05/77 2 10 20 05/27/77 Supervision 10/77 2 5 10 11/09/77 Supervision 03/78 2 8 16 03/10/78 Limited Supervision 06/78 1 1 1 07/12/78 Supervision 09/78 2 5 10 09/29/78 Supervision 01/79 2 5 10 01/24/79 Limited Supervision 04/79 1 2 2 04/29/79 Supervision 08/79 2 11 22 09/24/79 Supervision 05/80 3 10 30 06/09/80 Limited Supervision 07/80 1 1 1 07/31/80 Limited Supervision 09/80 1 3 3 10/16/80 Supervision 04/81 2 8 16 05/20/81 Limited Supervision 09/81 1 3 3 09/24/81 26 missions 269 Staff/days 54 Staff/weeks COUNTRY EXCHANGE RATE DATA Name of Currency: Sucres (S/) Appraisal Exchange Rate = US$1 - S/25 Average Exchange Rate US$1 - S/27.4 Completion Exchange Rate /a - US$1 = S/67.8 /a Estimated official exchange rate. - iv - PROJECT PERFORMANCE AUDIT REPORT ECUADOR GUAYAQUIL AND GUAYAS PROVINCE WATER SUPPLY PROJECT (LOAN 1030-EC) EVALUATION SUMMARY Introduction i. The loan of US$23.2 million equivalent was the first Bank-financed operation in the sector in Ecuador. I: was made to the Empresa Municipal de Agua Potable de Guayaquil (EMAP-G) for water supply in the environs of Guayaquil and resort areas on the Santa Elena Peninsula. Appraisal took place in October 1973, Board approval in June 1974, and the loan became effective, after a delay, in January 1975 (PCR, page ii). The project was scheduled to be completed in 1977, but project works are still (1986) under construction (PCR, para. 3.04 and PPAM, para. 3). The loan was closed in September 1982, more than four years after the original closing date. Objectives ii. The objectives (PCR, paras. 2.03 and 2.04) were to (i) provide water supply to 96,000 inhabitants of Guayaquil by 1977, concentrating primarily on extending service to low-income families; (ii) serve an additional 35,000 inhabitants in the towns of Duran and Daule; (iii) supply water to the Santa Elena Peninsula towns, including some small villages located along the road from Guayaquil to Santa Elena, to serve about 60% of the resident population by 1977; and (iv) strengthen EMAP-G's financial and operating performance in administration and finance, management information systems, leak detection, construction supervision, and engineering design. Implementation Experience iii. Project implementation was very slow to start (PCR, para. 3.04); disbursements were inbignificant until 1977, when they reached 6% of the loan amount, rather than the 89% projected (PCR, Annex 6). The loan was fully disbursed in 1982, four years late. The first ostensible cause of delay was failure by the initial engineering consultants to produce the design and tender documents for the 72-inch transmission main to Guayaquil (PPAM, para. 12). These consultants were dismissed. Delays in recruiting the several consultants involved in the project (PPAM, para. 15), lengthy procurement procedures (PCR, paras. 3.04 and 3.05), and lack of funds occurred throughout the implementation period (PCR, paras. 5.01 to 5.05 and PPAM, para. 26). Cost overruns due to unexpectedly higher inflation, amplified by the delays, added to the difficulties. - V * iv. The Bank threatened tD suspend disbursements twice, because of inadequate tariffs and for lack of local funds. In both instances, remedial actions were taken (PPAM, paras. 27 to 31). v. The first two o:jectives of the project were substantially met, with some delay (PCR, paras. 1.01 and 8.01). The third may be substantially met with the construction of distribution systems in the Santa Elena Penin- sula beach areas in 1986 and the repair and placement in service of the project pumping station to that area (PCR, para. 1.01 and PPAM, para. 5). The fourth objective, which was not explicitly spelled out in the SAR, was largely unmet (PPAM, para. 54). Results vi. The physical facilities which will eventually constitute the project should be finished in 1986 (PCR, paras. 1.01 and 5.05 and PPAM, para. 3). Improvement in the distribution system in metropolitan Guayaquil (PCR, para. 3.02) and the treatment plant improvements (PPAM, para. 9) were dropped for lack of funds. Additional water is available and additional people are/will be served because of the project. vii. The rate of return for the project as a whole is now forecast at 4%, instead of 12% (PCR, para. 7.03). The return on the Santa Elena Penin- sula portion may be, when completed, 2% instead of 10% (YCR, para. 7.04). viii. No improvements appear to have lasted in operating parameters and financial results were well below expectations. Unaccounted-for water has, if anything, increased. Half the meters cannot be read (PPAM, para. 23). There is no leak detection nor meter repair program (PPAM, paras. 24 and 25). Water produced, distributed or consumed is estimated (PPAM, para. 23). Staffing is excessive (PCR, para. 6.01; PPAM, paras. 37 and 38). Management changes have been frequent (PCR, para. 6.01 and PPAM, para. 50). Receivables continue high (PPAM, para. 33). EMAP-G earns only nominal profits and cannot contribute to expansion (PPAM, para. 56). On the other hand, EMAP-G main- tained its tariffs in real terms and has since financed expansion through debt which it is servicing in spite of major devaluations (PPAM, para 58). ix. Some factors were outside the control of EMAP-G, such as, provision of government financing, lengthy reviews by other governmental agencies of procurement matters, inflation (PPAM, para. 56), etc. However, these factors were exacerbated by EMAP-G's inability to move quickly and take prompt decisions. Frequent management and other key staff changes resulted in a lack of stable and effective direction (PCR, para. 6.01). Sustainability x. At the current level of performance, EMAP-G can continue indefi- nitely (PPAM, para. 53). The basic function of supplying potable water is - vi - being done and EMAP-G has the ability to respond to major crises which threaten that basic function. To consider EMAP-G is to consider the munici- p.sl administration of Guayaquil, which is intimately involved in the direc- tion of ELAP-G (PPAM, paras. 51 and 52). Findings and Lessons xi. The Bank did not realize how unreliable the data were on which it built its projections (PPAM, paras. 40 and 41). The Bank probably processed the loan too soon, impressed by the private sector General Manager then in charge, and its own internal pressures to move quickly (PPAM, paras. 42 to 46). More leisurely study might have provided more knowledge and realism. A smaller project, leaving the Santa Elena Peninsula component to a later date, would have been more realistic (PCR, para. 8.02 and PPAM, paras. 46 and 47). xii. The Bank was exceedingly optimistic about reducing the amount of unaccounted-for water (PPAM, paras 48 and 4S). xiii. EMAP-G is effectively controlled by the municipal administration (PPAM, paras. 50 to 53). Experience with the changes in management and the hiring practices, as well as less tangible evidence, show that a stable "com- mercial-like" administration is not likely. This voud have been difficult to anticipate at appraisal, but the !ank zould have been more assertive in addressing the problem. xive The Bank's presence in the project had little effect on project development (PPAM, paras. 55 and 56). xv. The Bank's supervision was adequate and concentrated on the major problems. Relations seem to have been good (PPAM, para. 56). xvi. EMAP-G could be a good system (PPAM, para. 60). It has profes sional and trained staff, a favorable physical environment for wat.r supply (large, inexpensive source, moderate terrain, and a large, relatively afflu- ent, customer base). A local government commitment to stable top management appears to be the principal need to improve EMAP-G's efficiency. - 1 - PROJEZT PERFORMANCE AUDIT MEMORANDUM ECUADOR GUAYAQUIL AND GUAYAS PROVINCE WATER SUPPLY PROJECT (LOAN 1030-EC) I. THE PROJECT Obective 1. The objective of the project (PCR, paras. 2.03 and 2.04) can be sumarized to provide water supply to 80% of Guayaquil's population, serve the towns of Duran and Duale, supply towns on the Santa Elena Peninsula, and improve the operations of the Empresa Municipal de Agua Potable de Guayaquil (4MAP-G). Physical Accomplishment 2. The PCR presents the construction objectives (para. 2.03) and the actual construction (paras. 3.02-3.03 and Annexes 3 and 4). Although the extent of the changes are difficult to specify, the following table (from PCR, Annex 4) illustrates them in relative term-: SAR PCR Item S/. millions % S/. millions % Water treatment plant improvements 8 1 68 4 72" transmission line 156 23 327 21 Guayaquil distribution improvements 31 5 98 6 Guayaquil & Duran dis- tribution expansion 62 9 5 0 Daule water supply 22 3 61 4 SanLa Elena Peninsula 366 53 1,002 63 Meters 27 4 15 1 Master plan and st4.1ies 15 2 20 1 Total 687 100 1,596 100 SIN= - 2 - 3. It is difficult to compare the final project with the appraisal project because of price increases, modifications during the long construc- tion period, and because some of the works, particularly for distribution, were not quantified in physical terms in the SAR. The distribution works in Guayaquil were severely curtailed to compensate for price increases--a course of action anticipated in the SAR (para. 4.08). Moreover, the works are still going on, although scheduled for completion this year (1986). Santa Elena Peninsula Component 4. Fifty-three percent of the project as designed and 63% as constructed (para. 2) consisted of a pumping station, 150 kms. of 16- to 24-inch transmission mains, and unspecified amounts of distribution systems to supply some 100,000 to 140,000 persons in the Santa Elena Peninsula. The works were projected to start in mid-1975 and be completed by the end of 1977. 5. The status in February 1986 was that the transmission mains had been completed and distribution systems would be installed by the end of 1986. The pumping station suffered an accident in October 1984, when the electrical controls burned out as the electric pumps were being connected with the substation. The cause of the accident is controversial. The pumping station contractor, reportedly, was willing to repair the damage to the electrical controls. However, the substation contractor denied any responsibility as the substation had been provisionally accepted by EMAP-G and he claimed that any defect (a questionable transformer) must have been caused by the accident. EMAP-G decided to sue both contractors and fix the problem itself. 6. The pumping station, as a consequence, has been sitting out-of- service for 18 months. A temporary pumping arrangement is supplying water through the transmission mains for the trucks which deliver water door to door in Peninsula towns. EMAP-G has ordered the necessary repair parts. 7. The bidding and construction of the pipeline had its own problems, although it was eventually built quickly (two years) and satisfactorily. The advertisement for bids was postponed from December 1977, at the Bank's request, until local funds could be provided to cover the cash deficits of EMAP-G's recurring financial crises. The advertisement was placed in February 1978, although the Bank noted that loan funds could not be disbursed for this work until a newly-secured local financing was firm. After bid opening in July 1978, contract award was delayed until December 1978, while the Ecuadorian Government considered an alternative of a large irrigation scheme to the area which could also serve as a public water supply source. The schene fell through and the construction began. The contractor com- plained to the Bank that he was paid neither the local currency nor the foreign currency, which was to be disbursed from the Bank loan, during much of the 1979/80 construction period, the same period discussed in para. 30. 8. The Santa Elena component was also intended to serve the small, rural villages along the road from Guayaquil to Santa Elena (PCR, para. - 3 - 2.03). These are served by tankers at SI. 5/tin of about 16 liters and not, as was the appraisal expectation, through a piped system with house connec- tions or public taps. Treatment Plant 9. The main water treatment plant was to be improved to increase its capacity to 320,000 m3/day (PCR, Annex 2, page 1). The additional pumping capacity and intake structures necessary to do this have been completed. The plant hydraulic throughput is now estimated to be 380,000 m3/day. As shown in the table in para. 2, these works cost much more than expected. However, the internal plant changes, such as, rapid settling tubes in sedimentation basins and dual filter media, were only partly made, although these changes would have been relatively inexpensive. As a result, the "treatment" function of the plant is overloaded. 10. A water treatment consultant prepared a number of reports on various aspects of water treatment in 1976/77 and an investment program of plant improvements for 1978 and 1979 and for 1986 to 1991. Practically, none of the improvements were done and the consultant was called back in 1984 to reassess the situation. As demand for supply to Guayaquil was close to plant capacity, the consultant revised his earlier recommendations. He urged immediate construction of another conventional sedimentation basin and a series of relatively minor arrangements (the placement of aluminum sulphate and polyelectrolyte dosing points, etc.). These were not done, so by the end of 1985 EMAP-G felt it necessary, under an emergency program financed by the national government, to buy a package treatment plant because of the pressing need for additional treatment capacity. 11. The operation and maintenance of the treatment plant was unimpres- sive on the audit visit. The monitoring of water quality in the distribution system by the EMAP-G Central Laboratory was excellent and indicated a bacte- riologIcally safe water. Timing 12. The two major project elements in terms of cost were the 72-inch transmission line from the treatment plant to Guayaquil and the Santa Elena Peninsula water supply. Established international consultants were designing the transmission main during loan processing and the SAR (Chart 8630) expected that the bid documents would be ready by August 1974. The consul- tants did not provide them and were dismissed for unsatisfactory performance in 1975. The bid documents were then prepared by other consultants, subse- quently recruited in 1976, and a construction contract was awarded in 1977. 