Document of The World Bank

Public Disclosure Authorized

Report No: ICR1969

IMPLEMENTATION COMPLETION AND RESULTS REPORT (TF-94952)

ON A Public Disclosure Authorized

GRANT

IN THE AMOUNT OF 12.5 MILLION EURO

TO THE

REPUBLIC OF MOLDOVA

FOR A

Public Disclosure Authorized MOLDOVA REGIONAL DEVELOPMENT PROJECT

September 16, 2013

Public Disclosure Authorized Sustainable Development Department Ukraine, Belarus and Moldova Country Unit Europe and Central Asia Region

CURRENCY EQUIVALENTS

(Exchange Rate Effective August 1, 2013)

Currency Unit = Moldova Leu 1.00 = US$ 0.0809 US$ 1.00 = MDL 11.90

FISCAL YEAR January 1 - December 31

ABBREVIATIONS AND ACRONYMS AA Administrative Agreement AM Apele Moldovei CAS Country Assistance Strategy CDD Community Driven Development CPS Country Partnership Strategy CW Constructed Wetlands EC European Commission EIA Environmental Impact Assessment EMP Environmental Management Plan EU- NIF European Union Neighborhood Investment Facility Grant FSU Former Soviet Union GA Grant Agreement GEF Global Environmental Facility ICB International Competitive Bidding MRTI Ministry of Transport and Road Industry MSIF Moldova Social Investment Fund MTRI Ministry of Transport and Road Industry NDS National Development Strategy NEF National Ecological Fund NWSSP National Water Supply and Sanitation Program O&M Operation and Maintenance OM Operational Manual PIU Project Implementation Unit RSPS Moldova Road Sector Program Support SEA Sector Environmental Assessment SRA State Road Administration TFO Trust Fund Operational VOC Vehicle Operating Costs WWTP Wastewater Treatment Plant

Vice President: Laura Tuck (Acting) Country Director: Qimiao Fan Sector Manager: Sumila Gulyani Project Team Leader: Ronnie W. Hammad ICR Team Leader: Paula Restrepo

REPUBLIC OF MOLDOVA MOLDOVA REGIONAL DEVELOPMENT PROJECT

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph

Project Background ...... 1 1. Project Context, Development Objectives and Design ...... 1 2. Key Factors Affecting Implementation and Outcomes ...... 7 3. Assessment of Outcomes ...... 12 4. Assessment of Risk to Development Outcome ...... 16 5. Assessment of Bank and Borrower Performance ...... 17 6. Lessons Learned ...... 19 7. Comments on Issues Raised by Grantee/Implementing Agencies/Donors ...... 20 Annex 1. Project Costs and Financing ...... 21 Annex 2. Outputs by Component ...... 22 Annex 3. Results Framework ...... 26 Annex 4. Economic and Financial Analysis ...... 27 Annex 5. Grant Preparation and Implementation Support/Supervision Processes ...... 30 Annex 6. Beneficiary Survey Results ...... 32 Annex 7. Stakeholder Workshop Report and Results ...... 35 Annex 8. Summary of Grantee's ICR and/or Comments on Draft ICR ...... 36 Annex 9. Comments of Cofinanciers and Other Partners/Stakeholders ...... 45 Annex 10. List of Supporting Documents ...... 46 MAP ...... 47

A. Basic Information MOLDOVA Country: Moldova Project Name: REGIONAL DEVELOPMENT Project ID: P118405 L/C/TF Number(s): TF-94952 ICR Date: 08/30/2013 ICR Type: Core ICR REPUBLIC OF Lending Instrument: SIL Grantee: MOLDOVA Original Total USD 16.67M Disbursed Amount: USD 15.75M Commitment: Revised Amount: USD 15.41M Environmental Category: C Implementing Agencies: State Road Administration Moldova Social Investment Fund (MSIF) PIU under the Ministry of Environment Cofinanciers and Other External Partners: European Commission (EC)

B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 07/11/2008 Effectiveness: 08/07/2009 05/30/2011 Appraisal: Restructuring(s): 09/30/2011 09/30/2012 Approval: 07/31/2009 Mid-term Review: 10/15/2010 Closing: 06/30/2011 11/16/2012

C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Moderate Bank Performance: Moderately Satisfactory Grantee Performance: Moderately Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Quality at Entry: Government: Moderately Satisfactory Unsatisfactory

Moderately Implementing Quality of Supervision: Moderately Satisfactory Unsatisfactory Agency/Agencies: Overall Bank Moderately Overall Borrower Moderately Satisfactory Performance: Unsatisfactory Performance:

C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Moderately

Closing/Inactive status: Satisfactory

D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Other social services 30 30 Roads and highways 20 20 Solid waste management 30 30 Water supply 20 20

Theme Code (as % of total Bank financing) Other environment and natural resources management 30 30 Regional integration 20 20 Social safety nets 30 30 Water resource management 20 20

E. Bank Staff Positions At ICR At Approval Vice President: Laura Tuck (Acting) Philippe H. Le Houerou Country Director: Qimiao Fan Martin Raiser Sector Manager: Sumila Gulyani Wael Zakout Project Team Leader: Ronnie W. Hammad Ross S. Pavis ICR Team Leader: Paula Restrepo Cadavid ICR Primary Author: Paula Restrepo Cadavid

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The objective of the project was to reduce economic and social disparities among regions through the following: (i) By improving social services at the local and community level to provide better assistance to the vulnerable, especially the disabled, elderly, children and the poor; (ii) By improving water management at the community level so as to increase the supply of potable water, construct and rehabilitate small-scale irrigation systems, and adequately equip water accumulation facilities; (iii) By lowering road transport costs for road-users in Moldova, and providing better access to services by improving the condition and quality of its road network; and (iv) By improving the quality of sanitary services in Orhei.

Revised Project Development Objectives (as approved by original approving authority) Not revised.

(a) PDO Indicator(s) Original Target Formally Actual Value Baseline Values (from Revised Achieved at Indicator Value approval Target Completion or documents) Values Target Years Number of people with access to community centers rehabilitated or Indicator 1 : constructed under the project Value quantitative or NA 1450 1500 Qualitative) Date achieved 08/30/2009 09/16/2013 Comments (incl. % Daily capacity of community centers constructed or rehabilitated achievement) under the project. Target was exceeded. Increased number of persons with access to potable water as a result Indicator 2 : of small water works financed under the project. Value quantitative or 0 17000 34,500 Qualitative) Date achieved 08/30/2009 09/16/2013 Comments (incl. % Target was exceeded. achievement) Indicator 3 : Roads rehabilitated (km) Value quantitative or 0 4.8 4.8 Qualitative) Date achieved 08/30/2009 09/16/2013 Comments (incl. % 4.8 km of the Balti – Sarateni road were rehabilitated and the target achievement) was met. Increased percentage of Orhei's total wastewater discharge that is Indicator 4 : treated by the new WWTP Value quantitative or 0 90 0 Qualitative)

Date achieved 08/30/2009 09/16/2013 The new WWTP has been completed and is expected to start treating Comments (incl. % wastewater by end-September 2013. Target will be met eventually as achievement) the new plant replaces the existing, yet dilapidated plant.

(b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Baseline Values (from Achieved at Indicator Revised Value approval Completion or Target Values documents) Target Years Indicator 1 : Number of rehabilitated / constructed community centers Value 0 30 30 (quantitative or Qualitative) Date achieved 08/30/2009 09/16/2013 Comments Number of community centers rehabilitated or constructed by the (incl. % achievement) project. Target has been met. Indicator 2 : Number of small water works completed Value (quantitative 0 29 43 or Qualitative) Date achieved 08/30/2009 09/16/2013 Comments (incl. % A total of 43 small water works were completed. Target was achievement) exceeded. Indicator 3 : Number of water storage tanks operational Value (quantitative 0 35 35 or Qualitative) Date achieved 09/16/2013 Comments (incl. % Number of water storage tanks reconstructed or constructed by the achievement) project. Target was met. Indicator 4 : Length of aqueduct constructed or rehabilitated (km) Value (quantitative 0 192 192 or Qualitative) Date achieved 08/30/2009 09/16/2013 Comments (incl. % Length of aqueduct constructed or rehabilitated by the project. achievement) Target was met. Indicator 5 : Number of protected zones Value (quantitative 0 60 60 or Qualitative) Date achieved 08/30/2009 09/16/2013 Comments (incl. % Number of protected zones rehabilitated or constructed by the achievement) project. Target was met. Contract for rehabilitation of road section between Balti and Sarateni Indicator 6 : signed Value (quantitative no yes yes or Qualitative) Date achieved 08/30/2009 09/16/2013 Comments (incl. % Target was met. achievement)

Indicator 7 : Civil works for wastewater facility completed Value (quantitative 0 100 100 or Qualitative) Date achieved 08/30/2009 09/16/2013 Comments incl. % The wastewater treatment plant has been completed and is expected achievement) to be operational by end-September 2013. Indicator 8 : Considerable reduction of pollutants Value (quantitative NA NA NA NA or Qualitative) Date achieved 08/30/2009 09/16/2013 Comments (incl. % This indicator was included in the GA but no targets were defined achievement) during project implementation. Low-cost wastewater treatment technology feasibility studies for Indicator 9 : Moldova have been developed and are available for replication in its neighboring countries. Value (quantitative NA NA NA NA or Qualitative) Date achieved 08/30/2009 09/16/2013 This indicator was included in the GA but no targets were defined Comments (incl. % during project implementation. However, the low cost technology achievement) has been piloted, is serving as a demonstration and is available for replication. Indicator 10 : Direct project beneficiaries (Component 1 & 2) Value (quantitative 0 33,000 96,066 or Qualitative) Date achieved 08/30/2009 09/16/2013 This indicator was added by the team during project implementation Comments (incl. % as an intermediate indicator for Component 1 & 2. Target was achievement) exceeded. Indicator 11 : Female beneficiaries (Component 1 & 2) Value (quantitative 0 15,000 48,033 or Qualitative) Date achieved 08/30/2009 09/16/2013 This indicator was added by the team during project implementation Comments (incl. % as an intermediate indicator for Component 1 & 2. Target was achievement) exceeded.

G. Ratings of Project Performance in ISRs Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 11/06/2010 Moderately Satisfactory Moderately Satisfactory 2.13 2 07/05/2011 Moderately Satisfactory Moderately Satisfactory 7.42 3 02/20/2012 Moderately Satisfactory Moderately Satisfactory 10.09 4 06/17/2012 Moderately Satisfactory Moderately Satisfactory 10.09

H. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions 05/30/2011 MS MS 6.54 Extension of closing date 09/30/2011 MS MS 9.35 Extension of closing date 09/30/2012 MS MS 10.91 Extension of closing date

I. Disbursement Profile

Project Background

The Moldova Regional Development and Social Protection Project is a Recipient Executed Trust Fund (RETF) financed by the European Commission (EC). It was the result of interest by the EC in working jointly with the WB to support activities in Moldova for regional development and social protection. The project financed four different components belonging to three different sectors (social services, roads, and water supply and sanitation) and was linked to three existing World Bank operations: (i) the Moldova Road Sector Program Support Project (RSPS); (ii) the Moldova Social Investment Fund (MSIF) and subsequent Additional Financing I and II; and (iii) the Moldova National Water Supply and Sanitation Program (NWSSP). It leveraged additional resources and existing implementing institutions.

At the time of appraisal Bank guidelines did not require the preparation of a Project Appraisal Document (PAD) for Trust Funded Projects or the development of a detailed Results Framework. For this reason the ICR team decided to use the Grant Agreement (GA) as the main benchmark document and the project Implementation Status and Results Reports (ISRs) to determine targets for key monitoring and performance indicators, given that specific targets were not included in the GA. As such, the PDO statement on reducing economic and social disparities among regions is being considered by this ICR as a higher level objective, with the specific objectives corresponding to the projects it co-financed.

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal 1. Country Background: Moldova is a small country in Eastern Europe with a population of about 3.6 million people. It is mostly rural, with around 60 percent of the population living in towns and villages with fewer than 10,000 inhabitants, and 20 percent living in the capital Chisinau. Like many Former Soviet Union (FSU) countries, Moldova underwent a series of economic and social challenges during its transition to a market economy following independence in 1991. Nonetheless, the economy registered a period of steady growth between 2000 and 2008, halving the poverty rate from 70 percent to 35 percent, largely fueled by remittances. With a per capita GNP of US$ 1,696, Moldova was still the poorest country in Europe at appraisal in September 2008. 2. Sector background. Although the project financed components from three different sectors (social services, transport, water supply and sanitation), they all faced similar challenges. Common features include infrastructure built without considering economic efficiency (e.g. over-dimensioned, with high operating and maintenance O&M costs) or no longer adapted to the needs of the population. Many towns and cities suffered from demographic decline and de-industrialization that affected both their economic base and reduced their agglomeration economies. By 2008, the country was in dire need of rehabilitating and/or replacing key infrastructure.

