PROJECT COMPLETION REPORT ON THE URBAN ...ASIAN DEVELOPMENT BANK PCR: VAN 23616 PROJECT COMPLETION REPORT ON THE URBAN INFRASTRUCTURE PROJECT (Loan No. 1448-VAN [SF]) TO VANUATU June

ASIAN DEVELOPMENT BANK PCR: VAN 23616

PROJECT COMPLETION REPORT

ON THE

URBAN INFRASTRUCTURE PROJECT (Loan No. 1448-VAN [SF])

TO

VANUATU

June 2003

CURRENCY EQUIVALENTS (as of 31 October 2002)

Currency Unit – Vatu (Vt)

At Appraisal At Project Completion 31 March 1996 31 October 2002

Vt100 = $0.88 $0.75 $1.00 = Vt113.55 Vt133.50

ABBREVIATIONS ADB Asian Development Bank ADF Asian Development Fund ADT average daily traffic AGO attorney general’s office AusAID Australian Agency for International Development BME benefit monitoring and evaluation CBD central business district CRP comprehensive reform program DESD Department of Economic and Social Development DOF Department of Finance EIRR economic internal rate of return EA executing agency ESA equivalent standard axle EU environment unit FA force account FIRR financial internal rate of return ICB international competitive bidding IEE initial environmental examination LCB local competitive bidding MFEM Ministry of Finance and Economic Management MIP management improvement plan NPO National Planning Office NPV net present value NZODA New Zealand Overseas Development Assistance O&M operations and maintenance PCC project coordination committee PMD Ports and Marine Department PME project management engineer PMU project management unit PPTA project preparation technical assistance PPU physical planning unit PWD Public Works Department RRP report and recommendation of the President RTIM road transport investment model SLO State Law Office SMP sanitation master plan TA technical assistance

TOR terms of reference UGMP urban growth management plan VOC vehicle operating costs

WEIGHTS AND MEASURES ha hectare km kilometers m meters m3 cubic meters

NOTE

In this report, "$" refers to US dollars.

CONTENTS

Page

BASIC DATA iii

MAP vii

I. PROJECT DESCRIPTION 1

II. EVALUATION OF DESIGN AND IMPLEMENTATION 2 A. Relevance of Design and Formulation 2 B. Project Outputs 3 C. Project Costs 4 D. Disbursements 6 E. Project Schedule 6 F. Implementation Arrangements 6 G. Conditions and Covenants 7 H. Related Technical Assistance 8 I. Consultant Recruitment and Procurement 9 J. Performance of Consultants, Contractors, and Suppliers 10 K. Performance of the Borrower and the Executing Agency 10 L. Performance of ADB 11

III. EVALUATION OF PERFORMANCE 11 A. Relevance 11 B. Efficacy in Achievement of Purpose 12 C. Efficiency in Achievement of Outputs and Purpose 12 D. Preliminary Assessment of Sustainability 13 E. Environmental, Sociocultural, and Other Impacts 13

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 13 A. Overall Assessment 13 B. Lessons Learned 13 C. Recommendations 14

APPENDIXES 1. Project History of Milestone Events 16 2. Appraisal and Actual Project Implementation Schedules 19 3. Status of Compliance with Loan Covenants 20 4. Urban Growth Management Strategy for Port Vila Technical Assistance Completion Report 24 5. Sanitation Masterplan for Port Vila Technical Assistance Completion Report 27 6. Reappraisal of Economic and Financial Analyses 30 7. Evaluation Matrix 42

iii BASIC DATA

A. Loan Identification 1. Country 2. Loan Number 3. Project Title 4. Borrower 5. Executing Agency

6. Amount of Loan

7. Project Completion Report

Number

Republic of Vanuatu 1448-VAN(SF) Urban Infrastructure Project Republic of Vanuatu Public Works Department SDR6,913,000 ($10 million equivalent) SDR6,911,485 (revised) ($8,996,118 equivalent) PCR:VAN 743

B. Loan Data 1. Appraisal – Date Started – Date Completed 2. Loan Negotiations – Date Started – Date Completed 3. Date of Board Approval 4. Date of Loan Agreement 5. Date of Loan Effectiveness – In Loan Agreement – Actual – Number of Extensions 6. Closing Date – In Loan Agreement – Actual – Number of Extensions 7. Terms of Loan – Interest Rate – Maturity – Grace Period

20 September 1995 4 October 1995 27 May 1996 28 May 1996 27 June 1996 29 July 1996 27 October 1996 16 June 1997 Two 31 December 2001 13 January 2003 One 1% service charge per annum 40 years (including the grace period) 10 years

8. Disbursements a. Dates Initial Disbursement

7 November 1997

Final Disbursement

13 January 2003

Time Interval

62.0 months

Effective Date

16 June 1997

Original Closing Date

31 December 2001

Time Interval

54.5 months

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b. Amount ($)

Category

Original

Allocation

Last Revised

Allocation

Amount

Canceled

Net Amount

Available

Amount

Disbursed

Undisbursed

Balance 01A 3,020,396 1,216,431 10 1,216,431 1,216,421 0 01B 2,200,366 4,363,634 -126,494 4,363,634 4,490,128 0 01C 1,298,957 1,516,320 134,004 1,516,320 1,382,316 0 02 830,291 543,696 -247 543,696 543,943 0 03A 510,615 1,045,132 -1 1,045,132 1,045,133 0 03B 59,307 7,342 0 7,342 7,342 0 04 299,426 166,956 -5,220 167,162 172,382 0 05 360,179 138,452 0 138,452 138,452 0 06 1,420,463 0 0 0 0 0 Total 10,000,000 8,997,963 2,052 8,998169 8,996,117 0

9. Local Costs (Financed) – Amount ($ million) 0.74 – Percent of Local Costs 92.67% – Percent of Total Cost 8.27% C. Project Data

1. Project Cost ($ million) Cost Appraisal Estimate Actual Foreign Exchange Cost 9.50 8.57 Local Currency Cost 3.30 4.11 Total 12.80 12.68

2. Financing Plan ($ million) Cost Appraisal Estimate Actual Implementation Costs Borrower-Financed 2.40 3.37 ADB-Financed 10.00 8.99 Other External Financing 0.40 0.32 Total 12.80 12.68 IDC Costs Borrower-Financed 0 0 ADB-Financed 0.40 0.14 Other External Financing 0 0 Total 0.40 0.14

ADB = Asian Development Bank, IDC = interest during construction.

v 3. Cost Breakdown by Project Component ($ million) Component Appraisal Estimate Actual Civil Works 7.91 10.49 Equipment 0.87 0.67 Consulting Services 1.20 1.21 Incremental Project Costs 0.35 0.17 Services Charge 0.36 0.14 Unallocated 2.11 0 Total 12.80 12.68 4. Project Schedule Item Appraisal Estimate Actual Date of Contract with Consultants 1. Project Management Engineer January 1997

to December 2001 27 October 1996 to 18 May 2000

2. Design & Supervision Engineer January 1997 to September 2001

22 January 1998 to 31 October 2001

3. Project Engineer November 2000 to November 2002

Completion of Engineering Designs March 1999 January 2001

Civil Works Contract: 1. Rehabilitation of Urban Roads Date of Award May 1997 5 October 1999 Completion of Work December 1997 14 September 2000 2. Port Vila Wharf Rehabilitation Date of Award December 1997 11 April 2000 Completion of Work March 1999 3 March 2001 3. Luganville Drainage Improvements Date of Award July 1997 1 September 2000 Completion of Work August 1998 30 June 2001 4. Luganville Water Supply Improvements Date of Award December 1997 5 September 2000 Completion of Work June 1999 7 July 2001 5. Port Vila CBD Traffic Improvements Date of Award February 1998 19 April 2001 Completion of Work June 1999 28 August 2001 6. Erakor Causeway Bridge Replacement Date of Award August 1998 18 April 2001 Completion of Work August 2001 1 October 2001 Equipment and Supplies Dates First Procurement 2 February 2000 Last Procurement

2 February 2000

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5. Project Performance Report Ratings

Ratings Implementation Period

Development Objectives

Implementation Progress

1January 1998 to 31 March 1999 S S 1 April 1999 to 30 September 1999 S U 1 October 1999 to 30 June 2000 S PS 1 July 2000 to 30 September 2000 S S 1 October 2000 to 30 June 2001 S PS 1 July 2001 to 30 September 2002 S S S = satisfactory, PS = partially satisfactory, U = unsatisfactory. D. Data on Asian Development Bank Missions

Name of Mission

Date

Persons (no.)

Person-Days (no.)

Specialization of Members a

Fact-finding 7–16 Jun 1995 7 154 a, d, e, g Appraisal 20 Sep–4 Oct

1995 6 60 a,c,d,e

Pre-Loan Negotiation 8–15 May 1996 1 8 d Inception 1997 First Review 8–10 Oct 1997 2 6 a, g Second Review 12–20 Oct

1998 3 27 a, a, h

Third Review 24 May–13 Jul 1999

2 40 a,h

Review 15 Nov–24 Dec 1999

2 76 a, h

Review 26 Jul–31 Aug 2000

2 74 h, i

Special Loan Administration 27 Nov–14 Dec 2000

2 36 h, e

Review 2–6 Apr 2001 1 5 h Review 20–27 Aug

2001 2 16 h, I

Project Completion Review 9–20 Sep 2002 3 36 h, e, i

a = engineer, b = financial analyst, c = counsel, d = economist, e = consultant specialist, f = control officer, g = programs officer, h = project officer, i = project assistant. b The project completion report was prepared by P. Moala, Senior Project Implementation Officer.

I. PROJECT DESCRIPTION

1. The main objective of the Urban Infrastructure Project1 to Vanuatu was to help implement a strategy for the management of urban growth that addresses public health, environmental, and economic concerns. Specific goals were to (i) improve the living conditions and public health of people in the main urban areas, (ii) mitigate the adverse effects of urban growth on the environment and improve natural resource management, and (iii) promote economic growth by enhancing conditions that encourage tourism. The Project consisted of three components in the municipalities of Port Vila and Luganville, and their immediate environs: (i) water supply and sanitation, (ii) urban roads, and (iii) the Port Vila Wharf. 2. Water Supply and Sanitation. The water supply and sanitation component included (i) developing a new water source, constructing a new pump house and delivery main, repairing and improving the existing pump house, and upgrading the distribution network for Luganville’s potable water supply; (ii) lengthening the Erakor causeway bridge in Port Vila to enable better flushing of the lagoon to address environmental and health concerns arising from lagoon pollution, and replacing an existing bridge that was in poor repair and structurally unsafe; (iii) providing small package treatment plants in prime areas of point source pollution in Port Vila; and (iv) improving surface water drainage in low-lying areas of the Sarakata district of Luganville to reduce public health risks and alleviate flooding.

3. Urban Roads. The urban roads component consisted of (i) repairing and resealing existing roads in Port Vila and Luganville, and (ii) improving priority traffic management in Port Vila and Luganville.

4. Port Vila Wharf. The Port Vila Wharf component involved repairing the steel piles, concrete deck, fenders, and other components of the international wharf necessary to extend its useful working life.

5. The Project also included 95 person-months of consulting services for project management, preparation of detailed designs and contract documents, construction supervision, and benefit monitoring and evaluation. 6. The rationale for the Project was to help implement a multifaceted and coherent strategy for urban growth to alleviate the most serious infrastructure bottlenecks and institutional constraints in Vanuatu’s urban sector. The main challenges facing urban administrators in Port Vila and Luganville are coping with the effects of rapid urban population growth and managing future urban expansion, while preserving acceptable living standards in urban areas. Port Vila’s population had doubled to 28,000 in the 13 years before the Project. This rapid urbanization rate has continued; the population was estimated at 40,000 in June 2000. Similarly, Luganville’s population had doubled in the 16 years before the Project, and was estimated at 12,000 by June 2000. These urban growth rates affect the well being of the population; the environment; and the potential for tourism, Vanuatu’s most important asset for economic expansion. 7. The project technical assistance (TA) feasibility study2 was conducted in 1994 and processing lasted until April 1996. The processing period was relatively long because of (i) the 1 ADB. 1996. Report and Recommendation of the President to the Board of Directors on a Proposed Loan and

Technical Assistance to the Republic of Vanuatu for the Urban Infrastructure Project. Manila. 2 ADB. 1993. Technical Assistance (JSF-Financed) to the Republic of Vanuatu for the Urban Infrastructure Project.

Manila. The TA, for $536,000 was approved on 13 September 1993, started in April 1994, and completed in November 1994.

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complexity of the Project’s main theme, national management of urban growth, and the consequent need to reach a consensus among the main stakeholders in urban development; (ii) the recommendations of the feasibility study, which were not well founded and needed modification; and (iii) the intricacy of the urban policy environment, which necessitated detailed policy discussions and the formulation of new policy initiatives. Loan negotiations were held in Manila on 27–29 May 1996. On 27 June 1996, the Asian Development Bank (ADB) approved a loan of $10 million equivalent and further grants of $960,000 for two attached TAs comprising (i) $600,000 for the preparation of an Urban Growth Management Strategy for Port Vila; and (ii) $360,000 for the preparation of a Sanitation Master Plan (SMP) for Port Vila. Appendix 1 gives a brief history of the Project.

