Document of The World Bank

Public Disclosure Authorized Report No: ICR1799

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-71170)

ON A

LOAN

Public Disclosure Authorized IN THE AMOUNT OF US$43.53 MILLION

TO THE

LEBANESE REPUBLIC

FOR A

BA’ALBECK WATER AND WASTEWATER PROJECT

Public Disclosure Authorized December 12, 2012

Sustainable Development Department Middle East and North Africa Region

Public Disclosure Authorized

LEBANESE REPUBLIC – GOVERNMENT FISCAL YEAR January 1st – December 31th

CURRENCY EQUIVALENTS (Exchange Rate Effective as of December 12, 2012) Currency Unit Lebanese Pound US$1.00 LBP 1,500

WEIGHTS AND MEASURES METRIC SYSTEM

ABBREVIATIONS AND ACRONYMS

Ba'albeck Hermel Water and BHWIA NCB National Competitive Bidding Irrigation Authority BNC Baa'lbeck / Nabi-Chit Area NGO Non-Governmental Organization BRWA Beka'a Regional Water Authority O&M Operation and Maintenance BWWP Ba'albeck Water and Wastewater PAD Project Appraisal Document Project Council for Development and CDR PDO Project Development Objective Reconstruction Country Portfolio Performance CPPR PFS Project Financial Statements Review CWA Chamsine Water Authority PMR Project Management Report EA Environmental Impact Assessment RFP Request for Proposal EMP Environmental Management Plan RWA Regional Water Authority ERR Economic Rate of Return QAG Quality Assurance Group FMR Financial Monitoring Reports QSA Quality Supervision Assessment GOL Government of Lebanon SA Special Account IBRD International Bank for TA Technical Assistance Reconstruction and Development ICB International Competitive Bidding TOR Terms of Reference IPR Independent Procurement Review TSU Technical Support Unit INT Integrity Vice Presidency UFW Unaccounted for Water LAP Land Acquisition Plan VAT Value Added Tax Initiative MC Management Contract WA Water Authorities MOEW Ministry of Energy and Water WHO World Health Organization MOF Ministry of Finance ZWA Zahle Water Authority

Vice President: Inger Andersen Country Director: Ferid Belhaj Acting Sector Manager: Caroline van den Berg Project Team Leader: Claire Kfouri ICR Team Leader: Claire Kfouri

REPUBLIC OF LEBANON

Ba’albeck Water and Wastewater Project

TABLE OF CONTENTS

Data Sheet

B. Key Dates ...... i C. Ratings Summary ...... i D. Sector and Theme Codes ...... ii E. Bank Staff ...... ii F. Results Framework Analysis ...... iii G. Ratings of Project Performance in ISRs ...... vi H. Restructuring (if any) ...... vii I. Disbursement Profile ...... vii 1. Project Context, Development Objectives and Design ...... 1 2. Key Factors Affecting Implementation and Outcomes ...... 6 3. Assessment of Outcomes ...... 10 4. Assessment of Risk to Development Outcome ...... 20 5. Assessment of Bank and Borrower Performance ...... 20 6. Lessons Learned ...... 23 7. Comments on Issues Raised by the Borrower and Implementing Agencies ...... 24 Annex 1: Bank Lending and Implementation Support / Supervision Process ...... 25 Annex 2. Project Costs and Financing ...... 27 Annex 3. Revised Performance Monitoring Indicators ...... 28 Annex 4: Outputs by Component ...... 30 Annex 5: An Overview of BRWA Consumer Survey Results ...... 36 Annex 6: Economic Analysis ...... 42 Annex 7: Financial Analysis ...... 46 Annex 8: Summary of Borrower’s ICR ...... 48 Annex 9: List of Supporting Documents ...... 50 Annex 10: Map ...... 51

A. Basic Information

LB - Ba'albeck Water Country: Lebanon Project Name: and Wastewater Project Project ID: P074042 L/C/TF Number(s): IBRD-71170 ICR Date: 12/12/2012 ICR Type: Core ICR GOVERNMENT OF Lending Instrument: SIL Borrower: LEBANON Original Total USD 43.53M Disbursed Amount: USD 43.28M Commitment: Revised Amount: USD 43.53M Environmental Category: B Implementing Agencies: Council for Development and Reconstruction (CDR) Ministry of Energy and Water (MoEW) Beka'a Regional Water Authority (BRWA) Cofinanciers and Other External Partners:

B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 06/21/2001 Effectiveness: 07/31/2003 07/31/2003 08/26/2008 Appraisal: 02/04/2002 Restructuring(s): 12/11/2009 Approval: 06/04/2002 Mid-term Review: 07/15/2006 11/06/2006 Closing: 12/31/2007 06/15/2012

C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Unsatisfactory Risk to Development Outcome: Substantial Bank Performance: Moderately Unsatisfactory Borrower Performance: Moderately Unsatisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Moderately Moderately Quality at Entry: Government: Unsatisfactory Unsatisfactory Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies: i

Overall Bank Moderately Overall Borrower Moderately Performance: Unsatisfactory Performance: Unsatisfactory

C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry Yes None at any time (Yes/No): (QEA): Problem Project at any Quality of Yes Moderately Satisfactory time (Yes/No): Supervision (QSA): DO rating before Moderately

Closing/Inactive status: Satisfactory

D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 2 2 Sewerage 49 49 Sub-national government administration 7 7 Water supply 42 42

Theme Code (as % of total Bank financing) Infrastructure services for private sector development 28 28 Other financial and private sector development 14 14 Pollution management and environmental health 29 29 Rural services and infrastructure 29 29

E. Bank Staff Positions At ICR At Approval Vice President: Inger Andersen Jean-Louis Sarbib Country Director: Ferid Belhaj Joseph P. Saba Sector Manager: Caroline van den Berg Emmanuel Forestier Project Team Leader: Claire Kfouri Mohammed Benouahi ICR Team Leader: Claire Kfouri ICR Primary Author: Samantha M. Constant

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F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document)

As stated in the PAD, the objectives of the Project were to: (i) develop and strengthen the institutional capacity of Beka'a Hermel Water and Irrigation Authority (BHWIA), Zahleh Water Authority (ZWA) and Chamsine Water Authority (CWA); (ii) improve the access of customers of BHWIA to satisfactory water supply and wastewater services; (iii) involve the private sector in the operation and maintenance of the water and wastewater facilities; and (iv) rationalize the use of water through the introduction of water meters.

Revised Project Development Objectives (as approved by original approving authority)

(a) PDO Indicator(s)

Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : Volume of wastewater collected and treated At project closing, Value Wastewater the Iaat Treatment quantitative or 0 N/A treated: 5,992 plant was receiving Qualitative) m3/day and treating up to 8,000 m3/day. Date achieved 02/04/2002 12/31/2007 12/11/2009 06/15/2012 Comments Regular operations of the Iaat Wastewater Treatment Plant commenced in 2011, (incl. % after successful reconciliation efforts with farmers who traditionally irrigated achievement) fields with untreated wastewater. Indicator 2 : Water Tariff Established based on Volumetric Consumption Value The tariff structure is As of loan closing Volumetric tariff quantitative or based on a fixed annual N/A date, a new tariff instituted Qualitative) rate. law was not passed Date achieved 02/04/2002 12/31/2007 12/11/2009 06/15/2012 Comments The government piloted a transition to a volumetric tariff in another regional (incl. % water authority, but did not introduce such a tariff nationally. achievement) Indicator 3 : Key BRWA staff hired and trained No Managing Director in Full-time Managing Managing Value place. Director hired. Director and quantitative or Senior posts in N/A Staffing authorized, Senior staff Qualitative) engineering and finance but positions not hired vacant. yet filled. Date achieved 02/04/2002 N/A 12/11/2009 06/15/2012 Comments The Managing Director position remained vacant for several years due to a (incl. % government-wide hiring freeze. The Ministry of Energy and Water has approved

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achievement) a 20 billion LBP (approximately 13 million USD) budget over the next two years to support the BRWA. Indicator 4 : Increase in the number of subscriptions to the water supply network Value Water: 13,095 Water: 24,000 Water: 24,000 Water: 9,905 quantitative or subscriptions subscriptions subscriptions subscriptions Qualitative) Date achieved 02/04/2002 12/31/2007 12/11/2009 06/15/2012 This indicator, originally an IO, was raised to PDO indicator status in the 2009 Comments restructuring. The decrease in subscription numbers from the baseline was a (incl. % result of BRWA adjusting accounts in 2006 to delete inactive or redundant achievement) subscriptions. Indicator 5 : Improvement in collection rate Value quantitative or 35% 66% N/A 32% Qualitative) Date achieved 02/04/2002 12/31/2007 N/A 06/15/2012 Comments Subscriptions initially fell as BRWA audited subscriptions. The campaign to (incl. % enroll benefiting households as subscribers gained momentum only in the past achievement) year. Indicator 6 : Reduction in Unaccounted for Water (UfW) Value quantitative or 50% 30% N/A 46% Qualitative) Date achieved 02/04/2002 12/31/2007 06/12/2012 Comments (incl. % The 2009 project restructuring dropped UfW as a key performance indicator. achievement) Indicator 7 : Population served with wastewater services and water supply Water: 150,408 Water: 73,640 Value Water: 78,570 individuals individuals quantitative or individuals; Wastewater: N/A Wastewater: Wastewater: 29,410 Qualitative) 18,000 individuals 93,636 individuals individuals Date achieved 02/04/2002 05/20/2010 12/11/2009 06/15/2012 Comments Baseline population estimates at project design were inconsistent. At project (incl. % closing, 138,070 individuals (i.e. 27,614 households) have access to water pipes achievement) and meter boxes. Indicator 8 : Number of water meters installed Value quantitative or 4,000 24,970 24,970 13,873 Qualitative) Date achieved 02/04/2002 12/31/2007 12/11/2009 06/15/2012 The 27,614 households within the project area have meter boxes installed within the property line. The BRWA's policy was to install meters in all boxes, Comments permitting connection whether or not households were subscribed but this was (incl. % later changed. achievement)

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Indicator 9 : Service contracts implemented Service contract in Service Value Service contract in place for contract for quantitative or 0 place for operations operations and operations and Qualitative) and maintenance maintenance maintenance Date achieved 02/04/2002 12/31/2007 12/11/2009 06/15/2012 Comments The 2009 project restructuring dropped Service Contracts implemented as a key (incl. % performance indicator and replaced it with volume of wastewater effluent treated. achievement)

(b) Intermediate Outcome Indicator(s)

Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Indicator 1 : Increase in service coverage as percentage of population in service area Value Water: 41% Wastewater: Water: 96% Water: 53% (quantitative N/A 13% Wastewater: 67% Wastewater: 31% or Qualitative) Date achieved 02/04/2002 12/31/2007 N/A 06/15/2012 Comments Meter boxes were installed at the property line of households. The figures in this (incl. % IO are based on utility estimates of physical connections from the meter box to a achievement) household. Indicator 2 : Number of connections made for (i) water and (ii) wastewater Water: 24,000 Water: 14,728 Value Water: 13,095 households households households (quantitative Wastewater: 3,000 Wastewater: N/A Wastewater: 5,882 or Qualitative) households 12,000 households households. Date achieved 02/04/2002 12/31/2007 N/A 06/15/2012 Comments (incl. % achievement) Indicator 3 : Number of subscribers Water: 24,000 Water: 13,095 Water: 9,793 Value subscriptions subscriptions subscriptions (quantitative Wastewater: N/A Wastewater: 3,000 Wastewater: 5,882 or Qualitative) 12,000 subscriptions subscriptions subscriptions Date achieved 02/04/2002 12/31/2007 N/A 06/15/2012 Of the 73,640 individuals receiving water through the project (i.e. 14,728 households), the BRWA estimates that only 9793 households are legally Comments subscribed with the remainder illegally connected or benefiting from the (incl. % improved network without paying. achievement)

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Length of network implemented under this project (i) water and (ii) Indicator 4 : wastewater Value Water: 83 km Water: 134.5 km (quantitative 0 Wastewater: 160 N/A Wastewater: 157.8 or Qualitative) km km Date achieved 02/04/2002 12/31/2007 06/15/2012 Comments Procurement efficiencies allowed for the network design to capture new housing (incl. % developments and additional localities not included in the original scope. achievement) Appointment of Technical Support Unit for BHWIA, ZWA, CWA, and Indicator 5 : CDR Value (quantitative TSU did not exist TSU established N/A TSU established or Qualitative) Date achieved 02/04/2002 12/31/2007 N/A 06/15/2012 Comments The TSU has contracted a number of TSU staff as consultants after the project (incl. % closing date based upon their demonstrated skills. achievement)

G. Ratings of Project Performance in ISRs

Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 06/28/2002 Satisfactory Satisfactory 0.00 2 12/20/2002 Satisfactory Satisfactory 0.00 3 04/15/2003 Satisfactory Satisfactory 0.00 4 06/26/2003 Satisfactory Unsatisfactory 0.00 5 09/27/2003 Satisfactory Satisfactory 0.44 6 03/23/2004 Satisfactory Satisfactory 1.12 7 08/16/2004 Satisfactory Unsatisfactory 1.40 8 03/29/2005 Moderately Satisfactory Unsatisfactory 1.83 9 10/31/2005 Satisfactory Satisfactory 3.04 10 05/04/2006 Satisfactory Satisfactory 5.92 11 12/06/2006 Satisfactory Satisfactory 10.05 Moderately 12 06/25/2007 Moderately Satisfactory 14.88 Unsatisfactory Moderately 13 11/30/2007 Moderately Satisfactory 18.74 Unsatisfactory Moderately 14 06/09/2008 Moderately Satisfactory 20.72 Unsatisfactory 15 10/22/2008 Moderately Satisfactory Moderately Satisfactory 24.52 16 06/15/2009 Moderately Satisfactory Moderately Satisfactory 25.89 17 11/25/2009 Moderately Satisfactory Moderately Satisfactory 26.34 18 01/28/2010 Moderately Satisfactory Moderately Satisfactory 26.83

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19 06/07/2010 Moderately Satisfactory Moderately Satisfactory 29.18 Moderately 20 02/05/2011 Moderately Satisfactory 34.22 Unsatisfactory 21 08/09/2011 Moderately Satisfactory Moderately Satisfactory 38.30 22 01/31/2012 Moderately Satisfactory Moderately Satisfactory 39.49 Moderately Moderately 23 06/25/2012 41.66 Unsatisfactory Unsatisfactory

H. Restructuring (if any)

ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions 08/26/2008 MS MS 23.10 12/11/2009 MS MS 26.34

I. Disbursement Profile

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1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

1. Lebanon has long suffered from serious challenges in the provision of potable water, including gaps in distributional equity across regions, poor water quality and intermittent supply. Wastewater collection and treatment services have historically lagged behind those in water; and, despite some recent improvements, the sector is characterized by old sewerage networks and limited wastewater treatment capacity.