13. Ground water availability in the Santa Elena Peninsula which might supplement or substitute for the piped supply from Guayaquil was being studied by EMAP-G during loan processing. The potential delay in the project was excused inasmuch as an adequate and economical, albeit high cost, source had been identified and a cheaper (ground water) source was not foreclosed. The studies of the ground water potential appear to have been completed in 1975, although additional investigations continued thereafter by EMAP-G. Ground water was available and was the basis for a reduction in the transmis- sion line but was deemed insufficient for the peninsula's long-term total requirements. 14. Final design and bid document preparation took longer than expected because the Ecuadorian legal authorities questioned the (new) consultants' contract, the consultants did not work as quickly as expected, and the Bank required a design change to reduce costs (PCR, Annex 11-A, page 2) by reduc- ing the diameter to accouat for some use of local ground water. As discussed in para. 7, the pipeline was only completed by 1980, and the Santa Elena pumping station and distribution systems have still to be finished (paras. 5 and 6). Consultants 15. Six consulting engineering firms worked on parts of the project. Two specialized in water treatment and leak detection. The other four were not specialists and subdividing the work among them was unnecessary and inefficient. One was dismissed (with Bank concurrence) for unsatisfactory performance, but EMAP-G judged the othere acceptable/satisfactory (PCR, paras. 3.08-3.11). Each consultant selection took a long time and, on one occasion, a contract award was withdrawn and, on another, negotiations were broken off without explanation to the Bank. A management systems firm was let go before contract completion over a difference in interpretation of the work required by the contract. Later, an individual management consultant was recruited. Other than urging prompt action, Bank staff do not appear to have become involved in consultant selection and performance; this accords with Bank practice. Costs 16. The relative roles of inflation and inadequate costing of the project in the cost overrun (PPAM, para. 2) are not clear, due to project changes, a generalized project cost table, and the substantial inflation which occurred. The original cost estimate provided 10% annually for local cost escalation and 6% for foreign costs. Compounded through 1984, these would have reached 2.85 times and 1.89 times, respectively. During the same period, consumer price indices published by the IMF for Ecuador rose 6.2 times and US prices 2.3 times. 17. Adjusting the project costs prepared for the economic analysis in the PCR (Annex 10), to 1973 prices in Sucres, suggests a project cost, including physical contingencies, of S/. 600 million, to be compared to an appraisal estimate of S/. 860 million. Allowing for a decrease in project content of 10% (the proportion due to deleted distribution works) and the very large potential error in this type of adjustment, the actual overrun in expenditures--for the project as a whole--is probably due to inflation. 18. If the project had been built as programmed, the local inflation of some 13% annually in that period might have been manageable. However, the - 5 - delay not only left the costs exposed to inflation for a much longer time, but also exposed during a period in the early 1980s when local inflation increased markedly. II. WATER PROJECTIONS 19. Much of the financial difficulties faced by EMAP-G arose because the amount of water sold was about two-thirds of the sales projected in the SAR (PCR, Annex 8, page 2). Water produced, on the other hand, was only some 10% less than projected. This underestimation was probably due to poor data regarding the population to be served and the failure to convert unaccount- ed-for water into water sold. Population Served 20. The SAR reported (Annex 4, page 1) that 53% of the population (555,000) of Guayaquil were served with water in 1974 as were 49% (65,000) of the people in the rural towns in 1974. The population served in 1974 was calculated by assuming 12 persons per connection in Guayaquil and 10 in the rural towns. The SAR projected that 85%, or 1.18 million persons, would be served in Guayaquil, and 56%, or 169,000 persons, in the towns in 1980. 21. The 1974 census (available in 1976) revealed that the population had been overstated by 20% and the consumers per connection averaged 15, not 12 per connection (PCR, para. 4.01), so that the percentage of the population served in 1974 was 76% instead of 53%, according to a Bank supervision report. This meant there were about half as many unserved people as had been thought and this must be a major reason for the shortfall in the number of connections and, consequently, the shortfall in sales. Figures for August 1984 given to the OED mission showed a total population in Guayaquil of 1.45 million, of whom 74%, or 1.08 million, were served at the current "persons per connection" guesstimate of 10. The figure 10 was intuitive; no survey or objective assessment could be cited in support of it. On the same basis, 50% of the rural population in towns with house connections were served. Unaccounted-for Water 22. The unaccounted-for water had been recorded at about 40% in the 1970-73 period (SAR, Annex 8), and was projected to decrease to 35% in 1974 and to 22% by 1978. A 1976 Bank mission reported that unaccounted-for water was 53% in 1975, established a target of 40% for 1976, and projected that the 22% level would be reached by 1982. The last full supervision mission (May 1981) noted that unaccounted-for water was 52% in 1980 and that EMAP-G had projected a reduction to 30% by 1984. 23. The PCR (para. 4.02) correctly states that data for unaccounted-for water are unreliable and that there was no improvement during project imple- mentation, reporting 51% unaccounted-for water in 1983. The OED mission found the same, 48% unaccounted-for water for August 1985, the latest month for which information was available. Water production estimation is based on - 6 - reservoir drawdown measurements carried out a few years ago; consumption is based on meter readings and estimated consumption for unmetered and unread- able connections. Half the metered connections could not be read. Meter Maintenance and Leak Detection 24. The project provided for the installation of 30,000 meters, which was done (PCR, Annex 2, page 2). A meter maintenance program was to be instituted by December 1974, but this is not now in effect, if it ever was. Lack of vehicles was cited to the OED mission as the reason. There is a large, equipped meter repair facility, which now functions principally as a meter depot. The only activity observed by the OED mission was rethreading of new meters to accommodaie the thread on EMAP-G's fittings. 25. A leak detection program was instituted and international consul- tants trained EMAP-G personnel in this function (PCR, para. 4.02). The program was abandoned some time ago and the personnel reassigned. Neither a leak detection program nor a reduction in unaccounted-for water was specifi- cally required by the Loan Agreement, but were parts of the good management goals continually emphasized by the Bank. III. FINANCIAL OPERATIONS 26. The PCR (paras. 5.01-5.05) presents the financial results compre- hensively. Given the substantial currency devaluation that took place during the period, the figures and the comparisons drawn from them can only be indi- cative. The project was hampered by the need for, and delays in obtaining, government funds for the project. The date of effectiveness had to be post- poned three months to allow for the formalities of the first government con- tribution. Additional government funds were required in 1976 and the delay in obtaining these was one of the causes of the first threat to suspend disbursements discussed below. Bank Actions 27. The Bank warned EMAP-G on June 24, 1976 that EMAP-G was in default on a number of obligations, to wit, rate of return, execution of an earlier non-Bank investment program, asset revaluation, customcr payment through commercial banks, and audited financial statements. The letter also ques- tioned due diligence on project execution. The Bank expected a 50% tariff increase by June 30, 1976, and a plan of action, by August 15, to expedite construction, cover the cash deficit, and cure the contractual defaults. On the basis of some actions initiated by EMAP-G and Government, the deadline date for government approval of a tariff increase was postponed to August 31, 1976. A new tariff was put into effect in September 1976 and EMAP-G had, reportedly, successfully adopted remedial measures. 28. Project staff recommended, in a January 1979 supervision report, that the Bank should again suspend the loan unless Government funds were provided. The Bank threatened suspension in a February 10, 1980 telex, if a - 7 - proposed loan of S/. 424.6 million to EMAP-G was not made by February 29. On March 10, the Bank extended the date for suspension to March 31 to allow for the completion of legal formalities. The loan was signed and a SI. 50 million advance was made. However, a May 1980 supervision mission discovered that thi loan had not become effective because two of the municipalities on the Santa Elena Peninsula refused to sign the loan agreement. 29. Consequently, on June 25, 1980, the Bank again advised that dis- bursements would be suspended unless the SI. 424.6 million loan became effec- tive, and, it also added, unless EMAP-G presented a plan by September 1 to the Government (government officials claimed to be equally concerned about the poor management) and to the Bank to (a) reduce and control costs, nclud- ing the number of employees to 12/1,000 connections by December 31, 1980, and to 10 by June 30, 1981; (b) reduce accounts receivable to three months by December 31, and to two months by June 30; and (c) submit a proposal for increased tariffs. Moreover, the Government should advise the Bank in writ- ing of approval of the new tariff and a plan to finance approximately S/. 530 million necessary to finish the project. 30. The Bank provided financial projections for 1980-83 to EMAP-G as a guide to the plan EMAP-G was required to produce. The two recalcitrant municipalities (PPAM, para. 28) signed and EMAP-G submitted a plan which was largely a statement of goals. But government action on tariffs could not be completed, so the suspension date was moved to December 1, 1980, in order to receive governmental approval of the new tariffs. When no approval was received, the Bank asked, on December 15, 1980, that no further requests for disbursements be submitted and expressed the hope that approval would be forthcoming by January 1, 1981. 31. The tariff was finally approved (in second reading) by the Canton Council on February 20, 1981. This left Che central government approval out- standing and the Bank expressed the hope (March 6) that this would be forth- coming by April 15 to avoid formal suspension. The government approved the tariffs the week of April 13 and published them on April 24. On May 6, the Bank advised that it would accept disbursement requests, although concerned that a new loan of S/. 530 million was delayed and by the lack of progress by EMAP-G to (a) reduce the accounts receivable, (b) reduce the number of employees/1,000 connections, (c) reduce the unaccounted-for and illegal con- nections, and (d) contract independent auditors for 1980. Financial Management 32. The accounting data supplied to the appraisal mission was unreli- able ard did not satisfactorily reflect costs. A 1976 supervision report stated that uniform (financial) data were almost nonexistent before January 1974 so that it was difficult to compare and assess financial statements and impossible to effectively measure financial progress. Management accounting consultants came on board September 1975, but complained of little coopera- tion and eventually left without any significant accomplishment (para. 15). A major accounting firm did issue a report on 1975 results in September 1976. The financial difficulties that EMAP-G were to face began to loom on the horizon as financial information became available, together with an inflation unaccompanied by tariff adjustments. - 8 - 33. Efforts made to improve the financial management were plagued by continuing problems with computerization and by the departure of qualified accounting and computer staff for higher salaries elsewhere. However, the financial department was reorganized and some improvements were realized. As the PCR advises (para. 6.01), accounting and budget systems are satisfactory, so EMAP-G should have a basis for financial planning that didn't exist in 1973. Still, accounts receivables continue to exceed three months billings, although most of the overdues represent governmental accounts; only September 1985 accounts had been closed by early February 1986; and the Financial Manager was personally preparing the financial projections for an upcoming Bank appraisal mission for a second water supply project. Non-operating Income 34. The SAR (para. 7.01) reported that taxes and municipal contribu- tions, assigned to EMAP-G in 1970, were providing 80% of RMAP-G's internal cash generation and were pledged to guarantee suppliers' credits. The SAR projections showed that non-operating income would provide 33% of the funds required in the 1974-1980 period and operations would provide 52%; in the event, non-operating income provided 29% and operations 9% (PCR, para. 5.05) 35. At the time the project was being considered by the Bank, Senior Management required that receipts from earmarked taxes should be phased out over the next six years and that all revenues should be from sales and the entity should cover perhaps 25% of its investment program from its own resources. It was noted that Guayaquil was one of the wealthiest areas in Ecuador. As a consequence, the SAR stated (para. 7.02) that these earmarked taxes would be phased out and no longer required after 1980. However, the requirement was not reflected in the loan documents nor in the memo on nego- tiations, and never figured again in the files. Non-operating revenue was 30% of total water revenue in 1974 and 22% in 1984 (PCR, Annex 8). As a pro- portion of total revenues it has fallen to 16% in 1985 and EMAP-G's partici- pation in the telephone tax is limited to usage in its service area, rather than country-wide as at appraisal. The PCR does note, however, (para. 5.03) that EMAP-G's participation in the telephone tax has been changed and should result in additional funds. Personnel 36. The number of persons employed by EMAP-G was a continuous issue (PCR, paras. 