Sri Lanka - Water Supply and Sanitation Rehabilitation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 16263 IMPLEMENTATION COMPLETION REPORT SRI LANKA WATER SUPPLY AND SANITATION REHABILITATION PROJECT (Cr. 1700-CE) January 15, 1997 Infrastructure Operations Division Country Department I South Asia Region 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.  CURRENCY EQUIVALENTS (as of June, 1996) Currency unit = Sri Lanka Rupee (SL Rs) SL Rs 1.00 = US$ 0.0182 US$ 1.00 SL Rs 54.969 WEIGHTS AND MEASURES mly million liters per year (1 liter = 0.26 US gallons) mgd million gallons per day (1 mgd = 4,543 liters per day) FISCAL YEAR OF BORROWER January 1 - December 31 ABBREVIATIONS AND ACRONYMS CMC - Colombo Municipal Corporation CSPU - Clean Settlement Project Unit ERR - Economic Rate of Return GCA - Greater Colombo Area GOSL - Government of Sri Lanka IDA - International Development Association MHC&PU - Ministry of Housing, Construction and Public Utilities NHDA - National Housing Development Agency NWSDB - National Water Supply and Drainage Board OECF - Overseas Economic Cooperation Fund of Japan O&M - Operation and Maintenance SAR - Staff Appraisal Report TA - Technical Assistance TOR - Terms of Reference Vice President D. Joseph Wood Director Mieko Nishimizu Division Chief Marie Robinson Staff Member Toshiaki Keicho (Urban Environmental Specialist)  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT SRI LANKA WATER SUPPLY AND SANITATION REHABILITATION PROJECT (CR. 1700-CE) Table of Contents Page No. PREFACE ..........................................1 EVALUATION SUMMARY .....2....................................2 PART I - PROJECT IMPLEMENTATION ASSESSMENT ..........................................5 A. Statement/Evaluation of Objectives .........................................6 B. Achievement of Objectives .....6....................................6 C. Major Factors Affecting the Project ..........................................8 D. Project Sustainabiity .....9.....................................9 E. IDA Performance ............ .....................: 10 F. Performance of Borrower/Beneficiary ................................ 11 G. Assessment of Outcome .................................11 H. Future Operation ................................ 12 1. Key Lessons Learned ................................ 12 J. Evaluation of Program Objective Categories ................................ 14 PART II - STATISTICAL TABLES Table I Summary of Assessments Table 2 Related Bank Loans/Credits Table 3 Project Tirnetable Table 4 Loan/Credit Disbursements: Cumulative, Estimated and Actual Table 5 Key Indicators for Project Implementation Table 6 Key Indicators for Project Operation Table 7 Studies Included in Project Table 8A Project Costs Table 8B Project Financing Table 9 Econornic Costs and Benefits Table 10 Status of Legal Covenants Table 11 Compliance with Operational Manual Statements Table 12 Bank Resources: Staff Inputs Table 13 Bank Resources: Missions APPENDICES A. Mission's Aide-Memoire (with Operation Plan) B. Borrower's Evaluation [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 Bankc authorization.l   \IMPLEMENTATION COMPLETION REPORT SRI LANKA WATER SUPPLY AND SANITATION REHABILITATION PROJECT (CR. 1700-CE) Preface This is the Imnplementation Completion Report (ICR) for the WATER SUPPLY AND SANITATION REHABILITATION PROJECT in Sri Lanka, for which CR. 1700-CE in the amount of SDR 32.1 million equivalent was approved on May 15, 1986 and made effective on December 18, 1986. The credit was closed on June 30, 1996, one year behind the originally scheduled closing date. It was fully disbursed, and the last disbursement took place on October 17, 1996. The ICR was prepared by Toshiaki Keicho (SAlIN) of the South Asia Region, under supervision of Wiebe Moes (SAIIN), and reviewed by Marie Robinson, Division Chief, and Fakhruddin Ahmed, Project Advisor. The Borrower provided its own evaluation that is included as appendices to the ICR. Preparation of this ICR was begun during the IDA's final supervision/completion mission, July, 1996. It is based on material in the project file and discussions with implementing agency officials. The Borrower contributed to preparation of the ICR by preparing its own evaluation of the project, by providing IDA with the necessary data, and by cooperating with the ICR team of IDA.   - 2 - IMPLEMENTATION COMPLETION REPORT SRI LANKA WATER SUPPLY AND SANITATION REHABILITATION PROJECT (CR. 1700-CE) Evaluation Summary Introduction 1. While the urban population of Sri Lanka is relatively small and not growing as rapidly as other countries in the region, its urban areas continue to suffer from inadequate water supply and sanitation systems and inefficient operations. 2. Providing water supply and sanitation services is the responsibility of the Ministry of Housing, Construction and Public Utilities (MHC&PU), which has delegated it primnarily to the National Water Supply and Drainage Board (NWSDB). NWSDB has concentrated its activities in the urban areas and the large piped water schemes in the rural areas. Local authorities have a general responsibility for the provision of services within their boundaries, but in many cases this responsibility is discharged by NWSDB. 3. This project was identified from NWSDB's ten-year (1986-95) investment program for urban water supply, sewerage, drainage, sanitation and technical assistance formulated in 1985. The project, therefore, kept with the sector priorities set out in the program. Project Objectives 4. The principal objectives of the project were to: (a) increase utilization of existing water supply and sanitation systems through rehabilitation and extension; (b) improve NWSDB's technical, managerial and operational practices; and (c) improve public health through increased service levels of safe water supply, sanitation and drainage. These objectives were to be achieved through physical investments for the rehabilitation and extension of the existing transmission and distribution systems and institutional and financial measures aimed to strengthen NWSDB. 5. The objectives generally supported the overall sector development strategy of the Govermnent of Sri Lanka (GOSL) and the sector policy adjustments already underway. They were clearly defined and generally verifiable by monitoring indicators set at appraisal. Implementation Experience and Results 6. The project generally achieved its physical objectives, but with significant delays. Most of the main physical works were successfully completed in Colombo and Maharagama. However, some smaller components in other towns were dropped because of the cost escalation caused by implementation delays. The delays were mainly due to slow progress in preparation of detailed designs and procurement decisions. With respect to low cost sanitation, it should be noted that excellent results were produced by the shift of responsibility from the National Housing Development Agency (NHDA) to the newly established Clean Settlement Project Unit (CSPU) of MHC&PU. Through beneficiary participation and community-driven implementation, CSPU effectively facilitated the construction of latrines, and this became one of the most successful components of the project.  -3- 7 The project's achievement of the financial objectives was partial, with NWSDB's deficient financial performance during the first several years of the project. From the start to December 1990, NWSDB's financial situation was in a critical condition mainly because GOSL failed to adjust water tariff despite IDA's repeated requests. Only after IDA officially threatened to suspend disbursements in late 1990, GOSL took necessary measures to improve the financial situation of NWSDB including tariff increase. Finally, NWSDB complied with the financial covenants which required it to generate sufficient revenues to cover operating expenses and working capital requirements from 1987 onwards and also to cover debt service or depreciation, whichever is higher, from 1989 onwards. The efficiency improvement in billing and collection was one of the main elements of achievements of the financial objectives. 8. The project failed to achieve the- institutional development objectives. Although NWSDB implemented most of the institutional components and ostensibly benefited from various training and technical assistance, some institutional problems still exist in NWSDB. 9. Project sustainability is uncertain for three key reasons. First, NWSDB's institutional capacity, especially in operation and maintenance and in project management, still remains weak as the high rate of unaccounted-for-water and implementation delays prove. Second, GOSL's commitment to cost recovery, especially timely tariff adjustment, is unclear. GOSL became uncommitted again during the very last year of the implementation period, and NWSDB's financial performance recently started deteriorating. As the ultimate test of project sustainability is the ability of the government to mobilize resources through tariffs, sustainability is uncertain unless GOSL is fully committed to periodic tariff adjustments to achieve cost recovery. Third, NWSDB remains subject to tight government control and frequent interventions despite project's attempt to increase its autonomy. Private sector involvement could help address these problems. 10. The IDA's performance in project identification was satisfactory. However, preparation assistance by IDA was deficient, and, therefore, the project was insufficiently prepared. Also, IDA's project appraisal was unsatisfactory. NWSDB's implementation capacity and borrower commitment to resource mobilization were not appropriately assessed at appraisal. The IDA's performance during the supervision was generally satisfactory. The visits of supervision missions were frequent and timely, and issues were properly identified and monitored. 11. Project preparation by the Borrower was deficient, and implementation moved slowly in the initial years of the project. However, the project made a good progress during the last half of the implementation period with most of the components completed. Compliance with the financial covenants in respect of water tariffs and cost recovery was first in default but finally achieved. Nevertheless, it should be noted that there are a number of misleading features of NWSDB's current financial statements which cause its financial performance to appear better than they are. IDA's procurement guidelines for works, goods and services were generally followed by the Borrower. 12. The overall outcome of the project was unsatisfactory in view of such factors as the lack of achievements in the financial and institutional components and the significantly lower economic rate of return than assumed at appraisal. Furthermore, considering ten years of implementation period including one year extension, the project could have achieved more. Summarv of Findings. Future Operations, and Key Lessons Learned 13. The operation plans with institutional arrangements and estimated annual operation and maintenance costs for the assets created under the project have been prepared by NWSDB. In most cases, the assets created or rehabilitated under the project are already in operation, and institutional arrangements for operations already exist. Key indicators will need to be monitored.  - 4 - 14. The key lessons for future water supply and sanitation projects in Sri Lanka include the following: a) High quality at entry is necessary since the quality of project preparation and appraisal seriously affects implementation. b) The Borrower's procurement processes need to be streamnlined, and NWSDB's capacity to deal with procurement related problems needs to be strengthened. c) Earlier intervention by IDA is more effective if projects are experiencing problems. d) In order to avoid the misunderstanding that the only measure to recover recurrent cost is tariff adjustment, such factors as increasing operational efficiency and reducing recurrent cost should be explicitly incorporated into financial covenants. e) Donor coordination should be improved to better use the limited resources and to ensure that each donor's efforts are consistent with the government's long-term sector strategy. f) Performance based incentive schemes are necessary to retain better trained staff and to recruit competent technical staff. Also, some mechanisms to facilitate transfer of skills through technical assistance should be introduced. g) Training programs should be designed to reorient government officials and to improve their skills in commnunity participation in addition to technical and managerial skills. h) Considering the various deficiencies facing the water supply and sanitation sector in Sri Lanka and the increasing demand for clean water and sanitation services, sector reform is needed to improve the operational efficiency and meet the future challenge. The reform would include among others: (i) establishing an autonomous Water and Sewerage Agency for the Greater Colombo Area; (ii) involving private sector; and (iii) redefining the role of NWSDB.   -5- IMPLEMENTATION COMPLETION REPORT SRI LANKA WATER SUPPLY AND SANITATION REHABILITATION PROJECT (CR. 1700-CE) PART I - Proet ImuLementatIon Assessment Project Identity Name: WATER SUPPLY AND SANITATION REHABILITATION PROJECT Credit: CR. 1700-CE RVP Unit: South Asia Country: Sri Lanka Sector: Infrastructure Sub-sector: Water Supply and Sanitation Background 1.1 While the urban population of Sri Lanka is relatively small and not growing as rapidly as other countries in the region, it was estimated that the urban population made up alnost a quarter of the population in 1995. Although some attempts have been made in the past to irnprove urban water supply and sanitation, the urban areas in Sri Lanka continue to suffer from the inadequate systems and inefficient operations. According to the recent data, service coverage for water supply in the Greater Colombo Area (GCA) stands at 93%, sewerage services is available to only 19% of the residents, and on-site sanitation facilities serve 66% of the population. 1.2 Providing water supply and sanitation services is the responsibility of the Ministry of Housing, Construction and Public Utilities (MHC&PU), which has delegated it primarily to the National Water Supply and Drainage Board (NWSDB). NWSDB has concentrated its activities in the urban areas and the large piped water schemes in the rural areas. Local authorities have a general responsibility for the provision of services within their boundaries, but in many cases this responsibility is discharged by NWSDB. In certain other instances, NWSDB provides water supply in bulk to the local authorities who distribute and bill their consurners accordingly. 1.3 IDA's involvement in water supply and sanitation sector in Sri Lanka started in 1977 when the First Water Supply Project (Cr. 709-CE) was approved. The First Project was an effort to respond to the urgent water supply needs of GCA. The project focused on construction activities, and institutional development objectives were given secondary imnportance. The project was relatively successful in terms of the construction targets. The credit, delayed by fifteen months, was closed in June, 1983. 1.4 The Second Water Supply and Sewerage Project (Cr. 1041-CE) was approved in 1980 to complement sector development efforts initiated under the First Project. The main objectives of the Second Project were to a) improve water supply and sewerage services in GCA and b) strengthen technical, financial and operating performance of NWSDB. The project facilitated rehabilitation and expansion of water supply and sewerage systems, and NWSDB benefited from training and technical assistance. Although revenue from water tariffs increased under the project, full cost recovery was not achieved. The credit, delayed by one and a half years, was closed in March, 1987.  -6- 1.5 After IDA comnpleted a Water Supply and Sanitation Sector Study (Report No. 4190-CE) which identified major sector development constraints and outlined a strategy to address them, NWSDB formulated in detail a ten-year (1986-95) investment program for urban water supply, sewerage, drainage, sanitation and technical assistance in 1985. From the program, the Third Water Supply and Sanitation Rehabilitation Project (Cr. 1700-CE) was identified. The project was designed within the sector priorities set out in the program which included a) rehabilitation of existing assets, particularly production facilities and distribution systems; b) improvement of operation and maintenance, with emphasis on training at the operational level; and c) focus on projects with revenue generating potential, such as extension of distribution systemns to make better use of existing production facilities. The Third Project with a credit amounting to US$ 64.8 million was signed on July 24, 1986, became effective on December 18, 1986, and closed on June 30, 1996, one year after the original closing date. A. Statement/Evaluation of Objectives 2.1 The principal objectives of the project were to: a) increase utilization of existing water supply and sanitation systems through rehabilitation and extension; b) improve NWSDB's technical, managerial and operational practices; and c) improve public health through increased service levels of safe water supply, sanitation and drainage. 2.2 These objectives were to be achieved through physical investments for the rehabilitation and extension of the existing transmission and distribution systems and institutional and financial measures aimed to strengthen NWSDB. Main physical investments of the original project included the following components: a) rehabilitation and extension of the Colombo water supply system; b) extension of the Maharagama water supply system; c) provision of low cost sanitation facilities in low-income areas of Colombo; and d) rehabilitation and extension of the water supply systems in Amparai, Anuradhapura and Towns East. Main institutional and financial measures to achieve the project objectives included: a) technical assistance to improve NWSDB's project design and construction management capability; b) training for NWSDB staff on operations and maintenance and project management; c) various studies designed to address key sector issues; and d) financial measures such as timely adjustments to tariffs and improved billing and collection. 