ethiopia - urban water supply and sanitation...

Document of

The World BankFOR OFFICIAL USE ONLY

Report No: ICR00004470

IMPLEMENTATION COMPLETION AND RESULTS REPORT

(IDA-42920, IDA-H2870, IDA-51150)

ON A

CREDIT

IN THE AMOUNT OF XDR 43.7 MILLION

(US$65 MILLION EQUIVALENT)

AND A GRANT



AND ADDITIONAL FINANCING CREDIT



TO THE

Federal Democratic Republic of Ethiopia

FOR THE

JUNE 29, 2018

Water Global PracticeAfrica Region

CURRENCY EQUIVALENTS

(Exchange Rate Effective December 31, 2017)

Currency Unit = Ethiopian Birr

27.40 Ethiopian Birr = US$1

US$1.42 = XDR 1

FISCAL YEARJuly 8 – July 7

Regional Vice President: Makhtar Diop

Country Director: Carolyn Turk

Senior Global Practice Director: Guang Zhe Chen

Practice Manager: Maria Angelica Sotomayor Araujo

Task Team Leader(s): Yitbarek Tessema, Tesfaye Bekalu Wondem

ICR Main Contributor: Rebecca Jean Gilsdorf

ABBREVIATIONS AND ACRONYMS

AAWSA Addis Ababa Water and Sewerage AuthorityAF Additional FinancingAfD French Development AgencyAM Aide Memoires CPF Country Partnership FrameworkDMA Demand Management AreasEIRR Economic Internal Rate of ReturnENPV Economic Net Present ValueETB Ethiopian BirrFIRR Financial Internal Rate of ReturnFM Financial ManagementFNPV Financial Net Present ValueFY Financial YearGIS Geographical Information SystemGoE Government of the Federal Democratic Republic of EthiopiaGPOBA Global Partnership for Output Based AidGTP II Growth and Transformation Plan II ICAS Interim Country Assistance Strategy ICR Implementation Completion ReportISR Implementation Status and Results ReportM&E Monitoring and EvaluationMDG Millennium Development GoalMFD Maximizing Finance for DevelopmentMOWIE Ministry of Water Irrigation and ElectricityNRW Non-Revenue WaterPAD Project Appraisal DocumentPAPs Project-Affected PeoplePASDEP Plan for Accelerated and Sustained Development to End PovertyPDO Project Development ObjectiveRAP Resettlement Action PlanRF Results FrameworkRWB Regional Water BureausSME Small and Micro-EnterprisesUSAID United States Agency for International DevelopmentUWSSP Urban Water Supply and Sanitation ProjectUWSSP-II Second Urban Water Supply and Sanitation ProjectWRDF Water Resources Development Fund WSP Water and Sanitation ProgramWSS Water Supply and SanitationXDR Special Drawing Rights

TABLE OF CONTENTS

DATA SHEET............................................................................................................................1

I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES........................................................6A. CONTEXT AT APPRAISAL...........................................................................................................6

B. SIGNIFICANT CHANGES DURING IMPLEMENTATION...............................................................10

II. OUTCOME......................................................................................................................13A. RELEVANCE OF PDOs..............................................................................................................13

B. ACHIEVEMENT OF PDOs (EFFICACY)........................................................................................14

C. EFFICIENCY.............................................................................................................................18

D. JUSTIFICATION OF OVERALL OUTCOME RATING.....................................................................19

E. OTHER OUTCOMES AND IMPACTS (IF ANY).............................................................................19

III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME.................................20A. KEY FACTORS DURING PREPARATION.....................................................................................20

B. KEY FACTORS DURING IMPLEMENTATION..............................................................................21

IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME...22A. QUALITY OF MONITORING AND EVALUATION (M&E).............................................................22

B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE......................................................23

C. BANK PERFORMANCE.............................................................................................................24

D. RISK TO DEVELOPMENT OUTCOME.........................................................................................25

V. LESSONS AND RECOMMENDATIONS...............................................................................26

ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS............................................................28

ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION..........................40

ANNEX 3. PROJECT COST BY COMPONENT.............................................................................43

ANNEX 4. EFFICIENCY ANALYSIS.............................................................................................44

ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS....48

ANNEX 6. SUPPORTING DOCUMENTS (IF ANY).......................................................................58

The World BankUrban Water Supply and Sanitation Project (P101473)

DATA SHEET

BASIC INFORMATION

Product InformationProject ID Project Name

P101473 Urban Water Supply and Sanitation Project

Country Financing Instrument

Ethiopia Investment Project Financing

Original EA Category Revised EA Category

Partial Assessment (B) Partial Assessment (B)

Related Projects

Relationship Project Approval Product Line

Additional Financing P129174-Urban Water Supply and Sanitation Project Additional Financing

31-May-2012 IBRD/IDA

Organizations

Borrower Implementing Agency

Federal Democratic Republic of EthiopiaAddis Ababa Water and Sewerage Authority, Ministry of Water, Irrigation and Electricity

Project Development Objective (PDO)

Original PDOThe Development Objective of the Urban Water Supply and Sanitation Project is increased access to sustainable water supply and sanitation services in Addis Ababa and four secondary cities.

Revised PDOTo increase access to sustainable water supply and sanitation services in Addis Ababa and targeted secondary cities.

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FINANCING

Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$)World Bank Financing

IDA-42920 65,000,000 63,958,721 65,425,946

IDA-H2870 35,000,000 34,615,397 35,515,726

IDA-51150 150,000,000 122,425,147 99,238,549

Total 220999265 200180221 0Non-World Bank Financing

Borrower 0 0 0UK: British Department for International Development (DFID)

10,000,000 0 0

FRANCE: French Agency for Development 9,000,000 9,000,000 9,000,000

Total 489999265 430179486 209180221Total Project Cost 269,000,000 229,999,266 209,180,221

KEY DATES

Approval Effectiveness MTR Review Original Closing Actual Closing24-Apr-2007 07-Sep-2007 30-Mar-2010 31-Dec-2012 31-Dec-2017

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RESTRUCTURING AND/OR ADDITIONAL FINANCING

Date(s) Amount Disbursed (US$M) Key Revisions

01-Nov-2010 30.82 Reallocation between Disbursement Categories03-May-2012 48.89 Additional Financing

Change in Project Development ObjectivesChange in Results FrameworkChange in Components and CostChange in Loan Closing Date(s)Change in Financing PlanReallocation between Disbursement Categories

15-Jul-2015 126.15 Change in Loan Closing Date(s)19-Aug-2016 155.00 Change in Loan Closing Date(s)

Reallocation between Disbursement Categories22-Dec-2017 186.81 Change in Components and Cost

Cancellation of FinancingReallocation between Disbursement Categories

KEY RATINGS

Outcome Bank Performance M&E Quality

Moderately Unsatisfactory Moderately Unsatisfactory Modest

RATINGS OF PROJECT PERFORMANCE IN ISRs

No. Date ISR Archived DO Rating IP RatingActual

Disbursements (US$M)

01 17-Jul-2007 Satisfactory Satisfactory 0

02 30-Nov-2007 Satisfactory Satisfactory 13.00

03 28-May-2008 Satisfactory Satisfactory 13.42

04 15-Dec-2008 Satisfactory Satisfactory 14.31

05 28-May-2009 Satisfactory Moderately Unsatisfactory 15.25

06 01-Dec-2009 Satisfactory Moderately Unsatisfactory 15.79

07 02-Jun-2010 Satisfactory Moderately Unsatisfactory 19.57

08 09-Nov-2010 Satisfactory Moderately Satisfactory 30.82

09 10-Jul-2011 Satisfactory Moderately Satisfactory 38.55

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10 03-Mar-2012 Satisfactory Moderately Satisfactory 43.16

11 12-Aug-2012 Satisfactory Moderately Satisfactory 49.88

12 06-Mar-2013 Satisfactory Moderately Satisfactory 62.74

13 17-Sep-2013 Satisfactory Moderately Unsatisfactory 74.93

14 20-Apr-2014 Moderately Satisfactory Moderately Unsatisfactory 97.24

15 07-Jul-2014 Moderately Satisfactory Moderately Unsatisfactory 101.34

16 24-Nov-2014 Moderately Satisfactory Moderately Satisfactory 104.72

17 27-May-2015 Satisfactory Moderately Satisfactory 123.31

18 16-Oct-2015 Satisfactory Moderately Satisfactory 133.96

19 20-Apr-2016 Moderately Satisfactory Moderately Satisfactory 150.32

20 21-Oct-2016 Moderately Satisfactory Moderately Unsatisfactory 157.29

21 03-May-2017 Moderately Satisfactory Moderately Satisfactory 170.34

22 08-Dec-2017 Moderately Unsatisfactory Moderately Unsatisfactory 184.79

SECTORS AND THEMES

SectorsMajor Sector/Sector (%)

Public Administration 3Central Government (Central Agencies) 1Sub-National Government 2

Water, Sanitation and Waste Management 97Sanitation 56Water Supply 41

ThemesMajor Theme/ Theme (Level 2)/ Theme (Level 3) (%)Private Sector Development 0

Public Private Partnerships 10

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Public Sector Management 0

Public Administration 20

Administrative and Civil Service Reform 6

Municipal Institution Building 14

Human Development and Gender 0

Health Systems and Policies 20

Health Service Delivery 10

Adolescent Health 5

Child Health 5

Urban and Rural Development 0

Urban Development 60

Urban Infrastructure and Service Delivery 20

Services and Housing for the Poor 40

ADM STAFF

Role At Approval At ICR

Regional Vice President: Hartwig Schafer Makhtar Diop

Country Director: Ishac Diwan Carolyn Turk

Senior Global Practice Director: Guang Zhe Chen Guang Zhe Chen

Practice Manager: Jaime M. Biderman Maria Angelica Sotomayor Araujo

Task Team Leader(s): Yitbarek Tessema Yitbarek Tessema

ICR Contributing Author: Rebecca Jean Gilsdorf

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I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES

A. CONTEXT AT APPRAISAL

Context1. At the time of appraisal, Ethiopia was developing its Plan for Accelerated and Sustained Development to End Poverty (PASDEP), covering 2005-2010. PASDEP prioritized accelerated growth by tackling complex, interlinked poverty traps through a multi-faceted approach, including a focus on addressing low levels of infrastructure, such as water supply and sanitation.

2. Additionally, the Interim Country Assistance Strategy (ICAS 2006) was focused on good governance and growth. To this end, the Bank’s overarching objective was to “support Government in developing and implementing, in consultation with citizens, a strengthened program of institution building and governance reform that will help in its efforts to accelerate pro-poor growth.” To achieve this objective, the Bank aimed to focus on five key areas, of which the following are relevant to this project: “the provision of basic services in a fair and accountable way” and “the development of infrastructure to nurture the growth of small towns and growth corridors.”

3. Before the project, basic service provision coverage levels were below Government targets. In 2005, it was estimated that 89 percent of urban residents had access to improved water supply (though only 36 percent had access to on-plot piped water) and 24 percent had access to improved sanitation (JMP 2005). In addition to limited service coverage, the sector was also challenged due to: 1) low financing for expansion of service and improvements; 2) capacity constraints linked to the push for decentralization; and 3) historically low stakeholder participation. Further, high levels of non-revenue water resulted in low quantities of water supplied per capita per day (e.g., in secondary cities over 30 percent non-revenue water (NRW) resulted in approximately 20 L per capita per day being delivered). The original four secondary cities were chosen as they each have a population greater than 200,000 and could also demonstrate that their investment plan and tariff structure would allow for a financially viable utility. In these four cities, on average, 75 percent of households had access to networked water supply (mostly through shared household connections) for about 12 hours per day, providing on average 20 L per capita per day.

4. In Addis Ababa, where water supply and sanitation are the responsibility of the Addis Ababa Water and Sewerage Authority (AAWSA), in the fifteen years before the project began, the city’s population doubled from two to four million, and in parallel the administrative boundaries expanded resulting in expansion from 220 to 540 square kilometers. During those same fifteen years, minimal investments were made in capital works. As a result, service delivery did not keep pace with population growth, and at the start of the project, only about 55 percent of the service area was supplied by the water supply network. Additionally, only 4.8 percent of billed water ended up at a wastewater treatment plant.

5. Due to the underlying sector challenges, and associated Government interest in reforms, the World Bank was well positioned to support this project and the linked long-term reform agenda. The World Bank has a range of sector experts able to support not only the technical design but also the sectoral reforms (e.g., on sector financing, regulation, private sector engagement, private financing, etc.) necessary. In parallel with the Bank’s financing, the project was supported by funding from the French Development Agency (AfD), who funded technical assistance to

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AAWSA on NRW, supervision of water treatment plant expansion works and operational efficiency improvements. Additionally, capacity building activities by the United States Agency for International Development (USAID) and the Water and Sanitation Program (WSP) were implemented in parallel with the project to further support select utilities.

Theory of Change 6. The project was framed around three components. The first focused on Addis Ababa, including: improvements and expansion of water supply production/distribution and sewage collection/treatment, improvements in operational efficiency, and improved governance for AAWSA. The second supported four targeted secondary cities – Gondar, Hawasa, Jimma, and Mekelle – in improving/expanding water supply production and distribution, constructing new sewer networks and wastewater treatment plants, improving operational efficiency of each utility, and improving governance of the utilities. The third component included support for project management, monitoring and evaluation, and capacity building linked to the project.

7. Activities: For components 1 and 2, the main activities under the project were planned to include: new water source construction and commissioning; extension of piped water networks, with new service connections; extension of Addis Ababa sewer network, with new service connections; creation of new piped sewer networks in secondary cities; construction of new wastewater treatment plants in secondary cities; updates and improvements made to financial management systems in utilities (e.g., new customer management and billing/collection software); NRW reduction steps, including creation of pressure zones within distribution network, repair of leaks in the network, replacement of old meters; public awareness activities focused on water conservation; and implementation of catchment management plans. Component 3 was designed to provide funding for technical assistance, operation support, and training.