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

8. The project design evolved through extensive consultations with stakeholders, which involved various missions as well as the fact-finding and appraisal missions after completion of the feasibility study TA, and final policy discussions with the Government in May 1996.3 The Project was consistent with ADB’s country strategy and program to help generate efficient, sustainable, and equitable growth, as well as Vanuatu’s development objectives of greater economic self-reliance, economic growth, balanced regional development, and human resource development. 9. The multifaceted project design, with three diverse components, was an ambitious approach for a loan of $10 million. The Project was adversely impacted by the long period—about 5 years—between appraisal and implementation.4 This caused an unplanned cost escalation in project components because infrastructure subcomponents to be rehabilitated continued to deteriorate, while the Vatu depreciated by 29% against the US dollar.5 Several project subcomponents were reduced in scope, as discussed in the Project Outputs section. The proposed development of a new water source in Luganville, and lengthening of the Erakor causeway bridge, were found to be unnecessary after further engineering investigation during project implementation. Also, the component for rehabilitation of the Port Vila Wharf had only a tenuous direct connection with the urban sector; it was more strongly linked to the national trade and transport sectors. The diversity of the project components was partly because of the poor condition of urban infrastructure,6 and the Government’s desire to address as many immediate needs for infrastructure rehabilitation as possible. 10. The design of some project subcomponents was found to be incomplete during the design and tendering phases of implementation. Insufficient attention was paid to the drainage requirements of the urban roads component. The extension of the Erakor causeway bridge was found unnecessary because the objective of increased flow through the bridge could be achieved by building a more efficient channel. The development of a new potable water source, including a new pump house and delivery main, in Luganville would not be justified after completion of planned improvements to the existing water supply facility.

3 ADB. 1996. Report and Recommendation of the President to the Board of Directors on a Proposed Loan and

Technical Assistance to the Republic of Vanuatu for the Urban Infrastructure Project. Manila. 4 The TA consultants provided the initial Project costs in 1994. The costs were revised during the ADB appraisal in

1995 and 1996. Actual construction was mainly in 2000–2001. 5 In March 1996, $1 = Vt113.55; by 30 November 2000, $1 = Vt146.59. 6 There had been a lack of maintenance capacity and inadequate maintenance funding within the responsible

ministry, the Public Works Department (PWD), and the two municipalities.

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11. The inclusion of significant elements for institutional development and strengthening was also an ambitious project design feature, particularly considering that no significant institutional TA support was provided for some elements. The corporatization of the Ports and Marine Department (PMD) and the related tariff policy loan covenant were to have been accomplished with no direct project input. The institutional strengthening of the municipalities, particularly in financial management and in improving collections, along with the establishment of reporting and management systems, were also not provided directly through the Project, even though there were related loan covenant conditions. The municipal strengthening was to have been provided through staffing assistance financed by the New Zealand Overseas Development Assistance (NZODA) and the Australian Agency for International Development (AusAID). This assistance did not come, however, because of priority changes that diverted funding to support the Vanuatu Comprehensive Reform Program (CRP). 12. The TA incorporated in the project design, for the preparation of an urban growth management strategy for Port Vila, was not integral to the project components that were implemented. Also, the executing agencies (EAs) of the TAs were different from that for the Project. That meant, despite the existence of a project coordination committee (PCC), each TA and the project implementation progressed with no significant cohesion among project elements. The National Planning Office (NPO),7 later renamed the Department of Economic and Social Development (DESD), was the EA for the TAs, with different sections of DESD for each TA. The EA for the Project was the Public Works Department (PWD). 13. An alternative and more appropriate approach to project design would have been to focus the project scope on fewer components. For example, there was adequate scope for the Project to upgrade the urban road networks in Port Vila and Luganville, and to extend the Project’s narrow focus on upgrading central business district (CBD) roads and main transport access routes out of the CBD, to include the upgrading of roads to the major settlement areas of both towns. B. Project Outputs

14. The Project Description lists outputs at appraisal. These were exceeded in one component, partly achieved in five components, and deleted in one. The net impact of these output variations was to enhance the Project’s cost effectiveness, as described in the Evaluation of Performance section of this report. 15. Outputs of the water and sanitation components fell well short of expectation, because of a combination of overly optimistic design expectations at appraisal and higher-than-anticipated project costs. The new water source, pump house, and delivery main for Luganville were found unnecessary and unjustified after a reassessment of the existing supply sources for potable water and of the potential to reduce leakage. The reassessment determined that improvements to the existing water source, pump house, and distribution network would be sufficient to meet the predicted water needs. The only output related to this subcomponent was the identification of the new source for future potable water. The existing pump house and distribution system were repaired and improved as planned. But the reduction of losses fell short of expectations. The leakage level of 65% was reduced to 60%—but the anticipated level was 30%. Leakage due to poor metering was rectified, but unanticipated leakage began when the higher pressure

7 PWD was nominated as the EA for the Sanitation Master Plan TA, but the EA was changed to the NPO at the

Government’s request in July 1996.

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in the water mains caused increased leakage in the inadequate distribution pipelines of the mains. Although the Erakor causeway bridge was replaced, it was not lengthened, as planned, because it was determined, through several detailed evaluations, that lengthening for environmental reasons was not necessary. Maintaining the existing length results in minimal environmental damage, and lengthening it would not substantially improve the environment. Small package treatment plants were not provided because of cost increases in other project components, and the plants cost more than anticipated. 16. Outputs of the urban roads component were partially achieved. The final length of repaired and resealed urban roads fell about 5.5 km short of the planned 56.5 km because rehabilitation costs were higher than planned due to deterioration of the roads during the delays for loan effectiveness, fielding of consultants and awarding of the contract (4.5 years after appraisal). Also, the project design included insufficient allowance for drainage works. A few lower-priority intersection subcomponents for Port Vila were eliminated after the preparation of design and tender documents, due to cost overruns in other project components. 17. Civil works at the Port Vila Wharf were completed as planned, at a cost slightly higher than the appraisal estimate. This was in spite of increased deterioration due to project delays, and with additional works to extend the wharf efficiency and capacity to accommodate larger 30,000 DWT (dead, weight tonnage) vessels by building a strong point at the end of the eastern finger of the wharf, and adding more rubber fenders. 18. The land acquisition element of the Project was not completed, because the additional land anticipated at appraisal was not needed. The output of water quality monitoring, to be provided through the AusAID complementary TA, was not provided because the AusAID program refocused to prioritize funding the CRP initiatives. C. Project Costs

19. The total project cost at appraisal was $12.80 million, including contingencies and service charges during construction. The actual cost of the completed Project was $12.68 million, after significant cost overruns in some project components were offset by reducing the scope of other components. Table 1 summarizes appraisal and actual costs. As shown in the Project Outputs section, the major cost variations were: (i) The higher actual cost of improving the existing Luganville water supply facility was offset by the appraisal allowance for the new water supply subcomponent that was not needed. (ii) Exclusion of the small package sanitation treatment plants for Port Vila, and a reduced length of the Erakor causeway subcomponent, resulted in a lower actual cost than the appraisal cost for the combined subcomponents. The savings of $2.4 million were allocated to the higher-cost urban roads component, which was $4.6 million above appraisal cost. (iii) The actual cost for the subcomponent for improvement of urban roads was less than at appraisal because the scope of the subcomponent for intersection improvements at Port Vila was reduced to road marking introducing a traffic management system. The appraisal contingencies (14.8%) were insufficient to compensate for project delays and cost escalations caused by currency depreciations.

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Table 1: Summary of Project Cost at Appraisal and Actual ($ million)

Component Appraisal Actual Base Costs A. Water Supply and Sanitation 1. Water Supply (Luganville) 1.27 1.03 2. Erakor Causeway and Sanitation (Port Vila) 2.88 0.31 3. Public Health (Luganville) 0.55 0.37 B. Urban Roads 1. Rehabilitation of Urban Roads 2.00 7.09 2. Improvement of Traffic Management and Urban Roads 0.64 0.51 C. Port Vila Wharf 1.44 1.85 D. Consulting Services 1.20 1.21 E. Land Acquisition 0.23 0.00 Subtotal (Base Costs) 10.21 12.42 F. Contingencies 1. Physical Contingency 1.24 2. Price Contingency 0.70 Subtotal 1.94 0.00 Incremental Project Cost 0.30 0.17 Loan Service Charge 0.35 0.14 Total 12.80 12.68 Sources: Report and Recommendations of the President (RRP) as revised by the Project Administration Memorandum and Public Works Department (PWD).

20. Actual ADB financing of the project costs at completion amounted to $9 million (SDR6.91 million equivalent), compared with $10.0 million (SDR6.91 million equivalent) at appraisal. The difference in actual ADB vs appraisal financing was caused by the depreciation in the SDR exchange rate between appraisal and loan drawdown, indicating the adverse impact of project delays. The SDR devaluation also led to lower-than-appraised costs in foreign currency. Table 2 summarizes project financing at appraised vs actual financing.

Table 2: Summary of Project Financing at Appraisal and Actual Financing

($ million) Appraisal Actual Source Foreign Local Total Foreign Local Total ADB 9.1 0.9 10.0 8.28 0.71 8.99 AusAID 0.4 0.0 0.4 0.32 0 0.32 Government 0.0 2.4 2.4 0 3.37 3.37 Total 9.5 3.3 12.8 8.60 4.08 12.68 Percent 74% 26% 100% 68% 32% 100% ADB = Asian Development Bank, AusAID = the Australian Agency for International Development. Sources: Report and Recommendation to the President and Public Works Department.

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D. Disbursements

21. Total disbursements through the loan were approximately $9 million or 89.96% of the approved loan amount. No disbursement projections were made at appraisal. An imprest account was provided to facilitate procurement of small items, including pothole patching through road rehabilitation works. An initial advance of $250,000 for the imprest account was disbursed to the EA in February 1998. Utilization of the imprest advance facility was slow, however, because of delays in implementation of the physical components, which resulted in ADB reducing the initial advance by half in November 2000. The revised imprest account of $125,000 was operated and maintained until project completion. A lack of supporting documents for eligible expenditures caused problems with replenishment of the imprest account during implementation. Disbursements were slow in the first 2 years of implementation, reflecting the slow starts in design, and in the tender process for civil works contracts. About 54% of total disbursements were in 2000, and 31% in 2001. The slow project implementation caused actual yearly disbursements to be lower than projected disbursements. E. Project Schedule

22. The project implementation schedule developed at appraisal was not adhered to, because of delays in the commencement of substantial work.8 But work proceeded rapidly after ADB and the EA addressed this issue in early 2000, so the Project was essentially completed 4 months after the appraisal target date of 30 June 2001. The 1 year delay in loan effectiveness caused a similar 1 year delay in consultant mobilization. Subsequently, the consultants experienced long delays in the design period because of slow preparation of designs, nonavailability of consultant design staff at the required times, and slowness of the Government, PWD, and ADB in providing feedback and approval of designs that the consultants submitted. Some project components went through several design reviews, further delaying the design period. The consultants submitted a preliminary design report in April 1998, about 3 months after mobilization, but final designs were submitted progressively after October 1998 (Port Vila Wharf component) through November 2000 (Port Vila intersection improvement works)—an elapsed period of 2.75 years vs the 1 year period allowed in the appraisal implementation schedule. Prequalification and bidding for the first project component, for urban roads rehabilitation, were opened in April 1999, about 15 months after consultant mobilization. The last component bidding process, for Port Vila traffic improvement, was completed in April 2001, about 2 years after bidding began. Construction on the first project component (urban roads rehabilitation) began in January 2000. The final project component, the Erakor causeway bridge replacement, was completed in October 2001, about 1.75 years after it began, compared with a 2 year period allowed in the implementation schedule at appraisal. Appendix 2 compares the implementation schedule at appraisal with actual implementation, and gives details on each component. F. Implementation Arrangements

23. Implementation arrangements at appraisal involved an ambitious proposal to integrate the active involvement of key stakeholders in design and implementation. PWD was designated the EA, and the PWD director was the project director, who was assisted in project management by the project management engineer (PME). The PME was a full-time engineering consultant, financed by AusAID, assigned to the PWD PMU to oversee and report on activities

8 The ADB Project Review Mission, November–December 1999, estimated that Project implementation was 19%

compared with an elapsed time of 62%, and that Project implementation was 27 months behind schedule.

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of the consultants engaged to help design and supervise the project components. The PCC’s role was to plan, schedule, monitor, and periodically review the Project. 24. The actual implementation experience was unlike the ambitious aim at appraisal—which was to build professional and technical capability in a broad operational and organizational front. The differences were caused by unrealistic expectations from organizations with too few resources (particularly the municipalities of Port Vila and Luganville), and by changes in AusAID and NZODA priorities when the TAs anticipated in the appraisal were dropped because of the Government’s refocus on CRP in 1997. PWD performed its EA role as outlined, with the PWD PMU functioning throughout the Project. Staff from the municipalities and Ports and Marine Department (PMD) were not seconded to the PWD PMU because these organizations lacked appropriate professional and technical capacity. The involvement of municipalities, PMD, and NPO in project design and implementation was limited mainly to advisory and approval inputs. The PCC met regularly and most members attended, although the PCC was never chaired by the first secretary for finance, as specified in the Loan Agreement. Integration of implementation activity between the project elements and TAs through the two EAs was limited—but the lack of integration did not detract from physical aspects of the project (even though the TAs might have benefited from closer PWD involvement). But this lack of integrated effort impacted on the role and responsibility of the NPO in the development and management of the Project’s benefit monitoring and evaluation (BME) system. Neither the NPO nor, later, the DESD, really established or maintained the regular BME survey activity. Nor has the limited BME system established been sustained since project completion. DESD’s current focus is on project planning and justification, leaving project implementation to responsible ministries. Placing responsibility for project BME with the EA would have been more appropriate. G. Conditions and Covenants

25. The effectiveness of the loan was delayed by 8 months, mainly because of the Government’s fragile control in the Parliament, and associated delays in Parliamentary’s ratification of the loan signing. Appendix 3 shows the status of compliance of the 34 major loan covenants. Most loan covenants that were associated directly with project implementation were complied with, or mostly complied with. But some covenants that were associated with reporting requirements were only partially complied with, or their compliance came only after delays. Such incomplete compliance, however, did not materially affect project performance. A number of loan covenants relating to Project sustainability have not yet been complied with, but while compliance is significantly overdue, dialogue has continued among ADB, the Borrower, and relevant agencies. These delays were caused by overly optimistic expectations at appraisal of the time needed to attain compliance, and the inclusion of conditions that may have been inappropriate for the intended purposes. The legislative covenants relating to legislation requirements are partly complied with, following Parliament’s adoption of the Environmental Management and Conservation Act, and Water Resource Management Act, in November 2002; and the National Building Code Act, which should be adopted during the 2003 Parliament sessions. Elements of these covenants relating to amendments to the Physical Planning Act, and their adoption in draft physical plans by the Port Vila and Luganville municipalities, will not be complied with in the foreseeable future. Completion of these covenants is still desirable, but incorporation of such a wide legislative reform agenda into the Project was overly ambitious. Noncompliance with these elements will not directly affect the Project’s sustainability. 26. The remaining five covenants yet to be complied with all relate broadly to project sustainability, and are associated with ensuring adequate operations and maintenance (O&M) funding. Considerable dialogue has occurred among ADB, the Borrower, and relevant agencies