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3. Social Service Provision. Economic growth in the 2000s increased budget revenue which allowed the Government to increase social expenditure. Nevertheless access to social services remained limited. Due to large net emigration, many children and teenagers were left behind either with elderly relatives who could not adequately take care of them, or were placed in institutions. Similarly, people with disability, and many of the poorer elderly, were placed in large-scale residential institutions that further isolated them from the community. To address this crisis, the Ministry of Social Protection sought to expand and improve social services to these vulnerable groups. 4. Roads. Moldova, a land-locked country bordering Romania and Ukraine, is highly dependent on road transport. Developing this physical infrastructure is critical to enhancing its competitiveness. Overall, the road network is well developed totaling about 16,800 km, of which 3,666 km is classified as National Roads and the remainder as Local Roads. In 2007, however, around 67 percent of National Roads and more than 75 percent of Local Roads were classified in poor condition. This was due to a severe and prolonged neglect of the road network over the 15 years following independence. By then, about 400 km of roads had lost their pavement and reverted to unpaved gravel or earth roads. 5. Water Supply and Sanitation. Moldova inherited most of its water and sanitation infrastructure from the Soviet Union. Since independence the quality and reliability of these services deteriorated due to ageing, lack of investments and under-maintenance. Water Supply and Sanitation (WSS) fees had not been adjusted to cover operations and maintenance (O&M) cost leading to the steady deterioration of the WSS system. In 2007, around 80 percent of urban residents had access to centralized water supply and 63 percent to sewerage services. Coverage in small and medium sized towns was much lower, at about 60 and 35 percent, respectively. In addition, Moldova suffered an extraordinary drought in 2007 losing more than half the harvest of its principle crops. Losses in the South were particularly severe, with many villages losing all or part of their access to potable well water. 6. Wastewater Treatment. Wastewater infrastructure in many areas had insufficient capacity and did not meet effluent standards. In 2007, of about 100 Wastewater Treatment Plants (WWTPs), only four met the required discharge standards. The city of Orhei 1 was one that required construction of a new WWTP since its physical state rendered rehabilitation uneconomic. It was also located on a hilltop which entailed high- energy cost for pumping water. Prior to appraisal, Orhei Municipality had been investigating options for a new WWTP when the Government obtained Global Environmental Facility (GEF) funds to pilot the use of constructed wetland technology in the city of Soroca. 7. Rationale of Bank assistance. The project was aligned with the Bank’s Country Partnership Strategy (CPS) for 2008-2012 which identified: (i) improving economic competitiveness to support sustainable economic growth, and (ii) minimizing social and environmental risks, building human capital, and promoting social inclusion, in two if its three pillars. Specific country outcomes the project was expected to contribute were: (i)

1 Component 4 of the Project financed the design and construction of a new WWTP using wetland technologies in the city of Orhei to replace the existing WWTP.

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improving management of the road network, (ii) improving access to and the quality of water and sanitation services, and (iii) reducing environmental degradation. 8. Link to ongoing operations. Project components were developed to provide additional funding or complement activities in existing operations. They were closely linked to three World Bank funded project: (i) the Moldova Road Sector Program Support Project (RSPS); (ii) the Moldova Social Investment Fund (MSIF) and subsequent Additional Financing I and II; and (iii) the Moldova National Water Supply and Sanitation Program (NWSSP). The NWSSP financed the improvement of wastewater collection in Orhei. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 9. At the time of appraisal Bank guidelines did not require the development of a Project Appraisal Document PAD for Trust Funds or the identification of a detailed Results Framework. For this reason the ICR team decided to use the Grant Agreement (GA) as the main benchmark document and the project Implementation Status and Results Reports (ISRs) to determine targets for key monitoring and performance indicators, as specific targets were not included in the GA. It also sought guidance on the results to be achieved from the corresponding projects it co-financed. The following paragraphs present the PDO and indicators as they appear in the GA and project ISRs 10. Some of the key monitoring and performance indicators, either appearing in the GA or project ISRs, were vague in definition or poorly worded. Therefore, some of them had to be revised by the ICR team in order to be able to assess the project’s performance. These revisions are mentioned as footnotes in this section and the final set of indicators used by the ICR team to assess project’s performance can be found on Annex 3. 11. The objective of the project was to reduce economic and social disparities among regions through the following: (i) By improving social services at the local and community level to provide better assistance to the vulnerable, especially the disabled, elderly, children and the poor; (ii) By improving water management at the community level so as to increase the supply of potable water, construct and rehabilitate small-scale irrigation systems, and adequately equip water accumulation facilities; (iii) By lowering road transport costs for road-users in Moldova, and providing better access to services by improving the condition and quality of its road network; and (iv) By improving the quality of sanitary services in Orhei. 12. The following set of key performance indicators to measure achievement of the development objectives were identified for each of the project’s components: (i) Number of people with access to community centers2

2 This indicator, as defined in the ISRs and understood by the ICR team, corresponds to the number of people (daily) with access to community centers constructed or rehabilitated under the project

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(ii) Number of persons with access to potable water3 (iii) Roads rehabilitated (kilometers) (iv) Increase the percentage of Orhei’s total wastewater discharge that is treated4 13. Monitoring and performance indicators for the project were also to include: (i) Number of rehabilitated centers5 (ii) Number of small works completed6 (iii) Contract for the rehabilitation of a section road between Balti and Sarateni signed (iv) Civil works for wastewater facility completed (v) Considerable reduction of pollutants7 (vi) Low-cost wastewater treatment technology feasibility studies for Moldova have been developed and are available for replication in its neighboring countries8.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification

14. The PDO was not revised during implementation. 15. The PDO indicators were not changed during project implementation but some of the targets were adjusted. These changes are discussed on Section 2.3. 16. The following intermediate results indicators were added to the Results Framework during implementation and are considered for the assessment of the project (refer to Section 1.5 for components description): (vii) Direct project beneficiaries (in reference to Component 1 and 2) (viii) Female beneficiaries (in reference to Component 1 and 2) (ix) Number of water storage tanks (in reference to Component 2) (x) Length of aqueduct (kilometers, in reference to Component 2) (xi) Number of protected zones (in reference to Component 2)

3 This indicator was included in ISRs as an Intermediate Indicator but for the purpose of this ICR it will be considered as a PDO Outcome indicator for Component 2. This will allow including the performance of this component for the overall evaluation of the project. This indicator, as defined in the ISRs and understood by the ICR team, corresponds to the number of people who gained access to potable water as a result of the small water works financed under the project. 4 This indicator, as discussed with the project’s team, corresponds to the increase percentage of Orhei’s total wastewater discharge that is treated by the new WWTP financed under the project. 5 This indicator corresponds to the number of community centers that were either rehabilitated or constructed by the project. 6 This indicator, as defined in the ISRs and understood by the ICR team, corresponds to the total number of small water works completed which was financed under the project. 7 Neither the GA nor ISR presented a detailed definition of this indicator or targets to be met. For this reason the ICR team did not assign any targets or revised the indicators definition. 8 Neither the GA nor ISR presented a detailed definition of this indicator or targets to be met. For this reason the ICR team did not assign any targets or revised the indicators definition.

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1.4 Main Beneficiaries, 17. Component 1. The primary beneficiaries of the rehabilitation or construction of new community centers are vulnerable groups including families with children in difficulty, disabled children and adults, and youth and elderly at risk or in difficulty. 18. Component 2. The primary beneficiaries of the small water works component are communities living in selected towns that benefited mainly from improved access to water. Prior to project implementation, most communities used shallow wells, which had seasonal variations of quality and quantity, as their main source of water. The original design allowed communities to choose from a list of small water works – including small scale irrigation, construction of micro-dams and ponds – yet most opted to rehabilitate deep wells and extend access to the water supply system. 19. Component 3. The primary beneficiaries of the rehabilitation of the Balti-Sarateni road section are its road users who will benefit from lower transport cost, improved access to social services and economic opportunities and reduced traveled time. Better road conditions lower vehicle operating costs through reduced fuel consumption and reduced wear and tear on the vehicles. 20. Component 4. The population of Orhei is the primary beneficiary of the improved quality of sanitary services through construction of a new WWTP. Other potential beneficiaries include downstream communities along the Raut River that are expected to benefit from improved water quality of the river due to the reduced discharge of pollutants from the city of Orhei. Potential beneficiaries include four nearby villages in dialogue with Orhei’s Apa Canal to have their wastewater treated at the new plant.

1.5 Original Components (as approved) 21. Component 1: Development of Integrated Social Care Services at the Community and District Levels. This component was to be implemented by the Project Implementation Unit (PIU) of the MSIF Project and provided grants for the creation and launching of multifunctional social day-care centers in rural and semi-rural areas. The centers were to provide a range of social services for children left behind by parents that emigrated, people with mild to moderate disabilities, elderly who need help living independently, and others. In addition, most sub-projects were to target vulnerable groups and deliver services such as counseling, physical therapy, study, exercise, diverse leisure activities, and meals. 22. Component 2: Improved Water Management in Southern Moldova. This component was to be implemented by MSIF and provided grants for the improvement of water services in small towns using a Community Driven Development (CDD) approach. Communities could apply for funds to finance sub-projects in the following areas: small scale irrigation, potable water supply, watershed management, forestry, control of water- related natural disasters, deepening or rehabilitation of artesian wells, creation of protection zones, micro-dams to capture rain run-off, excavation and fencing of ponds, terraces to retain water, and water storage tanks. Sub-projects were initially targeted in the raions of the Southern Moldovan Development zone, including Basarabeasca, Cahull, Cantemir, Causeni, Cimislia, Leova, Stefan Voda and Jaraclia. However, it was agreed

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that depending on the number and quality of proposals, other raions in draught affected areas could be considered. 23. Component 3: Road Maintenance and Rehabilitation. This component was to be implemented under the general supervision of the Ministry of Transport and Road Industry (MTRI). MTRI was to execute the project through the State Road Administration (SRA). It was expected to finance the rehabilitation of a road section between Balti and Sarateni complementing other road rehabilitation financed by the World Bank and other donors (EIB, MCC and EBRD). Works were expected to consist mainly of the application of a leveling course and a wearing course of asphalt concrete. Other works included the reestablishment of adequate drainage, and the improvement of horizontal and vertical signage. Specific road safety features were to be included where appropriate and cost-effective, such as the supply and installation of guardrails and traffic calming measures in villages along the road. The road section to rehabilitate could include badly deteriorated short road sections where rehabilitation costs per km could be significantly higher. The works design for the road segment rehabilitation, which were to be financed under the RSPS, were not completed at appraisal; therefore the precise length of the segment to be rehabilitated had not been estimated. 24. Component 4: Orhei Wastewater Treatment Plant. This component would finance: (i) plant design, (ii) construction of a wastewater treatment facility using constructed wetlands technology, (iii) supervision and training, and (iv) one month of operation after completion to train Apa Canal staff in the proper operations and maintenance of the facility. Investments under this component were to be complemented by investments in sewerage rehabilitation in the city or Orhei – financed under the NWSSP. Apele Moldovei (AM) would be responsible for overall oversight and management of the Project and a PIU would be responsible for the day-to-day management of the Project. Orhei Apa Canal was to be responsible for implementation and management of the construction of the WWTP, including environmental and progress reporting in accordance with the operations manual. 1.6 Revised Components 25. The project components were not revised during implementation.

1.7 Other significant changes 26. The main changes to project implementation related to the schedule. The project was restructured three times to extend the closing date. Apart from these, minor changes were made to funding allocations. 27. Changes to implementation schedule. The first extension of the closing date, from June 30, 2011 until September 30, 2011 was granted following a request from the Government on May 30, 2011. This three month extension allowed for sufficient time to extend the Administrative Agreement (AA) with the European Commission (EC) from December 31, 2011 to December 31, 2012. Once the AA was extended the closing date of the Grant Agreement (GA) was extended until September 30, 2012. The latter was necessary because of an 11 month delay between the signing of the AA with the EC and the GA with the Government which shortened the projected implementation period from three years to two, leaving insufficient time to complete all project activities. The closing

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date of the grant was extended a third time, from September 30, 2012 to November 16, 2012. This six week extension was intended to allow the Project to meet its development objectives and fully disburse funds under Components 3 and 4. At this point, it was not possible to extend the closing date any further since the AA extension was limited by the closing of the EU Financing Agreement with the Government that closed on December 31, 2012 as well. None of the project restructuring involved changes to the PDO, indicators or targets. 28. Changes to funding allocations. Although the scope of components was not modified during implementation, a total of US$ 530,000 was reassigned from Component 4 to Components 1 and 2 prior to project closing. The latter allowed for the majority of project funds to be disbursed, as activities under Component 4, which were co-financed by the Government, could not be completed before the project closing date. The funding gap to complete Component 4 activities was covered by the Moldova National Ecological Fund (NEF). 29. For Component 3, two small bridges on the road section had to be reconstructed in lieu of being rehabilitated due to their severe condition which led to a minor modification of contract value (less than 4 percent). 30. Changes in implementing agency. Component 4 PIU, which was the same PIU managing the NWSSP project, was originally under the responsibility of AM. The Ministry of Environment and Natural Resources, which later became the Ministry of Environment, took over the project from AM in 2009. Although AM was transferred to the Ministry of Environment after changes in the Government Structure, the Ministry of Environment was legally responsible for the project, with the NWSSP and project PIU reporting directly to the Minister. This change led to changes in some of the key personnel responsible for the project.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry 31. Assessment of the project design. During preparation, the Bank team chose a complicated implementation arrangement, where one GA with four components was co- financing three different projects and implemented by three different ministries. Trust Fund Operations (TFO) rated the overall risk as substantial while the Bank team rated it Moderate. During implementation this arrangement proved efficient as it benefitted from the capacity of existing structures (PIU). It also allowed for more cost-effective supervision by seasoned sector specialists as component supervision was done in conjunction with the projects it was linked to. 32. At appraisal Bank Guidelines did not require Trust Funds of this size to follow the same appraisal processes as investment projects. As a result the project did not follow a detailed appraisal process. While deficiencies in the project’s Results Framework are evident, the specific activities to be financed were coherent with existing WB projects which allowed leveraging existing structures for the development of detailed designs during project implementation. Specific PDO objectives were coherent with activities financed under the project and linked to each of the components. However, the project’s

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overarching PDO “to reduce economic and social disparities among regions” is overly ambitious, given the scope and amount of the project’s investments, is beyond measurement, and corresponds more to a higher level objective to which project activities are expected to contribute rather than the PDO to which the project performance should be measured. 33. The amount of funds allocated for the rehabilitation of the road section (Component 3) was not sufficient to allow for an efficient use of resources given the procurement process that needed to be followed (International Competitive Bidding ICB).The contract amount was too small to attract sufficient international bidders – given the fixed costs of entering the road sector in Moldova. Although the team identified these risks during project implementation - and put in place mitigation measures- it was a major cause for delay. Please refer to Section 2.2 for more details. 34. The selection of Constructed Wetlands (CW) technology for the construction of the new WWTP in Orhei was strategically relevant to the municipality and the country’s priorities of finding cost-effective ways of treating wastewater, and reducing nutrient pollution. 35. Assessment of risks. While the complexity of the implementation arrangements was identified as an important risk, the team failed to identify some risks during project preparation. The innovative character of one of its components – use of CW technology – should have been flagged. In addition, the team under-estimated the implementation period and did not identify the restriction to eventual project extension (Financing Agreement between the EC and Moldova). 36. Adequacy of Government’s commitment. The project development objectives were relevant to country priorities and the Government had already proven to be strongly committed to pursuing improvements in these sectors. During project preparation the Government passed a Law on Regional Development and a framework for a new Social Protection Law was expected to be adopted later in 2008. In addition, these sectors were included in the National Development Strategy of Moldova for the period 2008-2010.

