Document of The World Bank

FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. 16530

PERFORMANCE AUDIT REPORT

REPUBLIC OF YEMEN Public Disclosure Authorized SEIYUN REGIONAL WATER SUPPLY (CREDIT 1418-YDR)

GREATER ADEN SECOND WATER SUPPLY PROJECT (CREDIT 1739-YDR)

AND

SANA'A URBAN DEVELOPMENT PROJECT (CREDIT 1202-YAR) Public Disclosure Authorized

April 23, 1997

OperationsEvaluation Department Public Disclosure Authorized

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (annual averages)

Currency Units

1981 US$1.00 YR 4.50 1983 US$1.00 YR 4.58 1983 US$1.00 YD 0.35 1986 US$1.00 YR 7.40 1986 US$1.00 YD 0.35 1989 US$1.00 YR 19.76 1989 US$1.00 YD 0.34 1990 US$1.00 YR 11.26 1991 - March 1995 US$1.00 YR 12.00 April 1995 US$1.00 YR 50.00 May 1996 US$1.00 YR 135.00

ABBREVIATIONS AND ACRONYMS

Aden Project Greater Aden Second Water Supply Project (Credit 1739-YDR) ICR Implementation Completion Report KfW Kreditanstalt fur Wiederaufbau (Bank for Reconstruction), Germany lcd Liters per Capita per Day MAWR Ministry of Agriculture and Water Resources MCHP Ministry of Construction, Housing and Urban Planning MEW Ministry of Electricity and Water NWRA The National Water Resources Authority NWSA National Water and Sanitation Authority ODs Operational Directives OED Operations Evaluation Department O&M Operation & Maintenance PCR Project Completion Report PDRY Peoples Democratic Republic of Yemen PWC Public Water Corporation ROY Republic of Yemen SAR Staff Appraisal Report Seiyun Project Seiyun Regional Water Supply Project (Credit 1418-YDR) SUDP Sana'a Urban Development Project (Credit 1202-YAR) UFW Unaccounted-for Water YAR Yemen Arab Republic

FISCAL YEAR

NWSA January 1 - December 31

Director-General, Operations Evaluation Mr. Robert Picciotto Acting Director, Operations Evaluation Department Mr. Roger Slade Division Chief Mr. Yves Albouy Task Manager Mr. Tauno Skytta FOR OFFICIAL USE ONLY The World Bank Washington, D.C. 20433 U.S.A.

Office of the Director-General Operations Evaluation

April 23, 1997

MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Performance Audit Report on Republic of Yemen Seiyun Regional Water Supply (Credit 1418-YDR); Greater Aden Second Water Supply Project (Credit 1739-YDR); and Sana'a Urban Development Project (Credit 1202-YAR)

Attached is the Performance Audit Report (PAR) on the Yemen Seiyun Regional Water Supply (Credit 1418-YDR, approved in FY84); Greater Aden Second Water Supply Project (Credit .173 9-YDR, approved in FY87); and Sana'a Urban Development Project (Credit 1202- YAR, approved in FY82), prepared by the Operations Evaluation Department. The report covers the two water supply projects and the water supply and sanitation components of the Sana'a Urban Development Project (SUDP-WSS).

The Seiyun and Aden projects were designed to continue support to the Public Water Corporation (PWC) of the former Peoples Democratic Republic of Yemen (PDRY). The objectives were: (i) to increase water availability; (ii) to provide extended coverage with better quality water; and (iii) to strengthen the PWC which later became the National Water and Sanitation Authority (NWSA). The physical components included enhancing production, storage, and distribution networks. Institutional development components included training, establishing a new branch in Seiyun and a hydrogeological unit in Aden.

The SUDP was a sites and services project. The water supply and sanitation objectives of this project were to provide project beneficiaries with water supply and sanitation infrastructure. Further, the NWSA was to use its commercial apparatus to assist in recovering infrastructure costs from beneficiaries. Pertinent components included installation of a secondary distribution system and a sewerage collection system.

The physical targets of the SUDP-WSS were achieved and those of the Seiyun project were exceeded. The physical targets of the Aden projects were achieved but with significant delays. Population growth in Aden exceeded expectations and per capita consumption in 1995 was below pre-project levels. The Seiyun and Aden NWSA branches have been strengthened as a result of these projects but significant additional efforts are required to ensure that the full benefits of these investments can be achieved.

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. The Seiyun project's outcome continues to be rated as satisfactory. The rating for institutional development impact is downgraded from substantial to moderate because the branch has not consolidated upon initial institutional gains. Sustainability has become uncertain because of rising unaccounted-for water, diminished effectiveness of commercial systems and financial losses despite indirect subsidies.

The Aden project's rating are the same as in the Implementation Completion Report; i.e. unsatisfactory outcome, negligible institutional development impact and uncertain sustainability.

The outcome of the SUDP-WSS is rated as satisfactory, its institutional development impact as moderate and its sustainability as uncertain due to questions as to the Sana'a branch's capability to maintain water supply and sanitation systems. Bank performance is rated as satisfactory except for the Aden project.

These operations show that without continuing institutional improvement, near term physical achievements do not translate into longer term sustainable operations. This became particularly critical in the Aden project which was most affected by civil unrest.

The Audit's recommendation relates to three areas:

(i) Cost ninimization and water conservation through better system design and focus on rehabilitation;

(ii) autonomy for-and full cost recovery-by water utilities; and

(iii) increased attention to needs for sanitation.

Attachment

Robert Picciotto by Roger Slade Contents FOR OFFICIAL USE ONLY

Preface...... 3 Basic Data Sheets ...... 5 Evaluation Summary ...... 17

1. Background and Project Description ...... 23

Macro-economic and Political Setting in Yemen ...... 23 Water and Sanitation Sector: Resources and Institutional Structure ...... 23 Project Design ...... 24 Objectives and Components ...... 24 Quality at Entry ...... 25

2. Implementation and Results ...... 27

Projects' Highlights from the PCRICRs ...... 27 Physical Results ...... 27 Institutional Development ...... 27 Ratings and Significant Lessons ...... 28 The Audit's Findings ...... 28 Physical Results ...... 28 Impact on Beneficiaries ...... 29 Environmental Impact ...... 30

3. Institutional Development ...... 31

Evolution of NWSA and Institutional Relationships ...... 31 Institutions' Ability to Maintain Infrastructure ...... 31 Financial Management ...... 32 Finances ...... 32 Financial Systems ...... 33

4. Factors of Performance ...... 35

5. Sustainability and Future Projects' Operation ...... 37

6. Conclusions, Lessons and Recommendations ...... 39

Conclusions ...... 39 Project Outcomes ...... 39 Borrower Performance ...... 39 Bank Performance ...... 39

This report was prepared by Mr. Tauno Skytta, Principal Evaluation Officer, and Mr. Tejbir Singh Phool, consultant, who audited the projects in April-June 1996. Ms. Helen Watkins provided administrative assistance.

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. 2

Project Ratings ...... 39 Compliance with Covenants and ODs ...... 40 Lessons ...... 40 Recommendations ...... 41

Annexes

A. Tables ...... 43 B. Supply of Water During Peak Periods; Comparison of Pumping vs. Storage Costs ...... 51 C. Letter from the Ministry of Construction, Housing and Urban Planning...... 53 3

Preface

This is the Performance Audit Report (PAR) on the Seiyun Regional Water Supply (Credit 1418-YDR, approved on November 29, 1983) and the Greater Aden Second Water Supply Project (Credit 1739-YDR, approved on October 30, 1986). This audit report also includes a review of water supply and sanitation components of the Sana'a Urban Development Project (Credit 1202-YAR, approved on January 28, 1982).

The PAR consists of an Evaluation Summary and a Performance Audit Report prepared by the Operations Evaluation Department (OED). The Project/Implementation Completion Reports (PCR/ICR) were prepared by the Middle East and North Africa Regional Office on March 15, 1991 (Report No. 9423), June 19, 1995 (Report No. 14618), and July 30, 1993 (Report No. 12151), respectively.

The PCR/ICRs provide an accurate account of the projects' achievements. The PAR is based on the PCR/ICRs, the President's Reports, projects' legal documents, and the Staff Appraisal Reports (SARs). In addition, a review of relevant project files and other background materials collected during the audit mission in May 1996 are reflected. The PAR elaborates on noteworthy aspects such as institutional development, financial performance of the project entity, access to water by the poor and efficiency of operations.

The draft PAR was sent to the Borrower and the Cofinanciers (Arab Fund and DANIDA) for comments; however, none were received.

5

Basic Data Sheet'

SANA'A URBAN DEVELOPMENT PROJECT (CREDIT 1202-YAR)

Key Project Data (amounts in US$ million) Appraisal Actual or Actual as % of estimate current estimate appraisalestimate Total project costs 26.00 32.99 127

Credit amount 14.83 15.00 101

Cancellation 0.26m

Economic Rate of Return 25% 16%

Cumulative Estimated and Actual Disbursements FY83 FY84 FY85 FY86 FY87 FY88 FY89 FY90 FY91 FY92 FY93

Appraisal estimate (US$M) 3.02 7.84 12.10 14.33

Actual (US$M) 0.76 1.69 4.12 6.15 7.43 8.01 9.63 9.98 11.47 13.72 14.83

Actual as % of appraisal 5.1 11.4 27.8 41.5 50.1 54.0 64.9 67.3 77.3 92.5 100.0

Date of final disbursement: 5/91

Project Dates Original Actual

Negotiations 11/81 12/81

Board approval 08/80 01/82

Signing 01/28/82

Effectiveness 05/82

Closing date 12/87 06/30/92

1. Unless otherwise indicated, information presented pertains to the entire project and not to the water supply and sanitation component. 6

Mission Data Date No. of Staff days Performance Types of (month/year) persons infield rating2 problems Identification 03/79 6 16 Not applicable

Preparation I 07/79 1 4 Not applicable

Preparation II 01/80 2 8 Not applicable

Preparation III 05/80 2 5 Not applicable

Preparation IV 12/80 3 13 Not applicable

Appraisal 06/81 4 15 Not applicable

Supervision I 05/82 3 10 1

Supervision II 12/82 2 8 1

Supervision III 05/83 1 4 1

Supervision IV 10/83 2 11 1

Supervision V 02/84 2 3 1

Supervision VI 08/84 2 12 1

Supervision VII 10/84 1 8 1

Supervision VIII3 05/85 2 10 1/2 Managerial

Supervision IX 10/85 2 11 2 Managerial

Supervision X 01/86 2 12 2 Managerial

Supervision X13 06/86 1 8 2 Managerial

Supervision XII3 10/86 2 12 2 Managerial

Supervision XIII3 02/87 1 9 2 Managerial

Supervision XIV3 10/87 3 13 2 Managerial

Supervision XV 3 02/88 2 10 2 Managerial

2, 1 = No significant problems, 2 = Moderate problems 3. Included work on other projects in Urban Sector 7

Mission Data (cont.) Date No. of Staff days Performance Types of (month/year) persons infield rating4 problems Supervision XVI 01/89 2 14 2 Managerial

Supervision XVII3 10/89 2 10 2 Managerial

Supervision XVIII 01/90 1 10 2 Managerial

Supervision XIX3 11/90 1 15 2 Managerial

Supervision XX3 6/91 2 30s 2 Managerial

Supervision XX 3 11/91 1 16 2 Managerial

Completion 02/92 3 15 2 Managerial

Other Project Data Borrower/Executing Agency: Government of Yemen

FOLLOW-ON OPERATIONS Operation Credit No. Amount Board Date (US$ million) Second Urban Development Project Cr. 1441-YAR 12.0 02/21/84

4. 1 = No significant problems, 2 = Moderate problems 5. Ramadan Holidays coincided with mission.

