Document of The World Bank FOR OFFICIAL USE ONLY Report No: ICR00004435 IMPLEMENTATION COMPLETION AND RESULTS REPORT ON THE GRANT IN THE AMOUNT OF US$21.4 MILLION TO THE PALESTINE LIBERATION ORGANIZATION FOR THE BENEFIT OF THE PALESTINIAN AUTHORITY FOR THE GZ-GAZA WATER SUPPLY AND SEWAGE SYSTEM IMPROVEMENT (P101289) June 22, 2018 Water Global Practice Middle East And North Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective March 30, 2018) Currency Unit = US$ SDR 0.687212= US$1 US$1.45516 = SDR 1 ILS 3.4 = US$1 FISCAL YEAR July 1 - June 30 Regional Vice President: Hafez M. H. Ghanem Country Director: Marina Wes Senior Global Practice Director: Guang Zhe Chen Practice Manager: Carmen Nonay Task Team Leader(s): Alexander A. McPhail ICR Main Contributor: Lars Anders Jagerskog ABBREVIATIONS AND ACRONYMS AF Additional Financing BOD Biochemical Oxygen Demand CMWU Coastal Municipalities Water Utility GoI Government of Israel ICR Implementation Completion and Results Report IFR Interim Financial Report IRR Internal Rate of Return IsDB Islamic Development Bank M&E Monitoring and Evaluation NPV Net Present Value NRW Nonrevenue Water O&M Operations and Maintenance PAD Project Appraisal Document PCBS Palestinian Central Bureau of Statistics PDO Project Development Objective PMU Project Management Unit PPR Project Procurement Review PWA Palestinian Water Authority TFGWB Trust Fund for Gaza and the West Bank TTL Task Team Leader WSSSIP Water Supply and Sewage System Improvement Project WWTP Wastewater Treatment Plant TABLE OF CONTENTS DATA SHEET ....................................................................... ERROR! BOOKMARK NOT DEFINED. I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES ....................................................... 6 A. CONTEXT AT APPRAISAL .........................................................................................................6 B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) ..................................... 10 II. OUTCOME .................................................................................................................... 11 A. RELEVANCE OF PDOs ............................................................................................................ 11 B. ACHIEVEMENT OF PDOs (EFFICACY) ...................................................................................... 12 C. EFFICIENCY ........................................................................................................................... 15 D. JUSTIFICATION OF OVERALL OUTCOME RATING .................................................................... 16 E. OTHER OUTCOMES AND IMPACTS (IF ANY)............................................................................ 16 III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME ................................ 17 A. KEY FACTORS DURING PREPARATION ................................................................................... 17 B. KEY FACTORS DURING IMPLEMENTATION ............................................................................. 18 IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME .. 20 A. QUALITY OF MONITORING AND EVALUATION (M&E) ............................................................ 20 B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE ..................................................... 21 C. BANK PERFORMANCE ........................................................................................................... 21 D. RISK TO DEVELOPMENT OUTCOME ....................................................................................... 22 V. LESSONS AND RECOMMENDATIONS ............................................................................. 23 ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS ........................................................... 25 ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION ......................... 37 ANNEX 3. PROJECT COST BY COMPONENT ........................................................................... 39 ANNEX 4. EFFICIENCY ANALYSIS ........................................................................................... 40 ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS ... 45 ANNEX 6. ICR – PALESTINIAN WATER AUTHORITY ................................................................ 48 ANNEX 6. COMMENTS ON THE DRAFT ICR FROM PALESTINIAN WATER AUTHORITY AND WORLD BANK RESPONSES ................................................................................................................ 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) DATA SHEET BASIC INFORMATION Product Information Project ID Project Name P101289 GZ-Gaza Water Supply & Sewage System Improvement Country Financing Instrument West Bank and Gaza Investment Project Financing Original EA Category Revised EA Category Partial Assessment (B) Related Projects Relationship Project Approval Product Line Additional Financing P151032-Additional 30-Oct-2014 Special Financing Financing for Water Supply & Sewage Systems Improvement Organizations Borrower Implementing Agency Palestine Liberation Organization (PLO) Palestinian Water Authority Project Development Objective (PDO) Original PDO The project development objective is to improve the quality and efficiency of water supply and wastewater service provision in Gaza. This will be achieved through (i) rehabilitation and expansion of existing water and wastewater systems, and (ii) enhancing the capacity of the Coastal Municipalities Water Utility (CMWU) to sustain water and wastewater services. Page 1 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) Revised PDO To improve the quality and efficiency of water supply and wastewater service provision in Gaza and assist in restoration of basicwater supply and wastewater services through: (i) rehabilitation and reconstruction of existing and damaged water and wastewatersystems, and (ii) enhancing the capacity of the Coastal Municipalities Water Utility (CMWU) to sustain water and wastewaterservices. FINANCING Original Amount (US$) Revised Amount (US$) Actual Disbursed (US$) World Bank Financing 6,400,000 6,400,000 6,400,000 TF-13564 3,000,000 2,151,929 1,424,629 TF-18248 12,000,000 11,858,600 8,255,237 TF-18268 Total 21,400,000 20,410,529 16,079,866 Non-World Bank Financing Borrower 0 0 0 Islamic Development Bank 11,140,000 0 0 Total 11,140,000 0 0 Total Project Cost 32,540,000 20,410,529 16,079,866 KEY DATES Approval Effectiveness MTR Review Original Closing Actual Closing 27-Nov-2012 26-Dec-2012 16-Feb-2015 31-Dec-2017 31-Dec-2017 Page 2 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) RESTRUCTURING AND/OR ADDITIONAL FINANCING Date(s) Amount Disbursed (US$M) Key Revisions 30-Oct-2014 3.86 Additional Financing Change in Project Development Objectives Change in Results Framework Change in Components and Cost Change in Loan Closing Date(s) Change in Disbursements Arrangements Change in Procurement Change in Implementation Schedule KEY RATINGS Outcome Bank Performance M&E Quality Moderately Satisfactory Moderately Satisfactory Substantial RATINGS OF PROJECT PERFORMANCE IN ISRs Actual No. Date ISR Archived DO Rating IP Rating Disbursements (US$M) 01 20-Jan-2013 Satisfactory Satisfactory 0 02 07-Jul-2013 Satisfactory Satisfactory 1.64 03 28-Dec-2013 Satisfactory Satisfactory 2.11 04 09-Jun-2014 Satisfactory Satisfactory 3.50 05 21-Nov-2014 Satisfactory Satisfactory 3.86 06 08-May-2015 Moderately Satisfactory Moderately Satisfactory 5.15 07 08-Nov-2015 Satisfactory Satisfactory 7.84 08 15-May-2016 Satisfactory Satisfactory 9.55 09 21-Nov-2016 Moderately Satisfactory Moderately Satisfactory 11.21 10 05-Jun-2017 Unsatisfactory Unsatisfactory 13.34 11 29-Dec-2017 Moderately Satisfactory Moderately Satisfactory 15.28 Page 3 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) SECTORS AND THEMES Sectors Major Sector/Sector (%) Water, Sanitation and Waste Management 100 Sanitation 27 Water Supply 50 Public Administration - Water, Sanitation and Waste 23 Management Themes Major Theme/ Theme (Level 2)/ Theme (Level 3) (%) Private Sector Development 8 Jobs 8 Job Creation 8 Urban and Rural Development 92 Urban Development 84 Urban Infrastructure and Service Delivery 8 Services and Housing for the Poor 76 Rural Development 8 Rural Infrastructure and service delivery 8 ADM STAFF Role At Approval At ICR Regional Vice President: Inger Andersen Hafez M. H. Ghanem Country Director: Mariam J. Sherman Marina Wes Senior Global Practice Director: Junaid Kamal Ahmad Guang Zhe Chen Practice Manager: Francis Ato Brown Carmen Nonay Task Team Leader(s): Iyad Rammal Alexander A. McPhail ICR Contributing Author: Lars Anders Jagerskog Page 4 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) Page 5 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) I. PROJECT CONTEXT AND DEVELOPMENT OBJECTIVES A. CONTEXT AT APPRAISAL Context 1. The economic situation in the West Bank and Gaza changed dramatically from the late 1990s, when the peace process was initiated, and has been in a negative spiral after the collapse of the peace process in 2000 and the onset of the second intifada. The West Bank and Gaza’s economy had earlier been characterized by economic growth spurred by foreign direct investment and private sector involvement but at the time of appraisal (2010–2011) was mainly led by government spending and heavy reliance on foreign aid. During the first five years of the peace process (1994–1999), the West Bank and Gaza’s economy grew by 6 percent annually on average. The second intifada largely put on hold the economic growth as well as investment and private sector activity. Unemployment in the West Bank, as reported by the Palestinian Central Bureau of Statistics (PCBS), rose from 17.7 percent in 2007 to 20.7 percent in the third quarter of 2008. Unemployment in Gaza, however, increased from 29.7 percent to nearly 41.9 percent. Although data on poverty are limited, there are clear indications that overall poverty in both the West Bank and Gaza has risen since 2000. The PCBS reported that poverty rates increased in Gaza from 47.9 percent in 2006 to 51.8 percent in 2007. 2. The project was prepared under very challenging circumstances, following the end of the peace process, the military operations by the Government of Israel (GoI) in Gaza, and internal Palestinian divisions. Since 2007, Gaza has been isolated by a strict closure policy by the GoI, crippling the local economy and leading to a deterioration of public infrastructure and services. Under the closure, only basic foodstuffs and other necessities could enter Gaza and there were no exports as well. The lack of spare parts and materials necessary for maintenance of infrastructure has severely affected the Palestinian National Authority’s ability to deliver basic services. This deterioration has been exacerbated by the GoI’s military operation in Gaza between December 2008 and January 2009 that resulted in a large loss of life and over US$1.3 billion in total damages according to the Palestinian National Early Recovery and Reconstruction Plan.1 The project was designed to facilitate recovery following the conflict as well as to address long- term needs for improved water infrastructure. At the time of appraisal, only 54 percent of water infrastructures (including pumping stations) destroyed in December 2008 (during the conflict) had been rebuilt partially or fully, and only 23 percent of the workforce was rehired. The longer Gaza endures restrictions and the infrastructure is not rebuilt, the more challenging it was for businesses to resume normal operations and for the deteriorating infrastructure to provide services to the people. 3. At project appraisal, at the sector level, water was considered a key humanitarian and economic development issue and also as part of the Oslo process as one of the five key areas to be negotiated (including Palestinian water rights) in the final status negotiations. As a result of restrictions accompanying Israeli control of the territory and obsolescence of the 1995 Oslo II interim accord for water provisions (Article 40 Water and Sewage), Palestinians coped with one of the lowest levels of per capita water resource availability in the Middle East and North Africa and effectively in the world. In the West Bank, development of water uses and infrastructure was (and to a large degree still is) subjected to Israeli veto power under the Joint Water Committee. In Gaza, it was (and still is) curtailed by the 1 Palestinian National Authority. 2009. The Palestinian National Early Recovery and Reconstruction Plan for Gaza 2009–2010. Available from: http://www.undp.ps/en/focusareas/crisis/paermar09.pdf. Page 6 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) security blockade. These restrictions, along with inefficient Palestinian institutions and operators2 and rapid demographic growth, perpetuated water supply and sanitation infrastructure and service deficits as well as operational inefficiencies.3 These resulted in heavy reliance on water trucking, makeshift arrangements for desalination of brackish water, and treatment of other non-potable water supplies, while also increasing dependence on the Israeli bulk water utility Mekorot. The impacts of this situation were the largest in Gaza, in Area C of the West Bank, and on the poor. The lack of wastewater treatment also contributes to widespread aquifer contamination. Water use in irrigation, which accounts for about 60–70 percent of water use in the West Bank and Gaza, is still largely inefficient due to water-intensive irrigation practices and deteriorating infrastructure. Irrigated agriculture is an important economic sector, which contributes around 12 percent to the gross domestic product and employs about 117,000 people. Further, at the institutional level, planning and regulation of water resources was deemed to be very weak, and the potential of the irrigation sector remained largely underdeveloped. 