Argentina - Water Supply Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No.: 18014 IMPLEMENTATION COMPLETION REPORT ARGENTINA WATER SUPPLY PROJECT (LOAN-2641-AR) June 16, 1998 Finance, Private Sector and Infrastructure Sector Management Unit Country Management Unit 7 Latin America and the Caribbean Regional Office 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 Name of the Currency: Peso $ At September 1996: USS1 = $1 WEIGHTS AND MEASURES Metric System GOVERNMENT OF ARGENTINA FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS AA AguasArgentinas Greater Buenos Aires water concessionaire AC Aguas Cordobesas Water Utility of the City of C6rdoba (private) APSF Aguas Provinciales de Santa Fe Water Utility of Santa Fe Province (private) COFAPYS Consejo Federal de Agua Potable y Saneamiento Federal Council for Potable Water and Sanitation DAS Direcci6n de Aguay Saneamiento de la Provincia de C6rdoba Water and Sanitation Regulatory Office for the Province of C6rdoba DIPOS Direcci6n Provincial de Obras Sanitarias de Santa Fe Office of Public Works and Services of Santa Fd ENOHSA Ente Nacional de Obras Hidricas de Saneamiento National Entity of Sanitation Works EPOS Empresa Provincial de Obras Sanitarias de C6rdoba Public Works and Services Enterprise of C6rdoba ENRESS Ente Regulador de Servicios Sanitarios Sanitation Services Regulatory Agency for the Province of Santa Fe ETOSS Ente Tripartito de Obrasy Servicios Sanitarios Greater Buenos Aires Water and Sanitation Regulator lNCYTH Instituto Nacional de Cienciasy Tecnologia Hidraulica National Institute of Hydraulic Sciences and Technology MEOSP Ministerio de Economia y de Obrasy Servicios Publicos Ministry of Economy and Works and Public Services MOSP Ministerio de Obrasy Servicios Puiblicos Ministry of Works and Public Services OSN Obras Sanitarias de la Naci6n National Sanitation Works PAHO Organizaci6n Panamericana de la Salud Pan-American Health Organization SRH Secretarfa de Recursos Hidricos Water Resources Secretariat SNAP Sistema Nacional de Agua Potable National Water Supply System Vice President Shahid Javed Burki Country Management Director Myma Alexander Sector Management Unit Director Danny M. Leipziger Task Manager Abel Mejia  FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT ARGENTINA ARGENTINA WATER SUPPLY PROJECT (LOAN 2641) TABLE OF CONTENTS Page No. PREFACE ...........................................................i EVALUATION SUMMARY .......................................................... ii PART I - PROJECT IMPLEMENTATION ASSESSMENT ...........................................................1 A. Background ...........................................................1 B. Project Objectives and Description ..........................................................2 C. Project Design and Preparation ..........................................................6 D. Project Implementation ...........................................................7 E. Project Results ...........................................................9 F. Project Sustainability .......................................................... 12 G. Bank Performance .......................................................... 12 H. Borrower Performance .......................................................... 13 I. Assessment of outcome .......................................................... 13 J. Future operation .......................................................... 14 K. Lessons Learned .......................................................... 14 PART II - STATISTICAL ANNEXES Table 1: Summary of Assessments ....................................................... 18 Table 2: Related Bank Loans/Credits ....................................................... 19 Table 3: Project Timetable ....................................................... 20 Table 4: Project Scope and Implementation ....................................................... 21 Table 5: Project Cost and Project Financing ..................... ................................... 22 Table 6: Disbursements by Category ....................................................... 23 Table 7: Loan Disbursements, Cumulative, Estimated and Actual ............................................ 24 Table 8: Key Indicators for Project Operation ....................................................... 25 Table 9: Studies Included in the Project ....................................................... 26 Table 10: Status of Legal Covenants ....................................................... 28 Table 11: Resources: Missions ....................................................... 31 Table 12: Bank Resources: Staff Inputs ....................................................... 32 APPENDIX A - Borrower's Contribution to the ICR .......................................................... 33 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.  IMPLEMENTATION COMPLETION REPORT ARGENTINA ARGENTINA WATER SUPPLY PROJECT (LOAN 2641-AR) PREFACE This is the Implementation Completion Report (ICR) for the First Water Supply Project, for which Loan 2641-AR in the amount of US$60.0 million was approved by the Board on December 10, 1985 and became effective on April 24, 1987. The Bank canceled US$20.0 million of the loan, at the request of the Government of Argentina: US$15.3 million in 1993 and US$4.7 million in 1995. After three extensions of the closing date by a total of three years , the loan was closed on June 30, 1997. Final disbursement took place on August 6, 1997, at that time a balance of US$1.6 million was canceled. The ICR was prepared by Carlos Moreno-Pineda (LAIIU) and German Uzcategui (Consultant) and reviewed by Abel Mejia (Task Manager) and Asif Faiz, Sector Leader (LCC7C). Preparation of this ICR is based on documents (Staff Appraisal, President's Report, Legal Agreements, audit reports, Bank supervision reports, correspondence, and internal Bank documents) in the project files. The borrower and the participating executing agencies (COFAPYS, ENOHSA, OSN, DIPOS, EPOS and ETOSS), provided information to complete the evaluation of project preparation and implementation. The Borrower's comments are included as an appendix to the ICR.  .. IMPLEMENTATION COMPLETION REPORT ARGENTINA ARGENTINA WATER SUPPLY PROJECT (LOAN 2641-AR) EVALUATION SUMMARY Project Objectives Loan 2641-AR was the first loan to support expansion and rehabilitation of water supply facilities and institutional strengthening of the water and sanitation sector in Argentina. The project had three main objectives: (i) rehabilitate deteriorating infrastructure, replace run-down facilities and extend water services in three main centers; (ii) prepare a national water and sanitation plan to provide the necessary institutional framework to permit the newly decentralized system to function in a more efficient manner; and (iii) initiate a national operational improvements program to promote water conservation through physical rehabilitation of water systems, production and consumption metering, and institutional strengthening of water utilities. In 1993, the description of the project was amended to support the concessioning process of the water utility in Metropolitan Buenos Aires. The project had four parts: (i) Part A, preparation of the national water supply and sanitation plan; (ii) Part B, operational improvements in Metropolitan Buenos Aires and the institutional strengthening of Obras Sanitarias de la Naci6n (0SN); (iii) Part C, rehabilitation and extension of water supply systems in the city of Cordoba and the institutional strengthening of the Empresa Provincial de Obras Sanitarias de C6rdoba (EPOS); and (iv) Part D, operational improvements to the water supply system in the city of Rosario and the institutional strengthening of the Direcci6n Provincial de Obras Sanitarias de Santa Fe (DIPOS). Seven executing agencies were ultimately responsible for project execution: (i) The Subsecretariat for Hydraulic Resources (SRH), the Consejo Federal de Agua Potable y Saneacniento (COFAPYS) and the Ente Nacional de Obras Hidricas de Saneamiento (ENOHSA) were the liaison between the Bank, the Government and the project beneficiaries, and also were responsible for executing Part A of the project; (ii) OSN was responsible for executing Part B; (iii) EPOS was responsible for executing Part C; and (iv) DIPOS was responsible for executing Part D. Project Implementation The project, appraised in November 1985, was approved by the Board in December 1985, and the loan became effective in April 1987. Significant delays occurred during the first three years of implementation. The reasons for the delays in project implementation were: (i) length of time which elapsed from loan signing to loan effectiveness; (ii) lack of familiarity of executing agencies with the Bank's procurement procedures; (iii) reluctance of  iii bidders to quote prices during the hyper-inflationary period (1987-1989); (iv) change of the project