ASIAN DEVELOPMENT BANK PPA: PHI 22274

PROJECT PERFORMANCE AUDIT REPORT

ON THE

METROPOLITAN CEBU WATER SUPPLY PROJECT (Loans 1056-PHI[SF]/1057-PHI)

IN THE

PHILIPPINES

December 2002

CURRENCY EQUIVALENTS

Currency Unit – peso (P)

At Appraisal At Project Completion At Operations Evaluation (October 1990) (March 1999) (September 2002) P1.00 = $0.0388 $0.0257 $0.0191 $1.00 = P25.75 P38.97 P52.45

ABBREVIATIONS

ADB − Asian Development Bank ADF − Asian Development Fund BME − benefit monitoring and evaluation CWA − communal water association DENR − Department of Environment and Natural Resources EIRR − economic internal rate of return FIRR − financial internal rate of return LWUA − Local Water Utilities Administration m3 − cubic meter MCWD − Metropolitan Cebu Water District NGO − nongovernment organization NRW − nonrevenue water NWRB − National Water Resources Board O&M − operation and maintenance OEM − Operations Evaluation Mission OMAP − Operation and Maintenance Assistance Program PCR − project completion report PPAR − project performance audit report

NOTE

In this report, “$” refers to US dollars.

Operations Evaluation Department, PE-615

CONTENTS

Page BASIC DATA iii EXECUTIVE SUMMARY iv MAP vii I. BACKGROUND 1 A. Rationale 1 B. Formulation 1 C. Purpose and Outputs 2 D. Cost, Financing, and Executing Arrangements 2 E. Completion and Self-Evaluation 2 F. Operations Evaluation 3 II. PLANNING AND IMPLEMENTATION PERFORMANCE 3 A. Formulation and Design 3

B. Achievement of Outputs 4 C. Cost and Scheduling 5 D. Procurement and Construction 6 E. Organization and Management 6

III. ACHIEVEMENT OF PROJECT PURPOSE 8 A. Operational Performance 8 B. Performance of the Operating Entity 11

C. Financial and Economic Reevaluation 12 D. Sustainability 13

IV. ACHIEVEMENT OF OTHER DEVELOPMENT IMPACTS 14 A. Socioeconomic and Sociocultural Impacts 14 B. Environmental Impacts 14 C. Impact on Institutions and Policy 15 V. OVERALL ASSESSMENT 15 A. Relevance 15 B. Efficacy 15

C. Efficiency 16 D. Sustainability 16 E. Institutional Development and Other Impacts 16 F. Overall Project Rating 16 G. Assessment of ADB and Borrower Performance 16

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VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS 17 A. Key Issues for the Future 17

B. Lessons Identified 18 C. Follow-Up Actions 18

APPENDIXES 1. ADB Assistance to the Philippines’ Water Supply and Sanitation Sector 20 2. Diagram of the Project 21 3. Photographs of the Project 22 4. Cost Breakdown by Project Component 27 5. MCWD Organization Chart 28 6. Assessment of Social Aspects 29 7. Compliance with Loan Covenants 32 8. Project Output Data 34 9. Tariff Structure for Individual Connections 35 10. MCWD Financial Statements 36 11. Financial and Economic Internal Rates of Return 39

BASIC DATA Loans 1056-PHI(SF) and 1057-PHI: Metropolitan Cebu Water Supply Project

Project Preparation/Institution Building Loan No. Project Name Amount ($ million) Approval Date 545-PHI Water Supply Sector Project1 46.0 25 Nov 1981 As per ADB Key Project Data ($ million) Loan Documents Actual Total Project Cost 33.0 24.4 Foreign Exchange Cost 14.2 12.1 ADB Loan Amount/Utilization 22.0 16.9 ADB Loan Amount/Cancellation 5.1 Key Dates Expected Actual Fact-Finding 8–19 Jan 1990 Appraisal 6–10 Jun 1990 Loan Negotiations 25 Oct–7 Nov 1990 Board Approval 29 Nov 1990 Loan Agreement 4 Jun 1991 Loan Effectiveness 2 Sep 1991 31 Oct 1991 First Disbursement 22 Aug 1994 Project Completion 31 Dec 1993 Oct 19972 Loan Closing 30 Jun 1994 5 Aug 1998 Months (effectiveness to completion) 28 72 Economic and Financial Internal Rates of Return (%)

Appraisal PCR PPAR

Financial Internal Rate of Return 13.9 4.3 5.7 Economic Internal Rate of Return — 15.0 14.3 Borrower Republic of the Philippines Executing Agency Local Water Utilities Administration Mission Data Type of Mission No. of Missions No. of Person-Days Fact-Finding 1 24 Appraisal 1 10 Project Administration Review 4 29 Special Loan Administration 7 33 Project Completion 2 51 Operations Evaluation3 1 19

— = not calculated, ADB = Asian Development Bank, PCR = project completion report, PPAR = project performance audit report. 1 The preparatory work for the Project was financed under this loan. 2 The Project was considered completed at this time when it started operating at partial capacity. 3 The Operations Evaluation Mission, which visited the project area during 16–26 September 2002, comprised H.

Hettige, Senior Evaluation Specialist/Mission Leader; V. Buhat-Ramos, Evaluation Analyst; F. Radstake, Water Supply Specialist/Hydrogeologist; and L. Estaris, Local Social Development Specialist.

EXECUTIVE SUMMARY In the late 1980s, the Philippine Government gave high priority to providing an adequate supply of potable water to urban and rural communities and to improving public health conditions by controlling pollution and reducing waterborne diseases. In the Metropolitan Cebu area, the second largest urban center in the Philippines with a population of 1.1 million in 1990, piped water supply coverage was very low, reaching only 18% of the people. A study financed by the Asian Development Bank (ADB) under a previous loan had identified the Mananga riverbed as the best location for extracting water. The Government gave high priority to the Project that consisted of a diversion weir, a settling basin, an infiltration basin, 19 deep wells, two storage reservoirs, a chlorination building, transmission and distribution mains, and other accessories and equipment for maintenance. The estimated project cost was $33 million, of which 43% was to be in foreign exchange. In November 1990, ADB approved a blend loan to the Government comprising $16 million equivalent from its Asian Development Fund (ADF) resources and $6 million from ordinary capital resources. The ADF loan was lent under standard ADF terms, and the ordinary capital resources loan was given at 10% interest for 24 years including a grace period of 4 years. The Government relent the loan proceeds to the Local Water Utilities Administration (LWUA), the Executing Agency, at 10% interest for 24 years, and LWUA onlent them to the Implementing Agency, Metropolitan Cebu Water District (MCWD), at 12.5% for the same period.

The Project aimed at augmenting the water supply in the MCWD area by 33,000 cubic meters per day and reducing nonrevenue water (NRW) levels from 38% in 1990 to 30% by 1993. About 100,000 people were expected to benefit from new connections, of whom 30,000 would be the urban poor reached through communal faucets and individual connections. Given the high number of the urban poor among the expected beneficiaries, the use of ADF was considered justified. To expedite implementation, ADB approved direct selection of consultants and retroactive financing of their services. Despite that, project completion originally scheduled for end-1993, was delayed by almost 4 years due to various administrative reasons, among them finalizing the relending and onlending agreements and engaging the consultants. In July 1994, ADB seriously considered cancelling the Project, as physical activities had not yet started. But, in view of the acute shortage of water in Metropolitan Cebu and the high priority given by the Government, the Project was extended subject to completion of a time-bound action plan. Further delays occurred because of problems in land acquisition, and the construction of the infiltration basin had to be temporarily suspended due to the contractor’s inability to meet the design specifications. During implementation, construction of the two storage reservoirs and the chlorination building was cancelled, as storage capacity was already sufficient. The loan was closed in August 1998 after three extensions. Physically, the Project was well-designed to achieve its main objective of expanding water supply in Metropolitan Cebu. The Project began operating at partial capacity in October 1997 without the infiltration basin, using the natural recharge condition of the riverbed. The actual project cost was $24.4 million, 26% below the appraisal estimate, due to cancellation of the two reservoirs and chlorination building, only partial completion of the infiltration basin, and nonuse of contingency funds. The infiltration basin has now been completed according to design specifications at a cost of $1.2 million, financed from MCWD’s own resources. It is expected to be operational by January 2003 when the temporary dike separating it from the settling basin has been made permanent.

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The well field has been operational for more than 5 years using natural infiltration and has produced an average of 23,000 cubic meters per day. About 17,000 new connections and 42 new communal faucets can be attributed to the Project. The numbers will increase to 24,000 connections and 60 communal faucets when full capacity is reached in 2003, benefiting about 122,000 residential and 13,500 communal water users. As such, the Project will significantly exceed the appraisal target for the overall number of beneficiaries (100,000) but not that for the urban poor (30,000). The project design did not include a mechanism or plan to specifically target the urban poor. It relied on continued expansion of the communal water association (CWA) program where costs would be recovered through the barangay associations collecting set fees from the users. The subsidized tariff for the CWA program is approximately 65% of the regular tariff. Where they have been established, CWAs appear to be a sustainable and effective way of reaching the urban poor until they are able to access individual connections. If reaching them is to be one of the objectives of the Government and MCWD, there should be a more proactive attempt to publicize and promote the CWA program, with specific targets developed and their implementation monitored. Eventually, the objective should be to provide individual connections to the poor. The major benefits from the Project have been better access to safe water by consumers, longer hours of service, and enhanced sanitation conditions that lead to improved health. These benefits have had several positive social impacts. First, the longer hours of coverage not only make water easily accessible, but also prevent contamination by maintaining pressure in the pipes. Second, for those who switched from private wells and other surface water sources such as rivers and creeks, sanitation and health impacts have been notably positive. Third, the convenience of access has removed the burden of fetching water, especially from women, and allowed them to use time for more productive tasks. Fourth, the cost of water has decreased significantly for those who used to buy drinking water from vendors. MCWD’s collection efficiency increased from 73% in 1995 to 94% in 2002. Improving collection efficiency and replacing older distribution pipes and older meters contributed to some improvements in NRW, which was reduced from 38% in 1990 to 34% in 2002, but is still above the appraisal target of 30%. A long-term action plan for further rehabilitation will be developed after an ongoing district-metering program, which identifies priority areas for rehabilitation, is completed. After having increased its tariff by about 275% between 1990 and 1995, MCWD’s annual average tariff increase between 1995 and 2002 was about 4%. MCWD’s financial performance has been improving accordingly. Since the Project started operations, the revenue from water sales has increased by 38%, while production cost has increased by only 26%. MCWD has a comfortable debt service capacity and good liquidity position. Its retained earnings grew from P47 million in 1998 to P188 million in 2001.

The Project is likely to be sustainable, given the good quality of construction of the water source facilities and the distribution network, and the financial viability of MCWD. At present, the revenues from the water sales are at acceptable levels for cost recovery even from the communal faucets. Although regular maintenance of the infiltration basin scheme will be a major effort for MCWD, the commitment to such maintenance is high. The technology used in the Project fits the existing expertise in MCWD. The major risk to sustainability is the high sedimentation and siltation rate upstream of the weir. This risk can be mitigated by a

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maintenance plan for annually removing the accumulated sediments in the riverbed as well as in the settlement and infiltration areas. The plan should cover desiltation procedures and prohibit activities that contaminate the water source and cause pollution.

The initiative of LWUA and MCWD to develop an infiltration scheme to produce and conserve water is innovative and provides valuable lessons to water service providers in the Philippines. Better access to water has generated positive social impacts and project construction had no lasting negative environmental impacts. Overall, the Project has been highly relevant, less efficacious, and efficient, and has had significant institutional and other impacts. Its sustainability is likely. Consequently, the Project is rated successful.

The Project highlights the importance for MCWD and other sector agencies of (i) promoting the CWA program as an interim measure to reach the urban poor until individual connections to them are possible, (ii) preventing groundwater polluting activities near the water supply source, (iii) managing wastewater collection and treatment, (iv) regulating water extraction, and (v) protecting the watershed. The lessons identified show (i) the potential of the infiltration basin technology in areas where water is scarce, (ii) the importance of quality- and cost-based contract evaluation to avoid undue delays and excessive costs, (iii) the willingness of consumers to pay higher tariffs for reliable service and good quality of water, (iv) the need to have a clear strategy for reaching the targeted poor beneficiaries and to monitor data to verify the impact, and (v) the advantage of proper public consultation in accessing water supply sources. Follow-up actions are needed to maintain the infiltration basin and achieve the NRW target.