8. Outputs: These activities were expected to result in the following outputs: increased water volumes supplied to households, extension and rehabilitation of the water supply network to service areas (aiming to service 90 percent of households with 24-hour service), extension of the Addis Ababa sewerage network to new service areas, reduction in NRW (by 10 percent) and related improved operational efficiency (to cover 80 percent of costs through tariffs), increased autonomy of water boards and utilities, outsourced roles to private sector providers, new public sanitation facilities in low-income areas, and improved systems and enhanced capacity for sustaining and monitoring implementation of the project.

9. Outcomes: In the project cities, the outputs were intended to lead to increased access to sustainable water supply and sanitation services.

10. Long-term outcomes: As described in both the 2006 ICAS and the Government’s PASDEP, improvements in access to sustainable water supply and sanitation services will ultimately support larger government priorities linked to tackling poverty and promoting pro-poor growth. By increasing access and improving sustainability of service delivery, the beneficiaries should see health improvements, which should in turn increase labor productivity.

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Figure 1: Overview of Project’s Theory of Change (Results Framework) at Appraisal

Project Development Objectives (PDOs)11. At appraisal, the project development objective (PDO) was to increase access to sustainable water supply and sanitation services in Addis Ababa and four Secondary Cities.

Key Expected Outcomes and Outcome Indicators 12. The PDO indicator was “number of people with improved water supply and sanitation.” The indicator was split to separately count number of beneficiaries from new water supply service, improved water supply service, and new access to improved sanitation, with targets of 1, 3, and 0.5 million people, respectively.

13. The following intermediate outcome indicators were also tracked, separately for Addis Ababa and the four secondary cities. The combined targets are shown below.

Volume of water produced – target: 120,000 m3/day Number of new water supply connections – target: 65,000 Number of rehabilitated water supply connections – target: 30,000 Hours per day that water is supplied – target: 16 Ratio of operating revenue/expenses – target: 1.1 Number of people with access to improved sanitation in low-income areas – target: 0.5 million

Components14. Component 1: Addis Ababa Water Supply and Sanitation – This component included three sub-components, for increasing access to water supply and sanitation services, improving operational efficiency of AAWSA, and

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institutional reforms and project management. For the first sub-component, to increase access to water supply, additional sources were to be constructed and some existing sources were to have their capacities expanded. Project funds aimed to increase expansion by 100,000 m3/day, with matching funds provided by AAWSA (with funding from AfD, supporting design and construction supervision as well as consultancies and goods to improve operational efficiency) and the Municipality to provide an additional 50,000 m3/day to the network. The water supply network was also to be expanded to include unserved and underserved areas. As part of these activities, Global Partnership for Output Based Aid (GPOBA) planned to fund subsidies for water connections in low income areas. Expansion of sanitation services was to be accomplished through the construction of public toilet facilities, which also result in job-creation opportunities for local people (who take over operation and maintenance of the facilities). Under this component, new sewerage connections were meant to be built (to be funded by the Bank with matching funds from AAWSA and the Municipality).

15. The second sub-component was designed to fund activities to help address AAWSA’s high NRW (over 35 percent) and overall operational efficiency for the utility. Financing was planned to cover establishment of pressure zones within the distribution network; repair of leaks within the network; improvements to AAWSA’s financial management, billing and collection systems, and customer management system; and catchment protection measures, including public awareness about water conservation. Some of the activities for increasing production and reducing NRW (appraised at US$6.25 million) in Addis Ababa were also co-financed by the French Development Agency.

16. Under the third sub-component, envisioned institutional reforms included policy development and revision in the legal and institutional framework for water supply and sanitation, with a focus on policies for encouraging private sector engagement in the sector and improving utility governance and efficiency. This component also included financing for project management and stakeholder consultation in Addis Ababa.

17. Component 2: Secondary City Water Supply and Sanitation – The second was split into three sub-components. Under the first sub-component, the focus in secondary cities was on financing for increased access to water supply and sanitation. Given low per capita water availability, the focus in secondary cities was on increasing production by expanding capacity of existing sources and adding new sources (e.g., well fields) to provide an additional 20,000 m3 per day (across the four cities). This component also covered expansion of existing water supply networks, with a focus on underserved and poor areas. Envisioned activities aimed to provide new water connections to 25,000 households and improved service for an additional 10,000 households. As in Addis Ababa, GPOBA planned to fund subsidized connections in low income areas. Funding could have also been used to cover construction/expansion of fecal sludge/septage treatment ponds and piped sewerage (with associated wastewater treatment plants) in higher density commercial areas.

18. The second sub-component was also designed to fund activities to help address NRW and overall operational efficiency for the utilities. Financing was planned to cover establishment of pressure zones within the distribution network; repair of leaks within the network; and improvements to financial management, billing/collection, and customer management systems.

19. Under the third sub-component, in secondary cities, the institutional reforms focused on creating more autonomy for the utilities. This was envisioned to be accomplished through performance contracts between the utilities and their boards. Funding was also provided for project management for each utility.

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20. Component 3: Project Management and Monitoring and Evaluation – The third component aimed at funding national and regional institutions, including the Ministry of Water, Irrigation and Electricity (MOWIE) and the Water Resources Development Fund (WRDF); city administrations; and utilities for a) monitoring and evaluation activities, b) project management, and c) training and other capacity building activities. Utilities were responsible for implementing the project with secondary cities receiving oversight, fund management, and TA related support from MOWIE and WRDF.

B. SIGNIFICANT CHANGES DURING IMPLEMENTATION

Revised PDOs and Outcome Targets 21. In 2012, an additional financing (AF) was completed to add Dire Dawa to the list of beneficiary cities, to scale up and expand activities in existing project cities, and to cover a financing gap resulting from price escalation. Consequently, the PDO was updated to the following: “To increase access to sustainable water supply and sanitation services in Addis Ababa and targeted secondary cities.”

Revised PDO Indicators22. Following restructuring, including the addition of Dire Dawa, and a reflection on challenges faced in gathering data during the first years of the project, the results framework was revised in 2012 (as part of the AF). The following table (Table 2) shows the original and revised PDO indicators (for each outcome) and describes how the revised indicator was measured. Annex 1 includes a more detailed breakdown of the outcomes and indicators (including both PDO and intermediate indicators).

Table 2: Summary of Indicators – including original and revised indicatorsOutcome Original Indicator

(target)Revised Indicator (target)

Description of how indicator was measured

Increased access to sustainable water supply in Addis Ababa

Increased access to sustainable water supply in targeted secondary cities

Additional number of people with new or improved water supply (1 million new, 3 million improved)

People provided with access to “improved water sources” under the project (1.2 million)

The sum of 1) new connections made since 20101 and 2) the calculated number of beneficiaries of new water sources (further description is provided below)

People benefiting from piped household water connections affected by rehabilitation works undertaken under the project (3 million)

Calculated number of beneficiaries of new water sources - based on additional water produced, minus distribution losses, minus usage from new household connections, divided by estimate of 25L/capita (assumed usage improvements), tracked separately for Addis Ababa and the secondary cities

Ratio of operating revenue/expenses (1.1)

Ratio of operating revenues/expenses (1.1)

The ratio is calculated based on FY17 figures for both Addis Ababa and secondary cities.

Direct project The sum of people who benefited from

1 For the purposes of the results framework, it was assumed that construction linked to the project would not begin until 2010 and further assumed that all new connections made after that point would be due to the project (as further explained below).

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beneficiaries, of which female (50%) (4.2 million)

new piped water supply connections, rehabilitated water supply connections and access to new sanitation facilities.

Increased access to sustainable sanitation services in Addis Ababa

Increased access to sustainable sanitation services in targeted secondary cities

Number of people with improved sanitation (0.5 million)

People provided with access to “improved sanitation” under the project2 (1.55 million)

Sum of 1) communal latrines constructed times estimated number of users per facility (1 seat serves 3 households of 6 people each); and 2) number of public facilities constructed times estimated number of users per facility (350 people per facility)

Direct project beneficiaries, of which female (50%) (4.2 million)

The sum of people who benefited from new piped water supply connections, rehabilitated water supply connections and access to new sanitation facilities.

Revised Components23. Component 1: Addis Ababa Water Supply and Sanitation – During the AF in 2012, this component was expanded to include the construction of a new wastewater treatment plant (mainly in response to increased housing developments within the city). However, in December 2017, the project was again restructured, partly due to delays on commissioning of the plant, due to construction delays and delays in getting households connected to the sewer network. Following the 2017 restructuring, the activities that were dropped from the project include: extension of the trunk line for remaining 4 km, provision of household sewer connections, and completion of the plant (commissioning, testing, and handing over).3 The completion of the plant was delayed in part due to delays at the point of entry – both due to customs clearance and a drought, which impacted the time it took to import materials (as ground shipping vehicles were diverted to emergency food aid deliveries). These dropped activities were transferred to the Second Urban Water Supply and Sanitation Project (UWSSP-II), P156433, to help ensure the tasks are ultimately completed without requiring a further extension of this project. Ultimately this project funded the main construction of the new wastewater treatment plant as well as 14.5 km out of 18 km of the intended extensions to the sewer network.

24. The Planned GPOBA activities were also dropped during the MTR, following Government’s decision because of the late proposed need for one-to-one matching of funds from GPOBA. Low income areas were still targeted under the project, in line with a consultant’s report early in the project. The report highlighted key areas in need of improved water supply that were not included in the Municipality’s plans for improvements in the coming five years.

25. Component 2: Secondary City Water Supply and Sanitation – During the AF, the federal city of Dire Dawa was added to the list of beneficiary cities (and was allocated USD 22.2 million, 44 percent of the AF funds). Activities in Dire Dawa were similar to those for the other secondary cities, including a combination of infrastructure investments, changes to improve operational efficiency, and other institutional reforms. Considerable delays were seen in Dire Dawa, in part due to termination (due to poor performance) of the originally procured drilling contractor and the extensive delay in resolving a procurement complaint. As a result, even after the two extensions of the project closing date, some activities were still not able to be completed in the project lifetime. Consequently,

2 For the purposes of this project, in line with the Government definitions, “improved sanitation” includes shared facilities, though the team recognizes that the World Bank core indicator for improved sanitation does not include such facilities. 3 At closing, the plant was 98 percent complete.

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during the 2017 restructuring, the following activities were dropped (and also moved to the new UWSSP-II project): completion of electromechanical equipment and pipes supply and installation works, extension of the network into unserved areas, and provision of tertiary distribution and household connections. Additionally, as in Addis Ababa, the GPOBA activities were dropped, though investments were still made in low income areas.

26. Table 1 summarizes the original and revised financing by component.

Table 1: Summary of World Bank financing, split by componentComponent Originally Allocated

Million XDR(million US$)

Allocation after AFMillion XDR(million US$)

Final Allocation Million XDR(million US$)1

Actual Costs Million XDR(million US$)2

1: AAWSS 44.3 (65.88) 111.6 (170) 92.1 (130.8) 82.7 (117.4)2: Secondary City WSS 19.5 (28.95) 51.1 (77.9) 51.1 (72.5) 53.2 (75.5)3: Project Management and M&E

0.7 (1) 1.4 (2.1) 1.4 (2.0) 0.82 (1.2)

Unallocated 2.8 (4.18) 0 (0) 0.01 (0.02) 0 (0)Project Totals 77.2 (100) 164.1 (250) 144.6 (205.3) 136.7 (194.37)1Estimates based on final allocation amount from December 30, 2017 (following the partial loan cancellation) and based on exchange rate on that date. Note: This figure differs from the original estimate in USD because of the updated exchange rate. 2The final column shows disbursements as of April 30, 2018 and based on the exchange rate from December 30, 2017.

Other Changes27.The following restructurings occurred during the project:

In November 2010, the project was restructured to move funds between categories. The fund movement aimed to cover a shortfall in Addis Ababa (due to higher than anticipated unit costs for the well field and the need to drill deeper than anticipated wells); to allow for the Addis Ababa sewerage and wastewater treatment plant study to be expanded to include an updating for the sewerage master plan; and to allocate additional funds to cover operational costs in secondary cities (an increase from US$15,000 to US$350,000).

In May 2012, the AF also included a restructuring to extend the closing date by three years (from December 31, 2012 to December 31, 2015).

In July 2015, the closing date was extended another year to December 31, 2016. In August 2016, the closing date was extended another year to December 31, 2017. In December 2017, a partial loan cancellation was undertaken to remove the portions of the loan for

uncompleted works in Addis Ababa and Dire Dawa.

Rationale for Changes and Their Implication on the Original Theory of Change28. The restructuring in 2010 and AF (and associated restructuring) in 2012 focused on covering budget shortfalls and expanding the scope of the work, both within the existing project cities, and to the second federal city of Dire Dawa. The expansion of activities (to include Dire Dawa and expanded sanitation activities in Addis Ababa) were incorporated due to GoE interest in expanding the benefits of the project and recognition of the need for improved water supply in Dire Dawa and expanded sewerage coverage in Addis Ababa. The underlying theory of change was

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not affected by this restructuring. Similarly, the extensions of the closing date did not impact the original theory of change.

29. The final restructuring, in 2017, was motivated by the activities in Dire Dawa and Addis Ababa that were added as part of the AF in 2012 but that were not going to be completed in time for project closing. Though the theory of change was not directly impacted by these changes, the ability to meet the PDO and results indicators was negatively impacted. These activities have been moved to the new UWSSP-II, so should be completed, resulting in less risk than if the activities had been completely dropped. However, since the sewer network activities in Addis Ababa have not been completed, the wastewater treatment plant cannot be tested and thus neither activity is finalized.4 These sanitation activities in Addis Ababa were the main activities for sanitation that were monitored under the results framework, even, though sanitation is an equal part, with water supply, of the PDO.