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to achieve compliance; Government has committed to provide appropriate funding to ensure adequate O&M for the project infrastructure, although the final mechanisms may vary from those envisaged at appraisal. Rather than adopt a road user tax or tied funding mechanism for road O&M, as specified in the loan covenant, the Ministry of Finance and Economic Management (MFEM) proposed to initially use a program budget mechanism, requiring PWD to demonstrate a capacity to handle increased O&M work and to justify required funding levels. A similar mechanism is proposed for O&M requirements of PMD, rather than an indirect approach through raising port tariffs and corporatization or privatization of PMD as required through the covenant. The Government is reappraising requirements to introduce a two-part tariff structure for the Luganville water supply system, and a stronger financial reporting system, in the light of options to corporatize, privatize, or contract out the system. Resolution of compliance with these outstanding covenants is important, because it affects the Project’s sustainability. ADB may need to review mechanisms to achieve the essential purpose of these covenants: adequate O&M funding. H. Related Technical Assistance

1. TA 2596-VAN: Urban Growth Management Strategy for Port Vila

27. This TA was provided as part of the Project’s TA package. ADB approved TA 2596-VAN for $600,000 on 27 June 1996 to help the Government draft, adopt, and implement plans and legislation for urban planning and environmental improvement for sustainable development. The Government and ADB accepted the consulting services as satisfactory. The TA’s achievements have been significant, considering the ambitious scope and nature of the Project, and Vanuatu’s unstable political environment. Although progress in physical planning has fallen short of expectations, enactment of the Environmental Management and Conservation Act and Water Resources Management Act, and the pending enactment of the National Building Code Act, are considered significant achievements. Although the Urban Growth Management Plan (UGMP), as an output from the TA, has not been adopted, some recommendations have been implemented. The UGMP serves as a reference point, and is regarded as a useful document. The extended consultation period for consideration of the legislative framework, and the amount of stakeholder dialogue, have benefited the political, public, and private sectors, and outweigh the failure to meet the original time schedule. The TA is rated less than successful. Appendix 4 includes details in a TA completion report.

2. TA 2597-VAN: Sanitation Master Plan for Port Vila

28. TA 2597-VAN was also provided as part of the Project’s TA package. ADB approved the TA for $360,000 on 27 June 1996 to help the Government prepare an SMP for the systematic development of sanitation requirements for Port Vila over a 20 year time frame, and undertake feasibility level design of the first phase activities proposed through the Project. The Government and ADB accepted the consulting services as satisfactory. Although the SMP has not been adopted, some recommendations have been implemented. The SMP serves as a reference point, is regarded as a useful document, and is expected to form the basis of a subsequent sanitation works program, either as a separate project or within an integrated urban infrastructure project. The consultation process through the TA and the stakeholder dialogue have benefited the political, public, and private sectors. The TA is rated successful. Appendix 5 includes details in a TA completion report.

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I. Consultant Recruitment and Procurement

29. Consultants were engaged in three packages: (i) the PME, who was responsible for day-to-day activities and project administration; (ii) specialist services in design and supervision of the components for roads, sewage, water supply and sanitation, and BME; and (iii) consultants for the design and supervision of construction at the Port Vila Wharf. AusAID recruited the PME, in consultation with the Government and ADB. The Government recruited for the other two packages, with ADB loan financing. The recruitment and use of consultants, financed by ADB, was in accordance with ADB’s Guidelines for the Use of Consultants. The specialist services in design and supervision of the components for roads, sewage, water supply and sanitation, and BME took 26 person-months. Nine months of specialist services for the design and supervision of construction of Port Vila Wharf were combined in a single contract.9 These consultants were fielded in January 1998, about 6 months after loan effectiveness, and completed their duties in November 2001, almost 4 years later. Contract variations during project implementation extended the total specialist services to 44 person-months. AusAID completed recruitment of the PME in October 1996; the initial PME contract period, involving 45 person-months, ended in July 2000. Implementation arrangements were changed through negotiations among PWD, AusAID, and ADB in March 2000; PWD wanted to promote the local PME assistant to the position of PME after 1 year of working under the guidance of the PME, who was leaving at contract completion. This change involved AusAID providing the services of an international project engineer (24 person-months) and ADB funding a local PME (21 person-months) and an international project engineer (18 person-months). The change also addressed the need for additional international project engineering assistance during the concentrated period of civil works implementation during the revised project schedule. 30. All civil works and equipment were procured in accordance with ADB Guidelines for Procurement and in line with appraisal expectations. The three packages under the water supply and sanitation component were procured through local competitive bidding (LCB), with some equipment procured by international shopping (IS). The component for rehabilitation and improvement of urban roads had two packages; procurement was through force account, international competitive bidding (ICB), and LCB. Because urban roads were so deteriorated, PWD began patching potholes and edge repair through force account in March 1999; this work continued until October 1999. The resealing contract was higher than the appraisal cost, so procurement was by ICB rather than IS, as was proposed in the report and recommendation of the President (RRP). The small central business district (CBD) package for Port Vila road improvement was procured by LCB. The contract package for the Port Vila Wharf component was procured by ICB rather than IS (proposed in the RRP). Because of the urgent need for urban road resealing and rehabilitation, that contract was by two-envelope tender, to shorten the tendering period. The Port Vila Wharf component followed the usual ICB tender process of prequalification. 31. The preparation of tender documents was protracted. Delays in bid appraisal were caused by Government practices that were not in accordance with ADB guidelines, contractor challenges of the prequalification process, Government attempts to fund some civil works through grant aid, uncertainties because some contract package funding was higher than appraisal costs, and difficulties in Government contribution funding. The need to improve arrangements for tender evaluation was highlighted in the 1999 ADB review missions, which led to revisions of project management arrangements within PWD from April to July 2000. These

9 Agreed at a meeting of the Government and ADB on 22 November 1996. The rationale was the increased

administrative efficiency of managing a single firm for two relatively simple packages for civil works rehabilitation.

10

arrangements provided additional technical assistance to PWD, and led to closer consultation with the design consultants and faster responses to documents submitted for approval to PWD and the Government. J. Performance of Consultants, Contractors, and Suppliers

32. The performance of consultants varied. Until early 2000, the PME’s performance was unsatisfactory. The PME failed to establish a positive working relationship with ADB, the design consultants, or the first contractor. The PME’s conceptual grasp of the Project was poor, and he could not satisfactorily guide either the design or construction works. Thus, his contract was terminated, and he was replaced. The work of some design and supervising consultants was also poor. Although work on the water supply and port design was well done, work on road rehabilitation design was weak (para. 7), and the CBD work on the design of road improvement required substantial revision (which the new PME eventually did, successfully). The design and supervision consultants failed to provide specialist team members in accordance with project requirements, and the working relationship between the PME and consultants was not effective. ADB monitored the work of the PME and design consultants closely, with the intention of correcting the problems. Revised implementation arrangements were adopted in mid-2000. Performance of the design and supervision consultants improved, and remained satisfactory. The performance of the new project engineers was rated highly satisfactory, considering the rapid progress in project implementation. 33. The civil works contractors and equipment suppliers performed satisfactorily. All contracts were completed within 1–2 months of the specified contract completion dates. The delays were caused by the increased deterioration of the rehabilitated works due to delays in the starting of contracts of project implementation (especially the urban road rehabilitation contract), and monsoon weather conditions during the contract period (the Luganville drainage improvement works). Work of the contractor for the Port Vila Wharf rehabilitation was rated highly satisfactory because of (i) the manner in which work was conducted; (ii) the timely completion of the work, despite its increased scope because deterioration of the wharf structure was significantly more serious than was assessed at appraisal; and (iii) the control of contract costs, which resulted in significantly more work than anticipated, and which was completed at a marginally higher cost than the 4-year-old appraisal estimate. K. Performance of the Borrower and the Executing Agency

34. The performance of the Borrower and the EA are rated partly satisfactory, although significant delays in implementation until 2000 had a detrimental impact on most aspects of the Project. Although the Borrower promptly established the PCC, its effectiveness as a coordination mechanism was limited. The ambitious roles assigned at appraisal to stakeholders, including the municipalities, PMD, and NPO, proved to be unrealistic because of (i) the anticipated complementary TAs in institutional strengthening and capacity building failed to materialize; (ii) NPO was restructured into DESD, which was relocated into MFEM with a new focus on project review and appraisal; and (iii) institutional changes detracted from project implementation because of CRP rightsizing, and administrative reforms and requirements. The cash flow problems occurred because of the Government’s inadequate allocation for funding, and its slowness in seeking reimbursements from the ADB loan. The cash flow problems caused delays in payments to contractors, and the use of incorrect accounts to make payments. That exacerbated the Government’s management of project finances. To address these deficiencies, the Government introduced new financial management arrangements in February 2001, after reviewing Project finances.

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35. Shortages of PWD staffing affected project management, particularly during early implementation. The shortages required additional consultant inputs in the tender and construction phases. CRP’s rightsizing requirements depleted PWD field teams that would otherwise have worked on urban roads, water supply, and drainage—which meant increased use of external contractors, at higher cost and lower quality. The PWD staffing problem was compounded by three other major infrastructure projects, all managed by PWD, that were concurrently under way: the Efate Island project for ring road improvement, funded by the Japan International Cooperation Agency; upgrading of the Buaerfield international airport in Port Vila; and rehabilitation from Cyclone Dani. 36. PWD consistently sent monthly and quarterly reports during project implementation, although some reports were delayed. The mid-term review report, due 2 years after loan effectiveness, was delivered 2½ years late, and was only a summary of past PWD quarterly reports and a year-old special review of finances. The EA provided a draft government PCR on the Project in September 2002. Although still incomplete, it was considered reasonably adequate. The Project had limited impact on PWD’s institutional capacity and development until 2000, with the exception of development training that led to the promotion of a local Project Manager assistant to PME. PWD’s institutional capacity and development improved after 1999, during project implementation, but the net improvement after project completion was small. There is a significant need for continuing improvement. PWD has a notable lack of capacity in financial management. L. Performance of ADB

37. ADB’s overall performance was satisfactory, even though the project design was protracted, with implementation arrangements that were overly ambitious. ADB’s role could have been more proactive from initial implementation to mid-1999. The Project addressed major needs for urban infrastructure rehabilitation that the Government wanted, but it could have focused on fewer components, with capacity-building support limited to those sectors. During project implementation, ADB completed nine missions and maintained an active dialogue with the Government, PWD, and other stakeholders. The ADB South Pacific Regional Mission provided good project supervision, including close proximity support and good continuity by assigning a single officer as the main supervisor. Starting in late 1998, ADB staff worked with the Government to correct the unsatisfactory working arrangements between the PME and the design and supervising consultants, to improve the services of both parties. This was accomplished in early 2000. During late project implementation, ADB initiated a dialogue with the Government and PWD to revise the project administration arrangements in PWD. After the special loan administration mission in late 2000, dialogue was initiated with PWD that resulted in an important review of finances report in January 2001. The extensive stakeholder dialogue was an important feature of the process.

III. EVALUATION OF PERFORMANCE

A. Relevance

38. Population in Port Vila and Luganville continues to grow rapidly, particularly through immigration from the outer islands, which increases pressure on the urban infrastructure. With the deterioration of urban infrastructure in both towns, the Project has clearly enhanced economic growth from tourism, management of environmental quality, and community health. At

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appraisal, the Project was consistent with the Government’s development strategy, and ADB’s lending strategy and strategic objectives for Vanuatu. The consistency still applies. B. Efficacy in Achievement of Purpose

39. Most project components that were completed achieved their intended purposes. Benefits have been the improved urban road networks in Port Vila and Luganville, the partially improved water supply in Luganville, less flooding in the Sarakata area, and improvements to the international wharf at Port Vila. But not all project components were completed, so some of the Project’s intended benefits were not achieved, mainly those related to implementation of the SMP’s first stage. The impact of failure to complete other project components on anticipated benefits was less, because their basic needs were not demonstrated during reassessment studies during the Project (uncompleted projects include development of a new water source and related works in Luganville, lengthening of the Erakor causeway bridge, and the priority traffic management improvement in Port Vila and Luganville). The sustainability of project benefits may be at some risk until the issues associated with adequate operations and maintenance (O&M) are addressed. Despite some progress, further efforts and commitment are necessary before the sustainability of project benefits can be assured. Institutional capabilities were not developed to the extent anticipated. C. Efficiency in Achievement of Outputs and Purpose

40. Project implementation started slowly, but then ADB and the EA addressed the issues causing the delay. After early 2000, the pace of implementation accelerated, and the Project was essentially completed 4 months after the completion date set at appraisal. The project scope was reassessed efficiently and often, in the context of available funds, to maximize project outputs and benefits. 41. The economic performance for all project components was assessed, based on the economic internal rate of return (EIRR), the net present value (NPV), and financial performance as assessed by the financial internal rate of return (FIRR). The general assumptions used in the economic and financial analyses were essentially the same used at appraisal. The results were generally higher than those calculated at appraisal; their levels are considered fully acceptable. 42. The EIRR for rehabilitation of urban roads was 18.6% vs 19.8% at appraisal. The lower EIRR was caused by a cost increase almost three times higher than the appraisal estimate. That cost increase was partly offset by higher vehicle operation cost savings, caused by the increased deterioration of subcomponent roads during project delays. A higher FIRR of 14.4% vs 10.0% at appraisal for the Luganville water supply was largely due to the deferred capital expenditure for a new water supply source. The Port Vila international wharf rehabilitation works generated a positive NPV of Vt347.7 million (12% discount rate), which was about nine times higher than the NPV calculated during appraisal, because the wharf rehabilitation cost was lower than the replacement wharf cost in 2002 prices. The EIRR for Sarakata drainage improvement was 18.7%, assuming the appraisal flood damage estimate, compared with the appraisal estimate of 4.0%. The EIRR for the Erakor bridge and causeway replacement was 44.2%, taking into account the avoided cost of new road works. Appendix 6 gives details of the reappraisals.

