ASIAN DEVELOPMENT BANK

Transcription

1 ASIAN DEVELOPMENT BANK PCR: THA PROJECT COMPLETION REPORT ON THE CHONBURI WATER SUPPLY PROJECT (Loan 1326-THA) IN THAILAND March 2002

2 CURRENCY EQUIVALENTS Currency Unit Baht (B) At Appraisal (August 1993) B1.00 = $ $1.00 = B25.02 At Project Completion (30 December 2000) B1.00 = $ $1.00 = B37.55 ABBREVIATIONS AC asbestos cement ADB Asian Development Bank BME benefit monitoring and evaluation BPR Bang Phra Reservoir COS country operational strategy DOH Department of Highways EIRR economic internal rate of return ESB Eastern Seaboard FIRR financial internal rate of return GIS geographical information system ICB international competitive bidding IT information technology LA Loan Agreement LCB local competitive bidding m 3 cubic meter NRW nonrevenue water NWSRB National Water Supply Regulation Board O&M operation and maintenance PWA Provincial Waterworks Authority PMC project monitoring committee PMU project management unit TA technical assistance WTP water treatment plant NOTES (i) (ii) The fiscal year (FY) of the Government is from 1 October to 30 September. In this report, $ refers to US dollars.

3 CONTENTS Page BASIC DATA MAP ii vi I. PROJECT DESCRIPTION 1 II. EVALUATION OF DESIGN AND IMPLEMENTATION 1 A. Relevance of Design and Formulation 1 B. Project Outputs 2 C. Project Costs 3 D. Disbursements 4 E. Project Schedule 4 F. Implementation Arrangements 4 G. Conditions and Covenants 4 H. Related Technical Assistance 6 I. Consultants Recruitment and Procurement 6 J. Performance of Consultants, Contractors, and Suppliers 7 K. Performance of the Borrower and the Executing Agency 7 L. Performance of ADB 8 III. EVALUATION OF PERFORMANCE 8 A. Relevance 8 B. Efficacy in Achievement of Purpose 8 C. Efficiency in Achievement of Outputs and Purpose 9 D. Preliminary Assessment of Sustainability 10 E. Environmental, Sociocultural and Other Impacts 11 IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 11 A. Overall Assessment 11 B. Lessons Learned 12 C. Recommendations (project-related and general) 12 APPENDIXES 1 Comparison of Works Proposed at Appraisal and Actual Works Executed 14 2 Project Costs as Appraised and Actual 20 3 Breakdown of Yearly Disbursements of Funds 21 4 Proposed and Actual Implementation Schedules 22 5 Compliance with Major Loan Covenants 23 6 Technical Assistance Completion Report 26 7 Summary of Contracts Financed by the Asian Development Bank 28 8 Financial Analysis 29 9 Economic Analysis Follow-Up Action Plan 33

4 ii BASIC DATA A. Loan Identification 1. Country Thailand 2. Loan Number 1326-THA 3. Project Title Chonburi Water Supply Project 4. Borrower Provincial Waterworks Authority 5. Executing Agency Provincial Waterworks Authority 6. Amount of Loan $38.5 million 7. PCR Number PCR:THA 683 B. Loan Data 1. Appraisal - Date Started 4 October Date Completed 22 October Loan Negotiations - Date Started 8 September Date Completed 9 September Date of Board Approval 18 October Date of Loan Agreement 1 June Date of Loan Effectiveness - In Loan Agreement 30 August Actual 11 September Number of Extensions 0 6. Closing Date - In Loan Agreement 31 December Actual 31 December Number of Extensions 1 7. Terms of Loan - Interest Rate Currency-specific lending US dollar - Maturity 25 years - Grace Period 5 years

5 iii 8. Disbursements a. Dates Initial Disbursement Final Disbursement Time Interval 15 February April years, 1 month Effective Date Original Closing Date Time Interval 11 September December years, 3 months b. Amount ($ million) Category Original Allocation Last Revised Allocation Amount Cancelled Amount Available Amount Disbursed Undisbursed Balanced 01A Civil Works Part A 01B Civil Works Part B 01C Civil Works Part C 02A Equipment & Materials Part B 02B Equipment & Materials Part C 03 Consulting Services 04 Interest During Construction 05 Unallocated Total C. Project Data 1. Project Cost ($ million) Appraisal Estimate Actual Foreign Exchange Cost Local Currency Cost Total Cost

6 iv 2. Financing Plan ($ million) Appraisal Estimate Actual Foreign Local Total Foreign Local Total Implementation Costs Borrower-Financed ADB-Financed Total IDC Costs Borrower-Financed ADB-Financed Total IDC= interest during construction 3. Cost Breakdown by Project Component ($ million) Appraisal Estimate Actual A. Base Cost Part A Treatment Plants and Pumping Stations Civil, Mechanical and Electrical Works Part B Transmission and Distribution Civil Works Equipment and Materials Part C NRW Reduction Control Civil Works Equipment and Materials Consulting Services Taxes and Duties B. Contingencies and Other Physical Contingencies Price Contingencies C. Interest During Construction On ADB Loan Other Total

