MWSS New Water Source Development Project

Completion Report

Project Number: 35379 Loan Number: 2012 July 2009

Philippines: MWSS New Water Source Development Project

CURRENCY EQUIVALENTS

Currency Unit – peso (P)

At Appraisal At Project Completion (1 September 2003) (11 May 2009) P 1.00 = $0.0182 $0.021 $1.00 = P 55.04 P 47.637

ABBREVIATIONS

ADB Asian Development Bank AWUAIP Angat Water Utilization and Aqueduct Improvement Project LDP Laiban Dam Project MLD million liters per day MWCI Manila Water Company, Inc. MWSI Maynilad Water Services, Inc. MWSS Metropolitan Waterworks and Sewerage System NRW nonrevenue water PMO project management office TA technical assistance WRP Wawa River Project

NOTES

(i) The fiscal year (FY) of the Government and its agencies ends on 31 December. (ii) In this report, “$” refers to US dollars.

Vice-President C. Lawrence Greenwood, Jr., Operations 2 Director General A. Thapan, Southeast Asia Department (SERD) Director A. Jude, Energy and Water Division, SERD

Team leader Y. Tsujiki, Financial Analysis Specialist, SERD Team members A. Fernando, Assistant Project Analyst, SERD R. Frauendorfer, Principal Urban Development Specialist, SERD

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

BASIC DATA i MAP I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 1 A. Relevance of Design and Formulation 1 B. Project Outputs 3 C. Project Costs 4 D. Disbursements 4 E. Project Schedule 4 F. Implementation Arrangements 4 G. Conditions and Covenants 4 H. Consultant Recruitment and Procurement 4 I. Performance of Consultants, Contractors, and Suppliers 5 J. Performance of the Borrower and the Executing Agency 5 K. Performance of the Asian Development Bank 5 III. EVALUATION OF PERFORMANCE 5 A. Relevance 5 B. Effectiveness in Achieving Outcome 5 C. Efficiency in Achieving Outcome and Outputs 6 D. Preliminary Assessment of Sustainability 6 E. Impact 6 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 6 A. Overall Assessment 6 B. Lessons 6 C. Recommendations 7 APPENDIXES 1. Project Framework 8 2. Appraisal and Actual Cost Estimates and Financing Plan 10 3. Status of Compliance with Loan Covenants 15

BASIC DATA

A. Loan Identification

1. Country Philippines 2. Loan Number 2012-PHI 3. Project Title MWSS New Water Source Development Project 4. Borrower Metropolitan Waterworks and Sewerage System (MWSS) 5. Executing Agency MWSS 6. Amount of Loan - Original Loan Amount $3.260 million - Net Loan Amount $1.189 million 7. Project Completion Report Number PHI1105

B. Loan Data 1. Loan Processing Mission – Date Started 15 October 2001 – Date Completed 16 November 2001

2. Loan Negotiations – Date Started 29 July 2003 – Date Completed 29 July 2003

3. Date of Board Approval 14 October 2003

4. Date of Loan Agreement 24 November 2003

5. Date of Loan Effectiveness – In Loan Agreement 22 February 2004 – Actual 17 February 2004 – Number of Extensions 0

6. Closing Date – In Loan Agreement 30 June 2007 – Actual 21 October 2008 – Number of Extensions 2

7. Terms of Loan – Interest Rate Determined according to the London interbank offered rate (LIBOR)–based lending facility of the Asian Development Bank (ADB), with a front-end fee of 0.5% – Maturity (number of years) 10 – Grace Period (number of years) 3

8. Terms of Relending (if any) Not applicable – Interest Rate – Maturity (number of years) – Grace Period (number of years) – Second-Step Borrower

9. Disbursements a. Dates Initial Disbursement Final Disbursement Time Interval

25 May 2005 21 October 2008 41 months

Effective Date Original Closing Date Time Interval

17 February 2004 30 June 2007 40 months

b. Amount ($’000) Category Last Net or Original Revised Amount Amount Amount Undisbursed Subloan Allocation Allocation Canceled Available Disbursed Balance 01 2,571.00 963.10 1,607.90 963.10 921.85 41.25 02 42.00 15.40 26.60 15.40 10.15 5.25 03 206.00 113.50 92.50 113.50 110.98 2.52 04 148.00 0.00 148.00 0.00 0.00 0.00 05 16.3.00 16.30 0.00 16.30 16.30 0.00 06 276.70 276.70 0.00 276.70 129.25 147.45

Total 3,260.00 1,385.00 1,875.00 1,385.00 1,188.53 196.47 Note: The figures may not add up to the totals given because of rounding.

10. Local Costs (Financed) - Amount ($) 344.85 - Percentage of Local Costs 56.73 - Percentage of Total Cost 21.27

C. Project Data

1. Project Cost ($’000)

Cost Appraisal Estimate Actual

Foreign Exchange Cost 1,300 886.79 Local Currency Cost 3,670 531.89 Total 4,970 1,418.68

2. Financing Plan ($’000)

Cost Appraisal Estimate Actual Implementation Costs Borrower-Financed 1,710 230.15 ADB-Financed 3,260 1,188.53 Other External Financing 0 0 Total 4,970 1,418.68 ADB = Asian Development Bank.

iii

3. Cost Breakdown, by Project Component ($’000) Component Appraisal Estimate Actual Part A: Development of New Water Source Projects 1. Wawa River Project 309.00 147.99 2. Angat Water Utilization and Aqueduct Improvement Project 2,100.00 946.57 3. Laiban Dam 2,049.00 11.69 Part B: Capacity Building 215.00 166.87 Part C: Interest and Fees 293.00 145.55

Total 4,966.00 1,418.68 Note: The figures may not add up to the totals given because of rounding.

