Actual Project Name : Co Cartagena Wtr Supply & Sewerage Env. Country: Colombia US$M): Project Costs (US$M

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1 Public Disclosure Authorized IEG ICR Review Independent Evaluation Group 1. Project Data: Date Posted : 11/22/2011 Report Number : ICRR13436 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized PROJ ID : P Appraisal Actual Project Name : Co Cartagena Wtr Project Costs (US$M US$M): Supply & Sewerage Env. Country: Colombia Loan/Credit (US$M US$M): Sector Board : WAT Cofinancing (US$M US$M): 0 0 Sector(s): Sewerage (54%) Sanitation (32%) Water supply (9%) Sub-national government administration (4%) General water sanitation and flood protection sector (1%) Theme(s): Access to urban services and housing (25% - P) Pollution management and environmental health (25% - P) Water resource management (24% - P) Other financial and private sector development (13% - S) Environmental policies and institutions (13% - S) L/C Number: L4507; L7404 Partners involved : Board Approval Date : 07/20/1999 Closing Date : 12/31/ /28/2009 Evaluator : Panel Reviewer : Group Manager : Group: Anna Amato John R. Eriksson IEG ICR Review 1 IEGPS1 2. Project Objectives and Components: a. Objectives: NOTE: This ICR Review is based on information available as of November Six months subsequent to the June 2010 completion of the ICR, the project experienced a major setback, with the failed installation of a marine outfall which broke up as it was being towed to the installation site. An INT investigation is currently ongoing and its results are not yet available, and so has not informed this ICR Review. According to the PAD:The project development objectives were to : (i) improve the water and sewerage services of Cartagena and the sanitary conditions of the city's poorest population, by expanding water and sewerage coverage, particularly in the city's poor neighborhoods, (ii) facilitate the environmental cleanup of water bodies surrounding the

2 city (Cartagena Bay, Caribbean beaches and Cienaga de la Virgen lake ) by providing adequate collection, treatment and disposal of the entire flow of the city's wastewater; and (iii) improve the sustainability of water and sewerage services in Cartagena by leveraging Bank support to shore up the private sector participation (PSP) model pioneered by ACUACAR (Aguas de Cartagena), the city's mixed-capital water and sanitation utility, against the prospect of political interference. The Loan Agreement (LA) objectives were similar, but were less specific. According to the LA: The objectives of the Project are to: (i) improve the water and sewerage services in the territory of the Borrower and the sanitary conditions of the Borrower s poorest population; (ii) facilitate the environmental cleanup of water bodies surrounding the territory of the Borrower (Cartagena Bay, the Caribbean beaches and the Cienaga de la Virgen lake); and (iii) improve the sustainability of water and sewerage services in the Borrower s territory through a private sector participation model. This Review will evaluate this project according to the PAD objectives, since they are more specific.. b.were the project objectives/key associated outcome targets revised during implementation? No c. Components (or Key Conditions in the case of DPLs, as appropriate): A - Expansion of the water supply system : Appraisal US$8.62 million; Actual US$13.69 million. (i) expansion and improvement of the water production system; (ii) increase of the water coverage in the city; (iii) replacement of primary distribution mains; (iv) mitigation of environmental impact of water treatment sludge; (v) installation of remote control systems; and (vi) Unaccounted For Water (UFW) reduction plan. During implementation, the loan agreement was amended to add a water supply subcomponent for poor communities in the north zone of Cartagena and to complete the wastewater collection system in the southeastern zone of Cartagena. B - Expansion of sewerage system in the Cienaga Basin : Appraisal US$30.16 million; Actual US$33.87 million. (i) enhancement of conveyance capacity of existing sewage collectors in the southwest, southeast, and central parts of the city that currently drain to the Cienaga; (ii) expansion of secondary sewerage network in the southwest, southeast, and central parts of the city, as well as the Boquilla area, that currently drain to the Cienaga; (iii) construction of new pressure lines and pumping stations; and (iv) construction of new gravity collectors in residential areas. C - Construction of the main wastewater conveyance system : Appraisal US$22.81 million; Actual US$29.86 million. (i) upgrading of the Paraiso pumping station; (ii) construction of the pipeline from Paraiso pumping station to the treatment plant site; and (iii) construction of km. effluent pipeline from the treatment plant to the submarine outfall at the Caribbean shoreline. D - Construction of the Wastewater Treatment Installations : Appraisal US$5.61 million; Actual US$15.36 million. Treatment facilities will include six rotary screens (1.5 mm clearance) followed by two vortex-type grit chambers. E - Construction of Submarine Outfall : Appraisal US$18.11 million. Actual: The team has clarified that the number in the ICR of US$17.61 million for