7 v 4. Project Schedule Appraisal Estimate Actual Completion of Engineering Designs a - 30 June 1993 Date of Contract with Consultants (Project Management 30 June April 1996 and Construction Supervision) Civil Works Contract Date of Award 1 June 1995 December Completion of Work 31 December December 2000 Equipment and Suppliers First Procurement 1 January September 1998 Last Procurement 30 September September 1998 Completion of Equipment Installation 30 November June 2000 Start of Operations Completion of Tests and Commissioning 30 June December 2000 Beginning of Start-Up 31 December January 2001 Engineering designs were completed by PWA-financed consultants prior to Loan Fact-Finding Mission. a 5. Project Performance Report (PPR) Ratings Implementation Period Development Objectives Ratings Implementation Progress 30 August 1995 to 31 December 2000 Satisfactory Satisfactory D. Data on ADB Missions Mission Date No. of Persons No. of Person-days Specialization of Members a Fact-Finding 5 to 16 July b, d, i, l Appraisal 4 to 22 October b, c, e, f, g, j, k, l Inception 22-to 23 December a Review 1 5 to 10 October a Review 2 30 Jul to 6 August a, f Review 3 28 Jul to 1 August a, f Midterm 8 to 16 December f, m Review 4 25 to 27 May a Review 5 28 September to 2 October a Review 6 22 to 26 March a Review 7 27 September to 7 October a Review 8 8 to 16 March a Review 9 28 to 31 August a PCR 29 October to 9 November h, l, m a a-senior project specialist, b-sr. project economist, c-sr. counsel, d-sr. project engineer, e-programs officer, f- project engineer, g-economist, h-urban development specialist, i-environmental specialist, j-water supply engineer/consultant, k-socioeconomist/consultant l-financial analyst/consultant, m-assistant project analyst

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9 I. PROJECT DESCRIPTION 1. In the late 1980s and early 1990s Chonburi Province on the Eastern Seaboard (ESB) experienced rapid industrial and economic growth and suffered serious deficiencies in the urban water supply system. Piped water supplies were intermittent in many parts of urban areas, and water quality was poor. Most residents had to rely on wells, rainwater, bottled water, and water vendors for part of their water supplies. Following the Government s request to upgrade the Chonburi water supply system, the Asian Development Bank (ADB) conducted a project appraisal in October 1993, and approved a $38.5-million loan on 18 October The project objectives were to (i) improve water supply to 222,000 people, businesses, industries, and institutions in Chonburi; and (ii) implement a nonrevenue water (NRW) reduction and control program. 2. The project scope comprised four parts: (i) (ii) (iii) (iv) A rehabilitation and expansion of treatment plants and pumping stations: construction of a new water treatment plant (WTP), rehabilitation and expansion of pumping stations and storage reservoirs, and installation of a telemetry system; B rehabilitation and expansion of transmission and distribution systems: construction of new transmission mains, replacement of transmission mains that have insufficient capacity, replacement of distribution mains, and expansion of the distribution system; C establishment of an NRW reduction and control program: supply of consumer and distribution system meters and leak detection equipment, installation of distribution system meters, replacement of customer meters, installation of new customer meters and initiation of an NRW reduction and control program for Chonburi Waterworks; and D consulting services: provision of assistance to the Provincial Waterworks Authority (PWA) through construction supervision and development of an NRW reduction and control program. II. EVALUATION OF DESIGN AND IMPLEMENTATION A. Relevance of Design and Formulation 3. The Project was consistent with the Government s development objective and ADB s Country Operational Strategy (COS). The Government s Seventh Five-Year National Economic and Social Development Plan ( ) aimed to provide clean and adequate water to support urban and industrial growth by (i) increasing efficiency and effectiveness in the public sector, (ii) adjusting water tariffs to reflect production costs, and (iii) involving the private sector. COS aimed to help (i) develop the basis for long-term competitiveness to support a sustained and more balanced long-term economic growth; and (ii) achieve more equitable development, with emphasis on helping promote rural development and the regional dispersal of economic activity. ADB s strategy thus emphasized support for areas with severe water shortages, which harm the economy and hinder sustainable development. The feasibility study and detailed

