IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-47980) ON A LOAN IN THE AMOUNT OF USD 300 MILLION THE REPUBLIC OF INDIA FOR THE

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank Report No: ICR IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-47980) ON A LOAN IN THE AMOUNT OF USD 300 MILLION TO THE REPUBLIC OF INDIA FOR THE THIRD TAMIL NADU URBAN DEVELOPMENT PROJECT September 30, 2014 Social, Urban, Rural and Resilience (SURR) Global Practice South Asia Region

2 CURRENCY EQUIVALENTS (Exchange Rate Effective March 31, 2014) Currency Unit = Indian Rupee RS 1 = US$ US$1 = Rs FISCAL YEAR April 1 - March 31 ABBREVIATIONS AND ACRONYMS BOT CAS CCTP CMA CMC CMDA CMWSSB DHRW DMAWS DMC ERR ESF FIs GOI GOTN HUDCO HDFC ICICI IDC IL&FC MUDPA PPP TNUDF TNUIFSL TWAD ULB Build Operate Transfer Country Assessment Strategy Chennai City Traffic Police Commissioner for Municipal Administration Chennai Municipal Corporation Chennai Metropolitan Development Authority Chennai Metropolitan Water Supply and Sewerage Board Department of Highways and Rural Works Department of Municipal Administration and Water Supply Debt Monitoring Cell Economic Rate of Return Environmental and Social Framework Financial Institutions Government of India Government of Tamil Nadu Housing and Urban Development Corporation Housing Development Finance Corporation ICICI Ltd. Institutional Development Component Infrastructure Leasing and Finance Society Ministry of Urban Development and Poverty Alleviation Public Private Partnerships Tamil Nadu Urban Development Fund Tamil Nadu Urban Infrastructure Financial Services Ltd. Tamil Nadu Water and Drainage Board Urban Local Body Vice President: Country Director: Sr. Global Practice Director Director Practice Manager Project Team Leader / Co-Team Leader ICR Team Leader / Co-Team Leader ICR Primary Author Philippe H. Le Houerou Onno Ruhl Ede Jorge Ijjasz-Vasquez Marisela Montoliu Munoz Ming Zhang Raghu Kesavan / Raghava Neti Raghu Kesavan / Raghava Neti Sati Achath

3 INDIA Third Tamil Nadu Urban Development Project TABLE OF CONTENTS A. Basic Information i B. Key Dates i C. Ratings Summary i D. Sector and Theme Codes ii E. Bank Staff ii F. Results Framework Analysis ii G. Ratings of Project Performance in ISRs vi H. Restructuring (if any) vi I. Disbursement Profile vii MAIN DOCUMENT 1. Project Context, Development Objectives and Design 1 2. Key Factors Affecting Implementation and Outcomes 4 3. Assessment of Outcomes Assessment of Risk to Development Outcomes Assessment of Bank and Borrower Performance Lessons Learned Comments on Issues Raised by Borrower/Implementing Agencies/Partners 20 ANNEXES Annex 1. Project Costs and Financing 21 Annex 2. Outputs by Component 22 Annex 3. Economic and Financial Analysis 26 Annex 4. Bank Lending and Implementation Support/Supervision Processes 31 Annex 5. Beneficiary Survey Results 33 Annex 6. Stakeholder Workshop Report and Results 39 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR 40 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders 65 Annex 9. List of Supporting Documents 66 MAP IBRD 33970

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5 A. Basic Information Country: India Project Name: Third Tamil Nadu Urban Development Project (TNUDP III) Project ID: P L/C/TF Number(s): IBRD ICR Date: 09/18/2014 ICR Type: Core ICR Lending Instrument: SIL Borrower: Original Total Commitment: Revised Amount: USD M Environmental Category: F GOVERNMENT OF INDIA USD M Disbursed Amount: USD M Implementing Agencies: Government of Tamil Nadu Tamil Nadu Infrastructure Financing Services Ltd. (TNUIFSL) Cofinanciers and Other External Partners: B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 04/29/2004 Effectiveness: 10/19/ /19/2005 Appraisal: 02/14/2005 Restructuring(s): 07/01/ /07/2012 Approval: 07/05/2005 Mid-term Review: 03/31/ /30/2009 Closing: 03/30/ /31/2014 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Borrower Performance: Satisfactory Moderate Moderately Satisfactory Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Performance: Moderately Satisfactory Overall Borrower Performance: Satisfactory i

6 C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments (if Indicators Performance any) Potential Problem Project at any time (Yes/No): Problem Project at any time (Yes/No): DO rating before Closing/Inactive status: No Yes Satisfactory Quality at Entry (QEA): Quality of Supervision (QSA): None None Rating D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) General water, sanitation and flood protection sector Rural and Inter-Urban Roads and Highways Sub-national government administration Theme Code (as % of total Bank financing) City-wide Infrastructure and Service Delivery Municipal finance Municipal governance and institution building Urban services and housing for the poor E. Bank Staff Positions At ICR At Approval Vice President: Philippe H. Le Houerou Praful C. Patel Country Director: Onno Ruhl Michael F. Carter Practice Manager/Manager: Ming Zhang Sonia Hammam Project Team Leader: Raghu Kesavan Abha Joshi-Ghani ICR Team Leader: Raghu Kesavan ICR Primary Author: Sati Achath F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The objective of the project is to improve the delivery of urban services through enhancing the quality of urban infrastructure and strengthening the institutional and financial framework. The proposed repeater project would build on and consolidate the achievements of TNUDP II, continuing to improve urban infrastructure services in Tamil Nadu in a sustainable manner. The two main objectives are: ii

7 to strengthen and deepen the empowerment of ULBs by continuing the decentralization process through delegation of powers from state level bodies to ULBs; and through continuing and expanding the capacity building programs started under TNUDP II; and to mobilize resources on a sustainable basis for urban infrastructure investments through: - mobilizing private financing for ULB infrastructure investments by linking ULBs to the financial markets through the intermediation of the Tamil Nadu Urban Development Fund (TNUDF); - providing incentives for investments in low income neighborhoods through the use of supporting capital grants. Revised Project Development Objectives (as approved by original approving authority) The objective was not revised. (a) PDO Indicator(s) Indicator Indicator 1 : Value quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Strengthen empowerment and institutional capacity of ULBs by continuing delegation of powers, capacity building programs and specific IT related initiatives (80%) newly created ULBs are fully enabled. 102 ULBs covered under TNUDP-11 are proposed to be upgraded to web based system. 49 newly created ULBs with new e- governance systems fully enabled / Webportals developed for 102 ULBs and CMA. Date achieved 07/05/ /30/ /30/2014 Comments (incl. % This indicator related to capacity building was fully (100%) achieved. achievement) Indicator 2 : Improved urban service delivery, in terms of coverage and quality 80% participating ULBs (receiving over Rs.1Crore) are delivering 82% of participating ULBs (receiving improved services over Rs. 1 crore) / Value 0 / Travel time of 56 to beneficiaries / 32.5 km upgraded quantitative or minutes 36.05km project and reduction in Qualitative) roads within travel time of 20% Chennai metro area are upgraded within Chennai metro area. and have reduced travel time by 50% Date achieved 07/05/ /30/ /30/2014 Comments (incl. % achievement) Fully achieved for ULBs that have commissioned sub-projects benefiting over 2.3 million people directly through improved water & sewerage services, including 440,000 in low-income neighborhoods. Partially achieved for Chennai urban transport sub-component (less than 10% of final project cost) iii

8 Indicator 3 : Expand resource mobilization for urban infrastructure investments. Value quantitative or 0 US$40 million US$52 million Qualitative) Date achieved 07/05/ /30/ /30/2014 Comments Fully (100%) achieved - this covered raising resources through non-budgetary (incl. % sources (including through bonds, PPPs and beneficiary capital contributions) achievement) (b) Intermediate Outcome Indicator(s) Indicator Indicator 1 : Value (quantitative or Qualitative) Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Number of participating ULBs completing GIS mapping and implementation of new IT systems for core municipal functions. 7(mapping) & 52 (IT Mapping pilots enabled processes) in completed in 17 newly formed ULBs ULBs, besides 49 respectively. Upgrade ULBs with new e- 0 IT architecture to governance systems. web-based system Web-portals across 102 ULBs developed for 102 under ULBs and CMA. TNUDP II Date achieved 07/05/ /30/ /30/2014 Comments (incl. % achievement) Fully achieved. Indicator 2 : Improved financial soundness of participating ULBs through cost recovery, increased own revenues, better debt management Over 80% of participating water / sewerage subprojects Value (quantitative or Qualitative) 0 70% of water/sewerage sub-projects achieve cost recovery of O&M have introduced revised / new tariffs (in case of sewerage) for recovery of O&M costs after formal council approvals and by-laws. Date achieved 07/05/ /30/ /30/2014 Comments (incl. % achievement) Fully achieved. Indicator 3 : Expand resource mobilization for Urban Infrastructure through nontraditional sources. Value (quantitative 0 US$40 million US$52 million iv

9 or Qualitative) Date achieved 07/05/ /30/ /30/2014 Comments (incl. % achievement) Fully achieved. This covered raising resources through non-budgetary sources (including through bonds, PPPs and beneficiary capital contributions) Indicator 4 : Total quantum of urban subprojects approved and fully implemented at ULBs / Chennai Metro area. Value US$410 million (quantitative or Qualitative) 0 US$434 million (project cost at closing) Date achieved 07/05/ /30/ /30/2014 Comments (incl. % 95% achieved, with short-fall largely on account on rupee depreciation. achievement) Indicator 5 : Road length (in km) in good condition out of roads upgraded as part of the project in Chennai Metropolitan area 32.5 km. The balance 3.5 km was also partially upgraded, but temporarily suspended to Value accommodate a 36.05km (revised (quantitative 0 km macro drain to ease figure) or Qualitative) flooding in Chennai which is now almost complete & balance portion of the road will also be upgraded by GoTN out of own funds Date achieved 07/05/ /30/ /30/2014 Comments (incl. % achievement) Indicator 6 : 90% achieved. Balance 3.5 km was also partially upgraded, but temporarily suspended to accommodate a macro drain to ease flooding in Chennai which is now almost complete & balance portion of the road will also be upgraded by GoTN out of own funds. Financial Sustainability of TNUDF as measured by annual repayment rate performance of its loan portfolio Value (quantitative > 95% Maintain > 95% 100% or Qualitative) Date achieved 07/05/ /30/ /30/2014 Comments (incl. % achievement) Fully achieved. Indicator 7 : Number of people in urban areas provided with access to Improved Water Sources under the project. Value (quantitative 0 1.3mn 1.9mn or Qualitative) Date achieved 07/05/ /30/ /30/2014 v

10 Comments (incl. % Fully achieved. achievement) Indicator 8 : New household sewer connections constructed under the project Value (quantitative or Qualitative) Date achieved 07/05/ /30/ /30/2014 Comments (incl. % achievement) Fully achieved. G. Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (USD millions) 1 02/08/2006 Satisfactory Satisfactory /29/2006 Satisfactory Satisfactory /29/2007 Satisfactory Moderately Satisfactory /26/2007 Moderately Satisfactory Moderately Satisfactory /27/2008 Moderately Satisfactory Moderately Unsatisfactory /30/2008 Moderately Satisfactory Moderately Unsatisfactory /27/2009 Moderately Satisfactory Moderately Satisfactory /06/2009 Moderately Satisfactory Moderately Satisfactory /28/2009 Moderately Satisfactory Moderately Satisfactory /23/2010 Moderately Satisfactory Moderately Satisfactory /14/2010 Satisfactory Moderately Satisfactory /27/2011 Satisfactory Moderately Satisfactory /14/2011 Satisfactory Moderately Satisfactory /31/2012 Satisfactory Moderately Satisfactory /22/2012 Satisfactory Moderately Satisfactory /05/2013 Satisfactory Satisfactory /30/2013 Satisfactory Satisfactory H. Restructuring (if any) Restructuring Date(s) Board Approved PDO Change ISR Ratings at Restructuring DO Amount Disbursed at Restructuring in USD millions 07/01/2009 N MS MS IP Reason for Restructuring & Key Changes Made 1. To extend the project by one year to March 31, To reduce the scope of Chennai Urban Transport component 02/07/2012 N S MS Loan extension by 2 years. vi

11 I. Disbursement Profile vii

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13 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal At appraisal in 2005, with nearly 300 million urban residents, India s cities contributed over 60% of GDP and accounted for more than 90% of government revenues. Their efficiency had a significant and direct bearing on the country s overall economy. Yet, few cities were able to provide the kind of urban services required on a regular and sustainable basis. In addition, even fewer adequately collected tariffs for the services provided or had credible financing systems that would allow them to access India s emerging financial markets. India s cities could contribute more effectively to the country s economic growth and poverty reduction, if they did not suffer from severe infrastructure bottlenecks, service deficiencies, weak finances, and poor local governance. The Tenth Five Year Plan that was in vogue at appraisal estimated urban investment needs to be about US$7 billion for the Plan period ( ) of which only about a third was available through budgetary resources. Growing concern about the ability of cities to provide the level of urban services commensurate with their contribution to economic activity had led to significant changes in India s urban development policies, through complementary strategies of decentralization and financial sector reform. The 74th Constitutional Amendment aimed to decentralize what had been highly centralized and regulated policies which had directed investments away from cities, particularly away from long term urban infrastructure investments. Financial sector reforms, begun in 1991, allowed for urban local bodies (ULBs) to raise financial resources to meet their infrastructure needs independently of state loans or grants. Together, these policies aimed to empower ULBs through greater selfsufficiency. Part of these reform efforts and new approaches aimed at tapping additional private resources for traditionally public investments. Despite reforms at the central level, urban development had remained very much a state issue. The resources provided to cities as well as the regulations governing their management had continued to be decided largely at the state level. State governments continued to take decisions on such matters as rates of user charges, property tax, octroi and the role of parastatals in water supply and sanitation services with little reference to the ULBs that were affected by these decisions. Few ULBs had the wherewithal to be demand-responsive or to access India s emerging financial system. Despite major reforms since 1992 and a high degree of liberalization, the financial sector was not yet able to meet the resource needs of ULBs because of sector policies and ULBs s institutional constraints. The result was that urban institutions were not yet integrated into the fabric of the broader deregulation and financial reforms of the Indian economy. Project Background. The Bank has had a long engagement with the Government of Tamil Nadu (GoTN) in the urban sector, starting from Tamil Nadu Urban Development Project (TNUDP) TNUDP-I. The "Municipal Development Fund" (MDF) type urban projects in Tamil Nadu (TN) that began with the setting up of the Tamil Nadu Urban Development Fund (TNUDF) started under TNUDP-II in late 1990s. The Second Tamil Nadu Urban Development Project (TNUDP II) made a strong impact on urban reform and strengthening of ULB capacity and was rated as Satisfactory by Independent Evaluation Group (IEG). The Tamil Nadu Urban Development Fund (TNUDF) as established under TNUDP II had been successful in bringing ULBs to the market and exposing them to sustainable borrowing practices. The Third Tamil Nadu Urban Development Project (TNUDP-III) sought to take forward and scale up the achievements of the TNUDP-II in terms of enhancing ULB capacity, improving urban service delivery in a sustainable manner and expanding financial resource mobilization beyond government budgetary sources. While TNUDP-II largely included city roads and some water supply improvements, TNUDP-III was scaled up in terms of size as well as scope of new urban sector interventions (such as sewerage services in ULBs that hitherto did not have them). In 1

14 addition, capacity building mainly involved enhancing capacity of newly formed ULBs and bringing them on par with other ULBs that were supported under the TNUDP-II. Rationale based on defined country/sector issues and alternatives considered: The project was consistent with the Bank s Country Assistance Strategy (CAS) discussed by the Executive Directors on August 26, To achieve its primary goal of poverty reduction, the CAS aimed to foster the decentralization process, support effective governance and promote private sector-led growth. TNUDP III would directly contribute to these CAS objectives by extending the benefits of privately mobilized financial resources to the financing of urban infrastructure investments of newly empowered ULBs and by strengthening the financial and administrative capacity of ULBs to plan, finance and deliver services in a fiscally sustainable manner. It was fully consistent with the CAS focus on working with interested states through both its governance dialogue and its sectoral projects in three priority areas: (i)clarifying the roles and functions of the three levels of local governments; (ii)promoting financial devolution and improving local taxation and cost recovery; and (iii)improving accountability to local constituents. 1.2 Original Project Development Objectives (PDO) (as in Legal Agreements) and Key Indicators The objective of the project was to improve urban infrastructure services in Tamil Nadu in a sustainable manner through: (a) strengthening the managerial, financial and technical capabilities of ULBs; (b) mobilizing resources and securing sustainable funding sources for urban infrastructure by TNUDF; and (iii) providing incentives for investments in low-income neighborhoods through the use of capital grants. Key indicators were: enhanced financial soundness of ULBs, as indicated by improvement in own source revenues of participating ULBs and better debt management improved urban governance and accountability in ULBs, through reforms undertaken such as accounting and financial management reforms and e-governance improved cost recovery with regard to urban services and improvements in urban services delivery coverage reduction in travel time on key transport project corridors, and reduction in fatal accidents in Chennai improved long- term sustainability of TNUDF through market orientation, diversification of its resource base and products and implementation of a business and risk management strategy 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The objective was not revised. However the results framework was refined at Mid-term Review (MTR). 1.4 Main Beneficiaries The expected beneficiaries of the project included: ULBs and related urban and municipal sector organizations whose management capacity would be enhanced; People living in low-income neighborhoods; Chennai residents who will benefit from reduced travel time on key transport project corridors and they would also benefit from safer traffic measures achieved under the project; Residents in participating cities / Urban Local Bodies (ULBs) who will benefit in terms of improved water supply and better sanitation. 2