1.07 and 5.02) during implementation. In 1975, EMAP-G had 808 salaries and weekly-paid employees, a high 16.6 employees per 1,000 water supply connections. (The identification mission reported 662 in 1973). The issue of excessive staff was first raised formally by the Bank in a June 26, 1975 letter to EMAP-G. 37. EMAP-G agreed to institute a hiring freeze and allow attrition and natural growth to address.the problem. The number, 800+, remained relatively level throughout 1978, and the number per thousand declined as connections increased. However, in 1979 and 1980, the number increased to 980, mainly by - 9 - term contracts. At the time of the OED mission, there were 1,080 employees for a ratio of 8.9/1,000 connections-after the dismissal of over 200 workers in December 1985 who had been hired by the former General Manager. 38. Many Latin America water supply and sewerage authorities have nine employees/1,000 connections, and 6/1,000 would be considered acceptable for a combined operation. 39. In addition to the issue of numbers, the employees were represented by effective unions, who also held a seat on EHAP-G's Board of Directors. The unions were able to maintain a strong position and labor costs were one of the concerns in EMAP-G's financial situation-a Bank mission at one time estimated that real earnings were 2.8 times nominal salaries. IV. LESSONS Uncertain Data 40. EMAP-G provided historical data on its water and financial opera- tions for appraisal. As noted in the Sections dealing with unaccounted-for water and financial management above, the information provided was unreli- able. Eighteen months after appraisal, a Bank mission concluded that the financial data contained in the SAR were no longer appropriate. Such basic data as total and served populations were also to be found in substantial error. The over-estimation of sales as a consequence of the poor data, plus the excessive optimism on reductions of unaccounted-for water, were major contributors to EMAP-G's inability to generate the anticipated internal funds (para. 56). The census date was provided by official sources and that it was inflated could not have been reasonably determined by the appraisal mission. 41. There was no sensitivity testing in the SAR, although the things that went wrong were well outside of conventional sensitivity testing. However, more and larger contingencies throughout the projections might have been called for. Too Fast and Too Big 42. The project was identified (5 staffdays) in March 1973 (PCR, page iii). A brief preappraisal mission (2 staffdays) was made in July 1973. A mission went to Guayaquil in October 1973 to continue the preappraisal work but with instructions to carry out a full-fledged appraisal if possible. This, they did. There seems to have been considerable eagerness to move on with the project, both 6n the Bank's country grounds and on water supply sector grounds. 43. Given that the project dealt with a new borrower with no feasibil- ity report and unaudited accounts, some caution would have been indicated. The General Manager of EMP-G during the identification-appraisal period was drafted from the private sector. He favorably impressed Bank staff and this contributed to the eagerness with which the Bank proceeded. Unfortunately, he resigned in September 1974. - 10 - 44. The project would have, according to the SAR financial projections (Annex 10), doubled the assets of EMAP-G. The identification mission had recommended that the Bank consider whether there ought to be more than one project but, apparently, decided on a single large project. 45. The SAR did not discuss the past record of EMAP-G, either in terms of management stability or in terms of construction ability. In 1973, EMAP-G had substantial work in progress (SAR, Annexes 9 and 10), but there was not much shown for 1971 and 1972. Moreover, much of this work was being done under suppliers' credits, with neither financing nor procurement problems. 46. Apart from a question on the timing of the Santa Elena component (para. 47), a series of smaller projects with such a new borrower would have given the Bank a better basis to help develop the institution and helped ensure that the borrower did not get overextended. Santa Elena Peninsula 47. The Peninsula component of the project was premature. Given its cost, relative importance, and marginal rate of return, it could have been postponed until the local peninsula water resources were fully explored, design substantially advanced, and the ability of EMAP-G (or any other institution) to finance and administer the construction established. Its costs are now borne to a large extent by the water consumers in Guayaquil, for resort areas catering largely to urban vacationers. This component was the beneficiary of strong political support, justified as a welcome tourist development for Guayaquil and a means to provide water to a poorly sCved area. Unaccounted-for Water 48. The SAR projected a drop in unaccounted-for water from 40% to 22% during project implementation. Lost water now is about 48% (PPAM, paras. 22 and 23). This sort of optimistic view of the susceptibility of unaccounted- for water to corrective action was practically a Bank tenet. Unfortunately, experience in other Bank projects does not support it. The reduction of lost water is a long, tedious, and difficult job; much of it may be due to unmetered and illicit connections/consumption with large and well-placed participation. 49. Projections of reductions in lost water should be very conserva- tive. With the benefit of hindsight, a reduction of one percentage point a year would have been more reasonable--and still wrong. A reduction must be based on a continuous and well-financed and well-organized program, which did not occur here. Effective Management 50. The PCR (para. 6.01) noted that there have been eight general managers since project appraisal. There have been two more since the PCR mission. - 11 - 51. The Board of Directors of EMAP-G is chaired by the Mayor of Guayaquil and two members are from the municipal council; other members are one each from the local engineering association, an association of property owners, and EMAP-G's unions. 52. The Guyaquil Municipality controls EMAP-G through its representa- tion on the Board of Directors, and the mayor is President of the Beard. Experience with the changes in management and the hiring praatices, as well as less tangible evidence, show that a stable "business-like" administration is not likely. It might have been provocative to anticipate this at apprai- sal, but once the problem was in evidence, the Bank might have addressed it directly and sought some remedy. 53. The Board of Directors gets involved in many operational details, including resolution of minor disputes. The General Managers, Bank staff claim, were concerned with administrative minutiae and became a major bottle- neck. Delegation of responsibility and authority was not customary. V. ASSESSMENT 54. One must conclude that nothing happened in terms of physical con- struction and administrative improvements that would not have happened anyway in the absence of the Bank. EMAP-G has the ability and Guayaquil can get the resources to address major problems once they are on the immediate horizon (viz. the current presidential emergency plan (para. 101 to get, inter alia, more treatment plant capacity). The Bank loan was made in order to assist in the national development effort at a time Ecuador did not need foreign exchange. 55. The Bank's coaxing and threats had no apparent effect on achieving effective management or administrative and operational improvements. The limited improvements in the financial area were probably facilitated by the Bank's presence. Certainly, the presence of the Bank did not hinder the play of local politics and its interference in personnel matters. 56. The Bank's relations with the borrower throughout seemed to have been good, even with the suspension threats. Supervision might have been more frequent, although it is difficult to say how this would have changed much. Greater intervention in consultant selection might have been useful (PPAM, para. 15). Attending to the major problems left no time to address less urgent items (meter repair, treatment plant, etc.). The audit obtains the impression of a competent and concerned supervision by Bank staff. 57. The financial problems were partly external to EMAP-G. The infla- tion which occurred was unexpected and caused costs to rise faster than revenues, accentuated by weak management. The continual difficulties in obtaining government financing and the lengthy reviews of contracts by government agencies also were outside EMAP-G's control. The fact that sales were much less than projected was also a major cause for the failure of EMAP-G to generate more internal funds (para. 40). Even now, EMAP-G is - 12 - earning only nominal profits on understated and underdepreciated assets and is unable to contribute to capital investment after servicing debt. Project delays were due to poor management; such items as the numerous consultants and their limited effectiveness, lack of meter maintenance, limited leak detection, and unaccounted-for water reduction (paras. 22-25) were opera- tional areas under EMAP-G's control; the procurement difficulties experienced (PCR para. 3.05) reflected the quality of project administration. 58. In spite of this litany of shortcomings, it must be recognized that EMAP-G did maintain its water supply tariff in real terms, collected 90% of its billings, has financed expansion almost entirely through debt, and is servicing its debt in spite of major local currency financing. Bank staff advise that the only comparable system in Ecuador has a tariff half that of EMAP-G, has twice the staff per 1,000 connections and receives grants from government. 59. Ways should be sought to distance the Board of Directors of EMAP-G from involvement in operational affairs and to consider rather major policy matters and progress toward operational improvements. Perhaps shifting the weight of representation on the Board toward non-municipal institutions might provide a less politicized and more businesslike direction. A modification to the establishment act of EMAP-G, emphasizing the policy function of the Board of Directors arad the responsibility of the General Manager to adminis- ter, with the power to delegate as he considers necessary, would assist a change in managemant philosophy. A local government commitment to stable top management with effective power to administer seems to be a principal requirement for an efficient EMAP-G. Any future Bank projects should be small, or presented in tranches, and tied to a strong, well identified and closely monitored internally established program. However, progress should be measured by actual accomplishments, not statements of program goals. 60. EMAP-G could be a good water supply utility. The staff are profes- sional and trained and ready for a stable, independent, and demanding man- ager. Guayaquil is blessed by a large accessible source of water, moderate terrain with easily worked soil, and a large population of relative afflu- ence. A determination to make it a good system is necessary. - 13 - ECUADOR LOAN 1030-EC GUAYAQUIL AND GUAYAS PROVINCE WATER SUPPLY PROJECT COMPLETION REPORT I. INTRODUCTION 1.01 The Project's main objectives were to: (i) increase water supply services from 47% to 80% of the population of the city of Guayaquil; (ii) expand water supply services in the cities of Duran and Daule; (iii) meet the needs for potable water of the permanent and seasonal population of the Santa Elena Peninsula; and (iv) strengthen the Gua,aquil Municipal Water Supply Company's (EMAP-G) institutional capacity. The first and fourth objectives have been partially achieved. The population served in Guaya- quil is now 62%. EMAP-G's institutional development program is incomplete (para. 3.10). The second and third objectives will be fully achieved by December 1986 when the project is expected to be completed. 1.02 Guayaquil had an estimated population in 1973 of about 1,000,000 people and was growing at a rate of 5.6% p.a.; the other project areas had a total population of about 235,000 inhabitants. Guayaquil, the largest city in Ecuador (15% of the total population) is the country's commercial and indus.rial center, an4 its most important port. The Santa Elena Penin- sula is the country's major summer resort area. Sector 1.03 Ecuador's water resources appear ample to supply the needs of the country for many years to come. About 90% of all water for domestic use comes from surface sources and is transported mostly by gravity. Service levels in Ecuador are still among the lowest in South America despite improvements made between 1960-1980. In this period, more than ten years were added to the average life expectancy of an Ecuadorian native (62.5 years in 1982), and service levels went from 32% of the population served by water supply to 45%; and from 15% to 28% of the population served by public sewerage. Water systems are highly inefficient with 40% to 60% unaccounted-for water being the norm. Quality of service is generally very poor, and intermittent service is the rule. 1.04 Sector responsibility is highly fragmented, mainly because of the institutional weaknesses of the Ministry of Health's National Water and Sewerage Authority (IEOS) and the National Development Council (CONADE). IEOS, in coordination with CONADE, has responsibility for sector planning and determining investment priorities. Municipalities have access to federal grants independently of national planning. IEOS also prepares - 14 - water and sewerage projects and operates 21 systems. In addition, IEOS constructs, sets tariffs and participates in the boards of the autonomous water companies, but only at the request of the municipalities. tEOS also operates hospitals and health care centers. The eight largest cities, including Guayaquil, have autonomous municipal water and/or sewerage com- panies. Municipal sanitation services are characterized by a lack of qual- ified manpower and a limited revenue-earning base which results in unreli- able services. 