Document of The World Bankdocuments.worldbank.org/curated/en/428701468193480… · · 2016-07-15Sector Manager: William Kingdom Project Team Leader: ... G. Ratings of Project Performance

Document of

The World Bank

Report No: ICR00003050

IMPLEMENTATION COMPLETION AND RESULTS REPORT

(IDA-H2250)

ON A

GRANT

IN THE AMOUNT OF SDR 12.24 MILLION

(US$ 17.83 MILLION EQUIVALENT)

TO THE

ISLAMIC REPUBLIC OF AFGHANISTAN

FOR A

AFGHANISTAN URBAN WATER SECTOR PROJECT

December 23, 2014

Water Global Practice

Afghanistan Country Management Unit

South Asia Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective 12/07/2014)

Currency Unit = Afghani (Afs)

1.00 = US$ 0.017

US$ 1.00 = 57.55

FISCAL YEAR 2015

ABBREVIATIONS AND ACRONYMS

Afs Afghani

ARDS Afghanistan Reconstruction and Development Services

ARTF Afghanistan Reconstruction Trust Fund

AUWSSC Afghanistan Urban Water Supply and Sewerage Corporation

AUWSSC-HQ AUWSSC Headquarters

CAWSS Central Authority for Water Supply and Sewerage

EIRP Emergency Infrastructure Reconstruction Project

IDA International Development Association

IFR Interim Financial Reports

KfW German Government-Owned Development Bank

M&E Monitoring and Evaluation

MoU Memorandum of Understanding

MTP Medium Term Program

MUDA Ministry of Urban Development Affairs

O&M Operation and Maintenance

PDO Project Development Objectives

SBU Strategic Business Unit

STP Short Term Program

Vice President: Annette Dixon

Country Director: Robert J. Saum

Sector Manager: William Kingdom

Project Team Leader: Deepali Tewari

ICR Team Leader: Deepali Tewari

AFGHANISTAN

Afghanistan Urban Water Sector 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

1. Project Context, Development Objectives and Design ............................................... 1

2. Key Factors Affecting Implementation and Outcomes .............................................. 6 3. Assessment of Outcomes .......................................................................................... 11 4. Assessment of Risk to Development Outcome ......................................................... 16

5. Assessment of Bank and Borrower Performance ..................................................... 17 6. Lessons Learned..................................................................................................... 20

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners .......... 21

Annex 1. Project Costs and Financing .......................................................................... 22

Annex 2. Outputs by Component ................................................................................. 23 Annex 3. Economic and Financial Analysis ................................................................. 29

Annex 4. Bank Lending and Implementation Support/Supervision Processes ............ 30 Annex 5. Beneficiary Survey Results ........................................................................... 32 Annex 6. Stakeholder Workshop Report and Results ................................................... 33

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ..................... 34 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 42 Annex 9. List of Supporting Documents ...................................................................... 43 MAP .............................................................................................................................. 44

A. Basic Information

Country: Afghanistan Project Name: AF: Urban Water

Sector Project

Project ID: P087860 L/C/TF Number(s): IDA-H2250

ICR Date: 12/23/2014 ICR Type: Core ICR

Lending Instrument: ERL Borrower:

ISLAMIC

TRANSITIONAL

STATE OF

AFGHANISTAN

Original Total

Commitment: XDR 27.90M Disbursed Amount: XDR 11.93M

Revised Amount: XDR 12.24M

Environmental Category: B

Implementing Agencies: Afghanistan Urban and Water Supply and Sanitation Components

Cofinanciers and Other External Partners:

B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 03/31/2005 Effectiveness: 12/27/2006 12/27/2006

Appraisal: 02/20/2006 Restructuring(s):

06/01/2010

10/01/2010

06/27/2012

03/25/2014

Approval: 05/25/2006 Mid-term Review: 11/02/2008

Closing: 06/30/2010 06/30/2014

C. Ratings Summary

C.1 Performance Rating by ICR

Outcomes: Moderately Satisfactory

Risk to Development Outcome: High

Bank Performance: Moderately Unsatisfactory

Borrower Performance: Moderately Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)

Bank Ratings Borrower Ratings

Quality at Entry: Unsatisfactory Government: Moderately

Unsatisfactory

Quality of Supervision: Moderately Satisfactory Implementing

Agency/Agencies: Moderately Satisfactory

Overall Bank

Performance:

Moderately

Unsatisfactory Overall Borrower

Performance: Moderately Satisfactory

C.3 Quality at Entry and Implementation Performance Indicators

Implementation

Performance Indicators

QAG Assessments

(if any) Rating

Potential Problem Project

at any time (Yes/No): Yes

Quality at Entry

(QEA): None

Problem Project at any

time (Yes/No): Yes

Quality of

Supervision (QSA): None

DO rating before

Closing/Inactive status:

Moderately

Satisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

Central government administration 27 27

Water supply 73 73

Theme Code (as % of total Bank financing)

City-wide Infrastructure and Service Delivery 29

Conflict prevention and post-conflict reconstruction 29

Infrastructure services for private sector development 14 2

State-owned enterprise restructuring and privatization 28 98

E. Bank Staff

Positions At ICR At Approval

Vice President: Annette Dixon Praful C. Patel

Country Director: Robert J. Saum Alastair J. McKechnie

Practice

Manager/Manager: William D. Kingdom Sonia Hammam

Project Team Leader: Deepali Tewari Christophe E. Bosch

ICR Team Leader: Deepali Tewari

ICR Primary Author: Pratibha Mistry

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) At appraisal, the project development objective was: 'to assist the Recipient to develop

the capacity of the Afghanistan Urban Water Supply and Sewerage Corporation for

operational management and investment planning and implementation. The project

objectives will be to initiate actions to: (i) transform CAWSS into a technically viable

operation; (ii) establish the financial sustainability of the Afghanistan Urban Water

Supply and Sanitation Company UWSSC - CAWSS successor); (iii) increase access to

and reliability of the water supply service in Kabul; and (iv) prepare a follow-up project

under which more substantial institutional and financial objectives could be achieved and

coverage further expanded in Kabul and provincial towns'.

Revised Project Development Objectives (as approved by original approving authority)

The revised project development objective was to assist the Recipient to develop the

capacity of the Afghanistan Urban Water Supply and Sewerage Corporation for

operational management and investment planning and implementation.

The indicators reported below are for the restructured project. Only 2.5% of the original

grant amount had been disbursed towards the end of the original grant period, prior to

restructuring, to support the capacity building objective of the project. The project was

implemented as the restructured project and the indicators below are as approved for the

restructured project.

(a) PDO Indicator(s)

Indicator Baseline Value

Original Target

Values (from

approval

documents)

Formally

Revised

Target

Values

Actual Value Achieved at

Completion or Target

Years

Indicator 1 : Number of water utilities that the project is supporting

Value

quantitative or

Qualitative)

0 1 1

Date achieved 06/01/2010 06/01/2010 06/30/2014

Comments

(incl. %

achievement)

The core indicator was incorporated at restructuring.

Indicator 2 : AUWSSC is fully corporatized and took over operation in urban areas

Value

quantitative or

Qualitative)

Not achieved

AUWSSC took

over operation in

all urban areas

where CAWSS

was operating

AUWSSC fully

corporatized. Urban

operations expanded to 43

towns (direct operations in

38 towns and joint

operations with local

municipalities in 5 towns)

Date achieved 06/01/2010 06/01/2010 06/30/2014

Comments

(incl. %

achievement)

Corporatization Features: AUWSSC accountable to its Board of Directors (BoD);

Ministry of Urban Development Affairs appoints BoD Members; BoD accountable to

Ministry; BoD appoints senior executives in AUWSSC; BoD responsible for AUWSSC's

financial results

Indicator 3 : Number of household connections in Kabul provided by small scale local providers

Value

quantitative or

Qualitative)

0 500 1,200

Date achieved 06/01/2010 06/01/2010 06/30/2014

Comments

(incl. %

achievement)

The pilot scheme by small scale providers currently benefits 1,200 households and is

expected to be extended to a further 800 households by the private operator.