2. Poor water quality and intermittent supply is particularly pervasive throughout the Beka’a Valley (the capital of which is the City of Ba’albeck), a region which suffers from pockets of extreme poverty, economic hardship, high rates of illiteracy, limited access to health care, and a majority of households living on incomes averaging less than 100 USD a week.

3. In the late 1990’s, the Government of Lebanon (GoL) launched several reforms for institutional change in the water supply and sanitation sectors. Most notably, Parliament passed Water Law 221 designed to improve efficiency in service provision, in part through consolidating many small utilities into four Regional Water Authorities (RWA). The Water Law was considered to be a proactive step to address the fact that nearly half of all water produced nationwide was unaccounted for due to leaks, theft and billing deficiencies, while leaking or overflowing wastewater collection systems posed serious risk to public health and the environment.

4. Under Law 221, the Beka’a Regional Water Authority (BRWA) was thus formed to take on the role of service provision for some 572,000 people, absorbing 3 utilities plus smaller regional water boards.1 The newly merged BRWA inherited distribution networks that were in poor physical condition, with very high levels of illegal connections and very low collection rates from those who were legally connected. In 2001, responsibility for wastewater treatment and collection was further transferred from local municipalities to RWA’s.

5. While a major step forward, Water Law 221 did not provide the newly created RWA’s with the needed autonomy to deliver sustainable water and sanitation services. Regulatory arrangements for setting tariffs were further neither clear nor transparent. The newly-created RWA’s consequently responded to financial stress from low subscription rates and bill collection by reducing the hours of water service, minimizing infrastructure maintenance and essentially eliminating customer service. As a result, the enforcement of standards for drinking water and wastewater quality was also limited.

1 Water Law 221 consolidated the Ba'albeck Hermel Water and Irrigation Authority (BHWIA), Chamsine Water Authority (CWA) and the Zahle Water Authority (ZWA) into the Beka’a Regional Water Authority originally referred to in the PDO and PAD. 1

6. Having worked closely with GoL on the Emergency Recovery and Reconstruction Program (ERRP-Loan 3562), the World Bank proposed to continue its support through a water supply and sanitation investment loan in the City of Ba’albeck and surrounding localities within the Beka’a region. The Ba’albeck Water and Wastewater Project (BWWP IBRD-71170) evaluated in this ICR, was thus designed to complement institutional development efforts within the BRWA as well as address infrastructure gaps unfilled by the ERRP and other earlier investments2. Between 2003 and 2012, the World Bank continued to play an active role in the development of the Lebanese water sector, financing the 2006 West Beka’a Emergency Water Supply Project (TF058085 evaluated in ICR Report 00002392), the Greater Beirut Water Supply Project (Loan 7967) in 2010 and most recently providing technical assistance for the development of the Ministry of Energy and Water’s (MOEW) 2012 National Water Sector Strategy.

7. The BWWP project focused on: (i) strengthening the capacity of the BRWA (which merged the Ba’albeck Hermel Water and Irrigation Water Authority (BHWIA), Zahleh Water Authority (ZWA) and Chamsine Water Authority (CWA); (ii) improving access of BHWIA customers to satisfactory water supply and wastewater services through house connections and extension of network; and (iii) improving efficiency by involving the private sector in operation and maintenance (O&M) through a Service Contract (SC).

1.2 Project Components

8. The project comprised the following 5 components: • Component 1: Institutional Development (4.25 million USD) which comprised the Technical Support Unit (TSU) and a number of individual consultants to provide specialist assistance on utility strengthening and capacity building. • Component 2: Improving and Increasing Service Coverage for Water Supply (12.67 million USD) to include all infrastructure and ancillary equipment required for the provision of water supply services to the project area • Component 3: Improving and Increasing Service Coverage for Wastewater Collection (15.63 million USD) to include all infrastructure and ancillary equipment required for the extension of wastewater services to project area. • Component 4: Service Contract (7.07 million USD) for the operation and maintenance of project infrastructure as well as the existing wastewater treatment plant at Iaat and • Component 5: Consulting Services (3.48 million USD) to include supervision of works and service contracts, studies in the wastewater sector, development and implementation of the Environmental Management Plan (EMP) and other consultancy services.

2 Though the ERRP had for example financed the construction of the Iaat wastewater treatment plant, sewerage lines from households to the treatment plant were financed by the Ba’albeck Water and Wastewater Project. 2

1.3 Main Beneficiaries

9. The project was implemented in a region of Lebanon associated with the lowest average income levels in the country. These levels remained true during implementation. In 2009, a Social Impact Analysis (Report No. 48993-LB) of the water and electricity sectors in Lebanon revealed that the share of poverty in Lebanon remained high in the Beka’a Valley, where 10 percent of the population lived below the extreme poverty line, in contrast to the overall national average of less than one percent in extreme poverty.

10. The project has extended access to improved water and sanitation services to over 138,000 people. Of these, 73,000 individuals are legally subscribed to the BRWA to date. While the project was not designed to have a direct impact on poverty, the achievements of a number of its development objectives also have an indirect impact on the poor through the provision of improved potable water and sewage collection services at a lower cost than experienced at the time of appraisal.

11. Furthermore, local farmers surrounding the Iaat WWTP (the majority of whom are particularly poor), who had previously been irrigating local fields with untreated sewage, were provided with access to clean wells through the project and with which they now irrigate local fields. As a result, sewage has been successfully diverted away from agricultural fields and towards the Iaat wastewater treatment plant, thereby providing a significant positive public health and environmental impact.

1.4 Original Objectives and Key Indicators

12. The project development objectives were to: (i) develop and strengthen the institutional capacity of BHWIA, ZWA and CWA; (ii) improve the access of customers of BHWIA to satisfactory water supply and wastewater services; (iii) involve the private sector in the O&M of the water and wastewater facilities; and (iv) rationalize the use of water through the introduction of water meters.

13. Original project outcome indicators (PAD Annex 1) included: (i) improvement in the tariff collection rate; (ii) reduction in Unaccounted for Water (UfW); (iii) population served with water supply and sanitation; (iv) number of water meters installed; and (v) implementation of service contracts. The ICR team took the indicators listed in Annex 14 of the PAD as intermediate indicators: (i) increase in service coverage; (ii) number of connections made for water and wastewater; (iii) number of subscribers; (iv) length of network constructed under this project for water and sanitation; and (v) appointment of the technical support unit for BHWIA, ZWA, and CWA.

1.5 Revised PDO and Key Indicators

14. The PDO was not revised. In 2009, the performance indicators were restructured in response to a request from CDR to more effectively capture project impacts as follows:

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• Volume of wastewater collected and treated was added as a new indicator -- to measure volumes of wastewater treated at the Iaat Treatment Plant. This indicator was considered to be a more representative measure of the impact and efficiency of the Service Contract. • Unaccounted for water (UfW) was dropped as an indicator due to the inability of BRWA to accurately measure UfW due to its inability to estimate losses due to billings. • Water tariff established based on volumetric consumption. A tariff based on volumetric consumption would link payments to consumption, thus encouraging optimized use of water. The value of the project’s metering program was predicated on the tariff change, which at the time of the restructuring, was actively being sought by the MOEW. • Key BRWA staff hired and trained was added as a project outcome indicator to expedite the process of hiring a professional, full-time Managing Director and senior staff. • Increase the number of subscriptions to the water supply network shifted this indicator from an IO to a higher visibility PDO indicator.

15. Project components remained the same throughout implementation. However, the scope of the second phase of works under works contracts was redefined in April 2003, resulting in one combined package of water and wastewater network construction for Ba’albeck City and another for the cluster of 18 localities.3 This new scope allowed for one contractor per designated location to carry out both water and wastewater services rather than have multiple contractors in one locality. The consolidation of the packages led to changes to the pre-qualification and bidding documents, further delaying the implementation of the second phase of works by 18 months.

1.6 Other Significant changes

16. Extension of Loan Closing Dates: The Bank extended the project four times primarily to assist the BRWA with increasing subscriptions. The first extension was for nine months from December 31, 2007 to September 30, 2008; the second was for 15 months from September 30, 2008 to December 15, 2009; the third extension was for 18 months from December 15, 2009 to June 15, 2011; and the fourth extension was for 12 months from June 15, 2011 to June 15, 2012. A mix of factors, described below, led to the loan closing extension:

. Project Effectiveness was initially delayed six months due to delayed approval from Parliamentary committees and was finally achieved on July 31, 2003. While awaiting Effectiveness, the Government requested, and the Bank agreed to, a restructuring of the works contracts to merge water and wastewater works instead

3 Localities include: Taybe, Hammoudieh, Al Ansar, Majdaloun, Iaat, Brittel, Ham, Hezzine, Hourtaala, Haouch Tal Safia, Tfail, Douris, Talya, Maaraboun, Nahle, Younine, Tali Abaid. 4

of using separate contracts for each. This redefining exercise, with the subsequent changes in bidding and prequalification documents, contributed to the works contracts being issued 18 months later than projected at appraisal.

. The 2006 Lebanon War further forced a halt to investments that lasted until security conditions again permitted access to work sites. Works recommenced against a backdrop of two years of ongoing government turmoil, but the pace of both civil works and institutional development failed to remain on schedule.

. The BRWA did not campaign for increased subscriptions among project beneficiaries until the water and sanitation infrastructure works were approaching completion. In a region with long-standing local mistrust of government agencies, demonstrating the availability of improved water and sanitation services was particularly relevant. As such, it was only once the infrastructure was commissioned that the BRWA started campaigning for increased subscriptions to the network and even then, continued to distribute water in the old network thereby further reducing incentive for beneficiaries to subscribe to the BRWA. Accordingly, it was relatively late in project implementation that the BRWA recognized local communities’ lack of willingness to connect to the network and, in some cases, pay for water services. The Bank team accordingly was late in downgrading the performance of the project in ISR’s. The BRWA changed strategy accordingly, delivering water only to those households that had subscribed. This was however controversial and time consuming and thus led to further project delays.

17. Revision of Legal Covenants Dates: The original project effectiveness date was extended for six months from January 30, 2003 to June 30, 2003 due to delays within Parliament. The project became effective on July 31, 2003.

18. Increased scope of work and service area: At appraisal, GoL expected that funds would support the installation of 83 km of water lines and 160 km of sewerage network. Procurement efficiencies allowed for the rehabilitation and extension of the water supply network to expand from 86 km to 134.5 km to cover new housing developments and improve access in specific localities not included in the original contracts. This was carried out through two additional works contracts at the request of CDR in 2006.4

4 Mid Term Review of the Ba’albeck Water and Wastewater Project, November 6-19, 2006. 5

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

19. As noted above, the BWWP complemented the ERRP, which had earlier financed infrastructure investments in the Ba’albeck area after the end of the civil war. Facilities under the ERRP had however fallen short of providing the population with adequate water or sanitation services. The BWWP was thus designed, in part, to provide complementary infrastructure, such as wastewater collection lines to feed the Iaat WWTP earlier financed by the ERRP.

20. The BWWP was also closely aligned with water sector reform efforts launched by GoL in the late 1990s. Through the project’s institutional development PDO, the project aimed to support Water Law 221 in particular by providing targeted institutional strengthening to the BRWA and ensuring complementarity with previous infrastructure investment projects.

21. Ultimately however and despite investments into the institution and significant improvements in water and sanitation services, subscriptions to the BRWA at project close fell significantly short of project design levels and as such, no fundamental change has been experienced in overall utility finances. The utility remains unsustainable as a self-standing business on both the water and wastewater sides and the project outcomes are thus rated unsatisfactory with substantial risk to sustainability of investments made.