I. BACKGROUND A. Rationale 1. In 1987, an interagency task force of the Government of the Philippines (the Government) prepared a national master plan for water supply, sewerage, and sanitation that contained sector policies, programs, and institutional arrangements. High priority was given to providing an adequate supply of potable water to urban and rural communities and to improving public health conditions by controlling pollution and reducing waterborne diseases. The country operational strategy of the Asian Development Bank (ADB), which was formulated in 1988, set forth three main development objectives: (i) reducing poverty and generating employment, particularly in the rural areas; (ii) reducing income disparities and quality-of-life differences between regions; and (iii) rehabilitating existing infrastructure and improving its efficiency. The Metropolitan Cebu Water Supply Project (the Project) was in line with the strategies of both the Government and ADB. B. Formulation 2. The Metropolitan Cebu area, the second largest urban center in the Philippines, had a population of 1.1 million in 1990. The rapid growth in urban migration had resulted in a low coverage—18%1—with safe piped water supply. In December 1989, during the ADB Country Programming Mission, the Government requested ADB financing for the Project, indicated that it had the highest priority, and suggested that it be accelerated, given the scarcity of piped water in Metropolitan Cebu. ADB had previously assisted the water supply and sanitation sector in the country with 12 technical assistance projects amounting to $4.9 million and 10 loans amounting to $449.6 million (Appendix 1). A study financed under a previous project2 examined the water resources potential of Cebu in the early 1980s and proposed the Lusaran Dam as a solution to Cebu’s water supply problems. The study was later expanded to look at other sources because the cost ($291 million) of the Lusaran Dam was beyond the financing capacity of the sector at the time. In 1986, a two-phased scheme on the Mananga River was proposed and detailed design was prepared for it as part of the study. 3. The Project was formulated to implement the first phase of the Mananga River scheme. The existing water supply system of the Metropolitan Cebu Water District (MCWD)3 was to be augmented by constructing supply, transmission, and distribution facilities. Fact-finding for the Project was undertaken in January 1990, followed by appraisal in June 1990. The memorandum of understanding was signed only in October 1990, as the detailed design done previously had to be verified. In November 1990, ADB approved a blend loan to the Government comprising $16 million equivalent from its Asian Development Fund (ADF) resources and $6 million from ordinary capital resources. The balance of the funding was to be made available through government budgetary allocations.

1 At appraisal, the coverage was estimated to be 28%, but currently available data show the figure to be inaccurate. 2 Loan 545-PHI: Water Supply Sector Project, for $46 million, approved on 25 November 1981. The study was

carried out by a consortium comprising consultants from Denmark and Germany, together with domestic consultants from Cebu.

3 MCWD was established under the Local Water Utilities Administration regulations in 1974, with responsibility for water supply and sewerage in the Metropolitan Cebu area. MCWD service areas included four cities (Cebu, Lapu-Lapu, Mandaue, and Talisay) and four towns (Compostela, Consolacion, Cordova, and Liloan).

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C. Purpose and Outputs 4. The Project aimed at augmenting the water supply in the MCWD area by 33,000 cubic meters (m3) per day and reducing nonrevenue water (NRW)4 levels from 38% in 1990 to 30% by 1993 through an Operation and Maintenance Assistance Program (OMAP). The Project was expected to benefit about 100,000 people with safe water supply. Among these, 30,000 were expected to be the urban poor who were to benefit through communal faucets and individual connections. To achieve the objectives, the following components were to be constructed or provided (Appendix 2): (i) a diversion weir with a sluice gate across the Mananga River; (ii) an infiltration basin and a settling basin; (iii) 19 deep wells, well pumps, and pump houses; (iv) two storage reservoirs; (v) a chlorination building with chlorination equipment; (vi) collector, transmission, and distribution mains; (vii) pipes, fittings, valves, and equipment for OMAP; (viii) service connections and water meters; and (ix) consulting services for project implementation. D. Cost, Financing, and Executing Arrangements 5. The total project cost was estimated at $33.0 million equivalent, of which $14.2 million (43%) was to be in foreign exchange. The ADB blend loan of $22 million was to finance 67% of the total cost including the entire foreign exchange cost and $7.8 million equivalent of the local currency cost. The ADF loan of $16 million was provided under standard ADF terms (35 years with a grace period of 10 years at 1% service charge), while the ordinary capital resources loan of $6 million bore a 10% interest, with a repayment period of 24 years including a grace period of 4 years. The Local Water Utilities Administration (LWUA), an autonomous public utility responsible for developing all water districts in cities and municipalities except Metro Manila, was to be the Executing Agency. The proceeds of both loans were to be relent to LWUA at 10% interest for 24 years under a relending agreement, and these funds were to be onlent to MCWD at 12.5% for the same period under a subsidiary loan agreement. The foreign exchange risk was to be borne by the Government. LWUA was expected to work in close coordination with MCWD, the Implementing Agency. LWUA’s project implementation office was to be responsible for all aspects of planning, design, modification, construction, and commissioning of the Project. Project implementation was envisaged to take about 3 years and a project management office was established for its duration. Specific assurances regarding demand forecasts, tariff reviews, debt management, and financial management were built into the project documents. E. Completion and Self-Evaluation 6. Project construction (without the infiltration basin) was completed in October 1997.5 The two loans were closed in August 1998, after 3 extensions and about 4 years later than originally planned. The project completion report (PCR) was circulated in July 1999 after two project completion review missions during 1998 and 1999. The latter was needed because of delays in completing the infiltration basin; late submission of 1995, 1996, and 1997 audited financial reports; and the pending commissioning of the Compostela well field constructed under a previous ADB loan (footnote 2). The PCR reviewed the physical project achievements and estimated the number of project beneficiaries. It rated the Project partly successful6 and acknowledged the need for a more detailed evaluation after the completion of the infiltration

4 NRW is the difference between water produced at source and water billed. It includes both technical losses

(leakages) and nontechnical losses (illegal connections, meter errors, incomplete billings, etc.). 5 The infiltration basin was temporarily abandoned due to unforeseen circumstances (para. 21). 6 Using the previous three-category rating system (generally successful, partly successful, and unsuccessful).

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basin. The PCR was comprehensive and objective in its conclusions and described implementation problems in detail. However, the Operations Evaluation Mission (OEM) does not agree with the PCR estimate of the number of low-income beneficiaries, as it attributes the benefits from all existing communal faucets to the Project.7 F. Operations Evaluation 7. This project performance audit report (PPAR) is based on a review of project documents and relevant studies, discussions with ADB staff, and information obtained by the OEM that visited the project site, relevant government and MCWD offices, private sector, and nongovernment organizations (NGOs). The OEM held focus group interviews and key informant interviews in areas covered by MCWD and also in those not covered. The PPAR assesses the relevance, efficacy, efficiency, sustainability, and the institutional development and other impacts of the Project to identify lessons and follow-up actions for future ADB operations. The OEM also focuses on other aspects including reaching the poor, water quality monitoring, wastewater management, and watershed management. The views of the concerned ADB departments and offices and those of the Government, MCWD, and the Executing Agency were considered in finalizing this PPAR.

II. PLANNING AND IMPLEMENTATION PERFORMANCE A. Formulation and Design 8. During project formulation, several issues were raised. The first was the implementation delays that had occurred due to excessive time taken to award contracts under some previous loans to the sector. It was hoped that consultants who designed Mananga phase 1 could be directly hired to avoid front-end implementation delays in the Project. Second, it was expected that the onlending and relending arrangements from the Government to MCWD through LWUA were clear and agreed to by all parties and would not cause undue delays. Third, although the use of ADF was a concern, a blend loan was considered justified, as 30% of the expected beneficiaries were to be from the urban poor. Fourth, it was expected that the wastewater treatment for Metropolitan Cebu would be addressed by a proposed World Bank project. In reality, all these concerns were valid and caused problems during implementation and operations (para. 19). The physical aspects of the Project were well-designed to achieve the main objective of expanding water supply in Metropolitan Cebu, but there was a lack of specific focus in terms of particular areas and beneficiaries to be covered and a realistic plan to reduce NRW. 9. The selected groundwater source at Jaclupan Valley near the Mananga River appeared to be the only economically justified option at the time of appraisal. The overall cost was within the financial capabilities of LWUA and MCWD, and water could be produced at an acceptable cost. Although it was proposed to extend the coverage by 10% to users in new service areas, there were no detailed plans for expanding or improving the service areas.8 The technical feasibility study was appropriate, but it focused only on the design of the water source development and not on delivery and distribution or reducing NRW. The feasibility study covered only (i) a hydrogeological study and groundwater modeling for Jaclupan Valley and the 7 About 124 communal faucets existed before the Project; currently, there are 238 functional communal faucets.

Other water sources, which enabled the installation of additional communal faucets, were also developed after project approval. As such, only 60 communal faucets can be attributed to the Project at full capacity (para. 27).

8 Given the continuing growth in population and the high demand for MCWD water, it was more cost-effective to provide new connections in the existing service areas.

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coastal area, (ii) preliminary design of the infiltration basin and diversion weir, and (iii) a study of sediment transport and river channel improvements. 10. The feasibility study did anticipate the high sedimentation load of the river and recommended collection of data on sedimentation levels.9 By appraisal, extensive quarrying upstream and a severe storm had significantly changed the topography of the Mananga riverbed compared with the conditions prevailing during the feasibility study. Thus, the Project provided for redesigning and adjusting the weir, settling and infiltration facilities, well locations, pumping stations, and access and maintenance roads. The redesign, carried out in 1991, did not adequately anticipate the extent of sedimentation of the river. Continued construction activities and deforestation in the upper watershed had aggravated erosion and increased siltation problems that now affect the Project. The technical and practical difficulties of producing the sand and constructing the infiltration basin also were not anticipated. The design of the infiltration basin specified a fine-quality sand, but the consultants had not considered the availability of this material or means of producing it within a reasonable hauling distance. 11. As required by the prevailing national environmental regulations, the environmental compliance certificate for the Project was obtained from the Department of Environment and Natural Resources (DENR). The certificate listed general monitoring conditions with respect to watershed management, drinking water standards, and mitigation of construction impacts. Although DENR’s capacity to monitor full compliance was known to be limited, the project design did not include specific arrangements or strategies for implementing or enforcing the compliance certificate. Had this been planned, the earth-moving activities in the upper watershed could have been monitored and curtailed to reduce the impact of sedimentation. 12. Although bringing benefits to the urban poor was not a specific main objective, the project documents stressed it, given that about half of the total project costs were funded by the ADF. It was anticipated that 30% of the beneficiaries would be the urban poor, with 20% reached via communal faucets and another 10% through new individual connections. However, the project design did not include a mechanism or plan to specifically target these beneficiaries. It relied on expanding the communal faucet scheme, while indicating that cost recovery would be emphasized. Cost recovery was to take the form of the barangay10 associations collecting set fees from the users of public faucets (para. 52). The proposed project benefit monitoring and evaluation (BME) had several financial, technical, and health indicators including those that identified beneficiaries by income level. In practice, however, this data was not systematically reported. B. Achievement of Outputs 13. The Project’s infiltration system and well field are located in Jaclupan Valley, approximately 10 kilometers (km) southwest of Cebu City (see Map). A weir dam 7 meters high was constructed to retain the river water and let it backflow toward a settling area (6 hectares) and continue into an infiltration basin. Photographic details are in Appendix 3.

9 The feasibility study stated that “the reliability of the sediment rating curve should be further improved, as it is the

basic input in the hydraulic design of the infiltration works and future dams.” A continuation of the sediment sampling program was recommended, but the OEM has not been able to confirm that sedimentation data was subsequently collected, or further studies done.

10 A barangay is the smallest administrative unit locality in the Philippines. It is headed by a barangay captain who is elected by the community for 2–3 years.

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14. Due to problems with the construction of the infiltration basin (para. 21), the Project began operation in October 1997 at less than full capacity.11 At appraisal, the wells were estimated to have a total natural yield of 10,000 m3 per day. The stored groundwater was to be extracted through a well field designed for an average capacity of 33,000 m3 per day. Only 15 out of the planned 19 wells were constructed due to the unexpectedly high yields of the wells under natural conditions. At present, the natural yield without the infiltration basin averages 23,000 m3 per day. The raw water is transported through a 6 km main to the Lagtang reservoir in Talisay City and distributed in the MCWD network. During project implementation, two storage reservoirs (Mananga: 2,000 m3 and Tisa: 5,000 m3) and the chlorination building were cancelled, as storage capacity was sufficient. The cancellations were justified because the prevailing demand continuously exceeded the available supply; therefore, there was no need to store water. 15. MCWD has now built the infiltration basin, as specified in the design documents. Due to unexpectedly high sediment loads, MCWD decided to convert a temporary dike separating the settling area and the infiltration basin into a permanent dike to enhance settling capacity and to avoid clogging of the infiltration basin. The dike was being renovated during the OEM. The infiltration basin is expected to be operating by January 2003, when the dike is completed. 16. The distribution systems for Talisay (28 km) and Consolacion and Compostela (16 km) were intended to transmit water from MCWD’s existing service reservoirs at Casili, Consolacion, and distribute it to the network of those municipalities for consumption. The design was, however, modified during construction—approximately 4 km of 150-millimeter and 200-millimeter-diameter pipelines were not implemented in Compostela due to the refusal of the local government officials to issue the excavation and business permits to the contractor12 (para. 25). The pipes were diverted to the municipality of Liloan. 17. Under the OMAP component, the Project rehabilitated service connections and meters and provided various pipes, valves, fitting, tools, and equipment. No significant reduction of NRW (38% at appraisal) was achieved during project implementation. After the PCR preparation, however, NRW was reduced to 34% in 200113 when the older distribution pipes and older meters were replaced. C. Cost and Scheduling 18. The actual project cost (without the infiltration basin) amounted to $24.4 million, 26% below the appraisal estimate of $33.0 million (Appendix 4). The cost underrun ($8.6 million) is mostly attributable to the cancellation of the reservoirs and the chlorination building, the partial completion of the infiltration basin, and nonuse of the contingency funds ($5.9 million).14 The cost of international consulting services increased from $0.6 million to $2.0 million because of the long implementation period. The funds allocated for domestic

11 An infiltration basin generally increases the rate of infiltration to an underground storage area tapped by the wells. It

functions like a slow sand filter allowing additional recharge of water to a groundwater reservoir. 12 The wells constructed in Compostela under Loan 545-PHI (footnote 2) were not commissioned, as the people and

the local government unit of Compostela oppos ed the extraction of water from their area. In 1994, LWUA and MCWD renewed commitment on this matter, but the issue was still unresolved during the OEM visit pending a court decision.