2.3 The objectives generally supported the overall sector development strategy of the Government of Sri Lanka (GOSL) and the sector policy adjustments already underway. GOSL's sector development strategy which was prepared in mid 1980s aimed at increased operating efficiency, institutional development and financial strengthening. The project objectives were consistent with this strategy. The objectives also supported transformation of NWSDB, initiated under the Second Project, from its design and construction orientation to the one in which operation, maintenance and commercial activities are of prime concern. 2.4 The objectives were clearly defined and verifiable, except the third objective (health benefits), by monitoring indicators set at appraisal. These indicators included physical criteria such as water production and consumption as well as financial ones. They were to be reported periodically to monitor progress. B. Achievement of Objectives 3.1 Overall, the project only partially achieved its objectives with significant delays. The project's physical objectives were mainly achieved although some components were dropped in course of  -7- implementation. The achievement of the financial objectives was partial, with NWSDB's deficient financial performance during the first several years of the project. The project failed to achieve its institutional development objectives. 3.2 Physical Objectives: The project mainly achieved its physical objectives related to the rehabilitation and extension of the existing water supply and sanitation systems although the project's physical components experienced significant delays for the first several years of the implementation period. The delays were mainly due to slow progress on detailed designs and procurement decisions, but also due to civil disturbance and shortage of counterpart funds. The delays caused escalation of construction costs and, therefore, several components (Aniparai, Anuradhapura and Towns East water supply) had to be dropped to maintain total project costs at appraisal estimate. However, most of the physical components for Colombo and Maharagama, which were the major part of the project, were finally successfully completed with exception of one reservoir repair work in Colombo. The reservoir repair was also deleted because it became impossible to complete the work before the credit closing date. In sum, most of the main physical works were completed with some smaller components dropped. As a result, total water production per year increased from 122,000 mnillion liters per year (rmly) in 1987 to 181,000 mly in 1995, and cumulative total number of water connections rose from 97,000 to 166,000 during the same period. 3.3 Successful physical components included the provision of low cost sanitation facilities as well as the rehabilitation and extension of the water supply systems in Colombo and Maharagama. With respect to low cost sanitation, it should be noted that excellent results were produced, with construction of 7,650 latrines in six months, by the shift of responsibility to the newly established Clean Settlements Project Unit (CSPU) of MHC&PU in 1994. Consequently, this component was extended to allow more latrines, and, in total, more than 26,000 latrines were constructed under the project in the low-income areas that cannot be served by public sewerage. Initially, this component suffered poor progress when the National Housing Development Agency (NHDA) was in charge. But after CSPU took over this component, this became one of the most successful components of the project with beneficiary participation and community-driven implementation. Regarding the water supply systems in Colombo and Maharagama, the main achievements included: a) construction of transmission and distribution mains; b) scraping and relining of the existing transmission and distribution mains; c) rehabilitation of the pumps, reservoir, and standpipes; and d) meter repair and replacement. 3.4 Financial Obiectives: The project's financial objectives were only partially achieved with NWSDB's deficient financial performance during the first several years of the project. From the start to December 1990, NWSDB's financial situation was in a critical condition. Although NWSDB improved efficiency in billing and collection during this period, escalated electricity price and mandatory salary increase of the staff, together with the Rs. 150 per month cap on domestic billings hampered NWSDB's efforts to imnprove the financial situation. It was apparent that tariff enhancement could improve the financial situation of NWSDB, but GOSL was unwilling to do so during this period despite IDA's repeated requests. After IDA officially threatened to suspend disbursements in late 1990 due to non-compliance with the financial covenants, GOSL took measures to improve the financial situation of NWSDB such as water tariff increase and implementation of the NWSDB staff retrenchment. Since then, water tariffs were raised several times and finally NWSDB complied with the fnancial covenants which required NWSDB to generate sufficient revenues to cover operating expenses and working capital requirements from 1987 onwards and also to cover debt service or depreciation, whichever is higher, from 1989 onwards. 3.5 The mnain achievements of the financial objectives included: a) efficiency improvement in billing and collection including computerized billing (NWSDB's current collection rate is exceptionally high with about 95% of billings collected); b) implementation of tariff increase; c) removal of the Rs. 150 cap on domestic water consumers; d) implementation of a new Rs. 5 monthly service charge; e) amendments of the NWSDB  -8- Act to enable NWSDB to operate more effectively; f) authorization for NWSDB, without referral to GOSL, to imnmediately increase its tariffs to reflect electricity price increases; g) implementation of rigorous disconmection policy; and h) implementation of the NWSDB staff retrenchment. 3.6 Institutional Development Objectives: The project failed to achieve its institutional development objectives. Although NWSDB implemented most of the institutional components and ostensibly benefited from various training and technical assistance, some institutional problems still exist in NWSDB. 3.7 NWSDB implemented the following institutional components: a) consultancies to improve its construct management capability and to assist project preparation; b) training on system maintenance and operations and project management; c) purchase of vehicles and office equipment; d) introduction of the Management Information System; e) introduction of the incentive schemes for its Commercial Unit; f) transfer of responsibilities, from the Colombo Municipal Corporation (CMC), for management and operations of the water distribution and sewerage systems in Colombo; g) amendment to the NWSDB Act to enable NWSDB to operate more effectively; h) staff retrenchment; and i) completion of various studies. 3.8 However, there are still institutional problems within NWSDB which should have been addressed to fully achieve the project's institutional development objectives. These problems include staffing problems and project management capacity. Firstly, there are various staffing problems within NWSDB. For example, it is still overstaffed. Although some staff retrenchment was implemented during the project, NWSDB failed to reduce its staff to the desired target level. Initially, retrenchment of 1,640 NWSDB staff was planned, but only about 620 staff were reduced between 1989 and 1992. After that, the current staff number again has climbed to more than the 1989 staff level. Another imnportant staffing issue is a shortage of middle level management and technical staff. This is the case especially with the leak detection and metering program. Currently, about 83% of the all NWSDB permanent employees is either clerical or unskilled workers. Furthermore, difficulties of retaining experienced senior staff were reported from time to time. Secondly, as indicated by the significant delays in implementation, NWSDB's project management capacity still remains weak. Transfer of skills through technical assistance does not seem to have occurred during the project, considering the NWSDB's request for TA extension at the very last year of implementation. This indicates that NWSDB still had to rely on the international consultants after many years of TA. Further training on planning, procurement, and project preparation and supervision is needed for NWSDB staff. C. Major Factors Affecting the Project 4.1 Project completion was delayed by one year. The basic factors which contributed to the delay and affected project implementation are discussed under three categories: a) factors beyond government control; b) those subject to government control; and c) those subject to NWSDB's control. 4.2 Factors beyond government control: There was one major factor beyond government control which affected the project: civil disturbances. Civil disturbances during the first several years of project implementation caused the project delay in some project areas and, to the lesser extent, the deficient billing and collection activities and the turnover of the NWSDB staff. 4.3 Factors subject to government control: There were four major factors subject to government control which affected the project. They were shortage of counterpart funds, GOSL's cumbersome procurement procedure, GOSL's lack of commitment to tariff increase, and lack of donor coordination. The shortage of counterpart funds and GOSL's cumbersome procurement procedures contributed to the significant project delay and cancellation of some components. GOSL's lack of commitment to tariff increase caused the  -9- NWSDB's deficient financial performance during the initial and final years of implementation. The elections held during project implementation made GOSL further reluctant to increase water tariff. 4.4 Lack of donor coordination also affected the project as some bilateral donors proposed investrents in the sector which were not consistent with the project's objectives. This further contributed to the shortage of counterpart funds for the project. In 1988, a French Government-financed proposal was made to augment the Greater Colombo water supply by constructing a 40 million-gallons-per-day (mgd) expansion to the Ambatale water treatment plant on a turnkey basis, and it was completed in 1993. In 1989, IDA learned that the British ODA-fmnanced Hills Country water supply schemne was already under construction. While IDA admitted that some additional supply to Colombo would undoubtedly be required, it strongly disagreed with the Borrower's proceeding with such investments because (a) they were not consistent with GOSL's sector policy which put priority on rehabilitation of the existing systems; (b) they would cause reductions of counterpart budget for rehabilitation programs; and (c) such investments should not take place without a proper Master Plan. IDA's project was formulated on the basis of GOSL's ten-year (1986-95) investment program agreed with GOSL, IDA, and other donors. IDA was of the opinion that the program was being threatened by the above new investments financed by French and British governments. 4.5 Factors subject to NWSDB's control: There were five major factors subject to NWSDB's control which affected the project. They were insufficient or untimely preparation of initial designs, slow procurement process, a shortage of experienced senior management and technical staff, inadequate project management, and tendency to split up supply contracts in many small tenders. These factors all contributed to the significant implementation delays. D. Projed Swtanabilitv 5.1 Overall project sustainability is uncertain for three key reasons. First, NWSDB's institutional capacity, especially in operation and maintenance and in project management, still remains weak. Second, GOSL's commitment to cost recovery, especially timely tariff adjustment, is unclear. Third, NWSDB remains subject to government control despite the project's attempt to increase its autonomy. 5.2 NWSDB's institutional capacity still remains weak. This is especially the case with its operation and maintenance (O& and project management capacity. NWSDB's O&M capacity is deficient as high rate of unaccounted-for-water (about 50%) proves. Lack of technical staff, relatively high turnover of trained or experienced staff, and fragmented responsibilities for O&M between NWSDB and CMC are all contributing to NWSDB's weak O&M capacity. NWSDB must seriously combat to reduce the unaccounted-for-water. Furthermore, project delays in implementation clearly shows NWSDB's weak project management capacity. For the first several years of project implementation, NWSDB was struggling with detailed designs and procurement due to its weak capacity in these fields. 5.3 GOSL's commitment to cost recovery mainly through water tariffs is unclear. GOSL failed to raise water tariffs for the first several years of implementation despite IDA's repeated requests. GOSL raised the tariffs to recover the recurrent cost only after IDA officially threatened to suspend disbursements in 1990. Although GOSL raised the tariffs several times since 1991, tariff increases were not made during the last two years of implementation. As a result, the ratio of billings to O&M costs declined from 1.61 in 1991 to 1.27 in 1995 although the ratio of collections to O&M costs during this period remained the same as collection efficiency improved. The ultimate test of project sustainability is the ability of the government to continuously mobilize resources through tariffs. Therefore, project sustainability is uncertain unless GOSL is fully committed to tariff adjustment to achieve cost recovery. At the same time, increasing the operational efficiency such as reducing unaccounted-for-water and addressing the overstaffing issue to reduce labor cost  - 10 - is also very important for cost recovery. Furthermore, NWSDB's current financial status is treated extremely leniently in presenting its financial statements. A more rigorous assessment, combined with more market- oriented financing for future investments, would demonstrate that the status quo is not financially sustainable. 5.4 Although the project attempted to increase NWSDB's autonomy by institutional and financial strengthening, NWSDB remains subject to tight government control and frequent interventions. To address these problemns, sector reform is necessary including private sector participation in financing and operating water supply and sewerage services. Private sector involvement could lead to better services, but only if the private investors and/or managers were permitted and expected to operate on a commercial basis within a carefully designed regulatory framework. E. IDA Performance 6.1 Identification: The IDA's performance in project identification was satisfactory, being consistent with the government's priorities. The project design and implementation arrangements were relatively simple with one key implementing agency (NWSDB). 6.2 Preparation: Preparation assistance by IDA was unsatisfactory, considering the current IDA standard of project preparation. IDA failed to adequately assist the Borrower in project preparation, and, therefore, the project was insufficiently prepared. Neither detailed designs for major physical works nor TORs for technical assistance and studies were completed during project preparation. This low quality of project preparation directly affected the project and led to delays in the early stage of implementation. The delays contributed to the cancellation of some components and one-year extension of implementation completion. However, unlike the current practices where detailed designs and bidding documents for major works are required at the project preparation stage, a detailed preparation period was incorporated into the original nine years of the project implementation instead. 6.3 Appraisal: Project appraisal by IDA was also unsatisfactory. IDA overestimated NWSDB's implementation capacity at appraisal. Also, IDA was not able to identify the risk of insufficient Borrower commitment to resource mobilization measures such as tariff increase. In SAR, it is explicitly stated that the project would be within NWSDB's implementation capacity and that the project would face no special risks. But, in reality, the project suffered significant delays partly due to NWSDB's weak project management capacity. NWSDB had also suffered the financial deficiencies due to GOSL's lack of commitment to tariff adjustment during the initial and final years of project implementation. 6.4 Supervision: The project supervision by IDA was generally satisfactory. The visits of supervision missions were frequent and timely enough especially when the project was struggling with the delays and financial problems during the first several years of implementation. Issues were adequately identified and monitored. 6.5 There was a clear turning point of the project in August 1990 when IDA officially announced to the Borrower its intention to suspend disbursements due to the non-compliance and broken agreements with regard to NWSDB's financial situation. By December 1990, GOSL and NWSDB finally took necessary measures to improve NWSDB's financial health, and, since then, the project made good progresses till NWSDB's financial performance started to deteriorate again during the very last years of implementation. Earlier intervention by IDA might have led to earlier actions by the Borrower and, thereby, to a better financial position of NWSDB.  - 11 - F. Borrower Performance 7.1 Preparation: Project preparation by the Borrower was deficient. The Borrower did not complete either detailed designs for major physical works or TORs for technical assistance and studies during project preparation. Therefore, some designs had to be changed and procurement process was very slow during the initial years of the project, leading to significant delays in implementation. The inadequate project preparation directly affected the project and caused the cancellation of some components and one-year extension of implementation completion. 7.2 Implementation: Project implementation by the Borrower was very slow but basically satisfactory. Although the project suffered serious problems such as implementation delays and financial weakness during the first several years of implementation, major physical works for water supply in Colombo and Maharagama as well as low cost sanitation units in Colombo were successfully constructed. Technical assistance and various studies were also completed. Several financial and institutional measures were taken (See Section B). 7.3 Covenant Compliance: NWSDB did not fully comply with two covenants with respect to NWSDB's financial performance and the timely submission of audit reports. The financial covenant was finally complied with after several years of non-compliance. The financial covenant required NWSDB to generate sufficient revenues to cover operating expenses and working capital requirements from 1987 onwards and also to cover debt service or depreciation, whichever is higher, from 1989 onwards. Although NWSDB improved its efficiency in billing and collection during the initial years of the project, compliance with the financial covenant remained in default during this period due to GOSL's unwillingness to take necessary measures including water tariff enhancement. After the Bank officially threatened to suspend disbursements, however, GOSL satisfactorily took necessary actions to improve NWSDB's financial performance. As a result, the financial covenant was finally complied with in the last part of the project. Nevertheless, it should be noted that there are a number of misleading features of NWSDB's accounts which cause its financial perfornance to appear better than they are. Although these have been discussed, they have not been addressed satisfactorily. The covenant with respect to audit reports was also in default from time to tirne. 7.4 Procurement: IDA's procurement guidelines for works, goods and services were generally followed by the Borrower. However, long delays were experienced in the preparation of bidding documents and recruitment of consultants due to NWSDB's weak capacity in bidding process and government's cumbersome procurement procedures including approval processes by the Cabinet Tender Board. G. Assessment of Outcome 8.1 The overall outcome of the project was unsatisfactory in view of such factors as the lack of achievenents in the financial and institutional components and the significantly lower economic rate of return than assumed at appraisal. Furthermore, considering ten years of implementation period including one year extension, the project could have achieved more. 8.2 Economic Rate of Return (ERR): The project did not achieve its economic objectives. The calculated economic rate of return at market labor rates was minus 9%. At appraisal, the project was expected to have a return of 12% at market labor rates and 17% at shadow labor rates. A number of reasons contribute to the inability of the project to meet its economic objectives. First, NWSDB did not meet the targeted reduction in the amount of unbilled water, thereby reducing the stream of  - 12 - revenues from the project. Unaccounted-for-water in Sri Lanka is quite high, at 53% compared to Ecuador at 47% and Brazil at 30%. Second, reluctance to raise tariffs has further prevented NWSDB from securing the revenues necessary to ensure satisfactory operation and maintenance and to meet the costs of investment. Third, NWSDB was not able to achieve the improvements in efficiency and reductions in cost that were expected at project appraisal. Expected levels of reduction in staff were not met, leaving NWSDB with a high level of overstaffing (see Table 6). The level of overstaffing has contributed to increasing the costs of operation. Finally, delays in implementing the project have further reduced the stream of benefits that were expected from the project. H. Future OQeration 9.1 The operation plans, institutional arrangements and estimated annual operation and maintenance costs for the assets created under the project are appended to this report. In most cases, the assets created or rehabilitated under the project are already in operation. Institutional arrangements for operations already exist, and staff are mostly on board and generally familiar with their role and functions. 9.2 Key indicators for project operation appear in Table 6. These indicators will continue to be monitored. Adequate operation and maintenance of the assets created or rehabilitated under the project will also need to be monitored during any future operation in this sector. I. Kae Lsons Learned 10.1 The key lessons learned from this project relevant for other water supply and sanitation projects in Sri Lanka and other countries are discussed below: 10.2 Ouality at Entry: Quality at entry seriously affects implementation. For civil works, adequate pre- construction surveys, field investigations, detailed designs, and detailed phasing of each component must be undertaken, to the extent possible, at preparation stage to avoid cost escalation caused by design changes and to ensure timely procurement. For technical assistance and studies, detailed TORs should be completed prior to appraisal so that reliable cost estimates and implementation plans are established. At appraisal, risks related to project implementation and the capacity of inIplementing agency should carefully be assessed. Proactive measures should be considered to mitigate the risks. 10.3 Streamlined Procurement: The Borrower's procurement processes need to be streamlined with more authority at the executing agency level. NWSDB's capacity to deal with procurement related problems need to be strengthened in order to avoid project implementation delays. Where appropriate, such measures as contract packaging to make procurement processes simpler should be considered. 10.4 Early Intervention: Earlier intervention by IDA might have been more effective to improve the financial situation of NWSDB. IDA officially threatened the Borrower to suspend disbursements after a long history (about four years) of non-compliance with the covenants. Earlier intervention by IDA might have been more effective to prevent delays in compliance and to further improve NWSDB's financial performance. 10.5 More Appropriate Covenant: The current financial covenants may lead to the misunderstanding that the only measure to recover recurrent cost is tariff adjustment. However, increasing operational efficiency  - 13 - and reducing recurrent cost are also very important for cost recovery. These factors should be explicitly incorporated into future financial covenants. 10.6 Donor Coordination: Donor coordination should be improved to better use the limited resources and to ensure that each donor's efforts are consistent with the government's long-term sector strategies. The government must be responsible for donor coordination if it wants donor assistance to be effective. 10.7 Sustainable Institutional Development: Performance based incentive schemes are necessary for sustainable institutional development. Although NWSDB is overstaffed, it lacks technical and middle level management staff. The project experienced some difficulty retaining trained or experienced staff. Without incentive schemes such as merit system, retaining the staff trained under the project and recruiting competent technical staff would be difficult. Also, incentive mechanisms to facilitate transfer of skills through TA should be introduced. 10.8 Reorienting Training: In addition to technical and managerial skills, the personnel of implementing agencies should have adequate community participation skills. Successful construction of low-cost sanitation facilities only after CSPU assumed responsibility for this component clearly shows that comnunity participation skills in CSPU facilitated the provision of latrines. Therefore, training programs should be designed to reorient government officials and to improve their skills in community participation. 10.9 Priority issues to be addressed: The project's water supply component realizes a negative economic rate of return (ERR) at market labor rates. With shadow labor rates, ERR is positive at 9%. NWSDB's overstaffmg, inadequate tariff increase, high level of unaccounted-for-water, and project implementation delay all contributed to the lower ERR than assumed at appraisal. These issues are all priority areas to be seriously addressed in future water supply projects in Sri Lanka. 10.10 Need for Sector Reform: Considering the various deficiencies facing the water supply and sanitation sector in Sri Lanka and the increasing demand for clean water and sanitation services, sector reform is needed to improve the operational efficiency and meet the future challenge. The reform would include among others: a) establishing an autonomous Water and Sewerage Agency for the Greater Colomnbo Area; b) involving private sector; and c) redefining the NWSDB's role. a) New Agencv for the Greater Colombo Area: An autonomous Water and Sewerage Agency for the Greater Colombo Area (GCA) would be needed to improve and extend water supply and sewerage services in the area. Both water supply and sewerage services are currently handled by CMC in this area, but quite inefficiently and unsatisfactorily. GOSL has recently decided to hand over the responsibility for sewerage to NWSDB as NWSDB will be in a better position to operate the services more satisfactorily. However, this would separate the water and sanitation services in the area, which is not advisable. Also, the current practice of cross-subsidization between GCA and other parts of the country needs to be addressed. A possible solution would be to establish a new autonomous agency responsible for both water and sewerage services for GCA. b) Private Sector Participation: Private sector participation in fmancing and operating water supply and sewerage services would increase the quality of services. Recent evidences in other countries show that private sector participation in the sector could improve service reliability, productivity, customer relations, and financial management. Furthermore, it might be imperative to tap private capital given very limited resources in public sector. Therefore, involving private sector in water supply and sanitation services should be seriously considered even if the above-mentioned agency for GCA is established.  - 14 - c) Future Role of NWSDB: With increasing plea for decentralized operation and private sector participation in the sector, the role of NWSDB needs to be redefined. As a national agency, its future role should increasingly focus on sector policy making, investment planning and assistance to local authorities. J. Evaluation of Program Objective Categories 11.1 Poverty reduction and other social objectives were not directly built into the project. However, the low-income population benefited from the improved water supply systems and low-cost sanitation facilities provided under the project. 11.2 The environmental objectives were only indirectly built into the project. Sanitation improvement in the low-income area, which cannot be served by public sewerage system, appeared to contribute to some environmental improvement. 11.3 The objectives of private sector development was not directly built into the project. The project was only partly successful in developing some limited capacity of contractors and consultants in the private sector.  IMPLEMENTATION COMPLETION REPORT SRI LANKA WATER SUPPLY AND SANITATION REHABIULTATION PROJECT (CR. 1700-CE) Part II - Statisdcal Tables Table 1: Sunmmarv Assessments A. Achievement of Objectives Substantial Partial Negligible Not Applicable Macroeconomic Policies Ol 0 0 ER Sector Policies El 0 0 n Financial Objectives O 1 a o Institutional Development O O 0 El Physical Objectives 1 E E E Poverty Reduction O E E 0 Gender Concerns O E E 0 Other Social Objectives E El El 0 Environmental Objectives 0 E E E Public Sector Management 0 0 E E Private Sector Development 0 0 E E Other (specify) E E E 0 B. Project Sustainability Likely Unlikelv Uncertain O E 0 Highly C. Bank Performance Satisfactory Satisfactory Deficient Identification 0 0 E Preparation Assistance E E 0 Appraisal 0 E 0 Supervision 0 0 E Highly D. Borrower Performance Satisfactory Satisfactory Deficient Preparation O E 0 Implementation 0 0R El Covenant Compliance E E 0 Operation (if applicable) 0 0 E Highly Highly E. Assessment of Outcome Satisfactory Satisfactory Unsatisfactory Unsatisfactory El E 0 El  Table 2: Related Bank Loans/Credits Loan/Credit Title Purpose Year of Status Approval Preceding Operations 1. First Water Supply To improve water supply in Colombo and 1977 Completed in 1984 Project (Cr. 709-CE) other towns 2. Second Water Supply a) To improve water supply and sewerage and Sewerage Project (Cr. services in Colombo and other towns; 1041-CE) b) To strengthen NWSDB's financial and 1980 Completed in 1987 operational performance; and c) To improve the institutional organization of NWSDB . 3. Municipal Management a) To support GOSL's sector policy Project (Cr. 1697-CE) adjustment process; and 1986 Completed in 1995 b) To strengthen the capacity of Ministries for municipal management Following Operations 1. Clean Settlements a) To provide basic services to low- Project income communities in Western Provincial Council, particularly in Colombo, through extensive community participation and incorporation of social Under preparation and economic development; b) To extend and accelerate titling of land to low-income households; and c) To improve the capabilities of local govenmnents and sector institutions ____________ 2. Fourth Water Supply a) To support GOSL's sector reform; and and Sewerage Project b) To make major investments in Under preparation sanitation in Colombo  Table 3: Proiject Timetable Steps in Project Cycle | Date Planned | Date Actual/Latest Estimate Identification 1984 Preparation 1985 Appraisal November, 1985 November/Decemnber 1985 Negotiations April, 1986 March 26-28, 1986 Board Presentation May 6, 1986 May 15, 1986 Signing July 24, 1986 Effectiveness October 22, 1986 December 18, 1986 Midterm Review N.A. N.A. Project Completion June 30, 1995 June 30, 1996 Loan/Credit Closing June 30, 1995 June 30, 1996  Table 4: LoanlCredit Disbursements: Cumulative. Estimated and Actual (US$ Million) IDA Financial Year Appraisal Esfimate Actual Actual as % of l___________________ _________________ E stirnate 1987 1.0 1.28 128.0 1988 4.6 3.73 81.1 1989 11.1 6.92 50.6 1990 18.5 9.04 48.9 1991 25.0 11.03 44.1 1992 30.0 21.93 73.1 1993 33.7 27.50 81.6 1994 36.1 34.81 96.4 1995 37.0 38.66 104.5 1996 37.0 42.35 114.5 1997 37.0 44.67 120.7 Date of Final Disbursement October 17, 1996  Table 5: Kev Indicatois for Project hnplementation I. Key implemertation FY Upto indicators in SAR 87 88 89 90 91 92 93 94 95 April Remarks 96 1. Total water production per year 122 138 147 148 151 153 154 167 181 59 (x 1000 nily) I_I I _ 2. Water quality 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 0.4 At (chlorine residual) distribution 3. Total metered water consumption per year 59 69 74 74 77 78 79 89 96 33 (x 1000 mnly) 4. Cumulative total water connections at 97 111 115 122 128 134 143 153 166 170 end of year (x 1000) 5. Cumubtive total number of public 4349 4349 4349 4349 4349 4594 4608 4496 4498 4500 standpipes at end of year 6. Number of new 3751 7452 3774 7402 5790 6511 10825 9753 13088 4110 meters installed _ 7. Number of meters 728 795 802 825 961 972 1011 1174 1251 425 repaired or replaced 8. Number of major - - - 475 473 532 564 840 1160 363 leaks repaired 9. Cumulative number of new sewer 136 285 437 615 795 1004 1217 1337 1517 1527 connections at end of year _ 10. Cumulative number of low cost individual - 1210 2510 3280 3280 3280 3280 3450 8250 26210 sanitation units installed 11. Cumulative number of communal low cost - 5 13 13 13 13 13 13 13 188 sanitation facilities installed . H. Modified indicators 1. Total unmetered water conetions at 6904 6139 5396 6159 6014 6292 4924 4814 4592 4581 end of year _ _ 2. III. Other indicators _ _ 2. e -____ ______ ______ ______ ______ _-- --- - - -  Table 6: Key Indicators for Project Operaton I. Key operating FY indicators in SAR 87 88 89 90 91 92 93 94 95 96 Remarks 1. Number of permanent employees of NWSDB _ _ _ a) Management 52 53 52 57 61 58 b) Engineers 221 252 269 272 297 284 c) Accountants 39 46 48 45 46 45 d) Technical _____ 657 710 762 800 857 902 e) Clerical _ 2407 2543 2629 2770 2927 3009 i) Unskilled 3338 3014 2990 2850 3219 3215 TOTAL 7300 7465 6714 6618 6750 6794 7407 7513 2. Average cost per 10,000 liters of water - 16.16 16.85 19.76 25.42 28.76 35.25 40.26 41.25 in Rs. delivered __ _ __ _ 3. Average water revenue per 10,000 liters - 41.56 39.83 84.62 93.03 95.00 97.03 110.6 98.63 in Rs. 4. Quick current ratio - - - 0.81 1.28 1.23 1.12 2.03 2.08 ______ 5. Average age of Age of debt customer receivables - - - 7.7 7.8 5.5 4.1 4.4 3.8 in bill months 6. Collecton efficiency 72 84 74 80 75 95 95 91 96 % 7. Debt to equity ratio - 0.29 0.31 0.29 0.33 0.32 0.28 0.33 0.36 X X 8. Debt service ratio - - - - 0.28 0.36 0.51 0.26 0.34 9. Working ratio - - 1.31 1.93 1.93 1.74 2.72 2.81 10. Rate of return on revalued assets - 0.02 0.02 0.02 II. Modified indicators _ _ 2. _ _ _ = III. Other indicators = = = = = = =_=_= 1. __ . 