turkey - municipal services project - implementation...

Document ofThe World Bank

Report No: ICR3998

IMPLEMENTATION COMPLETION AND RESULTS REPORT(IBRD-73120 IBRD-78850)

ON A

LOAN IN THE AMOUNT OF EURO 212.9 MILLION

(US$ 275 MILLION EQUIVALENT)

AND ANADDITIONAL LOAN

IN THE AMOUNT OF EURO 178.2 MILLION

(US$ 240.0 MILLION EQUIVALENT)

TO THEILLER BANK

WITH THE GUARANTEE OF THE

REPUBLIC OF TURKEY

FOR THE

MUNICIPAL SERVICES PROJECT

May 23, 2017

Social, Urban, Rural, and Resilience Global PracticeTurkey Country UnitEurope and Central Asia Region

CURRENCY EQUIVALENTS

(Exchange Rate Effective November 30, 2016)

Currency Unit = Turkish Lira (TL)

TL 1.00 = US$ [0.28]

US$ 1.00 = TL [3.52]

EURO 1.00 = US$ [1.05]

US$ 1.00 = EURO [0.95]

FISCAL YEAR

January 1 – December 31

ABBREVIATIONS AND ACRONYMS

AF Additional Financing

AFD French Agency for Development

ALC Active Leakage Control

ASAT Antalya Water and Sewerage Administration

AWWA American Water Works Association

BOD Biochemical Oxygen Demand

BRSA Banking Regulation and Supervision Agency

CARL Current Annual Real Losses

CAS Country Assistance Strategy

DESKI Denizli Water and Sewerage Administration

DMA District Metering Areas

EIB European Investment Bank

EL Economic Level of Leakage

ENPV Economic Net Present Value

EIRR

FWR

Economic Internal Rate of Return

Financial Working Ratio

GDP Gross Domestic Product

GNP Gross National Project

GOT Government of Turkey

IBRD The International Bank for Reconstruction and

Development

IFI International Financial Institutions

ILI International Leakage Index

IRR Internal rate of Return

ISR Implementation Status & Results Report

IWA International Water Association

JICA Japan International Cooperation Agency

LARPF Land Acquisition and Resettlement Framework

LCD Liters per capita per day

MESKI Mersin Water and Sewerage Administration

MIS Management Information System

MM Metropolitan Municipality

MSP Municipal Services Project

MTR Mid Term Review

MSW Municipal Solid Waste

MUSKI Mugla Water and Sewerage Administration

NRW Non-revenue Water

O&M Operation and Maintenance

OC Operating Cost

OCC Opportunity Cost of Capital

PDO Project Development Objective

PIU Project implementation Unit

PMU

QAG

Project Management Unit

Quality Assurance Group

SCADA Supervisory control and data acquisition

SCP Sustainable Cities Project

SIV System Input Volume

SIL Specific Investment Loan

SKI Water and Sewerage Administration (in Turkish)

TEV Total Economic Value

TTL Task Team Leader

UARL Unavoidable Annual Real Losses

WDN Water Distribution Network

WHO World Health Organization

WSS Water Supply and Sanitation

WTP Water Treatment Plant

WTP Willingness to Pay

WW Wastewater

WWTP Wastewater Treatment Plant

Senior Global Practice Director: Ede Jorge Ijjasz-Vasquez

Practice Manager: David Sislen

Project Team Leader: Elif Ayhan

ICR Team Leader/Author: Yarissa Lyngdoh Sommer

TURKEY

MUNICIPAL SERVICES PROJECT

CONTENTS

A. Basic Information...............................................................................................................iB. Key Dates...........................................................................................................................iC. Ratings Summary...............................................................................................................iD. Sector and Theme Codes...................................................................................................iiE. Bank Staff.........................................................................................................................iiiF. Results Framework Analysis............................................................................................iiiG. Ratings of Project Performance in ISRs...........................................................................ixH. Restructuring.....................................................................................................................x

1. Project Context, Development Objectives and Design..........................................................11.1. Context at Appraisal........................................................................................................11.2 Original Project Development Objectives (PDO) and Key Indicators (as approved).....21.3. Context at Additional Financing (AF) Appraisal............................................................21.4. Revised Key Indicators, and reasons/justification..........................................................21.5. Main Beneficiaries..........................................................................................................31.6. Original and Revised Components (as approved)..........................................................31.7. Other significant changes................................................................................................4

2. Key Factors Affecting Implementation and Outcomes..........................................................52.1 Project Preparation, Design and Quality at Entry............................................................52.2 Project Implementation....................................................................................................72.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization.................92.4 Safeguard and Fiduciary Compliance..............................................................................9

2.4.1. Safeguard Compliance.............................................................................................92.4.2. Fiduciary Compliance............................................................................................11

2.5 Post-completion Operation/Next Phase.........................................................................123. Assessment of Outcomes.....................................................................................................13

3.1 Relevance of Objectives, Design and Implementation..................................................133.2 Achievement of Project Development Objectives.........................................................133.3 Efficiency.......................................................................................................................153.4 Justification of Overall Outcome Rating........................................................................193.5 Overarching Themes, Other Outcomes and Impacts.....................................................20

3.6 Summary of Findings of Stakeholder Workshops.........................................................204. Assessment of Risk to Development Outcome....................................................................205. Assessment of Bank and Borrower Performance.................................................................21

5.1 Bank Performance..........................................................................................................215.2 Borrower Performance...................................................................................................22

6. Lessons Learned...................................................................................................................24ANNEX 1. Project Costs and Financing..............................................................................26ANNEX 2. Outputs by Component.....................................................................................27ANNEX 3: Economic and Financial Analysis.....................................................................41ANNEX 4. Bank Lending and Implementation Support/Supervision Processes................61ANNEX 5. Stakeholder Workshop Summary.....................................................................64ANNEX 6: Borrower’s Implementation Completion Report (ICR) Summary...................66ANNEX 7. List of Supporting Documents..........................................................................72ANNEX 8. Full Results Framework....................................................................................73MAP.....................................................................................................................................92

DATA SHEET

A. Basic Information

Country: Turkey Project Name:Municipal Services Project

Project ID: P081880 L/C/TF Number(s):IBRD-73120,

IBRD-78850

ICR Date: 05/30/2017 ICR Type: Core ICR

Lending Instrument: SIL Borrower: ILLER BANK

Original Total Commitment:

USD 275.00M Disbursed Amount: USD 488.94M

Revised Amount: USD 506.40M1

Environmental Category: F

Implementing Agency: Iller Bank

Cofinanciers and Other External Partners: -

B. Key Dates

Process Date Process Original Date Revised / Actual Date(s)

Concept Review: 07/28/2003 Effectiveness: 05/18/2006 05/18/2006

Appraisal: 03/23/2005 Restructuring(s): 12/23/2014

Approval: 06/23/2005 Mid-term Review: 06/09/2009 12/07/2009

Closing: 06/30/2010 11/30/2016

C. Ratings Summary

C.1 Performance Rating by ICR

Outcomes: Moderately Satisfactory

Risk to Development Outcome: Low

1 Bank Portal System automatically converts the original loan amount in Euro to USD hence numbers in the data sheet are in US Dollar amounts and therefore inconsistent with figures in the Cover Page.

i

Bank Performance: Moderately Satisfactory

Borrower Performance: Moderately Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)

Bank Ratings Borrower Ratings

Quality at Entry: Moderately Unsatisfactory Government: Satisfactory

Quality of Supervision: Moderately Satisfactory Implementing Agency/Agencies: Moderately

Satisfactory

Overall Bank Performance: Moderately Satisfactory Overall Borrower Performance: Moderately

Satisfactory

C.3 Quality at Entry and Implementation Performance Indicators

Implementation Performance Indicators QAG Assessments (if

any) Rating

Potential Problem Project at any time (Yes/No):

YesQuality at Entry (QEA):

None

Problem Project at any time (Yes/No):

YesQuality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Moderately Satisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Solid waste management 16 16

Sub-national government administration 8 8

Wastewater Collection and Transportation 16 16

Wastewater Treatment and Disposal 17 17

Water supply 43 43

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Theme Code (as % of total Bank financing)

City-wide Infrastructure and Service Delivery 50 50

Pollution management and environmental health 50 50

E. Bank Staff

Positions At ICR At Approval

Vice President: Cyril Muller Shigeo Katsu

Country Director: Johannes Zutt Andrew N. Vorkink

Practice Manager/Manager:

David Sislen Sumter Lee Travers

Project Team Leader: Elif Ayhan Sudipto Sarkar

ICR Team Leader: Yarissa Sommer

ICR Primary Author: Yarissa Sommer

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document)

The objective of the project was “to support sustainable environmental services in selected municipalities”.

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(a) PDO Indicator(s)

As per MSP PAD 2005, there was one general PDO outcome indicator only, no baselines and no targets determined. Instead, baselines and targets were initially determined following the 2009 Mid-term Review and approved by the Board through the AF agreement.

Composite results per indicator are reported and calculated as a simple average of sub-indicators per municipality for the purposes of this ICR. The population-weighted averages are also checked and only one (PDO Indicator 1) changes achievement status. The date used for composite indicators is the one of the most recently changed sub-indicator. For ease of reference city level sub-indicators have been moved to Annex 8.

The subprojects under the original loan were closed by the closing date of the original loan, at the end of 2012 and no longer monitored.

PDO Indicator 1: Percentage of non-revenue water over the supply area of the municipal government/municipal water company (Percentage, Custom)

Category Composite Baseline2 Composite Target Value Actual Composite Value

Achieved at Completion or Target Years

Total 55% 40% 45%

Comment

Target substantially achieved. 67% of targeted value reachedTotal values are the result of simple averages, calculated for the purposes of the ICR, as per PAD recommendation. PDO Indicators were added in the AF agreement, following the MTR. Results for some cities have been affected by changes to territorial reform in 2014

PDO Indicator 2: Total annual biochemical oxygen demand (BOD) load reduction from municipal wastewater in participating (Tons/year)

Category Composite Baseline Composite Target ValueActual Composite Value


Total 9056 23,473 20,238

Comment

Target substantially achieved, 78% of target value reached.Total values are the result of simple addition, calculated for the purposes of the ICR, as per PAD recommendation. PDO Indicators were added in the AF agreement.

PDO Indicator 3: Amount of waste safely disposed in landfills. (Tons/year, Custom)

Category Composite Baseline Composite Target Value Actual Composite Value


Total 0 444,845 232,341

2 As outlined in the MSP PAD achievements of results would be calculated as simple averages of sub-project results. Therefore, composite baselines, target and results were calculated as averages and established for the ICR to assess the overall outcome.

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Comment

Target not achieved, 52% of target value reachedTotal values are the result of simple addition, calculated for the purposes of the ICR, as per PAD recommendation. PDO Indicators were added in the AF agreement. All sub-projects closed by the closing date of the original loan.

PDO Indicator 4: Financial Working Ratio of municipalities/ municipal companies. (Percentage, Custom)3

Category Composite Baseline Composite Target Value Actual Composite Value


Total 0.76 0.74 0.60

Comment

Target SurpassedTotal values are the result of simple averages, calculated for the purposes of the ICR, as per PAD recommendation. PDO Indicators were added in the AF agreement.

PDO Indicator 5: Percentage of projects financed by Iller Bank that are implemented by municipalities or municipal companies (Text, Custom)

Category Baseline

Original Target Values (from

approval documents)

Formally Revised /Added Target Values (from

approval documents)

Actual Composite Value Achieved at Completion or

Target Years

Total 0 - 5 5Date 2006 2016 30-Nov-16

CommentTarget achieved.

PDO Indicators were added in the AF agreement. The target was updated for 2016 in the 2014 restructuring paper.

(b) Intermediate Outcome Indicator(s)

As per MSP PAD 2005, there were no intermediate indicators, baselines or targets determined. Instead, baselines and targets were initially determined following the 2009 Mid-term Review and approved by the board through the AF agreement.

Composite indicators are reported as a simple average of sub-indicators per municipality for the purposes of this ICR. The population-weighted averages are also checked and only one (PDO Indicator 1) changes achievement status. The date used for composite indicators is the one of the most recently changed sub-indicator.

The subprojects under the original loan were closed by the end of 2012 and no longer monitored.3 Phrased as “Sectoral Financial Working Ratio of municipalities/ municipal companies” until the 2014

Restructuring.v

Intermediate Indicator 1: Number of new population served by expanded water supply service (Number, Custom)

Category Composite BaselineComposite

Target Value

Actual Composite Value Achieved at Completion or Target Years

Total 2156641 2,951,728 2,953,046

Comment

Target surpassed.Total values are the result of simple addition, calculated for the purposes of the ICR, as per PAD recommendation. Intermediate indicators were added in the AF agreement.

Intermediate Indicator 2: Percentage of population served by sewerage collection network in participating municipalities. (Percentage, Custom)


Target Value


Total 38.75% 85.6% 85%

Comment

Target achievedTotal values are the result of simple averages, calculated for the purposes of the ICR, as per PAD recommendation. Intermediate indicators were added in the AF agreement.

Intermediate Indicator 3: Percentage of municipal wastewater in participating municipality that is treated to required standards. (Percentage, Custom)


Target Value


Total 11% 87% 58%

Comment

Target not achievedTotal values are the result of simple averages, calculated for the purposes of the ICR, as per PAD recommendation. Intermediate indicators were added in the AF agreement.

Intermediate Indicator 4: Constructed capacity of landfills (Tons /year, Custom)


Target Values


Total 0 3,418,187 3,725,518

Comment

Target surpassedTotal values are the result of simple addition, calculated for the purposes of the ICR, as per PAD recommendation. Intermediate indicators were added in the AF agreement.

Intermediate Indicator 5: Number of Operational Plans completed (Number, Custom)


Target Value


Total 0 45 40

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Comment

Target substantially achieved, 89% of target value reachedTotal values are the result of simple addition, calculated for the purposes of the ICR, as per PAD recommendation. Intermediate indicators were added in the AF agreement.

Intermediate Indicator 6: Number of man-days of training for Municipal PMU staff (Number, Custom)

Category Composite Baseline Composite Target Values

Actual Composite Value Achieved at

Completion or Target Years

Total 186 214 723

Comment

Target SurpassedTotal values are the result of simple addition, calculated for the purposes of the ICR, as per PAD recommendation. Intermediate indicators were added in the AF agreement.

Intermediate Indicator 7: Successful and on-time completion of annual project audits by Iller Bank (Text, Custom)

Category Baseline


approval documents)

Formally Revised /Added Target Values (from approval

documents)

Actual Value Achieved at


Total - - yes yesDate 2016 30-Nov-16


Intermediate indicators were added in the AF agreement. No baseline was set. The target was updated for 2016 in the 2014 restructuring paper.

Intermediate Indicator 8: Number of man-days of training for Iller Bank PMU staff. (Number, Custom)

Category Baseline


approval documents)


documents)



Total 231 - 100 390Date 2006 2016 30-Nov-16

CommentTarget surpassed

Intermediate indicators were added in the AF agreement. The target was updated for 2016 in the 2014 restructuring paper.

Intermediate Indicator 9: Number of people in urban areas provided with access to Improved Water Sources under the project (Number, Core)

Category Baseline Original Target Values (from

approval

Formally Revised /Added Target Values


Completion or

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documents) (from approval documents) Target Years

Total 921,641 - 2,958,885 2,953,046Date 2006 2016 30-Nov-16

CommentTarget achieved

Added as an intermediate cumulative indicator in the 2014 restructuring.

Intermediate Indicator 10: Number of people in urban areas provided with access to regular solid waste collection under the project (Number, Core)

Category Baseline


approval documents)


documents)



Total 0 - 3,418,187 3,418,187Date 2006 2016 30-Nov-16



Intermediate Indicator 11: Number of people in urban areas provided with access to Improved Sanitation under the project (Number, Core)

Category Baseline


approval documents)


documents)



Total 452,775 - 1,477,530 1,488,130Date 2006 2016 30-Nov-16



c) Dropped Indicators

The PAD did not set baselines or targets, but the results framework contained a series of indicators that were dropped and replaced following the MTR, since they were found not to properly reflect the project objectives. Intermediate indicators were to be set per project, based on feasibility studies.

Dropped PDO Indicator

Quality Local Services provided in participating municipalities

Dropped Intermediate Indicators

Component One: These results were meant to be Sub-project specific and

viii

Municipal Development include:- Wastewater treated- Water loss reduced- Sewerage connection increased- Solid waste disposed in sanitary landfill

Component Two:Municipal Technical Assistance

- Feasibility studies, design, and construction supervision carried out efficiently- Operational Improvement Plan implemented

Component Three:Iller Bank Institutional Strengthening

Project implemented satisfactorily

In addition, indicators for the ISKI sub-project, which was cancelled, were removed from:

Dropped ISKI Sub-Indicator Dropped ISKI Intermediate Sub-Indicators

Percentage of NRW over the supply area of the municipal government/ municipal water company (%).

Financial Working Ratio of municipalities/ municipal companies.

Percentage of population served by sewerage collection network in participating municipalities

Number of Operational Plans completed

Number of man-days of training for Municipal PMU staff

G. Ratings of Project Performance in ISRs

No.Date ISR

ArchivedDO IP

Actual Disbursements

(USD millions)

1 06/21/2006 Satisfactory Satisfactory 1.36


3 06/29/2007 Moderately Satisfactory Moderately Satisfactory 4.55







10 06/26/2012 Satisfactory Moderately Satisfactory 285.70


12 05/15/2013 Moderately Satisfactory Moderately Unsatisfactory 306.05

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13 12/14/2013 Moderately Satisfactory Moderately Unsatisfactory 323.95






H. Restructuring

Restructuring Date(s)

Board Approved

PDO Change

ISR Ratings at Restructuring

Amount Disbursed at

Restructuring in USD millions

Reason for Restructuring & Key Changes Made

DO IP

11/11/2009 S S 42.01% of the original loan

The project was restructured to extend the closing date to December 31, 2011.

04/08/2010 S S 55.3% of the original loan

The Project was restructured and an additional loan in the amount of Euro 178.2mil. (US$ 240million) was approved. Results framework was modified and the AF project closing date was December 31, 2014.

12/14/2011 S S

93%of the original

loan and 0.45% of the AF

The project was restructured to allow for the following changes: a) amending the Loan Agreement and Guarantee Agreements of the original and additional loans to reflect the Borrower’s change in legal status.b) extension of the closing date of the original loan by twelve months to December 31, 2012;c) reallocation of loan proceeds in the additional loan.

12/12/2012 MS MS

97% ofthe original loan

amount. 4% of AF amount

The project was restructured to:a) reallocate funds across loan categories;b) cancel of unusedamounts from the original loan proceeds (7312-TU);c) introduce a grace period for disbursements.

12/23/2014 MS MS 33% of the AFThe project was restructured to: a) extend the Additional Financing (AF) loan closing date until

x

November 30, 2016; b) update the Results Framework to reflect the cancellation of the Istanbul Water and Wastewater Administration (ISKI) sub-project and reallocation of the corresponding amount to Denizli Water and Wastewater Administration (DESKI), as well as update intermediate end targets for the extended Project implementation period; c) update thresholds for National Competitive Bidding (NCB) procedures in the procurement plans of municipalities with ongoing project activities to align with the country parameters.

I. Disbursement Profile

xi

1. Project Context, Development Objectives and Design 1.1. Context at Appraisal1. Country Context: On December 17, 2004, the European Union (EU) invited Turkey to

begin membership negotiations. This agreement was a significant event for the country and it created an incentive for sustainable economic, social, and political reforms. At the time the country had just recovered from the economic and financial crisis of 2001. The GNP was growing at a fast pace (2002: 7.9%; 2003: 5.9%; 2004: 9.6%) and the positive macroeconomic situation allowed policymakers to move from crisis management to systemic solutions in a number of areas relevant for EU accession.

2. Sector Context: The Government of Turkey (GOT) was considering institutional arrangements and the realignment of laws in order to be in compliance with the EU acquis. The total cost of compliance to meet the EU environmental directive was expected to exceed USD 40 billion between 2005 and 2020, including a cost of over USD 20 billion for the water, wastewater, and solid waste sectors.

3. Concurrently, rapid urbanization was also generating high investment costs and Turkey was spending about 2% of its GNP on an annual basis for capital investments at the local level, which was equivalent to about 50% of the local government expenditure. In 2005, 70% of Turkish citizens lived in urban areas and the urbanization rate was expected to increase to 85% by 2030 before it stabilized. High urbanization led to demand for core municipal services that include water, wastewater, and solid waste management, and transportation.

4. Government strategy: Given the rate of urbanization and the cost associated with meeting EU environmental directives, the bulk of which was needed for water and solid waste, Turkey was faced with the prospect of sustaining a high level of investments at the municipal level to develop the infrastructure and provide quality services. To this end, Turkey was pursuing activities related to municipal reform so that municipalities and their utilities would have access to more resources, follow prudent financial management practices, and report on performance and financial matters to the central government on a regular basis. At the time of project design, the government was also initiating reforms to Iller Bank, a key institution responsible for facilitating central government fiscal transfers to municipalities on a monthly basis as well as providing technical assistance, loans, and grants.

5. Municipal Sector Reforms: Since the early 2000s, the Government of Turkey had embarked upon a comprehensive reform and restructuring in the urban and municipal sector. A year prior to World Bank approval of the Municipal Services Project, public administration of municipalities went through significant reform due to changes to the Metropolitan Municipality Law in 2004 and the Municipality Law in 2005. In 2008, the criteria and formula for intergovernmental transfers changed. Moreover, in 2011, there were institutional reorganizations to relevant line ministries and Iller Bank. This was followed by the metropolitan territorial reforms in 2014.

6. Rationale for Bank Assistance: The aim of the World Bank in Turkey was to reduce the risk of crisis re-emergence and provide support for Turkey’s preparation for EU membership. In addition, one of the four development themes in the 2003 Country Assistance Strategy (CAS) was “strong environmental management and disaster prevention,” which was well aligned with the purposes of this project. The Municipal Services Project (MSP) was designed to contribute to sectoral development through

1

promoting the efficiency of investments and operations in providing urban basic services; and in doing so strengthening the capacity of Iller Bank to take on the roles and responsibilities of a financial intermediary and implementing agency for donor funded investments and EU programs that were expected to follow.

1.2 Original Project Development Objectives (PDO) and Key Indicators (as approved)7. The original project development objective was “to support sustainable environmental

services in selected municipalities” to be measured by one broad PDO level outcome indicator, namely - Quality local services provided in participating municipalities, as documented in the Supplemental Letter. No specific results indicators were set in the PAD at the time, although the arrangement for results monitoring mentioned that the indicators would be i) sub-project specific; ii) determined based on feasibility studies; iii) included in the sub-loan agreements between Iller Bank and participating municipalities; and iv) measured as aggregated performance of individual sub-projects. Nevertheless, in addition to the results framework, the PAD also outlined three broad goals of the project around which sub-project indicators were to be aligned in order to measure achievement of the PDO, namely:

● Support the development of municipal infrastructure to improve the environment and quality of water, wastewater, and solid waste management services, measured by the following proposed indicators: reduction in water losses, increased volume of wastewater treated, increased number of water and sewerage connections, and use of a sanitary landfill.

● Support the utilities to strengthen their financial position, improve operational efficiency, and prepare and implement projects, measured by the following proposed indicators: improvement in working ratio, reduction of unaccounted for water, and successful completion of projects. An Operational Improvement Plan was to outline the plans of municipalities and their utilities to improve their institutional and financial position and provide a Sub-project financing eligibility criterion;

● Support the institutional strengthening of Iller Bank so that it is able to implement the project in a satisfactory manner.

8. Iller Bank implemented the project by on-lending World Bank loan proceeds to qualifying municipalities. The above mentioned indicators at the Sub-project level were expected to be agreed with the municipalities, monitored through the individual sub-loans and their performance reported by Iller Bank in regular Project Progress Reports to the Bank.

1.3. Context at Additional Financing (AF) Appraisal9. Additional Financing was approved in 2010 to increase the development impact of the

Project toward meeting its PDO based on three considerations. First, Iller Bank had requested an additional loan from the World Bank in response to demand from municipalities that exceeded the funding available under the MSP. The additional loan enabled Iller Bank to meet this demand and further strengthen its capacity to prepare, appraise, and monitor municipal service investments. Second, the outcomes of the project thus far had confirmed the validity of the development objective and the implementation approach. Third, the continued financial support strengthened the World Bank’s partnership with the Government and Iller Bank to improve municipal services provision in Turkey.

2

1.4. Revised Key Indicators, and reasons/justification10. There were no changes to the PDO or the three investment components, however, a new

results framework was approved for the Additional Financing. During the project's mid-term review in 2009, the results framework was modified as it was not considered sufficiently reflective of the PDO. The quality of indicators was improved to better measure the progress of sub-projects and to align the project indicators with the indicators included in the sub-loan agreements signed between Iller Bank and municipalities. In addition, baseline data was collected for both the original project municipalities and the additional loan. For the original loan the baseline year was set as 2006 to confirm to loan’s original timeline, while the mid-point for monitoring the projects progress was set for 2009 in the AF project paper, which coincided with the baseline for the additional loan. In April 2010, a project restructuring made the following changes and was applied to the original project as well as to the additional loan:

11. The original PDO Outcome Indicator “Quality local services provided in participating municipalities” was replaced with the following five new key Outcome Indicators:

● Percentage of NRW over the supply area of the municipal government/municipal water company;

● Total annual BOD load reduction from municipal wastewater in the participating municipalities;

● Amount of waste safely disposed in rehabilitated solid waste landfills; ● Sectoral Financial Working Ratio of municipalities/municipal companies; ● Percentage of projects financed by Iller Bank that are implemented by municipalities

or municipal companies4.

1.5. Main Beneficiaries 12. The direct beneficiaries of project funding were the participating municipalities/utilities

and the population they served were the final beneficiaries. In total 14 municipalities benefited from the project: 2.95 million people benefited from access to improved water sources in urban areas; 3.5 million people benefited from industrial and municipal waste disposal capacity created; and 1.5 million people were provided with access to improved sanitation.

13. The secondary beneficiary was Iller Bank with the aim of supporting Government of Turkey’s effort to meet EU directives and towards building Iller Bank’s capacity to implement forthcoming EU programs.

1.6. Original and Revised Components (as approved)14. The project had three components, which were not revised upon approval of the additional

financing, but to which additional funds were provided for implementing the scaled up expanded activities for a longer time. Counterpart funds were initially provided by both the municipalities and Iller Bank, for component 1 and 3 respectively. This included a 10% co-financing by municipalities under the original loan agreement. The co-financing was subsequently dropped under the Additional Financing, and all eligible expenditures were 100% financed by the loan. The front-end fee was borne by Iller Bank which passed the cost to the municipalities.

1.6.1. Component 1: Municipal Development Physical investments were focused on building and rehabilitating water and wastewater networks, constructing new treatment

4 This indicator was meant to measure Iller Bank's transformation from an agency that directly financed and implemented projects, to one that appraises and finances projects proposed and implemented by municipalities.