II. OUTCOME

A. RELEVANCE OF PDOs

Assessment of Relevance of PDOs and Rating30. Focus Area 1, of the current CPF (2018-2022), is to “Promote structural and economic transformations through increased productivity.” In order to achieve this aim, five objectives were prioritized, including “new areas for sustainable infrastructure financing and debt management adopted.” In line with the PDO, under this project, utilities undertook a series of reforms aimed at improving operational efficiency and overall utility management. These changes are a necessary, early step in making utilities more creditworthy and increasing cost recovery for the sector. By focusing on financial management, billing/collection, NRW reduction, and related activities, the financial sustainability of the utilities was improved, which should make it easier for them to access private finance in the future.

31. Focus Area 2 is “Building resilience and inclusiveness,” which includes an objective to “increase access to improved water and sanitation.” The PDO directly addressed this objective by focusing on expanding access to improved water supply and sanitation services. Though the PDO did not directly reference expanding access in a resilient and inclusive manner, some of this focus was included within the structure of the project. Further, by supporting water supply and sanitation interventions in low-income communities (through yard taps and public sanitation facilities), the project further supported inclusive development. The public sanitation facilities, in particular, incorporated a series of design changes aimed at ensuring access for all (e.g., adding ramps) and support job creation for traditionally underemployed groups (e.g., people with disabilities, women, youth)

32. The third, and final Focus Area is “Supporting institutional accountability and confronting corruption,” which includes objectives to “increase capacity and improve governance in service delivery” and “strengthen citizen engagement and holding government entities accountable.” By including reference to “sustainable” service delivery, the PDO aimed to include not only infrastructure expansion, but also institutional strengthening. Though the PDO did not explicitly make reference to institutional accountability nor citizen engagement, the utility’s responsiveness to citizens/customers was strengthened under the project through strengthening of customer forums and increasing

4 Since project closing, the dry testing is completed and commissioning of the plant has begun using the existing sewer network flows, which are well below the current capacity of the plant, even when running only one of the four reactors.

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the number of branch offices opened.

33. Beyond aligning with the CPF priorities, the PDO and overall project, were clearly aligned with sector priorities for the Government, including the Government’s Growth and Transformation Plan II (GTP II). The GTP II (2015-2020) outlines Ethiopia’s vision for becoming a middle-income country by 2025, including a focus on supporting the development of the private sector, properly managing urban development (in light of urbanization), and promoting female empowerment and employment, as well as specific targets to increase access to urban water supply and sanitation. Additionally, the GoE’s decentralization and cost recovery efforts were supported through the project’s implementation arrangements, namely, through the utility’s implementation and oversite of construction activities and the use of the WRDF’s revolving funds (i.e., on lending funds to utilities).

34. The overall rating for the relevance of the PDO is High, given the PDO’s clear alignment with the Focus Areas in the CPF.

B. ACHIEVEMENT OF PDOs (EFFICACY)

Assessment of Achievement of Each Objective/Outcome35.The PDO can be unpacked to include the following four outcomes: increased access to sustainable water supply services in Addis Ababa, increased access to sustainable water supply services in targeted secondary cities, increased access to sustainable sanitation services in Addis Ababa, and increased access to sustainable sanitation services in targeted secondary cities. Each of these areas will be separately considered. The achievements for each outcome are also summarized in Annex 1.

36.As per the RF, sustainability was measured through the ratio of the operating revenues over the operating expenses (as an indicator of financial sustainability of the utilities). In addition, the Project Appraisal Document (PAD) also included a list of key elements of sustainability of service delivery, which are: “(i) demand-responsive approach to city selection, (ii) performance-based, stepped approach to receiving assistance so that funding is provided first to put in place appropriate institutional arrangements, plan affordable systems with stakeholder consultation and build capacity for implementation and finally for investments; (iii) effective systems for monitoring and evaluation; (iv) adequately trained staff at all levels; (v) autonomy of service providers; (vi) performance agreements or contracts between service providers and water boards; and (vii) involvement of the private sector.” These items consider the sector-level items that need to be in place to ensure sustainability but make limited reference to sustainability at the utility level. Consequently, to the extent possible, the above items will be considered in the below discussion, but sustainability will also consider improved customer responsiveness and technical sustainability (in terms of ensuring long-term water supply availability). The first item was handled prior to implementation (as part of project design and initial city selection). For the second item, the required first step was development and board approval of a business plan, acceptable to the Bank. All utilities completed this step.

Increased access to sustainable water supply services in Addis Ababa37.Under the project, over 140,000 m3/day of additional water is produced in Addis Ababa, exceeding the target of 100,000 m3/day. Though this estimate is based on a somewhat optimistic estimate of 17 percent technical losses, even with a more conservative estimate of 20 percent NRW technical losses (which is the most recently available estimate for AAWSA), the target is still exceeded. Additionally, of the targeted 40,000 new household connections,

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87,790 were completed. The project was able to greatly exceed the target as the groundwater yields (from the new wells) were considerably higher than expected. As a result, AAWSA was able to connect more households to the network. Similarly, more households than anticipated were able to benefit from improved water supply.

38.Of the targeted 20,000 connections to benefit from the rehabilitation, 176,513 existing connections benefited. This number is an estimate of the number of households that are able to receive an additional 25L/capita/day of water due to the increased production. For the majority of these households, this change is seen as an increase in the number of hours per day (or days per week) that water is supplied. The target also specifically targeted improvements in low-income areas. In the selected low-income areas, 6,000 shared yard taps were constructed and transferred to households to manage. Overall, a large number of households benefited from new or improved quality of service (in terms of volume of water available and/or hours/days of availability) due to the project.

39.In terms of sustainability, the project did implement an improved monitoring and evaluation systems in AAWSA that focused on gathering data for the results framework and continually worked to ensure that AAWSA had the necessary staff (though this was noted as a particular challenge in multiple Implementation Status and Results Reports (ISRs) and aide memoires). The private sector played a role in design and construction, but has played a limited role in service provision. However, the project focused on improving the financial sustainability of the water utility. By FY17, the operating ratio (ratio of operating revenue to expenses) was 1.17, on average between 2007 and 2017, which is above the targeted 1.1. However, over that same period of time, AAWSA’s expenditures have been climbing faster than revenue, and the operating ratio has actually been trending slightly downward. AAWSA also adopted a series of measures to address NRW, including procurement of leak detection equipment, customer water meters, pipes and fittings; GIS hydraulic modeling of the network; work on 10 pilot Demand Management Areas (DMAs); and procurement of test benches to begin the process of testing water meters (AAWSA status report, October 2017). By early 2013, AAWSA had also installed a new computerized billing and accounting system and a new customer service and financial management system with an aim to improve billing/collections and overall financial sustainability. Technical Assistance was also provided to AAWSA to strengthen its top management operational financial and commercial activities.

40.Given the exceeded targets for improved access, fulfillment of some aspects of the PAD-defined sustainability measures, and progress on AAWSA’s financial and operational sustainability, the rating for this outcome is High.

Increased access to sustainable water supply services in targeted secondary cities41.As with Addis Ababa, the secondary cities generally exceeded the targets for increasing water supply access. Across the five secondary cities, over 75,000 m3/day of water were added to the production capacity, exceeding the targeted 50,000 m3/day. However, Dire Dawa did not meet its target, as the works there were not completed.5

These estimates are again based on optimistic estimates of NRW physical losses (ranging from 10 to 13.75 percent) though reported technical losses (where available) are 20-35 percent. However, even if a more conservative estimate of 25 percent technical losses is used, the overall target for secondary cities would still be met.

42.Under the project, a total of 83,277 new connections were made (compared to the target of 50,000) and an estimated 39,000 connections benefited from improved service because of the rehabilitation works (compared to the target of 50,000). The first number potentially slightly overestimates the total number of new connections attributable to the project (as it includes all new connections made by the utilities during the last five years of the project), but very few connections would have been technically possible were it not for the additional production

5 The remaining activities have been transferred to the new Urban Water Supply and Sanitation Project II (UWSSP-II).

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capacity created under the project. Even if only 80 percent attribution is assumed (i.e., 66,622 connections), the project would have still exceeded the target. As in Addis Ababa, the project was able to exceed the targets for new connections and connections benefiting from rehabilitation works due to higher than expected groundwater yields.

43.Under the project, a monitoring and evaluation system (focused on gathering data for the results framework) was implemented in each utility though there were considerable challenges in gathering data, particularly on financial measures. Throughout the project, the utilities and the Government worked to ensure that each utility had the necessary staff (though this was noted as a particular challenge at multiple points during the project). Though some progress was made, in the final months of the project, to develop performance contracts between the utilities and their respective boards, from conversations with the WRDF, utilities, and other Government staff, the overall progress has been minimal due to limited buy in and low prioritization of the process.

44.The private sector played a role in design and construction, but has played a limited role in service provision in each city. However, the project focused on improving the financial sustainability of the water utilities, which may impact future opportunities for private sector engagement. The operating ratio was not able to be consistently tracked in the secondary cities. Financial sustainability is particularly important in the secondary cities as they received the funds as an on-lent loan from the WRDF. According to WRDF, as of October 2017, Gondar, Mekelle, Jimma and Hawasa had all begun repayment and were on track with their commitments, which also shows that these utilities have revenues exceeding their operating expenditures. To further support financial viability of the utilities, each utility also updated or introduced a computerized billing and accounting system with an aim to improve billing/collections. To further support customer relations, a number of utilities opened new branches to make the utilities more accessible to customers (for paying bills, requesting connections, and filing complaints).

45.To help strengthen WRDF’s ability to fulfill its mandate, in lending funds to cities/towns for infrastructure investments in water supply and sanitation, the project also supported capacity building activities (e.g., trainings, consulting services, development of an operational manual, development of appraisal procedures) for WRDF staff and additional institutional strengthening, such as supply of equipment and software.

46.The utilities also undertook studies to better understand the current causes of NRW, but very few activities were completed to address these issues, due to limited budget and time. For example, based on annual progress reports from the utilities, in some cities, GIS management systems were developed; hydraulic models were developed; plans for customer meter testing and replacement were designed and, in some cases, implemented; and other similar initiatives (based on progress reports from utilities).

47.Though the targets for increased access were exceeded overall, they were not met in Dire Dawa. Further, the sustainability measures from the PAD were largely unaddressed, in particular the recommended focus on increasing the autonomy of the utilities. Additionally, though some improvements were made to financial sustainability, the improvements were poorly tracked and likely minimal under the life of the project. Consequently, the rating for this outcome is Modest.

Increased access to sustainable sanitation services in Addis Ababa48.As described above, the planned sewer network expansion, additional household connections and completion of a new wastewater treatment plant were all delayed and not able to be completed under the project. Considerable progress was made laying the main sewer network lines (15.8 of 17.2 km6 were laid) and secondary lines (101.4 of 108 km were laid) and the wastewater treatment plant is complete, except for commissioning. 6 Revised designs only require 17.2 (not 18) km of trunk line.

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AAWSA continues to face challenges in connecting households to the sewer network as the existing connection policies does not allow for sufficient incentives to get households to connect. AAWSA has developed a new policy, but is waiting for municipal approval. Since the sewer network and wastewater treatment plants were not completed, the only completed sanitation related activities were the construction of communal and public toilet facilities. Neither of these types of facilities counts as “improved sanitation” for the Millennium Development Goals (MDGs) or Sustainable Development Goals (SDGs), but the project used a broader definition of improved, to align with the client definition, so these facilities have been tracked. Further, communal and public toilet services are in line with the broader PDO focus on sustainable sanitation services. In total, an estimated 11,662 people benefited, which is far below the targeted 1.55 million. In parallel with the project, AAWSA also invested in an additional 300 toilet facilities.

49.Communal toilets were handed over to the cluster of households to use and maintain them. Public toilets were handed over to small and micro-enterprises (SMEs) comprised of individuals who received some small business training (through a separate government program). These SMEs were tasked with operating and maintaining the facilities on a pay-per-use basis. Though some of the facilities seem to be successful, it is difficult to know how sustainable the overall model is given 1) poor documentation of successes and failures of this model and 2) limited anecdotal evidence from field visits to sites where the operators stressed the difficulties in raising enough money through the user fees to make the operation financially viable. Overall the project made some improvements in increasing access to sanitation service delivery, though the sustainability of these services is unclear, and the project also laid the groundwork for large-scale expansion of the sewer network and wastewater treatment capacity for one catchment in the city, so this outcome is rated Modest.

Increased access to sustainable sanitation services in targeted secondary cities50.In the secondary cities, the main completed sanitation activities were the construction of new public toilet facilities. The same management model used in Addis Ababa was used in the secondary cities and suffered from the same potential short falls. An estimated 24,258 people gained access to either public or shared household toilets in secondary cities under the project.

51.Additionally, in Hawasa, drying beds were constructed and in Gondar and Hawassa, new vacuum trucks were procured. These activities will help improve fecal sludge management in the respective cities, which is a key part of sanitation service delivery in locations with on-site sanitation. These activities are not captured in the RF as they consider downstream parts of the sanitation service chain (whereas the RF only focuses on household facilities). During the time of the project, sanitation service provision was not always the responsibility of the utilities (and instead may have fell to the Municipalities), not the water utilities, but recently all water utilities have become responsible for sanitation service provision, so long-term sustainability of this new equipment and infrastructure is more likely given the other institutional strengthening activities completed for the utilities. Overall, a few modest gains were seen for sanitation service provision, but too little was done to ensure that the infrastructure improvements will be sustainable. Thus, overall, the rating on this outcome is Negligible.

Justification of Overall Efficacy Rating 52.Since the PDO includes reference to Addis Ababa and “targeted secondary cities,” the secondary cities are collectively being weighed equally with Addis Ababa. Similarly, water supply and sanitation are being equally weighed. Consequently, given the overall success in achieving the water supply aspects of the PDO, in both Addis Ababa and the targeted secondary cities, but failure to satisfactorily meet the sanitation aspects, particularly in the

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secondary cities, the overall efficacy rating is Modest.