10 2 design, which were financed by the Government and conducted by PWA, constituted an adequate basis for the project appraisal. The Project was formulated in consultation with the local municipalities and beneficiaries. The design of engineering works was based on a least-cost approach, through which the projected water demand in the project area was determined. B. Project Outputs 4. The Project was generally implemented as envisaged at the time of appraisal. The comparison of actual physical works completed and those proposed at appraisal is in Appendix 1. In part A, two raw water pumping stations and two WTPs were rehabilitated and upgraded as proposed, including construction of a water treatment unit with a capacity of 16,800 cubic meters (m 3 ) per day at the Bang Phra 2 WTP, and installation of mechanical sludge-processing facilities. At appraisal, six of the seven existing pumping stations in the distribution systems were identified as needing rehabilitation. At the detailed design stage rehabilitation needs were reviewed considering construction and operation costs. Four distribution pumping stations were rehabilitated as proposed, and a new station was built after two stations were closed. The telemetry system, consisting of the master control center and links with the two WTPs and six pumping stations, was completed as appraised. Rapid economic growth in ESB led to urban expansion beyond the project area during project implementation. To accommodate the resulting higher water demand, two water supply systems adjacent to the project area, at Phanatnikom and Laem Chabang, were also upgraded, and four new distribution pumping stations were built as additional works. 5. In part B, transmission mains and distribution systems were generally rehabilitated and expanded as planned. Two kilometers (km) of a raw water transmission main from the Bang Phra Reservoir (BPR) to the Bang Phra 1 WTP were built as proposed. The Department of Highways (DOH) did not permit PWA to lay a clear water transmission main along the planned Sukhumvit Road because the utility services facilities were congested. This 21-kilometer clean water transmission main, therefore, was rerouted and constructed under a railway. As required by DOH, 26 km of already installed pipelines, or 90% of total works, under the Chonburi- Panatnikom Highway were relocated to accommodate the highway expansion work. Difficult coordination with DOH delayed project implementation. In the two additional water supply systems at Phanatnikom and Laem Chabang, 38 km of transmission mains and 50 km of distribution systems were built. In total, 71 km of transmission mains and 215 km of distribution systems were built against targets of 32 km and 149 km, respectively. 6. Under part C, the NRW reduction program was conceived in the context of a program of partial rehabilitation of the distribution systems, which was to be prioritized by the leakage detection surveys. However, PWA became increasingly concerned about the condition of the distribution systems as a whole, which mainly comprised asbestos cement (AC) pipes, which were extremely vulnerable to attack by sulfates in coastal soils. Since repairing works increased water pressure of the distribution systems, the only solution was to replace AC pipes in the affected area. All distribution mains in the sulfate-bearing soils in low-lying areas were replaced with polyethylene and polybutylene pipes, which are resistant to acid. In total, 114 km of distribution pipes were replaced. This modification led to delays in project implementation because more detail designs had to be drawn up for the pipe-replacing programs. The rehabilitation needs of the distribution systems should have been carefully examined at the design stage. Of the 24,700 water meters purchased under the Project, only 5,110 were replaced and 2,002 newly installed. PWA will use the remaining 17,588 meters for new connections and replacements by September Although leakage detection equipment was

11 3 purchased, the leakage detection surveys were not conducted because the Chonburi regional office s capacity was limited. 7. In part D, the domestic consultants engaged by PWA for detailed design of the Project were retained for project management, construction supervision, and benefit monitoring and evaluation (BME) services. PWA financed the total costs of the domestic consultants and technical support staff. An international consultant was envisaged to help PWA develop an NRW reduction program by adopting a zoning concept. The consultant, with a total of eight person-months of services, was envisaged to (i) establish the zoning system, (ii) train PWA staff, (iii) design and implement regular survey and monitoring programs, and (iv) recommend action plans for capacity building. The consultant was not recruited, however, as PWA believed its staff had accumulated enough experience in NRW reduction from other projects. However, PWA could not adopt the zoning concept during the Project because of the agency s limited experience and knowledge. PWA is planning to adopt the concept from October 2002 with the help of consultants. 8. The additional works in parts A and B increased the beneficiaries from 222,000 expected at appraisal to about 300,000 at project completion. All project facilities, including WTPs and pumping stations, now provide potable water with the designed capacity and quality. The telemetry system, through which project facilities are operated from the master control center, improved the efficiency of PWA s operations in the project area. C. Project Costs 9. The total project cost was estimated at $65 million equivalent at appraisal. ADB financing was envisaged to comprise $38.50 million in foreign exchange costs, with PWA contributing $26.46 million equivalent in local currency costs. The actual project cost was $40.86 million equivalent, comprising $30.02 million in foreign exchange costs financed by ADB, and $10.84 million equivalent contributed by PWA. The unallocated loan fund of $8.34 million and the undisbursed loan funds of $137,946 were canceled in 1998 and at project completion, respectively. Although the improvement of two water supply systems was an additional work, the total project cost did not increase because of strong competition among bidders for a major civil works contract for parts A and B. Therefore, the financial and economic rates of return at project completion were higher than expected at appraisal. Loan proceeds were provided directly to PWA as the Borrower, and guaranteed by the Government. A comparison of project costs at appraisal and actual costs is in Appendix In accordance with International Monetary Fund instructions during the economic crisis that started in mid-1997, the National Economic and Social Development Bureau imposed ceilings on authorized payments for capital investment for state-owned enterprises, including PWA, in PWA, therefore, could not allocate sufficient local funds to make progress payments to contractors. To help PWA meet its contractual obligations under the Project, ADB approved in February 1998 a PWA request to finance 90% of all expenditures under the Project. The proportion of ADB financing increased from 59% at appraisal to 74% at completion. 1 The ADB financing percentages were adjusted to the original percentages in Reduction of the financial obligation of PWA enhanced its overall liquidity. 1 Total ADB financing for projects in Thailand normally does not exceed 60% of the total project cost (Section 1, Operation Manual).