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target

Values (from

approval

documents)

Formally

Revised

Target Values

Actual Value Achieved

at Completion or

Target Years

Indicator 1 : Financial statements of AUWSSC is produced and audited

Value

(quantitative

or Qualitative)

AUWSSC is a new entity 2 4

Date achieved 06/01/2010 06/01/2010 06/30/2014

Comments

(incl. %

achievement)

Financial statements were produced and audited for four financial years: FY 1388

(2009/10), 1389 (2010/11), 1390 (2011/12), and 1391 (2012/13).

Indicator 2 : Accounts receivable (months)

Value

(quantitative

or Qualitative)

3.5* 2.0 3.0

Date achieved 06/01/2010 06/01/2010 06/30/2014

Comments

(incl. %

achievement)

The accounts receivable was defined as: Accounts receivable = (Year-end accounts

receivable/total annual operating revenues) x 12.

*from restructuring paper

Indicator 3 : Working Ratio

Value

(quantitative

or Qualitative)

1.17 1.0 0.68

Date achieved 06/01/2010 06/01/2010 06/30/2014

Comments

(incl. %

achievement)

Calculated as Total Annual Expenses excluding Depreciation/Total Annual Revenue

Indicator 4 : Average per connection collections (Afs)

Value

(quantitative

or Qualitative)

988 1,400* 2,363

Date achieved 06/01/2010 06/01/2010 06/30/2014

Comments

(incl. %

achievement)

*from restructuring paper.

Indicator 5 : Percentage of samples tested meeting residual chlorine standards (%)

Value

(quantitative

or Qualitative)

No data 95%* 80%

Date achieved 06/01/2010 06/01/2010 06/30/2014

Comments

(incl. %

achievement)

Actual value reported at project close but could not be verified. Procurement of

chlorine included in the revised procurement plan had to be dropped due to delays.

*from restructuring paper.

G. Ratings of Project Performance in ISRs

No. Date ISR

Archived DO IP

Actual Disbursements

(USD millions)

1 04/06/2007 Moderately Satisfactory Moderately Satisfactory 0.00

2 08/28/2007 Moderately Satisfactory Unsatisfactory 0.00

3 05/01/2008 Unsatisfactory Unsatisfactory 0.00

4 08/28/2008 Unsatisfactory Unsatisfactory 0.00

5 05/29/2009 Moderately

Unsatisfactory

Moderately

Unsatisfactory 0.00


Unsatisfactory

Moderately

Unsatisfactory 1.00


Unsatisfactory

Moderately

Unsatisfactory 1.00



10 05/31/2012 Satisfactory Moderately Satisfactory 3.48




14* 06/14/2014 Moderately

Unsatisfactory

Moderately

Unsatisfactory 11.90

15 06/30/2014 Moderately Satisfactory Moderately Satisfactory 15.08 *On June 14, 2014 the project was rated Moderately Unsatisfactory to emphasize the need for client action on disbursement

delays and audit completions. This was upgraded back to Moderately Satisfactory in the final supervision mission at the end of

June 2014.

H. Restructuring (if any)

Restructuring

Date(s)

Board

Approved

PDO Change

ISR Ratings at

Restructuring

Amount

Disbursed at

Restructuring

in USD

millions

Reason for Restructuring & Key

Changes Made DO IP

06/01/2010 N MU MU 1.00

Extension of the grant closing date for 3

months, from June 30, 2010 to

September 30, 2010 to allow time for

Level 1 restructuring.

10/01/2010 Y MU MU 1.03

Cancellation of Component 3:

Extension of Kabul Water Supply

System. Extension of closing date from

September 30, 2010 to June 30. 2012

06/27/2012 S MS 3.48

Extension of closing date from June 30,

2012 to June 30, 2014. Reallocation

between disbursement categories.

03/25/2014 MS MS 8.61

Creation of one combined Disbursement

Category, elimination of monetary

thresholds

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 Unsatisfactory

Against Formally Revised PDO/Targets Moderately Satisfactory

Overall (weighted) rating Moderately Satisfactory

I. Disbursement Profile

1

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

1. Country and Sector Background. In the aftermath of September 11, 2001,

major changes took place in the political and military situation in Afghanistan: the first

post-war President was elected and a new Cabinet was inaugurated in 2004, and a new

Parliament was sworn in on December 19, 2005. The challenges of establishing national

unity, developing institutions, and implementing the Government’s long term vision for

development remained significant. The country’s economic infrastructure had been

devastated after decades of conflict, and most Afghans had little or no access to basic

services. In 2005, piped water coverage was estimated at 18%, among the lowest in the

world. The majority of urban households abstracted water from contaminated boreholes,

open wells, springs or streams. Sewerage coverage was limited to a few Soviet-era

apartment complexes in Kabul that served less than 2% of the population.

2. The Central Authority for Water Supply and Sewerage (CAWSS) was a

department within the Ministry of Urban Development Affairs (MUDA1) responsible for

urban service delivery across the country. There were functional gaps and overlapping

responsibilities between CAWSS and municipalities. CAWSS was responsible for urban

service delivery, and municipalities were responsible for on-site sanitation through their

local departments of sanitation. CAWSS’s operational, commercial and financial

performance was poor. During the period of conflict, communication with the provincial

towns was difficult, and regional operations were managed autonomously.

3. The Government’s Interim Afghanistan National Development Strategy (ANDS)

(March 2006) identified water supply and sanitation as a priority area for public

infrastructure investment. As part of its efforts to meet the Millennium Development

Goals, the Government aimed to supply piped water by 2010 to 50% of households in

Kabul, and 30% of households in other major urban centers. To achieve this target, the

Government developed the Urban Water Supply and Sewerage Sector Policy, Urban

Water Supply and Sewerage Sector Institutional Development Plan, and the Presidential

Decree to corporatize CAWSS to the Afghanistan Urban Water Supply and Sewerage

Corporation (AUWSSC). These policies underscored the government’s commitment to

extend access, improve sustainability of service provision, and emphasize full cost

recovery and financial sustainability of service providers.

4. Rationale for Bank Assistance. The Bank re-engaged in Afghanistan in 2002

with the US$ 37.6 million IDA financed Emergency Infrastructure Reconstruction

Project (EIRP) (2002-2006). This multi-sector project formed the basis for the Bank’s

subsequent sector specific projects in urban reconstruction, water supply and sanitation,

1 Formerly Ministry for Urban Development (MoUD).

2

and power. The Government developed the Short Term Program (STP) (2005-2007) and

the Medium Term Program (MTP) (2007-2011) as urban water supply and sanitation

sector investment plans to channel donor efforts more effectively.

5. The Bank’s Transitional Support Strategy of March 2003 identified water supply

and sanitation as a key priority for investment and a series of follow on projects from

EIRP were planned to support the sector. STP investments were packaged for support

under the Afghanistan Short Term Urban Water Supply and Sanitation Project (P092162)

financed by the Afghanistan Reconstruction Trust Fund (ARTF) and approved in 2005.

MTP investments were packaged under this project, the Afghanistan Urban Water Sector

Project (AUWSP), an Emergency Response Loan approved in May 2006. Both projects

were concurrently prepared by the same task team.

