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World Bank Document Document of The World Bank Public Disclosure Authorized Report No: 29563 IMPLEMENTATION COMPLETION REPORT (CPL-37430 SCL-3743A SCPD-3743S) Public Disclosure Authorized ON A LOAN IN THE AMOUNT OF US$110 MILLION TO THE DEMOCRATIC AND POPULAR REPUBLIC OF ALGERIA FOR Public Disclosure Authorized WATER SUPPLY AND SEWERAGE REHABILITATION PROJECT June 30, 2004 Public Disclosure Authorized Finance, Private Sector and Infrastructure Group Middle East and North Africa Region CURRENCY EQUIVALENTS (Exchange Rate Effective as of 06/30/2004) Currency Unit = Algerian Dinar DA 1 = US$ 0.014 US$ 1 = DA 71 (as of April 1994) DA 1 = US $ 0.028 US$ 1 = DA 36 FISCAL YEAR January 1 December 31 ABBREVIATIONS AND ACRONYMS AdE : Algérienne des Eaux (Algerian Water Authority) AGEP : Agence Nationale de Gestion de l'Eau Potable (National Agency of Potable Water Management) ANB : Agence Nationale des Barrages (National Agency of Dams) ANRH : Agence Nationale des Ressources Hydrauliques (National Agency of Hydraulic Resources) CAS : Country Assistance Strategy DHW : Direction de l'Hydraulique de la Wilaya (Hydraulic Resources Directorate of Wilaya) EPEAL : Etablissement Public Economique - Alger (Economic Public Enterprise of Algiers) EPEOR : Etablissement Public Economique - Oran (Economic Public Enterprise of Oran) GIS : Geographical Information System GoA : Government of Algeria LRMC : Long-Run Marginal Cost ONA : Office National de l'Assainissement (National Agency of Sanitation) PMU : Project Management Unit PSR : Project Supervision Report SAR : Staff Appraisal Report UFW : Unaccounted For Water WWTP : Waste Water Treatment Plant Vice President: Christiaan Poortman Country Director Theodore Ahlers Sector Manager Emmanuel Forestier/Francoise Clottes Task Team Leader/Task Manager: Alexander E. Bakalian DEMOCRATIC AND POPULAR REPUBLIC OF ALGERIA WATER SUPPLY AND SEWERAGE REHABILITATION PROJECT IMPLEMENTATION COMPLETION REPORT CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings 1 3. Assessment of Development Objective and Design, and of Quality at Entry 2 4. Achievement of Objective and Outputs 6 5. Major Factors Affecting Implementation and Outcome 10 6. Sustainability 12 7. Bank and Borrower Performance 12 8. Lessons Learned 14 9. Partner Comments 16 10. Additional Information 17 Annex 1. Key Performance Indicators/Log Frame Matrix 18 Annex 2. Project Costs and Financing 22 Annex 3. Economic Costs and Benefits 24 Annex 4. Bank Inputs 25 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 27 Annex 6. Ratings of Bank and Borrower Performance 29 Annex 7. List of Supporting Documents 30 Annex 8. Borrower's Completion Report 31 Map IBRD 33355 Project ID: P004974 Project Name: DZ-WATER SUPPLY AND SEWERAGE Team Leader: Alexander E. Bakalian TL Unit: MNSIF ICR Type: Core ICR Report Date: June 30, 2004 1. Project Data Name: DZ-WATER SUPPLY AND SEWERAGE L/C/TF Number: CPL-37430; SCL-3743A; SCPD-3743S Country/Department: ALGERIA Region: Middle East and North Africa Region Sector/subsector: Water supply (70%); Sewerage (27%); Central government administration (3%) Theme: Other urban development (P); Infrastructure services for private sector development (P); Regulation and competition policy (P); Pollution management and environmental health (S) KEY DATES Original Revised/Actual PCD: 12/16/1992 Effective: 09/30/1994 01/10/1995 Appraisal: 06/09/1993 MTR: 07/01/1997 06/26/1998 Approval: 06/02/1994 Closing: 12/31/2001 12/31/2003 Borrower/Implementing Agency: GOV. OF ALGERIA/ Agence Nationale de l'Eau Potable et Industrielle (AGEP) and Ministry of Water Resources Other Partners: STAFF Current At Appraisal Vice President: Christiaan J. Poortman Caio Koch-Weser Country Director: Theodore O. Ahlers Daniel Ritchie Sector Manager: Francoise Clottes A. Amir Al-Khafaji Team Leader at ICR: Alexander E. Bakalian Fritz Rodriguez ICR Primary Author: Ahmed El-Hamri and Alexander E. Bakalian 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: HU Sustainability: HUN Institutional Development Impact: N Bank Performance: U Borrower Performance: U QAG (if available) ICR Quality at Entry: HU Project at Risk at Any Time: Yes 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: The project development objectives were to assist the Government of Algeria in: (a) Rehabilitating its urban water supply and sewerage systems; (b) Improving the distribution of water in urban areas; and (c) Rationalizing the institutional arrangements in the water sector with a view to achieving full cost recovery through the establishment of efficient, self-financing water authorities. The loan was approved by the Board on June 2, 1994, for an amount