C. EFFICIENCY

Assessment of Efficiency and Rating 53.When originally appraised, and again during the AF appraisal, the project was projected to have positive economic impacts in all project locations and positive financial impacts in Addis Ababa, though not in the secondary cities. However, following the partial loan cancellation (XDR 19.5 million, equivalent to US$27.7 million) in December 2017 (and associated reduction in beneficiaries and project impacts) the overall economic and financial analyses were severely adversely impacted. Table 3 summarizes these results. Importantly, for the secondary cities, the financial analysis includes the full capital costs of the investments, though in practice, the utilities are not expected to cover the full cost, as 30 percent of the cost is covered through a matching fund and subsidies from the federal government.

Table 3: Summary of Financial and Economic Analysis Results Location FNPV (million ETB) FIRR (%) ENPV (million ETB) EIRR (%)Addis Ababa Original Project 136 15 217 20

Additional Financing 1,398 18 2,048 23

At Closing -316.7 6.1 -46.3 9.5Secondary cities Original Project -15.3 3 10.4 15

Additional Financing -482 0.32 335 16

At Closing -949.3 -5.5 102.9 11.6Overall At Closing -1,275.6 1.5 56.5 10.4

54.Additionally, the economic and financial performance of the project was adversely impacted by cost overruns, partly due to depreciation of XDR relative to US$ and devaluation of ETB (the exchange rate, relative to US$, tripled, from 9 ETB to over 27 ETB, over the life of the project). Delays in the project also impacted the efficiency as benefits were delayed for most activities. Some of the delays in water supply system commissioning were due to delays in being able to connect to the main energy grid. The high staff turnover (particularly within the utilities, linked to unoptimized incentive structures), and low procurement capacity through the life of the project, also negatively impacted efficiency.

55.In contrast, efficiency gains were seen under the project due to: a) the participatory design approach which ensured greater household buy-in and fewer construction delays; b) the stepped approach which required utilities first demonstrate they have the capacity to deliver capital projects and the capacity (technical, financial, etc.) to maintain the additional assets; improvements to operational efficiency and customer management that were made as part of the project; and c) prioritization of service improvements to existing assets, rather than only focusing on new construction.

56. Annex 4 includes more detailed information on the updated financial and economic cost analysis, which shows the analyses for both Addis Ababa and the secondary cities. The analyses show low economic benefits, which are also lower than international benchmarks for the sector. Further, the financial analysis of net present

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value for Addis Ababa and the secondary cities is negative. Given the difficulties of charging for full cost recovery through the tariff, some of this financial difference is being covered by the federal government and thus will not adversely impact the overall financial health of the utilities (which has actually improved under the project). Given the negative net present value for both financial analyses but the overall positive, though low value, economic net present value for the project, the overall efficiency rating is Modest.

D. JUSTIFICATION OF OVERALL OUTCOME RATING57. The project relevance is rated High, the efficacy is rated Modest, and the efficiency is rated Modest, so the overall outcome rating is Moderately Unsatisfactory. Even though the PDO was revised, a split evaluation was not conducted as the change to the PDO just expanded the scope of the PDO to an additional secondary city, and will not affect the overall outcome rating.

E. OTHER OUTCOMES AND IMPACTS (IF ANY)

Gender58.For creating the SMEs to operate and manage public toilet facilities, each city encouraged local government representatives to create SMEs of women, young people and people with disabilities. This targeting is in line with larger government priorities to create jobs for these traditionally underemployed groups. Efforts were also made to increase the utility of the public toilet facilities to also include water supply, washing station, wheel-chair accessible facilities, etc. (see ISR 13 for more details). This change in design was largely spurred by feedback from some of the initial attendants. However, given the concerns with the sustainability of the public toilet management model, particularly linked to issues with financial viability of the enterprises, it is unclear to what extent female employment and income was actually impacted.

Institutional Strengthening 59.As noted above, the project supported the institutional strengthening of key sector institutions at all levels – from the MoWIE to the WRDF down to the utilities. These institutions were provided with technical assistance and necessary office resources (including software and other equipment).

Mobilizing Private Sector Financing60.By supporting the financial sustainability of the utilities, the project is MFD-enabling (i.e, supports the environment necessary for Maximizing Finance for Development [MFD]). Further, the WRDF revolving fund model has proven to be effective and could be scaled up. The ability of utilities to pay back WRDF also suggests they may be more financially sustainable than in the past, which will make it easier for them to eventually go to the private sector for financing.

Poverty Reduction and Shared Prosperity61.The project specifically targeted areas with a high concentration of poor households to ensure all types of households would benefit from the project. In Addis Ababa, a thorough baseline assessment was done to determine where these areas were within the city, which ones lacked access to improved water supply and sanitation services, and which areas were not scheduled for upgrading within the lifetime of the project (through some alternative government program). The project provided standpipe access for water supply and shared and

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public toilet/hygiene facilities for these areas.

Other Unintended Outcomes and Impacts 62.There are no unintended outcomes or impacts beyond those related to gender, institutional strengthening, mobilizing private sector financing, and poverty reduction.

III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME

A. KEY FACTORS DURING PREPARATION63. The project was strengthened by the early capacity building activities, aligned with a needs assessment. Additionally, the overall approach to city selection, which required cities demonstrate need and interest in engaging on these issues, helped ensure sufficient buy-in and project ownership.

64. During preparation the project chose a realistic objective and a straightforward design, with clearly articulated components aligned with the objective. The objective aligned well with the Government priorities at the time as well as the CPS that was in place then.

65. However, the results framework during preparation had some gaps, in that it focused too heavily on water supply access improvements and did not give equal weight to sustainability considerations (as defined in the project appraisal document [PAD]) or to sanitation service provision, especially outside of Addis Ababa.7 Additionally, there was poor planning for how the results framework indicators were actually going to be monitored in practice, as evidenced by the dropping of one indicator (hours of service delivery per day) and the struggle to measure the operating ratio outside of Addis Ababa for the lifetime of the project. Additionally, as noted above, some of the estimation techniques are overly simplified and could have been greatly improved through minor changes aimed at increasing attributability of activities.

66. During preparation, the project also relied on very limited stakeholder engagement for project design – both overall and at the city level. For instance, no household surveys were completed during preparation or early in the project’s life, although baseline data were gathered from each utility. Lastly, though readiness with respect to technical designs was good, considerable delays were caused by the lack of procurement and financial management capacity at the appropriate levels (especially within the utilities).

B. KEY FACTORS DURING IMPLEMENTATION67. Government: During implementation the Government faced a number of challenges that adversely impacted implementation. First, there were long delays in the beginning due to lack of sufficient procurement and FM capacity at the necessary levels. These problems recurred throughout the project, partly due to high staff turnover (particularly within the utilities). The high staff turnover also affected other areas of staffing and caused delays at various points and necessitated additional/repeated trainings. In Dire Dawa, the delays were partly due to low capacity at the start of the project, even though experience had shown how important it was to address these issues early, and due to delays in making decisions on how to resolve a procurement complaint.

7 The RF focus on access, rather than sustainability of service delivery, is partly due to the project having been designed when the MDGs were still in effect, as the MDGs focused only on access.

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68. The Government also faced challenges in coordination due to the number of different institutions involved in the project, both in terms of the number of utilities and the number of national and regional bodies. For example, lack of integrated municipal infrastructure master plans caused difficulties in coordination between the utilities and municipalities in some cities. Additionally, in Addis Ababa further challenges arose because of coordination challenges with the Municipality, as the sewer connection policy was delayed by many months as AAWSA waited for approval to implement the new policy.

69. Some delays were also caused by challenges in acquiring land (e.g., in Addis Ababa acquiring land for public toilets caused delays) and Right of Way issues caused delays in multiple cities, especially for sewer network construction in Addis Ababa and distribution network construction in Dire Dawa. However, outside of the trunk line construction in Addis Ababa, these activities were not on the critical path and thus did not cause overall delays in the project’s implementation.

70. The project benefited from the commitment of high level leadership and from the leadership of utility managers who were, in most cases, dedicated to the project’s objectives. Additionally, though there were exchange rate losses, the project largely addressed the associated financial challenges through the various restructurings and AF.

71. World Bank: The World Bank’s supervision included some proactive measures (e.g., conducting the MTR early due to disbursement challenges that were seen). Additionally, the Bank team, overall, was able to follow up on issues addressed during implementation, but little was done to address the recurrent challenges, such as the ongoing capacity issues for procurement and financial management.

72. The project greatly benefited from no TTL turnover and similarly had continuity in other core team members throughout the project. The reporting on safeguards showed that issues were addressed as they occurred and problems were typically not recurrent. However, lack of personal protective equipment and other site safety measures was noted during a few site visits conducted for the ICR preparation. It is important to note that many sites also had high safety standards, including workers wearing all appropriate personal protective equipment.

73. Overall, reporting during the project provided candid reflections on the status of the project. There were, however, delays in downgrading some ratings. For example, though it was recognized in multiple ISRs that the sewer network activities in Addis Ababa were greatly behind schedule, the project continued to rate the progress towards achievement of PDO as Moderately Satisfactory until the final ISR, in the final month of the project.

IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME

A. QUALITY OF MONITORING AND EVALUATION (M&E)

M&E Design74. Overall, the M&E system for the project was robust, as the third component of the project focused on strengthening M&E capability at different levels within the sector. As a result of this strengthening, the utilities were able to provide inputs to the M&E system and institutionalize some of the process of regular data collection, and

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M&E principles more broadly. However, the design framework was too narrowly focused on water supply access expansion, with comparatively little focus on the sanitation outcomes and the sustainability measures (both those defined by the PAD and broader sustainability considerations). For example, the PAD’s definition of sustainability emphasizes the need for greater autonomy of the utilities and the need for performance agreements between the utilities and their boards. However, none of these activities or related outcomes were tracked as part of the results framework. Additionally, in the results framework, the indicators for sanitation, particularly outside of Addis Ababa, do not fully capture the activities undertaken for sanitation investments.

75. Additionally, the results framework included indicators for which it was not ultimately feasible to gather data regularly (namely hours of water supply per day and the operating ratio). Rather than drop the indicator or measure it only infrequently, alternative indicators could have been chosen. For instance, both in Addis Ababa and secondary cities, rationing plans have been in place such that each area in the city only receives water on certain days. As a result of the project, these rationing plans changed and allowed for water to be supplied for more days per week to each area. Days per week of service provision or areas under water rationing would have been easier to track and would have also demonstrated improvements in service quality. Similarly, a large number of activities took place to help address the operating efficiency. Since measuring operating revenues and expenses proved challenging, some of these intermediate outcomes could have instead been measured (e.g., installation of new billing/collection systems, NRW activities, etc.).

76. Lastly, the indicators, even for water supply, focused more on infrastructure creation than on usage of the infrastructure. Though measuring usage is considerably more challenging, it may have made sense to do so for a subset of activities, or to incorporate into the M&E process a baseline and endline household survey. This type of survey would have also been able to capture beneficiary feedback on the project and customer satisfaction with service provision.

M&E Implementation77. In general, the results framework was regularly updated based on progress under the project, and this updating relied on regular M&E reports from the utilities, MOWIE and WRDF. In the first years of the project, MOWIE dedicated considerable time and resources to building the capacity of utilities to gather and share data. The utility progress reports included updates both on the results framework and broader project updates, allowing for course correction as needed.

78. Focusing on the results framework, some of the indicators required calculations that involved a number of assumptions (e.g., number of new piped connections, number of piped connections benefitting from rehabilitation, etc.). For these indicators, as noted above, the calculations could have been modified to minimize over/under-estimation to help ensure the numbers presented are attributable to the project. For example, in calculating the number of new connections, rather than just count the number of total connections in a given period, the number of new connections per year for the period before the project began (gathered at baseline) could have been subtracted from the project period numbers, so that only the increase in connections would be counted.

79. Additionally, for an extended period of time, the ISRs noted that the operating ratio figures needed verification, both for Addis Ababa and the secondary cities. This issue seems not to have been addressed in a timely manner. Part of the reason for this delay in verifying the figures stemmed from the need for the utilities to have their accounts audited.

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80. Lastly, a number of indicators from the results framework following the 2012 AF and restructuring do not appear in the subsequent ISRs, though they were tracked within aide memoires (AMs). The missing indicators include the sanitation indicators (number of people in low-income areas provided with improved sanitation in Addis Ababa and secondary cities, new HH connections to sewers in Addis Ababa, people benefiting from improved sewer system in Addis Ababa). This focus on water supply over sanitation is also reflected in the utility progress reports that dedicate the majority of the reports to updates on water supply infrastructure expansion.

M&E Utilization81. The project used the results framework, and some challenges in the process of updating the results framework, to help inform the restructuring and overall supervision follow up priorities, particularly for water supply access. Since the M&E system focused heavily on water supply access, the non-water supply access aspects of the project were less likely to be changed based on the M&E procedure.

Justification of Overall Rating of Quality of M&E82. Overall, the M&E for the project focused too heavily on only a part of the PDO, namely water supply access. This focus was intensified following the AF, as a number of results indicators for sanitation were not regularly tracked in the ISRs. However, under the third component of the project, the capacity of the Government, at multiple levels, was strengthened to allow for timely M&E (at least for the areas prioritized in the results framework), including the utilities’ submission of regular reports with project updates. Given the significant shortcomings in the design of the project’s M&E and ongoing challenges with M&E during supervision, resulting in limited utilization, the overall rating of quality of M&E is Modest.

B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE83. Environmental and Social Safeguards: The project was Category B and triggered the following safeguards: OP/BP 4.01 Environmental Assessment, OP/BP 4.11 Physical Cultural Resources, OP/BP 4.12 Involuntary Resettlement, OP/BP 4.37 Safety of Dams, and OP/BP 7.50 Projects on International Waterways. The project complied with all applicable environmental and social safeguards. However, in some project locations, there were delays due to lack of capacity for undertaking necessary assessments and using necessary tools; delays related to compensation and resettlement for project-affected people (PAPs); lack of sufficient attention and compensation for livelihoods-related losses; lack of safeguards experts in secondary cities (early in the project); poor documentation for safeguards in some cities; and late implementation of grievance redress systems that were recommended to be strengthened with limited progress.