15 1.5 Original Components (as approved) The project consisted of two components as follows: (i) Institutional Development Component that provided support for management improvements and institutional changes, including provision of goods, technical assistance, workshops, and staff training to support the implementation and sustainability of urban policy reforms, organizational performance, and urban services delivery; (ii) Urban Investment Component aimed at developing sustainable urban investments such as water supply, waste water collection, solid waste management, storm water drains, roads and common facilities such as transportation networks, and sanitation facilities, based on demand-driven investment plans developed by ULBs, besides urban transport interventions in Greater Chennai. The overall allocation was as follows: Component Cost Bank Financing US$ % of US$ Mn Total Mn % A Institutional Development Component A1 Capacity Building of Municipal Staff A2 Information and Communication Technology A3 ULB Debt Monitoring Cell A4 Project Preparation Facility AS Project Management, Incremental Operating Costs Sub Total B Urban Investment Component through TNUDF B1 (a)loans to ULBs (b) Capital Grants to ULBs (c) Project Development Advisory Facility B2 (a) Grant to CMDA for Traffic and Transport projects (b) CMDA Project Management, Incremental Operating Sub Total B Total A and B Front End Fee Total Project Cost Revised Components The main components were not revised, however one of the sub-components was restructured as noted below. 1.7 Other significant changes The project involved the following changes (restructuring): First restructuring: August Restructuring of Chennai Urban Transport Sub-component with the primary objective of addressing the issues arising out of the poorly performing Chennai urban transport sub-component. Out of the 21 urban transport sub-projects that were proposed during the initial phase of TNUDP-III implementation, during mid-term review it was assessed that only five road sub-projects were adequately prepared and feasible for implementation during the balance period of the project, Hence only those five road sub-projects were retained for Bank financing under TNUDP-III as part of this restructuring and balance amounts reallocated, besides a few other changes. 3

16 The final structure of the project is as presented below: and the balance sub-projects outside the scope of TNUDP-III. (figures in US$ million) Project Costing Original in PAD After Reallocation Cost Bank Financing Cost Bank Financing Component A Institutional Development Component A1 Capacity Building of Municipal Staff A2 Information and Communication Technology A3 ULB Debt Monitoring Cell A4 Project Preparation Facility A5 Project Management, Incremental Operating Costs Sub Total B Urban Investments through TNUDF B1 (a) Loans to ULBs (b) Capital Grants to ULBs (c) Project Development Advisory Facility (a) Grant to CMDA for Traffic and Transport B2 projects (b) CMDA / Highways Project Management, Incremental Operating Costs Sub Total B Total A and B Front End Fee Total Project Cost Second restructuring (Loan Extension): January A level 2 restructuring was done in January 2012 to extend the closing date by two years from March 31, 2012 to March 31, The extension was to enable GOTN/ULBs to complete about 29 on-going (mainly sewerage) sub-projects and time for some of the innovative approaches to be demonstrated, including new contractual structures for Sewerage Treatment Plants (STPs), new sewerage tariffs, capital contributions from beneficiaries and market based financing by TNUDF. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry Quality at Entry. There was no formal Quality at Entry Review by the Bank Group. The project was designed and appraised in a facilitating environment and as follow-on to the previous engagement (the Second Tamil Nadu Urban Development Project, TNUDP-II) and the basic design was straight forward and well structured. However it was much more ambitious in scope and scale, with loan size increasing from US$105 million for the previous project to US$300 million for TNUDP-III. As part of project preparation, sector background was studied and the main sector issues were analyzed in depth. The project design took into account the sector issues as well as government strategies. A comprehensive review of the existing environmental framework was undertaken to identify the gaps/concerns/inadequacies and opportunities for enhancing the effectiveness of the framework. The project design supported the long term sustainability of the financial intermediary, TNUDF, by underscoring market orientation, flexibility and range of financing instruments, the articulation of a long term strategy including a long term business plan and risk management strategy that was to be developed during implementation. 4

17 The Chennai Urban Transport sub-component was affected by land acquisition issues that emerged during the initial stages of project implementation. These land acquisition issues could not have been anticipated fully at entry, especially given the framework, demand driven nature of this project. As a result, the scope of this sub-component was significantly reduced (from US$147.5 million to US$34 million) through restructuring of the project in August 2009 as noted earlier. The project s quality at entry is therefore rated Moderately Satisfactory. Lessons Learned from previous Bank-assisted projects / Risks Management. The project design had taken into account many of the risks encountered in TNUDP-II, including: (i) the need for continuing focus on ULB capacity building and reforms; (ii) the need to ensure sufficient pipeline of sub-projects; and (iii) better operational financial / operational flexibility and a level playing field for TNUDF. Accordingly the following risks were identified in the PAD: Risk Weak capacities of ULBs and timely implementation of ULB level capacity building activities. GOTN commitment to undertake state level facilitation measures for implementation of this activity, including utilization of Technical Assistance for state level reform measures. ULBs commitment to urban sector reforms in general and willingness to participate and meet the requirements under TNUDP III CMDA s capacity to oversee the implementation of the roads sub-component for the greater Chennai Metropolitan Area. TNUDF s ability to access the domestic capital markets Mitigation Measure Planned at Appraisal The capacity enhancement program was successfully started under TNUDP-II with high uptake levels. TNUDP-III would continue and consolidate this. Additionally, the program under TNUDP-III was demand driven with a high level of ULB participation expected. GOTN was among the leading states in undertaking urban reforms TNUDP III was designed as a demand- driven project wherein all ULBs were not automatically selected for participation and open to only those ULBs that met certain access criteria and agree on a reform program. CMDA has previously implemented Bank supported projects; they will have implementing assistance from DHRW and CCTP. Implementation arrangements including a PMU based in CMDA and a multi- organizational Technical Review Committee. TNUDF had successfully accessed the markets before and had an under 5 ICR Assessment of the Risks Capacity building was successfully completed under TNUDP-III and this risk was moderate as assessed. GOTN continued to maintain strong ownership of the project. For instance, even though there were transfers of the CEO of TNUDF, at no time there was a vacancy and replacements were immediately posted. In addition, GOTN ensured that many ULB level interventions (such as sewerage) taken up under TNUDP-III were in keeping with its strategic urban sector priorities. TNUDP-III did not suffer from a lack of participation of ULBs and sufficient sub-projects for full amount of loan were taken up, partly due to the strategic fit with GOTN s priorities as noted above. This risk was underestimated at the time of project appraisal. This risk was correctly assessed and TNUDF was able to

18 and other funding resources to finance the pipeline of investment projects leveraged balance sheet. It would develop a comprehensive domestic finance strategy to move towards selfsustainability. maintain sustainability while leveraging its balance sheet. However, there were two new risks that were not identified at appraisal due to this being a framework project and proved to be critical during implementation of TNUDP-III and were the main reasons for the loan extension: (i) land acquisition for urban sub-projects; and (ii) complexity involved in procurement and implementation of sewerage sub-projects. Adequacy of government commitment. Both GOI and GOTN had demonstrated strong commitment to urban sector reforms and to continuing the Bank s assistance in this area, which would help ensure project sustainability. Considerable progress had been made towards implementing the state level policy reforms stipulated under GOI s national urban program, viz. the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) in Tamil Nadu, particularly the following: (i) reduction in stamp duty on transfer of property from 15 percent to 8 percent and further agreement to reduce the stamp duty to 5 percent by 2007; (ii) implementation of accrual accounting system in all 107 urban local bodies; (iii) introduction of modified area based property tax system; (iv) computerization of subregistrar s offices; (v) repeal of the Land Ceiling Act, while a reformed Rent Control Act was being considered; (vi) commitment to levy user charges, and improvement in rate setting and collection levels for water and sanitation services. Tamil Nadu was one of the leading states in undertaking urban reforms. 2.2 Implementation The project was initially planned for about five and half year implementation period, which was extended by three more years subsequently. This was to allow for completion of mainly sewerage subprojects taken up by GOTN under the project (49% of project cost across 24 ULBs, over 1800 km of sewer lines laid and 271 MLD of treatment capacity built) -- the scale of which was unprecedented in India; and to allow for completion of Chennai Urban Transport component, which was restructured during MTR and began substantive implementation only after that. TNUDP-III has significantly transitioned from TNUDP-II in a number of ways as listed below, deepening the Bank's urban engagement in the state: a. increased complexity of sub-projects, i.e., sewerage and water supply formed significant part of portfolio (74%) compared to Roads, Bridges and Bus-stands, which thus posed significant implementation challenges; b. major thrust under the project was to let some capable ULBs manage planning and implementation of sub-projects (which otherwise would be supported by state agencies such as TWAD and CMWSSB), whose capacities got built by doing; c. the project promoted improved institutional co-ordination, by centralizing the role of CMA in institutional capacity building and urban sub-project management, along with TNUIFSL, TWAD and CMWSSB. This took time to set-in. Chennai Urban Transport Sub-Component/MTR. Chennai Urban Transport sub-component experienced serious delays in implementation primarily for two reasons: (i) Two new departments of GOTN were introduced that added a layer of institutional complexity.; (ii) This sub-component involved substantial land acquisition and resettlement and the impact/costs involved became apparent only after the Resettlement Action Plans (RAPs) were prepared later during implementation and not known at the time of approval. Hence at MTR, TNUDP-III was rated as a problem project and this sub-component was significantly scaled down through a restructuring as noted earlier and retaining 6

19 only US$37 million out of the US$140 million allocated for this sub-component under the Loan and re-allocating the rest to the ULB investment component. Complexity involved in sewerage sub-projects/land acquisition issues. The sewerage sub-projects taken up under TNUDP-III posed a range of challenges along the entire project cycle starting with procurement, land availability and implementation. There was a lack of adequate competition to bid invitations initially with a number of them attracting only 1-2 bids. Reasons for inadequate competition included mismatch between availability and demand of qualified contractors; inadequate costing; and the need to look at the post qualification criteria. Land acquisition was another key issue affecting implementation of contracts. There were changes in sites for sewerage schemes (for pumping stations/stps) as well as delays in obtaining the land that often involved other departments of GOTN and involved lengthy process of land acquisition and approvals. Further, during implementation too, sewerage sub-projects faced delays due to: (a) difficulty in excavation in hard rock areas; (b) high rainfall and high water table in coastal areas; (c) narrow streets and densely populated areas; (d) inadequate mobilization by the contractors to complete the work on time; and (e) delays in obtaining regulatory clearances such as from National Highways Department (some of which took over an year to be granted), railways etc. Eventually during the course of project implementation, these issues were resolved through improved institutional coordination between Implementing Agencies, enhanced monitoring by CMA/TNUIFSL, building capacity of IAs and ULBs through various trainings and workshops, provision of operational and technical guidelines etc. On its part, the Bank team contributed through their regular field visits and observations, providing recommendations on critical government decisions, helping with various checklists, guidelines on technical, institutional and operational issues, and participation in workshops. With enhanced rigor in surveys/assessments including in preparation, and through planning ahead to face constraints imposed by externalities such as elections, some of these challenges could have been better mitigated. The Bank team and GOTN agencies jointly developed a new Design-Build-Operate- Transfer (DBOT) bid document for Sewerage Treatment Plants (STPs) that proved successful in attracting qualified bidders and completing procurement. Overall, in retrospect, the original implementation period of five years envisaged for the project seems insufficient for the nature of complex subprojects that the project has handled. On the other hand, project benefited from continuity of the Bank task team, in terms of consistency, depth and follow-up in the dialogue with the government and providing expertise to help the government analyze issues and implement actions as they emerged during supervision. On the Institutional Development Component, implementation was satisfactory, with many activities such as training of stakeholders, studies (e.g., City Development Plans, GIS mapping, development of manuals etc) progressing reasonably well in time. This component has brought 49 newly created Grade-III ULBs on par with others through computerization of their municipal functions and improving e-governance. This was possible through a pivotal role played by CMA. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E design. Since this was a framework project and all activities/sub-projects were not identified upfront, there was a particular complexity for M&E in terms of the difficulty in anticipating targets and identifying specific indicators in the Results Framework. Hence the PAD laid a broad framework for results and types indicators that would get tracked depending on the type of participating subprojects. Accordingly targets for these indicators were to be determined only during implementation. Further, TNUDF being a continuing institution had adequate methods for collecting and collating data, especially financial data (such as ULB loan repayment rates), as part of its sub-loan/sub-grant agreements with ULBs. M&E implementation. At MTR, the Bank team along with GOTN counterpart agencies put in place a more elaborate and specific results framework with targets (used in this ICRR). In addition, TNUDF 7

20 regularly collected the following data to support implementation monitoring: (i) contract management and sub-project completion; (ii) procurement; (iii) status of Environment and Social safeguards implementation; and (iv) financial data and reporting, including quarterly Financial Monitoring Reports (FMRs) and repayment of loans by the ULBs etc. and the actual figures were compared with the target values. As service level indicators were to be monitored at the ULB levels, these indicators were not monitored very closely at the TNUDF level, but more by the office of Commissioner of Municipal Administration (CMA). M&E utilization. Appropriate data collected from TNUDF s bi-monthly reports was evaluated and used for decision-making on certain activities, such as implementation of contracts, ULBs debt servicing, procurement, and disbursements, by GOTN and CMA for their periodic internal reviews and oversight. In addition, this M&E information was also used by the Bank team for supervision and internal reporting as part of ISRs, etc. 2.4 Safeguard and Fiduciary Compliance Since the project consisted of several sub-projects, an Environment and Social Management Framework (ESMF) was put in place by appraisal laying out the process and protocols to be followed to mitigate the impacts related to environment and social impacts associated with the sub-projects. This was disclosed and also formally approved through Government Order (GO) by GOTN. Social Safeguards (including Land Acquisition issues): Under the Chennai Urban Transport subcomponent, the number of land owners affected was 212 title and 337 non- title holders including resettlement of five displaced families. The cost of private land acquisition and resettlement and rehabilitation assistance incurred was INR million (US$2.20 Million), which is 8.5 % of total cost of this sub-component. In the case of Urban Investment Component, a total of 110 sub-projects were implemented, of which private land acquisition was involved only in the case of seven subprojects and resettlement in one sub-project. In all, only 21 hectares of private land from 31 land owners were acquired. In addition, about 45 hectares of government land was transferred including 23 acres of temple land. The R&R was involved in one town, i.e. Salem, where 65 squatter families were resettled at multi-storied apartments. The total compensation and R&R assistance paid was INR30 million, which is 0.73% of all these eight sub-projects. While the land acquisition and resettlement implementation was largely implemented in a satisfactory manner, there were some instances of delays in payment of compensation and R&R assistance that were later addressed through follow-up by the Bank team/tnudf. At the time of loan closure, all compensation and assistance have been paid to all affected people except the issue of titles to allotted houses of 65 squatter families shifted to an apartment in Salem, which as per existing proviso of GOTN laws/rules of issuing titles, would happen in December 2014 at the end of five year stay in the new house. During project implementation, two Environment and Social Audits were carried out to confirm implementation of safeguards as satisfactory. One of the issues encountered during implementation was the availability of land for urban sub-projects - about 16 sites/locations were changed (from out of over 40 sites that were required). There were many reasons for the same, including some that were beyond the scope of the project, and included objections from nearby residents, court cases (due to land titles not being clear in India in general), delays in land alienation involving other departments of GOTN and failure of private land acquisition negotiations (linked to general risk averse atmosphere within governments in India over the last few years due to fear of CAG audits, etc.). Eventually all site-related issues were successfully addressed under TNUDP-III and there is no pending site availability case that remains unresolved. The key social development outcome of the project is that, it facilitated the inclusion of 400 non-title holders for R&R assistance who otherwise would have been left out. 8

21 Environmental Safeguards: The sub-projects largely addressed environmental safeguards as per the ESMF. The main environment impact that needed to be addressed related to over 30 sewerage/water treatment plants that were taken up for implementation at ULBs. In all these cases, Environment Impact Assessments (EIAs) were carried out as per ESMF and all regulatory clearances were obtained from Tamil Nadu State Pollution Control Board (TNPCB) albeit with delays in some instances. Managing construction worksites in dense urban areas was a challenge in certain cases in terms of interactions with public, managing traffic diversions, barricading, disposal of debris, etc. and there were also some instances of inadequacies in regular monitoring and reporting of EMP implementation status by the respective agencies/ulbs. However it should also be noted that many of the sewerage interventions would result in positive environmental impacts in terms of reduction in pollution of water bodies and water reuse. Institutional: TNUDF, which played an intermediary role in appraisal and monitoring of safeguards impacts, has performed well in following-up safeguard implementation with local bodies concerned and provided strong support to Highway department in successfully mitigating safeguard impacts. Throughout the implementation, TNUDF maintained the safeguard positions and these safeguard specialists brought out issues to the attention of ULBs and closely followed the implementation issues. Through this process, TNUDF has also developed capacity for safeguard management. Overall, safeguards compliance is rated as Satisfactory. Fiduciary Compliance. The project complied with fiduciary covenants during implementation. Internal control arrangements were in place, and adequate financial management system, procurement, and disbursements were maintained. Financial Management: Although the line departments maintained appropriate accounting records as per the government prescribed norms, there were initial delays in financial reporting and submission of SOE claims to the office of TNUDF. These were mainly due to ineffective coordination between line departments and lack of understanding on the Bank s reporting procedures. TNUDF had later developed standard financial reporting formats and the issues were adequately addressed. Satisfactory audit reports were received during all years of implementation. Procurement: While TNUDF had adequate capacity to oversee procurement compliance, many of the newly participating ULBs and government departments involved were less familiar with the Bank s procurement guidelines in the initial years of implementation and it was quite challenging to ensure procedural compliance, collecting the list of contracts (for the purpose of post review), procurement plan preparation, and revisions from other implementing agencies. There was also reluctance to follow agreed procurement procedures, particularly where these were in conflict with GOTN s Transparency in Tenders Act, which resulted in delays in some instances. These were subsequently addressed through training and capacity building. There was also one instance where procedural noncompliance resulted in declaration of mis-procurement by the Bank. The project implementation also faced challenges in the procurement of sewerage contracts due to a combination of factors - the schedule of rates (which they were mandated to use) was not always reflective of market prices in case of sewerage contracts, lack of adequate sewerage contractors in India, etc. This resulted in high price bids, low participation by bidders, re-bidding, etc. leading to delays, which was one of the main reasons for Loan extension. The Bank team worked closely with counterpart agencies/ulbs in resolving these issues through a variety of measures, including revision of costing practices, holding bidders conferences, incorporating suitable price adjustment formula in bid documents, etc. All these issues were later addressed and the project was able to successfully bid out all (over 50) sewerage contracts eventually. Overall, fiduciary compliance was Satisfactory. 9

