Document of The World Bank Report No: ICR2389 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-48350) ON A LOAN IN THE AMOUNT OF EURO 106.2 MILLION (US$148.5 MILLION EQUIVALENT) TO ROMANIA FOR A MUNICIPAL SERVICES PROJECT November 29, 2012 Sustainable Development Department Country Unit for Central Europe and the Baltic Countries Europe and Central Asia Region CURRENCY EQUIVALENTS (Exchange Rate Effective February 29, 2012) Currency Unit = New Romanian Lei (RON) € 1.00 = RON 4.35 US$ 1.00 = RON 3.24 € 1.00 = US$ 1.35 FISCAL YEAR January 1 – December 31 ABBREVIATIONS AND ACRONYMS CF Cohesion Funds MoPF Ministry of Public Finances CPS Country Partnership Strategy MP Master Plan CSG Community Strategic Guidelines MTR Mid Term Review EIA Environmental Impact MUDP Municipal Utilities Development Assessment Program ERR Economic Rate of Return M&E Monitoring and Evaluation EU European Union NDP National Development Plan FOPIP Financial and Operational NSRF National Strategic Reference Performance Improvement Project Framework FS Feasibility Study OP Operational Policy FM Financial Management OPRC Operation Procurement Review IB Intermediate Body Committee IBRD International Bank of PHARE Poland and Hungary Assistance for Reconstruction and Development Restructuring of the Economy (World Bank) PDO Project Development Objective ICR Implementation Completion and PIU Project Implementation Unit Results Report PUZ Zonal Urban Plan IFR Interim Financial Reports QEA Quality at Entry Assessment ISPA Instrument for Structural Policies QAG Quality Assurance Group for Pre-Accession RED Road Economic Decision Model LA Loan Agreement SOP Sectoral Operational Program LAPF Land Acquisition Policy SOP-E Sectoral Operational Program – Framework Environment MoA Municipality of Arad TA Technical Assistance MoB Municipality of Bucharest TD Tender Documents (Tender Dossier) MoEF Ministry of Environment and ToR Terms of Reference Forests (former MoEWM) UCS Use of Country System MoEWM Ministry of Environment and Water Management (now MoEF) Vice President: Philippe H. Le Houerou Country Director / Manager: Peter C. Harrold / Francois Rantrua Sector Manager: Sumila Gulyani Project Team Leader: Elisabetta Capannelli ICR Team Leader / Author: Elisabetta Capannelli / Roohi Abdullah ROMANIA Municipal Services Project CONTENTS Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph Executive Summary ........................................................................................................ 1 1. Project Context, Development Objectives and Design ............................................... 2 2. Key Factors Affecting Implementation and Outcomes .............................................. 6 3. Assessment of Outcomes .......................................................................................... 12 4. Assessment of Risk to Development Outcome......................................................... 20 5. Assessment of Bank and Borrower Performance ..................................................... 20 6. Lessons Learned ....................................................................................................... 22 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 23 Annex 1. Project Costs and Financing .......................................................................... 24 Annex 2. Outputs by Component ................................................................................. 25 Annex 3. Economic and Financial Analysis ................................................................. 31 Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 40 Annex 5. Beneficiary Survey Results ........................................................................... 42 Annex 6. Stakeholder Workshop Report and Results................................................... 43 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 45 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 49 Annex 9. Assessment of the Use of Country Systems .................................................. 50 Annex 10. Project Photographs (for assessing investment impact) .............................. 54 Annex 11. List of Supporting Documents .................................................................... 59 MAP A. Basic Information MUNICIPAL Country: Romania Project Name: SERVICES PROJECT Project ID: P088252 L/C/TF Number(s): IBRD-48350 ICR Date: 11/29/2012 ICR Type: Core ICR Lending Instrument: SIL Borrower: ROMANIA Original Total USD 131.70M Disbursed Amount: USD 148.48M Commitment: Revised Amount: USD 131.56M Environmental Category: B Implementing Agencies: Ministry of Environment and Water Management Municipality of Bucharest Municipality of Arad Cofinanciers and Other External Partners: B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 11/22/2004 Effectiveness: 05/31/2007 05/31/2007 01/28/2010 Appraisal: 05/08/2006 Restructuring(s): 06/15/2011 Approval: 07/13/2006 Mid-term Review: Closing: 06/30/2011 03/31/2012 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Low or Negligible Bank Performance: Satisfactory Borrower Performance: Satisfactory C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Bank Overall Borrower Satisfactory Satisfactory Performance: Performance: C.3 Quality at Entry and Implementation Performance Indicators Implementation QAG Assessments Indicators Rating Performance (if any) Potential Problem Project Quality at Entry No None at any time (Yes/No): (QEA): Problem Project at any Quality of No None time (Yes/No): Supervision (QSA): DO rating before Satisfactory Closing/Inactive status: D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Central government administration 5 5 Flood protection 23 23 Roads and highways 39 39 Sewerage 16 16 Water supply 17 17 Theme Code (as % of total Bank financing) Municipal governance and institution building 14 14 Other urban development 29 29 Pollution management and environmental health 14 14 Regional integration 14 14 Urban services and housing for the poor 29 29 E. Bank Staff Positions At ICR At Approval Vice President: Philippe H. Le Houerou Shigeo Katsu Country Director: Peter C. Harrold Anand K. Seth Sector Manager: Sumila Gulyani Sumter Lee Travers Project Team Leader: Elisabetta Capannelli Sudipto Sarkar ICR Team Leader: Elisabetta Capannelli ICR Primary Author: Roohi Abdullah F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) The objective of the project is to assist Romania to meet EU environmental directives in the water and wastewater sector, thereby improving the quality and coverage of water and wastewater services. This objective will be met through: (a) the support of infrastructure development in the municipalities of Bucharest and Arad to provide better water and wastewater service and improve stormwater management; and (b) preparation of priority water and wastewater projects in 11 counties. Revised Project Development Objectives (as approved by original approving authority) The objective of the Project is to assist the Borrower to meet EU environmental directives in the water and wastewater sector, thereby improving the quality and coverage of water and wastewater services, mainly through: (i) support of infrastructure development in the municipalities of Bucharest and Arad to provide better water and wastewater service and improve stormwater management; and (ii) preparation of priority water and wastewater projects in selected counties. (a) PDO Indicator(s) Original Target Formally Actual Value Values (from Revised Achieved at Indicator Baseline Value approval Target Completion or documents) Values Target Years Indicator 1 : Bucharest: Incremental benefiting population (people) Value quantitative or 0 30,620 24,449 27,105 Qualitative) Date achieved 06/30/2006 06/30/2011 03/31/2012 03/31/2012 Achievement 111% of rev. target value meeting EU standards. Reported value is Comments conservative est. as in new developments (Baneasa & Odai), 1 connection could (incl. % cater to more than 1 HH (lot/property could be single/multi-family achievement) housing/multi-storey apt bldg). Indicator 2 : Bucharest: Incremental water connections (connections) Value quantitative or 0 3,566 3,605 Qualitative) Date achieved 01/28/2010 03/31/2012 03/31/2012 Achievement: 101% of target value increasing water access in 6 target Comments neighborhoods meeting EU standards. Reported value is conservative est. as in (incl. % new developments (Baneasa & Odai), 1 connection could cater to more than 1 achievement) HH. Indicator 3 : Bucharest: Incremental water sold (1000 m3) Value quantitative or 0 2,066 1,249 1,254 Qualitative) Date achieved 06/30/2006 06/30/2011 03/31/2012 03/31/2012 Achievement: 100% of revised target value meeting EU standards. Indicator Comments based on system design as project entailed only creation of assets and not actual (incl. % operation of system (to be undertaken by operator regulated under Romanian achievement) Legislation). Indicator 4 : Bucharest: Incremental sewerage connections (connections) Value quantitative or 3,208 3,077 Qualitative) Date achieved 03/31/2012 03/31/2012 Achievement: 102% of the target value increasing sewerage access in 6 target Comments neighborhoods meeting EU standards. Reported value is a conservative estimate (incl. % as in new developments (Baneasa & Odai), one connection could be catering to achievement) more than one HH. Indicator 5 : Bucharest: Incremental sewerage collected (1000 m3) Value quantitative or 0 1,860 1,124 1,128 Qualitative) Date achieved 06/30/2006 06/30/2011 03/31/2012 03/31/2012 Achievement: 100% of revised target value meeting EU standards. Indicator Comments based on system design as project entailed only creation of assets and not actual (incl. % operation of system which would be undertaken by the operator regulated under achievement) Romanian legislation. Indicator 6 : Bucharest: Incremental stormwater drainage (km of drains) Value quantitative or 0 39 28.1 29.96 Qualitative) Date achieved 06/30/2006 06/30/2011 03/31/2012 03/31/2012 Comments Achievement: 107% of the revised target value meeting EU standards. This (incl. % resulted in reduction of the incidence of flooding in the neighborhoods. achievement) Indicator 7 : Bucharest: Improved road surfacing (km of roads) Value quantitative or 0 62 49.3 51.19 Qualitative) Date achieved 06/30/2006 06/30/2011 03/31/2012 03/31/2012 Comments Achievement: 104% of the revised target value. All roads in the neighborhoods (incl. % were fully surfaced according to EU standards resulting in easy access and achievement) improving the overall quality of the neighborhoods. Indicator 8 : Arad: Incremental benefiting population (people) Value quantitative or 0 23,238 22,331 Qualitative) Date achieved 06/30/2006 06/30/2011 03/31/2012 Achievement: 96% of target value meeting EU standards. All 3 target Comments neighborhoods fully covered. Minor difference mainly due to actual HHs (incl. % targeted due to design changes & some arithmetical error for one of achievement) neighborhoods resulting in reported pop. values. Indicator 9 : Arad: Incremental sewerage connections (connections) Value quantitative or 7,400 6,460 Qualitative) Date achieved 03/31/2012 03/31/2012 Achievement: 87% of target value meeting EU standards. Shortfall due to Comments arithmetical error in final design for one of neighborhoods in Arad (Sanicolau (incl. % Mic). All 3 target neighborhoods fully covered, increasing sewerage access as achievement) per EU standards. Indicator 10 : Arad: Incremental sewerage collected (1000 m3) Value quantitative or 0 1,746 1,746 Qualitative) Date achieved 06/30/2006 06/30/2011 03/31/2012 Achievement: 100% of target value meeting EU standards. Indicator based on Comments system design, not actual operational efficiency. Project scope only entailed (incl. % constructing assets and not actual operation of system which would be achievement) undertaken by operator. Indicator 11 : Arad: Incremental stormwater drainage (km of drains) Value quantitative or 0 81 72.4 Qualitative) Date achieved 06/30/2006 06/30/2011 03/31/2012 Achievement: 89% of target value meeting EU standards. This is due to design Comments changes based on site condition, undertaken during implementation. All 3 target (incl. % neighborhoods fully covered. This resulted in reduction of flooding incidence n achievement) the neighborhoods. Indicator 12 : Arad: Improved road surfacing (km of roads) Value quantitative or 0 84 89.4 Qualitative) Date achieved 06/30/2006 06/30/2011 03/31/2012 Achievement: 104% of target value meeting EU standards. All 3 target Comments neighborhoods fully covered. All roads in neighborhoods fully surfaced (incl. % according to EU standards resulting in easy access and improving overall quality achievement) of the neighborhoods. MOEWM: Project applications prepared for EU funding (number of completed Indicator 13 : reports) Value quantitative or 0 11 10 10 Qualitative) Date achieved 06/30/2006 06/30/2011 03/31/2012 03/31/2012 Achievement: 100% of target value. EU applications resulted in Comments securing/mobilizing financing for infrastructure investments of EUR 1.1 billion (incl. % (85% EU budget, 15% State and Local budgets) towards meeting EU water and achievement) wastewater directive in 10 counties. (b) Intermediate Outcome Indicator(s) Original Target Actual Value Formally Values (from Achieved at Indicator Baseline Value Revised approval Completion or Target Values documents) Target Years Bucharest: Procurement of construction contracts and works on schedule (% of Indicator 1 : works completed) Value (quantitative 0 100 99 or Qualitative) Date achieved 06/30/2006 06/30/2011 03/31/2012 Achievement: Works in 5 neighborhoods (Contracts B2 and B3) 100% complete, Comments but still in defect notification period of 2yrs, Assets handed over to Municipality (incl. % then to APA NOVA (operator). Baneasa (Contract B1) completion 98%; after achievement) 2009 financed by MOB. Arad: Procurement of construction contracts and works on schedule (% of works Indicator 2 : completed) Value (quantitative 0 100 99 or Qualitative) Date achieved 06/30/2006 06/30/2011 03/31/2012 Comments Achievement: Works in 2 neighborhoods (Bujac and Sanicolau Mic) 100% (incl. % complete, but in defect notification period of 12mths. While in Gai, completion achievement) at 99% due to contractor issues, but all physical works were completed. MOEWM: Procurement of consulting contracts and consultancy assignment on Indicator 3 : schedule (% of consulting services completed) Value (quantitative 0 100 100 or Qualitative) Date achieved 06/30/2006 06/30/2011 03/31/2012 Achievement: Full (100%) completion, closed on June 30, 2011. The EU Comments applications resulted in leveraging EUR1.1 billion for infrastructure investment (incl. % which is currently under implementation in 10 counties of Romania under this achievement) component. G. Ratings of Project Performance in ISRs Actual Date ISR No. DO IP Disbursements Archived (USD millions) 1 03/15/2007 Satisfactory Satisfactory 0.00 2 02/26/2008 Satisfactory Satisfactory 14.23 3 12/15/2008 Satisfactory Satisfactory 44.02 4 08/19/2009 Satisfactory Moderately Satisfactory 63.76 5 11/27/2009 Moderately Satisfactory Moderately Satisfactory 79.04 6 03/29/2010 Satisfactory Moderately Satisfactory 93.23 7 05/24/2010 Satisfactory Satisfactory 97.43 8 02/09/2011 Moderately Satisfactory Moderately Satisfactory 131.21 9 05/28/2011 Moderately Satisfactory Moderately Satisfactory 138.35 10 01/03/2012 Satisfactory Satisfactory 146.94 11 03/26/2012 Satisfactory Satisfactory 148.48 H. Restructuring (if any) ISR Ratings at Amount Board Restructuring Disbursed at Restructuring Reason for Restructuring & Approved Restructuring Date(s) Key Changes Made PDO Change DO IP in USD millions The only change to the PDO is in the number of counties, from "11" to "selected" (and which are expected to be 10). The changes were required due to: (i) slowdown in the pace of urban development of the Baneasa area in Bucharest; (ii) 01/28/2010 Y MS MS 89.25 increased civil works costs in Bucharest; (iii) the possible need to acquire land to complete parts of the project which was initially not envisaged; (iv) a change in Romanian legislation on water operators; and (v) the availability of grant financing for one of the counties in component 3. A nine-month extension of Component 1 from June 30, 2011 until March 31, 2012 was necessary to enable the Bucharest 06/15/2011 MS MS 138.35 Municipality to utilize its undisbursed funds, complete the remaining civil works contracts and finance supervision consultants under the Loan. If PDO and/or Key Outcome Targets were formally revised (approved by the original approving body) enter ratings below: Outcome Ratings Against Original PDO/Targets Moderately Satisfactory Against Formally Revised PDO/Targets Satisfactory Overall (weighted) rating Satisfactory I. Disbursement Profile Executive Summary The Municipal Services Project (MSP) was approved in mid-2006 for a total project cost of €137.6 million (and a loan of €106.2 million for 17 years with a 5-year grace period). The project aimed to assist Romania meet the European Union environmental directives in the water and wastewater sector, and improve the quality and coverage of water and wastewater services. The project scope included: (i) a large (almost 10% of the project) consulting services component for the preparation of regional Master Plans, covering over 5 million people in one quarter of Romania’s counties, for water supply and sanitation, feasibility studies, and the preparation of complete application dossier for future financing by EU Grants; and (ii) physical investment, and technical assistance for bidding documents and supervision for water and wastewater, drainage and road surfacing in the capital city of Bucharest (54% of the total), and for sewerage, drainage and road surfacing in Arad, an important industrial center in the north-east of the country (37% of the total). The project was conceived during the process of Romania’s negotiations for entry into the EU (on January 1, 2007), which required the country’s compliance with the acquis communautaire, the entire body of EU legislation. As part of the accession negotiations, Romania agreed to very ambitious targets for meeting the relevant EU Directives in the area of environmental protection, including the Water Framework Directives covering water and wastewater. The investment costs for Romania to meet such Directives by end-2018 was estimated to be around €5.6 billion for water and €9.5 billion for wastewater, but only a third of such funds were expected to be provided through EU grant funds and not all areas of the country were eligible to receive grants (Bucharest for example does not have access to such funds). Additionally, TA grant funds (from the EU instrument of pre-accession) for the preparation of Master Plans and a pipeline of projects for future investments were insufficient to cover the whole territory of Romania. Considering the need for supplemental funding, expertise, technical support and advice within a very tight time-frame, the Government of Romania and the cities of Bucharest and Arad requested the Bank’s involvement in the sector. The project closed in March 2012, with an extension of nine months for the Bucharest component. In spite of some early difficulties with the procurement of investments in both cities, due to higher than anticipated prices, and the need for a level-one restructuring in early 2010, the project was implemented successfully and delivered on its commitments. The project ratings, as detailed in this ICR, indicate a satisfactory outcome and generally satisfactory implementation support. The MSP directly improved services in two important cities, achieved the targets that were set, and had an economic benefit similar to what was expected, and in some cases higher. The TA component was rated highly satisfactory as it was developed swiftly and was well supervised by the implementing agency (the Ministry of Environment, as the Managing Authority for the Operation Program - Environment). All project applications prepared and submitted to the EU Commission were accepted, leading to the approval of €1.1 billion funds (EU grants for more than €0.9 billion and national financing) for water and wastewater projects in 10 Romanian counties, which are currently under various stages of implementation, and that would directly benefit 2.4 million people. At closing, the Borrower also reconfirmed its very positive experience with the MSP, compared to alternative sources of financing where numerous delays and problems of quality were encountered. The Borrower was proven right in its bold decision to borrow for TAs from the World Bank instead of waiting for future TA grant sources of funds. For both Bucharest and Arad, the investment covered nine neighborhoods and directly benefitted approximately 50,000 people, providing access to urban services (water, sewerage, roads, and drainage) meeting EU standards. The simplicity of the project concept and design, the straightforward implementation and procurement arrangements, and the proactive supervision by the Bank’s team helped the project maintain, and in some cases exceed, its disbursement schedule and to deliver two of the three Project components on time. Most 1 crucially, the very strong commitment towards project implementation from the Borrower and the three project beneficiaries at all stages of project implementation ensured the successful delivery of the services and pro-active actions to be taken when hurdles were encountered. In summary, the Bank through this timely Project stepped into a space where there was a TA and investment gap to fill. The Bank proved to be a trusted and reliable partner to Romania, in the politically charged environment of pre-accession, with skepticism towards new entrants and questions about the role of the Bank and a model of engagement in transition. It also helped transfer knowledge, especially in procurement and supervision. Finally, the project supplemented Romania’s plan of action for entry into the EU and meeting the EU directives, provided urban services to its citizens, and opened the space for additional EU grant funding to be available to the country. 1. Project Context, Development Objectives and Design 1.1 Context at Appraisal At the time of appraisal and upon entry into the European Union, the Romanian water sector still suffered from a high level of ground water contamination. This was compounded by aging water distribution network leading to high water losses and increased operation and maintenance costs. Only approximately 52% of the population in Romania had access to piped water supply and 35% had access to wastewater collection and treatment, with 90% in urban and 10% in rural areas. To reach compliance with the EU quality parameter, it was estimated that water access to piped water should reach 70% and of the wastewater collected 60% should be adequately treated. The Romanian National Development Plan (NDP) placed water and wastewater sector improvements high on the agenda. The Sector Operational Program Environment (SOP-E) allocated the highest level of funding under its Priority Axis 1 - Extension and modernization of water and wastewater systems. It also introduced a series of key sector reforms including the establishment of regional water and wastewater system operators, the preparation of regional master plans and priority investment programs, and the implementation of projects to provide good water quality and improve wastewater services to meet the EU directive. Within this context, the Country Partnership Strategy (approved on June 13, 2006) included lending support to comply with the EU’s environmental directives, through a project to finance investments in the water and wastewater sector, particularly in Bucharest and Arad cities which would not be eligible for EU grants, and to complete the Master Plans and project applications for EU funding (from EU Structural and Cohesion grant funds) for the 11 counties (out of 41) lacking technical assistance (TA) funding from other sources. 