India - Second Madras Urban Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 8688 PROJECT COMPLETION REPORT INDIA MADRAS URBAN DEVELOPMENT PROJECT II (CREDIT 1082-IN) MAY 23, 1990 Population, Human Resources, Urban and Water Operations Division Asia Country Department IV This document has a restricted distribution and may be used by recipients only in the performance of tOir offical duties. Its contents may not otherwise be disclosed without World Bank authorization.  GLOSSARY OF ABBREVIATIONS DHRW - Department of Highways and Rural Works DOH - Department of Health DSW - Department of Social Welfare GTN - Goverrnent of Tamil Nadu IRR - Inner Rural Road Metrowater - Madras Metropolitan Water Supply and Sanitation Board MMA - Madras Metropolitan Area MMC (or MC) - Madras Municipal Corporation (or Madras Corporation) MMDA - Madras Metropolitan Development Authority MUDP I - First Madras Urban Development Project MUDP II - Second Madras Urban Development Project PC - Public Convenience PTC - Pallavan Transport Company PWD - Public Works Department SIDCO - Small Industries Development Corporation TIIC - Tamil Nadu Industrial Investment Corporation TNHB - Tamil Nadu Housing Board TNSCB - Tamil Nadu Slum Clearance Board TNUDP - Tamil Nadu Urban Development Project  FOR OFRICLAL USE ONLY THE WORLD BANK Washington, O.C 20433 USA Ofike df ODrfcttw-Cewia Opmatnf I{vatuan May 23, 1990 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIQENT SUBJECT: Project Completion Report on India - Madras Urban Develonment Project II (Credit 1082-IN) Attached, for information, is a copy of a report entitled "Project Completion Report on India - Madras Urban Development Project II (Credit 1082-IN)" prepared by the Asia Regional Office with Part II of the report contributed by the Borrower. No audit of this project has been made by the Operations Evaluation Department at this time. 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.  TOR OFFCIAL USE ONLI MADRAS_ URBAN DPEMVELOMENT PROECT (CREDIT 1082-INS PROJECT COMPLETION REPORT TABLE OF QONTENTS Page No. Preface . ............................................................ i Evaluation Su zry ................. ......... *.........** . .......*.....*....*.*...*..* . i PART I PROJECT REVIEW FROM BANK'S PERSPECTIVE Project Identity .................................................. 1 Background ....................................... .... 1 Project Objectives and Description ......................... 2 Project Design and Organization ........................... 3 Project Preparation .............. ..... * *.............. ........ 6 Project Implementation ........ ..................* ......... 7 Project Results ................................................... 12 Project Impacts ................................................... 18 Project Sustainability and Rates of Return ................ 19 Bank Performance . ......................................... 20 Borrower Performance *..*..*...*t.......................... 20 IDA/Borrower Relationship .......... ............ ............. 21 Consulting Services .. . . ......................... . 21 Contractors .. ................. . .. ..................... 22 Project Documentation and Data ............................ 22 Evaluation Summary and Lessons of Experience ............ . 22 PART II PROJECT REVIEW PROM BORROVER'S PERSPECTIVE Borrower's Perspective of the Design and Implementation and its Development Impact on the Project ................. 25 PART III STATISTICAL INFORMATION Related Bank Loans and/or Credits ......................... 44 Project Timetable . ................ ........................ 44 Disbursements ...................................... 45 Project Implementation ......................... 46 Project Costs and Financing ............................... 47 Status of Covenants .................................... . 48 Use of Bank Resources ............ *.#...... .. . ...... 50 This document has a restrted distdbution and may be used by recipients only In the performance -of their official duties Its contents may not othenise be disclosed without World Bank authorization.  INDIA MADRAS URBAN DEVELOPMENT PROJECT II (CREDIT 1082-IN) PROJECT COMPLETION REPORT PREFACE This is the Project Completion Report (PCR) for the Second Urban Development Project in Madras, for which Credit 1082-IN in the amount of US$42.0 million was approved on December 16, 1990. The Credit was closed on March 31, 1988, two years behind schedule. It was fully disbursed and the last disbursement was on October 3, 1988. The PCR was jointly prepared by the Population, Human Resources, Urban and Water Operations Division, India Department of the Asia Regional Office (Preface, Evaluation Summary, Parts I and III) and the Borrower, (Part II). This PCR is based, inter alia, on the Staff Appraisal Report; the Credit and Project Agreements; supervision reports; correspondence between the Bank and the Borrower; and internal Bank memoranda.  ii IMDI INDJ MADRAS URBAN DEVELOPMENT PROJECT II (CREDIT 1082-IN} PROJECT COMPLETION REPORT EVALUATION SUMMARY Objectives i. The objectives (para. 7) of the Second Madras Urban Development Project (MUDP II) were: (i) to further develop and expand low cost solutions to urban problems in Madras, initiated under the first Madras Urban Development Project, particularly in the shelter sector; (ii) to support the re-orientation of shelter and infrastructure investments and programs in the Madras Metropolitan Area to be more responsive to the needs of the urban poor; (iii) to expand the capacity of the institutions providing shelter, infrastructure and transport; (iv) to ensure replicability of project approaches by continuing full cost recovery in slum improvement and other sectors; (v) to support more effective metropolitan planning and capital programming and budgeting. Implementation Exoerience ii. The project was to be completed in about 5 years. However, the project had to be extended for two one-year periods and actually took closer to 8 years to implement (paras. 