RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF INTEGRATED SANITATION & SEWERAGE INFRASTRUCTURE PROJECT (LOAN 7512 EGT) March 20, 2008

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank RESTRUCTURING PAPER ON A Report No: PROPOSED PROJECT RESTRUCTURING OF INTEGRATED SANITATION & SEWERAGE INFRASTRUCTURE PROJECT (LOAN 7512 EGT) March 20, 2008 TO THE ARAB REPUBLIC OF EGYPT {DATE OF RESTRUCTURING} 1

2 ABBREVIATIONS AND ACRONYMS ESMMF GOE GTZ GIZ HCWW IBRD ISSIP JSDF LE NOPWASD O&M PIU PM-TA SECO WWTP Environmental and Social Management and Monitoring Framework Government of Egypt German Technical Cooperation German International Cooperation Holding Company for Water and Wastewater International Bank for Reconstruction and Development Integrated Sanitation and Sewerage Infrastructure Project Japanese Social Development Fund Egyptian Pound National Organization for Portable Water and Sanitary Drainage Operation and Maintenance Project Implementation Unit Project Management Technical Assistance State Secretariat for Economic Affairs, Switzerland Wastewater Treatment Plant Regional Vice President: Country Director: Sector Manager: Task Team Leader: Inger Andersen A. David Craig Francis Ato Brown Parameswaran Iyer 2

3 EGYPT, ARAB REPUBLIC OF INTEGRATED SANITATION& SEWERAGE INFRASTRUCTURE PROJECT P CONTENTS Page A. SUMMARY... 4 B. PROJECT STATUS... 4 C. PROPOSED CHANGES... 5 D. APPRAISAL SUMMARY... 7 ANNEX 1: RESULTS FRAMEWORK AND MONITORING

4 INTEGRATED SANITATION& SEWERAGE INFRASTRUCTURE PROJECT RESTRUCTURING PAPER A. SUMMARY 1. Pursuant to a request from the Arab Republic of Egypt (Borrower) dated May 12, 2012, and as a result of cost escalations and substantial delays in project implementation, the Borrower has requested to restructure the Integrated Sanitation and Sewerage Infrastructure Project ( Project or ISSIP ) as follows: (a) Changes to the Project Description and Results Framework for Component 1/Part A of the Project: delete the pilot project under the GIZ model under Component 1 (Part A(4) of the Project Description) and adjust the Results Framework accordingly; reduce the scope of the centralized sewerage system Component 1 (Part A(1) of the Project Description) (changes to Results Framework only) reduce the number of decentralized sanitation systems Component 1 (Part A(2) of the Project Description) (changes to Results Framework only); (b) Changes to the Results Framework for Component 2/Part B of the Project refocus the establishment of the local result-based monitoring and evaluation system; and (c) Extend the Loan Closing Date by eighteen months from June 30, 2014 to December 31, This would be the first extension of Closing Date for this Project. 2. The project development objective (PDO) will remain unchanged. The proposed changes will not trigger any new safeguards policy or change the safeguards category for the Project. B. PROJECT STATUS 3. Project implementation is considerably behind schedule, because of slow start-up and the very significant political and social changes in the country since early The Loan has disbursed less than 10% in the four years since it was approved by the Board. No audit report from the project is pending or is in unsatisfactory status. 4. Part A: Provision of Sanitation Systems within selected drainage sub-basins. Implementation of Phase I centralized systems is underway (about 33% of the centralized systems program), and is expected to be completed by early Phase II contracts for centralized systems are only expected to be awarded starting 2013, and only a few Phase II contracts are likely to be completed by June 30, Phase II will have to be scaled down significantly because of cost escalations. 5. None of the decentralized system contracts has been awarded so far. HCWW has decided to drop the GIZ model partly due to high cost and also because GIZ support for the model is no longer available. Only a few of the decentralized systems can be completed by June 30,

