World Bank Documentdocuments.worldbank.org/.../pdf/6330-PPAR-P009724-PUBLIC.pdfD_mt G The World Bank...

D_mt G

The World BankFOR OFFICIAL USE ONLY

Report No. 6330

PROJECT PERFORMANCE AUDIT REPORT

INDIA FIRST MADRAS URBAN DEVELOPMENT PROJECT

(CREDIT 687-IN)

June 30, 1986

Operations Evaluation Department

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Fon OFCIL US OfILY


INDIA FIRST MADRAS URBAN DEVELOPMENT PROJECT(CREDIT 687-IN)

TABLE OF CONTENTS

Page No.

Preface i** * * * * @ @ * @ @ @ * @ * * @ @ @ @ * * v @ * * J

Basic Data Sheet .. .. . . . . .... iiEvaluatio Summary ................. * Iv

PROJECT PERFORMANCE AUDIT MEMORANDUM

I. BACKGROUND .............,..,,..., ...... 1

A. Urbanization in India and Madras., .................... 1BD The Project...e................... .. *...... 4

II. IMPLEMENTATIO .............. 6

A. Gen e r a l 6B. Features of Project Design........................... 7C. Physical Accomplishments and Their Impact.ac..0.9.. 00 9D. Institutional Development..... ....... ..... ......, ,,,, 18

III. POINTS OF SPECIAL INTEREST .................. 19

A. Relation of Project to Madras' Shelter Needs5........ 19B. Policy Imat........@,,,P,. ,,.,21C. Problems of Land Acquisition......................... 24D. Metropolitan Management: the Role of Special

Agencies and Traditional Authorities..0.,,6...... 26E. The Madras Experience with Cost Recoveryoossee6...... 27F. Maintenance and Sustainability.o.,,o,,....... 28

ANNEXES

1. Project Description. ........................ .. 312. Borrower Comments .................... . 35

PROJECT COMPLETION REPORT

I.o Int r odducctl onn.o0e0000* a0&000000000 3 7II. Project Identification, Preparation and Appraisal ....,.6 38III. Project Implementation and Cost .......................... 43IV. Institutional Performance and Development................ 48V. Economic Re-evaluation. oo o o o 51VI. Conclusions ........... 52

This document his a restricted distribution and may be used by recipients only in the performanceof their oMcial duties. Its contents may not otherwise be disclosed without World Bank authorization.

Table of Contents (cont'd.;, ,,

Page No.

Annexes

A. Principal Report Sources............... ....... ...... 55B. Appraisal Estimates and iinal C>sts...................... 57C. Schedule of Disbursemeonts................. ..........e. o* 59

Map IBRD 12401

- i -



PREFACE

This report presents a performance audit of the above project forwhich a credit of US$24 million was made by the International DevelopmentAssociation (IDA) on April 1, 1977. The credit was closed on June 20, 1982although the physical components were not completed until June 1984.

The report consists of a Project Performance Audit Memorandum(PPAM) prepared by the Operations Evaluation Deparmtment (OED) and a ProjectCompletion Report (PCR) prepared by IDA's South Asia Regional Office. ThePCR is based on a project completion report prepared on behalf of theGovernment of India and on information obtained from the Government and vari-ous executing agencies and from IDA files. The PPAM is based upon review ofthe Appraisal and President's Reports, IDA files, the PCR and a transcript ofthe Executive Directors' meeting at which the credit was approved. An OEDmission visited Madras in October/November 1984 to visit the facilitiesincluded in the project and to discuss the project with the Indian authori-ties whose cooperation is gratefully acknowledged.

The PPAR was sent to the Government of India and the projectauthorities for their vieus. Comments received are reflected in the teAt aswell as reproduced as Annex 2 to the PPAM.

- li -


INDIA FIRST MADRAS URBAN DEVELOPMENT PROJECT(CREDIT 687-IN)KEY PROJECT DATA

Appraisal Actual orItem Estimate Reestimate

Total Project Cost (US$ million) 52.0 62.3Overrun (%) 0 19.8

Credit Amount (US$ million) 24.0 24.0Disbursed ) 24.0 24.0Cancelled ) as of June 30, 1985 0 0Repaid ) 0 0Outstanding) 24.0 24.0

Date Physical Ccmponents Completed 3/81 6/84Proportion Comploted by Original Completion Date (X) 100 80Proportion of Time uverrun (X) 0 81Economic Rate of Return '2) 2!% Above 21X

Cumulative Estimated and Actual Disbursements(US$ million)

FY77 FY78 FY79 FY80 FY81 FY82

Estimated 0 .5 7.5 18.0 24.0 24.0Actual 0 2.2 6.7 11.2 19.4 24.0Actual/Est. (X) 0 440.0 83.3 62.2 80.8 100.0

OTHER PROJECT DATA

Item Original Actual

First Mention in Files 04/72Government's Application 11/73 -Negotiations 02/77 02/77Board Approval 03/77 03/77Credit Agreement Date 03/77 03/77Effectiveness Date 04/01/77 04/01/77Closing Date 09/30/81 12/31/82Date of Final Disbursement 06/29/82Borrower Government of IndiaExecuting Agencies Madras Metropolitan Development Authority

Tamil Nadu Housing BoardTamil Nadu Slum Clearance FoardMadras CorporationMadras Metropolitan Water Supply and Sewerage BoardPallavan Transport CorporationDepartment of Highways and Rural WorksSmall Industries Development CorporationDepartment of Social Welfare

Fiscal Year of Borrower April 1 - March 31Follow-on Project: Second Madras Urban Development Project

(Cr. 1082-IN)

- tii -

MISSION DATA

Mbnth/ No. of No. of Person- Date ofItem Year Weeks Persons weeks Report

Reconnaisance 10/73 1.0 4 4.0 01/74Identification I 02/74 3.0 4 12.0 08/74Identification II 11/74 0.5 3 2.0 -Preparation I 04/75 2.5 3 7.5 -Preparation II 11/75 0.5 4 2.0 12/75Pre-Appraisal 04/76 3.0 6 18.0 06/76

SubTotal /a 11.0 24 46.0

Supervision I 03/77 2.0 4 8.0 04/77Post Appraisal 04/77 3.0 3 9.0 05/77Supervision II 06/77 0.5 1 0.5 08/77Supervision III 08/77 1.0 1 1.0 09/77Supervision IV 11/77 2.0 2 4.0 12/77Supervision V 02/78 0.5 1 0.5 03/78Supervision VI /b 06/78 2.0 2 4.0 07/78Supervision VII 10/78 2.0 2 4.0 11/78Supervision VIII 01/79 1.0 2 2.0 -Supervision IX 03/79 2.0 2 4.0 06/79Supervision X 03/80 1.5 2 3.0 04/24Supervision XI 08/80 2.0 2 4.0 12/80Supervision XII 05/81 2.0 2 4.0 07/81Supervision XIII 10/81 2.0 2 4.0 12/81Supervision XIV 02/82 0.5 1 0.5 06/82Supervision XV 06/82 2.0 2 4.0 -

SubTotal 26.0 31 56.5

TOTAL 37.0 55 102.5

CURRENCY EXCHANGE RATES

Name of Currency (abbreviation): Rupees (Rs)

World Bank Average Exchange RateFiscal Year US$1 - Rs

1976 8.861977 8.421978 8.061979 8.031980 8.171981 9.281982 9.901983 10.39

/a The mission data for the appraisal was not provided in the PCR.7b Work on the Second Madras Project started from Supervision VI.

Personweeks have been prorated between the two projects.

- iv -



EVALUATION SUMMARY

Introduction

The First 'Jrban Development Project of Madras (MUDPI), one of thefirst of the Bank Group's integrated projects in the urban sector (PPAM,para. 7), was an ausplcious start to the Association's support for thedevelopment of Madras, the fourth urban agglomeration in India and one of theworld's major metropolises (PPAM, para. l). With its broad scope thatcovered some six sectors the principal ones being shelter, transport andwater supply (PPAM, Annex A), MUDPI involved some ten different agencies(PCR, para. 2.02), with overall coordination entrusted to MMDA (PPAM, paras.15 and 45-47).

The ambitious scope of MUDPI was justified for at least threereasons; firs..ly and most importantly, the enormity of the urban problemsconfronting Madras (para. 1), to which the project components were wellrelated (para. 13), called for a substantial intervention, seLondly, theexecuting agencies of the government of Tamil Nadu (GTN) were generally soundinstitutions with demonstrated capacity for the kind of large scale projectimplementation required (PPAM, paras. 1 and 30), and thirdly, the projectcomponents built mostly upon the agencies' previous experience by helping toperfect solutions that were well understood and for which politicalcommitment could be secured (para. 14).

Objectives

The general objectives at appraisal were:

(a) to develop and promote low-cost solutions of Madras' problems inthe sectors of shelter, employment, water supply, sewerage andtransport, and particularly to make investments responsive to theneeds of the urban poor;

(b) to ensure replicability, by introducing full cost recovery for keyinvestments for which costs have traditionally not been fullyrecovered; and

(c) to strengthen metropolitan planning and capital programming andbudgeting.

According to the PCR (para. 2.07), objective (a) was reformulatedtoward redirecting and substantially increasing public investment for lowincome people (PPAM, para. 8). The specific objectives as detailed in theproject documents were as follows:

(a) Shelter - provision of sites and services with sanitary cores atthree separate locations in Madras and the improvement (viz.upgrading) of 83 slum areas (later reduced to 56) by theintroduction of basic infrastructure services.

(b) Water supply and Sewerage - a program of remedial works pending thenecessary major rehabilitation of the system.

(c) Transport - a series of components that included the completion ofthe Inner Ring Road, various central area traffic improvements, andthe provision of buses and servicing facilities to improve the bustransportation system.

(d) Employment - provision of worksheds, training and credit for smallscale and cottage industry in the shelter sites.

Impementation Experience

Although there is some uncertainty regarding the details of whatwas accomplished under the project and its costs (PPAM, paras. 21 and 49),the project was generally well executed to a high physical standard ofcompletion although with considerable delays, particularly to the sheltercomponents, caused principally by the prolonged legal procedures required forpublic sector land acquisition (PPAM, paras. 3 and 42).

Results

The project resulted in significant additions and improvements tothe housing stock of Madras (PPAM, paras. 16 and 20), in some additionalemployment (PPAM, para. 25), in significant improvement of Madras' municipalbus service (PPAM, para. 26), and in a number of important traffic managementimprovements (PPAM, para. 28). More limited accomplishments were recorded inthe construction of the Inner Ring Road (PPAM para. 28) and the water supplycomponent (PPAM, para. 29). The PCR estimated the ERR at over 21% sincehigher than exDected rental ,alues more than offset the negative effect onthis rate that would have resulted from the delayed benefit streams. Therehave been significant accomplishments in cost recovery; however, for somecomponents the audit has been unable to determine their extent (PPAM, paras.48-49).

The audit regards the project as having appropriately built onprevious experience thereby facilitating effective implementation (PPAM,para. 14) and as having consolidated the positive aspects of existingpolicies, particularly on slum improvement, by making their conceptionsounder and their execution more efficient. The Region, on the other hand,considers that the existing policy objectives were quite contrary to those ofMUDPI, and that the project, therefore, brought about radical changes.Various aRpects of the policy impact issue are discussed as a point ofspecial interest later in this report (PPAM, paras. 38-41). The audit doesrecognize, nevertheless, important innovations that can be attributed to

- vi -

MUDPI, such as the incroduction of the concept of cost recovery (PPAM,paras. 48-50), the notion of security of tenure in slums (PPAM, para. 44),and the idea of using a sites and services approach for low income housing(PPAM, paras. 40-41).

The local authorities in Madras are now in the commendable positionof being able to define finite time horizons for the fulfilment of sore longterm planning objectives (in slum improvement, for example). There can be nodoubt that MUDPI helped them to attain the rare aclievement of being able tokeep some of the most impo.,rtant urban problems of a major developing countrymetropolis under control.

Sustainability

The inadequate provision for maintenance in the project may affectits sustainability. Other sustainability issues related to the projectcannot be fully analyzed. However, reliance on an established institutionalmodel augurs well for sustainability as does the introduction of costrecovery concepts. However, full cost will need to be established andgeneral collection will need to be achieved for there to be sustainability(PPAM, para. 54).

Findings and Lessons

The major findings and lessons of the project are:

(a) Sites and services and slum improvement related to Madras housingneeds in quite different ways. While MULDPI sites and servicesprovided for a net increase in the quantity of Madras' totalhousing stock by providing additional units, slum improvementraised the average quality of the existing stock by increasing theproportion of it that was "environmentally acceptable" (PPAM,paras. 33-37).

(b) The audit cornsiders that the project achieved a significant shiftin emphasis in existing shelter policies by further encouraging themore cost effective and replicable solutions aimed at low incomegroups, expecially through sites and services for example.Nevertheless, the pre-MUDPI political commitment by the localauthorities to slum improvement, for example, and their readyunderstanding of the technical solutions proposed under the projectwere essential Ingredients of this achievement (PPAM, paras.38-41).

(c) The problems of land acquisition are acute; it is a very expensiveapproach for the public sector, especially in view of privatesector monopoly holdings of urban land (PPAM, paras. 42-44).

(d) MUDPI demonstrated a successful model of metropolitan managementthrough the effective negotiation of sectoral and local intereststhrough the MMDA (PPAM, para. 45-47).

- vii -

(e) The idea of cost recovery was successfully introduced ty theproject and achieved some concrete results in a number of cases(PPAM, paras. 48-49).

(f) The lack of maintenance is a serious problem needing urgentattention lest the physical assets of the project be lostaltogether (PPAM, paras. 51-53).

(g) ivotwithstanding the effort mad( .o develop them under the project,reliable and simple management information sytems still need to beused more effectively to improve project implementation and controlboth by the executing agencies and the Association. The lack ofcomplete and consistent information on physical accomplishmentsprecluded thorough evaluation of project results (PPAM, para. 21).

PROJECT PERFOiMANCE AUDIT MEMORANDUM


I. BACKGROUND

A. Urban'zation in India and Madras

1. It is a well known fact that., in spite of its low level andrelatively slo'f rates of urbanization, the sheer size of India's populationplaces the country among the world's most important urban nations. (Mohan,Rakesh and Pant, Chandrashekhar, Morphology of Urbanization In India in"Economic and Political Weekly", Bombay, Vol.17, no. 38/39 (Sept. 82i7Tpage1, World Bank Reprint No. 295.1 Madras, itself, with more than 5.2 millioninhabitants, is the fourth urban agglomeration in India after Calcutta (pop.10.5 million), Bombay (pop. 9.6 million) and Delhi (pop. 7.8 million), andmust be counted among the world's major metropolises. (Ali figures are takenfrom the 1981 Census and refer to the city and its hinterland in each case.)Of the metropolitan areas of India, Madras is widely regarded as being one ofthe best organized and administered, a reputation derived from a relativelylong period of sound and competent administration by the Government of TamilNadu (GTN), but even so, the city presented as formidable a list of urbanproblems as almost any other major developing country metropolis. Amongthose derived from inadequate infrastructure, for example, one might mentionMadras' inadequate water supply system which is able to serve many areas ofthe city for only two hours a day, the drainage problems in low lyingneighborhoods leaving them prone to frequent flooding and associatedenvironmental problems, the generally inadequate housing stock and theinefficient use of the road network as pedestrians, cyclists, animal drawnvclOicles and motorized traffic as well as animals all compete for the samelimited 3pace. Solutions to these kinds of problems have to be sought in thecontext of what is a predominantly low income urban economy with a per capitaincome less than most other metropolitan areas of India. Such a situation asthis poses an enormous challenge to Madras' urban planners and policymakers,and makes it paramount that the prioritiee determined be supported by a fullanalysis of the economic opportunities available something which has nottraditionally been emphasized in Madras' planning._!

1/ Attention has been drawn, for example, to the lack of specific institu-tional arrangements for advising GTN on the requirements for the econo-mic development of the f,fA (see Structure Plan for Madras MetropolitanArea, Vol. 1 - Existing Situation, Madras Metropolitan DevelopmentAutU,ority/wnosultants Alan Turner and Associates, June 1980, page 43).

- 2 -

2. Important planning initiatives have, nevertheless, been taken inMadras in an attempt to at least order the approach to some of che problemsmentioned. As far as the shelter sector was concerned, for example, GTNbegan to tackle the city's slums under the Slum Areas (Improvement andClea:ance) Act of 1956, which gave the Government powers of compulsoryacquisition of land for the purpose of either clearing them and relocatingtheir low income inhabitants, the so-called Economically Weaker Sections inspecially built tenements, or undertaking improvements in situ through theinstallation of basic infrastructure. Early on, most emphasis in India hadbeen upon clearance, but the latter, more cost effective approach was gainingfavor so that major slum improvement (called environmental improvement)schemes were already underway in Calcutta by 1971 and also in Madras, itself,by the tfllowing year. From FY1972/73 to FY1976/77, 48,954 families inMadras had benefited from such (environmental improvement) schemes (datataken fr(m Structure Plan for Madras op.cit, p. 47), almost twice the numberof beneficiaries under MUDPI. Nevertheless, over the same period, 17,484families had been accommodated in expensive tenements following slumclearance schemes. Through helping to curtail the latter and perfecting theslum improvement program principally by introducing concepts of cost recoveryand security at tenure, MUDPI can be credited with having helped consolidatea major shift in policy on slums. The MUDPI experience has been observed bypoliticians and administrators from most other states and has had widespreadimplications for shelter policies in Indian cities as a whole. In the caseof the provision of new low cost housing units, the project was similarly tohave an important influence over sector policies (see PPAM, paras. 38-41).