25-28). The execution of the project was delayed by difficulty in acquiring land for sites and services and slowness in the output of public sector plots for the sites and services scheme. It also took longer than planned to acquire land for the Ring Road, the construction of which was also not well-managed. Difficulty in removing squatters delayed the execution of the storm drainage component of the project. The experience with procurement under the project was mixed. There were considerable delays early in the project due to a lack of attention to procurement during preparation and Borrower weakness in handling procurement efficiently. However, procurersnt efforts improved over time. Total project cost was 192 more thar the Rs 73.9 crores projected by the SAR. However, the physical programs for sites and services, slum improvement, and bus services were respectively 22X, 20X, and 55X larger than anticipated at the time of appraisal (para. 39). There was an almost three year gap in disbursements compared to appraisal. forecasts. This stemmed from the delays noted above and the suspension of disbursements against the bus component when the Pallavan Transport Company was unable to meet its financial obligations under the project (para. 40). Implementation was characterized throughout by a management team which was quite continuous, committed to the Project, and which collaborated well with the Bank Group. iii. On the whole, the project achieved its physical and financial objectives, but at only about half the pace anticipated in ths SAR. About 18,300 plots for sites and services were completed, compared to 15,000 planned and the demand for them has been about 10 times the number of plots marketed (para 43). About 60,000 households benefited from slum improvement, compared to 50,000  iii planned and the number of areas effected also exceeded plans (para. 52). The bus company procured 885 buses, while only 550 were planned. The bus company also efficiently implemented the terminals and depots elements of its component (para. ;2). The small scale business sheds and machinery loans component was not successful in meeting its aims. The storm drains component was still incomplete at the beginning of 1989 and some of the drains were already functioning inefficiently due to lack of maintenance (paras. 63-65). The project appears to have had much less impact on municipal maintenance and services than planned. iv. Several other positive outcomes of the project (paras. 78-82), however, are also of note: Sectoral Rolicy. The Project had a major positive impact on attitudes to sites and services and slum improvement, confirming that the approach could be successfully used to tackle the shelter problem. The project success in the public sector also opened the way for experiments in private sites and services which were incorporated as a Guided Development component in the later Tamil Nadu Urban Development Project. Human resources develogment. Over the course of the project, a core of seasoned and e-perienced staff were developed in the implementing agencies. As a result, there is sufficient critical mass to provide a basis for the subsequent state-wide project now being implemented. Physical environment. The project improved the overall environment in sites and services and slum areas and established that sites and services were not 'planned slums" as had been argued a decade earlier. Poverty and income distribution. A major objective of the shelter program was achieved: more than 70X of the beneficiaries of the shelter program are in the income group at or below the poverty level. Some selling out to higher iucome groups and infiltration of higher income groups into the plots reserved for lower income groups has occurred. On the whole, however, the physical design and location planning approaches of the project seemed to have worked effectively. Most project beneficiaries experienced substantial increases in their real income and wealth as is evident from the amount of investment that took place in project areas and the prices quoted for plots in scheme areas. Institutions. Although some of the project agencies proved stubbornly resistant to improvement, others steadily improved and reached levels of performance toward the end of MUDP II which sharply and positively contrasted with their performance at the outset. Rates of Return and Sustainability v. The economic rates of return on the sites and services and slum improvement components were easily achieved, since unit costs of investment in these components were not much greater, or less than forecast, while market rents for serviced land in these components grew at a proportionately greater rate than costs in a sellers' scarcity market. Reflecting the shortage of affordable serviced land in Madras, a rate of return in sites and services of more than 15X per year is likely to be maintained (para. 83). The growth in vehicular traffic  iv is generally greater than the growth in population on main arteries such as the MUDP II Inner Ring Road and the improved Madras-Tiruvellore High Road. Traffic growth is greater than earlier projections on sections of the Ring Road built under the first proiect and road capacity is being expanded under the Tamil Nadu Urban Development Project. It may be expected that the same trend will be followed on the MUDP II roads and the economic rate of return on these roads is likely to be maintained (para. 94X. Recent projections for the bus component in the Tamil Nadu Urban Development Project indicate that rates of return projected under MUDP II are being realized. Staffing and wage issues, however, continue to pose long-run risks to the bus company (paras. 85-87). Lessons Learned vi. The project demonstrated a number of key lessons (para. 101): Bus Fare Revisions. In retrospect, IDA might have focused more attention upon improvements in the process for the revision of fares. The existing process concentrated fare revision decisions with the state government a.d a Transport Commission, neither of which had adequate technical support for weighing the issues. In fact, in the final stage of MUDP II, the state government created a Bus Expert Fare Committee. However, it has only advisory powers and lacks statutory authority. As yet, therefore, the fare revision process has not been rationalized and improved. Public Shelter Programs. It is clear that the whole effort of public shelter agencies must be directed towards meeting massive city shelter needs with the limited resources available. Future projects implemented by a public agency should not contain a Bank-funded component with acceptable objectives, while contrary objectives are being pursued by the agency with its own funds. Private Shelter SUDPl1. It is also evident the public sector by itself cannot meet the shelter needs of the whole population in fast-growing cities. Constraints on management capacity, financial resources and land availability dictate that the private sector must be enlisted in the interests of enhancing the supply of affordable service land, particularly to lower income groups and possibly through programs such as the Guided Development approach of the Tamil Nadu Urban Development Project. Municival Maintenance and Services. Municipalities own, operate and maintain many of the facilities provided in shelter schemes. Long run 4nvironmental improvements in shelter schemes depend on their capability. Future projects should address the whole system of municipal administration and finance in a State and avoid piecemeal financing of projects in individual municipalities. Performance Monitoring. Experience has shown that project performance monitoring and implementation can be strengthened and made more efficient by closer programming of the financial and operating programs of implementing agencies.  