Document of The World Bank FOR OFFICIAL USE ONLY Report No: 17969 IMPLEMENTATION COMPLETION REPORT CHILE SECOND VALPARAISO WATER SUPPLY AND SEWERAGE PROJECT (LOAN-3331-CH) May 29, 1998 Finance, Private Sector and Infrastructure Country Management Unit 7 Latin America and the Caribbean Regional Office 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 EQUI'VALENTS Currency unit = Peso (CH$) US$1.00 = CH$ 337(year end 1990) US$1.00 = CH$ 407(year end 1995) US$1.00 = CH$ 425 (year end 1996) WEIGHTS AND MEASURES Metric System FISCAL YEAR OF BORROWER January 1 to December 31 ABBREVIATIONS AND ACRONYMS CORFO Corporation for the Promotion of Production (Corporaci6n de Fomento de la Producci6n) ESVAL Water Supply and Sanitation Company of Valparaiso (Empresa de Obras Sanitarias de Valparaiso GoCh Government of Chile ICR Implementation Completion Report IRR Internal Rate of Return OECF Overseas Economic Cooperation Fund (Japan) PAHO Pan American Health Organization SAR Staff Appraisal Report SENDOS National Bureau for Sanitary Works (Servicio Nacional de Obras Sanitarias) SSS Superintendency of Sanitary Services (Superintendencia de Servicios Sanitarios) UFW Unaccounted for Water Vice President Shahid Javed Burki Country Management Unit Director Myrna Alexander Sector Management Unit Director :Krishna Challa (Acting) Task Manager Alexander Bakalian FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETION REPORT CHILE SECOND VALPARAISO WATER SUPPLY AND SEWERAGE PROJECT (LOAN-3331-CH) Contents Preface ............... Evaluation Sumrx;ary ................ Part I Implementation Assessment from the Bank's Perspective A. Background .1 B. Project Objectives and Description .3 C. Project Design .5 D. Project Implementation .6 E. Project Results .10 F. Project Sustainability .14 G. Bank Performance.15 H. Borrower Performance .15 I. Assessment of Outcome .16 J. Lessons Leaed. .16 K. Bank-Borrower Relationship .18 L. Consulting Services .18 M. Project Documentation and Data .18 Part II Statistical Annexes Table 1. Summary of Assessments .19 Table 2. Related Bank Loans .21 Table 3. Project Timetable .22 Table 4. Project Scope, Implementation Schedule & Costs 23 Table 5. Project Financing .25 Table 6. Loan Disbursements .26 Table 7. Allocation of Loan Proceeds .27 Table 8A. Income Statements .28 Table 8B. Balance Sheet .29 Table 8C. Sources and Uses of Funds .30 Table 8D. Economic Analysis .31 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. Table 9. Monitoring Indicators .................... 32 Table 10. Bank Resources: Stafl.Inputs .................... 33 Table 11. Bank Resources: Missions .................... 34 Table 12. Studies Included in the Project .................... 35 Table 13. Status of Legal Covenants .................... 36 Appendixes: A. Mission Aide-Memoire .......................... 38 B. Borrower's Contribution to the ICR .......................... 39 C. Maps IMPLEMENTATION COMPLETION REPORT CHILE SECOND VALPARAISO WATER SUPPLY AND SEWERAGE PROJECT (LOAN-3331-CH) Preface This is the Implementation Completion Report (ICR) for Chile's Second Valparaiso Water Supply and Sewerage Project, for which Loan 333 1-CH in the amount of US$50 million was approved on May 28, 1991, and became effective on February 13, 1992. The Borrower requested the closing of the loan on June 30, 1997, one year ahead of its planned closing date with the cancellation of the undisbursed amount of about US$16.8 million. Co-financing for the project was provided by OECF (JPY5.48 billion). Only the equivalent of US$1.4 million of the OECF loan was disbursed, and the balance was suspended in December 1995 (the cancellation has not yet been formalized). The ICR was prepared by Alexander Bakalian, Consultant. Tamara Noel provided valuable input in the preparation of the annexes. Myrna Alexander, Krishna Challa and AsifFaiz are the Country Director, Acting Sector Director and Sector Leader, respectively. The Task Manager for project appraisal was Emanuel Idelovitch, with Franz Kriegler (Financial Analyst) and Marta Molares (Lawyer) as team members. The Task Managers during implementation were Emanuel Idelovitch (1992-94), Franz Kriegler (1994-95) and Luis V. Chang (1996-97). The Division Chiefs were Alain Thys (1989-91), Alfonso Sanchez (1991-93), and AsifFaiz (1994-97). The Borrower provided comments to this ICR that are included as Appendix B. Preparation of this ICR began in October 1997 and is based on materials in the project files. The Borrower contributed to the preparation of the ICR by submitting its final report in January 1998. .. IMPLEMENTATION COMPLETION REPORT CHILE SECOND VALPARAiSO WATER SUPPLY AND SEWERAGE PROJECT (LOAN-3331-CE1) Evaluation Summary Project Objectives The project had three major objectives: a) to improve the sanitary conditions of the water streams, public beaches and the marine environment in Greater Valparaiso; b) to optimize the operation of the existing water supply system and improve water supply conditions in the Greater Valparaiso area by reducing water losses, creating uniform service pressure and improving the quality of the water supplied to the consumers; and c) to increase ESVAL's operational efficiency and its institutional capacity to successfully implement the proposed investment and development program. Project Implementation Although the project was appraised in November 1990, it was made effective in February 1992 and the loan agreement for OECF co-financing was signed in November 1992 for a amount of JPY5.48 billion (about US$39 million). The total project cost was estimated at US$141.5 million of which the Bank participation was for US$50 million. ESVAL embarked quickly on the bidding process of the major works and by late 1992 had a number of contracts under execution. Delays, however, were incurred when disagreements between ESVAL and the Municipalities of Vifia del Mar and Valparaiso emerged on the impact of the works on local traffic and business, despite initial assurances conceded by these municipalities. The loan was modified twice during project implementation. In May 1993, the first modification of the loan was signed to reflect the co-financing of the OECF; firthernore the project description was redefined as the co-financing of the 6-year time slice (1992-1997) of ESVAL's capital investment program to include not only Grater Valparaiso -as was in the appraisal report- but also the Aconcagua valley. The new total project cost was estimated at US$168.8 million. The project was divided into two sub-projects, leaving most of the sewerage component under Bank financing and the water supply component and the sewerage works in Conc6n for OECF and adjusting the financing percentages for the various categories. At the mid-term review in November 1994, following the completion of the feasibility studies for some parts of ESVAL service area for which no funds were previously assigned in the capital investment program, the revised costs increased to US$218 million. A second amendment of the loan agreement was signed in November 1994 for the purpose of reallocating the loan proceeds to reflect the fact that many works contracts also include the provision of materials. Although most contract bidding followed Bank guidelines, the first year of implementation was marred by a misprocurement case. As a result, in November 1992, the Bank canceled an amount of US$180,000 from the loan amount after the Borrower decided to award the contract to a Chilean consulting firm that had presented the second best evaluated offer. In early 1993, the overall project implementation started to be negatively impacted by the difficulties encountered in the construction of the main component of the sewerage of Greater Valparaiso, namely the Vifia del Mar-Valparaiso collector. These difficulties were mainly due to a) the inexperience of the contractor in the trenchless technology which was adopted in response to the Municipality of Valparaiso concerns on the impact of the open trench construction and b) the lack of adequate management capacity ... in ESVAL to deal with the emerging problems. The complications resulting from this contract led to many changes in the management of ESVAL and later to the cancellation of the balance of the Bank loan. In November 1995, a new management took over and initiated the revision of the project. It created a new department in charge of the Vifia del Mar-Valparaiso collector and the Conc6n sewerage system. The new team -supported by external consultants- proposed a drastic change of the project design including a new alignment for the collector which meant the construction of a 3.2 Km tunnel, preliminary treatment pumping facilities within the tunnel and two sea outfalls (at Vifia del Mar and Loma Larga). The works in Valparaiso are expected to be completed by December 1998. The Conc6n system - whose design is still to be finalized and agreed with the Municipality of Conc6n- is planned for construction for the years 1998- 1999. During 1996, several meetings were held in Washington between the Bank and ESVAL's new management team on reconstructing the actions taken and looking for the reasons for the failures. In early 1997 the Bank proposed to ESVAL the use of the remaining Bank funds for on-going works. However, after closer review, no agreement was reached because the procurement procedures used by ESVAL for these works had not followed Bank guidelines and the request by ESVAL's management for softer loan conditions (e.g., reduction of the Bank lending rate) could not accepted. In June 1997 ESVAL decided to cancel the remaining part of the loan (about US$16.8 million). As for the OECF sub-project, delays occurred from early on in the hiring of the consultant to manage the component and to operationalize the loan. Moreover, as ESVAI, management was getting absorbed by the crisis of the Viffa -Valparaiso collector, the OECF sub-project was getting less attention. In December 1995, OECF was informed that its entire loan will be canceled, with about US$1.4 million disbursed on the services of the management consultant. Project Results The project objectives were not met at the time of loan cancellation. Although the Borrower is working towards the completion of the main collector at a cost which will be many times more than originally appraised (for a drastically modified design), the water component has suffered significant delays and has been reprogrammed for the 1996-2001 investment period. In terms of actual achievements the construction of the (emergency) new outfall at Viffa del Mar has improved the sanitary conditions of the beaches at that location, despite little or no improvement in the Valparaiso and Conc6n areas. As a result of the complications regarding the Vifia del Mar-Valparaiso collector and the delays in operationalizing the OECF component, most of the physical targets have not been yet achieved . Details of investments financed from ESVAL's own sources were not reported to the Bank and remain unquantifiable. From an operational view ESVAL's performance has been satisfactory. Although during the 1991-1996 period the unaccounted for water has remained above 41% -peaking at 44% in 1993- preliminary results for 1997 indicate that this important indicator for operational efficiency has dropped to 38.8% and is showing a trend for further decline. On water production and use, the conservation measures appear to have had a positive impact; production after increasing from 139.8 million m3 in 1991 to a peak of 149.3 million in 1993 has been dropping steadily and has reached about 134.3 million in 1996. Similarly the water sold per connection is declining from a high 23.9 m3 per month to 21.7m3 in 1996 and is expected to remain at that level, partially explained by the drop in the nummber of people in a household, water conservation measures and increases in tariffs. Moreover, ESvAL seems to have achieved significant productivity gains as measured by the number of employees for 1000 connections; the level of this indicator has consistently dropped from 3.3 in 1991 to 3.0 in 1997 and is projected to drop to a level of 2.8 in the year 2000. iv The financial position of ESVAL is in accordance with targets. The operating ratio (operating expenses/operating revenues) has improved from 91.7% in 1991 to 70.1% in 1996. The rate of return on assets has increased from 1.2% in 1991 to 7.9% in 1996, a significant improvement over the rates projected at appraisal. The accounts receivable position, expressed in terms of average monthly sales showed improvement over the life of the project dropping from 2.8 to 2.2 but is still in excess of the appraisal targets. The minimum 20% contribution to capital investment was surpassed in all years until 1996; however, it is estimated that that percentage will drop substantially in 1997 (to 6.4%) and remain below 20% for the reminder of the projected period. Project Sustainability Although the main elements of the projects are yet to be put into operation and some even have yet to be built, ESVAL is expected to adequately operate and maintain the facilities (primarily the main sewage collection system) once they are operational. After delays in the construction of the collector assumed crisis proportions, the GoCh took various actions to bring in specialized expertise to complete the works. It is expected that the new management will retain the needed expertise as needed to adequately operate the new infrastructure. On the other hand, the GoCh has taken concrete steps to privatize ESVAL within a relatively short timeframe (late 1999, according to press reports). From the institutional and operational points of view, the existing legal and regulatory frameworks guarantee the sustainability of the new facilities; similarly the tariff and income support laws provide sufficient assurance that ESVAL will be able to maintain its ifinancial performance. Lessons Learned The main lessons learned from this project can be summarized as follows: Project management. An investment program which is substantially larger than usual levels should have a project management team staffed with experts who have extensive experience with similar size and type of projects; since this expertise would not be readily available within the