ASIAN DEVELOPMENT BANK PCR: LAO 27402

PROJECT COMPLETION REPORT

ON THE

SECONDARY TOWNS URBAN DEVELOPMENT PROJECT Loan 1525-LAO (SF)

IN THE

LAO PEOPLE’S DEMOCRATIC REPUBLIC

October 2005 CONTENTS

Page

BASIC DATA ii MAP vii I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 1 A. Relevance of Design and Formulation 1 B. Project Outputs 2 C. Project Costs 6 D. Disbursements 7 E. Project Schedule 7 F. Implementation Arrangements 7 G. Conditions and Covenants 8 H. Related Technical Assistance 8 I. Consultant Recruitment and Procurement 9 J. Performance of Consultants, Contractors, and Suppliers 10 K. Performance of the Borrower and the Executing Agency 10 L. Performance of the Asian Development Bank 10 III. EVALUATION OF PERFORMANCE 11 A. Relevance 11 B. Efficacy in Achievement of Purpose 11 C. Efficiency in Achievement of Outputs and Purpose 12 D. Preliminary Assessment of Sustainability 12 E. Environmental, Sociocultural, and Other Impacts 13 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 14 A. Overall Assessment 14 B. Lessons Learned 14 C. Recommendations 15 APPENDIXES 1. Project Framework 16 2. Appraisal and Actual Project Costs 24 3. Summary of ADB-Financed Contracts 25 4. Breakdown of Yearly Disbursements 28 5. Implementation Schedule 29 6. Status of Compliance with Loan Covenants 30 7. Financial and Economic Reevaluation 37 8. Summary of Resettlement and Land Compensation 42 9. Quantitative Assessment of Overall Project Performance 43

BASIC DATA

A. Loan Identification

1. Country The Lao People’s Democratic Republic 2. Loan Number 1525-LAO(SF) 3. Project Title Secondary Towns Urban Development 4. Borrower The Lao People's Democratic Republic 5. Executing Agency Ministry of Communication, Transport, Post, and Construction 6. Amount of Loan SDR 19.5 million (US$27.0 million equivalent) 7. Project Completion Report Number LAO 925

B. Loan Data

1. Appraisal – Date Started 3 March 1997 – Date Completed 18 March 1997

2. Loan Negotiations – Date Started 22 May 1997 – Date Completed 23 May 1997

3. Date of Board Approval 26 June 1997

4. Date of Loan Agreement 20 November 1997

5. Date of Loan Effectiveness – In Loan Agreement 18 February 1998 – Actual 29 April 1998 – Number of Extension 1

6. Closing Date – In Loan Agreement 30 June 2003 – Actual 07 July 2005 – Number of Extension 1

7. Terms of Loan – Service Charge 1.00% – Maturity (number of years) 40 – Grace Period (number of years) 10

8. Terms of Relending (if any) – Interest Rate 6.00% – Maturity (number of years) 25 – Grace Period (number of years) 5 – Second-Step Borrower Urban Development Management Committees Luang Prabang SDR144,000 Thakhek SDR144,000 Savannakhet SDR202,000 Pakse SDR159,000

iii

9. Disbursements

a. Dates Initial Disbursement Final Disbursement Time Interval

06 July 1998 15 June 2005 83 months

Effective Date Original Closing Date Time Interval

29 April 1998 30 June 2003 62 months

b. Amount ($)a

Last Net Original Amount Amount Undisbursed Category/ Component Revised Amount Allocation Canceled Disbursed Balance Allocationb Available

01-Civil Works 14,934,800 17,237,521 553,447 17,237,521 16,684,074 0 02-Equipment & Materials 1,896,220 2,650,754 (274,282) 2,650,754 2,925,036 0 03-Septage Loan 233,581 288,827 3,296 288,827 285,531 0 04-Consulting Services 4,023,096 4,021,536 4,918 4,021,536 4,016,618 0 05-Implementing 426,268 381,206 (149,527) 381,206 530,733 0 Assistance 06-Service Charge 797,180 801,672 441,778 801,672 359,894 0 07-Unallocated 3,823,244 0 0 0 0 0

Total 26,134,389 25,381,516 579,630 25,381,516 24,801,886 0 Note: SDR1.00 = $1.385820 (exchange rate during loan negotiations). a Figures vary as a result of currency fluctuations (special drawing rights against US dollar) b Net of initial cancellation of SDR667,187 ($974,580.07) made on 1 September 2004. Source: Asian Development Bank loan financial information system.

10. Local Costs (Financed) Appraisal Actual

- Amount ($ million) 10.90 9.90 - Percent of Local Costs 54.77 63.88 - Percent of Total Cost 28.31 29.55

C. Project Data

1. Project ($ million)

Cost Appraisal Estimate Actual

Foreign Exchange Cost 18.6 18.0 Local Currency Cost 19.9 15.5

Total 38.5 33.5

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2. Financing Plan ($ million) Cost Appraisal Estimate Actual Foreign Local Total Foreign Local Total Implementation Costs ADB-Financed 15.3 10.9 27.0 14.5 9.9 24.4 UNDP–NORAD Cofinancing 2.1 1.1 3.2 2.7 1.3 4.0 KfW Cofinancing 0.4 0.4 0.8 0.4 0.4 0.8 Government 7.0 7.0 0.0 3.8 3.8 Beneficiaries Contribution 0.3 0.3 0.1 0.1 Total 17.8 19.7 37.5 17.6 15.5 33.1 IDC Costs 0.8 0.2 1.0 0.4 0.0 0.4 Total 18.6 19.9 38.5 18.0 15.5 33.5 ADB = Asian Development Bank, IDC = interest during construction, NORAD = Norwegian Agency for Development Coordination, UNDP = United Nations Development Programme.

3. Cost Breakdown by Project Component ($ million) Appraisal Estimate Actuala Project Component Foreign Local Total Foreign Local Total Base Cost Land Acquisition and Resettlement 1.6 1.6 0.0 1.6 1.6 Civil Works 8.3 12.4 20.7 10.2 13.6 23.8 Equipment and Materials 3.0 0.3 3.3 2.9 2.9 Consulting Services 3.0 1.2 4.2 4.0 4.0 Implementation Assistance and Capacity Building 0.4 0.7 1.1 0.5 0.3 0.8 Subtotal (A) 14.7 16.2 30.9 17.6 15.5 33.1

Contingencies a. Physical 1.5 1.5 3.0 b. Price 1.6 2.0 3.6 Subtotal (B) 3.1 3.5 6.6

Interest/Service Charge 1. Interest During Construction 0.2 0.2 2. Service Charge on Bank Loan 0.8 0.8 0.4 0.0 0.4 Subtotal (C) 0.8 0.2 1.0 Total 18.6 19.9 38.5 18.0 15.5 33.5 a Includes Government financing of $1.85 million for civil works; $0.31 million for project administration and $1.6 million for land acquisition ($0.34 million compensation and estimated $1.26 million land value); NORAD/UNDP $4.0 million and KfW $0.8 million.

4. Project Schedule Appraisal Item Actual Estimate Date of Contract—Consulting Services and Institutional Support January 1998 July 1998a Civil Works Contract: Drainage Date of Award March 1999 November 2000 Completion of Work December 2001 May 2003 Solid Waste Date of Award January 1999 February 2000 Completion of Work December 1999 October 2002 v

Roads and Bridges Date of Award October 1999 June 2000 Completion of Work September 2002 December 2001 Flood Protection Date of Award October 1999 November 2000 Completion of Work December 2002 May 2003 River Bank Protection Date of Award January 2000 November 2000 Completion of Work December 2002 February 2003 Equipment and Supplies First Procurement June 1998 June 1998 Last Procurement December 2002 May 2003 Other Milestones: 1. 11 June 2003: Extension of loan closing date 2. 10 July 2003: Minor change in implementation. Adjustment of percentage of financing for civil works and reallocation of loan proceeds 3. 1 September 2004: first cancellation of SDR667.187 ($974,580.07) and reallocation of loan proceeds 4. 7 July 2005: second cancellation of SDR345,752.26 (US$503,626) 5. 7 July 2005: Closing of loan accounts. a However, services commenced only in September 1998.

5. Project Performance Report Ratings Ratings Implementation Period Development Implementation Objectives Progress From 30 Apr 1998 to 30 Apr 2000 Satisfactory Satisfactory From 1 May 2000 to 31 Dec 2000 Satisfactory Partly satisfactory From 1 Jan 2001 to 31 Dec 2003 Satisfactory Satisfactory

D. Data on Asian Development Bank Missions

No. of No. of Person- Specialization of Name of Mission Dates Persons days Members a Fact Finding 25 Nov–13 Dec 1996 4 61 d, b, g, j Appraisal 3–18 Mar 1997 4 64 d, c, f, g Inception Mission 21–27 Aug 1997 1 7 d Review Mission 1 13–23 Nov 1998 1 11 b Review Mission 2 5–15 Jul 1999 1 11 d Review Mission 3 29 Nov–8 Dec 1999 3 25 d, a, h Review 4 (Midterm) 16–26 May 2000 2 22 d, h Review SLA 5 12–14 Sep 2000 1 3 a Review Mission 6 4–11 Nov 2000 1 8 a Review Mission 7 24 Apr–2 May 2001 1 9 a Review Mission 8 27 Aug–7 Sep 2001 2 24 a, h Review Mission 9 11–22 May 2002 2 24 b, i Review SLA 10 18–21 May 2002 1 3 d Review SLA 11 3–4 Jul 2002 1 1 d Review Mission 12 23–31 Oct 2002 2 18 b, h Review Mission 13 2–11 Apr 2003 1 10 b Review Mission 14 20–28 Oct 2003 2 15 b, i Project Completion Review b 21 Aug–2 Sep 2005 3 39 b, e, h a - project specialist, b - urban development specialist, c - counsel, d - project engineer, e - staff consultant, f - program officer, g - young professional, h - associate project analyst, I - project analyst (LRM), j - manager. b The Mission consisted of Januar Hakim, Urban Development Specialist/Mission Leader, Adelaida O. Mortell, Associate Project Analyst, and an infrastructure economist (staff consultant). vii

102 o 00'E 106 o 00'E

PEOPLE'S REPUBLIC OF CHINA Ghot-Ou LAO PEOPLE'S DEMOCRATIC REPUBLIC SECONDARY TOWNS URBAN DEVELOPMENT Phongsaly

PHONGSALY Yo Samphan R Sing Boun-Tai A er Mai M i N Rv g Luangnamtha A n Khoa Y ko M e M LUANGNAMTHA Namo La Meung Xay Nambak Viangphoukha Ngoy Sobbao Xamneua Houayxay Beng Viangkham OUDOMXAY BOKEO LUANGPRABANG Vieng Xai 20 o 00'N 20 o 00'N HUAPHANH Pakbeng Luangprabang XAYABURY Xiang Ngeun XIENGKHUANG Kham Phoukhoun Phonsavanh Xayabury Khoun VIET NAM Kasi XAYSOMBOUN Vang Vieng Phoun SPECIAL REGION Phiang Gulf of Tonkin Xaysomboun BORIKHAMXAY VIENTIANE Viengkham Thabok Pakxane Viangthong Thong Mixai Pakkading Kham Kaew Neua Keut Paklay VIENTIANE B. Donnoun CAPITAL Khamkeut Xanakham Tha Dua VIENTIANE Ban Nong Su

Kenthao M e ko ng R Thakhek i ve KHAMMUANE THAILAND r

Xaibouri Xepon Seno N Khanthabouly Phin Champhon SAVANNAKHET 0 50 100 Songkhon o Ta-oy o 16 00'N Kilometers Toumlan 16 00'N

SARAVANE Saravane Project Towns SEKONG National Capital Laongam Thateng Lamarm Provincial Capital Dakchung City/Town Chong Mek Pakxong National Road CHAMPASACK Pakse Samakkhixai Paved Provincial Road Pathoumphon River

District Boundary Soukhouma ATTAPEU Provincial Boundary International Boundary Boundaries are not necessarily authoritative. Khong

CAMBODIA

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05-4181 HR

I. PROJECT DESCRIPTION 1. The Asian Development Bank's (ADB) first loan for urban development in the Lao People’s Democratic Republic (Lao PDR) went to the Vientiane Integrated Urban Development Project,1 an integrated urban development project supporting investments in basic urban infrastructure in the capital city. In 1995, the Lao PDR Government requested further ADB technical assistance (TA)2 to support a second urban development project in the four largest secondary towns in the country, Luang Prabang, Pakse, Savannakhet, and Thakhek. The Secondary Towns Urban Development Project3 combined physical infrastructure work, community participation, and institutional development.

2. The objectives of the Project were (i) to improve the urban environment through effective urban infrastructure development, and through the effective and sustainable management of urban services; (ii) to further human development through environmental improvements; and (iii) to support economic growth through the development and management of sustainable and well- planned infrastructure development and urban services. Appendix 1 shows a project framework reconstructed by the Project Completion Review (PCR) Mission. The Project scope proposed at appraisal consisted of the following parts:

(i) Part A: Community Awareness and Education Program (ii) Part B: Environmental Improvements (iii) Part C: Infrastructure Improvements (iv) Part D: Implementation Assistance and Capacity Building

3. The Lao PDR was the Borrower, the Ministry of Communication, Transport, Post, and Construction (MCTPC) was the Executing Agency (EA), and the urban development administration authorities (UDAAs)4 were the Implementing Agencies in each town. A loan of SDR19.5 million from ADB’s Special Funds resources5 was approved on 26 June 1997. There were two cofinancers of the Project: (i) a joint cofinancing arrangement between the United Nations Development Programme (UNDP) and the Norwegian Agency for International Cooperation (NORAD), and (ii) Kreditanstalt fur Wiederaufbau (KfW). UNDP–NORAD provided a grant of $3.2 million6 and KfW provided a grant of $0.8 million.