22 2.5 Post-completion Operation/Next Phase (a) Transition arrangements. The transition arrangements for continuing the future operation appear to be adequate, as demonstrated by the measures adopted by GOTN. In addition, the follow-on project, Tamil Nadu Sustainable Urban Development Program (TNSUDP), which is currently under preparation will also ensure the project's future sustainability. Institutional (TNUDF): TNUDF has grown as a strong financial institution which has supported over US$1.5 billion in urban investments in Tamil Nadu, combining public and private funds, as well as other donors including Kreditanstalt fur Wiederaufbau (KfW) and JPY billion from Japan International Cooperation Agency (JICA). TNUDF continues to be a viable institution that has been consistently generating profits over the last decade and maintains adequate staff and governed by a Board of Directors. Institutional (ULBs / Operating agencies): From an institutional / O&M perspective, all sub-projects are already housed within ULBs. As regards outputs from STPs, in addition to regular check-ups by the ULBs, local laws require regulatory compliance with regard to environmental laws that are monitored by TNPCB and other regulatory agencies on a periodic basis. The roads completed under the Chennai Urban Transport sub-component have been handed over to the Highways Construction and Maintenance wing for future maintenance. Sewerage O&M: After five years of operation and maintenance by the DBOT contractors, the projects will be handed over to the ULBs. In turn, ULBs could outsource the O&M through PPP contracts. Standard bid documents and contracts for O&M of sewerage systems have already been developed by the GOTN. Financial: TNUIFSL, the fund manager of TNUDF, would be overseeing and monitoring timely repayments of the loans and ensure that debt service from ULBs is maintained at 100%. Participating ULBs are levying user charges for water supply and sewerage to meet 100% O&M cost recovery and debt service. A graded user charges framework has been practiced for underground sewerage sub-projects considering the equality and has greater acceptance among the general public. User charges would be revised periodically as and when needed. Budget: GOTN has committed to finance completion of the balance work under the (few) ongoing sub-projects post closure of TNUDP III. In any event, TNUDF is an on-going institution with multiple sources of financing beyond the Bank and these too can be accessed by the ULBs. (b) Follow-on project. The follow-on project TNSUDP would build on the on-going Bank engagement with Tamil Nadu in the urban sector, in particular on TNUDP-III. It will step-up the level of engagement by enhancing the local urban management and governance as well as further refining the line of credit support to ULBs. Innovations envisaged under the project include: piloting a Model Towns Concept; supporting credit enhancement; and supporting reforms in urban finance and in sector policies. In addition, there will be a greater focus on the sustainability of urban environment under the ULB infrastructure investment sub-component. TNSUDP is scheduled to be effective in April / May Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation 10

23 Relevance of Objective: The objective is still relevant and appropriate to the needs of Tamil Nadu s urban development because of deepening, on-going urbanization in the state. Among the larger Indian states, Tamil Nadu (TN) ranks 1st on urbanization rates and has the second largest state economy in India. As per Census 2011, TN is about 48.5% urbanized with about 35 million people residing in urban areas and accounting for 9.6% of India s urban population. In terms of absolute numbers of population living in urban areas the urban growth rates have outpaced rural growth rates - the urban population growth in the state was 27% during 2001 to 2011 as compared to rural growth of 6% during the same period. Given the levels of urbanization, urban development remains of critical importance to the Government of Tamil Nadu (GOTN) and this is clearly spelt out even in their latest (12th) Plan Document and the TN Vision 2023 document. It is also timely and appropriate to the needs of India s urban sector. While the current level of urbanization in India is around 31% (377 million persons) as 2011 census, it is projected to increase to 50% or more over the next 20 years. For the first time since independence, India has seen a greater absolute increase in urban population versus rural and the number of towns in India has increased from 5,161 in 2001 to 7,935 in 2011, with about 53 cities having over 1 million population. The objective is consistent with the Bank's latest India Country Partnership Strategy (CPS) for FY , directly relevant to the development goals set out under Engagement Area Two on Spatial Transformation that seeks to leverage the rural-urban transformation as an opportunity to reduce poverty and increase competitiveness. The objective is also fully consistent with the urban sector priorities as outlined in the 12th Plan of Government of India that includes: (i) Increasing investment in urban infrastructure; (ii) Strengthening urban governance, institutional capacity, improve long-term urban planning for sustainable and inclusive urban development; (iii) Raising environment sustainability; and (iv) Improving financial sustainability of ULBs. Relevance of design and implementation: The core design of the project and implementation arrangements remain relevant. As discussed in Section 3.2, the project activities have contributed to many achievements in the Tamil Nadu urban development sector. On the other hand, as indicated in Section 2.1, the project design had a major shortcoming because of including the Chennai Urban Transport sub-component at a later stage of project preparation cycle and hence not being fully prepared at the time of Board approval. Consequently, the project had to be restructured to drop 16 road sub-projects and retain only five sub-projects. Although there were some factors which affected implementation as mentioned in Section 2.2, the overall implementation arrangements of TNUDP III had turned out to be effective for achieving the project objective. Rating: Considering these factors, the relevance of objective, design, and implementation is rated as Substantial. 3.2 Achievement of Project Development Objectives / Efficacy Substantial. The project was successful in achieving its Project Development Objectives (PDOs) as can be noted from the status of Results Framework presented in Section F of the Data Sheet. At ICR, over 82% (against a target of 80%) of 55 participating ULBs had commissioned their respective subprojects and reported delivery of improved urban services (covering water, sewerage, city roads, etc.) to their city residents. This includes over 2.3 million people at these ULBs who have directly benefited from improved water and sewerage services. TNUDP-III has supported construction (and commissioning) of new sewerage systems in about 17 ULBs that hitherto did not have them and has added over 299,000 new sewerage connections. TNUDF has remained a viable institution evidenced by the 100% sub-loan repayment from ULBs achieved during each year of implementation of TNUDP-III (against a target of atleast 95%) besides helping raise over US$52 million in nonbudgetary sources for urban infrastructure. The capacity building initiatives have successfully 11

24 upgraded e-governance systems across over 140 ULBs, besides reduction in fatal accidents within Chennai metropolitan area by 178 in a year. The outcomes achieved are further elaborated as below. PDO Improve urban infrastructure services in Tamil Nadu in a sustainable manner including through providing incentives for investments in lowincome neighbourhoods through the use of capital grants. Strengthening the managerial, financial and technical capabilities of ULBs. Achievements and Outcomes Overall the project has benefited about 2.3 mn directly and about 1.7 mn indirectly through improved urban services; This includes improved access to water supply to about 1.9 mn people across 17 ULBs that have resulted in increase in per capita supply to city residents from 63 LPCD on an average to about 115 LPCD, besides frequency of water supply being increased from an average of once in 4 to 5 days to daily; The sewerage sub-projects supported the construction of about 270 MLD of sewage treatment capacity that are already benefiting over 400,000 city residents and eventually an additional 2.5 mn residents as additional households in these cities sign up for (new) sewerage connections; Low-income neighbourhoods: The aforesaid water / sewerage sub-projects also accessed capital grants and provided access to improved water / sewerage services (mostly in the form of new connections / improvement in bulk supply) to over 440,000 people in low-income neighbourhoods; Under ULB investment sub-component, 1500 km of city roads were upgraded across 24 ULBs that benefited city residents and seven bus terminals were constructed (with about 210 bus bays modernised /added) that now handle 4140 buses per day; Sustainability: TNUDF, through its appraisal process, ensures financial sustainability over 80% of participating ULBs implementing water and sewerage sub-projects have introduced new (for sewerage) / revised user charges aimed at 100% O&M cost recovery through formal ULB council resolutions and approved by-laws; Under Chennai urban transport sub-component, about 32.5 km 1 of roads were upgraded that lead to improved ride quality and reduction in travel time by about 20%, besides construction of five modern Foot-over-Bridges (FOBs) that have resulted in safe pedestrian cross over / multimodal integration / free flow of traffic. New municipal e-governance systems have been made operational in 49 newly created ULBs, besides web portals in across the rest of 102 ULBs (excluding Chennai) and office of CMA; The web portals apart from providing case studies on success stories for replication, also enables greater ULB level information dissemination on services and contact persons at the ULB level and contribute to improve the ULB-citizen interface. In addition, tablet based applications developed for monitoring of key urban health issues (such as incidence of dengue) and urban services (water supply); Over 93 training programmes conducted has helped equip more than 27,280 persons on a wide range of technical and managerial skills and covering both short-term and long-term courses on urban management, solid waste management, financial accounting, regulation, etc - over 90% of the participants rated as part of their feedback that they had learnt new skills / 1 The balance 3.5 km out of the total target of km was also partially upgraded (in terms of the right-hand side carriage way that is now open to traffic), but the left-hand side carriage had to be temporarily suspended to accommodate a macro drain to be constructed under the carriage way under a separate program to ease flooding in Chennai. This drain construction is now almost complete and the left-hand side carriage will also be upgraded by GoTN out of own funds. 12

25 PDO Mobilizing resources and securing sustainable funding sources for urban infrastructure investments by TNUDF. Achievements and Outcomes gathered new knowledge; Supported development of a robust pipeline of sub-projects at ULBs through the Project Development and Advisory Facility that provided TA for subproject preparation, design and assessments, City Development Plans, etc. Over US$250 million of urban investments have been prepared under this TA of which about 56% have started implementation (using other financing sources) till date; Progressive empowerment of ULBs: (a) GOTN delegated higher administrative powers up to INR4 million to the City Council, up to INR5 million to Regional Director of Municipal Administration and up to INR50 million to CMA, up from earlier powers that were one fifth of these limits; (b) GOTN continued its formula based devolution of taxes to ULBs that provided a buoyant source of revenues and underpinned sustainable borrowing by ULBs under TNUDP-III for investment sub-projects (the devolution income to ULBs has more than doubled from INR8880 million in to INR21320 million in ); (c) In July 2013, policy decisions were approved by GOTN for the creation of an accounting cadre at ULBs, as well as new accounting and budgeting rules/manuals for ULBs; Traffic enforcement and management system introduced under Chennai urban transport sub-component (through tow-away vans, vehicles with speed dome cameras, vehicles for emission analyser, radar guns, breath analysers, gas emission analysers, traffic signals, pelican signals, traffic signs, walkietalkies, computers, etc.) resulted in substantial improvement in detecting, documenting and enforcement in cases of traffic violations, thereby reducing the fatal accidents in Chennai area from 1449 in 2012 to 1271 in 2013, one of the indicators for this sub-component mentioned in the PAD; Comprehensive Traffic and Transportation Study for Chennai carried out that was formally adopted and resulted in identification of a shelf of projects worth INR million, some of which are now being taken up for implementation. Against a target of US$40 million, TNUDF was able to facilitate raising of about US$52 million from non-budgetary sources; Includes municipal bonds, Public Private Partnerships (PPPs) and capital contributions from direct beneficiaries in water and sewerage sub-projects. The municipal bonds included India s first pooled bond issue and capital contribution from direct project beneficiaries was scale-up of pioneering initiative started under the earlier (TNUDP-II) project; TNUDF, as an urban development / municipal fund intermediary, has continued to play an important role in establishing principles of financial discipline for investment sub-projects undertaken by ULBs as well as maintain financial sustainability of itself as an institution - evidenced by the 100% loan repayment from ULBs achieved during implementation of TNUDP-III over which period its balance-sheet also grew in terms of loan assets by 4.5 times. 3.3 Efficiency Since this was a framework project, the project at appraisal provided for a framework for economic analyses. Economic analyses was carried out at ICR using this framework and based on final costs and extent of benefits achieved. This analysis also took into account the delays caused and consequent cost and time impacts of the 3 year loan extension. The ERR for TNUDP-III was computed based on 13

26 evaluation of cost-benefit streams of sub-projects implemented under the Urban Investment Component and was found to be higher than the threshold value of 12%. Water supply projects exhibited the highest ERR followed by Bus terminals. ERR for sewerage sub-projects were slightly dampened by longer time frames for completion. Cities with multiple projects secured higher ERRs because of compounded benefits achieved. Lastly, it may be mentioned that the actual economic benefits are estimated to be higher than the overall ERR of 19% since it does not fully account for some of longer term environment benefits of sewerage (such as reduction in pollution of water bodies, water reuse that has already started happening in some ULBs, etc.), reduction in fatal accidents in Chennai and benefits to pedestrians in Chennai due to the Foot-Over-Bridges. Table 2: Economic Analysis Line of Credit sub-component Sectors No. of Cities Value of Projects INR in mn. Economic Rate of Return (ERR) Weighted Average Water supply % UGSS % Roads % Bus Terminals % Cities with multiple Projects % Line of Credit component - Weighted Average ERR = 19% Road projects under CMDA Sub-component Roads under CMDA % component CMDA component - Weighted Average ERR = 18% Overall ERR for TNUDP-III = 19% 3.4 Justification of Overall Outcome Rating Relevance. As explained in Section 3.1, the objective is consistent with the Bank s latest CPS in terms of contributing to development goals related to urbanization and spatial transformation. Likewise, the project design has contributed to many achievements in the Tamil Nadu urban development sector. Further, implementation arrangements were efficient and effective for achieving the project objectives. Based on these factors, the relevance of objective, design, and implementation is rated as Substantial. Achievement of PDOs / Efficacy. As explained in Section 3.2 and noted from the Results Framework (RF), the project has met its Project Development Objectives (PDOs). It either exceeded or met all of the PDO indicators, except one with regard to reduction in travel times for Chennai urban transport sub-component. This (restructured) sub-component however accounts for less than 10% of overall project cost and in addition, was able to result in reduction in fatal accidents in Chennai, not captured by the results table but mentioned in the PAD. Based on these factors, the achievement of the PDO is rated as Substantial. Efficiency. As noted in Section 3.3 and Annex 3, despite the loan extension, the economic benefits clearly outweigh the costs and the impact of delays. There were operational and administrative efficiencies which came as a result of design choices and the actual implementation approaches brought under the project to overcome the various challenges. The project s efficiency is rated as Substantial. 14

27 Based on the above factors and the discussion in sections , the overall achievement of outcomes is rated as Satisfactory. 3.5 Overarching Themes, Other Outcomes and Impacts Poverty Impacts/Gender Aspects. The project design did not include any direct income generating or gender related interventions. The capital grants that were provided to ULBs were mainly linked to environmental externalities (such as for water/sewerage) or improved urban services to low income neighborhoods. The ULBs have put in place a subsidized connection regime for such households for availing water/sewerage connections. As noted earlier, an estimated 440,000 households in low income neighborhoods have benefited from such improved urban services. Where new connections have been provided, some of this would have positive impacts for women as well such as in alleviating the hardships of women in fetching water from distant places. Further, there have been instances of providing for special facilities for community activities such as in MKT road in Chennai, where the project has created a separate platform for vendors to sell their merchandize. The road improvements in Chennai and bus terminals sub-projects would also benefit the poor. Institutional Change/Strengthening. The project resulted in a substantial institutional development impact in the following areas: (i) Public financial management reforms: This included development of: (i) an updated municipal accounts manual in line with the Model National Municipal Accounts Manual; (ii) a new Municipal Budget Manual; (iii) audit manual for Local Fund Audit Dept (LFAD); (iv) government approval for creation of municipal accounts cadre and service rules for the cadre; (v) amendment of various Municipal Acts to provide for public disclosure of the budget and annual financial statements; and (vi) decision to move to a centralized and integrated web based Financial Accounting System (FAS) from the decentralized IT model. The project has also continued the practice of hiring the services of Chartered Accounting firms to update/close the books of accounts of ULB to ensure that the back-log in accounts and audit is not significant. (ii) Empowerment of ULBs: All participating ULBs involved in implementing water and sewerage projects under TNUDP-III (even where the projects were being implemented by parastatals namely, TWAD and CMWSSB) were fully involved right from the early stages. Councils of all participating ULBs have adopted resolutions incorporating introduction of beneficiary contribution and user charges to meet 100% O&M cost recovery. Also, even when parastatals were hand-holding the ULBs for implementation, the financing was routed through ULBs. The implementation arrangement facilitated a relatively higher level of ownership of the sub-projects within both elected and administrative wings of the participating ULBs. Public Private Partnerships (PPPs) / Innovations. Although the impact of PPPs under TNUDP- III has been relatively modest, two initiatives to introduce PPPs hold potential for replication and wider scale-up. 1. STP in Tuticorin through PPP: In Tuticorin, a 25 MLD Sewage Treatment Plant has been bid out on a PPP-BOT model, where the private operator will invest in the STP and maintain the same and will recover the investment costs by selling treated waste-water to industrial waste-water users in the vicinity. This sub-project holds potential for replication in other rapidly urbanising and industrial regions of Tamil Nadu and other parts of India. 2. Standard bid documents contracts for O&M of sewerage systems / DBOT for STPs: The DBOT model for STPs was successfully developed and tested under TNUDP-III. The CMA has developed standard bid documents and contracts for O&M of sewerage systems. Pallavaram Municipality has already introduced PPP in O&M of its sewerage system. Given the number of ULBs that are likely to implement sewerage systems in India, both these hold replication potential. Long term environmental benefits. The large numbers of sewerage sub-projects are expected to provide environmental benefits over the long term in different ways including reduction in pollution of water bodies and conservation of water through water reuse. For example: (i) the Dindugal municipal corporation is supplying treated sewage, free of cost, to local tanners who gave 60 acres for the STP; 15

