Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No.8779

PROJECT CMPLETION REPORT

PHILIPPINES

NANIA SEWERGE AND SANITATION PROJECT(LOAN 1814-PH)

JUNE 22, 1990

Infrastructure Operations DivisionCountry Department IIAsia Regional Office

. }s document has a reslited and may be wsed by o Ia I ths pedorMaMe- oftdhi ole dude Its cantent may not owe bo db d e Wowd 8a= _

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

-CUR

Currency Unit - Peso (P)

_ARES AND EOUIVALENTS

mn - millimeter - 0.04 inchesm - meter - 3.28 feetkm - kilometer - 0.62 milessq km - square kilometer - 0.39 square milesha - hectare - 10,000 square meters or

2.47 acrescu m - cubic meter - 264 US gallonscu m/m - cubic meters per month - 8,030 US gallons per monthcu m/s - cubic meters per second - 22.8 million US gallons per day1 - liter - 0.26 US gallonslcd - liters per capita per day - 0.26 US gallons per capita per daym/s - meters per second - 3.28 feet per second

PRINCIPAL ABBREVIATIONS AND ACRONMS

ADB - Asian Development BankEMB - Environmental Management BureauLWUA - Local Water Utilities AdministrationMETROSS - Manila Sewerage-and Sanitation ProjectMmA - Metropolitan Manila AreaHMC - Metropolitan Manila CommissionMWSS - Metropolitan Waterworks and Sewerage SystemNFW - Ministry of Public WorksNHA - National Housing AdministrationNPCC - National Pollution Control CommissionPEA - Public Estate AuthorityUP - University of the Philippines

MWSS FISCAL YEAR

January 1 through December 31

TM WORLD IANK FOR OFCI~AL USE ONLYThIf WCORD t MWahungoe. DC 2043)

U.s A

June 22, 1990

MEKORANDUM TO THE EXfCUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on PhilippinesManila Sewerage and Sanitation Project (Loan 1814-P)

Attached, for information, is a copy of a report entitled ProjectCompletion Report on Philippines - Manila Sewerage and Sanitation Project (Loanl814-PH)u prepared by the Asia Regional Ofiice with Part II of the reportcontributed by the Borrower. No audit of this project has been made by theOperations Evaluation Depar vent at this time.

Attachment

Iof thek olc Xdud It eto may aot odr be discl wdthou W=X5*s kon.I

FOR OMCIAL USE ONLY

PHDLPPNSS

NMANA 3 R ACAnD SAMITATIN PROJECT (LOAN 1814-PHI

Table of ContentsE«Ge No.

Preface .......................... .Evaluation Summary . . . . . . . . . . . . . . . . . . . . .ii

PART I: PROJECT REVIEW FROM BANK'S PERSPECTIVE . . . . . . . .1

1. Project Identity . . . . . . . . . . . . . . . . . .2. Background . . . . . . . . . . . . . . . . . . . . .13. Project Objectives and Description . . . . . . . . . 24. Project Organization and Design . . . . . . . . . . 25. Project Implementation . . . . . . . . . . . . . . . 46. Project Results. 67. Project Sustainability . . . . . . . . . . . . . . . 88. Bank Performance. 89. Borrower/Implementation Agency Performance . . . . . 910. Consulting Services . . . . . . . . . . . . . . . . 911. Project Documentation and Data . . . . . . . . . . . 9

PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE . . . . . . 10

A. Project Implementation and Costs . . . . . . . . . . 10B. Project Performance and Re-evaluation . . . . . . . 18

PART III: STATISTICAL INFORMATION . . . . . . . . . . . . . . . 21

1. Related Bank Loans and Credits . . . . . . . . . . . 212. Project Timetable and Issues Raised

a) Project Timetable . . . . . . . . . . . . . . . . 22b) Issues Raised . . . . . . . . . . . . . . . . . . 23

3. Loan Disbursementsa) Cumulative Estimated and Actual Disbursements . 24b) Original and Final Allocation of Proceeds . . . . 25

4. Project Implementation . . . . . . . . . . . . . . . 265. Project Costs and Financing

a) Project Costs . . . . . . . . . . . . . . . . . . 28b) Project Financing . . . . . . . . . . . . . . . . 29

6. Project Resultsa) Direct Benefits . . . . . . . . . . . . . . . . . 30b) Economic Impact . . . . . . . . . . . . . . . . . 31c) Financial lpact .. 32d) Studies .. 33

This document has a restcWd distribution andnmay be used by recipients only In the peorfomof their official duties. Its contents may not otherwise be discosed without World Bank authorition.

Table of Contents (Continued}

7. Status of Major Covenanta . . . . . . . . . . . . . . 358. Use of Bank Resources

a) Staff/Consultant Inputs . . . . . . . . . . . . . 37b) Bank Nissions .... . . . . . . ....... . 38

ANEESAnnex 1: Description of the Project . . . . . . . . . . 40

- i -

PHILIPPINES

MANILA SEWERAGE AND SANITATION PROJECT (LOAN 1814-PH)

PROJECT COMPLETION REPORT

PREFACE

This is the Project Completion Report (PCR) for the Manila Sewerage andSanitation Project for which Loan 1814-PH, in the amount of US$63.0 million,to the Republic of the Philippines was approved on March 20, 1980. The loanwas closed on December 31, 1988, three years behind schedule. During projectimplementation, US$18.50 million of the loan amount was cancelled at therequest of the Borrower. The final disbursed amount was US$44.5 million, andthe final disbursement was made on July 10, 1989.

Parallel financing, in the amount of US$42.8 million, was provided bythe Asian Development Bank (ADB) for part of the project. The ADB loan, ofwhich US$13.35 million had beer, cancelled, was closed on December 31, 1989.Several months after the Bank loan became effective, the Borrower alsoarranged for the use of Swiss transfer credits, amounting to about US$6.6million equivalent, to finance part of the cost of consulting servicesrequired for design of the next stage water supply project for Manila.

The PCR was prepared jointly by the Infrastructure Operations Division,Country Department II, of the Asia Regional Office (Preface, EvaluationSummary and Parts I and III) and the Metropolitan Waterworks and SewerageSystem (MWSS), the implementing agency (Part II).

Preparation of the PCR (except for Part II) is based, inter alia, on:the Staff Appraisal Report; the Loan and Project Agreements and amendmentsmade to those agreements; supervision reports; progress reports;correspondence between the Bank, the Borrower and MWSS; disbursement records;and internal Bank memoranda.

- ii -

MANIlA SEWERAGE AND SANITATION PROJECT (LOAN 1814-Pj-l

PROJECT COMPLETION REPORT

EVALUATION SUMMARY

The Proiect and Its Objgetives

i. The project was intended to improve environmental sanitation 'n theMetropolitan Manila Area (MMA), with special emphasis on densely populatedlow-income areas, and to develop institutional capacity to plan, implement andmanage sewerage, sanitation and drainage facilities. The major componentswere: rehabilitation of the deteriorated sanitary sewer system in centralManila; extension of sanitary severs into adjacent areas (about 640 ha);construction of combined sanitary and storm water drains in about 1,400 ha oflow-income areas; upgrading of combined sewer and septic tank maintenanceoperations; establishment of programs to monitor public health in the low-income areas and the marine environment in Manila Bay; the design of the nextstage water supply (including construction of d'version tunnels for theproposed Laiban Dam), sanitation and sewerage projects; and training (Part I,paras. 3.1, 3.4; Part II, paras. 2.1, 2.9; Part III-4; and Annex 1).

ii. The project was innovative. It originated in a Sewerage Master Plan,which was at first focused almost entirely on conventional sanitary sewersystems. Increased concern about improving sanitation in poor urban areas ofHMA, which would benefit little from conventional sanitary sewers, resulted indevelopment of the combined drainage component, by which combined drains orsewers would remove wastewaters from the immediate environment and reduce thehealth hazards of exposure to sewage. This became the major projectcomponent. Areas were classified by the degree of health hazard andpriorities were established and incorporated into a master plan for combineddrains. The project was the first phase of the master plan. A wastewaterdisposal charge waa to be imposed on all properties with water service,including those not connected to the sewer system, as a means of recoveringpart of the cost of the combined drainage component (Part I, paras. 2.3, 4.5,4.6).

Implemeutation Experience

iii. The project was well prepared. Feasibility studies and preliminarydesigns benefited from extensive involvement of local agencies and evaluationof issues by urban, environmental and infrastructure units within the Bank.The wastewater disposal charge was implemented fairly promptly, despite itsunpopularity, and has helped to maintain an income level sufficient to coveroperati.on and maintenance costs of the sewerage/sanitation operations (Part I,paras. 2.2-2.3, 4.2-4.7).

iv. Initial implementation, mainly detailed design and award of the firstcontracts, proceeded quickly. When construction began, however, it soonbecame apparent that the construction timetable for contracts which involvedlocal contractors, who were inexperienced with sewerage construction, andcontracts for rehabilitation of the central sewer system, were overly

- iii -

optimistic. The economic crisis in the Philippines, which came to a head soonafter the project started, created problems for contractors requiringcommercial bank credits and resulted in Government's inability to provideequity contributions required to support project financing as scheduled. As aresult, implementation was delayed and parts of the combined sever componentwere deferred.

v. Changes in management of the Metropolitan Waterworks and SewerageServices (MWSS) - three general manage A/administrators in two years - and thechanges in the Government which promp . extraordinary bureaucratic steps topolice procurement also contributed to "elays. As a result of all of thesefactors, the project, somewhat reduced in scope, was completed about the endof 1989, four years behind schedule (Part I, paras. 5.1-5.6; and Part II,paras. 1.3-1.10, 1.12, 1.15, 2.2, 2.4-2.5).

Results

vi. The project objectives were substantially achieved despite theimplementation difficulties. The population of the central sewered area ofManila, about 1.2 million people, benefited directly or indirectly fromrehabilitation and extension of the sanitary sewer system. Some 395,000residents in low-income areas of MKA benefited directly from the improvementsin sanitation and drainage provided by the combined sewers. The public healthmonitoring program indicated that the drainage component was an effective wayof improving sanitation in low-income areas. The environmental agenciesgained a scientific body of evidence about Manila Bay as a basis forstrategies for action on pollution. Establishment of effective industrialwastes control regulations was not achieved, however. Nor was theresubstantial improvement in solid wastes management. Construction of diversiontunnels for Laiban Dam proved to be a costly premature investment (Part I,paras. 6.1-6.5; Part II, paras. 2.1, 2.3, 2.6, 2.10-2.12; and Part III-4, 6aand 6d).

vii. The total cost of the project, based on somewhat questionable data, wasabout P 1,436 million, about 9% above the appraisal estimates. Expressed inU.S. dollars, however, the cost was about US$103.2 million, or about 58% ofthe appraisal estimate. The discrepancy is due to the large devaluations ofthe peso and the high rate of local inflation which occurred during projectimplementation. The internal economic rate of return for the project,estimated at a minimum of 11% at appraisal, based partly on increased landvalues and using border prices, has not been recalculated because of the lackof pertinent data (Part I, paras. 5.7-5.12; Part II, para 1.10; and Part III-5a, Sb and 6b).

Sustainability

viii. For project benefits to be sustained and enhanced, it is essential that:solid wastes management in MNA be greatly improved; the MWSS sewer serviceconnection program be expanded; maintenance of streams, drainage facilitiesand combi-ed sewers by local authorities in MNA be improved; MWSS strengthenits sewer maintenance operations; and the next phases of the combinedsewer/drain program be implemented (Part I, paras. 7.1-7.2).