3. The direct effects of policy shifts such as these (and of MUDPI,itself) might have been even greater had it not been for the distortions inurban markets in which they had to be implemented. Considerable areas ofurban land in Indian cities are Government-owned, while that which is inprivate hands is dominated by monopoly holdings. (See: Gupta, Devendra B.,Urban Housing in India, World Bank Staff Working Paper No. 730, 1985, pages119-120). In a situation where the solution of urban problems is held to beexclusively the responsibility of Government, the land requirements of thelatter's urban development agencies can, especially in the face of arestricted monopolistic supply, invite speculative dealings, force up prices,and make public sector land acquisition at market rates a very expensivebusiness indeed. Partly in recognition of this, an unsuccessful attempt wasmade to dismantle urban land monopolies through the 1976 Urban Land (Ceilingand Regulation) Act, but instead of increasing the availability of urban landto the public sector as intended, the Act effectively led to the withdrawalof the private sector from the market. In the specific case of Madras, thepersistent problems of land acquisition and the continuation of the poor andunimproved condition of slums on private land (which housed more than half ofall slum dwellers, according to the 1971 Census) are but two consequences ofthe land ownership problem in the metropolitan area (see PPAM, paras. 42-44for discussion of these aspects as a point of special interest). MMDA areexploring to include alternatives to land acquisition including GuidedDevelopment and Land Readjustment. Acquisition of land from private ownerswould not be required, as owners would iTi effect become partners in thedevelopment (or redevelopmenc in the case of slums) of specialized areas.

-3-

4. As in the case of any growing metropolis, the deficiency of theurban infrastructure of Madras will remain at existing levels unless newcapacity is provided at a faster rate than that of urban growth. With a pro-jected population growth rate of 4% per annum, each year the equivalent ofabout 40,000 new households (using 1984 base and 6 persons per household)seek to satisfy their shelter needs (see PPAM, para. 36). However, thesupply of extra units cannot meet all this potential demand and the infra-structure deficit is in fact increasing. As a result many families(especially those with low incomes) are obliged to share homes and theresulting overcrowding is perhaps as meaningful an indicator of the housingdeficit as homelessness itself is. Lack of both up-to-date data and also agenerally recognized set of standards do not permit a precise quantificationof Madras' housing deficit. However, recent estimates of the physicalcondition of the housing stock (as opposed to the housing deficit) indicatethat some 45% of it is deficient, 30% of the total consisting of slum hutswhile another 15% is made up of dilapidated "permanent" structures.2/ 1Uowthis housing stock was affected by MUDPI is discussed later in this report asa point of special interest which draws attention to the impact of theproject upon the housing needs of Madras (PPAM, paras. 33-37).

5. The population growth of the Madras metropolitan area (MMA) hasalso led to a significant increase in the demand for transport. In a citywhere some 40% of all trips are made on foot or by bicycle, the principalconstraint upon the growth of these modes is the increasing congestion in thecentral areas of the city and their lack of rights-of-way, urgent problemsthat were both addressed by MUDPI. Another 40% of trips in Madras are madeby bus, using extensive services provided by the Pallavan TransportCorporation, but with predominantly over-aged and overcrowded vehicles priorto MUDPI. The three local electrified railway lines that serve Madrasaccount for some 10% of all trips, many of which are integrated with the busnetwork. The remaining 10% of trips are carried out by private cars (carownership rates are falling), motor cycles, taxis and auto-rickshaws, all butthe last one showing little potential for growth. By concentrating uponpedestrian, bicycle and bus traffic, the MUDPI's transport components werewell harnessed to the principal modes of transport used by the majority ofthe population of Madras, particularly those with low incomes, the demand foewhich can be expected to continue to increase in the foreseeable future asthe city itself grows.

2/ Structure Plan for Madras Metropolitan Area, Vol. I, Ch. 4. Thedilapidated "permanent" structures category would itself be classifiedas slum housing in many countries, but the Structure Plan follows thestatutory definition in India by using the term slum to referexclusively to hutment areas without proper access, water supply anddrainage.

- 4-

6. One sector in particular that has been left far behind as Madras'population has increased is that of water supply. Not only is the distribu-tion network inadequate, but the existing sources would not, in anycase, be sufficient to supply an improved network. The PCR makes clearreference to the important problems of water supply in the metropolitan areaof Madras (PCR, paras. 1.03 and 2.06) and the seriousness of the situationwas well understood by the Association at the time of appraisal. As a majorstudy, sponsored by UNDP/WHO, was then underway into the water problems ofMadras, a duplication of efforts might have been involved if MUDPI were tohave fully addressed what perhaps was MMA's most serious urban problem.Major policy decisions affecting the sector have been taken but watershortages continue to affect Madras, and even if all the necessary works werebegun immediately, little relief could be expected in the short run due tothe long lead time of the major investments required.

B, The Project

7. MUDPI was the third urban project in India to be supported by theBank Group. [The first one was the First Calcutta Urban Development Project(Credit 427-IN); for the audit of this project see PPAM No. 4023. The secondwas the Bombay Urban Transport Project (Loan 1335-IN) which is still underimplementation.] At the time that the Credit for the first Calcutta projectbecame effective, the Association was examining the possibility of supportingan urban development project in Madras. In contrast to Calcutta, Madras wasnot felt to be in a state of crisis nor was it thought to be as congested asBombay. Furthermore, the Association noted Madras' active pursuit of urbanpolicies and planning in the city with approval, even if it did not entirelyagree with the priorities adopted. Thus, an appropriate context had beenidentified in which to implement one of the Bank Group's first of a then newtype of integrated urban development project, recently described as follows:

"These projects were distinguished from (earlier) shelter projectsby the scale of individual components, the number of agenciesinvolved within a citywide framework, and the effort to integrateinvestments. They were designed from a broad conceptual perspec-tive that attempted to achieve an overall urban view - rather thana subsectoral one - at the outset."3/

8. At appraisal (SAR, para. 3.01) the main objectives of the projectwere:

(a) to develop and promote low cost solutions to Madras' problems inthe sectors of shelter, employment, water supply, sewerage andtransport, and particularly to make investments responsive to theneeds of the urban poor;

3/ Learning by Doing: World Bank Lending for Urban Development,1972-1982.World Bank, Washington, D.C., 1983, p.20.

(b) to ensure replicability, by introducing full cost recovery for keyinvestments for which costs have traditionally not been fullyrecovered; and

(c) to strengthen metropolitan planning and capital programming andbudgeting.

Some revision of the substance of project objective (a) in particular wasmade in the PCR (para. 2.07) where, instead of the pursuit of the ambitiousnew low-cost solutions to Madras' problems implied at appraisal, specificemphasis was placed upon the more realistic aim of redirecting andsubstantially increasing public investment in favor of the low incomepopulation. The PCR's restatement more accurately reflects the true goals ofa project that succeeded in perfecting and giving a new emphasis to solutions(such as slum improvement) that had, in large measure, already been triedbefore (albeit with little success, according to the Region).

9. To achieve these objectives, a complex project design was conceivedwhich covered some six different sectors and involved ten executingagencies. The fact that all these agencies were already in place andoperating successfully to a greater or lesser extent, justified the ambitiousscope of the project and reduced the risk that its scale and complexity mightoverwhelm the capacity of the GTN institutions to successfully implement it.The principal components of the project (detailed in PPAM, Annex A) asappraised and implemented can be summarized as follows:

(a) Shelter - provision of sites and services with sanitary cores atthree separate locations in Madras and the improvement (viz.upgrading) of 83 slum areas (later reduced to 56) by theintroduction of basic infrastructure services.

(b) Transport - a series of components that included the completion ofthe Inner Ring Road, various central area traffic improvements, andthe provision of buses and servicing facilities to improve the bustransportation system.

(c) Water Supply and Sewerage - a program of remedial works pending thenecessary major rehabilitation of the system.

(d) Employment - provision of worksheds, training and credit for smallscale and cottage industry in the shelter sites.

In addition, the project provided for a small health component and technicalassistance to the Madras Metropolitan Development Authority (MMDA) and MadrasCorporation. The PCR lists the agencies responsible for the execution ofeach oL the components (PCR, para. 2.02).

10. The project addressed some of the most important issues of urbandevelopment in Madras and adopted a somewhat conservative design inasmuch asit mostly called upon executing agencies either to alter and to expand some

- 6 -

of the programs with which they were already familiar or otherwise curtailother, less effective ones on their agenda. With the except'on of the InnerRing Road and one of the sites and services schemes, all the project compo-nents were implemented much according to the appraisal ex.pectations. Thosecomponents which depended upon land acquisition suffered slow start ups; pro-cessing took three years in some cases, much longer than anticipated (PPAM,paras. 42-44). Delays were also experienced in granting lease-cum-sale (LCS)agreements to low income residents, but this is to be expected with what wasan innovative aspect of MUDPI. These delays, combined with the unusuallyhigh inflation rate (by the standards of India) during implementation, led tocost overruns of some 19.8%. Nevertheless, when eventually finished, thephysical completion of the components was generally of a high standard. Theoverall coordination of the project development was entrusted to the MMDAwithout depriving the executing agencies of the direct control of themanagement of the components' physical implementation. This was a wiseprovision given the scope and complexity of the project. The MMDA wasparticularly suited to the task as it had already accummulated someexperience in coordAnating metropolitan affairs without having stifled theactions of the traditional local authorities.

II. IMPLEMENTATION

A. General

11. While there is some uncertainty in documentation as to the exactphysical accomplishments and cost experiences of the project, it appears tohave been implemented along the broad lines set out at appraisal.Maintaining the integrity of the original project design can be attributed tothe fact that, from the outset, the project addressed Madras' most pressingurban needs, and also to the fact that GTN consistently afforded such needshigh political priority throughout project implementation.4/ However, therewere significant delays in execution primarily due to land acquisitionproblems. Land acqi.isition prior to Board approval would, of course, havespeeded implementat.on although it would also inevitably have delayed Boardpresentation. As _ar as the urban development needs at Madras are concerned,such a change, although it might have improved the apparent performance ofthe Association's project itself, would have been little more than cosmeticsince the actual time from identification to completion would be unchanged.One way or another, land acquisition and metropolitan real estate management

4/ The audit considers that elements of such a government commitment, suchas existed toward slum improvement prior to MUDPI should be a sine quanon of any development project. The nearly 50,000 families whobenefited from slum improvement before the Bank project (even if theseearly programs were less effective than those under MUDPI) is taken asan indicator of GTN commitment to low cost shelter solutions for theurban poor.

have to be faced by the local authorities as major urban planning issues intheir own right, irrespective of their being or not being formally part of aspecific development project (PPAM, paras. 42-44). Cost overruns were alsocaused by unexpectedly high inflation during implementation, something thatcould not have reasonably been foreseen at appraisal. The immediate Impactof MUDPI on Madras' urban problems as a whole was obviously limited by thesheer scale of the latter, but even so, project components were to accountfor about one-half of public sector investments in the relevant sectors overthe seven year implementation period. This did not justify, however, theclaim made at appraisal (in 1977) that all slum areas in Madras would beimproved by 1985 (SAR, Summary and Conclusions, para. xi). As well as prema-ture, this affirmation did not fully take into account the dynamic nature ofMadras' urbanization as new slums were being built while the existing oneswere being improved (PPAM, para. 22, footnote 7). Nevertheless, throughtheir experience with MUDPI, the authorities in Madras have probably comenearer than many others in similar situations to not letting their city'surban problems get out of control. The very fact that it is now possible inMadras to consider target years for the fulfilment of realistic long-termurban policy objectives is itself a significant achievement for which theproject can take a good deal of credit.

B. Features of Project Design

12. Project identification in this case was complicated by considera-tions about the degree to which MUDPI should be involved in Madras' watersupply problems, one of the most crucial urban development issues in themetropolitan area at the time of appraisal (PCR, para. 2.01). Faced withsuch an issue, the Association opted for only limiL:d remedial works forwater, and wisely left the general water supply issue (which had state-wideimplications beyond the MMA) to the ongoing UNDP/WH0-ss-insored study.Although such an option incurred the risks that other components (especiallyshelter) might have their performance impaired by the shortage of water (asin fact occurred), to have included major investments in the water supplysystem would have been premature without the outcome of the study beingknown. If the project had been delayed to await the results of the study,significant improvements in other sectors would also have been postponedneedlessly.

13. The project components were well chosen for being closely related,as has already been mentioned, to the pressing needs of the low income popu-lation of Madras. Thus, slum upgrading aimed to provide some relief to theshelter problems of some of the lowest income inhabitants of the MMA, whilesites and services were intended to supply extra housing units to familiesthat had somewhat higher incomes but still had been unable to afford therents in erstwhile public housing schemes. MUDPI also achieved a low incomeorientation by concentrating on the transport modes used mostly by thosestrata of society (i.e., buses, bicycles and pedestrians). As these threemodes accounted for the bulk of the trips in Madras, MUDPI's transport compo-nents also aimed directly at improving the efficiency of the system as a

-8-

whole. Although on a strictly limited scale, income and employment genera-tion through the provision of factory sheds for small industries in the sitesand services areas and the financial and technical support for cottage indus-tries in the slum areas contributed to the economic needs of the population.

14. As indicated in para. 10, an essential ingredient for thesuccessful implementation of the project was the inclusion mostly ofcomponents with whose methods of implementation GTN agencies were familiar,if not in every detail, through their experience prior to MUDPI. The projectsucceeded in consolidating those more cost-effective approaches and inimproving the management of them, while at the same time, discouraging theapplication of other less appropriate solutions that still found themselveson GTN's agenda. An example of the former is slum improvement, where MUDPIbuilt upon and perfected the previous experience of the Tamil Nadu SlumClearance Board (TNSCB) with Environmental Improvement Schemes (EIS) in slumswhich had benefited 48,594 households prior to the Association project.5/In the case of the latter, MUDPI, through its credit covenant, succeeded Tncurtailing the very expensive slum clearance/purpose built tenement scheme.The project sites and services schemes, however, represented a greaterdeparture from the p;ior emphasis of the Tamil Nadu Housing Board (TNHB) uponthe provision of completed units for higher income groups, but the componentpresented no technical difficulties for an agency that had previouslyexecuted a program of "open developed plots" (sites and services for higherincomes) and that had thirty years' experience in awarding credits forbuilding materials. The project's bus transport component had a similar kindof impact by further improving the efficiency of PTC, a bus company with aproven track record prior to the Association's assistance. The approach ofbuilding upon and perfecting the more effective parts of established programsthat characterized MUDPI not only reduced project risks but also helped topromote the institutional development of GTN agencies that were already inplace (see PPAM, paras. 45-47). The audit considers it to be much to thecredit of the project design and preparation that MUDPI was able to introducechanges through the adaptation of solutions (such as slum improvement) whichwere well understood and supported by GTN as opposed to unsuccessful attemptsin some other countries to introduce untried solutions for which there was nopolitical commitment.

5/ According to the Region, however, such schemes were not successful sincethe facilities soon ceased to operate through lack of maintenance andlittle or no home improvement took place because of lack of tenure.While the audit considers it too early to draw definitive conclusionsregarding progress with maintenance (PPAM, para. 52) in MUDPI's own slumimprovement, the project did introduce new concepts such as costrecovery and security of tenure for the beneficiaries. The latter was aparticularly important innovation since, among other things, it cancontribute to the permanence of the .mprovements given the legal rightsto them that it confers upon the beneficiaries.

- 9 -

15. The project relied upon the coordinating capacity of the MMDA(strengthened by technical assistance) to oversee implementation and thephysical works undertaken by the executing agencies. This was a wise designfeature in view of the scope and complexity of the project, enabling it totake advantage of the MMDA's previous experience of coordinating metropolitanaffairs as MMA's planning authority. In this way, the project also reducedthe administrative burden on the Association leaving it to concentrate onmajor issues and problems, with responsibility assigned to MMDA for manyday-to-day matters. Because of its implications for the design of other BankGroup urban projects this important experience in metropolitan management isdiscussed as a point of special interest later in this report (PPAM, paras.45-47).

