Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-37630) ON A CREDIT

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-37630) ON A CREDIT IN THE AMOUNT OF SDR 8.8 MILLION, US$12 MILLION EQUIVALENT TO THE REPUBLIC OF MOLDOVA FOR A PILOT WATER SUPPLY AND SANITATION PROJECT December 23, 2008 Sustainable Development Department Ukraine, Belarus and Moldova Country Department Europe and Central Asia Region Report No: ICR This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURRENCY EQUIVALENTS (Exchange Rate Effective December 15, 2008) Currency Unit = Moldova Lei MDL 1.00 = US$0.096 US$1.00 = MDL FISCAL YEAR January 1 -- December 31 ABBREVIATIONS AND ACRONYMS ACTD CAS DANCEE DCA DEPA EECCA EGPRS EMMP FY GDP ICR IDA IFRS KFAED M&E MAC MDGs MDL MECTD MoENR MoET MoF MoHSP N.A. NBF NEAP NGOs NO Agency for Construction and Territorial Development (ex-agency for Regional Development until June 2006)) Country Assistance Strategy Danish Cooperation for Environment in Eastern Europe Development Credit Agreement Danish Environmental Protection Agency Countries from Eastern Europe, Caucasus and Central Asia Moldova s Economic Growth and Poverty Reduction Strategy Environmental Mitigation Measures Plan Fiscal Year Gross Domestic Product Implementation Completion Results Report International Development Association International Financial Reporting Standards Kuwait Fund for Arab Economical Development Monitoring and Evaluation Moldova Apa Canal Association Millennium Development Goals Moldovan lei (local currency) Ministry of Environmental, Construction and Territorial Development Ministry of Ecology and Natural Resources Ministry of Economy and Trade Ministry of Finance Ministry of Health and Social Protection Not applicable or not available Not Bank financed National Environment Action Plan Non-Governmental Organizations No-objection

3 OECD PAD PDO PIP PIU PP PWSSP QAG QEA QSA RFP RR SAC III SDC TA TD UNECE UNEP WHO WSS Organization for Economic Co-operation and Development Project Appraisal Document Project Development Objective Project Implementation Plan Project Implementation Unit Procurement Plan Moldova Pilot Water Supply and Sanitation Project Quality Assessment Group Quality at Entry Quality of Supervision Request for Proposals Rate of Return Structural Adjustment Credit III Swedish Agency for Development and Cooperation Technical Assistance Tender Documents United Nations Economic Commission for Europe United Nations Environment Programme World Health Organization Water Supply and Sanitation Vice President: Shigeo Katsu, ECAVP Country Director: Martin Raiser, ECCU2 Sector Manager: Wael Zakout, ECCSD ICR Team Leader: Takao Ikegami, ECCSD

4 REPUBLIC OF MOLDOVA PILOT WATER SUPPLY AND SANITATION PROJECT CONTENTS Data Sheet A. Basic Information... i B. Key Dates...i C. Ratings Summary... i D. Sector and Theme Codes... ii E. Bank Staff... ii F. Results Framework Analysis... ii 1. Project Context, Development Objectives and Design Context at Appraisal Original Project Development Objectives (PDO) and Key Indicators Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The project development objectives were not modified Main Beneficiaries Original Components (as approved) Revised Components Key Factors Affecting Implementation and Outcomes Project Preparation, Design and Quality at Entry Implementation Monitoring and Evaluation (M&E) Design, Implementation and Utilization Safeguard and Fiduciary Compliance Post-completion Operation/Next Phase Assessment of Outcomes Relevance of Objectives, Design and Implementation Achievement of Project Development Objectives Efficiency Justification of Overall Outcome Rating Overarching Themes, Other Outcomes and Impacts Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Assessment of Risk to Development Outcome Assessment of Bank and Borrower Performance Bank Performance Borrower Performance Lessons Learned Comments on Issues Raised by Borrower/Implementing Agencies/Partners ANNEXES MAP : IBRD 36574

5 A. Basic Information REPUBLIC OF MOLDOVA PILOT WATER SUPPLY AND SANITATION PROJECT Country: Moldova Project Name: Pilot Water Supply & Sanitation Project Project ID: P L/C/TF Number(s): IDA ICR Date: 12/18/2008 ICR Type: Core ICR Lending Instrument: SIL Borrower: REPUBLIC OF MOLDOVA Original Total Commitment: XDR 8.8M Disbursed Amount: XDR 8.8M Environmental Category: B Implementing Agencies: Agency for Construction and Territorial Development/Apele Moldovei Cofinanciers and Other External Partners: B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 01/24/2002 Effectiveness: 04/08/ /08/2003 Appraisal: 03/25/2002 Restructuring(s): Approval: 05/30/2002 Mid-term Review: 07/24/ /24/2006 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Risk to Development Outcome: Bank Performance: Borrower Performance: Closing: 12/31/ /30/2008 Satisfactory Moderate Satisfactory Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory Overall Bank Performance: Satisfactory Overall Borrower Performance: Satisfactory i