9

Basic Data Sheet

SEIYuN REGIONAL WATER SUPPLY PROJECT (CREDIT 1418-YDR)

Key Project Data (amounts in US$ million) Appraisal Actual or Actual as % of estimate current estimate appraisalestimate Total project costs 16.1 20.2 125

Credit amount 7.0 7.0 100

Economic rate of return n.a. n.a.

Cumulative Estimated and Actual Disbursements

FY84 FY85 FY86 FY87 FY88 FY89 FY90 Appraisal estimate (US$M) 0.08 1.78 4.64 5.94 6.60 7.00 7.00 Actual (US$M) 0.08 0.88 3.10 4.66 6.46 6.83 7.896 Actual as % of appraisal 100 49 67 78 98 98 113 Date of final disbursement: 06/01/90

Project Dates Original Actual

Negotiations 04/29/83 04/25/83

Board approval 6/30/83 11/29/83

Signing 06/01/84 01/06/84

Effectiveness 06/06/84 03/16/84

Closing date 12/31/88 12/31/89

6. At the time of Board Approval, the IDA Credit of SDR 6.5 million was equivalent to US$7 million. As of June 1, 1990 (the final disbursement date), the value of the IDA Credit was equivalent to US$7.89 million. 10

Staff Inputs (staff weeks) Total

Identification through Appraisal 27.4

Appraisal through Board Approval 37.5

Board Approval through Effectiveness 2.0

Supervision 27.8

Total 94.7

Mission Data Date No. of Staff days in field' Specializations PerformanceRating' (month/year) persons represented' RPMF 9 Identification 06/82 2 10 E, FA

Appraisal 11/82 2 17 E, FA

Post- 05/83 2 5 E, FA Appraisal

Supervision 06/84 2 5 E, CON 1 21 1 1

Supervision 02/85 2 5 E, FA 2 1 1 1 1

Supervision 06/85 2 5 E, FA 21111

Supervision 06/86 1 5 E 21112

Supervision 11/86 2 5 E,FA 21112

Supervision 04/87 2 4 E, FA 2 1 1 1 3

Supervision 07/87 2 3 E, FA 2 1 1 1 3

7. Since supervision of 3 other ongoing credits to PWC were also undertaken at the same time (Credits 1038-YDR, 1 159-YDR and 1739-YDR) and preparation of the Tarim Water Supply Project (Credit 2170-ROY) was in progress, a pro-rated portion of total days in the field has been allocated to this project (Credit 1418-YDR). 8. E = Engineer, FA = Financial Analyst, CON= Consultant 9. (i) Items rated: R Reporting, P = Procurement, M = Management, F = Financial, 0 = Financing Gap

(ii) Rating scale: I = No significant problems, 2 = Moderate problems, 3 = Major problems 11

Mission Data (cont.) Date No. of Staff days in Specializations PerformanceRating' (month/year) persons fieldo represented RPMFO 12 Supervision 12/87 1 2 E 2 1 1 1 2

Supervision 08/88 1 5 E 2 1 1 1 2

Supervision 12/88 2 5 E, FA 21 1 1 2

Supervision 5/89 2 3 E, FA 21112

Supervision 11/89 1 2 E 21112

Other Project Data

Borrower/Executing Agency: Government of Yemen

FOLLOW-ON OPERATIONS

Operation Credit No. Amount BoardDate (US$ million) Greater Aden Second Water Supply Project Cr. 1739-YDR 6.73 10/86 Tarim Water Supply Project Cr. 2170-YDR 12.0 6/90 Al Mukalla Water Supply Project Cr. 1944-YDR 12.0 7/88

10. Since supervision of 3 other ongoing credits to PWC were also undertaken at the same time (Credits 1038-YDR, 1159-YDR and 1739-YDR) and preparation of the Tarim Water Supply Project (Credit 2170-ROY) was in progress, a pro-rated portion of total days in the field has been allocated to this project (Credit 1418-YDR).

11. E =Engineer, FA =Financial Analyst, CON = Consultant 12. (i) Items rated: R = Reporting, P = Procurement, M = Management, F = Financial, 0 = Financing Gap (ii) Rating scale: I = No significant problems, 2 = Moderate problems, 3 = Major problems p 13

Basic Data Sheet

GREATER ADEN SECOND WATER SUPPLY PROJECT (CREDIT 1739-YDR)

Key Project Data (amounts in US$ million) Appraisal Actual or Actual as % of estimate current estimate appraisalestimate Total project costs 32.20 54.04 168

Credit amount 5.6 6.7 120

Economic Rate of Return n.a. 5% - 14%

Cumulative Estimated and Actual Disbursements

FY87 FY88 FY89 FY90 FY91 FY92 FY93 FY94 FY95 Appraisal estimate (US$M) 0.96 2.91 4.45 5.14 5.39 5.54 5.6013 Actual (US$M) 0.48 0.83 2.14 3.02 5.32 5.9714 6.737 Actual as % of appraisal 0 0 11% 16% 40% 55% 95% 107% 120% Date of final disbursement: March 17, 199515

Project Dates Original Actual

Negotiations 11/85 11/85

Board approval 10/86 10/86

Signing 12/86 03/87

Effectiveness 02/87 08/87

Closing date 12/93 10/94

13. Approved amount (October 1986) was SDR 5.30 million (US$5.60 million equivalent); credit was projected to be fully disbursed in December 1992. 14. Total actual disbursed amount (as of March 1995) was SDR 4.87 million (US$6.73 million equivalent). 15. Undisbursed amount (as of March 1995) was SDR 0.435 million (US$0.684 million equivalent). 14

Staff Inputs (staff weeks) Planned Revised Actual

Through appraisal N/A N/A 9.9 Appraisal-Board N/A N/A 23.4 Board-Effectiveness 9.0 9.0 8.3 Supervision 71.0 74.0 84.7 Completion 8.0 8.0 3.316

Total 88.0 91.0 129.6

Mission Data Date No. of Staff days Specializations Types ofproblems (month/year) persons in field represented17 Appraisal 01/85 2 118 SE/FA Appraisal 06/85 4 23 Board- 11/86 3 19 SE/FA/EC effectiveness Mission #1 Supervision 1 04/87 2 15 SE/FA Supervision 2 07/87 2 12 SE/FA Supervision 3 12/87 1 6 SE Supervision 4 08/88 1 15 SE Supervision 5 12/88 2 15 SE/FA Supervision 6 05/89 2 12 SE/FA Supervision 7 11/89 1 7 SE Supervision 8 08/90 2 14 SE/FA 18

Supervision 9 01/91 2 5 SE/FA 18 Supervision 10 02/91 2 4 18 Supervision 11 05/91 3 12 2SE/FA 18

Supervision 12 06/91 1 2 FA 18 Supervision 13 09/91 2 3 SE/FA 18 Supervision 14 10/91 1 2 FA 19

16. Actual to 2/28/95. 17. SE = Sanitary Engineer, FA - Financial Analyst, and DC/EC Division Chief and economist. 18 Ambivalence of Kuwait and Arab Fund participation; weak inst. capacity; deficient corporate and project management. 19 Rapid deterioration of NWSA's Aden Branch financial position. 15

Mission Data (cont.) Date No. of Staff days Specializations Types ofproblems (month/year) persons in field represented17

Supervision 15 01/92 1 4 SE 19 Supervision 16 03/92 2 5 FA/DC 19 Supervision 17 08/92 1 5 FA 19 Supervision 18 10/92 4 12 2SE/2FA 19 Supervision 19 11/92 1 1 SE 19 Supervision 20 01/93 3 14 2SE/FA 19 Supervision 21 06/93 2 12 SE/FA 19 Supervision 22 08/93 2 7 SE/FA 19 Supervision 23 01/94 2 15 SE/FA 19 Supervision 2420 04/94 2 13 SE/FA Supervision 25 09/94 2 14 SE/FA Completion 03/95 3 20 SE/2FA

Other Project Data Borrower/Executing Agency: Government of Yemen

FOLLOW-ON OPERATIONS Operation Credit No. Amount BoardDate (US$ million) Tarim Water Supply Project Cr. 2170-YDR 12.0 6/90 Al Mukalla Water Supply Project Cr. 1944-YDR 12.0 7/88

20. Mission aborted because of outbreak of war.

17

Evaluation Summary

Background

1. The Republic of Yemen (ROY) was established in May 1990, when the Yemen Arab Republic (YAR) and the People's Democratic Republic of Yemen (PDRY) were unified. Prior to unification, both economies grew rapidly in the 1970s followed by a slowdown in the 1980s. The development strategy in both countries prior to unification was inward-looking, public sector led, and dependent on external financial assistance and worker remittances.

2. Following unification, the ROY has faced significant political events and economic problems. One of the most disruptive events was the Gulf War that caused the return of Yemenis from Kuwait who settled in large numbers in Aden. Political events include the country's first general election in 1992 leading to a three party coalition which was reduced to a two party coalition following military conflict in 1994. Economic problems include macro-economic imbalances, significant currency devaluation, a large and inefficient public sector, restrictive legal and regulatory environment, remaining price controls, and rapid population growth.