II. EVALUATION OF DESIGN AND IMPLEMENTATION A. Relevance of Design and Formulation 4. The Project was consistent with the Government’s development objectives and ADB’s strategy for the Lao PDR, which emphasized supporting economic growth through investment in infrastructure, the environment, and human resources development. The Government’s objectives and strategies to improve the management of urban environments and services under a decentralized system of municipal government administrations were outlined in the 1998 Policy Statement on Urban Development. These objectives and strategies were in terms of (i) improved management of urban environments and services through the establishment of local government administrations, (ii) improved frameworks for urban planning and development control, (iii)

1 ADB. 1995. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Lao People’s Democratic Republic for Vientiane Integrated Urban Development Project. Manila. 2 ADB. 1995. Technical Assistance to Lao People’s Democratic Republic for Secondary Towns Integrated Urban Development Project. Manila. 3 ADB. 1997. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Lao People’s Democratic Republic for Secondary Towns Urban Development Project. Manila. 4 Formerly known as the Urban Development Management Committees. 5 Equivalent to $27 million. 6 A subsequent agreement was made with the Norwegian Agency for International Cooperation (NORAD) and the United Nations Development Programme (UNDP) for $1.6 million, increasing the commitment to $5.8 million. 2 provision of sustainable urban services through greater mobilization of local resources, (iv) human resource development, and (v) greater private sector involvement in the provision of urban services. In line with this strategy, the UDAAs of Luang Prabang, Pakse, Savannakhet, and Thakhek were established in 1998.

5. Rural-to-urban migration has been a characteristic of the growth of the Project towns and is expected to continue at a steady rate. The demands on the urban infrastructure have far exceeded capacity, leading to acute environmental problems and economic growth constraints. The Project was designed to address these problems. It was structured to rehabilitate and upgrade urban infrastructure and services in the four secondary towns in a phased manner. The Project also featured an institutional capacity-building component to manage the growing economy. The Project was thus in line with Government and ADB policies and strategies.

B. Project Outputs 6. Details of the civil works components to be implemented were described in the appraisal report.7 The scope of these works is shown in Appendix 1. For the civil works components, i.e. the environmental improvements and the infrastructure improvements, the discrepancies between the quantities estimated at appraisal and those actually implemented were due to the supervision consultant's review of the 1996 feasibility study, which determined that the appraisal estimates were too optimistic within the estimated cost parameters. The consultants and the PMU-UDAA met and chose which major works could be covered within those cost parameters. This was done prior to the preparation of the detailed design and tender documents. The works completed are described in paras. 7–18.

1. Part A: Community Awareness and Education Program 7. The Community Awareness and Education Program (CAEP) was designed to promote community awareness, participation, and education on the benefits of good health and hygiene, as well as to facilitate beneficiary involvement. It was envisaged at appraisal that institutional support services would be provided through volunteer organizations. A community liaison unit was established and a community liaison officer (CLO) was appointed for each town in November 1998. In January 2000, four local community development advisors (CDAs) were engaged for 24 months. The volunteer organizations also provided urban planners and municipal management advisors in each of the four towns in 1999. All of these volunteers had their contracts terminated before completion because of inactivity and poor performance. Assistance was provided by two volunteers recruited in June 2000 through German Development Services (DED) and the Australian Youth Ambassadors for Development (AYAD). Both volunteers completed their contracts in May 2001. As of May 2002, the CDAs were no longer in place and the component was being carried out by the project implementation units (PIUs). The CDA who was eventually recruited to work from 1 March to 30 September 2003 organized various public awareness campaigns and workshops with project beneficiaries and UDAA officials. These activities resulted in increased community appreciation and awareness of the importance of the link between environmental sanitation and public health.

2. Part B: Environmental Improvements 8. At appraisal, it was envisaged that the drainage component would consist of (i) improvements to main drainage channels (about 25 kilometers [km]); (ii) improvement/reconstruction of secondary channels (about 24 km); (iii) rehabilitation and

7 Supplementary Appendix A: Detailed Project Description. 3 reconstruction of tertiary networks and roadside drains (about 103 km)8; and (iv) provision of drainage maintenance equipment (12 small trucks, four vacuum desludging trucks for culvert clearance, and hand tools). The Project actually improved 17.6 km of main channels; improved/reconstructed 8 km of secondary channels; reconstructed 34 km of tertiary networks and roadside drains; and provided 12 small trucks (i.e. dump trucks), four vacuum desludging trucks, four flatbed trucks with cranes, four water-tank trucks, and hand tools. Three more vehicles per town were procured than envisaged at appraisal.

9. Changes from appraisal estimates also occurred in Luang Prabang, Pakse, and Savannakhet. In Luang Prabang, some sections of the tertiary channels were changed from trapezoidal to rectangular (some covered) to minimize land acquisition, to conform to United Nations Educational, Scientific, and Cultural Organization (UNESCO) requirements,9 and to box culverts where traffic was heavy and population dense. In Savannakhet and Pakse, open drains were changed to closed drains at the request of the PMU. The rationale for this was (i) most open drains were located in the right-of-way and in front of houses facing the street; (ii) open drains are wider than closed drains, forcing residents to build costly concrete slabs/bridges over the open drains to their houses; (iii) the width required for open drains requires narrowing of the street right-of-wayand (iv) for safety reasons, it would be necessary to install curbs between streets and open drains. The use of flap gates10 was not effective in mitigating floods caused by the Mekong River, particularly in the face of heavy 10-year floods and storm runoff from the nearby hills and mountains. In Pakse, however, the UDAA and the provincial government had the foresight to provide automatic pumping stations that prevented flooding. Even though there were fewer drainage improvements than envisaged at appraisal, the improvements that were made have greatly mitigated flooding and ponding problems in the secondary towns, particularly in Pakse, Savannakhet, and Thakhek.

10. The sanitation component of the Project provided for improvements in environmental sanitation by replacing all dry pit latrines with pour/flush-type toilets with septic tanks, and by replacing poorly designed septic tanks. In cases where beneficiaries could not afford to pay for conversion or construction of toilets/septic tanks, a loan facility of up to 75% of the cost was provided under the Project.11 Subsidiary loan agreements were signed between the Ministry of Finance (MOF) and each UDAA in December 2001 to finance septic-waste management under this component. Most households that lacked sanitation facilities were low-income households who could not easily afford the loan. Installation of septic tanks was not a priority for these households. At appraisal, it was estimated that 5,610 septic tanks would take advantage of the septage loan,12 but the actual number of septic tanks constructed was only 1,715. The low number of units installed compared to that envisaged at appraisal was due to (i) the high cost of construction; (ii) the relatively late startup date of the septage loan; (iii) the slow repayment time and turnover of revolving funds, since the loan targeted the poor; (iv) the limited availability of local financing towards the end of the Project; and (v) the low priority placed on septic tanks by poor households.

8 The number of natural, secondary, and tertiary channels given at appraisal referred to only Luang Prabang, Savannakhet, and Pakse. No estimates were given for Thakhek. An examination of Supplementary Appendix A (Detailed Project Description) of the appraisal report noted that the estimates given for Luang Prabang, Pakse, and Savannakhet totaled only 18.3 km for secondary channels and 83.1 km for tertiary channels. 9 In April 2001, during one of its missions, UNESCO complained that the Project contravened the regulations and intent of the 2001 conservation plan for Luang Prabang because it was a World Heritage site. 10 It was agreed that sliding gates would be a better solution to flooding than flap gates because debris from the Mekong River and excessive sedimentation would often prevent flap gates from being closed. The PCR Mission and the Executing Agency agreed that the vertical motion of sliding gates would overcome these limitations. 11 The loan was repayable over 36 equal monthly payments and carried an interest rate of 2% on a reducible basis. To qualify for the loan, the beneficiary had to produce satisfactory evidence of income and eligibility requirements through a means test developed by the PIUs and the CDA. 12 Comprised of 700 in Luang Prabang, 1,730 in Pakse, 2,080 in Savannakhet, and 1,100 in Thakhek. 4

11. The solid waste management (SWM) component was financed by UNDP–NORAD. It commenced in June 1997 and was completed by June 2002. The component included the construction of sanitary landfill sites including access roads, retention ponds, clay lining and drainage systems, and fencing in each of the four towns, and the provision of various types of SWM equipment, pick-up trucks, motorcycles, and an office/garage/workshop to house and maintain the equipment. The procurement of equipment and civil works was done as envisaged at appraisal. The facilities were well designed and in accordance with environmental standards. Operational procedures and guidelines, including a cost-recovery system, were prepared and staff training was conducted.

3. Part C: Infrastructure Improvements 12. At appraisal, it was envisaged that (i) about 19 km of existing strategic roads would be strengthened, (ii) about 37 km of town center roads would be resurfaced or patched, and (iii) about 26 km of local access roads in priority areas would be reconstructed. It was also envisaged at appraisal that an 80-meter (m) long, two-lane, steel-beam bridge would replace the existing single-lane bailey bridge in Luang Prabang. Additionally, traffic-management facilities and safety provisions, including about 800 streetlight units, about 16 junction improvements, and about 20 km of new footpaths, were to be installed.

13. The Project actually constructed 2.9 km of new roads, strengthened 20 km of strategic roads, and reconstructed 13.3 km of local access roads in priority areas. The discrepancies between the appraisal figures and the actual figures were due to the following factors. (i) The resurfacing and patching of town center roads, including the badly deformed section of Route 13 in Thakhek, was cancelled because it was being undertaken by other donors. (ii) The resurfacing and patching of town center roads in Savannakhet was changed to new-road construction. (iii) The reconstruction of access roads servicing some residential areas north of Savannakhet was cancelled because funds were insufficient. (iv) The reconstruction and upgrading of the new east road link through Ban Phonsavan in Pakse was cancelled because it was completed as part of the new Mekong River bridge. (v) The resurfacing and patching of the town center roads in Pakse was changed to new-road construction; 6.2 km of new town center roads paved with Portland cement concrete were constructed.13 (vi) The new construction of local roads in areas on the right bank of the Xe Don River in Pakse was cancelled because of insufficient funds. In addition, the 80 m long, two-lane, steel-beam bridge was not built in Luang Prabang; instead, an 88 m long, two-lane, prestressed concrete-beam bridge with riverbank protection, street lighting, and 360 m of approach roads was constructed. The prestressed concrete-beam bridge was chosen because it requires less maintenance than a steel-beam bridge. A total of 880 streetlights were installed. Junction improvements and footpaths were implemented as envisaged at appraisal.

14. Under the Project's flood- and erosion-protection component, it was estimated at appraisal that (i) flood embankments (about 4 km) incorporating culverts fitted with flap gates

13 Changing the pavement from asphalt concrete to Portland cement concrete did not involve any price increase or loss of time. 5

(about 25) would be constructed; (ii) masonry lining of riverbanks (about 140 m) would be installed; (iii) riverbanks would be protected with gabion mattresses (about 550 m); and (iv) storm-water outfalls (about 16,000 square meters [m2]) would be lined with masonry. However, the scope of works was adjusted based on the consultant's review and the update of the 1996 feasibility study. Other implementation variations included changes in Luang Prabang on the improvement and lining of 19 drainage outlets of the Mekong River. These outlets were severely curtailed in length and size in the face of objections from UNESCO. In Savannakhet and Thakhek, works were implemented as envisaged at appraisal. In Pakse, 3,540 m of flood embankments were built and/or upgraded as appraised, and four drainage outlets were equipped with box culverts fitted with flap gates as part of the embankment.14 As part of the flood-protection measures in Pakse, automated stop-start pumps and a pump-house complex were constructed at three flap gates on the Mekong River to drain water from the retention ponds. Also in Pakse, 391 m of erosion protection, consisting of wire-mesh gabion boxes and mattresses, was built and/or upgraded on the Xe Don River (compared to 260 m at appraisal), while 750 m of similar erosion protection was built and/or upgraded along the Mekong River (compared to 600 m at appraisal).

4. Part D: Implementation Assistance and Capacity Building 15. The consulting services for detailed design, construction supervision, and project management were provided as envisaged at appraisal. Six variations to the project consultant’s contract were issued to adjust the personnel schedules according to the progress of the planned activities.

16. The Advanced Program in Urban Planning was provided for 4 years at the Institute of Technical Studies and Urban Planning, reorganized as the Urban Institute in 1998. This program was attended by 76 staff members from the four secondary towns and the Vientiane Urban Development Administration Authority involved in planning and development control, finance and administration, urban infrastructure planning, design and implementation management, and urban services planning and management.

17. A CDA, a municipal management advisor, and volunteer organizations such as DED and AYAD provided institutional support to build the management planning and benefit monitoring and evaluation (BME) capacity of the UDAAs. The findings of the CDA advisor included the following. (i) There was limited understanding of reporting lines and accountability among the UDAA/PIU staff with regards to Prime Ministerial Decree No. 018/2002. (ii) The UDAAs employed insufficient technical staff. (iii) Outside of one CAEP officer in Savannakhet, there were no female staff members at the technical and managerial levels of the UDAAs. (iv) Cost recovery from other urban-based services was minimal. A series of workshops and training sessions in project planning, monitoring and evaluation, and cost-benefit analysis were conducted. The advisor created training manuals for operation and maintenance (O&M) of service equipment, and formulated organizational procedures and personnel management systems.

14 In both Savannakhet and Pakse, during the first monsoon season, considerable lengths of finished embankment and road works collapsed because low-quality materials were used and/or poor construction techniques were practiced. A 700 m retaining wall in Savannakhet failed, as did the retaining wall and embankment behind Wat Luang in Pakse. 6

18. The scope of the original project was expanded to include the supervision of the design and construction of new offices for the UDAAs in each of the four project towns.15 The design and construction of the UDAA buildings, completed in December 2002, was carried out by local consulting and contracting companies.

C. Project Costs 19. At appraisal, the Project cost was estimated to be $38.5 million.16 Of that, $18.6 million, or 48%, were estimated to be the foreign exchange costs, while local currency costs were estimated at $19.9 million. The ADB loan at appraisal was SDR19.5 million ($27 million equivalent). This covered about 70% of the total project cost and was financed from ADB Special Funds resources. ADB financed $16.1 million, or about 86%, of the foreign exchange costs, and $10.9 million, or about 55%, of the local currency costs.17 Total cofinancing amounted to $4 million, of which $2.5 million, or 62%, was estimated to be foreign exchange, and $1.5 million was estimated to be local currency. Cofinancing resources covered about 13% of the total foreign exchange costs and about 7% of the total local currency costs of the Project. The remaining costs of the Project—all local currency costs, totaling $7.5 million—were met by the Government and the beneficiaries.

