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Proposed Supplementary Loan and Asian Development Fund Grant Independent State of Samoa: Sanitation and Drainage Project

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Proposed Supplementary Loan and Asian Development Fund Grant Independent State of Samoa: Sanitation and Drainage Project Report and Recommendation of the President to the Board of Directors Project Number: 28314 August 2008 Proposed Supplementary Loan and Asian Development Fund Grant Independent State of Samoa: Sanitation and Drainage Project CURRENCY EQUIVALENTS (as of 15 July 2008) Currency Unit – tala (ST) ST1.00 = $0.399 $1.00 = ST2.504 ABBREVIATIONS ADB – Asian Development Bank ADF – Asian Development Fund CSO – community service obligation EMP – environmental monitoring plan EU – European Union km – kilometer LARP land acquisition and resettlement plan m3 – cubic meter MOF – Ministry of Finance MWTI – Ministry of Works, Transport and Infrastructure O&M – operation and maintenance PIA – project implementation assistance PMU – project management unit PSC – project steering committee PUMA – Planning and Urban Management Agency SDR – special drawing rights SOE – statement of expenditure SDP – Sanitation and Drainage Project SWA – Samoa Water Authority TA – technical assistance WWTP – wastewater treatment plant NOTES (i) The fiscal year (FY) of the Government of Samoa ends on 30 June. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2008 ends on 30 June 2008. (ii) In this report, $ refers to US dollars unless otherwise stated. Vice-President C. Lawrence Greenwood, Jr., Operations Group 2 Director General I. Bhushan, Officer-in-Charge, Pacific Department (PARD) Director I. Bhushan, Pacific Operations Division (Area B), PARD Team leader S. Blaik, Water Supply and Sanitation Specialist, PARD Team members E. Brotoisworo, Senior Safeguards Specialist, PARD D. Constantin, Counsel, Office of the General Counsel C. Litwin, Senior Energy Specialist, PARD CONTENTS Page Loan and Project Summary i Map I. THE PROPOSAL 1 II. INTRODUCTION 1 III. THE APPROVED PROJECT 2 A. Project Rationale 2 B. Objectives and Scope 2 C. Cost Estimates 4 D. Financing Plan 4 E. Implementation Arrangements 5 F. Related Technical Assistance 7 IV. THE PROPOSED SUPPLEMENTARY FINANCING 7 A. The Cost Overrun 7 B. Impact on the Project 8 C. Lessons 8 D. Rationale 8 E. Special Features 9 F. Asian Development Fund IX Grant Component 10 G. Revised Cost Estimates 10 H. Financing Plan 11 I. Remedial Steps 12 J. Implementation Arrangements 12 V. PROJECT BENEFITS, IMPACTS, ASSUMPTIONS, AND RISKS 14 A. Benefits 14 B. Financial Aspects 14 C. Social and Resettlement Impacts 15 D. Environmental Impacts 15 E. Risks and Assumptions 16 VI. ASSURANCES AND CONDITIONS 16 A. Specific Assurances 16 B. Conditions for Loan Effectiveness 19 VII. RECOMMENDATION 19 APPENDIXES 1. Design and Monitoring Framework 21 2. Chronology of Events 23 3. Cost Overrun Analysis 25 4. Cost Estimates and Financing Plan 29 5. Revised Implementation Schedule 32 6. Revised Procurement Plan and Contract Packages 33 7. Economic Analysis 36 8. Cost Recovery and User Charges 43 9. Summary Poverty Reduction and Social Strategy 48 LOAN AND PROJECT SUMMARY Borrower Independent State of Samoa Classification Targeting classification: General intervention Sectors: Water supply, sanitation, and waste management Subsectors: Water supply and sanitation, waste management Themes: Inclusive social development, environmental sustainability, capacity development Subthemes: Human development, urban environmental improvement, institutional development Environment Category C. An initial environmental examination and Assessment environmental impact assessment were prepared. The Project’s overall environmental effects are positive. It will (i) improve surface and groundwater quality, including marine waters, by reducing untreated and partially treated sewage discharges to the environment; (ii) improve public health by reducing sewage and decreasing flooding; and (iii) reduce solid waste to urban streams and marine waters by improving drainage system management. An environmental assessment for the overall Project was prepared and approved by the Planning and Urban Management Agency and is updated periodically to reflect refinements of component designs and environmental monitoring and management plans. Project Description The Project will provide (i) improved drainage and floodways in Apia’s Fugalei area; (ii) a sewerage system including pressure sewers and a wastewater treatment plant to service the low-lying central business area and special needs areas including the National Hospital, Malifa Education Compound, commercial properties located at Beach Road, and Fugalei Market; (iii) a septic tank maintenance and replacement program to service approximately 8,000 households within the greater Apia area; and (iv) strengthened institutions for wastewater