4. The water resources situation at the time of appraisal was challenging with overpumping of the principal source of water—the groundwater coastal aquifer from which Gaza received 95 percent of its water. Most of the water pumped from the overexploited aquifer is of poor quality due to saltwater intrusion from the Mediterranean into the aquifer—a direct result of overpumping—as well as lack of wastewater treatment facilities. At the time of project appraisal, the wastewater produced by Gaza’s 2 million residents was discharged untreated into fields, infiltrating into the aquifer or into the sea, causing a serious public health hazard and contributing to pollution. Gaza’s coastal aquifer provides a safe yield of around 50–60 million cubic meters (MCM) a year, but the pumping rate at the time of appraisal was around 160 MCM. Around 5 MCM was provided from the Israeli water company Mekorot. Per capita water availability was among the lowest in the region, at around 100 L per capita per day in the West Bank and Gaza. According to a World Bank study published in 2009,4 water availability per capita for Palestinians is about one-quarter of that for Israelis. 5. Access to water services had been improving at the time of appraisal, though the situation remains challenging even today. Although 90 percent of the population and 64 percent of communities in the West Bank and Gaza had access to a water network, service discontinuity results in low consumption rates and significant negative economic impacts. Water losses and bill collection rates were around 40 percent and 50 percent, respectively.5 6. At the time of appraisal, the Palestinian Water Authority (PWA) had established a rolling program to improve water supply in Gaza. The program had two main components: (a) slowing the deterioration of the groundwater aquifer with small interventions and (b) increasing supply through larger interventions, for example, large-scale desalination, and additional import of water. The project focused on the first of these aspects in that it aimed to improve the efficiency of the water utility and optimize the use of available resources by upgrading and rehabilitating the networks and reconfiguring the distribution system to manage additional supplies of water. 7. The extensive damage to water and wastewater infrastructure caused by the conflict in Gaza in July –August 2014 led to a request for additional financing (AF). The 2014 conflict had devastating consequences, with 2,131 2 World Bank. 2009. Assessment of Restrictions on Palestinian Water Sector Development. Report 47567-GZ (commonly referred to as the Water Restrictions Study). 3 At the time of appraisal, around 90 percent of the population and 64 percent of communities had access to a water network, and service discontinuity was resulting in, on average, consumptions as low as 50 L per capita per day, dropping to a crippling 15 L per capita per day in some areas. All the while, water loss and bill collection rates hover around 35 percent and 50 percent, respectively. 4 World Bank. 2009. Assessment of Restrictions on Palestinian Water Sector Development . Report 47567-GZ. 5 Project Appraisal Document (PAD), 2012. Page 7 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) fatalities and 28 percent of Gazans displaced.6 Damages to the water and sanitation infrastructure were estimated at around US$34 million and at around US$42.5 million in the electricity sector.7 Damages to municipal infrastructure and public facilities are estimated at more than US$58 million, excluding the infrastructure and networks owned and operated by utilities. This destruction led to a very poor sanitary situation, which risked triggering the rapid spread of waterborne diseases. At the peak of the hostilities, reportedly, almost 40 percent of the water sources for Gaza in its eastern area was left out of order either due to direct damages or damages to the electricity supply, as well as a lack of fuel to run backup generators, leaving only 20 percent of the population receiving water through the network. Reportedly, 8 staff of the Coastal Municipalities Water Utility (CMWU) were killed while trying to perform emergency repairs on critical infrastructure.8 In this dramatic context, request and approval of the AF were rapidly processed, allowing for the World Bank to provide critical support and remain engaged through the original project implementation mechanisms. Theory of Change (Results Chain) 8. The project aimed to improve water supply and sanitation services through structural and non-structural interventions. As shown in figure 1, the underlying logic of the proposed activities was clear. Installation of water tanks, relocation of water wells, and upgrading of pumping capacity were some of the structural measures proposed to improve the quality of water services delivered to the residents of Gaza. Alongside these measures, a set of activities to improve the CWMU processes and practices was proposed to provide greater institutional capacity to manage the outputs of the project. 6 World Bank. 2015. Economic Monitoring Report to the Ad Hoc Liaison Committee . Washington D.C., World Bank. 7 Efron, S., J. R. Fischbach, and G. Giordano. 2017. “Gaza’s Water and Sanitation Crisis: The Implications for Public Health.� In: Kurz, A., U. Dekel, and B. Berti (eds.) The Crisis of the Gaza strip: A Way Out. Institute for National Security Studies. 8 CMWU (Coastal Municipalities Water Utility). 2014. Damages Assessment Report. Water and Wastewater Infrastructure. Available from: https://goo.gl/idqevZ. Page 8 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) Figure 1. Theory of Change (Results Chain) Project Development Objectives (PDOs) 9. The original project development objective (PDO) was: “To improve the quality and efficiency of water supply and wastewater service provision in Gaza. This will be achieved through (i) rehabilitation and expansion of existing water and wastewater systems, and (ii) enhancing the capacity of the Coastal Municipalities Water Utility (CMWU) to sustain water and wastewater services.� Key Expected Outcomes and Outcome Indicators 10. The original PDO was measured through the indicators listed in table 1. Table 1. Original PDO Indicators Outcome Indicator Achieving and maintaining high water • Disinfection efficiency of water supply in the Gaza Strip is sustained at the baseline quality level of 99 percent throughout the project Page 9 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) Improving efficiency of water supply • Decrease in the percentage of non-revenue water in Rafah, Khan Younis, and Deir El- systems Balah as a result of the project • Nominal increase in the collection rate of CMWU in Rafah, Khan Younis, and Deir El- Balah Governorates as a result of the project Improving wastewater management • People (49% female) in the project area would benefit from improved wastewater services and facilities management facilities; • Improvement in wastewater effluent quality in Gaza. Components 11. The project had three main components; the first focused on civil works and the second and third on capacity building and project management, respectively. At approval, the total project cost was estimated at US$17.54 million, of which US$6.4 million was financed from the Trust Fund for Gaza and the West Bank (TFGWB) and US$11.14 million from the Islamic Development Bank (IsDB). 12. Component 1: Improving Water Supply and Wastewater Facilities (US$11.29 million comprising US$2.81 million from the TFGWB and US$8.48 million from the IsDB). Under this component, the water supply network was reconfigured and rehabilitated, including rehabilitation of water wells. In addition, upgrading and maintenance of wastewater pumping were carried out and district meters were installed. 13. Component 2: Utility Capacity Building and Operational Support (US$3.15 million comprising US$0.49 million from the TFGWB and US$2.66 million from the IsDB). This component included the construction of central facilities for the CMWU, as well as technical and operational assistance for the utility. 14. Component 3: Project management, monitoring and evaluation (estimated allocation US$3.1 million from the TFGWB). B. SIGNIFICANT CHANGES DURING IMPLEMENTATION (IF APPLICABLE) Revised PDOs and Outcome Targets - Additional Financing and Restructuring 15. The PDO was revised following the 2014 conflict, to reflect reconstruction activities and focus on emergency rehabilitation. The revised PDO reads: “To improve the quality and efficiency of water supply and wastewater service provision in Gaza and assist in restoration of basic water supply and wastewater services through: (i) rehabilitation and reconstruction of existing and damaged water and wastewater systems, and (ii) enhancing the capacity of the Coastal Municipalities Water Utility (CMWU) to sustain water and wastewater services.� Revised PDO Indicators 16. The PDO had to be revised following the damage to water and wastewater infrastructure as a result of the conflict that took place from July 5 to August 26, 2014. Overall, damage to water and wastewater systems was assessed in the order of US$34 million, with the proposed AF covering approximately 40 percent of the required repairs. To address these damages, activities focused on (a) conducting the most urgent repairs to damaged water Page 10 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) and wastewater systems to restore basic water and wastewater services and (b) restoring the capacity of the CMWU to deliver these services. 17. The Results Framework was revised to reflect (a) the changes in target values for the original indicators and (b) the focus under the AF on restoring basic water and wastewater services. In particular, new indicators related to the number of people in urban areas provided with access to improve water sources and benefitting from restored water supply and wastewater services were added. 18. The project components were modified following the request for an AF. Following the request for the AF (US$3 million from the TFGWB and US$12 million from the Partnership for Infrastructure Development of the Multi-Donor Trust Fund) stemming from the extensive damage caused by the 2014 conflict, project components and related costs were revised as shown in table 2: Table 2. Original and Revised Project Components Original Component Revised Component Original Cost (US$, Revised Cost (US$, AF (US$, millions) Name Name millions) millions) Improving water supply Restoring and improving 11.29 11.05 22.34 and wastewater facilities water supply and wastewater facilities Utility capacity building Utility capacity building 3.15 2.40 5.55 and operational support and operational support and CMWU recurrent costs Project management, Project management, 3.10 1.55 4.65 monitoring and monitoring and evaluation evaluation Total 17.54 15.00 32.54 II. OUTCOME A. RELEVANCE OF PDOs Assessment of Relevance of PDOs and Rating 19. The project’s development objective remains highly relevant for the West Bank and Gaza and the World Bank. Gaza’s water situation remains alarming, and investments are needed to ensure access to water services for Gaza’s residents. The project’s objectives are strongly aligned with the Palestinian Authority’s sector goals and strategies. Thus, the medium-term Strategic Development Plan (2017–2022) instituted by the PWA to improve the water sector focuses on improving water security by enhancing the water and wastewater services delivery. It also supports the continuation of the reform process by establishing sustainable and financially viable water service delivery institutions. The project is also aligned with the World Bank Assistance Strategy for West Bank and Gaza FY18–21 (Report No. 115201-GZ), which notes that inadequate resources such as water and power supply and deficiencies in the institutional framework regulating these sectors are holding back economic development. In particular, it aligns with Pillar 3 (addressing the needs of the vulnerable and strengthening institutions for improved citizen-centered Page 11 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) service delivery), as it tries to close the gap in water and sanitation service provision and meet the needs of the most vulnerable. 20. Rating. The overall relevance of the project is rated High. Improving water services is identified as a priority area to improve the livelihoods and opportunities of the Palestinian people and support broader efforts to improve urban services delivered to the people of Gaza. B. ACHIEVEMENT OF PDOs (EFFICACY) 21. The project development objective would be assessed by the following elements: (a) improvement of the quality of water supply and wastewater service provision; (b) improvement of the efficiency of water supply and wastewater service provision; and (c) assistance in restoration of basic water supply and wastewater services. These objectives were planned to be achieved though (a) restoration of basic water supply and wastewater services, (b) rehabilitation and reconstruction of existing and damaged water and wastewater systems, and (c) adjustment to the tariff system and operating cost recovery activities. Assessment of Achievement of Each Objective/Outcome 22. Despite the setback in implementation related to the suspension and volatile situation in the West Bank and Gaza, the project has achieved most of its objectives as demonstrated by substantial achievement of the PDO and intermediate-level indicators. Thus, the project has achieved targets related to the disinfection efficiency, nonrevenue water (NRW), improved wastewater facilities, improved water sources, and restored water supply and wastewater services. The areas where the project did not quite achieve the targets were in the collection rate and treatment efficiency, as described in more detail below. 