4. Project Schedule Item Appraisal Estimatea Actual Part A. Development of New Water Source Projects

A.1: Wawa River Project Consultant: CTI Engineering International Co. Ltd.

Invitation of Expressions of Interest (EOI)/ Prequalification (PQ) (Advance Procurement) 20 June 2003 EOI/ PQ Submission 21 July 2003 ADB Approval of Technical Report 23 July 2004 Opening of Financial Proposal 10 August 2004 ADB Approval of Bid Evaluation Report 4 October 2004 Contract Negotiations 8 November 2004 Contract Date 15 February 2005 Start of Assignment January 2004 21 February 2005 Contract Completion July 2004 21 August 2005

A.2: Angat Water Utilization and Aqueduct Improvement Project

A.2.1 Feasibility Study and Preliminary Design Consultant: NJS Consultants Co., Ltd. Invitation of EOI/ PQ (Advance Procurement) 20 June 2003 EOI/ PQ Submission 21 July 2003 ADB Approval of Technical Report 23 July 2004 Opening of Financial Proposal 10 August 2004 ADB Approval of Bid Evaluation Report 7 October 2004 Contract Negotiations 3 November 2004 Contract Date 17 February 2005 Start of Assignment February 2004 21 February 2005 Contract Completion March 2005 21 August 2005

A.2.2 Detailed Engineering Design Consultant: Schema Konsult Invitation of EOI/PQ 18 June 2005 EOI/PQ Submission 26 July 2005 Submission of Technical and Financial Proposals 30 March 2006 ADB Approval of Technical Report 5 July 2006 Opening of Financial Proposal 10 July 2006

Item Appraisal Estimatea Actual

ADB Approval of Bid Evaluation Report 17 August 2006 Contract Date 21 September 2006 Start of Assignment February 2004 21 September 2006 Contract Completion March 2005 30 April 2008

A.3: Laiban Dam Component was canceled. Works were financed by the concessionaires. Start of Assignment March 2004 Contract Completion December 2006

Part B: Capacity Building Consultant: Daruma Technologies Inc. Invitation of EOI/PQ (Advance Procurement) 6 January 2004 EOI/PQ Submission 4 February 2004 Submission of Technical and Financial Proposals 26 April 2004 MWSS Approval of Technical Report 4 June 2004 Opening of Financial Proposal 9 June 2004 MWSS Approval of Bid Evaluation Report 21 October 2004 Contract Negotiations 8 November 2004 Start of Assignment January 2004 21 February 2005 Contract Completion July 2004 30 November 2005 a The appraisal estimates did not give as much detail on the project schedule in the implementation plan stated in Appendix 9 of the report and recommendation of the President (2003. Report and Recommendation of the President to the Board of Directors on a Proposed Technical Assistance Loan to the Government of the Philippines for the MWSS New Water Source Development Project. Manila (Loan 2012-PHI, for US$3.26million approved on 14 October).

5. Project Performance Report Ratings Ratings

Development Implementation Implementation Period Objectives Progress 1 October 2003–31 December 2003 Satisfactory Satisfactory 1 January 2004–31 March 2004 Satisfactory Highly Satisfactory 1 April 2004–30 June 2004 Satisfactory Highly Satisfactory 1 July 2004–30 September 2004 Satisfactory Highly Satisfactory 1 October 2004–31 December 2004 Satisfactory Highly Satisfactory 1 January 2005–31 March 2005 Satisfactory Highly Satisfactory 1 April 2005–30 June 2005 Satisfactory Satisfactory 1 July 2005–30 September 2005 Satisfactory Highly Satisfactory 1 October 2005–31 December 2005 Satisfactory Highly Satisfactory 1 January 2006–31 March 2006 Satisfactory Highly Satisfactory 1 April 2006–30 June 2006 Satisfactory Highly Satisfactory 1 July 2006–30 September 2006 Satisfactory Highly Satisfactory 1 October 2006–31 December 2006 Satisfactory Satisfactory 1 January 2007–31 March 2007 Satisfactory Satisfactory 1 April 2007–30 June 2007 Satisfactory Satisfactory 1 July 2007–30 September 2007 Satisfactory Satisfactory 1 October 2007–31 December 2007 Satisfactory Satisfactory

Ratings

Development Implementation Implementation Period Objectives Progress

1 January 2008–31 March 2008 Satisfactory Satisfactory 1 April 2008–30 June 2008 Satisfactory Satisfactory 1 July 2008–30 September 2008 Satisfactory Satisfactory 1 October 2008–31 December 2008 Satisfactory Satisfactory

D. Data on Asian Development Bank Missions No. of No. of Specialization Name of Mission Date Persons Person-Days of Members