institution, a professional project management team should preferably be contracted; in the initial phase of the project, ESVAL created a project management unit and staffed it gradually from within the institution; however, the unit lacked project managers able to deal adequately with the emerging technical issues and contract negotiations. It was only in 1996 that a professional team was brought in as project managers and was able to quickly redesign the collector and implement the works. Projectfinancing. Unless the source and amounts of financing of the project are clearly defined from the outset, delays in securing the additional financing can jeopardize the successful completion of the project. In the case of the OECF parallel financing, the delayed recruitment of the management consultant and the lack of detailed designs for a number of sub-components led to significant delays in operationalizing the loan before the new management decided to cancel the loan late 1995. Engineering designs. Although the designs were prepared by qualified engineering firms, large and complex projects could benefit from external reviews; it is important to ensure that all aspects of such major undertakings are well studied, especially geotechnical aspects, environmental and social impacts. In the case of the collector, it was discovered during implementation that the soil conditions were insufficiently investigated at that time to permit the use of trenchless technology, with many obstructions encountered during the construction of the collector. As for the environmental impact, although a detailed analysis was carried out during project design and extensive monitoring was proposed for the period of implementation, a broad public consultation would have provided a valuable input to the design. v Contract execution. It is as important to supervise contract implementation as well as the procurement process; the executing agency as well as the Bank should engage specialists to permit effective supervision of complex engineering works involving new and unfamiliar technologies. It was clear that ESVAL did not get the needed advice (from the supervision consultant nor the Bank) when the contractor proposed the change in construction technology for less than 10% additional cost and no time extension. Coordination with Municipalities. Municipalities should be consulted before contracts are tendered to deal with their concerns and remove any objections to the implementation plans; permits should also be secured in these negotiations and not be left to contractors to obtain. Legally binding agreements should be signed in order to avoid any future political interference. Moreover, many of the complaints by the Municipality of Valparaiso and some local groups would have been best addressed within public hearings prior to project implementation. Under the current environmental classification of projects, this project would have been classified as an A project and would have benefited from public consultation. Bank Projezt Supervision. Project implementation would have benefited immensely from a more comprehensive mid-term review, especially in terms of finding appropriate technical and institutional solutions and applying appropriate Bank remedies to redress continuing implementation difficulties. Moreover, in 1996, at the height of the crisis of the collector, the Bank should have been more pro-active in dealing with accusations by the new management of the Borrower and political circles. By trying to maintain its overall good relationship with the GoCh, the Bank was timid in its response and as a result the public perception of the Bank may have been tarnished. IMPLEMENTATION COMPLETION REPORT CHEILE SECOND VALPARAISO WATER SUPPLY AND SEWERAGE PROJECT (LOAN-3331-CH) Part I - Implementation Assessment from the Bank's Perspective A. Background Sector objectives 1. The population of Chile in 1997 reached an estimated 15 million, of which about 86-% live in urben areas, with Santiago, Concepcion and Valparaiso being the three largest cities. As its main objective for the water and sanitation sector, the Government of Chile (GoCh) has sought to ensure and maintain high levels of service coverage. At the - time this project was being prepared, the water supply coverage in urban areas stood at 98% while sewerage coverage stood at 81%; however, a fraction of the wastewater was being properly discharged. This improper final disposition of sewage has been identified as a major issue in the sector. Another important sector objective remains the improvement of the operational performance of urban water supply systems through the optimization of the distribution networks and storage facilities and the reduction of the unaccounted for water. Finally a more general objective of the sector is the improvement of the institutional and financial performance of the water companies for future privatization. Sector organization 2. Since the late 1970s, water supply and sewerage services were the responsibility of 13 regional water utilities operating under the Servicio Nacional de Obras Sanitarias (SENDOS), an agency of the Ministry of Public Works (MOP). In 1990, all 13 were converted into shareholding companies, whose main shareholders are CORFO (Corporaci6n de Fomento de la Producci6n), the GoCh and a few private shareholders. A transparent system of concessions was instituted whereby each regional company was granted the concession of water supply and sewerage in the geographic area where it was located, with the option of granting sub-concessions to the private sector for parts of the area or some of the services provided by the regional company. 3. During 1988-1990, three major developments in the sector took place. First, the government created the Superintendencia de Servicios Sanitarios (SSS) as regulator for the sector. The SSS is an autonomous entity with juridical personality and independent 2 budget. Its main functions are: a) granting concessions for water and sewerage services, b) policy making for the sector, and c) calculating tariffs and controlling their implementation. Second, a tariff law was adopted to ensure economic efficiency and self- financing of the utilities through the use of long-term marginal costing. Third, the Government adopted a new system of direct subsidizes for low-income consumers to pay their water and sewerage bills. This income transfer is financed from the central budget and made available through the municipalities. 4. During project implementation, the privatization of the water utilities in Chile was frequently mentioned by government and utility officials'. It is only recently that the GoCh has initiated the process by contracting the services of a consortium of two international investment banks to prepare the model for the privatization of ESVAL; once the model is adopted it will be gradually extended to the other regional water utilities. To prepare for the expected ownership changes, a new law was passed in late 1997 whereby the Government will allow the sale of up to 65% of the shares of the utilities to private investors leaving in its hands 3 5% of the shares which will be reduced gradually as the private firms increase the capital of the privatized utilities. The Government will maintain a veto right for 10 years as long as it maintains 10% of the shares. A salient feature of the law is the limitation imposed on any private operator prohibiting it from controlling more than one service utility within a given region. Bank sector lending 5. The Bank's assistance to the sector supported Government objectives and efforts to help develop and modernize the sector, to alleviate poverty and unemployment, and to address critical public health problems arising from inadequate sewage disposal in the large urban areas. The Bank has made four loans to the sector (including this one; see Table 2 for a brief description of the previous three): one to the Republic of Chile, one to EMOS (the water utility in Santiago) and two to ESVAL (the water utility in Valparaiso). The loan to the Republic of Chile (Water Supply Project -1832-CH) helped finance - through a project agreement with EMOS - the construction of a water treatment plant, water transmission mains and distribution systems in Santiago, in addition to the preparation of the Santiago sewerage plan and studies and equipment for reducing water losses; part of the loan was used for control of water losses in the rest of the country (with ESVAL as one of the main beneficiaries) through a project agreement with SENDOS. The project was completed satisfactorily and closed on June 30, 1986, one year after the original closing date. The Second Santiago Water Supply and Sewerage, which was for US$60 million, closed December 31, 1995 after achieving substantially its development objectives; the loan financed the construction of sewage interceptors, a pilot wastewater plant and the rehabilitation of water distribution networks. The first loan to ESVAL financed improvements to the water treatment plant in Las Vegas and the construction of a 5,00Qm3 water storage tank, in addition to consulting services for the improvement and One of the contracts under the project (a partial twinning arrangement with the Brazilian utility SANEPAR) was canceled because of widely believed iminiinent privatization of ESVAL. 3 extension of the water and sewerage systems for Greater Valparaiso; it was closed on December 31, 1990 and the outcome was evaluated to be satisfactory. B. Project Objectives and Description Project objectives 6. The project had three major objectives: a) to improve the sanitary conditions of the water streams, public beaches and the marine environment in Greater Valparaiso which are important recreational facilities for the population of the area, as well as valuable econornic resources of the region for tourism and fishing; b) to optimize the operation of the existing water supply system and improve water supply conditions in the Greater Valparaiso area by reducing water losses, creating uniform service pressure and improving the quality of the water supplied to the consumers; such optimization would also permit expanding the supply area and preclude the large capital investments that would otherwise be required; c) to increase ESVAL's operational efficiency and its institutional capacity to successfully implement the proposed investment and development program. Project description 7. To meet the objectives, the project had the following components: a) Sewerage and pollution control: in the Greater Valparaiso, construction of about 50km of trunks collectors and 10km of secondary sewers (also in the city of Limache), four pumping stations and their force mains and a preliminary wastewater treatment plant at Valparaiso; a preliminary treatment plant and a marine outfall in Concon; b) Water supply for Greater Valparaiso: construction of wells in Calera and Limache; an 1 lkm, 1200mm transmission main from Los Aromos-Conc6n; water treatment facilities (rehabilitation in Conc6n and Pefiuelas and new plant in Conc6n; 13km of distribution pipes and 15 storage tanks) c) Institutional improvements: acquisition of O&M and office equipment, consumers survey, technical cooperation with other companies, training of staff, preparation of development plan for the company d) Consulting services: engineering and supervision of works; monitoring of the marine environment before and after sewage disposal and feasibility studies for the northern and southern parts of the fifth Region 4 The executing agency 8. ESVAL is a stock corporation ("sociedad anomma") whose shares are held by GoGh2, either directly (34.62%) or indirectly through CORFO (64.07%). ESVAL is the holder of the concession in the Fifth Region to produce and distribute water supply, to collect, treat and discharge wastewater; it was set up in June 1989. It is the legal successor to the Empresa de Obras Sanitarias (Fifth Region) which was an autonomous public enterprise created in 1977. The Fifth Region covers an area of about 16,400 km2 and has a total population of about 1.5 million of which more than 90% is urban. It is divided into four areas: Acon;agua (northern interior), the northern coast (Litoral Norte), Greater Valparaiso in the center and San Antonio in the south (Litoral Sur). 9. ESVAL is responsible for providing services to about 85% of the population of the Fifth Region, while the remaining is covered by a private operator in the San Antonio area (Litoral Sul). The private operator, Aguas Quinta, was given a management contract with investment obligations ("Contrato de Gestion con Inversion") in September 1993 for a 35-year period. The investment program is estimated at about US$50 million and will reach about 35,000 customers. 10. Although ESVAL enjoys considerable autonomy in its operation, the GoCh still plays a significant role in investment planning and management through the nomination of ESVAL's directors and the approval of the yearly investment and operational plans. 11. During appraisal a number of organizational weaknesses had been identified; these ranged from a shortage of qualified middle-level managers and technical staff to an overly centralized management structure. More importantly the appraisal report highlighted the weak executing capacity of ESVAL to deal with the project under preparation. ESVAL addressed many of the areas of improvement that were identified. During the first two years of the project life, ESVAL gradually completed the staffing of the management positions. However, following the difficulties with the implementation of the Vifia- Valparaiso line, ESVAL management began to undergo drastic changes in its structure and staff when, in late 1995, almost all its managers had been replaced and substantial institutional memory was lost. C. Project Design Conceptualframework 12. The project area of Greater Valparaiso covers a population of about 1.1 million and includes about 67% of ESVAL's clients for water an, d 71% for sewerage. At the time 2A negligible percentage (about 1.31%) is held by private investors. Recently, newspaper reports have indicated that at least 51% of the ESVAL shares will be tendered to the private sector by early 1999. 