1.2 Original Project Development Objectives (PDO) and Key Indicators The Project Development Objective (PDO), as noted in the Loan Agreement (Schedule 1, p.5) and the Project Appraisal Document (p.3) were as follows: “to assist the Borrower/Romania to meet EU environmental directives in the water and wastewater sector, thereby improving the quality and coverage of water and wastewater services, mainly through: (i) support of infrastructure development in the municipalities of Bucharest and Arad to provide better water and wastewater service and improve storm water management; and (ii) preparation of priority water and wastewater projects in eleven (11) counties.� Key Indicators. These were: (i) improved access to water supply meeting EU standards (in Bucharest – included: incremental benefitting population (people); and incremental water sold (in 1000m3); (ii) improved access to sanitation meeting EU standards (in Bucharest and Arad – included: incremental benefitting population (people); and incremental sewerage collected (in 1000m3)); (iii) proportion of the project area protected from flooding (%) (in Bucharest and Arad); (iv) improved road surfacing (%) (in Bucharest and 2 Arad where water, sewerage, and storm water networks will be laid); and (v) Project applications prepared for EU funding. Intermediate Outcome Indicators. These were: (i) progress of implementation of water, sewerage, stormwater, and road paving contracts in Bucharest and Arad (%); and (ii) progress of implementation of the consulting contracts for the preparation in several counties by the MoEWM (%). 1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification As noted in the Project Paper for the restructuring approved in 2010 (p.1/p.4), there was a minor revision in the PDO: “to assist the Borrower to meet EU environmental directives in the water and wastewater sector, thereby improving the quality and coverage of water and wastewater services, mainly through: (i) support of infrastructure development in the municipalities of Bucharest and Arad to provide better water and wastewater service and improve stormwater management; and (ii) preparation of priority water and wastewater projects in selected counties.� The only change was in the number of counties for the preparation of EU applications, from “11� to “selected�. The number of applications was reduced to 10, since TA grant funds had at the time of appraisal been identified to complete the applications for the 11th county. Hence, in essence the “Original� and “Revised� objective were the same and there was negligible impact on the project outcome. The ‘adaptive’ project restructuring was necessary due to: (i) slowdown in the pace of urban development Bucharest, especially in the new development neighborhood of Baneasa and Otopeni North, requiring a change of focus for the project; (ii) increased civil work costs in Bucharest; (iii) the possible need to acquire land to complete parts of the project not initially envisaged, triggering OP 4.12 (Involuntary Resettlement); (iv) a change in the Romanian legislation on water operators, requiring a different institutional set-up for management of the water infrastructure financed by the project in Arad; and (v) the availability of grant financing for one of the counties in Component 3, reducing the number of counties needing to access Loan funds from 11 to 10. Key Indicators. To make the project indicators more explicit and representative, the following additive changes were made: (i) adding two indicators on “incremental water and sewerage connections� (unit= no. of connections); (ii) changing the unit for “incremental stormwater drainage improvements� (km of drains instead of %); and (iii) changing the unit for “improved road surfacing� (km of roads instead of %). 1.4 Main Beneficiaries The main beneficiaries are elaborated upon in the table below: Beneficiaries Benefits Bucharest1 Planned and covered 4 existing development neighborhoods, 1. Provide new urban services including: mainly: Straulesti, Vatra Noua, Giulesti Sarbi, Chitila Triaj water, sewerage, drainage, and road – to benefit the current population of 17,400 (projected to surfacing in Bucharest Municipality (in reach 25,925 by 2034). Sector 1 and 6) which had Planned to cover 3 new development neighborhoods, underdeveloped water and wastewater mainly: Baneasa, Otopeni North, and Odai targeted to services. benefit a population of >101,500 by 2034. During 2. Reduce incidence of flooding implementation it became evident the expansion to Otopeni 3. Help Romania meet the EU directive on North would be too ambitious hence 2 new development water and wastewater. neighborhoods were covered: Baneasa and Odai with a 4. Support urban development in the target population of >21,500 by 2034. northern part of Bucharest (new residential and commercial areas). Municipality of Bucharest (MoB) The MoB benefitted from technical capacity transfer and institutional strengthening for managing the implementation of large infrastructure project. 3 Beneficiaries Benefits Arad Covered 3 districts, mainly: Bujac, Gai, and Sanicolau Mic 1. Provide new urban services including: – to benefit the current population of 22,000 (projected to sewerage, drainage, and road surfacing in reach 27,000 by 2025) representing 90% of the Arad the priority districts of Arad. population, having no access to sewerage network and using 2. Reduce incidence of flooding septic tanks leaking into the ground water and with no 3. Help Romania meet the EU directive on proper drainage facilities making it highly susceptible to water and wastewater. flooding. Municipality of Arad (MoA) The MoA benefitted from technical capacity transfer and institutional strengthening for managing the implementation of large infrastructure project. Ministry of Primary Beneficiaries: Benefit from on-the-job training and Environment MoEWM as the Managing Authority of the Environment institutional strengthening for efficient and Water Sector Operational Program (SOP) management of TA Consultants. Management Secondary Beneficiaries: 1. Provide increased coverage of basic (MoEWM) - 1. Small towns and settlements in the 11 counties, reduced services such as water and wastewater in now Ministry to 10 counties (Arad, Sibiu and Brasov, Dolj, Ilfov, Vrancea, 10 counties. of Bistrita, Bihor, Braila, Constanta, and Ialomita) covering 2. Support urban development. Environment about 2.4 million people where master plans and priority 3. Help Romania meet the EU directive on and Forestry water and wastewater projects will be prepared; and water and wastewater. 2. Regional Environmental Protection Agencies as 4. Institutional capacity to undertake the (MoEF) Intermediate Bodies to implement the SOP. preparation of large infrastructure projects. 1 Based on General Urban Plan for Bucharest. 1.5 Original Components The PDOs, under the Specific Investment Lending (SIL), were to be achieved through three main components. Component 1: Urban Services in Bucharest Municipality (appraisal amount US$91.6 million equivalent; actual US$128.5 million equivalent). This component included: (i) works and goods for the provision of new urban services including water, sewerage, drainage and road surfacing in priority neighborhoods (existing built-up area: Straulesti, Vatra Noua, Giulesti Sarbi, and Chitila Triaj; new development: Baneasa, Otopeni North, and Odai); and (ii) technical advisory services to prepare bidding documents and for construction supervision, and to support the Bucharest Municipality to implement the project and complete financial audits. Component 2: Urban Services in Arad Municipality (appraisal amount US$62.4 million equivalent; actual US$78.3 million equivalent). This component included: (i) works and goods for the provision of new urban services including: sewerage, drainage and road surfacing in priority neighborhoods (Bujac, Gai and Sanicolau Mic); and (ii) technical advisory services to prepare bidding documents and for construction supervision, and to support the Municipality of Arad (MoA) to implement the project and complete financial audits. Component 3: Project Preparation for the EU (appraisal amount US$16.2 million equivalent; actual US$17.8 million equivalent). This component, implemented by the Ministry of Environment and Water Management as Managing Authority of the SOP-E, was to provide technical advisory services in two phases: (i) phase 1 would include data collection and the assessment of the current situation, development of a Master Plan at the county level identifying all investment needs, carrying out a detailed feasibility study (to include economic and financial analysis, institutional analysis, preparation of the Environmental Impact Assessment (EIA) studies, and a financing plans), and the preparation of application form for accessing EU Cohesion and Structural Funds; and (ii) phase 2 would include elaboration of the complete tender dossiers for the services, goods and works contracts required for the implementation of the selected infrastructure 4 investment programs. Institutional strengthening, including training to the MoEWM and relevant beneficiary in the counties, and project audits were also included under Component 3. 1.6 Revised Components Component 1: Urban Services in Bucharest Municipality (restructuring amount US$133.1 million equivalent; actual US$128.5 million equivalent). 1 On restructuring, two changes were made: (i) remaining funds under the Baneasa neighborhood 2 were re-allocated to all other remaining neighborhoods. 3 The loan disbursement percentages were respectively adjusted from 65% to 83%; and (ii) the total share financed by MoB increased from €74 million to €93 million due to rising cost of civil works. MoB agreed to bear the additional costs. Component 2: Urban Services in Arad Municipality (restructuring amount US$105.4 million equivalent; actual US$78.3 million equivalent). On restructuring, two changes were made not affecting the scope of this component: (i) changes in legislation related to the appointment of operators – the Project Agreement required the MoA to select a water and wastewater operator through competitive bidding. However, changes in Romanian legal framework since Project approval eliminated the rationale for this covenant. Romania favored the creation of regional (county level) associations of municipalities charged to contract with a regional operator. The EU approved this policy and joining such an association was made a pre-condition for accession to EU structural funds. Arad hence joined the Inter Communal Development Association of Arad County, which chose SC Compania de Apa SA Arad as the municipally owned regional operator. (ii) the project cost of the component increased from €50 million to €73 million, due to changes in market conditions between the time of the feasibility studies and actual procurement. MoA and MoPF agreed to maintain current disbursement percentages under the project and MoA agreed to cover the remaining 100% of project expenditures from its own sources once the Loan funding exhausts. Component 3: Project Application for the EU (restructuring amount US$18.7 million equivalent; actual US$17.8 million equivalent). On restructuring, 11 counties initially included under this component were reduced to 10. The Government of Romania used funding from the Instrument for Structural Policies for Pre-Accession (ISPA) for Galati, eliminating the need to use borrowed funds for this county. In replacement, Vaslui County was added to the list of counties for the elaboration of master plans but not for the full feasibility study. While the number of counties benefitting under the project did not change, only 10 complete applications for EU cohesion grants were prepared. 1.7 Other significant changes (not covered above) • Projects Costs: The cost of the Project was initially estimated at US$170.6 million equivalent; on restructuring, the Project’s costs increased to US$257.2 million equivalent. At closing, project costs were US$225 million equivalent (132% of the original project costs). Such large variations were due both to exchange rate fluctuations and to increased costs from design stage to the time of receiving actual bids (mainly caused by inflationary pressures during a construction boom). 1 Component 1, implemented by the MoB, were divided into three civil works contracts: B1 covering the Baneasa area under new development; B2 covering already-built areas in Vatra Noua, Straulesti, Chitila Triaj, a social housing area in Odai, and Otopeni North (investment only include bulk water supply pipes and trunk collectors); and B3 covering Giulesti Sarbi. 2 As per common agreement, Bank financing under Contract B1 – Baneasa were first suspended (as per the letter of suspension dated May 22, 2009) and then ceased to be available and work invoiced after June 30, 2009 became ineligible under the project. The MoB continued to finance investments as per Project design using its own funds, as per original Project design. 3 Investments continued in the remaining 5 neighborhoods as in actual implementation the Otopeni North residential area was omitted from the project right after approval, at the time of approval of the bidding documents in 2007 and the trunk drainage main was omitted in 2010. Investments in this area were considered premature and the Municipality had not secured the necessary approval of urban plans to launch such new development. The revised components as reported in the Restructuring Paper, however did not however explicitly mention the exclusion of Otopeni North and the revisions made during the very early years of project implementation. 5 • Financing: An IBRD commitment of US$131.7 million equivalent was approved (the Loan was expressed in Euro). On project restructuring this amount remained the same, but if expressed in US dollars it increased by almost 24% to US$153.1 million equivalent. At closing, the actual project disbursement was US$148.5 4 million equivalent or 113% of planned commitment. A small amount of US$0.12 million equivalent was cancelled at closing. 5 • Borrower Contribution: At appraisal the Borrower planned to contribute US$38.9 million equivalent. On project restructuring this was revised to US$104.1 million equivalent; whereas the actual contribution was US$81.8 million equivalent or 210% of planned. It should be noted that this large increase in Borrowers’ contribution (both for Bucharest and Arad) was due to price escalation and to the fact that one of the Bucharest component (Baneasa) was fully funded through the Municipality’s own funds after June 2009. • Project Effectiveness: It was necessary to extend project effectiveness three times (to February 20, 2007, to May 20, 2007, and to June 11, 2007 as the later date), due to delays in ratification of the Loan Agreement by the Romanian Parliament. Consequently, the Loan Agreement and two Project Agreements became effective on May 31, 2007, almost 10 months after project approval. • Project Extension: The Loan closing date was extended once. The extension was processed as a level-two restructuring and was granted for 9 months but only for Component 1 (Urban Services in Bucharest Municipality), establishing March 31, 2012 as the later date. For Component 2 (Urban Services in Arad Municipality) and Component 3 (Project Preparation for the EU), the closing date remained June 30, 2011 as Loan funds had already been exhausted by the project’s original closing date. • Restructuring: In addition to the above restructuring for closing date extension, the Board approved a level-one restructuring of the Project on January 28, 2010, and the Loan and Project Agreements were amended on February 3, 2010 to reflect these changes. 2. Key Factors Affecting Implementation and Outcomes 2.1 Project Preparation, Design and Quality at Entry • Project Design: The Project was to assist Romania meet its commitment under the EU directive in water and wastewater, by following a two-pronged approach: (i) support urban development through provision of urban services in Bucharest (water, sewerage, stormwater, and roads) and Arad (sewerage, stormwater, and roads); and (ii) help the country to implement priority environmental investment by preparing regional Master Plans and a pipeline of projects for financing through EU Structural and Cohesion grant funds. Alternative approaches to financing in the design of the Project were duly considered, including: (i) co-financing with the EU grants. This was omitted in view of the timing of availability of EU grants and the complexity for such financing arrangements. Instead, by helping prepare a good project pipeline, the Project would facilitate the absorption of EU funds; (ii) lending directly to the municipalities (with a sovereign guarantee). In view of the very heavy financing commitment for other parallel projects, the Government preferred instead to borrow from IBRD and on-lend to the municipalities of Bucharest and Arad at a favorable rate; and (iii) lending directly to the utilities. This was omitted due to Romanian Law and State Aid rules, as a new, competitively selected operator would have to be introduced after the assets were created in Arad Municipality. In the case of Bucharest, a concessionaire (Apa Nova) already existed. If Apa Nova used the IBRD Loan to create assets and transfer them to the municipality, the existing concession contract would have to be significantly amended (as the vice versa was stated in the contract) and that was not a feasible option for the municipality. 6 4 This is based on actual Bank reported disbursement from the system (Client Connection), however due to exchange rate variation this amount comes to US$143.2 million equivalent as reported in Annex 2. 5 This small amount was from the Component 3 (Category 3 – Consultant Services of the project) not disbursed was cancelled. 6 Currently, as per the contract Apa Nova would take on services in streets after the municipality installs the network infrastructure and paves the street, which are activities to be carried out by the municipality under the project. 6 • Lessons learnt from previous sector projects were adequately reflected in project design, mainly: (i) sustained political support was critical for municipal investments. This Project enjoyed very strong political support, at both central and local levels of government, as the investments were aimed at helping meet Romanian’s commitment for entry into the EU; (ii) the scale and complexity of the Project reflects the capacity of the implementing agencies. In the last decade, both the municipalities of Bucharest and Arad had strengthened their institutional capacity and implemented externally financed projects including those financed by the EU pre-accession funds (such as ISPA). MoEWM has also gained sufficient program and project management experience through programming and use of EU funds; (iii) lack of prepared projects were a major bottleneck to successfully absorb EU grants. Under the Project, Component 3 was specifically designed to adopt a country-wide approach of preparing a project pipeline for small towns and settlements to be financed under the EU Structural and Cohesion Funds. • Risks: Risks were generally adequately identified and mitigated, including: (i) municipalities may not have adequate resources to meet their financial commitments under the project; (ii) delays in selecting an operator in Arad could hamper services through assets created under the Project; (iii) the exchange rate risk could impact the municipalities’ financial positions; (iv) delays in project implementation due to procurement delays; and (v) development in the new urban districts (Baneasa and Otopeni) is slower than estimated by the Bucharest municipality. However, the risk of land acquisition was not sufficiently assessed during project preparation especially in a situation where construction would occur in densely populated areas or in new private development where scope of the pre-existing project conditions was limited. Associated risk that may possibly cause project delays were also not fully mitigated, related to: design not responding appropriately to site conditions, resulting in the need for lots of variation orders which were difficult to accommodate within the type of contracts awarded; delays in the delivery of construction permits; and problems of communication and strategic priorities among the different District authorities in Bucharest Municipality. • Quality at Entry Assessment (QEA): No QEA of the project was carried out by the Quality Assurance Group (QAG) for this project. 2.2 Implementation • Implementation Arrangement: The Borrower of the Loan was Romania, represented by MoPF, and the Project was implemented by three entities: MoB, MoA, and MoEWM (now MoEF). There was a Loan Agreement (LA) for all three project components. For Components 1 and 2, Project Agreements were also in place between IBRD and the two municipalities, in addition to Subsidiary Loan Agreements between MoPF and MoA/MoB. For Component 3, implemented by MoEWM, the General Directorate for Management of Structural Instruments (the Managing Authority of SOP-E) was responsible for programming, authorizing payments for the EU Structural and Cohesion funds for the environmental sector. The Government and the Bank coordinated the activities of this Project with the European Commission, both during design and implementation. • Supervision: Project implementation spanned 5 years (6 years from project approval) and included approximately 12 implementation support missions, 7 with an average of two to three missions yearly. The task team leader (TTL) was based regionally in the initial and final years of the Project, with four TTL transitions over the life of the project, and country-level staff dealing with day-to-day issues. Mission reporting (aide memoires) were sufficiently detailed and the follow-up was diligent. The Project dealt with several implementation hurdles, mainly: (i) project effectiveness delayed by 10 months. This created some problems in the early days of the Bank’s implementation support as the PIUs had to carry out substantial preparatory work in the absence of project engineer consultants (to prepare the bidding documents and carry out early procurement actions). Implementation delays were minimal, but quality of documentation suffered from this; (ii) by early 2008, all works and 7 Actual implementation period was approximately 4 years for Components 2 and 3, whereas 5 years for Component 1, as the Project encountered effectiveness delays, it was only in the middle of 2007 that project implementation started. 