13 Although 30% NRW is an achievable target, reducing it from 38% in 1990 to 30% in 1993 as anticipated at appraisal was too optimistic.

14 The civil works cost showed an increase over the estimates because the pipes and materials supplied under the civil works contracts were originally included under equipment material in the appraisal estimates.

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consulting services were not used as a consortium had been formed, with all consultants apparently paid in foreign exchange. The infiltration basin has now been completed at a cost of $1.2 million financed from MCWD’s own resources. 19. Because the Project was urgent, LWUA and MCWD started some construction activity using local funding prior to loan approval. ADB agreed to direct selection of the consultants, who had prepared the feasibility study and detailed design, as well as to retroactive financing of the consultants’ expenditure incurred prior to loan approval in November 1990. Despite these measures to expedite implementation, project completion scheduled for end-1993 was delayed by 3 years and 9 months. The loans became effective in October 1991 when the relending agreement between the Department of Finance and LWUA was finalized. Due to administrative problems, the consultants were engaged only in July 1993, 2 years and 8 months behind schedule. In July 1994, the ADB Portfolio Review Mission seriously considered cancelling the Project, as physical activities had not yet started. In view of the acute shortage of water in Metropolitan Cebu and the high priority given to it by the Government, the Project was extended subject to completing a time-bound action plan. Further delays occurred because of problems in acquiring land, and the construction of the infiltration basin had to be temporarily suspended by the time the loan was closed in August 1998 after three extensions. The Project began operating at partial capacity in October 1997. D. Procurement and Construction 20. For most of the contracts, international competitive bidding was used in line with ADB’s Guidelines for Procurement. For smaller contracts (especially for distribution pipelines), which were not attractive to international contractors, local competitive bidding was used. MCWD found the contract packages appropriate and reported no major problems in procurement. Direct appointment procedures in accordance with ADB’s Guidelines on the Use of Consultants were used to engage the consultants with previous experience in the Project to expedite implementation. For bureaucratic reasons, however, the engagement was delayed substantially. It appears that LWUA was weak in project management planning. The consultants may have been retained without additional work until the proper documentation was completed. Given the subsequent delays in implementation, consultant inputs had to be extended substantially, from 30 to 68 person-months (international) and from 78 to 117 person-months (domestic). 21. LWUA was responsible for evaluating bids and selecting contractors. Despite doubts that the contractor for the infiltration basin could produce the filter media within the proposed budget, which was significantly below initial estimates, the least-cost contract was chosen. Work to produce the specified filter media was initiated in May 1996, but met substantial problems. In March 1998, the contractor unilaterally filed a request for arbitration with the Construction Industry and Arbitration Commission, citing difficulties in meeting the technical specifications. To meet the specifications, the contractor needed to purchase sieving equipment at a cost higher than anticipated at bidding. The Commission ruled in the contractor’s favor and work on the infiltration basin was temporarily suspended. Sand with the right specification has since been obtained by MCWD and is used in the infiltration basin at a much higher cost than originally contracted for. E. Organization and Management 22. MCWD is a government-owned and controlled corporation created in July 1974, following the financial collapse of the Osmeña Waterworks System. Since then, MCWD has owned and managed the water facilities, and supplied water within Cebu City and seven other

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surrounding towns and cities (footnote 3). Its current 654 regular staff are distributed in six groups: general manager’s office, administrative group, finance group, operations group, technical services group, and pipelines maintenance group (Appendix 5). The general manager also heads one group comprising internal audit, legal, corporate planning, and management information systems departments, and is assisted by five assistant general managers in charge of each of the other groups. The board of directors comprise the chairperson and four other members from different segments of society (business, education, women, and civil society) nominated by the mayor of Cebu City. Despite being a corporation, MCWD has from the beginning been a self-sustaining company that has not received any subsidy from the local or the national government. 23. It was agreed at appraisal that executing arrangements would be carried out by LWUA and the project management office would be headed by a resident engineer from LWUA; however, an MCWD engineer was appointed to manage the project management office. This change somewhat duplicated the role of LWUA in project implementation and could have exacerbated implementation delays. In terms of technical capacity, MCWD staff have skills similar to those of the LWUA staff and, therefore, do not depend on the latter for technical expertise. As such, it may have been better to appoint MCWD as the executing agency, but this was not possible within the prevailing regulatory environment. 24. During the period 1992–1997 when project implementation was delayed, MCWD tapped other sources of water from a northern well field.15 In addition, MCWD initiated the completion of the infiltration basin on its own. MCWD continued its existing program for the communal water associations (CWAs), and the water supply from the Project allowed it to establish 42 new CWAs from 1998 to 2002. From 2003, with full capacity, the Project will have led to the establishment of 60 CWAs.16 CWAs are managed by barangay associations on a cost-sharing basis (Appendix 6). 25. MCWD also tried to access water from the 15 wells built in Compostela in 1988 under Loan 545-PHI (footnote 2). The attempt was unsuccessful due to resistance from Compostela residents and the local government. The issue is still in court because MCWD has appealed the decision of the court, which ruled in favor of Compostela on technical grounds.17 It is in the best interest of all parties that an amicable solution is explored again with the help of a totally independent third party and backed by appropriate background studies, and the support of a local NGO. 26. MCWD has complied with most loan covenants (Appendix 7). However, the covenants relating to the project management office, BME, and NRW have not been fully complied with until now. The monitoring reports completed do not contain information on health or the beneficiaries by income level. NRW reduction targets were not achieved by project completion, but progress has been made since and further measures are being tested.

15 Including wells from Guadalupe, Lalang, and Liloan. 16 There is only an indirect relationship between water supply and establishment of CWAs. CWAs are established

when a qualifying association applies to MCWD to join the CWA program provided there is adequate water available to supply the area.

17 MCWD reported that the court ruled that the National Water Resources Board (NWRB) had only given MCWD permission to extract water from Compostela for local purposes, and not to transfer part of the water extracted to other areas serviced by MCWD.

8

III. ACHIEVEMENT OF PROJECT PURPOSE

A. Operational Performance

1. Production and Coverage 27. Despite the unfinished infiltration basin, the well field has been operational for more than 5 years and has produced an average of 8.4 million m3 per year or 23,000 m3 per day (Table 1). About 17,000 new connections and 42 new communal faucets can be attributed to the Project. The figures will increase to about 24,000 connections and 60 communal faucets in 2003. The estimates of residential and communal beneficiaries are 122,000 and 13,500, respectively. At full capacity, the Project will thus significantly exceed the target for the overall number of beneficiaries (100,000). However, it has been less successful in reaching out to the poor communities (para. 52). It is difficult to assess the location of the new connections, as specific expansion areas were not identified in the project design. Instead, services were provided to unconnected (poor or nonpoor) customers in the existing service areas. The two main areas where transmission and distribution pipes were constructed are Talisay in the south and Consolacion/Liloan in the north.

Table 1: Project Capacity

Item 1990 1998 2002 2003a

Total Production of MCWDb (m3) 29,565,000 46,732,410 50,954,692 54,604,692 Production from the Project (m3) 8,395,000 8,395,000 12,045,000 Contribution to Total Production (%) 18 16 22 Project Capacity Utilization (%) 70 70 100

m3 = cubic meter, MCWD = Metropolitan Cebu Water District. a Estimated. b Includes the development of the northern well field and other existing sources. Source: MCWD.

28. The final safe yield of the well field has still to be tested, but the OEM is confident that with the infiltration basin, the capacity can reach the targeted 33,000 m3 per day, as the current extraction rate of 23,000 m3 per day is already more than twice the expected natural yield of 10,000 m3 per day. The production has gone below this level only during very dry months (Appendix 8).18 The quality of the project facilities is appropriate to improve water supply services and provide good-quality water. Increased duration of water availability (para. 30) and continuous water pressure have also significantly reduced the risk of contamination. In areas where the pressure is insufficient to provide 24-hour service, people visited by the OEM complained about poor water quality at times.19 MCWD has an extensive system for monitoring the water quality of the wells, and the distributed water is tested and microbiological tests conducted daily at random sites.

18 During 5 years of operation, there were only two periods when the water level dropped despite reductions in the

pumping rates. 19 The problem in this particular area, where a subcontractor supplied MCWD with desalinated bulk water, was the

corrosion of pipes, which aggravated the quality (low pH) of the water provided. According to MCWD, this issue has already been addressed and water quality has improved.

9

29. The major benefits from the Project have been the easier access to safe water by consumers, longer hours of availability, and improved sanitation conditions. Between 1990 and 2002, MCWD water production increased by 72% due partly to the Project and partly to the development of the northern well field. Despite the absence of the infiltration basin, the natural recharge helped MCWD substantially achieve its output targets. The increased water supply permitted to gradually increase the population served by piped water. However, even now, the reported coverage is low compared with that in other urban areas in the Philippines. While keeping pace with the population expansion of Metropolitan Cebu (about 2% a year), the coverage of population served increased from 18% in 1990 to 30% in 1998 and can reach 33% in 2003 when the Project reaches full capacity (Figure 1). The volume of water supplied as a percentage of total demand for domestic and industrial use also increased, from 28% in 1995 to 31% in 1998, and will increase further to 35% in 2003.

Figure 1: Estimated MCWD Demand and Production

m3 = cubic meter, MCWD = Metropolitan Cebu Water District, NRW = nonrevenue water. Source: Asian Development Bank and MCWD data.

30. MCWD has demonstrated a strong sense of ownership and commitment to operate and maintain the project facilities. Despite the setbacks during the production of the filter media and flooding in November 2001, MCWD has continued building the infiltration basin with its own funds. Since project approval, MCWD has also significantly improved its services by increasing the number of connections by almost 50,000 (Figure 2). Between 1990 and 1998, the average water availability for those serviced increased from 7 hours per day to 20 hours per day. A further rise to 22 hours per day is expected in 2003 (Figure 3). In addition to providing water for new connections, the Project thus also contributed to higher availability of the water supply.

0

50,000

100,000

150,000

200,000

250,000

300,000

1990 1995 1998 2003

Qua

ntity

(m

3 /da

y)

0%

5%

10%

15%

20%

25%

30%

35%

40%

Dem

and

and

Pop

ulat

ion

Cov

erag

e (%

)

Total estimated daily demand for piped water supply in Metro Cebu (m3/day)

Total average daily MCWD water production (m3/day)

Provision of piped water supply (minus NRW) as percentage of total demand

Reported coverage (percent of served population)

(m3/day)

(m3/day)

Reported coverage as percentage of total population

0 10,000

20,000

30,000

40,000

50,000

1990 1995 1997 1998 2003

Figure 3: Water Availability

0

5

10

15

20

1990 1995 1997 1998 2003

Ave

rage

Wat

erA

vaila

bilit

y (h

ours

/day

)

Source: Metropolitan Cebu Water District data.

Figure 2: New Water Connections

Source: Metropolitan Cebu Water District data.

New

Res

iden

tial/C

omm

erci

al

Con

nect

ions

Sin

ce 1

990

10

31. Developing new sources of water is still a crucial task for MCWD. The unsatisfied demand for piped water supply, saltwater infiltration, and the growing population make that task a priority. Since project completion, MCWD has received and discussed a few unsolicited build-operate-transfer projects, but they have not been viable. The latest build-operate-transfer scheme being discussed is the bulk water supply from the municipality of Carmen, 45 km north of Metropolitan Cebu. The projections indicate surface water supply of about 40,000–60,000 m3/day to MCWD. Learning from the previous experience with Compostela (para. 25), public consultations are being held and environmental assessments are being initiated. Other possible water sources that have been considered (Mananga phase II, Lusaran Dam, and bulk supply from Bohol) will be major technical and financial challenges for MCWD to undertake on its own. 2. Maintenance 32. The operation of the well field and of the transmission and distribution network is sustainable with the expertise available at MCWD. The operation and maintenance (O&M) costs for operating the wells and the distribution system are part of the regular operations of MCWD and are included in the annual budget. The O&M of the infiltration facilities is and will remain a major challenge to MCWD. A pragmatic maintenance plan must be prepared to be able to maintain the infiltration basin, in particular removing sediments in the riverbed and settling basin, and cleaning the large quantities of filter media. During the recent work on the infiltration basin, the extent of the actual sedimentation became apparent. An estimated 400,000 m3 of sediments has already accumulated in the riverbed (including the settling basin) during the last 5 years. The sediments diminish the efficiency of the weir and the settling basin and create the additional risk of flooding the infiltration basin. Although plans to annually remove the sediments are being discussed, no final arrangements have yet been made. MCWD claims that sediment material has economic value and can be removed using private contractors under its guidance at little or no cost to MCWD. While the OEM accepts that such a program is possible, its cost-effectiveness has yet to be demonstrated. 33. The redesign studies did not foresee the extent of the very high infiltration capacity of the riverbed. Any spill of pollutants20 in the dry season is likely to contaminate the aquifer and the wells. Sediments in the riverbed will have to be removed using large mechanical equipment. During that activity, spills of petrol and oil could occur unless extensive precautions are taken. A list of activities prohibited near the water supply source should be prepared,21 and relevant enforcement arrangements specified. If the water is allowed to remain underground for a long period (about 60 days), certain chemicals will be removed naturally. However, the estimated travel time for water from the Mananga riverbed directly to some project wells is estimated to be less than 1 day. Therefore, the risk of contamination is high if the river is polluted. Moreover, as the residence time in the storage reservoir is limited due to the high demand for water, cleaning the contaminated water becomes even more difficult.