2. = _ = _=  Table 7: Studies Included in Project Purpose as defined Study at appraisal/redefined Status Impact of study 1. Canal Rehabilitation Study To identify possible Completed A project to rehabilitate the canal systemn improvements and to recommnend as per the recommendation of the study rehabilitation measures for the is being implemented now by the Sri canals in the Greater Colombo Lanka Land Reclamation and Area to form the basics for a Development Corporation with the fully operational drainage assistance from the Japanese _ _______________________ system. Government as well as GOSL. 2. Operation and Control To evaluate the existing Completed Actions have been taken to implement Review of Greater Colombo operations of the head works sorne of the recommendations of the Water Supply transmission and distribution study including reduction of systems in the Greater Colombo unaccounted-for-water, rehabilitation of Area, and to recommend head works, and improvements in the measures to increase efficiency. distribution and transmission. 3. Wash Water Reuse Study To analyze waste water use at Completed The study confirned that it is Kalatuwawa, Labugama and economically feasible to recover waste Ambatale treatment works, and water at Kalatuwawa and Ambatale. But to determine whether it is . so far no action has been taken to economical to reduce water implement the recommendations. losses. 4. Rural Water Supply Sector To develop sound sector policies Cornpleted Based on the recommnendation of the Study and an investment strategy for study, the new Rural Water Supply the rural water supply and Section has been formed within sanitation sector. NWSDB to address the sector issues and to coordinate with other agencies working on rural water supply and sanitation. 5. Greater Colombo Water To review the 1971 Master Plan Completed Some of the recommendations of the Supply Master Plan Update and to recommend appropriate study are being implemented now with changes, taking into account the the assistance of OECF and the French population change, urban and Government. These include the industrial growth, environmental rehabilitation of the existing Ambatale factors, etc. Treatment Plant and study of a new l________________________ treatment plant on the Kalu River. 6. Non Revenue Water Study To develop the scope of work Corpleted As per the recommendations of the and a detailed action plan for the study, actions have been taken, by Non Revenue Work Program for NWSDB, to implement the Program the next 3 to 5 years. during last two years. But the progress achieved so far has not been satisfactory due to weak institutional capabilities. Now an action plan is being prepared to implement the Program with a Contractor as recommended in the = ._ _ _ _ _ _ __ _ _ _ _ _ __ _ _ _ _ _ study.  Table 8A: Project Costs Appraisal estimate (US$ million) Actual/latest estimate (US$ million) l Local Foreign Local Foreign Item costs costs Total costs costs Total 1. Civil Works 13.5 2.4 15.9 26.11 7.44 33.55 2. Materials & Equipment 8.6 11.8 20.4 2.01 29.28 31.29 3. Design, Training, TA, etc. 3.0 4.0 7.0 2.32 6.57 8.89 4. Contingencies 12.2 9.3 21.5 - - - TOTAL 37.3 27.5 64.8 30.44 43.29 73.73 Table 8B: Project Fbiancing Appraisal estimate (US$ million) Actual/latest estimate (US$ million) Local Foreign Local Foreign Source costs costs Total costs costs Total |IBRD/IDA 9.5 27.5 37.0 5.70 40.18 45.88 Domestic contribution 27.8 - 27.8 24.74 3.11 27.85 TOTAL 37.3 27.5 64.8 30.44 43.29 73.73  Table 9: Economic Return and Benefits Economic Rate of Return Appraisal Estimate Actual (at Final Development Water Supply Component 12% (market labor rates) -9% (market labor rates) 17% (shadow labor rates) 9% (shadow labor rates) , s .~~~~~~~~~~~~~~~~~~~~~~~~  Table 10: Stahts of Legal Covenants Original Revised Covenant Present Fulfillment Fulfillment Agreement Section type Status Date Date Description of Covenant Comments Project 2.01 (b) 5 C 06/30/87 and NWSDB shall implement an operational action plan, A revised operatioIal plan was agreed and Agreement annually update such plan annually and agree any changes revised annually. thereafter with IDA. 2.02 5 C NWSDB shaD procure goods and works, and All contracts for goods, works, and services employ consultants as per schedule. were let, although with delays. 2.03 5 C NWSDB shall carry out obligations of sections 9.03- In compliance. 9.08 of general conditions (re: insurance, use of goods and services, plans, schedules, records, reports, etc.) 2.04 2 C NWSDB shall perform its obligations under Agreement signed on 09/15/86. subsidiary loan agreement. 2.05 5 C NWSDB shall exchange views with IDA on In compliance. progress of the project and performance under this l and subsidiary loan agreement. 3.01 2 C NWSDB shall operate with sound administrative, In compliance financial engineering and public utiliies practice under supervision of qualified and experienced nmanagement and competent staff. 3.02 5 C NWSDB shall operate and maintain its plant In compliance. machinery, equipment and other property through sound engineering, financial and public utility practices. 3.03 5 C NWSDB shall take out adequate insurance In compliance. consistent with appropriate practice. 4.01 (a) I C NWSDB shall maintain adequate accounting In compliance. records. 4.01 (b) I CD 09/30/88 and Audit of NWSDB's accounts and financial Reporting was delayed from time to time. annually statements due to IDA not later than 9 months after thereafter end of FY. 4.01 (c) I CD 09/30/88 and NWSDB shall maintain separate records and Reporting was delayed from time to time. annually accounts of SOEs, and provide IDA with separate _ thereafter audit opinion with Item 4.0 1(b) above.  . . . . Original Revised Covenant Present Fulfilment Fulfillment Agreement Section 11pe Status Date Date Description of Covenant Comments 4.02 (i) 2 CP FY 87 onwards NWSDB shall produce sufficient revenues to meet Complied with only after IDA threatened to operating expenses and working capital suspend disbursements due to the long history requiremnents. of non-compliance. 4.02 (ii) 2 CP FY 89 onwards NWSDB shall produce sufficient revenues to meet Complied with only after IDA threatened to operating expenses, working capital requirements suspend disburserents due to the long history ___________ ___________ _____________ and the greater of debt service or depreciation. of non-compliance. Covenant types: Present stauis: I = Accoustauits 8 = Indigenous people C = covenamt complied with 2 = Fmanaial petfomuanceievenue 9 = Monirnng, review, and reporting CD = complied wkh after delay generation fn,m bfwiciaries 3 = Flow and utilization of pmject 10 = Project implementation not covered CP = complied with partiafly funds by categories 1-9 4 = Counterpast fundirg 11 = Sectora or cross-seAl budgetary or NC = not complied with odier resource alication 5 = Managemen aspects of the pfoject 12 = Sectoral or crossecoDl policy/ or executig agency itgulator,ntyiatonal action 6 = Environmental covenats 13 = 9ther 7 = Invokmuwy reseenient 39)  Table 11: ComdiAMce with Operational Manual Statenents Statement number and title Describe and comment on lack of compliance 1. N.A. N.A. 3.  Table 12: Bank Resources: Staff Inputs Planned Revised Actual Stage of project cycle Weeks Weeks Weeks Preparation Appraisal 14.2 Negotiations through Board approval _ Supervision 90.0 130.9 Completion 7.0 TOTAL _  Table 13: Bank Resources: Missions Performance rating Specialized Implemen- Develop- Month/ Number Days in staff skills tation ment Types of Stage of project cycle year of persons field represerted status objectives problems Identification/Preparation _ Appraisal Nov/Dec 85 4 25 MNA, STE, FNA Supervision May 86 1 10 STE Aug 86 3 14 MNA, STE, FNA Nov/Dec 86 3 13 MNA, STE, FNA Mar 87 3 13 MNA, STE, FNA May 87 2 12 MNA, STE Sep 87 2 12 FNA, STE Jan/Feb 88 2 10 FNA, STE Oct88 2 13 FNA,STE Jun/Jul 89 3 13 FNA, STE, 2 2 OPS Mar 90 1 6 STE 3 3 LC Jul 90 1 6 STE 3 3 _ LC Sep 90 3 13 STE, FNA, 3 3 LC PCO May 91 2 1 1 STE, FNA 2 2 Jun 91 3 13 STE, FNA 2 2 Oct 91 3 12 STE, FNA 2 2 Oct/Nov 92 2 12 STE, FNA 2 2 Jul 93 2 13 STE, ECM 2 2 Dec 93 2 11 STE, ECM I 1 Sep 94 4 8 STE, I I Jun/Jul 95 2 12 STE, MFS I 1 Completion Jul 96 3 6 STE, MFS, - UES Total 258 Key: MNA : Management Analyst FNA Financial Analyst STE Sanitary Engineer OPS Operations Specialist PCO Procurement Officer ECM :Economist WSA : Water & Sanitation Adviser MFS : Municipal Finance Specialist UES : Urban Environmental Specialist LC : Compliance with Legal Covenants FP : Financial Performance PR : Procurement Progress PM : Project Management Performance  Aedix A IMlPIJEMENTATION COMIPIETION REPORT SRI LANKA WATER SUPPLY AND SANIrrATON REHABUITATION PROJECT (CR. 1700-CE) Mission's Aide-Memoim (with Operation Plan)   The World Bank 1818 H Street N.W. (202) 477-1234 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Washington, D.C. 20433 Cable Address: INTBAFRAD INTERNATIONAL DEVELOPMENT ASSOCIATION U.S.A. Cable Address: INDEVAS August 26, 1996 Mr.G.A.K. Gunasekera Secretary Housing, Construction & Public Utilities Sethsiripaya Battaramula, Sri Lanka Dear Sir, Third Sri Lanka Water Supply and Sanitation Rehabilitation Project (Cr. I 700-CE) I would like to thank you and the Government of Sri Lanka (GOSL), as well as the management of the National Water Supply and Drainage Board (NWSDB) for the courtesies and cooperation extended to the July 1996 IDA mission for the above referenced project. We endorse the findings and recommendations of the mission as incorporated in its Aide-Memoire dated July 12, 1996 which it left in Colombo. We would like to congratulate you and the staff of the National Water Supply and Drainage Board on the completion of the above project. The mission reported that nearly all works have been completed satisfactorily and the credit proceeds have been fully utilized. We are particularly pleased with the achievements of the Low-cost Sanitation Program, executed by the Clean Settlements Unit in your Ministry, successfully raising appropriate sanitation behavior with low-income households in peri-urban areas and involving the beneficiaries in the financing and implementation of latrine facilities. The program has been so successful that demand has been much higher then what the program could deliver. It would be unfortunate to lose the momentum generated by this pilot project, both in terms of demand and capacity/experience built at the Unit. Therefore, I would kindly request you to find ways to continue this prograrn under regular government funding for the sector. RCA 248423. M WUI 64145 Q3 FAX (202) 477-6391  Mr. Mr. G.A.K. Gunasekera -2- August, 4, 1995 As you know, IDA's development objectives for the project included the financial viability of the sector institutions and the economic sustainability of service provision. Charging appropriate water rates, reflecting the economic cost of the service, as well as efficient and cost-effective delivery of services are essential. After a number of years of regular tariff adjustments the water charges have not been increased since January 1994. This situation has put the financial situation of NWSDB at risk and made the compliance with the Credit's financial covenants for FY96 marginal. This has been for some time a concern for IDA as well as other donors in the sector and, if not corrected, would be an impediment to future IDA lending to the sector. Therefore, it is essential that the Government will enable NWSDB to raise its tariffs annually, starting January 1997, on the basis of the Board's real financial position (after adjustment for the inaccuracies pointed out by the mission) and appropriate financial forecasting mechanisms. Sincerely, Marie A. Robinson Chief Infrastructure Services Division Department 1 South Asia Region CC: Mr. T.B. Madugalle, Chairman, National Water Supply and Drainage Board, Ratmalana, Sri Lanka Mr. Bimal Jalan, Executive Director, World Bank, Washington D.C.  SRI LANKA THIRD WATER SUPPLY AND SANITATION REHABILITATION PROJECT (CREDIT 1700 - CE) IDA FINAL SUPERVISION MISSION - JULY 8-12, 1996 AIDE MEMOIRE (Colombo, July 12, 1996) A. INTRODUCTION 1. An IDA mission consisting of Messrs. Wiebe Moes (Mission Leader/Sanitary Engineer), Graeme Lee (Municipal Finance Specialist) and Toshiaki Keicho (Urban Planner) visited Sri Lanka in conjunction with other assignments during July 8 to 12, 1996 to carry out the supervision on the completion of the above project and to initiate the preparation of the Implementation Completion Report. The mission held discussions with officials of the Ministry of Housing, Construction and Public Utilities (MHC&PU) and National Water Supply and Drainage Board (NWSDB). 2. The mission appreciates the courtesies and cooperation extended to it during this visit. The findings and recommendations of this mission, as incorporated in this Aide Memoire, are subject to review and confirmation by IDA management. B. STATUS ON THE CREDIT 3. The credit closed on June 30, 1996 and NWSDB is now in the process of finalising its payments on various construction contracts, LCS program and technical assistance contract during the next 4 months. As of June 20, 1996 credit utilization has been SDR.30.4 million and the undisbursed amount is SDR.1.7 million. The undisbursed amount is approximately SLRs.135.62 million for which NWSDB intends to submit withdrawal applications for the following expenditures, thereby fully utilizing the available credit proceeds: Contract 3/1 equivalent SLRs. 62.72 million Contract 7/2 1.60 million Contract 7/4A 1.80 million Contract 9/1 25.60 million Contract 34/3 1.20 million Low Cost Sanitation Program 35.50 million Construction Management Technical Assistance 7.20 million Total 135.62 million  2 C. STATUS OF PROJECT IMPLEMENTATION Water Supply Project Component 4. The mission was informed that all civil work contracts have been completed successfully except for the scraping and lining contract 9/1. The contractor's claim on contract 3/1 has been resolved and final payments will be made shortly. Contracts 7/2 and 7/4A have been completed in time and some minor payments are still outstanding. Payments for road reinstatement under contracts 9/1, 7/2 and 3/1, amounting to some Rs. 16 million, will be made shortly to RDA and other agencies/local bodies. 5. Procurement problems with the award of contract 9/1 (Scraping and lining) and contract management problems with the contractor resulted in significant implementation delays, and was the major reason for the extension of the credit closing date. Despite assurances by the contractor earlier this year to complete the works in time, the mission was informed that NWSDB intends to cancel about 25% of the contract works that could not be completed by the credit closing date. However, the scraping and lining of all transmission mains have been finalised as agreed with the previous mission. The mission supports NWSDB's efforts to cancel the rehabilitation of a limited number of distribution mains from the contract without compensation to the contractor. Low Cost Sanitation Program 6. The Clean Settlement Unit at MHC&PU managed to successfully complete 22,930 sanitation units and one shallow sewer system, benefitting a total of 23,105 families in lower income areas. This program has been extremely successfull in raising awareness of appropriate sanitation behavior with poor households and mobilizing contribution to the cost of the facilities (2/3 of the total latrine costs have been met by the beneficiaries). The program has been so successful that demand has been much higher then what the program could deliver. The mission has advised MHC&PU that it would be unfortunate to lose the momentum generated by this pilot project, both in terms of demand and capacity/experience built at the Unit, and that the Ministry should find the means to continue this program. 7. The mission noted that about 1/3 of the total cost of the program (approximately Rs.23 million) has not yet been reimbursed to some 9,000 beneficiaries that have completed their sanitation facilities. The Clean Settlements Unit was urged to make the final payments within the next three months and a program has been agreed upon. The mission requested NWSDB to make the required funds available the Unit as soon as possible.  3 8. NWSDB agreed to carry out a physical audit of the LCS program on a random basis and inform IDA on the results. The mission liaised with Mr. Charles Pendley of the Regional Water and Sanitation Group for South Asia. It was agreed that RWSSG-SA would carry out a separate evaluation of the program to document in more detail the community management aspects, achievements and impact of the program as well as lessons learned. The findings of the evaluation will be discussed with MHC&PU and a copy of the report will be made available to SA1IN. D. NWSDB FINANCES 9. The financial information provided to the mission by the NWSDB for 1995 appears to misstate the Board's true financial position. The Board's data indicates that a net profit was earned in 1995 of Rs 185 million. However, a number of points mentioned by the previous mission, which could have a material adverse impact on these results, remain to be addressed. In particular, the following was noted: a) the accounts continue to show substantial amount of capital expenditure (Rs. 16 billion) as work in progress. This may result in depreciation being understated by as much as Rs 250 million; b) while owing about Rs. 1.4 billion in arrears of debt service to GOSL, the Board has Rs 1.6 billion invested, mostly in Treasury Bonds, on which it is earning interest income in excess of Rs 200 million. Using this investment to pay its arrears would reduce its income (and profit) accordingly; c) repairs and maintenance expenditure has reduced from about Rs. 80 million in 1992 to Rs. 45 million in 1995. Considering the significant assets owned by the Board this may suggest inadequate maintenance of the existing facilities and consequent deterioration of its assets as well as quality of its services. 