22. The PAD is extremely thorough and the ICR team recognizes that a great deal of time and resources were invested in the development of the design and preparation of the project. In retrospect, however, the appraisal risk assessment underestimated the severity of risks to project success. Institutional risks ultimately led to unsatisfactory project outcomes, as described below:

• Slow development of the BRWA: The merging of disparate local water authorities to form the BRWA was a long process -- expected to be rapid under Law 221, but not actualized until five years later. The five-year gap led to a leadership vacuum in BRWA that slowed decisions on financial and procurement policies and left implementation bereft of clear institutional rules during the early years of the BWWP.

• Overestimation of political will: Government approval of the volumetric water tariff was cited in the PAD as a potentially controversial issue. At project design, MOEW and the Ministry of Finance were reportedly committed to passing structural tariff reforms and were responsible for final approval. When this did not happen however, key elements of project design and investment, such as the metering program, were rendered uneconomic, contributing directly to the unsatisfactory project outcome.

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• Misplaced assumptions involving community and service provider relations: The appraisal team assessed the demand for connections as a “Negligible” risk, failing to foresee the potential disconnect between the BRWA improving connection coverage and households actually subscribing to and paying for the new network services. Despite strong efforts by CDR and the BRWA teams, once extensive new network coverage began to be commissioned, connections did not translate into an increase in subscriptions, threatening the economic viability and future sustainability of the BRWA.

23. The Quality Assurance Group (QAG) carried out a formal Quality of Supervision 5 Assessment (QSA6) in October 2004 . The evaluation rated the quality at entry as Moderately Unsatisfactory, noting that “…procurement matters and institutional and financial decisions were not advanced enough at the time of the Board presentation.” The ICR team supports that evaluation based on the failure of the appraisal team to mitigate key risks to project objectives.

2.2 Monitoring and Evaluation

24. Monitoring focused on extending services to expand population coverage and on environmental requirements for compliance with wastewater treatment standards. Environmental guidelines for effluent sludge were proposed in collaboration with the Food and Agriculture Organization (FAO) and then instituted in April 2010 with the publication of “Lebanese Guidelines for Sludge Use in Agriculture.” Additionally, an Environmental Impact Assessment (EIA) was carried out by the TSU.

25. A Monitoring & Evaluation (M&E) component planned at the project level was to be implemented through a rapid social assessment early on in project implementation and a follow up social assessment midcourse. Neither the rapid nor full social assessment was carried out during the project lifespan.

26. In June 2009, the World Bank conducted a Social Impact Assessment of the Electricity and Water Sectors in Lebanon (Report No. 48993-LB). Results showed that affordability ranked low in reasons why people did not subscribe or pay for water. The report emphasized a primary reason raised by residents for not connecting was lack of access to a public network in the area. Additionally, the report highlighted the critical need for a metering system to bridge the disconnect between water supply and demand.

27. Despite limited progress with meter reform and persistently low subscription rates, BRWA expanded efforts to reach out to communities. In March 2012, the BRWA -- with the support of a Private Public Infrastructure Advisory Facility (PPIAF) Grant -- carried

5 See Annex 9: List of Supporting Documents for full QAG assessment

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out a customer satisfaction survey of 800 households to better identify community needs and approaches that would increase subscription levels.6 Survey outcomes reveal that lack of access is still a challenge along with concerns about low water pressure, poor water quality and intermittent supply. A combination of lack of awareness about the availability of the network (including its benefits and steps to connect) and technical reasons related to maintenance challenges with the infrastructure network contributes to the overall connection challenge.

2.3 Post Completion and Next Steps:

28. Building institutional sustainability is an ongoing process that requires time and strong leadership. Prior to closing of the loan, The Director General of the BRWA set in place a strategy to increase subscriptions through enhanced outreach and partnership development. Had the Director General been appointed at an earlier stage of the BRWA formation, the institutional process would have likely resulted in a more positive outcome. Institutional growth is however inevitably impacted by the socio-political context surrounding it. In a region such as the Beka’a Valley, the political nature of how local development unfolds is complex and unpredictable, calling for project teams to be more realistic about feasibility of objectives and timeframe.

29. Recent data from BRWA reveal an increasing trend of revenues, due to higher subscription and collection rates (See Table 1) resulting from a targeted outreach program and promotional discounts. Additionally, BRWA has finalized its five-year business plan (2012-2016) to recover late fees, optimize records and help further increase subscriptions. GoL has further authorized the hiring of needed professional staff and has subsidized revenue shortfalls so that minimum maintenance needs can be met.

30. The ICR team views the BRWA’s recent measures to increase subscriptions as promising; however, success at achieving the goal of 24,614 subscriptions will require the utility to incentivize households with offers that address the concerns raised by residents. A volumetric tariff would add economic value to BRWA’s metering capabilities; however, this decision remains outside of BRWA’s control, as do tariff levels. Until the BRWA is able to sustainably finance its operations, the risk to sustaining project outcomes remains high even while central government funding ensures at least minimal water service levels over the short term.

6 See Annex 5: PPIAF Report 8

Table 1: Revenues from Collections in BRWA Service Area (January - June: 2010, 2011, 2012)

2010 2011 2012 Month Revenues Revenues Revenues January 254,285,838 242,796,000 294,841,168 February 206,225,000 376,299,000 388,812,000 March 326,061,367 534,348,709 559,103,000 April 304,201,372 560,368,384 727,097,000 May 206,612,250 765,396,963 949,306,000 June 483,805,542 1,296,210,721 2,082,224,000 Total 1,881,191,369 3,775,419,777 5,001,382,168 2.4 Safeguard and Fiduciary Compliance

31. There were no reported divergences or waivers from the Bank’s safeguards and procedures during implementation. As required, CDR submitted quarterly reports to the Bank and Bank teams supervised these aspects of project implementation.

32. Environment: In accordance with requirements in the Environmental Management Plan, CDR developed an implementation plan in 2007 incorporating the following activities: (i) guidelines on sludge reuse and the types of crops that could be irrigated with treated effluent; (ii) a number of workshops on effluent reuse, monitoring and sampling of water and wastewater quality, along with public awareness campaigns; and (iii) a program to monitor water supply systems, the wastewater treatment plant and treated sludge. All activities were carried out with no reported issues.

33. Social: A total of 106 plots were expropriated to provide land for project works. The ICR team confirmed during their April 2012 mission that land owners were compensated as stated by the Ministerial Decree 7848 dated April 30, 2002.

34. Financial Management: According to official records, financial management continued to met government and Bank standards. All audits were submitted as required and acted on where necessary.

35. Disbursements: Project implementation delays resulted in negligible disbursements until 2005. The redefinition of the scope of the water and wastewater works contracts without, initially, a corresponding change in disbursement categories blocked the disbursement of some funds. In December 6, 2007 the Borrower requested the creation of a new disbursement category to remedy this problem. The request was granted and the loan agreement amended as of February 6, 2008. No other changes were made in disbursement arrangements and Bank supervision verified that all disbursement requests were properly documented.

36. Procurement: The Bank agreed to a procurement plan revision which merged water and sanitation infrastructure into combined contracts, and which initially slowed 9

project implementation. Nonetheless, this merger resulted in significant cost savings which allowed for CDR to include additional towns and villages in the Ba’albeck area to be added to project beneficiaries.

37. Throughout project implementation, Bank supervision teams noted weak procurement capacity as a consistent issue, leading them to prioritize local training to strengthen procurement capacity within BRWA and the TSU. A project coordinator dedicated for procurement was recruited early on in the project to manage contracts and ensure the Bank guidelines were followed.7 In 2010, this contract was not renewed and an understaffed CDR contracts department began to handle procurement issues directly. The difference was notable, resulting in additional delays and deterioration in the quality of documentation.

38. An Independent Procurement Review (IPR) carried out in March 2011 concluded that while Bank guidelines were generally followed, weaknesses in the institutional set up and more seriously in contract management resulted in unnecessary delays and missed deadlines.8.

39. The World Bank investigated allegations that a contractor awarded an “Operation and Maintenance contract" misrepresented its past experience in order to be qualified. The allegations were substantiated and the Bank is in the process of exercising its remedies.

3. Assessment of Outcomes

3.1 Relevance of Objectives Rating: Moderately Unsatisfactory

40. As discussed earlier, the project was directly linked to long-term and still relevant, reform efforts and addressed important issues highly relevant to improving water and wastewater services. The project is referenced in the 2005 Country Assistance Strategy (CAS) (Pillar 3: Resource and Environmental Management which was designed to contribute to the CAS outcomes of improved water management, land use management and air pollution control), the 2007 Interim Strategy Note (Pillar 3: Resource and Environmental Management as described above), and most recently in the 2011-2016 Country Partnership Strategy (CPS) (Tier I – Core Program in which the Ba’albeck project was reflected as a project under implementation.

41. Improved water and sanitation remain a high priority for GoL as witnessed by their inclusion in the Council of Ministers’ December 2011 Economic and Social Reform

7 By July 2004, the recruitment process at the TSU was fully underway with 7 expert consultants already recruited and four waiting for the Bank no-objection after completing the selection process. A total of 11 experts were expected to staff the TSU. (Ba’albeck Water and Wastewater Project Aide Memoire (June 22 – July 6, 2004). 8 See Annex 9: List of Supporting Documents. 10

Action Plan reform pillar on Infrastructure Rehabilitation as well as the March 2012 formal adoption of the MOEW National Water Sector Strategy which proposes a detailed plan for improved water, sanitation and irrigation services and reforms nationwide.

42. Nonetheless, project design shortcomings left the project particularly vulnerable to unacknowledged risks that were well known in the sector at the time of appraisal.

3.2 Relevance of Design and Implementation Rating: Moderately Satisfactory

43. The design and implementation of project infrastructure was within standards and guidelines of the water and sanitation construction industry. Design and procurement efficiencies further led to the water and sanitation network being extended to a larger number of beneficiaries as compared to project design estimates.

44. Implementation of the BRWA community outreach to increase subscriptions to the network however was delayed and despite several extensions to the Loan closing date, did not reach levels anticipated at project design, thereby posing significant risk to its financial and operational sustainability.

3.3 Achievement of Project Development Objectives Rating: Unsatisfactory

45. A confluence of political and organizational factors delayed the project and prevented the delivery of three of its development objectives. The sections below highlight in more detail the main causes of interference, followed by concrete achievements by component that should be recognized despite the delays. Ultimately, these successes would not have been possible without the long-term commitment shared between GoL and Bank teams to completing the project and meeting the objectives.

46. Contributing causes that prevented project from achieving objectives included:

• The absence of a permanent, full-time BRWA Managing Director until late 2009 created a leadership vacuum that was a critical impediment to achieving progress in strengthening institutional capacity. Since his appointment, the Director General has emphasized improving the financial sustainability of the BRWA, the results of which can be seen in the 8% revenue increase over his first full fiscal year on the job (December 2010 - December 2011).

• In practice, the newly formed RWAs were operating as an amalgamation of separate entities rather than a unified administrative unit until 2005, at which time, Parliament passed the by-laws needed for unification. In BRWA’s case, difficulties remained given the leadership vacuum.

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• The Lebanese 2006 war was an abrupt event that caused physical damage to the national infrastructure – including roads, bridges, and water utilities -- across parts of the country and kick-started a two-year internal, political stand-off. The project was directly impacted as a result of physical damage to the network pipelines and facilities as well as indirectly by further delaying the senior-level management appointment at the BRWA.

• The appraisal team may have avoided mention of the political dynamics of the region for country relationship reasons. While understandable, they underestimated the influence that local politics might play in delaying local development plans and in influencing household decision-making. This became particularly evident in two ways: first, a standoff at the Iaat Treatment Plant as a result of farmers opposed to the redirecting of untreated wastewater from their fields to the treatment plant and second, the lag in subscriptions where households benefiting from the water but not paying found political protection against non- payment penalties.

47. The achievement of each development objective is evaluated below.

Development Objective 1: Develop and strengthen the institutional capacity of BHWIA, ZWA and CWA. The outcome is rated Unsatisfactory.

48. At the time of project design, there was a great deal of momentum to implement the Government’s recent reforms and fill infrastructure gaps not addressed by the ERRP, primarily focusing on rehabilitation and expansion of the water and sewerage networks.

49. Despite the Bank team’s early recognition of institutional challenges that lay ahead for the BRWA (as stated in ISR dated July 8, 2004) and explicit emphasis in the 2006 Mid Term Review on ways to promote long-term private sector engagement, capacity building, and improved billing and collections to promote the financial sustainability of the BRWA, the Bank chose not to restructure the loan beyond revising some project indicators.

50. By loan closing however, the BRWA demonstrated almost exactly the quality of sustainability (measured by subscriptions and collections) as it did at appraisal a decade earlier. It remains dependent on external resources to cover basic delivery of services and remains unable to provide daily service to subscribers. Key central government support measures that could have helped, including tariff reform that would encourage conservation through metering, did not take place as expected.

Development Objective 2: Improve the access of customers of BHWIA to satisfactory water supply and wastewater services. The outcome is rated Unsatisfactory.

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51. The new water supply network reaches 93 percent of the total population within the designated project localities as measured by the number of meter boxes installed within the property line. Households are ultimately responsible for the physical connection from the meter box to their household unit. Since a unit-by-unit census has not been carried out to determine actual connection rates, the ICR team rates this objective against utility records which estimates that, at loan closing, water service reaches 53 percent of the population within the project area. The BRWA estimates that wastewater services reach 31 percent of the population within the project area. These compare to goals of 96 percent and 67 percent, respectively.