the original outfall contract was as of June 2010, and the actual amount as of Oct is US$28.2 million, which is still subject to change pending completion of all the work. This component consists of construction of the submarine outfall for the safe discharge of the pre -treated effluent to the Caribbean sea near Punta Canoas. The main conveyance system will connect the treatment plant with the submarine outfall. Total outfall length would be 2,850 m and the discharge point (diffuser area) will be submerged at a depth of 20 m. F - Industrial Wastewater Discharge Control : Appraisal US$0.5 million; Actual US$0.23 million. (i) carrying out a survey to identify key sources of industrial pollution in the city of Cartagena; (ii) establishing a system for regulating the discharge of industrial wastes, either to the sewerage system or to receiving bodies; (iii) establishing a system for auditing the status of industrial wastes discharge; (iv) defining strategies to control small and dispersed sources of industrial pollution discharging to the sewerage networks (gasoline stations and mechanical repair shops ); and (v) providing technical assistance in selection and design of pretreatment processes. G - Environmental and Social Component : Appraisal US$2.75 million; Actual US$2.39 million. Environmental program: (i) environmental supervision during construction; (ii) restoration and conservation of the Cienaga de la Virgen nature reserve; (iii) carrying out a monitoring program before and after construction of the marine outfall to study the fate of pathogenic coliforms and other contaminants discharged through the outfall; and (iv) environmental institutional strengthening program. The social management program includes: (i) organization and strengthening of the communities; (ii) construction, rehabilitation and equipping of community centers; (iii) support to in house basic sanitation in La Boquilla; and (iv) strengthening of the Community Relations Unit of ACUACAR. During implementation, the loan agreement was amended to add an additional subcomponent : (v) a social

3 consultation and communication program. H - Project Management, Technical Assistance, Studies, Design and Supervision : Appraisal US$7.6 million; Actual US$13.84 million. (i) project management; (ii) design and supervision of the water supply systems works; (iii) design and supervision of the sewerage systems works; (iv) design of the main wastewater conveyance system, treatment installations and submarine outfall; (v) supervision of the main conveyance system works; (vi) supervision of the treatment installation and submarine outfall works; and (vi) procurement audits. There were physical and price contingencies of US$ which brought the full appraised costs to US$ million. d. Comments on Project Cost, Financing, Borrower Contribution, and Dates: The project was delayed 4.5 years due to the lengthy authorization of an environmental license for the wastewater management components, an unsuccessful bidding process that required rebidding, and an Inspection Panel investigation followed by the implementation of a Bank management action plan to respond to the Inspection Panel report. The project closed without being fully executed due to delays in completing two contracts - the land conveyance pipeline and the submarine outfall. Since another extension was not considered critical as the loan was fully disbursed, the Borrower and the Bank agreed to complete all the project works afterwards with counterpart funds. According the Region, the Bank team continued to provide supervision after the loan closed. Note that the Borrower is the District of Cartagena, with the guarantee of the Rep. of Colombia. 3. Relevance of Objectives & Design: Objectives: Environmental sustainability, improved sewerage coverage for unserved urban areas and the need for private capital for the WSS sector figured highly on the government s agenda. The District, ACUACAR, and the national government continued to demonstrate ownership after almost 10 years of this project's implementation and the passing of six district administrations.the three PDOs reflected Cartagena s essential priorities for the water and wastewater sector as identified by the District, the national government, and the CAS at the time. In 2008, the Country Partnership Strategy states that poverty eradication through the provision of basic infrastructure and public services is a country priority. Relevance of objectives is rated high. Design: Close attention was paid to the lessons learned under other projects, and the close collaboration and ownership created between the District, ACUACAR, the national government, and the Bank team. The PDOs were clear and specific, and the design generally provided a cause and effect relationship between the PDOs and their outcomes. The overall Results Framework featured a logical sequence of Intermediate Outcome Indicators leading to the PDO Indicators for the first and third objectives. However, additional indicators for the second objective of environmental clean up would have been useful. Relevance of design is rated substantial. 