SECONDARY TOWNS INTEGRATED FLOOD PROTECTION PROJECT (Loan 1202-BAN[SF])

ASIAN DEVELOPMENT BANK PPA: BAN 24096 PROJECT PERFORMANCE AUDIT REPORT ON THE SECONDARY TOWNS INTEGRATED FLOOD PROTECTION PROJECT (Loan 1202-BAN[SF]) IN BANGLADESH December 2003 CURRENCY EQUIVALENTS Currency Unit – taka (Tk) At Appraisal At Project Completion At Operations Evaluation (October 1992) (December 2000) (September 2003) Tk1.00 = $0.0256 $0.01852 $0.01714 $1.00 = Tk39.00 Tk54.00 Tk58.35 ABBREVIATIONS ADB - Asian Development Bank BWDB - Bangladesh Water Development Board EA - Executing Agency EIRR - economic internal rate of return EOCC - economic opportunity cost of capital FAP - Flood Action Plan FDR - flood damage rehabilitation FIRR - financial internal rate of return GDP - gross domestic product IFAP - institutional and financial action plan KCC - Khulna City Corporation LGED - Local Government Engineering Department NGO - nongovernment organization O&M - operation and maintenance OEM - Operations Evaluation Mission PCR - project completion report PIU - project implementation unit PMO - project management office PMU - project management unit TA - technical assistance SDR - special drawing rights SWM - solid waste management WACC - weighted average cost of capital NOTES (i) The fiscal year (FY) of the Government ends on 30 June. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2000 ends on 30 June 2000. (ii) In this report, “$” refers to US dollars. Operations Evaluation Department, PE-636 CONTENTS Page BASIC DATA iii EXECUTIVE SUMMARY v MAPS vii I. BACKGROUND 1 A. Rationale 1 B. Formulation 1 C. Purpose and Output 2 D. Cost, Financing, and Implementation Arrangements 2 E. Completion and Self-Evaluation 3 F. Operations Evaluation 3 II. PLANNING AND IMPLEMENTATION PERFORMANCE 4 A. Formulation and Design 4 B. Achievement of Outputs 4 C. Cost and Scheduling 5 D. Consultant Performance, Procurement, and Construction 6 E. Organization and Management 6 III. ACHIEVEMENT OF PROJECT PURPOSE 7 A. Operational Performance 7 B. Performance of the Operating Entity 8 C. Financial and Economic Reevaluation 9 D. Sustainability 10 IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS 11 A. Socioeconomic Impact 11 B. Environmental Impact 12 C. Impact on Institutions and Policy 12 V. OVERALL ASSESSMENT 13 A. Relevance 13 B. Efficacy 13 C. Efficiency 13 D. Sustainability 13 E. Institutional Development and Other Impacts 13 F. Overall Project Rating 13 G. Assessment of ADB and Borrower Performance 14 ii VI. ISSUES, LESSONS, AND FOLLOW -UP ACTIONS 14 A. Key Issues for the Future 14 B. Lessons Identified 14 C. Follow-Up Actions 15 APPENDIXES 1. Project Cost 16 2. Actual Works Compared with Appraisal 18 3. Financial Performance of Khulna City Corporation and Pourashavas 20 4. Financial Analysis 32 5. Economic Analysis 35 6. Project Impacts on Local Households 40 BASIC DATA Loan 1202-BAN(SF): Secondary Towns Integrated Flood Protection Project Project Preparation Type Person- Amount Approval TA No. TA Name Months ($’000) Date TA 1396-BAN Secondary Towns Integrated Flood PPTA 49 600 24 Oct 1990 Protection As per ADB Key Project Data ($ million) Loan Documents Actual Project Cost 70.0 70.0 Foreign Exchange Cost 19.9 29.2 Local Currency Cost 50.1 40.7 ADB Loan Amount/Utilization 55.0 51.9 (SDR million) 38.1 37.0 ADB Loan Amount/Cancellation 1.4 (SDR million) 1.1 Key Dates Expected Actual Fact-Finding 9–24 Feb 1992 Appraisal 11–26 Apr 1992 Loan Negotiations 28–29 Oct 1992 Board Approval 3 Dec 1992 Loan Agreement 23 Dec 1992 Loan Effectiveness 23 Mar 1993 29 Mar 1993 First Disbursement 12 May 1993 Project Completion 31 Dec 1997 30 Nov 2000 Loan Closing 30 Jun 1998 13 Dec 2000 Months (effectiveness to completion) 57 92 Economic Internal Flood Protection and Drainage Slum Improvement Rate of Return (%) Appraisal PCR PPAR Appraisal PCR PPAR1 Dinajpur 46.0 37.1 36.3 18.7 18.1 16.0 Habiganj 44.4 41.8 27.9 12.3 19.3 12.0 Khulna 32.8 37.6 25.3 18.7 19.1 12.1 Kurigram 14.3 15.1 17.1 0.0 0.0 — Moulvibazar 28.5 28.6 39.6 14.7 16.2 22.6 Panchagarh 28.7 29.2 13.7 13.7 22.8 21.9 Financial Internal Solid Waste Management Sanitation Rate of Return (%) Appraisal PCR PPAR Appraisal PCR PPAR1 Dinajpur 14.7 15.0 negative 20.5 19.8 — Habiganj 14.3 16.0 4.6 20.5 20.1 — Khulna 20.0 18.8 negative 20.5 20.2 — Kurigram 13.3 13.9 negative 20.5 18.0 — Moulvibazar 26.1 15.9 5.3 — — — Panchagarh 17.0 18.2 negative 20.5 13.7 — — = not calculated, ADB = Asian Development Bank, PCR = project completion report, PPAR = project performance audit report, PPTA = project preparatory technical assistance, SDR = special drawing rights, TA = technical assistance. 