ASIAN DEVELOPMENT BANK PCR:PNG 23132
PROJECT COMPLETION REPORT
ON THE
THIRD URBAN WATER SUPPLY (ADB Loan 1211-PNG) (ICDF/CTB Loan 8144-PNG)
TA 1803-PNG: INSTITUTIONAL STRENGTHENING OF THE WATERBOARD
December 2003 CURRENCY EQUIVALENTS
Currency Unit – kina (K)
At Appraisal At Project Completion (October 1996) (October 2003) K1.00 = $1.03 $0.30 $1.00 = K0.97 K3.00
ABBREVIATIONS
ADB – Asian Development Bank AIDAB – Australian International Development Assistance Bureau BME – benefit monitoring and evaluation CTB – Chiao Tung Bank DSCR – Debt service coverage ratio EIRR – economic internal rate of return FIRR – financial internal rate of return ICDF – International Cooperation and Development Fund IDC – interest during construction O&M – operation and maintenance PMO – project management office PNG – Papua New Guinea TA – technical assistance WTP – water treatment plant
WEIGHTS AND MEASURES
m3 – cubic meter m3/day – cubic meters per day kl – kiloliters km – kilometer ha – hectare mg/l – milligrams per liter ml/day – megaliters per day
NOTES
(i) The fiscal year (FY) of the Government and its agencies ends on 31 December. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2000 ends on 31 December 2000.
(ii) In this report, "$" refers to US dollars. CONTENTS Page
BASIC DATA ii MAP ix I. PROJECT DESCRIPTION IX II. EVALUATION OF DESIGN AND IMPLEMENTATION 2 A. Relevance of Design and Formulation 2 B. Project Outputs 3 C. Project Costs 4 D. Disbursements 5 E. Project Schedule 6 F. Implementation Arrangements 6 G. Conditions and Covenants 6 H. Related Technical Assistance 6 I. Consultant Recruitment and Procurement 7 J. Performance of Consultants, Contractors, and Suppliers 7 K. Performance of the Borrower and the Executing Agency 7 L. Performance of ADB 7 III. EVALUATION OF PERFORMANCE 8 A. Relevance 8 B. Efficacy in Achievement of Purpose 8 C. Efficiency in Achievement of Outputs and Purpose 10 D. Preliminary Assessment of Sustainability 11 E. Environmental, Sociocultural, and Other Impacts 12 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 13 A. Overall Assessment 13 B. Lessons Learned 14 C. Recommendations 14
APPENDIXES
1. Purpose, Targets, and Actual Achievements 16 2. Disbursements and Detailed Reallocations 19 3. Chronology of Events 20 4. Project Implementation Schedule 22 5. Status of Compliance with Project and Loan Covenants 24 6. Water Quality Analysis 33 7. Monitoring and Evaluation of Projected Benefits 38 8. Financial and Economic Evaluation 45 9. Cost Recovery Analysis 52 10. Project Performance Rating Assessment 60
SUPPLEMENTARY APPENDIX (available upon request)
A. Detailed Water Quality Analysis ii
BASIC DATA
A. Loan Identification
1. Country Papua New Guinea 2. ADB Loan Number 1211-PNG 3. ICDF/CTB Loan Number 8144-PNG 4. TA Number 1803-PNG 5. Project Title Third Urban Water Supply 6. TA Title Institutional Strengthening of the Waterboard 7. Borrower Independent State of Papua New Guinea 8. Executing Agency PNG Waterboard 9. Amount of Loan $11.3 million 10. Amount of Co-financed Loan $6.7 million 11. Co-Financier International Cooperation and Development Fund (Taipei,China) 12. Project Completion Report PCR: PNG 754 Number
B. Loan Data 1. Appraisal ADB ICDF/CTB – Date Started 8 Sep 1992 8 Sep 1992 – Date Completed 11 Sep 1992 11 Sep 1992
2. Loan Negotiations – Date Started 9 Nov 1992 10 Dec 1992 – Date Completed 13 Nov 1992 11 Dec 1992
3. Date of Board Approval 15 Dec 1992 14 Dec 1991
4. Date of Loan Agreement 25 Jun 1993 16 Aug 1994
5. Date of Loan Effectiveness – In Loan Agreement 25 Sep 1993 16 Aug 1994 – Actual 7 Dec 1994 16 Aug 1994 – Number of Extensions 5 0
ADB ICDF/CTB TA 1803
6. Closing Date – In Loan Agreement 30 Nov 1996 30 Aug 98 30 Nov 96 – Actual 9 Aug 2002 31 Dec 01 1 May 97 – Number of Extensions 4 2 1
7. Terms to the Borrower ADB ICDF/CTB – Commitment Charge $1,416,091 $207,373 – Maturity (number of years) 25 years 25 years – Grace Period (number of years) 4 years 4 years
iii
9. Disbursements a. Dates ADB ICDF/CTB
Initial Disbursements 15 May 1995 25 Apr 1996 Final Disbursements 9 Aug 2002 29 Oct 2001 Time Interval 6.2 years 5.6 years
Effective Date 7 Dec 1994 16 Aug 1994 Original Closing Date 30 Nov 1996 30 Aug 1998 Time Interval 23.8 months 47.5 months ADB = Asian Development Bank, CTB = Chiao Tung Bank, ICDF = International Cooperation and Development Fund (Taipei,China), TA = technical assistance. Source: ADB, GoPNG and CTB b. ADB Loan Amount ($)
First Revised Last Category Original Allocation Revised Amount Undisbursed Number Allocation Jul-95 Allocation Disbursed Amount
01A 340,000 51,000 768,037 768,037 0 01B 4,600,000 289,000 6,464,328 6,412,138 0 02A 3,330,000 690,000 1,364,967 1,364,967 0 02B 770,000 3,910,000 525,080 632,971 0 03A - 499,500 00 0 03B - 2,830,500 0 0 0 03C 1,430,000 115,500 0 0 0 03D - 654,500 0 0 0 04A 830,000 214,500 569,832 779,352 0 04B - 1,215,500 872,756 636,739 0 05 - 830,000 0 0 0 06 - - 35,000 4,195 0 07 - - 700,000 701,601 0 Total 11,300,000 11,300,000 11,300,000 11,300,000 0 Source: ADB, CTB, and GoPNG iv
c. ICDF/CTB Loan Amount First Revised Last Revised Original Allocation Allocation Amount Undisbursed Cat. No. Allocation Jul-95 Dec-99 Disbursed Amount
01 500,000 575,000 4,093,000 4,706,194 0 02 1,030,000 1,385,000 0 0 0 03A 2,340,000 2,340,000 0 0 0 03B 180,000 180,000 0 0 0 04 1,380,000 1,380,000 1,767,000 1,786,433 0 05 840,000 840,000 840,000 207,373 0 06 430,000 0 0 0 0 Total 6,700,000 6,700,000 6,700,000 6,700,000 0
CTB = Chiao Tung Bank , ICDF = International Cooperation and Development Fund. Source: ADB, CTB, GoPNG
d. TA Amount ($)
Undisbursed Category Allocation Commitment Uncommitted Disbursed Amount
Consultants 316,700 283,048 33,651 283,050 33,650 Equipment 43,300 21,703 21,597 21,703 21,597 Training 0 14,760 (14,760) 14,760 (14,760) Contingency 40,000 0 40,000 0 40,000
Total 400,000 319,510 80,488 319,512 80,488
Source: ADB, GoPNG and CTB
10. Local Costs (Financed) ADB Loan ICDF/CTB Loan Amount ($ million) 4.272 1.787 Percent of Local Costs 59% 27% Percent of Total Cost 19% 8% ADB = Asian Development Bank, CTB = Chiao Tung Bank, ICDF = International Cooperation and Development Fund.
C. Project Data
1. Project Cost ($ million) Appraisal Estimate Actual ADB ICDF/CTB Government ADB ICDF/CTB Government a. Foreign Exchange Cost 7.20 4.10 0.00 7.03 4.91 0.00 b. Local Currency Cost 4.10 2.60 3.10 4.27 1.79 5.95 Total Cost 11.30 6.70 3.10 11.30 6.70 5.95 ADB = Asian Development Bank, CTB = Chiao Tung Bank , ICDF = International Cooperation and Development Source: ADB, GoPNG and CTB v
2. Financing Plan ($ million)
Appraisal ($ million) Actual ($ million) Cost Foreign Local Total Foreign Local Total
Implementation Costs Borrower-Financed 0.00 3.10 3.10 0 5,954,212 5,954,212 ADB-Financed 10.47 0.00 10.47 5,611,909 4,272,000 9,883,909 ICDF/CTB Financed 0.00 5.86 5.86 4,706,194 1,786,433 6,492,627
Total A 10.47 8.96 19.43 10,318,103 12,012,645 22,330,748
IDC Costs Borrower-Financed 0.00 0.00 0.00 0 0 0 ADB-Financed 0.83 0.00 0.83 1,416,091 0 1,416,091 ICDF/CTB Financed 0.00 0.84 0.84 207,373 0 207,373 Total B 0.83 0.84 1.67 1,623,464 0 1,623,464 Total A and B 11.30 9.80 21.10 11,941,567 12,012,645 23,954,212 Source: ADB, GoPNG and CTB
3. Cost Breakdown by Project Component
Appraisal ($ million) Actual ($ million) Component Foreign Local Total Foreign Local Total
Civil Works 0.800 4.600 5.400 7,858,561 8,242,142 16,100,703 Equipment 5.600 0.800 6.400 1,753,746 244,193 1,997,939 Consulting Services 1.400 1.000 2.400 705,796 1,786,433 2,492,229 Contingencies 1.200 1.400 2.600 0 0 0 PMO 0.000 0.000 0.000 0 1,739,877 1,739,877 Taxes and Duties 0.000 2.000 2.000 0 0 0 IDC 2.300 0.000 2.300 1,623,464 0 1,623,464
Total 11.300 9.800 21.100 11,941,567 12,012,645 23,954,212 IDC = interest during construction, PMO = project management office. Source: ADB, GoPNG and CTB 4. Project Schedule
Description Appraisal Estimate Actual Consultants Date of Contract November 1992 December 1993 Commence Services November 1992 September 1994 Completion of Services November 1996 July 2002 Completion of Engineering Designs Madang Water Supply June 1993 July 1996 Rabaul Water Supply June 1993 October 1996 vi
Kokopo Water Supply December 1998 Date of Award of Civil Works Contracts Madang Water Supply June 1993 September 1997 Rabaul Water Supply December 1993 January 2000 Kokopo Water Supply September 1999 Completion of Civil Works Contracts Madang Water Supply May 1996 January 2000 Rabaul Water Supply May 1996 September 2001 Kokopo Water Supply June 2002 Test Runs and Commissioning Madang Water Supply May 1996 February 2000 Rabaul Water Supply May 1996 November 2001 Kokopo Water Supply October 2001 Commercial Operations Madang Water Supply June 1996 February 2000 Rabaul Water Supply June 1996 November 2001 Kokopo Water Supply November 2001
5. Project Performance Report Ratings
Ratings Development Implementation Implementation Period Objectives Progress
July 1994 - Nov 2000 S S Dec 2000 - Dec 2002 S PS
D. Data on Asian Development Bank Missions
Dates Number of Number of Specialization of Person- Name of Mission From To Persons Days Members a
Fact-Finding Mission 11 May 1992 21 May 1992 1 11 a Pre-Appraisal 19 Jul 1992 5 Aug 1992 5 90 a, g, c, l (2) Appraisal 8 Sep 1992 11 Sep 1992 1 4 a Inception 15 Mar 1994 23 Mar 1994 2 18 a, m Special Project Review 1 28 Mar 1995 11 Apr 1995 1 15 a Review 1 30 Jul 1996 14 Aug 1996 1 15 a Review 2 22 Sep 1997 2 Oct 1997 2 22 a, m Review 3 31 Aug 1998 8 Sep 1997 2 18 a, m Review 4 11 Oct 1999 18 Oct 1999 3 24 a (2), m Special Project Review 2 12 Jun 2000 13 Jun 2000 1 2 a Review 5 10 Jul 2000 17 Jul 2000 1 8 a Review 6 5 Nov 2000 14 Nov 2000 1 10 a Special Project Review 3 8 May 2001 9 May 2001 1 2 n vii
Special Project Review 4 5 Jun 2001 6 Jun 2001 1 2 n Review 7 31 May 2002 6 Jun 2002 2 16 a, m PCRb 16 Jul 2003 31 Jul 2003 3 45 a, m, l
Total Person-Days 302
PCR = Project Completion Review Mission a a - project specialist; b - financial analyst; c - counsel; d - economist; e - procurement/consultant specialist; f – control officer; g - programs officer; h - education specialist; I - consultant; m - associate project analyst, n - national officer. b Nancy Convard (mission leader/senior project specialist for water supply and urban development), Theresa Villareal (staff consultant economist/financial specialist), and Cecilia Bantugon (associate project analyst).
ix I. PROJECT DESCRIPTION
1. The Third Urban Water Supply Project covered two provincial urban centers of Papua New Guinea (PNG): Madang, capital of Madang Province; and Rabaul, capital of East New Britain Province. The Project continued the Asian Development Bank’s (ADB) support of the Government’s efforts to improve water supply and sanitation services in its main provincial centers.1 PNG’s rugged mountain ranges on the main island of New Guinea and widely scattered islands form a unique population distribution. Most urban centers are small by international standards. At the time of project appraisal only eight of the 79 urban centers had populations over 10,000. Madang, population approximately 27,057, is the country’s third largest city. Rabaul has a population of 17,022. Urban residents come from around the country, some of them from the same province migrating for employment. These factors make it difficult to develop water supply and sanitation facilities. Health indicators show a high incidence of diseases such as diarrhea and typhoid that directly attributable to poor water supply, sanitation, and hygiene.
2. The project objective was to support government efforts to improve water supply services to enhance living standards, support urban development, and improve environmental sanitation.2 Specifically, the Project was to develop Madang’s existing water supply scheme and address inadequate supply, reliability problems, and pressure irregularities. In Rabaul, the Project was to address inadequate supply, poor water quality, and network coverage.
3. The scope and anticipated outputs at appraisal for Madang included a new water treatment plant (WTP) and associated intake and transmission facilities. For Rabaul, outputs identified at appraisal included (i) development of new water sources (5 deep wells and 2 spring-fed creeks); (ii) retention of two existing deep wells to augment the new primary sources; (iii) construction of additional distribution facilities, including a service reservoir and distribution mains. This component was substantially modified as a result of devastating volcanic eruptions that began in 1994 just before loan implementation. Minor eruptions continued for several years. The Government identified the adjacent town of Kokopo as the replacement urban center for East New Britain Province. The modified component included only minor works in Rabaul and shifted major supply and distribution works to Kokopo. For the purpose of this report, this component will be referred to as Rabaul/Kokopo. The scope of the associated technical assistance included improving the legal and regulatory framework for the Waterboard and improving operational and financial management of tariffs and nonrevenue water (NRW).
4. External financing for the Project was provided by ADB and the International Development and Cooperation Fund (ICDF), Taipei,China through the Chiao Tung Bank (CTB), which provided (i) the foreign exchange cost and a portion of the local currency cost of the Madang water supply component, (ii) foreign currency cost of the consulting services component and (iii) interest during construction of the Madang water supply and consulting service components. ADB administered the CTB/ICDF loan.
1 Previously, ADB has provided assistance to the sector through L0278-PNG Water Supply (ADB. 1976. Water Supply. Manila.) for $13.5 million approved on 11 November 1976; and L0346-PNG (ADB. 1978. Second Water Supply. Manila.) for $5.4 million approved on 25 July 1978. 2 A stated objective of the project performance appraisal report (ADB. 1992. Appraisal of the Third Urban Water Supply Project in Papua New Guinea. Manila.) was improved sanitation, but the report noted that no sanitation activities were included under the Project. 2
II. EVALUATION OF DESIGN AND IMPLEMENTATION
A. Relevance of Design and Formulation
5. ADB’S country strategy for PNG at appraisal was (i) to support the Government’s objectives of achieving income growth and employment, and (ii) to expand and diversify the nonmining sectors of the economy, with special attention to improving sectoral policy and supporting institutional development. Through this strategy, ADB supported the development of social infrastructure, which directly improves living conditions and provides the necessary infrastructure for commerce and production. The project cities are key urban centers in the respective provinces and the country, as was articulated in the Government’s development strategies, and the project design supported their development. The Project was and remains highly relevant to ADB’s country operational strategy and thematic priorities—which now emphasize supporting activities that improve social indicators—and the Government’s development objectives and strategies. The project scope included improving water supply systems in Madang and Rabaul/Kokopo though increased capacity, improved reliability, improved water quality, and expanded distribution systems. An associated TA3 supported institutional strengthening at the Waterboard.
6. The Project, supported by the TA, included measures to ensure sustainability through institutional strengthening and tariff reform, in line with ongoing sector reforms. Sector policies at appraisal were based on Government-initiated tariff reform and were aimed at providing autonomy and accountability at the enterprise level for financial and environmental performance. Most sector policies prevailing at appraisal are still in effect, and some national strategies and policies have been developed further. The Government continues to emphasize improved water and sanitation services, and improvement of living conditions. Waterboard’s role has been strengthened. The Waterboard no longer has jurisdiction in Port Moresby, which was in some question at the time of project formulation, and is beginning to undertake more of its statutory authorized roles, such as expanding services to district-level towns.
7. The Project was formulated as a project loan and its components clearly established and adequately assessed through the project preparatory TA.4 Policy dialogue at appraisal covered strengthening the legal framework, as well as improving Waterboard’s financial management, operational management, and planning processes. These were reflected in the project design and closely monitored during implementation. The project scope was well defined. The original project objectives and overall design remained unchanged throughout implementation, although the Rabaul component was substantially changed to improve the water supply of Kokopo, the new urban center for the Rabaul, as a result of the volcanic eruptions. Cost savings under the revised scope that resulted from local currency devaluation allowed for considerable expansion of the physical facilities constructed under the Project.
8. The project design appropriately identified risks of (i) earthquakes and volcanic activity in Rabaul, (ii) delays in implementation, (iii) overestimation of demand, and (iv) delays in adjusting water and sewerage tariffs. The volcanic risk and its scale of impact were underestimated, but the Project was adapted during implementation to achieve of the overall objective of developing an urban center for East New Britain Province. Implementation delays associated with design and procurement were effectively managed; however, delays associated with government legal opinions and approvals for loan effectiveness had not been adequately considered. Demand estimates based on the population were well-managed, but increased emphasis on connection,
3 ADB. 1992. Institutional Strengthening of the Waterboard. Manila 4 ADB. 1991. Third Urban Water Supply and Sewerage Project. Manila. 3 public awareness, and public relations would have greatly improved utilization of project services. These are still needed to increase project efficacy. Tariffs have been appropriately increased. The project design did not consider risk of electrical supply variability, but this issue was effectively addressed by providing increased storage capacity in Madang and back-up generators in Kokopo.
B. Project Outputs
9. The anticipated project outputs at appraisal were (i) new and expanded water system facilities in Madang and Rabaul, and (ii) stronger operational and financial management of Waterboard. Specifically, the project outputs were (i) to increase the average daily supply capacity of the Madang water system from 4,650 m3/day to about 9,750 m3/day, adequate to serve a population of 4,515 connections by the end of 2005; and (ii) to increase the daily capacity of the Rabaul/Kokopo water supply system. The Project achieved all of its objectives, although physical outputs of the Rabaul/Kokopo component were modified due to previously noted volcanic eruptions. Kokopo targets supply capacity target of 2,800 m3/day to serve a population of 6,500 with an estimated 1,050 residential and 130 commercial connections.5 Minor restoration works for the Rabaul system were also achieved and included a capacity target of 1,400 m3/day to serve 2,500 persons. Appendix 1 compares targets and actual achievements.
