Document of The World Bank Report No: ICR00002864 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-39240 IDA-47840) ON A CREDIT IN THE AMOUNT OF SDR 132.2 MILLION (US$ 200 MILLION EQUIVALENT) TO THE FEDERAL REPUBLIC OF NIGERIA FOR A NATIONAL URBAN WATER SECTOR REFORM PROJECT May 6, 2014 Urban Development and Services Practice (AFTU2) Country Management Unit AFCW2 Africa Region CURRENCY EQUIVALENTS (Exchange Rate Effective February 28, 2014) Currency Unit = United States Dollars/Naira 1.00 Naira = US$ 0.0061 US$ 1.00 = 163.95 Naira FISCAL YEAR ABBREVIATIONS AND ACRONYMS AfDB African Development Bank BMPIU Budget Monitoring and Price Intelligence Unit CAS Country Assistance Strategy CFAA Country Financial Accountability Assessment CPAR Country Procurement Assessment Review CPS Country Partnership Strategy FCT Federal Capital Territory FD/FPIU Finance Department of FPIU FGN Federal Government of Nigeria FMenv Federal Ministry of the Environment FMF Federal Ministry of Finance FMS Financial Management System FMWR Federal Ministry of Water Resources FPA Federal Project Account FPIU Federal Project Implementation Unit FPM Financial Procedures Manual FSA Federal Special Account GoN Government of Nigeria ICR Implementation Completion and Results Report IPF Investment Project Financing JMP WHO/UNICEF Joint Monitoring Program M&E Monitoring and Evaluation MTR Mid-Term Review NEEDS National Empowerment and Economic Development Strategy NUWSRP 1 First National Urban Water Sector Reform Project NUWSRP 2 Second National Urban Water Sector Reform Project NUWSRP 3 Third National Urban Water Sector Reform Project NWP National Water Policy OSAG Office of State Accountant General PFMU Project Financial Management Unit PHRD Japan Policy and Human Resources Development PIM Project Implementation Manual i PIU Project Implementation Unit PPF Project Preparation Facility PPP Public-Private Partnership PSP Private Sector Participation SEEDS State Empowerment and Economic Development Strategy SOE Statement of Expenditure SPA State Project Account SPIU State Project Implementing Unit SSA State Special Account SWA State Water Agency SWRA State Water Regulatory Agency UFW Unaccounted for Water WSS Water Supply and Sanitation Services Vice President: Makhtar Diop Country Director: Marie Francoise Marie-Nelly Sector Manager: Alexander E. Bakalian Project Team Leader: Hassan Madu Kida ICR Team Leader: Sanyu Lutalo ii FEDERAL REPUBLIC OF NIGERIA NATIONAL URBAN WATER SECTOR REFORM PROJECT CONTENTS Data Sheet A. Basic Information………………………………….………………………………………v B. Key Dates………………………………………………………………………………….v C. Ratings Summary………………………………………………………………………….v D. Sector and Theme Codes…………………………………………………………………vi E. Bank Staff…………………………………………………………………………………vi F. Results Framework Analysis……………………………………………………………..vi G. Ratings of Project Performance in ISRs…………………………………………………..x H. Restructuring ……………………………………………………………………………..xi I. Disbursement Graph……………………………………………………………………….xi 1. Project Context, Development Objectives and Design ................................................... 1 2. Key Factors Affecting Implementation and Outcomes .................................................. 6 3. Assessment of Outcomes .............................................................................................. 13 4. Assessment of Risk to Development Outcome ............................................................. 20 5. Assessment of Bank and Borrower Performance ......................................................... 22 6. Lessons Learned............................................................................................................ 26 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners............... 27 Annex 1. Project Costs and Financing .............................................................................. 28 Annex 2. Outputs by Component...................................................................................... 30 Annex 3. Economic and Financial Analysis ..................................................................... 37 Annex 4. Bank Lending and Implementation Support/Supervision Processes................. 41 Annex 5. Beneficiary Survey Results ............................................................................... 43 Annex 6. Stakeholder Workshop Report and Results ....................................................... 48 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ......................... 49 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ........................... 53 Annex 9. List of Supporting Documents .......................................................................... 54 MAP iii A. Basic Information National Urban Water Country: Nigeria Project Name: Sector Reform Project 1 Project ID: P071075 L/C/TF Number(s): IDA-39240, IDA-47840 ICR Date: 03/31/2014 ICR Type: Core ICR FEDERAL MINISTRY Lending Instrument: SIL Borrower: OF FINANCE Original Total XDR 81.70M Disbursed Amount: XDR 132.16M Commitment: Revised Amount: XDR 132.16M Environmental Category: B Implementing Agencies: Federal Ministry of Water Resources1 Co-financiers and Other External Partners: Not applicable. B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 12/05/2000 Effectiveness: 12/14/2004 12/14/2004 07/23/2010 Appraisal: 03/01/2004 Restructuring(s): 11/20/2010 09/27/2012 Approval: 06/15/2004 Mid-term Review: 12/18/2007 04/01/2008 Closing: 09/30/2010 09/30/2013 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Moderately Satisfactory Risk to Development Outcome: Substantial Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Moderately Satisfactory 1 The implementing agencies of the state components of the project were the State Project Implementation Units (SPIUs) of the respective states, while the Federal Project Implementation Unit (FPIU) was responsible at the Federal level. iv Implementing Quality of Supervision: Moderately Satisfactory Moderately Satisfactory Agency/Agencies2: Overall Bank Overall Borrower Moderately Satisfactory Moderately Satisfactory Performance: Performance: 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 No None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 5 5 Sub-national government administration 2 2 Water supply 93 93 Theme Code (as % of total Bank financing) City-wide Infrastructure and Service Delivery 50 50 Infrastructure services for private sector development 33 33 Regulation and competition policy 17 17 E. Bank Staff Positions At ICR At Approval Vice President: Makhtar Diop Callisto E. Madavo Country Director: Marie Francoise Marie-Nelly Mark D. Tomlinson Sector Manager: Alexander E. Bakalian Inger Andersen Project Team Leader: Hassan Madu Kida Alexander A. McPhail ICR Team Leader: Hassan Madu Kida ICR Primary Author: Sanyu Lutalo 2 The implementing agencies performance includes the SPIUs. The FPIU is considered under Government performance. v F. Results Framework Analysis Project Development Objectives The objectives of the Project were to: (i) increase access to piped water networks in selected urban areas; and (ii) improve reliability and financial viability of selected urban water utilities, in Kaduna, Kano, and Ogun States. Progress toward these principal development outcomes was measured through i) the increase in water delivered through existing and extended networks; ii) improvements in cost recovery, and iii) increase in the number of household connections to the piped water network. Revised Project Development Objectives (as approved by original approving authority) The PDO was not substantively revised. However, the wording was later aligned with the states participating in the project after Kano state dropped out and was replaced by Enugu state. (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents)3 Values Target Years Increase in water delivered through existing and extended networks (in Indicator 1: million litres per day) Enugu: 170 Enugu: 220 Value See footnote 3 Kaduna: 350 Kaduna: 420 quantitative or 04 below. Ogun: 240 Ogun: 225 Qualitative) Total: 760 Total: 865 Date achieved 12/31/2004 03/31/2010 09/30/2013 09/30/2013 Comments The combined target for the three states was fully achieved and exceeded (incl. % (114%). The individual targets were also exceeded in all three States. achievement) Indicator 2: Improvement in cost recovery (million Naira increase in cash flow)5. Value Enugu: 0 Enugu: 65 quantitative or Kaduna: 0 See footnote 3. Average: 120 Kaduna: 85 Qualitative) Ogun: 0 Ogun: 60 3 Outcome targets were not given in the original PAD, but were availed in subsequent supervision reports and formally revised in the Project Paper (June 2010). 4 The baseline is considered zero by the ICR, given the definition of the indicator, which measures the incremental amount of water delivered. 5 This indicator is defined as the increased annual cash flow in each state. vi Average: 70 Date achieved 12/31/2004 03/31/2010 09/30/2013 09/30/2013 Based on available data from all three states for this indicator as defined6, Comments the cost recovery target was only partially achieved (58 percent). Original Indicator: Increase in number of house connections. Indicator 3: Revised Indicator: Number of people in urban areas provided with access to improved water source. Kaduna: Value Baseline data not 2,430,000 quantitative or available in original See footnote 3. 5,000,000 Ogun: 2,140,449 Qualitative) PAD. Enugu: 807,000 Total: 5,377,449 Date achieved 12/31/2004 03/31/2010 09/30/2013 09/30/2013 Comments The target was fully achieved and exceeded (108%). The indicator was (incl. % formally revised as part of the project restructuring in June 2010. achievement) (b) Intermediate Outcome Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Component 1 Original Indicator: Existing water supply networks rehabilitated. Indicator 1: Formally Revised Indicator: Number of existing water supply networks rehabilitated to installed capacity. Value (quantitative 0 8 13 13 or Qualitative) Date achieved 12/31/2004 03/31/2010 09/30/2013 09/30/2013 Comments (incl. % The target was fully achieved. All 13 networks were rehabilitated. achievement) Component 1 Original Indicator: Number of new household water connections. Indicator 2: Revised Indicator: New household water connections that are resulting from the project intervention. Value 0 50,000 Not 6 This indicator is defined as the increased annual cash flow in each state. vii (quantitative applicable. 70,846 or Qualitative) Date achieved 12/31/2004 03/31/2010 09/30/2013 09/30/2013 Comments The target was fully achieved and exceeded. The number of new water connections exceeded the original target by 20,846 connections ( 142%). Piped household water connections that are benefitting from rehabilitation Indicator 3 : works undertaken under the project. Not applicable. The indicator Kaduna: 140,802 Value was introduced Ogun: 43,867 (quantitative 0 250,000 as part of the Enugu: 23,559 or Qualitative) 2010 Total: 208,228 restructuring. Date achieved 12/31/2004 03/31/2010 09/30/2012 09/30/2013 Comments (incl. % The target was substantially achieved (83%). achievement) Indicator 4: Component 2 - PPP contracts in effect. Value 0 2 5 2 Date achieved 12/31/2004 03/31/2010 09/30/2012 09/30/2013 Comments The target was 40% achieved. Two PPP contracts out of five planned were (incl. % in effect at the end of the project. achievement) Component 2 - Additional states ready to enter into PPP contracts at Indicator 5: project closing. Value (quantitative 0 2 N/A 0 or Qualitative) Date achieved 12/31/2004 09/30/2010 09/30/2012 09/30/2013 Comments (incl. % The target was not achieved. achievement) Component 3 Original Indicator: At least 20% increase in billing and collection Indicator 6: efficiency. Revised Indicator: Increase in collection efficiency in all three SWAs7 Enugu: 80 Value Enugu: 0 Enugu: 20% Kaduna: 85 (quantitative Kaduna: 0 Kaduna: 20% 80% Ogun: 70 or Qualitative) Ogun: 0 Ogun: 20% Average: 78% 7 Collection efficiency is defined as the ratio of revenue collected compared to the amount billed (%). viii Date achieved 12/31/2004 09/30/2010 09/30/2012 09/30/2013 Comments The average revised target was substantially achieved (98%). The target (incl. % was revised as part of project restructuring in 2010. achievement) Component 3 Original Indicator: At least 20% increase in water availability to end Indicator 7: users. Revised Indicator: Increase in water availability to end users in all three SWAs8. 80%. The target was Value Enugu: 0 Enugu: 20% revised as Average: 80% (quantitative Kaduna: 0 Kaduna: 20% part of the or Qualitative) Ogun: 0 Ogun: 20% 2010 restructuring. Date achieved 12/31/2004 09/30/2010 09/30/2012 09/30/2013 Comments The revised target was fully achieved. Capacity utilization is being limited (incl. % by insufficient power supply experienced in all the States. achievement) Original Indicator: 100% O&M coverage from revenues. Indicator 8 : Revised Indicator: O&M coverage from revenues in all three SWAs. Enugu: 65% Value Enugu: 15% Kaduna: 75% (quantitative Kaduna: 20% 100% 100% Ogun: 40% or Qualitative) Ogun: 25% Average: 60% Date achieved 12/31/2004 09/30/2010 09/30/2012 09/30/2013 Comments (incl. % The target was partially achieved (60%). achievement) Indicator 9 : Component 4 - State Water Regulatory Agencies established. The frameworks for establishment of the regulatory 3 State Water agencies and the Value No Regulatory Regulatory enabling laws (quantitative N/A agencies. Agencies were prepared and or Qualitative) established. are currently under review by the respective State 8 The indicator is defined as water available to users, as measured at bulk meter exit from water production facilities. ix Governments. Date achieved 12/31/2004 09/30/2010 09/30/2012 09/30/2013 Comments (incl. % The target was partially achieved. achievement) Indicator 10 : Component 4 - National Water Policy Completed. Value Policy was (quantitative No policy in place. Policy prepared. N/A prepared. or Qualitative) Date achieved 09/30/2010 09/30/2013 Comments The National Water Policy was prepared, hence the target was fully (incl. % achieved. achievement) Component 4 - Establishment of national strategy to increase low income Indicator 11 : household connections. Value Strategy (quantitative No strategy. Strategy in place. N/A completed. or Qualitative) Date achieved 12/31/2004 09/30/2010 09/30/2012 09/30/2013 Comments The National Low Income Household Strategy was completed and States (incl. % are implementing it. achievement) G. Ratings of Project Performance in ISRs Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 12/03/2004 Satisfactory Satisfactory 0.00 2 04/26/2005 Satisfactory Satisfactory 3.43 3 11/01/2005 Satisfactory Satisfactory 5.82 4 11/10/2005 Satisfactory Satisfactory 6.03 5 05/24/2006 Moderately Satisfactory Moderately Satisfactory 9.35 6 11/22/2006 Satisfactory Satisfactory 14.09 7 06/05/2007 Satisfactory Satisfactory 20.45 8 11/30/2007 Moderately Satisfactory Moderately Satisfactory 28.72 9 05/22/2008 Moderately Satisfactory Moderately Satisfactory 39.81 10 11/22/2008 Moderately Satisfactory Moderately Satisfactory 55.34 11 05/04/2009 Satisfactory Satisfactory 68.66 12 12/16/2009 Satisfactory Satisfactory 89.65 13 06/04/2010 Satisfactory Satisfactory 105.98 14 02/12/2011 Satisfactory Satisfactory 121.68 15 10/19/2011 Satisfactory Satisfactory 130.22 16 06/12/2012 Moderately Satisfactory Moderately Satisfactory 148.56 17 08/07/2012 Satisfactory Satisfactory 154.72 x 18 04/22/2013 Satisfactory Satisfactory 173.58 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 Changes entailed provision of SDR55.5 million (US$80 07/23/2010 S S 110.12 million equivalent), and 24 months Closing Date extension 12 month extension of the 09/27/2012 S S 155.56 project closing date. I. Disbursement Profile xi 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal 1. Nigeria, Africa’s most populous nation, was in the midst of a difficult political and economic transition at the time the project was identified in the early 2000s. Emerging from 30 years of military rule, the country was facing an array of complicated issues, including a deterioration of government institutions and inadequate capacity and resources at all levels of government to deliver basic services to its population effectively. The country was also undergoing rapid urbanization, with steady growth averaging about 5.7 percent per annum. Urban poverty was on the rise, and an estimated 48 percent of urban dwellers and 54.7 percent of the country were living in poverty by 2004. 2. The rapid growth in urban population was not proportionately accompanied by increased access to essential services such as water supply and sanitation. Access to safe water supply was low in most parts of the country; an estimated 50 percent of the urban population and just 20 percent of the peri-urban population had access to reliable water supply of acceptable quality. Vulnerable groups such as the poor, many of whom lived in low-income areas with limited or no direct access to piped water supply, often paying more for basic services or relying on unsafe sources, were disproportionately affected. The non-poor also spent substantial amounts of money on coping measures such as drilling of private boreholes entailing high capital and operating costs, and purchase from water tankers. 