- iv -

Einings and Lessons LeaXned

ix. Except for the overly optimistic implementation schedule, the projectwas sound, timely and fairly well executed considering the difficultiesimposed by conditions beyond the control of the project authorities. Itappears that the experience gained by MWSS puts the organization in a verygood position to carry on as executing agency for the next phases ofdevelopment of the combined sewer program. The principal lessons emergingfrom the experience appear to be that:

(a) implementation timetables must be realistic if unnecessary strainson the staff and finances of the implemntixng agency are to beavoided (Part II, paras. 2.2 and 2.4);

(b) combined sewer/drainage systems are effective in improvingenvironmental sanitation in low-income densely populated areas atconsiderably lower costs than conventional sanitary sewers (PartI, para. 6.4; and Part III-6d);

(c) the Bank should not allow itself to be persuaded to approveexpensive project revisions to support possible future projectsnot yet designed and for which potential financing has not beenidentified (Part I, para. 6.5);

(d) reporting requirements should be designed to assure that periodicreports are meaningful and management-oriented for the projectauthorities and are useful for the Bank (Part I, para. 11.2);

(e) Bank supervision staff should continually monitor the borrower''sprocedures for recording and maintaining project cost data toassure that it is reasonably accurate (Part I, paras. 5.7 and5.12; Part III-5a); and

(f) data of the type used for calculating internal economic rates ofreturn for a project at the time of appraisal should be collectedcontinuously during the implementation period to allow thecalculation to be repeated upon project completion (Part III-6b).

MANILA SEWERAGE AND SANITATION PROJECT (LOAN 1814.PH)

PROJECT COMPLETION REPORT

PART I. PROJECT REVIEW FROM BALN'S p pECTIVE

1. Project Identity

Name: Manila Sewerage and Sanitation ProjectLoan No: 1814-PHRVP Unit: Country Department II

Asia Regional OfficeCountry: PhilippinesSector: InfrastructureSubsector: Water Supply and Sanitation

2. kxround

2.1 Sector Develonment Oblectives. The Pational Health Plan (1975.1985) cited poor sanitation as a major factor in the high incidence ofcommunicable diseases in the Philippines. From the early 1970s, theGovernment made substantial progress in addressing this problem as part of astrategy to improve basic urban services, by reorganizing the water supply andsanitation sector, by developing the sector institutions, and investing inprograms to improve the water supply systems in provincial population centersand Manila. Except for a UNDP/WHO-financed Sewerage Master Plan completed in1969 for the Metropolitan Manila Area (MMA), however, little attention hadbeen given to urban sewerage and sanitation. The Government thereforeapproached the Bank in 1975 for assistance in updating the Manila SewerageMaster Plan as the basis for a project. This reflected an expansion of sectorpolicy to include sanitation improvements. By starting in Man'v.a, one of themost dansely populated urban areas in the world, this initiative wasparticularly appropriate since sanitary conditions there were extrPmely poor.

2.2 Project Preparation. Financing for updating the Master Plan andpreparation of a project for HUA was included in Bank Loan 1415-PH, ProvincialCities Water Supply Project, approved in May 1977. The feasibility studies,and eventually the detailed design and construction supervision, were carriedout by a joint venture of firms from the United States, the Philippines andDenmark. An international panel of experts, recruited by the MetropolitanWaterworks and Sewerage System (MWSS) of Manila, reviewed the consultants'studies and plans.

2.3 The concept and scope of the project changed dramatically duringthe preparation stage. While the original Master Plan was directed towardexpansion and improvement of conventional sewerage, increasing concerns aboutthe environmental impact of sewage effluents on Manila Bay, industrial wastesand, in particular, the need to identify means for improving sanitation inlow-income areas outside the area that could be served by sewerage caused apronounced change in the definition of works and activities to be included inthe proposed project. The project thus became the Manila Sewerage andSanitation Project.

3 2

3. Prglect ObUectives, and Descrintici

3.1 obgQetinSs. The project objectives were to: affect an immediateimprovement in environmental sanitation in selected low-income, denselypopulated areas of MMA; rehabilitate existing sewerage infrastructure in theMMA central sewered area and make better use of that infrastructure; improvethe method of discharging sewage to Manila Bay; evaluate the marineenvironment of the Bay; implement suitable industrial waste regulations;develop institutional capacity for the construction, operation and managementof sewer systems; and prepare the next stage of water supply, sewerage andsanitation development in Manila.

3.2 Description. The project as described in Schedule 2 of theProject Agreement is given in Annex 1, and in more detail in Part II, Section4 of this report. The major project components were as follows: Part A of theproject, financed by the Asian Development Bank (ADB), comprised: constructionof a new sewage outfall and pumping station at Tondo; and rehabilitation orreconstruction of sewage lift stations and major sewers in the central servicearea. Parts B, C and D, financed by the Bank, comprised: expansion of thesanitary sewer system into two areas contiguous with the central system;construction of combined sewers and improved drainage in about 1,400 ha oflow-income areas with hazardous sanitary conditions due to the presence ofsewage in the immediate environment; monitoring of health conditions in low-income areas where improvements were made; monitoring of water quality at thenew Tondo outfall and throughout Manila Bay; expansion of the sewer connectionprogram; staff training; the provision of equipment for a septic-tank-emptyingprogram and for sewer maintenance; a solid wastes management study; andpreparation of detailid designs for the next stage of water supply, sewerageand sanitation projects.

3.3 The combined sewer component, intended to be carried out in threeyears, was the first of three phases of an affordable long-rrnge program forachieving and maintaining an improved standard of sanitation in low-incomeresidential areas.

3.4 The description of the preparation of the next stage water supplyproject was expanded by amendments to the Loan and Project Agreements inOctober 1981 to include construction of diversion tunnels for a new dam atLaiban on the Kalawi River, a mS4 ir component of the Third Manila Water SupplyProject (INS III). This proved to be a premature investment (para. 6.5).

4. Project Organization and Design

.1 QOrgaization. The roles of the responsible agencies were clearlydefined. M1SS was responsible for carrying out the sewerage and sanitationcomponents, arranging for tecbnical assistance, procuring maintenanceequipment, and carrying ouL the public health and Tondo outfall monitoringprograms, the solid wastes management study, the design of future watersupply, sewerage and sanitation projects for MKA Pad the training activities.Under a Subsidiary Loan Agreement, US$62.5 million of the loan was relent toIWSS for these purposes.

-3-

4.2 MWSS carried out the combined sewer program, called PROGRESS(Program to Eliminate Sewage from Streets) under an agreement with theMetropolitan Manila Commission (MMC), and in coordination with the Ministry ofPublic Works (MPW) and the city engineers in the four cities in MKA. Thecompleted facilities were 1;arned over to MKC for operation and maintenance.MWSS also set up new offices, or reorganized existing offices, for design andconstruction of the sanitary and combined sewers, for sanirary sewer operationand maintenance, and for promoting and making new sewer service connections.

4.3 The public health monitoring program was carried out by theInstitute of Public Health of the University of the Philippines (UP) under acontract with MWSS. The Tondo outfall monitoring program was carried out byMWSS with assistance from the Nati-nal Pollution Control Commission (NPCC).

4.4 Monitoring of the quality of water in Manila Bay, for which US$0.5million of the loan wrs allocated, was the responsibility of the Governmentand was carried out by NPCC. The Government also was responsible fordeveloping and implementing industrial waste regulations for MNA.

4.5 Pro1ect -Esi. The project was well prepared. The scope andscale were well thought out and the project was certainly timely, although theimplementation timetable could not be met. Design was carried out by theconsultants in close collaboration with MWSS, NRC, the National HousingAdministration (NHA) and the financing agencies. The project concept wasclear and appears to have been shared by all relevant parties. It was uniquein that a broad-based plan had been developed for dealing with improveddisposal of human wastes irn a very large metropolitan community by acombination of methods which did not depend to any great extent on high-costconventional sewerage.

4.6 The project also introduced a number of innovations. The areas ofthe city were classified for their degree of health hazard, with exposure toand possible direct contact with sewage and flooding used as the basis fordetermining priorities for improvements; those priorities were incorporatedinto the staged long-range improvement plan. The designs for un-sewered low-income areas utilized small-bore conduits to convey effluents from householdwaste disposal facilities to channels and combined sewers which also collectedand conducted storm water to improved water courses. This is the most rapidand least-cost method of removing wastewaters from populated areas. Fromoptions believed to be affordable, 13 alternatives were selected for finalevaluation and the least-cost solution for the staged improvement program wasdeveloped. Financial innovations were also included: for the first time inManila, wastewater disposal surcharges on water bills were imposed onproperties using over a given amount of water per month, including those notconnected to the sewer system. This was additional to the charge for sewerservice already imposed on those with sewer service connections.

4.7 Those aspects of project planning which contributed to its successwere: (a) the involvement in project planning of all institutions with rolesin the project and (b) planning efforts to ensure that expected projectresults would be realized in the immediate future as improvements in the localenvironment. Failures in implementation due to planning were mainly delays in

- 4 -

reaching certain objectives, such as the target dates for beginning themonitoring of Manila Bay and the establishment of separate accounts for MWSSwater supply and sewerage operations.

5. Prolcrt InMiMetation

5.1 Loan Effectiveness and Project Start-up. Effectiveness of theloan was delayed about two months while waiting for legal opinions. Apotentially difficult condition of effectiveness, an increase in watertariffs, was implemented on schedule. A pilot sanitation program and detaileddesign, both approved for retroactive financing, began before the loan wasapproved. Detailed design, however, had started about three months behindschedule because of extended contract negotiations. Other than this delay,detailed design and early procurement activities went well, with no notableproblems. Loan disbursements during the first nine months of effectivenessexceeded forecasts by 170%.

5.2 Imolementation Schedule. The project was originally scheduled forcompletion by the end of 1985. In actuality, rehabilitation of the centralsewerage system under Part A of the project, financed by ADB, was notcompleted until early-1990, four years behind schedule. Similarly, the majorphysical components financed by the Bank, although somewhat reduced in scale,were not completed until mid-1989, and Manila Bay monitoring, interrupted forabout two years, is continuing through 1990 with financing by MWSS.

5.3 The implementation schedule proved to be impossible to maintainfor a number of reasons:

(a) rehabilitation of the central sewerage system and of the liftstations, about which there were many unknowns when the work wasplanned and started, are inherently difficult to plan and carryout according to a reliable timetable;

(b) the Philippine construction industry had limited experience withsanitary and combined sewer construction to acceptable standards,and many of the contractors proved to lack adequate projectmanagement and equipment for this type of work. For example, oneof the two major contracts for sanitary sewer construction had tobe cancelled after three years of work because of poorperformance, and the remaining work (70%) had to be let under newcontracts;

(c) the economic situation in the Philippines when the project gotunder way was deteriorating rapidly and domestic currencyresources were shrinking. This led to local contractors'difficulty in obtaining commercial credit as needed to meet cashflow requirements, and, during 1983-85, the required Governmentequity contributions for the project were drastically reduced anddelayed, resulting in procurement delays and postponements of someparts of the project; and

I

- 5 -

(d) procurement procedures became particularly slow and cumbersomeduring the course of changes in Government and MWSS management.

5.4 The delay in project implementation caused by items (c) and (d)above is estimated at two, and possibly three, years. The balance of thedelay probably resulted from overly optimistic forecasting; although a five-year project timetable was adopted, project experience in this sector in thePhilippines indicated that a seven- to eight-year implementation period couldbe expe_.ted.

5.5 Procurement. The standard of contract documet , specifications,and bidding procedures was high, largely due to MWSS's experience with Bankprocurement requirements for the ongoing Second Manila Water Supply Project(Ln. 1814-PH) and the quality of MWSS staff and consultants. The problems anddelays which occurred during the middle years of the project were mainly inadministration of the procurement process after bids were evaluated and awardrecommendations were submitted for approval.