Loan Processing Mission 15 Oct–16 Nov 2001 6 33 a, b, c, d, e, f

Inception Mission 21 July–17 Aug 2004 2 10 a, g (intermittent) Review Mission 21 July–17 Aug 2004 2 10 a, g (intermittent) Review Mission 17–26 August 2005 2 10 a, g (intermittent) Review Mission 9–20 Oct 2006 2 10 a, g (intermittent) Review Mission 12–16 Nov 2007 3 11 a, g, h Review Mission 13–17 Oct 2008 2 10 g Project Completion Review 4–8 May 2009 2 10 g, h a = urban development specialist and project leader, b = financial analyst, c = project engineer, d = consulting services specialist, e = programs officer, f = environment specialist, g = project analyst, h = financial analysis specialist and project team leader.

o o 118 00'E 126 00'E 121 o 40’E Umiray Polillo o o 16 00'N LUZON 16 00'N PHILIPPINES Straits Manila MWSS NEW WATER SOURCE Project Location

DEVELOPMENT PROJECT er

(as completed) Ri iray VISAYAS m U

8o 00'N 8o 00'N

MINDANAO

Mount Sumag o o Oyongan River 118 00'E 126 00'E o o 15 50’N 15 50’N

121 o 00’E

San Rafael BULACAN Baliuag TRANSBASIN Sumag R. TUNNEL Bustus Angat Reservoir UMIRAY DIVERSION SITES Angat . Mount Mabitoan R n

Angat River Ravita ANGAT DAM

Plaridel IPO DAM IPO-BICTI TUNNELS BICTI BASIN QUEZON BICTI-LA MESA AQUEDUCTS Balagtas IPO-BICTI TUNNELS San Jose del Monte Mount Calangdang r River a Rive Bocaue g n a er n N Bulacan ANGAT WATER T iv

R lba

UTILIZATION AND AQUEDUCT a a nt

IMPROVEMENT PROJECT Pur o M 0 1 2 3 4 5 10 Marilao LA MESA La Mesa Reservoir TREATMENT PLANT Rodriguez Kilometers Meycauayan r Tullahan Riv Rive er a San Mateo kin WAWA DAM ri a

M BALARA Valenzuela TREATMENT Malabon PLANT Caloocan Marikina Navotas Quezon City LAIBAN DAM Boso Boso

Bo MANILA so Boso R RIZAL San Juan Antipolo iv e Pasig Mandaluyong Cainta r River Pasig Taytay National Capital Makati Teresa Pasay City/Municipality Manila Bay Dam Pateros Baras Angono Morong Treatment Plant Taguig o Tanay Basin o 14 30’N 14 30’N Tunnel Cardona Paranaque Pililla Aquaduct National Road Bacoor Las Pinas Binangonan River Laguna de Bay Provincial Boundary Boundaries are not necessarily authoritative. CAVITE 121 o 00’E 121 o 40’E

09-1880 HR

I. PROJECT DESCRIPTION

1. On 14 October 2003 the Asian Development Bank (ADB) approved a technical assistance (TA) loan of $3.26 million for the MWSS New Water Source Development Project of the Government of the Philippines. 1 The objective of the Project was to (i) enable the Metropolitan Waterworks and Sewerage System (MWSS) to hire consultants to prepare public and private sector projects involving the development of new water sources for Metro Manila that could be financed by ADB, the private sector, or other sources; and (ii) improve the capacity of MWSS for financial management, accounting, and fiscal control.

2. The scope of works and project components consisted of consulting services for (i) the development of new water sources (part A), and (ii) capacity building (part B).

3. Part A comprised the following:

(i) a feasibility study of the Wawa River Project (WRP);

(ii) a feasibility study and detailed design of the Angat Water Utilization and Aqueduct Improvement Project (AWUAIP), and the preparation of tender documents; and

(iii) various studies, including resettlement plan preparation, review of design and tender documents, and arrangement of financing for the Laiban Dam Project (LDP).

4. Part B entailed capacity development to strengthen the financial management of MWSS. Training was provided and manuals and guidelines were prepared for (i) management accounting; (ii) corporate planning, budgeting, and budgetary control; (iii) financial accounting; (iv) internal control and audit management; and (v) data processing.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

5. At the time of loan appraisal in 2003, the Government was not deemed likely to meet its target of making safe drinking water accessible to 90.5% of the population, under the Medium-Term Philippine Development Plan 2004. The two water supply concessionaires in Metro Manila—Manila Water Company, Inc. (MWCI) and Maynilad Water Services, Inc. (MWSI)—were finding it difficult to expand service coverage because there were not enough water sources and the proportion of nonrevenue water (NRW) in the system was so high. By the end of 2002, the concessionaires were supplying water to about 82% of the population within their service areas. NRW, however, was a high 60%, and some areas endured water shortages, low water pressure, and supply interruptions. While the concessionaires were implementing programs to reduce NRW, MWSS was providing bulk water supply, drawing about 4,000 million liters per day (MLD) of water from the Angat Reservoir, the main source for the city, for the concessionaires to distribute to the people and to industry. MWSS urgently needed to develop

1 ADB. 2003. Report and Recommendation of the President to the Board of Directors on a Proposed Technical Assistance Loan to the Republic of the Philippines for MWSS New Water Source Development Project. Manila.

