Improvement of Sewage Management in the City of Sochaczew - Stage I

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

IMPROVEMENT OF SEWAGE MANAGEMENT IN THE CITY OF SOCHACZEW - STAGE I

Poland

23 March 2019

This report is part of a study carried out by a Team selected by the Evaluation Unit, DG Regional and Urban Policy, European Commission, through a call for tenders by open procedure No 2016CE16BAT077.

The consortium selected comprises CSIL – Centre for Industrial Studies (lead partner, Italy) and Ramboll Management Consulting A/S (Denmark).

The Core Team comprises: • Scientific Director: Massimo Florio (CSIL and University of Milan); • Project Manager: Silvia Vignetti (CSIL); • Scientific Committee: Henrik Andersson, Phoebe Koundouri, Per-Olov Johansson; • Task managers: Jakob Louis Pedersen (Ramboll), Thomas Neumann (Ramboll), Chiara Pancotti (CSIL), Xavier Le Den (Ramboll), Silvia Vignetti (CSIL); • Thematic Experts: Mario Genco (CSIL), Lara Alvarez Rodriguez (Ramboll), Alexander Greßmann (Ramboll), Trine Stausgaard Munk (Ramboll). A network of National Correspondents provides the geographical coverage for the field analysis.

The authors of this report are Rafal Stanek. The authors are grateful to all the project managers, stakeholders and beneficiaries who provided data, information and opinions during the field work.

The authors are grateful for the very helpful insights from the EC staff and particularly to [insert the name(s)] and other members of the Steering Group. They also express their gratitude to all stakeholders who agreed to respond to the team’s questions and contributed to the realisation of the case study. The authors are responsible for any remaining errors or omissions.

Quotation is authorised as long as the source is acknowledged.

Cover picture source: ZWiK Sochaczew.

TABLE OF CONTENTS EXECUTIVE SUMMARY ...... 6

OVERALL APPROACH AND METHODOLOGY ...... 6 MAIN PROJECT FEATURES ...... 7 PROJECT PERFORMANCE ...... 8 MECHANISMS AND DETERMINANTS ...... 10 1. PROJECTS DESCRIPTION ...... 12

1.1. CONTEXT ...... 14 1.2. PROJECT OBJECTIVES...... 21 1.3. STRUCTURAL FEATURES ...... 22 2. ORIGIN AND HISTORY ...... 31

2.1. BACKGROUND ...... 31 2.2. FINANCING DECISION AND PROJECT IMPLEMENTATION ...... 33 2.3. CURRENT PERFORMANCE AND OTHER INVESTMENT NEEDS ...... 36 3. DESCRIPTION OF LONG-TERM EFFECTS ...... 40

3.1. KEY FINDINGS ...... 40 3.2. EFFECTS RELATED TO ECONOMIC GROWTH ...... 43 3.3. EFFECTS ON QUALITY OF LIFE AND WELL-BEING ...... 44 3.4. EFFECTS ON THE ENVIRONMENTAL SUSTAINABILITY ...... 45 3.5. EFFECTS RELATED TO DISTRIBUTIONAL ISSUES ...... 47 3.1. TIME SCALE AND NATURE OF THE EFFECTS ...... 47 4. MECHANISMS AND DETERMINANTS OF THE OBSERVED PERFORMANCE . 49

4.1. RELATION WITH THE CONTEXT ...... 49 4.2. SELECTION PROCESS ...... 50 4.3. PROJECT DESIGN ...... 51 4.4. FORECASTING CAPACITY ...... 52 4.5. PROJECT GOVERNANCE ...... 54 4.6. MANAGERIAL CAPACITY ...... 58 4.7. PROJECT BEHAVIORAL PATTERN ...... 58 5. FINAL ASSESSMENT ...... 60

5.1. PROJECT RELEVANCE AND COHERENCE ...... 60 5.2. PROJECT EFFECTIVENESS ...... 60 5.3. PROJECT EFFICIENCY ...... 62 5.4. EU ADDED VALUE ...... 63 5.5. FINAL ASSESSMENT ...... 64 6. CONCLUSIONS AND LESSONS LEARNED ...... 67 ANNEX I. METHODOLOGY OF EVALUATION ...... 69 ANNEX II. EX-POST COST-BENEFIT ANALYSIS REPORT ...... 87 ANNEX III. LIST OF INTERVIEWEES ...... 109 REFERENCES ...... 110

LIST OF AVVREVIATIONS

CBA Cost-benefit analysis

CF Cohesion Fund

DG REGIO Directorate-General for Regional and Urban Policy

EC European Commission

ERDF European Regional Development Fund

ESIF European Structural and Investment Funds

EU European Union

EUR Euro

GDP Gross Domestic Product

ISPA Instrument for structural policy for pre-accession

KOBiZE Krajowy Ośrodek Bilansowania i Zarządzania Emisjami (The National Centre for Emissions Management=

lcd Litres per capita per day

NUTS2, NUTS3 Nomenclature of Territorial Units for Statistics

PIU Project Implementation Unit

ToRs Terms of References

UWWTD Urban Wastewater Treatment Directive

WWTP Wastewater Treatment Plant

ZWiK Sochaczew Zakład Wodociągów i Kanalizacji Sochaczew Sp. z .o.o.

EXECUTIVE SUMMARY

This case study illustrates the story of the construction of the wastewater network to nearly one third of the population of Sochaczew city, a major project co-financed by the European Union (EU) during the programming period 2007-2013. More specifically, this is an ex-post evaluation assessing the long-term effects produced by the investment and aimed at disentangling the mechanisms and determinants likely to have contributed to produce these effects. The analysis draws on an ex-post Cost- Benefit Analysis (CBA)1 and an extensive set of qualitative evidence, both secondary (official reports and press articles, books and research papers) and primary (site visits and interviews with key stakeholders and experts have been carried out in November 20182).

OVERALL APPROACH AND METHODOLOGY

The Conceptual Framework delivered in the First Intermediate Report has been developed to answer the evaluation questions included in the ToR, and further specified and organised in accordance with the study team’s understanding. In particular, there are three relevant dimensions of the analysis:

• The ‘WHAT’: this relates to the typologies of long-term contributions that can be observed. The Team classified all the possible effects generated by environment projects (including management and distribution of water; water treatment; management of household and industrial waste; measure to preserve the environment and prevent risks) under the four following categories: ‘Economic growth’; ‘Quality of life and well-being’ (i.e. factors that affect the social development, the level of social satisfaction, the perceptions of users and the whole population); ‘Effects related to environmental sustainability’ and ‘Distributional impacts’. • The ‘WHEN’: this dimension relates to the point in the project’s lifetime at which the effects materialise for the first time (short-term dimension) and stabilise (long-term dimension). The proper timing of an evaluation and the role it can have in relation to the project’s implementation is also discussed here. • The ‘HOW’: this dimension entails reasoning on the elements, both external and internal to the project, which have determined the observed causal chain of effects to take place and influenced the observed project performance. To do this the Team identified six stylised determinants of projects’ outcomes (relation with the context; selection process; project design; forecasting capacity; project governance; managerial capacity). The interplay of such determinants and their influence on the project’s effects is crucial to understand the project’s final performance.

1 Data, hypotheses and results are discussed in Annex II. 2 See Annex III for a detailed list of interviewees

The methodology developed to answer the evaluation questions consists of ex- post Cost Benefit Analysis complemented by qualitative techniques (interviews, surveys, searches of government and newspaper archives, etc.), combined in such a way as to produce a project history. CBA is an appropriate analytical approach for the ex-post evaluation because it can provide quantification and monetisation of some of the long-term effects produced by the project (at least those also considered in the ex-ante CBA). However, the most important contribution of the CBA exercise is to provide a framework of analysis to identify the most crucial aspects of the projects’ ex- post performance and final outcome. It is worth noting that the purpose of this evaluation is not to compare ex-ante and ex post CBAs and that the results of these assessments are not easily comparable, because even if they rely on the same principles and draw from the established CBA methodology, there are often important differences between how the ex-ante and ex-post assessments were scoped and what data were taken into account. Qualitative analysis on the other hand is more focussed on understanding the determinants and causal chains of the delivery process as well as to assess effects that may be difficult to translate in monetary terms.

MAIN PROJECT FEATURES

The project is located in the city of Sochaczew in central Poland the Masovian Voivodeship (since 1999). The city of Sochaczew is the capital of Sochaczew County. With nearly 37,000 inhabitants, it is a rather middle size city in Poland and in the Masovian Voivodeship. Its total population shows a slight decreasing trend: its inhabitants were 39,703 in 1995, 38,066 in 2005, and 36,790 in 2017. The declining trend is expected to continue in the future. Although the city is located in the most developed region, its marginal location at the regional border causes that most macroeconomic indicators are similar to the Polish average rather than better.

In the context of wastewater services, before the project implementation the wastewater network covered only a part of the city while more than one third of the city population was without a wastewater collection system. The situation was much worse than Polish average in 2008 which was at about 85% connection rate to wastewater network.

The project under assessment consisted of construction of about 91.3 km of the wastewater network, including supporting pumping stations, modernisation of the municipal waste water treatment plant (WWTP) and concurrent closing small outdated WWTPs and rehabilitation of the 3.4km of the wastewater network in the city centre. Its primary goal was to ensure wastewater collection and proper treatment for additional 11,138 inhabitants.

The project involved a total final investment of EUR 21.5 million in nominal prices (VAT excluded), which was co-financed by own funds of the beneficiary (17%), by a contribution from the Cohesion Fund (CF) (58%) and by corporate bonds (25%). The CF was allocated through the Operational Programme Infrastructure and Environment 2007-2013.

First project ideas are dated 2004, but the project design took place in 2007-2010 and construction works lasted from 2010 to 2013. The operational phase started in late 2013 while connections to the wastewater network continued by the end of 2016.

PROJECT PERFORMANCE

Based on the findings of the analysis, the final assessment of the project performance is presented hereafter, along a set of evaluation criteria.

Project relevance and coherence:

The project was highly relevant in the context where it was implemented and matched a real need, providing a long-term solution to the lack of wastewater infrastructure that were affecting the city and receiving water bodies. Since the project major components are wastewater network and modernized WWTP, the project is expected to remain relevant also in the future.

The project was coherent with the strategic priorities set at various levels (European, national and local levels).

It represented a necessary and important step to improve surface and underground water quality. In this respect, the project was consistent with the Urban Waste Water Treatment Directive (UWWTD) and with the goals set out in the Accession Treaty, in National Programme for Municipal Wastewater Treatment and operational Programme Infrastructure and Environment 2007-2013. The project is located in environmentally sensitive area and, as agglomeration is above 15 thousand PE, the project also responds to the problem of removal of nitrogen and phosphorus.

Project effectiveness

Although with delay, the project achieved its objective as stated in the application for CF support i.e. connection of more than 11 thousand inhabitants to the wastewater network and ensuring the treatment capacity and parameters by the municipal WWTP.

Against a total investment cost of EUR 21.5 million (VAT excluded) and approximate EUR 0.5 million (real values at 2018 terms, excluding VAT) of annual operation and maintenance until the assumed last year of the project time horizon (2036), the project produces a net socio-economic contribution to society, measured by the economic net present value of EUR nearly 26 Million. The internal rate of return is equal to 9.87% against a benchmark discount rate of 5.05% for the past and 4.41% for the future.

The main socio-economic benefit produced by the project is the increased availability of wastewater services. This benefit was quantified in terms of monetising the increased availability of the wastewater services, by the avoided capital and maintenance costs of self-collection and discharge of wastewater (by means of closed septic tanks). The second benefit is related to the improved conditions of the environment, through avoided direct discharge of wastewater into surface waters (Bzura, Utrata and Pisia rivers), indirectly to the underground waters or to the soil reducing pollution levels.

As after the project implementation, the connection rate to the wastewater network is still below 100% and capacity of WWTP is suitable to cover the entire agglomeration, the project has capacity for further development of the wastewater network.

Project efficiency

The project implementation went overall smoothly and did not suffer from excessive delays. The experienced delays (over one year on some contracts) were mainly caused by a long public procurement process and only in small portions caused by delays during the construction, weather conditions, unrecognized underground infrastructure and in few cases by ownership problems. The project implementation in short time (majority of works were done in 2012) required extensive co-ordination of works, especially with road closing. The coordination efforts involved many stakeholders, including the owners of the buildings to be connected, owners of the underground infrastructure (in case of collision) and owners of public roads (not only the city but also the county). Although the public roads were available to build the wastewater infrastructure, sometimes other plans of the road management had influence on project construction schedule.

The final total costs, EUR 21.5 million, turned out to be much lower than the total planned costs (EUR 44 million) that were included in the tender dossier and ex-ante cost-benefit analysis submitted in 2011 (the latest update). Investment costs were forecasted using the standard cost estimation method that uses the estimation of the works scope and average prices from the previous quarter and adds standard margins (overhead, profit, purchase cost). Market conditions, however, caused a large divergence in the estimated costs compared to the actual successful tender price. These conditions included saturation of the market with companies capable of constructing wastewater systems coupled with low barriers to entry. This caused considerable downward pressure on prices at the same time as the financial crisis affected the market. Finally, the division of the project into many contracts enabled small companies to participate in the tenders, which further increased competition. The financial sustainability of the project during the project investment was guaranteed by the funds provided by a mix of sources: the European Union, the city of Sochaczew and beneficiary ZWiK Sochaczew. Part of the own sources was secured by corporate bonds.

On the contrary the operator alone, ZWiK Sochaczew, is responsible for ensuring the project financial sustainability over its operational phase until the end of the project horizon. The revenues to ensure the project sustainability come from wastewater tariff that thanks to the “cost plus” formula3 are at least equal to the required expenditures (operation and maintenance costs, depreciation, debt repayment in excess of depreciation, financial cost and even provision for unpaid bills). The tariff was approved by the city on annual basis by the end of 2017 while since 2018 Polish Waters, a government body, is responsible for the tariff approval for three-year long period. Ultimately, the tariff system has ensured the project financial sustainability.

EU added value

The European Commission eventually contributed to the investment project by providing a grant of EUR 12.4 million in 2018 values.

3 “Cost plus” formula for the tariff calculation must be used by all Polish water and wastewater companies. The tariff calculation formula and tariff change request forms are provided by the Ministerial Order and approved by the city administration (nowadays by Polish Waters) while city has no rights to reject the tariff if calculated properly.

The application for EU co-financing was submitted to the National Fund for Environmental Protection and Water Management (hereinafter National Environmental Fund) by the ZWiK Sochaczew in 2008 after the approval of the feasibility study by the city. The project benefitted by technical assistance by JASPERS which provided some optimisation on the original design.

Even taking into account the great relevance of the project for both national and local objectives, as well as the direct influence of the implementation of the UWWTD, it is reasonable to assume that the project would not have been implemented without the EU grant.

According to interviewees from beneficiary and the city, the added value provided by the EU contribution to the project consisted not only in the funds provided, but also by very good project preparation thanks to the technical assistance. Also the co-funding by EU mobilized local stakeholders not only during the construction period but also later on to fully achieve project objectives.

MECHANISMS AND DETERMINANTS

The long-run performance of the project described in the previous sections can be explained along a series of mechanisms and determinants.

The relation with the context had a very positive impact on the project’s effectiveness. The project was selected having in view the existing situation of the wastewater services in the city of Sochaczew. First, the city is important as agglomeration above 15 thousand population in the environmentally sensitive area, lying on three rivers. Second, the city wastewater infrastructure was neglected for many years and it created unique situation that significant part of the city was not equipped with wastewater infrastructure.

The project design was also determinant in a highly positive way to the project eventual effectiveness. The project got a technical assistance and JASPERS support that helped to review different alternatives and to selected the best option to solve the problem. The technical design was prepared by selected design company. The project did not involve complicated technological components. Majority of the project was construction of the wastewater network in the city which means that directions of the network was determined by road system in the city. The whole project was located on public properties with small exception of property level pumping stations. The municipal WWTP existed and required a limited modernisation that was already determined during the previous WWTP’s modernisation project, co-financed by the ERDF.

The initial design remained not changed during the construction with few small exceptions.

The forecasting capacity was a determinant in a both positive and negative way. The forecasted investment costs were overestimated (EUR 44 versus 21.5 million), which in the end did not cause any problems. This conclusion is supported by the fact that the forecasted capacities of the wastewater network and WWTP are used (no excessive surplus capacity of these facilities), which indicates that the infrastructure resulting from the project was planned and operated in an effective way. The actual implementation was slightly longer than forecasted but still within accepted limits.

However, the actual connections to the wastewater network took a couple of years longer than expected in the project documentation. The project included the infrastructure connecting the wastewater network to the manhole situated on individual properties. It did not include however the physical connections from the manhole to the individual dwellings; this had to be done outside the project and with the cooperation of individual owners. In such cases, the creation and stabilization of impacts on citizens depend on the rate of implementation of complementary investments on private connections.

No unexpected technical issues emerged and the project is today providing the service that it was planned to. The technical issues faced are those typically associated with the maintenance of a wastewater infrastructure, especially related to the current maintenance of the pumping stations. This is however solved by Supervisory Control and Data Acquisition system (not a part of the project) that allows on-time intervention. No particular problems have emerged and affected the project management so far. All interviewed actors maintained that the wastewater services are of very good quality and that maintenance of the infrastructure is properly done.

As said, the major challenge was a delay in connections to the wastewater networks. Thanks to the good managerial capacity all involved stakeholders found the solution for the problem and the major objective of the project was achieved in 20164. This involved efforts of the ZWiK Sochaczew through awareness raising activities (organizing meetings with not connected citizens, radio and newspaper information on benefits from clean water), providing innovative financial support and introducing enforcement measures.

Managerial capacity, still existing PIU, is shown by additional investment projects also co-financed by the CF.

CONCLUSIONS

The project is considered overall successful inasmuch it achieved its intended primary objectives. The major project responded to existing needs and was implemented smoothly. Connections to individual users that were not a part of the project, neither financed from other sources, became a significant barrier for reaping the benefits of the investment immediately after the project implementation. . The situation of the city of Sochaczew before the project implementation was far below the national average in equipment with wastewater network. The city was reporting that 66% of the population was connected to the wastewater network while the national average of 85.5% at that time for urban areas (including smaller towns). Taking into account the target of 90% in agglomerations between 15 and 100 thousand, the average city of that size had to catch up only few percent of the population as compared to about 30% in case of the city of Sochaczew.

The story of the project illustrates also that addressing the whole value chain by an investment is essential to achieve the project objectives effectively and with no delay.

4 2016 is still under the project durability period

1. PROJECTS DESCRIPTION

The major project “Improvement of water and sewage management in the city of Sochaczew - Stage I” (CCI Number: 2009PL161PR008) mainly consisted of extending the services of collecting sewage from additional nearly one third of the population of the Sochaczew city. Before the project started the city already had 137 km of water network with 88 km of connections and 58 km of wastewater network with 18 km of connections in addition to water purification and wastewater treatment plants. The sewage network in the city centre had a high level of infiltration. The city was served by one big municipal WWTP and 2 smaller local WWPTs managed by ZWiK Sochaczew. In addition, there were two other small local WWTPs belonging to other users (hospital, railways). All these small WWPT’s were outdated and did not fulfil treatment norms. The aim of the project was to comprehensively solve the sewage problem in the agglomeration. This was achieved by extending the wastewater network by 91.3 km, modernizing 3.4 km of existing network in the city centre, and modernising the existing municipal WWTP (the biggest one). The latter intervention allowed not only the proper treatment of wastewater up to tertiary stage5 but also liquidation of small, local WWTPs. The extension of the wastewater network allowed connection of declared 11,138 persons to the wastewater network and proper treatment of about 1.1 million m3 of wastewater (excluding infiltrations) annually. The main objective of the project was to improve the wastewater management in the area of the city of Sochaczew. The activities covered by the Project contributed to the elimination of existing shortages in the area of the wastewater system as well as to achieve the parameters of treated sewage specified in Polish and EU law to eliminate the discharge of sewage directly to the soil. As suggested by its name (Stage I), the project is a part of a larger investment plan. Indeed, after the project was completed two other projects were also co-funded by European Union. Both additional projects (signed in 2015 and 2017) were however very small in comparison to the evaluated project. As a matter of fact, they aimed to connect 505 and 176 persons to the wastewater network respectively. The project has been co-funded by the CF in the 2007-2013 programming period, with resources allocated to the Operational Programme Infrastructure and Environment 2007-2013. It has been operational since 2013, with a construction period lasting from 2009 to 2013 and a total cost net of VAT of EUR 21.5 million in 2018 EURO. The CF contribution represents 57% of the total net investment cost.

5 Waste water treatment generally involves three stages, called primary, secondary and tertiary treatment. More stringent treatment (also known as tertiary treatment) is additional treatment that follows primary and secondary processes. The purpose of tertiary treatment is in most of cases to have additional nitrogen or phosphorus removal or, where required, removal of pathogens and/or removal of specific hazardous substances.

The project was planned, implemented and is operated by "ZAKŁAD WODOCIĄGÓW i KANALIZACJI-SOCHACZEW" Sp. z o.o. (shortly ZWiK Sochaczew), the limited liability company owned in 100% by the city of Sochaczew. ZWiK Sochaczew is the only entity providing water supply and wastewater collection and treatment services in the city of Sochaczew. This ownership structure is very typical for the Polish water sector in towns and cities. The water utility company owns the infrastructure and provides services. Therefore, all planning, implementation and operation activities are done by the same entity. The city fulfils a monitoring role and effectively functions as the local regulator.

Figure 1. The area of the city connected to the wastewater network (blue shading) and with rehabilitated wastewater network (red shading) under the project

Source: Authors, map layer from openstreet map

This first section of the case study report contains a brief description of the project. The socio-economic context, the target population, key structural features of the infrastructure and the service delivered are outlined, in order to provide an overview of the project background and of its objectives.

1.1. CONTEXT

The project is located in the city of Sochaczew in central Poland the Masovian Voivodeship (since 1999). The city of Sochaczew is the capital of Sochaczew County.

Figure 2. Location of the project in Poland and Masovian Voivodeship

Source: Authors, background map from Wikipedia

With nearly 37,000 inhabitants, it is a rather middle size city in Poland (125 largest in Poland) and 14th largest in the Masovian Voivodeship6. Its total population shows a slight decreasing trend: its inhabitants were 39,703 in 1995, 38,066 in 2005, and 36,790 in 2017 (see Figure 3). The declining trend is expected to continue in the future which is typical for the small cities that are not capital of the region.