3

plants and solid waste management. Eligible sub-borrowers were pre-identified by Iller Bank based on agreed criteria - no overdue payment to the Treasury; sector debt service ratio coverage thoughout the project should be at least 1.2; and satisfactory institutional arrangements should be in place for sub-project implementation. Subsequently a PHRD grant was provided to finance feasibility studies and training to municipalities for proposed sub-projects that were selected by Iller Bank under MSP. Under the AF, municipalities prepared feasibility studies acceptable to Iller Bank with own resources.

1.6.2. Component 2: Municipal Technical Assistance

15. At the time of the appraisal, municipalities in Turkey had low capacity for project implementation and limited experience with international loans. According to the Ministry of Development (MoD), municipalities which had used international loans prior to the MSP would often default on the loans, creating difficulties and high costs for the Treasury (which had provided guarantees). This component was therefore devised to provide support to sub-borrowers. Eligible expenditures under this category included: (a) feasibility studies; (b) urban planning; (c) preparation of design and bidding documents; (d) Operational Improvement Plan related to institutional, technical, financial, and environmental matters. All Sub-projects had an Operational Improvement Plan; and (e) construction supervision.

1.6.3. Component 3: Iller Bank Institutional Strengthening

16. MSP was the first investment project implemented by Iller Bank that was financed by an IFI and allowed collaboration with an international financial organization such as the World Bank. Therefore, it was deemed necessary to strengthen Iller Bank’s institutional capacity to ensure satisfactory implementation of the project. The expenditures were financed from Iller Bank’s own resources and the Bank loan. Eligible expenditures under this category included: (a) increasing financial and banking capacity; (b) increasing technical capacity; (c) incremental operating costs; and (d) audits. The Component also ensured that the institutional strengthening of Iller Bank was in line with the ongoing government reforms of the agency which was anticipated at the time of project preparation in 2004/2005.

Table 1: MSP Appraisal and AF Appraisal Cost Estimates by Component

(in EUR/USD Million equivalent at appraisal stage exchange rate)

Component Original cost Changes with AF Revised costComponent A: EUR 195.5 EUR 167.6 EUR 363.1Component B: EUR 15.5 EUR 9.1 EUR 24.6Component C: EUR 0.8 EUR 1.1 EUR 1.9Front End Fee EUR 1.1 EUR 0.4 EUR 1.5

Total Project Cost EUR 212.9 EUR 178.2 EUR 391.1

1.7. Other significant changes 17. Changes in Intermediate Indicators: The approval of the AF introduced eight intermediate

indicators in 2010 that were better aligned with the PDO and the revised Outcome indicators:

4

Table 2: Changes in Intermediate Indicators

Components Intermediate Outcome Intermediate Outcome Indicators added

Component 1 Municipal development

changed to

Increased provision of water supply, wastewater and solid waste services in municipalities

Number of new population served by expanded water supply service.

Percentage of population served by sewerage collection network in participating municipalities.

Percentage of municipal wastewater in participating municipalities that is treated to required standards.

Constructed capacity of landfills.

Component 2 Municipal Technical Assistance

Number of Operational Plans completed

Number of man-days of training for PMU staff

Component 3 Iller Bank Institutional Strengthening

Successful and on-time completion of Iller annual project audits.

Number of man-days of training for PMU staff.

18. In addition, 3 new World Bank Core Indicators were added to the intermediate indicators, namely, “Number of people in urban areas provided with access to Improved Water Sources under the project”; “Number of people in urban areas provided with access to regular solid waste collection under the project”; and “Number of people in urban areas provided with access to Improved Sanitation under the project”. Further modifications were made to existing indicators with a project restructuring in December 2014.

19. Reform/Reorganization of Iller Bank and Line Ministries: In 2011, the Ministry of Public Works and Settlement, which had authority over the Iller Bank merged with the Ministry of Environment into the new Ministry of Environment and Urbanization. In addition, Iller Bank’s legal status changed to a Joint Stock Company and was reorganized to perform under the new banking regulation of Turkey. While Iller Bank’s reform was anticipated, and supported by the project, the merger of ministries and changes in staffing regime due to Iller Bank’s new structure ended up with very frequent changes at the top and technical management levels resulting in a period of relative instability in terms of staffing and responsibilities for the PMU. The project was restructured in 2011 to amend the Loan Agreement and Guarantee Agreements of the original and additional loans to reflect the Borrower’s change in legal status.

20. Cancellation of ISKI (Istanbul Water and Sewage Administration) sub-project: the sub-loan to ISKI which consisted of 22% of the AF funding was canceled in 2012 due to a mixture of lack of ownership of the sub-project, availability of funding elsewhere and an unwillingness on the part of the borrower. Iller Bank had difficulty in finding a new sub-borrower and took two years to sign a sub-loan agreement with Denizli Water and Wastewater Administration (DESKI). In December 2014, the project was once again restructured in order to update the Results Framework to remove the sub-indicators related to the ISKI sub-project and add indicators for DESKI.

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2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry21. The project underwent a Quality at Entry Review in November 2004, during which the

project design focus shifted from reforming Iller Bank (IB) as an instrument for supporting municipal infrastructure development to supporting municipal infrastructure investments while creating the pre-conditions for further Iller Bank reform. The decision at project design stage was to proceed with lending via Iller Bank as the implementing agency rather than wait for the new Iller Bank Law to be passed. This operation supported public sector infrastructure development, and Iller Bank, as an agent for the central government, was to on-lend Bank loan proceeds to municipalities. Although environmental safeguards were assessed as FI, the operation was not characterized as financial intermediary lending requiring compliance to Bank’s Operational Policy 8.30. The financing instrument was the Specific Investment Loan (SIL).

22. Soundness of the background analysis. The project was based on a solid understanding of government policy, institutional structures and municipal public service environmental needs. The Bank had been involved in the Turkish municipal services sector through economic sector work. The lessons learned from the various Implementation Completion Reports, audit reports, and sector reports were used to inform project design. The lessons learned and integrated in the project design and PAD were: (a) Investment pipeline for projects should be strong, (b) Focus on improving the efficiency of operations and investments, (c) Focus on institutional aspects of Sub-projects and (d) Focus on institutional aspects for using EU funds.

2.1.1. Assessment of the project design.

23. In order to ensure the project delivered on its PDO of successfully providing “sustainable environmental services”, the main strength of the design was the early recognition that Iller Bank had to be strengthened in order to i) implement the project, and ii) be institutionally prepared to take on the role of a financial intermediary in-line with Government of Turkey’s future goals. To this end, the project included a well-designed institutional strengthening component which ultimately has had a positively enduring effect on municipal sector financing. The design incorporated the satisfactory implementation of an institutional strengthening Action Plan as a legal covenant to increase transparency in operations and support the needs of the municipalities. During the first three years of project implementation, Iller Bank made considerable progress in meeting majority of the actions included in the Action Plan. This design intervention prepared the foundation that supported Iller Bank’s smoother transition under the Banking laws following the comprehensive Iller Bank Reform that was expected and ultimately implemented by the Government in 2011.

24. The sub-project pipeline was strong. Preparation of sub-projects in the form of feasibility studies confirming the viability of investments was supported through a PHRD grant of US$ 500,000 which was signed on May 4, 2004. This and Iller Bank’s existing relationship with municipalities were meant to reduce the risk of insufficient demand for funds. The project design included robust eligibility criteria to help Iller Bank select sub-borrowers5 and sub-projects6. Two instruments were designed in the project for assessing

5 i) no overdue payments to the Treasury or Iller Bank, ii) debt service ratio of at least 1.2 and iii) satisfactory institutional arrangements.6 i) environmental, social and economic benefits, ii) technical and financial feasibility, iii) an operational improvement plan, and iv) water quality/quantity.

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operational efficiency and ensuring economic justification of investments: i) the Operational Improvement Plans; and i) the review of feasibility studies and appraisal of sub-projects by Iller Bank.

25. Project design weaknesses: Project design paid little attention to developing a robust M&E system, there was no effort to develop clear and measurable results indicators, which proved to be a handicap during project implementation as reported in ISRs. While a review of M&E issues as part of the MTR led to the inclusion of indicators during the Additional Financing approved in 2010, it was in retrospect and appeared not to have the full ownership of the Iller Bank PMU to monitor them since the methods for measurement were not defined at the preparation stage. In addition, the MTR (2009) found that the 10% co-financing contribution from municipalities was causing implementation delays due to lack of financial capacity, and the AF was therefore redesigned to cover 100% of project costs.

2.1.2. Adequacy of Government’s commitment.

26. The project enjoyed strong support from the Government of Turkey. The Government recognized the importance of providing good quality municipal services and to start preparations to meet EU directives. To this end, it pursued proactive and an aggressive municipal reform agenda starting in 2004 and continued during the life of the project, so that municipalities and their utilities have access to more resources, follow prudent financial management practices, and report on performance and financial matters to the central government on a regular basis. While it was late in coming, the Government ultimately implemented reforms to Iller Bank as anticipated to ensure it aligned with its changing responsibilities and role as a development finance Bank capable of channeling and harmonizing international financing in the municipal sector.

2.1.2. Assessment of risks

27. Risks were correctly identified in the Project Appraisal Document. The possibility that Iller Bank may be asked to grant favors to municipalities was assessed as carrying a significant risk (S) to the PDO. However, the ring fencing of technical, financial and reporting requirements have been effective in preventing this risk from materializing. The risks to component results identified were: The lack of counter-part funds and political commitment, construction delays and non-familiarity with procurement procedures (S); ineffective supervision by Iller Bank due to lack of inter-departmental coordination (M); municipalities wanting to minimize technical assistance (TA) costs (M); and a delay of Iller Bank’s TA implementation (M). The risk related to lack of counterpart funds did materialize causing implementation delays, this requirement was removed under the Additional Financing. The remaining risks were successfully mitigated by providing intensive training and close supervision. One risk that seems to have been under appreciated was the extent to which the foreseen municipal reforms, while generally welcome and a positive change, affected project implementation to some extent.

2.2 Project Implementation 28. The project implementation spanned 12 years which is considered lengthy despite the AF

that doubled the funding envelope, increasing exposure to risks outside the control of the project. The project took longer to launch in its initial years due to the need to complete 16 EIAs for 11 subprojects, however, once it started moving it gained sufficient momentum. Project investments and activities supported by both the original MSP and its Additional Financing have been implemented mostly satisfactorily. As seen in Table G of the Data sheet performance was rated Satisfactory until 2011. Later ratings decreased, largely to

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Moderately Satisfactory or Moderately Unsatisfactory in 2013 which appear to be partly influenced by reforms carried out between 2011 and 20147 in the municipal sector. This was a short-term drawback for the project in the context of important longer term reforms taking root.

29. Project restructuring and closing date extensions: The project was restructured five times; Table H of the Data Sheet contains the dates and ratings at the time of each restructuring. The June 2010 closing date of the original loan was extended twice, until the end of December 2012. The December 2014 closing date of the AF Loan was also extended twice until November 30, 2016.

30. The Mid Term Review (MTR) was a turning point for the project. It was held relatively late, from June 29 to October 15, 2009 (4.5 years after Board Approval). While it should have ideally been carried out in 2007/2008 it was pushed to 2009 taking into account the time lost in implementation at the start and to coincide with improving disbursement rates, which was reaching 40% at the time. The delay had a better impact on restructurings and successes achieved in the second half of the project under the AF. The MTR provided an in-depth review of the project, including the reassessment of the results framework, and was an important step forward in establishing a results framework that was better aligned to the PDO.

31. Factors outside of project control that affected implementation: A rapid succession of structural reforms, from 2011 until 2014, impacted project implementation to some extent, but brought about positive changes in both development banking and municipal management. The new Metropolitan Municipality Law (2011-2012) increased the number of metropolitan municipalities and expanded the geographical coverage of administrative areas to provincial boundaries, impacting administration of public utilities, i.e. water, waste water and waste. Well into the implementation of MSP and its AF, the structural reforms of the Metropolitan Municipality (MM) regime meant that two city municipalities (Denizli & Mugla) that were participants under MSP became metropolitan municipalities in their own right and five district municipalities that sub-borrowed directly from Iller Bank came under the purview of existing Metropolitan Municipalities. The contracts which had been signed and executed by district municipalities were transferred to the respective responsible Metropolitan Municipalities. Refer to Table in Annex 2 to review impact of structural changes to the project.

32. Factors affecting implementing agency performance: Disbursement delays at the start were due to lack of procurement capacity in Iller Bank. It took them significantly long time to hire the first consultancy firm. This issue was rectified with concerted efforts in providing training and close Bank supervision. Furthermore, the impact of Iller Bank’s reorganization as explained in para 19, while good in the long term for the sector, had an adverse impact on the implementation progress of MSP as the PMU lost most of its institutional authority to make day-to-day decisions. Changes to the internal decision making processes made it difficult for Iller Bank PMU to respond to issues promptly and sub-borrowers started feeling they were not receiving sufficient support in time.

33. Factors affecting sub-borrower implementation performance: The low capacity of municipalities at the time was amplified by the level of disruption and instability introduced by the administrative reforms. The legislative changes expanding geographical coverage of metropolitan municipalities’ administrative areas created shifts in responsibility, with the associated loss in personnel and expertise as well as in resource

7 Iller bank reorganization in 2011 and Metropolitan Territorial Reforms in 20148

allocation. For example, after the reforms, the Izmir Metropolitan Municipality started to transfer solid wastes collected in another district to the Bergama landfill. Changes in the jurisdiction of the municipalities also affected how data was collected and recorded to monitor results under the project. Consequently, the load of the landfill increased to 51,000 tons which decrease the lifetime of the landfill constructed under the project down to 10 years. Conversely, the association of some districts to the larger municipalities was fortuitous, since host metropolitan municipality had far better capacity, as in the case of Ilica.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and UtilizationRating: Moderately Unsatisfactory

34. M&E Design: The initial results framework was poorly developed. No clear indicators, baselines or targets were established at project start although sub-project investment were already pre-identified at Project Appraisal. Instead, sub-project indicators were to be set during implementation and based on the three broad goals and guidance indicators outlined in the PAD and listed under section 1.2. Indicators for component 2 and 3 that related to improving institutional capacity of the municipalities and Iller Bank were not reflective of the desired outcomes, as observed in several ISRs at the time. No common data gathering or monitoring and evaluation methodology was established, nor were guidelines shared with the PMU or the participating municipalities. Furthermore, the 2014 restructuring created confusion by adding additional sub-indicators for ASAT, Denizli, MESKI and Muğla8, which was a design flaw as sub-project investments were scale ups of the same and should only have been reflected in changes to the existing results targets alone.

35. M&E implementation and utilization: Although feasibility studies were completed and approved by Iller Bank and the Bank in November 2005, no indicators or baselines were established for sub-projects or data on implementation progress was monitored until the MTR in 2009. This was a supervision oversight. While the MTR was a turning point for the MSP M&E system, and the results framework was revised, negotiated and mutually agreed by all parties, both the World Bank and Iller Bank did not fulfill their obligations in insisting on proper data and tracking during implementation. Nevertheless, the results framework had been strengthened overall, and all municipalities reported the indicators, albeit with inconsistencies.

36. The PMU had very a limited technical expertise on monitoring results indicators and had lost some of its consultants, as well as its capacity to easily travel to the beneficiary municipalities due to internal Iller Bank travel restrictions. As a result, while results were monitored and reported, there was little clarity on data gathering methodology and M&E was not seen as having high priority with Iller Bank. The Bank team provided support to Iller Bank to strengthen overall monitoring and evaluation fairly late in the implementation process. With support from the Bank, Iller Bank prepared a guideline for computation of results for each performance indicator.

37. Considering the design, improvement and implementation of Monitoring and Evaluation, the rating is assessed as Moderately Unsatisfactory (MU).

8 Antalya WSS utility (ASAT), Mersin WSS utility (MESKI and Mugla WSS utility (MUSKI) – all of which are detailed in Annex 2.

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2.4 Safeguard and Fiduciary Compliance2.4.1. Safeguard Compliance

Environmental Safeguards

38. There are no major outstanding issues related to environmental safeguards. Environmental category was selected as an FI since the sub-project loans are signed between Iller Bank and the final beneficiary municipalities. And the Bank’s OPs are applied with regards to specific categories of the sub-projects (i.e. full environmental assessment procedure were conducted for Category A sub-projects).

39. There were however two notable cases which raised concerns. Due to the unique nature of the discharge location, the Mugla Wastewater treatment plant needed and still needs close supervision. The water level and the physical conditions (stability of the walls, clogging of the bottom, etc.) in the discharge location, which is an old quarry site, should be continuously monitored by the municipality and Iller Bank. It is also necessary that Iller Bank conducts frequent site visits to check the status of the discharge and ask Mugla municipality to share frequent monitoring reports. There has also been a recent incident related to Elbistan water supply project. The incident was not related to Bank financed investment in the water network. However, due to the pollution of the main water source, a significant portion of the Elbistan municipal population was hospitalized. The Bank worked together with Iller Bank to monitor the aftermath of the pollution and to recommend measures to municipality.

40. During the original project design when the sub-projects for Istanbul were being prepared the application of OP 7.50 (International Waterways) was under discussion, but the ISKI projects were never initiated. An evaluation of sub-project’s impacts on international waterways and subsequent final decision for the need of riparian notification was agreed to be postponed until later since the draft sub-project list was not fully defined at appraisal. During implementation, the Government of Turkey preferred to finance sub-projects which did not require the application of OP 7.50 and therefore sub-projects such as the ISKI Melen project were dropped from the project. Iller Bank did not accept any applications for sub-projects from municipalities which may have impact on international waterways until the closing of the MSP.

Social Safeguards

41. Social safeguards were generally rated moderately satisfactory in the Implementation Status Reports (ISR). The borrower Iller Bank and the Project Implementation Units (PIUs) in each sub-project, which were the metropolitan municipalities or utilities, implemented the Land Acquisition and Resettlement Policy Framework, in a satisfactory manner.

42. Until 2010, there was not a social safeguard staff in ILLER BANK PMU responsible in monitoring expropriation and resettlement issues of sub-projects. In 2010 and 2013, after both ILLER BANK and WB had in-country safeguards staff, there were more close screening of sub-projects which led to sub-borrower municipalities to prepare safeguards documents such as Land Acquisition Reports and Land Progress Reports in accordance with the two LARPFs for MSP I and the MSP AF. The sub-projects under the additional financing were primarily constructed on public land, with only a few necessitating private land acquisitions. Land acquisition and compensation processes were completed in compliance with the requirements. There was no physical resettlement in sub-projects.

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Iller Bank improved its safeguards implementation throughout the project and through attending various safeguards training offered by the Bank staff.

43. For MSP, the number of Project Affected People (PAP) was 49. The disaggregation of number of PAPs by municipality is Mersin 26, Odemis 13, Mugla 7 and Polatli 3. Investments under other MSP-I Municipalities (Antalya, Bergama, Denizli, Ilıca, Elbistan, Kütahya and Gelibolu) have been all performed on state-owned land which had no issues. For MSP AF, there were only minor land acquisition impacts in Mersin and Denizli municipality sub-projects. Easement rights were established on private land for Drinking Water, Wastewater and Storm Water Networks by DESKI in Denizli and for construction of sewerage network and collector lines by MESKI in Mersin. In total, 13 private parcels and 27 people were affected from these sub-projects in Denizli (23 people) and Mersin (4 people). In Mersin, construction followed an existing road but it was found that there were 4 lemon trees (occupying 5.0 m2) on the public land belonging to 4 farmers. The farmers have been compensated for these trees in line with the entitlement matrix.

44. Municipalities established grievance mechanisms for sub-projects, but their implementation was considered weak. There were not major grievances recorded as the as most of the grievances were shared vocally from affected communities and hence Municipalities were not logging them properly. In 2011, there was a complaint of an individual in Mugla regarding expropriation, which easement rights were established of a portion of his land for the discharge pipe construction. The joint teams of ILLER BANK and WB conducted a site visit in mid-January 2011 in response to the receipt of the complaint. Before the visit, a detailed report was provided to WB team by Mugla Municipality and ILLER BANK, which indicated that at the time of the mission, Mugla Municipality had commenced formal expropriation process and that it was being handled appropriately by the local court. During the mission, the team requested that Mugla/ILLER BANK update the reports on this case until the court case is resolved. The court case was resolved and final compensation determined by the court was paid to the complainant, there was no any adverse issue remaining.

2.4.2. Fiduciary Compliance

Procurement

45. Over the life of the project, the procurement activities were generally handled in compliance with the requirements of the loan agreement, procurement plan and procurement/consultant guidelines applicable for the project. In line with the original implementation setup, procurements were carried out by the PIUs of Municipalities except the component on Iller Bank’s institutional strengthening. The PMU provided continuous support to Municipalities on project planning, monitoring, financial management, disbursement and procurement issues. The PMU was staffed adequately to meet required procurement capacity with support from a qualified consultant until February 2013. Capacity loss in 2013 was problematic until late 2015 due to the high number of transactions and need to support municipalities with weak capacity.

46. Municipalities managed the contracts with technical support from the consultant firms employed for the design and construction supervision services. The quality and efficiency of procurement gradually improved for municipalities not familiar with Bank financing. The improvement required intensive support from Iller Bank and the Bank. Municipalities participating in both the original and additional financing were in general the better

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performers. On the other hand, cancellation and reallocation of ISKI sub-loan and ambiguities for Beypazari sub-loan had negative impacts on overall procurement planning and completion dates for the ongoing and planned activities. Moreover, most of the contracts signed with contractors and consultants experienced amendments on time extensions and additional works/services. These were mostly due to administrative requirements, enactment of new metropolitan municipality law and additional needs from municipalities. The municipalities that were efficient in procurement planning and decision making were also the ones that had contracts generally completed in a timely manner and as budgeted, with least cost and time implications. By the time of the loan closing, there was no case of arbitration or dispute resettlement reported for the financed contracts.

47. There were eight procurement complaints received and resolved where seven of these were at early phases of the project. In all cases, Bank upheld Borrower’s decision. There was no case of mis-procurement for the project. Close follow-up and assistance from the Bank team were provided to address procurement issues in a timely manner and the project was regularly supervised by the Bank’s procurement specialist. PIUs were provided regular and continuous training on contract management, procurement methods and arrangements at several phases of the project either jointly with Iller Bank or individually by the Bank. Procurement compliance has been moderately satisfactory throughout the project.

Financial Management

48. The financial management arrangements were assessed as satisfactory over the life of the Project. The PMU has established and maintained robust internal control procedures. The financial management manual, maintained up to date over the life of the project, had detailed description of the procedures and division of responsibilities. Iller Bank has integrated the accounting of the project fully into its corporate system. The Interim Financial Reports (IFRs) were automatically generated from the IL-BIS (Iller Bank`s main accounting system), they were received on time and were satisfactory to the Bank.

49. The project financial statements were audited by the Treasury Controllers (TC) and the audited project financial statements had clean audit opinions. The project audit reports were received on time and were satisfactory to the Bank. Iller Bank was also required to submit audited entity financial statements and these were audited by different independent audit companies that were included in the list of approved firms issued by the Banking Regulatory Supervisory Authority. The Bank`s audited financial statements were prepared in accordance with International Financial Reporting Standards (IFRS).

2.5 Post-completion Operation/Next Phase50. Sustaining reforms and institutional capacity: Although not an PDO outcome objective of

the project, the path of institutional capacity interventions under the project was moving Iller Bank towards being a more efficient and independent financial intermediary. The project has contributed positively to improvements in this right direction. The Municipal Services Project was the first project implemented by Iller Bank to be financed by an International Finance organization. The success achieved during the first phase of the project and improvements in institutional capacity have subsequently enabled Iller Bank to receive financing from other IFIs and bilateral donors such as EIB, JICA, Islamic Development Bank.

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51. Sustainability of quality of works and O&M Arrangements: ICR site visits and review of available data indicate that quality of works was acceptable and improved service provision in participating municipalities and all infrastructure assets built under MSP are being actively operated by the municipalities. The municipalities have enough staff, equipment and financial resources to sustain operation and maintenance services. While the structural reform was temporarily disruptive for the municipalities and the project; transitions of assets and on-going sub-project contracts to newly created metropolitan municipalities was largely smooth. That said, there still remains a few on-going issues that require continued monitoring by the PMU, such as i) the future progress in settling legal issues in Beypazari, ii) monitoring of water catchment area in Elbistan; and iii) monitoring of discharge location in Mugla.

52. Relevance at National Level: The urban agenda is still very important in Turkey and is reflected in the current CPF under preparation, which aims to continue to support the achievement of the government’s medium-term goals in municipal service sector with a new framework approach of sustainable and resilient cities. The Sustainable Cities Project was approved by the World Bank Board in December 2016, soon after the completion of MSP, and will provide continued financing for municipal service investments using a more integrated approach to urban development.

3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and ImplementationRating: Modest

53. Relevance of Objectives is rated high: The PDO “to support sustainable environmental services in selected municipalities” was highly relevant to conditions in Turkey at the time of appraisal for both MSP and its Additional Financing and remains relevant and consistent with current development priorities. Turkey’s 10th National Development Plan (2014-2018) has a section under “livable places and sustainable environment” which puts forwards objectives and policies for improving the quality of urban infrastructure, protecting environment through improvements in municipal services, and promoting sustainable cities and services.

54. The PDO also remained consistent with the completed World Bank Group Country Partnership Strategy (CPS) for Turkey (2012-2016), which had three main strategic objectives and pillars: (a) enhanced competitiveness and employment; (b) improved equity and public services; and (c) deepened sustainable development. In particular, one of the 10 outcomes outlined in the CPS is the improved sustainability of Turkish cities and the recently approved Sustainable Cities Project was proposed as a follow-up to MSP and is a core part of the Bank’s program in the CPS.

55. Relevance of Design and Implementation is modest: The PDO was clear, though it did not include the institutional strengthening aspects highlighted by the components. While project design of investment components was relevant and could be assessed as substantial, the lack of attention to the results indicators at the very onset of the project in 2005 is seen as an oversight that caused implementation issues down the road. The capacity of municipalities to provide 10% co-financing, which was subsequently dropped in the AF after the MTR, could have also been better assessed during preparation. At the same time, selection of Iller Bank as the implementing agency versus opting for various other design alternatives to on-lend to municipalities reduced implementation risks and was a relevant design choice. Iller Bank had regular contact with all municipalities; its

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core business was water and wastewater having the technical expertise to efficiently appraise and finance projects; and it had 18 regional offices that could support sub-project preparation and supervision.

56. MSP components responded to the municipal service delivery needs and supported the Governments reform agenda in the sector to meet EU Environmental Directives. Despite challenges faced by Iller Bank and the participating municipalities during the municipal reform period (2011 – 2014) the project activities were realistic and well-focused. The institutional capacity drastically improved at Iller Bank during the first phase under Component 3 Iller Bank Institutional Strengthening and was the defining factor in carrying the project to its successful completion. Implementation arrangements and use of Iller Bank remain relevant, responding to the changes in the banking and municipal sector reforms in Turkey. This is demonstrated by the fact that the World Bank approved Sustainable Cities Project will continue to use the same implementation arrangements.

