Document of The World Bank FOR OFFICIAL USE ONLY Report No: 78117-BD RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF THE DHAKA WATER SUPPLY AND SANITATION PROJECT CREDIT NO. 45060 BOARD APPROVAL: DECEMBER 2, 2008 TO THE PEOPLE’S REPUBLIC OF BANGLADESH June 13, 2013 SUSTAINABLE DEVELOPMENT DEPARTMENT SOUTH ASIA This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. ABBREVIATIONS AND ACRONYMS DWASA Dhaka Water Supply and Sewerage Authority DWSSP Dhaka Water Supply and Sanitation Project EMF Environment Management Framework ERR Economic Rate of Return FM Financial Management GoB Government of Bangladesh IDA International Development Association LICs Low Income Communities M&E Monitoring and Evaluation NGO Non-governmental Organization NPV Net Present value O&M Operations and Maintenance PAD Project Appraisal Document PDO Project Development Objective PMU Project Management Unit PRMP Procurement Risk Mitigation Plan RAP Resettlement Action Plan RPF Resettlement Policy Framework SDR Special Drawing Rights STP Sewage Treatment Plant TA Technical Assistance USD United States Dollar WASA Water and Sewerage Authority WSS Water Supply and Sanitation Regional Vice President: Isabel M. Guerrero Country Director: Johannes Zutt Sector Manager: Ming Zhang Task Team Leader: Martin Gambrill ii BANGLADESH DHAKA WATER SUPPLY AND SANITATION PROJECT CONTENTS Page IV  DATASHEET ................................................................................................................................................ A.  SUMMARY ........................................................................................................................................... 1  B.  PROJECT STATUS ............................................................................................................................. 1  C.  PROPOSED CHANGES .................................................................................................................... 4  D.  APPRAISAL SUMMARY ................................................................................................................ 10  ANNEX 1: RESULTS FRAMEWORK AND MONITORING ......................................................... 16  iii BANGLADESH DHAKA WATER SUPPLY AND SANITATION PROJECT DATASHEET 1. Basic Information Project ID & Name P093988: BD: Dhaka Water Sup & San. Project Country People’s Republic of Bangladesh Task Team Leader Martin Gambrill Sector Manager/Director Ming Zhang Country Director Johannes C.M. Zutt Original Board Approval Date 12/02/2008 Original Closing Date: 06/30/2013 Current Closing Date 06/30/2013 Proposed Closing Date [if applicable] 12/31/2015 EA Category B-Partial Assessment Revised EA Category Not Required-Not Required EA Completion Date 12/12/2005 Revised EA Completion Date N/A 2. Revised Financing Plan (US$m)1 Source Original Revised BORR 16.70 16.70 IDA 149.00 76.00 Total 165.70 92.70 3. Borrower Organization Department Location Ministry of Local Government, Local Government Building #7, Room #602 Rural Development and Bangladesh Secretariat Dhaka Cooperatives – 1000, Bangladesh 4. Implementing Agency Organization Department Location Dhaka Water Supply and Sewerage Project Management Unit WASA Bhaban, Kawran Bazar 98 Authority Kazi Nazrul Islam Avenue, Dhaka – 1215 Bangladesh 1 At the beginning of the project, based on the then applicable exchange rate, the IDA Credit of SDR 94.8 million equaled USD 149 million. Due to variation in the SDR to US Dollar exchange rate, SDR 94.8 million now equals USD 141.3 million. iv 5. Disbursement Estimates (US$m) Actual amount disbursed as of 05/16/2013 15.49 Fiscal Year Annual Cumulative 2012 0.00 15.49 2013 5.00 20.49 2014 15.00 35.49 2015 31.00 66.49 2016 9.51 76.00 Total 76.00 6. Policy Exceptions and Safeguard Policies Does the restructured project require any exceptions to Bank policies? N Does the restructured projects trigger any new safeguard policies? If yes, please select N from the checklist below and update ISDS accordingly before submitting the package. 7a. Project Development Objectives/Outcomes Original/Current Project Development Objectives/Outcomes The Project Development Objective (PDO) is to improve the sustainable delivery of stormwater drainage, wastewater and water services by the Dhaka Water Supply and Sewerage Authority (DWASA) to the population of Dhaka through: (a) the installation of selected stormwater pumping stations and the rehabilitation of selected canals to help improve drainage and minimize urban flooding; (b) the rehabilitation, repair and expansion of priority investments in the city's sewerage network and treatment plant to help improve the urban environment; and (c) supporting DWASA's pilot expansion of water and sanitation services into selected Dhaka slums to help increase services to the urban poor. 7b. Revised Project Development Objectives/Outcomes The revised Project Development Objective is to improve stormwater drainage in select catchments in Dhaka and to improve DWASA’s planning capacity v A. SUMMARY 1. The Government of Bangladesh requested an extension to the Dhaka Water Supply and Sanitation Project (DWSSP) in its letter to the Bank of March 12, 2012. The project is currently scheduled to close on June 30, 2013 after four years of implementation, but with most of the major project interventions either incomplete (in the case of storm water drainage) or not started (in the case of sewerage and service provision in low-income communities). It was agreed that the project would be restructured and scaled down to focus on those investment activities that can be implemented within a reasonable extension period of 2.5 years and those activities that would improve planning capacity in the Dhaka Water and Sewerage Authority (DWASA). Any investments requiring more time to implement would be canceled. 2. This restructuring paper thus proposes the following changes to project: (i) reducing the scope of investment activities under the sewerage and the low-income communities components (Components 1 and 4); (ii) incorporating additional institutional capacity strengthening activities into the project management component (Component 5); (iii) cancelling USD65.34 million (SDR 43.82 million) of the original IDA credit; (iv) extending the closing date from June 30, 2013 to December 31, 2015; and (v) amending the PDO and results framework to correspond with the revised project scope and extended implementation period. 