12 4 D. Disbursements 11. The appraisal disbursement schedule was generally realistic. However, disbursements were slow in the early stages of implementation due to delays in procurement for a major civil works contract, and the economic crisis. After the major civil works started and the economy recovered, disbursements picked up in the fourth quarter of 1998 and the project encountered no major problems; $30.02 million was disbursed through direct payment. PWA provided the necessary local funds, generally on time. However, it could not allocate sufficient local funds during the economic crisis in 1998 (para. 10). The breakdown of yearly disbursements is in Appendix 3. E. Project Schedule 12. At appraisal, the Project was scheduled for completion in June 1999, with loan closing scheduled for 31 December However, civil works were completed in December 2000, 18 months later than planned. The economic crisis was the main factor responsible for this delay. To mitigate the effects of the economic crisis and baht devaluation, the Cabinet approved an industry-wide time extension for major civil works to help contractors overcome their liquidity problems. A 180-day extension was granted for the major civil works contract. 13. Other factors for the slow-down were (i) a 23-month delay in procurement for the major civil works contract, in particular for prequalification and bidding; (ii) poor coordination among concerned PWA departments (para. 14); (iii) difficulty in obtaining DOH s permission to build works under highways (para. 5); and (iv) delay in preparing detailed designs for the NRW program and sludge-processing facilities (para. 6). ADB approved a 12-month loan extension to 31 December Appendix 4 presents the appraisal and actual implementation schedules. F. Implementation Arrangements 14. The implementation arrangements could not work as effectively as envisaged at appraisal. PWA was the Executing Agency and Borrower for the Project, and responsible for implementing, managing, and operating all piped water supplies in the country except for Bangkok, selected municipalities, and rural villages. The project monitoring committee (PMC) was established in PWA in October 1995 as required by the Loan Agreement (LA). The planning department, which was responsible for policy analysis, annual programming, and preparation of master plans and feasibility studies, served as the secretariat to the PMC. The PMC could not properly coordinate the concerned PWA departments because the PMC members lacked commitment and clear roles. Since the PMC was chaired by the PWA governor and consisted of high-ranking PWA officers, it was difficult and time-consuming to arrange PMC meetings. The PMC held seven meetings from 1995 to 1998, but none since Since the departments involved had other priorities, project activities were often delayed. ADB thus repeatedly recommended establishing a project management unit (PMU) to oversee the day-today project implementation, and appointing a project director as the PMU head. However, PWA could not establish the PMU because of limited human resources. PWA used its staff only on a pool basis and could not assign a fulltime engineer to the Project. G. Conditions and Covenants 15. The Government and PWA have generally complied with the major loan covenants. The status of compliance with the covenants is summarized in Appendix 5. However, PWA could not comply fully with the loan covenant that required adjusting water tariff to maintain net internal

13 5 cash generation 2 sufficient to finance not less than 20% of capital expenditures. Decisions on tariff revisions were politically influenced, since Cabinet approval was required. Although the average water tariff was increased from B8.17 to B11.75 per m 3 in 1998, 3 net internal cash generation was able to finance more than 20% of capital expenditures only in 1995 and 1999, and less than 14% in other years. Because of the partial compliance of this covenant, PWA s financial position could not be improved as planned at appraisal. In fact, PWA had no residual internal cash generation to finance capital expenditures in A proposal to increase the tariff to B15.45 per m 3 was approved by PWA s board in 2001 and is waiting for approval of the National Water Supply Regulatory Board (NWSRB) and Cabinet. This proposed tariff revision should be implemented in 2002 to strengthen PWA s financial position. 16. PWA succeeded in lowering NRW in the project area to 24.8% in September 2001 from 37%, although this is still higher than the 20% required by the loan covenants. Replacement works for 114 km of AC pipes were completed in the Project, but the increased water production and higher water pressure from the new project facilities induced leaks in the distribution system. Due to its limited capacity, the leakage control division of the Chonburi regional office has only been repairing broken pipes and not detecting leakage, using equipment procured for the Project. In tandem with the rehabilitation works of replacing pipes, institutional and managerial measures should have been conducted. PWA is planning to reduce NRW to 20% by September Pipe replacement works of B250 million financed by the Government and PWA were to be conducted in 2002 and 2003, but will not be started in 2002 because of limited funds. The necessary budget should be secured to commence these works from The LA required provision of adequate raw water to the project area. Although the source volume is adequate, it requires efficient management of water resources. At project completion, WTPs total capacity rose to 41.2 million m 3 per annum, and total users demand to 51.6 million m 3. Since demand is greater than BPR s providing capacity of 39.6 million m 3 per annum, the gap of 12.0 million m 3 per annum must be supplied from outside the project area. It was envisaged at appraisal that additional raw water would be supplied from (i) the Nong Pla Lai reservoir through the raw water transmission mains managed by the Eastern Water Resources Development and Management Company (East Water); and (ii) the planned Bang Pakong Diversion Dam. However, the operation of the Bang Pakong Diversion Dam has been delayed because of technical problems. Therefore, the average volume of 12 million m 3 per annum must be supplied through East Water. Since BPR s storage volume has been decreasing as demand for water increases, the project area has been suffering from a water shortage during the dry season since November BPR s storage volume has decreased to 18% of total storage capacity or less than the demand for half a year. This shortage is not an isolated case and is expected to recur soon. PWA should formulate an operational rule to effectively use the two water reservoirs. 2 3 PWA s gross income from all sources less all operating and administrative expenses of PWA, including debt service payments, payments to the Government, employee bonuses, and working capital requirements (but excluding depreciation of assets). Except for Chonburi. The tariff for Chonburi was increased from B8.17 to B11.71 per m 3 in October 1994 and to B11.75 per m 3 in January 2001.