C. Physical Accomplishments and Their Impact

16. MUDPI's di-ect contribution to increasing the housing supply inMadras was through the sites and services component which was to haveprovided 13,500 residential plots at the three separate locations planned atappraisal. According to MMDA/TNHB data supplied for the audit, however, only8,068 lots were actually prepared, some 40% short of the total intended atappraisal. Cost overruns at these sites (interpreted from PCR, Annex B,p. 1) would appear to have been nearer 60% than the 35% referred to in thetext of the PCR (para. 3.04). The combination of the reduced physicalaccomplishment with increased total costs would imply a more than twofoldincrease in the unit cost of the lots. The reasons for the increased costsare explained in the PCR (para. 3.03). Of the total of 8,068 plots prepared,

- 10 -

however, the audit mission was informed that up to September 19856/ only2,684 (33.3%) were in fact physically occupied by the beneficieries, althoughconstruction of the houses had begun on another 2,860 (35.47). Between thethree sites there were considerable differences in the degree of progressachieved. Visual inspection of the Kodungaiyur site especially and alsoVillivakkam confirmed the slow advaAicement of the component even after theplots had been fully assigned. The main reason given for the fact that 31.3%of the plots remained undeveloped and unoccupied was the lack of fundingavailable for the allotees to build their homes. Other reasons advanced bythe Region for the slow rate of plot occupation include the lack of water andsewerage disposal infrastructure, security and access problems on Kodungaiyurand slow issuance of allotment orders due to TNHB staff constraints. Apart

6/ The Region reports that considerable progress has been made since thatdate but the latest figures are not comparable with the data in thissection which was supplied by MMDA/TNHB. For a site to be regarded asoccupied the audit considers it essential that there should le physicaloccupation by the beneficiary, even if the house is no. completelybuilt, and not simply with construction well under way as TNHBstatistics allow. Without the physical occupation of the lot (even ifthe house were complete) there would be no economic benefit flowsrelated o shelter services as intended by the project, althoughadmitted I there could be financial benefits from what could amount tonothing re than a speculative holding of the asset. The point is animportan. ne to make in Madras since the difference between rates ofphysical upation (adopted by the audit) and those from TNHBstatistics referred to by the Region are considerable, as follows:

Rate ofPhysical TNHB

September 1984 Occupation /a Occupation /bSite:

Arumbakkam (3) 71.7% 97.1%Villivakkam 26.4% 75.3%KodungaiyurPhase I (4) 2.0% 23.9%

TOTAL 33.3% 68.7%

Source: MMDA/TNHB

Notes: /a Defined as lots with houses physically occupied.7" Defined as lots assigned with construction underway (whether

physically occupied or not)./c Data for Arumbakkam refers to July 1984 (others September

1984)./d Kodungaiyur Phase II excluded from this analysis as it is

part of follow on project MUDPII.

- 11 -

from its more strategic location in relation to centers of employment,housebuilding finance from commercial banks was the key factor in ensuringthe success of the Arumbakkan scheme, probably one of the more successfulprojects of its kind, which is already some 72% occupied (in contrast to the2% occupation rate at Kodungaiyur and 26% at Villivakkam).

17. Field visits to the Arumbakkam sites and services scheme confirmedthat extensive building had already taken place and, wisely, the autho:itieshad adapted the intended land use and height regulations to suit the needs ofthe residents and of the shopkeepers in particular. Thus, for example, themain commercial center was located in a different street from that intendedin the original plan. Also, building regulations were applied flexibly inorder to give maximum encouragement to the owner/builders. Perhaps theflexibility in building codes went too far in one respect, however, where theclearance between the house and the sanitary core required for maintenancewas often built over, meaning that part of the house might have to bedemolished if major repairs to the drains ever became necessary. But so far,serious maintenance problems do not seem to have arisen in Arumbakkam. Thestreets and footpaths are in good condition and attention has been paid tourban design through tree planting. One serious problem was, however, theshortage of water whose supply to the site appeared to be sporadic (see PPAM,para. 12). In fact, during the site visit by the audit mission a number ofwomen of Arumbakkam were protesting about the lack of water. Whilereflecting a failure of the Madras water supply system as a whole, thedemonstration ironically revealed the successful use of the community centerprovided under MUDPI, as it served as the meeting point for the discussion ofthe problem. Conversations with a number of residents impressed the auditmission by the genuine desire on their part to attain home ownership; thestatus that they thought this conferred upon them was cbviously complementedby the fact that many were paying only one-half in repayment installments ofwhat they had previously paid in rent. There can be no doubt that theArumbakkam scheme, because of its generally successful performance, would beworthy of further detailed study in order to determine the lessons that canbe learnt from it and applied to other schemes in Madras and elsewhere.

18. The other two sites, as has already been mentioned, were much lessdeveloped. At Villivakkam, the drainage and reclaiming of what was a formerirrigation tank led to considerable delays and increased land developmentCostS. At Kodungaiyur, the delays were due to land acquisition problems. Inspite of the difficulties, the audit mission was informed that all the plotsat both sites had been allocdted, although (by September 1984) constructionhad begun on only 24%, while a mere 2% were in fact physically occupied bythe beneficiaries. The lack of occupation of both sites has led to adeterioration in the physical conditions of the infrastructure (e.g., manholecovers missing, drainage culverts broken) which will require considerableexpenditure to repair. The effect of the sanctions upon those allotees whodo not develop their plots seems to have been limited to encouraging them atbest to undertake the minimum foundation work necessary in order to avoidbeing evicted under those rules. The lack of finance for housebuilding wasgiven as the main reason for the lack of progress at these sites, although

- 12 -

access and security problems do not make this the most sought after locationin the MMA.

19. In spite of their varying physical performance, all three sites hadsome limited success from a financial point of view by generating fundsthrough cost recovery. In the case of the Arumbakkam scheme the recalcula-tions indicate a low but positive financial rate of return. Effective costrecovery mechanisms have been set up for the three sites and services schemesand enabled a significant fund to be accumulated, although so far it has yetto be applied in an ongoing program. The fund has, therefore, yet to acquirea truly "revolving" nature and a permanent program of sites and services hasyet to get underway. Nevertheless, the introduction of the cost recoveryconcept to sites and services schemes in Madras can be considered an impor-tant achievement of MUDPI (see PPAM, paras. 48-50). As far as the economicevaluation is concerned, the audit considers that the 30% economic rate ofreturn reported in the PCR (para. 5.04) for the Arumbakkam sites and services(cf. the 20% ERR estimated in MMDA's PCR) is an unduly optimistic statementof that component's performance given that 28.3% of the lotE had still notbeen occupied at the time of the reevaluation. While methodologicallycorrect and well elaborated, the reevaluation exercise, however, assumes afull economic benefit flow of imputed rental values from the first year ofoperation of the project, irrespective of whether the site is occupied. Theaudit considers that imputed rents, as a proxy for the economic benefits ofhousing, ought to be counted only when a lot is physically occupied, therebyeffectively demonstrating the resident's reaping of the intended benefits inthe form of shelter services. The audit considers that the recalculation ofthe ERR should take into account the actual experience of the rate ofphysical occupation on the site which is still incomplete at Arumbakkam.Notwithstanding the higher levels of imputed rents reported by the Region,counting the economic benefits only from the year in which they actuallyoccurred would bring the rate down significantly. The ERR on the twoothersites and services schemes would be even more affected given their muchlower occupancy rates. All this may have been foreseen at appraisal but theappraisal report contains no projections on this aspect of the project.

20. As far as the slum improvement component was concerned, MMDA's PCRreported that, instead of the 85 intended at appraisal, only 53 slum areas inMadras had been improved under MUDPI, but that 24,862 households benefited;more than the 23,000 targeted at appraisal. Although the project descriptionalso specified the number of slums and the land area to be improved (seePPAM, Annex A, Section B), TNSCB evidently saw the target exclusively interms of the number of beneficiaries. The question raised by fewer slumshaving been improved, however, is whether there was in fact a reduction inthe component's physical scope (without which even more households could havebenefited), or whether the 53 slums improved, through covering as extensivean area, would have required the same physical works for their improvement asthe original 85 would have done. Physical space is an important variable indetermining the design of the kind of infrastructural works installed duringslum improvement whose costs depend, to a large extent, upon the area to beserviced.

- 13 -

21. Unfortunately, the audit mission was unable to obtain data on thetotal area eventually improved by the component, nor was it possible to makeestimates from field visits to the (still) numerous sites spread throughoutthe MMA, With inconsistent nomenclature, incomplete data and differing popu-lation estimates of the same slums, it is difficult to quantify, on the basisof the information made available, the component's physical accomplishments.Similarly, it is difficult to determine exactly what improvements were tohave been provided to each household or their estimated costs and how theimprovements finally made compared in extent an; cost to the original inten-tions, This also raises issues regarding the reestimated ERR for the slumimptovement program which the PCR reckons to be 23%; it is difficult to seehow such a number can be calculated in the absence of detailed information.There is also the more general issue of monitoring and control of projectswith numerous and physically dispersed investments,and highlights the need tomake full use of reliable (but simple) management information systems, which,in the case of MUDPI, could have kept MMDA (and consequently the Association)more fully informed on progress and the final achievements of each component,in particular slum improvement. Similar unanswered questions remain withregard to the details of execution and costs of the three sites and servicesschemes which preclude the making of a complete and effective evaluation. Asit is, the PCR does not contain information which could be readily related tothe Project Description (PPAM, Annex A) on the various elements, includingoff-site works of the sites and services component nor on the number of lotssold, built upon (and by what method and with what option) and occupied underthis element nor on the exact improvements which were made in the variousslum areas and for other project elements.

22. In any event, that nearly 25,000 households in Madras' slums bene-fited from MUDPI is a significant contribution representing as it does animproved living environment for some 10% of the total slum population.Nevertheless, as established slums were being improved, other new unes werebeing formed. Even if the intensive rates cf slum improvement under MUDPIwere to be maintained, considerably more time, by rough calculation at least

- 14 -

30 years,7/ would have to elapse before Madras' slums would all be improved;this contrasts with the appraisal prognostication of completing the task by1985 that has already been commented on (PPAM, para. 11). While 30 years mayappear to be a long time, the very fact that it is possible to make any esti-mate at all is in itself a tribute to the efforts and commitment of GTN agen-cies, which with the Association's support, have approached the slum phenome-non in a realistic way, Only in exceptional cases like this (Jakarta,Indonesia is another with its Kampung Improvement program. See PPAR No. 4620for an audit of that project), is it possible to contemplate any finite timehorizon at all for such a long-term goal achievement, since the growth of newslums and squatter settlements commonly outstrips the capacity and willing-ness of local authorities to deal with them. In M&dras, MUDPI (and itsfollow-on project, MUDPII) can be credited with having given a major stimulusto this important achievement.

23. The several improvement works inspected by the audit mission weregenerally completed to a high standard. In some cases, however, inadequateattention had been paid to land contours and this might lead to seriousdrainage problems and perhaps even flooding during the monsoons (as the sitevisits were made during the dry season there was then no problem with drain-age). The success of the sanitary installations in the slums was onlylimited. While the audit mission was informed that the design of communalW.C. blocks for use by a number of families might be incompatible with cul-tural traditions, it was in any case impossible to put them to the test sincethere was iisufficient water to sustain their proper use (see PPAM, para.12). The road and footpath infrastructure, which was generally completed to

7/ The estimate is based upon the following parameters. The existing slumpopulation is taken to be 250,000 households. About 175,000 of thesehave already benefited frcm improvement or redevelopment (25,000 underMUDPI + 30,000 under MUDPII + 100,000 under TNSCB schemes not financedby the Association) so the current backlog is 75,000 slum households inneed of improvement. In addition, a program destined to improve allslums would have to take into account the formation of new slumhouseholds, estimated at 10,000 households per annum (i.e., the samerate as the annual growth of MMA's population as a whole). Having taken14 years to attain the significant achievement of improving theconditions of 175,000 slum households, one may conclude that the overallprogram benefited, on average, 12,500 per annum. If this high level ofimprovement "output" were to be sustained in a continuing program, only2,500 units of it could, in zeality, be considered as tackling theexisting deficit (of 75,000 unimproved households), since the majority,10,000 units (12,500 minus 2,500), would be simply keeping pace with theformation of new slums. According to this simple calculation, it wouldtake at least a period of 30 years (75,000 divided by 2,500) to improveall of Madras' slums, at the end of which a permanent program would beneeded just to handle the continuing growth of the phenomenon. Thecalculation here is to illustrate the process in hand rather than tomake precise estimates.

- 15 -

a high standard of finish, on the other hand, appeared to have better usemade of it. Now that the infrastructure Is in place, however, maintenancebecomes an Important issue, especially given the reported reluctance ofMadras Corporation to accept the responsibility for maintaining many of theseareas through its own lack of finance to do so. During site visits, regularmaintenance deficiencies due to worn pavements, for example, were evident,although no case of major structural failure itself was observed. Since themaintenance issue affected other components, it is treated as a point ofspecial intereat later in this report (PPAM, paras. 51-53).

24. Notwithstanding the large scale of MUDPI's successful slum improve-ment program, this kind of scheme does not increase the overall supply ofhousing able to meet the extra shelter needs in a growing developing countrymetropolis as some Bank documents imply. The PCR (para. 6.03) refees to anincrease in the supply of "environmeatally acceptable shelter", whichincludes a slum improvement component of 15,000 units, as going some way tosatisfying the potential demand for shelter, but this representg essentiallya reclarsification of that part of the existing housing stock that wasimproved, and would inevitably be matched by a corresponding drop in thesupply of "environimentally unacceptable shelter". Without aiming to diminishthe importance of slum improvement and the successful results obtained it.this case, the audit wishes to stress that slum improvement is aimed atimproving the environmental quality of existing slums, itself a most laudibleobjective, to provide better living conditions for the urban poor who alreadyhave some kind of shelter, albeit in appalling conditions. After all, anyimprovement has, by definition, to be made to something that already exists;in this case, an area with existing slum hutments which, notwithstandingtheir poor condition, do make up part of the housing stock and do providehousing services, however precarious, to the families that already live inthem. How, therefore, can such slums (which already exist and are occupiedto the point of overcrowding) be regarded as an additional supply of sheltercapable of meeting the potential demand for much needed extra units? Theincreased supply of the latter is forthcoming from the self-help efforts ofthe poor themselves who, against all odds, still provide at least an extra7,500 units a year in Madras. Only insofar as these slum dwellers themselvesexpand their houses, subdivide or build extra rooms, can a housing supplyincrease be said to have occurred. This result, however, has not been fullymonitored; this is something the audit considers should be pursued. In themeantime, it should be emphasized that it is not correct to count all thehutment units affected by improvement to constitute an increased supply ofshelter. Because of its importanza in bringina out the relationship of theslum improvement programs to the housing stock of Madras, this aspect isdealt with in more detail later in this report as a point of special interest(see PPAM, paras. 33-37).

25. Although the PCR is correct irn affirming that MUDPI's employmentcomponents were small and uninfluential in quantitative terms (PCR, para.2.05), the experience of implementing them was nevertheless an important onein that the provision of factory sheds in the sites and services schemes andthe financial and technical support to cottage indus:ry in the imp.oved

- 16 -

slums, if replicated on a large scale, could lead to significant employmentcreation. The Small Industries Development Corporation of Tamil Nadu (SIDCO)was effective in the provision of these sheds and was able to bring itsexperience to bear upon the project. The PCR reported the failure of thecottage industry component (PCR, para. 2.05), although the audit mission wasable to visit a number of successful business operations in some improvedslum areas. But, as the PCR points out (ibid.), the employment component asa whole has not been truly evb..uated, so that reliable data is not forth-coming on the number of businesses served, how many of these were new ven-tures, the number of jobs created, capital cost per workplace and the generalperformance of the businesses estahlished. The audit mission was unable toexplore these matters in the context of Madras' employment needs owing tothe reluctance of the local authorities to allow the necessary contacts to bemade. In spite of this, it was evident that an important constraint to theimplementation of such employment components in Madras would be the limitedlocal capacity to fully appraise industrial projects, something that was con-sidered to be, so the audit mission was informed, a function of commercialbanks. Given that income and employment are such important aspects of urbandevelopment, and yet the attainment of these "elusive" goals through BankGroup supported urban projects has proved so difficult, (Learning by Doing,op.cit., page 8), special attention could be given to the successful aspectsof the limited MUDPI experience and the constraints upon the scope of itsimpact.

26. Of all the project interventions, the bus transport component which'provided buses and service facilities to PTC, is generally reported to havebeen one of the most effective and successful. The speed of disbursementsand the rapid implementation of the component reflect the efficiency of PTCas a key MUDPI executing agency. With the benefit of the component, PTC wasable to further improve its operations and to raise the utilization of itsfleet of 2,100 buses to 87.6x. With a more modern and better managed fleet,latest figures on breakdowns show them being responsible for only 48,000trips lost per year in contrast to 79,000 only four years ago when the fleetwas actually smaller. (Data taken from PTC Annual Reports.) In spite of theconsiderable improvements in its operating efficiency and consequent costsavings, PTC was still unable to meet the covenanted ratio of 95 (revenue tooperating costs) without the necessary fare increases against whose enactmentthere were severe political constraints. Only in May 1985, almost a yearafter the formal suspension of disbursements on MUDPII for nonobservance ofthe relevant credit covenant, did GTN increase fares by 33X, thereby enablingPTC to achieve the agreed rAtio. Although ostensibly concerned with theissue of cost recovery, the Association's resort to legal remedies to ensurecompliance with the (MUDPII) project agreement also served to strengthen itscredibility as a serious interlocutor in urban policy. At the same time, itprovided an opportunity for the Government to take a politically unpopulardecision and thereby helped to avoid the decapitalization of one of its mostimportant agencies. To judge from press reports on this matter in India,these achievements may have been at the cost of some public relations damageto the Association in that country. The issue itself was quite beyond thecontrol of PTC which, it should be stressed, performed the role expected ofit by the project most effectively.

- 1 7 -

27. A complete assessment of the physical accomplishments of theremaining transport components would have required more information abouttheir implementation than was readily available to the audit mission. As inthe case of the numerous slum improvement schemes, the many and physicallydispersed transport investments call attention to the issue of projectcontrol and the need to use an effective manag..anent information system toallow the progress of the works to be monitored (PPAM, para. 16). In theabsence of such a system, the audit mission was able to follow up thephysical accomplishments of these components only through a series of sitevisits.