5 6. Part B: Establishment of a Local Results-based monitoring and evaluation system. As the expected funding of $1.1 million from Netherlands Cooperation did not materialize, there has not been much progress in this component. 7. Part C: Institutional development and capacity building. Start-up of this component was significantly delayed as the originally envisaged funding from Netherlands Cooperation and GIZ did not materialize. Once Swiss (SECO) and Japanese (JSDF) grant funding became available, the Project Management Technical Assistance (PM-TA) consultant was mobilized in July 2011.Recruitment of Social and Environment Consultants (under JSDF funding) and individual consultants to manage Environmental and Social Management and Monitoring Framework (ESMMF) implementation and for training (under SECO support) is underway. C. PROPOSED CHANGES Results/indicators 8. The four Project Outcome Indicators in the PAD did not have either identified baselines or target values as these were to be determined during implementation. While target values were provided for the five Intermediate Indicators and progress is being reported, they are not consistent with the intermediate indicators of the follow-on project, ISSIP2.The Results Framework has been revised, in line with the results framework of ISSIP2, and baselines and target values have been agreed; see Annex 1. Components 9. Part A/Component 1: Provision of Sanitation Systems within selected drainage sub-basins. The description of the sections (1) and (2) in the loan agreement, relating to centralized systems remains unchanged. However, in view of the cost escalations, the scope of works for the centralized sanitation systems will be scaled down from coverage of 222 villages anticipated in the Project Appraisal Document (PAD) to 106 villages. Section (3) of the loan agreement relating to decentralized sanitation systems will remain unchanged. However, in view of the slow progress to date, the coverage will be scaled down from the 120 villages envisaged in the PAD to 30 villages. The GTZ/GIZ model pilot envisaged in section (4) of the loan agreement will be dropped due to its high cost and lack of funding from GTZ/GIZ. 10. Part B/Component 2: Establishment of a local results based monitoring and evaluation system. The description of the component in the legal agreement will remain unchanged. This component will be aligned with the project monitoring and participatory monitoring and evaluation activities, and will focus on: (a) sanitation and environmental conditions for the resident communities; (b) water quality in the selected drainage basins within the served areas; (c) overall project monitoring and reporting; and (d) participatory environmental and social monitoring. HCWW will include existing reports on pollution loads and pollution reduction measures of the currently operational and new WWTPs in ISSIP Progress. Implementation of the ESMMF will strengthen the on-going 5

6 water quality monitoring functions of the water and sewerage companies (WSCs). The revised Results Framework is shown in Annex Part C/Component 3: Institutional Development and Capacity Building. The description of the component in the legal agreement will remain unchanged. However, the scope of work and the cost estimates for ESMMF implementation will be modified to better reflect project needs and the availability of grant funding from SECO and JSDF grants, as well as funding from HCWW. Studies such as water quality modeling, solid waste source attribution and septage management will be undertaken outside the project as and when grant funds are mobilized. Financing The table below indicates the current and revised cost by component. Project Costs (US$m) Components/Activities Current 1 Proposed Component Provision of Sanitation systems within selected drainage sub-basins Component Establishment of a local results-based monitoring and evaluation system Component Institutional Development and Capacity Building Total The table below indicates the original and revised financing plan for the project. There will be no change in the financing percentage of the Bank and the cost sharing ratio between the IBRD and GoE will remain unchanged. The revised donor contribution (as grant) for technical assistance will continue to be channeled in a parallel co-financing manner. Sources of Funds Original Plan at Revised Plan appraisal Amount (US$ Million) Amount (US$ Million) IBRD GOE Netherlands Cooperation GTZ Swizz grant ( SECO ) Japanese grant ( JSDF) TOTAL If the project has had a previous restructuring, the current should reflect the latest approved costs. 6

7 Procurement 12. An acceptable updated Procurement Plan has been prepared for the restructured project. Procurement training programs for clients at HCWW/NOPWASD and subsidiary companies will be prioritized: the focus will be on contract management and real time project management training, including strengthening the ability of the implementing agencies to forecast actual implementation schedules. Closing date 13. Project implementation is behind schedule and got further delayed due to the environment of fear and uncertainty following the Egyptian Revolution in January Following the contracting of the Swiss-grant financed Project Management-Technical Assistance consultant in July 2011, implementation progress has improved. Most Phase 1 works for the centralized systems are currently under implementation and are expected to be completed by early Phase II works for centralized and decentralized systems are at the design stage, however, and are cannot be completed by the current closing date of June 30, It is therefore proposed to extend the closing date of June 30, 2014 by 18 months to December 31, It is confirmed that the proposed extension will enable completion of the restructured project and thereby achieve the project s objectives. Implementation schedule 14. A revised implementation plan to implement the restructured project has been furnished by HCWW along with the proposal for project restructuring. This has been appraised by the project team and found acceptable. Disbursement Projection Table below provides the disbursement plan for the restructured project. FY Cumulative to Dec 2011 FY12* FY13 FY14 FY15 FY16 Annual Cumulative *July June D. APPRAISAL SUMMARY Economic and financial analysis 2 This is the first extension of the Project 7