2 new water sources to improve and sustain water service delivery in Metro Manila. The TA loan was designed according to ADB’s Philippines Country Strategy and Program 2005–20072 and was aimed at improving water supply management and attracting private sector investments.

6. Besides improving and sustaining services to existing customers, water from the new sources developed under the Project was expected to allow wider coverage, particularly to serve the urban poor. Three potential water source projects identified by MWSS required comprehensive consulting services including the preparation of feasibility studies and the provision of high-level advice on legal and financial issues. With the TA loan, MWSS would be able to complete project preparation on time, and to the appropriate degree of quality. The envisaged projects could also generate business opportunities for the private sector in water source development.

7. In 2008, the city was supplied with about 4,021 MLD of water, not much different from the figure at the time of appraisal, since Metro Manila still depends on one water source, the Angat Reservoir. But the NRW ratio had dropped by nearly half, to 37%, because of the major reduction achieved by MWCI. Given the growth of the city, MWSS demand projections still indicate a shortfall in water supply from 2013 onward if no new water sources are developed by then. Table 1 shows the supply and demand projections from 2007 to 2020, which were updated during the Project Completion Review Mission. Without the expected 1,900 MLD of water from Laiban Dam, a major project under consideration since 1979, MWSS believes that the water supply deficit for the city could reach 1,363 MLD by 2020. The still-high level of NRW in the service area of MWSI, despite the firm’s more-aggressive recent moves to deal with this issue by awarding a performance-based contract for NRW reduction to a specialized firm, continues to be a concern.

Table 1: Supply and Demand Projections, 2007–2020 (MLD) Year Gross NRW NRW Net Total Supply Supply ( %) Supply Demand Deficit (a) 2007 4,024 1,449 36 2,575 2,239 336 2008 4,021 1,488 37 2,533 2,348 185 2009 4,029 1,413 35 2,616 2,473 143 2010 4,106 1,350 33 2,756 2,616 140 2011 4,106 1,298 32 2,808 2,793 15 2012 4,141 1,143 28 2,998 2,916 83 2013 4,151 1,209 29 2,942 3,062 (120) 2014 4,151 1,233 30 2,918 3,243 (326) 2015 4,151 1,231 30 2,920 3,401 (480) 2016 4,069 1,281 31 2,788 3,732 (944) 2017 4,069 1,318 32 2,751 3,917 (1,166) 2018 4,069 1,329 33 2,740 4,037 (1,298) 2019 4,069 1,306 32 2,763 4,094 (1,331) 2020 4,069 1,282 31 2,787 4,151 (1,363) ( ) = negative, MLD = million liters per day, NRW = nonrevenue water. a Supply projections do not include the Laiban Dam Project. Sources: Metropolitan Waterworks and Sewerage System and Asian Development Bank estimates (2009).

2 ADB. 2005. Philippines Country Strategy and Program 2005–2007. Manila.

8. The Commission on Audit (COA) rendered an adverse opinion on the fairness and presentation of the financial statements of MWSS for FY1999 and FY2000, exposing weaknesses in MWSS’ financial management, accounting and control matters. To improve MWSS’ system operations, it was therefore considered necessary to include capacity building (part B) in the project design, to strengthen the financial management system and the capability of MWSS officers and staff. The Project as designed and formulated, involving the development of new water sources and the improvement of MWSS’ financial management capacity, was relevant to the country’s development needs at the time of appraisal and continues to be relevant.

B. Project Outputs

9. The Project Completion Review Mission assessed the Project’s outputs against the appraisal targets, using the project framework (Appendix 1). The Project consisted of consulting services for the development of new water source projects (part A) and for capacity building (part B). Part A had three components at the time of appraisal: (i) a feasibility study of the 50 MLD Wawa River Project; (ii) a feasibility study, detailed design, and tender documents for the AWUAIP; and (iii) studies for the development of the 1,900 MLD Laiban Dam Project.

10. In January 2007, at the request of MWSS, the LDP preparation component was removed from the scope of the TA loan, since MWSS had sought financing for the component from other sources. ADB approved a major change in scope and the partial cancellation of loan proceeds amounting to $1.875 million.

11. For the capacity building component (part B), the consulting services started in February 2005. The finance department of MWSS was tasked to lead the implementation under the direct supervision of the deputy administrator. The consulting services were completed in November 2005 and manuals for corporate planning, accounting, internal audit, and human resources were delivered to MWSS.

12. The implementation status of the components of the TA loan is summarized in Table 2 together with the corresponding outputs.

Table 2: Technical Assistance Implementation Status, by Component

Component Status Part A: 1. 50 MLD Wawa River Project: Feasibility and Completed in August 2005 Preliminary Design

2. Angat Water Utilization and Aqueduct Completed in October 2008 Improvement Project

3. Laiban Dam Project: Preparatory Works Canceled from TA loan. Consulting work was financed by the private concessionaires.

Part B: Capacity Building to Strengthen Financial Completed in November 2005 Management of MWSS MLD = million liters per day, MWSS = Metropolitan Waterworks and Sewerage System. Sources: MWSS progress reports.

C. Project Costs

13. The TA loan of $1.18 million came from ordinary capital resources under the London interbank offered rate (LIBOR)–based lending facility. The MWSS financed $166,866 for the consulting services for part B from its internal resources, and provided in-kind support, including office accommodation and counterpart staff, valued at $63,277. Details of the actual costs compared with the appraisal estimates are in Appendix 2.