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D. Preliminary Assessment of Sustainability

43. Project sustainability is determined by the ability to preserve assets in good condition through regular maintenance and efficiency of operations. The O&M of infrastructure assets has been significantly deficient in Vanuatu. AusAID and NZODA complimentary TAs and ADB project covenants addressed this problem. The Government’s failure to comply with these covenants, resulting cancellation of some complementary TAs, has weakened the Project’s sustainability. Ongoing discussions between ADB and the Government are addressing these issues. Progress is apparent through PWD’s development of a management improvement plan (MIP), which will address its important maintenance capacity. Part II, section G gives details on Government intentions to fulfill covenants that impact on sustainability. The sustainability of physical assets established and rehabilitated through the Project is not yet fully ensured, and requires (i) the Government’s further demonstration of commitment to provide appropriate funding levels for infrastructure asset maintenance, and (ii) the development of adequate O&M resources and capacity within responsible agencies, particularly PWD. E. Environmental, Sociocultural, and Other Impacts

44. The Project had no adverse environmental or sociocultural impacts. It had only minor, temporary, and localized environmental impacts during construction, which were mitigated by sound engineering practices. The components for rehabilitation of urban roads, the Erakor causeway bridge, and traffic improvement have generally improved the quality of life in communities they serve by providing better and more reliable access to employment, markets, schools, and medical and other social facilities. Improved water supply in Luganville, and better drainage in Sarakata, have improved environmental and public health conditions. Rehabilitation of the Port Vila Wharf has ensured that vital foreign trade shipments will not be disrupted. The Project has mitigated the adverse environmental effects of urban growth, and improved the management of natural resources. The Project will promote economic growth by enhancing conditions that encourage tourism. The eventual passage of related legislation will contribute substantially to environmental and natural resources management in Vanuatu.

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

45. The Project was rated successful (Appendix 7). The Project was assessed as relevant, efficacious, and efficient, although sustainability was rated only as likely, while institutional impacts were rated average. There is an urgent need for the Government to address the sustainability of O&M to sustain the standards of the Project’s urban infrastructure, and the capacity for institutional building in PWD, PMD, and the municipalities. The Environmental Management and Conservation Act and the Water Resources Management Act were passed in November 2002, but to ensure compliance there is still a need to monitor and enforce these laws, and to build local capacity to do so. The National Building Code Act has been delayed until the 2003 Parliament session. B. Lessons Learned

46. Future infrastructure projects should limit their multifaceted nature, concentrate on a few main infrastructure modes, limit agency participants, ensure the inclusion of project financial capacity, and give responsibility for BME to the EA or the infrastructure operating agency. Vanuatu, with its limited institutional capacity and relative Government instability, is better suited

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to projects that are less complex and diverse than this one. That would simplify implementation arrangements and O&M requirements. Future projects should incorporate capacity building, and their effectiveness should be monitored carefully. 47. Loan covenants should be limited to a few directly relevant and achievable conditions with strong Government commitment. The loan covenants in this project that related to O&M sustainability were too wide–ranging and indirect. An alternate approach, requiring a commitment for direct O&M budget funding or related capacity building, would have been more effective, because it would have been simpler to understand, and easier to comply with. 48. The capacity and funding for O&M should be carefully assessed for all future infrastructure projects in Vanuatu, and direct mechanisms to ensure sustainability should be implemented before the loan becomes effective. Project sustainability is a significant problem in Vanuatu because of (i) the PWD’s limited capacity in maintenance, and a virtual absence of maintenance capacity in other organizations; (ii) a reluctance of MFEM and the Government to allow the use of “tied” funds because of concerns that the funds will be misused; and (iii) the Government’s reluctance to place O&M for the Luganville water supply under an entity dedicated to water services, as is done in Port Vila. 49. Reliance on complementary TA from other agencies should be limited to noncritical project areas, and only if the continuity of funding is assured. The late withdrawal of some TA and institutional strengthening from AusAID, and all of NZODA assistance, significantly weakened the Project’s capacity building and institutional strengthening. That, in turn, weakened the Project’s sustainability. C. Recommendations

1. Project Related

50. Project Administration. The Project should be kept under administration, even though it is closed, to facilitate compliance with the outstanding covenants discussed in para. 52. ADB should also monitor completion of the requirement to enact the National Building Code Act. 51. Future Monitoring. DESD’s responsibility for maintenance of the BME is no longer appropriate, because DESD has changed its focus. Project implementation and monitoring has been assigned to the responsible ministries. The sustainability of project BME would be enhanced, particularly in assisting PWD to manage of assets and plan infrastructure maintenance, if that responsibility were transferred from DESD to PWD. Key elements that should be monitored, at least annually, include the (i) traffic counts on project urban roads and the Erakor causeway bridge; (ii) leakage levels and efficiency of tariff collection for the Luganville water supply system; (iii) maintenance of the Sarakata drainage canal, and the rate and cost of flooding; and (iv) maintenance of the Port Vila Wharf. 52. Covenants. Discussions between ADB and the Government should continue, to ensure eventual compliance with the outstanding loan covenants, particularly those related to O&M funding. These include: (i) the covenant to introduce a two-part water tariff in Luganville; and appropriate institutional arrangements; (ii) the provisions that relate to PMD’s reorganization and tariff increases to meet the need for adequate funding for the maintenance of Port Vila Wharf; and (iii) varying the road-user tax provision to allow the Government to use alternative approaches to ensure adequate funds to maintain urban roads. The assurance of the Government’s commitment no later than June 2004 is appropriate.

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53. Additional Assistance. Additional loans are needed for urban infrastructure, and for capacity building and institutional strengthening. Further infrastructure loans possible to complete project components that were canceled, such as finishing the urban road and drainage networks in Port Vila and Luganville, particularly roads with high traffic density that link major settlement areas. Capacity building and institutional strengthening are needed to build sustainability in urban infrastructure, as well as environmental and natural resource management, including (i) capacity for project financial management at PWD headquarters, (ii) maintenance of urban infrastructure, (iii) urban planning and infrastructure maintenance in Port Vila and Luganville, (iv) monitoring and enforcement of the Environmental Management and Conservation Act and Water Resources Management Act at the EU, and (iv) monitoring and enforcement of the National Building Code Act and Physical Planning Act at the Physical Planning Unit (PPU). 54. Timing of Project Performance Audit Report Preparation. A project performance audit report (PPAR) may be prepared within the next 2 years to assess the long-term impacts of the Project. But before fielding the PPAR mission, ADB should require the Government to continue monitoring the performance of project components and reporting project benefits.

2. General

55. More attention should be paid to performance of project components during project appraisal. A list of key performance indicators should be prepared that will adequately measure project performance, and that can be measured easily, taking the Borrower’s resources into account. ADB missions should constantly monitor the EAs’ actions in performance monitoring, and provide assistance when needed. 56. Ideally, the impact of project loans should be focused rather than multifaceted in countries like Vanuatu, with unstable governments and weak institutional capacities. This will ensure project controls during implementation, and more effective performance monitoring. The Project was designed with too wide a range of components and impacts for the capacity of the EAs and participating organizations. 57. Policy and institutional issues that affect the sustainability of urban infrastructure and the adequacy of O&M funding and activity have wide-ranging impacts on project loans in Vanuatu. The need is urgent to address the Government’s commitment to a funding mechanism that will provide adequate O&M funding for urban infrastructure. Similarly, the Government’s emphasis should shift away from providing new urban infrastructure until the O&M funding arrangements for the existing infrastructure are adequate. Provision of adequate O&M funding for the ports and water supply components may require that new institutions such as companies or authorities be established.

Appendix 1 16

PROJECT HISTORY OF MILESTONE EVENTS A. Project Processing to Loan Effectiveness

13 September 1993 April–November 1994 7–16 June 1995 15 September 1995 20 September–4 October 1995 7 December 1995 27–29 May 1996 6 June 1996 27 June 1996 29 July 1996 16 June 1997

Approval of Project Preparation Technical Assistance Feasibility Study Loan Fact-Finding Management Review Meeting Appraisal Staff Review Committee Meeting Loan Negotiations Board Circulation Board Approval Signing of Loan Agreement Loan Effectiveness

B. Asian Development Bank (ADB) Supervision and Implementation

28 October 1996 22 November 1996 7 April 1997 18 September 1997 12 January 1998 27 April 1998 May 1998 September 1998 October 1998 30 April 1999

Project management engineer (PME) fielded Government and ADB meeting. Agreed to tender two ADB consulting supervision packages under one contract Consultants fielded for TA No. 2596-VAN Consultants fielded for TA No. 2597-VAN: Sanitation Master Plan for Port Vila Consultants fielded for Loan No. 1448-VAN Final Sanitation Master Plan report received for TA No. 2597-VAN (due date: 28 May 1998) Consultants field services completed for TA No. 2597-VAN: Sanitation Master Plan for Port Vila Final feasibility study and summary reports for Sanitation Master Plan received for TA No. 2597-VAN Consultants completed design and contract documents for Port Vila Wharf rehabilitation Draft Environment and Resource Management Bill submitted by Government for public review

Appendix 1 17

24 May–25 June 1999 30 August 1999 15 November–24 December 1999 17 March 2000 July 2000 27 November–4 December 2000 17 January 2001 March 2001 April 2001 1 October 2001 November 2001 10 December 2001 13 December 2001

ADB Third Project Review Mission Received Final Report for TA No 2596, 6 months after final tripartite meeting ADB Fourth Project Review Mission Bank agreed to variation in PME arrangements and funds local PME and additional international project engineer, to complement funding through the Australian Agency for International Development (AusAID) of an additional international project engineer from AusAID PME consultancy package International PME completed. AusAID contract term and revised arrangement for local PME and international project engineers began Special Loan Administration Mission After a Public Works Department review of Project finances, Port Vila intersections work was canceled, and scope of Port Vila traffic improvement work was reduced Revised completion date for all Urban Infrastructure Project (UIP) works as 19 September 2001, compared with ADB target completion date of 30 June 2001 Public awareness program conducted for Port Vila one-way traffic system by municipality and Central Business District Traffic Committee Substantial completion date for all UIP work (ADB target completion date was 30 June 2001). Minor works continued BME Completion Report Received Mid-term Review Report from PWD, about 2½ years after the due date Received from consultants final draft bills for Environmental Management and Conservation and Water Resource Management for TA No 2596

Appendix 1 18

25 April 2002 6 September 2002 9–20 September 2002

Port Vila workshop on National Building Code Act for TA No 2596 Received Government Project Completion Report (PCR) PCR Mission

Appendix 3 20

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Covenant

Reference in Loan

Agreement

Status of Compliance The Borrower will carry out the Project with due diligence and efficiency, and conforming with sound administrative, financial, engineering, and environmental practices.

Section 4.01(a) Mainly complied with

In carrying out the Project, and operating the project facilities, the Borrower will perform, or have performed, all obligations set forth in Schedule 6 of this Loan Agreement.

Section 4:01(a) Mainly complied with

The Borrower will make available, as promptly as needed, the funds, facilities, services, land, and other resources that are required, in addition to loan proceeds, to carry out the Project and to operate and maintain project facilities.

Section 4.02 Complied with

In carrying out the Project, the Borrower will have competent and qualified consultants and contractors, acceptable to the Borrower and the Asian Development Bank (ADB), employed to an extent and under terms and conditions satisfactory to the Borrower and ADB.

Section 4.03 (a) Complied with

The Borrower will have the Project carried out in accordance with plans, design standards, specifications, work schedules, and construction methods acceptable to the Borrower and ADB. The Borrower will furnish or have furnished to ADB, promptly after their preparation, such plans, design standards, specifications, and work schedules, and any subsequent material modifications, in such detail as ADB reasonably requests.

Section 4.03 (b) Complied with

The Borrower will ensure that the activities of its departments and agencies, with respect to carrying out of the Project and operation of the project facilities, are conducted and coordinated according to sound administrative policies and procedures.


The Borrower will make arrangements satisfactory to ADB to insure project facilities against such risks, and in amounts that are consistent with sound practice.

Section 4.05 (a) Insurance policies were taken out on office equipment, and vehicles were procured through the loan.

The Borrower will insure, or cause to be insured, the goods to be imported for the Project and to be financed from the loan proceeds against hazards involved in the acquisition, transportation, or delivery to the place of use or installation. Any indemnity for such insurance will be payable in a currency freely usable to replace or repair such goods.

Section 4.05 (b) Complied with. The imported goods were delivered CIF (Cost, Insurance & Freight) to the site in Vanuatu.

The Borrower will maintain, or have maintained, records and accounts to identify the goods and services and other expenditures financed through loan proceeds, including records that (i) disclose project expenditures, (ii) record project progress, including its costs, and (iii) reflect, in accordance with sound accounting principles, the operations and financial conditions (to the extent relevant to the Project) of the Public Works Department (PWD) and other Borrower agencies responsible for carrying out the Project, and operating project facilities.

Section 4.06 (a) Complied with. The Project accounts were established.

The Borrower will (i) maintain, or cause to be maintained, separate accounts for the Project; (ii) have such accounts and related financial statements audited annually, in accordance with auditing standards consistently applied by independent auditors whose qualifications, experience, and terms of reference are acceptable to ADB; (iii) furnish to ADB, as soon as available but not later than 9 months after the end of each fiscal year, certified copies of audited accounts, financial statements, and auditors’ reports

Section 4.06 (b) Incomplete compliance. Late submission of 1999 and 2001 Audited Financial Statements (AFS).