20. The PCR Mission estimated that the actual completion cost of the Project was $33.5 million, with foreign exchange costs of $18.0 million (54%) and local currency costs of $15.5 million. ADB financed $24.8 million, of which $14.9 million, or 60%, was foreign exchange costs and $9.9 million was local currency costs. Cofinancing accounted for $4.8 million, of which $3.1 million, or 65%, was foreign exchange costs and $1.7 million was local currency costs. The appraisal estimate included physical contingencies and provisions for price escalation of both the foreign exchange and local currency costs. The depreciation of the special drawing rights (SDR) against the dollar resulted in a decrease in the value of the loan proceeds, from $27.0 million at appraisal to $26.3 million at completion.18

21. The actual completion cost of the Project was $5 million, or 13% less than that envisaged at appraisal. Lower-than-expected contract prices accounted for the foreign exchange savings. Savings in local costs were mainly due to the depreciation in the kip during construction—from KN1,022/$1.00 at appraisal to KN10,836/$1.00 at project completion. Appendix 2 compares the actual and estimated costs for each component of the Project. A summary of these costs is also shown in the Basic Data section at the beginning of this report. For cost comparison, the local currency costs incurred by the Government have been converted into dollars at the rate prevailing during each transaction. A summary of contracts financed by ADB is given in Appendix 3.

15 This approach was agreed upon in order to give the UDAAs a real identity and ensure their long-term sustainability. Such an approach had proved to be very effective in the establishment of offices for provincial Nam Papas under previous ADB-assisted water supply projects in the Lao PDR. 16 Due to the increase in UNDP–NORAD funding from $3.2 million to $5.8 million, the estimated project cost increased by $1.6 million, to $40.1 million. 17 The financing of part of the Project’s local currency expenditures was allowed under ADB’s local currency financing policy. Cofinanciers also financed some local currency expenditures. The financing of local currency costs was done in order to facilitate procurement actions and help reduce the financial burden on the Government, which faced constraints on national savings caused by a low level of per capita income. 18 Actual loan utilization was $24.8 million because $1.5 million was cancelled. 7

D. Disbursements 22. Loan proceeds were disbursed in accordance with ADB’s Loan Disbursement Handbook. An imprest fund19 was established for the PMU in Vientiane with an initial deposit of $500,000.20 Disbursement of the loan proceeds was slower than expected because it took more time than expected to recruit and mobilize consultants and award civil works contracts. The imprest fund was underutilized, with an average turnover ratio of approximately 0.86 compared to the recommended ratio of 2.0. The low ratio was due to (i) the unutilized funds for the septage loan; (ii) $50,000 was transferred to a TA21 for training purposes and utilization of funds was therefore beyond PMU’s control; and (iii) payments from the imprest account, which were mostly made for incremental project administration, and less utilized to make payments to contractors for purchase of equipment.

23. The undisbursed loan balance on 16 July 2004 was $1.478 million. A partial cancellation of the loan was made on 1 September 2004 in the amount of SDR667,187 ($974,580.07 equivalent), as ADB had already paid contractors under the ADB-financed contracts. The remaining undisbursed loan balance of SDR345,752.26 ($503,626 equivalent) was cancelled retroactively from 7 July 2005. Appendix 4 shows the breakdown of annual disbursements of ADB and MCTPC funds.

E. Project Schedule 24. The loan was approved on 26 June 1997. The Project was scheduled for completion on 31 December 2002, with the loan closing on 30 June 2003. The loan became effective on 29 April 1998. On 4 June 2003, the MOF requested an extension of the loan closing date by 6 months, until 31 December 2003, in order to complete the contracts for the remaining civil works, which had been awarded only in January 2002 (see para. 32). ADB approved the loan extension on 11 June 2003.

25. At appraisal, it was envisaged that the Project would be implemented over a 5.5-year period, with surveys commencing in early 1998 and civil works construction starting in 1999. It was estimated that the Project would be completed at the end of 2002. Project implementation was delayed by 12 months due mainly to (i) the delay in loan effectiveness, and (ii) delays in recruiting the consultants. Loan effectiveness was delayed because the MCTPC could not take advantage of the advance action approved by ADB to recruit consultants because Prime Ministerial decree (177/PM) establishing the UDAAs, which was a condition of loan effectiveness, was issued much later than expected. This delayed loan effectiveness by 5 months and delayed the mobilization of consulting services by 9 months. The topographic survey caused a further delay. Originally, the topographic survey was supposed to be included in the consulting services package. However, it was repackaged and assigned to a local survey company in order to save time while the consulting services were delayed. The local company failed to deliver, in terms of both time and quality, and the survey work was again included in the consulting services package. Appendix 5 compares the actual and appraisal implementation schedules of major project activities.

F. Implementation Arrangements 26. MCTPC was the Executing Agency and was responsible for the overall technical supervision and execution of the Project. This was undertaken through the establishment of a PMU within the Department of Housing and Urban Planning (DHUP) within MCTPC. The PMU

19 The imprest account was established and managed in accordance with the ADB’s Guidelines on Imprest Fund and Statement of Expenditures Procedures. 20 Project accounts were also established for each of the secondary towns with a deposit of $50,000. 21 ADB. 1999. Technical Assistance to the Lao People’s Democratic Republic for the Capacity Building for Urban Development Administrative Authorities. Manila. 8 was headed by a project manager and two deputy project managers. The PMU has a total of 15 full-time government staff. A high-level project steering committee (PSC) was established, as envisaged at appraisal, and would meet on a quarterly basis. However, the PSC met on average only once a year to discuss technical matters concerning project implementation. The PMU for the UNDP–NORAD-funded solid waste component had a total of eight staff members. To support the PMU, four PIUs were established, one in each secondary town, under the control of the UDAAs. Currently, the UDAAs in the project towns are staffed by both permanent government staff from the provincial government (e.g. from the finance and accounting departments, Ministry of Health, Department of Communication, Transport, Post, and Construction) and contractual staff.22 There were 283 PIU staff members in the four project towns comprising: 25 full-time staff members and 64 contractual staff members in Luang Prabang; 26 full-time staff members and 49 contractual staff members in Thakhek; 29 full-time staff members and 53 contractual staff members in Savannakhet; and 27 full-time staff members and 10 contractual staff members in Pakse. The qualifications and experience of the staff at the four UDAAs differ greatly. The PCR Mission noted that UDAA staff in Luang Prabang and Pakse appeared to be more capable and better trained than UDAA staff in Savannakhet and Thakhek.

G. Conditions and Covenants 27. The status of compliance with loan covenants is provided in Appendix 6. The loan conditions and covenants were generally complied with. At project start-up, there were two issues preventing progress towards full compliance on several key loan covenants. Firstly, the initial delays resulted in the need to defer the target date for many of the covenants. Secondly and most importantly, the inconsistencies between the UDAA decrees and the Constitution regarding the powers and duties of the UDAAs seriously impeded progress on the institutional and financial covenants. The covenants that took time to comply with included (i) the requirement to issue Government decrees on UDAAs, particularly on allocation of budget to UDAAs and the delegation of MOF authority to UDAAs to collect urban revenues and user charges;23 (ii) drafting and enforcement of regulations regarding septic tanks and building permits; and (iii) design and implementation of the project benefit monitoring system.

28. An ADB Mission in September 2000 expressed concern about the lack of compliance with loan covenants. In an ADB follow-up mission in November 2000, the Executing Agency's compliance had improved—11 out of 30 covenants had been fully complied with—although it had yet to comply with important financial covenants. For instance, it had yet to adjust user charges or empower the UDAAs with the authority to levy and collect service charges and taxes. However, by October 2002, 23 out of 30 covenants had been complied with, and by the end of the Project all covenants had been complied with (although five covenants were only partly complied with).

H. Related Technical Assistance 29. Although there was no TA attached to the loan, there was a related TA.24 The consultant team for the TA was integrated into the PMU to provide institutional support to the UDAAs. This TA assisted the Project indirectly through assistance to the UDAAs during Project implementation. The consultants submitted the final report in May 2000.25

22 Contractual staff includes drivers, solid waste management collection teams, workshop maintenance crews, and janitors. 23 Various authorities and powers have now been delegated to the UDAAs based on the Prime Ministerial Decree 177, Implementing Instruction 144, and the MOF Instruction No. 14/2002 regarding the collection of revenues. 24 ADB. 1997. Technical Assistance to the Lao People’s Democratic Republic for Support to Urban Development Administrative Authorities. Manila. 25 No technical assistance completion report (TCR) is available for this TA as it was funded by the Japan Special Fund (JSF) and a TCR was required only for ADB-financed TAs at that time. 9

I. Consultant Recruitment and Procurement 30. The selection and engagement of consultants was in accordance with ADB’s Guidelines on the Use of Consultants. The consulting services contract for detailed design, construction supervision, and overall project management support was signed on 27 July 1998 for a value of $3.8 million, and the consultants commenced their services on 17 September 1998, approximately 9 months behind the appraisal schedule. The consultants’ contract was modified six times to accommodate adjustments in professional staff person-months and to provide additional technical staff to supervise the civil works. Total consultants' input was estimated at appraisal at 507 person-months (130 person-months of international consultants and 377 person-months of domestic consultants) over a period of 51 calendar months. Because the consultants were mobilized late, they continued their services until 2003, and the consultants’ contract was amended. The amendment did not involve any increase in the original contract price. The actual consultant input was 466 person-months (143 person-months of international and 323 person-months of domestic consultants).

31. The consultants to be engaged for the CAEP were recruited through volunteer-based organizations to provide a total of 240 person-months through providing four CDAs, four urban planners, and two municipal management advisors. The urban planners and municipal management advisors were recruited through a Lao PDR–Canadian nonprofit organization. The urban planners were positioned in the four secondary towns from September 1999 to January 2000. Another four local CDAs were engaged for 24 months beginning in January 2000. The contracts of all these volunteers were terminated because of unsatisfactory performance. To support these local CDAs another two international CDAs from volunteer-based organizations— DED of Germany and AYAD of Australia—were recruited starting in June 2000. In addition, one municipal management advisor from DED was deployed to the UDAA in Pakse in June 2001.

32. Procurement financed by ADB was undertaken in accordance with ADB’s Guidelines for Procurement. Procurement of other packages was in accordance with the procurement guidelines of each particular funding agency. At appraisal, it was anticipated that there would be one civil works contract package for each town, secured through international competitive bidding procedures (ICB). Delays in the topographic surveys (para. 25), together with a request to accelerate flood-protection works in the towns, resulted in the MCTPC reconsidering the packaging. The PMU organized small ICB packages in Luang Prabang, Savannakhet, and Thakhek to proceed in advance of the balance of the civil works contract packages. ADB approved this on 19 July 2000. Forty applications were received and evaluated. Contract awards were approved by ADB in July 2001. The estimated value of each contract package ranged from $3.6 million to $5.3 million. The bid prices received were about 40% lower than those estimated by MCTPC and the consultant, resulting in savings of $3.5 million.26 When the bidding documents were prepared, several items related to infrastructure improvement were excluded from the bill of quantities to avoid a cost overrun (e.g., street lights and traffic signs). In order to enable the Project to achieve its development objectives and complete the scope of works originally envisaged at appraisal, MCTPC utilized the unallocated loan funds of $1.5 million and the savings of $3.5 million to finance the remaining civil works contracts. The additional ICB contracts for the remaining infrastructure works were awarded on 18 January 2002.

33. Utility vehicles, tools and maintenance equipment, traffic equipment, and office equipment were procured following international shopping procedures. The civil works for the UDAA buildings were undertaken through local competitive bidding procedures.

26 The lower-than-estimated bid prices were partly attributed to many contractors being short of work contracts and their construction equipment being idle amid the current economic slowdown. 10

J. Performance of Consultants, Contractors, and Suppliers 34. Overall, the performance of the consultants was satisfactory. However, there were weaknesses at times in the overall project management support to the PMU. The PCR Mission noted that the consultants needed (i) to avoid frequent replacement in order to avoid delays in detailed design and implementation; (ii) to properly conduct surveys and tests (e.g., soil tests and topography surveys),27 and to properly design and effectively supervise environmental and infrastructure improvement works; (iii) to place greater attention on community awareness and capacity building; and (iv) to better understand the local customs and culture and to communicate better with local authorities.

35. There was considerable variation in the quality of work provided by contractors and in their ability to manage and mobilize resources needed for project completion. The completion of several civil works contracts was delayed. Out of the 12 civil works contracts, seven were completed as scheduled, four were delayed between 3.5 and 5.5 months, and one was delayed by 24 months. The performance of the contractors varied from satisfactory to poor.

36. The performance of the various suppliers was generally satisfactory. Inspection requirements cause delays in the delivery of some equipment (for example, vehicles from Japan and tools and maintenance equipment from Thailand were subject to customs and entry requirements at the Lao PDR border). Some suppliers were forced to deliver partial shipments as they waited for the other portion to clear customs.

K. Performance of the Borrower and the Executing Agencies 37. Because loan effectiveness was delayed (para. 25), the Project started later than expected. The Borrower could have alleviated this problem by establishing the UDAAs earlier. The MCTPC had gained valuable knowledge from the implementation of a previous loan.28 One of the PMU staff members of this previous loan became the project manager for the current loan and remained in that position until the end of the Project. His experience was passed on to the other 15 staff members working in the PMU. This enabled the Project to be implemented successfully. The overall performance of the Borrower is rated as partially satisfactory, and the performance of the Executing Agency is rated as satisfactory.

38. The PCR Mission noted that the institutional capacity and performance of the UDAAs varied from town to town. The various training initiatives29 that were undertaken during the project implementation period have effectively built capacity among urban planners and managers. However, there are still deficiencies in some areas, such as O&M. As noted in para. 26, the UDAAs in Luang Prabang and Pakse have more experienced, better-trained personnel. Further training is especially important to improve the institutional capacity of the UDAAs in Thakhek and Savannakhet.

L. Performance of the Asian Development Bank 39. Both the Borrower and the Executing Agency appreciated the assistance and cooperation extended to them by ADB. Project formulation was relatively quick, taking 6 months from fact-finding to Board approval in June 1997. The ADB undertook 15 review missions, including the Inception Mission, Midterm Review Mission, and three special loan administration missions. The review missions closely monitored progress and provided valuable assistance to

27 Due to the failures in the retaining walls in Savannakhet and Pakse. 28 ADB. 1995. Report and Recommendation of the President to the Board of Directors on a Proposed Loan to the Lao People’s Democratic Republic for Vientiane Integrated Urban Development Project. Manila. 29 Training was undertaken through on-the-job training delivered under the Project by the consultants and also by the ADB funded TA No. 2792-LAO (ADB. 1997. Technical Assistance to the Lao People’s Democratic Republic for Support to Urban Development Administrative Authorities. Manila, approved for $500,000, on 31 December). 11

MCTPC. These missions included visits to the project sites and also to MCTPC headquarters in Vientiane, where coordination meetings were held to discuss and solve problems. Two special loan administration missions were fielded to investigate and mitigate complaints by UNESCO that the development works in Luang Prabang contravened the regulations and intent of the 2001 conservation plan, as Luang Prabang had been declared a World Heritage site. ADB had six project officers handling the implementation of the Project over the course of the loan. To implement similar projects in the future, more effectively, ADB needs to avoid such frequent staff turnover. Overall, ADB’s performance was satisfactory.