23. PDO 1. Improvement of the quality of water supply and wastewater services provision was envisioned to be measured by, for water supply (a) disinfection efficiency, (b) installation or rehabilitation of the water tanks, (c) rehabilitation of the water distribution networks, and for wastewater services (d) effluent quality improvement and (e) increase in biochemical oxygen demand (BOD) pollution loads removed. These objectives are deemed to be largely met. 24. Thus, due to the successful implementation of disinfection program for distributed water, the disinfection efficiency of water supply in Gaza strip was sustained at over 99 percent throughout the project period. Installation and rehabilitation of the water tanks (at 3,000–4,000 m3 capacity) were substantially met as four of the targeted five water tanks were installed and rehabilitated at the required capacity. A fifth reservoir was rehabilitated, but it was of lesser capacity at 1,800 m3. In total, 1.9 million inhabitants (of which 49 percent were women) in urban areas were provided with access to improved water sources. This has significantly reduced the risks of a public health crisis due to microbial contamination of water; however, it has not reduced the salinity content of the water. Given Gaza’s challenging water resources context, with extensive seawater intrusion into its main aquifer, the salinity levels of drinking water supplies have increased in recent years. In practice this means that the water supplies provided by CMWU often have very high salinity content, forcing many people to buy water from private vendors. 25. The wastewater services were improved due to improved BOD load removal, and the risk of flooding was eliminated because of rehabilitating deteriorated pumping stations. About 100,000 people (49 percent female and 25 percent rural) in the project area have benefited from improved wastewater facilities and sanitation services. Wastewater effluent quality was fluctuating between 74.6 percent and 78.5 percent (against the 70 percent revised baseline—originally 75 percent—and the target of 80 percent) during the implementation period and is considered Page 12 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) to be partially achieved. In the last year of implementation (2017), the treatment efficiency was on average 74.6 percent, fluctuating at 77.2 percent in Q1 and 76 percent in Q4. The variability and overall decrease in treatment is explained by the irregular entry of chemicals, which resulted in inadequate levels of treatment at times. In addition, power outages (at times for 3 hours a day) and delays in materials entry affected the needful maintenance and operation of wastewater treatment plants (WWTPs), thus reflecting on the quality of the effluent treatment. 26. PDO2. Improvement of the efficiency of water supply and wastewater service provision was to be measured by, for water supply (a) decrease of NRW, (b) increase of the collection rate, (c) water meter installation, and (d) reduction in energy consumption, and for wastewater services (e) maintaining the volume of wastewater pumping capacity. 27. Targets related to efficiency of water supply and sanitation services have also largely been met. The targets were met through the restoration of 14,000 m3 of water storage capacity, the replacement or restoration of more than 70 km of piped networks, and the installation of over 14,000 water meters—which in all but one case exceeded the indicator targets. Thus, for the restoration of the piped networks, the CMWU discovered additional pipes requiring restoration due to leaks resulting from vibration during the war of 2014 and was able to rehabilitate 72.3 km of pipes exceeding the revised target of 36 km twofold, using low-cost solutions—materials purchased in local stores and the CMWU maintenance team for works. In addition, energy used per cubic meter consumed and NRW targets have been met or exceeded. 28. System efficiency was improved, decreasing NRW from 42 percent (revised baseline, original baseline - 39 percent) to 34 percent. In addition to water networks rehabilitation and maintenance activities, this was achieved through leak detection systems, meter repair and replacement, meter reading and data input auditing, and district meters installation for better management. 29. The project results were modest in contributing to the improvement of the collection efficiency, reaching 36 percent as of project end out of the expected target of 55 percent. The original baseline was 49 percent, but during the AF/restructuring, it declined to 25 percent, as many household connections have been destroyed. It must be noted though that the collection efficiency saw an upward trend reaching 53 percent in 2014 before the war, and reached 45–46 percent during the postwar project interventions. Although early in 2017 the collection rate was at 47 percent, several reasons contributed to its considerable drop to 36 percent toward the end of 2017. The downturn of the economy had its trickling effects, whereby the salaries of government employees in Gaza were not paid, affecting their ability to cover expenses and afford bills. In addition, power outages, fuel shortages, and difficulties in getting chemicals into Gaza resulted in lower rates of the treatment plant operation. On the demand side, customers were affected by high unemployment rates—at about 50 percent—as a result of the continuous Gaza closure and their inability to work outside Gaza, affecting the affordability of the services. In addition, quality of services was not on par as the CMWU was not able to provide water without high salinity content, whereby customers had to pay a high cost (about 10 times higher than water provided by the CMWU) for tanker-supplied and desalinated water, and therefore were unwilling to pay for government water services. This unwillingness to pay for piped water can be ascribed to the high salinity content of the water, which cannot be removed by standard chlorine disinfection, as well as to the fact that users in arrears would not get their water supplies cut off. 30. PDO 3. Assistance in restoration of basic water supply and wastewater services. Progress toward this objective was tracked using (a) increase in people provided with access to improved water sources, (b) people benefitting from restored water supply services, (c) people benefitting from restored wastewater services, and (d) people provided with access to improved sanitation services. Page 13 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) 31. Activities related to the restoration of basic water supply and wastewater services and rehabilitation and reconstruction of existing and damaged water and wastewater systems were performed satisfactorily. The project has restored the vast majority of damages to the water and wastewater systems that occurred during the 2014 war in Gaza and rehabilitated major water and wastewater infrastructure, which has contributed to the improvement of quality and efficiency of the water supply and wastewater services, as described in more detail below. It is noteworthy that the project managed to deliver services to its beneficiaries during the war and did almost live damage assessment just several weeks after the ceasefire started. The project design was very adequately set up to allow for rapid response, including the methodology for damage assessment. Over 1.9 million inhabitants benefitted from restored water supply and wastewater services. 32. To assist in the restoration of water services, five water reservoirs9 have been constructed and repaired after the conflict, and approximately 46 km of damaged or destroyed water networks were restored. These water tanks mixed desalinated water and groundwater and were connected to the system to serve the inhabitants in Nusirat, Deir Al Balah, and Al Zawaida in the middle area and eastern villages in Khan Younis, increasing the number of people benefitting from restored water supply and wastewater services to 1.9 million. Likewise, the number of people provided with access to improved water sources was increased by 300,000 meeting the target of a total of 1,850,000. 33. All water wells in the project areas have benefited from rehabilitation and upgrades through electromechanical works and services, and selected pumping units have been replaced by more efficient systems. This has led to a significant reduction in the energy consumption specific to the water produced from water wells per cubic meter of water to reach 0.395 kWh/m3. Under the operation and maintenance (O&M) program, pumps evacuated 135,000 m3 per day of wastewater, and 10,319 ton per year of BOD in 2017 (the BOD removal was higher in 2015 and 2016, with 16,687 ton per year and 13,115 ton per year, respectively). This has resulted in a 30 percent increase in wastewater pumping capacity and a 71 percent increase in the BOD load removed by treatment plants, with the latter considerably exceeding the target. 34. In addition, the project included efforts to enhance the capacity of the CMWU to sustain water and wastewater services. This involved (a) updating the existing tariff system to enhance the cost recovery mechanism that was carried out through the tariff proposal adjustment system upgrade at the CMWU, which is applied in the current tariff calculation and (b) partial progress toward meeting operational cost recovery targets. The CMWU capacity building made the organization more responsive to crises to remain in the frontline and mobilized in delivering services to people shortly after the damages. Thus, the project has supported the CMWU capacity building by training staff, with a special focus on ‘management in crisis’, funding the financial system of the CMWU, and helping set up the system for outsourcing through maintenance contracts. All of these has proven to be instrumental during the war, which allowed speedy mobilization of contractors for the rehabilitation works. The CMWU remained operational throughout the war, was able to mobilize rehabilitation efforts shortly after, was able to manage well the donor funding that was coming to the sector utilizing the financial system, and developed a coordination mechanism with the Israeli side during the invasion. 35. Additionally, the project has also supported the CMWU’s management systems as a tool for planning and enhancing customer services. This entailed conducting a customer outreach and public awareness campaign to 9 Deir Al Balah (4,000 m3 capacity), Al-Mograka (3,000 m3 capacity), Bani Suhaila (4,000 m3 capacity), Khoza'a (2,000 m3 capacity), and Al Kabira (1,800 m3 capacity). Page 14 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) introduce new activities and to improve collections fees, cater to design needs for new water supply and wastewater facilities, and assist with identifying and preparing new water supply and wastewater projects. Justification of Overall Efficacy Rating 36. Efficacy is Substantial. The project has achieved most of its objectives and targets. Despite the fragile context, substantial achievements were observed on the infrastructure side in terms of construction and rehabilitation works and providing customers with improved water and sanitation services. On the system performance parameters like disinfection efficiency, BOD load removal, and energy consumption, and financial sustainability areas like NRW and tariff adjust system upgrade, all targets were fully achieved or exceeded. The project has partially achieved its objectives related to the collection efficiency and effluent quality, which saw the most substantive decrease in the last year of implementation, due to external issues, like the weakened economic and employment situation, power outages, and materials entry, which affected customers’ willingness to pay and affordability. More importantly, the project was able to respond to the emergency situation in an expedited manner and regroup post the war in a short period owing to the available tools and capacities developed under the CMWU. C. EFFICIENCY Assessment of Efficiency and Rating 37. The financial analysis was done to assess returns to the project without considering the methods of financing by taking into consideration the point of view of the CMWU, while, the economic analysis was performed based on the point of view of the Gazan society. From an economic perspective, each activity was evaluated using shadow prices to reflect the social opportunity cost of goods and services, instead of prices observed in the market. In Gaza, the discrepancy between financial and economic costs may be negligible because investment funding is exempt from tax and duties. Moreover, externality costs and benefits normally associated with such kind of interventions were not adequately quantified and valued. The financial and economic cost-benefit analysis is performed largely based on the methods and key assumptions applied at the appraisal stage (see annex 4 for the details). 38. The results of the financial analysis indicate that the project is almost financially viable with estimated financial internal rate of return of 10.3 percent. The appraisal-stage financial internal rate of return was only 4 percent. Significant improvement in the operational efficiency of the CMWU was reported. For instance, the number of staff per thousand connections has reportedly declined from eight in 2012 to four in 2017. 