5.6 For much of the project period, MWSS's internal contract awardprocedures requiring MWSS Board approval were too slow; this was complicatedby three changes in top management. External approvals and other actionsrequired to get a contract under way caused the longest delays, up to sixmonths, before notices to proceed could be issued. Contracts required thereview of both the Government Corporate Counsel and the Commission on Auditbefore award. Contracts for the supply of imported goods had to be approvedby the Board of Investments, Central Bank regulations had to be followed,Philippine flag vessels had to be used, and clearances were required from theMinistry of Finance and the Bureau of Customs before the goods could bedelivered. Additional delays occurred at times because of delays by theCentral Bank in issuing letters of credit or making payments required beforedelive- y of imported equipment.

5.7 Project Costs. A comparison of appraisal estimates and actualcosts of the project is given in Section 5 (a) of Part III. Expressed inPhilippine pesos, the appraisal forecast of total costs was P 1,313 million,while actual costs were P 1,436 million, an increase of 9%. Expressed in U.S.dollars, the appraisal estimate was US$177.4 million, while actual costs wereUS$103.2 million, a decrease of 42%. Any comparison of estimated and actualcosts is complicated by revisions in the project content, high rates ofinflation in the Philippines and the successive devaluations of the pesoduring the project period; at appraisal the exchange rate was US$1.00 - P 7.40while at the time of final disbursement the exchange rate was US$1.00 - P21.84. Moreover, the actual cost figures may not be complete; data on costswere not maintained consistently by MWSS, and MWSS was inclined to excludecosts financed by other sources, such as by Swiss transfer credits (Part III,5 (b)).

5.8 Actual foreign exchange costs expressed in dollars were slightlyabove the appraisal estimates, but expressed in pesos, the actual foreigncosts were 95% above the estimates. Local currency costs expressed in dollarswere 35% of the appraisal estimates, but expressed in pesos they were 60% ofthe estimates. This appears to indicate that currency devaluation had a far

-6-

greater influence on the costs to the Philippines than did local inflation.The principal changes in the project content were reductions in combined sewerand service connection construction (mainly local currency costs), a reductionin the design of the next-stage sewerage project (mainly foreign exchangecosts) and the addition of the construction of diversion tunnels for the next-stage water supply project (mainly foreign exchange costs). In general, itappears that under the prevailing circumstances, the project was carried outat a cost closely comparable to the appraisal forecasts.

5.9 Disbusements. The estimated and actual rates of disbursementsare shown in Section 3 (a) of Part III of this report. For the first ninemonths after the loan became effective, the rate of disbursements, mostly forconsulting services, far exceeded the appraisal forecast, but it soon began todrop below forecasts when construction fell behind schedule. In 1985, as theinitial closing date approached, US$12 million of the loan was cancelledbecause it would not be utilized; the peso devaluation and postponement ofpart of the combined sewer program had reduced the amount of the loan requiredto finance local currency expenses. By the time the loan account was closed,cancellations totaled US$18.5 million, or about 30% of the original loanamount.

5.10 Loan Allocations. The original and final allocation of theproceeds of the loan are shown in Section 3 (b) of Part III of this report.As noted in that table, the allocations were amended ir November 1981 toprovide for construction of preliminary works (diversion tunnels) for thenext-stage water supply project, and US$6.6 million were reallocated fromcategory 3, consuLting services, to a new subcategory under category 1, civilworks.

5.11 About US$26.5 million, or nearly 60%, of the reduced Bank loan wasdisbursed in local currency. These figures are much higher than the appraisalestimates of US$19.6 million, or about 30%, of the original loan amount beingdisbursed in local currency.

5.12 The US$26.5 million disbursed in local currency is about US$4.7million more than the actual local currency costs of Parts B, C and D of theproject as derived from MWSS data on actual Costs. This indicates either thatsubstantial local currency disbursements were made to cover foreign exchangeexpenditures, which appears un:ikely, or that the data provided by MWSS arewrong, possibly in the exchange rates used to convert foreign exchangeexpenditures into local currency for the cost summaries provided to the Bank,but also because of incomplete cost records.

6. Proiect Results

6.1 Objectives Met. Most of the project objectives have beensubstantially met, although with considerable delay. Institutions have beendeveloped which are capable of planning, constructing, operating andmaintaining sanitary sewer and combined drainage systems. The existingcentral sanitary sewer infrastructure has been rehabilitated and better usehas been made of the capacity of the existing system by extending it to new

areas. Sanitary sever service has been made available to the population inpreviously unsewered areas, and the sanitary environment has been improved forthe population in a large low-income area of MNA. A program for monitoringthe marine environment of Manila Bay has been inaugurated, and designs fornext stage water supply, sewerage and sanitation projects have been prepared.An objective which has not been met satisfactorily is implementation ofindustrial waste regulations suitable for elimination of toxic wastedischarges in MKA.

6.2 Physical Results. The results of the physical and othercomponents of the project are listed in Section 4 of Part III of this report.Nearly all of the physical components were completed as planned, except fordelays, but the combined sewer program was reduced about 10% in terms of areaserved (1,280 ha instead of 1,410 ha). An unexpected result was the findingthat parts of the rehabilitated central sewer system had more capacity thanhad been estimated.

6.3 Financial Results. A summary of pertinent operational andfinancial data from MWSS financial statements for the last year of theappraisal forecast (1987) and for the last year for which data are available(1988) is in Section 6 (c) of Part III of this report. In general, MWSS'sfinancial performance has been satisfactory. Its net income improved steadilyfrom P 54 million in 1978 to about P 540 million in 1988. Its rate of returnon total revalued net fixed assets in operation increased from 4% in 1980 to9% in 1986 reflecting large increases in tariffs. Even during the recessionand turbulence of the 1986-87 period, MWSS was able to achieve rates of returnof about 8% by increasing its efficiency and sales. The rate of return on netfixed sewerage assets in operation has been positive in recent years, as wasrequired under the Loan Agreement. Cash flow, however, has been a problem dueto large debt service increases in recent years.

6.4 Project Impact. The project improved the central sanitary sewersystem by eliminating much of the infiltration of ground and surface watersinto the sewers, thus providing additional capacity for sanitary sewage andreducing pumping requirements. Conversely, breaks which permitted sewage tooverflow into local water courses were corrected. Although about 25% belowexpectations, about 15,000 properties gained access to the sanitary sewersystem through new service connections, thus reducing discharge of wastewatersto poorly maintained on-site waste disposal systems. Sanitary conditions wereimproved in about 1,300 ha of low-income residential areas; results of thepublic health monitoring program showed that introduction of the combinedsewer drainage system improved environmental sanitation to almost the samedegree as a complete package of water supply, street and drainageimprovements. The project had a definite positive impact on KWSS staff anddepartments responsible for sewerage, and the environmental authoritiesconcerned with the conditions and changes in Manila Bay gained a body ofscientific data on which to base strategies for improvements.

6.5 Construction of the diversion tunnels for the Laiban Dam (para.3.4) as part of this project turned out to be a premature investmentequivalent to about US$16 million. Until the end of 1986, the MWS IIIproject, which included the dam, was considered the most economical source of

additional water supply for HMA, and considerable preparatory work had beendone. Thereafter, with the identification of the Angat Water SupplyOptimization Project, the MUS III project was deferred indefinitely. When theBank was first approached by MWSS in 1980 to reallocate part of Loan 1814-PHto permit construction of the tumnels, both the Bank and the Governmentresisted on grounds that the funds were needed for consulting costs and thatdesign of MWS III should be completed and sources of financing identifiedbefore any reallocation. Eventually MWSS - with remarkable initiative andpersistence in dealing with government agencies and the Bank - securedreplacement funds and persuaded the Bank and Government to allow thereallocation.

7. Project Sustainability

7.1 The benefits of the project are sustainable and can be enhanced.A critical requirement is to implement major improvements in MMA's solid wastemanagement system, possibly based on the recommendations of the Solid WastesManagement Study completed as part of this project and benefiting from theexperience on the solid waste component of the Third Urban Development Project(Loan 1821-PH). Many areas of MMA are notorious for haphazard disposal ofrefuse in streets, drains and other water courses. Unless this problem isresolved, and the municipal authorities develop an effective program forcleaning catch basins and maintaining drains, the areas benefiting from theproject will soon revert to pre-project conditions with respect to floodingand the presence of sewage in the immediate environment. A survey conductedby MUSS in 1986 indicated that in some of the areas with improved drainage,there already was misuse of the drains and a lack of maintenance by the localauthorities. There is evidence also that the MWSS sewer maintenance programrequires improvement.

7.2 It is also important to expand the sewer service connectionprogram so that more properties comply with the national codes dealing withplumbing and sanitation. A well prepared public information campaign,possibly focussed on school children, along with enforcement steps by theauthorities, could improve the connection rate. Failure to improve theconnection rate will not only reduce the benefits of the sewer system but willadvance the date when increases in the sewer service and environmental chargesare required.

8. Bank Performance

8.1 The Bank's activities in the preparation, appraisal, negotiationand loan approval stages were quick, efficient and thorough, with considerablesupport provided to the borrower and the implementing agency. The recordsindicate that the Bank was prompt in responding to project developments andthe needs of the implementing agencies. Continuity of Bank staff duringimplementation was not very good; three different supervision teams wereinvolved. The characteristics of the three teams was consistent, however, andthe changes did not appear to have an adverse effect. The project could havebenefited from additional fully staffed supervision missions; during threecritical periods (1981-82, 1982-83 and 198' 86) missions were 12 to 15 monthsapart and dealt with three or more other projects. On ta' other hand, the

- 9 -

project did benefit from several visits by specialists in various fields fromdepartments of the Bank other than the department responsible for projectsupervision (Part III-8b).

9. Borrower/Imglementation Agency Performance

9.1 The status of performance on the major covenants in the loandocuments is shown in Section 7 of Part III. Performance of MWSS, otheragencies and the borrower was generally good, particularly considering theeconomic crisis, the national political changes and the changes in MWSSmanagement which occurred. MWSS, in particular, performed very well inattempting to carry out the project efficiently and to comply with all of theconditions of the loan. Disappointing performance on some aspects, such asprocurement efficiency, was beyond MWSS control, and on others, such asfailure to provide equity contributions, may have been beyond the borrower'scontrol.

10. Consulting Services

10.1 MWSS management of its consultants and the services they providedare considered excellent.

11. Project Documentation and Data

11.1 There were no problems with the legal agreements, which werestandard and appropriate for this type of project. The staff appraisal reportwas satisfactory as a guide during project implementation. Data relevant tothe preparation of the project completion report (PCR) were not readilyavailable, however. Supervision reports, particularly in the format used fromFY85 through FY89, do not provide sufficient information for the preparationof a PCR. Aide-memoirs are important aids for mission effectiveness, buttheir value is limited because they cannot be fully candid and thereforesufficiently informative for internal Bank purposes.

11.2 The Bank's requirements for quarterly reporting by MWSS resultedin cumbersome 100-page reports which were not only difficult for Bank staff toreview but also were of little value to 1WSS management in monitoring theproject or MWSS performance. Toward the end of the project, the Bank agreedto simplify the Bank's information requirements so that MWSS could producemore meaningful and shorter management oriented reports, not only for thisproject but for other Bank-financed MWSS projects as well.