coordinating agency in 1988; and (v) change of the sector's strategy established by Law No. 23.696 of August 1989, which allowed the privatization of OSN and other federally owned public utilities. In June 1993, as a result of the privatization of OSN and the lack of the counterpart funds required to conclude the works included in the Cordoba rehabilitation and expansion component, it was agreed to: (i) cancel US$15.2 million from the EPOS component (Part C); and (ii) reallocate US$5.3 million from OSN (Part B) to Part A, in order to develop the institutional capacity to regulate the water concession of Metropolitan Buenos Aires. Project Results The Santa Fe Province water utility (DIPOS) fully implemented the physical components of the Rosario subproject and also improved its operational efficiency. OSN and EPOS, the Buenos Aires and C6rdoba water utilities respectively, only partially implemented their subprojects. During project implementation all the executing agencies decided to privatize their water utility services, and the Bank strongly supported these decisions. The services in Buenos Aires, the province of Santa Fe, and C6rdoba are now operated by private concessionaires. Part of the funds allocated to OSN were used to prepare the financial analysis and bidding documents required to privatize the water and sanitation services of Metropolitan Buenos Aires region. EPOS (Part C) partially completed a water treatment plant which produces one third of its design flow. In 1993, an amendment to the Loan Agreement reallocated to ETOSS funds originally allocated to OSN. This reallocation made possible to design the institutional structure of ETOSS. At appraisal the project was estimated to cost US$128.4 million. However, after project adjustments agreed with the Government due to a lack of local counterpart funding by EPOS and the Province of Cordoba, the project's cost was reduced to US$65.0 million. As a result of the changes which occurred during project implementation, the Bank's financing share increased from 47 to 57 percent. Recent financial performance of the concessioned-utilites in Buenos Aires, Santa Fe and Cordoba show a significant improvement when compared with the projections of the SAR. Water tariffs were initially reduced as a consequence of privatization, while the concessionaires have increased the billing and collection rates. All three concessionaires have given the highest priority to the execution of an operational improvement program, with performance indicators which are more demanding than the ones established in the SAR. The economic revaluation showed a wide range of results. At appraisal, the IRR for the rehabilitation and expansion of C6rdoba's water facilities was estimated at 10 percent and 44 percent for the operational improvement component, yielding a weighted IRR of 15 percent. The economic revaluation of the C6rdoba subproject yielded an IRR of only 5 percent. However, the Rosario subproject was fully executed and exceeded the appraised  iv IRR of 44 percent. The OSN subproject was not executed, thus the ex-post IRR has not been calculated. Project Sustainability It is expected that water utilities in Buenos Aires, Santa Fe and Cordoba, under private sector management, will maintain good financial and operating performance, while improving the quality and coverage of the water and sanitation services. The main challenge to sustain the efficiency gains obtained in the three project cities, through the long-term concession of their water utilities, is to improve the quality of the regulatory process. Effective regulation of the three water utilities requires: (i) to minimize political interference in the appointment of regulators and improve the governance structure and efficiency of regulatory institutions; (ii) to price water based on metered consumption; and (iii) to incorporate consumers into the decision making process. Summary of Findings, Future Operations and Key Lessons Learned This project had a very long gestation period, about 6 years, from identification in 1979 to appraisal in 1985. The implementation of the project was even longer, about 12 years, from 1985 to 1997. During these 18 years, the water and sanitation sector in Argentina went through fundamental changes. In the early eighties, the break-up of the national monopoly of OSN into decentralized provincial utilities, followed, ten years later, by the bold decision of the government to privatize water and sanitation services in Buenos Aires, the largest water utility of the country. Lessons from this project and developments in the sector, not directly related to the project, are very rich and relevant to many other countries, particularly in the LAC region. Sector Strategy Lessons Decentralization of a national water company without an adequate policy framework is not sustainable. Creation of provincial utilities was not enough to improve sector performance. When the Government decided in 1979 to decentralize water services, breaking-up the national monopoly of OSN was a step in the right direction; unfortunately, it was done in the absence of a sound public policy framework. Therefore, the decentralized utilities carbon-copied the regulatory environment of OSN with excessive political interference in the appointment of managers, and the approval of budgets and investment plans. The wrong tariff regulations remained intact, with the only difference that the power to approve new tariffs was transferred to sub-national jurisdictions at the provincial or regional level. The performance of most provincial utilities deteriorated even further. This situation was exacerbated by the macroeconomic crisis in the country during most of the eighties. Privatization of water utilities requires a different approach. The water sector is a sector with frequently complex and conflicting objectives of efficiency and equity, and thus needs a different approach to reform other utility sectors such as telecommunications, power, and gas that do not face the same issues. The issues of  v the poor and the environment are more relevant in the water sector than any other utility sector. The analytical framework to deal with these issues has still to be developed in Argentina. The proposed Water Sector Reform Project has been designed to address these pending issues of the reform agenda. Privatization of utilities requires development of a sound regulatory capacity in the public sector. The establishment of effective regulatory agencies is as important as private sector participation. However, in the case of ETOSS this task is taking longer than anticipated mainly because the culture of regulating public utilities is an alien concept in Argentina and in LAC. Hence, the new role of the public sector as a regulator of water utility services is not well defined, nor well understood by the society and the political establishment. The main lesson of the project in relation to ETOSS is that the creation of regulatory agencies to promote competition, to improve efficiency, and to represent the interest of consumers is a task that demands a major concentration of high-quality Bank assistance. Project Lessons Project design must beflexible to respond to changes in country policies. When the administration decided in late 1989 to allow privatization of OSN and established a Privatization Committee, the Bank's support and commitment were critical in making a success of the effort. However, such an important change in the project concept should have been done on the basis of a comprehensive review of the project's scope and objectives in light of the changed policy stance in the federal government in 1989-90. Macro-context and Sector policies should be carefully evaluated. The decentralization policy of the government, while well oriented, lacked a framework of incentives to promote efficiency in the provincial utilities. With the lack of clarity in government policies at the time of appraisal (February, 1985) and taking into consideration the delay to make the loan effective (26 months), it would have been advisable, at least, to re-evaluate the project concept and the risks associated in its implementation. Such a decision would have been fully justified by the rapidly changing institutional environment of the sector during 1985-1987, and the deterioration of the overall economic conditions. Sector constraints and issues should be reflected in project design. As part of the review of the government strategy, issues related to tariff design, budgeting, investment decisions, personnel policies, financial management practices, level of management autonomy, etc. should be carefully identified as part of project preparation or through economic sector work. The project failed to identify most of these issues; therefore options to address them were not included in project design. Moreover, at the time of appraisal, OSN performance was rapidly deteriorating: revenues in 1984 did not cover operational costs, mainly because of almost 100 percent increase--in real terms--of personnel costs in 1983. The Bank has only conducted a sector review in 1992.  