28. As far as the Inner Ring Road was concerned, progress has beensomewhat disappointiag. The road is not complete and formidable and perhapsinsurmountable land acquisition problems hinder the formation of a completelink. All the road intersection improvements, however, have been completedto a high standard and are well used, with the only major difficulty notedbeing with the grade separations that replaced the railway level crossings,where animal drawn vehicles and bicycles move up the steep gradients soslowly as to cause considerable traffic congestion. The assessment of thephysical accomplishment of the cycle tracks and footpaths component washampered by the difficulties of locating the works. In general, cycle waysin Madras are very poorly marked and little respected by road users ingeneral, since they consist of short stretches which are frequently blockedby all kinds of obstacles. In order to avoid the difficulties of walkingalong footpaths which in many instances also are obstructed, pedestriansthemselves are forced to used the cycle tracks, while cyclists move over tooccupy the main road carriageways. The result is intensive competition forlimited road space between all kinds of vehicles and pedestrians and only afraction of the costly, heavy duty roadway finds itself in fact being used bymotorized traffic. The cycle tracks and footpaths provided under MUDPIseemed to have had very little effect upon this situation. The failure ofthis component, the audit mission was informed, was due to the general lackof maintenance and control of this kind of infrastructure in Madras. In thisspecific case, the possibility of the lack of maintenance having led to apremature and total loss of some of the project's physical assets is dis-cussed as a point of special interest later in this report (PPAM, paras.50-51).

29. The continuing major water supply problems in Madras do not make itpossible to judge the impact of the water supply and sewerage component ofthe project. As has already been mentioned (PPAM, paras. 17 and 23) watershortages prejudiced the performance of some of the project's shelter compo-nents. The solution of this problem, however, lies beyond the scope ofMUDPI, given the inadequacy of the present source of supply from the RedHills Lake and the age of the limited distribution system, 40% of which isover 50 years old. It will not be until the appropriate major measures arefully implemented in the sector, that other urban investments will cease tobe the victims of this very serious situation.

- 18 -

D. Institutional Development

30. The PCR deals with the main institutional developments arising outof the project as they affected the principal project agencies (PCR, paras.4.01-4.07). The audit concurs that the institutional building achievementsof the project, in strengthening these agencies, were considerable.Technical assistance provided under MUDPI, especially to MMDA and theMadras Corporation (MC), helped reinforce the on-the-job experience affordedby the project. In all cases, the efforts were concentrated not upon thecreation of new agencies, but upon improving the performance of the existingones. It is worth recalling, in this respect, the reputation for soundadministration enjoyed by GTN and its specialized agencies (PPAM, para. 1).Such was the case of PTC, for exa;mple, a well run bus company prior to theproject ?CR, para. 4.05), whose management and operatiunal systems MUDPIhelped t' perfect. MC itself, was successfully assisted by the projectthrough the introduction of new management tools to improve its accountingsystems even though, along with many traditional local authorities someorganizational problems remain. Both TNHB and TNSCB were also given theopportunity by the project to strengthen their planning and managementactivities, although the audit considers that the PCR somewhat overstates thedegree of change that affected the latter agency's management and policy(PCR, para. 4.07). The audit mission was informed, for example, that TNSCBat times found its capacity overstretched in order to meet current targets.This suggests the desirability of an assessment of the entity's strengths andweaknesses and of the need to develop it further. At the same time its workcould be complemented by expanding MC's role in slum improvement, given thatthe Corporation itself undertook works in 12 of the 53 slums improved underMUDPI. The performance of SIDCO, which was in charge of the factory shedsprogram, especially in relation to its capacity to fully appraise industrialprojects, is also worthy of further study, given the important though limitedexperience of employment creation through the MUDPI component (see PPAM,para. 25).

31. A particularly significant institutional experience of MUDPI wasthe role of MMDA as the agency responsible for overall project coordination.The management of urban projects, whether, it should be entrusted to thetraditional local authorities, or whether a special agency should be createdto oversee it, is a constant issue in their design. The Madras experiencewas especially interesting in this respect as it steered a middle coursebetween these two extremes. Because of its implications for other Bank Groupurban projectb, the institutional development of the MMDA and MC in themetropolitan management of Madras is discussed later in this report as apoint of special interest (PPAM, paras. 45-47).

- 19 -

III. POINTS OF SPECIAL INTEREST

32. Because of the issues they raise and the possible relevance oftheir lessons for future Bank Group projects, attention is drawn here to aseries of points of special interest. They range from policy and generalsector issues to specific experience arising out of the project.

A. Relation of Project to Madras' Shelter Needs

33. The two MUDPI shelter components, sites and services and slumimprovement and sites and services, were more than just different techniques;the two approaches affected the housing needs of Madras in quite differentways, an important distinction not always brought out in the project docu-ments. Basically, the sites and services component contributed to anincrease in the quantity of shelter supplied through the provision of ser-viced plots, whereas the slum improvement component raised the quality of thesupply, but not the total supply itself since the housing units (i.e. slumhuts) in the areas improved already existed prior to the program.

34. A global analysis of Madras' housing stock can help demonstrate thedifferent impact of the MUDPI components upon the shelter needs of the MMA.A starting point for such an analysis is the housing stock which consists ofthe shelter sector's physical assets (i.e. houses, apartments and huts etc.)able to supply shelter services to the population of Madras. The latter isconstant in the short run, since as well as being fully occupied (to thepoint of overcrowding in the case of low income residents), these assets arethemselves fixed in the short run. To increase this supply, it would there-fore be necessary to provIde additional units of shelter either throughbuilding new ones or subdividing those that already exist. On the otherhand, shelter supply can fall when ageing (or simply inadeq'ate maintenance)of the existing stock can make units effectively uninhabitable. Urbanredevelopment schemes can also reduce supply insofar as they do not replacehouses that are demolished. Although the demand for shelter is in realitysplit up between several parallel markets (segregated by income and otherfactors), in its simplest form, the potential demand for shelter servicesconsists of the total number of households requiring shelter. The simplestway to measure an increase in this demand is through the growth of new house-holds seeking shelter in Madras either as newly formed families or migrantsfrom elsewhere. In Madras, as in general, demand exceeds supply and leads towhat is termed a housing deficit in the form of homelessness or overcrowding,the latter being numerically more important in the MMA.

- 20 -

35. In this respect, MUDPI's slum improvement component can be under-stood as having improved the quality of the city's existing housing stock byproviding bettrr conditions for a good number of existing shelter units,8/while MUDPI's sltes and services components increased the quantity of thehousing stock as a whole through the supply of additional units. It would bequite incorrect to consider that slum improvement is capable of increasingthe supply of shelter and thereby meeting the potential demand for extrashelter (see PCR, para. 6.03) if there is no increase in the number ofunits in these already overcrowded areas. Even if qualified as an increasein the supply of "environmentally acceptable" shelter, it could still notsatisfy the need for extra units of shelter since for each extra unit of"environmentally acceptable" shelter there would be one corresponding unitless of "environmentally unacceptable" shelter in a process of what is effec-tively a reclassification of the housing stock (see PPAM, para. 24). Thisdoes not mean that sites and services, for increasing the supply necessarilymakes a more important contribution to solving shelter needs than slumimprovement does, since each approach serves a different purpose and bothwould be needed if shelter policy is to aim correctly at both increasing thequantity and improving the quality of shelter available, especially for lowincome g.oups.

36. As far as the need for additional shelter is concerned, the 4%annual growth of Madras' population (using 1981 figures as the base) impliesa potential demand for some 40,000 extra units of shelter each year (assumingsix persons per household and one unit per household). This would be on topof the extra housing needed to overcome the existing deficit. Bank staff'sown estimates project the annual supply of formal housing (public and privatesector) at 13,500 units, only one-third of the potential demand. Some 5,500of this would be supplied by the private sector and the remaining 8,000 byTNHB (of which 3,000 are in the form of sites and services). The latter out-put would be higher than the annual provision of sites and services underMUDPI which averaged 2,250 units over six years. However, due to the lagbetween site preparation and the construction and actual occupation of ahabitable house, only 33.3% of MUDPI sites are in fact supplying shelterservices (PPAM, para. 16). In the absence of specific data upon the actualoutput achieved by TNHB (instead of the target figures presented to the auditmission and reported in the PCR, Highlights, 4th paragraph and subsequent GTNorders requiring their being met), one must reserve judgment upon the degreeto which TNHB can further increase its supply as a result of the introductionof the more cost effective sites and services. But what is clear, neverthe-less, is that, even at the levels projected, almost half of Madras' extrapotential demand for shelter each year will still have to be met by the

8/ When demolition and displacement of existing households is involved,slum improvement can actually lead to a reduction of the total housingstock. While data is not available on this point, MUDPI slumimprovements do not appear to have involved many demolitions, which inany case were limited to 5% of the houses in a neighborhood by projectagreements.

- 21 -

Informal sector, either through self-help building of more slums or by theincreasing subdivision of the existing ones leading to more overcrowding.Given the importance of the informal sector in satisfying the shelter needsof Madras' low income population, it would be appropriate if future urbanproject designs consider the orientation of this spontaneous settlementthrough the provision of partially serviced plots (at even lower cost thancoventional sites and services) suchas is done through the "progressiveurbanization" policies in some Latin American countries such as Colombia andNicaragua, for example. Such an approach would be an essential complement tothe sites and services approach initiated under MUDPI which cannot by itselfprovide an answer to the shelter needs of Madras' low income population.

37. In order to fully assess the contribution of MUDPI's slum upgradingto the improvement of Madras' existing housing stock, it would be necessaryto have full details of the pre and post project situations as they relate tothe physical condition of the shelter units - their immediate environment,the services provided and most importantly, the socio-economic conditions ofthe population. Unfortunately, precise data are not available on eithersituation. Such information would be necessary to gauge the cost-effective-ness of various slum improvement options, for example, to judge their effi-ciency in execution and to evaluate them against other means of improving thequality of housing. Official census figures for 1971 reported that 58% ofthe stock was permanent (pucca) housing in good condition, while the remain-der was inadequate. Given that there has been an annual shortfall of housingsupply against increases in population, there is every reason to expect thatthe overall condition of the housing stock will have tended to worsen overtime. Nevertheless, if it is assumed that the current slum population ofMadras consists of 250,000 households, various improvement schemes undertakensince the early 1970s or currently under way will have affected nearly threequarters of the slum households in the city (10% under MUDPI, 20% underMUDPII and 40% under prior schemes not financed by the Association). Theseresults speak for themselves, and must compare very favorably with what hasbeen achieved in other developing countries' metropolises.

B. Policy Impact

38. Madras is probably endowed with a more appropriate and realisticset of shelter policies, with their priority for low income groups usingcost-effective and replicable solutions, than many other cities. Theinfluence of MUDPI on the formation of these policies is an important aspectto examine, firstly, because the policy impact being perhaps the broadest andlongest term consequence of this as of any development project and, secondly,since much attention has been drawn to it in the PCR (Highlights, p. v).Identifying a change in policy in any country and even more the causes of thechange cannot fail to be a matter of debate when it may not even be possibleto agree on what parameters should be used; should they be policy statementsand plans or are these nothing more than empty declarations of intent; budgetprofiles could be :evealing but are they amenable to analysis; the physicaloutput of particular programs could be meaningful but do they contradict theagency's ty-ue intent? In order to assess the policy impact of MUDPI, it is

- 22 -

necessary to give a full consideration to the shelter policies that were inforce prior to the project and also to be quite clear about what has beenachieved in the current set. In this respect, the audit considers that thePCR does not provide a complete picture of the Madras policy towards slumsthat was in force prior to MUDPI.

39. In the five year period before MUDPI (1973-77), TNSCB's policytowards slums (measured by the physical output) was to clear and rehouse3,497 households a year and improve slums to benefit another 9,791 (figurestaken from Madras Structure Plan, Vol. I, p. 47). Because of the much higherunit cost of slum clearance over improvement, financial commitments heavilyfavored the former (prior to MUDPI), notwithstanding the smaller number ofbeneficiaries. Recent (post-project) financial data were unfortunately notprovided to the audit mission. In the latest year for which data were avail-able for the audit (FY1983/4), TNSCB's policy was to clear and rehouse 1,010households and to benefit another 15,750 by improvement. Such figuresclearly indicate a shift of poLicy priorities by the fall from 3,497 to 1,010households affected by clearance schemes and the increase from 9,791 to15,750 households benefiting from improvement. This shift is a notableachievement which can be credited to the MUDPI experience where projectcovenants explicitly called for restriction of expenditure on costly slumclearance, and the perfected slum improvement component gave greater credi-bility to the approach. In the opinion of the audit the shift was made pos-sible through there already existing some political commitment to slumimprovement as evidenced by the fact that 48,954 slum households had bene-fited from what were called Environmental Improvement Schemes (EIS) prior toMUDPI. The Region argues that these schemes were a waste of money for thefacilities soon ceased to operate for lack of maintenance and little or nohome improvement took place because of lack of tenure. In the opinion of theaudit, such failure would not indicate a lack of policy commitment so much asinadequate concept of slum improvement (e.g., without tenure), and perhapsineffective implementation and maintenance. It was precisely in overcomingsome of these problems and making such an approach more viable that the majorcontribution of MUDPI lies. But that was only made possible because of theinitial political commitment, whatever limitations there might have been inits implementation. This is a very important point to make since it wouldnot be reasonable to expect to obtain results as satisfactory as in Madras inanother city or country if there were resistance on the part of theGovernment concerned to the proposed approach. Thus instead of an almostcomplete reversal of policies on slums, as implied by the PCR (Highlights,p. v), the audit considers that the policy impact of MUDPI could be betterunderstood as a shift of priorities in favor of slum improvement whose con-ception was at the same time considerably enhanced particularly through theintroduction by The project of the concepts of security of tenure and costrecovery. Of course, there is no doubt that the curtailment of slum clear-ance schemes, uith their excessively high construction standards andwasteful use of resources, achieved by MUDPI made an important contributionto this shift, but that is only part of the story. In this approach to thepolicy impact evaluation, the audit wishes in no way to diminish the pro-ject's achievements, but instead to identify the key facets that would need

- 23 -

to be reproduced elsewhere if these important achievements were to be repli-cated, especially in cities in other countries where similar commitmentsmight be identified.

40. The sites and services component is credited by the PCR with havingincreased the potential output of the TNHB more than threefold (PCR,Highlights, p. v) for its being more cost effective than conventional pro-grams. While TNHB's total output has in fact increased, this cannot beexclusively attributed to the introduction of sites and services; the outputhas also gone up because the expansion of other types of housing as fundsfrom the Housing and Urban Development Corporation (HUDCO) rose in recentyears which has enabled TNHB to significantly raise its overall expendi-tures. Thus TNHB's total investment in 1982/83 was Rs. 22.0 crores in con-trast to the Rs. 6.0 crores level of 1976/77 on the eve of MUDPI. What theproject succeeded in doing here, and this had a greater policy impact thanthe slum improvement component, was to provide a feasible technical alterna-tive for TNHB that could, if so desired, be applied to more closely attendthe needs of the lower income population of Madras. MUDPI's sites and ser-vices effectively demonstrated solutions for the need for low income housingin Madras that were cost-effective, affordable and involved full costrecovery notwithstanding the lack of subsidies. In this respect they offereda viable alternative to TNHB's traditional approach of complete units thatfavored higher income groups and thereby induced an important policy shiftthat favored higher income groups and thereby induced an important policyshift.

41. While the engineering of sites and services was not new to TNHBwhich had formerly prepared them in the form of what it called "opendeveloped plots", the project's innovation was to demonstrate the use ofsites and services for low income housing. In this respect, it was success-ful in leading GTN to direct TNHB to concentrate 80% of its housing invest-ments for the benefit of the lower income groups (PCR, para. 4.06). In1976/77, the last year prior to MUDPI, TNHB had an actual output of 2,043housing units of which some 35% were for low income groups. By contrast, theaudit mission was informed that the planned output for 1984/85 was for atotal of 12,000 units of which 83% would be destined for the lower incomegroups. If achieved and sustained, such a result would represent a majorchange of housing policy attributable to MUDPI, although a definitive conclu-sion would have to await an evaluation of the results of TNHB's actual out-put, the data on which was not made available to the audit mission. TheRegion informs that GTN issued a specific order to TNHB to implement its 5year plan which focusses TNHB construction upon land servicing (sites andservices), schemes of which many are to be developed in other major utbanareas of Tamil Nadu also. The slow development of two of the three MUDPIsites and services components (PPAM, para. 22), however, suggests that alonger lead time may be necessary to achieve the radical improvement in per-formance necessary to benefit these lower income groups to the degreeexpected.

