Document of The World Bank Report No: ICR0000793 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-32110 TF-24899) ON A CREDIT IN THE AMOUNT OF SDR 59.4 MILLION (US$ 80.5 MILLION EQUIVALENT) TO THE SOCIALIST REPUBLIC OF VIETNAM FOR THE THREE CITIES SANITATION PROJECT June 25, 2009 Urban Development Unit Sustainable Development Program in Vietnam East Asia and Pacific Region CURRENCY EQUIVALENTS Currency Unit = Vietnamese Dong VND 13,800 = US$1.00 December 1999 - Appraisal VND 16,100 = US$1.00 September 2007 US$ 1.3567 = SDR 1.00 March 1999 - Negotiations US$ 1.5652 = SDR 1.00 January 2009- Completion FISCAL YEAR January 1 ­ December 31 ABBREVIATIONS AND ACRONYMS AusAID = Australian Agency for International Development BOD = Biochemical Oxygen Demand CAS = Country Assistance Strategy CMC = Construction Management Consultant DANIDA = Danish International Development Agency DCA = Development Credit Agreement ERR = Economic Rate of Return EIA = Environmental Impact Assessment EMP = Environmental Management Plan FINNIDA = Finnish Department of International Development Cooperation IDA = International Development Association JICA = Japanese International Cooperation Agency JBIC = Japanese Bank for International Cooperation M&E = Monitoring and Evaluation MPI = Ministry of Planning and Investment MOC = Ministry of Construction MOF = Ministry of Finance MONRE = Ministry of Natural Resources and Environment NPV = Net Present Value O&M = Operations and Maintenance PAD = Project Appraisal Document PC = People's Committee PDO = Project Development Objective PMU = Project Management Unit PSP = Private Sector Participation RAP = Resettlement Action Plan RPF = Resettlement Policy Frameworks SADCO = Sewerage and Drainage Company (in Haiphong) SBD = Standard Bidding Documents SBV = State Bank of Vietnam SS = Suspended Solids SWM = Solid Waste Management URENCO = Urban Environmental Company (in Danang and Quang Ninh) WDSSMP = Water Supply, Drainage, Sewerage and Sanitation Management Program WWTP = Waste Water Treatment Plant = WU Women's Union Vice President: James W. Adams Country Director: Victoria Kwakwa Sector Manager: Hoonae Kim Project Team Leader: Hung Duy Le ICR Team Leader: Hung Duy Le ii SOCIALIST REPUBLIC OF VIETNAM THREE CITIES SANITATION PROJECT TABLE OF CONTENT Data Sheet ------------------------------------------------------------------------------------------iv A. Basic Information......................................................................................................iv B. Key Dates.................................................................................................................. iv C. Ratings Summary......................................................................................................iv D. Sector and Theme Codes ........................................................................................... v E. World Bank Staff........................................................................................................v F. Results Framework Analysis.....................................................................................vi G. Ratings of Project Performance in ISRs .................................................................viii H. Restructuring (if any)................................................................................................ix I. Disbursement Profile..................................................................................................ix 1. Project Context, Development Objectives and Design--------------------------------1 2. Key Factors Affecting Implementation and Outcomes-------------------------------4 3. Assessment of Outcomes--------------------------------------------------------------------9 4. Assessment of Risk to Development Outcome:--------------------------------------- 13 5. Assessment of World Bank and Borrower Performance--------------------------- 13 6. Lessons Learned---------------------------------------------------------------------------- 14 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners-- 15 Annexes -------------------------------------------------------------------------------------------- 16 Annex 1: Project Costs and Financing.......................................................................... 16 Annex 2: Outputs by Component ................................................................................. 17 Annex 3: Economic and Financial Analysis................................................................. 20 Annex 4: World Bank Lending and Implementation Support/Supervision Processes. 23 Annex 5: Beneficiary Survey Results........................................................................... 25 Annex 6: Stakeholder Workshop Report and Results .................................................. 26 Annex 7: Summary of Borrower's PCRs and/or Comments on Draft ICR .................. 27 Annex 8: Comments of Co-financiers and Other Partners/Stakeholders ..................... 30 Annex 9: List of Supporting Documents...................................................................... 32 Annex 10: Danish Trust Fund for Quang Ninh Sub-Project ....................................... 33 MAPs ............................................................................................................................ 40 iii A. Basic Information THREE CITIES Country: Vietnam Project Name: SANITATION PROJECT Project ID: P051553 L/C/TF Number(s): IDA-32110,TF-24899 ICR Date: 06/25/2009 ICR Type: Core ICR SOCIALIST Lending Instrument: SIL Borrower: REPUBLIC OF VIETNAM Original Total Commitment: XDR 59.4M Disbursed Amount: XDR 51.9M Environmental Category: A Implementing Agencies: Project Management Unit Haiphong Sub-project Project Manangement Unit Quang ninh sub-project Project Management Unit Danang sub-project Cofinanciers and Other External Partners: Finnish Department of International Development Cooperation (FINNIDA) Danish International Development Agency (DANIDA) Australian Agency for International Development (AusAid) B. Key Dates Process Date Process Original Date Revised / Actual Date(s) Concept Review: 01/07/1998 Effectiveness: 01/31/2000 Appraisal: 01/29/1999 Restructuring(s): 12/24/2003 Approval: 05/18/1999 Mid-term Review: 09/26/2003 Closing: 06/30/2005 06/30/2008 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Moderately Satisfactory Government: Satisfactory Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory i Overall Bank Overall Borrower Performance: Satisfactory Performance: Satisfactory C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Performance Indicators (if any) Rating Quality at Entry at any time (Yes/No): Potential Problem ProjectNo (QEA): None Problem Project at any Quality of time (Yes/No): Yes Supervision (QSA): None DO rating before Moderately Closing/Inactive status: Satisfactory D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Flood protection 43 49 Other industry 6 18 Sanitation 1 3 Sewerage 27 22 Solid waste management 23 8 Theme Code (as % of total Bank financing) Environmental policies and institutions 23 23 Municipal finance 22 22 Municipal governance and institution building 11 11 Other urban development 22 22 Pollution management and environmental health 22 22 E. Bank Staff Positions At ICR At Approval Vice President: James W. Adams Jean-Michel Severino Country Director: Victoria Kwakwa Andrew D. Steer Sector Manager: Hoonae Kim Keshav Varma Project Team Leader: Hung Duy Le Alan Coulthart ICR Team Leader: Hung Duy Le ICR Primary Author: Richard M. Beardmore Julia Shane Li F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) (a) sustained improvements to public health, and (b) incr eased economic development, by reducing the incidence of flooding; upgrading the urban environment; and developing more efficient and financially sustainable sanitation and drainage companies (SDCOs) in Danang, Haiphong and Quang Ninh Province (Halong City and Cam Pha). Revised Project Development Objectives (as approved by original approving authority) No revisions to the PDO were made. (a) PDO Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Revised Achieved at approval Target Completion or documents) Values Target Years Reduction in water-related and vector borne diseases # annual cases treated and Indicator 1 : deaths arising from: diarrhea, dysentery, cholera, typhoid, and malaria in phuongs by the project (cases) Value quantitative or Danang: 4051; Quang No target set N/A Danang: 1661; Qualitative) Ninh: 239 Quang Ninh: 251 Date achieved 12/31/2002 12/31/2002 09/26/2003 12/31/2006 Comments These diseases have been on the decline since 2002. More sanitary environment (incl. % created by project interventions played a role. The extent of this role cannot be achievement) determined precisely because many external factors influenced the outcome. Indicator 2 : Increase in the number of tourist nights and annual income arising from tourism in Danang, Halong and Haiphong (visitors/VND billion). DN: 460K visitors DN: 770K visitors Value VND167bn; QN VND286bn; QN quantitative or (Halong): 2.3mn visitors No target set N/A (Halong): 3.1mn Qualitative) VND543bn; HP: 1.45mn visitors visitors VND2.117bn; HP:2.96mn visitors Date achieved 12/31/2002 12/31/2002 09/26/2003 12/31/2006 Comments Increased by 69% in DN and 113% in Halong and by 100% in HP. Revenue (incl. % increased by similar margins. The cleaner environment certainly made the achievement) project cities more attractive for tourists but many external factors impacted tourism trends. (b) Intermediate Outcome Indicator(s) Original Target Formally Actual Value Indicator Baseline Value Values (from Achieved at approval Revised Completion or documents) Target Values Target Years Indicator 1 : Solid waste management: annual weight of waste delivered to disposal sites vi (T/year) Danang: Danang: Value Danang: 100,000 T p.a.; 170,000T/p.a.; 180,145T/p.a.; (quantitative Halong: 25,000 T/p.a.; Halong: 50,000 N/A Halong: 120,500 or Qualitative) Cam Pha 10,000 T/p.a. T/p.a.; Cam Pha: T/p.a.; Cam Pha: 24,000 T/p.a. 65,660 T/p.a. Date achieved 03/31/1999 12/31/2007 09/26/2003 10/18/2008 Comments Exceeded targets in Danang, Halong and Cam Pha by 6%, 140% and 170%. This (incl. % was due to more efficient operation of the URENCOs under the project; staff achievement) management skills improved and the agencies procured new vehicles. Indicator 2 : Revolving funds for new or improved on-site septic tanks and toilets facilities (number of loans) Cumulative figures: Danang: Value 13,000; Haiphong: Danang: 13,055; (quantitative Danang: 0; Haiphong: 8,000; Quang N/A Haiphong: 14,948; or Qualitative) 0; Quang Ninh: 0 Ninh: 10,000; Total: 31,000. Quang Ninh: 8,608 Component completed Date achieved 12/31/1999 01/31/2006 09/26/2003 12/31/2006 Comments (incl. % The component progressed quickly and all funds were lent to households by achievement) June, 2004. Indicator 3 : Private sector participation: percentage of solid waste collection and septic tank emptying by private contractor Danang SW=30% Danang SW=0% & Danang SW: 12% & & volume of volume of sludge=45%; sludge=100%; Value volume of sludge=25%; Haiphong volume Haiphong volume (quantitative Haiphong: SW=n.a. & of sludge=55%; No revision of sludge=15%; or Qualitative) volume of sludge=10%; Quang Ninh: SW=13% Quang Ninh: Quang Ninh: & volume of sludge=n.a. SW=35% & SW=100% & volume of volume of sludge=35% sludge=0% Date achieved 12/31/1999 10/10/2007 09/26/2003 12/31/2008 Comments Danang contracted out all sludge removal and treatment and private sector (PS); (incl. % participation quadrupled. Haiphong PS sludge removal increased by 50% but did achievement) not meet target values. Quang Ninh's use of private contractors increased dramatically. Indicator 4 : Drainage: annual duration of flooding in hours and depth per flooding occurrence in 10 locations (example Quang Ninh) Value 20-40 mm (quantitative N/A No target set deep; 30-200 10-20 mm deep; or Qualitative) minutes 15-20 minutes Date achieved 12/31/1999 09/26/2003 10/31/2003 06/30/2008 Comments Initial results observed in Haiphong and Danang are similar. Most systems have (incl. % been in operation for about one year and therefore output values should be achievement) consistently monitored. vii Institutional strengthening of sanitation service providers: percentage of O&M Indicator 5 : and vehicle/equipment depreciation costs recovered as user fees (% of costs recovered from revenue) Value HP: 101%; HP: 100%; HP: 48%; Halong: (quantitative HP: 0%; Halong: 37%; Halong: 108%; Halong: 83%; Cam or Qualitative)Cam pha:28%; DN: 80% Cam pha:81%; Cam pha:83%;42%; DN: 145% DN: 100% pha:42%; DN: 52% Date achieved 03/31/1999 08/31/1999 10/31/2003 06/30/2007 Comments Cost recovery in 2007 did not meet targets because PCs were unable to approve (incl. % tariff increases. In Danang the % of costs recovered in 2007 was less than the achievement) baseline because of a rise in operating costs, caused by higher service levels. Indicator 6 : Sewers and sewage treatment: reduced biochemical oxygen demand, suspended solids and feacal coliform levels in receiving waters (BOD mg/l) Value (quantitative N/A No target set No target set Danang: 68; Quang or Qualitative) Ninh: 8 Date achieved 12/31/1999 12/31/1999 09/26/2003 12/31/2008 Comments Measurement of water qualities at Quang Ninh's tidal gates showed a reduction (incl. % in BOD from 80 mg/l to 8 mg/l. The average at all three sites was 13/mg/l, achievement) meeting the national standard of 25 mg/l. Trial runs of the wastewater systems were positive. G. Ratings of Project Performance in ISRs Actual No. Date ISR Archived DO IP Disbursements (USD millions) 1 06/14/1999 Satisfactory Satisfactory 0.00 2 12/21/1999 Satisfactory Satisfactory 0.00 3 06/21/2000 Satisfactory Satisfactory 0.00 4 12/20/2000 Satisfactory Satisfactory 0.30 5 06/20/2001 Satisfactory Satisfactory 0.60 6 12/27/2001 Satisfactory Satisfactory 1.39 7 05/06/2002 Satisfactory Satisfactory 4.32 8 10/08/2002 Satisfactory Satisfactory 7.14 9 06/05/2003 Satisfactory Unsatisfactory 14.01 10 12/24/2003 Satisfactory Satisfactory 21.05 11 06/14/2004 Satisfactory Satisfactory 24.68 12 12/21/2004 Satisfactory Satisfactory 28.53 13 06/17/2005 Satisfactory Moderately Satisfactory 31.27 14 01/09/2006 Satisfactory Moderately Satisfactory 37.89 15 06/09/2006 Satisfactory Unsatisfactory 42.24 16 10/18/2006 Moderately Satisfactory Unsatisfactory 46.72 17 06/27/2007 Moderately Satisfactory Moderately Satisfactory 57.15 18 12/22/2007 Moderately Satisfactory Satisfactory 68.13 19 03/28/2009 Satisfactory Satisfactory 75.70 20 04/24/2009 Satisfactory Satisfactory 75.70 viii H. Restructuring (if any) ISR Ratings at Amount Restructuring Board Restructuring Disbursed at Reason for Restructuring & Date(s) Approved Restructuring PDO Change DO IP in USD Key Changes Made millions 12/24/2003 S S 21.05 I. Disbursement Profile ix 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal 1.1.1 Country Background: Vietnam's urban population increased rapidly during the 1990s. The Doi Moi (renovation) program of 1987 sparked a decade of growth and the ensuing rapid urbanization caused pressure on inadequate sanitation, drainage, sewerage and water supply services. Environmentally sensitive areas were threatened by industrialization and urbanization. At the time of appraisal, these pressures were expected to increase as Vietnam's percentage of urban residents, representing about 20% of the population, was still lower than developing nations' standards. This reflected earlier government policies that had favored rural areas and led to low urban growth rates from 1975 until the beginning of Doi Moi. The prospect of continued rapid urbanization called for higher investment in water supply and sanitation. Private sector participation in infrastructure was low and urban managerial capacity needed strengthening in order for urban infrastructure provision to become more efficient. 