3. The ROY has one of the most serious water problems in the world. The country has no perennial river, and ground water resources are being over-tapped. The National Water Resources Authority (NWRA) was established in 1995 to address the fragmented water management approach through a new policy framework and modern water law. The statutory responsibility for the water and sanitation sector rests with the National Water and Sanitation Authority (NWSA) which is a part of the Ministry of Water and Electricity (MEW). After unification, NWSA absorbed the Public Water Corporation (PWC) of the PDRY with its Aden head office becoming a branch of NWSA. Before unification, the Bank supported the NWSA in the YAR and the PWC in the PDRY. Support to the NWSA continues after unity.

The Projects

4. The projects included in the Audit are the Seiyun Regional Water Supply Project (Seiyun Project), Greater Aden Second Water Supply Project (Aden Project), and the Sana'a Urban Development Project (SUDP). The Audit examined all aspects of the Seiyun and Aden projects but only the water supply and sanitation components of the SUDP. The Seiyun and Aden Projects were initially implemented by the PWC and then turned over to NWSA. The SUDP was implemented by the Ministry of Construction, Housing and Urban Planning (MCHP).

5. The Seiyun Project was designed to provide improved quality water at 1995 demand levels, to establish a branch office of the then PWC replacing private enterprises, and to strengthen the operation and maintenance (O&M) procedures and financial position of the PWC. Project components included development of a new well field, expanding the storage and distribution systems, providing staff training, conducting water supply studies in Aden and Tarim, and conducting a sanitation study for Seiyun.

6. The Aden Project objectives included increasing water production to meet year 2000 demand levels, to complete rehabilitation and expansion of the distribution network, to reduce unaccounted-for water (UFW), and to establish a hydrogeological unit to manage groundwater. 18

Project components included development of a well field, construction of a transmission pipeline and reshaping the primary distribution network, expansion of the existing distribution system, funding for the hydrogeological unit, and provision of training.

7. The SUDP was conceived as a demonstration project designed to assist the government in developing urban land to provide infrastructure to the urban poor, to encourage local contractors, and to reinforce the existing institutional framework to implement future projects. The water supply and sanitation components of this project included provision of water supply and sanitation facilities in the project area. Further, NWSA was charged with the responsibility of using its commercial apparatus to recover infrastructure development costs from the Musayk residents.

Projects' Relevance

8. The Seiyun project objectives and design of components were relevant because of declining water availability and deteriorating water quality. Establishing a Seiyun branch was important to decentralize and strengthen the PWC. The Aden project objectives and design of components were relevant because of declining per capita availability of water and the need to serve a rapidly growing population. Institutional development objectives were relevant because of the over-pumping of aquifers and declining water quality. Providing water and sanitation services was essential to the success of the sites and services of the SUDP.

Physical Achievements and Implementation Experience

9. While physical targets were substantially met, service targets for the Seiyun and Aden projects were exceeded. These projects were delayed due to several factors, many beyond the Borrower's control. The Seiyun Project experienced a delay of about a year because of civil disturbances in 1986 and financing shortfalls related to foreign exchange fluctuations. The Aden Project was significantly delayed in the aftermath of the Gulf crisis and was incomplete at the time of the Audit in May 1996. The infrastructure component of the SUDP experienced delays of about a year but did not contribute to the overall delay in the project. All three projects incurred cost over-runs. The Seiyun Project cost over-runs were approximately 25 percent, Aden Project over-runs were estimated at 70 percent and the cost over-run for the infrastructure component of the SUDP was approximately 16 percent.

Impact on Beneficiaries

10. The positive impacts that the three projects had on beneficiaries are as follows:

* Coverage. All projects achieved coverage approaching one hundred percent of targeted populations with metered water supply. Targets were exceeded for the Seiyun and Aden Projects.

* Affordability. The cost of water is affordable to the poor. Low income households pay no more than three percent of monthly income.

* Minimum Needs. The minimum needs are assumed to be met. Over 60 percent of the water sold in Seiyun is devoted towards meeting minimum needs. In Aden this percentage is less than 50. 19

* Consumption Level. Consumption level in Seiyun in 1991 was 52 liters per capita per day (lcd) and increased to 77 lcd in 1995. Consumption level in Aden increased initially but has declined after 1993 (79 lcd in 1995) due to high population growth.

* Public-HealthBenefit. Both projects provide a positive public health benefit which is now threatened by leaky distribution systems. Water quality in Seiyun improved. Health benefits provided by the Aden Project became especially evident in the aftermath of the 1994 civil strife which disrupted water supply and resulted in a jump in water borne diseases.

Environmental Impact

11. The Seiyun and Aden projects have had a negative environmental impact which diminishes their benefit potential. The Seiyun Project was not accompanied by a sanitation component which results in a threat to public health, an acceleration in the decay of the secondary distribution system and a potential threat to the aquifer. Environmental issues in the Aden project stem from the declining water table in the Wadi Tuban aquifer and worsening water quality.

Institutional Impacts

12. The Seiyun Project resulted in the establishment of a new branch. Following unification, the Aden Head Office of the former PWC has been reduced to a branch office of NWSA. There is some question about whether the branches' autonomy is matched by an institutional strengthening of their capacity to deliver on the increased responsibilities. While the Seiyun and Aden branches made headway in increasing staff productivity, both branches are operating below the goals determined in the Staff Appraisal Reports (SARs). Formal training provided is inadequate for efficient operations.

13. The two branches' ability to maintain infrastructure presents a mixed picture. On the bright side, both branches maintain capable emergency leak repair units and Aden Branch engineering staff demonstrated an excellent capability of reestablishing water supply in a reasonable time frame after civil strife. However, both branches still face problems in maintaining existing infrastructure. First, physical losses are increasing. Second, in Seiyun key equipment such as pumps cannot be maintained. Third, water testing laboratories are exhibiting signs of diminishing capacity in both branches.

14. The financial situation is a cause for concern: first, water tariffs are established for the entire country and require cabinet approval thus causing delays and iniquities between branches; second, the financial relationship between the branches and head office is inconsistent, e.g. the Seiyun branch occasionally provides cash to the head office to tide over cash flow problems, while the larger Aden branch does not; third, the accounting systems at both branches require serious and urgent attention and assistance in computerization. Both Aden and Seiyun branches incur significant accounting losses. 20

Sustainability of Benefits

15. Benefits are not sustainable under the current mode of operation:

* Institutional development is incomplete as evidenced by inadequate delegation of authority to branches and their consequent inability to make operational decisions such as staffing, salary levels, and tariffs.

* Inadequate training hinders efficient operations. Neither branch conducts scheduled preventive maintenance of the secondary distribution system and commercial systems are under stress.

* Financial viability of the two branches would be constrained without three layers of in-built subsidies including a progressive tariff, government subsidies for pumping via artificially low energy charges, and the exchange rate risk borne by the government.

* NWSA is jeopardizing the MCHP's recovery of the SUDP costs by sporadic and incomplete remittances of costs recovered from Musayk residents.

* NWSA does not currently possess the ability to regulate over-pumping of groundwater resources. Inadequate regulation affect Sana'a and Aden; Seiyun has adequate supplies to last longer.

Project Ratings

16. The Seiyun Project's outcome is rated as satisfactory as it was in the PCR. The rating for institutional development impact is revised from substantial to moderate because the branch has been unable to consolidate the gains in institutional development. The sustainability rating is revised from likely to uncertain. Factors that contribute to this revision include rising UFW, diminished capacity of commercial systems, losses in recent years, inability to expeditiously maintain key equipment, and incomplete institutional development. Bank performance, which was rated as adequate (old rating system), is now rated as satisfactory. Borrower performance which was not previously rated is now rated as satisfactory.

17. The Aden Project's outcome is rated as unsatisfactory as it was in the ICR. The institutional development impact is rated as negligible as it was in the ICR. The sustainability of project benefits is rated as uncertain since results from the ongoing improvement programs are still pending. Bank performance is rated as unsatisfactory, as it was in the ICR, for its failure to adequately monitor and prevent problems with procurement of pipes and the failure of a storage tank, but the Bank took a strong stand on critical issues towards the end of the project. Borrower performance is rated as unsatisfactory, as it was in the ICR, for failing to prevent procurement problems and not consolidating the institutional strengths of the former PWC.

18. The outcome of the SUDP is rated as satisfactory. The institutional development impact is rated as moderate as the project improved the technical and managerial capacity of MCHP. The sustainability of benefits is rated as uncertain due to the lack of information as to Sana'a branch's capability to maintain water supply and sanitation systems. Bank and Borrower performance are rated as satisfactory. 21

Lessons

19. Based on its evaluative findings, the Audit draws the following key lessons:21

* NWSA's accomplishment under these projects show that Bank assistance should have been better targeted to improvements in institutional performance.

* While the Seiyun and Aden branches are structurally autonomous, they do not enjoy sufficient decentralization and do not operate entirely on a commercial basis. Their functional responsibilities are not matched by adequate autonomy or availability of resources. The Aden branch's failure to install the planned hydrogeological unit adversely affects its ability to manage the scarce groundwater resource.

* The Bank should have taken a firm stand on NWSA's failure to comply with financial covenants sooner after the unification.22

Recommendations

20. The Audit makes the following recommendations:

* Critical institutional reforms are necessary prior to committing funds for future investments. NWSA should evaluate head office and branch relationships to streamline functionality. Branches need to be significantly strengthened to match responsibility with appropriate authority including effecting cost recovery from government agencies.

* The focus of future investments should be on water conservation through rehabilitation of distribution networks, improvement of O&M activities, and sustainable development of groundwater resources. This should be developed in parallel with improvements in sanitation which have been neglected for too long. Future investments should seek an appropriate balance between water supply and sanitation.

* Future investments should examine the trade off between additional pumping capacity and storage volume more carefully than in the two water projects evaluated in this audit. Such an analysis would lead to a better overall solution with significant reductions in power outages and capacity costs.

21. It should be noted that the ICR on the Aden project contains a particularly comprehensive set of technically oriented lessons regarding project design and implementation. 22. The Middle East and North Africa Region in their comments on the PAR (memo dated March 25, 1997) states that they disagree with this lesson because of the atmosphere of national crisis after the unification made tariff adjustment politically impossible. The memo reports further that conditioning of future lending on financial performance was preferable to suspending disbursements.

23

1. Background and Project Description

Macro-economic and Political Setting in Yemen

1.1 The ROY was established in May 1990, when the YAR and the PDRY were unified. The unified government designated 1990-92 as a transition period, when it concentrated on the task of merging the two administrations and realigning the two economic systems, the market economy of YAR and the planned economy of PDRY. The transition period culminated in parliamentary elections and a coalition government of three leading parties. Differences between two parties resulted in military conflict in May-June 1994 and a subsequent two party coalition.