14. There was no cost overrun. In fact, the actual project cost ($1.42 million) was much lower than the appraisal estimate ($4.97 million), mainly because of the cancellation of the LDP preparatory works.

D. Disbursements

15. At appraisal, no disbursement schedule was prepared. The actual disbursements took place from 25 May 2005 to 21 October 2008. An imprest account was set up in May 2005. Since the eligible items pertained mostly to consultants’ contract payments, no difficulties were encountered in maintaining the imprest account. The imprest account was fully liquidated and closed on 15 December 2007, 10 months before the loan account was closed.

E. Project Schedule

16. At the time of appraisal, the Project was foreseen to take 3 years to implement, from January 2004 to 31 December 2006. But during project implementation, MWSS and ADB agreed to revise the implementation schedule to allow the completion of the detailed design for the AWUAIP, and extended the loan completion date twice. The Project was eventually completed on 30 April 2008.

F. Implementation Arrangements

17. The Executing Agency was MWSS, through its existing project management office (PMO). The PMO was headed by a manager and comprised engineering, project management, and administrative staff. An interagency steering committee, composed of representatives of MWSS and the concessionaires, was formed before appraisal, in March 2001, to prioritize and supervise the development of new water source projects. The committee was responsible for guiding, monitoring, and supervising the implementation of the Project. MWSS submitted reports periodically to ADB. The implementation arrangements are considered satisfactory.

G. Conditions and Covenants

18. Appendix 3 shows the status of compliance with the loan covenants. Of the 14 loan covenants, 13 were complied with. The quarterly progress reports (the remaining covenant) were sometimes submitted late.

H. Consultant Recruitment and Procurement

19. On 23 May 2003, ADB approved the Government’s request for advance recruitment of consultants, so that the Project could be implemented on time. Four consulting firms were hired. Their recruitment conformed to ADB’s Guidelines on the Use of Consultants.

I. Performance of Consultants, Contractors, and Suppliers

20. The performance of the consultants was satisfactory, and so was the quality of the outputs. As already mentioned, there were no cost overruns. Contract execution was delayed by external factors beyond the consultants’ control (e.g., delay in the start of the detailed engineering design of AWUAIP).

J. Performance of the Borrower and the Executing Agency

21. The performance of the Executing Agency was also satisfactory. The PMO and the finance department of MWSS assigned experienced staff to implement the TA loan and effectively managed the activities, including the bidding preparations, the monitoring of the consultants’ performance, the preparation of withdrawal applications, and reporting.

K. Performance of the Asian Development Bank

22. Six ADB missions were fielded between July 2004 and October 2008 to monitor the implementation of the TA loan. ADB kept a close watch on the consulting services and associated activities under the TA loan. The ADB mission teams also made field visits to the project sites. ADB’s performance can therefore be considered satisfactory.

III. EVALUATION OF PERFORMANCE

A. Relevance

23. As designed, the TA loan was relevant to the Government’s goal of providing access to safe drinking water and to ADB’s strategy of improving water supply and promoting private sector investments. Although one of the components of the TA loan, the LDP preparatory works, was canceled, it was finally completed with funding from other sources.

B. Effectiveness in Achieving Outcome

24. Feasibility studies, detailed designs, and bidding documents were prepared for the development of new water sources for Metro Manila under part A of the TA loan. On the basis of those studies, ADB processed a $400 million multitranche financing facility for AWUAIP in 2006. But the Government decided instead to seek financing from a bilateral source. While the construction of AWUAIP has suffered major delays and has still to begin, MWSS plans to award the contract in 2009. In the case of WRP, an unresolved issue of competing water rights has delayed implementation. MWCI will therefore develop other water sources first. For LDP, which has not yet materialized, MWSS is exploring opportunities for private sector participation. The capacity development component (part B) was completed successfully and provided MWSS with training and manuals for improved financial management. MWSS’ use of these manuals has greatly helped to improve financial management including the production of timely financial reports. The Project was therefore effective in achieving the anticipated outcome.

C. Efficiency in Achieving Outcome and Outputs

25. The consultants delivered the expected studies for WRP and AWUAIP as provided in the terms of reference for the TA loan. For part B, accounting, budgeting, planning, and internal auditing manuals were efficiently prepared, with full support from MWSS. Therefore, the Project is considered efficient in achieving the planned outcome and outputs.

D. Preliminary Assessment of Sustainability

26. MWSS still plans to implement the water resource projects, on the basis of the consulting work done under the TA loan. The construction of AWUAIP, with bilateral funding, is still on the MWSS agenda. WRP remains an alternative water source for Metro Manila, once the water rights issue is resolved. LDP preparation, while excluded from the scope of the Project, was finally carried out, but construction is still pending. MWSS is considering various options with private sector proponents, including joint ventures and build-operate-transfer schemes. ADB will continue to monitor the development of water sources and will consider further assistance if the Government asks for it.

27. MWSS is using the financial and accounting manuals prepared in part B in its daily operations. But it has yet to incorporate the manuals for corporate planning and internal audit. The management should recognize the manuals as important documents and update them regularly.