- 24 -

C. Problems of Land Acquisition

42. Especially in Madras itself, the audit mission was frequentlyinformed how lengthy land acquisition procedures caused delays to the physi-cal start up of the shelter and employment components in particular. Sometransport components were affected too; one of the reasons, the mission wastold, why the Inner Ring Road still did not constitute a continuous link isprotracted litigation over land required for its completion. According tothe PCR, land acquisition took three times longer than expected, and thedelays have persisted through to the follow on project, MUDPII (PCR, para.3.02). The gravity of the problem becomes apparent when one considers thatserious delays are not only restricted to the acquisition of private land butalso occur in the transference of public land between Government agencies.This was the case of the Villivakkan sites and services schemes, for example,where the land was only transferred to TNHB in February 1981, some three anda half years late, even though it was already Government owned, although pre-sumably by a different departnent or agency. As far as private land is con-cerned, the fact that acquisition procedures can take three to four years hasbeen attributed to the antiquated provisions of the relevant legislation,namely the Land Acquisiton Act of 1894. Under this Act private landowners,if they so wish (and often do), can challenge each step of the proposedexpropriation through protracted court proceedings. This situation has ledto the suggestion that within the existing legislation the emergency provi-sions of the Act be made available in the case of housing sche,nes (seeStructure Plan for Madras Metropolitan Area - Vol. 1, page 53). Even if theproceeding could be streamlined, however, land acquisition would remain avery expensive opcion for local authorities since compensation under the Actis fixed at market rates which presumably would rise rapidly at the simpleannouncement of the intenticn to expropriate, especially when much land ismonopoly owned (see Gupta, Devendra, op.cit., p. 119 and p.125). Even thoughMMDA has taken steps to set up special land acquisition units (PCR, para.3.02), the problems to overcome remain formidable and their solutions possi-bly go beyond merely administrative remedies, being rooted as they are in thevery nature of the real estate market itself.

43. While the procedures themselves may not be fully adequate, any dis-tortions in the urban real estate market can contribute to the difficultiesin acquiring land for public sector development and can also help explain whythe private sector owners themselves do not develop their own land. TheMadras Structure Plan itself alluded to such difficulties and called for fur-ther study of the land ownership constraint upon the supply of urban land(Structure Plan for Madras Metropolitan Area - Vol. 1, page 133). Given thedifficulties experienced, Madras could benefit considerably from a completelegal and fiscal cadastre to provide adequate information on land holdings.With such information it might be possible, for example, toapply the existingUrban Land Ceiling Act more effectively (see PPAM, para. 3), or, alterna-tively, induce private land which remains vacant for speculative purposes tobe brought into use through taxation at higher rates. As matters stand,TNHB's current large scale land acquisition program, whereby it intends toacquire some 3,500 ha of urban land, (equivalent to nearly a quarter of the

- 25 -

total residential land in MMA in 1974) might not be feasible and may becounter productive because it would reinforce monopoly power amonglandowners, force land prices up further and provide windfall capital gainsat the expense of the public sector.

44. Whatever the complete explanation of their causes, the difficultiesexperienced in acquirinig land for the project components led to considerabledelays in execution thereby increasing project costs which contributed to the19.8% cost overrun. Furthermore, progress in granting lnd titles, in theform of lease-cum-sale (LCS) agreements was slow. By February 1983, some9,746 LCS agreements had been made, corresponding to only 40% of the totalhouseholds in the improved slum areas. There can be no doubt that projectperformance would have improved had there not been such difficulties withland acquisition.9/ It has been suggested that, in future, all landrequired for this kind of project should be acquired prior to presentation tothe Association's Board. While project implementation would apparently bemuch faster if land acquisition was formally excluded from this phase, thereal gains for the urban development of Madras would be minimal since such achange would also mean that a project could be presented to the Board onlymuch later. In any case, it is most important for the local authorities havecomplete cadastral information about the city's land (in particular, wlio ownsit and what its value is) to enable them to effectively assume their respon-sibilities for metropolitan real estate management. Only through a fullunderstanding of the workings of the land market (especially its monopolyaspect), will it be possible to devise a more effective arrangement forGovernment intervention in the housing market. With such an understanding, ajudgment will need to be made to what extent the Government should seek toown land and develop it (and whether land acquisition problems are to bejudged in that context) and to uhat extent Government policy should be basedon a fuller participation by the private sector. After all, in Madras, it ison private land that more than half of all slum households live and where ithas proven most difficult to undertake improvements precisely because of theland issue. Immediately behind the problems of land acquisition experiencedthrough MUDPI lies the question of how to improve metropolitan real estatemanagement, and beyond that, the more general issue of what should be therespective roles of the public and private sectors in the urban developmentof the MMA. MMDA are exploring to include alternatives to land acquisitionincluding Guided Development and Land Readjustment. Acquisition of land fromprivate owners would not be required, as owners would in effect becomepartners in the development (or redevelopment in the case of slums) ofspecialized areas.

9/ As the Region has pointed out, there were other causes for slow progresswith LCS agreements, including GTN's reluctance early on to grant them.

- 26 -

D. Metropolitan Management: the Role of Special Agencies andTraditional Authorities

45. It is widely believed that, in metropolitan areas in general,traditional local authorities have difficulties adapting to the new tasks ofmanagement that a rapidly growing metropolis requires. Thus, instead ofrelying upon the existing municipal administrative machinery, it is oftenfelt to be more efficient to start afresh with a completely new specialagency or increase the responsibilities of an existing one. Such an optionraises a number of important issues. Firstly, although they can indeed bemore efficient, such special agencies can sit uncomfortably between central,state and local authorities with ambiguous political authority and unclearterms of reference often overlapping those of the traditional authorities.Furthermore, as a more centralized bureaucracy, a special agency may finditself more remote from the local population than municipal government,although it could also be less prey to specific unrepresentative local inter-ests. In addition, when such agencies are remitted to only implement a par-ticular policy or project (which they may be able to do morc afficiently),the issue of who will be responsible for long term maintenance and control isleft open. Specifically from the Bank Group's point of view, the implementa-tion of urban projects can be much more straightforward when dealing withonly one special agency than a multitude of traditional authorities pursuinggcals that may be out of tune with Bank thinking on the development of theurban sector. It is particularly interesting to consider the experience ofMUDPI in the context of this debate since it strengthened the role of aspecial metropolitan agency (MMDA) while at the same time actually led tosome institution building within the traditional municipal authority of theMadras Corporation (MC).

46. MMDA had existed on an ad hoc basis since 1972, some five yearsprior to appraisal of MUDPI, although it was only given statutory backing in1975. The fact that is was thus already incorporated within the system ofmetropolitan management helps explain how it was able to successfully coordi-nate the implementation of the project. Its responsibilities included thepreparation of surveys and plans for the MMA, overseeing the area's land useand the assembly of land for its development. Prior to MUDPI, MMDA hadalready accumulated experience in exercising these functions with some effectand had become quite an influential agency in its own right. The basis ofits influence was its ability to negotiate with sectoral and local agenciesin the metropolitan area whose interests were directly expressed to MMDAthrough their being represented on the Authority's Governing Board. In thisway, MMDA has avoided the criticisms of being excessively powerful and over-bearing levelled at the Calcutta Metropolitan Development Authority by tradi-tioaial authorities in West Bengal, for example (see PPAR No. 4023 on FirstCalcutta Urban Development Project). The audit mission was impressed by theway in which the MMDA had successfully participated in the development policyprocess of Madras without seemingly having incurred major antagonisms on thepart of potentially competing sectoral and traditional local authorities.One of the latter could have been MC, the municipal authority for the city ofMadras which, although a candidate for being weakened by the conso,idation of

- 27 -

a strong metropolitan agency (i.e., MMDA), instead was strengthened andmanaged in fact to improve its own institutional performance directly as aresult of project technical assistance (PPAM, para. 30). While a lot morestill has to be done, especially to build up MC's capacity to handle themaintenance requirements of the physical assets of MMA and to strengthenMMDA's programing cap&-ity, the simultaneous institution building in the twotypes of authority is . notable achievement to which MUDPI made an importantcontribution.

47. The MUDPI experience has demonstrated that a project need not makea clear-cut decision between opting for a special agency or reliance upontraditional authorities for implementation. In the Madras case, one impor-tant ingredient to the success of the simultaneous institution building intwo potentially competitive agencies was, no doubt, the history of soundpublic administration for which GTN is known (PPAM, para. 1). Where institu-tions are weak and respon3ibilities unclear, they might feel that theirpowers could be easily usurped by any new arrangement of metropolitan manage-ment and might resist attempts at coordination. In Madras, where institu-tions are stronger, this does not seem to have happened. In this respect, itis significant that MMDA has not been given responsibility for controllingsectoral budgets in the metropolitan area, a move which could radically alterthe present power structure of the metropolitan management system. In orderto sustain the basis of negotiation which has so successfully prevailed sofar in Madras' metropolitan planning, the audit considers that such a func-tion of budget control should remain with the highest authority of GTN. Whatis needed is for MMDA to enhance its role as planning agency so that it couldmonitor metropolitan investment and help identify economic opportunities inthe MMA. For this it would need to strengthen its capabilities for under-taking economic analysis. At the same time, efforts must continue to con-solidate the traditional authorities, especially MC, so that they can fullycope with their responsibilities to maintain the fixed public assets ofMadras as well as undertake their own programs. It remains to be examinedwhether it is possible to replicate elsewhere the effective metropolitan man-agement model of Madras.

E. The Madras Experience with Cost Recovery

48. At appraisal, considerable attention was paid to cost recovery, inparticular for MUDPI's shelter components (SAR, paras. 4. 10-4.16), and refer-ence to the introduction of the concept of full cost recovery for key invest-ments was included in the PCR as a re-statement of a basic objective of theproject (PCR, para. 2.07). A, far as the sites and services component isconcerned, there have beea some positive results in this respect, since TNHBhas been able to build up a fund on the basis of the proceeds from costsrecovered from the component. However, the PCR does not indicate whether theamount in the fund is in accordance with appraisal projections nor does itindicate the cost recovery performance of the two later sites and servicesschemes. The Region informs, on the basis of TNHB's detailed monthlyrecords, that on average 90% of billings are collected in the sites and ser-vices qchemes, and furthermore, believes that these collections cover all

- 28 -

costs given the financial plan and pricing policy adopted. Such a perfor-mance would indicate a successful cost recovery exercise and confirm theaffordability of the sites and services lots by the beneficiaries. L-1 orderto make the fund accumulated into a truly revolving one as intended, however,it would be necessary to apply it to an ongoing permanent program of sitesand services, something that remains to be done. The reason given for TNHB'sinaction with the fund it holds was that it was not yet large enough tofinance an appropriately sized scheme which, it was felt, had to be at leastas big as those implemented under MUDPI, although the audit sees no reasonwhy smaller schemes should not be financed out of the fund. Even recognizingthat there is still an urgent need to desig- a permanent program in order toappl) the fund, the achievement of building it up in the first place shouldnot be underestimated.

49. As far as other components are concerned, cost recovery has beenless successful. Progress has been very slow with regard to the slumimprovement component, for example, where the MMDA's PCR reports that thebeneficiaries have yet to realise that they are supposed to pay something forthe improvement. This failure has been attributed to inadequate informationat the time of the improvement and insufficient community participationthroughout the process, something that the community development staff ofMMDA is trying to rectify (MMDA PCR, page 32). The Region, on the otherhand, attributes the arrears to lack of political will, although it notedsome progress by TNSCB in this respect. The audit agrees with theAssociation's PCR that the revenue side of TNSCB needs to be strengthened(PCR, para. 4.07); this could be a part of a reassessment of the agency'soverall financial and operational capacity.

50. Considerable attention has been paid in Association reports (andalso in the Indian press!) to the issues of cost recovery on the PTC bus com-ponent. The failure of GTN to raise bus fares eventually led to the suspen-sion of disbursements by the Association on the follow up project, MUDPII(see PPAM, para. 26). More than anything, that episode serves to demonstratethat cost recovery is not simply a technical or administrative matter but caninvolve important political issues for government especially in relation toits low income constituents in the particular case of bus fares. In futureprojects of this kind a political assessment of the feasibility of costrecovery needs to be made as well as an estimate of the likely costs (interms of delays, etc.) to be incurred to ensure its achievement.

F. Maintenance and Sustainability

51. The maintenance of any physical asset has to be carried out contin-uously and thus must be seen as a permanent activity throughout the economiclife of any project. If not, in the best of hypotheses, project performancewill be inferior to that planned, or worse still, the assets may suffer pre-mature obsolescence, having their economic life shortened altogether. Thus,lack of maintenance adversely affects the economic performance of projects,lowering (if not making negative) their internal rates of return. Likewise,maintenance incurs real economic costs throughout the life of a project which

- 29 -

ought to be computed in the calculation of their economic rate of return,something that was not done in MUDPI's re-evaluation of sites and services,for example. The neglect of maintenance can be encouraged when projectexeciting agencies, as is usual, have no specifie responsibility in theirbrief for maintaining the assets they produce. Such an arrangement is alsoan inducement for maintenance to be overlooked in the actual project designitself. If explicitly recognized the responsibility for maintenance Isusually assigned to the traditional local authorities which rarely findthemselves equipped or with adequate finance to undertake the tasks beforethem.

52. Since MUDPI has only just recently been completed, it is still tooearly to get a full grasp of the extent of the maintenance problem withalmost the entire economic life of the completed components still ahead ofthem. The Region sees some hopeful signs of solutions in the form of theoverall strengthening of MC (PPAM, paras. 45-47) and the earmarking ofrevenues from a surcharge on the State Sales Tax (USSST). On the ground, thesites and services and slum improvement works inspected by the audit missionwere generally in good physical condition; this observation says little,however, about the state of maintenance of physical infrastructure that inmost cases had only just been completed. In fact, the mission was informedthat even routine maintenance had yet to begin given t,ne reluctance of MC toaccept this responsibility in such areas. It is evident that MC has rneithersufficient information about the overall maintenance requirements of Madrasnor has it sufficient funds to deal with those problems it is able to iden-tify. This is a serious matter which should be addressed urgently,especially in view ' the fact that the type of low cost solutions imple-mented by MUDPI are considered to need more maintenance to ensure theirphysical integrity than higher cost, more durable solutions do (see for exam-ple: Gupta, Devendra B., op.cit., page 62). In the case of slum improvementespecially, without constant maintenance, there is a risk of the improvedareas reverting to their original condition if the physical infrastructurewere allowed to disintegrate. The apparent premature loss already of some ofthe footpaths and cycle tracks provided under MUDPI (see PPAM, para. 28), forexample, so soon after completion demonstrates the precarious nature of thiskind of investment if it is not properly looked after beyond completion.

53. The reluctance of MC to assume responsibility for improved slumareas parallels experience in other cities. The municipal authorities arereluctant to take over areas which they regard as contributing little to thetax base and where the provision of services is costly because the infra-structure typically does not conform to the standards of the municipality.While such standards may be deplored as unduly rigid, they provide an excel-lent rationale for the municipality to refuse incorporation into its juris-diction. The establishment of independent authorities which are exempt fromthe standards thus only postpones a problem and projects need to be designedto ensure that the assets which are created will be taken over by anauthority able and willing to maintain and operate them.

- 30 -

54. The inadequate provision for maintenance obviously also affectssustainability of the project, that is, the physical facilities if not main-tained will cease generating benefits, Other sustainability issues connectedwith this project cannot be fully analyzed. Institutional capabilities whichhave been improved should enhance sustainability but institutional overloadwhich is claimed in the case of some agencies may be detrimental. Costrecovery has been improved but whether its levels are sufficient to supportsustainability remains to be seen. Several project components, particularlyslum improvement, represented elaborations of existing programs and to thatextent the project clearly evidences sustainability.

Note: In its comments on the draft PPAM, the Government stated as follows:"FFFF. Paras. 52 and 53 of PPAM. MMDA's view is that the logisticsof plann4 ng and implementing a large number of projects is not costeffective and full benefits can be achieved only through projects ofreasonable size. Smaller schemes can be handled more effectively byconcerned sectoral agencies. This view may be incorporated."

- 31 -

ANNEX 1Page 1

PROJECT PERFORMANCE AUDIT MEMORANDUM


Project Description(Schedule 2, Project Agreement, April 1, 1977)

A. Sites and Services (to be carried out by TNHB) 1/

The provision of sites and services on about 175 ha in the Arumbakkan,Villivakkam and Kondungaiyur areas or Madras, which will include the follow-ing:

1. Land acquisition, site preparation and provision of on-site infra-structure including roads, drainage and individual property watersupply and sewerage connections for (i) about 13,470 residentialplots of between about 40m2 and 225m2 each: (ii) about 9.5 ha ofcommercial land; (iii) about 11.4 ha of industrial land; and (iv)community facilities as in sub-paragraph 4 below.

2. Construction of about 9,760 sanitary cores of which about 2,740will, in addition, have a core housing unit with two side wallsattached with attached roofs and about 790 will, in addition, havetwo rooms.

3. Provision of materials costing approximately Rs. 6,000,00 forself-help completion of core housing units.

4. Construction in each of the above-mentioned areas of two primaryschools, one high school, one clinic-health center and onecommunity hall.

5. Construction of off-site infrastructure, including access roads, abridge across Captain Cotton's Canal, a drainage course fromVillivakkan to the Cotonou River, a trunk water main at Arumbakkan,water wells with overhead tanks at Villivakkam and Kondungaiyur,trunk sewers at Arumbakkam and Kondungaiyur, a sewage oxidationpond at Villivakkam and all necessary pumping stations includingequipment therefor.

B. Slum Improvement (to be carried out by TNSCB)

1. The provision of basic infrastructure services in about 85 slum areas ofMadras with a resident population of about 23,000 households (about 127,000persons) and covering an area of about 185 ha based upon the followingstandards:

1/ For abbreviations and acronyms see beginning of Project CompletionReport.

- 2-

ANNEX 1Page 2

(a) one flush toilet per 10 households;

(b) one bathing facility per 10 households;

(c) one standpipe per 1C) households;

(d) vehicular access to septic tanks serving centrallylocated tGilets and bathrooms;

(e) vehicular access to within 50 m of each hut;

(f) paved pedestrian access to each hut;

(g) one street light per 40 m of vehicular road andfootpaths; and

(h) one primary school per 3,000 persons, and one secondary (high)school per 10,000 persons.