20 The OEM observed that the river near the MCWD facilities was sometimes used for washing vehicles and the

settling basin for bathing and fishing. 21 For example, in the Netherlands and Germany, groundwater guidelines for protection against pathogenic bacteria

and viruses specify that chemical pollution sources are not allowed within 30 meters of the water source and 60 days of natural infiltration is applicable prior to extraction of groundwater. For slowly degradable chemicals, guidelines specify an area of 10 km and a period of 25 years. As a rule, transport and storage of hazardous chemicals and intensive agricultural and cattle breeding are not allowed at all.

11

3. Nonrevenue Water 34. According to MCWD, its collection efficiency increased from 73% in 1995 to 94% in 2002 (Figure 4). The PCR noted only an insignificant reduction of NRW, from 38% in 1990 to 37% in 1998, during project implementation. In 2002, NRW declined to 34% (Figure 5). Improving collection efficiency and replacing older distribution pipes and older meters contributed to this improvement. A long-term action plan for pipe rehabilitation will be developed after completing the district-metering program, which will identify priority areas for rehabilitation.22 Further reducing the current NRW level should be a priority by MCWD,23 especially because every percentage point reduction saves 1,400 m3 per day, which is more than the total volume of water used by all communal faucets.

Figure 4: Collection Efficiency Figure 5: Nonrevenue Water

B. Performance of the Operating Entity 35. Theoretically, MCWD tariffs can be increased as much as 60% per adjustment.24 Substantial increases in tariffs were applied in the first half of the 1990s (Figure 6). Currently, the consumption charge for a monthly consumption of 21–30 m3 is P14 per m3 compared with P4 per m3 in 1990. For the higher monthly use of 31–40 m3, the tariff increased from less than P6 per m3 in 1990 to almost P39 per m3 in 2002. The average annual increase since 1995 has been maintained at about 4% a year. MCWD thus has one of the highest average tariff rates in the country. A discount of 5% is given for payments made on time. There is no difference in the tariff for domestic and commercial uses; however, the progressive tariff structure imposes significantly higher tariffs for larger connections and larger water consumers, i.e., commerce and industry (Appendix 9). The current monthly service charges range from P109 for a 1/2-inch pipe to almost P16,000 for an 8-inch pipe.

22 At the time of the OEM visit, 10 districts were being monitored, of which 3 required major rehabilitation. 23 An NRW level of up to 20% is acceptable in industrialized countries. Indonesia is currently targeting 25% NRW. 24 According to LWUA. Since September 2002, the tariff has been regulated through NWRB.

0%

20%

40%

60%

80%

100%

1990 1995 1997 1998 2002Col

lect

ion

Effi

cien

cy (

%)

20%

25%

30%

35%

40%

1990 1995 1997 1998 2002

Non

reve

nue

Wat

er (

%)

Source: Metropolitan Cebu Water District data. Source: Metropolitan Cebu Water District data.

12

Figure 6: Tariff Structures for Residential, Commercial, and Industrial Connections

36. MCWD’s financial performance has generally been improving in the past few years (Table 2 and Appendix 10). Since the Project started operations, the revenue from water sales has increased by 38% partly reflecting the increasing tariff rates. During the same period, the cost of production increased by only 26%. Between 1998 and 2001, gross operating income increased from P157 million to P230 million, and retained earnings from P47 million to P188 million. The debt service ratio has improved since 1998 and the debt-equity ratio has been stable. The current ratio shows that liquidity is not a problem.

Table 2: Key Financial Indicators

Item 1998 1999 2000 2001 Debt Service Ratio (times) 1.5 1.8 1.8 1.7 Debt -Equity Ratio 68:32 67:33 65:35 63:37 Rate of Return on Equity (%) (0.8) 3.4 5.9 9.2 Current Ratio 1.6 2.2 2.2 1.8

Source: Operations Evaluation Mission. C. Financial and Economic Reevaluation 37. In calculating the financial internal rate of return (FIRR), the actual capital costs, including those incurred to complete the infiltration basin, were converted to 2002 prices using the Philippine consumer price index. As at appraisal, the Project was assumed to have a life of 40 years. Until 2001, water production was based on actual data and for 2002 it was extrapolated using 9 months of actual data. From 2003 onward, the Project was assumed to operate at its full capacity, as the infiltration basin was expected to be operational in January 2003. NRW was assumed to improve to 30% by 2007, given MCWD’s plans for distribution system rehabilitation. Revenue was calculated separately for individual connections and CWAs, using MCWD data. As the transmission and distribution pipes are designed for 15–20 years,

Source: Metropolitan Cebu Water District data.

05

101520

253035

4045

1990 1995 1997 1998 2002

Consumption Categories

Pric

e pe

r m3 o

f Con

sum

ed W

ater

(P

)

0–10 m3/month 11–20 m3/month 21–30 m3/month 31–40 m3/month 41–up m3/month0–10 m3/month 11–20 m3/month 21–30 m3/month 31–40 m3/month 41–up m3/month

13

replacing them was taken into account in the O&M costs. On this basis, the recalculated FIRR is 5.7% (Appendix 11), much lower than the appraisal estimate (Table 3). The large difference is attributable to the major implementation delay. However, the FIRR is higher than both the PCR estimate (as a result of the improved performance in terms of NRW since 1998) and the real average weighted cost of capital of 3.0%.

Table 3: Summary of Financial and Economic Reevaluation (%)

Item Appraisal PCR PPAR

FIRR 13.9 4.3 5.7 EIRR — 15.0 14.3

— = not calculated, EIRR = economic internal rate of return, FIRR = financial internal rate of return, PCR = project completion report, PPAR = project performance audit report. Source: Asian Development Bank.

38. Financial costs were converted to economic costs by excluding interest and taxes and applying the domestic price numeraire. Economic benefits were derived from time savings, cost savings, and estimates of willingness to pay. Both incremental and nonincremental water usage was considered. In valuing the benefits from nonincremental usage, the time savings in fetching water and the cost savings due to switching from alternative sources were considered. Incremental water usage was valued using willingness to pay by type of consumer. As to the NRW, 25% was assumed to be actually used by the individual connections and 75% to be technical leakages. Health data was not reported in any benefit monitoring reports and, therefore, was not available for the economic reevaluation, but health benefits may be partly captured in the willingness to pay. The recalculated economic internal rate of return (EIRR) is 14.3% (Appendix 11), slightly lower than the PCR estimate.25 A 5% reduction in production capacity would reduce the EIRR to 13.7% and the FIRR to 4.6%. D. Sustainability 39. The Project is physically sustainable. The major civil works and equipment appear to be well designed and implemented. If properly maintained, the facilities should function within their design capacity for the life of the Project. The major risk to sustainability is the high sedimentation and siltation rates upstream of the weir. This risk can be mitigated, however, by MCWD’s strong commitment to arrange for annual removal of the accumulated sediments from the riverbed as well as from the settlement and infiltration basins. Project operations are also expected to be sustainable for several reasons. First, the water source is not overexploited. Second, MCWD’s expertise matches the applied technologies and maintenance requirements. Third, MCWD is financially viable, and income from the sale of water produced by the Project allows for proper maintenance of the facilities. The tariffs can cover all costs and allow provision for a fund reserve. Interviews with MCWD customers confirm that Metropolitan Cebu residents, including lower-income communities, generally understand the need for recovering the cost of piped water and are willing to pay for it, provided that the service is reliable and of good quality. The financial assessment also shows that MCWD is financially viable.

25 At appraisal, no EIRR was calculated as such calculation was not mandatory at the time for water supply projects.

14

IV. ACHIEVEMENTS OF OTHER DEVELOPMENT IMPACTS

A. Socioeconomic and Sociocultural Impacts 40. According to the rapid assessments done by the OEM, the socioeconomic impacts of the Project have been very positive although not fully quantifiable due to lack of baseline data and subsequent monitoring. Expanding MCWD’s coverage in terms of number of consumers and number of hours of service has yielded social benefits to the communities in Metropolitan Cebu (Appendix 6). In addition to making water easily accessible, the longer hours of coverage have prevented contamination by keeping running water in the pipes. The result is better water quality. Those who switched from private wells and other surface water sources such as rivers and creeks observed notably positive impacts on health. This observation was repeatedly mentioned during the OEM focus group interviews and individual discussions. The convenience of having piped water or communal faucets has eased the burden of fetching water, especially for women, allowing them to use time for more productive tasks.26 Sanitation has also improved, as more water is easily accessible for household use. The cost of water has declined to about a third of the price the residents were paying to vendors for drinking water before. However, the impact on income has not been significant, as most people used the private wells of neighbors or rivers for nondrinking purposes. 41. CWAs are operating efficiently in serving the poor and their cost recovery is well-managed and sustainable (para. 52). At P13 per m3, the average subsidized tariff for CWAs is approximately 65% of the regular tariff. The tariff is subsidized at each quantity bracket and there is a broad quantity bracket of 31–172 m3. CWAs pay for the construction of a communal faucet. For individual connections, installation charges are P3,500 per connection of a 1/2-inch pipe plus the pipe cost from the meter to the house. In some cases, the cost of pipes is substantial due to distance. Although they may be paid in installments, the installation and connection charges are a significant burden on the poor who seek individual connections. MCWD recently began installing water meters along the roads to reduce the cost and prevent tampering. Some are grouped together and are attached to one stub (Appendix 3). B. Environmental Impacts 42. The main environmental impacts of the Project are generally positive, e.g., conservation of freshwater resources by inducing groundwater recharge. Potential groundwater overexploitation in the area was reduced by constructing an innovative infiltration basin and locating the well field outside of the coastal area that is subject to saltwater intrusion.27 The groundwater basin retains freshwater resources that would have otherwise been discharged to the sea. The increased water supply, however, necessitates addressing wastewater management issues, as the flat coastal areas in Metropolitan Cebu have poor natural drainage (para. 54). The OEM did not observe any lasting negative impacts due to construction. It appears that MCWD has mitigated most of the impacts to an acceptable level. The minor negative environmental impacts were standard construction-related impacts, e.g., soil erosion, noise, dust, and traffic nuisance.

26 Among the members of CWAs interviewed by the OEM, up to 1.5 hours were saved for each trip to the river for

water. 27 For the Mananga scheme, mitigation of overexploitation in the Jaclupan Valley is an automatic process. Once the

water falls to a certain level, the wells cannot operate properly until sufficient recharge has taken place. Calculations and data from 5 years of operation at partial capacity show that the aquifer can be replenished relatively rapidly by natural infiltration.

15

43. The Loan Agreement lacked specific environmental covenants and monitoring requirements, especially regarding water quality and watershed management. The BME covenant called for collecting environmental and health data, but this was not done and no BME reports were prepared. For watershed management, MCWD supports a small number of guards (less than five) from DENR at checkpoints to monitor logging and quarrying activities in the 6,000-hectare project watershed. In addition, MCWD has a small joint reforestation program with DENR in the water facilities area. Beyond this, there is no effective watershed management program (para. 55). MCWD and the Water Resources Center of the San Carlos University (an NGO) extensively monitor groundwater and surface water resources. The data of the Water Resources Center is published regularly. The data available to MCWD on the local impacts of groundwater extractions should, therefore, be accurate. C. Impact on Institutions and Policy 44. No specific training component or technical assistance was attached to the loans; therefore, the Project did not lead directly to institutional development of LWUA or MCWD. However, there was on-the-job technology transfer during project implementation and the experiences gained, as well as those from project operation, have been valuable, especially to MCWD. The innovative technology to conserve freshwater resources through induced recharging of water resources using the infiltration basin is the first of its kind being implemented in the Philippines. Experiences gained from the Project are valuable for MCWD, in particular, to understand environmental conditions in watersheds outside of the coastal plain. If MCWD can demonstrate that the facilities can be operated successfully, the infiltration scheme may be a feasible option in the Philippines for other water providers to adopt in areas where water is scarce.

V. OVERALL ASSESSMENT A. Relevance 45. The Project is assessed as highly relevant. It conformed with the Government’s sector priorities and ADB’s operational strategy for the Philippines. Its design addressed the low coverage of piped water supply services in Metropolitan Cebu by increasing the raw water supply, conserving freshwater resources by using groundwater storage and gradually reducing NRW, and expanding services through new connections. B. Efficacy 46. Despite the delays in obtaining the maximum yield of the well field, the Project has helped address the serious water shortage problems in Metropolitan Cebu. Its full capacity is expected to be reached in early 2003 with the operation of the infiltration basin. The current operation without the infiltration basin substantially exceeds the projected natural recharge capacity, and has served about 86% of the target consumers. The target for reducing NRW from 38% to 30% has been met halfway in 2002. Although not stated as a specific objective of the Project, 30% of the new beneficiaries were expected to be the urban poor, who were to be reached with public faucets and individual connections. With the increased water supply, it is estimated that the CWA program geared to the poor will reach only about 70% of the target when the Project attains its full capacity in 2003. Overall, the Project is assessed as less efficacious.