2.2 Implementation 37. A number of issues emerged during implementation and contributed to the project’s ultimate outcome. The main issues are outlined below: 38. Reduction in the implementation period due to delays in signing of the GA. The AA was signed with the EC on September 2, 2008, while the GA, because of political events and disagreements between stakeholders, was not signed until August 7, 2009. This time lag - of almost 1 year - reduced the potential implementation period. The closing date could not be extended beyond December 31st, 2012 because a Financing Agreement between the EC and the Government of Moldova ended on the same date. Despite the project closing date being extended on three occasions (to November 16, 2012) the total implementation period was only 4 months longer than the 3 years originally planned. While project outcomes cannot be blamed only on this, there were delays in procurement that were directly related to it. In particular, the first tender for the construction of the WWTP resulted in non compliant bids, largely because of the unrealistic timetable for completion of the work which prevented many of the potential firms from biding. For the

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road section, the contract could not be signed as the twelve-month implementation period exceeded the closing date. As a result, the tender for the WWTP had to be re-launched, and the contract for it and the Roads section signed, only after extension of the GA was obtained. Both works were to start in 2012 but were further delayed by a few months due to an exceptionally harsh winter. 39. Design and tendering strategy for the Road Maintenance and Rehabilitation Component. The contract for the rehabilitation of a section of the Balti-Sarateni road under Component 3 was procured through ICB in accordance with Bank procurement guidelines. However, since the amount and location of the contract was considered too small to attract a sufficient number of international firms, the Bank and the SRA agreed on a bidding strategy aimed at enhancing competition especially among successful bidders of other road rehabilitation packages tendered by the same agency. Bidding for the EC funded section was initiated immediately after the contract for another section of the Balti-Singerei – financed by EU-NIF 9 - road was awarded. While the wait was expected to result in better bids – as firms working nearby were expected to have a lower barriers to entry- it further delayed implementation. The final tender only managed to attract two international firms. This suggests that while the amount for the rehabilitation of the road section required the use of ICB, the barriers to entry might have put off many international firms from bidding. 40. Financial crisis and difficultly supplying materials. In July 2012, the Bank team learned that the contractor who was awarded the road section was in receivership. The firm was thus unable to obtain a Bank guarantee to get an advance and mobilize the required staff and material. After some discussion, the contractor and subcontractor reached an agreement which allowed the local subcontractor to take over management of the project. The Bank was also informed that due to a large number of road projects in Moldova at that time, there was a shortage of crushed granite which needed to be imported from neighboring countries. The Ministry of Transportation intervened to facilitate both rail transport and clearance at the borders. Together these two issues generated further delays in the implementation of Component 3. 41. Design errors in the WWTP. Once works for construction of the new WWTP started, the contractor identified a major design error in the topographical survey. The error meant that the contractor required 10 times more filling material than originally planned (37,000 m3 in lieu of 2,000 m3). The cost overrun amounted to US$ 285,894, though the contractor had made claims of many times that amount. The error led to significant delay of construction activities, which could only fully resume after new surveys were carried out, designs adjusted, and additional earthworks executed. Given the accumulated delays and the approaching closing date, a contract amendment was made to allow, on an exceptional basis, the contactor to be paid upon supply of materials on site, as opposed to being paid upon supply and installation. This allowed the disbursement of additional funds, originally allocated to this component, and reduced the funding gap to be covered by the Government. Prior to closure, the Government confirmed that the remaining costs, including the funding gap, would be financed through the NEF. The Bank agreed to

9 European Union Neighborhood Investment Facility Grant

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continue monitoring Component 4 under the NWSSP Project. The NWSSP also funded the supervision engineer for the duration of construction of the WWTP. While some implementation delays were due to external factors (such as the delay in signature of the GA) the actual time required for the design, procurement and completion of the WWTP suggests that the team under-estimated the time required to implement this component. In order to maximize the use of funds from the EC Grant prior to closing, unused funds from Component 4 were reallocated to finance additional investments under Component 1 and 2. These funds were used to co-finance the construction/rehabilitation of 3 community centers and 12 sub-projects for small water works. These were initially to be financed solely by the MSIF II project. 42. Changes in the scope for Component 2. The second component was primarily targeted to a few southern rayons of Moldova that suffered the most from the drought. However, due to the low number of applications for sub-projects in these rayons, it was agreed to extend investments in water supply management to villages and towns located in other drought-affected rayons.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 43. M&E design. Each implementing agency was responsible for monitoring progress of their respective component and prepared a quarterly and annual Project Report. These reports covered the agreed performance indicators, which were adequate measures of the specific PDO statements, but targets were not identified during preparation. The overarching PDO – reducing economic and social disparities among regions – was overly ambitious and beyond measurement given the nature and amount of the investment. In addition, the team did not identify any key indicators linked to the overarching PDO. The AA specified that the Bank would report to the EC twice a year, however, the detail and format of these reports was not specified. While the EC received all Aide Memoires and Bank reports, joined many missions, and were always briefed during each mission, the EC expected a separate report that did not necessarily include information on other Bank projects that it was co-financing. 44. M&E implementation and utilization. Although the initial M&E system was not adequate, as no targets were identified during preparation, indicators were revised and targets were set early in implementation. Progress Reports were regularly submitted to the Bank by each PIU and most of the key performance indicators outlined in the GA were followed during implementation10. Some targets were revised when appropriate, in particular the number of persons with access to water was revised upwards to reflect the fact that most communities under Component 2 opted for this type of investment. In addition, the progress indicator for civil works completed (WWTP) was changed to reflect the percentage of works completed – as opposed to a yes/no indicator– which was expected to improve the capacity of the team to track progress. The team explored the possibility of restructuring the project in 2011 in order to change the PDO but was advised against it since the first two components were fully disbursed and the project closing date was near. For Component 4, weekly meetings were held with all major

10 Two indicators were not followed: (v) considerable reduction of pollutants and, (vi) low-cost wastewater treatment technology feasibility studies for Moldova have been developed and are available for replication in its neighboring countries.

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stakeholders to review progress and agree on key actions needed to be taken by each stakeholder11. This facilitated the identification of bottlenecks and problem-solving.

2.4 Safeguard and Fiduciary Compliance 45. The GA did not mention safeguards but specified (Article 2, 2.03) that each sub- project will adhere to the implementation policies and procedures of the main project to which they were tied. That is, Component 1 and 2 would adhere to the MSIF Operational Manual (OM), Component 3 to SRA policies, and Component 4 to the NWSSP OM. 46. The environmental category for the MSIF II project – linked to Component 1 and 2 - was Financial Intermediary since investments were selected by communities and not determined in advance. The OM included environmental guidelines and was subject to regular review by a safeguards specialist. These reviews did not find any significant issues with compliance. 47. The Roads Sector Support Project – linked to Component 3 – was assessed as environmental category B. During project implementation a Sector Environmental Assessment (SEA) and a Social Assessment were carried out. It was found that all environmental and social safeguards were handled satisfactorily, and all fiduciary requirements were met during the project. An Environmental Management Plant (EMP) was prepared for the Balti-Sarateni road segment. 48. The WWTP (Component 4) was classified as an environmental category B. An Environmental Impact Assessment (EIA) was developed and negative impacts mitigated in accordance with the Environmental Management Plan (EMP). No documented evidence of periodic monitoring of environmental safeguards for this component was found. 49. Financial Management and Procurement. Financial management and procurement arrangements for the project were satisfactory. Each component was implemented by the existing PIU that had experience with Bank procurement guidelines. During project implementation there were no major issues related to procurement, apart from the ones mentioned in Section 2.2.

2.5 Post-completion Operation/Next Phase 50. Transition arrangements. To ensure that investments under Component 1 would be maintained, MSIF made sure that beneficiary rayons provided allocations in their budgets to cover the operational cost of running these services. In addition, it evaluated if assets had been included in the localities’ balance sheet. For the small water works under Component 2 public utilities were trained and tariffs were calculated to cover O&M costs. For Component 3 the contractor of the rehabilitated road section is in charge of the O&M for the first year of operation. This is intended to serve as a guarantee. After this year, the SRA will take charge of O&M and the MTRI will own the asset. 51. Hand-over arrangements for the newly constructed WWTP (Component 4) were not considered carefully at the project design stage. The following arrangements were agreed

11 Including contractor, supervisor, PIU director, Apa Canal representatives and Orhei’s Government representatives.

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to by the major stakeholders during project implementation: The supervisor will provide start-up assistance and training during the first month of operation to bring Orhei Apa Canal into a position that is capable to operate and maintain the new WWTP, and in the long run, to both control and comply with discharge criteria and removal efficiencies. The PIU will hand over ooperation of the plant to Orhei Apa Canal in September 2013 upon take-over from the contractor. The plant will be commissioned one year after completion, on August 2014, which is intended to serve as a guarantee. During the warranty period and onwards the plant will be operated by Orhei’s Apa Canal. 52. Operation & Maintenance. The project components were designed to reduce O&M costs, which are expected to have a positive impact on the sustainability of investments. Renewable energy sources (such as biomass heating systems and solar panels) and energy efficient building techniques were used to build/rehabilitate community centers. Water tanks were relocated when needed in order to reduce the energy intensity of water supply systems in beneficiary villages. Finally, the replacement of the old WWTP for the new WWTP in Orhei, which uses CW technologies, will considerably reduce the unitary costs of treatment, as discussed on Section 3.3. 53. Follow up project – next phase. It is unlikely that a similar operation will follow and most of the projects that were linked to this project have been closed. Orhei utility is undergoing reforms, under an EBRD Project, for the regionalization of utilities. It is evaluating the possibility of extending wastewater treatment services – under this new WWTP – to nearby villages. However, the economic justification of expanding services to nearby villages has not been fully studied.

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

Rating: Poor relevance of design, high relevance of objectives and implementation. 54. Both specific and overarching objectives were relevant to conditions in Moldova (see section 1.1) at the time of appraisal and linked to the Bank’s CPS. Specific objectives, which were linked to each of the project components, were consistent with the project design. However, the overarching objective – of reducing economic and social disparities among regions – was overly ambitious given the scope and amount of the project and beyond measurement. The latter seems to represent a higher level objective to which project activities were expected to contribute rather than to the project PDO. 55. Specific objectives remain relevant to Moldova’s current development priorities and the Bank partnership strategy. The current Government program – National Development Strategy (NDS) 2020 – identifies the need for better roads as one of seven national priorities. In addition, the NDS recognized social and environmental protection as crucial for Moldova’s sustainable development. The Bank’s CPS, currently under preparation, proposes three pillars: (i) increased competitiveness; (ii) building human capital; and (iii) supporting a green, clean and resilient Moldova. Among these lines is improving connectivity to better social infrastructure and adapting to climate change through better water resource management.

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56. Implementation arrangements ultimately allowed for each component, which was linked to a separate project, to be completed satisfactorily and expand the impact of EC funds. The link with Bank projects enabled highly experienced sector and operational staff to supervise each component, a situation unlikely to be replicated as a stand-alone grant. It also allowed the Bank to continue supervision of the WWTP and see it to completion, even after the EC Grant was closed. 57. Overall the project specific objectives were highly relevant and remain relevant to Moldova’s development priorities. In addition, they were coherent with project design and linked to each of the project’s components. Implementation arrangements were also highly relevant, allowing EC funds to leverage additional resources and senior staff, and allow for supervision even after the closing date. The overarching objective, despite being relevant to the county priority, was disconnected from the project design given its scope and available funds which suggest poor relevance of design.