39. The results of the economic analysis indicate that the project is economically viable, even without fully accounting for externality benefits. The calculated economic return values at the appraisal and Implementation Completion and Results Report (ICR) stages for the overall project are in line. However, the calculated economic internal rate of return at the ICR stage (53.4 percent) is significantly higher than that of the appraisal stage value (33 percent). This is mainly due to (a) reduced dependence on costly sources of water supply such as desalinated water, imported water, bottled water, and tanker truck; (b) energy savings due to improvements in the efficiency of operations, (c) reductions in NRW and augmenting of groundwater resources; and (d) improvements in water quality. The benefits could be even higher if treated wastewater is reused for productive purposes such as irrigation. Reuse of treated wastewater offers opportunities for increasing the efficiency of water use, reducing pollution, and improving agricultural production. On the aspect of administrating efficiency, it is worth noting that despite the difficult conditions, the project was completed within the planned time frame of five years. Page 15 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) 40. Efficiency Rating. The overall efficiency rating is Substantial. D. JUSTIFICATION OF OVERALL OUTCOME RATING 41. The overall outcome is rated Moderately Satisfactory. The project remained highly relevant throughout its duration. Efficacy was rated Substantial since the project met most of its objectives and targets. Efficiency was rated Substantial given the results of the economic analysis and the inherent difficulty of accounting for externality benefits. Even though per OPCS guidelines, the rating could be Satisfactory, however, due to the partial achievement of the objectives related to collection efficiency and effluent quality, which saw a decline during the last year of implementation largely due to external factors, the overall rating is proposed to be Moderately Satisfactory. E. OTHER OUTCOMES AND IMPACTS (IF ANY) Gender 42. The main part of the project (Component 1), which focused on improving water supply and wastewater facilities, benefitted both men and women. Both water supply access and access to wastewater services have increased for both men and women as reported in the indicators on relating to water supply and access to wastewater services facilities. While improved water supply and sanitation services benefit both men and women, and girls and boys, it can be argued that the improvements are more significant for the women as they are often the ones affected by shortages and/or intermittent supply as they are most often responsible for cooking, washing, and cleaning in the household. During the project, the client undertook a public awareness campaign, which was deemed of particular importance for women, who are mainly responsible for water and health of the whole family (see also annex 6 for more information provided by the client). Institutional Strengthening 43. The project was aiming at contributing to institution building and establishing the CMWU as a functioning water utility for Gaza. While the utility has been strengthened through the project it has also faced challenges as it has become somewhat of a focal point in the water sector for donors, who, given the political situation, have not been able to work with other municipalities for support to the sector in Gaza. It has meant an overburdening of the CMWU, which has led to a situation in which the potential for significant systematic institutional strengthening was lowered. Poverty Reduction and Shared Prosperity 44. The project contributed to improving conditions for poverty reduction. The project was initiated to improve quality and efficiency of water supply and wastewater services through rehabilitation of existing water and wastewater systems and enhance the capacity of the CMWU to sustain water and wastewater services. Improving access to more reliable and quality water supply improves public health, reduces time spent, and reduces household financial expenses. As such, it aimed to increase social and economic inclusion, in particular, in unserved areas. These are all related to decreasing poverty levels and improving conditions under which economic development can take Page 16 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) place. Even though access went down after the conflict in 2014, the AF led to improvements and a trajectory that improved the situation, including 1.8 million Gazans benefitting from restored water supply and wastewater services. 45. In addition, as noted in the efficiency analysis, the benefits could be even higher if treated wastewater is reused for productive purposes such as irrigation. Reuse of treated wastewater offers opportunities for increasing the efficiency of water use, reducing pollution, and improving agricultural production. These results are not achieved at the time of ICR but with increased wastewater being treated through the Northern Gaza Emergency Sewage Treatment Project becoming operational in March 2018, the prospects for additional positive outcomes have grown stronger.10 Other Unintended Outcomes and Impacts 46. No unintended outcomes and impacts were identified. III. KEY FACTORS THAT AFFECTED IMPLEMENTATION AND OUTCOME A. KEY FACTORS DURING PREPARATION 47. The background analysis for the project was sound. The underlying challenges in the water and wastewater sectors and their relation to the overall economy as well as level of services were highlighted. The analyses at appraisal, confirming a situation of decreasing quality of services and a deteriorating water quality situation in Gaza, were all confirmed by various other sources.11 The impact of the conflict that took place at the end of 2008 and early 2009 meant that the need for repair and reconstruction was high. 48. The project preparation was swift and built upon earlier work in the sector. The project was approved in late November 2012 and became effective in late December 2012. The PWA established a Project Management Unit (PMU) located within the CMWU. Over the years, the World Bank has established itself as a key partner in assisting the Palestinian National Authority responding to water emergencies and was requested to support the PWA in its efforts to reform the sector. This project was part of a portfolio of operations including (a) the Emergency Water Project in southern West Bank (completed in 2008), (b) the North Gaza Emergency Sewage Treatment Project (since 2004), (c) the Gaza Emergency Water Project (since 2004), and (d) the Hebron Wastewater Management Project. These previous engagements were a key to successful project preparation. Prior engagement, including the 1996 Water and Wastewater Services Improvement Project implemented in Gaza by the PWA, was also beneficial to the preparation of the project. 49. The involvement of the IsDB was essential in the preparation and implementation of the project. The project benefited significantly from the support of the IsDB (US$11.4 million), which covered mostly civil works and construction of the water tanks (Component 1). During the design of the project, the task team leader 10 See the World Bank press release: http://www.worldbank.org/en/news/feature/2018/03/12/north-gaza- communities-will-finally-benefit-from-sewage-treatment-services. 11 See for instance: Palestinian Water Authority. 2013. Status Report of Water Resources in the Occupied State of Palestine 2012; United Nations Environmental Programme. 2009. Environment Assessment of the Gaza Strip Following the Escalation of Hostilities December 2008 – January 2009. Page 17 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) (TTL) worked in close cooperation with the IsDB to ensure their buy-in and participation in the project. This included a visit to IsDB’s offices in Jeddah to discuss the project with technical specialists and management. 50. The project was designed to be well in line with the relevant national development plans. It is well in line with the Palestinian National Development Plan focused on building national institutions and infrastructure, with the PWA reform efforts of clarifying roles and responsibilities of the CMWU and PWA as well as broader efforts focused on building inclusive economic development and promoting growth in Gaza. Further, the project was a natural continuation of previous World Bank engagement in the sector and aimed at contributing to the strategic goal of establishing a functional and sustainable utility in Gaza capable of running the water and sanitation services. In 2011, the World Bank approved an extraordinary replenishment of US$20 million for the TFGWB to support infrastructure rehabilitation in Gaza. The funds were designated for projects to improve service provision in water and sanitation, solid waste, and electricity.12 51. The project was prepared in a situation of uncertainty given the change in government in 2009. This meant that the CMWU had to assume responsibilities also in relation to municipalities governed by the local authorities in Gaza. This situation, over time, led to an overburdening of the client (CMWU) as it became the primary go-to actor for donor support to the water utilities sector in Gaza.13 B. KEY FACTORS DURING IMPLEMENTATION 52. The war in Gaza during the summer of 2014 lead to a destruction of early results and the need for an AF. Considering the challenging situation in Gaza, following on from the internal conflict in 2008–2009, through to preparation of the project addressing some of the increased needs to reconstruct the water and wastewater related infrastructure, to the war during the summer of 2014, the resilience of the client is commendable. The client continued with implementation and swiftly moved to prepare a request for an AF to rehabilitate and reconstruct some (but not all) of the damaged infrastructure from the war. Although the total and full scope of the damages from the war could not be addressed through the AF, the AF provided for enabling the client to respond to the needs during the aftermath of the war relating to needs in the water, energy, and municipal sectors. The AF was based on rapid damage assessments after the war that was partly supported by the World Bank and included also parallel financing. No supplementary economic analysis was made at the time of the AF. 53. The war lead to changing baselines and subsequent changes in the end targets. Before the hostilities, NRW decreased to the target value of 34 percent; however, following the conflict, this value increased significantly. Similarly, damage to water meters meant that some that had already been installed had to be replaced following the conflict. 54. The exceptional situation in Gaza also added significant challenges to the implementation. Under the cease-fire reached on August 26, 2014, Israel committed to ease restrictions on the imports of goods into Gaza. Nevertheless, the restrictions in place posed a burden on implementation and required constant and challenging coordination with the GoI to facilitate the import of goods and materials required for project 12 PAD, 2012. 13 Client ICR, 2018. Page 18 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) implementation. Uncertain electricity supplies and frequent blackouts also complicated project implementation. 55. Capacity-building efforts supported by the World Bank through the Water Sector Capacity Building (P117443) Project created an enabling environment for this project. The sustained reform processes supported by the World Bank to improve and consolidate the Palestinian water sector created an enabling environment for the implementation of the project activities. In particular, the Water Sector Capacity Building Project created (a) a legal framework that allowed the CMWU to concentrate on its own business as a service provider and work with other municipalities to join the utility, where five municipalities have agreed to join; (b) a set of instruments to support changes in the regulation and tariff structure at the CMWU; and (c) support to allow the CMWU to develop its strategic plan based on the national water development plans, which are now receiving donor support. 56. Misprocurement at the CMWU led to challenges for the project. An ex post project procurement review (PPR) of the Water Supply and Sewage System Improvement Project (WSSSIP) was initiated in November 2016. The review included contracts awarded in the period from effectiveness to October 31, 2016. The PPR identified several cases of misprocurement and ineligible expenditures, and a notice was sent to the recipient identifying the issues and indicating the requirement for reimbursement to the Grant Account. A further fiduciary review of relevant documentation identified other instances of misrepresentation regarding misprocurement and ineligible expenditures. This led to a suspension of disbursements that took effect on March 2, 2017. The suspension was intended to lead to a stoppage of project disbursements until the reimbursement amount was agreed, and the recipient adopted and initiated implementation of additional actions to ensure fiduciary controls and project monitoring. 57. Conditions to lift suspension. The World Bank, on April 21, 2017, notified the recipient that the suspension can be lifted when the World Bank has received satisfactory evidence that the following actions have been carried out: (a) together with the World Bank, the recipient has carried out a fiduciary and technical review of the project and has implemented the necessary measures recommended by said joint review and (b) repayment to the World Bank of the ineligible expenditures and amounts spent under misprocurement totaling US$1,122,184.91. 