2. The preparation of:

(a) sites for about 7,500 open residential plots with an area ofapproximately 20 m2 to 40 m2 each;

(b) additional sites, where feasible, for commercial and irdu3trialplots; and

(c) sites for the construction of the training and production centersand child welfare centers referred to in C.2 and D, respectively.

C. Small-Scale Business (to be carried out by SIDCO & TNHDC)

1. Construction of serviced plots in the areas specified in Part Aabove of about 120 worksheds having floor areas of between about56m2 and 186m2 to employ about 4,000 persons.

2. Construction, equipping and staffing on serviced plots in the areasspecified in Part A and B above of about 100 training andproduction centers to train and employ about 5,000 persons.

3. Provision of about Rs. 11,000,000 in loans for the purchase ofmachinery and equipment by small entrepreneurs.

D. Material and Child Health (to be carried out by DSW)

The provision of centers and facilities to provide supplementarynutrition, health examinations and immunization for about 17,000 children upto six years of age and about 7,000 expectant and nursing mothers, withhealth, nutrition and family planning education and functional literacytraining for about 20,000 women from the households in the areas specified inParts A and B above, which will include:

-33-

ANNEX IPage 3

1. Construction of, and provision of vehicles, furniture and equipmentfor about 200 child welfare centers; and

2. Provision of staff, teaching materials, medicines, foodstuffs andoperating expenditures for the above until March 31, 1980.

E. Water and Supply and Sewerage (to be L.arried out by Tamil Nadu WaterSupply and Drainage Board & MC)

Construction of and provision of equipment, materials and services for,such works as shall be agreed upon by the Association for therehabilitation and extension of the existing water supply and seweragesystems in Madras.

F. Roads and Traffic Improvement (to be carried out by DHRW, MC and thePolice Department)

1. The construction of about 12 km of the Inner Ring Road in Madrasbetween G.S.T. and the Madras-Tiruvallur Road to provide a 7 meterwide, two-lane single carriage way, with a 2 meter wide cycle trackon each side.

2. The improvement of approximately 200 km of footpaths and about 50km of cycle tracks and the provision of street lighting at about 24intersections, all in Madras.

3. The construction of nine pedestrian subways; a grade separation attwo road/rail intersections; the improvement or construction ofseven minor bridges over rivers and canals; the provision oftraffic engineering measures and carriage way improvements atimportant road links and intersections; and the provision of streetsigns, guard rails, road markings, road painting equipment,flashing beacons, traffic signals and traffic enforcementequipment, all in Madras.

G. Bus Transport (to be carried out by PTC)

The improvement of the bus transportation system in Madras by:

1. The provision of about 285 single-deck buses.

2. The construction of two major and one minor depots for bus repairsand servicing.

3. The construction of eight bus terminals.

4. The construction of about 400 passenger shelters.

- 34 -

ANNEX 1Page 4

H. Technical Assistance (to be carried out by MMDA)

1. Employment by MMDA of up to five advisors for a period ofapproximately two years each and the provision of short-termconsultancy services for improvement of development planning,capital progranmaing and project monitoring and evaluationprocedures in Madras.

2. Consultants' serv'-es, if necessary, to assist in thereorganization and improvement of the accounting system of MC.

3. Training of staff of executing Agencies.

4. The provision to MMDA of aerial photography and related equipmentfor the preparation of a long-term slum improvement program inMadras.

- 35 -

ANNEX 2Page 1

2^a*.s WJfI 43 ^APR390 ml2414a 4 3 W-jf,.Dt'FA31661S7 FINE IN

FROM SHRI SUNIARAAM KRISHNA UNDEk SELr ECOFAbkS NEV DELHITO SHRI Ch VASUDEV ADIUtSER TO ED C INIIA) IN'BAFRAD WAISINGTON

KINDLY PASS ON THE FOLLOWING COMMENTS ON PPAR OF MUDP OK TOYiEINORI WATANABE OF OED (.)

IOTE: WHILE WE ARE IN GENERAL ASREEMENT UITH THE OBSERVATIONSCOtTAINED IN tHE DRAFT PFAR FOR THE FIRST MADRAS URDAN DEVE'OPMENTPROJECT WE HAVE FOLLOWING COM4ENTS TO OFFER (C)

AA. PARAS 2.03, 3.06, 4.01 AND 4.02 OF PCR(. IT IS NOT OED Comment:

The Region has madeFAIR TO CONCLLJDE THAT MMEiA CANNOT FNCIION UITHOUT CONTINUING SUFPORT adjustments in the

tPPropriate parts of

OF TrE ASSOCIATION (.) AS THE PPAN PARA 46 ACKNOWLEDGES MMDA the PCR.HAD AL.READY ACQU'RE EXPERTISE IN METPOPOLITAN MANAGEMENT ANDHAP BECOME IN IJF. INFLUENtIAL AGENCY IN ITt OWN RIGHT (.)SECONDLY AS FAr' 5I03 OF SAP NOTES THE MMDA'S ROLE WAS EXPECTED'

TO PfE APVISCRk IN YATUfE DUI AFTER EXPERIENCE HAD BEEN GAINED ONETOPOLITeN Cf 11k, DBUI,ETINC GTN LiOULD COi;IDIER GIVING M1IiA PFOWER To

DEIEREMINE IN7tR SECTOR.L INVE'TMEHT ALLOCATIONS(.) IT IS THEREFORE

NOT COF:FECt T. SAY THAT ROLE Or> MMh'l IN INVESTMENT PLANNING STILLREMAINS STRICTLY A:.l'.IS2R` (.) FINALY PMXkYXXXX THEREQUIREMENT Gr DECENTRALISEDMANAGEMENT FUNCTIONS REGU!RE THAT

MONTFOIS ARE DISFERESED AMNiOST GTN MMDA ANID LOCAL U+ AUTHORITIESAS ACKN:.W'WEDGEr ItJ PARA 47 OF PF'AM(.)

BDb. PARA. 3.01 OF PCR(.) IT IS ACKNOWLEDGED IN PCF PARA4.6t THAT HIGH RANKING CIVIL SERVI. SERVANTS ASSIGNED TO MHDAmUICLY KECAME StJPPORTIVE OF PROJECT ObJECTIVES (.) SINCE FACTS9H04 THAT NME'A EMERGED AS A 5.ICCESSrUL COORDINAING AGENCY THESLIPPOSITION CONTAINEII IN PAkA 3.1C OF F'CO IS IRRELEVANT C.)

ECC. PARA 6.01 Or PCRE.) THE SHIFT IN POLICY FROM COSTLY

SLUM CLEARANCE SCHEMES TO SLUr IMPROVEMENT HAI! ALREADY bEEN

INITIATED DY GTN PRIOR TOMUDF ONE IN THE FORM OF ENVIRONMENT

IMFROVEMENT SCHEMSC+ SCHEMES (.) THIS IS ACKNOWLEDGED BY

PPAR ITEM (-3) PAGE VIII AND PARAS 2,14 AND 38 TO 39 OF PPAR C.

THE ENTIRE CREDIT THEREFORE DOES NOT BELONG tO THE

AC+ ASSOCIATION(.)

- 36 -ANNEX 2Page 2

BDL. PARA 2.10 OF PCP(.) COMPLIANCE UITH FINAtM:.AL CONVENm;.TS

B' PTC UNDER MUDP TUO HAS SINCE BEEN AFFECTED AND DISBURSEiENT

SUSPENSION LIF'ED (.) PARA MAY DE O0'DFIED ACCORDINGGY q.)

EEE. PARAS 3 AND 42 TO 44 OF PPAM(.) MMDA ARE ALREABIY EXPLORI1G

ALTERNATE APPROACHES TO LAND ACQUISITION PROBLEMS 'btCH AS GUIDED OED Coment:

LAND DEVELOPMENT. LAND READJUSTMENT AND LAND PPOLING WHIC This is acknowledged

SHOULD BE SUITBLY ACKNOULEC+ ACKNOULEDGED (*) by insertions in paras.3 and 44.

OFF. PARAS 52 AND 53 OF PPAM(.) MNDA'S VIEU IS TIO TKE

LuAISTICS OF PLANNING AND IMPLEMENTING A LARGE NUMBER OF PROJECTS

1S NOT COST EFFECTIVE AND FULL BENEFITS CAN BE ACHIEVED

ONLY lHROUGH PROJECTS OF REASONABLE SIZE (.) SMALLLER SCHENES

CAN BE HANDLED MORE EFFECTIVELY BY CONCERNED SECTORAL AGENCIES C.)

THIS VIEW MAY BE INCORPORATED (.)

HHHI. FARA 21 O' PPAM(.) ACTION HAS ALREADY BEEN INITIATED OED Comment:

BY MMDA THROUGH CONSULTANCY STUDIES FOR COMPREHE''"VE SOCIO-ECONDOIC This is acknowledged'by an insertion in

EVALUATION UHICH IS EXPECTED TO COVER SUCH DATA GAP DEFICIENCIES para 21

THIS ACTION MAY BE ACKNOULEDGEI' IN THE FINAL REPORT (9)

REGARE,S (.) UNQUOTE (.) REGARDS (.)

;FSSAGE NO 1954 tAhTEDl 29/4/1986 KEUAL

KKK

:04291424

:04291147

WORLDBANK MS SYSTEM

- 37 -

PROJECT COMPLETION REPORTINDIA FIRST MADRAS URBAN DEVELOPhENT PROJECT

(CREDIT 687-IN)

I. INTRODUCTION

A. Sectoral Context

1.01 Tamil Nadu is among India's three most dense, highly populated andurbanized states and Madras is India's fourth largest city. With ametropolitan population over 5 million, Madras is about five times as largeas Madurai, the next largest city in the State. Madras is the trade andcommercial center of southern India; expansion of the manufacturing sector(machinery, transport equipment, chemical products and textiles) over thelast three decades has been a major reason behind the rapid 4-5% annualpopulation growth, over 40% of which is due to in-migration from poor,economically stagnant rural areas. Expansion in Madras' organized manufac-turing sector has slowed in the last decade and nearly half the work force isself-employed in petty vending, services or transport activities. Smallbusinesses, employing less than 10 persons, account for almost 40% of thejobs in Madras, which had a low per capita income of Rs 875 in 1975. Almosthalf of the population had incomes below the absolute urban poverty line.

1.02 Local government within the Madras Metropolitan Area (MMA) consistsof the Madras Corporation, four small municipalities, four townships and 20panchayats. The Government of Tamil Nadu influences urban developmentactivities through MMDA, the local governments, its own departments,statutory bodies such as the TNHB and the TNSCB, and public corporations suchas PTC which have major sectoral development responsibilities. Madras isalso characterized by the predominance of private voluntary agencies carryingout major social works programs and playing an important role in providinghealth services and education. Nearly half of all primary schools and themajority of the high schools in the city are private.

B. Specific Conditions Leading to the Proiect

1.03 The provision of serviced land and housing for low income groups inMadras lagged well behind the demand for several decades. GTN public invest-ment programs in the housing sector were primarily aimed at middle-incomegroups and were highly subsidized. Land development controls, buildingregulations and other administrative factors grossly inhibited the legalproduction of shelter affordable by low income families. The slum populationof Madras was increasing more rapidly in proportion to the total population,accounting for more than 30% of the total. By the early 1970's, Madras wassuffering from serious deficiencies in key service sectors aggravated by along history of inadequate water supply and sewerage. Water is a

- 38 -

scarce and expens.ve resource throughout Tamil Nadu. Madras' per capita watersupply was averaging less than 70 liters per day (comparable figures forBombay and Calcutta were 138 and 145 lcd, respectively) and the poorest areasreceived less than 40 lcd. During drought periods, per capita availabilityhas dropped to 10 liters per day and much of the manufacturing sector hasbeen forced to shut down temporarily. In the mid-70's, about 1.2 millionpersons were living in slum hutment areas without services and legal tenure.

1.04 Attempts to eeal with this burgeoning problem in the 1970's resultedin a slum clearance/improvement program that produced annually 3,000 publicrental units for resettlement while the slum population was increasing eachyear by some 14,000 households. The program was highly subsidized as therents charged covered less than 10% of the costs. Slum clearance wasincreasing the problem rather than helping to solve it. Other sources ofnewly built housing were insufficient in quantity and unaffordable by thepoor, unless supported by substantial public subsidies. Public transport waslikewise heavily subsidized and the bus fleet was increasingly aged, ineff-cient and very overcrowded.

C. Principal Report Sources

1.05 The principal documents used in preparation of this PCR, other thansupervision reports and general correspondtence, are summarized in Annex A.

II. PROJECT IDENTIFICATION. PREPARATION AND APPRAISAL

A. Origin and Background

2.01 The project was first mentioned in the Association files in April1972. It was discussed with a Bank reconnaisance mission in October 1973 andwas prepared by the Madras Metropolitan Development Authority with a view toappraisal in 1974. MMDA was assisted by numerous State and local governmentagencies, most of which subsequently became the executing agencies. Duringthe same period a water supply and sewerage project in Madras was also underconsideration by the Bank; this led to incorporation in the Madras UrbanDevelopment Project of urgently required water and sewerage investments whilethe longer term investment program was being prepared under a UNDP financedstudy. The urban project was well prepared and possibly could have beenappraised about a year earlier than it was, were it not for the complicationof related water and sewerage issues and considerations of priority to begiven to urban investments elsewhere in India.

- 39 -

B. Preparation and Appraisal

2.02 MMDA coordinated project preparation, details of which were preparedby the following agencies:

Project Component Agency Responsible

A. Sites and Services Tamil Nadu Housing Board (TNHB)

B. Slum Improvement Tamil Nadu Slum Clearance Board (TNSCB)

C. Small Scale Business- Small industry Small Industries Development

Corporation (SIDCO)

- Cottage industry Tamil Nadu Handicrafts DevelopmentCorporation (SIDCO)

D. Maternal & Child Health Department of Social Welfare (DSW)

E. Water Supply and Sewerage Madras Metropolitan Water Supply andSewerage Board (MMWSSB)

F. Roads and Traffic Improve- Madras Corporation (MC) and Departmentments of Highways & Rural Works (DHRW)Inner Ring Road, pedestriansubways, grade separations,minor bridges

G. Bus Transport Metropolitan Wing of PallavanTrar.sport Corporation (PTC)

H. Technical Assistance Madras Metropolitan DevelopmentAuthority (MMDA)

2.03 Although MMDA's functions had been focused primarily on physicalplanning and land-use control, in preparing MUDP I it began to initiatestudies for capital investment programming in the Metropolitan Madras Area(MKA). It has since begun to compile overall estimates of public investmentsin the key sectors and by different agencies; these could serve as a basisfor rationalizing public investment strategies for MMA. The role of MMDA in

- 40 -

investment planning, however, is still of an advisory nature, although CTNhas under consideration giving MMDA power to determine inter-sectoral urbaninvestment allocations. 1/ In preparing the project, MMDA did not havedirect authority over the other GTN agencies, aside from its normal land-usecontrol activities. However, for want of agency capacity, MMDA did (andcontinues to do) the layout planning and financial analysis for cost recoveryin sites and services and slum upgrading. Most of the key GTN agenciesinvolved in MMA development were represented on MMDA's governing boardthrough GTN Departments to which they were responsible. MMDA was maderesponsible for reviewing and sanctioning all agency scheme proposals underthe project. All these factors and the civil service seniority of its chiefexecutives enabled MMDA to act as an effective inter-agency project coor-dinating body. MMDA also acted as Secretariat for the Center/State ReviewCommittee which was set up in October 1975 tc review projects and schemesundertaken for the development of the MMA.

2.04 The appraisal was, in most respects, thorough and dealt appropriatelywith the number of components, the complexity of the issues and the institu-tional arrangements. The resulting project was generally realistic in sizeand scope, was well executed, led to a follow-on project, and resulted inimportant institutional improvements and major shelter program changes.

2.05 The employment and health components were small and not influentialover programs and institutions in their sectors. The small scale businesscomponent was not appraised in any strict sense, and the maternal healthcomponent appears to have been adopted with little program evaluation.However, the two components did provide necessary local employment oppor-tunities and neighborhood social services. There was a strong demand for the120 small industrial plots and sheds in the site and service areas and theyare contributing significantly to cost recovery and balanced community landuse. The attempt to create cottage industries in the slums through theefforts of voluntary agencies and the Tamil Nadu Handicrafts DevelopmentCorporation failed because of inadequate organization and the factory sh,edswere sold to entrepreneurs to achieve the same purpose.

2.06 As to water and sewerage, the Urban Projects Department decided atthe time of appraisal not to address financial aspects of the water sector ofTamil Nadu or the long term water and sewerage problems of Madras as part ofthis project, because a UNDP/WHO study underway would provide detailedproposals for reform about a year later. Funds for a limited component,along with financial covenants, were included in the project on an interim

1/ Response to DEA telexed (30 April, 1986) comment AAA: "MMDA's role wasexpected to be advisory in nature but after experience had beengained...GTN would consider giving MMDA power to determine inter-sectoralinvestment allocations."