1.1.2 Government Strategy: The Government's sanitation sector strategy was developed with assistance from UNDP/World Bank in 1990 and the updated with support from the Finnish Government in 1995/96. The strategy diagnosed under-investment in sanitation works, low coverage and lack of wastewater treatment facilities, as well as excessive subsidies of sanitation recurrent costs and an ineffective administrative structure. In response the sector strategy sought to: (i) rehabilitate existing networks and facilities; (ii) develop policies and institutions to promote a more market oriented system; (iii) develop, through public education, a better awareness of the importance of more effective sanitation services; and (iv) gradually phase out subsides and replace them with user charges. The strategy included measures to decentralize septage and solid waste collection to the local level, commercialize public utilities and encourage greater cost recovery by the Urban Environmental Companies (URENCOS) and Sewerage and Drainage Companies (SADCOs). 1.1.3 Rational for Bank Involvement: The project supported the World Bank's Country Assistance Strategy (CAS: 2001-2006) to raise productivity through urban infrastructure by making the project cities more competitive, improving their "livability" and enhancing their "bankability."2 It also supported the reform of state owned enterprises by requiring the agencies responsible for sanitation and drainage to recover a greater proportion of their costs and to increase private sector participation. The project supported the Government's sectoral policies of decentralization, increased private sector participation, and movement towards commercialization of the SADCOs and URENCOs by introducing user charges and strengthened management. The project was the first Bank financed sanitation project in Vietnam and one of the earliest projects to invest in the urban sector, and to be implemented at the sub-national level. It was also one of the first projects to comprehensively address environmental sanitation issues for urban cities and introduce commercial practices in the urban sanitation companies. 2In Vietnam water supply is a provincial government responsibility. Each province has a public sector sewage and drainage company. In Danang and Quang Ninh they are known as URENCOs. In Haiphong the service provider is known as SADCO. Haiphong and Danang are cities with provincial status. Quang Ninh is a province in which the project supported the two main cities: Halong and Cam Pha. Haiphong, Danang and Quang Ninh are referred to collectively as "the cities" throughout the ICR. 1 1.2 Original Project Development Objectives (PDO) and Key Indicators The project development objectives were: (a) sustained improvements to public health; and (b) increased economic development, by reducing the incidence of flooding; upgrading the urban environment; and developing more efficient and financially sustainable sanitation and drainage companies (SADCOs) in Danang, Haiphong, and Quang Ninh Province (Halong City and Cam Pha). 1.2.1 The approved indicators for measuring the PDO were:- Reduction in the incidence of water related and vector borne diseases ­ annual cases treated and deaths from diarrhea, dysentery, cholera, typhoid, and malaria in phuongs (wards) covered by the project; and Increase in the number of tourist nights and annual income from tourism in Quang Ninh (Halong City) and Danang 1.2.2 Outcome indicators measured solid waste management, flooding duration, loans lent for sanitation improvement, cost recovery of sanitation companies, the impact of sewerage on water quality, and private sector participation in the sanitation companies. (see Section F, Result Framework Analysis, for details.) 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification The Project Development Objective w as not changed. However, the task tea m realized that the number of residents benefitting from project interventions was a key measure of project impact. Therefore, data on beneficiaries w as added as one of the ke y "im plicit" i ndicators used to evaluate project progress. 1.4 Main Beneficiaries 1.4.1 The project helped generate public benefits to the cities' economies and private benefits to individual households in some specific areas. The public benefits included reduction in the incidence of waterborne diseases and increased production due to reduced flooding and the avoidance of flood damage. Reduced flood damage to roads and other infrastructure services has resulted in lower economic opportunity costs, maintenance and rehabilitation costs. The improved city environments and reduced pollution has also benefited the important tourist industry in Quang Ninh (Halong City) and Danang. Sanitation improvements are more likely to be sustainable because the URENCO/SADCOs capacity to operate and maintain the facilities has been improved. 1.4.2 The project enabled 1.7 million people in Danang, Haiphong, and Quang Ninh to benefit from reliable drainage, sewage treatment, solid waste management and on-plot sanitation. At appraisal, the number of beneficiaries was estimated at 1.3 million and the substantial increase in number of residents who actually benefited from the project is largely a result of the expansion of the project to additional areas, using savings achieved in the first round of contracting. Because sanitation improvements were implemented on a city-wide scale, most project components did not target specific socio-economic groups. However, the revolving fund and community mobilization programs focused on lower income households who lacked adequate sanitation facilities. 2 Table 1.1 Estimated Numbers of Residents Benefiting from Improved Urban Services City Drainage Sewerage and Solid Waste Revolving Total Sewage Management Fund Beneficiaries Treatment Sanitation Haiphong 350,000 350,000 na 34,000 639,000 Danang 256,000 540,000 224,000 52,000 738000 Quang Ninh 435,000 193,000 330,000 56,000 361,000 TOTAL 1,738,000 Source: City PCRs 1.5 Original Components ($ 119.53mn approved/ $ 119.17 mn actual) The project had five components with similar subprojects in Danang City, Haiphong City and Quang Ninh Province (Halong City and Cam Pha Town) as follows:- Component 1: Drainage ($44.31 mn/$58.32 mn) In areas where regular flooding occurred, existing drains were rehabilitated and new drains were constructed. Component 2 Sewerage and Sewage Treatment ($32.56 mn/$27.96 mn) The component improved the urban environment and reduced pollution by intercepting and treating sewage flows. Component 3: Solid Waste Management ($23.06 mn/$8.01 mn) (Danang and Quang Ninh) The project improved the collection and safe final disposal of solid waste through investment in trucks, other equipment, environmental service centers and sanitary landfills. In Haiphong solid waste was improved through assistance from the Japanese Bank for International Cooperation. The funds for this component were less than at appraisal due to lower than expected bid prices and the decision to pay for large works in Quang Ninh from the DANIDA trust fund. Component 4: Institutional Development and Construction Management ($16.6 mn/$21.77 mn) This component improved the management and efficiency of the SDCOs and URENCOs. Technical assistance and training helped the cities establish technically and financially viable service companies. The project also provided technical assistance to the cities for construction management. FINNIDA, DANIDA and AUSAID provided assistance to Haiphong, Quang Ninh and Danang respectively. Component 5: Revolving Funds for Household Sanitation Facilities ($3 mn/$3.10 mn) Revolving funds in each city assisted low income households to construct or improve septic tanks, basic toilet hardware, and sewerage connections. The component was planned and implemented in a participatory manner and included a sanitation and environmental education campaign to inform the community of the linkages between health, environmental conditions, and sanitation. Eligible households received loans of up to VND 2,000,000 (USD150) to fund sanitation improvement. The revolving funds are still in operation under Government management. 1.6 Revised Components There were no revisions of any project components, except for the scaling up of the civil works as explained in Section 1.7 below. 3 1.7 Other Significant Changes 1.7.1 DCA Amendment: The DCA was amended in February 2006 to use savings of USD$27.4 million which had accrued due to cost savings from competitive bidding and the appreciation of the SDR. The savings were used to expand the scale of the investments in a second phase of the project (considered as Phase II in participating cities). The largest additional works included: i) in Quang Ninh: expanded drains in Halong City, Cam Pha Town and construction of Ha Khanh new wastewater treatment plant in Hon Gai area, a densely populated administrative area of Ha Long City; ii) in Danang: more drainage and interceptor sewers; and iii) in Haiphong: construction/ rehabilitation of Phuong Luu Lake (22ha), Cat Bi Lake (3ha), more drainage and interceptor sewers. The cancelation of a part of the savings was done at the request of the Borrower. 1.7.2 Nine (9) Years Implementation: The DCA was amended twice to extend the closing dates. The original closing date was June 30, 2005 and the first extension of two years (until June 30, 2007) was granted to allow for the completion of additional works funded by the Credit savings in all 3 cities. The second extension of one year (until June 30, 2008) was approved only for Quang Ninh Sub-project so that the construction of Ha Khanh new WWTP could be completed and operated. This plant is very important in improving environmental protection for the World Heritage Halong Bay. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry 2.1.1 Soundness of background analysis: The background analysis adequately addressed the conditions in Vietnam at the time of appraisal and incorporated lessons learned from relevant Vietnam projects. The rationale for the Bank's intervention was based on projected growth in urban areas, and increasing pressure on urban environmental infrastructure. This analysis was sound and project interventions to improve the urban environment have proved timely and relevant. Decisions to adopt a relatively straightforward project design, choose project cities experienced with implementing World Bank projects and carefully select the type of bidding documents showed a prudent attention to lessons learned from previous Bank projects. The financial analysis correctly demonstrated the need for tariffs to increase in order to cover O&M costs. 2.1.2 Adequacy of project design: The design of the project was inadequate in terms of specifying PDOs and the PDO indicators. The direct impact of the project on the increase in tourism and reduction in the incidence of water-born disease was difficult to measure and they were impacted by circumstances outside of the control of the project. Improvements in these indicators cannot be solely attributed to project interventions. The intermediate outcome indicators which quantified solid waste removal, flooding reduction, funds lent for household sanitation, cost recovery, water pollution and private sector participation, were appropriate and adequately captured the improvements in the urban environment that were the focus of the project as well as aspects of the project (such as cost recovery) that were less successful. Had the task team included more expertise in M&E, the team would like have chosen a lower level of development indicators. For example, development indicators focused on the number of households benefitting from the different components of the project would have both demonstrated the project's effectiveness and been relatively simple to monitor. In addition, a simpler indicator structure would have enabled the PMUs to focus more attention on the quality 4 of the data. This design flaw is partially due to less Bank focus on M&E at the time of appraisal. The TT did consider amending the DCA at the mid-term review to rectify this flaw, but concluded that scarce supervision resources were better spent on more urgent operational matters. 