5 of project preparation, the water supply and sewerage coverage in the Greater Valparaiso area stood at 95% and 85%, respectively. The water supply system had insufficient production and treatment capacity to satisfy the peak day demand in the summer season and the average day demand in the years of low flow in the Aconcagua river. The water distribution system suffered from serious operational problems and high losses caused by inadequate layout, poor maintenance and leakage and burst from old pipes. Moreover, the discharge of large quantities of untreated sewage into streams and the ocean occurring in the service area that included the resort city of Vifia del Mar created public health hazards and reduced the area's tourism attractiveness. The government aware of these problems had attached high priority to resolving them. Feasibility studies and detailed designs for the improvement of the water supply and sewerage systems had been completed through the first Valparaiso Water Supply Reconstruction loan. The project was an integral part of the Bank's assistance to Chile which included optimization of investment in infrastructure by improved maintenance and rehabilitation, increased delivery efficiency and alleviation of environmental pollution. This project was conceived on the premise that well functioning water and sewerage infrastructure run by an efficient operator is necessary to help improve the health conditions of the population and sustain the overall environmental and economic benefits to the resort towns. Project Prepara'ion 13. The feasibility and detailed designs for the project were prepared between 1986 and 1990 by the firms GKW and Hidrosan Chile using resources from the first Bank loan to ESVAL. During the initial phases of project preparation in July 1989, a project cost of US$40 million (and a Bank loan of US$20 million) was discussed. In November 1989, the project cost was updated based on partially completed designs of the major civil works and the new estimate was put at US$60 million. During the pre-appraisal mission (May 1990), the project scope was broadened and the costs were updated based on detailed designs which had just been completed. In July 1990, the GoCh informed the Bank of its desire to co-finance the project with a loan from the Overseas Economic Cooperation Fund (OECF) of Japan and increase the scope of the project to include investments for other cities in the Fifth Region. 14. The Bank finally appraised the project in November 1990 for US$141.5 million of which the Bank's participation was a loan of US$50 million, the equivalent of the foreign exchange component of the project. At the time of Bank loan negotiations, since the OECF loan was still not well defined, it was agreed to go ahead with the project with the understanding that when the OECF loan materializes, the project would be divided into two sub-projects which could be co-financed in parallel by the Bank and OECF. The main criterion for the selection of the components for each sub-project was the urgency and the timing of the execution of these components. 6 D. Project Implementation Project start-up 15. Although the project was appraised in November 1990 and approved in May 1991, it was only made effective in February 1992. The loan aLgreement with OECF was signed on November 1992. ESVAL embarked quickly on the bidding process of the major works and had awarded a number of contracts by late 1992. UJnlike many Bank projects that suffer initial delays due to procurement issues, ESVAL was able to use Bank guidelines and issue acceptable procurement documents. Delays, however, were incurred when disagreements between ESVAL and the Municipalities of Vinia del Mar and Valparaiso emerged on the impact of the works on local traffic and business, despite initial assurances conceded by these municipalities. In December 1992, ESVAL informed the Bank that agreements were signed with these municipalities allowing the project to proceed. The opposition of the Municipality of Valparaiso was the most vehement as it objected to becoming the recipient of sewage of a large area outside of Valparaiso and sought to redress the situation by asking ESVAL to finance some minor drainage works. Project implementation schedule and procurement 16. As mentioned above, project implementation was initiated before finalizing the OECF loan agreement. The GoCh, ESVAL and the Bank agreed that the Bank loan should be used for the most critical components, namely the sewage collectors and that the loan agreement would be amended when the OECF co-financing was secured. 17. The loan was modified twice during project implementation. In May 1993, the first modification of the loan was signed to reflect OECF co-financing; furthermore the project description was redefined as co-financing the 6-year time slice (1992-1997) of ESVAL's capital investment program to include not only Grater Valparaiso -as was in the appraisal report- but also the Aconcagua valley3. This was not considered to represent a substantive change as the then defined project scope covered 90% of ESVAL's capital investment program; at the same time, it was thought that the new definition would add flexibility to the Bank's financing and reduce the need for further loan amendments. The new total project cost was estimated at US$168.8 million, an increase of US$27.5 million. This increase was mainly due to replacement investments for existing installations and higher cost of consulting services because of OECF requirements, while the outlays for the water and sewerage capital investment remained basically unchanged. The additional costs were to be absorbed by the OECF loan of JPY5.48 billion since its value had increased from US$39 million at the time of negotiations to about US$44 million at the time of the amendment due to exchange rate fluctuations; the remaining was to be financed by local borrowing and reduction of dividend distribution. The project was divided into two sub- projects, leaving most of the sewerage under Bank financing and the water supply and the 3 The other two areas Litoral Sur, and Litoral Norte were not inbtoduced in the project scope because their operation was to be tumed over to private entities. 7 sewerage in Conc6n for OECF and adjusting the financing percentages for the various categories. At the mid-term review in November 1994, following the completion of the feasibility studies for some parts of ESVAL service area for which no funds were previously assigned in the capital investment program, the revised costs increased to US$218 million. A second amendment of the loan agreement was signed in November 1994 for the purpose of reallocating the loan proceeds to reflect the fact that many works contracts also included the provision of materials. 18. Although most contract bidding followed Bank guidelines, the first year of implementation was marred by a misprocurement case. As a result, in November 1992, the Bank reduced the loan by US$180,000 after the Borrower decided to award the contract for the supervision of the Vifia del Mar-Valparaiso collector to a Chilean consulting firm that had presented the second best evaluated offer. 19. In early 1993, the project implementation started to be negatively impacted by the difficulties encountered in the execution of the main component of the sewerage of Greater Valparaiso, namely the Vifia del Mar-Valparaiso collector. The implementation problems of this contract eventually brought about profound changes in ESVAL's management, the early termination of the successive civil works contracts with the Consorcio Ocearnco and ISEKI, Inc., a major redesign of the collector and later the cancellation of remaining loan proceeds. Given the prominence of this contract in shaping up the outcome of the project and influencing Bank-Borrower relationship it is important to give here a detailed chronology of the contract events. 20. The Vinia del Mar-Valparaiso Sewage Collector. The 10km sewage collector Vifia del Mar-Valparaiso was designed in 1988 by the German consulting firm GKW as part of the Bank-financed Valparaiso Water Supply Reconstruction Project (Loan 2652- CH). After reviewing a number of alternatives, the adopted solution was for the collection of the sewage of the entire area to be carried to Valparaiso and to the existing Bustamente tunnel for final discharge in the sea after preliminary treatment. The envisaged construction method was open-trench pipe laying for about 6 km in the urban areas of Vifia del Mar and Valparaiso and rectangular concrete sewers cast in situ for the stretch between the two cities. After an international competitive bidding, ESVAL awarded the contract to the consortium "Constructora Consorcio Oceanico", formed by the Argentine company Benito Roggio and the Brazilian firm Oderbrecht, for a base value of US$10.7 million. The contractor was responsible for some design aspects and obtaining all related permits. After contract signature in September 1992, opposition to the open trench method emerged from local politicians because of the impact on traffic and commerce. The Consorcio offered to replace open trench by pipe jacking (trenchless technology). The contract was increased by US$0.7 million with no change in execution period. In mid- 1993 when it became clear from mounting delays and quality problems that the contractor would not be able to carry out the work as planned, ESVAL hired a specialist consultant in pipe-jacking technology. After a review of the original designs the consultant proposed some changes leading to a second contract amendment for about US$0.7 million (Dec. 93). Following additional soil surveys and a major redesign of the interceptor to deal with 8 soil conditions, an additional amendment to the contract was signed for US$8.8 million (July 1994) under the condition that the contractor hire ISEKI, Inc., the US subsidiary of the Japanese manufacturer of pipe jacking equipment of the same name, as the subcontractor for pipe-jacking. However, the contractor continued to experience difficulties and after presenting new financial claims which were rejected by ESVAL, the Consorcio abandoned the works in January 1995. The balance of the contract was US$4.5 million. ESVAL entered in direct negotiations with ISIEKI, Inc. for the completion of the remaining 2.4 km of pipe-jacking. ISEKI, Inc. was chosen by ESVAL -and the Bank gave its no objection-, because of ISEKI's satisfactory performance under the previous contract, the cost savings associated with selecting a contractor already on site and the difficulty in mobiiizing equipment on short notice. The new contract value was US$7.9 million. The new contract specified that the required permits will be obtained by ESVAL. ISEKI, Inc. initiated its work in April 1995 but encountered difficulties with the construction and rehabilitation of the access shafts; moreover, permits were delayed and the contractor could not proceed normally. ISEKI, Inc, after making financial claims for the delays, decided to abandon the works in September 1995. The collapse of the negotiations led to the dismissal of most of ESVAL managers and the beginning of the investigations by various government bodies of the contracting and management of the project. To date, this problem has been investigated by a commission of the House of Representatives and the Contraloria de la Repfiblica, whose results are not known to the Bank. It further led to the appointment of the Vice-miiniister of CORFO as President of ESVAL's board. Two separate arbitration processes, one between ESVAL and the Consorcio Oceanico, and another between ESVAL and ISEKI, Inc., with claims and counter-claims in the millions of US dollars are continuing. 21. In November 1995, a new management took over and initiated the revision of the project. It created a new department in charge of the Vinia-Valparaiso collector and the Conc6n sewerage system. The new team -supported by external consultants- proposed a drastic revision of the project design deciding: a) the immediate construction of a 15OOm- outfall in Vinia del Mar which will be later used only for emergency situations (this was completed in December 1996); b) preliminary treatment incorporated in the pumping station of Vifia del Mar; c) a new 3200m-tunnel in rock (to be built through conventional tunneling method), instead of the existing Bustamente tunnel whose capacity was reevaluated by the new consultants and judged to be insufficient for the expected design flow; d) a new pumping station within a cavern in the tunnel; and e) a 400m-outfall at 50m depth at Loma Larga with a platform on which a primary treatment could be built, if needed in the future. The works are expected to be cornpleted by December 1998. The construction of the Concon sewerage system is planned for the years 1998-1999. 22. During 1996, several discussions were held in Washington between the Bank and ESVAL's new management on reconstructing the actions taken and looking for the reasons for the failures. In early 1997 the Bank proposed the use of the remaining of Bank funds for on-going works (other than the collector). However, after closer review, the Bank informed ESVAL that it could not finance these works as the procurement procedures used did not follow Bank guidelines and that the request by ESVAL's 9 management for softer loan conditions (e.g., reduction of the rate of interest) could not be met. In June 1997 ESVAL decided to cancel the remaining part of the loan. 23. As for the OECF sub-project, delays occurred from early on in the hiring of the consultant to manage the component and to operationalize the loan. Moreover, as ESVAL management was getting absorbed by the crisis of the Vifia -Valparaiso collector, the OECF sub-project was getting less attention. In December 1995, OECF was informed that its loan will be canceled, with about US$1.4 million equivalent disbursed on the services of the management consultant. The reasons cited by ESVAL included the avoidance of the loan currency risk and OECF procurement policies and procedures. Project costs 24. The cost of the project at appraisal was estimated to be US$141.5 million, including the civil works, materials, equipment, technical assistance, contingencies and taxes and duties, of which US$50 million was the estimate for the foreign costs. Following the loan amendments the project cost was adjusted upward in November 1994 to US$218 million. The exact final costs of the project are not known because the project has not yet been completed and many components have been postponed or canceled. Although the project description was changed to reflect the time slice investment of ESVAL for the period 1992-1997, ESVAL continued to consider the project as the initial description of the Bank-supported components. The cost of the (Bank-financed) project at the June 1997 cancellation date, with the partially completed collector, is estimated at US$61.2 million (with many components postponed or incomplete)4. A best effort estimate by Bank staff would give a figure of US$158 million as the total amount spent by ESVAL in the period 1992-1997. Project financing 25. Table 5 provides the estimated and actual project financing scheme, even though the total project costs remain unclear and only an approximate estimate is provided5 Because of the difficulties encountered in the course of implementation, the Bank's procurement requirements and lending terms and the relative ease of ESVAL to access local capital markets, the management of ESVAL canceled the loan after disbursing US$33.2 million. As a result the Bank's participation in the financing of the (incomplete) project was reduced from 35% to an estimated 21%. 