16

C. Efficiency 47. The protracted implementation delayed for several years benefits to water users and revenues from water sales to MCWD. Nevertheless, the recalculated FIRR of 5.7% and EIRR of 14.3% are satisfactory, provided the full capacity is reached in 2003. The Project is assessed as efficient. D. Sustainability 48. The Project is likely to be sustainable, given the good quality of construction of the water source facilities and the distribution network, and the financial viability of MCWD. At present, the revenues from water sales are at acceptable levels to recover cost even from the communal faucets. Past record gives confidence that tariff adjustments will be made if necessary. Although regular maintenance of the infiltration basin will be a major effort for MCWD, the commitment to such maintenance is high. The technology used in the Project fits the existing expertise in MCWD. E. Institutional Development and Other Impacts 49. Although the Project provided no structured training, there was on-the-job technology transfer during its implementation. The initiative of LWUA and MCWD to develop an infiltration scheme to produce and conserve water is innovative and provides valuable lessons to MCWD and other water service providers in the Philippines. Better access to water has generated social benefits by improving health and sanitation conditions, as well as reducing costs and time needed to fetch water. Project construction has had no lasting negative environmental impacts. Overall, institutional development and other impacts are assessed as significant. F. Overall Project Rating 50. The Project has been highly relevant, less efficacious, efficient, and has had significant institutional and other impacts. Its sustainability is likely. On balance, the Project is rated successful.28 G. Assessment of ADB and Borrower Performance 51. ADB’s performance in preparing and supervising the Project was satisfactory. During implementation, ADB carried out 11 missions. It monitored the action plan prepared after the midterm review and coordinated with LWUA to resolve various procurement issues and implementation problems. ADB’s performance could have been better in promoting the expansion of services to the urban poor and monitoring whether the target was being achieved, especially because this target justified the use of ADF to partly finance the Project. The Government, LWUA, and MCWD did not show much commitment to improve the accessibility of water to the urban poor. Although half of the project costs were financed by ADF, the soft loan terms were not passed on to MCWD and, therefore, there was no clear incentive for it to promote the CWAs. The performance of the Government and LWUA was partly satisfactory. Although the Project was considered urgent at approval and despite ADB’s approval of direct selection of consultants and retroactive financing of their services, there was a front-end delay of almost 4 years due to various administrative problems. To some extent, LWUA and MCWD

28 Using the current four-category rating system (highly successful, successful, partly successful, and unsuccessful).

17

duplicated efforts in supervising implementation. Decisive action was not taken quickly on the contractor’s problems with the infiltration basin. Nonetheless, MCWD went ahead to construct the infiltration basin using its own funds, even after the loan was closed.

VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS A. Key Issues for the Future 52. Social Impacts and Reaching the Poor. At appraisal, it was anticipated that 30% of the additional 100,000 beneficiaries would be the urban poor: the Project aimed to install public faucets for 20,000 consumers and individual connections for 10,000 consumers in poor urban areas. So far, only about 50% of the communal faucet target has been achieved.29 There were no clear guidelines for covering the low-income water users through CWA or identifying specific geographic areas. Although targeting the poor figured prominently in the conceptual stage, it was not adequately translated into a specific strategy. For instance, no active promotion of the CWA program was planned. The OEM’s fieldwork indicates that, where CWAs had been established, they appear to be a sustainable and effective way to reach the urban poor until the latter are able to access individual connections (Appendix 6). If reaching the urban poor is to be one of the objectives of the Government and MCWD, there should be a more proactive attempt to publicize and promote the CWA program, with specific targets developed and their implementation monitored. Eventually, the objective should be to provide individual connections to the poor. At present, individual installation charges of P3,500 for meters plus pipe costs up to a motorized road are all passed on to consumers. The installation charges make it difficult for the poor to access piped water. The availability of an installment payment scheme, designed to reduce the immediate burden, has not been a sufficient incentive for the poor to obtain an individual connection. Perhaps, MCWD could consider bringing the meters closer to the houses in poor neighborhoods, rather than passing on the cost of pipes to those consumers. 53. Water Quality Monitoring. Proper protection of the water supply and water quality monitoring need to be priorities for MCWD and the local government. The older (nonproject) well fields are threatened by increased salinity and pollution by infiltration of untreated wastewater. The project well fields could also be prone to a high risk of groundwater contamination if proper care is not taken. As the infiltration capacity of the riverbed appears to be high, the risk of contaminating the wells is also high. The need to regularly remove sediments will add to this risk by destroying the surface layer. Any spill of pollutants 30 in the dry season is likely to reach the aquifer and the wells fast (for some wells, the underground travel time is estimated to be less than 1 day). Moreover, as the water only stays in the reservoir for a limited time due to the high demand, adequate monitoring of possible contaminations becomes challenging. It is, therefore, important to prepare a plan for maintaining the infiltration basin and water quality. 54. Management of Wastewater and Water Extraction Regulations. Wastewater treatment has been inadequately explored by MCWD and in the Philippines. For a growing city of its size, Metropolitan Cebu will need to explore this issue sooner than later if appropriate actions are to be taken on time. At appraisal, it was envisaged that the World Bank would finance a wastewater treatment facility in Metropolitan Cebu. However, the city does not yet have any wastewater collection and treatment system. Provision of water supply services could, at times, aggravate poor sanitary conditions. Larger volumes of water discharged may cause

29 Data on individual connections to the poor is not available. 30 If sediment removal in the riverbed is done with large mechanical equipment, the risk of petrol and oil spills is high.

18

stagnant water and increase health risks, especially in flat areas with poor drainage along the coast. Consequently, proper disposal of wastewater should be a priority for MCWD and the local government. In addition, regulatory controls in place currently are limited to ensure proper extraction of water from non-MCWD sources. Although the National Water Resources Board (NWRB) is responsible for monitoring groundwater extractions, experience in the Metropolitan Cebu coastal area indicates that enforcing regulations on groundwater extraction and protection is currently not effective. Private wells can be established in the area with little supervision or monitoring of the quality of water to be extracted. Enforcement of regulations on where the wells should be located and how far they should be from a potentially polluting source should be strengthened. 55. Watershed Management. The Project’s environmental compliance certificate lists general monitoring requirements with respect to watershed management, drinking water standards, and mitigation of construction-related impacts. Managing construction-related activities in the watershed is important to control sedimentation in the Mananga River. DENR’s capacity to monitor compliance is admittedly limited. For long-term plans for proactive watershed management, MCWD should seek further cooperation and support from NWRB and NGOs. The OEM learned that NWRB is establishing a special Task Force on Cebu Water Resources Management. It is timely for MCWD to get the required attention and support of the various national government agencies in managing the watershed and developing future water sources. B. Lessons Identified 56. Successful operation of the infiltration basin will demonstrate that it is a technology that can be used to supplement the natural recharge of the aquifer. 57. Despite the higher than average tariffs in Metropolitan Cebu than in the rest of the country, the residents are willing to pay for good-quality water and a reliable service. 58. The project delays due to problems with producing the filter media for the infiltration basin show the importance of procedures for evaluating consultants and contractors. Had quality- and cost-based selection methods been used, the 4-year delay in building the infiltration basin could have been avoided. 59. Because of lack of quantifiable and measurable targets with regard to project beneficiaries and inadequate monitoring, it is not apparent that the targeted 30% proportion of the poor has been reached. However, CWA can be an appropriate intermediate delivery program for water supply to the poorer population until they can obtain individual connections. On hindsight, this program could have been promoted more aggressively. 60. Inaccessibility of the Compostela wells built in the late 1980s demonstrates the need for extensive public consultations with the potentially affected people. Insufficient attention was given to the preparation of proper environmental and social impact studies and dissemination of the results. Consequently, the Compostela well field financed under Loan 545-PHI (footnote 2) and the transmission pipes financed under the Project have not been used effectively. C. Follow-Up Actions 61. MCWD should complete the infiltration basin and the separation dike and prepare a pragmatic O&M plan for it by June 2003. The plan should cover desiltation procedures, specify

19

activities that are prohibited near the project water source, and indicate related enforcement measures. 62. Implementing the district metering program to identify the main sources of NRW and then preparing a rehabilitation action plan should also be completed by June 2003.

Appendix 1 20

ADB ASSISTANCE TO THE PHILIPPINES’ WATER SUPPLY AND SANITATION SECTOR

Table A1.1: Loans Loan No. Project Approval

Date Amount

($ million) Date of

PCR 1. 0190 Manila Water Supply Aug 1974 51.3 Oct 1988 2. 0251 Provincial Cities Water Supply Dec 1975 16.8 Oct 1983 3. 0351 Second Manila Water Supply Sep 1978 49.0 Oct 1988 4. 0457 Manila Sewerage Jun 1980 42.8 Jul 1990 5. 0545 Water Supply Sector Nov 1981 46.0 Oct 1994 6. 0645 Manila Water Supply Rehabilitation Oct 1983 39.3 Nov 1993 7. 0812 Island Provinces Rural Water Supply Sector Dec 1986 24.0 Nov 1993 8. 0947 Second Manila Water Supply Rehabilitation Jan 1989 26.4 Dec 1995 9. 0986 Angat Water Supply Optimization Nov 1989 130.0 Ongoing 10. 1052 Second Islands Provinces Rural Water Supply Nov 1990 24.0 Dec 1997 Subtotal before the Project 449.6 11. 1056 Metropolitan Cebu Water Supply Nov 1990 16.0 Jul 1999 12. 1057 Metropolitan Cebu Water Supply Nov 1990 6.0 Jul 1999 13. 1150 Manila South Water Distribution Dec 1991 31.4 Ongoing 14. 1217 Umiray-Angat Transbasin Technical Assistance Dec 1992 2.6 Ongoing 15. 1269 Municipal Water Supply Nov 1993 43.2 Ongoing 16. 1379 Umiray-Angat Transbasin Sep 1995 92.0 Ongoing 17. 1440 Rural Water Supply and Sanitation Sector Jun 1996 18.5 Ongoing 18. 1441 Rural Water Supply and Sanitation Sector Jun 1996 18.5 Ongoing 19. 1472 Small Towns Water Supply Sector Sep 1996 50.0 Ongoing Total 727.8

ADB = Asian Development Bank, PCR = project completion report.

Table A1.2: Technical Assistance TA No. Project Approval

Date Amount ($’000)

1. 0072 Laguna de Bay Water Resources Development Study Aug 1972 1,284.3 2. 0087 Manila Water Supply May 1973 49.2 3. 0433 Bulacan Bulk Water Supply Scheme Nov 1981 150.0 4. 0737 Island Provinces Water Supply Sector Dec 1985 75.0 5. 0779 Water Supply and Sanitation Jun 1986 50.0 6. 1039 Angat Water Supply Optimization Sep 1988 100.0 7. 1057 Manila Metropolitan Region Environmental Improvement Study Nov 1988 551.0 8. 1219 Angat Water Supply Optimization Nov 1989 300.0 9. 1268 Cebu Water Supply - Phase II Jan 1990 670.0 10. 1270 Umiray-Angat Transbasin Study Feb 1990 1,267.0 11. 1422 Training System for Rural Water Supply Personnel Nov 1990 130.0 12. 1423 Second Manila Sewerage Nov 1990 250.0 Subtotal before the Project 4,876.5 13. 1513 Manila North-East Water Supply May 1991 1,283.0 14. 1268 Cebu Water Supply - Phase II (Supplementary) Jul 1991 53.0 15. 1845 Second Provincial Towns Water Supply Jan 1993 99.5 16. 1513 Manila North-East Water Supply (Supplementary) Jul 1993 48.0 17. 1995 Institutional Strengthening of Local Water Utilities

Administration and Water Districts Nov 1993 590.0

18. 2089 Socioeconomic Survey and Evaluation of the Island Provinces Rural Water Supply Sector

May 1994 100.0

19. 2254 MWSS Operational Strengthening Study Dec 1994 600.0 20. 2263 MWSS Water Supply Improvement Study Dec 1994 582.0 21. 2272 Small Towns Water Supply and Sanitation Sector Dec 1994 100.0 22. 2401 MWSS Privatization Support Sep 1995 582.0 23. 2417 Water Resources Management (Angat Reservoir) Oct 1995 100.0 24. 2803 Pasig River Environmental Management and Rehabilitation May 1997 800.0 25. 2916 Water Supply and Sanitation Sector Plan Study Nov 1997 600.0 26. 3703 Capacity Building for the Regulatory Office of the

Metropolitan Waterworks and Sewerage System Aug 2001 800.0

27. 3848 Metro Manila Solid Waste Management Mar 2002 1,250.0 Total 12,464.0

MWSS = Metropolitan Waterworks and Sewerage System, TA = technical assistance.

Infiltration Area 45,000 m2 EL 33.0–33.5 MASL

Settling Area 90,000 m2 EL 32.0 MASL

Legend

Weir Crest EL 35.0 MASL

EL = elevation, m2 = square meter, MASL = meter above sea level. a Out of the planned 19 wells, only 15 were constructed due to the

unexpectedly high yields of the wells under natural conditions.