2.1.3 The project design adequately incorporated lessons learned from other Vietnam projects. First, the project design was kept simple to avoid overwhelming a relatively new borrower. The five components of the project covered the basic set of core urban services and were implemented in a coordinated and integrated manner. Second, the project was confined to cities which had been beneficiaries of the World Bank water supply project in an attempt to capitalize on the experience of the implementing agencies and deepen the environmental management capacity of these cities. Third, the project acknowledged the need for appropriate bidding documents and adopted small separate goods and works contracts with which the implementing agencies were familiar. This approach led to improvements in the procurement process, although issues did arise because of differences between the Bank's Standard Bidding Documents (SBD) and government's standard contracts. Fourth, the move to decentralize approvals to the lowest level was consistent with Vietnam policy direction. Decentralization has been a slow process and the government approval procedures continued to be a challenge under the project, although the situation improved during the later years of the project. Despite the difficulties encountered, a different approach would have run counter to Government policy and would have caused greater problems. 2.1.4 Adequacy of government's commitment: The Government demonstrated a strong commitment to the project through the timely provision of counterpart funds, the establishment of capable PMUs and willingness to issue legislation to move towards cost recovery. At the local and community level, public participation was a key feature of the project design process. The Women's Union's role in managing the revolving fund component, and the participatory manner in which that component was designed and implemented, are particularly good example of clients' commitment to the project 2.1.5 Assessment of Risks: Risks relating to cost recovery and procurement were adequately identified during preparation and specific measures were taken to mitigate them. The most substantial risks identified relate to achieving adequate cost recovery. The main risk was the local government's failure to implement agreed tariff increases in a timely manner. Consumers' possible refusal to pay for services was an associated risk. The risks were mitigated by relating charges to affordability, phasing in increases in tariffs over time, and raising community awareness about the benefits of improved sanitation. A second major risk was the possibility that procurement process, with its complicated approval procedures, could delay project implementation. To mitigate this risk, the project adopted a number of methods including smaller simpler contracts, raising the problem of delays in annual portfolio performance discussions, supervising procurement more intensely in the earlier stages of the project, and organizing procurement workshops. Overall, quality at entry is rated as "moderately satisfactory". 2.2 Implementation 2.2.1 The project design and institutional structure were important factors leading to satisfactory outcomes. The chosen components covered the core urban services and to generate positive impact on the urban environment. The PMUs had adequate administrative, financial and technical capacity and additional staff was recruited as needed. Project physical targets were mostly met or exceeded, the quality of construction was good and the project benefitted 400,000 5 more households than anticipated at appraisal. All project cities gained experience in implementing Bank financed projects. Government counterpart funds were provided in a timely manner. At the mid-term review, the Bank team demonstrated responsiveness toward the borrower's priorities and was proactive in addressing problems. Unused funds from the first round of bidding were reallocated to a Phase II project. 2.2.2 Difficulties in implementation and the long implementation period were due to delays from the Phase 2 Project, challenges of decentralization, commercialization and rapid urbanization. The large scale of the works constructed under Phase 2 required a new round of planning, design and construction. The delay was compounded by high inflation in Quang Ninh in late 2007 and 2008. Delays created by protracted approval procedures are common in infrastructure investment in Vietnam. Decentralization to provincial level was not always accompanied by the necessary approval authority which further delayed approving project designs, processing contracts and making payments to contractors. Rapid urban growth led to changing conditions in the project cities and design changes became unavoidable. All major design changes required new government approval and some of the changes required new site acquisition, always a lengthy process. Despite these challenges it is notable that in the later stages of the project the time required for bid processing was significantly reduced. Another implementation difficulty was the continuing inability of the URENCOs to recover costs for wastewater and solid waste collection. The task team addressed the problem at the midterm review by requesting the PPCs to increase charges to the levels agreed at project negotiations. However, tariffs were not increased sufficiently due to the legal framework governing the project cities. The uneven performance of some civil works contractors caused delays. In some cases contractors had difficulty understanding the Bank requirements for environmental safeguards, and proper practices for managing a construction site. In other cases, State Owned Enterprise contractors had difficulty mobilizing sufficient resources. Finally, insufficient household connections to sewers have hampered the overall efficiency of the sewage systems. Overall Implementation is rated "satisfactory." 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 2.3.1 M&E Design: The design of the M&E system and PDO indicators (decrease in communicable disease and increase in tourism) were set at too high a level and subject to influence by factors external to the project. Collection of data for these indicators also relied on outside agencies which further complicated the problem. The intermediate outcome indicators reflected output from each of the project components and were a reasonable choice. A review of the indicators by a regional operations team around 2006 concluded that the project would be better served by replacing the PDOs with indicators that reflected the number of beneficiaries of the various interventions. The task team considered officially amending the PDOs but concluded that, given the short time remaining in the project, resources would be better spent addressing other operational issues. Instead, the task team collected data on beneficiaries and reported them in the ISRs. The M&E design could also have been improved by assigning target values for all indicators. 2.3.2 M&E Implementation: The PMUs were responsible for monitoring the key performance indicators and data related to each of the intermediate PDO indicators were collected from a variety of sources. Some data collection activities were carried out on a contract basis by provincial government and local departments. Data were recorded in PMU's centralized database and original data were kept in the Environmental Monitoring System EMS archive. In general, the PMU's effort to collect data for the EMS was well done. However for some indicators, data was not collected regularly. The EMS collected data on the following aspects:- 6 Water and sediment quality monitoring Flooding data including rainfall, level of floodwater, water level in lakes and channels and tide information Groundwater level monitoring Health indicators Solid waste and septic tank collection and disposal Household sanitation improvements as described in Revolving Fund. 2.3.3 M&E Utilization: The aspects of the M&E system that were most useful to project management were the outcome indicators. These indicators provided a thorough overview of project progress in each component and data on cost recovery and private sector participation focused TT attention on these issues. Similarly, data collected on the number of beneficiaries provided a useful gauge of project coverage. Comprehensive environmental data were collected regularly but no improvement in environmental indicators was expected until the project interventions were nearly complete, so this was not a focus until the final years of the project. The least successful aspect of the monitoring system were the key performance indicators, the high level nature of the KPIs and the difficulty linking KPIs to project outcomes caused the task team and PMUs to focus less attention on these indicators. Box 1. Typical example of monitoring of water quality Water quality Sampling in Quang Ninh During the project implementation, water sampling for quality analysis at various points have been taken. Analysis focused on BOD5, SS and colifoms. Water quality in 4 sampling points was permanently reported at interval of every 6 months. The sampling points were increased when Bai Chay WWTP and leachate treatment plants at landfills were in operation. Flooding indicators have also been supervised. Water Quality Results During earlier phases of study and construction, wastewater samples were taken from 4 points of discharge in Halong and Cam Pha. Water quality results were recorded and saved in the PMU's office for proper follow-up actions. PMU also reported necessary data to WB and relevant authorities. Water quality at sampling points in the project area was poor, largely caused by wastewater. Water quality in Cam Pha improved with BOD5 ranged from 11mg/l to 80mg/l; SS ranged from 23 ­ 184 mg/l. In Hon Gai BOD5 was from 16 ­ 92mg/l and SS was from 32- 250mg/l during the time of supervision period. Water quality in Bai Chay has been much improved since the wastewater collection and WWTP were in operation. After WWTP in Bai Chay, three sludge treatment plants at three landfills Ha Khau, Deo Sen and Quang Hanh were in operation, water sampling was continued. Wastewater Analysis Reports for each plant were prepared by the Institute of Marine Environment and Resources in 2006. It showed good treatment efficiency with a significant reduction of pollution parameters compared to earlier "before project" interventions. The rating of M&E is "moderately unsatisfactory" 2.4 Compliance 2.4.1 Financial Management: Financial management (FM) aspects were generally in compliance with Bank procedures. Some problems were encountered due to the limited FM capacity of the URENCOs/SADCO, when the companies were in a transition period, from state-owned to autonomous public service companies. Some audit reports were submitted late because of delays in selecting audit firms. In the early stages of the Project, the PMUs and URENCOs/ SADCO had limited technical capacity to follow up and rectify problems and weaknesses raised by the auditors but there was progress 7 during the latter years of implementation. Late submission of audited financial statements in Haiphong was a breach of financial covenants of the project financing agreement, which required the audit financial statements and audit reports to be submitted within six (6) months of the financial year end. 2.4.2 Environmental Safeguards: During the preparation phase of the project Environmental Impact Assessments (EIA) and Environmental Management Plans (EMP) were prepared as the framework for safeguarding the environment from the impacts of project construction. The outline and content of the EMS was given in Contract Bidding Documents and covered cleaning and inspection of sewers, construction and operation of engineered landfills, rehabilitation and construction of lakes and channels, sewers and interceptors, and construction of workshops and new combined sewers. The focus of the EMS was to minimize dust, odor, litter, noise and traffic emissions, ensure appropriate safe working conditions; select transport routes to minimize/avoid public nuisance; provide proper equipment to transport and treat sludge to avoid accidental spills and odor nuisances; avoid working during the night; for landfill operations, avoid the bottom of landfill be constructed with an impervious liner, etc. Observed results were recorded in PMU's data bases and original data was kept in the PMUs EMS archive. 2.4.3 The construction management consultants reported on environmental compliance as required by the EMP, and PMUs took appropriate actions. Site inspections revealed adequate compliance with environmental requirements and that works carried out were generally implemented following the Conditions of Contract which required appropriate environmental mitigation measures. From time to time, review missions noted and requested that safety measures for workers needed to be better enforced by contractors. 2.4.4 Social Safeguards: Project preparation included the planning for resettlement of affected people, for which resettlement action plans (RAP) were prepared. Compensation rates applied for land and structure acquisition were sometimes lower than market prices and not always agreed by Project Affected Households (PAH) who were reluctant to accept the compensation offered. As with most projects in Vietnam land allocation procedures for resettlement took a long time which delayed site clearance. With long delay between compensation amounts being agreed and actual site clearance being necessary and compensation being paid, rates agreed were soon outstripped by rapid increases in land prices in the cities, an issue common to many projects in Vietnam. However, despite the difficulties with compensation and resettlement plot provision, there was overall compliance with the Resettlement Policy Frameworks (RPFs)/RAPs by the PMUs. Table 2.1 illustrates the numbers of affected households in all three cities. The actual numbers of PAH exceeded planned figures. Reasons for this included: some underestimation of original planned figures and the delays that occurred in project implementation which led to some newcomers on sites which were not always adequately controlled. Table 2.1 Social Safeguards City Land acquired (ha) Partially affected PAH Fully affected PAH Plan Actual Plan Actual Plan Actual Danang na Na 836 525 106 79 Haiphong 56 70 900 1897 107 350 Quang Ninh 268 333 545 1607 144 139 Total na na 2281 4029 357 568 2.4.5 Procurement: In keeping with the lessons learned in an earlier World Bank-funded operation in the sector, where all elements of infrastructure were bundled into one contract per city, multiple contracts per city were used to construct civil works and procure vehicles and equipment. There was no recorded evidence of collusion among bidders or other forms of malfeasance in the procurement process. However, Governments' own protracted procurement processing had a substantial impact on progress, particularly during Phase 1 of the project. In Phase 2, procurement activities went more smoothly based on the experience gained in Phase 1. 