vi Anticipate requirements of technical assistance. The technical assistance component of the project, about US$ 2.0 million, or 3.3 percent of the loan was disproportionally small when considering the challenge of the major sector reforms underway at the time of project preparation. Through loan amendments, technical assistance was increased to US$18.5 million, corresponding to 49 percent of the loan amount, after partial cancellation of the loan. Develop adequate implementation procedures during project preparation. The inexperience of executing agencies in the implementation of Bank-financed projects, and the risks associated with frequent changes of key project officials should be addressed during project preparation. A detailed Project Operation Manual should have been a condition of appraisal (as now is the practice). These procedures would help to maintain the institutional memory regarding the project implementation procedures, and would also help to establish continuity in project administration for future management. Address inexperience of counterpart agencies through continuous training. Starting from the early stages of project implementation, the Bank must provide training to the staff of the executing agencies, as now is the practice. Training programs should be repeated from time to time to address the turnover of government officials. Training should focus on the content of the Project Operation Manual, and on procurement procedures. A considerable part of the implementation problems were associated with procurement issues, as demonstrated by the numerous procurement correspondences found in the project files between the agencies and the Bank, on relatively standard procurement matters. Complex projects require an strategic view. The strategic focus of Bank missions, and expert assistance should be sought when complex sectoral issues arise. Problems encountered in the implementation of civil works by EPOS could have been minimized with adequate technical and administrative support.  IMPLEMENTATION COMPLETION REPORT ARGENTINA ARGENTINA WATER SUPPLY PROJECT (LOAN 2641-AR) PART I - PROJECT IMPLEMENTATION ASSESSMENT A. Background Sector Objectives 1. By the end of 1978, when this project was being prepared, Argentina had an estimated population of 26.5 million, and a network coverage of 53 percent for water supply and 30 percent for sewerage services. Most urban population not connected to the water network relied on groundwater. In Metropolitan Buenos Aires, 45 percent of the population consumed untreated water from shallow wells, often contaminated from septic tanks. The sector objectives of the Government at the time of project preparation were to: (i) increase water coverage to 90 percent of the urban population and to 26 percent of the rural population (75 percent of the concentrated rural population); and (ii) serve 65 percent of the urban population with sewerage collection. In 1996, the population of the country was estimated at 33.7 million, being the network coverage in water distribution and sewage collection estimated at 81 and 51 percent, respectively. Sector Organization 2. Until December 31, 1979, operation and construction of most urban systems were entrusted by the provinces to Obras Sanitarias de la Naci6n (OSN) and to the Servicio Nacional de Agua Potable Rural (SNAP). Both institutions were under the jurisdiction of the Ministry of Economy through the undersecretariat of Hydraulic Resources. Starting January 1, 1980, water supply and sewerage services were transferred to the 23 provinces on a grant basis while OSN retained responsibilities for the Metropolitan Buenos Aires area'. The transfers were implemented through individual agreements between OSN and the provinces, and covered fixed assets, ongoing contracts, personnel, and accounts receivable. Before the transfer, the Ministry of Economy approved all requests for tariff increases, and subsequently transferred that responsibility to provincial governments. 3. During 1989, after loan effectiveness, the Federal Congress passed Law No. 23.696, establishing the legal framework to privatize the water and sanitation services in the Metropolitan Buenos Aires area. This decision was the turning point to initiate the 1 The City of Buenos Aires was at the time and up to 1996 under federal junsdiction.  2 privatization of water and sewerage services in Argentina. However, each province was free to pursue its own policy in the sector and most were slow to adopt institutional reforms like those of the federal government. Privatization of water services, and other utilities, is only partially complete in these provinces. Bank Sector Lending 4. This was the Bank's first intervention in the sector and was designed to support the decentralization strategy of the Government. Because federal financing was no longer available to the provinces, the proposed Bank loan was seen as an important contribution to the investment program of three provincial water utilities. The utilities selected for financing, received the highest priority by the Central Government and included the country's largest population centers. Furthermore, the project was designed to provide assistance to develop capabilities within the new sector organization for: investment planning; formulation of financial policies; project evaluation; training; and institutional reorganization. B. Project Objectives and Description Project Origin 5. In 1985, the situation of the water supply and sewerage sector was critical. Services had deteriorated steadily since the break-up of OSN in 1981. The Government attempted a major effort in the early 1980s to rebuild the systems, but with limited success due to financial constraints. At the time, the Government expressed its interest in the Bank playing an important role in the reorganization of the sector including the provision of financial assistance. The Bank assigned priority to assist in: (i) the implementation of financial policies; (ii) the improvement of the efficiency in the use of existing resources; and (iii) the institutional reorganization of the sector. Being the first Bank financed water and sanitation project in Argentina, it was designed to target 60 percent of the urban population of the country in the cities of Buenos Aires, Rosario and Cordoba. Project Objectives 6. The objectives of the project were to: (i) rehabilitate deteriorating infrastructure, replace run-down facilities and extend water services to new urban areas; (ii) prepare a national plan to institutionalize the sector; and, (iii) promote water conservation through physical rehabilitation of water systems, production and consumption metering, and institutional strengthening of water utilities. These objectives were consistent with the Bank's strategy to assist the Government in the improvement of public sector management, promote greater efficiency in the use of resources, and rehabilitate social infrastructure. 7. In 1993, to support the privatization strategy of the Government, the description of Part A of the project was expanded to include: "Strengthening of the organizational capabilities of ETOSS, through the provision of technical assistance and the acquisition  3 and utilization of equipment required for said purposes". ETOSS, Ente Tripartito de Obrasy Servicios Sanitarios, is the autonomous entity in charge of regulating water and sanitation services in the Metropolitan Buenos Aires area. ETOSS reported to the Secretariat of Public Works of the Ministry of Economy and Works and Public Services (MEOSP) until February 1998, and to the Secretary of Natural Resources and Sustainable Development thereafter. Project Description 8. The project was designed to assist the Government to rehabilitate old, poorly maintained water and sewerage facilities, extend water services to new areas in the three urban centers; and strengthen sector planning, management and finances. It was divided in four parts, the first comprised of project activities to be carried out with the Federal Government, and the other three corresponded to each one of the cities included in the project. Part C contains the project activities in the city of Cordoba and had the largest share of project cost, 64 percent. The Buenos Aires component (Part B) represented 26 percent of the project. The Rosario component (Part D) and the Federal component (Part A) had 9 and 1 percent of the project, respectively. Table 4 contains a detailed description of the project scope and implementation. Part A: National Water Supply and Sanitation Plan. 9. This component included: (i) the formulation of the Borrower's objectives in the sector, service targets and investment alternatives for the decade; (ii) the development of project evaluation criteria to foster adequate technical standards for project design with