ICRR 11958 Report Number : ICRR11958 ICR Review Operations Evaluation Department 1. Project Data: Date Posted : 12/22/2004 PROJ ID : P007257 Appraisal Actual Project Name : Gy Water Supply Ta And Project Costs 33.09 52.21 Rehabilitation US$M ) (US$M) Country : Guyana Loan /Credit (US$M) Loan/ US$M ) 17.50 17.30 Sector (s): Board: WS - Water supply Cofinancing 13.02 30.13 (100%) US$M ) (US$M) L/C Number : C2559 Board Approval 93 FY ) (FY) Partners involved : DFID, CDB, EU, EIB, Closing Date 12/31/1999 03/27/2004 Japan Prepared by : Reviewed by : Group Manager : Group : George T. K. Pitman Ronald S. Parker Alain A. Barbu OEDSG 2. Project Objectives and Components a. Objectives The overall objectives were to improve the quality and reliability of potable water [supplies] in selected regions of Guyana and enhance the efficiency of water sector institutions . Initially there were four specific objectives : 1. initiate a process of upgrading water supply facilities 2. establish appropriate procedures and methods for ensuring proper system operation and maintenance and promote the involvement of the private sector in water operations 3. enhance sector technical, financial, and managerial skills through training 4. rationalize sector organization and strengthen sector finances by instituting tariff reforms and improving costs recovery. The Loan Agreement was formally revised (December 1999 ) to include only two objectives : 1. to improve the reliability and accessibility to potable water supply services provided by the Guyana Water Authority, in particular for low income communities 2. to develop the information and analytical data to modernize the water sector's policy and institutional framework . b. Components The six original components (listed below) were only modestly revised at restructuring . Significant changes are indicated in italics: 21 .28 million, Actual US$ 49. Facilities rehabilitation . Planned cost US$ 21. 49 .92 million . This covered major rehabilitation of 45 water facilities in five regions; minor or emergency repairs to 100 water supply wells/pumps; upgrading of 40 km of water supply pipelines and provision of 4,000 house connections in New Amsterdam; and related detailed engineering and design. Operation and Maintenance Improvements (O&M). 60 , Actual US$ 1.14 million ). This included O&M ). Planned US$ 2.60, provision of 3 new divisional workshops; 15-20 utility vehicles and communications equipment; spare parts; five O&M pilot contracts for the operation of groundwater pumping stations; and system -wide establishment of Standard Operating Procedures (SOP and Standard Maintenance Procedures (SMP). Human Resources Development . Planned US$ 2.08 million, Actual US$ 0.22 million . This included training and training equipment; 20 local university fellowships (reduced to 8) and 75 technician scholarships; overseas short-term training; development of water quality testing skills and training services; and, provision of a Technical Advisor and a Coordinator. Institutional Strengthening of the Guyana Water Authority (GUYWA).GUYWA ). Planned US$ 4.40 million, Actual US$ 4.28 million . This included establishing twinning assistance through an operating water utility; provision of MIS; technical assistance; refurbishment of GUYWA's offices; and institutional /legal studies on water resources management and private sector participation. At restructuring, the twinning assistance was dropped and greater emphasis was given to strengthening the institutional capacity of GUYWA together with restructuring and recentralization of the water sector . Project Management and Evaluation . Planned US$ 0.83, 83 , Actual US$ 1.18 million . This was directed primarily at establishment and support for a project management unit . Future Project Preparation . Planned US$ 0.33 million . Actual US$ 1.40 million . At restructuring, this component was reformulated to bring piped water supplies to squatter settlements . c. Comments on Project Cost, Financing and Dates In 1999 highly unsatisfactory progress led to a restructuring of the project 5.5 years after effectiveness and just weeks before the original closing date . The restructured project scaled back and simplified the project's objectives . As a result, the final closing date was extended twice for a total of 4 years and 3 months. Overall project costs increased by US$22.12 million or 69% because of increased contribution by the two of the three original development partners (CDB, Japan) and buy-in to the restructured project by the EU and EIB (US$15.33 million). DFID's contribution changed only marginally (-2%). 3. Achievement of Relevant Objectives: The first revised objective to improve the reliability and accessibility to potable water supply services provided by the Guyana Water Authority, in particular for low income communities, was substantially achieved with few shortcomings. The second revised objective to develop the information and analytical data to modernize the water sector's policy and institutional framework was substantially achieved with some shortcomings . 