3. The proposed restructuring is in line with the aide memoire of the project’s December 2012 review mission and with the Bank’s subsequent management letter. The restructuring would allow the completion of certain works and technical assistance activities that have already been contracted2, and would help enhance the capacity of DWASA to better plan for future investments in sanitation and drainage, that may be supported by the Bank, other development partners or through its own sources. The restructured project also includes focused support for institutional strengthening of DWASA which was not part of the original project but which has been specifically requested by DWASA given its importance for their long-term sustainability. B. PROJECT STATUS 4. The original Project Development Objective (PDO) was to improve the sustainable delivery of stormwater drainage, wastewater and water services by DWASA to the population of Dhaka through: (i) the installation of selected stormwater pumping stations and the rehabilitation of selected canals to help improve drainage and minimize flooding; (ii) the rehabilitation, repair and expansion of priority investments in the city’s sewerage network and treatment plant to help improve the urban environment; and (iii) supporting DWASA’s pilot expansion of water and sanitation services into selected Dhaka slums to help increase services to the urban poor. The project has the following components:  Component 1, Rehabilitation and Strengthening of the Existing Sewerage System  Component 2, Rehabilitation and Strengthening of the Stormwater Drainage  Component 3, Support to the Implementation of Environment and Social Safeguards  Component 4, Support to Service Provision to Low Income Communities 2 The total IDA value after restructuring is USD 76 million. Out of this, a total of approximately USD 43 million (57%) of contracts have already been signed and are under implementation. 1  Component 5, Project Management, Monitoring and Evaluation (M&E), Consultations and Communications 5. The project was approved by the Board on December 2, 2008, and declared effective on March 17, 2009. The project implementation period was originally set at only four years; the current closing date is June 30, 2013. Disbursement is currently at 10.5 percent. Half of this disbursement has occurred in the last quarter. The project is currently rated as unsatisfactory, both with respect to implementation progress and achievement of the PDO. The project has suffered the consequences of delays resulting from issues related to its initial readiness and design (at appraisal, no detailed engineering designs were ready, the consultancy assignments to prepare the detailed interventions had not been procured, the low-income communities (LICs) component had not been robustly conceived), start-up delays, and problems with the procurement of key consultancies and civil works. Significant delays occurred regarding: (i) procurement of the sewage master plan consultancy, which included identification, detailed design, and preparation of bidding documents for some USD45 million of priority sewerage and wastewater treatment works; (ii) the adoption of a complicated two-stage bidding process for the two large stormwater pumping stations (totaling USD26.5 million)3; (iii) procurement of consultancy services to prepare the drainage master plan; and (iv) the need to revise the initial design of the LICs component. 6. Despite these delays, some project activities have advanced well: (i) there has been good progress with the canal rehabilitation contracts (the majority of the associated contracts will terminate by the current project closing date); (ii) the sewerage master plan has been completed; (iii) the project resettlement action plans (RAPs) have been prepared and implemented satisfactorily; (iv) the engineering designs and the tender documents of the priority sewerage and wastewater treatment interventions have been completed; (v) the drainage master plan consultancy is now advancing well; and (vi) implementation of the stormwater pumping station contracts has commenced. The implementation progress within each component is briefly described below. Component 1: Rehabilitation and Strengthening of Existing Sewerage System. Although its start was significantly delayed the Dhaka sewerage master plan consultancy has now been successfully completed. The master plan was published and disseminated. In addition the engineering designs and corresponding bidding documents for USD45 million of priority sewerage and wastewater treatment interventions have been prepared. However, it is estimated that these works will now require some 3-4 years to be procured and implemented. Priority sewer cleaning equipment has also been identified and its technical specifications detailed. Despite DWASA having somewhat improved the progress of the implementation of this component over the last two years, given the overall delays that have occurred and the fact that the sewerage and wastewater treatment interventions will no longer be able to be implemented – even within the proposed project extension period – the rating of this component was downgraded to unsatisfactory in the last ISR. Component 2: Rehabilitation and Strengthening of Stormwater Drainage System This component has progressed reasonably well: (i) the civil works contracts for the rehabilitation of eight drainage canals are in various stages of completion; (ii) additional contracts for drainage 3 This process was then unfamiliar to the Bank in Bangladesh, was unknown to DWASA, and ended up being time-consuming and complex to conclude. 2 rehabilitation have been identified which can be procured implemented within the proposed extension period; (iii) the Dhaka drainage master plan consultancy is now well advanced and producing important outputs; (iv) the engineering designs and bidding documents of the two stormwater pumping stations were completed and the procurement of the corresponding works finalized, with the contractor now mobilized and finalizing the detailed civil, electrical and mechanical engineering details, having the hardware manufactured, and initiating the works; and (v) the procurement of the stormwater drainage cleaning equipment is mostly completed. This component was downgraded to moderately unsatisfactory during the last ISR to reflect the difficulties that DWASA was having in making the two stormwater pumping station contracts effective and in initiating the corresponding works on site – the contracts have since been made effective and associated activities initiated. Component 3: Support to Implementation of Environmental and Social Safeguards Eight RAPs have been developed and successfully implemented to date under this component. The associated project affected persons have been identified and provided with the appropriate assistance and/or compensation in accordance with the resettlement policy framework (RPF). Environmental impact assessments and limited environmental assessments have been prepared, as necessary, for the project’s different works contracts. The component has also funded the purchase of new equipment and associated materials for DWASA’s water quality laboratory. This component is rated as moderately satisfactory in the last ISR. Component 4: Support to Service Provision to Low Income Communities An initial conceptual design for this component was prepared, and outline engineering details and hybrid procurement documents (that combined community mobilization ‘software’ with engineering intervention ‘hardware’) were subsequently developed by a consulting firm for four target LIC interventions. However a number of unforeseen issues were discovered in the conceptual design, the proposed engineering designs, and the hybrid bidding documents. The process was halted when the procurement process subsequently failed. DWASA and the Bank team have spent considerable efforts in coming up with an alternative design for this component. However, the planning and design of interventions will take more time, and it would not be possible to implement these interventions in the proposed extension period. This component was therefore downgraded to unsatisfactory during the last ISR to reflect the accumulation of problems encountered with its initial design and the fact that its intended outcomes would not be able to be achieved even within the proposed project extension. Component 5: Project Management, M&E, Consultations and Communications The procurement of vehicles and equipment has been completed. Consultancies for supporting the PMU generally, and for undertaking M&E of the project more specifically, have been mobilized. The undertaking of the annual operational audits of DWASA’s Performance Agreement has not yet been initiated, but the procurement of the consultancy to carry out these audits is now advancing. Various training and capacity building workshops have been undertaken. This component was downgraded to unsatisfactory during the last ISR to reflect the compounding of project implementation delays and difficulties that led to the decision to restructure the project. 3 C. PROPOSED CHANGES 7. The following changes are proposed to the project: (i) reducing the scope of investment activities under the sewerage and the low income communities components (Components 1 and 4); (ii) incorporating additional institutional capacity strengthening activities into the project management component (Component 5); (iii) cancelling USD65.34 million of the original IDA credit; (iv) extending the closing date from June 30, 2013 to December 31, 2015; and (v) amending the PDO and results framework to correspond with the revised scope and implementation period. 8. Project Development Objective The PDO will need to be revised to reflect the changes in the project scope. The revised PDO is stated as follows: To improve stormwater drainage in select catchments in Dhaka and to improve DWASA’s planning capacity. 9. Results/indicators To reflect the above changes in the PDO the results framework and its indicators have been correspondingly adjusted. Some PDO level and intermediate indicators have been added, others have been dropped and some have been maintained as summarized in Table 1 below (details in Annex 1). New indicators related to improved stormwater drainage and improved planning capacity have been added, and a few of the original indicators that are still relevant to the restructured project have been maintained. All indicators related to improved access to sewerage services, the length of sewer network rehabilitated/extended and the volume of wastewater collected and treated have been dropped since the scope of the sewerage component is being significantly reduced to focus on investment planning rather than service provision. Similarly, all indicators related to service provision in LICs have been dropped as the component is now focused on improving DWASA’s capacity to plan for the provision of water supply and sanitation (WSS) services in LICs as an integral part of its customer base. Furthermore, some of the indicators related to drainage (such as water level and number of days of water logging) and others related to the operation and maintenance (O&M) of drainage and sewer systems (such as the volume of solid waste collected from canals, the number of sewer blockages reported) have been dropped as DWASA currently has neither the systems nor the organizational structure in place to reliably track these indicators. Table 1 – Summary of Changes to the Project Results Framework Indicators Status Rationale (for dropped and new) PDO Water level and number of days of water logging Dropped DWASA has no systems or structure in place Level in the eastern part of Dhaka. to reliably measure/track this indicator Results Number of households with access to sewerage Dropped Sewerage investments will no longer be services. supported under the restructured project. Increase in number of people in project area ward Dropped LIC WSS investments will no longer be slums with access to safe water and improved supported under the restructured project. sanitation. Direct project beneficiaries (number), of which New Core sector indicator. female (percentage). Increase in permanent storm water pumping Continued capacity. Increased capacity of rehabilitated drainage canals New Outcome indicator for ongoing canal rehabilitation works Number of plans prepared and approved by New New indicator introduced as a measure of DWASA’s Board of Directors DWASA’s improved planning capacity. The plans include: sewerage master plan, drainage master plan, service improvement plan for LICs and an action plan for implementation of a decentralized zonal management structure. 4 Intermediate Indicators Status Rationale Results Component 1 Length of sewerage lines Dropped Sewerage investments will no longer be (renamed): rehabilitated/extended. supported under the restructured project. Investment Volume of wastewater collected and Dropped Planning in treated in Pagla STP Sanitation Number of sewer blockages reported Dropped Sewerage master plan report New Output from TA on sewerage master planning. completed Diagnostic study report on septage New Output from TA on septage management management practices in Dhaka City. planning. Component 2: Length of storm water canals Continued Rehabilitation and constructed/rehabilitated Strengthening of Volume of solid waste collected from Dropped There are no systems or structure in place to Stormwater canals reliably measure/track this indicator. Drainage System Drainage master plan report completed New Output from TA on drainage master planning. Increased capacity of rehabilitated New Output/outcome indicator for ongoing canal canals. rehabilitation works. Drainage modeling undertaken of the New Output from TA on drainage modeling. impacts of the project’s: (i) khal rehabilitation; and (ii) storm water pumping station rehabilitation. Component 3: Number of Project Affected Continued Support to Households successfully compensated. Implementation of Environmental and Social Safeguards Component 4: Increase in population in project area Dropped LIC water supply and sanitation interventions (renamed) Support ward slums with access to safe water. will no longer be supported under the to Service Increase in population in project area Dropped restructured projects. Improvement ward slums with access to improved Planning in Low- sanitation. Income Increase in population in project area Dropped Communities peri-urban unions with access to safe water. Increase in population in project area Dropped peri-urban unions with access to improved sanitation. Service improvement plan for LIC New Output from TA on preparing Service prepared. Improvement Plan for LICs. Component 5 Annual statutory audits for DWASA Continued (renamed): Project demonstrating transparent and Management and accountable financial management Institutional (cumulative). Capacity Building Water utilities that the project is New Core sector indicator. supporting (number). Development of institutional structure New Outputs from institutional strengthening for DWASA decentralization and an activities. action plan for its implementation. DWASA Zonal Offices refurbished New and equipped. 