6 C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Performance (if any) Potential Problem Project Yes at any time (Yes/No): Problem Project at any time (Yes/No): DO rating before Closing/Inactive status: No Satisfactory Quality at Entry (QEA): Quality of Supervision (QSA): N.A. N.A. Rating D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Sanitation Water supply Theme Code (Primary/Secondary) Access to urban services and housing Primary Primary Other financial and private sector development Secondary Secondary Other urban development Primary Primary Pollution management and environmental health Secondary Secondary E. Bank Staff Positions At ICR At Approval Vice President: Shigeo Katsu Johannes Linn Country Director: Martin Raiser Luca Barbone Sector Manager: Wael Zakout Motoo Konishi Project Team Leader: Takao Ikegami Seema Manghee ICR Team Leader: ICR Primary Author: Takao Ikegami Klas Ringskog F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) To enhance the welfare of the population living in some of the poorest rural areas and medium-sized towns and cities by improving the quality, efficiency and sustainability of water supply and sanitation services as outlined in the Government s National Action Plan. ii

7 Revised Project Development Objectives (as approved by original approving authority) (a) PDO Indicator(s) Indicator Indicator 1 : Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years Quality of Service: Percentage of microbiological water quality samples meeting target values: Value quantitative or Qualitative) Cahul 98.5; Orhei 99.8; Soroca 99.91; Stefan Voda 97.5; Balti 98 N.A. N.A. Cahul 100; Orhei 100; Soroca 99.8; 100; Balti 99.1 Date achieved 12/31/ /30/2008 Comments The improvement in bacteriological quality is due in part to the increased (incl. % constancy of supply which prevents polluted groundwater from infiltrating the achievement) periodically empty pipe. Indicator 2 : Value quantitative or Qualitative) Quality of Service: Hours a day of water service under pressure (Continuity) Cahul 13; Orhei Cahul 24; Orhei 24: 10; Soroca 24; N.A. N.A. Soroca 24; Stefan 4; Voda 19; Balti 24 Balti 24 Date achieved 12/31/ /30/2008 Comments The constancy of supply in four out five towns greatly improves the convenience (incl. % of service to consumers as well as prevents infiltration of polluted groundwater achievement) into the periodically empty pipe. Indicator 3 : Value quantitative or Qualitative) Efficiency of Service: Energy consumption in kwh per m3 of water supplied: Cahul 1.51; Orhei Cahul 2.53; Orhei 1.8; 1.87; Soroca 0.0; Soroca 2.04; N.A N.A. 8.2; Balti ; Balti 2.84 Date achieved 12/31/ /30/2008 Comments The replacement of oversized and worn electro-mechanical equipment has (incl. % reduced substantially energy consumption per m3 supplied. achievement) Indicator 4 : Efficiency of Service: Non-revenue water (%) Value quantitative or Qualitative) Cahul 35; Orhei 60; Soroca 80; N.A. 70; Balti 58 N.A. Cahul 34; Orhei 44; Soroca 68; 43; Balti 48 Date achieved 12/31/ /30/2008 Comments The NRW decreases confirm the experience elsewhere in the world that iii

8 Indicator Baseline Value Original Target Values (from approval documents) Formally Revised Target Values Actual Value Achieved at Completion or Target Years (incl. % considerable time is required to reduce non-revenue water. The observed achievement) decreases under the project are reasonable, considering they happened in the course of 6 years. Indicator 5: Sustainability of Service: Collections as percentage of billings (%) Value quantitative or Qualitative) Cahul 95; Orhei 111; Soroca 98; 89; Balti 108 N.A. N.A. Cahul 90; Orhei 97; Soroca 82; 103; Balti 91 Date achieved 12/31/2002 6/30/2008 Comments High collection rates are due to collection of overdue accounts receivable for all (incl. % towns achievement) Sustainability of Service: The inverse of (Cash Operating Revenue as a Indicator 6: Value quantitative or Qualitative) percentage of cash operating expenditure plus debt service) Cahul 109%; Orhei 100%; Soroca 125%; Stefan-Voda 116%; Balti 106% N.A. `N.A. Cahul 75%; Orhei 77%; Soroca 81%; Stefan-Voda 71%; Balti 85% Date achieved 12/31/2004 6/30/2008 Comments The town utilities all report decreasing ratios of (cash operating expenditure plus (incl. % debt service) divided by cash operating revenue which means that the operating achievement) cash flow is positive. The covenanted ratio of 90% is met in all apa-canals. G. Ratings of Project Performance in ISRs No. Date ISR Archived DO IP Actual Disbursements (USD millions) 1 06/27/2003 Satisfactory Satisfactory /14/2003 Satisfactory Satisfactory /25/2004 Satisfactory Satisfactory /08/2004 Satisfactory Satisfactory /08/2005 Satisfactory Satisfactory /02/2006 Satisfactory Satisfactory /19/2006 Satisfactory Satisfactory /17/2006 Satisfactory Satisfactory /06/2007 Satisfactory Satisfactory /30/2008 Satisfactory Satisfactory /07/2008 Satisfactory Satisfactory H. Restructuring (if any) Not Applicable iv