10. For the Madang component, the Project has exceeded the objectives and augmented the source supply, headworks, water treatment capacity, and transmission main capacity to meet the year 2012 planning targets instead of the original 2005 targets. The achieved capacity was 15,600 m3/day versus the original target of 9,750 m3/day. This has effectively addressed the problems of multiple sources and treatment facilities, low water pressure, poor service reliability, water rationing, and non uniform water quality. Production has been centralized with uniform water quality. The Project also provided additional infrastructure to the villages in the area of the WTP and water intake, including water supply, electricity supply, telephone service, and road access. The need to change the location of the WTP also resulted in longer transmission lines, which were designed and constructed without an increase in cost.
11. For the Rabaul/Kokopo component, the Project exceeded the revised physical infrastructure objectives. Kokopo town and adjacent areas of Vunabakut, Kenabot, and Takubar received new reticulated water supply. The affected landowners in Ulagunan and Palnakaur also received a reticulated water supply. Seven deep wells were developed, with five wells commissioned and one common chlorination and control building constructed. Headworks capacity is 4,500 m3/day. Two reservoirs were constructed with service capacity of 2,800 m3. This supply system is expected to meet anticipated demand in 2012.
12. Waterboard staff at headquarters and the district level were trained through project implementation and the TA. The Waterboard envisions staff trained in construction, operation and maintenance (O&M) of water supply systems will train other staff. Various management and operational and training manuals for the water supply production and treatment plants can be prepared for the benefit of other districts. A total of about 15 employees from Waterboard headquarters, as well as Madang and Rabaul branches, were trained through the TA and day- to-day knowledge transfer.
5 The water supply component for Kokopo once considered a surface water option; however this was abandoned when the feasibility study also reviewed groundwater options, which were then determined to be feasible and less cost. 4
13. The Waterboard reformed water tariffs during implementation. Water tariffs have been adjusted in 1995, 1997, 2000, and 2003. Waterboard management and its board of directors have consistently pushed for tariff increases so that it can meet its required 10% rate of return. The Waterboard has also modified the tariff structure to improve efficiency of implementation and customer palatability. The current tariff includes a lifeline consumption block of 12 m3/month to ensure provision of water to low-income households. The tariff is uniform in all districts, and commercial and noncommercial customers have similar rates. Tariffs are adjusted every 3 years to account for inflation. Financial and operational management of the Waterboard was considerably improved through the TA, policy dialogue, and experience gained during implementation. Corporate planning capabilities were also improved. Continued improvements, particularly at the district level, remain an important need that should continue to command attention. However, non-revenue water (NRW) has not been sustained in all districts and is currently postdated by delays in management information system (MIS) data receipt at the district level, and insufficient quantity of meter-testing equipment.
14. Waterboard has demonstrated its increased institutional capacity through an ability to recognize, analyze, and correct operational and management problems. Although it faced implementation challenges, the Waterboard developed a centralized MIS system at its own initiative and cost after ADB consultants for another project preparatory TA recommended it.6 Waterboard established a task force to identify and implement specific MIS corrective actions, and headquarters directed district managers to improve raw data quality. It also hired NRW consultants/trainers at its own expense, bought meter-reading equipment, and adhered to tariff increases. Districts are mandated to undertake monthly monitoring of financial and operational performance to ensure better O&M cost control, improve collection efficiency, and operate commercially. The Waterboard will further strengthen its customer relations and strictly enforce licensing and payment of compliance fees in all its districts to ensure more connections to the system, as in the case of Madang and Rabaul/Kokopo systems.
C. Project Costs
15. The actual project cost was $23.95 million, it was projected at $21.1 million at appraisal. This comprised $11.9 million in foreign exchange cost versus $11.3 million at appraisal, and $12.0 million equivalent in local currency cost versus $9.8 million equivalent at appraisal. Project cost increases resulted from a major change of scope approved in October 1996, to increase counterpart funding of the Government to $6.3 million and expansion of certain physical components, which increased the total project cost estimates to $27.4 million. The change allowed funding of the shortfall on (i) Madang for $2.3 million, (ii) $1.0 million for project management office (PMO), (iii) $0.4 million for land acquisition, (iv) $1.6 million for consultants, and (v) $1.0 million for contingency. Currency devaluations and lower costs for the Rabaul/Kokopo component allowed the project to be completed well below the revised cost estimates and allowed the Government to increase project scope. The table below compares actual and appraisal cost estimates.
6 ADB. 1999. Provincial Towns Water Supply and Sanitation. Manila. 5
Table 1: Comparison of Appraisal Cost Estimates and Actual Costs ($ million) Component Appraisal Revised Actual Foreign Local Total Foreign Local Total Foreign Local Total Civil Works 0.80 4.60 5.40 0.80 6.00 6.80 7.85 8.24 16.10 Equipment 5.60 0.806.40 5.60 0.80 6.40 1.75 0.24 1.99 Consulting Services 1.40 1.00 2.40 1.40 3.90 5.30 0.70 1.78 2.49 Contingencies 1.20 1.40 2.60 1.20 1.40 2.60 0 0 0 Project Mgt. Office 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.74 1.74 Taxes and Duties 0.00 2.00 2.00 0.00 4.00 4.00 0 0 0 IDC 2.30 0.002.30 2.30 0.00 2.30 1.62 0 1.62 Total 11.30 9.8021.10 11.30 16.10 27.40 11.94 12.01 23.95 IDC = interest during construction, mgt. = management. Source: ADB, CTB and GoPNG
16. Despite lower project costs, actual connections are lower than targets, resulting in lower financial internal rates of return (FIRRs) and economic internal rates of return (EIRRs) for both components. Overall FIRR is 5.4%, which is lower than the 6.6% at appraisal. Overall EIRR was 12.5%, compared with 13.3% at appraisal. (para. 49).
D. Disbursements
17. ADB approved the $11.3 million loan from its ordinary capital resources on 15 December 1992. The Government, relent the ADB loan proceeds and CTB/ICDF loan for the Rabaul/Kokopo water supply component to Waterboard on the same terms and conditions as the ADB loan. The Government also provided a total equity contribution of $5.94 million equivalent comprising (i) the proceeds of the CTB/ICDF loan for consulting services, (ii) counterpart funds for consulting services, and (iii) counterpart funds for land and contributions for taxes and duties.
18. Government approval procedures delayed loan effectivity. This in turn delayed start-up and implementation, which delayed disbursements. It took 24 months—until 7 December 1994—for the loan to become effective, and the first disbursement was made on 15 May 1995. Disbursement picked up significantly in 1998, reflecting major contract awards for civil works. Loan proceeds from ADB and CTB/ICDF were fully utilized. The CTB imprest fund was used effectively, except that $36,000 for value added tax was mistakenly charged against the CTB/ICDF imprest account.7 No problems were encountered using the Statement of Expenditure procedures. Appendix 2 shows various reallocation of loan proceeds, as well as disbursements by category.
19. All loan proceeds were disbursed. The devaluation of the kina resulted in loan savings that allowed for the construction of additional water supply facilities in Madang and Rabaul/Kokopo. Adequate counterpart funds were generally provided on time. There were some delays associated with currency devaluation that affected availability of counterpart funds. This was addressed by changes of scope in December 1999 that provided for ADB financing of construction supervision and a major change in scope in May 2002 that increased the local currency financing from $4.1 million to $6.6 million.
7 ADB, Government, and ICDF/CTB are currently discussing a resolution to this problem. 6
E. Project Schedule
20. Appendix 3 shows the main events during project implementation. The loan was approved on 15 December 1992 and became effective on 7 December 1994. Loan effectiveness was delayed because of unclear legal arrangements for ICDF financing and CTB disbursement of funds to the Government. The Project also faced substantial delays as result of the aforementioned volcanic eruptions. Late project effectiveness may even have prevented the possible loss of consulting fees and destruction of infrastructure in the volcanic eruptions. Implementation of the Madang component generally progressed satisfactorily once the Project was effective; however, change in the WTP was necessary due to land elevation requirements for gravity feed systems, site and caused a delay of several months. Implementation progressed significantly faster from 1997 when the final resolution on the Rabaul/Kokopo component was achieved, which resulted in the deletion of the original Rabaul component and its replacement with minor water and sewerage facility restoration work and the new Kokopo water supply system. The loan was extended by 22 months to accommodate the Kokopo water supply system and construction of additional service reservoir in Madang. An additional project extension of 10 months was granted to allow the use of loan savings to expand the Kokopo system beyond the originally envisaged project area. Implementation took 96 months (Appendix 4).
F. Implementation Arrangements
21. The Project’s executing agency, the Waterboard, remains as at appraisal. The Waterboard provided overall project coordination through its project management office (PMO), which was established in 1992. The Waterboard, Government, consultants, and ADB coordinated closely. The PMO effectively managed the Project through volcanic eruptions, land acquisition problems, and currency fluctuations. Implementation was effective in facilitating the transition to operations and management of the constructed facilities.
G. Conditions and Covenants
22. Loan effectivity was conditional on the execution of the Subsidiary Loan Agreement for the ICDF/CTB financing, which was achieved on 16 August 1994 and resulted in loan effectiveness on 7 December 1994. No covenants were modified, suspended, or waived during implementation. Appendix 5 shows details of compliance with loan covenants. All covenants relating to implementation arrangements, reporting, environmental protection, wastewater tariff reforms, financial management, and benefit monitoring and evaluation (BME) were complied with. Some covenants were partially complied with: (i) asset inventory and valuation for which the Waterboard is currently sourcing external funding; (ii) overall assessment of existing legal and institutional frameworks to support Waterboard operations; and (iii) tariff adjustments every 3 years (1997, 2000, and 2003) as opposed to annually to meet financial targets.
H. Related Technical Assistance
23. At appraisal, the Government requested that ADB provide an advisory TA to strengthen the Waterboard’s financial and operational management and training. Specific outputs of the TA were to include (i) training of selected staff, (ii) an NRW action plan and provision of equipment to help manage NRW, and (iii) detailed proposals to improve the institutional and legal framework of the Waterboard, revise existing tariffs, and establish a corporate planning unit within the Waterboard. The TA was implemented in connection with the Project and was completed in May 1997. Effective and relevant capacity building was achieved and much 7 sustained through policy dialogue and other project activities; however, the NRW program has not been well sustained.
I. Consultant Recruitment and Procurement
24. Waterboard retained the services of a qualified engineering consulting firm to assist in project implementation, including detailed design and construction supervision. The Government financed these services through an equity investment (para. 17). As a result of project scope changes— particularly the expansion of the Kokopo component to include an extension of water distribution to the Takubar area—the original consulting services budget was exceeded and Waterboard self-financed the remaining services, including civil works.
25. Goods and services were procured from loan funds according to ADB’s Guidelines for Procurement. Civil works, equipment, and materials were procured largely as appraised or as modified in agreed changes in scope. All civil works contracts, equipment, and materials were procured through international competitive bidding. No major problems were encountered in the packaging of contracts, preparation of bidding documents, or evaluation of bids. There were no disputes or contractual difficulties with any contracts.
J. Performance of Consultants, Contractors, and Suppliers
26. The performance of contractors and suppliers was generally satisfactory. Schedule and budget changes were generally associated with the changes in project scope. The number of variations could have been reduced through more advanced planning of construction activities. The contractor of the Rabaul/Kokopo component experienced project management difficulties and two project managers had to be replaced, but a third manager completed the contract works in a very satisfactory manner. Language difficulties resulted from the contractor for the Rabaul/Kokopo component being from a non-English speaking country without provision of adequate number of, and technical language qualified interpreters. The physical facilities completed under the project are of good quality, reflecting the satisfactory performance of contractors and suppliers.
27. The performance of the consultants was generally satisfactory. Performance could have been improved through better management of key personnel, client relations, and more detailed, accurate, and consistent reporting of data and information.
K. Performance of the Borrower and the Executing Agency
28. The performances of the Borrower and the Waterboard were satisfactory. Both met their responsibilities and obligations in Project implementation. Although lengthy legal opinion procedures related to the ICDF co-financing caused substantial initial delays and the volcanic eruptions required changes to the project scope more than three years into Project implementation, project activities picked up and the Project was completed on a reasonable schedule.
L. Performance of ADB
29. ADB’s performance was satisfactory. ADB carried out 11 review missions to monitor project progress and ensure timely resolution of implementation issues. ADB worked closely with the Government and Waterboard to meet the challenges of volcanic eruptions, land acquisition problems, and currency fluctuations. Application of higher physical contingencies to 8 subcomponents with greater uncertainty and closer attention to technical needs and details would have helped to limit number of variations. Also, Kokopo’s revised scope and targets were not clearly documented. Deletion of a surface water subcomponent on Kokopo also not clearly documented.
III. EVALUATION OF PERFORMANCE
A. Relevance
30. The design of the Third Urban Water Supply Project was highly relevant in meeting long- term and immediate project objectives. At appraisal, the Project aimed “to enhance living standards, support urban development, and improve environmental sanitation for the residents of Madang, Rabaul as well as communities close to Rabaul through the provision of improved and additional water supply.8 Delays in implementation helped the Project considering that the investments on the original project area would have been wasted when Rabaul was devastated.9
31. The TA10 to provide (i) a basic, district-level management information system (MIS) that focused on producing fundamental operational performance indicators; (ii) guidance in NRW management; and (iii) design of water and sewerage tariffs was highly relevant and addressed critical areas for institutional strengthening of the Waterboard.
32. The Project overall objectives remained unchanged despite the changes in the design of the Rabaul/Kokopo component. The project fully supported policy reforms to establish water treatment standards, tariff increases to achieve full cost recovery, and institutional strengthening in water demand management. Key elements of Waterboard policy still in force include expanded coverage of urban water supply, government funding for capital works, user tariff reforms, and greater branch level autonomy and accountability for financial and operational performance. New MIS will support these policy changes. This is to be supported by the new centralized MIS system.
B. Efficacy in Achievement of Purpose
33. Project achieved its immediate objectives of improving water supply, living conditions, and urban development. Water services to targeted beneficiaries comprising domestic, commercial and industrial customers has improved in terms of water quantity, quality, and reliability, as well as in utility management.
34. New supply capacities and existing facilities were intended allow the Madang scheme to serve about 4,520 connections and the Rabaul/Kokopo scheme to serve the 3,737 connections in year 2005. The revised scope for the Rabaul/Kokopo component was envisaged to have 1,083 connections in the Kokopo area.11
8 The objective of the Madang project was to upgrade the town water supply headworks to meet the current demand and projected demand of 15 ml/d in year 2012. 9 After the volcanic eruption in Rabaul in 1994, Kokopo was included in the scope of the Project, which was considered an alternate site to Rabaul. Rabaul revised water supply scheme has 1,629 connection targets in 2008 and 3,570 m3/ day (11 April 1995). 10 ADB. 1992. Institutional Strengthening of the Waterboard. Manila (TA1803-PNG for $400,000, approved on 15 December 1992). 11 As of June 2003, there were 654 connections in Kokopo compared with 1995 baseline connections of about 380 connections. 9
35. As of June 2003, Madang had 2,690 connections comprising 55.5% of the 4,851 potential total connections.12 This represents an increase of 840 connections compared with appraisal, when there were 1,850 connections.
36. Comparing Rabaul connections to targets is irrelevant because the component was revised. Most of the residential population, who moved because of the volcanic eruptions, is served under a separate water system.13 This system will eventually be connected to the rehabilitated Rabaul or Kokopo network. In Kokopo, actual connections are 526 residential connections, comprise 50% of 1,050 target household connections and 128 institutional/commercial connections.14 Additional connections are ongoing because the Kokopo distribution system was completed in 2002.
37. In Madang, many connected households, commercial establishments, and institutions still use existing boreholes and rainwater tanks.15 The same situation occurs in Kokopo but to a lesser extent since there is much new development. It is only during dry months that districts get more customers connected because of shortages of rain and other water sources. Districts must strictly enforce compliance and licensing fees to customers using alternative supplies and promote timely payment of bills to prevent disconnection. Customer relations must also be improved to reach the projected number of connections by 2005, particularly given the fact that capacity increases were greater than originally planned.16
38. The TA on institutional strengthening of the Waterboard achieved the objective of further improving financial and operational performance.17 Significant improvements were made, particularly to operational management, financial management, corporate planning, and NRW. NRW improvements were not sustained to the extent desired. This is due to lack of formalization and implementation of a NRW reduction program including meter testing and replacement policy, illegal connection controls, and proactive leak detection program.
39. ADB’s assistance to set up the systems for generating performance data on the district branches had been effective for some time. In 2001, the Government undertook the initiative to greatly expand the MIS to centralized information management. To-date the MIS has faced a number of challenges in contributing to enabling the branches to optimize the use of performance indicators, particularly for NRW, customer services, and commercializing operations. At the time of the project completion review mission, the new MIS was being improved to better meet the requirements of the district branches and Waterboard management.
12 These figures are based on the Waterboard MIS report, June 2003 report for Madang. The June 2003 figure is lower than the January 2003 figure of 2,783 connections, indicating that there were about 93 disconnections from January to June 2003. The branch office needs to connect households still using their own systems—1,815 potential connections—as well as the 253 disconnected households as of January 2003. 13 Actual connections at appraisal for Zones 1 to 8 in Rabaul district are 1,687. Only Zones 1 (part of Rabaul town), 7 (Nonga), and 9 (Kokopo) still remained after the volcanic eruption in 1994. 14 Based on actual 654 connections as of June 2003 compared with actual 122 connections in December 1999. The difference is assumed to be new connections. The population of villages served—4,528 residents—is as estimated in the Preliminary Feasibility Report Vol. 2 for Gazelle Peninsula. 15 The use of rainwater tanks as back-up source and as a means of water conservation should be supported, but this needs to be balanced with needs of efficiently scaled community system. 16 A benefit monitoring and evaluation (BME) report for Madang indicated that there are proposed extensions. 17 In line with the study’s recommendations, Waterboard staff has been gradually reduced from over 500 in 1991 to current level of 270. Further, Waterboard implemented recommended tariff increases in 1997, 2000, and 2003. A standard operational monitoring system using monthly performance indicators has helped keep track of finances and service deficiency. The Waterboard has set targets to reduce NRW levels to 20% for Lae, Madang, Wewak, and Mt. Hagen and 30% for the other districts. 10
Training needs to focus on integrating technical and engineering aspects with financial performance targets.
40. Improved water quality and reliability of service was achieved and directly contributed to living condition improvements. Residents of Madang and Kokopo now able to receive safe water for 24 hours, meeting World Health Organization standards that have been adopted by PNG as national standards. Prior to the Project, water services were unreliable; sometimes only several hours a day. Before the Project, water quality varied because of service interruptions and multiple sources. Sample water quality data is presented in Appendix 6. In Kokopo, the new supply serves 532 new customers, including several villages with a total population of 4,528 that relied on unreliable rainwater catchment. These villages save money and time because they no longer have to travel long distances to purchase or collect water during dry periods. This leaves more time for schooling and income-earning activities (paras. 54 and 55). Appendix 7 provides specific examples of beneficiaries’ improved living conditions.
41. The Project has supported urban development, particularly in Kokopo. Many new businesses and commercial activities have developed in Kokopo, which has become the administrative, commercial and social center for about 16,000 residents of Kokopo/Vunanami and 13,364 of Ralauna.18 It has trade stores, supermarkets, and industrial and commercial areas with reticulated water supply system serving Kokopo, Vunapope, and Takubar. The East New Britain Provincial Administration is formulating a comprehensive development plan for Kokopo, the Kokopo corridor from Kokopo to Tokua, satellite towns, and resettlement areas for populations affected by volcanic activity.
C. Efficiency in Achievement of Outputs and Purpose
42. ADB’s internal processing of the Project was efficient and satisfactory. The organization and management of the executing agency and the district branches were effective in ensuring efficient project implementation, as well as timely and adequate availability of counterpart funding. This has contributed to the anticipated outputs being achieved on schedule.