8 15. Economic analysis. The restructured project will continue the original project s approach to centralized sanitation systems through: (a) provision of service coverage to identified priority villages in the selected drainage sub-basins; (b) the use of the cluster approach, whereby a treatment plant in an optimal location will serve the maximum number of villages; and (c) connecting project financed networks to existing treatment plants, where feasible, to optimize utilization of existing resources. Despite the cost escalations, project investments in centralized systems continue to be least cost solutions which will provide intended benefits, albeit for a smaller population. Cost effectiveness of the decentralized systems will be ensured during the appraisal of the individual fully designed and costed systems prior to their implementation. 16. Financial analysis. The financial status of the three WSCs continues to be weak, despite increases in both water and wastewater tariffs since the original appraisal of the project. As tariffs are set nationally, and are not adequate to meet full costs, HCWW (which regularly monitors the performance of all of its subsidiary WSCs, including the three project WSCs) provides subsidies to cover operating losses (capital expenditures, including those of the project, are financed as grants from Government). HCWW management has confirmed that it will ensure that the project WSCs have adequate financial capacity to operate and maintain the centralized and decentralized systems financed by the project. Bank implementation support missions will continue to monitor the status in this regard. Technical 17. In view of cost escalations, the program of centralized systems has been scaled down. The scaled program is technically consistent with the original program. It will be phased in a modular way so that successive contracts are awarded only after costs of previously awarded contracts are known and the remaining funding envelope is clear. The PIU, with the assistance of the PM-TA, will prioritize the remaining networks to keep the program size within the available budget envelope. Contracts for networks planned to be connected to existing WWTPs may be awarded if the construction schedule indicates that the works will be completed by early 2014, provided the PM-TA and implementing agencies confirm that the existing WWTPs have adequate unutilized capacity and are fully functional. 18. The technical feasibility of the individual decentralized systems of the scaled down program will be reviewed by the Bank prior to their finalization and award of contracts. These systems will be implemented in batches - with the first batch comprised of six schemes (two in each of the three governorates), and the second batch comprised of 24 systems to enable refinements to be made based on experience, and keep the program within the agreed budget allocation ceiling of $15 million. Social and Environment 19. The revised ESMMF will meet the principal direct environmental and social requirements of the project. More specialized studies which will have a longer term impact have been excluded from the project due to lack of adequate grant funds. 8

9 However, efforts will continue to be made to obtain grant funds to enable them to be carried out outside the project. Risk 20. The principal risk is the impact of the evolving political situation in Egypt on project implementation. Other risks include: availability of required counterpart funding in a timely manner; and continued substantial support by the government to the WSCs to ensure sustainability of project investments. Government has provided assurances in this regard. 9

10 Core ANNEX 1: Results Framework and Monitoring EGYPT, ARAB REPUBLIC OF: INTEGRATED SANITATION& SEWERAGE INFRASTRUCTURE PROJECT Project Development Objective (PDO): Contribute to the sustainable improvements in : (i) sanitation and environmental conditions for the resident communities and (ii) the water quality in the selected drainage basins within the served areas Revised Project Development Objective: No change PDO Level Results Indicators* Indicator One: # of households connected to centralized systems Indicator Two: # of households connected to decentralized systems Indicator Three: Reduction in pollution load entering water bodies D=Droppe d C=Continu e N= New R=Revised Unit of Measure Baseline Cumulative Target Values** YR 1-4 YR 5 YR 6 YR 7 YR8 Frequency Data Source/ Methodology N ( 000) Annual Semi-Annual and N ( 000) Annual Semi-Annual and N Tons of BOD per annum Annual Semi-Annual and INTERMEDIATE RESULTS Responsibility for Data Collection Intermediate Result (Component One): Provision of sustainable sanitation services to rural populations in project area Revised Intermediate Result (Component One): same as above Intermediate Result indicator One: # of contracts signed N Cumulative number Semi-Annual and 10

11 Intermediate Result indicator Two: # of new WWTPs operational Intermediate Result indicator Three # of decentralized systems operational N N Cumulative number Cumulative number Semi-Annual and Semi-Annual and Intermediate Result (Component Two): Establishment of a local results-based monitoring and evaluation system Revised Intermediate Result (Component Two): Intermediate Result indicator One: # of km of collection networks constructed Intermediate Result indicator Two:# of dencentralized systems with atleast 70% HH contributing to O&M costs N Cumulative in KM) Semi-Annual and N Semi-Annual and Intermediate Result (Component Three): Institutional development and capacity building Revised Intermediate Result (Component Three: Intermediate Result indicator One: # of staff ( HCWW, RSUs) trained for at least one week N number Semi-Annual and *Please indicate whether the indicator is a Core Sector Indicator (see further **Target values should be entered for the years data will be available, not necessarily annually. 11