Document of The World Bank FOR OFFICIAL USE ONLY Report No: 20663-KO IMPLEMENTATION COMPLETION REPORT (CPL-35900) ON A LOAN IN THE AMOUNT OF US$ 110 MILLION EQUIVALENT TO THE REPUBLIC OF KOREA FOR A KWANGJU ANI) SEOUL SEWERAGE PROJECT June 29, 2000 Urban Development Sector Unit East Asia and Pacific Region This document has a restricted distribution and may be used by recipients only in the perfornance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (Exchange Rate Effective June 30, 2000) Currency Unit = Won 1,000 Won = US$ 0.90 US$ 1.00 = 1,109 Won FISCAL YEAR Government: January I -- December 31 ABBREVIATIONS AND ACRONYMS BOD - Biochemical Oxygen Demand COD - Chemical Oxygen Demand ERR - Economic Rate of Return FRR - Financial Rate of Return ICB - International Competitive Bidding ICR - Implementation Completion Report LPC - Local Public Corporation MOC - Ministry of Construction MOE - Ministry of the Environment NBF - Not Bank-financed NCB - National Competitive Bidding NGO - Non Governmental Organization NPV - Net Present Value NRW - Non Revenue Water QAG - Quality Assurance Group SAR - Staff Appraisal Report SS - Suspended Solids UNDP - United Nations Development Programme WTP - Wastewater Treatment Plant Vice President: Jemal-ud-din Kassum Country Manager/Director: N. G. Sri-Ram Aiyer Sector Manager/Director: Keshav Varma Task Team Leader/Task Manager: Ming Zhang FOR OFFICLAL USE ONLY IMPLEMENTATION COMPLETION REPORT REPUBLIC OF KOREA KWANGJU AND SEOUL SEWERAGE PROJECT (LN. 3590-KOR) CONTENTS Page No. 1. Project Data 1 2. Principal Performance Ratings I 3. Assessment of Development Objective and Design, and of Quality at Entry 1 4. Achievement of Objective and Outputs 3 5. Major Factors Affecting Implementation and Outcome 7 6. Sustainability 8 7. Bank and Borrower Performance 9 8. Lessons Learned 11 9. Partner Comments 11 10. Additional Information 24 Annex 1. Key Performance Indicators/Log Frame Matrix 25 Annex 2. Project Costs and Financing 26 Annex 3. Economic Costs and Benefits 28 Annex 4. Bank Inputs 31 Annex 5. Ratings for Achievement of Objectives/Outputs of Components 32 Annex 6. Ratings of Bank and Borrower Performance 33 Annex 7. List of Supporting Documents 34 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. Project ID: P004169 Project Name: Kwangju and Seoul Sewerage Project Team Leader: Ming Zhang TL Unit: EASUR ICR Type: Core ICR Report Date: June 29, 2000 1. Project Data Name: Kwangju and Seoul Sewerage Project L/C/TF Number: CPL-35900 Country/Department: KOREA, REPUBLIC OF Region: East Asia and Pacific Region Sector/subsector: WS - Sewerage KEY DATES Original Revised/Actual PCD: 11/15/91 Effective: 09/28/93 09/28/93 Appraisal: 09/28/92 MTR: 11/01/97 Approval: 04/13/93 Closing: 12/31/97 12/31/99 Borrower/lImplementing Agency: Republic of Korea/Kwangju and Seoul Metropolitan Governments Other Partners: STAFF Current At Appraisal Vice President: Jemal-ud-din Kassum Gautam S. Kaji Country Manager: M. G. Sri-Ram Aiyer Khalid Ikram Sector Manager: Keshav Varma Jeffrey Gutman Team Leader at ICR: Ming Zhang Jaroslav Kozel ICR Primary Author: Ming Zhang; Jaehyang So 2. Principal Performance Ratings (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible) Outcome: S Sustainability: HL Institutional Development Impact: SU Bank Performance: S Borrower Performance: S QAG (if available) ICR Quality at Entry: S Project at Risk at Any Time: No 3. Assessment of Development Objective and Design, and of Quality at Entry 3.1 Original Objective: Korea is one of the most densely populated countries in the world, coupled with one of the highest urbanization levels as well. Its rapid industrialization and urbanization have caused serious environment problems in its major urban areas. In this context, the project aimed to assist the environmental clean-up in two large cities, Kwangju and Seoul, with the following objectives: (a) Assist in cleaning the Yongsan and Han Rivers in order to reduce health hazards and attain the water quality needed for the comfort and prosperity of much of the cities' population as well as those using water downstream; (b) Focus the attention of water agencies on conservation of water to reduce water demand and the wastewater generated; (c) Encourage the cities to develop self-financing efficiency for wastewater activities; and (d) Support technological and institutional improvements in the sector. These objectives were clearly stated, realistic, and important for the country at the time. The physical elements, which involve constructing some of the largest wastewater treatment facilities in Asia, were quite demanding for the borrower. The financial and institutional objectives, such as water conservation and self-financing, were equally or even more challenging for the imnplementing agencies. These objectives were developed in response to the requirements of national and city governments at the time, and correctly highlighted the key development priorities in the sector. The objective was relatively straightforward and not overly complicated. There were no major risks anticipated for the project. 3.2 Revised Objective: Not applicable 3.3 Original Components: To achieve the project objectives, the following components were included in the project: (a) In Kwangju, expansion of the Yu Deog Dong wastewater treatment plant (WTP), to increase its capacity from 300,000 m3/d to 600,000 m3/d; a wastewater purnping station at Song Am and about 36 km of interceptors of various diameters; (b) In Seoul, expansion of Kayang WTP, to increase its capacity from 1.0 million m3/d to 2.0 million m3/d; and (c) Engineering services to supervise construction and water conservation studies in both cities. These components were directly related to the stated objectives of the project Their selection was based on extensive studies and master plans conducted by the government. In Kwangju, the expansion was to enable the city to treat almost all its wastewater, while in Seoul, the expansion of the Kayang WTP was to allow the treatment of all wastewater generated from the southwest catchment of the city. The project design was based on proven administrative capacities of the implementing agencies, and provided assistance to further improve their financial capacities. With its emphasis on adequate preparation, well defined objectives with regard to project targets, and commitment of the responsible agencies, the project also took into account the relevant lessons in prior Bank-financed projects in the country, including five water supply projects, one sewerage project and a sewerage sector study. 3.4 Revised Components: Not Applicable 3.5 Quality at Entry: The project's quality at entry is rated satisfactory. The project's overall design was based on very strong borrower ownership. The objectives were clearly defined and realistic. The physical design was based on well tested technologies and least-cost solutions. The Bank's primary role was to help Korea -2 - adopt appropriate technology and practices for planning, design, construction and operation of water and wastewater facilities. At the same time, the project design directed attention to finance, accounting, cost recovery and institutional reform issues. An important element was included by linking pollution prevention efforts with the need to conserve water thereby reduce wastewater. The results, therefore, would have important implications for the whole country. 4. Achievement of Objective and Outputs 4.1 Outcome/achievement of objective: The overall outcome of the project is satisfactory. The objective of assisting in cleaning the Yongsan and Han Rivers was achieved. The wastewater treatment plants were completed and are operating at full capacity. The imnpact on the quality of water in both rivers has been observed and is positive. The objective of focusing on conservation of water was achieved with better results in Kwangju than in Seoul. The studies were completed and a number of the recommendations from the studies were adopted. Products introduced through the studies, such as water-saving toilets and shower heads, are now available on the market and were promoted by the government. Measures to reduce non-revenue water (NRW) were also adopted. The objective of encouraging self-financing efficiency was partially achieved. Neither Kwangju nor Seoul realized the rate of return which was covenanted in the Loan Agreement, and which reflected Ministry of Construction (MOC) guidelines on sewerage tariffs at the time. So far, however, no wastewater organization in the country has been able to achieve this rate of return. The objective of supporting technological and institutional improvements was partially achieved. Technological improvements have been made in both cities. Institutional improvements were achieved in Kwangju. In fact, Kwangju pushed institutional efficiency much further than originally contemplated during project appraisal by privatizing the operations and management of its WTP in 1998. Seoul, on the other hand, made no progress towards achieving the outlined institutional objectives and remains a department of the city rather than a local public corporation (LPC) with separate accounts. 