4. Significant Outcomes/Impacts: Post 1999, all donors contributing to the water supply sector agreed to harmonize their development lending and technical assistance under a government -led and DFID/WB assisted water Sector Thematic Group that contained all key national stakeholders . The policy framework for the water supply and sanitation sector was laid out in the Water and Sewerage Act of May 2002 and the National Water Council was established to provide guidance to interpretation of this policy . This led to a Water License that stipulated the performance expectations of a single national WSS agency, Guyana Water Incorporated. Water quality standards were agreed and promulgated bringing consistency to the sector for the first time. The role of the Public Utilities Commission was expanded to include oversight of the water sector. Significant economies of scale and investment rationalization were achieved through the establishment of Guyana Water Incorporated in 2002 that merged the two national utilities that had overlapping functions . This rationalization allied with revitalized national leadership in the sector enabled agreement on an integrated rolling 10-year Investment Program. An internationally bid Management Contract was awarded in November 2002 and the Management Contractor Seven Trent started work in January 2003. Subsequently a baseline of key performance indicators was established and was ratified by an independent auditor . Project restructuring initiated the first rise in water tariffs in 20 years and between 1993 and 2003 (based on willingness to pay studies under the project ) monthly water tariffs outside Georgetown increased from G$ 51 to G$680. In Georgetown, the increases were from G$ 139 to G$900 over the same period. Access to treated water increased from 36% in 2001 to 45% in 2003 and 3,484 new service connections were made as a result of major and minor rehabilitation works in 14 areas and construction of 62 km of large trunk mains and 85 km of secondary mains. Overall 170,000 people benefited. About 26,000 people in 20 poor squatter communities received piped water and pipe connection fees were reduced 90% to remove the earlier financial disincentive to access potable piped supplies . The ex-post economic rate of return was estimated to be 19%, compared with the SAR's 20%. This estimate took no account of the positive human and environmental benefits from an assured potable water supply . 5. Significant Shortcomings (including non-compliance with safeguard policies): Project appraisal overlooked the need to rationalize water sector management in a small country where inter-agency tensions were high - a major omission. It was overly ambitious in expecting an inadequately trained and strengthened organization to implement a challenging reform and investment program which was later found to be seriously under -funded. The twinning arrangement prior to 1999 with a foreign utility failed to deliver because of institutional inertia, high staff turnover and inadequate financial stability . Complacent supervision and lack of substantive progress on all components for the first five years of the project almost led to project cancellation in 1999. Procurement remained problematic throughout the life of the project . Although increased water tariffs were agreed, government is unwilling to implement them until service provision improves. This "chicken or egg" impasse may jeopardize the success of the Management Contract . Training under the project has had only modest success on building the utilities capacity - only 3 of the 11 University of Guyana scholars still work in the sector . 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory (against the revised objectives ) Institutional Dev .: Substantial Substantial mostly refers to post-1999 impact Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory But only marginally so, as pre-1999 performance was highly unsatisfactory Borrower Perf .: Satisfactory Satisfactory But only marginally so, as pre-1999 performance was unsatisfactory Quality of ICR : Exemplary NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness. 7. Lessons of Broad Applicability: Proactive supervision and management oversight is essential to keep a project on track . In this case, Bank staff appeared unaware that the strategy to use a failing water utility to implement an ambitious reform and investment program was unlikely to be successful . You cannot induce an agency to reform by investment and training alone - there has to be a proactive policy environment driving the reform agenda from the top and providing incentives that work locally . Harmonization of development assistance can yield significant improvements in sector reform and performance as it provides technical and policy synergy as well as eliminating alternative donors with softer terms of assistance. 8. Assessment Recommended? Yes No 9. Comments on Quality of ICR: Very clear and concise. The only omission is the lack of detailed economic analysis in annex 3.