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PPAR: Philippines: Metropolitan Cebu Water Supply Project

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PPAR: Philippines: Metropolitan Cebu Water Supply Project ASIAN DEVELOPMENT BANK PPA: PHI 22274 PROJECT PERFORMANCE AUDIT REPORT ON THE METROPOLITAN CEBU WATER SUPPLY PROJECT (Loans 1056-PHI[SF]/1057-PHI) IN THE PHILIPPINES December 2002 CURRENCY EQUIVALENTS Currency Unit – peso (P) At Appraisal At Project Completion At Operations Evaluation (October 1990) (March 1999) (September 2002) P1.00 = $0.0388 $0.0257 $0.0191 $1.00 = P25.75 P38.97 P52.45 ABBREVIATIONS ADB - Asian Development Bank ADF - Asian Development Fund BME - benefit monitoring and evaluation CWA - communal water association DENR - Department of Environment and Natural Resources EIRR - economic internal rate of return FIRR - financial internal rate of return LWUA - Local Water Utilities Administration m3 - cubic meter MCWD - Metropolitan Cebu Water District NGO - nongovernment organization NRW - nonrevenue water NWRB - National Water Resources Board O&M - operation and maintenance OEM - Operations Evaluation Mission OMAP - Operation and Maintenance Assistance Program PCR - project completion report PPAR - project performance audit report NOTE In this report, “$” refers to US dollars. Operations Evaluation Department, PE-615 CONTENTS Page BASIC DATA iii EXECUTIVE SUMMARY iv MAP vii I. BACKGROUND 1 A. Rationale 1 B. Formulation 1 C. Purpose and Outputs 2 D. Cost, Financing, and Executing Arrangements 2 E. Completion and Self-Evaluation 2 F. Operations Evaluation 3 II. PLANNING AND IMPLEMENTATION PERFORMANCE 3 A. Formulation and Design 3 B. Achievement of Outputs 4 C. Cost and Scheduling 5 D. Procurement and Construction 6 E. Organization and Management 6 III. ACHIEVEMENT OF PROJECT PURPOSE 8 A. Operational Performance 8 B. Performance of the Operating Entity 11 C. Financial and Economic Reevaluation 12 D. Sustainability 13 IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS 14 A. Socioeconomic and Sociocultural Impacts 14 B. Environmental Impacts 14 C. Impact on Institutions and Policy 15 V. OVERALL ASSESSMENT 15 A. Relevance 15 B. Efficacy 15 C. Efficiency 16 D. Sustainability 16 E. Institutional Development and Other Impacts 16 F. Overall Project Rating 16 G. Assessment of ADB and Borrower Performance 16 ii VI. ISSUES, LESSONS, AND FOLLOW -UP ACTIONS 17 A. Key Issues for the Future 17 B. Lessons Identified 18 C. Follow-Up Actions 18 APPENDIXES 1. ADB Assistance to the Philippines’ Water Supply and Sanitation Sector 20 2. Diagram of the Project 21 3. Photographs of the Project 22 4. Cost Breakdown by Project Component 27 5. MCWD Organization Chart 28 6. Assessment of Social Aspects 29 7. Compliance with Loan Covenants 32 8. Project Output Data 34 9. Tariff Structure for Individual Connections 35 10. MCWD Financial Statements 36 11. Financial and Economic Internal Rates of Return 39 BASIC DATA Loans 1056-PHI(SF) and 1057-PHI: Metropolitan Cebu Water Supply Project Project Preparation/Institution Building Loan No. Project Name Amount ($ million) Approval Date 545-PHI Water Supply Sector Project1 46.0 25 Nov 1981 As per ADB Key Project Data ($ million) Loan Documents Actual Total Project Cost 33.0 24.4 Foreign Exchange Cost 14.2 12.1 ADB Loan Amount/Utilization 22.0 16.9 ADB Loan Amount/Cancellation 5.1 Key Dates Expected Actual Fact-Finding 8–19 Jan 1990 Appraisal 6–10 Jun 1990 Loan Negotiations 25 Oct–7 Nov 1990 Board Approval 29 Nov 1990 Loan Agreement 4 Jun 1991 Loan Effectiveness 2 Sep 1991 31 Oct 1991 First Disbursement 22 Aug 1994 Project Completion 31 Dec 1993 Oct 19972 Loan Closing 30 Jun 1994 5 Aug 1998 Months (effectiveness to completion) 28 72 Economic and Financial Internal Rates Appraisal PCR PPAR of Return (%) Financial Internal Rate of Return 13.9 4.3 5.7 Economic Internal Rate of Return — 15.0 14.3 Borrower Republic of the Philippines Executing Agency Local Water Utilities Administration Mission Data Type of Mission No. of Missions No. of Person-Days Fact-Finding 1 24 Appraisal 1 10 Project Administration Review 4 29 Special Loan Administration 7 33 Project Completion 2 51 Operations Evaluation3 1 19 — = not calculated, ADB = Asian Development Bank, PCR = project completion report, PPAR = project performance audit report. 1 The preparatory work for the Project was financed under this loan. 2 The Project was considered completed at this time when it started operating at partial capacity. 