Performance India: Karnataka Urban Evaluation Development and Coastal Report Environmental Management Project Independent Evaluation Raising development impact through evaluation Performance Evaluation Report November 2016 India: Karnataka Urban Development and Coastal Environmental Management Project This document is being disclosed to the public in accordance with ADB's Public Communications Policy 2011. Reference Number: PPE IND 2016-19 Project Number: 30303 Loan Number: 1704 Independent Evaluation: PE-792 NOTES (i) In this report, “$” refers to US dollars. (ii) For an explanation of rating descriptions used in Asian Development Bank evaluation reports, see ADB. 2006. Guidelines for Preparing Performance Evaluation Reports for Public Sector Operations. Manila Director General M. Taylor-Dormond, Independent Evaluation Department (IED) Deputy Director General V. Salze-Lozac’h, IED Director W. Kolkma, Independent Evaluation Division 1, IED Team leader A. Perdana, Evaluation Specialist, IED Team members M.P. Lim, Evaluation Officer, IED J. Llaneta, Evaluation Assistant, IED The guidelines formally adopted by the Independent Evaluation Department (IED) on avoiding conflict of interest in its independent evaluations were observed in the preparation of this report. To the knowledge of IED management, there were no conflicts of interest of the persons preparing, reviewing, or approving this report. In preparing any evaluation report, or by making any designation of or reference to a particular territory or geographic area in this document, IED does not intend to make any judgments as to the legal or other status of any territory or area. Abbreviations ADB – Asian Development Bank CAPP – Community Awareness and Participation Program EIRR – economic internal rate of return FIRR – financial internal rate of return GLSR – ground-level storage reservoir IED – Independent Evaluation Department KUDCEMP – Karnataka Urban Development and Coastal Environmental Management Project KUIDFC – Karnataka Urban Infrastructure Development and Finance Corporation LPCD – liter per capita per day MLD – million liters per day NRW – non-revenue water O&M – operation and maintenance PCR – project completion report PIU – project implementation unit PMO – project management office PPER – project performance evaluation report PVR – project validation report SEZ – Special Economic Zone STP – sewage treatment plant ULB – urban local body WACC – weighted average cost of capital WTP – water treatment plant Currency Equivalents At Independent At Appraisal At Completion Evaluation (1999) (November 2012) (October 2015) Rs 1.00 = $0.023 $0.02154 $0.01535 $1.00 = Rs43.40 Rs46.40 Rs65.15 Contents Page Acknowledgments v Basic Data vii Executive Summary ix Map xiii Chapter 1: Introduction 1 A. Evaluation Purpose and Process 1 Chapter 2: Design and Implementation 3 A. Formulation 4 B. Rationale 4 C. Cost and Financing 5 D. Implementing Arrangements, Procurement, Construction, 6 and Scheduling E. Design Changes 7 F. Outputs 8 G. Performance of Consultants 10 H. Loan Covenants 10 Chapter 3: Performance Assessment 11 A. Relevance 11 B. Effectiveness 12 C. Efficiency 18 D. Sustainability 18 Chapter 4: Other Assessments 21 A. Development Impact 21 B. ADB Performance 25 C. Performance of the Borrower and Executing Agency 25 Chapter 5: Overall Assessment, Lessons, and Follow-Up Actions 27 A. Overall Assessment 27 B. Lessons and Follow-Up Actions 28 Appendixes 1. Project Performance Against Design Framework 33 2. Economic and Financial Re-Evaluation 40 3. Findings from Household Survey and Focus Group Discussions 44 4. Results on Life Changes and Social Capital 48 Acknowledgments This report was prepared by a team led by Ari Perdana, Evaluation Specialist, Independent Evaluation Department (IED) of the Asian Development Bank (ADB) under the supervision of Walter Kolkma, Director, Independent Evaluation Division 1. Team members were Ma. Patricia Lim and Jennifer Llaneta. Consultants for the report were Ramon Abracosa and Sanober Durrani. IED staff Tomoo Ueda, Garrett Kilroy, and Au Shion Yee provided comments on early drafts. The team wishes to thank officials of the Karnataka state and municipal government officials, and non-governmental organization representatives who participated in interviews. The team acknowledges the support and cooperation of household members during the evaluation mission who took part in the survey and focused group discussions as part of the collection of qualitative data for the evaluation The team is grateful to ADB South Asia Department Management and staff in Headquarters and in the India Resident Mission staff for their comments to the draft of the report and for facilitating the evaluation mission. Their inputs strengthened the evidence