10. Either of the first two points is greater than the profits being shown as earned. Taken together, totaling about Rs.500 million, they represent the equivalent of approximately a 30% tariff increase. GOSL has not approved a tariff increase in either 1995 or 1996. Although revised financial results for 1996 are not yet available, based upon budget figures it is estimated that adjusting for the above items would similarly eliminate 1996 profits. 11. In terms of the Credit's financial covenant, the Board's data indicates this has been met in 1995. Adjustments to depreciation and reduction in investment income as described above would make this outcome marginal. The Board agreed to address these concerns in detail when preparing its 1996 accounts. It also agreed to prepare a financial forecasting model, to allow the Board's financial position to be forecast using a variety of different "what if' assumptions.  4 12. The mission would support further strengthening of the Board's financial management. Presently, the most current financial data relates to the end of March, 1996 --- which is too dated to be of assistance for management purposes. Measures to improve this performance, including decentralization of accounting, strengthening the financial function by addition of AGM posts, use of PC-based accounting systems, and additional staff training are being considered by the Board. E. IMPLEMENTATION COMPLETION REPORT 13. The mission spend ample time with NWSDB to discuss the Bank's requirements for preparation of the Implementation Completion Report (ICR), the objectives of the exercise and the obligations of the Borrower to prepare its part of the report. The mission provided advice and support to the Borrower for preparing its contribution to the ICR. Work is underway to collect the statistical data and other information necessary to prepare the ICR. 14. The mission reviewed with NWSDB the major issues it has been identified that have posed problems during the implementation of the project and should be focused upon during the evaluation of the project. The key issues concern: (a) readiness of the project at credit effectiveness in terms of timely project preparation, adequate investigations during design stage and significant design changes during implementation; (b) elaborate procurement procedures including approval processes for tender documents, prequalification of consultants, contractors and suppliers, tender evaluation and the role of the Cabinet Tender Board in all these preparation stages; (c) tendency to split up equipment supply contracts in many small tenders which require substantial administrative monitoring with the Bank as well as the Borrower; (d) timely and adequate availability of counterpart funds; (e) experience with international and local contractors and the consequences for contract packaging; and (f) role of the construction management advisors. 15. As part of ICR preparation, the Borrower is required to develop and present an acceptable action plan for the operational phase of the project which ensures continued operations of the assets created under the project. NWSDB agreed to submit to IDA the draft action plan by the end of July, 1996. The action plan should at least set out: a) the required institutional arrangements and staffing needs. Also, whether these have already been met, or the target dates by which these will be in place; b) estimates of the additional O&M costs resulting from the operation of such assets, and source of such funding; and c) the key physical, operational and financial indicators for monitoring the performance of these assets and assessing their development impact.  5 16. To enable the ICR to be completed within 6 months of the credit closing date (Dec. 31, 1996), the mission and the Borrower agreed on the following schedule for ICR preparation: * Borrower submits the remaining statistical data to IDA: by Jul. 31, 96 * IDA submits a draft ICR to Borrower for comment: by Sep. 15, 96 * Borrower submits to IDA its draft evaluation report by Sep. 15, 96 * IDA submits to Borrower comments on draft report by Oct. 15, 96 * Borrower submit its comments on IDA's draft ICR: by Oct. 15, 96 * Borrower submits to IDA its final evaluation: by Nov. 15, 96 * IDA finalizes the ICR: by Dec. 31, 96 F. OTHER ISSUES 17. The mission discussed with MHC&PU the progress with the formulation of reforms in the water and sanitation sector as initiated by IDA during the July 1995 mission and subsequent donor conference in October 1995 and privatization workshop in January 1996. The mission discussed the recommendations by the Secretaries committee concerning (a) the establishment of an independent Greater Colombo Water and Sewerager Authority and the scope of private sector participation; (b) handing over operational responsibility of other urban schemes from NWSDB to the local authorities; (c) changing from a national tariff to a scheme specific or regional tariff whereby the domestic consumer would pay charges that reflect better the actual cost of the service provided; (d) greater user participation in development and implementation of rural water supply schemes by the various agencies involved in the sub-sector as well as better coordination between the agencies; and (e) establishment of a separate department within MHC&PU for policy, planning and monitoring of the sector. 18. The mission informed GOSL that it has submitted a request for funding (IDF grant) for carrying out a study for the preparation of institutional reform in the sector and identifying opportunities for private sector participation, particularly for the Colombo metropolitan area. The mission submitted a draft Terms of Reference for this study for review and comments by GOSL. It was agreed that comments would be sent to IDA not later than July 31, 1996. Initial observations by MHC&PU and NWSDB during the discussions centered around the future role of the National Water Supply and Drainage Board, the process and implications of changing the national water tariff and the need for subsidies during the transitional period to absorb shocks. Provided that the funding request is approved shortly, it is expected that the study will start early September 1996 and will take about 4 months to complete. L:Asi\wssrp\nwsju;96.am  (t  SRI LANKA WATER SUPPLY AND SANITATION REHABILITATION PROJECT IDA Credit 1700 CE PLAN FOR THE OPERATIONAL PHASE 1. GREATER COLOMBO WATER SUPPLY National Water Supply and Drainage Board (NWS&DB) is responsible for the operation and maintenance of Greater Colombo water supply (which serves Wattala, Mabole, Mahara, Peliyagoda, Colombo, Kolonnawa, Kotikawatta, Mulleriyawa, Kotte, Maharagama, Dehiwala- Mt. Lavinia, Moratuwa and Panadura) including headworks, transmission and distribution except the maintenance of distribution within Colombo Municipal Council (CMC) where the task is performed by the council staff themselves under a contract with the NWS&DB where the salaries of maintenance staff and other expenses, including materials used for O&M are supplied by the Water Board. Since almost all the work done within the Greater Colombo area out of IDA Funds are mainly upgrading and rehabilitation of the existing system there has been no appreciable increase in the staff both within the NWS&DB and CMC except for Maharagama Water Supply where a complete new system has been installed. Estimated cost of recurrent expenditure for the year 1996 is Rs. 573 million for the Greater Colombo Water Supply. Consumers are billed to collect revenue by the NWS&DB and it is expected to collect some Rs. 1,056 million during 1996. Since 1991 sufficient funds have been generated from adjustment of tariff to cover not only direct O&M cost but also debt service, interest and capital repayment or depreciation whichever is higher commensurate with the covenant requirements of the IDA Credit 1700 CE. There are stand posts garden taps and direct consumer connections in the system. Majority of the connections are domestic consumers but there are considerable numbers of institutional, commercial hotel, shipping and stand post connections in the system. Number of total connections as in April 1996 is 170, 360 while there are 4500 standposts within the system. Number of connections which were 97362 in 1987 is now around 170360 indicating a 100% in increase in connections during the project period from 1986 to 1996. Water quality is being monitored at various locations of the system including headworks, transmission and distribution both by bacteriological and physical-chemical means to ensure that the water delivered to the consumers are within acceptable standards. Some 15 million cubic metres of water is produced at three headworks (Labugama, Kalatuwawa & Ambatale) of the system per month. Total water that is accounted or metered per month is around 7.5 million cubic meters or so, indicating a UFW figure of 50% for the Greater Colombo Water Supply System.  2. MAHARAGAMA WATER SUPPLY Maharagama Water Supply which has been constructed under the project is maintained by the NWS&DB as a sub unit of Greater Colombo Water Supply. The scheme was commissioned in 1994. Some 50 skilled personals are assigned for the work including some 40 unskilled persons. Still some 10 percent of skilled personals and 25 percent of unskilled personals are to be recruited. Action is underway by the NWS&DB to recruit those personals early. Total O&M cost for 1996 for the works is Rs. 19,927,200. Consumers are billed according to a tariff and NWS&DB performs the task. The supply to the consumers are on 24 hour basis and some 5500 connections have already been given. 30% of the population is served with water in the area. Still some areas are not covered by the distribution but most of those areas are addressed under Stage III distribution which is being implemented now. However, a considerable percentage of people have their own supply through shallow wells. There are no public standposts in the scheme and it is the policy to have the system without standpost to minimise wastage. Daily consumption of water per day is around 4000 cubic metres per day and it is estimated a per capita consumption of 146 lpcd. 3. COLOMBO SEWERAGE Colombo Sewerage System which covers Colombo Municipal Council (CMC) administrative limits consists with 13 sewage pumping stations, 234 km of sewer mains diameter ranging from 150 mm to 1500 mm and two sea outfalls at Wellawatta and Mutwal which have been constructed under Second Sri Lanka Water Supply and Sewerage Project (IDA Credit 1041 CE). The system has been maintained by the CMC upto mid 1996. However, due to institutional problems within the CMC and on the recommendation of IDA, NWS&DB has taken over the O&M of the system from July 09, 1996. However, for an initial period of two years the system will be maintained by CMC even from July 09, 1996 on a service contract with the NWS&DB. A separate branch has been established within the NWS&DB to execute above work under a Deputy General Manager and they now maintain sewerage systems at Kolonnawa and Dehiwala- Mt. Lavinia. It is estimated that the 1996 O&M expenditure for CMC sewerage system is around Rs. 90 million. CMC contribution is Rs. 70 million while NWS&DB will contribute Rs. 20 million. There has not been any changes in staff levels within the CMC due to the additional work out of the project since those funds were utilised mainly to rehabilitate existing system plus some road reinstatement after sewer laying under Credit 1041 CE. It is also proposed to fund the future O&M, both by the CMC and NWS&DB in the ratio of 7:2 out of their general reserves. Still no concrete action has been taken to levy a sewerage tariff from these customers. The number of sewer connections within the CMC is around 42,700 (domestic - 32,400 connections, commercial/other - 10,300 connections) Out of the total population of 745,000 (1992), 550,000 are served by sewers while others are served by on site facilities, which represent a 74% coverage with water borne sewerage.  Non availability of funds for installing laterals in Kolonnawa and Dehiwala/Mount Lavinia has been the biggest drawback in giving house connections.Cabinet approval has been requested for funds for urgent relabilitation works amounting to Rs 50 million annually till 1999. 4. COLOMBO LOW COST SANITATION Under phase I of the project some 3280 families were provided with household latrines connected to shallow sewer systems and 520 families with communal latrines connected to common septic tanks. Under phase II & III some 22930 household latrines and a shallow sewer system benefitted to 175 families were implemented. In all above cases no additional funds are required for O&M since either families benefitted or CMC sewerage staff will maintain the system. A health education programme has been conducted by the Clean Settlement Programme Unit (CSPU) to convince the beneficiary families about the proper maintenance and benefits accumulated for them from those actions. Some guidelines including handouts are distributed by CSPU among the beneficiaries. There is no need to have any O&M staff or budget due to the above circumstances and it is hoped to close down the Low Cost Sanitation Project Unit by October 30, 1996. 5. COLOMBO STORMWATER DRAINAGE Colombo Stormwater Drainage System is being maintained by the Colombo Municipal Council (CMC). The staff under this section is controlled by Deputy Municipal Engineer (Drainage) together with other duties including maintenance of sewage pumping stations. However the sewerage system is being taken over by NWS&DB as described under Colombo Sewerage. There has been no additional staff recruited due to the assets added to the system by the project since the work is very minute compared to the whole drainage system within the CMC. O&M cost for the year 1996 for the system is Rs. 33.7 million. Funds for O&M comes from CMC reserve funds collected through assessment taxes and other income and there is no special charges for drainage from consumers. CMC hopes to review the previous reports on the system and study the existing system so as to address the problems encountered in the system. At present the canal system and certain areas in CMC drainage area are being rehabilitated by Sri Lanka Land Reclamation & Development Corporation with the assistance of Japanese Government on the recommendations based on Canal Rehabilitation Study done under IDA Credit 1700 CE.  6. MONITORING INDICATORS Indicator which are monitored by the WDB at present for Greater Colombo as well as for the whole island are Unaccounted for Water (Colombo - 47%, Regions - 31%) Water Production, Number of connections (Colombo - 172, 302, Regions - 166,336). Number of employees per 1000 connections (Colombo - 10, Whole Island - 22) and other indicators related to billing and collection, arrears of billing, overtime done by employees, staffing, monthly fuel cost, repair and maintenance cost of vehicles, disbursement of capital funds and consumer complaints including some parameters related to quality. All these indicators are monitored by the Performance & Management Analysis Unit (PMAU) of the WDB monthly and a report is produced called Key Management Information which has been sending to the IDA by the WDB with their monthly progress report. Even in future it is possible to monitor those indicators and report to the IDA if necessary. Above indicators are closely monitored by the WDB and actions are taken to achieve the targets according to the corporate plan objectives of the WDB.  