1.2 The economies of both the YAR and the PDRY grew rapidly in the 1970s followed by a slowdown in the 1980s. Despite important differences, the development strategy in both countries prior to unification was inward-looking, public sector led, and dependent on external financial assistance and worker remittances. The main economic problems facing the ROY today are: (a) macro-economic imbalances and instability leading to significant currency devaluation; (b) a large, inefficient and heavily indebted public sector; (c) repressed international trade; (d) remaining price controls; (e) restrictive legal and regulatory environment; (f) continuing poverty; (g) rapid population growth and inadequate human resources development; and (h) increasingly severe water shortages.

Water and Sanitation Sector: Resources and Institutional Structure23

1.3 The ROY as a whole has one of the most serious water problems in the world. The country has no perennial river, and the limited groundwater resources are being over-tapped. There is a proliferation of the use of tubewells for agricultural purposes and an estimated 45,000 unregulated wells are in operation. Over-pumping in the highlands is at five times the rate of renewal. At current withdrawal rates, the Sana'a basin aquifers may be depleted by around 2010. Wadi Hadramawt and Seiyun to the East are better endowed, with projected groundwater availability exceeding a hundred years at current withdrawal rates.

1.4 There is no viable mechanism to allocate water between rural and urban uses. This problem is exacerbated by weak governmental implementation capacity which reduces the scope for regulation and management.

1.5 Ministerial level bodies which influence water resources management include the Ministry of Agriculture and Water Resources (MAWR) and the MEW. Additional sector agencies include the National Water Resources Authority (NWRA), established in October 1995 to prepare a policy framework for water use, including a modern water law, and the NWSA of the former YAR. Since unification, NWSA includes the PWC of the former PDRY and is charged with the responsibility of addressing water supply in towns and cities with populations exceeding 10,000. NWSA's operations are decentralized into regional branches. The former head office of the PWC is now the Aden Branch of NWSA.

23. Sources: ROY Country Assistance Strategy, January 29, 1996; ROY, Natural Environmental Action Plan, Environment Protection Council, Sana'a, 1996; ROY Water Supply and Sanitation Sector Policy and Strategy Study, May 1996. 24

Project Design

1.6 Before unification of the two countries, the Bank supported the NWSA in the YAR and the PWC in the PDRY. Support to the NWSA in the ROY continues after unity.24 Bank lending to YAR for urban infrastructure commenced in 1974 and included seven water supply and urban development projects. Lending to PDRY commenced in 1978 and included six water supply projects. Since unification, two additional projects have been approved. The main focus of the Bank projects has been supporting the Water Supply and Sanitation sector, increasing the awareness of sector needs among other international aid agencies and providing badly needed financial assistance.

Objectives and Components

1.7 The Bank supported sector projects included in the Audit are the Seiyun Project,25 the Aden Project,26 and the SUDP.27 The Audit examined all aspects of the Seiyun and Aden projects but only the water supply and sanitation components of the SUDP. These aspects are highlighted as pertinent.

1.8 Both the water supply projects, i.e. the Seiyun Project and the Aden Project were originally implemented by the PWC and were turned over to NWSA after unification. The SUDP was implemented by the MCHP. The NWSA undertook the responsibilities of assisting in the supervision of the water supply and sewerage component and in cost recovery from beneficiaries of the sites and services component.

1.9 The Seiyun Project was designed with the objectives of providing improved quality water to meet the projected 1995 demand, to establish an office of the former PWC to replace private enterprises in managing potable water supply operations in Wadi Hadramawt, and to strengthen the O&M procedures and financial position of the PWC. Project components included development of a new well field, enhancing the storage and distribution systems, providing staff training, conducting water supply studies in Aden and Tarim, and conducting a sanitation study for Seiyun. The project was expected to directly contribute to greater community health benefits associated with improved water quality, and to institution building via strengthening of the PWC. The project also anticipated implementation of improved sanitation systems to follow from the Seiyun study.28

1.10 The Aden Project objectives included increasing water production to meet peak demands through the year 2000, complete rehabilitation and expansion of the distribution network, reduce unaccounted for water (UFW), and establish a hydrogeological unit to determine safe yield of aquifers. Project components included development of a well field, construction of a transmission pipeline and reshaping the primary distribution network, enhancement of the existing distribution system, funding for a hydrogeological unit, and training.

24. For a complete list of projects see Annex A, Table 1. 25. Cr. 1418-YDR. The Bank financed $7.9 million of a $20.2 million water supply project. 26. Cr. 1739-YDR. The Bank financed $6.7 million of an estimated $54 million water supply project. 27. Cr. 1202-YAR. The Bank financed $14.8 of a $33 million urban infrastructure project. The water supply and sanitation components of this project amounted to $9 million. 28. See Seiyun Project SAR (Report No. 4357, date 10/1/83) pages 29 and 30. 25

1.11 The SUDP was conceived as a demonstration project designed to assist the government in developing urban land to provide infrastructure to the urban poor, to encourage local contractors, and reinforce the existing institutional framework to implement future projects. The water supply and sanitation components of this project included provision of these facilities to the target population. Further, the NWSA was charged with the responsibility of using its commercial apparatus to recover infrastructure development costs from the residents of Musayk.

Quality at Entry

1.12 The projects' objectives were all relevant. The objectives and components responded to priority needs in Seiyun because of the declining availability and deteriorating quality of water provided by the water companies in Wadi Hadramawt. Strengthening the functioning of the Aden based PWC by establishing the local Seiyun branch was particularly relevant. This was also the case in the Aden project because of declining per capita water availability and because of the need to expand the distribution system to cover a growing population. Institutional strengthening objectives were relevant because of the over-pumping of aquifers and declining water quality. The objective of providing water and sanitation infrastructure in the sites and services of the SUDP was also relevant to protect the health and environment of the beneficiaries.

1.13 Project design was generally supportive of the objectives, but had two shortcomings in the Audit's view. First, the Seiyun SAR estimated that by the time the water supply works were completed, the implementation of improved sanitation systems would be under way. However, this expectation did not materialize due to the high cost of the sanitation system. Second, neither the Seiyun nor the Aden SAR contained evidence of analyses conducted to minimize overall costs by increasing storage when water is pumped over high elevations. Both branches rely on expensive power generation equipment and on pumping water during peak electricity demand hours. Operating costs might have been reduced by increasing pumping during off peak hours and storing the water. Preliminary calculations by the Audit (Annex B) indicate that the potential for such savings existed in the Aden Project, but not in the Seiyun Project where water is pumped over less than 50 meters in total.

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2. Implementation and Results

Projects' Highlights from the PCRICRs

2.1 The highlights below are based on the information extracted from the respective PCR/ICRs.

PhysicalResults

2.2 While the physical targets were substantially met,29 and coverage targets for the Seiyun and Aden Projects were exceeded, 30 the two water supply projects were delayed by several factors, many beyond the borrower's control. The Seiyun Project experienced a delay of about a year because of civil disturbances in 1986 and financing shortfalls related to foreign exchange fluctuations. The Aden Project experienced financing delays and the project was restructured because the Kuwait Fund withdrew from its commitments in the aftermath of the Gulf crisis. The final portion of the Arab Fund contribution was delayed and a distribution system expansion and metering component was consequently not anticipated to be completed until April 1996. A major water storage tank cracked during testing and had to be repaired at a cost of two million dollars. The WS&S component of the SUDP was completed as scheduled.

2.3 All three projects incurred cost over-runs but to a varying degree. The Seiyun Project cost over-runs were approximately 25 percent. The ICR for the Aden Project estimated costs to exceed budgets by approximately 70 percent. The cost over-run for the infrastructure component of the SUDP was approximately 16 percent.

InstitutionalDevelopment

2.4 Both the Seiyun and Aden water supply projects were associated with significant gains in the capabilities of the institutions implementing these projects. The Seiyun Project has been associated with the development of a new operational branch at Seiyun. This branch has gradually taken on increasing responsibility of supplying water to several villages in Wadi Hadramawt and will eventually also subsume operations in the nearby town of Tarim. The Aden branch was head office of the former PWC in the PDRY and has seen a significant role redefinition. The Aden Project is associated with the evolution of a staff capable,of undertaking significant engineering challenges such as expeditiously re-commissioning generators and pumps severely damaged by civil strife. At the same time, other aspects such as the formation of a hydrogeological unit to manage groundwater resources were not achieved. The Aden Project ICR found that "training targets were not met and training provided was not carried out within an overall framework for human resource development."

29. See Annex A, Table 2. 30. Seiyun Project PCR, Republic of Yemen, Seiyun Regional Water Supply Project, (Credit 1418-YDR) March 15, 1991, Report No. 9423, page. 18, and Aden Project ICR Greater Aden Second Water Supply Project (Credit 1739-YDR), June 19, 1995, Report No. 14628, page 21. 28

Ratings and SignificantLessons

2.5 The Seiyun Project's outcome was rated as satisfactory. The project was assessed as having a substantial impact on institutional development.31 Sustainability was rated as likely. Bank performance was rated as adequate.32 Borrower performance was not rated under the prevalent rating system.

2.6 The Aden Project's outcome was rated as unsatisfactory. The project was assessed as having a negligible impact on institutional development. Sustainability was rated as uncertain. Bank and Borrower performance were rated as unsatisfactory.

2.7 The SUDP ratings pertain to the entire project and do not focus on the water supply and sanitation components separately. Most pertinently, physical objectives were satisfactorily met.

2.8 The Seiyun Project's PCR found that the NWSA audited reports were delayed by several months, and the Aden Project's ICR found that the delay in receipt of audited reports had increased to over two years. The Aden Project's ICR concluded that compliance with covenants had been deficient since the merger of PWC into NWSA. The Aden Project's ICR found that the Bank did not monitor procurement and construction-related issues effectively. However, the Bank did react to changes caused by unification.

2.9 The lessons identified were that additional focus is required on operational efficiency. Recommended approaches included provision of more training, tight control over unaccounted- for water, greater institutional autonomy, and computerized billing. The Aden Project's ICR also recommends that project objectives should be revised to reflect major events such as war and unification.

The Audit's Findings

Physical Results

2.10 In the Aden Project, additional delays in release of Arab Fund monies held up the expansion of the distribution system and metering beyond PCR completion estimates. During the Audit mission in May/June 1996, NWSA staff reported that Arab Fund monies had been released and the procurement of requisite materials had begun. The system expansion was expected to be completed during late 1996.