3 The Operations Evaluation Mission, which visited the project area during 16–26 September 2002, comprised H. Hettige, Senior Evaluation Specialist/Mission Leader; V. Buhat-Ramos, Evaluation Analyst; F. Radstake, Water Supply Specialist/Hydrogeologist; and L. Estaris, Local Social Development Specialist. EXECUTIVE SUMMARY In the late 1980s, the Philippine Government gave high priority to providing an adequate supply of potable water to urban and rural communities and to improving public health conditions by controlling pollution and reducing waterborne diseases. In the Metropolitan Cebu area, the second largest urban center in the Philippines with a population of 1.1 million in 1990, piped water supply coverage was very low, reaching only 18% of the people. A study financed by the Asian Development Bank (ADB) under a previous loan had identified the Mananga riverbed as the best location for extracting water. The Government gave high priority to the Project that consisted of a diversion weir, a settling basin, an infiltration basin, 19 deep wells, two storage reservoirs, a chlorination building, transmission and distribution mains, and other accessories and equipment for maintenance. The estimated project cost was $33 million, of which 43% was to be in foreign exchange. In November 1990, ADB approved a blend loan to the Government comprising $16 million equivalent from its Asian Development Fund (ADF) resources and $6 million from ordinary capital resources. The ADF loan was lent under standard ADF terms, and the ordinary capital resources loan was given at 10% interest for 24 years including a grace period of 4 years. The Government relent the loan proceeds to the Local Water Utilities Administration (LWUA), the Executing Agency, at 10% interest for 24 years, and LWUA onlent them to the Implementing Agency, Metropolitan Cebu Water District (MCWD), at 12.5% for the same period. The Project aimed at augmenting the water supply in the MCWD area by 33,000 cubic meters per day and reducing nonrevenue water (NRW) levels from 38% in 1990 to 30% by 1993. About 100,000 people were expected to benefit from new connections, of whom 30,000 would be the urban poor reached through communal faucets and individual connections. Given the high number of the urban poor among the expected beneficiaries, the use of ADF was considered justified. To expedite implementation, ADB approved direct selection of consultants and retroactive financing of their services. Despite that, project completion originally scheduled for end-1993, was delayed by almost 4 years due to various administrative reasons, among them finalizing the relending and onlending agreements and engaging the consultants. In July 1994, ADB seriously considered cancelling the Project, as physical activities had not yet started. But, in view of the acute shortage of water in Metropolitan Cebu and the high priority given by the Government, the Project was extended subject to completion of a time-bound action plan. Further delays occurred because of problems in land acquisition, and the construction of the infiltration basin had to be temporarily suspended due to the contractor’s inability to meet the design specifications. During implementation, construction of the two storage reservoirs and the chlorination building was cancelled, as storage capacity was already sufficient. The loan was closed in August 1998 after three extensions. Physically, the Project was well-designed to achieve its main objective of expanding water supply in Metropolitan Cebu. The Project began operating at partial capacity in October 1997 without the infiltration basin, using the natural recharge condition of the riverbed. The actual project cost was $24.4 million, 26% below the appraisal estimate, due to cancellation of the two reservoirs and chlorination building, only partial completion of the infiltration basin, and nonuse of contingency funds. The infiltration basin has now been completed according to design specifications at a cost of $1.2 million, financed from MCWD’s own resources. It is expected to be operational by January 2003 when the temporary dike separating it from the settling basin has been made permanent. v The well field has been operational for more than 5 years using natural infiltration and has produced an average of 23,000 cubic meters per day. About 17,000 new connections and 42 new communal faucets can be attributed to the Project. The numbers will increase to 24,000 connections and 60 communal faucets when full capacity is reached in 2003, benefiting about 122,000 residential and 13,500 communal water users. As such, the Project will significantly exceed the appraisal target for the overall number of beneficiaries (100,000) but not that for the urban poor (30,000). The project design did not include a mechanism or plan to specifically target the urban poor. It relied on continued expansion of the communal water association (CWA) program where costs would be recovered through the barangay associations collecting set fees from the users. The subsidized tariff for the CWA program is approximately 65% of the regular tariff. Where they have been established, CWAs appear to be a sustainable and effective way of reaching the urban poor until they are able to access individual connections. If reaching them is to be one of the objectives of the Government and MCWD, there should be a more proactive attempt to publicize and promote the CWA program, with specific targets developed and their implementation monitored. Eventually, the objective should be to provide individual connections to the poor. The major benefits from the Project have been better access to safe water by consumers, longer hours of service, and enhanced sanitation conditions that lead to improved health. These benefits have had several positive social impacts.
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