3.2 Achievement of Project Development ObjectivesRating: Substantial

57. The achievement of PDO is substantial with 4 of 5 PDO indicators achieved or substantially achieved. Two PDO indicators have been fully achieved, namely – PDO4: Financial Working Ratio of municipalities/municipal companies; and PDO5: Percentage of projects financed by Iller Bank that are implemented by municipalities or municipal companies. Remaining two PDO indicators have been Substantially Achieved, namely - PDO1: Percentage of non-revenue water over the supply area of the municipal government/municipal water company is substantially achieved with 89% of the composite target value reached; PDO2: Total annual biochemical oxygen demand (BOD) load reduction from municipal wastewater in participating municipalities is substantially achieved with 86%9 of the composite target value reached. Lower than expected results for PDO2 is attributed to the cancellation of the Beypazari sub-project that was not foreseen. PDO3: Amount of waste safely disposed in landfills, was not achieved.

58. In addition, nine of eleven (11) intermediate indicators have been achieved. Achievement of targeted results was assessed in the context of i) late establishment of indicators and baselines; ii) target values were set in 2010 before the local governance reform and redrawing of metropolitan municipal administrative boundaries, which impacted how results were reported by municipalities; and finally, iii) incorrect splitting of indicator targets and baselines as part of 2014 restructuring. Although, indicators were established late they are considered good. To counterbalance data issues brought on by the redrawing of municipal administrative boundaries, intensive investigation was carried out as part of the economic analysis to collate and calculate more reliable results particularly for NRW and FWR. Where possible these were used as the final results for the top four cities that account for more than three fourths of the total project funds.

59. In addition, the project has resulted in positive physical improvements in sustainable infrastructure and significant improvements in institutional and technical capacity of municipalities and their utilities. The economic analysis carried out provides evidence that NRW was reduced drastically in some District Metered Areas (DMAs) where investments were made. All participating utilities and municipalities under the project have developed capacity in NRW control exceeding 5% of the applicable System Input Volume (SIV) per annum. Estimated total water savings for the top four utilities (ASAT, DESKI, MESKI

9 Target 23,473 tons/year: Result 20,238 tons/year14

and MUSKI) alone amount to 380 million cubic meters as a result of the project. MSP also improved financial sustainability in participating municipalities by contributing towards improved FWRs.

60. Finally, Iller Bank institutional strengthening achievements cannot be overstated; while only an intermediate results outcome, it has been by far the most enduring achievement of the project that will ensure sustainability of future financing for the sector in the long run.

61. PDO was to support sustainable environmental services in selected municipalities. In order to assess the project efficacy, the ICR also evaluated the extent to which the project achieved its goal to support “sustainable environmental services”. Three aspects of “Sustainability” were achieved by the project, namely:

Improved Environmental Sustainability: The project supported investments in municipal services that directly or indirectly improved the environment via improvements in water supply, sewerage and solid waste management systems. As a result, 2.95 million people benefited from access to improved water sources in urban areas; 3.5 million people benefited from industrial and municipal waste disposal capacity created; and 1.5 million people were provided with access to improved sanitation.

Improved Financial and Operational Sustainability is demonstrated as 12 of 14 municipalities/utilities have reached their financial working ratio targets and 89% of the target to reduce non-revenue water (NRW) has been achieved under the project.

Improved Institutional sustainability was achieved by the following – (i) participating municipalities increased their capacity for project design, implementation and operations; (ii) Iller Bank developed basic project appraisal, implementation and management capacity; and (iii) by completion of the project Iller Bank has started to receive development financing from EIB, JICA, , Islamic Dev. Bank, this was a huge feat and a positive move towards harmonizing development financing from IFIs in the sector and meeting Government of Turkey reform agenda. MSP was the first project financed by an IFI through Iller Bank and was highlighted by Iller Bank, MoD and Treasury that the Project itself added value to the municipal sector financing.

3.3 EfficiencyRating: Substantial

Aspects of design and implementation that contributed to efficiency

62. Efficiency of project design: The design considered a number of alternatives with respect to implementation arrangements, such as considering lending through commercial banks; restructuring Iller Bank prior to considering a loan; or directly lending to municipalities. The decision at project design stage to proceed with lending via Iller Bank rather than wait for the new Iller Bank Law to be passed contributed to project efficiency for the following reason – i) at the time the project was designed Iller Bank was a specialized public institution for local infrastructure development that was assigned the responsibility of supporting municipalities meet EU environmental directives in terms of basic services delivery; and ii) Iller Bank had a long standing relationship with all municipalities, with water and wastewater business representing about 95% of its loan assets, this simplified project implementation arrangements on both the technical and financial sides. Given the geographical spread of participating municipalities and their varying demands, directly lending to municipalities under the project would not have been cost-efficient.

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63. Efficiency of implementation: Project management was carried out by the Iller Bank PMU via PIUs established at participating Municipalities. The only exception was Antalya, where PIU functions were outsourced to a private company – ALDAS, a subsidiary of ASAT (water utility) a sub-borrower under the project. ASAT was the largest of all utilities and accounted for absorbing more than a third of the combined project funding (EUR 391 million) over the ten-year period. ALDAS successfully managed investment funds amounting to EUR 158 million. Furthermore, the ALDAS model led to successful savings of about US$ 2 million in supervision costs demonstrating efficient use of project resources by some of the sub-borrowers.

64. Overall, PIUs’ implementation performance was good with all planned sub-projects implemented by the project closing date, except for those in Istanbul and Beypazari due to reasons beyond the influence of the project. The underlying reasons are explained in Annex 2. Funds destined for Istanbul were effectively absorbed by DESKI, where the utility of extra resources was of high significance for the municipality just prior to it becoming a metropolitan municipality.

Aspects contributing to economic efficiency and cost effectiveness

65. Efficiency per Water Supply and Sanitation Sector Service Criteria: The World Bank’s Comprehensive Development Framework (CDF) defines water supply and sanitation sector service efficiency10 in reference to two key indicators, consisting of (a) percentage of unaccounted water (i.e., NRW), and (b) the number of employees per thousand households connected to public water supplies. Overall, data on the second category was not very reliable, mainly due to the introduction of Law 6360 in 2014 which amalgamated municipalities into existing or newly formed Metropolitan Municipalities. The new law altered staffing patterns for the Water and Sewerage Administrations (SKIs) which have still not yet been stabilized. Therefore, the efficiency analysis is based mostly on NRW.

66. For the sake of ICR review expediency, four Water and Sewerage Administrations (SKIs) were selected as case studies. These SKIs consist of ASAT (Antalya), DESKI (Denizli), MUSKI (Mugla) and MESKI (Mersin). These four utilities (a) collectively account for more than three fourths of the project funds, (b) three of the four have been loan recipients under MSP and the AF, and (c) offer greater access to data and documentation as compared to the smaller municipalities.

67. Non-Revenue Water (NRW) Control: The percentage of NRW reduction is a formal MSP indicator and is a highly significant one for efficiency assessments. However, due to methodological challenges, the related M&E indicator had a general tendency to underestimate true project performance. It was discerned that the NRW reduction rate was being calculated on the basis of the entire service areas of the utility rather than being estimated solely in connection with the designated and targeted project areas where investments have been undertaken. This situation was exacerbated after the local governance reform in 201411. This is a clear case where significant project impact was crowded out by other phenomena and diluted by unrelated statistics outside the control of the project. When looked at in an incremental sense, however, it was evidenced that NRW

10 Comprehensive Development Framework, World Bank, http://www.worldbank.org/en/webarchives/archive?url=http%3A%2F%2Fweb.worldbank.org%2Farchive%2Fwebsite01013%2FWEB%2F0__CO-11.HTM&mdk=2220140911 Metropolitan Municipality Law #6360 increased the number of metropolitan municipalities and expanded geographical coverage of metropolitan municipality administrative area to the provincial boundaries

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http://www.worldbank.org/en/webarchives/archive?url=http%3A%2F%2Fweb.worldbank.org%2Farchive%2Fwebsite01013%2FWEB%2F0__CO-11.HTM&mdk=22201409

http://www.worldbank.org/en/webarchives/archive?url=http%3A%2F%2Fweb.worldbank.org%2Farchive%2Fwebsite01013%2FWEB%2F0__CO-11.HTM&mdk=22201409

was reduced drastically in some District Metered Areas (DMAs) where investments were made, but when pooled with the entire service area of the utility, this noteworthy accomplishment by the project was largely disguised.

68. All participating utilities and municipalities under the project have developed capacity in NRW control exceeding 5% of the applicable System Input Volume (SIV) per annum. Principal NRW control instruments consist of SCADA systems and acoustic monitoring devices managed by trained staff. Added measures, such as hotspot repairs and pressure management are also common. As a case in point, ASAT Performance Program for 2017 provides for active leakage control (ALC)12 via acoustic monitoring over 1,000 km of trunk lines aiming to spot and fix leakages, which would help save water13 amounting to 1,000m3/hour at cost of TL 6.5 million (less than 2% of the annual operating cost of TL 395 million in 2016). A year ago, a similar exercise targeted to reclaim NRW for 600 m3/hour, but the target was exceeded by almost two fold, reaching 1000 m3/hr.

69. Another noteworthy case is Denizli (DESKI) where NRW has been reduced to 10% at the selected DMAs level. Denizli is one of the interesting cases where entire existing networks were scrapped and replaced by new systems with separation of sewage and storm water lines, accompanied by completely renewed customer connections. The authorities stated that the 10% NRW estimate needs to be confirmed by SCADA output which was still being test-run for final delivery by the contractor.

70. Furthermore, all participating utilities and municipalities have reduced apparent water losses, which are of administrative nature. This type of loss was not being monitored in the M&E system. The larger part of remaining NRW now consists of physical losses, or real losses with reduced or minimized apparent losses. For instance, ASAT’s apparent water losses14 have been reduced to 7% for the entire province in 2014. Part of this success is due to replacing old meters with new ones. For the urban center Antalya, apparent losses should in fact be much lower, but this cannot be confirmed because accounting data and statistics are being disclosed at the province level only.

71. In conclusion, with varying degree of sophistication and management intensity, DMA, SCADA, modelling, pressure management, leakage detection and accurate customer water meters proved highly efficient for NRW control for all participating municipalities dealing with water supply under the project.

72. Water savings - or avoided water losses connected with improved infrastructure, NRW control capacity and technical work tools - were estimated for the four selected SKIs: ASAT, MUSKI, MESKI and DESKI. Estimated total water savings for the top four utilities as a result of the project amount to 380 million cubic meters (Table 5). This is a significant quantity of water. To highlight its significance, this much water would be sufficient to meet the water demand in a fairly large metropolitan center, such as Ankara (with 5 million inhabitants, each consuming some 200 liters a day) for about 380 days. If we were to include in the calculations the whole range of WSS projects under MSP, the total of water savings estimate would be augmented by another 10 to 20%.

12 ASAT Performance Plan for 2017 (in Turkish), http://www.asat.gov.tr/files/2017_performans.pdf 13 NRW saving for 1000 m3/hour of water accounts for about 5.5 % of the system input volume. The calculation involves: 1000 m3/hr = 1000m3/3600 sec = 0.2728 m3/sec, which is 5.5% of the system input volume of 5 m3/sec.14 The information comes from the Ministry of Forestry and Water M&E System on Water Losses which is being operated by the General Directorate of Water management in Ankara. The forms have been completed by ASAT’s relevant department.

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http://www.asat.gov.tr/files/2017_performans.pdf

Table 5: NRW ImprovementsImprovements in Non-Revenue Water Management and Resulting Water Savings

Baseline Estimate

Current Year Level

(2017)

Terminal Year Level

Water Savings Annual SIV Percent of

SIV

Percent Million m3 Million m3 PercentWithout Project 49% 40%With Project 49% 22%Without Project 53% 47%With Project 42% 23%Without Project 54% 44%With Project 40% 20%Without Project 57% 44%With Project 41% 20%

379.70 324.31Note: SIV stands for System Input Volume in cubic meters, part of which is lost to NRW. What remains can be billed and consumed.

149%

250%

Estimated Total Water Savings for the Four Utilities (SKIs) from 2009 to 2025

65% 2009 2025

194.16 71%

7.30

75.55

47.30

152%200961%

Baseline Year

70% 2009 2022

MUSKI

MESKI

DESKI

137.68

11.06

112.87

118.09

2026

2023

2006

SKIs Scenario Terminal Year

Percent

ASAT 52%

73. The economic implication of 380 million m3 of water can be extended by assigning an economic price to water. It is estimated that the economic price of water in Turkey would be twice as high as its tariff based level. ASKI (Ankara) has the highest tariff for a certain category of users (business and diplomatic missions) and this tariff stands at TL14 /m3. This rate corresponds to approximately EUR 3.5/m3, and could possibly be considered to represent the economic price of water in Turkey, with adjustments for provincial GDP. The lowest adjusted economic price is in Mersin, which is equal to EUR 2/m3. Using this economic price, it is estimated that every EURO invested in WSS by MSP would yield EUR 2.5 in economic terms (crude cost benefit ratio).

74. Efficiency Implications of Financial Working Ratios: The working ratio is formally a sustainability indicator, but it has bearing for efficiency as well. When utilities enhance their revenues (in connection with better NRW control, for instance), this would naturally be reflected in the working ratios15. The below table shows the expected financial working ratios (FWRs) for the four selected SKIs both for original loan and additional financing. These are compared with the actual FWRs, recalculated from SKIs published annual reports, which reveal positive outcome.

Table 6: Financial Working Ratios

FWRs from Results Framework – PP of 2010

SKI

Additional Financing

Original Loan2009 2011 2104 2009 2011 2104

ASAT 1.13 0.84 0.85 1.49 1.01 0.84MESKİ 0.66 0.67 0.64 0.64 0.66 0.67MUSKİ 0.70 0.66 0.80DESKİ 0.66 0.76 0.55 0.74 0.66 0.76

15 The financial working ratio (FWR) is defined as: (Operating Costs – Depreciation – Debt Related Costs)/Operating Revenue. Debt related cost refers to interest payments or transaction costs, and does not comprise actual debt service.

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SKI

Recalculated FWRs from SKI Annual

Reports

2014 2015ASAT 0.59 0.51MESKİ 0.66 0.64MUSKİ 0.55 0.77

Source: Annual Reports ASAT, MESKI, MUSKI and DESKI published on the web

75. Based on case studies, the re-estimated project efficiency parameters are ERR = 14%, FRR = 4%, ENPV = EURO 205.3 million and FNPV = EURO33.61 million. The corresponding cost effectiveness ratio (CER) is 2.82. These results are considered to be reasonable and acceptable for a partially analyzed project (not all benefits were quantified) as complex as MSP. Sensitivity analysis shows that the estimates are robust with respect to changes in the key parameters, which consist of the economic and financial price of water (further detailed in Annex 3).

76. Separation of Sewage and Storm Water: Prior to the project interventions, Denizli and many other towns in Turkey made use of a combined sewer collection system of pipes and tunnels designed to also collect surface runoff. Such combined sewers can cause serious water pollution problems during overflow events when rain water flows exceed the WWTP capacity. Denizli DESKI has set a good example for such separation of storm water from sewage water under the project. It is reported that before the storm water lines were separated, the average effluent reaching the WTTP was about 70,000 m3/day, which has now been reduced to 55,000 m3/day, with significant cost and environmental implications. The runoff collected by the new system is now being safely discharged into a nearby stream.

77. Efficiency in Solid Waste Management: Solid waste management related investments accounted for about 8% of the project resources under the project. The largest investment was in Kayseri which has constructed a large scale solid waste storage facility in addition to preparing a Solid Waste Master Plan without exceeding the initial funding allocation for the land fill. It has privatized part of the waste disposal. It helps recover approximately 15% (by weight) of the materials from the solid waste for recycling and reuse. Compaction of the solid waste accompanied by sorting and separation effectively extends the landfill life in Kayseri. The basic Gelibolu landfill facility was completed in 2010 under the project. Likewise, Gelibolu has been keen on recovering useful materials from the solid waste. Consequently, the solid waste being stored in the Gelibolu landfill has been significantly reduced, which has helped extend the effective useful life of the facility.

3.4 Justification of Overall Outcome RatingRating: Moderately Satisfactory

78. The project has been successfully implemented with results that go beyond the originally intended benefits. These include the fact that the PDO stayed relevant throughout the life of the project and still applies; Iller Bank remains an effective partner and a key player in Turkey; significant capacity was built for the benefit of not just the project but the greater urban and municipal agenda; there was good progress on the ground with meeting the objectives (physical infrastructure built in sustainable ways) and good progress in substantially achieving project indicators. The individual ratings as listed in Table 7 are by-and-large pretty solid and good; and finally the overall context of the urban transformation is an extremely positive development story and the project can be seen as playing a part in it. However, the weakest link in the project was the initial M&E framework which handicapped the project in the early stages. This was subsequently fixed

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during implementation. M&E capacity built in Iller Bank and municipalities under the project will benefit the sector as a whole and will continue to have a positive impact on future investments. In addition, disbursements drastically picked up after a slow start when steps were taken to rectify design issues during AF restructuring. Disbursements jumped by 37% from 55.3% to 93% within a year. The project could have an overall satisfactory rating, however, due to the weak M&E in the early stages, the overall outcome rating is assessed as “Moderately Satisfactory (MS)”. The table below summarizes the ratings that have contributed to the overall outcome rating.

Table 7: Summary of Ratings

Outcome Rating

Relevance ModestRelevance of Objectives HighRelevance of Design and Implementation ModestEfficacy SubstantialAchievement of PDO Outcomes SubstantialEfficiency SubstantialOVERALL RATING Moderately Satisfactory

3.5 Overarching Themes, Other Outcomes and Impacts (a) Institutional Change/Strengthening

79. A positive legacy of the MSP has been that Iller Bank has developed its project implementation and management capacity substantially. The MSP PMU staff were the beneficiaries of the intensive training sessions on World Bank procurement, safeguard implementation and other topics. The experience gained during implementation, together with the efforts of the GoT to reform Iller Bank have made it a more attractive institution for other international investors, and laid the groundwork for harmonizing development financing in the sector. Both municipalities and the MoD mentioned during meetings with the team that their trust in the capacity of Iller Bank had increased substantially in good part due to the experience gained through the implementation of the MSP.

3.6 Summary of Findings of Stakeholder Workshops80. Two stakeholder workshops were organized under the Municipal Services Project. The

first workshop was held in Sapanca, Turkey on June 04-06, 2013 after the closing of the original loan in 2012. The participants from Iller Bank –PMU and representatives from Regional Directorates, World Bank, Ministry of Development and municipalities and utilities from Antalya, Denizli, Mersin, Muğla, Ilıca, Ödemiş, Gelibolu,Polatlı, Bergama. The workshop assessed the achievements under the original loan. Each municipality prepared poster which explain their sub-project and including SWOT analysis. The booklet for the original loan was prepared and distributed to sub-borrowers and WB.

81. The second workshop was held at the Macunkoy Social Facilities of the Iller Bank on January 24, 2017. Sub-borrowers of both original and additional loans were invited. There were 70 participants from the Iller Bank, the World Bank and municipalities and utilities from Antalya, Denizli, Mersin, Kayseri, Kirsehir, Mugla, Izmir, Bergama, Odemis,

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Gelibolu and Kahramanmaras. The main objective was to disseminate information on implementation experiences and outcomes from each city and engage the stakeholders in discussions on the lessons learned for future activities. Further details about the workshop can be found in Annex 5.

82. Unfortunately, Iller Bank did not want to use the loan to carry out a beneficiary survey.

4. Assessment of Risk to Development Outcome Rating: Low

83. Technical: The technology used in this project is well established and tested, in Turkey and elsewhere. Field visits have been made by the team at all but two of the sites, and all are in active use, with operation and maintenance responsibilities being fulfilled by trained staff. Only Ödemiş has reported a technical issue due to variations in turbidity levels, but they are investigating it and are in the process of identifying a solution. Annex 2 provides further details on individual projects. Considering the nature of the proposed solutions, the technical risk is low.

84. Government Commitment: At the national level, the GoT has maintained the provision of sustainable public services on the public agenda, and has in fact followed the MSP with the SCP project, which covers largely the same sector. The GoT has also enacted higher standards for NRW16, as well as a law that will improve M&E for the water sector. Additionally, more administrative reforms are planned, including a further increase of MMs, according to MoD, which will create further periods of disruption. However, overall risk is assessed as moderate.

85. Institutional Capacity: At the municipal level, the fact that nearly all sub-borrowers have well established utilities capable of operating and maintaining the installations highlights their capacity. The exceptions are small municipalities that have limited capacity and funding. On the other hand, one potential risk is the overreliance on Iller Bank, with the increase in pressure added by additional IFIs working with Iller Bank, performance may drop. Institutional risk is assessed as moderate.

86. Environmental Sustainability: There are no major outstanding issues related to environmental safeguards. All environmental assessment documents are in place, and the municipalities have implemented the projects in compliance with these environmental assessment documents. However, the cases of Mugla and Elbistan will require further monitoring by local authorities. The environmental risk is assessed as moderate.

87. Overall risk to development outcome was assessed as low, based on the technical, government commitment and environmental sustainability evaluations.

5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry

Rating: Moderately Unsatisfactory

88. MSP was and is to this day consistent with the Government’s development priorities and the Bank’s CAS. Safeguards and fiduciary measures were appropriately designed and

16 Regulation on the Control of Water Loss in Drinking Water Supply and Distribution Systems is also analyzed in Annex 3.

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were consistent with the Bank’s fiduciary role and Iller Bank’s status and capacity. The Bank mobilized an experienced team with the skills necessary to negotiate, manage and assess the technical feasibility studies and project designs. The project design was informed by solid financial and policy analysis and employed lessons learned from the World Bank’s experience in the municipal sector in Turkey. However, design of the Additional Financing stage could have benefited from more due diligence with regard to i) providing an extension or update to the economic and financial analysis; and ii) assessing the need to continue with Component 3 Iller Bank Institutional Strengthening to avoid the lack of disbursement under this component.

89. The risks were adequately identified, though project design did not mitigate them entirely. The initial results framework was not sufficiently precise or reflective of the PDO, and its revised version which was retroactively applied to subprojects under MSP had not resolved all issues that had been highlighted in reviews. In addition, the sub-indicators added as part of the 2014 restructuring was a design flaw that the Bank could have avoided. Bank performance in ensuring quality at entry is rated Moderately Unsatisfactory.

(b) Quality of Supervision

Rating: Moderately Satisfactory

90. The Bank team undertook regular supervision missions and maintained a constant line of communication with Iller Bank and the other relevant actors. The ISRs and Aide Memoires were thorough and highlighted all important issues. Overall the Bank was responsive to any requests for technical support from Iller Bank. The project encountered no significant fiduciary or safeguard issues, but when issues were encountered, Bank specialists were available for consultation with Iller Bank. Furthermore, the WB was particularly involved in aiding municipalities and Iller Bank on contract management when there were any disputes.

91. Bank’s overall performance rating for quality of supervision is Moderately Satisfactory recognizing that even though it was poor at the start of MSP implementation, it improved substantially particularly during the Additional Financing. Several project restructurings were carried out to i) ensure project implementation progress was monitored through a more robust Results Framework; ii) better aligned to the changing sectoral context as a result of reforms; and iii) fix design issues such as dropping the 10% co-financing requirement in the AF that considerably accelerated disbursements. The Bank team made other concerted efforts to ensure project implementation kept moving.

(c) Justification of Rating for Overall Bank Performance


5.2 Borrower Performance(a) Government Performance

Rating: Satisfactory

92. National Government: The GoT was represented in the project in two ways: at the national level by the Ministry of Development (MoD) and the Treasury, and at the local level by the municipalities. By the end of the project, MoD was the supervisory

22

authority of Iller Bank, who revised and approved feasibility studies. The Treasury acted as loan guarantor. Both institutions fulfilled their responsibilities promptly and offered constant support for the cooperation with the World Bank.

93. Sub-Borrower performance: For the MSP, local authorities were the government entities that most needed to show commitment to project implementation. Municipal authorities maintained a good working relationship with Iller Bank and the World Bank, although there were variations among them in terms of the level of project ownership and commitment. However, according to the MoD, prior to MSP municipalities had been reluctant to use international financing or would default on loans. Due to the project, municipalities have increased their own capacity and have expressed willingness to keep working with Iller Bank. Some municipalities, in particular the Water and Sewerage Administration of the Antalya Metropolitan Municipality (ASAT), committed early to project implementation and created the most efficient institutional/operational structure for project management by hiring the private company ALDAS. ALDAS had complete responsibility for implementing contracts for procurement of goods and construction supervision, as well as providing technical staff for running the operations for the two WTTPs in Antalya. Its interventions have so far led to savings of about US$ 2 million in supervision costs. ASAT intends to continue using ALDAS for their regular operations post project.

94. Conversely, the most significant delays occurred during the AF, in municipalities that did not take full ownership of the project, which was mainly limited to the ISKI sub-project and Beypazari. The loss of the ISKI project was a setback and delayed disbursements, particularly since it had been allotted €39.52 million, corresponding to 22% of the AF. The planned project design measures to prevent delays were not sufficient, as the large sum and the continued reluctance of municipalities to use international loans meant that it was only two years later that Iller Bank finally managed to sign a sub-loan agreement with Denizli, which further delayed project completion requiring an extension of the closing date. An additional delay was caused in good part by the territorial reform for Beypazarı, which became a district of the Ankara Metropolitan Municipality in 2014. The contracts executed by the Beypazarı Municipality were supposed to be transferred to the Water and Sewerage Administration (ASKI) of the Ankara Metropolitan Municipality. However, ASKI did not want to take over the contracts and instead filed a court case at the Council of State requesting cancellation of the commission’s decision on the transfer of contracts. In September 2016, the Executive Board of ASKI decided to terminate the works contract; although the issue remains pending.

(b) Implementing Agency or Agencies Performance


95. The Iller Bank PMU was faced with a project of a scale and duration beyond anything the institution had managed up to that point, and generally fulfilled its obligations efficiently, with few issues. The unit oversaw the implementation of 223 contracts and received, reviewed and paid 1800 invoices during this period.

96. A significant advantage for Iller Bank and the implementation of the project was the fact that the staffing of the PMU maintained key members throughout the original loan and the AF. They have increased and broadened their capacity substantially, and have gained capacity beyond purely financial matters to negotiating agreement with IFIs and evaluating public investment projects and their associated feasibility studies. The Iller

23

Bank PMU was particularly consistent and responsive during the implementation of the original loan. The improvement in institutional capacity developed as the team increased its experience with contract management, monitoring implementation, safeguard and fiduciary compliance.