3.2 Achievement of Project Development Objectives

Rating: Moderately Satisfactory 58. As mentioned earlier, there was no PAD (and thereby PDO) and the over-reaching objective mentioned in the Grant Agreement – reduce economic and social disparities among regions - was too broad, ambitious, and beyond measurement. Therefore for this ICR, the achievement of the project development objectives will be assessed using the four specific PDOs which are linked to each of the project’s components. The complete Results Framework – which was used to assess project’s performance, can be found on Annex 3. 59. Judging from results achieved and the outcome indicators, the project met objectives (i), (ii), and (iii), linked to the first three components; and has not yet met, but will likely meet objective (iv), linked to the improvement of the quality of sanitary services in Orhei (Component 4). As a result the overall achievement of project development objective is considered as Moderately Satisfactory. 60. The project improved social services at the community level by providing better assistance to vulnerable groups in beneficiary villages. In total 30 sub-projects12 were financed under Component 1 which include both rehabilitated and new buildings. Of the 30 sub-projects, 27 are multi-functional centers designed to provide a variety of services to vulnerable groups (children, youth, elderly and people with disabilities). The other 3 centers provide multiple services, but are focused on the disabled and elderly. The rehabilitation of these centers allows vulnerable groups – such as poor elders – to remain in their communities receiving social services closer to home. All the centers started operating in the period of 2011-2012. Total installed capacity of these centers is 1500 beneficiaries per day while the initial target was 1450. A total of 2821 people beneficiated from social services provided at community centers during the 2011-2012 period (Refer to Annex 2 for more information). In addition, results from a study of all MSIF projects indicate an increase in the number of vulnerable people who received

12 Three (3) additional sub-projects were co-financed with IDA using funds reallocated from Component 4.

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quality care in their communities (See Annex 6). With respect to this specific objective the project performance is considered Highly Satisfactory. 61. The project improved water management of beneficiary communities – through Component 2 - and led to an increase in the supply of potable water to around 34,500 people, against the 17,000 target. A total of 43 sub-projects were approved and financed under this component, against an initial target of 29. Since this component used a CDD approach, communities were allowed to select from a range of water management sub- projects. Investment decisions were taken collectively, and most chose to build water supply systems in their villages as it was thought to benefit the community at large. As a result, most of the funds were used for this purpose. Communities were required to cover at least 15 percent of the cost with some proposing to cover a higher percentage. Local utilities were trained, meters installed in all beneficiary households, and tariffs set to cover O&M. This contributed to improved water management and sustainability of the system. In addition, communities have learned from this experience and some have applied for other funds – such as the NEF – as they now feel more capable of managing their own development. With respect to this specific objective the project performance is considered Highly Satisfactory. 62. The rehabilitation of a section of the Balti-Sarateni road – financed through Component 3 has led to an improvement in the condition and quality of this section. Initial target of rehabilitating 4.8 km was met. Road rehabilitation reduces wear and tear on vehicles and increases Vehicle Operating Cost (VOC). A reduction of VOC for road users of this section – evaluated using HDM4 analysis – was estimated at 6 percent. With respect to this specific objective the project performance is considered Moderately Satisfactory. 63. The project has not yet met its development objective – linked to Component 4 – of improving the quality of sanitary services. At the time of writing, it was estimated that 98 percent of the work for the construction of the WWTP in Orhei had been completed. Wastewater is still being treated in the old WWTP. The target for the key outcome indicator – increase percentage of Orhei’s total wastewater discharge that is treated by the new WWTP to 90 percent – has not yet been met. The plant is expected to be completed in and start treating water by end-September 2013. However, according to the plant’s design only after one year of operation will reed-roots and micro-organisms grow enough to ensure treatment of wastewater compliant with designed parameters. In addition, Orhei’s Apa Canal has decided to switch gradually wastewater from the old to the new WWTP. Therefore the treatment target linked to this PDO is expected to be fully met in September 2014. As a result with respect to this specific objective the project performance is considered Moderately Unsatisfactory.

3.3 Efficiency Rating: Highly Satisfactory NPV: EUR 5.0 million; ERR: 19 % 64. Economic estimate of project benefits. No ex-ante economic analysis was done during project preparation. The ex-post economic analysis included: (a) the costs of all project components, including community contributions to small water works and the

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Government’s contribution to the construction of the WWTP; and (b) all measurable benefits, including welfare gains to households who benefited from piped water connection (Component 2), reduced cost for road users13 (Component 3), and higher efficiencies in BOD removal (Component 4). Given the nature of Component 1 investments, it was not possible to estimate its economic benefits. The following table summarizes results from the most conservative estimate by component.

Summary of NPV and ERR by Component

NPV (EUR million) ERR Comments

Component 1. Integrated Social No benefits were estimated for this -0.19 -- Care Services at the Community component. and District Levels Component 2. Improved Water Main benefits include reduced water 9.32 62% Management collection time and reduced investments in water storage. Component 3. Road Maintenance Main benefits included reduced 1.50 22% and Rehabilitation Vehicle Operating Costs.

Component 4. Wastewater Main benefit estimates increased -1.96 2% Treatment Plant treatment efficiency. A more realistic estimate is an ERR of 11% This includes all project cost and All project 5.00 19% estimated benefits for only components 2, 3 & 4

65. Welfare gains for new water connections – estimated from avoided collection14 and water storage – amounted to about EUR 1.9 million annually. For Component 3, using a with/without project case, road agency costs increase by EUR 1.6 million and road user benefits increase by EUR 3.1 million. Greater treatment efficiency – estimated as the difference in the cost of BOD removed when passing from the old to the new WWTP assuming constant treatment efficiency in the old WWTP over the next 20 years – amount to EUR 0.17 million in the early years and EUR 0.25 million in the later years. A more realistic estimate – assuming decreasing treatment efficiency in the old WWTP which is in a dilapidated state – results in EUR 0.17 million in efficiency gains in the early years and EUR 1.7 in the later years; and a ERR of 11 percent for this component. 66. Taken together, the estimated ERR for the project using conservative assumptions is 19 percent and the NPV is EUR 5.0 million, assuming a discount rate of 12 percent and 20 years of asset life. In fact, given the very conservative assumptions used (low skill wages, constant treatment efficiency in old WWTP) and the fact that no benefits could be accounted for Component 1 the project’s ERR and NPV is expected to be higher than the one estimated. As a result this project is rated Highly Satisfactory in regards to its overall efficiency. Please refer to Annex 4 for additional information.

13 Using the HDM-4 model 14 Assuming only 2 hours per day per household and valued at the low skill wage at USD 0.29 per hour.

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3.4 Justification of Overall Outcome Rating

Rating: Moderately Satisfactory 67. The project objectives remain highly relevant to the sectoral needs and the project achieved most of its specific objectives, meeting targets linked to Component 3 and exceeding targets for Component 1 & 2. Delays in the construction of the WWTP have postponed the achievement of the PDO linked to this component. However, all PDOs are expected to be met by September 2014. Assigning equal weights to each of the project’s components, the resulting rating for achievement of PDOs is Moderately Satisfactory. The economic analysis suggests that the project was cost-effective, in particular under Component 2 which produced substantial welfare benefits. In addition, once the WWTP commences operation, substantial efficiency gains in treatment are expected. The rating for efficiency was Highly Satisfactory. Based on the harmonized evaluation criteria, the team rates this project as Moderately Satisfactory.

3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 68. Components 1 and 2 focused on community participation and implementation by local governments. This means the project can be classified as both social development and institutional building. (b) Institutional Change/Strengthening 69. Refer to 3.5 (a) (c) Other Unintended Outcomes and Impacts (positive or negative) 70. This project was the first to implement15 CW technology for wastewater treatment in the country. As a result, the success or failure of this component will have consequences on the further use of this technology. If viewed as a success, other municipalities might be interested in implementing similar projects as a way of lowering O&M cost and having a more cost-efficient wastewater treatment.

4. Assessment of Risk to Development Outcome Rating: Moderate 71. The risk to development outcome appears moderate to low. Investments financed through this project favored the design of low O&M costs, so as to improve their sustainability. Meters were installed in all households with new water connections and tariffs were set to cover O&M costs. Although no specific assessment has been done on the affordability of water tariffs; and/or collection of bills, during the ICR preparation local utilities did not mention having issues in this regard. For community centers, MSIF ensured that sufficient budget was provisioned for their operation and assets were reflected on the municipality’s balance sheet. Under Component 4, the new WWTP is

15 Prior to this project the Government of Moldova received a GEF Grant for the implementation of a CW pilot in the city of Soroca. However this operation was cancelled on December 2010 after it became apparent that there was a lack of consensus on the choice of technology and there were strong stakeholders’ objections to the proposed site.

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expected to lower O&M costs as compared to the current WWTP. In addition, the Government and IFIs continue to be actively involved in the improvement of the road sector. The institutional improvements achieved during the past years – as a result of Bank and other donors involvement – have substantially increased maintenance funds and the road sector’s performance and a new Bank Technical Assistance activity, focused on financing local roads, will start soon.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Unsatisfactory 72. During preparation the team worked with existing project structures, identified components and an institutional arrangement that was complementary to existing operations. However, some risks, such as possible delays in procurement of contracts were not fully assessed during project preparation. In addition, the team might have sub- estimated the time required for implementing Component 4 and the amount allocated for the rehabilitation of the road section did not allow for efficient management of funds. In addition, the overarching PDO was too ambitious and targets were not set at the time of appraisal for PDO outcome indicators. For this reason the team considers the rating for Quality at Entry as Moderately Unsatisfactory. (b) Quality of Supervision Rating: Moderately Unsatisfactory 73. The World Bank monitored the project through semi-annual support visits, with more intense supervision in the last 18 months. Each component was supervised by the TTL of the associated Bank operation, and the level and mix of expertise were adequate. However, no documented evidence of environmental safeguards monitoring for Component 4 was found. The Government believes that the Bank provided timely support and remained active even after project closure. For Components 1 and 2, a Quality of Lending Portfolio Review was carried out by the Quality Assurance Group for the MSIF II Project, and it rated the quality of Bank supervision as Highly Satisfactory. For the road section, supervision was done in parallel to the Roads project which was carried out with other donors (EBRD, EIB, MCC, etc.), and the EC focal point in Chisinau regularly accompanied the missions. 74. The extensive supervision in the last year helped solve bottlenecks in project implementation such as finding agreement on a solution to the cost over-run for the WWTP and identifying resources to cover the funding gap for Component 4. Likewise, it helped identify and resolve the agreement to transfer the road contract from the Spanish contractor to the local sub-contractor in a timely manner. However, implementation delays coupled with insufficient communication with the EU Delegation to Moldova led to tensions between the Bank and the EC. The EC also objected to the Bank team’s reliance on Aide Memoires and other reports rather than EC reporting formats for recording project progress.

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(c) Justification of Rating for Overall Bank Performance Rating: Moderately Unsatisfactory 75. Following the harmonized evaluation criteria for ICRs the overall Bank performance is Moderately Unsatisfactory.

5.2 Borrower Performance (a) Government Performance Rating: Moderately Satisfactory 76. Initial delays in signing the GA impacted the implementation period of the grant. Although elections were held during this period it is still not clear whether delays in signature of the GA were due to political events or disagreements between different (and changing) stakeholders on the project’s scope and location of investments. During implementation, the Government demonstrated its commitment to solving emerging issues such as securing construction materials and finding sources to the funding gap for the WWTP (component 4). At a lower level, municipalities (including Orhei) and beneficiary villages proved to be committed to the implementation of investments under different components. In the case of Orhei, representatives of the mayor’s office attended weekly progress meetings that allowed them to identify bottlenecks and solve them. As a result Government Performance is considered Moderately Satisfactory. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory 77. Components 1 and 2. MSIF mobilized communities, trained leaders and arranged for the realization sub-projects at a rapid pace. This PIU deployed an experienced management team along with well-qualified experts on community-driven development; civil engineering; social care services; and on contracting, accounting, and M&E. The performance of MSIF is considered Highly Satisfactory. 78. Component 3. The World Bank, external partners, and the Ministry of Transport and Finance officials were satisfied with the SRA and did not flag any major shortcomings. What prevents the rating for this PIU from being highly satisfactory is that SRA’s performance in some areas, such as procurement, financial management and safeguards, was initially slow and required capacity development at the beginning of project implementation. This resulted from the conscious decision to not have a separate PIU but rather leverage and develop SRA’s own resources for project implementation. The performance of this PIU is thus considered Satisfactory. 79. Component 4. A number of issues related to the NWSSP PIU affected the achievement of the PDO linked to this component. During the initial implementation period, tensions arose between the ministry, the PIU and contractors which had consequences on project implementation and generated delays. To solve this issue the Minister decided to replace key staff in the PIU. Due to the rearrangement of the PIU, there were critical problems with PIU capacity and staffing during some period of time. In September 2012, for example, there were five vacant positions (Director, Engineer, Accountant, Community Mobilization and Institutional Development Specialist, and Monitoring and Evaluating Specialist). Prior to project closing, a new Director was

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recruited and most positions were filled resulting in a marked turnaround in performance. As a result, this PIU is rated Moderately Unsatisfactory. (c) Justification of Rating for Overall Borrower Performance Rating: Moderately Satisfactory 80. The combined rating is moderately satisfactory.

6. Lessons Learned 81. The project had a complex institutional arrangement with four different components under three ministries, and managed by three different PIUs. These arrangements were considered highly risky during project preparation and the Bank team, in charge of preparation, was advised against it. However, despite its complexity and initial concerns this arrangement proved workable. Project components were closely linked to three ongoing operations that facilitated supervision by seasoned sector and operational staff, even after the Grant closed. This arrangement also meant that EC Funds leveraged the resources of Bank projects and staff, and thereby enhanced the impact of both Bank and EC Funds. On the Government side, experience suggests that using existing PIUs – while assuring that they have the capacity to deliver and absorb the extra work – can be an efficient way to leverage existing government structures and reduce administrative cost. 82. Donor’s coordination and EC relations. This project had a very unique financial and administrative arrangement, being a RETF funded by the EC and administered by the Bank. A number of lessons emerged during project preparation and implementation; the importance of identifying external risks – linked to Donor’s and Government relationship and arrangements – which might affect project implementation. Since funds for this project were tied to the Financing Agreement between the EC and Moldova, its extension was restricted to the duration of the later, which meant that grant funds went unused, and the Government had to increase its contribution at a time of fiscal contraction. 83. Reporting requirements: A detailed reporting mechanism that allowed the Bank to inform the EC on the status of project implementation and meets Donor’s expectations, should be agreed upon during preparation. The Bank relied on its own monitoring instruments (Aide Memoires, ISRs) and the clients Progress Reports to inform the EC on progress. However these did not correspond to EC expectations which generated tension in relations. 84. Lessons from the implementation of Components 1 and 2 include the following; a. Increased wastewater generation. Since most communities that benefited from Component 2 opted for improving their access to water supply, the project led to an increase in water connections and consumption in villages. Some beneficiaries installed water flush toilets and washing machines that increases the amount of wastewater produced. As a result, some villages starting to have issues with managing wastewater. This highlights the importance of having an integrated approach to dealing with water issues. Although this lesson is considered typical for the design of water projects, there is a need to integrate this lesson in the design of social investment funds

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with water sub-projects particularly in the case of Community Driven Development programs. b. Community willingness to pay for services. Experience from Components 1 and 2 reveal local government and community willingness to contribute to their own development. Local governments were willing to cover 15 percent of total investment cost for small water works and 3 percent for the improvement of social services. In fact, a number of local governments proposed to cover a higher share. Households re-affirmed their willingness to pay for improved water supply, share connecting costs, have meters installed, and cover monthly payments for piped water connections. Prior to the project, the main source of water was shallow wells, which was available at no cost16. c. Investment caps. For Component 2, MSIF contributions were capped at US$ 75,000. As a result, the fund was able to more significantly impact smaller rather than larger villages. Although the purpose of the fund is twofold – to improve local capacity to contribute to their own development and improve service provision – there might be room to re-evaluate the use of size-sensitive caps (e.g. per capita caps) in future investment. 85. Taking into account procurement guidelines for an efficient use of funds. Experience in the procurement of the road rehabilitation section – where the total investment was considered too low to attract international bidders but the amount required to use ICB– revealed the importance of assessing sector entry costs and procurement guidelines to define investment amounts.