9 I. Disbursement Profile v

10 REPUBLIC OF MOLDOVA PILOT WATER SUPPLY AND SANITATION PROJECT 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal 1. The Republic of Moldova is a small, landlocked country situated between the western border of Ukraine and the eastern border of Romania. The population of 3.8 million is decreasing and is predominantly rural with 59% of the population living in towns and communities of fewer than 10,000 people. Approximately 80% of urban residents are connected to centralized water supply networks and 63% to sewerage. Few of the existing wastewater treatment facilities operate in such a way as to meet standards and many are abandoned because of the difficulties in paying for the operating costs and for lack of maintenance. Studies show that about 10% of samples from urban water supplies are contaminated with coliforms. The Government s Strategy in the Water Supply and Sanitation Sector 2. The Government is cognizant of the deficient service coverage and quality, and of the inefficient, unnecessarily costly services and has consistently assigned high priority to remedying the sector deficiencies. To this end the Government approved the Program of Water Supply and Sewerage in Communities of the Republic of Moldova until 2015 (Government Decision No of December 30, The Government has assigned the responsibility for the implementation of its Strategy to Agency for Construction and Territorial Development, then Apele Moldovei (AM). AM is in charge of both water resources management and of heading the drive to improve the coverage and quality of urban and rural water supplies and wastewater systems, which was established pursuant to Government Decree No. 904, dated August 09, Small and medium sized water and wastewater systems are operated by the semi-autonomous Apa Canals, which are responsible to their respective local governments and are represented at the national level by the Moldova Apa Canal Association (MAC). Other stakeholders are represented through the more than 100 national environmental NGOs that are officially registered in Moldova. 1.2 Original Project Development Objectives (PDO) and Key Indicators 4. The project development objective is to enhance the welfare of the population living in some of the poorest rural areas and medium-sized towns and cities by improving the quality, efficiency and sustainability of water supply and sanitation services as outlined in the Government's National Water Action Plan. The project would achieve this objective by: (i) rehabilitating and improving operations of selected water and sewerage systems to increase service quality and efficiency; (ii) strengthening selected Apa Canals (water utilities) to improve their operational and financial sustainability; (iii) piloting the involvement of the local private sector in the above; and (iv) rehabilitating water and sanitation services in targeted rural areas. The relevant key outcome indicators were selected to measure progress towards each of the dimensions of the PDOs: 1

11 Quality of Service: Percentage of water samples testing negative for pathogens (Indicator 1); and Continuity in hours of service under pressure (in hours per day) (Indicator 2). Efficiency of Services: Energy use per m3 of water supplied (Indicator 3); Unaccounted-for-water (indicator 4); Sustainability of Service: Collections as a percentage of billings (Indicator 5); and Cash operating revenue in percent of cash operating expenditure plus debt service (Indicator 6); 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification. The project development objectives were not revised. 1.4 Main Beneficiaries Beneficiaries: - the 5 utilities and their staff in the 5 targeted areas (Orhei, Cahul,, Soroca, Balti 1 ) and the municipalities as the sole owners of the Apa Canals from 2000, and the inhabitants of the Corjova village, within the Rural component; - more than 200,000 persons inhabitants of the PWSSP targeted areas are benefiting from better quality water and more reliable water supply and sanitation services. 1.5 Original Components (as approved) Component A. Investments for Improved Urban and Sanitation Services Table 1: The Project Financed Five Components Indicative Costs % of (US$M) Total Bankfinancing (US$M) % of Bankfinancing B. Village Water Supply C. Institutional Strengthening D. Engineering Services/Engineers/Technical Advisor E. Project Implementation Unit (PIU) F. Unallocated Total Project Costs Total Financing Required Approximately 3.7 million US $ from the total IDA Credit remained unallocated and it was agreed in 2005 that these funds would be used for one more utility, the Balti Apa Canal. The Subsidiary Credit Agreement was signed in January

12 Component A: Investments for Improved Urban Water Efficiency Least-cost priority investments that are economically justified based on a broad investment strategy for system improvement and lowering energy and other operating costs (e.g., leak detection and repair, network rehabilitation, pressure zoning and equipment for operations.); and Technical Engineers/Advisors would be hired under Component D to assist METD and Apa Canals to conduct additional measurements and analysis and identify further least-cost priority investments. Component B: Village Water Supply Urgent water and sanitation improvements; organization and staffing of community waterworks to operate and maintain the improved systems; implementation of cost recovery procedures to cover at a minimum system operation and maintenance; and training for the newly formed waterworks and where applicable, protection of shallow wells; a National Hygiene and Sanitation Promotion Campaign; and development of community groups under the rural development components focusing on the poorest areas and economically disadvantaged segments of the population identified by the Social Assessment. Component C: Institutional Strengthening Institutional strengthening and capacity building program under the National Water Action Plan; financial improvements and upgrading of equipment and materials; technical assistance with the Financial Action Plan; training of Apa Canal personnel based on a needs assessment to be prepared by the Apa Canals; and assessment and piloting of potential options to facilitate the involvement of local private sector operators in the sector; drafting of legislation. Component D: Engineering Services/Technical Engineers/Advisors Assistance to Apa Canals in the planning, design and implementation of investment programs; engineering services for the preparation of final designs and bidding documents; and technical advisors/assistance with procurement and supervision of construction for investments. Component E: Project Implementation Unit This component would assist with implementation of the project, salaries, operating expenditures related expenses and audits to ensure that the Bank's procurement guidelines are observed. 1.6 Revised Components 5. There were no revisions to the components although actual costs turned out somewhat different from the appraised amounts due to the following reallocations requested to be made between the project categories: Approximately US$ 3.7 million from the total IDA Credit remained unallocated and it was agreed along with the implementing agency to use these funds for one more water utility. Balti Water Utility was identified and selected in The Subsidiary Credit Agreement between the Balti Water Utility and Ministry of Finance was signed on January 31, 2006 in the amount of US$ 3 million for rehabilitating and improving operations of the selected water system. 3