special emphasis on least cost analysis; (iii) the preparation of financial policies, including definition of financial criteria for setting investment priorities; (iv) the definition of tariff structures and levels to achieve reasonable rates of return on sector assets and enable the sector to contribute significantly to new investment; (v) the evaluation of the existing organizational framework and responsibilities at federal and provincial levels; (vi) recommendations for the establishment of the organizational and institutional structures to effectively implement the sanitation plan; (vii) recommendations on strategies directed at improving the efficiency of the present organization; (viii) definition of responsibilities in sector financing and alternative flow of funds; (ix) the identification of manpower resources and staff training needs; (x) evaluation of existing research facilities and their funding, and recommendations for further development; (xi) carrying out training programs for the MOSP staff for the preparation and execution of the national sanitation plan; and (xii) the carrying out of training programs for the preparation and execution of the national plan; and (xiii) acquisition and utilization of office equipment. Part B: Operational Improvements in Metropolitan Buenos Aires and OSN Institutional Strengthening. (i) Acquisition and installation of about 200,000 water meters.  4 (ii) Acquisition, installation and/or improvement of equipment in four measurement stations. (iii) Rehabilitation or construction of about 700 kilometers of pipelines. (iv) Strengthening the operating capability of OSN by: (i) updating of the mapping of water distribution and sewerage systems; (ii) updating of consumer files and tariff studies, and upgrading of billing and collection systems; (iii) acquisition and utilization of data processing equipment; (iv) developing a system for routine surveys, including the acquisition and utilization of pitometers; (v) developing a systems for preventive and corrective maintenance for water and sewerage networks, including the acquisition and utilization of vehicles and specialized equipment; (vi) training programs for OSN's staff; (vii) developing financial management systems including planning, budgeting, accounting and purchasing; and (viii) office equipment. Part C: Rehabilitation and extension of the city of Cordoba water system, and EPOS Operational Improvement and Institutional Straightening. (i) Construction of Los Molinos water intake and water treatment plant, with a capacity of about 2 cubic meters per second. Completion of Los Molinos raw water channel with adequate capacity to operate the Los Molinos water treatment plant at design capacity. (ii) Upgrading of Suquia water treatment plant, including an expansion of its production capacity by about three hundred liters per second. (iii) Construction of four booster pumping stations in Arguello, Suquia, Alto Alberdi and Nueva. (iv) Connection of the existing water distribution network to the new installations. (v) Acquisition and installation of about 60,000 water meters. (vi) Acquisition and installation of about 15 macro meters for water treatment plants, water storage facilities, and water mains. (vii) Rehabilitation or construction of about 275 kilometers of pipelines. (viii) Strengthening the operating capacity of EPOS by: (i) updating of the mapping of water distribution and sewerage systems; (ii) updating of consumer files and tariff studies, and upgrading of billing and collection systems; (iii) acquisition and utilization of data processing equipment; (iv) developing a system for routine surveys, including the acquisition and utilization of pitometers; (v) developing systems for preventive and corrective maintenance for water and sewerage networks, including the acquisition and utilization of vehicles and specialized equipment; (vi) training programs for EPOS' staff; (vii) developing financial  5 management system including planning, budgeting, accounting and purchasing; and (viii) office equipment. Part D. Operational Improvements in the City of Rosario and DIPOS Institutional Strengthening. (i) Acquisition and installation of about 4,000 water meters for commercial and industrial customers. (ii) Acquisition and installation of about 10 macro-meters for water treatment plants, water storage facilities, and water mains. (iii) Rehabilitation or construction of about 300 kilometers of pipelines. (iv) Strengthening the operating capacity of DIPOS by: (i) updating of the mapping of water distribution and sewerage systems; (ii) updating of consumer files and tariff studies, and upgrading of billing and collection systems; (iii) acquisition and utilization of data processing equipment; (iv) developing a system for routine surveys, including the acquisition and utilization of pitometers; (v) developing systems for preventive and corrective maintenance for water and sewerage networks, including the acquisition and utilization of vehicles and specialized equipment; (vi) training programs for DIPOS' staff; (vii) developing a financial management system incorporating planning, budgeting, accounting and purchasing; and (viii) office equipment. The Executing Agencies 10. The borrower was the Argentine Republic. The Ministry of Works and Public Services (MOSP), later merged with the Ministry of Economy (MEOSP), was the executing agency for the project, being responsible for overall project supervision and coordination. To this end, MOSP through the Secretariat of Water Resources (SRIH-), would be the liaison between the Bank, the Government and project beneficiaries. MOSP, assisted by consultants, was to prepare the national water and sanitation plan. OSN, EPOS, and DIPOS were responsible for the execution of works and institutional programs in Metropolitan Buenos Aires, C6rdoba and Rosario, respectively. The project was to be executed during the period from January 1986 to December 1993. The following executing agencies were assigned to each of the sub-projects. (a) The Secretariat of Water Resources (SRH), under the jurisdiction of MOSP, was responsible for the implementation of Part A of the project. SRH had the overall responsibility for coordinating water resources management at the federal level and overseeing the activities of OSN, the National Water Supply System (SNAP), and the National Institute of Hydrological Sciences and Technology (INCYTH). SRH was also responsible for making operational the decentralized arrangements required to implement the project. To that end, it created the executing unit (UE) of the National Sanitation Plan. UE was also responsible for the development of water and sanitation sector policies,  6 and for assisting the provincial utilities to implement the project. SRH also created the Coordinating Unit for Sector Investment (UC) with the responsibility for coordinating investment projects which require Government funds and external financing. (b) OSN was responsible for implementing Part B of the project. OSN had the responsibility to supply water to 1 million connections, and collect sewage from about 0.5 million connections, in the Metropolitan Buenos Aires area. OSN, as described in the SAR, was in a dismal condition: its annual budget required congressional approval; tariffs required approval of the Secretaries of Public Works, Economy and Labor; the investment plan required approval of the Planning Secretary of the Ministry of Economy; accounting reports were unreliable; instrumentation of main facilities were in condition of disrepair. Labor productivity was very low, about 10 employees per thousand connections. In May 1993, Aguas Argentinas signed a 30-year concession contract to provide water and sanitation services in Buenos Aires, formerly under OSN. (c) EPOS was responsible for implementing Part C of the project. EPOS supplied water to 260,000 connections, and collected sewage from 92,000 connections, in the city of Cordoba. Operational, commercial, and financial management problems as reported in the SAR, are similar to OSN. EPOS's budget required approval from the provincial congress, and tariffs from the provincial government. The SAR indicated that engineering and financial planning was adequate, and it improved noticeably during project preparation. In 1997, Aguas Cordobesas signed a long term concession contract for the water supply service in the city of Cordoba. Sewage services in the city remain under the responsibility of the municipality. (d) DIPOS was responsible for implementing Part D of the project. The SAR indicated that accounting was satisfactory, but problems in the operational and commercial areas were similar to those in OSN and EPOS. DIPOS supplied water to 299,000 connections and collected sewage from 148,000. In December 1995, Aguas Provinciales de Santa Fe signed a long term concession to provide water and sewage services in all major urban centers of the province of Santa Fe, including the city of