6 http://www.polskawliczbach.pl/najwieksze_miasta_w_polsce_pod_wzgledem_liczby_ludnosci

Figure 3. Demographical development of the city of Sochaczew

Source: Statistics Poland

Although the Masovian Voivodeship registers the highest GDP nominal and per capita from Polish regions, the economy of the region is dominated by the city of Warsaw and nearest located cities.

Figure 4. GDP per capita by Polish regions as % of the EU average

Source: Eurostat, Regions and Cities Illustrated (RCI), GDP (PPS per inhabitant) in current market prices as % of EU average by NUTS 2 regions

The GDP statistic is provided at the NUTS2 and NUTS3 regional level, which means that disaggregated data for the city of Sochaczew is not available and it is instead included in the Warsaw West NUTS3 region. The following table compares the GDP per capita of Poland, Masovian Voivodeship, City of Warsaw and Warsaw West NUTS3 region where Sochaczew is located.

Figure 5. Gross domestic product (GDP) per capita at current market prices by selected NUTS 3 regions compared to Poland and Masovian Voivodeship [EUR]

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Poland 8,200 9,600 8,300 9,400 9,900 10,100 10,300 10,700 11,200 11,100

Masovian 12,800 14,700 13,000 14,900 15,700 16,100 16,400 17,100 17,800 17,600 Voivodeship

City of 23,800 27,000 24,300 27,700 28,500 29,500 30,300 31,300 32,100 Warsaw

Warsaw West 9,600 11,200 10,000 11,600 12,400 12,700 12,900 13,600 14,500

Source: Eurostat. Gross domestic product (GDP) at current market prices by NUTS 3 regions [nama_10r_3gdp] Last update: 28-02-2018

GDP per capita of Warsaw Zachodnie NUTS3 region is above national average (EUR 14,500 as compared to the national average of 11,200 EUR in 2015), however the reported indicators should be interpreted with caution as it is distorted by high income cities located closer to the capital city of Warsaw. The GDP per capita in the city of Sochaczew is close to the national average, and so is the unemployment rate (6.1% versus the national average of 5.7% in September 20187).

The city benefits from a favourable location on transportation networks. The city is located on old national road no. 2 (currently 92), one of the most important roads connecting the city of Warsaw, Poznań and further to Berlin. The national road no. 2 had been one of the busiest until the highway A2 was constructed and opened in 2012. Now the road is used for reginal connections and offers a good and quick (about 1 hour, 60km) connection to the city of Warsaw. The alternative is to reach the A2 highway which passes about 18 km from the city.

On the other hand, the city lies on national road 50 that forms a bypass of Warsaw metropolitan area (29 to 84 km away from centre of Warsaw). Road is used as a detour for trucks due to restrictions in Warsaw and notices a heavy traffic.

Sochaczew is also located on a railway connecting the city of Warsaw and Poznań and served by frequent regional and some intercity trains. The connection to Warsaw varies from 28 minutes with an intercity train to 48 minutes for a regional train offering a convenient option for numerous commuters who can benefit from the capital’s job market.

Regardless the city’s good location in Poland, it is marginal in the region. It is located almost on the boarder of two regions. The situation was not much different before the

7 http://stat.gov.pl/obszary-tematyczne/rynek-pracy/bezrobocie-rejestrowane/bezrobotni-zarejestrowani-i- stopa-bezrobocia-stan-w-koncu-wrzesnia-2018-r-,2,74.html

administrative division of the country (until 1999, Poland was divided into 49 voivodeships while now there are 16 of them), when Sochaczew belonged to Skierniewickie voivodship and lied at the border of the region. The remote location did not attract investments and a backlog of infrastructure investments was observed throughout the years which had triggered the project.

Regarding the local economy, there are about 4,500 companies in the city, mainly small family, transport, construction and service enterprises. Also a number of bigger companies are located in the city.

Sochaczew is located at an altitude of 81m above sea level on the Łowicko-Błońska Plain, at the fork of three rivers: Bzura, Pisa and Utrata.

Concerning the water service, only groundwater is used, both for drinking and business purposes. Water supply is ensured by two water treatment stations (SUW Chodaków and SUW Płocka) that treat ground water, as well as the related water supply systems. Both stations belong to ZWiK Sochaczew.

The Water Supply System for Sochaczew comprises:

• two independent Water Treatment Stations: - SUW Chodaków - from the Konara intake

- SUW Płocka from the Kuzoncin intake,

• transmission lines (143.82 km), ensuring transit of water from the Water Treatment Stations to the city of Sochaczew; • three level regulating tanks located in the pumping station of Mickiewicza, Water Treatment Station Płocka and Chodaków with a total volume of 3100 m3; • network of water mains located in the city, • distribution network system, • home connection system. The Water Supply System for Sochaczew uses tertiary and quaternary underground waters.

Chodaków Water Treatment Plant operates on the basis of wells capturing quaternary waters located in the neighbouring commune of Brochów, about 5 km north of Chodaków. The "Konary" water intake of tertiary waters in the Brochów commune serves the needs of the city of Sochaczew and the commune of Brochów and it has existed since 1968. Wells are located in the towns of Konary and Wólka Smolana. Currently, 8 wells are in operation, including two new wells that were put into service in 2006 in place of six old filters.

Płock Water Treatment Station operates on the basis of the Kuznocin intake well incorporating tertiary waters, located partly within the city limits and partly in the Sochaczew commune (different municipality).

A direct protection zone with a radius of 8 m has been established for the Kuznocin water intake. The zone is fenced and all wells are located within it.

In addition, underground groundwater intakes operate in the city:

• capture of Energop Sp. z o.o. formerly: Energomontaż-Północ S.A.,

• the Boryszew ERG S.A. approach, • take the PKP at ul. Sienkiewicza, • the catchment of Chłodnia Mazowsze at ul. Spartańska. ZWiK Sochaczew supplies water to the city of Sochaczew and the towns of Żuków, Gawłów, Rozlazłów, Orłów, Cesin and Czerwonka. Water abstracted at the intake in Konary and Kuznocin, using the natural elevation of the terrain, is transported by the main system to the city and covers its current demand, while its excess is directed to storage tanks. The tanks act as a stabilizer, maintaining constant water pressure in the network during the day and providing a reserve of water for use in emergency situations; their capacity is 100% of the daily demand (with the current demand for water), it was about 60-70% of the demand).

Potable water quality is largely compliant with the EU Water Directive8 and national requirements. Reportedly, certain water quality parameters such as manganese concentration, colour or turbidity sporadically exceed the required water quality standards.

The water supply system within the city limits consists of a main system (20.8 km) and a distribution network system (118.4 km). Altogether 143.82 km of main, distribution water supply and connection networks are operated by ZWiK Sochaczew.

The water supply network is in good shape (PVC (64%), the majority of which was constructed around the mid-90’s. ZWiK Sochaczew implements a number of improvements using its own financing resources. In 2009, the level of water losses was reduced to 13% (after further upgrades it reached 6% in 2018). The water supply network covers around 99% of the population and the service is provided 24h per day.

Concerning the wastewater service before project implementation, the level of services was far from a satisfactory level. About 66% of the population was connected to the wastewater network, however this indicator is questionable because it is based on assumption of equal density of the city population. ZWiK Sochaczew does not collect detailed statistics9 on the number of inhabitants connected to the service. The company owns the physical assets up to the main water meter/wastewater manhole to the building; the internal water meters are not operated by the water company, but by a building owner (condominium).

The wastewater network covered only two third of the city territory, which was an unusual situation for an urban area. According to the Statistical office, about 85.5% of the population of urban areas in Poland were equipped with wastewater network in 2008. Thus, the situation at the city of Sochaczew was far below the national average.

The low coverage of the wastewater network meant that nearly one third of the citizens were left with water supply but without a wastewater collection system. Theoretically those citizens were required to have a septic tank that is regularly emptied and its wastewater delivered to the WWTPs by truck. This service is, however, very expensive and cumbersome because it requires the monitoring of the wastewater levels

8 Drinking Water Directive (Council Directive 98/83/EC of 3 November 1998 on the quality of water intended for human consumption) 9 Such statistic was done for the project area in order to prove the project effect and required additional work of the water utility

in the septic tank and to ordering the removal service in advance. Therefore, various forms of illegal dumping were not uncommon.

The Municipal WWTP was constructed in 19xx and originally its biological treatment section processed one third of the wastewater collected. The WWTP was improved in years 1996-1998 and increased its capacity. Next modernisation took place in 2006/2007 when the greenhouse was constructed over the biological reactor. The greenhouse allowed to use plants to improve the removal of phosphorus and nitrogen. The upgrade of the plant was co-financed by the ERDF.

Figure 6. Greenhouse at the municipal WWTP

Source: authors

Although the Municipal WWTP was in good shape before the project implementation, it required small modernisation works: modernisation of the screen room, sand separators with a scrubber, technological equipment of the secondary setting tanks, replacement of some pumps, and improvement of the sludge collection site. In addition to that, several smaller infrastructure investments were required at the WWTP including upgrade of the electricity supply network, internal road infrastructure, upgrade of water supply and rainwater collection, although the entire scope of required investments at the WWTP was very limited.

The problem was however that only part of the wastewater was delivered to the Municipal WWTP while the remaining part was conveyed to four small local WWTPs, two owned by ZWiK Sochaczew and two by other entities. None of the small local WWTPs was able to reach the effluent parameters of the treated wastewater according to the requirements of EU legislation (i.e. UWWTD) and the Polish legislation in force.

Sludge management at the Municipal WWTP was adequately addressed prior to project implementation; only small modernisation works were required. Sludge is dewatered and used by external companies for agricultural purposes or re-cultivation.

ZWiK Sochaczew also operates a rain water network of 50 km length. Storm waters are directly discharged to receivers or after pre-treatment (5 separators for sand and oil). No retention tanks, pumping stations are incorporated into the storm water system.

Box 1. Organisation of the water sector in Poland

According to the Law on municipal self-government of 8 March 199010, the municipality (gmina) is responsible for the provision of water and wastewater services within its territory. Municipalities are entitled to organize the provision of water and wastewater services in the form of a municipal company (typically a commercial code company or budgetary organization) or sign a contract with an external (also private) provider. In addition, a municipality may transfer its responsibility for the provision of water and wastewater services to another municipality or form an association with other municipalities for the joint provision of water and wastewater services. The most common model for the provision of water and wastewater services in Poland is through a company fully owned by the municipality. In 2014, there were 1,821 registered water and wastewater utilities, of which 31% were budgetary organizations, 37% commercial code companies, 16% water code companies, and 16% of other legal forms. The total number of water utilities (1,821) is lower than the number of municipal-level local government units (2,479); this means that on average a utility provides services for less than 1.5 local government units.

Budgetary organizations usually operate in small towns and rural municipalities. In cities and towns, however, the most popular legal form of a water utility is the limited liability company. In the largest cities, joint stock companies are common. Public- private service provision is quite rare in Poland, with the two most well-known cases of private sector participation being Gdansk Saur Neptun and “Aqua” Bielsko Biala. In addition, the city of Ostrow Wielkopolski has implemented an interesting institutional form of water and wastewater provision in which the water and wastewater utility is part of a larger municipal holding joint stock company. The water utilities in Poland are usually owners of the water and wastewater infrastructure. In some cases, municipality owns the infrastructure while water utilities are operating it (not often). Regardless the scheme, water utility is responsible for the network up to the main water meter of the user or till the last manhole of the wastewater network. This means that wastewater connections (including their construction) are responsibility of the clients. It also means that in case of multi-family buildings, the apartment level meters are not operated by water utility but by condominium and water utility has a direct contract with the condominium, not with individual apartment owners. This makes difficult estimating the number of inhabitants connected to the network as water utilities does not possess the relevant information.

10 http://prawo.sejm.gov.pl/isap.nsf/download.xsp/WDU19900160095/U/D19900095Lj.pdf

Every water utility, apart from municipal budgetary organizations, must obtain a license from the municipal government to provide such services. The municipality may also approve water and wastewater tariffs calculated by the utility in accordance with a methodology established by law (this was recently changed and the tariff is approved by the government body Polish Waters while the methodology of the tariff calculation remains basically the same). The municipality also adopts and controls the implementation of the local regulation on water supply and wastewater collection that establishes the rights and obligations of the water and wastewater utility and its clients. The relationship between the water and wastewater utility and its clients is governed under an individual contract between the parties. The Ministry of Health and Ministry of Environmental Protection are the national regulatory bodies on water and wastewater services. The Ministry of Health is the regulatory body on drinking water quality and the State Sanitary Inspectorates are responsible for controlling the quality of drinking water. The Ministry of Environmental Protection is the regulatory body for wastewater treatment and the supervision of wastewater treatment is carried out by the State Environmental Protection Inspectorates.

1.2. PROJECT OBJECTIVES The project “Improvement of water and sewage management in the city of Sochaczew - Stage I” concerns the construction of the wastewater network and improvement of the municipal WWTP and liquidation of outdated small local WWTP. The major part of the project is to build the new infrastructure while only small components of the project are related to the modernization of the existing infrastructure (modernisation of the wastewater network in the city centre and modernisation of the municipal WWTP). The need of the expansion of the wastewater network were known by the city for a long time. Also, the citizens were keen to have the wastewater network due to the existing problems with sewage disposal:

• inconvenient and expensive usage of septic tanks, • odour caused by illegal disposal; • need to make illegal connections to the rain water network; • lower value of the properties without network connections. The main objective of the project was to improve the wastewater management in the area of the city of Sochaczew by increasing the connection rate to the sewerage network (specifically, the project activities contributed to increasing the wastewater network connection rate in the city by around 30%) and enhancing the quality and the effectiveness of the wastewater treatment process. The development of the wastewater network and modernization of the WWTP was aimed at meeting wastewater treatment parameters required by Polish law and EU regulations (Council Directive 91/271/EEC concerning urban waste-water treatment) by eliminating the practice of discharging untreated wastewater directly into the soil or surface waters.

Taken together, increasing the wastewater connection rate and modernizing the WWTP, were aimed at reducing the contamination of surface and ground waters. Therefore, the expectation was that the level of protection of drinking water would increase, thus reducing the health risk to the inhabitants of the city. Also, providing the missing environmental infrastructure and reducing pollution in the recipient bodies were aimed at increasing the economic and investment attractiveness of the city, the standard of living of its inhabitants. The objectives of the project were fully in line with the objectives defined in the Operational Program Infrastructure and Environment and with the following documents: • Article (1) of Council Regulation (EC) No. 1084/2006 establishing a Cohesion Fund and repealing Regulation (EC) 1164/94; • National Strategic Reference Framework 2007-2013; • The state's ecological policy for the years 2003-2006 including the perspective for 2007-2010; • National Program for Municipal Sewage Treatment The target population of the projects were inhabitants of the Sochaczew agglomeration that is equal to the administrative boundary of the city of Sochaczew.

1.3. STRUCTURAL FEATURES

The project was divided into 9 tasks and 11 contracts. The following table summarizes the contracts.

Figure 7. Summary of the project contracts

# Contract description Contractor Date of Date end of works commencing the works

1 Modernisation and extension of the WWTP Veolia Water System Sp. z 6.10.2010 31.08.2012 o.o.

2 Extension of the wastewater system at IDS-BUD Spółka Akcyjna 21.10.2011 30.04.2013 the Rozlazłów and Karwowo Housing „ALTIS-HOLDING” Estate „HYDRO-INSTAL”

2a Expansion of the wastewater system at INSTALATORSTWO 12.03.2010 15.07.2010 the Rozlazłów and Karwowo estate - SANITARNE I C.O. construction of a wastewater system at BUDOWA SIECI WOD.- Gawłowska street from the Batalionów KAN. Sławomir Poński Chłopskich to the city border with a total length of 3.97 km

3 Extension of the wastewater system at IDS-BUD Spółka Akcyjna 19.10.2011 30.04.2013 the Wypalenisko Estate - northern part „ALTIS-HOLDING” and Chodaków „HYDRO-INSTAL” Siekierski Arkadiusz

3a Expansion of the wastewater system at ECO–WiK Sp. z o.o. 25.03.2010 15.06.2011 the Wypalenisko estate - northern part and Chodaków - section of the wastewater treatment plant at Parkowa street

4 Modernization of the wastewater system WOMBAT s.r.o. 12.03.2011 19.06.2011 in the city centre. The task includes a 3.4

km of modernization of the wastewater system in the centre of Sochaczew

5 Contract engineers 02/11/2009 13/06/2013

6 Technical assistance-project promotion 24.06.2010 30.08.2013

7 Technical assistance-management 21.09.2007r 30.06.2011r

8 Technical design and documentation - 28.06.2007 31/12/2007 Chodaków and Wypaleniska

9 Technical design and documentation – 8.08.2007 30/05/2008 Rozłazów and Karwowo

Source: Project completion report

Modernisation and extension of the WWTP.

The objective of this contact was to modernize the Municipal WWTP and prepare it for increased wastewater flow and modernize those parts that required upgrade. The scope was however limited and technological scheme and capacity of the WWTP at 6,000 m3/day and about 40,000 PE remained the same.

The works covered major modernisation of the screen room and sand separators with scrubber. The works also covered modernisation technological equipment and minor modernisation of the secondary setting tanks. Further it covered the replacement of some outdated pumps, and improvement of the sludge collection places. Also the power supply was modernized.

In addition to that several smaller infrastructure investments were made (road infrastructure improvements and construction of the storm water network) at the WWTP.

The works allowed that WWTP was prepared to fully comply with UWWTD.

Extension of the wastewater system at the Rozlazłów and Karwowo Housing Estate

The contract covered the construction of 36,419m of a new wastewater network made of HDPE. In addition, it covered 14 wastewater pumping stations. The map below shows the location of the extension of the wastewater network.

Figure 8. Modernized parts of the municipal WWTP

Source: ZWiK Sochaczew

Expansion of the wastewater sewage system at the Rozlazłów and Karwowo estate - construction of a wastewater system in Gawłowska street from the Batalionów Chłopskich to the city border with a total length of 3.97 km

The contract covered the construction of 3971m of a new HDPE wastewater network and 1 wastewater pumping station. The map below shows the location of the extension of the wastewater network.

Figure 10. Map of the new wastewater network

Source: ZWiK Sochaczew

Figure 11. Map of the new wastewater network

Source: ZWiK Sochaczew

Extension of the wastewater system at the Wypalenisko Estate - northern part and Chodaków

The contract covered the construction of 44,807m of a new HDPE wastewater network and 49 wastewater pumping stations. The map below shows the location of the extension of the wastewater network.

Figure 12. Map of the new wastewater network

Source: ZWiK Sochaczew

Expansion of the wastewater - section of the WWTP at Parkowa street

The contract covered the construction of 6,171.5m of a new HDPE wastewater network and 6 wastewater pumping stations. The map below shows the location of the extension of the wastewater network.

Figure 13. Map of the new wastewater network

Source: ZWiK Sochaczew

Figure 14. Construction of the wastewater network

Source: ZWiK Sochaczew

Rehabilitation of the wastewater system in the city centre.

The contract included modernization of the 3,446.5m of the wastewater system in the city centre. The aim was to reduce infiltration in this section of the wastewater network. The trenchless inverse technology for renovation of sewage mains was used and implemented by WOMBAT, a company from Czech Republic. Thanks to this technology, the renovation was quick and did not involve digging, which was extremely important in the centre of the city.

Figure 15. Rehabilitation of the wastewater network

Source: ZWiK Sochaczew

The map below shows the location (violet lines) of the renovation of the wastewater network.

Figure 16. Map of the rehabilitated wastewater network

Source: ZWiK Sochaczew

Service contracts

The remaining contracts were service contracts related to the management of the project (contract engineer), project promotion and technical designs. Finally, part of the project costs was spent for the PIU.

2. ORIGIN AND HISTORY

2.1. BACKGROUND The project has been implemented within the Operational Programme Infrastructure and Environment 2007-2013. Up to present it was the biggest Operational Programme in Poland (the EU contribution is approximately EUR 28.3 billion or 41.8% of the total EU support for Poland under Cohesion policy 2007-2013) and also the biggest-ever operational programme in the whole European Union. The project was implemented within the Priority Axis I of the Operational Programme concerning water and sewage management.

The main objective of the Priority Axis I was providing agglomerations above 15 thousand population equivalents with sewage collection systems and wastewater treatment plants, pursuant to requirements of Council Directive 91/271/EEC concerning urban waste-water treatment. The priority axis I was directly referred to the National Programme for Municipal Wastewater Treatment that aims to fulfil the obligations assumed by Poland in the Treaty of Accession in the scope of implementing Council Directive 91/271/EEC concerning urban waste-water treatment. This Programme constituted a plan of investment actions in order to achieve full compliance with the requirements of the said directive. The project directly implemented the National Programme for Municipal Wastewater Treatment. As a matter of fact, Sochaczew agglomeration was enumerated in the Programme from its first version approved by the Government on 16.12.2003.

When Poland become an EU candidate it was obvious that the city will have to extend the network in order to fulfil the requirements of the UWWTD.

As during the accession process the entire territory of Poland was defined as an environmentally sensitive area, the programme also reflects it by enumerating WWTPs that should be equipped with tertiary treatment to remove phosphorus and nitrogen from wastewater.

The city of Sochaczew was defined as agglomeration (so boundaries of the agglomeration were defined as boundary of the city) and already included in the programme for both modernisation of the municipal WWTP and extension of the wastewater network. The Sochaczew agglomeration was defined as a second priority, which means under agglomerations between 15 and 100 thousand PE that require a higher level of nutrient removal.

The project was originated by the city in co-operation with the water utility company. The company prepared a long-term programme for the development of water and sewage management in the city that was approved by the city council. This plan was a starting point for investments in the water and wastewater infrastructure, that was at that time mainly financed from the city budget. The increase of the wastewater network coverage was quite significant and achieved 66% in 2007.

As the investment needs were known both from the long-term programme for the development of water and sewage management in the city and from the inclusion of the Sochaczew agglomeration in the National Programme for Municipal Wastewater Treatment, preparations for the EU budget of 2007-2013 started. The city of Sochaczew signed in 2006 the agreement with the National Environmental

Fund for technical assistance in project preparation. The first project concept sought comprehensively to address problems related to both the water and wastewater infrastructures within the city and was approved by the first list of indicative projects prepared by the Ministry of Development (Managing Authority for the Operational Programme Infrastructure and Environment 2007-2013) for the Operational Programme Infrastructure and Environment in 2007 for implementation in years 2007-2010. The indicative list included projects that were considered the most important to achieving the objectives of the Operational Programme and therefore should have been selected for co-financing before other projects. Ideally, the list should also have included mature projects (i.e., projects the implementation of which could have started quickly), but in practice this was not always the case. At the beginning of 2008, the project was removed from the indicative list due to its low level of preparedness.