- 10 -

PHILIPPINES

MANIlA SEWERAGE AND SANITATION PROJECT(IBRD LN. 1814-PH and ADB LN. 457-PHI)

PROJECT COMPLETION REPORT

PART II. PROJECT REVIEW FROM BORROWER'S PERSPECTIVE

A. PROJECT IMPLEKENTATION AND COSTS

Effectiveness

1.1 The Loan and Project Agreements for the Manila Sewerage andSanitation Project were Eigned by the Republic of the Philippines (theBorrower) and the Bank on March 28, 1980. Bank loan proceeds equivalent toUS$62.5 million were made available by the Borrower to MIWSS, under the sameterms and conditions as those of the Bank loan, to assist in financing Parts Band C of the Metro Manila Sewerage and Sanitation Project, METROSS I. Theamount of US$0.5 million was also made available by the Borrower to the NPCCthrough budgeting appropriations in carrying out Part D of the project. PartA of the project was financed by ADB.

1.2 Commitment charges at the rate of 3/4 of 1% per annum on the un-withdrawn amount and 8.25% per annum on the withdrawn amount outstanding werecharged the Borrower. The loan became effective on September 10, 1980.Effectiveness was conditional on: (a) execution of the Subsidiary LoanAgreement between the Borrower and MWSS; (b) signing of the Project Agreementbetween MWSS and MMC for the construction of combined sewers; and (c) MWSS'sintroduction of a water tariff increase of at least one-quarter of one pesoper cubic meter. The original closing date of the loan was December 31, 1985.

Inmlementation

1.3 The implementation of METROSS I, which comprised the first stageof the Year 2000 Objective Plan, started in 1980. The project was implementedgenerally as designed. Some revisions, including changes in constructionmethods and significant rescheduling were made, however, to suit the existingfield/physical and economic conditions. Completion of the project was fouryears behind schedule.

1.4 Part A. Implementation of the ADB-funded portion of METROSS Itook four years longer than expected. The delay is attributable to changes inthe program and priorities for the rehabilitation of the central sewer system.

1.4.1 The construction of 3.9 km of the 1,800-mm diameter initialcentral outfall into Manila Bay (ICO-1) includes 1.2 km of in-shoreworks and 2.7 km of off-shore activity, including a 350-meter diffusionsection. Untreated wastewater is being discharged into 11-meter deepbay water at the end of the outfall. The construction of ICO-1 wascompleted 23 days ahead of schedule.

- 11 -

1.4.2 The new Tondo pump station (PS-1) is located at the samesite as the old pumping station. The total pumping capacity of the newworks is 5,000 liters per second. An alternative method of constructingthe substructure using a diaphragm wall was used by the contractor inlieu of the friction pile and open excavation. The method employedsaved the contractor some three months, offsetting delays in thedelivery of electrical equipment. The project was completed one monthahead of schedule.

1.4.3 The rehabilitation and upgrading of the seven lift stationsin Central Manila was considered cheaper and more practical from anoperational point of view than constructing new structures. Theexpansion of wet pit areas and installation of submersible pumps andelectrical equipment were completed on April 30, 1986, some 12 monthsbehind schedule. The work was originally scheduled for completion in912 calendar days from October 1982 to May 1985.

1.4.4 The rehabilitation of the o..entral collection system was inprogress as of mid-1989. Alternative works programs were prepared andevaluated for the project. The present works include three civil worksand two supply contracts. Remaining works on Contract RHB 1-1, thelargest civil works package, were to have been completed in 1989.

1.4.5 The technical and consultant services of th, consultants toMWSS, James M. Montgomery-DCCD-Kampsax-Kruger, in the implementation ofthe sewerage -omponent were completed in early 1988.

1.5 Part B. The completion of works under the sanitation component(including Parts C and D of the project) was about four years late.

1.5.1 The expansion of the collection system to the Pandacan (271ha) and Dagupan (276 ha) areas was likewise completed with considerabledelays. The construction of the Pandacan collection system (CS-1) wasstarted in July 1981 and was discontinued in September 1984 at about 30%completion due to poor performance of the contractor. The remainingworks were repackaged into five smaller contracts. Two of the new sub-packages were completed ahead of schedule while three were accomplishedwith time extensions.

1.5.2 The construction of the Dagupan collection system (CS-2)started on May 10, 1982 and was expected to be completed on June 3,1984. The project was completed on November 18, 1986 after severalextensions to the original contract time plus additional time for thesupplemental agreement (CS-lA). The contracts for both CS-1 and CS-2were based on open cut excavation. The CS-2 contractor, however, optedfor the use of jacking/tunnelling equipment for the installation of themain sewer. This method proved quite successful and caused less trafficdisturbance in the affected area and saved the contractor time.

1.5.3 Under Addendum No. 2 of the contract for consultingServices, the JDK provided various assistance and consultant services tothe implementation of 'PROGRESS," the construction of combined sewers in

- 12 -

low-income blighted areas. PROGRESS was accomplished in two phases.Phase II, completed in early 1989, is the construct. -n of projectsdesigned under Phase I. This program was disconti d by MWSS inOctober 1984 due to the non-availability of local funds for contractimplementation. Pilot sanitation projects and public sanitaryfacilities were also completed in 1981.

1.5.4 Some sewer maintenance and operations equipment procuredunder septic-tank-emptying and sewer maintenance programs were turnedover to the Sewerage System Department (SSD). The SSD, however,realized the need for additional equipment and spare parts for themaintenance of existing equipment. The MWSS requested ADB for theutilization of a portion of the savings under ADB Loan No. 457-PHI forthe acquisition of the needed additional equipment.

1.5.5 A new Central Laboratory was constructed within the MWSSbuildings complex housing several laboratories intended to process allwastewater and water samples not related to water treatment plantcontrol. The project was completed on November 14, 1983 and was placedin operation with the acquisition of about 85% of the total instrumentsand equipment in late 1985. The health monitoring component of theproject was implemented by the University of the Philippines, Instituteof Public Health during 1981-85. The program was conducted in fiveareas where MWSS and other agencies have implemented improvements. Areport on the program was submitted in May 1987.

1.5.6 Detailed design and construction supervision for thesanitation component were carried out with technical assistance andconsultant services of the JDK. The services were completed in early1988.

1.6 Part C. The design of structures and facilities for the Manila WaterSupply Project III was also completed under the Bank loan. The design ofMETROSS II, the expansion of the sewerage system to south Metro Manila wasaccomplished, with the first phase of the project in 1984. The completeddesign portion constituted approximately 15% of the total design area work forthe southern system. Overseas training of MWSS staff in sewerage and trainingof senior executive officials at various overseas management courses wereaccomplished in 1984.

1.7 Part D. A survey vessel, vehicles and various laboratory equipment andsupplies were procured for the National Pollution Control Commission under thefirst monitoring program for Manila Bay, including the Tondo outfall. Theproject was carried out by MWSS, NPCC and other government agencies. Thefinal report on the program was submitted by the NPCC in April 1987.

1.7.1 Monitoring of Manila Bay waters and the new Tondo outf.ill,which resumed under a new Memorandum of Agreement between theEnvironmental Management Bureau, NPCC and the MWSS as an extension tofill data gaps in the previous project, will be completed in two years(1989-90).

- 13 -

1.8 Problems Encountered

1.8.1 Various problems were encountered during projectimplementation which resulted in long project delays and increases inproject costs. The problems can be categorized as: (a) contractors'problems and shortcomings; (b) government bureaucratic processes; and(c) problems beyond the control of either the contractor or MWSS. Somevaluable lessons, however, were learned during the implementation ofMETROSS I that should be taken into consideration in the implementationof future projects.

1.8.2 The following problems were attributed to the contractors.In most instances, contractors lacked the technical capabilities of anexperienced project management staff to undertake sewer constructionwork. The lack of necessary equipment and inadequate finance to meetcash flow requirements in some cases compounded the problem. Theseconstraints were observed in both large and small contractors.Oftentimes, however, large contractors expressed willingness to pursuethe completion of their contracts. The splitting of contracts by MWSSinto small packages like PROGRESS Phase II and the HOCOP Program enabledsmall contractors to be prequalified and participate. However, thisresulted in managerial and financial problems experienced by smallcontractors who bid low. The NWSS Project Management Office work load,on the other hand, multiplied as a corsequence of so many projects goingon simultaneously.

1.8.3 Another major cause of delay was government regulations andthe time involved in processing necessary contract documents bygovernment agencies other than MWSS. This was particularly true ofsupply contracts, which required clearance from the Board of Investment(BOI) and came under a Central Bank regulation regarding the importationof certain equipment and supplies; the clearance process ordinarily tookseveral months. The non-availability of Philippine flag vessels to shipimported items and the securing of clearance from the then Ministry ofFinance and the Bureau of Customs for imported equipment and materialsfurther lengthened the time needed to complete contract deliveries.

1.8.4 One of the major causes of delay in project implementationwas the time involved in the review of contracts by both the Office ofthe Government Corporate Counsel (OGCC) and the Commission on Audit(COA). This remains a critical area and the Government should attemptto resolve the problem. Some delays in the execution of contracts maybe attributed to having three different MWSS administrators in less thana two-year period.

1.8.5 Some causes of delay were not attributable to either MWSS orthe contractors. Unforeseeable factors such as soil conditions, highgroundwater, numerous overhead and underground utilities, restrictedworking areas and heavy traffic contributed greatly to delays. Therunaway inflation of 1983-85 and the devaluation of the peso from P 7.40to P 21.50 to the U.S. dollar in only two years resulted in a tightmoney supply for contractors. The Government's inability to provide

- 14-

necessary equity for local counterpart funds and other economicpressures resulted in the rescheduling of NETROSS projects to laterdates. Sewerage projects received the lowest priority in terms of MWSSprogram investments and expenditures.

1.9 Neasures Taken

1.9.1 The Government assisted contractors in their financialdifficulties by making advance payments for mobilization.Representations were also made by MWSS with local governments to secureexcavation permits. The MWSS, in its desire to help contractors finishtheir jobs, granted contract time extensions in many instances.Termination of contracts was resorted to only for contractors who,despite agency assistance, failed to make satisfactory progress.Terminated contracts were subsequently split into smaller subpackagesand were rebid.

1.9.2 Several attempts were made by MWSS to expedite the contractreview process by other government agencies. Improvements were noted inthe last few contracts. Representations made to the Ministry of PublicWorks and Highways and the Customs Bureau by MWSS reduced the timeneeded to obtain imported equipment and goods. Processing of documentsby MWSS is now very fast and efficient due to the Administrator'sconsciousness of the need to expedite project implementation.

1.9.3 Changes in plans and designs were also needed to suit actualphysical conditions prevailing in the project areas. Assistance of lawenforcement and traffic agencies were also sought and u-ilized duringthe project period.

1.9.4 Another factor of some significance that contributed todelays in project implementation was the unprecedented level ofinflation and the continuos erosion of the peso. Even foreignsuppliers and their local subsidiaries could not guarantee prices at afixed level over a long period of time.

1.10 Project Costs and Financing

1.10.1 The total cost of the project (including the ongoing worksunder the sewerage component) is P 428.90 million, some 9% higher thanthe appraised cost of P 1,312.8 million.

1.10.2 The cost of the ADB-financed component (Part A) of aboutP 531.9 million is 16.3% lower than the appraised cost of P 618.4million despite a rise in prices and the devaluation of the localcurrency against the U.S. dollar This is due to the findings during thedesign stage that the capacity of the existing collection system inalmost all pipe sections is sufficient to cope with flows projetted upto the year 2000. The cancellation of the award for MMSP Contract No.RHB-1 for the rehabilitation of the central collection system in August1984 has given the sewerage project management office the opportimnity tore-evaluate and re-asses the program and the scope of work. As

- 15 -

previously conceived, the rehabilitation was re-evaluated and reviewedin the light of recent developments such as the comnissioning of the newTondo outfall and the closure of large itflow sources at Pasig River andsome esteros at C.N. Recto. With the acquisition of equipment underPart A (RHB 1-2 and RHB) and Part B (STAMP-1 and SNEP-1), a smallportion of the rehabilitation works was done by the administration. Thealternative program which reduced the quantities of the original worksalso provided substantial savings to NWSS.