5 10. Components The proposed changes to the five project components are described below.4 Component 1: Investment Planning in Sanitation (Original component name: Rehabilitation and Strengthening of Existing Sewerage System; Original IDA USD 52.4 million; cancellation USD 46.61 million; new IDA total USD 3.1 million) This component is being significantly amended, and the name of the component has been changed to reflect these changes. The component has been renamed as ‘Investment Planning in Sanitation’. As mentioned above, the Dhaka sewerage master plan has been completed and disseminated. The identification, design and preparation of bidding documents for priority sewerage and wastewater treatment interventions were also carried out as part of the master plan consultancy. The master plan is an important document for Dhaka and allows the identification of key future wastewater collection and treatment investments in the city. However, given the significant delays in procuring the consultants and preparing the master plan, detailed engineering designs and bidding documents for the highest priority interventions, it will not be possible to implement these investments within the proposed extension to the closing date. These activities will consequently be dropped from the project and the corresponding cost, estimated at USD 46.61 million, will be canceled from the IDA Credit. An estimated USD3.1 million will be utilized for ongoing technical assistance to prepare and/or complete engineering designs and bidding documents for remaining priority interventions identified in the sewerage master plan. In addition, a new diagnostic study related to septage/fecal sludge management in Dhaka will be supported to better understand the formal and informal septage management practices in the city and to make recommendations as to the improvement of these services. Component 2: Rehabilitation and Strengthening of Stormwater Drainage System (original IDA USD 75.9 million; cancellation USD 11.5 million; new IDA total USD 60.5 million) There are no major changes to this component and the original activities are largely being carried out as planned. However the actual cost of some of these activities is lower than originally estimated at appraisal. For instance, the contractor’s bid price for the Rampura and Kamlapura stormwater pumping stations were respectively 38% and 23% lower than the appraisal estimate (representing a total saving of some USD15 million). In addition, the actual cost of some of the canal rehabilitation work was less than the original estimate, and a few of the canals originally targeted for rehabilitation were dropped due to complex resettlement issues. Thus, in total, a cost saving of around USD20 million has been realized on the original Component 2 activities. A portion of this saving (USD8.5 million) will be utilized to finance (i) additional canal rehabilitation works (approximately 1.5 km) that have been designed and are ready for implementation; (ii) any cost-overruns that may be incurred under the stormwater pumping stations contracts; and (iii) technical assistance for drainage modeling to determine the impact of the canal and stormwater pumping station rehabilitation activities supported by the project. The remainder (USD11.50 million) will be cancelled from the IDA Credit as DWASA will not be able to utilize these funds during the extended project period. Component 3: Support to Implementation of Environmental and Social Safeguards (original IDA USD5.0 million; cancellation USD2.44 million; new IDA total USD2.3 million) There are no major changes to this component and the original activities are being carried out as planned. However, the scope of some of the activities has been reduced since the sewerage 4 At the beginning of the project, the Dollar amount for each component was calculated based on the then applicable SDR-US Dollar exchange rate of 1 SDR = 0.6362 USD. Since then, the exchange rate has changed and the new total for each component has been amended based on the current applicable exchange rate on May 16, 2013 (i.e. 1 SDR = 0.6707 USD). 6 network rehabilitation works will no longer be implemented under the restructured project. Thus it was determined that an estimated USD 2.44 million will not be utilized by DWASA and hence will be cancelled from the IDA Credit. The new IDA total, USD 2.3 million, will be utilized to undertake any pending resettlement activities (e.g. completion and implementation of resettlement action plans) and to complete ongoing technical assistance and capacity building activities for environmental and social safeguards as earlier planned. Component 4: Support to Service Improvement Planning in Low-Income Communities (Original component name: Support to Service Provision to Low Income Communities; original IDA USD8.4 million; cancellation USD6.47 million; new IDA total USD1.5) million) The original design of this component and the implementation approach envisaged has presented practical challenges which necessitate a re-evaluation and change in scope. During the implementation period DWASA and the Bank team spent considerable efforts in coming up with an alternative design for this component. However there were many more challenges than envisaged at appraisal. Factors which affected the viability of the original component include: (i) the pace of urban development in Dhaka – the communities selected for the project were changing rapidly as a result of, inter alia, development pressure; (ii) the land ownership status of the selected LICs – the majority of them are located on private land subdivided and rented by landlords but there had been little consideration as to the implications of upgrading services for communities in such situations; (iii) the limited experience of DWASA in the use of alternative, sustainable, management models for LIC services beyond the NGO intermediation model; and (iv) a lack of technical expertise in identifying and designing sanitation interventions that take into account existing sanitation solutions in the target LICs. The required planning and design to address these challenges will take more time, and it would not be possible to implement the interventions