6. The Bank’s strong in-country presence and development leadership supported the

Government’s efforts to coordinate donor activities in the sector. The Bank’s knowledge

of operating effectively in fragile and post conflict states was evolving. Afghanistan

remained highly unstable and insecure. There was continuing insurgency, municipal

governments were weak, and internal revenue generation was tenuous. It was clear that in

addition to the planned development programs, even the maintenance of existing services

would have to rely on external funding for the foreseeable future. Donors were very

active in Afghanistan during this time and the largest donors in the sector at that time

were the German development agencies and IDA.

1.2 Original Project Development Objectives (PDO) and Key Indicators

7. The PDO was phrased differently in the project’s Technical Annex 2 and

Financing Agreement. In the Technical Annex the project’s objectives were:

“…to initiate actions to: (i) transform CAWSS into a technically viable operation; (ii)

establish the financial sustainability of the Afghan Urban Water Supply and Sanitation

Company (AUWSSC - CAWSS successor); (iii) increase access to and reliability of the

water supply service in Kabul; and (iv) prepare a follow-up project under which more

substantial institutional and financial objectives could be achieved and coverage further

expanded in Kabul and provincial towns.”

8. In the Financing Agreement the PDO was stated as:

“… to assist the Recipient in increasing access to, and reliability of, the water supply and

sewerage service in its urban centers by: (i) establishing adequate institutional

arrangements for the management of water supply and sewerage; and (ii) extending the

water supply system in Kabul.”

2 Report Number P7670-AF

3

9. The Technical Annex included the following key indicators::

Commercial performance per Strategic Business Unit (SBU) (and other AUWSSC

operations): Number of total and billed connections per category of customer; Population

served and service ratio; Production and sales (m3/year); Metering, billing and collection

(m3/year and Afs); and Non-Revenue Water (%).

Financial Performance per SBU (and other AUWSSC operations and AUWSSC/HQ):

Operating cost, including electricity, fuel, chemicals, parts, maintenance (Afs); Staff

costs, including salaries and bonuses (Afs); Management costs, including salaries and

bonuses (Afs); Revenues per SBU per category of customer (Afs); Accounts receivable

per category of customer (days of billing); and Working Ratio (%).

Service Performance per SBU/other operations: Per connection and per capita production

and sales (liters per capita per day); and Percentage of samples tested meeting residual

chlorine standards (%).

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and

reasons/justification

10. By the end of the grant period in 2010, the project could not be implemented due

to: (i) an unrealistic project design that did not integrate the post-conflict context and

lessons emerging from other projects under implementation; (ii) the use of disbursement

conditions that could not be realistically met; (iii) increasing politicization of the

transition from CAWSS to AUWSSC; and (iv) delays in the preparation of detailed

designs for the infrastructure component that was financed by external donors.

11. Due to implementation delays and significant cost escalations, US$23 million of

the grant committed to Component 3: Extension of Kabul Water Supply System Works

was cancelled. Two additional activities were included in the project: (i) the preparation

of a new water supply project for Kabul, and (ii) implementation of a pilot scheme for

water supply expansion by private operators.

12. To reflect these changes the project development objective was revised to: to

assist the Recipient to develop the capacity of the Afghanistan Urban Water Supply and

Sewerage Corporation for operational management and investment planning and

implementation. PDO level indicators were revised to: i) Number of water utilities that

the project is supporting; ii) AUWSSC is fully corporatized and took over operation in

urban areas; iii) Number of household connections in Kabul provided by small scale local

providers.

1.4 Main Beneficiaries,

13. As originally designed, the following benefits were intended for the primary

beneficiaries: i) AUWSSC would increase its capacity for operational management,

4

investment planning and implementation, benefitting approximately 1.5 million people

being served in the urban areas (of which 0.74 million female); and ii) an estimated

600,000 (of which 294,000 female) residents of Kabul city would gain access to piped

water through the Logar II scheme.

14. After restructuring in 2010 the primary beneficiaries were: i) AUWSSC, to

improve operational management, investment planning and implementation for

approximately 1.5 million people being served in the urban areas (of which 0.74 million

female); and ii) 500 households in Kabul being connected using small scale local

providers.

1.5 Original Components

15. To achieve the project development objective, the project was designed around

the following three components:

Component 1: Institutional Development of AUWSSC (US$ 8.2 million)

16. Reorganization of CAWSS into a public corporation to be responsible for the

management and development of urban water supply and sewerage assets and for the

provision of quality water supply and sewerage services in urban areas, through the

provision of legal and technical advisory services.

17. Development and enhancement of capacity in the newly formed AUWSSC,

through the provision of technical assistance and training for, among other things: (i) the

preparation of operations, procurement, accounting and financial management

procedures; (ii) the monitoring and management of environment and social issues; (iii)

human resource development; (iv) the carrying out of feasibility studies and surveys; (v)

the carrying out of audits; and (vi) the carrying out of financial management, planning

and design, and management and implementation of water supply and sewerage activities.

18. Strengthening and improving the institutional capacities of SBUs through, among

other things, the preparation and execution of memoranda of understandings between

AUWSSC's headquarters and each SBU.

19. Designing of a public private partnership arrangement for the management of

water supply and sewerage services in selected cities.

Component 2: Financial Support to AUWSSC (US$ 5.5 million)

20. Strengthening of the newly created AUWSSC, through the provision of financial

support, including payment of: (i) operations and maintenance costs including salaries of

non-managerial was capped at 45% of expenses incurred in FY07 within the limit of

US$1 .9 million, 30% of expenses incurred in FY08 within the limit of US$1 .5 million

and 15% of expenses incurred in FY09 within the limit of US$1 million; (ii) salaries of

managerial staff at 100% of expenses incurred within the limit of US$300,000 per year in

5

FY07, 08 and 09; and (iii) bonuses of managerial staff at 100% of expenses incurred

within the limit of US$100,000 per year in FY07, 08 and 09.

Component 3: Extension of the Kabul Water Supply System (US$ 18.3 million)

21. Increasing access to and reliability of the water supply service in Kabul by

developing the Logar II Water Supply Scheme through, among other things, the

development and equipping of a well field, the construction of a pumping station, the

supply and laying of pipes and equipment for the construction of a transmission line and

the extension of the distribution network, and the construction of a reservoir.

22. The US$40.0 million from IDA was supplemented with US$24.5 million of

parallel financing from German development agencies, which were to provide

institutional development to transform CAWSS into the independent corporate utility

AUWSSC, invest in the first phase of the medium term investment plan for urban water

supply infrastructure, prepare the detailed engineering designs and costing, and conduct

construction supervision.

1.6 Revised Components

23. When the project was restructured (Level 1) in 2010, the following changes were

made: Component 1: Institutional development of AUWSSC was modified to include i)

preparation of an investment program to increase water supply for Kabul; and ii) the

development and implementation of a pilot scheme to expand water supply services by

small private operators. There were no changes to Component 2: Financial support to

AUWSSC operations. Component 3: Extension of the Kabul water supply system was

cancelled.

1.7 Other significant changes

24. On December 1 2006 IDA granted a month’s extension to the effectiveness

deadline to allow more time for the signing of a co-financing agreement between the

German Development Cooperation and the Government of Afghanistan. On June 23,

2010 the closing date was extended by three months from June 30, 2010 to September 30,

2010 to allow for the Bank’s internal processing of the Level 1 restructuring. The Level 1

restructuring was completed on October 1, 2010 which established June 30, 2012 as the

revised closing date.