III. EVALUATION OF PERFORMANCE A. Relevance 40. The Project was consistent with the Government’s priorities at the time of appraisal and remains consistent with the Government’s current priorities. The Project was formulated in accordance with the national development policy framework of decentralization, which included the following objectives: delegating the authority for providing urban services to UDAAs, strengthening local governments, improving the access of the poor to urban services, and addressing environmental problems. The Project also supported ADB’s strategy to alleviate poverty, which emphasizes support for economic growth through investments in infrastructure, the environment, and human resources development.

41. The project design was generally technically sound, although it overestimated the amount of work that could be undertaken (para. 6). The upgrading and construction of new access roads has eased traffic congestion in key urban areas. Changes in the design of the drainage channels near congested and densely populated areas from trapezoidal to rectangular, or to box culverts, benefited communities by minimizing land acquisition and conformed to UNESCO requirements in Luang Prabang. The UDAA in Pakse demonstrated good foresight in providing automatic pumping stations, which prevented flooding that would have otherwise occurred. The SWM component has improved facilities for solid waste collection and disposal and increased the coverage of waste-disposal services. The septage component, however, failed to improve sanitation in the project areas, as appraised, because low-income households place a priority on having on-plot sanitation facilities. Despite the shortcomings in the amount of work implemented, the Project is rated highly relevant.

B. Efficacy in Achievement of Purpose 42. The Project is assessed as efficacious because it generally achieved its primary objective of improving the urban environment and supporting economic growth through urban infrastructure development. A comparison of the targets planned at appraisal and actually implemented is shown in Appendix 1. The construction and upgrading of drainage canals, coupled with road improvements and riverbank- and erosion-protection works, has reduced flooding in the urban areas of the project towns. However, in terms of the objective of furthering human development and developing institutional capacity, the results were less efficacious. Although the project design was generally sound, the formulation process and appraisal of the quantity of works was less so. The importance of stakeholder consultation throughout the planning, design, and implementation stages should be emphasized in the future.

43. The BME survey sampled 270 households in the project towns to determine the effects of introducing the project facilities. The road infrastructure upgrading component has alleviated traffic congestion and air pollution in the urban centers and improved overall traffic safety. The resultant travel times between a few representative intersections are 18–44% lower. Flooding has also decreased, thanks to improved riverbank protection and erosion protection. Several respondents said that flooding, which used to occur at least once a year before the Project, has declined. The decreased flooding has increased the value of land in the project areas. Since 12

2000, land values in the project areas have increased by an average of 41%.30 The SWM component increased the coverage of waste-collection services in the project areas from about 25% before the project was implemented, to about 78% at project completion. However, the number of septic tanks installed was lower than the number estimated at appraisal, as explained in para. 10. Only 30% of the appraisal estimate of septic tanks was installed. Overall, however, the demand for investment far exceeded what the Project could supply. Considering the need for future development, the PCR Mission strongly recommends a follow-up phase on the secondary towns urban development project. With the achievement of the current project’s objectives, the follow-up project will be better positioned to contribute to the long-term goal of improving the physical well-being and health of the urban population.

C. Efficiency in Achievement of Outputs and Purpose 44. The Project was considered efficient in achieving its outputs and purpose despite delays in implementation. In estimating the financial internal rate of return (FIRR) and economic internal rate of return (EIRR) for this project completion report, the project and its main components were evaluated using a similar methodology to that used at appraisal. Appendix 7 provides details on the methodology, assumptions, and workings underlying the FIRR and EIRR estimates, and discusses the differences between the appraisal estimates and the actual results.

45. The FIRR for the solid waste portion of the SWM component ranged from 0% to 1.9% for the project towns. The FIRRs for these towns are below those estimated at appraisal because (i) the component served fewer households than appraised, and (ii) user charges were lower- than-expected. Similarly, the FIRR was calculated for the septic waste portion of the SWM component and ranged from 6.2% to 7.8%. Although slightly lower than the appraisal estimates, which ranged from 11.6% to 16.6%, the revaluation estimates still exceed the weighted average cost of capital (WACC) of 4%. The lower reevaluation estimates are due to a reduction in the number of septic tanks actually installed compared to that envisaged at appraisal.

46. The EIRRs for the drainage and flood components ranged from 18.8% to 22.5%. The EIRRs for the roads and bridges components ranged from 14.5% to 16.6%. These EIRRs are greater than the threshold EIRR value of 12% for project viability. They are also higher than those estimated at appraisal, enabling the Project to be rated as efficient.

D. Preliminary Assessment of Sustainability 47. Project facilities generally were completed in accordance with the required specifications. It is thought that they are of high enough quality to ensure the continuous achievement of project benefits over the Project’s economic life.

48. Each of the four UDAAs has an administration, planning, and finance division; a technical division; an O&M division; and a waste-collection division. Currently, there are 25 staff in Luang Prabang, 37 in Pakse, 29 in Savannakhet, and 49 in Thakhek. The level of staff qualification and experience at the four UDAAs differs. Each UDAA has three dump trucks, one desludging truck, one flatbed truck with crane, one water-tank truck, and various small hand tools and maintenance equipment. This quantity of equipment is sufficient to maintain the present level of service coverage for the next five years, but is insufficient to expand the level of service coverage.

49. Total revenues for the UDAAs in FY2005 ranged from KN639 million for Pakse to KN800 million for Luang Prabang. Total expenditures in FY2005 ranged from KN562 million for Pakse to KN699 million for Luang Prabang. The UDAAs also receive budget funds from the

30 Pakse has the highest land value, at KN644,500 per square meter (m2), while Luang Prabang and Savannakhet have land values of KN500,000 per m2. Land value in Thakhek is approximately KN625,000 per m2. 13

Provincial Government, which on average amounted to approximately KN500 million per UDAA. Expenditures on road and drainage O&M averaged about KN438 million, or about $40,000 equivalent, per UDAA. These expenditure levels appear insufficient to carry out proper O&M of urban infrastructure and provide a sustainable level of services. With the exception of solid waste- collection and septage-collection services, no service charges are collected. The user charges for solid waste collection are still very low, barely meeting the O&M costs. In order to have the UDAAs become financially sustainable and autonomous, other user charges, such as vehicle parking fees, should be initiated to recover costs for management of all urban services, including septage and solid waste management, roads, and drainage. Future policies should address how UDAAs can effectively generate revenues, provide and regulate urban services, and eventually evolve into autonomous entities (i.e., municipalities), as stipulated in the 1993 Law on Local Administration. The sustainability of the Project is assessed as less likely. If, however, additional cost-recovery measures are instituted and user charges on solid waste and septage collection are raised to cover O&M costs, the sustainability of the project components will improve.

E. Environmental, Sociocultural, and Other Impacts 50. As envisaged at appraisal, the Project did not have any significant adverse environmental impacts. Under the TA, the potential adverse impacts were presented in an initial environmental examination and a summary initial environmental examination. There were temporary impacts during the construction of roads and cross-drainage structures. These included traffic rerouting, dust, and noise disturbances around the construction areas. The drainage component, septic-waste management component, solid waste management component, and most of the roadworks components caused no significant environmental problems besides the temporary impacts noted. The flood and erosion-protection works took into account the unstable nature of river embankments. Where necessary, mitigation measures were undertaken by the UDAAs to minimize adverse environmental affects. The UDAAs also monitored each component to determine if further mitigation measures were necessary. As the Project did not have a significant environmental impact, an environmental impact assessment (EIA) was not considered necessary. It was required that all septic tanks in high-density areas be connected to the combined drainage system to avoid pollution of shallow groundwater through a buildup of the final amino acid breakdown products.

51. As envisaged at appraisal, land acquisition and resettlement were required to construct the project facilities. A land acquisition plan and a resettlement plan were prepared and approved as a condition of loan approval. Originally, it was envisaged that resettlement would be necessary in only three of the four towns—Luang Prabang, Pakse, and Thakhek. It was estimated at appraisal that 8.12 hectares (ha) of land would be required at a cost of $0.773 million, and that 190 households would need to be resettled at a cost of $0.837 million. The total cost for land and resettlement was estimated at $1.61 million. However, the land requirements increased by about 20 ha after appraisal because of road, embankment, and drainage realignments.

52. Resettlement plans for the four project towns were revised and submitted to ADB in July 2001, and a post-evaluation resettlement survey was submitted in November 2002. Overall, 366 households were identified; of those, 260 have been awarded plots in resettlement sites 31 and 106 have been compensated financially and made their own relocation arrangements (of these 106 households, 71 were “marginally” affected).32 Pakse has by far the largest number of

31 The 260 was comprised of 19 in Luang Prabang, 219 in Pakse, three in Savannakhet, and 19 in Thakhek. 32 Most of the marginal impacts were associated with the provision of maintenance access roads due to the construction of drainage channels to provide direct access to household plots. In the majority of cases, this actually increased the value of the plot. 14 compensated households—239, or 65% of the total affected households. A post-evaluation survey held in November 2002 concluded that the procedures, assessment, compensation process, and grievance procedures met or exceeded the requirements of ADB’s resettlement policy.33 The survey further indicated that although compensation payments were less than envisaged, the total value of land provided was more than anticipated. The PCR Mission interviewed households in the resettled areas and found that the general level of satisfaction was extremely high (98%). The reasons given were (i) the size of land given (800 m2 in Savannakhet and Pakse and 250 m2 in Luang Prabang), (ii) no flooding, and (iii) livelihood improvements. The land developed for the resettled families included access roads, water, electricity, and other basic utilities. Resettled families were also given land titles. Both primary and intermediary schools were also built on the resettlement sites. All of the resettlement areas were located within easy access of the project-town centers. Appendix 8 provides a summary of estimated and actual compensation expenditures.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS A. Overall Assessment 53. The Project is considered successful based on a review of its relevance, efficacy, efficiency, sustainability, and impact on institutional development. Appendix 9 includes a quantitative assessment of project performance based on ADB's criteria to determine project ratings.

B. Lessons Learned 54. Based on the preliminary assessment of the Project, the lessons learned are the following:

(i) Project design and implementation procedures should be carefully examined and determined during appraisal, taking into account government regulations for preparation of detailed designs, and involvement of stakeholders. (ii) The capacity of government personnel, local authorities, and project staff should be strengthened through adequate training prior to the implementation of the Project to familiarize them with ADB’s implementation procedures. (iii) A more holistic approach should be taken in the design and implementation of CAEP, which was less successful. Implementation should be carried out by competent and dedicated field staff members and consultants who understand the local customs and culture. The holistic approach should establish a common goal shared by all parties involved. The CAEP should define the quality of life that the people strive for, list problems and issues, develop plans, list projects to achieve the outputs desired, take action to implement changes, monitor results, look for early warnings that predict errors, adjust actions at an early stage, and replan where necessary. The success of this type of a program begins with one common goal shared by all concerned. (iv) During the detailed design, documents were sent to all departments and organizations affected by the proposed works for review and comment prior to bidding. Some reviews were not completed, resulting in the need to change the scope of work for drainage and road components during the execution of the work. This problem was most apparent in Luang Prabang, where UNESCO became involved. Although the outcome was positive, in the future, it is essential

33 Including the value of land provided, the cost of compensation, as agreed by the provincial resettlement committees, was more than KN13.5 million at the time compensation was given (2000–2001). That amount, which included the estimated land, transportation, and rebuilding costs, was equivalent to $1.6 million using the exchange rate in 2000 (US$1=KN7,000). This was equal to the amount estimated during appraisal. 15

to improve coordination between all parties concerned with the Project in order to avoid delays in implementation. (v) Consultants should closely monitor the performance of contractors and advise the Executing Agency early on if corrective measures are needed to prevent construction delays. (vi) Consultants' work and performance should be monitored more closely by the Executing Agency and ADB to ensure the quality of output. C. Recommendations 1. Project-Related 55. Based on the assessment of the PCR Mission, the following project-related recommendations are made. (i) Because the Project lacked the capacity to meet the strong demand for investment, a follow-up phase should be undertaken to expand and improve the urban infrastructure. (ii) UDAAs should continue their public awareness campaign to encourage urban residents to improve sanitation facilities and the environment. (iii) UDAAs should allocate sufficient funds for O&M of all equipment provided under the Project and ensure that the project facilities are maintained. (iv) There should be closer integration of infrastructure components and institutional components. For example, components like the CAEP should be more closely integrated into the Project in order to ensure they are effective. (v) The Executing Agency should work to improve project documentation (e.g., documentation on costs of components and amounts of work implemented). The Executing Agency also should continue to monitor project benefits through the BME process. (vi) In order to improve monitoring of the consultants by the Executing Agency, it is essential that further capacity building of the agency be undertaken through, for example, TAs. (vii) ADB could improve its monitoring of consultants' work and performance by ensuring, if possible, that one ADB project officer handles the Project from loan negotiation through project completion. This would avoid delays, ensure continuity in maintaining the project implementation schedule, and ensure that the performance of consultants is satisfactory. (viii) A project performance audit report, if required, should be fielded in 2006, three years after project completion, in accordance with ADB practice. 2. General 56. General recommendations are as follows:

(i) The institutional and financial capacity of the UDAAs should be further developed to satisfactorily operate and maintain the urban infrastructure and services; the Government should give more support to the UDAAs and help them evolve into municipalities. (ii) MCTPC should improve the prequalification procedures of contractors for civil works contracts.

16 Appendix 1

PROJECT FRAMEWORK

Key Issues and Design Summary Appraisal Targets Project Achievements Recommendations

Goals: • Improved health; decreased No indicators were available to (i) To improve the urban incidence of malaria, assess the achievement of environment and to diarrhea, and similar goals such as reduced support the effective and diseases by 2002. incidence of disease. sustainable management • Reduced occurrence of As indicated by the dramatic of urban services. flooding and riverbank increase in land values erosion. (approximately 200% since (ii) To promote human • Improved traffic circulation. 1997), the levels of flooding development. • Local government units has decreased. The benefit responsive and actively monitoring and evaluation (iii) To support economic involved in urban planning (BME) survey discussions with growth. and operation and residents indicated that there maintenance (O&M). had been little flooding since • Increased community the improvements. awareness and involvement Traffic circulation improved, as in public services delivery. indicated by travel-time • Growth rate of per capita reductions of 18–44%. income levels and gross Community awareness in provincial product in the public services delivery has project area at highest not improved. levels in the last decade. Per capita income increased by 30% per annum from 2001 to 2003.