4.2 Outputs by components: Sector Policies The project's primary goal was helping the cities adopt appropriate approaches to wastewater collection and treatment technology. In addition, the project directed attention to finance, accounting, and cost recovery, and linked pollution prevention control with initiatives for water conservation. The results show that the wastewater system and treatmnent technologies adopted by the cities are advanced and appropriate. They reflect the cities' environment and fit within their long-termn development plans. Through the water conservation studies, the project also directed attention to the generation of wastewater. The Kwangju water conservation study has achieved its objectives. The water agency strengthened its NRW control effort and initiated water conservation activities. The NRW was reduced from 30.7% in 1996 to 27.3% in 1998. It is expected that a NRW rate of 20% will be achieved by 2001. Water conservation actions, prompted in 1999 through pilot installation of 7,300 water-saving toilet faucets, are estimated to be saving some 300,000 m3/y; the plan expects installation of about 265,000 faucets in the next two years. The Seoul water conservation study achieved its objectives only partially. Since the study was carried out by the research institute associated with water agency, its focus was shifted from the whole - 3 - spectrun of water conservation topics to leakage control, the agency's key interest. The NRW growth was arrested from the start of the study for several years at 38% of production and was gradually reduced to 36% in 1999. The leakage control programs aim at achieving 30% by 2001. A summary of supporting data is available in Annex 7. While their actual impact on specific water use per capita is negligible, the studies are proving timely, since civic groups as well as the government are showing increased interest in water conservation. Various water-saving fixtures are now available at reasonable prices. This year, the Ministry of Environment (MOE) started encouraging local administrations to support various civic groups promoting water conservation by households and commercial users. However, since the implementing units for the water conservation studies -- the water agencies in the two cities -- were not directly involved in the main physical investments of the project, they did not demonstrate the same level of commitment as the sewage agencies. Bank supervision and intervention by the governments played important roles in ensuring that the studies were completed and major recommendations adopted. Physical and Environmental Objectives Achievement of the project's physical objectives is highly satisfactory. In Kwangju, the completed second phase of Yu Deog Dong WTP, Song Am pumping station, and associated interceptor sewers (32.7 km) was taken over by Kwangju City for operation in May 1997 after five months of testing. Implementation took five months longer than expected because of severe winter weather. Also, changes in Kwangju City planning and requests from civic groups during implementation eliminated 3.3 km of interceptor sewers from the component's initial 36 km, but this change did not compromise the delivery capacity in any way. In Seoul, the completed second phase of Kayang WTP was taken over by Seoul City for operation in January 1999. The construction, carried out from December 1992 through July 1998, concluded with six months of testing. Implementation took two years longer than planned due to factors discussed below. Nevertheless, the completed works are of high quality, and were constructed with due concern to environmental requirements such as landscaping and control of noise and odor. The required monitoring is also in place. In accordance with projections, both plants are operating almost at capacity. The treatment performance expressed in biochemical oxygen demand (BOD), chemical oxygen demand (COD) and suspended solids (SS) is substantially better than required by Korean standards for effluent from WTPs. The expansion of the WTPs has measurably improved the water quality in the respective rivers. In Kwangju, in 1998, the expansion enabled the removal of around 64 t/d of BOD and 82 t/d of SS from the wastewater discharged into the Yongsan River. Also, monitoring data provided by MOE laboratories shows that some sections of the Yongsan River did experience significant reductions in BOD during the period from 1996 to 1998. In Seoul, the expanded WTP treated 1.8 million m'/d of wastewater in the first half of 1999 and removed about 152 t/d of BOD and 157 t/d of SS from the wastewater discharged into the Han River. Monitoring data shows that comparing the first half of 1999 with that of 1997, there was apparent improvement in the quality of the Han River downstream from the Kayang WTP outlet. Monitoring data are available in Annex 7. Both WTPs have taken exceptional care to mitigate the negative impacts on the surrounding environment with landscaping. The majority of the tanks have been enclosed with fibre reinforced plastic covers. -4 - Financial Objectives and Institutional Development The achievement of financial objectives and institutional development is considered substantial. In defining the financial objectives of implementing agencies the project followed MOC guidelines instructing local governments to start implementing sewerage tariffs from 1992. While the guidelines required achieving a substantial rate of return (up to about 7%), the Bank agreed on values of 3% and 2% for Kwangju and Seoul respectively, considering the extent of planned investments and impact on tariffs. During preparation and implementation, Bank staff provided training support and institutional advice in order to achieve the agreed rate of return, although with moderate effect. From the hindsight, the FRR objective is too ambitious. As compared to water supply, where gradual expansion of distribution and production facilities normally takes several decades, the Kwangju and Seoul interceptor sewers and treatment plants, which fully serve the entire city, were constructed over the last 10 years. Tariffs reflecting such huge capital outlays over a short time and generating a substantial rate of return are very high and are not acceptable to local governments. It would appear, therefore, that under such conditions, even small rates of return are not currently achievable in the wastewater sector since none of the wastewater agencies in the country has been successful in meeting them. Other financial parameters, such as working capital ratios, debt/equity ratio, and accounts receivable are satisfactory for both wastewater agencies. Project monitoring indicators were designed to track the status of financial and institutional development of the implementing agencies. While Kwangju provided audited financial statements as a basis for the financial monitoring indicators, Seoul's monitoring indicators were estimated because the wastewater accounts were not separated from the accounts of the city, and the assets were not formally revalued during the project time period. Many institutional aspects of the project, such as cost recovery, accounting and financing from user charges, were new in the sector, since sewerage tariffs were implemented for the first time in 1992. At the end of project implementation, institutionally, Kwangju had adopted LPC status with commercially based accounting and annual auditing which had gradually improved during project implementation. It also revalued its wastewater assets in operation. Seoul, however, failed to comply with the understanding at appraisal and has not changed its accounting system to LPC status, nor revalued its wastewater assets. 4.3 Net Present Value/Economic rate of return: The net present value and economic rates of return were not calculated during appraisal. The project was justified on the basis of least-cost solution, and also on the grounds that both city governments and the national government had demonstrated strong commitment. The national government formally required that wastewater be treated before being discharged into the river. The cities constructed the interceptor sewers and the first phase of WTPs and were ready to carry out construction of the second phase. Implementation has shown that these two justifications were largely valid. Willingness to carry out the project was demonstrated by the cities' successful efforts in mobilizing domestic funding, and by their gradually increasing sewerage tariffs. (The Bank contributed only 4% of the total investment in Kwangju and 12% in Seoul.) Kwangju increased tariffs to make the wastewater activities almost financially self-sustaining, even though the planned 3% rate of return was not achieved. In Seoul, tariffs were increased several times, but not to the break-even point. The conclusion that the original solution is least-cost remained valid. While some minor improvements were made to the original design of the WTPs, no major changes were necessary. The main project benefits were expected to result from a cleaner environment, especially the water -5- quality improvements in Yongsan and Han Rivers. In Kwangju, the Yu Deong Dong WTP removed pollution equivalent to 64 t/d of BOD and 84 t/d of SS, while in Seoul the Kayang WTP removed 152 t/d of BOD and 157 t/d of SS from the wastewater discharged into Yongsan and Han Rivers. Apparent improvement was observed near the Kayang WTP outlet and downstream. Therefore, the expansion of both the Kwangju and Seoul WTPs has already had a positive impact on the surface water quality in the recipient rivers. Other benefits of the project, as summarized during project appraisal, were improvements in the health of the population and increased property values along the river. Examination of the available health statistics shows apparent inconsistencies in the statistical method employed during the observed period, which disallows comparison of data from different years. The sample land value data provided shows that there were increases in land values both near and some distance from the Han