25. On June 27 2012, the closing date of the project was extended to June 30, 2014 to

allow for: (i) completion of technical assistance tasks; (ii) compilation of AUWSSC’s

financial statements and their audit to enable the Government to comply with the legal

covenant regarding AUWSSC’s audits and claim reimbursement of operating costs; (iii)

continuation of contracts for AUWSSC management that would otherwise end on June

30, 2012; and (iv) preparation of bidding documents for the next phase of investments.

The requirement for audited financial statements in the project design called for the

6

granting of an exception to the Bank’s financial management policy BP10.02 first, before

the closing date could be extended.

26. On March 25 2014, the project was restructured and the following changes

approved: (i) creation of one combined Disbursement Category to enable AUWSSC to

claim the allowed percentage of O&M expenditures permitted by the Financing

Agreement; and (ii) elimination of monetary thresholds, without changing the

percentages allocated for disbursements against operating costs. The allocation for

bonuses to managerial staff and the ‘Unallocated’ category were removed to allow further

reimbursement of operating costs. On October 29, 2014 the disbursement deadline of the

grace period was extended by two months from October 30, 2014 to December 31, 2014.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

27. Soundness of background analysis. In spite of project teams sharing technical

expertise, knowledge of emerging lessons from the implementation of other projects was

not sufficiently incorporated into the project design. For example, the risk of delays from

donor financed activities was emerging from the IDA financed Kabul Urban

Reconstruction Project (P083919), where water production investments to be financed

and implemented by KfW had not been completed when this project was appraised in

2006. A rapid analysis of AUWSSC’s performance and projections of future performance

were conducted with limited data collected over a six month period under the ARTF

project. This analysis was used to determine improvement targets for revenues, cost

recovery, and the levels of the declining operating subsidy that were unrealistic and based

on data that was not fully representative.

28. Assessment of project design. Conceptually, project design was consistent with

international practice in utility reform. However, it failed to sufficiently factor in the

capacity of implementing staff, the political and legal context of the post conflict state,

and the lack of data and information on public institutions. The project was designed on

the premise of AUWSSC being established before disbursements could be made against

the project, even though AUWSSC had not yet been established as a legal entity at

appraisal. AUWSSC was only the second State Owned Enterprise to be corporatized

under the Commercial Law of Afghanistan, and the legal framework was still being

established. During preparation, the Institutional Development Plan was approved and the

Presidential Decree for corporatization was secured. However, the statutes were still to be

approved by Cabinet and AUWSSC was still to be registered as a public corporation with

the Afghanistan Investment Support Agency.

29. Project preparation did not adequately take account of the fact that during the

period of conflict there were no functioning processes for the legal registration of land

and other facilities, in both the central government cadaster and in the municipalities. The

Procedures for Corporatization of State-Owned Enterprises required the creation of a list

7

of CAWSS assets and liabilities. This resulted in a lengthy process for asset re-

registration, assessment and title transfer from CAWSS to AUWSSC that delayed the

corporatization process.

30. Project preparation did not consider the scope of the undertaking to prepare

financial statements, including the challenges of asset transfer. Project design required

the preparation and audit of financial statements from the start of the project, and did not

allow for the establishment of data collection and reporting processes before requiring

audited financial statements. CAWSS did not maintain proper books of accounts and

underlying accounting records, and did not even have a simple asset register in place.

31. The infrastructure component was not ready for implementation at the time of

approval. Even though during preparation it was confirmed that “detailed designs are

ready and bidding documents can be prepared before end 2006 by consultants” it was

almost 18 months later, in June 2008, that the ISR notes that the Consultant was “now

finalizing the cost estimates based on the detailed design.”

32. Further complexity was introduced by the declining operating subsidy to be

implemented over three years. In the post-conflict context, it was unlikely that revenue

collection could be improved substantially over just three years, and it was known that a

major tariff increase was required to reach cost recovery. The declining operating subsidy

allowance led to unrealistic caps which became an impediment to AUWSSC’s ability to

claim the full percentage of O&M costs permitted under the Financing Agreement.

33. Assessment of risks. The risk assessment was not comprehensive, especially

when implementing reforms in the political and legal context of the post conflict state.

The project recognized major delays with CAWSS corporatization as an institutional risk

to the project. The grant covenants in the legal agreement were intended to mitigate the

risks by allowing the Bank to exercise legal remedies if required. The covenants were not

designed appropriately, and eventually prevented the government from accessing grant

funds for any productive use. Risks related to the lack of data and information, and

procurement delays, were not recognized. The project did not consider donor

coordination and joint implementation with the German development agencies as a risk,

even though donor financed activities in other projects were facing delays. The project’s

dependence on KfW for delivery of consulting services, the interconnected nature of the

works to be financed by the two partners, which were to be procured under different

agencies and rules, presented a major risk to implementation that was not recognized

during preparation.

2.2 Implementation

34. The corporatization of AUWSSC was a disbursement condition that could not be

realistically achieved in the timeframe developed during preparation, and led to the

situation where the allocated financing could not be productively used at all over the

original grant period. Eventually, the Articles of Incorporation of the new AUWSSC

8

were approved by the Cabinet on July 9, 2007 and gazetted by the Ministry of Justice on

July 11, 2007. CAWSS was effectively dissolved in 2009. It was only when AUWSSC

was established in May 2009 could the project implementation begin in earnest.

35. Implementation delays. The following contributed to delays in project

implementation (i) delays in the recruitment of the Management Team; (ii) delays in the

recruitment of the technical assistance consulting firm to provide technical assistance for

a three year period, which subsequently required an extension to the grant closing date;

and (iii) insufficient procurement capacity within AUWSSC.

36. Performance of consultancies. There were two major consultancies in the

project to (i) provide technical assistance to help operationalize AUWSSC by providing

management and operational assistance for improved efficiency, commercialization and

expansion; (ii) prepare a priority investment program in unserved areas in the eastern part

of Kabul City that was ready for bidding. Delays in consultant procurement, mobilization

and replacement of key staff during implementation resulted in consulting firms not

providing adequate technical expertise and having insufficient time to complete the

assignments to the required quality. At the same time AUWSSC did not have sufficient

experience or expertise to manage consultant contracts and review outputs.

37. Security. Project activities were delayed due to deterioration in the security

situation, particularly in 2013, when the political and security transition was compounded

by the protracted impasse around the Presidential elections, restricting travel and

resulting in consultants leaving unexpectedly.

38. Disbursement delays. The Ministry of Finance’s Special Disbursement Unit

(SDU) insisted on approving withdrawal applications against audited operating costs,

even though this was not a grant condition. Delays in the preparation of the financial

statements resulted from a first set of financial statements prepared by the donor partner

being found to be unreliable, requiring them to be prepared for the second time. Further

delays were caused by AUWSSC, which did not have a systematic process in place to

submit withdrawal applications and follow-up on them rigorously.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

39. M&E design. Indicators developed during project design are generally accepted

indicators to monitor commercial, financial and service performance of utilities. The

indicators were data intensive and impractical for AUWSSC to collect, especially in the

earlier years of project implementation. AUWSSC did not have any systems and

processes in place to collect operational and financial data from SBUs and collate it at

HQ level. The restructured PDO level indicators did not sufficiently represent the PDO

and monitor progress towards its achievement. Intermediate results indicators in the

restructured project were simplified to measure key performance areas that were more

realistic to measure.

9

40. M&E implementation. The development of a management information system

was built into the project design as part of the technical support consultancy. However,

delays in procurement of the technical support consultant led to insufficient time being

left in the contract to develop a comprehensive management information system.