Purpose: Upgrading of provincial Infrastructure of secondary To provide improved capitals’ infrastructure and towns has expanded and urban infrastructure and management capabilities. improved for drainage, flood services to selected protection, and road civil secondary towns. works. The management capability of urban development administrative authorities (UDAAs), however, needs further improvement.

Outputs/Components

Part A: Community Educate the community on the Awareness and scope, nature, and benefits of Education Program the Project. (CAEP) Involve the community in A full-time community liaison The CDA planning, implementation, officer was established within (international) O&M, and monitoring. CAEP the UDAA in each town. conducted a BME will use the traditional exercise with each community organization of CAEP officer but the household groups reporting to replies were vague. village heads as a means of generating feedback for The CAEP was not incorporation in project design implemented and implementation. effectively through the volunteer An international community International CDAs were organizations. development advisor (CDA) recruited in two UDAAs but Improvement to this recruited through a volunteer- were not engaged for more component needs to based organization was to be than 3 months. be made if engaged for 24 months in each incorporated into UDAA. other projects. Appendix 1 17

Key Issues and Design Summary Appraisal Targets Project Achievements Recommendations

Part B: Environmental Improvements

Luang Prabang Improvements to main Completed 394 m of main channels and tertiary networks channels, 1,233 m of in the catchments of Vingkeo, secondary channels, 2,073 m and Houay Pak Houy, of tertiary channels and 15,844 including 2,520 meters (m) of m of lined or piped drains. natural channels, construction of 410 m of lined or piped secondary drains and construction of 5,300 m of tertiary drains.

Reconstruction of the Total length of 730 m secondary drain (730 m) from completed. the covered market area to Nam Khan.

Procurement of equipment Procurement of equipment (three small open trucks, one (three dump trucks, one vacuum desludging truck, and desludging truck, one flatbed small hand tools and truck with crane, one water- equipment). tank truck, and small hand tools and equipment)

Thakhek Improvements to main Completed 5,507 m of primary channels, including cleaning channels, provided three flap and sectioning and relining of gates and box culverts in drainage channels, provision raised embankments and 600 of flap gates in raised m of secondary channels. embankments (part of the flood-protection component) Procurement of equipment and a tertiary drainage system (three dump trucks, one covering the entire town desludging truck, one flatbed center. truck with crane, one water- tank truck, and small hand Procurement of equipment tools and equipment) (three small open trucks, one vacuum desludging truck, and small hand tools and equipment)

Savannakhet Improvements to main Completed 3,920 m of primary Maintenance channels (including provision open trapezoidal channels, equipment of flap gates in raised 2,100 m of primary box purchased must be embankments) and tertiary culverts, 2,140 m of earth used for regular networks in the catchments of channels, 1,685 m of cleaning of drains Houay Long Kong (central and secondary channels, and and box culverts. southwest Savannakhet), and 8,644 m of roadside drains. H. Khilimang and Visoukhan (north and central Savannakhet), including cleaning and resectioning 19,300 m of natural channels, reconstructing 11,100 m of secondary channels, and constructing 56,000 m of tertiary drainage system.

18 Appendix 1

Key Issues and Design Summary Appraisal Targets Project Achievements Recommendations

Procurement of equipment Procurement of equipment (three small open trucks, one (three dump trucks, one vacuum desludging truck, and desludging truck, one flatbed small hand tools and truck with crane, one water- equipment). tank truck, and small hand tools and equipment).

Pakse Improvements to main Completed 1,100 m of main Riverbank protection channels (including provision channels and 228 m of tertiary is combined with of flap gates in raised channels in Houay Dua. sliding gates, and embankments) and tertiary pumping stations networks in the catchments of Completed 1,585 m of main would be Houay Dua (central Pakse), in channels and 32 m of tertiary commendable to other catchments to the east of channels east of the center. mitigate flooding in central Pakse, and in two future projects. areas of increasing importance Completed 895 m of main on the right bank of the Xe channels and 250 m of tertiary Don River; improvements channels along the Xe Don. include the cleaning and resectioning of 3,100 m of Completed 4,445 m of natural channels, the secondary drain reconstructing of 6,100 m of reconstruction. secondary channels, and the construction of 21,800 m of Completed 7,430 m of pipe tertiary systems. culvert channels.

Procurement of equipment Procurement of equipment (three small open trucks, one (three dump trucks, one vacuum desludging truck, and desludging truck, one flatbed small hand tools and truck with crane, one water- equipment) tank truck, and small hand tools and equipment). Pumps and a pump house complex were constructed at three flap gates.

Septage Management (common to all towns) This component was designed Institutional and technical to improve the present measures improved. situation with an adequate combination of institutional and Public campaigns and technical measures. The workshops conducted to component was to include the convince communities of the introduction of sanitation need to improve the regulations, the training of environment through local contractors in septic tank installation of septic tanks. construction, the construction of demonstration toilets with Sanitary regulations improved septic tanks, the introduced. setting up of a loan facility to encourage households to One pilot public toilet improve their facilities, the constructed in each town. provision of desludging vehicles, the provision of Septage loan established. facilities for depositing septic Desludging vehicles procured, tank sludge in drying beds at but no provision for depositing the solid waste disposal site, septic tank sludge made. and the installation of 5,610 septic tanks.

Appendix 1 19

Key Issues and Design Summary Appraisal Targets Project Achievements Recommendations

This component was to consist Only 1,715 septic tanks of collection vehicles, and civil installed. works improvements to landfill The entire component, sites in each town. including technical support assistance, training, and long- term strategic components, was funded under parallel financing by UNDP–NORAD.

Part C: Infrastructure Roads and Bridges Improvements

Luang Prabang Construction of an 80 m long, Completed 88 m long, two- Inter-agency two-lane, steel-beam bridge lane, prestressed concrete- coordination proved (replacing the current Eiffel beam bridge including beneficial in the Bridge); regrading and riverbank protection, street design of reconstruction of strategic lighting, and 360 m of construction works roads; opening up designated approach roads. at the World growth areas in Ban Khoy in Heritage site in the southwest and along the Luang Prabang. Mekong River to the northeast.

Resurfacing and patching of Completed resurfacing of town roads in high-priority 3,523 m of town roads, areas. including patching of roads in high-priority areas.

New construction of local Completed reconstruction of access roads in selected urban 11,273 m of local access areas, coinciding with priority roads, including priority drainage improvement areas. drainage improvement of roadside drains.

Traffic management and safety Completed junction measures, including junction improvements, 222 traffic improvements, lane markings, signs, 1,500 square m of lane and street lighting markings, and 5,566 m of street lighting.

Thakhek Reconstruction and upgrading Completed 1,925 m of main of the main road (5,850 m), road. including the sections along Completed 2,471 m of road the top of the riverbank. upgrading along the riverbank.

Resurfacing and patching of Cancelled. Done by other town center roads, including donors. the badly deformed section of Route 13 through town.

New construction of local Completed 1,421 m. access roads in designated development areas.

Traffic management and safety Completed junction Improved street measures, including junction improvements, 80 pieces of lighting. Accidents at improvements, lane markings, traffic signs, one set of traffic one intersection and street lighting. signals, and 4,940 m of street reduced with new lighting. traffic signal set.

Savannakhet Reconstruction and upgrading Completed 2,800 m. of a road link towards the proposed Mekong river bridge (4,000 m). 20 Appendix 1

Key Issues and Design Summary Appraisal Targets Project Achievements Recommendations

Resurfacing and patching of Completed 4,700 m of new town-center roads. construction of town-center roads.

New construction of local Completed 626 m. access roads in designated areas to the north of the town center.

Improved access to other Cancelled. Insufficient funding residential areas to the north available. (Chomkeo and Viengsavan).

Traffic management and safety Completed junction measures, including junction improvements, 219 traffic improvements, lane markings, signs, one set of traffic signals, and street lighting. and 13,310 m of street lighting.

Pakse Reconstruction and upgrading Cancelled. Done by others. of the first section of the new east-west link through Ban Phonsavan. Resurfacing and patching of Completed 6,237 m of new town-center roads (Houay Dua road construction (concrete area and further east). pavement).

New construction of local Cancelled. access roads in designated development areas on the right bank of the Xe Don.

Traffic management and safety Completed junction Improved street measures, including junction improvements, 132 traffic lighting. improvements, lane markings, signs, one set of traffic signals, and street lighting. and 11,500 m of street lighting.

River Bank Protection and Erosion Protection Luang Prabang Improvement and lining of all UNESCO objections caused The project 17 drainage outlets. the improvement and lining of implementation unit 19 drainage outlets to be had to repay the reduced in content and length. contractor for unused wire-mesh gabions, mattresses, and geotextiles.

Third parties need to analyze drawings of the proposed works and make comments long before the tender process commences.

Erosion protection along the Completed 185 m of riverbank The contractor Mekong riverbank downstream protection and new road refused to conduct from the Nam Khan discharge, construction along the Nam subsurface which will consist of 500 m of 4 Khan River. Riverbank investigations, m high masonry wall with a protection along the Mekong prepare topographic parapet at the existing road was cancelled. cross sections and level. modify the design based on new data, as was required.

Appendix 1 21

Key Issues and Design Summary Appraisal Targets Project Achievements Recommendations

This led to delays in construction. Thakhek Flood-protection works:

Increase the height of the Increased the height of 2,833 Localized flooding existing embankment (to a m of existing embankment and eliminated. crest elevation of 144.50 m) to provided three slide gates. ensure the entire length is above the design flood level.

Closure of all five main Completed box culverts at all Formally flooded streams; fitting culverts with mainstreams and fitted three areas were drained flap gates. flap gates. and no long-term flooding occurred.

Savannakhet Modification of the outlet twin Completed. box culvert of Houay Long Kong, including the raising of the embankment, slope protection, and construction of flap gates.

Replacement of the twin-barrel Completed. Armco culvert at Houay Khilimang, including provision of flap gates and slope protection.

Construction of flap gates and Completed two flap gates and Flap gates were left construction of outlets for constructed new box culvert open during the minor discharges from the outlets. monsoon, resulting town center areas at locations in the flooding of where the culvert inlet level is private lands on the below the design flood level. upstream side.

Construction of 700 m of Completed. Construction of 200 gabion-mattress slope m of Road 1 was protection of the upper bank delayed; this was from severe erosion (along due to severe Thahe Road). groundwater problems and settling of the embankment due to an incompetent contractor and high water levels on the Mekong River in 2002.

Pakse For the Xe Don right bank Completed flood Ponding water areas, south of Route 13— embankments: Xe Don—1,321 behind the outlets, flood embankments (Xe Don— m and two flap gates; which were fitted 780 m; Mekong—900 m) and Mekong—2,220 m and four with pumps, was closure of two stream flap gates (three fitted with cleared within a few discharges by constructing auto-start pumps and a pump hours of the pumps culverts fitted with flap gates house to relieve ponding water starting. as part of the embankment (Xe during high water and heavy Don—240 m), increasing the rains). level of the road embankment (600 m), and closure of one Completed 1,250 m of stream discharge by embankment (Ban Ke),

22 Appendix 1

Key Issues and Design Summary Appraisal Targets Project Achievements Recommendations

constructing a culvert fitted constructed one box culvert with flap gates as part of the fitted with a flap gate. embankment.

Erosion protection along the Completed 391 m along the Xe left bank of the Xe Don and Don and 750 m along the Mekong—stone masonry and Mekong. gabion mattress as part of the proposed embankment (260 m along the Xe Don and 600 m along the Mekong).

Part D: Implementation Assistance and Capacity Building (common to all towns)

1. Implementation The project management unit The PMU was established with Inputs of the Assistance (PMU) and project relatively qualified staff. The consultant during the implementation units (PIUs) to PIUs were established with construction stage be supported. mainly unqualified staff. The were sufficient and consultant's assistance was on-the-job training above average. was given to local field engineers and PIU staff.

Equipment and running costs Operational costs for the PIUs to enable the PIUs to function, were provided as well as two including office refurbishment vehicles, four motorcycles, and the purchase of two furniture, and some office double-cab pickup trucks, equipment. New UDAA office office furniture, and office buildings were constructed and equipment. provided with microphones in the meeting rooms.

2. Capacity Building Training of UDAA and PIU Training programs were Operational staff. conducted for staff in municipal personnel, including finance, urban development operators and planning, and management. technicians, need to be trained.

Institutional support to Each UDAA was established The capacity of each strengthen planning and with O&M responsibilities for UDAA should be urban-services management, urban infrastructure and further strengthened. including the provision of an services. Its capacity is being urban planner (4 person-years) strengthened. and municipal management advisor (10 person-months) to The urban planner was not be recruited through volunteer- provided but a municipal based organizations. management advisor was recruited directly by the PMU for a total of 7 person-months. A community development advisor was recruited directly by the PMU for a total of 8 person-months.

Activities and/or Inputs: Resources and Schedule Resources and Schedule

Part A: CAEP $0.78 million $0.27 million Main text (paras. Start: Quarter I 1998 Start: Quarter I 1998 20–22, Appendix 2, Complete: Quarter IV 2002 Complete: Quarter IV 2003 and Appendix 5. Appendix 1 23

Key Issues and Design Summary Appraisal Targets Project Achievements Recommendations Part B: Environmental Improvements 1. Drainage $6.21 million $5.36 million Main text (paras. Start: Quarter I 1998 Start: Quarter II 1998 20–22), Appendix 2, Complete: Quarter IV 2001 Complete: Quarter IV 2003 and Appendix 5.

2. Solid waste $2.71 million $5.54 million Main text (paras. management Start: Quarter III 1997 Start: Quarter IV 1997 20–22), Appendix 2, Complete: Quarter I 2000 Complete: Quarter III 2002 and Appendix 5.

$1.37 million $0.41 million Main text (paras. 3. Sanitation Start: Quarter II 1998 Start: Quarter IV 1999 20–22), Complete: Quarter IV 2002 Complete: Quarter IV 2003 Appendix 2, and Appendix 5.