28 (ii) in the Chinnamannur municipality, the treated water is being provided to farmers free for agricultural usage; and (iii) at Nagapattinam, the municipality plans to sell treated sewage to private firms. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Annexure 6 presents the summary of two surveys that were carried out at project closing: (i) Beneficiary survey of resettled families / project affected people through external consultants, which highlights the positive impacts in terms of higher incomes and better standard of life for a substantial majority. (ii) Participating ULBs survey through an external consultant for outcomes assessment of TNUDP-III and forms the basis for many of the service delivery related indicators presented in Section Assessment of Risk to Development Outcomes Rating: Moderate The risk to development outcome is moderate. The likelihood of changes that would be detrimental to ultimate achievement of project s outcomes is moderate. As the most urbanized among the larger states in India, urban sector issues remains a key policy priority and focus area for GOTN and has sought to continue its partnership with the Bank through a follow-on project. TNUDF has remained a viable institution with adequate staff and a loan recovery rate of 100%. TNUDF continues to expand resource mobilization through non-budgetary sources and in addition, TNUDF has also accessed Euro 157 million from KfW and JPY billion from JICA that largely adopts Bank framework. Considering that the ULB participation was on a demand-driven basis, the ULBs retain local ownership of the sub-projects and expected to operate and maintain them. Financial sustainability has been enhanced through TNUDF s appraisal process that also requires levy of user charges where possible (backed by council resolutions to this effect). As regards institutional sustainability, all STPs were on a Design Build Operate and Transfer (DBOT) basis with five year O&M built into the contracts. After five years of operation and maintenance by the implementing agencies, the O&M is outsourced to private players by PPP contracts. The CMA has developed standard bid documents and contracts for O&M of sewerage systems. Pallavaram ULB has already introduced PPP in O&M of its sewerage system. In addition, the office of CMA further supports institutional sustainability, especially for sewerage, through maintaining an equipment bank for O&M of sewerage projects. However O&M of sewerage is a challenging area presenting risks and since this sub-sector accounts for a significant part of TNUDP-III, the rating is moderate despite the measures outlined. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Moderately Satisfactory During preparation and appraisal, the Bank took into account the adequacy of project design and all major relevant aspects, such as technical, financial, economic, and institutional, including procurement and financial management. A number of alternatives were considered for the project design. In addition, major risk factors and lessons learned from other earlier projects in the urban sector were considered and incorporated into the project design. Project preparation was carried out with an adequate number of specialists who provided the technical skill mix necessary to address sector concerns and a good project design. The Bank provided adequate 16

29 resources in terms of staff weeks and dollar amount to ensure quality preparation and appraisal work. The project was consistent with the CAS and government priorities in the sector at the time. The Bank had a consistently good working relationship with the Borrower during preparation and appraisal. On the other hand, considering the shortcoming in project preparation as mentioned in Section 2.1, the Bank's performance in the identification, preparation, and appraisal of the project was moderately satisfactory. (b) Quality of Supervision Rating: Satisfactory Bank's performance during the implementation of the project was satisfactory. Specifically, the task team took the following critical actions that helped achieve the development objectives: (i) The team downgraded the Implementation Progress (IP) rating at MTR and restructured the project subsequently in close partnership with GoTN to address the nonperforming sub-component as result, disbursements went up from US$104 million at MTR to US$290 at ICR; (ii) At MTR, the team also put in place more elaborate Results Framework / indicators; (iii) The implementation also faced considerable challenges in the procurement and implementation of sewerage projects the team was able to provide support to overcome these challenges eventually. The Bank allocated sufficient budget and staff resources, and the project was adequately supervised and closely monitored. The task team regularly prepared Aide-Memoires, alerted GOTN and TNUDF about issues found during project execution and facilitated prompt corrective action. The Implementation Status Reports (ISRs) realistically rated the performance of the project both in terms of achievement of development objective and project implementation. Bank s procurement and financial management staff worked with TNUDF staff to explain the rules and procedures to be applied during project implementation, with regard to procurement of goods and works, and selection of consultants, accounts and audits, based on the Loan Agreement. The overall quality of procurement documentation and processes remained satisfactory, and compliance with agreed procurement schedules remained high after the first half of the project. The task team also monitored safeguard and fiduciary compliances. The task team carried out a MTR in July One important aspect of the Bank's performance and contribution was the continuity of the Task Team, including the TTL and other key sector specialists, from project inception through completion. This continuity ensured consistency, and facilitated dialogue with the government to resolve implement issues. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory With a Moderately Satisfactory rating for quality at entry and a Satisfactory rating for quality of supervision, overall Bank performance is rated as Moderately Satisfactory in accordance with IEG s harmonized rating criteria. 5.2 Borrower Performance (a) Government Performance Rating: Satisfactory As mentioned in Section 2.1, the government had shown its commitment to the objectives of the project at the time of project preparation. The government consistently maintained its commitment throughout the implementation and a favorable policy stance. Appropriate levels of review and 17

30 approval were usually in place both within TNUDF as well as GoTN; financial accountability and follow-up was observed, and expenditures were duly authorized before they were incurred; and documentation was maintained properly for periodic review. The project did not suffer from any counterpart funding problems, as the GOTN took timely corrective measures and made appropriate budget provisions and also ensured that TNUDF was adequately staffed throughout project implementation. The government officials worked closely with the Bank's project team on a continual basis, and cooperated fully with the task team for instance in completing the restructuring and addressing sewerage related issues. Further all legal covenants under TNUDP-III were complied with. (b) Implementing Agency or Agencies Performance Rating: Satisfactory TNUDF/CMA were very effective in carrying out all aspects of project management, such as financial management, procurement arrangements, reporting activities, and disbursements: Financial Management: The project had decentralized FM arrangements due to its complex project design and involvement of multiple line departments. The Urban Infrastructure component, which was implemented by ULBs, Chennai Metro Water Supply and Sanitation Board (CMWSSB) and Tamil Nadu Water and Drainage (TWAD), had performed well due to an effective oversight, coordination and control by TNUDF. The project was regular in the submission of SOE claims and quarterly FMRs to the Bank. The actual utilization against tranche releases were monitored separately by TNUDF and was reported in the quarterly financial reports and validated through annual subproject audit reports. The transport component was implemented by CMDA through Chennai City Traffic Police and Highways departments, and their performance was satisfactory with regard to financial management. Procurement Arrangements: Procurement was handled by multiple agencies, for example CMA, CMDA, TNUDP, TWAD Board, Highways Department, Highways Research Station, Chennai Traffic Police, Chennai Metro Water (CMWSSB), and ULBs, which was quite challenging. TNUDF performed quite well in supervising the procurement handled by other implementing agencies under line of credit sub-component as well as hiring consultants under PDAF. Reporting Arrangements. TNUDF / CMA submitted all required quarterly and annual reports in a timely manner. These reports were informative, and provided valuable feedback on how the TNUDP- III was progressing covering all project activities. The status of performance indicators were incorporated in all progress reports and served as valuable input to Bank supervision mission reports. Other implementing agencies: However during the initial years of the project, there was delay in the implementation of Chennai urban transport sub-component by the Highways Department and also CMDA in being able to oversee and accelerate this sub-component and there could be have been more proactive action in this regard. Consequently, the performance of these implementing agencies was only moderately satisfactory, though the performance of this sub-component picked up after restructuring. On the other hand, considering that (i) the Chennai urban transport sub-component accounted for only less than 10% of the overall project cost; and (ii) performance of TNUDF and CMA was more than satisfactory, the overall performance of implementing agencies is rated as Satisfactory. 18

31 (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory With a Satisfactory rating for Government performance and a Satisfactory rating for overall performance of implementing agencies, overall borrower performance is rated as Satisfactory. 6. Lessons Learned Design Preparatory work and risk mitigation in framework projects. For complex components that are part of demand-driven, framework type projects (such as the Chennai urban transport subcomponent), specific measures may be needed to address associated risks for instance in terms requiring higher proportion (e.g. 30%) of major investment components ready (i.e. ready for bidding or contract award), resolution of land acquisition issues to the extent possible, etc. Further, while changes to the original proposals are inevitable, implementation should adjust quickly to address risks / project performance. The concept of having a state level urban agency/municipal Fund such as TNUDF, which would help in dealing with the challenges of urbanization, especially for smaller cities, is a good design concept. Through the series of Tamil Nadu Urban Development Projects, TNUDF has been able to provide both capacity building as well as financial support to ULBs while maintaining good repayment track record and focus on financial sustainability. However, evolution of such a fund is very much dependent on the process of decentralization (especially given the strong controls state governments exercise over ULBs in India) and overall support a fund like TNUDF receives from the state government and other sector agencies such as the CMA. Calibrating loan period to project complexity / project design. At appraisal, the project/loan period should be calibrated taking into account project complexity rather than it being standardized to around five years. In hindsight, a period of about 5-6 years was clearly an underestimate given the complexity of sewerage sub-projects, land acquisition related issues and ambitious scope that included both a metro city (Chennai) as well as large number of (smaller) participating ULBs. This is particularly relevant for a framework type of project design that many urban development projects would tend to be, especially those ones designed for interventions in smaller / emerging cities. Hence, while a framework type of project design would remain important for urban projects, calibrating the loan period would help in addressing the inherent risks arising during implementation. Implementation Land acquisition/availability will remain a key risk factor for urban projects. Especially in a framework project and given the context of dense urban settlements in India, this will remain a key risk factor for urban projects in India and often linked to factors beyond the control of the immediate project. In particular, there should be a mechanism for resolving the differences between the Bank policies and government policies on land acquisition and resettlement. Also, as the process for issuing clearance for land acquisition is time consuming and takes about 2-3 years. One approach that worked well in this context under the Chennai urban transport sub-component is adopting uniform negotiated price when there are different guideline values in the same village for compensation determination for private lands acquisition - this enhanced the acceptance of the compensation payments among the affected land owners. Complex urban sub-sectors. Urban subprojects, especially sewerage, must take into account implementation challenges. As the project has demonstrated, sectors like sewerage face key challenges in terms of availability of qualified contractors, timely land availability, uncertain site conditions, capacity of ULBs to manage implementation etc. - factors which often lead to delays. Therefore their planning and implementation would need a focused approach on the part of both the Bank team as well as government counterparts, taking into account site conditions based on 19

32 proper assessments, addressing them in designs, costing and making provisions in the bidding documents; assessment of contractors capacity and making provisions in the bidding documents, safeguards management and building capacity of ULBs. Willingness to pay. Users pay when service is assured. The project has demonstrated that users have contributed for a portion of capital through their contribution, and they are ready to connect to the network and pay for O&M through tariffs; through sustained efforts on the part of implementing agencies. Lessons for follow-on TNSUDP/other urban projects in India. All of the aforesaid are valuable lessons that can be taken into account while designing future urban projects. Thus, this project has offered a transition point for higher level of engagement in the state for Bank / other partners; and continues to have a demonstration effect for other states in the country. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies The Borrower s (GOTN s) summary report is reproduced verbatim in Annexure 7. (b) Cofinanciers NA (c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) NA 20

33 Annex 1. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Components Component A: Institutional Development Appraisal Estimate (US$ million) Actual / Latest Estimate (US$ million) % Percentage of Appraisal Component B: Urban Investment % Total Baseline Cost % Physical Contingencies Price Contingencies Total Project Costs % Project Preparation Facility (PPF) Front-end fee (IBRD only) % Total Financing Required % (b) Financing Source of Funds Type of Cofinancing Appraisal Estimate (USD millions) Actual/ Latest Estimate (USD millions) Borrower % International Bank for Reconstruction and Development % Local Sources of Borrowing Country % Total % Percentage of Appraisal 21

34 Annex 2. Outputs by Component Component 1: Institutional Development Component Training: The training activities were organized by the office of the CMA for the ULB staff as well as the elected representatives. The training programs included seminars, workshops, exposure visits etc. and were run by experts from TNIUS, TWAD, CMWSSB, Anna University, NIWCRHT, etc. The range of topics covered included water supply and sanitation, accounting & financial management, operational excellence, quality control, legal aspects, and human resource management. Around 93 training programs were completed and 17,159 officials and staff and 10,122 elected representatives were trained. ICT initiatives: Activities undertaken under the ICT sub-component were the following: E-office system: E-file System comprised of a systematic and step-wise process of distribution of day-to-day correspondences, managing the inward/outward documents, movements of files followed by remarks and decision making by the senior officials all through an online computing system. This electronic movement of important files leads to a faster decision making process. Standard websites and e-governance modules in 50 newly upgraded Urban Local Bodies: Web portal development and updating were done for CMA as well as 50 upgraded ULBs. Project Management: An MS Project-based project management system was implemented to monitor the progress and access project information executed by the department and the ULBs with respect to tracking status of capital projects executed in all ULBs. Procurement of hardware, software and networking (through ELCOT): As part of upgradation of the systems employed in the CMA, RDMA and ULB levels, computer hardware as well as server software and hardware were procured. Business Intelligence system: This web based application is utilized for understanding the revenue and cost trends across ULBs for each head which will help the CMA understand the specific interventions to be made in each ULB for greater efficiency. Dengue surveillance: This application would assist the surveyors collect information on house to house review for vector borne diseases (dengue and malaria) based on WHO guidelines and geographic mapping of the same. Water monitoring system: The Application would provide ULB level storage capacity, supply frequency and water usage data and provides data on water supply breakdown by source type. Debt Monitoring Cell: DMC undertook the following tasks: Database on Annual Accounts of all Municipalities and Corporations has been created for the years, to Reconciliation of the outstanding balance of ULB loans with that of the financial institutions was completed till ULB-wise demand has been raised towards the Water Supply loan sanctioned by the Government from the year 1999 to 6/2011. Guidelines have been prepared and communicated to ULBs in connection with reconciliation of ULBs. Set of key indicators has been compiled for assessment of new capital investments/borrowings. 22

35 Accounting and Financial Management related Activities The fundamental activity under Accounting and Financial Management related to implementation of the Accrual based accounting systems in the ULBs. The following specific actions were undertaken: Compilation of Annual Accounts from to and to ; Updation of accounts manual and audit manual and improvements in budgeting system; Settlement of huge backlog of audit objections; Assessment of manpower with respect to local fund audit; Creation of a separate municipal accounts service Project Preparation Fund (PPF) Some of the notable initiatives under the PPF are summarised below: Gasifier crematoriums: Innovative designs were developed for the construction of gasifier crematoriums and slaughter houses which were used to develop 67 gasifier crematoriums and 115 slaughter houses. A newly constructed crematorium at Erode, Madurai, Trichy and Thoothukudi Corporations and a slaughter house in Dindigul municipality has been accorded ISO certification. 29 gasifier crematoriums and 25 slaughter houses are under construction. Bus stands: Several bus stands have been constructed with support from the PPF Water supply: 41 DPRs for water supply projects have been prepared, out of which 14 are nearing completion. UGSS: 16 UGSS projects (6 by CMA and 10 by TWAD Board) have been prepared of which 11 projects are under implementation under funding from TNUDP-III, KfW, UIDSSMT and IUDM. Another 60 DPRs are under preparation. Regional clusters on PPP for Solid Waste Management (SWM): A Transaction Advisor was appointed under PPF for implementation of Solid Waste Management projects in 5 Corporations and one Municipality in cluster basis. Work in Tirunelveli Corporation has been completed and implementation is underway. Standard O&M contracts for UGSS: Standard bidding documents and contracts for O&M of sewerage systems which have already been instrumental in rolling out O&M contracts for select sewerage projects. Geographical Information System (GIS) Door to door surveys, mapping and data validation exercise for 12 ULBs Erode, Vellore, Salem and Tuticorin corporations and Krishnagiri, Pudukkotai, Sivagangai, Tambaram, Namakkal, Udhagamandal, Dindgul and Virudhunagar Municipalities. The initiative is expected to bring more unassessed/ under-assessed properties under property tax net and help increase ULB revenues. Other activities undertaken by CMA Additionally, several other studies were also conducted under project management component like: 1. Creation of Municipal Cadre for effective implementation of infrastructure projects under JnNURM. 2. Preparation of Integrated SWM Policy for Tamil Nadu 3. Preparation of engineering manual for ULBs in consonance with other State Departments 4. Development of urban performance indicators. 5. Revival, Rehabilitation, and Management Strategy for Selected Water Bodies. 6. City development plans for Grade III municipality 7. Non-motorised transport study for providing broad level master plan for Coimbatore city. Achievement of this component is Satisfactory. 23

36 Component 2: Urban Investment Component ULB Investment sub-component The Line of Credit sub-component covered investments in urban infrastructure projects that were implemented under TNUDF, and managed by its fund manager, TNUIFSL. Salient features of subprojects implemented under the Line of Credit sub-component are discussed below: Sectoral composition: In all, 110 sub-projects worth Rs crore are being implemented in participating ULBs under the Urban Infrastructure sub-component. A critical feature is the focus on water supply and underground sewerage schemes, which accounted for 79 % of the outlay of sub-projects approved. Share of remunerative projects: Sub-projects in water supply, sewerage and bus stands (amounting to 80% of outlay) have been structured with a remunerative element (where users finance part of the project cost and O&M expenditure through deposits and user charges/rents). Projects in roads, SWM and river improvement are non-remunerative in nature, and here the loans will be serviced from existing revenue sources of ULB. Top participating ULBs: Under TNUDP-III, sub-projects have been implemented in 72 ULBs. The top three ULBs, Salem, Pallavaram and Theni, constitute 35% and Salem dominates the list with 6 projects, followed by Pallavaram with 3 projects. Underground Sewerage About 16 sewerage projects have been commissioned at closing. Connections and served population: 290,000 sewerage connections have been added, enabling an incremental access of sewerage services to 417,557. Eventually these sub-projects could potentially add 449,465 sewerage connections, serving an estimated population of about 3,388,543, including about 677,709 urban poor persons. Water supply About 17 water sub-projects have been commissioned at closing. Some of the key aspects of the service delivery targeted under the scheme include: Coverage: a. Connections and served population: As of March 2014, sub-projects are enabling incremental access of water supply services to 19,74,510 persons. b. Service access to urban poor: As of March 2014, TNUDP-III added water supply connections servicing about 423,000 urban poor persons. c. Per capita (LPCD) water supplied to ULB: The per capita supply has increased to an average of 115 LPCD compared to a baseline value of 63 LPCD, 8 ULBs were able to achieve the per capita supply norms as envisaged by MoUD (135 lpcd). Frequency of water supply: All the ULBs where the sub-projects have been completed show a significant improvement in the supply as water is now supplied everyday compared to an average of once in 4 to 5 days. Financial performance of the projects: All the ULBs with approved water supply projects have resolved to introduce connection deposits (for financing part of the capital cost) and user charges to achieve 100% O&M cost recovery. Roads and street lights: Of the 24 sub-projects approved, 18 projects costing Rs. 186 crore, have been completed as of March 2014 which accounts to 75% of the total road projects and 45% of the roads outlay. Length of Roads: In all, over 1500 km of roads were upgraded under TNUDP-III. 24