IMPLEMENTATION COMPLETION REPORT SRI LANKA WATER SUPPLY AND SANITATION REHAB1HATION PROJECT (CR. 1700-CE) Borrower's Evuaation   IMPLEMENTATION COMPLETION REPORT (ICR) Third Sri Lanka Water Supply and Sanitation Rehabilitation Project IDA CREDIT 1700-CE Prepared by National Water Supply and Drainage Board September 1996  I I  IMPLEMENTATION COMPLETION REPORT Third Sri Lanka Water Supply and Sanitation Rehabilitation Project - IDA Credit 1700 CE CONTENTS CHAPTER 1 1.1. PROJECT OBJECTIVES 1.2. ASSESSMENT OF PROJECT DESIGNS 1.2.1. Greater Colombo Area 1.2.2. Anuradhapura and Amparai Ar-ea 1.3. IMPLEMENTATION, PROCUREMENT, CONTRACT MANAGEMENT AND TECHNICAL ASSISTANCE 1.3.1. Transmission System 1.3.2. Distribution System Improvements 1.3.3. Greater Colombo Scraping and Relining 1.3.4. Maharagama Water Supply Scheme 1.3.5. Procurement Contracts 1.3.6. Contract Management 1.3.7. Technical Assistance 1.4. OPERATIONAL EXPERIENCE AND FINANCIAL DEVELOPMENT CHAPTER 2 2.1. WDB'S PERFORMANCE ON PROJECT PREPARATION 2.1.1. Operational Action Plan 2.1.2. Land Acquisition 2.1.3. Project Reporting and Supervision 2.2. WDB'S PERFORMANCE ON PROJECT IMPLEMENTATION 2.2.1. Studies 2.2.2. Update of Greater Colombo Water Supply Master Plan 2.2.3. Non Revenue Water Study 2.2.4. Ambatale Jubilee NMaharagama Water Supply Scheme  2.2.5. Greater Colombo Distribution Improvements 2.2.6. Greater Colombo Pumping Stations 2.2.7. Bulk Meters 2.2.8. Low Cost Sanitation 2.2.9. Training 2.2.10. Procurement of Vehicles/Miscellaneous Equipment 2.2.11. Project Management 2.3. WDB'S PERFORMANCE ON COVENANT COMPLIANCE 2.4. WDB'S PERFORMANCE ON OPERATION 2.4.1. Greater Colombo Water Supply 2.4.2. Maharagama Water Supply 2.4.3. Colombo Sewerage 2.4.4. Colombo Low Cost Sanitation 2.4.5. Colombo Stormwater Drainage CHAPTER 3 3.0. EVALUATION OF WORLD BANK PERFORMANCE 3.1. Project Identification 3.2. Project Preparation 3.3. Project Appraisal and Supervision CHAPTER 4 4.0. LESSONS LEARNED 4.1. Designs 4.2. Construction Management and Supervision 4.3. Project Coordination 4.4. Staff 4.5. Prequalification of Contractors/Tendering/Approval of Tenders  IMPLEMENTATION COMPLETION REPORT Third Sri Lanka Water Supply and Sanitation Rehabilitation Project - IDA Credit 1700 CE CHAPTER 1 1.1 PROJECT OBJECTIVES The project forms a part of National Water Supply and Drainage Board (WDB)'s urban water supply and sanitation investment program and executed during the period 1986- 1996. Originally project was scheduled to be completed by June 1995, subsequently credit has been extended upto June 1996 to complete essential items in the project. The programme includes (a) rehabilitation, extension and improvement of water service facilities in and around Colombo. (b) storm water drainage in Colombo and a study of the maintenance and rehabilitation requirements of the overall canals and drainage conveyance system. (c) extensions to sewerage system in Greater Colombo area. (d) on site sanitation facilities in Colombo and some divisions in Kalutara and Gampaha districts and improved surface drainage and paving in areas which can not economically be served by water borne sewerage systems. (e) leak detection and waste control programs and improvements in WDB's operational efficiency and (f) technical assistance to support WDB's institutional development efforts. Government of Sri Lanka (GOSL)'s sector investment strategy which was given due consideration during the project implementation includes (a) institutional development: to improve overall sector management practices through strengthening the policy, management and operational framework, particularly of the WDB. (b) financial strengthening: to adopt and implement realistic financial and commercial management practices in the sector and appropriate capital financing plans and pricing policies and (c) increased operating efficiency: to direct investments towards rehabilitation of existing plant and equipment, increase utilization of existing systems capacity, improve operations and maintenance and introduce cost control measures. Main jobs executed/completed under the project are  a) Greater Colombo Water Supply (i) Construction of about 16 km of transmission mains diameter ranging from 450 mm to 1100 mm to augment existing capacity. (contracts 3/1, 7/1 and 7/2) (ii) Construction of about 19 km of distribution mains, diameter range 150 mm to 700 mm to expand and strengthen the existing system. (contracts 7/1 and 7/2) (iii) Construction of 9 million litres of storage in one service reservoir. (contracts 3/1) (iv) Scraping and lining with cement mortar, about 63 km of transmission and 9 km of distribution mains, diameter ranging from 150 m to 500 mm. (contract 9/1) (v) Provision of system control equipment, valve replacement and appurtenances. (contract 4/1 and 6/1) (vi) Building and installation of pumping to replace and augment existing pumping arrangements. (contract 8/2) b) Maharagama Water Supply (i) Construction of about 80 km of transmission and distribution mains, diameter range 50 mm to 600 mm. (contracts 3/1, 7/2) (ii) Construction of 3600 cubic metres capacity ground storage reservoirs and 1000 cubic metres capacity water tower. (iii) Building and installation of pumping station of to pump water from the reservoir to the tower (contract 3/1). c) Colombo Sewerage About 20 km of road reinstatement following sewer laying activities plus some final payments to sewer laying contractor under Credit 1041 CE (Job A16). d) Colombo Sanitation Provision of low cost on-site waste disposal facilities in selected areas of Colombo and some locations in Gampaha and Kalutara districts not covered by waterborne sewerage (Job A17).  e) Colombo Stormwater Drainage (i) Construction of 0.7 km of storm relief drains diameter range 500 mm to 1200 mm at eight locations (Job A18). (ii) Construction of drainage channels and gulleys at various locations. (Job A18) f) Technical Assistance (i) Appointment of consultants to improve WDB's design and construction management capability including to undertake the preparation of designs and tender documents of some project components. (ii) Appointment of consultants to studies related to canal rehabilitation, operation and control review of Greater Colombo water supply, wash water re use, Rural water supply sector review, Greater Colombo water supply master plan update and Non revenue water study. g) Training Training programmes were arranged both short-term and long-term for WDB staff in Colombo and abroad on system maintenance and operations, project management including diploma/masters courses on Sanitary Engineering. h) Vehicles and Equipment Vehicles which are necessary for operations and preventive maintenance were procured under various contracts during the project period including miscellaneous equipments for investigations and laboratory testing. (Job A30, contract 34/1, 34/2 and 34/3) 1.2 ASSESSMENT OF PROJECT DESIGNS 1.2.1 Greater Colombo Area A study was carried out by the WDB with the assistance of a consultant in 1985 to assess the condition of the existing transmission and distribution system for Greater Colombo Water Supply and the work required to bring the system to a satisfactory condition to meet current needs and to provide for future requirements up to the years of 1990 and 2000. The study area covers Greater Colombo from Panadura in the south to Ja-Ela in the north and stretching inland as far as Kaduwela.  A per capita demand of 182 to 341 lpcd for house connections and 128 lpcd for standposts consumers were established after a consumer demand survey and all projections and designs were carried out accordingly. The population in the area has been assessed at 1.85 million in 1985 increasing to 2.2 million in the year 2000. The three sources supplying water to Greater Colombo have not been part of this project. However, all three headworks including treatment plants have been refurbished or/and extended to meet demands in year 2000 under other bilateral and multilateral assisted projects. The existing transmission system including pumping stations have been examined and various hydraulic measurements have been carried out to asses the condition of the system and the reliability of the supply. The whole system was characterised by lack of working bulk meters and this had rendered difficult the task of assessing the quantities of water carried at key locations of the system. Some old transmission and distribution lines were tested for encrustation and some lines were identified for scraping and relining to increase flows. Required reinforcement/rehabilitation of each distribution area and transmission system including pump stations have been reviewed for the horizon of years 1990 and 2000. Additional storage requirements to meet the demand of 1990 and 2000 were assessed and locations of such storage were identified for existing supply areas as well as for new water supply areas. In calculating the storage capacity a 12 hour storage at peak month demands was established as the yard strick. Due recognition was given for sector objectives as well as to all other ongoing projects carried out within the project area with various donor assistance. Coordination was one important part of the project design not only among various departments of the WDB but also staff/consultants who have been attached to various rehabilitation/refurbishment works within the project area. Some major rehabilitation/extension of headworks and treatment capacity were carried out at Labugama, Kalatuwawa and Ambatale. Labugama and Kalatuwawa were refurbished during the project period with Japanese assistance while Ambatale plant was extended by 40 mgd with French 2assistance during last couple of years including rehabilitation of Ambatale existing works with Japanese assistance. In studying the project some areas in the Greater Colombo were identified to give new water supply facilities including Maharagama, Pannipitiya, Battaramulla and Kaduwela.  1.2.2 Anuradhapura and Amparai Area Preliminary studies and investigations were done to rehabilitate Anuradhapura and Amparai WSS out of project funds. Both are existing schemes Anuradhapura in the North Central Province and Amparai in the Eastern Province. Problems encountered in the schemes were inadequate sources to abstract water at both places plus problems in the storage and distribution including transmission. Even the treatment provided at both locations were not satisfactory at all specially at Amparai. 1.3 IMPLEMENTATION, PROCUREMENT, CONTRACT MANAGEMENT AND TECHNICAL ASSISTANCE The project consists of some 40 discrete jobs ranging from construction of new water supply works and rehabilitation of existing systems to procurement of vehicles and equipment including technical assistance for construction management plus carry out some specific studies. Certain jobs which were in the original list of works were deleted subsequently due to operational difficulties and inadequate local counterpart funding. Some major works which were deleted from the programme were rehabilitation of Anuradhapura and Amparai WSS and the construction of new WSS at Battaramulla, Kaduwela and Pannipitiya (Towns East of Colombo). Battaramulla, Kaduwela and Pannipitiya schemes have been later implemented with Japanese assistance and are already commissioned now. 1.3.1 Transmission System To address the problems in the transmission and to increase the reliability of the system some contract packages were designed and implemented successfully. Starting with the extension of clear water sump at Ambatale and laying an additional 1100 mm transmission line from Ambatale to Jubilee Reservoir, the reliability of the transmission was enhanced appreciably. Construction of an additional ground water reservoir at Jubilee increased the storage capacity of the system thereby to cater for any breakdowns or short term power failures. New pumps were installed at various locations in the Greater Colombo area to increase the supply as well as to replace the old pumps to increase the reliability of the system. Under this pumps were installed at Ambatale, Kolonnawa, Maligakanda, Dehiwala, Moratuwa and Panadura (Contract 8/2). To increase the accountability and decrease the UFW bulk meters were installed at key locations of the system including all headworks and storage reservoirs and elevated towers. Stage I of the bulk meters job was completed but stage II was not implemented due to certain problems encountered during stage I. Mal functioning of certain meters after installation and inadequate protection against lightning on sophisticated instrumentation of bulk meters  were some shortcomings of the system. A transmission of 900 mm diameter and 2 km long was laid from Jubilee Reservoir to Nawala area to increase the supply of that area where water supply has been not adequate for the last few years. 1.3.2 Distribution System Improvements To improve the distribution system within the Greater Colombo area, two contracts were implemented (Contract 7/1 and Contract 7/2) under the project. Certain areas in CMC and Greater Colombo were reinforced with more lines to cope with the increased demand in those areas. Due to the above lines supply has been improved substantially to Fort area of CMC and also to some pockets in highly populated areas. Certain difficulties were encountered during above pipe laying due to narrow stretches of roads and encountering a number of service utility lines in close proximity. 1.3.3 Greater Colombo Scraping & Relining Applications for prequalification of contractors for this were called around 1989 but subsequently it was postponed due to non availability of local counterpart funds. Again it was taken up for construction around 1994. Old 20" transmission line from Labugama to Ambatale plus some transmission and distribution lines within CMC, Dehiwala - Mount Lavinia. Moratuwa and Panadura were taken up for scraping and reline. However it was decided before tendering that scraping and relining of new 20" from Labugama to Ambatale is feasible and thereby it was also included in the tender. Progress achieved by the contractor was always behind the programme and with some difficulty scraping and relining of both 20" lines were completed. However during the construction, the contractor was slow in progress specially executing the work in distribution lines. Around January 1996 the progress of the contractor was reviewed and it was mutually agreed to delete some sections in the contract identified for scraping and reline within CMC and Panadura distribution. Flow capacities of scraped and relined pipes have been increased significantly including C valves. The real impact of the operation at Labugama - Kalatuwawa lines are not yet known due to they are not connected to the system but results at Panadura and Dehiwala - Mount Lavinia are encouraging. It was reported that the transmission from Panadura reservoir to tower has been improved to such an extent that now the pumping hours have been halved from originally operated numbers to deliver the required demand. 1.3.4 Maharagama Water Supply Scheme Earlier there was no pipe borne water supply in the area except individual shallow well supply by consumers themselves. The project comprises 6 km long 600 mm dia meter transmission from Jubilee reservoir to Maharagama reservoir, 3600 cubic meter capacity ground reservoir, 954  cubic meter capacity elevated water tower, pump house and pumps and a distribution of 90 km long. It is expected to serve a population of 120,900 in 1995 and 135,000 in year 2000. The contract was executed from 1991 to 1994. The quality of work and the progress of work were well within the acceptable standards and time frame. The scheme was commissioned as scheduled in August 1994. Consumers enjoy 24 hour supply and there are no standposts in the system and it is the policy of the WDB not to have standposts in the scheme to have better control of the system and save water. 1.3.5 Procurement Contracts Under the project a number of procurement contracts have been completed to supply essential vehicles and miscellaneous equipments for operational regions as well as to planning and designs, construction, commercial and other branches of the WDB. Computers, photo copiers and other related equipments were purchased for various sections of the WDB to improve the quality of designs, enhance the billing and collection and to maintain date bases and produce management information reports on current aspects of the WDB not only to various sections of the WDB but also to other line ministries and outside organisations as well. Vehicles such as cars, pickups, cargo trucks, bowsers and tractors were purchased to be used for operational regions and project related activities. Most of the vehicles were delivered in first half of 1989. They were distributed among all operational regions including Northern and Eastern regions where sufficient vehicles were not available for works. Miscellaneous equipments for investigations, laboratory work and sewerage maintenance related assignments were purchased out of project funds. Purchase of equipment for sewerage work was essential after recent take over of operation and maintenance of Dehiwala - Mount Lavinia and Kolonnawa sewerage system and more recently CMC sewerage system. 1.3.6 Contract Management Originally a consultant was attached to the Planning and Designs Office to help in the project design work and to review the contract documents done by consultants who were appointed to do some specific project designs. Even one consultant worked as a project coordinator during initial stages of the project from 1986 upto 1988 to coordinate the work and prepare progress reports. However from 1989 Additional General Manager (Operations) took over the post of Project Coordinator apart from other duties he carried out. Except some of supply contracts majority of the civil construction jobs were started except distribution reinforcement in Colombo, during early years of the project.  A consultant was appointed for the contract supervision and administration when larger jobs were started and his services was utilised upto end of June 1996. WDB personnels were appointed to assist him. Contract 7/1, 7/2, 8/2, 3/1 & 9/1 are the jobs which were handled by the consultant. Various reasons were attributed to this one being the unsettled social environment prevailed in the country during that period and also non allocation of enough counterpart funds by Government of Sri Lanka to execute jobs. 1.3.7 Technical Assistance Some studies were carried out by consultants under the project related to Colombo canal rehabilitation, operation and control review of Greater Colombo water supply, wash water reuse, rural water supply, Greater Colombo Water Supply Master Plan update and Non revenue water related works. All studies were completed successfully and some recommendations were implemented by the WDB and other agencies. 1.4 OPERATIONAL EXPERIENCE AND FINANCIAL DEVELOPMENT Since 1974, the year the WDB was incorporated as a board, funds generated were not adequate to do O&M without GSL assistance. GSL provided the money to the WDB to gap the financial deficit for operations. Under First Sri Lanka Water Supply Project (Cr. 709 CE) and Second Sri Lanka Water Supply & Sewerage Project (Cr. 1041 CE) certain covenant conditions were not fulfilled by the WDB due to low tariff or absence of a proper tariff and inadequate institutional set up within the WDB to execute a proper billing and collection operation. With the commencement of Third Sri Lanka Water Supply & Sanitation Rehabilitation Project (Cr. 1700 CE) and also the USAID funded Institutional Development Project in 1985, apart from construction of new schemes more emphasis was given for rehabilitation of existing systems and other support services. Under above projects it was scheduled to address institutional development - to improve overall sector management practices through strengthening the policy, management and operational framework; financial strengthening - to adopt and implement realistic financial and commercial management practices in the sector and appropriate capital financing plans and pricing policies; increased operational efficiency - to direct investments towards rehabilitation of existing plants and equipment, increase utilization of existing systems capacity, improve operations and maintenance and introduce cost control measures.  