97. Iller Bank implemented and delivered a loan of more than 390 million Euro (more than USD 500 million) successfully and administered sub-loans to 14 municipalities spread across the length and breadth of the country under the project. Given this, across the original loan and additional financing, the performance of Iller Bank is rated Moderately Satisfactory.

(c) Justification of Rating for Overall Borrower Performance


6. Lessons Learned

98. Long project implementation timeframes risk being impacted by factors outside the control of the project. MSP implementation lasted for 12 years, a lengthy period during which time it was affected by a series of sector and banking reforms. An important lesson is that while some risks can be anticipated for a certain period of time, generally 4-5 years and effectively mitigated, project extensions and additional financing mechanisms may dilute the initial expected results due to factors outside the control of the project. It may be more prudent to design a new second generation project taking into account the sectoral and political context at the time, or consider using a Series of Operations (SOP) as possible investment instrument. For projects that have Additional Financing it would be worth preparing an interim ICR in tandem with the AF if it is coming after many years of implementation of the first loan.

99. Critical to ensure development of a realistic results framework during project preparation in close collaboration with the beneficiaries of the investment. The MSP project has demonstrated the issues and handicap that can arise during implementation and while attributing results when the M&E system is weak. At the same time having a good M&E framework is not sufficient. The implementing agency did not have the capacity nor the incentives to closely monitor project progress towards meeting targets. Weak M&E appears to be a common issue across several urban sector projects in the Bank. Perhaps, M&E should be translated into a performance indicator for the implementing entity to ensure compliance and improve quality.

100. Ensure financial intermediaries have the technical capacity to implement municipal finance projects. Early recognition during project design that Iller Bank required support in strengthening its capacity to appraise, implement and supervise projects was critical to the success of MSP. The inclusion of an Action Plan as a legal covenant ensured that the institutional strengthening measures to be implemented were taken seriously by the implementing entity and successfully adhered to.

101. Managing expectations for technical improvement in NRW: Due to methodological and technical challenges (not being able to track project impact at the micro level and DMA level and SCADA systems still being built) the project’s M&E system did not intercept declining NRW and associated working ratios which would normally characterize the significant improvements as manifested by NRW reductions. The expansion in service

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areas experienced by the utilities after Law 6360 in 2014, contributed to discontinuities in data collection and aberrations in the NRW data. When establishing NRW as a project outcome indicator, it is critical to ensure the reliability of the data to be collected and consider the potential risks that could affect the quality of results reported.

102. A PMU with institutional authority and capacity is paramount to ensure successful implementation by municipalities. The MSP demonstrated what a difference a PMU with the appropriate institutional authority and technical capacity makes for the smooth implementation of the sub-projects by the municipalities. When the MSP started, the PMU was authorized to take decisions on the project and its strong team of public officials was supported by outside technical expertise as needed. This changed over the years and the PMU lost much of its institutional authority to make day-to-day decisions as well as some of its key staff. The PMU was not addressing implementation issues promptly, as it was lacking authority and capacity.

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ANNEX 1. Project Costs and Financing(a) Project Cost by Component (in EURO Million) –Original Loan

Component Appraisal Estimate (Euro millions)

Actual Estimate (Euro millions)

Percentage of Appraisal

Municipal Development 195,540,000.00 188,760,875.07 96.53%

Municipal Technical Assistance 15,500,000.00 15,617,830.40 100.76%

ILLER BANK Institutional Strengthening

775,000.00 795,500.00 102.65%

TOTAL PROJECT COST 211,815,000.00 205,174,205.47 96.86%

Front-end Fee 1,085,000.00 1,064,500.00 98.11%

TOTAL FINANCING REQUIRED

212,900,000.00 206,238,705.47 96.87%

(b) Project Cost by Component (in EURO Million) –Additional Financing

Component Appraisal Estimate (Euro millions)

Latest Estimate (Euro millions)

Percentage of Appraisal

Municipal Development 167,600,000.00 156.968.165,22 93,66%Municipal Technical Assistance 9,100,000.00 10.153.422,12 111,58%

ILLER BANK Institutional Strengthening 1,054,500.00 165.525,58 15,70%

TOTAL PROJECT COST 177,754,500.00 167.287.112,92 94,11%Front-end Fee 445,500.00 445.500,00 100,00%TOTAL FINANCING REQUIRED 178,200,000.00 167.732.612,92 94,13%

(c) FinancingSource of Funds Type of

CofinancingAppraisal

Estimate (Euro)Actual/Latest

Estimate (Euro)

Percentage of

AppraisalSub Borrower Own

Resources21,726,666.67 20,973,430.56 96.53%

IBRD (Original Loan) Loan 212,900,000.00 206,238,705.47 96.87%

IBRD (Additional Loan) Loan 178,200,000.00 167.732.612,92 94,13%TOTAL FINANCING 412,826,666.67 394.944.748,95 95,67%

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ANNEX 2. Outputs by ComponentSummary of Project Results:

As a result of the project, 2.8 million people benefited from access to improved water sources in urban areas; 2.4 million people benefited from industrial and municipal waste disposal capacity created; and 1.5 million people were provided with access to improved sanitation.

The Project supported construction of 2,450 km of water network (Antalya, Denizli, Mersin, Ilıca, Kırşehir and Elbistan); 1,150 km of sewerage network (Antalya, Denizli, Muğla, Ilıca, Mersin); 100 km of storm water network (Denizli and Ilıca); two new wastewater treatment plants (Muğla and Ödemiş), two water treatment plants (Ödemiş and Polatlı), three landfills (Bergama, Kayseri, Gelibolu) and capacity extension in Hurma WWTP (Antalya) and refurbishment of the existing Lara Wastewater Treatment Plant (Antalya) with installation of new equipment in many areas i.e. outfall pumps, surge protection, odor control for inlet facilities, new by-pass pumps, covers to secondary clarifiers, transformers, panels and SCADA for the new equipment etc.. In addition to these facilities, construction of seven reservoirs and 16 pumping stations and procurement of several packages of machinery and equipment were included in the project. Throughout the MSP, the sub-borrower municipalities have signed 132 contracts for procurement of 33 works, 65 goods and 34 consultancy services under the original loan and 58 contracts for procurement of 14 works, 29 goods and 15 consultancy services under the additional loan.

Impacts of the Metropolitan Law No. 6360 on the Sub-borrower Municipalities

It is important to understand and assess outputs/results in the context of significant reforms to the administrative structure of Turkey that took place in 2014, as reflected in the table 1 below. Structural reforms to the metropolitan municipality regime in Turkey meant that two city municipalities that were part of MSP became metropolitan municipalities and five district municipalities that sub-borrowed directly from Iller Bank became part of metropolitan municipalities. In addition, the service areas of the metropolitan municipalities significantly increased impacting monitoring of results.

Table 1: Changes as a Result of Metropolitan Law No. 6360 of 2014

Municipality Impacts of the Metropolitan Law No. 6360 of 2014Metropolitan Municipality changes Impact of

Structural Change

Antalya (existing MM)

Antalya was already a metropolitan municipality. With the Law, service area of the MM has increased from 2,033 km2 to 20,909 km2 and the service population has increased from 1,161,142 to 2,222,562.

10-fold increase in area92% increase in service population

Mersin (existing MM)

Mersin was already a metropolitan municipality. With the Law, service area was increased from 1,850 km2 to15,853 km² and service

More than 8-fold increase in area45% increase in service population

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population of the MM increased from 950,418 to 1,745,221.

Kayseri (existing MM)

Kayseri was already a metropolitan municipality. With the Law, service area of the MM increased from 9,465 km2 to 16,197 km2 and service population of the MM increased from 921,238 to 1,341,056.

12-fold increase in areaService Population increased by 31%

Denizli (new MM)

Denizli became a metropolitan municipality. With the Law, service area of the MM increased from 1,159 km2 to 11,868 km2 and the service population increased from 654,321 to 993,742.

10-fold increase in area35% increase in service population

Muğla (new MM)

Muğla became a metropolitan municipality. With the Law, service area of the MM increased from 1,659 km2 to 12,654 km2 and service population of the MM increased from 99,158 to 866,665.

More than 7-fold increase in area88% increase in services population.

Provincial municipalitiesKırşehir No change. Kütahya No change.

District municipality changesÖdemiş

Izmir (existing MM)

Ödemiş became part of existing İzmir Metropolitan Municipality.

Almost 2-fold increase in area

13% increase in service population

Bergama Bergama became part of existing İzmir Metropolitan Municipality. İzmir was already a metropolitan municipality. With the Law, the Municipality’s service area extended to cover nine additional districts including Bergama and Ödemiş and therefore, the service area was increased from 6,810 km2 to12, 007 km² and the service population of the MM has increased from 3,679,242 to 4,168,415.

Elbistan Kahramanmaraş (newly created MM)

Elbistan became a part of the newly created Kahramanmaraş Metropolitan Municipality in March 2014.

Ilıca Antalya (existing MM)

Ilıca Municipality was closed and its services transferred to Antalya Metropolitan Municipality and ASAT (for water and sewerage).

Gelibolu No change. Gelibolu is still a district municipality.

Polatlı Ankara MM Polatlı became a part of the existing Ankara Metropolitan Municipality in

3-fold increase in area.

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March 2014.

6% increase in service population.

Beypazarı Beypazarı became a part of the existing Ankara Metropolitan Municipality in March 2014.Ankara was already a metropolitan municipality. With the Law, the Municipality’s service area extended to cover nine additional districts including Polatlı and Beypazarı and therefore, the service area was increased from 8,430 km2 to26,000 km² and the service population of the MM has increased from 4,966,945 to 5,270,575.

Results by City

Antalya – ASAT (Original Loan: EUR 100,214,938/Additional Financing: EUR 47,828,000)

Objective of sub-project investment per borrower report was to develop sewerage network, to improve the existing water supply system and to increase the capacities of Hurma WWTP and refurbishment of Lara WWTP to meet the requirements within the Municipal area where the population of the region triples during the tourism season. Sub-project objective is assessed as achieved.

The MSP original loan provided support to Antalya primarily for sewerage network construction, water supply rehabilitation and wastewater treatment plant rehabilitation between February 22, 2006 and December 2012.

Results: The sub-project contributed to improved water supply system through construction of 508 km water transmission line and distribution network and 181 km of water house connections. The sewerage system was improved with construction of 263 km of sewerage network and 48 km of wastewater house connections. Additionally, the subproject resulted in environmental improvements through capacity extension of 210,000 m3/day for Hurma Wastewater Treatment Plant, procurement of equipment (i.e. outfall pumps, surge protection, odor control for inlet facilities, new by-pass pumps, covers to secondary clarifiers, transformers, panels and SCADA for the new equipment etc.) for Lara Wastewater Treatment Plant (31,250 m3/day) and construction of new underground pumping stations increasing the total number of pumping stations to 11. Under the additional loan for MSP, Antalya received support primarily for the water and sewerage systems. The subproject was implemented and completed between August 25, 2010 and November 2016. Under the additional financing, water supply and sewerage systems were further improved through construction of 508 km of network and 181 km of house connections for water supply and 236 km of network and 47 km of house connections for sewerage collection.

Improvements in the water transmission and distribution system resulted in the reduction of unaccounted for water in the city. Furthermore, with renewal of the sewerage system and rehabilitation of the two wastewater treatment plants, sea water quality was significantly improved in Antalya which is a major tourism city in Turkey. The subproject also provided support to organizational strengthening of ASAT, Water and Sewerage Administration of Antalya Metropolitan Municipality, by procurement of office and laboratory equipment,

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truck type multi-purpose heavy machine with telescopic boom, water leakage detection vehicle, water leakage detection equipment, hot mix bituminous asphalt, sphero manhole covers and composite or silikopolimer manhole covers, watering trucks, water meters, minibus type canal cleaning vehicles, truck with truck folding boom hydraulic crane, truck with over truck telescopic and articulated platform, water tanker.In Antalya, project implementation was carried out by ALDAS on behalf of ASAT. ALDAS is a private entity which was established in 1995 mainly for the Bank-financed Antalya Water Supply and Sewerage Project. As a legal entity, ALDAS provides services in development and management of water supply, sewerage and solid waste disposal projects. ALDAS improved its technical and managerial capacity through implementation of MSP both under the original loan and the additional loan and they expanded their service area to cover construction supervision activities. After the completion of the consultancy contract on December 22, 2014, ALDAŞ conducted the construction supervision services for three work packages and additional works by its own capacity. Through this change in construction supervision process, ALDAS saved around USD 2 million which was then used for additional construction works within the scope of the sub-project. Additionally, the sub-project contributed to institutional strengthening of the municipal company which will continue to conduct similar infrastructure construction works for ASAT.

Post Project Sustainability and O&M arrangements: The completed works under MSP have been taken over by ASAT and the O&M of the constructed facilities are conducted by ASAT which has highly advanced technical, financial and managerial capacity and experience in operation and maintenance of water and sewerage systems, including wastewater treatment plants. ALDAS and ASAT have worked in close coordination and communication during the construction phase and the taking over process.

Image 1: Hurma WWTP

Denizli – DESKI (Original Loan: EUR 29.167.247/Additional Financing: EUR 73,598,000)

Objective of sub-project investment was to improve water, sewerage and storm water services in the selected part of the city. Sub-project objective is assessed as achieved.

Under the original loan, two sub-loan agreements were signed between Iller Bank and Denizli Municipality mainly for rehabilitation of water network and wastewater and storm water works. The works were conducted between February 22, 2006 and December 2012. The additional loan for MSP has provided financing for rehabilitation of water, sewerage and storm water systems between August 25, 2010 and November 2016.

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Results: Under the original loan, the sub-project contributed to improvement of water supply system through construction of 167 km of water network and 136 km of house connections. The sewerage system was also improved with 157 km of wastewater network construction and 71 km of house connections. The sub-project provided financing for establishing a separate system for storm water collection and 35 km of storm water network and 14,146 manholes were constructed. Similarly, under the additional financing DESKI received financing for improvement of water services through construction of 283 km of water network and 169 km of house connections and improved sewerage system through 219 km of wastewater network, 74 km of house connections. 13,683 customers were connected to water and sewerage network.63 km of network and 1.080 screens for storm water management. Unaccounted for water decreased due to the improvements in the water supply system. Earlier water pressure problems were also eliminated under the project. The sub-project resulted in an enhanced sewerage management after the separation of storm water collection. Procurement of vehicles and equipment also improved operational efficiency of the system and operation and maintenance capacity of DESKI.

Post Project Sustainability and O&M arrangements: As with the other metropolitan municipalities, Denizli was faced with changes in terms of the service area and population. However, with the experience gained through implementation of MSP (both under the original loan and the additional financing), DESKI has improved its managerial and technical capacity for project implementation and operation and maintenance significantly. As of the reporting period, total number of the staff is 317. Monitoring and O&M capacities of DESKI also improved with the SCADA system established under the additional financing. With the SCADA, DESKI became capable of monitoring and controlling 48 water reservoirs, 68 deep wells, 3 pumping stations, 20 measurement units. The ICR assessed the O&M conditions and the institutional capacity of DESKI as advanced.

Mersin – MESKI (Original Loan: EUR 30,906,918/Additional Financing: EUR 16,778,000)

Objective of sub-project investment was to reduce the water losses, to provide water to the new dwellings by construction of new pressure areas, to construct new reservoirs and new connection pipes between the reservoirs. Sub-project objective is assessed as achieved.

In Mersin, the MSP original loan primarily contributed to the rehabilitation of the water network, reservoir and reservoir connections between February 8, 2016 and December 2012. The MSP additional loan was used for improvement of sewerage collection services between October 13, 2010 and November 2016.

Results: The subproject resulted in an improved water supply system through construction of five reservoirs with total capacity of 54,000 m3, five pumping stations with flow rates of 50 lt/s, 250 l/s, 288 l/s, 276 l/s and 342 l/s, around 200 km of water network, installation of 34 flow meters and 47 valves and establishment of SCADA system. Under the additional financing, sewerage system was improved with construction of main collector, pressure lines, pumping station and sewerage network for sewerage of west catchment area. In addition to the listed construction works, four pumping stations and 6 reservoirs were rehabilitated under the subproject. Procurement of water loss detection equipment, and several construction vehicles and equipment and improvement of IT system both improved the O&M capacity of MESKI. Improvements in the networks and water supply units, supported by a SCADA system and network maintenance equipment provided MESKI with an improved capacity to decrease water losses (NRW). Previously, sewerage was directly discharged into the sea. With the transmission line constructed for transferring collected sewerage to the existing deep sea

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discharge line, the MSP contributed to enhance sea water quality in the coastal line which has become swimmable after the sub-project.

Post Project Sustainability and O&M arrangements: Under MSP, MESKI improved its technical knowledge and capacity in the water supply and wastewater services. The ICR assessed the O&M conditions as good.

Image 2: MESKI Sewerage Network Construction

Muğla (Original Loan: EUR 17,014,799)

Objective of sub-project investment per borrower report was to rehabilitate the existing water system and to develop a sewerage collection and treatment system.

In Muğla, MSP has supported rehabilitation of water network, sewerage network, wastewater treatment between February 22, 2006 and December 2012.

Results: The subproject contributed to development of a sewerage system through the following work packages: (i) sewerage network of 67 km, (ii) real-time remote monitoring system. The sub-project also resulted in rehabilitation of drinking water system by constructing a 5,000 m3 reservoir, pumping stations and distribution network and SCADA system,

Previously, there was no sewerage system and treatment plant and the wastewater was collected in septic tanks. With the project, direct discharges to riverbeds and permeable septic tanks have been eliminated by the construction of wastewater network; quality of groundwater and surface water have been improved. Pollution level of Gökova Bay has also decreased significantly with construction of the wastewater treatment plant with capacity of 17,111 m3/day. Water losses have also been reduced under the project through construction of the network and the SCADA system. Different alternatives for discharging treated wastewater of Muğla WWTP were evaluated for this project since 2005. Due to permit issues, discharging the water to a nearby receiving water body was not possible, the municipality therefore was only granted a permit17 for infiltration, evaporation and storage of treated wastewater in the abandoned sand and gravel quarry. A National Environmental Assessment report was prepared in line with the selected discharge option and approved by the Provincial Directorate

17 From General Directorate of State Hydraulic Works (DSİ)32

of Environment and Forestry (PDoEF). In 2011, another study was carried out and new alternatives were evaluated upon the request of World Bank to confirm if the selected discharge option, which is discharging to the quarry is technically, environmentally and economically feasible as a long-term solution. During the 2011 study, the following alternatives for discharge method were re-evaluated (i) Alternative 1: Pumping of treated wastewater from WWTP to downstream location of Ula Irrigation Reservoir at Ula Creek in the neighboring catchment area, which connects to Gökova Bay (ii) Alternative 2: Pumping of treated wastewater from WWTP to Kızılağaç Branch of Ula Creek (iii) Alternative 3: Lining of discharge site and pumping of treated wastewater to the forestry areas (iv) Alternative 4: Percolation of treated wastewater to underground at discharge site and pumping the rest amount to the forestry areas. After evaluating all alternatives, Alternative 4 was proposed to be most feasible solution for Muğla Municipality from initial investment and yearly operational costs point of views. The Bank provided a no-objection letter for the use of quarry as the disposal location by indicating that the effluent discharged to Disposal Site, will be monitored (quantity, quality), infiltrated, evaporated and used for other purposes like irrigation of forestry areas and green areas by Municipality.

Post Project Sustainability and O&M arrangements: After the local elections in March 2014, Muğla become a metropolitan municipality and established its own water and wastewater administration – MUSKI. Since March 2014, the project activities have been conducted by MUSKI. No O&M issues was observed during the ICR assessment. Nevertheless, due to the above mentioned unique nature of the discharge location, Mugla wastewater treatment plant still needs close supervision.

Image 3: Mugla WWTP

Ilıca (Antalya) (Original Loan: EUR 3,836,986)

Objective of sub-project investment was to improve water, sewerage and storm water networks. Sub-project objective assessed as achieved.Results: Ilıca (Antalya) has received support from MSP for improvement of the water distribution, wastewater and storm water collection services between February 22, 2006 and December 2012. Final acceptance of the works contract was issued on June 15, 2010. Within the scope of the sub-project, (i) one 5,000 ton reservoir, (ii) one pumping station, (iii) 22,910 m of sewerage network, (iv) 15,566 m of drinking water network and (v) 3,558 m of storm water network were constructed. Additionally, procurement of pipes and fittings for 8,575 m of sewerage, 9,252 m of water network and 3,700 m of storm water network were included in the subproject (installment was carried out by the Municipality). The subproject also covered

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procurement of one generator, one measurement equipment, one canal inspection/cleaning equipment, one excavator, two trucks and one pickup truck.

Post Project Sustainability and O&M arrangements: No O&M issues have been reported for the sub-project. Since the changes in the metropolitan regime in 2014, operation and maintenance of the established system has been taken over by ASAT (Antalya) which has highly advanced capacity for operation and maintenance.

Ödemiş (İzmir) (Original Loan: EUR 9,783,085)

Objective of sub-project investment per borrower report was to increase the water quality and to construct a wastewater treatment plant. Sub-project objective assessed as partially achieved.

Ödemiş received support for construction of a water treatment plant (18,612 m3/day capacity) and a wastewater treatment plant (15,765 m3/day) between February 22, 2016 and December 2012. Final acceptance for construction of the treatment plants were issued in February 2012. A real-time remote monitoring system was also installed under the subproject.

Results: With the water treatment plant, people in Ödemiş who had been consuming water with high turbidity values gained access to better quality drinking water. Currently, raw water is taken from two springs (i.e. Pıtrak and Su Çıktı). However, fluctuations in the levels of turbidity flow rate can sometimes have adverse impacts on the operational efficiency of the water treatment plant. IZSU plans to eliminate this problem by taking raw water from Rahmanlar Dam which is being constructed by State Hydraulic Works, DSI and expected to start operation in June 2018. After the completion of Rahmanlar Dam in 2018, the Water Treatment Plant will be used to treat water taken from the dam.Previously, collected wastewater was discharged to Küçük Menderes Stream. The project contributed by reducing pollution in the wastewater discharged into Küçük Menderes Stream. The wastewater treatment plant was designed to remove nitrogen and phosphorus as well. The design COD (Chemical Oxygen Demand) was 750 mg/l; however, in the influent it is around 1,500 mg/l due to uncontrolled discharge of cheese whey wastewater, olive mill wastewater and agricultural wastes. IZSU has started a new project to add new physical and biological treatment units to the plant to prevent impacts of high levels of non-domestic wastewater inflow to the wastewater treatment plant. It appears that there was a weak assessment of the challenges at the outset.

Post Project Sustainability and O&M arrangements: The ICR concluded that the two treatment plants constructed under the project have been experiencing significant O&M problems mainly due to the inflow values (i.e. higher COD values for the WWTP and high turbidity for the WTP) which were underestimated at the design phase. Both plants have been taken over by IZSU (Izmir Water and Sewerage Administration) which has advanced capacity for O&M. Therefore, an improvement in the O&M conditions can be expected after IZSU has completed the bidding process and realized the necessary actions.

Image 4: Ödemiş WWTP

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Elbistan (Original Loan: EUR 5,505,111)

Objective of sub-project investment per borrower report was to construct water supply system, distribution network and wastewater treatment plant. Wastewater treatment plant was excluded from the project scope upon request of the Municipality. Sub-project objective assessed as achieved in terms of water supply services.

Under MSP, Elbistan Municipality has received support for water network investments particularly on rehabilitation of reservoirs, pumping stations and extension and rehabilitation of the existing water transmission and distribution network between February 22, 2006 and February 2010. The original objective of the sub-project had included construction of a wastewater treatment plant. However, the Municipality decided to exclude WWTP from the scope due to financial reasons and the respective part of the loan was cancelled. The final amount of the Sub-Loan Agreement was EUR 5,505,111. Originally it was EUR 12,255,111. Due to cancellation of the contract for WWTP construction (ELB-W1, EUR 5,850,000) and then a second deduction upon request by the Municipal Council (EUR 900,000), the sub-loan amount decreased down to EUR 5,505,111.

Results: Within the scope of the subproject, water supply system in Elbistan was improved with the construction of (i) 4,318 m water transmission line for the flow rate of 439 lt/s; (ii) four pumping stations; (iii) 58,928 m water distribution line (40,254 m new network, 18,674 m rehabilitation) and three water intake structures. The sub-project covered one works contract for network rehabilitation and extension, three consultancy contracts and five goods contracts for procurement of several goods and equipment.

Post Project Sustainability and O&M arrangements: From 2010 to 2014, the water network was operated by Elbistan Municipality without any O&M problems. Since 2014, the facilities have been operated by Kahramanmaras – KASKI which became a metropolitan municipality due to the latest metropolitan municipality regime dated March 2014. KASKI is trying to improve its technical and financial capacity for O&M.

In September 2016, 50,000 people were hospitalized indicating contamination in tap water which is used for drinking purposes. Joint teams of the Bank and Iller Bank had site visits and several meetings with Kahramanmaras KASKI. During the site visits, the Bank observed that no significant precautionary measures have been taken by Elbistan Municipality/KASKI to protect the water resources from pollution and external effects. Operation maintenance of the disinfection system also needs improvement. Additionally, coordination among the relevant institutions needs strengthening. The Bank concluded that the problem was not raised as a result of the project

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design or construction fault, therefore, it is not directly related to the sub-project; rather it indicates a lack of proactive monitoring of the water supply system by KASKI. The Bank recommended that Iller Bank support KASKI in facilitating the communication with the institutions and to strengthen the coordination among all the parties through active involvement of the Regional Directorate of Iller Bank and the PMU.

Bergama (İzmir) (Original Loan: EUR 2,265,217)

Objective of sub-project investment was to develop solid waste management in Bergama. Sub-project objective assessed as partially achieved.

The subproject was initiated in February 22, 2006 and completed in December 2012. Final acceptance of the landfill was issued on November 4, 2010. In 2011 and 2012, the sub-project focused on procurement of goods.

Results: In Bergama, MSP contributed to the improvement of the solid waste management system by financing the construction of a landfill with its additional operational units like leachate stabilization pond and water reservoir. Under MSP, a medical waste sterilization unit was also established and the old dump site was rehabilitated. Before the sub-project, solid waste was directly disposed into a stream bed. The sub-project has resulted in the improvement of water quality as well as improved waste collection.

The landfill was designed with a lifetime of 20 years; first lot is for 13 years and the second lot is for 7 years. The landfill receives around 25,180 tons/year of solid waste from Bergama. Since there is no recycling and segregation process, large amounts of recyclable wastes (mainly packaging wastes) are received. After the legal change in 2014, Izmir Metropolitan Municipality started to transfer solid wastes collected in another district (Dikili, 25 km away from Bergama) to the landfill. Consequently, the load of the landfill has increased to 51,000 tons which would decrease the lifetime of the landfill down to 10 years. Additionally, the medical waste sterilization unit has not been operated since 2014. The operating company is transferring the medical wastes to another sterilization unit in Manisa (city around 70 km away from Bergama).