26. The bulk of the disbursement was done in the three years (FY 93-95) when about US$32 million was disbursed; it is noteworthy to mention that by June 1995, the loan had disbursed 94% of what was projected at appraisal; this obviously does not mirror the 4 The investments made by ESVAL on the collector from October 1995 to June 1997 are not known. In this report, the additional cost of completing the collector (under the modified design) is estimated at US$60 million. ESVAL did not provide actual investment data in its final report. 10 progress of the physical works but rather reflects the cost overruns of the Vifia del Mar - Valparaiso contract. 27. The original allocation of the loan proceeds by category was based on the assumption made during project preparation (1989) that the civil works and the equipment for the major components would be contracted separaltely. However, in most cases, ESVAL included in the civil works contracts the acquisition of related equipment and materials to ensure better coordination between supply and installation. Thus the allocation of finds between these categories had to be adjusted accordingly (Table 7). E. Project Results Project objectives 28. The project objectives were not met at the time: when ESVAL decided to cancel the balance of the loan (June 1997). Although the Borrower is working towards the completion of the main collector at a cost which is maniy times more than originally appraised (for a drastically modifiea1 design), the water component has suffered significant delays and has been reprogrammed for the 1996-2001 investment period. In terms of actual achievements the construction of the (emergency) new outfall at the Vina del Mar location at the end of 1996 has dramatically improved the sanitary conditions of the beaches in that location, with little or no improvement in the Valparaiso and Conc6n areas. Moreover, ESVAL does not consider this solution as the optimal situation and the main project objective will be reached only when the complete system is in operation (expected in December 1998). Physical results 29. As a result of the complications of the Viiia del Mar-Valparaiso collector and the delays in operationalizing the OECF component, most of the physical targets have not been yet achieved. Table 4 shows the components that have been completed and those that are yet to be completed or even initiated. Details of investments in replacement of facilities and other improvements financed from ESVAL's own sources have not been reported to the Bank and remain unquantifiable; therefore most achievements are gauged in relation to the original project scope. 30. Water Supply. As a result of the decision of ES VAL to request the cancellation of the OECF loan in late 1995 which was to finance a large part of the water supply improvements, to date, of all the works included in the project scope, only few have been completed: the wells at La Calera, the water treatment plant in Conc6n, and the operational improvement of the sectors No. 8, 12 and 1 5. The works at the Poza Azul reservoir were completed with ESVAL's own funds in January 1995. It is noteworthy to mention that the Conc6n plant was redesigned and its capacity was doubled from the original 500 I/sec. With respect to water distribution, two storage tanks were constructed 11 and some network improvement was done. From the initial scope, only about 30% of the water supply component were implemented until June 1997. 31. Sewerage: In this component, with the exception of the Vifia-Valparaiso collector which is still under construction and the Conc6n system whose construction still awaits a definition of the solution, most sub-components have been completed, namely: the collectors Quilpue-El Salto, Reiiaca-Vifia del Mar, and the pumping stations in Vinia del Mar and Valparaiso. 32. Institutional component: under this component, a technical cooperation twinning arrangement was envisaged to permit exchange of knowledge and technology in the area of reduction of unaccounted for water. The water company of the state of Parana (Brazil), SANEPAR, was recommended by a consultant hired by ESVAL. After a few exchanges of staff an agreement was signed for fuller interchange of experience. The main objective was to improve the commercial aspects of ESVAL's operations as well as the. quality of service. The program, however, was never initiated for its high cost and the prospects for ESVAL's privatization. Under the institutional component a new client cadastre was completed, the objective of which was to update the client database and to optimize the meter reading routes. 33. Consultancies: the environmental monitoring study was partially completed and provided useful information on the marine conditions in Vifia del Mar and Valparaiso; specifically the study showed that following the construction of the 1500m outfall in Vifia del Mar, practically all beach contamination had disappeared. The consultancy on water conservation plan was cut short after it was implemented for 18 months. 34. Operationalperformance: from an operational view ESVAL's performance has been satisfactory. Although during the 1991-1996 period the unaccounted for water has remained above 41% -peaking at 44% in 1993- because of the non-execution of the OECF component, preliminary results for 1997 indicate that this important indicator for operational efficiency has dropped to 38.8% and showing a trend for further decline. At appraisal it was projected that the UFW would be reduced to 37% in 1996. On water production and use, the conservation measures appear to have had a positive impact; production after increasing from 139.8 million m3 in 1991 to a peak of 149.3 million in 1993 has been dropping steadily and has reached about 134.3 million in 1996. Similarly the water sold per connection is declining from a high 23.9 m3 per month to 21.7m3 per month in 1996 and is expected to remain at that level, partially explained by the drop in the number of people in a household, water conservation measures and increases in tariffs. On indicators like service coverage, ESVAL's was able to meet or even surpass targets set at appraisal. Mcreover, ESVAL seems to have achieved significant productivity gains as measured by the number of employees for 1000 connections; the level of this indicator has consistently dropped from 3.3 in 1991 to 3.0 in 1997 and is projected to drop to a level of 2.8 in the year 2000. It is noteworthy to indicate that a turnaround in operational performance has been noted since 1996 when a number of actions have been taken by management. Among these actions, the most important ones are the creation of the Unit 12 for the Control of Water Losses, the Unit for the Control of Operational Performance, the adoption of new operational criteria, new organizational structure for operations based on processes (e.g. treatment, storage, distribution, etc.) rather than geographic areas. On the commercial side, a new system was put in operation in January 1995 with direct links between ESVAL headquarters and the regional offices including the assignment of single identifying code for each customer to facilitate information management and client service. Financial performance 35. The financial position of ESVAL is in accordance with targets. The operating ratio (operating expenses/operating revenues) improved from 91.7% in 1991 to 70.1% in 1996. Likewise the working ratio (operating expenses minus depreciation/operating revenues) changed from 70.2% to 58.1% in the same period. The rate of return increased from 1.2 to 7.9 in 1996, a significant improvement over the rates projected at appraisal. However, these rates are projected to decline over time to reach 5.6% in 2000. The accounts receivable position, expressed in terms of average monthly sales showed improvement over the life of the project dropping from 2.8 to 2.2 but is still above the appraisal targets. The minimum 20% contribution to capital investment was surpassed in all years until 1996; however, it is estimated that that percentage will drop substantially in 1997 (to 6.4%) and remain below 20% for the reminder of the projected period. The debt service coverage ratio has fluctuated from 4.0 to 3.4 between 1991-1996, peaking in 1994 at 13.8; however, the projected value for this ratio drops to 0.7 in year 2000. This is expected given the large amount of debts being incurred due to the high cost of completing the works. ESVAL has contracted syndicated loans (US$50 million and US$21 million) from local banks in the previous 2 years and another loan (US$75 million) in December 1997 from a group of foreign banks. It should be noted here that ESVAL has not made any provisions in its financial projections for the costs that might arise from the legal disputes with its former contractors Consorcio Oceanico and ISEKI, Inc. which might drastically change its financial position. Economic reevaluation 36. As mentioned earlier, a new tariff law reflecting long-term marginal costs of services was instituted in 1990. The new tariff structure which included 5 groups for water supply and 4 for sewerage (based on geographic areas) was phased in during a transition period of four years in which tariffs were adjusted every June. In 1994 a review process was initiated for setting the tariffs for the period 1995-1999. After lengthy negotiations between ESVAL and the SSS an overall tariff increase of 25.5% was approved for ESVAL. As seen in Table 8D, the tariff rate for water grew at a faster pace than anticipated in the SAR: in the SAR it was anticipated that water rate will be US 31.2 cents/m3 in 1996 while the actual rate had reached US 49.4 cents (in constant 1990 prices). In the same period the sewerage tariffs increased fourfold from US 4.9 cents to 20.1 cents/m3. These rates are defined based on the replacement value of existing installations, the long-term investment program and predefined service and efficiency levels. 13 37. In the appraisal report, the internal rates of return for the water supply and sewerage components were estimated at 27.4% and 7.0% respectively, taking into account the new tariff levels. The project's IRR (for all components) was evaluated at 14.6%. For the water supply component, it was assumed that the gradual reduction of the percentage of unaccounted for water would be the main overall indicator of the success of the proposed component. Since the water supply component was to large extent (70%) not implemented, an IRR comparison was deemed irrelevant, especially that the UFW has only begun to show an improvement in 1997. 38. However, in the case of the sewerage component, although the main works remain to be completed and the cost of the main collector (with the modified overall concept and design) is estimated to reach anywhere between US$80 million and US$100 million when completed as opposed to the budgeted US$13 million (not considering the results of the many pending lawsuits), an attempt was made to recalculate the IRR using the following assumptions: a) the incremental revenues between with-project and without-project from 1991 and onward were assumed to be due mainly to the increase in tariffs to cover the project's sewerage investments - not additional connections (it is important to note that the project financed only major collectors and practically no secondary and tertiary networks); b) revenues due to increase in volume of sewage were removed from the overall incremencal revenues6; c) the investment costs data were obtained from the last progress report presented in June 1996 (data up to March 1996); d) the costs of completing the works on the Vifia del Mar-Valparaiso collector and the Conc6n system are only best estimates in the absence of final cost data; e) data for operations and maintenance costs were the same as used in the SAR (ESVAL's operating costs have not changed significantly forn those assumed at appraisal); f) the system will enter in operation in 1998; g) replacement costs were assumed to be US$5 million in 2010 (as compared to the assumption made at appraisal to value it at 55% of the project cost); and h) the discount rate was 10%. 