AUWSSC Operations Department developed a manual system to collect operational data

from SBUs and consolidates it at AUWSSC HQ. The AUWSSC Finance Department

collects financial data from SBUs for the preparation of financial statements. Since data

is collected separately, there are sometimes discrepancies in reported data. Since the

recruitment of an internal auditor in December 2013, the Finance Department is

developing templates and procedures to improve data collection and data quality.

41. M&E utilization. Annual financial reports were produced by the Finance

Department that were audited by an external auditor. Operations data was collected, and

consolidated quarterly by the Operations Department. There is recognition within

AUWSSC for the need for a more systemized approach to data collection, storage and

use to drive decision making and resource allocation.

2.4 Safeguard and Fiduciary Compliance

Safeguards

42. The project was rated Category B, and the following safeguard policies were

triggered during appraisal in 2006, in context of the construction of the Logar II water

supply scheme: Operational Policy 4.01 Environmental Assessment; Operational Policy

4.12 Involuntary Resettlement; and Operational Policy 11.03 Cultural Property. An

environmental and social management framework was developed in keeping with

emergency operations in Afghanistan. After restructuring, the infrastructure component

was cancelled and the scope of the project was limited to institutional development of

AUWSSC and project preparation for a new proposed project. The restructured project

remained Category B, no additional safeguards were triggered and the environmental and

social management framework remained in effect. One pilot scheme for small scale

providers was implemented, where a mitigation plan for short term impacts was included

in the contract for the small civil works component.

Financial Management

43. AUWSSC maintained acceptable financial management arrangements for the

project funds and acceptable Interim Financial Reports (IFR) were submitted in a timely

manner. In 2013 there were deficiencies in the quality of the quarterly IFRs, but these

were subsequently rectified and accepted by the Bank. Financial management

performance ratings reflected the need for strengthening internal controls such as internal

audits and improvements to the annual work program and budget planning. There were

no internal control accountability issues. Project annual financial reports were prepared

and acceptable audit reports for the financial years were received within six months of the

end of the financial year.

10

44. The preparation of corporate financial statements was delayed, but by project

close four sets of financial statements (Afghan years 1388 (2009/10), 1389 (2010/11), 1390

(2011/12), and 1391 (2012/13)) were completed and audit reports were submitted. The

following issues were included as part of the audit observations: (i) insufficient

information on the basis, methods, rates and assumptions in the valuation of assets

transferred from CAWSS to AUWSSC; (ii) insufficient accounting and financial

reporting systems consisting of procedures and records to report transactions and

maintain books of accounts; and (iii) lack of oversight and monitoring mechanisms over

operations and financial reporting.

Procurement

45. A procurement plan was developed and the Bank’s procurement guidelines were

followed. Procurement responsibility for the first six months was with the consultants

financed from the Afghanistan Short Term Urban Water Supply and Sanitation Project

(P092162), and subsequently with a Technical Advisor for MUDA, for the next three

years. The key issue affecting procurement was poor engineering designs, which led to

inaccurate cost estimations. Significant cost escalations and extended construction

timelines led to the cancellation of the works component.

46. After the project was restructured, procurement responsibility lay with AUWSSC,

and procurement was through the centralized Afghanistan Reconstruction and

Development Services (ARDS) established in 2003. The departure of key procurement

and finance managers, and the deteriorating security conditions in 2013, resulted in a gap

in the development of a complete procurement filing system, in which all records were to

be transferred from ARDS to AUWSSC. Procurement skills and staffing within

AUWSSC were limiting factors. Delays in the procurement of managers, advisors and

consultants contributed to project delays. Due to the conflict environment, there was a

lack of response from adequately qualified and experienced professionals, and job

advertisements often had to be issued more than once for most positions.

2.5 Post-completion Operation/Next Phase

47. Afghanistan faces immense political and economic uncertainties with the

drawdown of international military forces by the end of 2014. The economy is highly

dependent on development aid, which is expected to decline as international attention

shifts and aid budgets in many donor countries come under increasing fiscal pressure.

48. In the urban water supply and sanitation sector, most aid has been directly

delivered by donors outside the government budget. The Bank has been the only source

of ongoing operational budget support in the sector. Despite only five years of active

operation as AUWSSC, substantial progress has been made towards achieving cost

recovery, with an increase in tariffs, improved metering and leakage reduction, as

described in Section 3. However, these gains are at risk unless continued operational

support is provided to sustain market based salaries, strengthen corporate governance,

11

improve systems and processes for operations, maintenance, billing and collections, and

extend water supply coverage.

49. The Bank has the ability to leverage sizable investments over an extended period

to facilitate and sustain reform processes during the political and economic transition. In

the Afghanistan Interim Strategy Note 2012-2014, the Bank proposed to “refresh its

commitment to the urban sector through …..a restructured or new Urban Water Project

to extend further assistance to AUWSSC and investments in urban water systems in

Kabul, and a scale up of the ongoing operation”. To this end, the project has financed the

design of priority investments in water and sewerage in unserved areas in the Eastern part

of Kabul City that can be adopted in a subsequent project.

3. Assessment of Outcomes

50. The project was not implemented as originally designed and only 2.5% of the

original grant amount was disbursed towards the end of the original grant period for

financial support to AUWSSC operations. Project activities began in earnest and

outcomes were achieved under the restructured project. The assessment of outcomes is

therefore based on the restructured PDO and results achieved after restructuring.

3.1 Relevance of Objectives, Design and Implementation

Rating: Substantial

51. The restructured project’s objectives and design to develop the capacity of

AUWSSC for improved operational management and investment planning for the future

remain highly relevant in the context of the Afghanistan National Development Strategy

(2008-2013)3. The Social and Economic Development Pillar aims to increase access to

improved basic urban infrastructure and services, while promoting sustainable economic

growth. The strategy sets out, as a short term objective, the establishment of AUWSSC as

a new institution for urban water supply management, and as an intermediate objective,

the extension of urban water supply networks to provide access to piped water to 50% of

households in Kabul, and 30% of households in other main urban centers. Improved

urban and water services is a key element of the Bank’s Afghanistan Interim Strategy

Note FY12-14 4 . Under Strategic Objective 2 Equitable Service Delivery, the Bank

recognizes the need to provide basic services and build inclusive institutions at the same

time. The objective, design and implementation of the restructured project remains

substantial in the context of the country’s needs, government priorities and the Bank’s

strategy.

3 Latest available

4 Latest available

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3.2 Achievement of Project Development Objectives

Rating: Substantial

Development of AUWSSC’s capacity for operational management

52. Corporatization of AUWSSC. The corporatization of AUWSSC was a

significant reform for the sector. The transformation of CAWSS, a conventional

government department with a traditional culture and approach to service provision, to

AUWSSC, which was set up as an independent corporate entity with an externally

recruited management structure, accountability to a Board of Directors, and specific

mandate to become a profitable business, was an immense change to the status quo that

came with substantial internal resistance. Ongoing financial support for operations and

oversight through the project structure played a key role in ensuring that these reforms

were implemented.

53. Management. The management team, recruited competitively between May 2009

and October 2010, was instrumental in maintaining the corporate mind-set within

AUWSSC. Initial results in 2011 showed AUWSSC expanding its operation in three

provincial towns, and carrying development, procurement and construction supervision

in-house. Having a strong management team in place was a critical element of the change

process, and continues to strongly influence the direction of the nascent utility. Once

AUWSSC was established and the senior management team was in place, all further

recruitment became the responsibility of AUWSSC and its Board. The threat of political

interference in staffing remains and undermines AUWSSC’s continued transformation.

Full management salaries were paid from the project at market rates. AUWSSC has

demonstrated improved financial performance and the extent to which AUWSSC is able

to maintain and retain core staff from its own growing revenue stream will be a tangible

indicator of the institutional development impact of this project.