The leachate is collected in two tanks. Previously, it was considered to transfer the collected leachate to the nearest wastewater treatment plant as defined in the EIA. The EIA assessed that “the leachate to be collected from the planned landfill will be disposed of by recirculating with back spraying method to the site for first 4 years of the plant, then it will be treated in coming years by conveying to the municipal wastewater treatment plant to be constructed.” Therefore, the leachate should have been sent to the wastewater treatment plant since 2014; however, this has not been realized mainly due to low capacity of Izmir Metropolitan Municipality in terms of vehicles and equipment. This has adversely affected the operational efficiency of the landfill.

Post Project Sustainability and O&M arrangements: In March 2014, the landfill was taken over by Izmir Metropolitan Municipality. In order to solve the mentioned problems and to increase the operational efficiency of the landfill, İzmir Metropolitan Municipality has initiated a tender including (i) a segregation plant to amount of the recyclable wastes entering the landfill, (ii) one sewage truck for transferring leachate to the nearest wastewater treatment plant, (iii) methane collection system and (iv) operation and maintenance of the landfill. In addition to these items, the İzmir Metropolitan Municipality will procure two sewage trucks for leachate transfer and construct an access road. The Bank considers that these actions will increase the operational efficiency of the landfill. In long term, İzmir Metropolitan Municipality plans to establish an integrated solid waste management system to serve the

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whole city. Considering these actions taken by Izmir MM, the ICR assessed the sustainability of the project as acceptable.

Gelibolu (Original Loan: EUR 2,149,700)

Objective of sub-project investment per borrower report was to safely dispose of domestic solid waste. Sub-project objective assessed as achieved.

The amount of the sub-loan agreement which was signed on February 8, 2006, was EUR 2,149,700. The subproject provided support to Gelibolu Municipality for construction of a landfill, a packaging waste segregation unit, a leachate treatment plant and administrative buildings between February 8, 2006 and February 2010. Final acceptance of the landfill construction was issued on March 17, 2011.

Results: Previously, solid waste was being dumped in an uncontrolled manner. With the project, Gelibolu Municipality improved its solid waste management capacity through (i) the landfill with a capacity of 876,422 m3 and lifetime of 42 years, (ii) the packaging waste segregation unit with a capacity of 40 tons/day and (iii) the leachate treatment plant with a capacity of 32 m3/day. Under the project, water and sewerage systems have also been improved through procurement of new pipes. In addition to these, the Project also supported IT infrastructure of the municipality.

Post Project Sustainability and O&M arrangements: Municipality established an association for collecting solid waste from neighboring districts thereby benefiting the whole Galibolu peninsula; by also investing in waste segregation, recycling and leachate treatment the economic life of the landfill has been extended significantly per Borrower Completion Report; and O&M conditions at ICR was assessed as acceptable.

Image 5: Gelibolu Landfill

Polatlı (Ankara) (Original Loan: EUR 3,175,800)

Objective of sub-project investment per borrower report was to obtain potable good quality water. Sub-project objective assessed as achieved.

The amount of the sub-loan agreement which was signed on February 8, 2006, was EUR 3,175,800. The subproject was mainly for water softening and executed by the Municipality from February 8, 2006 to March 2011 covering one water softening plant of which

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construction was completed in 2007 and the final acceptance was issued in September 2008. Among all the sub-borrowers, Polatlı completed construction activities the earliest. After completion of the works contracts, the sub-project focused on procurement of goods.

Results: The project contributed to supply safe drinking water to Polatlı. A water treatment with a capacity of 28,800 m3/day and consisting of raw water storage tank, feed pumps, mechanical filters, cartridge filters, high pressure pumps, membrane technology units and automation control groups was constructed. With the water treatment plant, hardness of drinking water in Polatlı was reduced from 50 to 17 French hardness and therefore, tap water quality is now considered potable and being consumed by residents; household appliance such as washing machines and dish washers are reported to have less breakdowns.

Post Project Sustainability and O&M arrangements: Polatlı Municipality carried out O&M activities successfully from 2007 to March 2014. In March 2014, the water treatment plant was taken over by ASKI, Water and Sewerage Administration of Ankara Metropolitan Municipality which has advanced capacity for O&M. Since 2007, no O&M problems have been reported. In 2017, ASKI decided to construct a new transmission line from Gürpınar Dam which is expected to be completed in 2.5 years for drinking water supply to Polatlı. When this happens, ASKI plans to divert the existing line and the water treatment plant to provide drinking water to neighboring villages. Therefore, the plant will still be functional and the ICR assessed the sub-project as sustainable.

Image 6: Polatlı Water Treatment Plant

Kütahya (Original Loan: EUR 4,773,750)

Objective of sub-project investment was to reduce water losses in the existing water network. Sub-project objective assessed as achieved.

In Kütahya, MSP provided support mainly for rehabilitation of water network between February 8, 2006 and December 2012. The subproject comprised two works contracts and six goods contracts. Final acceptance for the construction contracts were issued on January 19, 2010 and January 31, 2011.

Results: The sub-project contributed to reduction of water losses in the water network and to supply safe drinking water to the public. The water

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supply system in Kütahya has been improved under the project through construction of (i) 116 km water network, 55,776 house connections, water reservoir of 10,000 m3, chlorine dosing unit. Procurement of three pumps, valves and network maintenance equipment also improved operation and maintenance efficiency of the system.

Post Project Sustainability and O&M arrangements: Since 2010, Kütahya Municipality has been operating and maintaining the water supply system properly and no sustainability issues have been reported as per the Borrower’s ICR.

Kayseri (Additional Financing: EUR 18,705,000)

Objective of sub-project investment per borrower report was to establish a solid waste management system within the borders of Kayseri Metropolitan Municipality in accordance with the Turkish Legislation and the EU Acquis, with a view to reducing environmental pollution and increasing reuse and recycling of solid waste. The objective was assessed as achieved.In Kayseri, MSP provided financing for improvement of solid waste management system, between August 25, 2010 and December 2016.

Results: The sub-project contributed to improvement of solid waste management system in Kayseri through successful implementation of the following works: (i) construction of a landfill with an area of 16 ha and a disposal capacity of 3,250,000 m3 serving 100 % of the people living at the city center (The landfill is operational since June 2015 and the final acceptance certificate was issued on June 6, 2016), (ii) preparation of the Solid Waste Management Master Plan, (iii) Construction of a compost plant with a capacity of 7,000 tons/year. The sub-project included procurement of 4 tow trucks and 9 trailers for the Transfer Stations and the vehicles (refuse compactor, tanker truck, pick-up, dump truck, backhoe loader and road sweeping vehicle) which also improved O&M capacity of Kayseri MM. The compost equipment still will be provided by the private operator.

Post Project Sustainability and O&M arrangements: Kayseri MM outsourced the O&M services for the constructed landfill and the pilot compost plant. At ICR, the O&M conditions and the level of communication and coordination between Kayseri MM and the O&M company was assessed as successful. The project also contributed to improve sustainability of the overall solid waste management system in Kayseri by preparation of the Solid Waste Management Master Plan which is expected to form the basis for solid waste management system in Kayseri in the next 25 years.

Beypazarı / ASKİ (Additional Financing: EUR 8,010,000)

Objective of sub-project investment per borrower report was to protect the receiving body of water (Karapınar Stream), which is located in Sakarya Basin by establishment of an advanced wastewater treatment plant. Results: Sub-project Cancelled. The amount of the sub-loan agreement is EUR 8,010,000. Beypazarı sub-project was supposed to be focused on wastewater treatment investments with the aim of improving water quality of the receiving body of water (i.e. Karapınar Stream).

Post Project Sustainability and O&M arrangements: Since Beypazarı is a district of Ankara Metropolitan Municipality, the water and wastewater contracts executed by Beypazarı Municipality were supposed to be transferred to Water and Sewerage Administration (ASKI) of Ankara Metropolitan Municipality. On October 3, 2013, the Transfer, Liquidation and Sharing Commission issued a decision to transfer Consulting Services Contract to General

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Directorate of ASKI and the procurement process to continue for the works contract. However, ASKI did not take over the contracts. Several meetings and correspondence were held between Iller Bank, ASKI and Beypazarı Municipality and ASKI filed a court case at the Council of State requesting cancellation of the commission’s decision on transfer of contracts. In September 2016, Executive Board of ASKI decided to terminate the works contract; however, the issue remains pending. Also for the consultancy contract, the issue with potential claims and compensations remain unresolved.

Istanbul – ISKI (Additional Financing: EUR 39,520,000 – Cancelled)

Objective of sub-project investment per borrower report was construction of Akfırat (Tuzla) Wastewater Basin Tunnel, Collector and Network. Sub-loan was cancelled and therefore the sub-project was not implemented.

Results: Sub-project cancelled. The sub-loan agreement signed between Iller Bank and Istanbul Water and Wastewater Administration (ISKI) on November 25, 2010 planned to cover construction of Akfırat (Tuzla) Wastewater Basin Tunnel, Collector and Network. However, ISKI decided to use its own budget to finance the planned MSP sub-project investment, thus around EUR 39.5 million which corresponds to 22% of the additional financing was released in November 2012.

Post Project Sustainability and O&M arrangements. The sub-loan was cancelled. Upon considering several options, Iller Bank decided to reallocate the sub-loan amount to Denizli which was seeking further financing for priority investments.

COMPONENT 2 – MUNICIPAL TECHNICAL ASSISTANCE

The objective of this component was development of feasibility studies, urban planning, preparation of design and bidding documents, operational improvement plans and construction supervision through provision technical assistance. Within this component, consultancy services were provided to the municipalities to increase their capacity to implement the project.

Results: This component was mainly used for financing consultancy services to the participating municipalities for implementation of the investments under Component 1; i.e. preparation of feasibility studies, environmental impact assessments, design services and construction supervision services.

COMPONENT 3 – ILLER BANK INSTITUTIONAL STRENGHTENING

The objective of this component was strengthening the institutional capacity of ILLER BANK to carry out the Project through financing of consultants’ services and incremental operating costs. Individual consultants (technical, procurement and finance) were financed with this component. In addition to this, trainings, seminars and workshops were organized to increase ILLER BANK’s and municipalities’ capacity to implement the project.

Results: Under the original loan, a number of very well attended training sessions and workshops carried out related to with overall project management, procurement, financial management, knowledge and experience sharing and evaluation of project results were organized under this component. Individual consultants (technical, procurement and finance) were also financed under this component. For the additional financing Iller Bank decided not to use this component as extensively as the original loan and therefore the additional financing is relatively weak in terms of capacity building activities.

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ANNEX 3: Economic and Financial Analysis

Overview

Background: The PAD of 2005 stated that the economic and financial appraisal of sub-projects would be carried out as part of the feasibility analysis, and that they would have to be satisfactory for the Bank to provide the no objection to the financing of the proposed investments. While the PAD contained a financial analysis and discussions on the financial intermediary, the Iller Bank (IB), (including coverage for background information on IB, government actions regarding Iller Bank and financial projections of IB), the Project Paper of 2010 did not provide an extension or revision of economic and financial analysis.

The feasibility analysis prepared by consultants for the sub-projects were reviewed, and it was noted that all of them were focused on a narrower financial analysis with an emphasis on the financial viability and corporate profitability of the concerned utility or municipality. The presentation in this ICR aims to expand and update the financial analysis for the concerned utilities (SKIs) and Iller Bank as well as offer an illustrative economic analysis based on water savings associated with NRW control efforts and consequent reductions.

The WSS Sector in Turkey

Municipal Water Statistics of 201218: According to the results of Municipal Water Statistics Survey of 2012, some 4.9 billion m3 of water was abstracted from primary water sources by municipalities to water supply networks across the country. Out of this amount, half was abstracted from dams, 28% from wells, 19% from springs, 2% from lakes/artificial lakes and sea, and some 2% from rivers. Water treatment was applied to 55% of the abstracted water. Water supply networks served 98% of the municipal population. The population served by water supply networks corresponds to 83% of Turkey’s population and 98% of total municipal residents. The average amount of water abstracted per capita per day was 216 liters.

Tariffs and Cost Recovery: Water and sanitation tariffs in Turkish cities are set by local governments, which consist of metropolitan, provincial and district municipalities. The basic principle in tariff setting is that it should both be affordable and cover applicable costs, comprising (a) O&M expenditures, (b) depreciation and debt service, and (c) an allowance for profit. The water losses (i.e., non-revenue water volume) are calculated and tariffs are matched with that part of the water production that can be billed. These principles are embodied in the ISKI (Istanbul) Regulation on Tariffs19, which constitutes the blanket set of rules in tariff setting for all the other water and sanitation authorities and municipalities.20

Notwithstanding the basic cost recovery principle underpinning the tariff setting, some SKIs and municipalities may still choose to rely on subsidies and transfers from the central government, rather than shift the full burden of the cost of water supply to the users.

Water Supply and Sanitation Regulatory Authority: There exists no such designated authority in Turkey. Each SKI and municipality is independent. General Directorate of Water Management, under the Ministry of Forestry and Water Affairs, is the closest public agency to a regulator and for the time being acts as the de facto regulatory authority. However, it exercises no control over the tariffs and has a limited mandate on the waste water. The

18 TUIK Municipal Water Statistics, http://www.turkstat.gov.tr/PreHaberBultenleri.do?id=1617119 ISKI Regulation on Tariffs (in Turkish), http://bulten.cevreanaliz.com/FILES/Y_Tarifeler_Yonetmeligi.pdf20 Water Supply and Sanitation in Turkey, https://en.wikipedia.org/wiki/Water_supply_and_sanitation_in_Turkey

41

https://en.wikipedia.org/wiki/Water_supply_and_sanitation_in_Turkey

http://bulten.cevreanaliz.com/FILES/Y_Tarifeler_Yonetmeligi.pdf

http://www.turkstat.gov.tr/PreHaberBultenleri.do?id=16171

pending Water Bill in Turkey has provisions for the establishment of a Water Management Higher Council with participation from the concerned ministries.

The Impact of Law No 6360 on the Water and Sewerage Administrations: The project started under the previous Municipal Law numbered 1580. However, a new law was passed in 2012 and became effective as of March 31 in 2014 immediately after the local elections. The new law introduced drastic changes. The first year of the Law’s implementation covering the last three quarters of 2014 can be characterized as a transition and adjustment period, involving steep learning curves for the concerned authorities. The first full year following the initial adjustment for which financial data were accessible is 2015. However, year 2016 would represent a more stable reference whereby most of the transition process had already been completed where principal issues have been identified and problems resolved concerning the application of the law. Unfortunately, financial reports for 2016 were not available to inform the ICR as they are issued in March or April for the preceding year.

Convergence of smaller municipalities with metropolitan municipalities in some cities under the Municipality Law No 6360 has resulted in better service delivery in settlements lying outside the former and smaller service jurisdictions of the metropolitan municipalities. However, this improvement has been at the expense of transferring resources and skilled personnel from the main urban center to the outskirts via cross-subsidization of these smaller and isolated settlements.

Water Loss Reduction in Turkey: The single most important challenge for all participating entities involved the control of NRW, where the bulk of the tangible and direct project benefits were to accrue. As a result of the project’s interventions, the participating utilities and municipalities have all developed technical capacity in dealing with NRW, in addition to physical infrastructural improvements (water and wastewater distribution systems and related complements, such as WWTPs), NRW control equipment, SCADA systems and awareness

raising.

The economic analysis in this ICR is premised on reduced physical water losses (NRW), which are also called the real water losses. In Turkey, there are mainly four basic methods (chart) to control real water losses21. They consist of: (a) pressure management, (b) active leakage control (ALC), (c) pipeline and assets management, and (d) speed and quality of repairs. Pressure management is achieved by implementing District Measurement Areas (DMAs). It aims at reducing excess water pressure in water distribution networks (WDNs).

Hydraulic modeling based on pressure management is also used as an efficient tool to reduce real losses from WDNs. Active leakage control and management seeks to identify and quantify physical losses on a regular basis, basically by performing acoustic leakage methods. Pipeline and assets management, which aims to increase efficiency while reducing costs, deals with the management of all physical components of WDNs such as pipe, valves and pumps. Finally, speed of repairs affects the volume of real losses in case of pipe bursts whereas repair quality is important for sustainability. As far as apparent water losses, the main four 21 http://anadolu.dergipark.gov.tr/download/article-file/2291

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http://anadolu.dergipark.gov.tr/download/article-file/2291

components are illegal consumption, meter reading errors, data handling errors and meter under-registration depending on factors such as installation method, water quality, type and class of water meter. These loss categories have a minor role, and have been disregarded in this analysis.

Legislation on Water Loss in Turkey: Overall non-revenue water (NRW) related losses, estimated at 43% for the country as a whole, amount to some 2.5 billion cubic meters annually.22 There is general consensus that water losses from WDNs (Water Distribution Networks) are a crucial problem and need immediate attention. Only few municipalities have started to improve their WDNs for management of water losses and hence set models for good practice (Istanbul’s NRW is 23% for instance), whereas many other municipalities have not yet initiated efforts to reduce NRW. Over and above the economic and financial value of incremental water savings, reduction of water losses also contributes directly to protection of water quality in WDNs and public health. 23

Given the urgency of the matter, and the fact that harmonization with the EU acquis requires NRW control, the Government introduced a “Regulation on the Control of Water Loss in Drinking Water Supply and Distribution Systems” and published it in the Official Gazette No. 28994 of May 2014. Implementing partners for the regulation are the Water and Sewerage Administrations (water supply utilities abbreviated as SKIs in Turkish and established under the metro municipalities) and individual non-SKI municipalities. A number of national forums24 have since been organized to this effect with participation from the private sector, local government, water and sewerage administrations and academics by the General Directorate of Water Management under the auspices of Turkish Ministry of Forestry and Water Affairs, and considerable awareness raising has been achieved.

According to the above referenced Regulation, SKIs are expected to reduce their NRW down to 25% (Table 1 below) within the next nine years, and non-SKI municipalities are allowed 14 years to reach the same target. The NRW reduction is expected to occur in two phases. In the first phase an interim target of 30% is set. At the end of the second and final phase utilities and municipalities must reach the 25% NRW level.

Table 1: Targets for NRW Reduction for SKIs and Municipalities

Type of Municipality Planning Horizon

Phase I - Improvements – First Five Years for SKIs and First 9 Years for other Municipalities

Phase II - Improvements - Next Four Years for SKIs and Next Five Years for Other Municipalities

SKIs and Provincial Municipalities

9 years in total Reduce highest NRW level to 30%.

Reduce highest NRW level to 25%.

22 AKATED (NGO), http://www.akated.com/files/AKATED_Dergi_Sayi6_7.pdf 23 URBAN WATER LOSSES MANAGEMENT IN TURKEY: THE LEGISLATION AND CHALLENGES İ. Ethem KARADİREK, Department of Environmental Engineering, Akdeniz University, Antalya, Turkey, http://www.egejfas.org/download/article-file/22919324 Water Loss Forum: http://www.internationaalondernemen.nl/sites/internationaalondernemen.nl/files/kansbericht_rapport/Announcement%20of%20TSITT%20for%20II%20Water%20Loss%20Forum.pdf

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http://www.internationaalondernemen.nl/sites/internationaalondernemen.nl/files/kansbericht_rapport/Announcement%20of%20TSITT%20for%20II%20Water%20Loss%20Forum.pdf

http://www.internationaalondernemen.nl/sites/internationaalondernemen.nl/files/kansbericht_rapport/Announcement%20of%20TSITT%20for%20II%20Water%20Loss%20Forum.pdf

http://www.egejfas.org/download/article-file/229193

http://www.akated.com/files/AKATED_Dergi_Sayi6_7.pdf

Other Municipalities 14 years in total

B: FINANCIAL ANALYSIS

Financial analysis for the lending organization - Iller Bank: This analysis is based on the style of presentation and coverage found in the World Bank MSP I PAD of 2005. It involves a review of the balance sheet and income statement for IB, with some ratio estimates, projections and comparison with the initial estimates.

Financial analysis for Antalya, Denizli, Mugla and Mersin Water and Sewerage Authorities: This analysis makes use of the financial information found in the utility’s annual activity reports (on the web). DESKI and MUSKI annual reports are available for 2014 and 2015. ASAT and MESKI have annual reports for the last ten tears. In the metropolitan municipalities, it is not possible to go back to the original city-based MSP project coverage because due to the consolidation process for the entire service area, financial data have become incomparable after Law 6360.

Water and Sewerage Administrations: ASAT, MESKI, MUSKI and DESKI are the four SKIs selected for financial analysis. These SKI’s have all implemented large-scale investments targeting the provincial capital. ASAT and MESKI are parts of older metropolitan municipalities for which financial data (though not necessarily always consistent) exist for the last 10 years. However, both MUSKI and DESKI are new entities created in 2014, following the local elections. There are data limitations for these last two SKIs. The roles of the selected four SKIs in MSP I and MSP II are summarized in Table 2 below.

Table 2: Data Availability for ASAT, MESKI, MUSKI and DESKISKIs MSP I Additional Financing Data Availability

ASAT Yes Yes Last 10 years

MESKI Yes Yes Last 10 years

DESKI Yes – under the defunct Denizli Municipality

Yes – partly under the defunct Denizli municipality, and partly under DESKI (2014) operating under the new Denizli Metropolitan Municipality

Last 2 years and only for the entire province

MUSKI25 Yes – under the defunct Mugla Municipality

No – The Mugla Metropolitan Municipality was created in 2014

Last 2 years and only for the entire province

Iller Bank Financial Analysis: Iller Bank extends short-, medium-, and long-term loans to its shareholders (municipalities). Loans constitute from 70% to 73% of total assets and a majority of these loans are financed by equity. Cash available in bank accounts (20%-27% of total assets) are readily accessible to cover any repayment of borrowings (27%-29% of total

25 MUSKI – which was the Mugla Municipality then - was selected as a case study in order to investigate the medium-term impacts of the project investments because all of the feasibility studies justifying the project had adopted a planning horizon of 20 years or longer.

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assets). Iller Bank’s financial structure is robust (its balance sheet and income statement are shown below in Table 3). Iller Bank’s credit risk is negligible because its IFI financing has a Treasury guarantee, and its sub-loans are made and repaid in the same currency the loans are denominated (EURs in this case).

Table 3: Iller Bank Balance Sheet and Income Statement 2013-2016 (3 quarters):‘000TLBalance Sheet 2013 2014 2015 2016/9Banks 2,940,419 4,377,374 4,910,408 4,586,828Loans and Receivables 11,358,967 11,477,528 12,884,980 14,767,275Tangible Assets (Net) 154,384 154,377 331,064 527,658Investment Property (Net) 158,445 168,026 85,849 85,132Total Assets 14,713,988 16,297,141 18,430,828 20,201,673Funds Borrowed 552,219 614,810 863,145 1,087,604Funds 3,367,403 3,706,179 4,431,438 4,785,821Shareholders' Equity 9,863,915 10,810,340 11,980,984 12,928,867Current Period Profit/Loss 327,120 524,543 576,078 822,824Total Liabilities And Shareholders' Equity 14,713,988 16,297,141 18,430,828 20,201,673

Letter of Guarantees 608,220 507,784 514,293 494,095

Income Statement 2013 2014 2015 2016/9Interest Income 685,332 903,814 1,050,568 903,849Interest Expense 15 1,752 127 542Net Interest Income/Expense 685,317 902,062 1,050,441 903,307Net Fees and Commissions Income/Expense 13,264 12,366 13,311 10,636

Other Operating Income 169,083 246,339 185,486 375,438Total Operating Income/Expense 866,872 1,160,927 1,249,147 1,289,203Other Operating Expenses (-) 327,777 384,309 435,963 341,176Net Period Profit/Loss 327,120 524,543 576,078 758,842

Source: Iller Bank Web Site

Table 4 shows a comparison of the actual key balance sheet and income statement related indicators with those that were forecasted in 2004, and included in the PAD. It is observed that the actuals are close to projections and this underlines the fact that Iller Bank’s financial structure is stable. The entity has consistently been profitable over the years, exceeding any reasonable allowance for inflation, which has been below 10%. The fact that Iller Bank does not bear foreign exchange risk contributes to its financial strength.

Table 4: Comparison of PAD Forecasts and Actuals for Key Ratios

Balance Sheet Related Comparisons

PAD Estimate Actuals

2004-2010 2015 2013 2014 2015 2016/9 Months

Loan Assets/Total Assets 76%-77% 77% 77% 70% 70% 73%Equity/Loan Assets 83%-103% 103% 90% 99% 97% 93%Gearing Ratio (LT Liabilities/Capital) 31%-16% 16% 5% 5% 22% 22%

Comparison of Forecasted and Actual Liquidity


2004-2010 2015 2013 2014 2015 2016/9 Months

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Current Ratio 1.49-1.79 1.89 1.42 2.24 3.32 2.02

Comparison of Forecasted and Actual Performance Indicators


2004-2010 2015 2013 2014 2015 2016/9 Months

Interest Revenue/Total Revenue 84%-86% 86% 79% 78% 84% 70%Technical Service Fee/Total Revenue 5%-8% 8% 2% 1% 1% 1%

Staff Cost/Total Operating Expense 68%-72% 72% 60% 57% 55% 58%

Other Mechanisms for Efficiency Enhancements: In order to promote the efficiency of investments, two mechanisms were devised. Firstly, at the feasibility study stage, analyses were to be carried out to ensure that viable investments were being supported and the procedures followed under the project could be replicated in other municipal investments. A debt-service coverage ratio (DSCR - at least 1.2)26 would be used to test the affordability of investment. Secondly, financial ratios (mainly the financial working ratio) were to be monitored. The procedures followed under this project were be replicated in other municipal investments in Turkey.

Review of feasibility reports reveal that attention was generally paid to debt servicing considerations, and projections were made to study the debt servicing ability of the borrower, although the DSCR itself was not systematically calculated and reported. Additionally, Table 5 shows that sub-loan repayments are being made without problems being reported. Over the 21 six-month periods, more than half of MSP loans under the original loan have been repaid, and over the last 13 periods more than 5% of the additional loan have already been serviced.

26 The debt service coverage ratio (DSCR) is defined as net operating income divided by total debt service. 46

Table 5: Repayments by Sub-Borrowers (Million EURs - February 2017)

Number of Sub-Loans

Total Loan

Amount

MSP Phase

Number of

Periods

Repayment Made by

Sub-Borrowers to

IB

Repayments to the World Bank by IB

Principal Amount Repaid

Interest Paid to the WB

Interest Earnings

by the ILLER BANK

11 205,42 I 21 137,12 126,74 110,08 16,78 11,387 167,19 II 13 14,94 12,17 9,10 3,07 2,77

Total 372,62 152,06 138,91 119,18 19,85 14,15

Financial Analysis of Case Cities

Antalya - ASAT: A financial analysis for ASAT was carried out for the period 2008-2015. Table 6 presents the balance sheet and income statement together with the relevant ratio analyses.