7 consulting contract were signed, but with some initial procurement lag. Construction would begin after almost 20 months from project approval (also due to the inability to build in winters); (iii) in late 2008, the possibility to acquire land in Bucharest (for Contracts B1, B2 and B3) manifested itself, where proposed technical solutions for some works required non-public land, impacting the project timeline; (iv) in early 2010, the project was restructured, OP 4.12 was triggered, and a Land Acquisition Policy Framework (LAPF) for the project was put in place; (v) the temporary suspension of a contract (Contract B1- Baneasa) in Bucharest caused delays, also because this had to be fully financed by the budget of the main Municipality. Numerous design revisions were needed to seek new technical solutions and adapt the design to site conditions, and there were recurrent counterpart funding delays from Sector 1 Municipality and delays in receiving construction permits; and (vi) in Arad, neighborhood of Gai (Contract A1) accumulated delays in works execution due to poor performance of the sub-contractors and the lack of decisive actions by the Municipality on the poorly performing contractor early on during project implementation. • Mid-term Review (MTR): The MTR and fact-finding mission took place during April 13-24, 2009 followed by financial management review from May 3-17, 2009. Critical decisions at the end of the MTR were: (i) project restructuring was needed to address instance of non-compliance or potential non-compliance in the Project and Loan Agreements, and lifting the suspension for the Baneasa component (the MoPF formally requested to proceed with restructuring on August 11, 2009); (ii) the proposed changes in disbursement percentages will not modify funding allocated to MoB but only affect how funds are allocated to each contract; and (iii) managing risk posed by land acquisition and permit issuance would require very tight project management from both MoB and MoA to remain within the agreed timeline. • Project Changes/Restructuring: The project was restructured in 2010 as fully described above. The proposed changes only marginally affected the project’s development objective, not requiring change in monitoring mechanism or outcome indicators. However, target values were modified for Components 1 and 3 as a result. A level-two restructuring was processed to extend the Loan closing date for nine months to March 31, 2012 for Component 1 (Urban Services in Bucharest Municipality). • Projects Risk Status: On restructuring the risks and benefits were adequately revisited, to reassess the benefits, delays, counterpart funding, and procurement under the Project. It was concluded that restructuring would shift the Bank’s financing to poorer areas in Bucharest that would have a higher social and economic impact, mitigating the risk of the Project not achieving its PDO and not meeting the Bank’s safeguard policies. Delays due to possible land acquisition and expropriations may have the potential to cause slippage in the completion date, but the properties that may be affected were expected to be few. MoB had experience in these matters and had a specialized office to manage land acquisition. • In hindsight, in spite of the above problems and changes, project implementation progressed well as the PIUs and their consultants, in conjunction with the Bank, took adequate and timely actions during implementation. Component 3 was completed ahead of the Project closing date and there was stellar disbursement schedule. As a result the project produced satisfactory outcomes. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization M&E Design: The M&E design depended upon the use of project progress reports to monitor and evaluate progress based on the parameter of the Results Framework of the Project, which were fairly simple and clear. There was no Project Operational Manual and no centralized PIU. In addition project progress reports were to be prepared semi-annually by the three implementing agencies – Bucharest Municipality, Arad Municipality, and the MoEWM – and submitted in a consolidated manner by MoEWM to the MoPF for transmittal to the Bank. On restructuring, nothing significantly changed other than introducing additional indicators and clarifying measures to the Results Framework. The target values for Bucharest were revised but despite changes in design, target values were not changed for Arad. 8 M&E Implementation: M&E in implementation materialized differently from its design. Reporting was not as straightforward as the Project comprised of three standalone components which operated independently. MoEWM (a separate unit from the one responsible for Component 3) was tasked to prepare the consolidated Project reports. However, such unit had limited knowledge of the project and no power to enforce deadlines or specific quality standards on the respective PIUs. As a result, in the early years of implementation such reports were prepared late and were of mixed quality. Later, the Bank received numerous reports (at times too many, including engineering reports). Lack of timely reporting submitted to the Bank created delays in the Bank’s ability to anticipate problems and deal with delays. Towards the end of the Project M&E reporting improved but the monitoring of outcome indicators remained weak. Overall, the quality of data reported by the supervision engineers to the PIUs was reliable, and disaggregated data by each neighborhood was easily available. M&E Utilization: The Project comprised of simple indicators and the M&E was effectively deployed and utilized by the Bank to monitor project progress. It was through intermediate project indicators that the Bank realized about pre-existing works in the new development area of Baneasa in Bucharest. However, limited attention was paid to project indicators monitoring, despite requests by the Bank’s missions. It was only at the end of the Project that it became apparent that based on the data provided by the contracting engineer the target values in Arad were not fully met. 2.4 Safeguard and Fiduciary Compliance (a) Safeguards Environment: The Project was classified as Category B (Partial Assessment) at appraisal since the investments were related to civil works without significant impact to the environment. The Project was selected for piloting the Use of Country Systems (UCS) under the Bank’s OP/BP 4.00 to address environmental and social safeguards in Bank-supported projects. The Safeguard Diagnostic Review (SDR) confirmed that there were no gaps between the national legislation and Bank Policy in equivalency and acceptability (thus conforming to OP 4.00). Hence, the scope of country system adopted was limited to environmental assessment and physical cultural resources policies applicable to the three (3) project components. Project supervision of UCS was adequate. The Bank also proactively reviewed the safeguard compliance of the UCS in line with the SDR’s recommendations during implementation. In Bucharest, some health and safety lapses were observed by the Bank on work sites; following notification to the engineer,the contractor remedied the situation quickly. In both, Arad and Bucharest, a designated person in charge of safety and environment protection activities was appointed according to the site environmental management plan (EMP) provisions, who was adequately trained and fully aware of the environmental management plans and the related mitigations measures. In most of the works contracts, the performance of the contractors on UCS compliance was satisfactory, also as a result of the permanent involvement of the PIUs and its engineers in supervision of contracts implementation. Under Component 3, Environmental Impact Assessment (EIA) studies conforming to the EU and Romanian legislation and equivalent to the Bank’s OP 4.01 were prepared for each project application. All EIA Reports were reviewed and approved by MoEWM and the EU Commission. The EIAs demonstrated that the proposed sub-projects would contribute to the fulfillment of Romania’s commitments under its Accession Treaty. Overall, the Use of Country Systems in Romania during the implementation of Municipal Services Project is considered Satisfactory and in accordance with the findings of the acceptability assessment. The UCS did not cover the Bank’s policy on International Waterways (OP 7.50) which was triggered due to its application of stormwater discharge in Bucharest and Arad.8 The compliance with this Bank’s policy was considered as Satisfactory since Romania met its requirement in terms of notifying the riparian countries 8 In Bucharest, the stormwater would discharge into Dambovita River, a tributary of Arges River that flows directly into the Danube River – an international waterway. In Arad, the stormwater would discharge into the Mures River that flows cross-border to Hungary and then into the Tisa River, another tributary of the Danube River. 9 through the International Commission for Protection of the Danube River for the Bucharest and Arad components. For the technical assistance component of the Project, the Project falls under the exception to the notification requirement. Physical Cultural Resources (OP 4.11) were included under the UCS and the Romanian systems were considered equivalent to that of the Bank and appropriate for application, if needed. During project implementation, no construction or rehabilitation near historic buildings and sites of cultural significance were undertaken, and no “chance finds� were encountered. Social: At appraisal Involuntary Resettlement (OP 4.12) was not trigged for two reasons: (i) no involuntary resettlement was envisaged under the Project; 9 and (ii) based on the assessment by the municipalities (confirmed in the Project Agreements) that all construction would take place on public land. However, in the later part of 2008, two issues arose related to: (i) land ownership/land acquisition; 10 and (ii) resettlement, resulting in non-compliance or potential non-compliance with Loan and Project Agreements’ covenants. 11 This issue was dealt with through project restructuring, and the Loan and Project Agreements were amended to replace the covenant forbidding resettlement by a commitment to apply a Land Acquisition Policy Framework (LAPF), annexed to the agreement and compliant with the safeguards on resettlements (OP 4.12) which was triggered. However, none of the technical solutions adopted after project restructuring ultimately required land acquisition. In retrospect, as the scope of planned project works at inception entailed both new urban developments and existing built-up areas; and the Romania Safeguard Diagnostic Review (2006) highlighted that experience on rehabilitation and expansion of infrastructure increased the incidence of expropriation,OP 4.12 should have been triggered at appraisal as a precautionary measure. (b) Fiduciary Compliance Procurement: Overall rating of procurement during the project cycle is Satisfactory. The Borrower, at appraisal, had already developed a procurement plan for project implementation for all components. The overall project risk for procurement was rated High due to limited experience in implementing large works contracts, for which the Bank would provide necessary support to municipalities and would conduct prior review of most contracts (above €4 million); and careful planning would be required to implement the project in a timely manner, for which consultants will be hired to support the municipalities. By the end of 2008 all contracts under the project had been signed. In early 2009, a procurement issue was flagged regarding MoB’s compliance with the procurement covenants of the Project Agreement, based on a report that some pre-existing work (14%-19%) included in the scope of Contract B1 had already been executed prior to August 2007, when Contract B1 physically started. Although these works were paid by the Baneasa private developer (BISA) and executed mostly in 2005-06, i.e. before inviting bids for Contract B1, the concern arose from the fact that such works may have been known to the bidder, hence potentially giving an unduly advantage. This raised concerns and the Bank’s Operation Procurement Review Committee (OPRC) suggested that the Bank’s team hire independent auditors for the determination of the possible impact of these pre-existing works on the bidding process. The Bank suspended funding under Contract B1 (Baneasa) and a forensic audit of such contract pursuant to Section 5.11 of the General Conditions and 1.15 of the General Conditions of Contract B1 was hence carried 9 According to the Safeguard Diagnostic Review (2006), on assessment it was decided not to include Involuntary Resettlement in the pilot for UCS. If needed, the Bank guidelines on Involuntary Resettlement (OP/BP 4.12) would apply. During preparation it was also expected that the MSP might trigger this safeguard, but following further analysis by the Regional Safeguards Advisor it was concluded that triggering this safeguard policy was not necessary. 10 Due to changes in technical design, Baneasa (Contract B1) required privately owned land for a wastewater pumping station, an underground pipe linking the sewerage collector and for a drainage pipe; two areas in Straulesti (Contract B2) were at risk of requiring expropriation, and in Giulesti (Contract B3), private land was needed for rainwater pre-treatment plant. 11 Private developer for Baneasa (BISA) confirmed that 34 families, formerly renting housing from the University of Agronomical Sciences, were still living on the Baneasa farm site when this land was transferred to BISA. These families were provided monetary compensation on their eviction according to Romanian requirement, which the Bank’s internal review also assessed to be adequate. 10 out. The final results of such Forensic Procurement Review Audit became available in 2011 and indicated that the existence of previously executed works did not seem to have influenced the results of the procurement process nor led to any irregular payments. While the Bank’s initiative to carry out such review was commendable, it took a very long time for the Bank internally to clear all steps for carrying out such review. It may have been more appropriate and effective for the Bank’s procurement experts to carry out a review rather than contracting this out to auditor/ consultants with poor knowledge of the Bank’s policies. The client also was forced in the meantime to finance the sub- component fully from its own budget. Financial Management: Overall, Financial Management (FM) for the project of all the three (3) components is rated as Satisfactory. This includes project accounting and reporting arrangements, staffing, internal control procedures, planning and budgeting, counterpart funding, financial manual and external audits. The accounting software used by the PIUs had adequate security levels and its outputs were used to prepare semi-annually the un-audited interim financial reports (IFRs) of the Project. The audit reports for the Project have been submitted on time with one incidence of delay (in 2008 when submission of Component 1 (MoB) audit report for 2007 was delayed by 9 months as the auditors were not in place). The audit opinion was clean and no management letter points have been mentioned. During implementation, the Project underwent FM review supervision missions at least once a year, if not twice from 2008 onwards. The responses on agreed actions by the PIUs have also been satisfactory. The FM assessment of counterpart funding rating for the Bucharest component was generally considered Moderately Satisfactory, due to recurrent delays for the main Municipality of Bucharest to receive financial contributions from Sector 1. No other components of the Project encountered problems. The final interim financial reports and FY2011 audit reports for the Project were submitted to the World Bank and were accepted. The FY2012 audit report for Component 1 - Bucharest (covering the final MoB project transactions, as this component closed on March 31, 2012) is expected to be submitted by its due date of June 30, 2013. 2.5 Post-completion Operation/Next Phase Urban Services of Bucharest Municipality. The Project covered Phase 1 of the Municipality of Bucharest’s program for extension, rehabilitation, and modernization of the water supply, sewerage, storm water services and associated roads in two districts (called Sectors) out of six. The assets created as a result of the project are being handed over as follows: the utilities networks to Apa Nova (the Municipality water concessionaire would be responsible for improving reliability of service, safety, durability, minimizing physical and hydraulic losses, minimizing leakages, allowing maximum usage of mechanical works and minimizing the manual intervention, and high level of environmental safety); and roads to the City Councils of Sector 1, Sector 6 and MoB – Streets Administration. During implementation necessary modifications were made to allow the operator to use updated monitoring system (remote control, SCADA etc.). Urban Services of Arad Municipality. The asset created under this component are transferred to the Regional Operator (SC Compania Apa SA Arad) who is responsible for providing service to the targeted neighborhoods with safety, durability, minimizing physical and hydraulic losses, minimizing leakages, allowing maximum usage of mechanical works and minimizing the manual intervention and high level of environmental safety. The project also included the commissioning of a SCADA system, which would allow the Operator to apply updated monitoring systems. Project Application to the EU Component. All project applications (including master plans, feasibility studies and elaborated tender dossier) prepared were approved by the EU. They resulted in financing for approximately US$1.4 billion equivalent (approximately €1.1 billion) of which about 85% would be received from EU budget as grants and 15% from state and local budgets. All nine contracts (covering the 10 counties for which applications were prepared) are under implementation (initiated between March 2010 and September 2011). The Regional Water Companies (project implementer) are responsible for implementation. and for operation and management of the assets. 11 3. Assessment of Outcomes 3.1 Relevance of Objectives, Design and Implementation Relevance of Original/Revised Objectives. The relevance of the original objective was Highly Satisfactory. The project would finance investments and studies/ TAs to help the country meet requirements for key EU Environment Directives, in so doing showing the country’s readiness to be a full member of the European Union and averting possible sanctions (from future infringement procedures from the EU Commission) from non-compliance. The Project’s objectives were consistent with the Bank’s Country Partnership Strategy (CPS) 2009-2013 and directly responded to CPS Pillar 2: Growth and Competitiveness through the Energy and Environment Objective. In the immediate, the project was helping improve water and sewerage access issues in the Romania’s capital city of Bucharest and Arad, where about 90% of the city population of 190,000 did not have access to sewerage networks. The Project would also support the development of stormwater drainage and road re-surfacing to reduce flooding in both cities. At restructuring, the revised objective was essentially the same as the original objective, and continued to remain highly relevant. Both original and revised objectives were highly relevant to the country context and sector demands, and rated as Highly Satisfactory. Relevance of Original/Revised Design. The relevance of design was logical and highly relevant, and it is rated as Highly Satisfactory. The project design adopted a two-prong approach of expanding infrastructure coverage through: (i) physical infrastructure investment in Bucharest and Arad (municipalities identified by the Government as high priority for investments, and not eligible for EU grant financing); and (ii) securing EU grant financing for prepared pipeline of infrastructure investments at county level in Romania. Each of the three components could have easily been three stand-alone projects. However, keeping the Project together allowed for synergies, savings, and demonstration effect by the Bank during project implementation. The results chain for the project was well defined. The results framework corresponded clearly to the PDO translating into respective outputs and outcomes. Although water quality could not be an indicator of the results framework, as Romanian legislation regarding private operators places the responsibility to supply and monitor water quality to the operators, achieving satisfactory quality is part of the operator mandate once assets built under the project are handed over to them. Also, the scope of the Project was in creating the physical infrastructure assets and securing funding for infrastructure finance and not in service provision. The relevance of the design did not change after restructuring and remained highly relevant. The results framework was modified and elaborated which added more clarity to the outputs/outcomes to be accomplished under the Project. 3.2 Achievement of Project Development Objectives The Project underwent “adaptive� restructuring during implementation and the changes of the PDO were minimal. The project achievement is hence being assessed on the original/revised PDO. Rating is defined as “before� and “after� the project. The PDO consists of two parts: (i) investments in urban service meeting EU standards in Bucharest and Arad, and (ii) technical assistance to secure EU grant financing for investments. Original Objectives – Moderately Satisfactory. Prior to restructuring, both the progress towards achievement of the PDO and project implementation progress (IP) were rated Moderately Satisfactory implying that the Project was progressing well and would be able to accomplish the development objective by project closing. PDO Part 1: at the time of restructuring the implementation progress of Components 1 and 2 were at 30% and 39% respectively. PDO Part 2: at the time of restructuring the progress of Component 3 was at 45%. The Project was progressing toward completion of project applications for EU funding for Braila, Vrancea, Ilfov, Ialomita, Constanta, Galati, Bistrita-Nasaud, Arad, Sibiu, Mehediniti, and Dolj counties (for details, see Annex 2). 