Part C: Infrastructure Improvements 1. Roads and Bridges $8.44 million $10.70 million Main text (paras. Start: Quarter I 1998 Start: Quarter III 1998 20–22), Complete: Quarter II 2002 Complete: Quarter IV 2003 Appendix 2, and Appendix 5.

2. Flood Protection $6.13 million $4.37 million Main text (paras. Start: Quarter IV 1997 Start: Quarter II 1998 20–22), Complete: Quarter IV 2002 Complete: Quarter IV 2003 Appendix 2, and Appendix 5. Part D: Implementation Assistance and Capacity Building

1. Consulting Services $3.77 million $3.75 million Main text (paras. Start: Quarter I 1998 Start: Quarter III 1998 20–22), Complete: Quarter IV 2002 Complete: Quarter IV 2003 Appendix 2, and Appendix 5.

2. Institutional $1.50 million $1.79 million Main text (paras. Strengthening and Start: Quarter II 1998 Start: Quarter III 1998 20–22), Equipment Complete: Quarter I 2000 Complete: Quarter IV 2003 Appendix 2, and Appendix 5. NORAD = Norwegian Agency for International Cooperation, UNDP = United Nations Development Programme, UNESCO = United Nations Education, Scientific, and Cultural Organization. 24 Appendix 2

APPRAISAL AND ACTUAL PROJECT COSTS ($ million)

Appraisal Actual Item Foreign Local Total Foreign Local Total

A. Base Cost Part A: CAEP 0.61 0.17 0.78 0.27 0.0 0.27 Subtotal Part A 0.61 0.17 0.78 0.27 0.0 0.27 Part B: Environmental Upgrading a. Drainage 2.67 3.54 6.21 2.51 3.85 5.36 b. Solid Waste Management 1.80 0.91 2.71 4.20 1.34 5.54 c. Sanitation 0.78 0.59 1.37 0.31 0.10 0.41 Subtotal Part B 5.25 5.04 10.29 7.02 5.29 12.31

Part C: Infrastructure Improvement a. Road and Bridges 3.41 5.03 8.44 4.05 6.65 10.70 b. Flood Protection 1.95 4.18 6.13 1.06 3.31 4.37 Subtotal Part C 5.36 9.21 14.57 5.11 9.96 15.07

Part D: Implementation Assistance and Capacity Building a. Consulting Services 2.71 1.06 3.77 3.75 0.00 3.75 b. Institutional Strengthening 0.81 0.69 1.50 1.48 0.31 1.79 and Equipment Subtotal Part D 3.52 1.75 5.27 5.23 0.31 5.54

Subtotal (A) 14.74 16.17 30.91 17.63 15.56 33.19

B. Contingencies 1. Physical 1.52 1.48 3.00 0.00 0.00 0.00 2. Price 1.54 2.05 3.59 0.00 0.00 0.00

Subtotal (B) 3.06 3.53 6.59 0.00 0.00 0.00

C. Interest/Service Charge 1. Interest During Construction 0.00 0.20 0.20 0.00 0.00 0.00 2. Service Charge on Loan 0.80 0.00 0.80 0.36 0.00 0.36

Subtotal (C) 0.80 0.20 1.00 0.36 0.00 0.36

Total 18.60 19.90 38.50 17.99 15.56 33.55

CAEP = community awareness and education program. Note: Resettlement cost of $1.6 million classified under flood protection. NORAD/UNDP financing of $4.067 million classified under Solid Waste Management. Source: Asian Development Bank estimates.

SUMMARY OF ADB-FINANCED CONTRACTS

Amount PCSS EA Contract Procurement Contract Disbursed Item/Description Supplier/Contractor Country Currency No. Number Mode Amount ($ Equivalent) Civil Works 5 W/A 27 Various Various Lao PDR Direct $ 5,953 5,953 10 STUDP-LP-BR-01 Bridge over Nam Dong Nopawong Thai ICB KN 219,522,953 22,291 River Construction $ 442,291 442,291 11 STUDP-SV-01 Thakhek Road, Lot A Champa Ban Lao PDR ICB KN 11,965,303,167 1,279,571 Chommany 12 STUDP-TH-01 Embankment/roads/flood China Geotechnical PRC ICB KN 1,167,068,761 139,865 protection/drainage Company $ 550,402 550,402 13 STUDP-LP-02 Nam Khan Riverbank China Geotechnical PRC IS $ 234,508 234,508 Protection Company KN 443,691,715 44,622 16 Various W/A Construction of Pilot PMU Lao PDR Direct $ 22,612 22,612 Toilet 17 STUDP-LP-03 Road, riverbank DXAM-RNC Lao PDR ICB $ 1,757,561 1,757,561 protection, drainage KN 3,034,491,310 296,919 18 STUDP-TH-02 Flood protection and Transtech PRC ICB KN 2,895,558,418 284,672 drainage Engineering $ 1,695,287 1,695,287 19 STUDP-SV-02 Roads, flood protection, China Natural Water PRC ICB KN 2,985,306,248 290,762 drainage Resources $ 1,935,615 1,930,213 Corporation 20 STUDP-PS-01 Embankment, road, Transtech PRC ICB KN 4,537,828,391 443,506 riverbank, drainage Engineering $ 2,662,454 2,662,454 21 STUDP-SV-05 Construction of roads China Geotechnical PRC ICB KN 1,649,548,904 160,545 Company $ 863,187 863,187 22 STUDP-LP-04 Construction of roads Nonghai/Batch Dang Lao PDR ICB $ 2,084,930,880 199,816 KN 1,039,478 1,039,478 23 UDAA-LP-01 UDAA building Viengchaleun Lao PDR LCB KN 103,556 103,556 Construction $ 452,044,899 43,725 Company 24 UDAA-PS-01 UDAA building KMC Construction Lao PDR LCB KN 406,197,229 39,467 Company $ 111,097 111,097 25 UDAA-TH-01 UDAA building Sinbandith Lao PDR LCB KN 363,521,497 34,928 Construction $ 86,653 86,653

26 UDAA-SV-01 UDAA building Sivilay Construction Lao PDR LCB KN 321,153,205 30,823 3 Appendix Company $ 125,793 125,793 27 STUDP-PS-02 Construction of roads Transtech PRC ICB KN 1,431,918,543 136,742 Engineering $ 750,481 750,481 28 STUDP-TH-03 Construction of roads Transtech PRC ICB KN 1,376,693,730 131,210 Engineering $ 721,538 721,538

Total Civil Works: 16,685,528 25

26 Amount PCSS EA Contract Procurement Contract Disbursed Item/Description Supplier/Contractor Country Currency No. Number Mode Amount ($

Equivalent) 3 Appendix Equipment and Materials 1 W/A 02 and 03 Project vehicles UNDP inter-agency Denmark Direct Yen 17,020,456 120,452 $ 10,452 10,452 3 W/A 09 and 10 Mini-bus and pick-ups UNDP IAPSO Denmark Direct $ 1,901 1,901 Yen 3,952,792 33,991 6 various W/A Various equipment PMU Lao PDR Direct $ 112,254 112,254 7 various W/A Equipment PMU Lao PDR Direct $ 44,328 44,328 13 STUDP-LP-02 Equipment for Nam Khan China Geotechnical PRC IS $ 12,465 12,465 riverbank protection Company 14 STUDP-47-01 Cargo, dump, desludging Nomura Trading Japan IS Yen 64,803,945 528,284 truck and parts Company 15 STUDP-4T-01 Maintenance equipment RM Asia (HK) Ltd. Hongkong, IS $ 498,969 498,969 and tools China 17 STUDP-LP-03 Road, riverbank DXAM-RNC Lao PDR ICB $ 203,736 203,737 protection, drainage KN 252,620,920 24,429 18 STUDP-TH-02 Flood protection and Transtech PRC ICB $ 9,713,128 5,680 drainage Engineering KN 55,837 939 19 STUDP-SV-02 Roads, flood protection, China Natural Water PRC ICB $ 55,837 55,837 drainage Resources Company 20 STUDP-PS-01 Embankment, road, Transtech PRC ICB KN 24,136,591 2,296 riverbank, drainage Engineering $ 8,469 8,469 21 STUDP-SV-05 Construction of roads China Geotechnical PRC ICB $ 444,006 444,006 Company KN 50,667,339 4,895 22 STUDP-LP-04 Construction of roads Nonghai/Batch Dang Lao PDR ICB $ 4,083 4,083 28 STUDP-TH-03 Construction of roads Transtech PRC ICB KN 9,544,704 923 Engineering $ 5,002 5,002 30 STUDP-4T-03 Dump truck and water- Nomura Trading Japan IS Yen 52,413,000 444,881 tank truck for each town Company 32 STUDP-04T-04 Pumps for Pakse Diethelm and Lao PDR IS $ 158,243 158,243 Company KN 725,659,020 69,513 33 LP-Streetlights Street lighting in Luang Central Sign Lao PDR Direct $ 61,709 61,709 Prabang Company KN 241,781,760 23,248 8802 W/A 317 Small items: computer, various Lao PDR Direct $ 38,504 38,504 furniture, etc. 8803 various W/A Small items: computer, various Lao PDR Direct $ 13,851 13,851 furniture, etc. Total Equipment and Materials: 2,933,341

Consulting Services 2 Detailed engineering and IGIP/BCEOM/BETUR France ICB Franc 12,271,437 1,877,681 construction supervision E-CEREC/SK/SMED Deutsch- 1,323,712 679,493 mark $ 1,126,541 1,126,541

Amount PCSS EA Contract Procurement Contract Disbursed Item/Description Supplier/Contractor Country Currency No. Number Mode Amount ($ Equivalent) 4 Six institutional support individual consultants Direct $ 116,290 116,290 services 8 Design consultant ECAS Limited Various Direct $ 36,240 36,240 16 Various W/A Evaluation of 4 ICB individual consultants Lao PDR Direct $ 27,944 27,944 contracts 8801 Various W/A Design services, ECAS Limited, Stuart Various Direct $ 33,704 33,704 volunteer services Ling 8802 W/A 317 Municipal management Lao Consulting, C. Direct $ 60,167 60,167 Perpena 8803 Various W/A Community C. Perpena, Soe Direct $ 58,558 58,558 development, volunteer Thant Aung, ECAS services Limited, Richard Mabbit Total Consulting Services: 4,016,618

Implementing Assistance 5 W/A 27 1999 expenditures Lao PDR $ 661 661 9 Various W/A 2000 expenditures Lao PDR $ 120,033 120,033 16 Various W/A December 2000– Lao PDR $ 103,646 103,646 September 2001 8801 Various W/A 2–28 January 2002 Lao PDR $ 60,913 60,913 February 2002 2–30 September 2002 8802 W/A 317 October–December Lao PDR $ 71,160 71,160 2002, 1–31 May 2003 8803 Various W/A June 2003 to 31 May Lao PDR $ 174,320 174,320 2004 Total Implementing Assistance: 530,733

Septage Loans 31 W/A 332 Septage loans for each PMU Lao PDR $ 218,343 218,343 Appendix 3 Appendix of the 4 project towns 8803 various Septage loans for each PMU Lao PDR $ 67,188 67,188 of the 4 project towns Total Septage Loans: 285,531

27 $ = United States dollar, EA = executing agency, IAPSO = Inter-agency Procurement Services Office, ICB = international competitive bidding, IGIP = International Society for Engineering Education, IS = international shopping, KN = kip, Lao PDR = Lao People’s Democratic Republic, LCB = local competitive bidding, LP = Luang Prabang, PCSS = procurement contract summary sheet, PMU = project management unit, PRC = People’s Republic of China, PS = Pakse, STUDP = secondary towns urban development project, SV = Savannakhet, TH = Thakhek, UDAA = Urban Development Administration Authority, UNDP = United Nations Development Programme, W/A = withdrawal application. Source: Asian Development Bank loan financial information system.

28 Appendix 4

BREAKDOWN OF YEARLY DISBURSEMENTS ($ million)

ADB MCTPC Year Quarter Total Amount Cumulative Amount Cumulative (1) (2) (3) (4) (5) (6) (7)=(4)+(6) 1998 II 0.000 0.000 0.000 0.000 III 0.631 0.631 0.000 0.631 IV 0.796 1.427 0.020 0.020 1.447 1999 I 0.248 1.675 0.020 1.695 II 0.363 2.038 0.020 2.058 III 0.153 2.191 0.020 2.211 IV 0.067 2.258 0.060 0.080 2.338 2000 I 0.041 2.299 0.080 2.379 II 0.281 2.580 0.080 2.660 III 0.116 2.696 0.080 2.776 IV 0.461 3.157 0.050 0.130 3.287 2001 I 0.483 3.640 0.130 3.770 II 0.585 4.225 0.130 4.355 III 0.553 4.778 0.130 4.908 IV 2.611 7.389 0.410 0.540 7.929 2002 I 0.840 8.229 0.540 8.769 II 2.724 10.953 0.540 11.493 III 1.416 12.369 0.540 12.909 IV 0.976 13.345 0.590 1.130 14.475 2003 I 3.023 16.368 1.130 17.498 II 2.363 18.731 1.130 19.861 III 3.194 21.925 1.130 23.055 IV 1.524 23.449 1.070 2.200 25.649 2004 I 1.345 24.794 0.280 2.480 27.274 II 0.025 24.819 2.480 27.299 III -0.017 24.802 2.480 27.282 IV 0.000 24.802 2.480 27.282 TOTAL 24.802 24.802 2.480a 2.480 27.282 ADB = Asian Development Bank, MCTPC = Ministry of Communication, Transport, Post, and Construction. a Does not include $1.26 million for land costs. Source: Asian Development Bank loan financial system.

Appendix 5 29

IMPLEMENTATION SCHEDULE

Activity 1997 1998 1999 2000 2001 2002 2003

Project Preparatory Action Recruit design consultants Recruit volunteers Declare UDAA decree Establish UDAAs

Part A: CAEP Program preparation Materials preparation Community education and development

Part B: Environmental Improvements Drainage - Land acquisition - Survey and design - Tender/contract award - Civil works Septage management - Contractor training - Septic tank installation Solid Waste - Survey and design - Tender/contract award - Civil works

Part C: Infrastructure Improvements Roads and bridges - Land acquisition - Survey and design - Tender/contract award - Civil works Flood protection - Land acquisition - Survey and design - Tender/contract award - Civil works Riverbank protection - Land acquisition - Survey and design - Tender/contract award - Civil works

Part D: Implementation Assistance and Capacity Building Implement assistance - Consultant services Capacity building - Community awareness - Urban planning - Municipal services CAEP = community awareness and education program, UDAA = Urban Development Administration Authority. Legend: Appraisal Actual

30 Appendix 6

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Reference in Covenant Loan Status of Compliance Agreement

Audited Financial Statement

1. The Borrower shall furnish to the Bank not Section Complied with. Audited reports later than twelve (12) months after the end of 4.06(b) and financial statements in each fiscal year, certified copies of audited general have been received in accounts and financial statements and the a timely manner. report of the auditors.