84. In line with OP 4.01 and OP 4.12, and Environmental and Social Management Framework and Resettlement Policy Framework were developed during preparation and in line with both, Environmental and Social Impacts Assessments and Resettlement Action Plans (RAPs) were developed to cover all beneficiary cities. A total of 89 project affected persons were compensated, following the RAPs. OP 4.11 was triggered in case a cultural heritage was found during the course of implementation. However, the project did not encounter cultural heritage sites and no further action was required. Additionally, under OP 4.37, the necessary dam safety plans were created (for Gondar and Addis Ababa) and the Terms of Reference for the independent panel of experts was cleared by the Bank.

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85. Lastly, in line with OP 7.5, the Bank notified the Governments of Djibouti, Egypt, Eritrea, Kenya, and Sudan about the project. By the deadline for response, Sudan provided a positive response and Kenya responded with a request for additional information, which was provided. Kenya sent an additional letter asking for additional time to decide, and after being granted that time did not provide any further correspondence. Eritrea sent a letter, after the requested date, stating their objection to the project as they felt it involved a disputed region of land near the border. A response was sent that clarified the project areas did not fall within the disputed area. No further correspondence was received, and the Bank legal team allowed the project to move forward.

86. Financial Management and Procurement: The project generally complied with financial management (FM) requirements, though there were some reporting delays (particularly in the beginning of the project). The project suffered due to a) low capacity, especially at the utility level at the start of the project, and b) accounting challenges that could have potentially been fixed with better management early on. There was inconsistent progress made addressing the low capacity issue, partly due to high staff turnover. At both the utility and Ministry level, there were consistent challenges with accounting due to poor budgeting and budget monitoring and long outstanding balances. Overall, as issues were raised in AMs/ISRs, they were quickly addressed, except for the issue with long outstanding balances which continued to be a challenge throughout the project.

87. Overall, the majority of project activities complied with procurement requirements but there were issues of non-compliance throughout the lifetime of the project. Part of the reason for problems with compliance was procurement capacity limitations at different levels. The Government had the necessary staff, in general, but the staff often lacked the necessary capacity, partly due to high turnover. The capacity issue was also partly due to the lack of state user manuals. There was also confusion amongst some Government staff (e.g., auditors) over the use of World Bank procurement guidelines (as compared to Government guidelines). In the case of Dire Dawa, this confusion resulted in delays as a local oversight office did not realize the Bank’s guidelines, and not the standard Government laws, should be used. Lastly, it may be worth noting that some of the risks associated with procurement have been moved to UWSSP-II, as all claims on old contracts that have not been fully resolved have been rolled over into the new project.

C. BANK PERFORMANCE

Quality at Entry88. At entry, the project was of strategic relevance in the sector and aligned well with the Bank’s competitive advantage, particularly in terms of providing technical support. Technical preparation for water supply was well planned. Financial and economic considerations were well prepared, as were the necessary fiduciary, procurement, and safeguard arrangements, though some lack of capacity was not addressed till after entry. The planned implementation arrangements were well defined and the Bank provided a fair assessment of risks based on knowledge at that time.

89. However, as noted above, there were notable limitations in the design of the M&E results framework, though the overall M&E system was well designed. Additionally, technical preparation for sanitation in Addis Ababa was low, and remained so for the first years of the project. The institutional arrangements and policy aspects were generally well planned, though the capacity constraints noted were not addressed at entry nor was there sufficient

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planning for the magnitude of capacity needs.

Quality of Supervision90. The Bank supervision was strong in terms of adequacy of supervision inputs and processes, especially following the MTR, after which the Bank responded with more frequent missions, including support from a range of international experts, to help get the project back on track. As part of these missions, the Bank team also organized workshops with all utilities to support knowledge sharing – on technical, procurement, financial and safeguards issues – between the different cities. The Bank was also involved in ensuring there are plans in place for O&M of the infrastructure constructed after the project closes, though there were gaps as it is still unclear how sustainable the public toilet management model will be. The Bank provided proper supervision of fiduciary and safeguards aspects, though often delayed in lowering ratings even when problems arose.

91. The project suffered following the AF and was unable to fully implement the new activities (which significantly expanded the scope of the project). The decision to undertake the AF may have benefited from additional review or more thorough preparation before being approved since some of the works in Dire Dawa and the sewer activities in Addis Ababa were eventually cancelled (and moved to UWSSP-II). More generally, the project had some shortcomings in the quality of reporting, specifically due to delayed ratings adjustments, though the ISR and AM text generally provided candid reflections of the status of the project. Lastly, as stated elsewhere, the project suffered due to lack of equal focus on the sanitation activities and poor documentation of non-water supply access-related activities as part of M&E. Both of these factors resulted in lower success in attaining the PDO.

Justification of Overall Rating of Bank Performance92. Overall, the Bank’s quality at entry had moderate shortcomings given the lack of sufficient attention to sanitation planning and the gaps in the results framework and associated M&E. There were also moderate shortcomings in quality of supervision, particularly the lack of focus on sanitation and non-water supply access-related activities and some minor shortcomings in the candor of reporting. Given these factors, the overall rating of the Bank’s performance is Moderately Unsatisfactory.

D. RISK TO DEVELOPMENT OUTCOME93. Given the cancellation of the funds for the sewer network expansion and finalization of works for the Addis Ababa wastewater treatment plant and Dire Dawa works, the risks to the Development Outcomes have been transferred to UWSSP-II for these activities. For the infrastructure constructed under UWSSP, there is a somewhat high risk that management of the public toilet facilities will not be sustained, resulting in the failure of these facilities. For water supply, there is little short-term risk of infrastructure failure, but instead there is a risk that the new sources and/or new network areas will fall into disrepair before the end of their projected lifetimes. This risk is partially mitigated by the improvements made in operating efficiency, financial management, and customer responsiveness. There is similarly some risk that these improvements in the operating norms of utilities will not be sustained. However, these activities will continue to be supported under UWSSP-II, so the risk that the improvements will be lost is reduced, at least in the coming years.

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V. LESSONS AND RECOMMENDATIONS94. The key lessons learned are the following:

95. The WRDF revolving model, of on-lending funds to utilities (after they provide matching funds), works in practice, as evidenced by utility repayments already underway. This model allows for World Bank funds to be better leveraged and helps ensure high levels of buy in from the utilities. This model will continue to be utilized under UWSSP-II.

96. Energy supply from the grid is not always reliable, and there can be long delays in getting a connection to the grid, particularly outside of Addis Ababa. In line with this finding, under UWSSP-II, one of the criteria for selecting treatment technologies is a preference for lower reliance/requirements for energy inputs.

97. Training on core project activities (procurement, FM, safeguards, M&E, contract management, etc.) is critical to ensuring the success and timely completion of projects. This capacity needs to exist at all relevant levels, including within the utilities, complemented by sufficient oversight/management (ideally lead by a full-time staff member, other than the utility manager). It takes considerable time to build M&E capacity, and this capacity building is strongly supported by standard reporting formats. This standard reporting, and the M&E framework, can support proper oversight of project activities, but areas not fully reflected in the M&E framework tend to get less attention. In support of capacity building, under UWSSP, knowledge exchanges between utilities in different cities, especially between secondary cities and Addis Ababa, provided for deep learning experiences, both on technical issues, procurement and related project activities. This model of technical exchanges will continue under UWSSP-II.

98. To ensure success of urban sanitation interventions, focus on household connections, household preferences, and household willingness and ability to pay need to be considered from the very beginning. Under UWSSP, the lack of early focus on households is part of the reason for the delay – and ultimately cancellation of – key sanitation activities in Addis Ababa. Under UWSSP-II, there is an intention to put greater focus on households – their connection to networks, their access to onsite facilities, their preferences, ability and willingness to pay – which should support faster and smoother implementation. Additionally, conditions under which public toilets are financially viable is variable, even within a city, in part due to household behaviors and preferences. To better understand the conditions under which this model is financially viable, a study is being undertaken (under UWSSP-II) to understand the experiences in Addis Ababa. The specific findings will likely be applicable in other cities in Ethiopia, and may also be informative for other countries.

99. The activities added in Dire Dawa and Addis Ababa as part of the AF were not completed under the project, even with multiple extensions of the project closing date. Given the challenges that arose in implementing the activities added under the AF, greater care should be taken moving forward, to ensure appropriateness of scope of proposed activities under projects, particularly when added as part of an AF.

.ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS

1. RESULTS INDICATORS

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A.1 PDO Indicators

Increased access to sustainable water supply services in Addis Ababa

Indicator Name Unit of Measure Baseline Original TargetFormally Revised Target

Direct project beneficiaries Number 0.00 4000000.00 4200000.00

24-Apr-2007 24-Apr-2007 31-Dec-2017

Female beneficiaries Percentage 0.00 2000000.00 2100000.00

24-Apr-2007 24-Apr-2007 31-Dec-2017

Comments (achievements against targets): 91.8% achievement


Ratio of Operating revenues/expense

Percentage 0.00 110.00 110.00

24-Apr-2007 24-Apr-2007 31-Dec-2017

People benefited from piped household water connections affected by rehabilitation works undertaken under the project (million)

Number 0.00 0.00 3000000.00

24-Apr-2007

Comments (achievements against targets): 100% achievement (for the Operating Ratio)90.7% achievement (for people benefited from piped HH water connections affected by rehabilitation works undertaken under the project)


Number of people in urban areas provided with access to Improved Water Sources under the project (Number)

Number 0.00 1000000.00 1200000.00

24-Apr-2007 24-Apr-2007 31-Dec-2017

Comments (achievements against targets): 92% achievement

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Increased access to sustainable water supply services in targeted secondary cities



24-Apr-2007 24-Apr-2007 31-Dec-2017


24-Apr-2007 24-Apr-2007 31-Dec-2017



Ratio of Operating revenues/expense

Percentage 0.00 110.00 110.00

24-Apr-2007 24-Apr-2007 31-Dec-2017

People benefited from piped household water connections affected by rehabilitation works undertaken under the project (million)

Number 0.00 0.00 3000000.00

24-Apr-2007

Comments (achievements against targets): 100% achievement (for the Operating Ratio)90.7% achievement (for people benefited from piped HH water connections affected by rehabilitation works undertaken under the project)


Number of people in urban areas provided with access to Improved Water Sources under the project (Number)

Number 0.00 1000000.00 1200000.00

24-Apr-2007 24-Apr-2007 31-Dec-2017


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Increased access to sustainable sanitation services in Addis Ababa



24-Apr-2007 24-Apr-2007 31-Dec-2017


24-Apr-2007 24-Apr-2007 31-Dec-2017



Number of people in urban areas provided with access to Improved Sanitation under the project

Number 0.00 500000.00 1550000.00

24-Apr-2007 24-Apr-2007 31-Dec-2017


Increased access to sustainable sanitation services in targeted secondary cities



24-Apr-2007 24-Apr-2007 31-Dec-2017


24-Apr-2007 24-Apr-2007 31-Dec-2017



Number of people in urban Number 0.00 500000.00 1550000.00

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areas provided with access to Improved Sanitation under the project

24-Apr-2007 24-Apr-2007 31-Dec-2017


A.2 Intermediate Results Indicators

Increased access to sustainable water supply services in Addis Ababa AND Increased access to sustainable water supply services in secondary cities


New piped household water connections that are resulting from the project intervention

Number 0.00 65000.00 90000.00

24-Apr-2007 24-Apr-2007 31-Dec-2017

New Piped household Water connections that are resulting from the project intervention in Addis Ababa

Number 0.00 40000.00 40000.00

24-Apr-2007 24-Apr-2007 31-Dec-2017

New Piped household water connections that are resulting from the project intervention in Secondary cities

Number 0.00 25000.00 50000.00

24-Apr-2007 24-Apr-2007 31-Dec-2017

Comments (achievements against targets): 190% achievement (for new piped connections)220% achievement (for new piped connections in Addis Ababa)167% achievement (for new piped connections in secondary cities)


Piped household water connections that are benefiting from rehabilitation works undertaken by the project

Number 0.00 0.00 30000.00

24-Apr-2007 24-Apr-2007 31-Dec-2017

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Piped household water connections affected by rehabilitation work undertaken under the project-Addis Ababa

Number 0.00 0.00 20000.00

24-Apr-2007 24-Apr-2007 31-Dec-2017

Piped household water connections affected by rehabilitation works undertaken under the project- Secondary cities

Number 0.00 0.00 10000.00

24-Apr-2007 24-Apr-2007 31-Dec-2017

Comments (achievements against targets): 718% achievement (for piped connections benefiting from rehabilitation)883% achievement (for piped connections benefiting from rehabilitation in Addis Ababa)390% achievement (for piped connections benefiting from rehabilitation in secondary cities)


Number of water utilities that the project is supporting

Number 0.00 0.00 6.00

24-Apr-2007 24-Apr-2007 31-Dec-2017



Cubic Meter(m3)

0.00 120,000.00 150,000.00

24-Apr-2007 24-Apr-2007 31-Dec-2017

0.00 100,000 100,000

24-Apr-2007 24-Apr-2007 31-Dec-2017

Increased access to sustainable sanitation services in Addis Ababa AND Increased access to sustainable sanitation services in secondary cities

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People with improved sanitation in low income areas

Number 0.00 500,000 500,000

24-Apr-2007 24-Apr-2007 31-Dec-2017

People with improved sanitation in low income areas in Addis Ababa

Number 0.00 300,000 250,000

24-Apr-2007 24-Apr-2007 31-Dec-2017

People with improved sanitation in low income areas in secondary cities

Number 0.00 200,000 250,000

24-Apr-2007 24-Apr-2007 31-Dec-2017

Comments (achievements against targets): 7.2% achievement (for improved sanitation in low-income areas)4.7% achievement (for improved sanitation in low-income areas in Addis Ababa)9.7% achievement (for improved sanitation in low-income areas in secondary cities)