52. The water and wastewater service improvements were carried out in two phases, with the first phase including the installation of 4,060 meters by the service contractor. These connections were not based on subscriptions and led to the bulk of the households drawing water without paying for it. During the second phase, the BRWA requested that service contractors place meter boxes within the household property line and separately install meters upon a household’s subscription to the network. Since that time, 9,813 of the 24,017 available meters have been installed, with the remainder in storage pending subscriptions.

53. The July 2010 BWWP Quarterly Report No. 24 confirmed that the second phase of works was complete. By that date, all households within the project area had meter boxes (but not necessarily meters) installed within the property line. To connect, households must individually contract for the plumbing from the meter box to the household. These new subscribers to the upgraded system must also pay connection fees of 120,000 LBP (80 USD).

54. The Bank team worked closely with the BRWA on improving its public relations and community outreach. Earlier this year, BRWA carried out of a survey of 800 households across 5 localities with the support of a Public Private Infrastructure Advisory Facility (PPIAF) Grant to better address community needs and increase subscription levels. Survey outcomes confirm BRWA’s reported access numbers and also confirm problems with security of supply – only 20 percent of subscribing households receive water more than four days a week, largely due to the fact that the BRWA does not have the sufficient funding to pump water on a continuous basis and therefore only provides partial service. BRWA is wrestling with the fact that meeting service standards requires a properly funded operation, but consumer confidence and willingness-to-pay will be forthcoming only with higher quality service. BRWA, with GoL and Bank support, has recently been addressing this challenge. The likely outcome, however, remains unclear.

55. At project closing, the Iaat WWTP was receiving sufficient influent to begin normal operations. However, the pace of wastewater connections has delayed plans and households continue not to pay for wastewater services. Every new wastewater connection, therefore, increases the financial stress on BRWA.

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Development Objective 3: Involve the private sector in the operation and maintenance of the water and wastewater facilities. The outcome is rated Moderately Satisfactory.

56. The BWWP was seen as an opportunity to introduce private sector operations and maintenance through service contracts. This approach was seen as supporting the efficiencies that came with the hiring flexibility enjoyed by private enterprise, as well as the performance pressure on a private operator overseen by BRWA. In 2007, a Service Operator was hired through a management contract to work with the BRWA as part of a longer-term engagement that would include training and capacity building, implementation of operational management plans, and an investment fund to support performance improvements and professional development. Despite significant performance challenges with the contractor and some delays experienced with the execution and completion of works in the cluster of 18 localities, CDR and BRWA (with support from the TSU), worked with the Service Operator to ensure efficient management of the production wells, distribution system, and wastewater collection and treatment systems. A Service Contract remains in operation post project closing with funding provided by the MOEW.

Development Objective 4: Rationalize the use of water through the introduction of water meters. The outcome is rated Unsatisfactory.

57. During the early implementation of the project, the BRWA had a policy of connecting all potential users and installing meters, whether or not they were subscribed to the new service. Beneficiaries however saw little reason to subscribe if they were already receiving the water. Thereafter, connections (all metered) were provided only to subscribers.

58. The metering component was in anticipation of a national shift to volumetric tariffs that had been anticipated at the time of appraisal. GoL has not however to date made the needed policy change and all subscribers pay a fixed annual rate regardless of their consumption levels. BRWA does not currently read meters, as that would increase operating costs without a benefit to either the utility or consumers.

3.4 Outputs by components

59. Component 1: Institutional Development (Estimated Cost: $4.55 million; actual cost: $2.46 million). This component is rated Unsatisfactory.

60. While the component achieves two of its key goals: (i) establishment of a TSU which effectively operated as a support system to the BRWA, working with its interim management on mainstreaming operating procedures across the three water authorities that merged to form BRWA, and (ii) the development of a comprehensive five-year business plan in 2005, these achievements fell short of boosting the institutional capacity of the BRWA given the delay in appointing permanent leadership and the weakness of 14

the enabling environment. As a result, the project was not able to meet the performance indicators related to this component, including increasing collection rates, and introduction of consumption-based metering (See Table 2 below and Annex 4 for additional details).9 Table 2: UfW and Collection Rates

At Appraisal As of December 31, 2011 Collection Rate 35% 32% Installation of Water Meters* 4,000 13,873 *In the absence of tariff reform, consumers cannot be billed based on consumption despite having a meter installed.

61. Component 2: Improving and Increasing Service Coverage for Water Supply (Estimated Cost: $14.91 million; Actual Cost: $17.69 million). This component is rated Moderately Unsatisfactory.

62. The construction of service networks are fully complete, allowing for the connections of 25,664 commercial and residential units in over 45 localities across the Ba’albeck - Nabi Chit districts. The project met its infrastructure target, installing 21 additional km of water distribution lines and 113.5 km of secondary and tertiary water distribution lines, exceeding the 83 km target at a lower than anticipated unit cost.

63. Despite improvements in infrastructure, subscriber numbers are low and service provision is inconsistent as explained above. Yet, while efforts to improve subscription rates are slow, there have been gradual increases due to a coordinated commitment from the Client teams with support from the World Bank (See Table 3).

Table 3: Subscriptions Project Current Household Meters Subscriptions Subscriptions Subscriptions Subscriptions Localities Population Units Boxes 12/12/2007 12/12/2009 12/12/2010 12/12/2011 Census* Installed Baalbeck AimChiki/ Ain Borday 86,087 17,218 13,304 4854 4909 5182 5728 Surrounding Baalbeck 37,610 7,522 8323 1,393 1,401 1,537 1,539 Nabi Chit 14,373 2,874 4037 1812 2,197 2,351 2,526 Total Project Area 138,070 27,614 25,664 8059 8507 9070 9,793 *Residential and Commercial

64. Component 3: Improving and Increasing Service Coverage for the Wastewater Collection and Treatment (Estimated Cost: $18.65 million; Actual Cost: $12.16 million). This component is rated Moderately Satisfactory.

9 Reduction of UfW was dropped as a key performance indicator in 2009. 15

65. The component had five activities: (i) construction of sewerage network; (ii) extension of treated effluent discharge pipe; (iii) physical improvements to the wastewater treatment plant (WWTP); (iv) preparation of storage area for the WWTP sludge; and (v) tertiary treatment at the WWTP.

66. The Iaat WWTP did not start operations until the sewerage network was complete in late 2009. Operations however quickly stopped because it was only receiving influent quantities of 300-700 m3/d – a quantity too low to meet the operational minimum of 2,000 m3/d needed by a plant designed for 12,000 m3/d. While all wastewater connections were completed by 2010, an average of only 1,500 m3/d reached the WWTP. Farmers continued to resist the diversion of the wastewater to the plant, as they found the wastewater cheaper to pump than the freshwater from two alternative wells and also appreciated the impact of wastewater nutrient loads on their local crops. Hence, regular operations only started in 2011, after successful reconciliation efforts with the farmers on improved irrigation practices (which the Bank team played a major role on) ended their wastewater diversions.

67. Influent quantities subsequently began to exceed the 2,000 m3/d operational minimum. The ICR mission in April 2012 confirmed that the plant was by then receiving flows averaging 8,000 m3/d, with influent quality reported to range from BOD of about 200 mg/l in wet periods to 250 mg/l in dry periods. After treatment, BOD is reported to be below 25 mg/l. Influent and effluent testing takes place about 3 times a month, by the American University of Beirut (AUB) and the Ministry of Agriculture. The treated effluent is chlorinated and discharged to a river, with some flow subsequently taken up for irrigation. This flow supports around 1,220 hectares of farmland with most farmers mixing the treated water with well water.

68. The sludge digester and dewatering system are operating normally. With sufficient outdoor capacity, the dewatered sludge is stored on a drying pad within plant boundaries. The latest analysis by the plant manager indicates that the sludge is free of heavy metals or other toxic materials that would prevent its use on agricultural fields. However, no plans exist for that use, nor is sludge testing routine.

69. Component 4: Service Contracts (Estimated Cost: $7.44 million; Actual Cost: $8.16 million). The objective of this component was to secure satisfactory maintenance O&M of the water supply and distribution facilities and of the wastewater collection systems in the Ba'albeck - Nabi Chit areas. This component is rated Moderately Satisfactory.

70. The Service Operator’s contract scope included installation of meters, increasing subscriptions, and operating the water network as a well as wastewater services at the Iaat Wastewater Treatment Plant. As noted above, the latter did not start immediately because of insufficient flow. Additional responsibilities included systems maintenance, repair and replacement, provisions for needed operating costs for chemicals, as well as monitoring

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of water quality and training of BRWA staff. The contractor was also responsible for developing a plan for future O&M programming.

71. By 2008, two main challenges faced the Service Operator, namely: increasing subscriptions and starting operations and maintenance of the wastewater services. The latter was beyond operator control, as the wastewater diversion by farmers was a government, not contractor, problem. In response, the service contract was amended to include rehabilitation and equipping of the wells at two freshwater springs, Mazraat el Tout and Al Basateen, so that farmers could have a safe alternative to the wastewater. 72. As for the subscriptions, Lebanese law mandated the Service Operator to be accompanied by a BRWA representative in approaching households to solicit both subscription to the network as well as payment of outstanding bills. Without a Director to oversee this activity and assign BRWA staff to work with the Operators, subscriptions remained low until the Service Operator’s contract was amended in 2011 by the incoming Managing Director.

73. Component 5: Consulting Services (Estimated Cost: $3.66 million; Actual Cost: $3.97 million). This component is rated Satisfactory.

74. Supervision of the service contract and construction works was carried out as planned. Government and Bank teams reviewed the work of the consultants over the course of project implementation and found it satisfactory.

75. This component also required the development of action steps to carry out the Environmental Management Plan (EMP) with a plan of action for implementing mitigation measures as well as checklists regarding public and occupational safeties. An environmental consultant was hired as part of this component to provide services in monitoring the implementation of all mitigation and health measures during construction and operation and all outputs were delivered as planned.

3.5 Efficiency Rating: Unsatisfactory

3.5.1 Net Present Value /Economic Rate of Return

76. While the project was not designed to have a direct impact on poverty, the achievements of its development objectives would have an indirect impact on the poor through the provision of improved potable water and sewage collection services at a lower cost than experienced at the time of appraisal.

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Water

77. The appraisal estimated the project’s ERR at 47 percent. While the PAD does not state the NPV in the text, the included tables allow that to be calculated as USD 17.4 million.10 This ICR-stage economic assessment recalculates the ERR and NPV of the project at closing using the same methodology and baseline numbers as the appraisal- stage analysis, which measured benefits as the value of additional water to consumers plus the cost savings of no longer producing non-network water for domestic purposes (See PAD Annex 4 for details). 78. In the absence of detailed information on current non-network water production costs, the recalculation of the economic return to the project is based on three assumptions. First, all households already connected at the time of project inception (termed “Group A” in the PAD) remain connected and receive the full level of benefits assumed at appraisal. Second, all households newly connected to the system (termed “Group B” in the PAD) receive the full level of benefits assumed for that group at appraisal. Third, because the population survey shows that substantial non-utility water use continues, the PAD assumption that those costs would cease with the project is not realized -- hence the recalculation assumes that those costs did not change.

79. The major determinant of the project’s economic returns thus becomes the number of beneficiaries of the new service, for it is this group which enjoyed the greatest net benefit from the expanded service. At appraisal, the economic analysis estimated that 60,570 individuals already benefited from network water, 11 albeit with the quality and quantity limitations noted in the PAD. The incremental service number (Group B) is therefore taken as the 13,070 individuals that can be derived from BRWA’s estimate that 73,640 individuals now receive water service. The recalculation of the ERR and NPV (with a 10 percent discount rate) yields an ERR of less than zero and a NPV of negative USD 7.72 million. The water supply component is thus uneconomic at project close.

80. A successful subscription program could change this outcome through an increase in the number of beneficiaries, with very little increase in costs. It is also important to note that despite the economic assessment of the project as described above, efficiencies in procurement early in the project allowed for the significant expansion of the water network and subsequent increase in the number of project beneficiaries.

10 The PAD main text states the ERR as “at 8 – 10%”, but that calculation includes the capital costs of the earlier ERRP project. Annex 6 (Cost-benefit analysis summary) provides the estimated return to BWWP when ERRP is treated as a sunk cost. There, it gives the ERR as 70%, but inspection of the tables reveals a double counting that reduces the ERR to the 47% reported here. 11 The PAD contains inconsistent estimates of the baseline population coverage, with Annex 4, Table A-5-2 giving the baseline estimate of 60,570 and Annex 14 providing a baseline estimate of 78,570 people served. The Annex 14 estimate was used to evaluate PDO achievement in this ICR. For consistency with the other aspects of the economic analysis, the recalculation of the NPV used the PAD Annex 4 baseline. If the Annex 14 baseline were used, the NPV would be negative USD 17.7 million, representing the entire investment in the water component. 18

Wastewater

81. The PAD estimated an ERR of 8 percent, based on 17,000 households connecting to the wastewater collection system at project close (Table A-5-5). This represents a gain of 14,000 households compared to appraisal. By project closing, however, the utility reported 5,882 connected households at the end of 2011, which is a gain of approximately 20 percent of the anticipated additional number of households served. A recalculation of the ERR using the appraisal methodology, adjusted for the beneficiary household numbers and treated wastewater volume at project close, leads to an ERR of 2.3 percent at project close. The NPV is negative both in the appraisal estimate and in the recalculation. However, the ERR estimates do not take into account unquantified environmental and health benefits (See Annex 4 for details), so likely understate actual returns. 3.5.2 Financial Rate of Return

82. The appraisal did not attempt to calculate a financial rate of return, recognizing the absence of enterprise accounting and the uncertainty of government policy outcomes. 12 Instead, it postulated four possible development scenarios, only the most optimistic of which allowed the utility to recover both O&M and capital costs. In each scenario, water supply operations covered O&M and wastewater did not. The appraisal team outlined the financial goal for the utility of revenues covering water O&M by 2007, but recognizing that wastewater would face structural deficits across the project implementation period.