- 41 -

basis. This resulto.d in a US$10 Million i,Amediate works program which wasimplemented during the early years of project implementation. ImplementatiLresponsibility as transferred during project implementation from the StateWater Authority and MC to the MMWSSB, treated after appraisal. The Associa-tion did not eventually negotiate a project to deal with the critical probLemof water supply in Madras, but in March, 1984 a state-wide water supplyproject for Tamil Nadu was presented to IDA's Board.

C. Project Objectives

2.07 The basic objectives of the project were to:

(a) Redirect a significant part of public investments in thekey sectors of land development and housing to benefit thelow-income population of metropolitan Madras;

(b) Introduce the concept of full cost recovery for keyinvestments;

(c) Substantially increase the supply of affordable low-incomeshelter and institute a replicable long-term program;

(d) Improve local government financial and administrativecapacity to deliver and maintain services; and

(e) Strengthen government's capacity to plan, coordinate,implement and evaluate land servicing, shelter, basicservices and maintenance programs.

2.08 Related key policy measures included:

(a) Provision of secure tenure (freehold titles) to theinhabitants of the improved slums and recovery ofimprovement costs through hire-purchase agreements;

(b) Introduction of a market-related mortgage interest rateof 12%;

(c) Establishment of a ceiling on annual expenditures forslum clearance;

(d) Establishment of revolving funds to finance future sitesand services and slum improvement programs; and

(e) Raising of bus fares to eliminate the deficit of thePallavan Transport Corporation;

- 42 -

D. Project Description

2.09 The project comprised:

(a) The provision of sites and services on about175 ha, with about 13,500 serviced residentialplots and about 21 ha of servi-ed land for smallindustry and commercial uses;

(b) Infrastructure improvement in 85 (later reduced to 53)slums covering about 185 ha with a population of 23,000households, plus provision of open plots in andaround the slums for an additional 7,500 households;

(c) Work sheds, equipment, training and finance to generateabout 4,000 jobs in small industry and about 5,000jobs in cottage indus-ry in the sites and servicesand slum improvement areas;

(d) Training, equipment and buildings to supply supplementarynutrition, health examinations, immunization, healthservices and family planning, and nutritional andfLnctional literacy training;

(e) Rehabilitation of existing water supply and sewerage systems;

(f) Road and traffic improvements emphasizing pedestrianfacilities and cycle tracks;

(g) Replacement of 285 over-aged buses and constructionof bus depots, bus terminals and passenger shelters; and

(h) Technical assistance and training, mainly to the MadrasMetropolitan Development Authority and the Madras Corporation.

E. Oredit Covenants

2.10 As to major credit covenants, the Slum Clearance Board complied withthe covenant limiting expenditures on slum clearance to Rs 3.75 crores peryear and this has been extended to MUDP II. Pallavan Transport was able tocomply wit' its financial covenants from 1977/78 through 1979/80 because of aCTN sanctioned fare increase in 1976. Due to tardy and inadequate fareincreases for four consecutive years since 1979/80, PTC was losing aboutUS$10 million (Rs 10 Crores) annually, contrary to project financial

- 43 -

covenants. 1/ During 1983/84 CTN converted a portion of PTC's debt toequity. Fares were increased from 1 April, 1985 and during FY 1984/85 PTC'sfinancial performance conformed to agreed targets. CTN also commiA ted itselfto biannual reimbursements of PTC losses on student subsidies. 2/ TheMunicipal Corporation kept debt service below 20% of revenue and has achievedthe agreed annual increase of 8% in self-generated income. UntiL 1983/84, MCwas in no position to submit annual audited accounts. MMWSSB has not com-plied with the covenant to set tariffs at a level sufficient to meet costsand is losing about US$7-8 million per year on its regular (not droughtrelated) operations.

2.11 Other covenants on which there has been progress, but at a muchslower pace than originally anticipated concern: (i) the revision of MadrasCorporation's accounts by 1978, actually achieved in 1982; (ii) the provisionof sufficient VTN funds to improve all slums by 1985 is unlikely to be real-ized before 1990, and (iii) only PTC has been able to reasonably comply withaudit covenants.

III. PROJECT IMPLEMENTATION AND COST

A. Start-Up

3.01 There were encouraging early policy measures: GTN issued orders onsecurity of tenure and cost recovery in August 1976, raised bus fares by 22%in March 1976 and experimented with staggered working hours to improve busutilization. Start-up went smoothly in the PTC component, but in sites andservices and the Ring Road schemes there were delays due to land acquisitionand contractual problems. Slum improvement started slowly because of ini-tially weak provisions for community involvement. Overall, most of theimplementing agencies performed well, overcoming initial reservations aboutnew shelter concepts. Considering the institutionsl environment and numberof agencies, MMDA did an excellent job of coordinating the project. Morecould have been done to explain the program to the public and prospectivebeneficiaries and to coordinate and improve the processing on a large-scaleof plot sales, tenure agreements and settlement documents. Because of infla-tion, and even higher rates of price increases in construction costs, somecontractors abandoned their work uncompleted because there were no e-calation

1/ Because of the failure to comply with the financial covenants, prin-cipally by PTC, in June, 1984 the Association formally suspended disbur-sement3 on the Second Madras Urban Project. Disbursements were rein-stated following the fare increase of 1 April, 1985.

2/ Response to DEA telexed (30 April, 1986) comment DDD: "Compliance withfinancial covenants by PTC under MUDP 2 has since been affected anddisbursement suspension lifted."

- 44 -

clauses in their contracts. During 1978 and 1979, there was an acuteshortage of building materials and inflation was running at an annual rateabove 15%, very high for India, and in excess of the 12% annual price contin-gency provided at the appraisal.

B. implementation Schedule

3.02 Implementation started in April 1977, but did not gain momentum untiLlate that year. Although the project was well executed, there were sig-nificant contracting problems, particularly with respect to larger contractsof more than 12 months duration, and land acquisition problems on the Vil-livakkam and Kodungaiyur tank sites (old water irrigation ponds) and on theRin Road alignment. Even though the tank sites were Government owned, therewere serious and unanticipated procedural difficulties, relating to waterrights, in securing their transfer. Land acquisition for the shelter com-ponents, took approximately three times the amount of time estimated atappraisal. Eventually separate land acquisition units set up in MMDA helpedto resolve the problem for the first urban project. But the problem hasreemerged in MUDP II in the form of legal challenges to the acquisition ofprivately-owned land. Procurement was mainly delayed in the water andsewerage component, whereas obtaining an adequate supply of certain foreignequipment was difficult. There was also a long delay in commencing theissuance of lease agreements in slum improvement areas, which was onlystarted when it was made a condition for negotiating the Second Madras UrbanProject. At the time of the PCR, about 50% of MUDP I households haveacquired leases. Home construction by the settlers was in many cases delayeddue to lack of funds. To facilitate funding, MMDA and TNHB helped arrangeconstruction loans through banks ana GOI's housing agency, HUDCO.

C. Costs

3.03 Total project costs were estimated at US$52.0 Million (Rs468,000,000), of which US$8.0 Million constituted the foreign exchange com-ponent. The IDA credit of US$24.0 Million financed 46% of project costs netof taxes and duties. There was a cost overrun of approximately US$10.0Million (see Annex B), primarily due to increased construction costs on sitesand services, water supply and sewerage and road components. Civen the highrate of inflation in India in 1978-81 and the even higher rate of increase inbuilding material costs, overruns couid have been much greater but for therelatively good quality of project administration and managements' capacityto respond quickly to implementation problems.

3.04 Cost overruns of almost 35% were experienced on two out of threesices and services schemes. This necessitated successive recalculations ofcost recovery and prices in order to meet the affordability requirements andprovide 75% of the plots to the 10th to 45th income percentile of the popula-tion. Although construction cost increases exceeded household incomeincreases, the market value of the more desirable residential plots, and the

- 45 -

prices commanded by the industrial and commercial plots, were much higherthan expected. Together with adjustments in layout and land use, the marketsales should be sufficient in aggregate to recovery average costs withoutpricing the cheaper lots beyond the financial capabilities of the intendedbeneficiaries. However, the actual achievement of cost recovery targets hasbeen threatened by initially poor collections on the industrial plots andimproved slums. This performance has been caused by delayed provision ofinfrastructure services to the entrepreneurs, and, in the slums, by inade-quate collection procedures and a reluctance to apply sanctions.

D. Disbursements

3.05 Disbursements were US$2.0 Million ahead of the appraisal estimates atthe end of the first disbursement year of the project and remained ahead ofschedule throughout the second year. This was largely due to early and rapidprocurement of buses by PTC. The final disbursement of US$24.0 Million,estimated to be reached by June 30, 1981, was however achieved one yea-later. The main causes of disbursement delays were contractual and landacquisition problems. Although the Kodungaiyur site is to be completed inmid-1984, all but a few minor parts of the rest of the physical elements ofthe project have been satisfactorily finished. The credit was closed onDecember 31, 1982, extended from the or ginal closing date of September 30,1981. For the project, GTN had assigned to MMDA the authority to review andapprove all disbursement applications. This not only expedited execution ofthe project but also strengthened MMDA's capacity to coordinate effectively.

E. Performance of Contractors, Consultants and Borrower

3.06 MMDA planned the qite layouts, designed the shelter types and did thecost recovery and other financial analysis, particularly for sites and serv-ices and slum upgrading. It also organized and managed staff for the com-munity development function, which was a new and critical project activity.The executing agencies prepared detailed designs and tender documents,awarded the contracts, supervised construction and handled estate transac-tions. There was little need for consultants in preparing or implementingbasic project activities. However, the selective use of consultants forspecialized tasks (such as the reorganization of the Madras Corporation'saccounts) proved efficacious. MMDA did an excellent job of coordinating andmonitoring the physical implementation of the project. But MMDA's reports toIDA have tended to focus on cost and engineering targets and could haveevaluated more thoroughly the achievement of project objectives. TheAuthority's ability to monitor agency progress was primarily due to theeffective working relationships already established with the GTN agenciesdurijig project preparation and the improvements by the agencies in their ownsystems for planning and monitoring, project implementation and coordinatingwith each other for common purposes during implementation. A seriousshortcoming by MMDA has been its failuie to develop the necessary profes-sional capacity for in-depth sectoral financial planning and programming.

- 46 -

Although MMDA has the power of review of project expenditures, it does nothave broader programmatic oi budgetary controls. 1/

3.07 All the civil works were executed by medium and small-sized localcontractors (most contracts were in the range of US$20,000-300,000) andperformance was varied. Shortages of raw materials, particularly cement,caused some delays in the project. Some firms abandoned their contractsmidway, necessitating fresh tenders. Larger contractors were reluctant totake up scattered smalL works because of unattractive rates and unfavorableconditions of contract. Eventually, smaller works in sites and services wereconsolidated into somewhat larger contract packages with improved terms andconditions. These are however still too small to attract larger contractors.Escalation clauses still are not included in civil works contracts, althoughrecommendations to do so, by the State's Board of Chief Engineers, are underactive consideration by GTN. Further improvements in terms of contract andcontract size will be needed as the scale of sites and services programsincrease.

3.08 The Operation Research Group (ORG) of Baroda was retained as consult-ants for a number of economic studies. An Employment Base Study of theMadras Metropolitan Area (MMA) surveyed t1le main features and problems ofthe economy, but was unable to come to grips with the underlying causalfactors for changes in the economy, since extensive basic research wasrequired. Also, this study did not examine GTN policy toward employment andindustrial growth or consider alternatives that could help the formulation ofpoiicy on industrialization. ORG satisfactorily carried out a ResourceMobilization and Investment Planning Study which is serving as a basis forrationalizing the property evaluation system for property tax. These con-sultants also helped establish MMDA's monitoring and evaluating system, whichis operating effectively in the executing agencies and they did a number ofother individual studies which enriched MMDA's understanding of the MMAeconomy.

3.09 Alan Turner and Associates (UK) assisted MMDA in preparing a Struc-ture Plan for the Madras Metropolitan Area. Tnis was funded by the OverseasDevelopment Authority (UK) under the Colombo Plan. After a detailed surveyof the existing situation and trends, guidelines for growth and alternativedevelopment strategies were proposed for the next ten years. Land require-ments and distribution were assessed; a preferred strategy was proposed; andpriorities for action in the main sectors were specified. While the result-ing Plan was thorough and MMDA uses it to screen the suitability ofindividual projects from the point of view of land use, further studies areneeded to develop sectoral investment priorities, financial policies andspecific related action programs. Although begun late in the project

1/ See para 2.03 for DEA's comment on this point and ILA's response.

- 47 -

implementation period, consultant assistance for developing and implementinga new accounting system for the Madras Corporation is gradually providing abetter basis for the management of municipal finance and services.

3.10 The dorrower generally performed well in preparing, executing andmonitoring physical aspects of the project. Throughout the project implemen-tation period, the implementing agencies and GTN demonstrated a substantialcapacity for rapid adjustnent to problems, particularly those which could besolved through administraEive decisions or technical changes. Areas in whichimprovements have been slow to take hold are the capability for financialanalysis and management in all agencies except PTC and middle term pl_nningand programming except for PTC and TNHB. From time to time, MMDA's develop-ment as an investment coordinating agency may have been affected by toofrequent changes in its top management. 1/

F. Performance of Association

3.11 Early missions were helpful in guiding project preparation. Apre-appraisal mission was converted into an appraisal mission in the field inMay 1976 and the project was appraised in a realistic manner despite the manycomponents and institutional complexities. Although the immediate actionprogram for water supply and sewerage was satisfactorily executed, theAssociation and CTN did not come to grips with Madras' critical deficienciesin water supply, though a state-wide project was presented to IDA's Board inMarch, 1984. The Long delay in identifying and implementing improvements inwater supply in the MMA carries a heavy social and economic price.

3.12 Supervision of the project was effective, including concerted effortsto follow through on the financial covenants, maintain the implementationschedule and achieve the overall program, as well as project objectives.There were about three supervision missions per year (22 man weeks) in theinitial year of the year of the project and about two per year (6-8 manweeks) in the later years of the project. Mission coverage of the mostimportant project components, (shelter, slum improvement, transport, andinstitutional development was thorough). Strong and collegial workingrelationships with the implementing agencies and Departments of GTN were

1/ Response to DEA telexed (30 April, 1986) comment BBB: "Since facts showthat MMDA emerged as successful coordinating agency the suppositioncontained in para 3.10 of PCR is irrelevant." The Association maintainsthe view that from time to time too frequent changes in management haveadversely effected MMDA's development as an investment programmingagency.

- 48 -

maiitained. Supervision was concentrated on the housing and transport com-ponents, as the most significant parts of the project; because of organiza-tion and budgetary constraints supervision of the health and employmentcomponents was thin.

3.13 A follow-up project of similar composition, for a US$42.0 MillionCredit (which, from the first project, almost doubled the number of improvedslum units and the number of buses, and added solid waste and drainage com-ponents) was prepared and appraised during the third year of MUDP I. Thecomparative success of both projects and the resulting institutional improve-ments and program reforms in the shelter sector indicate that the Associationwas effective in addressing these problems at a criticaL stage and in sup-porting them over an initial eight year period.

3.14 The size of the components for worksheds/equipment, job training, andhealth/nutrition did not permit any leverage effect on the existing GTNprograms, nor was there any comprehensive program evaluation in the course ofpreparing, appraising or supervising the project.

IV. INSTITUTIONAL PERFORMANCE AND DEVELOPMENT

A. Madras Metropolitan Development Authority (MMDA)

4.01 The MMDA staff prepared the project with assistance from the variousexecuting agencies. Through this preparation work, MMDA developed the leadplanning role which was continued through monthly inter-agency meetingschaired by the Authority. These meetins worked well in coordinating thephysical implementation of both the first and the on-going second urbanprojects. MMDA has developed an effective (but slim) capability for thedynamic physical and financial planning connected with pricing, cost recoveryand affordability criteria in sites and services schemes. Although theleadership of MMDA changed several times during the project implementation,hign ranking civil servants were assigned to MMDA and they quickly becamesupportive of project objectives. MMDA's reporting system has concentratedon engineering and expenditure progress and has provided reasonable com-parisons of estimated and actual costs and the time required for completingcomponents. With experience, the staff is trying to develop other indicatorsfor assisting project management by objectives. The Authority's staff hasreceived training in planning and technical assistance in economic studies.However, the expected recruitment of financial and economic personnel has rothappened and MMDA's ability to do financial and economic planning has notimproved substantially.

4.02 MMDA's objectives were to have been the preparation of economic,social and spatial programs; and the Government of Tamil Nadu was to considerenhancing MMDA powers to carry out metropolitan-wide financial planning andto determine intersectoral investment allocations for metropolitan Madras.

- 49 -

However, such powers have not been granted since they involve sensitiveissues of state, local government and agencies' relative powers, particularlythe power to determine budgetary allocations and program o jectives. Also,MMDA has not yet developed the expected capability of carrying outmetropolitan-wide budgetary planning and programming. Considerable furtherefforts by MMDA are needed to improve the quality of its monitoring andreporting activities aiid to develop a capacity for evaluating shelter andother sectoral demands and ways of meeting them from both the public andprivate sector. The strengthening of MMDA's investment coordinating rolewill require increased GTN support for planning urban development 1/.