39. Based on this analysis the recalculated IRR is 7%, the same as in the SAR. The revised long run marginal cost (using average incremental cost as proxy) is estimated at US 20.36 cents/m3 (1990) as compared as 5 cents at appraisal. The reasons for this increase over SAR estimates are due to higher investment costs and delay in initiating the use of the system. The combined effect of higher investment costs than appraised and higher tariffs (adjusted in 1995) has yielded an IRR which is similar to the appraisal estimate. As in the SAR, the health and environmental benefits were not calculated; however, the willingness to pay for the new tariffs which reflect the investment program, is an indication of the valuation of these benefits. To underscore the difficulty of comparing the IltR of this revised analysis and that of the SAR, it is interesting to refer to the sensitivity analysis in the SAR which had shown that for a cost increase of 25% the IRR for the project will be reduced from 14.6% to 9.8%. In the sewerage component 6 The SAR does not indicate how the incremental sewerage revenues were calculated for the with-project case. 14 alone, the cost of the various subprojects have more than doubled: the current cost estimate of the component (excluding Conc6n) is of about US$105 million (when fully completed in December 1998) as compared to the SAR estimate of US$48 million (including physical and price contingencies and taxes). In tihe case of the Conc6n subproject - to be initiated late 1998- which includes interceptors, pumping station, preliminary treatment and an outfall, the estimated cost was about US$9 million while the current estimate is about US$18 million. Impact on the poor 40. Although the project was not designed to target directly the poor, it was expected to positively impact the quality of service to the low-income neighborhoods which have suffered from water shortages and low pressures. However, with the delays in the completion of the water supply component, this would be only partially achieved through some of the ESVAL-financed activities in the project period. However, during the life of the project, ESVAL implemented, and the project supported, a new subsidy law to benefit its low-income customers. In 1990, the new tariff law, besides introducing the concept of marginal cost, eliminated the water subsidies and replaced them by direct transfers. Under the new arrangement, an amount of funds is allocated by the GoCh to the Municipalities for payment to the water companies to cover a portion of the water and sewerage bills charged to low-income consumers. These beneficiaries are those whose total water consumption does not exceed a preset volume per month and have to be means tested by the municipality every three years. The Municipality pays (lirectly to the water company the portion of the bill covered by the subsidy. Like all water utilities in Chile, ESVAL has a certain number of subsidies assigned to it and which are transferred to it through the Municipalities. In 1992, the Fifth Region had 48,000 such accounts (representing 15% of ESVAL's accounts). The subsidy was applied to 50% of the value of the bill and only to the first 15m3. The average consumption for this group was 14m3. The Government has been repeatedly modifying the number of subsidies assigned per region and the amount of subsidy. In 1996, the number of potentially eligible customers was set at 64,000 for the Fifth Region and ESVAL had assigned about 97% of these accounts7. These accounts represented aboui 18% of ESVAL's total customer base. It is to be noted that the current subsidy is applied to 85% of the value of the bill and for the first 15m3 of consumption. F. Project Sustainability 41. Although the main elements of the projects are yet to put into operation and some even have yet to be built, ESVAL is expected to adequately operate and maintain the facilities (mainly the main sewage collection system) once they are built. After the crisis of the construction of the collector became national news, the GoCh took various actions to 7 The concerns raised by the Bank during appraisal regarding the tedious procedures to identify and qualify potential beneficiaries did not seem to be warranted as evidenced by the high percentage of use of the subsidies. ESVAL did not provide any details on the: subsidy program in its final report. 15 bring in specialized expertise to complete the works. It is expected that the new management will maintain the hired expertise as needed to adequately operate the new infrastructure. On the other hand, the GoCh has taken concrete steps to privatize ESVAL within a relativelv short time frame (late 1999, according to press reports). From the institutional and operational points of view, the existing legal and regulatory frameworks guarantee the sustainability of the new facilities; similarly the tariff and income support laws provide sufficient assurance that ESVAL will be able to maintain its financial performance. G. Bank Performance 42. Overall Bank performance was marginally satisfactory. Project preparation which consumed about 68 staff-weeks was satisfactory and included a detailed analysis of ESVAL investment program as well as the financial and economic aspects of the project. The Bank had recommended at various times the need for ESVAL to strengthen its project management unit which was later carried out only through repeated Bank insistence. Bank supervision of the project was uneven. At times, it seemed that the Bank was involved in selective micro management of some of the project components and less on other aspects where the Borrower could have used more inputs. The Bank was weakest in being pro-active in situations where it had spotted potential difficulties, but acted responsively when dealing with emerging problems. For example, when the contractor for the collector was showing its lack of experience the Bank quickly identified a pipe-jacking consulting firm and agreed to its direct hiring by ESVAL. Moreover, when ESVAL, in an attempt to minimize the disruption of the works after the failure of the negotiations with the contractor, proposed direct contract negotiations with the subcontractor, the Bank gave its approval after carefully reviewing the reasons and the performance of the proposed firm. However, this piecemeal approach to project implementation problems did not permit a comprehensive reevaluation by the Bank and ESVAL of the technical and procurement issues that had arisen during implementation. In this respect, a more comprehensive mid-term review of project implementation would have been most helpful in recasting project objectives and reassessing engineering alternatives. Bank supervision lacked a strategy to address the mounting technical and institutional problems and did not recommend comprehensive actions on the part of the Borrower, when satisfactory solutions were not forthcoming. H. Borrower Performance 43. The Borrower's performance was mixed. At the initial phase of the project, ESVAL was able to mobilize itself within a short period of time to launch the various bidding processes without the typical initial delays that characterize many Bank projects. However, it became clear that the existing management capacity was not adequate for the size of the project under execution. It is noteworthy that at appraisal it was clearly indicated as one of the major issues facing ESVAL, namely its inexperience in dealing 16 with such a large project when it typically carried out an yearly investment program of US$1 million to US$2 million. The change of managers of ESVAL in late 1995 led to the loss of much of the institutional memory related to the project and to the deterioration of the Bank-ESVAL working relationship. ESVAL's new management team, although able to direct and guide the institution in difficult times under the national spotlight did not have a clear understanding of the Bank's role and responsibility in project implementation and at times displayed a disregard for Bank's procurement and financial policies and guidelines. L. Assessment of Outcome 44. On balance, the project outcome, as assessed at the loan cancellation date (one year before its oiginal closing date of June 30, 1998), is rated as unsatisfactory. This rating is mainly due to the failure of the project to achieve the physical targets set at appraisal: the main component of the sewerage system of Greater Valparaiso, the Vinia- Valparaiso collector is only scheduled to enter in operation in December 1998 at a cost many times the estimated value at appraisal. Moreover, the difficulties with the contractors of the collector have generated legal claims and counterclaims which have yet to be resolved. The construction of the sewerage system for Conc6n is also delayed until the latter part of 1998. At the same time, the implementation of many subprojects of the water supply component have yet to be initiated. The outcome is also unsatisfactory when measured in terms of the Bank-Borrower relationship which became strained when the second contractor walked away from the construction of the collector. However, in the midst this difficult situation, ESVAL was able to carry out some of the water supply improvement activities (both investment and institutional), which helped to show a positive impact on its operational and financial performance, especially after 1996. Moreover, the construction of the outfall at the Vifia del Mar as part of the redesign of the collector in 1996 not only eliminated the pollution problem in the beaches de Vinia del Mar in time for the summer 96-97 season but also will provide a lasting benefit as an emergency outfall. J. Lessons Learned 45. The main lessons learned from this project are as .follows: a) Project management. An investment program which is substantially larger than usual levels should have a project management team staffed with experts who have extensive experience with similar size and type of projects; since this expertise would not be readily available within an institution, a professional project management team should preferably be engaged early on. In the initial phase of the project, ESVAL created a project management unit and staffed it gradually from within the institution; however, the unit lacked project managers able to deal adequately with the emerging technical issues and contract negotiations. It was only in 1996 that a professional team was brought in as project managers and was able to quickly redesign the collector and implement the works. 17 b) Project financing. Unless the source and amounts of financing of the project are clearly defined from the outset, any delays in securing the additional financing can jeopardize the successful completion of the project. In the case of the OECF parallel financing, the delays caused by the recruitment of the management consultant and the lack of detailed designs for a number of sub-components led to significant delays in operationalizing the loan before the new management decided to suspend the loan in late 1995 (the loan has not been formally canceled yet). c) Engineering designs. Although the designs were prepared by qualified engineering firms, large and complex projects could benefit from a second opinion/audit by external reviewers; it is important to ensure that all aspects of such major undertakings are well studied, especially geotechnical aspects, environmental and social impacts. In the case of the collector, it was discovered during implementation that the soil conditions were insufficiently investigated at the time of project design leading to the discovery of too many obstructions for the pipe jacking technology to work effectively. As for the environmental impact, although a detailed analysis was carried out during project design and extensive monitoring was proposed for the period of implementation, a broad public consultation would have provided a valuable input to the design. d) Contract execution. It is as important to supervise contract implementation as the procurement process; the executing agency as well as the Bank should engage specialists for highly specialized technical work involved in project supervision. It was clear that ESVAL did not tet the needed advice (from the supervision consultant nor the Bank) when the contractor proposed the change of construction technology (open trench to pipe jacking) for less than 10% additional cost and no time extension. e) Coordination with Municipalities. Municipalities should be consulted before contracts are tendered to deal with their concerns and remove any objections to the implementation plans; permits should also be secured in these negotiations and not be left to contractors to obtain. Legally binding agreements should be signed in order to avoid future political interference. Moreover, many of the complaints by the Municipality of Valparaiso and some local groups would have been best addressed within public hearings prior to project implementation. Under the current environmental classification of projects, this project would have been classified as an A project and would have benefited from public consultation. I) Bank Project Supervision. Project implementation would have benefited immensely from a more comprehensive mid-term review, especially in terms of finding appropriate technical and institutional solutions and applying appropriate Bank remedies to redress continuing implementation difficulties. Moreover, in 1996, at the height of the crisis of the collector, the Bank should have been more pro-active in dealing with the accusations by the new management team of the Borrower and political circles. By trying to maintain its overall good relationship with the GoCh, the Bank was timid in its response and as a result the public perception of the Bank may have been tarnished. 