MADRAS URBAN DEVELOPMENT PROJECT II (CREDIT 1082-IN) PROJECT COMPLETION REPORT PART I. BANK PERSPECTIVE Project Identity Project Name t Madras Urban Development Project II (HUDP IT) Credit No. i 1082 - IN RVP Unit : Asia Country s India Sector X Urban Development Sub-sector t Shelter, including sites and services and slum improvement; Urban roads and bus transport; Municipal solid waste and maintenance services. Background 1. In 1980, Tamil Nadu was one of India's most densely-populated, urbanized and industrialized states. Thirty two percent of the population lived in urban areas, of which one-third were in Madras. The state's per capita income was among the lowest in India and 59S of the rural population were estimated to be below the absolute poverty line in the 19709. Rural income inequalities, stagnating rural incomes and a high rate of growth in largely urban-based manufacturing and service sectors lead to high rates of increases in the state's urban population. 2. The Madras Metropolitan Area, with a 1979 population of about 4.8 million, grew at a rate of SS/yr up to 1971. At the time MUDP II was developed, Madras was the fourth biggest and the fastest growing Indian metropolitan area. It was also the trade, commercial and industrial center of Tamil Nadu and of South India. Investment in public services had failed to keep pace with population growth of about 200,000 people per year. 3. Madras suffered serious service deficiencies, particularly in water supply and shelter. A growing proportion of the population (about 25Z) lived in poorly-serviced, or un-serviced slum hutment areas. At least another 25-352 of the population lived in older slums of the city or in un-authorized poorly-serviced settlements. Madras had one of the poorest water supply and sanitation systems of any major urban area. Municipal services were week, under-financed and poorly managed. For transport, most people relied on the public bus service operated by the Pallavan Transport Corporation (PTC), a relatively efficient organization, which nonetheless provided only a spartan service on over-crowded buses for lack of adequate financial resources and policy support. 4. A substantial proportion of the legal supply of serviced land and housing was provided by a state agency, the Tamil Nadu Housing Board (TNBB).  - 2 - Except for the modest sites and services program supported by IDA under the first Madras Urban Development Project (MUDP I). its program was concentrated in high cost units affordable only to higher income groups. This was also true for the few units supplied by the private sector. Under MUDP I, the Tamil Nadu Slum Clearance Board (TNSCB) programs had been substantially re-oriented towards in-situ slum improvement with the provision of tenure. Nonetheless, the legal supply of shelter by the public and private sectors continued to meet less than 50Z of the need, resulting in continued growth. of slums of one kind or another. 5. The Government of Tamil Nadu (GTN) created the Madras Metropolitan Development Authority (MMDA) in 1972 to coordinate the provision of services by local and state agencies within Madras. However, it tended to concentrate its efforts on physical planning and land use control, not on investment programming and development planning. 6. In Madras, the Bank Group had supported two projects prior to MUDP II: a loan in 1958 for the development of the Port of Madras and a credit in 1977 for the first Madras Urban Development Project (MUDP I). MUDP I succeeded in initiating the implementation of replicable low-cost solutions to Madras' shelter and infrastructure problems and sought but did not succeed in strengthening metropolitan area investment planning and financial management using MMDA as the vehicle. MUDP I was essentially a single-city demonstration project for new urban management initiatives. Project Objectives and Description 7. The objectives of MUDP II were: (i) to further develop and expand low cost solutions to urban problems in Madras, initiated under MUDP I, particularly in the shelter sector; (ii) to support the re-orientation of shelter and infrastructure investments and programs in the Madras Metropolitan Area to be more responsive to the needs of the urban poor; (iii) to expand the capacity of the institutions providing shelter, infrastructure and transport; (iv) to ensure repli-ability of project approaches by continuing full cost recovery in sites and services and further increasing cost recovery in slum improvement and other sectors; (v) to support more effective metr"politan planning and capital programming and budgeting. 8. Project components were: (a) Sites and Services. Cons-ruction of serviced residential plots, core housing and community facilities and provision of building loans for about 15,000 primarily low income households, and serviced land, sheds and machinery loans for industrial and commercial uses, at 2 sites covering about 180 ha. (b) Slum Improvement. Improvement of on and off-site infrastructure, provision of land tenure and community facilities for 50,000 slum households, plus home improvement loans for about 15,000 MUDP I and 38,000 MUDP II households. Also, construction of about 12,750 meters  -3- of 5 arterial storm dr&ins and construction, repairs and de-silting of feeder storm drains to benefit about 19,000 households. (c) Transport. Provision of about 550 buses and depot and terminal improvements for Pallavan Transport Corporation (PTC); construction of 6 kilometers of the Inner Ring Road (IRR) and improvements to 14 kilometers of the Madras-Tiruvellor Road. (d) Solid Waste Management and Maintenance of Municipal Services. Provision of civil works and equipmcnt and consultancy services, for the Madras Municipal Corporation (MMC) to improve its solid waste management and maintenance of municipal services. (e) Technical Assistance and Training. These were provided to the Madras Metropolitan Development Authority (MMDA). PTC, the Small Industry Development Corporation (SIDCO) and MMC for special studies