River. It is difficult to judge whether this land value increase can be attributed to improvements in the river environment. Experience from various countries shows that the capitalization effect from environmental improvements usually takes quite some time to be realized. The major non-physical component of the project is water conservation studies for the two cities. They have achieved their objectives. Benefits were realized in terms of the amount of water saved, but they have not been calculated. Since it is difficult to value most of the benefits outlined above, a simplified cost-benefit analysis is presented in Annex 3. The major assumption used is that the economic value of each ton of wastewater treated is equal to the current wastewater tariff. This is of course a very insufficient way of valuing the benefits, but in absence of a comprehensive WTP survey and with the difficulties of valuing the benefits, it is possibly the only method available. The results, however, are thus only indicative and should be used cautiously. Generally, the current tariff level is most likely lower than actual WTP, so the actual benefits are likely to be higher. With these simplified assumptions, the results show that the Economic Rate of Return (ERR) is 7.4% for the Seoul component and 6.6% for the Kwangju component. At a discount rate of 10%, the net present values (NPV) for Seoul and Kwangju are -58 billion won and -29 billion won respectively (1999 prices). These are probably the lower boundaries of the project's net benefits. 4.4 Financial rate of return: The financial rate of return (FRR) on revalued assets in operation was calculated during project appraisal using assumptions regarding the tariff implications for the two cities. Recalculated using current assumptions on tariffs and operating costs, the Kwangju FRR compares from 4.2% during appraisal to 2.3% using the latest estimated data. The Seoul rate of return compares from 3% calculated during appraisal to 1.17%, using the latest estimated data. Detailed assumptions are available in Annex 7. The lower rate of return for both Kwangju and Seoul can be attributed to the level of tariffs, which were not set high enough during the project period. It can be assumed that Kwangju made significant attempts to achieve the higher rate of return since its tariffs are the second highest in the country after Pusan. Seoul was less successful in setting tariffs adequate to meet the targeted rate of return. However, the Seoul Sewerage Bureau has maintained a small cash surplus each year due to generous subsidies from the City general account. Since the city governments make decisions on tariff levels, the Seoul government chose to replenish the wastewater accounts on a cash basis rather than to allow the wastewater agency to be run autonomously through a tariff-based revenue system. Finally, even the appraisal rates of return of 3 - 4% were actually too low to provide a purely financial justification for the project. It is useful to note that the justification for the project was based on - 6 - other non-quantifiable benefits of increasing wastewater investment, such as improved health, increased property value and a cleaner environment in terms of cleaner riverside parks and aquatic areas for citizens and tourists. 4.5 Institutional development impact: The Kwangju Sewerage Department, an autonomous LPC, made significant institutional reforms during the course of the project. The Kwangju government supported the self-financing goal of wastewater operations, and granted increases in sewerage tariffs in order to achieve self-sufficiency. In 1998, Kwangju officials privatized the operations and management of the WTP in order to reduce operating costs and the pressure to raise tariffs. This is expected to successfully reduce the operating costs of the WTP by 30%. Seoul City maintained the existing structure of the Sewerage Bureau as a department of the local government, rather than separating it out as a LPC. The accounts of the Sewerage Bureau were maintained using the government's cash-based accounting standards, and the wastewater operations continued to receive subsidies from the city's general account. Seoul Sewerage Bureau was not able to reevaluate its assets, the first step in becoming a LPC. 5. Major Factors Affecting Implementation and Outcome 5.1 Factors outside the control of government or implementing agency: One major factor outside government control affected implementation. Shortly after awarding a civil works contract for the construction of deep aeration tanks in Seoul, engineers discovered that the foundation of the tanks as originally designed would be inadequate, and would require dense and long piling. This design change and the associated additional construction work prolonged the implementation schedule. Severe winter weather also made construction impossible at times, thereby causing delays. The effects of the Asian crisis (1997-1998) were minimal as the project was largely complete by then. 5.2 Factors generally subject to government control: Three major factors were subject to the control of the city governments. First, low allocation of local counterpart funds in the early stages of implementation caused major delays in Seoul. Second, also in Seoul, a dispute arose over land and crop compensation. Farmers, who were not considered the legal owners of the land on which the WTP was to be built, were farming vegetables on seasonally inundated lands. Compensation was offered for the crops. In July 1993, three months after Board presentation, only 53% of the land for the Seoul WTP had been acquired, with numerous cases of compensation pending in the court system. Eventually collective civil petitions were filed on behalf of the farmers so that they would be compensated for the loss of the lands they were farming. As a gesture of goodwill, Seoul city government finally compensated the farmers, but the matter delayed implementation by approximately eight months. Third, for both cities, the ability to raise tariffs was under their control. In the course of implementation, the Kwangju government kept approving gradual tariff increases. Kwangju city government eventually privatized its wastewater system to reduce costs. The Seoul government, on the other hand, made minimal tariff increases, and did not take steps to convert its sewerage division into a local public corporation. It chose instead to provide subsidies from the city's general account. 5.3 Factors generally subject to implementing agency control: Various reorganizations of the responsible agencies had some negative impact on the project, but these were largely offset by keeping the core staff of the agencies intact. Generally speaking, in both Kwangju and Seoul, strong project management was responsible for successful implementation. -7 - 5,4 Costs andfinancing: Kwangju's actual implementation costs are estimated at Won 101.83 billion (US$ 125.92 million equivalent) as compared with the appraisal estimate of Won 102.42 billion (US$ 133.01 million equivalent). The actual cost estimate in Won is 1% lower than appraisal estimates because the costs of equipment and construction supervision were lower. The actual costs estimates and appraisal cost estimates expressed in US$ equivalent show a greater difference (5%) due to exchange rate fluctuations. Seoul's actual implementation costs are estimated at Won 250.9 billion (US$287.3 million equivalent) as compared with the appraisal estimate of Won 288. 8 billion (US$ 375.1 million equivalent). The actual cost estimate in Won is 13% lower than appraisal estimate, because some stand-by equipment (pumps, generators) and associated buildings were deemed unnecessary. Also, to a minor extent, bid prices for the equipment came in lower than estimated. The actual implementation cost estimate and the appraisal cost estimate expressed in US$ equivalent show a greater difference (23%) due to exchange rate variations. The project's actual total implementation costs are estimated at Won 352.7 billion (US$413.2 million equivalent) as compared with appraisal estimate of Won 391.2 billion (US$508.1 million equivalent). The Loan disbursed US$39.3 million, about US$70.7 million below the actual Loan amount. Kwangju and Seoul cities' equity, revenue generation, and local loans provided the balance of financing. Actual implementation costs estimated in Won and US$ are about 15% and 19% lower than the appraisal estimate respectively. A substantial part of the Loan was cancelled shortly after it was approved and replaced by local loans. A greater difference in US$ equivalent was caused by the currency exchange, which had only slight variations between 1992 and 1996 (US$=770 Won). But from 1997 to 1998 the Won value changed from 800 to 1,400 to the dollar. The original Loan closing date of December 31, 1997 was extended by two years to complete the Seoul component. Project costs by components, procurement arrangements and financing are in annexes 2a, 2b, and 2c, and supporting data are available in Annex 7. 