2.11 While the water supply and sanitation components of the SUDP experienced slight delays they were not a bottleneck in the achievement of project objectives. The Audit found that the municipality is providing inadequate solid waste removal facilities. Solid waste is disposed of on land adjacent to the houses and remains uncollected for days.

31. Project information for Annual Review, OED, January 29, 1991. 32. See Annex A, Table 3. 29

Impact on Beneficiaries

2.12 Coverage. All three projects achieved the objective of approaching a one hundred percent population coverage for metered water supply.33 The targets were exceeded in Seiyun and Aden. The SUDP supplemented the water supply services with sewerage services albeit 34 with some delays associated with a separate Bank-funded project. Almost the entire target population benefited from the Seiyun and Aden Projects, and since the SUDP was specifically targeted to benefit the low-income community, they are considered to have been covered.

2.13 Affordability. The cost of water is affordable to poor and average income households.3 5 Assuming that a low-income household consumes approximately 40 lcd, and using the 1992 minimum tariff of 2.86 Riyals/m3 , the monthly cost to a household of seven persons amounted to 24 Riyals or approximately one percent of the 1992 household income of the bottom 15 percent of the population. Recent tariff hikes to 7 Riyals/m imply that these households pay no more than three percent of monthly income even if incomes have not increased since 1992. Similarly, an average household earning approximately 13,000 Riyals per month and consuming 100 lcd today spends approximately one percent of income on water.

2.14 Minimum Needs. The share of the projects' water production consumed for minimum needs varies by project but these appear to be met. Over 60 percent of the water sold in the Seiyun Project is billed for household consumption of less than 15 m3 per month (less than 70 lcd). Similar estimates are not available for the Aden Project, but since commercial and industrial consumers account for more than half the water sold, the percentage devoted towards meeting minimum needs is estimated to be lower than fifty.

2.15 Consumption Level. The per capita water consumption presents a mixed picture. When the PCR was prepared in 1991, per capita consumption in Seiyun was higher than projected in the SAR. At the time of the Audit, consumption had increased further. Consumption in Aden declined after 1993.37 The 1995 per capita consumption of 79 lcd was less than the pre-project consumption of 87 lcd. Further, several Aden neighborhoods report problems with low pressure and water rationing which results in supplies of less than 24 hours per day. Higher than anticipated population growth in Aden has contributed to these problems.

2.16 Public-HealthBenefit. The two water supply projects provide a positive public health benefit. However the potential benefit is not fully achieved. The water quality in the Seiyun Project improved significantly as a result of this investment. Well water samples testing positive for coliform bacteria declined from 19 percent before the project to zero in the period 1993 through 1995. This benefit is now threatened by increasingly leaky distribution systems which show growing susceptibility to contamination. In the Aden system for example, the proportion of samples testing positive to coliform bacteria has increased from less than one percent in 1985

33. Coverage achieved was 100 percent in the SUDP, 96 percent in the Seiyun Project and in excess of 85 percent in the Aden Project. 34. The project's sewers were intended to be linked to the sewage system via an interceptor sewer constructed under the Sana'a Second Water Supply and Sanitation Project (Credit 0670 closed in December 1984). Delays in constructing this interceptor held up this key link and also delayed cost recovery. 35. See Annex, A Table 4. 36. Water consumption in 1991 was 52 lcd as opposed to the implicit appraisal estimate of 45 lcd. Actual 1996 consumption was even higher at 77 lcd. 37. See Annex A, Table 5. 38. Calculated from Appendices to the Wadi Hadramawt (Seiyun-Al Qatn) Potable Water Supplies-Master Plan Study (3 Volumes) John Taylor and Sons, January 1979. 30 to 10 percent in 1995.39 Similar data on the Seiyun system were not available. Nevertheless, the systems provide a positive health benefit as health conditions would be worse without them. Benefits provided by the Aden Project became evident in the aftermath of the 1994 civil strife which disrupted water supply for several months and resulted in a significant jump in cholera, typhoid fever, viral hepatitis, and diarrhea.4 0

2.17 Non-Domestic Consumption. Businesses, government agencies, and other commercial establishments have also benefited from the two water supply projects. These sectors account for approximately ten percent of the water consumed in Seiyun and 50 percent of the water consumed in Aden. The share of non-domestic consumption has not changed over time.

Environmental Impact

2.18 The two water supply projects have had a negative environmental impact which diminishes the benefit potential of the projects. The Seiyun Project was not accompanied by a sanitation component and this is likely to hurt the project in three ways. First, since residents dispose sewage by way of soak pits which are prone to over-flowing, the sewage sporadically threatens streets and public health. Second, project staff point out that water pipes in the vicinity of these soak pits corrode faster and are more prone to bursting. These bursts contribute to an acceleration in the decay of the secondary distribution system (predominately G-I pipes) and thus increase UFW. Third, the soak pits potentially threaten the aquifer. Despite the inclusion of a component to study the Seiyun sanitation situation in the Project, and the awareness of the branch management of the potential risk to the aquifer, no sanitation project has been undertaken. On the contrary, the Seiyun housing authorities have authorized housing and consequently additional soak pit construction within a few hundred yards of the bore holes, thereby potentially increasing the threat to the aquifer.

2.19 The Aden Project did not include a sanitation component either, but existing waste water facilities are currently being rehabilitated under a project funded by KfW. The environmental issues in this project stem from the continuing over-pumping of the Wadi Tuban aquifer. The Audit was informed that the water table is showing a downward trend. In addition, water quality in this aquifer is declining slightly.41 The SAR noted in 1986 that the Bir Ahmed well field which draws from this aquifer was experiencing a decline in quality. The Audit finds that the Bir Nasser well-field which also draws from this aquifer is showing slight signs of decline in water quality. One potential solution that was tried to mitigate the impact of this deterioration was to blend the ground water with desalinated water from the Russian-built Hiswa desalination plant. However, this plant has failed to live up to its capacity expectations and production cost is more than 15 times higher than the NWSA cost of water production and distribution.

39. See Annex A, Table 6. A strong positive correlation (0.75) between the percentage of samples testing positive for coliform bacteria and cases of viral hepatitis indicates an urgent need to address the possible presence of this virus in the Aden distribution system. 40. See Annex A, Table 7. 41. See Annex A, Table 8. 31

3. Institutional Development

Evolution of NWSA and Institutional Relationships

3.1 The institutional objectives and, consequently, the achievements of the projects were different. The Seiyun Project resulted in the establishment of a new branch originally under the management and close operating support of the Aden head office of the former PWC. However, this branch now reports to the NWSA head office in Sana'a though some head office functions, such as calculation of the Seiyun Project's depreciation and loan repayments, are still performed in Aden. Though the Seiyun branch's new status has ostensibly resulted in greater autonomy, there is some question about whether this autonomy is matched by a strengthening of its institutional capacity to deliver on the increased responsibilities. While responsibility of performing these functions has shifted to the Seiyun branch, resources and skills have not grown correspondingly.

3.2 The Aden Head Office of the former PWC, on the other hand, has been reduced to a branch office of NWSA, like the Seiyun branch office.42 This change has reduced responsibilities of the Aden branch from those of managing water supply provision from all the former PDRY, including the Seiyun Branch, to managing this function for the Aden branch only. The branch now services Aden city and neighboring townships.

3.3 While the two branches made headway in increasing staff productivity, they are operating below the goals determined in the SARs and separately by NWSA. 43 The number of staff per thousand connections44 improved from 11.7 in 1990 to 10.7 in 1995 for the Seiyun Project and from 16 to 14.3 for the Aden Project. The targets were 8 for the Seiyun Project and 11 for the Aden Project. The NWSA head office has a goal of 9 for its operating branches.

3.4 The management at both branches indicated that formal training provided is inadequate for efficient operations. NWSA has not instituted a system to take advantage of any locally available accounting or computer training facilities. NWSA 's own training sessions are often not attended by out of town trainees because boarding allowances are poor. The Aden Branch management, however, stressed that gains made by on-the-job training should not be ignored.

Institutions' Ability to Maintain Infrastructure

3.5 The two branches' ability to maintain infrastructure presents a mixed picture. On the bright side, both branches maintain leak repair units capable of responding to consumer reports of pipe bursts within a few hours and close to 100 percent metering has been achieved. The engineering staff at the Aden branch also demonstrated an excellent capability of re-establishing water supply in a reasonable time frame after war time destruction. Reinstallation and repair work on pipelines, generators, and pumps was conducted entirely by existing branch staff.

42. As mentioned, a few head office functions have still to be transferred to Sana'a. 43. Staff Appraisal Report, Seiyun Regional Water Supply Project, October 13, 1983, Report No. 4357a-YDR, and Staff Appraisal Report, Greater Aden Second Water Supply Project, October 3, 1986, Report No. 5858a-YDR. 44. See Annex, A Table 9. 32

3,6 Several aspects, however, indicate the two branches' inability to maintain the existing infrastructure. First, physical losses are increasing in both branches. 45 Factors that contribute to this increase include accelerated decay of the secondary distribution system caused by aggressive soil conditions, adoption of the failed pipe replacement strategy instead of a planned obsolescent strategy and shortage of financial resources to purchase meters and leak detection equipment. Second, Seiyun branch management identified deficiencies in areas such as provision of equipment and supplies and availability of developmental resources to expand the system.

3.7 Third, the Seiyun branch does not possess the same capabilities as the Aden branch. Key equipment such as pumps cannot be maintained by the branch staff and have to be sent to Sana'a or Aden for repair. As another example, the Seiyun branch has been unable to arrange for the repair of an imported automated chlorinating plant because of inadequate in-house technical resources on the one hand and poor financial strength on the other.

3.8 Fourth, the water testing laboratories in both branches are exhibiting signs of diminishing capacity. Both laboratories are running out of imported chemicals and sampling kits and have expressed the inability to obtain the resources to replace these consumable items. The laboratory in the Aden branch has stopped monitoring the water quality at the distant Bir Ahmed and Abyan well fields because of shortage of vehicles to collect samples.