43. Under policy reform, the Waterboard has increased water tariffs in stages to ensure financial viability of operations. Physical investments under the Project included design and installation of production and treatment facilities for Madang and Rabaul to address the problems of short supply and poor water quality. All the facilities were completed within a reasonable schedule given the volcanic eruptions and additional works completed with loan savings. All facilities are in full operation. A total of 15 Waterboard staff members were directly trained with many others indirectly trained through contact time with consultants, contractors, and coworkers.
44. The EIRR is above 12% and the FIRR exceeded the weighted average cost of capital. The Project is rated efficient.
1. Economic Internal Rate of Return
45. The EIRRs of the Madang and Rabaul/Kokopo components have been recalculated and compared with the estimates at appraisal and revised project scope. The EIRRs are higher than those under revised project scope because of a drop in project cost compared. Overall EIRR is
18 Water supply systems for residential areas were primarily provided through other funding sources and the Rabaul Redevelopment Authority. 11
12.4%, compared with 13.3% at appraisal and 10.0% under revised project scope. The EIRR for Madang was 12.5%—compared with 17.3% at appraisal and 10.2% when project scope was revised—and 12.1% for Rabaul/Kokopo compared with 11.2% at appraisal and 9.9% with revised project scope. Sensitivity analyses indicate that the EIRRs of project components are more susceptible to reductions in project benefits than they are to reductions in costs. This is the same as anticipated during appraisal. Appendix 8 presents a more detailed analysis on economic reevaluation.
2. Financial Internal Rate of Return 46. The FIRRs of the two components have been recalculated based on actual project cost, financing, and revenue data. The FIRRs for Madang and Rabaul/Kokopo are 5.9% and 4.8 % respectively, lower than the 8.8% and 5.4% estimated at appraisal and 10.7% and 4.2% under revised project scope. The overall FIRR is 5.4%, compared with 6.6% at appraisal and 6.4% at revised project scope. Sensitivity analyses indicate that the FIRRs of both components are more vulnerable to decreases in revenues than they are to increases in O&M costs, as projected during appraisal. Appendix 6 provides a detailed financial analysis.
D. Preliminary Assessment of Sustainability
47. The Project is rated sustainable with the physical outputs being technically sound with trained personnel for O&M. Appropriate O&M manuals were provided, together with operator training. Waterboard O&M capabilities and procedures are satisfactory. Currently, O&M is generally reactive. The Waterboard recognizes that a more proactive approach is necessary and is currently seeking assistance to develop an asset inventory, revaluation, and management program. Waterboard also recognizes the lack of trained district-level staff for electrical and electronic equipment O&M and is now sharing staff between districts, outsourcing and training more staff to meet O&M staffing needs.
48. Although there is an adequate potential demand for the project services, the Waterboard still has to connect more households by improving its customer relations with commercial businesses and institutions to be more commercially viable. One area of concern is keeping its existing customer base and ensuring higher collection efficiency of current water bills and arrears. The Waterboard has to prioritize efforts at improving customer relations and billing efficiencies, as evidenced by the Waterboard having headquarters managers review district data and advise districts on how to improve.
49. Financial sustainability is ensured by setting water tariffs based on a market price mechanism with an eye toward full cost recovery. The Waterboard’s current policy to recover arrears from large government institutions and commercial businesses helped generate enough cash to cover O&M and debt service. Periodic increases in tariffs will not guarantee commercial viability, but obtaining revenues in a timely manner and becoming more cost-efficient will further enhance profitability and liquidity.19 The Waterboard would continue to conduct community awareness campaigns and public consultations to ensure utilization of water services capacity, and that it would also encourage potential customers to connect to the system or pay much higher standby fees for nonconnection. Appendix 9 provides a cost recovery analysis.
50. Relevant project performance indicators were developed but these financial indicators and operating targets are currently not well monitored due to implementation problems of the new MIS, but the Waterboard is working to address these and has an ongoing task force to
19 Only Lae operations are profitable, and they are subsidizing the other districts, including Madang and Rabaul. Cost recovery has improved in 2003 as a result of increases in water and sewerage tariffs. 12 correct deficiencies. This appears to be in part because of data inconsistencies and delays in transmitting billing information to district managers. Raw data quality and information generated by the MIS should be reviewed and checked for consistency and reasonableness.20 Integrated financial planning —which provides required tariff revenues vis-à-vis projected O&M costs— must be a priority. Management is reviewing districts’ financial plans to ensure that collected tariffs can at least cover O&M budgets.
51. The Waterboard has implemented cost-efficiency measures, including preventive maintenance, meter reading/testing, reducing NRW, and reducing fixed overheads since production and treatment plants are not operating at full capacity.21 The Waterboard will continue to monitor results of these measures and provide ADB with performance indicators that reflect financial sustainability of project facilities.
E. Environmental, Sociocultural, and Other Impacts
1. Environmental Impact 52. As anticipated at appraisal, the Project’s environmental impacts have been minimal. During implementation there were early incidents of environmental concern associated with the backwashing of the rapid sand filters and chlorination system testing of the Madang WTP. These resulted in sediment-laden backwash water—and, in one case, chlorinated water—being discharged into a nearby stream. The one time incident involving chlorinated water resulted in a minor fish deaths in the immediate area of the discharge. These incidents were quickly addressed and a settling pond constructed to prevent release of sediment-laden water. There have been no new complaints since the settling pond was constructed. The Project apparently did not contribute to an increased problem of septage disposal which was a concern at Board consideration.
53. The settling pond that discharges its effluent to a grass-lined channel reduces suspended solids. There are no industrial facilities discharging into the raw water supply, so no toxic or hazardous substances would be expected in the backwash water. Sludge from the lagoon is spread on-site or on nearby land with permission of the landowner. This system effectively protects the environment, but the Waterboard plans to develop a more permanent settling and sludge drying system.
2. Social Impact
54. At appraisal, the Project was anticipated to benefit 49,510 people: 27,090 in Madang and 22,420 in Rabaul. At completion, beneficiaries of the water supply system include 16,250 in Madang and 5,560 in Rabaul and Nonga and 5,141 in Kokopo (based on service area population).22 The project benefits have not yet been fully realized since full service connection capacity has not been achieved (para. 49).
20 Raw data review may be an appropriate role for the district manager as well as review of MIS data. Additional MIS staff may allow more internal checking and more timely return of key information to district managers. Contracting out was to address MIS system deficiencies may facilitate baseline data validation and the effectiveness of the system. 21 Higher volumes of water treated to conform with design capacity will lower unit operating costs and enable the treatment plants to become cost efficient. Madang will be expanding the network to distribute water to more communities. 22 The Kokopo water supply presently serves an estimated population of 5,141, which is projected to increase to 9,284 by 2020. The remaining 53,204 of population of the Kokopo district projected to reach 96,086 in 2020 will continue to obtain water from water tanks, shallow wells, underground springs and creeks, according to the East New Britain Provincial Administration. Interviews with the provincial government revealed that the project water supply system can serve communities in the urban periphery. 13
55. The Project’s social benefits include (i) women and children save time for economic activities such as planting, harvesting, and selling agricultural crops; (ii) long-term employment for Waterboard staff for plant operation and O&M, as well as for villagers cleaning the grounds of water supply treatment facilities; (iii) improving people’s health, particularly children who suffer from waterborne diseases from rainwater tanks and creeks; (iv) short-term employment particularly the locals who gained construction experience and are now employed as semi skilled labor; (v) improved business activities for commercial establishments such as hotels and restaurants; (vi) more time for women to do household chores and care for children, (vii) reduced visits to hospitals and clinics due to illness; (viii) roads constructed under the Project provided access to villagers and workers; (ix) schools no longer have classes disrupted when water supply is interrupted; (x) electricity is provided to the project area as a result of new headworks and (xi) sale of land by the landowners provided capital for small businesses (Appendix 9).
3. Other Impacts
56. The Project has further strengthened the Waterboard and assisted in identifying opportunities to undertake more of its statutory mandates, including advisory assistance to various levels of Government and developing small town and rural water systems. One significant project benefit is experience in design and operation of water supply production and treatment facilities that can benefit other districts in the province. The East New Britain Provincial Administration Office has engaged the Waterboard at Rabaul to undertake a feasibility and detailed engineering study, design and documentation, tendering and construction supervision, and maintenance management of the rural water supply.23 The Waterboard at Rabaul will help the provincial government execute physical works for and maintain water supply services.
IV. OVERALL ASSESSMENT AND RECOMMENDATIONS
A. Overall Assessment
57. The objectives of the Project and associated TA were achieved. Physical infrastructure considerably exceeded objectives set at Appraisal and the revised scope for the Rabaul/Kokopo component, generally meeting anticipated 2012 needs versus the anticipated 2005 needs.
58. In terms of scope, the Madang component facilities were built as at appraisal; however, the capacity of the WTP treatment plant was increased to 15,600 m3. Also, treated water storage was increased through the addition of two 3,100-m3 storage reservoirs. The completed facilities are operated and maintained well. O&M funding is sufficient. Tariffs have been raised to achieve the statutory required rate of return.
59. The Rabaul/Kokopo component was substantially changed as a result of the volcanic eruptions, but the primary objectives of improving water supply, improving living conditions, and supporting urban development for the main urban center of East New Britain Province have been achieved. This component developed the new Kokopo water supply system that has an overall capacity of 4,500 m3/day with storage facilities of 5,600 m3/day.
23 The project is the East New Britain Rural Water Supply Network, comprising a demographic study, demand assessment, water source identification, concept design, and preliminary costing for 16 target areas. 14
60. The Waterboard is significantly strengthened and management continues to identify strategic planning needs and address areas for operational improvement.
61. Overall, the Project is rated successful. It is relevant, efficacious, and efficient, and is likely to be sustainable, with significant impacts on living conditions and socioeconomic conditions and moderate impacts in other areas (Appendix 10). All anticipated outputs were achieved.
B. Lessons Learned
62. The review of the Project identified several lessons learned that should be applied to future water sector projects. These include lessons applicable to the Project’s success, its implementation delays, and sustainability considerations.
(i) Readiness of essential cofinancing should be confirmed at project appraisal or loan negotiation to avoid implementation delays. (ii) Land acquisition remains difficult and should be avoided or minimized. Where land acquisition is required, the acquisition process—including compulsory action—should be initiated as early as possible. (iii) There should be a clear requirement for either competent official-language site supervisors and project managers, or an equivalent number of technical language interpreters for each nonspeaker of the official language. (iv) Comprehensive water connection programs should be developed and should include poorly served areas, businesses, and poor households. The program need maintenance, compliance and enforcement. An associated community education and awareness program should be conducted to improve community understanding of the benefits, availability of lifeline block supplies, value in understandable terms to them (e.g. a day’s fishing or sales at the market), payment methods, and penalties on illegal connection. (v) The Government’s initiative in developing a comprehensive MIS will help continue to improve the Waterboard’s operations and management. To achieve its potential and ensure its positive effect, however, the MIS needs to ensure that operational data and performance indicators are accurate and available in a timely manner to allow district managers to make necessary adjustments in O&M, connection programs, and local administration. (vi) A strong PMO and active involvement of Waterboard management was key to the project’s success and should be incorporated into future projects. C. Recommendations
1. Project-Related 63. The following activities require follow-up: (i) Remove submerged pumps from existing deep wells and maintain in ready condition in the event the supplemental sources are needed. (ii) MIS should be fine tuned in terms of reconciling accounts with districts to avoid billing problems, timely generation of reports on connection status, aging of arrears, and consolidation on a monthly basis to show variances. Districts must be able to access their customer base (at least on a read-only basis) to ensure consistency and accuracy to enable branch managers to readily check on operational and customer payment data to take appropriate action. 15
(iii) Establishment of a formal NRW control program, including leak detection, meter testing and replacement, and illegal connection detection and resolution. (iv) The Waterboard should develop and implement a comprehensive connection program accompanied by a community awareness/education to improve connection rate and collection efficiency. (v) The Waterboard’s customer services, corporate relations, finance, and technical services must work closely towards achieving more commercial operations through better customer relations, collection efficiency of current billing and arrears, becoming more cost-efficient, and reducing NRW. (vi) The Waterboard should further evaluate and quantify project benefits such as health improvements, job creation, and cost savings. Findings should be incorporated into BME reports to be submitted to ADB annually until 2005. (vii) The project performance audit review could be undertaken in 2004 or 2005 when data on fully operating project facilities is available. 2. General 64. Based on key lessons learned from the review of the Project, the following general recommendations are made for future ADB projects in the water sector: (i) Project design should emphasize identifying specific physical infrastructure targets, and specific targets to improve living conditions.24 (ii) Specific and comprehensive connection programs should accompany project design changes that involve increasing the capacity of water supply works. (iii) ADB should undertake greater technical review of the projects throughout implementation to allow timely identification and response to potential scope changes or construction variations. This review should include regular detailed updating of technical component progress to facilitate project completion reviews. (iv) More guidance should be provided to the implementing agencies in viable monitoring methodologies and developing meaningful, measurable performance indicators early—preferably before loan negotiations—to establish baselines on economic and social aspects. (v) The Government’s readiness to complete loan effectiveness procedures in a timely manner should be carefully assessed. (vi) The relationship of water services provision to other utility requirements, e.g. electrical supply, should be considered and included in project cost estimates.
24 Time-bound, targeted outputs are now required of project frameworks. 16 Appendix 1
PURPOSE, TARGETS, AND ACTUAL ACHIEVEMENTS Purpose/Scope Targets Actual Outputs and Outcomes A. Madang Water Supply Improve Water Supply New water intake with capacity New intake and WTP, both with capacity of capacity and of 14,000 cubic meters/day 15,600 m3/day reliability (m3/day) and water treatment plant (WTP) with capacity of 9,750 m3/daya
1.1 kilometer (km) pressure 2.5 km trunk main, diameter of 375 mm trunk main, diameter of 450 millimeters (mm)
4,700 m3 storage reservoir 4,700 m3 storage reservoir
1,600 m clear water mains, 1,600 m clear water mains, diameter of 450 diameter of 450 mm mm
Access road to new WTP and Access road to new WTP and new intake new intake (1.9 km) (1.9 km)
Staff housing (6 units) Staff housing (6 units)
Power supply to WTP and intake Power supply to WTP and intake facility facility passes through the surrounding villages. Soldeb, Medumbamig (where existing tank is), Baig, Bangonnu (where TP is), Watu, and Egumul. None of the villages have power supply because an expensive transformer is needed.
Retain 2 existing deep wells as 2 existing deep wells retained as supplementary sources supplementary sources but pumping facilities not well maintained. Need for additional supply not seen in the long term.
Integration of 2 independent Systems integrated water systems into Waterboard system
No specific targets for reliability, Water service reliably provided 24 hours per distribution pressure, water day with good pressure and quality that quality meets World Health Organization Guidelines
a Conventional water treatment plant, consisting of flocculation tanks, 2 rectangular sedimentation tanks, 4 rapids sand filters, and backwash and chlorination facilities. Appendix 1 17
Purpose/Scope Targets Actual Outputs and Outcomes
Reliably serve total 100% of total demand estimated Capacity for 2012 demand achieved (15,600 existing and 2005 at m3/day vs. 9,750 m3/day) demand (i) Appraisal: 1,850 At completion: connections or 3,700 Total estimated: m3/day connections: 2,690 connections consumption:5,380 m3/day (ii) 2005: 4,515 connections, 9,032 m3/day Capacity achieved but total available demand not served.
Improve living conditions No specific targets Additional population of 16,482 provided with piped water supply.b Support urban No specific targets Supply exists to support urban development development
B. Rabaul/Kokopo Water Supply Improve water supply Raw water sources from 2 capacity, reliability, and springs and 5 deep wells, with extend distribution total capacity of 8,800 m3/day; Component deleted because of volcanic system in Rabaul trunk mains, secondary mains eruptions and reticulation networks including balance tank, clearwater reservoir, and service connections Minor repairs and Materials, equipment, supplies, Restoration of agreed water supply services; restoration of water and manpower to restore water restoration of sewerage deleted with supply and sewerage supply and sewerage services in agreement of Asian Development Bank facilities in Rabaul Rabaul and Nonga (ADB) in July 2000. Minor expansion of One storage tank (500 m3), trunk Storage tank deleted and transferred to the Rabaul water supply main (4000 m, 200 mm in Gazelle Restoration Authority for financing system diameter)
New water supply system 2,800 m3/day capacity system to Pipeline completed in Kokopo serve 6,500 population Groundwater used instead of surface water. (Note: A surface water system New infrastructure provided, including: seven with an intake and water wells, five of them placed into service; treatment plant of up to 6,600 chlorination facilities; a rising main; two m3/day capacity was considered 2,800-m3 storage reservoirs; distribution but was replaced by the lower- mains and reticulation to Kokopo (5,540 m of cost groundwater system) rising mains, a 5,245-m trunk main, 8,180-m reticulation); booster pumps and water storage tower to Kenabot (2,970 m of rising main, 11,980 m of reticulation); reticulation to Vunapope (5,548 m); extension and distribution to Takubar (7,320 m); Waterboard office constructed; telemetry and control systems provided. b As of June 2003, there were 2,354 domestic piped water supply connections. 18 Appendix 1
Purpose/Scope Targets Actual Outputs and Outcomes
Improve living 1050 residential connections Additional 10,654 population provided a conditions 130 commercial connections piped water supply, resulting in reduced water costs and time savings. Health indicators suggest a decline in waterborne diseases and detailed study necessary to confirm correlation.c Support urban No specific targets Kokopo has been designated as the urban development center for New Britain province. Significant numbers of commercial activities have relocated from Rabaul to Kokopo. c There were 1,522 domestic connections as of June 2003. (Waterboard MIS Report).
Appendix 2 19
DISBURSEMENTS AND DETAILED REALLOCATIONS ($)
Category Total Funding Disbursed Category Name Number ADB ICDF Government Total
Civil Works
(i) Madang Water Supply 01A 768,037 4,706,194 2,056,051 7,530,282 (ii) Rabaul/Kokopo Water 01B 6,412,138 0 2,042,442 8,454,580 Supply
Equipment and Materials (i) Madang Water Supply 02A 1,364,967 0 0 1,364,967 (ii) Rabaul/Kokopo Water 02B 632,971 0 0 632,971 Supply
Construction Supervision (ICDF) 04 1,786,433 0 1,786,433
IDC - Part A (ADB) 04A 779,352 0 0 779,352
IDC - Part B (ADB) 04B 636,739 0 0 636,739
IDC (ICDF) 05 207,373 0 207,373
Unallocated - Part A (ADB) 05A 0 0 0 0
Unallocated - Part B (ADB) 05B 0 0 0 0
Auditing of Project Accounts 06 4,195 0 0 4,195
Consultant (Kokopo Supervision) 07 701,601 0 0 701,601
Project Management Office 0 0 1,739,877 1,739,877
Land Acquisition/Crop Compensation 0 0 115,842 115,842 Total 11,300,000 6,700,000 5,954,212 23,954,212
ADB = Asian Development Bank, ICDF = International Cooperation and Development Fund, IDC = interest during construction. Source: ADB, CTB, GoPNG 20 Appendix 3
CHRONOLOGY OF EVENTS
29 Dec 1993 Award of consultant’s contract.
September Two volcanoes erupted in Rabaul, one of the two major project sites. 1994 October 1994 The Government suspended the Project in Rabaul due to volcanic eruptions and worked towards changing the scope of the Project.
7 Jul 1995 Chief, Office of Pacific Operations (OPO) approved the following in April 1995: (i) Madang - Water treatment plant (WTP) site relocated, and capacity of the raw water pumping facilities and WTP expanded from 9,750 cubic meters per day (cu m/day) to 15,000 cu m/day. Madang WTP relocated and expanded because the groundwater source could not be relied upon as a long-term supply source; (ii) Rabaul - Funding approved for minor repairs and restoration of selected parts of existing water supply and sewerage systems because of the effect of volcanic eruptions. (iii) Kokopo - A water supply system developed for the new provincial capital because Rabaul was destroyed. (iv) Loan closing date extended by 18 months to 31 May 1998.