Concurrently the preparation of the feasibility study (and CBA) and technical designs started. The first technical design was prepared by the city directly and then transferred to the water utility. The feasibility study was prepared in 2008 and approved by the city council on 20.05.2008. A week later, the application to the co-financing from CF under Operational Programme Infrastructure and Environment was submitted to the National the National Fund for Environmental Protection and Water Management (the first open competition for the priority axis).

As project got a technical assistance for the project preparation, it also benefitted from JASPERS involvement in mid-2009. At that moment the project was divided into stages and stage I became the basis for the preparation of the updated application to CF. The scope of the stage I was solely wastewater infrastructure while the water component was taken out. The scope of the stage II was further investment in the coverage of the wastewater network, improvement of the Municipal WWTP, mainly by retention reservoir and improvement of the water supply by construction of the new water intake and better water treatment facility.

The division of the project into stages resulted from the clear advice of JASPERS and was proposed following an analysis of the financial burden of tariff increases on consumers and the beneficiary. Thus, JASPERS suggested to separate expansion of the wastewater network and modernisation of the municipal WWTP from other measures that were not urgent and could be separated from Stage I.

The financial, demand and economic analysis was also reviewed and commented by JASPERS and then updated. Also, JASPERS commented the option analysis and the general opinion was that “the option analysis undertaken for the choice of the best solution for whole system is considered correct and the appropriate option has been selected”. Other options considered were construction of number of small WWTP and transporting the wastewater by sanity vehicles. Both options were more expensive taking into account investments and operational costs but also not welcomed by citizens.

As the project was not on the list of indicative projects, it went through the appraisal process at the National Fund for Environmental Protection and Water Management and ultimately was selected.

During the preparation of the project and implementation, ZWiK Sochaczew and the city organized a number of meetings with citizens. During such consultations, no citizen or

other groups came out against the project; indeed, the project enjoyed widespread public support.

2.2. FINANCING DECISION AND PROJECT IMPLEMENTATION On 12.03.2010 the Managing Authority (i.e. the Ministry of Regional Development) sent the application to the European Commission. After answering a number of observations by the European Commission and making several improvements in the application (although the scope of the project remained the same), the final decision of the European Commission was made on 20.5.2011. The decision approved co-financing from the CF of EUR 27,320,155 over to the total cost of EUR 53,643,056, (of which eligible costs EUR 44,011,172).

All contracts started implementation before the decision was made while some were already finalized. The project was implemented using the FIDIC Red Book11 (in which the design and construction tasks are separated) procedure that generally was difficult.

The project implementation was managed by the PIU with technical assistance co- financed by the CF. Technical assistance included project management support (technical assistance to the PIU), as well as support in project promotion and work of project engineers. In Sochaczew, as in many places in Poland, the PIU attracts highly skilled people with years of experience in successful project management and implementation.

The project physical implementation was rather smooth without major difficulties. Problems that caused delay in finalisation of the construction are typical for the wastewater network construction urban areas in Poland, namely:

• Unrecognized underground infrastructure. A lot of infrastructure built 50 and more years before were not included in the proper registers and maps. The technical design and the tender were prepared taking into account existing infrastructure that was evidenced on the available map. When unrecognized infrastructure is found, it requires additional works to find the owner and sometimes it changes the part of the design. • Ownership problems. The majority of works are done on public properties (roads or ZWIK Sochaczew or city property) but sometimes the ownership changed during the project implementation which caused a need for a new location and design of few pumping stations. • Weather conditions. Cold winter in 2010 caused some delays. The normal practice is to plan construction assuming a three-month winter period. In 2010, however, the significantly longer winter season caused unexpected delays. It has to be emphasized that all enumerated problems caused mainly delay in implementation (about one year in total) while only minor changes in the project costs were necessary.

The following table presents the timetable as in the application form and actual completion dates.

11 Conditions of Contract for Works of Civil Engineering Construction: The Red Book

Figure 17. The project timetable and variations in implementation

Start date Expected Actual date date of of completion completion

1. Feasibility study 23.07.2007 31.03.2008 31.03.2008

2. Cost-benefit analysis (including 23.07.2007 31.03.2008 31.03.2008 financial analysis):

3. Environmental impact assessment: 03.01.2005 10.10.2009 10.10.2009

4. Technical design 27.06.2007 30.05.2008 30.05.2008

5. Preparation of tender documentation 30.04.2008 26.05.2008 26.05.2008

6. Tender procedure announcements 08.07.2009 13.07.2010 13.07.2010

7. Acquisition of land ------

8. Construction phase / construction 06.10.2009 14.01.2012 30.08.2013 contracts

8.1. Contract No. 1 - Renovation and extension of the Municipal Sewage 12.04.2010 06.05.2011 31.08.2012 Treatment Plant at Al. 600th anniversary - Stage I

8.2. Contract No. 2 - Extension of the sanitary sewage system at the Rozlazłów 14.07.2010 14.01.2012 30.04.2013 and Karwowo Housing Estate

8.3. Contract No. 2a - Extension of the sanitary sewage system at the Rozlazłów and Karwowo Housing Estate - 03.11.2009 01.04.2010 15.07.2010 construction of a sanitary sewage system in Gawłowska street from Balatlionów Chłopskich to the city border

8.4 Contract No. 3 - Extension of the sanitary sewage system at the 14.07.2010 14.01.2012 30.04.2013 Wypalenisko Estate - northern part and Chodaków

8.5. Contract No. 3a - Extension of sanitary sewage system at the Wypalenisko estate 09.11.2009 08.06.2010 15.06.2011 - northern part and Chodaków - section WWTP at Parkowa

8.6 Contract No. 4 - Modernization of the 14.07.2010 29.04.2011 19.06.2011 wastewater system in the Center

8.7 Contract No. 5 - Contract Engineer 10.04.2010 13.06.2013 13.06.2013 including the Contract Engineer for the 02.11.2009 04.08.2010 04.08.2010 separate Contract No. 2a including the Contract Engineer for the 02.11.2009 08.11.2010 08.11.2010 separate Contract No. 3a

8.9 Contract No. 6 - Technical assistance, including information and promotion 23.11.2009 13.07.2011 30.08.2013 activities

8.10 Contract No. 7 - Technical assistance in the implementation and management of 22.09.2007 30.06.2011 30.06.2011 the Project

8.11 Contract No. 8 - Design I (city of 28.06.2007 31.12.2007 31.12.2007 Sochaczew)

8.12 Contract No. 9 - Design II (city of 08.08.2007 30.05.2008 30.05.2008 Sochaczew)

9. Operational stage 15.01.2012 15.01.2034

Source: ZWiK Sochaczew, the project completion report

Major problems arose with regard to the achievement of the environmental effect, namely in connecting users to the wastewater network. While in principle citizens were not against the project, not all of them were ready to connect as soon as it became possible to do so.

As mentioned earlier, the investment costs of the connection (from the latest manhole where the ownership of the water utility ends) are to be covered by inhabitants. This cost varies from about 300 to 800 EUR per household. Then the tariff for wastewater has to be paid. Although the tariff for wastewater is far lower than septic tanks removal, the alternative for some inhabitants was illegal, free of charge removal. It has to be noted that many households were already illegally connected to the rainwater network or to not sealed septic tanks. Thus the connection process was much longer than expected, as experienced by other projects in Poland.

A second problem involved a small local WWTP that belonged to the hospital and was planned to be closed. As the WWTP still had a valid operating permit and the unit operating costs were lower than the wastewater tariff, the owner and connected inhabitants preferred to operate it as long as possible instead of connecting to the municipal WWTP.

ZWiK Sochaczew and city of Sochaczew made an effort to ensure the connections to the newly built wastewater infrastructure. Their actions included:

• Awareness raising. ZWiK Sochaczew and the city organized meetings with not connected citizens, radio and newspaper information informing on benefits from clean water. • Financial support. ZWiK Sochaczew offered a support by taking over the constructing of the connection and spreading the payment into instalments. In addition, ZWiK Sochaczew was not charging for additional costs of making connection: connection fee, technical conditions fee and other costs for a total value of about 100 EUR per household. • Enforcement measures. For citizens with septic tanks it was strict control from the city environmental inspectorates that started to compare the water usage and bills for removal of septic tanks. ZWiK Sochaczew also started using CCTV in order to discover illegal connections to the rain water network.

Figure 18. Detection of illegal connections

Source: ZWiK Sochaczew

Thanks to the effort presented above, the expected number of inhabitants connected was achieved by the end of 2016 (still under the project durability period) and the environmental benefits fully realised

2.3. CURRENT PERFORMANCE AND OTHER INVESTMENT NEEDS The project was expected to achieve several physical indicators in terms of length of the constructed and modernized network and number of connections. The following table compares the expected indicators with actually achieved.

Figure 19. Physical indicators

Planned Achieved Indicator Comments effect effect

New sewage Achieved in 2013 when 91.3 km 91.37km network construction completed Modernized Achieved in 2013 when 3.4 km 3.45 km sewage network construction completed Achieved in 2013 when Modernized WWTP 1 1 construction completed Achieved 31.12.2016 while New connections 11,138 11,138 additional 303 persons was to sewage network persons persons connected later

Source: Final report of the project implementation

Today, thanks to the project (further connections covered few hundred inhabitants only) wastewater services in the city of Sochaczew covers the majority of the population as confirmed by numerous stakeholders and by water utility records. The following table presents the evolution of water and wastewater sale and number of connections to the network.

Figure 20. Water and wastewater sale

Unit 2011 2012 2013 2014 2015 2016 2017

Water m3 1,314,191 1,320,344 1,291,138 1,314,791 1,355,736 1,334,399 1,314,042 delivered Wastewater m3 739,000 674,000 894,000 904,000 871,000 918,000 1,103,000 collected Number of connections to # 5,354 5,391 5,408 5,482 5,505 5,499 water supply Number of connections to # 1,936 2,594 3,546 3,775 3,914 4,010 wastewater

Source: ZWiK Sochaczew reports

The new infrastructure is properly maintained. This is especially important for the pumping stations that require regular maintenance that is achieved through the remote monitoring by Supervisory Control and Data Acquisition (SCADA)system. The SCADA system allows automatic control of all pumping stations and WWTP form one control centre that is located at municipal WWTP. The monitoring of the pumping stations allows to detect the problems (increased pump speed in comparison to the wastewater pumped) and to send the maintenance team to solve the problem (usually to clean the pumping station).

The ZWIK Sochaczew reports small and decreasing water losses: 6% in 2018 while infiltration12 to the wastewater network is still high: about 30% (in comparison to about 50% before project implementation). Therefore, further investments to reduce water infiltration are needed.

Regarding the performance of the municipal WWTP, the treatment parameters were confirmed in 2013 and are still monitored. The following table presents the results of the treatment at municipal WWTP on 9.9.2013 on inflow and outflow from the WWTP.

Figure 21. Treatment parameters at the municipal WWTP

Concentration Concentration at outflow Maximum Parameter Unit at inflow to from the concentrations the WWTP WWTP

Biochemical mg/l O2 330 2.2 15 oxygen demand

Chemical mg/l O2 763 23.3 125 oxygen demand

Total mg/l 330 4.1 35 suspended solids

Total mg/l P 9.04 0.20 2 phosphorus

12 Infiltration is water that gets into the wastewater network which means that the network is not fully sealed. For the wastewater system, it means more wastewater to pump and to treat at the WWTP.

Total nitrogen mg/l N 82 4.32 15

Source: ZWiK Sochaczew, Final report of the project implementation

Figure 22. Picture made at operating WWTP during the visit (Director of the ZWIK Sochaczew, representatives from National Fund for Environmental Protection and Water Management and national expert).

Source: authors

Figure 23. Modernized infrastructure at municipal WWTP

Source: authors

The project implementation allowed a further 105 connections in the area where the wastewater network was constructed that represents 303 new inhabitants connected.

Following the project two other investments co-financed by CF were made:

• Improvement of water and sewage management in the city of Sochaczew - Stage II – part I. The aim of the project was to connect 505 inhabitants to the wastewater network by constructing 2.8355 km of the wastewater network and 0.3203 km of water supply network and modernizing 0.087 km of wastewater and 1.4473 km of water supply network. The project costs were about EUR 1 million. • Improvement of water and sewage management in the city of Sochaczew - Stage II – part II. The aim of the project was to connect 176 inhabitants to the wastewater network by constructing 1.46 km of the wastewater network and 0.59km of water supply network. The project costs were about EUR 0.4 million. There is still need to further extend the wastewater network (the connection rate is high but still below 100%) and to improve water supply as outlined already in the feasibility study prepared back in 2008. Although the water supply is not bad, there are still problems with some parameters, especially Manganese levels, colour or turbidity reportedly exceed sporadically the required water quality standards. A new underground water intake and water purification plant is planned.

3. DESCRIPTION OF LONG-TERM EFFECTS

3.1. KEY FINDINGS The long-term contribution of this project is discussed under the following four main categories: economic growth, quality of life and well-being, environmental sustainability, and distributional effects.

Evidence shows that the project produced positive and significant effect mainly in terms of increased availability of wastewater services. After project implementation, an additional 11,138 inhabitants got connected to the wastewater network, which is nearly one third of the population of the city of Sochaczew. This effect has been monetised by calculating the avoided capital and maintenance costs of self- collection and discharge of wastewater, e.g. by means of closed septic tanks.

This effect significantly improved the quality of life and well-being of the inhabitants. Emptying septic tanks is not only costly (if done legally) but also causes several inconveniences for inhabitants, such as: need to monitor septic tank levels, odours escaping during emptying septic tanks, need to order the service in advance and to be present during the service, and increased traffic of trucks in the city.

In addition, the project implementation was a condition for the city to invest in paving the roads when the underground infrastructure was installed.

A second important effect is related to environmental sustainability. The project contributed to improving environmental conditions through avoided direct discharge of wastewater into surface waters (Bzura, Utrata and Pisia rivers) or to the soil and indirectly to the groundwater. The project is located in the environmentally sensitive area and, as agglomeration is above 15 thousand PE, the project also responds to the problem of removal of nitrogen and phosphorus. The effect of the improved quality of the water bodies were calculated in the ex-post CBA using the WTP method transferred from other research done in Poland and estimated by Polish Waters for the Vistula river basin. The creation of the new swimming beach at the bank of Bzura river in Sochaczew is a tangible evidence of the positive effect.

The project positively contributed to social cohesion by improving the access to wastewater service of the population and businesses affected by the project. Although the project impact is limited to the city of Sochaczew, the lack of wastewater network connecting one third of the population of the city had a significant influence on territorial and social cohesion by reducing disparities caused by unequal distribution of wastewater services.

The project’s contribution to economic growth is moderate. The primary objective of the project was to connect inhabitants to the wastewater network, with the majority of those connected living in individual houses. According to the Statistics Poland (National Statistical Office) however, every year in the city of Sochaczew about 300 new businesses are registered and the structure of Polish small entrepreneurship is dominated by small business, located at or very close to the entrepreneur’s house. Thus, small businesses in the project area benefitted from the investment.

GHG emissions from the new WWTP are higher than emissions from closed four small WWTPs. Besides, the project resulted in economic costs caused by

closing roads during construction (as per the ex-ante CBA). Both negative effects were monetized; they are, however, insignificant compared to the benefits.

The WWTP causes GHG emissions, in particular CO2 from increased electricity consumption and CH4 from the wastewater treatment process. Although four small WWTPs were closed, the amount of wastewater treated by closed WWTPs was very small. On balance, therefore, the project generated an increase in GHG emissions. The increased GHG emissions are between 20 and 35 tCO2/year.

The results of the Cost-Benefit Analysis, included in Annex II to this report, indicate that the project adds value to European society from the social and economic perspectives. In the baseline case, the Socio-Economic Net Present Value (ENPV) equals EUR 26 million, with the applied discount rates of 5.05% backward and 4.41% forward, whereas the Economic Internal Rate of Return (EIRR) is 9.87%. Further, the risk analysis indicates that the expected value of the ENPV is equal to EUR 25 632 450 (slightly lower than the reference case), and that the expected value of the ERR is 9.74% (also slightly lower than the reference case). The probability that the ENPV will become negative and that the ERR will be lower that the SDR adopted in the analysis is almost nil. Thus, the risk analysis shows that under the project has a negligible risk level. The distribution of benefits in the CBA is presented in the figure below.

Figure 24. Main socioeconomic benefits (% of total benefits)

Source: Authors

In addition to these measurable impacts, there are also other effects that are difficult to capture in monetary terms, but relevant for the comprehensive assessment of the project. These are discussed in the following sub-chapters.

The table below summarises the nature and strength of the project’s effects classified under the four categories referred to above (economic growth, quality of life and well- being, environmental sustainability, and distributional issues), as well as the territorial levels where these are visible and the time-horizon of their materialisation.

Figure 25. Summary of nature and strength of effects (effects highlighted in green are those included in the ex-post CBA)

CATEGORY EFFECT STRENGTH* LEVEL Variation in quantity of waste +4 Local water treated Variations in the reliability of N.R. water sources and water supply Variations in water quality N.R. Variation in resource savings Economic N.R. (water preserved for other uses) growth Variations in operating costs at +1 local WWTP Wider economic impact (variations in conditions for small +2 Local business) Institutional learning +4 Local Variations in the number of consumers served by water +4 local supply and treatment services Quality of life Variation in the service quality +4 and well-being Variations in living attractiveness +2 Local of the area Variations in human health and N.R. hygiene Variations in contamination of +5 Local, regional water bodies Variations in GHG emissions -1 Global Variations in the protection and Environmental resilience of natural resource N.R. sustainability systems Variations in climate change N.R. resilience Variations in biodiversity N.R. Distributional Social cohesion +4 Local, regional effect Territorial cohesion +3 Local, regional *Note: the strength score reflects the weight that each effect has with respect to the final judgment of the project. In particular: -5 = the effect is responsible of the negative performance of the project; -4 = the effect has provided a negative contribution to the overall performance of the project; -3 = the effect has contributed in a moderate negative way to the performance; -2 = the effect has a slightly negative contribution to the project performance; -1 = the effect is negative but almost negligible within the overall project performance; 0 = the effect has no impact on the project performance; +1= the effect is positive but almost negligible within the overall project performance; +2 = the effect has a slightly positive contribution to the project performance; +3 = the effect has contributed in a moderate positive way to the performance; +4 = the effect has provided a positive contribution to the overall performance of the project; +5 = the effect is responsible of the positive performance of the project; N.R. = The effect is not relevant for the specific project; No data = The effect is potentially relevant, but no evidence on impacts is available. This shall be used only for relatively low significant effects whose inclusion would in no case dramatically affect the overall assessment.

The following sub-chapters include some more detailed description of the effects incorporated in the ex-post CBA and/or supported by available qualitative evidence either from obtained documents or interviews.

3.2. EFFECTS RELATED TO ECONOMIC GROWTH

Measurable effects

The economic growth effect is related to the resource savings due to the reduction of infiltration into the wastewater network. The rehabilitation of the wastewater network in the city centre that registered the highest levels of infiltration led to resource savings (due to less wastewater delivered) at the municipal WWTP. The pumping and treatment processes use electricity and its quantity is directly linked to the volume of wastewater treated. Due to the reduced infiltration, a lower amount of wastewater had to be pumped and treated at the WWTP and less electricity was consumed.

This effect was not separately valuated, but taken into account in the estimation of the operating costs in both the financial and economic analysis.

Other effects related to economic growth were not quantified.

Non-measurable effects

First, the wastewater network was constructed and covered nearly one third of the city. Although the primary goal was to connect inhabitants (no major industry is located in the project area), it has to be emphasised that the business sector which is dominated by small businesses located at or very close to the entrepreneur’s houses benefitted from the investment According to the Statistics Poland, about 300 new small businesses are registered every year in Sochaczew, compared to fewer than 10 limited liability companies. Running the business without wastewater infrastructure is difficult not only due to higher costs (operating costs of emptying septic tanks), but for some businesses even impossible (the volume of wastewater is too high for a septic tank). New businesses also have benefitted from the newly paved roads that were also provided as part of the project.

Improvement of the surface and groundwater quality has also affected water treatment costs. This effect, however, is very difficult to valuate, especially because most of the drinking water in the area is from the tertiary or quaternary levels and both levels are used to supply water to the city of Sochaczew.

The project has a positive effect on environmental sustainability, which was quantified. The positive recreational and tourist aspects also need to be mentioned. The clean water has a positive effect on fisheries and recreational uses, such as swimming and kayaking, which in particular has become popular.

The value of properties near the constructed wastewater network has also improved. Generally, properties in proximity to infrastructure (e.g., paved road, water, wastewater, and natural gas network) are of higher value. While the presence of all aforementioned infrastructure elements in combination affect property values, the wastewater network has the highest impact due to its influence on quality of life and difficulties in construction (water and natural gas networks are easier to construct

through private properties and the water network is usually available in close proximity to properties in cities).

The project was the largest public investment in the city and the project preparation and construction had a positive effect on economic growth and employment. The technical design and a significant portion of the investment in the wastewater network (about 50% of the respective contracts) were implemented by local companies. As for other contracts, the involvement of local subcontractors was also observed. In terms of institutional learning, the project generated positive outcomes. The city and ZWiK Sochczew learned how to implement large investment projects. During the project preparation phase, the PIU was created and attracted highly skilled employees. Moreover, the PIU received technical assistance and continues to develop, implement, and report on further projects.

3.3. EFFECTS ON QUALITY OF LIFE AND WELL-BEING

Measurable effects

The extension of the wastewater network to nearly one-third of Sochaczew’s population that previously lacked wastewater services resulted in the access to such services for 11,138 inhabitants. The connection process to the wastewater network started from the first section of the network constructed in 2010 and ended in 2016.

In order to monetise the increased availability of wastewater services, the avoided capital and maintenance costs of self-collection and discharge of wastewater, e.g. by means of closed septic tanks, was applied. Because both the price of septic tank emptying services and the capital costs of the tanks varied during the implementation period, a conservative approach was taken to evaluate the effects. The lowest price for septic tank emptying services in the city of Sochaczew and the lowest capital costs of a septic tank were used to estimate the effect over the 30 years of operation. According to the ex-post CBA (Annex II), this benefit represents 53.7% of the total benefits, with a non-discounted value of EUR 42.5 million.

The main negative externality of the project as per ex-ante CBA are economic costs caused by closing roads during the construction. Indeed, as discussed with the city of Sochaczew, road closures were a problem due to concentration of works in a relatively short period. The economic costs are related to the longer travel times due to road closures during the construction period. These costs were monetized in the ex-ante CBA and the same method of monetization was used to calculate negative effect.