13 The project includes a village component to address the contamination of water and other urgent infrastructure problems of villages and small towns. A list of villages to be included in the rural component was developed and Corjova village, Criuleni district was selected.the project matched this contribution with US$100,000 from the credit for the costs of pipes, pumps and related system requirements. The first request to amend the Schedule 1 of the Development Credit Agreement was to finance procurement of goods, works and services out of the proceeds of the signed Subsidiary Credit Agreement with Balti Water Utility and implementation of the rural component in Corjova village. The second request to amend the Development Credit Agreement was to use the unallocated funds to finance feasibility studies for sub-projects that formed the core of a second small town and rural water supply and sanitation project (NWSSP). For this purpose, the Schedule 1 to Development Credit Agreement has been amended by reallocating an amount of US$ 450,000 from Category (5) Unallocated to Category (3) Consultant s services, including auditing services, and training. 1.7 Other significant changes 6. There were no significant changes in project scope and implementation arrangements except that the loan closed 6 months after the original closing date. The extension was justified by the need to finance the preparation of feasibility studies for the 60 villages identified for the rural water supply component under the National Water Supply and Sanitation Project (NWSSP) from the PWSSP cost savings amounting to US$ 0.2 million. Table 2 below compares the final against the originally estimated project costs for the Bank-financed components: Table 2: Actual Project Component Costs as of June 30, 2008 (in US$ million) Component Original Bank financing Final Bank financing Final as a percent of original Bank financing, % A. Investments for Improved Urban and % Sanitation Services B. Village Water Supply % C. Institutional Strengthening % D. Engineering Services/Engineers/Technical Advisor % E. Project Implementation Unit (PIU) % F. Unallocated Total % The total project cost increased by 10% due to the appreciation of the SDR against the US$. 4

14 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 7. The Water Supply and Sanitation project was the Bank's first operation in this sector in Moldova. A major factor that influenced project design was the lessons learnt from previous Bankfunded projects: (a) Lessons learnt from the kinds of service contracts patterned on similar contracts used in Santiago de Chile and in Lima, Peru since the early 1980s and the mid-1990s, respectively. The sample contracts from these two cities were adapted for the smaller size and for local conditions in Moldova. (b) Creating client ownership at all levels of Government by preparing the project in close collaboration and implementation with the local stakeholders. ; (c) Setting realistic and prudent efficiency improvement targets, including as a basis for sound financial projections. During project preparation, a Financial Action Plan was agreed upon and monitored bi-annually; (d) Establishing a sound institutional framework to ensure that the project is sustainable in this regard; and (e) Ensuring implementation readiness to avoid potential delays in the project after effectiveness. Bid documents were prepared early so that the first-year investments could be executed immediately after effectiveness. 8. The successful incorporation of these factors in the project design helped to ensure satisfactory quality at entry for this project. No formal QAG review took place. 2.2 Implementation 9. The PWSSP was implemented by the PIU which was created with the specific task of implementing the project during under the overall responsibility of Agency for Construction and Territorial Development. PIU was transferred intact from the Agency of Construction and Territorial Development (ACTD) to Agency Apele Moldovei (AM) on December 14, There were no significant factors affecting implementation and outcomes. In 2006 one final covenant was rated not complied with for a short time. Other than this, at no time was the project at risk; neither was there any major restructuring of the project. 11. Implementation was initially somewhat slow because the MoF only signed one Subsidiary Credit Agreement (SCA) to let the project become effective but then insisted that Action Plans be prepared for each remaining utility before letting them sign the SCAs. Given that most of the utilities have limited neither capacity nor computers at that time, it took a couple of months to complete the Plans with USAID's technical assistance. All SCAs were signed by April Based on the analysis of the historical performances and considering the macroeconomic scenario envisaged by the authorities, a financial forecast for the period of the loan was prepared and different scenarios as part of a detailed sensitivity analysis were performed for Cahul, Orhei, Soroca and water and wastewater utilities. 5