management, drainage, urban management, and environmental monitoring. Rationale In greater Apia, which has a population of approximately 60,000, 75% of households have septic tank systems, but many are too small, rarely cleaned, and in some instances discharge directly to the nearest drainage channel, thus polluting groundwater, surface streams, and the harbor. In the central business area and special needs areas—those with special wastewater concerns such as hospitals and major school compounds—less than 10% of wastewater is adequately treated. The hospital has ineffective on- site sewage treatment facilities as do most commercial centers and government complexes. The situation is exacerbated by the historical lack of urban management and absence of effective town planning, development controls, and adequate urban drainage and wastewater infrastructure. Flooding after heavy rain ii is intensified and foul-water flooding poses a health risk due to the release of septage and latrine wastes to the surface environment. Inadequate sanitation and wastewater management systems have significantly degraded nearshore marine water and urban stream water quality in Apia. Samoa is vulnerable to natural disasters. Severe floods were reported in 1939, 1975, 2001, and 2003. In addition, localized flooding occurs annually. The 2001 flood damage was estimated at $4.4 million in 2001 prices. About 5,000 people were directly affected by the flooding and about 28,000 experienced water shortages. Businesses were forced to close as the water supply network was damaged. Other impacts included the spilling of septic tanks with resulting environmental and health impacts. Following a request by the Government in February 2003, the Asian Development Bank (ADB) approved the Sanitation and Drainage Project (the Project) for SDR5.604 million ($8 million equivalent) on 27 November 2003. Following detailed design and bidding for the larger project components, the Government asked ADB to provide supplementary financing to help meet anticipated cost overruns of $7.8 million. The Government informed ADB that it was unable to reduce the scope of the Project without compromising the project goals, and could not finance the cost overrun from its own resources due to fiscal constraints. The Government also informed ADB that it had sought the assistance of other international development partners to help meet the cost overrun through grants. Impact and Outcome The Project will contribute to a high standard of environmental quality and public health for Apia. Outcomes of the Project will be effective and sustainable sewage collection and treatment systems, and less frequent and severe floods in Apia, through the provision of adequate wastewater and drainage infrastructure, and effective wastewater and drainage planning and management. Project Investment Plan The revised project cost estimate is $17.81 million, including taxes and duties of $2.17 million. Supplementary A loan in various currencies equivalent to Special Drawing Rights Financing Plan 1,710,000 ($2,780,000 equivalent) will be provided from ADB’s Special Funds resources with an interest charge at the rate of 1.0% per annum during the grace period and 1.5% per annum thereafter; a term of 32 years, including a grace period of 8 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft Financing and Project Agreements. In addition, a grant of $2,220,000 will be provided from ADB’s Special Funds resources to ease the macroeconomic impact of the financing requirements for cost overruns. iii ($ million) Financing Source Total % Asian Development Bank Loan 2.78 35.6 Asian Development Bank Grant 2.22 28.4 Government of Samoa 2.81 36.0 Total Project Cost 7.81 100.0 Source: Asian Development Bank estimates. Allocation and Relending The ADB loan and grant will be provided to the Independent State Terms of Samoa. The Government will relend a portion of the loan and grant to the Samoa Water Authority (SWA). The relending will have a 30-year term, including a grace period of 5 years, and an interest rate of 5% per annum, and such other terms and conditions set forth in the subsidiary financing agreement between the Government and SWA. An amendment to the existing Subsidiary Loan Agreement will reflect the supplementary financing and the conditions in the supplementary financing and project agreements. The Government will assume the foreign exchange risk arising from the loan. Period of Utilization 1 July 2008–31 December 2010 Estimated Project 30 June 2010 Completion Date Implementation The existing implementation arrangements for the Project in terms Arrangements of (i) project management; (ii) accounting, auditing, and reporting; and (iii) project performance monitoring and evaluation are considered adequate and will remain unchanged. Project review missions will continue to be undertaken on a 6-monthly
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