1.10.3 Parts B, C and D, the sanitation components of the project,cost P 897 million, an increase of around 29% over the appraisal totalcost of P 694.6 million. The substantial cost increase is mainly due tothe unprecedented inflation during project implementation, that broughtabout steep increases in the cost of labor, materials and services.Between 1973 and 1988, the exhange rate fell from P 7.40 per dollar toP 21.50. In addition, low cost estimates made during projectpreparation, insufficient contract times, restricted working spaces, andnumerous overhead and underground utilities necessitated additionalexpenses due to many variation orders and extra works.

1.10.4 The delayed implementation of some project components andthe splitting of contracts into several smaller packages likewiseincreased the overall engineering, administrative and contract costs.

1.11 Loan Disbursement

1.11.1 Full disbursement of the IBRD loan proceeds was originallyscheduled for June 30, 1985. Withdrawals against the loan started in1981. The overall Bank participation for Parts B, C and D increasedfrom the appraisal estimate of 46S to 69% at completion of the project.Despite the increase in the overall foreign financing, the increasedcosts and changed construction method, however, the full amount of theloan was not utilized. Cancellation of portions of the loan in foursubsequent dates totaled US$18.5 million out of the MWSS allocation ofUS$62.5 million. This points mainly to the devaluation of the peso, thedeletions in contract implementation and partial implementation of PartB (combined sewers) and Part C (sewerage design).

1.11.2 The original closing date of the Bank loan was December 31,1985. Due to delays and repackaging of some contract works, three one-year extensions were granted by the Bank, with the loan finally closingon December 31, 1988. Seventy-two percent of the MWSS allocation of theloan proceeds was utilized.

1.11.3 The ADB loan (US$42.8 million) which financed Part A of theproject was expected to be totally disbursed by December 31, 1985. Fullutilization of the proceeds was not achieved despite late implementationof the rehabilitation of the central sewerage system, the increase inconstruction costs and the changes in design and construction method&.The early completion of the initial central outfall and the Tondopumping station provided added opportunity for the MWSS to revise the

- 16 -

scope of work on the rehabilitation component. Substantial savings fromboth resulted in cancelling US$9.35 million as of December 31, 1988.

1.11.4 Disbursement of the ADB loan proceeds began in 1980 andloan closing was scheduled for December 31, 1986. Due to theimplementation of works to complete the rehabilitation component in late1989, the ADB extended the closing date to December 31, 1989 asrequested by MUSS.

1.12 Procurement

1.12.1 The procurement of equipment and supplies was carried outthrough International Competitive Bidding (ICB). Most contracts wereawarded to local indentors/firms with foreign principals. Not all theequipment/supplies contracted, however, were delivered. The failure ofindentors' delivery was due to strict procedures in the issuance ofLetters of Credit. Such procedures have greatly delayed implementation.Winning bidders can no longer meet the quoted bid price, resulting indefault in delivery. Some items intended for the Central Laboratory andthe Manila Bay monitoring program were not complied with by theirrespective contractors. Notices and attempts by MWSS to compel fulldelivery of items by contractors were not successful.

1.12.2 The Government's imposition of restrictions on the openingof Letters of Credit and selective importation in 1983-85 made it moredifficult and time consuming to acquire needed items.

1.13 Compliance with Covenants

1.13.1 All issues under the covenants in the Project Agreementwere complied with satisfactorily. the creation of a separate SewerageAccounting Section in MUSS was carried out in 1982, but it was not untilthe MWSS re-organization in 1985 that the Section become permanent. Themaintenance of a separate accounting system for water and seweroperations started in CY1988, rather than January 1, 1981 as originallyplanned. The transfer of ownership for the acquisition of 12 hectaresfrom the Public Estate Authority (PEA) for a future sewage treatmentplant is still being negotiated. The 10-hectare site at the mouth ofthe Pasig River approved by the PEA for the same purpose has yet to bereclaimed.

1.13.2 Gaps and paucity of data in some instances were likewisenoted for the first Tondo outfall and the Manila Bay monitoring program,because of technical and financial problems encountered during theproject's implementation. The NPCC report recommended that Baymonitoring be continued for another two yeers in order to fill in datagaps and arrive at more conclusive information on the effect of MWSS'spumping of raw sewage into the Bay. Both MWSS and the Pank agreed thatmonitoring of the Bay should be continued. The Bank financed the costof the program until the closing of its loan, after which MWSS continuedto provide funds for another two-year monitoring period.

- 17 -

1.14 Roe=rLng

1.14.1 Adequate monitoring reports on the progress of the projectwere provided by MWSS. Project information requirements of otheragencies and creditor banks were provided on time. The quality of thereports and their timely submittal allowed very close monitoring ofimplementation.

1.15 Proiect SuRervision

1.15.1 Bank supervision missions visited MWSS during projectimplementation. Averaging two missions per year, the visits providedin-depth identification and analysis of key problems, issues and areasof concern for IWSS. Each mission provided valuable recommendations andshowed great concern for successful project and systems implementationand management. On several occasions, the Bank directed MWSS'sattention to actions that improved implementation. The Bank alsomonitored project implementation through progress reports submitted byMWSS. The good interaction between the Bank and MWSS therefore aided inthe execution of the project.

1.15.2 One of the problematic portions of the project is Part D,monitoring of the Tondo outfall/Manila Bay by NPCC. Sampling activitiesdid not commence until 1982 instead of July 1, 1981 as required underthe Loan Agreement. The delay in completion of the Manila Baymonitoring program was not under the control of MWSS. The program wasimplemented by NPCC with a grant from the Government, using proceeds ofthe Bank loan. The delay in acquisition of the survey vessel and latedelivery of equipment purchased abroad, the unsuitability of someforeign-acquired equipment and denial by the Bank of NPCC's request forextension of the study until 1987 instead of 1985 resulted in thereduction of sampling activities in order to finish the project on theagreed date. Delayed release of funds on the part of the borrowerduring implementation further aggravated the situation. The FinalReport on the Program submitted in 1986 by NItC contained some gaps andpaucity of data in some instances.

1.15.3 The continuation of the program for another two years,approved by the Bank in May 1987, was further delayed until a newMemorandum of Agreement to this effect was signed in October 1988. Thewill continue through 1990.

1.15.4 The Tondo outfall/Manila Bay monitoring program, whencompleted, will serve as a lesson on how much valuable time can bewasted in the litary of bureaucratic and technical procedures.

- 18 -

B. PRCJECT PERFORMANCE AND RE-EVALUATION

2.1 One of the project's main goals was the development of MWSS as anorganization capable of providing technical, financial and institutionalservices in water supply, sewerage and sanitation in its service area. Theproject provided MWSS with some valuable experience in four of its principalservices: PROGRESS, Design Services, Construction Supervision and SpecialServices. PROGRESS was responsible for organizing and supervising the designand construction under the sanitation program. Design Services undertook thefeasibility study and design of the next water supply ( TMWSS III) and sewerageprojects. The Construction Supervision group was responsible forimplementation and operations of works for the fist stage of the Year 2000Objective Plan. The Special Services group provided the services required forprocurement, monitoring, training and technical activities of the project.

2.2 The short project implementation period originally planned putsubstantial pressure on MWSS to reach its goal as rapidly as possible. Duringthe implementation period, MWSS engaged the services of consultants whoprovided technical support and assistance of high level and quality for theoverall supervision of MUSS. However, in view of the physical and financialuncertainties of the time and MWSS's relative inexperience in some areas, theproject implementation schedule must be regarded as overly optimistic andambitious.

2.3 In the implementation of the project's major components, local andforeign consultants were employed as resident engineers. Close supervision ofconsultants and contractors by MUSS, particularly in the project's early yearswas very useful. Over the course of project implementation, problems weresubstantially corrected as in-house and local staff gained experience duringthe ten years of project implementation.

2.4 Feasibility sruwaies for the project's components were prepared inadvance. The rate of delivery of project components reflected MWSS's initialoptimism regarding its technical capability and fin=cial viability.Reassessing, however, will show that the slower pace of actual implementationand phasing of service delivery in later years allowed the MWSS theinstitutional and on-the-job learning curves in construction management andmanpower development. The actual pace of implementation also eased MWSS'sfinancial problems, especially during the economic crisis.

2.5 The low priority given by management to sewerage projects,especially during the years of economic difficulties, somewhat eased MWSS'sfinancial requirements, but only temporarily. Personnel trained by MWSS andwho have gained valuable on-the-job training and experience in MWSS projectswere separated at a loss to the System. The resumption in 1986 of theprojects discontinued in 1984 required hiring of new manpower replacementslacking the necessary training, experience and familiarity with the project.

2.6 Over the course of the project, MUSS did not have an appropriatemarketing strategy to make the project objectives and benefits more sellableto the targeted beneficiaries and the information campaign to make the arearesidents appreciate the importance of the sewerage and drainage facilities.

- 19 -

While the National Plumbing Code and the Sanitation Code of the Philippinesrequire every building or premises to be connected to the sanitary sewersystem in areas where sewer lines are available, the house connection programof the project (HOCOP) met resistance from some homeowners whose property wascensured for service connection. Objections to the 50% surcharge on waterbills for sewer services caused some rejection of the HOCOP project. A surveyin 1986 of PROGRESS projects previously completed reflected some residents'misuse of the drainage facilities and the apparent lack of maintenance by thelocal governments.

2.7 MWSS followed Bank procedure established for the procurement ofsupply materials and award of civil works contracts for foreign-fundedcomponents but followed procurement procedures established under PD 1594 forpurely local components. In the pre-qualification and selection ofcontractors, MWSS strictly adopted the said procedures. However, in the pre-qualification and selection of contractors, the evaluation is limited to thesubmission of data supplied by the contractors. In some cases, incorrectstatements have been received.

2.8 At the start of the project, NWSS organized a central Office forSpecial Projects (OSP). All records and communications were coursed throughthe Central Office. However, in 1985, a reorganization of MWSS took placeresulting in the abolition of the OSP and the misplacement of vital documents.The project office failed to build its own data bank. There have beenattempts to computerize the records but this has not materialized.

2.9 The economic and social benefits expected of the project include:improvements in public health; enhancement of employment; and increased landvalue. These benefits are not quantifiable in financial terms, but it isgenerally accepted that they did accrue from the implementation of theproject.

2.10 The final report on the health monitoring component of the projectby the U.P. - IPH showed that the introduction of drainage intervention aloneimproved environmental sanitation and public health to a level almost equal tothat brought about by the complete package of water supply, street anddrainage improvements. The least improvement in sanitation was observed inareas with improved water supply only, suggesting the need for the provisionof sewerage and sanitation facilities in parallel with water supply.

2.11 The long yea.s of executing METROSS I brought valuable lessons andconsiderable experience for the Government, MWSS and the Philippinecontractors to reckon with and consider in future sewerage projects. Sincethe next phase of construction in sewerage involves the expansion of theexisting system in MMA, the NWSS should make a thorough assessment andanalysis of its capabilities to address issues and problems in the pursuit ofits objectives. It may be wise for MWSS to view the next project in the samecontext as METROSS I. Though generally successful in its infrastructuregoals, much is left to be desired. The completion of the project in 1989should likewise complete MWSS's learning curve in construction management. Asufficient pool of manpower should have been developed to handle the planningand execution of similar undertakings.

- 20 -

2.12 The local construction industry should now be more familiar withthe treuds ano problems of this kind of work. It should have learned therisks and the complexities of implementation. The losses suffered by thecontractors through erroneous planning and overly-optimistic assessments oftheir capabilities should have likewise molded the industry members intobecoming more reliable institutions and partners in national development.