4. Achievement of Objectives (Efficacy): (i) improve the water and sewerage services of Cartagena and the sanitary conditions of the city's poorest population, by expanding water and sewerage coverage, particularly in the city's poor neighborhoods. All works planned in Component A to expand the water supply system were completed. From a baseline of 80 percent, there is now universal water service coverage throughout the city. The primary targets for both water supply and sewerage improvements were 80,000 people located in Cartagena's poorest neighborhoods. This target was met, and in all 272,700 people received services from the project due to inclusion of additional communities. All customers receive 24 hour water supply service from a baseline of 95 percent who received continuous water supply. From a baseline of 69 percent, the percentage of the city's population with sewerage connections increased to 86 percent. Although this is four points lower than the target of 90 percent, it is a significant increase. Prior to the project, water rationing was common and streets were often flooded with wastewater. This objective was substantially achieved. (ii ii) facilitate the environmental cleanup of water bodies surrounding the city (Cartagena Bay, Caribbean beaches and Cienaga de la Virgen lake ) by providing adequate collection, treatment and disposal of the entire flow of the city's wastewater. The accomplishment of most of the components for the achievement of this objective were overshadowed by the serious impacts of the failure of the submarine outfall installation. The outfall was the final crucial piece, and even though all the pieces leading up to the outfall (pumping system, wastewater treatment plant and conveyance system ) were completed, they cannot be put into operation until the outfall is completed. For the record, the Paraiso pumping station, km long conveyance system and the 1.6 m3/s wastewater treatment plant have been constructed and were scheduled to be put into operation upon installation of the submarine outfall. All works planned in Component B to expand the sewerage systems in the Cienaga basin were completed. The works for Component D, construction of wastewater treatment installations, are completed but not in operation. All works for Component F, control of industrial wastewater discharge were completed but are dependent on completion of the marine outfall and other

4 infrastructure. As of November 2011, this objective was negligibly achieved because the outfall has not yet been installed. (iii iii) improve the sustainability of water and sewerage services in Cartagena by leveraging Bank support to shore up the private sector participation (PSP PSP) model pioneered by ACUACAR, the city's mixed -capital water and sanitation utility, against the prospect of political interference. There were seven financial performance indicators that were tracked and four of these met or exceeded targets. The operating margin, net profit margin, current ratio and uncollectible fees all met their targets and the remaining three indicators were close. In addition, Cartagena was able to maintain this private sector participation model over six political administrations, serving as an example for other cities in Colombia. With the same amount of water ACUACAR has been able to serve more people. The project allowed ACUACAR to improve its operation and financial efficiency by allowing the company to consolidate the sector reform and establish the credibility of the mixed enterprise model adopted in Cartagena. This objective was substantially achieved. 5. Efficiency (not applicable to DPLs): On the positive side, the project's components through two of its objectives had benefits higher than expected at appraisal. The rate of return exceeded the expected rate slightly. AGUACAR's financial performance surpassed targets. ACUACAR s operations through this project brought efficiency gains in operation, in the commercial system, and water usage. Water losses were reduced, consumption per connection decreased, the customer database improved, and revenues increased. In addition, ACUACAR has met all financial obligations required in the World Bank loan agreement. The ICR included a detailed Economic Annex. However, on the negative side, the components to fulfill the second objective, which was negligibly achieved, took the largest proportion of the loan (49.7%), which brings down the efficiency rating. The main thing that lowered the ERR was the 4.5 year delay in closing the project.therefore, project efficiency is rated modest. a. If available, enter the Economic Rate of Return (ERR ERR)/Financial Rate of Return (FRR FRR) at appraisal and the re-estimated estimated value at evaluation : Rate Available? Point Value Coverage/Scope* Appraisal Yes 16% 100% ICR estimate Yes 16.9% 100% * Refers to percent of total project cost for which ERR/FRR was calculated. 