83. The failure to increase subscription and collection rates at the pace anticipated at appraisal, coupled with GoL not implementing the tariff reforms recommended in the PAD, has left BRWA unable to achieve the appraisal financial goal of sustainably financing water supply operations and maintenance. Despite investments into the institution and in upgrading the level of water and wastewater services, no fundamental change has been experienced in overall utility finances (See Annex 5 for details). The utility remains unsustainable as a self-standing business on both the water and wastewater sides.

3.6 Justification of Overall Outcome Rating Rating: Unsatisfactory

84. Although clear progress has been made since the 2009 appointment of the Director General, this progress has served to bring performance back to the baseline after a decline, rather than make significant progress toward achievement of the PDOs. The failure of the national government to follow through on policy reforms anticipated at appraisal, compounded by war, and a less than satisfactory quality at entry which failed to acknowledge key risks, created an environment where progress was difficult to achieve.

12 Refer to Annex 9: List of Supporting Documents for the BWWP PAD. 19

The quality of the physical investments has been good, but unfortunately not been enough to deliver sustainable services to the expected beneficiaries.

4. Assessment of Risk to Development Outcome Rating: Substantial.

85. Institutional/Financial Risk: Sustainability of BRWA is dependent on external resources until subscription levels increase. To date, the BRWA relies on financial support from CDR and the MOEW to fill the financing gaps created by subscription shortfalls and growing accounts receivable. Even with this support, network operations and maintenance are not funded at levels that protect against renewed degradation of the system despite the efficiencies that come with engaging private sector operators through service and management contracts. Low collection rates continue to pose a real challenge to economic viability of the BRWA.

86. Furthermore, BRWA continues to pump water into the old networks, creating a dual system network, with the Bank-financed new network delivering a higher quality of water. Only recently did BRWA begin a connection-by-connection audit of the dual system, ensuring that subscribers were on the new network and notifying old network households that they will no longer maintain the old network and will, at some point, decommission it entirely.

5. Assessment of Bank and Borrower Performance 5.1 Bank Performance

Bank Performance in Ensuring Quality at Entry Rating: Moderately Unsatisfactory

87. In October 2004, the Quality Assurance Group carried out a Quality of Supervision Assessment (QSA6) with the following specific ratings:

1. Focus on Development Effectiveness 3 2. Supervision of Fiduciary/Safeguard Aspects 2 3. Adequacy of Supervision Inputs and Processes 3 4. Candor and Quality of Project Performance Ratings 4

Overall Assessment 3

(1= Highly Satisfactory, 2=Satisfactory, 3=Moderately Satisfactory, 4=Moderately Unsatisfactory, 5=Unsatisfactory, 6=Highly Unsatisfactory, NA=Not Applicable)

88. In addition, the evaluation rated the quality at entry as Moderately Unsatisfactory, noting that “…procurement matters and institutional and financial decisions were not advanced enough at the time of the Board presentation.” The ICR team supports this for the reasons noted earlier in the ICR.

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89. The main issues highlighted in the QSA6 were related to the technical feasibility of achieving the project development objectives – given the slow start and the short duration of the project. Specifically, the evaluation stressed the need for the Bank to intensify its supervision around activities related to strengthening the institutional capacity of the BRWA and involving the private sector. It stated that failure to achieve this would compromise the viability of the project and prevent the Authority from becoming financially sustainable.

90. During the time of the evaluation, the Bank team was focusing a great deal on facilitating procurement processes and resolving matters between CDR and the newly established BRWA around implementation. This was essential to moving the project forward and the evaluation group recognized it as such. Additionally, the Bank did flag the urgency of building institutional capacity as stated in the ISRs (dated August 16, 2004) by facilitating cooperation between the BRWA and CDR as well as strengthening the role of the TSU. However, being that the QSA6 was carried out in 2004 (only a year after loan effectiveness), the timing of the assessment was premature for any valuable conclusions to be drawn by the Bank team particularly given that institutional and sector reforms require long-term attention and turn-around.

Quality of Supervision Rating: Moderately Satisfactory

91. Intensive supervision throughout the project life, including four missions led by the Sector Manager, focused on institutional issues with the end goal of increasing subscriptions to the BRWA. Thorough and active, the Bank team’s project supervision included (i) facilitating discussions between BRWA, CDR and MOEW on the implementation of volumetric tariffs, (ii) mediating between the BRWA and local farmers resisting diversions of untreated wastewater to the Iaat wastewater treatment plant and subsequently mobilizing funding for the construction of freshwater wells to replace and (iii) securing additional grant funds from the Public Private Infrastructure Advisory Facility (PPIAF) to assist the BRWA in its awareness raising campaigns to increase subscriptions.

92. Achievement of the project results framework proved challenging as described above, and was further exacerbated by the political and security obstacles posed by a region where historical mistrust of government agencies was pervasive and law enforcement extremely challenging. The 2006 mid-term review team thoroughly documented implementation failures and the challenges with institutional capacity and local politics. At that stage the project had been delayed 18 months due to lags in implementation of the second phase of project works and disbursement and a Loan restructuring should have been considered. In addition, and despite the established delays and obstacles, the supervision team consistently rated project ISR’s as Moderately Satisfactory or Satisfactory, leading to a net disconnect between overall project ratings and those of this ICR. Though the more positive ISR ratings are due to the fact that the Bank team agreed with BRWA on the need to demonstrate water availability before 21

aggressively pursuing an increase in subscriptions, the Bank team should have better assessed the local environment and prepared for an eventual lag in responsiveness as was observed.

93. Overall, Bank supervision performance is thus evaluated as Moderately Satisfactory -- downgraded from Satisfactory due to the failure to intervene through a restructuring once the mid-term review clearly documented four years of no progress on critical institutional issues and candor in rating of project performance.

Overall Bank performance Rating: Moderately Unsatisfactory

94. The overall rating reflects the balance between entry and supervision quality and reflects the overall project outcome.

5.2 Borrower Performance

Implementing Agency or Agencies Performance Rating: Moderately Satisfactory

95. The performance of the implementing agencies – CDR and BRWA -- is rated Moderately Satisfactory. Despite implementation delays, CDR management worked closely with the Bank and BRWA to resolve issues that blocked project execution, particularly those issues related to procurement and project management that were their direct responsibility. BRWA suffered from the multi-year leadership vacuum documented above and their overall performance was Moderately Unsatisfactory. The TSU under CDR supervision exerted significant effort in supporting the newly created BRWA and the positive trend of the past two years bodes well for future performance.

Government Performance Rating: Moderately Unsatisfactory

96. The performance of the borrower is rated Moderately Unsatisfactory. The delay until 2009 in appointing a permanent, professional Director General was a major issue that delayed BRWA’s institutional development. While Law 221 became effective in 2001, the by-laws were passed for the RWAs only in mid-2005. Although a positive, if belated, step, it had little immediate impact on a leaderless BRWA. Additionally, although the government had committed to tariff reforms, none were forthcoming. Government failed to create the enabling environment needed for successful institutional development in BRWA.

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Rating for Overall Borrower Performance Rating: Moderately Unsatisfactory

97. In the case of this project, major delays in implementing key institutional decisions by the government significantly affected its outcome.

6. Lessons Learned

98. The implementation of any water and sanitation project that has the potential of serving a relatively large population during a time of institutional transition brings with it its own set of challenges and opportunities for the responsible water authority. In a country like Lebanon, the outcome is only compounded – often times adversely -- by additional complexities brought on by weak public institutions, deeply rooted political tensions, and, in the case of this project, unexpected war. Key lessons learned are thus as follows:

99. Modification of consumer behavior is a lengthy process that must be accounted for in the design and implementation of projects: Despite the project providing target beneficiaries with significantly improved access to municipal water and sanitation services, subscriptions to the BRWA lagged significantly over the project period, with a large number of residents preferring to continue to purchase the more expensive bottled/tanker water, citing a lack of information and lack of trust in the BRWA’s operations in the long term. The project had effectively overestimated the community’s willingness to subscribe, rating the risk that “households might not subscribe” in the PAD as negligible. Compounding this problem, was the fact that the BRWA continued to pump water into the old network, thereby adding to the alternatives available to project beneficiaries and thus further disincentivizing them from subscribing to the new network.

Once launched however, targeted efforts included household surveys, promotional offers, public consultations, improved customer service relations, and crafted messages via printed materials and various multi-media – and have reaped positive results. These recent efforts by the CDR and BRWA are examples of good practice in bridging the gap between the service provider and customer.

A key lesson learned from this project is thus that the right incentive structure needs to be incorporated into project design and implementation. Further, greater attention to local populations and municipal leaders in politically sensitive and fragile environments is critical. Targeted awareness raising campaigns should thus be carried out early in project implementation and involve target beneficiaries as early as possible in order to build trust and reinforce accountability.

100. The implementation of political reforms is a complex process to which project results should be cautiously linked. The successful implementation of broad-based reforms, such as those in the Lebanese water sector on which the BWWP depended, typically requires more time than the typical Bank-funded project life span. Where 23

outcomes are dependent on both high-level and long-term political decision-making, alternative measures to avert risks that may be out of the control of the project must be incorporated. In the case of BWWP for example, the tariff structure reform never materialized and to date still negatively impacts the BRWA’s sustainability. An early restructuring of the BWWP may have helped avert financial outlays that result in negative project economic returns.

101. Operations in conflict environments require particular additional attention to the design of the monitoring and evaluation framework. Preparation of projects which will be implemented in conflict or post-conflict environments require particular attention to the monitoring and evaluation framework at the early stages of implementation. The M&E framework is a key element of the project design which should be re-assessed frequently during implementation.

102. Strong and sustained leadership as an essential driver for institutional development. As noted in the West Bekaa Emergency Water Supply Project (ICR 00002392), the delayed appointment of a full-time BRWA Director General impacted its ability to respond to the urgent need for increasing subscription and collection levels. Once the leadership position was filled, a community response mechanism to address these gaps was put in place, albeit late in the project lifecycle. Institutional development thus requires an internal champion who is both empowered and competent to build consensus around solutions that can steer the institution toward success as seen by the promising results on the BWWP subscription program.

103. A procurement coordinator dedicated to the project is essential for processing standard procedures and facilitating timely submissions per Bank Guidelines. The absence of a procurement specialist at the TSU during the final two years added considerable delays to procurement transactions with the World Bank, resulting in missed deadlines and late payments to contractors. A dedicated specialist is critical to ensure that Bank guidelines are followed and key project milestones are anticipated in advance to ensure deadlines are met on time.

7. Comments on Issues Raised by the Borrower and Implementing Agencies

Comments by the Borrower and implementing agencies have been incorporated into the document.

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Annex 1: Bank Lending and Implementation Support / Supervision Process

(a) Task Team members

Claire Kfouri Sr. Water & Sanitation MNSWA Task Team Leader Spec. Sepehr Fotovat Senior Procurement MNAPR Procurement Ahmadi Specialist Support Rima Abdul-Amir Sr. Financial Management MNAFM Financial Koteiche Specialist Management Support Rock Jabbour Financial Management MNAFM Financial Analyst Management Mona El-Chami Sr Financial Management MNAFM Financial Specialist Management Parameswaran Iyer Lead Water & Sanitation MNSWA Water Sector Spec. Mouna Couzi Operations Analyst MNCLB Operational Support Zakia Chummun Language Program MNSWA Administrative Assistant Support Mohammed Benouahi Consultant MNSSD Consultant Alexander E. Bakalian Program Coordinator MNSWA Program Assistant Lina Fares Senior Procurement MNAPR Procurement Specialist Support Lizmara Kirchner Water & Sanitation LCSUW Operational Specialist Support Frederick P. Kranz Consultant MNAPR Procurement Support Georges Raphael Consultant MNAPR Procurement Khoury-Haddad Support Diana C. El Masri Consultant MNAFM Financial Management Support Josephine G. Salang Senior Program Assistant MNSRE Administrative Support

ICR Samantha Constant Consultant MNSWA Primary Author Lee Travers Consultant MNSWA Economics and Finance

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(b) Staff Time and Cost

Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY01 8.18 103,061.5 FY02 24.9 180,194.44 FY03 13.25 54,239.6 FY04 10.61 58,681.02 FY05 21.73 101,567.01 FY06 19.68 86,779.72 FY07 19.30 89,222.4 FY08 15.48 104,158.21 FY09 8.83 62,196.84 FY10 22.46 118,680.98 FY11 6.13 63,916.41 FY12 3.69 104,133.52 FY13 .2 57,86.42 Total: 174.44 1,132,618.07

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Annex 2. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Appraisal Components Estimate Actual/Latest Estimate Percentage of (USD Mil) (USD Mil) Appraisal 1. Institutional Development 4.55 2.46 54 2. Improving and Increasing Service Coverage for Water 14.91 17.69 119 Supply 3. Improving and Increasing Service Coverage for the 18.65 12.16 65 Wastewater Collection and Treatment 4. Service Contracts 7.44 8.16 110 5. Consulting Services 3.66 3.97 108 Total Project Cost 49.20 44.87 91

Front-end fee IBRD 0.43 0.43 100 Total Financing Required 49.20 44.87 91

(b) Financing

Appraisal

Type of Estimate Actual Percentage of Source of Funds Co-financing (USD Mil) (USD Mil) Appraisal Borrower 6.10 4.58 75 IBRD 43.53 41.39 95

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13 Annex 3. Revised Performance Monitoring Indicators

PDO Project Outcome Indicators Use of Project Outcome Information At Appraisal Revised At Appraisal Revised At Appraisal Revised

(i) Develop and Note: The (i) Improve (i) Improve (i) Strengthen No proposed strengthen the capacity Ba’albeck Hermel collection rate collection rate the BRWA’s changes. of the Ba’albeck Water and capacity to Hermel Water and Irrigation (ii) Reduction in (ii) Population recover costs, Irrigation Authority Authority, the UfW served with water operate and (BHWIA) and the Zahle and supply and maintain its Zahle and Chamsine Chamsine Water (iii) Population sanitation infrastructure, Water Authorities; Authorities were served with (1) engage with the merged and water supply (iii) Increase the private sector (ii) Improve access of renamed the and (2) number of and plan customers of the Beka’a Regional sanitation subscriptions to strategically for BHWIA to satisfactory Water Authority the water supply the future. water supply and (BRWA) in 2005. (iv) network wastewater services; Implementation (ii) Measure PDOs remained of Service (iv) Volume of the (iii) Involve the private unchanged in the Contracts wastewater improvement in sector in the operation restructuring collected and water and and maintenance of the (v) Number of treated sanitation water and wastewater water meters services to facilities; and installed (v) Key BRWA residents of staff hired and Ba’albeck city (iv) Rationalize the use trained and of water through the neighboring introduction of water areas meters.