6. Sustainability 6.1 Rationale for sustainability rating: Project sustainability is rated highly likely due to the high level of technical and professional knowledge of the wastewater agencies in the two cities and the well developed management techniques of the private operator in KwangjuL Steady pressure from independent citizen groups will also provide incentive to maintain high quality environmental standards. In Kwangju, the first phase of the WTP (300,000 ml/d) was successfully operated by the wastewater agency which succeeded in building up an operational and managerial team with several years of experience and high proficiency. Currently, management of the WTP, including the associated interceptor sewers and pumping station, is contracted out to an experienced local operator. The terms of the contract (3 years duration with an option for extension, monthly payments to contractor, supervision of performnance by independent laboratory) in combination with regulatory management by an experienced team will ensure the sustainability of high quality of operations and maintenance. In Seoul, the sewerage agency has been successfully operating the four largest treatment plants in the country for more than 10 years, achieving a very high treatment performance. Expansion of the Kayang facility by 1.0 million m /day represents only about a 17% increase of the city's treatment capacity, which is easily absorbed within the existing wastewater management organization with an adequate number of trained staff. Independent environmental laboratories and civic groups control the quality of operations. In addition, the recipient of the treated effluent, the Han River, crosses the city, and as such its water quality has always been a very sensitive issue and is under tight scrutiny by the population, fishermen's - 8 - organizations and various environmental groups. Therefore, strong government commitment to environmental protection, pressures from the public, combined with technical and financial viability of the project, will ensure the project's sustainability. 6.2 Transition arrangement to regular operations: For six months following completion of the expanded WTPs, the contractors, suppliers and both wastewater agencies jointly tested the equipment and trained operational staff. After successful completion of both testing and training, the wastewater agencies merged the new interceptor sewers and WTP extensions with the existing facilities. Later, Kwangju turned over operations and maintenance of the WTP, including the interceptors and pumping stations, to a private local company. Seoul plans to privatize the operations and maintenance of one of its four WTPs in late 2000. Selection of the plant will be determined through a study, and bidding documents will be prepared. 7. Bank and Borrower Performance Bank 7. 1 Lending: The Bank's activities during the identification, preparation, and appraisal stages were satisfactory, with considerable support provided to the borrower and the implementing agencies. The project is a logical follow-up of the Bank's previous involvement in the water and wastewater sector in Korea and was consistent with the government's development priorities at the time. The project team working on the preparation and appraisal of the project had the right skill mix, and assisted the borrower on technical, fmancial, economic, institutional, environmental and social aspects of the project and helped improve project design. The technical alternatives selected for the project were appropriate, and represented the least-cost solution to improving wastewater systems and treatment facilities in the project cities. Project appraisal was conducted when the borrower was in an advanced stage of preparation, and confirmed the government's commitment to the project. The main risk recognized at appraisal was implementation of the findings of water conservation studies since the range of possible actions including pricing and technological intervention in households could be unpopular. With regard to safeguard policies, project preparation and appraisal were thorough on environment assessment. It also reviewed land acquisition and compensation policies and found them adequate; however the treatment of land acquisition and resettlement issues in the staff appraisal report is less detailed than that of the environment impact. 7.2 Supervision: Supervision by Bank staff during implementation was satisfactory, with some appraisal team members taking part in supervision missions. This continuity was especially important as the Bank's Task Team Leader and also the key staff of the borrower and implementing agencies changed several times during implementation. Supervision mission members generally possessed an appropriate mix of skills, identified and resolved key issues in a timely fashion, and assessed development impact regularly. Implementation progress was reported adequately and performance ratings in supervision reports were realistic. Reviews of procurement documents, audit and progress reports were carried out satisfactorily and in a timely fashion. Particular attention was given to reviewing the water conservation studies, which represented major implementation risks. This contributed to an improved focus of Kwangju study but had a minor impact in Seoul. Project implementation did not deviate from applicable Bank policies and procedures. The Bank did not intervene in settling the land compensation dispute discussed earlier because the Korean policy framework and institutional capacity were deemed satisfactory. The Bank supervision missions were also consistent in bringing the governments' attention to financial covenants, also with better success in Kwangju than in Seoul. -9- There were several changes in Bank management and Task Team Leader. The negative impact, however, was mitigated by the retaining of one member in the core project team throughout project identification, appraisal, supervision and completion. 7.3 Overall Bank performance: The Banks performance on this project is rated satisfactory. While the project itself included modestly stated institutional goals, during supervision missions the Bank team discussed at length with relevant officials advanced management and institutional options, including privatization and informed officials regarding worldwide experiences which were relevant in the Korean context. Borrower 7.4 Preparation: The performances of the implementing agencies and government ministries during project preparation were satisfactory. Preparation was carried out and financed by the implementing agencies under the general guidance of government ministries. The staff of the respective wastewater agencies was technically capable and the engineering consultant demonstrated a high level of professional competence. Preparation was completed within the agreed schedules without unnecessary delays or difficulties. The design and analysis of various project aspects were found to be adequate. Water conservation studies were formulated during preparation with assistance provided by UNDP. While the water agencies concurred with carrying out the studies, they were reluctant to commit resources for the entire experiment fearing an unpredictable impact of water conservation experiments on users. Later on during implementation they financed and completed the water conservation studies. 7.5 Government implementation performance: Government implementation performance was satisfactory. The government ministries provided general guidance and assistance in the areas of financing, environment, and procurement and, toward the end of implementation, took a lead in supporting water conservation. The ministries also helped coordinate Bank supervision missions and the implementing agencies. 7.6 Implementing Agency: The managerial and technical performances of implementing agencies were satisfactory in spite of various reorganizations resulting in multiple changes of names, managers, and lines of reporting. The core team responsible for managing and monitoring implementation remained almost intact. The agencies successfully implemented the project within the agreed performance parameters. Compliance with legal covenants as stipulated in the Loan and Project Agreements was generally satisfactory, with the exception of the financial performance covenants. Kwangju's sewerage agency made considerable efforts to achieve the institutional goals of the project and proceeded beyond the project goals to increase efficiency through privatization of operations and maintenance. However, Seoul's sewerage agency made no progress towards becoming an LPC during the project period. The accounts are still maintained using cash-based accounting methods with no clear distinction between operational and non-operational activities. Semiannual progress reports and annual audit reports were submitted to the Bank; the latter were often delayed by one-year in the case of Seoul where the sewerage department's statements had to be approved by the National Assembly before being released to the Bank. Audits were always found satisfactory, both for Kwangju and Seoul. The implementing agencies maintained excellent records and were able to comply with data requests by the Bank promptly and with detailed explanations. The Borrower's contribution to the Implementation - 10 - Completion Report was made available to the Bank as required. (Kwangju's contribution, originally in Hangul, was translated through the Bank office). 7 7 Overall Borrower performance: Overall, the Borrower's performance is rated satisfactory. The government ministries provided adequate and timely guidance to the project cities and implementing agencies. The cities' allocation of funds was adequate, though in Seoul counterpart funds were lower than required early on. The two wastewater agencies managed, monitored and reported on implementation competently with only minor delays. 8. Lessons Learned The implementation of this project highlights the following lessons: 1. Strong ownership by the national and particularly the city governments helps ensure the successful implementation and sustainability of the project. 