8 Procurement delays are a common and systemic issue in Vietnam for two main reasons: decentralized responsibility for implementation, without parallel decentralization of the related approval authority; and differences in the procurement procedures of Government and the Bank. Each step of the procurement process, starting with design reviews, had to undergo multiple, often duplicative reviews within the central and local Government before being eventually submitted to the central authorities for final approval. 2.5 Post-completion Operation/Next Phase: The following activities will be undertaken post-completion:- Plans to increase the number of household connections between septic tanks and tertiary sewer mains through an Output Based Aid3 approach are being put in place in Danang. Continued effort for tariffs increasing by URENCOs to cover O&M and depreciation. Awarding of service contracts to the private sector for expanded solid waste collection and disposal and septic tank emptying. Explore additional ways in which the PS might participate, e.g., vehicle and equipment service, billing and collection, electromechanical operations and maintenance. URENCOs to continue implementing the environmental monitoring plan; and Necessary budget be allocated to continue staff training. 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation The project objectives remain highly relevant today. Improving the urban environment is still a central focus of the Government's strategy, and the pressures on the urban environment that created the original demand for the project have only increased. The project design has also retained its relevance as its core components cover basic urban services and are directly targeted at improving the urban environment. Implementation arrangements are still relevant as they reflected the Government's strategy of decentralization which is still a priority. 3.2 Achievement of Project Development Objectives All PDOs have been satisfactorily achieved4. 3.2.1 The objective of sustained improvements to public health in the project area was achieved. However, as discussed in sections 2.1.2, this PDO was subject to external factors and the positive results measured by the project in the reduction of water-related and vector borne disease cannot be directly attributed to the project. Nevertheless, this objective can be evaluated in relation to the implicit objectives recognized by the task team as well as the outcome indicators. Section 1.3 discussed the project's use of an implicit indicator ­ the number of urban residents benefiting from the project. The number of beneficiaries is significantly greater than predicated at appraisal and these beneficiaries enjoy improved sanitation, reduced flooding, and a generally cleaner urban environment and they face a reduced risk of disease. The decline in the prevalence of water-related and vector borne diseases shown in the surveys is likely due to the indirect impact of the investments on the lives of project beneficiaries. 3OBA is an approach to providing financial support to a service provider or consumer which is disbursed after an "output" has been delivered, as opposed to payment upfront, as with conventional aid. 4 There is a discrepancy between the PDO rating of "MS" in the ISR (#18 archived on December 22, 2007 before the Credit closing on June 30, 2008) and the PDO rating of "S" in this ICR. ISR was again updated (#20) on April 24, 2009 after more data on project results became available. The final ISR upgraded the PDO to "S" which is again reflected in this ICR. 9 3.2.2 The objective of increased economic development, by reducing the incidence of flooding; upgrading the urban environment; and developing more efficient and financially sustainable sanitation and drainage companies was also achieved. Increased economic development was measured through tourism statistics and the number of tourist nights and the amount of tourist revenue both increased significantly. While these observations cannot be tied directly to the project, it is likely that improved urban environments have had an indirect impact on tourism. 3.2.3 Intermediate outcome indicators provide additional evidence that the project objectives were satisfactorily achieved. In those areas where drains were constructed, flooding has shown a marked decline. Quang Ninh has measured the improvement in flood control and shown significant improvements in 10 locations prone to flooding; Danang showed similar improvements in 5 locations measured by the project. Haiphong recorded a decline in the flooding area, depth and time at all at all sites most prone to serious flooding. 3.2.4 Upgrading the urban environment was achieved through the investments in solid waste management, sanitation loans and sewerage and sewage treatment. Solid waste collection and disposal targets were exceeded in all project cities due to improved equipment, improved management of the URENCOs and greater awareness on the part of residents about the health benefits of a clean environment. Virtually all solid waste is removed from the cities within 24 hours. Solid waste and septic tank sludge are safely disposed to engineered landfill sites with appropriate treatment facilities. The sanitation component, consisting of revolving funds for new or improved on-site septic tanks and toilets facilities, exceeded loan targets and disbursed ahead of schedule in 2005 and was the subject of a very positive external evaluation. It promoted equity, by targeting low income households and is considered highly financially sustainable due to the revolving fund mechanism and the high repayment rates. Most households borrowed for construction or upgrading of septic tanks while the loans for house connections to sewers were less popular than anticipated due to slow completion of sewers. 3.2.5 The urban environment was also improved through investments in wastewater collection and treatment. Investments in Danang and Quang Ninh (Halong and Cam Pha) have resulted in improved water quality to target levels and the three project cities are the only ones in Vietnam to have functional comprehensive wastewater collection and treatment systems. Measurements taken at Quang Ninh's tidal gates showed a reduction in BOD from 80 mg/l to 8 mg/l in 2003. Visual inspection of the beach areas during the first trial runs of the wastewater systems showed impressive results and the swimming areas were no longer affected by discharged wastewater. More house connections need to be made to the sewage collection system to improve the efficiency of the overall system. 3.2.6 The project succeeded in developing more efficient and financially sustainable sanitation and drainage companies. The project's institutional development sub-components have enabled the URENCOs to become stronger and more sustainable institutions. Through the project, the concepts of cost recovery and user pay have been introduced to the Vietnam sanitation sector for the first time and legislation was enacted to further the goals of cost recovery ­ this was a major innovation and significant policy advance. URENCOs have improved their management skills and expertise in solid waste management, and have begun to operate more in the manner of a private sector company. Prior to the project, the URENCOs were primarily administrative entities with no commercial focus. With the support of the project, URENCOs have developed comprehensive business plans, and restructured the service delivery framework so that major public services, such as street and beach cleaning, are provided under a structured service agreement. Nevertheless, financial targets have not been achieved as tariff rates have not been raised sufficiently to cover the increased costs of operating new facilities. The Government is committed to providing sufficient O&M funds to cover these costs. In Haiphong, waste water 10 fees have been introduced to the consumer through water bills since 2000. The waste water fee of 15% of drinking water tariff has been applied since July 2006 and covers nearly 70% of O&M costs for the Haiphong SADCOs. 3.2.7 The project's attempts to introduce private sector participation into this sector for the first time in Vietnam have shown mixed results. In Danang the level of investment in new solid waste management equipment and the resulting improved service by URENCO made it difficult for the private sector to compete. Quang Ninh did contract out 100% of solid waste management. The contracting out of septic tank emptying was very successful in Danang with a 100% participation rate by licensed private operators. PSP in Haiphong was very low because the city policies did not encourage private sector participation and the Haiphong SADCO has sufficient manpower and specialized equipment to manage the tasks. 3.3 Efficiency 3.3.1 The final ERR calculated for the project was slightly higher than the rate calculated at appraisal. The original calculation of the cost and benefits as contained in the PAD assumed that the project would cause a reduction in the incidence of water-related and vector borne diseases by an average of 15 percent, an increase in tourist nights by six percent, and increase revenue from tourism by eight percent. The indicators used to quantify these assumptions were meant to be proxies for the two PDOs: improved public health and economic development. The revised calculations made similar assumption, albeit with more conservative figures of benefits achieved. In addition the recalculation assumed increased benefits of 10% accruing to the additional households which were included in the project once savings of $27 million were redeployed. The results are displayed in Table 3.2 below. The ICR estimated NPVs and ERRs are slightly higher than the PAD figures in all project cities and for the project as a whole. The notable increase in investment and O&M costs was sufficiently compensated by the increase in benefits, mainly by the extension of coverage. Table 3.1 Estimated Total Project Costs by Component Component Costs % of Total (US$M) Original Fin al Original Final Drainage 44 .81 58.32 37% 49% Sewerage and Sewage Treatment 35.55 27.96 30% 23% Solid Waste Management 23.05 8.01 19% 7% TA and Construction Supervision 16.60 21.77 14% 18% Revolving Funds 3.00 3.10 3% 3% Total 119.53 119.17 100% 100% Table 3.2 Summary of Cost Benefit Analysis (USD$M) Danang Haiphong Quang Ninh Overall PAD ICR PAD ICR PAD ICR PAD ICR Benefit 29.3 34.5 19.3 23 .2 28.2 37 .0 76 .7 94 .7 Cost 23.7 28.2 19.0 22 .9 18.5 26 .3 61 .1 77 .4 NPV (Benefit-Cost) 5.6 6. 2 0. 3 0.3 9. 7 10.7 15.6 87.0 ERR (%) 15.1 15.4 12.2 12 .2 16.8 17 .5 15 .1 15 .5 3.3.2 Cost recovery: The rate of cost recovery for sanitation services in all three cities was much lower than the mandated targets. The main reason for poor cost recovery results is the absence of the necessary increase in the tariffs as required under the agreed schedule. There were efforts by the URENCOs in all three cities to raise the fees. When approvals were given, the tariff was sometimes already out of date. For example, it was planned in Danang to raise the fee for waste water to 25% of water bills starting from 2001. In reality, the fee was only raised to 11 10% of the water bill, and then increased to a maximum of 13% in 2008. While this is an issue endemic to urban projects in Vietnam, it does not augur well for the financial sustainability of the URENCOs over the long term. Table 3.3 Cost Recovery (Percent of O&M and depreciation of moveable assets) Quang Ninh Haiphong Danang Year PAD ICR PAD ICR PAD ICR Revised Revised revised 2003 69 3 8 68 50.2 100 5 5 2005 70 3 9 68 45.6 100 4 5 2006 81 4 5 83 47.6 100 5 0 2007 83 4 2 100 5 0 100 5 2 Note: Cost Recovery for Quang Ninh was calculated based on PMU reports. For Danang and Haiphong, they were derived from auditing reports of the sanitation companies. Audit report for Haiphong in 2007 has not yet been completed at the time of ICR preparation. 3.4 Justification of Overall Outcome Rating The project rating of "satisfactory" reflects the success of the physical implementation of the works, and the increase in the number of beneficiaries of the project over the appraisal estimate. The physical works were implemented within the agreed budget, despite delays. Measurable changes in all five components of the project represent clear improvements in living conditions in the project areas for 1.7 million people. The rating also reflects the improvement of the institutional framework, as the utility companies have made some progress towards financial and technical sustainability. Despite difficulties in this area, the effort to introduce change was ground breaking and the project has helped move forward public sector reform in the sanitation sector. 