Appendix 3 21

(including the auditors’ opinions on the use of loan proceeds and compliance with the covenants of the Loan Agreement), all in English; and (iv) furnish to ADB, on request, other information concerning accounts, financial statements, and audits. The Borrower will enable ADB, on request, to discuss financial statements and financial affairs related to the Project with the Borrower’s auditors, and will authorize and require any auditor’s representatives to participate in discussions that ADB requests, provided that any such discussion are conducted only in the presence of an authorized officer of the Borrower, unless the Borrower agrees otherwise.

Section 4.06 (c) Complied with

The Borrower will furnish, or cause to be furnished, to ADB all reports and information that ADB reasonably requests concerning (i) the loan, and expenditure of its proceeds and maintenance of its service; (ii) the goods, services, and other expenditures financed from loan proceeds; (iii) the Project; (iv) the administration, operational, and financial expenses concerned with the Project of the Public Works Department (PWD) and other Borrower agencies that are responsible for carrying out the Project and operation of project facilities; (v) financial and economic conditions in the Borrower’s territory and its international balance-of-payments position; and (vi) other matters relating to the loan’s purposes.

Section 4.07 (a) Complied with

The Borrower will furnish, or cause to be furnished, to ADB quarterly reports on how the Project is carried out, and on the operation and management of project facilities. The reports will be submitted in the form, detail, and time period that ADB reasonably requests, and will indicate, among other things, progress made and problems encountered during the quarter under review, steps taken or proposed to remedy those problems, and the proposed program of activities and expected progress in the next quarter.

Section 4.07 (b) Complied with, but sometimes delayed.

Soon after physical completion of the Project, but no later than 3 months thereafter (or by a later date if agreed by the Borrower and ADB), the Borrower will furnish to ADB a report on the Project’s execution and initial operation, including its cost, the Borrower’s meeting of its obligations through the Loan Agreement, and accomplishment of the loan’s purposes.

Section 4.07(c) Partly complied with. Incomplete draft report provided in September 2002.

The Borrower will allow ADB’s representative to inspect the Project, the goods financed from the loan proceeds, and relevant records and documents.


The Borrower will designate the PWD director as Project director. He or she will be helped in Project management by a fulltime consultant designated as the project management engineer (PME). That person will be responsible for day-to-day project activities and administration. The PME will work in the project management unit (PMU).

Schedule 6, Part I, item 2

Complied with

As the Executing Agency (EA), PWD will be responsible for implementing civil works through the Project, including design, construction supervision, and management. The Borrower will ensure that the municipalities of Port Vila and Luganville, PMD, and the National Planning Office (NPO) are also involved in the project design and implementation. Staff from the two municipalities and PMD will be seconded, if needed, to PWD to support the operation and to provide experience for future operations and maintenance (O&M) of project facilities.


Mostly complied with. No staff from PMD or the two municipalities were seconded to the Project. Technical capacity in all three organizations was limited.

Appendix 3 22

The Borrower will ensure that the Ministry of Finance (MOF) is responsible for overall project coordination and will establish a project coordination committee (PCC) for the Project. The PCC will be chaired by the first secretary of finance, who will be project coordinator. The PCC secretary will be project director. The other PCC members will be the MOF [see earlier comment in this para.], the director of finance, the NPO director, the PMD director, the director of physical planning, the director of health, the principal environment officer, and the town clerks of Port Vila and Luganville. The PCC will meet at least quarterly to plan, schedule, monitor, and review project implementation.


Complied with. PCC established and regular quarterly meetings were held, but MOF Director of Finance did not attend PCC meetings.

PWD will be responsible for O&M of primary and secondary roads and the Luganville water supply facilities; PMD will be responsible for the O&M of Port Vila Wharf; and the Municipality of Luganville will be responsible for O&M of the Luganville surface water drainage system.

Schedule 6, Part II, item 4

Partly complied with. PMD has no maintenance capacity or O&M budget; the Luganville municipality does not maintain a drainage facility in Sarakata district.

The Borrower will ensure that agreements between PWD and the Port Vila and Luganville municipalities concerning PWD’s responsibility for the maintenance of the bituminous surfaces of all primary (national) and secondary (access) roads within their urban areas, including roads covered by the Project, are finalized by 30 June 1997, and are successfully implemented.

[Schedule 6, Part II, item 5

Complied with, but late

The Borrower will, by 30 June 1997, examine its road user tax policies in consultation with ADB, and ensure that user charges are adjusted periodically in accordance with inflation and international prices in order to maintain such charges at the current level in real terms.


Not complied with. ADB and the Ministry of Finance (MOF) continue to examine road user tax policies.

The Borrower will ensure that adequate funds are allocated for road maintenance. The Borrower will, in consultation with ADB, determine annual increases in its road maintenance budget in real terms, taking into consideration the additional municipal roads put under the jurisdiction of PWD pursuant to the agreements referred to above. A report on such arrangements will be included in the quarterly progress reports submitted to ADB pursuant to Section 4.07(b) of this Loan Agreement.


Not complied with. The present funds are inadequate. Work under the PWD Management Improvement Plan (MIP) will establish appropriate levels of annual funds for road maintenance. An application has been made for budget increase in 2003.

The Borrower will, by 30 June 1998, examine its international port operations, including its tariff policies, and agree with ADB on appropriate organizational arrangements and tariff policies to ensure delivery of port services efficiently and cost effectively.


Not complied with. The Government is still examining the establishment of a port authority, and initiated related studies in 2002.

The Borrower will undertake benefit monitoring and evaluation (BME) for each project component to ensure that the project facilities are managed efficiently, and that benefits are maximized. The BME activities will have strong community involvement and cover public health and socioeconomic changes, environmental improvements, and improvements in efficiency of municipality operations.

Schedule 6, Part III, item 9

Partly complied with. BME activity during project implementation did not involve significant community or stakeholder participation. BME has not been maintained since project completion.

The BME activities will be the responsibility of NPO. NPO will submit a detailed implementation plan for ADB’s review and concurrence within 6 months after the effective date. The BME plan will be prepared and implemented in accordance with ADB’s Handbook on Benefit Monitoring and Evaluation. NPO will furnish ADB with annual reports on BME throughout project implementation.

Schedule 6 Part III, item 10

Partly complied with. NPO commitment to BME activity during project implementation was weak. No BME has been maintained since project completion.

The Borrower will undertake a midterm review about 2 years after the effective date to assess project progress and relevance of project components and, if necessary, to adjust the project scope and design. The review will take

Schedule 6 Part IV, item 11

Complied with, but late. Review report submitted by DESD/PWD in December 2001.

Appendix 3 23

special note of recommendations of the technical assistance (TA) for the Sanitation Master Plan for Port Vila in reviewing the scope for part A of the Project. The review will focus on the project scope and implementation status, sustained O&M, progress on policy issues, beneficiary participation, local resource mobilization, and environmental impact. The Borrower will, by 31 December 1997, introduce a budget management and recording system for PWD maintenance expenditures on (i) urban roads in the national network; (ii) secondary urban roads in the municipalities whose maintenance is contracted to PWD; and (iii) rural roads, to be separately identified to improve accounting transparency.

Schedule 6, Part V, item 12

Not yet complied with. Recording system to be prepared by the EA under MIP.

The Borrower will prepare and present legislation for water resources, assessment of environmental impact, and comprehensive environmental legislation for consideration of the Vanuatu Parliament by 31 December 1997.


Partly complied with. Legislation for the environmental and water were prepared through the Urban Growth Management Strategy (UGMS), which the Vanuatu Parliament passed in November 2002.

The Borrower will also review and prepare amendments to the Physical Planning Act, to provide for a national building code. The Borrower must present such amendments for Parliamentary consideration by 31 December 1997.


Not yet partially complied with. No amendments to the Physical Planning Act were prepared under the UGMS. A separate National Building Code Act, prepared through UGMS, was submitted to Parliament for approval in October–November 2002; approval delays for 2003.

The Borrower will ensure acceptance of existing or revised draft physical plans by the municipal councils of both Port Vila and Luganville by 31 December 1997.


Not complied with. The municipalities did not adopt the plans prepared through UGMS.

The Borrower will ensure that by 31 December 1997 Port Vila and Luganville will prepare and submit annual accounts in accordance with their obligations through the Municipalities Act.


Partially complied with. Annual accounts for Luganville have been received, but annual accounts for Port Vila have not been submitted.

The Borrower will introduce procedures to record expenditures and income for the Luganville water supply system by 31 December 1997.


Partially complied with. The Government has limited recording procedures in place, but is still considering options to corporatize, privatize, or contract out operations for water supply.

The Borrower will adopt a two-part tariff structure for the Luganville water supply system, similar to that of Port Vila, by 30 June 1997.


Not complied with. Tariff matters were deferred because of Government considerations of options for future institutional arrangements.

The Borrower will, by 30 June 1997, provide rights-of-way and acquire land for (i) the water supply source and transmission line for the Luganville water supply system, (ii) drainage improvements in Luganville, and (iii) road improvements in Port Vila and Luganville.

Schedule 6, Part V, item 19.

Not required

Appendix 4 24

URBAN GROWTH MANAGEMENT STRATEGY FOR PORT VILA TECHNICAL ASSISTANCE COMPLETION REPORT

Division: PARD/SPRM

TA No. and Name Amount Approved: $600,000 TA 2596-VAN: Urban Growth Management Strategy for Port Vila

Revised Amount:

Executing Agency: National Planning Office

Source of Funding: ADB TA Amount Undisbursed $67,792

TA Amount Utilized $532,208

Date of Report TA Completion Date Approval 27 June 1996

Signing 10 July 1996

Fielding of Consultant(s) 7 April 1997

Original March 1998 Account Closing Date Original November 2002

Actual June 2003 Actual June 2003

A. Description

1. Vanuatu is small compared with megacities in Asia, but its rate of urbanization, and resulting problems, are equally severe. Numerous past plans focused on individual aspects of urban development, but did not consider cross-cultural problems that would be encountered in implementation such as (i) land and custom issues, (ii) coordination between public and private stakeholders, (iii) securing of finance and equity, and (iv) the ability of community sectors to pay. 2. Environmental law in Vanuatu was reviewed through an ADB technical assistance (TA)1 in 1991. The Government Environment Unit (EU) then prepared a National Conservation Strategy. The review showed major gaps in the sectoral coverage of specific environmental law, particularly in the areas of waste management, water resources, and dangerous substances. There was also a need to adopt a comprehensive environmental protection act, including measures for environmental impact assessment, pollution control, and waste management. The Cabinet approved the drafting of comprehensive environmental legislation on 18 February 1993. 3. Physical planning in Vanuatu was governed by the Physical Planning Act 1986, which needed to be reviewed for effective enforcement of planning control. Physical plans for land development, as required under the Act, had been drafted, but the municipalities of Port Vila and Luganville had not yet approved them. A national building code had been drafted, but had not yet been enacted into law. B. Objectives and Scope

4. The primary focus of the TA was to help the Government formulate an urban growth management strategy for Port Vila, including identification of major parameters driving urban growth, improvement of the legislative framework for urban planning and the environment, and assistance in urban physical planning and traffic planning in the context of sustainable development described in the National Conservation Strategy. The TA had two components: (i) the policy framework for urban growth management, and (ii) the legislative framework. The TA was specifically to help the Government review, update, draft, adopt, and enforce (i) existing legislation and regulations for physical planning, including the national building code and draft physical plans; and (ii) draft legislation on water resources and environmental management.

1 ADB. 1989. Technical Assistance 1116 VAN: Environmental Legislation Review. Manila.

Appendix 4 25

C. Evaluation of Inputs

5. The TA provided $599,000, including 20.6 person-months of consulting services over a 12-month period, $24,700 for workshops and seminars, and $69,000 for equipment and administrative costs. Consulting services were provided by a team leader and regional/urban planner (5.25 mo.), physical/strategic planner (1 mo.), environmental planner (2.25 mo.), planning coordinator (3.5 mo.), and legal specialist (8.6 mo.). The Government provided counterpart staff that the consultants trained, and liaison officers in concerned agencies, plus office space and support services for the consultants. 6. The formulation of the TA and the associated terms of reference (TOR) were considered satisfactory. The scope of the TA was overly ambitious. The time period allowed for the review, consultation, enactment, and pubic awareness program for the legislation component was unrealistic, considering Vanuatu’s fragile political environment. 7. The consultants’ performance was generally satisfactory. The delivery of reports and the conduct of workshops were broadly in line with the TA program until the milestone mid-term report in August 1997. But the work program outputs in the mid-term report were short of those expected under the TA program schedule. The shortcomings were caused by delays in elements of the legislative framework pending agreement to an amended work program recommended in the inception report, and various contractual and payment delays, which were resolved in October 1999. These delays were largely caused by Government delays in the legislation framework discussions, and a consultation process that was longer than anticipated. Some delays were associated with consultant availability for revised time inputs. 8. After the TA final report was submitted, the finalization of three legislation acts, the preparation of the environmental law handbook, and a public awareness campaign remained outstanding due to the long consultation process required for such legislation in Vanuatu, and the complexity of the legislation presented by the legal specialist. After a dispute between the legal specialist and the consultant firm over contractual matters, and discussion among the consultants, Government and ADB, the legal specialist was replaced and a simpler and user-friendly legislation framework was developed. The Environmental Management and Conservation Act, Water Resources Management Act, and National Building Code Act were then approved by the Cabinet, and the former two were passed by Parliament in November 2002. National Building Code has been submitted to parliament for approval in 2003 session. Because of the simpler legislation, the Attorney General’s Office decided an environmental law handbook was not necessary; the notes to the acts perform that function. 9. During the Project, the regular review missions described in the Performance of ADB section of this report reviewed progress of the TA. ADB initiated advisory and corrective actions when necessary. Nine review missions and an inception mission—an average of two missions annually—were undertaken from 15 May 1997 to 20–27 August 2001. The Executing Agency, the National Planning Office (NPO), played a strong role during the main TA period when its involvement was proactive. The strength of involvement has lessened under the Department of Economic and Social Development (DESD), as the TA activities focused mainly on the legislation framework. During that period, the State Law Office2 and the Physical Planning Unit (PPU) were actively involved.