37 Bus Terminals: 7 bus terminal sub-projects have been completed Bus bays and handling capacity: Over 208 bus bays have been modernised / added across bus terminals in seven cities, with the total numbers of buses being handled at these terminals estimated at 4140 nos. per day. Population served: The bus terminal projects undertaken serve an estimated 565,000 persons. Solid waste management 32SWM sub-projects have been approved and implemented under Line of Credit sub-component increasing the transportation capacity by 380 MT and improving the solid waste collection in participating ULBs to over 95% from a baseline value of 87%. Salem river improvement project The project components included: (a) Improvements to Thirumanimuthar River for a stretch of 2800m (b) Regularizing the cross section of the Vellakuttai Oodai and (c) construction of 3 Bridges near old bus stand, gunpoint and oxford school. This sub-project is expected to potentially address flooding problems in the vicinity and clean up the waste / silt accumulated along the banks. CMDA Transportation sub-component (a) Roads and foot-over bridge sub-projects Under the roads investment, 5 road stretches covering km have been upgraded under the CMDA sub-component. From the savings in investment funds from these projects, foot-over bridges at 5 locations were completed. A service assessment undertaken by the Highway Research Station of GoTN on all 5 completed projects validated a sharp improvement in service levels in terms of improved road quality (smoothness), reduction in travel time and increase in travel speeds. Journey times have declined by an average of 16% (reduction between 9.6% and 33%) while travel speeds have gone up by an average of 33% (increase between 1% and 74%). (b) Initiatives with the Chennai City Traffic Police The traffic management and enforcement sub-component comprising procurement of tow-away vans, vehicles with speed dome cameras, vehicles for emission analyser, radars guns with (out) cameras, breath analysers, gas emission analysers, traffic signals, pelican signals, traffic signs, walkie-talkies, computers and construction of a traffic education centre have been implemented the Chennai City Traffic Police (CCTP). An E-challan system introduced for traffic management in Chennai city proved to be so successful that CCTP recovered the Rs crore (average of Rs. 70 lakh per month) spent on procuring and commissioning the hand-held devices, in just four months. All the money raised through fines was used to buy more of the devices, install traffic signal, temporary barricades and road markings. Till February 2013, over Rs. 58 crore of fines have been collected by CCTP following this initiative. Further, with the introduction of the system which has made registering and maintaining offence registers easier, the average offences booked per day has increase from 3,500 to 12,000. (c) Up-gradation and modernisation of Highway Research station: Goods and equipment have been procured to improve the institutional capacity of the Highway Research Station (HRS). Achievement of this component is Satisfactory. 25

38 Urban Investment Component Annex 3. Economic and Financial Analysis 2 Overall approach The Economic analysis has been done to compute Economic Rate of Return and Net Present Value (@ 12% discounting rate) individually for 63 sub-projects costing greater than US$500,000 and covering 98% of the approved project cost under the Investment component. Sub-projects involving less than the threshold value of US$500,000 (Rs.2.7 crore) have not been covered for computing the Economic Rate of Return for TNUDP-III as a whole in view of two factors: (a) These projects contribute to than 2% of Investment Component of TNUDP-III and therefore their economic impact will have negligible contribution to the overall ERR of TNUDP-III and (b) The average size of these projects is US$150,000 (Rs.84 lakh) at less than one-third the threshold size required for economic analysis to be carried out is too small to meaningfully identify and attribute economic impact benefits. Benefit and cost streams for Economic Analysis Exhibit 1 summarises the parameters for arriving at the benefit streams used in the Economic Analysis done as part of this report. The Benefit streams, parameters for computation and sources / basis for computation of the benefit streams of sub-projects for various sectors / sub-projects are described below. The capital cost streams were projected based on actual project cost and actual/ projected disbursements, as obtained from TNUIFSL. An attribution factor is applied for some of the benefit streams to reflect that only a portion of the benefits are actually attributable to the project. Sector (sub-project) Roads Water Supply Underground Drainage Exhibit 1: Economic Analysis of TNUDP-III: Parameters used in Economic Rate of Return computation Economic Benefit Streams Time saved in travel time for specific type of road and actual level of pedestrian and vehicular traffic Increased and continuous access to water Reduction in health costs due to water-borne diseases, contamination, or the like Indicators used in this Report Reduction in travel time Reduction in fuel cost Increase in Asset appreciation and Rental values Attribution factor Real value of water Reduction in labour days lost Increase in Asset appreciation and Rental values Attribution factor Real value of treated waste water Reduction in labour days lost Increase in Asset appreciation and Rental values Attribution factor 2 The economic analyses presented in this section is drawn from the Outcomes Assessment Study for TNUDP-III report by consulting firm, ICRA Management Consulting Services Limited 26

39 Drainage Reduction in health costs due to water-borne diseases, contamination, or the like Reduction in labour days lost Increase in Asset appreciation and Rental values Attribution factor Bus Terminals - Source: TNUIFSL. IMaCS analysis Increase in Asset appreciation and Rental values Revenue generation in the bus stand premises Attribution factor Factors for computing benefit streams Reduction in fuel cost: It is the saving achieved from the reduction in fuel cost because of improvement in road quality. The factors used in computation are a. Vehicle population (Nos.): Approximate number of vehicles in the city. The vehicle count is obtained through a household survey. For the cities not covered in the survey the value is extrapolated on the basis of the population. b. Average travel distance (km/day): Average distance travelled by a person in the city. The distance is assumed as 5 km for city with area less than 20 sq.km, 7m for sq. Km, 10 km for sq.km and 12 km for area greater than 150 sq. km c. % of Road length upgraded: Ratio of newly constructed road length to total road length. It is used to get the count of vehicles in the new road. The information on the parameters is obtained from board notes and Census 2011 data. d. Fuel cost savings (Rs. per km): A reduction of 25% in fuel cost per km is assumed based on the survey. Real value of water/ treated waste-water: People s willingness to pay the user charges for improved quality of water/treatment of waste water. The two factors used are Incremental volume of water provided/ waste water treated (kl per day) and user charges (Rs. per kl). The values of the factors are obtained from the board notes for on-going project and through survey for completed projects. Coping costs of informal supply: It is the saving achieved by completely eliminating the money spent on informal sources because of construction of new connections. The factors used are a. New connections (Nos.): The numbers are obtained from board notes for on-going projects and through survey for completed projects. b. Cost per month (Rs.): Money spent per month on informal sources. It is assumed to be Rs. 25 per month per connection based on the survey. Reduction in labour days lost: It is the saving achieved due to increase labour productivity and health improvement. The factors used are a. Per day labour cost (Rs.): Earnings per day of a labour. b. Persons afflicted with illness (Nos.): Number of workers afflicted with water borne diseases. It is calculated as population of the city (nos.) X workforce participation (%) X workers affected (%) c. No. of days lost to illness in a year (Nos.): Total person days lost due to water borne illness. It is calculated as Avg. Days lost in sickness by a person X Persons afflicted with illness. All the parameters are obtained through survey. For cities not covered in survey the values are taken as that of the comparable city in terms of average income and geographical location of the ULB. Increase in asset appreciation: Saving achieved because of the increase in land value. The factors used are: 27

40 a. Guideline value after sub-project/ value increase (Rs.): The average value of the land in the city. It is obtained through survey and for cities not covered in survey linear regression of the guideline value and city population is used. b. % of Area transacted: The area transacted every year is kept at 0.25% and the increase transaction after the implementation of the sub-project to be 0.75% based on the survey. c. Transactable area / Total (%): Actual area that can be transacted excluding the roads and public areas. It is taken as 60% of the total area. Increase in rental values: Savings achieved because of increase in rental values. The factors are: a. Assessed properties (Nos.): Total number of assessed properties in the cities obtained from the Census 2011 data. b. % of rental properties: Rental properties are assumed to be 20% of total. c. Average size of property (sq.km), after rentals (Rs.) & increase in rentals (Rs.): The parameters are obtained through survey and for cities not covered in the survey the values are extrapolated on the basis of average annual income, area and population. Increase in economic activity: Revenue generated from shops, buses, restaurants, toilet, parking facilities, cloak room and advertisements in the premises of the bus stand. The revenue to be collected is obtained from board notes of respective ULBs. Attribution Factor: As discussed earlier in the chapter a factor is applied for each of the benefit stream to reflect that only a portion of the benefits are actually attributable to the project. As willingness to pay of sewerage charges, real value of water and the revenue generated in the bus premises is fully attributable to the project the factor is not applied to them. A higher factor is used for sewerage projects as new connections are provided whereas in case of most of the water supply projects improvement of distribution system is done. For ULBs with more than one sub-project a higher attribution factor is used. A conservative assumption of the attribution factor used for the benefit streams in the economic analysis is listed in Exhibit 2. Attribution Factor Sub-Project Asset appreciation Exhibit 2: Economic Analysis: Attribution Factor Increase in Rental values Reduction in labour days lost Factors Economic activity in vicinity of bus-stand Savings in coping costs of informal supply Real value of water / treated wastewater Reduction in fuel cost UGSS 20% 20% 20% % - Water supply 15% 15% 15% - 15% 100% - Roads 10% 10% % Bus Stand 0% 0% - 100% UGSS& Roads 25% 25% 25% % - WS & Roads 20% 20% 20% - 20% 100% 15% WS(2), UGSS, roads, SWM 40% 40% 40% - 40% 100% 15% Source: IMaCS Analysis Chennai Urban Transport Sub-component Overall approach The Economic analysis has been done to compute Economic Rate of Return and Net Present Value (@ 12% discounting rate) individually for the roads under CMDA sub-component. The Economic costbenefit analysis has been done following a review of parameters used to capture and compute economic benefits and costs in the Economic Assessment of the roads in their respective DPRs. 28

41 Benefit and cost streams for Economic Analysis Benefit streams. Exhibit 3 below summarises the parameters for arriving at benefit streams used in the economic analysis: Roads Sector (subproject) Exhibit 3: Economic Analysis of TNUDP-III: Parameters used in Economic Rate of Return computation Indicators used WB Guidance note Time saved in travel time for specific type of road and actual level of pedestrian and vehicular traffic Source: CMDA. Detailed Project Report of CMDA roads, IMaCS analysis Reduction in travel time o Passengers cost savings o Crew Cost savings o Freight inventory cost savings Reduction in fuel cost Reduction in maintenance cost Project wise results. Exhibit 4 shows the ERR of the roads under the CMDA component. Exhibit 4: Economic Analysis of Roads under CMDA component Road projects under CMDA Sub-component Sub project No. of projects Value of Projects Rs. Crore Economic Rate of Return (ERR) MKT Road % Madhervedu Road % Taramani Link Road % Ariyalur-Vilangadupakkam % Koladi Road % Weighted Average 18% Source: CMDA. IMaCS Analysis Economic Analyses Summary. Exhibit 5 gives the summary of economic analysis of TNUDP-III. Exhibit 5: Economic Analysis: Summary results Line of Credit Sub-component Sectors No. of Value of Projects Economic Rate of Cities Rs. Crore Return (ERR) Water supply % UGSS % Roads % Bus Terminals % Cities with multiple Projects % Line of Credit component - ERR = 19% Road projects under CMDA Sub-component Roads under CMDA component % CMDA component - ERR = 18% Overall ERR for TNUDP-III = 19% 29

42 As can be seen, the weighted average of ERR in all sectors is above the threshold value of 12% with the ULBs with multiple sub-projects having the maximum of 28%. ERR for UGSS projects are relatively dampened by higher time frame for completion and the cities with multiple projects secure higher ERRs because of higher benefits. ERRs of the projects under the CMDA component are also above the threshold value of 1. 30

43 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team Members Names Title Unit Lending Robert M. Buckley Consultant EASIN Abha Joshi-Ghani Senior Infrastructure Finance Specialist/Task Leader WBIKL Raghu Kesavan Senior Infrastructure Specialist SASDU Mukundan Krishnamachary Consultant SASDU Raghava Neti Senior Infrastructure Specialist SASDU Priya Goel Financial Management Specialist SARFM Sam Thangaraj Senior Social Development Specialist SASES Kirtan Chandra Sahoo Environment Specialist SASES Mam Chand Senior Procurement Specialist SARPS Dara Lengkong Young Professional Varsha Marathe Finanical Specialist SASFP Nina Masako Eejima Senior Legal Counsel LEGES Sally Burningham Senior Transport Specialist SASDT Doughlas Graham Urban Infrastructure (Consultant) SASDU Christopher Juan Costain Lead Finance Specialist SASFP George Peterson Municipal Finance (Consultant) SASDU Oscar Alvarado Senior Infrastructure Specialist SASDU Barjor Mehta Sr. Urban Specialist SASDU Jayashree Srinivasan Program Assistant SASDU Mamata Baruah Program Assistant SASDU Responsibility/ Specialty Supervision/ICR Sita Ramakrishna Addepalli Senior Environmental Specialist SASDI Sushil Kumar Bahl Consultant SARPS Manmohan Singh Bajaj Senior Procurement Specialist SARPS Mam Chand Consultant SARPS Mohan Gopalakrishnan Sr Financial Management Specialist SARFM Jean-Noel Guillossou Program Manager AFTTR Raghu Kesavan Senior Infrastructure Specialist SASDU Shanker Lal Senior Procurement Specialist SARPS Barjor E. Mehta Lead Urban Specialist SASDU D. Maruthi Mohan Consultant SASDC Raghava Neti Senior Infrastructure Specialist SASDU Hubert Nove-Josserand Operations Adviser SACIN Shashank Ojha Senior e-government Specialist TWICT I. U. B. Reddy Senior Social Development Specialist SASDS Sundaresan Venkatesan Consultant SASDU Rakhi Basu Transport Specialist SASDT Mamata Baruah Senior Program Assistant SASDU Jyoti Sriram Senior Program Assistant SASDU 31

44 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle US$ Thousands (including No. of staff weeks travel and consultant costs) Lending FY FY FY FY FY Total: Supervision/ICR FY FY FY FY FY FY FY FY FY FY Total:

45 Annex 5. Beneficiary Survey Results Beneficiary Survey of Project Affected Persons / Resettled Families Two end term impact evaluations were carried out with the help of an independent consultant in among the project affected families - one for Chennai urban transport sub-component and the other among the resettled families of urban investment component. The impact evaluation for Chennai urban transport sub-component observed that the living standards of the affected families have improved considerably in terms of average income (3 times increase over baseline income), quality of houses improved considerably (10% increase in those living in permanent and semi-permanent housing) and there was also an increase in those having separate kitchen, bath room and toilets by 10-20% over baseline situation. The proportion of those having electricity in their houses increased by 10% and those with piped water supply by 50%. Similarly, the people have also improved the material assets in their houses in terms of grinder/mixer, televisions, two wheelers and mobile phones. There is also shift in occupational patter from agricultural laborers to regular income earning jobs and business. The level of satisfaction with compensation reported to good, where 75% are reported to be satisfied with rate of compensation. The high level of satisfaction is due to consent award process followed for private land acquisition and payment of compensation for structure without depreciation. The compensation amounts are mostly spent for improvement of houses (40%), enhancement of businesses (20%) repayment of old debts (9%), etc. The evaluation observed the local people have expressed their full satisfaction with the reconstruction of affected temples and other affected community assets. The study also observed that the grievance redress mechanism worked in the project and one of the outcomes of this process was adoption of uniform rate of compensation for all survey numbers in particular village even if there are differences in guidance values across various survey number s in the same village. The case of other end-term impact evaluation for resettlement of displaced families in Salem Corporation revealed that there is an increase in income levels due more number of people in the family work now compared to earlier and improvement in their housing conditions as they moved from huts to the well-constructed flats. The study also reported that the displaced families continue to maintain relations with the neighbors of the previous place as they continue to send their children to schools in the old place and visited the doctor in the old place for medical requirements and most of them continue to work in the old place. Some of the difficulties faced by those resettled households in the new houses included drinking water as the supply was erratic and houses in the top floors did not get water due to problems in lifting water to higher floors. Another issue raised by the people included allotment of houses which did not take into consideration of the elders, old and sick people, as some of the old and sick people were allotted higher floors. The issue of security and thefts was also reported. The Bank advised the Salem Corporation to address the outcome of impact evaluation findings as appropriate and complete the issue of titles to alternative houses as and when the allotments were due after completion of the 5 year stay by the resettled families. Participating ULBs Survey Process and Methodology The Beneficiary (ULB) Survey undertaken through an external consultant involved a combination of field visits, questionnaire survey on ULBs participating in water/sewerage projects and review/ consolidation of findings from an earlier (Mid-Term) Service Outcome Assessment and is as detailed below: Field visits and case studies: Field visits were undertaken in over 15(out of the 55) ULBs participating in TNUDP-III for a first-hand assessment of the status of implementation, issues and project impacts from a service delivery standpoint. The field visits covered inspection of facilities and assets built under the project and interactions with concerned ULB officials and officials of 33

46 implementing agency. Dipstick interactions with end-beneficiaries in these locations were also undertaken to get a sense of user feedback and an understanding of service level impacts on the ground. Exhibit 1 provides a list of projects for which field visits were made. Sl. Sector No. Line of Credit Exhibit 1: Field visit plan No. of subprojects ULBs visited 1 UGSS 7 Pallavaram, Tiruvanamalai, Perambalur, Dharmapuri, Ooty, Dindigul and Theni 2 Water Supply 2 Pollachi, Bodinayakanur 3 Roads 1 Kumbakonam 4 SWM 2 Madurai and Tiruppur 5 Bus Stands 1 Hosur 6 River Improvement 1 Salem* CMDA component 7 FOBs & Roads 3 MEPZ, Chrompet locations & MKT Road Total 17 Questionnaire survey on ULBs implementing water and UGSS sub-projects. Since78% of the funding under Urban Investment Component (UIC) was towards sewerage and water supply subprojects, a questionnaire survey was administered with respective ULBs to confirm baseline information on project status, service delivery and financial performance. Refer Annexure I for a copy of the questions on which information was elicited from ULBs. Review of earlier service assessments: The Beneficiary survey also reviewed and incorporated findings from Mid-Term Service delivery impact assessment report prepared at the interim stage of TNUDP-III which captured on-the-field impact of 73 completed projects in water supply, roads, bus stands, UGSS and Solid waste management. Findings and observations Positive service delivery and field level impacts 1. Water Supply: The sub-projects in water supply reflected significant improvements in service delivery on a range of indicators including coverage, per capita supply and frequency of water supply. Findings from the questionnaire survey revealed that the frequency of the water supply improved across the participating ULBs from once in 4-5 days prior to implementation to daily or once in two days post implementation. Participating ULBs reported increase in average per capita supply from 63 LPCD pre-project to 115 LPCD post project. 2. Sewerage: In Ooty and Pallavaram where sewerage projects were completed more than a year back, house service connection targets have been exceeded. 5 of the 7 sewerage projects visited were completed in the last six months and hence it is a little early to comment on service delivery impact. In these five projects, construction had been completed and provision of house service connections had commenced. As reported by ULBs in our questionnaire survey, over 65% of physical connections (required to provide the eventual house service connections) were completed in 25 sub-projects implemented under TNUDP-III. 3. Roads: Road improvement works, under the CMDA component covered a range of service improvements including road widening, road geometry improvements, retaining walls, provision of signages and avenue plantation. Baseline surveys undertaken on completion in the roads implemented under the CMDA component reflect an average increase in speed of 33% and reduction in travel time of 16 %. 34