14 6 Table: Water Resources Management in the Project Area (million m 3 /year) Item Plan 2000 (actual) A. Demand Bang Phra 1 and 2 WTPs Irrigation, power, and private B. Supply (a)+(b) BPR (a) a. Bang Phra 1 and 2 WTPs b. Irrigation, power, and private East Water from Nong Pla Lai (b) C. Yield of BPR (c) D. Shortfall of BPR (a)-(c) BPR = Bang Phra Reservoir, m 3 = cubic meter, WTP = water treatment plant 1 capacity 2 average in the last ten years 18. The only potential additional source is raw water saved through NRW reduction in the coming several years because no new water resource development is planned in this region. To meet increasing water demand in the project area, planned NRW reduction programs must be implemented in a timely manner. 19. The LA required submission of PWA s audited financial statements to ADB within 12 months of the end of each fiscal year. Although PWA s financial statements were audited within the timeframe, submission of the audited statements was delayed several months while auditor s copies of the English translation of the statements were being obtained. H. Related Technical Assistance 20. Together with the loan, technical assistance (TA) 4 was approved to strengthen PWA s financial management and planning capabilities. The TA was generally successful in achieving its objective to prepare action plans to strengthen (i) tariff planning, (ii) financial management and accounting, (iii) cash flow management, and (iv) demand estimation. Consulting services under the TA commenced in September 1995 and were completed in February PWA has implemented the major TA recommendations. Developed models for tariff planning and water demand forecasting are being used to consider water tariff revisions. The TA recommendations were incorporated into five-year master plans for information technology (IT) and a geographical information system (GIS). PWA employed a team of consultants under its own funding to implement IT programs to improve systems for accounting and financial management, human resources management, procurement, and local information network. PWA completed a GIS pilot project to manage pipeline networks and other facilities. PWA is planning to install the GIS in all 222 water supply systems with B115 million before The TA completion report is in Appendix 6. I. Consultants Recruitment and Procurement 21. In accordance with the Government s procedures, the consultants engaged by PWA in September 1992 for detailed design of the Project were retained for project management, 4 TA 2182-THA: Strengthening Financial Management in PWA, for $440,000, approved on 18 October 1994.

15 7 construction supervision, and BME services (para. 7). The consultants commenced services in June A total of 486 person-months (156 for domestic consultants and 330 for technical support staff) were provided for the services, compared to 286 person-months (148 for domestic consultants and 138 for technical support staff) proposed at appraisal. The increase in consultants inputs mainly resulted from the 23-month extension in the consulting contract due to project delays. PWA financed the total cost of the domestic consultants and technical support staff. 22. An international consultant to help PWA develop an NRW reduction program was not recruited (para.7). 23. Procurement was undertaken in accordance with ADB s Guidelines for Procurement. At appraisal, 43 contract packages were proposed (one international competitive bidding [ICB] civil works contract, two ICB supply contracts, and 40 small local competitive bidding [LCB] or force account contracts) with a total estimated value of $54 million. In fact, 14 packages (11 civil works and 3 supply contracts) were procured, amounting to $26 million. As envisaged at appraisal, one major civil works contract was awarded under ICB. The installation of two sludgeprocessing facilities for the WTPs was originally included in the major civil works contract, but the facilities were procured under two separate international shopping packages because preparation of the facilities detailed designs was delayed. Construction and rehabilitation of tertiary pipelines, which were originally proposed to be carried out under 40 contracts for small civil works, were included in the major civil works contracts to simplify procurement and administration for PWA. Procurement for eight small civil works contracts for pipe replacement programs in part C was done through LCB. A summary of ADB-financed contract awards is in Appendix 7. J. Performance of Consultants, Contractors, and Suppliers 24. The performance of consultants was generally satisfactory. During the construction stage, some construction supervisors were replaced because of the extended contract period. Although the replacements were generally qualified, it took them some time to become familiar with the Project. Overall, the working relationship between PWA and the consultants was smooth and cordial. 25. The performance of contractors and the quality of civil works were generally satisfactory. The contractor for the major civil works worked slowly during the economic crisis because of the baht devaluation, higher prices of materials, and lack of liquidity. The work progress was improved considerably after the economic crisis. The performance of the suppliers for equipment was also generally satisfactory. All materials were imported and delivery was not substantially delayed. K. Performance of the Borrower and the Executing Agency 26. PWA s performance is rated satisfactory. Policy dialogue between ADB, the Government, and PWA, and ADB TA helped strengthen PWA s operations and privatize water supply operations. The Government delegated responsibility for policy, planning, and decision making for water supply sector development to NWSRB, established in 1998, which made water supply affordable and PWA and other institutions in the sector viable and effective. NWSRB is chaired by the deputy prime minister, with the deputy minister of interior responsible for PWA as vice chair, and has four technical specialists from the private sector and eight high-level representatives from concerned agencies, including PWA.