58. Concerning the measures recommended and agreed with the recipient in the joint fiduciary and technical review, the recipient has (a) Eliminated the World Bank signatures for both the CMWU PMU Director and Financial Manager on the Project Trust Fund Designated Accounts (2210401, 2216755, and 2216876) in the Bank of Palestine; (b) Agreed that the staff implicated in the misprocurement and ineligible expenditures would not be involved in World Bank projects. Further, the recipient has agreed that these staff will not be paid salaries from the project after the project’s suspension date, which was March 2, 2017; and (c) Terminated the current Technical Auditing Contract. The recipient also undertook to hire a new auditor, under terms of reference and procurement cleared by the World Bank. Page 19 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) 59. Given the continuing risks associated with implementation in Gaza, the PWA further agreed to implement a number of mitigation measures to provide assurance to the World Bank that fiduciary and integrity risks concerning World Bank proceeds are adequately addressed during the remaining period of project implementation following lifting of suspension. These included (d) Providing additional staff resources to the PWA to conduct technical and financial audits, including through the Ministry of Finance staff seconded to the PWA in Gaza and (e) Establishing clear and direct reporting lines from contract supervision engineers to the PMU Director at the PWA, and not to the CMWU. 60. Concerning repayment of the ineligible expenditures and amounts spent under misprocurement, the recipient refunded US$885,565.91 to the World Bank on July 17, 2017 and US$236,549 on April 15, 2018. The recipient also completed the other required measures described above to the satisfaction of the World Bank and, therefore, the suspension of disbursements was formally lifted on September 29, 2017. IV. BANK PERFORMANCE, COMPLIANCE ISSUES, AND RISK TO DEVELOPMENT OUTCOME A. QUALITY OF MONITORING AND EVALUATION (M&E) M&E Design 61. The PDO at preparation stage was formulated to measure quality and efficiency of water supply and wastewater service provision. The design of the monitoring and evaluation (M&E) system had minor weaknesses that included limited indicators for measuring the CMWU capacity to sustain water services. The Results Framework was revised in the AF Project Paper. Outcome indicators related to the number of people benefiting from new/restored water supply and wastewater services were added. However, the weakness related to the missing indicators describing the quality of water services and the CMWU capacity enhancement remained. Although there were some weaknesses, the Results Framework was well designed with a comprehensive set of indicators. At preparation stage, the Results Framework had the baseline, clearly defined data sources, methodology, reporting frequency, and responsible agencies for each indicator, which contributed to smooth implementation at a later stage. M&E Implementation 62. The implementation of the M&E system was done cooperatively at all levels from the PWA/CMWU to the water supply facilities, wastewater pumping stations, warehouse, and laboratory. Water supply facilities and wastewater pumping stations reported to the CMWU on the agreed set of indicators on a daily basis. Laboratory analysis provided to the CMWU/PWA results on the quality of potable water and wastewater. The CMWU based its report on collection rate and beneficiaries on municipalities’ statistical reports. The CMWU/PWA also hired M&E consultants to consolidate data/information from various sources. However, the lack of cost recovery after project closure will endanger sustainability of M&E activities. Page 20 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) M&E Utilization 63. The M&E data were used to evaluate the damage to the water supply and wastewater service after the war to prepare an AF proposal and revise the baseline. The CMWU/PWA utilized the M&E data to assess the impact of a drop in the electricity supply and the economic deterioration during 2017 on the water supply and wastewater services, which helped the CMWU/PWA achieve moderate efficiency in wastewater treatment and water fee collection. Justification of Overall Rating of Quality of M&E 64. While the M&E design had minor weaknesses in relation to indicators to track improvements in the CMWU’s capacity and ability to deliver services, given the successful implementation and utilization of the M&E data, the quality of M&E is rated Substantial. B. ENVIRONMENTAL, SOCIAL, AND FIDUCIARY COMPLIANCE 65. Environmental safeguards. The project is category ‘B’ and triggered only OP 4.01 on environmental assessment. During the course of project implementation, overall safeguards performance rating as well as compliance on OP 4.01 was reported as Satisfactory. The safeguards risk was rated Low except for the last Implementation Status and Results Report, where the risk was rated Substantial due to late preparation of Environment and Social Management Plan and not including it in the bidding documents for an activity that was added to the project in the last two months of project implementation. 66. Social safeguards. No social safeguards were triggered by the project. 67. Financial management. The project closed with a financial management rating of Moderately Satisfactory. After lifting the suspension, all payment requests had to go to the PWA for approval. The PMU Accountant and Director signed off on all requests. There were regular supervision missions throughout the project and two after lifting the suspension as well as a desk review of all payments made after lifting the suspension. Throughout the life of the project, interim financial reports (IFRs) and audit reports were timely, except for the 2016 technical audit report, which was delayed due to the identified misprocurement and ineligible expenditures. All audit reports and IFRs were reviewed by the World Bank, and comments were provided to the government. 68. Procurement. The project faced several cases of misprocurement, and several fiduciary reviews were carried out. Early engagement from the World Bank team allowed for this case to come under control and to be investigated. The investigations led to a suspension of disbursements that took effect on March 2, 2017. The suspension was intended to lead to a stoppage of project disbursements until the reimbursement amount was agreed, and the recipient adopted and initiated implementation of additional actions to ensure fiduciary controls and project monitoring. C. BANK PERFORMANCE Page 21 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) Quality at Entry 69. The strategic relevance of the project was well articulated at entry and built upon earlier World Bank engagement in the sector and was also well in line with the interest of the client. It built on earlier work in the sector and the reform process supported by other donors as well as humanitarian actors active in Gaza. The project was well aligned with the national development objectives and also addressed a very critical need for water supply and sanitation in Gaza.14 The Results Framework was well designed and had just some minor weaknesses. Quality of Supervision 70. The World Bank team remained responsive to the changing circumstances during implementation and managed to remain engaged in a complex and fragile setting. The World Bank acted swiftly in responding to requests and questions from the client. The World Bank was helpful in assisting with the entry of material and coordinating with the GoI when needed.15 The World Bank further acted swiftly when misprocurement was found and suspended the project accordingly until further investigations could be carried out (as noted above). 71. Supervision of projects in Gaza is challenging due to access restrictions in crossing from Israel, which has delayed some planned missions. Access restrictions affected fiduciary staff with Jerusalem IDs to travel to Gaza. Nonetheless, the task team carried out supervision missions on about a quarterly basis (except during conflicts and in 2015 after conflict). The missions included fiduciary and safeguards staff, although fiduciary reviews had to rely mainly on desk reviews in addition to at least one physical review. In addition, since the beginning of the project, an audit firm was contracted by the Ministry of Finance to carry out financial and technical audits. In particular, the technical auditor was required to carry out monthly field visits to verify on physical progress. At the PMU level, supervising engineers verified bills of quantities and completion of work as the basis for payment to contractors. 72. Misprocurement at the CMWU required additional close supervision. A notice of suspension was sent to the Palestinian National Authority on March 2, 2017, identifying the issues and indicating the requirement for reimbursement to the Grant Account the amount that was considered ineligible expenditure and those related to the amounts spent under the misprocurement (US$1,122,184.91). Fiduciary and governance reviews were subsequently conducted, which found some other fiduciary remarks and therefore identified an action plan to be done by the PWA to lift the suspension. Justification of Overall Rating of Bank Performance 73. The quality of the supervision is rated Moderately Satisfactory. There was a high degree of responsiveness to the needs of the client and significant efforts undertaken to address the challenge of entry of material into Gaza due to Israeli restrictions. However, even though misprocurement was swiftly addressed, some of the issues that led to misprocurement could have been recognized earlier in project design; hence, the quality of the supervision is rated Moderately Satisfactory. D. RISK TO DEVELOPMENT OUTCOME 14 World Bank. 2016. Water Situation Alarming in Gaza. 15 Client ICR, annex 6. Page 22 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) 74. At project completion, the risk to development outcome is considered to be Substantial. As evidenced during the implementation of this project, the Gaza situation is one characterized by fragility and uncertainty. There seems to be no doubt the vulnerable situation in the Gaza strip will continue, and as such, the risk to the sustainability of interventions both relating to institutions and infrastructure is put into question. V. LESSONS AND RECOMMENDATIONS 75. The following lessons learned and recommendations from the project are intended to inform future World Bank Group operations, especially in contexts affected by fragility and conflict. While precautions relating to a fragile situation can be projected, wars are hard to plan for. In the planning for the project, it is clear that the task team as well as the client understood the challenges stemming from the civil armed conflict in late 2008 and early 2009 and took that into account. However, the war of 2014 was hard to foresee. Still, with the swift action on the part of the client, the AF was prepared, which included addressing some (but not all) of the damages from the invasion of Gaza in the summer of 2014. The World Bank, together with partners, supported a rapid assessment of damages that was crucial in being able to move swiftly to the AF to assist the sector, and thereby the society, to recover. 76. Overly relying on an overburdened utility is challenging. It was clear that the setup of the PMU and the role of the CMWU were central for the project’s implementation. However, given the situation in Gaza with few other actors that other donors could relate to, as a result of the political situation with the de-facto authorities governing Gaza, the utility became overburdened. Nevertheless, the performance of the utility has been acceptable, apart from the misprocurement that happened in 2016. 77. Providing capacity building is crucial. In hindsight, it is perhaps too easy to say that capacity building on procurement to the PWA and CMWU should have been provided and included more clearly in the project. However, a more general lesson is that in situations with a high demand on an institution, as was the situation for the CMWU (and the PWA), capacity building early on in projects for key staff cannot be underestimated. 78. In fragile and conflict-affected situations, flexibility and active engagement are imperative. While the project was planned for in a fragile setting, being prepared in the aftermath of the internal conflict in Gaza in 2008–2009, it is often hard to envisage exactly how things unfold. When the new de-facto authorities took over, the donor community focused on the CMWU as the entry point for support to the sector in Gaza not to deal with Hamas. Close monitoring of the situation in Gaza was required for the TTL(s) working on the project to make sure of its continuance, which necessitated coordination with the GoI to push for more easy access of material to Gaza. This active engagement seemed to have helped and is noted by the client.16 79. Despite fragility, projects can be implemented and results achieved when readiness of both the World Bank and client teams is high. The great achievements of the project despite the fragile and conflict environment need to be stressed, and they were made possible by strong commitment and proactivity on the part of both the client and World Bank teams. This emphasizes the importance of having experienced and committed staff designing and implementing projects in fragile contexts. 16 Client ICR, 2018. Page 23 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) 80. Close coordination with other donor partners from project inception is key to success. The World Bank team spent considerable effort to work in close coordination with the key development partners contributing to the PID MDTF (Croatia, Denmark, Finland, France, Netherlands, Norway, Portugal and Sweden) and also with the IsDB. This allowed the IsDB to feel the ownership of the project and ensured their continued support throughout design and implementation. . Page 24 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) ANNEX 1. RESULTS FRAMEWORK AND KEY OUTPUTS A. RESULTS INDICATORS A.1 PDO Indicators Objective/Outcome: Improvement of the quality of water supply and wastewater service provision Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion People (49% females) in the Number 0.00 100000.00 100000.00 100000.00 project area would benefit from improved wastewater 30-Sep-2012 30-Jun-2016 31-Dec-2017 31-Dec-2017 facilities. Comments (achievements against targets): Target achieved, as activities related to the restoration of basic water supply and wastewater services, and rehabilitation and reconstruction of existing and damaged water and wastewater systems were achieved satisfactorily. The Project has restored the vast majority of damages to the water and wastewater systems that occurred during the 2014 war in Gaza, and rehabilitated major water and wastewater infrastructure, which has contributed to the improvement of quality and efficiency of the water supply and wastewater services. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion People provided with access Number 0.00 100000.00 100000.00 100000.00 Page 25 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) to improved sanitation 30-Sep-2012 30-Jun-2016 31-Dec-2017 31-Dec-2017 services People provided with access Number 0.00 49000.00 49000.00 49000.00 to improved sanitation services - Female (RMS 30-Sep-2012 30-Jun-2016 31-Dec-2017 31-Dec-2017 requirement) People provided with access Number 0.00 25000.00 25000.00 25000.00 to improved sanitation services - rural 30-Sep-2012 30-Jun-2016 31-Dec-2017 31-Dec-2017 People provided with access Number 0.00 75000.00 75000.00 75000.00 to improved sanitation services - urban 30-Sep-2012 30-Jun-2016 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Target achieved. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Improvement in wastewater Percentage 70.00 80.00 80.00 74.60 effluent quality in Gaza. 30-Sep-2012 30-Jun-2016 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): The revised baseline declined to 70% (from original 75%) due to damages to WWTPs and as a result deteriorated quality. Wastewater effluent quality was fluctuating between 74.6% - 78.5% during the implementation period, and is considered to be partially achieved. In the last year of implementation (2017), the treatment efficiency was on average 74.6%, fluctuating between 77.2% in Q1 and 76% in Q4. The variability and overall decrease in effluent treatment is explained by the irregular entry of chemicals, that resulted in inadequate levels of treatment at times. Also, power outages and delays in materials entry affected the needful maintenance and operational of WWPTs. Page 26 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion People provided with access Number 1600000.00 0.00 1850000.00 1900000.00 to improved water sources 30-Sep-2012 30-Jun-2016 31-Dec-2017 31-Oct-2017 People provided with access Number 800000.00 0.00 925000.00 950000.00 to improved water sources - Female (RMS requirement) 30-Sep-2012 30-Jun-2016 31-Dec-2017 31-Oct-2017 People provided with access Number 200000.00 0.00 231250.00 237500.00 to improved water sources - rural 30-Sep-2012 30-Jun-2016 31-Dec-2017 31-Oct-2017 People provided with access Number 600000.00 0.00 693750.00 712500.00 to improved water sources - urban 30-Sep-2012 30-Jun-2016 31-Dec-2017 31-Oct-2017 Comments (achievements against targets): Indicator added at AF/restructuring. Target achieved. It is slightly higher than the target due to revised population census figures. Due to the successful implementation of disinfection program for distributed water, the disinfection efficiency of water supply in Gaza strip was sustained at over 99% throughout the Project period. Most of the rehabilitation works were completed, like installation and rehabilitation of the water tanks and reservoirs and other works. Objective/Outcome: Improvement of the efficiency of water supply and wastewater service provision Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Page 27 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) Disinfection efficiency of Yes/No Y Y Y Y water supply in the Gaza Strip is sustained at the baseline 30-Sep-2012 30-Jun-2016 31-Dec-2017 31-Dec-2017 level of 99.0% throughout the project. Comments (achievements against targets): The indicator is fully achieved as the disinfection efficiency of water supply in the Gaza Strip is sustained at the baseline level of 99.8 percent throughout the project. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Decrease in the percentage Percentage 42.00 34.00 34.00 34.00 of non-revenue water in Rafah, Khan Younis, and Deir 30-Sep-2012 30-Jun-2016 31-Dec-2017 31-Dec-2017 El-Balah as a result of the project. Comments (achievements against targets): The target fully achieved. System efficiency was improved, decreasing the NRW from 42% (revised baseline, original baseline – 39%) to 34%. In addition to water networks rehabilitation and maintenance activities, this was achieved through leak detection systems, meter repair and replacement, meter reading and data input auditing, and district meters installation for better management. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Nominal increase in Percentage 25.00 57.00 55.00 36.00 collection rate of CMWU in Rafah, Khan Younis and Deir 30-Sep-2012 30-Jun-2016 31-Dec-2017 31-Dec-2017 El-Balah Governorates as a Page 28 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) result of the project. Comments (achievements against targets): At the AF/Restructuring stage (2014), the baseline decreased to 25% (from the original baseline of 49%) as many HH connections have been destroyed during the conflict. The indicator is considered as partially achieved, reaching 36% as of project end out of the expected target of 55%. The collection efficiency saw an upward trend reaching 53% in 2014 before the war, and reached 45-46% during the post war project interventions. Although Q1 of CY2017 averaged at 47%, a considerable drop to 36% happened by Q4. Some of the reasons included: non- payment of Gaza employees’ salaries, power outages, fuel shortages and difficulties in getting chemical through the Israeli portal resulting in lower rates of the treatment plant operation and inefficient treatment of wastewater, thus diminishing the quality of services. Customers suffered from high unemployment rates and high payments for tanker-supplied and desalinated water (as CMWU supplied water was not safe for drinking), affecting their affordability and willingness to pay CMWU water fees. Objective/Outcome: Assist in restoration of basic water supply and wastewater services Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Number of people benefitting Number 0.00 0.00 1800000.00 1900000.00 from restored water supply and wastewater services 12-Sep-2014 30-Jun-2016 31-Dec-2017 23-Oct-2017 Comments (achievements against targets): Indicator added at AF/restructuring. Target achieved. It is slightly higher than the target due to revised population census figures. Activities related to the restoration of basic water supply and wastewater services, and rehabilitation and reconstruction of existing and damaged water and wastewater systems were achieved satisfactorily. The Project has restored the vast majority of damages to the water and wastewater systems that occurred during the 2014 war in Gaza, and rehabilitated major water and wastewater infrastructure, which has contributed to the improvement of quality and efficiency of the water supply and wastewater services. Page 29 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) A.2 Intermediate Results Indicators Component: Component 1: Restoring and Improving Water Supply and Wastewater Facilities Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Water tanks (3,000-4,000 m3 Number 0.00 3.00 5.00 4.00 capacity) installed or rehabilitated and connected 30-Sep-2012 30-Jun-2016 31-Dec-2017 31-Dec-2017 to the existing water network according to the CMWU Master Plan Comments (achievements against targets): Installation and rehabilitation of the water tanks (at 3,000-4,000 m3 capacity) was substantially met as four of the targeted five water tanks was achieved at the required capacity. A fifth reservoir was rehabilitated, but it was of lesser capacity at 1800 m3. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Kilometers of water Kilometers 0.00 36.00 36.00 72.30 distribution networks rehabilitated. 30-Sep-2012 30-Jun-2016 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Target was achieved at double rate. 72.3 km of networks were rehabilitated against the target of 36 km. There were some undetected leaks that resulted from the pump vibration during the war in 2014, so the amount of pipes to be rehabilitated during 2015 and 2016 had to be increased to 72 km. CMWU has found a low cost solution using its maintenance team to carry out the works and materials mainly from local stores procured under the WB funding to respond to the system maintenance needs. Indicator Name Unit of Measure Baseline Original Target Formally Revised Actual Achieved at Page 30 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) Target Completion Water meters Amount(USD) 8750.00 12000.00 14000.00 14298.00 installed/replaced 30-Sep-2012 30-Jun-2016 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Target over-achieved at 102%. The original baseline was zero, 8,750 meters were installed before the AF/ restructuring. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Volume (mass) of BOD Tones/year 6000.00 8000.00 8500.00 10319.00 pollutioon load removed by treatment plants under the 30-Sep-2012 30-Jun-2016 31-Dec-2017 31-Dec-2017 project Comments (achievements against targets): Target achieved at 121%. While 10,319 ton/year of biochemical oxygen demand (BOD) was removed in 2017, the BOD removal was higher in 2015-2016, with 16,687 and 13,115 ton/year, respectively. The last year saw a decrease due to power outages and fuel shortages that did not allow to carry out treatment activities at the same level. Original baseline was 7,000 ton/year but at AF/restructuring it was at 6,000 that went down due to damages to WWTPs. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Volume of daily wastewater Cubic 100000.00 120000.00 130000.00 130000.00 pumping capacity restored Meter(m3) and maintained under the project 30-Sep-2012 30-Jun-2016 31-Dec-2017 31-Dec-2017 Page 31 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) Comments (achievements against targets): Target fully achieved. The original baseline was 110,000 m3 which decreased to 100,000 m3 as a result of damages. Component: Component 2: Utility Capacity Building and Operational Support and CMWU Recurrent Cost Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Tariff proposal adjustment Yes/No N Y Y Y system at CMWU upgraded 30-Sep-2012 30-Jun-2016 31-Dec-2017 31-Oct-2017 Comments (achievements against targets): Target achieved. The project supported CMWU in updating the existing tariff system to enhance the cost recovery mechanism that was carried out through the tariff proposal adjustment system upgrade at the CMWU. The updated current tariff calculation is applied and used in the current tariff calculations. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Operational cost recovery Text CMWU is recovering CMWU to sign MOUs CMWU to sign MOUs CMWU has signed instruments for CMWU operational cost only for membership with for membership with MOUs for developed in Rafah. Khan Younis and Deir Khan Younis and Deir membership with El-Balah El-Balah Khanyounis and Deir municipalities. municipalities. Balah Municipalities to be completely under the CMWU jurisdiction in the next couple of years. It also started to collect 10% of the O&M cost from the municipalities. Page 32 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) 30-Sep-2012 30-Jun-2016 31-Dec-2017 31-Oct-2017 Comments (achievements against targets): Target achieved as the CMWU has signed the MOUs with concerned municipalities. However, the process of their full adoption under the CMWU jurisdiction will take a couple of years and will be considered for support under the follow on WB programs. CMWU started to collect 10% of the O&M cost from the municipalities. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Reduction in energy Number 0.55 0.40 0.40 0.39 consumption for operation of targeted water wells 30-Sep-2012 30-Jun-2016 31-Dec-2017 31-Dec-2017 supported by the project in Rafah, Khan Younis and Deir El-Balah Governorates (Kwh/m3) Comments (achievements against targets): Target achieved. Electro mechanical rehabilitation and upgrading programs lead to significant reduction in the specific power consumption related to the water produced from water wells targeted in the project. The records of average specific power consumption for year 2017 (0.395 Kwh/m3) showed that the target had been successfully achieved. Formally Revised Actual Achieved at Indicator Name Unit of Measure Baseline Original Target Target Completion Kilometers of damaged or Kilometers 0.00 0.00 46.00 46.00 destroyed water networks restored. 12-Sep-2014 30-Jun-2016 31-Dec-2017 31-Dec-2017 Comments (achievements against targets): Target fully achieved. New indicator added during the AF/restructuring. Page 33 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) Component: Component 3: Project Management, Monitoring and Evaluation Page 34 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) B. KEY OUTPUTS BY COMPONENT Objective/Outcome 1: Improvement of the quality of water supply and wastewater service provision • Disinfection efficiency of water supply in the Gaza strip is sustained at the baseline level of Outcome indicator 99% • Volume (mass) of BOD pollution load removed by treatment plants under the project; Intermediate results indicator • Kilometers of water distribution networks rehabilitated; • Volume of daily wastewater pumping capacity restored and maintained under the project; • Kilometers of damaged or destroyed water networks restored. Under component 1: • disinfection standards achieved and sustained at the 99 percent level; • wastewater pumping capacity restored and maintained at 130000 m3/day; Key outputs by component • removed of 10319 ton/year of BOD in 2017 Under component 2 • rehabilitation of 86 km of distribution networks. Objective/Outcome 2: Improvement of the efficiency of water supply and service provision Outcome indicator • Decrease in the percentage of non-revenue water, increase in collection efficiency • Water meters installed/replaced; • Tariff proposal adjustment; Intermediate results indicator • operational cost recovery instruments; • reduction of energy consumption of targeted water wells to 0.395 kWh/m3 Under component 1: • NRW decreased from 42% to 34%; Under component 2: Key outputs by component • installation of 14298 water meters • only partial achievement cost recovery (CMWU only recovering costs in Rafah) • reduction in system energy consumption to 0.395 kWh/m3 • tariff system adjustment proposed and accepted. Objective/Outcome 3: Assist in restoring basic water supply and wastewater services Outcome indicator • Number of people provided with access to improved sanitation services Page 35 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) Intermediate results indicator • Water tanks (3,000-4,000 m3 capacity) installed or rehabilitated and connected to the existing water network according to the CMWU Master Plan Under component 1: • 100000 people provided with access to improved sanitation services; • 5 tanks installed and connected; Key outputs by component • 1900000 people benefiting from restored water supply and wastewater services; Under component 2: • 46 kilometres of damaged or destroyed infrastructure were restored. Page 36 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) ANNEX 2. BANK LENDING AND IMPLEMENTATION SUPPORT/SUPERVISION A. TASK TEAM MEMBERS Name Role Preparation Supervision/ICR Alexander A. McPhail Task Team Leader(s) Basheer Ahmad Fahem Sadeq Jaber Procurement Specialist(s) Riham Hussein Financial Management Specialist Helen Z. Shahriari Social Safeguards Specialist Fifi Z. Antar Team Member Zeyad Abu-Hassanein Environmental Safeguards Specialist B. STAFF TIME AND COST Staff Time and Cost Stage of Project Cycle No. of staff weeks US$ (including travel and consultant costs) Preparation FY11 0 1,621.04 FY12 24.044 98,923.75 FY13 22.489 113,240.03 Total 46.53 213,784.82 Supervision/ICR FY13 9.927 26,882.15 FY14 18.476 138,556.40 FY15 12.926 50,766.88 Page 37 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) FY16 13.047 76,294.32 FY17 20.884 76,266.41 FY18 19.379 172,037.86 Total 94.64 540,804.02 Page 38 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) ANNEX 3. PROJECT COST BY COMPONENT Original Revised Origina AF Total at Revised Cost Percentage Component Component l Cost (US$, appraisal (US$, of appraisal Name Name (US$, millions millions) million ) s) Improving water Restoring and supply and improving water wastewater supply and 11.29 11.05 22.34 22.34 100 facilities wastewater facilities Utility capacity Utility capacity building and building and operational operational 100 3.15 2.40 5.55 5.55 support support and CMWU recurrent costs Project Project management, management, 3.10 1.55 4.65 4.65 100 monitoring and monitoring and evaluation evaluation Total 17.54 15.00 32.54 32.54 100 Page 39 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) ANNEX 4. EFFICIENCY ANALYSIS Background 1. Water resources. Gaza is characterized by scarce water resources. The region largely depends on limited groundwater resources for its agricultural, industrial, municipal, and domestic water needs. The 2010 estimated water abstraction volume was 160 MCM, half of which is from agricultural wells and the other half is from domestic and municipal wells. In 2014, the total water available in the Gaza strip was 178.9 MCM, of which 170.7 MCM was pumped from wells, 4.7 MCM was desalinated water, and 3.5 MCM was purchased from Mekorot. In the meantime, purchases from Mekorot are on the rise. Current purchases are about 8 MCM, and a request has been made to Israel for a further 12 MCM. The saltiness is increasing, and the volumes of the groundwater sources are decreasing. The annual aquifer replenishment is 50–60 MCM. Pollution of recharge sources and seawater intrusion are a challenge. 