47 4. Bus-stands and Foot-over bridges: Bus stand sub-projects have considerably improved the quality of services in the bus stand premises for passengers. For instance in Hosur, the bus stand was modernized to tackle the situation of congestion, to ease the movement of buses and provide improved parking facility. The bus services increased to 2468 and revenue generation from the bus stand went up five-fold. The five modern Foot-over-bridges (FoBs) constructed under the CMDA component resulted in safe pedestrian movement, multimodal integration and free flow of traffic. FoBs were equipped with escalators and solar powered lighting with 100% power backup to facilitate uninterrupted service. 5. Solid Waste Management: Procurement of vehicles for solid waste management under the investment component enabled improved collection efficiency and coverage. Collection efficiency in the participating ULBs has increased to over 90%. 6. Perceptions relating to service delivery: The Mid-term survey captured the positive response from the public on the improved service levels. A number of towns including Kuruchi, Kuniamuthur, Vadavalli and Koundampalayam have also witnessed significant land price appreciation post implementation of water supply sub-projects. Financial performance in water and sewerage sub-projects 1. Cost Recovery: ULBs participating in water supply projects reported an average O&M cost recovery of 120% as of March In case of UGSS projects, since many projects have only recently been commissioned, the expected O&M cost recovery, computed on the basis of user charges adopted by respective councils is 150%, thus reflecting sustainable financing for O&M. 2. Collection efficiency in ULBs with water supply projects: High collection efficiencies were reported in the ULBs with water supply projects. Collection efficiency of 100% was observed in Pollachi and Bodinayakanur which were visited by the review team. The collection efficiency for UGSS projects has been moderate in the ULBs visited (with a reported average of 22% in the 7 ULBs visited). However, ULB officials expressed confidence that this would improve significantly as all house service connections are completed. Good operating practices 1. Effective Complaint redress system: Telephonic complaint system is in place in Pallavaram to record and resolve the complaints regarding the UGSS facility constructed. During our field visit, we observed that over 150 complaints had been recorded and resolved in previous three months. 2. IT enabled systems for effective monitoring and control: Pollachi Municipality had initiated a real time tracking of water levels and energy efficiency through mobile enabled systems which significantly reduces water and energy losses in commercial centres. 3. Avenue Plantation in roads under CMDA component: In the MKT road, avenue plantations at the edges in the non-built-up sections was done to prevent future encroachments and as Right of Way delineation while improving greenery around the road. These plantations have also been entrusted to the Forest Department for maintenance and upkeep. As per Highways department officials, this has helped improve the survival rate of the tree saplings to 80%. 4. Stakeholder consultations for land acquisition: For the widening and strengthening of MKT Road under CMDA component, over 11,045 sq.m of land was acquired without litigation issues. Land acquisition was done transparently through a negotiation process that was done by constitution of a Negotiation Committee comprising local stakeholders and the compensation was decided through open negotiations. Local stakeholders met during the field visit expressed satisfaction and positive views on the project. 35

48 Challenges faced findings from field 1. Factors underlying delays in implementation: Change in location of STP and pumping stations due to land acquisition and objections from public (including litigation) were observed in Pallavaram, Dindigul, and Dharmapuri. Unanticipated presence of rocky terrain in Tiruvannamalai and Dindigul also resulted in delays and cost escalation. In a few of the towns, work was awarded only after 4th or 5th call due to reasons like No Response or Single Tender etc. In Pollachi for instance, construction work of water supply system was awarded in the 5 th call. 2. Need to strengthen operating processes and handover: It is critical to strengthen documentation at ULBs. While few of them were indeed able to produce documentation on all the project related information (For e.g., DPR, Loan agreement etc.), some of them cited that these are available with TNUIFSL or implementation agencies etc. It would be useful to standardise and ensure that ULBs have all required documentation relating to the project. Similarly, there appears to be a need to strengthen the process of formal handover of project post completion. In Pollachi for instance, the Bank came across fairly good documentation processes and ULB officials also confirmed formal process of handover of project. Greater rigor on these aspects coupled with upfront training and creation of standardised processes for the same could help strengthen operating sustainability further. 3. Additional projects to address mid-course bottlenecks and unanticipated growth: Rapid growth of population led to pumping bottlenecks and need for re-sizing of mains in Pallavaram and Perambalur. This is being addressed with a new tender of INR9.5 crore by Perambalur municipality under IUDM and a proposal by Pallavaram municipality to add 41km of additional network to connect the additional growth in population beyond what was anticipated at DPR stage. 4. Greater rigor in project preparation: While there has been a great deal of focus in ensuring project preparation rigor, this is an area that will continue to require greater focus. For instance, early stage sewerage projects underestimated the challenge of land acquisition, and project siting and this was overcome in later projects. Greater attention is required to recognise externalities during project preparation as seen in the Salem river improvement project, where disposal and handling of solid waste along the improved river bank remains an area of concern. 36

49 Annexure I: Questionnaire format UGSS Questionnaire 1 Connections a b c d e f Connections prior to TNUDP-III, if any Targets under TNUDP III project No. of connections No. of urban poor connections Actual connections under TNUDP III project (Achieved till 31 Dec 2013) No. of connections for which deposit collected No. of connections provided No. of Urban Poor connections provided 2 Connection Deposit Collected till 31 Dec Rs. 3 Coverage a b c Estimated Population served Estimated Urban Poor served Estimated number of assessed properties connected 4 Council resolution for Connection deposit and User charge passed (Yes/No) 5 Connection Deposit per connection proposed/charged (if different slab rates, specify all) a b Residential Commercial 6 User charges proposed / charged (if different slab rates specify all) a b Residential Commercial 7 Cost recovery a Estimated Annual O&M Cost b User charge Demand for (As per latest DCB till Dec 2013) c Cost recovery % (b / a) 8 Collection efficiency for (As per latest DCB till Dec 2013) 9 If project under implementation, expected date of completion (Month / year) 37

50 Water Supply 1 Connections a Before project Targets under TNUDP-III project b No. of connections c No. of Urban poor connections Actual provided under TNUDP-III project till 31 Dec 13 d No. of connections provided e No. of Urban Poor connections provided 2 Connection deposits a Target for the Project in Rs. b Collected 3 Coverage (Specify both final Targets / achieved till 31 Dec 13) a Estimated Population served b Estimated Urban Poor served 4 Council resolution for Connection deposit and User charge (Yes/No) 5 Connection Deposit (if differential slab rates, specify all) a Residential b Commercial 6 User charges (if differential slab rates, specify all) a Residential b Commercial 7 Cost recovery a Estimated Annual O&M Cost of Water supply system b User charge Demand for (As per latest DCB) 8 Collection efficiency for (As per latest DCB) 9 Service Levels (for ongoing projects specify target service levels) a Duration of supply (hours per day) b Per capita supply (LPCD) 10 If project under implementation, expected date of completion (Month / year) 38

51 Annex 6. Stakeholder Workshop Report and Results N/A 39

52 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR Evaluation Report on the Implementation of the Third Tamil Nadu Urban Development Project (TNUDP III) July 2014 Municipal Administration and Water Supply Department Government of Tamil Nadu, Secretariat, Chennai

53 Evaluation Report TNUDP III Table of Index 1. Introduction Project Objectives 1.2. Project Performance Indicators 1.3. Project Components 1.4. Financing Plan 1.5. Covenants applicable to project implementation 1.6. Project implementation period 2. Achievement of Project Development Objectives Achievement and Outcomes of TNUDP III 2.2. Fulfilment of Covenants applicable to project implementation 3. Project outputs and deliverables Project Cost 3.2. Institutional Development Component 3.3. Urban Investment Component: ULB s Projects 3.4. Urban Investment Component: CMDA sub-component 3.5. Project Development Advisory Facility 3.6. Economic Analysis 4.Utilization of Bank Funding Summary of utilization of Bank funding under TNUDP-III 5.Financial Sustainability and Innovations Financial Sustainability of TNUDF 5.2. Non-traditional financing and Financial Innovations 5.3. Other Innovations and sustainability 6.Support from Bank Mid-course restructuring and Project extension 6.2. Monitoring 7.Challenges during implementation Strategic factors 7.2. Institutional factors 7.3. Operational factors 7.4. Restructuring of TNUDP III 8.Transition arrangements to sustain achievements post closure 61 9.Key Observations 62 Annexure I : Performance vis-à-vis PDO and Results Framework of TNUDP-III 63 Annexure II: Other Indicators under TNUDP-III 64 41

54 List of Tables TABLE 1: TOTAL PROJECT COST AND COMPONENT WISE ALLOCATION AS PER PAD TABLE 2: FINANCING PLAN TABLE 3: ACHIEVEMENTS AND OUTCOMES OF TNUDP III TABLE 4:COVENANTS APPLICABLE TO PROJECT IMPLEMENTATION TABLE 5: TOTAL PROJECT COST AS ENVISAGED VS. ACTUAL COST ON COMPLETION OF TNUDP III. 49 TABLE 6: PERFORMANCE OF IDC TABLE 7: PROJECTS UNDER UIC (ULB S PROJECT) TABLE 8: TNUDP III DISTRIBUTION OF SUB-PROJECTS TABLE 9: COST OF INITIATIVES OF CMDA SUB-COMPONENT TABLE 10: SUMMARY OF PDAF UTILISATION AS OF 31 MARCH TABLE 11: ECONOMIC ANALYSIS TABLE 12: SUMMARY OF UTILISATION BANK FINANCING AS OF JUNE TABLE 13: CLAIMS FILED DURING JULY TABLE 14: RESOURCE MOBILISATION FROM NON-TRADITIONAL FINANCING AS OF MARCH TABLE 15: REVIEW MISSIONS BY WORLD BANK TABLE 16: FUNDS ON RESTRUCTURING OF TNUDP III

55 ABBREVIATIONS CCP-BP CCTP CDPs CMA CMDA CMP DBOT DPRs ERR ESCO GO GIS GoTN IDC ISWM JICA KfW LPCD MFI MLD MUD O&M PAD PDAF PDO PIU PMU PPF PPP SLB STP TA TNIUS TNPCB TNSUDP TNUDF TNUDP TNUIFSL UGSS UIC ULB WB YASHADA City Corporate cum Business Plans Chennai City Traffic Police City Development Plans Commissioner of Municipal Administration Chennai Metropolitan Development Authority City Mobility Plans Design Build Operate and Transfer Detailed Project Report Economic Rate of Return Energy Service Company Government Order Geo Information System Government of Tamil Nadu Institutional Development Component Integrated Solid Waste Management Japan International Cooperation Agency KreditanstaltfürWiederaufbau Litres per Capita per Day Master Financing Indenture Millions of Liters Per Day Ministry of Urban Development, Operations and Maintenance Project Appraisal Document Project Development Advisory Facility Project Development Objectives Project Implementation Unit Project Monitoring Unit Project Preparatory Fund Public Private Partnership Service Level Benchmark Sewage Treatment Plant Technical Assistance Tamil Nadu Institute of Urban Studies Tamil Nadu Pollution Control Board Tamil Nadu Sustainable Urban Development Program Tamil Nadu Urban Development Fund Tamil Nadu Urban Development Project Tamil Nadu Urban Infrastructure Financial Services Ltd Under Ground Sewerage Scheme Urban Investment Component Urban Local Body World Bank Yashwantrao Chavan Academy of Development Administration 43

56 1. Introduction The Third Tamil Nadu Urban Development Project (TNUDP-III) is a repeater project to the Second Tamil Nadu Urban Development Project (TNUDP-II) implemented by Department of Municipal Administration and Water Supply of Government of Tamil Nadu (GoTN) with financial assistance from World Bank (WB) Project Objectives The objective of the project is to improve the delivery of urban services in Tamil Nadu through enhancing the quality of urban infrastructure and strengthening the institutional and financial framework. The repeater project has built on and consolidated the achievements of TNUDP II, continuing to improve urban infrastructure services in Tamil Nadu in a sustainable manner. The two main objectives are: to strengthen and deepen the empowerment of ULBs by continuing the decentralization process through delegation of powers from state level bodies to ULBs; and through continuing and expanding the capacity building programs started under TNUDP II. to mobilize resources on a sustainable basis for urban infrastructure investments through o Mobilizing private financing for ULB infrastructure investments by linking ULBs to the financial markets through the intermediation of the Tamil Nadu Urban Development Fund (TNUDF). o Providing incentives for investments in low income neighbourhoods through the use of supporting capital grants Project Performance Indicators The project performance indicators are Enhanced financial soundness of ULBs, as indicated by improvement in own source revenues of participating ULBs and better debt management. Improved urban governance and accountability in ULBs, through reforms undertaken such as accounting and financial management reforms and e-governance. Improved cost recovery with regard to urban services and improvements in urban services delivery coverage. Reduction in travel time on key transport project corridors, and reduction in fatal accidents in Chennai. Improved long- term sustainability of TNUDF through market orientation, diversification of its resource base and products and implementation of a business and risk management strategy Project Components The Project consists of two complementary components, an Institutional Development Component (IDC) and an Urban Investment Component (UIC). The IDC provides the Technical Assistance (TA) and training needed to build capacity to further the devolution process. The UIC finances the following: part of the ULBs urban infrastructure pipeline through a line of credit to TNUDF and capital grants and a grant for the development of urban roads and related components in the Greater Chennai Metropolitan Area through the Chennai Metropolitan Development Authority (CMDA). The total project cost is US $ 434 mn and the component wise allocation is furnished in Table 1. 44

57 Sl. No. Table 1: Total Project Cost and component wise allocation as per PAD Components US $ mn Total Cost % of Total World Bank Financing US $ mn % of Total A Institutional Development Component B Urban Investment Component Total Front End Fee Total Project Cost The IDC is implemented by CMA and the UIC is implemented by TNUIFSL & CMDA Financing Plan The Financing Plan envisaged for the total project cost of US $ 434 million is furnished in Table 2. Table 2: Financing Plan Source Local Foreign Total US $ mn. Borrower (Government of Tamil Nadu) International Bank for Reconstruction and Development Other Banks and Capital Markets Sub-project Beneficiaries Total Covenants applicable to project implementation The following covenants are applicable to project implementation: Government Order enhancing delegation of powers for clearance of infrastructure projects will be in place by December 31, 2005; TNUDF to complete Business and Risk management strategy by December 31, 2005; TNUDF to raise at least US$40 million in co-financing by September 30, Project implementation period The Loan and Project Agreements for TNUDP III were executed on 14 th September The project commenced in October 2005 and was scheduled to be closed in March However, the project was restructured during 2009 by internal reallocation of funds among the sub-components under Urban Investment Component and extended up to March Further, considering the completion of subprojects under implementation and to achieve the PDO, the project has got extension up to March Achievement of Project Development Objectives TNUDP-III has substantially achieved and surpassed its Project Development Objectives (PDO). As per its Project Appraisal Document (PAD), the objective of TNUDP-III was to improve delivery of urban services through enhancing quality of urban infrastructure and strengthening institutional and financial framework. 45

58 2.1. Achievement and Outcomes of TNUDP III The outcomes with respect to the objectives are summarised in Table 3. Table 3: Achievements and Outcomes of TNUDP III PDO Improve the delivery of urban services in Tamil Nadu through enhancing the quality of urban infrastructure and strengthening the institutional and financial framework. Achievements and Outcomes 82% of ULBs supported under UIC (with project cost > INR10 mn) have improved service delivery across water supply, sewerage, solid waste management, river improvement, bus terminals and up-gradation of roads. Overall as on date, TNUDP-III has benefited 4 million residents in ULBs in Tamil Nadu through improved urban services. This includes improved access of water supply to 1,974,510 persons and sewerage services to 417,557 persons as on date. Improved access of water services to slum dwellers and sewerage services to 58054to slum dwellers as on date. Under ULB investment sub-component, 1500 km of city roads were upgraded across 24 ULBs that benefited city residents. Service level improvements (average increase in speeds of 33%,) on km of roads upgraded in Chennai urban transport sub-component. Traffic enforcement and management system introduced under Chennai urban transport sub-component resulted in substantial improvement in detecting, documenting and enforcement in cases of traffic violations, thereby reducing the fatal accidents in Chennai area from 1367 in 2012 to 1215 in 2013 a. Strengthening and deepening empowerment of ULBs by continuing the decentralization process through delegation of powers from state level bodies to ULBs; and through continuing and expanding the capacity building programs started Comprehensive Traffic and Transportation Study for Chennai carried out resulted in identification of a shelf of projects worth INR821,200 mn. with strategies for implementation. Five Modern Foot-over-Bridges constructed under Chennai urban transport sub-component have resulted in safe pedestrian cross over / multimodal integration / free flow of traffic. The Government have delegated the Administrative Sanction powers up to INR4 mn. to the Council, up to INR5 mn. to Regional Director of Municipal Administration and up to INR50 mn. to CMA Devolution Income to ULBs more than doubled from INR8,880 mn in to INR21,320 mn in