within the proposed extension period. As a result service provision activities to LICs will be dropped from the restructured project and the associated cost, estimated at USD6.47 million, will be canceled from the IDA Credit. The down-sized component will support DWASA in preparing a Service Improvement Plan for LICs which will include the carrying out of the following studies: (i) the undertaking of rapid and detailed assessments of relevant aspects of Dhaka’s slums/LICs; (ii) the development and ranking of typologies of slum/LIC settlements in the city; (iii) a review of the existing approaches to WSS service provision in slums, identifying their strengths and weaknesses and recommending improvements; (iv) a review of a menu of possible sanitation interventions for the city’s LICs; (vii) a review of the costs, willingness and ability to pay and tariff/subsidy implications of different levels of service, and the corresponding institutional arrangements for service delivery; and (viii) the institutional strengthening requirements of DWASA at the central and zonal office levels to better serve LICs. To reflect these changes, the component has been renamed ‘Support to Service Improvement Planning in Low-Income Communities’. This shift in focus is important for two reasons: (i) it would enable DWASA to develop its capacity to plan for provision of services in LICs as an integrated part of its customer base5; and (ii) it will improve DWASA’s readiness to significantly scale-up implementation of LIC interventions in the future. 5 DWASA has traditionally not considered LICs as an integral part of its customer base (although this view is now changing as a result of Bank’s sustained dialogue with DWASA on LIC issues) 7 Component 5: Project Management and Institutional Capacity Building (Original component name: Project Management, M&E, Consultations and Communications; original IDA USD 7.3 million; additional allocation USD 1.7 million; new IDA total USD 8.6 million) In addition to supporting the project management, M&E, consultations and communications activities originally envisaged, new activities will be added to this component to support DWASA’s efforts to decentralize its activities to a zonal office level. DWASA has requested specific support in the following: development of a decentralized zonal management structure for DWASA, including an action plan/roadmap for its implementation; assistance for restructuring DWASA’s organogram; and support to transform the zonal offices into business units, including the provision of equipment and the refurbishment of zonal offices, gap analyses of O&M management information systems, and staff training. These new activities are estimated to cost an additional USD1.7 million thus bringing the new total of this component to US $8.6 million. The new activities are limited in scope and can be implemented within the proposed extension period of 2.5 years. To reflect these changes (i.e. the addition of institutional capacity strengthening activities) the component has been renamed ‘Project Management and Institutional Capacity Building’. 11. Safeguards DWASA has followed the project’s RPF throughout the project implementation period to date6. The RPF has been updated to reflect the experiences gained and lessons learned in the preparation and implementation of the initial RAPs. The revised version of the RPF, dated May 14, 2013, is acceptable to the Bank, and was publically disclosed locally and in the Infoshop on May 14, 2013. 12. Financing The project’s revised costs (in US Dollars by component) and the categories of expenditure, including revised allocations (in million USD), are presented in Table 2 and 3 below. The Total SDR value for the project is SDR 94.8 million (equivalent to USD 141.3 million), and the corresponding USD values for each component have been calculated using the exchange rate on May 16, 2013 (1 SDR = 0.6707 USD). 6 One complaint was received from an affected household regarding payment for a privately owned asset being impacted during the course of the rehabilitation works under the project for one of the canals (Khilgaon-Bashabo). The matter is under discussion between DWASA and the affected household and should soon be resolved.  8 Table 2: Project Costs (million USD)7 Original Current Proposed Cancellatio (Based on USD- (Based on Current (for n Components/Activities SDR Exchange Rate Applicable USD- Restructured at Project SDR Exchange Project) Appraisal) Rate) Component 1: Rehabilitation and Strengthening of Existing Sewerage System (renamed: 52.4 49.71 3.1 46.61 Investment Planning in Sanitation) Component 2: Rehabilitation and Strengthening 75.9 72.00 60.5 11.50 of Stormwater Drainage System Component 3: Support to Implementation of 5 4.74 2.3 2.44 Environmental and Social Safeguards Component 4: Support to Service Provision to Low Income Communities (renamed: Support to 8.4 7.97 1.5 6.47 Service Improvement Planning in Low-Income Communities) Component 5: Project Management, M&E, Consultations and Communications (renamed: 7.3 6.92 8.6 -1.70 Project Management and Institutional Capacity Building) TOTAL AMOUNT (USD - millions) 149 141.34 76.00 65.34 TOTAL AMOUNT (SDR - millions) 94.8 94.8 50.97 43.82 Table 3: Expenditure Categories and Revised Allocations (SDR) % of Financing Category of Expenditure Allocation (Inclusive of all Taxes) Original Revised (SDR) (SDR) (1) Goods, works, consultants’ services, training, 78,860,000 44,173,200 100% studies, and workshops (2) Resettlement Compensation 1,610,000 600,000 100% (3) Incremental Operating Costs 3,180,000 1,280,000 100% (4) Refund of Project Preparation Advance 920,000 920,000 Amount payable pursuant to Section 2.07 of the General Conditions (5) Unallocated 10,230,000 4,000,000 (6)Cancellation as of the date of countersignature -- 43,826,800 of the amendment letter providing for such cancellation Total Amount 94,800,000 94,800,000 7 At the beginning of the project, based on the then applicable exchange rate, the IDA Credit of SDR 94.8 million equaled USD 149 million. Due to variation in the SDR to US Dollar exchange rate, SDR 94.8 million now equals USD 141.3 million. Therefore, the new project total is USD 141.3 million. Table 2 and Table 3 reflect this change. 9 13. Cancellation A total of USD65.34 million (equivalent to 43,826,800 SDR) of the original credit would be cancelled under this proposed restructuring for the reasons given above. 14. Financial management The financial management (FM) arrangements under the project will remain as they were originally designed. DWASA will, however, depute and/or recruit two accounting staff specifically for the project with appropriate skills for the management of its FM functions. There are no outstanding or unsatisfactory audits under the project. 