54. Financial strengthening. Reporting of financial data and definitions of indicators

were found to be inconsistent between the restructuring paper and what is reported in

implementation status and results reports. Base data reported in the ISRs could not be

verified. For the purpose of assessing AUWSSC’s performance, the ICR uses the data

presented in the audited financial statements.

55. In a relatively short period, effectively from 2010 to project close in 2014,

AUWSSC made impressive improvements to its existing operations by launching an

extensive leakage reduction program, fixing leaks in old pipes, and improving routine

O&M with the purchase of equipment and spare parts. Wastage was reduced by reducing

the number of public taps, and replacing them with metered household and institutional

connections. Water coverage by household connections increased from 17% of the urban

population in 2010 to 20% in 2014, and water coverage by public water points decreased

from 5% to 3% over that period.

13

56. There was a firm commitment from AUWSSC to legalize existing connections,

and introduce metering. In total 47,470 connections were added to its system. Metering

levels increased from 36% to 72% of connections over the project period. A higher level

of metering has led to improved revenue collection by improving accounting of water

sold, minimizing unpaid water, and reducing wastage.

57. The effectiveness of the collections process is measured by the accounts

receivable which is the average number of months of revenue required to recover

outstanding customer bills. The accounts receivable performance of AUWSSC has

improved but there remain opportunities for AUWSSC to further improve its billing and

collections function.

58. The working ratio as reported by AUWSSC5 shows an improvement from 1.17 to

0.68 over the project period. This shows that costs are covered by revenues by a factor of

almost 1.5. Using the audited financial statements to assess AUWSSC’s ability to cover

its basic operating costs from billed revenues6, shows an improvement in the working

ratio from 1.6 in 2010 to 0.99 in 2013. In both cases the operating revenues reported were

the billed water sales and not the cash received from water sales. There are two concerns

related to these figures. The first is that the Bank team should have worked to reconcile

these differences in the reported ratios and secondly more attention should have been

given to monitoring the cash situation of the entity. Notwithstanding these comments the

financial situation of AUWSSC is improving and it may be able to recover the bulk of its

basic operating expenses from revenues, if the billing and collections are improved to

ensure sufficient operational cash flows.

59. Tariff revision. The new water tariff, which was approved by Presidential Decree

on 11 June, 2012 was one of AUWSSC’s most significant achievements. Tariffs were

low and were insufficient to cover operating expenses. Establishing a higher tariff was

critical for AUWSSC’s financial sustainability. The tariff increase was significant, with

tariffs for metered connections in planned residential areas rising on average 226%,

leading to numerous complaints to Parliament. However, the strong political leadership

provided by the AUWSSC Board, the Office of the President, the Ministry of Finance

and the Cabinet Economic Committee was instrumental in ensuring that the tariff

adjustment was approved and justified to constituents. The tariff levels before and after

the tariff revision are shown in Annex 2.

5 Calculated as Total Annual Expenses excluding Depreciation / Total Annual Revenue.

6 For the purposes of the ICR, the working ratio computation was based on the figures reported in the

audited financial statements, and was computed as the Total Operating Revenues/Total Operating Expenses.

Total annual operating revenues are billed water sales, and not collections from water sales. Note that the

audit reports observed that there were insufficient accurate, appropriate and relevant supporting documents,

including a complete list of customers, their meter readings, billing records, etc. to verify the revenue

reported.

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60. Organizational structure and staffing. The project financed approximately 45%

of operational expenditures, which included the salaries of non-managerial staff. Apart

from the strong management team, the remaining organizational structure remains weak.

The AUWSSC Board approved a new organization structure in February 2013, but the

ability to hire staff against the organizational needs of the new AUWSSC is hampered by

the need to ensure retention of former CAWSS staff that may not be sufficiently skilled.

The Board and AUWSSC’s management team were required to formalize relations

between the HQ and the decentralized SBUs through Memoranda of Understanding

(MoU). A generic MoU was drafted by the technical assistance consultants, but internal

debate regarding the legal arrangements between HQ and SBUs has held up the signing

of the MoUs. There is no formal budgeting or reporting relationship between SBUs and

HQ and the current decision making and budgeting structure is centralized. Internal

communication is weak, and there is little coordination between departments.

Development of AUWSSC’s capacity for investment planning and implementation

61. Expansion of urban operations. The project has strengthened AUWSSC’s

Technical Division, which is responsible for planning, design and implementation of

urban water projects across the country. CAWSS had operations in 14 towns, which were

gradually handed over to AUWSSC. By project close, AUWSSC expanded to operations

in 43 towns (direct operations in 38 towns and joint operations with local municipalities

in 5 towns). AUWSSC has demonstrated capacity in investment planning and

implementation with the in-house preparation of investment plans for urban water supply,

and detailed engineering designs, and construction supervision for government-financed

water supply projects in Andhkhoi, Farah and Aybak.

62. Water supply services by small private operators. Private sector investment in

water supply service delivery is an important option for accelerating service provision in

unplanned areas. Private operators have established commercial operations by

rehabilitating abandoned wells or drilling new wells, and delivering water directly to

households through metered connections. Private water supply operators, in addition to

connection fees, are charging tariffs from 25 Afs/m3 to 85 Afs/m3, compared to the

AUWSSC rate of 12 Afs/m3 in unplanned areas, and 25 Afs/ m3 in planned residential

areas. There is a need to formalize and regulate private operators to set their operating

criteria, regulate tariffs, ensure construction quality; and monitor and enforce

performance requirements. As follow-up one scheme for expanding water supply services

by small private operators was piloted under this project for District 2 Qol e Abchakan.

The scheme extended the existing network, and increased the quantity of water supplied,

benefiting 1,200 households. The private operator is expected to extend services to an

additional 800 households. ISRs reported the total number of households receiving water

from small scale private providers across the City at 31,000. This latter number highlights

the significant importance of such providers in the City, but the monitoring should have

been focused solely on those households benefiting from the project in District 2, i.e.

1200 households.

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3.3 Efficiency

Rating: Moderate

63. Reliable data were not available during appraisal to carry out an economic

analysis. A financial analysis for the extension of the Kabul water supply system was

based on financial data collected over a limited time and forecasted on the basis of

benefits expected from the new infrastructure. After cancellation of the Kabul water

supply component project funds were directed towards technical assistance activities.

64. The project’s contribution to supporting expenditures of local staff and operations

brought measurable gains. At the start of the restructured project in 2010, AUWSSC had

an operating deficit of US$1,7m7. By the end of the project, revenues had increased with

increased metering and a significant tariff increase, backlogs in electricity bills had been

eliminated, and O&M was improved, as described in Section 3. The deficit was reduced

to a surplus of US$0.03m in 2013. A total of US$14,7m of project funds was spent on

technical assistance and financial support to AUWSSC, excluding the consulting contract

for the preparation of new investments. This equates to a 12% benefit which would have

not been possible at all without the direct operational budget support and technical

assistance provided by the Bank. The costs involved in achieving the project objectives

are therefore considered moderately reasonable with the benefits.

3.4 Justification of Overall Outcome Rating

Rating: Moderately Satisfactory

65. Before restructuring, the project had made limited progress towards achievement

of the original PDO, and 6% of the final grant proceeds had disbursed at the very end of

the original grant period. The project is therefore rated Unsatisfactory before

restructuring. In the context of the conflict state and the difficulties that it presents, the

restructured project made remarkable progress in institutionalizing major reforms in the

urban water supply and sanitation sector. It has established a firm platform upon which

further institutional support can strengthen and deepen reforms, and build a water utility

that is able to meet the enormous challenges of urban water supply and sanitation service

delivery in Afghanistan. The project is rated Moderately Satisfactory after restructuring.