12 Revised Objectives – Satisfactory. (i) To meet the EU environmental directives in the water and wastewater sector, thereby improving the quality and coverage of water and wastewater services through support of infrastructure development in the municipalities of Bucharest and Arad to provide better water and wastewater service and improve stormwater management – Satisfactory. Outputs: Output Target Achievement Percentage Comments Water 1. Bucharest: Incremental This indicator was introduced at project water connections restructuring. Achievement of this indicator was 101% of the target value reached in six (6) targeted neighborhoods of Bucharest. The actual connections, for both water and wastewater, 3,566 3,605 101% especially in the new neighborhoods (Baneasa and Odai) would be much more than reported, as in apartment complex connections are counted as one. The cumulative reported number of connections is a conservative estimate of all households that would be connected as a result of the project. Sewerage/Wastewater 2. Bucharest: Incremental This indicator was introduced at project sewerage connections restructuring. Achievement of this indicator was 3,028 3,077 102% 102% of the target value reached in six (6) targeted neighborhoods of Bucharest. 3. Arad: Incremental This indicator was introduced at project sewerage connections restructuring. Achievement of this indicator was 87% of the target value in the three (3) targeted neighborhoods of Arad. Technical design changes 7,400 6,460 87% during implementation resulted in a new assessment of the number of targeted households. The three neighborhoods were fully covered and all households had a sewerage connection. Drainage 4. Bucharest: Incremental On restructuring the target value for this indicator stormwater drainage was reduced by 28% accounting for the change in (km of drains) 28.12 km 29.96 km 107% the scope of works for Baneasa and Otopeni North. Still, the project accomplished 107% of the target value in the six (6) targeted neighborhoods. 5. Arad: Incremental Due to the technical design changes during project stormwater drainage implementation only 89% of the target value was 81 km 72.4 89% met. However, the three (3) targeted neighborhoods (km of drains) of Arad were fully covered. Roads 6. Bucharest: Improved On restructuring the target value for this indicator road surfacing (km of was reduced by 20% accounting for the change in roads) 49.3km 51.2 km 104% the scope of works for Baneasa and Otopeni North. The project accomplished 104% of the target value in the six (6) targeted neighborhoods. 7. Arad: Improved road Achievement of this indicator was 106% of the 84 km 89.4 km 106% target value in the three (3) targeted neighborhoods. surfacing (km of roads) Sidewalks 8. Bucharest: Improved sidewalks (km of - 102.6 km - This indicator was not part of the results sidewalks) framework; but was additionally documented as an 9. Arad: Improved important output of the project, improving safety sidewalks (km of - 146.3 km - and property values. sidewalks) 13 All infrastructure created was of good quality. In Bucharest 23.4 km of water mains, 51.2 km of water distribution network, 24 km of sewerage mains, 17 km of sewerage and storm water network (unitary system), 2 pumping station for unitary sewerage network, 3 wastewater pumping stations, 3 pre-treatment installation for stormwater, and 1 pumping station with pre-treatment installation for drinking water were built. In Arad, 89.5 km of sewerage mains, 10 wastewater pumping stations and 6 pumping stations with pre-treatment installation for stormwater were also built. Outcomes: • Beneficiary population – Infrastructure investments in both Bucharest and Arad connected nine neighborhoods to water, wastewater, and drainage networks meeting EU standards and benefitted almost 50,000 people; directly impacting their quality of lives, well-being, and health. In Bucharest, overall the project provided improved access to water supply meeting EU standards for 27,105 people, against a target of 24,449 in the six (6) targeted neighborhoods (111% of the target value) was met. This is a conservative estimate of beneficiary population as the number of household connected for new development (mainly in Baneasa and Odai) were made up of multi-story housing complex and counted as one connection to a property. In Arad, overall the Project provided improved access to sewerage meeting EU standards for 22,331 people, against a target of 23,238, or 96% of the target value. • Incremental water sold and sewerage collected – In Bucharest, the target value of incremental water sold, based on system design was fully met, 1,254 m3 against a target 1,249 m3, or 100%. The target value of sewerage collected, based on system design was also fully met, 1,128 m3 against a target 1,124 m3, or 100%. In Arad, as a result of the project, the target value of incremental sewerage collected, based on system design was also fully met, 1,746 m3 against a target 1,746 m3, or 100%. • Accrued health and other benefits – Although this benefit cannot be quantified, accrued health benefits to the communities in both Arad and Bucharest provided with better access to urban services meeting EU standards must be significant. In addition, the better roads infrastructure improved the overall outlook of the neighborhoods, attracting investment in real estate thereby increasing the demand and property values in these neighborhoods, provided better access, and reduced incidence of flooding due to improved drainage system and paved roads. (ii) To meet the EU environmental directives in the water and wastewater sector, thereby improving the quality and coverage of water and wastewater services through preparation of priority water and wastewater projects in selected counties – Highly Satisfactory Outputs: • Ten (10) Romanian counties (Braila, Vrancea, Ilfov, Ialomita, Constanta, Bistrita-Nasaud, Arad, Sibiu-Brasov, Bihor, and Dolj) received EU grant financing. Project output results are represented by the deliverables prepared under the TA: Master Plans, Feasibility Study, tender document, EU financing application, etc. • Through the approved applications the Project was able to leverage approximately €1.1 billion (comprising of 85% from EU grants and 15% from state and local budgets) for infrastructure investments. Based on a project component worth €13 million (€11 million IBRD Loan and €2 million Borrower’s contribution), MoEWM was able to leverage about €900 million EU grants (representing 30% of the total budget of €2.8 billion allocated for Priority Axis 1 of SOP Environment). Other outputs included: (i) definition of a long-term phased investment program for water and wastewater sector, though Master Plans covering 2007-37; (ii) high quality preparatory measures (measurements, site investigations etc.) for elaboration of the preliminary design of planned works; (iii) environmentally sound water projects through preparation of EIAs; (iv) well-prepared tender documents and procurement strategy; and (v) increased programming and implementation capacity of projects at central and local level. 14 Outcomes: The main outcomes stemming from the implementation of projects in the ten counties of Romania would be: • Additional population connected to basic water services in the 10 counties expected to be approximately 237,000 inhabitants by 2015; • Additional population benefitting from wastewater collection and treatment services expected to be approximately 512,000 inhabitants by 2015; • Indirect benefit to the total population of 2.4 million in the 10 counties of Romania; • Eventually increasing the water and wastewater connection rate meeting EU standards from 80% to 99%, and 63% to 96% respectively, implying an average increase of 19% for water and 36% for wastewater connections in the 10 counties; • Number of localities targeted for new/rehabilitated water and wastewater facilities in a regional management system for the 10 counties is expected to be 102 against the SOP Environment target of 300, or 37% of the 2015 target value; and • Wastewater treatment plants built or rehabilitated is expected to be 45 in the 10 counties of Romania against the SOP Environment target of 200, or 23% of the 2015 target value for the whole country. 3.3 Efficiency Rating: Highly Satisfactory Economic rates of return were estimated ex-ante and ex-post. The ex-ante (PAD, p. 13) assessed the cost benefit analysis (CBA) independently of two project components – water and wastewater works in Bucharest (for both existing and new developments) and wastewater works in Arad. The stormwater component was not included in the cost benefit analysis. For these components, the benefits included in the CBA were: (i) incremental water and wastewater revenues, as a proxy for benefits of piped water services (convenience, better quality), and the benefits of having a sewerage system (and discontinuing the use of septic tanks), respectively, and (ii) incremental property tax revenues to reflect increase in the value of property and land where the infrastructure will be upgraded. The main costs used in calculating the economic rate of return (ERR) on investments were: (i) the cost of building the water supply and wastewater infrastructure; (ii) operational and maintenance costs, and (iii) in the case of new developments in Bucharest, the cost of the distribution network. Based on this, the ex-ante ERR for existing areas in Bucharest (including Straulesti, Vatra Noua, Giulesti Sarbi and Chitila Triaj) for water and sewerage was 12.3%; while for new development areas (Baneasa, Otopeni North and Odai districts) was 9.4%. The ex-ante ERR for Arad (including neighborhoods of Bujac, Gai, and Sanicolau Mic) for sewerage was 6.2%. No sensitivity analysis was undertaken to assess the robustness of the model. At appraisal, it was conceived that road paving in Arad would be financed if the investment showed a satisfactory economic rate of return (ERR) on an assessment done during implementation based on the Bank’s Roads Economic Decision (RED) model, taking into account the traffic and condition of unpaved roads in dry and wet seasons, vehicle speed, types of paving and accident rates. According to the ex-ante RED model, the ERR on investments for roads in Arad was 21%. This exercise was not carried out for Bucharest either at appraisal or completion and per-hectare ERR estimates from the RED exercise for Arad are assumed to obtain crude assessment for roads investment in Bucharest. The scope of work was mostly unchanged during implementation, other than in Otopeni North where anticipated water and wastewater works was canceled, 12 and in Vatra Noua (an existing development in Bucharest) where two new streets were built because of housing development between the initial design and actual project implementation, requiring additional population to be connected to the water and wastewater services. The full stock-taking of Otopeni North and Vatra Noua at the restructuring stage was not 12 Water and wastewater works was canceled in Otopeni North in 2007. Experience in Bucharest had shown that this large new development would take a much longer time to realize. In view of the much higher bid received under the other project components, which were considered to have a higher and shorter term impact and the fact that this development had not been included in the new city spatial development plan, this component was therefore omitted. 15 undertaken and the Project Paper (p.8) for the 2010 restructuring did not indicate major modifications of the project economic impact, except for a small reduction in expected outcomes in Bucharest attributable to changed economic conditions and resulting in slower pace of urban development in the Baneasa area. Overall Sewerage Roads1 Area Comments ERR Arad ex-ante ERR (includes Gai, 1. 6.2% 21% 27.2% Bujac, and Sanicolau Mic) 1288 Arad ex-post ERR (includes Gai, ha 2. 12.9% 19% 31.9% Bujac, and Sanicolau Mic) Water and Overall Roads Area Comments Wastewater ERR Bucharest ex-ante ERR (includes areas with existing population: ~ 7-11% 3. 12.3% ~23.3% Straulesti, Vatra Noua, Giulesti range Sarbi, and Chitila Triaj) RED analysis for roads was not 435 ha Bucharest ex-post ERR (includes undertaken, and a crude areas with existing population: ~ 6-10% approximation is being made 4. 15.7% ~25.7% Straulesti, Vatra Noua, Giulesti range based on ERR for Arad (which Sarbi, and Chitila Triaj ) was assessed using RED model) as a share of targeted area. Bucharest ex-ante ERR (includes ~ 10-14% 5. growth areas: Baneasa, Otopeni 9.4% 622 ha ~23.4% range North, and Odai) Water and wastewater works were not carried out in Otopeni North; Significant benefits of Bucharest ex-post ERR (includes ~ 2-6% 6. 10.1% 52 ha ~16.1% roads, water and wastewater growth areas: Baneasa, and Odai) range investments in Baneasa and Odai materialize over the long run (40 years). 1 Sector experience in transportation shows that ERR is usually over 10%. Conservative estimates have been used. The ex-post economic analysis (see Annex 3 for details) was based on updating the existing models (both ex-ante RED and cost benefit analysis) with current values based on the same analytical frameworks for necessary comparison. The overall ERR for Arad and Bucharest (existing developments) is more than 20%. A further breakdown by component (namely, water, wastewater and roads) shows that in Arad the returns on investments in sewerage and roads has been positive (12.9% for sewerage and 19% for roads) – exceeding baseline expectations. Similarly, in the existing developments of Bucharest where the project was active, investments in water, wastewater and roads yield an ex-post ERR of around 26% (15.7% for water and wastewater and 10% for roads). In new developments in Bucharest, the scope of the project was narrowed during implementation, and according to CBA at completion, the investments in roads, water and wastewater investments in Baneasa and Odai are expected to yield significant material gains in the longer run (16.1%). For investments in both Arad and Bucharest, the ex-post ERR(s) remain acceptable under a wide range of scenarios. It must be noted that the methodology used in both ex-ante and ex-post analyses gives the lower- bound of the benefits of the water and wastewater investments made by the project. This is because important environmental benefits (reduction of pollution risks, improving of the public health, reduction of leakage in the wastewater system, elimination of flooding risks, reduction of energy consumption, etc.) have not been quantified owing to the lack of data and complexity of modeling these effects. Based on above narrative, it can be concluded that efficiency was high for the project and that the investments were effectively targeted towards meeting the EU directive on water and wastewater in Romania. Additionally, other factors that contributed to support the strong efficiency of the project are as follows: (i) tariffs increments in both Arad and Bucharest; (ii) target values, in most indicators, were fully 16 achieved; (iii) investment of €13 million for Component 3 was able to leverage approximately €1.1 billion financing for infrastructure investment for future infrastructure projects in Romania. Overall efficiency is rated as Highly Satisfactory. 3.4 Justification of Overall Outcome Rating Rating: Satisfactory The Project was highly successful in achieving its project development objective of supporting Romania meet the EU environmental directives in the water and wastewater sector through Technical Assistance and investments. The biggest project accomplishment was the substantial leveraging effect in securing EU grant financing. In addition the Project successfully provided access to urban services, such as water, wastewater, drainage and roads to nine (two green fields and seven existing development) priority neighborhoods in Bucharest and Arad, cumulatively benefitting almost 50,000 people. Additionally, the Project stayed on track with disbursement (no small achievement in Romania as the Bank’s project portfolio is plagued by slow disbursing projects), successfully piloted the UCS, and benefitted from strong municipality ownership. These are proxies of a successful project, making significant impact (for photographs see Annex 10). Relevance of the original objectives and design is rated as Highly Satisfactory. Efficacy is rated Moderately Satisfactory before restructuring because the project was making slow progression towards achieving the PDO. Overall, efficiency is rated as Highly Satisfactory. As a result, Original Project Outcome is rated as Satisfactory. Relevance of the revised objectives and design is rated as Highly Satisfactory. Revised Efficacy is rated Highly Satisfactory. Overall, Efficiency is rated Highly Satisfactory. As a result, Revised Project Outcome is rated Highly Satisfactory. According to the Bank’s ICR guidelines, based on the harmonized rating, a restructured project is weighted according to the Loan that was disbursed before and after restructuring. Before restructuring, the Project had disbursed US$89.25 million, or 60% of the US$148.48 million, whereas US$59.23 million or 40% were disbursed after restructuring, bringing the weights to 3.0 and 2.4, respectively (as can be seen from the table below). Therefore, the combined outcome of 5.4 results in ‘Satisfactory’ overall outcome rating for the project. Against Original Against Revised Overall PDOs PDOs 1. Rating Satisfactory Highly Satisfactory 2. Rating Value 5 6 3. Weight (% disbursed before/after PDO change) 60% 40% 100% 4. Weighted value (2x3) 3.0 2.4 5.4 5. Final rating (rounded) Satisfactory 3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development The Project delivered on significant social benefits due to increased coverage of basic service of water and wastewater, in line with the urban development plans of Bucharest and Arad. The infrastructure development also supported industrial growth in Arad, directly impacting livelihoods. Stormwater drainage would reduce incidence of flooding in both Bucharest and Arad. In the neighborhood of Odai in Bucharest, a new development planned for social housing, the Project provided 21 connections of water and wastewater to social housing projects comprising of multi-story buildings, in addition to roads and drainage facilities. In Bucharest, the neighborhood of Straulesti mostly houses Roma population (Romania's most socially and economically disadvantaged minority) to which the Project provided upgraded urban service which directly impacted the quality of their lives, indirectly increasing access to economic opportunity and poverty reduction. 17 (b) Institutional Change/Strengthening During implementation of Component 3, the staff of the MoEWM gained extensive experience in project cycle, and were involved in the preparation and implementation of large infrastructure projects from procurement, contract management etc. These capacity gains were effectively utilized during SOP-E implementation. 3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops No beneficiary survey was undertaken for the project at closing. A reconnaissance stakeholder survey was undertaken during the ICR mission of all three implementing agencies and some of the main findings are as follows (more details provided in Annex 6): Component 1: Bucharest Urban Services. According to the Bucharest PIU, several issues were encountered during implementation, mainly: (i) lengthy administrative procedure to obtain construction permits; (ii) difference in land ownership regime between the time of feasibility study and start of work; (iii) poor response from other utilities/administrators during construction, interfering with the work schedule; and (iv) unsatisfactory cooperation with District 1 with respect to project objectives, construction permits, and the availability of the counterpart financing. The original technical design was poorly adapted to the modern environmental requirements and existing site situation (land ownership, rapid development of the areas, outdated or lack of PUZ), creating the need for numerous design modifications and time extension for project completion. The biggest lesson learnt for the PIU seemed to be that good design and improved city management, coupled with cooperation with other operators, is critical when dealing with such complex project and to stay within time and budget constraints. The Project resulted in sufficient technical capacity transfer. The biggest accomplishment during project implementation was that the PIU has obtained valuable experience and expertise on managing projects of such complexity. Component 2: Arad Urban Services. According to the Arad PIU, issues under this component were as follows: (i) Procurement: The prequalification for works procurement had to be cancelled, due to a small number of substantially responsive bids. Hence, a second tender procedure, without prequalification, was carried out, resulting in three works contracts awarded separately (with a separate lead contractor) for each district. One of the JVs included three local and two foreign contractors and the Contractors proved to have little experience and insufficient human and material resources for the tasks and the two foreign companies played no role in the project implementation; and (ii) Design: Due to insufficiently developed design, redesign was often necessary during works implementation. Roads and sewerage design was not based on the actual situation on site and the existing groundwater level led to higher costs than initially estimated by the contractor. Aspects such as underground utilities and high groundwater level should have been known at the time of design. The biggest learning of project implementation was that in managing big works the municipality and the Engineer should pay special attention from the very beginning to time schedule and quality of the works and impose strict rules on the Contractor. The municipality is of the opinion that there was insufficient technical capacity transfer during implementation. The biggest accomplishment of the project was connecting a large number of houses to quality sewerage services and the overall physical improvement of the three districts. Component 3 – Project preparation for the EU. The main problems identified under this component were the large number of actors involved, including: (i) a large number of local authorities was required to establish and manage a common strategy for unanimous decision for each project; (ii) national legislation amendments in order to establish clear institutional framework of the regional projects; (iii) data collection for the preparation of the projects; and (iv) revised national legislation on public procurement, which triggered delays in implementation. The biggest project design problem was attributed to lumping five project applications under one contract, which entailed a higher risk factor. The risk could have been minimized by using a larger number of contracts covering less application under each contract. This may have led to faster implementation. The PIU stressed that their biggest learning was applying the Bankrules 18 for procurement of consulting services and contract management, instead of national rules, allowing faster, clearer and transparent procedures. The project facilitated sufficient technical knowledge transfer regarding procurement procedures and contract management. The main accomplishment of the component was the approval by the EU Commission of all the applications developed under this project and using €13 million to leverage a financing in the amount of €1.1 billion for major infrastructure investment in water and wastewater. 