1.05 Inadequate planning has led to stop-and-go policies resulting in a large number of works being initloced but not completed. Approximately 60% of IEOS' works in urban areas have been brought to a temporary stand- still for lack of financing. In the rural sector, the proportion of works halted has been lower (about 30%) as active community participation has kept many projects underway. The Borrower and Executing Agency 1.06 EMAP-G, the Borrower and executing agency for the project, is responsible for providing potable water to Guayaquil and Guayas Province. It was established in September 1970 and reorganized by Municipal Ordinance in August 1972. EMAP-G is an autonomous municipally-owned company governed by a five-member Board of Directors chaired by the Mayor of Guayaquil. The same members serve on the Board of the separate Municipal Sewerage Company. EMAP-G's General Manager is appointed by the Board. The Board approves the Company's tariff proposals and submits them to the Municipality of Guaya- quil and IEOS for final approval. 1.07 At appraisal, EMAP-G's staff had about 800 employeesl/ or 16.4 employees per 1,000 water connections. The General Manager was capable and dynamic, and the organization was functional. Salaries were adequate and considered competitive to recruit and retain qualified staff. The billing system was good and fully computerized. The accounting, budgeting and man- agement information systems, however, were weak and needed improvement. There was also a need to strengthen coordination among departments. EMAP-G's initial organization is depicted in Annex 1. II. PROJECT PREPARATION AND APPRAISAL Preparation, Appraisal and Negotiation 2.01 The urgent need for expanded water supply service in Guayaquil first ame to the Bank's attention in May 1973, when EMAP-G approached the Bank for financial assistance. After a Bank review of sector and local issues, it was agreed that the project would concentrate on .he first stage of a long-range water supply program, prepared by EMAP-G's staff, for the cities of Guayaquil, Daule and Duran and the major communities of the Santa Elena Peninsula. During the October 1973 appraisal, it was agreed that the Peninsula component needed more study. These studies were included in the project. I/ SAR reports 287 employees because it only took into account permanent staff. - 15 - 2.02 Negotiations took place in Washington in April 1974 with repre- sentatives of EMAP-G and the Government. No substantial changes were made in the Loan documents. Principal Objectives and Description 2.03 The project was aimed at improving water supply services in the project cities and strengthening EMAP-G's financial and operating perform- ance. The project was designed to construct the first stage of a program prepared by EMAP-G. It was planned to be carried out in 3-1/2 years (1974-1977) and its objectives were: (i) providing water supply to 80% (960,000 inhabitants) of Guayaquil's population by 1977, concentrating primarily on extending service to low-income families in the "suburbio"; (ii) serving the water needs of an additional population of 35,000 inhabitants in the towns of Duran and Daule; and (iii) supplying water to the Santa Elena Peninsula towns, includ- ing some small villages (rural population) located along the road from Guayaquil to Santa Elena, to serve about 60% of a 1977 resident population of 43,000 and 100% of a tourist population of 24,000 in the same year. 2.04 To strengthen EMAP-G's financial and operating performance, tech- nical assistance in these areas was included. This assistance was designed to cover the following areas: (i) engineering designs; (ii) admiaistration and finance; (iii) management information system; (iv) leak detection; and (v) construction supervision. Tables presenting the project components and Loan covenants designed to meet these objectives are presented in Annexes 2 and 3, respectively. 2.05 In addition, preparation of a water supply master plan for the year 2000 and a feasibility study to cover the needs up to 1985 were included in the project. - 16 - III. PROJECT IMPLEMENTATION 3.01 The Central Government experienced delays in complying with some legal requirements and providing counterpart funds. As a result, the Loan was declared effective on January 29, 1975, three months later than the original date. Project Scope 3.02 The scope of the project was reduced because the costs to carry out the project were much higher than estimated and the Borrower was unable to obtain additional financing to complete the project as appraised. As a result, improvements of the distribution system in downtown Guayaquil and Urdesa (residential area in Guayaquil) were dropped from the project. The Bank informally agreed to these changes by approving updated implementation schedules during supervision missions. The remaining physical elements of the project were or are being completed as appraised (Annex 2). The insti- tutional building component was partially implemented (para. 3.10). 3.03 The scope of the Santa Elena Peninsula component (the single largest project element: US$36.3 million or 56% of total project cost), was based on the assumption that groundwater was not available on the Peninsula. In 1979, however, when implementation of this project component was about to start, a study financed under this Loan reported that suffi- cient groundwater was available on the Peninsula to supply its needs until 1990. EMAP-G's staff compared the groundwater solution with the alterna- tive transmission main from Guayaquil and concluded that the transmission main was the least cost solution. The Bank had no objection to EMAP-G's report. Implementation Schedule 3.04 The project is expected to be completed in December 1986, nine years behind schedule (Annex 4). The implementation schedule prepared at appraisal was optimistic. It was based on EMAP-G's previous experience with suppliers' loans where procurement and financing were not issues. Major causes el delays were: (i) insufficient project preparation (2.01 and 3.03); (ii) EMAP-G's limited capacity to generate funds from opera- tions to finance project investment and the lack of count- erpart funds brought about by a subetantial drop in fore- cast oil revenues (Section V). The Government allocated the limited available funds to other projects which it considered to have higher priority. These factors resulted in suspension of works by the contractors because of slow payment; - 17 - (iii) slow and cumbersome review of bidding documents by EMAP-G's bidding committee (some documents took eight months to be reviewed); and (iv) unduly slow and cumbersome procedures to select consult- ants. Procurement 3.05 The Borrower procured all Bank-financed goods and services through international and local competitive bidding in accordance with Bank guidelines. All large civil work contracts were awarded to joint ventures between foreign and local firms. Smaller contracts, which were not attrac- tive to foreign firms, and the works financed by the Ecuadorian Development Bank (BEDE) were awarded on the basis of LCB and letters of invitation. Bidding procedures were unduly complicated causing serious delays in con- tract awards and project implementation, as well as producing high cost overruns. The Bank received several complaints from bidders. The Bank, after review of these complaints, had no objections to EMAP-G's recommenda- tions. Cost and Disbursements 3.06 A detailed comparison of project costs as estimated at appraisal is presented in Annex 4 and summarized as follows (in millions): Sucres Dollars Appraisal Actual Apprateal Actual Comionent m Fm Total local ForeWh-/ local Frelm Total dcal Fm Total - Water Production .50 8.00 8.50 47.64 20.17 67.81 0.02 0.32 0.34 1.45 0.72 2.17 - Tranamtosion Main 45.75 110.50 156.25 180.51 146.38 326.89 1.83 4.42 6.25 7.19 5.86 13.05 - Distribution Systen in Qayaquil and Durml/ 62.50 58.25 120.75 93.74 23.53 102.60 2.50 2.33 4.83 3.51 0.52 4.03 - Water Supply In Deule 8.00 13.75 21.75 40.59 20.48 61.07 0.32 0.55 0.87 1.59 0.82 2.41 - Water Supply in Sta. Elem Peninsula 125.00 241.25 366.25 616.01 385.62 1001.63 5.00 9.65 14.65 21.77 15.50 37.27 Subtotal Construction: 241.75 431.75 673.50 978.49 596.18 1574.67 9.67 17.27 26.94 35.51 23.42 93 - Land 2.50 - 2.50 - - - 0.10 - 0.10 - - - - Master Plan and Feasibility Studies 5.00 10.00 15.00 14.69 5.58 20.27 0.20 0.40 0.60 1.61 1.07 2.68 - EgIneering and Addn.2/ 44.90 22.45 67.35 63.60 20.98 84.58 1.79 0.90 2.69 1.51 - 1.51 CointIreencies: - Physical 36.25 64.80 101.05 - - - 1.44 2.59 4.03 - - - - Price 47.90 50.70 98.60 - - - 1.90 2.04 3.94 - - - Total Project Cost: 38 579.70 958.00 1056.78 622.74 1679.52 15.10 23.20 38.30 38.63 24.49 63.12 1/ Including the purchase of meters. Including leak detection progra. /Direct camponent. - 18 - The 65% cost overrun in dollar terms was produced by insufficient project preparation (para. 2.02), the delays in completion of the works (para. 3.05), and higher than expected inflation rate. The 10% additional difference in cost overruns expressed in Sucres is due to the overvaluation of the Sucre during project execution. The Borrower claims chat the Loan Agreement did not provide funds for the 5% retention on contractors' invoices and thus increased its counterpart funding requirements (Annex 11A, page 4). However, the retention was included in the total project cost. The increase in counterpart funding was caused by the cost overrun. 3.07 Because of the high cost overruns, the Borrower requested that Loan funds be reallocated. The Bank agreed to the reallocations on March 3, 1977, and May 2, 1979. Unallocated Loan funds, funds to finance equip- ment and materials manufactured in Ecuador, and funds freed from the dele- tion of the rehabilitation of the distribution systems in Guayaquil and Urdesa were reallocated to cover the cost increases of the Santa Elena Peninsula component. The revised allocation is presented in Annex 5. A cumulative schedule of disbursements is presented in Annex 6. Performance of Consultants and Contractors 3.08 EMAP-G was not completely satisfied with the performance of the technical assistance consultants (Annex 11B-page 3), because the transfer of technology was below expectations. EMAP-G believes that consultants' staff assigned to the project lacked the necessary experience and language ability to successfully carry out the component. Effective measures to improve the delivery of the technical assistance were not taken by EMAP-G. 3.09 The results of the technical assistance in administration and finance were limited. A system for paying bills through commercial banks was established. The consultants also developed programs for management auditing of critical operational areas and for purchasing. These programs were not implemented because EMAP-G did not have sufficient motivation to use its limited resources to the program (para. 7.02). 3.10 None of the expected results of the technical assistance in man- agement information systems were achieved. The first consultant hired for this area did not complete his assignment. EMAP-G was not responsive to the Bank's continued insistence that the consultants be replaced. Because of the shortage of funds (para. 3.06), this project element was cancelled. 3.11 The consultants retained to construction supervision performed well. However, the designs for the 72" transmission main between "La Toma" treatment plant and the Tres Cerritos reservoir were found to be based on inadequate soil studies. The consultants in charge of supervising cons- truction completed the studies and corrected the designs. Civil works con- tractors and suppliers performed satisfactorily. The first contract for laying the Santa Elena Peninsula transmission main was cancelled because the Peruvian contractor had to leave the country during the war between Peru and Ecuador. A new contract to complete the works was awarded after one year. - 19 - Project Reporting 3.12 Project progress reporting was satisfactory, but beginning in 1980, preparation of audited financial statements was delayed. These delays were due to the Government's decision to turn external auditing over to the Comptroller General. The last audit report received by the Bank was for the year ended 1983. IV. OPERATING PERFORMANCE 4,01 The table below provides a summary of EMAP-G's expected and actual operating performance. 1974-80 1981 1982 1983 Expected 1/ Actual Actual Actual Actual Volume produced (m3106) 660 657 131 151 144 Number of Connections (103)2/ 115.6 76.5 81,4 92.2 105.8 Volume sold (m3106) 494 330 50 53 71 Unaccounted-for water (%) 25 50 62 65 51 1/ SAR contains projections for 1974-80 only. i/ End of 1980. Actual water sales were 33% less than appraisal estimates for 1974-80. Appraisal estimates were re-examined in 1976, based on 1974 Census data. Population estimates were based on extrapolations of 1962 Census data which overstated the total population in the service area by almost 20%. Service levels, based on EMAP-G's estimates, understated the population served. These estimates assumed 12 persons served per connection, while examination of the 1974 data showed 15 persons served per connection. As a consequence population served in Guayaquil in 1974 was 76% rather than the 47% esti- mated at appraisal. The combined effect of the two above factors resulted in a major downward revision of new connections and water sales. Appraisal estimates assumed 115,600 connections in 1980 while the actual number of connections was 76,500. Actual water sales were 7% below 1976 revised demand projections (355 million m3 sold during 1974-80). 