- 21 -

NAIAsEWR AMD SAI amI MRJC (LOAN 1814-PHU

PART III. 5 TIXL Zmm=l

1. Lo S Credits

Title Pulas A , 3d $tatus -C9gint

Proinel Citie lrov wte SUly Os/am Colete Loen financed thewater Suly In six rvincital 06/ studies to upd.teProject cities, prepore a Sewerage Master(Ln. 141 ) studies for wter Plta for UA

upply systems i 10 aN Identify them, cities ed Sewe and Sean-Manil. tation Project.

The Solid Wastes MgAt.study included In theSewer/Sanftation ProJ.also was financed fromLoan 1415.

Second hnd I's ater spply for 0725/fl Complete Carried out by WaterSupply Metropolitan nmiti. 12l86 agenmy (NMSS) alsoProject responsibl, for(Ln. 1814-PH) Sewerage/Sanita-

tion Project andsom covenantssuerseded bythose of Ln.1814.

Third Urban Provision of basic 03/25/U complete Project includedDevelopment nees and assist in 1968 drainage worksProject prodactivity of requiring coordi-(Ln. 121-PS) toa incom nation with Sew-

families in Metro erage/SanitationManila. Project.

Metropoltitn Optimiation of 06/03/86 Ongolng. Carried out byNMI M ater existing wter Closing agency (MMSS) alsoDistribution supply production date is responsible forProject capacity ed 12/31/91. Sewrage/Sanita-(Ln. 2676-PH) imrovement of tin Project snd

NM finenial som covenants ofperformce. Ln. 1814-PN are

superseded by those ofthis newr loan.

22

2. ProJect lmtable and Issue Raised

a) Prolect Timta*le

Activity/ Date Ravised ActualEwat _ Pld Dot" Date

Poject idmntfficatfan April 1975

Prepatfon 05/77 03/78-06/79

Apaisal UIfin FY78 04/79 07/79-0879

1sotatiofs FY79 02ov-or/so

Bard Approa FY79 03/80 03/20/80

LoawCredit foatur. 03/28/80

Loa/Credit Effectivens 06/30/10 0/29/80 09/10/80

Project Coplttion 06/30/85 12/31/86 12/31/8903/31/8812/31/8

Closing Date 12/31/85 12/31/86 12/31/6812/31/87

final Difburseunt 12/31/8 12/31/86 07/10/8906/30/e06/30/89

n-23

2. troec timtable and 1en Rais

bW In= id l s lea thraush Ucer Pretain)

e "ratt *m ---- the capcity of wc to lplnt Its share of thedraniag c1apn ant of the project;oNelap of _omnts of this project an of the

p Urbd n tII project;.... prs of the W service am are wder the control of other authorities which

could cae proble_ beas of different standerds;---- facfilites bbuilt by on acy (ISS) would be

operate d mintained by othe;MISS's lack of p4r1iee In sewerag construction;the divrsion of resoures requred for this project from other high priorityprojects miich lready reqire two istemnts;affordability by tow fncem population; adthe high ltel of price contingencies being used for cost estimtes.

nlusal u: .... the _sintance of drains to be constreted byNISS, but to be mintained by MIC; ard

.... the large proportion of total Governt fwids o - tted or prposed for watersuiply wd sewrage in WaIl a;

Post-oAusg: ....-- the strafn of the project on limited local currencyratources;the mownt of the proposed Bank toan In relation to

sitliated totat project costs;the introduction of a wastewater disposal charge of lOX on water supply btlls;the operational capacity of the foplt_ntnr sgencies to carry out the projectalong with the Urban III project;=- Wther parts of the sewerage copwrwent coutd be deferred;

---- the possibtlity of coabining se_nts of the Sewerage and Sanitation Project withthe Urben 111 Project; and

---- qasfsgmant of responsibiitty for desin and suqerwvsion of construction of closelyrelated drainage co_mnts of the Swe rg/Sanitation Project and of the Urban IIIProject

nmeti ....: ---- gone

§Mr PlalionM ---- Mone

- 24 -

3. f

mautiv Estimt nd Aul D1sbumsam

ID FY Awal Acual,d s_Wter itflt* X of Apaisat

Endina Aout Amount tte1981

12/31/80 0.14 0.14 1O0X06/30/81 0.86 2.32 269X

198212/31/81 7. 5.82 73206/30/82 23.60 10.02 42X

19312/31/82 31.81 15.37 48X063/ 50.32 17.94 362

196412/31/- 52.74 24.46 46X06/30/84 57.71 28.05 49X

198512/31/84 59.65 31.02 52X06/30/a5 63.00 36.38 5u

198612/31/8 38.28 61t6/A30/8 36.94 62X

198?12/31/6 39.72 63A030/87 40.16 64X

12/31/8 41.67 66X06/30/88 43.10 68X

198912/31/85 43.89 ?0X06/3089 44.21 70

199012/31/89 44.50 712

Cacelation03/06/85 12.00008/07/8? 1.54009/04/7 0.85011/29/68 3.00007/11/89 1.113

Total Cancelled 518.503

Not Anouast of Loan 44.497

3. LeJcr t { W_SS

b) Ortainal and final Attloation of Prooeeed(US$ 000)

FiMl DiaisntsLo An Mr_t 1 of which for

Amt X of cost Total Local CurrencyAk lmo c ifrsed Amount of Totatl

1. CIvIl Vertb

(a) Works underPart 3 (1) of the 31.000 715 20,57? 18,748 91XProject

(b) Wwks vder A/ 6.600 751 7,607 3,976 521Part C (1) of theProject

2. Eqipment ad Nate ls-sf S,Ol 3.050 217 7X

(a) directly inorted 1001 offoreignnd1tura

(b) locatly maufatured 100 oflocal epen-diture (ox-factory)

IC) procured locally 75X

3. Cnultants' Sevics 13,90 1001 13,263 3,521 271nW oversea training

4. Unallocated - -00

TOTAL 63,000 44,49? 26,462 591

2/ Alloetion as amnwded on 11/18/81 to provid, for construction of diversion tuwnels for the Lafban Dam, whfchwould be constructed as part of the next water project.

3' Under the 1eniment, *6.6 m mer taken frm Category 3, previously 20.5 m, and reel located to Category I (b).previously othber Works". The reduction in th allotation for consultins services for IYSP-III was covered bvSwiss transmer credits for the cost of Swiss consultants to dIsaon mwter gammlv fad lities.

-26-

4. Protect Imloamentatien

Appraisal Actual orIndicator Ca) Eat_ lat. (a) PCi Estimat

Part A: (ADB financed)1. Tendo Sewage outfalt 3.6 to outfall to be 3.9 Km outfall completed

eompleted by 12/31/82. in 12/83.

2. New Tcndo Sewage New pimping station with Kew pumping station withPupinr station 5.5 cu m/a capacity to 5.0 cu oVa capacfty was

be cospleted by 12/31/82. completed 09/85.

3. RehabIitatfon of Rehabilitation of 7 Rehabilitation of the 7sewag lift stations to be dbne by stations was completedstations 12131/82. 04/86.

4. Rehabilitation of Rehabilitation work on RehabilItation completedsanitary sewers about 120 km of sewers about 03/31190.In e ntral Manila correcting overflows to

Pasig River, etc, to becompleted by 12/31/85.

PART B: (IBiD financed)1. Sanitary sewers and Sewars and house cowuc- Sewer system for Pandacan

house camouctions tions for Pandacan area (271 ha) was completed infor areas adjoining (about 360 ha) end for 02/89. and for Dagupanthe central sewered Dagupan (aobut 280 ha) (276 ha) in 11/86. Housearea of Manila to be eompleted 12/83. connection program under

Nouse connection pro- separate contractsgram to be completed completed 05/89.by 12/31/85.

2. Implementation of Pilot program consist- Pilot program completedpitlot sanitation ing of corbined sewers in 09/81.program in two areas and public

sanitary facilities tobe completed in 1985.

3. Combined sewers to Combined sewers in areas This progras (PROGRESS)remove wastewater elassed as very hazerdous was carried out in twofrom the iomediate (about 730 ha) or with stages. The second stage,vicinity of low significant hazard (about completed 05/89, asincome residential 680 ha) with respect to delayed 3 years becauseareas public health to be of local fund short ges.

compteted 12/82.

4. Procurement of Equipment for septic tank Procurement of equipmentequipment for septic emWtying and maintenance finnoced from this toantank snd sewer of sewers to continue completed in 03/83.maintenance until t12/83.

5. Monitoring of new Implementation of program Central laboratory toTondo submarine to monitor water quality process water and wasteoutfall and con- at new outfall beginning water sarples not relatedstruction of new 01/82 and put into oper- to water treatment olantaste water atftn new wastewater control operational 12/8S.

latoratory. laboratory. Outfall monitoring beganlate 1983 when outfallcompleted.

6. Pubilc health lplementation of health Health monitoring by UPmonitoring program monitoring program by UP Inst. of Public Healthto assess conditions to begin by 01/81. started 07/81, completedbefore and after in 1985, In S aresm wharesanitation improve- sanitas0on improveentsment. carried out.

27 -

4. Prolect lmlemetati (continued)

Indicator (a) lfAmralsal Estioate ta) ctl or PCR Estmate

PART C: sn fIR inmx>dO1. Detaliled desgn of Detailed design of next Design ooqwleted for a

ixut stag water stage projects to be next stage water suqplys4*pty, aunittian coqextted by 12/31/01. project. Construction ofwed sewetrae projects AuimnLnt to Loan and diversion tuwnels con-

Project Agreneints adesd pleted. Design for part ofconstruction of diversein sewerage extension totutnels for Lalban Dma. South Netro Manila, inctuding lst

stage of Southerm Outfatll, alsocoqpt,eted.

2. ovrseas training Training of MMSS staff overseas training of staffin sewerage design, on sewerw"e and atten-construction and dance of sen or officialsoperation. on mamnaement completed

in 1904.

Part D:t (1O)f inanced)1. Nonitoring of Manila Implemantation of bay Monitoring program,

Sly water quality monitoring program to delayed by slow equipmentbegin by 07/01/81. procurement, started

072 and continued thru1986. Two year extensionof monitoring began 10/88.

(a) indicators shown were defined during appraisal and generally wre monitored throihout the implementation periodadshon in the supervision reports.

. 28 .

S. Prolet Costs and Ffinnein

a) PMleit CoSt

Marsfal Estimtes al Actual Costs bIbLDnscnts -- For ln ;X£QL Tetrl Forel ILo Total

(US S iltions)Part A (ADD Fincd) 42.77 40.78 83.5S 2.77 9.68 37.45

Parts ,C, & DCfvil Works i/ 12.65 22.81 35.46 21.33 8.78 30.11Iquipoent 3.98 0.53 4.51 1.04 0.06 1.10Ronitoring Programs 0.00 0.74 0.74 0.04 0.18 0.23Solid UWstes Study - 0.40 0.16 0.56Oetailed Dein/Training SJ 14.83 6.23 23.06 11.24 8.77 20.01Enogneering & Admin. Sy 1.16 3.19 4.35 9.97 3.82 13.78Contingences 10.80 14.94 25.74 --

TOTAL PARTS B,C & D amk1 S9, 44.02 21I.7 65.79

TOTAL PROJECT 86.19 91.22 171.41 71.79 31.45 103.24..... ....... .................... ............................................ ..... ....... .............