15 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 12. The monitoring of the implementation of the Pilot Water Supply and Sanitation Project was undertaken by the Project Implementation Unit (PIU), which started as a separate legal entity reporting to the Agency of Environment and Territory Development and subsequently moved to the Agency Apele Moldovei. 13. The monitoring and evaluation arrangements were contained in the Annex of the Supplemental Letter No. 2 to the Project Agreement. Each Bank supervision mission tracked progress towards the performance indicators and, based on trends as compared to target compliance, requested corrective action from the PIU and Apa Canals. A total of 15 performance indicators were selected to track progress towards meeting the Project objective of improving the operation and management of the water supply and wastewater systems in the beneficiary towns. (Schedule 2 of the Loan Agreement). The evolution of the performance indicators was analyzed in connection with the evaluation of the Project outcome. The performance indicators were utilized by each successive Bank supervision mission. 2.4 Safeguard and Fiduciary Compliance 14. The PIU was responsible for ensuring safeguard and fiduciary compliance. 15. The project was classified as an environmental category B and its proposed investments triggered the World Bank Policies OP/BP 4.01 on Environmental Assessment and the OP/BP 7.50 on Projects on International Waterways. 16. The environmental assessment applied although the project comprised only rehabilitation. Nevertheless, an Environmental Impact Assessment and Environmental Management Plan were prepared and a public hearing and consultation process were successfully conducted in Cahul on November 14, 2002; Orhei on November 14, 2002; Soroca on November 17, The EMP was sent to the Infoshop on November 14, Operational Policy 7.50 applied since the projects sites are such as the cities of Cahul, Orhei and Soroca are located on international waterways. All relevant procedures in this regard were followed to comply with OP Post-completion Operation/Next Phase 18. For the post-completion phase, the PWSSP funded a feasibility study to provide a good technical basis for the selection of priority investments to be financed by the next IDA Projects and by other interested external financing agencies. Based on feasibility studies, Agency Apele Moldovei proposed 7 towns to be included into the next IDA operation (Balti, Cahul, Causeni, Soroca, Orhei, Ungheni and Floresti). PIU worked with Apele Moldovei and local authorities on identifying the priority investments to be financed under the NWSSP during The annual level of financing from the NWSSP meets merely a minute share of the annual sector investment needs that have been estimated as US$65 million under the Government s own strategy contained in the document On approval of the Strategy for water supply and sewerage of the localities of the Republic of Moldova. (Decree No. 662 of June 13, 2007). The Bank and 6

16 Agency Apele Moldovei has continued its effort to secure more external financing for the unmet sector investment needs. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation 20. The sector-related CAS Goal of the Moldova PWSSP resulted from the necessity to address the institutional strengthening and financial viability in Apa Canals. Through these instruments it was felt that issues of priority in the CAS such as (a) Poverty alleviation; (b) Macro-stability and economical growth; (c) Private sector development, and (d) Public sector reform would also be addressed. 21. The summarized data, on the basis of assessing the measure in which the sector-related CASgoal was achieved, on the basis of intermediate outcome performance indicators, is systematized in the Table 3 below: 7

17 Table 3 Projected CAS goal and outcome level indicators Average 16 hours of supply per day in pilot areas O&M costs (including depreciation) covered by operating revenues. Collection ratio to exceed 80% Use regular water quality monitoring & reporting from the Ministry of Health and Social Protection (MoHSP) for benchmarking. Intermediate indicators (implementation towards expected CAS outcomes) Average 12 hours of supply per day in pilot areas Cash O&M of water utilities covered by cash operating revenues. Collection ratio to exceed 65% Water tariffs adjusted automatically for annual inflation. How does Moldova PWSS Project support achievement of the CAS outcome or intermediate indicator The project development objective is to enhance the welfare of the population living in rural areas and medium-sized towns by improving access to safe WSS services. The project is rehabilitating and improving operations of selected water systems; had strengthened the financial and technical capacity by procuring necessary equipment and programs thus reducing the operating costs. The investments will result in the reduction of energy cost, water losses and financial viability of the utilities. - A study to determine options for credit repayment and sustainable development of water utilities has been carried out with a view to identify possible sources of covering the future financing gap. The PIU organized meetings and presented the conclusions of this study to the representatives of local authorities. - It was recommended to moderately increase the tariff which will put a relatively medium pressure on the customers. Based on the report, 8 Actual Status Average hours of supply per day in 4 pilot areas: Cahul: 24 hrs/day Stefan-Voda: 19 hrs/day Orhei: 24 hrs/day Soroca: 24 hrs/day Balti: 24 hrs/day The total operating result of the utilities was negative during the first years of project implementation mainly due to the important decrease of invoiced quantities. The decrease of water delivered to inhabitants was mainly the result of metering. The level of metering is relatively high (app.90%). The evolution of water production delivered to companies and institutions is the result of these entities poor economic situation. Because the level of tariff for institutions (both state and private) is significantly higher than for domestic customers, these entities have the tendency to find water from other sources (have their own sources) and to pay only sewerage services to the utility. The installation of pumps in Cahul, Orhei, Soroca and Stefan-Voda has significantly contributed to energy savings (about 30%), raising efficiency etc. Taking into consideration the Quote from the Legal Agreement art each Participating Apa Canal shall maintain in the fiscal year ending on December 31, 2006, a ratio of total operating expenses to total operating revenues not higher than 100%, decreasing to 90% by the fiscal year ending on December 31, 2007, Apa Canals met the Financial Covenants of the LA upon project completion: Cahul 75% (profit); Orhei 77,3% (profit); Soroca 81% (profit); Stefan-Voda 71% (profit); Balti 85% (profit). Average collection ratio exceeds 92.66%: Cahul: 90.20% Stefan-Voda: % Orhei: 96.91% Soroca: 81.80% Bălţi: 91,40% (including historical debts) - The operational performance of the utilities for the last 5 years reflects both evolutions of physical production and tariff adjustments. The water utility can not control the tariff adjustment process (this is the prerogative of the Local Council); the utility