16 8 27. PWA is fully committed to private sector participation in water supply operations. ADB TA 5 helped PWA identify and evaluate various modalities of private sector participation. Following this TA, PWA awarded 10 contracts for water production projects on the basis of build-own-operate and/or transfer or lease, including schemes of (i) Pathum Thani-Rangsit, (ii) Ratchaburi and Samut Songkram, and (iii) Phuket. PWA also awarded a contract to a private operator for an NRW reduction program in Pathum Thani, which successfully decreased NRW from 60% in 1999 to 30% in PWA established East Water in 1992 to solve the severe water shortages in ESB resulting from its rapid development. East Water manages four routes of raw water pipelines in Chonburi and Rayong provinces, and provides 188 million m 3 per year. A raw water charge by East Water contributes to efficient water resources management. For example, PWA pays East Water B6.15 per m 3 for raw water, which reflects investment costs, and is much higher than BPR s charge of B0.50 per m 3. L. Performance of ADB 28. ADB fielded regular review missions to monitor, supervise, and administer the Project and were responsive to PWA s problems and needs. The Midterm Review Mission was undertaken in December 1997 to review Government policies for the water supply sector, project implementation performance, implementation arrangements, and status of loan covenants. ADB worked closely with PWA to resolve implementation issues, including design modification, adjustments to financing arrangements during the economic crisis, and extension of the loan closing date. ADB s performance is rated satisfactory. III. EVALUATION OF PERFORMANCE A. Relevance 29. The Project is rated highly relevant. It is consistent with the ADB COS and the Government s priorities (para. 3), and relevant to the ADB strategic priority of pro-poor growth. Business, industrial, and institutional users, which consume around two thirds of water supplied by the project facilities, could save resource costs, since they no longer operate their own water supply systems. The Project also contributed to human resource development by increasing the quantity of water suitable for drinking, bathing, and food handling. B. Efficacy in Achievement of Purpose 30. The Project is rated efficacious. The major project objective of improving water supply services was achieved over the target, since two more improved water supply systems, which were not planned at appraisal, covered the areas. The Project benefited not only businesses, industries, and institutions, but also about 300,000 people, many more than the targeted 222,000. The gross supply of water increased by 18%, and the number of connections, by 39,000, or higher than the planned 9,000. In 2001 actual production volume of WTPs in the project area was 89% of the designed capacity and is expected to reach full capacity within three years. Water is available around the clock, and water pressure and quality were improved. According to the BME report, most beneficiaries expressed general satisfaction with the improved services. The other project objective of reducing NRW was partially achieved (para. 16). PWA should continue to monitor the project benefits through the annual BME program. 5 TA 1907-THA: Privatization of Water Supply Operations, for $317,000, approved on 2 July 1993.

17 9 C. Efficiency in Achievement of Outputs and Purpose 1. Financial Performance of the Project 31. The capacity to repay the ADB loan PWA s self-financing ratio or capacity to finance a portion of its capital expenditures from internally generated funds is assessed from PWA s viewpoint. Appendix 8 presents a complete set of projected income statements, cash flow statements, and balance sheet prepared for PWA; projected income statements of the Project prepared up to 2005; and financial reevaluation of the Project. 32. The Project is generally well managed. For example, of the 66,500 water bills issued to customers for September 2001, only 133 were unpaid as of 1 November Collection efficiency is quite high, as reflected in the accounts receivable, which are equivalent to only 17.4 days, while company policy allows 30 days credit. Overall financial performance is excellent. Operating revenues have been sufficient to cover operation and management (O&M) expenses plus depreciation during project implementation. With the proposed average tariff of B15.45 per m 3 to be implemented in 2002, financial performance is projected to improve further until The operating ratio or ratio of O&M expenses, including depreciation, to operating revenues reached a high of 72.7% in 2000 but is expected to gradually decrease annually to only 44.3% by Income before overhead cost allocation from PWA is also expected to increase from B44 million in 2001 to B238 million in 2005 as a result of the proposed tariff increase. 33. The Project was generally efficiently processed and implemented, and completed with a high degree of cost efficiency. The Project s recalculated financial internal rate of return (FIRR) comes to 17.5%, greater than the weighted average cost of capital of 6.6%, compared with the FIRR of 7.4% at the time of the appraisal. Additional works that did not increase project cost substantially increased the FIRR. However, the relatively high FIRR may not assure the Project s long-term sustainability. Rather, PWA should maintain the Project s excellent financial performance and update its tariffs in 2006 as planned. The average incremental financial cost comes to about B7.06 per m 3, which is much lower than the updated average tariff of B15.45 per m 3 starting in Financial Performance of PWA 34. PWA serves about 11 million people in 280 cities and towns, and produces about 1.8 million m 3 of potable water per day. PWA s overall financial performance is good. Operating revenues have been sufficient to cover O&M expenses, including depreciation, during project implementation. The company realized net income ranging from B60 million in 1994 to B519 million in However, because of inadequate tariff increases net income fell to B81 million in 1997; net losses were subsequently incurred, ranging from B463 million in 1998 to B494 million in PWA has been able to repay its long-term loan from its internally generated cash, except in 2000 when PWA s gross internal cash generation was only about 53% of its long-term debt repayment. The balance was financed from accumulated cash reserves. 35. With the revised tariff starting in 2002, PWA is expected to improve its financial performance. Net incomes of B1,031 million and B753 million are projected for 2002 and 2003, respectively. PWA s internally generated funds can cover debt service requirements from 2001 to 2005; accumulated cash balances are expected to increase from B1,321 million in 2001 to B6,469 million in 2005.