to identify priorities and prepare programs for medium and long term in-vestments and for in4titutional strengthening and training. particularly for MMDA. Project Design and Organization 9. MUDP II had its antecedents firmly in the positive lessons and negative experiences of MUDP I. It also aimed to increase the scale and scope of the shelter program supported by the first project. Whereas MUDP I had focused on supply increases in IDA-funded projects, MUDP II placed the IDA schemes in the framework of the shelter problems and needs and programs for Madras as a whole. During the preparation and negotiation of MUDP II, IDA and GTN agreed to act on major weak points revealed during implementation of the MUDP I project. Chief among these were: (a) Land Acquisition. It had been wrongly believed in MUDP I that public land could be quickly transferred to the Tamil Nadu Housing Board for sites and services. It took several years to effect the transfer and delayed project implementation on these sites. Acquisition of private land for the Inner Ring Road was started late, took 3 times longer than the Staff Appraisal Report (SAR) schedule and was particularly delayed when squatters or buildings were involved. Having this experience in mind, the appraisal team insisted as a condition of negotiations that land required for MUDP II sites and services be in the Housing Board's possession. (b) Tenure for Slum Improvement Beneficiaries. MUDP I provided for beneficiaries of slum improvement to be provided with secure tenure. However, by the time MUDP II was approaching appraisal, few tenure agre-.ents had been made and plot charges could not be collected. On Ir,s insistence, several thousand Lease-cum-sale tenure agreements with MUDP I beneficiaries were completed prior to negotiations and the collections of plot charges was begun.  -4- (e) Fare Revisions. It was apparent as the appraisal of MUDP II approached, that a substantial increase in fares--long delayed by GTN--was needed to meet the financial oblectives of the bus company under MUDP II. As a condition of negotia_ions for MUDP IT, the state government revised fares by 252 just prior to negotiations. Nonetheless, fare revisions soon proved to be the rock on which MUDP 11 foundered during implementation. (d) Improvements in Municipal Finance and Services. The Madras Metropolitan Corporation refused to take over completed MUDP I sites and services and slum Improvement areas for maintenance and services, pleading lack of funds and claiming MUDP I infrastructure was 'sub-standard'. The drawbacks of treatinb IDA-funded projects as aspecial cases, which did not adhere to state and municipal planning and building regulations began to emerge. Treating the maintenance and services problem as a revenue, noL a municipal planning and building regulations problem, and being pessimistic about property tax revenue increases, GTN implemented an urban surcharge on the state sales tax. It promised to provide a substantial and buoyant source of additional funds for the Municipal Corporation and GTN also agreed at negotiations to increase the Municipal Corporation's revenues and improve financial management (SAR page 40). se) Focus on Expanding Serviced Land SuPply through Public Sector. During MUDP X, the Tamil Nadu Housing Board continued to spend about 702 of its funds on a relatively small number of high cost units for higher income groups and the deficits in the supply of affordable shelter for lower income groups accumulated. During MUDP II negotiations, agreements were reached that the Housing Board's non-IDA funded program would be modeled on the IDA-funded approach. However, these agreements were less forceful than the provisions sought by the appraisal mission. Also it was agreed that the Tamil Nadu Slum Clearance Board (TNSCB) would limit its programs for slum clearance and re-housing in multi-story units to Rs 3.75 crorealyr as in MUDP I. 10. Innovations. Many of what had been important and contentious innovations in MUDP I had become accepted by the time of appraisal of MUDP II, and were re-incorporated in it. Examples of tested innovations weres (a) IDA and GTN agreed on full cost recovery and no overall and/or interest subsidy in sites and services, slum improvement or bus operations. (b) Affordable planning and engineering standards, based on performance requirements and costing less than normally-applicable municipal standards, were accepted, although only for public sector schemes (o) Differential pricing of plots for various income groups was accepted. It was also agreed that large proportions of low income  -5- beneficiaries could be accommodated in the MUDP low-rise, high density mixed income and mixed use layouts which were more suitable to incremental expansion and improvement than multi-storey accommodations favored by the Housing Board. (d) It was agreed that long-term tenure would be provided to squatter households in slum bmprovement neighborhoods. 11. MUDP 1I also included some new innovations: (a) A city strategy approach was introduced, which placed the supply of shelter under the project in the context of the total supply from all sources and its relations to shelter needs. (b) Grants and loans for Home Improvement, not provided in MUDP I, were introduced for Slum Improvement Program beneficiaries of NUDP I and II. (c) Medicare centers, run by non-governmental organizations, were funded in sites and services and slum improvement schemes. 4d) A substantial storm drain component was included to complement sites and services and slum improvement investments, as part of the system of shelter environmental improvements. (e) Slums on private land were also to be improved. They were a large proportion of the unserviced slums in Madras and were in the vorst environmental condition, because unlike some slums on public land, they had not benefited from any other earlier non-IDA improvement programs. Despite the SAR intention, specific agreements on private slum improvement were not obtained at negotiations. (fl In the final year of MUDP II, MMDA introduced semi-private courtyards within clusters of small low income plots. This significant design change became the standard pattern in the Tamil Nadu Urban Project. 12. Conceptual Foundation. The understanding of the conceptual foundations of project components at the time of appraisal was generally good at all levels. However, GTM may not had adequate confidence in the need of pursuing the city shelter strategy or the strengthened city planning, coordination and performance evaluation role which the project envisaged for the Development Authority. 