18 K. Bank-Borrower Relationship 46. The relationship between the Bank and the Borrower experienced ups and downs during the implementation period especially during the difficult times after the collapse of the negotiations with the second contractor for the collector. Irn the initial phase (1992-1995), the relationship between the Bank and the Borrower was generally constructive. ESVAL's management was familiar with Bank procedures and no major difficulties were encountered. The Bank and ESVAL cooperated to the extent possible in finding adequate solutions when the problems with the Vifia-Valparaiso collector began to emerge. However, when a new management team took over in October 1995, relations between the Bank and ESVAL become sour and at times tense especially when ESVAL management publicly insinuated Bank responsibility for the problems of the collector. Moreover, a number of articles appeared in the Chilean press involving the Bank into what had become a serious controversy. During most of 1996, ESVAL tlh-eatened to cancel the loan without taking any action nor providing the Bank with much information. In early 1997, Bank proposed the possibility of financing on-going works; after review, it was clear that the procurement procedures used to award these contracts were not in accordance with Bank guidelines and therefore could not be financed from the loan proceeds. ESVAL, arguing that it had access to loans on better terms that those provided by the Bank, requested cancellation of the loan balance as of June 30, 1997. L. Consulting Services 47. The performance of the local and international consultants hired to carry out the studies, and supervise the civil works was generally satisfactory. The supervision consultant for the Vifia-Valparaiso collector (whose selection process was rejected by the Bank and declared misprocured) failed to gauge the consequences of the change proposed by Consorcio Oceanico to switch the construction method from open-trench to trenchless technology. A few studies involving consulting services in the project were initiated but canceled before completion (e.g. Water Conservation Program and Environmental Monitoring of the Marine Environment - the international component). The consulting services were typically contracted according to the short list procedure; one exception was for the pipe-jacking specialist (Jason Consultants) wh;ch was hired directly after being approved. by the Bank. M. Project Documentation and Data 48. The staff appraisal report was well prepared and provided a useful framework for project supervision and the preparation of this report. The aide-memoires, the supervision reports also provided a good source for project documentation. ESVAL's semi-annual reports until 1995 were exceptionally well prepared and included details of various project aspects, from financial, institutional to technical. However, ESVAL did not provide adequate information to the Bank after 1995 when relations became strained. ESVAL submitted a final completion report which provided a good description of the history of the project but was lacking a number of important details such as costs of the redesigned collector, ESVAL's investments during project implementation, institutional and economic aspects. 19 Part HI STATISTICAL ANNEXES Table 1: Summary of Assessments A. Achievement of Objectives Substantial Partial Negligible Not applicable Macro Policies E E Cl E3 Sector Policies E 21 E a Financial Objectives f 21 E E Institutional Development E 21 E E Physical Objectives a E3El El Poverty Reduction E E E 21 Gender Issues a E E 21 Other Social Objectives a E E 21 Enviromnental Objectives a Es E E Public Sector Management E E E 21 Private Sector Development E E E 2 Other (specify) E E E 21 B. Proiect Sustainability Likely Unlikely Uncertain (v/) (v/) (V) C. Bank Perfonnance satisfactorv Satisfactory Deficient (/) (/) (/) Identification E 2 E Preparation Assistance E 21 E Appraisal E 2 E Supervision E E 21 20 Highly D. Borrower Performance satisfactor Satisfactory Deficient Preparation [C Implementation a L] Covenant Compliance E [l Operation (if applicable) ] I I Hghly Hhly E. Assessment of Outcome satisfactorv Satisfactory Unsatisfactory unsatisfactory C/ C/ C/ / Table 2: Related Bank Loans Loan title and number Purpose Amount Year Status US$ million Previous Operations Water supply project (1832-CH) To provide water supply for 700,000 people in 32.3 a/ 1980 Closed Santiago, reduce water losses in other systems of the country, and help reform the water sector Second Santiago Water Supply and Sewerage Project To support the alleviation of sewage disposal 53.7 b/ 1986 Closed and reuse problems and help improve the operational and financial management of EMOS Valparaiso Water Supply Reconstruction Project To help reconstruct the water supply system 6.0 1986 Closed and prepare plans for the expansion of water and sewerage networks in Greater Valparaiso a/ The original loan amount was US$38 million b/ The original loan amount was US$60 million 22 Table 3: Proiect Timetable Steps in Project Cycle Date Planned Date Actual/ Latest Estimate Identification May 8, 1989 Preparation November 22, 1989 Pre-Appraisal May 8, 1990 Appraisal May 15, 1990 November 27, 1990 Negotiations April 8, 1991 Board Presentation December 15, 1990 May 28, 1991 Signing August 13, 1992 Effectiveness February 13, 1992 Project Completion December 31, 1997 Canceled: June 30, 1997 Loan Closing June 30, 1998 June 30, 1997 Table 4. Prolect Scope. bnnlementation Schedule and Costs (thousands US$) IstLoanAmend Coneact SABScope SAR Fnau Souc Stwt Complefion Value Observations Conrator Component/Subcomponent Cost OECF/IBRD Date Date As Paid A. SEWERAGE AND POLLUTION CONTROL 1. Se40nday Collectors 1.1 Gr_YVallaanso 477 IBBD - Budget 199 1.2 Limache 382 OECF Budget 1999 2. Main Sewage Collectors 2.1 Quilpume-Vtna del Mar 1435 IBRD December'92 Marctd,4 1914 CoL.etructoraNreyyCiaLtda. 2.2 Vim del Mar-Valparsae o g957 IBRD September'92 December'94 22827 Contract terminated erly Constructora Consorco Ocdnko Vsi dd Mar- Valparalsa II IBRD April'95 September'95 2979 Contrat teminated early seld Inc 1.3 RXarVins dd Marl 1317 IBIRD Decenber'91 Ytbrary'94 1660 Construcaor inta eaa ReaKa-Vlna dl Mar 11 IBRD May'94 January95 2042 Ingewll Ltda. 2,4 Playa Ancha 965 OECF November'97 - Financed with ESVAL fimds 2.5 Alvah 457 IBRD August'96 January'97 793 Ingecd Ltda. 2.6 Concon S95 OECF Budget 1998 2.7 CadDO 213 IBBD Auguat'96 January'97 370 Ingecot Ltda. 3. Sewage Pumping Statins 3.1 VIs del Mr 5776 IBRD October93 June'6 11679 Modied dedlat allow pumping to he emergeny out Dra _d. 3.2 Vslpar 6aos IBRD October'93 JueS'96 - Not ud equpmandntto be used in the new pmpimg xatio in the DragadOe Esmalda tun 3.3 Concon 76 OECF Budget 1998 4. Sewage Treatment and Dspos 4.1 BU_tamde treatmetwerl 4114 1BRD - Not realzed dueto chadnge In project 4.2 Higuesllas Pant 4482 OECF - Budget 1998 4.2 Lmeche treatsent plarn 3266 OECF - Budget 1998 B. WATER SUPPLY - GRAN VALPARAISO 1. Production 1.1 CaleraWell 272 IBRD December92 December'93 S21 Addinawels dugduetolowyeldfromerIgnalyplnedwell Mlr Conatrucoe 1.2 LiaseWeib 703 IBRD - Budget 199S 1.3 Poza Azul Reservoir 649 IBRD September'93 Januasy'95 - Financed with ESVAL funds 1.4 LosAromes Inake Wo&rk 1496 OECF 2. Transmon 2.1 Los Arnos-Concon Main 4666 OECF 3. Treatment 3.1 New Cone_ Pbnt 2860 IBRD September'93 March'95 2944 Plant capacity hereamd from 0.5 to 0.95 m3fuec 3.2 Rebab _ fltsaof Old Concow Plant 2279 IBRD - Not doe 3.3 lsprovo of Pefiud Plant 285 IBRD - Budget 199S 4. Storage and Distibution 4.1 Expanson ofExistig Systems 41.1 Vns ldd Mar 2327 IBRD September'92 January'94 1920 ImprovementofRonacoAltoandConconSectors Conetructora Selai 4.1.2 Qulpue-Via Alemana 1055 OECF - Budget 1998 4.2 New Systems 4.2.1JVmadelMar 141 OECF - Budget 1998 (tentative) 4.2.2 Valparaiso 1592 OECF - Budget 199S (tentative) 4.2.3 Quil,u^-Vlla Alemana 493 OECF Budget 1998 (tentative) 4.3 Improvement of Existing Systems 4,3.1 Via del Mar 5393 OECF - Budget 1998 (tentative) 4.3.2 Valpaaiso 3648 OECF - Not done 4.3.3 QuilpeeVillaA.mana 3120 OECF April'97 - Financed with ESVAL finds INSuTITUIONAL IMPROVEMENTS I. Prqeratio ef Developnmmt pian 66 IBRD Financed with ESVAL fnads Techni Cooperation and Trabinng 804 IBRD January'94 12 InItiated but cut sbort for high costa SANEPAR Cemnmra Swvey 374 IBRD November93 January96 584 Bakovk & Ballc 0 & M Equipment 47S8 IBRD 5160 Vebkcs, Computers, laboratery equiprnent, co-mnation equip. Varluos Table 4. Proiect Scope, Implementation Schedlde and Costs (thousands USO 1st Loan Amend. Contract SAR Scope SAP, Finance Source Start Completion Value Obseavations Contractor Component/Subcomponent Cost OECF / IBRD Date Date As Paid S. Offce Equpment 1725 IBRD E. CONSULTING SERVICES 1. Modtwing ofMarine Sewage Disposal 2649 IBRD 1804 Not completed because of deays In the Vlna-Valparalso collector Local Univerkites & Hakrow 2. Water Supply DealgnsSouthen Coast 323 IBRD - Financed wlth ESVAL funds 3. Water Suppty Designs-Northern Coast 323 IBRD' Financed with ESVAL funds 4. StudleL/Designa-Sewerage South C v it 647 IBRD - Financed with E,.s AL funds 5. StudkvuDe&Ign$ewecageNorth Coast 647 IBRD - FlnancedwlthESVALfunds 6. EngInwerng and Supervision 3504 OECF/IBRD 3722 Works supervision, OECF management consultants, pilot on Various conservation of water TOTAL BASE COST (December 1990) 87643 Physical Contingencies (10%/.) 8764 Total Base Cost plus Contingencies 96407 Price Contingencies-Local Price Continencies-Foreign Price Ctngaencies-Total 23499 TOTAL PROJECT COST bnport Duties (and Consutant Taxes) TOTAL PROJECT COST with Inport Duties 119906 Value Added Tax (VAT) 21583 TOTAL COST wt Import Dutles and VAT 141489 61231 Note The problems inthe implementation of the Vina-Valparaiso collector have led to the eady termination ofthe two listed contracts (item 2.2); redesign ofthe ollector may cost an additional US$60 million and inchides: a) a 1500m marine outfall at Vina and pretreatment at the Vina pumping station(estimnated cost 10 mnilon) b) a 3200 tunndel(the Esmindatuel) toreplacethe edating Bustamente tuumel completionoftheremainingpipejacldinand aplatform at dischargepointatLoznsaarga(estimated costUS$30 milion) c) a 500m marine ouiulL ai Louan jsain (einsrated coat USS 10 .mllion) d) ancilary worxs (electical substatioen pretreatmontplant andpulmping sintion wvitain the tunnel, funicular to temove the waste collected at the plant), estimated cost US$10 million. Table 5. Project Financing (US$ million) Revised Redesign Scope of the Vina- OECF Loan (92-97 inv. Valparaiso Project signed plan) (a) (b) Collector (c) Canceled Entity SAR Mar-93 Jul-93 Aug-95 Jun-96 Jun-97 BANK 50.0 49.8 49.8 49.8 49.8 33.2 ESVAL 91.5 51.7 74.9 148.4 258.0 123.0 OECF 39.0 44.1 51.0 1.4 1.4 TOTAL 141.5 140.5 168.8 249.2 309.2 157.6 Notes: (a) the new scope covered the time slice investment program of ESVAL for 1992-97; additions were mostly for replacement investment and new investments in the Aconcagua area; the OECF loan value has increased due to exchange rate movement; (b) project cost increase due to major cost overruns of the Vina-Valparaiso collector; the increase of the total investment program costs is also due to the finalization of feasibility studies and the inclusion of the cost of of these investments which were not included in the original estimates; (c) the redesign of the Vina -Valparaiso is estimated by Bank staff to cost an additional US$60 million; data after 1996 are based on Bank estimates; ESVAL has not provided actual investment data in its final report Table 6: Loan Disbursements: Cumulative Estimated and Actual (US$ million) I FY921 FY931 FY941 FY951 FY961 FY971 FY98 Appraisal estimate 7.6 15.2 24.2 34.0 42.2 47.6 50.0 Actual 4.8 14.6 31.9 34.1 36.2 33.2l Actual as % of estimate 31.6 60.3 93.8 80.8 76.1 66.4 Date of final disbursement: March 21, 1997 * On December 30, 1997, the Borrower requested the cancellation of the special account refund from the loan amount. 27 Table 7. Allocation of Loan Proceeds (US$ million) Category Appraisal May 93 Nov. 94 Final Civil Works 27.0 16.7 35.8 28.0 Equipment and Materials 18.0 25.3 7.0 2.4 Consultants' Services 5.0 7.8 7.0 2.8 TOTAL 50.0 49.8 49.8 33.2 An amount of US$180,000 was canceled on November 25, 1992 for misprocurement In June 1997, when the Borrower decided to close the project, a total of US$16.8 million was canceled from the original loan amount. Table 8A: ESVAL'S Financial Statements - Income Statement (Dec. 90. US$ million) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual SAR Actual Present Forecast Operating Revenues WaterRevenues 15.1 14.5 17.2 6.0 19.4 18.5 21.9 21.6 23.7 26.3 24.5 27.8 28.2 29.6 31.0 32.1 Sewerage Revenues 2.8 2.6 3.7 3.5 4.8 4.8 6.8 6.3 8.6 8.6 8.9 9.5 10.2 10.6 11.9 12.9 ConnectionFees 0.0 0.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ReconnectionFees and Other 0.8 0.7 0.8 0.7 0.8 0.6 0.8 0.6 0.8 0.8 0.8 1.2 1.2 1.2 1.2 1.2 TotalOperstingRevenues 18.7 17.8 21.7 20.1 25.0 24.0 29.5 28.5 33.1 35.7 34.2 38.5 39.6 41.4 44.1 46.1 Operting Expenses Personnel (4.6) (5.2) (4.9) (5.4) (5.2) (7.4) (5.4) (7.3) (5.6) (8.7) (5.9) (9.5) (9.0) (9.0) (9.3) (9.6) Chemicals (0.5) (0.5) (0.5) (0.5) (0.5) (0.5) (0.5) (0.4) (0.5) (0.4) (0.5) (0.3) (0.4) (0.4) (0.4) (0.4) Power (2.0) (1.6) (2.0) (1.5) (2.0) (1.5) (2.2) (1.4) (2.9) (1.7) (3.0) (1.6) (1.9) (1.6) (1.6) (1.7) Maintenance (0.6) (0.6) (0.7) (0.5) (0.7) (0.5) (0.7) (0.5) (0.7) (0.6) (0.8) (0.8) (0.6) (0.6) (0.7) (0.7) Private Contractors (1.8) (2.2) (1.9) (2.7) (2.0) (3.6) (2.0) (4.8) (2.1) (5.9) (2.1) (6.9) (7.5) (7.5) (7.5) (7.8) Provision Receivables (0.9) (0.6) (1.0) (0.3) (1.2) (0.2) (1.4) (0.2) (1.6) (0.3) (1.7) (0. 