There was no change to the financing plan. Loan proceeds from the Rabaul component were reallocated to fund the shortfall of the revised Madang component. The Asian Development Bank (ADB) to jointly finance the Madang component with Chiao Tung Bank (CTB). 11 Oct 1996 Vice President (VP) (East) approved the change in project cost from $21.1 million to $27.4 million, with the Government to provide additional funding of $6.3 million.
2 Sep 1997 VP (East) approved the following: (i) Rabaul - Expansion of the water supply system cancelled because of continuing volcanic eruptions. Funding has been limited to restoring the town's water supply and sewerage system in safe areas. (ii) Madang - Reallocation of $735,000 savings from Rabaul to Madang. (iii) Implementation arrangements - Change contract packaging and mode of procurement from international competitive bidding (ICB) to local competitive bidding (LCB)/Force Account for Rabaul restoration works. 29 Sep 1997 Contract signed for the construction of Madang water supply.
11 Dec 1997 Director OPO approved the following: (i) Extension of ADB and CTB loan closing dates to 31 Dec. 1999; (ii) Change in scope to include cost of audit of project accounts. $35,000 reallocated to new category 06.
28 May 1998 Director OPO approved: Reallocation of loan proceeds ($912,000) to finance the additional requirement of the Madang water supply
7 Oct 1998 OIC, OPO approved the following: (i) Minor change in scope for the construction of two staff houses in Kokopo, and (ii) Reallocation of loan proceeds ($501,690) to finance additional requirements of the Madang water supply and IDC.
Reallocation of loan proceeds for the Madang water supply were made in May and Appendix 3 21
October 1998 because of changes in the drawdown sequence between ADB and CTB.
10 Oct 1998 VP (East) approved: A change in implementation arrangements to construct two staff houses under force account, works that had been originally included in the ICB package.
18 Oct 1999 Date of contract for the construction of Kokopo water supply.
7 Dec 1999 Director OPO approved: Extension of ADB loan closing date to 31 October 2001and ICDF loan to 30 June 2000 to accommodate construction of the Kokopo water supply and additional works in Madang, respectively.
22 Dec 1999 VP (East) approved: (i) Scope changed to include additional works in Madang and ADB funding for Kokopo construction supervision because ICDF was unable to finance construction supervision under its domestic fund requirement, (ii) Reallocation of loan proceeds as a result of changes in item (i), and (iii) Change in implementation arrangements because ADB funding of construction supervision was not originally its responsibility.
January 2000 Construction of Madang water supply completed.
February 2000 Commencement of commercial operation in Madang water supply.
22 May 2000 Director, OPO approved: Minor change in scope to delete the funding of the construction of the new water tank in Rabaul from ADB and transfer it to Gazette Restoration Authority (GRA).
6 Dec 2000 Director OPO approved: Change in scope to fund construction of a new pipeline in Rabaul (estimated cost of $250,000).
13 Aug 2001 Director OPO approved: Minor change in scope and reallocation of loan proceeds ($850,000) to fund the Variation in the Kokopo water supply contract.
October 2001 Kokopo water supply begins commercial operations.
18 Oct 2001 Director OPO approved: (i) Extension of loan closing date from 31 Oct 2001 to 31 July 2002, (ii) Change in scope to include (a) additional reservoir in Kokopo and (b) extension of Kokopo water supply to Takubar subdivision, and (iii) reallocation of loan proceeds to finance water supply to Takubar subdivision. 14 May 2002 VP Operations 2 approved: Change in implementation arrangement, increasing local currency financing from $4.1 million to $6.6 million 30 June 2002 Kokopo water supply system extended, including extended scope. 30 July 2002 Consultants’ completion of services. 30 July 2002 Completion of the defects liability period of Kokopo and Takubar water supply. 22 Appendix 4 Appendix 4 23 24 Appendix 5
STATUS OF COMPLIANCE WITH PROJECT AND LOAN COVENANTS
Covenant Reference Status ADB/CTB Waterboard shall carry out the Project with due PA, Art. II Complied with diligence and efficiency, and in conformity with 2.01(a) sound administrative, financial, engineering, LA, Art. IV environmental, and public utility practices. 4.01(a)
Waterboard shall make available, promptly as PA, Art. II Complied with needed, the funds, facilities, services, equipment, 2.02 land, and other resources required, in addition to the LA, Art. IV proceeds of the Loan, to carry out the Project. 4.02
In the carrying out of the Project, Waterboard shall PA, Art. II Complied with: employ competent and qualified consultants and 2.03(a) ADB Guidelines for recruiting consultants contractors, whose services are financed under the & contractors used. Loan, acceptable to the Asian Development Bank Consultancy supervision contract (ADB) and Chiao Tung Bank (CTB), to an extent signed on 30 September 1994. and upon terms and conditions satisfactory to ADB Contract with contractor of Madang and CTB. Water Supply was signed on 29 September 1997. Contract with contractor of Kokopo Water Supply was signed on 5 October 1999.
Except as the ADB and CTB may otherwise agree, PA, Art. II Complied with all goods and services financed out of the proceeds 2.03(b) of the Loan shall be procured according to the provisions of Schedule 4 and Schedule 5 to the Loan Agreement. ADB and CTB may refuse to finance a contract where goods or services have not been procured under procedures substantially in accordance with those agreed between the Borrower, ADB, and CTB or where the terms and conditions of the contract are not satisfactory to ADB and CTB.
The Waterboard shall carry out the Project PA, Art. II Complied with according to plans, design standards, specifications, 2.04 work schedules, and construction methods acceptable to ADB. The Waterboard shall furnish, or cause to be furnished to ADB, promptly after their preparation, such plans, design standards, specifications, and work schedules, and any material modifications subsequently made therein, in such detail as the ADB shall reasonably request.
The Waterboard shall take out and maintain with PA, Art. II Complied with responsible insurers, or make other arrangements 2.05 (a) Covered in Madang Water Supply satisfactory to ADB for, insurance of project facilities contract documents. to such extent and against such risks and in such Covered in Kokopo Water Supply amounts as shall be consistent with sound practice. contract documents
Appendix 5 25
Covenant Reference Status ADB/CTB Without limiting the generality of the foregoing, the PA, Art. II Complied with Waterboard undertakes to insure, or cause to be 2.05 (b) Covered in Madang Water Supply insured, the goods to be imported for the Project contract documents. and to be financed out of the proceeds of the Loan Covered in Kokopo Water Supply against hazards incident to the acquisition, contract documents transportation, and delivery thereof to the place of use or installation, and for such insurance any indemnity shall be payable in a currency freely usable to replace or repair such goods.
The Waterboard shall maintain, or cause to be PA, Art. II Complied with maintained, records and accounts adequate to 2.06 identify the goods and services and other items of expenditure financed out of the proceeds of the Loan, to disclose the use thereof in the Project, to record the progress of the Project (including cost thereof) and to reflect, in accordance with consistently maintained sound accounting principles, its operations and financial condition.
ADB, CTB, and the Waterboard shall cooperate fully PA, Art. II Complied with to ensure that the purposes of the Loan will be 2.07(a) accomplished.
The Waterboard shall promptly inform ADB and CTB PA, Art. II Complied with. The Waterboard informed of any condition which interferes with, or threatens 2.07(b) ADB and CTB on its privatization plans, to interfere with, the progress of the Project, the which have currently been shelved. performance of its obligations under this Project Agreement or the Subsidiary Loan Agreement, or the accomplishment of the purposes of the Loan.
The Waterboard shall furnish to ADB all such PA, Art. II Complied with. Progress reports from the reports and information as ADB shall reasonably 2.08(a) Waterboard have been received on time. request concerning (i) the Loan and the expenditure LA, Art. IV of the proceeds thereof; (ii) the goods and services 4.04 and other items of expenditure financed out of proceeds; (iii) the Project; (iv) the administration, operation and financial condition of Waterboard; and (v) any other matters relating to the purposes of the Loan.
Without limiting the generality of the foregoing, PA, Art. II Being complied with: Waterboard shall furnish to ADB quarterly reports on 2.08(b) Quarterly progress report has all been the execution of the Projects and on the operation submitted on time. and management of the project facilities. Such reports shall be submitted within 15 days after the end of each quarter and in such form and in such detail as ADB shall reasonably request, and shall indicate, among other things, progress made and problems encountered during the quarter under review, steps taken or proposed to be taken to remedy these problems, and proposed programs of activities and the expected progress during the following quarter. 26 Appendix 5
Covenant Reference Status ADB/CTB
Promptly after physical completion of the Project, PA, Art. II Complied with. The report format did not but in any event no later than 3 months thereafter or 2.08 (c) conform with ADB’s request, however. such later date as ADB may agree for this purpose, Waterboard shall prepare and furnish to ADB a report, in such form and in such detail as ADB shall reasonably request, on the execution and initial operation of the Project, including its cost, the performance by the Waterboard of its obligations under this Project Agreement, and the accomplishment of the purposes of the Loan.
The Waterboard shall
(i) Maintain separate accounts for the Project and PA, Art. II 2.09 Complied with its overall operation; (a)
(ii) have such accounts and related financial Complied with statements (balance sheet, statement of income and expenses, and related statements) audited annually, in accordance with sound auditing standards by the Waterboard’s auditors acceptable to ADB;
(iii) furnish to ADB, promptly after their preparation but in any event not later than six (6) months Being complied with, but delayed. after the close of the fiscal year to which they relate, unaudited copies of such accounts and financial statements, and not later than nine (9) months after the close of the fiscal year to which they relate, certified copies of such audited accounts and financial statements and the report of the auditors relating thereto, all in the English language. The Waterboard shall furnish to ADB such further information concerning such accounts and financial statements and the audit thereof as the Bank shall from time to time reasonably request.
The Waterboard shall enable ADB’s representative PA, Art. II Complied with to inspect the Project, the goods financed out of the 2.10 proceeds of the Loan, all other plants, sites, works, properties, and equipment of the Waterboard and any relevant records and documents.
The Waterboard shall, promptly as required, take all PA, Art. II 2.11 Complied with action within its powers to maintain its corporate (a) existence, to carry on its operations, and to acquire, maintain, and renew all rights, properties, powers, privileges, and franchises necessary in carrying out the Project or conducting its business.
The Waterboard shall at all times conduct its PA, Art. II Complied with business in accordance with sound administrative, 2.11 (b) Appendix 5 27
Covenant Reference Status ADB/CTB financial, environmental, and public utility practice, and under the supervision of competent and experienced management and personnel.
The Waterboard shall at all times operate and PA, Art. II Complied with maintain its plants, equipment, and other property, 2.11 (c) and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound administrative, financial, engineering, environmental, public utility, and maintenance and operational practices.
Except as ADB and CTB may otherwise agree, the PA, Art. II Complied with Waterboard shall not sell, lease, or otherwise 2.12 dispose of any assets required to efficiently carry on its operations or the disposal of which may prejudice its ability to perform satisfactorily any of its obligations under this project agreement.
Except as ADB and CTB may otherwise agree, the PA, Art. II Complied with Waterboard shall duly perform all its obligations 2.14 under the Subsidiary Loan Agreement, and shall not take, or concur in, any action which would have the effect of assigning, amending, abrogating, or waiving any rights or obligations of the parties under the Subsidiary Loan Agreement.
The Waterboard shall promptly notify ADB of any PA, Art. II Complied with proposal to amend suspend or repeal any provision 2.15 of the Act and shall afford ADB adequate opportunity to comment on such proposal prior to taking any action thereon.
Within 1 month of the effective date, the Waterboard LA, Sch. 6 Complied with: shall establish a project management office (PMO) Clause 1 • PMO established 7 Nov 1994 under its engineering division to manage the • Project manager employed 7 Oct implementation of the Project, and appoint a 1993 construction manager to head the PMO. The • The Waterboard appointed project construction manager shall be the project manager manager on 1 July 1999 to succeed responsible for overall supervision and coordination the first project manager, who had of project implementation, under the guidance and resigned. supervision of the manager of Waterboard’s engineering division.
Waterboard shall ensure that the PMO is adequately LA, Sch. 6 Complied with: staffed and equipped at all times for efficient Clause 2 • PAO commenced 27 Feb 1995 functioning. PMO staff shall include a full-time • Project secretary on 28 Feb 1995 project administration officer (PAO), two full-time • PE (Madang) assigned 15 May 1995 project engineers (PE), and part-time personnel to • PE (Rabaul) assigned 6 Mar 1996 perform tasks including project accounting and • Senior PE assigned 12 Feb 97 procurement.
Managers of the Madang Water District and Rabaul LA, Sch. 6 Complied with 28 Appendix 5
Covenant Reference Status ADB/CTB Water Districts shall be the project coordinators for Clause 3 Complied with. Parts A and B respectively.
The Waterboard shall take all appropriate measures LA, Sch. 6 Complied with: to acquire all land, rights in land, and other rights Clause 4 • Building Board approval for Madang and privileges required for construction of project Water Supply obtained on 11 Feb facilities. The Waterboard shall ensure that all land 1997 to be provided for the Project is free and clear of any • Land for Madang Water Supply encumbrances. acquired on 11 Sep 1997 and licences obtained on 11 Dec 1997 • Building Board approval for two staff houses at Kokopo obtained on 29 Sep 1999. • Licence of Occupancy for Portion 864 for Kokopo water supply obtained on 28 Oct 1999. Licence No. ENB 99/11. • Licence of Occupancy for Kenabot water supply obtained on 3 Nov 1999. Licence No. 99/13.
The Waterboard shall on a timely basis obtain LA, Sch. 6 Complied with: permits from the concerned authorities for (i) Clause 5 • Permits for water abstraction and abstraction of surface water from the Gum River and wastewater discharge for Madang the Rarongo and Kabaira Creeks in Rabaul, and (ii) received on 9 Feb 1996. abstraction of groundwater in Rabaul. • Water Investigation Permit for Kokopo was issued on 24 Sep 1995. • Water abstraction permit for Kokopo Water Supply was obtained from Department of Environment and Conservation (DEC).
Upon project completion, the Madang and Rabaul LA, Sch. 6 Complied with: Water Districts shall be responsible for operation Clause 6 • Madang Water Supply completed 19 and maintenance (O&M) of the project facilities, Jan 2000. which shall be integrated into the existing systems. • Rabaul Water Supply under various For this purpose, the Waterboard shall on a timely minor contracts had different basis provide to the Madang and Rabaul water completion dates. The latest was the districts additional personnel and make available tank funded by GRA and completed through budgetary appropriation necessary funds as on 17 Feb 2002. may be required for adequate O&M of all water • Kokopo Water Supply was completed supply facilities under the said water districts. on 25 Oct 2001.
The Waterboard shall obtain environmental LA, Sch. 6 Complied with: clearance of the Project from DEC or any other Clause 7 • Clearance for Madang and Rabaul appropriate authority before beginning any civil received from DEC on 26 Jul 1995. works construction under the Project. • Clearance for Kokopo received from DEC on 8 Apr 1997. The Waterboard shall require contractors under the LA, Sch. 6 Complied with: Project to adopt sound construction management Clause 8 • Appropriate clause included in the practices when building project facilities so as to Madang water supply contract avoid causing public nuisance, and to ensure proper documents. waste disposal. The Waterboard shall also require • Appropriate clause included in the Appendix 5 29
Covenant Reference Status ADB/CTB contractors to restore immediately and adequately Kokopo water supply contract road surfaces damaged by such construction. documents.
The Waterboard shall conduct benefit monitoring LA, Sch. 6 Complied with. PNG Waterboard began and evaluation (BME) for the project as part of its Clause 9 preparing onsite BME reports on 26 June management information system and shall include 2001. A final report was forwarded to the BME results in the annual performance report. ADB on 12 Jun 2002.
In additional to the quarterly report referred to in LA, Sch. 6 Being complied with Section 2.8 (b) of the Project Agreement, the Clause 10 Reports for 1992, 1993, and 1994 Waterboard shall furnish to ADB annual submitted on 18 Mar 1998. performance reports within 9 months of the end of Reports for 1995 are complete. each related fiscal year, commencing from fiscal Reports for 1996, 1997, and 1998 are year 1993. Waterboard shall continue to furnish to finalized. ADB these reports thereafter, upon ADB’s request. Report for 1999 underway.
The Borrower and the Waterboard shall review with LA, Sch. 6 Being complied with. ADB the outcome of the tariff study to be carried out Clause 12 (a) The new tariff policy was effective as of 1 under the Technical Assistance. Thereafter, the Apr 2003. Borrower by 31 December 1993 shall revise the Waterboard’s existing tariff policy and introduce a new tariff policy to be applied as from 1 Jul 1994, unless otherwise agreed upon by ADB.
The Borrower shall ensure that pursuant to the new LA, Sch. 6 Being complied with, although the tariff tariff policy, the water and sewerage tariffs are set at Clause 12 (b) adjustments have not been set on an levels which will enable Waterboard to meet the annual basis but every 3 years (1997, financial performance targets agreed upon by the 2000, and 2003). The increase in water Borrower, Waterboard, and ADB. The Borrower and sewerage tariffs is sufficient to meet shall approve the required annual tariff adjustments financial performance targets. by 30 June of each year. The Borrower shall, in consultation with ADB, determine the annual tariff adjustments based on the projected financial performance of Waterboard for the following year.
To assist the Borrower in determining the annual LA, Sch. 6 Being complied with but delayed. The tariff adjustments, the Waterboard shall during the Clause 12(c) Waterboard makes an annual financial first quarter of each fiscal year starting from 1993, projections based on capital investments update its capital investment plan and financial required, debt service, depreciation and projections, and determine the adjustment in water O&M requirements to determine the and sewerage tariffs required for the following year, necessary adjustments on the water and so as to ensure its achievement of the financial sewerage tariffs. performance targets agreed upon by the Borrower, the Waterboard, and ADB and which are enumerated in paragraph 14 below. The Waterboard shall obtain ADB’s comments on its draft tariff proposal before submitting to the Borrower.
In line with the Borrower’s current financial policies LA, Sch. 6 applied to the Waterboard, the Borrower and the Clause 13 Waterboard shall take measures to achieve the following financial performance targets for 30 Appendix 5
Covenant Reference Status ADB/CTB Waterboard:
i) The Waterboard’s revenue shall be Partially complied with. In 2000 and adequate to (a) cover all operating 2001, the Waterboard has net surplus of expenses and full depreciation or debt K2 million but in 2002, it incurred a deficit services, whichever is greater; and (b) of K1.84 million. For 2003, the projected generate a surplus to yield a positive rate of surplus or net income is K4.7 million. return on net revalued assets, as opposed to acquisition cost of fixed assets, in operation by 31 Dec 2000; and
ii) The Waterboard shall not incur new debts Being complied with. The Waterboard unless its internal cash generation is at least maintains a cash generation of about 1.5 1.5 times the projected debt-service times the debt service requirement on requirement on all long-term debt in each long-term debt. fiscal year.
The Waterboard shall strengthen its billing and LA, Sch. 6 Complied with. The Waterboard has collection operations to ensure that its gross Clause 14(a) undertaken a centralized billing system accounts receivable (including provision for bad and currently validating and reconciling debts) is less than the equivalent of 4 months billing customer accounts in Lae to ensure by 31 Dec 1993. more efficient collection of its customer receivables. The same will be undertaken in other districts. The Waterboard shall review the existing level and LA, Sch. 6 Being complied with but delayed. In standard of services, design criteria for water Clause 14(b) recent years, by undertaking the Project, supply, and sewerage to ensure cost effective the technical services division had been investment. For this purpose, the Waterboard shall undertaking a review of existing level provide ADB with the results of such review by 31 and standard of services, and ensuring Dec 1993. cost effective investments in the different districts, which forms part of their recommendations to the management of the Waterboard periodically. Except as ADB may otherwise agree, the LA, Sch. 6 Being complied with but delayed. In Waterboard shall strengthen its nonrevenue water Clause 14 (c) 2001, the overall NRW was 32.7% and in (NRW) management to reduce an overall average 2002, NRW was estimated to be about NRW to not higher than 28% by 31 December 2000. 31%. For 2003, the Waterboard is projecting an overall NRW of 28%. Except as ADB may otherwise agree, the LA, Sch. 6 Complied with. Waterboard shall reduce the ratio of the number of Clause 14 (d) employees per 1,000 connections to not more than 20, 18, and 15 by 31 Dec 1996, 31 Dec 1998, and 31 Dec 2000, respectively.