2. A comprehensive wastewater strategy should include both water conservation and wastewater treatment measures; however, water supply and wastewater functions are often the responsibility of separate agencies, making an integrated approach difficult. Implementation experience demonstrates the need to elevate the water agencies' commitment to water conservation. Therefore, more extensive involvement of the water agencies and strong support from the city government can be instrumental in making gains in this area. 3. The financial covenants which require a FRR of 2-3% for wastewater agencies have proven unrealistic in a situation of huge capital outlays over a short time. The experience in Kwangju and Seoul shows that the facilities were constructed and are being operated in a satisfactory and likely sustainable fashion even without achieving the required rates of retum. In the future, the financial objectives of operations in the wastewater sector, instead of focusing on FRR, should be more oriented towards promoting financial viability (such as internal cash generation) and prudent financial management. 4. Though not included in the project design, Kwangju successfully implemented privatization of its wastewater facilities with observable cost savings. Seoul is also considering pilot schemes for one of its WTPs. Therefore, for sophisticated borrowers with considerable prior experience in the sector, opportunities for further efficiency enhancement through private sector participation exist and should be considered thoroughly early in project design. 9. Partner Comments (a) Borrower/implementing agency: Comments from Kwanziu MetroDolitan Government 1. Introduction Kwangju sewage treatment plant of 300,000 m3/day was constructed from 1985 to 1991. As the population increase and urban development are steadily going on and sewage treatment capacity becomes short for full treatment of the sewage (total sewage amount of the city by 1992 is 384,440 m3/day), an expansion project of sewage treatment plant was planned by Loan project with the capacity of 300,000 m3/day based on the sewage treatment master plan for total treatment capacity of 600,000 m3/day by 1996. 2. Evaluation of Project - 11 - 2-1. Project Objective The project includes the construction of a sewage treatment plant of 300,000 m3/day, a sewage interceptor of 32.7 km and a sewage boost pumping station of 32,000m3/day. Water conservation program for reduction of water leakage is also included in the project. The project is focusing on improvement of water quality of Yongsan river. 2-2. Achievement of Objective Regional Policy Excess sewage is to be treated by the project completion and helps the water quality of Yongsan nver. Financial Objective Total project cost is 101,827 million Won including borrowings of 50,197 million Won (IBRD Loan of 19,244 MW and public fund of 23,925 MW), developers contribution of 47,744 MW and city general account of 3,886 MW. The project was satisfactory completed with the above mentioned project costs. Original IBRD Loan was planned as USD 30 million, but it was amended to USD 6,250 thousand by June 1994 because of increasing local fund (national environmental fund and public budget management fund). Total withdrawal was USD 6,610,823.19 by February, 1998 with a canceled amount of USD 639,176.81. Kwangju sewerage work is operated by public enterprise system from 1985 with the operating cost by sewage tariffs. For the sound financial management, sewage tariffs have been increased by 9.9% in September, 1994, 9.9% in December, 1995 and 25% in January, 1977 resulting in second high sewage tariff level next to Pusan in the country. Institutional Improvement Sewage department of Kwangju city was the Sewage Division (Sewage Administration Section, S ewage Facility Section) under Construction and Housing Bureau at the time of Loan Processing. The Sewage Division was transferred to Environment and Forest Bureau in July, 1995, moved back to Construction and Housing Bureau by September, 1998, and re-transferred to Environment and Forest Bureau with the new name as Water Quality Preservation Division (Water Quality Administration Team, Water Quality Preservation Team, Sewers Team, Sewage Facility Team). Physical Objective The physical component of the project, composed of Sewage Treatment Plant with the capacity of 300,000 m3/day, 24 km sewage interceptors with boosting pump station of 32,00 m3/day, was successfully completed and water conservation objective was substantially achieved according to the engineering research work for water saving and reduction of leakage. Water works agency will continue for water conservation work in the future. Completed interceptor is 24 km instead of original object of 32.7 km But the remained 8.7 km is associated with the housing development area, therefore, the housing development project is on the way to install interceptor as much as 12 km Social and Environment Obiective - 12 - Yongsan river water quality is substantially improved and contributes good environments to the people by sewage discharge treated more than environmental criteria intercepting all sewage produced. 2-3. Major Factors Affecting Implementation Factors Subject to Government Control The Govermrnent executed its work successfully including subloan of IBRD Loan to the city, local financial support and legal improvement process of the project. Factors Subject to Implementing Agency Control Water Quality Preservation Division: The Division's works composed of planning finance provision, material supply and control of supervising consultant were successfully done and the project was satisfactory completed. But the project period was extended 3 times to complete the construction work by December, 1996 and to start normal operation of the project by 1997 after full test operation. The suspensions of construction work were made by cold winter, irrigation water storage and weak foundation treatment for interceptors. The financial rate of return (FRR) was lower than 3% which was recommended by the Bank due to less successful tariff levels during the project period. Therefore, the Sewage Agency got financial supports from city general accounts and local bank loan rather than increasing sewage tariff levels to meet the construction costs. Supervising Consultant: The consultant performed its role properly for supervising field construction works and test operation process to complete the project successfully. 2-4. Bank Performance The Bank's performance was done satisfactory for the loan agreement, acceptance of counterpart's representative signature, preparation and approval of withdrawals, and field supervision to complete the project successfully. Total withdrawal of the Loan amount is USD 5,632,042.72 instead of final settled amount of USD 5,610,823.19. The clear explanation was very difficult and complicated for the remainder of USD 21,218.91. 2-5. Borrower Performance Borrower's performance was satisfactory in general for the project preparation, construction work, plant operation in initial stage and for transfer of the treatment plant operation and managetnent to a private sector. Sewage tariff was increased for 3 times up to 44.8% during the project period, but it was not possible to set at high enough levels to achieve appropriate FRR, because additional increase was affected by tax resistance and market price control. 2-6. Assessment of Outcome As described on paragraph 2-2, the outcome of the physical objective is satisfactory. 2-7. Future Operation: Transfer of Plant Operation and Management to a Private Sector The city planned to transfer the plant operation and management to a private sector aiming to achieve effective sewage treatment plant operation. Kwangju Sewage Treatment Plant, total capacity of - 13- 600,000 m3/day, was transferred to be operated by a private company from March, 1, 1998 as the first case in Korea. The visual results of private operation are reducing the operating costs and restructuring operating organization cutting off 2 sections with 6 subsections and 113 operating staffs. Present private operating staffs are 65 personnel with annual operating costs of 6,203 MW (city operating costs assumed up to 8,818 MW) reducing 2,615 MW per year. And it is expected that private idea and effective technologies could be applied to the management of basic environmental facilities and Kwangju case will be a model for other cities in Korea. 