1 The Operations Evaluation Mission did not financially reevaluate the sanitation component since revenues were small and insufficient to cover the associated costs. Instead, sanitation was included as part of the economic reevaluation under slum improvement since most of the constructed facilities are within the upgraded slum sites. iv BORROWER Bangladesh EXECUTING AGENCY Bangladesh Water Development Board and Local Government Engineering Department Mission Data Type of Mission No. of Missions No. of Person-Days Fact-Finding 1 ¾ Appraisal 1 ¾ Project Administration Inception 1 3 Review 14 94 Midterm Review 1 32 Project Completion 1 33 Operations Evaluation2 1 38 2 The Mission comprised A. Ibrahim (Evaluation Specialist/Mission Leader) and R. Brockman (Staff Consultant/Urban Development Sector Specialist). EXECUTIVE SUMMARY In Bangladesh, flooding is a perennial problem that threatens lives, damages basic infrastructure, and exacerbates health problems, especially among the poor. The Secondary Towns Integrated Flood Protection Project (the Project) aimed to provide a relatively flood-free and secure living environment in six towns (Dinajpur, Habiganj, Khulna, Kurigram, Moulvibazar, and Panchagarh) within the framework of integrated environmental management plans. Urban flood protection (part A of the Project) was integrated with drainage (part B) and basic municipal services, including slum improvement (part C), to benefit the urban poor living in low-lying, flood-prone areas. Implementation assistance, such as staff, consultants, and logistics support, was covered under part D. To promote sustainable long-term development, the Project also supported institutional and policy development, including cost recovery, financial management, urban management, and operation and maintenance. The Project was consistent with the Government’s Flood Action Plan and Fourth 5-Year Plan (1991–1995). It was also in line with the Asian Development Bank’s (ADB’s) operational strategy for Bangladesh in the early 1990s, which focused on developing urban infrastructure and improving the environment to benefit improvement with the urban poor. While the Project was ADB’s third intervention to support the Flood Action Plan, it was the first in the six project towns. At appraisal, the estimated cost of the Project was $70.0 million. The largest component was part A, with an estimated cost of $24.2 million, followed by part B at $20.2 million, part C at $6.6 million, and part D at $4.9 million. The actual cost was only $40,000 below the appraisal estimate. ADB disbursements totaled $51.9 million, which covered the foreign exchange cost of the Project and $22.7 million of the local currency costs. In addition to the original project components, the ADB loan provided $2 million for flood damage rehabilitation, which was required after the 1998 floods, and $1.2 million to finance 40% of the cost for surveying and mapping the project towns. However, the final loan amount was $3.1 million lower than expected at appraisal due to the appreciation of the US dollar against special drawing rights and the devaluation of the taka, which led to the cancellation of $1.4 million. On 3 December 1992, ADB approved the loan, which became effective on 29 March 1993. The original closing date of 30 June 1998 was extended twice and financially closed on 13 December 2000. The delays were caused by several problems: (i) late recruitment of consultants due to procedural bottlenecks, (ii) heavy rains during construction, (iii) considerable damage from the floods of 1998, and (iv) political turmoil. The delays increased the cost of implementation assistance to $7.8 million from the appraisal estimate of $4.9 million. Delays also changed the foreign and local currency costs significantly from the appraisal estimates. The foreign exchange cost increased by around 47% from the appraisal estimate to $29.2 million due to price escalation on civil works contracts and the extension of consulting services to accommodate the implementation delays. The local currency cost fell by about 19% to $40.7 million, partly because of the devaluation of the taka. Despite the delays, the major objective of the Project—to provide a relatively flood-free and secure living environment—was met. The evaluation of the Project showed that the flood protection works were strategic interventions that maximized the impact. The civil works were generally well constructed, while the designs based on regional studies that incorporated solutions suitable to the physical conditions in the six towns were appropriate. vi Responsibility for the maintenance of flood protection works was to be shared equally by the Bangladesh Water Development Board (BWDB) and the municipal authorities. However, the municipal authorities were constrained by their limited resources as well as their inability to collect past and current holding charges from government departments. BWDB also lacked sufficient funding for maintenance due to inadequate budgetary support. In addition, the municipal authorities were required to take responsibility for the remaining project components. However, the poor revenue base of the municipal authorities was an impediment to meeting these operation and maintenance obligations, despite real growth in revenues in the Khulna City Corporation (KCC) and the five pourashavas (municipalities).

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