4. Assessment of Risk to Development Outcome Rating: Low or Negligible At project closing the majority of the infrastructure investment was complete and the assets created were of good quality. 13 Risk to development outcome is rated Low or Negligible for four main reasons: (i) the Project is protected by the Romanian legislation and the national regulatory regime in place regarding the water operators’ in Romania, specifically Apa Nova in Bucharest and SC Compania de Apa SA Arad. Experience in Romania shows that practically all users will connect to the sewerage network, if available, to reduce the maintenance costs of septic tanks and because sewerage services are billed by operators even if the user chooses not to connect; (ii) the sustainability of the investments under the project is highly likely, since the Project supports basic services such as water supply, sewerage, and drainage, of which the water and sewerage are subject to specific EU performance standards and monitoring; (iii) tariff increases were observed from 2006-11 in the range of 74% for sewerage in Arad (from €0.34 to €0.59), and 53% for water and sewerage combined tariff in Bucharest (from €0.68 to €1.04) to meet the EU directive and level of service requirement; and (iv) the objective to meet the EU directive in water and wastewater would drive the implementation of the project pipeline prepared under Component 3 (utilizing the €1.1 billion leveraged), including to avoid penalties from the Commission for non-compliance after 2015. 5. Assessment of Bank and Borrower Performance 5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry Rating: Satisfactory The Bank’s performance during preparation is rated Satisfactory. The project adequately responded to the sector and country demands with the objective to help Romania meet the EU water and wastewater directives. The scope of project design was simple and straightforward, even though it comprised three independent and standalone components, and adequately assessed and responded to the country capacity. The results framework for the project was simple and explicit, and the target values were established. The procurement and implementation plans were clear and consistent, and in spite of delays encountered, disbursement projections were maintained. The risk of land expropriation under the Project, though thoroughly assessed by senior level experts in the Bank, was not fully covered under the adopted use of country systems (UCS), especially in view of investments to be made in new and existing development in Bucharest. The Bank demonstrated somewhat weak judgment (with reasons) in not triggering OP 4.12, and putting LAPF in place at appraisal, especially in view of higher reported incidence of expropriation in the country for rehabilitation and expansion of infrastructure at the local level. (b) Quality of Supervision Rating: Satisfactory The Bank’s performance during implementation is rated Satisfactory. The project supervision was adequate, and provided the necessary hand holding, when necessary, during implementation. Although project supervision was challenged on many fronts, the Bank responded proactively and was vigilant on the 13 The assets created were still in the defect notification period in some areas of Bucharest and Arad. 19 progression of the Project on all fronts, taking the necessary steps to keep the project on track through procurement, technical design, and effectiveness delays. The restructuring was carried out with great caution by the Bank, to mitigate risks of not achieving the Project’s development objectives, and to introduce adjustments necessary to ensure compliance with the Loan and Project Agreements without significantly modifying Project outcomes. This is to be commended. The transition of four task team leaders caused some disruptions but did not affect the necessary project actions to be taken because the Bank was cautious to provide continuity in the support provided by the local country staff. The project filing was not efficiently undertaken throughout the Project and therefore there were lapses in available documentation (especially in the early years 2007-2008, when project implementation mainly consisted of procurement actions). The fiduciary and safeguard aspects which came up during the course of implementation were delicately handled, though effectively. The social safeguard was triggered on restructuring but was not exercised during implementation. Resolving the Baneasa issue (back office and auditing) took longer than necessary, hence the project suspension (and disbursement) extended for more than a year for Component 1. Procurement did encounter delays in providing guidance on the best course of actions and in responding to the forensic review. The need for several variation orders of the Bucharest contracts due to price and other changes took numerous back and forth with the client and was on the contrary adequately handled by the Procurement team. Overall, even with the issues the Project faced during implementation, and responding to necessary adjustments, the Project more than successfully accomplished its PDO. In hindsight, two issues for which the necessary stocktaking was not undertaken by the Bank during implementation support and at restructuring were: (i) the Bank team did not adequately report in the project documentation (aide memoires/ISR) or in the restructuring paper that the Otopeni North neighborhood (proposed in the PAD) had been omitted from the project scope of Component 1 in 2007 during the procurement process; and (ii) in Arad, the technical design was revised during implementation resulting in assessing lower numbers for residents in the project area and new target values. Target values should have been revised during restructuring as the number of beneficiaries now appears not to have been fully reached, although the neighborhoods have been fully serviced. However, the Project successfully achieved its project development outcomes on all three components and was especially successful in its accomplishment of Component 3. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory The project was well designed, simple, and adequately targeted, impacting water and sanitation services meeting EU standards in Bucharest and Arad (two main cities of Bucharest), and Romania as a whole (through leveraging EU funding for infrastructure investment). While there were some lapses during project implementation support, they were not significant enough to downgrade performance, as the thinking for the Project evolved during implementation and the team managed them well. Most importantly, the Project responded directly to the Borrower’s needs in a timely and responsive manner. 5.2 Borrower Performance (a) Government Performance Rating: Satisfactory The Government’s (MoPF) performance is rated Satisfactory. The Government’s support for the Project and its objectives remained unwavering from design to implementation. The Government maintained a tight supervision and working relationship with all the counterpart agencies/implementing agencies (MoB, MoA, and MoEWM). The ten months’ initial delay in reaching project effectiveness, as the parliament ratification process of the Loan Agreement had to follow due course of the Romanian legislation, did not majorly impact implementation. The Borrower supported the Bank’s action in dealing with recurrent delays in counterpart funding and issuance of construction permits, and provided guidance with procurement actions. In addition, on restructuring the Borrower endorsed the decision for forensic survey and necessary actions 20 needed for the timely restructuring of the project, and, when necessary, it supported the need for project extension for Bucharest. (b) Implementing Agency or Agencies Performance Rating: Satisfactory Municipality of Bucharest (MoB) performance is rated Moderately Satisfactory (which includes Sector 1 and Sector 6 Municipalities in addition to the Greater Municipality of Bucharest). Such rating stems mainly from delays during implementation due to many reasons: (i) unsatisfactory cooperation with District 1 with respect to construction permits, day-to-day execution and the timely availability of the counterpart financing; (ii) lengthy administrative procedure to obtain construction permits; (iii) limited direct supervision by the PIU of the Contractors and over-reliance on the Engineer in the preparation of reports and in the process of decision-making, including for contract variations orders; (iv) difference in land ownership regime between the time of feasibility study and start of work; and (v) poor response and lack of coordination with other utilities which interfered with the works schedule. All this cumulatively contributed to the need to extend the closing date of the Project by nine months. Even within this challenging context, the Project was able to accomplish the PDO and all its indicator target values successfully, in some cases exceeding it. The Project successfully provided access to quality water and sewerage services, drainage, and roads meeting EU standards covering six priority neighborhoods in Bucharest (two green fields and four existing development), consequently resulting in physical improvement of the districts. Additionally the cooperation between the Municipality, the Engineer, and the Bank was managed well, ensuring more than successful outcome of this component. Municipality of Arad (MoA) performance is rated Satisfactory. Arad also experienced challenges during implementation: (i) the biggest problem was that roads and sewerage designs were not sufficiently developed, based on the actual situation on site, and revisions were necessary, (ii) the contractors proved to have little experience and insufficient human and material resources for the tasks, and (iii) performance of the Joint Venture was not very favorable. Collectively all these aspects triggered some delays. The PIU could have taken more decisive actions earlier on to deal with such issues and resolve the problem with the contractor. The Project was nevertheless able to provide access to quality sewerage services, drainage and roads meeting EU standards covering fully three priority neighborhoods in Arad, consequently resulting in physical improvement of the districts. The Municipality’s senior management was always fully behind the Project and supported it by increasing the city’s counterpart financing of the project, due to higher costs. The cooperation between the Municipality, the Engineer, and the Bank was good and ensured the successful outcome of this component. Ministry of Environment and Water Management (MoEWM, now MoEF) performance is rated Highly Satisfactory, as the expected results of the component were more than successfully accomplished, and ahead of time, and close supervision of the consultants was exercised. Closer cooperation with the Bank’s team on documents sharing, to ensure additional quality control on the design of the Master Plans and priority projects, could have further helped in improving the design of the investment packages. MoEWM was also tasked with M&E consolidated reports, which encountered some delays during the initial implementation phase of the project. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory The support for the project remained strong at both central and local levels of government as the investments were targeted in helping Romania meet its commitment to the EU directives, which is a common political and economic goal across the country. The projects in Bucharest and Arad were prepared by the municipalities using their own resources, approved and supported by all local and central governmental agencies, the first time in Romania. Municipalities had to struggle with some issues during implementation which triggered delays; however, these issues were managed well in collaborations with the Government, 21 Engineers, and the Bank to successfully achieve the project outcome. The Project demonstrated stellar disbursement (despite early start-up delays), and strong ownership (high municipality contribution), all target values were successfully achieved, access to water, sewerage, drainage, and roads meeting EU standards was provided in two counties (Bucharest and Arad) fully covering nine neighborhoods, and the project successfully leveraged €1.1 billion for infrastructure investments for ten counties of Romania to meet the EU directive. In sum, the achievements of the project successfully advanced Romania to meet EU environmental directives, thereby improving the quality and coverage of water and wastewater services meeting EU standards. 6. Lessons Learned If project design entails infrastructure investments, new land development, and final foot print of all proposed investments is not known upfront, as a precaution OP 4.12 should be triggered during project design. This issue was debated at length during appraisal and conclusion was reached not to trigger OP 4.12. However, Bank and ECA Region thinking have evolved since then as cumulative experience indicated that is safer to be conservative. It is better to trigger OP 4.12 for this type of investments as the policy provides additional protection and support to people using land informally or illegally, and is intended to protect the poor and vulnerable. Therefore, as needed, Resettlement Action Plan (RAP)/Land Acquisition Policy Framework (LAPF) should be put in place, as was observed during this project, and this would safeguard the Bank’s and Borrower’s interests more effectively. Countries like Romania (then an EU accession country) may not so much need help in developing hardware, but may benefit more from the Bank on the software side or in creating systems and processes, and capacity through TAs and transference of knowledge. The most successful aspect of the project was Component 3, where the Bank provided technical assistance to leverage EU grant financing successfully. This may be an area that the Bank might consider providing support to Romania and other countries moving forward, especially for the preparation of projects pipeline. The Bank is already implementing the lessons learned under the project in other accession countries, such as Croatia, through both similar projects and TAs. Beneficiary assessment should be programmed during implementation for projects that are designed with the objective of basic services delivery such as water and wastewater. Beneficiary assessment can be valuable to understand the social gains made under the project and should be integrated into project design or at least planned before project closing. Projects implemented at lower level of Government (through municipalities) and in a decentralized manner, demonstrate strong Borrower commitment and ownership, resulting in higher counterpart contribution even during a financial crisis. The project portfolio in Romania confirms that in the last 10 years, all the well- performing projects, with fast disbursements, strong ownership, higher borrower contributions were implemented by Local Government Units (LGU) or in a decentralized manner. This project’s experience further confirms this finding. The projects in Bucharest and Arad were prepared by the municipalities using their own resources, approved by the respective municipal councils, reviewed by the inter-ministerial commission chaired by Ministry of Finance, and had the support o f the central Government and the municipalities for implementation. This helped ensure Quality at Entry and is a very important lesson for Romania and some other EU and pre-accession countries and for future lending. In countries with limited administrative capacity and poor governance, a project performs better when implementation by LGUs. Project lending in Euro denomination could avert the currency-associated risk adequately during implementation. Project experience shows that Euro lending in EU accession countries provides necessary risk coverage against currency fluctuations and help during project implementation. 22 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies The Borrower agrees with the contents of this ICR, which reflect the discussions held by the Bank’s team with the Romanian authorities, the PIUs and the consultants involved. The Borrower has no objections for the ICR Report to be entirely disseminated. (b) Cofinanciers Not applicable. (c) Other partners and stakeholders Not applicable. 23 Annex 1. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent) Actual/Latest Appraisal Estimate Percentage of Components Estimate (USD (USD millions) Appraisal millions) Component 1: Urban Services in 91.6 128.5 140% Bucharest Municipality Component 2: Urban Services in 62.4 78.3 126% Arad Municipality Component 3: Project Application 16.2 17.8 110% for the EU Total Project Costs 170.2 224.6 Front-end fee PPF 0.4 0.4 100% Total Financing Required 170.6 225.0 (b) Financing Appraisal Actual/Latest Type of Percentage of Source of Funds Estimate Estimate Cofinancing Appraisal (USD millions) (USD millions) Borrower 38.9 81.8 210% International Bank for Reconstruction and 131.70 143.2 109% Development Total 170.6 225.0 According to the cover sheet the IBRD contribution is US$148.5 million, however due to currency exchange rate, some difference is seen in the conversion from Euro to US$ 24 Annex 2. Outputs by Component Before Restructuring Prior to restructuring, both the progress toward achievement of the PDO and project implementation progress (IP) were rated “moderately satisfactory� which implied that project was progressing well and could be able to accomplish the development object by project closing. Therefore, the Original Objective of the project are being assessed on the above stated assumption. - To meet the EU environmental directives in the water and wastewater sector, thereby improving the quality and coverage of water and wastewater services through support of infrastructure development in the municipalities of Bucharest and Arad to provide better water and wastewater service and improve stormwater management – Moderately Satisfactory - At the time of restructuring the implementation progress of component 1, and 2 were at 30% and 39%, respectively. Outputs: • Water – In Bucharest, 1,033 water connections were provided in the seven (7) targeted neighborhoods prior to project restructuring, as this was a new indicator on restructuring, there was no original target value, based on the revised target value of 3,566, or 29% was met. • Wastewater – In Bucharest, 1,456 wastewater connections were provided in the seven (7) targeted neighborhoods, as this was a new indicator on restructuring, there was no original target value, based on the revised target value of 3,028, or 48% was met. While in Arad, 39% of the physical works had been completed but no final sewerage connections had been finalized. • Drainage – In Bucharest, 17.8km stormwater drainage network were provided in the seven (7) targeted neighborhoods, against a target of 39km, or 46% of the original target value was met versus 63% of the revised target value of 28.1km. While in Arad, 49.9km of stormwater drainage network were provided in three (3) targeted neighborhoods, against a target of 81km, or 61% was met. • Roads – In Bucharest, 13.2km of 62km target value was completed, equaling 21% of the original target value; while in Arad, 13.6km of 84km target was completed, equaling 16% of the original target value. The progress toward achieving the target value of outputs was satisfactory. Outcomes: • Beneficiary Population – In Bucharest, overall the project provided improved access to water supply meeting EU standards for 14,439 people, against a target of 30,620 in the seven (7) targeted neighborhoods, 47% of the original target value was met versus 59% of the revised target value of 24,449 people. In Arad, overall the project provided access to wastewater meeting EU standards, however, the beneficiary number was not available in view that 39% of the physical works had been completed but no final sewerage connections, drainage, or roads had been finalized. • Incremental water sold – In Bucharest, the target value of incremental water sold, based on system design prior to restructuring, 598 m3 against a target 2,066 m3, or 29% of the original target value was met, versus 48% of the revised target value of 1,249 m3. • Incremental sewerage collected – In Bucharest, the target value of incremental wastewater collected, based on system design prior to restructuring, 538 m3 against a target 1,860 m3, 29% of the target value was met, versus 48% of the revised target value of 1,124 m3. While in Arad, the value was not available as the connections had not been finalized. - To meet the EU environmental directives in the water and wastewater sector, thereby improving the quality and coverage of water and wastewater services through preparation of priority water and wastewater projects in 11 counties - Moderately Satisfactory - At the time of restructuring the progress of component 3 were at 45%. The project was making progression toward completion of 11 applications 25 (for Braila, Vrancea, Ilfov, Ialomita, Constanta, Galati, Bistrita-Nasaud, Arad, Sibiu, Bihor, Mehediniti, and Dolj counties) for EU funding. After Restructuring Component 1: Urban Services in Bucharest Municipality. The outputs and outcomes accomplished under the project are detailed in the table below based on the six (6) neighborhoods: Outputs: New Existing Development Percent- Development Target Unit Total age Vatra Chitila Giulesti Value Baneasa Odai Straulesti achieved Noua Triaj Sarbi Water Water Mains km - 14.2 1.1 - - 8.0 23.4 - - Distribution km 15.6 0.8 12.3 6.2 2.1 5.9 42.8 - - Service Pipe km 8.3 - - - - 8.3 - - HH Connection (Pipe no. 105 21 1,322 481 126 1,550 3,605 3,566 101% Branches) Sewerage Sewerage Mains km 7.5 2.9 3.2 1.7 - 8.7 24.0 Storm Water Drains km 14.2 1.5 5.1 1.6 - 7.6 29.9 28.1 107% Sewerage and Storm km - - 8.7 3.9 2.1 2.3 17.0 - - water (Unitary) Household Connections no. 38 21 1,189 470 124 1,235 3,077 3,028 102% Roads Roads Length km 15.7 1.2 12.5 5.9 2.0 13.9 51.2 49.3 104% Road Surface km2 117.9 7.4 76.4 41.5 10.3 75.3 328.8 - - Sidewalks Length km 31.4 2.5 25.0 11.9 4.1 27.8 102.6 - - Sidewalk Surface km2 53.8 - 35.2 15.1 3.0 31.0 138.0 - - Other Infrastructure Pumping Station for Unitary Sewerage no. 1 1 2 - - Network Wastewater Pumping no. 1 2 3 - - Station Pre-Treatment Installation for storm no. 1 1 1 3 - - water Pumping Station for no. 1 1 - - Drinking Water Outcomes: New Existing Development Percent- Development Target Unit Total age Vatra Chitila Giulesti Value Baneasa Odai Straulesti achieved Noua Triaj Sarbi Beneficiary Population Incremental Beneficiary No. 7,855 596 6,207 2,929 993 8,525 27,105 24,449 111% Population Water Sold 1000 Incremental Water Sold m3/ - - - - - - 1,254 1,249 100% year Sewerage Collected 1000 Incremental Sewerage m3/ - - - - - - 1,129 1,124 100% Collected year 26 Component 2: Urban Services in Arad Municipality. The outputs and outcomes accomplished under the project are detailed in the table below based on the three (3) neighborhoods: Outputs: Target Percentage Unit Gai Bujac Sanicolau Total Value achieved Sewerage Sewerage Mains km 33.8 37.4 18.2 89.5 - - Storm Water Drains km 26.0 32.9 13.5 72.4 81.0 89% Household Connections no. 