4.02 Data on EMAP-G's unaccounted-for water are not reliable; however, the available figures suggest that there was no improvement during project implementation. The project provided for technical assistance to establish and train a leak detection unit and for the purchase of meters. The unit was established and trained, and an additional 69,000 meters were instal- led, raising the percentage of metered connections from 64% in 1973 to 94% in 1984. During this period, however, meter maintenance and repair capa- city did not keep pace and the percentage of defective meters rose from 12% - 20 - in 1973 to 40% in 1983. The inability to reduce unaccounted-for water was also affected by the deletion of the Guayaquil distribution system rehabilitation project component, designed to stem high water losses. V. FINANCIAL PERFORMANCE 5.01 EMAP-G's actual and projected financial statements are presented in Annex 8. Operating results for 1974-83 are summarized below (million of Sucres). 1974-80 1981 1982 1983 Appraisal Percent Estimates Actual Difference Actual Actual Actual Revenues 1,802 1,624 (10) 466 603 716 Operating Expenses 779 1,367 75 433 529 649 Income Before Depreciation 1,023 257 (75) 33 74 67 Revalued Depreciation Expense 422 324 (23) 79 93 126 Income (loss) from Operations 601 67) (111) TZ) I19) (3V) Interest Expense 250 145 (42) 8 6 8 Non-Operating Revenues (net) 500 421 (16) 150 111 160 Net Income (loss) 851 209 (75) 96 86 93 5.02 Actual revenues were 10% below appraisal estimates principally because the growth in new water connections fell far short of appraisal targets (para. 4.01). The decrease in volume of water sold was offset by higher than estimated average tariffs. The actual average tariff increased :'7% (35% in real terms) from 1973 to 1980, while appraisal estimates provided for a 144% increase (25% in real terms) over the same period. Actual operating expenses during the period under review were up sharpl (75%) as compared to appraisal estimates. By 1980, operating costs/mi produced were 2.7 times higher than appraisal estimates. Appraisal targets optimistically assumed improved operating efficiency and scale economies that would have resulted in a 32% decrease in real terms of unit operating costs between 1973 and 1980. Unit operating costs increased 50% in real terms over the same period. Despite a hiring freeze which stabilized the size of the workforce at about 800 employees through 1978, salary increases and high overtime payments pushed average and total personnel costs up in real terms. When the new Government took office in 1979, EMAP-G added 120 employees to its payroll creating further pressure on operating costs. Despite this increase, the number of employees/1000 connections dropped from 16.4 in 1973 to 12.9 in 1980. Further, EMAP-G was not able to reduce unaccounted-for water (para. 4.02), and water production costs remained at high levels. Delays in project implementation and the slow transfer of work in progress to fixed assets caused depreciation expense to be lower than forecasted at appraisal. Actual non-operating revenues, consisting principally of a telephone tax provided by National Law, were 16% below appraisal estimates. - 21 - 5.03 Despite tariff increases effected in 1981, EMAP-G's financial performance continued to be unsatisfactory with the Company running annual operating losses during 1981-83. Additional tariff increases were effected in 1984 resulting in a return to profitable operations for the year. Also, FMAP-G's participation in the telephone tax has been changed and should result in additional funds being available to the Company. 5.04 The Bank insisted that EMAP-G improve its financial performance; however, financial covenants were not achieved. The principal financial covenant required EMAP-G to earn progressively higher rates of return on revalued fixed assets. Because of the factors mentioned in para. 5.02,EMAP-G never complied with the covenant and achieved a positive rate of return in only two of the past ten years. Compliance with the rate of return covenant would have resulted in annual cash generation from operations of about 5.70 million over the appraised project implementation period (1974-77), or 3.6 times the 1973 cash generation of S/19.5 million. Covenanted returns were optimistic. Further, when population and service level estimates were revised in 1976, the rate of return covenant and project financing plan should have been modifie- accordingly. 5.05 A comparison of the EMAP-G's 1974-80 financing plan presented at appraisal versus current estimates is summarized below (million of Sucres). APPRAISAL ACTUAL ACTUAL TOTAL 1974-80 1974-80 1981-83 1974-83 Applications Amount % Amount % Amount % Amount % IBRD Project 958.0 63 939.0 73 531.4 34 1,470.4 51 Other Works + Interest During Construction 567.6 37 352.0 27 1,035.0 66 1,387.0 49 Total Investment 1,525.6 100 1,291.0 100 1,566.4 100 2,857.4 100 Sources EMAP-G Operating Income + Depreciation 788.4 52 112.2 9 150.6 10 262.8 9 EMAP-G Non-operating Income 499.6 33 420.7 33 421.9 27 842.6 29 Increase in Working Capital + Other Assets/Liabilities (251.7) (16) (230.8) (18) 23.9 2 (206.9) 7 Government Contributions + Donations 279.4 18 332.0 26 126.6 8 458.6 16 Net IBRD Loan 539.5 35 480.1 37 5.0 0 485.1 17 Net Other Loans (329.6) (22) 176.8 13 838.4 53 1,015.2 36 Net Financing: 1,525.6 100 1,291.0 100 1,566.4 100 2,857.4 100 - 22 - EMAP-G's actual cash from operations fell well short of appraisal estimates. This source of funds provided less than 10% of EMAP-G's net financing needs during 1974-80, compared with an appraisal estimate of 52%. EMAP-G did not generate a positive cash flow from operations until 1978, one year after the appraised project completion date. Further, Central Government counterpart funds were not provided in a timely manner. Project implementation was slowed, and EMAP-G borrowed funds from BEDE to cover the financing gap. The project should be completed by December 1986 at a total estimated cost of Sucres 1,680 million. Sufficient funding, principally through a second REDE loan is available to finance the Sucres 210 million needed during 1984-86 to complete the project. VI* INSTITUTIONAL PERFORMANCE AND DEVELOPMENT 6.01 Since project appraisal, EMAP-G has had eight general managers. These management changes, motivated in some cases by political considerations, created a lack of continuity and led to delays in project implementation. The present management team, which has been in place since the new government assumed power in 1984, is experienced and competent. New management recently reorganized the Company, principally to establish a separate commercial department. Mid-management changes during project implementation have been minimal. EMAP-G's labor relations are hampered by dealings with fifteen different unions. While there has been a commendable improvement in the ratio of the number of employees/1,000 connections from 16.4 in 1973 to 12.9 in 1980 and 9.4 in 1983, further productivity gains are possible as EMAP-G provides only water services. 6.02 Manual accounting and budget systems are satisfactory; however, a system for revaluing fixed assets has not been introduced (Annex 3). Data processing technology and information systems are sorely needed to aid decision making and prepare more timely and less costly management and accounting reports. VII. PROJECT JUSTIFICATION 7.01 The social objectives of the project set at appraisal will be partially met. When the project is completed, an additional population of about 312,000, including 147,000 urban poor, will benefit from water connections in Guayaquil, Daule, Duran and the Santa Elena Peninsula. In addition, on-going improvement of "La Toma" water treatment plant will lead to better water quality for the total population served by EMAP-G. 7.02 The institution building objectives envisaged during appraisal were partially met. These objectives did not receive sufficient support from the local authorities, who viewed the technical assistance as extraneous exercises necessary to obtain Bank financial assistance to construct the project. - 23 - 7.03 The internal financial rate of return (IFRR) was used as a proxy for the economic rate of return. The actual IFRR, based on project comple- tion at the end of 1986, is 4%. This compares with the appraisal estimate of 12%. The actual rate of return is lower than the appraisal estimate because: (i) project cost was much higher (75%) (para. 3.06); (ii) actual demand was much lower (para. 4.01); and (iii) actual unit operating costs were much higher in real terms (para. 5.02). 7.04 The actual IFRR for the Santa Elena Peninsula component is 2% compared with the 10% calculated at appraisal. The reason for the lower return, in addition to tie factors mentioned in para. 7.03, is that the Municipal ordinance govetning EMAP-G's tariffs does not permit differenti- ated rates for seasonal and permanent population. VIII. BANK PERFORMANCE AND CONCLUSIONS 8.01 The project will be successful in improving water supply services in EMAP-G's service area, but these objectives will be met nine years later than the appraisal schedule and at a much higher than estimated cost. Further, institutional objectives were only partially achieved. 8.02 In retrospect, the or:ginal four year implementation schedule was overly optimistic, as demonstrated by the nine year delay in completion. The engineering designs were completed three years after the signature of the Loan, and the final decision on the project's main component (Santa Elena Peninsula) was made five years after appraisal. Moreover, the large size of the project, which would have increased EMAP-G's fixed assets by 1.6 times, was disproportionate to EMAP-G's absorptive capacity. It would have been difficult for the Bank to foresee all the problems that arose during execution. It is likely that a later appraisal, when engineering designs would have been completed, would have resulted in better cost esti- mates, a more realistic project financing plan, and a more timely project implementation. 8.03 The institutional development objectives of the project were too ambitious and the resolve of local authorities to address chem was not very high. In retrospect, the Bank should have identified priority areas and addressed them accordingly, rather than to try to resolve every institu- tional weakness in one single project. 8.04 The Bank's relationship with the Borrower was good throughout the execution period (Annex 11). Bank staff worked closely with the Borrower during the supervision missions; however, the Bank's responses were slow and continuity in the dialogue between the Bank and Borrower was dis- rupted. Bank correspondence to EMAP-G was often dispatched several months after supervision reports were issued. - 24 - 8.05 Project financing and EMAP-G's financial performance were the Bank's main concerns during project execution. Covenanted rates of return were optimistic and the covenant along with the project financing plan should have been modified especially after the 1976 revision of population and service level estimates. The Bank continuously pressured EMAP-G to take appropriate measures and threatened suspension of disbursement on several occasions. Disbursements were not suspended. The results of these tactics were mixed. The Bank could also have been more forceful in dealing directly with the Government to obtain the needed counterpart funds and supervision missions should have spent more time assisting the Borrower in its discussions of policy and financial issues with Government officials. 8.06 The procurement procedures for Ecuador have to be revised to ensure a quicker selection on responsive bids. 8.07 The major lesson to be drawn from this project is that early appraisal does not lead to early completion, but complicates project execu- tion by creating uncertainties regarding technical solutions, project cost and financing. 8.08 Another lesson to be learned is that technical assistance pro- grams for both engineering and institutional modernization have to be identified by the Borrower and carefully targeted if they are to be suc- cessful. 劊 一不 森萬器矗勰騙 句中瞬dp嗚邸州網個綢p綢刈O蠟闖戶率•矗0 26 ANNEX 2 Page I of 2 ECUADOR LOAF '030-2C ECUADOR AND G#A-YAS PROVINCE WATER SUPPLY Project Cogletion Report Project Description and Percentge of 92upletion CATEGORIES PARTS Z OF COMPLETION Studies of 12/31/84) 1 Study of the cost and benefit of upgrading squatter 100 areas in Guayaquil. 2 Socio-sconomic studies of the users' capacity to pay 100 for public services and on land tenure in low-income areas of Guayaquil* 3 Review of the existing feasibility studies for the 100 water supply services to the Peninsula do Santa Elena. 4 Master Plan for Guayaquil City and other towns within 100 the Borrower's service area. 5 Feasibility studies for the extension of the water 100 distribution system at the town of Duran and low-income areas in Guayaquil. 6 Feasibility study for the improvement of the Lolita 100 Water Treatment Plant and the water transmission and distribution systems served by such plant. B Increase of Raw Water CaMcitZ Interconnection of the existing force mains of 42" 100 and 50" with the existing stand-by line of 16"o C Water Treatment Plant Increase of the filtration rate at the La Toma water 40 treatment plant to increase its output to 320,000m3/d. D increase of Transmission Main Capacity installation of about 15ke of transmission main of 100 72" between La Toma Treatment Plant and Tres Cerritos reservoiro 2 Interconnection between the transmission main 100 referred to in*Part DI with the existing 42" and 50* referred to in Part B. - 27 - ANNEX 2 Page 2 of 2 2 0f ConLsTION CATSOORINS PM (as of 12/31/84) g iprovement and Expansion of Distribution Network 1 Improvement of the distribution system in downtown 10 Guayaquil and in Urdesa. 2 Expansion of the distribution systems In Duran, Mass- 100 pingue, Santa Elena, San Pedro and Suburbio Oeste. V New Water Supply Systems 1 Installation of about 17ka of transmission main 100 between La Tom& Treatment Plant and the town of Daule. 2 Installation of a water distribution system to Dade 100 }} to serve a population of 24,000 inhabitants. 