15. Procurement The procurement arrangements under the project will remain largely as they were originally designed but have been updated to reflect the latest Bank procurement guidelines and the current approach of specifying the review thresholds in the procurement plan rather than in the Financing Agreement itself. The international procurement specialist referred to in the Financing Agreement, who was intended to complement the capacity of the PMU for the undertaking of the procurement of large and complicated packages, is no longer required since there will be no additional large/complicated procurement procedures to be undertaken during the proposed extension. A national procurement consultant will be required to support the PMU for the remainder of project implementation. A revised procurement plan, dated March31, 2013, has been prepared by DWASA to reflect the proposed changes to the project and has been cleared by the Bank. 16. Closing date As part of the restructuring, it is proposed that the project’s closing date be extended from June 30, 2013, to December 31, 2015. The Task Team confirms that the requirements of OP/BP10.00 regarding extension of closing date have been met: (i) the PDO for the restructured project is achievable within the extended period; (ii) there is no remaining procurement of large, complicated, infrastructure or consultancy assignments which would pose risk of delays; (iii) the recipient has prepared a plan acceptable to the Bank to complete all activities by the revised closing date; (iv) there are no outstanding or unsatisfactory project audits; and (v) the reduction in scope, cancellation of funds, and extension of the implementation period will allow project performance ratings to be upgraded to satisfactory. The proposed extension is necessary due to the implementation delays described above and in order to satisfactorily complete the remaining project activities under the restructured project. D. APPRAISAL SUMMARY 17. Economic analysis The major weight of the project’s economic analysis at appraisal was based on the interventions under Component 2, Rehabilitation and Strengthening of Stormwater Drainage System. The estimated internal rate of return of the stormwater drainage component at appraisal was about 17%, with a per capita Net Present Value (NPV) of incremental benefits (avoided flood damage costs) of Tk 11 and a net benefit-cost ratio of about 8. Since the stormwater drainage component remains largely unchanged under the proposed restructuring, the cost-benefit analysis undertaken at appraisal is still valid for the restructured project. The economic analysis carried out at appraisal did not attempt to quantify the benefits of the sewerage investments (because of difficulty to quantify the various environment, health and economic benefits) nor of the LIC investments (due to their small size and pilot nature). At this restructuring, since these sewerage and LIC investments will be dropped, no further analysis was undertaken on these investments. Overall, the project benefits will be much 10 reduced, but with the cancellation, the project costs are much reduced too. The cost-benefit analysis of the remaining infrastructure investments still shows a positive NPV. Apart from continuing to support the stormwater drainage interventions the restructured project also focuses on improving DWASA’s planning capacity. This will include supporting DWASA to complete its city-wide sewerage and drainage master plans, which include assessment of current and future infrastructure and service delivery needs, prioritization of investments taking into account the views of all stakeholders, detailed engineering design and preparation of bidding documents, determining the economic and financial implications of the investments, sequencing investments, and integrating investment planning and O&M. The restructured project also includes a limited set of priority institutional strengthening activities identified by DWASA to improve long term operational sustainability. There are a number of economic benefits expected from improving DWASA’s planning capacity8. These include increased economic rates of return of the investments through better designed/higher quality projects and better targeting of needs, more informed and cost-effective decision-making, increased efficiency translating into lower investment costs, improved sustainability in terms of longer life of the assets, and increased likelihood that asset creation translates into actual improved service delivery in the longer term. 18. Financial analysis The financial analysis of the project at appraisal was based on DWASA’s overall financial performance as demonstrated by analyzing its audited financial statements. For the restructured project the overall financial sustainability issues remain the same as those described in the PAD. Although financial returns are not the focus of the project, a particular issue of concern at appraisal was the ability of DWASA to operate as a solvent and financially viable entity during and after the project, and its ability to service its capital financing obligations. According to the most recent DWASA entity audit reports, the ratio of current assets to current liabilities was 3.10 for FY11 and 2.04 for FY12, implying that DWASA is solvent. The income statements also show a positive net income, although there is evidence of a declining trend due to rising operational expenditures9. 19. Technical The restructured project is both technically feasible and ready for implementation during the proposed extension period of 2.5 years.  Firstly, the stormwater drainage component, which now constitutes the majority (80%) of the restructured project costs, remains largely unchanged. This component has progressed reasonably well. Preparation of the drainage master plan is now well advanced. The civil works contracts for the rehabilitation of eight drainage canals (with a total length of approximately 20km) are in various stages of completion. Additional canal rehabilitation works (with a total length of some 1.5km) have been designed and can be procured and implemented within the proposed extension period. The technology, engineering design standards and safeguard approaches being applied remain sound. The contractor for the two stormwater pumping stations is now mobilized and is finalizing the detailed civil, electrical and mechanical engineering details, having the hardware manufactured, and initiating the works. 8 These additional benefits are difficult to quantify at this stage, and so no attempt has been made to do so. 9 DWASA is currently in the process of identifying and implementing cost-reduction measures, with a major focus on outsourcing non-core activities. 11  Secondly, for reasons explained above, the sewerage component will no longer support priority investments in the wastewater collection and treatment systems – although the detailed engineering designs and bidding documents of the same have been prepared and are deemed acceptable to the Bank. The preparation of detailed engineering designs of additional priority investments identified in the sewerage master plan will follow the same engineering standards as used before.  