2 The State Law Office was renamed the Attorney General’s Office during the public services restructuring process

initiated through the Comprehensive Reform Program.

Appendix 4 26

D. Evaluation of Outputs

10. The consultants presented draft and final inception, interim, and final reports in accordance with the TA requirements. Also provided were reports on environmental and resource management legislation, legal specialist trip reports, and successive versions of the three legislation acts. Presentation materials were provided for all consultation workshops and seminars held during the TA. Additional working papers specified in the TOR were also provided. Some institution building and training was done with officers of NPO, PPU, EU, and the Port Vila municipality, although the TA has not been successful in creating strong mechanisms to monitor and enforce legislation. The National Building Code Act was the only amendments made to the Physical Planning Act. The municipalities have not amended the draft physical plans. The quality of the final reports and Urban Growth Management Plan (UGMP) are satisfactory, while the legislative acts are regarded as of high quality. Neither the Government nor the Port Vila municipality have formally adopted the UGMP, even though the PPU regards it highly and utilizes it. Both Port Vila and PPU have adopted selected UGMP recommendations, and the UGMP is likely to continue to provide them with a frame of reference. The requirement for amendments to the Physical Planning Act remains unsatisfied, and the need remains to adopt an urban policy for Vanuatu. E. Overall Assessment and Rating

11. Achievements of the TA have been significant, considering its ambitious scope, and the political instability in Vanuatu. Although progress in physical planning has fallen short of expectations, the enactment of the three laws is considered a significant achievement. The UGMP has not been fully adopted, but some UGMP recommendations have been implemented. The UGMP serves as a reference point, and is regarded as a useful document. The extended consultation period for consideration of the legislation framework, and the amount of stakeholder dialogue, have been beneficial for the political, public, and private sectors, and outweigh the failure to meet the original TA time schedule. Overall, the TA is rated less than successful. F. Major Lessons Learned

12. The main lessons that emerged from this TA are recognizing the importance, when embarking on a process of legislation reform, of allowing sufficient time for extensive consensus building among the political, public, and private sectors; and of limiting the range of legislation reform attempted. A related and subsidiary lesson, pertinent to small developing island countries like Vanuatu, is the need to keep legislation simple and user-friendly, with a minimum of legal jargon. G. Recommendations and Follow-Up Actions

13. After enactment of the three acts, it would be appropriate to revise and update the Physical Planning Act and adopt a national urban policy. It would also be appropriate to engage in further dialogue and consultation with Port Vila and Luganville to encourage physical plan amendments in line with the UGMP recommendations. Such dialogue and consultation should be accompanied by capacity building and institutional strengthening with the PPU and the municipalities, particularly in expertise and competencies in town planning. Prepared by: Pita Moala Designation: Sr. Project Implementation Officer

Appendix 5 27

SANITATION MASTER PLAN FOR PORT VILA TECHNICAL ASSISTANCE COMPLETION

REPORT

Amount Approved: $360,000 TA No. and Name TA 2597-VAN: Sanitation Master Plan for Port Vila Revised Amount: Executing Agency: National Planning Office

Source of Funding: ADB TA Amount Undisbursed $25,540

TA Amount Utilized $334,460

Date TA Completion Date Approval 27 June 1996

Signing 10 July 1996

Fielding of Consultants 15 August 1997

Original December 1999

Actual 3 September 1998

Account Closing Date

Original December 1999

Actual 3 September 1998

A. Description

1. The project preparatory technical assistance (PPTA) for the urban infrastructure project,1 financed by the Asian Development Bank (ADB), recommended the installation of a reticulated sewerage system for the entire urban area of Port Vila. Further review of this option by ADB staff and consultants showed that such a system may not be economically or financially viable right now because of high operation and maintenance requirements, and because high user charges would be required to recover the investment and operating costs. Furthermore, the technical difficulties associated with Port Vila’s hilly topography, and land ownership and custom rights, would overly complicate the installation of a conventional sewerage system because various options, such as ocean outfalls, would require considerable negotiation with custom land owners concerning rights of way and compensation for possible loss of fishing waters. 2. Regardless of the problems, there is considerable concern, particularly from standpoints of public health and the environment, that the present sewage treatment and solid waste disposal practices significantly pollute ground, surface, and coastal waters around the urban areas. Geologically, the highly permeable coral limestone bedrock beneath the relatively shallow soil moves effluent discharge rapidly from septic tanks and pit latrines to the groundwater. Similar concerns have been raised about the poor disposal of industrial and toxic wastes. 3. The Government was well aware of the urgent need for efficient sewage solutions in the context of rapid urban growth, pollution, public health, and the impact on tourism. Thus, the Government recognized the need for a sanitation master plan (SMP) for Port Vila before beginning any physical work. The Government was also concerned about the high cost and lack of affordability of utilities in general, and the need to review both its role in monitoring and regulating utility charges, and measures needed to strengthen that role. B. Objectives and Scope

4. The objectives of the TA were to (i) prepare an SMP for the systematic development of a sanitation system that will meet Port Vila’s requirements for 20 years, and provide a range of options for sanitation appropriate to low-, medium-, and high-density residential, tourist and commercial developments; (ii) target sanitation needs of specific socioeconomic groups, such as low-income families; and (iii) undertake the detailed feasibility-level design of the first 1 ADB. 1994. Technical Assistance to the Republic of Vanuatu for Urban Infrastructure Project, Port Vila and

Luganville. Manila. (TA No 1952)

Appendix 5 28

investment phase proposed through the loan. The scope of TA services comprised the preparation of a sanitation master plan for Port Vila, and detailed preparation of the first phase of a sewage collection and treatment system. C. Evaluation of Inputs

5. The resources provided under the TA totaled $334,000, including 15 person-months of consulting services over a 7-month period and $46,900 for equipment, workshop, and administration costs. Consulting services were provided by a team leader and sanitary/environmental engineer (4.75 mo.), urban planner (3 mo.), environmental engineer (2.75 mo.), local design engineer (1.25 mo.), physical and social environmentalist (1.5 mo.), and institutional and financial specialist (1.75 mo.). The Government provided liaison officers in concerned agencies, as well as office space and support services for the consultants. 6. The formulation of the technical assistance (TA) and the associated terms of reference (TOR) were prepared after ADB TA. The TA evolved from extensive consultation with the Government and stakeholders during Project design, and was considered satisfactory. Lessons learned from the prior ADB PPTA were incorporated into the TA objectives and scope. 7. The consultants’ performance was highly satisfactory. The consultants were fielded on 18 September 1997, 14 months2 after the Loan Agreement was signed. That was 3 months after TA contract negotiations, and a month later than agreed upon during the negotiations, because the availability of the nominated team leader was delayed. The delivery of all reports and the conduct of a workshop were broadly in line with the TA program. The final SMP report was provided on 27 April 1998, a month earlier than in the TA schedule. The final TA report was provided in August 1998, about 4 months later than in the original TA schedule, because of the delay in receiving the Government’s comments on the draft final report. Throughout the TA, the consultants took a proactive approach to progress reporting and provided monthly progress reports during the preparation of the master plan. The consultants also encouraged the Government to prepare sanitation bylaws, and to initiate institutional strengthening in the municipalities, but these proposals did not materialize. 8. Progress of this TA was reviewed during the Project through regular review missions described in the Performance of ADB section of this report. Four review missions were completed from 8 November 1997 to November 1999. That level was adequate, considering the reporting process that the consultants integrated into the TA. The Executing Agency (EA)— the National Planning Office (NPO)—played a strong and proactive role during the main TA period. D. Evaluation of Outputs

9. The consultants presented draft and final inception, master plan, and final reports according to the TA requirements. Additional monthly and progress meeting reports, although not specified in the TOR, were provided. Some institution building and training was done with officers of NPO, the Environmental Unit (EU), and the Port Vila municipality through the TA. Neither the Government nor the Port Vila municipality has formally adopted the SMP; the first stages of work identified in the feasibility study did not begin because of a lack of Project funds. The first stage of the SMP involved works that cost $2.7 million, compared with a Project allocation of $1.75 million, which included the component for an Erakor causeway bridge. But the EU and the municipality regard the master plan highly, and utilize it. Both the EU and 2 TA implementation was delayed at the request of the National Planning Office for this TA to follow the results of the

Urban Growth Management Strategy under TA No 2596-VAN.

Appendix 5 29

municipality have adopted selected master plan recommendations. The master plan is likely to continue to provide these organizations with a frame of reference, and will form the basis for a later urban infrastructure project, separately or within a multifaceted framework. Outputs are judged to have exceeded the TA TOR. E. Overall Assessment and Rating

10. Achievements of the TA have been significant, and the first stage of the SMP works would have been implemented, had Project funds been available. While the SMP has not been fully adopted, some recommendations have been implemented. The SMP serves as a reference point, is regarded as a useful document, and is expected to form the basis of a later sanitation works program, either as a separate project or within an integrated urban infrastructure project. The consultation process undertaken through the TA and the amount of stakeholder dialogue has been beneficial for the political, public, and private sectors. Overall, the TA is rated successful. F. Major Lessons Learned

11. It is preferable that a TA designed to provide an essential element of the urban framework be conducted in a situation with a reasonable likelihood of funding for proposed capital works, which would begin within an acceptable time frame after TA completion. Considerable positive stakeholder dialogue was generated, and expectations were raised. The failure to meet those expectations within a reasonable time may damage future implementation efforts. In proceeding with the TA, more attention should have been addressed to establishing realistic costs for the first stage of sanitation works in Port Vila, as well as for the other Project components. An additional lesson learned was the need to start Project implementation sooner after loan approval. This would have likely lowered the costs for all Project components. G. Recommendations and Follow-Up Actions

12. Implementation of the SMP’s stage one works remains an urgent priority; a funding source for this capital works program should be sought. The possibility of an ADB urban infrastructure II project should be considered. Capacity building and institutional strengthening in the EU and the municipalities should also be initiated. Prepared by: Pita Moala Designation: Sr. Project Implementation Officer

Appendix 6 30

REAPPRAISAL OF ECONOMIC AND FINANCIAL ANALYSES

A. Economic Reanalysis for the Rehabilitation of Urban Roads

1. Approach and Assumptions

1. During appraisal, the economic analysis for the Project component on the rehabilitation of urban roads was based on a cost savings approach, with the following assumptions:

(i) Annual patching requirements and pavement roughness were determined through use of pavement deterioration models;1

(ii) Traffic loading assumed that 5% of traffic is heavy vehicles, average loading per truck is 0.25 equivalent standard axle, and the annual growth rate is 4.5%.

(iii) For purposes of calculating the impact of resealing on the extent of cracking and patching (and thus, saved maintenance costs), the application of chip seal was assumed to have effectively improved the condition of the road surface for routine maintenance compared with requirements 10 years before the reseal.

(iv) For vehicle operating costs (VOCs), the chip seal was assumed to have slightly reduced overall surface roughness, making the VOCs reflect unit costs associated with the road condition 5 years earlier. But the VOC cost savings attributable to the resealing were reduced by 75% because the relationship between unit VOCs and surface roughness are representative of operating costs at higher average travel speeds than those associated with travel in urban areas.

(v) VOCs were based on the 1993 World Bank Pacific Islands Transport study, adjusted to 1995 prices. These reflected VOCs for four vehicle types—cars, light utilities, four-wheel drive, and light trucks—taken from the Road Transport Investment Model (RTIM) model, with economic prices excluding taxes and duties.

(vi) The resealing was not anticipated to have an impact on vehicle travel times, or to result in any VOC savings due to diverted or generated traffic. Therefore, the VOC savings that were included related only to normal traffic volumes anticipated over the analysis period, and are assumed to be the same whether or not the resealing proceeds.

2. The rationale of the cost savings approach is that road resealing will slow down the rate of road patching, and its annual cost for repair and maintenance. Thus, the economics of resealing depends on the relative cost of patching vs resealing, and the rate of road surface deterioration. Furthermore, the approach assumes that application of a slurry seal may provide extra smoothness of road surface, and reduce VOCs. This approach to the economic appraisal was considered appropriate, the broad assumptions were acceptable, and the reappraisal conducted used revised project component costs, updated VOCs, and updated estimates (two way) of annual daily traffic (ADT). 3. The economic cost of the road seal was not provided by road segment, but given in aggregate for the 50.8 km that were sealed. Records of the Public Works Department (PWD) indicate that Vt32.7 million was spent on force account and minor works in patching the roads between March and October 1999, and the cost of resealing was Vt752.8 million, spent in the first half of 2000. An additional Vt67.2 million was spent on equipment intended to be associated

1 Transport and Road research Laboratory (TRRL). Road Transport Investment Model , Laboratory Report No. 674.,

London; and TRRl. Highway Design Model 3, A Guide to the Structural Design of Roads in Tropical and Sub-tropical Countries, Road News 31, TRRL, London.

Appendix 6 31

with this Project component. The consulting fees have been apportioned pro rata to share total project costs, increasing the overall component costs for road sealing to Vt908.7 million. 4. VOCs used in the appraisal and BME reports relate back to a 1993 World Bank study2 that indicated a difference of about $0.06/km in costs, in 1995 prices, between operating on good or poor road surfaces. Using the RTIM analysis, the figure calculated was slightly more conservative, and the VOC difference in 2002 prices (estimated using the Vanuatu transport and communication price index, and converted to local currency) was about Vt8.5/ km.3 Allowance was made in the reappraisal for the increased deterioration of the subcomponent roads during project delays. 5. ADT volumes used in the reappraisal were estimated using limited traffic count data that PWD provided from a survey of Luganville roads on 19 September 2002, and on limited ADT information in the Project’s appraisal report and BME final report. No traffic count information, measuring ADT on each road segment, was available from PWD, nor in project documentation at appraisal nor in the BME reporting system. It appears that ADT on the project road sections has never been routinely measured. At appraisal, a weighted aggregate ADT appears to have been calculated by classifying the road segments into traffic density ranges,4 which were calculated to yield an average weighted ADT of 2,993 vehicles. Similarly, the final BME report (November 2001) mentioned only an average weighted ADT, which assessed at 2,198 for 2001. The PWD traffic count for the Luganville road segments yielded an average weighted ADT of 2,579 vehicles. Luganville traffic density was less than that in Port Vila; the broad PWD consensus was that the traffic density in Luganville is about 75% of the Port Vila density. These observations support the opinion that the BME ADT estimates appear most appropriate to use for the reappraisal, in the absence of actual PWD traffic count information. 6. Annual road maintenance figures were calculated using the ADT estimates in the RTIM. This model took into account the impact of traffic volumes, expressed in ESA terms, on road conditions, measured in terms of roughness, in the “with” and “without” Project situations. The model effectively assessed the impact of the deterioration rate of the road surface over time, according to traffic density.