7. Comments on Issues Raised by Grantee/Implementing Agencies/Donors (a) Grantee/Implementing agencies 86. Detailed evaluation reports from the three PIUs covering each component were sent in July 2013. A summary of these reports appears in Annex 8. (b) Cofinanciers/Donors 87. Comments from the EU Delegation to the Republic of Moldova appear in Annex 9. (c) Other partners and stakeholders 88. Not applicable.

16 Apart from coping costs

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Annex 1. Project Costs and Financing

(a) Project Cost by Component (in EUR Million equivalent) Actual/Latest Appraisal Estimate Percentage of Components Estimate (EUR (EUR millions) Appraisal millions)

1. Integrated Social Care Services 4.34 6.0 138% 2. Improved Water Management 1.84 2.5 136% 3. Road Maintenance and 2.84 4.0 Rehabilitation 141% 4. Orhei Wastewater Treatment Plant 2.84 4.0 141% Total Financing Required 11.85 16.5 139%

(b) Financing Actual/Latest Appraisal Estimate Percentage of Source of Funds Estimate (EUR millions) Appraisal (EUR millions) EC Grant – Moldova Regional 11.85 11.62 98% Development Project Borrower 4.88 Total 11.85 16.5 139%

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Annex 2. Outputs by Component Component 1: Outputs by type, location and beneficiaries of community centers.

Nr. District Locality Type of center Number of potential beneficiaries who Number of beneficiaries need social services Total Women Men Total Women Men 1. Anenii Noi t. Anenii Noi Social Rehabilitation & Integration Centre 2887 1453 1434 59 54 5 2. Basarabeasca t. Basarabeasca Multifunctional Community Centre 2118 1312 806 91 59 32 3. Basarabeasca v. Sadaclia Multifunctional Community Centre 1315 867 448 171 47 124 4. Briceni v. Caracusenii Multifunctional Community Centre 535 232 303 73 36 37 5. Briceni v. Larga Multifunctional Community Centre 496 289 207 95 52 43 6. Briceni t. Briceni Multifunctional Community Centre 964 425 539 25 17 8 7. Briceni v. Drepcauti Multifunctional Community Centre 818 409 409 276 110 166 8. Calarasi v. Hirjauca Multifunctional Community Centre 484 252 232 40 22 18 9. Calarasi v. Horodiste Multifunctional Community Centre 515 232 283 38 26 12 10. Calarasi t. Calarasi Multifunctional Community Centre 3706 2152 1554 73 17 56 11. Causeni v. Chircaiesti Multifunctional Community Centre 138 70 68 176 95 81 12. Causeni v. Baccealia Multifunctional Community Centre 222 119 103 144 66 78 13. Causeni V Ucrainca Multifunctional Community Centre 930 557 373 22 19 3 14. Criuleni t. Criuleni Centre for the elderly and people with disabilities 1000 510 490 24 15 9 15. Edinet v. Terebna Multifunctional Community Centre 692 369 323 46 28 18 16. Glodeni v. Surzovca Multifunctional Community Centre 2887 1453 1434 32 13 19 17. Glodeni v. Balatina Multifunctional Community Centre 1340 762 578 500 240 260 18. Glodeni v. Fundurii Vechi Multifunctional Community Centre 1191 714 477 50 21 29 19. Glodeni t. Glodeni Multifunctional Community Centre 2967 1239 1728 84 39 45 20. Nisporeni v. Siscani Multifunctional Community Centre 1426 683 743 68 36 32 21. Nisporeni v. Milesti Multifunctional Community Centre 344 186 158 20 16 4 22. Ocnita v. Dingeni Multifunctional Community Centre 990 688 302 35 20 15 23. Orhei v. Peresecina Multifunctional Community Centre 1576 1048 528 207 94 113 24. Orhei v. Isacova Multifunctional Community Centre 1249 750 499 65 38 27 25. Orheni v. Piatra Multifunctional Community Centre 790 365 425 32 17 15 26. Soroca v. Rublenita Multifunctional Community Centre 483 264 219 165 112 53 27. Taraclia t. Taraclia Multifunctional Community Centre 1532 1072 460 28 13 15 28. Telenesti t. Telenesti Multifunctional Community Centre 251 129 122 12 8 4 29. Telenesti v. Verejeni Multifunctional Community Centre 734 549 185 35 19 16 30. Ungheni t. Ungheni Centre of rehabilitation and orientation 360 234 126 170 94 76 TOTAL 34940 19384 15556 2821 1423 1398

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Component 2. Outputs by subproject location, detailed description of investments and beneficiaries.

# SP # Subproject Title District Settlement Number Aqueduct Number of Number of Beneficiaries of Towers Length Protection WWTP (km) Zones 1 3064 Refurbishing the water supply system in "Romanovca" Basarabeasca Basarabeasca 0 4,2 0 0 5688 self-contained District 2 3123 Building an aqueduct fragment Basarabeasca Iserlia 0 6,875 0 0 616 3 3141 Refurbishing the water supply system Basarabeasca Ivanovca 1 1,645 1 0 177 4 3101 Refurbishing the water supply and sewerage system Cahul Paicu 1 4,548 3 1 506 5 3112 Supplying drinking water Cahul Satuc 1 3,336 1 0 117 6 3111 Refurbishing the water supply system and sewerage Cahul Slobozia Mare 1 3,768 2 1 2056 7 3122 Building an aqueduct in Sectors 101 and 104 of the town Cantemir Cantemir town 0 8,116 0 0 5136 8 3102 Refurbishing the water supply and sewerage system Cantemir Constantinesti 1 4,549 2 1 354 9 3108 Building the water supply and sewerage system Cantemir Craciun 1 6,415 2 0 334 10 1891 Refurbishing the water supply and sewerage system Causeni Chircaiestii Noi 1 5,31 3 1 1084 11 3365 Building an aqueduct fragment in the villageCauseniCopanca 1 3,81 1 0 5005 12 3338 Refurbishing the water supply system Causeni Leuntea 1 3,1 1 0 260 13 1919 Refurbishing the aqueduct Causeni Opaci 0 5,121 3 1 3486 14 3087 Refurbishing the water supply and sewerage system Causeni Tanatarii Noi 0 4,72 1 1 414 15 3073 Refurbishing the water supply and sewerage system Causeni Tocuz 1 3,31 3 1 4500 16 3334 Rebuilding the water supply system Causeni Ursoaia 1 6,52 1 0 849 17 3088 Refurbishing the water supply system Causeni Ursoaia Noua 1 1,85 1 0 176 18 3118 Refurbishing the water supply and sewerage system Cimislia Fetita 1 3,932 2 1 307 19 3109 Refurbishing the water supply and sewerage system Cimislia Maximeni 1 5,978 3 1 474 20 3114 Refurbishing the water supply and sewerage system Cimislia Munteni 0 6,318 2 1 382 21 3067 Building an aqueduct fragment in the village Criuleni Raculesti 1 1,215 1 0 696 22 3408 Building an aqueduct fragment in the village Dubasari Marcauti 1 4,025 1 0 250 23 3261 Building an aqueduct fragment in the village Falesti Pompa 1 6,01 1 0 241 24 3132 Building an aqueduct sector Leova Leova town 03,149 0 0 11576 25 3285 Refurbishing the water supply system Riscani Corlateni 1 6,51 1 0 3020 26 3096 Refurbishing the water supply system Riscani Costesti 5 4,46 6 0 3832 Drilling an artesian well and building an aqueduct Riscani Mihaileni 1 2,03 1 0 1759 27 3284 fragment in the village Carrying out repairing works at the sewerage system, Riscani Nihoreni 0 0,75 0 1 1009 28 3305 having mounted a wastewater treatment plant 29 3292 Building an aqueduct fragment Riscani Recea 0 8,61 0 0 397 30 3283 Supplying the Village with drinking water Riscani Saptebani 2 1,03 1 0 769

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# SP # Subproject Title District Settlement Number Aqueduct Number of Number of Beneficiaries of Towers Length Protection WWTP (km) Zones 31 3002 Building an aqueduct fragment Stefan VodaPurcari 1 8 1 0 2253 32 3005 Refurbishing the water supply system Stefan Voda Rascaieti 1 4,49 1 0 1582 33 3350 Building an aqueduct fragment in the village Taraclia Cortenul Nou 0 1,1 0 0 137 34 3176 Refurbishing the water supply system Telenesti Chitcanii Noi 1 3,11 1 0 289 35 3248 Building an aqueduct fragment in the villageUngheni Cioropcani 1 4,35 2 0 1532 36 1903 Refurbishing the water supply system Ungheni Condratesti 1 2,97 1 1 1090 37 3082 Building an aqueduct fragment in the villageUngheni Medeleni 1 2,12 3 0 296 38 3089 Building a water supply system Ungheni Valea Mare 0 13,85 1 0 1524 39 3426 Building an aqueduct fragment in the village UTAG Chirsova 1 5,01 1 0 1128 40 3405 Re-equipping the pumping stations at the artesian wells UTAG Comrat town 0 0 0 0 25024 41 3429 Rebuilding the water supply system UTAG Cotovscoe 1 5,886 2 0 995 42 3411 Building an aqueduct fragment in the village UTAG Etulia 1 2,569 1 0 244 43 3410 Rebuilding the drinking water supply system UTAG Svetlii 0 7,581 2 0 1681 Total 35 192,246 60 12 93245

In addition, to the investments mentioned in the previous two tables, the following sub-projects were co-financed by Component 1 and Component 2 and MSIF II. # Community Subproject’s typology 1 v. Dingeni (r. Ocnita) Social care centre 2 t. Riscani (r. Riscani) Social care centre 3 v. Carahasani (r. Stefan Voda) Social care centre 4 v. Mihălăşeni (r. Ocniţa) Water supply 5 v. Cobusca Veche (r. Anenii Noi) Water supply 6 v. Cotiujenii Mici (r. Singerei) Water supply 7 v. Piatra (r. Orhei) Water supply 8 v. Milesti (r. Nisporeni) Water supply 9 v. Caşunca (r. Floreşti) Water supply 10 v. Fîntîna Albă (r. Edineţ) LPA.Parcova Water supply 11 v. Gvozdova (r. Floreşti) LPA Gura Camencii Water supply 12 v. Bujeac (UTAG) Water supply 13 t. Singera (mun. Chisinau) Water supply 14 v. Ciopleni (r. Criuleni) Water supply 15 v. Schinoasa (r. Calarasi) Water supply

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Component 3: Road Maintenance and Rehabilitation. A section of 4.8km of the R14 Balti – Sarateni Road, km 38-300 – km 43+000, was rehabilitated. The rehabilitation works comprised: crack sealing (4810 line meters); patching (300 tonnes); pavement widening and new construction in some areas (12,100 sq.m.); regulating layer (4,152 tonnes); a 4 cm overlay (38,740 sq.m.); and reconstruction of 2 bridges (total 440 sq.m.). The rehabilitation cost defined at contract signature was EUR 2.37 million or EUR 0.503 million per km. The actual rehabilitation cost was EUR 2.49 million or EUR 0.529 million per km. The actual rehabilitation cost is 5 percent higher than the contract cost. Despite the 5 percent increase in the rehabilitation cost compared with the contract cost, the project still has a robust economic justification, as expected for rehabilitation of pavements on medium traffic roads. Component 4: Orhei Waste Water Treatment Plant. This component financed the design and construction of a CW technology WWTP in Orhei. At the time of writing, around 95% out of the total volume of planned works were completed. Wastewater is still being treated in the old WWTP. It is expected that the plant will be completed in September 2013, and will start treating water end September 2013. According to the design, the CW WWTP will treat approximately 837.000 m3 per year in the first phase. It expected by the authorities than in the next 10 years the total flow will increase due to growth of population, increasing of connection to the sewer and increasing of agro-food industrial production. The system is designed to support this progressive variation.