New HH connections to sewer lines

Number 0.00 n/a 73,500

24-Apr-2007 24-Apr-2007 31-Dec-2017

People benefiting from improved sewer system

Number 0.00 n/a 360,000

24-Apr-2007 24-Apr-2007 31-Dec-2017

Comments (achievements against targets): New HH connections to sewer lines 0% achievedPeople benefiting from improved sewer system 0% achieved

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A. KEY OUTPUTS BY COMPONENT

Objective/Outcome 1 Increased access to sustainable water supply services in Addis Ababa

Outcome Indicators

1. People provided with access to “improved water sources” under the project 2. People benefiting from piped household water connections affected by rehabilitation works undertaken under the project 3. Ratio of operating revenues/expenses4. Water utilities that the project is supporting5. Direct project beneficiaries, of which female

Intermediate Results Indicators

1. New piped household water connections that are resulting from the project intervention2. Piped household water connections affected by rehabilitation works undertaken under the project3. Volume of water produced from improved sources under the project

Key Outputs by Component(linked to the achievement of the Objective/Outcome 1)

1. 144,900 m3 per day of additional water is produced (145% of target)2. 87,790 new household water connections were completed (219% of target), including 6,000 shared yard taps 3. 176,513 household water connections benefited from the rehabilitation of works (estimated based on number of households that are able to receive an additional 25L/capita/day of water) (883% of target)4. Installation of leak detection equipment, customer water meters and GIS hydraulic modeling and 10 pilot DMAs5. Implemented new M&E system in AAWSA6. TA to support operational financial and commercial activities7. Implemented new computerized billing and accounting system and a new customer service and financial management system

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Objective/Outcome 2 Increased access to sustainable water supply services in targeted secondary cities

Outcome Indicators

1. People provided with access to “improved water sources” under the project 2. People benefiting from piped household water connections affected by rehabilitation works undertaken under the project 3. Ratio of operating revenues/expenses4. Water utilities that the project is supporting5. Direct project beneficiaries, of which female

Intermediate Results Indicators

1. New piped household water connections that are resulting from the project intervention2. Piped household water connections affected by rehabilitation works undertaken under the project3. Volume of water produced from improved sources under the project


1. 76,265 m3 per day of additional water is produced (153% of target)2. 83,277 new household water connections were completed (167% of target)3. 38,999 household water connections benefited from the rehabilitation of works (estimated based on number of households that are able to receive an additional 25L/capita/day of water) (390% of target)4. Studies undertaken to assess NRW5. Implemented new M&E system in all utilities6. TA to support operational financial and commercial activities of utilities7. Implemented new or improved computerized billing and accounting systems and new customer service and financial management systems8. New branch offices opened in selected cities9. TA to support WRDF, as well as capacity building activities and

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institutional strengthening (e.g., supply of equipment and software)

Objective/Outcome 3 Increased access to sustainable sanitation services in Addis Ababa

Outcome Indicators1. People provided with access to “improved sanitation” under the

project2. Direct project beneficiaries, of which female

Intermediate Results Indicators1. New household connections to sewer lines2. People benefitting from improved sewer system3. People with improved sanitation in low-income areas


1. 0 new household connections to sewer lines2. 15.8 km of main sewer network lines (91.9% of target)3. 101.4km of secondary sewer lines (93.9% of target)4. Wastewater treatment plant constructed 5. 29 public toilet facilities constructed6. 14 shared toilet facilities constructed

Objective/Outcome 4 Increased access to sustainable sanitation services in targeted secondary cities

Outcome Indicators1. People provided with access to “improved sanitation” under the

project2. Direct project beneficiaries, of which female

Intermediate Results Indicators 1. People with improved sanitation in low-income areas


1. 4 public toilet facilities were constructed 2. 50 shared toilet facilities constructed 3. 2 vacuum trucks procured4. New drying beds constructed for fecal sludge treatment

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ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION

A. TASK TEAM MEMBERS

Name Role

Preparation

Yitbarek Tessema Task Team Leader

Robert Roche Lead Sanitary Engineer

Alexander McPhail Lead Wat. and San. Specialist

Alessandro Palmieri Lead Dam Specialist

Edeltraut Gilgan-Hunt Environmental Specialist

Rajat Narula Sr. Finance Officer

Jonathan Pavluk Sr. Counsel

Eshetu Yimer Sr. Financial Management Specialist

Samuel Haile Selassie Sr. Procurement Specialist

Belete Muluneh Sr. Water and Santiation Specialist

Wuleta Giday Program Assistant

Marie Claire Li Tin Yue Program Assistant

Mustafa Zakir Hussain Et Consultant FEU

Seleem Karimjee Principal Investment Officer

David Bot B a Njock Investment Officer

Tekalign Tsige Un-Habitat Ethiopia Office

Roland Lieumberger Consultant on NRW

Gordon Hughes Consultant on Cost o f service and tariff

Frederic Geovenetti Consultant- environment and Social

Supervision/ICRYitbarek Tessema Task Team Leader(s)

Ayalew Kebede Belew Procurement Specialist(s)

Abiy Demissie Belay Financial Management Specialist

Solomon Alemu Team Member

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Tesfaye Bekalu Wondem Team Member

Chukwudi H. Okafor Social Safeguards Specialist

Wendwosen Feleke Team Member

Yohannes Fisseha Team Member

Azeb Afework Team Member

Yodit Teamir Rezene Team Member

Gulilat Birhane Eshetu Team Member

Tamru Demsis Temam Environmental Safeguards Specialist

Yitbarek Tessema Task Team Leader(s)

Ayalew Kebede Belew Procurement Specialist(s)

Abiy Demissie Belay Financial Management Specialist

Solomon Alemu Team Member

Tesfaye Bekalu Wondem Team Member

Chukwudi H. Okafor Social Safeguards Specialist

Wendwosen Feleke Team Member

Yohannes Fisseha Team Member

Azeb Afework Team Member

Yodit Teamir Rezene Team Member

Gulilat Birhane Eshetu Team Member

Tamru Demsis Temam Environmental Safeguards Specialist

1. STAFF TIME AND COST

Stage of Project CycleStaff Time and Cost

No. of staff weeks US$ (including travel and consultant costs)

PreparationFY07 40.902 157,312.27

FY08 0 0.00

Total 40.9 157312.27

Supervision/ICR

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FY08 27.692 81,630.31

FY09 37.268 177,189.36

FY10 50.907 145,023.85

FY11 29.594 71,920.76

FY12 18.250 53,299.77

FY13 34.131 95,569.96

FY14 60.263 158,839.94

FY15 52.892 128,897.53

FY16 30.800 71,059.60

FY17 32.531 85,287.68

FY18 32.515 121,954.64

Total 406.84 1190673.4

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ANNEX 3. PROJECT COST BY COMPONENT

Components Amount at Approval (US$M)

Actual at Project Closing (US$M)

Percentage of Approval (US$M)

Addis Ababa WSS 65.88 117.4 178%

Secondary City WSS 28.95 75.5 261%

Program Management 1 1.2 120%French Development Agency Funding 9 9 100%

Total 104.83104.83 203.1 6.59

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ANNEX 4. EFFICIENCY ANALYSIS

Background 1. Originally the project was estimated to cost US$100 million to be disbursed over five years. In 2012, an AF of US$150 million was approved (i) to account for increased project scope, resulting from the addition of another secondary city (Dire Dawa) as a project beneficiary and the expansion of the sewerage system (from 10,000 m3 per day to 100,000 m3 per day) in Addis Ababa; and (ii) to address a financing gap encountered in the project due to depreciation (of XDR and ETB against US$), inflation, increases in the cost of factor inputs (construction materials, labor and capital), changes to the water source development activities, etc.

2. At appraisal of the original project, separate financial and economic analyses were conducted for the Addis Ababa component and the secondary cities component; these analyses were updated during the AF. For both components, the project financial and economic returns were calculated without disaggregation of water and sanitation services, as the utilities do not separately track finances for the two (e.g., they have records of their monthly energy costs, but not their energy costs for water supply separate from the energy costs for sanitation services). Accordingly, the Addis Ababa component was found to be economically and financially viable both for the original project and with the additional financing, while the secondary cities component was economically viable but with a negative financial NPV (see Table A4.1). In practice, the utilities in the secondary cities are not responsible for recovering the full cost of the assets as they received subsidies to cover some of the capital costs, so the negative financial analysis is to be expected.

3. The results of the economic analysis demonstrate in several ways that there is a clear economic rationale for investing in improved water supply and sanitation in Addis Ababa and the secondary cities. The economic cost and benefits are estimated by excluding taxes and financial cost.

Ex Post Financial and Economic Analysis 4. The project closed on December 31, 2017 before completion of all activities. The project thus completed the water investments in Addis Ababa but with the sanitation works incomplete. The overachieving targets for additional water production were achieved (from 150,000 m3 per day to over 220,000 m3 per day) but without fully reaching the expected sanitation beneficiaries. Most importantly, sewer connections for about 72,000 households in Addis Ababa and access to improved water supply for beneficiaries in Dire Dawa were not achieved. These activities have been transferred to the follow up project, UWSSP-II, and the associated loan funds were cancelled from this project. These beneficiaries will access the intended service as part of the new project.

5. While US$27.7 million was cancelled from the project to allow completion of the transferred activities reducing the overall cost of the project, the sanitation beneficiaries in Addis Ababa and water supply beneficiaries from Dire Dawa sub-projects are excluded from the post implementation financial and economic analysis, which negatively affects the net benefit.

6. In addition, the analyses have been updated to incorporate actual (as compared to projected/estimated) disbursements, PDO and intermediate results (and their timelines), government

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contributions and matching funds, tariff rates,8 etc. While the whole project, including the additional financing, was expected to be completed in eight years, the age of the project at closing was over 10 years (i.e., about 25 percent delayed).

7. Considering the above changes and using the model developed at appraisal, the post implementation financial and economic returns are estimated both for Addis Ababa and secondary cities. Cost benefit analyses were conducted. With and without project scenarios are defined to identify the incremental costs and benefits of the project. Cash flows are discounted at 10 percent over 25 years period including 10 years of project implementation.

Addis Ababa

8. Unlike the original and the additional financing, the post implementation financial and economic analysis for Addis Ababa includes both disaggregated and combined analyses for the water supply and sanitation sub-components. Three separate cost-benefit analyses were done considering (i) only the costs and benefits of the water supply sub-component, (ii) only the costs and benefits of the sanitation sub-component, and (iii) costs and benefits of both the water supply and sanitation sub-components.

9. The results show that the water supply sub-component is both financially and economically viable with positive NPVs and IRRs greater than the discount rate. The benefits are mainly resulting from the improved revenue base of the utility, due to the additional water injected into the system and expansion of service to 87,970 new households (served by private connections).

10. The sanitation sub-component has negative NPVs and negative IRRs and is thus found to be not viable, both financially and economically (see Table A4.1). Similarly, the combined (water supply and sanitation) analysis shows that the positive returns from the water supply sub-component has been fully swallowed by the negative returns from sanitation pushing the return on investment below the threshold of economic and financial viability. Exclusion of expected revenue from sewerage service expansion and related economic benefits from post implementation estimates of NPV and IRR are major causes for the significant decline in the efficiency of the project.

Table A4.1: Comparison of Returns on investment- Addis Ababa

No. Component FNPV(million ETB) FIRR (%) ENPV

(million ETB) EIRR (%)

1 Addis AbabaOriginal Project 136 15 217 20Additional Financing 1,398 18 2,048 23

At closing Only Water supply 389.8 17.7 463.5 17.0 Only Sanitation -706.5 -13.4 -519.8 -9.5 Combined for AA -316.7 6.1 -46.3 9.5

11. Though the benefits and beneficiaries of the sanitation sub-component are excluded from the 8 While in the analysis for the AF it is assumed that water and sewerage tariff will increase annually at 10%. However, this has not been realized and for the ex post analysis only 2% annual increase after 2018/19 is considered

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current efficiency analysis, the potential benefits to be realized in a couple of years should be considered in the overall evaluation of the project. When this sub-component is completed it will expand the sewerage system in Kality catchment from its current 10,000 m 3/day to 100,000 m3/ day and is expected to serve about 32 percent of Addis Ababa population, which is beyond the current project target.

12. While there are several potential direct and indirect economic benefits of the project, economic costs and benefits are estimated by excluding 15% value-added taxes from investment and selected taxable operating expenses as well as by reducing financial costs (interest expenses). The potential benefits that are not factored into the cost-benefit analysis mainly include the benefits of reduced time and effort spent in collecting water, health benefits resulting from reduced incidence and prevalence of water borne diseases), estimated value of loss of life avoided because of improvements in water and sanitation; increased asset value, reduced pollution; and capacity improvement in public and private sector.9 Therefore, the estimated economic benefits from the project can be considered conservative, and it can reasonably be assumed that the actual benefits will be much higher than the estimates on Table A4.1.

Secondary Cities

13. The methodology used in the financial and economic analysis of the secondary cities is the same as described above for AAWSA, with one exception. In the secondary cities in addition to excluding tax and financial costs the economic benefit of time savings (i.e., not having to fetch water from distant sources) is calculated. It is assumed that beneficiaries provided with new household water connections at their premises will at least save half an hour per day and use 50 percent of the time savings for productive purposes10 and potentially earn income at wage rate of 60 ETB per day for unskilled labor.

14. Considering the above changes and using the model developed at appraisal of the original project, post implementation financial and economic returns are estimated for all secondary cities (with water supply and sanitation combined). The analysis shows that while the financial return on investment has declined compared to the previous estimates it is still economically viable with positive economic NPV and IRR greater than the discount rate. These results show that the secondary cities are less affected by the missed sanitation targets. In addition, as the utilities are not expected to pay back the investment cost covered from matching fund and grant (about 30 percent of capital costs), the financial burden on the utilities is much less than what is reflected in the financial analysis (i.e., the utilities are not expected to cover the full capital costs in practice, so the financial analysis results look worse than what the utilities will see in practice).