Action was taken to fix meters to all consumer premises around 1980-1984 in Greater Colombo and to charge from consumers. From 1985 tariff was adjusted periodically to collect revenue to achieve corporate objectives of the WDB. However even with the increased tariff and other cost control measures including enhanced billing and collection WDB could not satisfy the covenant requirement until 1990. Even there was a lag in billing by about 6 months during the initial stages of the project. It has been brought down to 1-2 month by 1990 and continue to maintain it even now. Originally billing was done by a private firm and it was done inhouse including the billing in outstations since the mid of the project period (1990). Inhouse billing contributed much for the reduction in billing lag time and improved collection too. Initially the collection figures were not satisfactory and were around 10-20% during the 1985-1986. But with more emphasis on collection and improved institutional development the collection has been reached around 85% by end of the project. Upto year 1990 covenant requirements related to operational income and profits have not been achieved. However from 1991 WDB recorded income to satisfy covenant requirements. To achieve above objectives from 1991 to 1995 tariff was increased annually except in 1995 where request for such a increase was turned down by the MHC&PU. Loan repayment of WDB which was Rs. 233,238,873 in 1988 has been increased to Rs. 354,261,235 in 1995. CHAPTER 2 2.1 WDB'S PERFORMANCE ON PROJECT PREPARATION WDB appointed a consultant in 1985 to assess the condition of the existing transmission/distribution system for Greater Colombo Water Supplies and the work required to bring the system to a satisfactory condition for needs at that time as well for requirements upto years 1990 and 2000. At the same time some consultants were appointed to assess the condition and make recommendation for rehabilitation of Amparai and Anuradhapura WSS and to do feasibility studies for Kaduwela, Battaramulla and Pannipitiya WSS. 2.1.1 Operational action plan WDB and it's consultants completed preliminary engineering design and cost estimates for the major components of the proposed project in 1985. To streamline the work and expedite the operations an operational action plan was prepared by the IDA with the consultation of WDB. It consists some 32 technical aspects, 09 financial aspects and 05 institutional aspects.  Technical aspects deal with work related to appointment of consultants for various designs work and studies, prepare designs of some parts of the project by WDB and preparation of TOR for the selection of consultants for some specified project works. Billing arrears, increase of collection, improvement of WDB's overall financial performance are some of the key issues addressed under Financial Aspects. 2.1.2 Land Acquisition Land acquisition has not been a problem at any of the site since most of the work are confined to rehabilitation of existing facilities except at Maharagama where a new water supply system has been commissioned. Even at Maharagama necessary lands were purchased from private parties and government agencies well in advance of project execution. Non of the project item has been delayed due to non possession of relevant land by the contractors. 2.1.3 Project Reporting and Supervision It was agreed to report about the physical progress of the 2work monthly and financial progress on quarterly basis. Apart from above some physical data related to water production, water quality, water consumption, connections, public standposts meters, leaks, sewer connections, staffing, financial indicators and general indicators were also to be reported to the IDA on quarterly basis. 2.2 WDB'S PERFORMANCE ON PROJECT IMPLEMENTATION A consultant was appointed to assist WDB design office staff to project designs and also to review some specified design works carried out by other consultants. Except Ambatale Jubilee Transmission and Jubilee Reservoir all other designs work were carried out by the WDB staff including all vehicle and equipment procurement packages. The services of an expatriate consultant was utilised by the WDB during the initial stages of the project as a project coordinator to coordinate works and also to monitor and report the progress of work to the World Bank. All designs work were done by a staff attached to the Planning and Designs Office of the WDB headed by a Chief Engineer under the supervision of DGM (P&D)/AGM (P&D) except vehicles and equipment packages which were handled by the AGM (Services). Apart from contract and procurement packages there are some institutional, commercial and financial items in the project which were handled/directed by respective divisional heads of the WDB. Addl. GM (Operations) with the assistance of an expatriate project coordinator monitored the project since it involves various departments of the WDB. Progress was reviewed monthly or as and when need arised with the participation of all job managers. Chairman/General Manager and consu].tants were present at those meeting to iron out any  problems and take corrective action for smooth functioning of the project. Due to the absence of a full time project manager the IDA and WDB decided to appoint a Deputy General Manager to coordinate the project in 1990. Since 1990 all jobs have been handled by the IDA Section. Even during the procurement stage, AGM (Services) acted as the job manager for contract 30 (Vehicles) and contract 34/1 (Miscellaneous Equipment). Work related to civil construction and pipe laying were handled by the Construction Division. 2.2.1. Studies Around 1989 the services of the expatriate project coordinator was completed and even the consultants who were attached to the planning and design section completed their assignment since by that time almost all the major designs work were at the completion stage. All studies except NRW study were completed before 1990. NRW study was done during 1994. Except Canal Rehabilitation study which took about 3 years to complete due to revised/extended work all other studies were completed within one year. Based on the recommendation of Canal Rehabilitation Study, a project is being implemented now by the Sri Lanka Land Reclamation and Development Corporation with Japanese and Government of Sri Lanka assistance. Under this project the canal system within the Greater Colombo Area is rehabilitated to form a fully operational drainage system. Some recommendations under Operational and Control Review of Greater Colombo Water Supply have been implemented but majority are still not started due to inadequate funding. Even the recommendations done under Wash Water Reuse Study has not been considered as a priority for implementation. Lot of action has been taken place based on the Rural Water Supply Sector Study and some studies done subsequently related to the sector. A Rural Water Supply Section was established headed by a Deputy General Manager around 1 year back. It is intended to address the sector with a fresh approach including coordination with other agencies who are doing similar work related to the sector. Even the priorities of the Government has been changed giving more emphasis for rural water supply and it appears to be a decision taken with all those points into consideration. 2.2.2 Update of Greater Colombo Water Supply Master Plan Updating the Greater Colombo Water Supply Master Plan which was earlier prepared in 1971 was another milestone in the project. The areas considered under the study are now much bigger than it considered in 1971 due to development taken place in those areas as well as in the sector. Much development work has occurred since 1971 in the area including implementation of new water supply facilities and rehabilitation of existing facilities which all have been  considered into account in doing the above study. Recommendations were made in the study upto the horizon of year 2020 for the water supply in the Greater Colombo Area. Most of the recommendations of the study are being implemented now with the assistance of Japanese and French lines of credit, mainly upgrading and rehabilitation of existing Ambatale Treatment Works and construction a new treatment plant on the Kalu River including ancillary works like transmission and distribution within new areas which are densely populated or where alternative sources of water is not available. 2.2.3 Non Revenue Water Study After some setbacks during early stages specially before awarding the study, the work was completed during 1994. A report was prepared by the consultant and developed the scope of work and detailed action plan for the NRW programme for the next 3 to 5 years. The TOR and the evaluation criteria to be used for the selection of a prime contractor was also described in the report. As per the recommendation of the study action has been taken to implement the programme, with direct labour participation by the WDB during last 2 years but the progress achieved so far has not been satisfactory at all due to institutional and other problems. Now, an action plan is being prepared to implement the programme with a prime contractor approach as recommended in the study. 2.2.4 Ambatale Jubilee, Maharagama WSS At the commencement of the project Ambatale - Jubilee Transmission, extension works at Ambatale sump and pump house, Jubilee Reservoir, Jubilee Maharagama transmission and Maharagama works which includes a reservoir, elevated tower, pump house and some 80 km of distribution lines were designed and preparation of tender documents were done separately to call tenders as 3 packages. However, to attract international contractors for the work and to maintain consistency of the whole work all jobs were amalgamated to one package as contract 3/1. This is the biggest job in the project and absorbs some 40 percent of the total project cost (both IDA and local). Due to inadequate budgetary provisions by the Government of Sri Lanka (GSL) upto 1990 it was not possible to take this job for implementation. However, with improved situation in Sri Lanka and due to some conditions imposed by the IDA, GSL agreed to make available sufficient counterpart funds for not only this work but for the whole project. Contractors were prequalified for the work in 1990 and bids were received from prequalified tenderers in 1991. The contract which was awarded in 1991 was completed in August 1994 within the stipulated contract period (with approved time extensions). The work was commissioned in 1994 and Maharagama Area received water with the other development work also completed including extension of Ambatale Treatment Plant. However, it took another two years from  August 1994 to August 1996 to finalise claims due to the contractor. For this there were various types of claims ranging from extra works to BTT claims including additional works. Lot of claims were settled between the contractor and the WDB but some were referred to the MHC&PU. Even the contractor has initiated some cases in the court against the WDB to get a settlement. However, with the initiation of the MHC&PU those court cases have been withdrawn and a settlement has been agreed in 1996. 2.2.5 Greater Colombo Distribution Improvements Contract 7/1 and Contract 7/2 deals with this works. Contract 7/1 was executed from 1989 to 1991 and Contract 7/2 from 1993 to 1995. Contract 7/1 includes the distribution rehabilitation in Greater Colombo but majority of those works are within the CMC Area. Under Contract 7/2, apart from some distribution improvements within Colombo, certain infilling of Maharagama distribution were also included. Both jobs were completed without any drawback and even the payments including all extra and addition works were settled. 2.2.6 Greater Colombo Pumping Stations This work deals with the replacement of existing old pumps and addition of extra pumps to existing pumping stations within Greater Colombo and construction of a new pump station at Dehiwala to Cater for the local demand in the area. Under this contract pumps were installed at Ambatale, Kolonnawa, Colombo, Dehiwala, Moratuwa and Panadura. The contract was completed in 1991 and generally the work was executed within contractual obligations. Only problem associated with the contract was the delay of construction of pump station at Dehiwala due to some disagreement between the main contractor and a sub contractor assigned for the task. However, it did not hamper the overall programme. 2.2.7 Bulk Meters This assignment was taken up during the early stages of project. Non availability of a reliable bulk meter system is one of the key drawback in the Greater Colombo Water Supply System. Even existing bulk meters have not been maintained properly. Therefore during the project planning stage this item was given high priority so that operational managers are in a better position to control the system. There were lot of shortcomings in the contract execution it self. Just after the commissioning of bulk meters some were reported to be malfunctioning or certain meters were not protected against lightning etc. The contractor attended to the defects but the WDB was not happy about the way they have attended to the defects. Even after the commissioning no preventive action has been taken by the WDB to keep the meters in working order. O&M personnel complain about the  quality of meters and ultimately it was decided to defer the stage II of the Bulk Meter contract until a suitable methodology is selected including specifications. However this has not been materialised during project period and funds earmarked for them have been utilised for other essential works in the project. 2.2.8 Low Cost Sanitation Originally some 300,000 US Dollars were allocated for this job out of IDA funds. The job was started in 1988 and implemented originally by the National Housing Development Authority (NHDA). However the progress of work during the time from 1988 to 1993 where the work was handled by the NHDA was very slow. Some 3280 families were provided with shallow sewer systems connected to their individual household latrines while 520 families were provided with communal latrines connected to common septic tanks. The above programme was termed as phase I of the job. From 1994 to 1996 the works were handled by the Clear Settlement Project Unit (CSPU) of the Ministry of Housing, Construction and Public Utilities (MHC&PU) upon a decision taken jointly by the IDA and MHC&PU to accelerate the work and to address more beneficiaries outside CMC area as well. Since there were more beneficiaries the original allocation out of IDA was not enough and finally a total sum of Rupees Sixty Eight Million from IDA was approved for disbursement to beneficiaries. Lot of work was done during 1995-1996 and under phase II and III some 22930 individual toilets were constructed and a shallow sewer system was constructed beneficiaries 175 families. Under this programme the whole of Colombo District and some selected areas of Gampaha and Kalutara districts have been benefitted. 2.2.9 Training A training programme was prepared for implementation out of IDA funds at the beginning of the project covering both short term and long term fellowships. Certain programmes were scheduled at Universities or Water Authorities in foreign countries in Europe while some were programmed at Water Authorities in Asia Pacific Region. A fairly large number of in country both at the WDB as well as at other Sri Lankan institutions were arranged specially to enhance the knowledge of Computer Literary and related work out of project funds. 2.2.10 Procurement of Vehicles/Miscellaneous Equipments 1. Vehicles Some 50 pickups, 5 cars, 20 trucks, 20 bowsers and 10 tractors were procured out of project funds to be used for O&M work as well as for project related construction supervision. With the addition of above vehicles to the O&M section both at Greater Colombo and regional offices some outstanding problems  prevailed in the sections were ceased with increased mobility of managers for day to day works. 2. Miscellaneous Equipment Equipment necessary for sewerage related maintenance plus some essential equipment for laboratory testing work were procured from the IDA funds together with some equipment for O&M of water works. Computers were purchased for Planning and Design, Construction, Billing and Collection including support services. All regional offices have been supplied with computer to do in house billing and thereby billing delays have been brought down to 1-2 months from 6-8 months prevailed during the early parts of the project. 