Non-measurable effects

There are several additional effects of the project that affect the quality of life and well- being.

First, the emptying of septic tanks is not only costly, but also burdens residents in other ways, namely:

• Need to monitor septic tank levels. The majority of septic tanks are not equipped with a sensor that shows the wastewater level. Thus, users have to monitor the level and order services in advance because it is not always possible for a wastewater removal truck to come quickly. If the level of wastewater is not monitored, the wastewater may overflow from the septic tank or block the internal sewerage network; • The process of emptying the septic tanks releases unpleasant odours; • Septic tank emptying services require that at least someone is at home when the service vehicle arrives (this usually requires opening of the gate to the property and payment in cash); • Septic tank emptying services cause increased truck traffic in the city. Odours were also reported before the project was implemented. Typically, these were caused by the illegal removal of wastewater from septic tanks and depositing it into ditches, water bodies, and the ground.

One hundred percent of the new wastewater network was installed under public roads, the majority of which were not paved. The city was waiting to pave the roads until the necessary infrastructure was constructed.

Project implementation and the resulting completion of the infrastructure to be located under roads, allowed the city of Sochaczew to initiate the road-paving programme that increased the quality of private and public transport in the city and was appreciated by citizens.

3.4. EFFECTS ON THE ENVIRONMENTAL SUSTAINABILITY

Measurable effects

Wastewater disposal and treatment will contribute to improve environmental conditions through avoided direct discharge of wastewater into surface waters (Bzura, Utrata and Pisia rivers), to the soil, and indirectly into the groundwater.

The project collects wastewater from an additional 11 thousand plus inhabitants and businesses located in the project area. The wastewater is then treated at the municipal WWTP, which provides tertiary treatment and achieves very good treatment parameters. Additionally, the project also includes discontinuation of the use of several small WWTPs with obsolete treatment parameters (no proper biological treatment) and directing this wastewater to the improved municipal WWTP.

Without the project, the wastewater would be:

• Disposed directly into the soil from poorly sealed septic tanks and indirectly to the groundwater that is also used for water supply in the area; • Disposed into water bodies without treatment through illegal connections to the storm water system or directly discharged into ditches, streams and rivers; • treated (by emptying septic tanks), but not necessary using state of the art treatment at the municipal WWTP. The ex-ante CBA estimated the difference in the pollution load as decreases of 200 t/year of BOD, 320 t/year of COD, 25 t/year of N, and 7 t/year of P.

Figure 26. The environmental performance indicators

INDICATOR Level of Level of Justification of indicators indicators variation proposed in FM actually (ex-ante) achieved (ex- post) Biochemical oxygen 7 2.2 Variations of demand (BOD) parameters on Chemical oxygen demand 50 23.3 effluent depends (COD) on the influent Suspended solids (SS) 18 4.1 flow and organic Nitrogen (N) 10 4.3 load Phosphorus (P) 0.90 0.20

Source: Ex-ante documentation, ZWiK Sochaczew

The improved condition of the water bodies has the effect of increasing the use of these bodies for various recreational purposes, including swimming, fishing, and kayaking, as well as of lowering the water treatment costs at intakes located downstream of the river and of underground water.

According to the ex-post CBA (Annex II), this benefit represents 46.3% of the total benefits, with a non-discounted value of EUR 36.6 million.

The effects of the improved water quality were calculated in the ex-post CBA using the WTP method transferred from other research conducted in Poland and estimated by Polish Waters for the Vistula river basin (where the Bzura river is located) in 2010. The value from this study was applied to the entire agglomeration and adjusted by the increase in household income.

The project impact was also observed in that the city of Sochaczew began construction of a bathing beach at the bank of Bzura river. According to representatives of the city (both the investment and environmental department), such an investment was not possible in the past due to pollution of the river.

Figure 27. New construction of the bathing beach at the bank of Bzura river

Source: authors

Non-measurable effects

The emptying of septic tanks requires movement of trucks between septic tanks and WWTPs. All such vehicles are heavy duty diesel-powered trucks that often are old and do not meet EURO V and VI emissions standards. Diesel engines emit PMs and NOx that contribute to smog in cities, as well as CO, NMHC, and CH4. The World Health Organisation has stated clearly that diesel exhaust causes cardiac and respiratory disease, as well as some types of cancer.

The aforementioned emissions are especially dangerous in cities due to the high concentration and combination with pollutants from heating sources. Taking into account the size of the project, covering one-third of the city, expansion of the wastewater network has had a significant effect on reducing the use of heavy-duty diesel trucks in the city.

3.5. EFFECTS RELATED TO DISTRIBUTIONAL ISSUES

Measurable effects

No measurable effects

Non-measurable effects

The project positively contributed to social cohesion by improving the access to wastewater service of the population and businesses affected by the project. Although the project impact is limited to the city of Sochaczew, the lack of wastewater infrastructure to one third of the population of the city had a significant effect on the territorial and social cohesion by reducing disparities caused by unequal distribution of wastewater services.

Although the project is located in the Masovian region, the most developed in Poland in terms of GDP per capita, the location of the city of Sochaczew is marginal in the region. Further, the project is unique in Poland because there were no other cities lacking wastewater infrastructure for as much as one-third of the city.

“This was the largest public investment in the city. Thanks to the project implementation, the city entered into the 21st century” (Interviewed representative of the city administration)

TIME SCALE AND NATURE OF THE EFFECTS

The project operation started in 2013, which means that consolidated quantitative data and other pieces of evidence are available for five years since project completion. Therefore, sufficient information was collected to assess the time-scale of effects materialisation in the longer run.

The observed effects did not materialise just after the project completion. The reason is that the process of connecting to the wastewater network took several years and the expected effect of connecting over 11 thousand inhabitants was only achieved at the

end of 2016 (still under the project durability period13). The slow process was caused by the costs of individual connections (financed by the inhabitants themselves) and the continued operation of a small WWTP that did not belong to the beneficiary and was in bad technical condition. Specifically, the WWTP although the treatment level was sub- optimal, had a valid permit and the owner continued to operate it until the end of the permit validity period and only then the wastewater was directed to the municipal WWTP. All effects related to connected population were achieved at the end of 2016, while it will last for a long time (long lifetime of assets).

With a reference to the spatial scale of the effects, all of them are of a local nature. The exception is environmental sustainability effect that has influence on the Bzura and Vistula rivers downstream of the location of the city. The effect from GHG emissions, which contributes in a negative way to the global effect, is of a very small magnitude.

Figure 28. Temporal dynamics of the effects

SHORT LONG RUN CATEGORIES RUN FUTURE (6-10 COMMENT OF EFFECTS (1-5 YEARS* YEARS)* YEARS)* The project has positive, but limited effect, on economic growth. The Economic +/- + + effect is slightly reduced in the short growth run due to a slower process of connecting to the network. The project itself has strong influence on increasing the reliability of the Quality of life wastewater services. This effect and well- ++ +++ +++ appeared just after the project being implementation and will be observed in the future. The project has a positive effect on environmental sustainability. In the short-term, the effect was smaller due to the long process of connecting Environmental + +++ +++ to the wastewater network. Still, this sustainability effect will last over the long-run.

The increased GHG emissions from use of electricity is small. Distributional The project has positive effect on ++ ++ ++ issues territorial and social cohesion

Note (*): + = slight positive, ++ = positive, +++ = strongly positive, +/- = mixed effect, - = slightly negative, -- = negative, --- = strongly negative.

13 The project durability period required by the Polish Managing Authority follows the durability of operations as defined in article 57 of (EC) No 1083/2006 of 11 July 2006 on general provisions on the European Regional Development Fund, the European Social Fund, and the Cohesion Fund. Thus, individual projects are required to achieve and maintain the objectives and effects of the project, including the product and result indicators during the project durability period.

4. MECHANISMS AND DETERMINANTS OF THE OBSERVED PERFORMANCE

In this section the key mechanisms and determinants of the long-term effects discussed in the previous chapter are illustrated and discussed along the different phases of the project cycle. Finally, the importance of each determinant for the project’s final performance and the interplay between them and the observed outcomes is discussed.

4. Determinants of project outcomes DETERMINANT STRENGTH*

Relation with the context +4 Selection process +5 Project design +4 Forecasting capacity -1 Project governance +4 Managerial capacity +4 Note: * the strength score reflects the weight of the role that each determinant played with respect to the final judgment of the project. In particular: -5 = the determinant is responsible of the overall negative performance of the project; -4 = the determinant provides a negative contribution to the overall performance of the project; -3 = the determinant contributes in a moderate negative way to the overall performance of the project; -2 = the determinant has a slightly negative contribution to the project overall performance; -1 = the determinant plays a negative but almost negligible role to explain the overall project performance; 0 = the determinant does not play a role on the project overall performance; +1= the determinant plays a positive but almost negligible role to explain the overall project performance; +2 = the determinant has a slightly positive contribution to the project overall performance; +3 = the determinant contributes in a moderate positive way to the overall performance of the project; +4 = the determinant provides a positive contribution to the overall performance of the project; +5 = the determinant is responsible of the overall positive performance of the project.

RELATION WITH THE CONTEXT

The project was selected having in view the existing situation of the wastewater services in the city of Sochaczew. First, the city was a relevant target as it is an agglomeration above 15 thousand inhabitants in an environmentally sensitive area, lying on three rivers. Second, the city wastewater infrastructure was neglected for many years and this created an atypical situation where a significant part of the city was not equipped with wastewater infrastructure. This situation is typical for rural or small towns while not for agglomerations of almost 40 thousand inhabitants.

The project was listed not only in local strategy and local plans, but also in Poland’s plans to fulfil requirements of the UWWTD. The plan paid special attention to the agglomerations above 15 thousand inhabitants that required a tertiary treatment to remove nitrogen and phosphorous in environmentally sensitive areas.

The extension of the wastewater network to nearly one third of the city of Sochaczew was therefore considered by local, regional and national stakeholders as a necessary and high-priority investment from not only the environmental point of view, but also to sustain the future development of the area. No opposition to its implementation was raised from any side while the only concerns from citizens were about the costs of connections and wastewater services.

The problem related to the affordability of the costs of construction of the connections was not recognized due to lack of experience in connecting a large number of individual

houses. It has to be mentioned that before the project preparation, the Polish legislation determining who shall finance the connection was not clear thus project proponents were not able to observe experiences from other projects. Also the ex-ante CBA, although prepared by professional consultants and co-financed by technical assistance, does not mention the problem at all.

SELECTION PROCESS

The selection process involved both the local and national level.

As discussed earlier, the project during the preparation process was listed not only in local strategy and local plans, but also in Poland’s plans to fulfil requirements of the UWWTD, especially in the

National Programme for Municipal Wastewater Treatment. This programme was adopted by the Council of Ministers on December 16, 2003.

The major aim of the programme was to define agglomerations according to the provisions of the UWWTD and the boundary of the city of Sochaczew were defined as an agglomeration between 15 and 100 thousand PE, which means it was assigned second priority, while the need for additional removal of nitrogen and phosphorus in environmentally sensitive areas was also determined.

The project was for a short time on the list of indicative projects for the Operational Programme Infrastructure and Environment (that reflects the project priority) but then removed from the list of indicative projects due to low level of preparedness at that time (2008). As the project was removed from the list of indicative projects, it had to be included in the general selection process, which meant competition with other projects.

The project received technical assistance (agreement signed in 2006) to improve its preparation. The technical assistance included preparation of the feasibility study (including cost-benefit analysis), preparation of the grant application and further support to the PIU. The technical assistance was provided by two Polish consulting companies (BBF and SOCOTEC) and was co-financed by CF (ISPA) under Technical Assistance for Environmental Sector (CCI 2002/PL/16/P/PA/013) and by Polish National Fund for Environmental Protection and Water Management.

Further, the selection process was managed by the National Fund for Environmental Protection and Water Management. The Fund played the role of the Implementing Authority for five priorities of the Infrastructure and Environment Operational Programme 2007-2013 and for two priorities in 2014-2020.

The project got very good scores (close to maximum) under the competition with other projects. The competition process comprised two stages of appraisal and ranking of projects. The first stage focused on formal issues and the aim was to pre-scan projects and develop recommendations for further preparation. The second stage involved a multi-criteria assessment based on full project documentation (application form with feasibility study / CBA, and technical documentation as required). For each evaluation criterion, the project received points based on its compliance with the criterion and the projects were ranked from highest to lowest based on the total number of points

received. Points were awarded for each criterion based on the average of the individual scores received from evaluators on the panel of experts.

The technical support, both JASPERS and co-financed under the Technical Assistance for Environmental Sector, was very important in the project selection process. It supported not only the preparation of the option analysis, but also the preparation of the ex-ante CBA and good quality of the application form.

PROJECT DESIGN

The project did not involve complicated technological components. It mainly involved the construction of the wastewater network in the city, which means that the network configuration was determined by the city road system. The whole project was located on public property, with the small exception of property level pumping stations. The municipal WWTP already existed and required limited modernisation that had already been defined in a previous WWTP modernisation project co-financed by the ERDF. Thus, there were no issues related to the WWTP location and the WWTP required relatively simple, limited modernisation.

Regarding the project design process, different options were developed together with the feasibility study. These alternatives were also discussed with JASPERS. The project was also reviewed by JASPERS in the context of unit costs and density of connections compared to other Polish projects. The scope of the wastewater network extension was designed mainly on the basis of the following principles and assumptions: • density threshold of 120 residents per km of pipe extension, therefore no comparison of alternatives based on a least cost analysis was undertaken; • local topography was used for the location of the main collectors, so no specific location analysis was carried out; • gravitational network, wherever possible, was foreseen.

The first option analysis was prepared to compare the construction cost and the operating costs of the wastewater sub-network served by the existing Imhoff settlement tanks with: • Option 1 – Transporting by sanitation vehicle about 43,000 m3/year from Imhoff settlement tanks to the existing main WWTP; • Option 2 – Construction, apart from existing Imhoff settlement tanks, small WWTP (option very difficult due to environmental conditions); • Option 3 – Connection of basin covered by the Imhoff settlement tank to the existing municipal WWTP. In order to compare options, the dynamic generation cost (DGC, sometimes referred to as dynamic prime costs) method was used to evaluate each option. The DGC analysis showed that the most cost-effective option was option 3. No option analysis was prepared for the modernisation of the municipal WWTP, which is justified due to the limited scope of the modernisation at existing facilities. Also, a “no option” analysis was performed for the rehabilitation of the wastewater network in the city centre. The trenchless inverse technology for renovation was chosen because of the location of the network in the city centre to avoid problems with excavation and the necessity of paving after the rehabilitation process.

Further, the detailed technical design was prepared as the works were performed under the FIDIC Red Book under which the Employer prepares the technical design. For the entire project, the technical design was prepared by the same local design company that won the tender. The city prepared detailed digital maps of the city to facilitate the technical design process; thus, the project motivated the city to prepare digital maps that had not existed before the project. The major problem with the technical design was the scale of the project and need to make arrangements with many stakeholders, including all households that were planned to be connected to the wastewater network. This meant that a discussion of the designer with each building owner (household in the case of individual houses or condominium in the case of apartment blocks) and agreement on location of the connection point (the last manhole) had to be reached. The initial design remained unchanged during construction with few exceptions. Said exceptions were caused by unrecognized underground networks (usually old infrastructure elements that were never included in the geodesy maps). Also, in a few cases the location of households’ pumping stations had to be changed due to disagreement from the owners.

FORECASTING CAPACITY

The forecasting capacity can be discussed in four different layers: the forecast of investment costs, forecast of implementation time, demand forecast, and the forecast of timing for effects realisation. Generally, forecasting in all four layers is questionable, however, none of this caused a long-term planning error.

Investment costs.

Investment costs were forecasted using the standard cost estimation method that uses the estimation of the works scope and average prices from previous quarter and adds standard margins (overhead, profit, purchase cost). The forecasted investment costs were EUR 44 million net of VAT, while the amount actually spent was EUR 21.5 million14.

The actual project cost was significantly lower than the planned one and according to the beneficiary and similarly to other Polish projects, there are three causes of this:

• Large competition on the market caused, among others, by the financial crisis. Another important reason is the fact that the market was fairly saturated with companies that can construct wastewater systems and the barriers to entry were low. In a crisis situation, this places additional downward pressure on prices; • Dividing the project into many contracts enabled small companies to participate in the tenders, which further increased competition. The project budget was calculated using average prices and indicators for cost items like overheads that in reality can turn out to be far less than assumed. The high competition from smaller companies caused lower overhead costs to be applied.

14 In 2018 EUR, what is slightly different from the reported amount that used a fixed exchange rate

• The estimation used a fixed exchange rate (3.59 PLN/EUR) while the financial crisis led to a devaluation of the Polish currency and actual spending expressed in EUR were smaller. Implementation time.

With respect to project implementation time, a total delay of one year was accumulated due to construction works. This total delay, however, was caused by only a few contracts and even though the majority of the works was finalized as planned, this had the event of delaying the project as a whole.

Demand forecast.

The demand forecast employed a few assumptions that can be discussed from today’s perspective. First, the demographic forecast, which was based on the statistical data available at that time, assumed a stable population of the city. Nowadays, the forecast of the statistical office (Statistics Poland) assumes that the population of the city of Sochaczew will decrease in the future. This difference amounted to about 4 thousand inhabitants fewer at the end of the planning period. A similar problem was found in many Polish projects as at the time the project was developed based on the positive trend forecasted by the statistical office.

Another problem with the demand forecast is related to the timing of connections. The ex-ante CBA forecasted an increase in wastewater demand (as a result of new connections) already in 2012, whilst the effect was actually achieved at the end of 2016 (and fully observed in 2017). In addition, the actual increase in wastewater demand was observed in two waves. The first one was noticed just after the project completion, when a significant portion of the population connected to the wastewater network. The figure stabilized for about 3 years and then a further increase in connections was observed in 2016. This second wave increased the demand for wastewater services since the beginning of 2017. It has to be emphasized that the effects were achieved within the project durability period15, as required by the Polish Managing Authority, while the difference arose due to the demand forecasted in the ex-ante CBA.

Taken together, however, these forecasting issues did not result in a long-term planning error because the designed capacity was reached as of 2018.

It also has to be emphasized that the connection rate to the wastewater network in the city of Sochaczew is still far below 100%. The connection process is still ongoing, which is evident in the increase in the demand after 2017 and the trend is expected to continue in coming years (through further investments in the wastewater network financed by ZWiK Sochaczew and through two small EU-supported projects). New connections continue to be observed after project completion due to the need to connect newly constructed buildings. For example, 303 inhabitants connected after the end of 2016.

15 The project durability period required by the Polish Managing Authority follows the durability of operations as defined in article 57 of (EC) No 1083/2006 of 11 July 2006 on general provisions on the European Regional Development Fund, the European Social Fund, and the Cohesion Fund. Thus, individual projects are required to achieve and maintain the objectives and effects of the project, including the product and result indicators during the project durability period.

Figure 29. Comparison of forecasted wastewater demand and actual

Source: authors

The similar problem was noted in almost all Polish projects involving construction of new wastewater networks in areas where individual houses are to be connected. In case of apartment blocks, the costs of connection are divided by all the apartment owners and generally the institutional capacity is good because connection process is organized by the condominium administration. In case of individual houses, almost all planning documents underestimated the financial barrier of connections by individual users, relatively weak enforcement and scale of using illegal but cheap solutions (not sealed septic tanks, removing wastewater from septic tanks and deposition into the soil or ditches, illegal connections to storm water networks).

Timing for realisation of benefits.

The ex-ante CBA and project dossier expected that the project effects – increased number of wastewater connections – would be achieved immediately after the end of the construction. In reality, the process of connecting to the newly constructed wastewater network was slow and the effects were achieved by the end of 2016. This means that the project effects were fully realized since the beginning of 2017 compared to the beginning of 2013 as forecasted. This means a 5-year delay in achieving the most important project effect.

It has to be emphasised, however, that the same problem (and for the same reasons) was observed in other Polish wastewater projects.

PROJECT GOVERNANCE

The project governance can be viewed as rather simple. At the beginning of planning, two major institutional stakeholders were involved in the project: the city of Sochaczew and the water operator. The role of the city of Sochaczew was strategic planning and preparation of the project (feasibility study, technical design), the results of which were

transferred to ZWiK Sochaczew, which itself is 100% owned by the city and became the major stakeholder in the project implementation.

The city was still involved in:

• the project co-ordination; • approval of the water and wastewater tariffs; • dividend policy; • financial support to the ZWiK Sochaczew (increase in company capital, bond guarantees); • appointment of Measure Authorising Officer (MAO) and co-ordination with PIU; however, day-to-day operations on technical, financial, and legal issues were performed by SWIK Sochaczew, namely by PIU.

Thus, the whole governance structure was simple and effective.

During the project late preparation phase, a PIU was created, which is a typical requirement of large EU-financed projects in Poland. Typically, a PIU in Poland attracts highly skilled personnel, usually with better capacity than the average employee of a water utility. Further, the PIU personnel is typically highly motivated, as well as benefits from many capacity building trainings that can immediately be used in practice. Moreover, it has to be emphasized that the PIU at ZWiK Sochaczew still exists. It developed, implemented and reported further projects. Also, in November 2018, the head of PIU was selected as beneficiary (ZWiK Sochaczew) director by the city, which means that the city also appreciates developed skills.

Figure 30. PIU office as in November 2018

Source: Authors

On the national level, the Ministry of Regional Development (predecessor of the Ministry of Investments and Development) was the Managing Authority. In the environmental sector, the Ministry of Environment acted as Intermediary Body while National Fund for Environmental Protection and Water Management (2nd level Intermediary Body).

National Environmental Fund was directly responsible for the co-ordination with the beneficiary.

Thus the Fund was selected to Implementing Institution in order to use the existing capacity in oversight of environmental projects. This capacity was very important to support the project implementation, settlement and to support to solve day-to-day problems.

On the beneficiary side, the PIU was the major institution responsible for the project implementation. The PIU was headed by the PIU manager and supported by specialists responsible for:

• financial and reporting issues; • technical and public procurement issues; • office and administration matters. The PIU was co-ordinating on the local level all stakeholders and contracts and was reporting to the National Fund for Environmental Protection and Water Management. The co-ordination stakeholders on the local level included: the city of Sochaczew, citizens affected by the project (mainly those connected to the wastewater network), owners of the infrastructure (roads, natural gas pipelines and others), utilities that were required to operate the project (mainly electricity that was connected to many wastewater pumping stations), designers and contractors and others. Regarding the contracts, the project was divided by many smaller contracts that required a strong capacity in coordinating the complex system. Therefore, the existence of a PIU was crucial to achieve the long-term objectives of the project.