Rosario. (e) ETOSS was responsible for partially implementing Part A of the project, related to the institutional strengthening of ETOSS. (1) In November 1988, the Federal Council for Potable Water and Sanitation (COFAPYS) replaced SRH in the administration of the loan. In November 1995, COFAPYS was abolished, and their functions were assumed by ENOHSA. C. Project Design and Preparation Conceptual Framework 11. The project was originally conceived to include the largest cities of the country: Buenos Aires, Cordoba, Rosario and Mendoza. Mendoza withdrew from the project during preparation. The basis for project design was to provide financial  7 assistance in: (i) the implementation of sound financial and human resources policies; (ii) the improvement of the efficiency in the use of the resources in the sector; and (iii) the institutional reorganization of the sector. The project is first mentioned in a back-to-office report dated May 3, 1979, prepared by a combined Bank/Pan American Health Organization (PAHO) mission which visited Argentina to assess the nature and scope of a potential Bank operation in the water supply and sewerage sector. The report sumrarized the Argentine water sector, as: (i) poor in performance; (ii) unable to cover operating and maintenance costs; (iii) metering was practically nonexistent; (iv) no medium and long tenn planning, with decision making heavily centralized in OSN; and (v) lack of sector training and upgrading plans. Since the early eighties the Government, aware of the constraints affecting the sector, adopted two basic strategies: (i) decentralization of services; and (ii) establishment of a financial self-sufficiency policy. The Government also fostered an official policy to introduce metering and setting tariffs to recover the costs of the service. The project was designed to address the sectoral policy framework adopted by the Government since 1980. Project Preparation and Appraisal 12. Discussions to prepare the project were initiated in 1979, following the Bank/PAHO mission. From 1979 to 1983, progress in the preparation of the project was minimal due to frequent changes of sector authorities and the lack of clarity of sector policies. In 1983, the new government requested the Bank to assess the progress made in the sector reorganization and to assist in the preparation of a project. The Bank and the authorities agreed on a plan for completing project preparation and establishing appraisal for late September 1984. This included: (a) defining institutional arrangements and project financing plan; (b) reviewing the scope for the institutional and the technical assistance programs and reviewing the status of preparation of project engineering; and (c) preparing financial and economical analyses. The preparation of the project took longer than anticipated, and the appraisal was finally carried out one year later, in November 1985. D. Project Implementation Project Start-up 13. The project was approved by the Board on December 10, 1985. Loan signature did not take place until 11 months later, on November 11, 1986. To declare the loan effective took another 5 months. The time elapsed between appraisal and the effectiveness of the loan was 26 months. During this period of time, Argentina was encountering serious macro-economic difficulties and had initiated a series of largely unsuccessful heterodox stabilization/adjustment programs with the support of the Bank and the IMF. Project Implementation Schedule and Procurement 14. The SAR estimated that the execution of most of the components of the project would start in the first quarter of 1986, and the project would be completed by December  8 1993, with a closing date of June 30, 1994. However, the loan was declared effective on April 24, 1987 and the first disbursement was not made until October 15, 1987. By July 1989, when President Menem assumed office, little had been achieved. The slow progress in project implementation is explained by: (i) delays in the signature of the Loan Agreement caused by cumbersome bureaucratic procedures to approve sub-loan agreements; (ii) lack of knowledge and skills of executing agencies on Bank procurement procedures; and (iii) the reluctance of contractors and suppliers to submit bids under the hyper-inflationary environment prevailing in the period immediately after the effectiveness of the loan. Project Costs 15. The cost of the project at appraisal was estimated at US$128.4 million, including institutional building, operational improvements and water rehabilitation and expansion works. The final project costs reached US$65.0 million. The differences between the cost at appraisal and actual cost can be attributed to: (i) Part B of the project was not executed, although half of its proceeds were used to support the privatization process of the water and sewerage services of Metropolitan Buenos Aires; and (ii) only 40 percent of Part C of the project, corresponding to the city of Cordoba, was executed. However, Los Molinos Channel and the Alimentador Sur, both works included in the project, were subsequently financed by the Municipality of C6rdoba. If these works are considered, the project cost is US$111.0 million (Table 5). Project Financing 16. At appraisal, project financing was defined as: US$68.4 million from local sources and US$60.0 million from the Bank. The Bank's percentage of financing was as follows: (i) 100 percent of the costs of foreign expenditures for direct imports; (ii) 44 percent of local expenditures for imported equipment and materials procured locally and ex-factory costs of locally manufactured goods; and (iii) 100 percent of total expenditures for consulting services and training. 17. In June 1993, the project description was adjusted as a consequence of the change in the water sector policy established by Law No. 23.696 to allow privatization of OSN. MEOSP and the Bank agreed to amend the loan by reallocating US$5.3 million from OSN (PART B) to ETOSS (Part A) and canceling US$15.2 million from the EPOS sub-project (Part C). The reallocation was used for the strengthening of the organizational and operational capacity of ETOSS. Later, due to the lack of local counterpart funds to conclude the C6rdoba rehabilitation and expansion component, two additional amendments were accepted by the Bank, to reduce the loan to US$38.3 million. After three extensions, the closing date was June 30, 1997. After loan closing, an additional US$1.6 million of undisbursed funds were canceled (Table 6). 18. Disbursements did not follow the appraisal estimates as shown in Table 7. The disbursements were initiated two years later than expected in appraisal and the bulk of disbursement occurred between 1989 and 1993.  9 E. Project Results Changes in Project Description 19. Funds allocated to OSN were used to support the financial evaluation of the privatization of the water and sanitation systems of Metropolitan Buenos Aires, to prepare the bidding documents, the concession contract and the regulatory framework. The approved loan amendment allowed use of the proceeds originally allocated to OSN to strengthen the organizational and operational capabilities of ETOSS, through the provision of technical assistance and the acquisition and utilization of equipment. Physical and Institutional Results 20. Once the Federal and Provincial Governments decided to support the privatization process, project targets defined at appraisal were adjusted. (a) By November 1988, SRH had completed the preparation of the National Water and Sanitation Plan (Part A); however the plan was never implemented due to the change of the sector strategy of the government based on private sector operation of the sector and independent regulatory agencies. (b) The organizational structure of ETOSS was defined, as well as its administrative procedures, personnel policies, and training needs. An evaluation of Aguas Argentinas' sewerage expansion plan, which modified the plan presented at the time of the bidding of the concession, was contracted to a panel of international experts. An important study to review the economic regulation of the concession and define a new tariff structure was not executed because unjustified long delays of ETOSS in the selection of consultants. The Bank assigned the highest priority to this study and justified the third extension of the closing date of the loan to finance it. (c) To implement Part B of the project, in June 1988, OSN selected a German consulting firm to evaluate the operational performance of the utility. The firm completed the study but its recommendations were never implemented. Because of the Government's decision to privatize the services, OSN decided it would not be appropriate to implement recommendations such as the improvement of the commercial system because the future concessionaire most likely would use its own system. For the same reasons, OSN did not adopt the rehabilitation investment plan. However, the information collected and the analysis presented by the consultant were useful to prepare the privatization of OSN. (d) EPOS prepared the institutional improvement program (Part C), but it was only marginally implemented. The physical sub-project components were partially completed. Los Molinos water treatment plant is working at 30 percent of its design capacity, because of a contractual dispute with the contractor which impeded the completion of the plant, and concluded with the takeover of the works by EPOS. The channel of raw water to feed the plant was built by the Province and the Municipality of Cordoba. Most of the works  10 that were not built with the support of the loan have since been included in the first five- year investment plan of the private concessionaire, Aguas Cordobesas. (e) DIPOS fully implemented Part D of the project. 