2. Water supply services. In Gaza, network water is accessible, cheap, and abundant but undrinkable. Network coverage rates are high with 95 percent of the population reporting network access, but service is intermittent (with only one-third of households receiving water daily) and the water is of poor quality for drinking. Thus, households are coping through unlicensed wells and small-scale desalination. Volumes of water available to municipal and industrial uses have been increasing and are almost entirely from own resources. Network water is generally affordable, but prices are highly subsidized and almost all households buy costlier desalinated tanker or bottled water. 3. The advantage of the high level of network access is completely annulled by the undrinkable quality of the water, and the main coping strategy is desalination and imports from Israel. Desalination and water purchase currently provide the 10 percent (about 10 MCM) of network water that is drinkable. Almost everyone depends on brackish water desalination for drinking. There are four public desalination plants, but private desalination shops are the main source, providing potable water for 95 percent of Gaza’s population. There are also estimated to be more than 20,000 home desalination plants (United Nations Children’s Fund 2010). Tests have shown that as much as two-thirds of this water contains bio- contaminants. Alternative water sources are expensive, and the most vulnerable households in Gaza end up spending up to one-third of their income on water bill. 4. The main sources of drinking water in Gaza are piped water (1.44 percent), bottled water (0.02 percent), tube wells or boreholes (0.02 percent), protected wells (0.38 percent), and tanker trucks (96.68 percent). Thus, the main source of drinking water is tanker trucks, which are used by an overwhelming majority of the population in Gaza (about 97 percent of the population). To cope with intermittent access to water, a household water storage tank is an almost universal strategy. Almost everyone (97 percent of the population) has a water storage tank on the roof or in the courtyard. The per capita annual expenditure on water is Israeli New Shekel (ILS) 101. 5. Sanitation services. The levels of wastewater collection and treatment are high in Gaza. About 99 percent of the Gazan population has access to improved unshared sanitation, with 78 percent connected to sewage networks. Most households (83 percent) are connected to sewage networks, and over 90 percent of wastewater is at least partially treated. However, plants are overloaded and function poorly, partly because of underfunding and partly because of the blockade. Partially treated wastewater (25 MCM Page 40 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) per year) and raw sewage (7 MCM per year) are discharged to ponds and the sea. Treated effluent is often of poor quality, and there is little or no reuse. Unconnected households use pits, which are often not being properly emptied. Thus, the issue is primarily treatment and reuse of wastewater rather than collection. With almost complete access to unshared improved sanitation and four-fifths of households connected to networks, the sanitation situation in Gaza is better. However, the wastewater collected and partially treated is discharged to the environment rather than being reused. Current disposal of both raw sewage and treated wastewater poses environmental and health hazards. The per capita annual expenditure on sewage is ILS 20 in Gaza. Poor people tend to pay less in absolute terms but higher in relative terms because of their low total annual consumption expenditure overall. 6. Thus, the project was initiated to improve the quality and efficiency of water supply and wastewater services through the rehabilitation of existing water and wastewater systems and enhancing the capacity of the CMWU to sustain water and wastewater services. Improving access to more reliable and quality water supply improves public health, reduces time spent, and reduces household financial expenses. To meet these objectives, several interrelated activities were initiated and implemented including (a) water supply network rehabilitation and reconfiguration, (b) rehabilitation of water wells, (c) service water meter replacement and installation of district meters, (d) upgrading and maintenance of wastewater pumping stations, and (e) technical and operational assistance to the CMWU. Methodology, Data, and Key Assumptions 7. The present cost benefit analysis was largely based on the methods and key assumptions applied at the appraisal stage. The project went through restructuring or AF in 2014 in response to significant damages to water supply and sewage infrastructure due to conflicts. However, no economic and financial analysis was made to assesses the effect of proposed changes. 8. The financial analysis was done from the point of view of the CMWU to assess financial returns to the specific components of the project and the overall project without considering the methods of financing. From the financial perspective, each activity was assessed measuring its costs and benefits at market prices. The financial benefits were estimated as (a) increase in revenues from higher volume of water billed due to the incorporation of illegal connections and more accurate reading of meters and (b) operating cost savings. 9. The economic analysis was performed based on the point of view of the Gazan society. From an economic perspective, each activity was evaluated using shadow prices to reflect the social opportunity cost of goods and services, instead of prices observed in the market. The key assumptions and data used to perform the analysis are summarized in table 4.1. Table 4.1. Key Assumptions and Data Parameters At Appraisal At ICR Remark Discount rate 10% 10% Exchange rate (US$1) ILS 3.9 ILS 3.4 Project lifetime (years) 25 25 Price of imported water (ILS/m3) 2.1 n.a. Electricity tariff (ILS/kWh) 0.6 n.a. Page 41 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) Parameters At Appraisal At ICR Remark Economic price of electricity (ILS/kWh) 0.7 n.a. Water capacity restored (m3) n.a. 9,550 Component 1.1 New water capacity created (m3) n.a. 13,900 Component 1.1 Total number of people benefiting n.a. 172,135 Component 1.1 Total daily consumption of people served (m3/day) n.a. 13,427 Component 1.1 Water capacity restored (m3/day) n.a. 97,749 Component 1.2 New water capacity created (m3/day) n.a. 1,600 Component 1.2 Total number of people benefiting n.a. 888,680 Component 1.2 Total daily consumption of people served (m3/day) n.a. 69,317 Component 1.2 Total number of meters replaced 14,000 14,298 Component 1.3 Average water consumption (m3/connection) n.a. 0.78 Component 1.3 Number of staff per thousand connections 8 4 Component 1.3 Water supply situation in the project area (m3/day) 268,060 254,811 New wastewater pumping capacity created (m3/day) n.a. 22,500 Component 1.4 Wastewater pumping capacity restored (m3/day) n.a. 34,809 Component 1.4 Energy Consumption (kWh/m3) 0.55 0.40 Proportion of people dependent on bottled water for n.a. 0.02 drinking Price of bottled water (US$/m3) n.a. 360.7 Weighted average water tariff - economic (US$/m3) n.a. 0.45 Average water tariff - financial (US$/m3) n.a. 0.43 Tariff for desalinized water (US$/m3) n.a. 0.61 Wastewater tariff (US$/m3) n.a. 0.12 Wastewater infrastructure maintenance cost n.a. 0.40 (US$/m3) NRW (%)a 39% 34% 3 b The O&M cost of desalinated water(ILS/m ) 1.77 n.a. Note: a. NRW has risen to 42 percent in 2014 due to damage to infrastructure and equipment; b. ILS 2.36 per cubic meter billed. 10. The economic benefits of the project are (a) reduced dependence on costly sources of water supply such as desalinated water, imported water, bottled water, and tanker truck; (b) energy savings due to improvements in the efficiency of operations; (c) reductions in NRW and augmenting groundwater resources; and (d) improvements in water quality. Economic benefits such as groundwater augmentation and water quality improvements were not fully captured in this analysis. It is known that dependence on groundwater in the Gaza strip has resulted in serious overabstraction of the resource, resulting in a rapid decline of the groundwater quality due to seawater intrusion and pollution of recharge sources. No data are available on externalities linked with using this resource. On the other hand, improvements in water quality are likely to affect public health, as the saline water is posing health risks, while it also reduces the economic lifespan of appliances that use water and that requires more maintenance than in systems where water quality is less poor. The benefit of reducing health risks was Page 42 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) approximated by the cost saved for a part of the population that will use bottled water to cope with increasingly saline drinking water. 11. In Gaza, the discrepancy between financial and economic costs may be negligible because investment funding is exempt from tax and duties. The investment and O&M costs included in the analysis are summarized in table 4.2. The total cost included in the analysis is US$9.32 million, which constitutes about 61 percent of the total financial resources disbursed during the implementation of the project. Table 4.2. Summary and Breakdown of Costs Component Components Year Component 1.1 Component 1.2 Component 1.4 Total 1.3 2.2 and 2.3 2012 0.0 0.0 0.0 0.0 0.0 0.0 2013 357,364 106,788.4 0.0 22,648 159,099.4 645,899.8 2015 181,317.6 397,581.2 0.0 349,917 34,922.4 963,738.2 2016 767,749.4 540,183.6 132,737.2 813,829.0 4,988.0 2,259,487.0 2017 1,121,328 200,635.2 0.0 1,362,040.9 428,500.6 3,112,505.0 2018 1,181,040 14,664.77 0.0 538,477.05 600,980.9 2,335,163.0 Total 3608799 1,259,853 132,737.2 3,086,912.0 1,228,491.0 9,316,793.0 Results of Financial Cost Benefit Analysis 12. The summary results of the financial analysis are summarized in table 4.3. The main messages are as follows: • The financial analysis results at appraisal and at ICR significantly diverge, particularly for Component 1.4, Component 2.2, and Component 2.3. • Contrary to the appraisal-stage results, the ICR-stage results indicate that the project is financially viable. • Significant improvement in the operational efficiency of the utility is reported. For instance, the number of staff per thousand connections has declined from eight in 2012 to four in 2017. Table 4.3. Summary Results of the Financial Cost-Benefit Analysis At Appraisal At ICR Components NPV (US$, NPV (ILS) IRR (%) IRR (%) millions) Component 1.1: Water supply network rehabilitation (18,393) Negative (2.1) −11% and reconfiguration Component 1.2: Rehabilitation of Water Wells 5,689 27% 3.8 42% Component 1.3: Service water meter replacement (78) 9% (0.09) −23% and installation of district meters Page 43 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) At Appraisal At ICR Components NPV (US$, NPV (ILS) IRR (%) IRR (%) millions) Component 1.4: Upgrading and maintenance of 5,356 84% (13.6) n.a. wastewater pumping stations Component 2.2 and 2.3: Technical and Operational (4,558) Negative 79.9 136% Assistance Overall Project (11,989) 4% 8.6 22% Note: IRR = Internal rate of return; NPV = Net present value. Results of Economic Cost-Benefit Analysis 13. The results of the economic analysis are summarized in table 4.4. The main findings are as follows: • The calculated economic return values at the appraisal and ICR stages for the overall project are inline. The results indicate that the project is economically viable, even without fully accounting for externality benefits. However, the economic rate of return at the ICR stage is significantly higher than that of the appraisal-stage values. The benefits could be even higher if treated wastewater is reused for productive purposes such as irrigation. Reuse of treated wastewater offers opportunities for increasing the efficiency of water use, reducing pollution, and improving agricultural production. • At the ICR stage, the economic return to water meter replacement and installation measures is not satisfactory. However, the return to these activities were found to be economically viable at the appraisal stage. • Similarly, the returns to upgrading and maintenance of wastewater pumping stations are not satisfactory, mainly due to the inability to fully capture and value the benefits of this intervention. Table 4.4. Summary Results of the Economic Cost-Benefit Analysis At Appraisal At ICR Components NPV NPV (ILS) IRR (%) IRR (%) (US$, millions) Component 1.1: Water supply network rehabilitation 43,586 34% 165.2 146% and reconfiguration Component 1.2: Rehabilitation of Water Wells 7,492 32% 4.6 47% Component 1.3: Service water meter replacement and 2,028 27% (0.08) −8% installation of district meters Component 1.4: Upgrading and maintenance of 10,428 166% (19.7) Negative wastewater pumping stations Component 2.2 and 2.3: Technical and Operational (1209) 6% 112.8 157% Assistance Overall Project 64,743 33% 179.3 94% Page 44 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) ANNEX 5. BORROWER, CO-FINANCIER AND OTHER PARTNER/STAKEHOLDER COMMENTS Gender Interaction and Citizen Engagements in Water Issues 1. Water issues are among the biggest challenges to life in the Palestinian territories, especially the Gaza strip, where the citizens suffer from severe lack of access to potable water due to the exhaustion of the aquifer and high pollution rates. The situation becomes deteriorated since the strategic solution such as a regional seawater desalination and proper wastewater treatments are not yet accomplished. 