6. Outcome: The efficacy of one of three objectives (accounting for almost half the loan) was negligible. Efficiency was modest and the project was extended for four and a half years. This outcome is regrettable, since two of the objectives were substantially achieved,and the relevance of the objectives was high and relevance of design was substantial. As of November 2011, the project is rated Moderately Unsatisfactory. a. Outcome Rating : Moderately Unsatisfactory 7. Rationale for Risk to Development Outcome Rating: There are a technical and an environmental risk, due to the fact that the project is not yet completed. According to the Region, ACUACAR has formally committed to complete the new outfall, and as of October 2011 has begun construction, and the Bank team is monitoring construction and installation. Once the new outfall is successfully installed, there may still be legal, institutional, political and social fallout from the after -effects of the failed installation of the first outfall. It is possible that this may put at risk the development outcomes of other project activities. a. Risk to Development Outcome Rating : Significant 8. Assessment of Bank Performance: Quality-at-Entry: There were a number of things, if attended to at entry, that could have kept the project from being 4.5 years longer than planned at appraisal. If there had been a stronger social emphasis during preparation with specific actions, such as more inclusive and extensive consultations with the affected communities and more stakeholder analysis, project opposition during implementation could have been better anticipated reduced.

5 According to page 5 of the ICR, "The Inspection Panel case presented by poor communities in the north zone of Cartagena, reflected the need for a more comprehensive social plan in this area, including a more explicit stakeholder analysis and a stronger communication strategy to dissipate doubts and create a better understanding of the Project." The risk posed by vested interests was not identified, and this led to a number of actions which delayed the project. A lengthy authorization of an environmental license and opposition from stakeholders to the selected wastewater management solution were not envisioned during appraisal, and when these events occurred they caused significant delays in project implementation. Furthermore, the Project could have benefitted from a more explicit M&E results framework (see Section 10.) Supervision: A single task manager oversaw the entire operation from project preparation to closing. This ensured continuity of dialogue and uninterrupted supervision. The task team also maintained continuous monitoring of the project and a higher level policy dialogue with national authorities. Sufficient budget and staff resources were allocated and the project was adequately supervised. The Bank team s management of the Inspection Panel investigation was adequate. The preparation of the subsequent action plan was later approved by the Bank s Board and executed by the task team. However, while the Borrower bears much of the responsibility for the procurement problems, the Bank should have exercised greater oversight of procurement and insisted on the bidding estimates being revised given years of delay. The Bank should also have better advised the Borrower about the risk posed by vested interest groups during supervision -- one of the lessons drawn by the ICR, page 23, is that "a comprehensive communication strategy, to create a better understanding of the project and dissipate erroneous information, and promised activities that benefit the affected population should be conducted at an early stage during project implementation." a. Ensuring Quality -at at-entry Entry:Moderately Unsatisfactory b. Quality of Supervision :Moderately Satisfactory c. Overall Bank Performance :Moderately Unsatisfactory 9. Assessment of Borrower Performance: Government: There was strong commitment to the project during preparation. The national government performance is considered satisfactory. In particular the Department of National Planning and the Ministry of Finance remained strongly committed to the Project. This was especially important to ensure that the District honored its agreement during the last loan amendment to complete the works with counterpart funding. However, local commitment ebbed and flowed during implementation due to successive changes in administration. For example, they did not finance the north zone water and sewerage project as indicated in the Loan Agreement and decreased support to the urban rehabilitation and community development programs, two important social activities to mitigate the objection to the outfall construction. The local government performance is considered moderately satisfactory. Implementing Agency: It should be noted that this loan was actually made to Water District of Cartagena, and implemented by ACUACAR. This public/private utility demonstrated commitment to fulfilling the PDO and provided adequate internal staff and resources to ensure success despite the numerous challenges experienced during implementation. It complied with all Bank loan covenants and progress reports. In addition, ACUACAR provided technical input and support for the Bank team during the Inspection Panel process and provided additional financial and human resources to implement the Management Action Plan. Furthermore, ACUACAR has taken responsibility for the construction of a new outfall to complete the project which is commendable. However, there were significant procurement challenges throughout implementation,resulting in the 4.5 year delay. ACUACAR bears much of the responsibility for the bidding estimates not being revised despite years of delay, and the insufficient attention to more accurately identifying the risks posed by vested interest groups and to mitigating them. a. Government Performance :Moderately Satisfactory b. Implementing Agency Performance :Moderately Unsatisfactory c. Overall Borrower Performance :Moderately Unsatisfactory 10. M&E Design, Implementation, & Utilization: Design: Overall, the 29 indicators in the framework were specific in terms of quantity, quality and time, except in the