Financial Management

Finances

3.9 The finances of the Seiyun and Aden branches raise several concerns. Foremost, it appears that the two branches do not consistently recover the full costs of their operations. Water tariffs are established for the entire country and require cabinet approval. Since the cost of water, and consumption patterns are different for different branches, this unified pricing approach is expected to have different impacts on different branches with different cost structures.46 The tariff levels resulted in losses to the Seiyun branch in 1992, 1993, and 1994 and a break-even situation in 1995. An exception to this approach was made in Aden to facilitate a higher tariff for industrial users. The Aden branch reported profits in 1994 and 1995. However, it is noteworthy that the reported profits do not adequately allow for the very high accounts receivable, many of which may never be recovered. Such an allowance may result in losses being reported by the Aden system. 3.10 The Seiyun and Aden branches incur significant accounting losses on top of physical losses. Approximately 82 percent and less than 30 percent of the amounts billed by the Seiyun and Aden branches, respectively, was collected in 1995. The cumulative accounts receivable in the Aden Branch amount to 18 months of sales.4 7 The Defense Ministry is the largest single delinquent customer and accounts for 66 percent, or approximately 12 months equivalent of the accounts receivable in the Seiyun branch, and 33 percent in the Aden branch. Staff from both branches expressed their inability to expeditiously recover costs from government agencies.

45. See Annex, A Table 10. 46. For example, the cost/M3 produced in Seiyun and Aden in 1995 were 9 and 8 Riyals, respectively. 47. Comparable data on the Seiyun branch are not available. 33

3.11 There is significant evidence of diminishing solvency, at least in the Aden Branch. The end-of-year cash position has declined from 65 percent of annual operating costs (excluding depreciation and interest) in 1986 to 23 percent in 1994. By the end of 1995 the cash situation had worsened; cash at hand amounted to less than one month of expenses, and in May 1996 the branch had resorted to delaying payments to suppliers to manage cash flow.

3.12 The cost of production estimates for both projects are understated because the government subsidizes the exchange losses. This subsidy has increased with each successive devaluation of the Yemeni Riyal. In 1994, the exchange rate was $1 = 12 YR and in 1995 it was $1 = 50 YR. As a result, the implicit subsidies associated with ROY payments to the Bank were 5.4 million Riyal for the Seiyun Project and 1.7 million Riyal for the Aden Project, or 2 and 4 percent, respectively, of operating costs. The implicit 1995 subsidy to the SUDP was 11 million Riyals. In May 1996, the exchange rate had increased to $1 = 135 YR, thereby more than doubling the implied subsidy. The large magnitude of the exchange risk was not foreseen and mitigated. The SAR only states that the government will undertake this risk; such practice is not the rule for revenue earning beneficiaries such as public utilities. 48

FinancialSystems

3.13 Financial systems affecting head office and branch relationships as well as branch level financial systems need improvement. Financial transfers do not obey any set of rules, and accounting and billing systems are not up to the needs.

3.14 The financial relationship between the branches and head office is inconsistent. The Seiyun branch is requested to provide cash to the head office to tide over cash flow problems. At the same time the head office is prevented by an agreement with the KfW from making excessive cash requests from the Aden branch. Since the Aden branch revenues are approximately 50 percent of NWSA's consolidated revenues, the head office burden on other branches such as the Seiyun branch is potentially doubled.

3.15 The accounting systems at both branches require serious and urgent attention. The NWSA head office has failed to provide consolidated or branch-wise disaggregated audited reports since 1993. The Seiyun Branch does not use computers and accounting of customers' dues is performed manually. Bills are prepared on their behalf by the electricity department in Sana'a. The Aden Branch has also experienced computer related problems. Recent attempts to computerize billing records proved to be unsatisfactory and resulted in significant delays in billing which in turn contributed to cash flow problems. Staff at both branches expressed the urgent need for computers and computer training to expedite billing at lower cost.

3.16 Furthermore, NWSA has not delivered its contracted financial obligations to the MCHP and has held up transferring costs recovered from beneficiaries. These costs should be recovered from beneficiaries of the Musayk project along with water dues but have not been paid to the MCHP thereby jeopardizing the cost recovery of the SUDP. One estimate of the shortfall in the years 1988 through 1995 is 18 million Riyals or 80 percent of the amounts required to be collected. Further, following a 1995 cabinet decree,49 NWSA stopped collecting these amounts.

48. The Bank credit for the Seiyun Project embodies a borrowing rate of approximately one percent per annum over 50 years if exchange rate fluctuations are ignored. After incorporating the devaluations through 1996, and assuming no further currency fluctuations, the implied borrowing cost exceeds 12 percent per annum. Similar observations hold true for all three projects. 49. See Annex B, translation of March 10, 1996, letter from MCHP to MEW.

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4. Factors of Performance

4.1 Yemen has faced unique and severe conditions that were out of the control of sector and project staff; some are global in nature and others are country specific. The principal global factor was the Gulf crisis which had two key impacts. First, it resulted in repatriation of Yemenis from the Gulf back to Yemen, primarily to the Aden area and, thereby, increased the Aden population and demand for water supply services. Second, it was associated with the termination of Kuwaiti commitments and significant delays in receipt of Arab Fund funds for the Aden Project which restricted the branch's ability to respond to the accelerated demand growth.

4.2 Country factors include the following: unification, over-staffing of government, and devaluation. Unification resulted in restructuring of the political, administrative and economic systems, e.g. the new administration is over-staffed. High inflation rates and devaluation of the Yemeni Riyal have impaired the projects' ability to obtain imported spare parts and materials.

4.3 Factors over which the sector or branch staff have some degree of control include the following. First, the sector has been reorganized by combining the PWC of the former PDRY into NWSA headquartered in Sana'a. This reorganization has reduced the Aden office to a branch. The Seiyun branch also reports to the Sana'a head office. Both branches share common and unsatisfactory experiences stemming from this restructuring: (i) many staffing decisions are centralized in NWSA's Sana'a head office thereby adversely affecting staff morale; (ii) micro level decisions such as recruitment, salary increases, bonuses and disciplinary actions which should be best carried out at the branch level come under the close review and control of the Sana'a Head Office, and the branch management complain of instances where staff choices were imposed on them; (iii) salary-related decisions require approval from the Labor Ministry and water tariffs require Cabinet approval.

4.4 Further, NWSA pays a flat rate on electricity consumed despite the nationwide shortage of electricity. The electricity tariff structure does not provide NWSA an incentive to increase production and storage during off peak hours to save on electricity costs. This situation which results in an inappropriate incentive structure could be easily remedied because NWSA is managed directly by the MEW.

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5. Sustainability and Future Projects' Operation

5.1 Several factors indicate that even though the projects have made a significant contribution, sustainability of benefits is uncertain. These factors include the following.

5.2 First, institutional development is incomplete as evidenced by inadequate delegation of authority to branches and their consequent inability to make operational decisions such as staffing, salary levels, and tariffs. Water testing laboratories in both branches are hampered by reduced capabilities. The Seiyun Branch is unable to expeditiously maintain key equipment such as pumps and chlorinating equipment.

5.3 Second, inadequate training hinders efficient operations. Evidence of poor training includes the fact that neither branch conducts scheduled preventive maintenance of the secondary distribution system and both opt for the less efficient break-down maintenance. The commercial systems in both branches are under stress leading to an inability to adequately recover dues from customers.

5.4 Third, the financial viability of the two branches precariously relies on three layers of subsidies. The first subsidy results from the exchange rate risk borne by the Government which results in significant debt service savings to the two branches (see para.3.12). The second subsidy results from the Government which subsidizes water pumping via artificially low electricity tariffs and diesel charges. The third subsidy is built into the progressive tariff which results in transfers from commercial and industrial consumers to domestic consumers. Without the first two subsidies, average tariffs would be higher. Further, experience shows that excessively progressive tariff structures promote the flight of larger (industrial and commercial) consumers to private water sources and deprive utilities of corresponding resources.

5.5 Fourth, NWSA does not currently possess the ability to directly regulate or to indirectly influence over-pumping of groundwater resources. Existing laws allow land owners extensive rights over groundwater. The impact of inadequate regulation affect particularly Sana'a but also Aden more than Seiyun which has adequate supplies to last a century at current withdrawal rates. While NWRA has been recently established to manage water resources, it is premature to evaluate its effectiveness and impact.

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6. Conclusions, Lessons and Recommendations

Conclusions

Project Outcomes

6.1 The physical outcomes of the projects, except for the Aden Project, were generally satisfactory. Institutional objectives have not been met and the management at both the Seiyun and Aden branches are weak and in need of strengthening. Neither project is achieving cost recovery objectives and thus project benefits are not sustainable in their current mode of operation.

Borrower Performance

6.2 The Borrower's performance in implementing physical and institutional development components has deteriorated over time. Physical components of the Seiyun Project and the water supply and sanitation-related physical components of the SUDP, which were completed before 1986, were satisfactorily concluded. Physical components of the Aden Project, which were scheduled to begin after 1986, were delayed three or more years. Institutional development components are pertinent to the two water supply projects and a deterioration in institutional capability is evident. The Audit confirms PCR/ICR findings that NWSA audited reports are still more than two years late and compliance with covenants is deficient.

6.3 NWSA's compliance with covenants has been deficient, notably after the unification. The most significant violations of covenants include delayed financial reports and quarterly progress reports. Audited reports have not been regularly provided and the delay in their receipt now exceeds two years. These delays have prevented the Audit from conducting an evaluation of NWSA's compliance with financial covenants. NWSA has not increased tariffs adequately to meet expenses, debt service requirements and increases in working capital.

Bank Performance

6.4 The Audit agrees with PCR/ICR findings on Bank performance (i.e. overall effectiveness of technical supervision but lesser performance in supporting institutional development) and adds that the Bank overlooked the risks associated with currency devaluation. This risk was not evaluated in the SARs for any of the three projects. In addition, during the supervision of the Aden Project the Bank was unable to monitor and prevent problems with procurement of pipes and failure of a major storage tank. Towards the end of the Aden project, the Bank took, however, a strong stand in resolving many critical issues and revitalizing donor coordination to enhance a program of sector reforms.

ProjectRatings

6.5 The Seiyun Project's outcome is rated as satisfactory as it was in the PCR. The rating for institutional development impact is revised from substantial to moderate because the branch has 40 been unable to consolidate on the gains in institution development and shows signs of declining institutional performance. The sustainability rating is revised from likely to uncertain. Factors that contribute to this revision include rising UFW, diminished capacity of commercial systems, recent losses despite indirect subsidies, inability to expeditiously maintain key equipment, and incomplete institutional development. Bank performance which was rated as adequate under an older rating system is rated as satisfactory. Borrower performance which was not rated in the PCR is rated as satisfactory.