2.2.11 Project Management During early parts of the project some consultants were appointed to assist the design office staff as well as to review the designs completed by other consultants. Another consultant was appointed as a project coordinator to coordinate project activities and for report works. Most of the studies were completed before 1990 except UFW study and until 1990 none of the major construction work could be started due to non availability of counterpart local funds and unsettled conditions prevailed in the country during the period. Until 1990 jobs were handled by respective Deputy General Managers under the direction of Additional General Manager (Operations) with the assistance of expatriate project coordinator. IDA and WDB reviewed the progress of work critically around 1990 and recommended to appoint a senior personnel to execute the project and it was decided to appoint a DGM to look after the project under the direction of General Manager. Until that time, design staff were attached to the Planning and Design Section and even that staff who performed designs related to IDA assignments were brought under the DGM (IDA) with AGM (IDA) was also appointed subsequently. With the above mentioned changes plus some favourable response from the GSL with enough counterpart funds together with improved security situation in the country the biggest job in the project was taken up for execution in 1990/1991. By that time no expatriates were available for project coordination except for construction administration and supervision. The services of the consultant for construction supervision and administration was retained upto the end of project in June 1996 with the approval of IDA. Progress of work was reported to the IDA on monthly basis together with financial progress on quarterly basis. At the beginning of the project IDA wanted the WDB to report on some monitoring indicators related to physical data such as water production, quality, consumption, connections, public standposts, meters, leaks and staffing plus financial and  general indicators for the whole WDB. Under a USAID programme a separate project was started in the WDB in 1985 to strengthen the financial, support services and billing and collection so as to achieve some what similar objectives as laid down by the credit agreement. IDA staff and those USAID consultants had meeting during IDA missions and exchanged views related to above topics for the benefit of WDB as a whole. Under the above project a new section was created called Performance and Management Analysis Unit (PMAU) to compile and review data not only as mentioned in the IDA credit agreement but also with some details related to other areas as well. The key Management Information Report prepared monthly by the PMAU includes almost all data requested by the IDA and was forwarded monthly to IDA together with the monthly progress report. 2.3 WDB'S PERFORMANCE ON COVENANT COMPLIANCE Right from the beginning of the project WDB was aware about the responsibilities of covenant compliance under the credit agreement. But there were some constraints which were beyond the control of WDB related to the issue. One such major issue was the increase of tariff. WDB could not increase tariff on their own but it should get the approval of MHC&PU and the GSL. This is a major issue for the government specially during an election year where they are reluctant to revise any tariff not only water but also any other utility services like electricity. However upto 1994 GSL/MHC&PU allowed to increase the tariff but it has not been granted for 1995 and 1996. Indications are that the requested tariff increase for 1997 may be approved but nothing has been decided yet. Some action taken by the WDB to reduce O&M cost were successful but despite all efforts expenditure keep on increasing year by year. Some staff retrenchment programme was done in 1990 on the recommendation of IDA to cut down manpower costs but appreciable savings were not enumerated from those actions. Some control on overtime and fuel used for vehicles during a certain month were effected from 1989 and thereby some saving were achieved from both activities. This system continues even now and for all categories of staff as well as for vehicles. More controls were done on operational budgets of each cost centre and thereby achieved certain goals of annual budget to contain O&M expenditure. Due to non collection of arrears in sufficient amount and the absence of an institutional set up to improve the system covenant compliance were not achieved during the first half of the project. Despite the above, collection figure were increased annually with percentage of collection also enhanced annually due to continuous follow up. WDB which made Rs. 12,264,124 operational loss in 1989  achieved a operational profit of Rs. 766,884,116 in 1995. However with increasing loan repayment annually net profit after allowing for loan repayment/depreciation in 1985 was marginal compared to 1994 figures. 2.4 WDB'S PERFORMANCE ON OPERATION 2.4.1 GREATER COLOMBO WATER SUPPLY National Water Supply and Drainage Board (NWS&DB) is responsible for the operation and maintenance of Greater Colombo water supply (which serves Wattala, Mabole, Mahara, Peliyagoda, Colombo, Kolonnawa, Kotikawatta, Mulleriyawa, Kotte, Maharagama, Dehiwala-Mt. Lavinia, Moratuwa and Panadura) including headworks, transmission and distribution except the maintenance of distribution within Colombo Municipal Council (CMC) where the task is performed by the council staff themselves under a contract with the NWS&DB where the salaries of maintenance staff and other expenses, including materials used for O&M are supplied by the Water Board. Since almost all the work done within the Greater Colombo area out of IDA Funds are mainly upgrading and rehabilitation of the existing system there has been no appreciable increase in the staff both within the NWS&DB and CMC except for Maharagama Water Supply where a complete new system has been installed. Estimated cost of recurrent expenditure for the year 1996 is Rs. 573 million for the Greater Colombo Water Supply. Consumers are billed to collect revenue by the NWS&DB and it is expected to collect some Rs. 1,056 million during 1996. Since 1991 sufficient funds have been generated from adjustment of tariff to cover not only direct O&M cost but also debt service, interest and capital repayment or depreciation whichever is higher commensurate with the covenant requirements of the IDA Credit 1700 CE. There are stand posts garden taps and direct consumer connections in the system. Majority of the connections are domestic consumers but there are considerable numbers of institutional, commercial hotel, shipping and stand post connections in the system. Number of total connections as in April 1996 is 170, 360 while there are 4500 standposts within the system. Number of connections which were 97362 in 1987 is now around 170360 indicating a 100% in increase in connections during the project period from 1986 to 1996. Water quality is being monitored at various locations of the system including headworks, transmission and distribution both by bacteriological and physical-chemical means to ensure that the water delivered to the consumers are within acceptable standards. Some 15 million cubic metres of water is produced at three headworks (Labugama, Kalatuwawa & Ambatale) of the system per month. Total water that is accounted or metered per month is around 7.5 million cubic meters or so, indicating a UFW figure of 50% for the Greater Colombo Water Supply System.  2.4.2 MAHARAGAMA WATER SUPPLY Maharagama Water Supply which has been constructed under the project is maintained by the NWS&DB as a sub unit of Greater Colombo Water Supply. The scheme was commissioned in 1994. Some 50 skilled personals are assigned for the work including some 40 unskilled persons. Still some 10 percent of skilled personals and 25 percent of unskilled personals are to be recruited. Action is underway by the NWS&DB to recruit those personals early. Total O&M cost for 1996 for the works is Rs. 19,927,200. Consumers are billed according to a tariff and NWS&DB per-forms the task. The supply to the consumers are on 24 hour basis and some 5500 connections have already been given. 30% of the population is served with water in the area. Still some areas are not covered by the distribution but most of those areas are addressed under Stage III distribution which is being implemented now. However, a considerable percentage of people have their own supply through shallow wells. There are no public standposts in the scheme and it is the policy to have the system without standpost to minimise wastage. Daily consumption of water per day is around 4000 cubic metres per day and it is estimated a per capita consumption of 146 lpcd. 2.4.3 COLOMBO SEWERAGE Colombo Sewerage System which covers Colombo Municipal Council (CMC) administrative limits consists with 13 sewage pumping stations, 234 km of sewer mains diameter ranging from 150 mm to 1500 mm and two sea outfalls at Wellawatta and Mutwal which have been constructed under Second Sri Lanka Water Supply and Sewerage Project (IDA Credit 1041 CE). The system has been maintained by the CMC upto mid 1996. However, due to institutional problems within the CMC and on the recommendation of IDA, NWS&DB has taken over the O&M of the system from July 09, 1996. However, for an initial period of two years the system will be maintained by CMC even from July 09, 1996 on a service contract with the NWS&DB. A separate branch has been established within the NWS&DB to execute above work under a Deputy General Manager and they now maintain sewerage systems at Kolonnawa and Dehiwala-Mt. Lavinia. It is estimated that the 1996 O&M expenditure for CMC sewerage system is around Rs. 90 million. CMC contribution is Rs. 70 million while NWS&DB will contribute Rs. 20 million. There has not been any changes in staff levels within the CMC due to the additional work out of the project since those funds were utilised mainly to rehabilitate existing system plus some road reinstatement after sewer laying under Credit 1041 CE. It is also proposed to fund the future O&M, both by the CMC and NWS&DB in the ratio of 7:2 out of their general reserves. Still no concrete action has been taken to levy a sewerage tariff from these customers. The number of sewer connections within the CMC is around  42,700 (domestic - 32,400 connections, commercial/other - 10,300 connections) Out of the total population of 745,000 (1992), 550,000 are served by sewers while others are served by on site facilities wh ch represent a 74% coverage with water borne sewerage Non availability of funds foi Lnstalling laterals in Kolonnawa and Dehiwala/Mount Lavinia has been t:he biggest drawback in giving house connections Cabinet approval has been requested for funds for ur-gent relabilitation works amounting to Rs 50 million annually till 1999. 2.4.4 COLOMBO LOW COST SANITATION Under phase I of the project some 3280 families were provided with household latrines connected to shallow sewer systems and 520 families with communal latrines connected to common septic tanks. Under phase IT & IIT some 22930 household latrines and a shallow sewe- system benefitted to 175 families were implemented, In all above cases no additional fund; are required for O&M since either families benefitted or CMC sewerage staff will maintain the system. A health education programme has been conducted by the Clean Settlement Pr(gramme Unit (CSPU) to convince the beneficiary families about the proper maintenance and benefits accumulatec for them from those actions. Some guidelines including handouts are distributed by CSPU among the beneficiaries. There is no need to have any O&M staff or budget due to the a}ove circumstances and it is hoped to close down the Low Ccst Sanitation Project Unit by October 30, 1996. 2.4.5 COLOMBO STORMWATER DRAINAG-, Colombo Stormwater Drainage Systemi is being maintained by the Colombo Municipal Council (CMC). The staff under this section is controlled by Deputy Municipal Engineer (Drainage) together with other duties including maintenance of sewage pumping stations. However --he sewerage system is being taken over by NWS&DB as 1e cribed under Colombo Sewerage. There has been no additional staff recruited due to the assets added to the system by the project since the work is very minute compared to the whole drainage system within the CMC. O&M cost for the year 199)6 for the system is Rs. 33.7 million. Funds for O&M comer from CMC reserve funds collected through assessment taxes and other income and there is no special charges for drainage from consumers. CMC hopes to review the previous repDrts on the system and study the existing system so as to address the problems encountered in the system. At present the canal system and :ertain areas in CMC drainage area are being rehabilitated by Sri Lanka Land Reclamation & Development Corpcrati(n with the assistance of Japanese Government on the recommendations based on  Canal Rehabilitation Study done under IDA Credit 1700 CE. CHAPTER 3 EVALUATION OF WORLD BANK PERFORMANCE 3.1 Project Identification Prior to the project identification a consultant was appointed in 1985 to review the existing conditions in the Greater Colombo Water Supply System including Anuradhapura and Amparai. A team of WDB Engineers and technical personnels assisted the consultant to perform the above task and recommended proposals to rehabilitate the system to the horizon of years 1990 and 2000. IDA approved the above recommendations and based on Water Supply Master Plan and other reports including some surveys completed by the study team themself a project was identified to be funded by the proposed credit together with GSL funding. During initial stages of the study there were some proposals to include a fairly large proportion of sewerage work of Colombo also but the priority of WDB's investment plan was for water supply and IDA agreed to the recommendation of the WDB. Certain jobs were deleted from the project like Amparai and Anuradhapura Water Supply Rehabilitation plus water supply to Battaramulla, Kaduwela and Pannipitiya area. The first two were deleted due to security problems and water rights and the last three were deleted due to inadequate funds. IDA gave their concurrence for all above changes after reviewing all circumstances case by case. There is nothing to complain about IDA on project identification from WDB. 3.2 Project Preparation Certain constructive steps were taken to enhance the quality of work during the initial stages of the project but the absence of a full time Project Director was one of the drawbacks from the WDB side. However this was rectified by mid of the project around 1990 by the appointment of a Deputy General Manager to coordinate all work related to IDA jobs. Task Managers from IDA were generally there for 2-3 years at the initial stages of the project but in 1990's frequent changes of Task Managers resulted in adhoc changes in certain decisions too. However it was streamlined again by end of the project period. Lot of data related to WDB activities were requested by the IDA but project staff were not in a position to furnish all those datas specially related to physical data, financial indicators and general indicators related to WDB activities. However with the formation of Performance Management Analysis Unit (PMAU) lot of above datas were compiled by them and those datas were forwarded to IDA with the monthly progress report.  3.3 Project Appraisal and Supervision The role played by the IDA related to project appraisal and supervision is generally acceptable to the WDB. However occasional changes of IDA Project Manager specially during the middle part of the project resulted some delay in taking policy decisions on key matters. CHAPTER 4 LESSONS LEARNED 4.1 Designs The set up prevailed at the design office during the initial stages of the project to implement project designs appears to be a suitable set upto follow for future works too. Under the above set up WDB designed almost all jobs except one or two while an international consultant reviewed those works including other works performed by outside consultants. WDB Engineers and technical personnels received important design experience as well as technology transfer from international consultants. 4.2 Construction Management and Supervision WDB staff worked with a number of expatriate consultants to supervise the jobs under the project. Since most of the larger jobs under the project were constructed by foreign contractors some guidance was necessary for WDB staff to supervise them, from expatriate consultants. However now WDB is in a position to handle most of the supervision by themselves without the assistance of expatriates due to long exposure of local personnels to foreign consultants. However for certain specialised jobs like micro tunnelling, WDB may need consultants for their future projects. 4.3 Project Coordination Absence of a full time Project Manager to implement the project during the first five years of the project was one drawback of the project. It is recommended to appoint a full time project manager at the commencement of the project for future project. This was done at the ongoing Asian Development Bank (ADB) funded Water Supply Rehabilitation Project and IDA funded Colombo Environmental Improvement Project (CEIP). Appointment of Deputy General Managers (DGM) at the commencement of above projects resulted in better coordination and adhere to scheduled original programme. 4.4 Staff Obtaining suitable, experienced, senior staff from the WDB for projects at the commencement of the work appears to be difficult sometimes due to cumbersome recruitment procedures and other institutional problems prevailing in the WDB. Various approvals has to be taken before  appointment of some personnels and it takes months to establish the system. As an alternative to the above hiring personnels from the consultants is possible but it will cost some 5-6 times the amount paid to similar WDB staff. Most of the experienced project staff both design and construction migrated to other countries during the last couple of years due to unsettled condition prevailing in the country as well as to enhance their career prospects. Action taken by the WDB/GOSL to rectify this is not adequate and this is one area which they should consider seriously. Incentives provided to keep experienced hands within the WDB is not satisfactory at all. 4.5 Prequalification of Contractors/Tendering/Approval of Tenders The present set up in the WDB/GOSL needs some revision if the time taken has to be reduced for above. For certain jobs it took 1-2 years for the above processes while it took only one year to complete construction or procurement for the whole works. Appointment of evaluation committee members from various organisations makes the matter too cumbersome for respective members from the WDB. Since WDB members has no control over others sometimes the whole evaluation/prequalification has to be handled single handed by the WDB member himself to expedite the matter. It is recommended to appoint more members from the WDB for evaluation panels and appoint minimum number from outside organisations to adhere for transparency.  i iI  IMAGING Report No.: 16263 Type: ICR