21. Table 8 contains the key indicators for project implementation. The performance of OSN and EPOS was not satisfactory. DIPOS partially complied with the indicators. OSN and EPOS gave priority to privatization which made implementation of the project lower priority as the new operators would assume responsibilities for operational improvements and physical investments. OSN was privatized in May 1993, DIPOS in December 1995, and EPOS in May 1997. 22. In the three localities (Buenos Aires, Cordoba and Rosario), the new concessionaires have given the highest priority to the execution of an operational and commercial improvement programs similar to the one proposed in the project. These include: (i) revamping the commercial system; (ii) aggressive metering; (iii) updated cadaster of facilities and customers; and (iv) sectorization of the water distribution system. The performance targets established in the concession contracts in the three utilities are more ambitious than the monitoring indicators of the project. For example, in Buenos Aires, during the first year of operation, 40,000 water meters were to be installed for large non residential consumers, and 2,600 valves were rehabilitated or renovated. Financial Performance 23. Financial projections were not included in the SAR. The financial information provided in the SAR covered period 1982-1984, of which only OSN presented audited stater ents for years 1982 and 1983. The SAR stated that the financial information of OSN and EPOS was unreliable. Hence, the financial performance of the utilities included in the project has not been assessed. However, the financial performance of the privatized utilities in Buenos Aires, Rosario and Cordoba has improved dramatically when compared with the performance of the utilities previous to privatization. This improved performance, however, is only partially related to the project, in spite of the strong support provided to the privatization efforts and the catalytic role of the Bank in promoting the sectoral reform in the country. Information of these private utilities and their corresponding regulatory entities is summarized below: (a) - Aguas Argentinas, a consortium headed by Lyonnaise des Eaux, won the bidding process to provide water supply and sanitation services to the Metropolitan Buenos Aires area. Aguas Argentinas has been operating the service since May 1993. The impact of a private operator has been felt as Aguas Argentinas has decreased the water tariff by 17 percent, while increasing OSN's billings from $300 million in 1992 to $375 million in 1996, a 25 percent increase, and increasing the six month collection ratio from 86 percent in 1992 to 89 percent in 1997.  11 (b) ETOSS, the regulatory agency for Metropolitan Buenos Aires, has yearly operating expenses of about US$10.0 million, which are financed by 2.67 percent surcharge on the billing amounts. (c) Aguas Provinciales de Santa Fe, a consortium headed by Lyonnaise des Eaux, replaced DIPOS in all main cities of the province, including Rosario. Since December 1995, Aguas Provinciales has been operating the water supply and sanitation service for cities with more than 30,000 inhabitants, under a similar scheme to the one followed in Buenos Aires. As a consequence of the privatization process, the average water tariff was reduced from 0.34 to 0.29 US$/m3, which exceeds the expected tariff calculated during appraisal. Towns in the province with less than 30,000 inhabitants are served by cooperatives, and municipal services, and by a "residual company" in those areas formerly with DIPOS, but not transferred to the private concessionaire. (d) Ente Regulador de Servicios Sanitarios (ENRES) is the regulatory agency for the Province of Santa Fe, and its expenses are covered by a 4.90 percent surcharge on the billing amount of the concessionaire and 2.60 percent surcharge on the-billing of the cooperatives and municipalities. Its annual budget is of about US$3.5 million. (e) Since May 1997, Aguas Cordobesas, a consortium lead by Lyonnaise des Eaux is operating 75 percent of the water system of the city of Cordoba. The remaining 25 percent of the city has been served for years by small water companies using groundwater. This scheme will continue but the small water companies are now entitled to buy bulk water from the concessionaire. The city sewers have been operated by the municipality since 1990. The rest of the water and sewerage systems of the province are operated by cooperatives and municipalities. As a consequence of the privatization process, the average water tariff in the city of Cordoba, served by Aguas Cordobesas, were reduced by 8.2 percent. (f) Regulation in the province of Cordoba is under the responsibility of the Direccion de Aguay Saneamiento (DAS), which is also responsible for providing technical assistance to small water companies, and for construction and management of small irrigation systems, flood control and other hydraulic works. (g) Although all three winning consortiums were lead by Lyonnaise des Eaux, the bidding process for competition for the market was responsive. In the city of Buenos Aires and Santa Fe three consortiums participated in each of the bidding processes, while in the city of C6rdoba there were two participants. Economic Reevaluation 24. At appraisal, internal rates of return (IRR) were calculated only for two components of the C6rdoba subproject (65 percent of the project cost). The estimated IRR for the rehabilitation of facilities and expansion component was 10 percent, whereas the IRR for the operational improvement component was 44 percent, yielding a weighted IRR of 15 percent.  12 (a) For C6rdoba, the operational improvement component was not executed, while the rehabilitation and expansion component was partially executed. The water treatment plant is working at 30 percent of design capacity. The IRR of the Cordoba subproject is less than 5 percent, using the economic evaluation model of the appraisal. (b) The OSN subproject anticipated for Buenos Aires was not executed. (c) The Rosario subproject was fully executed. An estimated IRR of 44 percent has been calculated. Impact on the Poor 25. The project was not designed to benefit directly the poor since it was to address rehabilitation of existing services (largely for non-poor consumers). However, the benefits derived from the overall improvement of the operational system of Rosario and the increase in water production in Cordoba are presumed to have a marginal impact on the low income population in these two cities. F. Project Sustainability 26. The project, as originally designed, would not have been sustainable even after taking into consideration the successful implementation of the Rosario component. However, it is expected that the private concessionaires have much better prospects to sustain good financial and operating performance and improve the quality and coverage of the water and sanitation services. Sustainability can still be undermined by the weaknesses of regulatory entities which must be improved by reinforcing their institutional and legal framework, and increase their independence from the Government. G. Bank Performance 27. At identification and appraisal the Bank supported the strategy of the Government to improve performance of decentralized public utilities. However, the Bank failed to identify some fundamental flaws of that strategy. First, the Bank underestimated the extent of deterioration and the lack of constitutional capacity in the sector/participating provinces. The complexity generated by multiple executing agencies, and the weak institutional capacity of provincial utilities was not well assessed. This is demonstrated by the fact that two thirds of the project cost was allocated to the weakest provincial utility (EPOS). Second, tariff systems when not associated to metered consumption generate widespread economic distortions, wasteful use of water, and constraints the financial self- sufficiency of utilities. The Bank also failed to properly recognize the risk of a lack of counterpart funds of OSN and provincial utilities due to the Argentine economic crisis at the moment of appraisal. The project was designed to finance multiple activities which required a well tuned coordination capacity, and experience in Bank financed projects. This capacity did not exist.  