The whole system is presented below.

Figure 31. Management system under Operational programme Infrastructure and Environment 2007-2013

Source:https://www.funduszeeuropejskie.2007- 2013.gov.pl/English/System/Strony/European_Funds_System.aspx

MANAGERIAL CAPACITY

The construction process was difficult (the largest public investment project in the city) and PIU proved to be capable to manage and complex large project. The PIU was able to cope with complexity of managing the construction that was divided in many smaller contracts. It has been eight years since the project entered the construction phase and five years since it started being operational. During this time, no unexpected technical issues emerged and the project is today providing the service that it was planned to. The technical problems are typical to those encountered in the maintenance of the wastewater infrastructure, especially related to the day-to-day maintenance of pumping stations. These problems, however, can be addressed using the SCADA system that enables on-time interventions. No particular problems have emerged and affected the project management so far. All interviewed actors maintained that the wastewater services are of very good quality and that maintenance of the infrastructure is properly done. No particular problems have emerged and affected the financial sustainability of the project so far. During the construction, the financial sources were secured by the city of Sochaczew, own sources of the operator and from issuing the corporate bonds. The repayment of the corporate bonds was partially co-financed by the National Fund for Environmental Protection and Water Management. The financial sustainability throughout the operating period has been ensured by a wastewater tariff that adheres to the “cost plus” practice and was supported by the city of Sochaczew by the end of 201716. Ultimately, the tariff system used has ensured the financial sustainability of the project. The major problem that had to be solved was a delay in connections to the wastewater networks. In general, the city’s managerial capacity supported ZWiK Sochaczew to achieve the project effects. It required a number of interventions and co-ordination between the ZWiK Sochaczew and the city. These interventions included awareness building of the citizens, incentives to support connections and controls. ZWiK Sochaczew was involved in detecting illegal connections while the city’s environmental department in controlling the septic tanks sealing, controlling the bills for septic tanks removal and controlling the providers of septic tank removal services. Thanks to all these actions and co-operation of major stakeholders the major effect of the project was eventually achieved in 2016.

PROJECT BEHAVIORAL PATTERN

This section puts together the different determinants of project performance presented in the previous sections and discusses their interlinkages and dynamic impact on the project life cycle.

The project is considered overall successful inasmuch it achieved its intended primary objectives, i.e. connection of the one third of the city population to the wastewater

16 Since 2018, however, the government body Polish Waters is responsible for a tariff approval for a three- year period

network and to ensure the required level of the wastewater treatment. The project was implemented completely, meaning that all the physical indicators were 100% reached. This means both physical indicators (length of the constructed and rehabilitated wastewater network, WWTP modernisation) and project effects as number of connected inhabitants. The project however ended with a small delay in construction and a longer delay in achieving connections to the wastewater network. This means that the forecasting capacity was somehow limited. Thanks to good managerial capacity the project primary objectives were anyway achieved.

This assessment is summarised in the following figure, which outlines the “behavioural” path of the project over its life time. Following the analytical methodology detailed in the First Interim Report of this evaluation study, the round boxes in light blue indicate the projects’ determinants, the rectangular boxes in light grey refer to the observed events, the ‘+’ signs next to the green arrows indicate that the factor has positively influenced the project performance. In particular, arrows in dark green indicate factors that had a stronger influence on the project, arrows in light green instead indicate factors that had a positive but less strong influence. Red arrows and the ‘-’ sign indicate a negative influence of the determinant factor on the project.

Figure 32. Behavioural pattern of the project

Source: Authors

On the basis of the assessment previously presented, the project cannot be considered completely successful and, hence, cannot be labelled as “bright start”. Since the delay in achieving the objectives and problematic forecasting capacity it is preferred to label the project as a “blurred star”.

5. FINAL ASSESSMENT

Based on the findings from the project analysis – both in terms of quantitative and qualitative effects measured and discussed, respectively, in the CBA, as well as factors affecting the generation of those effects –the final assessment of the project is presented with respect to four evaluation criteria: project relevance and coherence, project effectiveness, project efficiency and EU added value.

PROJECT RELEVANCE AND COHERENCE

The project met a demonstrated need in the city – providing a long-term solution to the e lack of wastewater infrastructure, which affected the city as a whole as well as water bodies that had previously received untreated wastewater – and proved to be highly relevant in the context in which it was implemented. Since the major components of the project are an expanded wastewater network and a modernized WWTP, the project is also expected to remain relevant in the future.

The project was virtually unique in Poland as the city of Sochaczew was the only city of its size to lack wastewater infrastructure for more than one-third of its population. Thus, the project was relevant – involving connecting approximately one third of the city population – and for this reason the project was also included in the local development strategy of the city of Sochaczew.

The project was included in the list of agglomerations requiring the extension of the wastewater system and modernization of WWTP in the National Program for Municipal Wastewater Treatment. The National Program for Municipal Wastewater Treatment implements the Accession Treaty in the field of UWWTD. As an agglomeration of over 15,000 PE located in a environmentally sensitive area, the project was particularly important to fulfil the UWWTD requirements in environmentally sensitive areas with respect to increased removal of nitrogen and phosphorus.

The project represented a necessary and important step to improve surface and underground water quality. The project contributed to improving environmental conditions by ceasing the direct discharge of wastewater into surface waters (Bzura, Utrata and Pisia rivers), the soil and indirectly to the groundwater. The creation of the new swimming beach at the bank of Bzura river in Sochaczew is very clear evidence of the effect.

PROJECT EFFECTIVENESS

The project achieved its objective as stated in the application for CF support, i.e. connection of more than 11 thousand inhabitants to the wastewater network and ensuring the treatment capacity and parameters are achieved at the municipal WWTP.

Despite this clear success, the achievement of the main objective of the project was delayed. While the infrastructure was constructed and operational with an approximately one-year delay in construction, the process of connecting inhabitants to the network was slower than expected and presented in the application for CF support.

The house connections themselves were not part of the project because, according to Polish law, the connection from the last manhole to the building itself belongs to the user and therefore the user should finance it. This was a significant financial barrier to connecting individual houses. Thanks to the co-operation of ZWiK Sochaczew and the city, however, a solution was found and the major objective of the project was achieved in 2016. The solution involved efforts of ZwiK Sochaczew to increase public awareness (by organizing meetings with those not connected to the wastewater network, as well as providing information for radio and newspapers on the benefits of clean water) as well as to provide innovative financial support (by ZWiK constructing the connection and spreading payments over time in instalments). In addition, the company did not charge for the other costs of completing the house connections: among others, connection fee and technical conditions. Finally, enforcement measures were used (involving strict control from the municipal environmental inspectorate and use of CCTV in order to discover illegal connections to the storm water network).

The main socio-economic benefit generated by the project is the increased availability of wastewater services. This benefit was quantified by monetising the increased availability of wastewater services, the avoided capital and maintenance costs of self- collection and discharge of wastewater, e.g. using closed septic tanks.

A second benefit is the improved conditions of the environment by addressing the direct discharge of wastewater into surface waters (Bzura, Utrata and Pisia rivers), the soil, or indirectly to the groundwaters. This benefit was also quantified using the WTP method applied from other research done in Poland and estimated by Polish Waters for the Vistula river basin.

Figure 33. Ex-ante and ex-post pollution loads from WWTP

INDICATOR Ex-ante annual Annual pollution load pollution load from in 2017 actually WWTP in 2017 achieved (ex-post) [t/year] [t/year] Biochemical oxygen demand 12 4.1 (BOD) Chemical oxygen demand (COD) 94 44 Suspended solids (SS) 34 8 Nitrogen (N) 18 8 Phosphorus (P) 1.7 0.37

Source: Authors, Ex-ante documentation

As after project implementation the connection rate to the wastewater network is still below 100% and the capacity of the WWTP is sufficient to cover the entire agglomeration, further development needs of the wastewater network remain.

This has allowed further, although limited, additional investments that were financed using ZWiK Sochczew’s own funds and co-financed from the CF (Operational Programme Infrastructure and Environment 2014-2020). Also, new connections in the project area (due to construction of new houses in the area where wastewater network was constructed under the project) are noted.

Although the project connected mostly individual houses, the small enterprises and business located in individual houses are also located in the project area.

Thus, the project has high future potential to sustain the local development of the city of Sochaczew.

PROJECT EFFICIENCY

The option analysis that was prepared in ex-ante CBA proved that the selected option offers the highest value for money. In order to compare options, the dynamic generation cost (DGC, sometimes referred to as dynamic prime costs) method was used to evaluate each option. The DGC analysis showed that the most cost-effective option was the selected option.

Against a total investment cost of EUR 21.5 million (VAT excluded) and approximate EUR 0.5 million (present real values at 2018 terms, excluding VAT) of annual operation and maintenance until the assumed last year of the project time horizon (2035), the project produces a net socio-economic contribution to society, measured by the economic net present value, of EUR nearly 26 Million. The internal rate of return is equal to 9.87% against a benchmark discount rate of 5.05% for the past and 4.41% for the future.

Overall, project implementation went smoothly and no excessive delays were evident. The project construction was divided into several contracts (modernisation of the WWTP, construction of four different sections of the wastewater network in the city centre, and service contracts) and only two of these contracts noted delays. This is a laudable achievement in Poland due to the need to coordinate many stakeholders, including not only building owners to be connected, but also owners of underground infrastructure and public roads.

The final total costs, EUR 21.5 million, turned out to be much lower than the total planned costs (EUR 44 million) included in the tender dossier and ex-ante cost-benefit analysis submitted in 2011 (the latest update). This significant difference between the planned and actual investment costs is typical for the majority of the infrastructure projects implemented in Poland at that time. The market conditions after the financial crisis included saturation of the market with companies capable of constructing wastewater systems coupled with low barriers to entry. The division of the project into many contracts (typical in Poland) also contributed to this, as smaller companies were able to participate in tenders. This caused considerable downward pressure on prices. Also, the depreciation of the Polish currency contributed to the lower investment costs expressed in EUR.

The financial sustainability of the project during the project investment was guaranteed by the funds provided from a mix of sources: the European Union, the city of Sochaczew, and the beneficiary ZWiK Sochaczew, which secured its contribution through by issuing corporate bonds. The city of Sochaczew, as owner of ZWiK Sochaczew, increased the shareholders' equity and declared that it would not dividends. This created the conditions for a good rating from the rating agency and made it possible to take a loan to co-finance the project. At the end, the corporate bonds were issued instead of a loan, as the former had better conditions.

The financial sustainability of the project throughout the operating period under analysis has been ensured by a wastewater tariff that adheres to the “cost plus” practice. The

“cost plus” formula for the tariff calculation must be used by all Polish water and wastewater companies. The tariff calculation formula and template request for tariff increase are provided by Ministerial Order. The formula ensures that the tariff is at least equal to the required expenditures (operation and maintenance, depreciation, debt repayment in excess of depreciation, financial cost and even a provision for unpaid bills). The tariff was approved by the city on an annual basis up to the end of 2017. Since 2018, however, the government body Polish Waters is responsible for a tariff approval for a three-year period. Ultimately, the tariff system used has ensured the financial sustainability of the project. The city of Sochaczew declared that it would subsidize the wastewater tariff in the event of any affordability constraints. This, however, was never needed as the tariff was always below the affordability threshold.

EU ADDED VALUE

The European Commission contributed to the investment project by providing a grant of EUR 12.4 million in 2018 values.

• the project was too big in terms of need of financial resources for the relatively small water and wastewater utility; thus, the project would not been implemented without a significant external contribution; • the project was also too big for the city; according to interviewees, the project was the biggest infrastructure investment in the city; • the EU contribution was also important for the project preparation (technical assistance co-financed by the EU); most likely, without EU assistance, the project would not have been well-prepared and would have encountered significant implementation problems; • the EU contribution was also important for project governance, including requirements for the PIU (that also received technical assistance) with highly skilled and motivated personnel was a key to the effective implementation of the project and solving problems that occurred; • the EU contribution was important for the managerial capacity of the beneficiary. Thanks to the project, the creation of the PIU, and EU co-financed technical assistance, the beneficiary is now prepared to manage next infrastructure projects that were financed from own sources and co-financed by CF. Most likely this would not have happened if the PIU had not been established under the project. • The EU contribution and requirements to achieve objectives (connection of 11 thousand inhabitants) had the effect of mobilising local stakeholders to co- operate and work to achieve the required objectives. Without EU assistance, it is highly probable that these objectives would have been met much later than planned.

FINAL ASSESSMENT

The following table summarises the final assessment of the project along the five evaluation criteria previously discussed. Overall, the project represents a good example of a project characterised by no controversies, thanks to its high relevance, socio- economic desirability and coherence with the needs and objectives stated at different levels, from local to national and European.

The technical assistance and project optimisation by JASPERS, the good design capacity of the local engineers in charge of project design, combined with good knowledge of the local area and its needs, ensured that the project was appropriately designed. Thanks to managerial capacity, even if with some delays in the construction phase, project implementation proceeded smoothly and proved to be efficient in the use of public resources. However, the poor forecasting capacity caused that project was implemented with significant lower costs and that benefits were achieved later than predicted in the tender dossier. Both problems were observed in many other Polish projects related to wastewater infrastructures.

The project was not likely to be implemented without EU support. The project sustainability relies on the “cost plus” tariff formula that assumes that the water and wastewater tariff covers all O&M costs, depreciation (representing annualized capital costs), financial costs, and the loan repayments in the amounts exceeding the calculated depreciation. Thus, the project beneficiary always received revenues that were sufficient to cover costs and maintain a positive cash flow. If the project would be implemented without EU contribution, the tariff would have to be respectively higher and for some households would not be affordable. Thus, the project implementation would have to wait for a significant increase in household incomes. Taking into account the marginal location of the city of Sochaczew in the region, this was not going to happen soon.

The project contributed significantly to the removal of a hurdle for economic development in the area, i.e. it provided wastewater infrastructure to one-third of the city. Further, it provided necessary steps towards the improvement of citizens’ quality of life, in line with the overall goals of EU cohesion policy. The project also contributed to better surface and ground water quality, which in turn contributed to the implementation of the UWWTD, which is meant to impact a much larger region, namely the Vistula river basin and the Baltic sea.

Figure 34. Evaluation matrix

CRITERION EQ METHODOLOGY ASSESSMENT SCORE

• To what extent the original objectives of the The project was and over the years remained fully in line with the examined major project matched: development needs and the priorities established at various levels o the existing development needs, o the priorities established at the Historical programme, national, and/or EU level. Relevance reconstruction 5 • Where systems guiding the prioritization of individual investment projects within wider sectoral plans in place? Did the selection of the project follow such systems? • Are the project components in line with the stated project objectives? • To what extent the examined the project was consistent with other national and/or EU Historical Coherence Fully consistent 5 interventions carried out in the same field and reconstruction in the same area? • How the synergies with existing investments were ensured? • Has the examined major project achieved the objectives stated in the applications for The project has achieved all the expected objectives with some Cohesion policy support? delay with respect to the projected time schedule. It turned out to be the best option among all feasible alternatives. • What factors, including the availability and the form of finance, and to what extent did influence the implementation time and the achievement observed? • What has changed in the long run as a result of CBA results the project (for example, is there evidence showing contribution of the project to the Ordinal scores on private sector investments)? Effectiveness non-monetary 4 • Were these changes expected (already planned effects at the project design stage, e.g., in terms of pre-defined objectives) or unexpected Investigation of the (emerged, for instance, as a result of changes project causal chain in the socio-economic environment)? • How have these changes matched the objectives set and addressed the existing development needs, the priorities established at the programme, national and/or EU level? • Did the selected project turn out to be the best option among all feasible alternatives?

Negligible positive/negative differences • Are there any significant differences between the costs and benefits in the original cost- CBA results

benefit analysis (CBA) and what can be The project cost lower by half. Implementation delayed by 1 year. observed once the project has been finalised? Sustainability Efficiency The benefits (connections) delayed by 4 years what also caused 3 To what extent have the interventions been analysis • differences in demand projects. cost effective?

• Was the actual implementation in line with the Project causal chains foreseen time schedule?

• What is the EU added value resulting from the High EU added value, i.e. the project achieved positive effects which examined major project (in particular, could would have been hardly achieved without the EU support, thanks any of the major projects examined, due to its also to the strategic and technical support by the EU services risk profile, complexity or scope, have not been carried out if not for the EU support)? In particular, which aspect of the EU added value is more evident?: o Provision of strategic support and EU added advisory during project design; o Provision of technical and operational Project causal chains 4 value support during project preparation; o Provision of financial support leading to the financing decision. • Did the examined major projects achieve EU- wide effects (e.g. for preserving the environment, etc.)? • To what extent do the issues addressed by the examined interventions continue to require action at EU level?

Source: Authors

6. CONCLUSIONS AND LESSONS LEARNED

The ex-post evaluation indicates that the implementation of the major project for the construction of a new wastewater network for nearly one-third of the city of Sochaczew, the rehabilitation of the wastewater network in the city centre, and preparing the WWTP for the increase in wastewater demand was correct.

Before project implementation, the city of Sochaczew was far below the national average with respect to the connection rate to the wastewater network. The city was reporting that 66%17 of the population was connected to the wastewater network while at the time the national average of 85.5%18 for urban areas (including smaller towns). Taking into account the target of 90%19 in agglomerations between 15 and 100 thousand, the average city of that size had to catch up only few percentage points compared to the required approximately 30% in case of the city of Sochaczew. Thus the project, as the largest public investment in the city, was of strategic importance. The results of the ex-post CBA confirm that the project was worthy from a socio-economic standpoint.

This case study gives the opportunity to draw important lessons of more general relevance.

• The involvement of experienced professionals both in the initial planning phase (involvement of the city of Sochaczew, technical assistance, JASPERS, the design team) and during the project implementation (PIU at ZWiK Sochaczew) enabled a smooth implementation and operation of the project. High technical competence and solid managerial capacity are indeed key to ensure the project resilience at various levels. • Lack of experience on all (local and national levels) in connecting a high number of individual users (individual houses) in short period caused delay in achieving the project objectives. The disconnection between project objectives (number of connected inhabitants) and project scope that excluded the individual connections and relied on users financing this part of investment was a significant barrier to achieve the project effects. The lesson learned for other projects is that in case of large number of individual users, the project shall ensure also financing connections. Also the enforcement tools that the city can apply shall be improved. • Good managerial capacity and project governance are very important for the success of the project. The beneficiary strengthened its institutional capacity during the implementation, mainly through the PIU that attracted highly skilled personnel, got trainings and prepared the beneficiary for next projects (of which two are under implementation).

17 This % was also overestimated as it was based on the assumption that the population is equally disbursed in the city. 18 According to national statistics (bdl.stat.gov.pl), wastewater networks in 2008 covered population of 19,907,962 of the 23,277,221 persons living in urban areas. 19 As per the first version of National Program for Municipal Sewage Treatment

• Even when the project receives technical assistance, the forecasting may not be perfect. In this specific case, the timeframe for achieving effects was overestimated while the estimation of the investment costs was very conservative (which at the end was good because caused lower investment costs, less financial burden to the beneficiary and users).

ANNEX I. METHODOLOGY OF EVALUATION

This Annex summarises the methodological approach undertaken for carrying out the project case studies and presented in the First Intermediate Report of this evaluation study. The main objective is to provide the reader a concise account of the evaluation framework in order to better understand the value and reach of the results of the analysis as well as to enable him/her, if interested, to replicate this methodology.

The Annex is divided into four parts, following the four building blocks of the methodological approach (mapping of effects; measuring the effects; understanding effects; synthesis and conclusions) laid down in the First Intermediate Report. Three evaluation questions, included in the ToR, guided the methodological design. They are:

• What kind of long term contribution can be identified for different types of investment in the environment sector?

• How is this long term contribution generated for different types of investments, i.e., what is the causal chain between certain short term and log- term socio-economic returns from investments?

• What is the minimum and average time needed for a given long term contribution to materialise and stabilise? What are these time spans for different types of investments in the environment field?

MAPPING THE EFFECTS

The Team developed a classification of long-term effects, with the aim of identifying all the possible impacts of environmental investments on social welfare. Under four broad categories, a taxonomy of more specific long-term development effects of investment projects has been developed. The definition of each type of effect is provided in the Table below.

Far from being exhaustive, this list is intended to guide the evaluators in identifying, in a consistent and comparable way, the most relevant effects that are expected to be identified and included in the analysis. Additional effects could possibly be relevant in specific cases and, if this is the case, they can be added in the analysis.

In researching all the possible long-term effects of project investments, it is acknowledged that there could be a risk of duplication. In addition, the allocation of some effects under different categories is to some extent arbitrary and thus it may happen that categories overlap. That said, caution will be paid in order to avoid double counting when performing the ex-post CBA.

Figure 35. Taxonomy of effects Water and wastewater

MOST SIGNIFICANT DESCRIPTION EFFECTS Variation in quantity of water Increased quantity of annual water supply, improved efficient water usages and wastewater treatment is supplied and waste water linked to growth through increasing the sufficient availability and improving the efficient usage of water and treated wastewater treatment for civil consumption, as well as industrial and agricultural production, and through

increasing a regions housing attractiveness for urban development, employment and attractiveness for

industrial consumers. The impact on growth of the increased quantity of water supplied and treated will usually first occur over time. (Dinar & Schwabe 2015)

Variations in the reliability of Enhanced reliability is linked to growth by eliminating water supply shifts (water supply becomes more water sources and water uniform). This comes from improvements in water supply and distribution that decrease the times of supply production disruption caused by an interruption in the production site’s water intake or wastewater outtake (Dinar & Schwabe 2015) or increase the water pressure. Disruption may be seasonal, especially in regions where demand in the dry season may be too high compared to the utilities’ capacity or in wet season, where the wastewater infrastructure capacity is overflood by water from excessive rainfall and flash floods.

Variations in water quality Enhanced water supply quality can reduce the costs for water-intensive industries, which through regulation clean treat their own waste water outtake. Water quality improvements may also not be linked directly to savings in health care or related public cost savings. However, this link is usually weak or non-existent, as people generally drink bottled water in areas where water is not safe. Water quality is However, they may be also linked to growth through a regions’ living attractiveness for households and thereby a regions ability to

EFFECTSON ECONOMIC GROWTH attract employment. A region with poor water quality which hampers clean water for domestic purposes and

• degrades the landscape, limit recreation opportunities and produce bad odours etc. will usually also experience challenges in attracting tourism, which also affect growth (UNEP 2015). In the context of agriculture, waste water projects may include a change in the use of polluted water in irrigation, as waste water includes both harming and useful plant food nutrients which can influence both positively and negatively on crop yields for farmers (Dinar and Schwabe, 2015; UNEP, 2016, Drechsel et al., 2015).