13 Note: The PAD is inconsistent in its statement of the various indicators. The body of the PAD (page 2); Annex 1(Project Design Summary); and Annex 14 (Key Performance Indicators) contain differing indicator lists. That used here is from Annex 1. 28

Intermediate Outcomes Intermediate Outcome Indicators Use of Intermediate Outcome Monitoring At Appraisal Revised At Appraisal Revised

(i) Rationalize the use (i) Rationalize (i) Reduction in (i) Number of (i) Measure the (i) Measure the of water through the the use of water Unaccounted for water and improvement in improvement in introduction of water through the Water (UfW) sewerage access to water access to water meters and reduction in introduction of connections made and sanitation and sanitation unaccounted for water water meters and (ii) Number of services to services to (technical and financial volumetric tariff water and (ii) Water tariff residents of residents of losses) schemes sewerage established based Ba’albeck city Ba’albeck city connections on volumetric and neighboring and neighboring made consumption areas areas

(ii) Rationalize water use and manage demand by introducing volumetric consumption tariffs schemes.

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Annex 4: Outputs by Component

Component 1: Institutional Development

While the component achieves two of its key goals: (i) the establishment of a Technical Support Unit (TSU) which effectively operated as a support system to the BRWA, working with its interim management on mainstreaming operating procedures across the three Water Authorities that merged to form BRWA, and (ii) the development of a comprehensive five-year business plan in 2005, these achievements fell short of boosting the institutional capacity of the BRWA given the delay in appointing permanent leadership and the weakness of the enabling environment. As a result, the project was not able to meet the performance indicators related to this component and as stated in the PAD:

PDO #1: Strengthen the institutional capacity of BHWIA, ZWA and CWA

The first performance indicator related to this PDO is the reduction in unaccounted for water (UfW) from a baseline measure of 50%, to an expected 30% by loan closing. The second indicator proposed an improvement in tariff collection from a baseline rate of 35% to an expected 60%. The latest BRWA records (2011) show that the UfW remains high at 46% 14 and the collection rate stands at 32% -- about half of the expected performance. The noteworthy gain in the collection rate between 2010 and 2011 reflects the successful efforts of the new BRWA management in improving financial performance (see Table 1).

Table 1. Collection Rate and Unaccounted for Water As of December As of December At Appraisal 31, 2010 31, 2011 Unaccounted for 50% 50% 46% Water Collection Rate 35% 24% 32%

BRWA has exerted significant effort over the last two years to improve subscriptions and collection rates; and while it is too early to evaluate the long-term impact of the recent outreach campaign on collections, initial results are promising. In addition to promotions offered on initial connection (free of charge) and a reduction in annual subscription fees, BRWA for the first time is also negotiating three-year installment plans to pay overdue accounts, with a 90% exemption on fines. Additionally, residents are permitted to pay annual tariffs in two installments rather than as a single lump sum. These measures to

14 The ICR team acknowledges that the utility lacks the level of system metering needed to accurately measure this indicator. However, this was equally true of the baseline indicator and the low level of system maintenance, coupled with continued supply of water to the parallel (old) supply networks is consistent with continued high loss rates. 30

spread out the cash demands on households have proven useful in convincing people to subscribe -- a positive step to ease the burden for many households who might not be able to afford the initial capital costs of subscription.

However, the challenge with collections goes beyond subscriptions. In many areas, BRWA chose to lay a new network rather than rehabilitate the old. After installing the meter boxes within the property line, household owners become responsible for the plumbing connection between the household unit and the meter. However, BRWA continues to pump water into the old networks, creating a dual system network, with the Bank-financed new network delivering a higher quality of water. Only recently did BRWA begin a connection-by-connection audit of the dual system, ensuring that subscribers were on the new network and notifying old network households that they will no longer maintain the old network and will, at some point, cease to put water into it.

PDO #2: Rationalizing the use of water through the introduction of water meters

As discussed above, progress in this area depended on national government action on tariff reform, coupled with installation of meters. The first has not happened, so the second would be uneconomic.

Nonetheless, a number of institutional successes are worth noting:

• The approval of by-laws for the Regional Water Authorities and development of a business plan: In 2005, two milestones were achieved after in supporting the institutional aspects of the project: (i) GoL issued the by-laws for the RWAs with the intention to clarify administrative policies and improve operations, and (ii) the development of a business plan to improve management and financial performance. (See Annex 5). A follow up workshop was carried out; and while positive, a lack of leadership at the time was debilitating and adversely impacting institutional development overall.

• The establishment of a Technical Service Unit with the key consultants and provision of software packages, IT equipment, office furniture and vehicles: The TSU became effective in 2005, after formal and extensive discussions in 2004 regarding its roles and responsibilities. Since then, it has been providing extensive support to the BRWA and assisting in a variety of roles -- ranging from development of TORs and mapping current staff to the organizational chart as specified by the by-laws to standardizing forms, procedures, systems and tariffs as well as more recently data management, administration, and everyday operational support to BRWA management.

• The appointment of the Director General in 2009: The recruitment of a full-time, permanent Director General was a major milestone that has already benefited the institution. As part of its institutional restructuring and to boost its human resources, the BRWA in April 2012 was authorized and funded to recruit and 31

train 102 permanent, official employees through the Council for Public Service, and has hired a service provider to make available contractors on an as-needed basis.

• Recruitment of a highly skilled, diverse staff: The 102 recruited staff members are in addition to the 225 staff the Authority currently maintains, of whom 57 of them will retire by 2015 and an additional 72 by 2022. A large number of recruited staff will be bill collectors (which will significantly improve the BRWA’s capacity to improve billings and collections) with another large number of staff dedicated to irrigation maintenance services, as the BRWA also provides irrigation services to the large Beka’a area, in addition to municipal water supply and sanitation services.

• Implementation of BRWA staff training: A variety of trainings were held to develop the professional capacity of BRWA management and staff. This included administrative trainings, which covered financial planning, leadership building, and human resource management, as well as the very basics in computer trainings in MS Windows Excel and word processing. Additionally, a financial training program was held in cooperation with a nonprofit financial institution under the direct supervision of the Ministry of Finance (MoF).

Component 2: Improving and Increasing Service Coverage for Water Supply

Phases I and II of construction of service networks are fully complete, allowing for the connections of 25,664 commercial and residential units in over 45 localities across the Baalbeck-Nabi Chit districts. The project met its infrastructure target, installing 21 additional km of water distribution lines and an additional 113.5 km of secondary and tertiary water distribution lines, exceeding the 83 km target at a lower than anticipated unit cost.

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Table 2. Localities with Potable Water Distribution Lines 21 Km of Water 55.5 km of Second & Tertiary 58 km of Second & Tertiary Distribution Lines Water Distribution Lines Water Distribution Lines Haouch Hellanieh Haouch Hourtaala Baalbeck/Amichiki/Ain Sneid Sifri Barada Haouch Tal Borday Nabi Chit Haouch El Taybe Safia Baalbeck City Khodr Nabi Hammoudieh Tfail El Khodor, Khrieibeh Haouch Al Ansar Douris Nabi Chit, Sarine Mosray Majdaloun Talya El Khreibe Faouqa Chehaymieh Iaat Maaraboun Sariine Noqta Rabaa Brittel Nahle Tahta Hauch El Ham Younine Sariine Refqa Hezzine Tali Abiad Gharbieh Haouch El Arab

Despite improvements in infrastructure, subscriber numbers are low, UfW is high, and service provision is inconsistent as explained in earlier sections. Yet while efforts to improve subscription rates are slow, there have been gradual increases due to a coordinated commitment from the Client teams, with support from the World Bank (See Table 3).15

Table 3: Residential and Commercial Subscription Rates (2007 – 2011)

Project Current House Meters Subscriptions Subscriptions Subscriptions Subscriptions Localities Population Units Boxes 12/12/2007 12/12/2009 12/12/2010 12/12/2011 Census* Installed

Baalbeck AimChiki/ Ain Borday 86,087 17,218 13,304 4854 4909 5182 5728 Surrounding Baalbeck 37,610 7,522 8323 1,393 1,401 1,537 1,539 Nabi Chit 14,373 2,874 4037 1812 2,197 2,351 2,526 Total Project Area 138,070 27,614 25,664 8059 8507 9070 9,793 *Residential and Commercial

Component 3: Improving and Increasing Service Coverage for the Wastewater Collection and Treatment

The component had five activities: (i) construction of sewerage network; (ii) extension of treated effluent discharge pipe; (iii) physical improvements to the wastewater treatment

15 In the latest documentation provided by BRWA, subscriptions have reached 9,905 by March 30, 2012.

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plant (WWTP); (iv) preparation of storage area for the WWTP sludge ; and (v) tertiary treatment at the WWTP.

Table 4. Localities with Sewer Lines and Manholes 89.6 km of Sewer Lines (including 68.2 km of Sewer lines (including trunk sewers) and 3,789 manholes trunk sewers) and 2,187 manholes Baalbeck/Amichiki/Ain Borday Haouch El Arab Hellanieh Baalbeck City Haouch Sneid Sifri El Khodor, Nabi Chit Haouch El Nabi Nabi Chit, Khodr Haouch Mosray El Khreibe Khrieibeh Chehaymieh Sarine Faouqa Noqta Rabaa Sariine Tahta Hauch El Refqa Sariine Gharbieh

While the Iaat Wastewater Treatment Plant did not start operations until late 2009, operations came to a halt shortly thereafter; the plant received influent quantities of only 300-700 m3/d, too low to meet the operational minimum of 2,000 m3/d needed by a plant designed for 12,000 m3/d. While all sewer connections were completed by 2010, an average of only 1,500 m3/d reached the WWTP. Farmers continued to resist the diversion of the wastewater to the plant, as they found the wastewater cheaper to pump than freshwater from two alternative wells and also appreciated the benefits of wastewater nutrient loads on their crops. Hence, regular operations only started in 2011, after successful reconciliation efforts with the farmers on improved irrigation practices (which the task team played a major role in) ended their diversion of wastewater and, influent quantities began to exceed the 2,000 m3/d operational minimum. The ICR mission in April 2012 confirmed that the plant was by then receiving flows averaging 8,000 m3/d, with influent quality reported to range from BOD of about 200 mg/l in wet periods to 250 mg/l in dry periods. After treatment, BOD is reported to be below 25 mg/l. Influent and effluent testing is conducted approximately 3 times a month, by the American University of Beirut (AUB) and the Ministry of Agriculture. The treated effluent is chlorinated and discharged to a river, with some flow subsequently taken up for irrigation. This flow supports around 1,220 hectares of farmland, with most farmers mixing the treated water with well water.

The sludge digester and dewatering system are now operating normally. With sufficient outdoor capacity, the dewatered sludge is stored on a drying pad within plant boundaries. The latest analysis by the plant manager indicates that the sludge is free of heavy metals or other toxic materials that would prevent its use on agricultural fields. However, no plans exist for that use, nor is sludge testing routine.

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Component 4: Service Contracts

The objective of this component was to secure satisfactory operation and maintenance of the water supply and distribution facilities and of the wastewater collection systems in the Ba'albeck-Nabi Chit areas.

Regarding the Service Operator, the contract scope included installation of meters, increasing subscriptions, and operating the water network as a well as wastewater services at the Iaat Wastewater Treatment Plant. As noted above, the latter did not start immediately because of insufficient flow. Additional responsibilities included systems maintenance, repair and replacement, provisions for needed operating costs for chemicals, as well as monitoring of water quality and training of BRWA staff. The contractor was also responsible for developing a plan for future O&M programming.