1) (0.2) (0.2) (0.2) (0.2) Administration (1.4) (1.9) (1.9) (2.1) (2.4) (2.0) (2.9) (2.8) (3.4) (2.8) (4.1) (3.1) (3.2) (3.1) (3.0) (3.1) k) Depreciation (4.3) (3.8) (4.6) (3.7) (5.0) (3.8) (5.3) (3.8) (5.7) (4.7) (6.1) (4.6) (4.9) (5.3) (5.9) (7.2) °° Total Operating Expenses (16.2) (16.3) (17.7) (16.7) (18.9) (19.6) (20.5) (21.4) (22.6) (25.0) (24.1) (27.0) (27.7) (27.7) (28.6) (30.6) Opemtinglncome 2.5 1.5 4.1 3.4 6.0 4.4 9.0 7.2 10.5 10.7 10.1 11.5 12.0 13.7 15.5 15.5 Financial Revenues 0.6 0.3 0.0 0.3 0.1 0.2 0.0 0.1 0.2 0.0 0.4 O.V 0.2 0.2 0.2 0. Financial Expenses (0.5) (0.9) (0.8) (0.4) (1.2) (0.3) (1.7) (0.2) (2.2) (1.2) (2.4) (2.0) (2.8) (4.2) (5.6) (6.2) NonoperatingIncome (net) 0.3 0.1 0.3 0.3 0.3 1.2 0.3 0.2 0.3 2.9 0.3 0.3 0.7 0.2 0.1 0.1 EffectofPricelChangesonRevenuesandEquity (18.5) (17.9) (19.9) (14.2) (21.4) (13.8) (22.8) (9.8) (24.3) (10.5) (25.9) (8.1) (8.8) (11.5) (12.6) (13.6) EffectofPriceChangesonAssetsandLiabilities 18.0 18.0 19.2 14.6 20.6 13.5 22.5 11.3 24.6 12.0 26.8 10.4 11.4 13.7 15.5 17.0 Nonoperating Income 0.2 (0.4) (1.3) 0.6 (1.9) 0.7 (1.8) 1.1 (1.4) (2.6) (0.9) 0.8 (0.6) (2.0) (2.3) (2.5) Income before Taxes 2.3 1.1 2.8 4.1 4.1 5.1 7.2 8.2 9.1 8.1 9.2 12.3 11.3 11.7 13.2 13.1 Income Taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (0.8) (1.0) (1.1) (1.1) (1.1) (1.1) (1.2) (1.2) NetlncomeafterTaxes 2.3 1.1 2.8 4.1 4.1 5.1 7.2 8.2 8.3 7.0 8.1 11.2 10.3 10.6 11.9 11.9 Cash Dividends 2.2 2.2 0.0 0.0 0.0 1.8 0.0 2.3 0.0 2.3 0.0 3.3 3.2 4.8 5.0 5.6 WorkingRatio% 63.8 70.2 59.9 64.3 55.9 65.9 51.5 61.4 51.1 56.9 52.6 58.1 57.4 54.2 51.5 50.8 OperatingRatio% 86.6 91.7 81.3 82.9 75.8 81.8 69.5 74.8 68.4 70.1 70.6 70.1 69.8 67.0 64.8 66.3 Rate of Return% 2.0 1.2 3.1 2.8 4.3 3.5 6.1 4.9 6.7 8.0 6.0 7.9 7.4 7.3 6.7 5.6 Table 8B: ESVAL'S Financial Statements - Balance Sheet (Dec. 90. US$ miDion) YearendingDecember31 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 SAR Actual SAR Acuala SAR Acual SAR Actual SAR Actual SAR Actual Present Forecast Fixed Assets GrossPlantinSetvice 170.6 162.3 181.4 166.1 196.0 171.3 208.3 177.6 224.7 187.9 242.4 211.1 227.4 267.3 322.7 370.8 Accumulate Depreciation (41.5) (38.0) (46.3) (41.5) (51.5) (43.8) (57.0) (46.4) (63.0) (50.7) (69.4) (55.8) (59.1) (62.6) (66.4) (71.1) NetPlantinService 129.1 124.3 135.1 124.5 144.5 127.5 151.3 131.2 161.7 137.2 173.0 155.3 168.3 204.7 256.3 299.7 WorkinPrress 2.1 2.1 5.8 4.9 9.3 13.8 17.2 33.3 21.9 38.9 1V.9 39.9 74.2 75.6 54.2 34A NetFixedAssets 131.2 126.3 140.9 129.5 153.8 141.3 168.5 164.5 183.6 176.2 190.8 195.2 242.6 280.3 310.5 334.1 CurrentAssets Cashand Short Term Investment 0.5 0.2 (0.8) 1.5 (2.2) 0.7 (1.9) 0.2 (1.2) 4.1 0.0 2.7 0.6 0.6 0.6 0.6 Accounts Receivable (net) 3.2 4.4 3.6 5.1 4.2 6.7 4.9 7.0 5.5 8.1 5.7 7.7 8.1 8.4 8.9 9.3 lAaterials and Supplies 1.3 0.6 1.3 0.7 1.4 0.7 1.4 0.6 1.5 0.9 1.6 0.7 0.8 0.9 1.0 1.1 Other 0.4 0.4 0.4 1.2 0.4 1.0 0.4 1.0 0.5 0.6 0.5 0.9 0.9 0.9 0.9 0.9 Total CurrentAssets 5.3 5.5 4.6 8.4 3.8 9.1 4.9 8.7 6.3 13.6 7.7 12.1 10.5 10.8 11.4 11.9 OtherAssets 0.1 0.2 0.1 0.6 0.1 0.9 0.1 1.1 0.1 3.5 0.0 4.7 6.0 7.4 8.8 10.3 Total 136.7 132.0 145.6 138.5 157.7 151.3 173.5 174.3 189.9 193.2 198.6 212.0 259.1 298.5 330.7 356.2 LIABILITIES AND NET WORTH Net Worth 74.0 73.5 65.9 69.6 60.4 65.7 59.0 66.5 58.9 66.7 58.6 71.3 78.3 80.3 86.6 91.9 Montday Corection 52.0 50.2 63.3 60.7 73.4 67.8 82.6 73.5 91.6 76.8 100.6 80.8 84.8 89.0 93.4 98.1 Long Term Liabilities Long Term Debt 7.5 4.0 12.8 3.1 19.9 11.9 27.5 26.6 30.8 36.0 31.3 39.0 73.9 99.3 102.9 128.1 Other 0.0 0.8 0.0 1.4 0.0 1.1 0.0 1.1 0.0 1.1 0.0 4.1 10.8 14.1 18.8 21.9 TotalLongTermLiabilities 7.5 4.8 12.8 4.5 19.9 13.1 27.5 27.7 30.8 37.1 31.3 43.2 84.6 113.4 121.6 150.0 CuIrent Liabilities Accounts Payable 1.3 1.4 1.7 1.0 2.0 1.1 2.3 2.7 2.5 5.5 2.0 6.3 4.8 5.2 5.7 5.9 CurrentPortionLongTermDebt 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.4 4.3 1.8 4.1 5.0 3.2 7.2 20.0 6.7 Short Term Loans 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other Curent Liabilities 1.3 1.6 1.4 2.2 1.5 3.1 1.7 3.6 1.8 5.3 2.0 5.6 3.5 3.4 3.4 3.6 Total CunratLiabilities 3.2 3.5 3.6 3.7 4.0 4.7 4.4 6.6 8.6 12.6 8.1 16.8 11.4 15.9 29.1 16.2 Total 136.7 132.0 145.6 138.5 157.7 151.3 173.5 174.3 189.9 193.2 198.6 212.0 259.1 298.5 330.7 356.2 DebtV(Debt+Equity) % 6.0 4.1 7.3 3.7 13.2 9.2 16.5 16.7 18.9 21.3 18.2 24.0 35.0 41.6 44.0 45.2 CurrentRatio 1.7 1.6 1.3 2.3 0.9 1.9 1.1 1.3 0.7 1.1 1.0 0.7 0.9 0.7 0.4 0.7 Table 8C: ESVAL'S Financial Statements - Sources and Uses of Funds (Dec. 90. US$ million) Year 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 SAR Acaul SAR ActAl SAR Acta SAR Acul SAR Actual SAR Acual Present Foecast Net opquimg %come 2.5 1.5 4.1 3.4 6.0 4.4 9.0 7.2 10.5 10.7 10.1 11.5 12.0 13.7 15.5 15.5 D gia n adAm otzation 4.3 3.8 4.6 3.7 5.0 3.8 5.3 3.8 5.7 4.7 6.1 4.6 4.9 5.3 5.9 7.2 N _apaat ince (net) 0.8 OA 0.2 0.7 0.1 1.4 0.2 (0.2) 0.4 (2.9) 0.6 0.4 (0.5) 0.0 0.3 0.3 Ta and Dividends (2.2) (2.2) 0.0 0.0 0.0 (1.8) (0.0) (2.3) (0.8) (3.3) (1.1) (4.4) (4.2) (5.9) (6.2) (6.8) GIntiand CuhGaetation 5.4 3.5 8.9 7.9 11.1 7.7 14.5 8.6 15.8 9.2 15.8 12.2 12.2 13.1 15.4 16.2 Im : Amoutzaio (0.5) (0.4) (0.4) (0.4) (04) (04) (0.4) (04) (OA) (0.3) (3.5) (1.5) (1-9) (2.7) (6.2) (17.1) Iatamestlxpau (0.5) (0-4) (0.8) (0.6) (1.2) (03) (1.7) (0.2) (2.2) (1.2) (2-4) (2.0) (2.8) (4.2) (5.6) (6.2) Netlemal ChGenezien 4.4 2.6 7.7 6.9 9.5 7.0 (2.4) 7.9 13.2 7.6 9.8 8.6 7.5 6.1 3.7 (7.1) WkdingCopitalNeeds 0.1 0.0 (0.4) (1.6) (0.5) (0.7) (0.8) 1.0 (0.7) 3.2 (1.0) 1.1 (3.6) (0.1) (0.2) (0.2) OdwrAset andLiabilities Needs 0.0 0.4 0.0 0.3 0.0 0.2 0.0 (0.2) 0.0 (2.2) 0.0 (1.2) (1.2) (1.3) (1.3) (1.4) Intanal ContbnutiontoDnveslmA 4.5 3.1 7.3 5.6 9.0 6.4 11.7 8.7 12.5 S.6 8.8 8.6 2.6 4.8 2.2 (8.6) lneszmetCoast, IBRDP/flnacedProject 8.6 0.0 12.9 2.5 16.1 9.5 18.1 16.8 18.8 11.0 11.4 11.3 30.8 26.6 8.6 5.5 OdirWoub 1.0 4.4 0.8 2.7 1.0 4.8 1.0 6.0 1.2 4.1 1.4 6.7 7.8 6.5 17.3 16.7 Camdibuted nvestments 0.2 0.5 0.2 0.3 0.2 0.0 0.2 0.0 0.2 0.0 0.2 0.0 0.0 0.0 0.0 0.0 Invami4nLitI Sur 0.0 0.0 0.0 0.0 2.7 6.0 3.0 4.3 2.8 Subtotal bntments 9.8 4.9 13.9 5A 17.3 14.3 19A 22.8 20.2 15.2 13.1 20.7 44.6 36.1 30.1 25.0 Cuuitalizsd Intenest 0.0 0.0 0.0 0.0 0.0 0.8 0.0 1.5 0.0 1.2 0.0 0.9 2.0 2.4 2.4 2.8 Ttal Invesnent Cost 9.8 4.9 13.9 5A 17.3 15.1 19A 24.3 20.2 16.4 13.1 21.6 46.6 38.5 32.5 27.9 RequiredFinancing 5.3 1.9 6.6 (0. 1) 8.3 8.7 7.7 15.6 7.7 7.7 4.3 13.0 44.0 33.7 30A 36.5 Diauz nt IBRD Loan 3.3 0.3 5.2 0.0 6.6 8.1 7.4 10.4 7.8 5.2 5.0 0.5 0.8 0.0 0.0 0.0 Disbursements_ Co-Financier Loan 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.5 0.0 OA 0.0 0.0 0.0 0.0 Disburements, Futr Loans 0.0 0.0 0.0 0.0 0.0 0.0 0.0 4.7 0.0 5.7 0.0 8.4 32.5 30.7 23.2 30.7 TotalLoans 3.3 0.3 5.2 0.0 6.6 8.1 7.4 15.1 7.8 11.4 5.0 9.2 33.3 30.7 23.2 30.7 ConsumerContributions 0.2 0.5 0.2 1.1 0.2 0.0 0.2 0.0 0.2 0.0 0.2 0.0 3.0 0.0 3.0 3.0 Aporte Ivershn Litoral Sur 0.0 6.8 0.0 0.0 0.0 2.7 6.0 3.0 4.3 2.8 TotalExtemalFinancing 3.5 0.8 5.4 1.1 (1.5) 8.1 7.7 15.1 8.0 11.4 5.2 11.9 42.3 33.7 30.4 36.5 Chnge in Cash (1.8) (1.0) (1.1) 1.2 0.0 (0.5) 0.0 (0.5) 0.3 3.6 1.0 (1.0) (1.7) 0.0 0.0 0.0 Debt Service Coverage (times) 5.4 4.0 7.3 7.8 6.9 10.7 6.9 13.8 6.1 5.9 2.7 3.4 2.6 1.9 1.3 0.7 StandardContributiontolnvestment% 47.1 69.9 53.8 108.2 61.0 42.7 61.0 35.9 62.8 52.7 68.7 45.6 6.4 13.5 7.7 (34.2) CovenantedContributiontolnvestment% 51.0 90.6 53.2 71.8 61.9 38.5 61.9 42.7 65.1 48.9 74.0 18.8 9.7 10.9 (12.0) 18.8 Tabb 8D. Eco1kmic Analysis Woler caim Sewae raw Sew. a % of WVa rafe SAR AaUh SA Ace Crgae, % SAR Adu 131 20.7 21.7 4.8 4.9 Zo6% 23% 23% 1"$ 2.2 25.6 6.1 6.8 11.48% 26% 27% 1066 25.8 27.4 7.8 a7 1t.54% 30% 32% 134 29.1 33.4 I 12.1 10.00% 38% 36% "es 31.1 45.4 13.8 185 34.06% 44% 41% 1" 31.2 49.4 13.8 20.1 45.65% 44% 4i% 1667 50 2D.9 42% I w* vahudue .18.wwagec.ag,ant(fPM cea 1 1l62 1663 1694 1995 1116 1367 1996 1m6 2060 21 2602 2003426 Swerg Volune (mIdIn m3) 64.91 65.96 69.63 71.29 71.89 73.41 76.56 80.05 83.59 86.74 90.46 93.98 97.09 0 0 0 0 0 0 80.06 83.59 86.74 90.46 93.96 97.09 t Incr.mentevoemimlUeiom3) 1.05 4.72 6.38 8.98 850 11.65 15.14 1.68 21.83 25.55 29.07 3218 TurS(SeWereIUac.et. 4.9 680 8.70 2.10 1&50 20.10 20.90 21.W 22.50 23.40 23.40 23.40 23.40 Sewesp Rev.mm $26G0,0000 3,500,000 64,800,000 S6,300,000 68,600,000 59.500,000 S10.200,000 S10,600,000 $11,900,W0 S1X900,000 $14,500,000 $16,000,000 $17,600,0W Reveue duet.l.saw.colktledd $71,604 S410,466 S771.568 S1.291,11t 61,708,299 S6434,641 S3.179,190 S4,20X775 65,107,966 65,978,466 S6,80Z146 67.529,886 Nerevenues dueto twlff Sn 3,428,396 64,389.534 S5,528,432 67,308,885 67.791,701 S7,765,359 67,420,680 $7,697,225 67,79X014 $8,521,534 69,197,854 610,070,114 Inenm Rre n $6828,396 61,789,534 $2,928,432 64,708,885 65,191,701 65,165,359 $4,820,810 65,097,225 65,19XO14 65,921,534 S6,597,854 $7,470,114 hwexbne ,t (datfrom pgog. rep. Much16 St,869,000 67,00WZW0 $15,982,000 $10,655,000 64,793,000 613,666,000 63,243,000 S323,000 Addflon cos. (esima) 620,000,000 $2(.0DO,0 620,0000 come" S $9,000.000 69,00,000 Tetd l_nvedme $1,869,000 $7,002,00 $15,982,000 630,655,000 624,793,000 33,668.000 6Z243,0W 69,323,000 hworentalCM s(frm AR) $1,367,000 $1,399,000 61,501,000 $1,521,000 $1,541,000 $1,562O,0 Not eah flow (61,040.604) 6$521Z466) ($13,053,568) (625,946,115) ($19,801,299) (628.500,864) (78,789,190) (65,624,775) S3,691,014 64,400,534 65,05S,854 65,906,114 IIU 7.10% NPV (volum) 510,199,723 m3 w(as wme sewag iN flow in the ncorssteIng 1996) NPV (Iete) 689.70ZO59 NPV (OUQ) S14,79.767 Macu cadt (Ucns "6M Table 9: MONITORING INDICATORS 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 SAR Actl SAR Actal SAR Actual SAR Acta SAR Actual SAR Acuala Preent Forecast OPERATIONS Waterpxoacei(3million) 139.6 139.8 141.5 143.4 142.1 149.3 139.1 137.3 138.4 136.2 141.3 134.3 128.9 133.6 138.7 142.3 Watersold (P3 mIin) 83.1 79.7 84.6 80.6 85.5 85.4 85.6 87.7 86.9 88.8 89.7 87.2 89.0 93.0 97.4 100.9 Sewea sold (M3 mion) 67.3 64.9 6S.9 66.0 70.1 69.6 70.6 71.3 70.6 71.9 73.2 73.4 76.6 30.0 83.6 86.7 Unaccoutidforwater(%) 40.5 43.0 40.2 43.8 39.8 44.3 38.5 41.9 37.2 41.3 36.5 41.3 37.9 37.2 36.6 35.9 Waft sld per ceci (M3 permonth) 24.9 23.9 24.7 23.4 24.3 23.8 23.6 23.6 23.4 23.1 23.5 21.7 21.0 21.2 21.5 21.7 Water conneniyenr end (1000) 281.9 281.9 289.7 293.3 297.5 303.6 305.5 315.2 313.5 326.5 321.7 344.3 360.3 370.9 382.7 393.6 Seice coage, water, (%) 95.9 95.9 96.1 96.1 96.4 96.4 96.6 96.6 96.8 96.8 97.4 97.4 98.0 98.6 99.3 99.9 Seweg conneiosiyear-end (1000) 222.3 222.0 230.1 233.7 238.3 242.1 246.8 252.9 254.5 263.8 262.5 292.7 306.8 317.2 329.1 341.8 Serice covg, sewenge, (%) 82.8 82.8 83.3 83.3 83.9 83.9 84.5 84.5 85.1 85.1 86.0 86.0 86.9 87.8 88.7 89.7 Medac watr con_ctonaw connections (%) 99.3 99.3 99.3 99.3 99.3 99.3 99.3 99.3 99.3 99.3 99.3 99.3 99.3 99.3 99.3 99.3 Woddugmetest te-(%) 99.1 99.1 99.1 99.1 99.1 99.1 99.1 99.1 99.1 99.1 99.1 99.1 99.1 99.1 99.1 99.1 Ehnploeealooo waer connections 3.4 3.3 3.4 3.2 3.4 3.2 3.4 3.1 3.4 3.1 3.4 3.0 3.0 2.9 2.9 2.8 Consumers with drct income sbsidy (%) 15.0 15.0 20.0 20.0 20.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 23.0 FINANCIAL Aagel nvestent/ connection (constant 1990 US-$) 676.5 644.2 698.0 630.2 731.7 627.7 754.4 625.1 791.1 636.7 829.7 662.8 681.9 777.1 906.7 1008.3 AageReveue3 sold (constt end 1990 US-Cents) 25.5 26.6 29.3 32.4 33.6 36.1 40.2 45.5 44.9 63.9 45.0 69.5 71.0 71.1 72.7 73.6 Avera WaterRate/M3 sold (consat end 1990 US-Cents) 20.7 21.7 23.2 25.6 25.8 27.4 29.1 33.4 31.1 45.4 31.2 49.4 50.0 50.2 50.2 50.2 AvageSewaugeRaWra^ soldd dl7ovtU W -S 4.S 4.9 6.1 6.8 7.8 87 11.0 12.1 13.8 18.5 13.8 20.1 20.9 21.0 22.5 23.4 Avg CosM3 sold (constant end 1990 US-Cents) 24.5 27.0 26.2 29.4 27.7 32.0 30.0 36.5 32.7 47.9 33.8 52.2 52.7 50.5 49.8 51.4 Aage Pesond Cost/M3 sold (contnt end 1990 US-Cents) 7.0 8.6 7.3 9.5 7.6 12.0 7.9 12.5 8.2 16.6 8.2 18.3 17.2 16.4 16.1 16.1 WokingRatio 63.8 70.2 59.9 64.3 55.9 65.9 51.5 61.4 51.1 56.9 52.6 58.1 57.4 54.2 51.5 50.8 Opeat igRao 86.6 91.7 81.3 82.9 75.8 81.8 69.5 74.8 68.4 70.1 70.6 70.1 69.8 67.0 64.8 66.3 Debt/(Debt+Equity) % 6.0 4.1 9.3 3.7 13.2 9.2 16.5 16.7 18.9 21.3 18.2 24.0 35.0 41.6 44.0 45.2 Debt Sawice Coverage (times) 5.4 4.0 7.3 7.8 6.9 10.7 6.9 13.8 6.1 5.9 2.7 3.4 2.6 1.9 1.3 0.7 Con_ibutionto Ivent(%) 47.1 69.9 53.8 108.2 52.8 42.7 61.0 35.9 62.8 52.7 68.7 45.6 6.4 13.5 7.7 -34.2 Colection Ratio (days) Water and Sewerage 63.0 89.6 61.0 91.6 61.0 101.5 61.0 89.5 60.0 82.4 60.0 73.2 74.5 74.1 73.7 73.4 Hydrants Maitenance 75.0 75.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 60.0 Rates OfRetum (%) Onavwragenetassetwinoperation 2.0 1.2 3.1 2.8 4.3 3.5 6.1 4.9 6.7 8.0 6.0 7.9 7.4 7.3 6.7 5.6 On equity 1.8 0.9 2.2 3.2 3.1 3.9 5.3 6.0 5.7 9.8 5.2 7.6 6.5 6.4 6.8 6.4 Didd yield 1.8 1.8 0.0 0.0 0.0 1.4 0.0 1.6 0.0 1.6 0.0 2.1 1.9 2.9 2.8 3.0 ECONOMIC Annual AveW InflationRate (%) 22.9 15.7 12.4 10.5 8.5 7.4 6.3 6.0 6.0 6.0 Average Exchange Rate (CH S/US S) 350.9 363.0 404.2 420.2 396.8 413.5 420.4 433.7 448.3 463.0 33 Table 10: Bank Resources: Staff InDuts Staff Week US$ Dollars Project Preparation 67.4 $156,481 Project Supervision 95.8 $332,246 ICR Preparation 6.6 $10,980 Total 169.8 $499,707 Table 11. Bank Resources: Missions Number of Days In Specialty Financial Management Availability Stage of Project Cycle MonthlYear Persons Field Representation Performance Performance of Funds Idkriaion May-89 2 10 E, F E, F Nov.-89 2 14 E. F P1__" May-90 2 16 E. F Nov.-90 3 16 E, F, L Board Approvl ftroh Effecvene Oct.-91 1 2 1 Jun-92 2 8 E, F 2 1 1 2 Mar-93 2 1 2 3 J1-93 1 8 F 2 1 2 4 Dec93 1 9 E 2 1 2 5 Oct-94 2 7 E.F 2 2 2 6 Jul-85 1 a F 2 2 2 7 Nov-95 3 4 E. F, C(E) 2 3 2 8 Jan-97 1 2 E 2 3 2 9 Apr-97 1 2 E 3 2 2 ICR Preparation Dec-97 1 2 E E=Engineer; F=Financial Analyst; C=Consultant L=Legal Table 12: Studies Included in the Project Study Purpose Status Impact of Study Client cadastre for To update the client information and Completed on January 1996 An improved database of client and Greater Valparaiso optimize tiue meter reading routes by Consulting firm Bakovic y connection information and reduction Balic in terms of costs of meter reading Environmental Carry out the monitoring ex-ante Partially completed; It was The ex-ante study has established a Monitoring Program and ex-post of the quality of the carried out a consortium of baseline for the comparison after the marine environment and in the urban three universities and sewerage system is completed. Study streams international input by UK has shown the high potential for firm Halcrow dispersion in the area of discharge; data collected after the construction of the marine outfall in Vina del Mar (not in the original plan) shows that the contamination of the beaches has been eliminated. Water Conservation To implement a pilot project in three Contract was signed 11/94 inconclusive for premature Plan socio-economically different areas for 4 years but was cut short termination of contract; no results to assess the use and loss of water in 3/96 have been reported by ESVAL Table 13: Status ofLeil Covenants Lonl Original Pevied Agreewnent Credit W Tant derere Covernt Ci_le (al Statu FuLfill Fulfill Decription of Covenant Comm Date Date Lotn 3331-CH 3.03 (a) 9 0 30/Sept94 Carry out mid-tm rm ev w Done In October 1994 3.03 h b I 9 c Furnish to Bank a report on mid-term progrem Peceived in September 1994 4.03 la) 6 a Take out and maintain pproprite Innee 4.03 (b I 6 e 30/Sepl91 31/M1r/92 Contrast ditonal inurance 6.01 (a ) 1 a Estabisbh ideifiable accounta for proyact 6.01 lbIlili 1 e Furnish to Bank wmr port of financial smenta projec t s, peoa a t on April 30 of each yew. 5.01 I e I t IV) 1 c Include SOEs in annei audit report each April 30 5.02 (a I 4 c Produce funds from Internal aour'ea equvivaent to at east 20% of waxud averag of capital expenditures of current no coming FY. 5.02 (b I 4 a Review projetIons for compliance with 5.02 (a) In curent and coming FY on September30 of each 5.02 (aI 4 a Take all necesary meaures to meet 6.01 la), If Not redevant as 6.02 (a) and Ibl compiled with 6.02 (bi IndIcates non-compliane. 