E. Impact

28. Preparatory studies for the development of new water sources were completed under part A of the TA loan and the projects were made ready for financing and implementation. As stated above, however, the construction of the projects has not yet begun, and there is no impact to report so far. Once the projects are operating, they will help secure the water supply in the city and improve the lives and health of the population. The projects will also generate business opportunities for the private sector. The activities in part B, on the other hand, improved the institutional strength of MWSS, especially in financial control and reporting.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

29. The TA loan was conceived and designed according to ADB policy and the Government’s long-term goal of providing safe water in the country. The outputs were prepared efficiently, under the supervision of the PMO of MWSS. Although a component of the loan, the LDP preparatory works, was canceled, the studies continued and were completed. The capacity building component strengthened MWSS financial controls and enabled it to produce timely financial reports. The TA loan is therefore considered successful.

B. Lessons

30. The consulting services for LDP preparation was canceled because MWSS considered direct consultant selection necessary for quick progress in developing new water sources.

MWSS therefore decided instead to implement the studies with funds from the private concessionaires. Although no such urgency was indicated at the time the TA loan was designed, ADB may recommend that MWSS use advance procurement action to get consulting services started quickly in future projects.

31. The water rights issue that has delayed the implementation of WRP pertains to the granting of temporary water permits of one-half year each to two applicants, MWSS and a private company, by the National Water Resources Board (NWRB) in 2004. This issue was not apparent at the time of TA loan design, and is still unresolved. For sustainable water supply development, the Government should take into account the priority projects of government agencies when issuing water rights.

C. Recommendations

1. Project -Related

32. Future Monitoring. MWSS envisages developing the water resource projects designed under the TA loan in partnership with the private sector. ADB should monitor the progress of project preparation and continue to discuss with MWSS potential financing support in the form of a public sector loan or a private sector loan or both, as well as financing support for reducing NRW.

33. Additional Assistance. MWSS needs further assistance to develop its capacity, especially for the financial skills needed to evaluate the possibility of partnerships with the private sector. The MWSS finance department does not have the capability to conduct financial due diligence and negotiate the financing terms of projects of this type with private entities.

34. Timing of the Project Performance Evaluation Report. A project performance evaluation report mission may be fielded in the first quarter of 2010 to prepare a project performance evaluation report.

2. General

35. Project Formulation. ADB should continue to coordinate project selection with MWSS and the Government during project formulation and agree in detail on project implementation and financing in line with the Government’s long-term strategy.

8 Appendix 1

PROJECT FRAMEWORK

Performance Design Indicators and Assumptions Summary Targets Monitoring Mechanisms and Risks Goal Improve living conditions Increased coverage of the National statistics and and health of the poor poor population with safe reports of MWSS and the population in Metro water supply, and concessionaires Manila through safe improved quality and water supply and sustainability of services expanded service coverage

Purpose Assist MWSS in High-quality feasibility Reports provided by the Absorptive capacity of MWSS developing new water studies and other studies consultant and MWSS and timely availability of source projects for Metro and reports prepared, high-quality consultant services Manila suitable for and advice provided ADB review missions financing by ADB, the Continued interest of the private sector, or other All preparatory work for private sector for the provision sources new water source of basic urban services in the development completed Philippines Improve MWSS’ capacity and projects ready for for financial financing and Concession agreements management, implementation smoothly executed accounting, and fiscal control

Outputs Project preparation Reports provided by the MWSS efficiently utilizes loan Feasibility studies, and completed in time consultant and MWSS facility and continues other studies and including (i) feasibility commitment to timely and consultant support study for the Wawa River ADB review missions high-quality project preparation required for the Project; (ii) feasibility preparation of new water study, detailed design, Interest expressed by private Consultants deliver on time source development and tender documents for sector in participating in the and to the degree of quality projects the Angat Water development of new water required Utilization and Aqueduct source projects Capacity building for Improvement Project; Capacity building is MWSS financial and (iii) resettlement National statistics and successfully accomplished management and plan, financing reports on PSP, and records accounting arrangements, updated of the MWSS Regulatory Environmental and social design and tender Office impact assessments and Opportunities for PSP for documents, preliminary resettlement plans are in the provision of basic design of new accordance with ADB’s revised infrastructure services transmission line, and Operations Manual Sections EIA for the Laiban Dam F1/BP and F1/OP: Project Environmental Considerations in ADB Operationsa Capacity building completed Continued government support for PSP; necessary legislation Viability, attractiveness, passed and enforced without and options for PSP for delay new water source projects carefully assessed in feasibility studies

Appendix 1 9

Performance Design Indicators and Assumptions Summary Targets Monitoring Mechanisms and Risks Good governance in projects designed for PSP ensured through a transparent procurement process according to international best practice, including preparation of comprehensive tender documents, draft agreements, and outline of procurement process Inputs Consultants recruited Project cost $4.97 million Consultants’ reports according to ADB guidelines

International consultants 36.5 person-months ADB review missions Counterpart funds available

National consultants 402 person-months Competence of EA and consultants ADB financing $3.26 million Continued interest of private MWSS contribution $1.71 million sector in participating in the Project ADB = Asian Development Bank, EA = executing agency, EIA = environmental impact assessment, MLD = million liters per day, PSP = private sector participation, MWSS = Metropolitan Waterworks and Sewerage System. a ADB. 2006. Operations Manual. OM Sections F1/BP and F1/OP: Environmental Considerations in ADB Operations. Manila (25 September).