6 case of two outcome indicators associated with the first PDO, namely : (i) evacuation of wastewater in open channels on the street; and (ii) discharge of wastewater to the Cienaga through the storm drainage system, as these both lacked specificity in terms of data measurement. At the output level, the results framework did not include specific indicators for the industrial wastewater discharge control and environmental and social components even though, on a smaller scale, they also contributed to the PDO. Implementation: To simplify reporting of the PDO indicators, the Project Team only reported three main indicators in the Implementation Status Reports (ISR): (i) water coverage; (ii) sewerage coverage; and (iii) continuity of water supply service. Although these indicators were appropriate, they focused mostly on the first PDO (improve WSS services) and the ISR indicators do not directly address the second and third PDOs : environmental clean-up and sustainability. Utilization: M&E information was used to provide feedback to ACUACAR, the District, and other agencies on issues pertaining to project implementation and sector performance. The Bank team also used the M&E information to report progress and support decision -making. Furthermore, service quality indicators played a key role in enhancing ACUACAR s internal transparency and responsiveness. a. M&E Quality Rating : Modest 11. Other Issues (Safeguards, Fiduciary, Unintended Positive and Negative Impacts): Fiduciary: The Institutional Integrity Department (INT) and Colombian authorities are investigating the contract and procurement issues surrounding failure of the outfall installation. Inspection Panel: In April 2004, the Inspection Panel received a request from a Colombian NGO on behalf of residents in the north zone of the city. The requesters claimed that they had been harmed and were likely to suffer further harm from the construction of the km pipeline and submarine outfall that would carry untreated wastewater from the city and discharge it into the Caribbean Sea at a point about 2.5 km from the north zone communities. In June 2005, the Panel submitted a report to the Board with findings on environmental, indigenous peoples and public consultation issues. The next month, Management submitted its response, including an Action Plan, which was approved by the board in November A year later, a report documenting the implementation of this Action Plan showed: 3D modeling resulted in a slight change in the route of the outfall to further reduce the risk of the pipeline being ruptured or disturbed by diapirism (mud volcanism). The results of the updated economic analysis showed that even with the additional investment, but considering the decreasing land values, the outfall remained the lowest cost alternative. The completion of a program to provide direct water supply and sanitation benefits to the population affected as well as a community center and nursery. Improved communication and outreach activities, which helped to dissipate doubts and create a better understanding among stakeholders improving project acceptance A program to mitigate the impacts on the fishing community was successfully implemented. It included a study of fishing activities, setting up an association for the fishermen, training and purchase of equipment and boats. It appears that adequate measures were taken and completed in accordance with the Inspection Panel's mandate. Environmental: The Project was classified as a Category A. A comprehensive environmental assessment (EA) and environmental management plan (EMP) were developed during preparation, reviewed by an international panel of experts, and consulted with the public following Bank policies. The EMP was implemented satisfactorily with close supervision from Bank staff and CARDIQUE (Regional environmental authority in Cartagena ), according to the ICR. Resettlement: Although resettlement activities were not expected during project preparation, the involuntary resettlement policy was triggered when 37 families informally settled on District property on the planned route of the onshore pressure pipeline, near the Paraiso pumping station, between 2000 and Consequently, CORVIVIENDA (Fondo de Vivenda de Interest Social y Reforma Urban del Distrito de Cartagena ), in collaboration with ACUACAR and Bank social specialists, prepared and implemented a Resettlement Plan that included the resettlement of 24 eligible families. According the ICR, page 11, "The compensation package included land tenure and housing with basic services for each family; transition period support; and development assistance, including workshops on hygiene and sanitary conditions in the community and job training. The Resettlement Plan followed Bank policies and received highly satisfactory marks in the ISR for the way this was handled." Although the ICR doesn't discuss the adequacy of this compensation, it cites a recent ex -post evaluation,in which the resettled families expressed high levels of satisfaction with their new housing and standard of living compared to what they had before. Reason for