As per the guidelines for outcome rating of projects with formally revised project

objectives, the weighted rating is shown in Table 1 below.

7 Computed as Total Operating Revenues less Total Operating Expenses, based on the figures reported in

the audited financial statements. The operating revenues reported were the billed water sales, and not the

cash received from water sales

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Table 1 Calculation of outcome rating of projects with formally revised project objectives

Against Original

PDOs

Against Revised

PDO Overall

1. Rating Unsatisfactory

Moderately

Satisfactory

2. Rating value 2 4

3. Weight (% disbursed before/after PDO change) 5.6% 94.4% 100%

4. Weighted value (Row 2 x Row 3) 0.1 3.8 3.9

5. Final rating (rounded)

Moderately

Satisfactory

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

66. A pilot community water project improved the quality and quantity of water for

1,200 families in an unplanned area outside the master plan limits of Kabul Municipality.

The private service provider is now extending the network to an additional 800 families.

Access to piped water supply is expected to bring greater benefits to women and children,

who play a major role in collecting and storing water for domestic use.

(b) Institutional Change/Strengthening

67. The restructured project focused on the institutional strengthening of AUWSSC

and achieved the results described in Section 3. The project had a positive impact on the

institutional structure of the entire urban water supply and sanitation sector in

Afghanistan. The legal and institutional framework that has established AUWSSC, and

the establishment of a management structure with a corporate mindset has created an

enabling environment for improved service provision. The Government of Afghanistan

did not provide any grant assistance to AUWSSC operations. The Bank’s support was

critical for creating confidence in the Government’s reforms. The project interventions

strengthened the local utility from within, with the financing of operating expenses, and

the salaries of local Afghans who constituted the management team. The Bank is the only

source of such direct budget support. Most donor funds tend to be ring-fenced and

managed directly by the donor agency, predominantly supporting new infrastructure, and

technical assistance from international consultants. The Bank’s support was therefore key

in supporting the reform efforts.

(c) Other Unintended Outcomes and Impacts (positive or negative)

There are no additional unintended outcomes and impacts.

4. Assessment of Risk to Development Outcome

Rating: High

68. The project has supported the establishment of AUWSSC as a new water utility.

However, for achievements of the project to be sustainable, strong support from the

17

Ministry of Finance is required to support the utility in appointing key staff with the

appropriate skills, providing appropriate compensation packages, and allowing

management autonomy in decision making. The deepening fiscal crisis in Afghanistan

due to the imminent withdrawal of foreign troops places gains from the project at

considerable risk. Revenue collection could fall if an economic downturn leads to a

significant reduction in household incomes. The absence of continued IDA support to the

sector through investment project financing would be a significant setback to the sector

reforms.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry

Rating: Unsatisfactory

69. During preparation there was strong impetus for reform across all sectors as the

new government came into place. The preparation team strongly supported the urban

water and sanitation sector, and supported a policy structure that is well accepted and

practiced internationally. However, the project’s design was unrealistically ambitious in

the context of the post-conflict state, where the political structure had changed, a new

legal framework was being developed, and decades of conflict had left fragmented

institutions with limited capacity and few formal systems and processes. Institutional

risks, country context risks, as well as risks posed by components to be financed by other

donors were not adequately anticipated and created significant challenges during

implementation. Project preparation did not leverage the development knowledge of the

Bank, and advice provided in internal review meetings by Bank experts was not given

adequate consideration at the design stage. Disbursement conditions tied the project

unnecessarily, resulting in the Client being unable to access grant proceeds until the end

of the original grant period.

(b) Quality of Supervision


70. Before restructuring, the Bank’s quality of supervision was unsatisfactory. The

Bank conducted concurrent supervision of both the ARTF financed Afghanistan Short

Term Urban Water Supply and Sanitation Project (P092162) and AUWSP. By June 2008,

it was clear that all components of the project were delayed, including achievement of

grant covenants. The project was rated Unsatisfactory for both implementation progress

and achievement of development objective. There is evidence of proactive action

proposed by the supervision team: (i) restructuring was proposed in 2007, which was

delayed by a management review of the urban water program; (ii) revision of the

implementation arrangements and the establishment of a project management unit was

proposed in 2008; and (iii) even though there was no clear documentation of a Mid Term

Review (MTR), a mission did take place November 2-10, 2008 which identified specific

18

interventions to strengthen implementation, which were reflected in the subsequent

project restructuring. However, in spite of reported delays, no disbursement against the

project, and consistent Unsatisfactory and Moderately Unsatisfactory supervision ratings,

the Bank did not take any proactive action until restructuring at the end of the original

grant period in June 2010.

71. After restructuring, Bank supervision was satisfactory. Consistent Moderately

Satisfactory ratings for implementation progress and Moderately Satisfactory and

Satisfactory ratings for achievement of development objectives indicated substantial

improvement in project performance8. The Bank’s supervision oversight played a key

role in ensuring that reforms were implemented and political interference was mitigated.

72. The Bank allocated sufficient budget and staff resources for the Project. In

contrast to the post-conflict conditions during preparation, security deteriorated markedly

during supervision, with increases in attacks on civilians, government officials and UN

facilities. This affected staffing within the Bank, with turnover of task team leaders. In

spite of task team leadership changing four times during implementation, the project was

consistently supervised twice a year. Significant day-to-day implementation support was

provided throughout, including from New Delhi when the security situation deteriorated

markedly. From 2012, team continuity was ensured by the Bank by having the team

leader based in Kabul. The delegation of field based task team leadership in the latter

stages of the project saw an immense drive from the supervision team to push the

disbursements, which resulted in 97.5% of the grant being disbursed.

(c) Justification of Rating for Overall Bank Performance

Rating: Moderately Unsatisfactory

73. The project was poorly designed and not implementable in the country context.

Little was done to proactively restructure the project, in spite of consistently poor

performance ratings from 2007 to 2010. The Bank’s performance was rated

Unsatisfactory for quality at entry and supervision before restructuring. However, after

restructuring, the project implementation began in earnest, and the Bank played an active

role in supporting reforms and driving project implementation, resulting in achievement

of the development objective. The Bank’s performance after restructuring is rated as

Satisfactory. Overall Bank performance is therefore rated as Moderately Unsatisfactory.

5.2 Borrower Performance

8 On June 14, 2014 the project was rated Moderately Unsatisfactory to emphasize the need for client action

on disbursement delays and audit completions. This was upgraded back to Moderately Satisfactory in the

final supervision mission at the end of June 2014.

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(a) Government Performance

Rating: Moderately Unsatisfactory

74. The Government instituted significant reforms in the urban water and sanitation

sector that place it in line with international practice. If sustained, these reforms will

shape the effectiveness of the sector to fulfill the substantial urban service delivery

challenges the country faces. The government played a critical role in supporting

AUWSSC in its tariff reform. The residential volumetric tariff increase ranged from

150% - 315%. This was a significant increase that inevitably created public pressure.

However the government remained firm in justifying the tariff increase to constituents. In

addition, the government supported the disconnection of illegal connections and the

institution of penalties for illegal connections, which sets the standard for customer

behavior going forward.