13 28. During the period of economic instability (1986-89), moreover, the Bank did not reassess the likelihood of realizing the project objectives, in light of the fiscal problems facing the Borrower and provinces. However, once the Government decided to privatize the services under the responsibility of OSN in the Metropolitan Buenos Aires, the Bank was flexible in changing direction and supporting the privatization process promptly and decisively. During that period from 1990 to 1993, the Bank supervision was intense and effective. Unfortunately, the Bank allocated limited resources to supervise the implementation of the works executed by EPOS, which faced important technical and administrative problems. At that stage of project execution, more frequent supervisions to C6rdoba's component may have given better results. 29. Additionally, the Bank did little to strengthen COFAPYS and the other executing agencies over the life of the loan. Faced with an extremely complex federal-provincial setting and wide-spread institutional weakness, the Bank was indecisive and not able to provide a clear picture of the extent to which institutional reform was needed. There were clearly fundamental issues of autonomy and capacity which were left unaddressed. Had these issues been addressed, the entities may have been able to play a more decisive role in the overall project implementation. H. Borrower Performance 30. In the initial years of implementation, the project was slow due to delays in processing of procurement documents and a lack of experience in the executing agencies with Bank procedures. The high rates of inflation in the period 1988-1990 contributed to further delays in project implementation. 31. When the Federal and Provincial Governments decided on privatization, the project was affected in different forms: (i) OSN abandoned the objectives of the project and focused only on the privatization; (ii) DIPOS continued investing in operational and institutional improvements of its system, fundamentally in critical areas of the business, such as timely bill issuing and improving collection and negotiating tariff adjustments; (iii) EPOS concentrated on the construction of the water treatment plant, and paid no attention to improve its operational and commercial efficiency; (iv) SRH first and COFAPYS later, focused only in managing the loan disbursements, but did poorly in the actual implementation of the overall Project components; and (v) ETOSS only partially implemented the operational manuals financed under the project, and was incapable to overcome bureaucratic hurdles within the administration to contract a much needed consultancy designed to review the economic regulation of the concession, and design a new tariff structure. L Assessment of outcome 32. The project was not successful in meeting its original objectives, even though the objectives of increasing the efficiency of services provided by water utilities in Buenos Aires, Rosario and Cordoba, will be achieved. This improvement and a better quality of  14 service will not be achieved through improved public-managed utilities as envisaged at appraisal, but by private concessionaires. It is expected that the private provision of water and sanitation services would lead to a faster and more sustainable improvement in the coverage and quality of services as well as to a better allocation of investment resources. This outcome can not be fully attributable to the project, but to the decision of the Government to change the institutional model to provide water and sanitation services through private concessionaires and limit the role of the public sector to the regulatory function. The Bank was flexible and provided a strong support to the Government's decision to privatize and played a key catalytic role through the reform process. J. Future operation 33. The three utilities now under private operation will continue to operate that way and are likely to demonstrate continued operational improvements. However, much remains to be done especially to: (i) extend the privatizationl restructuring process to other provincial water utilities; (ii) reinforce the regulatory framework; (iii) develop policies/strategies/processes to ensure extension of water and sewerage services to poor areas; and (iv) finally, to progress in the sewerage sub-sector from collection to treatment and to improve drainage systems. It was expected that a series of operations would be needed to complete this agenda. The first follow-up project was the Water Supply and Sewerage Sector Project (Loan 3281-AR) approved in December 1990, which aimed at promoting greater sector efficiency and financial viability, service coverage expansion, improvement in service quality, and encouragement of private sector participation. The project has suffered long implementation delays, essentially due to the executing agency's poor performance and continued institutional instability. Proceeds of the loan have been used for technical assistance for institutional reforms in several provinces, including establishment of regulatory agencies, tariff studies, and preparation of bidding documents for concessions. To continue supporting Argentina's water and sanitation sector, a new project is under preparation. The proposed project will build upon the lessons learned from the two previous projects and complement them by supporting a second generation of privatization of water utilities in medium size cities. In parallel, EDI/BM have been supporting strengthening of the provincial regulatory agencies and the Bank has agreed to provide reimbursable technical assistance to ETOSS, for expert advise in post- privatization issues. K. Lessons Learned 34. This project had a very long gestation period, about 6 years, from identification in 1979 to appraisal in 1985. The implementation of the project was even longer, about 12 years, from 1985 to 1997. During these 18 years, the water and sanitation sector in Argentina was subject to fundamental changes. In the early eighties, the break-up of the national monopoly of OSN into decentralized provincial utilities, followed ten years later by the bold decision of the Government to privatize water and sanitation services in Buenos Aires, the largest of the water utilities in the country. Lessons from this project are relevant to many other countries, particularly in the LAC region.  15 Policy Lessons (a) Decentralization of a national water company without an adequate policy framework is not sustainable. Creation of provincial utilities was not enough to improve sector performance. Breaking-up the national monopoly of OSN was a step in the right direction, unfortunately, in the absence of a sound public policy framework. The Government, in the middle of a deep fiscal crisis, incapable to continue subsidizing the operations and investment of the sector made the decision to transfer the responsibility of service provision to regional governments. This decision was made without creating at the same time the environment to promote economic efficiency, and competition. Therefore, decentralized utilities carbon- copied the regulatory environment of OSN with excessive political interference in the appointment of managers, and the approval of budgets and investment plans. The wrong tariff regulations remained intact, with the only difference that the power to approve new tariffs was transferred to the sub-national jurisdictions, at the provincial or regional level. The performance of most provincial utilities deteriorated even further. This situation was exacerbated by the macroeconomic crisis in the country during most of the eighties. (b) Privatization of water utilities requires a different approach. Creation of provincial utilities was not enough to improve sector performance. When the Government decided in 1979 to decentralize water services, breaking-up the national monopoly of OSN was a step in the right direction; unfortunately, it was done in the absence of a sound public policy framework. Therefore, the decentralized utilities carbon-copied the regulatory environment of OSN with excessive political interference in the appointment of managers, and the approval of budgets and investment plans. The wrong tariff regulations remained intact, with the only difference that the power to approve new tariffs was transferred to sub- national jurisdictions at the provincial or regional level. The performance of most provincial utilities deteriorated even further. This situation was exacerbated by the macroeconomic crisis in the country during most of the eighties. (c) Privatization of utilities requires development of a sound regulatory capacity in the public sector. The establishment of effective regulatory agencies is as important as private sector participation. However, in the case of ETOSS this task is taking longer than anticipated mainly because the culture of regulating public utilities is an alien concept in Argentina and in LAC. Hence, the new role of the public sector as a regulator of water utility services is not well defined, nor well understood by the society and the political establishment. The main lesson of the project in relation to ETOSS is that the creation of regulatory agencies to promote competition, to improve efficiency, and to represent the interest of consumers is a task that demands a major concentration of high-quality Bank assistance.  