3.5 Overarching Themes, Other Outcomes and Impacts 3.5.1 Poverty Impacts, Gender Aspects, and Social Development The project had a positive impact on low income families in the project areas and actively supported the role of women. Project improvements to the urban environment benefited all the populations in the project areas, but low income households tend to suffer the most from poor sanitation and so the impact on this part of the population is pronounced. The revolving fund facility targeted lower income families and enabled poor households to improve their quality of life. However, the poorest households were not eligible for the sanitation loans as they have access to other government funds for this purpose. The project placed importance on the role of women in project management. The revolving funds component was managed by the Women's Union and women also played a major role in the information education campaign directed at improving health and sanitation knowledge. The project emphasized opportunities for female staff in technical, managerial and operational roles in the PMUs and the sanitation companies. 3.5.2 Institutional Change/Strengthening. The project had a positive impact on institutional change. The Vietnamese government is devolving responsibility and accountability from the central government to the provinces and cities. For this process to be successful, provincial and local institutions face a steep learning curve and must quickly build up institutional capacity. To this end, the project was able to support the strengthening of the URENCOs with a comprehensive program to produce accounting systems, O&M manual, a regulatory framework for PSP, environmental monitoring and HR training. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops N.A. 12 4. Assessment of Risk to Development Outcome: Rating: "moderate" There are three risks to sustainability. The first is low cost recovery through user charges by SADCO/URENCO for provision of sanitation services: Cost recovery was difficult to achieve under the project and the most recent data shows all three cities did not meet targets agreed at negotiations. Unless the utility companies are able to increase tariffs to cover operations and maintenance and depreciation of moveable assets, local government resources will be needed to cover costs. The Government is committed to provide adequate O&M budget until this issue can be resolved with necessary amounts allocated in each city. As per Table 3.3 these are equivalent with 58% in Quang Ninh, 50% in Haiphong and 48% in Danang respectively. A second risk is the lack of effective institutional arrangements to support decentralization and the financial autonomy of the utilities. The Government has taken steps to clarify the institutional arrangements for the provision of urban services by independent service providers. The shifting of the responsibility for sewage collection and wastewater treatment away from URENCOs to separate entities, leaving the latter to deal with solid waste collection and disposal, has clarified the roles of local bodies. Finally, the household connections to the networks need to be increased. The project design assumed financing for connections to sewers would be provided through counterpart funds and also that the households closed to sewers would finance the connection of their on-site septic tanks to the tertiary sewage mains in their neighborhoods. However delays in sewage construction meant that many households did not borrow for connections and some counterpart fund shortfalls also impacted construction. There are plans for the sewage connections to be financed through output based aid or though local budget. 5. Assessment of World Bank and Borrower Performance 5.1 World Bank Performance 5.1.1 World Bank Performance in Ensuring Quality at Entry The Bank's performance is rated "moderately satisfactory". The project was designed appropriately for the conditions at the time and incorporated lessons learned from the previous operation in the water sector. However, the PDO was not properly designed and reflects lack of sufficient attention to designing practical M&E systems. The project design attempted to simplify procurement procedures, however the complications from the decentralization process were not anticipated. 5.1.2 Quality of Supervision: The project supervision team, including representatives of the bilateral agencies (Netherlands, Finland, Denmark, UK) , carried out implementation support missions twice a year, reviewing project progress, disbursement and procurement schedules and environmental, social, financial and other related issues. The project benefited from a high level of continuity within the IDA team and co-financiers throughout preparation and supervision. The fact that all team members were based in Vietnam meant that it was possible to carry out supervision continuously, on an "as needed" basis rather than intermittently. The task team consistently raised areas of concern, such as cost recovery and procurement delays. Supervision of M&E could have been stronger. World Bank performance is rated as "satisfactory". 5.1.3 Justification of Rating for Overall World Bank Performance The Task Team focused much of its attention on the implementation of the civil works, ensuring that systems were properly installed and the environmental safeguards and resettlement of PAH 13 were properly carried out. This attention no doubt contributed to the generally satisfactory delivery of the engineering output. The Team's oversight and participation in the strengthening of the URENCOs was critical and contributed to the improved managerial and technical capacity of the entities. Despite the short comings referred to in (b) above, on balance the Task Teams performance was rated as "satisfactory". 5.2 Borrower Performance 5.2.1 Preparation: The borrower's preparation of the project is rated "satisfactory". The project was based on an appropriate and effective strategy. MPI was mobilized significant bilateral support from Australia, Finland and Denmark to support the PMUs in project preparation. By the time the project was presented to the Board detailed designs had been completed for 80% of the project. 5.2.2 Implementation: The Government's implementation performance is rated "satisfactory". The Government provided good support in many areas including the provision of counterpart funds. However, in the first stage of the project the Government was not able to adequately respond to Bank concern about procurement. Long procurement delays were the result of procurement procedures which required multiple, often redundant, reviews of designs and contract awards at local and central levels, and on occasion, by the Prime Minister's Office. The performance of the implementing agencies is rated "satisfactory". After the separation of the PMUs from their respective Danang and Quang Ninh URENCOs the role of the URENCOs became less pronounced as their functions were limited to solid waste management and septic tank emptying, PMUs remained proactive using consultant inputs effectively. There was a low turnover amongst the implementing agency staff. 5.2.3 Justification of Rating for Overall Borrower Performance: The performance of the borrower is rated "satisfactory". The performance of the Government was good with respect to meeting its commitment for providing counterpart funds. However approval procedures remained a major bottleneck to progress, hence the rating of unsatisfactory. Danang and Haiphong performance was stronger and the project progressed more rapidly. Implementing agencies generally performed well, despite constraints imposed by local regulations and competing systems of procurement and environmental rules. In Quang Ninh, the project experienced greater delays due to poor capacity of the contractor and delays in site clearance and performance was only moderately satisfactory. On balance, the overall rating is "satisfactory". 6. Lessons Learned i. Definition of PDOs: Care should be taken to ensure that PDOs are appropriate and practical, measurable and attributable to the project. ii. Cost recovery: The project successfully introduced the concept of user pay in the sector. However, cost recovery targets proved to be too ambitious and did not adequately account for the slow pace of change in the legal framework and the risk of economic crisis slowing plans to raise fees. iii. House connections to sewer mains: Slow uptake of house connections by households in the project areas has reduced the efficacy of the sewerage system installed under the project. Future project should consider working with the Government to include house connections as part of the civil works. 14 iv. Streamlined approval mechanisms: Future projects working at a sub-national level need to address the issue of protracted delays in the approval of contracts, compensation and site clearances. Strong commitment by local government is critical. v. Ensure some design capacity in construction management teams: The frequent need for design changes in the field on account of unforeseen circumstances in the works requires some capacity in the CM teams to propose design changes without the need to resort to engineering consultants. vi. Ensure the capacity of supervision consultants, of the contractors: These firms need to have not only technical expertise/financial ability but also contractual management/project management capacity. Adequate resources need to be mobilized for achieving satisfactory performance. vii. Capacity building of sanitation and drainage companies: The valuable lessons on building the capability and services of sanitation and drainage companies need to be captured in a systematic manner to guide future projects. 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing agencies (See Annex 7) (b) Co-financiers (See Annex 8) (c) Other partners and stakeholders (N/A) 15 Annexes Annex 1: Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Actual values for each sub-project Components Danang Haiphong Quang Ninh Total Drainage 21.8 26.5 10.02 58.32 Sewerage and Sewage Treatment 5.87 9.7 12.39 27.96 Solid Waste Management 4.06 0 3.95 8.01 Technical Assistance and 7.41 7.3 7.06 21.77 Construction Supervision Revolving Fund 0.96 1.1 1.04 3.10 Total 40.11 44.6 34.46 119.17 Summary for all three subprojects Components Appraisal Actual Percentage of (USD mill) (USD mill) Appraisal Drainage 44.31 58.32 134% Sewerage and Sewage Treatment 32.56 27.96 86% Solid Waste Management 23.06 8.01 35% Technical Assistance and Construction 16.60 21.77 131% Supervision Revolving Fund 3.00 3.10 105% Total Baseline Cost 119.53 119.17 99% Physical Contingencies 0.00 0.00 Price Contingencies 0.00 0.00 Total Project Costs 119.53 119.17 99% Front-end fee PPF 0.00 0.00 Front-end fee IBRD 0.00 0.00 Total Financing Required 119.53 119.17 99% (b) Financing Actual values for each sub-project Source of Funds Danang Haiphong Quang ninh Total Government 8.07 11.9 5.59 25.56 IDA 30.8 0 25.5 19.23 75.53 Others: AusAid, Finnida, Danida 1.24 7.2 9.64 18.08 Total 40.11 44.6 34.46 119.17 Summary for all 3 sub-projects Source of Cities Type of Co Appraisal Actual Percentage Funds financing (USD mill.) (USD mill.) Government All cities Joint 20.29 25.56 125% IDA All cities Joint 80.50 75.53 93% AusAid Danang Parallel 1.24 1.24 100% Danida Quang Ninh Joint 11.7 9.64 82% Finnida Haiphong Parallel 5.80 7.2 124% 16 Annex 2: Outputs by Component Details of facilities provided by city compared to appraised elements are as follows:- Danang Element As Appraised As Implemented Drainage Cleaning and safe disposal of some Due to design changes, the dredging of Phu Loc 81,500m3 of silt from rivers and River (81,500 m3) was deleted. However, 1489 m3 existing drains of silt was dredged from existing drains in town Upgrading 14 kilometers of drains 1567 meters of drains were provided with new covers. Many kilometers of old drains were replaced by new drains as included in the new drains lengths. Constructing 18 kilometers of new A total length of 16,807 m of new drains was drains constructed. 5 Upgrading roadside entry pits and grit 284 roadside entry pits with grit trap were traps; constructed, as well as 5 long side entry pits at locations with traditionally heavy flooding Sewerage 17kilometers of interceptor 17.4 kilometers implemented and Sewage sewers/outfall pipelines Treatment 21 submersible pumping stations (SPS) 23 SPS finally constructed due to re-design 21kilometers of rising mains 19.4 kilometers finally constructed due to re-design Procurement of a limited amount of Done as designed with small tools for URENCO for specialized equipment for emptying O&M septic tanks and cleaning sewers by high-pressure jetting Four low-cost wastewater treatment Done as designed. Daily capacity was based on a plants with total capacity retention time of 4 days. However, plants will 89,200m3/day operate satisfactorily at much shorter retention times, so actual capacity is much higher. 50 public toilets (PT) 19 public toilets built after design changes Operational programs for regular Done as designed desludging of septic tanks will be developed and implemented. Solid Waste Procurement of 6 collection trucks, 6 Done as designed. Management lift on-off trucks with associated containers, mobile covered storage bins Construction of 14 small transfer 11 TS built and renamed as Environmental Service stations (TS). Centers. Construction of a sanitary landfill A landfill (50ha) including leachate treatment built. (45ha), including leachate treatment lagoons Additional goods/works funded by project saving: - Equipments purchased: 16 waste compactors, 3470 mobile bins, a bulldozer and associated items - Constructed/upgraded 7.3km drains, constructed 7.3km WW sewers, 6 pump stations and associated works 5Almost all new drains were re-designed whereby large single new drains would replace two smaller drains. The effective length of the drains is much larger, therefore, than would appear from the numbers shown. 