10 Appendix 2

APPRAISAL AND ACTUAL COST ESTIMATES AND FINANCING PLAN

Table A2.1: Part A.1: Feasibility Study of the Wawa River Project ($’000)

Appraisal Estimate Actual Foreign Local Total Foreign Local Total Item Exchange Currency Cost Exchange Currency Cost A. Bank Financing 1. Consultants 89.46 0 89.46 a. Remuneration and Per Diem i. International 86.00 0 86.00 ii. National 0 52.00 52.00 b. International and Local Travel 6.00 5.00 11.00 c. Reports and Communications 0 2.00 2.00 2. Stakeholders Consultations and 0.00 1.00 1.00 0 0 0 Workshops 3. Surveys 0.00 50.00 50.00 50.00 0 50.00 4. Contingencies 5.00 6.00 11.00 Subtotal (A) 97.00 116.00 213.00 139.46 0 139.46

B. MWSS Financing 1. Office Accommodation and 0 16.00 16.00 0 4.38 4.38 Transport 2. Remuneration and Per Diem of 0 50.00 50.00 0 4.15 4.05 Counterpart Staff 3. Taxes and Duties 0 25.00 25.00 0 0 0 4. Contingencies 0 5.00 5.00 0 0 0 5. Others 0 0.00 0.00 0 0 0 Subtotal (B) 00.00 96.00 96.00 0 8.53 8.53 Total 97.00 212.00 309.00 139.46 8.53 147.99 MWSS = Metropolitan Waterworks and Sewerage System. Source: Asian Development Bank.

Appendix 2 11

Table A2.2: Part A.2.1: Angat Water Utilization and Aqueduct Improvement Project – Part A: Feasibility Study and Preliminary Design ($’000)

Appraisal Estimate Actual Foreign Local Total Foreign Local Total Item Exchange Currency Cost Exchange Currency Cost A. Bank Financing 1. Consultants 91.20 265.09 356.28 a. Remuneration and Per Diem i. International 130.00 0 130.00 ii. National 0 447.00 447.00 b. International and Local Travel 8.00 6.00 14.00 c. Reports and Communications 0 8.00 8.00 2. Stakeholders Consultations and 0 6.00 6.00 0 8.68 8.68 Workshops 3. Surveys 0 31.00 31.00 0 27.97 27.97 4. Contingencies 7.00 26.00 33.00 Subtotal (A) 145.00 524.00 669.00 91.20 301.74 392.93

B. MWSS Financing 1. Office Accommodation and 0 50.00 50.00 0 4.51 4.51 Transport 2. Remuneration and Per Diem of 0 144.00 144.00 0 4.35 4.35 Counterpart Staff 3. Taxes and Duties 0 68.00 68.00 0 0 0 4. Contingencies 0 16.00 16.00 0 0 0 5. Others 0 35.00 35.00 0 0 0 Subtotal (B) 0 313.00 313.00 0 8.86 8.86 Total 0 837.00 982.00 91.20 310.60 401.79 MWSS = Metropolitan Waterworks and Sewerage System. Source: Asian Development Bank.

12 Appendix 2

Table A2.3: Part A.2.2: Angat Water Utilization and Aqueduct Improvement Project – Part B: Detailed Design and Tender Documents ($’000)

Appraisal Estimate Actual Foreign Local Total Foreign Local Total Item Exchange Currency Cost Exchange Currency Cost A. Bank Financing 1. Consultants 476.11 0 476.11 a. Remuneration and Per Diem i. International 148.00 0 148.00 ii. National 0 510.00 510.00 b. International and Local Travel 7.00 8.00 15.00 c. Reports and Communications 0 8.00 8.00 2. Stakeholders Consultations and 0 5.00 5.00 1.47 0 1.47 Workshops 3. Surveys 0 35.00 35.00 33.01 0 33.01 4. Contingencies 8.00 30.00 38.00 Subtotal (A) 163.00 596.00 759.00 510.58 0 510.58

B. MWSS Financing 1. Office Accommodation and 0 57.00 57.00 0 13.88 13.88 Transport 2. Remuneration and Per Diem of 0 164.00 164.00 0 20.32 20.32 Counterpart Staff 3. Taxes and Duties 0 78.00 78.00 0 0 0 4. Contingencies 0 42.00 42.00 0 0 0 5. Others 0 18.00 18.00 0 0 0 Subtotal (B) 0 359.00 359.00 0 34.20 34.20 Total 0 955.00 1,118.00 510.58 34.20 544.78 MWSS = Metropolitan Waterworks and Sewerage System. Source: Asian Development Bank.