Reports

2. The Borrower shall furnish to the Bank Section 4.07 Complied with. Reports quarterly reports on the carrying out of the generally satisfactory, Project and on the operation and particularly regarding civil management of the Project facilities. works; there is a need to focus on the community awareness and education program (CAEP) and institutional policy development Disbursements

3. No withdrawals shall be made from the Loan Schedule 3, Complied with. Subsidiary Account in respect of a UDAA until its Para. 9 Loan Agreement signed Subsidiary Loan Agreement, in form and between the Ministry of satisfactory to the Bank, shall have been duly Finance (MOF) and provincial executed and delivered on behalf of the governments for all project UDMC and the Borrower and shall have towns on 29 December 2000. become legally binding upon the parties in accordance with its respective terms.

4. No withdrawals shall be made from the Loan Schedule 3, Complied with. Computerized Account in respect of a Project Town until the Para. 10 accounting systems UDAA in such Project Town shall first have established in each urban established an accounting system with development administrative adequate accounting staff, including authority (UDAA), but systems dedicated maintenance accounts for each need further improvements to component, and procedures for the ensure the long-term monitoring and control of funds, financial sustainability of UDAAs. reporting, and auditing, all sufficient to assist such UDAA to meet its liabilities as they become due.

Project Execution and Coordination

5. Establishment of a Project Management Unit Schedule 6, Complied with. PMU (PMU) in the Department of Housing and Para. 1 established upon inception

Appendix 6 31

Reference in Covenant Loan Status of Compliance Agreement Urban Planning (DHUP) within the MCTPC, and fully staffed throughout the to be headed by a Project Manager. duration of the Project.

6. Establishment of the Project Steering Schedule 6, Partly complied with. Although Committee (PSC) chaired by Vice Minister of Para. 1 the PSC was established, it MCTPC. Meetings shall be convened at least only met when required (not quarterly, and shall include senior officials quarterly). representing the Ministry of Finance (MOF), the Committee for Investment and Cooperation (CIC), the State Planning Committee (SPC) and the Provincial Governor’s Offices.

7. UDAAs shall be established in each Project Schedule 6, Complied with. UDAAs were Town pursuant to the UDAA Decree. The Para. 2 established in Luang Prabang, UDAAs shall be the Implementing Agencies Thakhek, Savannakhet, and (IA) for the Project. Pakse in 1998.

8. A Project Implementation Unit (PIU) shall be Schedule 6, Complied with. All PIUs were established within each UDAA, and shall be Para. 2 established and managers headed by a Manager. appointed by January 1998.

9. The Borrower shall ensure that staff is Schedule 6, Complied with. Staff were selected from the Provincial Departments of Para. 2 transferred from their Communication, Transport, Post, and departments and appointed to Construction (DCTPCs) in the provinces, and UDAAs. other provincial administration units and transferred to the UDAAs.

10. The Borrower shall ensure the transfer of Schedule 6. Complied with. No said O&M equipment to the UDAAs as necessary. Para. 3 equipment existed. Equipment The Borrower shall ensure that UDAAs bought under the Project have gradually become responsible for O&M of now been given to UDAAs. infrastructure in the Project Towns.

11. The Borrower shall cause the UDAAs to Schedule 6, Complied with. UDAAs have assume responsibility for septic tank Para. 3 assumed responsibility for servicing and solid waste management, O&M and service provision. commencing with fiscal year 1997–1998; The Luang Prabang UDAA drainage, flood and erosion protection works, has taken responsibility for all commencing with fiscal year 1998–1999; and components since 1998; the roadwork commencing the fiscal year 1999- other UDAAs since 2001. 2000.

12. The Borrower shall, by 31 December 1998, Schedule 6, Complied with. Corporate cause each UDAA to prepare a corporate Para. 5 plans for UDAAs were formally plan covering the means of achieving its adopted in all four towns in objectives and long term viability. 2000–2001. 32 Appendix 6

Reference in Covenant Loan Status of Compliance Agreement Community Awareness and Education Program

13. The Borrower shall implement a community Schedule 6, Partly complied with. awareness and education program (CAEP). Para. 6 Community liaison offices were In each Project Town, a community liaison established for Luang Prabang office shall be established within each PIU. A (Jan 1998), Savannakhet (Jan community liaison officer (CLO) shall be 1998), Thakhek (Nov 2000), appointed from the Department of Health, the and Pakse (Nov 2000). The Department of Education or a similar agency, CAEP progressed with some and funded by the Borrower, to work within difficulties because of the each PIU. absence of the required community development Information Materials advisor (CDA).

14. The Borrower shall ensure that the UDAAs Schedule 6, Complied with. IEC materials develop Information, Education and Para. 7 developed based on action Communication (IEC) materials. The PIUs plans prepared by CDAs and shall prepare the IEC materials with the CAEP volunteers. assistance of the CLOs and CDAs

Community Participation

15. The UDAAs shall identify existing community Schedule 6, Complied with. Community groups, and shall assist in creation of new Para. 9 groups identified and groups in the Project Towns. Each CLO shall consultation meetings and be responsible for community level workshops held in each UDAA discussions and mobilization, formation of to obtain stakeholder input. advisory committees, and community groups at the village levels. Each CLO shall also be responsible for (i) distributing and displaying the materials for CAEP; (ii) educating beneficiaries in the proper use and O&M of Project facilities; (iii) developing periodic surveys to check on community preferences and responses; and (iv) monthly progress statements to the PIU. To ensure objectivity, such reports shall be countersigned by representatives of the heads of villages and mass organizations. Following Project completion, the CLO shall amend the design of the program to enable its use in conjunction with the O&M of the Project facilities.

Land Acquisition and Resettlement

16. The Borrower shall ensure that all land Schedule 6, Complied with. All land required for the Project shall be made Para. 10 requirements for resettlement

Appendix 6 33

Reference in Covenant Loan Status of Compliance Agreement available to the UDAAs by 31 December were met by the Project. 1998.

17. The Borrower shall, by 30 June 1998, Schedule 6, Complied with late. provide a final, detailed land acquisition Para. 10 Resettlement plans were plan, to the Bank showing the exact submitted to Asian locations of all land required for civil works Development Bank (ADB) in under the Project. 2001. However, resettlement compensation was made between 1998–2001.

18. The Borrower shall ensure that all land Schedule 6, Complied with late. All acquisition and resettlement, including the Para. 10 payments were settled by issuance of any necessary land use 2001, and titles were issued to certificate or the creation of leases shall be resettled households. completed by 31 December 1998.

19. The Borrower shall provide all resettled Schedule 6, Complied with. Baseline persons with (i) access to basic utilities for Para. 11 surveys completed in all normal fees, (ii) building materials at cost, project towns and resettlement and (iii) transportation. The Borrower shall plans prepared by 2001. The cause the CTPC for each Project Town to actual compensation was less conduct a survey of each structure at each than the estimated costs for residence or business to establish which reconstruction and rebuilding, materials can be salvaged. For residential but was greatly offset by grant relocation, the Borrower shall also provide of land holdings. On average, resettled persons with a land use certificate resettled households received for alternative land at no cost, or a lease 1,600 m2 in Savannakhet, 800 assuring resettled persons the right to use m2 in Pakse, and 400 m2 in such alternative land. The Borrower shall Luang Prabang and Thakhek. lease new sites to businesses or commercial establishments to be relocated, and such sites shall be adequate to permit reestablishment of businesses after relocation.

Septage Management, Septic Systems, and Solid Waste

20. The Borrower shall, not later than 1 March Schedule 6, Complied late. Septage levy 1998, approve a revised and expanded levy Para. 12 and solid-waste charges and collection of direct user charges for collected by UDAAs in 2000 septage and solid waste management. The and tariff adjusted in 2001. Borrower shall ensure that, three months Tariff adjustments made on a before the end of each fiscal year, each per-town basis. UDAA shall adjust the level of tariffs for the following fiscal year based on the national consumer price index published for the then 34 Appendix 6

Reference in Covenant Loan Status of Compliance Agreement current fiscal year.

21. The Borrower shall, by 1 March 1998, Schedule 6, Partly complied with. Septage cause the UDAAs to enforce the septic tank Para. 13 regulations have been regulations prepared under the Bank- enforced for new buildings, but finance TA No. 2377-LAO: Establishing have not been enforced for Municipal Administration Systems. existing buildings.

22. The Borrower shall ensure that within three Schedule 6, Complied with. Septic tanks months of mobilization of the design and Para. 14 designed in 1998, Subsidiary construction supervision consultants, the Loan Agreement between PMU shall establish in each UDAA an MOF and provincial application process for septage loans (the governments/UDAAs signed in Septage Loans) to finance the installation Dec 2000. Households or improvement of septic tanks for identified and applications for residences (Septage Projects), together septage loans submitted with the means of disbursement and thereafter. payment of principal and interest in respect of Septage Loans. Each UDAA shall administer its respective Septage Loans.

23. A Septage Loan may not cover more than Schedule 6, Complied with. Baseline 75% of the Septage Project’s cost. Septage Para. 15 survey and means test Loans shall be recovered in 36 equal conducted by PIUs and monthly installments at an interest of 2 submitted to ADB in Dec 2001. percent per annum. The beneficiaries shall provide the remaining 25% of the Septage Project cost. The UDAAs and PIU shall develop a means test or similar arrangement to ensure that only low- income households are entitled to have access to Septage Loans; the means test shall be approved by the Bank. Funding for Septage Loans shall be provided form the Loan.

Road, Drainage, Flood, and Erosion Protection

24. The Borrower shall provide budgetary Schedule 6, Partly complied with. UDAAs resources to the UDAAs adequate to Para. 17 were provided with budgetary finance, (a) all drainage, flood and erosion allocations but not in sufficient protection works, commencing with fiscal quantity to finance the year 1998–1999, and (b) all roadwork, adequate delivery of services. commencing with fiscal year 1999-2000. After such dates, the Borrower shall provide budgetary resources to the UDAAs equal to the base levels as adjusted in accordance

Appendix 6 35

Reference in Covenant Loan Status of Compliance Agreement with the national consumer price index published for the then current fiscal year of the Borrower.

Financial Matters; User Charges

25. The Borrower shall ensure that the UDAAs Schedule 6, Complied with. User charges commence collection of user charges for Para. 18 for solid waste and septage solid waste and septage management by 1 commenced for Luang June 1998. The Borrower shall ensure that Prabang (March 1999), the UDAAs shall recover all capital and Thakhek (February 1999), O&M cost for solid waste and septage Savannakhet (April 1999), and management services through such Pakse (May 1999). UDAAs charges by the 2001–2002 fiscal year. The authorized by MOF to collect Borrower shall authorize the UDAAs to (i) and adjust charges through collect monthly charges for solid waste issuance of provincial collection, which shall be assessed at governors’ decrees. various rates, according to user categories (namely residential, commercial, and institutions); (ii) collect charges for residential septic tank servicing and for servicing of holding tanks, as agreed to with the Bank; (iii) adjust solid waste collection charges by an amount 2% in excess of the national consumer price index annually, and (iv) adjust septic system and holding tank charges at an annual rate equal to the increase in the national consumer price index.

26. The Borrower shall provide budgetary Schedule 6, Partly complied with. support for all septage and solid waste Para. 19 Commencing in 2001, MOF components of the Project prior to the provided the UDAAs with 2001–2002 fiscal year. funds for septage and solid- waste management.

27. The Borrower shall, by 30 September 2000, Schedule 6, Complied with. UDAAs were establish legally distinct local government Para. 20 established starting in 1998, administrations in the Project towns, and various authorities and together with a plan for the objectives, powers were delegated to scope of operations, financial resources, them based on Prime and rule making authority of such Ministerial Decree 177 and administration; the plan shall also indicate Implementing Instruction 144. the administrations': power to enter into The Law on Local contracts, levy and collect taxes, incur debt, Administration was accepted sell or lease assets, settle disputes by the National Assembly in between citizens and administrations, and October 2003. pursue legal remedies. To the extent 36 Appendix 6

Reference in Covenant Loan Status of Compliance Agreement necessary, the Borrower shall, by 30 September 2000, issue any amendment to the laws of Lao PDR, that in the opinion of the Minister of Justice is needed to achieve such objectives or to establish the local government administrations with such powers.

Other Matters

28. The Borrower shall, by 30 June 1998, Schedule 6, Complied with. Urban Planning cause the UDAAs to enforce all applicable Para. 21 Law was accepted by the urban building regulations and development National Assembly in April controls of the Borrower. 1999.

29 The Borrower shall, by 31 December 1998, Schedule 6, Complied with. Guidelines notify UDAAs of the Borrower’s Urban Para. 22 prepared and implementation Sector Development Policy Statement. completed.

Benefit Monitoring and Evaluation

30. The PMU shall undertake benefit Schedule 6, Prepared and submitted by the monitoring and evaluation (BME) for each Para. 3 community development component of the Project to ensure that the advisor in August 2003. Project facilities are managed efficiently, and benefits realized. The PMU shall develop a comprehensive BME system with assistance from the design consultants engaged pursuant to Schedule 5 of this Loan Agreement, The PIUs shall be responsible for the actual carrying out of the BME activities, including the establishment of benchmark through baseline surveys, data collection, and analyses, The PIUs shall repeat the surveys at intervals to determine changes in key indicators on health, welfare, economic, and physical conditions. The PMU shall submit a detailed implementation plan for monitoring benefits and for preparing benchmark information for the Bank’s review and concurrence within six months of the Effective Date.

Appendix 7 37

FINANCIAL AND ECONOMIC REEVALUATION

A. General 1. A financial and economic analysis was conducted for each of the project components, as planned at appraisal. The methodology employed to undertake the reevaluation is similar to that undertaken at appraisal and follows ADB’s Guidelines for the Financial Governance and Management of Investment Projects Financed by the Asian Development Bank (2001), Guidelines for the Economic Analysis of Projects (1997), and the Framework for the Economic and Financial Appraisal of Urban Development Sector Projects (1994). The reevaluation calculated the financial internal rate of return (FIRR) and the economic internal rate of return (EIRR) for each of the project components.