3. Underlying reasons for the poor access, quality, and reliability of water supply services were attributed to various technical, operational, financial, and institutional factors. Technically, most SWA systems were operating below capacity due to ageing infrastructure, inadequate preventive maintenance of production, transmission, and distribution facilities, and unreliable power supply, leading to frequent system breakdowns and intermittent services. Unaccounted for water (UFW) was estimated to be as high as 63 percent. In addition to physical losses linked to the poor state of infrastructure, many utilities faced heavy commercial losses due to factors such as illegal connections and poor demand management. Investment deficits in urban water supply rehabilitation and new infrastructure to restore and expand services were estimated at about US$6.8 billion, with an additional US$100 million a year required for operations and maintenance nationally. 4. Institutionally, responsibility for delivery of water supply and sanitation services in Nigeria was, and remains shared at several levels, in line with the country’s decentralized federal governance structure. The Federal Ministry of Water Resources (FMWR) is responsible for formulating and coordinating national water policies and for planning and approving development projects nationwide, while state 1 governments, through designated State Water Agencies (SWAs) 9 , are responsible for management of potable water supply at the state level. The SWAs were established under edicts to develop and manage water supply facilities within their jurisdictions and to meet sound financial objectives. However, most SWAs were not financially viable and they operated inefficiently due to factors such as inconsistent billing, low tariffs that did not reflect the full cost of operations, and low revenue collection rates. They also lacked the fiscal and operational autonomy from state governments to make decisions on key financial and operational aspects such as tariffs, investments, and staffing. Most states lacked the policy, legal, and regulatory instruments and expertise to attract and sustain private investment and state laws were unclear on the roles, rights, and obligations of private parties in the provision of public services like water. Consequently, small scale vendors dominated the growing informal market with no regulation of quality or pricing. 5. To improve the efficiency of service delivery, the Federal Government of Nigeria (GoN), with support from the Bank, decided to fundamentally reorient the concept of service provision by separating infrastructure investment and ownership from service operation. In addition to addressing the poor state of infrastructure to improve quality and reliability of services, the private sector participation (PSP) approach was widely considered at the time by many in the sector as a promising solution to improving sector performance efficiency. On the one hand it was recognized in view of the magnitude of needs, that investments could not be fully financed publicly, and would need substantial financing from private sources. However, the poor state of basic water and energy infrastructure, combined with the absence of sound regulatory agencies were potential deterrents to many private sector operators. The original project development objectives defined in the Project Concept Note (PCN) were to: (i) establish a pro-private sector participation (PSP) regulatory, policy and legal framework at federal and state levels; (ii) build management and technical capacity of SWAs through appropriate institutional reform; and (iii) facilitate PSP transactions between SWAs and private operators. The approach however evolved over the course of project preparation, based on findings from baseline and transaction surveys and studies, as well as prevailing conditions in the sector which highlighted existing market risks and raised concerns with the sector’s ability to hedge such risks. The final project design therefore included a combination of investments and institutional measures which remained open to the option of strengthening the public sector to make utilities more attractive to investors while continuing to deliver services efficiently and effectively. 6. Rationale for Bank Assistance. The Bank was the most active International Financing Institution (IFI) in Nigeria’s urban water sector at the time the project was designed. In view of prevailing challenges in the sector given Nigeria’s political and 9 In most states, State Water Agencies (SWAs) are responsible for management of urban and peri-urban water supply, while State Water Ministries and/or Local Government Authorities (LGAs) are generally responsible for rural water supply. 2 economic transition, including the nascent stages of decentralization, the sheer magnitude of investment needs, and limitations in the sector’s enabling environment, most donors and IFIs were looking to the World Bank to lead the development assistance agenda and to help the GoN re-establish the development framework. The Bank was willing to provide long-term financial support to help strengthen the sector and support investments to improve services in a sustainable manner. The Bank had supported numerous large scale water supply projects globally, including some involving various models of public private partnership (PPP) and reform, and it was uniquely positioned in terms of expertise and knowledge to assist the GoN in establishing the necessary enabling environment to implement the project. 7. The NUWSRP followed six Bank supported water projects in Nigeria, which had been rated marginally satisfactory or unsatisfactory. Most of the earlier projects were largely investment focused and they did not adequately focus on strengthening the utilities responsible for service delivery at the state level. The National Water Rehabilitation Project (NWRP), which immediately preceded the current project, attempted to address some of the institutional weaknesses of urban water utilities and was instrumental in raising awareness and initiating implementation of policy reforms in the water sector. Its impact however, was limited given the project’s broad national focus, leading to the conclusion that a more lasting impact was more likely to be achieved by focusing reform and investment efforts on a few states that were already undertaking reforms and could thus demonstrate positive results. Design of the NUWSRP considered lessons from this and earlier projects, as discussed later. 1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved) 8. The PDO, as described in the Project Appraisal Document (PAD), was: (a) to improve the reliability and financial viability of selected urban water utilities; and (b) to increase access to piped water networks in selected urban areas. The original PDO, as stated in the Development Credit Agreement (DCA) dated September 10, 2004, was to: (i) increase access to piped water networks in selected urban areas; and (ii) improve reliability and financial viability of selected urban water utilities, in Kaduna, Kano, and Ogun States. 9. According to the PAD, progress toward achievement of the PDO was to be reflected through three key performance indicators: i) increase in water delivered through existing and extended networks; ii) improvements in cost recovery; and iii) the increase in the number of household connections to the piped water network. 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 10. No changes were made to the PDO in the Project Appraisal Document (Project Paper). However, the description of the PDO was slightly revised in the amended DCA dated November 20, 2010, to reflect changes in the beneficiary states, 3 specifically to include Enugu State and remove Kano State which had dropped out of the project for reasons discussed below. 11. Several changes to the Key Performance Indicators were introduced during implementation to align the project results monitoring framework with the Bank’s core water sector indicators. The changes, which were introduced in supervision documents such as the Implementation Status reports, specifically entailed addition of PDO indicators on: (i) number of people in urban areas provided with access to improved water sources under the project; and (ii) number of direct project beneficiaries (percentage of which are female). 1.4 Main Beneficiaries 12. The project’s primary target group was the people in the selected urban areas in the beneficiary states of Kaduna, Kano10, Ogun, and later Enugu which replaced Kano, who were provided with increased access to piped water supply and improved service reliability through the network rehabilitation and expansion works. These outcomes were expected to contribute to higher level benefits such as reduced health risks from waterborne diseases, and improved convenience, wellbeing, and ultimately productivity among beneficiaries. The project performance indicators however focused on measurable outcomes that could be fully attributed to the current operation. 13. Participating SWAs or utilities were also expected to benefit directly from the capacity building and institutional development activities supported by the project, in terms of improved staff skills and capacity to perform their roles in order to deliver services in a more efficient and effective manner. These activities included training and technical assistance to manage their operations and maintenance functions, as well as provision of operational and office equipment and facilities to perform these functions. The envisaged support for reforms, including for PPP as well as public utility management models, were also envisaged to contribute to improved operational and financial performance and quality of services delivered by the utilities that would benefit from such arrangements. 14. Finally, at the federal level the FMWR, through the Policy Reform and Institutional Development Component, was expected to benefit directly in terms of improved capacity and skills to: (a) conduct its role in developing policy and supporting states in pursuing sector reforms needed to improve water supply and sanitation services; and (b) support improvements in the sector’s enabling environment to attract private sector participation. 10 Kano eventually dropped out of the project, hence the state’s residents were ultimately not primary beneficiaries to the project. 4 1.5 Original Components (as approved) 15. Component 1: Rehabilitation and Network Expansion (US$105.5 million): This component was to finance support for: (a) rehabilitation of water production infrastructure to restore water systems to operate at installed capacity; (b) purchase of essential vehicles and specialized rolling stock for the SWAs; (c) supply and installation of production and zonal meters to provide vital operational information; (d) safety enhancements of dams located within the project states, including those that are owned by the Federal Government but located within states; (e) distribution system expansion once PPP contracts are in place or the relevant SWA demonstrates a high degree of operational capacity and efficiency, as well as financial autonomy; and (f) preparation of a follow on project. The cost of this activity was increased with support from the Additional Financing. 16. Component 2: Public-Private Partnerships (US$16.5 million): This component was to support Public Private Partnerships in selected states which were expected to enter into such partnerships for management of their SWAs, to rebuild technical and commercial capacity and assure adequate operation and maintenance arrangements. The private sector operator contracts were expected to be five year management contracts, and costs covered design, tendering, and payment of operators’ fees. 17. Component 3: Capacity Building and Project Management (US$9.85 million): This component was to support capacity building and project management in the FMWR and the State Water Authorities. Expenditures were to include project management costs, stakeholder communication programs, training, and office equipment. Additionally support was to be given to the FMWR for its work in sector coordination and reform and capacity building, including helping in raising the performance of non- participating states to be able to participate in the continuing national reform program, as well as monitoring and evaluation. Further studies to prepare additional states for PPP contracts would be included. The total cost of this component was increased with support from the Additional Financing. 18. Component 4: Policy Reform and Institutional Development (US$5.3 million): This Component was to: (a) support the FMWR to develop a national low income household service strategy; (b) assist in the establishment of State Water Regulatory Authorities; (c) complete and implement a National Water Policy and carry out an initial, and then annual, Water Investment Mobilization and Application Guidelines (WIMAG) conferences. In regard to the regulatory framework, the project was to: (i) support establishment of the regulators as quickly as possible; (ii) support training of the regulators’ staff over several years so that they are capable of carrying out their mandate; and (iii) help the state governments determine when the regulators have gained sufficient expertise and capacity to practically assume regulatory functions. 5 1.6 Revised Components 19. The project components were not substantially revised. Changes were made however to reflect: (a) replacement of Kano State with Enugu State early during implementation; and (b) increased estimated costs or allocation for Component 1 in light of the additional financing provided for the project in 2010. These issues are discussed below in more detail. 1.7 Other Significant Changes 20. Changes in Geographic Scope: The scope of the project was revised to significantly scale down activities in Kano State, and to include activities in Enugu State. Following changes in Kano’s executive leadership soon after the project became effective, the state wrote to the Federal Ministry of Finance (MoF) on May 20, 2005 advising of an executive decision to finance sector investments from its internal resources, and requesting to accordingly withdraw from the project. The state’s withdrawal resulted in the release of SDR26.4 million (approximately US$40 million), most of which was reallocated to Enugu State. In the amended DCA, Kano’s share of the project was reduced from about US$34.7 million to US$5.5 million, although it was not utilized by the state. The other states, Ogun and Kaduna, also received some additional funds through the reallocation. 21. Project Restructuring and Additional Financing: The project underwent a Level One restructuring, approved on July 23, 2010 with provision of additional financing. The restructuring entailed the following specific changes. a) Provision of an additional IDA Credit in the amount of SDR50.5 million (US$80 million equivalent), and Counterpart funding in the amount of US$4 million from the Government of Nigeria. The additional Credit was intended to cover costs associated with a financing gap caused by the global increase in unit prices of pipes, electromechanical, and electrical equipment, and by an unexpected increase in the scale of rehabilitation works due to the greater than anticipated level of deterioration of existing assets. The additional Credit also supported increased provision of household and bulk water meters. The restructuring was reflected through an amendment to the DCA approved by the Bank’s Board on July 29, 2010 and signed on November 20, 2010. b) Extension of the project closing date: The project closing date was extended by 24 months from September 30, 2010 to September 30, 2012, as part of the restructuring associated with the above additional financing. c) A second extension by an additional 12 months, from September 30, 2012 to September 30, 2013, was made through a Level Two restructuring approved by the Regional Vice President (RVP) for the Bank’s Africa Region on September 27, 2012. The additional extension was requested by the Government to allow for completion of already committed activities valued at about US$38.7 million 6 which required additional time for installation, testing, and handing over to the client. 22. Changes in Disbursement Categories: The approved disbursement percentages from the original DCA were revised through an amendment dated June 29, 2006, which made 95 percent of expenditures eligible for financing out of the Credit proceeds across all categories, with 5 percent to be financed from counterpart funds. The change was retroactive to September 2005. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 23. The background analysis which informed project design and rationale for Bank support was generally sound. The analysis reflected a clear understanding of the fundamental challenges facing Nigeria’s water sector. The project supported the Government’s sector development priorities and strategy which sought to improve service delivery by separating infrastructure investment and ownership from operation through optimal PPP in investment, management, and delivery of water services. The analysis drew upon lessons from what were considered global good practices for PPP as well as experience with previous water supply and sanitation projects in Nigeria. 