2-8. Key Lessons Learned Steady increases of urban population and sewage amount resulted in shortage of sewage treatment plant, and extension of sewage treatment plant became necessary. Sewage treatment plant construction took time (up to 5 years) with high capital costs affecting city's financial situation to incur debts. Therefore, private sector investment is preferable for large scale urban infrastructures like sewage treatment plant. - 14 - Comments from Seoul Metropolitan Government Chaapter 1. Introduction Seoul 1i the largest city of Korea, a hub of politics, economy, social affairs, cultfre and transportation. Since the 1980s. the amount of sewage has increased signdicantly due to rapid increase in populon and the improved Ihing stardings of the people. This has created many problems that Seoul Metopolitan Govemment has to solve, induding the worsened pollution of the Han River. In connection with this, Seoul Metopolitan Government established a "Master Sewerage Improvement Plan" in 1984 to preserve water quLaity of the Han River and to imprv. uhan environment to more comfortable veL The City Govemment dMded SeouL areas Into 4 sewerage treatment division In connecton with tee Han River development proJect and constructed 4 treatment plants: Chungrang, Tanchon, Kayang, and Nanji plants. Starting In the 1990s, many apartient complexes were conshucted in the soutwhest areas Covering Kangso-gu. Kwangmyong city, and Buchon city. Wrih continuous population growth and resulting Increase In sewage. it became Inpossible for the existing 1.000,000 m-lday capachy Kayang sewerage treatment plant to handle the eratre amount of sewge thus produced. To improve the situation, the Seoul City Govemment drw up a plan in 1992 to build another 1,000,000 liday sewerage trestment plant and in preparation for ths project, the Seoul City Government applied for a loan from IBRD to flU the shortage of the construction funds in 1991. After a loan of USS80,000,000 was approved on May 17, 199:I under agreement No.: LN-3590KO. part of the money was used to purchase major fadcilies and materials used In the conruruction of the seerage eabnt plant hwever, due to clange In the qum* d some fdlits ard ewange rate, the axrrunt ws changed to US$34,200,000, and US$S 514,000 left afltr the final expendture was executed was canceled When the cortucton f the 1,000,000 ueday capacity tearM p was compbted at the end of 1998, the Seoul City Govermwnt beme able to trmelt the entire amount of sewage generaed from the soutfwest aea d Seoul, contrit to lte iprovememt of te Han Rhier water qualty and the preventon d envimmeta polkuion. We would like to Wke this opportunity to express our deep appredation to ISRO for their ful cooperation. This reports re annex documents which accompany the lan execution report prepared upon completion of the loan proJect a borroweres report on evaluation and appraisal of te projec execution coverkn Seoul areas. - 15 - Chapter 2. Assessment of Loan Project Achlevment A. Seoul Component Objectives The folowing two goals were edabished for Seoul Areas, the B division of the loan agreement concluded for the major objects of the boan proec - irnprovement of environmental situation, technial and systematlc improvement in the sewage system, and the protertion of water Pollution. O The capacity of the exist Kayang (Anyang) sewerage treatrent plant Is to be expanded by 1,000,000 rriday O Carry out researd Nto water preservation ways The Seoul Metropolitan Government has devoted itseit to the successf competin d tohe above-said project Consructon sMted In December 1992 and completed In December 1998, and curently the system handls the entr amount of sewage generated. Research related to water preseraton was carried out fomn January 1994 to December 1997, and he final report was submitted In March 1998. Detaild evakuation on the achIevemnt of goals wil be described in the section. Achievement of goals B. Achievement of Objectives o Policy Improvement The sucesu complon d this prolect has greaty contuted to the environment improvement by preverwing water qualty droat on In the downtream of the Han River, and it is oonsidered that goals have been successfully attained in terms of system and chrg In th sewage btment field based on shes cas oLt on ommissioning private enterprises to operate the treatnent plant and on the Introduction of public corporation acounting system. The ts arrbed out in respect to water polution presorvation have enhaned consdcousness with respect t water qualty and nvironmentl polutDn rsuking In the reduction of sewage. Hence, the poIcy Improvement goals are considered as havin been successfuly achieved However, failure to mainan mnore than ROR 2% due to te current domostc prie polices and the delay in the enforcement of the public rporation accounting system are considered somewhat unsatsfactory. - 16- O Finandal Objectives To appropriate part of the budgets required to construct expanded padt of Kyayng sewerago treeament plnt a ob agreemernt was signed on May 17. 1993 between the Korean govemment and IBRD. The original plan caled for the use of USS 80,000,000 according to the loan agreement; however, the total arnount of loan was reduced to USS34,200,000 after adjusting the amount four imes due to the reduced quantity of facilities during the process, dNfference in the bid price, And the unroquired funds resuting from the rise in exchange rate. After the final amoxt was witdrwn in Februay 199Z an amount of USS514,199.24 reaiing after the pject executlon was canceUed. Tne actual amount od loan used was USS 33,685,800.76, indicating that the financial goals have been met auccessilily by saving contract commissions. < Reduction of loans > . Original amount of loan: US$80,000,000 1st adjustment of bans (Feb. 23, 1994): US58,500,6W0 (reduced by US$923,500,000) - part of machines reduced . 2nd adjusment of loans (Aug. S, 1995): US s54,500,000 (reduced by US I2,000,000) - final bid price based on contract , 3rd ad ent of ioans (Dec. 30, 1997): US 340,000,000 (reduced by US S 14,500,000) - unneeded amount esulting from the r1se In exchange rate . 4th adjustment of loans (Jan. 13, 1999): USS34,200,000 (reduced by USS5,80,W00) * unneded amount resutn from th rie In exchange rate Final loans wfthdmwn US S 33,685,800.76 (w32,393,708.000) . Cancelatlon of unexecued loan requested (Mar. 15, 1999): US S514,199.24 However, to maintaJn ROR 2% wth mspect to the Seoul City Sewerage proect fund Composed of transfers fom special account and general acoownt the seweage cdee rnwt be Increased cnsIdmbly. k Is dffiLt to impbment sch requiremnents due to IMF and ufting change in the domestic ecnowmic situat The Seoul City plans to gradually ise sewerage hares to 90% of the sewage treatment cost; however, as the shorte of funds is supported by transes from general count, it in effect carries the effect of raising ROR. - 17 - O Organization In October 1998, the Sewerage Bureau and the Road Bureau were incorporated Into the Road &Sewerage Bureau, while the technical business related to sewerage was placed under the responsibility of the sewerage planning Divsbn, and the admInistative aairs Iluding revenue and budget affairs were placed under the charge of the Constrution Adminstratlon Dvslon. o Physical Oblectives In June 1987, kayang sewerage treatment plant began operation with a capacity of 1,000,000 Inday to treat wage produced In the southwest sde of Seoul. As the amount of sewage generated from Kangso.gu, Kwangyong city, and Buchon city grew resulting from the construction of large-scale apartment complexes in te area the original capacity of the plant has far exceeded As a result rge amount of sewage has flown In and the lss treated sewage or unteated sewwage was dscharged Into the Han River agraveaing the Han River water quality and environmental poluior To solve such problem, the Seoul Metropolitan Govemment pushed ahead with the extension work (1,000,000 rlday) of Kayang sewerage treatment plant and has successfully completed the project under te support of liRD. Of the 1.000000 wlday capacity, farilities for 500.000 meday went into satdactory operaton staring In July 1998 through test operation, and the remaining 500,000 m/day capaciy facifties, starting from Janruary 1999. The Kayang sewerage treatment plant capacity was thus increased to 2,000,000 miday, enabkng the plant to successfully treat the eitire amount of sewage produced per day from the southwet part of Seoul (1,740,000 re) prior to discharging, contributIng to the prevention of water quality oontamiation at the lower steam of the Han River. In addition, jobs were cated for a total of 450,0D0 workers during the perod of this project and therefore physical goals are evaluatd as having been fully aoomplished. IBRD requested tat Seoul MMpoian Govrnoment carris out researde into water preservabon pmoject during the period of this project. and for 4 years during the period from 1994 to 1997, the Seoul City conducted researches on water preservation. Based on the results of such research acaivitiss the Seoul City was able to Implemnot systematic wator supply management and compulerization, prevention of water leakage, replaceenrt of defcve meters, and expanded suppty of water saving devies, greatly conbuting to the preservation of water. - 18- O Social Objectives Until a while ago, the sewerage treatment plants were reccgnlzed as detestable facilities due to the foul smell produced from sewage, and wiere constructed In underdeveloped, suburban areas far from contact with the general public. For this reason, the achievement level of the external social goals can be regarded as being somewhat insufficient. To minimize the occurrence of foul smel by Installing facilities and deodorizing equipment superior to those of other sewerage treatment plants, the Seoul City has constructed, and opened to residents, parks, sports facilities, parking lots, and publicky halls In the vicinity of the Gayang sewerage treatment plant. As a result, large apartment complexes were constructed near the Kayang sewerage treatment plart, and friendliness of the neighboring resdents was induoed by providing an opportunity to inspect the facilties, enhancing the awareness with respect to the protedion of water pollution and environment. Hence, the internal goal achievement lvel is considered satisfactory. O Environmental Objeies When the expansion plan was established in 199Z part of sewage could not be treated due to the task of treatment capacity, and because the exising 1t000,000 torVday plant was only a primary facility, such shortage of capacty has induoed environmnental polAluon Induding the water quaty deterioreilon at the downsrnea of the Han River. In December, 1994, secondary treatment plant was completed to supplement the exdstlng 1.000,000 tonlday plant, and when the 1.000,000 tonlday expansion work was completed In December, 1998, the total capacity