13. The higher level of the administration, in the Development Authority and the key state government departments (Housing and Urban Development, Municipal Administration and Water Supply, and Transport) understood the project component concepts well at the time of appraisal. While civil service administrative practices did not provide for the same management and ideological continuity as did the technical posts, this was counter-balanced  -6- by the continuity of technical staff in the implementation agencies and the Development Authority. Project Preparation 14. The bulk of project preparation was done by the implementing agencies, which interacted with Bank preparation missions, chiefly on questions of objectives. 15. Sites and Services. All of the 15,000 MWDP sites and sert.ces plots were to be developed on two relatively large sites. As in HUDP I, the Development Authority prepared layouts and in consultation with the Housing Board, determined plot prices. Preliminary engineering designs and cost estimates for these were prepared for appraisal by the Housing Board, the sites and services implementing agency. The Housing Board and the Development Authority essentially repeated the processes with which they had experience on over 10,000 plots developed under MUDP I. 16. Special attention was paid by preparation and appraisal missions to the acquisition of land from private owners of these 2 sites. Prior to negotiations IDA insisted on both sites being fully acquired by the Housing Board as a condition of negotiation. It then relented and negotiated on the basis that it was sufficient for acquisition to have reached the final stage just beforf nanding over. This lead to trouble later. 17. Slum Improvement. The Slum Clearance Board identified specific slums for the first year program under the MUDP II Slum Improvement Program and prepared final designs, costs and layouts for prototype neighborhoods, following the program lending approach to the Slum Improvement Program which had worked relatively well in MUDP I. Physical improvements were to be on the relatively successful model of MUDP I. l8. The Slum Improvement Program implementation plan aimed to use the MUDP I experience to improve the component's policy thrust by expanding the program to 50,000 households. To avoid MUDP I problems created by implementing civil works before completing tenure agreements, the MUDP II implementation activity schedule provided that signing of Lease-cum-sale agreement by more than 70% of households in a neighborhood should precede the start of civil works in a neighborhood. 19. In order to strengthen community development work on which the participation of slum households in the Slum Improvement Program and its cost recovery programs depended, the community development group which had been attached to the Metropolitan Development Authority and working with the Slum Clearance Board, was transferred to the Slum Clearance Board. 20. PTC. At appraisal, about a 25% increase on the existing level of fares was projected to be needed to meet the bus company's financial and operating objectives. Fare revision was made a condition of negotiations which the state government met. However, during negotiations, without informing IDA, the state government rescinded 502 of the increase. The bus  -7- company's cash generation subsequently fell much below the SAR projections. As project implementation proceeded, this became the problem which eventually led to a one year suspension of disbursements on MUDP II starting in June 1984. 21. In other components, objectives familiar to the implementing agencies from MUDP I as mentioned above were re-asserted. These included: (a) minimizing costs by constructing projects in phases - such as the Inner Ring Road - and maximizing the capacity of existing facilities wherever possible through management measures, as in the case of the Madras-Tiruvellor High Road scheme; (b) using design standards closely fitted to actual project performance requirements; (c) paying close attention to all users needs and particularly low income groups and designing roads for the movement of people rather than vehicles; and (d) identifying final beneficiaries, particularly to cater to low income needs. 22. Project Timing. The preparation and appraisal of MUDP II occurred at a time when in India there was a strong perception that slum inhabitants were becoming a majority of the city population. At the time too, ther2 was a growing perception that the old approaches - of bull-dozing slums and re-housing oustees in subsidized rental apartments - were un-workable. There was a good opening for the alternative in-situ improvement approach which IDA favored. The importance of providing tenure to families in improved slums also was starting to be recognized. The timing of MUDP II was therefore propitious. 23. Because the project implementation agencies for MUDP II were essentially the same as in MUDP I, the agencies understood their functions and responsibilities relatively well and were sufficiently committed to project objectives, even though agencies internal interests sometimes conflicted with Bank-funded approaches. Project Implementation 24. Overall Implementation. Viewed from the perspective of the project objectives described in paragraph 7, the sites and services and slum improvement and even the roads and bus component have to be considered successful - despite delays in implementation and other problems mentioned below. In Madras, the Government of Tamil Nadu was the first state to implement a full cycle of a large program of low-cost, unsubsidized shelter schemes, responsive to the needs of the poor ano minimum-cost traffic and transport schemes which focused on moving people rather than vehicles in a system providing priority to public transport.  -8- 25. Implementation Delays. The project Was to be completed in 4.5 years, but had to be extended twice for a total of 2 years beyond the original closing date. The physical completion took three years longer than the SAR estimated. After effectiveness, which was four months after Board approval project implementation took off briskly using on the land initially available for sites and services and on the financial capacity thought to be available for bus procurement. Expenditures followed the SAR forecast with only a six- month lag for the first two years. 