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Annex 3. Results Framework Component PDO Indicator Units Baseline Target Actual

Component 1. Integrated Social Care Services at Number of people with access to community centers Number per day 0 1450 150017 the Community and District Levels rehabilitated or constructed under the project Component 2. Improved Water Management Increased number of persons with access to potable water as a Number 0 17,00018 34,500 result of small water works financed under the project. Component 3. Road Maintenance & Rehabilitation Roads rehabilitated (km) Kilometers 0 4.8019 4.80 Component 4. Wastewater Treatment Plant Increased percentage of Orhei's total wastewater discharge that Percentage 0 90 0 is treated by the new WWTP Component Intermediate indicators Units Baseline Target Actual

Component 1. Integrated Social Care Services at Number of rehabilitated / constructed community centers Number 0 3020 30 the Community and District Levels Number of small water works completed Number 0 2921 43 Number of water storage tanks operational Number 0 35 35 Component 2. Improved Water Management Length of aqueduct constructed or rehabilitated (km) Kilometers 0 192 192 Number of protected zones Number 0 60 60 Component 3. Road Maintenance & Rehabilitation Contract for rehabilitation of road section between Balti and Text No Yes Yes Sarateni signed Civil works for wastewater facility completed Percentage 0 100 95 Considerable reduction of pollutants Component 4. Wastewater Treatment Plant No specific baseline or targets were identified at appraisal Low-cost wastewater treatment technology feasibility studies and indicators were not followed during implementation for Moldova have been developed and are available for replication in its neighboring countries Direct project beneficiaries Number 0 33,000 96,066 Component 1 & Component 2 Female beneficiaries Number 0 15,000 48,033

17 This corresponds to the daily capacity of the 30 community centers financed under the project. 18 Initial target was 17,000 (First ISR) 19 From first ISR 20 Initial target was 25 (First ISR) then revised to 30. 21 Initial target was 17 (First ISR)

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Annex 4. Economic and Financial Analysis

No ex-ante economic analysis was done for any of the project components; thus it was not possible to compare the ex-post economic analysis results with the project appraisal estimate. The ex-post economic analysis comprehends investments under Component 2, 3 and 4. As discussed on Section 3.3 given the nature of Component 1investments, it was not possible to estimate its economic benefits. The evaluation period was defined at 20 years, beginning in 2011, which best accounts for the economic life of the activities under the project. The adopted discount rate was 12 percent. Assumptions and key results are summarized below. A summary table of the economic analysis can also be found further in this Annex. Component 2. Costs include – apart from the Grant investments - community and local Government’s contribution to small water works. Main benefits were assumed to be reduced cost of collection of water and water storage. Although no survey was conducted during the project, a number of households and communities were visited and asked about their experience before and after the project. Prior to the project most households had access to water through shallow wells with considerable seasonal variations in water quality and quantity. These wells were located in different parts of the village. It was assumed that households spend on average two hours per day collecting water and invest in water tanks – having 20 years of life – at a cost of 120EUR (2000MLD). The minimum hourly wage for unskilled labor in Moldova (0.2175EUR/hour) was used to estimate time savings. Based on these assumptions benefits amount to 1,869,312EUR annually while the initial investment – made in 2011 and 2012 - was of 2,300,743EUR. The ERR for this component is 62 percent and the NPV is of 9,324,739EUR. Component 3. The ex-post economic analysis was conducted for the rehabilitation of the Bălţi – Sărăteni road from km 38+300 to km 43+000 (4.7 km), which is the project sole road rehabilitation component. The rehabilitation works improved the ride quality leading to lower road user cost, in terms of both vehicle operating cost and passenger time cost. It also guaranteed the structural soundness of the roads for a prolonged period, preventing collapse, and leading to lower life-cycle maintenance cost of the road assets. It used the Highway Development and Management Model (HDM-4), which simulates life cycle conditions and costs and provides economic decision criteria for road construction and maintenance activities. This analysis considered considering actual road condition and rehabilitation costs and estimated annual traffic growth rates for 2011 to 2030. The road works were completed in 2012 with duration of 15 months. Financial costs (market prices of materials, labor and equipment including taxes) were converted to economic costs, net of all transfer payments, using a financial to economic costs factor of 0.87. The rehabilitated road was in poor condition before the project. The average roughness was 6.8 IRI, m/km, in 2010 and in 2013 the average roughness decreased to around 2.0 IRI, m/km, as expected for rehabilitation works of asphalt concrete. The economic analysis of this component was based on 2010 annual average daily traffic data (4,203 vehicles per day with 73.7 percent composed of cars). The average annual increase in traffic on the project road during the 2011 to 2018 period was estimated at 4.2 percent for

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all vehicle types and 3.0 percent thereafter. This is based on the IMF outlook projections of GDP growth during this period and an elasticity of traffic to GDP growth of 1.0. Results suggest that the ERR of this investment was 22.3 percent and the NPV 1.5EUR million. Using a with/without project case, road agency cost increased by EUR 1.6 million and road user benefits increased by EUR 3.1 million. Thus, the Benefit/Cost ratio of the project is 2.0. Road user cost decreased on average by 6 percent with the project. Component 4. The new WWTP which uses CW technology is expected to reduce substantially O&M costs and improve treatment efficiency in comparison to the old WWTP. Since the plant is not yet in operation, information from the plant’s technical design – on O&M costs and expected BOD removal – was used. Energy costs were revised to their economic costs. Investments were made during 2012 and 2013 and benefits of higher treatment efficiency are expected to start in 2014. Benefits from greater treatment efficiency – estimated as the difference in the cost of per ton of BOD removed when passing from the old to the new WWTP and assuming constant treatment efficiency for the old WWTP – amount to EUR 0.39 million in the early years and EUR 0.58 million in the later years. The ERR for this component is 2 percent and the NPV is of EUR -1,959,117. All project. Taken together – and including investments but not benefits under Component 1 – the resulting ERR is 19 percent and the NPV is EUR 5.0 million assuming a discount rate of 12 percent and 20 years of asset life.

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(in millions of Euros) ATREATMENT EFFICIENCY ‐ TONS BOD REMOVEDUnit2011201220131234567891011121314151617181920 A1 Savings in treatment Euro per year ‐ ‐ ‐ 0.17 0.18 0.19 0.19 0.20 0.21 0.22 0.23 0.24 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 A2 Investments Euro ‐ (1.91) ‐(1.91) ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ SUM Euro ‐ (1.91) (1.91) 0.17 0.18 0.19 0.19 0.20 0.21 0.22 0.23 0.24 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25

IRR 2% NPV (1.96)

BWELFARE ‐ NEW CONNECTIONS Unit2011201220131234567891011121314151617181920 B1 Saving in coping costs for new connections Euro per year ‐ ‐ 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 B2 Investments Euro (1.15) ‐(1.15) ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ SUM Euro (1.15) (1.15) 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87 1.87

IRR 62% NPV 9.32

CREDUCED TRANPORT COSTS Unit2011201220131234567891011121314151617181920 C1 Saving in transport costs (in Economic Costs) Euro per year ‐ ‐ 0.22 0.25 0.29 0.37 0.47 0.60 0.77 0.98 1.23 3.05 (0.02) (0.03) (0.38) 0.01 0.01 0.01 0.01 0.01 0.02 ‐ ‐ C2 Investments (in Economic Costs) Euro ‐ ‐(1.99) ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ SUM (In Economic Costs) Euro ‐ (1.99) 0.22 0.25 0.29 0.37 0.47 0.60 0.77 0.98 1.23 3.05 (0.02) (0.03) (0.38) 0.01 0.01 0.01 0.01 0.01 0.02 ‐ ‐

IRR 22% NPV 1.50 <‐Different NPV Formula On HDM‐4, we don't discount the value of the first year DSOCIAL CARE SERVICES Unit2011201220131234567891011121314151617181920 D2 Investments Euro (2.23) (2.23)

ALL PROJECT BENEFITS Unit2011201220131234567891011121314151617181920 A1+B1+C1 SUM of Benefits Euro ‐ ‐ 2.09 2.29 2.34 2.42 2.53 2.67 2.85 3.07 3.33 5.16 2.09 2.09 1.74 2.13 2.14 2.14 2.14 2.14 2.14 2.12 2.12 A2+B2+C2+D2 SUM of investments Euro (3.38) (7.28) ‐(1.91) ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ SUM ‐ SUM Euro (3.38) (7.28) 0.19 2.29 2.34 2.42 2.53 2.67 2.85 3.07 3.33 5.16 2.09 2.09 1.74 2.13 2.14 2.14 2.14 2.14 2.14 2.12 2.12

IRR 19% NPV $5.00 EUR $6.75 USD

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Annex 5. Grant Preparation and Implementation Support/Supervision Processes

(a) Task Team members Responsibility/ Names Title Unit Specialty Lending/Grant Preparation Ross S. Pavis Senior Operations Officer AFTDE TTL Menahem M. Prywes Senior Economist ECSH3 Andreas Schliessler Lead Transport Specialist MNSTI Sarah Leigh Hammil Senior Program Assistant ECSSD Kashmira Daruwalla Senior Procurement Specialist ECSO2 Andrei Busuoic Senior Financial Management Specialist VIEWB Olgamarie Villa Resource Management Analyst ECACA Gurcharan Singh Senior Procurement Specialist TWICT

Supervision/ICR Ross S. Pavis Senior Operations Officer AFTDE TTL Ronnie W. Hammad Senior Operations Officer ESCUW TTL Andreas Schliessler Lead Transport Specialist MNSTI Manuel G. Marino Led Water and Sanitation Specialist ECSUW Maria Angelica Sotomayor Sector Leader LCSSD Stephane Dahal Water & Sanitation Specialist ECSUW Yuliya Smolyar Social Protection Specialist ECSH3 Irina Shmeliova Procurement Specialist ECSO2 Sandu Ghidirim Operations Officer ESCEG Elena Corman Procurement Analyst ECSO2 Ruxandra Maria Floroiu Senior Environmental Engineer EASER Elena Segura Labadia Senior Counsel LEGLE Ruxandra Costache Cousel LEGAM Oxana Druta Financial Management Specialist ECSO3 Galina S. Kuznetsova Senior Financial Management Specialist ECSO3 Tamar Sulukhia Sector Leader ECCSD Iuliana Stratan Team Assistant ECCMD Irina Guban Consultant ECSH1

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(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle US$ Thousands (including No. of staff weeks travel and consultant costs) Lending

FY9 NA Total: 0.00 Supervision/ICR

FY10 NA FY11 NA FY12 11.85 91.48 FY13 10.16 36.58 Total: 0.00

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Annex 6. Beneficiary Survey Results

MSIF – the PIU charged of Component 1 and 2 financed three evaluation reports that surveyed beneficiary views of project outcomes: . Bernard Brunhes International (2008) covers beneficiaries of the original financing, . CBS-AXA (2013) covers beneficiaries of the first Additional Financing, . CBS-AXA (2012) covers beneficiaries of the Second Additional Financing. For each report, the consultants surveyed beneficiaries and compiled quantitative figures on responses. Moreover the consultants also interviewed beneficiaries and summarized their perspectives on the project. This Annex presents a summary of the findings of these reports that are relevant to the investments made under Component 1 and 2 of the Moldova Regional Development Grant. Summary of the Bernard Brunhes International (2008) on the original financing Sources and type of analysis. To assess the project objectively, the consultants computed and reported difference-in-differences estimates of outcomes. These estimates computed the difference between the change in an outcome indicator over 2003-2008 in communities that received assistance from the original financing of the MSIF-II Project and the change in the same indicator in comparison communities. ‘Communities’ means villages and small towns. ‘Beneficiaries’ means residents of these MSIF-supported communities. For this analysis, Bernard Brunhes International surveyed beneficiaries in 36 communities and 36 control communities. In total, the consultants surveyed 1,691 people. Satisfaction with infrastructure sub-projects. The difference in difference analysis showed an impressive increase in public satisfaction over 2003-2008 among beneficiaries, compared to residents of control communities. The increase in satisfaction was 13 percent higher for communities that built water supply. Not all households benefited from project-supported sub-projects, and that limited satisfaction. For instance, grants for water sub-projects were too small to connect all households. About 77 percent of beneficiaries in communities with an MSIF-supported sub-project reported that high costs limited their access to the sub-project. This was particularly true for natural gas and water supply sub-projects. Beneficiary well-being. Indicators of household well-being in project-supported communities increased further than in control communities. For instance, household incomes rose by 51 MDL more in project-supported communities than in control communities. Community capacity to manage their own development. About 52 percent of beneficiaries reported improved or much improved relations between community members, and about 32 percent reported improved expectations for the future. About 48 percent of beneficiaries reported an increase in the capacity of their local public authorities. About 5 percentage points more beneficiaries reported improved local administration ability to resolve social and economic problems than in the control group.

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Moreover, project-supported training appeared effective, with about two-thirds of beneficiaries expressing approval. Summary of CBS-AXA (2013) Report on the (first) Additional Financing Sources and types of analysis. The consultants surveyed beneficiaries in 56 communities, where the project supported 74 sub-projects and conducted 10 interviews with representatives of local administrations. Unlike the Bernhard Brunhes, CBS-AXA did not attempt a difference-in- the-differences analysis. This introduces an increased degree element of uncertainty about the results of the first Additional Financing. Satisfaction with infrastructure sub-projects. The consultants presented evidence of beneficiary satisfaction in communities that received support from the first Additional financing. They found a 57 percent point increase over 2008-2012 in beneficiaries who were satisfied or very satisfied with their communities’ social and economic development. Impact on well-being. Emigration out of the flood region, targeted by the Additional Financing, fell slightly over 2008-2012. Moreover, the number of new businesses opened per 1,000 inhabitants increased over 2008-2012 and the number of farms per 1,000 decreased –probably because of the floods. It is not clear whether the fluctuations in the other social and economic indicators can be attributed to the project. Community capacity to manage their own development. There is some evidence that the project was associated with stronger social capital and stronger community ability to manage their own development. For example, 84 percent of beneficiaries reported that carrying-out their sub-project increased activism among community members. Nearly half of beneficiaries said that their local governments had improved their ability to address social and economic problems since 2008. Nearly 70 percent of beneficiaries reported that the experience accumulated during implementation of their MSIF-supported sub-project improved their capacity to implement similar projects. In the in-depth interviews, representatives of local public authorities said that they learned practices that they would apply in implementing other community projects. Summary of CBS-AXA (2012) Report on the Second Additional Financing Sources and types of analysis. Like Bernard Brunhes International (2008), these consultants reported some difference-in-differences evidence on impact of the financing alongside summaries of interviews with beneficiaries. They surveyed 71 communities that received sub-projects supported by the Second Additional Financing and 7 comparison communities. Moreover, the consultants relied on a baseline survey conducted over 2011-2013. The difference-in-difference analysis likely understates the project impact. This is because, by the start of the Second Additional Financing, the MSIF-II Project had served so many communities that the consultant could not assemble a comparison group of communities that were similar to the beneficiary communities but had not received support from MSIF or from other donors. To illustrate the issue, communities that benefited from the Second Additional Financing carried out, on average, 3.5 sub-projects over 2010-2013, with support from all donors, while the comparison communities carried out 3 projects.