2,126 2,930 1,404 6,460 7,400 87% Roads Roads Length km 29.0 43.3 17.1 89.4 84.0 106% Road Surface km2 182.3 253.0 105.9 541.1 - - Sidewalks Length km 46.4 76.0 23.9 146.3 - - Sidewalk Surface km2 61.2 110.4 35.8 207.5 - - Other Infrastructure Wastewater Pumping Station no. 6 2 2 10 - - Pumping Station with Pre- no. 3 2 1 6 - - Treatment Installation Outcomes: Target Percentage Unit Gai Bujac Sanicolau Total Value achieved Beneficiary Population Incremental Beneficiary no. 8,144 10,249 3,938 22,331 23,238 96% Population Sewerage Collected 1000 Incremental Sewerage Collected - - - 1,746 1,746 100% m3/year Component 3: Project Preparation for the EU. This was the most successful component of the project. Initially, applications for 11 counties (Braila, Vrancea, Ilfov, Ialomita, Constanta, Galati, Bistrita-Nasaud, Arad, Sibiu, Mehedinti, and Dolj counties) were to be prepared with the overall financing of €13 million under (two contracts). The assignment was expected to be carried out in two (2) phases with the following outputs: • Phase 1: Preparation of project applications, consisting of: (a) Preparation of Project Applications for EU co-financing and supporting documents: (i) Pre-feasibility stage - Development of Master Plans and macro-affordability assessment at the county level; and (ii) Feasibility stage - Preparation of the EU co-financing Application; and b) Institutional strengthening to foster the efficient management of water and wastewater investments, including training for MoEF (previously MoEWM) and for local/regional authorities. • Phase 2: Elaboration of complete tender dossier for services, goods and works contracts for priority projects, required for implementation of the feasibility studies carried out under Phase 1, which would include: (a) Preparation of the Tender Dossiers (for services and for works/goods); and (b) Support during tendering and evaluation. During implementation, the two contracts were modified by addenda to include the following: (i) the Master Plan for Galati was replaced by that for Vaslui county; (ii) the application for Vaslui county was removed; (iii) Mehendinti county was removed from the scope of the contract; and (iv) the integration of Fagaras agglomeration was integrated within the scope of Sibiu county application. As a result, the number of tender documents to be prepared was changed. Consequently, on project restructuring, application for EU financing to be prepared covering only 10 counties was finally prepared (Braila, Vrancea, Ilfov, Ialomita, Constanta, Bistrita-Nasaud, Arad, Sibiu-Brasov, Bihor, and Dolj). As a result, nine (9) applications were filed for EU grant financing for ten (10) counties of Romania. Project output results are represented mainly by the documents/deliverables prepared under this component in two 27 (2) phases: Project Applications for EU co-financing (including supporting document i.e. Master Plans, Feasibility Study, Cohesion Fund application etc.); and elaborated Tender Dossiers. The total value of the investment included in the approved applications prepared under Component 3 is about €1.1 billion (of which 85% from EU budget and 15% from State and Local budgets). Based on €13 million component cost (comprising €11 million WB’s contribution and €2 million Borrower’s contribution), MOEF (previously MoEWM) was able to leverage about €850 million from EU funds for infrastructure investments to meet the EU directives, which represents 30% of the total value (€2.8 billion) allocated for Priority Axis 1 - “Extension and modernization of water and wastewater systems� to be used for infrastructure investment from EU through SOP Environment for programming period Phase 1 -2013. 14 In addition, according to the Borrower’s ICR on this component the expected result under this component were: • Definition of a long term phased investment program for water and wastewater sector for investment priority areas; • High quality preparatory measures (measurements, site investigations etc.) for elaboration of the preliminary design of planned works; • Environmentally sound water projects ready to be proposed for EU financing; • Well prepared tender documents and procurement strategy; • Increased programming and implementation capacity of projects at central and local level. The main outputs expected from project investment proposed in the ten (10) counties would serve a total population of 2.4 million; this would include 0.24 million additional population served by water projects; and 0.51 million additional population served by wastewater projects. The investment would result in increasing the water and wastewater connection rate in these ten counties from 80% to 99%, and 63% to 96%, implying an average increase of 19% for water and 36% for wastewater, respectively (Table 1 below). Table 1: Summary of value, population, connection rate before and after for each Cohesion Fund application Wastewater Water connection Additional Additional connection rate of Total served rate of the county population Investments population the county population after population served by (EURO) served by population implementation wastewater water projects before after before after projects project project project project Vrancea County 107,068,652.00 159,997 33,760 85.00% 100.00% 65,442 58.00% 100.00% Braila County 113,866,768.00 246,400 17,138 92.25% 99.63% 55,651 82.39% 99.56% Ilfov County 72,131,478.00 59,409 42,594 29.35% 99.43% 42,809 28.99% 99.43% Ialomita County 23,666,498.00 66,775 12,214 97.00% 99.00% 35,140 36.70% 97.10% Constanta - 192,302,899.00 595,840 23,833 93.10% 97.70% 70,762 74.20% 87.30% Ialomita County Arad County 139,592,104.00 261,218 14,352 75.00% 98.00% 69,894 52.00% 96.00% Dolj County 150,280,700.00 377,989 26,579 75.33% 97.79% 77,399 61.19% 93.70% Sibiu+Brasov 100,048,234.00 257,628 21,689 90.80% 99.70% 25,291 81.60% 99.60% Counties Bihor County 83,275,215.00 238,351 26,399 84.00% 99.60% 39,872 83.00% 98.90% Bistrita County 83,251,651.00 134,000 18,389 75.00% 98.00% 30,034 68.00% 91.00% TOTAL 1,065,484,199.00 2,397,607 236,947 79.68% 98.89% 512,294 62.61% 96.26% Investments, for which documents for approval were prepared under this component, were to be financed by SOP Environment for 2007-2013 programming period. This would be monitored through SOP Environment indicators, based on commitments to be achieved by Romania under the EU Accession Treaty. A summary of some of the main expected outputs to be achieved by 2015 are reported in the Table 2 below. Consequently the contribution of large scale investment in the water and wastewater sector (based on 14 Government of Romania, Ministry of Environment and Sustainable Development. 2007. Sectoral Operational Programme (SOP) - Environment 2007-2013. Final Version. 28 application prepared under Component 3), after implementation, the expected achievement against the SOP Environment Indicators would be (see Tables 2 and 3 below): • Number of localities targeted for new/rehabilitated water and wastewater facilities in a regional management system is expected to be 102 against the SOP Environment target of 300, or 37% of the target value to be met by 2015; • Wastewater treatment plants built or rehabilitated is expected to be 45 against the SOP Environment target of 200, or 23% of the target value to be met by 2015; • Additional population connected to basic water services in a regional system is expected to approximately be 237,000 inhabitants by 2015; 15 • Additional population benefitting from wastewater collection and treatment services is expected to approximately be 512,000 inhabitants; 16 • Regional operators created are expected to be 9 against the SOP Environment target of 35, or 26% or 23% of the target value to be met by 2015. Table 2:Main outputs to be achieved based on project investment Water Supply New and rehabilitated well fields 115 no. New and rehabilitated transmission pipe 452.4 km New and rehabilitated chlorination plants 33 no. New and rehabilitated treatment plants 16 no. New and rehabilitated distribution network 1,320.8 km New and rehabilitated pumping stations 66 no. Wastewater Collection and Treatment New and rehabilitated sewer collectors 2,299.9 km New and rehabilitated wastewater pumping stations 258 no. New and upgraded wastewater treatment plants 45 no. Total Localities Targeted 102 no. No. of Regional Water Companies created 9 no. Table 3: Indicators, targets and targets that will be achieved based on project investment according to SOP Target Baseline Baseline Target achieved Percentage Indicators Unit (2006) Year (2015) through Achieved this Project Output Localities provided with new/rehabilitated water No 60 2006 300 102 34% facilities in a regional management system New/rehabilitated wastewater treatment plants No 30 2006 200 45 23% Result Population connected to basic water services in a % 52 2006 70 - - regional system Wastewater treated (of the total wastewater % 35 2006 60 - - volume) Number of Regional Water Companies created No 10 2006 35 9 26% To implement these investments, MoEF (formerly MoEWM) has established a financing contract between the Managing Authority for SOP Environment and the Regional Water Companies (beneficiaries) for implementation and for operation of the assets created, as a result. Currently, nine (9) contract covering ten (10) counties of Romania (Bistrita Nasaud, Vrancea, Arad, Braila, Ilfov, Constanta-Ialomita region, Sibiu- Brasov, Bihor, Dolj counties) are under implementation, initiated during 2010-2011 (March 22, 2010 to September 26, 2011) in the amount of €1.1 billion with a beneficiary contribution of €36 million or 3%. 15 According to SOP Environment Indicators 70% of the population will have access to piped water. Currently 52% of the population benefits from this service. 16 According to SOP Environment Indicators 60% collected will be adequately treated, currently 35% is treated. 29 Under implementation, average physical progress of the contract is at 3%, while the average financial progress is reported to be approximately 4% with 35% time period lapsed towards completion. Implementation progress has been slow, as observed as projects have to be completed by 2015 to be able to utilize the secured EU grant financing (Table 4 below). Table 4: Implementation status of projects under implementation by SOP Implementation Stage Physical Financial Elapsed time Beneficiary Contract Payments done Absorption Contract Value stage of stage of the during Project Date by the stage the project projects implementation Beneficiary (%) (%) (%) (%) RON Contract RON 9 contracts 4,316,171,885.0 signed from 147,839,390.5 covering 10 March 22, 3.02% 4.11% 3.31% 35.35% counties of 1,065,484,199.0 2010 to 36,495,426.7 Bucharest € September € 26, 2011 30 Annex 3. Economic and Financial Analysis Water and Wastewater Scope and Methodology. Cost Benefit Analysis (CBA) was undertaken at appraisal and completion for the following three project components: 1. Wastewater works in three neighborhoods of Arad City (Gai, Bujac, Sanicolau Mic) 2. Water and wastewater works in four existing developments in Bucharest (Straulesti, Vatra Noua, Chitila Triaj, Giulesti Sarbi) 3. Water and wastewater works in two new developments in Bucharest (Baneasa, Odai). 17 The analytical frameworks used for calculating returns on investment- at appraisal and completion- are similar to allow for necessary comparison. A list of the key parameters used in the CBA exercises at completion is given in Table 1 below, along with the data sources and estimation approach (followed by details in the next sections). In summary: The main benefits accounted for in the CBA were: 1. Incremental water and wastewater revenues, as a proxy for benefits of piped water services (improved coverage, convenience, better quality), and the benefits of having a sewage system (and discontinuing the use of septic tanks), respectively; 2. Incremental property tax revenues to reflect increase in the value of property and land where the infrastructure will be upgraded; 3. In the case of Arad, the two other sources of revenue are: (a) development tax, and (b) concession fee. The main costs included in the CBA were: 1. Cost of building the water supply and wastewater infrastructure; 2. Operational and maintenance costs; 3. In the case of new developments in Bucharest, the cost of the distribution network. The water and wastewater investments supported by the project also had a number of other important external benefits, which have not been quantified owing to the lack of data and/or complexity of modeling these effects. These benefits included: 1. Reduction in polluting risk for soil and subsoil, including underground and phreatic water, as well as surface water due to leakage produced either by old age or/and under-dimensioning of the sewerage network, or by malfunction of the pumping process in project areas; 2. Reduction in leakages in the waste water system decreases the danger of water born diseases; 3. By improving plant and system efficiency, energy consumption is reduced; 4. Elimination of flooding risks by providing storm water systems. This investment also affects the improvement of the population health safety and comfort due to elimination of the residues lying on the streets during floods, as well as due to elimination of the drinking water contamination.18 Therefore, the CBA methodology used in both ex-ante and ex-post analysis gives the lower-bound of the benefits of the water and wastewater investments made by the project. In addition, many sensitivity tests were done in the CBA exercise at completion assuming different scenarios (for e.g. low increases in tariff rates, decline in population growth rates, etc.) to assess the robustness of the returns on investment under these different assumptions. 19 17 At appraisal, water and wastewater works was expected to be undertaken in three new developments: Otopeni North, Baneasa and Odai. Hence, the ex-ante analysis estimated the costs and benefit streams of works in all three neighborhoods combined. In 2007, Otopeni North was excluded from the scope of work; therefore, the cost benefit analysis at completion only captures returns on investments in Baneasa and Odai. 18 Investments in storm water systems were not subject to CBA at appraisal. 31 Table 1: Key Parameters in the Ex-Post CBA Bucharest Bucharest Variables Source Key Assumptions Arad (existing) (new) Variables for measuring costs Investment costs Documents on contract Excludes contingency (10%) and VAT (for (supported by the costs and disbursements investments in 2007-2009, 19% VAT applies, and    project) provided by project from 2010-2012, VAT is 24%) O&M costs 2% of investment cost    Other investment costs 100 Euros per capita. Applied to incremental (not supported by the population and is incurred from 2013 onwards after  project) project is completed Investment cost+ O&M cost. In the case of Total Costs Bucharest (new), also add other investment costs    Variables for measuring benefits For Arad, population projections based on INSSE data. For Bucharest, population projections in PAD. Population INSSE, PAD Interpolate population # for intervening years.    Alternative population projections for Bucharest based on INSSE data Domestic consumption divided by population for Per capita consumption (domestic) Arad municipality 2009-11. From 2012-2025, constant consumption of  102 lpcd is assumed 20 Per capita consumption (domestic + industrial) Ex-ante CBA Same values as ex-ante CBA   36,000 additional industrial jobs created in Gai and Industrial population INSSE, PAD Sanicolau in 2025 compared to 2006. Linear  interpolation Industrial consumption divided by industrial population for 2009-11. Industrial consumption has Per capita consumption (industrial) Arad municipality a declining trend, assuming a variable (negative)  growth rate- -3.5% in 2012 and falling to -0.85% in 2025 Water + Wastewater tariff APANOVA Assume 5% growth rate from 2013 onwards   Wastewater tariff Arad municipality Assume 5% growth rate from 2013 onwards  Per capita consumption (domestic + Incremental water sold industrial)*population*% of works completed   (Per capita domestic consumption*population)+(Per capita industrial consumption*industrial Incremental wastewater treated population)* % of works completed. Implicit    assumption that volume of wastewater water treated equals volume of water sold Incremental water sold*combined tariff rate Implicit Incremental revenue from water sold assumption that volume of wastewater water treated   equals volume of water sold Incremental revenue from wastewater treated Incremental wastewater treated*wastewater tariff  For Bucharest, updated property tax information not available. Assumed same willingness to pay/capita Ex-ante CBA, Recent for 2009 and growth rates as in ex-ante CBA. For Property tax projections by Arad city Arad, most recent tax projections by the city    government government were used. For both Bucharest and Arad, tax projections were adjusted for changes in CPI and foreign exchange rate City plan Recent Applies from 2012 onwards. Adjusted for changes in Development tax projections by Arad city CPI and foreign exchange rate  government Recent projections by Applies from 2012 onwards. Adjusted for changes in Concession fee Arad city government CPI and foreign exchange rate  Other key variables: For 2007-12, exchange rate data from BNR. Foreign exchange rate BNR, PAD Estimates for 2013-onwards, based on projections in    PAD For 2007-17, CPI projections from IMF WEO. For Inflation rate IMF, PAD 2018-25, assumed 2% inflation rate as given in the    PAD 19 No such sensitivity analysis was done at appraisal 20 According to international guidelines, per capita water consumption for domestic users should not be lower than 100 lpcd 32 Costs. Three types of costs are included in the CBA are investment costs (without VAT and contingency), O&M costs and (in the case of Baneasa and Odai), the cost of the distribution network that has to be built after project completion but is not financed by the project. As seen in Table 2, for works in both Arad and Bucharest investment costs at completion are higher than investment costs reported at appraisal. 21 The differences are justified and arise due to: 1. Increase in project costs: In the restructuring paper of 2010, cost of works in both Arad and Bucharest was revised upwards due to changes in market conditions leading to higher bids. The costs for the Arad component was increased from EUR 50 to EUR 73 million, while the costs for the Bucharest component increased from EUR 74 million to EUR 93 million. 2. Exchange rate variation: The ex-ante CBA uses an exchange rate of 3.65 for converting costs incurred in RON into Euros. However, during the project period, due to the financial crisis, the exchange rate movements were markedly pronounced: in 2006, the average exchange rate was 3.52 RON/EUR; 3.34 in 2007; 3.68 in 2008; 4.24 in 2009; 4.21 in 2010; 4.24 in 2011; 4.39 in the first six months of 2012. 3. Real value adjustment: Investment costs in the ex-ante CBA are expressed in 2006 currency, while in the ex-post CBA, these are expressed in 2011 currency. Since the consumer price index in Romania increased by 34% between 2006 and 2011, investment costs at completion would seem smaller if expressed in 2006 terms. Table 2: Investment Costs Supported by the Project (in thousands of Euros, excluding VAT and contingency) Ex-ante CBA Ex-post CBA (in 2006 terms) (in 2011 terms) Wastewater 1. Arad (includes Gai, Bujac, and Sanicolau Mic) 5,704 9,892 Water and Wastewater Bucharest – existing developments (includes Straulesti, 2. 9,699 12,620 Vatra Noua, Chitila Triaj, Giulesti Sarbi) 22 3. Bucharest – new developments (includes Baneasa and Odai) 6,909 8,903 Benefits. The benefits of these investments are: 1. Positive externalities at the regional and country levels due to the environmental improvements supported by the project. These externalities are difficult to quantify and as a result are not included in the cost benefit analysis either at appraisal or completion. 2. Provision of water and wastewater services through an operator, which improves quality of service and reduces health and environmental risks. The incremental revenues due to piped water are used as a proxy for benefits of piped water services (coverage, convenience, better quality). Similarly, incremental wastewater revenues are used as a proxy for benefits of having a sewage system and discontinuing the use of septic tanks. To estimate the incremental revenue due to the project, the per capita consumption and average tariffs have been used. In Arad, the per capita consumption is calculated separately for domestic and industrial consumption on the basis of volume of water sold to domestic and industrial consumers respectively, while in Bucharest, consumption is inclusive of domestic, industrial and commercial consumption as disaggregated numbers were not available at the time of this analysis. 3. Increase in the value of property and land where the infrastructure is upgraded. For Arad, the increase in the value of the property is proxied by incremental property tax revenue, and most recent projections by the city government are used to calculate incremental property tax revenue stream. In Bucharest, updated property tax information was not available, and the estimation strategy used in 21 IPCs and variation orders for contracts B1 and B2 in Bucharest for 2012 are under preparation at the time of analysis, so total investment costs for works in Bucharest is estimation. 22 6,909 excludes Otopeni North as the project canceled its plans to invest in this area. Including Otopeni North, investment cost (excluding VAT (19%) and contingency (10%)) investment costs for new developments in Bucharest as appraised was 13,737. 33 the ex-ante CBA is replicated. In addition, in Arad, two additional sources of revenue are considered (which are mentioned in the PAD as well)- namely, development tax and concession fees. The total incremental revenue estimated in the ex-ante and ex-post models are shown in Table 3 below, and as can be seen, revenue projections is higher for both Arad and Bucharest at completion than at appraisal. Table 3: Incremental Revenue (in millions of Euros, excluding VAT and contingency) Ex-ante CBA Ex-post CBA (in 2006 terms) (in 2011 terms) Wastewater 1. Arad (includes Gai, Bujac, and Sanicolau Mic) 11.6 26.4 Water and Wastewater Bucharest – existing developments (includes Straulesti, Vatra 2. 29.2 37.43 Noua, Chitila Triaj, Giulesti Sarbi) 23 3. Bucharest – new developments (includes Baneasa and Odai) 52 69.1 24 The differences in benefits/revenue estimated at appraisal and at completion arise because of updating values and/or applying different assumptions to the variables used in the calculation: 1. Population: Population estimates in the ex-post model are lower than estimates at appraisal (see Table 4 below). In Arad and existing developments in Bucharest, population was assumed to be growing at the rate of 1% and 2% per year in the ex-ante model; however, INSSE projections for Arad and Bucharest show a decline in population in between 2006-2025. Hence, ex-post population estimates were adjusted to reflect this. In the case of new development in Bucharest, same 2005 and 2034 population estimates were assumed in both the ex-ante and ex-post CBA. While the ex-ante model for new developments in Bucharest applied a constant annual growth rate of 14%, the ex-post model used 2005 and 2034 population estimates to interpolate population estimates for the intervening years. Table 4: Population (in thousands) Ex-ante/ Ex-post Ex-ante/ Ex-post Ex-ante CBA Ex-post CBA CBA CBA 2005 2025 2025 2034 Arad (includes Gai, Bujac, and 1. 