Improving water management efficiency may, for example by reducing the water leaks of a water distribution network, decrease the volume of water needed to supply the network. Water is then preserved for other Variation in resource savings uses, which may generate growth in industries and agriculture that are reliant on scarce water sources. The (water preserved for other same effect arises from reduced over-exploitation of a water source (e.g. when groundwater is replaced with uses) water produced from other sources, such as desalination) or wastewater is purified and reused (more stringent treatment) for irrigation or industrial water supply. (European Commission 2015)

Improving the efficiency of water and wastewater management by e.g. separating rainwater from waste water pipeline reduces the utility’s total cost, which may lower the price on water and wastewater services. Variation in operating costs This assumes a market simulating pricing system, where the price for water services is linked to the utility’s cashflow.

MOST SIGNIFICANT DESCRIPTION EFFECTS It refers to the national impact on income and productivity of the economy caused by the project leads to a higher economic activity through the production of more or better goods and services together than before. Wider economic impacts There are conflicting academia results on the effects, but studies suggest that especially industries will gain positively (see e.g. Katz (2008) and OECD (2018)).

Institutional learning It refers to wider spill-over effects that any investment project may bring to the Public Administration and other institutions at national or regional or local levels in terms of expertise gained by working on large scale projects. Learning may lead to productivity gains by stimulating the improvement of existing technical know- how, improved policy-making, competitive tendering and divert resources towards the most growth enhancing projects.

MOST SIGNIFICANT DESCRIPTION

EFFECTS

Variations in the number of consumers served by water It arises when new users are connected to the centralised water supply or sewer networks.

supply and treatment services BEING - Variations in the quality of It relates to the increase of users satisfaction, experiencing an improvement in the quality of water supply water supply and/or sewer and wastewater treatment.

services WELL

Variations in human health It refers to the population’s exposure to pollution in drinking water and to the wastewater treatment. This

EFFECTSRELATED TO effect is relevant only if causation can be proved, which may be difficult, as it requires statements or QUALITYLIFEOF AND and hygiene analyses which link the drinking water quality and/or the discharged water to i.e. medical treatment.

Impacts on human health may, in turn, impact on the productivity of the labour force, which underpins economic development (Suri, Boozer, Ranis, et al. 2011). ADDITIONAL EFFECTS DESCRIPTION

Variations in the living It relates to the current and future increase of population, caused by the improved water and waste water attractiveness of the area facilities. This includes the effects on buildings’ resilience to climate change through an improved outtake of sewage water (under-capacity of sewers can lead to flooding when there is a cloudburst, the frequency of which is expected to increase over time due to climate change (Punttila 2014)).

MOST SIGNIFICANT DESCRIPTION EFFECTS

Variations in GHG emissions This effect relates to the impact wastewater projects may have on GHG emissions; wastewater treatment generates significant amount of greenhouse gases mainly methane and nitrous oxide. For example, a

wastewater project may improve the processing of wastewater in such way that it reduces GHG emissions. Variations in contamination of This is relevant on desalination and waste water treatment plants. It is related to the environmental impact air, water, and soil of the desalinizing projects and the avoidance of pollution from waste water. This include contamination of sea water and air pollution emissions, contamination of soils and freshwater (i.e. Removal of nitrogen and phosphorus), spill-over effects of system flooding due to heavy rainfall and flooding (Logar, Brouwer, Maurer, et al. 2014; Djukic, Jovanoski, Ivanovic, et al. 2016). Variations in the protection This is a long-term effect on the above-mentioned effects. It relates to the projects overall effect on the and resilience of natural sustainability of the natural resource systems caused by the reduced contamination and resilience. This resource systems (including include enhancing the housing’s resilience to climate change through an improved outtake of sewage water surface water bodies and (under-capacity of sewers can lead to flooding when there is a cloudburst, the frequency of which is ecosystem services) expected to increase over time due to climate change (Punttila 2014)). ADDITIONAL EFFECTS DESCRIPTION

Variations in biodiversity It relates to the projects’ overall effect on the ecosystem, mainly caused by decreasing the pollution from the wastewater infrastructure. This effect will only be relevant in areas where wastewater is threatening the

EFFECTSON THE ENVIRONMENT biodiversity and environmental sustainability. (Dinar and Schwabe (2015) and Punttila (2014) – on reduction on Baltic Sea level) Variations in climate change This effect is broader than the contamination issue, as it includes the environmental impact of taking a resilience holistic approach to waste water projects, by including climate change adapting components such as to more heavy rainfall and increased water levels (i.e. see Punttila (2014) – on including natural stormwater management in waste water investments, which provide recreational benefits in urban areas)

DESCRIPTION

ADDITIONAL EFFECTS

Social cohesion It encompasses the allocation of the main benefits over income and social groups

Territorial cohesion It encompasses the allocation of the main benefits over central (core) and peripheral areas

DISTRIBUTIO ISSUESNAL

Waste management

MOST SIGNIFICANT EFFECTS DESCRIPTION

Variations in waste to landfills The reduction of the amount of waste finally going to final disposal as a result of the project which extends the economic life of the landfills or which enhances the recovery of waste will reduce the need for landfill disposals. This opens up for making former waste landfills available for alternative economic production (Jamasb & Nepal 2010). Variations in recovery of materials Improving resource recovery, including improving the waste sorting facilities or improving the

circularity of resources used in the industrial production may reduce the total cost of production. The lowering of cost will only occur in case the waste treatment is replacing a less cost-efficient waste collection and treatment process. Variations in energy recovery Improving energy recovery of waste may lead to lower energy prices for households and industry. (Jamasb & Nepal 2010) The lowering of cost will only occur in case the waste treatment is replacing a more expensive energy-source. Variations in the reliability of Enhanced reliability is linked to growth by decreasing the times of service disruption caused by lack of waste collection an efficient waste collection and/or management facilities. Disruption may be seasonal, especially in regions where demand may be too high to the utilities’ capacity. Variations in deployment cost for The utility entity’s direct cost may have an effect on economic growth, depending on the investment utility services profile and tariff policies. Also, the ex-ante treatment technology will influence the level of impact (see i.e. Martines-Sanchez and Astrup (2016)) ADDITIONAL EFFECTS DESCRIPTION

Wider economic impacts It refers to the overall variation in productivity of the economy caused by the project leading to a higher economic activity. (on landfill reduction – Danthurebandara, Van Passel, Vanderreydt, et al. (2015)). EFFECTSON ECONOMIC GROWTH Recent studies indicate that the effects are only traceable when the project leads to overall waste prevention, the most ambitious step on the EU waste hierarchy (see i.e. Martines-Sanchez and Astrup (2016)).

Institutional learning It refers to wider spill-over effects that any investment project may bring to the Public Administration and other institutions at national or regional levels in terms of expertise gained by working on large scale projects. Learning may lead to productivity gains by stimulating the improvement of existing technical know-how, improved policy-making, competitive tendering and divert resources towards the most

growth enhancing projects.

I I I

L L L L L

F F E C T S R E A T E D T O Q U A T Y O F F E A N D W E B E N G E MOST SIGNIFICANT EFFECTS DESCRIPTION

Variations in the number of consumers served by waste It arises when new users are connected to an improved waste collection system. management services Variation in exposure to It relates to the increase of welfare for the households, by lowering the negative externalities stemming disamenities from visual disamenities, noise, and odours through improving the waste collection technology, the infrastructure on the treatment sites and/or reducing the landfills. Variations in household income Reductions in household tariffs due to lower utility cost per unit, leads to higher savings to purchase other goods and services (Martinez-Sanchez & Astrup 2016). Variations in human health and It refers to the population’s exposure to pollution through contamination of air, water and soils. While it hygiene is rare to find solid waste project with significant health benefits, because people generally manage to remove waste far enough from their immediate surroundings to prevent exposure to health hazards. The effect can be relevant if illegal landfills are closed, thus preventing the emission of volatile organic compounds and dioxins, the generation of leachate which is emitted to the surrounding soil and water. Impacts on human health may, in turn, impact on the productivity of the labour force, which underpins economic development (Suri, Boozer, Ranis, et al. 2011).

ADDITIONAL EFFECTS DESCRIPTION Variation in living attractiveness of It relates to the current and future increase of population, caused by the improved waste management the area facilities.

MOST SIGNIFICANT EFFECTS DESCRIPTION Variations in GHG emissions This effect relates to projects which impact on GHG emissions from biodegradable waste components, or the energy and material recovery of waste treatment in such way that it substitutes, or is substituted

by, fossil fuels. (Jamasb & Nepal 2010)

Variations in the contamination of As health effects are treated in Table 6, this relates only to the ecosystem effect of lowering the negative air, water, and soil externalities from waste treatment and landfills (see i.e. Damgaard et al, 2011 and Danthurebandara, Van Passel, Vanderreydt, et al. (2015)).

ADDITIONAL EFFECTS DESCRIPTION Variations in the protection and It relates to the projects overall effect on the sustainability of the natural resource systems caused by resilience of natural resource ENVIRONMENT improved efficiency in energy and material production processes. EFFECTSON THE systems It relates to the projects’ overall effect on the ecosystem, mainly caused by decreasing the pollution from Variations in biodiversity the waste management treatment. This effect will only be relevant in areas where waste management is threatening the biodiversity and environmental sustainability.

DESCRIPTION

ADDITIONAL EFFECTS

Social cohesion It encompasses the allocation of the main benefits over income and social groups

Territorial cohesion It encompasses the allocation of the main benefits over central (core) and peripheral areas

DISTRIBUTIO ISSUESNAL

Environmental remediation project

MOST SIGNIFICANT EFFECTS DESCRIPTION

Variation in value of properties near Environmental remediation or preservation of a site may increase the market expectations of its remediated site future flow of goods and services. For example, people tend to prefer to live in areas free from pollution. This is reflected it increased property prices. (Söderqvist, Brinkhoff, Norberg, et al. 2015)

Variation in tourism Environmental remediation of a site may improve the aesthetics and biodiversity of the area and thus attract tourism (BenDor, Lester, Livengood, et al. 2014). However, variation which imply complementary changes in tourism elsewhere in the region should not be counted in. Variation in fishing and hunting yields Environmental remediation of a site may improve the stocks of fish or wildlife inhabiting the area, which can improve the catch or game for fisheries and hunters (BenDor, Lester, Livengood, et al. 2014). Variation in yields from timber and Environmental remediation of a site may increase the yield of raw materials such as timber other raw materials (Vicarelli, Kamal & Fernandez 2016). ADDITIONAL EFFECTS DESCRIPTION

Variation in agricultural yields The remediation of a site may, for example, support agricultural activities by improving the capacity (indirect ecosystem services) of water systems affecting the arable land (Söderqvist, Brinkhoff, Norberg, et al. 2015), or by providing a habitat to pollinators. Economies of agglomeration Remediation of a site may increase the attractiveness of an area and promote urban development, and so concentrate the geographical co-location of firms. This in turn gives rise to economies of

EFFECTSON ECONOMIC GROWTH agglomeration. (United States Environmental Protection Agency 2011) It refers to wider spill-over effects that any investment project may bring to the Public Administration and other institutions at national or regional levels in terms of expertise gained by Institutional learning working on large scale projects. Learning may lead to productivity gains by stimulating the improvement of existing technical know-how, improved policy-making, competitive tendering and divert resources towards the most growth enhancing projects.

MOST SIGNIFICANT EFFECTS DESCRIPTION

Variation in health Remediation of a site may produce positive externalities, including improved health from reduced

exposure to pollutants or other hazards (e.g. radioactivity) and improved mental health due to reduced anxiety linked to concerns with pollution (Söderqvist, Brinkhoff, Norberg, et al. 2015). In context of this evaluation, this benefit will only be included as a benefit if causation between the

project at hand and health improvements be proved.

BEING - Variation in recreational opportunities Remediation or preservation of a site may expand the opportunities for outdoors recreational activities (e.g. trekking, bathing, picknicking) in the area. This may have a positive effect on well-

WELL being (Söderqvist, Brinkhoff, Norberg, et al. 2015).

ADDITIONAL EFFECTS DESCRIPTION

EFFECTSRELATED TO QUALITYLIFEOF AND None MOST SIGNIFICANT EFFECTS DESCRIPTION

Preservation of species or ecosystems Preservation of a site may preserve species or ecosystems affects the existence value from which individuals may derive utility without using the resource (i.e. individuals feel good from the knowledge that the ecosystems or biodiversity in question exists) (United States Environmental Protection Agency 2011). ADDITIONAL EFFECTS DESCRIPTION

Variations in carbon sequestration Remediating an ecosystem may lead to increase in biomass, which will naturally bind more carbon

(carbon sequestration) (Vicarelli, Kamal & Fernandez 2016)

ENVIRONMENT EFFECTSON THE Variation in hazard risks The presence of ecosystems, such as forests, can alleviate damages caused by flooding. (Wang, Chen, Zhang, et al. 2010)

Risk reduction

MOST SIGNIFICANT EFFECTS DESCRIPTION

Variation in asset losses Disasters may damage personal/commercial/public assets, which may be costly to replace. Disaster risk reduction activities may reduce such damages including public cost to disaster management. Variation in direct interruption of Damages to assets may directly interrupt economic activity. For example, if a factory is destroyed, the economic activity activities of the owning firm may be impacted. Similarly, if arable land is flooded, farming activities may be disrupted. Variation in property prices People prefer to avoid living in areas with higher risk for natural disasters. Therefore, if disaster risk reduction projects reduce the risk faced by a neighborhood, its property prices will likely increase. ADDITIONAL EFFECTS DESCRIPTION

Variation in risk-taking Risk averse economic agent tend to take less risks in the face of latent disaster risks. At the same time, some degree of risk taking is essential for technology adoption and investment, which are fundamental to economic growth. Therefore, risk reduction activities may stimulate risk taking, and so, economic growth (Hallegatte, Bangalore & Jouanjean 2016). Variation in indirect interruption of In addition to disrupting the economic activities of asset owners, the economic activities of agents economic activity whose assets were not impacted by a disaster may be interrupted. Specifically, a disaster that hits a particular segment of a supply chain may incapacitate other parts of the supply chain. For example, firms may not be able to trade their products, even if their factories are intact, if the transport services they rely on are heavily impacted by a disaster. Disaster risk reduction may reduce such higher-order

impacts on the economy (Hallegatte, Bangalore & Jouanjean 2016). EFFECTSON ECONOMIC GROWTH Institutional learning It refers to wider spill-over effects that any investment project may bring to the Public Administration and other institutions at national or regional levels in terms of expertise gained by working on large scale projects. Learning may lead to productivity gains by stimulating the improvement of existing technical know-how, improved policy-making, competitive tendering and divert resources towards the most growth enhancing projects.

MOST SIGNIFICANT EFFECTS DESCRIPTION

Variations in human mortality and A disaster may impact on human health, for example by injuring people caught by the disaster, or by morbidity contaminating drinking water. Also, disaster may cause the death of people. Disaster risk reduction

BEING may reduce the negative impacts of a disaster on human health as well as on the risk of death. - Variations in damage to cultural Risk reduction measures can lower the damages to historical buildings and objects, or other culturally

sites and structures significant structures, in case of a disaster. WELL

ADDITIONAL EFFECTS DESCRIPTION AND EFFECTSRELATED Co-benefits/variations of disaster Disaster risk reduction infrastructure can be used for social purposes. For example, a shelter can be

TOQUALITY LIFEOF risk reduction infrastructure used as a community space during non-disaster times (Vorhies & Wilkinson 2016).

DIRECT EFFECTS DESCRIPTION

Variations in damage to the Risk reduction measures can lead to lessened damages to the environment, such as wetlands, parks, environment and wildlife, in case of a disaster.

ADDITIONAL EFFECTS DESCRIPTION THE Co-benefits/variation of disaster Risk reduction measures, such as the construction of flood protection structures, can improve irrigation

EFFECTSON risk reduction infrastructure to the for ecosystems. ENVIRONMENT environment

Source: Authors

MEASURING OF EFFECTS

Because of the variety of effects to be accounted for, a methodological approach firmly rooted on CBA (complemented by qualitative analysis when necessary) is adopted in order to grasp the overall long-term contribution of each project.

In terms of their measurement level, the effects can be distinguished into: A. Effects that by their nature are already in monetary units (e.g. cost savings from environmental damages). These can therefore be easily included in a cost-benefit analysis (CBA). B. Effects that are quantitative, but not in money units, and that can be converted into money units in a reasonably reliable way (e.g. water pollution, odour effects)20. These effects can also be included in the CBA. C. Effects that are quantitative, but not in money units, for which there are no reasonably reliable conversion factors to money. We propose not to try to include such effects in the CBA, but to discuss them in a qualitative way together with the overall outcome of the CBA. D. Effects that are difficult to measure in quantitative (cardinal) terms, but do lend themselves for ordinal measurement (a ranking of the impact of different projects on such a criterion can be provided, such as very good, good, neutral, bad, very bad). We propose to discuss these effects in qualitative terms. E. Effects that might occur but that are subject to a high degree of uncertainty: these will be treated as part of the risks/scenario analysis that will be included in the CBA. F. Effects that might occur but that we cannot even express in an ordinal (ranking) manner: they are residual effects that can be mentioned in qualitative description in case study report.

In short, all the projects’ effects in A and B are evaluated by doing an ex-post cost- benefit analysis (CBA)21. Reasonably, these represent the most significant share of long- term effects. Then the outcome of the CBA (e.g. the net present value or benefit-costs ratio) is complemented by evidence from C and D, while E and F is used for descriptive purposes. Moreover, qualitative techniques are used to determine why certain effects are generated, along what dimensions, and underlying causes and courses of action of the delivery process (see below).

Section 3 of each case study includes a standardised table in which scores are assigned to each type of long-term effect. Scores ranging from -5 to +522 are given in order to intuitively highlight which are the most important effects generated for each case study.

20 Methods to establish such conversion factors include: stated preference surveys (asking respondents about hypothetical choice alternatives), hedonic pricing or equating the external cost with the cost of repair, avoidance or prevention or with the costs to achieve pre-determined targets. 21 More details on the approach adopted to carry out the ex-post CBA exercise and, in particular, indications on project identification, time horizon, conversion factors and other features are extensively described in the First Intermediate Report of this evaluation study. 22 The strength score reflects the weight that each effect has with respect to the final judgment of the project. In particular: -5 = the effect is responsible of the negative performance of the project; -4 = the effect has provided a negative contribution to the overall performance of the project; -3 = the effect has contributed in a moderate negative way to the performance; -2 = the effect has a slightly negative contribution to the project performance; -1 = the effect is negative but almost negligible within the overall project performance; 0 = the

UNDERSTANDING THE EFFECTS

Once the project effects have been identified and measured, and the causal chain linking different categories of short-term and long-term effects has been investigated, the third building block of the methodological approach entails reasoning on the elements, both external and internal to the project, which have determined the observed causal chain of effects to take place and influenced the observed project performance.

Taking inspiration from the literature on the success and failure of projects, and particularly on costs overruns and demand shortfalls, and on the basis of the empirical evidence which develops from European Commission (2012) six stylised determinants of projects’ outcomes and their development over time have been identified (see table below).

The interplay of such determinants may reinforce or dilute one effect over the other. Moreover, each determinant may contribute, either positively or negatively to the generation/speed up/slow-down of certain short-term or long-term effects. For this reason it is important not only to understand the role that each determinants has on the observed project outcome, but also their interplay in a dynamic perspective.

In doing this, it is useful to refer to stylised, typical “paths” of project behaviours outlined in the following table. Such patterns capture common stories and reveal recurring patterns of performance, as well as typical problems that may arise and influence the chronicle of events. Case studies test the validity of such archetypes and are used to specify in better nuances or suggest possible variations or additions.

Section 4 of each case study includes standardised tables in which scores are assigned to each determinant. Scores ranging from -5 to +5 are given in order to intuitively highlight which are the most relevant determinants explaining the project outcomes23. Moreover, section 4 of each case study includes a graph describing the project’s behavioural pattern, i.e. describing the chain of interlinked causes and effect determining the project performance over time.

effect has no impact on the project performance; +1= the effect is positive but almost negligible within the overall project performance; +2 = the effect has a slightly positive contribution to the project performance; +3 = the effect has contributed in a moderate positive way to the performance; +4 = the effect has provided a positive contribution to the overall performance of the project; +5 = the effect is responsible of the positive performance of the project; N.R. = The effect is not relevant for the specific project; No data = The effect is potentially relevant, but no evidence on impacts is available. This shall be used only for relatively low significant effects whose inclusion would in no case dramatically affect the overall assessment. 23 The strength score reflects the weight of the role that each determinant played with respect to the final judgment of the project. In particular: -5 = the determinant is responsible of the overall negative performance of the project; -4 = the determinant provides a negative contribution to the overall performance of the project; -3 = the determinant contributes in a moderate negative way to the overall performance of the project; -2 = the determinant has a slightly negative contribution to the project overall performance; -1 = the determinant plays a negative but almost negligible role to explain the overall project performance; 0 = the determinant does not play a role on the project overall performance; +1= the determinant plays a positive but almost negligible role to explain the overall project performance; +2 = the determinant has a slightly positive contribution to the project overall performance; +3 = the determinant contributes in a moderate positive way to the overall performance of the project; +4 = the determinant provides a positive contribution to the overall performance of the project; +5 = the determinant is responsible of the overall positive performance of the project.