Table 6: ASAT Financial Analysis (Million TL)Balance Sheet 2008 2009 2010 2011 2012 2013 2014 2015AssetsLiquid Assets 3.8 3.6 6 5.3 5.4 6.1 31 43.3Receivables 44.4 55.3 58.4 55.7 59.5 69.4 120.5 142.8Total Current Assets 62.9 74.2 84.8 72.6 78.2 96 245.3 315.6Tangible Fixed Assets 610.6 649.8 708.5 720.9 720.8 742.2 802.4 968.8Total Long Term Assets 611.1 650.1 709.4 721.8 721.7 743.1 804.1 971.9Total Assets 674 724.2 794.2 794.3 800 839 1.049.4 1.287.6LiabilitiesBorrowings 32.2 39.6 43.7 59.2 - - 1 -Payables 10 5.9 4.5 12.6 16.7 15 43.2 52.5Deposits and guarantes 7.2 6.5 10.9 7.7 10.3 13.6 23.7 32.8Total Short Term Liabilities 59.2 58.9 63.1 82.6 32.5 45.9 76.3 107.3Borrowings 331.4 373.4 433.4 448.3 459.2 528 798.4 811.7Deposits and guarantes 5.8 7 8.5 10 11.7 13.9 20.6 23.8Total Long Term Liabilities 337.2 380.4 441.8 458.3 492.5 559.4 861.3 852.9Equity 277.6 284.9 289.3 253.4 274.9 233.7 111.8 327.3Total Liabilities & Equity 674 724.2 794.2 794.3 800 839 1.049.4 1.287.6

Balance Sheet - Ratio Analysis 2008 2009 2010 2011 2012 2013 2014 2015Current Ratio = Current Assets/Current Liabilities 1.1 1.3 1.3 0.9 2.4 2.1 3.2 2.9Working Capital = Current Assets - Current Liabilities 3.7 15.2 21.8 -10 45.7 50.1 169 208.3

Income Statement 2008 2009 2010 2011 2012 2013 2014 2015Total Revenue 92.3 110.5 129.2 157.6 174.1 207 391.4 609.9Operating Costs -68.3 -85.6 -97.2 -130.9 -140 -166.1 -255.6 -344.3Operating Profit/(Loss) 24.1 24.9 32 26.6 34.1 40.9 135.8 265.6Interest expenses -24.5 -26.3 -20 -35.8 -22.1 -25.3 -27.8 -18.5Foreign Exchange Gains/Losses (net) - 9 -6.9 -22.1 9.9 -56.3 11.8 -38Other Expenses 0.1 0.4 0.5 4.8 0.4 0.4 0.6 15.5Net Profit/(Loss) -0.5 7.2 4.5 -36 21.5 -41.2 119.3 193.6

IncomeStatement - Ratio Analysis 2008 2009 2010 2011 2012 2013 2014 2015Operating profit/Operating Revenue 26% 23% 25% 17% 20% 20% 35% 44%Working Ratio: Operating Cost-Depreciation/Operating Revenue 59% 62% 61% 71% 67% 70% 59% 51%

Interest Expenses/Total Revenue 27% 24% 16% 23% 13% 12% 7% 3%Net profit /Total Revenue -1% 7% 3% -23% 12% -20% 30% 32%Note: Some details in the B/S were deleted for the sake of brevity. Columns may not add up exactly.

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Balance Sheet (B/S) Related General Comments: ASAT has a balanced financial structure in which assets and liabilities are matched properly. As current assets are financed by short term liabilities, tangible fixes assets (net) are funded by equity and by long term borrowings. Ratio of borrowings to total liabilities is 90% over years. Investments are financed by long term borrowing. This is another important aspect which gives strength to the financial position. Current ratios and working capital were analyzed over years. It is observed that ASAT exceeds the commonly acceptable current ratio of 2:1 which puts it in a favorable financial position and reconfirms its ability to pay its short-term debt with its current assets.

Income Statement (I/S) Related General Comments: ASAT is operationally profitable over the years. The net profit is affected adversely by exchange rate fluctuations linked with foreign exchange denominated borrowings. Ratio analysis based on the I/S confirm an overall clean bill of health for the utility.

MERSIN MESKI: Similarly, a financial analysis for MESKI was carried out for the period 2008-2015. Table 7 presents the balance sheet and income statement together with the relevant ratio analyses.

Table 7: MESKI Financial Analysis (Million TL)

Balance Sheet 2008 2009 2010 2011 2012 2013 2014 2015AssetsLiquid Assets 8.9 10.7 21.1 23.9 24.1 40.5 49.5 66.7Receivables 81.8 80 78.1 87 97.1 89.1 167.8 184.5Total Current Assets 104.1 109.1 121.7 135.1 146.2 154.8 251.4 290.2Tangible Fixed Assets 183.1 233.3 166.7 200.6 202.6 195.2 511.2 616.9Total Long Term Assets 183.1 233.3 166.7 200.6 202.6 195.2 514 619.6Total Assets 287.2 342.4 288.4 335.6 348.7 350.0 765.4 909.8LiabilitiesBorrowings 0 0 0 3.8 23.1 25.7 0 1.7Deposits and guarantees 5.6 8.6 13.4 12.6 13.1 15.7 25.8 13.5Total Short Term Liabilities 9.6 13.7 21 30.6 53.4 57.4 54.9 48.3Borrowings 112.1 154.3 163.6 152.7 136.9 131.3 374.8 387.4Deposits and guarantees 0 0 0 0 0 0 2.8 23.6Total Long Term Liabilities 112.1 154.3 172.8 162.3 147 141.5 388.6 424.4Equity 165.4 174.5 94.6 142.8 148.3 151 321.8 437.1Total Liabilities & Equity 287.1 342.5 288.4 335.7 348.7 349.9 765.3 909.8

Balance Sheet - Ratio Analysis 2008 2009 2010 2011 2012 2013 2014 2015Current Ratio = Current Assets/Current Liabilities 5.8 4.4 2.7 2.7 4.6 6 5.8 4.4Working Capital = Current Assets - Current Liab. 94.4 95.5 100.7 104.5 92.8 97.3 196.5 242

Income Statement 2008 2009 2010 2011 2012 2013 2014 2015Total Revenue 90.6 92.1 107.7 119.7 150.6 170.7 251.3 360.4Operating Costs 44.3 57.6 98 91.3 108.7 126.4 168.6 273.3Operating Profit/(Loss) 46.4 34.4 9.7 28.4 41.8 44.3 82.7 87Interest expenses 1.6 3.4 3.6 10.9 7.7 10.4 7 0.5Foreign Exchange Gains/Losses (net) 0 -0.1 0.2 -6.1 -16.4 -10 -29.3 -41Net Profit/(Loss) 14.6 9.1 2 8.9 14.5 17.2 40.2 42.8

Income Statement - Ratio Analysis 2008 2009 2010 2011 2012 2013 2014 2015Operating profit/Operating Revenue 18% 14% 5% 20% 26% 22% 30% 23%Working Ratio: Operating Cost-Depreciation/Operating Revenue

53% 61% 71% 63% 61% 64% 66% 64%

Interest Expenses/Net Revenue 2% 4% 3% 9% 5% 6% 3% 0%Net profit /Net Revenue 16% 10% 2% 7% 10% 10% 16% 12%Note: Some details in the B/S were deleted for the sake of brevity. Columns may not add up exactly.

Balance Sheet (B/S) Related General Comments: MESKI has a stable and consistent financial structure. Its current assets are much higher than its short-term liabilities and tangible fixes assets (net) are funded by equity and by long term borrowings, which imparts financial strength to MESKI. The ratio of borrowings to total liabilities is around 80% over the years.

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There is practically no short term borrowing and all long-term borrowings are engaged to meet the financing needs of the ongoing investments. This is a further feature revealed by MESKI’s financial statements which adds to the financial well-being of the utility. The utility has no liquidity problem, and its working capital has more than doubled after Law 6360.

Income Statement (I/S) Related General Comments: MESKI has been operationally profitable over the years. Starting from 2011, MESKI’s profitability on goods and services sold has steadily been increasing.

DENIZLI – DESKI & MUGLA - MUSKI Financial Statements: These two SKIs were created in 2014, and financial data was available only for 2014 and 2015. DESKI and MUSKI balance sheets and other financial statements were analyzed, but are not being included in the ICR due to the short period covered.

C: ECONOMIC ANALYSIS

Benefits: To a large extent, water supply and sanitation projects in Turkey involve economic benefits of the higher order, such as non-revenue water control, 24-hour uninterrupted supply, greater access to sewerage networks and improved overall management of the concerned utilities. The scope for primary economic benefits, such as time savings to and from the water supply points, avoided water-borne diseases etc., remains rather limited. Therefore, in this ICR, emphasis was placed on the issue of reducing NRW and investigating the impact of the requisite technical expertise developed by the project in this regard. This choice is also compatible with the fact that NRW reduction was also one of the key PDO indicators for the project.

Data Collection and Quality Assurance: Data and information were collected from the participating utilities and municipalities using data forms and interviews conducted during site visits. World Bank/Iller Bank M&E data and web-based publications were also referenced, while individual project related data were extracted from the initial feasibility reports where available. Additionally, data were provided during the project closure workshop both by the beneficiaries and Iller Bank staff. The SIV data were verified through triangulation, whereby figures were checked against estimates derived from water storage capacity (3 to 4 times the storage capacity is generally equal to water demand), and the quantity of effluent received at the WWTP (quantity of effluent received at WWTP divided by WW service coverage percentage).

Reference to Key PDO Indicator: The analysis presented in this ICR deals explicitly with two of the five PDO indicators (Project Paper of 2010) which have a bearing on the water sector related interventions. They consist of:

Percentage of NRW over the supply area of the municipal government/ municipal water company

Sectoral Financial Working Ratio of municipalities/municipal companies.

The analysis addresses the NRW related matters directly, which helps make assessments on the project’s efficiency while the financial working ratio is being addressed in conjunction with the financial analysis.

Water Utilities Covered in the ICR and Investments: Due to data and time limitations, detailed economic analysis presented in this report is based on four utilities all of which are metropolitan municipalities. They consist of ASAT, MESKI, MUSKI and DESKI, and

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account for about 83% of the investments funded under MSP and its Additional Financing (AF). Tables 8 and 9 below summarize the types and quantities of infrastructure investments.

Table 8: Summary of Investments

WWTP (m3/day)

Network (m)

Connection (m) num (m3/day) Reservoir

(m3)Network

(m)House

Connections (m)ASAT 210,000 236,223 47,874 508,494 181,274MESKİ 54,000 173,923DESKİ 162,053 66,746 34,711 39,600 204,099 136,275MUĞLA 17,111 67,282 5,000 6,285ASAT 159,072 31,550 30 150,076 108,515 62,458DESKİ 59,794 69,730 136,739MESKİ 153,376 88,948

MSP

-IM

SP-I

I

Municipalilty / Administration

Water SupplyWaste Water Storm

Water (m)

Wells Water Supply System

The water supply investments (chart) consisted of primary water source development via drilling of wells (Antalya only), building of reservoirs, water distribution networks and household connections in the cities. The wastewater investments comprised construction of wastewater treatment plants (WWTPs) in Antalya and Mugla, collection networks and household connections. Additionally, there was separation of storm water and sewage water related investments in Denizli (two separate lines for the two types of flows) with significant economic and environmental benefits, but which went unnoticed in the M&E system (no indicator to measure storm water).

Comments on M&E Data: Due to methodological and technical challenges (not being able to track project impact at the micro level and DMA level and SCADA systems still being built) the project’s M&E system did not intercept declining NRW and associated working ratios which would normally characterize the significant improvements as manifested by NRW reductions and the implied financial impact in an isolated sense. Invariably, these two ratios were calculated using aggregate data for larger areas, both served and not served by the project investments directly. It is known that ratio indicators are highly sensitive to variations in the numerator and denominator which constitute the basic elements of the calculations. Meanwhile, data were reported only in percentage terms or simple ratios, without supplying the background detail used in deriving the ratios. Additionally, the expansion of the MSP with the AF, and the sudden expansions in service areas experienced by the utilities after Law 6360 in 2014, contributed to discontinuities in data collection and aberrations in the M&E data, as partly noted in the table below. The problems and challenges cited above have impacted M&E data quality while concurrently leading to a systematic underestimation of project impact and benefits.

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Table 9: Investments Funded under MSP and MSP AFSKIs MSP (2006-2011) MSP AF(2011-

2016)Comments

MUSKI - Mugla Water supply and sanitation investments, including a WWTP

No investments in MSP AF

M&E data collected stopped after 2012.

MESKI - Mersin Water supply investments only

Waste water investments only, collection network only

Water supply related data available until 2012, and sanitation related data available after 2011.There was sufficient time to assess the water supply impact, but corresponding data was unavailable.

DESKI - Denizli water supply, storm water and waste water related investments. Mostly rehabs.

Water supply, waste water and storm water investment s. Mostly rehabs..

Long term data was available, but due to attribution problems and crowding effects (indicator reporting on larger areas than served by the project) the data does not reflect all evidence of impact. Also, it was not possible to accurately estimate micro level technical performance (NRW) due to lack of SCADA.

ASAT - Antalya Both water supply and waste water (including a WTTP) related investments

Both water supply and waste water related investments

The only utility receiving both water and waste water support in both MSP and MSP AF. Investments were both massive and varied. Full manifestation of project benefits will take time as also spelled out in the feasibility studies.

Table 10: Municipal Infrastructure Investment Costs by Sector (Million EUR)

Sub-Projects Loan Withdrawn Water

SupplyWaste Water

Solid Waste

Case Studies

MSP I MESKİ 28,60

√ 28,60Polatli 3,18 Gelibolu 2,08 √ Ödemiş 9,75 √ √ Muğla 16,51 √ √ 16,51Bergama 2,27 √ Kütahya 4,77 √ Denizli 29,14 √ √ 29,14Ilıca 3,81 √ √ Elbistan 5,10 √ ASAT 100,21 √ √ 100,21Sub-TOTAL 205,42 174,46

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Percent of Total 100% 85%

MSP II MESKİ 16,78

√ 16,78Kayseri MM 18,25 √ Kırşehir 12,23 √ DESKI 73,60 √ √ 73,60ASAT 46,34 √ √ 46,34Sub- TOTAL 167,19 136,72Percent of Total 100% 82%

Grand Total 372,62

311,18Percent of Total 100% 84%

As indicated in Table 10 above, sub-loans committed under MSP amounted to EUR 205.42 million, and in MSP AF the sub-loans reached some EUR 167.19 million, for a total of EUR 372.62 million. The cost figures reported here are exclusive of any support and loan portion destined to support the Iller Bank operations. The case studies which were selected for further investigation constitute 85% of the portfolio in MSP, and 82% of the portfolio in MSP AF, with a combined average of 84%. There were 13 water supply sub-projects against 8 sub-projects of water related interventions. Seven sub-projects involved both water supply and wastewater. There were only 3 loans for solid waste, which amounted to EUR 23 million, corresponding to 6% of the overall combined investment packages under MSP and MSP AF. MSP loans involved 10% cost sharing, which is not shown in the table, but which are duly reflected in the economic analysis. This requirement was discontinued under MSP AF due to the procedural delays it caused in project implementation.

Calculation Economic Price of Municipal Water Using the Total Economic Value (TEV) Methodology: A recent World Bank study conducted in Turkey27 demonstrated that on average the economic value of municipal water is about twice as high as its financial price (tariff) and the economic value of irrigation water is more than 17 times higher than the price paid by farmers. A focused investigation of the Beysehir Lake (Konya Province) as a case study revealed that the Lake's economic value is about seven times higher than its financial value, suggesting the high importance of preserving this resource.

Water tariffs in Turkey vary widely from one municipality and utility to another. Also, there is a considerable degree of discretion in the approval of these tariffs, and many tariffs actually embody some subsidy. For the sake of objectivity of this ICR, a review of tariffs was made for both participating and non-participating entities. It was found that Ankara’s ASKI applies a water tariff (escalated each month) as high as TL 14/m3 to its clients in business, industry and foreign missions28. This tariff is about twice as high as the tariff applied to the regular clients in Ankara. At an exchange rate of EUR = 4 TL, this translates into EUR 3.5/m3 of water. Therefore, for analytical purposes, the ASKI’s highest tariff (EUR 3.5/m3) is assumed to represent the economic price of municipal water in Turkey subject to adjustments for provincial GDP. The necessary calculations are shown in the Table 11.

Table 11: Gross Domestic Product Per Capita by Provinces, 2012-2014

27 Valuing Water Resources in Turkey – A Methodological Overview and Case Study, World Bank, September 2016,https://openknowledge.worldbank.org/bitstream/handle/10986/25291/AUS10650-REVISED.pdf?sequence=5&isAllowed=y28 ASKI Water and Waste Water Tariff, http://www.aski.gov.tr/Yukle/dosya/tarife_ucret/Tarife.pdf

52

http://www.aski.gov.tr/Yukle/dosya/tarife_ucret/Tarife.pdf

https://openknowledge.worldbank.org/bitstream/handle/10986/25291/AUS10650-REVISED.pdf?sequence=5&isAllowed=y

https://openknowledge.worldbank.org/bitstream/handle/10986/25291/AUS10650-REVISED.pdf?sequence=5&isAllowed=y

Provinces Per capita GDP ($) Economic Price

Water Consumptio

n

Affordability

2012 2013 2014 EUR/m3 lcd WTP

Turkey 11,588 12,480 12,112 2.53 111.65 0.94%

İstanbul 19,223 20,726 19,957 4.16 99.55 0.83%

İzmir 13,654 14,695 14,257 2.98 99.00 0.83%

Denizli 10,584 11,461 11,327 2.36 99.00 0.83%

Muğla 12,233 12,793 12,374 2.58 190.85 1.60%

Kütahya 8,694 9,238 9,053 1.89 123.20 1.03%

Ankara 16,318 17,590 16,772 3.50 116.05 0.97%

Antalya 13,626 14,237 13,577 2.83 154.00 1.29%

Mersin (İçel) 9,357 9,783 9,702 2.02 111.10 0.93%

Kahramanmaraş 6,903 7,460 7,208 1.50 114.40 0.96%

Kırşehir 8,122 8,448 8,057 1.68 163.35 1.37%

Kayseri 10,146 11,027 10,576 2.21 105.05 0.88%

Source: Condensed from TurkStat, Gross Domestic Product by Provinces, 2004-2014

Note: The economic price of water is based on the highest tariff in Turkey (Ankara ASKI - public sector tariff), converted into EUR at the current exchange rate of EUR=TL 4, yielding the economic price of EUR 3.5/m3 .

The lcd estimates (based on abstractions) by TurkStat were reduced by an average of 45% to account for NRW.

The highlighted rows refer to the case studies.

Willing to pay (WTP) estimates were calculated by dividing the monetary value of the annual water consumption with the per capita GDP.

Assumptions, Parameters and Approach to Economic Analysis

Fixed SIV Assumption: All four utilities (MUSKI, ASAT, MESKI and DESKI) can continue relying upon the existing (and fixed) quantity of water produced (i.e., system input volume) to meet the water demand without further investments in water resources. Water savings generated from enhanced NRW control is assumed to be sufficient to meet the water demand for a number of years.

Counterfactual Case: This is a purely conjectural exercise and represents the NRW that would characterize the utility had there been no project at all from the very beginning. It is possible to have reached the current production capacity, but the capability of NRW control (TA, capacity enhancements, and network improvements) would have been only a fraction of what has been possible under the project.

Constant OC assumption: Since the SIV does not change from one year to another, naturally the cost of water abstraction (OC) remains constant, where an important part of the cost is associated with pumping and electricity expenditure. The cost composition of the OC, however, would change as there is increased spending on the active leakage control aspect which would be covered from the increased stream of revenues accruing from the sale of

53

incremental water saved as a result of NRW control through ALC. This practice has already become a routine at ASAT and is being adopted by the other utilities.

Main Difference between With and Project Scenarios: Due to excessive losses, the without-project case cannot meet the demand for water, where NRW improvements are limited, and the water consumed is calculated by using the constant SIV and the assumed NRW levels which exhibits minor improvements over the years. However, under the with-project case and constant SIV, the main objective is to meet the forecasted demand for water, where the NRW is a derived parameter rather than being assumed. The reason for this approach is that while all utilities have developed capacity to reduce the NRW by about 5% annually, it is assumed that they would stop the production short of what is technically possible, simply because they cannot sell all of the water saved over and above the actual demand.

Final Project Year: This is the final year when water demand can be met from the same unchanged primary water supply (SIV) through incremental water savings from that NRW level equivalent to or slightly above 20%. For NRW reductions below the 20% threshold, it is anticipated that the economic advantage can no longer be preserved. In other words, reductions in NRW may perhaps require additional investment expenditures exceeding the value of incremental water savings.

Adjusted and Weighted Economic and Financial Prices: Economic prices for the selected utilities (case studies) are calculated in Table 11 above. These prices have been weighted with the respective annual water savings quantity in order to derive a single and common economic price for all utilities. Financial prices are half of economic prices, as discussed earlier.

The Economic Model: The key identity for the economic analysis model consists of the daily system input volume being equal to the sum of water consumption and water losses29. Expressed in symbols:

S ≡ C + PWhere: S = System Input Volume in m3/day, C = Consumption Volume in m3/day, P = Volume of Losses in m3/day

Table 12 provides background information of the economic model in symbols for with and without project cases with a brief listing of key relationships and assumptions.

Table 12: Description of the Economic Analysis ModelParameter Common

SymbolUnit WOP WP Comments

System Input Volume SIV m3/day S S Remains constant

Consumption C m3/day ci Ci ci < Ci

Loss LOSS m3/day pi Pi p i > P i

Non-Revenue Water NRW m3/day ni Ni NRW expressed both as percent and volume

percent ki Ki

Demand for Water D m3/day Di Di Same for WOP & WP

Population Growth Rate r percent/year ri ri

Relationships

29 This relationship implicitly embodies the fact that NRW for the utilities considered consists mainly of real and physical water losses with very limited administrative losses.

54

Without project consumption is determined by NRW and SIV. With project, NRW is determined by consumption and SIV.

ci = f(ki , S) Ni = g(Ci, S)

Explicit form for the above functions are ci = S(1 - ki) Ni = (S - Ci)/S

Assumptions

Loss equals NRW ni = pi Ni = Pi

With project consumption equals demand ci < Di Ci = Di

Without project NRW is assumed. With project NRW is calculated. assumed calculated

Without project, annual NRW improvement is 1% to 2%, which is equal to Turkey’s average for those utilities unassisted by specific projects. With project, annual NRW improvement rate is higher, but it cannot exceed (a) that of population growth, and (b) 5% which is the technical upper limit.

Note: i is an index denoting the year. For instance, Ci stands for the water consumption under the with the project (WP) scenario in year i.

Briefly stated, in order to investigate the impact of project contributions and the technical capacity generated, we assume that SIV remains constant while we vary the NRW rate (without project) and the water demand to be met (with project) to ascertain whether the resulting water savings from NRW control would suffice to meet the water demand.

Water and Sewerage Administrations: Background information is provided below for the case studies: ASAT, MESKI, MUSKI and DESKI.

Antalya - ASAT: Principal water supply source is wells. Water demand growth in Antalya has been very impressive, outstripping all projections. As early as 2016, Antalya had already exceeded the water demand forecast of 2035, some 20 years in advance. According to forecasts made in 2005, the SIV was expected to be 3.01 m3/sec in 2016, but it actually reached some 5.1 m3/sec according to the SCADA readings in December 2016. This is about 70% higher than what was anticipated. Antalya’s current population is around 1.2 million. ASAT’s NRW reduction capacity attributable to the project may be as high as 5%, but this is expected to decline with the passage of time, while the associated costs of NRW related interventions may be increasing. The NRW estimates for the with-project scenario were calculated by using forecasted demand and working backwards. The annual rate of improvement (reduction) in the NRW was hence restricted to around 3% to 4% because any excess quantity of water over and above cannot be sold or stored.

Denizli – DESKI: Denizli’s population was estimated at 560,000 inhabitants in 2015. The city comprises the districts of Merkezefendi and Pamukkale. The primary water source is Gokpinar Springs, which supplies about 0.9 m3/sec plus water abstracted from wells for about 0.6 m3/sec, amounting to 1.5 m3/sec. The DESKI Strategy Department estimates that the existing water supply can serve the urban center for another 7 to 8 years without having to develop new water source.

Mersin - MESKI: The province of Mersin has 13 districts. According to 2016 data, Mersin urban center has a population of approximately 1.1 million inhabitants, with an average lcd of some 125. Mersin MESKI urban center comprises the districts of Akdeniz, Mezitli, Toroslar and Yenisehir, which are the most populous districts in the province, with the exception of Tarsus which exceeds 330,000.

Mugla WWTP: The city of Mugla is rather small by Turkish standards. In 2016, it was projected to have a population of 55,000, but the actual population is now estimated to have reached 90,000. The daily water production capacity is 20,000 m3, which constitutes the SIV. It is expected that with the SIV remaining unchanged, the available water resource can serve

55

the population until 2023 by reducing the NRW to about 23% from its existing level of 42%. Meanwhile, it is expected that the population would reach some 150,000 in 2023.

Discussion and Analysis: NRW control allows the utilities to increase the supply of water to the city without increasing the underlying operating costs, and without having to find new water resources to meet the water demand. Meanwhile, sale of increased quantities of water to citizens will enhance the utility’s own source revenues. This in turn will enable the utilities to finance targeted investments that would in turn lead to further NRW control capacity. The largest benefit in this analysis is the incremental quantity of water saved as a result of improved NRW control.

Table 13: Water Savings from NRW

Baseline Estimate

Current Year Level

(2017)

Terminal Year Level

Water Savings Annual SIV Percent of

SIV

Percent Million m3 Million m3 PercentWithout Project 49% 40%With Project 49% 22%Without Project 53% 47%With Project 42% 23%Without Project 54% 44%With Project 40% 20%Without Project 57% 44%With Project 41% 20%

379.70 324.31Note: SIV stands for System Input Volume in cubic meters, part of which is lost to NRW. What remains can be billed and consumed.

SKIs Scenario Terminal Year

Percent

ASAT 52%

Baseline Year

MUSKI

MESKI

DESKI

137.68

11.06

112.87

118.09

2026

2023

2006

200961%

70% 2009

194.16 71%

7.30

75.55

47.30

152%

149%

250%

Estimated Total Water Savings for the Four Utilities (SKIs) from 2009 to 2025

65% 2009 2025

2022

Total water savings for the top four utilities (Table 13) amount to 380 million cubic meters. The economic implication of 380 million m3 of water can be extended by assigning an economic price to water. It is estimated that the economic price of water in Turkey would be twice as high as its tariff based level. ASKI (Ankara) has the highest tariff for a certain category of users (business and diplomatic missions) and this tariff stands at TL14 /m3. This rate corresponds to some EUR 3.5/m3, and was considered to represent the economic price of water in Turkey, with adjustments for provincial GDP. Calculating for the adjusted (for income) and weighted (for annual water savings) overall economic price (please see Table 14 below) are EUR 2.44/m3. Using this economic price, it is estimated that every EURO invested in WSS by MSP would yield EUR 2.82 in economic terms (base case). This is the crude cost benefit ratio with unadjusted monetary values. It is the same thing as cost effectiveness ratio (CER).