15. The financial performance of the project was adversely impacted by cost overruns, partly due to depreciation of XDR relative to USD and devaluation of ETB (the exchange rate, relative to USD, tripled, from 9 ETB to over 27 ETB, over the life of the project). Delays in the project also impacted the efficiency as benefits were delayed for most activities. The high staff turnover, and low procurement capacity through the life of the project, also negatively impacted efficiency.

16. Like the Addis Ababa component there are several potential direct and indirect benefits that are

9 According to Guy Hutton a dollar spent globally on basic water supply, sanitation and hygiene will provide in return US$3.5, US$2.6 and US$4.2 for water supply, sanitation and hygiene respectively.

10 The time saving estimated at appraisal is two hours per day per 50% of new connections

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not factored into the cost-benefit analysis because of lack of reliable data and difficulty in quantification. Hence the estimated economic benefits from the project can be considered conservative, and it can reasonably be assumed that the actual benefits will be higher than the estimates on Table A4.2

Table A4.2: Comparison of Returns on investment- Secondary cities

No. Component FNPV(million ETB) FIRR (%) ENPV

(million ETB) EIRR (%)

Secondary citiesOriginal Project -15.3 3 10.4 15Additional Financing -482 0.32 335 16At Closing -949.3 -5.5 102.9 11.6

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ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS

EXECUTIVE SUMMARY OF BORROWER ICR

Project Objectives

The General objective of Urban Water and Sanitation Project UWSSP-1 is “to increase access to sustainable water supply and Sanitation Services in Addis Ababa and five targeted secondary Cities.”, The secondary cities include: Dire Dawa, Gondar, Hawassa, Jimma, and Mekelle .

Original project development objective after Original Financial Agreement: “to increase access to sustainable water supply and sanitation services in Addis Ababa and four secondary cities” and the effective implementation period was Aug 31, 2007 –Dec 31,2012.

Revised project development objective after Additional Financial Agreement: To increase access to sustainable water supply and sanitation services in Addis Ababa and targeted secondary cities and the effective implementation period was Aug 31, 2007 –Dec 31, 2012. Additional financing was required after restructuring the project scope wherein the objective has been maintained with slight modification largely scope of works are changed. due to Kality Wastewater Treatment, plant Scaling up (x10) with upgraded technology and the inclusion of Dire dawa City to the secondary cities group.

To achieve the overall objectives and to contribute to the economic development of Ethiopia in water and sanitation sector the following project outputs need to be performed as key indicators:

Produce more water and extend the distribution network to unserved areas.

Improve the operational efficiency of the water utilities by reducing nonrevenue water and improving financial management.

Strengthen the autonomy of existing water boards and utilities and introduce performance based contracts with utilities.

Outsource selected activities to private sector providers to increase capacity and attract more investment.

Construct public sanitation facilities in low income areas, finance priority elements of Municipal

Sanitation plans, and promotes improved hygiene and sanitation practices.

Improve wastewater disposal sewerage system by scaling up and upgrading

Context at Project Appraisal and Rational for Financing: Since the last decade, Ethiopia has been classed among the rapidly growing developing countries supported with multifaceted poverty eradication and citizens, living standard improvement developmental programs where infrastructures for basic human needs have been given priority. However, limited resources availability bounds implementation of developmental programs which signify rationality of World Bank financing. Consequently, the original Financing Agreement was signed on 24 April ,2007 between IDA and Ethiopian Government launching Urban Water Supply Sanitation Project-1 for improved water and sanitation services for Addis Ababa city and selected four Secondary cities, financed by IDA (US$100 million) along with co-financers, Ethiopian government and French

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Agency for Development while Global Partnership for output based Aid (GPOBA) aid is discontinued due to arrangement delay.

Then again, in due course of the project implementation , the Government requested the World Bank ( believing that the Bank has been dependable supporter of urban water and sanitation sector in the country) additional financing (US$150 million) motivated by its desire to ensure the realization of the foregoing key strategic goals in the water supply and sanitation sector, such as a landmark very high capacity wastewater treatment plant to Addis Ababa , what the city deserves as a capital of Ethiopia and head quarter of AU and ECA(UN) and one of top diplomatic centers of the world.

The project objectives were relevant to the water and sanitation sector because they are well aligned with government priorities, mainly with the Millennium development goals (MDGs), Universal Access Plan (UAP), and strategic development goals. At the time of project appraisal, the MDGs targets for Ethiopia were to achieve 63 percent access to safe water supply and 58 percent access to improved sanitation by 2015. This project is part of World Bank continued program to support the improvement of urban and rural water and sanitation services, and broadly support operationalizing of the broader growth strategy of the country.

The main project physical objectives were planned to benefit over 4.2 million people : This will happen by increasing water availability through new source development from drilled wells and rehabilitated dams with new treatment plant and reservoirs , pipe networks expansions , and new household service connections ; by injecting more water into the system after improving operation efficiency of utilities and, reducing non-revenue water and enhancing water conservation targeting revenue collection to cover O&M costs, with some savings. Likewise, improving sanitation by installing sanitation facilities and scaling up wastewater treatment plant with upgraded technology is expected.

Project Description

In conformity to original and additional financing agreements and the project appraisal documents, the project was designed to (i) to produce and distribute more water and improve sanitation services in Addis Ababa and other targeted secondary cities; (ii) to improve operational efficiency in all targeted cities by reducing non-revenue water, and improving financial management, billing and collection, and customer management; and (iii) to improve governance by the water boards and to introduce performance incentives for operators. The project is subdivided into three components

Project Components at Original Development Objectives: (IDA P101473, Cr.US$65 million & Grant US$35 million)

Component 1: Addis Ababa Water Supply and Sanitation and Component 2: Secondary Cities Water Supply and Sanitation; funding will be provided for component 1 and 2 to: (i) produce and distribute more water and improve sanitation services in Addis Ababa and targeted secondary cities (ii) improve operational efficiency by reducing non revenue water, and improving financial management, billing and collection, and customer management; and (iii) to improve governance by the water boards and to introduce performance incentives for operators.

Component 3: Program Management and M&E; funding will be provided for costs associated with UWSSP-1 implementation, to synthesize existing data and to monitor and evaluate progress. This component also includes training, workshops and other capacity building measures and support for environmental and social management.

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(B): Additional Financing (IDA, P129174, CR. US$150)

In the AF agreement where the original development objective is materially unchanged, funding was allocated largely to accommodate the additional scope of works as described below.

(i) Component 1: Kality Wastewater Treatment Plant Scaling Up, tenfold, with upgraded technology for Addis Ababa ( US$100 million); (2)

(ii) Component 2: Dire dawa City inclusion as secondary city and Finance the funding gap incurred during implementation of other four secondary cities (US$48.9 million). Dire Dawa city is the second most populous city in the country but had been facing acute Water Supply Shortages so that the funding was for activities similar to the Secondary cities while in four secondary cities financial gap, cost overrun, happened due to price escalation and change in design to accommodate the ground reality encountered in the course of implementation.

(iii) Component 3: Program Management and M&E. (US$1.1 million): This amount funding is for the costs associated with project implementation, water and sanitation access population data gathering & synthesize and capacity building mainly training; and support for environmental and social management.

Financial and Economic Analysis: These analyses were performed before the original and additional financing agreements, the findings showed that the overall project funding is economically viable.

Allocated budget: The allocated budget for the project from in total from IDA Credit/Grant was XDR 164,100,000.00 (~US$: 279.1 million). The co-financers are AfD, allocated US$9 million for Addis Ababa and the government allocated matching fund secondary cities, US$29,100.

Partnership Arrangements, Complementary Financing for Project: The French Development Agency (AfD) has been providing financing to the Addis Ababa in: Non- Revenue Water Reduction (NRW), design and supervision and training, and operational efficiency improvement aspects. The USAID provides technical assistance to the Hawasa city on improving the operational efficiency, WS Program (WSP), has been providing assistance to the Low Income areas service improvement activities. Water Aid has also contribution in manuals /guidelines preparations. The matching fund allocated from government for secondary cities is also considerable.

Project Implementation Experience and Results

Chronology of events and project period: The UWSSP-1 was originally planned for 5 years, Aug 31, 2007 to Dec 31, 2012. However, the actual project closeout happened after 10 years, experiencing twice project completion extensions. The reasons were largely due to the delay in project preparation, long procurement processes, and limitations in technical, financial, procurement and contract management capacity, and right of way issues. After additional financing project closing time was set to Dec. 31, 2012. Again, the project implementation was so slow closing time extended to Dec 31, 2015 and the final set to Dec. 31, 2017.

Organization of the Project and implementing Agencies: for Addis Ababa city it is Addis Ababa Water and Sewerage Authority and its Project Office, for Secondary Cities, Responsible Agency are Ministry of Water, Irrigation & Electricity, and Regional and urban Water Supply and Sewerage Utilities. while Ministry of Finance and Economy represents Ethiopian Government, the Borrower.

Project Physical Objectives and Result Framework

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The project physical objectives/outputs were substantially achieved constructing water and sanitation schemes in both Addis Ababa and Secondary cities in total benefiting 4,725,000 people for improved water supply service and 227,532 people for improved sanitation. The detail is depicted below.

Component 1: Addis Ababa city: Implementation of Water and Sanitation schemes from improved water services 3,757,200people and from improved sanitation facilities including LIA and Kality Waste Water Treatment plant about 552 people are benefitted.

Improved Water services: the Development of new water sources has benefitted 706,740 people while from rehabilitation and new piped household water connections affected 3,050,460 people has benefitted. : In Addis Ababa the project has produce 144, 900 m3/day exceeding the target 140,000 m3/day in total from 56 water wells and rehabilitating and upgrading capacity of Legedadi dam with new treatment plant and distribution networks connecting 264,233 households, and recover lost water by reducing non-revenue water/leakage control and improved operational efficiency. For low income areas, water yards and public taps were constructed and households were connected to the system and all operational.

Improved Sanitation low income areas: People have access with access to improved sanitation benefitting 192, 000 people: 29 public and 16 communal latrines are constructed in low income and other areas, and Vacuum trucks are in service in removing wastes from septic tanks. On the other hand, about 22.1 ETB million worth job opportunities created for Micro and Little Enterprises.

Improved Sanitation Sewer from Kality Wastewater Treatment Plant (KWWTP) deigned to benefit about 360,000 people: After the additional Financing (AF), allocation of US$100 million, Kality plant capacity was scaled up from 10,0000 to 100,000 m3/day with upgraded technology( rather a new scheme), 100 % competed currently under commissioning. Whilst the installation of ~18 km trunk lines are nearly completed and interceptor secondary and tertiary sewer lines (210 km) and connection to 73000 household connections are underway.

Remaining Activities beyond Project Credit Closing date: In Addis Ababa the conventional water and sanitation schemes were completed and operational, however KWWP though the plant is 100% completed, connecting households to transport wastewater to the plant through sewer/trunk lines completion will take some time beyond the closing date.

“Kality Wastewater Treatment Plant completion is a landmark sanitation improvement in Ethiopian urban history and cleaner Addis Ababa image will also have huge economic benefits: as hub of trade and industry of the country, the city’s unique world position as diplomatic center, will have more tourist attractions and the experience would rollout to other cities.”

Component 2: Secondary Cities: implementation of Water Services and Sanitation facilities, benefitting about 972,500 people.

Water Improved Services: the specific achievements with respect to the specific city implementations are the following.

Dire Dawa City: 14 Boreholes drilled with a total yield of 32,140 m3 /day 94.34 km length of transmission main and distribution network pipe length laid and with reservoirs total capacity 9000m3, project near to completion the electromechanical works are at installation and testing stage;

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Gondar City: 8 Boreholes drilled with a total yield of 16,182 m3 /day 38.55 km length of transmission main and distribution network pipe laid and with reservoirs total capacity 9000 m3, project completed and operational;

Hawassa City :6 Boreholes drilled with a total yield of 25,000 m3 /day and 3,168 m3/day from Ambo-Whua spring 38.8 km length of transmission main and distribution network pipe laid and with reservoir capacity 4000 m3, Civil work completed and the electromechanical works are at installation and testing stage;

Jimma city: The source is from river /stream using diversion weir 21000 m3 /day of water is added to the system using the new Treatment plant and two reservoirs with a total capacity of 4700 m3, 22 km length of transmission main and distribution pipe line laid, project completed and operational;

Mekelle City: 11 Boreholes drilled with a total yield of 10,512 m3 /day and 2.647 km length of collector lines and 7.91 km rising main and 10.9 km gravity main pipe laid, reservoirs with total capacity of 11,400 m3 constructed, civil work completed and the electromechanical works are at installation and testing stage.

Improved Sanitation facilities design for low income areas in secondary cities: benefiting about 24,000 people and 199,580 people will benefit from HH sewage waste disposal by Vacuum collection methods: This activity is not effective as planned and the rating is only 9.6 %. This is because it is a new intervention, delay in preparations, misunderstanding, and low capacity in contracting local contractors. Using Vacuum Truck HH sewage disposal services will benefit about 199,580 people over 10 years.

Remaining Activities beyond Project Credit Closing date secondary cities: although Dire Dawa City water supply and sanitation project is substantially completed, however the additional procurement of additional pipes & fittings underway and the EM installation and testing will take some time beyond the closing date.

Component 3: Project Management: operation efficiency and Institutional reform

Water and Sanitation Utilities operation efficiency improved as evidenced in Revenue collection substantially achieved as indicated operation ratio for all cities improvement from 0.8 (base line ) to 1.1: In all cities, the operation efficiency improved in arresting Non- Revenue Water reduction (NRW), installing leakage control devices and improved pressure management, installing automated billing collections and accounting system, and relatively effective delivery system and customer management.

Addis Ababa city, although the prevailing tariff is lowest among the project cities and new tariff is proposed, the utility operation efficiency has been substantially improved fully covering the huge operation cost requirement and even more savings expected. Investment return will be improved after the approval of new tariff.