24. Extensive stakeholder consultations were conducted as part of preparation, and Federal and State Governments committed to the project. The relatively long project preparation timeframe is attributed to consultation and consensus building with stakeholders on the suitability of the original project design introducing private sector participation in the Nigerian context. Government commitment, both the Federal and participating state governments, was adequate at entry and Government signed a letter of sector policy committing to the project. The apparent shift in Kano’s commitment to participating in the project soon after its approval was mainly attributed to changes in strategic priorities of the state’s new executive leadership. This experience highlights the fact that h 25. The PDO was clear and aligned with Nigeria’s development priorities as well as the Bank’s CAS, and appropriate activities were included under the components to achieve them. The strategic choice to focus on three states based on their assessed commitment to reform and likelihood of meeting the project objectives, rather than on the six states originally considered in the PCN, was appropriate to optimize the project’s impact in the participating states. Project components were selected on the basis of appropriate technical, economic, social, and political considerations based on: professional engineering assessments of system conditions and projected needs in the participating states. The selection process also involved dialogue, sector work, and baseline studies on legal, regulatory, and institutional reforms needed to enhance the enabling environment for private participation in the states, as well as public opinion polls that signaled enhanced levels of service as a pre-requisite to putting in place 7 adequate tariffs, and expert opinion that a private sector intervention was the fastest and most secure way of restoring the SWAs to financial sustainability. 26. The project design recognized and tried to address realities based on the Nigerian context in terms of both market risks and the sector’s ability to hedge such risks, as well as operational risks and mitigation measures. The failure under a parallel International Finance Corporation (IFC) financed operation to attract suitable private operators to manage the Lagos water activities resulted in the decision to adopt a more pragmatic approach which broadened the options for design of the NUWSRP1. The design therefore built in flexibility to allow for strengthening of the public sector in order to make it more attractive for investors in the event that envisaged private investment did not materialize. The PAD also identified other critical risks to achieving or sustaining project outcomes, including issues relating to intermittent power supply and inadequate tariff adjustments, and presented mitigation measures for the risks. 27. Moderate shortcomings at entry are noted in two key aspects: (i) design of the monitoring and evaluation (M&E) framework, and (ii) project implementation readiness. Shortcomings in respect to M&E design mainly related to weaknesses in the Results Framework discussed in more detail under Section 2.3 on M&E below. Implementation readiness aspects related to delays in completion of detailed designs, which contributed to implementation delays in the initial phase. 2.2 Implementation 28. Project restructuring and provision of additional financing allowed the project to address the critical financing gap due to investment cost increases an unexpected increase in the scale of rehabilitation works. Changes made as part of the project restructuring and the approval of the additional financing in 2010 were instrumental in addressing the financing gap, as well as in providing additional time for completion of project activities. 29. Implementation Agency capacity, particularly at state level, affected progress early during implementation; however capacity was progressively built with support from the project. At the start of the project, state PIU staff, most of whom were employees of state governments, was not sufficiently experienced with execution of Bank financed projects. Moreover, in states such as Kaduna and Ogun, staff seconded to the PIU initially maintained responsibility for roles unrelated to the project further limiting available capacity. These factors contributed to some initial delays in the procurement and subsequent commencement of project activities in all three states. Implementation capacity was strengthened through capacity building activities including training in Bank procurement, FM, and other skills needed to support project implementation, as well as through provision of basic equipment such as computers and vehicles to facilitate implementation. Through dialogue with the state governments, the project was also able to promote supportive policies, for instance ensuring that PIU staff were relieved of most of their other duties to be able to work at least 90 percent of their 8 time on the project. Direct technical support was also provided to PIUs through experienced consultants in states such as Enugu. 30. Centralized state bureaucratic procedures outside of the Project Implementation Manual (PIM) affected efficiency in carrying out critical administrative procedures in some states. For example, after receipt of Bank ‘no objections’, approval procedures for contract awards and payment approvals in some of the states involved additional approval levels including but not limited to State Executive Councils and Governors. This caused implementation delays and affected the cost of some contracts. At one point in Ogun state project accounts were frozen for several months pending a review of all state finances by a new administration, precluding any payments during that period. Issues relating to the effect of the bureaucratic procedures such as these were raised through dialogue between the Bank and state officials, allowing the project to move forward. However, they were not always fully resolved in a timely manner, leading to some administrative delays. 31. Project costs were impacted by price escalations and budget overruns in some states. Budget overruns and outstanding payments were registered on contracts in Ogun and Enugu states after the project closing date, due to a combination of administrative and contract management issues on the part of the state implementing agencies. These issues are discussed briefly below. a) Ogun State. Total payments due to contractors in Ogun for eligible expenditures completed and certified before the closing date amounted to about US$4.8 million11. b) Enugu State. Enugu state over-committed its budget under the project by an amount of US$6,767,744. Liabilities for eligible payments for activities completed by the project closing date in the state amount to about US$2,077,869. The remaining costs, amounting to about US$4,689,875, pertain to activities that were not fully completed by the project closing date, making them ineligible for financing from the credit, including one contract for which advance payment was issued but goods were not delivered at the time of the ICR. Reasons for the budget over-commitments in Enugu State are largely attributed to inadequate monitoring of allocated budgets by the state PIUs, some weaknesses in contract management, and cost increases resulting in contract variation orders during implementation. 32. Although all participating SWAs registered improvement in overall cost recovery, they remained dependent on state governments to finance part of their operations. Factors that contributed to the states achieving only partial financial viability included: (a) the limited political will at state level to grant SWAs full autonomy 11 Cost overrun amounts are based on findings of a Financial Management Special Audit Report commissioned by the FMWR in March 2014, to assess the cost overruns. Details concerning the overruns and final accounts are presented in the report. 9 and to progressively raise tariffs in line with costs; (b) lower than expected increase in revenue collections due in part to failure of government institutions to pay their water bills in a timely manner and limited autonomy by SWAs to make decisions such as disconnection of customers; and (c) the high costs of energy, which increased beyond projected operational costs. These issues were constantly raised as part of dialogue with Federal and State executives and officials, but progress remained slow. 33. . For instance, Enugu and Ogun states had four and five Project Coordinators, respectively, over the life of the project, while Kaduna had three Coordinators. There were also frequent changes in specialist staff after they were trained through the project. Reasons for the high turnover included frequent reassignment of PIU staff, who were state government employees, voluntary transfer of experienced staff to other projects and agencies with better compensation. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E Design 34. Design of the M&E framework. Responsibility for M&E at state level was devolved to the respective state PIUs, while responsibility for overall coordination, monitoring, and submission of reports was maintained at the FMWR level PIU to ensure that results were captured effectively, collated, and submitted in a coordinated and efficient manner. Sufficient resources were allocated under the project’s Capacity Building and Project Management component to facilitate the process. The ICR notes some shortcomings in design of the results framework, although it recognizes that at the time the project was designed Bank requirements for M&E frameworks were much less rigorous. The shortcomings mainly pertained to: (a) the absence of baseline data and targets for critical indicators at approval, given the unreliable data situation faced at the time; and (b) the unsuitability of the PDO indicators selected for service reliability and financial viability. Service reliability for water supply is best measured through assessment of water service continuity or pressure. However potential practical limitations within the existing network to reliably measure the selected indicators, including intermittent supply, must be taken into consideration. M&E Implementation and Utilization 35. Efforts were made to improve M&E during implementation. Efforts were made as part of the project restructuring to refine the results indicators to reflect corporate core sector indicators. Regular progress reports were prepared and submitted by the states and FMWR throughout project implementation and progress was reflected in Bank supervision documentation. The main challenges faced in M&E during implementation related to: (a) the lack of regularly reliable data, especially concerning state utility financial performance; and (b) uneven monitoring of contract management issues at state level. For future projects, use of an independent technical auditor on an annual or bi- 10 annual basis would enhance the integrity and reliability of the M&E implementation and allow issues to be identified and addressed early. 2.4 Safeguard and Fiduciary Compliance Safeguards 36. Overall safeguards compliance under the project was satisfactory, considering handling of safeguards issues for project activities during the preparation and implementation phases of the project. The project triggered four Bank Safeguards Policies: (a) OP 4.01 on Environmental Assessment (EA); (b) OP 4.12 on Involuntary Resettlement; (c) OP/BP 4.37 on Safety of Dams; and (d) OP/BP 7.50 Projects of International Waterways. The project was appropriately classified as Category B in respect to OP/BP 4.01 (Environmental Assessment), given the nature of investments. This categorization was maintained at project restructuring and additional financing. An Environmental and Social Management Framework (ESMF) and Resettlement Policy Framework (RPF) were prepared as part of project preparation, and needed Environmental Impact Assessments, Environment Management Plans, and Resettlement Action Plans were prepared and generally followed for project investments. Safeguards activities were closely supervised by the Bank, and there were no major issues related to management of Safeguards under the project. Fiduciary Compliance 37. Financial Management (FM) compliance under the project was moderately satisfactory. Responsibility for FM at the federal level lay with the Finance Department of the FPIU, which was staffed by experienced accountants, whose capacities were generally adequate to perform required tasks. FM responsibilities in the states lay with state Project Financial Management Units (PFMUs) located in the offices of the respective state Accountant Generals, which had experienced staff, and were assessed as having effective internal controls and internal audit systems, and computerized FM systems. The overall FM risk was assessed as Moderate at appraisal and appropriate actions needed to address identified risks were included in the project design. Quarterly financial reports were submitted to the Bank in a timely manner, and annual audit reports of the project accounts by independent external auditors raised no significant issues. The MTR noted some FM issues in form of internal control lapses and failure to follow Bank procedures in Enugu State, which were addressed through regular supervision, audits, and support from the Bank FM team. Some challenges in the internal control systems with regard to budget monitoring appear to have remained in Enugu however, contributing to the over-commitment of funds at the end of the project (see section 2.2). 38. Implementation of the Procurement function was moderately satisfactory, based on its overall compliance with Bank and country procedures during project preparation and implementation for most contracts. Procurement was generally conducted in accordance with the Bank’s Guidelines for Procurement under IBRD Loans and IDA Credits and specific provisions stipulated in the DCA. The FMWR PIU had overall responsibility for management of procurement functions at the federal level, while 11 the State Water Agencies were responsible for management of procurement functions at the state level. A Procurement Capacity Assessment for the project was conducted as part of preparation. Some weaknesses from implementation of the previous Bank financed project were identified in respect to procurement planning, filing, and supervision. However, the agencies responsible for managing procurement at both federal and state levels were assessed as having considerable experience in implementing Bank financed projects with good procurement track records in general. 39. The Procurement Capacity Assessment in hindsight appears to have somewhat over-estimated the PIU capacity at the state levels given that some of the states had not been involved with previous Bank projects. The project supported measures to strengthen capacity at all levels through training in procurement and contract management, as well as provision of technical support from experienced external consultants, where needed. Procurement capacity subsequently improved and procurement activities were reviewed periodically and found to be generally satisfactory. A post-procurement review conducted for the project confirmed that there were no major issues procurement in any of the states. 2.5 Post-completion Operation/Next Phase 40. Most project financed investments and services are currently operational and they are contributing to the development outcomes of improved service reliability and access to water supply in participating states. While the project has made efforts to ensure that appropriate technical and institutional provisions are in place to operate the facilities, issues affecting financial viability of SWAs are still a potential threat to sustainability, unless the States continue to provide the required subsidies in the short- to medium-term. 41. The FMWR has initiated a program of activities to sustain reforms and institutional capacity gains achieved through the project to advance the unfinished reform agenda and support SWAs to improve their overall performance efficiency. This program is being financed through Additional Financing approved in 2012 under the ongoing Second National Urban Water Project (NUWSRP 2) financed by the Bank. Activities in this regard include but are not limited to, establishment of the State Water Regulatory Agencies, granting full operational autonomy to the SWAs, and promotion of appropriate models and measures to improve operational efficiency. States such as Kaduna intend to continue to pursue activities initiated during implementation such as its Delegated Management Program, an internal arrangement similar to a model used in Uganda, where the SWA jurisdiction area is divided into districts and each district office has the responsibility for operation of its services and for generating enough revenue to cover staff salaries as well as O&M costs. Since January 2012, Kaduna State Government stopped providing subsidies to the SWA to cover costs for staff salaries and part of O&M. A similar approach has been initiated on a smaller scale in Ogun. 42. Follow on Bank Operation –Nigeria Third National Urban Water Sector Reform Project (NUWSRP 3). In response to the continued need for addressing urban 12 water supply needs in Nigeria, the GoN has prepared a new Bank financed operation that seeks to increase access to improved water supply service in selected cities and urban centres in Bauchi, Ekiti, and Rivers States, and to improve the financial viability of existing water utilities in those states. While that operation will not finance investments in any of the states that benefitted from the completed project, it includes a federal component to strengthen the FMWR’s capacity to monitor and benchmark sector performance and ensure increased accountability from the states for their performance. Through this component, the FMWR will continue monitoring sector activities in Ogun, Kaduna, and Enugu, together with activities across the country. A follow up workshop to review lessons from the project and chart out a way forward for the sector, including for improving planned and ongoing projects, is planned for May 2014. States are also pursuing additional funding from other sources. Kaduna State Government has for instance secured funding from the African Development Bank (AfDB) to finance other infrastructural development projects. 