2. Under such circumstances, awareness is crucial to save water and reduce the risks of unsafe water use. As a result of this situation, public awareness is needed especially for women who play a crucial role in water consumption because in the Gaza Strip community, women are responsible for housekeeping and upbringing children and also responsible for the health of the whole family. Gender in the Public Awareness Campaigns 3. Public awareness campaigns implemented through the WSSSIP and AF programs during 2013– 2016 by the PWA/CMWU rely on the methodology of raising public awareness of water and sanitation in the Gaza Strip and concentrate on the following issues: • Desalinated water • Saving water and reduction of NRW • Cleaning water tanks • Water situation • Health impact • Customer satisfaction (through the CMWU website) • Billing and increase of the revenue collection 4. Parts of the implemented activities are mentioned as follows: (a) Training courses. One training course was held, which targeted 20 women to prepare them to be new trainers from all over the Gaza Strip. Page 45 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) (b) Workshops. 30 workshops were implemented in all the five Gaza governorates including 20 for 750 targeted women and female students and the rest were for men. (c) Radio awareness episodes. 12 radio awareness episodes were broadcast while three of them were especially for women. (d) A play was enacted about water issues at Al Meshal theatre for mixed gender audience (one- third of the audiences were female). (e) Home visits. 800 home visits were made targeting housewives in all the five Gaza governorates. Page 46 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) (f) Awareness sessions were conducted in four schools targeting 800 female students including site visits and field tours. (g) House-to-house visits were made to increase the water revenues and encourage the customers to pay their bills in the three southern governorates. (h) Television interviews were conducted with the CMWU technical teams to explain the water situation and the plans to improve the water quality besides the CMWU readiness for the storm season. (i) Continuous meetings with consumers committees were conducted to reduce the illegal connections and improving the revenues. (j) Meetings were conducted with people around the facilities that were damaged during the conflict of 2014, before and after the reconstruction to reflect a goodwill from the donors and the utility Page 47 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) ANNEX 6. ICR – PALESTINIAN WATER AUTHORITY Summary 1. This ICR gives a brief overview on the implementation of the World Bank financed project named as ‘Gaza Water Supply & Sewage Systems Improvement Project’. The project started in 2012 with parallel financing from the IsDB and continued until the end of 2017 with its additional fund allocated in 2014 after the last offensive. This report will help the reader understand the main achievement of the project. It could be considered that the project was a very good experience since all of its goals were almost met on time despite the suspension time due to the raised misprocurement issue. Currently, the PWA is convinced to start a new program in Gaza to contribute in strengthening and sustaining the sole water and wastewater service provider CMWU in coherence with the new Water Law with new procedures and regulations. The financial expenditures according to the WSSSIP and AF funds agreements are also illustrated by categories and tasks. The total revised allocated fund is US$31.314 million, and a total US$26.6054 million was spent in accordance with developed Procurement Plans just before the closing date, December 31, 2017. Background 2. To operate the existing and to finance new water and wastewater infrastructure and improve water and wastewater services in the Gaza Strip, there are some prerequisites: sustain the CMWU with financial autonomy, enhance the cost recovery mechanism consisting of an effective metering and billing system along with adequate tariffs, and improve the collection efficiency. Those prerequisites have been tackled during the previous World Bank projects and also been tackled in the last project (WSSSIP) 3. However, due to the offensive war on Gaza during July 5 to August 26, 2014, a massive destruction in the water and wastewater infrastructures had occurred. The PWA in consultation with the CMWU has requested the AF to finance part of the rehabilitation of water and wastewater infrastructure damages in the Gaza strip that resulted from bombardments and ground incursions by Israeli armed forces during the war period. The rehabilitation works overlapped the WSSSIP activities and served the WSSSIP’s main objectives with some minor modifications in the main objective definition. Achievements 4. This annex shows the status of achievement of the performance indicators over the life of the project (2012–2017). In general, the implementation was smooth and most of the targets were met on time. On the other hand, due to the dramatic drop in the electricity supply, which reached three hours a day during 2017, and the depression in the economic situation, the CMWU/PWA achieved moderate performance in the wastewater treatment efficiency and collection efficiency, respectively. The agreement was fruitful and gave the CMWU/PWA the momentum needed to achieve the cumulative targets satisfactorily. Difficulties 5. In general, the implementation of the project throughout the entire life was smooth. This is due to Page 48 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) (a) The effective CMWU/PWA practice and continuous follow-up of the PMU; (b) The high technical standards of the CMWU personnel; (c) The constructive cooperation between municipalities, the CMWU, and the PWA; and (d) The auditor who played an important and neutral role in assessing the achievement by the end of each year. 6. However, due to some outstanding conditions, the following obstacles were encountered: (a) Outstanding conditions due to the current deviation and reconciliation conditions (b) The value added tax problem (c) Blockade and shortage of training sessions and exchanging experiences (d) Low inherited tariff and deteriorated economic situation (e) The materials restriction and the new GRAMMS system (f) Catastrophic shortages and unreliability of electricity power supply (g) Misprocurement problem and long suspension time Lessons Learned 7. Before the end of the WSSSIP and AF period, as a result of the PPR report, the CMWU Board of Directors decided to accomplish the CMWU’s own investigation report in which the CMWU investigation committee found that there are some procedural mistakes because of too many donors’ involvements after the war of 2014, which lead to the misprocurement. The committee listed their recommendations to minimize and decrease the probability of repeating the mistakes in the future programs. These recommendations were taken into consideration and implemented during the suspension time as follows: (a) Correcting the administration procedures and resolving conflict of interest (b) Separating the design section from the supervision section (c) Enhancing the internal auditing division technically and financially 8. Moreover, the CMWU faced hard times during the suspension time and the investigation sessions, and many lessons were learned to enrich the CMWU experience that can be considered as key for the success of any upcoming program of the same nature and can be summarized as follows: (a) A thorough understanding of the terms of a program will enable the CMWU to maximize the benefits of the fund allocated for any project. Page 49 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) (b) Scope of projects must be according to scope of fund agreements. Terms used to describe scope of projects must be very clear and in accordance with engineering terms; if necessary, some kind of explanation for these terms like upgrading, rehabilitations, and finishing works should be added. (c) The CMWU should acquire prior approval from any donor in case of any change in the Procurement Plan. (d) Materials procured in any contract for a certain facility should not be used in any other facility without prior approval from the donor. (e) The involvement of the various water sector players such as some ministries, municipalities, universities, and representatives of the private sector in the decision making in the various stages of the project preparation was a very important tool in bridging the gap between the sector requirements and the scope of work of the utility. (f) Sustainability of the water and wastewater services cannot be achieved if it is not conducted professionally with a high level of management practice and in close cooperation with all concerned parties. (g) There is a need to develop the capacity of the CMWU employees in many areas. Sustainability 9. The project has strongly contributed to the national strategy toward the sustainability of water resources in general and water and wastewater services in particular. This has been achieved through the project tasks and performance indicators. In this context, the most important achievements were as follows: • Public health was of prime concern. This was done through implementing a very successful disinfection program for distributed water. The disinfection efficiency of water supply in the Gaza strip is sustained at the baseline level of 99.0 percent throughout the project period. • Improving the system efficiency by decreasing NRW from 42 percent (revised baseline 2014) to 31.7 percent. This was achieved through establishing systems for leak detection, meter repair, and replacement; auditing the meter reading and data input; and installing district meters for better management besides the water networks rehabilitation and maintenance activities. The project contributed to replacing more than 14,298 of the customer service connections. • Electromechanical rehabilitation and upgrading programs lead to significant reduction in specific power consumption related to the water produced from water wells targeted in the project. The records of average specific power consumption for 2017 (0.395 kWh/m 3) showed that the target had been successfully achieved. Page 50 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) • The CMWU has signed memoranda of understanding for membership with Khanyounis and Deir Balah Municipalities to be completely under the CMWU jurisdiction in the next couple of years. Besides, it started to collect 10 percent of the O&M cost from the municipalities. Page 51 of 52 The World Bank GZ-Gaza Water Supply & Sewage System Improvement (P101289) ANNEX 6. Comments on the draft ICR from PALESTINIAN WATER AUTHORITY and World Bank responses Comments to the WISSSP The Borrower made comments related to the overall outcome rating, which are addressed below. The Borrower also requested minor corrections and clarifications to be made throughout the ICR, which have been addressed in the final ICR. Page 3: item 10 in the table; it is mentioned in the IP rating unsatisfactory for the period June 2017. Bear in mind that during this period even the project was suspended, but achievements on the PI indicators are kept and the records showed satisfactory in all indicators, while the collection efficiency has noticed increase till 47% and the WW treatment to 77% which are moderately satisfactory. Recommendation to change it to “moderately satisfactory� ➢ This relates to previous evaluations of the project performance which we cannot modify or able to change now. General: The collection efficiency baseline after the war 2014 was amended to 25%; afterwards the collection rate started to be improved until reaching an average of 47% after the first quarter of the year 2017 as recorded in the ISR. The collection efficiency started to decrease in the year 2017 to an average 36% as in the ICR after the cut-off Gaza employees’ salaries by the government; besides the unemployment rate which reached to 50% as a result of Gaza continuous closure. Also, the record as of the first quarter of the year 2017 shows treatment efficiency 77.2 % . Afterwards; Despite the harsh operation conditions negatively affected by continual unreliable electricity power supply as a result of the repeated shut down of Gaza power plant and shortages of fuel,the records showed average 74.6% removal for the whole year 2017 and for the last quarter of the year 2017 is 76%. So, the program has showed satisfactory results in all PI and the two above- mentioned PI should be rated satisfactory since it is a Force Majeure issue ➢ We understand this concern. As for the rating of the project, the World Bank has a well- defined and objective way of assessing the results of the project that the team followed. As we have emphasized throughout the document, the Bank recognizes the impressive results achieved under very difficult circumstances, but unfortunately the rating will have to remain unchanged because it needs to be defined following standard World Bank procedures Page 52 of 52