base and supported the findings of this evaluation, although they may not agree with all assessments. IED retains full responsibility for this report. Basic Data India: Karnataka Urban Development and Coastal Environmental Management Project (Project Number 30303, Loan 1704) At Appraisal Actual Key Project Data ($ million) ($ million) Total project cost 55.55 251.40 240.87 Foreign exchange cost 9.41 93.90 104.21 Local currency cost 46.14 157.50 136.66 ADB loan amount/utilization 15.00 175.00 145.00 ADB = Asian Development Bank, GEF = Global Environment Facility. Key Dates Fact-finding Loan negotiations 2 August 1999 6 August 1999 Board approval 26 Oct 1999 Loan signing 19 May 2000 24 July 2002 Loan effectiveness 17 August 2000 21 September 2000 First disbursement of loan Loan closing 30 June 2005 25 November 2009 Borrower: Government of India Executing Agency: Karnataka Urban Infrastructure Development Finance Corporation Mission Data Type of Mission Number of Missions Number of Person-Days Fact-finding 2 106 Appraisal 1 80 Inception 1 16 Review 18 250 Midterm review 1 30 Special loan administration 3 27 Project completion review 2 80 Independent evaluation 1 40 Executive Summary This project performance evaluation report (PPER) presents the findings of an independent evaluation of the Karnataka Urban Development and Coastal Environmental Management Project (KUDCEMP), supported by the Asian Development Bank (ADB). A mission visited project sites in October 2015. ADB approved a $175.0 million loan for KUDCEMP on 26 October 1999. The original ADB loan was reduced in 2002 by $30 million to $145.0 million, at the borrower’s request. The total project cost incurred was $240.87 million, of which ADB financing was $145.0 million (60% of project cost). The loan was closed in November 2009, four years later than planned at appraisal. The purpose of the project was to improve urban infrastructure, operation and management, and resource mobilization in 10 project cities along the west coast of Karnataka, namely Ankola, Bhatkal, Dandeli, Karwar, Kundapura, Mangalore, Puttur, Sirsi, Udupi, and Ullal. The project had six components: (i) capacity building, community participation and poverty reduction (3% of actual project cost); (ii) water supply systems rehabilitation and expansions (27%); (iii) urban environmental improvement through sewage systems (31%); (iv) street and bridge improvements (10%); (v) coastal environmental management (2%); and (vi) implementation assistance (11%). ADB prepared a project completion report (PCR) in November 2012. The Independent Evaluation Department (IED) finalized a PCR validation report (PVR) in November 2014. Both the PCR and PVR rated the project successful and recommended the preparation of a PPER in 2015. A. Overall Assessment The evaluation rated the overall project performance successful, based on subratings of the project’s relevance, effectiveness, efficiency, and sustainability. The evaluation rated the project relevant. The project helped address the development challenge that many cities in India have faced over the past two decades due to urbanization. These include unsafe water supplies, poor sanitation, improper solid waste management, and growing slum areas. The project was consistent with ADB’s integrated approach for urban infrastructure, which combines water, sanitation, waste management, and other urban infrastructure to achieve greater impacts. The project had some innovative features. KUDCEMP was one of the first ADB- supported projects in India to adopt a participatory approach during its implementation through its Community Awareness and Participation Program (CAPP) component. It had a municipal reform program that complemented the infrastructure investment. It introduced public-private partnership arrangements to operate project facilities such as sewage treatment plants and landfills. Despite these innovative features, the appropriate integrated approach and the clear needs, the project had some design shortcomings. The project scope was very broad. It x Karnataka Urban Development and Coastal Environmental Management Project comprised a wide range of outputs in as many as 10 cities across a wide geographic area and at a considerable distance from the executing agency. The project should have concentrated on water, sanitation, and waste management for its subprojects and covered fewer cities. Complex project implementation arrangements were required for the various subprojects, which stretched the ability of the executing agency, the Karnataka Urban Infrastructure Development and Finance Corporation (KUIDFC), seated in Bangalore, to plan, design, monitor, and implement the project on behalf of most municipal governments. The PCR reported that the project preparation