Aamaisal Estimates Actual OstsFon n7 Loesl Ttatl Forefin Locat Totat

(Pesos mItiins)Part A (ADS Financed) 316.5 301.8 618.3 407.7 126.1 533.8

Parts D,C & DCivMt Works SI 93.6 168.8 262.4 294.4 119.8 414.2Eqidpment 29.4 3.9 33.4 12.9 0.8 13.7Nonitorwin Programs 0.0 5.5 5.5 1.0 3.0 4.0Solid Wastes Study --- ---* - 3.5 1.3 4.8Detailed Design/Training £/I 109.7 60.9 170.6 192.0 98.6 290.6Engineering & Aikin. gt 8.6 23.6 32.2 121.6 53.0 174.6contingencies 79. nl0.6 19. -- _ ----

TOTAL PANTS B,C & D 321.3 373.2 694.5 625.4 276.S 901.9

TOTAL PROJECT 637.8 675.0 1312.8 1033.1 402.6 1435.7

NOTS:Exchanoe =aX ud for epprlaisa estimates: US S 1.00 * P 7.40.Ai ctual cost figures shean abone are summfries of mor detai led data provided by mWSS with Part 11 of thisPCR nd In subsequent corfreswonceo and expressed in Philfppine pesos by years. Excnomeratu used toconvert to equivalent US dollars are the annul atverages of the market exchange rates (rf vatues) from the'International Financial Statisticsf pubished by INF.

I Actual costs of diversion twunnls for the proposed Laibsn Omo (part of the MAB III next stage water supplyproject) ineluded under 'metda led DesignTr*aningp.

V Actual costs of detailed design of sewerage ard sanitation included under "Enineering & Admin.P.

- 29-

b. Prolect FC n mncina

Amiorisal Foreast Ffnal Amountsof X of

Source ot Funis tJga lam"i 12 Ol(USS m) CUSS U)

IFR Loa 1814-PU 63.0 36 4.50 43II e Lon 1415-PN 0.0 -- 0.56 & IADS Lomn 457-P111 I 42.0 24 29.45 29amSS Internol cah gnration 23.5 13 )Govt. e*uty contributions 19.8 11 )28.23 27Govt. town s 16 .

Total j 177.4 100 103.24 100

___._.___...................................... __........................................................ ........<........

1/ A smm de not include Increas In MS working capital and interest capitalized during construction.

V/ The Solid Wbtes Manwagment Study cost S0.56 Ill n and was financed from IBRD Loan 1415-P, and was notincluded In the appraisal financing plan.

,V ctual AD3 Lean, approved 06/24/80, was for S41.8 m.

if The mwnt of the Swiss transfer credits used to financ port of the design of the next stage water supplyproject (see note In Section 3 (b) of Part 111) Is not includbd; the data are not available.

-30 -

6. olect m tRelt

a) Direct Eanftts

1/ Estimted AtAppra1sal Full

Benefits Estfmate Clos1ir Date fOelheent

Rehabilitation of Central Sewer SystemAres Benefited (ha) 1,880 1,800 1,800Trwa* Sewers Rehabilitated (km) 120 106 106Population Benefited (000) 610 845 n.a.

Sewer Extenso0ns to Dagupan & PandcacnAre Benetfted (ha) 640 S47 S47Sewers Constructed (kip) n.a. 66.3 n.a.Service Connections Constructed (im) n.a. 18.1 n.a.

Population Benefited (000) 169 351 378

Combined Sewor ConstructlonArea enefited (ha) 1,410 1,282 n.a.

Condaits Constructed (km) n.a. 329 n.s.Population Beneffted (000) 906 381 n.a.

Pilot Sanftation ProgramArea Benefited (km) n.a. 36.7 36.7Populatfon Benefited (000) n.a. 13.7 13.7

Septic Tank Emptying ServicesPopulation Served 1,320 n.a. n.a.

Service Connections (additional to above)Financed as Part of ProJect (000) n.a. 4.7 n.a.

otaifled Destgn of Mast Stage (aterSuqply and Sewerage PruJects Done Done n.a.

Overseas Training (staff months) n.a. 102 102

1/ As given in Appraisal Report for cotpletion by 12/31/84

n.s. a data not awvilable.

- 31 -

6. Protect Resultts

b) XinWc 19os

ActualAparalsal Estiate (At Final Develoament)

Economic Rateof Return 11X to 14X/ 3/

Undetxrlvn htomig

For AmoiSal Estimate:Incremental revwens from astewater charges and esti1ated land value 1ncreases, a major component,weme used in determining expected project benefits. The caleulation method described In PubtlicUtility Report No. GAS 14 uas used to determine the Internal Economic Rate of Return (IERR).Accordingly, border prices, determined with the following conversion factors, were used In thecalculations:

Standard factor ---------- 0.820Consumption factor ------- 0.840Construction factor ------ O.27Capital goods factor ---- O.65Labor factor ------------- 0.695

Electricity, gas andwater factor ----- 0.802

........................ _. .. .... ...... _.................. _... .... ... .... ._.. .............

J/ Depending on whether or not revarues from wastewater charges collected froam properties which are not connected tothe central sewerage system are included as benefits in the caleulations.

3V 1,cause of a series of currency devaluations, a high local inflation rate and major Goverment policy changesAr;fn the project 1 plementation period, and because of the limitations of the available data on ctual project

expunditures and lend values daring that period, no atteopt has bean rmde to recalculate the IERR on the sam basisas uwed for apWraisal. Vith respect to land values, property assessments generally have not been rased by thelowal gnvorrments in the metropolitan area to reflect any Increased values becauee of inproved conditions (seeProject Cov;letion Report for the Third Urban Development Project; Loan 1821-PH).

- 32 -

6. Proleet Results

C) fnismilMDQCt(Millions of Pesos unless noted otherwise)

Appraisal I A/ Actual for kIFinancial Indicators Estiate .. j. aust Latest Yearoertoal Data:

Population under MSS (000) 9,148 8,468 8.712W Vith water camerctions 80X 56.8X 58.5%

X Served by publie hydrants 7.0X 7.0X 7.2%XWvth sewer cormnetiono - 8.1X 7.7XWater connections (000) 695.1 534.3 566.5Sewer service cornections (000) 81.1 97.3 103.9Vater billed (rmllion eu m) 701 336.5 359.4Non-revaeue water 1 251 601 58.61Sewage billed (million eu m) -- 60.7 61.2Water staff/IO0O water corneetion 12.7 11.7Semer staff/1000 sew. coections -- 4.2 4.6Ffnenefat Date:Tariffs:

Avg. mater supply (P/ cu m) 2.22 4.02 4.36Seer charge (l of water bill) 601 501 501Envirorgent charge (% of water) 20% 101 101

Revenues:Water supply 1,554.5 1,362.7 1,578.0Seerage -- 134.7 147.1Enviraoment charge -- 135.2 156.8Total Sewerage and Enviromment 341.4 269.9 303.9

Totat operationl expenses 647.2 715.2 808.5Income before depreciation 1,266.7 1,006.7 1,171.7financial Perforeance:Rates of return St

on water operations 8.01 8.94*on semerage operations 5.51 - 9.59*overall operations 7.41 8.01 8.71

Operating Ratio gy 51X 52.41 51XReceivables in biLlings (days) 90 81 92Debt:

Oebt service coverage 1.9 1.1 1.0Debt:Equity ratio 26:74 46.8X 43.41

Liquidity: Current Ratio 1.3 1.3 1.3

p/ For last year of appraisal forecast * 1987.

kI For latest year for which data is available - 1988; or * for 1989 according to MSS aouarterly Report for theperiod ending 12131/89.

gI On net revalued fixed assets in operation.

gV Including depreciation.

6. £Lt1 Reults

d) Stiniu

Purpose as Definedam as &rfsal Status imeact of Studv

Monitoring of Mbnila To expand limited Carried out by Provides valuable dateBay Water uAlity sampling of shore- mPCC 1982-1986. on levels, types and

line uaters to futl Resumed by ENO effects of pollution ofscale monitoring for two years: of Bay and could beof potLution and 1989-1990. very valuable in designassiml tative Ca- and inplementation ofpacity of entire Bay control meures. 3/

Development of To identify indus- Industrial waste Iqpact of work done isIndustriat Wastes trial astes being water survey limited to demonstra-Regulations disposed of in Metro conducted in tion that technical

Nanila and to design 1981/82, but was capability for adequateand prmulgate repw- inecmplete. Very industrial wastewaterlations to reduce general regula- surveys exists in thetoxic discharges. tions prepared Philippines.

but never imple-mented. 2/

Pubtlic Health To update public Carried out by The program establishedMonitoring Program health statistics UP from 07/81 a sound methodology for

In selected areas through 1985. collecting and evatuat-where water supply Final report Ing health retated sta-and sanitation were submitted in tistics in theimproved and 10/87. Philippines. Conclu-to monitor any sions indicate thatchanges. of the various possible

infrastructure improvements incongested low-Income urban areas,drainage had the mostfavorabte iwpact. y

Monitoring of Voter To evaluate the Mnitoring by Resutts indicate onlyQuality at New effects of discharge MWSS began in significant effect onTondo Seage of untreated sewage 1984 after new water quality to dateOutfall on the imediate outfall can- is Increased turbidity

vicinity of the new pleted. Even- near the outfall causedoutfall. tually contin- by diffusers stirring

ued as part of up bottom sediment. I/Bay monitoring.

Solid Wastes To investigate the Study completed lwpact has been negli-Management Study very poor existing 12/82 and gible since few of the

astes disposal recamendations recomsendations avesystem and recom- agreed with the bean implemented. /end improvemnts. Bank.

Study of Potential To ivwestigate Study never lpaect was timitedNew Sources of possible new sources received re- mainly to preliminaryReverie for MUSS of funds to reduce quired attention work on establishing

future dependency and was even- future waste wateron Goverment tually absorbed disposat chargescontributions. in corporate based on groundwater

plamning activ- abstraction withinity of MSS. MMS service area. /

- 34.

3/ Re: Manita Bay/Tondo Outfall Vater Qualitt Monitorin: Monitoring program gave no evidence that outfall operationmade any significant change in water quality in its vicinity, except the turbidity, but that seneral say water and beachquality were not safe for primary contact recreation and that Bay showed signs of stress because of the thicklypopulated area. The resumed program (1989-90) is intended to fill data gaps in order to arrive at more conclusiveinformation on water quality and to predict the long term impact of discharging untreated sewage through the outfall.It is important for MMSS to have adequate scientific data on which to base decisions an any need for pretreatment.Monitorinr should also continue indefinitely on a routine basis to detect changes in the marine environment and toIdentify weasures necessary for abatement, particularly of toxic pollutants.

1 Re: Industrial Wastes Rewulations: The basic problem was the design of regulations suitable for the Philippines andtheir implementation during a period when the country was faced with severe economic problem and political unrest.

/ Re: Pubic Health Nonitorina Proaran: Studies carried out by the Institute of Health, University of the Philippinesin 5 areas where fmprevements were implemented indicated that the beneficial effects of inproved drainage almost equaledthose of areas with the complete package of improvements (water supply, streets and drainage), and that the leastinprovements occurred where only water supply was improved.

y Re: Sotid Wastes Manacement Study: Study was expected to serve as the basis for a Manila solid wastes managementproject which also mas to assist industries with installation and operation of toxic waste removal facilities. Thesolid wastes project has not gone ahead, however. Failure to take effective action on the solid wastes problems couldwipe out many of the expected benefits of the Sewerage and Sanitation Project because of refuse clogged surface waterdrains, catch basins, combined sewers and esteros.

5/ Re: Study of Mew Sources of Revenue: The study was expected to examine the feasibility of: charging groundwater usersfor sewer services, and possibly for water use; betterment taxes on properties benefitting from sewerage and drainage;and charging industries based on the nature of wastewater discharges. Currently, MSS plans only to submit draftlegislation to permit taxing of groundwater use.