Figure 36. Stylised determinants of projects’ outcomes

DETERMINANT DESCRIPTION

Relation with the It includes the considerations of institutional, cultural, social and economic environment into which the project is inserted, was the context project appropriate to this context?; is there a problem that the project can solve?; does the project remain relevant over the years? It refers to the institutional and legislative framework that determines how public investment decisions (and especially those co- Selection financed by ESIF) are taken, i.e. which is the process in place and the tools used to select among alternative projects. The selection process process is influenced by incentive systems that can lead politicians and public institutions to either take transparent decisions or strategically misrepresent costs and/or benefits at the ex-ante stage. it refers to the technical capacity (including engineering and financial expertise) to properly design the infrastructure project. Under a general standpoint, we can distinguish: • the technical capacity to identify the most appropriate conceptual design, which best suits the need of a specific context. Even when a region really is in need of the project, it usually requires a well-designed project to solve the observed problems. This, in turn, involves that different alternatives are considered and the best option in terms of technical features and strategical Project design considerations is identified; • the technical capacity to develop the more detailed level of design (preliminary and detailed), thus identifying most effective and efficient detailed infrastructure solutions and construction techniques, thus avoiding common pitfalls in the construction stage (such as introducing variants that are not consistent with the original conceptual design) and the risk of cost overruns during the construction phase by choosing inappropriate technical solutions. It regards the possibility and capacity to predict future trends and forecast the demand level and estimate the technical challenges, thus estimating correctly the required resources (e.g. looking at the dangers of over-predicting demand and under-predicting Forecasting construction costs). In particular, technical forecasting capacity is related to the quality of data used and forecasting/planning capacity techniques adopted. At the same time, forecasting capacity includes the ability of the project promoter and technical experts not to incur in the planning fallacy (the tendency to underestimate the time or cost needed to complete certain tasks) and optimism bias (the systematic tendency to be overly optimistic about the outcomes of actions). It concerns the number and type of stakeholders involved during the project cycle and how responsibilities are attributed and shared. Project This is influenced by the incentive mechanisms. If bad incentives exist, this can lead different actors involved in the project governance management to provide benefits for their members, thus diverting the funds away from their optimal use, or forcing them to delegate responsibilities according to a non-transparent procedure.

Managerial It refers to the: capacity • professional ability to react to changes in the context/needs as well as to unforeseen events;

• professional capability to manage the project ensuring the expected level of service in the operational phase. To ensure a project success, it is not enough that it is well planned and designed, but also that the organizations in charge of the management and operations provide a good service to the end users (e.g. ensuring a good maintenance of the infrastructure).

Source: Authors

Figure 37. Behavioural patterns archetypes

Behavioural patterns are illustrated by use of diagrams linking determinants and project outcomes in a dynamic way

TYPE DESCRIPTION This pattern is typical of projects where the good predictions made ex-ante (both on the cost side and demand side) turn out to be accurate. Proper incentive systems are in place so that the project actually delivers value for money and success. Even in the event Bright star of exogenous negative events, the managerial capacity ensures that proper corrective actions are taken and a positive situation is restored.

This pattern is typical of projects which, soon after their implementation, are affected by under capacity issues because of a combination of low demand forecasting capacity, weak appropriateness to the context, and weak technical capacity to design the Rising sun infrastructure. However, due to changed circumstances or thanks to responsible management and good governance the project turns around to reap new benefits.

This pattern is typical of projects for which the good predictions made ex-ante (both on the cost and demand side) turn out to be Supernova accurate. However, due to changed circumstances or because of weak management capacity and/or governance the project eventually turns out to be unsuccessful.

This pattern is typical of projects starting from an intermediate situation and resulting in a failure. This outcome can be explained by a low forecasting capacity affected by optimism bias which yields a cost overrun. Then during project implementation, because Shooting star of low managerial capacity and/or poor governance (also due to distorted incentives) corrective actions are not implemented, this leading to project failure. The situation is exacerbated if unexpected negative events materialise during the project implementation.

This pattern is typical of projects that since the beginning of their life fail to deliver net benefits. This is a result of a combination of ex-ante bad factors (i.e. low technical capacity for demand forecasting, optimism bias, inappropriateness to the local context and Black-hole bad incentives affecting both the selection process and the project governance) and careless management during the project implementation or bad project governance (e.g. unclear division of responsibilities, bad incentive schemes).

Source: Author

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

SYNTESIS AND CONCLUSIONS

Qualitative and quantitative findings are integrated in a narrative way, in order to develop ten project ‘histories’ and to isolate and depict the main aspects behind the project’s long-term performance. A final judgment on each project is then conveyed in the case studies with an assessment structured along a set of evaluation criteria, as suggested in the ToRs. Evaluation criteria are the following:

• Relevance (were the project objectives in line with the existing development needs and the priorities at the programme, national and/or EU level?);

• Coherence (with other national and/or EU interventions in the same sector or region);

• Effectiveness (were the stated objectives achieved, and in time? Did other effects materialise? Were other possible options considered?);

• Efficiency (costs and benefits relative to each other and to their ex-ante values); • EU added value (was EU support necessary, EU-wide effects, further EU action required?).

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

ANNEX II. EX-POST COST-BENEFIT ANALYSIS REPORT

This Annex illustrates the ex-post CBA of the project under consideration, undertaken to quantitatively assess the performance of the project. The methodology applied is in line with the First Interim Report and, more generally, with the EC Guide (European Commission, 2014). This annex aims to present in more detail the assumptions, results of the CBA and the scenario analysis for the project under consideration.

METHODOLOGY, ASSUMPTION AND DATA GATHERING

In what follows, the main assumptions and the procedure of data gathering are described in detail.

• Project identification The unit of analysis of this CBA corresponds to municipal WWTP catchment area that includes existing and new wastewater network and modernized WWTP. It also matches the boundary of Sochaczew agglomeration as defined in the National Programme for Municipal Wastewater Treatment that equals to the administrative borders of the city and area of operation of the beneficiary. The main goals of the project were to extend the wastewater network to nearly 1/3 of the city and to connect to the modernized WWTP additional 11 thousand inhabitants.

The project was implemented from 2007 to 2013 as detailed below.

Figure 38. Synthesis of the interventions

ACTIVITY IMPLEMENTATION PERIOD

Preparatory phase (Project design, 2007-2010 approval and funding decisions) Construction 2009-2013 Start of operational phase 2014

Source: Authors

• Time horizon In line with the First Interim Report, the time horizon for the CBA of the project is set at 30 years (incl. 7 years of construction). Accordingly, the timeframe for the project’s evaluation runs from 2007, when the first capital expenditure occurred, to 2036. A mix of historical data from 2007 to 2017 (covering 11 years) and forecasts from 2018 to 2036 (covering 19 years) is used.

• Constant prices and discount rates In line with the guidelines of the First Interim Report, the CBA was performed using constant prices. Historical data have been adjusted and converted into Euro at 2018 prices by using the yearly average percentage variation of consumer prices provided by the International Monetary Fund. As for data from 2018 onwards, they have been estimated in real terms (no inflation is considered).

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

Consistent with the choice of using constant prices, financial and social discount rates have been adopted in real terms. Specifically, inflows and outflows of financial analysis - for both the backward and forward periods of analysis – have been discounted and capitalised using a 4% real rate, as suggested in the EC CBA Guide (2014). With regard to the economic analysis, a real backward social discount rate of 5.05% and a real forward social discount rate of 4.41%, specifically calculated for Poland (see the First Interim Report for the calculation), have been adopted.

• Without the project scenario In line with the ex-ante CBA conducted in 2010 (last update), the without the project scenario assumes business as usual situation, i.e. the connection rate to the water and wastewater network remains the same as in 2007. In particular, this means that the additional 11 thousand connections were not made and the four small WWTPs remained operational. Also, it is assumed that not modernisation works would be implemented at the municipal WWTP. The wastewater demand in this scenario was calculated using the unit consumption behaviour and demographical trend of small decrease of the city population.

• Data sources The analysis relied on data provided by the ZWiK Sochaczew, beneficiary of the project and organisation in charge of operating the infrastructure. Two major data sources were used: financial reports and tariff request. The financial reports contained detailed information on profit and loss statements, cash flow and balances sheets up to the end of 2017. The tariff request that is prepared annually, contains a set of tables including water and wastewater demand and costs allocation for water and for wastewater and tariff calculation.

The financial reports provided by ZWiK Sochaczew to the National Fund for Environmental Protection and Water Management (on project implementation and financing) were also used.

These sources were complemented by desk research consulted with ZWiK Sochaczew.

• Technical features As set out in the project documentation, the project included nine components: 1) Modernisation and extension of the WWTP, 2) Extension of the wastewater system at the Rozlazłów and Karwowo Housing Estate, 3) Expansion of the wastewater sewage system at the Rozlazłów and Karwowo estate - construction of a wastewater system at Gawłowska street from the Batalionów Chłopskich to the city border with a total length of 3.97 km, 4) Extension of the wastewater system at the Wypalenisko Estate - northern part and Chodaków, 5) Expansion of the wastewater system at the Wypalenisko estate - northern part and Chodaków - section of the WWTP at Parkowa street, 6) Modernization of 3.4 km of the wastewater system in the city centre.

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

FUTURE SCENARIO

Demand

The unit water consumption in years 2007-2018 was calculated using the actual data on water invoiced and population connected to the water supply. This unit consumption had declining trend from 99 to about 80 lcd. Forecast in next year’s takes into account a small increasing trend by 1% annually up to 120 lcd for both with and without project scenarios. The increasing trend is explained by predicted increases of households’ income while current consumption is very low. In addition, since 2012 water used for gardening can be metered separately (thus users may not be charged for wastewater services of water used for gardening) and this amount has been extracted from the calculation.

Water leaks are small and were declining in last years while the project had no influence on the water leaks level.

For the wastewater demand, the actual data from the wastewater invoiced and delivered to the municipal WWTP (excluding rain water) was used for years 2007-2018 while the small increasing trend by 1% annually up to 115 lcd (same as for water demand but excluding a water used for gardening) was assumed.

The project does not include extension of the water network and therefore it is assumed that it has no influence on water demand. The additional costs sustained by users for wastewater services might influence their consumption behaviour. In this specific project the observed increase of the wastewater tariff was very limited because the project caused very limited increase of the OPEX. At the same time, people with connection to the wastewater network tends to consume more water as the service is more reliable and it does not require costly maintenance and operation of closed tanks. The two trends (decrease of the consumption due to increase of the tariff for the entire population connected to the wastewater network and increase of the consumption due to connection to the wastewater network) offsets each other.

Wastewater infiltration were declining in past years however are still high while project influence on the level of the infiltration to the wastewater network was limited to the centre of the city where wastewater network was rehabilitated.

The historical and future trend for the with-project and without-project scenarios resulting from the above assumptions is shown in the Figures below.

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

Figure 39. Demand – historical data (2007-2017) and forecasts (2018-2036).

Source: Authors

FINANCIAL ANALYSIS

Investment cost

The table below summarizes the breakdown of the investment according to the main cost categories.

Figure 40. Investment cost breakdown by project component (EUR)

PRESENT VALUE PROJECT ITEM NOMINAL VALUE (€ 2018) Technical design – part I 57,080 68,240 Technical design – part II 101,814 121,254 PIU 426,294 459,913 Technical assistance for project promotion 46,580 49,300 Technical assistance for project 1,198,478 1,303,111 management Contract engineer 310,081 328,609

WWTP modernisation 1,740,365 1,814,449 Wastewater network – contract 2 7,380,920 7,668,722 Wastewater network – contract 2a 509,134 569,051 Wastewater network – contract 3 6,852,336 7,071,163 Wastewater network – contract 3a 1,665,307 1,824,566 Wastewater rehabilitation 195,288 209,432 Total 20,483,677 21,487,810

Source: Authors

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

Residual value

In order to compute their residual value, the following formula has been used, in line with the ex-ante CBA: Residual value = Current value x ((Lifetime of investment item – Time horizon) / Lifetime of investment item). The life time of different project component is different while the average has been estimated at 40 years (depreciation of 2.5% annually). The resulting total residual value amounts to EUR 8,595,124 (2018 prices).

Operating & Maintenance costs

The project caused an increase in the following operating and maintenance costs:

• Maintenance of the new wastewater network and pumping station compared to the maintenance costs of closed WWTPs. The beneficiary’s accounting system does not separate the maintenance costs of different parts of the network. Therefore, a unit value of the increased maintenance costs as per ex-ante CBA was used. The ex-ante CBA provided an annual unit cost for this cost item of 200 PLN/km of network. This amount has been applied to newly constructed 91.3 km of the wastewater network. • Electricity for pumping and WWTP operation due to increased amount of wastewater treated. The actually reported costs of electricity for wastewater (separated at the tariff request) has been calculated as per m3 of the wastewater treated. This unit costs of electricity were multiplied by increased demand of wastewater. This calculation also takes into account the decrease of electricity consumption at closed small WWTPs. • Labour costs. The actual annual average cost of the employee was calculated by dividing this cost category by number of employees from the financial reports. The increase of 5 persons as in the ex-ante analysis was applied. The increase of 5 persons takes into account decrease of work at closed small WWTPs. • Taxes. The new infrastructure is a subject of 2% of property tax. This tax was calculated in the financial analysis while excluded from the economic analysis as it represents a transfer payment from one group in society to another, and not real economic costs or benefits for society as a whole. Differently from the financial analysis, the economic analysis is indeed conducted from the point of view of society as a whole, and not from the perspective of the infrastructure owner or manager. For the forecasted costs, the following remarks has to be made on costs increase:

• Electricity. The electricity prices in Poland were stable in last 11 years (even decreasing to the market liberalisation) while they started to increase in 2018 and they are expected to further increase in next years. The main reason lays in the increase in CO2 emission allowances, while Polish electricity market rely on electricity production from coal. While the ZWiK Sochaczew still has a contract for electricity with relatively stable pieces, for the future it is expected that price will increase. Thus, it was assumed 5% increase of real pieces of the electricity by 2030.

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

• Labour. The salaries and costs of labour in Poland are far below EU average while there were increasing slower than GDP in past years. Thus 4% real increase was applied for the forecast. • Maintenance. For the maintenance of the new network, that is a mix of labour and equipment, also the 5% increase was assumed for the forecast.

Operating revenues

The project caused a tariff increase, which, in turn, increased revenues. Every year ZWiK Sochaczew prepares a tariff calculation and requires a new tariff. By 2017 the tariff request was sent to the city of Sochaczew while since 2018 the government body “Polish Waters” is responsible for approval of the tariff. Regardless who is the responsible body the same methodology is applied. The methodology follows the Ministerial Order (Rozporządzenie Ministra Gospodarki Morskiej i Żeglugi Śródlądowej z dnia 27 lutego 2018 r. w sprawie określania taryf, wzoru wniosku o zatwierdzenie taryfy oraz warunków rozliczeń za zbiorowe zaopatrzenie w wodę i zbiorowe odprowadzanie ścieków). Since 2006 the same tariff methodology called “cost plus” is adopted. It means that for water and wastewater services, the necessary revenues are calculated and divided by the amount of the service provided (water and wastewater respectively).

The tariff calculation for wastewater includes:

• Operating and maintenance costs associated with wastewater infrastructure; • Depreciation of wastewater infrastructure; • Interest and other financial costs associated with wastewater infrastructure; • Allocation of overhead costs; • Provision for unpaid bills; • Debt repayment over depreciation; • Profit margin; The only cost element that the water utility may choose with some degree of flexibility is a profit margin that depends on utility’s investment plan and needs to generate cash flow. The ZWiK Sochaczew always applied for 0 profit margin so far. Also, over the years, the debt repayment is constantly lower than depreciation and unpaid bills are close to 0 (due to very good debt collection). To sum up, the tariff calculation includes operating and maintenance costs, depreciation, financial cost and allocation of overhead costs.

Project’s Financial Performance

On a financial basis, the profitability of the project is negative. The Financial Net Present Value (NPV) on investment is equal to -11,940,797 (at a discount rate of 4%, real), with an internal rate of return of 0.2%. The Financial Net Present Value on national capital is positive with the level of EUR 4,048,665 and with the internal rate of return for capital of 7.1%. It has to be emphases however that positive Financial Net Present Value is small and neglectable taking into account a long time horizon. These values cannot be interpreted that a ZWiK Sochaczew could have been motivated to implement the project, even without financial incentives (such as the EU grant). As a matter of fact, any

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

comparison between the ex-ante and ex-post CBA results would be inaccurate due to the adoption of a different time horizon, different parameters (such as the discount rates), and different conditions that materialised after the project implementation. Also, the major difference with the ex-ante analysis is represented by the lower investment costs. The actual investment costs were EUR 21,487,810 in nominal values while the project dossier estimated the investment cost for costs EUR 44,011,172 without VAT.

The results of the project financial performance are presented in Tables overleaf.

Figure 41. Financial performance indicators of the project

INDICATOR EUR FNPV/C -11 940 797 FRR/C 0.2% FNPV/K 4 048 665 FRR/K 7.1%

Source: authors

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

Figure 42. Financial return on investment (EUR)

Present 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 value

1 Operational income 0 0 0 0 0 43 698 1 035 466 1 175 362 1 119 849 1 115 764 1 086 014 1 063 772 1 060 750 1 052 159 1 040 850 1 040 291 1.1 Revenues from wastewater services 0 0 0 0 0 43 698 1 035 466 1 175 362 1 119 849 1 115 764 1 086 014 1 063 772 1 060 750 1 052 159 1 040 850 1 040 291

2 CAPEX 44 251 334 760 191 342 1 988 322 3 095 893 13 227 762 2 605 481 0 0 0 0 0 0 0 0 0

2.1 Feasibility study, work management, etc. 44 251 334 710 189 424 469 781 449 008 480 370 362 883 0 0 0 0 0 0 0 0 0

2.2 Land 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

2.3 New wastewater network 0 50 1 640 1 517 508 2 025 495 11 346 500 2 242 309 0 0 0 0 0 0 0 0 0

2.4 Wastewater network modernisation 0 0 277 0 209 155 0 0 0 0 0 0 0 0 0 0 0

2.5 WWTP modernisation 0 0 1 1 033 412 235 1 400 892 289 0 0 0 0 0 0 0 0 0 3 OPEX 0 0 0 0 0 1 444 413 224 421 194 424 862 429 483 457 251 466 728 478 668 485 040 491 685 498 607 3.1 Rent 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3.2 Materials 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3.3 Labour 0 0 0 0 0 0 47 391 50 890 53 745 54 985 56 449 58 707 61 056 63 498 66 038 68 679 3.4 Maintenance of the network 0 0 0 0 0 0 4 383 4 383 4 423 4 450 4 362 4 581 4 810 5 050 5 303 5 568 3.5 Energy 0 0 0 0 0 1 444 18 780 23 251 24 024 27 378 53 769 60 770 70 133 73 822 77 675 81 690 3.6 Taxes 0 0 0 0 0 0 342 670 342 670 342 670 342 670 342 670 342 670 342 670 342 670 342 670 342 670 4 TOTAL -44 251 -334 760 -191 342 -1 988 322 -3 095 893 -13 185 507 -1 983 240 754 168 694 987 686 281 628 763 597 043 582 081 567 119 549 165 541 684

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036

1 Operational income 1 044 518 1 050 546 1 058 418 1 067 395 1 076 790 1 086 653 1 096 998 1 107 855 1 114 076 1 120 510 1 127 163 1 134 044 1 141 162 1 148 525 1.1 Revenues from water supply 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1.2 Revenues from wastewater services 1 044 518 1 050 546 1 058 418 1 067 395 1 076 790 1 086 653 1 096 998 1 107 855 1 114 076 1 120 510 1 127 163 1 134 044 1 141 162 1 148 525

2 CAPEX 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2.1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Feasibility study, work management, etc. 2.2 Land 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2.3 New wastewater network 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2.4 Wastewater network modernisation 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2.5 WWTP modernisation 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3 OPEX 505 827 513 351 521 223 530 200 539 595 549 457 559 803 570 659 576 881 583 314 589 968 596 849 603 967 611 330 3.1 Rent 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3.2 Materials 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3.3 Labour 71 427 74 284 77 255 80 345 83 559 86 901 90 377 93 993 97 752 101 662 105 729 109 958 114 356 118 931 3.4 Maintenance of the network 5 846 6 138 6 445 6 768 7 106 7 461 7 834 8 226 8 637 9 069 9 523 9 999 10 499 11 024 3.5 Energy 85 884 90 259 94 853 100 417 106 260 112 425 118 921 125 771 127 821 129 913 132 046 134 222 136 442 138 705 3.6 Taxes 342 670 342 670 342 670 342 670 342 670 342 670 342 670 342 670 342 670 342 670 342 670 342 670 342 670 342 670 4 TOTAL 538 691 537 195 537 195 537 195 537 195 537 195 537 195 537 195 537 195 537 195 537 195 537 195 537 195 9 132 319

Source: Authors

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

Figure 43. Financial return on national capital (EUR)

Present value 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

1 Inflow 25 268 407 0 0 0 0 0 43 698 1 035 466 1 175 362 1 119 849 1 115 764 1 086 014 1 063 772 1 060 750 1 052 159 1 040 850 1 040 291 1.1 Revenues from water supply 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1.2 Revenues from wastewater services 21 025 612 0 0 0 0 0 43 698 1 035 466 1 175 362 1 119 849 1 115 764 1 086 014 1 063 772 1 060 750 1 052 159 1 040 850 1 040 291 1.3 Residual value 4 242 795 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

2 Outflow 21 219 742,05 44 251 334 760 191 342 851 818 501 400 1 313 730 1 687 933 451 933 1 062 045 1 048 560 1 127 163 1 138 206 1 135 184 1 126 593 1 115 284 1 079 316 2.1 TOTAL OPEX 9 670 772 0 0 0 0 0 1 444 413 224 421 194 424 862 429 483 457 251 466 728 478 668 485 040 491 685 498 607 2.2 National public grant 738 189 0 0 0 108 353 141 638 141 638 141 638 141 638 106 229 2.3 Private equity (if any) 4 926 067 44 251 334 760 191 342 851 818 501 400 1 270 032 1 189 662 -675 213 0 0 0 2.4 Loan reimbursement (if any) 4 893 591 0 0 0 0 0 0 0 488 979 479 391 469 991 469 991 469 991 469 991 469 991 469 991 469 991 2.

5 Interest (on the loan, if any) 991 123 3 TOTAL (1+2) 4 048 664,94 -44 251 -334 760 -191 342 -851 818 -501 400 -1 270 032 -652 467 723 429 57 804 67 204 -41 149 -74 434 -74 434 -74 434 -74 434 -39 024

Lp. 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036

1 Inflow 1 044 518 1 050 546 1 058 418 1 067 395 1 076 790 1 086 653 1 096 998 1 107 855 1 114 076 1 120 510 1 127 163 1 134 044 1 141 162 9 743 649 1.1 Revenues from water supply 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1.2 Revenues from wastewater services 1 044 518 1 050 546 1 058 418 1 067 395 1 076 790 1 086 653 1 096 998 1 107 855 1 114 076 1 120 510 1 127 163 1 134 044 1 141 162 1 148 525 1.3 Residual value 0 0 0 0 0 0 0 0 0 0 0 0 0 8 595 124

2 Outflow 977 314 795 345 521 223 530 200 539 595 549 457 559 803 570 659 576 881 583 314 589 968 596 849 603 967 611 330 2.1 TOTAL OPEX 505 827 513 351 521 223 530 200 539 595 549 457 559 803 570 659 576 881 583 314 589 968 596 849 603 967 611 330 2.2 National public grant 2.3 Private equity (if any) 2.4 Loan reimbursement (if any) 469 991 281 995 0 2.5 Interest (on the loan, if any) 1 496 0 0 0 0 0 0 0 0 0 0 0 0 0 3 TOTAL (1+2) 67 204 255 201 537 195 537 195 537 195 537 195 537 195 537 195 537 195 537 195 537 195 537 195 537 195 9 132 319

Source: Authors

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

Financial Sustainability

The new project infrastructure is managed by the owner and beneficiary, the city owned water utility: ZWiK Sochaczew. Since the beginning, the project was planned to be financed from the mix of EU funds, own sources and debt financing. Regarding the own funds, it was clear that ZWiK Sochaczew might not have enough cash for a good creditworthiness and for co-financing the project, thus the city agreed to increase the shareholders' equity. Thanks to that, ZWiK Sochaczew in 2011 got rating 'BB+(pol)’ from Fitch ratings agency. The owner (city of Sochaczew) not only increased the company capital but also it was not collecting dividends and declared providing price subsidies in case the tariff affordability was a concern.