17 Haiphong Element As Appraised As Implemented Drainage Rehabilitating and lining of embankments Done as designed of 6 kilometers large open drains, rehabilitating banks of 7 kilometers storm retention lakes, Repairing 8 sets of tidal gates and dredging Done as designed of 100,000 cm from 7 retention lakes, 6 kilometers of open drains Sewage and Cleaning, rehabilitating 70 kilometers Done as designed Sewage combined sewers, construct 20 kilometers Treatment new/replacement sewers Construct 20 kilometers interceptor sewers Done as designed and 8 pumping stations Cleaning/ rehabilitation of 100 kilometers Done as designed secondary and tertiary sewers Construction of septage treatment pond Done as designed Additional works funded by project saving: - Construction and rehabilitation of Phuong Luu (22ha) and Cat Bi (3ha) regulation lakes; - Construction and rehabilitation of interceptor sewers, 8 wastewater pumping stations and construction of maintenance/access roads Note: no solid waste management investments in Haiphong 18 Quang Ninh: Ha Long City (Bai Chay (BC) Area and Hon Gai (HG) Area) Element/ As Appraised As Implemented Drainage Construct/rehabilitate 11.6 kilometers of 8.2 kilometers channels completed due to channel/streams (BC) design changes Construct and rehabilitate 19.4 kilometers 20.2 kilometers of channels/streams of channel/streams (HG) completed Sewer and Construct 9.1 kilometers of gravity sewer 7.7 kilometers of gravity sewers and 6.2 Sewage and 8 pumping stations (BC) kilometers of pressure pipes and 8 pumping Treatment stations completed Construct Bai Chay WWTP (capacity Done as designed 3,500m3 per day) Construct septic sludge treatment facility, 0.8 ha sludge treatment facility 10 m3 per capacity 10 m3 per day (BC) day completed Construct 0.48 ha septic sludge treatment 0.5 ha septic sludge treatment facility, facility, capacity 56m3 per day (HG) capacity 56m3 per day completed Solid Waste Construct 4.2 ha sanitary landfill (BC) 4.4 ha landfill completed Management Construct 5.2 ha sanitary landfill (HG) 3.8 ha sanitary landfill completed Vehicles and equipment (BC & HG) Same quantities as approved Additional works funded by project saving (Phase2): - Completion of WW pumping stations 630m3 per day; - Completion of Ha Khanh WWTP (capacity 7,000m3 per day), WW collection systems and access road - Rehabilitation of channels/streams in Halong City Quang Ninh: Cam Pha Town Element/ As Appraised As Implemented Drainage Construct/rehabilitate 32.2 kilometers of 32.2 kilometers of channels/streams channels/streams completed Sewage Construct 0.48 ha septic sludge treatment Completed as designed Treatment facility, 56m3 per day (CP) Solid Waste Construct 6.3 ha landfill 5.5 ha sanitary landfill completed Management Vehicles and equipment for URENCO Completed as designed Additional works funded by project saving (Phase2): - Completed rehabilitation of streams; - Combined sewers 19 Annex 3: Economic and Financial Analysis (including assumptions in the analysis) The project delivered the planned work at costs lower than estimated in PAD. Significant savings (amounting $27.2 million) were used to fund additional works in all three cities/province. In general all components have been completed with works and goods contracts satisfactorily delivered The economic and financial analysis at completion of the project relied on the same methodology as at appraisal. Service Contracting and Cost recovery Cost Recovery of the Sanitation Company by project site (%) Quang Ninh Haiphong Danang PAD ICR PAD ICR PAD ICR Revised Revised revised 2003 69 38 68 50.2 100 55 2005 70 39 68 45.6 100 45 2006 81 45 83 47.6 100 50 2007 83 42 100 -- 100 52 Note: Cost Recovery for Quang Ninh was calculated based on PMU reports. For Danang and Haiphong, they were derived from auditing reports of the Sanitation Companies. Audit report for Haiphong in 2007 has not yet been completed at the time of ICR preparation. The rate of cost recovery of all three cities was much lower than the revised target. Danang recorded the highest cost recovery, but the revenue was only just above one half of the cost for operation and maintenance. The main reason for not achieving cost recovery targets were that the fees for services could not be raised according to the agreed schedule. There were efforts of authorities in all three cities to raise the fees. However, this proved to be a very difficult task to fulfill. For example, it was planned in Danang to raise the fee for waste water to 25% of water bills starting from 2001. In reality, the fee could only be raised to 10% of the water bill, and then increased to a maximum of 13% in 2008. Another cause of low cost recovery was the rapid increase of costs for operation and maintenance. Major components of operating expenses witnessed considerable increases during the project life. Wages were revised several times. For example, a 30% increase in all workers salaries from Jan 1, 2003 significantly increased costs. Electricity costs increased significantly. A recent decision of the Government to raise the electricity fees by nearly 9% will have a significant impact on cost recovery of the operations. In addition, high rates of inflation caused by the surge in commodity prices in recent years also contributed significantly to the rising of cost of operation. An example of large difference between cost estimate and actual cost can be seen with solid waste collection in Halong and Cam Pha. Only a few year after the appraisal, the actual cost for solid waste collection in Halong was 50% higher than the projected cost for 2003; and in 2004, the actual cost for solid waste collection in both Cam Pha and Halong was more than twice as much as the projected cost. 20 Despite the low cost recovery, a significant achievement of the project was the implementation of service contracting in Quang Ninh and Danang. The PCs of Danang, Halong and Cam Pha have all entered into such contracts and have found that it has improved the accountability of their utility companies. Anecdotal evidence also suggests that people have been highly satisfied with improved quality of services of the utility companies after the move the service contracting. Economic Analysis The main economic benefits resulted from the implementation of the project are (a) reduced flood damage; (b) increased tourism; (c) improved public health; and (d) avoided sanitation costs. There are two major factors that could have significantly positive and negative impacts on the estimation of the economic benefits of the project. On the positive side, the use of savings for extended sanitation work in three cities resulted in significant increased coverage of drainage which in turn led to higher economic benefits as flooding was considerably reduced and more people benefitted from improved water sanitation. On the other hand, benefits related to tourism are quite sensitive to unforeseen events such as the occurrence of natural disaster and severe epidemic or economic turbulence. , Vietnam's tourism has been negatively affected by all these factors. Danang and Quang Ninh were severely affected by both Avian Flu and the strong tropical storms in 2005-06, and actual revenues from tourism even decreased over the period 2003-05. Since benefits from tourism accounted for the largest share of the total benefits, notable declines in the growth of number of visitors over the last few years would no doubt have negative impact on the overall benefits and economic returns. Note: economic benefits related to improved public health and increased economic development, the two PDOs, require major assumptions about the extent to which the project is supposed to produce the expected outcomes in a reduced level of communicable diseases and an increase in tourism. The assumptions required are subjective to the extent they rely on very little data. The ICR analysis relied mostly on the same assumptions as that of PAD. Some of these were modified slightly, to reflect better the trend in the last few years, and also the change of the scope of work due to extension. In addition, the timeframe for the ICR analysis started from 2001, the year actual investment took place, instead of 1999 as in PAD analysis. Some changes in the calculations reflected the change in population of the project cities. A summary of the PAD and ICR costs and benefits are shown in the table below. Significant higher values of NPV for investment resulted from two factors: (i) change in the pattern of investment with much heavier outlay in the first two years as compared with the plan; and (ii) depreciation of VND vis-a-vis USD. If the depreciation were to be taken into consideration, the increase became rather insignificant. The ICR estimated NPVs and ERRs are slightly higher than the PAD figures in all project cities and for the project as a whole. The notable increase in investment and O&M costs was sufficiently compensated by the increase in benefits, mainly by the extension of coverage and by the rapid increase in the number of visitors and revenues from tourism. It should be noted that the adopted ICR assumptions about tourism-related benefits attributed to the project implementation were even less generous than that of PAD. The increase in tourism benefits resulted solely from the much faster rate of growth of both visitors and revenues in the period of project implementation. For example, the projected number of visitors in Quang Ninh for 2007 was less than one seventh of the actual figure. It was also the main reason behind the large gains in both NPV and ERR for Quang Ninh. 21 Summary of Cost Benefit Analysis Danang Haiphong Quang Overall PAD ICR (HP) ICR Ninh ICR Project ICR Benefit 470,926 555,304 310,169 373,570 453,534 595,906 1,234,629 1,524,781 Million VND Increased tourism 171,317 2 01,594 0 0 347,999 451,220 519,316 6 52,814 income Avoided private costs 20,619 2 7,712 1 6,495 19,398 1 4,034 20,811 67,921 Avoided flood 166,855 1 93,552 2 49,640 293,707 16,028 22,977 432,523 5 10,235 damage Health 112,134 1 32,447 44,034 60,465 75,473 100,899 231,642 2 93,811 Cost 380,808 305,246 297,209 983,263 Million VND Investment 313,340 454,820 279,814 368,269 275,516 42 3,461 868,669 1,246,551 Operation & 67,468 3 72,734 25,432 319,291 21,693 361,452 114,593 1,053,478 Maintenance O & M in Million US$ 4.22 8 2,086 1.59 48,978 1.36 62,010 7.16 193,074 NPV (Benefit- 90,118 100,484 4,923 5,301 156,325 172,445 251,367 278,230 Cost) Million VND ERR 15.10% 15.4% 12.27% 12.29% 16.80% 17.51% 15.10% 15.5% 22 Annex 4: World Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Names Title Unit Responsibility/ Specialty Lending Alan Coulthart Lead Municipal Engineer/TTL EASVS Municipal Engineer Hoi-Chan Nguyen Senior Counsel EASVS Legal William Kingdom Lead W&S Specialist EASUR Sanitation Cuong Duc Dang Sr. Operations Officer EASVS Economics Quyen Do Duong Finance Analyst LOADM Economics Hoa Thi Hoang Sr. Operations Officer EASVS Community develop. Giang Thi Huong Nguyen Program Assistant EACVF General assistance Hoa Thi Mong Pham Sr. Social Development Specialist EASVS Social development Hung Viet Le Financial Management Specialist EAPCO FM Phuong Thi Thanh Tran Sr. Environmental Specialist EASVS Environment Kien Trung Tran Sr. Procurement Specialist EAPCO Procurement Supervision / ICR Alan Coulthart Lead Municipal Engineer/TTL EASVS Municipal Engineering Hung Duy Le Senior Operations Officer/ EASVS Operations/TTL TTL at Closing Laurent Msellati Portfolio and Operations Manager EACVF Portfolio Hoi-Chan Nguyen Senior Counsel EASVS Legal Cuong Duc Dang Sr. Operations Officer EASVS Economics Hoa Thi Hoang Sr. Operations Officer. EASVS Community developm. Giang Thi Huong Nguyen Program Assistant EACVF General assistance Hoa Thi Mong Pham Sr. Social Development Specialist EASVS Social development Phuong Thi Thanh Tran Sr. Environmental Specialist EASVS Environment Kien Trung Tran Sr. Procurement Specialist EAPCO Procurement Cung Van Pham Financial Management Specialist EAPCO FM Quynh Xuan Thi Phan Financial Management Specialist EAPCO FM Quang Hong Doan Senior Economist EACVF Finance & economics Nga Thi Quynh Dang Country Trust Fund Coordinator EACVF Trust fund Quyen Do Duong Finance Analyst LOADM Economics Thao Thi Do Finance Analyst LOADM Disbursement Ninh Quang Nguyen Program analyst EACVF Disbursement 23 (b) Staff Time and Cost Staff Time and Cost (World Bank Budget Only) Stage of Project Cycle No. of staff weeks USD Thousands (including travel and consultant costs) Lending FY98 188.71 FY99 266.44 FY00 0.00 FY01 0.00 FY02 0.00 FY03 0.00 FY04 0.00 FY05 0.00 FY06 0.00 FY07 0.00 FY08 0.00 Total: 455.15 Supervision/ICR FY98 0.00 FY99 2.13 FY00 45 77.35 FY01 40 62.00 FY02 45 62.47 FY03 53 68.23 FY04 52 69.91 FY05 33 58.61 FY06 26 54.97 FY07 23 54.91 FY08 6 12.60 Total: 323 523.18 24 Annex 5: Beneficiary Survey Results Not required 25 Annex 6: Stakeholder Workshop Report and Results Not required 26 Annex 7: Summary of Borrower's PCRs and/or Comments on Draft ICR All participating cities submitted their PCR (See Annex 9). Based on the information/comments provided, the TTL and the ICR Authors (Mr. Richard Beardmore and Ms. Julia Li) prepared several draft ICRs. The revised draft Version 4.0 was circulated to Borrower and other partners for comments. Below are the list and content of comments received so far:- Comments from the Ministry of Planning & Investment (Email dated 13 May, 2009) Firstly I would like to congratulate WB and three cities for successful completion of the Three Cities Sanitation Project. I would like to give some comments as follows:- In general the project has met the set target. This is the first sanitation project which dealing with a comprehensive issues, including sewers and sewage treatment system. The project also changed the management style of the Sewerage and Drainage Company in Hai Phong or urban environment companies in other cities. In which, these companies have moving from mostly financed by the local government budget to sustained by themself through the principle of cost recovering mechanism. This mechanism is also now start to be applied to other cities in the countries and is a method that should be followed. The implementation of the project showing a strong commitment from both provincial authorities and the WB, the effective coordination between the WB and Vietnam authorities through the scheduled meeting to review the progress of the project. Decentralization in this project has shown it strength. Nevertheless, the project has also faced some difficulties in implementation that we should take note for other similar projects in the future:- The bidding problems: Some contractors are not good and not implement as they committed (the contractor in Quang Ninh,...) which make the project delayed. The selection of contractor should be made more carefully and sometime the contractors who have the best score are not the best one. Site clearance: Even with the high commitment from local authorities, as other project in Vietnam, site clearance remains a difficult issue to tackle. Due to the different b/w WB and Vietnam procedure, for the future project, the DCA should mention more detailed and clearer the resettlement framework to help the implementation agencies to be easier to follow. Thanks and best regards, TRAN NGOC LAN (Mr.) Expert, Foreign Economic Relation Department Ministry of Planning and Investment (MPI) Comment/Action by ICR Team Leader/Author: The above comments are reasonable. Necessary revisions were made in this version. 