18 PWA s water tariff had a number of shortcomings at appraisal: (i) a need for Cabinet approval of each revision, which lost flexibility of PWA s decision; (ii) uniform tariff across the country; (iii) a too-large lifeline block, which allowed middle-income earners to benefit from the subsidized rate; and (iv) little attention to demand management. Through the tariff revisions, the lifeline block has been reduced and demand management strengthened. Consumption volume per connection was decreased by around 20% from 28 m 3 per month at appraisal to 22 m 3 at project completion. However, the uniform tariff system has been sustained. Revenues generated from large urban areas such as Chonburi have been used to subsidize rural and small-town water supplies through the uniform tariff system. The tariff system in Chonburi was increased separately from the uniform system in 1994, but integrated again into the uniform system in A scheme-specific tariff system, with different tariff structures for each scheme to allow enough cost recovery, should be introduced. Decisions on tariff revisions have been influenced politically, since Cabinet approval is required. To remove political influence and carry out necessary and timely tariff revisions, the decisions should be delegated to NWSRB. PWA s fixed-asset rate base for its tariff is still on historical-cost basis. Where possible, PWA s fixedasset rate base should be revalued so that funds provided for depreciation will be sufficient to cover future replacements of PWA s various water supply systems. 37. PWA has achieved a reasonable level of operational efficiency in 2001, as indicated by a ratio of 3.6 employees per 1,000 connections, accounts receivable at about 14 days, and an average NRW of 30%. 38. PWA increasingly used the developing bond market to provide a portion of the funds required for capital investment. PWA does not need foreign currency loans from international and bilateral financial institutions. 3. Economic Performance 39. The economic viability of the Project was assessed by computing all incremental costs and benefits resulting from its implementation. The Project s recalculated economic internal rate of return (EIRR) amounts to 20.1%, which compares favorably with the economic opportunity cost of capital of 12%. The EIRR was not calculated during appraisal. The average incremental economic cost of water amounts to B9.27 per m 3, which is lower than the proposed average tariff of B15.45 per m 3. Appendix 9 shows the recalculated EIRR as well as the supporting assumptions. D. Preliminary Assessment of Sustainability 40. PWA has enough skilled, experienced staff for O&M of the major project facilities. Project facilities operate well and are reasonably well maintained. The Project is expected to be sustainable and the project facilities to be operating many years from now. However, given limited staff capacity and insufficient O&M for the telemetry system and sludge-processing facilities, PWA should (i) allocate enough budget for these, (ii) train staff, and (iii) contract with private operators for regular maintenance. 41. It is highly probable that PWA will recover O&M cost and a large portion of depreciation, that sufficient funds will be available for continued growth (paras. 32 and 33), and that an enabling environment will exist. The new tariff revision effective in 2002 will make the Project sustainable until PWA should revise its tariffs in 2006 as planned, and thereafter at the same level and frequency.