Table 14: Weighted Economic Price Calculation Method

Utility (SKI)

Water Savings due to project

Share in Total

Economic Price

Weighted Water Price Calculation

Million m3 Percent EUR/m3

ASAT 137.68 36% 2.83 1.03

MUSKI 11.06 3% 2.58 0.08

MESKI 112.87 30% 2.02 0.60

DESKI 118.09 31% 2.36 0.74

Totals 379.7 100% 2.44 2.44

56

Discussion on the Economic and Financial Analysis: A partial and indicative economic and financial analysis has been attempted (Tables 16 and 17). The analysis is partial because it covers only WSS and focuses only on selected SKIs. It is indicative because only the foremost project benefit of NRW was quantified. This is an ex-post analysis retroactively starting in 2010, covering a total of 16 years for the four utilities. The discounting procedure is performed with respect to year 2010. Each SKI has a different planning horizon, and the combined range resulted in 16 years of planning horizon. The investment costs are imputed in whole against 2010 (mid-year) and against 2016 (project ending year), and calculations were carried out under the assumptions adopted and discussed above.

The estimated project efficiency parameters are ERR = 14%, FRR = 4%, ENPV = Euro205.3 million and FNPV = Euro -33.61 million. The corresponding cost effectiveness ratio (CER) is 2.82. These results are considered to be reasonable and acceptable for a partially analyzed project as complex as MSP.

Since, this is an ex-post analysis, the investment costs are not varied (because they are committed and fixed) in a sensitivity analysis which involves 10% and 20% increase in the economic price only (with attendant changes in the financial price). The results from sensitivity analysis (Table 15) shows that with a 10% increase in price of water, the efficiency estimates assume the following values:

Table 15 Sensitivity AnalysisProject Efficiency Parameter 10% increase in price of

water20% Increase in price of water

ERR 16%, 17%FRR 6% 7%,ENPV EUR 253.08 million EUR 300.86 millionFNPV EUR 9.72 million EUR 14.17 millionCER 3.10 3.38.

ERR: External Rate of Return; FRR: Financial Rate of Return; ENPV: Economic Net Present Value; FNPV: Financial Net Present Value; CER: Cost Effectiveness ratio

It is observed that the base case FRR falls short of the 6% discount rate, but this is expected due to the partial nature (only water savings from NRW reductions quantified) of the analysis. It is also seen that the results are rather robust to changes in the key price variable. A 10% and 20% increase in the water quantities would have yielded the same results, so this option was not considered. The economic breakeven water price level (that economic price which covers the discount rate) 6% turns out to be EUR 1.4/m3, at which instance the FRR equals negative 3%.

57

Table 16: Worksheet for Economic Calculations – Base CaseMSP I & II Partial Retroactive CBA for Four Utilities

ASAT DESKI MUSKI MESKITotal Daily Savings

Total Annual Savings

Economic Price of Water

Total Economic

Value

Investment Costs

Cash Flow for ERR

Cash Flow for FRR

Million m3/year EUR/m3 Million

EURMillion

EURMillion

EURMillion

EUR2010 1,728 190 1,501 3,419 1.25 2.44 3.04 193.84 (190.80) (192.32) 2011 3,802 400 3,514 7,715 2.82 2.44 6.87 6.87 3.44 2012 6,221 629 6,087 12,937 4.72 2.44 11.52 11.52 5.76 2013 8,986 881 9,269 19,135 6.98 2.44 17.04 17.04 8.52 2014 12,096 1,155 13,116 26,367 9.62 2.44 23.48 23.48 11.74 2015 15,552 1,453 17,688 34,693 12.66 2.44 30.90 30.90 15.45 2016 18,144 1,775 23,053 42,972 15.68 2.44 38.27 134.79 (96.52) (115.65) 2017 1,674 20,736 2,124 29,280 53,814 19.64 2.44 47.93 47.93 23.96 2018 8,162 22,406 2,500 32,610 65,678 23.97 2.44 58.49 58.49 29.25 2019 15,174 24,192 2,905 36,388 78,659 28.71 2.44 70.05 70.05 35.03 2020 22,735 26,097 3,341 40,641 92,814 33.88 2.44 82.66 82.66 41.33 2021 30,873 28,126 3,808 45,398 108,205 39.49 2.44 96.37 96.37 48.18 2022 39,614 30,284 4,308 50,689 124,896 45.59 2.44 111.23 111.23 55.62 2023 48,988 32,577 4,843 86,408 31.54 2.44 76.96 76.96 38.48 2024 59,025 35,008 94,033 34.32 2.44 83.75 83.75 41.87 2025 69,757 37,584 107,341 39.18 2.44 95.60 95.60 47.80 2026 81,217 81,217 29.64 2.44 72.33 72.33 36.17

TOTALS 377,219 323,538 30,313 309,235 1,040,305 379.71 926.50 IRR = 14% 4%NPV= 205.30 (33.61)

926.50 328.63

2.82

Water Savings in Cubic Meters per Day

Total Economic ValueInvestment CostCost Effectiveness Ratio

Years

58

Table 17: Water Savings Generated by Effective NRW ControlAntalya Economic Analysis

Consumed NRW SIV LossConsumed (Demand) NRW SIV Loss

m3/day m3/day m3/day m3/day m3/day m3/day m3/day m3/day m3/day m3/day2017 224,726 49% 440,640 215,914 226,400 49% 440,640 214,240 1,674 1,674 2018 229,133 48% 440,640 211,507 237,294 46% 440,640 203,346 8,162 8,162 2019 233,539 47% 440,640 207,101 248,713 44% 440,640 191,927 15,174 15,174 2020 237,946 46% 440,640 202,694 260,681 41% 440,640 179,959 22,735 22,735 2021 242,352 45% 440,640 198,288 273,225 38% 440,640 167,415 30,873 30,873 2022 246,758 44% 440,640 193,882 286,373 35% 440,640 154,267 39,614 39,614 2023 251,165 43% 440,640 189,475 300,153 32% 440,640 140,487 48,988 48,988 2024 255,571 42% 440,640 185,069 314,596 29% 440,640 126,044 59,025 59,025 2025 259,978 41% 440,640 180,662 329,735 25% 440,640 110,905 69,757 69,757 2026 264,384 40% 440,640 176,256 345,601 22% 440,640 95,039 81,217 81,217

Derived Derived

Mersin Economic Analysis

Consumed NRW SIV Loss Consumed NRW SIV Lossm3/day m3/day m3/day m3/day m3/day m3/day m3/day m3/day m3/day m3/day

2009 62,100 70% 207,000 144,900 62,100 70% 207,000 144,900 - - 2010 66,240 68% 207,000 140,760 67,741 67% 207,000 139,259 1,501 1,501 2011 70,380 66% 207,000 136,620 73,894 64% 207,000 133,106 3,514 3,514 2012 74,520 64% 207,000 132,480 80,607 61% 207,000 126,393 6,087 6,087 2013 78,660 62% 207,000 128,340 87,929 58% 207,000 119,071 9,269 9,269 2014 82,800 60% 207,000 124,200 95,916 54% 207,000 111,084 13,116 13,116 2015 86,940 58% 207,000 120,060 104,628 49% 207,000 102,372 17,688 17,688 2016 91,080 56% 207,000 115,920 114,133 45% 207,000 92,867 23,053 23,053 2017 95,220 54% 207,000 111,780 124,500 40% 207,000 82,500 29,280 29,280 2018 99,360 52% 207,000 107,640 131,970 36% 207,000 75,030 32,610 32,610 2019 103,500 50% 207,000 103,500 139,888 32% 207,000 67,112 36,388 36,388 2020 107,640 48% 207,000 99,360 148,281 28% 207,000 58,719 40,641 40,641 2021 111,780 46% 207,000 95,220 157,178 24% 207,000 49,822 45,398 45,398 2022 115,920 44% 207,000 91,080 166,609 20% 207,000 40,391 50,689 50,689

Denizli Economic Analysis


2009 27,216 65% 77,760 50,544 27,216 65% 77,760 50,544 - - 2010 31,104 64% 86,400 55,296 32,832 62% 86,400 53,568 1,728 1,728 2011 35,165 63% 95,040 59,875 38,966 59% 95,040 56,074 3,802 3,802 2012 39,398 62% 103,680 64,282 45,619 56% 103,680 58,061 6,221 6,221 2013 43,805 61% 112,320 68,515 52,790 53% 112,320 59,530 8,986 8,986 2014 48,384 60% 120,960 72,576 60,480 50% 120,960 60,480 12,096 12,096 2015 53,136 59% 129,600 76,464 68,688 47% 129,600 60,912 15,552 15,552 2016 54,432 58% 129,600 75,168 72,576 44% 129,600 57,024 18,144 18,144 2017 55,728 57% 129,600 73,872 76,464 41% 129,600 53,136 20,736 20,736 2018 57,024 56% 129,600 72,576 79,430 39% 129,600 50,170 22,406 22,406 2019 58,320 55% 129,600 71,280 82,512 36% 129,600 47,088 24,192 24,192 2020 59,616 54% 129,600 69,984 85,713 34% 129,600 43,887 26,097 26,097 2021 60,912 53% 129,600 68,688 89,038 31% 129,600 40,562 28,126 28,126 2022 62,208 52% 129,600 67,392 92,492 29% 129,600 37,108 30,284 30,284 2023 63,504 51% 129,600 66,096 96,081 26% 129,600 33,519 32,577 32,577 2024 64,800 50% 129,600 64,800 99,808 23% 129,600 29,792 35,008 35,008 2025 66,096 49% 129,600 63,504 103,680 20% 129,600 25,920 37,584 37,584

Mugla Economic Analysis


2009 7,800 61% 20,000 12,200 7,800 61% 20,000 12,200 - - 2010 8,000 60% 20,000 12,000 8,190 59% 20,000 11,810 190 190 2011 8,200 59% 20,000 11,800 8,600 57% 20,000 11,401 400 400 2012 8,400 58% 20,000 11,600 9,029 55% 20,000 10,971 629 629 2013 8,600 57% 20,000 11,400 9,481 53% 20,000 10,519 881 881 2014 8,800 56% 20,000 11,200 9,955 50% 20,000 10,045 1,155 1,155 2015 9,000 55% 20,000 11,000 10,453 48% 20,000 9,547 1,453 1,453 2016 9,200 54% 20,000 10,800 10,975 45% 20,000 9,025 1,775 1,775 2017 9,400 53% 20,000 10,600 11,524 42% 20,000 8,476 2,124 2,124 2018 9,600 52% 20,000 10,400 12,100 39% 20,000 7,900 2,500 2,500 2019 9,800 51% 20,000 10,200 12,705 36% 20,000 7,295 2,905 2,905 2020 10,000 50% 20,000 10,000 13,341 33% 20,000 6,659 3,341 3,341 2021 10,200 49% 20,000 9,800 14,008 30% 20,000 5,992 3,808 3,808 2022 10,400 48% 20,000 9,600 14,708 26% 20,000 5,292 4,308 4,308 2023 10,600 47% 20,000 9,400 15,443 23% 20,000 4,557 4,843 4,843

Avoided Loss Incremental Water for SaleYears Without Project With Project

Incremental Water for SaleYears Without Project With Project Avoided Loss

Avoided Loss Incremental Water for SaleYears Without Project With Project

Incremental Water for SaleYears

Without Project With ProjectAvoided Loss

59

Municipal Solid Waste

The three sanitary landfill projects are already providing economic benefits, mainly by eliminating or significantly reducing the following adverse environmental impacts of the alternative dump sites: (a) soil pollution due to leachate infiltration, (b) surface water and groundwater pollution, (c) insect vector problems, (d) fertility loss in agricultural lands in the vicinity due to waste spreading with the wind and dump site gas, ( e ) risk of fire and explosion of dump site gas, (f) air pollution due to uncontrolled fires in the dump site, (g) odor problems, (h) repulsive visual sights, (i) economic loss due to disposal of recyclable materials, and (j) slope stability problems.

For the three participating municipalities, solid waste comprises (a) household solid waste, (b) non-hazardous solid waste from commerce and institutions and (c) street, park and garden waste. Additionally, the three municipalities pay attention with recycling, composting and compaction, which are reducing the volume of the MSW and helping slow down the rate of depletion of the landfill space, while saving energy and natural resources. Compaction of the solid waste accompanied by sorting and separation effectively extends the landfill life in Kayseri.

The basic Gelibolu landfill facility was completed in 2010. Likewise, Gelibolu has been keen on recovery of useful materials from the solid waste. Consequently, the solid waste being stored in the Gelibolu landfill has been significantly reduced, which has helped extend the effective useful life of the facility.

Table 18: Solid Waste Interventions under MSP and MSP AFDescription Units Bergama Gelibolu KayseriLevel of Municipality District District MetropolitanSupported Under MSP - I MSP - I MSP - IINature of Support

Masterplan √Landfill √ √ √Pilot Compost Plant √Equipment √ √ √Capacity Building √ √ √

Landfill Capacity & LifeCapacity m3 600,000 877,000 3,250,000 Service Life years 20 42 10

Investment CostLoan EUR M 2.26 2.15 18.25Cost Sharing EUR M 0.25 0.24 0Total Inv. Cost EUR M 2.51 2.39 18.71

Efficiency IndicatorsUnit cost of capacity US$/m3 4.19 2.72 5.76

Facility Footprint ha 10 16Total Area Fenced ha 36 41First Service Year 2010 2011 2016Current Status operational operational operationalDaily Solid Waste Received ton/day 120 to 180 140 1000

60

ANNEX 4. Bank Lending and Implementation Support/Supervision Processes(a) Task Team members

Names Title UnitResponsibility

/

Specialty

Lending

Seema MangheeSenior Infrastructure Specialist/

TTLECSSD TTL

Sudipto Sarkar Lead Specialist GWA06 TTL

Alptekin Orhon Consultant ECSS5

Ibrahim Sirer Procurement Specialist ECSO2 Procurement

Seda Aroymak Sr Financial Management Specialist GGO21 Finance

Sana Kh. Agha Al Nimer Senior Water Specialist

Helen Z. Shahriari Sr. Social Dev. Specialist Social Development

Tijen Arin Sr. Environmental Specialist Environment

Frank Van Woerden Lead Environmental Engineer Environment

Felix Jakob Consultant

Supervision/ICR

Seema MangheeSenior Infrastructure Specialist/

TTLECSSD TTL

Mara Warwick Country Sector Coordinator/TTL ECSSD TTL

Elif Ayhan Sr.Urban Development Specialist/TTL ECSSD TTL

Stephen George Karam Sector Leader Sector Leader ECSSDYarissa Sommer ICR TTL GSU09

Seda Aroymak Sr. Financial Management Specialist GGO21 FM

Soraya Goga Lead Urban Specialist Lead ECSUWJung Eun Oh Sr. Transport Economist ECSTR

Stanley Peabody Safeguards Specialist GEEDR Safeguard

Chukwudi H. Okafor Sr. Social Development Specialist ECSS4 Social

Esra Arikan Sr. Environmental Specialist GEN03 Environment61

Zeynep Darendeliler Social Development Specialist ECSSO SocialAshna Mathema Urban Development Specialist ECSUW

Canan Yildiz ConsultantArzu Uraz Yavas Safeguard Specialist GSU03 Social Bernard Baratz Consultant

Ruxandra Maria Floroiu Lead Environmental Specialist GENO3GEN03 Environment

Michael Peter Steen Jacobsen

Lead Water and Sanitation Specialist ECSUW

Frederick Edmund Brusberg Consultant/Social Safeguards EASVS Safeguard

Ulker Karamullaoglu Program Assistant ECCU6Bianca Moldovean Consultant GSU09 ICR analyst

Suha Satana Consultant

Staff Time and Cost

Stage of Project Cycle

Staff Time and Cost (Bank Budget Only)

No. of staff weeksUSD Thousands

(including travel and consultant costs)

Lending

FY03 10.28 53751.51

FY04 30.90 109880.58

FY05 80.54 334426.87

FY06 0.10 2912.27

Total: 121.82 500971.24

Supervision/ICR

FY06 17.21 139784.04

FY07 36.38 169713.38

FY08 53.69 251699.90

FY09 28.30 148744.41

FY10 23.92 135410

FY11 36.36 133384.50

FY12 24.41 104828.26

FY13 22.33 78030.20

FY14 30.21 101074.0662

FY15 13.33 52077.22

FY16 7.16 60855.09

FY17 9.23 62428.72

Total: 302.53 1438029.81

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ANNEX 5. Stakeholder Workshop Summary Two stakeholder workshops were organized under the Municipal Services Project. The first workshop was held in Sapanca, Turkey, June 4-6, 2013 after the closing of the original loan in 2012. The participants from Iller Bank –PMU and representatives from Regional Directorates, World Bank, Ministry of Development and municipalities and utilities from Antalya, Denizli, Mersin, Muğla, Ilıca, Ödemiş, Gelibolu, Bergama, Polatlı. The workshop assessed the achievements under the original loan.

The second workshop was held at the Macunkoy Social Facilities of the Iller Bank on January 24, 2017. Sub-borrowers of both original and additional loans were invited. There were 70 participants from the Iller Bank, the World Bank and municipalities and utilities from Antalya, Denizli, Mersin, Kayseri, Kirsehir, Mugla, Izmir, Bergama, Odemis, Gelibolu and Kahramanmaras. The main objective was to disseminate information on implementation experiences and outcomes from each city and engage the stakeholders in discussions on the lessons learned for future activities.

Deputy General Director of Iller Bank Mr. Ender Aykut Yilmaz gave the opening speech of the workshop and welcomed the participants. In his speech, he stated that this event was organized to assess the MSP carried out with the cooperation of Iller Bank and Municipalities. He underlined the importance of honest feedback and suggestions of the participants for the development of future projects. He also mentioned about cooperation opportunities for Iller Bank and the World Bank, including the Sustainable Cities Project, currency risks of loans and municipal bonds and a new financing mechanism for municipal infrastructure projects.

The Bank highlighted the importance of the MSP for the ways in which: (i) Iller Bank played the financial intermediary role for international loans for the first time (ii) the MSP provided millions of people with better quality drinking water, improved sanitation and increased industrial and wastewater treatment (iii) the project improved the relation between Iller Bank and the World Bank. Based on lessons learned from the MSP, the Sustainable Cities Project (SCP), approved by the WB Board in December 2016 was designed as a framework project.

Following the opening remarks, the technical presentations were made by Iller Bank. A key message that resonated across all presentations was that the importance of the project in improving the technical capacity of the Iller Bank and opening a new perspective to work with other IFIs, the overall outputs, procurement and financial practices.

Eleven representatives from 9 municipalities gave presentations and provided basic information about their projects, including project budgets, time frames, contracts and achievements. The main issues raised by stakeholders can be summarized as follows:

Improved municipal services: There was consensus that all projects were successfully implemented and improved the quality of municipal services in participant cities. They also mentioned that all investments were now in active use.

Established good cooperation among project partners: All stakeholders agreed that there was a good cooperation among municipalities, Iller Bank and the World Bank, and they received good guidance and support from both Iller Bank and the World Bank.

Increased capacity of municipalities and utilities: Some stakeholders indicated that working with consultancy firms helped them successfully implement the project and also improved the technical capacity of their institutions and staff. Mr. Koray Kok from Kayseri Metropolitan Municipality stated that this project was very beneficial in terms of exploring weaknesses of municipalities and developing corporate identity and technical skills in municipalities. Moreover, Mr. Ibrahim Ugur Erkis from ALDAS mentioned that

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they had improved their institutional capacity while working with consultancy services and at some point, they had decided not to renew the contract of consultancy firm and took over the consultancy services for the remaining part of the project after having an agreement with Iller Bank and the World Bank.

Mr. Birol Kayranli, Head of International Relations Department, gave the closing remarks. He also stated that this project generated products that everyone was proud of and everyone embraced the success but also asked for critiques and gave the floor to stakeholders.

Deputy General Director Mr. Cem Yasar from MUSKI commented on three issues: (i) Procedures under the MSP were very lengthy but it seemed that they would be shortened under the SCP. (ii) Financial contribution from municipalities was obligatory for MSP and that created difficulties for municipalities. SCP does not have such a condition. (iii) Law # 6360 increased the financial needs of municipalities but criteria on creditworthiness of municipalities limited municipalities from benefiting from additional financing.

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ANNEX 6: Borrower’s Implementation Completion Report (ICR) SummaryIntroduction

ILLER BANK provides loans to Municipalities for both infrastructures and superstructures namely water, waste water, solid waste, urban transportation, energy sectors and other municipal facilities. In Turkey, in addition to the local financial sources, there has been a need for other financial sources to meet the infrastructure demand of municipalities within the scope of the recent national development plans. Therefore, with the missions of supplying designs, loans, consultancy and technical support at international standards to contribute the sustainable urbanization, ILLER BANK has provided international financing as an alternative to fulfill these huge demands of municipalities. In this context, a new institutional structure has been established by building capacity within ILLER BANK for Municipal Services Project financed by the WB.

I. Scope of Municipal Services Project

ILLER BANK obtained € 212,900,000 of Loan within the scope of Country Assistance Strategy 2004-2007 (CAS) from the International Bank for Reconstruction and Development (The WB) guaranteed by the Undersecretariat of Treasury by the Loan Agreement No. 7312-TU signed on 08 February 2006 to finance the “Municipal Services Project – I (Original Loan). A mid-term review was conducted in 2009, which showed that the Municipal Services Project - I was being implemented in a satisfactory manner. As a result of this, within the frame of interview and meeting held in WB and Treasury, it was agreed on the scope of Country Partnership Strategy 2008-2011 (CPS) which forms financial and technical support in the fiscal year of 2008 – 2011 and it was decided to increase the loan amount of Municipal Services Project - I by an additional loan. After the preparation process, the Loan Agreement No. 7885-TU of Municipal Services Project - II (MSP-II Additional Financing) was signed on 29 June 2010 in an amount of € 178,200,000 and guaranteed by the Treasury. The total amount of the loan provided by the WB is €391,100,000.

The Project has three components: Part A: Municipal Development: The establishment and operation of a credit facility for the

financing, through the provision of Sub-loans to Sub-borrowers, enabling such Sub-borrowers to finance the costs related to the carrying out of Sub-projects for water, waste water and solid waste investments. Therefore, works and goods contracts were financed within this component.

Part B: Municipal Technical Assistance: Development of feasibility studies, urban planning, preparation of design and bidding documents, operational improvement plans and construction supervision through provision technical assistance. Within this component, consultancy services were provided to the municipalities to increase their capacity to implement the project.

Part C: Institutional Strengthening: Strengthening the institutional capacity of ILLER BANK to carry out the Project through financing of consultants’ services and incremental operating costs. Individual consultants (technical, procurement and finance) were financed with this component. In addition to this, trainings, seminars and workshops were organized to increase ILLER BANK’s and municipalities’ capacity to implement the project.

The Municipalities/Utilities participated in MSP are given in Table 1 and Table 2 below. The investments given in Table 3 were financed under Component A: Municipal Development.

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Table 1. The Municipalities/Utilities participated in MSP Original Loan

1- Polatlı (Ankara) 5- Mugla 9- Ilıca (Antalya)

2- MESKI (Mersin) 6- Bergama (İzmir) 10-Elbistan (K.Maraş)

3-Gelibolu (Çanakkale) 7- Kütahya 11- ASAT (Antalya)

4- Ödemiş (İzmir) 8- Denizli

Table 2. The Municipalities/Utilities participated in MSP Additional Financing

1- ASAT (Antalya) 5- Kırşehir

2- MESKI (Mersin) 6- Kayseri

3- DESKI (Denizli) 7- Beypazarı (Ankara)

4- İSKİ (İstanbul)

Table 3. Investments financed under Component A

Sub-borrower Municipality Investments

Polatlı Municipality (Ankara) Water Treatment Plant

Gelibolu Municipality (Çanakkale) Landfill

Ödemiş Municipality (İzmir) Water Treatment PlantWastewater Treatment Plant

Muğla Municipality Water NetworkSewerage NetworkWastewater Treatment Plant

Bergama Municipality (İzmir) Landfill

Kütahya Municipality Water Network

Ilıca Municipality (Antalya) Water Network Sewerage Network Storm Water Network

Elbistan Municipality (Kahramanmaraş) Water Network

Denizli Water and Sewerage Utility (DESKI)

Water Network Sewerage Network Storm Water Network

Antalya Water and Sewerage Utility (ASAT) Water NetworkSewerage Network Wastewater Treatment Plant

Mersin Water and Sewerage Utility (MESKI)

Water NetworkSewerage Network

Kayseri Metropolitan Municipality Landfill

Kırşehir Municipality Water Network67

İstanbul Water and Sewerage Utility (ISKI) Sewerage Collector and Network (Cancelled)

Beypazarı Municipality (Ankara) Water NetworkSewerage Network Wastewater Treatment Plant (Not implemented)

II. Procurement

During the implementation of MSP, WB’s procurement procedures have been applied. For the components of Municipal Development and Municipal Technical Assistance, the Sub-Borrowers have performed the procurement activities. Moreover, ILLER BANK has performed its own procurement activities in accordance with WB’s procurement procedures for the component of Institutional Strengthening.

Similar to the other projects financed by WB, MSP had some of the contracts subject to WB’s prior review while remaining contracts subject to WB’s post-review. Accordingly, for the contracts subject to WB’s prior-review, the relevant documents in both bidding and contractual stages have been given no-objection by WB before coming into force. On the other hand, ILLER BANK approved these documents for the contracts subject to WB’s post-review. In number, 223 contracts were signed within the scope of two projects: 161 of them were signed within the Original Loan and 62 of them were signed within the Additional Financing. Most of these contracts have been included in either Municipal Development or Municipal Technical Assistance components. Therefore, within the scope of the Original Loan, 132 of 161 contracts were signed by the Sub-Borrowers while within the scope of the Additional Financing, 58 of 62 contracts were signed by the Sub-Borrowers.

At this point, it shall be emphasized that all the parties in the projects, WB, ILLER BANK and the Sub-Borrowers, have played an active role in terms of procurement. There have been several trainings, seminars and meetings conducted with the participation of the parties. With the help of these activities, it has been observed that the Sub-Borrowers have become more familiar with WB’s procurement procedures as the projects progressed.

The procurement mechanism established for MSP provided a significant role to ILLER BANK in the projects. Accordingly, ILLER BANK gained a significant experience from this mechanism and it is considered that this experience could be carried out in the further projects.

III. Finance

ILLER BANK was responsible for disbursements, payments and repayments to be made in compliance with the WB procedures and local laws. For the disbursement period of 12 years, ILLER BANK successfully deal with all the financial and legal issues of the loan.

ILLER BANK has a key role on selection of the sub borrowers in financial side. Both the project’s financial data and the sub borrowers’ financial capabilities were reviewed and approved in feasibility preparation stage by ILLER BANK to ensure the selection of the sub borrowers were financially sound.