27 Comments from Quang Ninh Sub-project (Email dated 7 May 09) HALONG CITY-CAM PHA DRAINAGE AND SANITATION MANAGEMENT UNIT No. 4, Cao Xanh Road, Ha Long City, Quang Ninh Province. Tel: 84-33-625206 Fax: 84- 33- 627402 E-mail: pmu-moitruonghl@hn.vnn.vn Fax transmission Date : 07/5/2009 To: Worlbank Office in Ha Noi Att.: Mr. Le Duy Hung Fax: 033. 622.854 Task Team Leader Number of page: 01 From: Phan Cam Pha Fax: 033. 627.402 Director of PMU Cc: Mr. Do Thong-Vice-chairman, QNPPC Letter no.: /PMU Mr. Dao Thanh Binh- Director of URENCO Ha Long Mr. Pham Van Tan- Vice-director of PMU Mr. Nguyen Nhu Nghia ­ PMU Ms. Nguyen Thi Huong Giang-Program Assistant Ref. Quang Ninh Sub-project: PMU's comments to the draft ICR Dear Mr. Hung, Thank you for your email of 24.04.2009 and the attached draft Implementation Completion Report, we would like to have some comments to this as follows: In general, we agree with the outline and contents of the draft ICR. We however propose some amendments for number of parts in the ICR:- 1. In Item 1.7.2 (page 10), in paragraph: "Additional works included expended drains in Ha Long City, and construction of a new WWTP in Cam Pha......". Please amend as "Additional works included expended drains in Ha Long City and Cam Pha Town, and construction of a new WWTP in Hon Gai concentratively populated and administrative area of Ha Long City". 2. In the Item 5.2.3 (page 23), in paragraph remarking Quang Ninh project: " ..In Quang Ninh, the project experienced greater delays in procurement and site clearance....". In the fact that, the delays was not caused by the procurement, we therefore propose to recorrect as "....In Quang Ninh, the project experienced greater delays due to poor capacity provided by the Contractor and site clearance....". 3. In the Part A- Outcome: Regarding the second dash of the second sub-item (b) ( page 39), we propose to re-state as follows: A plan of increase of wastewater charge according to freshwater bill was drawn out in the FS Document for Loan Agreement with the Bank. People's Committee of Quang Ninh Province had issued Decisions regarding increase of wastewater charge for 5 times, from the flat fee of VND 200 per m3 to 10÷15% surcharge on water supply". 4. In the Item regarding Completion of the Civil Works Contracts (page 40), at paragraph: At the time of completing this draft report no further actions had been taken.", we propose to rewrite as follows: " After consideration solutions, Quang Ninh Provincial People's Committee as well as PMU had conducted stronger actions, namely 28 broadcasting the poor capacity provided by the contractor on National Television, issuance of request letter to Ministry of Construction ( Construction Company is directly under MOC) for assistance. After that move, the Contractor had mobilized more execution units which resulted in successfully completion of Bai Chay WWTP and it is handed over to the Employer for operation in the end of May 2007" If there are any unclear points regarding our comments, please do not hesitate to contact us. By the way, please be informed that Ha Khanh WWTP is reaching the end of commissioning period. The recent tested samples are shown that treated wastewater meets Vietnamese Standard. It is expected to be handed over to the Employer on May 25th, 2009. Thank you for your assistance. Yours truly, Phan Cam Pha Director of PMU Comment/Action by ICR Team Leader/Author: The above comments are reasonable. Necessary revisions were made in this version. Comments from Hai Phong Sub-project (Email dated 13 May 09) Dear All, Please find attached the file with some highlighted comments from Haiphong PMU for the ICR. Please reconsider carefully ERR for Haiphong project. Do Trong Dat, Haiphong PMU Comment/Action by ICR Team Leader/Author: It was agreed from the project design that no touristic figures in Haiphong will be included in the economic analysis. Other comments were incorporated in this version. Comments from Da Nang Sub-project (Email dated 13 May 09) Dear anh Hung, Please find the Danang PMU's comments on ICR of Sanitation Project (English version). Best regards, Ho Tuong Huy Vice Director of Danang PIIPs PMU 54 Thai Phien St., Danang City Tel: (84-511) 3562677 - 3562679 / Fax: (84-511) 3562678 Comment/Action by ICR Team Leader/Author: The above comments are reasonable. Necessary revisions were made in this version. The Danang map was revised as requested. 29 Annex 8: Comments of Co-financiers and Other Partners/Stakeholders Comments from Embassy of Finland (Email dated 12 May 09) EMBASSY OF FINLAND Hanoi Re: Three Cities Sanitation Project Mr. Le Duy Hung, Task Team Leader World Bank, Hanoi, Vietnam Re: Your letter 29 April 2009 We have a pleasure to congratulate World Bank and all parties involved to successfully implementing the demanding Three Cities Sanitation Project in Vietnam. According to the Completion Report the relevancy of the project has been high and the implementation most satisfactory. The draft of the Implementing and Completion Report for the Three Cities Sanitation Project is very informative and makes interesting comparisons between three case cities of Hai Phong, Danang and Quang Ninh. Finland has been involved with Hai Phong City and from our experience we can agree that the conclusions of the Report are correct. We are also pleased to observe that the quality of supervision has been rated good. That has been the major Finnish contribution in Hai Phong. These kinds of projects normally have many complications and problems. That was also the experience in Hai Phong, but finally issues were settled in time in a good co-operation between relevant parties. Cost benefit analysis shows positive cost/ benefit ratio in general, also in Hai phong. However, it is a pity that the increase of tourism income has not been evaluated in the case of Hai Phong. That makes Hai Phong figures low and non-comparative with other cities. Hai Phong City is a remarkable feeding hub for tourists to Halong, Cat Ba and Do Son. It is most probable, that hygiene environment makes Hai Phong a more attractive gate to the final tourist estimations. During the monitoring period, the number of tourists increased 100 % in Hai Phong. The financial impact of that should not be ignored. One of the key sustainability factor of the sanitation schemes is the financial status of the operating companies in the sanitation sector. The issue is discussed in a few chapters in the report. However, the discussion leaves many issues open and does not reach a proper analytical level. Sincerely yours Max von Bonsdorff Head of Development Cooperation Embassy of Finland Comment/Action by ICR Team Leader/Author: As mentioned earlier, no touristic figures in Haiphong will be included in the economic analysis. Other comments were incorporated in this version. In addition, the TT would like to thank FINNIDA for their excellent cooperation and strong commitment in Haiphong. This was a great example of good bilateral/ co-financing. 30 Comments from Mr. Antti Nykanen, Team Leader, CMC in Hai Phong (Email dated 18 May 09) Dear Hung, I have reviewed the report and I don't find any incorrect issues there. In general there are a lot of good findings (especially in M&E) which will be useful in following the CCESP. Could you send me a copy of Cofinancier's (Ministry for Foreign Affairs) comments. It would be interesting to see what the have commented. Best regards, Antti N. Comment/Action by ICR Team Leader/Author: Not required. Comments fr. Mr. Sytze Jarigsma, Team Leader, CMC in Danang (Email dated 11 May 09) Dear Giang and Hung, From the DHV side, there are no comments on the draft ICR. Many of the Tables used in the ICR on the Danang project originate from a draft report prepared by us in cooperation with Gerry Glazier (Institutional componnent)and they have not changed, as far as we know. However, the drawing sent to us separately, later on, is far from correct. I have contacted Mr. Huy of the PMU PIIP Danang and I understand that the PMU will send you an updated picture that shows the wastewater component correctly and that also will include the drainage component. Kind regards, Sytze Jarigsma On behalf of DHV CMC of Danang component Comment/Action by ICR Team Leader/Author: Danang map was revised and accepted for this version. 31 Annex 9: List of Supporting Documents PMU Haiphong, Haiphong Sub-Project: Project Completion Report, December 2007 PMU Danang, Danang Sub-Project: Project Completion Report, December 2007 PMU Quang Ninh: Quang Ninh Sub-Project: Project Completion Report, March 2009 World Bank, Project Appraisal Document for Three Cities Sanitation Project Report No.18796, April 22, 1999 World Bank, Minutes of Negotiation, March 1999 World Bank, Development Credit Agreement Cr No. 3211 VN, August 3, 1999 World Bank, Copies of Aide Memoire, Management Letters World Bank, Copies of Implementation Status Reports (ISRs) John Martin, Lessons Learnt From Review For Guiding Preparation Of Future Sanitation Projects, October 2003 Cu Thuy and Sophie Trémolet: Case Study: Sanitation Revolving Fund in Vietnam, Draft Report, March 2009 32 Annex 10: Danish Trust Fund for Quang Ninh Sub-Project IMPLEMENTATION COMPLETION MEMORANDUM (ICM) TRUST FUND TF No. 024899 THREE CITIES SANITATION PROJECT IN VIETNAM (As agreed with the Country Trust Fund Coordinator) A. BASIC TRUST FUND INFORMATION TF Name: Danish Trust Fund for the Three Cities Sanitation Project in Vietnam TF Number: TF No. 024899 Task Team Leader Name/TF Managing Unit: Mr. Hung Duy Le TF Amount (as committed by the donor): DKK 32,634,000 (USD 5,944,642.07) Recipient of TF funds (Bank/Recipient, if Recipient state name of recipient government and implementing agency): People's Committee of Quang Ninh Province, Vietnam Program Management Unit Director: Dr. Le Van Minh, Director General, International Cooperation Department, Ministry of Agricultural and Rural Development (MARD) Type of TF: Free-standing Single/Multi Donor: Single Donor(s) Name(s): Kingdom of Denmark, through DANIDA TF Program Source Code: VN-FS Purpose of TF: Co-financing TF Approval/IBTF Clearance Date: 01 March 2001 Grant Agreement Signing Date: 15 May 2001 TF Closing Date(s): 30 April 2006 Date of ICM Submission to TFO: March 20, 2009 Cost and Financing Table: Category Allocated Amount Actual Disbursement DKK DKK Works under Part A.1 and A.4 of the 25,334,000 24,928,331.60 Project Sanitation Sub-loans for Cam Pha and 7,300,000 7,291,712.83 Ha Long under Part C of the Project Quang Ninh Part A Special Account 0 -37,654.56 Quang Ninh Part C Special Account 0 337,064.39 Total 32,634,000 32,519,454.26 Cancellation 114, 545.74 B. TRUST FUND DEVELOPMENT OBJECTIVES AND DESIGN 1. Original (and Revised) Trust Fund Development Objectives a) Sustained improvements to public health; and b) Increased economic development by reducing the incidence of flooding, upgrading the urban environment, and developing more efficient and financially sustainable sanitation and drainage companies (URENCOs) in Quang Ninh Province (Ha Long City and Cam Pha Town). 33 2. Original (and Revised) Trust Fund Activities/Components - Bai Chay Sanitation (DKK 25.3 millions): Drainage, sewerage and sewage treatment, solid waste management; and - Revolving fund for household sanitation improvement (DKK 7.3 millions) 3. Outcome Indicators Together with other funding resources for Quang Ninh Sub-project, the TF had an important contribution to the realization of relevant indicators. These are provided in details in the main report: - Reduction in the flooding: The flooding area has been reduced 80%. A total of 435,000 people in the Province benefit from reduced flooding. - Reduction in the incidence of water-related and vector-borne diseases: A total of 93,000 people benefit from WW collection and treatment. Summary Health Figures in Project Area (Data collected in 3 nominated wards of Halong City and 2 wards of Cam Pha Town): Description Unit Year 2002 Year 2003 Year 2007 Dysentery Case 0 0 0 Cholera Case 0 0 0 Typhoid Case 0 0 0 Diarrhea Case 239 197 251* Note: * The number of diarrhea in 2007 was significantly increased due to an outbreak of SARS and cholera in many cities/provinces. Increased tourism Description Unit Year 2002 Year 2003 Year 2007 Total number of tourists to Visitor 2,31 3,022 2,576,000 3,600,200 Quang Ninh Number of tourists stayed Visitor 898, 182 982,000 2,295,886 overnight Total Provincial Income VND bill. 542.621 857.000 2,117.369 from Tourism - Increased external investment: More other projects on sanitation area are under preparation. In particular, JICA plans to fund a new sanitation project for Vietnam with a total cost estimate of US$120 million. - Immediate local environment has become cleaner: Samples were taken at three discharge points as indentified before. It was found that the results obtained at two points in Bai Chay Area were satisfactory while the treated water quality from Bai Chay WWTP met B Category as designed and thus contributed to environmental conditions improvement for Halong Bay. It is expected that the water quality in the last point will be improved when new Ha Khanh WWTP will be put under full operation - Cost recovery and willingness-to-pay sanitation fee: During the project period, the PPC increased the WW fees and SWM fees four times. It was recorded that a high number of households paid these fees. The services providers, URENCO, are operating on a more commercial basis. 