By 2008, two main challenges faced the Service Operator namely (i) increasing subscriptions and (ii) starting operations and maintenance of the wastewater services. The latter was beyond operator control, as the wastewater diversion by farmers was a government, not contractor, problem. In response, the service contract was amended to include rehabilitation and equipping of the wells at two freshwater springs, Mazraat el Tout and Al Basateen, to allow farmers access to a safe alternative to untreated wastewater.

Component 5: Consulting Services

Supervision of service contract and construction works was carried out as planned. Government and Bank teams reviewed the work of the consultants over the course of project implementation and found it Satisfactory.

This component also required the development of action steps to carry out the Environmental Management Plan with a plan of action for implementing of mitigation measures as well as checklists of public and occupational safeties. An environmental consultant was hired as part of this component to provide services in monitoring the implementation of all mitigation and health measures during construction and operation.

.

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Annex 5: An Overview of BRWA Consumer Survey Results

Introduction

16 Since its formation in May 2000, the Beka’a Regional Water Authority (BRWA) has suffered from a number of institutional challenges which threaten its long-term sustainability. Significant investments in water and wastewater infrastructure in the Ba’albeck and West Beka’a regions have noticeably improved both the quality and quantity of supply. However, subscription and collection rates remain low, with only 9,905 household subscriptions in Ba’albeck (out of an estimated 27,614 households) and 5,332 household subscriptions in West Beka’a (out of a total of 16,000 households). The BRWA wanted to understand why subscription rates were so low and therefore partnered with the World Bank to determine the multiple factors contributing to residents’ unwillingness to pay. Addressing such drivers would better ensure the BRWA’s financial and corporate sustainability.

With grant funds from the Public Private Partnership Facility (PPIAF), the MNSSD team of the World Bank’s Sustainable Development Department for the Middle East and North Africa Region implemented a survey to better understand customer satisfaction levels of BRWA’s service provision, consumer perceptions of the authority, and household decision-making patterns. The survey area encompassed the Ba’albeck and Nabi Chit localities, with a specific focus on households benefiting from the Ba’albeck Water and Wastewater Project (BWWP).

Methodology

17 Five localities were identified to take part in the survey. A representative sample of 800 households from Ba’albeck, Ain Borday, Amichki, Ansar and Douris were selected through a cluster sampling methodology to provide a cost-effective and time-sensitive quantitative approach. A survey was designed in close collaboration with BRWA, PARC, and the PPIAF-World Bank project team. The objective of the survey was to evaluate the community’s perception of the quality, quantity and cost of water.

Four groups of households were targeted: (i) those who benefit and subscribe, (ii) those who benefit yet do not subscribe; (iii) those who do not benefit but subscribe, and (iv) those who do not benefit and do not subscribe. By disaggregating the different groups, the survey sought to gage any differences in household perceptions – in terms of quality as well as the thought process behind using network water versus alternative sources. Main Findings

16 The BRWA was established after Parliament passed a new water sector law (Water Law 221) in May 2000, consolidating twenty-two water service authorities into four Regional Water Authorities. 17 Identification of localities to be surveyed was carried out in consultation with the BRWA. 36

Overall, the consumer survey results on the number of households benefiting from and / or subscribing to the public network match figures provided by BRWA on subscription and collection rates across the Ba’albeck and Nabi Chit localities. According to the utility, roughly 35% of households are subscribers, with an additional 18% estimated by the 18 utility to be connected but not subscribed (a total connection rate of 53%). Similarly, 19 51% of households surveyed indicated that they benefited from the public water supply. And among non-subscribers, the survey found that roughly 14% benefited from the 20 network – once again, closely corresponding with the Authority’s estimates.

The full survey analysis was presented to the BRWA for assessment and response. For the purpose of this summary, the analysis of survey results focuses on answering the following questions:

• Why are people not subscribed or if subscribed, not paying? • Among those who are subscribed, are they satisfied with the service? • What are the priority areas for all BRWA beneficiaries? • How do BRWA authorities want to receive information and engage with the Authority?

Why are people not subscribed, or if subscribed, not paying?

The survey reveals that over half of households surveyed are non-subscribers. Similar to the results of the nationwide Social Impact Assessment carried out in 2009, when residents were questioned about the reason for not subscribing, affordability was ranked low. Only one percent of respondents indicated that network water was too expensive, and 87% perceived it as a cheaper alternative to vendor water – indicating an awareness of cost-savings associated with subscription to the public network. When households were asked why they did not subscribe, the leading reason was attributed to a lack of available service in their respective area.

Figure 1: Top Reasons for Not Subscribing

18 It is important to draw a distinction between actual, physical connection to the network and ability to connect to the network. 93%; it counts only those households physically connected to a meter box installed at the property line. The survey finds that an investment to improve the distribution system has enabled 93% of project area households to make formal connections to the network. meter boxes were installed at the property line of households; should households desire a legal connection to the distribution system, households are required to (a) subscribe and (b) finance the connection from the household to the meter box. 19 The proportion of household beneficiaries rises up to 70% in Ba’albeck City, where infrastructure investments were most concentrated given the high number of households compared to other localities. 20 When the survey analysis was presented to the BRWA on May 3, 2012, a distinction was made between the rate of actual household connection (53%) and the rate of ability to connect to a meter box (93%). During this meeting, it was discovered that the rate of connection was initially measured by the Authority as meter boxes installed – regardless of whether households were physically connected to the distribution network. Only during the development of the Implementation and Completion Report (ICR) was the distinction clarified between installation of a meter box and physical connection to the household. 37

There are two reasons that possibly explain the perceived lack of access in localities where significant investments have gone into network infrastructure and delivery of service:

1. The first reason is related to the physical connection challenge. When the project was first implemented, meter boxes and meters were installed within the property line of all households whether or not the owners were active subscribers. BRWA believed that connection to the service would encourage subscription, and the meters facilitated that. This policy changed mid-way through the project implementation when BRWA realized that households were not necessarily subscribing after they began enjoying the new service. Therefore, moving forward, meter boxes were put in place as the distribution lines were laid, but meters were installed only after households subscribed to the service. Without a meter present, residents may believe that a connection to the system is not 21 possible. From the utility’s perspective, illegal connections are easy to identify, since opening the meter box will allow immediate visual discovery of any connection lacking a meter. Households may also have believed that the utility would install the service line from the meter box to the house, while in fact that remains a household responsibility. Thus, many households may have misunderstood what a connection entailed and therefore confused non-connection 22 with lack of service in their area. 2. The second reason relates to the fact that even where new distribution lines have been laid, water supply is intermittent, typically 3-4 days of the week and for less than 24 hours in those days. In Douris, for example, only 11% of households were subscribed while 56% of those subscribed claimed they did not pay their annual

21 In fact, connections at the meter box are equally easy with or without the meter being present. 22 It is important to note that awareness of network water cannot necessarily be measured by subscription rate. In Amichki, where non-subscribers are as high as 90%, the survey team reported illegal connections to the network through water hoses. Here, households were more likely to be aware there was a network but chose to extract water without subscribing. 38

fees due to dissatisfaction with low water pressure and a lack of service provision. Hence, many residents found the intermittent supply to be a legitimate reason not to subscribe to the network. As a result of the survey analysis on this point, the Director General followed up with municipal officials of Douris to communicate the problem and come up with a solution.

Those who are subscribed, are they satisfied with the service?

Despite the investments and improvements in infrastructure, only half of the subscribed households interviewed were satisfied with the service, with an additional 12% neutral. Figure 2 shows that among those dissatisfied, the main concern is poor water pressure followed by complaints about quality of water, quality of service and continuous water cuts.

Figure 2: Reasons for Subscriber Dissatisfaction

Poor water pressure and intermittent water supply continues to be a challenge for residents in the Ba’albeck and Nabi Chit localities. The volume of water supplied by the rehabilitated network has increased dramatically over the past decade, delivering consumption levels somewhere between 156 liters per capita per day (lcd) to 205 lcd per capita where the new network is available. However, when subscribed households were asked about their water supply, only 13% of subscribers reported that their water was supplied 7 days a week and an additional 7% receive water 5 or 6 days a week. Only 4 percent of subscribers receive more than 18 hours a day of water.

A classic problem with intermittent supply is that when treated water is not being pumped into the distribution lines, pressure in those lines often falls below the pressure of any surrounding groundwater, which can then leak into the distribution pipes at breaks or weak joints and be pushed into households once treated water pumping resumes. Households are aware of the potential for compromised water quality in situations of

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intermittent supply. Therefore, the reported household perception that bottled and other vendor water is of a much higher quality than network water is justifiable and helps explain why 64% continue to use non-network water for one or more purposes, primarily for drinking or cooking.

These issues were discussed with BRWA and institutional efforts are underway to monitor and regulate water flow for more equitable distribution.

What are the priority areas for all of BRWA beneficiaries?

When households were questioned about the changes they would like to see take place regarding the provision of potable water, the top two reasons expressed were continuity of water supply and improvement in water quality. This corresponds with the aforementioned concerns and should be the priority of the BRWA – in terms of guaranteeing that the operational aspects of the networks are fully functioning (for example, quality monitors are sufficient, maintenance of network is up to date, and distribution is regulated) as well as communicating improvements to ensure communities are aware of these improvements.

Figure 3: Priority of Changes to be seen with the Public Network

In Ba’albeck City, 85% of those unsubscribed said that if continuous water supply and water quality was guaranteed they would subscribe. This figure is up to 88% of residents in Douris, where only 11% are subscribed.

How do households want to receive information and learn about BRWA developments?

The BRWA has spent the last two years reaching out to its communities to help increase subscriptions. Yet, roughly 93% of non-subscribers reported not being aware of promotional discounts being offered by the utility. Willingness to receive information is very high with approximately 82% of all households surveyed interested in obtaining information. Of this percentage, 61 percent responded they would like to receive such information at least once a month or several times a year. 40

Figure 4 demonstrates that television is rated as the favored media among households to receive information followed by flyers, personally (e.g. visiting customer service centers), and through mobile phones. While television costs may be prohibitive, using flyers and leveraging the BRWA customer service centers are practical means to get the messages across.

Figure 4: Favorite Mean to Receive Information

Conclusion

A combination of reasons contributed to low subscription and collection rates. A long history of poor service provision across the Beka’a region – combined with a lack of enforcement due to BRWA’s weak institutional capacity – created little incentive for households to subscribe. In certain instances, people saw few reasons to move to paying status if they already received high quality water without paying. In other cases, households complained of no access to the public network either because of (a) lack of awareness of the steps required to connect or (b) maintenance challenges where certain parts of the network were still being fixed.

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Annex 6: Economic Analysis

At appraisal, the economic analysis projected an economic rate of return for the water supply component of the proposed investment of “almost 70 percent” (PAD, p. 12). Although the calculation was not presented in the PAD, the corresponding NPV is easily shown to be USD 23.5 million. The PAD analysis contained a conceptual error (a double counting of a project benefit in Table A-5-3, year 2006) that, once corrected, yields an expected ERR of 47 percent and an NPV of USD 17.3 million for the USD 15 million water investment. This very high economic rate of return was ascribed to the fact that substantial earlier investment provided the water needed to supply a rapidly expanding distribution system and that the Bank-financed expansion would allow consumers to substitute lower cost utility water for higher cost alternative sources and to increase overall water consumption.

The wastewater component was projected to have an economic rate of return of 8 percent (PAD, p. 12), with the note that additional expected benefits from wastewater collection and treatment could not be easily quantified, hence were not included. The recorded economic benefits come from the availability of treated wastewater for irrigation use and the cost savings to households from switching to wastewater collection from household septic.

The PAD economic analysis was supported by detailed tables documenting year-by-year comparisons of “without project” to “with project” for water and wastewater services.

Water

This ICR-stage economic assessment recalculates the ERR and NPV of the project at closing based on the appraisal-stage analysis methodology. However, the breadth and quality of available information result in a recalculation that has substantial uncertainty. For example, the utility knows that they have a large number of unregistered connections and have estimated the number of such connections. In the project area of Ba’albeck and Nabi Chit, 35% of households are subscribers, with an additional 18% estimated by the utility to be connected but not subscribers - for an overall 53% connection rate. 23 A consumer survey conducted by an independent agency across five localities in the Ba’albeck-Nabi Chit region found that 51% of households reported that they are benefiting from the public water supply (See Annex 5 for results of Analysis). 24 According to the same survey, the proportion of household beneficiaries rises up to 70 percent in Ba’albeck city. BRWA reports that the distribution system investment has

23 Note that the latest information from BRWA places subscriptions at 38. 5% when measured against meter boxes installed. For the purposes of this analysis, the ICR team assumes that the additional subscribers come from among those connected but not yet subscribers, thus keeping the 53% connection rate unchanged. 24 With the support of the Public Private Infrastructure Advisory Facility (PPIAF), a field survey of 800 households was implemented in Ba’albeck, AimChiki, Douris, Ain Bourday, and Ansar over a two-week period in March 2012. 42

provided potential connections to 93% of the project area households, in the form of meter boxes at the property line that need only a household investment in the connection from the box to the household supply system to be operational. This enables the higher connection rate identified by the survey, although in the absence of a connection-by- connection census by the utility, the actual rate remains uncertain.