43. Design of the NUWRSP III has taken into consideration important lessons from the current project. Key lessons include: (a) state selection based on performance and demonstrated commitment to reforms, as opposed to upfront assurances for reform; (b) creation of a limited competitive environment among states, that will allow high performing states to access more funds; (c) concentration of investments in specific geographic areas to enhance impact; and (d) devolution of responsibilities to states while ensuring that there are adequate measures to ensure more intensive oversight by the FMWR. 3Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation 44. The overall rating for relevance of objectives, design, and implementation is Substantial on balance. The relevance of objectives is rated High, while relevance of design and implementation is rated Substantial, as discussed below. 45. The PDO remains highly relevant to Nigeria’s development priorities and the Bank’s Country Partnership Strategy (CPS). The GoN has long recognized the challenges the water sector is facing, and has prioritized improvement of access to sustainable WSS services on its development agenda. Government commitment to addressing this issue is demonstrated through its National Transformation Agenda for 2011-2015, which reflects the national focus on infrastructure and human development, and the provision of basic infrastructure as critical enablers of the country’s development. The project is also relevant to the Bank’s priorities and development objectives in partnership with Nigeria, articulated in both the CPS (FY10-13), as well as the CPS (FY14-17). The FY10-13 CPS focused on three themes to transform and diversify Nigeria’s economy: (i) improving governance; (ii) maintaining non-oil growth; and (iii) promoting human development. The project supported governance reforms and infrastructure to improve urban water supply services in Nigeria. The CPS FY14-17 has also identified improved access to water supply and delivery of water services as central 13 to improvements in health in Nigeria, alongside improvements in education, urban and rural development, development of industry, and general economic development. The project also contributes to improving Nigeria’s progress towards meeting its MDG with respect to access to improved water supply service. 46. Relevance of Design and Implementation - Rating: Substantial. The project design rightly balanced support for physical infrastructure investments with policy reform and institutional development activities such as exploration of PPPs at a decentralized level. At the time the project was appraised, PSP in the water sector was considered one of the fastest and most secure approaches to achieving utility financial sustainability and the institutional interventions were largely focused on promoting this approach. Considerable effort during project preparation was devoted to attempting to determine whether the approach was the best fit for Nigeria. In view of identified risks that not all PPP contracts would be implemented given investor perception of Nigeria as too risky, the project design although maintaining a strong PPP focus, allowed flexibility for states to access financing and continue implementation if they were able to demonstrate improvements in efficiency based on public sector solutions. Indeed, emerging experience globally has since confirmed that private sector involvement in water supply is not necessarily a panacea and global best practice may not fit certain local contexts. The implementation approach has taken this lesson into consideration in applying various public sector models that have proven successful in countries such as Uganda. Issues earlier identified in regard to the design of M&E arrangements to assess project results (see Section 2.3) slightly downgrade the overall design and implementation relevance in the ICR from high to substantial. 3.2 Achievement of Project Development Objectives 47. Rating: Moderately Satisfactory. The ICR assesses efficacy with respect to project outcomes as Moderately Satisfactory, based on the aggregated achievement of the development objectives. This section assesses the extent to which the project achieved each objective, highlighting key outputs that contributed to the outcomes. Details on the outputs under each project component are presented in Annex 2. While the PDO as stated in the PAD was presented as having two principle objectives: (i) to improve reliability and financial viability of selected urban water utilities; and (ii) to increase access to piped water networks in selected urban areas, the ICR further separates the first objective into two distinct elements for purposes of assessing the efficacy: reliability of services, and financial viability of selected utilities. Accordingly, in respect to efficacy, achievement of the PDO is assessed on three equally weighted criteria: service reliability, financial viability of utilities, and increased access to water supply. PDO 1 - Improved reliability of services in the selected urban water utilities. Key Outcome Indicator: Increase in water delivered through existing and extended networks. 48. The project fully achieved its objective of improving service reliability by increasing the overall amount of water delivered to more than five million people in 14 the participating utility service areas, exceeding the original targets in all states. Based on the outcome indicators at project completion, achievement of the targets in terms of increased water supplied varied from state to state, with Kaduna, Ogun, and Enugu States exceeding the targets by 31 percent, 12.5 percent, and 37.5 percent, respectively; the combined target for the three states was exceeded by about 14 percent. The overall improvement in service reliability was further reflected in the achievement of the intermediate outcome in terms of increased water availability to end users, defined as at least 20 percent increase in water availability in all three SWAs. This target was exceeded in all SWAs. Additionally, most customers surveyed through a Beneficiary Impact Assessment12 commissioned by the FMWR at the end of the project confirmed significant improvement in the quality, quantity, regularity, and pressure of water supplied by their respective SWAs, even though there were some disparities in perceived impact, based on factors such as location, elevation, and availability of power supply. Improved regularity and pressure further confirm water service reliability improvements. While the Beneficiary Assessment confirmed the project’s overall positive impact on service reliability, it pointed to the need for continued investment in water supply by the states to address remaining service quality and reliability issues. 49. Outputs to Improve Service Reliability: The project, through the Rehabilitation and Network Expansion component, financed water production and distribution network rehabilitation and expansion activities, which contributed directly to improving the reliability of water services and reaching more unserved people. Thirteen water treatment plants were rehabilitated and restored to operate at their installed capacity, increasing production from an average baseline of about 250 million cubic meters per year to 865 million cubic meters a year. Production was however curbed in many cases by the availability of power supply, and production facilities are operating at an average of about 85 percent of their capacity. In addition, about 492.5 km of distribution network were rehabilitated in the three states, resulting in increased service performance in terms of water delivery and pressure, which also contribute to service reliability. PDO 2 - Improved financial viability of selected urban water utilities. Key Outcome Indicator: Improvement in cost recovery (million increase in cash flow). 50. The project partially achieved its objective of improving financial viability, and is putting in place measures to sustain the reforms initiated. While notable improvements towards financial viability have been achieved in all three states, which all registered substantial revenue increases as a result of the project, progress towards full viability has been slower than envisaged due to a range of factors, including: tariffs that do not cover full operations and maintenance costs, low collections from large institutional customers including federal and state government agencies, and high energy costs. The three utilities were able to achieve an average of 60 percent operations and maintenance cost coverage (Intermediate Outcome Indicator 8), ranging from 75 percent in Kaduna to 40 percent in Ogun state. There have also been significant improvements in 12 Details on the findings of that Assessment are presented in Annex 5. 15 performance in terms of collection efficiency in all three states, with Enugu and Kaduna achieving 80 and 85 percent, respectively while Ogun achieved 70 percent, against a target of 80 percent on average. These improvements represent positive progress towards financial viability. 51. Outputs. The project, through the Capacity Building and Project Management, as well as the Public Private Partnerships Development components, supported institutional strengthening, capacity building, and reform activities intended to improve the operational and commercial capacity of the SWAs to deliver water supply services in an efficient manner, including improving the SWA financial viability. While the above activities have contributed to some improvements in cost recovery, there is still need for substantial support to the SWAs in terms of activities geared to enhance their financial viability. Recognizing that the financial viability of low-performance utilities requires consistent attention and perseverance within the local political economy context, post completion action plans to advance the reform process are being developed and advanced with support from the on-going NUWSRP2 (Additional Financing) project. PDO 3 – Increased access to piped water networks in selected urban areas. Key Outcome Indicator: Increase in number of household connections. 52. The project fully achieved and in fact exceeded its objective of increasing access to piped water networks in the selected urban areas of Ogun, Kaduna, and Enugu States. The network extensions in all three states enabled connection of about 70,846 households to the piped water network, significantly exceeding the targeted 50,000 households, providing access to 4.3 million people. While not explicitly measured as part of monitoring, access to improved water supply services is expected to bestow benefits on many levels, including greater convenience to beneficiaries in accessing water on their premises, and associated impacts on health from reduced risk of waterborne disease, as well as on productivity through reduced time spent collecting water, especially for women who are primarily responsible for water collection in many households. 53. Outputs. The distribution network was extended by about 284 km, providing improved access to more people that were previously unserved, mostly in the peri urban areas adjacent to the state capitals. These extensions, combined with about 492.5 km of distribution network rehabilitations in the three states, resulted in improved access to piped water for over 70,800 new registered households or 4.3 million more people. Table 3.1. Summary of Efficacy of Achievement of Development Objectives by State Description Improved reliability of Improved financial Increased access to piped water supply viability of SWA water networks (Weight 1/3) (Weight 1/3) (Weight 1/3) Kaduna Fully achieved Partially achieved Fully achieved Ogun Fully achieved Partially achieved Fully achieved Enugu Fully achieved Partially achieved Fully achieved Total Fully achieved Partially achieved Fully achieved 16 54. Based on the above, the project achieved its two objectives relating to physical investments and associated service improvement outcomes in terms of reliability and access to water, but only partially achieved its objective regarding improved financial viability of the SWAs. The overall efficacy of achievement of the project objectives is therefore considered as having been Moderately Satisfactory on balance. 3.3 Efficiency 55. Rating: Moderate. Efficiency of the project is rated Moderate on balance, based on the aggregated result of the economic and financial analysis conducted as part of the ICR, as well as other pertinent factors such as the implementation time, and the project costs. A summary of the results of the financial and economic analysis is presented below. 56. Economic Analysis. The main objective of the economic analysis was to confirm the economic viability of the overall operation projected during project preparation. It took into consideration direct and indirect costs and benefits, and converted the financial prices into economic costs through shadow pricing aimed at eliminating the effects of participating state governments’ interventions and market distortions. Details are provided in Annex 3. Two main sets of benefit streams were considered: revenue from water supply, and expected health benefits. Environmental and employment benefits, which represent additional returns of significant value for the project, were however not quantified or applied in determining the Economic Rates of Return (ERRs), due to lack of usable data. The total benefits quantified in the cost-benefit analysis should thus be interpreted as a conservative lower bound estimate. The project’s viability is based o n the ERRs and NPVs of the measurable, incremental benefits and total project costs using actual investment expenditures from IDA and Government, as well as annual O&M costs throughout the 20-year period through 2024 at a 12 percent discount rate. 57. The analysis reveals that actual economic indicators (ERRs) are close to those projected during appraisal. In fact, if non-quantified environmental and employment benefits were accounted for, the ERRs would be greater than those projected at appraisal. All the assumptions considered during the production of the initial analysis have been kept unchanged. The benefit streams were estimated under the following additional assumptions: (i) increase in billing and collection rates observed would be 40% and 78% respectively from 2014 to 2024; (ii) the average increase in operating and maintenance costs of 9% observed during the 9-year period of project implementation would be sustained through 2024; and (iii) the Federal and State Governments would not provide subsidies to the three SWAs. Table 3.2 below summarizes ERRs and NPVs in the three states based on these assumptions. 17 Table 3.2: Results of the Economic Analysis of NUWSRP Overall Project Economic Viability ICR (at completion) PAD (at appraisal) ERR NPV (USD) ERR NPV (USD) Kaduna 23% 70,990,000 25% 21,854,000 Ogun 14% 8,697,000 16% 18,543,000 Enugu 15% 12,189,000 - - 58. Financial Analysis: The financial analysis focuses on a cost-benefit analysis and zeroes in on productive investments financed under Component 1 (Rehabilitation of Water Supply System). The main objective of the analysis was to verify whether implementation of project activities positively impacted the financial viability of water utilities in the three participating states, taking into account only related direct costs and benefits. The analysis covers 20 years, including 9 years of project implementation (2005-2013), and 11 years of projected costs and benefits (2014-2024). Results of this analysis in terms of Internal Rates of Return (IRRs) and Net Present Values (NPVs) at 12 percent discount rate are summarized in Table 3.3 below. Table 3.3: Results of the financial analysis of NUWSRP Overall Project Financial Viability ICR PAD IRR NPV (USD) IRR NPV (USD) Kaduna 15% 23,203,000 22% 19,867,000 Ogun 7% (24,764,000) 21% 16,556,000 13 Enugu 13% 5,836,000 - - 59. Based on the analysis, Kaduna and Enugu water utilities are considered to have been financially viable given that their respective IRRs exceed the 12 percent cost of capital, even though the projected financial efficiency at appraisal was not fully achieved for Kaduna and Ogun SWAs. The substantial difference between the PAD and ICR financial IRRs for Kaduna and Ogun SWAs is attributed to factors such as: (a) the project cost overruns due to the significant increase in prices of materials and equipment worldwide; (b) the slow increase in billing rates during implementation; (c) high O&M costs – especially energy - compared to revenues; and (d) the substantial difference in appraisal and final project costs14. 13 Economic and financial analysis was not conducted for Enugu at appraisal since the state was not originally included in the project. 14 In both the financial and economic analyses, IRR, ERRs and NPVs estimated for the ICR are based on US$210 million (175% of project appraisal costs). PAD financial and economic indicators were based on the project’s initial investment amount of US$120 million which were based on very preliminary designs (as opposed to detailed designs). 