34 - Solid waste collection and safe disposals: It was recorded that solid waste of a high number of households (approx. 80,000HH) with population of 330,000 people was collected and safely disposed at sanitary landfills. - Small sanitation revolving fund: A high number of 11,504 loans were provided to the households for improving toilet and sanitation facilities. - Information-Education-Communication (IEC) Program: The IEC activities were carried out in 21 primary and secondary schools. The "Green Sundays" initiative was promoted and maintained. With active participation from Women Union, the environmental protection campaign was taken place in all wards of Ha Long City and Cam Pha Town 4. Other Significant Changes in Trust Fund Design - There was no significant change in the TF design. Quang Ninh PPC asked DANIDA to use all allocated budget for an extension into phase II. On 8 October 2002, Danida objected the proposal of Quang Ninh PPC. Consequently, an amount of DKK 11,545.74 was cancelled from the trust fund, and so was the remaining amount separately allocated from bilateral grant provided by DANIDA. Afterwards, remaining activities had been funded by Quang Ninh PPC. C. OUTCOME 1. Relevance of TF Objectives, Design and Implementation - The TF is for co-financing with the Three Cities Sanitation Project which supports the CAS's goal to raise productivity through infrastructure by making the project cities more competitive, improving their "livability" and enhancing their bankability. It also contributes to the reform of the state-owned enterprises by making the companies currently responsible for sanitation and drainage more commercially focused and by increasing private sector participation, thereby making their eventual divesture more feasible. The TF is therefore relevant to both the CAS and the Bank's general urban and local government sector strategy. 2. Achievement of TF Development Objective a) Sustained improvements to public health: - The Danish TF contributed to improving sanitation conditions to 301,655 people in Quang Ninh Province. - In terms of Increased Awareness in Halong, according to the Impact Assessment Reports (of which data was collected from mass organizations, the health department and monitoring of activities), the TF achieved their objectives to a relatively high extent. Information, Education and Communication (IEC) activities were carried out in the whole project area. Residents are now generally aware of environmental and health issues. A large number of residents benefited from the Revolving Fund and contributed to an improved environment through, for example, clean up campaigns and improved sanitation, and the general health situation has improved. b) Increased economic development by reducing the incidence of flooding, upgrading the urban environment, and developing more efficient and financially sustainable sanitation and drainage companies (URENCOs) in Quang Ninh Province (Ha Long City and Cam Pha Town): - In terms of institutional development, for the case of Halong, new procedures and practices for Urban Environmental Company's (URENCO) were completed and used in daily works. To this extent the objectives have been obtained. However it should be noted that the process 35 of change in which the administration and the URENCO management has been now engaged is very dynamic. It is hoped that the sub-project has laid a strong foundation for continued institutional strengthening and HRD initiatives for these groups in the future in order to address changes that will continue to occur. - A plan of increase of wastewater charge according to freshwater bill was drawn out in the FS Document for Loan Agreement with the Bank. People's Committee of Quang Ninh Province had issued Decisions regarding increase of wastewater charge for 5 times, from the flat fee of VND 200 per m3 to 10÷15% surcharge on water supply- The overall environmental impacts of the implementation of the sanitation components have been positive. Improvements of the drainage channel capacity have already decreased flooding in low-lying areas. Wastewater and septic sludge collection and treatment have helped improve considerably the living conditions in the project areas. - Wastewater treatment has reduced the direct pollution load from the human population. Especially in Ha Long, the reduced pollution will improve the water quality and aquatic life especially near the shoreline of Bai Chay. Also, the introduction of sanitary landfill sites with proper membranes and leachate treatment plants has reduced the impact on the groundwater in the landfill areas. - With the introduction of a sewage collection and treatment facility covering the town center area of the city, the concept of separating wastewater from rainwater has been introduced for the first time in Vietnam by the TF. Rapid industrial and urban development in Vietnam will create a pressure on the environment. Therefore extensive investments in wastewater treatment will be needed. 3. Efficiency - In general, the results have been quite effective for the sanitation component. The works were carried out as planned in a reasonably timely manner. Most of the outputs were achieved, and targets were met. - For the construction supervision, it is assessed that the results have been generally effective. The works were carried out as planned, and targets have been met. However, with many changes and extensions in the sub-project, it is difficult to evaluate whether the results have also been efficient. Originally, some 69 international and 198 national man-months were assigned to project management and supervision. In reality, almost 125 international and more than 450 national man-months were spent on the task. In other words, the input has doubled compared with the original plan. The main reason for the expansion of the supervision input is the contractors' lack of own quality assurance. The supervision organization had constantly attempted to assist the contractors to improve both quality control and organization, but in this respect without tangible results. Nevertheless, given the outside factors it is deemed that the construction supervision was implemented in a reasonably efficient way. - With regard to the Institutional Strengthening (IS), Sub-Project had specifically addressed the institutional capacity development. The IS sub-project is assessed to substantially develop capacity for the two URENCO's. All of the main outputs that supported the log frame indicators of the sub-project were produced, and the process of institutionalization of the new procedures and practices used in daily operations of the URENCO's were completed. In addition, important capacity development took place within the PMU, where management and staff learned further developed skills to manage large international civil works contracts Outstanding issues: these are some major outstanding issues: - Completion of the Civil Works Contracts: During a meeting following an inspection by the PPC of the contractor in question in March 2006, the consultant pointed out the fact that the contractor's work force had decreased, and mentioned that with the current rate of progress 36 the contractor would complete the works at least two months later than the scheduled end of June, 2006. Irrespective of this, the contractor without providing any tangible evidence guaranteed to complete all works on or even ahead of schedule. Subsequent to the meeting the contractor had further decreased his work force, and the consultant decided to recommend expulsion of the contractor as soon as possible. After consideration solutions, Quang Ninh Provincial People's Committee as well as PMU had conducted stronger actions, namely broadcasting the poor capacity provided by the contractor on National Television, issuance of request letter to Ministry of Construction ( Construction Company is directly under MOC) for assistance. After that move, the Contractor had mobilized more execution units which resulted in successfully completion of Bai Chay WWTP and it is handed over to the Employer for operation in the end of May 2007. - Private Sector Involvement. Various aspects of the Private Public Partnership concept was presented and demonstrated. A private contractor, Invesco, was assigned for solid waste collection in Halong City. The Ha Long and Cam Pha URENCO are under transition period from directly administrative companies under PC to an autonomously operated companies - Community related issues: There is a need for an in-depth impact study to assess whether the revolving fund has the desired impacts on poverty and the environment, and how deficiencies especially in terms of lacking benefits to poor households may be improved. - The waste collection system does not yet satisfactorily function. Both the issue of insufficient fees and non-payment of fees, and the irregular dumping of waste need to be more directly addressed in order to ensure sustainability. 4. Development Impacts, including those that are Unintended/Unrelated to TF Objectives - The TF generated public benefits to the project area's economies as a whole, and private benefits to individual households. A healthier workforce attributed by fewer water-borne diseases and less damage and disruption of production resulting from flooding has helped improved business's productivity. Reduced flood damage to roads and other infrastructure services has also helped lower road maintenance costs. Urban environmental improvement has given the project areas a more comparative advantage over others in competing for new investments. There is also another benefit to tourism in Ha Long city through reduced pollution of the popular swimming beaches in Ha Long Bay, as the famous World Heritage's site. 5. Overall TF Outcome Overall outcomes of the Danish TF has been achieved. D. RISK TO DEVELOPMENT OUTCOME 1. Follow-On Results and/or Investment Activities Activity/Investment: _____ Recipient/Other Investment; _____ Grant Project/Program; _____ Bank Project; _____ IFC Financial Project/Activity 2. Replicability - As noted above, it is recorded that more projects are under preparation. In particular JICA is planning to fund a new sanitation project with total cost estimate of US$120 million. 37 3. Overall Risk to Development Outcome - Whilst physical outputs were successfully achieved, institutional objectives focusing on the development of strong financially viable institutions were not. Almost all physical outputs were achieved and the institutions (URENCO and the PMU) have become stronger in managerial and technical sense. However, the objective of making them financially less dependent on cost recovery basis has not been achieved. During the course of the project, the PMU for the project was separated from URENCO. This caused serious problems as URENCO staff did not gather practical experiences in project management, and had less opportunity to learn new skills on the job, whilst PMU staff became less interested in the operational side of the project outputs. E. PERFORMANCE 1. Bank: The Bank's team was proactive in providing guidance and assistance to the Recipient in implementation of the trust fund. Continuous supervision was provided. The Bank's team and the Recipient regularly coordinated to review and revise activities for achieving intended's objectives. 2. Recipient (for Recipient-executed TFs only): The Recipient well managed the trust fund's activities. However, there were still some rooms for improvement such as weak collaboration between line agencies, slow site compensation and hand-over, and delayed bidding process. F. LESSONS LEARNED / RECOMMENDATIONS There are several major lessons learned from this TF: - In the context of project decentralization, only local approval of contract works was required. This created a fast-track method for contract implementation, as it precluded any approval from central government such as Ministry of Construction. This allowed the contractor to work closely with the Department of Construction authorities and receive their close cooperation and support at critical approval periods in the contract implementation - In terms of the design, a key emphasis should be placed on the use of appropriate technology which reflects both the level of expertise and financial resources available to operate and maintain the implemented investment. The simplest level of technology to achieve the stated goals should be utilized, so as to create a reliable, financially sustainable operating system. It is critical to choose a suitable technology that is adapted to local capacity, and community's needs and affordability. - About IEC activities: It is important to have an insight knowledge of the local situation before launching the activities through: (i) a baseline study on the issue at stake before the start of the Awareness Campaign; (ii) a long term (6 months) anthropological study (using a KAP approach) of the communities' understanding of the project related issues. It also requires the use of the anthropological study results as a basis for detailed design of the awareness campaign and the creation of awareness raising materials fit to the communities. - Regarding the preparation of a Communication Plan in collaboration with the Counterpart at the outset of the campaign, the Plan should contain a very detailed description of the TORs of 38 the stakeholders (various government, project and community-based players), of the connection links between them, and of the progress monitoring system. - Strong focus on setting up an institutional system with existing provincial and city authorities for ensuring the sustainability of IEC activities. - Close collaboration with the other components of the Project. - Support from the PPC and Commune People's Committee to the campaign throughout the Project life. - Awareness campaign implemented in the communities by full-time employees - Communication Agents (called Sanitation Trainers in the BMT-SSC). - Simple system of subsidizing poor households for latrine construction. - Integration between IEC activities and construction work. 39 41 42 43