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Satisfaction with infrastructure sub-projects. The consultants reported widespread satisfaction with sub-projects supported by the Second Additional Financing. For example, almost 55 percentage points more beneficiaries said that educational services were good or very good in 2012, compared with 2009. The improvement was 58 percentage points for water supply sub-projects, and 52 percent for roads sub-projects. The difference-in-differences analysis of the increase in satisfaction with social services found more modest improvements. Satisfaction with schools sub-projects rose nearly 20 percent percentage points further in beneficiary than in comparison communities. The figure was 5 percent for roads sub-projects, and -1 percent for water-supply sub-projects. The survey results reveal some inconsistency between beneficiary demand and the sub- project proposals approved and submitted by the same communities. In 2012, beneficiaries reported that the highest demand was for roads (36 percent) and then for water supply (22 percent) sub-projects. Yet the proposals for funding that communities submitted were for mainly for schools and kindergartens (53 percent) and water supply (13 percent). The high demand for roads sub-projects may reflect the poor condition of multi-kilometer long village access roads, while the project only finances short roads within villages. The reduced demand for school and kindergarten sub-projects in 2012 may reflect the MSIF Project’s satisfaction of community demand. Impact on well-being. The difference-in-differences analysis found generally higher increases in indicators of well-being in beneficiary than in comparison communities. Most of these difference-in-differences are modest or small. Average monthly household expenditure increased by about 120 MDL (US$ 10) more in beneficiary than in comparison communities. Employment improved by almost 12 percentage points more in beneficiary communities, consistent with achievement of the project’s employment objective. The increase in the number of farms was 66 percentage points greater in beneficiary communities, but the number of new businesses was 3 percentage points smaller. Community capacity to manage their own development. As in the earlier evaluation reports, the consultants found evidence of strengthened social capital and community capacity. The difference-in-difference analysis found that almost 19 percentage points more beneficiaries were satisfied with the social and economic development of their communities than in the comparison communities. The results of training and of practice in implementing a project are reflected in the survey results on capacity for management development. Over 69 percent of beneficiaries sampled said they had participated in MSIF-supported training. The most commonly mentioned benefits of training were increased self-confidence (36 percent) and what to do to solve community problems (24 percent). The consultants reported a 34 percent increase in beneficiaries appraisal of the local public administration’s (usually the mayor’s office) capacity to manage community development projects over 2009-2012.

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Annex 7. Stakeholder Workshop Report and Results

No stakeholder workshop was done for the evaluation of the project. However individual meetings with each of the main stakeholders – for each component -were held during the ICR preparation.

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Annex 8. Summary of Grantee's ICR and/or Comments on Draft ICR

Summary of MSIF’s ICR: Component 1 & 2 The Moldova Social Investment Fund (MSIF) manages the financial resources offered to the Republic of Moldova in the form of loans and grants by different donors. One of the Grants managed by MSIF was offered to the Republic of Moldova by the European Commission (Grant Agreement No. TF094952). Components 1 and 2 of this Grant were implemented by MSIF. The initial Grant implementation period was 6 August 2009 through to 30 June 2011, which was later extended to 30 September 2012. The initial amount of the Grant managed by MSIF was of €6,174 million, and with the additional funding of €0.435 million offered in the last trimester of 2012, the total sum managed by MSIF under the given Agreement amounted € 6.6 million. Results Financial resources were utilized in accordance with the World Bank’s procedures and in compliance with MSIF’s Operating Manual. The program was launched by holding promotional workshops for local and district government representatives, as well as local consultants and other representatives of the districts that would potentially benefit from the funding. As a result of discussions selected communities listed their priority issues which were then included in the subprojects proposals, and evaluated from social, technical and financial perspectives. Subprojects were approved for funding by MSIF’s Executive Committee. Communities selected construction companies and local technical supervisors, monitored the process of civil works execution, and organized acceptance of the renovated facilities. The beneficiaries of the investments developed plans to ensure the sustainability of the implemented subprojects for the following 2 years. Major emphasis was put on encouraging the communities to be able to find the solutions to the most pressing issues in an independent and cooperative manner. Communities were responsible for various aspects, such as identifying financial resources, purchasing goods and services, evaluation and quality control, maintenance of the renovated facilities, etc. It is worth mentioning the competitive spirit arising with the notion “First come – first served”, as communities were keen to donate financial resources and develop the required technical documentation. Thus, the project helped to develop social workers' capabilities, as well as assisted the institutional development of local authorities and NGOs. Target groups were: representatives of the local and district public administration, Implementation Agencies responsible for the subprojects, other public institutions and NGOs, economic agents etc. Communities are responsible for ensuring sustainability of the renovated facilities. Every community that benefited from the investments was trained in the development of a sustainability plan, and developed their own sustainability plans that include specific actions, terms of realization and persons responsible for compliance with them.

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Component 1. Development of an integrated system of social services at the community and district levels Financing amount: €4.3 million Community contribution: €0.5 million, equivalent in Moldovan Leu Planned number of subprojects: 30 Number of the implemented subprojects: 30 30 funding proposals were approved for funding and subsequently implemented. Centers can be divided by type, as follows: - Centers for persons with disabilities (beneficiaries – children, youngsters, old persons with disabilities); - Centers for the aged (beneficiaries – vulnerable aged, aged people living alone); - Multifunctional centers (beneficiaries – vulnerable families, youngsters and children, disabled and aged people). Managers, staff and local authority representatives were provided with training in both theory and practical application. There were 300 persons trained, including staff and managers of the centers; and public administration representatives (chiefs and deputy chiefs of the districts, mayors and deputy mayors, other persons). Over 900 persons were involved into the process of needs assessment, strategic planning, developing and improving subproject proposals, monitoring subprojects implementation etc. Within the constructing projects, eco-friendly materials were used and modern technologies for heating water and living spaces were applied (bio-mass boilers, solar panels), subsequently leading to considerable economies for local budgets. The resulting 30 community multifunctional centers can accommodate about 1,500 beneficiaries. All the centers started operating in the period of 2011-2012. The results registered under Component’s implementation were reflected in the publication “Community multifunctional centres: Realities and possibilities”, that can be accessed at http://msif.md/attachments/004_Community%20Centers%20EU.pdf. All the Community Multifunctional Centres funded through MSIF were provided with the appropriate recovery and physical rehabilitation equipment, appliances, furniture etc. Maintenance and operational costs of the centres are fully covered by the local public authorities. Component B. Improvement of water management at the community level in the South of the Republic of Moldova Financing amount: €2.3 million Community contribution: €0.235 million, equivalent in Moldovan Leu Planned number of subprojects: 30 Number of the implemented subprojects: 43 Districts from the South, South-East and Centre of the Republic of Moldova were granted access to the funds; they either suffered from the drought or were identified under a research carried out by the Government of the Republic of Moldova and hadn’t

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previously benefited from MSIF’s financial support. The funds were distributed on a competitive basis under the principle “First come – first served”. Subprojects implementation led to: - a more efficient management of water resources at the community level; - an increased access of population to potable water; - developed professional and management capabilities of the partners (local public administration, NGOs, contractors etc.) within the process of subprojects implementation; - an efficient exchange of information and positive experience among the partners of subprojects implementation at the community and district levels. Over 4,350 persons participated in the discussions of focus-groups and Local Council meetings. The number of participants at general meetings and meetings of representatives held in the beneficiary communities exceeded 11,000 persons, while over 20,900 persons took part in the referendums. Almost 18,460 women were involved in the decision making process. More than 115,000 persons from 43 beneficiary regions gained access to the renovated or newly-built water and sewage systems, and at least 30% of those were directly connected to the given networks. All the communities developed sustainability plans foreseeing continuous connection to the aqueduct and assuring full access to water for the whole population.

Replicated best practices During its activity MSIF has accumulated an experience and managed to promote a range of good practices which have been replicated by different governmental institutions and nongovernmental organizations in the relevant fields. A list of them can be found below, 1. Identification of community priority needs and problems by communities 2. Participatory identification of different resources, including funds necessary for community needs; 3. Involvement of population and local actors into the decision making process, strengthening efforts and funds, monitoring and evaluation etc. regarding community problems solving; 4. Management/administration of local and external funds; 5. Development of intra/inter partnerships by the communities; 6. Community meetings; 7. Development of the associative sector, support in establishment and development of public associations and their activities; 8. Development of Strategic Plans for community development, as well as specific fields of district development (social care services); 9. Piloting community multifunctional centers of social care services; 10. Piloting new construction materials and technologies;

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11. Modification of the standards in the fields of construction, social protection, education and energy; 12. Piloting alternative energy resources.

Lessons learned 1. Training conducted in cooperation: foreign experts / local experts had a great impact on the efficiency of MSIF Project regarding the creation of integrated social assistance services. 2. The implementation of innovative services and technologies requires an intensive collaboration with relevant ministries and organizations and institutions that implement similar projects to coordinate activities. The combined effort of various organizations (financial, human resources, etc) in implementing projects leads to the development of new, innovative and efficient services with an important impact on the communities. 3. Participative involvement enhances the objectivity in evaluating the sustainability of subprojects implemented with MSIF support. 4. The establishment of Coordination Committees (with MSIF support) regarding the creation of community multifunctional centers in each district ensured the successful coordination of activities and monitoring of SP implementation within Component 1. 5. The existence of a strategic plan for integrated social services development at district level confers possibility and flexibility to Local Administrators to financially support these newly created services. At the same time, a better planning of resources is needed at the community and district levels in order to assure their functioning. In the period of economic crises, some of the created centers of social care services face the problem of resources deficit, sometimes requiring support from the State Budget for maintenance and full operation. 6. Component 1 implementation became a catalyst for Local Administrators in creating community social services. Community social services were created from local budgets or with the support of other donors in some districts after assessing the needs of beneficiaries. 7. Seminars regarding accounts reflection of MSIF investments for the local public administration representatives and BA contribute to a more efficient control over the external investments capitalized in the district/locality and ensure the sustainability of renovated facilities. 8. The evaluation of the current state of the facilities renovated with MSIF assistance contributes to an increased sense of community ownership and responsibility of the local agents and residents for their maintenance and expansion. 9. Community contribution (funds donated by local residents and local public authorities, economic agents etc.) is an efficient mechanism of assuring sustainability of the rehabilitated objects/facilities.

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10. The involvement of community agents/local residents in MSIF investments impact assessment contributed to the development of capabilities in evaluating local-level actions and encourages communities to be proactive. 11. The implementation of subprojects with a high degree of transparency with the major involvement of population in managing local and external financial means and delegating various functions to communities facilitates and ensures a sustainable community development. 12. Consolidation of community agents and local residents’ efforts in solving priority community problems, solicited by MSIF procedures, was confirmed to be an efficient mechanism to ensure community development even in times of economic, social and political crisis.

Summary of SRA ICR: Component 3 The Government of the Republic of Moldova has implemented the Moldova Regional Development and Social Protection Project (the Project) financed by the European Commission. The Road Maintenance and Rehabilitation Component (Road Component) of the Project is implemented through the SRA as the direct executing agency under the general supervision and responsibility of the MTRI. The objective of the Project in relation to the Road Component is to reduce the economic and social disparities among regions by lowering road transport costs for road users in Moldova, and providing better access to services by improving the condition and quality of its road network. The specific objective outlined was to sign the contract for rehabilitation of road section R14 Balti – Sarateni Road, km 38+300-km 43+000 and complete the works by October 2010. The procurement of works contract for this road section has been carried out in two stages. While the first prequalification stage was combined with procurement of road rehabilitation works contracts under the Road Sector Program Support Project (RSPSP), the second bidding stage has been deliberately postponed and conducted separately after contract award of four works contracts under the RSPSP in order to enhance competition, especially among successful bidders, and obtain the best price for this relatively small contract (Please refer to the following table). Following procurement procedures the contract in question has been awarded and signed on 28.07.2010. The main works carried out through the Road Component of the Projects consisted of localized repair and light rehabilitation such as cleaning and sealing of cracks, application of a leveling course and a wearing course of asphalt mixture. Structural works comprised remedial works to a total of 3 bridges and a number of minor structures. It included repairs to sidewalks, to embankment protection, minor repairs and modifications to infrastructures and bridge decks, waterproofing and expansion joints to existing bridge decks and various minor remedial works. Heavier rehabilitation has been involved on shorter sub-section comprising re-construction of a 440 meters long embankment for which a diversion road with the total length of 1.022 km has been constructed. The overall outcome of the Project’s Road Component is rated moderate satisfactory attributable to delay encountered in the execution and completion of the works for the

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rehabilitation of the said road section. While the indicator regarding signing the contract has been met, the indicator related to completion of contract by the prescribed deadline has not been satisfied. The primary reason is attributable to the delay by almost two years caused by mis-procurement of two road rehabilitation works under the first procurement phase of the RSPSP in 2008 in which rehabilitation of R14 Balti – Sarateni Road, km 38+300-km 43+000 was to be included. Consequently, the procurement of rehabilitation works for this section of road has been included in the second procurement phase of the RSPSP (years 2010-2013). Other reasons are related to delay at the implementation stage of the project caused by slow mobilization and progress of works, ultimately affecting timely completion of the contract.