Thirdly, the LIC Component has been changed as described above, to exclude service provision activities and instead focus on supporting DWASA to prepare a Service Improvement Plan for LICs. With the support of the Bank and other partners, DWASA has already made progress on some of the background analytical work required to prepare a meaningful and implementable plan for improving WSS services in LICs.  Fourthly, more than half (in terms of overall project value) of the works, goods and consultancy services under the restructured project has already been contracted out (see Table 4 below). In addition, the restructured project does not include any new large scale TA activities which would take a lot of time to procure. Instead, the focus is on small-scale, targeted, just-in-time support TA in specific areas as identified under each component.  Finally, with respect to institutional strengthening, there is evidence that DWASA is committed to the limited, but important set of activities included in the restructured project: (i) the institutional strengthening activities were identified by DWASA itself through a consultative process that involved a rapid institutional analysis and a series of change management workshops with staff and unions representatives; (ii) DWASA has formed a special Task Force to coordinate the implementation of the institutional strengthening activities; and (iii) the identified activities complement ongoing change initiatives and turnaround programs being implemented by DWASA. Table 4: Value of Committed/Signed Contracts Total Cost of Total Commitments to date Component Restructured Value of contracts already % Signed/ Project (in signed/committed ( in committed million USD) million USD) Works 0 Component 1 (Investment Planning in Sanitation) TA 1.53 3.1 Goods 0 Total 1.53 49% 10 Works 35.77 Component 2 (Rehabilitation and Strengthening of Stormwater Drainage System) TA 1.34 60.5 Goods 1.02 Total 38.13 63% Component 3 Works 0 (Support to Implementation of Environmental and 2.3 TA 0.39 10 Ongoing works for storm water pumping stations and drainage canal rehabilitation 12 Social Safeguards) Goods 0.24 Total 0.63 27% Component 4 Works 0 (Support to Service Improvement Planning in Low- TA 0.07 Income Communities) 1.5 Goods 0 Total 0.07 5% Component 5 Works 0 (Project Management and Institutional Capacity TA 2.14 Building) 8.6 Goods 0.85 Total 2.99 35% Total IDA after restructuring 76.0 Total value of signed contracts/committed amounts 43.35 Total value of signed contracts as a % of total IDA 57% value after restructuring 20. Social The number of project beneficiaries will be reduced given the reduced scope of the restructured project: from 6 million to 4 million. The 4 million beneficiaries are those living in the catchment areas of the project’s drainage canals and stormwater pumping stations11, and are thus expected to directly benefit from reduced impacts of seasonal flooding. The benefits originally expected from rehabilitation and expansion of sewage collection and treatment facilities and from the expansion of WSS services in LICs will not be realized as these investments will no longer be supported under the restructured project. However, it is expected that the project will contribute to improving DWASA’s capacity to plan for service improvement, which would lay the foundation for the provision of future investments with enhanced social benefits. With respect to social safeguards, DWASA has been diligent in following the RPF during implementation. The RPF has recently been updated and improved to reflect the experiences gained and lessons learned in implementing the RAPs. 21. Environment The environmental reviews undertaken at appraisal and the resultant EMF remain valid and will continue to be implemented as originally designed. No additional safeguards would be triggered by the restructured project. 22. Exceptions to Bank Policy As was the case at appraisal, the restructured project does not require any exceptions from Bank policies. 23. Risk The overall risk of the restructured project continues to be rated as ‘substantial’, as it was at appraisal. Table 5 shows the updated risk profile and mitigation measures. 11 This number of beneficiaries is consistent with estimates at appraisal 13 Table 5 – Risks and Mitigation Measures Risk factors Description of risk Rating Mitigation measures Rating of of risk residual risk Sector Governance, Policies and Institution Sector policies  Government commitment S  The 2008 Unified Policy Matrix S and institutions to full implementation of was reviewed with GoB/DWASA the WASA Act (1996) and Development Partners in may weaken in the 2012, and new actions were transition to a new identified. government.  Lack of decision making  Ongoing engagement with autonomy and clarity of DWASA and GoB on updating the roles and responsibilities Unified Policy Matrix through may cause DWASA to be established Development Partners unable to perform its Working Group. operations in accordance with its mandate.  Risk that the Unified Policy Matrix agreed between GoB/DWASA and Development Partners in 2008 is not revised/updated to reflect to current institutional realities  Inadequate legislative,  Risk mitigation control matrix Sector institutional, oversight and S embedded into project which S Governance operational framework provides a multi-pronged approach pose governance, to address project, DWASA entity accountability and and sector levels governance risks. transparency risks for the  Publication of procurement related delivery of WSS service information. in Dhaka.  Project will support Annual Audit  Risk of corruption in of Performance Agreement service delivery between GoB and DWASA. operations and in the execution of contracts. Operations Specific Risks Technical/design  DWASA may lack S  No technically complex designs M capacity for design of are include in the restructured project involving various project. aspects. Implementation  Limited project S  Project management consultant S capacity and management capacity will be recruited to support PMU. sustainability within DWASA.  Engineering and supervision and  Senior management Technical Assistance (TA) for all changes may affect drainage works. implementation of the  Institutional strengthening institutional strengthening activities identified through a activities. utility-wide consultative process.  Special Task Force established to coordinate implementation of the institutional strengthening activities. 