Added separation dike

Existing Exploratory Wells

New Wellsa

Raw Water Mains

Embankment

DIA

GR

AM

OF TH

E P

RO

JEC

T

Appendix 2 21

Appendix 3 22

PHOTOGRAPHS OF THE PROJECT

Photo A3.1: Mananga weir dam open during dike rehabilitation

Photo A3.2: Infiltration basin bordering wells and separation dike

Appendix 3 23

Photo A3.3: Siltation and settling basin upstream of the weir

Photo A3.4: Separation dike under construction

Appendix 3 24

Photo A3.5: Mananga groundwater well houses

Photo A3.6: Pump inside the well house

Appendix 3 25

Photo A3.7: The dike protects the infiltration basin from these sediments

Photo A3.8: Communal water faucet locked when not in use

Appendix 3 26

Photo A3.9: Water vendor in Lapu-Lapu City area

Photo A3.10: Pipes and meters on the roadside for easier monitoring

Item

A. Base Cost1. Civil Works 2.50 5.70 8.20 4.95 5.33 10.282. Equipment and Materials 7.60 0.60 8.20 4.46 0.28 4.743. Land Acquisition 0.00 0.90 0.90 0.00 1.24 1.244. Consulting Services 0.60 1.10 1.70 2.02 0.00 2.025. Taxes and Duties 0.00 2.40 2.40 0.00 0.87 0.87 Subtotal (A) 10.70 10.70 21.40 11.43 7.72 19.15

B. Contingencies1. Physical Contingencies 1.10 1.00 2.10 0.00 0.00 0.002. Price Contingencies 1.30 2.50 3.80 0.00 0.00 0.00 Subtotal (B) 2.40 3.50 5.90 0.00 0.00 0.00

C. Financing Charges1. IDC and Service Fee 1.10 4.60 5.70 0.65 4.64 5.29

Total 14.20 18.80 33.00 12.08 12.36 24.44

IDC = interest during construction.

Source: Metropolitan Cebu Water District data.

Appendix 4 27

COST BREAKDOWN BY PROJECT COMPONENT($ million)

Foreign Local TotalActualAppraisal Estimate

Foreign Local Total

MCWD ORGANIZATION CHART

GENERAL MANAGER

BOARD OF DIRECTORS CORPORATE SECRETARY CHAIRMAN MEMBER MEMBER MEMBER

ADMINISTRATIVE GROUP

TECHNICAL SERVICES GROUP

FINANCE GROUP

PIPELINES MAINTENANCE

GROUP

INTERNAL AUDIT DEPARTMENT

OPERATIONS GROUP

BILLING DEPARTMENT

PUBLIC AFFAIRS DEPARTMENT

PROD & DISTRIBUTION DEPARTMENT

MATERIALS & EQP’T QLTY CONTROL DIV

PIPELINES MAINT. DEPT-SOUTH AREA

TECHNICAL AUDIT DIVISION

METER READING & BILL DISTRIBUTION DIVISION

CORPORATE COMMUNICATION DIVISION

PRODUCTION DIVISION ENGINEERING

DEPARTMENT

PIPELINES REPAIR DIVISION

PLANNING DIVISION

FINANCIAL AUDIT DIVISION

BILLING RECORDS DIVISION

LEGAL DEPARTMENT

INVESTIGATION AND LITIGATION DIVISION

PROCUREMENT DIVISION

DISTRIBUTION DIVISION S/C REHABILITATION

DIVISION

ACCOUNTING DEPARTMENT

MATERIALS MANAGEMENT DEPT

WATER QUALITY CONTROL DIVISION

SECURITY, CONTRACT ROW, SITE ACQUISITION DIV

GENERAL ACCOUNTING DIV

PAYROLL DIVISION

UTILITY DIVISION

INVENTORY AND WAREHOUSE DIVISION

SERVICE CONNECTION & INSTALLATION DEPT

WATER SERVICE PROC & INSPECTION DIVISION

CONSTRUCTION DEPARTMENT

PIPELINES MAINT. DEPT-NORTH AREA

MAINLINES REHAB DIVISION

LEAK REPAIR DIVISION

MAINLINES EXPANSION/ CIVIL WORKS DIV

PROJECT MANAGEMENT DEPT

INSTALLATION AND DISCONNECTION DIV

MAINT SUPPORT SERVICES DEPT

GENERAL SERVICES DEPARTMENT

FINANCIAL MANAGEMENT DEPT

MGT INFORMATION SERVICE DEPT

PLANNING AND MONITORING DIV

FIN’L PLANNING AND CONTROL DIV

PUBLIC AFFAIRS DIVISION

TREASURY DIVISION

CORPORATE PLANNING DEPT

TRANSPORT SERVICES AND EQP’T MAINT DIV

FABRICATION DIVISION

TECHNICAL DIVISION

RESTORATION DIVISION

DESIGN DIVISION

S/C REHABILITATION DIVISION

RESTORATION DIVISION

ADMINISTRATION DIVISION

ELECTRO-MECH’L FACILITIES MAINT DIV

METER MAINTENANCE DIV

ENV’T & WATER RESOURCES DEPT

GROUNDWATER DIVISION

SURFACE WATER DIVISION

ENVIRONMENT DIVISION

HUMAN RESOURCES DEPARTMENT

RECRUITMENT AND TRAINING DIVISION

PERSONNEL SERVICES DIVISION

MEDICAL SERVICES DIVISION

BRANCH COLLECTION DIV SYSTEMS ANALYSIS AND

COMP APPL’N DIV

COMPUTER OPERATIONS DIVISION

5 Groups 20 Departments 47 Divisions MCWD = Metropolitan Cebu Water District.

28 Appendix 5

Appendix 6 29

ASSESSMENT OF SOCIAL ASPECTS A. Introduction 1. It was expected that providing safe water through the Project would reduce mortality and morbidity caused by waterborne diseases, particularly among young children. The availability of a potable and reliable water supply for nondomestic uses by hospitals, schools, and food processing enterprises was also expected to contribute to the overall improvement of public health. The urban poor were to be targeted by installing public faucets and individual connections in the service area of the Metropolitan Cebu Water District (MCWD). According to the target, 10,000 were to be slum dwellers who were to get individual connections while another 20,000 were expected to be reached through communal faucets. Costs of communal faucets were to be recovered through block tariff structures, with a subsidized rate for the first 10 cubic meters (m3), and by working with the barangay associations to collect fees from users of communal faucets. 2. A provision in the Loan Agreement stipulated that a project benefit monitoring and evaluation (BME) report was to be submitted annually beginning 1 year after loan effectiveness date and continue until 5 years after project completion. The BME reports were to contain relevant financial and technical information in the form of benchmark indicators and evaluation ratios, and to also identify beneficiaries by income level. Such BME reports were not prepared. 3. The Operations Evaluation Mission engaged a research assistant to obtain information on the current water supply situation in the low-income communities in Metropolitan Cebu. In MCWD records, lists of communal water associations (CWAs) by barangay were not available; therefore, it was not possible to find what depressed barangays in Metropolitan Cebu were adequately covered. Information and other data used for this assessment were obtained through review of existing documents from the Asian Development Bank, MCWD, and the provincial government of Cebu. Meetings and interviews with MCWD and officials and staff of the provincial government were held to validate the information obtained. A series of community meetings and individual interviews were conducted in areas serviced and not serviced by MCWD. B. Summary of Main Findings 4. Monitoring. The project documents did not mention specific targets for new connections or communal faucets to the poor consumers in specific areas, although providing benefits to 30,000 poor people was one of the project expectations. MCWD records can show where communal faucets are operating, but there is no mechanism to monitor slum dwellers who may have individual connections. Identifying and locating the urban poor served, therefore, could not be done. Progress reports prepared by MCWD focused on the physical and technical aspects, giving the impression that the Project’s focus on the poor was prominent only in the conceptual stage, but was not adequately translated into a specific and concrete strategy during implementation. For instance, to implement the CWA program, one of the initial activities should have been identifying depressed barangays in the existing service areas that were in most need of potable water. Then, MCWD could have planned on how to promote the CWA program with a defined number of beneficiary targets in mind. But depressed barangays were not identified a priori. 5. The BME should have covered the following data: (i) water production, (ii) beneficiaries and water consumption, (iii) health considerations and water quality, (iv) energy use, (v) staff, (vi) quality of service, (vii) financial data, (viii) tariff, and (ix) development. No BME reports were prepared for the Project; instead, MCWD has submitted progress reports to the Local Water

30 Appendix 6

Utilities Administration. The progress reports do not contain the socioeconomic data required in BME. They contain the following information: (i) service connection data, (ii) present water rates, (iii) billing and collection data, (iv) financial data, (v) water production data, (vi) miscellaneous data, and (vii) status of various development projects. Service connection data available at MCWD gives the following information: (i) total service connections, (ii) total active service connections, (iii) total metered, (iv) total billed, (v) population served (number only), (vi) reconnection and disconnection, and (vii) number of customers in arrears classified into active and inactive. 6. The socioeconomic status of the consumers served is not determined before they are connected. This may have been one of the reasons why BME was not done. Admittedly, properly monitoring indicators for the BME targets would take substantial resources. Case studies indicate that a typical poor CWA member-household spends roughly P10–P20 per day for water, and its monthly water bill is estimated to be 5.5–11.5% of the household monthly income.1 According to the project completion report, the monthly expenditure for the low- and middle-income groups was about 1.4% and 1.2%, respectively.2 This difference may be explained partly by the proportionately higher increases in tariffs since the project completion report, as well as consumers’ increasing awareness that good water quality is a necessity. Instead of relying on groundwater wells, even the poor now prefer to buy water, at least for drinking and cooking, from vendors or neighbors who have connections. Consequently, their proportional expenditure for water could have increased. 7. Communal Water Associations. The formation of CWAs is intended to meet water requirements of poor families while teaching them self-reliance, group unity, and community development. Each CWA is an organized group of at least 30, but not more than 60 families, who are direct communal beneficiaries. A CWA has its own elected set of officers and enlisted members. It charges a subsidized rate for water. A member is one without an individual water service connection and whose main source of water is the communal faucet system. In a 10-year period, about 238 CWAs were organized and corresponding communal faucets were installed. Of the CWAs, 60 can be attributed to the Project based on prorata calculation of the additional water supplied by the Project. Assuming there are five members to a household, the total number of beneficiaries from the CWA program at full capacity of the Project may be estimated:

60 CWAs x 45 member-households x 5 members per household = 13,500 beneficiaries. 8. The population covered by individual connections in poor areas could not be estimated due to lack of data. Based on the 20,000 poor targeted to be reached through CWA, there will be a shortfall of over 30% at full capacity of the Project. At present partial capacity, about 50% of the target 20,000 have been served. Talisay City and the municipalities of Consolacion and Liloan, benefited most from the additional water supply from the Project. However, data also show that only 16 CWAs, or 6.7% of the total CWAs, were formed in those areas. MCWD could have taken a more proactive stance in disseminating information on water availability through communal faucets. It could have used its numerous public information media to familiarize people with the CWA program.3 9. Interviews of CWA members indicate a high satisfaction with MCWD service. The people are satisfied with water cost, water supply pressure, water quality, the manner they have been organized as associations, as well as with the support given by MCWD and some assisting 1 No comparable data for poor households was collected at appraisal. The income data obtained during rapid

assessment and used in this calculation may not be representative of the entire CWA user population. 2 The project completion report does not elaborate the methodology used for this calculation. 3 MCWD has public information programs for water consciousness and environmental-conservation drives.

Appendix 6 31

nongovernment organizations to strengthen CWAs. The members organized into CWAs have engaged in other community development pursuits such as health assistance to members, distribution of rebates from water retailing, and physical improvements of common spaces. Those who have access to communal taps have the convenience of potable water nearer their homes. Women members have benefited most, as they are in charge of fetching and storing water for household. Having a water source nearby significantly reduces time to fetch water and do household chores that require water use. Previously, some walked long distances to their traditional water source (the women of the upland CWA in Barangay Lagting, Talisay City, walked the farthest distance of about 1.5 km to Mananga River to do laundry and other chores). Now they walk a few meters. Some even install hoses to the tap stand during their water schedule and now store water right in their own homes. Though the claim is not supported by statistical health data, the women say they have less body aches and pains associated with carrying heavy loads. Households have better access to clean water. The health and sanitation conditions of women and children have improved with sufficient water for their daily needs. Those who have no access to MCWD water tap a variety of sources: using private wells for washing and bathing, going to surface water sources nearby, and buying drinking water from neighbors or vendors. 10. CWAs were also organized among informal settlers in the urbanized areas of Metropolitan Cebu. For this group, MCWD relaxed its requirement that proof of domicile be presented. A lot owner’s formal consent is needed for installing a communal faucet on his/her property. If the lot owner issues an eviction notice to CWA members, water service through the communal faucet will be cut off. The strength of the CWA program lies in its striking a balance between providing for the water needs of the informal settlers who are also among the urban poor sector of Metropolitan Cebu and recognizing the rights of the private lot owners whose property is occupied by the informal settlers. 11. MCWD estimates that water generation and distribution cost about P8 per m3. Through its tariff structure for individual connections, MCWD roughly earns P2 per m3 for the first 10 m3 consumed. For the communal faucets, MCWD subsidizes the cost of water for the first 20 m3 consumed (at a meter size of 1/2-inch). It only begins to earn a margin (or breaks even at least) from 21–30 m3 of water consumed from a communal tap. In meetings with CWAs, three of four said that their monthly bills average P2,000, which means that CWA consumes more than 172 m3 per month. Evidence, therefore, shows that MCWD earns marginally from CWAs. Unlike individual connections, communal connections are not accorded discounts for payments made on or before the due date. 12. Meetings in the Community. Meetings in the community (Pulong-Pulong sa Barangay) started in February 2002. These are bi-monthly community meetings conducted by MCWD to discuss with community members, who are MCWD consumers, concerns and issues regarding water service. The meeting is held at a different barangay each time. MCWD envisions this to be a continuing activity to reach out to its customers up to the farthest served barangays in Metropolitan Cebu. Since February, seven meetings have been held in six communities in Cebu City and in one community in Talisay City. The common issues raised and clarified during the meetings are (i) billing matters; (ii) applying for water service; (iii) right-of-way problems; (iv) CWAs; (v) lack of notice of disconnection; (vi) leakages; (vii) transfer of residence; (viii) sharing of water service connection with neighbors; (ix) potability and use of chlorine in MCWD water; (x) bumped-off meters, stolen meters, water theft, and fixers; (xi) laying of pipes; (xii) applicants who live on government lots; (xiii) installation of stub outs and angle meter valves; (xiv) possibility of free installation of water connection to the barangay hall; and (xv) fire hydrants, with water available in case of fire.