of US$110 million, and became effective on January 10, 1995. The closing date of the Loan was initially set for December 31, 2001. This project was prepared at a time when Algeria’s water sector had many deficiencies in the way water supply and sanitation services were provided in the country. The project aimed at improving the performance of the water sector utilities by contracting out to the private sector a number of their activities, such as leak detection and repair, metering, network optimization and mapping. Most importantly, it advocated the creation of self-financing public water utilities that would operate under concession agreements with the Government. The design of the project followed the recommendations of a then-recently completed sector strategy report for the development and management of water resources in Algeria. Assessment of Original Objectives and Context. The development objectives were too ambitious and mostly unrealistic as their definition did not take into consideration the underlying political and institutional problems prevailing in the sector at that time. The risks that were indicated in the staff appraisal report (related to "concession agreements" between the utilities and Government and tariff adjustments) were quite generic and seem to have been addressed in the policy note that was sent by the Government in March 1994 (Annex 19 of the Staff Appraisal Report). Although some concerns about risk assessment had been expressed within Bank management, the project was given approval for financing and implementation (Box 1). Box 1 - Some early concerns. At the Board discussions in June 1994, some members of the Board of Directors expressed concern about the following issues related to the project: (a) lack of CAS directions in terms of assistance to the water sector strategy; (b) Algeria’s portfolio showed large undisbursed amounts owing to projects inactivity and implementation performance (notably the previous Loan 2821-AL for the 2nd National Water Supply and Sewerage Project; and (c) the security risk associated with a volatile political situation. 3.2 Revised Objective: The original objectives of the project were changed twice: (a) in 1998, to extend the private sector involvement to the commercial activities of the utilities such as billing and collection; and (b) in 2001, to limit the objective of cost recovery to operating expenditures and debt service (excluding depreciation). Moreover, on both occasions, the restructuring led to a substantial reduction in the scope of activities (see below). - 2 - 3.3 Original Components: The project included the following components: 1) Water Supply Systems: a) water supply system rehabilitation in 10 cities, inclusive of leak detection and repairs, meter installation and gauging and b) water distribution network re-looping and balancing in the same ten cities (Annaba, Ain Temouchent, Bejaia, Jijel, Mascara, Oran, Relizane, Sidi Bel Abbes, Setif, Tlemcen); 2) Sewerage: rehabilitation of about 24 sewage treatment plants located in different cities as well as rehabilitation of sewer networks and pumping stations; 3) Consulting services to the Agence Nationale de Gestion de l'Eau Potable (AGEP) and the Agence Nationale des Barrages (ANB) to carry out the feasibility and detailed studies, and environmental impact assessments of projected water and sewerage works; 4) Institutional Development to AGEP, ANB, Agence Nationale des Ressources Hydrauliques (ANRH) and the water utilities; and 5) Supply of operational equipment to AGEP, ANB, ANRH, and the water utilities. 3.4 Revised Components: Immediately after approval, the project implementation run into serious difficulties linked to the inadequate commitment of the Borrower to implementing the sector reforms agreed earlier, management weaknesses within the Project Management Unit (PMU), procurement delays, the noncompliance with financial and legal covenants, all in the context of a deteriorating security situation in the country. The project underwent two major restructurings: a) in 1998: after three years of a lack of tangible movement on implementation (Box 2), the Government and the Bank agreed to restructure the project and reduce its scope (during the mid-term review mission of June 1998). This lack of progress was due to delays in the procurement processes, the weakness of AGEP to organize the procurement without external assistance and the Government's lack of follow-up on agreed institutional reforms. By early 1998, an offer was received for the Oran (approved by the Bank but not submitted to the National Tender Board) and Annaba sub-projects while those for Jijel and
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