26. However, the acquisition of the remaining land for sites and services took several years longer than expected and more than 50S of the component was eventually implemented on satisfactory sites (at Manali, Madurvoyal and Mogapper West) that were agreed by IDA during implementation, but not identified at appraisal. Had IDA insisted on a substantial proportion of the land required for the sites and services component being acquired by the Housing Board prior to negotiations (as it did for TNUDP), possibly some of the implementation delay might have been reduced. 27. The anticipated annual output of public sector plots and settlement on them harlly reached one-half of the SAR schedule until the upsurge at the end of MUDP II. While the main project implementing agency, the Housing Board, steadily improved its construction and estates transactions management, it still could not normally adhere to schedules anticipated in the SAR. The expected public contribution to the overall Shelter Strategy, therefore was not achieved. Possibly the Housing Board's estates transactions management and capability might have been given more attention during project preparation. Once the sluggishness of the estates management activity revealed itself, GTN vigorously identified and pursued solutions to the problem, still took more than two years before improvements were realized. 28. The construction of the Inner Ring Road took twice as long as had been scheduled, due to both land acquisition and construction management problems. The improvement of the Madras-Tiruvellor High Road also took longer than had been projected because of land acquisition delays. Arterial storm drains construction was also delayed in critical sections, particularly because of difficulties in removing squatters on the alignment. 29. As in the case of sites and services scheme areas, insisting on a substantial proportion of laud being acquired prior to negotiations and better arrangements for planning and management of implementation could well have improved the performance of the agencies mentioned above. 30. The least successful aspects of the project were implemented by agencies who were newly-involved in MUDP II, whose involvement under MUDP I had resulted in little improvements in performance, or whose role in MUDP II was peripheral. Thus PWD, a new MUDP II implementing agency, implemented the arterial drains component as part of a much larger program of works in the state and gave the MUDP work relatively low priority. The Metropolitan Corporation's lackluster performance in MUDP II reflected the underlying - and long-unresolved - weaknesses of municipalities in a state where the municipal  -9- role in urban management was in limbo. The Slum Clearance Board continued to consider itself primarily as a construction agency to whom cost recovery and tenure were of minor importanca. 31. By contrast, the major implementing agencies' experience under MUDP I stood them in good stead during the MUDP II implementation period. There were seldom problems over the objectives of individual project components, except in the case of PTC, which was hostage to State Government policies. Difficulties had to do more vith the management of the means of implementation rather than the project purposes. 32. Factors of Success. The factors that contributed most to the successes of MUDP II weret (a) the experience of the implementing agencies under MUDP II; (b) the continuity of staff and technical management in the implementing agencies; (C) using the implementing agencies of MUDP I to implement MUDP II provided a knowledgeable, experienced basis of technical personnel for the project in the agencies; and, sd) focussing responsibility for overall project management and coordination in the MUDP I - experienced agency, the Development Authority. PTC had a well-established tradition of promoting its managers from within the technical cadre of the state bus transport corporations. In the Housing Board, the same approach was followed. In the Housing Board, the Department of Highways and Rural Works and the Slum Clearance Board, separate World Bank Divisions, headed by Superintending Engineers, we'ere created to implement MUDP. 33. Because of the above factors, the major implementing agencies in Tamil Nadu, under the MUDP II, were not troubled by the discontinuities resulting from staffing on delegation which weaken performance in other states. HMDA, which was responsible for coordinating project implementation by functional agencies, had very substantial continuity of personnel in the key project functional areas: finance, physical planning, and engineering design. 34. Constraining Factors. The factors that interfered most with the achievement of project objectives were: (a) insufficient planning and advance action on land acquisition; (b) inadequate focus during project preparation on the detailed factors that effect procurement efficieny: bid documents, contract slicing and packaging;  -10- (c) lack of GTN support for the financial objectives of the bus company and the Slum Clearance Board program for land acquisition involving resettlement of squatters and for the city shelter strategies; (d) price and factor cost increases that were beyond the control of GOI or GTN, that sprang out of the OPEC oil price increases of 1980 and resulted, particularly for PTC, in un-anticipated cost increases that compounded the problems caused by inadequate and infrequent fare revisions; and (e) IDA not insisting on agreements to include private slums in the SIP of MUDP II, so that in the end, no private slums were improved under the project. 35. Anticipated Risks. The SAR identified the following as risks: (a) poor collections performance and cost recovery in slum improvement due to delays in providing tenure; (b) weaknesses in the construction and implementation capacity of the Housing Board and the Slum Clearance Board; and (c) estates transaction administration by the Housing Board which effect the rate of occupation of sites by beneficiaries. 36. All of the above turned out to be problems during the implementation of MUDP II. The SAR was too sanguine about the effectiveness of the steps taken during project preparation to offset the risks. To improve their performance, however, the implementing agencies took measures, in addition to the ones initiated during project preparation. As the project progressed improvements were registered in all the above areas. 37. Unforeseen Risks. Risks inadequately foreseen or explored in the SAR vere: (a) The impact of delays and inadequacies in fare increases on the Bus Company's investment program. It was assumed that the 252 fare increase required as a condition of negotiation would achieve and maintain the financial and operational objectives set for PTC over the main period of project implementation; (b) Land acquisition difficulties in sites and services, in private slums in private ownership and in road projects, about which the SAR too optimistically believed adequate advance planning and action had been taken; and (c) Construction and estates management problems in sites and services. 