In 2012 ZWiK Sochaczew decided to issue corporate bonds of PLN 22.1 million (EUR 5.4million)to co-financing the project instead of recurring to a loan. The decision was caused by better conditions in terms of costs and bonds repayment. The bonds were issued and guaranteed by PEKAO SA, bank controlled by that time by UniCredit, currently controlled by the state.

In the same year, ZWiK Sochaczew signed an agreement with the National Fund for Environmental Protection and Water Management on financial support in bond’s repayment. The agreed amount was of PLN 3.315 million (EUR 0.78 million) and will be reimbursed by 2020 together with bond repayment.

The EU grant was allocated to this project following a decision by the European Commission in 2011. The actual amounts of grant decreased proportionally to the actual costs of the project.

As the beneficiary was prepared for nearly twice bigger project (in financial terms), it experienced no cash flow problems during the project implementation.

Concerning the project operation, the revenues generated from the wastewater tariff fully contribute to cover O&M, maintenance and depreciation costs due to the use of “cost plus” formula for tariff calculation. Therefore, the project is expected not to experience any cash flow problems.

The tariff affordability however was a concern.

The project dossier forecasted a tariff increase from 1.5% to 2.59% of the average disposable household income and price for wastewater (without VAT) of 9.01 PLN/m3 in 2018. The actual net price in 2018 for wastewater is 8.26 PLN/m3 so it is lower than forecasted in the project dossier even the further investments were made. The major reason of lower tariff are lower investment costs that caused lower depreciation (major cost component for the tariff calculation).

As the tariffs are below the agreed threshold for providing subsidy to the tariff affordability constrain (3%) the subsidy from the city was never required.

The financial sustainability of the project is presented by figure next page.

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

Figure 44. Financial sustainability of the project (EUR)

2007 2008 2009 2010 2011 2012 … 2017 … 2022 … 2027 … 2032 … 2036

INFLOWS TOTAL SOURCE OF FINANCE 44 251 334 760 191 342 1 988 322 3 095 893 13 227 762 108 353 106 229 0 0 0 TOTAL REVENUES 0 0 0 0 0 43 698 1 086 014 1 040 291 1 076 790 1 120 510 1 148 525 Total inflows 1 194 367 1 146 520 1 076 790 1 120 510 1 148 525 44 251 334 760 191 342 1 988 322 3 095 893 13 271 460 CAPEX 44 251 334 760 191 342 1 988 322 3 095 893 13 227 762 0 0 0 0 0 OPEX 0 0 0 0 0 1 444 457 251 498 607 539 595 583 314 611 330 Loan reimbursement (if any) 0 0 0 0 0 0 469 991 469 991 0 0 0 Interest (on the loan, if any) 0 0 0 0 0 42 254 91 568 4 489 0 0 0 Taxes (if any) Total outflows 44 251 334 760 191 342 1 988 322 3 095 893 13 271 460 1 018 810 973 087 539 595 583 314 611 330 Net cash flow 0 0 0 0 0 0 175 557 173 433 537 195 537 195 537 195 Cumulated net cash flow 0 0 0 0 0 0 885 978 1 894 780 3 828 771 6 514 747 8 663 528

Source: authors

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

ECONOMIC ANALYSIS

From market to accounting prices

In line with the CBA Guide (2014), the social opportunity cost of the project’s inputs and outputs has been considered in the economic analysis. For this purpose, market prices have been converted into accounting prices by using appropriate conversion factors. As for labour, it is worth noting that the shadow wage provided in the First Interim Report for NUTS2: PL12; Masovian Voivodeship (0.73) has been adopted to correct past values, instead 0.81 has been used to correct future values. The Table below summarises the conversion factors applied for each cost item.

Figure 45. Conversion factors for input

ITEM CONVERSION FACTOR SOURCE Backward labour cost under Conversion factors for labour as investment costs 0.73/0.81 reported in the First Interim Report, and operating Volume I costs Cost savings attributed to users 0.87/0.91 Assumption: 50% labour, 50% newly connected to equipment and other services the wastewater Benefit for 1.0 Assumption improved environmental quality of the water bodies Socio economic 1.00 Assumption costs caused by closing roads during construction Other operating 1.00 Assumption cost Feasibility study, work management, 0.73/0.81 Almost 100% of the labour etc. New wastewater 0.92/0.94 Assumption: 30% labour in the costs network Wastewater network 0.89/0.92 Assumption: 40% labour in the costs modernisation WWTP 0.92/0.94 Assumption: 30% labour in the costs modernisation Other investment costs and residual 1.00 Assumption value

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

Source: Authors based on cited sources

Project’s effects

Increased availability of wastewater services has been singled out as the most relevant benefit. The second one is benefit from improved environmental quality of the water bodies. Instead, the costs of closing roads during the construction period have been considered as the main negative externality of the project. Also, the negative effect of increased GHG emissions was calculated.

Figure 46. Main socioeconomic benefits (Present Value, EUR)

Source: Authors

In what follows a description of each effect’s estimation is provided.

Increased availability of wastewater services.

Users newly connected to the sewage collection system as part of the project would not need to continue incurring the costs of installing and maintaining septic tanks, which involve annual capital and O&M expenditures. The prices for emptying septic tanks are stable in the city of Sochaczew and varies from 20 to 23 PLN/m3. In addition, the new septic tank costs 2000 – 3500 PLN (prefabricated with costs of excavation and delivery) and will last for at least 30 years. With 6m3 of the wastewater generated per family for 30 years, the average O&M costs were estimated to 20.92 PLN/m3 or 4.92 EUR/m3. This unit costs were applied to the increased wastewater demand caused by connection over 11 thousand inhabitants.

Environmental quality of the water bodies (use value).

100

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

The implementation of the project considerably improved the environmental quality of the river crossing the city and underground water, which received untreated wastewater discharge. This is expected to increase the use of the river and its surrounding for recreational activities (use value). Indeed this is already observed as the a new bathing beach at the Bzura river bank is under construction. Few studies have been performed in Poland in order to estimate the willingness‑to‑pay (WTP) for evaluating environmental externalities linked to wastewater treatment. The most considerable was Application of the conditional valuation method in the cost-benefit analysis (Markowska, 2006) and Method of testing the social acceptance for the collective sewage collection and treatment system (Rauba, 2016). Further the “Polish Waters” predecessor ordered a study (Berbeka, 2013) to evaluate the external benefits of wastewater treatment. The value from this report of 89 PLN/person/year for the Vistula basin in 2010 prices was used for this study starting from the first year of operation, and for the total population living in the agglomeration (i.e. about 37,000).

It has to be emphasised that both benefits and calculation of the economic effects of the project are not comparable with ex-ante CBA. The ex-ante CBA calculated environmental benefits as pollution reduction at the WWTP multiplied by environmental fees for respective pollutants (BOD, COD, N, P, others).

The costs of closing roads during the construction period.

The main negative externality of the project as per ex-ante CBA are economic costs caused by closing roads during the construction. Indeed as discussed with the city of Sochaczew, closing roads was a problem due to concentration of works in relatively short period. The economic costs of closing roads were calculated by multiplication of:

• Number of citizens in the project area (agglomeration);

• the coefficient of the number of residents living in the city areas covered simultaneously by the implementation of individual contracts adopted as 25%; • the ratio of professionally active residents in the entire population adopted as 50%; • Average extended time of travel to work and home caused by project – 0.66h i.e. 20 minutes in each direction; • Number of working days in the month: 20 days;

• Number of months in year: 12 months;

• The hourly rate calculated as disposable household income (per person) divided by number of working hours in the month: 176 hours;

Socio economic costs of increase GHG emissions.

101

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

The WWTP causes GHG emissions, especially emissions of CO2 from the increased electricity consumption and emissions of CH4 from WWTP process. Although four small WWTPs were closed, the amount of wastewater treated by closed WWTPs was very small thus project generated negative effect of GHG emissions. The calculation however takes into account not only increase of GHG from the new municipal WWTP but also decrease of GHG from closed four WWTPs.

The latest depends on the technology that is used at the particular WWTP. Also the municipal WWTP in Sochaczew is not typical due to existence of the greenhouse above the aeration tanks and use of plants for additional removal of phosphorus and nitrogen that also has influence on (reduces) GHG emissions. The technology is not widely used and there are only two such WWPT in Poland. Thus a reference of CH4 unit emissions from other WWTP plant (city of Poznań) was used in order to estimate CH4 emissions from the WWTP. Although the emissions are overestimated the total increase of the CH4 emissions is very small.

Another source of the GHG emissions is increased electricity consumption at WWTP and wastewater pumping stations. For this the KOBIZE (institution responsible for GHG emissions inventory in Poland) report on GHG emissions from Poland were used that estimated it for 823 gCO2/kWh. Both effects give the increase of GHG emissions of between 20 and 35 tCO2/year.

As per First Interim Report indicates the following unit value of CO2:

Figure 47. Unit costs of GHG emissions for Eurozone (2018 €/ton CO2 equivalent)

INDICATOR Unit shadow price of Annual Annual Annual CO2 emission in 2010 adders adders adders (expressed in euro from from from 2018) 2011 to 2031 to 2041 to 2030 2040 2050 (expressed (expressed (expressed in in euro in euro euro 2018) 2018) 2018) High 46.5 2.3 4.7 9.3 Central 29.1 1.2 2.3 4.7 Low 11.6 0.6 1.2 2.3

Source: Note: CSIL elaboration on EIB (2013) data and https://ec.europa.eu/clima/sites/clima/files/docs/major_projects_en.pdf. Unit costs refer to the damage associated with an emission in 2010.

For the estimation of the economic costs of increased GHG emissions the central value of above unit costs of GHG emissions were used.

102

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

Project’s Economic Performance

Figure 48. Economic performance indicators of the project

INDICATOR EUR ENPV 26,237,676 B/C 1.72 EIRR 9.87

Source: Authors

On an economic basis, all indicators show that the project causes a large and positive welfare change for the society. The Economic Net Present Value (NPV) of the investment, i.e. the difference between discounted total social benefits and social costs, valued at shadow prices, is equal to EUR 26,237,676 with an economic internal rate of return (EIRR) of 9.87%, significantly higher than the Social Discount Rate. In addition, the ratio between discounted economic benefits and costs, valued at shadow prices, is 1.72, thus suggesting that society is definitely better off with the project.

The results of the economic analysis are presented in the table below.

103

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

Figure 49. Economic return of the project (EUR)

Present 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 value 1 Socio-economic benefits 51 313 893 0 0 0 -1 291 058 -1 291 008 -1 236 726 324 377 1 769 167 1 790 781 1 876 627 2 809 342 2 944 961 3 159 785 3 207 331 3 255 111 1.2 Cost savings attributed to users newly connected to the 0 0 0 0 0 49 806 647 833 735 441 715 029 758 162 1 699 554 wastewater 1 747 260 1 920 428 1 925 183 1 929 210 Benefit for improved environmental quality of the water 1.2 0 0 0 0 0 0 998 487 1 034 107 1 076 160 1 118 945 1 110 763 bodies 1 198 712 1 240 503 1 283 330 1 327 121 1.3 Socio economic costs of GHG emissions 0 0 0 0 0 -20 -297 -381 -408 -481 -975 -1 011 -1 145 -1 183 -1 220 Socio economic costs caused by closing roads during 1.4 0 0 0 -1 291 058 -1 291 008 -1 286 512 -1 321 646 0 0 0 0 construction 0 0 0 0

2 26 331 698 CAPEX 32 303 244 384 140 035 1 738 480 2 754 616 12 065 523 2 325 852 0 0 0 0 0 0 0 0 2.1 Feasibility study, work management, etc. 32 303 244 338 138 280 342 940 327 776 350 670 264 904 0 0 0 0 0 0 0 0 2.2 Land 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2.3 New wastewater network 0 46 1 507 1 394 590 1 861 430 10 427 433 2 060 682 0 0 0 0 0 0 0 0 2.4 Wastewater network modernisation 0 0 247 0 186 566 0 0 0 0 0 0 0 0 0 0 2.5 WWTP modernisation 0 0 1 949 378 844 1 287 420 266 0 0 0 0 0 0 0 0

3 3 952 705 Residual value 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

4 2 697 225 OPEX 0 0 0 0 0 1 444 57 759 64 784 67 681 71 967 99 340 112 904 124 397 130 305 136 468 4.1 Rent 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 4.2 Materials 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 4.3 Labour 0 0 0 0 0 0 34 595 37 149 39 234 40 139 41 208 47 553 49 455 51 433 53 491 4.4 Maintenance of the network 0 0 0 0 0 0 4 383 4 383 4 423 4 450 4 362 4 581 4 810 5 050 5 303 4.5 Energy 0 0 0 0 0 1 444 18 780 23 251 24 024 27 378 53 769 60 770 70 133 73 822 77 675 4.6 Taxes 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 5 Total 26 237 676 -32 303 -244 384 -140 035 -3 029 537 -4 045 624 -13 303 693 -2 059 234 1 704 383 1 723 100 1 804 660 2 710 002 2 832 057 3 035 388 3 077 026 3 118 642

104

Ex post evaluation of major projects supported by the European Regional Development Fund (ERDF) and Cohesion Fund between 2000 and 2013

It. 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036

1 Socio-economic benefits 3 302 816 3 350 873 3 399 162 3 448 844 3 513 533 3 578 260 3 644 013 3 710 564 3 778 109 3 881 433 3 988 231 4 098 629 4 212 758 4 330 753 4 452 755 1.2 Cost savings attributed to users newly connected to the wastewater 1 932 323 1 934 780 1 936 508 1 938 169 1 954 152 1 969 389 1 984 430 1 999 136 2 013 607 2 046 437 2 079 923 2 114 079 2 148 916 2 184 449 2 220 692 1.2 Benefit for improved environmental quality of the water bodies 1 371 749 1 417 386 1 463 983 1 512 039 1 560 793 1 610 328 1 661 087 1 712 978 1 766 101 1 836 690 1 910 101 1 986 447 2 065 843 2 148 413 2 234 284 1.3 Socio economic costs of GHG emissions -1 256 -1 293 -1 329 -1 365 -1 411 -1 457 -1 504 -1 551 -1 598 -1 695 -1 794 -1 896 -2 001 -2 109 -2 221 1.4 Socio economic costs caused by closing roads during construction 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

2 CAPEX 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2.1 Feasibility study, work management, etc. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2.2 Land 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2.3 New wastewater network 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2.4 Wastewater network modernisation 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2.5 WWTP modernisation 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

3 Residual value 0 0 0 0 0 0 0 0 0 0 0 0 0 0 8 595 124

4 OPEX 142 888 149 585 156 567 163 875 172 264 181 048 190 276 199 961 210 131 215 638 221 329 227 209 233 287 239 569 246 063 4.1 Rent 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 4.2 Materials 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 4.3 Labour 55 630 57 856 60 170 62 577 65 080 67 683 70 390 73 206 76 134 79 179 82 347 85 640 89 066 92 629 96 334 4.4 Maintenance of the network 5 568 5 846 6 138 6 445 6 768 7 106 7 461 7 834 8 226 8 637 9 069 9 523 9 999 10 499 11 024 4.5 Energy 81 690 85 884 90 259 94 853 100 417 106 260 112 425 118 921 125 771 127 821 129 913 132 046 134 222 136 442 138 705 4.6 Taxes 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

5 Total 3 159 927 3 201 288 3 242 595 3 284 969 3 341 269 3 397 211 3 453 737 3 510 603 3 567 978 3 665 795 3 766 902 3 871 420 3 979 471 4 091 184 12 801 816

Source: Authors

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SENSITIVITY ANALYSIS

A sensitivity analysis has been carried out on the key variables in order to determine whether they are critical or not. The procedure requires to make them vary one at a time by a +/-1%, and then to assess the corresponding change in the Economic NVP and IRR. A variable is referred to as “critical” if the corresponding variation in the economic output is greater than 1% in absolute value.

The Authors tested the sensitivity of the variables listed in the following tables. As a result of the sensitivity test (see table below), the following critical variables have been identified: Septic tanks removal costs, WTP for clean water bodies and the average production of sewage (lcd).

Figure 50. Results of the sensitivity analysis

VARIATION (in %) of the economic NPV CRITICALITY INDEPENDENT VARIABLE due to a ± 1% variation JUDGEMENT *

Annual electricity price increase 0.40% Not critical

Annual labour cost growth 0.33% Not critical

Annual maintenance cost growth 0.04% Not critical

Septic tanks removal costs 1.20% Critical

WTP for clean water bodies 1.03% Critical Cost of CO2 emissions 0.00% Not critical Average production of sewage (lcd) -1.01% Critical Increase in population connected to -0.93% Not critical wastewater network

*Very critical: ΔNPV > +5%; Critical: ΔNPV > +1%; Not critical: ΔNPV < +1%.

RISK ASSESSMENT

The risk assessment has been conducted on the critical variables as a result of the sensitivity analysis. For the sake of simplicity, it was assumed that the probability distribution of each of these variables is triangular, with the value with the highest probability being the reference one – that is, the “base value” adopted for carrying out the CBA – and the lower and upper bounds being the “pessimistic” and “optimistic” values defined in the scenario analysis.

The analyses have been elaborated using the Monte Carlo simulation technique with 10,000 random repetitions. In brief, at each iteration it is randomly extracted a value from the distribution of each of the independent variables. The extracted values are then adopted for computing the ENVP and IRR. Finally, the 10,000 estimated values of ENPV and IRR are used to approximate the probability distribution of the two indicators.

The risk assessment shows that the expected value of the ENPV is equal to EUR 25,632,450 (slightly lower than the reference case), and that the expected value of the ERR is 9.74% (against a reference

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case of 9.87%). The probability that the ENPV will become negative and that the ERR will be lower that the SDR adopted in the analysis is nil. However, there is a 55.8% probability that the ENPV and 56.1% probability that the ERR indicator assume a lower value than in the reference case. Hence, the CBA outputs appear to be robust to future possible variations in the key variables. Overall, the risk analysis shows that under the project has a negligible risk level.

Figure 51. Results of the risk analysis for ENPV (left-hand side) and ERR (right-hand side)

CBA Reference value CBA Reference value 26 237 676 9,8710%

Estimated parameters of the distribution Estimated parameters of the distribution Mean 25 632 450 Mean 9,7418% Median 25 599 881 Median 9,7508% Standard deviation 4 686 516 Standard deviation 0,81% Minimum 9 503 639 Minimum 6,760% Maximum 42 371 034 Maximum 12,378% Estimated probabilities Pr. ENPV ≤ base value 0,558 Estimated probabilities Pr. ENPV ≤ 0 0,000 Pr. ERR ≤ base value 0,561 Pr. ERR ≤ Social discount rate 0,000

Source: Authors

Figure 52. Probabilistic distribution of the Economic Net Present Value (EUR)

Source: Authors

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Figure 53. Probabilistic distribution of the Economic Internal Rate of Return.

Source: Authors

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ANNEX III. LIST OF INTERVIEWEES

NAME POSITION AFFILIATION DATE

Magdalena Kaczorowska Director, Head of PIU ZWiK Sochaczew 8, 28.11.2018 Katarzyna Zydlewska Financial specialist at PIU ZWiK Sochaczew 8, 28.11.2018 Joanna Kacprzak Acting Director, Head Accountant ZWiK Sochaczew 8, 28.11.2018 National Fund for Beata Rydlewska Specialist, project co-ordinator Environmental Protection and 8.11.2018 Water Management National Fund for Magdalena Tokarska-Kusyk Specialist Environmental Protection and 8.11.2018 Water Management Artur Orliński Specialist ZWiK Sochaczew 8.11.2018 Joanna Czajewska Head of the department DPI, MIIR 9.11.2018 Barbara Smolińska Specialist DPI, MIIR 9.11.2018 Hydro Instal (contractor responsible for the biggest Paweł Orlikowski Works engineer Head of construction, contract, member of 28.11.2018 consortium responsible for about 50% of the contract

Waldemar Jastrzemski Economist JASPERS 29.11.2018

Łukasz Wyra Economist JASPERS 29.11.2018

Urszula Cielniak Head of Investment Department City of Sochaczew 28.11.2018 Agnieszka Tomanowska Head of Environmental City of Sochaczew 28.11.2018 Department

Marta Pawelak Specialist at PIU ZWiK Sochaczew 8, 28.11.2018

Monika Wojciechowska Public procurement specialist at PIU ZWiK Sochaczew 28.11.2018

Usługi projektowe (design Szustecka Hanna Director 28.11.2018 company)

Łukasz Kaczmarek Chief Operations Officer, Board Member Veolia (contractor) 29.11.2018 Iwona Orlińska Financial Specialist ZWiK Sochaczew 8.11.2018

Małgorzata Orzechowska Head of Laboratory ZWiK Sochaczew 8.11.2018

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Ziemia Sochaczewska, 2015, “Piąty rok błoto znika z dróg”, http://ziemiasochaczewska.sochaczew.pl/newsshow/12784?title=Piaty-rok-bloto-znika-z- drog&sochaczew Ziemia Sochaczewska, 2015, “Nielegalne ścieki na celowniku ZWiK”, http://ziemiasochaczewska.sochaczew.pl/newsshow/11688?title=Nielegalne-scieki-na-celowniku- ZWiK&sochaczew Sochaczew, 2016, “Promocja ZWiK dobiega końca”, http://www.sochaczew.pl/home/newsshow2/17392?title=Promocja-ZWiK-dobiega-konca- &filterId=1&sochaczew Ziemia Sochaczewska, 2017, “Święto Bzury czyli wielka prywatka na plaży!” http://ziemiasochaczewska.sochaczew.pl/newsshow/19594?title=Swie

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