18 3.4 Justification of Overall Outcome Rating 60. Rating: The project’s overall outcome is rated Moderately Satisfactory considering the aggregate of its relevance, the efficacy of achieving the PDO, and efficiency. The relevance of PDO and design and implementation was Substantial, and the project was able to achieve Moderately Satisfactory efficacy with Moderate efficiency. The project has resulted in improved service reliability and access to water supply to about 5,377,449 people in the participating states, exceeding the target by over 375,000 people. While utility financial viability outcomes are not fully achieved yet, there have been improvements and resources have been allocated to ensure that the momentum of reforms initiated through the project is maintained towards this end. 3.5 Overarching Themes, Other Outcomes and Impacts 61. Poverty Impacts, Gender Aspects, and Social Development. While no formal assessment of the project’s poverty impacts has been made, it can be reasonably concluded that in targeting the water supply investments to improve the living conditions of people in peri-urban as well as state capitals, many of whom are poor, the project improved the well-being of these people to some extent and as such, contributed to conditions that would alleviate poverty in these areas. The project also financed a National Strategy to Increase Low Income Household Connections under its Federal component. States are already implementing this strategy through their customer enumeration exercises. In terms of gender, the burdens related to poor access to water supply services fall disproportionately on women and children in Nigeria, as in many other developing countries. It can therefore be reasonably concluded that the project’s impacts on gender among the beneficiary population have been positive even though a formal impact assessment was not conducted. (b) Institutional Change/Strengthening 62. The project has strengthened institutional capacity in FMWR and participating states to manage water supply service delivery in their jurisdictions. The project has registered achievements in terms of capacity built in these institutions to manage water supply services more effectively, and has been instrumental in establishing the basic support structures to set the stage for further development of the sector. The project has also set the stage for improving the enabling environment for promotion of PPPs and other models for improved service delivery and accountability through the establishment of the National Water Policy and drafting of enabling laws to establish the State Water Regulatory Agencies. Given the history of slow progress on these reforms, accession to the laws and establishment of the Regulatory Agencies will require political will at the state level, as well as continued engagement of the FMWR to hold the states accountable for implementation of these activities. The project has also supported efforts to initiate the establishment of public and private sector management models, including the use of Delegated Management Contract arrangements and the use of Performance Contracts between states and SWAs to improve commercial orientation of utilities and performance accountability, based on models that have worked in countries such as Uganda. Preliminary results indicate that the approaches are achieving some 19 improvements in terms of revenue collection and staff motivation in Kaduna and Ogun State SWAs. The ICR notes that there is still need for further strengthening and continued support, and full achievement of the needed reforms will be a long-term undertaking. The Additional Funding under the NUWSRP 2 will provide continued support to the SWAs to support initiatives to implement such reforms. (c) Other Unintended Outcomes and Impacts (positive or negative) 63. There were no significant unintended outcomes. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 64. A Beneficiary Survey commissioned by the FMWR in the three participating states in January 2014 to assess the extent to which the project achieved desired development outcomes confirmed the substantial achievement of the PDO, with the shortcomings as discussed under the section on Achievement of Outcomes. Overall, service improvements were generally higher for customers residing in the state capitals compared with those in the peri-urban areas. A more detailed summary of the main findings is presented in Annex 5 and the full report is in the project files. 4. Assessment of Risk to Development Outcome 65. The ICR considers that the risk that development outcomes from the project will not be maintained is Substantial, and the Government should ensure that adequate mitigation measures are in place to address the pertinent issues. Maintenance and/or further improvement of the project’s development outcomes will depend on a number of financial, institutional, political, social, and economic factors. The sustainability of reliable water supply service delivery and uptake by all users is subject to issues such as: adequate operation and maintenance of systems; cost recovery; and continuing support and enforcement of enabling policies to maintain services, the failure of which could pose a risk to maintaining the outcomes. 66. Financial and Institutional Risks. Risks to development outcome from a financial and institutional perspective are considered substantial. Financial risks mainly relate to threats to the long-term financial viability of SWAs. While the project has helped SWAs to improve their overall collection efficiency, they are yet to recover their costs, and states will have to make adequate budgetary provisions for subsidies to maintain service provision in the short- to medium-term. Mitigation of this risk will depend on a combination of political will and further support for institutional development, primarily involving state governments granting the SWAs greater financial and operational autonomy, and provision of continued support for implementation of needed reforms and policies to improve cost recovery and ensure sound operational management of services and resources. As mentioned earlier, the SWAs are expected to benefit from continued support for further implementation of reform and institutional development under the Additional Financing for the NUWSRP 2. 20 67. Technical and Operational Risks. Risks to development outcome from a technical perspective are not considered significant in the short to medium term. Technical risks to maintaining development outcomes mainly relate to factors affecting operations, such as; (i) the lack of reliable power supply, which limit capacity utilization of water production and distribution systems; (ii) the quality of investments; and (iii) inadequate operation and maintenance of facilities leading to asset deterioration and unreliable services, an issue inter-linked with the financial and institutional risks discussed above. While the quality of construction of investments and technologies used were appropriate for achieving the desired improvements in service reliability and access, unreliable power supply continues to be a major constraint to the SWAs operations, especially in respect to water production and treatment. The SWAs have adopted measures such as the use of stand-by generators to try to mitigate this risk. However costs are high and difficult to sustain due to high fuel costs in Nigeria. 68. Economic and Social Risks. Finally, risks to development outcome from a social and economic perspective are considered modest. Risks relate in part to motivation for consumers to use the services based on concerns such as affordability for instance in light of new policies requiring payment of higher tariffs. This is not considered a major risk given the dire need for water supply services in the targeted areas, as well as the implementation of policies supported through the project to ensure acceptable arrangements for low income customers. 5. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues) 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry 69. Rating: Moderately Satisfactory. Bank performance in ensuring quality at entry is rated Moderately Satisfactory. Overall, Bank allocation of staff and resources were adequate and substantial preparatory analytical work was carried out to facilitate sound preparation and appraisal of the Project. The Bank team helped to mobilize resources to support project preparation, though a Project Preparation Facility (PPF) and a Japan Policy and Human Resources Development (PHRD) grant and overall the design was prepared in close consultation with the GoN. Project appraisal took into consideration pertinent technical, financial, and economic principles. Fiduciary and safeguards arrangements were well prepared, consistent with the Bank’s fiduciary and safeguards requirements. The one area that could clearly have received more attention from the Bank team during project preparation was the M&E system (see Section 2.3 above). (b) Quality of Supervision 70. Rating: Moderately Satisfactory. The quality of supervision is rated Moderately Satisfactory on balance because most elements of project supervision, including the 21 fiduciary, safeguards, and technical support for implementation were conducted in a satisfactory manner with moderate shortcomings. The ICR notes on the one hand that adequate budget was allocated throughout the Project implementation period, and project supervision was carried out at least twice a year, with a mix of country and headquarter- based staff complementing each other. Having a country based task team leader for the larger part of implementation allowed most issues to be proactively followed up as needed with counterparts, and addressed as they occurred through continuous dialogue. For instance, the dialogue and support provided to the Borrower to restructure the project and provide additional financing was critical to the final achievement of the project’s objectives in the face of implementation delays and cost overruns earlier in the project. Moderate supervision shortcomings noted by the ICR relate to the fact that: (a) the Bank team paid less attention to monitoring of SWA financial status compared to physical investment components; and (b) the weak contract management observed in the final stages of implementation in Enugu and Ogun were not detected by the Bank team sufficiently early on to address them. (c) Justification of Rating for Overall Bank Performance 71. Rating: Moderately Satisfactory. The ICR rates the overall Bank performance as Moderately Satisfactory given the Moderately Satisfactory project quality at entry and quality of supervision. 5.2 Borrower Performance (a) Government Performance 72. Rating: Moderately Satisfactory. The ICR assesses Government performance as Moderately Satisfactory on balance as well, considering the aggregate of performance of the Ministry of Finance (MoF) as the Borrower and the line Ministry (FMWR) which implemented the project on behalf of the Borrower through its PIU, during project preparation and implementation. Federal Government commitment to the project was considered to have been adequate at the time of entry. The FMWR provided the overall vision and direction for the sector, and was instrumental in defining the project design with the Bank through an extensive consultation process. Once an appropriate approach was agreed upon, Government’s commitment to the project was confirmed through a Letter of Sector Policy from the FMWR, dated December 30, 2003. 73. FMOF and FMWR generally complied with agreed covenants in accordance with Legal Agreements with the Bank. The FMWR, through its Project Implementation Unit (PIU), maintained close coordination and dialogue with relevant government entities and the Bank to address policy and implementation issues as they arose. The FMWR PIU was able to manage implementation of activities at the Federal level in a satisfactory manner and to provide general oversight and backstopping to the SWAs on aspects such as procurement for many of the project activities. There were some shortcomings however in the Federal PIU’s monitoring of some implementation issues at the state level. While the Project Implementation Manual (PIM) was clear on the roles and responsibilities of 22 the different implementing parties, it appears that the span of control and coordinating responsibilities of the FMWR PIU were not properly understood or followed by some state PIUs. The FMWR PIU was therefore sometimes by-passed on critical information flows. This contributed to the failure of the FMWR to detect the over-commitments that occurred in Enugu State and the delayed withdrawal applications in Ogun at the closing of the project. (b) Implementing Agency or Agencies Performance Rating: Moderately Satisfactory 74. Implementation for state components was managed by the SPIUs which were overseen by the respective state governments. Given the mixed performance of the individual state implementing agencies relative to one another, the ICR rates the implementing agency performance Moderately Satisfactory on balance, considering the aggregate of the different states PIU and state governments’ performance in effectively supporting project preparation and implementation to contribute to achievement of the overall project development outcomes. 75. State PIUs. The performance of the project implementing agencies varied from state to state, and while it is noted that some PIUs performance was stronger than others, the ICR considers the aggregate of the extent to which the three PIUs were able to effectively support project preparation and implementation. The ICR recognizes the SWAs’ overall commitment to project preparation and implementation. The design of project implementation arrangements acknowledged existing capacity constraints within SWAs at the individual state level and included measures to strengthen their PIU capacity through training and support from experienced consultants and the PCU. Successful implementation of most investments as well as management of fiduciary, safeguards, and other implementation aspects for most activities with minor or moderate shortcomings is testament to the capacity built through the project and the support provided. While Kaduna and Ogun PIU’s performance was generally satisfactory with moderate shortcomings, there were substantive performance shortcomings in Enugu as earlier discussed in relation to the findings of the Financial Audit commissioned by the FMWR, which highlighted issues with contract management. 76. Ogun, Kaduna, and Enugu State governments played their mandated roles in providing general oversight and financial support to the water utilities, and they generally supported progress towards achievement of the project’s development objectives in terms of improved service reliability and increased access to water supply based on implementation of physical investments. There were however shortcomings, to varying extents, in state performance as also reflected in the performance of the SPIUs. 77. The ICR rates the relative performance of the individual state implementing agencies based on consideration of criteria such as management of fiduciary aspects, overall management of the investment and reform activities, and timely resolution of implementation issues. Table 5.1 below provides a summary of the relative performance of the individual state PIUs based on a scale of 1-6, with 1 representing Unsatisfactory, 2- 23 Unsatisfactory, 3-Moderately Unsatisfactory, 4-Moderately Satisfactory, 5-Satisfactory and 6-Highly Satisfactory. Table 5.1 Ratings of Individual State PIU performance Description Score Kaduna State PIU 5 Satisfactory Ogun State PIU 4 Moderately Satisfactory Enugu State PIU 3 Moderately Unsatisfactory Average Rating 4 Moderately Satisfactory (c) Justification of Rating for Overall Borrower Performance 78. Rating: Moderately Satisfactory. The ICR rates the overall Borrower performance as Moderately Satisfactory, based on the Federal Government (FMoF and FMWR) Moderately Satisfactory rating, the State Governments and PIUs Moderately Satisfactory rating, and the overall Moderately Satisfactory project outcome. 6. Lessons Learned 79. Appropriateness of reform program for local context. Projects involving the introduction of significant reforms to improve sector outcomes based on global good practice should set realistic timeframes and targets based on candid assessment of the local context, including the political economy, market risks and the sector’s ability to hedge them, and sector readiness for proposed changes, as well as recognition of the fact that reform is a long-term process that requires the engagement, commitment, and support of all key stakeholders. 80. Need for incentives and champions for states to advance reforms. rojects need to identify strong national and local champions to advance needed reforms. Project design should also include incentives to make Borrowers more accountable for achieving results on all critical activities, including reforms required to ensure achievement of development outcomes. Incentives such as state selection to participate in projects based on demonstrated achievement of critical reforms, or to access additional funds during implementation should be built into projects. This approach is the backbone of the NUWSRP 3 design. 81. Need for appropriate internal controls. The design of project implementation arrangements that are decentralized to the sub-national level such as state level, should ensure that adequate checks and controls are included and enforced in supervision arrangements, especially where capacity is an issue. While the addition of extra layers of oversight is not desirable, there is value in including mechanisms at federal level to ensure closer monitoring of critical activities such as award of large contracts at the sub- national level. Detailed arrangements should be agreed by all parties and included in the Project Implementation Manual. Project design should also ensure that adequate contract 24 management capacity is built in implementing agencies at both federal and state level to support these activities. 