Secondary Cities, the operation efficiency is more than the target and the achievement is satisfactory, and investment return is expected in near future with the present positive trend.

Capacity Building of Institutions and Human Resources. Strengthen institutions by training and experience sharing from the enhanced technical, financial, procurement, and contract management capacities in the country or abroad is partially attained and capacity required specially in design and managing complex projects. Following the government commitments institutional reform was completed in AAWSA and its project office while several strengthening measures were made in secondary cities.

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Factors affecting the project implementation: the most important factors affecting the project implementation, were (a) the long time taken in project preparations in planning, management arrangements, utility performance agreements, design, procurement, and gap between loan approval and effectiveness (b) delay in right of way issues settlement (c) low capacity in institutions and human resources , in planning , design finance , procurement contract management (d) project covenants delay in allocating matching funds for secondary cities

Project cost, Disbursement: The cost allocated for the project in total was 279.1 million, where IDA financed US$250 and the Co-financers, AfD for Addis Ababa and the government for secondary cities as matching funds allocated US$9.1 million and US$20.1 million respectively. The total disbursement is XDR 125,756,855.06 and its disbursement rate is 76.63 % as of the joint mission Aid memory November 2018.

Project Closing Timeline and remaining activities: The Banks credit project closing time is December 31, 2017, where most of activities are substantially completed. However, there are some outstanding issues financial, procurement and contract management activities of Mekele, Jimma and Gonder towns were substantially completed. Addis Ababa and, Diredawa still have critical procurement and contract management activities, which are not completed and projected to extend beyond the credit closing date of December 31, 2017.

Findings, Future Operations and Lessons learned

The original and Revised Project Development objectives are rated as highly Satisfactory and the overall performance of the project rating are summarized: Outcomes, Risks to Development of Outcomes, Banks, and Borrowers performance and others.

Project Outcomes

Project outcomes are rated as satisfactory: where the project major physical objectives improved WSS is substantially achieved, the population benefited, and the economic rate of return believed to meet the appraisal expectations and project sustainability is likely. The ratings over three dimensions’ relevance, efficacy and efficiency, are described below.

Relevance is rated as highly satisfactory: because the project development objectives are consistent with the governments development priorities and World Bank’s assistance strategies and relevant to the sector and while the design is relevant which is in line with the stated objectives.

Efficacy is rated as substantial: where the project’s physical objectives WSS facilities were substantially achieved, even more than the appraisal target, the completion of Kality wastewater treatment plant was not part of the original Development objectives.

Efficiency is rated as moderately substantial: where the project achievement has benefitted the targeted population, created job opportunities, and enhanced local capacity

Risk to Development Outcomes

Risk to development outcomes is rated as substantial: The project was completed overcoming all the challenges mentioned in “Factors affecting the project implementation” subheading before. Although there are no critical risks , but in some ways some risks could be related to (a) human and institutional capacity gap in maintaining the present O&M efficiency (b) groundwater sources reliability and sustainability water wells

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yield decrement (c) delay of cost recovery effectiveness after setting tariffs, to strengthen financial standing of utilities for future rehabilitation and next project phase (d) Very big in its size, Wastewater feed to KWWP Addis Ababa and Sewerage service management , operations, service charges and tariff setting remains a challenge.

Bank’s and Borrowers Performance

Bank’s Performance: Overall Bank’s performance is rated as Satisfactory.

Quality at entry rated as Satisfactory. The PDO in project identifications, preparation, appraisal, design was clearly defined, and the physical scopes well justified, reasonably sound economic analyses were made pertinent to Bank’s guidelines. The limitations on Bank side were due to some delays in early start up, less clarity and irregularities in approving design changes and discharging no objections in complex projects, resulting in some cases lengthened procurement process.

Quality of Supervision is rated as Satisfactory The supervision tasks conducted in regular joint supervision missions with implementing agencies’ staff were well organized; scheduled and timely feedback has been given. Besides focused M&E, were very useful in identifying difficulties and readjusting implementation approaches, with relentless support given to the implementers.

Borrower’s Performance: Overall Borrower’s performance is rated as Moderately Satisfactory. This is because at the project preparation, there were considerable delay and thereafter due to marked limitations in capacity in design specifically in complex projects, procurement, finance, disbursement, auditing and contract management were lagging behind the schedule resulting in very slow project implementations which gave rise to twice time extensions. However, after the midterm review many improvements were made, speeding up measures taken, many lessons were learnt and the capacity of the implementing agencies improved, ultimately the project was successfully completed.

Fiduciary and Safeguard Compliance

In UWSSP-1 during the implementation process of project components, it was mandatory to perform every activity setting a mechanism to ensure that whether the project implementation has complied with fiduciary and safeguards policies of the World Bank.

Fiduciary compliance: is rated as moderately satisfactory.

The UWSSP – 1 has attained value for money and the allocated budget fully used for the intended purpose though there were irregularities and some delays in disbursement. The project maintained an adequate financial management system throughout. Generally, the project complied with the requisite financial covenants outlined in its legal agreement which included submission of quarterly Interim Financial Reports and annual audits. However, the Addis Ababa city external auditing finalized after considerable delay.

Environmental and social safeguards Compliance: is rated as satisfactory with regard to environment and social safeguards compliances. Most of the mitigation measures which were proposed to offset the likely negative impacts of the project have been implemented as per the ESIA. Environmental safeguard issues have been fairly addressed in both AAWSA and Dire Dawa subprojects. No issue of environmental concern was noted or reported. thus the environmental compliance of the project has been satisfactory. In the future to

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complete the ESIA issues before the implementation of the project, the right of issues is noted limitations of the project.

Future Project Operation and Sustainability

Future Project Efficient Operation and Sustainability is likely: this is because (a) the design and implementation of WSS facilities meet international standard levels of quality, (b) for conventional facilities O&M there are trained and experienced technicians while for complex facilities (dams and Wastewater Treatment plant) still capacity gap is identified and further training is required (c) Financial standing of the utilities is significantly increasing and the trend in NRW reduction is positive , new tariff setting is also expected (d) the government is also committed to finance and finalize the trunk and wastewater interceptor sewer lines construction to discharge to the completed Kality Wastewater Treatment Plant (e) clear future operation plan application is promising.

However, the following risks need critical monitoring: (a) Groundwater is the predominant water sources for cities where its sustainability needs close monitoring and possibly “additional backup wells” may be required (b) Further capacity building is required in utilities computer based automated operation management (c) appropriate tariff / service charges setting for water and notably for sewerage service is required for Cost recovery, for future investments.

Key Lessons Learned and Recommendations

The following lessons and recommendations positive aspects and limitations are forwarded from UWSSP-1 which could be an input for this project operations and for future similar projects;

1. Stepped Project Implementation approach is appropriate to enhance organized project implementation and to ensure sustainable WSS service delivery:

2. Development centered key stakeholder’s reciprocal consultations should be further strengthened; through collaborations and consensus building mechanisms.

3. Result based capacity building through program approach should be further tailored targeting project implementers, specifically for complex projects:

4. Updating the existing Procurement tracking system/tool is advisable, improvement required avoiding irregularities and delays ensuring reports reach decision makers with timely feedbacks.

5. Minimize Long Procurement Evaluation Process in WSS Utilities and Avoid Unproductive city Administrative Interferences as evidenced in excessive delay in decision for bidder’s complaints and related issues.

6. City wide Infrastructure construction need to be based on integrated water, sanitation, electric power, telecommunication, and other utilities updated master plans: Lack of this master plan has greatly affected the implementation of projects.

7. ESIA needs detail and critical review based on standard procedures required specially for complex projects supported with workable checklists, before the implementation;

8. Management information system (LAN) and Database and electronic documentation need to be strengthened because these are critical limitation of the implementing agencies, essential for appropriate communications, information exchange, and documentation.

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9. Launching modern sewerage system projects in urban centers need to be planned taking Addis Ababa city as a good example. Because, modern Sewerage system is not implemented in urban centers except Addis Ababa, need revised policy, planning and resources allocation.

10. Using revolving fund financing mechanism targeting Cost Recovery performance agreement between the water boards and the utilities (as practiced in secondary cities) for urban WASH for Utilities through Water Resources Development Fund (WRDF) can be scaled up and replicated as Commercial business approaches (full cost recovery) to other towns/cities.

11. Reliability of Groundwater sources for urban cities requires comprehensive approach in determining long-term sustainable yield without adverse effect to the environment. This is because the water supply source of most urban centers is predominantly from groundwater.

12. Ensuring local communities benefits and considerations of their viewpoints in all development endeavors have resounding benefits for the sustainability of WSS, specifically communities living in water source areas as practiced in Addis Ababa city;

13: It is important to practically construct sanitation facilities that can be usable by disabilities by providing rumps and appropriate sanitary infrastructures.

Abridged Borrower Comments on Bank’s ICR

Generally, the ICR report is comprehensive and balanced, provides a useful and candid evaluation of performances including success, drawbacks, queries, and lessons learned. It is also worth mentioning that the completion of the project has benefitted about 4.2 million people of urban population without which it is hardly possible to elevate the pre- project water and sanitation situation of the cities. The development objectives, both the original and revised are met and the objectives of the project are substantially achieved.

However, these benefits happened after excessive delay of the completion of the project, even some activities transferred to UWSSP-2, beyond anyone’s expectations despite prevailing favorable government and Bank’s policy, good sectoral cooperation and overall conducive environment. Internal and external factors had contributed to the delay of the project and in some way resulted in delayed benefits.

UWSSP-1 project has reached the expected results: as per ICR report, the project has substantially achieved the expected results, validated with project components and have been measured with their respective indicators. However, since the beginning of the project, it is observed that there were certain hurdles that hindered the pace of the project in line with the plan. However, as reported in the ICR report, appreciating the flexibility of the Bank, two main restructuring events entailed adjustments and additional financing were appropriate. These measures allowed the project to re-adjust and modify its plan and result frameworks ensuring the achievement of goals.

Outcome rating: “Overall rating of both the Bank and the Borrower in this ICR is moderately unsatisfactory” We believe it is underrated apparently not convincing (Data sheet key ratings).

Unintended outcome government financed water supply and sanitation schemes for communities not included in the report: AAWSA has drilled 10 wells along with distribution systems in the project sources

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areas in Akaki and Legedadi area for communities living in water sources areas, where mutual benefit sustains the facilities.

M&E needs more robust management tools for performance tracking: the project could have developed management tools any sort of formats like Gantt similar to procurement tracking system, with which, deviations from the original plans could be easily observed and measures to be taken;

Water quality issue not evaluated in the ICR at all in all cities as one of risks in the operation: This is included in the Borrowers ICR report, the water quality issues is critical in urban centers affecting the groundwater, heavy metals, trace elements and radiogenic substances and other quality parameters.

Sanitation service in secondary cities is not well addressed: the performance is very low. Some sewage disposal activities drying beds are constructed and Hawassa city and Gondar are performed however it is true that disposal through sewer lines did not get due attention, though it is included in the PAD.

The direct beneficiaries’ estimate of the project did not include the Vacuum trucks point sources sewage disposal contributions. Nine truck mounted vacuum point liquid waste disposal equipment were purchased and distributed as mentioned in the Bank’s report. There is no indicator in the PADS to calculate the beneficiaries.

It is stated that the project faced challenges in coordinating the project with the municipality” stated on par. 68, but better qualified “ lack of citywide coordinated master plan for major utilities/infrastructures, water & sanitation, electric power, telecommunications, road etc.”

The private sector played a role in design and construction, but has played a limited role in service provision in each city: participation of the private sector in the operations at this time is premature, it takes some time, may be in UWSSP -2 or thereafter and requires policy changes, a paradigm shift.

Lessons learned and recommendations: In addition to the lessons captured in the Bank’s ICR, better to add the following as required from the Borrower’s side (see above list).

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ANNEX 6. SUPPORTING DOCUMENTS (IF ANY)Project Papers

Restructuring Paper (December 22, 2017) - http://documents.worldbank.org/curated/en/185791513952504086/pdf/IL-FRESDATA-EXT-P101473-12-22-2017-1513952493368.pdf

Additional Financing Paper (May 3, 2012) - http://documents.worldbank.org/curated/en/373871468252321943/pdf/668240PJPR0P120Official0Use0Only090.pdf

Restructuring Paper (November 2010) - http://documents.worldbank.org/curated/en/998151468256508893/pdf/573890v1010PJP11161201010BOX353785B.pdf

Project Appraisal Document (March 29, 2007) - http://documents.worldbank.org/curated/en/218751468023442647/pdf/391190ET0IDA1R20071006911.pdf

Financing Agreements

Amendment to Financing Agreement (November 17, 2010) - http://documents.worldbank.org/curated/en/285351468038058274/pdf/C42920H2870Am0Reconformed.pdf

Original Financing Agreement (May 16, 2007) - http://documents.worldbank.org/curated/en/809591468037139630/pdf/Conformed0Urban0WSSP0FA.pdf

Additional Documents

Implementation Status and Results Reports and Safeguards Documents - http://projects.worldbank.org/P101473/urban-water-supply-sanitation-project?lang=en&tab=documents&subTab=projectDocuments

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http://documents.worldbank.org/curated/en/285351468038058274/pdf/C42920H2870Am0Reconformed.pdf

http://documents.worldbank.org/curated/en/285351468038058274/pdf/C42920H2870Am0Reconformed.pdf

http://documents.worldbank.org/curated/en/373871468252321943/pdf/668240PJPR0P120Official0Use0Only090.pdf

http://documents.worldbank.org/curated/en/373871468252321943/pdf/668240PJPR0P120Official0Use0Only090.pdf

http://documents.worldbank.org/curated/en/185791513952504086/pdf/IL-FRESDATA-EXT-P101473-12-22-2017-1513952493368.pdf

http://documents.worldbank.org/curated/en/185791513952504086/pdf/IL-FRESDATA-EXT-P101473-12-22-2017-1513952493368.pdf