Appendix 7 32

COMPLIANCE WITH LOAN COVENANTS

Covenant Status

No rights or obligations under the Relending Agreement will be assigned, amended, abrogated, or waived without the prior concurrence of the Asian Development Bank (ADB).

Complied with.

Local Water Utilities Administration (LWUA) will ensure that Metropolitan Cebu Water District (MCWD) does not incur new debt unless its internal cash generation projected during the term of the debt is at least 1.5 times the projected debt-service requirement in such year.

Complied with.

MCWD will carry out annual reviews of level and structures of its water tariffs and other charges and submit results of such review to ADB 1 month after completion of such review for comment.

Complied with.

LWUA will cause MCWD to take all necessary steps to ensure that MCWD’s gross accounts receivable, including provision for bad debts, do not exceed the equivalent of 2 months’ billing.

Complied with.

LWUA will cause MCWD to take, on a timely basis, all necessary steps to acquire land and rights to land and water required to carry out project implementation expeditiously.

Complied with, but not on a timely basis.

LWUA will cause MCWD to take all necessary steps for timely issuance by appropriate authorities of excavation permits, and for restoration of public access routes upon completion of works.

Complied with.

LWUA will cause MCWD to increase water supply to those in the project area below the poverty levels by providing more house connections and expanding MCWD’s standpipe program.

Partly complied with.

MCWD will prepare, not later than 31 December 1990, and submit to ADB a forecast of the demand for water up to the year 2000 in MCWD’s service area.

Complied with.

LWUA will have overall responsibility for project implementation and ensure that its project implementation office is responsible for all aspects of planning, designing, constructing, and commissioning the Project.

LWUA’s role was reduced to overall monitoring. Two experienced staff were involved in construction supervision.

The project management office, headed by a senior project engineer of LWUA and assisted by staff of MCWD and consultants, will be responsible for day-to-day implementation of the Project.

The project management office was headed by a senior MCWD engineer with input from consultants and LWUA staff.

Appendix 7 33

Covenant Status

LWUA and MCWD will advise ADB of any proposed change in the organization of MCWD, including any change that may affect project implementation and MCWD’s operation.

Complied with.

The Borrower will make available to LWUA, as needed, funds, facilities, services, land, and other resources required in addition to the proceeds of the loan, for carrying out the Project.

Complied with.

LWUA will cause MCWD to operate and maintain the project facilities upon completion of the Project and will ensure that MCWD has sufficient technical resources for such purpose.

Complied with.

Beginning 1 year after effective date and continuing until 5 years after project completion, LWUA will submit to ADB annually a project benefit monitoring and evaluation report.

Project benefit monitoring and evaluation report was not prepared. Progress reports include some technical and financial data.

LWUA will cause MCWD to reduce, by 31 December 1993, nonrevenue water to a level of 30% of MCWD’s total water supply.

Nonrevenue water accounted for 37% at the time of the project completion report in 1999 and is currently at about 34%.

Appendix 8 34

PROJECT OUTPUT DATA 1. The project well field has been operating for 5 years and has experienced two dry periods (including the El Niño in 1998). The Metropolitan Cebu Water District records daily groundwater extraction, water levels, and rainfall. The graph shows that the water level in the aquifer always recovers quickly after a period of increased rainfall. The conclusion is that the safe natural yield of the well field is currently at least 23,000 cubic meters (m3)/day. The Operations Evaluation Mission is confident that the well field can supply the total daily production of 33,000 m3/day if the infiltration scheme is operational and properly maintained. The infiltration scheme was designed to provide an additional average 20,000 m3/day, but since the current sustainable extraction rate is already 23,000 m3/day, the aquifer needs to be recharged by only an average of 10,000 m3/day.

Figure A8: Water Levels and Total Pumping of the Mananga Well Field m3 = cubic meter, MASL = meter above sea level, mm = millimeter. Source: Metropolitan Cebu Water District.

0

10

20

30

40

50

60

70

80

90

100

Sep-97

Dec-97

Mar-98

Jun-98

Sep-98

Dec-98

Mar-99

Jun-99

Sep-99

Dec-99

Mar-00

Jun-00

Sep-00

Dec-00

Mar-01

Jun-01

Sep-01

Dec-01

Mar-02

Jun-02

Sep-02

Dec-02

Rai

nfal

l (m

m/d

ay)

and

Wat

er L

evel

(M

AS

L)

-50,000

-40,000

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000

50,000

Groundw

ater Extraction (m

³/day)

Groundwater Extraction (m³/day)

Daily Rainfall (mm/day)

Average Water Level (MASL)

Appendix 9 35

TARIFF STRUCTURE FOR INDIVIDUAL CONNECTIONS (P)

Category Appraisal

(1990) Midterm Review (1996)

MCWD (1998)

PCR (1999)

Current Status (2002)

A. Service Charge (P/month) in function of meter size

1/2” 37.5 86 95 99 109 3/4” 140 154 161 176 1” 274 302 314 345

1-1/2” 700 772 803 880 2” 1,738 1,917 1,993 2,185 3” 3,127 3,585 3,930 4” 6,353 7,170 7,860 6” 9,374 10,748 11,782 8” 15,698

B. Consumption Charge (P/m3) in function of monthly consumption (m3/month) 0–10a

11–20 4.05 9.52 10.50 10.92 11.97 21–30 4.00 11.20 12.35 12.84 14.07 31–40 5.65 30.72 33.87 35.22 38.61 41 up 6.65 same same same same

m3 = cubic meter, MCWD = Metropolitan Cebu Water District, PCR = project completion report. a First 10 m 3/month are provided free when the consumer pays a service charge.

Item

Production (m3) 39,155,829 40,183,807 43,965,516 46,732,410 48,150,827 50,471,311 50,954,692Nonrevenue Water (%) 36.90 36.90 37.44 38.27 37.46 35.48 33.95Nonrevenue Water (m3) 14,448,501 14,827,825 16,460,689 17,830,025 18,038,346 17,905,340 17,299,250Total Water Consumed (m3) 24,707,328 25,355,982 27,504,827 28,902,385 30,112,481 32,565,971 33,655,442 Total Water Sold 24,490,980 25,147,005 27,241,417 28,816,220 30,023,003 32,371,750 33,502,065 Free Water 216,348 216,348 216,348 86,165 89,478 194,221 153,377Cost of Production (P) 6.24 6.75 7.32 8.45 8.29 9.00 9.23Average Price of Water (P) 17.49 18.23 19.21 20.17 20.05 20.86 21.55Collection Efficiency (%) 72.75 70.83 94.50 94.01 95.00 95.00 94.00

Operating Revenue (P) Water Sales 412,053,915 442,950,142 506,176,969 547,876,962 582,449,131 654,792,913 700,977,514 Other Operating Revenues 5,756,631 8,131,557 11,181,129 13,125,450 14,576,840 14,562,564 15,183,864 Total 417,810,546 451,081,699 517,358,098 561,002,412 597,025,971 669,355,477 716,161,378

Operating Expenses (P) Operation 147,952,856 161,309,041 213,490,704 234,010,716 234,122,775 258,029,710 277,966,680 Maintenance 38,660,590 41,630,974 49,416,874 55,407,651 63,378,099 92,710,917 92,634,398 Depreciation 62,241,492 66,169,392 63,106,221 114,302,821 115,743,930 117,087,145 116,035,446 Total 248,854,938 269,109,407 326,013,799 403,721,188 413,244,804 467,827,772 486,636,524

Operating Income (P) 168,955,608 181,972,292 191,344,299 157,281,224 183,781,167 201,527,705 229,524,854

Other Income/(expenses) (P) Miscellaneous Nonoperating (net) 3,636,902 7,567,505 (9,254,064) 21,307,396 18,219,323 20,883,116 24,861,037

Income Before Interest Charges (P) 172,592,510 189,539,797 182,090,235 178,588,620 202,000,490 222,410,821 254,385,891

Interest Charges (P) 114,143,158 133,463,179 157,918,977 184,178,443 178,361,543 177,992,259 180,818,843 Net Income/(loss) (P) 58,449,352 56,076,618 24,171,258 (5,589,823) 23,638,947 44,418,562 73,567,048

m3 = cubic meter, MCWD = Metropolitan Cebu Water District.Source: Metropolitan Cebu Water District financial reports.

36 Appendix 10

MCWD FINANCIAL STATEMENTS

Table A10.1: Income Statement

1995 1996 1997 1998 1999 2000 2001

Item

Cash InflowRevenue Collection from

Water Sales 397,403,261 436,043,715 492,663,351 537,516,637 600,202,231 651,159,416 685,695,056Other Revenues 8,837,950 14,408,655 23,079,194 25,008,722 27,458,424 32,916,858 33,114,020Total 406,241,211 450,452,370 515,742,545 562,525,359 627,660,655 684,076,274 718,809,076

Other Cash Receipts 20,573,836 15,924,097 22,674,704 18,806,914 20,695,546 24,022,148 27,659,942Total Cash Inflow 426,815,047 466,376,467 538,417,249 581,332,273 648,356,201 708,098,422 746,469,018

Cash OutflowOperating Cost

Personnel Cost 118,424,433 139,473,638 161,974,224 188,057,414 190,288,584 215,480,128 225,039,135Chemicals 1,585,084 1,713,544 1,706,386 2,280,731 3,072,800 3,409,241 3,892,612Power for Production 41,776,431 42,314,451 45,030,888 52,727,640 51,001,630 56,875,243 58,838,601Water CostFuel for Maintenance 2,050,849 1,918,306 2,977,465 2,850,974 2,525,080 3,682,070 3,928,952Maintenance Materials 13,606,145 11,093,395 10,746,801 15,593,483 16,333,134 15,744,451 15,131,612Office Supplies 1,546,511 1,181,461 1,690,438 1,770,256 1,209,347 1,805,635 1,737,359Trainings 352,451 524,143 884,863 1,084,224 1,805,763 1,117,209 2,340,227Other Operating Expenses 11,280,142 13,447,679 18,195,522 22,397,787 37,731,246 49,231,884 75,334,218Total 190,622,046 211,666,617 243,206,587 286,762,509 303,967,584 347,345,861 386,242,716

Debt ServiceInterest 113,615,448 137,423,255 160,816,208 189,068,542 179,133,649 185,573,884 180,818,843Principal 5,885,974 6,523,106 6,600,168 12,510,565 15,437,614 19,771,281 25,498,308Total 119,501,422 143,946,361 167,416,376 201,579,107 194,571,263 205,345,165 206,317,151

Balance Before Capital Outlay 116,691,579 110,763,489 127,794,286 92,990,657 149,817,354 155,407,396 153,909,151

Capital OutlayProjects and Equipment 40,554,959 45,725,654 38,943,506 39,566,019 27,452,768 95,158,503 183,272,741Equity 19,653,715 11,247,776 13,790,496 9,294,495

Other Cash Disbursements 6,329,942 43,406,282 35,039,423 28,644,470 10,357,327 54,535,916 28,150,692

Cash Inflow (Outflow) 50,152,963 10,383,777 40,020,861 15,485,673 112,007,259 5,712,977 (57,514,282)

Cash Balance (Beginning) 8,349,494 58,502,457 68,886,234 108,907,095 124,392,768 236,400,027 242,113,004Cash Balance (End) 58,502,457 68,886,234 108,907,095 124,392,768 236,400,027 242,113,004 184,598,722

Source: Metropolitan Cebu Water District financial reports.