3 Installation of: (1) about 60ka of transmission main 100 between the Oeste reservoir in the city of Guayaquil to the Las Monas reservoir in the town of Progreso; (ii) about 65km of transmission main between the Las Monas reservoir and the Cerro de Playas reservoir in the town of Playas. 4 Installation of (1) transmission main between the 100 Santa Elena reservoir and, respectively, the towns of Salinas, La Libertad, Ballenita and Santa Elena and; (it) a transmission main between the Cerro de Playa, reservoir and the town of Playas. 5 Construction of two pumping stations, each with a 50 2, pumping capacity of 25,0003 per day. 6 Installation of water supply distribution systems to 44 serve a population of 170,000 inhabitants in the communities in the Peninsula de Santa Elena, incluAing the towns of Playas, Salinas, Santa Elena, La Libertad and Ballenita. G Water Meters Installation of about 30,000 water meters in the 100 city of Guayaquil. L/ Only 52% of the house -.nnections have been installed. 2/ The second pumping station was not necessary. - 28 - ANNEX 3 Page 1 of 2 ECUADOR LOAN 1030-C E M IAOUL AND MAAS I~ WATU SUPPLY Project Comletion Raort CoM1ace v'th Loan Covenants SCTION COVENANT CCOMNTS L.A. 3.02 Engage engineering con. In compliance. sultants. L.A. 4.04 Establish and carry out eter Not in compliance. Meter mainteace progran by maintenance shop Was par* December 1974. tially reequipped. It is neither properly equipped nor staffed. About 402 of the installed maeters are not functioning. L.A. 4.05 Shall not merge with any In compliance. public utility; assume responsibility for such public utility's services; undertake through joint billing collection of such public utility's revenues without bank's approval. L.A. 5.02 Submit annual independent Not in compliance. Govern- audited financial statements. ment audited statements sub- mitted through 1982 and 1983; report is being prepared by Government's Comptroller General. L.A. 5.03(b) Not create any lien on any In compliance. assets as debt security except with Bank's approval. 5.04 Not incur any debt unless In compliance. Bank agreed the Borrower's not revenues to BIDE loans to allow project for any 12 consecutive completion. months within the next 15 acaths preceding such in- currence shall be at least 1.5 times the maxim debt service requirements for any succeled:Al fiscal year on all debt, including the debt to be Incurred. -29 ANNEX 3 Pae2of 2 L.A. 5.05(a) Set tariffs to provide rates.of Not in compliance. Annual return of 22 in 1974 and 1975; rate of return was unsate- 62 in 1976-79; and 82 thereafter. factory (para. 7.03). L.A. 5.S(b,iisl) Set tariffs for seasonal users Not in compliance. Municipal to provide rates of return of 72 ordinance does not permit in 1976-79; and 92 thereafter. special tariff. L.A. 5.07(a) Establish coumercial and cost In compliance except not accounting system; classifica- revoluing fixed assets. tion of fixed assets; method to value and revalue fixed assets. L.A. 5.08(b) By December 31, 1974, arrange In compliance. for users to pay bills at comercial banks. L.A. 5.08(c) Tacrease revenue effective Not in compliance. Highest index to 662 in 1976-77; 752, percent reached was 55% in in 1978-79 and 762 thereafter. 1979. 30 - ' ' LO48 1030-8C PUAolett Am §CYA f2 nøAtERS L Aaisal astiste Actual Total Variazce L0981wotmL8 Iotal Lal Fn i / --ottal - La Tsea Wate Treatsot 0.50 8.00 8.0 47.64 20.17 67.81 59.31 698 Pleat Ipowss - 72* Diaster Traftm1ssi0 45.75 110.50 156.25 180.51 146.38 326.89 170.64 109 Mala bet~ La Ta and Tres Cortitoa - Distributin Motvark (a- 15.00 16.25 31.25 86.92 10.63 97.55 66.30 212 proveefts and ipe ke- paemset le Guayauil - Distributioa system Upa0- 32.50 30.00 62.50 5.05 - 5.05 (7.45) - 1/ sto is Qayaquil aad Duras - Mater supply service for 8.00 13.75 21.75 40.59 20.48 61.07 39.32 181 Dauta - water Supply syue for 125.00 241.25 366.25 616.01 385.62 1001.63 635.38 173 Safta ilea peiesula - Pr*base and Ifstallatiof 15.00 12.00 27.00 1.77 12.90 14.67 (12.33) (46) of 30,000 Khteru - Co~truction Gast Subtotal 241.75 431.75 673.50 978.49 596.18 1574.67 901.17 134 - Lefd 2.50 - 2.50 - - - (2.5) - - reaeibility Studies to 5.00 10.00 13.00 14.69 5.58 20.27 5.27 35 lear 2000 si Cousultants' Services - EagieeOrins 4 Adaiaistration 44.90 22.45 67.35 63.60 20.98 84.58 17.23 (26) il (a) rbysital 36.25 64.80 101.05 - - - (101.05) - (b) frice 47.90 30.70 98.60 - - - (98.57) - Total Project Cos 378.30 579.70 958.00 1036.78 622.74 1679.52 721.52 75 1/ attest cost. 2/ Støpe vas red~od (para. 3.02). - 31 - ANNEX 5 ECUADOR LOAN 1030-EC GUAYAQUIL AND GUATAS PROVINCE WATER SUPPLY Project Completion Report Allocation of Funds (US$' 000) Final Amendment Amendment Disbursement Original of of by Category Allocation 3/24/77 5/02/79 Category I* Equipment and materials Parts 8 through G of the Project (a) Manufactured outside the territ'ories of the Guar- antor 9,494 14,500 13,200 14,032 (b) Manufactured within the territories of tfie Guar- antor 6,120 - - 7 II. Civil works for Parts B through G of the Project exclusive of equipment and materials fur- nished by the Borrower to con- tractors 1,656 5,430 7,200 6,424 III. Consultants' Services 400 1,500 2,500 2,737 IV. Unallocated 5 530 1 770 300 - Total: 3,03 23,200 - 23,200 - 32 - ANNEX 6 ECUADOR LOAN 1030-EC GUAYAQUIL AND GUAYAS PROVINCE WATER SUPPLY Project Completion Report Cumulative Schedule of Disbursements Bank Appraisal Estimates Actual Fiscal Year US$ Million X of Total US$ Million 2 of Total 1975 4.9 21 0.23 1.00 1976 1 12.1 52 0.35 1.50 1977 20.7 89 1.33 5.70 1978 23.2 100 5.88 25.30 1979 9.14 39.40 1980 17.93 * 77.30 1981 22.21 95.30 1982 23.2 1/ 100.00 1/ Loan became fully disbursed on April 9, 1982. laAM 1030-C GAYAUIL AND GUATAS 80I VATM BUPLY Conatructios e 1974 1975 1976 1977 1978- 1979 98m 191 982 198" 19g1"5 18 - Rav Vater Force Ma xx=x 1-- - La Toes Mater Treat.Plant xxx ---- - 15 Km. of 72' 0 MM= MW - Rebeabtiltatio of Dist.ektvork MM= M= Emmm - - - - Expansion of GuayaquIllg and Daran's Distribution System XXXM= M xxxx- - - mater Service in Daule XXK M= - Santa Elen Peninsula System 12000UU - Meter- MMr: Actuai x• Appratsal sattemte *a -. Ie !111 Îii Iji se i tllili st ljuí ass s tlli111ist til11 as it lilil Isi R s is tisli isiii ass is11i!Íli si eli 4-: issiitt esg pps ass it Uiill sitl e R IIili si i se il Ii is- lí 帶孔， : …믹讖 LOAN 1030-RC GUAYAQUIL AND GUAYAS PROVINCE WATER SUPPLY Project S M letion Repgrt 9 HAP -G Financing Plan (Current Sucres Million) APPRAISAL ACTUAL 1974-77 1974-80 1974-77 1974-80 1"1-83 Total Amount Amount 2 Amount -Z Amount Z Amount z Amount 2 IBRD Project 958.0 83 958.0 63 178.0 59 939.0 73 531.4 34 1470.4 51 Other Works and Interest during Construction 196.8 17 567.6 37 121.5 41 352*0 27 1035.0 66 1387.0 49 Total Investment 1154.8 100 1525.6- TO0- 299.5 Too- T2-9i.o i5o 1566-.4 TWO 2857.4 100 =am==== mum=== ==M= =w=ww=w ==== w===nw w== Z NAP -G Operating Income and Depreciation 277.7 24 788.4 52 02.5) (4) 112.2 9 150.6 10 262.8 9 EKAP-G Man-Operating Income 274.2 24 499.6 33 173.5' 58 420.7 33 421.9 27 842.6 29 Increase In Working Capital and Other Assets/Ltabiltties (40.0) (3) (251.7) (16) (1".2) (49) (230.8) (18) 23.9 2 (206.9) (7) Government Contributions and Donations 195.1 17 279.4 18 181.6 61 332.0 26 126,6 8 458.6 16 Met IBRD Loan 580.0 50 539.5 35 125.6 42 460.1 37 5.0 0 485.1 17 Met Other Loans (132.2) (12) (329.6) 122) (24.5) _(8) T 176.8 13 838.4 53 1015.2 36 Met Financing 1154.8 100 1525.6 100 299.5 100 1291.0 1566.4 TWO 2857.4 100 ====w=w Xs=== a====== mmmm ww===== numm w=w===w ==== www=== w== MMMMUM ~ 37 - ANNEX 10 Page 1 of 2 ECUADOR LOAN 1030-EC GUAYAQUIL AND GUAYAS PROVINCE WATER SUPPLY Project Completion Report All Project Components Streams of Costs and Benefits (Million Sucres 1984 Prices) Project Incremental Investment New House Operating Total Incremental Net Years Cost 2/ Connections Cost 3/ Cost Revenues 4/ Benefits 1975 64.75 - - 64.75 - (64.75) 1976 54.23 - - 54.23 - (54.23) 1977 459.63 - - 459.63 - (459.63) 1978 314.64 - - 314.64 - (314.64) 1979 722.90 - - 722.90 - (722.90) 1980 909.77 4,055 26.11 935.88 43.37 (892.51) 1981 234.83 6,780 48.49 283.32 76.78 (206.54) 1982 601.83 12,590 105.58 707.41 139.96 (567.45) 1983 98.13 17,890 109.32 207.45 136.86 (70.59) 1984 145.80 21,490 131.32 277.12 184.96 (92.16) 1985 47.91 24,490 149.66 197.57 316.19 118.62 1986 15.47 28,090 171.60 187.07 362.66 175.59 1987 8.66 36,100 220.54 229.20 466.07 236.87 1988 8.66 37,600 229.70 238.36 485.43 247.07 1989 4.30 39,100 238.86 243.16 504.80 261.64 1990 - 39 600 241.91 241.91 511.26 269.35 2015 1/ - 39,600 241.91 241.91 511.26 269.35 IFRR - 4.4% 1/ Computed for 40 years period (consistent with appraisal). T/ Excludes costs of house connections since they are paid directly by users. Includes complementary investments for expansion of the distribution system needed to support new house connections. 3/ Includes the following costs: chemical pumping, and operation and maintenance. Administrative costs have little impact on the incremental operating costs. 4/ Projected incremental revenues are based on October 1984 tariff levels which are assumed to remain constant, Tariff levels in the Santa Elena Peninsula are 30% higher. * -38 - ANNEX 10 Page 2 of 2 ECUADOR LOAN 1030-IC GUALAQUIL AND GUATAS PROVINCE MATER SUPPLY Project Completion Report Santa Elena Peninsula Component Streams of Costs and Benefits (Million Sucres 1984 Prices) Project Incremental Investment New House Operating Total Incremental Net Years Cost Connections Cost Cost Revenues Benefits 1976 14.80 - - 14.80 - (14.80) 1977 16.36 - 16.36 - (16.36) 1978 28.87 - - 28.87 - (24.87) 1979 331.72 - - 331.72 - (331.72) 1980 713.49 - - 713.49 - (713.49) 1981 149.67 - - 149.67 - (149.67) 1982 66.06 - 27.50 93.56 24.47 1/ (69.09) 1983 34.81 - 28.00 62.81 14.69 (48.12) 1984 7.24 - 29.50 36.74 28.87 (7.87) 1985 9.95 - 30.00 39.95 28.87 (11.08) 1986 6.84 - 30.00 36.84 28.87 (7.97) 1987 8.66 6,000 36.50 45.16 84.60 39.44 1988 8.66 7,500 45.66 54.32 105.76 51.44 1989 4.30 9,000 54.66 58.96 126.91 67.95 1990 - 10 000 57.71 57.71 141.01 83.30 2015 - 1C,000 57.71 57.71 141.01 83.30 IFR - 2.3 V From 1982 to 1986 water was distributed by trucks. ANNEX 11A 39 - Page 1 of 4 E-833/85 February 20, 1985 Spanish (Ecuador) LCP DRJB:bad EMPRESA MUNICIPAL DE AGUA POTABLE DE GUAYAQUIL Clemente Ball6n 211 Guayaquil, Ecuador September 29, 1983 Our reference: GER/004038 Mr. Rene Costa Chief, Water and Sanitation Unit Latin America and the Caribbean, Regional Office IBRD Washington, D.C. Dear Mr. Costa: As was agreed in the course of the working meetings with the World Bank mission led by Ms. Lea Yucok which visited Ecuador last February, we should now like to give a final report and wrap-up assessment of the results of Loan Agreement 1030-EC between IBRD and EMAP-G, paying particular attention to what the agency would regard as its major experiences in its role of executing agency for the project. BACKGROUND In 1973, as part of its campaign to install and expand water supply services in the city of Guayaquil and its area of influence, EMAP-G put together a series of civil works to expand those services to meet growing demand in the city of Guayaquil itself and other areas of the province in which it lies. On instructions from the Government, the Guayaquil works program included water supply projects for the Santa Elena Peninsula and Playas and the Daule municipality. EMAP-G lodged a loan application with IBRD, which, after the customary World Bank missions to analyze and evaluate EMAP-G's technical, financial and administrative capabilities, resulted in a Bank Appraisal Report in June 1974. EMAP-G was subsequently granted a loan of US$23.2 million, to be accompanied by a counterpart loan from the Government of Ecuador of S/. 424,650,000. These funds were to finance the entire program of works proposed, the total cost of which had been estimated at S/. 1,004,650,000. IBRD Loan Agreement 1030-EC was signed on July 23, 1974, with the first disbursement of proceeds taking place on March 21, 1975. ANNEX 11A - 40 - Page 2 of 4 Actual Project Costs Actual project cost, as of March 31,1983, was S/. 1,804,948,000. The local currency component of that sum amounted to S/. 1,171,082,000 and the foreign exchange component to US$25,179,000 (equivalent to S/. 633,866,000). The total cost figure was financed as follows: - IBRD Loan 1030-EC US$ 23,200,000 - Government counterpart S/. 424,650,000 - FONADE Loan of October 6, 1976 S/. 122,000,,000 - BEDE (Banco de Desarrollo del SI. 530,000,000 Ecuador) Loan Execution According to the June 1974 Appraisal Report and the terms of the Loan Agreement, project works were to be executed over a four-year period, from 1974 to 1978. However, for the reasons enumerated further on, the execution period has proved considerably longer, the expected completion date now being December 1984. Causes of ProJect Time Overrun The reasons why the project could not be completed within the time originally estimated, and which were for the most part technical, financial and managerial in nature, are discussed in detail below: - Technical Questions: At the time the Loan Agreement was signed, engineering designs in the component projects to be financed from its proceeds had not been completed, a major reason why commencement of the civil works involved had to be delayed considerably. Consultants were retained to finish the design work for the major components, namely installation of the 72-inch La Toma-Guayaquil transmission main, and redesign of the transmission main from Guayaquil to the Santa Elena Peninsula and Playas. The latter suffered a further delay owing to the fact that IBRD, on completion of the design work by the consultants, SEURECA-ACE, seeking to reduce costs by roughly S/. 100,000,000, required EMAP-G to redesign the works; the process took an additional year, although the objectives envisaged by the Bank, which would have justified the resulting time overrun proved unattainable. Over and above the difficulties with these two major component projects, neither was engineering design work on other, smaller projects that were to benefit from Bank financing completed when the Loan Agreement was signt-d. - Financial Questions: The Appraisal Report cost projections underestimated real program costs because, among other things, engineering design work was not completed at the time. The 10% inflation projected in that Report also proved to have been underestimated, the actual rate during the loan period rising as high as 25%. 