6.6 The Aden project's outcome is rated as unsatisfactory as it was in the ICR. The institutional development impact is rated as negligible as it was in the ICR. The sustainability of project benefits is rated as uncertain because of the improvement programs currently underway in the areas of system rehabilitation, commercial operations, and institutional strengthening have yet to produce results. Bank performance is rated as unsatisfactory as it was in the ICR, for failing to adequately monitor and prevent problems with procurement of pipes and failure of a storage reservoir. It should be noted, however, that the Bank took a strong stand on the issue of reservoir and getting the water supply restored after the civil strife. Borrower performance is rated as unsatisfactory as it was in the ICR for failing to prevent procurement problems and not consolidating on the institutional strengths of the former PWC.

6.7 The outcome of the SUDP is rated as satisfactory; the failure of the Sana'a Second Urban Water Supply and Sanitation project to construct the interceptor sewage line is not considered a weakness of the SUDP. The institutional development impact is rated as moderate; the project as a whole improved the technical and managerial capacity within MCHP. The sustainability of benefits is rated as uncertain due to the lack of information as to the Sana'a branch's capability to maintain water supply and sanitation systems. Bank performance is rated as satisfactory, as is Borrower performance.

Lessons

6.8 Based on its evaluative findings, the Audit draws the following key lessons 50

* NWSA's accomplishment under these projects show that Bank assistance should have been better targeted to improvements in institutional performance.

* While the Seiyun and Aden branches are structurally autonomous, they do not enjoy sufficient decentralization and do not operate entirely on a commercial basis. Their functional responsibilities are not matched by adequate autonomy or availability of resources. The Aden branch's failure to install the planned hydrogeological unit adversely affects its ability to manage the scarce groundwater resource.

* The Bank should have taken a firm stand on NWSA's failure to comply with financial covenants sooner after the unification.5 1

50. It should be noted that the ICR on the Aden project contains a particularly comprehensive set of technically oriented lessons regarding project design and implementation. 51. The Middle East and North Africa Region in their comments on the PAR (memo dated March 25, 1997) states that they disagree with this lesson because of the atmosphere of national crisis after the unification made tariff adjustment politically impossible. The memo reports further that conditioning of future lending on financial performance was preferable to suspending disbursements. 41

Recommendations

6.9 The Audit makes the following recommendations:

* Critical institutional reforms are necessary prior to committing funds for future investments. NWSA should evaluate head office and branch relationships to streamline functionality. Branches need to be significantly strengthened to match responsibility with appropriate authority including effecting cost recovery from government agencies.

* The focus of future investments should be on water conservation through rehabilitation of distribution networks, improvement of O&M activities, and sustainable development of groundwater resources. This should be developed in parallel with improvements in sanitation which have been neglected for too long. Future investments should seek an appropriate balance between water supply and sanitation.

* Future investments should examine the trade off between additional pumping capacity and storage volume more carefully than in the two water projects evaluated in this audit. Such an analysis would lead to a better overall solution with significant reductions in power outages and capacity costs.

43 Annex A

Table 1: Water Supply & Sanitation and Related Bank Loans/Credits in Yemen Loan/Credit Title Purpose Approval Status (mo./yr.) 1. Sana'a Water Provide additional water supply capacity to 1974 Closed in Supply (Credit Sana'a. Expand the distribution network. 6/80. 464-YAR; Provide operation and maintenance US$6.25 million equipment and training. Provide technical equivalent) assistance to develop operation and management capability of NWSA.

2. Hodeidah Water Provide additional water supply and 1975 Closed in Supply and sewerage capacity to Hodeidah. Develop 06/82 Sewerage (Credit institutional and management capability of 0559-YAR; NWSA through training, studies and US$8.10 million technical assistance. equivalent)

3. Sana'a 2nd Water Provide additional water supply capacity to 1976 Closed in Supply and Sana'a. Installation of sewerage network. 12/84 Sewerage (Credit Develop institutional and operational 0670-YAR; capacity of NWSA through training, studies US$10.0 million and technical assistance. equivalent)

4. Water Supply Increase water supply in urban areas; 1978 Completed Engineering strengthen management capabilities. in 1981 S-021-YDR 5. Ibb and Dhamar Provide potable water and sewerage system 1979 Closed in Water Supply and for the cities of Ibb and Dhamar. Develop 12/84 Sewerage (Credit institutional and operational capability of 0950-YAR; NWSA. US$12.0 million equivalent)

6. Greater Aden Increase water supply to meet demand for 1980 Closed in Water Supply the year 1987 in Aden. Rehabilitate 12/85 (Credit 1038- existing water supply system and expand YAR; US$13.2 distribution network. Improve management million capabilities of former PWC through equivalent) training, studies and technical assistance.

7. Al-Mukallah Rehabilitate existing water supply system 1981 Closed in Water Supply of Al-Mukallah. Expand distribution 12/86. Rehabilitation network. Provide hydrogeological, public Project (Credit health and urbanization studies. 1159-YAR; US$3.5 million equivalent) Annex A 44

Loan/Credit Title Purpose Approval Status (mo./yr.) 8. 2nd Urban Strengthen efforts to provide affordable 1984 Closed Development infrastructure to low-income people in 03/92 Credit 1441-YAR Hodeidah through introduction of suitable standards. Institutional strengthening of Hodeidah Office of MHUP. Comprehensive resource mobilization study to finance urban projects. Training and preparation for future projects.

9. Al-Mukallah Increase water production for Al-Mukallah 1988 Ongoing Water Supply to meet effective demand for the year 2002. (Credit 1994- Strengthen and expand the existing primary YDR; US$12.0 and secondary distribution systems. million Enhance operational and management equivalent) capacity of NWSA.

10. Mukalla II Water Increase water supply & reduce water 1988 Ongoing Supply losses, improve the efficiency of operations 1994-YDR Al and maintenance, and introduce computerized billing system.

11. Tarim Water Increase the quantity and improve quality 1990 Ongoing Supply (Credit of potable water to Tarim and adjacent 21 70-YDR villages. Improve operational and US$12.0 million management capacity of NWSA. equivalent) Strengthen the audit profession in the country.

12. Taiz Flood Provide city of Taiz with essential flood 1990 Ongoing Disaster control works. Prevention & Implementing a project cost recovery Municipal mechanism at municipal level. Development Strengthening MHUP's institutional Credit 2160- capabilities. YEM 13. Emergency Help meet immediate returnee-induced 1991 Ongoing Recovery Credit: needs for housing facilities by providing Housing Sites 2,500 serviced sites. Component Credit 2258-ROY

14. Taiz Water Rehabilitate and reinforce the water supply 1996 Ongoing Supply and system of Taiz. Expand the sewerage Sanitation system. Improve operational and Credit 2913-ROY management capacity of NWSA. Provide technical assistance, studies and training. 45 Annex A

Table 2: Achievement of Physical Targets

A. Seiyun Project A. PRODUCTION FACILITIES APPRAISAL ESTIMATE ACTUAL

Construction of Boreholes 6 Units 6 Units Pumps and Motor Drives Included 8 Borehole Headworks and Wellhouses Included 7 Equipment, Transformers Cabling Included Included Wellfield Pipelines 3.1 km; diameter: 300/400 2.95 km; diameter: 200/2500/300/400/450 Standby Generator I included mm Building for Generator Included 1 400 KVA Chlorination Plant and Building Included I building for H.V. Substation Standby generator chlorination equipment B. SEIYUN SYSTEM

Storage Tank (reinforced concrete) 2,700 m3 2,700 m3 Primary Mains: diameter: 400 mm -- 4.4 km diameter: 300 mm 6.2 km 4.6 km diameter: 200 mm 19.0 km 4.5 km diameter: 150 mm -- 6.1 km diameter: 100 mm -- 1.1 km Total 25.2 20.6 km (difference in appraisal & actual due to change in design Replacement of Primary System Included Included in figures above Secondary System Included Included in Item "I"

C. MARYANA SYSTEM

Storage Tank (reinforcement concrete) 100 m3 100 m Primary Distribution System Included 100 m; diameter: 150 mm 1,562 m: diameter: 100mm D. MADUDAH SYSTEM

Seiyun Madudah Pipeline 5 km diameter: 150 mm 5,761 km; diameter: 150 mm Madudah-Bahaira Pipeline 12 km; diameter: 100/150 mm Source of supply changed to originate from Al Hewtn System Madudah-Huan Al-Munsibari Part of Madudah - 2,389 m; diameter: 150 mm and Ard Aloun Pipeline Boharia Pipeline 2,517 m; diameter: 100 mm Madudah-As-Suqair Pipeline 4 km; diameter; 100 mm 1,061 in: diameter: 150 mm Storage Tank at Madudah 200 m' 100 m Primary Distribution 5 km: diameter 80/100 mm 88 m: diameter: 200 mm 1,965 in: diameter: 150 mm

E. TARIS SYSTEM

Seiyun Taris Pipeline 3.5 km; diameter: 200 mm 3,059 in: diameter: 300 mm 721 m: diameter: 200 mm Booster Pumping Station 26.1 liters per second Deleted due to design modification improvements Storage Tank (reinforced concrete) 200 m3 200 m3 Primary Distribution 2 km: diameter 150/100/80 mm 350 in: diameter: 200 mm 1,435 m: diameter: 150 mm 263 in: diameter: 100 mm F. ALGHURFAH SYSTEM

Taris Al-Ghurfah Pipeline 0.2 km; diameter: 200 mm 2078 in: diameter: 300 mm 779 in: diameter: 200 mm

Booster pumping Station 11.9 liters per second Deleted due to design modification improvement

Primary Distribution 6 km; diameter: 80/100/150 mm 53.5 m: diameter: 300 mm 1,204 m: diameter: 200 mm 1,160im: diameter: 150mm Note: "Included" means that the actual quantity was not specified in the staff appraisal report though the item was included under the project: Annex A 46

A. PRODUCTIONFACILITIES APPRAISAL ESTMATE ACTUAL

G. CRAYO SYSTEM

Ghurfah Orayo Pipeline 4.3 km, diameter: 200 mm 4332.5 m: diameter: 300 mm 240 m: diameter: 200 mm Storage Tank (R.C.) 100 m3 100 m3 Booster pumping Station 10.4 liters per second Deleted due to design modification improvement Primary Distribution 3 km; diameter: 100/80 mm 235 m: diameter: 200 mm 1691 m: diameter: 150 mm 383 m: diameter: 100 mm H. AL HAWTAH SYSTEM

Oray-AI-Hawtah Pipeline 3.4 km, diameter: 200 mm 2942.5 m; diameter: 200 mm Primary Distribution 7.7 km, diameter: 80/100/150 mm 360 m: diameter: 300 mm 2025 m: diameter: 200 mm 1630 m: diameter: 150 mm Al-Hawtah-Bohaira Pipeline Included in Maduda 1396 m: diameter: 150 mm Bohaira Pipeline 4326 m: diameter: 100mm Bohaira Primary Distribution Part of Madudah 257 m; diameter: 150 mm Above in "D" 699 m: diameter: 100mm Refurbishment of Existing Not included Modification of reservoir Al-Hawtah Reservoir pipelines and fittings.