Appendix 10 37

Actual

Table A10.2: Cash Flow Statement

1999 2000 20011995 1996 1997 1998

(P)

AssetsUtility Plant in Service

Utility Plant in Service 1,030,437,029 1,051,989,401 1,096,579,204 1,801,055,097 2,049,951,789 2,103,407,819 2,156,865,889Accumulated Provision for Depreciation (339,221,251) (403,901,134) (465,699,376) (591,197,267) (706,104,044) (821,286,463) (936,421,516)Total Utility Plant in Service 691,215,778 648,088,267 630,879,828 1,209,857,830 1,343,847,745 1,282,121,356 1,220,444,373Land 223,451,296 232,470,162 257,141,940 261,158,541 92,089,554 96,121,520 98,698,722Construction Work in Progress 602,677,384 874,714,567 1,034,586,823 498,414,337 463,083,281 517,384,267 677,445,992Net Utility Plant in Service 1,517,344,458 1,755,272,996 1,922,608,591 1,969,430,708 1,899,020,580 1,895,627,143 1,996,589,087

Current AssetsCash 58,502,457 68,886,234 108,907,095 143,506,569 216,168,034 243,102,503 187,007,538Sinking Fund, Total Various Projects 20,046,716 30,718,939 33,875,247 18,773,347 23,537,241 24,912,216Fund Reserved 0 18,356,895 18,568,140 20,464,938 22,175,480 0 0Other Cash Items 339,465 192,047 983,325 194,875 15,000 15,000 15,000Accounts Receivable-Customers 65,759,504 73,932,349 87,770,783 100,295,325 84,841,463 87,377,481 101,723,812Allowance for Bad Debts (1,315,190) (1,478,647) (1,755,868) (2,008,497) (1,696,614) (1,747,550) (2,034,476)Materials and Supplies 22,308,248 20,853,815 12,520,017 25,261,044 26,683,113 32,051,567 24,612,187Interest Receivable 196,396 1,409,442 740,277 895,204 1,079,756 881,309 551,821Total 165,837,596 212,871,074 261,609,016 307,382,805 349,266,232 385,217,551 336,788,098

Other Debits and Deferred ChargesSpecial Deposits 10,283,201 14,596,687 14,925,328 13,722,283 13,069,668 11,411,094 10,374,370Prepayments 0 0 0 0 0 0 2,971,766Accounts Receivable-Employees 2,593,775 2,284,818 12,931,888 1,846,312 7,594,860 4,859,297 3,641,074Accounts Receivable-Others 12,255,897 11,209,897 11,783,413 12,131,961 12,186,406 19,083,814 9,768,277Other Assets and Deferred Charges 3,450,099 3,182,104 2,817,441 3,742,720 3,069,650 3,057,366 2,871,272Total 28,582,972 31,273,506 42,458,070 31,443,276 35,920,584 38,411,571 29,626,759

Total Assets 1,711,765,026 1,999,417,576 2,226,675,677 2,308,256,789 2,284,207,396 2,319,256,265 2,363,003,944

Capitalization and LiabilitiesCapitalization

MCWD Equity 37,579,843 37,579,843 37,579,843 37,579,843 37,579,843 37,579,843 37,579,843Retained Earnings 7,992,548 60,644,578 80,731,971 46,699,697 84,345,950 135,164,885 188,486,963Revaluation Increment in Property 575,535,327 575,535,327 575,535,327 575,535,327 575,535,327 575,535,327 575,535,327Total 621,107,718 673,759,748 693,847,141 659,814,867 697,461,120 748,280,055 801,602,133

Long-Term Debts 940,289,404 1,153,396,720 1,316,196,556 1,423,390,640 1,402,652,258 1,376,386,129 1,352,258,421Current and Accrued Liabilities

Customer's Deposits 39,896,311 46,842,173 52,074,960 58,102,797 64,122,435 69,418,343 75,177,866Vouchers Payable 6,184,595 14,722,305 6,381,959 51,805,238 1,715,509 719,789 1,652,465Other Payables 0 0 0 0 14,338,300 13,576,245 14,753,502Current Portion on Long-Term Debts 6,524,591 6,600,732 7,426,795 12,253,773 13,892,573 21,488,344 23,168,083Interest Payable 10,378,699 6,543,605 6,662,653 6,573,422 5,630,140 0 0Accrued Light and Power 4,188,771 4,369,558 4,962,490 5,915,327 5,758,558 8,008,236 8,016,893Other Current and Accrued Liabilities 47,162,181 49,378,643 92,223,352 63,431,180 52,203,737 63,599,714 68,595,171Total 114,335,148 128,457,016 169,732,209 198,081,737 157,661,251 176,810,671 191,363,980

Reserves and Other CreditsRevolving Fund from Gas 22,391,639 30,162,975 13,014,767 1,763,302Reserves 13,641,117 13,641,117 33,885,004 25,206,243 26,432,767 17,779,410 17,779,410Total 36,032,756 43,804,092 46,899,771 26,969,545 26,432,767 17,779,410 17,779,410

Total Capitalization and Liabilities 1,711,765,026 1,999,417,576 2,226,675,677 2,308,256,789 2,284,207,396 2,319,256,265 2,363,003,944

MCWD = Metropolitan Cebu Water District.Source: MCWD financial reports.

2000

38 Appendix 10

(P)

2001Item

Table A10.3: Balance Sheet

Actual1995 1996 1997 1998 1999

Appendix 11 39

FINANCIAL AND ECONOMIC INTERNAL RATES OF RETURN A. Financial Reevaluation 1. As at appraisal, it was assumed that the life of the Project including implementation and operation would be 40 years. The water production volumes were based on actual data available for the Project up to September 2002.1 From 2003, the Project was assumed to achieve full capacity (33,000 cubic meters per day) as it is reasonable to expect that the dike that is currently being constructed will be completed and the infiltration basin can be operational from January 2003. The cost of constructing the infiltration basin was added to the capital cost. The regular operation and maintenance (O&M) costs were obtained from the Metropolitan Cebu Water District (MCWD) data, which takes into account periodic replacement of pipes. Extra O&M costs were added for maintaining the infiltration basin. A further 1% increase was added to the O&M in real terms to cover efforts to reduce nonrevenue water (NRW). It was assumed that NRW would decline to 30% by 2007. Current prices were converted to constant 2002 prices using the consumer price index for the Philippines. Two types of water users were considered: individual connections with higher average tariffs, and communal water associations with lower tariffs. The volume of water used by these consumers was obtained from MCWD data. Tariff rates were held constant in real terms from 2002. The cash-flow analysis shows that the reevaluated financial internal rate of return is 5.7% (Table A11.1), exceeding the weighted average cost of capital of 3.0 %.

1 The last-quarter production for 2002 was extrapolated.

Year

1992 31.89 31.89 (31.89)1993 1.75 1.75 (1.75)1994 38.51 38.51 (38.51)1995 163.42 163.42 (163.42)1996 316.11 316.11 (316.11)1997 220.08 66.11 286.19 2.12 0.80 1.30 0.02 19.10 13.08 31.53 (254.66)1998 82.95 68.60 151.55 6.84 2.61 4.16 0.07 20.17 13.17 100.50 (51.05)1999 70.19 67.30 137.49 8.59 3.15 5.34 0.10 20.05 13.26 122.63 (14.86)2000 21.86 76.66 98.52 8.65 3.15 5.40 0.10 20.86 13.36 124.48 25.962001 20.75 76.90 97.65 9.39 3.28 5.99 0.12 21.55 13.45 135.70 38.052002 22.00 87.26 109.26 8.40 2.84 5.44 0.11 22.20 13.54 122.29 13.032003 100.35 100.35 12.05 3.99 7.90 0.16 22.20 13.54 177.42 77.072004 101.35 101.35 12.05 3.90 7.99 0.16 22.20 13.54 179.49 78.132005 102.37 102.37 12.05 3.81 8.08 0.16 22.20 13.54 181.49 79.122006 103.39 103.39 12.05 3.72 8.17 0.16 22.20 13.54 183.49 80.102007 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.50 81.082008 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.50 81.082009 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082010 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082011 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082012 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082013 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082014 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082015 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082016 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082017 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082018 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082019 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082020 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082021 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082022 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082023 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082024 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082025 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082026 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082027 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082028 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082029 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082030 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082031 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.08Total 989.51 3,460.87 4,450.38 393.29 121.92 266.34 5.04 5,996.66 1,546.27

FIRR 5.67%

CWA = communal water association, FIRR = financial internal rate of return, m3 = cubic meter, NRW = nonrevenue water, O&M = operation and maintenance.Source: Operations Evaluation Mission calculations based on the Metropolitan Cebu Water District data.

40 A

ppendix 11Water Consumption

Connections CWA(P million)

O&MCost

(P million)

CapitalCost

(P million)

IncrementalProduction(million m3)

TotalCost CWA

(P/m3)NRW

(million m3) (million m3) (million m3) (P million)

NetCash Flow

Table A11.1: Financial Internal Rate of Return

Average Water Tariff TotalRevenue(P million)

Connections(P/m3)

Appendix 11 41

B. Economic Reevaluation 2. Economic costs and benefits were estimated in constant 2002 prices, and the domestic price numeraire was used. The financial costs were converted to economic costs, excluding taxes and duties and using shadow prices for unskilled labor and tradables. Water consumption was separated into three categories: nonincremental usage, incremental usage, and NRW usage.2 While NRW information was obtained from MCWD data, nonincremental usage was assumed to be 20 liters per day per person who does not have a connection or access to a communal faucet. Incremental consumption was estimated deducting the nonincremental from MCWD’s estimate of average consumption per person with an individual connection (180 liters per day). The Operations Evaluation Mission did a rapid assessment survey to get information about the cost of alternative sources and value of benefits. The nonincremental water usage benefits were calculated by considering four types of sources used previously. It was assumed that 10% of the customers had obtained water from far away sources and the time saving from switching to MCWD was valued at the rate of wages for unskilled labor. Fifteen percent were assumed to have replaced quantities previously bought from vendors and the associated cost savings were considered. A majority of 50% were assumed to have switched from the use of private wells of their own or that belonging to their neighbors, and the cost of using the private wells was considered. The rest of 25% were assumed to have bought water from neighbors, and the cost savings of switching from the neighbors to MCWD were considered. Incremental water usage was valued at willingness to pay based on the differential between current tariff and what the neighbors would charge. For individual connections, 25% of the differential was added to the existing tariff to obtain the willingness to pay. For the communal water associations, 20% of the differential was added to the existing tariff. It was assumed that 25% of NRW was consumed and was valued as the same rate as the individual connections, while the other 75% was assumed wasted due to leakages. Since health data was not collected for project monitoring, health benefits were not considered. Part of these benefits may be captured in the data on willingness to pay. On those assumptions, the recalculated economic internal rate of return is 14.3%. The detailed calculations are in Table A11.2.

2 Additional usage by existing individually connected households was not assumed. Increased water availability from

20 to 22 hours would not mean additional consumption because the customers would have previously stored water.

Year

1992 28.91 28.91 (28.91)1993 1.58 1.58 (1.58)1994 34.91 34.91 (34.91)1995 148.14 148.14 (148.14)1996 286.56 286.56 (286.56)1997 199.51 59.50 259.00 0.00 0.80 0.14 0.02 1.16 0.01 0.20 3.70 37.20 40.90 (218.11)1998 75.20 61.74 136.94 6.84 2.61 0.45 0.05 3.70 0.02 0.65 11.34 126.22 137.56 0.621999 63.63 60.57 124.20 8.59 3.15 0.58 0.07 4.76 0.03 0.79 14.74 158.76 173.50 49.302000 19.82 68.99 88.81 8.65 3.15 0.60 0.07 4.80 0.03 0.79 14.71 166.14 180.85 92.042001 18.81 69.21 88.02 9.39 3.28 0.67 0.08 5.33 0.04 0.82 15.98 187.76 203.74 115.722002 19.94 78.53 98.48 8.40 2.84 0.60 0.07 4.84 0.04 0.71 14.13 173.70 187.83 89.352003 90.31 90.31 12.05 3.99 0.88 0.10 7.02 0.05 1.00 20.44 250.21 270.65 180.332004 91.22 91.22 12.05 3.90 0.88 0.10 7.11 0.05 0.97 20.44 251.49 271.93 180.722005 92.13 92.13 12.05 3.81 0.88 0.10 7.20 0.05 0.95 20.44 252.74 273.18 181.052006 93.05 93.05 12.05 3.72 0.88 0.10 7.29 0.05 0.93 20.44 253.99 274.43 181.382007 93.98 93.98 12.05 3.63 0.88 0.10 7.38 0.05 0.91 20.44 255.24 275.68 181.702008 93.98 93.98 12.05 3.63 0.88 0.10 7.38 0.05 0.91 20.44 255.24 275.68 181.702009 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702010 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702011 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702012 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702013 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702014 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702015 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702016 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702017 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702018 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702019 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702020 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702021 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702022 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702023 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702024 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702025 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702026 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702027 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702028 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702029 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702030 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.702031 93.98 93.98 12.05 3.63 0.88 0.10 7.39 0.05 0.91 20.44 255.24 275.68 181.70Total 897.02 3,114.78 4,011.80 391.17 121.92 28.49 3.35 237.84 1.68 30.48 667.42 8,239.25 8,906.68 6,469.50

EIRR 14.30% CWA = communal water association, EIRR = economic internal rate of return, m3 = cubic meter, NRW = nonrevenue water, O&M = operation and maintenance.Source: Operations Evaluation Mission calculations based on the Metropolitan Cebu Water District data.

42 Appendix 11

CapitalCost

(P million)

O&MCost

TotalCost

(P million) (P million)

IncrementalProduction(million m3)

NRW(million m3)

Nonincremental Incremental

(million m3)CWA NRW Used

(million m3)(million m3)Individual CWA

(million m3) (P million)Incremental WaterIndividual

(million m3)Net

Cash Flow

Table A11.2: Economic Internal Rate of Return

ValueTotal

BenefitsNonincremental Water

(P million)