2. The methodology and assumptions adopted for the financial and economic evaluation of the project components generally follow those carried out at appraisal. The financial and economic benefits were quantified by comparing the subproject town conditions with and without the Project. Costs and benefits are measured at border price equivalent values, using the world price numeraire, and expressed in 2004 constant prices in Lao PDR kips (KN). The manufacturing unit value index (MUV), published by the International Monetary Fund, was used for converting costs and benefits into 2004 prices. The costs and benefits of the non-traded components were converted to the world price numeraire by using a standard conversion factor of 0.9, as at appraisal, and expressed in 2004 constant prices. The project life of each component is assumed to be 20 years with no salvage value at the end of the project life, as at appraisal.

B. Costs 3. The costs of construction were derived from the actual costs incurred, excluding interest and other charges during construction. The economic costs are derived from their financial costs by excluding taxes and duties and by converting the non-traded components to the world price numeraire. They were expressed in 2004 constant prices. The annual operation and maintenance (O&M) costs have been based on the information collected by the PCR Mission.

C. Benefits 1. Financial Benefits 4. The financial benefits for the Project were measured for the two revenue-generating components, namely, septic-waste and solid waste management. The benefits were estimated separately for each of the four secondary towns, as at appraisal.

a. Septic-waste management 5. The number of septic-waste tanks to be installed in each of the secondary towns at appraisal was estimated to be 5,610. The total actually installed was only 1,715, approximately 30% of the appraisal target. A comparison of the units to be installed at appraisal and those actually installed is shown in Table A7.1.

Table A7.1: Comparison of Appraisal and Actual Septic Tanks Installed Project Town Target at Appraisal Actual

Luang Prabang 700 142 Savannakhet 1,100 709 Pakse 2,080 456 Thakhek 1,730 408

Total 5,610 1,715 Source: Project Management Unit. 38 Appendix 7

6. The financial benefits are derived from payments for desludging septic tanks. The cost for a residential septic tank is KN250,000 per visit. It is assumed that on average cleaning is required once every 2 years, as at appraisal.

b. Solid Waste Management 7. The number of households benefiting from solid waste management (SWM) has been estimated at 14,426. Of these, 5,300 are in Luang Prabang, 4,145 in Savannakhet, 1,781 in Pakse, and 3,200 in Thakhek. The charges for solid waste collection vary by type of consumer. The current user charges are KN7,000 per month for residential properties, KN15,000 per month for commercial properties, and KN200,000 per month for hospitals, hotels, and other institutional establishments. The benefits have been calculated for the different types of establishments in the secondary towns, assuming a gradual extension of service coverage in each town, as assumed at appraisal. Discussions with the UDAAs indicated that average user charges for the collection of solid waste are expected to increase by 5% per annum in real terms. Population growth rates in the four secondary towns range from 1.7% to 2.8% per annum.

2. Economic Benefits 8. The analysis of project benefits used similar assumptions to those used at appraisal, updated with the most recent available data and prices. The economic reevaluation undertook an economic analysis of the drainage and road components of the Project, as at appraisal, and calculated the EIRR for each secondary town.

a. Drainage and Flood Protection

9. The benefits of drainage and flood protection include (i) avoided residential property damage, and (ii) increased land values. Property damages from flooding were estimated using the values for economic losses to moveable and immoveable household property, as at appraisal. The value of savings resulting from reduced damage to buildings and property was estimated at $1,500 per hectare (ha). This estimate was based on a study recently conducted by ADB in Vientiane. This value was multiplied by the catchment area in each of the secondary towns to estimate the overall savings.

10. The increase in property values related to the Project was also estimated. As at appraisal it was assumed that the proposed drainage-improvement and flood-protection works would reduce inundation by 75%. The amount of affected land was estimated for each project town and multiplied by the average land value to determine total cost savings. Land in Pakse has the highest value—about KN644,500 per square meter (m2). Land value in Luang Prabang and Savannakhet is about KN500,000 per m2, while land value in Thakhek is about KN625,000 per m2. Because land values rose by about 200% between 1997, when the appraisal took place, and 2003, it is envisaged that future increase in land values will be smaller. At appraisal, it was conservatively assumed that the increase in land values would be 2% per annum. For the economic reevaluation, it was conservatively assumed that land prices would remain constant.

b. Roads and Bridges 11. The economic benefits considered in evaluating the roads and bridges component include (i) vehicle operating cost (VOC) savings, and (ii) travel-time savings for passengers. The values for VOC were base on recent feasibility studies in the Lao PDR on regional roads. The travel-time savings were estimated from the data on median monthly household incomes, as reported in the benefit monitoring and evaluation (BME) survey conducted in 2003. The estimated reduction in travel times for each of the secondary towns was also reported in the BME study. Traffic volume data was estimated based on the BME report and updated. At appraisal, the economic benefits were calculated separately for new roads and upgraded roads.

Appendix 7 39

In the economic reevaluation, this was not possible because the scope of work changed in some towns. For instance, some towns received new roads instead of upgraded roads. Therefore, an overall EIRR has been calculated for each of the secondary towns.

D. Financial and Economic Analysis 1. Financial Analysis 12. The financial internal rate of return (FIRR) for the septic-waste management and SWM components are shown in Table A7.2. The FIRRs of the septic-waste management component, which range from 6.2% to 7.8%, are lower than those estimated at appraisal (11.6% to 16.6%). This is due to the fact that only 1,715 septic tanks were installed, well under the appraisal estimate of 5,610. For the SWM component, FIRRs range from 0.0% to 1.9%, significantly less than the appraisal estimates of 8.5% to 9.1%. These lower FIRRs are due, firstly, to the coverage of solid waste collection services being lower than estimated at appraisal. Approximately 14,000 households actually receive solid waste collection service, well under the appraisal estimate of 38,000 households. Secondly, the real value of user charges has dipped below appraisal estimates because of the devaluation of the Kip. The FIRRs of the septic-waste management component have been compared to the weighted average cost of capital (WACC), which has been estimated at 4%.34 Since the FIRRs of the septic-waste management component are greater than the WACC, the component is financially viable. The FIRRs for the septic-waste management and SWM components are shown in Table A7.2.

Table A7.2: Summary of Solid Waste and Septic-waste Management Component FIRR

Project Town FIRR (%)

Luang Prabang Solid waste management Septic-waste management 6.7 Savannakhet Solid waste management 0.1 Septic-waste management 6.2 Pakse Solid waste management 1.9 Septic-waste management 7.8 Thakhek Solid waste management 1.0 Septic-waste management 7.0 Total Solid waste management 0.8a Septic-waste management 6.9 FIRR = financial internal rate of return. a Excluding Luang Prabang, as no FIRR can be calculated. Source: Asian Development Bank estimates.

2. Economic Analysis 13. The EIRR has been calculated for the drainage and flood-protection component, and also for the roads and bridges component. The EIRR for the drainage component ranged from 18.8% to 22.5%, compared to the appraisal estimate range of 15% to 17.5%. The higher recalculated EIRRs are mainly the result of higher-than-expected increases in land prices. The recalculated EIRR for the road and bridges component ranged from 14.5% to 16.6%, compared to the appraisal estimate range of 12.2% to 14.9%. The higher EIRRs for the roads and bridges

34 The WACC has been calculated in accordance with the Guidelines for the Financial Governance and Management of Investment Projects Financed by the ADB, January 2001, Chapter 3, paragraph 3.5.2, page 24. As the calculated WACC for each of the categorized financing components of the loan does not exceed 4%, the Minimum Rate Test of 4% is applied, and hence the WACC derived is 4%. 40 Appendix 7 component are due to (i) a larger-than-expected increase in traffic volume, (ii) larger-than- expected increases in VOC; and (iii) time savings. Comparing the EIRRs to the opportunity cost of capital (12%) shows that both the drainage and flood-protection component and the roads and bridges component are economically feasible. The EIRR of the drainage and flood-control component for each secondary town is shown in Table A7.3; the EIRR of the roads and bridges component for each secondary town is shown in Table A7.4.

Table A7.3: Summary of Drainage and Flood-Control Component EIRR

Project Town EIRR (%)

Luang Prabang 18.9 Savannakhet 22.5 Pakse 21.9 Thakhek 18.8 Total 21.2 EIRR = economic internal rate of return. Source: Asian Development Bank estimates.

Table A7.4: Summary of Roads and Bridges Component EIRR

Project Town EIRR (%)

Luang Prabang 14.5 Savannakhet 16.6 Pakse 16.1 Thakhek 15.1 Total 15.5 EIRR = economic internal rate of return. Source: Asian Development Bank estimates.

E. Financial Analysis of Urban Development Administration Authorities 14. Only three of the four secondary towns—Luang Prabang, Pakse, and Thakhek—could supply the PCR Mission with financial information. However, the data collected from these three secondary towns was incomplete, internally inconsistent, and difficult to reconcile. Savannakhet was unable to supply financial information to the PCR Mission. Overall, the accounting capabilities of the UDAAs are limited and need to be strengthened through further capacity building.

15. Total revenue for the Luang Prabang UDAA in FY2005 was KN800 million, total revenue for the Pakse UDAA was KN639 million, and total revenue for the Thakhek UDAA was KN526 million. Expenditures for these UDAAs in FY2005 ranged from KN562 million to KN699 million. Table A7.5 outlines revenues and expenditures in Luang Prabang and Pakse for FY2003–FY2005, including projections for FY2006 and FY2007. The UDAAs also receive budget funds from provincial governments, which average approximately KN500 million for each project town. Expenditures on O&M of roads and drainage averaged about KN438 million, or about $40,000 equivalent, per UDAA. These expenditure levels appear insufficient to carry out proper O&M of urban infrastructure and provide a sustainable level of services. With the exception of solid waste collection and septage-collection services, no service charges are collected. The user charges for solid waste collection are still very low, hardly meeting the O&M costs. In order to have the UDAAs become financially sustainable and autonomous, other user charges, such as vehicle parking fees, should be initiated to recover costs for management of all urban services, including septage and solid waste management, roads, and drainage. Future policy should address how UDAAs will effectively generate revenues, provide and regulate urban services, and evolve into autonomous entities (i.e., municipalities), as stipulated in the 1993 Law on Local Administration.

Appendix 7 41

Table A7.5: Income and Expenditure of Luang Prabang and Pakse UDAAs FY2003–FY2007 (KN million)

UDAA/Item FY2003 FY2004 FY2005 FY2006 FY2007

Luang Prabang Revenue 343.62 785.93 800.40 873.20 922.17 Expenditure 318.22 744.58 699.18 797.79 892.29 Balance 25.40 41.35 101.22 75.41 29.88

Pakse Revenue 605.64 695.65 639.33 730.82 767.38 Expenditure 406.51 569.31 562.31 597.78 672.19 Balance 199.13 126.34 77.03 133.05 95.19 FY = fiscal year. Source: Luang Prabang UDAA and Pakse UDAA.

42 Appendix 8

SUMMARY OF RESETTLEMENT AND LAND COMPENSATION Table A8.1: Number of Affected Households

Item Affected Households Resettled at Relocated Marginally Total Site Elsewhere Affected Luang Prabang 19 2 8 29 Pakse 219 0 20 239 Savannakhet 3 2 36 41 Thakhek 19 31 7 57

Total 260 35 71 366 Source: Resettlement Post Evaluation Survey, 2003. Table A8.2: Comparison of Estimated and Actual Compensation Expenditure (KN million)

Original Estimates Actual Expenditures Town Land Compensation Total Land Compensation Total Luang Prabang 980 1,176 2,156 817 32 849 Pakse 2,856 3,591 6,477 9,286 2,072 11,358 Savannakhet 0 0 0 201 47 248 Thakhek 386 644 1,030 595 483 1,078

Total 4,222 5,411 9,633 10,899 2,634 13,533 KN = kip. Source: Source: Resettlement Post Evaluation Survey, 2003. Table A8.3: Average Compensation Payments (KN million)

Affected Households Town Resettled at Relocated Marginally All Categories Site Elsewhere Affected Luang Prabang 0.6 1.8 1.9 1.1 Pakse 9.3 0.0 1.9 8.7 Savannakhet 0.0 5.8 0.9 1.2 Thakhek 8.9 9.8 1.5 8.5

Total 8.5 9.1 1.4 7.2 KN = kip. Source: Resettlement Post Evaluation Survey, 2003. Table A8.4: Land Values in Resettlement Sites Resettled at Area of Plots Land Value Plot Value Town Site (m2) (KN/m2) (KN million) Luang Prabang Phonsa 250 172,000 43 Pakse Chatsane 800 53,000 42.4 Savannakhet Sanamxay 800 84,000 67.2 Thakhek Chompet 360 54,000 19.4 Na Ya Wai 400 100,000 40.0 KN = kip, m2 = square meters. Sources: Ministry of Communication, Transport, Post, and Construction, 2002. Resettlement Post Evaluation Survey, 2003.

Appendix 9 43

QUANTITATIVE ASSESSMENT OF OVERALL PROJECT PERFORMANCE

Table A9.1: Overall Rating

Weight Weighted Criteria Assessment Rating (0–3) (%) Rating

Relevance Highly Relevant 3 20 0.60 Efficacy Efficacious 2 25 0.50 Efficiency Efficient 2 20 0.40 Sustainability Less Likely 1 20 0.20 Institutional Development Moderate 1 15 0.15 Overall Rating Successful 1.85

Notes: Relevance — Project objectives and outputs were relevant to strategic objectives of the Government and ADB Efficacy — Project achieved its targets and objectives Efficiency — Project achieved objectives in an efficient manner Sustainability — Project benefits and development impacts are sustainable. Institutional Development — Project had beneficial impacts on government policy and institutional capacity, and other positive social impacts.

Table A9.2: Rating System

Rating Institutional Relevance Efficacy Efficiency Sustainability Value Development

3 Highly Highly Highly Most Likely Substantial Relevant Efficacious Efficient 2 Relevant Efficacious Efficient Likely Significant 1 Partly Relevant Partly Partly Less Likely Moderate Efficacious Efficient 0 Irrelevant Inefficacious Inefficient Unlikely Negligible

Rating: > 2.5 = Highly Successful 1.6-2.5 = Successful 0.6-1.6 = Partly Successful < 0.6 = Unsuccessful