82. Incentives for project staff and need for appropriate skills mix. The design of project implementation arrangements should ensure that staffing policies include incentives that promote the retention of experienced staff seconded by government or externally sourced who have benefitted from capacity building opportunities provided through the project. The high turnover of project staff could have been reduced through a combination of incentives, such as, appropriate competitive compensation and/or benefits compared to the market, contractual policies to maintain services for a given period, and policies that allow government staff working on the project to be maintained for reasonable periods of time. Additionally, projects with significant reforms aiming to improve utility performance should include an adequate skill mix, including staff with sound institutional reform experience, as well as Financial Analysts with experience in Water Supply and Sanitation Utility management. 83. Independent technical audits to strengthen M&E. The use of an independent technical auditor on an annual or bi-annual basis would enhance the integrity and reliability of the project monitoring data. There were gaps in respect to the integrity and reliability of some of the data and information generated for the project, for instance in respect to financial performance of utilities. This finding also underscores the need for M&E during implementation to not only focus on the limited scope of indicators in the results framework, but also to regularly review other important aspects of sector performance and contract management. 84. Assessment of implementation readiness. Assessment of project implementation readiness should not only focus on having a procurement plan for the first year of implementation, but also pay adequate attention to completing critical preparatory activities such as detailed designs for investments, to allow for timely commencement and implementation of activities once the loan or credit becomes effective. Project start up in this case was delayed due to the lack of ‘shovel ready’ sizeable investments when the project became effective. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 85. Not applicable. (b) Cofinanciers 86. Not applicable. (c) Other partners and stakeholders 87. Not applicable. 25 Annex 1. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Actual/Latest Appraisal Estimate Percentage of Components Estimate15 (USD (USD millions) Appraisal millions) Component 1: Rehabilitation and 105.50 149.4 142 Network Extension Component 2: Public-private 16.50 3.6 22 Partnership Development Component 3: Capacity Building 9.85 28.5 289 and Project Management Component 4; Policy Reform and 5.30 2.5 47 Institutional Development Total Baseline Cost 137.15 184.0 131 Contingencies (Physical and 1363 Price) 1.35 18.4 Total Project Costs 140.00 202.4 145 Front-end fee PPF 0.00 0 Total Project Costs 140.00 202.4 145 (b) Financing Appraisal Actual/Latest Estimate Estimate Type of Percentage of Source of Funds (USD (USD Cofinancing Appraisal millions millions equivalent) equivalent) Counterpart Borrower 20.00 2.4 12 funds International Development Credit 120.00 200.00 167 Association (IDA) Total 140.00 202.4 145 15 The actual/final costs in the table include the additional financing. 26 Annex 2. Outputs by Component The project comprised the following four broad components. Component 1: Rehabilitation and Network Expansion (US$105.5 million): This component was to finance support for: (a) rehabilitation of water production infrastructure to restore water systems to operate at installed capacity; (b) purchase of essential vehicles and specialized rolling stock for the SWAs; (c) supply and installation of production and zonal meters to provide vital operational information; (d) safety enhancements of dams located within the project States, including those that are owned by the Federal Government but located within States; (e) distribution system expansion once PPP contracts are in place or the relevant SWA demonstrates a high degree of operational capacity and efficiency, as well as financial autonomy; and (f) preparation of a follow on project. Component 2: Public-Private Partnerships (US$16.5 million): This component was to support Public Private Partnerships in selected States which were expected to enter into such partnerships for management of their SWAs, to rebuild technical and commercial capacity and assure adequate operation and maintenance arrangements. The private sector operator contracts were expected to be five year management contracts, and costs covered design, tendering, and payment of operators’ fees. Component 3: Capacity Building and Project Management (US$9.85 million): This component was to support capacity building and project management in the FMWR and the State Water Authorities. Expenditures were to include project management costs, stakeholder communication programs, training, and office equipment. Additionally support was to be given to the FMWR for its work in sector coordination and reform and capacity building, including to help in raising the performance of non-participating States to be able to participate in the continuing national reform program. Further studies to prepare additional States for PPP contracts would be included. Component 4: Policy Reform and Institutional Development (US$5.3 million): This Component was to: (a) support the FMWR to develop a national low income household service strategy; (b) assist in the establishment of State Water Regulatory Authorities; (c) complete and implement a National Water Policy and carry out initial, and then annual, Water Investment Mobilization and Application Guidelines (WIMAG) conferences. In regard to the regulatory framework, the Project was to: (i) support establishment of the regulators as quickly as possible; (ii) support training of the regulators’ staff over several years so that they are capable of carrying out their mandate; and (iii) help the State governments determine when the regulators have gained sufficient expertise and capacity to practically assume regulatory functions. A summary of key outputs by State is detailed below. 27 A. SUMMARY OF KEY OUTPUTS IN ENUGU STATE Component 1 - Rehabilitation and Network Expansion (Enugu) The NUWSRP targeted rehabilitation and network expansion of the water supply system in order to restore the water treatment plants to the installed capacity. This component had the highest budget allocation and most of the planned activities covering the consultancy and construction works have been undertaken. Key outputs under Component 1 in Enugu included the following. (i) Rehabilitation of water treatment plants/schemes at Ajalli-Owa, Nsukka, Iva Spring were completed, while the rehabilitation of Oji Augmentation scheme is still ongoing. The schemes were rehabilitated in phases depending on the availability of funds. Ajalli water scheme has now been rehabilitated to almost 90% design capacity and is ready for commissioning. (ii) A total of 98.2 km of distribution network was rehabilitated. This involved replacement of old AC lines and new extensions. The project also financed procurement of 16 operational vehicles for the Corporation. The project also embarked on metering of customer connections and as at the time of the evaluation a total of 3,500 prepaid meters were being installed. The project also rehabilitated the ENSWC office block. Component 2 - Public-Private Partnerships (Enugu) It was anticipated that ENSWC would enter into a PPP for the management of the water supply facilities to rebuild technical and commercial capacity and ensure adequate operation and maintenance arrangement in the State. The project intended to; - finance studies to confirm and refine the appropriate PPP model; - transaction preparation, bidding and award. The PPP Operator was to - improve service delivery through contractual performance benchmarks; - improving ENSWC performance; - system rehabilitation; - network expansion; and - environmental management. The Corporation has not made much progress in the PPP aspect. ENSWC still manages the water system directly and has not engaged any PPP for the management of the water supply system as envisaged at project inception. Key outputs under Component 2 in Enugu included the following. (i) About 2 years ago Enugu State Government piloted a private contractor financed project aimed at replacing most of the old A.C distribution pipe network of up to 1000Km. However, the Contracts were terminated for poor performance by the Contractors. (ii) A private company (Electrictel Nig Ltd) has been engaged to supply, install, and maintain prepaid water meters. A total of 489 pre-paid water meters have so far been installed. About 5% of the ENSWC’s Internally Generated Revenue (IGR) comes from this source. 28 Component 3 - Capacity Building & Project Management (Enugu) It was planned that the Project would support Capacity Building and Project Management of Enugu State Water Corporation. The envisaged support included: project management costs, stakeholder communication programs, training and office equipment. ENSWC has made progress in implementation of this component. Key outputs under Component 3 in Enugu included the following. (i) The installation of accounting software (Navision) which has helped in automation of the accounting system. (ii) Installation of a billing software (Access based) that is being used for bill generation and accessing historical customer information. This is a big Not consistent with Para. 32improvement from the previously manual billing system. However, the billing system doesn’t capture the prepaid meter information and this is stored separately. There is need for a more robust system that can have all the customer information stored in one place. Designated staff of the SWA have been dully trained and are already working with the accounting and billing Software. (iii) A series of trainings and international benchmarking tours were undertaken both within and outside the Country by staff. However, training has mainly been for PIU and senior management staff. The middle and lower operational staff have not benefited from the trainings. (iv) Stakeholder outreach was undertaken, mostly in the form of media releases and street campaigns. (v) A financial model (excel-based) for the utility was developed and introduced under the project to develop scenarios that would enable ENSWC to break-even. The limitation is that the quality of the input data available is not good and a lot of assumptions are made in the computations and therefore the results of the model are not very reliable. Component 4 -Policy Reform & Institutional Development (Enugu) Under this component, Enugu State was supposed to undertake the following activities: formulation and/or amendment of appropriate legislation, establishment of regulatory body; public communication outreach and information dissemination; and environmental regulation. The project planned to support staff of the regulatory body over several years until they are capable of carrying out their mandate. Outputs from this component in Enugu are summarized below. (i) Draft State water policy and laws for establishing regulatory commission have been done but are not yet approved by the State Government. The draft water bill to address Institutional and regulatory frame- work is yet to be presented to the State Executive Council for approval. This has dragged on for several years. The point of contention is partly on provision in the draft law that creates a separate entity for small 29 towns in addition to the traditional rural and urban entities. More strategic engagement of the State government is required to get the legislation passed. (ii) No progress has been made in establishment of the regulatory body and training of the regulator staff. (iii) The Enugu State Government has established a Water Mobile Court to address issues associated with revenue collection, illegal connections, and meters by-pass among others. The appropriateness of this strategy is yet to be established. 30 B. SUMMARY OF KEY OUTPUTS IN KADUNA STATE Component 1: Rehabilitation of water treatment plant and network expansion (Kaduna) The NUWSRP targeted rehabilitation and network expansion of the water supply system in order to restore the water treatment plants to the installed capacity. The initial scope of the project included rehabilitation and expansion of existing infrastructure in the towns of Kaduna, Zaria, Kafanchan, Kagoro, Zonkwa and Saminaka; as well as rehabilitation of dams in the towns of Kaduna, Zaria, Birnin Gwari, Ikara, and Saminaka. However, only eight Water Works have been substantially rehabilitated under the project; Kaduna - North Old and Kaduna- New Water Works, Kaduna South Water Works, Zaria water scheme, Saminaka Water scheme, Kafanchan/Kagoro scheme, and Zonkwa scheme. Component 2: Public –Private Partnerships Development (Kaduna) Under the project, it was anticipated that KSWB would enter into a PPP for the management of the water supply facilities to rebuild technical and commercial capacity and ensure adequate operation and maintenance arrangement in the towns of Kaduna and Zaria. The project intended to; finance studies to confirm and refine the appropriate PPP model, as well as transaction preparation, bidding and award. The PPP Operator was to improve service delivery through contractual performance benchmarks; improving KSWB performance; system rehabilitation; network expansion; and environmental management. The KSWB engaged a Private Operator, Oretch Nig Ltd, in July 2008 to operate and maintain Kaduna and Zaria Water Treatment Plants and Booster Stations. This contract was later integrated into the project by Government with effect from July 2009 to July 2011. KSWB benefited from the contract through improved capacities, both systems and staff, to provide efficient service to the people of Kaduna State. One of the criticism of the contract was that it lacked performance-based incentives/penalties and the Operator would be paid his fees regardless of the level of performance. Component 3: Capacity Building and Project Management (Kaduna) The objective was to develop the core competences of KSWB to ensure service sustainability and the achievement of the statutory functions of the board especially in staff capacity development and improvement in systems and procedures. In addition, under this component, the project also intended to conduct a number of studies including; willingness-to-pay and tariff studies; investment planning and sanitation/environmental studies; financial modeling, customer enumeration, preparation/updating of assets register; public communication outreach and information dissemination. 31 (i) The project provided a series of capacity building opportunities to KSWB staff, especially the PIU staff, through formal and informal training, study tours, conferences, project annual reviews, workshops, among others. More than half of the utility staff benefited from the capacity building programmes of the project. (ii) The following system improvements and studies were also carried out;  Financial model for forecasting and modelling the long term financial viability of the utility under different scenarios  Monitoring and evaluation system both for the project and utility operations  Customer enumeration to update the customer details  Improvement in the billing system and Human Resource Management Systems  Updating of the asset register Component 4: Policy Reform and Institutional Development (Kaduna) Under this Component, Kaduna State was supposed to undertake the following activities: formulation and/or amendment of appropriate legislation, establishment of regulatory body; public communication outreach and information dissemination; and environmental regulation. The following outputs were achieved. (i) A reform committee was established and the project supported the State in the development of the State Water and Sanitation Policy 2013, the amendment of the KSWB law, and the communication outreach programme. The Policy was approved by the State Government. However, the law is still under review and KSWB is being supported by the project to have the law amended. The establishment of a Kaduna State Water Regulatory Commission to regulate both public and private service providers is yet to be done. C. SUMMARY OF KEY OUTPUTS IN OGUN STATE Component 1: Rehabilitation of Water Treatment Plants and Network Expansion The NUWSRP targeted rehabilitation and network expansion of the six water supply schemes in Abeokuta , Ijebu-ode, Segamu, Ogere, Ifo-Akinside and Apoje. In addition, the project also targeted network expansion in the areas of Abeokuta, Ilaro, Ijebu-igbo (Apoje), Ijebu-ode, Sagamu, and Ogere. (i) The rehabilitation of the six water supply project schemes at Abeokuta, Ijebu-ode, Ogere, Ifo-Akinside and Apoje have all been successfully completed. The water schemes at Ijebu-Ode, Ogere,Ifo-Akinside and Apoje have been fully rehabilitated to the design capacities while the rehabilitation of the treatment processes at Abeokuta scheme not included in the initial rehabilitation under Phase 1 but which will fully rehabilitate the 32 scheme to the installed capacity (82mld) is still on-going. Similarly, the construction of the intake structures at Sagamu water scheme necessary to achieve the 7.8 mld design capacity is also on-going. (ii) The following pipe network expansion works are still on-going, with support from the State: Abeokuta (13km), Ijebu-Igbo (10km), Ogere (8km), Sagamu (3km), Ifo/Ilaro/Papalanto (8km and transmission mains of 22km), Ijebu-Ode (5km). Component 2: Public Private Partnerships Development (Ogun) Under the project, it was anticipated that OGSWC would enter into a PPP for the management of the water supply facilities to rebuild technical and commercial capacity and ensure adequate operation and maintenance arrangement in the selected towns. The project intended to finance: studies to confirm and refine the appropriate PPP model; as well as transaction preparation, bidding and award. The PPP Operator was envisaged to improve service delivery through contractual performance benchmarks; improving OGSWC performance; system rehabilitation; network expansion; and environmental management. State delegates from the Executive, the Judiciary, Finance, House of assembly, other Government Officials and Management of OGWSC embarked on benchmarking and study tours of African countries including South Africa, Uganda, Kenya, and Ghana which have been engaged in various forms of PPP, to review successful models and select a suitable option for Ogun. The State opted to adopt a Public-Public Partnership model in form of Internally Delegated Management Contracts (IDAMC), based on the Uganda National Water and Sewerage Corporation (NWSC) model. The OGSWC Management signed the OGSWC Internally Delegated Management Contracts (OGIDAMC) with its nine regions with emphasis on performance target setting, operational autonomy, use of incentives and effective Monitoring /Evaluation to enhance performance and financial sustainability of OGWSC. The long term intention is to upscale the internally delegated management contracts into higher forms of PPP options, Lease or Concession. Component 3: Capacity Building and Project Management (Ogun) The component objective was to develop the core competences of OGSWC to ensure service sustainability and the achievement of the statutory functions of the Corporation especially in staff capacity development and improvement in systems and procedures. In addition, under this component, the project also intended to conduct a number of studies including; willingness-to-pay and tariff studies; investment planning and sanitation/environmental studies; financial modeling, customer enumeration, preparation/updating of assets register; public communication outreach and information dissemination. (i) The project provided a series of capacity building opportunities to OGSWC staff both locally and internationally. 