19 PWA assigned an assistant governor responsible for NRW reduction and established the water leakage control division in This division is (i) setting the target percentage of NRW, (ii) preparing investment plans, (iii) monitoring and evaluating NRW reduction programs, and (iv) providing technical support for PWA staff. PWA has gradually decentralized its regional offices to increase the efficiency and responsiveness of the services. The regional offices have almost full autonomy in their operations, except for decision making on major capital expenditure, and recruitment and termination policies for staff, while PWA headquarters maintains a regulatory role and ensures that the waterworks meet the specified quality, quantity, and service level. E. Environmental, Sociocultural, and Other Impacts 43. The Project has had overall positive environment impacts as it improved water supply and public health conditions for beneficiaries in the project area. As foreseen during the initial environmental evaluations conducted at appraisal, traffic was sometimes temporarily disrupted and more wastewater was generated during construction. Sound engineering practices and mitigation measures minimized these short-term adverse impacts. Sludge from WTPs is treated at the Project s sludge-processing facilities. Wastewater is treated by expanded sewerage systems. During the Project the Government completed five wastewater treatment plants with a total capacity of 98,700 m 3 per day, and sewer pipes, and now provides sewerage services to around 350,000 people in the project area. Flood mitigation and solid waste management programs complement the Project s environmental improvements. 44. The Project helped reduce urban poverty by providing affordable piped water to the poor (around 4% of the population). Water supply services were improved at the waterfront, which consists of lower-income fishing communities. The percentage of households with income below the official poverty line in the project area decreased from 8% at appraisal to 4% in About 12,000 of the 300,000 beneficiaries, therefore, are classified as poor. Socioeconomic surveys at appraisal and completion showed that the average monthly household income in the project area increased from B10,530 to B18,860. Revised tariff structures have consistently provided low tariffs for poor people, charging lower rates for low-consumption households. At appraisal most water collectors in the project areas were women. Since the Project eased their burden by piping water into their homes, women are able to perform their household activities more productively. 45. The Project could not reduce customers reliance on other sources as expected at appraisal. About 50%, unchanged from appraisal, of the households with piped water still partly rely on other water sources, in particular bottled water, although water quality was improved, due to a history of mistrust of piped water quality. To secure nonpiped water, users spent an average of about B170 per month, higher than the B100 at appraisal. PWA is conducting a public awareness campaign, Drink Tap Water, in collaboration with the Ministry of Health. IV. OVERALL ASSESSMENT AND RECOMMENDATIONS A. Overall Assessment 46. Overall, the Project is rated highly successful at this stage as it substantially achieved its main objective to improve sustainable water supply services for about 300,000 people over 135% of targeted beneficiaries at appraisal and for businesses, industries, and institutions in the project area. However, the Project only partially achieved its objective to reduce NRW. The highly successful rating will be confirmed after PWA implements the planned NRW programs. The Project reinforced the financial viability and operational efficiency of PWA and is most likely

20 12 sustainable. To further improve the financial performance of PWA and the sustainability of the Project, PWA should continue its efforts to reduce NRW. The proposed tariff revision should also be strictly implemented in B. Lessons Learned 47. Project implementation held some important lessons: (i) (ii) (iii) (iv) If the need to replace pipelines in the distribution system had been assessed in detail at the design stage, the NRW program could have started earlier and had greater scope by using canceled loan funds rather than limited local funds (para. 6). NRW could not be sustainably reduced by repairing infrastructure alone. Institutional and managerial measures were required in tandem with the rehabilitation works. As an institutional measure, a permanent operations unit was established in PWA to carry out the program to reduce NRW and will continue the program even after the Project. A proposed consultant should have been recruited to adopt a zoning approach. PWA s capacity and the cancelation of recruitment of consultants for NRW reduction should have been carefully examined during the Project (para. 16). The current water shortage in the project area could have been predicted earlier since demand for water is higher than BPR s capacity to supply it. Raw water supply for the WTPs should have been carefully monitored and appropriate measures taken to prevent water shortages for WTPs and other water users in the project area (para. 17). Policy dialogue between ADB, the Government, and PWA, and ADB TA contributed to institutional development and policy reform, which strengthened PWA s operations, accelerated privatization of water supply operations, and established a regulatory body (paras. 26 and 27). C. Recommendations 1. Project-Related 48. The following recommendations, which were agreed upon between the Project Completion Review Mission and concerned parties in November 2001, are made for the Government and the PWA: (i) To reduce NRW to 20% by September 2004, PWA should do the following: a. Implement a pipe replacement program costing around B250 million in 2003 and b. Start leakage detection surveys by 31 January c. Assign at least four staff for the NRW reduction program of the Chonburi regional office by 31 October 2002.

21 13 d. Start zoning surveys by 31 October e. Install all remaining water meters procured for the Project by 30 September (ii) (iii) (iv) (v) (vi) (vii) PWA should formulate an operational plan by 31 March 2002 to effectively use raw water sources. To properly operate and maintain the telemetry system and sludge-processing facilities, PWA should (a) allocate enough budget for these, (b) train staff, and (c) contract with private operators for regular maintenance. Project sustainability is highly dependent on a timely revision of tariffs. The proposed average tariff of B15.45, which will make the project sustainable until 2005, should be approved and implemented. PWA should revise its tariff in 2006 as planned, and thereafter at the same level and frequency. Where possible, PWA s fixed-asset rate base should be revalued so that funds from provision for depreciation will be sufficient to cover future replacement of various water supply systems. PWA should continue to submit to ADB the annual BME report, including progress of follow-up actions given in Appendix 10. A project performance audit report should be prepared in 2004 to confirm the project rating of highly successful after the major follow-up actions are completed. 2. General 49. General recommendations are as follows: (i) (ii) (iii) PWA s clear commitment to and responsibility for projects are crucial to effective implementation. A PMU should be established to oversee the day-to-day project implementation, and a project director should be appointed as PMU head. Arrangement of raw water sources for the facilities of water supply projects should be carefully monitored during project implementation. If raw water shortages are expected, appropriate recommendations should be given to PWA. Submission of audited project accounts and corporate financial statements in projects in Thailand falls short of the ADB average. This is an area that needs improvement and stronger corporate governance.