Contract Description of Road Project Funding Procurement Tender Contract reference Rehabilitation Works Name Source Procedure Package signed R14 Balti-Sarateni Road, RSPSP/W2/01 EC NIF Grant EBRD I 15.03.2011 km 10+780-26+600 M2 Chisinau-Soroca Road, RSPSP/W2/02 EBRD 18.02.2011 km 26+200 – km 54+850 RSPSP1 M2 Chisinau-Soroca Road, RSPSP/W2/03 EIB II 18.02.2011 km 54+850 – km 71+165 WB R3 Chisinau-Hincesti Road, RSPSP/W2/04 EIB 18.02.2011 km 22+000 – km 29+920 R14 Balti-Sarateni Road, EC Multi- RSPSP/W2/05 RDSPP2 III 28.07.2011 km 38+300-km 43+000 sectorial Grant

The implementation progress and success of the program was measured in terms of outcomes (results) and of outputs (physical achievements). The outcome of lower vehicle operating costs for road users was measured by calculating and comparing vehicle operating costs on the rehabilitated roads, before and after the project. Therefore, vehicle operation costs on the roads improved under the Project have decreased to some extent due to the implementation of R14 Balti – Sarateni Road, km 38+300- km 43+000. The outputs (physical achievements) was rehabilitation of 4,7 km of R14 road (with 2 lanes). Consequently, the outcome of Road Component can be rated as low satisfactory due to late completion of the road rehabilitation contract attributable to slow mobilization and physical progress in contract implementation. In terms of outputs or physical achievements it can be rated as moderate satisfactory. The performance of the State Road Administration (SRA) as implementing agency of the Road Component of the Project in carrying out the responsibilities assigned to them was moderate satisfactory. The capacity of the SRA increased from the beginning of the project implementation. Government willingness and prioritized approach to tackle road infrastructure issues has also increased during the last few years. The lessons learned during reported period is that the delay of any activity on the critical path of the project directly impacts the planned project completion date. Therefore, after signing a contract the Employer shall supervise Contractor’s mobilization on site jointly with the Engineer. Any delays or deviations either in site mobilization or in work progress shall be promptly notified to and remedied in an expeditious manner by the Contractor.

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Summary of WWTP PIU ICR: Component 4 Assessment of Project Design: The project design was sound in principle, and relevant technical, economic, financial, and environmental aspects were duly considered. The development objectives were strategically relevant to the country and regional priorities of finding cost-effective ways of treating wastewater, and reducing nutrient pollution in the Black Sea, respectively. Areas of strength during preparation related to design and implementation aspects including the use of the PIU from the previous water sector project instead of creating a new one. Several important lessons from earlier operations were taken into account, including the importance of selecting a treatment technology that would be both within the limits of affordability and willingness to pay by the Orhei community, as well as technically appropriate for Orhei Apa Canal to operate in a sustainable manner. Moreover, according to the economic and financial analysis the Constructed Wetland (CW) technology was more economical to operate mainly due to the considerably lower associated energy costs, hence would be more affordable to users than the conventional treatment options. Assessment of Risks: While the team identified several important risks to implementation and measures to mitigate them, several critical risks that ultimately impeded project implementation were not addressed. The risk of objections to the choice of technology was not highlighted as an issue, yet it had been the subject of much contention and discussion during preparation. Although some consultations on the project were conducted in the context of the EIA public consultation process, the importance of these issues seems to have been underestimated. Moreover, some stakeholders remained pessimist regarding CW functionality during winter time. Non-acceptance of the CW at the initial stage caused delays in selecting the Design Company. Due to the non-acceptance of the Constructed Wetland Technology envisaged for the new WWTP, by the Government of Moldova, the selection of the Consultant was stopped and much delayed. The activities under the project were resumed only at the beginning of 2010 (February 12, 2010 - the Request for Proposals was sent to short listed companies). Changes in Implementing Agency: Transfer of the PIU from Agency Apele Moldovei to the Ministry of Environment, with associated changes in skills and levels of commitment to the project, affected implementation. This change also delayed approval by the Bank of withdrawal applications. The project did not yet meet its development objective of improving the quality of sanitary services. At the time of writing, under the given contract there have been completed 95% out of the total volume of planned works. Wastewater is still being treated in the old WWTP. It is expected that the plant will be completed end-August 2013, and will start treating water September 2013. However, the PDO indicator linked to this component is expected to be fully met by end- August 2014, (Reed beds consisting of a gravel-filled container with bed planted with reeds on the top. Wastewater flows through the gravel and reed-roots and is purified by the actions of millions of bacteria, fungi and algae (micro-organisms) that digest the sewage. According to designer’s estimations only after one year of operation reed-roots and micro-organisms will grow enough to ensure treatment of wastewater compliant with designed parameters).

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Deficiencies encountered towards the achievement of Project objectives: Committed topographical error in the detailed design led to additional costs to be encountered and respectively extra time needed for the completion of construction works. The actual construction works of Orhei WTTP were initiated in March 2012, by JV Heilit Umwelttechnik-BioPlanta GmbH under the Contract signed on November 18, 2011. Subsequently, on April 04, 2012 the Contractor noticed that the quantities of filling material from borrowed pits and the conditions of handling the filling materials have changed in comparison with the former situation described in the Bidding Documents - final bottom (excavation) level of the RBF and VF basins different to 33,80 m over BSL as shown on the contractual drawings. Due to the identified topographic error the filling works in the whole area of the construction site had to be immediately stopped (May 16, 2012). According to site instruction of the Supervision team as of June 04, 2012 the construction works were partially resumed - the reshaping of the bottom excavation level of the basins of the Reed Bed Filter and Vertical Filter, the main part still being stopped because of the time required for adjusting the project design, which required about 2 months period since the identification of the committed error. Such issue caused additional expenses to be encountered – USD 0.285 mil. and respectively a considerable delay in project implementation. Failure to disburse all EC Grant allocated amount led to additional budget deficit. Due to the fact that identified topographic error caused a significant delay in project implementation, by EC Grant Closing Date - November 16, 2012, the construction works Contract Disbursed amount constituted: USD 2,910,749.64, registering in this way a budget deficit in the amount of – USD 2,200,071.02. Since the start-up of the activities an amount of Euro 2,520,548.32 was disbursed from the Grant sources within the Project implementation. At the same time, the delay of construction works caused additional expenses to be encountered for the WTTP works Supervision. Lessons from the implementation of Component 4 include the following; Remeasurement type of the Contract for construction of WWTP is little known in Moldova. According to the Project design several stakeholders (Ministry of Environment; Orhei Local Council; State Service of Verification and Expertise; State Inspectorate in Constructions; National Ecologic Fund) were involved in monitoring and supervising construction works of Orhei WWTP. Mentioned authorities have limited knowledge about that particular type of Contract which subsequently made monitoring more problematic. Contract for construction works did not consider interim deadlines. During Project implementation PIU and Supervision team warned manifold the Contractor about delays in construction works. Albeit the delay was obvious, the Contractor left these objections with no reaction arguing that the Contract had only final completion date till which all works were supposed to be completed. The PIU did not have contractual tools to enforce the Contractor comply with the Work Program. Thus, many activities were delayed and that finally built up a three month delay of completion.

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Handing over of the newly constructed WWTP to the Beneficiary (Orhei Apa-Canal) was not considered at the “Project design” stage. Contract for construction works assumes that the Project finishes as constructed WWTP should be handed over to the Client (PIU), and then PIU should pass it to the Beneficiary. Ideally, both operations should take place one after another; otherwise, within these two activities, PIU becomes accountable for operation and maintenance of the WWTP, and has to incur considerable unforeseen costs. In case if Contractor’s commitment ends after handing over to PIU, than Contractor becomes careless to further legitimate recommendations given by PIU or Beneficiary, arguing that these requests go beyond the Contract in force. In order to ensure smooth handing over of WWTP to the Beneficiary, it is recommended that future Contracts would envisage Contractor’s involvement till the output of the Project is handed over to final Beneficiary. Contract for construction works did not consider requirements of co-financing institutions. Although, the Contract mentions that “Any other outstanding amount, to reach the above mentioned Contract Price, or such sum as may become payable under the provisions of the Contract at the times and in the manner prescribed by the Contract, shall be covered from the sources granted by the Ministry of Environment through the National Ecological Fund (NEF)”, however, there is no reference in it that NEF’s requirements differ from the Contract provisions. In particular: grants provided by NEF are not tax exempted; NEF forms of reporting differ from the one used by the Contractor from the beginning of the Project; the volume of NEF grant is approved by the NEF Council and cannot be subject of monthly revision as “remeasurement” contract assumes. Meeting NEF requirements during Project implementation constituted a solid obstacle, and caused tensions with the Contractor accompanied by delays is execution of works. Thus, different approach imposed by co-financing institutions should be clearly provided in the Contract.

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Annex 9. Comments of Cofinanciers and Other Partners/Stakeholders

The following comments were provided by the EU Delegation to the Republic of Moldova:

1. Overall, we agree with the general assessment of the project as "Moderately Satisfactory", as: a. The underestimation by the Bank of the implementation period and three extension requests of the closing date did not allow an efficient management of EU funds in this project. b. The non-compliance of the Bank to report to the Commission on a semi- annual basis (as indicated in the Administrative Agreement, art. 5.01) made difficult for the EU Delegation to monitor properly the implementation of the project. c. Major delays in the implementation of activities (especially for Component 4 and 3) did not allow the project to meet fully its development objective for the moment.

2. On page 10 of the report, there is a statement: "In order to maximize the use of funds from the EC Grant prior to closing, unused funds from Component 4 were reallocated to finance additional investments under Component 1 and 2. These funds were used to co-finance the construction/rehabilitation of 3 community centers and 12 sub- projects for small water works." We ask the Bank to provide more details regarding this reallocation, as no record of approval from the Delegation for this operation is stated in our files.

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Annex 10. List of Supporting Documents

Administrative Agreement, Moldova Regional Development Project Aide-Memoires and Management Letters Bernard Brunhes International (2008). “Assessment of MSIF 2 Project Impact on Beneficiaries: Final Report.” Paris, France and Chisinau, Moldova. Center for Sociological Investigations and Marketing CBS-AXA (2012). “Assessment Study of the Impact over the Beneficiaries of Investments under the Second Additional Financing for the MSIF Project.” Chisinau, Moldova. Center for Sociological Investigations and Marketing CBS-AXA (2013). “Impact Assessment Study on the Beneficiaries of Investments from Additional Financing Sources One for MSIF” Project. Chisinau, Moldova Concept Note Paper, Moldova Regional Development Project Government of Moldova (2004). “Economic Growth and Poverty Reduction Strategy Paper 2004-2006.” Government of Moldova (2008). “National Development Strategy, 2008-2011.” Grant Agreement, Moldova Regional Development Project Implementation Status and Results Reports (ISRs), Moldova Regional Development Project MSIF (2013), Community Multifunctional Centers: Realities and Possibilities World Bank (2004). Project Appraisal Document on a Proposed Credit in the amount of SDR 13.8 million (US$ million equivalent) to the Republic of Moldova for a Social Investment Fund II Project. Report No. 28139-MD, May 18. Report No. 35618-MD. World Bank (2009a). Project Paper on a Proposed Additional Financing Credit (IDA Credit No. 4555) in the amount of SDR 3.4 Million Credit (USD equivalent 5 million) to the Republic of Moldova for the Social Investment Fund II Project. Report No. 46458-MD, February 26. World Bank (2009b). Emergency Project Paper on the Proposed Second Additional in the Amount of and SDR 12.5 Million Credit (USD equivalent 20 million) to the Republic of Moldova for the Social Investment Fund II Project. Report 51568-MD, December 30. World Bank Quality Assurance Group (2010). “Second Quality Assessment of the Lending Portfolio (QALP-2)”

46 IBRD 33448R

27°E 28°E29°E30°E

D nestr To Vinnytsya UKRAINE To Chernivtsi

Moghiliov-Moghiliov- To Vinnytsya OcnitaOcnita PodolskiPodolski BriceniBriceni MOLDOVA

B DonduseniDonduseni To Chernivtsi e EdinetEdinet SorocaSoroca s DrochiaDrochia 48°N CamencaCamenca 48°N s RîscaniRîscani

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b OrheiOrhei 0 10 20 30 Miles ROMANIA SculeniSculeni i DubasariDuba˘sari TRANSNISTRIATRANSNISTRIA To Pascani Mt.Mt. BalanestiBalanesati Calarasi˘ ˘ CriuleniCriuleni (430(430 m)m) UngheniUngheni Straseni˘ GrigoriopolGrigoriopol NisporeniNisporeni StauceniSt˘auceni To Zhmerynka

47°N CHISINAUCHISINA˘U 47°N

LapusnaL˘apusna IaloveniIaloveni AneniiAnenii NoiNoi TiraspolTiraspol HîncestiHîncesti BenderBender LeuseniLeuseni (Tighina)(Tighina) SloboziaSlobozia

Cainari˘ Causeni˘ To Odesa Plain

CimisliaCimislia N c Stefan-Voda˘ i a str e u To Birlad g LeovaLeova u B This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information shown on this map do not imply, on the part of The World Bank ComratComrat BasarabeascaBasarabeasca Group, any judgment on the legal status of any territory, or any To Birlad endorsement or acceptance of such boundaries. CantemirCantemir 27°E GGAGAUZIAA˘˘˘GA˘UZIA UKRAINE Ceadîr-Ceadîr- To Artsyz LungaLunga 46°N MOLDOVA 46°N P r u

t SELECTED CITIES AND TOWNS TaracliaTaraclia AUTONOMOUS TERRITORIAL UNIT CahulCahul CAPITALS GGAGAUZIAA˘˘˘GA˘UZIA RAIONS OR MUNICIPALITIES CAPITALS* VulcanestiVulca˘nesti NATIONAL CAPITAL RIVERS MAIN ROADS To Imayil RAILROADS Black AUTONOMOUS TERRITORIAL UNIT BOUNDARIES To Bucharest Sea RAIONS OR MUNICIPALITIES and Constanta BOUNDARIES INTERNATIONAL BOUNDARIES *Names of the raions or municipalities are identical to their capitals. 28°E29°E30°E

MAY 2007