- 35 -

T. Status of maior Cveanrits

Covensnt Su b iect Compliance

La m Agreemnt:

Sect. 3.01 The Borrower to take, or cause Unsatisfactory during periodto be taken, ll action, nclud- 1983 - 1966 when Governmenting the provision of funds failed to make required equity

necessary to enable MMSS ard MNC contributions becbuse of na-to perform (their) obigations. tional economic and political

problems. Also, politicat andbureaucratic factors haveinterfered with acquisition ofsite for of Tordo seaagetreatment plant. (See ProJectAgreement, Sect. 3.06 below)

Sect. 3.03 By July 1, 98, the Borrower Compliance satisfactory afterto cause NPCC to comwmne. work long commncement delay andon the monitoring of Nanila Bay interruptions durino implemen-water quality, and submit to the tation. (See sectionBank quarterly reports analyzing 6 (d), Studies).the results.

sect. 3.04 By Jaruary 1, 1981, the Borrower Compliance not satisfactory.to develop and implement suitable (See Section 6 (d) Studies).insstrial waste regulations forthe purpose of eliminating toxicdischarges in Retro Manils.

Prolect Agreement:

sect. 2.08 By January 1, 1981 MSS to sign Agreement signed Aprit 1981 andan agreement wilth UP on a public compliance satisfactory there-health monitoring Program. after. (See Section 6 (d)).

Sect. 3.02 MUSS to give the Bank the Limited compliance.opportunity to comment on the Appointees generally proved toqualifications of candidates for be well qualified, however.Project Managers for Sewerageand Sanitation.

Sect. 3.03 1i) By Jariary 1, 1981 NMSS to Special MUSS Task Force createdestablish and staff an office 1982, but sewer connectionfor sewer comections to program began to be effectiveimplement a schedule agreed by only in 1987, and then only tothe Bank. limited degree.

Sect. 3.03 (if) By Jaruary 1, 1981 MWSS to Delayed compLiance. By 10/84 areorganize and staff a Central Sewerage Department, including SewerDistrict Office to operate a Septic Tank Maintenance Div.,and omintain the sewer system. was fully operational.

Sect. 3.04 By January 1, 1981 KMSS to begfn Delayed coWpliance. Konitorfnga onnitoring program of the new of the outfall on a regularTondo outfall to be constructed basis began in 1984. (Seeuncter Part A (1) of the project. Section 6 (d), Studies.)

Sect. 3.05 By January 1, 1981 MUSS to set up Delayed compliance. While firstan accoemting system to separate set of separate finacialwater snd sewer income statements. statements was prepared for

1963. actual maintenance of an accountingsystem which separated water supply andsewerage operations beoan only In 19B8.

- 36 -

T. S"_¶us of Malor Cowenants (Continued)

Cov4enant---- Subiect _ Comliance

sect. 3.06 By December 31. 1981 MMSS to Compliane by MMS haqpered bycomptete action to acquire a site politicat issues and bureau-for a future sewage treatment cratic problemg. As of 12189.plant at the Tondo outfall. negotiations, underway for socme

time, between MUSS and PEA for transfer of10 ha of reclaimed land had been deferredpending revival of the next stage sewerageproJect.

sect. 3.07 By January 1, 1981 MUSS to Compliance satisfactory afterimplteent a waste water disposal Late start en 07/01/81.

charge of 10X on water bills ofconnections using above 30 cu mlm.

Sect. 3.08 By June 1, 1960 MSS to coune Delayed coopliance. Study con-a solid wastes management pleted 12/82 and recomnr_da-study and furnish the findings tions agreed with Bank, butto the Bank by December 31. 1981 no significant imptementation since. (See

Section 6 (b), Studies.)

sect. 4.02 Not later than six months after Delayed compliance. Financialend of each fiscal year, MSS to statements and auditor'sfurnish to Bank certified copies reports furnished by MUSS haveof MUSS financial statements for been satisfactory but have beenthe year and the auditors report. generally late by aem to three months.

sect. 4.04 Not later than October 1 of each Partial compliance. Throughyear, beginming in 1980. through 1983, reviews were carried out1985, MUSS to furnish to Bank regularly; need for tariffa review of MMSS's firanciat increases following devaluationrequirements for the following identified and imptemented andyear for determining required need for equity contributionstariffs, equity contributions and borrowing referred tofrom the Borrower and amounts to MOFP MN0A and OB. For 1984-85,be raised by local borrowings; however, there was a breakdownand to implement the findings in financiat plaming. ThisIn a matvr satisfactory to covenant superseded by those ofthe Bank. new Loan 2676-PH. approved 04/86.

Sect. 4.05 (a) MUSS to provide revenues to Compliance generallyproduce: for sewer operations, satisfactory. Coveantbeginning in 1981, an annual superseded by those of newpositive rate of return; and Loan 2676-PH approved 04/86.for water operations, an annualrate of return of 5X in 1961and a% thereafter.

Sect. 4.06 By March 1, 1981 iWSS to furnish Compliance not satisfactory.to the Bank an analysis of the (Section 6 (d), Studies.)findings of a feasibility studyon new sources of revenue.

Sect. 5.01 (a) MMC to enter into an agreemnt Compliance satisfactory. Thewith mUS, satisfactory to the coubined sewers completed underBank, for the purpose of 61 contracts were accepted forconstruction of combined seers operation by MuC and turnedunder Part 8 (4) of the project. over to the respective local

goverments (3 cities and 15municipalities) for maintenance.

Sect. 5.01 (b) MC to operate and maintain the Copliance not entirelyabove system in conformity with satisfactory. Surveys havesound practices and shall provide, shown that maintenance ofpromptly as need the required facilities by local authoritiesfunds and other resources. has not been consistently up to

acceptable stwndards.

- 37 -

8. Use of 8ank R4s ouree

*) Bank Staff/Consuttant Imaut(Staff Weeks)

Stage of Ba,*IRDA Fiscal Tear Prolect CvcleProF LI?!1 t1 1!! fill fSlu f8

Preappraisal 9.3 0.6 5.8 12.1

Appraisal 45.3

Uegs/Adnin. 1.0 14.2

Supervision 0.7 8.0 3.8 5.2

Other 1.0 0.7 0.1

Totals 93 0.6 5.8 13.1 60.2 9.0 4. 53.

....... ............ _............ ......................... ....... ............

am14 fXfY86 fY87 fil "aFMl fl2 TOTALS

Preappraisal 27.8

Arraf stl 45.3

Megs/Admin. 0.4 15.6

Supervision 8.8 6.7 5.6 14.1 3.9 2.2 59.0

Other 0.2 0.3 0.3 2.6

Totals S. 6.9 6.3 14.4 3.9 2.2 150.3

- 38 -

8. Use of Bank Resources

b) PEk r i.Si3Ji

NumberAl of Other

Type of Projects Performance ProblemMission Dates Staff Covered AatinML. T. ne

Identify 05/24-31/75 Engineer 0Fin. Analyst

Prepare 07/24-08J13/77 Engineer 0

Prepare 05/28-06/16/78 Engineers (3) 5 --

Urban PlannerEconomist

Prepare 10/22-11/27/78 Engineer 3Fin. nalyst

Pre. Apr. 03/08-16/79 Engineer 0 -- --

Fin. nalyst

Appraise 07/16-08/22/79 Engineer 4 ,,Fin. Analyst

SPM # 1 06/05-27/80 Engineer 4 n.a. --

Fin. Analyst

SPN # 2 02/14-03/10/81 Engineer 3 1.Fin. Analyst

SP4D 3 07/12-31/81 Engin er 6 1. --

Fin. Analyst

5PN # 4 06/18-07/O2/82 Engineer 5 1. Disbursmnts

$Pi # 5 09/ /83 Engineer 0 2. FinancialFin. Analyst Disbursmnts

Technical

SPM , 6 03/20-31/84 Training Expert 3 n.e. Staff

SPU # 7 09/24-10/30/84 Engineer 3 2. FinancialFin. Analyst DisbursmntsEconomist Dev. ImpectInstituticnal

Dev. AdvisorSPN # 8 04/29-05/28/85 Fin. Analyst 2 2. Financial

Engineers (2) Dev. ImpactAdmin. Asst. Overall

Status

SPN # 9 06/03-15/86 Engineers (2) 4 n.a. --

Fin. Analyst

SPN # 10 11/05-14/86 Fin. Analyst 4 2. ProJ. Mgmt.Engineers (2) Overall

Status

SPN # 11 03/10-23/87 Engineer 2 2. Proj. Mgmt.Fin. Analyst OverallEconomist Status

SPU # 12 08/05-12/87 En8ineer 2 2. Prol. Mgmt.Fin. Analyst Overall

Status

- 39.

8. use of Bank Resources

b) Bank Nissions (Contiee)

ullberW of Other

Type of Projec.s Pertormance Problemli ssi on Dates Stefft c£emd R ati p s TvDes

SPN # 13 02/08-18/88 Enineor 4 2. Proj. Ngmt.Fin. Analyst Overall

Status

SPM # 14 10/11-15/88 Fin. Analyst 1 1. Proj. Ngmt.Engineers (2)

l/ In addition to the conventional Bank supervision and other missions, supervision and inportant tochnicalassistance contributions were provided from Bank resources through brief visits by experts in various fields(hydraulic structures, emirornent, water distribution system design, computer applications, and public utilitymnwgement) from areas of the Bank other than the department directly responsible for supervision of the project,and by Banll staff participation on expert review panels.

k/ Performance Ratines:1. a Problem Free or Ninor Problems2. a Moderate Problems3. = MaJor Problemsn.s. - Not available from reports

- 40 -

Ane 1

Description of the Protect 1/

Part A:

(1) The construction of a 1.8 m diameter and about 3.6 km long outfall at Tondo into Manila Bay fordisposal of sewage from Central Manila.

(2) Acquisition and installation of a new pimping station to replace the obsolete main Tondo pumpingstation thereby increasing the capacity from 3.6 to 5.5 cu m per second.

(3) The rehabilitation ard upgrading of seven sewage lift stations at Sta. Ana, Sta. Cruz, Legarda,Luneta, Port Area, Malete ard Paco.

(4) The reduction of inflow and infiltration, repairing of clogged and broken sewer pipes, sealing ofconnections to the Pasig River and rehabilitation of approximately 120 km of existing trunk sewers in the centralservice area system.

(5) Utilization of technical assistancre for detailed design and construction supervision.

Part B:

(1) Construction of a sanitary sewage collection system covering about 280 ha in Dagupan and about 360ha in Pandacan contiguous to the central service area system including house connections.

(2) UtiLization of technical services for iproving sanitation in low income blighted areas.

(3) Implemantation of a pilot sanitation project.

(4) Construction in low Income areas of combined sewers in about 730 ha with conditions of great hazardto public health, and in about 680 ha with conditions of significant hazard to public health.

(5) Maintenance of equipment for: (a) a septic tank emptyfng program; (b) sanitary sewers; and tc) combinedsewers.

(6) Nonitoring of the new submarine Tondo outfalt including a waste water laboratory.

(7) Implementation of a public health monitoring program.

(8) Detailed design and supervision of construction.

Part C: 31

(1) Detailed design of next stage water supply, sanitation and sewerage projects, including theconstruction of two reinforced concrete-lined diversion tunmels, each about 900 m long with inlet and outletstructures, for a dam to provide water supply for Manila; and

t2) Overseas training of MUSS staff in sewerage.

Part D:

Carrying out a program of monitoring of Manfla Say water quality including acquisition of needed equipment.

* ~~* *

The project is expected to be completed by June 30, 1985.

]/ From Schedule 2 of Loan Agreement as amended 11/18/81.?/ Part A to be implemented with ADB financiat assistance; (Loan 457-PHI)3/ As amended, effective November 18, 1981, to add construction of diversion tunnels. Section 2.02 of the ProjectAgreement also amended to provide for the employmnt of consultants to design and supervise the construction of thetunnels.