22,231 26,978 21,135 n/a Sanicolau Mic) Bucharest – existing developments 2. (includes Straulesti, Vatra Noua, Chitila 17,400 25,921 25,655 25,925 Triaj, Giulesti Sarbi) Bucharest – new developments 3. 0 83,488 25 12,678 16,500 (includes Baneasa and Odai) Note: Population #s for Arad for 2005 and for Bucharest for 2005 and 2034 are drawn from the PAD. Population numbers for Arad in ex-post CBA for 2025 are estimated based on INSSE population projections for 2025. 2. Water Consumption: In Bucharest, consumption values in the ex-post analysis were the same as used in the ex-model (i.e. 220 lpcd in 2006 and declining to 165 lpcd in 2025), as no other data was available. In Arad, the ex-ante model included the total of domestic, industrial and commercial consumption. In ex-post CBA, we considered domestic and industrial consumption separately as disaggregated values were available for 2009-2011 (see table 5). In the case of domestic consumption, future consumption values were held constant at 102 lpcd, as international guidelines suggest that domestic consumption should not fall below 100 lpcd. In the case of industrial consumption, we first estimated industrial consumption per industrial worker by dividing total 23 The ex-ante analysis also includes Otopeni North but the ex-post analysis does not. 24 Total incremental revenue in 2007-2045 is EUR 69.1 million. Only includes Baneasa and Odai. 25 This includes Otopeni North which was later cancelled 34 industrial consumption for 2009-11 by the industrial population in 2009-11. We then projected industrial consumption per capita values for 2012-onwards based on past trends and applied a variable (negative) growth rate schedule- with consumption declining more rapidly in earlier years and less so in later periods. Once industrial consumption per capita was estimated, we multiplied it by number of industrial jobs in Gai and Bujac (i.e. the areas where industrial consumption was to be affected by project activity) to obtain total volume of industrial wastewater treated. The different bases for calculating consumption and population values were therefore one source of the deviation between the ERRs in ex-ante vs. ex-post CBA. For instance, total volume of wastewater treated26 was estimated to be 25.9 million m3 in the ex-ante model vs. 26.9 million m3 in the ex-post model. Table 5: Water Consumption in Arad 2025 2009 2010 2011 (estimated) Ex-ante CBA- Total consumption per capita Arad (includes Gai, Bujac, and Sanicolau Mic) 238 229 222 185 – Domestic + Industrial Consumption Ex-post CBA – Domestic Consumption per capita Arad (includes Gai, Bujac, and Sanicolau Mic) 114 108 105 102 Ex-post CBA – Industrial Consumption per industrial worker Arad (includes Gai, Bujac, and Sanicolau Mic) 181 154 138 61 3. Tariff: In the ex-ante model, tariff rates were underestimated (see Table 6). In the ex-post model, we obtained real tariff rates for 2006-2012 for Arad and Bucharest. A growth rate of 5%, as assumed in the ex-ante CBA, was applied to get projections from 2013 onwards. This difference in tariff rates between the ex-ante and ex-post models is the most significant reason why incremental revenue is higher for Arad and Bucharest. Table 6: Tariff Rates (in Euros/m3) Ex-ante CBA Ex-post CBA (in 2011 terms) (in 2006 terms) 2006 2025 2006 2010 2012 2025 (estimated) (estimated) (actual) (actual) (actual) (estimated) Wastewater Arad (includes Gai, Bujac, and 1. 0.09 0.23 0.34 0.61 0.59 0.75 Sanicolau Mic) Combined Water and Wastewater Bucharest – existing developments 2. (includes Straulesti, Vatra Noua, Chitila Triaj, Giulesti Sarbi) 0.52 1.31 0.68 0.92 1.04 1.49 Bucharest – new developments 3. (includes Baneasa and Odai) 4. Property Tax: In Arad, we used property tax projections prepared by city government in 2012. While ex-ante model did not include development tax and concession fee (although these are mentioned in PAD), they were included in ex-post model for the years 2013-2025 as they are significant sources of tax revenue. Overall, this meant that tax revenue stream in ex-post is higher than in ex-ante CBA model (see Table 7), and has contributed to overall revenue being higher in the ex-pot model than in the ex-ante model. In Bucharest, no updated projections were available. We replicated the methodology in ex-ante model while adjusting for foreign exchange rate and CPI movements. Based on this, the ex-post willingness to pay/capita in ex-post model is lower than in the ex-ante model even though the same initial point (44.4 RON/capita in 2010) and annual growth rate (5%) is assumed. 26 The analysis assumes that incremental volume of wastewater treated equals incremental volume of water sold. 35 Table 7: Property Taxes Ex-ante CBA Ex-post CBA ( in 2006 terms) (in 2011 terms) Unit 2010 2025 2010 2025 (estimated) (estimated) Arad (includes Gai, Bujac, and Sanicolau In thousands 1. 226 457 183 611 Mic) of Euros 2009 2025 2009 2025 (estimated) (estimated) (estimated) (estimated) Bucharest – existing developments (includes 2. Straulesti, Vatra Noua, Chitila Triaj, Giulesti Sarbi) Euros/ capita 12.8 27.9 9.3 14.9 Bucharest – new developments (includes 3. Baneasa and Odai) Economic Rate of Return. The Economic Rate of Return (ERR) calculated at appraisal and completion is given in Table 8 below. As can be seen, the ERR for Arad is higher at completion (12.9%) vs. at appraisal (6.2%). As explained before, the deviation is explained by inclusion of new tax revenue streams (development tax and concession fee) and updating the tariff rates (which was underestimated in the ex-ante CBA) in the ex-post analysis. Similarly, the ERR for water and wastewater works in Bucharest is higher at completion (15.7% for existing developments and 10.1% for new developments) than at appraisal (12.3% and 9.4% for existing and new developments respectively) - substantial benefits materializing in new developments in Bucharest over the longer run Although investment costs increased for both new and existing developments in Bucharest, they were more than offset by an increase in revenue via higher tariff rates, whose growth was much higher than anticipated in the ex-ante CBA. It must also be emphasized that the ERR presented here is an underestimation, because environmental and public health benefits of these investments have not been quantified, owing to lack of data and the complexity in measuring such benefits. Table 8: Economic Rates of Return Wastewater Comments Arad ex-ante ERR (includes Gai, Bujac, and 1. 6.2% Sanicolau Mic) Arad ex-post ERR (includes Gai, Bujac, and 2. 12.9% Sanicolau Mic) Water and Comments Wastewater Bucharest ex-ante ERR (includes areas with 3. existing population: Straulesti, Vatra Noua, 12.3% Giulesti Sarbi, and Chitila Triaj) Bucharest ex-post ERR (includes areas with 4. existing population: Straulesti, Vatra Noua, 15.7% Giulesti Sarbi, and Chitila Triaj ) Bucharest ex-ante ERR (includes growth 5. 9.4% areas: Baneasa, Otopeni North, and Odai) Water and wastewater works were not carried out in Otopeni Bucharest ex-post ERR (includes growth North; Significant benefits of water and wastewater 6. 10.1% areas: Baneasa, and Odai) investments in Baneasa and Odai materialize over the long run. Sensitivity Analysis. The ex-ante CBA exercise did not incorporate robustness checks. At completion, the ERR was estimated under different scenarios - a few high and mostly low-case scenarios- to assess if ERR remains positive, under even the most conservative scenarios. As seen in Figures 1 below, the ERR was positive in all these scenarios. 36 Figure 1: Box Plot of ERR under Alternative Scenarios Sensitivity Analysis 16 ERR (%) Under Alternative Scenarios 14 12 10 8 6 Arad Bucharest (existing) Bucharest (new) Note: Number of alternative scenarios tested: Arad (14); Existing developments in Bucharest (17); New developments in Bucharest (17). Some of these alternative scenarios tested include: 1. Varying Population Growth Rates: For existing developments in Bucharest, two alternative population projections were estimated: (1) Assuming that population in 2034 is same as projected in the feasibility study; (2) Assuming annual population growth rate of 2.21% for Giulesti Sarbi based on 2034 projections 27 while population estimates for Vatra Noua, Chitila Triaj and Straulesti are based on INSSE projections. For new developments in Bucharest, we estimated alternative population projections (i) assuming a constant increase in population numbers during 2006-2034; (ii) assuming a negative population growth rate after 2034. 28 2. Varying Tariff Growth Rates: In Arad, we re-estimated ERR assuming (i) growth in tariff rate is same as growth rate in last three years; (ii) tariff growth rate until 2013-2020 is same as growth rate in 2009-2012 and declining thereafter. The same assumptions were also applied to re-estimate ERR for both existing and new developments in Bucharest. A non-constant (i.e. declining) tariff growth rate schedule is applied under the assumption that it will not be sustainable to maintain a constant annual growth rate over the long term. 3. Different Tax Scenarios: In Arad, the two different tax scenarios considered were: (i) assuming property tax projections made in 2006 but not including development tax and concession fee; (ii) assuming property tax projections made in 2012 but not including development tax and concession fee. Like the ex-ante CBA, these scenarios do not include revenue from development tax and concession fee. In Bucharest- both existing and new developments- the alternative tax scenarios considered were using tax projections from 2006 and population estimates from INSSE as well as 2034 projections to calculate alternative willingness to pay per capita estimates. 27 Based on INSSE projections, population growth rate between 2005-2010 for Giulesti Sarbi seemed too high (>15%), so we re- calculate population for existing developments based on assuming INSSE projections for Vatra Noua, Straulesti and Chitila Triaj, and using 2034 projections to interpolate population #s for Giulesti Sarbi (this is equivalent to annual growth rate of 2.21%). 28 INSSE population estimates for Bucharest overall show a negative growth rate. 37 4. Different Industrial Job Growth: For Arad, we re-estimated ERR assuming industrial job growth rate of 3.5%- which is equal to growth rate in jobs in Arad in 2010-2011. Roads The economic analysis of investments for paving the streets was carried out at appraisal and completion for Arad in the Gai, Bujac and Sanicolau Mic Districts. The evaluation was done using the Road Economic Decision Model (RED), version 3.2, developed by the Word Bank for the economic analysis of low volume roads. The main project benefits are savings in vehicle operating costs and travel time costs (road user costs) and reduction in maintenance costs. The assessment did not consider the social benefits of paving the streets such as eliminating dust and facilitating the movement of non-motorized traffic. The economic analysis was done over a 15 year evaluation period, considering a without project-alternative that maintains the roads at their current condition, and evaluating a paving alternative that will yield an average roughness of 3.0 IRI, m/km. The basic parameters used to run the RED model are given below. 1. Vehicle Characteristics and Operating Costs: Vehicle fleet characteristics (utilization, loading and traffic composition) and economic unit costs were defined for nine vehicle types. The traffic values were estimated for each street based on several sources: previous traffic studies, performed for the Arad Urban Area (that offer estimation on traffic forecast, for each street category), visual inspections and traffic counts on reduced scale (counting of 15 minutes) and a generalized traffic model, on national scale, that contains only inter-regional traffic volumes. 2. Road Works Alternatives and Unit Costs: The carriageway and sidewalks structures were chosen comparing 4 alternatives based on the traffic level of the streets. The selection considered the traffic prognosis and the geo-technical study and, also, the conformity with the National standards in force. The unit costs were estimated based on detailed information such as: topographical survey, geo- technical report, traffic study, road signalization (for crossroads, zebra crossing, access spot to the property entry, etc). Annualized maintenance costs used for the global analysis of the network were estimated considering the following: (i) routine maintenance (cleaning services); (ii) periodical maintenance (repairs); and (iii) sewerage maintenance. Each of the parameters was estimated for the without project alternative and with project alternative. In the ex-ante model, a network of 81.4 km was evaluated and the economic analysis showed that the ERR from paving the network was 21%, and the Net Present Value, at 12 percent discount rate, was EUR 8.62 million. In the ex-post model, a network of 86.2 km was evaluated, and the analysis yielded an ERR of 19% , and the and the Net Present Value, at 12 percent discount rate, was EUR 11.79 million (see Table 9 below). The sensitivity and the risk analysis (scenarios included benefits dropping to 15 percent of the current level and a 15 percent increase in investment costs) suggests that individual and the simultaneous variation of the model variables do not lead to obtaining negative or unfavorable results upon the investment decision. Table 9: RED Economic Analysis Summary for Arad Ex-post (at constant EUR 2006 Ex-ante (at constant EUR 2006 domestic domestic price basis, updated at 2011 price basis) based on inflation and exchange rate variation) Benefits (EUR million) 23.80 38.31 Costs (EUR million) 15.18 26.52 Net Benefits (EUR million) 8.62 11.79 ERR 21% 19% This economic analysis was not carried out for Bucharest either at appraisal or completion, and per-hectare ERR estimates from the RED exercise for Arad are assumed to obtain crude estimates for roads investment in Bucharest (see Table 10 below). 38 Table 10: Crude ERR estimates for Roads Investments in Bucharest Roads Area 1. Arad ex-ante ERR (includes Gai, Bujac, and Sanicolau Mic) 21% 1288 ha 2. Arad ex-post ERR (includes Gai, Bujac, and Sanicolau Mic) 19% Bucharest ex-ante ERR (includes areas with existing population: Straulesti, Vatra Noua, 3. Giulesti Sarbi, and Chitila Triaj) ~ 6-10% 435 ha Bucharest ex-post ERR (includes areas with existing population: Straulesti, Vatra Noua, 4. Giulesti Sarbi, and Chitila Triaj) 5. Bucharest ex-ante ERR (includes growth areas: Baneasa, Otopeni North, and Odai) ~ 9-12% 622 ha 6. Bucharest ex-post ERR (includes growth areas: Baneasa, and Odai) ~ 2-6% 52 ha Overall ERR Based on the discussion in preceding sections, the overall ERR for Arad and Bucharest (existing developments) is substantial at more than 20%. In Arad, the returns on investments in sewerage and roads at completion (31.9%) exceeded baseline expectations (27.2%). Similarly, in the existing developments of Bucharest where the project was active, investments in water, wastewater and roads yield an ex-post ERR of around 26% (15.7% for water and wastewater and 10% for roads), which is higher than baseline estimate of 22.3%. In new developments in Bucharest, the scope of the project was narrowed (i.e. Otopeni North was excluded) during project implementation, and according to CBA at completion, the investments in roads, water and wastewater investments in Baneasa and Odai are expected to yield significant material gains in the longer run (> 16%). As mentioned before, the methodology used in both ex-ante and ex-post analyses in Arad and Bucharest, gives the lower-bound of the benefits of the water and wastewater investments made by the project. This is because some very meaningful environmental benefits (for e.g. reduction of pollution risks, improving of the public health, reduction of leakage in the wastewater system, elimination of flooding risks, reduction of energy consumption, etc.) have not been quantified- owing to the lack of data and complexity of modeling these effects. 39 Annex 4. Bank Lending and Implementation Support/Supervision Processes (a) Task Team members Responsibility/ Names Title Unit Specialty Lending* Sudipto Sarkar Lead Specialist (Team Leader) ECSIE Team Leader Doina Visa Operations Officer ECSIE Operations Michael Webster Water and Sanitation Specialist ECSIE Water Specialist Claudia M. Pardinas Ocana Senior Counsel LEGEC Legal Alexandra Ana Maria Stan Operations Officer ECSIE Operations Ana Otilia Nutu Consultant ECSIE Consultant Henry Kerali Lead Transport Specialist ECSIE Transport Specialist Mirela Mart Financial Management Specialist ECSPS Finance Ruxandra Maria Floroiu Consultant (Environment and Social) ECSSD Environment/Social Stan Peabody Lead Social Development Specialist ECSSD Social Vladislav Krasikov Sr Procurement Specialist ECSPS Procurement Bogdan Constantinescu Sr Financial Management Specialist ECSPS Finance Nicholay Chistyakov Sr Finance Officer LOAG1 Finance George Alexandru Moldoveanu Team Assistant ECCRO Project Support Larisa Marquez Sr Program Assistant ECSIE Project Support Hana Huzjak ET Temporary ECSIE Project Support Milane Reyes Program Assistant ECSIE Project Support Ljiljana Boranic Team Assistant ECCHR Project Support Fritz Schwaiger Consultant (Engineering) ECSIE Specialist Kishore Nadkarni Consultant (Finance) ECSIE Finance Carmen Elena Arhip Operations Officer ECSIE Operations Maha J. Armaly Sr Urban Finance Spec. ECSS6 Urban Finance Klas B. Ringskog Consultant TWIWA Water Specialist Supervision/ICR Roohi Abdullah ICR Author ECSSD6 ICR Author Nurul Alam Senior Procurement Specialist ECSO2 Procurement Lynette Alemar Senior Program Assistant ECSSD Project Support Francois Boulanger Sr Urban Economist MNSUR Team Leader Elisabetta Capannelli Sector Leader ECSSD Team Leader Bogdan Constantin Constantinescu Sr Financial Management Specialist ECSO3 Finance Ruxandra Costache Counsel LEGEM Legal Ruxandra Maria Floroiu Senior Environmental Engineer ECSS3 Environment Hans Jurgen Gruss Deputy General Counsel LEGVP Legal Vladislav Krasikov Sr Procurement Specialist EAPPR Procurement Manuel G. Marino Lead Water and Sanitation Specialist ECSS6 Technical Mirela Mart Consultant ECSOQ Procurement Keith W. McLean Lead Social Development Specialist WBISG Social Cesar Niculescu Environmental Specialist ECSS3 Environment Valeria Nikolaeva Procurement Analyst ECSO2 Procurement Lucian Bucur Pop Sr Economist HDNSP Economic Sudipto Sarkar Sector Leader EASIN Team Leader Iolanda Mihaela Staniloiu Consultant ECSHD Consultant Doina Petrescu Sr Operations Officer ECSS2 Operations Michael John Webster Sr Water & Sanitation Specialist AFTUW Team Leader Cristiana Zirimis Program Assistant ECCRO Project Support *as extracted from PAD 40 (b) Staff Time and Cost Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY04 4 18.12 FY05 19 77.57 FY06 58 186.85 FY07 -0.51 FY08 0.00 Total: 81 282.03 Supervision/ICR FY04 0.00 FY05 0.00 FY06 0.00 FY07 38 92.13 FY08 34 119.13 FY09 37 143.02 FY10 32 159.92 FY11 29 98.65 FY12 16 85.04 FY13 4 11.90 Total: 191 709.78 41 Annex 5. Beneficiary Survey Results Not Applicable – Not required to be undertaken for the project. 42 Annex 6. Stakeholder Workshop Report and Results Full stakeholder workshop was not undertaken. A reconnaissance stakeholder assessment was undertaken as reported below, a brief summary is provided in the main body of the ICR. Component 1: Bucharest Urban Services Overall. The main accomplishment of this component was improving the quality of life for 120,000 people through high quality of water supply, sewerage collection, and property’s easy access to these service, and also roads. The main project challenge was to achieve the targets (monitoring indicators) with the best achievable quality in the available budget. Several challenges were encountered under this component, mainly: (i) lengthy administrative procedure to obtain construction permits; (ii) difference in land ownership regime between the time of feasibility study and start of work; (iii) poor response from other utilities/administrators of which utilities interfered with the work; and (iv) unsatisfactory cooperation with District 1 with respect to construction permits, day to day execution and the timely availability of the counterpart financing. Project Design. The technical design was poorly adapted to the modern environmental requirements and existing site situation (land ownership, rapid development of the areas, outdated or lack of PUZ), these were the reasons for quite a large number of design modifications and time extension for completion. The technical design was elaborated in 2004-05 and therefore once the works started (2007-2008), it required updating Implementation. The biggest implementation impediments were created by the extensive time needed for obtaining the approvals for execution of electricity supply connections, taking some times more than 12 months. The biggest problem faced during implementation was the time needed for obtaining the construction permits, beginning with Zonal Urban Plan (PUZ) approval and continuing with other utilities operator. Due to the importance of the project (ratification by Law No. 124/2007), the municipality had to adapt and responds to issues and constraints with “high priority,� on the decision making process. The biggest lesson learnt by the project experience was team work and good design is critical when dealing with achieving project targets within time and budget constraints. The project resulted in sufficient technical capacity transfer. The biggest accomplishment during project implementation was that the PIU have obtained valuable experience and expertise on managing projects of such complexity. Component 2: Arad Urban Services Overall. The main problems under this component were as follows: (i) Procurement for Works. The prequalification procedure was cancelled, at the Bank's suggestion, due to small number of substantially responsive bids received and a second tender procedure, without prequalification, was carried out, resulting in 3 works contracts awarded separately (with a separate lead contractor) for each district to a JV made up of 3 local contractors and 2 foreign (Hungarian and Polish); (ii) Contractors Competence. The Contractors prove to have little experience and insufficient human and material resources for the tasks. The two foreign companies played no role in the project implementation; (iii) Design. Due to insufficiently developed design, redesign was often necessary during the works; and (iv) Ground water led to higher costs than initially estimated in the proposals made by the contractor. Following and managing the works time schedule and the quality if the works have been among the biggest challenges, along with