14 Financial  Weak financial S  FM system and chart of accounts S management management systems: (i) assessed to be adequate. lack of professionally  FM supervision will continue to qualified accountant, and focus on compliance with all adequate skills; (ii) agreed actions, terms, and inflexible recruitment conditions, and review of rules; (iii) the capability expenditures and payment of the recently developed processes. computerized accounting  Independent financial, performance system yet to be proven; and procurement audits. (iv) staff capability to sustain the system being uncertain; and (v) GOB rules and procedures restricting timely flow of funds. Procurement  Weak procurement H  There will be no additional M systems: (i) lack of large/complicated procurement to capacity in bid document be undertaken under the preparation and restructured project. evaluation; (ii)  A local procurement consultant inexperience of DWASA will be recruited to support the in handling two-stage PMU for the extended project bidding of large supply- period. installation contracts; (iii)  Public dissemination of the lack of adequate procurement and contract capacity to handle information, including through procurement processes website. and complaints.  Procurement risk mitigation plan  Additionally, country (PRMP) with performance level procurement reforms indicators monitored quarterly. are still in relatively early  Adequate procurement review and stage. supervision. Social and  Inability to implement H  No major infrastructure in the M environmental resettlement actions may restructured project that requires safeguards result in the failure to complex resettlement processes. implement the  DWASA has been diligent in resettlement action plans following the RPF, and has gained in accordance with valuable experience in safeguards requirements implementing the RAPs. resulting in risks to  Dedicated safeguards team in project implementation as DWASA, with technical assistance well as project reputation. and capacity building for implementation and monitoring, and increasing DWASA capacity. Services to  Inexperience in (i) pro- S  The restructured project does not M informal poor issues and (ii) include any service provision settlements/LICs complex planning and interventions in the LICs. management of WSS  The restructured project includes provisions in technical assistance and capacity LICs/informal building for DWASA with respect settlements. to service improvement planning for LICs.  Partnership with other agencies working in LICs. 15 ANNEX 1 Results Framework and Monitoring Bangladesh: Dhaka Water Supply and Sanitation Project Original Project Development Objective (PDO): improve the sustainable delivery of stormwater drainage, wastewater and water services by DWASA to the population of Dhaka through: A. The installation of selected stormwater pumping stations and the rehabilitation of selected canals to help improve drainage and minimize urban flooding B. The rehabilitation, repair, and expansion of priority investments in the city’s sewerage network and treatment plant to help improve the urban environment. C. Support DWASA’s pilot expansion of water and sanitation services into selected slums to help increase services to the poor. Revised Project Development Objective: To improve stormwater drainage in select catchments in Dhaka d to improve DWASA’s planning capacity D=Dropped Cumulative Target Values** Responsibility Core PDO Level Results C=Continue Baseline Data Source/ N= New Unit of Measure Frequency for Data Indicators* 2008-13 YR 1 YR 2 YR 3 Methodology R=Revised Collection Water level and number of days of water logging in the D eastern part of Dhaka. Number of households with access to sewerage services D Increase in number of people in project area ward slums with access to safe D water and improved sanitation Direct project beneficiaries Number (number), of which female in millions 1.5 2.0 3.0 4.0 Drainage Master Plan N Annual PMU (percentage) (% of female (50%) (50%) (50%) (50%) and Design Reports beneficiaries) Increase in permanent storm C m3/s 0 0 0 40 Annual Design Documents PMU water pumping capacity Increased capacity of Field surveys and N m3/s 60 100 200 250 Annual PMU rehabilitated drainage canals canal designs. Number of plans prepared Plans and Board PMU, and approved by DWASA’s Minutes/resolutions DWASA Board of Directors N No. of plans 1 2 3 4 Annual The plans include: Institutional sewerage master plan, Development drainage master plan, Task Force 16 service improvement and LIC Unit plan for LICs and an action plan for implementation of a decentralized zonal management structure INTERMEDIATE RESULTS Component 1: Investment Planning in Sanitation Length of sewerage lines D rehabilitated/extended. Volume of wastewater collected and treated in D Pagla STP Number of sewer blockages D reported: A new sewerage master plan Sewerage master plan for Dhaka city is approved N Yes/No No Yes Yes Yes Annual report; Board PMU by DWASA’s Board of minutes/resolutions Directors Diagnostic study on septage Diagnostic study management practices in N Yes/No No No No Yes Annual PMU report Dhaka Component 2: Rehabilitation and Strengthening of Stormwater Drainage System Length of storm water Site construction canals C m 14,823 17,000 19,000 20,885 Annual PMU records constructed/rehabilitated Volume of solid waste D collected from canals A new drainage master plan Drainage master plan for Dhaka city is approved N Yes/No No Yes Yes Yes Annual report, Board PMU by DWASA’s Board of minutes/resolutions Directors Drainage modeling undertaken of the impacts of Drainage model and the project’s: N Yes/No No Yes Yes Yes Annual PMU report (i) khal rehabilitation; and (ii) stormwater pumping 17 station rehabilitation Component 3: Support to Implementation of Environmental and Social Safeguards Number of Project Affected Households successfully C Number 152 189 300 500 Annual Payment records PMU compensated Component 4: Support to Service Provision to Low Income Communities Increase in population in project area ward slums D with access to safe water Increase in population in project area ward slums D with access to improved sanitation Increase in population in project area peri-urban D unions with access to safe water Increase in population in project area peri-urban D unions with access to improved sanitation PMU and Service improvement plan Service improvement N Yes/No No No Yes Yes Annual DWASA LIC for LICs is prepared plan for LICs Unit Component 5: Project Management and Institutional Capacity Building Annual statutory audits for DWASA demonstrating DWASA entity audit transparent and accountable C Number 1 2 3 4 Annual PMU reports financial management(cumulative) Water utilities that the project is supporting N Number 1 1 1 1 (number) Development of an Report on PMU and institutional structure for institutional structure DWASA N Yes/No No No Yes Yes Annual DWASA decentralization for DWASA Institutional and an action plan for its decentralization and Development 18 implementation action plan Task Force A new decentralized zonal PMU and management structure and DWASA an action plan for its Board N Yes/No No No No Yes Annual Institutional implementation are minutes/resolution Development approved by DWASA’s Task Force Board of Directors PMU and DWASA DWASA Zonal Office N Number 0 0 0 1 Annual Institutional refurbished and equipped. Development Task Force 19