Waterboard by 31 December 1993 shall review and LA, Sch. 6 Delayed compliance. Connection fees revise as appropriate the existing connection fees Clause 14 (e) have been waived for customers within for water supply and sewerage to ensure that the 26 meters (m) of the nearest main. Only fees collected reflect actual costs. customers located beyond 26 m are paying connection at actual cost. In order to strengthen its financial accounting LA, Sch. 6 Not complied with. In 2002, the operations, the Waterboard shall review the Clause 15 (a) Waterboard had planned to undertake its valuation of its fixed assets and provide the results asset inventory and valuation for all to ADB by 31 Dec 1994. districts and is sourcing external funding Appendix 5 31
Covenant Reference Status ADB/CTB for this activity. In order to strengthen its financial control systems LA, Sch. 6 Delayed compliance. An internal auditor and procedures, the Waterboard shall appoint an Clause 15 (b) was appointed on 11 June 1996. internal auditor by 30 Jun 1993.
Pursuant to the outcome of the organizational study LA, Sch. 6 Complied with. of the Waterboard to be carried out under the Clause 16 Technical Assistance, Waterboard shall submit to ADB its reorganization.
The Borrower shall carry out an overall assessment LA, Sch. 6 Being complied with. For some districts, of the adequacy of the existing legal and institutional Clause 17 the Waterboard has been making frameworks to support the Waterboard’s operations progress. and such assessment shall include the following matters:
(i) appropriate arrangements for the Waterboard to take over water supply and sewerage operations from town commissions; (ii) authority of the Waterboard to take over individual sewerage and sewage treatment schemes; and (iii) official representation of the Waterboard in town planning committees of the various towns currently served by the Waterboard and of towns to be served by the Waterboard.
The Borrower by 31 Dec 1993 shall submit to ADB the results of such assessment and the proposed action to be taken.
The Borrower by 31 Dec 1994 shall prepare and LA, Sch. 6 Being complied but delayed. The submit to ADB for review and comments an overall Clause 18 Waterboard in its Corporate Plan and investment and financing plan for the urban water Strategies (2001-2005) has outlined its supply and sewerage sector, setting out strategies corporate responsibility in extending for the rational development of urban water supply water and sewerage services to all urban and sanitation over an appropriate time frame centers. In view of this, the technical including plans for expanding the Waterboard’s services division had outlined an overall operation, prior to its formal adoption. investment and financing plan for urban water supply and sewerage sector and it has been undertaking projects in line with the investment plan.
The Borrower shall provide the Waterboard as LA, Sch. 6 Complied with. equity contribution the proceeds of the CTB loan for Clause 19 the entire foreign exchange cost of Part C of the Project; the Borrower’s counterpart funds for the entire local currency cost of Part C, including taxes and duties; and the Borrower’s counterpart funds for the land acquisition cost, duties, and taxes under Parts A and B of the Project.
32 Appendix 5
Covenant Reference Status ADB/CTB To enable Waterboard to have a clear direction and LA, Sch. 6 Management of NCD was given to Eda plan its future development rationally, the Borrower Clause 20 Ranu. by 30 Jun 1993 shall take a decision on the management of the National Capital District (NCD) water supply and sewerage systems and inform ADB of its decision.
Appendix 6 33
WATER QUALITY ANALYSIS
1. a) Kokopo Raw Water Quality Analysis Results
b) Kokopo Treated Water Quality Analysis Results
2. Madang Raw and Treated Water Quality Analysis Results
Analysis BH1 BH2 BH3 BH4 BH5 BH6 BH7 Guideline Value* pH 7.6 7.6 7.9 7.0 7.0 7.4 7.2 6.5-8.5 Conductivity (uS/cm) 217 210 250 190 200 180 200 - TDS (mg/L) 280 270 300 250 270 220 210 1000 Total Alkalinity (mg/L) 100 100 140 95 100 83 100 - Bicarbonate (mg/L) 100 101 140 95 100 83 100 - Carbonate (mg/L) - <1 <1 <1 <1 <1 <1 - Chloride (mg/L) 4.5 3.0 2.5 2.8 3.3 2.2 3.0 250 Sulphate (mg/L) 7.0 2.9 3.4 2.9 2.8 1.7 3.4 400 Sodium (mg/L) 36.0 29 24 29 28 26 26 200 Potassium (mg/L) - 5.8 5.4 5.6 6.2 5.3 5.9 Calcium (mg/L) 4.9 11 22 6 8 6.5 6.7 - Magnesium (mg/L) 1.9 3 4 3 4 3.0 4.2 - Silicon (mg/L) - 51 49 49 52 105 44 - Nitrate (mg/L) - 2.2 2.0 1.4 3.4 2.2 5.4 10.0 Manganese (mg/L) - <0.02 <0.02 <0.02 <0.02 0.02 <0.02 0.1 Iron (mg/L) 0.8 <0.05 0.07 0.06 <0.05 0.02 <0.02 0.3 Fluoride (mg/L) - 0.43 0.37 0.40 0.38 0.50 0.46 1.5 Cadmium (mg/L) - <0.01 <0.01 <0.01 <0.01 <0.01 <0.01 0.005 Arsenic (mg/L) - 0.0004 0.004 0.003 0.004 0.002 <0.001 0.005 Lead (mg/L) - <0.002 <0.002 <0.002 <0.002 <0.002 <0.002 0.05 Cyanide (mg/L) - 0.011 <0.005 <0.011 <0.005 <0.01 <0.01 0.1 Source: Guidelines for Drinking Water Quality, World Health Organization 1984
34 Appendix 6
KOKOPO WATER SUPPLY BACTERIOLOGICAL AND CHEMICAL ANALYSIS RESULTS
Date: 25 November 2003
For the 12 samples analyzed “as received” by this laboratory on 14 November 2003, the following is supplied:
Client Sample Label NAL Ref Analysis Analysis Results Method
1. Kokopo Town Treated 5232/03 Coliforms, Faecal 0 colonies/100 ml NAL/WL33 5232/03 Coliforms, Total 0 colonies/100 ml NAL/WL33 2. Kokopo Town Treated 5:12pm 5233/03 Coliforms, Faecal 0 colonies/100 ml NAL/WL33 5233/03 Coliforms, Total 0 colonies/100 ml NAL/WL33 3. Kokopo Town Raw 5:40pm 5234/03 Coliforms, Faecal 0 colonies/100 ml NAL/WL33 5234/03 Coliforms, Total 80 colonies/100 ml NAL/WL33 4. Nonga Raw Bore 39 5235/03 Coliforms, Faecal 0 colonies/100 ml NAL/WL33 5235/03 Coliforms, Total 0 colonies/100 ml NAL/WL33 5. Nonga Bore Treated 5236/03 Coliforms, Faecal 0 colonies/100 ml NAL/WL33 5236/03 Coliforms, Total 0 colonies/100 ml NAL/WL33 6. Nonga Bore 39 Treated 8:12am 5237/03 Coliforms, Faecal 0 colonies/100 ml NAL/WL33 5237/03 Coliforms, Total 0 colonies/100 ml NAL/WL33 7. Rabaul Town Raw 8:30am 5238/03 Coliforms, Faecal 0 colonies/100 ml NAL/WL33 5238/03 Coliforms, Total 0 colonies/100 ml NAL/WL33 8. Rabaul Town Treated 8:40am 5239/03 Coliforms, Faecal 0 colonies/100 ml NAL/WL33 5239/03 Coliforms, Total 0 colonies/100 ml NAL/WL33 9. Blanche 853 Treated 8:55am 5240/03 Coliforms, Faecal 0 colonies/100 ml NAL/WL33 5240/03 Coliforms, Total 0 colonies/100 ml NAL/WL33
Date: 4 July 2001
For the 9 samples analyzed “as received” by this laboratory on 2 July 2001, the following is supplied:
Client Sample Label NAL Ref Analysis Analysis Results Method
Kokopo Treated Water #1 3781/01 Coliforms, Faecal 0 colonies/100 ml NAL/WL33 3781/01 Coliforms, Total 0 colonies/100 ml NAL/WL33 Kokopo Treated Water #1 3782/01 Coliforms, Faecal 0 colonies/100 ml NAL/WL33 3782/01 Coliforms, Total 0 colonies/100 ml NAL/WL33 Kokopo Town Raw Water 3783/01 Coliforms, Faecal 0 colonies/100 ml NAL/WL33 3783/01 Coliforms, Total 80 colonies/100 ml NAL/WL33
Appendix 6 35
WATER ANALYSIS RESULTS MADANG
Date: 2 May 2002
Client Sample Label NAL Ref Analysis Analysis Results Method
1. Gem Raw Water Intake 2607/02 Coliforms, Faecal 150 colonies/100 mL NAL/WL33 2607/02 Coliforms, Total 260 colonies/100 mL NAL/WL33 2. Panim W/T Plant 2608/02 Coliforms, Faecal 0 colonies/100 mL NAL/WL33 2608/02 Coliforms, Total 0 colonies/100 mL NAL/WL33 3. DCA Bore Raw Water 2609/02 Coliforms, Faecal 0 colonies/100 mL NAL/WL33 2609/02 Coliforms, Total 0 colonies/100 mL NAL/WL33 4. DCA Bore Raw Water 2610/02 Coliforms, Faecal 0 colonies/100 mL NAL/WL33 2611/02 Coliforms, Total 0 colonies/100 mL NAL/WL33 5. B85 Bore Raw Water 2612/02 Coliforms, Faecal 0 colonies/100 mL NAL/WL33 2612/02 Coliforms, Total 0 colonies/100 mL NAL/WL33 6. CIS Treated Water 2613/02 Coliforms, Faecal 0 colonies/100 mL NAL/WL33 2613/02 Coliforms, Total 0 colonies/100 mL NAL/WL33 7. Madang Resort Hotel 2614/02 Coliforms, Faecal 0 colonies/100 mL NAL/WL33 2614/02 Coliforms, Total 0 colonies/100 mL NAL/WL33 8. DCA Treated Water 2615/02 Coliforms, Faecal 0 colonies/100 mL NAL/WL33 2615/02 Coliforms, Total 0 colonies/100 mL NAL/WL33 9. New Town 2616/02 Coliforms, Faecal 0 colonies/100 mL NAL/WL33 2616/02 Coliforms, Total 0 colonies/100 mL NAL/WL33
Date: 18 April 2001
Client Sample Label NAL Ref Analysis Analysis Results Method
Panim Treatment Plant 2144/01 Aluminum 0.15 mg/L 2144/01 Bicarbonate 62 mg/L as CaCO3 NAL/WL2 2144/01 Calcium 17 mg/L NAL/WL25 2144/01 Carbonate <1 mg/L s CaCO3 NAL/WL2 2144/01 Chlorine, Residual 0.02 mg/L NAL/WL30 2144/01 Coliforms, Faecal 0 colonies/100 mL NAL/WL33 2144/01 Coliforms, Total 0 colonies/100 mL NAL/WL33 2144/01 Cyanide, Total <0.01 mg/L NAL/WL14 2144/01 Hardness (Calculation) 63 mg/L as CaCO3 NAL/WL8 2144/01 Hydroxide <1 mg/L as CaCO3 NAL/WL2 2144/01 Magnesium 4.9 mg/L NAL/WL25 2144/01 Manganese 0.0007 mg/L NAL/WL27
36 Appendix 6
INDICATIVE WATER QUALITY ANALYSIS MADANG
January 1, 2003 Raw water pH: 7.9 Turbidity: 3.40 NTU Treat, Water pH: 7.7 Turbidity: 0.00 NTU Plant Chlorine Residual: FAC 1.2g/m3 TAC 1.2g/m3 Taste and Odor: Unobjectable
February 4, 2003 Raw Water pH: 7.8 Turbidity: 20.58 NTU Treat. Water pH: 7.4 Turbidity: 0.00 NTU Color: 50 H Plant Chlorine Residual: FAC 1.5g/m3 TAC 1.5g/m3 Taste and Odor: Unobjectable
February 20, 2003 Raw water pH: 7.9 Turbidity: 9.06 NTU Treat. Water pH: 7.6 Turbidity: 0.00 NTU Color: 50 H Plant chlorine Residual: FAC 1.5g/m3 TAC 1.5g/m3 Towu analysis – Kalibobo FAC: 1.0g/m3 Turbidity: 0.00 NTU pH: 7.6 Newtown FAC: 0.8g/m3 Turbidity: 0.00 NTU pH: 7.6 4- Mile FAC 0.2g/m3 Turbidity: 0.00 NTU pH:7.2 Color: 50H at all testing points Taste and Odor: Unobjectable
March 6, 2003 Raw water pH: 7.9 Turbidity: 4.17 NTU Treat Water pH: 7.5 Turbidity: 0.00 NTU Color: 50H Plant Chlorine Residuals: FAC 1.5g/m3 TAC 1.5g/m3 Town Analysis – Madang Resort FAC 0.8g/m3 pH: 7.6 Turbidity: 0.00 NTU Newtown FAC 0.6g/m3 pH: 7.2 Turbidity: 0.00 NTU 4-Mile FAC 0.4g/m3 pH: 7.6 Turbidity: 0.00 NTU Color: 50H at testing points Taste and Odor: Unobjectable
March 20, 2003 Raw water pH: 7.8 Raw water Turbidity: 2.25 NTU Treat. Water pH: 7.7 Turbidity: 0.00 NTU Color: 50H Plant Chlorine Residual: FAC 1.2g/m3 TAC 1.2g/m3 Taste/Odor: Unobjectable
April 7, 2003 Raw water pH: 7.9 Turbidity: 2.31 NTU Treat, water pH: 7.7 Turbidity 0.00 NTU Color: 50H Plant Chlorine Residuals: FAC 1.5g/m3 TAC 1.5g/m3 Taste/Odor: Unobjectable
Appendix 6 37
April 27, 2003 Raw water pH: 7.9 Treat water pH: 7.5 Plant chlorine residual: FAC 1.5g/m3 TAC 1.5g/m3 Taste/Odor: Unobjectable
May 15, 2003 Raw water pH: 8.0 Turbidity: 2.10 NTU Treat, Water pH: 8.0 Turbidity: 0.00 NTU Plant Chlorine Residual: FAC 1.2g/m3 TAC 1.2g/m3 Taste/Odor: Unobjectable
May 27, 2003 Raw water pH: 7.7 Turbidity: 20.19 NTU Treat. Water pH: 7.3 Turbidity: 0.00 NTU Plant chlorine residual: FAC 1.5g/m3 TAC 1.5g/m3 Taste/Odor: Unobjectable
June 12, 2003 Raw water pH: 8.0 Turbidity: 43.48 NTU Treat. Water pH: 8.0 Turbidity: 0.09 NTU Plant chlorine residual: FAC 1.5g/m3 TAC 1.5g/m3 Taste/Odor: Unobjectable
June 25, 2003 Raw water pH: 8.0 Turbidity: 5.69 NTU Treat water pH: 7.7 Turbidity: 0.00 NTU Taste/Odor: Unobjectable
July 13, 2003 Raw Water pH: 8.2 Turbidity: 1.04 NTU Treat water pH: 8.0 Turbidity: 0.00 NTU Color: 50H Taste/Odor: Unobjectable Plant chlorine Residuals: FAC 1.2g/m3 TAC 1.2g/m3 Color: 50H
July 24, 2003 Raw water pH: 7.8 Turbidity: 0.73 NTU Treat, water pH: 7.8 Turbidity: 0.00 NTU Color: 50H Plant residuals: FAC 1.5g/m3 TAC 1.5g/m3 Taste/Odor: Unobjectable
38 Appendix 7
MONITORING AND EVALUATION OF PROJECTED BENEFITS
1. Monitoring of the Project’s impact on beneficiary households and other users of the new project facilities is one of the measures to evaluate project sustainability. Under the Loan Agreement, the Waterboard is required to provide the Asian Development Bank (ADB) with a project benefit monitoring and evaluation (BME) report after commissioning project facilities every year until 2012. The Waterboard has submitted their first BME report for Madang in June 2002 and still undertaking the BME report for Rabaul/Kokopo.
A. Performance Indicators
2. The Project aimed to improve water supply in Madang and Rabaul/Kokopo in terms of supply capacity and quality. BME indicators that relate to improving water supply services include comprehensive indicators on production, distribution, consumption, O&M, administration, billing, and collection performance. The Waterboard’s customer services division obtains monthly performance indicators from all districts for BME purposes. Such information is processed and consolidated in the management information system (MIS).1
3. The Waterboard intends to develop a comprehensive BME system whereby the benefits to Madang and Rabaul/Kokopo target beneficiaries are easily monitored and evaluated. This will help management evaluate project performance in Madang and Rabaul/Kokopo, and will also help monitor districts’ financial and operational sustainability. Although districts provide a comprehensive list of indicators, data completeness, accuracy and timely reporting remain a concern, particularly in the aspects of nonrevenue water2 (NRW), collection efficiency, arrears collection, and customers to be disconnected3. The customer services must consolidate these indicators to enable the Management to provide feedback to districts in meeting connection targets, increasing collection efficiency, and reducing NRW.