4oreover, the allowance for contingencies was not large enough to cover the cost increases associated with completion of the engineering design work or other, larger unforeseens such as the general rise in prices that followed the oil embargo and the increase in oil prices, events which had their impact on the cost of all projects. ANNEX I 1A Page 3 of 4 Another big factor in program cost overruns w7t% the long delay in the availability-of Ecuadorian counterpart funds, something which brought execution of the project works to a standstill, with a consequent increase in costs. Although the counterpart loan of S/. 424,650,000 was signed on July 25, 1975, disbursement was delayed until the creation of BEDE (Banco de Desarrollo del Ecuador), which replaced the former FONADE, the State lending institution. EMAP-G was required to enter into a new loan w4'th BEDE, on terms and conditions different from those embodied in the original . 'utract. - Managerial Questions: A major cause of the program time overrun was EMAP-G's own unwieldy managerial decision process, mainly a consequence of the fact that from 1974 up to the present time the agency's higher-level policy and executive staff has been in a constant state of flux. It is undeniable that this led to the uncertainties and delays in decision-making which proved so counterproductive where this program was concerned. In conclusion, it is clear that the technical, financial and managerial difficulties underlying the program time overrun resulted in increased costs. At the moment of writing, that increase is in the vicinity of 53%, obviously of a magnitude to create serious economic and financial difficulties for EMAP-G. Goals Nevertheless, the majority of the works for expansion of water supply services to be financed in part from the proceeds of IBRD Loan 1030-EC, despite the delays enumerated above, have now been completed. Exceptions are the Santa Elena Peninsula distribution networks and remodeling of the conventional settling facilities at the La Toma water treatment plant. In both cases, there have been financial problems created by the lack of counterpart funds and technical resources, traceable in the case of remodeling of the settling facilities to certain modifications that had to be carried out following award of the works contract. Other, less important projects are now in the final stages. Major Features We would list the following as noteworthy aspects of this, EMAP-G's initial experience with a World Bank project: - IBRD's allocation of the amounts of the loan to the various categories of financeable items set out in the Loan Agreement were reviewed and updated periodically by the IBRD staff members who supervised the program. This meant that it was possible to make adjustments consistent with rising costs and the specific financial requirements in each case. - Requests for withdrawals were attended to promptly by IBRD. Payments were finally confirmed within contractual time limits. The statements of account on which monitoring of the disbursement process was based, as well as advice of balances on loan proceeds, also reached EMAP-G punctually. * -42-ANNEX 11A -42 AXM 1I Page 4 of 4 - IBRD provided valuable positive support to EMAP-G in its Implementation of certain technical, managerial and financial policies designed to increase its efficiency as an institution. Appropriate support was also provided in connection with the approval of rate schedules, in accordance with Loan Agreement provisions. - The training for EMAP-G technical personnel that was made available by IBRD through EDI was major in scope and resulted in notable achievements in the loan administration process and in improving EMAP-G's technical and managerial capabilities. EMAP-G Observations on Policies Implemented by IBRD through the Loan Approval of Loan 1030-EC while engineering design work for the majority of the component projects making up the program to be financed with loan proceeds was still incomplete resulted, as has been pointed out above, in time overruns, and as a consequence of them, in cost overruns. The Loan Agreement as signed by IBRD on July 23, 1974 made no provision for subsidiary loans or additional credit with which to complement the works initially specified in the financing program. This factor made it impossible to expedite and facilitate the completion of project works and led to EMAP-G's seeking other sources of financing in order to be able to do so - with the consequent delays and their attendant cost increases. The Loan Agreement did not make provision for a 5% withholding on contractors' invoices as an instrument of guarantee, something required by the Ecuadorian legislation on procurement. This meant that EMAP-G had to find a total of US$573,043.17 as a guarantee fund from which to pay contractors once they had met their obligations satisfactorily. Obviously, this increased the portion of project costs that had to be financed from counterpart funding. The project completion date set by IBRD was not extended, even though EMAP-G requested it. The result was that the latter was unable to use the loan balance in a more flexible manner consistent with progress with project works. Conclusions As can be inferred from the foregoing analysis of the history of the project, the general performance outcome was acceptable, since the concrete result has been an execution of major civil works program of benefit to the city of Guayaquil and its zone of influence. This is so, despite the numerous obstacles and difficulties that had to be overcome between the time the loan was first requested and the project works were substantially completed. Nevertheless, awareness in both parties to the Loan Agreement of their shortcomings and achievements in this instance make it likely that any new loan project would be implemented with less difficulty. Yours, etc. /1/ B. Neira Men6ndes Manager ANNE 11B 43 - Page 1 of 9 EMPRESA MUNICIPAL DE AGUA POTABLE DE GUAYAQUIL Clemente Ball6n 211 Guayaquil, Ecuador October 19, 1984 Mr. Guillermo Yepes Chief, Water Supply and Sewerage Division Latin American and the Caribbean Regional Office IBRD Washington, D.C. Our ref: GER.G: 084365 Dear Mr. Yepes: Further to our letter of September 29, 1983 (our ref: GER: 4038) and in response to the Bank Mission's request, we refer to the "Guidelines for Preparing Project Completion Reports" and to your telex of October 5, 1984: III. PROJECT IMPLEMENTATION There were some departures from the initial works program making up the investment plan contained in the 1973 Appraisal Report. These were decided upon in the course of project implementation and, in the main, affected plans for the improvement and expansion of distribution networks in the central districts of Urdesa, Mapasingue, Santa Ana and San Pedro, and others. For the reasons given below, there were substantial modifications in these cases. Part E(2) of the project, "Improvement and Expansion of Distribution Networks in Downtown Guayaquil," which involved a total area of 30 ha, was removed from the general works program owing to the fact that from the outset there were con;atant postponements, with resulting major interferences in sector water supplies and urban mobilization. As a result of these postponements, and owing to the impact of cost increases on other projects in progress, funds to initiate this project were not available in 1981, so that it was eliminated from the program. Part E(3), "Improvement and Expansion of Distribution Networks in Urdesa," was implemented only partially, for similar reasons. Part E(5), "Improvement and Expansion of Distribution Networks in Mapasingue, Santa Ana, San Pedro and Other Areas," was also eliminated, again for the same reasons. ?art E(4), "Improvement and Expansion of Distribution Networks in Eloy Alfar6 Durin," was executed in part only and its key goals modified, the resources in question being reallocated for both installation of networks and tapping of subterranean water sources that might be used to supply this ANNEX 11 44 - Page Of 9 district. For the latter purpose, three exploratory wells were sunk, one of which was finally equipped as a producing well, to yield 8,000 m per day, something not envisaged initially. The other projects examined in the Appraisal Report have been executed, in all respects achieving the goals set in the corresponding studies and meeting expected demand. Certain small changes were made which meant some, though not a substantial, increase in costs. From the technical standpoint, the project as implemented achieved the objectives defined in the Appraisal Report. It must be noted, however, that the change in the general program which had the greatest repercussions was the delay in execution, ascribable to the range of technical, financial ard managerial difficulties enumerated in the EMAP-G report on the lessons to be learned from execution of this project (letter GER. 4038 of September 29, 1983). At the moment of writing, all the projects listed in the Last Disbursement Schedule, forwarded to the Bank in February 1984, have been completed, with the exception of the components discussed below: Upgrading of La Toma Water Treatment Plant: Procurement Lot No. 10-79-IBRD, "Remodeling of Settling Facilities at La Toma Water Treatment Plant" This project is at a standstill. After the original contract had been signed and a start made with the importation of necessary equipment, the designs were modified, for sound reasons. This led to drafting of a supplementary contract, which, because of legal cosiderations, has not so far been signed. In any event, the modifications in question optimise and improve on the original project objectives. Water Supply to Santa Elena Peninsula and Playas: Procurement Lot No. 07-78-IBRD, "Construction of Building and Supply, Installation and Assembly of Mechanical and Electrical Equipment for-Pumping Station No. 1" This project is 97% completed. It only remains to finish calibration of the system and actually put it into operation. Engineering specifications have been strictly adhered to and the new facilities accomplish project objectives. Procurement Lot No. 11-79-IBRD, "Santa Elena Peninsula and Playas Distribution Networks" Here, 75% of equipment has been supplied and 45% of installation work is completed. At the moment, however, all work is at a standstill. Altogether, progress with this component has been irregular, owing to increases in manpower and equipment costs in Ecuador over the last three years, which combined with the fact that the contractors were unable to begin on schedule EMAP-G lacked the funds to pay their advance, as the loan which was to covdr the program counterpart funding requirement and finance this procurement lot was under consideration by the Development Bank of Ecuador at the time. Present expectations are that these works will be completed within the next ten months. On completion of this project, the original goals will have been accomplished, although with some small variations introduced for technical reasons so as to extend the service area originally targeted. -45 ANIM 11 Page 3 of 9 PROCUREMENT (1) Procurement methods (local or international public competitive bidding, other methods, effectiveness of World Bank procurement Iuidelines): cost details of each contract or procurement arrangement. In general, EMAP-G awarded contracts following local or international public bidding proceedings or private invitations to bid. Implementation of IBRD Loan 1030-EC involved the following contracts: (see Project Cost Table). (2) Types of firm which won contract awards (local, foreign, joint ventures* etc.). The types of contracts awarded were as follows: Local: Manufacture and installation of pipes. International: Manufacture of pipes, consulting services (consortium of local and international firms) for supervision of project works and preparation of a long-range water supply master plan for the city of Guayaquil up to the year 2000. An important point is that the assistance provided and final recommendations made by the World Bank in connection with the award of certain contracts ensured not only compliance with Loan Agreement conditions but also the securing of services and equipment which made it possible to improve on the original goals of the Loan. In the case of the Peninsula transmission main, however, considerable delay arose out of IBRD's recommendation that the works be redesigned, a process which took approximately a year, as indicated in our letter GER: 4038 of September 29, 1983. PERFORMANCE OF CONSULTANTS AND CONTRACTORS Successful execution of the works program described in the Appraisal Report necessitated the services of a number of engineering consulting firms as a result of express World Bank requirements: Consultant A * - EMAP-G retained this firm to design the entire package of works required by the program for expansion of water supply services. The firm completed only the engineering design documentation for Project No. 04-76-IBRD, "Supply and Installation of 1,800 mm Diameter Transmission Main" and was also partially responsible for preparations for certain other components. Its services were terminated because, in the EMAP-G's judgement they were unsatisfactory, in particular as regards the personnel detailed to the contract; certain requirements calling for prompt assignment of properly qualified personnel were not complied with, so that the project study and design process could not be kept on schedule. * The names of consultants have been deleted by OED .1 ANNEX 11B -46 Page 4 of 9 Consultant B * - In response to a World Bank request for an evaluation of the status of the project, EMAP-G issued an invitation to apply for prequalification, finally entering into a contract with this firm. Its work gave the Bank and EMAP-G a comprehensive view of the project as it stood in 1975. Consultant C*rhis consortium was retained to design the Santa Elena Peninsula and Playas s-pply system. The proposal submitted was judged satisfactory, but at the suggestion of the World Bank was altered to allow cost savings. The