59 PDO Achievements and Outcomes under TNUDP II. Sub-projects under UIC were undertaken directly by ULBs, who were also empowered with monitoring and O&M. There have been significant efforts to re-configure and upgrade ULBs in the State for efficient administration and better service delivery. As against 6 Corporations, 102 Municipalities and 611 Town Panchayats, there are now 12 Corporations, 124 Municipalities and 528 Town Panchayats. Over 93 training programmes conducted under IDC equipped more than 27,281 persons on a wide range of technical and managerial skills. New municipal e-governance systems (standardised websites and e-governance applications) have been made operational in 50 newly created ULBs under TNUDP-III. Setting up of the Debt Monitoring Cell facilitated streaming of information compilation and analysis on debt levels and finances at ULB and State level. Studies undertaken under PPF contributed to development of projects over INR48,000 mn. b. Mobilizing resources on a sustainable basis for urban infrastructure investments through private financing for ULB infrastructure investments by linking ULBs to financial markets through intermediation of the TNUDF and providing incentives for investments in low-income neighbourhoods through capital grants Participating ULBs implementing water, sewerage and bus terminal sub-projects have adopted new / revised user charges for 100% O&M cost recovery through formal ULB council resolutions. TNUDF achieved collection efficiency of 100% loan repayment by ULBs during the entire period of TNUDP-III, i.e to ULBs have been linked to capital market by mobilizing bonds of INR mn under pooled finance framework. The target of INR1840 mn(us$40 mn) for resource mobilisation from non-traditional sources has been exceeded. INR mn of funds have been raised in the form of bonds, beneficiary contribution and private investment in PPP projects. PDAF contributed to create pipeline of sub-projects for continued upgradation of services in the ULBs. Studies undertaken under PDAF have resulted in development of subprojects estimated over INR mn. 47

60 The summary of performance on Outcome Indicators and Intermediate Result indicators identified for TNUDP-III are furnished in Annexure Fulfilment of Covenants applicable to project implementation The covenants applicable to project implementation have been fulfilled and the details are furnished in Table 4 below. Table 4: Covenants applicable to project implementation Covenants Government Order enhancing delegation of powers for clearance of infrastructure projects will be in place by December 31, 2005 TNUDF to complete Business and Risk management strategy by December 31, 2005 TNUDF to raise at least US$40 million in co-financing by September 30, The time limit has been extended up to March 31, 2012 Status The Government in its order dated 24 th June 2005, delegated powers to State Level Project Sanctioning Committee to clear the proposals costing over INR10 mn. to be taken up under TNUDP III and to Sub-Committee to clear the proposals up to INR10 mn. Business and Risk management strategy has been completed in September 2006 and successfully implemented The bonds have been mobilized in April 2008 and September The target of INR1840 mn(us$40 mn) for resource mobilisation from non-traditional sources has been exceeded. INR mn of funds have been raised in the form of bonds, beneficiary contribution and private investment in PPP projects. 48

61 3. Project outputs and deliverables 3.1. Project Cost The total Project Cost is US$434 mn and the World Bank financing for the project is US$300 mn. The details are presented in the Table 5. Sl.No. A B Table 5: Total Project Cost as envisaged vs. Actual Cost on completion of TNUDP III Components Institutional Development Component Urban Investment Component ULB s projects CMDA s Projects CMDA s PMC & IOC Project Development Advisory Fund Allocation as per PAD US$ mn Total Cost On restructuring of TNUDP III US$ mn INR In mn (@INR46/ $) Amount committed* Project Expenditure Works completed Expenditure up to March up to March and 2014 payments made subsequently INR In mn Total Total B Total Front End Fee Total Project Cost *Actual cost of completed sub-projects / consultancy and estimated cost of completion of on-going sub-projects and consultancy 3.2. Institutional Development Component The Intuitional Development Component (IDC) was aimed at providing support for management improvements and institutional changes including Capacity Building of Municipal Staff through continued training programs, Information & Communication Technology, Debt Monitoring Cell, technical assistance for project preparation and project management. The office of Commissioner of Municipal Administration (CMA) was the implementing agency for the IDC. The performance of IDC is furnished in Table below. 49

62 Sl. No. Components Table 6: Performance of IDC Initial Allocation US$ in mn Total Project Cost On restructuring of TNUDP III US$ in mn INR in mn INR 46 / $) Amount committed* Project Expenditure Expenditure up to March 2014 Works completed up to March payments made subsequently INR In mn INR in mn INR in mn A1 Capacity building of Municipal Staff A2 Information and Communication Technology A3 ULB Debt Monitoring Cell A4 Project Preparation Facility A5 Project Management, Incr. Op. Costs Total *Actual cost of completed assignments and estimated cost of completion of on-going assignments The initiatives and outcomes under the IDC are summarised below: Capacity Building: Under the Training sub-component, 76% of the training target and 65% of the outlay has been achieved as of March About 27,281 persons have been trained under this component during the course of TNUDP-III and positive trainee feedback was obtained in several programs. Various exposure visits / study tours were organised at National and International level to learn the best practices on Urban Management. A total of 254 municipal officials were sponsored for Advanced Post Graduate Diploma in Urban Management, Post Graduate Diploma in Urban Financial Accounting & Management, Post Graduate Diploma in Solid Waste Management courses to YASHADA, Pune and TNIUS, Coimbatore. A range of initiatives (including support to ULBs to finalise and complete audit of accounts, analysis of fund flows to ULBs, preparation of Municipal Budget Manual, updation of Municipal Accounting Manual, updation of Audit Manual of Local Fund Audit Department and updation of Municipal Engineering Manual and in-principle approval for creation of Municipal Accounts cadre) have contributed to improving the accounting and financial management of ULBs in the State. A study on rationalization of process for grant and renewal of trade licenses has been made to improve the non-tax own revenue in ULBs. Information &Communication Technology: TNUDP-III facilitated scale up of websites and e- governance modules to an additional 50 upgraded ULBs. IT systems like e-office system and web portal development will improve the productivity and processes of CMA office, systems like project management, business intelligence and single window web portal, provision of TNSWAN connectivity for 57 locations will facilitate for easy access to the applications installed in State Data Centre, procurement of hardware & software will streamline the CMA- ULB interface and 50

63 applications like water supply monitoring, dengue surveillance system and GIS will improve the citizen centric services. Debt Monitoring Cell: The setting up of the Debt Monitoring Cell facilitated streamlining of information compilation and analysis on debt levels and finances at ULB level and to consolidate the same within CMA. Project Preparation Facility: Studies undertaken under PPF have contributed to development of over 75 projects worth INR48000 mn, several of which are being taken up for implementation. Around 57% of the funds available under the PPF has been utilized till date Urban Investment Component: ULB s Projects The UIC aimed at developing sustainable urban investments such as water supply, sewerage, roads &storm water drains, solid waste management, bus terminals based on demand driven investment plans developed by ULBs. The initial allocation of US $ mn has been scaled up to US $ mn while re-structuring the project during Under this sub-component, 110 sub-projects worth INR mn are being implemented by the ULBs. 9 corporations (including Chennai), 48 Municipalities and 17 Town Panchayats with total population of 24 million have projects under the line of credit component. Out of the 110 sub-projects 6 are in Chennai Corporation, 32 in other corporations, 71 in Municipalities and 1 in Town Panchayats. The distribution of sub-projects across various categories of ULBs in terms of no. of project and project cost is detailed. Sl no Table 7: Projects under UIC (ULB s project) Sector Approved Project Nos. Project Expenditure up to Cost March 2014 (INRin (INR in mn) mn.) Table 8: TNUDP III Distribution of sub-projects Type of ULB No. of ULBs No. of subprojects Works completed up to March and payments made subsequently (INR in mn) Water Supply Underground Sewerage Roads& Storm Water Drain SWM Bus Terminals River improvement TOTAL Project Cost (INR in mn.) 1 Chennai Corporation Corporation Special Selection Grade I Grade II TP

64 The procedure followed by TNUDF for the appraisal of the projects is as given below: The borrowers are first required to submit a prescribed application along with DPR and the audited financial statements for the previous five financial years. On the basis of the application and further details furnished by the applicant borrower, a quick initial screening would be done with regard to eligibility, repayment capacity, financial viability, approvals obtained and further details required for detailed appraisal. After initial screening, a detailed appraisal containing technical, economic, financial, organisational, legal, social and environmental evaluation would be completed. Based on the appraisal report, the proposed loan will be sanctioned. The conditions of sanction would specify required covenants, procurement conditions, while disbursement conditions would be linked to implementation schedules. On accepting the loan sanction conditions, loan agreement will be executed. Of the above 110 sub-projects, as on date 106 sub-projects have been commissioned and started delivery of (improved) urban services and the value of works completed is INR mn. The balance works will be completed in the financial year by utilizing the counterpart funding provided by GoTN under TNUDP III. Four of the on-going sub-projects costing INR mn. will be posed under the proposed (follow-on) TNSUDP for retroactive financing. The initiatives and outcomes of this sub-component are summarised below: Access to improved water supply: Sub-projects taken up under TNUDP-III in 20 ULBs have as on date provided improved water supply services to approx. 1,974,510 persons. Water supply projects have increased the per capita supply in participating ULBs from 63 litres per capita per day (LPCD) to 115 LPCD along with increase in frequency of water supply to daily in most instances from an average of once in 4 to 5 days. Access to sewerage: Major thrust has been given under TNUDP-III for sewerage. 25 ULBs have been provided with under-ground sewerage systems (23 are green field) at a cost of INR12177 mn. (about 50% of the total project size). This has resulted in improved hygiene and environment. Sewage treatment plants with a total capacity of 271 MLD have been created as on date with various advanced technologies under this programmatic plan. The sewerage schemes that have been commissioned have constructed 298,688 sewerage connections for households as on date. Service access to slum households / urban poor: As on date, TNUDP-III has provided improved water services to to slum dwellers and sewerage service to to slum dwellers. Other sub-sectors: TNUDP-III has contributed to asset creation and improved service delivery in number of other sectors including the following: (i) improvement of about 1500 km of roads in 24 ULBs increased the speeds and reduced the travel time, (ii)procurement of waste transportation equipment in 32 ULBs,increased the waste transportation capacity by about 380 tonnes/day, thus facilitating improvement in solid waste collection efficiency to 100%, (iii) construction of bus terminals in 7 ULBs added 208 bus bays handling an estimated 4140 buses per day (serving an estimated population of over 565,000), and (iv) a river improvement scheme in Salem, which included improvements to Thirumanimuthar River for a stretch of 2800m, regularizing the cross section of the Vellakuttai Oodai and construction of 3 Bridges near old bus stand, gunpoint and oxford school, significantly contributed to improved urban environment. 52

65 3.4. Urban Investment Component: CMDA sub-component This sub-component aims to support grants for urban road infrastructure and traffic management programs in the Greater Chennai Metropolitan Area which includes surrounding peri-urban areas. The investments include road widening, bridges, traffic studies &traffic management and road safety subcomponents. The sub-component comprised activities and investments under (a) Roads subcomponent, implemented through Highways Department, GoTN (b) Traffic management & enforcement sub-component, implemented through Chennai City Traffic Police (CCTP) and (c) Comprehensive Traffic and Transportation Study for Chennai undertaken through CMDA. The CMDA sub-component was restructured and scaled down to US $ 41 mn from US $ 150 mn during restructuring of TNUDP III. Further, the bank financing was reduced by US $0.64 million due to the mis-procurement under CCTP sub-component. The cost of the initiatives taken under CMDA sub-component is INR mn as furnished in Table below. Sector Table 9: Cost of initiatives of CMDA sub-component. Nos. Revised allocation Project Cost (INRin mn). Amount committed (INR in mn) The initiatives and outcomes of this sub-component are summarised below: Expenditure up to March 2014 (INRin mn) Project Expenditure Works completed up to March payment made subsequently (INR in mn) Road Projects executed by Highways FOB implemented by Highways Traffic Management sub-component Studies under CMDA component Equipments for Highways Research Station 0 Rehabilitation & Resettlement and Shifting of Utilities 0 Total PMC, PMU & Incremental Operating cost 1.16 Total Roads and Foot-over bridges:of the 23 road sub-projects initially identified,5road sub-projects covering km were upgraded under this component (the balance sub-projects have been dropped during mid-term review of TNUDP III and subsequently taken up with State funds). A service assessment undertaken on the 5 projects has validated a sharp improvement road quality, average reduction in travel time of 16% and average increase in travel speeds of 33%. In addition, 5 Modern Foot-over-Bridges with escalators, implemented contribute to ease of movement and reduction of road accidents in select arterial roads with high pedestrian density & high vehicular traffic and also facilitated multi modal integration. Traffic Management and enforcement: Traffic enforcement and management equipments were procured for efficient traffic management in Chennai city. An e-challan system introduced for traffic management has resulted in substantial improvement in detecting, documenting and enforcement in cases of traffic violations, thereby reducing the accidents. A Traffic Education 53

66 Centre has also been constructed to create awareness among the school children and impart inhouse training to traffic personnel. Strengthening of Highways Research Station: Lab equipments were purchased to strengthen Highways Research Station. Project Preparation: A Comprehensive Traffic and Transportation Study (CTTS) was undertaken by CMDA under which a shelf of projects worth INR mn. were identified with strategies for implementation. This study has provided the frame work for establishment of Chennai Unified Metropolitan Transport Authority (CUMTA). A few identified projects have already been taken up for implementation with State funds Project Development Advisory Facility The UIC includes provision of Project Development Advisory Facility (PDAF) to provide technical assistance for innovative sub-project preparatory studies and implementation, besides for regular urban infrastructure project, financial structuring, etc. The PDAF handled by TNUIFSL was scaled up from an initial size of US $ 3.00 mn to US $ 9.00 mn (about INR414 mn.) and stands fully committed. As of March 2014, 154 initiatives costing INR mn. have been initiated under PDAF. A sum of INR mn has been disbursed (of which INR mn has been disbursed up to and a sum of INR17.34 mn has been disbursed during April to July 2014 for works completed up to ). Type of Assignment Table 10: Summary of PDAF utilisation Nos. Cost of the assignment (INR in mn) Category wise commitmen t (in %) Expenditure up to (INR in mn) Works completed up to March payment made subsequently (INR in mn) Detailed Project Report % City Plan/ CMP % Feasibility & other studies % PPP & Transaction Advisory % Environmental & Social % Proof checking % Sub-total (I) % EoI TNUDP II assignments Sub-total (II) Grand Total (I)+(II) The initiatives and outcomes of this sub-component are summarised below: ULBs availed assistance under PDAF: Over 185 ULBs(12 Corporations, 112 Municipalities and 61 Town Panchayats) availed the technical assistance under the PDAF indicating that the use of PDAF has been spread across the State for various categories of ULBs. Nature and composition of studies: Nearly 61% of funds committed under PDAF is for preparation of Detailed Project Report (DPRs) and 23% on identification of city level investment and development needs through preparation of City Development Plans (CDPs) /City Corporate cum Business Plans (CCP-BP) and Comprehensive Mobility Plans (CMPs). About 3% was also Total 54

67 spent on preparing PPP projects & Transaction Advisory and 3% on Environment &Social assessments and audits. DPRs: 46 assignments have been undertaken to prepare Detailed Project Reports for specific infrastructure projects which includes storm water drains for large corporations, integrated solid waste management facility on cluster basis, road-over-bridges, grade separators, water supply, underground sewerage systems, etc. The total value of sub-projects for which DPR prepared is about INR mn. City level plans: City level Plans were prepared for over 133 ULBs under which over INR mn. of investment needs have been identified in a consultative manner. Fructification: Of the 185 ULBs for which technical assistance have been provided under PDAF (154 assignments, of which few assignments on cluster basis), 103 ULBs executed the subprojects translating to an implementation rate of 56%. Other initiatives: A key feature of the PDAF is its focus on innovative project development initiatives. Some of these include i) Eco-restoration plan for Adyar Eco Park, ii) Urban redevelopment plan for Central Business District - Theyagaraya Nagar in Chennai, iii) Setting up Common Service centres for providing e-governance services to citizens on PPP, iv) ESCO models for Energy Efficiency in street lighting and water pumping, v) transaction advisory for construction of Multi-level car parking in front of Panagal Park in Theyagaraya Nagar, Chennai under PPP and vi) Infrastructure development plan for Marina Beachfront in Chennai Economic Analysis The Economic analysis has been done to compute Economic Rate of Return and Net Present Value (@ 12% discounting rate) individually for 63 sub-projects costing greater than US$500,000 and covering 98% of the approved project cost under the Investment component. The ERR for TNUDP-III was computed based on evaluation of cost-benefit streams of sub-projects implemented under the UIC and was found to be higher than the threshold value of 12%. Water supply projects exhibited the highest ERR followed by Bus terminals. ERR for underground sewerage projects were slightly dampened by longer time frames for completion. Cities with multiple projects secured higher ERRs because of compounded benefits achieved. Table 11: Economic Analysis Line of Credit sub-component Sectors No. of Cities Value of Projects INR in mn. Economic Rate of Return (ERR) Low High Weighted Average Water supply % 37% 24% UGSS % 37% 16% Roads % 35% 15% Bus Terminals % 40% 21% Cities with multiple % 35% 28% Projects Line of Credit component - Weighted Average ERR = 19% Road projects under CMDA Sub-component Roads under CMDA component % 18% 18% CMDA component - Weighted Average ERR = 18% Overall ERR for TNUDP-III = 19% 55

68 4. Utilization of Bank Funding 4.1. Summary of utilization of Bank funding under TNUDP-III As of 30 th June, 2014, World Bank funding of US $ million has been reimbursed as against the total allocation of US $300 million. Sl. No. Table 12: Summary of Utilisation Bank financing as ofjune 2014 Components Allotted World Bank Financing Claims filed Utilization Claims reimbursed by Bank Utilized US $ mn INR in mn US $ mn (%) A Institutional Development Component % B Urban Investment Component Loan to ULBs % Capital Grants to ULBs % Grants to CMDA* % PDAF % C Front End Fee % Total % *against the allotment of US $ 37.0 mn., allotment of 0.64 mn has been cancelled due to misprocurement. Further about US $ 3.52 mn has been claimed during July 2014 for the works completed by under TNUDP III as detailed below: Sl. No. Table 13: Claims filed during July 2014 Expenditure claimed during July 2014 Components INR in US $ mn mn (@ INR.60 / $) A Institutional Development Component B Urban Investment Component Loan to ULBs Capital Grants to ULBs Grants to CMDA PDAF Total In total, the utilization of Bank financing will be about US $ mn (about 97% of bank funding) on completion of TNUDP III. 56