2. Results of Analysis

7. The analysis indicates that the impact of the resealing on reducing roughness (and therefore VOCs), combined with maintenance savings, results in an economic internal rate of return (EIRR) of 18.6% (Table A6.1). This is lower than the appraisal estimate of 19.8%, but higher than the BME completion report estimate of 11.6%. The lower BME and reappraisal EIRR estimates have been influenced by an increase in the economic cost of the road sealing of almost three times, although the increase has partly been offset by high benefit levels assumed in the appraisal. It is difficult to compare Table A6.1 directly with the equivalent appraisal table, because the appraisal analysis was conducted on a per-kilometer basis (even though that qualification is not mentioned in the appraisal document). The appraisal and BME analyses did not include equipment or consulting fees to the project component, so both yielded an overestimate. 2 World Bank. 1993. Pacific Islands Transport Sector Study. Volume II: Vanuatu. Washington 3 The actual amount varies according to the equivalent standard and axle and roughness indices, incorporated in the

RTIM, which was used in the reappraisal to calculate annual maintenance costs and VOCs. 4 ADB. 1996. Report and Recommendation of the President to the Board of Directors on a Proposed Loan and

Technical Assistance to the Republic of Vanuatu for the Urban Infrastructure Project. Manila: Appendix 10, Economic and Financial Analysis, Table 2, page 53.

32 Appendix 6

8. The equipment for road construction was never used on the Project, because contractors, rather than PWD, sealed the roads, so it yielded no direct project benefit. PWD uses the equipment for other purposes, but those benefits were not incorporated into the analysis. 9. A sensitivity analysis indicates that the EIRR is sensitive to variations in traffic growth. If traffic growth is higher than anticipated, at 6% annually (compared with 4.5% assumed in the base case), the EIRR rises to 20.3%, but falls to 17.1% if traffic growth rate is only 3% annually. The EIRR is also sensitive to variations in VOC benefits and road maintenance benefits; it is more sensitive to VOC variations because their benefit levels are higher. With a 20% reduction in maintenance savings, the EIRR falls to 18.1%, while a 20% reduction in VOC savings causes a fall to 15.5%. In the worst-case scenario, where both benefit streams are reduced by 20%, the EIRR falls to 14.9%.

Table A6.1: Urban Roads Rehabilitation: Aggregate Economic Costs and Benefits

(2002 Vt’000s)

Year Resealing Costs Savings in Maintenance Savings in VOCs Net Benefits 1999 (36,501) (36,501) 2000 (962,859) 8,235 58,759 (895,866) 2001 12,749 122,806 135,555 2002 14,328 128,332 142,660 2003 16,111 134,107 150,217 2004 18,136 140,142 158,277 2005 20,432 146,448 166,879 2006 23,038 153,038 176,076 2007 26,002 159,925 185,927 2008 29,354 167,121 196,475 2009 33,181 174,642 207,822 2010 37,521 182,501 220,021 2011 42,452 190,713 233,165 2012 48,080 199,295 247,376 2013 54,474 208,264 262,738 2014 61,760 217,636 279,395 2015 70,062 227,429 297,491 2016 79,508 237,663 317,171 2017 90,280 248,358 338,639 2018 102,564 259,534 362,099 2019 116,565 271,213 387,778 2020 132,534 283,418 415,952

Estimated EIRR 18.6% VOC = Vehicle Operating Costs. Source: ADB PCR Mission, September, 2002.

Appendix 6 33

B. Financial Reanalysis of the Rehabilitation of the Luganville Water Supply


10. The mission could not obtain updated financial information regarding the project component for the rehabilitation of the Luganville Water Supply because the PWD officer in charge was absent during the duration of the mission. The most comprehensive information available is that provided in the BME Completion Report,5 so this has been relied on for the subsequent analysis. 11. The appraisal report included several major assumptions regarding the Luganville water supply component, all of which impacted on the benefits associated with this Project component: (i) The existing water source could not supply the water required for an increasing population. (ii) The bacteriological content of the water was increasing. (iii) Unpaid water accounts were a major problem. (iv) There were major problems with non-revenue water. The Loan TA Design Inception Report (June 1999) for the water supply component indicated that the first three issues were not supported. The drawdown on the well was within limits, particularly if water losses within the system were cut back from the estimated 55–60%. The bacteriological problems with the water source were largely caused by localized pollution that could be reduced. The 1996 appointment of a new water supply foreman in Luganville led to a more rigorous approach to water billing and debt collection. Water receipts increased from Vt11 million in 1996 to Vt21 million in 1997, then Vt22 million in 1998. This suggested that 80% of billed water was being paid for, and the percentage was expected to improve to 90% in 1999. 12. The financial internal rate of return (FIRR) reappraisal was estimated by comparing the incremental financial costs and revenue streams in the “with” and “without” project situations. The net benefits are measured as the difference between cash flows from operations as they would be without the Project vs those projected as a result of project improvements. The assumptions used in the reappraisal analysis, similar to those used at appraisal, were as follows:

(i) All costs and benefits are expressed in 2002 prices. (ii) Costs for operations and maintenance (O&M) are split into two components. A

variable component largely covers electricity costs for pumping, plus some O&M materials costs. The remaining O&M costs increase in proportion to billed water charges after stabilization of physical water losses.

(iii) Water consumption will grow at 3% annually, both through increased consumption by existing connections and through additional connections.

(iv) An additional 200 new households are connected, increasing the water billed by about 70,000 kiloliters (kl) per year.

(v) Electricity costs for pumping will drop by 10% through reduced losses at the pump house and better pump set maintenance—but these savings will be largely offset by the cost of adding chlorine to disinfect the water.

(vi) Physical losses of water will remain at the current 55–60%. Improvements at the existing water source have increased water pressure in the mains delivery system, which has revealed unanticipated mains faults that have increased water leakages to offset the gains made by improved customer metering and regulation.

5 Snowy Mountain Engineering Consultants (SMEC) International. 2001. Vanuatu Urban Infrastructure Project.

Project Benefit Monitoring and Evaluation Component. BME Completion Report, Vanuatu.

34 Appendix 6

(vii) Non-collection of accounts will be reduced from 20% to 10% of billings. (viii) A financial benefit has resulted from deferring investment in the new water

source, which has been assessed as a capital deferment of 5 years of a $400,000 investment. The cost savings in interest have been incorporated into the FIRR calculation for 5 years after subproject completion. A weighted average cost of 6% capital has been assumed, conservatively, as an alternative to a 12% annual commercial rate.

(ix) The residual value of the water system, with routine maintenance, should be about half the construction cost at the end of the 20-year period. The installed system will have a life longer than 20 years, because of better maintenance and quality of installation.

13. The financial cost of the component for improvement of the Luganville water supply, including equipment, was Vt125.2 million. It was spent in the first half of 2001. The consulting fees have been apportioned, pro rata, to share project costs, increasing the total costs to Vt141.6 million. The design study found that, if water losses were reduced, the existing source could supply future demand, so no funds were needed to develop a new water source.


14. An increase in collection rate from 70% to 90% is estimated to result in a reduction of technical losses from 65% of water pumped to 60% by 2002. System demand grows along with population growth at 3% annually, so the investment would improve the reticulation system, as well as the associated institutional strengthening. An FIRR of 14.4% real over an analysis period of 20 years would be achieved (Table A6.2). This is higher than the estimate of 10% at appraisal, and compares favorably with the real weighted average cost of capital financed domestically,6%, or if financed through ADB’s Asian Development Fund (ADF), 3%.6 15. The FIRR is sensitive to reductions in both technical and financial efficiencies, but is more sensitive to technical efficiencies. If collection rates reach only 85% (vs the target of 90%), the FIRR will fall to 12.3%. Similarly, if technical losses return to 65%, the FIRR will reduce to 10.4%, and if collection rates only reach 85% as well, the FIRR will fall to 7.9%.

6 Assumes a domestic debt finance at about 10% nominal with 4% inflation. ADF incurs a service charge of 1%

nominal, together with international inflation of about 2%, and an exchange risk of a further 2 yp 3%.

Appendix 6 35

Table A6.2: Luganville Water Supply

Financial Analysis (2002 prices)

Year 1999 2000 2001 2004 2009 2014 2019 Without Project Water pumped m3 1,217,275 1,576,197 1,623,483 1,774,024 2,056,580 2,384,140 2,763,871 Operating expenditure vt’000 12,503 20,448 21,061 23,014 26,679 30,929 35,855 Fixed water costs vt’000 5,253 4,992 5,141 5,618 6,513 7,550 8,753 Physical losses % 56% 65% 65% 65% 65% 65% 65%

kl 681,674 1,024,528 1,055,264 1,153,116 1,336,777 1,549,691 1,796,516 Water billed kl 535,601 551,669 568,219 620,908 719,803 834,449 967,355

vt’000 27,851 28,687 29,547 32,287 37,430 43,391 50,302 Noncollection % 30% 25% 25% 20% 20% 20% 20% Water bills collected vt’000 19,496 21,515 22,161 25,830 29,944 34,713 40,242 Net Revenue vt’000 1,740 (3,924) (4,042) (2,802) (3,249) (3,766) (4,366)

With Project Water Pumped m3 1,217,275 1,576,197 1,595,548 1,743,498 2,021,192 2,343,116 2,716,313 Operating Expenditure vt’000 12,503 20,448 22,853 22,274 25,822 29,934 34,702 Fixed Water Costs vt’000 5,253 5,253 5,410 5,912 6,853 7,945 9,210 Physical Losses % 56% 65% 60% 60% 60% 60% 60%

kl 681,674 1,024,528 957,329 1,046,099 1,212,715 1,405,869 1,629,788 Water Billed kl 535,601 551,669 638,219 697,399 808,477 937,246 1,086,525

vt’000 27,851 28,687 33,187 36,265 42,041 48,737 56,499 Noncollection % 20% 20% 20% 10% 10% 10% 10% Water Bills Collected vt’000 22,281 22,949 26,550 32,638 37,837 43,863 50,849

Net Revenue vt’000 4,525 -2,751 -1,713 4,452 5,162 5,984 6,937

Incremental Revenue vt’000 2,785 1,173 2,328 7,255 8,410 9,750 11,303

Capital Expenditure vt’000 142,826 (71,413)

Net Cash Flow vt’000 (140,498) 31,255 8,410 9,750 82,716 FIRR 14.4% Note: Base data : Unit Rate vt/kl 52 Consumers No. 1,364 NRW: Physical Losses % 60% NRW: Non-collected charges % 35% Pumping/operating costs: vt/kl 10.3 13.0 12.8 Reduced pumping costs: % 10% Fixed water costs: vt 4,811,189 Fixed R&M costs % 2% of capital costs Demand growth: %/year 3% Operating expenses above electricity

vts 601,399

Vt = Vatu, kl = kiloliter, NRW = nonrevenue water.

36 Appendix 6

C. Economic Reanalysis of the Rehabilitation of the Port Vila International Wharf


16. The appraisal approach to this economic analysis was “with” and ”without” the project, using a comparison of the net present values (NPVs) if the wharf were replaced sooner because the rehabilitation work was not done. This approach was regarded as acceptable, and was used for the economic reappraisal methodology. The following assumptions were used:

(i) All costs and benefits are expressed in 2002 prices. (ii) Replacement cost of the wharf, estimated in 1995 at $8.25 million, was

updated by a construction price index developed from Government statistical Indicators.7 From 1995 to 2002, the index increased by 22%, so the 2002 price for wharf replacement would be $10.07 million (Vt1,417.6 million), plus design and supervision costs, calculated at the same proportion as repairs, of Vt269.0 million, for a total of Vt1,686.6 million.

(iii) Ongoing repair and maintenance costs will (and should) be the same with or without rehabilitation or replacement, except for anodes that are assumed to cost Vt3.1 million every 4 years.

(iv) Rehabilitation extends the wharf life by 15 years. (v) “Without” the Project, a new wharf would have to be constructed within 5

years. (vi) “With” the Project, a new wharf would not be needed for 15 years. (vii) A new wharf will have an effective working life of at least 20 years.

Therefore at the end of a 10 year period, the replacement wharf will still have half its working life and, using straight-line depreciation, half its capital value as a residual.

17. The economic cost of the Port Vila wharf rehabilitation component was Vt237.6 million, spent from the last half of 2000 through the first half of 2001. The consulting fees have been apportioned pro rata to share of total Project costs, increasing the total costs to Vt264.1 million.


18. Assuming a discount rate of 10% over the 15 year period, the rehabilitation works generated a positive net present value (NPV) of Vt298.4 million (Table A6.3), which is almost eight times higher than the NPV calculated, using the same assumptions, during appraisal. This improved NPV is due to the lower relative cost of the wharf rehabilitation compared with the cost of wharf replacement in 2002 prices (16%) and at appraisal in 1995 prices (24%). In addition to adverse currency impacts, the replacement cost was subject to price inflation from 1995 to 2002, while the actual cost of wharf rehabilitation was lower in 1995 prices than assumed at appraisal. 19. Sensitivity tests indicate that as long as the rehabilitation works enable capital expenditure on the international wharf, or any other facility, to be deferred until at least 2011 (compared with an estimate of at least 2006 at appraisal), this investment has a positive NPV at

7 Index based on Cost Price Index (CPI) (for wages), 20% weighting; steel reinforcing, 20% weighting; concrete

blocks (as indicator for concrete), 47% weighting.