329 staff (Over 37% of OGSWC staff), including engineers, laboratory technicians, public relations officers, accounts personnel, and 33 commercial and audit personnel, benefitted from the capacity building. The trainings were aimed at developing capacity and provide exposure and vital skills to staff for efficient service delivery. The following system improvements and studies were also carried out: (ii) Preparation of a financial model for forecasting and modelling the long term financial viability of the utility under different scenarios (iii) Development of a Monitoring and Evaluation system for the project and utility operations (iv) Customer enumeration to update the customer details (v) Improvement in the billing system and Human Resource Management Systems (vi) Updating of the asset register Complement 4: Policy Reform and Institutional Development (Ogun) Under this Component, Ogun State was supposed to undertake the following activities: formulation and/or amendment of appropriate legislation, establishment of regulatory body; public communication outreach and information dissemination; and environmental regulation. (i) The project supported the formulation of the Ogun State Water Supply and Sanitation Policy which is in its final draft before the Executive Council of the State for approval. A revised draft bill has also been prepared and submitted to the State Government for approval. Both the water and sanitation policy and the OGSWC law promote Private Sector Participation and creation of an independent Regulatory Authority to regulate both public and private service providers. Key achievement of the reforms It was expected that at the end of the project there would be improvement in water supply reliability; - the production scheme would be restored to installed capacity and capacity utilisation would be at least 90%. It was also expected that access would increase with an addition of 23,760 new customers connection. Similarly the financial viability of OGSWC was expected to improve; OGSWC was to cover at least 90% of its recurrent costs and the collection efficiency was expected to improve by 20%. Lastly the enabling environment was expected to improve in order to sustain the results of the reforms and ensure sustainable service delivery. The table below gives a snapshot of the performance of OGSWC against the project development objectives 34 Annex 3. Economic and Financial Analysis Financial Analysis: The financial analysis conducted at appraisal and as part of the ICR focuses on a cost-benefit analysis and zeroes in on productive investments financed under Component 1 (Rehabilitation of Water Supply System). The main objective of the analysis was to verify whether implementation of project activities would positively impact the financial viability of water utilities in the three targeted States, taking into account only related direct costs and benefits. The analysis covers 20 years, including 9 years of project implementation (2005-2013), and11 years of projected costs and benefits (2014-2024). Results of this analysis in terms of Internal Rates of Return (IRRs) and Net Present Values (NPVs) at 12 percent discount rate are summarized in Table A3.1 below. Table A3.1: Results of the financial analysis of NUWSRP Overall Project FinancialViability ICR PAD IRR NPV (USD) IRR NPV (USD) Kaduna 15% 23,203,000 22% 19,867,000 Ogun 7% (24,764,000) 21% 16,556,000 16 Enugu 13% 5,836,000 - - The level of financial efficiency as measured through IRRs projected at appraisal were not achieved for Kaduna and Ogun State Water Agencies, although based on the ICR, Kaduna and Enugu water utilities are considered to have been modestly financially viable given that their respective IRRs exceed the 12% cost of capital. The difference between the PAD and ICR financial IRRs for Kaduna and Ogun SWAs is substantial due to the following factors:(a) cost overruns in Ogun; (b) low increase in billing rates during implementation (Kaduna: 16%; Ogun 13%); (c) weaker collection rates in Ogun; (d) high O&M costs compared to revenues; and (e) the substantial difference in PAD and ICR project’s costs17. The lower financial performance in Ogun State is attributed to: (a) the lower coverage of O&M costs by revenues (40% compared to 75% and 65% in Kaduna and Enugu, respectively); (b) lower increase in collection rate (70% compared to 85% in Kaduna and 80% in Enugu); and (c) a lower rate of water connections (16% in contrast with the 62% observed in Kaduna and 22% in Enugu). Economic Analysis: The main objective of the economic analysis was to substantiate the economic viability of the overall operation predicted during project preparation at States levels. This was done by taking into consideration direct and indirect costs and benefits, and converting the financial prices in economic costs through shadow pricing aimed at eliminating the effects of participating state governments’ interventions and market distortions. Depreciation charges, expected changes in the general price and direct 16 The analysis was not conducted for Enugu at appraisal since it was not originally part of the project. 17 In both the financial and economic analyses, IRR, ERRs and NPVs estimated on the ICR are based on US$210 million (175% of project appraisal costs). PAD financial and economic indicators were based on the project’s initial investment amount of US$120 million. 35 transfers such as taxes, direct subsidies, and credit transactions including loans, principal repayment, and interest payments were thus excluded from the cost-benefit analysis. Two main sets of benefit streams were considered: revenue from water supply, and expected health benefits. On the other hand, several benefits were not quantified or applied in determining the Economic Rates of Return (ERRs), due to lack of usable data. These include mainly environmental and employment benefits, which represent returns of significant value for the project. The total benefits quantified in the cost-benefit analysis should thus be interpreted as a conservative lower bound estimate. The project’s viability is based on the ERRs and NPVs of the measurable, incremental benefits and total project costs using actual investment expenditures from IDA and Government, as well as annual O&M costs throughout the 20-year period through 2024 at a 12 percent discount rate. All the assumptions considered during the production of the initial analysis at project design have been kept unchanged. The benefit streams were estimated under the following additional assumptions: (i) increase in billing and collection rates observed would be 40% and 78% respectively from 2014 to 2024; (ii) the average increase in operating and maintenance costs of 9% observed during the 9-year period of project implementation would be sustained through 2024; and (iii) The Federal and State Governments would not provide subsidies to the three SWAs. Table y below summarizes ERRs and NPVs in the three states and at the national level under the above assumptions: Table A3.2: Results of the Economic Analysis of NUWSRP Overall Project Economic Viability ICR PAD ERR NPV ERR NPV (USD) (USD) Kaduna 23% 70,990,000 25% 21,854,000 Ogun 14% 8,697,000 16% 18,543,000 Enugu 15% 12,189,000 - - The analysis reveals that actual economic indicators (ERRs) are close to those projected during appraisal (Table A3.2. If non-quantified environmental and employment benefits were accounted for, the ERRs for the states would be greater than those projected at appraisal. Sensitivity of ERR / NPVto Revenue Fluctuation A sensitivity analysis was conducted with the aim of identifying the minimum increase in billing rate required for the project to remain economically viable in all the three states as measured through a positive NPV and an ERR equal to the 12% cost of capital. The sensitivity analysis considered that the average increases in collection rates and O&M costs would remain constant through 2014 (respectively 78% and 9%). The table below summarizes the results of the project’s ERR and NPV sensitivity to this scenario. 36 Table A3.3: Results of the ERR & NPV Sensitivity Analysis Sensitivity Analysis States Increase Billing ERR NPVs (USD) Rate (BR) Kaduna BR = 29.5% 12% 1,299,157 Ogun BR = 37% 12% 1,086,505 Enugu BR = 35% 12% 622,246 The Project’s ERRs and NPVs Sensitivity to variation in billing rates reveals that the minimum increase in billing rates required by the project to remain economically viable in the three states (ERRs ≥ 12% and NPV > 0) are: 29.5% in Kaduna, 37% in Ogun, and 35% in Enugu. Summary of Main Assumptions Used in the Economic Analysis of NUWSRP Assumptions PAD 2004 ICR 2014 Substantial, and regular, tariff increases are implemented Yes No during project implementation as service improves to customers System infrastructure is quickly restored to 90percent of Yes Yes installed capacity, a 20 percent increase in production capacity is accomplished by year 2010, and there is sufficient energy to permit the systems to operate on a continuous basis; All systems achieve at least a 10 percent reduction in leakage; Yes Yes For all three systems, about 50,000 new flat rate customers are Yes Yes added; Actual numbers were considered Billing rates would conservatively increase by 40% in average No Yes from 2014 through 2024; The 78% collection rates would be sustained in the three states No Yes from 2014 through 2024. The 9% average increase in operating and maintenance costs No Yes would be sustained through 2014. Conclusion. The level of financial efficiencies projected at appraisal were not achieved for Kaduna and Ogun State Water Agencies, although in Kaduna and Enugu, the project is considered to have modestly improved the financial viability of State Water Utilities as exemplified by their IRRs slightly above the 12% minimum required rate of return. On the other hand, the project is considered to be economically viable for all the three States, although the analysis reveals ERRs somewhat lower but close to those projected during appraisal (Table A3.2). If non-quantified environmental and employment benefits were accounted for, the ERRs for the states would be greater than those projected at appraisal. 37 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending Alex McPhail Team Leader AFTU2 Team Leader Hassan Kida Sanitary Engineer AFTU2 Sanitary Engineer David Henley Sr. Sanitary Engineer AFTU2 Consultant (Consultant) Pinki Chaudhuri Sr. Regulatory Specialist AFTU2 Regulatory (Consultant) Specialist Wole Afolabi AFTU2 Financial Analyst Financial Analyst (Consultant) Chau-Ching Shen Sr. Finance Officer LOAG2 Finance Ernestina Attafuah Sr. Program Assistant AFTU2 Program Assistant Edward Olowo-Okere Sr. Financial Management AFTFM Financial Specialist Management Specialist Adenike Sherifat Mustafa Financial Management Specialist AFTFM Financial Management Specialist Bayo Awosemusi Procurement Specialist AFTPC Procurement Specialist Comfort Ede Program Assistant AFC12 Program Assistant Serigne Omar Fye Sr. Environmental Specialist AFTS 1 Environmental Specialist Sameena Dost Counsel LEGAF Counsel Eric Haythorne Senior Counsel LEGPS Senior Counsel Supervision/ICR Environmental Amos Abu Senior Environmental Specialist AFTN1 Safeguards Ruth Adetola Adeleru Team Assistant AFCW2 Team Assistant Oluwole Temiloluwa Afolabi Consultant AFTME Consultant Akinrinmola Oyenuga Senior Financial Management Financial AFTMW Akinyele Specialist Management Macmillan Ikemefule Senior Operations Senior Operations Officer AFMLS Anyanwu Officer Mary Asanato-Adiwu Senior Procurement Specialist AFTPW Procurement AFTWR- John A. Boyle Consultant Consultant HIS Maya El-Azzazi Program Assistant MNSSU Program Assistant Jan Franck Consultant MNSSD Consultant Saidu Dani Goje Consultant AFTMW Consultant Esther Illouz Loening Infrastructure Specialist GPOBA Infrastructure 38 Specialist Jan G. Janssens Consultant WBIUR Consultant Lead Water and Sanitation Hassan Madu Kida AFTU2 Task Team Leader Specialist Lead Water and Sanitation Alexander A. McPhail MNSWA Task Team Leader Specialist Paul D. Mitchell Consultant EASPS Consultant Masud Mozammel Senior Communications Officer ECROC Communications Fumiko Nagano Consultant ECROC Consultant Senior Social Development Social Chukwudi H. Okafor AFTCS Specialist Development Environmental Africa Eshogba Olojoba Senior Environmental Specialist MNSEE Safeguards Senior Operations Adetunji A. Oredipe Senior Operations Officer AFCW2 Officer Lars A. V. Rasmusson Consultant AFTG1 Consultant Obadiah Tohomdet Senior Communications Officer AFRSC Communications Senior Program Armele Vilceus Senior Program Assistant LCC3C Assistant Mary Oluseyi Zackius-Shittu Human Resources Associate HRSEP Human Resources 39 (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 19.49 153.48 FY02 13.54 174.37 FY03 33.23 179.19 FY04 40.50 317.64 Total: 106.76 824.68 Supervision/ICR FY05 35.73 207.17 FY06 46.62 191.73 FY07 38.42 123.76 FY08 32.72 95.41 FY09 36.30 139.85 FY10 17.97 77.53 FY11 19.16 102.76 FY12 19.97 104.66 FY13 20.43 97.20 FY14 15.21 86.67 Total: 282.53 1,226.74 40 Annex 5. Beneficiary Survey Results Objectives of the Beneficiary Impact Assessment: The objective of the Beneficiary Impact Assessment was to determine the extent to which the Project achieved its intended impact from the beneficiaries in the localities where it was implemented. Methodology: The methodology employed involved interviews of water utility officials, observation of facilities and locations, and administration of survey questionnaire to businesses, institutions, and residents of the various locations. The major findings are as follows: Summary of Key Findings for Ogun State  Categories of Customers: The Water Agency has 4 basic categories of customers, namely: Commercial, Institution, Public Stand-Alone and Residential. Of the 4 categories, residential customers make up 64.4%, Commercial 25.7%, Public Stand- Alone pipes 6.5%, and institutions 3.4%.  Supply of Water from the Water Agency: 51% of the Respondents get water supply from the Ogun State Water Corporation while 49% do not get water supply from OGSWC.  Connection to the Corporation: Of the 51% respondents that get water supply from OGSWC, 46% were connected/ reconnected during project intervention; 28% do not know when their facilities were connected; while 26% were connected before the project intervention.  Satisfaction with Water Supply: 15% of the respondents were very satisfied with the water supplied, 39% were satisfied; 16% were neutral; 17% responded they were dissatisfied; while 13% of the respondents said they were very dissatisfied.  Reason for Satisfaction: most of the respondents were satisfied because of good clean water, representing 40.26%; 18.60% of the respondents said they were satisfied due to constant supply; 15.54% were satisfied due to High Pressure; 14% were satisfied due to High Water Quality, while 11.60% gave other reasons for satisfaction.  Reasons for Dissatisfaction: 41.37% of the respondents in Ogun State are dissatisfied due to Frequent Interruptions of Supply; 10.71% were dissatisfied because of low pressure; 8.33% were dissatisfied due to poor water quality; 12.80% were dissatisfied due to seasonal interruption of water supply; 22.62% were dissatisfied due to other reasons while 4.17% do not know reasons for their dissatisfaction.  Consistency of Water Supply: about 50% of the respondents said that water supply is constant, while the other 50% said that water supply is not constant. 