became 2000,000 ton/day which is capable of treatin all sewage fowing Into Ka-Yang Sewage Treament Plant As a result, thbs is considered to have satisfied environmental obJectives by greatly contributing to the preventon of water quality at the downstream of thei Han Rier. Water pollution Improvement after the competion of Kayang sewerage treatment plant Is shown in the foilowing Tab-1. cTab-1> As of May 30,1992 As of Dec. 30, 1998 Item Influent Water Effluent Water Influent water Effluent water Pollution Pollution Pollution Pollution BOD 99 68 90 13 COD 53 47 47 10 SS 106 77 93 9 - 19 - C. Major Factors Affecting Implementation O Factors subject to government control Under a close cooperathve system between the Minist;y of Finance and Economy of the Republic of Korea, ard the Seoul MetopoUtan Govemment, the responsible party for the project plannin and execution, the loan project was able to be successfully oompleted. o Factors subject to Implementing Agends Control There were no ntable elmrts controlled by the workIng body during the process of Implementation. However, due to collective civil petons related to the compensation for farmers In the plnned site: lack of Investrmnts in e inlla oDnstriction; and the lack absolute constbrcon period, the costruction work was postponed for 2 tines, adversely affcting the implementaton of the pmject Revise construction penod (1) Jun. 15, 1995: 1st Revise of construction period Original: Dec 30, 1992 - Dec. 31, 1996 Revised: Dec. 30, 1992 - DeO. 31, 1997 Reason: Delayed cii works resulrng from the oollective cMl petiions filed In releaon lo the comperstion for farring, end the lack of al investments. (2) Sep. 6, 1996: 2nd Revsbe oonsuction period Orginae: Dec. 30, 1992 - Dec. 31, 1997 Revised: Dec. 30, 1992 - Dec 31, 1998 Reason Lack of absolute coruction period o Factor Outside of Govement During the finishing process of Fe profect, works were delayed due to faility change, econ n of some auloment and additional work requested by the existing workers of Kayang sewerage teatment plant, the actual party taking over Xh facilities, In addition to control by the Govemment and executive body. To prevent such phenomenon In future, the actual workers who take over, operate and maintain the reaWtent plant should be allowed to participate in the ntial phase of work not in the fnal phase of the work, to exchae opinIons In advance. - 20 - D. Bank Performance O As Seoul project objectives, IBRD has chosen 2 items: expansion of the capacity of the current Ka-yang sewerage treatment plant by 1,000,000 ton/cay and researches Into water preservation to improve Seoul citys environmental situation, systematically and technically improve sewage treatment system, and to preserve water. These ltems, while being simple and clear, are considered appropriately chosen as an important task to be performed by the Seoul Metropolitan Government. O The high awareness and judgement of IBRD with respect to this project were particularly noteworthy in the administrative and financial roles, and each time the bank mission visited Korea, they checked the progress of the water preservation researches, and their evaluation was extremely satisfactory. o The Seoul Metropolitan Govemment feels very satisfied with the fact that the mission visited Seoul and made detaied, repeated site inspecttns and provided guidance prior to making decision on loans, offering technical and systematic advice regarding the commissioning of private entexprises to operate the treatbent plant, introduction of public corporation accounting system, and maiintenance of ROR 2%. o However, we feel it was somewhat unreasonable that the I1RD requested us to maintain ROR 2% which is difficult on the part of the Seoul MetropoLtan Government due to prie policy reasons and demanded introduction of the public corporation accounting system. E. Borrower Performance o The Kayang sewerage treatmrent plant extension project was Implemented with an aim to Increase sewage treatment capacity to 2,000,000 meday from the existing 1,000,000 zrqday leveL The project was financed by the domestic capital 83.8% and the IBRD loan 16.2% (for machinery, electri and nstnirment arndl materiabs). Even though Ute project was completed 2 years later than the original plan, it can be regarded as a sucoessful project In generaL o There have been some chawges In the machinery, electical facililies and materials originally requested to IBRD at the tie of signing agreement, and part of the amount became unnecessary due to large level of exchange rate change, affectig overall plan of using the loans. 0 The construction period has been delayed by 2 years due to delayed site aquisition resulting from colbctive ctvil petitions relating to compensation for farming, low level of Inital Investment In cMi works, and shostage of absolute oonstrucUon period; however, we feel satisfied about the sucessful execution of the project in terms of overall execution and operation. - 21 - F. Assesment of Outcome o The.successful completon of the project carried out to Increase the capacity of Kayang sewerage treatment plant by 1,000,000 m'jday made ft possible to treat te entire amount d sewage generated from the souhwest part of Seoul, greatly cortnbuting to the water quaflty improvement of the downstrem of the Han River. o ACeBsS to advanced technologies, system and technique was made through researches conducted to stdy ways of preserving water, converting to public business accounting system, and commissoning private enterprises tD operate the treatment plant In all. we believe that most physlcal goals have been achieved C. Future operatlon o Facility capacIty wil be expanded annually untIl 2011 to enable treatment of the "re anOUlt d sew , and reduce hifbow of ground water by reaqusting pipeline. o Ultimately, the Seoul Metropolitan Govemment intends to oommission private enterprses to run the 4 sewerage bMerte plant: Chungrang, TaXchon, Kayang. and Nanji directly controed by the City. In order to achieve management efficlency, revialize ivlian market and induce enhancement in the developmern of related tochnlogies. Flrst the City plans to seWc one treatnent plait and assign the operation of the beatment plant to cvian enterprses on a trial basis starting in 2000. o Furthermore, the City plans to cover the upper part of the plant and use it as the site of parks and sports fadcities to provide resting place for the residents and Induce citizen's sense of intimacy. This will change ctizen's awan3ness with respect to the treatent planrs. To mhimize the neighbor's sense of displesure, deodorizing Jacilitles will be insted in full scale along with ila construbcon of musoums so that citzens and students can use the area as a courke of inspecdon. 0 1999 - 2003.s Fnancial plan Is will be Ready and Subrnittd by mission when day Visit Seoull H. Key lessons learned O The fact that the project has been successfully completed througlh the use of IBRD loans to fl the shortage of the construction funds together with the banzes advanced tochnologes and systems, and by maintaining cbse cooperatve systems beteen the bank and the domestic partner has greatly contributed to the preservatlon of water quarity, eaming affection of neighbors. - 22 - O Plans to commission civilian sectors to rUn the treatmerit pants and access to public business accounting system have provided an opportunity to realze salient development in terms of technologies and systems. o Of the direct withdrawal system, specal account system, and special agreement system related to the wlhdrwa of the loonm for the ptxtase of materials, special agreement system was adopted and appoved. This Ls believed to have simplified accoulng system eadhg to the preention of the weast of administrative manpower, and it Ia desirable to adopt such system in future loan projects. O It is regrettable, however, that the project has beenl6omplited later than the original plan because the constuton period,w eflpeifedly delayed due to problems related to compensation for frming, frequent design changes, reduction of project cost and other lack d pior prepamtons. and through such essons, we have actually experienced the noceseity of maidng detailed prior angoemnt. o Some terms and conditions of agreement, such as the ntroduction of public business acounting systm which was difflicuk to implmert due to the domestic dircumstances, and the malntenance of ROR 2% were some of the things dificult to observe. O It seems desirable to conclude a loan agreement In te direction of encouaging or gukidin advanced system so that the bonower can iimpbment prolects aording to domestic situation, ratheor tan pnrAving loans under the pertornance conditions prescribed by the bank. - 23 - (b) Cofinanciers: Not applicable. (c) Other partners (NGOs/private sector): Not applicable. 