4. A comprehensive set of indicators in the BME report is shown in Table A9.1 and may serve as a management tool to evaluate project performance and identify appropriate measures to solve illegal connections, inaccurate meter reading, and poor collection of bills and arrears.4
5. The districts’ BME system can help the Health Department monitor water-related diseases and help the Waterboard with public awareness campaigns on the health impact of using unsafe alternative water supplies. Madang and Rabaul/Kokopo should closely coordinate with the provincial health inspectors to assess compliance conditions of households’ rainwater tanks and assess the need to extend services to nonconnected households.5
1 The new management information system (MIS) is expected to be finished by end of 2003. Problems related to the billing module are now being addressed with test runs in Lae. A job costing model is also being formulated. 2 Madang has installed four of seven zone meters. When the last three are connected, Madang will be able to detect troubled areas for UFW sources. As of October 2002, NRW in Madang is 35% (projected is 29%) and 34% in Rabaul/Kokopo (projected is 20%). Based on the data provided to the Mission, NRW results are erratic because production and consumption are not accurately recorded. 3 The Madang Provincial Government is enforcing disconnection of illegal settlers. 4 A metering laboratory is required to test, recalibrate, and repair functional meters. Proper records of meters should be kept. 5 See the Benefit Monitoring and Evaluation Report of PNG Waterboard for Madang (June 2002). Appendix 7 39
Table A9.1 Benefit Monitoring Indicators Indicator Basis 1. Production 1.1 Raw water intake kiloliters 1.2 Treated water at treatment plant kiloliters O&M Cost for Production 1.3 Power consumption (raw water) kWh/kina 1.4 Power consumption (treated water) kWh/kina 1.5 Total power consumption kWh/kina 1.6 Total staff number 1.7 Staff on training number 1.8 Staff on leave number 1.9 Total staff, salaries, and wages kina 1.10 Total consumption (disinfectant) kg/kina 1.11 Total consumption (coagulant) kg/kina 1.12 Other utility costs kina 1.13 Total production costs kina 2. Distribution and Consumption 2.1 Active domestic connections number 2.2 Active institutional connections number 2.3 Active industrial connections number 2.4 Total active connections number 2.5 Bulk distribution kiloliter 2.6 Consumption (domestic) kiloliter 2.7 Consumption (institutional) kiloliter 2.8 Consumption (commercial) kiloliter 2.9 Consumption (industrial) kiloliter 2.10 Total consumption kiloliter 2.11 Availability of water per day hours 2.12 Bacteriological tests taken number 2.13 Bacteriological test failures number 2.14 Leak repairs number 2.15 Meters repaired/replaced number 2.16 Customer complaints number 2.17 Public relations expenditure kina 2.18 Clients disconnected because of nonpayment number 2.19 Clients disconnected because of customer change number 2.20 Clients disconnected because of bill settlement number 2.21 Reconnections due to customer change number 2.22 Applicants for new service number 2.23 Outstanding applications for new service number 2.24 Illegal customers (total) number 2.25 Illegal customers (disconnected) number 3. O&M Costs for Distribution and Consumption 3.1 Total staff number 3.2 Staff on training number 3.3 Staff on leave number 3.4 Staff salaries and wages kina 3.5 Vehicle maintenance kina 3.6 Fuel cost kina 3.7 Electricity kina 3.8 Telephone kina 3.9 Stores consumables kina 3.10 Water and sewerage kina 3.11 Other costs kina 3.12 Total expenses kina 40 Appendix 7
Indicator Basis 4. Administration and Billing 4.1 Amount billed (domestic) kina 4.2 Amount billed (institutional) kina 4.3 Total billings (all users) kina 4.4 Amount collected (domestic) kina 4.5 Amount collected (institutional) kina 4.6 Amount collected (commercial) kina 4.7 Amount collected (industrial) kina 4.8 Total collections (all users) kina 4.9 Accounts receivable (total) kina Aging of accounts receivable:a 31-60 days 61-120 days 121-180 days >180 days 4.10 Reconnection fees kina 4.11 New connection fees kina 5. O&M Costs for Administration and Billing 5.1 Total staff number 5.2 Staff on training number 5.3 Staff on leave number 5.4 Staff salaries and wages kina 5.5 Fuel cost kina 5.6 Vehicle maintenance kina 5.7 Electricity kina 5.8 Water and sewerage kina 5.9 Other costs kina 5.10 Total expenses kina 5.11 Grand total O&M costs kina 6. Performance Ratios 6.1 Population served by domestic connections number = No. of household connections x persons/household 6.2 Daily water production kiloliter = Volume of treated water/no. of days in the month 6.3 Daily water distribution kiloliter = Volume of bulk distribution/no. of days in a month 6.4 Consumption per capita per day liters = Consumption house connections/(population x days) 6.5 Average tariff (domestic) = domestic billings/domestic consumption kina/kiloliter 6.6 Average tariff (institutional) = institutional billings/institutional consumption kina/kiloliter 6.7 Average tariff (commercial) = commercial billings/commercial consumption kina/kiloliter 6.8 Total average tariff = total billings/total consumption kina/kiloliter 6.9 Unit production cost = total production cost/ treated volume kina/kiloliter 6.10 Unit distribution cost = total distribution cost/distributed volume kina/kiloliter 6.11 Unit administration cost = total administration cost/billed volume kina/kiloliter 6.12 Accounted water = bulk distribution/treated water % 6.13 Unaccounted-for water = 100% - accounted water (%) % = treated volume - bulk distribution kiloliter 6.14 Nonrevenue water = (bulk distribution - billed volume)/bulk distribution % = bulk distribution - billed volume kiloliter 6.15 Production cost of NRW = unit cost production x volume of NRW kina 6.16 Distribution cost of NRW = Unit cost distribution x volume of NRW kina 6.17 Administration cost of NRW = unit cost administration x volume of NRW kina Appendix 7 41
Indicator Basis 6.18 Production cost of UAW = unit cost production x volume of UAW kina 6.19 Opportunity cost of NRW = total average tariff x volume of NRW kina 6.20 Domestic water use = domestic use/bulk distribution % 6.21 Institutional water use = institutional use/bulk distribution % 6.22 Commercial water use = commercial use/bulk distribution % 6.23 Industrial water use = industrial use/bulk distribution % 6.24 Other water use = other uses/bulk distribution % 6.25 Water lost (balance) = 100% - (All consumption/raw water) % 6.26 Accounts receivable = accounts receivable/ Average day sales days 6.27 Operating ratio = total O&M costs/billings for all users % 6.28 Collection efficiency = collections for all users/(billings all for users + % accounts receivable) at opening balance 6.29 Staff/1,000 connections = [1,000 x No. of staff]/ No. of connections number a Monthly reports on aging of debts (accounts receivables) are generated by the management information system (MIS). Source: Benefit Monitoring and Evaluation Report for Madang, June 2002.
6. Customer satisfaction must be consistently monitored at the district level by a customer relations staff. This should form a part of the BME to ensure regular payment of water bills and unpaid accounts.6 The Waterboard is now coordinating with the Government to collect huge arrears of large government institutions to improve its cash flow and enhance long-term financial sustainability of district-level Waterboard operations.
7. The Waterboard needs to strictly enforce compliance of nonconnected customers, payment of compliance fees must be closely monitored, charges increased to discourage use of alternative supplies and ensure connection to the system. Currently, compliance fees are minimal; insufficient even to cover the staff cost of ensuring compliance of nonconnected households/establishments.
8. The Waterboard provides its respective districts with information on operational efficiency,7 water quality, operational costs, annual budgets, income sources, water tariffs, collection efficiencies, and new connection fees. This information is not transmitted on a regular basis, however. Timely transmission of relevant information would greatly enhance efficiency of district staff in addressing customers’ concerns.
9. At the village level, household members experienced significant benefits from regular water supply: (i) fewer delays in getting children to school and getting ready for work; (ii) tap water that is safer than river or well water;8 (iii) convenience of constant supply; and (iv) less diarrhea and skin diseases.
6 Large customers such as government institutions and commercial establishments have accumulated arrears, as have household customers. The Waterboard has obtained government support to ensure public offices to pay arrears and current bills. 7 Some of the districts have higher UFW because of system aging. Production managers must ensure regular maintenance schedules for pumps and gensets to ensure efficient operations. 8 The benefit monitoring and evaluation (BME) report (p. 22) says residents near the Meiro River still use river water for washing. 42 Appendix 7
B. Institutional Development
10. One significant project benefit is experience in design and operation of water supply production and treatment facilities that is being used to train other districts in the province. The East New Britain Provincial Administration Office noted that the provincial government has engaged the Rabaul water district to undertake a feasibility and detailed engineering study, design, documentation, tendering, construction supervision, and maintenance management of a rural water supply project.9
11. The Waterboard envisions that project staff trained in construction and O&M of water supply systems can train staff in other districts. Various management and operation training manuals for water supply production and treatment plants, prepared under the Project, will be used in districts with similar systems. About 15 employees from Waterboard headquarters, as well as Madang and Rabaul branches, benefited from the technical assistance.10
12. A comprehensive management (MIS) system is being developed and its deficiencies being addressed by a task force. These include validating customer information through field surveys and account reconciliation between the MIS, customer services, and the districts.11
13. Through the institutional strengthening, the Waterboard gained knowledge and practical experience in improving the management of project facilities by establishing (i) a production and distribution monitoring system to detect leakage, (ii) a data collection system in pumping stations for operational flow control, (iii) a control and monitoring system for the water supply treatment plant, and (iv) an archive system. It further strengthened its corporate planning capabilities to become more cost efficient.12
9 The project is the East New Britain Rural Water Supply Network. A Preliminary Feasibility Study was conducted which consists of demographic study, demand assessment, water source identification, concept design, and preliminary costing for 16 target areas: Raluana (Kokopo) to Navunaram, Navunaram to Vunadidir, Navunaram to Rakunai, Rakunai to Ramalmal, Kokopo to Vunadidir, Vunadidir to Kerevat, Vunadidir (Bitakapuk) to VIviran, Rabaul to Ratung and Nonga, Warangoi township, Baliora to Gelagela, Gelagela to Ralubang, Takubar to Ulaveo Industrial, Ulaveo Industrial to Ralubang, DOY local government, Watom local government, and Palmalmal township. 10 Madang has 29 staff and Rabaul 13. 11 The Waterboard is addressing weaknesses in (i) finance – budget/monitoring, credit control/debt collection, cost control, risk management, insurance, stores and procurement, asset inventory, systems and information management, and reconciliations; (ii) customer services - customer relations, promotion, education and awareness, plant operations, UFW, metering, water management, and plant maintenance; (iii) corporate relations – business development, public relations, legal affairs, compliance, and licensing; (iv) administrative and human resources – organization and policy, employee relations, land management, and human resource management; and (v) technical – standards, planning, rural water supply services, and CAPEX implementation. (Corporate Board Dec 2002). 12 Corporate objectives include (i) finance – to achieve 5% return on investment (ROI), to reduce outstanding customer receivables to 60 days for nongovernment debt and to reduce outstanding days sales to 180 days for government debt; (ii) corporate responsibility – to increase the number of connections by at least 3%, to license no less than 20 private water supply and sewerage systems; (iii) marketing – to increase water sales by 3%; (iv) system optimization – to improve operational effectiveness by reducing UFW from 31% to 28%, to undertake systems audit to establish energy use, losses, and operational efficiency of pumps and motors, and to undertake system audit of distribution network and meters to improve delivery and minimize water losses; (v) human resource – to have a well trained, highly motivated, and competent workforce, to manage the level of the general workforce within the approved ceiling of 305 employees; and (vi) customer focus – to have more than 80% satisfaction in customer service. Appendix 7 43
C. Economic
14. Major economic benefits from the Project include (i) lower costs for installing rainwater tanks because of 24-hour water supply; (ii) lowers cost of water bought and transported from private providers; (iii) cost savings in treating waterborne ailments such as diarrhea and skin diseases, more common among children; (iv) lower cost to commercial establishments and institutions; (v) willingness to pay for improved water supply services and water quality; and (vi) economic gains to business, health, and education sectors. The Waterboard will continue to monitor these benefits and ensure their sustainability with the support of the respective Health Departments and beneficiary communities.
15. The Waterboard will collect relevant data to measure and monitor the Project’s economic benefits as part of the annual benefit monitoring and evaluation report to be submitted to ADB. Data would include (i) cost comparison of water tariffs of connected households with the cost of alternative water supplies in the service area; (ii) production and distribution cost of districts; (iii) amount that households are willing to pay for water tariffs and if these are in line with household incomes; (iv) number of households and commercial establishments that will benefit from extension of the distribution network; (v) employment created and construction gains with network expansion; (vi) increased tourism benefits in terms of food sales/business receipts, particularly in Madang and Kokopo; (vii) health indicators, particularly waterborne diseases; and (viii) indirect benefits such as increase in the number of commercial and industrial establishments and employment.
D. Social
16. Other unquantifiable social benefits include: (i) benefits to women and children in terms of time saved for economic activities such as planting, harvesting and selling agricultural crops as in the case of villagers in Kokopo; (ii) long-term employment for PNGWB staff for plant operation, maintenance and operation as well as villagers in cleaning the grounds of water supply treatment facilities in Rabaul/Kokopo; (iii) improvement of people’s health particularly the villagers’ children who suffer from water borne diseases as a result of drinking water from unprotected sources such as rainwater tanks and creeks;13 (iv) short-term employment during project construction particularly the locals who gained experience in project construction and are now employed as semi-skilled labor;14 (v) improvement in business activities of commercial establishments such as hotels and restaurants; (vi) other social benefits such as more time for women to do household chores and rearing children and reduced visits to hospitals and clinics due to children illness; (vii) roads constructed under the Project in Madang benefited the people within the project site and provided access to villagers and workers; (viii) positive impact on education sector where schools no longer experience disruption of classes due to water interruptions; (ix) provision of electricity to the project area as a result of new head works benefited the landowners, small businesses and village people; (x) sale of property by the land owners enabled them to have capital for small-scale businesses; (xi) improved personal hygiene such as washing hands; and (xii) improved safety of food preparation for public consumption.
13 Diarrhea is a common waterborne disease is diarrhea. Health data from Madang Public Health Office showed a decrease in the number of diarrhea cases by 9% treated at Jomba clinic and Madang town clinic in 1998, which was 1,130 cases compared with 1,024 cases in year 2000. No available data on typhoid, cholera and others. In Rabaul, health statistics indicate a decline in diarrhea cases within the project area (Batuin and Vunapope) from 3,209 in 200` to 2,336 in 2002 or 27% decline in morbidity rate. 14 Same locals who worked under the Project and gained construction skills have been employed by Downer PNG Ltd. and other local construction companies In Madang, Kimbe, and Kokopo. 44 Appendix 7
17. The Waterboard has conducted a number of public information campaigns on the importance of using project services in Madang and Rabaul/Kokopo, as well as the need for them to connect and pay appropriate water tariffs. However, most residents are willing to connect and pay regularly during summer months because of shortages from other sources.
18. In the past, poor enforcement in the payment of water bills resulted to huge arrears. Recently, the Waterboard’s policy to disconnect nonpaying customers and enforcement of reconnection fees proved an effective deterrent. Increasing the compliance fee will discourage institutions, businesses, and households from using alternative supplies. Standby and compliance fees are not high enough to discourage private boreholes and rainwater tanks.
E. Resettlement
19. The water supply treatment plants are constructed on land the Waterboard had already acquired. A few households were relocated adjacent to the site and provided with safe water and better living conditions. Appendix 8 45
FINANCIAL AND ECONOMIC EVALUATION
A. Financial Evaluation
1. Scope and Methodology
1. The financial evaluation recalculates the financial internal rates of return (FIRR) of Madang and Rabaul/Kokopo water supply components and the results are compared with the appraisal and revised scope estimates. Project costs, financing plan, and revenues are revised based on information provided during the project completion review (PCR) mission. The financial analysis was conducted using at constant 2003 prices.
2. Project Cost and Revenues
2. Capital costs were revised based on actual expenditures at project completion1. The Waterboard provided the costs of operations and maintenance (O&M) for 2002, and this figure was divided by the estimated volumes of water treated to calculate O&M per cubic meter (m3). Projections of O&M costs for succeeding years are based on 2003 prices.2 The incremental operating costs are based on the 2003 average cost of kina per cubic meter (m3) of water treated for Madang and Rabaul/Kokopo.
3. At appraisal, the planned output was (i) increase average daily supply capacity of the Madang water supply system from 4,650 m3/day to about 9,750 m3/day, adequate to serve a population WITH 4,515 connections by the end of 2005. The achieved capacity was 15,600 m3/day, versus the original target of 9,750 m3/day. This has effectively addressed problems of multiple sources and treatment facilities, low water pressure, poor service reliability, water rationing, and non uniform water quality. Revised project scope increased the daily capacity of the Rabaul/Kokopo water supply system from 3,200 m3/day to about 8,250 m3 /day, adequate to serve 3,737 connections anticipated by 2005. Total population to be served is 49,500 people: 27,090 in Madang and 22,422 in Rabaul and Kokopo.3 Actual volumes as of June 2003 indicate that the supply capacities of Madang and Rabaul/Kokopo are 7,202 m3/day and 2,755 m3/day, respectively.4
1 The Third Urban Water Supply project was financed by loans from Asian Development Bank and Chiao Tung Bank Co. Ltd., and as well as government grants that are treated as government equity. 2 The Waterboard provided O&M data for 2002 and 2003 and were adjusted to reflect actual operating conditions. O&M is estimated as follows: (i) labor cost for operation, preventive maintenance, and minor repairs is K0.16 per kilogram (kg) sold; (ii) electricity cost is K0.12 per kg sold; (iii) chemical cost is K0.01 per kiloliter (kl) sold; (iv) reticulation system maintenance is about 0.5% of capital cost; and (v) mechanical and electrical plant maintenance is 3% of capital cost. 3 During the time of project revision in 1995, Kokopo had three independent, and unconnected urban water supply systems, one for the high and primary schools, one for the township, and one for the Vunapope mission. These are augmented by water tanks that rely on rainwater roof run-off. Prior to volcanic eruption, Kokopo had 3,500 people and estimated population in 1995 was 10,000, a number projected to reach 20,000 people in 2016. For Rabaul, the original scheme was based on a 2005 population of 27,000. After volcanic eruptions in 1994, the population fell to 12,500 people. Only minor improvements to Rabaul system have been proposed. The Rabaul water supply scheme has 1,629 connection targets in 2008 and 3,570 m3/day (11 Apr 1995). 4 The Kokopo water supply supplies water to urban residents in Kokopo, Vunapope, and Takubar. It can also supply the fringe villages of Vunamami, Takubar, Palnakaur, and Ulagunan. It can supply water to 5,141 people, a number projected to rise 9,284 in 2020. Rabaul water supply is limited to Zones 1 and 2 with no provision for peri-urban areas or fringe villages such as Matupit and Malaguna. Rabaul and Nonga systems will serve the estimated 2020 population of 5,560 people and there is no provision to supply water to the fringe villages along the north coast. (Preliminary Feasibility Study Vol. 2 Gazelle Peninsula). 46 Appendix 8
4. Average water tariff at appraisal was K0.522 /m3 and K0.632 /m3 at project revision, a figure estimated to rise to K1.41/ m3 in 2003 with tariff increase.5 Uniform tariffs are applied to all water supply customers for all levels of consumption.6 Water tariffs have been projected to generate sufficient revenues to cover the O&M costs, interest charges, and depreciation related to the project facilities.
5. The district revenues are derived from (i) water supply and sewerage operations, (ii) external services, (iii) connection/disconnection fees and compliance service fees, (iii) interest, and (iv) miscellaneous income. The management and the price committee allowed tariffs to increase in January 2003 by 29% for water and 34.7% for sewerage. The lifeline block is 12 kiloliters, with a minimum charge of K4.20; above 12 kiloliters it costs K1.65 per kiloliter. For sewerage, the minimum charge is K5.59 for up to 12 kiloliters, and for more than 12 kiloliters, the charge is K0.50 per kiloliter. Tariffs are projected to increase by a real rate 3-4% annually during the projection period.7
6. Operating expenses include administrative salaries wages and benefits, operational supplies (electricity, chemicals, etc.), professional services, repairs and maintenance, depreciation, sundry costs, stationery, communications, insurance, financing charges, and administrative charges. These are based on constant 2003 prices. Fixed assets and investments are recorded in the balance sheet at their historical costs, showing cumulative depreciation.8 Annual increases are required to ensure that the Waterboard can cover its operating expenses, depreciation, and financing costs, as well as raising its rate of return to at least 5%.
3. Waterboard
7. Water revenues are generated by 14 branches or water districts but only the towns of Lae and Wewak are earning and cross-subsidizing the majority of the districts.9 Total water revenues in 2002, the largest single revenue source, are estimated at K21.4 million, an increase of 2% over 2001’s level of K17.8 million. These revenues are projected to increase by 10% to K23.5 million in 2003.10 Income from new connection fees was based on the average rates and the projected number of new water connections. Income from reconnection fees is relatively small. To calculate the volume of water sold, the NRW is projected to decrease from the current 35% for Madang and 34% for Rabaul/Kokopo to around 30% by 2005. Collection efficiency of billed water is relatively low in all districts and data on aging of accounts receivables indicate that the Waterboard has accumulated huge arrears from households, businesses, and institutions.11 The Waterboard is focusing on collecting outstanding arrears that would substantially improve liquidity and profitability.