Appendix 2 13

Table A2.4: Part A.3: Laiban Dam Project – component cancelled for ADB Financing ($’000)

Appraisal Estimate Actual Foreign Local Total Foreign Local Total Item Exchange Currency Cost Exchange Currency Cost A. Bank Financing 1. Consultants a. Remuneration and Per Diem i. International 540.00 0 540.00 ii. National 0 530.00 530.00 b. International and Local Travel 30.00 20.00 50.00 c. Reports and Communications 0 20.00 20.00 2. Stakeholders Consultations and 0 30.00 30.00 Workshops 3. Surveys 0 90.00 90.00 4. Contingencies 30.00 36.00 66.00 Subtotal (A) 600.00 726.00 1,326.00

B. MWSS Financing 1. Office Accommodation and 0 160.00 160.00 0 4.70 4.70 Transport 2. Remuneration and Per Diem of 0 300.00 300.00 0 6.99 6.99 Counterpart Staff 3. Taxes and Duties 0 157.00 157.00 0 0 0 4. Contingencies 0 36.00 36.00 0 0 0 5. Others 0 70.00 70.00 0 0 0 Subtotal (B) 0 723.00 723.00 0 11.69 11.69 Total 600.00 1,449.00 2,049.00 0 11.69 11.69 MWSS = Metropolitan Waterworks and Sewerage System. Source: Asian Development Bank.

14 Appendix 2

Table A2.5: Part B: Capacity Building for MWSS ($’000)

Appraisal Estimate Actual Foreign Local Total Foreign Local Total Item Exchange Currency Cost Exchange Currency Cost MWSS Financing 1. Consultants a. Remuneration and Per Diem i. International 0 0 0 0 0 0 ii. National 0 100.00 100.00 0 86.44 86.44 b. International and Local Travel 0 2.00 2.00 0 0 0 c. Reports and Communications 0 6.00 6.00 0 0 0 2. Stakeholders Consultations and 0 5.00 5.00 0 11.55 11.55 Workshops 3. Equipment 0 30.00 30.00 0 26.24 26.24 4. Contingencies 0 7.00 7.00 0 0 0 Subtotal (1–4) 0 150.00 150.00 0 124.23 124.23

5. Office Accommodation and 0 110.00 11.00 0 12.18 12.18 Transport 6. Remuneration and Per Diem of 0 36.00 36.00 0 19.54 19.54 Counterpart Staff 7. Taxes and Duties 0 15.00 15.00 0 10.92 10.92 8. Contingencies 0 3.00 3.00 0 0 0 Subtotal (5–8) 0 65.00 65.00 0 42.64 42.64 Total 0 215.00 215.00 0 166.87 166.87 MWSS = Metropolitan Waterworks and Sewerage System. Source: Asian Development Bank.

AppendixAppendix 2 3 15

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Reference in Covenant Loan Agreement Status of Compliance A. Environmental 1. All projects shall be designed in strict conformity Schedule 5, para. Complied with. with the applicable national environmental impact 8 standards and in line with the Environmental Policy of ADB. Specifically, initial environmental examinations shall be prepared for each new water source project developed under the Project.

B. Social 2. All studies and engineering designs prepared LA, Schedule 5, Complied with. under the Project, and all resulting water source para. 9 projects, shall comply with all relevant ADB requirements, policies, and guidelines, including but not limited to the ADB’s Policy on Involuntary Resettlement and Handbook on Resettlement.

3. All studies and engineering designs prepared LA, Schedule 5, Complied with. under the Project, and all resulting water source para. 9 projects, shall comply with all relevant ADB requirements, policies, and guidelines, including but not limited to the ADB’s Guidelines for Incorporation of Social Dimenstions in Bank Operations.

C. Financial 4. MWSS shall establish an imprest account not to LA, Schedule 3, Complied with. Imprest account exceed the equivalent of $320,000. para. 8 opened in May 2005, and closed in 15 Dec 2007.

5. MWSS shall furnish annual audited financial LA, Article IV, Complied with. Auditor provided statements not later than 9 months after the end of Section 4.05 (a) qualified opinion on audited each related fiscal year. financial statements.

6. MWSS shall furnish within 60 days after the end of LA, Article IV, Complied with. the first 6 months of each fiscal year, unaudited Section 4.05 (b) semiannual financial statements on its operations for such 6-month period.

D. Others 7. Established, Staffed, and Operating PMU/PIU LA, Schedule 5, Complied with. Implementation shall be undertaken by the existing para. 2 PMO.

8. Services of international and national consultants, LA, Schedule 4 Complied with. including individual consultants, shall be utilized in the carrying out of the Project.

16 Appendix 3

Reference in Covenant Loan Agreement Status of Compliance 9. Inter-Agency Steering Committee (IASC) shall LA, Schedule 5, Complied with. have overall responsibility for guiding, monitoring, para. 3 and supervising implementation of the Project.

10. Concessionaires’ Participation: Relevant LA, Schedule 5, Complied with. concessionaire, together with its affiliates and para. 5 subsidiaries shall be disqualified from bidding for the water source projects for which they have participated to prepare.

11. MWSS shall ensure that all necessary RRP, Section V, Complied with. counterpart funds for project implementation are para. 45 (iii) provided fully and in a timely manner.

12. MWSS shall submit quarterly progress reports on LA, Schedule 5, Complied with late. commitments and disbursements, project para. 10 The submission of report was implementation, issues and remedial actions if any, sometimes delayed. and expected progress for the succeeding quarter.

13. MWSS shall provide logistical support to the LA, Schedule 5, Complied with. consultants, including adequately furnished office para. 4 space, data and project documentation, and access to communication facilities.

14. Substantial amendment of the contract after LA, Schedule 4, Complied with. execution shall be submitted to ADB for prior para. 5 (c) approval.