18 Projected CAS goal and outcome level indicators Intermediate indicators (implementation towards expected CAS outcomes) Establish regular water quality monitoring & reporting by MoHSP Hygiene campaign for rural areas. How does Moldova PWSS Project support achievement of the CAS outcome or intermediate indicator the utilities developed an appropriate tariff adjustment strategy and measures were taken to improve their operating result. The Scientific-Practical Centre of Preventive Medicine by the MoHSP is annually performing water analysis. The project will provide the rehabilitation of the water systems in one village. Actual Status can only propose tariff increase based on cost increase, but the final decision is taken by the Local Council. Tariffs are annually coordinated with the responsible agency for the sector and selectively approved by the Local Council. The percentage of microbiological water quality samples are meeting target values. A water hygiene and sanitation information program has been carried out as an integral part of the rural component. The Government of Moldova is interested in organizing, in cooperation with the WB, an intensive PR campaign for raising public awareness and support towards the importance of sector issues solving and regarding the results of the PWSSP implementation. 9

19 3.2 Achievement of Project Development Objectives 22. The established project development objective was to enhance the welfare of the population living in the project towns. The project achieved this objective as shown in Annex 3 that tracks targets and outcome of the key performance indicators. Thus, of the DO - to enhance the welfare of the population living in some of the poorest rural areas and medium-sized towns and cities by improving the quality, efficiency and sustainability of water supply and sanitation services. - the project: Did improve the quality of service with a constancy of 24 hours per day in 4 towns and 19 hours in compared to 2 hours over the preceding 15 years; Did improve the bacteriological quality of supplied water to 99.8% of negative microbiological water quality samples, as compared to 98.7% in 2002; Did increase consumption levels to 57 liters per capita and day (lcd) from 37 lcd;. Did decrease physical losses from avg. 25 to 17 m3/km/day and non-revenue water from avg. 61% to 47%. The overly optimistic end-of-project target indicator values were not achieved. Even so the average decrease of NRW for 14% must still be considered successful since the increase in service hours and in service pressure would ordinarily increase leakage (that is directly proportional to the number of service hours and to service pressure which both rose in the course of the project); Did decrease the specific energy consumption of 4 towns from an (unweighted) average 4.2 kwh to 2.2 kwh per m3 of water supplied (Soroca is excluded due to the change of water source currently Soroca Apa-Canal doesn t produce water and buys it from stateowned utility Acva-Nord). In addition, it is relevant to consider the efficacy of the project, i.e. to what degree the planned physical investments did take place. This is detailed in Annex 2 and is summarized below: 1. Water Investments Some 118 km of water supply pipelines were replaced versus the planned 60 km. 17 pumping stations were rehabilitated versus the planned deep wells versus the planned network flushers, 3 excavators, 4 mobile workshops, 4 vacuum tankers, 1 water carrier truck, 1 mobile crane, 1 workers transportation vehicle were purchased for emergency repairs and maintenance. 2. Wastewater Investments A total of 11.6 km of sewerage network were rehabilitated in Cahul and Orhei 1 pumping station, 1 potable water rezervoir, 1 chlorination plant and WWTP were rehabilitated under Pilot WSSP. 3. Institutional Strengthening A number of study tours for Apa Canals staff were organized to utilities in Sweden, Finland, and Estonia; An Accounting and Client Information Software was purchased and commissioned; 10