5 Based on the income and expenses for 2001, average water tariff for Madang and Rabaul is K1.017/m3 (Source: Finance Division). 6 Customers are categorized into: settlement metered, domestic private metered low cost, domestic high covenant, industrial, institutional, and commercial metered. 7 This is based on the historical increase of 10% per annum (tariff revision is every 3 years) minus inflation of 5%. For evaluation purposes, a 4% real rate of increase is used. 8 Depreciation of fixed assets is estimated based on 2.5% per annum for civil works, buildings, staff houses, 15% for office equipment, and 20% per annum for mechanical, electrical, and general plant. 9 Lae’s revenues comprise 50% of total Waterboard revenues in 2001. 10 These are based on finance division data on water sales and budget figures for 2001-2003. 11 The head office is in charge of collecting from government institutions and large businesses. As of December 2002, Madang had outstanding collectibles of K960,857 and K353,199. In Madang and Rabaul, 79% of these arrears are 91 to 360+ days old. Current billing as of December 2002 is equivalent to 13% of outstanding arrears. Appendix 8 47
4. Financial Re-evaluation
8. Financial internal rates of return were recalculated for Madang and Rabaul/Kokopo physical components, as well as for the Project as a whole based on actual project cost, financing, and revenue data.12 The financial reevaluation of the components was carried out on an incremental basis (with and without the Project) using 2003 constant prices in kina. The economic life of the water treatment plants (WTP) is 30 years. Capacity utilization of Madang in 2003 is an estimated 46%, increasing to about 56% in 2005 and about 90% in 2012 and beyond, when the water supply network is extended and the number of connections increased. In Rabaul and Kokopo, the capacity utilization is about 35% in 2003 and is projected to increase to about 45% in 2005 to about 91% in 2012, assuming that connection targets are met in residential, commercial, and industrial expansion areas.13
9. The FIRRs for Madang and Rabaul/Kokopo are 5.9% and 4.8% respectively, lower than the 8.8% and 5.4% estimated at appraisal and 10.7% and 4.2% under revised project scope because a lower number of households connected and NRW rose. Overall FIRR is 5.1% as compared with 6.6% at appraisal and 6.4% with revised project scope.14 The results of financial re-evaluation indicate operations are financially viable, assuming that the projected number of connections is met until 2012.15 Sensitivity analyses were undertaken, and they indicate that the FIRRs of both components are more vulnerable to decreases in revenues than increases in O&M costs, as projected during appraisal. Results are indicated in Table A6.2. It The FIRR is more sensitive to decreases in revenues arising from decreases in water tariff collections. Tables A6.3 to A6.5 present the FIRR calculation for Madang and Rabaul/Kokopo components and the overall Project. 10. The Waterboard needs to make several improvements to financial operations: (i) for billing and collection, the Waterboard needs to follow-up with defaulting customers on the first month to avoid disconnection on the third month and to discourage deliberate nonpayment of bills; (ii) for NRW reduction, it needs to test, recalibrate, and replace meters; (iii) timely reporting of performance indicators, as well as consolidated monthly and quarterly reporting.
12 Weighted average cost of capital is 4.8% based on project financing (ADB 51%, Chiao Tung Bank 30%, and Waterboard 19%). The interest rate on the CTB loan is 3.5% per annum from 15 May 1997 to 15 Nov 2017, with payments made semiannually. The exchange rate was K1.39 = $1.00 at revised project scope in 1997, and K2.5 = $1.00 at project completion in 2002. 13 In the consulting firm’s Final Design Report, the 2.8 ml/day would serve a population of 6,500 with 15% for commercial use. The Waterboard committed available funding to increase reservoir capacity to 5.6 ml/day to meet the demand of the extended system, which includes light industrial and residential areas in Takubar. This additional capacity would also meet the proposed commercial activities in the area between GelaGela Road and Takubar. Average per-capita gross demand is estimated at 225 lcd. 14 There has been a major change in project scope and change in project area from Rabaul to Kokopo as a result of volcanic eruption in 1994. Prior to volcanic eruption, Rabaul had reticulated water supply throughout the town. After the eruption, all reservoirs, pumps, and treatment houses were destroyed and the reticulated water supply has only been restored to Zone 1. Before 1994, Kokopo town did not have a centralized water supply system and most residents obtained water from water tanks and bores. As a result of the Third Urban Water Supply Project, Kokopo water system serves an estimated population of 5,141, which is targeted to reach 9,284 in 2020. The remaining population of 53,204 in Kokopo District is projected to reach 96,086 people in 2020, and these people will continue to obtain water from water tanks, shallow wells, underground springs, and creeks. Provincial government officials said more villages would connect to the system since Waterboard water is safe to drink. 15 Specifically, cash flow generated by this component is sufficient to meet all the operating costs, depreciation, and debt-service requirements under the loan agreement. 48 Appendix 8
Table A6.1: FIRR and Sensitivity Analysis
Item At Revised At Project Appraisal Scope Completion (%) (%) (%)
1. Overall Project: Base Case 6.6 6.4 5.1 (i) Capital Cost Increase by 10% 5.8 n.a. (ii) Revenues Decrease by 10% 5.0 4.3 (iii) O&M Increase by 10% 5.9 4.9 (iv) Combination of (i) and (ii) 4.5 n.a. (v) Combination of (i) and (iii) 5.1 n.a. (vi) Combination of (ii) and (iii) 4.2 4.0 (vii) 20% Decrease in Collection Efficiency 3.3 (viii) 30% Decrease in Water Sales 2.3 2. Madang Component: Base Case 8.8 10.7 5.9 (i) Revenues Decrease by 10% 5.0 (ii) O&M Increase by 10% 5.6 (iii) Combination of (i) and (ii) 4.7 (vii) 20% Decrease in Collection Efficiency 4.0 (viii) 30% Decrease in Water Sales 2.9 3. Rabaul/Kokopo Component: Base Case 5.4 4.2 4.8 (i) Revenues Decrease by 10% 4.1 (ii) O&M Increase by 10% 4.7 (iii) Combination of (i) and (ii) 3.9 (vii) 20% Decrease in Collection Efficiency 3.2 (viii) 30% Decrease in Water Sales 2.3 Note: No sensitivity analyses were undertaken for Madang and Rabaul in the appraisal report and or the financial re- Evaluation undertaken in April 1995. FIRR = financial internal rate of return, n.a. = not applicable, O&M = operation and maintenance. Source: Completion review mission estimates.
B. Economic Evaluation
1. Scope and Methodology
11. The economic analysis recalculates the economic internal rates of return (EIRR) of the two components and the results are compared with the appraisal and revised project scope estimates. Project costs and benefits are reassessed based on information provided by the project management office during the project completion review mission and field interviews with beneficiaries. The EIRRs are compared with the economic opportunity cost of capital (EOCC) for the components, which was assumed to be 12%.
2. Project Cost and Benefits
12. The updated financial costs were converted to economic costs to reflect the true cost and value to the economy of goods and services. This calculation uses the domestic price numeraire (benefits are nontradable) and is undertaken in constant 2003 prices.16 The analysis
16 ADB. 1997. Guidelines for the Economic Analysis of Projects. Manila. The standard exchange rate factor is used to convert local prices into their border price equivalents based on standard conversion factor of 0.9 for Papua New Guinea. Appendix 8 49 describes the economic rationale and target beneficiaries and sets out the without-project scenario. The analysis compares the calculated EIRR for the two components to the EOCC, which is assumed to be 12%. Standard and project-specific sensitivity tests were undertaken to assess the robustness of the EIRR.
13. The major quantifiable benefits of the water supply project17 are (i) nonincremental benefits in terms of cost savings on installing water tanks18 purchase of additional water; (ii) incremental benefits to commercial/industrial and institutional users calculated as the revenues earned from selling water to new consumers; and revenues collected from existing customers based on the present water tariff, representing the consumers’ minimum willingness to pay.19
3. Results
14. The results of the economic evaluation show that the Project is economically viable with EIRR estimated at 12.4%, higher than the EIRR of 10% at revised project scope but still below the appraisal estimate of 13%. EIRRs for Madang and Rabaul/Kokopo are higher than revised estimates of 12.5% and 12.1%, respectively, because of lower project cost and community supplies. Sensitivity analyses show that the Project is most sensitive to decreases in benefits. The results are presented in Table A6.6 below. Tables A6.7 to A6.9 in Supplementary Appendix present the detailed calculation of benefits, EIRR, and sensitivity analyses.
17 The Madang component exceeded objectives and augmented the source supply, headworks, water treatment capacity, and transmission main capacity to meet 2012 targets. The original design only intended to meet 2005 treatment and transmission capacity. The achieved capacity was 15,600 m3/day, versus the original target of 9,750 m3/day, effectively addressing the problems of multiple sources and treatment facilities, low water pressure, poor service reliability, water rationing, and nonuniform water quality. The Project also provided additional infrastructure to villages near the water treatment plant (WTP) and water intake facilities, including water supply, electricity supply, telephone service, and road access. 18 Water service was only available for 4 to 6 hours a day in Madang. In Rabaul, villagers had to buy water from the town center and spend money on transport, or obtain water from unsafe sources such as creeks and rivers. At appraisal, the cost of a water tank, including installation, was K800. Based on the survey of suppliers of water tanks in Port Moresby, a water tank of 9,000 liters costs K3,200 (exclusive of value-added tax) or K3,520 (inclusive of value-added tax). For 4,500 liters, the price is K2,500 inclusive of value-added tax. There is no installation cost charged. 19 Households not served by piped water supply rely on rainwater collected from roofs and stored in tanks made of galvanized steel. Most households have 2,000-gallon tanks or two or three smaller tanks. Stored rainwater is not adequate to cope with consumption during the 4- to 5-month dry season. Many households have to purchase water, particularly in Kokopo. Households that cannot afford to buy water have to rely on creeks, rivers, shallow water wells, or relatives and neighbors that have larger storage tanks or piped water supply. In a village in Kokopo, people living far from the roadside who cannot afford to pay a connection fee obtain water from connected households for K2 for a 10-liter bucket. 50 Appendix 8
Table A6.2: EIRR and Sensitivity Analyses
At Appraisal Revised Scope At Project Completion Item (%) (%) (%)
1. Overall Project: Base Case 13.3 10.0 12.4 (i) Capital Cost Increase by 10% 12.2 n.a. (ii) Benefits Decrease by 10% 11.7 11.1 (iii) O&M Increase by 10% 13.0 12.3 (iv) Combination of (i) and (ii) 10.7 n.a. (v) Combination of (i) and (iii) 11.9 n.a. (vi) Combination of (ii) and (iii) 11.4 10.9 (vii) Decrease in WTP by 30% 11.2 (viii) Decrease in Cost Savings by 30% 9.6
2. Madang Component: Base Case 17.3 10.2 12.5 (i) Benefits Decrease by 10% - - 11.1 (ii) O&M Increase by 10% - - 12.3 (iii) Combination of (i) and (ii) - - 10.9 (iv) Decrease in WTP by 30% 11.4 (v) Decrease in Cost Savings by 30% 9.5
3. Rabaul/Kokopo Component: Base Case 11.2 9.9 12.1 (i) Benefits Decrease by 10% - - 10.9 (ii) O&M Increase by 10% - - 12.0 (iii) Combination of (i) and (ii) - - 10.8 (iv) Decrease in WTP by 30% 10.8 (v) Decrease in Cost Savings by 30% 9.8 Note: No sensitivity analysis was undertaken for Madang and Rabaul in the Appraisal Report and in the Economic Re-Evaluation undertaken in April 1995. EIRR=economic internal rate of return, O&M=operation and maintenance, WTP=water treatment plant. Source: ADB, CTB, GoPNG
15. There are other unquantifiable project benefits, including: (i) reticulated water supply for the volcanic affected landowners in Jahil Village and Beon CIS in Madang and in Kokopo, (ii) complete internal reticulation for Vunapope Mission area to replace existing well bores, old pipe, and reticulated water supply for affected landowners at Ulagunana and Palnakaur villages; (iii) women and children saved time for economic activities such as planting, harvesting, and selling agricultural crops; (iv) long-term employment for Waterboard staff for plant operation, maintenance and operation as well as local residents/villagers in maintaining the grounds of watersupply facilities;20 (v) employment of contractors and suppliers;21 (vi) improvement of people’s health particularly the villagers’ children who suffer from water borne diseases as a result of drinking water from unprotected sources such as rainwater tanks and creeks;22 (vii) short-term employment during project construction particularly the locals who gained experience
20 Waterboard staff were trained in water supply investigation and design, construction supervision, landowner consultation and negotiation process and O&M of completed systems. Employment and training of local residents with the construction contractor on carpentry, form-setting, concrete works, steel fabrication, pipe-laying, earthworks, building construction and security operations. 21 Local contractors and suppliers include electricians, earthmovers, hardware, steel fabricators, plumbers, restaurants and accommodation, etc. 22 A common waterborne disease is diarrhea. Health data from Madang Public Health Office showed a decrease in the number of diarrhea cases treated at Jomba clinic and Madang town clinic from 1,130 cases in 1998 to 1,124 cases in 2000. There were no available data on typhoid, cholera, or other waterborne diseases. In Rabaul, health statistics indicate a decline in diarrhea cases within the project area (Batuin and Vunapope) from 3,209 in 2000 to 2,336 in 2002, with a 27% decline in morbidity. Appendix 8 51 in project construction and are now employed as semi-skilled labor;23 (viii) improvement in business activities of commercial establishments such as hotels and restaurants; (ix) other social benefits such as more time for women to do household chores and rearing children and reduced visits to hospitals and clinics due to children illness; (x) roads constructed under the Project in Madang benefited the people within the project site and provided access to villagers and workers;24 (xi) provision of electrical and telephone infrastructure in the area of new water supply works made available to local residents;25 (xii) positive impact on education sector where schools no longer experience disruption of classes due to water interruptions; (xiii) provision of electricity to the project area as a result of new head works benefited the landowners, small businesses and village people; and (xiv) sale of property by the land owners enabled them to have capital for small-scale businesses.
23 Same locals who worked under the Project and gained skills in construction have been employed with the consulting firm and other local construction companies In Madang, Kimbe, and Kokopo. 24 Roads constructed included: (i) upgrading of existing sealed road in Madang from Sissiak to Beon, improving drainage, filling potholes, patching edges, and resealing; (ii) upgrading road from Elcome Substation to Beon CIS turnoff with drainage improvements, potholes filled, edges patched, and complete resealing with assistance from Australian Agency of International Development and Madang Department of Works; (iii) construction of gravel access road in Kokopo, including a concrete floodway from the chlorination building to reservoirs, for local residents as well as Waterboard operation and maintenance staff; and (iv) upgrading of Adima St. in Kokopo District to double-coat bitumen seal, with kerb, channel, and storm drainage. 25 In Kokopo, 11 Kv electrical infrastructure provided at borefield and made available for extension to residents along GelaGela Road. 52 Appendix 9
COST RECOVERY ANALYSIS
A. Scope and Methodology 1. There are two major means to achieving full cost recovery that the Waterboard should follow: financial viability of its water supply investments and the financial sustainability of its operations, including the Madang and Rabaul/Kokopo systems. Water tariffs must be set considering affordability to customers; charges should be transparent and equitable; and tariff collection should be easy to administer.1 Water tariffs should be set at a level to cover the operating and maintenance (O&M) costs (including depreciation) of the water supply systems, as well as debt service and a reasonable profit margin of about 10% return on investment.2
2. The Waterboard provides the overall policy guidance on tariff setting for its 14 water districts and has adopted a uniform tariff.3 A minimum fee of K4.80 is charged for a lifeline block consumption of 0-12 kiloliter and a concessional rate for less than 30 kiloliters’ consumption4. The Waterboard raised tariffs in 1997, 2000, and 2003, with government approval, to achieve profitability.5 As part of the Loan Agreement, the Waterboard has assured that water tariffs would be increased over 5 years to enable full recovery of O&M; and capital costs, including depreciation; and a 5% return on investment.
3. In April 2003, the Government approved a 29% increase in water tariffs and 34% increase in sewerage tariffs.6 The increase will enable the Waterboard to generate additional income of K5.7 million in 2003. All metered customers—comprising of domestic low- and high- covenant, commercial, and industrial customers—were charged uniform tariffs starting 2000. Table A7.1 presents the 1995, 1997, 2000, and 2003 tariffs.
4. To contribute to full cost recovery, the project recommended charging fees for standard new connection (connection of 15 millimeters’ [mm] diameter and not more than 26 meters [m] from the nearest main), a policy that took effect in 1995. Beginning 2000, however, this fee was waived as an incentive to connect to the system. Other fees include (i) a reconnection fee of K25 for services that were disconnected; (ii) a meter rental fee;7 (iii) compliance and licensing fees for nonconnected households taking water from any source (K50 per annum minimum fee for domestic and K150 per annum or nondomestic plus surcharge of K.005/kilo liter and non- domestic K0.025/kilo liter); and (iv) standby fees for customers in service coverage areas at
1 Consumers pay water tariffs directly to districts, which remit collections to head office daily. Customers must pay the billed amounts within 30 days of account delivery. Failure to pay within the stipulated period will lead to service being disconnected and recovery action from the branch manager. The Waterboard does not employ bill collectors because of security problems. 2 In recent years, the Waterboard’s tariff increase is projected to provide a 5% return on investment. 3 The districts are Alotau, Arawa, Daru, Kavieng, Kimber, Kundiawa, Lae, Madang, Mt. Hagen, Popondetta, Rabaul, and Wewak. 4 In 1995, the lifeline block was 0-15 kiloliters (kl) and there were unmetered connections comprising of private connections and public standpipes (shared). The lifeline block has been reduced to 12 kl. 5 Asian Development Bank has recommended introducing a regional tariff structure reflecting the cost of water supply in each location, but this has not been implemented as it would price water beyond affordability in small locations. Special Evaluation Study on ADB Capacity Building Assistance for Managing Water Supply and Sanitation to Fiji Islands, Kiribati, Papua New Guinea and Republic of the Marshall Islands, March 2003. p.16) 6 Approved by the price controller based on Management review results of a 37% increase in operating costs, 26% devaluation of kina, and price increases that affected working capital requirements. 7 Water meter rental amounts to K50 per annum for pipes up to 15 millimeters (mm) in diameters, K100 per year for connections greater than 15mm diameter piping, and K150 per year for effluent meters. The Waterboard charges an inspection fee of K70 per hour for water supply and sewerage service connection. Starting 2000, customers are also charged a meter testing fee of K20 (15mm-20mm pipes), K40 (25mm-50mm) or K50 (more than 50mm). Starting 2003, there is also a water testing fee of K35. Sewerage outfall tests cost K35. Appendix 9 53
K0.532/kilo liter for metered customers and K0.393/kilo liter for sewerage. The project completion review mission noted that poor enforcement and minimal fees meant that connected and nonconnected users still obtained water from alternative sources.8 It a top management priority to increase and enforce payment of compliance fees; to strengthen customer services to maintain those connected; and to connect more customers, particularly businesses and institutions.