38. Several risks which could not be foreseen were:  -11- (a) The impact of the OPEC oil price increase impact on PTC costs and financial condition. (b) The effects of a single 550 bus procurement. IDA agreed to procurement at an early stage of MUDP II of all of the 550 busses for procurement under OUDP I under one contract, even though the fare revision prior to negotiations was 502 of what the SAR had projected to be needed. PTC argued successfully in favor of the lower price which would be achieved on one large contract, with delivery phased over about 1.5 years. The lowest evaluated bid price was a bargain compared to prevailing market prices. But, this decision, in combination with fare revision delays, large increases in operating costs and a fall in ridership, due to putting a large number of additional busses on the road in a short period, created a substantial extra burden of debt servicing and expanded PTC losses. This in turn, led to the failure of PTC to meet financial objectives for the bus component and eventually a suspension of MUDP II disbursements for one year. 39. Project Costs. Total project cost of Rs 87.8 crores was 192 more than the Rs 73.9 crores (US$87.9) projected by the SAR, even though the implemented physical programs for sites and services, slum improvement and bus services were respectively, 222, 202 and 55? larger than had been anticipated at appraisal and the project took three more years to complete than originally projected. Ta-be: _ m2anent Cmsts Esgmat Est Claimed (3s Lakhs) Comp4nent Agec I C 0 completeI Claimed - ______________________ OrlniFA ctual Cost % Disbsmt % A Skes and Servies TNHB 1901 2879 2860 32.9 1097 24.3 TII _ 477 380 380 4.4 121 2.7 SubTota 27 329 3240 37.3 1217 1 7.0 E. Slum Improvement lNSCB 2587 2111 2108 24.2 839 18.6 DOW 156 91 91 1.0 60 1.3 OPHC 39 11 8 0.1 4 0.1 Sub Total 2782 2212 2206 25.4 903 20.0 Q Tanspoft: Roads DHFN 532 631 604 6.9 337 7.5 Buose s r 1260 2205 2205 25.4 1723 38.2 SubTotI 1793 2836 2809 32.3 2060 45.7 D. SolidWaste M MC 308 295 267 3.1 155 3.4 E. Tech.A1s2is.&T a. MMDA 126 175 174 2.0 170 9,1 Grand Total 7387 8777 8696 100% 4505 100  -12- 40. Disbursements. The one year suspension of the Credit flattened disbursements at a time when expenditures on the project were also constrained due to the lack of land for the sites and services component. (See Chart below). MUOP 2 Dlsbumements SAR Estimatoes va ctuate 45.0 Last debsmt:1288 40.0 > 35.0 SAResf AcWal 30.0 _ US* nUon s25.0 US$"duan20.0, dsbsmt 6/1184 Ata 15.0 dIDA einssdasbsmt Coing: 10.0 5/15185 3-88 5.0 Original Closing: 3.0 1.- i: ; o- - - i . 6/812/6/SI21/68 121618)112/ 6 6211 12/ 61 121 6/ 12/ 1681 2 L2 3 83 4 84 5 85 86 8B 87 87 88 8 Fiscal Years Project Results 41. Overall. Viewed component by component, the project did on the whole achieve its financial and physical objectives - but at about half the rate envisaged in the SAR. However, the project did not achieve its strategic objectives for the shelter sector, nor raise the consciousness of the policy makers about the importance of developing a comprehensive city shelter strategy. 42. There was a reasonable, though not always consistent, level of support for project component objectives from the state. However, during. project implementation, it proved difficult to mobilize consistent support from the state for the broader policy and program objectives of the project. So the broader project objectives tended to be orphaned as project implementation proceeded, despite frequent attempts by supervision missions to re-direct the state's attention to them. 43. Sites and Services. 15,000 plots were to be constructed and occupied. In. actuality about 18,300 were constructed, of which about 15,000 are occupied and the remainder were still in course of being allotted and occupied in the first half of 1989. As intended, 702 of the component beneficiaries alloted plots were in the 'Economically Weaker Sector' income group, at or below the poverty line. 44. Originally estimated to cost Rs 19.0 crores, including contingencies, or Rs 12,700/household benefitted, Rs 28.6 crores was actually I  -13- spent on the sites and services component at a cost of about Rs 15,7371household. 45. While unit costs increased by about 25Z over the appraisal estimate, incomes during the project implementation period are estimated to have increased by a larger percentage. In addition, serviced land values for the higher income and non-residential plots increased at a much higher rate than construction costs. Accordingly, project affordability and cost recovery objectives were not adversely effected by cost escalation. 46. Sustained collections of plot charges at a rate of over 902 of demand, assured full recovery of costs - including off-site infrastructure - and was one of the most significant features of the sites and services component. The demand for all categories of plots has generally been ten times the number of plots marketed. 47. Despite the delays in implementation, in the light of its objectives, the largest MUDP II component, sites and services, has to be regarded as a success. 48. It was anticipated that about as many households would receive optional Home Improvement Loans as were benefitted by the component. Almost all households took advantage of the option, which was mostly realized in the form of materials made available to beneficiaries by the Housing Board. 49. Private Land Development. GTN had no specific policy regarding the significant legal and illegal (unauthorized) shelter supply produced by the private sector. The MUDP rr SAR included the contribution of the private sector in its supply and demand analysis and emphasized the need for the state government and the Metropolitan Development Authority to pursue an overall shelter strategy in Madras, to which both public and private sectors would contribute, so that the proportion of households living in slums would be reduced (para 2.03 SAR). However, no specific measures were agreed in the project nor developed and implemented under MUDP II to guide the private sector towards MUDP II's low income shelter objectives. 