16 Project Lessons (e) Project design must beflexible to respond to changes in country policies. When the administration decided in late 1989 to allow privatization of OSN and established a Privatization Committee, the Bank's support and commitment were critical in making a success of the effort. However, such an important change in the project concept should have been done on the basis of a comprehensive review of the project's scope and objectives. In light of the changed policy stance in the federal government in 1989-90. (f) Macro-context and Sector policies should be carefully evaluated. The decentralization policy of the government, while well oriented, lacked a framework of incentives to promote efficiency in the provincial utilities. With the lack of clarity in government policies at the time of appraisal (February, 1985) and taking into consideration the delay to make the loan effective (26 months), it would have been advisable, at least, to re-evaluate the project concept and the risks associated in its implementation. Such a decision would have been fully justified by the rapidly changing institutional environment of the sector during 1985-1987, and the deterioration of the overall economic conditions. (g) Sectorconstraintsand issuesshould be reflected inproject design. As part ofthe review of the government strategy, issues related to tariff design, budgeting, investment decisions, personnel policies, financial management practices, level of management autonomy, etc. should be carefully identified as part of project preparation or through economic sector work. The project failed to identify most of these issues, therefore options to address them were not included in project design. Moreover, at the time of appraisal, OSN performance was rapidly deteriorating: revenues in 1984 did not cover operational costs, mainly because of almost 100 percent increase--in real terms--of personnel costs in 1983. The Bank has only conducted a sector review in 1992. (h) Anticipate requirements of technical assistance. The technical assistance component of the project, about US$ 2.0 million, or 3.3 percent of the loan was disproportionally small when considering the challenge of the major sector reforms underway at the time of project preparation. Through loan amendments, technical assistance was increased to US$18.5 million, corresponding to 49 percent of the loan amount, after partial cancellation of the loan. (i) Develop adequate implementation procedures during project preparation. The inexperience of executing agencies in the implementation of Bank-financed projects, and the risks associated with frequent changes of key project officials should be addressed during project preparation. A detailed Project Operation Manual should have been a condition of appraisal (as now is the practice). These procedures would help to maintain the institutional memory regarding the project implementation procedures, and would also help to establish continuity in project administration for future management.  17 (a) Address inexperience of counterpart agencies through continuous training. Starting from the early stages of project implementation, the Bank must provide training to the staff of the executing agencies. Training programs should be repeated from time to time to address the tumover of government officials. Training should be focused on the content of the Project Operation Manual and on procurement procedures. A considerable part of the implementation problems are associated with procurement issues as demonstrated by the numerous procurement correspondences found in the project files between the agencies and the Bank, on standard procurement matters. (k) Complex projects require more supervision than normal. The frequency of Bank missions would be increased, and expert consultant support should be sought when complex technical/procurement problems arise. Problems encountered in the implementation of civil works by EPOS could have been minimized with adequate technical and administrative support.  18 PART 11: STATISTICAL ANNEXES Table 1. Sanuary of Asseannts A. Achievement of obiecdives Substantia Partial Neeluidble Not anlUcable Macroeconomic policies E El Sector tariffpolicies [ E El E Financial Objectives E l El E lIstitukional Development EJ E Physical Objectives E EJ E E Poverty Reduction E E E El Gender Issues [ E E El Other social objectives E E E El Environmental objectives n El E O Public sector management El El E E Private setor development E E E El B. Prolect sustainability Likelv Unlikel Uncertain [RI 1: 1: HLuhlv C. Bank nerformance satisfactory Satisfactory Deficient Identification IEl El 1 Preparation assistance E El El z~~E El El Supervision E E El HiLuhl-v C. Borrower perfornance satisfactorv Satisfactory Deficient Preparation E E El Implementation E E El Covenant compliance El El Operation (if applicable) E El E E] D. Assessment of outcome Satisfactorv Satisfaetorv Unsatisfactory Unsatisfactorv El 0 El El  19 Table 2. Related Bank Loans/Credits Loan Title Purpose Year of approval Status Previous operations NA Following Operations: Water Supply and To promote greater sector efficiency and 1991 Disbursing Sewerage Sector Project financial viability; improve quality of services; (L-3281-AR) encourage private sector privatization Water Sector Reform To support the privatization process in several 1999 Negotiations Project localities: rehabilitation of existing Expected infstructure, elimination of bottlenecks in existing waterworks, improvements on the operational control and commercialization and emergency works  20 Table 3. Project Timetable Steps in Project Cycle I Date Planned I Actual Date Identificationl Appraisal Nov. 1984 Feb. 25, 1985 Negotiations Apr. 1985 Oct. 10, 1985 Board Presentation May. 1985 Dec. 10, 1985 Signing Nov. 26, 1986 Effectiveness Apr. 24, 1987 roject Completion Jun. 30, 1997 Disbursement Aug. 6, 1997  21 Table 4. Project Scope and Implementation Project component Actual Status ART A: National Water & Sanitaffon Plan ational Water and Sanitation Plan Jun-89 Studies prepared tutional Streghitening of ETOSS Jun-95 Partially implemented xpertPanel to review Master Plan Sep-96 Executed ariff Study Not executed ART B: Buenos Aires onsultants to privatize OSN May-93 Implemented erational Improvement Promam onsumption Metering (200.000) Dec-90 Not executed (*) oduction Metering Dec-89 Not executed Pitometer Survey Mar-89 Not executed Mapping Sep-89 Not executed ater Distribution Renovation (700 Km) Dec-90 Not executed Distnbution System Management Jun-88 Studies prepared Commercial SystemUpgrading Dec-88 Studies prepared echnieal Assistance echnical assistance to OSN Dec-88 Studies prpared ARTC: Cordoba nerational Improvement Prognam onsumption Metering (60.000) Jun-89 Not executed oduction Metering Mar-89 Not executed itometer Survey Dec-88 Not executed [!dapping Dec-87 Not executed aterDistribution Renovation (275 Km) Dec-88 Not executed *istnbution System Management Dec-87 Not executed .CommercialSystem Upgrading Dec-89 Not executed eh& Ext. of Cordoba's water system Molinos Channel construction Dec-92 Executed by Municipality Molinos water treatment plant Dec-93 90% executed Suquia water treatment plant Dec-89 Not executed ster pumping stations Dec-92 Not executed Watermains Dec-91 Executed by Municipality Technlea Assistance echnical assistance to EPOS Dec-88 Not executed PART D: Rosario (Santa Fe) Onerational Imurovement Prom-am onsumptionMetering (4.000 Km) Jun-89 Executed oduction Metering Dec-87 Executed tometer Survey Mar-89 Executed Mapping Dec-88 Not exeuted ater Distribution Renovation (300 Krm) Dec-89 Executed stribution System Management Dec-89 Not executed _mmercialSystem Ugang Dec-87 Executed (') Funds reallocated to support the privatization of OSN and the institutional strengthening of ETOSS  Table 5. Project Cost and Project Financing (USS '000) _____________________ | Estimated at appraisal Actual Percent Category IBRD Local I Total IBRD I Local Total Change Part A: SRH/COFAPYS/ENHOSA Works 0 0 0 0 130 160 290 143 26 168 -42% Consulant's services andtraiing 870 0 870 4,515 813 5,328 512% Total Part A: 1,000 160 1,160 4,658 838 5,497 374% Part B: OSN/Buenos Aires works 4,100 5,218 9,318 0 0 -100% 10,000 9,122 19,122 0 0 -100% oultnt's services and training 1,900 0 1,900 10,636 1,915 12,551 561