B. Madras Corporation

4.03 Like many municipal entities, the Madras Corporation had beenover-staffed, had poor financial management, had an inadequate fiscal baseand had grave deficiencies in the provision and maintenance of infrastruc-ture. Three significant impr)vements were brought about under the presentproject. First, through extensive training and recruitment, the quality ofthe financial staff has improved greatly. This has allowed an accrualaccounting system to be introduced and the true costs of municipal servicesto be more accurately portrayed. Secondly, based on studies which were anintegral part of the project, the Corporati^n is consider.ng ways and meansof reforming property valuation for property tax, its basic source of income.Thirdly, the Corporation has improved the management of its maintenanceprogram, particularly for improved slum areas which were mostly neglected inthe past.

4.04 Experience demonstrates that more time is required for the fundamen-tal changes envisioned by the project for MC. While the Corporation hasadhered to the project financial covenants, it has yet to develop, and getCTN to approve a program for substantially increasing its very inadequateself-generated revenue base. MC's per capita revenues of about Rs 50 arestill much too small for the effective delivery and maintenance of servicesin Madras, the capital and economic center of Tamil Nadu. It would be help-ful to MC's planning activities if its GTN-appointed chief executives werechanged less rapidly than has been the case in the past few years.

C. Pallavan Transport Corporation

4.05 The project helped to further improve the management of PTC, whichwas already a relatively well-managed and efficient operating company.Through training of the top financial staff and work with the IDA missions,

1/ Response to DEA telexed (30 April, 1986) comment AAA "It is not fair toconclude that MMDA cannot function without continuing support of theAssociation."

- 50 -

PTC started to do five year financial projections and to institute stricterfinancial controls and indiators for management information. The projectimpact however on transport policy has been mixed. Although a substantialfare increase in 1976 enabld PTC to meet its financial covenant until 1979,since then fare increases have been delayed and inadequate. PTC's operatingratio has deteriorated to about 112 in 1983/84. The covenanted operatingratio of 95 has not been achieved despite operational improvements such asreducing the ratio of staff per vehicle to 7.5 and financial adjustments suchas reducing the non-IDA bus procurement program and converting GTN loans toequity. PTC's management has been very receptive to advice from the Associa-tion, implemented the project quickly and has tightened up its operations inthe process.

D. Tamil Nadu Housing Board

4.06 TNHB's management has reoriented its approach tn housing as a resultof the project. It has moved from providing 3,000 high-cost flats per yearin the MMA to providing more than 6,000 serviced lots per year with about 95%of cost being directly recovered. The Government of Tamil Nadu has directedTNHB to allocate 80% of its investment to shelter for lower income households- a sharp reversal of earlier programs. Through project experience andtraining, TNHB's top engineers have enthusiastically developed the Board'scapability to formulate and execute a long term housing program on a scalecommensurate with the shelter problem. Although TNHB's enginee':ing staff hasbecome more adept at implementing low cost solutions, a capacity for finan-cial analysis and management remains to be formed. Planning, constructionimplementation, coordination wth other agencies and monitoring of collectionperformance steadily improved during both this and the follow-on project.Administratively TNHB still does not yet have the organization required torapidly process a large number of applications and lease-cum-sale agreementsso that settlement does not occur as rapidly as plots are available foroccupancy.

E. Tamil Nadu Slum Clearance Board

4.07 TNSCB's program has switched from one basically oriented toward slumclearance to slum improvement. The management and staff have effectivelychanged their orientation during the project period. The initial delay instarting the slum improvement program seems to have been due to failure tomobilize the community development staff to explain the program tobeneficiaries. Once started, TNSCB executed the slum improvement worksefficiently and developed the capacity to upgrade about 15,000 slum units peryear. However, the issuance of tenure agreements and the commencement ofmaintenance and garbage collection by MC lagged several years behind improve-ments. This not only delayed, but severely damaged cost recovery frombeneficiaries. Cost recovery in the slums was an innovation of the projectand the poor initial cost recovery was improved somewhat to the 35% collec-tion level by requiring households requesting home improvement loans

- 51 -

(provided under MUDP II) to fully pay the charges due on their plots. Therevenue side of TNSCB will have to be strengthened to improve the collectionrate further.

V. ECONOMIC RE-EVALUATION

5.01 The economic benefits of the sites and services component are basedon the imputed rental values of the serviced residential plots and the marketvalue of the industrial/commercial land. Slum improvement benefits are alsovalued at the estimated rental values. Costs include all infrastructure andamenities, net of taxes.

5.02 At appraisal, the economic rate of return of sites and services wasestimated at 12% (when combined with the connercial/industrial development itwas 15%) and for the slum improvements it was estimated at 18%. The weightedaverage of estimated rates of return for the components which could be quan-tified (about 55% of total project costs) was 21%.

5.03 Chargeable costs are supposed to be fully recovered frombeneficiaries for the sites and services component (through lot sales), forthe small-scale business component (through sales of worksheds and loansadvanced to beneficiaries), for buses and related facilities (through busfares), and for water supply and sewerage (through charges). An attempt isalso being made to fully recover the chargeable costs of slum improvementsthrough monthly payments from the beneficiaries. All remaining componentsand costs (largely for off-site facilities) are financed from generalrevenues of CTN and Madras Corporation, or from user charges by publicutilities.

5.04 The only component for which sales and collections are sufficientlyadvanced to allow rates of return to be re-calculated is the Arumbakkam sitesand services scheme. This shows a financial rate of return of about 4.5% anda positive economic return of "bout 30%. The main reason for the dis-crepancy, between the economic and financial returns, is the relatively highimputed rental value of the units versus the actual price charged especiallyfor the economically weaker sector (EWS) units. The appraisal estimate of atleast a 12% financial rate of return is not being achieved on this sitebecause interest during construction and marketing delays were not adequatelyreflected in plot sales prices. MMDA has corrected this oversight in sub-sequent pricing exercises for other sites.

5.05 The economic rate of return for the slum improvement program isestimated to be about 23% even though the sale of some vacant serviced landin the slums (envisaged at appraisal to create a surplus) did not material-ize. As elsewhere in Madras, the imputed rental values in the slums are atleast 50Z higher than those assumed at appraisal. The bus component wasimplemented very well and there are substantial cost savings from the newerbuses, efficient operations and de-congestion. But the failure to raise bus

- 52 -

fares and water charges will adversely affect the financial rate of return inthe related components. In economic terms, it is expected that the overallproject will generate a rate of return moderately higher than that estimatedat appraisal.

VI. CONCLUSIONS

6.01 The most significant aspect of the project has been its impact onhousing policies and programs. Essentially, the project supported effortswhich GTN had already begun to initiate to replace the policy of high cost,highly subsidized slum clearance with a more cost effective, equitable andfinancially sustainable slum improvement program which minimizes relocationand demolition. [t also supported the reorientation of GTN's housing programfrom costly flats co sites and services, land servicing and core housing,which were much lower in unit cost and self-financing without interest ratesubsidies. 1/

6.02 This project together with MUDP II, have had a substantial long-termprogrammatic and institutional impact. Taking the two projets together,about 24,500 serviced plots and 75,000 shelter units in the upgraded slumareas, mostly catering to the EWS, will have been provided. This amounts toa net annual increase in the public sector shelter supply from approximately6,000 to 13,000 units per year. Simultaneously, the level of slum clearance,capped at Rs 3.75 Crore expenditure per year under the project, now financesonly about 1,500 units a year. The unit cost of a serviced lot and improvedslum plot average about Rs 12,000 and 2,500, respectively, versus 25,000 forthe smallest walk-up flat. The Slum Clearance Board has developed thecapacity to improve 15,000 units per year and has formulated a Five YearPlan, although more effort is required to make this operational. The HousingBoard now has the capacity to produce 10,000 shelter units per year and hassanctioned a Five Year Plan for the MMA which would put 45% and 35% of isresources in shelter for the EWS and LIC respectively.

6.03 The combined supply of Legal, environmentally acceptable shelter fromsites and services and slum improvement schemes irder both urban projects wasintended to start reducing the absolute number of 250,000 families living inillegal, unserviced slums by 1981/82. Because of construction, land acquisi-tion and settlement delays, this target slipped to 1985, when the annualsupply of 7,000 IDA sites and services plots, improvements for 15,000 slumfamilies and 11,000 private sector houses/plots should exceed the annual MMA

1/ Response to DEA telexed (30 April, 1986) comment CCC: "The shift inpolicy from costly slum clearance schemes to slum improvement had alreadybeen initiated by GTN prior to MUDP 1 in the form of Environment improve-ment schemes. The entire credit does not belong to the Association."

- 53 -

household growth of about 40,000. If achieved, this must rank as one of theAssociation's major interventions in the housing sector across regions.

6.04 Particular limitations revealed during the implementation of thefirst project and corrected in the second project were the provision offinancing for housing improvements and the development of municipal main-tenance capabilities. Generally, the agencies learned rapidly fromexperience and together with GTN demonstrated a capacity for making opera-tional adjustments during implementation.

6.05 Even though construction costs, due to inflation and cost overruns,exceeded increases in household incomes, the serviced plots were supplied tothe EWS at affordable prices without external subsidies because of differen-tial pricing, i.e. prices for lots which had locational or other advantagescould be adjusted upwards to market prices because of strong demand so thataverr3e prices still covered average costs. Thus the shelter target ofaccommodating primarily the 10th to 45th income percentile, on about 70% ofthe plots, is being achieved without sacrificing financial or socio-economicobjectives, despite the financial shortfall on the initial site (para 5.04).

6.06 Institutional improvements were very significant particularly in:the accounting system at the Madras Corporation; the coordinating andmonitoring capabilities at MMDA; the continued improvement in the operationand management at Pallavan Transport; and the programmatic reforms at theHousing Board and Slum Clearance Board.

6.07 MC has started developing a capability to maintain improved slums.Unfortunately, GTN has still not foun. a way to improve the extensive slumson private lands, which remain in the same poor environmental condition asthe slums on public Land were when the Association's successful interventionbegan.

6.08 MMDA regards the acquisition of land as the most serious problemencountered. It recommends that land with high development costs, such aswater tanks, should be avoided if possible. Since about 18 months arerequired to obtain private land under emergency procedures and about 30months under normal procedures, advance planning of land acquisition forpublic sector shelter programs is a prime necessity.

6.09 SIDCO was initially mark ting subsidized plots a short distance awayfrom the project plots where full cost recovery is being sought. This policyhas been changed and also the responsibility for selecting entrepreneurs hasbeen shifted to TIIC. Cost recovery on industrial and commercial plots,initially delayed because of TNHB's delays in completing infrastructureservices to plots, is now beginning. While some new small industries startedand jobs were created in the site and service factory sheds, the attemptedemployment creation and training through cottage industries in improved slumsdid not affect GTN's employment creation programs. An extensive analysis of

- 54 -

the factors and policies affecting economic activity in the MMA would beneeded in order to develop a workable employment creation program for theHMA.

6.10 The most important specific objectives not achieved relate to thefinancial covenants for the bus company and the water and sewerage authority.Large subsidies are required for both these operations and run at an annuallevel of about US$10 million for PTC and US$8 million for MMWSSB.

6.11 One conceptual shortcoming of both the first and the second urbanprojects was not to include the private sector in the analysis and approachto improving the supply of serviced land and housing. However, at the timeof project preparation and appraisal, the problems needing correction in thepublic sector were so fundamental that the more limited focus by IDA and CTNis understandable and may well have been tne only prudent approach at thetime.

- 55 -

ANNEX A

PRINCIPAL REPORT sOURCES(Other than Supervision Reports and General Correspondence)

Report No, Name Date

1320 a-IN Staff Appraisal Report - The Madras Urban Feb. 15, 1977Development Project

Credit Agreement

Project Agreement

Madras Urban Development Project I August 1983Project Completion ReportMadras hetropolitan Development Authority (MMDA)

Structure Plan for Madras June 1980Metropolitan Area, Prepared by Alan TurnerAssociates, Consultants to MNDAVol. 1Vol. 2 Guidelines for GrowthVol. 3

- Quarterly ReportsProject Monitoring DivisionMKDA

- Memo on Proposed US$24 Million Credit for Feb. 18, 1977Madras Urban Development Project(Mr. Blobel to Mr. Knapp)

- Issues Paper for Second Project June 11, 1976

2893 a-IN Staff Appraisal Report Nov. 26, 1980Second Madras Development Project

4707 - IN Staff Appraisal Report Dec. 21, 1983Tamil Nadu Water Supply and Sanitation Project

- Industrial Economy of Tamil Nadu and Madras Dec. 1979Metropolitan Area-Prepared by ORG, Consultantsto MMDA

- Sites and Services Program at Arumbakkam Nov. 1983- Financial Evaluation by MIDA

N\

IV

e\'

2Žt

- 57 -

ANNEX BPage 1 of 2

INDIA

MADRAS URBAN DEVELOPMENT PROJECT I

Appraisal Estimates and Final Costs

Appraisal estimates Cost tobase cost in 1975 prices Completion

(Contingencies shown in Category I)

A. Sites and Services:

1. Land & Infrastructure 4.92. Housing Core Units 2.13. Self-help buildng materials 0.64. Community facilities 0.2

Subtotal A 7.8 16.9B. Slum Improvement:

1. Infrastructure 4.72. Community facilities 0.2

Subtotal B 4.9 6.2

C. Small-scale Business

1. Work sheds and machineryloans for small industry 1.6

2. Training, equipment and shedsfor cottage industry 0.8

Subtotal C 2.4 3.0

D. Maternal and Child Health0.7 0.9

E. Water Supply and Severage 9.0 13.1

- 58 -ANNEX BPage 2 of 2

F. Road and Traffic Improvements

1. 12 km of Inner Ring Road 2.02. 9 pedestrian subways and 250 km

of footpaths and cycle tracks 2.33. 2 grade separations 1.14. City street improvement,

minor bridges 1.55. Traffic engineering, management

and enforcement equipment 0-8Subtotal F 7.7 15.2

G. Bus Transport

1. 285 buses 4.22. 3 depots, 8 terminals

and 400 passenger shelters 1.7Subtotal G 5.9 6.3

H. Technical Assistance

1. Advisers to MMDA(Training) 0.4

2. Consultants' servicesand aerial photography 0.4

0.8 0.7

Subtotal A-H 39.2

I. Contingencies

1. Physical 3.12. Price 9 7

Subtotal I 12.8

Total 52.0 62.3

- 59 -

ANNEX C

Schedule of DisbursementsUs $E000

IDA Fiscal Quarter Cumulative Disbursements Actual % of appraisalAppraisal Estimate

FY 1978

Dec. 31, 1977 50March 31, 1978 200 - -June 30, 1978 500 2,200 440

FY 1979

Sept. 30, 1978 1,300 2,400 185Dec. 31, 1978 2,500 4,100 164March 31, 1979 4,500 4,800 107June 30, 1979 7,500 6,700 89

FY 1980


FY 1981


FY 1982

Sept. 30, 1981 - 19,900 83Dec. 31, 1981 - 21,100 88March 31, 1982 - 24,000 100June 30, 1982 - - -

'BURMA .-

SI LANKA AA I j U R

*1~~~~~~~~~~~~~~~~~~ ~~~~MANALI

) ' IIUVTTVU

7 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~4,IA[ tA vA RAM

A t'~~~~~~~~~~A V, V

i J ( 4 i.S--t . A d UO4P>A OA4 G /

I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~OI

_L I ~t\$-voE

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~mC I T ; V{

F3A- K :;ArMZ °MADRAS MTR ITAN AREA THE-- . ' g >F: - ~~~~~~~~~~~~~~~~~~~LOCATiON OF MAO PROJECT COPNENTS

,, ... \ . \) S:f /\ ), ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Progeci ccn0uV

, Arrport / > ~~~~~~~~~~~~ iZ ~~~~ tX > ~~~~~~ Z ~~~~ -t~nn.r R.ng Road

) _ \ /A} A:ANDt.Iv p .<) ^~~~~~~~~~~~~~~~~~~~~~~~~~ Bus termi.noJ~~/ \ ; Mj-/r- & / / / * *o~~~~~~~~~~~~~~~ Wtrworks/ ~ ~ ~ ~ ~ ~ ' - - Th.rid _a supply coedwit

g / r 0: SJ }~~~~~~~~~~~~~~~~~~~~~~i E..istiq band use:

/ ~ ~ ~~~~/ J mIndtiustria

( IlxMBASAM /7r ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Agr.cultural-P opn seennW*

)/< NH 5~~~~~~~~~~~~~~~~~~ Nat,onal b.ghoays

t ~~~~~~~~~~~~~~~~~ ~~~~~ - \~~~~~___ Other main roads

I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ -. _. Po.Iways

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~R,s,, ,_,Rers

) / t ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Municipad and tobnjip boundn.,/ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~AtANDJ AAun.capal.t,.s

AVAD/ Townsh9ps

_~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ A. 4. 5 6S 7- 8

., ,, , 7 ....... _I.ETR >~~~~~~~~~~~~~~~~~~~~~~~~~1 \ 2 _ os# _ .r -2 N /- \- MIoLES3 57

-~~~ i* -/ - ___/____I_____________________

-4n~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~t.R ESTATEjZIItS eQ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

I ma &-y* 3s .rc DoIo Pr- t_ ,,mL~~~~~~~~~~~~~~~~~~~~~~~~~~~~~MDA MERPOIA ARE --- i- TH

World Bank Documentdocuments.worldbank.org/.../pdf/6330-PPAR-P009724-PUBLIC.pdfD_mt G The World Bank...

Documents

Transcript of World Bank Documentdocuments.worldbank.org/.../pdf/6330-PPAR-P009724-PUBLIC.pdfD_mt G The World Bank...