At appraisal, the economic analysis projected the water supply delivered to consumers as 5,920,000 m3 by 2010 (the final year of the PAD analysis). In 2011, the utility reported that 5,375,720 m3 was consumed from the distribution system, almost 90% of the PAD- projected amount. This contrasts with an estimated 2,200,000 m3 delivered in 2002. The project has clearly succeeded in the goal of delivering substantially more water to consumers.

Although the delivered water volume is close to appraisal estimates, the number of beneficiaries falls far short of those estimates. On page 49 of the PAD, the appraisal anticipated service to about 160,000 people by 2010. The utility reports that service in 2011 extended to 73,640 residents in the project area. Based on the number provided by the utility, service coverage reaches 53 percent of beneficiaries.25

A measure chosen at appraisal for assessing project economic success was the volume of water supplied per capita, a volume expected to substantially increase with the project, going from 55 lcd to 100 lcd in previously connected households and from 34 lcd to 100 lcd in newly connected households. In practice, the increase has been much larger, with the after-project per capita consumption level somewhere between 156 lcd to 205 lcd, depending on the actual number of beneficiaries. Therefore, for those connected, network water consumption levels have more than met expectations.

A second aspect of trying to understand the economic impact of the project is to look at water consumption from non-network sources. At appraisal, it was expected that such consumption would end for households with network connections, as continuity and quality of supply would be sufficient for households to stop using the more expensive vendor water. At the time of the ICR, the only available evidence on water use practices comes from the PPIAF household survey. That survey shows that among BRWA subscribers in the Ba’albeck area, 64% continue to use non-network water for one or more purposes, primarily for drinking or cooking. Those surveyed stated that the primary reason for continuing use of non-network water was the perception that bottled and other vendor water is of a much higher quality than network water.

One reason for consumer caution about network water quality is the fact that the utility has not been able to consistently supply water, either within or across days of the week. In the survey, only 13% of subscribers report that their water is supplied 7 days a week and an additional 7% receive water 5 or 6 days a week. Only 4% of subscribers receive

25 Based on BRWA’s estimate of population figures within the project area. 43

more than 18 hours of water per day. A classic problem with intermittent supply is that contaminated groundwater can enter the distribution system, so households may be justified in their continued use of other water sources, particularly for drinking water, the point of highest vulnerability for health.

The appraisal economic analysis measured the value of additional water to consumers and added in the cost savings of no longer using non-network water for domestic purposes. In the absence of detailed information about current non-network water costs to households, the recalculation of the economic return to the project is based on three simple assumptions. First, all households already connected at the time of project inception (termed “Group A” in the PAD) remain connected and receive the full level of benefits assumed at appraisal. Second, all households newly connected to the system (termed “Group B” in the PAD) receive the full level of benefits assumed for that group at appraisal. Third, because substantial non-utility water costs continue, the PAD assumption that those costs would cease with the project is not realized, hence the recalculation assumes that those costs continue.

With the adjustments described in the previous paragraph, the major determinant of the project’s economic returns becomes the incremental number of beneficiaries of the new service, for it was that group which enjoyed the greatest net benefit from the expanded service. At appraisal, an estimated 60,570 individuals already benefited from network water (Group A), albeit with the quality and quantity limitations noted in the PAD.26 The incremental service number (Group B) is therefore 13,070 individuals based on the BRWA estimate of beneficiaries at project close. The recalculation of the ERR and NPV (with a 10% discount rate) was run using the PAD estimates of the economic cost of service and economic value of the water supply, with the following results:

Project Economic Outcome

ERR(%) NPV (million USD) <0 -7.72

Benefit delay: the analysis does not take into account benefit delay, but instead assumes that the impact of project delays was to shift all investments and benefits pari passu to a later period. While this approximates the actual investment profile, a fuller accounting of the investment cycle would further reduce the apparent returns.

26 The PAD contains inconsistent estimates of the baseline population coverage, with Annex 14 providing a baseline estimate of 78,570 people served. The Annex 14 estimate was used to evaluate PDO achievement. For consistency with the other aspects of the economic analysis, the recalculation of the NPV used the PAD Annex 4 baseline presented in this paragraph. If the Annex 14 baseline were used, the NPV would be negative USD 17.7 million, representing the entire investment in the water component.

44

Wastewater

The recalculation of the ERR and NPV for wastewater is more straightforward than for water, because connection to the new collection system is easier to control and the utility record of connections is not challenged by other sources. The PAD did not present the NPV estimate, but, as with water, this is easily derived from the PAD and is USD -2.21 million. The NPV is negative because the ERR is below the 10% cost of capital used in the PAD. The PAD rightly notes that additional, non-quantified, benefits can be expected from a built-out collection and treatment system, so the PAD appraisal estimate should be treated as a lower bound. This reasoning holds for the recalculation, which is intended only to compare the situation at project close with the appraisal estimate. No effort was made at ICR to quantify benefits not quantified at appraisal, because the appraisal-stage quantification challenges remain unchanged.

The economic benefit of the wastewater connections comes in the form of averted costs otherwise borne by households relying on septic tanks. An additional economic benefit derives from the availability of treated wastewater for irrigation use in a water-stressed agricultural environment. The underlying values given to these uses were not restudied at ICR. Rather, the appraisal values were applied, with adjustments made based on the number of benefiting households and the volume of treated irrigation water produced. The PAD estimated that 17,000 households would be connected to the wastewater collection system at project close (Table A-5-5). This represents a gain of 14,000 households compared to appraisal. The utility reported 5,882 connected households at the end of 2011, which is a gain of approximately 20% of the anticipated additional number of households served.

The wastewater treatment plant has only very recently begun to function, as flows were inadequate to support the treatment technology until (2011). On the ICR mission, plant operators reported an average flow of 8,000m3/day, indicating treated wastewater production of 90% of the volume anticipated in the PAD.

A recalculation of the ERR and NPV, adjusted for the beneficiary household numbers and treated wastewater volume at project close, lead to a recalculated ERR of 2.3% and NPV of USD -6.24 million. However, as noted above, these figures do not take into account unquantified environmental and health benefits.

Benefit delay: as with the water economics analysis, the wastewater analysis does not take into account benefit delay, but instead assumes that the impact of project delays was to shift all investments and benefits to a later period.

45

Annex 7: Financial Analysis

The objective of the financial analysis was to determine the ability of the water and wastewater utility (BHWIA at appraisal, BRWA after the consolidation that had been anticipated at appraisal) to pay the operations and maintenance costs of the system. The capital costs were assumed to continue to be fully absorbed by the national government.

The financial analysis made a number of assumptions, key among them being:

“Water billing. Non-metered customers are charged a flat fee, while metered customers are charged by volume of water consumed based on a proposed tariff structure to be introduced within the project life. It is expected that most connections will be metered by the end of the project. Collection rate, presently 35% will reach 60% once water delivery and service is improved.” (PAD, p. 58) and

“It is estimated that by year 2004, 23,000 subscribers would have been connected to the water network and 6,000 new subscribers connected to the sewer network.” (PAD, p. 59).

The analysis then looked at four scenarios, with the key differences among them being in the level of the tariff (including for wastewater) and collection rates. Based on these assumptions, the analysis detailed potential financial outcomes for the utility. The national government has, to date, not moved forward with volumetric tariffs, hence the underlying assumption of the move to metered water use has not been made, nor have base tariffs been raised. The government has also not implemented the wastewater tariffs anticipated at appraisal. The base case scenario and the three alternatives all assume that these tariff changes would be made and therefore none of the four scenarios can be usefully assessed.

Two other elements of the financial analysis, those being the number of subscribers to the service and the collection efficiency of the flat annual tariff for subscribers, can be assessed. The PAD (p. 48) reports 10,095 subscribers in Ba’albeck in the year 2001, while BRWA now reports that they have 9,728 subscribers in the project area. The drop in consumer numbers is reportedly due to BRWA dropping subscriptions of households no longer receiving water services, combined with low willingness to subscribe among households being given upgraded services. The collection efficiency at appraisal was a reported 35%, while the latest BRWA figures show a 32.2% collection efficiency at the end of 2011. These two factors – subscriptions less than half the anticipated number and no improvement in collection rates -- combine to leave BRWA with a very weak revenue base.

Unsurprisingly, given the government’s failure to change the tariff system and the utility’s failure to successfully enroll and collect from households as system subscribers, 46

the characterization of the utility’s financial condition at the time of appraisal: “The financial performance of the three authorities during the previous years has been unsatisfactory” continues to define that performance. Despite investments in institution and in upgrading the level of water and wastewater services, no fundamental change has been experienced in utility finances. The utility lacks the resources to meet O&M needs, as demonstrated by the fact that the unaccounted for water rates at project close were unchanged from the 50% rate documented at appraisal.

The BRWA generated LL 8.2 billion (USD 5.4 million) in operating revenue in 2011, against a reported LL 9.7 billion (USD 6.4 million) in operating costs. The latter do not include the cost of the operations contractor, which totals approximately USD 2 million from July 2011 – June 2012. In addition to their operating revenue, BRWA received a total of LL 10.3 billion (USD 6.9 million in extraordinary transfers from the national budget) to support future investments, leaving them with a positive cash balance at the end of the fiscal year. BRWA maintains its records on a cash basis. The utility was not able to share its records of accounts payable with the ICR team. At appraisal, the Bank team noted that the utility had significant overdue payables for electricity consumed and to the social security system.

For reasons external and internal, BRWA has been unable to achieve the financial goal hoped for at appraisal, that of sustainably financing their maintenance O&M. The sustainable operation of the utility and of the investments financed under the loan will depend on continued ad hoc transfers from the national government.

47

Annex 8: Summary of Borrower’s ICR

COUNCIL FOR DEVELOPMENT & RECONSTRUCTION BEIRUT- LEBANON

No.: 6352/1 Beirut, 10/12/20 12

Ms. Farid Belhaj Country Director Middle East Department Middle East and N01ih Africa Region The World Bank Lebanon Country Office Beirut, Lebanon

Dear Mr. Belhaj,

Subject: Ba 'a/beck Water and Waste Water Project- Loan# 7117-LE 1mplementation Completion and Results Report

We refer to the World Bank's letter dated November 15,2012, pertaining to the Baalbeck Water and Sanitation Project.

After review of the attached Draft Implementation Completion Rep01i (ICR) dated November 2, 2012, and prior to distribution to the World Bank's Board and public disclosure, we herein detail our comments on a number of components of the report for your review and inclusion in the final draft of the ICR.

1- Regarding the physical works as they pertain to completing the works executed under the previous loan (ERPP- no.3582), they were completed in accordance with most of the original project requirements. The water networks and house connections, as well as the waste water networks needed to feed the Baalbeck WWTP with the required flow, were completed successfully as the loan was extended.

2- The delays in the execution of the physical works were due to the 2006 war and to bureaucratic obstacles that have already been detailed in the ICR. Please note that the geographical scope of the waste water networks was increased as five towns were added to the project to maximize the needed flow for the WWTP.

3- The major factor in the delay of the project, as well as the less than optimal results, was the lack of success in the institutional reform component of the project. This was due to the following factors:

a. The staffing required under the implementation Decrees of the Law 221, was not implemented by the Government due to the internal political situation since 2005 and after the 2006 war. While the merging of the Water Authorities was delayed by 5 years, the BWE was without a General Manager for most of the loan period, which meant that the BWE was unable to process and implement most of the institutional capacity activities funded under the project.

b. The absence of the needed qualified staff at BWE led in tum to the dissipation over time of the activities of the TSU as its efforts were not institutionalized into the BWE's corporate culture.

./..

FundWB7117BWNP121206-CDR-report-!e.doc

48

COUNCIL FOR DEVELOPMENT & RECONSTRUCTION

Page 2 of2

c. Mol'eover. as the DWE wns institutionally ineffectual, the work under1aken to execute the house-connections in order to improve revenues, lost momentum and thus the billing and tarin collection did not show improvement till the ltiSt 2 years of the loan period.

d. The institutional absence of BWE meam that the service conlroct funded under the loan to provide adequate O&M of the executed works could not be taken over by the l3WE and sustojn its operations. This has forced the Government to secure funds for O&M services for 2 years post the World Bank loan closing date.

Plea:Jse note tbnt marked improvements in the r:.erfonn:mce of Ute 13\VE have been witnessed in the htst 2 years after the appOintment of the current General Manager, and parricularly, after the Go.,.ernmenl allocnted fimds to a11ow the llWE to un de11ake emergency activities and to secure the O&M contracts for the coming 2 yeo.trs.

Thanking you fo1· the continued (.()Oper-ation of the World Bank during the implementation of this impo•·rant and vilal project, we rcmai ll,

Sincerely yours,

Copy to:

H E. Mr. Mohantad Safadl. Min isterof J~inance Ministry of Finance, Beirut, Lebanon

Ms. Ct~ire J

49

Annex 9: List of Supporting Documents

1. Business Plan 2. Project Appraisal Document, May 6, 2002 3. Quality of Supervision Assessment (QSA6), October 15, 2004 4. Mid Term Review, November 6-19, 2006 5. Water Sector Public Expenditure Review, May 2010 – Report No. 52024-LB 6. Country Portfolio Performance Review, March 2007 7. Country Assistance Strategy (Report No. 34463-LB, dated Nov. 22, 2005) 8. Lebanon Interim Strategy Note, July 9, 2007 – Report No. 39779-LB 9. Independent Procurement Review, March 1-12, 2011. 10. West Bekaa Emergency Water Supply Project PAD and ICR (P103885)

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MAY 2011