20 A number of Financial, Procurement and Technical Workshops were carried out; Office and electronic equipment was purchased. Metering coverage rose from 63% to 87%, allowing the Apa-Canals to measure more precisely their water production, consumption, and water losses. 4. Engineering and Construction Supervision Services Engineering Services were purchased and provided by one foreign company and one local company (detailed design). Construction Supervision Services were purchased and provided by one local company. 5. Auditor s Fees External auditing services were purchased throughout project implementation. 3.3 Efficiency 23. The project s maintenance, equipment replacement, leak detection and demand management through metering are expected to solve the main and most acute issues in the WSS systems of the selected water utilities and to produce high returns as shown in the table below (as per the PIP): Table 6: Illustrative Rates-of-Return on the Project Investments Type of Action Maintenance Pump Replacement Metering Rate-of-return (RR) 33% 27% 78% A representative calculation, based on actual energy cost savings, on the economic benefits from replacing inappropriately sized and obsolete pumps, is shown in Annex 4. It shows that the internal rate-of-return from doing so is estimated to be 26%, in line with the estimate in the PAD. 3.4 Justification of Overall Outcome Rating 24. The outcome rating combines the individual ratings for relevance, efficacy in meeting the PDOs, and the efficiency. The ICR rates the Overall Project Outcome as satisfactory. Project relevance is judged high because it responded to priorities, both of the CAS valid at the time of appraisal and the most recent one, where the serious deterioration of public services and the need to create institutional capacity were singled out. Project efficacy is similarly rated satisfactory because the project in substance has met or exceeded all relevant targets, albeit with a delay explained by the delayed effectiveness and startup of the project investments. Finally, project efficiency is judged satisfactory as evidenced by the robust rates-of-return for such investments (higher energy efficiency) that are comparable to the estimates at the time of project appraisal. 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development The continuity of service and the improved bacteriological quality of water have benefited the residential consumers in the five project towns. Low-income households, such as pensioners on fixed pensions, constitute a substantial portion of such consumers. Such consumers have 11

21 benefited more from the improved service than higher-income households and industrial consumers since they do not have the financial means to invest in alternative or complementary water supplies. The expansion of individual metering has likewise benefited low-income households disproportionately since, when unmetered, they were obliged to pay fixed rates, based on the excessive consumption norms that were the practice in the Former Soviet Union. As an example, low-income households in Orhei were previously billed on the basis up to 200 lcd whereas their metered consumption has proven to be only 40 lcd, resulting in more correct and more equitable consumption charges. (b) Institutional Change/Strengthening 25. The project did achieve the PDO ( to enhance the welfare of the population living in some of the poorest rural areas and medium-sized towns and cities by improving the quality, efficiency and sustainability of water supply and sanitation services as outlined in the Government's National Water Action Plan ). It did this through (i) rehabilitating and improving operations of selected water and sewerage systems to increase service quality and efficiency; and (ii) strengthening selected Apa Canals (water utilities) to improve their operational and financial sustainability. 26. The financial staff of the participating utilities has been instructed in the elaboration of business plans and International Accounting Standards, since an international independent audit company annually audits selected water utilities. At the same time, the technical personnel, namely the welders from the referenced enterprises have also been trained and have obtained certificates enabling them to weld the polyethylene pipes. Electronic equipment and financial programs (software) for business accounting have been procured, thus currently business accounting in all the beneficiary water utilities is managed automatically, through the referenced electronic programs. In every selected utility the Customer Relations Department has been created, there has been also elaborated the database of all consumers with the possibility of elaborating and printing automatically the invoice/bill to be paid for the WSS services provided by the local Apa Canal. 27. Two study tours have been organized to provide insight into financial operations and organizational strategies of public and private organizations engaged in municipal water supply and sanitation services in Sweden and to gain in-depth understanding of the central strategies, policies and change management issues that have been successfully implemented in Finland and Estonia. The key objectives of the study tour were for key personnel of selected water utilities and government decision makers. 28. Several training workshops on utility finances and operations were organized for Municipal Water and Waste Water Utilities, led by the World Bank consultants. The main topics for discussion were: i) the state of municipal water/waste water sector in Moldova: constraints and challenges; ii) tackling the Moldova sector challenge; iii) utility finances and tariffs; and iv) non-revenue water reduction of physical and commercial losses. 29. A World Bank Institute (WBI) workshop on Enhancing Utility Performance in Moldova was organized with the focus on methods to reduce non-revenue water in Apa canals. A follow-up workshop was aimed at calculating the water balance of ten selected Apa canals 12

22 with a view of identifying the priority actions and investments to reduce their non-revenue water. Through the higher efficiency it was expected that their financial situation will improve. (c) Other Unintended Outcomes and Impacts (positive or negative) 30. Due to a successful implementation of the PWSSP, the cost savings which were realized and applied to finance the preparation of feasibility studies provided a good technical basis for the selection of priority investments to be financed by the next IDA operation and by other interested external financing agencies. 31. In October, 2006 a Water Supply and Sewerage Sector Strategy Workshop was organized by the Agency of Construction and Territorial Development, assisted by the PIU and the World Bank. The Workshop resulted in a resolution, reaffirming the principles of the PWSSP and recommending policy reforms in the area of quality and economic regulation. 32. In December, 2007 the Agency Apele Moldovei organized a Donor Coordination Workshop to widen the level of external financing to the sector. A number of financing agencies expressed their potential interest in assisting the sector. European Commission has expressed an interest in providing parallel grant financing to build a Wastewater Treatment Plant for Orhei in an amount of about 3 million Euro. The administrative agreement is now under preparation. The Austrian Development Cooperation (ADC) and the Swiss Development Cooperation (SDC) confirmed their interest in assisting selected villages. The European Investment Bank stated their interest in parallel financing with the European Bank for Reconstruction and Development (EBRD) of water supply and wastewater investments. The Turkish International Cooperation and Development Agency (TICA) committed to financing water works in the Gaugazia region. SIDA has expressed their tentative willingness to finance water and wastewater investments that would reduce energy consumption. The World Bank has continued assisting Apele Moldovei in coordinating the different sources of financing. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops Not Applicable. 4. Assessment of Risk to Development Outcome The risk to the development outcome is rated as Moderate. The risk assessment is predicated on the following partial risk assessments: The technical risks are low since there is no innovative and untested technology. Rehabilitation of equipment is simply the transfer of technology and equipment that has been subjected to the quality control of market competition and the superior project management and supervision afforded by the triple layers of a Construction Supervision Engineer, by the Project Implementation Unit, and by the APA Canals s own staff, supplanted periodically by World Bank supervision visits. The financial risks are moderate. The Apa Canals has now reached a financial working ratio of about 0.8 which implies an operating cash surplus that could pay for maintenance. Through the 2005 tariff increase as well as the improvements made possible under the project implementation, the working ratio dropped from about 110% in 2004 to below 90% in This constitutes a margin to ensure orderly operations and provide financing for further operational improvements. 13