41  Supply interruption: 42.94% of the respondents said interruption in water supply is a daily occurrence; 20.72% said interruptions occur monthly and 36.35% responded that interruptions occur weekly.  Year of Meter installation: 24.13% of the respondents had their meters installed in the course of the project while 7.34% responded before 2004; and 68.53% are yet to have their meters installed.  Frequency of Meter Reading: 1.65% of the respondents said that their meters were read 2 times per month; 16.46% others responded once a Month; 4.94% once per quarter; and 76.95% said rarely if at all.  Frequency of Reception of Bills: 6.34% of the respondents get their bills at the beginning of the month; 15.75% at the middle; 35.79% at the end; while 42.12% do not get their bills.  Frequency of Payment of Bills: 36.97% of the respondents pay their bills regularly; 19.76% sometimes pay; while 43.27% do not pay their bills.  Service Improvement (Quality of Water Supplied): 21.81% of the respondents reported impressive or total change; 38.80% good improvement; 22.97% some improvement; 11.58% no improvement; while 4.83% reported regression in the quality of water supply.  Service Improvement (Pressure of Water Supplied): 31.75% of the respondents reported impressive or total change; 26.79% good improvement; 20.83% some improvement; 13.89% no improvement; while 6.75% reported regression in the quality of water supply. Summary of Findings for Kaduna State  Categories of Customers: The water agency has 4 basic categories of customers, namely, Commercial, Institution, Public Stand-Alone and Residential. Of the 4 categories, there are many more residential customers (74.45%); Commercial (14.90%); followed by Public Stand-Alone pipes (6.01%); then institutions (4.64%) with the least customers are the Institutions.  Supply of Water from the Water Board/ Corporation: 71.41% of the Respondents get water supply from the Kaduna State Water Board while 28.59% do not get water supply from Kaduna State Water Board.  Connection to the Corporation: 46.74% of the respondents in Kaduna State were connected/ reconnected during project intervention; 18.04% do not know when their facilities were connected; while 35.22% were connected before the project intervention. 42  Satisfaction with Water Supply: 8.80% of the respondents in Kaduna state were very satisfied with the water supplied, 50.64% were satisfied; 19.64% were neutral; 13.52% responded they were dissatisfied; while 7.40% of the respondents said they were very dissatisfied.  Reason for Satisfaction: 52.67% of respondents in Kaduna State were satisfied because of good clean water, representing; 37.54% of the respondents said they were satisfied due to constant supply; 8.46% were satisfied due to High Pressure; while 1.34% gave other reasons for satisfaction.  Reasons for Dissatisfaction: 43.98% of the respondents in Kaduna State are dissatisfied due to Frequent Interruptions of Supply; 13.51% were dissatisfied because of low pressure; 12.78% were dissatisfied due to poor water quality; 18.43% were dissatisfied due to seasonal interruption of water supply; 7.62% were dissatisfied due to other reasons while 3.69% do not know reasons for their dissatisfaction.  Consistency of Water Supply: 42.26% of the respondents said that water supply is constant, while the other 57.74% said that water supply is not constant.  Supply interruption: 43.79% of the respondents said interruption in water supply is a daily occurrence; 9.54% said interruptions occur monthly and 45.66% responded that interruptions occur weekly.  When was Meter installed: 13.58% of the respondents had their meters installed in the course of the project while 7.22% responded before 2004; and 79.59% are yet to have their meters installed.  Frequency of Meter Reading: 49.32% of the respondents said that their meters were read 2 times per month; 30.41% others responded once a Month; 5.41% once per quarter; and 14.86% responded rarely if at all.  Frequency of Reception of Bills: 19.05% of the respondents get their bills at the beginning of the month; 21.13% at the middle; 52.54% at the end; while 7.27% do not get their bills.  Frequency of Payment of Bills: 68.84% of the respondents pay their bills regularly; 22.60% sometimes pay; while 8.22% do not pay their bills.  Service Improvement (Quality of Water Supplied): 18.22% of the respondents reported impressive or total change; 39.19% good improvement; 28.10% some improvement; 12.62% no improvement; while 1.87% reported regression in the quality of water supply. 43 Summary of Findings for Enugu State  Categories of Customers: The water agency has 4 basic categories of customers, namely, Commercial, Institution, Public Stand-Alone and Residential. Of the 4 categories, there are many more residential customers (69.48%); Commercial (22.77%); followed by Public Stand-Alone pipes (5.16%); while institutions (2.58%) with the least customers are the Institutions.  Water Supply from Water Board/ Corporation: 62.44% of the Respondents get water supply from the Enugu State Water Corporation while 37.56% do not get water supply from Enugu State Water Corporation.  Connection to the Corporation: 62.26% of the respondents in Enugu State were connected/ reconnected during project intervention; 25.66% do not know when their facilities were connected; while 12.08% were connected before the project intervention.  Satisfaction with Water Supply: 15.67% of the respondents in Enugu state were very satisfied with the water supplied, 48.88% were satisfied; 9.33% were neutral; 4.85% responded they were dissatisfied; while 21.27% of the respondents said they were very dissatisfied.  Reason for Satisfaction: 39.38% of respondents in Enugu State were satisfied because of good clean water, representing; 47.15% of the respondents said they were satisfied due to constant supply; 6.22% were satisfied due to High Pressure; while 1.04% gave other reasons for satisfaction.  Reasons for Dissatisfaction: 43.88% of the respondents in Enugu State are dissatisfied due to frequent interruptions of Supply; 10.20% were dissatisfied because of low pressure; 7.14% were dissatisfied due to poor water quality; 12.24% were dissatisfied due to seasonal interruption of water supply; 17.35% were dissatisfied due to other reasons while 9.18% do not know reasons for their dissatisfaction.  Consistency of Water Supply: 63.49% of the respondents said that water supply is constant, while the other 36.51% said that water supply is not constant.  When was Meter installed: 13.18% of the respondents had their meters installed in the course of the project while 6.35% responded before 2004; and 79.76% are yet to have their meters installed.  Frequency of Meter Reading: 3.30% of the respondents said that their meters were read 2 times per month; 15.38% others responded once a Month; 7.69% once per quarter; and 73.63% said rarely if at all.  Frequency of Reception of Bills: most of the respondents get their bills at the end of the month, this is represents 40.32%; 14.11% get theirs at the middle of the month; 12.10% get theirs at the beginning of the month; while 33.47% do not get their bills at all. 44  Frequency of Payment of Bills: 69.69% of Enugu State Water Board customers pay their bills regularly; 7.48% pays their sometimes; while 22.83% do not pay their bills. Conclusion Based on the result of the Beneficiary Assessment findings, the impact of the project is yet to be fully felt. Although much work was done to improve on the infrastructures for water production and distribution, unavailability of power to run the equipment is a major setback for the project. The customers who are getting the water supply attested to the fact that the service they get from the Water Agencies is now impressive and greatly improved in terms of quality, quantity, regularity and pressure. This is so for customers residing in the main urban areas (State Capitals). This is not the case for those living at peri‐urban areas. There is a large number of potential customers that are yet to be connected to the water supply from the Water Agencies. Metering is still at very low levels. 45 Annex 6. Stakeholder Workshop Report and Results A final Stakeholder Workshop was not conducted at the end of the project. Rather, data on the project’s impact on various stakeholders was collected through the Beneficiary Survey. The findings of this survey are summarized in Annex 5, and details included in a separate Beneficiary Impact Study prepared by an independent consultant on behalf of the Borrower. 46 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR A summary of the Borrower’s ICR is presented below. The full report is available in the project files. Introduction The National Urban Water Sector Reform Project (NUWSRP) was a comprehensive 8 years project intervention. It was geared towards reforming the Urban Water Sector in Nigeria. Implementation took place across 3 States (Kaduna, Ogun and Enugu) with the FMWR. The main objective of the project, was improving water supply in selected urban areas of Nigeria through optimal investment, management and delivery of water services and eventually with public-private partnership (PPP) collaboration. The project was coordinated by the PCU under the FMWR and implemented mainly by the State Water Authorities. The Project’s principal development outcomes are: (i) improved reliability and financial viability of selected urban water utilities; and (ii) increased access to piped water networks in selected urban areas. The project had four components which were chosen based on (i) professional engineering assessment of the water system conditions in the three States (ii) public opinion polls carried out during preparation that signaled enhanced levels of service as a pre-requisite to putting in place adequate tariffs and (iii) expert opinion that a significant private sector intervention was faster and most secure way of restoring the State water authorities to financial sustainability. The components are: (i) Rehabilitation of water supply system (ii) Public-Private Partnership Development (iii) Capacity Building & Project Management (iv) Policy Reform & Institutional Development Overall, the project outcome and achievement of objective were Satisfactory. The project achieved notable results towards its development objective. The achievements on the implementation of the federal component are as follows: a) Execution of some consultancy contracts which led to the establishment of National frameworks under the project. b) The completion of rehabilitation work on Oyan dam , which is a federal dam that provides raw water for Ogun and Lagos water supply systems; c) Five stakeholders’ workshops and many project review workshops have been held; d) Water supply and Sanitation Baseline database has been established for all the 774 Local government Councils in the 36 States and FCT of Nigeria; e) Trainings and Seminars on policy, Procurement, Financial Management, project Management, Skills Development, Monitoring & Evaluation, Human Resources, Regulation and Legislation. 47 Component 1: The Rehabilitation and Network Expansion Thirteen (13) water works were rehabilitated, completed, tested and in operation. On average, all the plants can now operate at 85% efficiency. Production has increased from an average baseline of 250m3/year to more than 8650m3/year (i.e. when power supply has improved). A total of 492.5 km pipe line were replaced ranging from 150mm to 450 mm diameter made of ductile iron and PVC pipes while 284km of new pipe has been laid. Component 2: The Public –Private Partnership Development (PPP) The PPP management contract for Kaduna and Zaria water works was signed in 2008 with ORTECH Nig. Ltd. On the downstream side, the board developed a Delegated Management Program in 2012. Ogun State Water Corporation, adopted the Ugandan model for PPP but remarkable progress has not been made due to the decrease in revenue. In Enugu, there is a lot of progress with the revenue circle management and the State Government is also considering the concession of the water utilities in the towns of Enugu and Nsukka5. Component 3: Capacity Building and Project Management There has been significant improvement in the management of water utilities as a result of the trainings and study tours conducted. These improvements are particularly in the areas of financial management, procurement as well as the O&M of the waters supply system. Component 4: Policy Reform and Institutional Development There were delays in getting the State’s Laws and Policy finalized due to political issues . All States now have their policies signed. The Laws are not in place yet. The average target value at project end for increase in water delivered through the existing and extended network was 760mm3/ year. The project achieved 865mm3/ year at the end of the project. Challenges Faced Power has remained a major challenge on the project. Power generating sets were procured in all the project, as a means of alleviating this challenge. However, cost of running the generators on diesel have increased cost of production without marginal increase in tariff charged. Other challenges in participating States include: Enugu State  No comprehensive enumeration for customers  Lapses on the part of the management,  No much investment on collection,  Customer sensitization has not be effectives,  Information engineering is not so solid,  There’s needs for fresh and younger people to be employed to come and do much of the marketing,  Meter by pass,  Illegal connection,  Profit sharing by drivers,  Tariff structure is low and cannot recover cost,  Change of banks 48 Kaduna State  Inefficient network connection as in the case of Saminaka and kafanchan.  Difficulties of the district in ascertaining the actual volume of water produced per day as residents connect directly to the main inlet pipe before water gets to the overhead tank for distribution as is the case in Kafanchan.  No comprehensive enumeration for customers.  Illegal connections  Inadequate office facilities as it is in Samaru, Kafanchan and Kaduna City.  Limited number of operational vehicles  Delay in release of in fund due to bureaucracy.  Lack of meters in over 80% of the facilities.  Inadequate staff capacity both in terms of training and physical strength. Ogun State  Billing system is still manually done.  Delay in release of in fund due to bureaucracy.  changes in government and management  Lack of meters in over 80% of the facilities.  Illegal connections  Lack of continuity  Stoppage of the Independent Power Projects –  Unavailability of working tool – no excavator  Inadequate staff capacity both in terms of training and physical strength. Lessons Learnt  Staffing was a key issue throughout the project. There was a lot of political interference in the project at the State utility level. All the States were affected by this but Enugu and Ogun were more adversely affected. The DCA should contain clauses of conditionality that key project personnel be selected competitively and should not be changed on the project except on issues of fraud.  For sustainability of the project and to consolidate the gains of the project, project staff can be locally sourced from the SWAs and adequate training be given on the project.  In some of the participating States, there were issues as regards the effectiveness of training received. Training plans should be properly followed through by the Administrative or Human Resource Unit. Heavy investment in the infrastructural rehabilitation should be accompanied with adequate capacity building.  The time taken to for Engineering Designs could have been expended on actual implementation. Engineering Design before actual project implementation commences should be emphasized. 49  Clear program timeline/ schedule should be developed and adhered to for any future intervention.  Thorough studies should be ensured before project implementation. If possible the studies should be driven by the FPIU, so as to reduce biases in data collected.  Proper planning is key to achieving Project Development Objective. It should include; an in- depth feasibility followed by a detailed design, then the bill of quantity that will guide tendering procedure. 50 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Not applicable. 51 Annex 9. List of Supporting Documents 1. Project Appraisal Document, Report No. 27884-GH, April 5, 2004. 2. Development Credit Agreement between the Federal Republic of Nigeria and IDA, Credit Number 3924 UNI, dated September 10, 2004 3. Financing Agreement between Federal Republic of Nigeria and IDA, Credit Number 4784-NG, dated November 20, 2010. 4. Project Papers on Restructuring. 5. DCA Amendment letters 6. Project Supervision Aides-Memoires 7. Project Implementation Status and Results Reports. 8. Project Financial Reports 9. Project Procurement Plans 10. Beneficiary Impact Study Report for the 1st National Urban Water Sector Reform Project. 11. Borrower Implementation Completion Report for the 1st National Urban Water Sector Reform Project. 12. Report of the Financial Management Special Audit of the 1st NUWSRP in Ogun, Enugu, Kaduna State Water Agencies and the FPIU, Federal Ministry of Water Resources, March 2014. 52 MAP IBRD 40778 53 This map was produced by 5°E 10°E 15°E the Map Design Unit of The World Bank. The boundaries, colors, denominations and GSDPM any other information shown Map Design Unit N I G E R on this map do not imply, on SOKOTO e Lake Chad ob the part of The World Bank Y Group, any judgment on the legal status of any territory, Sokoto Katsina or any endorsement or Yobe acceptance of such m a boundaries. 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(EQ. GUINEA) INTERNATIONAL BOUNDARIES 5°E 10°E