Table A7.1 Water and Sewerage Tariffs, Waterboard Item 1995 1997 March 2000 April 20039 1. Water Supply - Domestic and Non-Domestic (Metered Monthly Charges in Kina) <12 kl K3.50 min. charge K4.80 min. charge 13-30 kl K0.64/kl K1.150/kl >30 kl NA NA K1.050/kl (flat) for K1.950/kl domestic K1.50/kl (flat) for non-domestic <15 kl K3.50 min. charge K4.05 min. charge 15-30 kl K0.50 per kiloliter K0.58/kl NA >30 kl K0.85 per kiloliter K0.98/kl Unmetered (per month) Private connection K3.50/house K4.05/house Public standpipe (shared) K3.00/house K3.50/house NA Noncommercial, Government Institutions, and Related Occupancy: Metered (per month) K0.62/kl K0.72/kl (min. charge of K20.00) NA Unmetered (per month) Connection: NA Up to 15 mm K16.40/connection Up to 25 mm K54.60/connection Up to 50 mm K164.30/connection NA Up to 80 mm K545.90/connection Up to 100 mm K1,092/connection Greater than 100 mm K0.109/charging unit Commercial/Industrial Occupancy (including Hydrants and Shipping, etc.) Metered (per month) K0.65/kl K0.75/kl (K20 min. charge) Unmetered (per month) – Nominal Diameter of Water Supply Connection: <15 mm K17.50/ connection 15-25 mm K60/ connection 25-50 mm K180.20/ connection NA NA 50-80 mm K600/ connection 80-100 mm K1,200/ connection >100 mm K0.120 per charging unit Water Tankers <10 kl K5.50 min. charge K7.50 min. charge K15/tanker >10 kl K0.60/kl K0.75/kl K1.50/kl Sewerage Services – Domestic Water Meter Base (Monthly Charge in Kina)
8 Where a public water supply is available to supply any person or entity and they choose to disconnect or connect to the public supply, a water system standby fee shall apply based upon water taken from any source provided approval is given by the Waterboard and the source proves with regular testing to be better or equal to the public supply. Similarly, where a public sewerage service is able to service any person or entity and they choose to disconnect from the public water supply or not connect to the public sewerage service, a standby fee shall apply that covers the unsubsidized cost of providing sewerage services. 9 Approved by the price controller under the Prices Regulation Act and took effect on 16 April 2003. 54 Appendix 9
Item 1995 1997 March 2000 April 200310 <12 kl K4.86 min. charge K5.590 min. charge 13-30 kl NA NA K0.143/kl K0.400/kl >30 kl K0.143/kl K0.500/kl <15 kl K3.50 min. charge K4.05 min. charge 15-30 kl K0.09/kl K0.11/kl >30 kl K0.09/kl K0.11/kl NA For customers K3.50 (per 9,000-liter K4.05 (per 9,000-liter with rainwater tanks tank or part thereof) tank or part thereof) Unmetered (per month) Private connection K6.00/house K7.00/house Public standpipe (shared) NA NA NA For customers K3.20 (per 9,000-liter K4.05 (per 9,000-liter with rainwater tanks tank or part thereof) tank or part thereof) 2. Sewerage Services – Nondomestic Water Meter Base (Monthly Charge in Kina) <12 kl K4.86 min. charge K5.590 min. charge 13-30 kl K0.442/kl K0.400/kl >30 kl K0.442/kl K0.500/kl Sludge Tankers NA NA <10 kl K4.420/tanker K5.590 min. charge >10 kl K.442/kl (flat) K0.500kl/ Noncommercial, Government Institutions, and Related Occupancy: Metered (per month) K13.80 min. charge plus K0.20/kl and K15.00 NA 0.17/kl above 15 kl min. charge Unmetered (per month) Connection: <15 mm K11.80/connection K16.40/connection 15-25 mm K11.80/connection K54.60/connection NA 25-50 mm K18.00/connection K164.30/connection 50-80 mm K132.50/connection K545.90/connection 80-100 mm K260/connection K1,092/connection >100 mm K0.028/charging unit K0.109/charging unit Commercial/Industrial Occupancy (including hydrants, shipping, etc.) Metered (per month) K13.00 minimum, plus K0.65/kl NA K0.17/kl above 15 kl Unmetered (per month) – Nominal Diameter of Water Supply Connection: <15 mm K11.80/connection K17.50/connection 15-25 mm K11.80/connection K60/ connection NA 25-50 mm K43.70/connection K180.20/connection 50-80 mm K153.70/connection K600/connection 80-100 mm K302.10/connection K1,200/connection >100 mm K0.032 K0.120 per charging unit per charging unit Connection/Junction Fees New Water Connections11 K50.00/connection and K60.00/ connection No fee for standard new connection K20 supervision fee of 15 mm measurement and not more than 26m from the nearest main. Beyond this distance connection fee is at cost. New Sewerage K550/connection and K550/ junction No fee for standard new connection Connections K50 supervision fee of 15 mm measurement and not more than 26m from the nearest main. Beyond this distance connection fee is at cost.
10 Approved by the price controller under the Prices Regulation Act and took effect on 16 April 2003. 11 For 15 millimeter (mm) water and 100-mm sewer pipes up to 26 meters long to 1 meter inside the property line. Connections exceeding this charged at cost. The customer is responsible for the cost of connecting to the building from the property boundary. Appendix 9 55
Item 1995 1997 March 2000 April 200312 Reconnection where service has been disconnected (change of tenancy) K20.00 K25.00 K25.00 Where service disconnected and water meter removed K20.00 K25.00 K25.00 Temporary connection K50/connection plus NA commercial meter reading Source: Finance Division, Waterboard. K = kina, kl = kiloliter, mm = millimeter, min = minimum 5. Water tariff collections are based on 100% of the metered water consumption shown in the monthly invoice generated by the management information system’s billing and collection section. Tariffs are increased based on revenue requirements and annual costs. Waterboard tariffs for consumption of up to 100 kl are much lower than Eda Ranu tariffs in Port Moresby, shown in Figure A7.1,13 which indicate that Waterboard water is more affordable to consumers. Figure A7.1 Water Charges - Comparison with Eda Ranu 450 400 350 300 250 Eda Ranu Low Dom. Eda Ranu High Dom. 200 Eda Ranu Non-Dom. 150 WB Dom./Non-Dom. 100 50 -
Consumption (Kl/month)
12 Approved by the price controller under the Prices Regulation Act and took effect on 16 April 2003. 13 Waterboard tariffs are much lower than Eda Ranu’s for 0-10 kiloliters consumption for domestic: K4.80 per month compared with K7.50 and K10 for low- and high-covenant users. Charging affordable rates in smaller towns encourages households to connect to the system. Similarly for nondomestic customers, the Waterboard rate of K4.80 is only 10% of Eda Ranu charge of K50 for 0-10 kl per month. Both utilities charge progressive tariffs, but minimum consumption for commercial customers is up to 20 kl/month for Eda Rannu or K2.5/kl at K50/month and 12 kl/month for Waterboard which is only K4.80/month or K0.24/kl. 56 Appendix 9
B. Water Tariffs and Connections 6. In accordance with the Waterboard’s and ADB’s policy of full cost recovery, water tariffs have been estimated to cover O&M, depreciation, and debt service. The Waterboard estimates average cost for water in 2003 to be K1.40/kl and average price at K1.51/kl. For sewerage, average cost is K0.47 per kl and average price is K0.50 per kl. These costs have been assessed for 2001 and 2003, years for which data is available. In future, tariff increases are needed to cover costs of the Project. Currently, Madang and Rabaul districts can adequately provide O&M budget and debt service from tariffs collected based on billed volumes.
7. The assessment calculates the average required tariff by dividing the required income by water volume sold for all customers. Tables A7.2 and 7.3 and Figures A7.2 and A7.3 show the number of connections for Madang and Rabaul/Kokopo by zone. Kokopo’s connections comprise 43.6% of total Rabaul/Kokopo connections. The greater the number of connections, and the larger the volume sold will ensure that unit operating costs are lower.14 If water volumes still fall short of design capacity, then unit operating costs will rise, particularly the fixed overheads such as depreciation and debt service.
Table A7.2: Number of Connections, Madang Type 1997 1998 1999 2000 2001 2002 2003 Settlement Metered 478 426
Domestic Private Metered Low cost 1,225 1,219 Domestic High Covenant 790 761
Subtotal 2,169 1,679 1,826 2,041 2,376 2,493 2,406
Industrial Metered 170 161 170 192 218 206 200 Commercial 1
Institutional Meter 70 75 76 77 85 83 80
Total 2,409 1,915 2,072 2,310 2,679 2,782 2,687 Source: Madang, Customer Services, Waterboard MIS Report. 2003 data is up to June.
14 Nonrevenue water (NRW) is a concern in both Madang and Rabaul, where there is no consistent monthly information on water production and consumption. In December 2002, Kokopo NRW was reported at 57% (62,000 kiloliters [kl] water produced less 26,639 kl sold), a much higher figure compared with the March 2003 NRW of 26% (47,884kl water produced less 34,965 kl water sold). The same problem exists in Madang and Rabaul. Appendix 9 57
Table A7.3: Number of Connections, Rabaul by Zone Item 1997 1998 1999 2000 2001 2002 2003 (as of Zone 1 - Rabaul Town November) Settlement Metered 82 62 65 68 68 73 60 Domestic Private Metered Low cost 54 57 69 101 117 138 137 Domestic High Covenant 252 160 180 207 266 250 234 Subtotal 388 279 314 376 451 461 431 Industrial Metered 74 63 74 81 91 71 67 Commercial 2 5 Institutional Meter 12 10 12 12 13 13 12 Total 474 352 400 469 555 547 515 Zone 7 – Nonga Settlement Metered 33 30 Domestic Private Metered Low cost 130 119 Domestic High Covenant 93 91 Subtotal 173 154 189 217 253 256 240 Industrial Metered 2 2 2 2 2 2 2 Commercial Institutional Meter 7 6 6 6 6 5 5 Total 182 162 197 225 261 263 247 Zone 9 – Kokopo Settlement Metered 1 26 36 Domestic Private Metered Low cost 5 1 2 5 13 172 207 Domestic High Covenant 62 38 48 64 142 258 306 Subtotal 68 39 50 69 155 456 549 Industrial Metered 62 54 63 70 78 89 108 Commercial 7 13 Institutional Meter 9 8 9 9 10 25 28 Total 139 101 122 148 243 577 698a
Total Settlement Metered 132 120 Domestic Private Metered Low cost 444 432 Domestic High Covenant 604 584 Subtotal 629 472 553 662 859 1,180 1,136 Industrial Metered 138 119 139 153 171 162 160 Commercial 10 16 Institutional Meter 28 24 27 27 29 44 41 Total 795 615 719 842 1,059 1,396 1,353 a Based on data from Rabaul district and provincial government. Source: Waterboard MIS and Performance Indicators Report, 1997 to 2003.
C. Tariffs and Cost Recovery 8. Full cost-recovery tariffs assume that projected volumes will reach design capacity levels by 2012 for Madang and Rabaul/Kokopo.15 Annual water volumes were projected based on
15 Madang water supply system was originally designed to provide 4,650 m3/day to about 9,750 m3/day, adequate to serve a population of 4,515 connections by the end of 2005; and Rabaul water supply system from 3,200 m3/day to about 8,250 m3/day, adequate to serve the 3,737 connections anticipated by 2005. The achieved capacity of 58 Appendix 9 water supply requirements of all users. Projected billed water volume in 2003 is about 1.5 million kl for Madang and 659,300 kl for Rabaul/Kokopo, estimated to increase at least 5% annually. These volumes are projected to increase conservatively to design capacity in 2006 of 9,750 kl/day—about 3.5 million kl for Madang—and 8,250 kl/day or 2.97 million kl for Rabaul/Kokopo in 2014. Connections are expected to increase when the network expands.
9. Based on 2003 budget figures,16 unit operating revenue on projected billed volume is estimated to be K1.25/ kl for Madang17 sufficient to cover average cost of K1.24/kl, which includes O&M,18 depreciation, and debt service but excludes head office administration charges.19 Rabaul’s average revenue of K1.15/kl is adequate to cover average cost of K1.14/kl. To sustain full cost recovery, in anticipation of increases in O&M, billed volumes and costumer connections will need to increase, NRW decrease, and connected customers not to resort to alternative supplies. Connection targets must be realized in 2005 until 2012 to sustain viability of Madang and Rabaul/Kokopo water supply systems. At the same time, tariffs need to rise by at least 5% annually to cover O&M cost increases. It is projected that even with an increase in overall costs of around 10% in 2005, increased volumes billed, increased tariffs, and cost efficiency measures will ensure full cost recovery and financial sustainability. The Waterboard has managed to lower fixed overhead by cutting the number of staff. Refer to Figure A7.4 for comparison of average tariffs required for 2003, 2005, and 2012.
Figure A7.4 Cost Recovery Tariffs, 2003-2005 3.50
3.00 2003 Rev 2.50 2003 Cost Kina/ Kl 2.00 2005 Rev 1.50 2005 Cost 1.00 2012 Rev 0.50 2012 Cost - Madang Rabaul WB
10. The project completion review (PCR) mission noted that the Waterboard must revalue its assets in 2004 to determine actual coverage with additional 2003 connections. This will determine preventive maintenance requirements for the project equipment, distribution network,
Madang was 15,600 m3/day versus the original target of 9,750 m3/day. For the Rabaul component, headworks capacity is 4,500 m3/day. Two 2,800m3 capacity service reservoirs were constructed. This system is expected to meet 2012 anticipated demand. 16 Calculations were based on 2001 figures: (i) Madang income of K1.57 million was not sufficient to cover the operation and maintenance (O&M) cost (including sundry and insurance) of K1.58 million, depreciation of K272,250, and debt service of K6,486; (ii) Rabaul income of K625,330 was not enough to cover O&M cost of K554,928, depreciation of K80,301, and debt service of K11,419. Billed volumes were 1.515 million and 600,000 for Madang and Rabaul, respectively. The Waterboard charges these districts additional administration charges and sundry costs. 17 Based on estimated revenues of K1.9 million and billed volume of 1,522,100 kiloliters (kl) for Madang in 2003; for Rabaul, estimated revenues of K756,650 and billed volume of 659,306kl. Figures do not include administration charges and recoveries, which are substantial. 18 O&M includes the variable costs of salaries, wages, labor incidentals, contracted services, operational supplies, repairs, maintenance, professional services, stationery, communications, insurance, and other sundry costs. 19 The head office administration charges are about 15% of district costs. Appendix 9 59
and facilities. O&M will increase by at least 10% on average per year with an expanded distribution network. Water tariffs need to rise in 2005 to an average rate of K1.75/ kl and K3.25/ kl in 2012 to cover projected O&M cost, depreciation, and debt service.
11. The Waterboard is targeting to increase average water tariff to at least K1.75/kl by 2005. This means that water tariffs will increase to at least K0.5/kl for the minimum block consumption from the existing K0.4/kl. The average tariff needs to rise to K1.5/kl for Madang and K1.4/kl for Rabaul to maintain full cost recovery in 2005. The Waterboard must also enforce compliance, licensing, and standby fees to ensure that customers do not use alternative supplies.
D. Tariffs and Affordability
12. Based on household income data and interviews with villages in the project area,20 tariffs are affordable to low-income households (K10 per month, about 2% of a household income of K500).21 The problem with nonrevenue water is willingness to pay rather than affordability, since districts do not follow up water bills to avoid arrears.22 Waterboard headquarters has assumed the responsibility of collecting huge arrears from government institutions.
13. Households willing to pay included those near Waterboard offices in Madang who had experienced short supply and rationing before the project, as well as villagers who had to pay extra obtain water from town (comprises of K2 per 10-liter bucket, or K20 for a 200 liter drum in addition to K20 transport cost). The billed volumes normally decrease during rainy months, since connected customers with rainwater tanks opt to use this water for domestic purposes. During summer the same customers are willing to pay to be reconnected since they lack alternative water sources. Districts must use higher compliance and standby fees to ensure that existing users stay connected, and connect more customers by discouraging use of alternative water sources.
20 Households mainly earn money through wages (weekly), small business, cocoa, copra, timber, vegetables, fruit, and rent. Wage earners earn K560-K1,600 per month. Copra sellers earn about K100-K650 per month. Households can earn up to K1,250 per month from semisubsistence farming, and those selling cocoa earn about K506 per month. Household expenditures average about K100 per week, K30 for electricity and K30 for kerosene. (Preliminary Feasibility Study Gazelle Peninsula Vol.2). 21 Estimated at K20 per day for 25 days, K500 per day for selling fruits and vegetables. 22 As of June 2003, Madang water district had total accounts receivable of K702,490. Rabaul had K453,960. This is as much as six times their current monthly billing. A respective 32% and 27.7% of these arrears are more than 360 days old for Madang and Rabaul. Some 20.2% (Madang) and 6.6% (Rabaul) are 181-361 days old. 60 Appendix 10
PROJECT PERFORMANCE RATING ASSESSMENT
Table A10.1: Evaluation of Performance
Item Results/Remarks Relevance
Project preparation is relevant to project output at the time of approval Highly relevant Project output is relevant to achieving project goals and objectives at Yes the time of approval High priority of the Project in the context of the country’s development Yes strategy at the time of approval High priority of the Project in the context of the operational strategy of Yes Asian Development Bank (ADB) for the country at the time of approval High priority of the Project in the context of the country’s development Yes strategy at the time of evaluation High priority of the Project in the context of one or more ADB’s Yes strategic objectives at the time of evaluation
Percentage of subcriteria that met assessment 100% Evaluation rating 2.2
Efficacy
Most project physical outcomes achieveda Yes Most project intangible outcomes (e.g. technical assistance) achieved Yes Project outcomes leading to project goals Yes
Percentage of subcriteria that met assessment 100% Evaluation rating 1.8
Efficiency
Efficient and satisfactory ADB’s internal processing of the Project Yes Effective organization and management of the executing agency and Yes implementing agencies Effective project management Yes Efficient in recruitment of consultants and other procurement Yes Timely and adequate availability of counterpart funding Yes
Percentage of subcriteria that met assessment 100% Evaluation rating 2.0
Sustainability
Adequate demand for project servicesb Yes Effective operating and financial performance of the utilities and ability Yes to recover costsc Existence of appropriate maintenance policy and proceduresd Yes Available funds (cash flow) for continued operations, maintenance, and growth requirements Yes Adequate skills to continue project operation Yes Availability of appropriate technology and equipment to operate the Project Yes Appendix 10 61
Item Results/Remarks Availability of enabling environment (subsidies, tariffs, prices, competitiveness, and political development) in which the Project is Yes operating at the time of evaluatione Strong ownership and commitment of the Government to the Project Yes Operation of the project facilities has significant impact on the environment and renewable resources Not applicable Adequate community participation and beneficiary incentives to maintain the project facilities Yes
Percentage of subcriteria that met assessment 100% Evaluation rating 2
Institutional Development and Other Impacts
Formal laws, regulations, and procedures being established at the national and district levels Yes Informal norms and practices are appropriate Not applicable Strong institutional/organization arrangements to maintain operation of Yes the project facilities Adequate institutional skills and capacitiesf Yes Active participation of the public Partly Macroeconomic or sector policy framework in place Yes Positive impact on poverty reduction Yes Positive impact on the environment Not applicable Positive impact on social organizationg Yes Positive impact on political developmenth Yes
Percentage of subcriteria that met assessment 80% Evaluation rating 2 a Natural disasters delayed implementation and changed the Project’s scope and area, but the Project’s achieved capacity has exceeded targets. b Intentionally designed to meet 2012 targets vs. originally planned 2005 targets; nevertheless, achieved capacity exceeds current demand. The project will meet 2005 targets for connections and customer relations. c Cost-efficiency measures have been implemented, and centralized district-level billing and collection are improving. d Operation and maintenance O&M manuals and procedures were instituted, and the Waterboard will undertake an asset revaluation and management study to further improve and provide adequate budgets for O&M. e The Government supports tariff increases to sustain viable operations. f Institutional capacity in technical aspects is adequate. Measures are now underway to further strengthen the Waterboard’s financial management and management information systems (MIS), linking district and central office operations. g Some communities are helping the Waterboard maintain water supply facilities. Districts will undertake activities geared towards more community organization and better integration of villages with the water supply system. h The provincial government in East New Britain has been closely working with the Rabaul water district to develop water supply systems in rural and newly developed areas.
62 Appendix 10
Table A10.2: Assessment of Project Overall Performance
Criteria Weights Assessment Rating Value Weighted (a) (%) (c) (d) Ratinga (b) (b x d)
Relevance 20 Highly relevant 2.2 0.44 Efficacy 25 Efficacious 1.8 0.45 Efficiency 20 Efficient 2.2 0.40 Sustainability 20 Sustainable 2.0 0.40 Institutional Development 15 Moderate 2.0 0.30 and Other Impacts
Overall rating 2.1 (Successful) a Highly successful = overall weighted average (OWA) > 2.5, and no criteria less than 2; successful = OWA 1.6-2.5, and no criteria less than 1; less than successful = OWA 0.6-1.6, and not less than 2 criteria less than 1; unsuccessful = OWA < 0.6. Source: Staff estimates.