23 The next investment phase, the follow-up National Water Supply and Sewerage Project, with about US$23 million of investment to further improve the operational efficiency in the periods has already received financing from IDA in the amount of US$14.0 million, US$4.5 million from GEF and another US$4.5 million from European Commission. The economic risks of the project are moderate. Moldova s economy has steadily improved with high macro-economic growth rates since The fact that nearby Romania is an EU member is also positive factor for the economic prospects for Moldovan towns and for the likely evolution of the population s income levels. The social risks for the project are rated moderate given the essential character of Apa Canals s water and wastewater services. The political risks are rated as moderate. The water and wastewater project has received bipartisan political support from the Local Councils ever since project implementation improved from 2005 and onwards. The project s environmental risks are moderate and are mitigated by careful environmental assessments of the project and the fact that the project was essentially one of rehabilitating environmentally worse performing assets. The Government ownership risks are low as evidenced by the fact that both the local and central governments requested follow-on project from the World Bank. The institutional risks are assessed as moderate given the steady progress of the institutional strengthening program. The Governance risks are moderate since the rehabilitation of the most critical sections of the water and wastewater systems is largely complete. The risk of exposure to national disasters that might affect the PDO is rated low. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry The Bank performance in ensuring Quality at Entry was rated satisfactory. The project design benefited from the Bank s sector study that was completed in Similarly, the project design was well aligned with the CAS. The project was simple in the sense that 80% of the planned expenditure was for rehabilitation. There was no assessment by the Quality Assessment Group of Quality at Entry. (b) Quality of Supervision The quality of the Bank s performance during supervision is rated satisfactory. The technical and financial supervision was by two successive, Washington-based task managers whereas the fiduciary aspects were supervised by Kiev and later on by Chisinau-based Bank staff for financial management aspect and by Washington-based Bank staff for procurement. The background of the two task managers complemented each other. The first task manager had a financial background and was supported by technical staff. This second task manager had an engineering and procurement background and was supplemented by staff specialized in finance and monitoring and evaluation. The Bank was responsive to client preferences as evidenced by the client s request for a follow-up project. 14

24 (c) Justification of Rating for Overall Bank Performance Given satisfactory ratings for both Bank performances during preparation and during supervision the rating for Overall Bank performance is satisfactory. 5.2 Borrower Performance (a) Government Performance Government performance comprises the performance of the Central and Local Government. The rating of the former is rated satisfactory as evidenced by making direct financial contributions to co-finance the project. The performance of the Local Government is rated moderately satisfactory because of the substantial delays in approving the tariffs. (b) Implementing Agency or Agencies Performance The performance of the Project Implementation Unit that implemented and is now operating the project is rated satisfactory. The PIU performed satisfactorily within the constraints imposed upon it by its transfer from ACTD to Apele Moldovei. (c) Justification of Rating for Overall Borrower Performance Given the satisfactory ratings for Borrower Performance with respect to the Government Performance and the performance of the Implementing Agency the rating for Overall Borrower Performance is satisfactory. 6. Lessons Learned Lesson One: The Importance of Client Ownership Creating client ownership at all levels of Government by preparing the project in close collaboration and implementation with the local stakeholders is critical. Lesson Two: Monitoring indicators must be Measurable The choice of performance indicators and the level of technical, economic and financial analysis should be guided by the quality of baseline data. In the particular case of water supply and wastewater projects the quality of production and consumption data is suspect in the absence of widespread and careful metering. In the case of the technical analysis such uncertainties in data argue in favor of flexible and robust project designs as in rehabilitation projects. In the case of economic analysis it may be sufficient to concentrate on flexible least-cost analysis rather than engage in economic cost-benefit analysis where the results could well be spurious when the baseline data are of poor quality and subject to considerable change. Setting realistic and prudent efficiency improvement targets is a basis for preparing sound financial projections. Lesson Three: Project Implementation Units can provide Continuity In order to promote sustainability and build institutional capacity, the World Bank policy is that project implementation units should be avoided or quickly merged into the organization of the Borrower or Implementing Agency in order foster sustainability and to build capacity. In the 15