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ILLER BANK worked with a public commercial bank (Ziraat Bank) for all monetary transaction made in the scope of the loan. All the accounts; special accounts, escrow accounts and repayment accounts are opened in Ziraat Bank.

ILLER BANK chose Advance Payment method for disbursements. ILLER BANK opened and managed two separate special accounts, repayment accounts for two loans. The finance group worked with both Ankara Office and Zagreb Office of the WB for disbursements. The special accounts of the Original Loan and the Additional Financing were replenished 46 times and 47 times respectively.

The payments were made directly to the contractors’ accounts from the special accounts. ILLER BANK made about 2.000 payments based on the interim payment reports that approved by sub borrowers and checked by ILLER BANK, to the contractors in several categories. ILLER BANK chose level repayment amortization profile and requested as an obligation from sub borrowers to open escrow accounts and transfer sufficient amount that set in sub loan agreement and rose from their certain income, to ensure the repayments. For the Original Loan and MSP-II, 21 and 13 repayments successfully made on their due date by ILLER BANK, respectively. Financial Data for the Loan is given in Table 4.

Table 4. Financial Data for the Loan

Loan No.

Loan Allocated Loan Amount

Disbursed Loan Amount

Repaid Loan Amount

Outstanding Loan Amount

TU-7312 Municipal Services project - I

212,900,000 206,238,705 110,159,448 96,079,258

TU-7885 Municipal Services Project –II (Add. Loan)

178,200,000 167,732,613 9,140,125 158,592,488

IV. Environmental Framework

The WB’s environmental safeguards policies require that the borrower is expected to prepare an Environmental Framework (EF), integrated with the Regulation on Environmental Impact Assessment (“Turkish EIA Regulation”) and WB’s Operational Policy for Environmental Assessment (OP 4.01) for the MSP-I and MSP-II. EF is the key document to be shared with stakeholders before implementation starts. Therefore, two separate EFs were prepared for the Original Loan and the Additional Financing and disclosed in ILLER BANK website and Infoshop.

EF provided technical inputs and guidance for MSP from an environmental management perspective. Therefore, the application and implementation of the EF guides the integration of environmental aspects into the decision-making process of all stages related to planning, design, execution, operation and maintenance of sub-projects, by identifying, preventing and /or minimizing adverse environmental impacts early – or in the project cycle.

Under MSP, totally 24 EA documents (8 EIA and 16 EMP) were prepared and approved. Municipalities/Utilities have completed the sub-projects in compliance with their Environmental Assessment documents.

V. Land Acquisition and Resettlement

Municipal Services Project (MSP-I) and Municipal Services Project-II (Additional Loan), two Land Acquisition and Resettlement Framework (LARPF) document was prepared. During the

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preparation stage of the Original Loan, the public consultation meeting was arranged by ILLER BANK in January 2005 by the participation of related parties (State Planning Organization (refers to existing Ministry of Development), General Directorate of Land Registry and Cadaster, General Directorate of National Estate, etc.). For MSP-II, another public consultation meeting was arranged by ILLER BANK in December 2009 by the participation of related parties. These documents were disclosed by ILLER BANK in 2006 and in 2010 respectively. LARPF of the both projects were officially disclosed on the website of the ILLER BANK both in English and in Turkish.

ILLER BANK is the Borrower of WB loan and as a Financial Intermediary (FI) of the project, it is responsible for the management of the satisfactory implementation of the project. The land acquisition process for the investments was carried out by the Municipalities/Utilities from their own sources of financing. ILLER BANK followed that the process is in line with relevant Turkish laws and WB operational policies.

Under the scope of MSP, land acquisition needs occurred during the implementation period of the project. Totally, there were 76 project affected people under the scope of MSP whose compensations were paid by the Municipalities/Utilities. In general, the impacts incurred under the MSP are not extensive and compensation was an adequate solution. Where landholders do not reach agreement with the local government, the court mechanism was used effectively to resolve disputes.

There were no significant grievances recorded) in the overall MSP throughout 10 years of implementation period which is a major infrastructure project in Turkey financed by WB.

In general, sub borrowers followed the LARPF document without a problem. Although there are gaps between the Turkish legislation and OP 4.12, there weren’t any challenges encountered in implementing the OP 4.12 or any specific case under OP 4.12 under the scope of MSP.

There was not an indicator for beneficiary feedback in the Results Framework document under MSP and there was not a satisfaction survey carried out at the end of the project. ILLER BANK considers that, it is difficult to reach the people who are directly benefited from the project and that across the 10 year implementation period it is not easy for people who distinguish the investments performed under MSP specifically. It is considered that satisfaction is not an easily measurable indicator since it is difficult to reach the real beneficiaries of the project. In January 2017, ILLER BANK arranged a close out workshop for MSP and invited representatives from all MSP Municipalities/Utilities who are completed their investments successfully. All of the Municipalities indicated their satisfaction for their investments as well as institutional capacity building they gained by the contribution of ILLER BANK and WB.

By the joint study, cooperation and exchange of information with WB team, ILLER BANK staff improved their capacity on social safeguard issues and WB operational policies. At the end of the MSP, there is an experienced PMU team in terms of social safeguard policies of the WB.

VI. Achieved Project Results

Results Framework indicators were selected and put into the project documents with WB guidance during the negotiation stage of the project. Since ILLER BANK was unfamiliar with results indicators, there was not enough knowledge about the ILLER BANK’s role and tasks regarding to the indicators. Throughout implementation of the project, ILLER BANK

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followed and received the indicators from the sub borrowers. At the end, sub borrowers have reached their target values with some exceptions and comments.

Moreover, it was observed during the site visits that there were some different approaches and/or calculation methods of municipalities for the same indicator. The importance of the indicators increased a lot during the last three years of the project and the related data was reviewed and questioned by WB in detail. In order to adapt to the new requirements, ILLER BANK prepared a guideline and shared with WB and with municipalities. After this study, the differences in the calculation methodology were eliminated. In addition to that 3 new core indicators were added; some modifications were made to existing indicators with a project restructuring.

VII. Conclusion

In Turkey, in addition to the local financial sources, there has been a need for other financial sources to meet the infrastructure demand of municipalities within the scope of the recent national development plans. Therefore, with the missions of supplying designs, loans, consultancy and technical support at international standards to contribute to sustainable urbanization, ILLER BANK provided international financing as an alternative to fulfill the huge demand from municipalities. In this context, a new institutional structure has been established by building capacity within ILLER BANK under the Municipal Services Project financed by the WB.

Following the success of the mentioned institutional structure evaluated as satisfactory by the WB, MSP is considered as a model for the other projects financed by International Financial Institutions. Moreover, similar structure has been established and capacity building has been achieved within the municipalities/utilities.

This project was considered very important for ILLER BANK, not only was it successful but also it opened new area to ILLER BANK as an alternative financing source for municipalities. This project with 10 year and nine months of implementation period is both a success story and challenge to ILLER BANK. ILLER BANK started the cooperation with WB with no experience and ended with completed investment in 13 municipalities/utilities, with around 97 % disbursement of the loan.

To sum up, as mentioned in the Borrower report and also demonstrated in the figures provided, significant contribution has been achieved with the infrastructure investments for the sustainability of the cities.

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ANNEX 7. List of Supporting DocumentsLoan Agreement, Municipal Services Project, Dated February 8, 2006

Loan Agreement for Additional Financing, June 29, 2010

Project Appraisal Document, Municipal Services Project, May 27,2005

Project Paper on Additional Loan, April 8, 2010

Restructuring Paper, Municipal services Project Loans 7312-TU and 7885-TU, December 14, 2011

Restructuring Paper, Municipal Services Project Loan 7312- December 12, 2012

Restructuring Paper, Municipal Services Project Loan 7885-TU, December 19, 2014

World Bank Aide Memoires from 2003 to 2016

Land Acquisition Framework Document, July 2010

Iller Bank Law No. 6107, adopted by the Grand National Assembly of Turkey on January 26, 2011 and published in the Official Gazette on February 8, 2011

The Metropolitan Municipality Law no.6360, published in the Official Gazette on November 2012, effective on March 2014

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ANNEX 8. Full Results Framework

PDO Indicator 1: Percentage of non-revenue water over the supply area of the municipal government/municipal water company (Percentage, Custom)

Category Composite Baseline30 Composite Target Values Actual Composite Value


Total 55% 40% 45%

Comment

Target substantially achieved. 89% of target value reachedTotal values are the result of simple averages, calculated for the purposes of the ICR, as per PAD recommendation. PDO Indicators were added in the AF agreement, following the MTR. Results for some cities have been affected by changes to territorial reform 2014

PDO Indicator 1: Sub Indicators

Project Category Baseline


approval documents)


documents)



ASAT I

Value 52% - 43% 44%Date 2006 2012 31-Dec-12

Comment The 2006 baseline and target were set in the AF agreement and the target was updated in 2011 restructuring.

ASAT II31

Value 47% - 36% 49%Date 2009 2016 31-Dec-16

Comment

The AF agreement had set the 2009 baseline at 42%, but it was revised in the 2014 restructuring to 47%. The target was set at 30% in the AF agreement and revised to 36% in the 2011 restructuring. For ASAT, the inconsistencies can be explained by changes following the territorial reform of 2014.

ASAT (Overall32)

Value 52% - 39.5%33 49%Date 2006 Jan-201734

Comment Target not achievedInvestigation during the ICR determined that the sub-projects for ASAT I and ASAT II were the same investments in water supply and waste water, and ASAT II was a scale up. ASAT (I+II) is one utility, therefore baseline should have stayed the same as determined in 2006 and only target could be considered to be formally updated/revised. The project should not have added a separate sub-indicator (ASAT II) for monitoring the same result even if there were multiple sub-projects of the same. This was a methodological design flaw in the

30 As outlined in the MSP PAD achievements of results would be calculated as simple averages of sub-project results. Therefore composite baselines, target and results were calculated as averages and established for the ICR to assess the overall outcome. 31 As per 2014 restructuring paper: ASAT, Mersin and Denizli municipalities are sub-borrowers both under the Original Loan and the Additional Loan. However, the sub-projects have different scopes and therefore, different figures were estimated for the same indicators. 32 ASAT =ASAT I+II

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2014 restructuring that impacted the assessment of results for the ICR. To facilitate carrying out the economic analysis and for consistency across cities where splitting of indicators occurred, the ICR considers the original baseline determined at the AF (2006), a composite of the targets and the final overall results assessed during the ICR.

Denizli I

Value - - 47% 47%Date 2006 2012 31-Dec-12

Comment The AF established no 2006 baseline. The target was updated for 2012 in the 2011 restructuring paper.

Denizli II

Value 51% - 43% 35%Date 2009 2014 31-Dec-14

Comment The AF established the 2009 baseline. The target was updated for 2014 in the 2011 restructuring paper.

Denizli I DESKI

Value 64% - 54% 35%Date 2014 2016 30-Nov-16

Comment The 2014 baseline and target were set in the 2014 restructuring, when the project was added.

Denizli(overall35)

Value 51% 48%36 41%37

Date 2009 Jan-2017

Comment

Target surpassedInvestigation during the ICR determined that the sub-projects for Denizli I and II and DESKI were the same investments in water supply and wastewater, but Denizli II and DESKI were scale ups. DESKI is one utility, therefore baseline should have stayed the same as determined in 2009 and only target could be considered to be formally updated/revised. NRW results can only be calculated for the utility as a whole. The project should not have added a separate indicator for monitoring the same result even if there were multiple sub-projects of the same. This was a methodological design flaw in the 2014 restructuring that impacted the assessment of results for the RF. To facilitate carrying out the economic analysis and for consistency across cities where splitting of indicators occurred, the ICR considers the original baseline determined at the AF (2009), composite of targets and the final overall results assessed during the ICR.

Elbistan

Value 65% - 45% 60%Date 2006 2012 31-Dec-12

CommentTarget not achieved

The AF established the 2006 baseline. The target was updated for 2012 in the 2011 restructuring paper.

Ilica

Value 40% - 25% 42%Date 2006 2012 31-Dec-12

CommentTarget not achieved.


Kirsehir

Value 78% - 53% 57%Date 2009 2016 30-Nov-16

CommentTarget substantially achieved; 93% of Target value reached.


Kutahya Value 69% - 35% 35%Date 2006 2012 31-Dec-12

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MESKI I

Value 66% - 50% 40%38

Date 2006 2012 Jan-2017

Comment

Target Surpassed.NRW is calculated to reduce to 20% by 2026 as a result of the project39.The AF established the 2006 baseline. The target was updated for 2012 in the 2011 restructuring paper.

Mugla

Value 33% - 22% 42%Date 2006 2012 Jan-2017

Comment

Target not achieved.NRW is calculated to reduce to 23% by 2026 as a result of the project40.The AF established the 2006 baseline. The target was updated for 2012 in the 2011 restructuring paper.

Odemis

Value 44% - 40% 40%Date 2006 2012 31-Dec-12



Polatli

Value 48% - 43% 43%Date 2006 2012 31-Dec-12



PDO Indicator 2: Total annual biochemical oxygen demand (BOD) load reduction from municipal wastewater in participating (tons/year)

Category Composite Baseline Composite Target ValuesActual Composite Value


Total 9056 23,473 20,238

Comment

Target substantially achieved, 86% of target value reached.Total values are the result of simple addition, calculated for the purposes of the ICR, as per PAD recommendation. PDO Indicators were added in the AF agreement.




approval documents)


documents)



ASAT I

Value 9056 - 18,109 18,524Date 2006 2012 31-Dec-12

CommentTarget surpassed.


33 Composite of ASAT I +II targets calculated for the ICR34 Assessed at ICR35 DENIZLI = Denizli I + II + DESKI

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Beypazari

Value 0 - 450 0Date 2009 2016 31-Dec-16

Comment

Target not achieved. The sub-project in Beypazari was cancelled. The AF established the 2009 baseline. The target was updated for 2016 in the 2014 restructuring paper.

Mugla

Value 0 - 1,486 544Date 2006 2012 31-Dec-12

Comment

Target not achievedThe AF established the 2006 baseline. The target was updated for

2012 in the 2011 restructuring paper.

Odemis

Value 0 - 3878 1170Date 2006 2012 31-Dec-12

Comment

Target not achievedThe AF established the 2006 baseline. The target was updated for 2012 in the 2011 restructuring paper.

PDO Indicator 3: Amount of waste safely disposed in landfills. (Tons/year, Custom)

Category Composite Baseline Composite Target Values Actual Composite Value


Total 0 444,845 232,341

Comment

Target not achieved; 52% of target value reachedTotal values are the result of simple addition, calculated for the purposes of the ICR, as per PAD recommendation. PDO Indicators were added in the AF agreement. All sub-projects closed by the closing date of the original loan.




approval documents)

Formally Revised /Added Target Values



Bergama

Value 0 - 21,900 36,000Date 2006 2012 31-Dec-12



Gelibolu

Value 0 - 32,227 9,978Date 2006 2012 31-Dec-12



Kayseri Value 0 - 390,718 186,363Date 2009 2016 31-Dec-16

36 Composite of Denizli I, II and DESKI targets calculated for the ICR37 Assessed at ICR38 Results in 2012 updated as assessed at ICR in 2017.39 ICR Efficiency analysis Section 3.3 table 640 ICR Efficiency analysis Section 3.3 table 6

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Comment

Target not achievedThe AF established the 2009 baseline. The target was updated for 2016 in the 2014 restructuring paper.

PDO Indicator 4: Financial Working Ratio of municipalities/ municipal companies. (, Custom)41

Category Composite Baseline Composite Target Values Actual Composite Value


Total 0.76 0.74 0.60

Comment

Target SurpassedTotal values are the result of simple averages, calculated for the purposes of the ICR, as per PAD recommendation. PDO Indicators were added in the AF agreement.




approval documents)


documents)



ASAT I

Value 1.49 - 1.05 0.97Date 2006 2012 31-Dec-12

Comment The AF established the 2006 baseline. The AF set the target at 0.84, which was revised to 1.05 in the 2011 restructuring paper.

ASAT II

Value 1.21 - 0.94 0.67Date 2009 2016 31-Dec-16

CommentThe AF established the 2009 baseline at 1.13, which was revised in the 2011 restructuring to 1.21. The AF set the target at 0.85, which was revised to 0.94 in the 2011 restructuring paper.

ASAToverall

Value 1.49 - 0.94 0.5142

Date 2006 - 2015

Comment

Target SurpassedSee comment under PDO 1: To facilitate carrying out the economic analysis and for consistency across cities where splitting of indicators occurred, the ICR considers the original baseline determined at the AF (2006), 2016 target and the final overall results assessed during the ICR.

Bergama

Value - - 1 1Date 2010 2012 31-Dec-12


The AF established no baseline for Bergama. The target was updated for 2012 in the 2011 restructuring paper.

Beypazari Value 0.74 - 0.68 -Date 2009 2016 31-Dec-16

Comment Target not achieved Sub-project was cancelled by ASKI at project closing beyond the

41 Phrased as “Sectoral Financial Working Ratio of municipalities/ municipal companies” until the 2014 Restructuring.42 Per latest data collected during ICR

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control of the project. Data reported does is not a result of the project and cannot be considered for the ICR. The AF established the 2006 baseline. The target was updated for 2016 in the 2014 restructuring paper.

Denizli I

Value 0.74 - 0.76 1.08Date 2006 2012 31-Dec-12


Denizli II

Value 0.66 - 0.55 1.14Date 2009 2014 31-Dec-14


Denizli II DESKI

Value 0.68 - 0.61 1.14Date 2014 2016 31-Dec-16

Comment The baseline and target were set in the 2014 restructuring, when the project was added.

Denizlioverall

Value 0.74 0.61 0.5843

Date 2015

Comment

Target Surpassed.See comment under PDO 1. To facilitate carrying out the economic analysis and for consistency across cities where splitting of indicators occurred, the ICR considers the original baseline determined at the AF (2006), 2016 target and the final overall results assessed during the ICR.

Elbistan

Value 0.76 - 0.5 1.15Date 2006 2012 31-Dec-12

Comment Target not achieved.The AF established the 2006 baseline. The target was updated for 2012 in the 2011 restructuring paper.

Gelibolu

Value 0.74 - 0.65 0.65Date 2006 2012 31-Dec-12

Comment Target achieved. The AF established the 2006 baseline. The target was updated for 2012 in the 2011 restructuring paper.

Ilica

Value 0.15 - 0.08 0.08Date 2006 2012 31-Dec-12

Comment Target achieved. The AF established the 2006 baseline. The target was updated for 2012 in the 2011 restructuring paper.

Kayseri

Value 1.66 - 1.06 0.16Date 2009 2014 31-Dec-16

Comment Target surpassed. The AF established the 2009 baseline. The target was updated for 2014 in the 2011 restructuring paper.

Kirsehir

Value 1.09 - 1 0.84Date 8-Apr-10 8-Apr-10 31-Dec-16

Comment Target surpassed. The AF established the 2009 baseline. The target was updated for 2016 in the 2014 restructuring paper.

43 Assessed at ICR78

Kutahya

Value 0.3 - 0.65 0.5Date 2006 2012 31-Dec-12



MESKI I

Value 0.64 - 0.67 0.83Date 2006 2012 31-Dec-12


MESKI II

Value 0.66 - 0.64 0.68Date 2009 2016 31-Dec-16


MESKI overall

Value 0.66 - 0.64 0.6444

Date 2009 - 2016 2015

Comment

Target AchievedICR Assessment determines that in terms of FWR results, MESKI I and MESKI II is the same since it is the same utility. Therefore there should have been only one indicator with one baseline and updated target and not two. This was a methodological design flaw introduced in the 2014 restructuring.

Mugla

Value 0.7 - 0.8 0.5545

Date 2006 2012 Jan-2015



Odemis

Value 0 - 1 1Date 2006 2012 31-Dec-12



Polatli

Value 0.86 - 0.81 0.81Date 2006 2012 31-Dec-12



PDO Indicator 5: Percentage of projects financed by Iller Bank that are implemented by municipalities or municipal companies (Text, Custom)

Category Baseline


approval documents)

Formally Revised /Added Target Values (from

approval documents)


Target Years

Total 0 - 5 5Date 2006 2016 30-Nov-16

Comment Target achieved.

44 Assessed and updated at ICR45 Assessed at ICR

79

PDO Indicators were added in the AF agreement. The target was updated for 2016 in the 2014 restructuring paper.

80

Kutahya

Value 0.3 - 0.65 0.5Date 2006 2012 31-Dec-12



MESKI I

Value 0.64 - 0.67 0.83Date 2006 2012 31-Dec-12


MESKI II

Value 0.66 - 0.64 0.68Date 2009 2016 31-Dec-16


MESKI overall

Value 0.66 - 0.64 0.6446

Date 2009 - 2016 2015

Comment

Target AchievedICR Assessment determines that in terms of FWR results, MESKI I and MESKI II is the same since it is the same utility. Therefore there should have been only one indicator with one baseline and updated target and not two. This was a methodological design flaw introduced in the 2014 restructuring.

Mugla

Value 0.7 - 0.8 0.5547

Date 2006 2012 Jan-2015



Odemis

Value 0 - 1 1Date 2006 2012 31-Dec-12



Polatli

Value 0.86 - 0.81 0.81Date 2006 2012 31-Dec-12



Intermediate Indicator 1: Number of new population served by expanded water supply service (Number, Custom)



Target YearsTotal 2156641 2,951,728 2,953,046

Comment Target surpassed.Total values are the result of simple addition, calculated for the purposes of the ICR, as per PAD recommendation.

46 Assessed and updated at ICR47 Assessed at ICR

81

Intermediate indicators were added in the AF agreement.

Intermediate Indicator 1: Sub Indicators



approval documents)

Formally Revised

/Added Target Values (from

approval documents)



ASAT I

Value 843,641 - 1,126,430 1,126,430Date 2006 2012 31-Dec-12

CommentThe AF established the 2006 baseline at 116000 and the target at 130000. The 2011 restructuring revised the values and set the target for 2012.

ASAT II

Value 1,081,000 - 1,223,928 1,180,000Date 2009 2016 31-Dec-16

CommentThe AF established the 2009 baseline at 5760, and the target at 8860. The 2011 restructuring revised the values set the target for 2014. The 2014 restructuring set the target for 2016.

ASAToverall

Composite Value 843,641 1,223,928 1,180,000

Date 2006 31-Dec-16

Comment

Target Substantially Achieved, 96% of target value reached. ASAT I and ASAT II investments were the same and ASAT II

was essentially a scaled up. ICR assessment indicates that in the 2014 restructuring ASAT I baseline was 843641 and in 2009 both ASAT I and II had the same value of 1,000,081. This is the same population being counted and there should not have been separate

sub-indicators. This is a design flaw introduced in 2014 restructuring. Final result is the result reported for ASAT II.

Denizli I

Value - - 336,000 179,189Date 2006 2012 31-Dec-12

Comment The AF established no baseline. The target was updated for 2012 in the 2011 restructuring paper.

Denizli II

Value 235,000 - 400,000 480,000Date 2009 2014 31-Dec-14

Comment

The AF established the 2009 baseline. The target was updated for 2014 in the 2011 restructuring paper. For Denizli, some inconsistencies can be explained by changes following the territorial units reform of 2014, when the area under the responsibility of municipalities was expanded to match the provincial borders and the change in the status of the Denizli to a metropolitan municipality and establishment of DESKI.

Denizli II DESKI

Value 963,500 - 970,100 592,000Date 2014 2016 31-Dec-16


Denizlioverall

Value 235,000 970,100 1,251,189Date 2009 2017

Comment Target SurpassedICR assessment of the 2014 restructuring figures concludes that Denizli II and DESKI populations were reported separately while the target of 970,100 was the total target for Denizli. Given that

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the investments were the same, there should not have been separate sub-indicators. Denizli I achieved the targeted population in 2012. Result achieved is cumulative population reported for Denzli I + Denizli II + Deski.

Elbistan

Value 78000 - 87,000 95,037Date 2006 2012 31-Dec-12

CommentTarget Surpassed.


Ilica

Value - - 4,500 4,500Date 2012 31-Dec-12


The AF established no baseline. The target was updated for 2012 in the 2011 restructuring paper.

Kirsehir

Value 100000 - 1,50,000 1,39,235Date 2009 2016 31-Dec-16



Kutahya

Value - - 100000 1,00,000Date 2012 31-Dec-12



MESKI I

Value - - 400,000 400,000Date 2012 31-Dec-12



Mugla

Value - - 10,200 15,820Date 2012 31-Dec-12



Polatli

Value - - 6,000 6,500Date 2012 31-Dec-12



Intermediate Indicator 2: Percentage of population served by sewerage collection network in participating municipalities. (Percentage, Custom)


Actual Composite Value Achieved at Completion

or Target YearsTotal 38.75% 85.6% 85%

Comment

Target achievedTotal values are the result of simple averages, calculated

for the purposes of the ICR, as per PAD recommendation. Intermediate indicators were added in the AF agreement.

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Intermediate Indicator 2: Sub Indicators


Original Target

Values (from approval

documents)

Formally Revised

/Added Target Values (from

approval documents)

Actual Value Achieved at Completion

or Target Years

ASAT I

Value 43% - 62% 69%Date 2006 2012 31-Dec-12

CommentThe AF established the 2006 baseline at 0% and the target at 12%. The 2011 restructuring revised the values and set the target for 2012.

ASAT II

Value 48% - 70% 85%Date 2009 2016 31-Dec-16

Comment

The AF established the 2006 baseline at 0% and the target at 13%. The 2011 restructuring revised the values and set the target for 2014. The target was updated for 2016 in the 2014 restructuring paper.

ASAT Overall

Value 43% 70% 85%Date 2006 2016 31-Dec-16

Comment

Target SurpassedPer previous comments, ASAT I and ASAT II investments were the same and ASAT II was essentially scaled up. 2006 figures is considered baseline and 2016 figure as target ASAT II result is assessed as the cumulative result.

Denizli I

Value - - 67% 69%Date 2012 31-Dec-12

Comment The AF established no baseline. The target was updated for 2012 in the 2011 restructuring paper.

Denizli II

Value 47% - 87% 91%Date 2009 2016 31-Dec-14


Denizli II DESKI

Value 47% - 78% 91%Date 2014 2016 31-Dec-16


Denizlioverall

Value 27% 78% 91%Date 2009 2016 31-Dec-16

Comment

Target surpassedPer Previous comments, Investments are the same for Denzili I , II, and DESKI. 2009 considered as baseline and 2016 as target. Result for DESKI assessed as the cumulative result.

Ilica

Value 40% - 100% 90%Date 2006 2012 31-Dec-12

CommentTarget substantially achieved, 90% of target value reached.


MESKI II48

Value 85% - 90% 94%Date 2009 2016 31-Dec-16


The AF established the 2009 baseline. The target was updated 48 Misstated as MESKI in 2014 Restructuring Paper84

MAP

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