10. Additional Information none - 24 - Annex 1. Key Performance Indicators/Log Frame Matrix Outcome c Impact Indicators: Kwangju: Total treatment capacity 600,000 m31day in 1997 600,000 m3/day constructed In 1997 Water conservation study Completion and review of recommendations Study completed and recommendatons in July 1996 reviewed in April 1996; NRWwas reduced Environmental monitoring program Collect and evaluate data on wastewater Performance monitored six months before treatnment plant performance and impact of and six months after start of operations and plant operatons found satisfactory Reduction of organic pollution in Yongsan Reduction by 62 tUday expressed in BOD and Pollution equivalent to 64 t/day of BOD and River 62 tWday of suspended solids in 1998 82 tlday of SS achieved in 1998 Rate of retum on rixed assets in operations 3% starting from 1993 Rate of retum positive, but lower than required Seoul: Kayang total treatment capacity 2,000,000 m3/day in 1997 2,000,000 m3/day constructed in 1999 Water conservation study Completion and review of recommendatons Study completion and reviewed In May 1998; in July 1996 NRW moderately reduced Environmental monitoring program Collet and evaluate data on wastewater Performance monitored six months before treatment plant performance and impact of and six months after start of operations and plant operations found satisfactory Reduction of organic pollution in Han River Reduction by 200 tUday expressed in BOO Pollution equivalent to 152 tUday of BOD and and 220 Vday of suspended solids in 1998 157 Vday of SS achieved in 1999 Rate of retum on revalued fixed assets in 2% starting from 1993 Fixed assets were not revalued, RR values oeprations cannot be determined Output Indicators: Kwangdu: Preparation and timeliness of financial and Gradual improvement Timeliness and quality improved operational reports Seoul: Introduction accrual accounting system Conversion of wastewater agency to local Wastewater agency was not converted to public corporation (LPC) status in 1993 LPC End of project -25 - Annex 2. Project Costs and Financing Project Cost by Component (in US$ million equivalent) Kwangju 133.01 125.92 95 Seoul 375.05 287.30 77 Total Baseline Cost 508.06 413.22 Total Project Costs 508.06 413.22 Total Financing Required 508.06 413.22 Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent) 1. Works 0.00 0.00 0.00 238.70 238.70 (0.00) (0.00) (0.00) (0.00) (0.00) 2. Goods 208.00 3.00 0.00 0.00 211.00 (107.50) (2.50) (0.00) (0.00) (110.00) 3. Services 0.00 0.00 0.00 13.40 13.40 (0.00) (0.00) (0.00) (0.00) (0.00) 4. Miscellaneous (Land) 0.00 0.00 0.00 45.00 45.00 (0.00) (0.00) (0.00) (0.00) (0.00) Total 208.00 3.00 0.00 297.10 508.10 (107.50) (2.50) (0.00) (0.00) (110.00) Project Costs by Procureme t Arrangements (Actual0Latest Estimate) (US$ million equival(t) 1. Works 0.00 0.00 0.00 234.10 234.10 (0.00) (0.00) (0.00) (0.00) (0.00) 2. Goods 68.60 0.00 0.00 47.30 115.90 (39.30) (0.00) (0.00) (0.00) (39.30) 3. Services 0.00 0.00 0.00 10.90 10.90 (0.00) (0.00) (0.00) (0.00) (0.00) 4. Miscellaneous (Land) 0.00 0.00 0.00 52.30 52.30 (0.00) (0.00) (0.00) (0.00) (.00) Total 68.60 0.00 0.00 344.60 413.20 (39.30) (0.00) (0.00) (0.00) (39.30) Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies. - 26 - 2 Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units. ProjectFinancin b Com onent(in US$ million equivalent) .ppr - . . . . . ..of Appr9ael ______________ j~- ~.vt| CoF ~ C~,. h CoaL Kwangju 30.00 5.63 16.07 104.22 18.8 0.0 0.0 Seoul 80.00 33.69 169.04 84.57 42.1 0.0 0.0 0.0 0.0 0.0 a) Actual cost estimates ofthe water conservation studies at US$0.31 million equivalent were financed by respective water agencies rather than project funds. The studies were not included in the initial project estimates on request of water agencies and also due to experimental character of the studies and uncertainty of cost estimates. - 27 - Annex 3: Economic Costs and Benefits Key Assumptions: (I) During the investment phase, 10% of the cost is for tax and tariffs; (2) The level of recurrent cost will stay at 1999 level (constant price); (3) The value of wastewater treated is equal to the tariff charged; and (4) All costs and benefits are converted to 1999 prices. - 28 - Kwan2ju Cost Benefit Analysis Table (million won) Year Investment Recurrent Total Cost Benefits Net Cost Cost 1993 17,401 - 17,401 - (17,401) 1994 11,253 - 11,253 - (11,253) 1995 27,712 - 27,712 - (27,712) 1996 22,044 - 22,044 - (22,044) 1997 26,347 - 26,347 - (26,347) 1998 2,070 - 2,070 - (2,070) 1999 - 10,776 10,776 17,257 6,481 2000 - 8,082 8,082 17,257 9,175 2001 - 8,082 8,082 17,257 9,175 2002 - 8,082 8,082 17,257 9,175 2003 - 8,082 8,082 17,257 9,175 2004 - 8,082 8,082 17,257 9,175 2005 - 8,082 8,082 17,257 9,175 2006 - 8,082 8,082 17,257 9,175 2007 - 8,082 8,082 17,257 9,175 2008 - 8,082 8,082 17,257 9,175 2009 - 8,082 8,082 17,257 9,175 2010 - 8,082 8,082 17,257 9,175 2011 - 8,082 8,082 17,257 9,175 2012 - 8,082 8,082 17,257 9,175 2013 - 8,082 8,082 17,257 9,175 2014 - 8,082 8,082 17,257 9,175 2015 - 8,082 8,082 17,257 9,175 2016 - 8,082 8,082 17,257 9,175 2017 - 8,082 8,082 17,257 9,175 2018 - 8,082 8,082 17,257 9,175 2019 - 8,082 8,082 17,257 9,175 2020 - 8,082 8,082 17,257 9,175 2021 - 8,082 8,082 17,257 9,175 2022 - 8,082 8,082 17,257 9,175 2023 - 8,082 8,082 17,257 9,175 2024 - 8,082 8,082 17,257 9,175 2025 - 8,082 8,082 17,257 9,175 2026 - 8,082 8,082 17,257 9,175 2027 - 8,082 8,082 17,257 9,175 2028 - 8,082 8,082 17,257 9,175 2029 - 8,082 8,082 17,257 9,175 2030 - 8,082 8,082 17,257 9,175 2031 - 8,082 8,082 17,257 9,175 2032 - 8,082 8,082 17,257 9,175 2033 - 8,082 8,082 17,257 9,175 2034 - 8,082 8,082 17,257 9,175 2035 - 8,082 8,082 17,257 9,175 2036 - 8,082 8,082 17,257 9,175 2037 - 8,082 8,082 17,257 9,175 2038 - 8,082 8,082 17,257 9,175 2039 - 8,082 8,082 17,257 9,175 NPV 78,524 46,087 124,611 95,456 (29,155) ERR: 6.6% - 29 - Seoul Cost Benefit Analysis Table (million won) Year Investment Recurrent Total Cost Benefits Net Cost Cost 1993 43,870 - 43,870 - (43,870) 1994 27,978 - 27,978 - (27,978) 1995 78,484 - 78,484 - (78,484) 1996 43,645 - 43,645 - (43,645) 1997 31,707 - 31,707 - (31,707) 1998 29,874 - 29,874 - (29,874) 1999 16,868 - 16,868 - (16,868) 2000 18,368 18,368 47,362 28,994 2001 19,965 19,965 47,362 27,397 2002 19,965 19,965 47,362 27,397 2003 19,965 19,965 47,362 27,397 2004 19,965 19,965 47,362 27,397 2005 19,965 19,965 47,362 27,397 2006 19,965 19,965 47,362 27,397 2007 19,965 19,965 47,362 27,397 2008 19,965 19,965 47,362 27,397 2009 19,965 19,965 47,362 27,397 2010 19,965 19,965 47,362 27,397 2011 19,965 19,965 47,362 27,397 2012 19,965 19,965 47,362 27,397 2013 19,965 19,965 47,362 27,397 2014 19,965 19,965 47,362 27,397 2015 19,965 19,965 47,362 27,397 2016 19,965 19,965 47,362 27,397 2017 19,965 19,965 47,362 27,397 2018 19,965 19,965 47,362 27,397 2019 19,965 19,965 47,362 27,397 2020 19,965 19,965 47,362 27,397 2021 19,965 19,965 47,362 27,397 2022 19,965 19,965 47,362 27,397 2023 19,965 19,965 47,362 27,397 2024 19,965 19,965 47,362 27,397 2025 19,965 19,965 47,362 27,397 2026 19,965 19,965 47,362 27,397 2027 19,965 19,965 47,362 27,397 2028 19,965 19,965 47,362 27,397 2029 19,965 19,965 47,362 27,397 2030 19,965 19,965 47,362 27,397 2031 19,965 19,965 47,362 27,397 2032 19,965 19,965 47,362 27,397 2033 19,965 19,965 47,362 27,397 2034 19,965 19,965 47,362 27,397 2035 19,965 19,965 47,362 27,397 2036 19,965 19,965 47,362 27,397 2037 19,965 19,965 47,362 27,397 2038 19,965 19,965 47,362 27,397 2039 19,965 19,965 47,362 27,397 NPV 196,988 99,444 296,432 237,674 (58,758) ERR: 7.4% - 30 - Annex 4. Bank Inputs (a) Missions: Stage of Project Cycle No. of Persons and Specialty Performance Rating eg2 Economists, I FMS, etc.) Implementation Development Month/Year Count Specialty Progress Objective Identification/Preparation October 1991 3 Sanitary engineer, Municipal engineer, Financial analyst April/May 1992 6 Sanitary engineer (2), Procurement specialist, Water conservation specialist, Environment specialist, Financial analyst Appraisal/Negotiation November 1992 5 Sanitary engineer (2), Water conservation specialist, Environment specialist, Financial analyst Supervision March 1994 2 Financial analyst, Sanitary S S engineer May 1996 3 Financial analyst, Sanitary S S engineer (2) May 1997 2 Financial analyst, Sanitary S S engineer May 1998 4 Financial specialist, Engineer S S Environmentalist, Sanitary engineer January 1999 2 Financial specialist, Sanitary S S engineer ICR August 1999 3 Financial specialist, S S Economist, Sanitary engineer (b) Staff Stage of Project Cycle Actual/Latest Estimate No. Staff weeks US$ (,000) Identification/Preparation 89.20 247.50 Appraisal/Negotiation 5.10 18.20 Supervision 66.40 213.50 ICR 10.93 57.85 Total 171.83 537.05 - 31 - Annex 5. Ratings for Achievement of Objectives/Outputs of Components (H=High, SU=Substantial, M=Modest, N=Negligible, NA-=Not Applicable) Rating Z Macro policies O H OSUOM O N * NA Z Sector Policies O H *SUOM O N O NA Z Physical * H O SU O M O N O NA 3 Financial O H *SUOM O N O NA 2 Institutional Development O H * SU O M 0 N 0 NA Environmental * H O SU O M O N O NA Social 0 Poverty Reduction O H OSUOM O N * NA IGender OH OSUOM ON * NA Z Other (Please specify) O H O SU O M O N * NA 2 Private sector development 0 H O SU O M 0 N 0 NA z Public sector management 0 H * SU O M 0 N 0 NA Z Other (Please specify) OH OSUOM ON * NA - 32 - Annex 6. Ratings of Bank and Borrower Performance (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory) 6.1 Bank performance Rating * Lending OHS OS OU OHU * Supervision OHS OS OU OHU M Overall OHS OS O U O HU 6.2 Borrower performance Rating 2 Preparation OHS OS O U O HU X Government implementation performance 0 HS OS O U 0 HU Z Implementation agency performance OHS OS OU O HU H Overall OHS *S O U O HU - 33 - Annex 7. List of Supporting Documents 1. ICR Borrower's contribution, Kwangju 2. Kwangju: Report of Post Construction Environmental Effects 3. Organization Chart of Kwangju Environment and Forestry Bureau 4. Kwangju River Quality Monitoring Data, by Kwangju Water Quality Conservation Department 5. ICR Borrower's contribution, Seoul 6. Seoul: Post-Environmental Impact Assessment Service Agreement 7. Seoul: Additional data submitted to ICR mission 8. Environment Monitoring Data from Kayang Sewerage Treatment Plant 9. Detailed Cost Tables 10. Calculation of Financial Rate of Returns 11. IBRD's ICR mission aide-memoire - 34 -