69 5. Financial Sustainability and Innovations 5.1. Financial Sustainability of TNUDF One of the aims of TNUDP-III is to ensure sustainability of TNUDF. The project has achieved its outcome indicators on financial sustainability as reflected below: TNUDF reported an efficiency of 100% (as against the target of 95 %) in respect of collection of debt service dues from ULBs during the entire project period and has exceeded performance standards envisaged. There are no non-performing assets as on The financial sustainability of TNUDF has been established through out the period of TNUDP III. The Fund has paid interest at an average rate of about 7.35% to Unit holders during the financial years from to Further, the Fund ended up with Surplus consistently for all the financial years, since its inception in TNUDF accessed Euro 157 mn (investment component of Euro 145 mn) from KfW and JPY bn (investment component of JPY bn) from JICA. The Loans Assets of TNUDF has been increased more than six times in the last eight financial years ie. INR mn. as on is increased to INR mn. as on Non-traditional financing and Financial Innovations An amount of INR mn has been raised through non-traditional means of financing such as beneficiary contribution, bond mobilization and PPP which surpassed the envisaged amount of INR1840 mn. Table 14: Resource Mobilisation from non-traditional financing as of March 2014 Sl. No. Type of Finance Estimated amount (INR in mn) Actual up to March Bond mobilization Beneficiary Contribution PPP Total (INR in mn) All water supply and sewerage projects financed under TNUDP-III were structured to ensure financial sustainability with about 28% of the project cost financed by beneficiary contribution. Nearly a third of the user financing targeted through beneficiary contributions from water and sewerage projects has already been garnered. Bonds were raised under the Water and Sanitation Pooled Fund (WSPF), constituted by GoTN as a fully owned trust in 2002 under the Indian Trusts Act, 1882 and managed by Tamil Nadu Urban Infrastructure Financial Services Limited (TNUIFSL). The funds were mostly utilized towards refinancing the borrowings of seven ULBs. Amounts of INR67mn.and INR832 mn. were raised in 2008 and 2010 respectively. In Tuticorin, the STP of treatment capacity 25 MLD was awarded in the PPP DBOT basis to a private contractor for a cost of Rs. 22 crore 5.3. Other Innovations and sustainability One of the major highlights of the programme was the continued focus on themes of innovations and sustainability. A few of the operational achievements / innovative features undertaken by TNUIFSL are summarised below: 57

70 Tapping of non-traditional resources and mobilization of Bonds under Pooled Finance Framework: The covenant of non-traditional financing of US$40 million was successfully achieved through a combination of bond financing and beneficiary contributions. During the course of TNUDP-III, the State has successfully raised support from KfW to scale up its bond program under pooled finance framework. Levy of user charges: All water supply, sewerage and bus terminal projects financed under TNUDP III have been structured with beneficiary contribution to fund the capital cost of the project and user charges to cover full O&M and debt service to achieve financial sustainability. This was done through a series of well designed documentation process including Detailed Project Appraisal followed by Loan Sanction considering the debt bearing capacity of the ULBs, acceptance of terms and conditions of loan sanction through formal council resolutions followed by execution of Loan Agreement. O&M sustainability: In most of the towns where new sewage treatment plant was proposed, DBOT (Design Build Operate and Transfer) contracts were given with five years of operation and maintenance after successful commissioning. On completion, the O&M of the projects is being outsourced on PPP contract basis. The State has developed standard bid documents for outsourcing of O&M. The outsourcing of O&M of sewerage system in one of the sewerage projects (Pallavaram Municipality) assisted under TNUDP III has already been introduced. Sewerage Equipment bank: Stock of equipments for O&M of sewerage projects is being maintained by the CMA which can be used by the several ULBs as and when needed. Mechanisms put in place to sustain collection of 100% debt service: A number of payment security mechanisms including execution of loan agreement incorporating conditions ensuring timely payment of debt service, maintenance of escrow account and creation of debt service reserve fund have been adopted to sustain 100% collection efficiency of debt service. Further issuance of demand notice well in advance and close follow up with the ULBs just before the due date(s) resulted in the record 100% collection of debt service from ULBs. Focus on environment and social sustainability: The State has put in place a comprehensive Environment and Social Assessment Framework for all projects assisted under TNUDP III to identify and implement measures to mitigate and address all Environment and Social impacts. The strong thrust on environmental and social sustainability is reflected in the well-defined safeguards, impact assessments, Environment Management Plans and follow-up audits. Consultative process and Empowerment of ULBs: The sub-projects posed for funding under TNUDP III have been selected based on well defined consultative process. All participating ULBs that implemented water and sewerage projects were involved while appraising the subprojects for funding that resulted in fixation of beneficiary contributions and user charges through council resolutions made easy. The implementation arrangements facilitated greater ownership within participating ULBs, thereby enabling greater empowerment of ULBs, while at the same time leveraging the technical expertise of parastatals. Adoption of the best practices resulted in litigation free land acquisition: Land acquisition for all road stretches developed under the CMDA component was done in a transparent manner with public participation, resulted in litigation free acquisition. The land acquisition was facilitated by creation of an empowered Land Acquisition Cell (formed by the Government through a separate Government Order) that had participation from not only key officials from District Collectorate and implementing departments but also had representation from local villages where land acquisition was done. Institutional changes under CMDA sub-component: The State has established a Project Implementation Unit under the Department of Highways for smooth implementation of road subprojects under CMDA component. The Unit comprises of officials for project implementation as well as officials to handle Land Acquisition, Resettlement and Rehabilitation. 58

71 Foot over bridges were implemented with escalators & solar powered lighting with 100% power backup to facilitate uninterrupted service. Strengthening of Highway Research Station: Highway Research Station has been strengthened by providing mobile testing units for conducting site level test for monitoring and evaluation. Continued thrust on e-governance and accounting/ financial management systems: The actions initiated under the IDC build on the thrust and focus on e-governance and improvements in financial accounting and management systems at the ULB level. These initiatives not only upgraded the existing financial and accounting systems but also facilitate to migrate to a webenabled financial management system in the long run. 6. Support from Bank 6.1. Mid-course restructuring and Project extension Following the mid-term review, GoTN, in consultation with the World Bank, vide its Order dated 16 December 2009, implemented a set of changes by restructuring TNUDP-III. Based on the revised procurement and implementation plans of TNUDP-III, the closing date was extended by one year to March The restructuring of the Project holistically factored the specific constraints and opportunities arising following the mid-term review and was done to ensure that the PDO remained relevant and achievable while strengthening implementation Monitoring The World Bank undertook a series of missions throughout the course of the project to track progress and to suggest mid-course corrections and actions which contributed to successful implementation. Implementation Support Review Missions were undertaken periodically by the Bank, followed by detailed documentation of the status of the projects and guidance / recommendations through Aidmemoire, to facilitate achieving the PDOs. Table 15: Review Missions by World Bank Sl. No. World Bank Mission Dates 1 October 3-7, May 14-18, February 7-8 & March 10-13, December 7-16, July & August 11-12, August 1-9, June 8-15, January 28- February 4, January 28- February 4, 2013(Environmental Safeguards) 10 September 2-6, 2013 During the Review Missions field visits were also carried out by the Bank Mission to review the status of the sub-project implementation and ensure compliances. Critical issues on project implementation were identified and resolved. 59

72 7. Challenges during implementation 7.1. Strategic factors a. The general economic scenario had a significant impact on the programme implementation. The rising interest rates and general economic slowdown resulted in deterioration of the financial position of the vendors/ contractor. This directly translated to time and cost overruns of the projects. b. State-level commitment to urban policy reform is essential for effective implementation of programme. Some of the State level policy factors which have a direct bearing on the implementation are Urban financing, Land acquisition, Environment, Staffing, Decentralization and Institutional structuring Institutional factors Institutional multiplicity and coordination challenges were faced under UIC. In the case of CMDA component, while the PAD envisaged a multi-agency PMU, eventually a separate PIU within the Highways Department was set-up to implement the sub-project under this component Operational factors The operational factors with respect to the implementation of the sub-projects were manifested in the form of cost and time overruns. The escalations were due to a combination of factors right from the planning stage to the commissioning of the sub-projects. A list of few factors is furnished below: i. Changes in sub-project configuration/scope/specifications ii. Availability and delay in finalization of land iii. Changes in location of STPs/ sewage pumping stations iv. Finalization and change in STP technology v. Higher Tender premiums in bidding vi. Challenges and delays in procurement of contractor for works vii. Delay in obtaining statutory clearances (Pollution Control Board) viii. Delay in obtaining permissions from National and State Highways, National Highways Authority of India, Forest Department and Railways. ix. Delay in establishment of PIU to implement Highways sub-component under CMDA component x. Non-availability of qualified contractors due to implementation of urban infrastructure projects in large scale under various funding schemes xi. Synchronisation of sub-project implementation due to implementation of other infrastructure projects with other funding source in the same project area (road projects under CMDA sub-component). xii. Contractors performance during execution 7.4. Restructuring of TNUDP III Need for restructuring of CMDA sub-component: The Bank s Mid-term Review mission in 2008 identified the need for a scaling down of the CMDA sub-component in view of environment and social compliance for the initial shelf of sub-projects resulting in limiting the sub-component to five road sub-projects. Enhancement of funding to ULBs projects by scaling down to CMDA s projects under UIC: Even though there is no change in the outlay and Bank financing under UIC, the scaling down of the CMDA sub-component resulted in substantial increase in the outlay and Bank financing for the ULB s projects as reflected in the Table below. 60

73 Sl. No. Table 16: Funds on Restructuring of TNUDP III Components Urban Investment Component Allocation as per PAD US $ mn INR In mn (@INR45/US$) On restructuring of TNUDP III US $ in mn INR In mn (@INR46/US$) ULB s projects CMDA s Projects CMDA s PMC & IOC Project Development Advisory Fund Total B The extension of Project timeframe thus became necessary in view of the change in financing among the sub-components under UIC and to absorb this incremental financing, the programme required additional time for completion. All the above factors resulted in extension of Project closure until March 2014 as against the scheduled closure of March Transition arrangements to sustain achievements post closure During the course of TNUDP-III, mechanisms put in place to ensure sustainability of outcomes and impacts achieved under TNUDP-III are listed below: Institutional: TNUIFSL and TNUDF have matured into a relatively robust institutional framework for urban financing and has successfully accessed funding from KfW and JICA, apart from World Bank. The institutional arrangements for project planning & development, implementation, monitoring, supervision and O&M would remain in place for all sub-projects. Technical sustainability: The performance of the assets created under TNUDP-III will be evaluated periodically to ensure the technical sustainability. Regulatory agencies such as TNPCB will have periodical monitoring of the outputs from the sewage treatment plants, apart from the regular checks by the ULBs. TNUDF s financial sustainability: As the fund manager of TNUDF, TNUIFSL will oversee and monitor timely repayments of the loans disbursed under TNUDP-III, to maintain a 100% collection efficiency rate of debt service from ULBs. The loan agreements executed with the ULBs have incorporated conditions for credit enhancing measures including creation of escrow accounts and debt service reserves by ULBs. Debt serviceability of sub-projects financed is evaluated in accordance with lending policy guidelines of TNUDF. Financial Sustainability of Sub-projects: Financial sustainability has been a key focus area of sub-projects implemented under TNUDP-III. All sub-projects in water supply, sewerage and bus terminal projects envisaged levying of user charges to meet 100% O&M cost recovery and debt service. A graded user charges framework (user charges based on built up area of the building) has been practiced for underground sewerage sub-projects considering the equality and has greater acceptance among the general public. A framework for periodical revision of user charges has been put in place. O&M sustainability: After the 5 years of operation and maintenance by the implementing agencies, the projects will be handed over to the ULBs who may outsource the O&M through PPP contracts. Standard bid documents and contracts for O&M of sewerage systems have been developed by the State. Further, the State has initiated an exercise to monitor service levels in all 61

74 ULBs based on the Service Level Benchmark (SLB) norms and guidelines issued by the Ministry of Urban Development, Government of India. GoTN s Budget for completion of balance works under ongoing projects post March 2014: GoTN has committed to provide finance for completion of the balance work under ongoing subprojects post closure of TNUDP III. 9. Key Observations Some of the key observations in the course of implementation are summarised below: Flexibility in Project design to support mid-course corrections: Even though TNUDP-III was significantly larger and incorporated a number of new sub-components in relation to TNUDP-II (including the sewerage program and the CMDA component), it provided for a flexible project design which enabled mid-course corrections. For instance, even though the CMDA subcomponent had to be scaled down, the Project design allowed re-configuration without deviating significantly from PDOs set forth for the Project. Effective Institutional Arrangements: Implementation of the Project involved multiple institutions and agencies and hence called for effective institutional arrangements to ensure seamless coordination. Early stage coordination for the urban infrastructure component was facilitated through state-level committees. In case of the CMDA component the multi-agency PMU was complemented with a separate PIU within the Highways Department for sharper focus on the road sub-projects. An effort to continually review and strengthen institutional arrangements helped tackle operational challenges and expedite implementation. Focus on programmatic impact: The implementation of the sewerage program reflect the challenges as well as opportunities in planning and undertaking investments in a programmatic manner. Rigor in Project Development: While TNUDP-III benefited from the availability of a shelf of sub-projects, inadequate rigor in technical and financial detailing in a few of these DPRs led to delays and increases in project cost. While this was corrected in later stages of the Project, a formal review of process of scoping and preparing DPRs could be beneficial in more effectively institutionalising lessons learnt. Firming up of land: A significant part of the delay in several of the sub-projects was due to difficulties in addressing land availability and earmarking. The difficulties underscore the need for effective integration of land-use and project planning. They also underscore the need for shifting from a case-to-case addressing of land acquisition to policy instrument driven approach to land management (involving effective master plans / land-use regulations and use of instruments such as land pooling). While some of these aspects are under the consideration of GoTN, scaling up these state-wide is critical to ramp-up investments from current levels. Upfront implementation of Institutional Development actions: A review of the IDC reveals back-end implementation of several of the proposed initiatives, with several of the initiatives having been implemented in the latter half of the program. There have been substantial lags vis-àvis targets particularly in the Training component and utilisation of Project Preparation Fund (PPF), suggesting that sustained attention to this component was possibly missing especially in early stage of the Project. 62

75 Annexure I : Performance vis-à-vis PDO and Results Framework of TNUDP-III Project Dev. Outcome Indicators Baseline As of March 2014 Objectives Target 40 (80%) newly created ULBs are fully IT Strengthen empowerment and institutional capacity of 0 (with respect enabled. 102 ULBs covered under TNUDP- 50(100%) newly created ULBs are fully IT ULBs by continuing delegation of powers, capacity to upgraded II are proposed to be upgraded to web based enabled. building programs and specific IT related initiatives. ULBs) system. Improve urban infrastructure services in TN in a sustainable manner. Improved urban service delivery, in terms of coverage and quality Expand resource mobilization for urban infrastructure investments. Number of ULBs completing GIS mapping and implementation of new IT systems Improved financial soundness of participating ULBs through cost recovery, increased own revenues, better debt management 0 80% of participating ULBs (receiving over INR1 crore in investment support) are delivering improved services to beneficiaries km project roads within Chennai metro area have reduced travel time by 50% 0 INR1840 mn INR * mn Intermediate Outcome Indicators 7(mapping) & 50 (IT enabled processes) in newly formed ULBs respectively. Upgrade 0 IT architecture to web-based system across 102 ULBs under TNUDP III 0 70% of water/sewerage sub-projects (that account for bulk of funding under TNUDP -III) achieve cost recovery of O&M. 82% of participating ULBs as on date. This includes: 1. Access to improved water / sewerage access for over 23,86,235persons km of Roads under Chennai urban transport sub-component that have been upgraded and have resulted in average increase in speed by 33% and reduction in accidents. GIS mapping underway in 17 ULBs. Upgraded IT systems / websites in 50 Grade III ULBs. Upgraded IT architecture to web-based system across all ULBs. Finalisation of audits till FY 2012 in 109 ULBs and till FY 2011 in 158 ULBs All participating ULBs with WS/UGSS projects have formally adopted user charges for 100% O&M cost recovery Expand resource mobilization through non-traditional sources 0 INR1840 mn. INR * mn Value of Investments approved under TNUDP-III 0 INR19964 mn ULBs : INR mn Length of Roads upgraded in Chennai Metropolitan Area with improved service levels TNUDF s Financial Sustainability in terms of annual repayment rate of its loan portfolio *-Excluding the PPP project Tuticorin UGSS CMDA: INR mn km Roads: 34.80km FoB: Five locations > 95% Maintain > 95% 100% 63

76 Annexure II: Other Indicators under TNUDP-III INDICATOR Investment Scale-up and Service Delivery Unit Results As of March 2014 Incr. Population benefited through improved urban services as on date Nos. 40,23,007 Incr. Population with access to improved waterservices as on date Nos. 19, 74,510 Incr. Population with access to improved sewerage services as on date Nos. 4,17,557 Incr. Urban Poor with access to improved water and sewerage services as on date Financial Leveraging and Performance Average O&M cost recovery in participating ULBs with water supply projects Nos. 4,81,000 % 120% Growth in TNUDF Loan Assets March 2006 March 2014 % 450% Collection of Debt Service by TNUDF - Average Recovery of Loan repayments by the ULBs during to Financial resources garnered through market and other non-budgetary sources Sewerage / Contractual Innovations Total km of sewerage pipelines laid under commissioned sewerage projects Total no. of sewerage connections constructed for households under commissioned sewerage projects % 100% INR mn Km 1880 Nos. 2,98,688 Total STP capacity added MLD 271 Institutional Development / Empowerment of ULBs Annual Growth in Devolution per capita Income ( to ) CAGR % 23%*** Municipal Officials trained under TNUDP-III Nos Incr. ULBs with e-governance, websites and seamless information to citizens Nos. 50 Value (INR) of projects for which DPR s were prepared under PDAF INRmn Value (INR) of investment needs identified through City level plans prepared under PDAF INRmn Value (INR) of projects for which DPRs were prepared under PPF INRmn Source:*calculated on the Census 2011 percentage of female of the Urban population. ***From Policy notes. 64

77 Not Applicable Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders 65

78 Project Implementation Plan Annex 9. List of Supporting Documents Project Appraisal Document for India: Third Tamil Nadu Urban Development Project (TNUDP-III) dated March 25, 2005 (Report No: IN) Aide Memoires, Back-to-Office Reports, and Implementation Status Reports. Project Progress Reports. Borrower's Evaluation Report dated May 2014 *including electronic files 66

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