variant was also designed by these consultants, satisfactorily, in EMAP-G's view. Consultant D * - Studies for the upgrading of the La Toma water treatment plant were contracted to this firm. As the proposals presented were acceptable to EMAP-G, they were used as the basis for executing this program cordponent. Consultant E * - EMAP-G retained this firm to train a group of its staff in methods of monitoring volumes of water not accounted for, and to provide certain other services in the same field that would enable EMAP-G to improve distribution network efficiency. These comissions were carried out satisfactorily and led directly to the establishment of EMAP-G's unaccounted-for Water Control Unit. Consultant F * This consortium of consulting firms was retained by EMAP-G to: - draw up a water supply master plan for the city of Guayaquil and its area of influence up to the year 2000; - evaluate the bids lodged on Procurement Lots Nos. 06 and 07; - supervise construction and installation on the following component projects: No. 04-76-IBRD, "Supply and Installation of 1,800 mm (72 in.) Diameter Transmission Main"; No. 06-77-IBRD, "Installation of Transmission Main Guayaquil - Progresso - Salinas and Progresso - General Villamil (Playas) and Reservoirs"; and No. 07-78-IBRD, "Construction of Building and Supply, Installation and Assembly of Mechanical and Electrical Equipment for Pumping Station No. l." Although EMAP-G considered the master plan proposals satisfactory, it came to a number of important conclusions during the course of the design work, namely that in general there was little transfer of experience, technology and know-how from the expatriate personnel to the local personnel assigned by EMAP-G. The consultants' supervision work was regarded as satisfactory in general, although the procedures and techniques used for systematic supervision of the project works could have been better. Again also, there was little transfer of technology. The consultants' work in evaluating bids was, however, less than satisfactory, in the sense that their reports were not substantial enough and * The names of consultants have been deleted by OED. ANNEX 11B Page 5 of 9 had to be expanded on more than one occasion to incorporate suggestions and observations of a basic nature put forward by EMAP-G. Once again, there was evidence of poor evaluation methods and insufficient experience among the personnel responsible for this work. In conclusion, on the subject of the experience this project provided of expatriate consulting services, the following shortcomings may be noted: - Little transfer of technology to counterpart staff. - A certain proportion of consulting staff were not sufficiently well qualified. - In cases where consultants provided advice in other languages, there was a fundamental lack of communication in the problem evaluation process. Moreover, consulting firms based in certain other countries tended to use highly sophisticated technical methods of problem solving, methods not wholly appropriate for Ecuador, where the simplest possible solutions are to be preferred - specifically, ones which require less use of equipment and materials, the items that throw an undue cost burden on the country. - The high salaries (normally in dollars) paid to foreign consulting personnel were a major item in EMAP-G's finances, besides giving rise to internal discrepancies, as the remuneration of counterpart personnel was substantially lower. IV. OPERATING PERFORMANCE Discussion of the degree to which the improvements in operating performance targeted by the Loan were achieved: (Refer to observations by Finance Department.) V. FINANCIAL PERFORMANCE Est. Actual Est. Actual Est. Actual Est. Actual (A) Operating Revenue 125.9 116.7 215.3 152.3 294.3 306.5 411.1 367 Operating Cost 84.8 84.2 100.3 111.0 119.3 131.7 142.7 232 Depreciation 25.9 1.6 47.3 23.7 70.8 24.9 93.3 26 Operating Profit 15.2 31.0 67.7 17.6 104.2 149.9 175.2 108 Operating Ratio 67.3 72.1 46.6 72.9 40.5 43.0 34.7 63 (B) Discussion of compliance with Loan Agreement financial covenants. Article V of the Agreement sets out the financial covenants applying to loan implementation. In general, EMAP-G complied with the stipulations made in this Article, although attention is called to the circumstances which had an impact on the following facets of the execution process: ANNEX 11B -48 - Page 6 of 9 Section 5.02 of the Agreement requires that EMAP-G's accounts and financial statements for each fiscal year be audited independently. This documentation was invariably submitted to the World Bank outside the time limit stipulated, owing to the fact that EMAP-G is unable to contract directly for the services of independent auditors without author4zation from the Government Audit Office. Section 5.04 stipulates that EMAP-G shall not incur any additional debt without World Bank approval. EMAP-G has committed its funds to capacity limit only, solely for the purpose of obtaining loans with which to ensure completion of project works financed from the proceeds of the World Bank loan. Specifically, the following domestic loans were raised with World Bank approval: Loan Date SI. 424,650,000 March 12, 1980 S/. 122,000,000 October 14, 1976 S/. 530,000,000 April 18, 1982 Section 5.05 of the Loan Agreement requizes EMAP-G to review its rate schedule for all water supply services annually. As a public institution, EMAP-G is also subject to the regulations applying to government agencies, the procedure being as follows: EMAP-G management proposes a rate increase, which is then passed up for consideration by the Board of Directors before being forwarded to IEOS, the Ministry of Finance and the National Development Council for approval; lastly, it is sent to the Ministry of the Interior for final implementation. During the loan execution period, EMAP-G was able to review its rate schedule on only two occasions: April 24, 1981 October 11, 1984 (See Rate Table) Section 5.08 of the Loan Agreement requires EMAP-G to increase its revenue effectiveness index as follows: LOAN AGREEMENT ACTUAL 1976 66% 26.7% 1978 75% 39.0% 1980 76% 53.0% The ratio in question here is primarily a reflection of the high percentage of water not billed but recorded for the periods indicated. Various factors of a technical and social nature are in play here. Firstly: defective meters, both household and industrial; unaccounted for usage in industry, and illegal connections by some companies; clandestine connections; eti. In addition, such official institutions as the university, Interior, Municipalities, etc. consume a substantial part of the volume produced. In squatter settlements, there are also numerous clandestine connections, which cannot be detected because of the location of the inhabitants of these areas. Notwithstanding, by instituting a plan of 49 - ANNEl 115 Page 7 of 9 detection and preparation and also by the installation of meters, EMAP-G has endeavored to reduce the percentage of unaccounted-for water, although the results of the campaign have not yet matched the goals set in the. Loan Agreement. (C) Discussion of the Financing Plan contained in the Appraisal Report: Were funds made available by the various sources as and when necesary? If not, why not? The availability of funds as provided for at the moment of signature of the Loan Agreemeut with the World Bank deviated significantly from the original Plan and caused delays in the execution of major segments of the program. The loan from the Ecuadorian Government, except for a S/. 23 million advance in July 1975, was not implemented as agreed by the authorities. EMAP-G therefore had to resort to the State financial institutions, obtaining a loan for S/. 122 million in October 1976, a sum clearly not large enourh to fund the continuation of project works. After a considerable time spent in approaches to the Government, the agency finally managed to borrow from FONADE, signing a new loan for S/. 424,650,000. Full execution of the project required an additional sum of S/. 530 million, a loan for that amount being negotiated with BEDE, the entity which replaced FONADE. This loan was signed on April 18, 1982. The above details explain not only the delays in execution of the program works but also their high final cost. VI. INSTITUTIONAL PERFORMANCE AND DEVELOPMENT (a) A discussion of the borrowers institutional development during the course of program execution (organizational change and improvements in accounting, billing and collections, personnel management, training, etc.): In the last two years, the Board of Directors has been stable. In addition, the present Manager has been in office without interruption since August 1981. Changes amon, Board Members and in management have therefore been less frequent than in other periods. EMAP-G has in fact begun implementing a new organizational structure designed around those Departments: General Management, Technical Management, and Administrative-Financial Management, an arrangement expected to optimize the administrative and technical functions so as to ensure improved performance. An evaluation of the new structure will be found in the annexed copy of communication 0&M 091 of October 19, 1984. EMAP-G management/staff relationships are satisfactory, the ninth collective agreement between the agency and its personnel having been signed recently and effective through December 31. 1985. On May 8, 1981, the World Bank made a series of suggestions to EMAP-G for its administrative development and for the introduction of policies and strategies that would lead to improved management output. ANNEX 118 -50 - Page 8 of 9 Subsequently, BEDE included in its agreement to lend EMAP-G S/. 530 million a clause specifying management goals for the agency similar in. purpose to those proposed by the World Bank; they are designed to emphasize management performance in respect of accounts receivable, water unaccounted for and the ratio between numbers of staff and numbers of connections. The following table is of interest here: IBRD Actual IBRD Actual suggestions performance suggestions performance ITEM June 1981 June 1981 Sept. 1981 Sept. 1981 Dec. 1983 Accounts goal set goal set receivable 4 5.2 3 4.3 5 Percentage of water unaccounted for 45% 57 40% 62 52.28 Staff/connections ratio 11.7 10 11.4** 9.5 ** Since data was not available for September 1981, this figure covers the period to July 1981. The table demonstrates the degree to which the management indicators fluctuate. Their value approximates the goals set by the World Bank in its telex of 1981, with the exception of the percentage of water unaccounted for, which, despite an increase in 1981 to 62 (compared to 57% in June that year), fell in December 1983 to 52%. i The ratio between number of connections and number of staff did not reach the goal set either, despite freezing of recruitment at the 1981 level and massive connection of household meters, although the latter program actually cut the ratio to 9.5 as of December 1983 by comparison with the September 1981 figure of 11.4. As far as the accounts receivable index is concerned, EMAP-G has been taking stringent steps to compel users to attend to their payment obligations. These measures consist of: notification of suspension of service, immediate action after 48 hours if the user fails to respond to the notification, and, recently, publication of the names of defaulting users (a group which includes business firms and industries) who have had service suspended and legal action for enforcement taken against them. Although these measures have brought no significant reduction in overdue accounts, they are having some impact on users. At the same time, EMAP-G is taking steps to monitor the condition of meters and carrying out periodic inspections, particularly among commercial -51- ANNEX,113 Page 9 of 9 and industrial customers. These moves help keep metering compatible with consumption. (b) Evaluation of the dearee to which institution building objectives were achieved. (Refer to comenaication O&M 091 of October 19, 1984.) VII. JUSTIFICATION OF PROJECTS How appropriate were the technical solutions selected during project execution? As indicated in the comments on project implementation, the technical solutions chosen for each component have, in the opinion of EMAP-G, proved satisfactory, since the objectives targeted were achieved. There were no significant deviations in the case of the largest and most complex projects, namely: Procurement Lot No. 04-76-IBRD, "Supply and Installation of 1,800 m (72-in.) Diameter Transmission Main"; Procurement Lot No. 06-77-IBRD, "Installation of Transmission Main Guayaquil-Progreso-Salinas and Progreso-General Villamil (Playas) and Reservoirs"; and Procurement Lot No. 07-78-IBRD, "Construction of Building and Supply, Installation and Assembly of Mechanical and Electrical Equipment for Pumping Station No. 1." Since these segments of the program went into operation, output has been satisfactory and, in some instances (Procurement Lot No. 04-76-IBRD, for example) higher than expected. It may therefore be said that the engineering design solutions developed jointly by the foreign consultants retained and EMAP-G staff have proved adequate and made a reality of the agency's goals in this sphere. We trust that the foregoing completes the information you requested. Yours, etc. Is/......... Perez Vergara General Manager LOLITA WATER TREATMENT PLANT /yt No. 2 AND AREA SERVED E C U A/ O R Yauoch< DAULE Milogro A V?h CNGUX$ 4uAnY~'- - Ncronjto CAGvE Y ULUT Jstondr ~co DOAUL' Suface w~ter sourcs Y SANTA G A _A S-- 0 5 15 KUMCY5 LEA G zetronss,on fnaELENA Y AR -2V transmission main _ _ _ 7 L.-- PROOSED PROECTYWORI of ~~'~ ECUADOR WATER SUPPLY PROJECT FOR GUAYAQUIL AND GUAYAS PROVINCE Empresa de Aguc Potabie de Guayaquil PROPOSED PROJECT WORKS 0 Transmission moins p ECtension, improvements, or installation of distribution network LA T A T ®l Reservoirs [f] Pumping stations WATER WORKS IN CONSTRUCTION OR UNDER CONTRACT (1972-1975) -2. Transmission moins 27 Distribution network 191 Reservoir EXISTING WATER WORKS Transmission mins Distribution network f Reservoirs C Pumping Stations Water treatment plants - Townsj - Main roods 0 1 2 3 4 5 6 7 8 Rivers KILOMETERS - Hills MILES 不：