7 12. Ratings: Risk to Development Outcome: Outcome: Satisfactory Bank Performance : Satisfactory Borrower Performance : Satisfactory Quality of ICR : ICR IEG Review Moderately Unsatisfactory Disagreement /Comments With efficacy of one of three objectives (accounting for almost half the loan) being negligible and efficiency being modest, the project cannot be considered satisfactory as of November The outfall has not yet been installed and it was the final crucial piece. Even though all the pieces leading up to the outfall were completed, they cannot be put into operation until the outfall is completed. This outcome is regrettable, since two of the objectives were substantially achieved, and the relevance of the objectives was high. See Sections 3-5. Moderate Significant The significant risk is due to the importance of the outfall to the success of this project and that it is not yet successfully installed, as well as ramifications from the first failed installation attempt. See Section 7. Moderately Unsatisfactory Moderately Unsatisfactory Satisfactory NOTES: - When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate. There were a number of things, if attended to at entry, which could have kept the project from being 4.5 years longer than planned at appraisal. If there had been a stronger social emphasis during preparation with specific actions, such as more inclusive and extensive consultations with the affected communities and stakeholder analysis, project opposition during implementation could have been reduced. Furthermore, the Project could have benefitted from a more explicit M&E results framework. During supervision, the Bank should have exercised greater oversight of procurement in the project and insisted on bidding estimates being revised given years of delay. See Section 8. There were significant procurement challenges throughout implementation, resulting in a 4.5 year delay. ACUACAR bears much of the responsibility for the bidding estimates not being revised despite years of delay, and the insufficient attention to identifying the risks posed by vested interests and to mitigating them. See Section 9.

8 13. Lessons: 1. Long term bank involvement in the water sector can nurture institutional reforms : The Bank's continued support of ACUACAR was instrumental to consolidating the sector reforms initiated in Cartagena under a previous Bank operation, and to establishing the needed credibility of the mixed enterprise model. ACUACAR s positive experience has served as a model for the transformation of the water sector at a national level. 2. Large wastewater projects should not underestimate the risk of delays from social, environmental and political factors and set realistic project durations. Even through the project was well-prepared technically, implementation took over a decade due to complications in obtaining the environmental license, local opposition to the outfall solution, and the Inspection Panel case (as well as procurement delays). The average life of Category A WSS project in the LAC region is estimated at 8.4 years, and this project was appraised to take 5.5 years. 3. Social assessment and consultation are key to successful infrastructure projects near areas with large populations. A comprehensive communication strategy would have created a better understanding of the project and dissipated erroneous information. Complex projects should include stakeholder and political analysis during project preparation to help identify project champions and those in opposition, understand personal interests, and anticipate probable reactions. Promised activities that benefit the affected population should be conducted at an early stage during project implementation. 4. Private sector participation in the water sector can be pro -poor poor. Not only the affluent sections of the city but also the poor neighborhoods are receiving good service. The resources for expanding coverage in poor areas were generated mainly from efficiency improvements and subsidies, with only minor increases in tariffs. 5. For large complex wastewater projects it is important to make the necessary up -front investments in planning and design and to include a panel of experts. The careful attention to technical considerations during project preparations with in-depth engineering studies and technical consultations with experts was instrumental in successfully working through the environmental licensing and inspection panel processes. 14. Assessment Recommended? Yes No Why? To verify the ratings and document lessons learned. To assess the extent of outcomes achieved, whether the submarine outfall is satisfactorily completed and ACUACAR's performance. 15. Comments on Quality of ICR: The ICR discussed the results of the project, and provided an economic analysis and a review of the inspection panel process. The problems in the project and their eventual resolution were described objectively and completely. However, the Risk To Development Outcome section was slightly confusing and the reasons for the Moderate rating as given were not clear. a.quality of ICR Rating : Satisfactory