5.03 1 a 2 c Not incur any debt beyond a debt to equity ratio of 6040. 5.04 2 c Adjust Its tariffs by not les than the maxtimum Adjustments In 1996 _______________ levels stipulated by le"Isition on July 1 annually. LOAN 6.06 2 c Make avoilabe any funds from Intemal soures not needed to fina at least 20% of Project I In case of cofirancing either to pay dividends or to make additionr Irnvstments Schedule 6.1 Ia) 5 c 3018Sp/91 Furnish to Bank action for improving Management coat accounting, perswoel operational nd administrativ efficency management. Schedule 6.1 (bi 6 a 30/Sep/91 Furnish to Bank action plan for Imprvirn organiaiona strtucture ScheduLe 6.1 lel 6 c Carry out under la) Carry out under Ibl Schedule 5.2 (ai 10 o 301Sep/91 311/May/92 Furnish to Bank training plan Schedule 5.2 Ibl 10 c Carry out plan under 2 ial Initiated but not completed Schedule 6.3 10.4 c Estabiish and fund Project Coordination Unit National consultants hired; contract with International Schedule 6.4 (a) 6 c 30/Sep/91 31/May/92 Furnish to Bank Environmental Monitoring Program consultants *ienod in February, 1996 but cut short. Table 13: Status of Lerai Covenants Loarn Original Rvevisd Agreement Credit N0 Tedt Peference Covenant Clas leas) Status FuDfill Fulfill Desription of Covenant Comments ___ ___ _ ___ ___ __ __ at Da e _ __ ___ ___ __ ___ __ ___ ___ __ ___ __ __ ___ __ ___ ___ __ ____Date____Date__ Schedule 6.4 lb) 6 e 30/Apr/92 Carry out above program Cut short after delay In the conwtrtion of the collew Schedule 6A4 l) a c Adjust above program * needed Schedule 5.6 (a) 13 c iReview etteetivenes of direct income support system ScheduLe 6.5 6b) 13 c Adjust above system as needed Government incrased direct support ScheduLe 5.6 (a) 10 c Take all actions needed to meet ratios rd performance indioators included in the snn to schedulie 6 LOAN Schedule 5.6 (ib) 2 c Submit to Bank 6-year finncial nd operation prolections each September 30 Annac to Scheduie 6 6 c Submit to Bank ratios and indicators of financial and operational performaence GUARANTEE 3.02 6 c 30/Jun/93 31/Decl94 Carry out study on environmental Impact arnd propose criteria for effluent discharges into Acoenaua River. GUAPANTEE 3.03 1 3 c Take measures If needed to modify current direct Income support system. GUARATEE 3.04 2 c 1 I/Aug/S11 Enter into Shareholders' Agreement with COPRFO S.A 2.03 2 c Dividend distribution only after sef-financing requlrementa of 6.02 and LA. have been met. Covenant Class Status: c - Complied with 1 Accounts/audit CD - Compliance after Delay 2 Fnancial performance/generate revenus from beneficiarie NC - Not Complied 3 Flhw and utilization of Project funds SOON - Compiarnce Expected In Reassonably Short Time 4 Counterpart funding CP - Complied with Partially 6 Management aspects of the Project or Its executing agency NYD - Not yet Due 6 Environmental covenants 7 rnwoluntarv resettlement 8 indienous people 9 Monitoring review reporting 10 Implementation 11 Sectoral or crossectoral budgetary or other resource alocation 12 Sectoral or cross-sectordi reaulatory/inrtitutional action 13 Other 38 Avuda Memoria Una misi6n del Banco Mundial conformada por Alex Bakalian visit6 las oficinas de ESVAL en Valparaiso durante los dias 1 y 2 de diciembre de 1997 con el prop6sito de revisar la preparaci6n del informe final del pr6stamo 3331-CH. La misi6n agradece las atenciones recibidas por parte del Ing. Dante Bacigalupo, Gerente General, y de los funcionarics de la empresa que facilitaron el desarrollo de la misi6n. La misi6n revis6 con ESVAL la informaci6n basica necesaria para completar el informe final del Banco segun el modelo enviado a ESVAL anteriormente. La misi6n tuvo la oportunidad de visitar las obras del Colector Valparaiso en particular los pozos B3, OH-I y el nuevo tunel Esmeralda. El Banco esta plenamente consciente de la dificultades de preparar un inforrne final cuando el proyecto en su totalidad no esta todavia completado. Sin embargo, para cumplir con una obligaci6n intema a su directorio, el Banco tiene que preparar un informe final dentro de seis meses al cerrar un prestamo. La misi6n inform6 a ESVAL que se habia iniciado dentro del Banco la preparaci6n del dicho informe pero faltaba informaci6n actualizada sobre varios temas incluyendo los siguientes: 3 una tabla comparativa del alcance fisico concebido en el informe de evaluaci6n (Staff Appraisal Report - SAR) y el alcance ejecutado a la fecha de t6rmino de proyecto (Junio 1997) con una descripci6n de las obras en ejecuci6n y fechas'para las obras a terminar o licitar, incluyendo las obras del componente del OECF, * una tabla comparativa de los costos estinados del SAR para cada componente y los costos reales al termino del proyecto, * una secci6n sobre la modificaci6n de la obra Colector Valparaiso (descripci6n del proyecto, componentes, fecha de inicio y termino de varios componentes, licitaciones hechas y para hacer, costos de obras licitadas y costos estimados para las obras faltantes), * una secci6n sobre el desempefio de contrato Aguas Quinta (con antecedentes) y el futuro institucional de ESVAL, * una secci6n sobre el marco sectorial (leyes y acontecimientos importantes), * las proyecciones financieras de ESVAL, * datos basicos para una re-evaluaci6n del analisis econ6mico (volumen de agua y alcantarillado, ventas, ingresos, costos de inversiones, costos de operaci6n y mantenimiento, etc.) * una secci6n sobre la politica de subsidio y datos basicos sobre el tema, * el desempefio institucional logrado durante el periodo del proyecto (actividades y resultados sobresalientes), * analisis de indicadores financieros y operacionales, incluyendo un analisis detallado de las medidas tomadas para el mejoramiento del indice del agua no contabilizada, * una descripci6n del censo de usuarios y una evaluaci6n del convenio SANEPAR-ESVAL. La misi6n solicit6 a ESVAL terminar la preparaci6n de este infonne para enviarlo al Banco a mis tardar el 15 de diciembre de 1997. Junto con el informe, ESVAL enviara diskette con la informaci6n relevante. Valparaiso, 2 de diciembre de 1997 Alex Bakalian Banco Mundial 05/27/1998 16:551 209512 GM ADM V FINANZAS PAM 03. 39 EMPRESA OE OBRAS SANITARIAS _OE VALPARAISO S. A. FIUAL CORFO Vaiparaiso, 26 de mayo de 1998 091 Sr. Alexander Bakalian Oficial de Proyects Finanzas, Sector Privado e tnfratstucwra Oficina Regional para Amuiica Laina y el Canbe Banco Mundili Washington D. C Ret.: Infonne de Tinmino del Bnco Mmndlal sobre el Pr6stamo BIRF 3331-CH - Proyecto de AguS Potable y Alcautarllado pam Valparaiso De nuestra consideraci6na Con respecto al Informe de Termino de la refercncia dtbo seflalar a Ud. lo siguiente I.- El Proyecto de Agua Potable y AlcantariLldo de Valparaiso, tal cual file concebido, abarcaba cuatro componentes do inversi6n: AlcawArillado y Control de la Contamiaciion. Agua Potable, Desarrollo Institucional y Servicios de Consultorla. 2.- Dicho proyecto, cuyo costo original a abril de 1991 ra de USS 141,5 millones, estaba financiado por el Banco Mundial (USS 50 millones), OECF de Jap6n (YV 5.480 millones) y fondos propios de Esval. 3.- A partir de 1994 comenzaron a surgir complicaciones en la constnzcci6n de la principal obra del componente do alcantarilldo, a saber el Colector Vfila del Mar - Valparaiso. Dichas complicaciones se tradujeron on el abandono sucesivo de la obra por dos contratistas extranjeros (Consorcio Oceanico e Iseki Inc.). 4.- Es asi como la situaci6n tom6 caracteristics de tal gravedad, quo on octubre de 1995, por instrucciones del Presidente de la Rep.blica, asumi6 una nueva adninistraci6n on Esval, oncabezada por el Sr. Ministro Vicepresidents de CORPO como Presidente del Dire=orio. 05/27/1558 16:51 209512 GER ADM Y FINANZAS PAGE 02 40 EMPRESA _ v 0E OBRAS SANITARIAS __ 09 .1 IDE VALPARAISO S. A. ~ NAT usa FILIAL COAFO 5.- Una de las tareas prioritarias abordadas por el nuevo Directorio, cuya composici6n se manliene mayoritariamente hasta hoy, &Te realizar un completo reestudio dc la componente alcantarillado, liamada Proyecto de Saneamiento dol Gran Valparaiso. Esto se tradujo en: * Conformacion de una Gerencia de Proyecto con dedicaci6n excdusiva para la administracion de este proyecto, la cual se intogr6 por un equipo de ingenieros de primer nivel y con asesoria de firmas de consultoria externas. * Contralaci6n del Redise?lo del Proyecto con urn consorcio de 2 firrnas de ingenieria, una nacionat (Cade-ldepe) y otra extrmnjera (Black and Veatch). 6.- A mediados de 1996, al cabo de seis meses de estudio, se reanudaron las obras del Proyecto de Saneamiento, que difenan sustancialmente del componente de alcantarillado incluida dentro del provecto financiado por el Banco Mundial. Dentro de tales diferencias se encuentran las siguientes: * ; a Cambios en el trazado por el centro de la ciudad de Valparaiso, dado quo existian problemas con el subsuelo. no detectados en losi estudios originales. * Construcci6n de un tuanel (TuLnel Esmeralda) bajo los cerros de Valparaiso, que reemplaza al Tunel BusTamante como salida final del sistema, dada la baia capacidad dc porteo y estado deficiente de este gItimo. * Construccion de Dos Emisarios Submarinos, no contemplados originalmente. Uno en la ciudad do Vitia del Mar. quo comenzo a funcionar en diciombre 1996 y logro doscontaminar las playas de la zona. El otro eni Valparaiso, por construir, ubicado como evacuacion final de todo el sistema. - Incorporaci6n de un sistema de Tratamiento 'Preliminar en Vifia del Mar. previo a la descarga por el Emisario Submanno en esta ciudad. * Nueva Planta Elevadora en Caverna y Plataforrna Costera para la instalacion de la Planta de Tratamiemo Prediminar al final del Tunel Esmeralda, con capacidad de instalar a fituro una planta do tratazniento mis avanzada. 7.- Junto con reestudiar los aspectos ingenieriles del proyecto, la ernpresa se aboc6 a redisxlar el financiamiento respectivo. De acuerdo a la experiencia tenida con el Banco Mundial en la adjudicacion de las licitaciones principales, se deterrnin6 que el financiamiento debia tener las siguientes caracteristicas: * Pernitir la realizaci6n de licitaciones nacionales., en que los proponentes fiueran entidades con domicilio en Chile y con antecedentes en l pis. * Perrnitir la realizaci6n de propuesas por invitaci6n, de acuerdo a los requisitos inpuestos por Esval. 8.- Durante 1996 pricticamente no hubo acercamientos entre ol Banco Mundial y Esval con respecto a] uso de los recursos sin desenibolsar del Prostamo 3331 -CH. En enero de 1997, una Misidn del Banco Mundial, tal cual consta en Ayuda Memoria respectiva, propuso revisar conjuntamente con nuestra emnpresa algunas condiciones del prestamo, como las citadas en el parrafo anterior, de tal modo de facilitar su ejecuci6n. 05/27/1998 16:51 289512 GER ADM Y FINANZAS PAGE 03 41 EMPRESA DE OBRAS SANITARIAS - DM 9 9 1 OE VALPAIRAISO S. A. _ 2 6 lWB 4ffl FILIAL CORFO 9.- A continuaci6n, una Mision de Esval visito el Banco Mundial en Washington D.C. en abril de 1997. Como resultado, se obtuvo que el Banco Mundial, a pesar de lo conversado previamnente, no estaba disptiesto a flexibilizar sus procedimientos. I 0.- En vista de lo anterior, con fecha 30 de junio de 1997, Esval solicito al Banco la cancelaci6n del monto del prestamo no desembolsado a la fecha, ascendente a USS 16,8 millones. I I.- Cabe consignar que a pesar de la cancelacion del prestamo del Banco Mundial, Esval no tendra problemas en financiar el proyecto hasta su finalizaci6n, dado que ha accedido a los mercados de capital privados. En 1996 obtuvo creditos por US$ 50 millones en el mercado bancario chileno, mientras que en 1997 obtuvo creditos por USS 20 millones en el mercado bancario chileno y por USS 75 trillones en los mercados bancarios internacionales. Todos estos creditos se han suscnto sin garantias y con condiciones especialmente ventajosas, tanto en temiinos ftnancieros como contractuales. Sin otro particular, le saluda atentamnente, Dante B galupo \ GerentGeneral .: - Gerente Divisi6n Adm. y Servicios - Gerente Adm. y Finanzas - Unidad Anilisis Financiero - Archivo MAP SEC IBRD 29445 SEA OUTFALL clC This mep w-s produced 0-560 mm -~~~~~~~~~~~~~~, ~ ~ ~ ~ ~ Rsu 'l(Oysy ~~~~~~~~~~~~~~by the Mop Decigo U,oit L-8=00 mm 1 of The World Bnk. / ---~~~~~~~~~~----,~~~~~~~~~~- ,--~~~~~~~~~~ ~The b-oudries, colors, V denom~~~~~~~~~~~~~~~~~~~~~~~~~~~~~inotioos so oy other informrotio shows Higuerila on othis ma p d not oncon m~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~rply, u-tepr of The World Basi Group, any udg-et on the legal status of any territory, or any endorsment or accptance of such IMCIFIC OCEAN boundories. Renaca \ - 2 | _ l l !,r a ~~De ! 6so n SEA OUTFALL Loma2 LaE \ j | l lil l i L w t , [22 \ BOLIVIA /~ { BBAZIL ( _ ll | | E i K | | > ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~PARAGUA ARGENTINA E ~~~~~~~~~~~~~~~~~~~~~~~~~~REGION Bustamante Tunnel v Valparaiso SANTIAGO k 0 5 10 C H I L E KILOMETERS SECOND VALPARAISO WATER SUPPLY AND SEWERAGE PROJECT Sewage Disposal Scheme Villa Alemana Petorca 'L5y PROJECT EXISTING Vina DelM REGION V Valparaiso.~ PAC111C Main Collectors \1 (LrAA/ s s s*s Area ofMa LoAne IOETR * * Pumping Stations Los Ano`6 * Treatment Plants Rivers and Creeks | | so P,OiJEf ~~ SANTIAGOts gNEpl EUrban Areas | YLSA | ,'-IFC S ,tF Province Boundaries ,,, ,, cc,,, - Region Boondaries I International Boundarie Z> | n0 r° 60 50 JUNE 1998 IBRD 22904 - tjitwt 5 0 o 5 10 La Calera JT\ Hijoetas KILOMETERS Las Veg-s PA C/IFIC OCEAN | ayLIay 0=800 mm Qt4lasa L. -c 2I L.27 K. l < O w~~~~~~~le.8IKm San Pedro I othhzes ) ~~~a4j>v.C\;,X>r ~Limche 20se BOLIVIA BRA7IL !/ F,t-)~~~~~~~~~~~~~- VinaV LLS L Op /uilpue REGIONREGION SECOND VALPARAISO VIna DelMa WATER SUPPLY AND SEWERAGE PROJECT Vara /IG Proposed Water Supply Scheme LsAds40 PROJECT EXISTING S S ~~Main Intake and Treatment Plants Main Water Aquerducts s# Minor Water Soures (Wells) * Main Storage Tasks SAN AG Wo Co-nn Major Existing Water Sources - Dam Prosence Bojndares P' Risers and Streams "R"' Region Bou oarendS Urban Areas In- terarnal Bounoar-e- Z MARCH 1991