Appendix 6 37

a 10% discount rate. A higher discount rate provides a higher NPV, due to the time distribution of the net benefit stream, assuming that a 12% discount rate yields a positive NPV of Vt347.2 million. The NPV falls below 10% only at discount rates higher than 24.5%.

Table A6.3: Port Vila Wharf Rehabilitation Economic Analysis

(Vt million at 2002 prices) Year Cost Wharf Replacement Net Benefits “With” “Without” 2000 (145.1) (145.1) 2001 (136.3) (136.3) 2002 0.0 2003 0.0 2004 1,686.6 1,686.6 2005 (3.1) (3.1) 2006 0.0 2007 0.0 2008 0.0 2009 (3.1) (3.1) 2010 0.0 2011 0.0 2012 0.0 2013 (3.1) (3.1) 2014 0.0 2015 0.0 2016 (1,686.6) (843.3) (2,529.9) Estimated NPV (10%) 298.4 EIRR 5.4% EIRR = economic internal rate of return. Source: ADB PCR Mission, September 2002. D. Economic Reevaluation of Sarakata Drainage Improvements


20. The Sarakata drainage improvement work increased the channel capacity of the existing waterway to reduce the incidence of flooding, which directly affected about 6 or 7 ha, or about 10% of the Luganville town area. Using the 1989 census, the resident population of that area was estimated at 1,938 in 338 households, or slightly less than 30% of the town’s population. The area is mainly residential, with two primary schools and one kindergarten. It has no commercial or industrial establishments. 21. Flooding has occurred an average of once annually, although there might be as many as three floods in years with heavy rainfall and cyclones. Flood depths usually ranged from 300 to 500 mm, but reached 1 meter in the low-lying areas. Flood durations have usually been 4 to 6 hours, but ponded water has remained as long as 2 to 3 days in the lower floodplain. All households in the floodplain suffer damage to houses, their contents, gardens, etc. each time

38 Appendix 6

the area floods. Floods also damage the infrastructure, such as roads. Floods disrupt access to the area, and schooling. Of equal, if not greater, importance is the flooding of pit latrines and septic tanks, and the blocking of drains, contaminating the flooded area with untreated sewage. This affects bathing and laundering, and causes unpleasant odors. Stagnant polluted water in the ponded areas also encourages mosquito breeding. The associated risks to public health are obvious, especially in causing malaria and intestinal diseases, including diarrhea. 22. Most benefits of this project component go to properties within the drainage catchment area. A flood impact survey in 1998 estimated the annual costs of flood damage at Vt1.2 million, plus nonfinancial costs such as health risks from overflowing septic tanks and pit latrines. That estimate was lower than the one included at appraisal which suggested, based on a random household survey, damages of Vt10,000 to Vt15,000 per household, or Vt3.4 to 5.1 million for the floodplain area. 23. The appraisal approach to this economic analysis was “with” and ”without” the Project. This approach was considered acceptable, and was used for the economic reappraisal methodology. The following assumptions were used:

(i) All costs and benefits are expressed in 2002 prices. (ii) An evaluation period of 30 years was considered appropriate for this project

component. (iii) Ongoing repairs and maintenance costs were reduced, as a result of the

drainage improvements works due to channel design improvements, from Vt100,000 to Vt10,000.

(iv) Two levels of damage estimates were used: the higher level assumed at appraisal, and the lower level indicated in the 1998 flood impact survey.

24. The Sarakata drainage improvement component cost Vt28.9 million, which was spent in the first half of 2001. Consulting fees were apportioned pro rata to a share of total project costs, increasing the total cost to Vt34.3 million.


25. The reappraisal analysis took into account the measurable economic benefits from reduced flood damage and reduced canal maintenance. The analysis indicated that the impact of the canal improvement work results in an EIRR of 0.1%, assuming the lower level of flood damage indicated in the 1998 flood impact survey, and 18.7% assuming the higher appraisal estimate (Table A6.4). This compares with the appraisal EIRR estimate of 4%, which also did not take into account the improved environmental and public health conditions resulting from improved drainage. 26. A sensitivity analysis indicates that an EIRR of 6.4% can be achieved if the nonquantified benefits associated with health risks from overflowing septic tanks and pit latrines exceed Vt1.1 million (Vt3,250 per household) annually, assuming the lower estimate from the 1998 flood impact survey. If the nonquantified benefits were equal to the quantified benefits, the EIRR would be 7.3% assuming the lower 1998 flood impact estimates, and 41.0% assuming the higher estimate at appraisal.

Appendix 6 39

Table A6.4: Sarakata Drainage Improvement

Aggregate Economic Costs and Benefits (Vt'000 at 2002 Prices)

Year Economic

Costs Drain

Maintenance Savings

Savings in Cost of

Flooding a

Net Benefits* Savings in Cost of

Flooding b

Net Benefits**

2001 (34,546.9) 45.0 666.6 (33,835.4) 2,917.8 (31,584.2) 2002 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2003 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2004 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2005 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2006 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2007 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2008 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2009 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2010 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2011 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2012 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2013 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2014 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2015 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2016 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2017 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2018 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2019 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2020 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2021 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2022 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2023 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2024 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2025 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2026 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2027 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2028 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2029 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2030 90.0 1,333.1 1,423.1 5,835.6 5,925.6 2031 90.0 1,333.1 1,423.1 5,835.6 5,925.6 EIRR 0.1% 18.7% EIRR = economic internal rate of return a Estimate from the 1998 flood impact survey. b Estimate made at appraisal.

Source: ADB PCR Mission, September 2002.

40 Appendix 6

E. Economic Evaluation of Erakor Causeway Bridge Replacement


27. No economic evaluation of this project component was done at appraisal, and the nature of the work differed substantially from that proposed at appraisal. This project component was initially included to improve the water quality of the Emten lagoon through better flushing of water between the two lagoons, which are intersected by the Erakor bridge. During the Project, an environmental assessment of lagoon water quality and tidal flushing showed that the bridge caused no major environmental problem, so anticipated benefits associated with improved lagoon water quality were not apparent. Nevertheless, there were additional justifications for this project component that were not identified at appraisal. The existing single-lane bridge needed to be replaced in the next 5 years; weight restrictions had already been placed to extend the bridge’s life. The road to Erakor village was being rehabilitated and upgraded through the Project’s road rehabilitation component, so the volume of traffic was expected to increase. Also, the population of Port Vila was projected to continue to expand, with one of the four main expansion areas along the Erakor peninsula, so traffic volume would increase over the life of a new bridge, making a single lane bridge impractical. After much research, it was decided to replace the single-lane bridge with a two-lane 20-m steel beam bridge. 28. The economic reappraisal for this component was done using a “with” and “without” project approach. The following assumptions were used:

(i) All costs and benefits are expressed in 2002 prices. (ii) The alternative to building a new bridge would be to upgrade the road around the

south and east sides of Emten lagoon. (iii) Vehicles that now use the Erakor causeway would incur higher vehicle operating

costs because of the additional distance they would have to travel around Emten lagoon (although no value has been put on the additional time taken).

(iv) About 1,000 vehicles per day used the current crossing in 19998 and, to be conservative, no growth in vehicle traffic growth was assumed.

(v) Some form of bridge for pedestrian traffic would have to be left across the tidal passage.

(vi) The cost of building a new 3-km road to connect with the Ring Road east of the Emten lagoon was estimated at Vt44 million/km (based on the contract for building the first 3.5 km of Ring Road past Montmartre, in 2001 values).

(vii) Additional maintenance costs for the new road section and the Ring Road back to the Bellevue roundabout (a total of 5 km) was estimated at Vt92,000/km.

(viii) Vehicle operating costs based on the cost used at appraisal ($0.33/km) were indexed by the communications and transportation price index for 1995 to 2002.

(ix) Bridge repair and maintenance was estimated at 2% of construction costs. 29. The economic cost of the components for replacement of the Erakor causeway bridge was Vt40.7 million, spent in the second half of 2001. The consulting fees were apportioned pro rata to share of total Project cost, increasing the total cost to Vt44.9 million.

8 Source: Public Works Department traffic count on Monday through Wednesday, 19 –21 July, 1999.

Appendix 6 41


30. The reappraisal analysis indicated that the impact of replacement of the Erakor causeway bridge, taking into account the avoided cost of new road works, results in an EIRR of 44.2% (Table A6.5). 31. Sensitivity analysis demonstrated the robustness of this Project component. A 50% reduction of vehicles using the new replacement road diversion (500 vehicles per day) resulted in a reduced EIRR of 38.1%. A 50% reduction of the cost of the new road diversion and maintenance resulted in a reduced EIRR of 33.7. The worst-case scenario, with both reductions combined, resulted in a still-robust EIRR of 25.4%.

Table A6.5: Erakor Causeway Component Aggregate Economic Costs and Benefits

(Vt'000s in 2002 prices)

Year Bridge Cost Benefits of New Bridge Net Benefits

Avoided Road Upgrade and Maintenance VOC Savings

2001 (46,296.8) 0.0 0.0 (46,296.8) 2002 (925.9) 0.0 0.0 (925.9) 2003 (925.9) 0.0 0.0 (925.9) 2004 (925.9) 0.0 0.0 (925.9) 2005 (925.9) 136,132.6 22,219.8 157,426.5 2006 (925.9) 474.4 22,219.8 21,768.3 2007 (925.9) 474.4 22,219.8 21,768.3 2008 (925.9) 474.4 22,219.8 21,768.3 2009 (925.9) 474.4 22,219.8 21,768.3 2010 (925.9) 474.4 22,219.8 21,768.3 2011 (925.9) 474.4 22,219.8 21,768.3 2012 (925.9) 474.4 22,219.8 21,768.3 2013 (925.9) 474.4 22,219.8 21,768.3 2014 (925.9) 474.4 22,219.8 21,768.3 2015 (925.9) 474.4 22,219.8 21,768.3 2016 (925.9) 474.4 22,219.8 21,768.3 2017 (925.9) 474.4 22,219.8 21,768.3 2018 (925.9) 474.4 22,219.8 21,768.3 2019 (925.9) 474.4 22,219.8 21,768.3 2020 (925.9) 474.4 22,219.8 21,768.3 2021 (925.9) 474.4 22,219.8 21,768.3 EIRR 44.2% VOC = vehicle operating cost, EIRR = economic internal rate of return. Source: ADB PCR Mission, September 2002.

42 Appendix 7

ASSESSMENT OF OVERALL PROJECT PERFORMANCE (Loan No. 1448-Van [SF]: Urban Infrastructure Project)

Subcriterion Effectiveness A. Relevance

• Relevance of Project preparation to Project output at the time of approval

Yes, Relevant

• Relevance of Project output to achieve Project goals and purposes at approval

Yes, Relevant

• Priority in the context of the country’s development strategy at appraisal High • Priority in the context of the Asian Development Bank's (ADB) development strategy for the country at appraisal

Supportive

• Priority in the context of the country development strategy at time of the Project Completion Review (PCR) Mission

Yes

• Priority in the context of one or more of ADB’s strategic objectives at time of PCR Mission

Yes

• Appropriate changes made at midterm review and/or regular review missions to make the Project more relevant

Yes

• Percentage of subcriteria that met assessment 100% • Equivalent rating 2 B. Efficacy

• Achievement of most Project physical outcomes Partial • Achievement of most Project intangible outcomes Partial • The likelihood of Project outcomes leading to Project goals Partial • Percentage of subcriteria met Mostly • Equivalent rating 1.5 C. Efficiency

1. Efficiency of Investments • Economic internal rate of return (EIRR) > 12% (where recalculated at evaluation)

Yes

• EIRR > weighted average cost of capital Yes • Cost effectiveness in generating the Project outputs Partially 2. Efficiency of Process • Manner of ADB’s internal processing of the Project Satisfactory • Organization and management of executing and implementing agencies Satisfactory • Effectiveness of Project management Average • Efficiency in recruiting consultants and procurement Average • Timely and adequate availability of counterpart funding Satisfactory • Percentage of subcriteria met 75% • Equivalent rating 2 D. Sustainability

• Availability of adequate and effective demand for Project services High

Appendix 7 43

• Probable operating and financial performance of the operating entity, and the ability to recover costs

Low

• Probability of the existence of appropriate maintenance policy/procedures

Low

• Probability of funds availability for continued operations and maintenance

Low

• Probable availability of skills to continue the project Low • Probable availability of appropriate technology and equipment to operate the project

Average

• Probable availability of enabling environment in which the project is operating at the time of Project Complete Report Mission

Average

• Government ownership and commitment to the Project Yes • The extent to which the Project affects the environment and renewable or nonrenewable resources

Positive

• The extent to which community participation and beneficiary incentives are adequate to maintain the project benefits

Average

• Percentage of subcriteria met 50% • Equivalent rating 1.25 E. Institutional Developments and Other Impacts

• Formal laws, regulations and procedures Satisfactory • Institutional or organizational strengthening Low • Institutional skill levels and capabilities Low • Participatory attitudes of the society Good • Macroeconomic or sector policy framework Negligible • Other developmental impacts Moderate • Percentage of the subcriteria that met assessment 60% • Equivalent rating 1.5 Criteria Assessment Rating

(0-3) Weight (%)

Weighted rating

Relevance Relevant 2 20 0.40 Efficacy Efficacious 1.5 25 0.37 Efficiency Efficient 2 20 0.40 Sustainability Likely 1.25 20 0.25 Institutional development and other impacts

Average 1.5 15 0.23

F. Overall rating Successful 100 1.65

Documents

PROJECT COMPLETION REPORT ON THE URBAN ...ASIAN DEVELOPMENT BANK PCR: VAN 23616 PROJECT COMPLETION REPORT ON THE URBAN INFRASTRUCTURE PROJECT (Loan No. 1448-VAN [SF]) TO VANUATU June