50. Small Scale Business Sheds and Machinery Loans. This sub-component was not particularly successful. About 200 plots, more than half as many sheds for small scale business (100) and machinery loans were proposed to be funded under MUDP II. However, only about 50 sheds were funded under the project. At the outset, the responsibility for small scale business sheds and machinery loans was with SIDCO. It had diffiLulty collecting loan charges. Part way through the project IDA agreed that the responsibility for these efforts could be transfered to the Tamil Nadu Industrial Investment Corporation. It continued to have collections problems. 51. Originally estimated to cost about Rs 6.0 crores, including contingencies, about Rs 3.8 crores was actually spent on the the small scale business and machinery loans component.  -14- 52. Slum Improvement. Improvement of 50,000 households in 221 slum areas was projected and 60,000 households in 250 areas actually received improvements. Although the quality of the works too often leaves something to be desired, no doubt they have contributed to improving the environment in squatter areas. 53. It was anticipated that the number of tenure agreements would be about the same as the number of households improved. In fact, only about 23,500, or 40? of the households, obtained lease-cum-tenure and about 17,000 housing improvement loans were completed, well below the anticipated number. 54. Lease-cum-tenure for Slum ImProvement Program Households. Issuance of lease-cum-terure by the Slum Clearance Board and issuance of Home Improvement Loans lagged behind improvement works. Unresolved problems in MUDP I, related to conditions of tenure on large plots occupied by squatters, were not resolved in MUDP II and came back to plague the Tamil Nadu Urban Project. Households in Slum Improvement areas are unevenly benefited by improvements, particularly on large plots. 55. When the Community Development Wing was detached from MMDA, it was attached too low in the Slum Clearance Board's hierarchy. Overwhelmed by the engineering staff, its effectiveness was reduced, contributing to the weaknesnes in the lease-cum-tenure and home improvement loan programs and collections performance. 56. Home Improvement Loans for Slum Improvement Households. Though initially promising, the grant and loan program did not succeed in the end. A study of the loan program concluded that households faced Slum Clearance Board procedural complexities which outweighed the value of the relatively small loans made available. 57. Originally the expenditure on the Slum Improvement component was estimated to be Rs 28.8 Crores with contingencies, or Rs 5760/benefitted household. The actual expenditure of Rs 22.1 Crores, or ks 3683lhousehold was much lower than anticipated at appraisal, because of lower-than-anticipated expenditures on Home Improvement Loans (Rs 3.8 Crores vs about Rs 12.7 crores originally estimated), slum improvement and community facility works (pre-schools, and medicare centers). 58. Collections of plot charges were poor up to about a year before the closing of MUDP II. Charges that were a few percent of even the lowest slum household income were certainly affordable. The problem traced to lack of political and administrative support for an adequate collections effort. 59. This was demonstrated when improvements in collections to greater than 702 of demand were insisted on by IDA as a condition of negotiation of TNUDP (in 4/88). That was achieved by the Slum Clearance Board and maintained through 1989, believing, as in sites and services, the prevailing view that charges cannot be collected from low income people. 60. The Slum Improvement Program undoubtedly improved the environment and regularized tenure in once-squatter-slum areas for about 200,000 poor  -15- people - more than projected in the SAR. The results of tenure were also positive in the sense that many families tore down their old, thatched structures and replaced them with permanent brick or even reinforced-concrete structures. Water supply and sanitation standards improved with the Slum Improvement Program, although the Public Convenience (PC) sanitation solution is unsatisfactory and remains to be substituted by a better one. Market values of tenured land in the Slum Improvement Program areas rose sharply compared to pre-project values. 61. On the negative side, there is evidence that particularly on larger plots, where there were rented houses, a significant proportion of original mostly-low income inhabitants were evicted by original squatter occupiers of plots (many of whom were also low income). The original occupiers were enriched by the enhancement of values on newly-tenured service plots at the expense of their evicted tenants, who presumably were left worse off than before the program was implemented. An equitable policy remains to be evolved regarding the disposition of larger plots under future Slum Improvement in the Tamil Nadu Urban Project. 62. It is doubtful that the above problems could have been avoided. Most of the problems that emerged fall into the 'learning by doing" category. With hindsight it might have been anticipated that these problems would arise from the weak backing for some aspects of the Slum Improvement program. The problems mentioned above were also imbedded in the administrative culture of the Slum Clearance Board, which is construction, not service-oriented. It is unlikely that they could have been anticipated during project preparation. Requiring the CD Wing to be attached at a higher level in the TNSCB management might have improved the Home Improvement Loan program. But, the problems the Community Development Wing would face as a section of the Slum Clearance Board were also not anticipated during project preparation. 63. Storm Drains. The arterial storm drains construction program under the Public Works Department's responsibility, dragged on through the whole period of MUDP II and was obstructed chiefly by problems of land acquisition and difficulties in ousting relatively small numbers of squatters on the drains alignments. At the begisming of 1989, some drains were still incomplete because a few squatters obstructed the acquisition of the right of way. 64. A feeder storm drains program was implemented relatively rapidly by the Madras Corporation. But supervision missions observed that soon after completion, these were already functioning inefficiently due to lack of Madras Corporation maintenance. 65. Because of delays, there were substantial cost over-runs of about 802 in the Public Work Department's storm drainage projects, originally estimated to cost about Rs 200 lakhs. 66. Part of the system is providing improved drainage to MUDP slum and sites and services areas and city sub-areas which flooded during the monsoon. The whole system funded under the project was not yet operational in 1989 due  -