the large number of work order variations. The main accomplishment of this component was improving the quality of life for the population living in 3 important districts of Arad, by: providing sewerage services, providing drainage in areas with high flooding risk, and providing road access on streets with poor roads or un-surfaced roads. Project Design. The biggest problem in the design of the project was that roads and sewerage design was not sufficiently developed, based on the actual situation on site. Aspect should have been incorporated in 43 design for a successful project, were assessing underground utilities and groundwater level in advance. Finally, the design of the roads was not sufficiently developed at the time of Works contract award. Implementation. The biggest hurdle faced during implementation was that the joint venture (JV) arrangements for the 3 contracts, involving 3 local companies, each taking the role of leader for one of the contracts (A1 - ICIM, A2 - Confort, A3 - Amarad) didn't prove very efficient, due to insufficient resources from their part and lack of involvement from the part of the foreign partners was not very successful. On what changes should have been made or were made during implementation was that foreign partners of the JV should have been present on site, providing material and human support and sharing their expertise and the design should have been more accurate. The biggest learning of project implementation was that in managing big works project the Municipality and the Engineer should have a close cooperation. They both should pay a special attention, from the very beginning, to time schedule and quality of the works and impose strict rules on the Contractor. The municipality was of the opinion that sufficient technical capacity transfer did not occur during implementation. The biggest accomplishment of the project was connection of a large number of houses to quality sewerage services, the overall physical improvement of the districts, not only because of the direct impacts of the works, but also obvious improvement in property maintenance, values, etc. Despite the above mentioned difficulties, the project represents the most important infrastructure project ever developed by the Municipality of Arad, significantly contributing to the social, economic, and environmental development of the city, with short, long and medium term impact. Additionally the co- operation between the Municipality and the Engineer’s team was vital for a successful outcome of the project. Component 3: Project Preparation for EU Funding Overall. The main problems identified under this component was the large number of actors involved, which included: (i) a large number of local authorities not used to establish and manage a common strategy for unanimous decision was required for each project; (ii) the national legislation amendment in order to establish clear institutional framework of these regional project; (iv) data collection for the preparation of projects; (v) changing national legislation on public procurement, among a few, triggered delays in the implementation of this component. The main challenge of this component was preparing a large number of investment project (9 funding application with supporting documents) within a relatively short time, and responding to: (i) SOP Environment 2007-13; (ii) CE approval; and (iii) Demands of the DG REGIO and DG Environment; which meant making the necessary mandatory adjustments by the consultant to attain the quality for EC approval. The main accomplishment of the component was using €11 million, to leverage a financing in the amount of €1 billion for major infrastructure investment in water and wastewater. Project Design. The biggest project design problem was attributed to lumping five project applications under one contract, which entailed a higher risk factor. The risk could have been minimized going with a larger number of contracts covering less application under each, would have also led to faster implementation The component design appropriately responded to sector demand and investment needs because the project included a long term strategy for water sector (master plan) responding to SOP Environment commitment to meet the EU directive. Implementation. The biggest learning was applying WB rules to public procurement of services contract and contract management. The project facilitated sufficient technical knowledge transfer regarding procurement procedures and contract management. The biggest accomplishment was the approval of all application for EC/EU financing for SOP Environment developed under this project. 44 Annex 7. Summary of Borrower's ICR Very detailed ICR reports were submitted by the three implementing agencies: Municipality of Arad, Municipality of Bucharest, and Ministry of Environment and Water Management (MoEWM, now MoEF). All these independent reports have been filed in the project folder. The attached summary has been provided by the Borrower. 45 46 47 48 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders Not applicable 49 Annex 9. Assessment of the Use of Country System (UCS) 29 Background In March 2005, the World Bank Board approved a pilot program to test the use of borrower or “country� systems to meet the objectives of World Bank environmental and social safeguard policies. The rationale for using country systems was to scale up development impact, increase country ownership, build institutional capacity, facilitate harmonization and increase cost effectiveness. This led to the issuance of World Bank Operational Policy 4.00 (OP 4.00) which lays out specific criteria for advancing pilot projects. It was recognized in the background paper for Board consideration that sector-specific Bank operations in new member states and candidates for European Union (EU) accession hold particular promise as pilots. Two operations proposed for Romania for piloting OP 4.00, were the Municipal Services Project (MSP) and the Transport Sector Support Project (TSSP). The Municipal Services Project main objective was to support the rehabilitation and improvement of wastewater, stormwater and drinking water systems to reduce pollution, improve public health, and assist Romania in meeting environmental requirements for European Union accession. The Transport Sector Support Project main objective was to provide funds to rehabilitate, maintain, and improve national road and rail systems. In cooperation with Romanian officials, and with the support of European Commission staff, the World Bank compared the Romanian systems (including those which stem from EU directives) against the objectives and operational principles laid out in OP 4.00 for safeguards that would normally apply to these two Bank-assisted projects. This assessment included a legal and technical review, both on paper and through field interviews and site visits. The Safeguards Diagnostic Review carried out during the project preparation to assess the UCS concluded that the operational principles of EA and Physical Cultural Resources as per Bank policies and the Romanian system laws, regulation and procedures in the sub-sectors supported by this project are considered equivalent and acceptable. Consequently, the Bank recommended the use of Romanian systems to address environmental issues related to this project in the area of (i) Environmental Assessment (EA) and (ii) Physical Cultural Resources. However, Bank supervision on safeguards related matter was recommended throughout the project implementation to: (i) ensure compliance with equivalent and acceptable Romanian procedures, and (ii) track results in environmental outcomes. Nevertheless, to avoid any significant differences in the environmental protection outcome of the EA process, and maintain acceptability during the pilot program, the Bank and Romania agreed on an approach to initially review and clear sub-project EAs jointly, as follows: • the first three environmental impact assessment reports and the first three environmental permits/licenses that were required under Romanian Law for the carrying out of the project, to be submitted to the Bank for its prior review; and • As an integrated part of the normal procurement practice (with ex-ante and ex-post provisions), reviewing of relevant annexes of bid documents describing environmental mitigation and monitoring procedures to be carried out by works contractors, supervisory contractors, etc. 29 This note is based on a World Bank mission fielded from January 27 - February 2, 2012 comprising of Cesar Niculescu (Environmental Specialist) to conduct an environmental safeguards review for the Romania Municipal Services Project before project closing, with guidance provided (in December 2011) by Ruxandra Floroiu (Senior Environmental Engineer). The project is one of the two Bank-supported projects in the country piloting the Use of Country Systems (UCS) to address environmental and social safeguard issues according to the OP/BP 4.00. The main objective of the mission was to visit the most important project sites for which construction activities were under implementation or already completed, and to review UCS implementation, in compliance with the environmental safeguards’ requirements generally applicable to the project. 50 Main Findings The assessment focused on piloting experience of the MSP UCS during the project implementation of all three components, and the UCS compliance with regards to current practice of the local implementing entities; contractors, and supervisor engineers to mitigate environmental impacts and monitor environmental progress for the works financed under MSP. In parallel, the Bank supervision activities on safeguard-related matters were carried out periodically, and included: (i) reviewing relevant annexes of bid documents describing environmental mitigation and monitoring procedures to be carried out by works/supervision contractors; (ii) discussions with local environmental officials on the compliance, monitoring and enforcement with respect to Romanian procedures; (iii) reviewing of work done by contractors to implement and monitor environmental management actions during constructions undertaken in Bucharest and Arad municipalities; (iv) site visits where civil works were implemented. The Bank’s supervision missions focused overall on implementation issues linked to environmental as well as cultural property aspects (from both sides - Bank and Client), and if there were any concerns (e.g., mass media, private persons, etc.) regarding the project’s reliance on Romanian laws, policies, and institutions inadequacies in protecting peoples’ health and well-being. Overall, the project exercised acceptable level of implementation of environmental safeguards under the project, and the application of UCS MSP pilot in Romania can be considered satisfactory and in accordance with the findings of the acceptability assessment. Most of the technical/engineering aspects of the environmental protection and mitigation measures included in the projects were compatible with the national and international practice, with the Bank’s requirements and safeguards, and suitable for the types of works implemented under the project. In Arad and respectively, in Bucharest, each of the contractors had appointed a specialized person in charge with the Health & Safety and Environmental protection activities, who implemented the site EMP accordingly. The Environmental Protection and Health & Safety Plans prepared by the contractors and approved by the Supervising Engineers for components 1 and 2 specified mitigating measures for all significant environmental issues, and main environmental parameters for monitoring during the project implementation. Generally, these covered protection measures related to construction site: dust and noise, collection and disposal of solid wastes, recycling of the excavated material, construction material transportation and supply, vegetation and green areas. The PIUs for components 1 and 2 established in general a good approach to environmental monitoring within the project to assure that high standards are followed for their respective components. There was evidence of the positive effects of this approach at all sites - all works contracts included environmental protection measures to be followed according to the actual legislation in force, with mitigation procedures and responsibilities for the contractor. Specific requirements for inspection, identification, and handling of hazardous materials and construction debris were included in the procurement documents. All environmental impact mitigation and monitoring activities were carried out in parallel with the construction activities. Site visits from both sides – the Client and the Bank – were carried out during project implementation of works contracts for construction of water, sewerage, drainage network systems and associated urban roads in Bucharest, sectors 1 and 6, and respectively, Arad. Progress reports on environmental monitoring parameters at project site locations were prepared regularly, with description of monitoring activities for water and wastewater, air pollution, soil pollution and noise levels, as well as status of roads, construction materials and gas used, soil and waste management, and water surface collection. Other related documents available and/or developed at the project site included a detailed environmental action plan, required authorizations (environmental approval, use of water/wastewater, etc.), 51 specific waste management plan, and list of legal aspects (e.g., laws, ordinances) required to mitigate and monitor site/activity specific possible environmental impacts. Component 3 - Project Applications for the EU (implemented by MoEF) – the Safeguards Diagnostic Review recommended that the first three EIAs with respective environmental permits prepared for investments financed under this component to be sent to the Bank for review. The Client fulfilled this task, and in addition submitted to the Bank all 10 EIAs reports prepared for each application for EU financing. All EIA Reports were accepted by the Bank, and approved by MoEF and EU Commission for all project locations. The EIAs demonstrated that the proposed projects contribute to the fulfillment of the commitments of Romania assumed by the Accession Treaty and is in line with the EU Operational Program Environment. Main conclusions • Overall, the UCS MSP pilot program under OP 4.00 could be considered successful in achieving its goals. • The supervision process of the UCS MSP pilot (both on the Bank and the client side) did not prove to be easier than that of a regular SIL, given that the project needed to trigger a new safeguard policy during project implementation (OP 4.12 e.g., Involuntary Resettlement). The Safeguards Diagnostic Review (2006) concluded that the Bank’s policy on Involuntary Resettlement was not equivalent and acceptable with the relevant national legislation in Romania. Also, currently the EU does not have a policy or regulations governing land acquisition, and this remains an issue at the national level and for Bank financed investments in the country. • The UCS MSP pilot in Romania positively contributed to institutional capacity building, by increasing the client’s capacity on creating awareness of environmental management – as environmental protection aspects related to the works contracts were being managed by the requisite technical departments of Arad and Bucharest municipalities. • The UCS pilot program under MSP pilot did not induce any change in the legal system in Romania for both, Environmental Assessment (EA) and Physical Cultural Resources, more so as there was no need due to equivalency. • Country ownership of UCS was sufficient, but this fact cannot be attributed directly to the UCS pilot, but mainly due to the regulatory regime to comply with EU requirements and standards. Using the country systems approach for the safeguards policies proved realistic and efficient, and allowed the Bank staff to focus more on the transfer of necessary knowledge and development of skills to counterparts. • The MSP experience suggests that the anticipated time and cost savings under this project may not have fully materialized as expected under the OP 4.00, which anticipated lower costs. The incremental preparation cost to the Bank for UCS project was expected to decline as a share of fixed cost of the diagnostic work taken before project implementation; however, the project experience indicates that this may not have been the case, and incremental costs assessment to the Bank for UCS pilot project may be difficult to be assessed accurately mainly due to the following reasons: (i) as this was the first and only UCS pilot in ECA region, input from various safeguards specialists were requested for this project for different evaluations related to the progress of this pilot, including QAG evaluation as well as facilitation on the ground of the IEG mission (conclusion of higher costs being in line with the safeguards evaluation provided by IEG in their report of May 2010); and (ii) since mid-project OP 4.12 (Involuntary Resettlement) had to be triggered. As a result, additional Bank’s expertise and costs were necessary for overall project supervision of safeguards. • Romania‘s environmental policies are sufficiently robust, and the evidence on the ground indicates that they are being implemented satisfactorily. Therefore, it is possible to rely on the existing national environmental safeguards which reflect the European Union Directives, regulations and policies on environmental protection and management. On safeguard policies, such as Environmental Assessment and Physical Cultural Resources, the country has demonstrated sufficient capacity to implement EU rules and processes and international good practices. 52 • In conclusion, the piloting of UCS for Romania MSP showed positive results during the project implementation, and demonstrated possibility of scaling-up this approach at the country-wide level for category B investments. 53 Annex 10. Project Photographs (for assessing investment impact) Before After Bucharest 1. Baneasa 54 Before After 2. Odai 3. Straulesti 55 Before After 4. Chitila Triaj 5. Vatra Noua 56 Before After 6. Giulesti Sarbi Arad 7. Gai 57 Before After 8. Bujac 9. Sanicolau Mic Typical street – End-Project Typical Laguna – End-Project 58 Annex 11. List of Supporting Documents 1. Implementation Status and Results Report (ISR)–Seq #1 Archived Version–MSP. Dated: 03/15/2007 2. Implementation Status and Results Report (ISR)–Seq #2 Archived Version–MSP. Dated: 02/26/2008 3. Implementation Status and Results Report (ISR)–Seq #3 Archived Version–MSP. Dated: 12/15/2008 4. Implementation Status and Results Report (ISR)–Seq #4 Archived Version–MSP. Dated: 08/19/2009 5. Implementation Status and Results Report (ISR)–Seq #5 Archived Version–MSP. Dated: 11/27/2009 6. Implementation Status and Results Report (ISR)–Seq #6 Archived Version–MSP. Dated: 03/29/2010 7. Implementation Status and Results Report (ISR)–Seq #7 Archived Version–MSP. Dated: 05/24/2010 8. Implementation Status and Results Report (ISR)–Seq #8 Archived Version–MSP. Dated: 01/25/2011 9. Implementation Status and Results Report (ISR)–Seq #9 Archived Version–MSP. Dated: 05/16/2011 10. Implementation Status and Results Report (ISR)–Seq #10 Archived Version–MSP. Dated: 12/22/2011 11. Implementation Status and Results Report (ISR)–Seq #11 Archived Version – MSP. Dated:3/14/2012 12. Aide Memoire Identification Mission, March 1-5, 2004 13. Aide-Memoire of Preparation Mission, February 21 - March 2, 2005 14. Aide-Memoire of Preparation Mission, July 4-8, 2005 15. Aide Memoir Preparation Mission, August 8-12, 2005 16. Aide Memoire of Pre-Appraisal Mission, December 12-19, 2005 17. Minutes of Decision Review Meeting, April 24, 2006 18. Aide Memoire Project Supervision Mission, Technical Mission, July 11-15, 2006 19. Aide Memoire Project Supervision Mission, November 3-7, 2008 20. Aide Memoire Mid-term Review Mission, April 13-24, 2009 21. Aide Memoire Project Supervision Mission, November 2-6, 2009 22. Aide Memoire Project Supervision Mission, April 26-30, 2010 23. Aide Memoire Project Supervision Mission, December 7 – 9, 2010 24. Aide Memoire Project Supervision Mission, March 16-19 and March 28-April 1, 2011 25. Aide Memoire Project Supervision FM Mission, March – May 2011 26. Aide Memoire Project Supervision Mission, October 9 – 12, 2011 27. Aide Memoire Project Supervision Mission, January 27 – February 2, 2012 28. Project Appraisal Document – May 25, 2006 29. Project Agreement Loan 4835-RO (Bucharest) Conformed (English) – July 24, 2006 30. Loan Agreement L4835-RO Conformed (English) – July 24, 2006 31. Romania - Municipal Services Project : procurement plan (English) – June 7, 2007 32. Romania - Municipal Services Project : resettlement policy framework (English) – June 22, 2009 33. Romania - Municipal Services Project : restructuring (English) – January 5, 2010 34. Romania - Municipal Services Project : restructuring (Vol. 1 of 2 ) : Main report (English) – June 14, 2011 35. Romania - Municipal Services Project : restructuring (Vol. 2 of 2) : Data sheet (English) – June 14, 2011 59 IBRD 34517R 28°E 22°E 24°E 26°E ROMANIA To Uzhhorod UK R AI N E To MUNICIPAL SERVICES PROJECT Ivano-Frankivs'k COUNTIES IN WHICH PROJECTS HAVE BEEN PREPARED MUNICIPALITIES IN WHICH INVESTMENTS HAVE BEEN IMPLEMENTED ROMANIA To ¸ BOTOSANI ˘ Balti 48°N CITIES AND TOWNS COUNTY(JUDET) CAPITALS Satu Mare ¸ Botosani NATIONAL CAPITAL MARAMURES ¸ Sir et SATU MARE SU C E AVA MAIN ROADS Baia Mare Suceava RAILROADS Pr COUNTY(JUDET) BOUNDARIES Somes u To BI ST RI ¸ TA- t ¸ IASI Chisinau INTERNATIONAL BOUNDARIES To ˘ ˘ N A SAU D ¸ Iasi Bi Budapest Zalau str Oradea Dej ¸ Bistrita ita ˘ SALAJ Piatra- To Chisinau 30°E Neamt ¸ To H UN G AR Y BIHOR C LU J ur es Roman ¸ NEAMT M OL D OVA M Budapest Cluj- Gheorgheni Napoca ¸ MURES Vaslui ¸ Husi Târgu ˘ Bacau Turda Mures ¸ Crisul Al b HARGHITA ˘ BACAU VASLUI Arad ALBA Miercurea- Cuic ˘ ¸ Comanesti O ¸ nesti ARAD Tro Sir t us et To Bârlad Subotica Mures Brad Alba Iulia ¸ Medias UKR AINE 46°N COVASNA Deva SI B I U ¸ BRASOV Timisoara ¸ Hunedoara Sibiu Sfântu VRANCEA Tecuci Gheorghe TIMIS ¸ Lugoj HUNEDOARA Focsani ¸ ¸ GALATI Ti ¸ Brasov mi s ¸ Galati ¸ Petrosani VÂLCEA ˘ BUZAU Bu zau Resita ¸¸ Brâila To Novi Sad CARA¸ S - GORJ Râmnicu ˘ Buzau Tulcea Vâlcea SEVERIN Targu Jiu PRAHOVA ˘ILA BRA AR GE¸ S Târgoviste ¸ TULCEA ¸ Ploiesti ¸ Pitesti ¸ DÂMBOVITA J iu Dunav O ¸ rsova Drobeta- ita Turnu Severin ILFOV TA Ialom I A LO M I ¸ Ar Slobozia ge Slatina s ¸ BUCURESTI ¸ MEHEDINTI ¸ Fetesti To Nis˘ SER B I A Craiova O LT ˘LA CA ˘RA¸ SI ˘˘ ¸ Calarasi Navodari ˘ TELEORMAN Medgidia Olt nav ¸ Constanta 44°N GIURGIU Du ¸ CONSTANTA 44°N 0 25 50 75 100Kilometers DOLJ Caracal Calafat Alexandria Giurgiu Mangalia B l a c k 0 25 50 75Miles ˘ Turnu Magurele S e a This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other information B UL G AR I A shown on this map do not imply, on the part of The World Bank To GSDPM Group, any judgment on the legal status of any territory, or any To Map Design Unit Sofiya To To Shumen To endorsement or acceptance of such boundaries. 24°E ˘ Veliko Turnovo Shumen Varna 30°E DECEMBER 2012