I. SECONDARY SYSTEMS IN ADJACENT 25km; diameter: 10mm 1.6 km; diameter: 150 mm TOWNS AND VILLAGES 22.7 km; diameter: 80 mm 24.9 km; diameter: 100 mm 12.5 km; diameter: 80 mm 43.3 km; diameter: 50 mm 110.8 km; less than 50 mm diameter Source Seiyun PCR 47 Annex A

B. Aden Project Physical components listed in the SAR Physical components completed

Constructing and equipping twenty Constructing and equipping twenty boreholes in boreholes in Upper Tuban, five boreholes at Upper Tuban, five boreholes at Bir Nasir and Bir Nasir and three boreholes at Bir Ahmed, three boreholes at Bir Ahmed, including including the supply and installation of installation of casings and screens. casting and screens.

Supply of operational equipment including Supply of water meters, submersible pumps, meters, leak detectors, hydraulic and vehicles, office equipment and hydrogeological workshop tools, laboratory equipment, instruments. cranes, trucks and vehicles.

Consulting services for hydrological studies Construction of the Upper Tuban wellfield, and leak detection and repairs. including all civil and electro-mechanical works. Construction of break-pressure tank (150 in 3 .) Construction of control compound area and transmission main to Bir Nasir. Rehabilitation of Slaughter House pumping station. Design of New Bir Ahmed wellfield.

Consulting services for construction Consulting services for construction supervision, supervision. redesign of Upper Tuban reservoir and soils investigation at the faulty reservoir.

Supply of pipes and fittings. Source: Aden ICR Annex A 48

Table 3: Summary of PCR/ICR Ratings Seiyun Aden" Sanaa' PCR 1991 ICR 1995 PCR 1993

Institutional development impact S N P Project sustainability Likely Uncertain Uncertain Bank performance Adequate U S Borrower performance2 Not Rated U D Assessment of outcome3 S J S 1. S = Substantial, P = Partial, N = Negligible, NA = Not Applicable 2. HS= Highly Satisfactory, S= Satisfactory, D Deficient 3. HS = Highly Satisfactory, S= Satisfactory, U = Unsatisfactory, HU Highly Unsatisfactory 4. OED, Project Information for Annual Review, January 29, 1991. 5. Office Memorandum, from Director OED to Director MN2, December 12,1995. 6. PCRIPIF cover sheet, SUDP, September 22, 1993. These ratings pertain to the entire project and not exclusively to the water supply and sanitation component.

Table 4: Monthly Household Income Distribution in Yemen-1992 Yemeni Riyal Cumulative Low Bound UpperBound Average Income Population % % 0 5,000 2,500 15 15 5,000 7,500 6,250 17 32 7,500 10,000 8,750 16 48 10,000 12,500 11,250 13 61 12,500 15,000 13,750 10 71 15,000 17,500 16,250 7 78 17,500 20,000 18,750 5 83 20,000 25,000 22,500 7 90 25,000 30,000 27,500 4 94 30,000 35,000 32,500 2 96 35,000 42,500 4 100 Source: Yemen Household Survey, 1992.

Table 5: Per Capita Daily Consumption in Seiyun and Aden-1991-1995 (Liters Per Capita Per Day) Seiyun Aden- 1990 52 90 1991 n.a. 92 1992 70 94 1993 72 96 1994 67 78 1995 77 79 n.a. = not available. 1. Source: Calculated from available Seiyun Project PCR and Sciyun Branch data on per connection availability assuming 7 persons per household. 2. Source: Aden Branch. 49 Annex A

Table 6: Water Quality in the Aden Distribution System-1985-1995 Year Number of Samples Samples Testing Percentageof Taken Positivefor Colhform Samples Positivefor Bacteria Cohform Bacteria 1985 2,445 18 0.7% 1986 2,339 120 5.0% 1987 2,562 57 2.2% 1988 2,448 141 5.8% 1989 2,195 78 3.6% 1990 1,713 73 4.3% 1991 1,591 67 4.2% 1992 1,194 56 4.8% 1993 1,639 40 2.4% 1994 394 18 4.6% 1995 399 40 10.0% Source: Aden Branch, NWSA.

Table 7: Annual Cases of Selected Water Borne Diseases in Aden Governorate-1984-1995 Typhoid Acute Polio Viral Cholera Fever Myelitis Hepatitis Diarrhea 1984 - 25 28 177 27,087 1985 - 3 9 137 35,098 1986 - 1 10 89 30,232 1987 - 1 - 89 25,019 1988 - 2 - 222 30,217 1989 - 2 1 168 24,639 1990 - 2 - 89 16,854 1991 408 - - 359 13,381 1992 - 24 - 62 11,663 1993 - - - 187 10,876 1994 11 360 - 213 11,826 1995 54 1,909 - 746 14,357 Source: Ministry of Public Health, Khormaksar, Aden, Yemen.

Table 8: Water Quality at the Bir Nasser Well Field, Wadi Tuban, Aden-1985-1995 Conductivity TD.S. Nitrates mg/L Sulphates Chlorides mg/L S04 mg/L mg/L 1985 1,900 1,216 22 220 250 1986 1,900 1,216 23 280 250 1987 1,940 1,242 22 290 260 1988 1,950 1,248 22 300 280 1989 1,950 1,248 30 300 280 1990 2,020 1,293 31 310 280 1991 2,020 1,306 34 280 286 1992 1,950 1,248 35 375 286 1993 2,000 1,280 35 300 280 1994 2,020 1,293 36 320 286 Who Guidelines 10 400 250 Source: Water Testing Laboratory, Aden Branch. Annex A 50

Table 9: Staff Per Connection in Seiyun and Aden Projects-1990-1995 Number of Employees Number of Connections Employees/1, 000 connections Seiyun Aden II Seiyun Aden II Seiyun Aden II 1990 112 892 9,556 54,000 11.7 16.5 1991 113 867 9,715 55,329 11.6 15.6 1992 112 886 10,000 56,978 11.2 15.5 1993 102 890 10,570 59,662 9.6 14.8 1994 112 900 11,174 60,622 10.0 14.9 1995 122 888 11,441 62,104 10.7 14.3 Source: Seiyun and Aden Branches.

Table 10: Physical Losses in Seiyun and Aden Branches-1990-1995 PhysicalLosses Year Seiyun Aden (percent) (percent) 1990 28.6 20 1991 n.a. 25 1992 23 27 1993 27 25 1994 32 15* 1995 32.6 31 Source: Seiyun and Aden Branches. * Water supplies were disrupted due to civil strife. 51 Annex B

Supply of Water During Peak Periods

Comparison of Pumping vs. Storage Costs

Calculations

1. If "h" is the pumping head in meters, assuming an efficiency of 0.8, the power (and pumping capacity) needed for a flow of Q m3/s is (9.81/0.8) x Q x h = 12 Qh kilowatts.

2. The amortized cost of a diesel generator is 20 percent of its investment cost (15% capital recovery + 5% 0 & M). A diesel generator cost of $600/kW is assumed. The amortized cost of a pump is 15% of its investment cost (13% capital recovery + 2% O & M). A pump cost of $200/kW is assumed. The total annual cost is 0.20 x $600/kW + 0.15 x $200/kW = $150/kW/year.

3. Avoiding the power system peak saves no running costs but saves capacity cost for Q m3/s= $150 x 12Qh= $1,800 Qh.

4. The quantity of water that must be stored during the peak can be calculated assuming demand is a triangle of height Q and base T hours as 3,600 QT/2.

5. The storage cost amortized is 10% of investment (10% capital recovery + 0% 0 & M = 0.1 x $100/M3 = $10/M3 . The Seiyun storage tank of 2,700 M3 cost approximately $405,000 or $150/M . A tank with larger storage capacity is assumed to cost approximately $100/M3 due to economies of scale.

6. Hence storage is cheaper than pumping at peak if 1,800 QT x 10 < 1,800 Qh or if h > 10 x T. The peak demand hours in Seiyun are between 7 p.m. and 11 p.m or approximately five hours. The Aden system may be assumed to have a similar demand pattern. Hence, if T = 5 hours, h > 50m

Conclusion

The above calculations show that storage for every 5 hrs. (T) of peak supply is cheaper than additional pumping when head (h) is greater than 50 meters. Annex B 52 53 Annex C

Republic of Yemen

Ministry of Construction, Housing and Urban Planning Date: March 10, 1996 No.: 676 The Minister of Electricity and Water,

Greetings. Subject: Cost Recovery of Urban Development Project of Musayk District, Sana'a City This is to inform you that the terms of the Loan Agreement, entered into with the World Bank (the International Development Association [IDA Credit]) for funding the Urban Development Project I in Sana'a (Musayk and Sawad Sawan), provides for project cost recovery from beneficiaries.

In accordance with the terms of the Agreement enacted by Law No. (21) of 1982, an agreement was concluded with the National Water and Sewerage Authority [NWSA] on November 17, 1981 providing for project cost recovery by adding a monthly surcharge of YR 80 to water bills of every house [user] in the project district of Musayk for a period of 20 years.

We have been informed recently that NWSA has stopped collecting this surcharge pursuant to Cabinet Decree No. (13) of 1995 which provided for (cancellation of all surcharges to water and electric power consumption bills owed to any agency).

Please be informed that the said surcharge which has been agreed to be collected is designated for recovering the costs of enhancing the services (of road paving, sewerage, storm drainage, street lighting) rather than [for paying user] fees. The collection of such amounts is one of the most important terms of the Loan Agreement enacted by Law No. (21) of 1982.

We call upon you for personal intervention and instruction to NWSA in order to adhere to the terms of the agreement it had entered into with the Ministry and to effect the following:

1. To pay into the Urban Development Fund of the Ministry all the amounts collected by NWSA as provided for by the Loan Agreement.

2. To furnish the Ministry with a list of users who paid and those who did not pay [the said surcharges].

3. To resume collection of such surcharges from users. Default in this matter is considered the most important obstacle facing the Ministry in obtaining new development loans as well as a default of our country's international obligations.

We look forward to your cooperation with us in this matter in aid of public interest.

With best regards.

Minister of Construction, Housing and Urban Planning

Ali Humaid Sharaf