75. There was resistance to the formation of AUWSSC from within MUDA, and the

Board of AUWSSC continues to be subject to governance pressures that hamper its

performance. The Ministry of Finance was in a position to offer greater leadership in the

reform process, first as the Chair of the Working Group to complete an inventory of

assets and CAWSS staff, subsequently as Chair of the Liquidation Committee that took

over the task of asset inventory and staffing, and thereafter as Chair of the Board of

Directors of AUWSSC. The Ministry of Finance could have provided greater impetus

and encouragement for the transformation of AUWSSC, and could have played a greater

role in safeguarding AUWSSC from political interference in staffing.

76. Disbursements by the Special Disbursements Unit (SDU) of Ministry of Finance

remained a challenge throughout the implementation period. SDU instituted disbursement

requirements that were not required by the Financing Agreement, placing the completion

of external audits on the critical path of disbursements. This persisted up to the project

close, when the grace period was extended by two months to ensure full utilization of

grant proceeds.

(b) Implementing Agency or Agencies Performance


77. In the context of Afghanistan, where decades of conflict left failing infrastructure

on a massive scale, and ongoing security threats continue to hamper progress, AUWSSC

has performed remarkably well. The management team has shown a firm commitment to

extending services and has demonstrated tangible improvements in performance in a

relatively short period. Metering levels increased from 36% to 72% of connections over

the project period. In Kabul, for example, a program to legalize connections yielded 700

additional connections within a period of 6 months, with customers being charged a

penalty fee over and above the normal connection fee, and were disconnected if they did

not comply. A significant increase in tariffs for all customers, including a residential

volumetric tariff increase that ranged from 150% - 315% was convincingly justified by

20

the management. These demonstrated political and management commitment, and in a

short time, AUWSSC is showing tangible progress towards cost recovery.

(c) Justification of Rating for Overall Borrower Performance


78. Even though the government performance had significant shortcomings that

hampered project implementation, the implementing agency’s performance drove the

achievement of the project development objective. The approval of the tariff increase was

an important achievement for both the government and AUWSSC that plays a significant

role in improving the financial sustainability of the sector in the future. The context of the

conflict state presents difficult operating conditions, under which the Borrower was able

to undertake significant reforms. The overall Borrower performance is therefore rated

Moderately Satisfactory.

6. Lessons Learned

The Bank’s role in supporting public reform:

79. The Bank is well placed to support a reform agenda if it is willing to sustain

support over the long term. Implementation though government agencies, even if weak,

facilitates institutional development by putting clients in the driver’s seat and promotes

learning by doing.

80. Key policy actions should be addressed upstream during project preparation.

Risks should be comprehensively analyzed and incorporated into the project design.

Disbursement conditions should be designed very carefully, or avoided altogether, to

avoid tying up project funds unnecessarily.

81. Operational budget support was effective in supporting the utility reform agenda.

By financing the shortfall between revenue and cost, AUWSSC could initiate activities to

reduce costs and advocate for increased tariffs. Direct budget support provided resources

for O&M and rehabilitation, which improved performance levels of the existing system.

Operations in fragile and conflict states

82. Fragile and conflict states present a unique context that must be well understood

and factored into project design. Peer reviewers from other fragile and conflict states can

help to share best practices. Management should ensure rigorous quality at entry and

timely restructuring.

83. Sector and operational knowledge are equally important in fragile and conflict

states to ensure project designs that are implementable. CMU and fiduciary staff in

country offices can play an important role in integrating operational knowledge across the

country portfolio.

21

84. In a post-conflict country, the presence of field-based Bank staff to provide

intensive and continuous implementation support is critical, particularly for procurement,

financial management and project management. The Bank could consider seconding staff

to government offices to provide short term on-the-job support. The presence of field

based task team leaders with strong operational experience is important for problem

solving in fragile environments. The Bank could also consider the use of reimbursable

advisory services to complement supervision. This may be a good alternative to the use

of consultants, especially to support a reform agenda, where the use of Bank specialists

can help overcome vested interests and poor consultant quality.

85. Project designs in fragile and conflict affected countries should consider

simplification to reduce the use of international consulting firms as far as possible, in

favor of individual consultants. The experience with the procurement and contract

management of international consulting firms in fragile and conflict affected countries

indicate: (i) international consulting firm contracts are large, and their procurement takes

time, especially for the quality and cost based selection process; (ii) often by the time

firms mobilize, key staff have changed, and time is lost in finding adequate replacements

(iii) the communication of the report findings is often not effectively done, especially in

an environment where English is poor and reading large consultant reports is difficult;

(iv) because of the rotating nature of key staff as per their technical proposal, field

presence is often not long enough to foster relationships that contribute to knowledge

transfer.

Donor coordination

86. Donor financing in the form of co-financing of Bank operations, or independent

financing of standalone projects should take precedence over parallel financing of

interdependent project components. The objectives of an IDA supported project should

be achievable independently of donor activities, where the government often has little or

no control on the content, sequencing, or quality of activities.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/implementing agencies

(b) Cofinanciers

(c) Other partners and stakeholders

(e.g. NGOs/private sector/civil society)

22

Annex 1. Project Costs and Financing

(a) Project Cost by Component (in USD Million equivalent)

Components

Appraisal

Estimate

(USD

millions)

Restructu

red

Estimate

(USD

millions)

Actual/Lat

est

Estimate

(USD

millions)

Percentag

e of

Restructu

red

Estimate

(USD

million)

Component 1: Institutional Development

of AUWSSC 8.2 10.2 6.9 68

Component 2: Financial Support to

AUWSSC 5.6 6.0 11.4 190

i) Operations and maintenance costs,

including salaries of non - managerial

staff

4.4 9.6 218

ii) Management staff salaries and

bonuses 1.6 1.8 113

Component 3: Extension of the Kabul

Water Supply System 18.3 0

Total Baseline Cost 32.1 16.2

Contingencies 7.9 1.8

Total Project Costs 40.0 18.0 18.3 102

(b) Financing

Source of Funds Type of

Cofinancing

Restructured

Estimate

(USD

millions)

Actual/Latest

Estimate

(USD

millions)

Percentage of

Appraisal

Borrower 0.00 0.00 .00

IDA Grant 18.00 18.3 102

23

Annex 2. Outputs by Component

Component 1: Institutional development of AUWSSC

This component aimed to establish AUWSSC operational, implementation, procurement

and financial management capability by providing technical assistance, training, and

support for salaries of a new management team.

Corporatization of AUWSSC. As per the Presidential Decree signed on January 25, 2006,

CAWSS was to be dissolved and replaced by AUWSSC, a public corporation with its

own Board of Directors, appointed by the Ministry of Finance and MUDA. Consultants

to prepare the documentation needed for the corporatization of AUWSSC were financed

by the Public Private Infrastructure Advisory Facility (PPIAF). The consultant was

mobilized in October 2006 and outputs included a review of existing laws and regulations

affecting urban water supply and sanitation service delivery, drafting of the Articles of

Incorporation; and an inventory of assets, which could not be completed due to the lack

of asset registers in provincial towns.

Technical Support. A technical support consultancy was a major consultancy for

providing technical assistance for the operationalization of AUWSSC, by providing

management and operational assistance to AUWSSC and SBUs to improve efficiency,

commercialization and expansion. This was a key consultancy to build capacity for day-

to-day operations from experienced staff from a large established utility. The prolonged

procurement process resulted in the Consultant mobilizing towards the end of 2011 and

no longer providing the specialists presented in the proposal. The following outputs were

produced as part of this consultancy:

1) Investment Plan covering for a ten year period for AUWSSC HQ, 6 Strategic

Business Units (SBUs), 11 Sub-SBUs and 11 other cities which have been subject

of feasibility studies in the water and wastewater sector.

2) Draft bye-laws and amendments required for the Articles of Incorporation of

AUWSSC

3) MoU between AUWSSC-HQ and SBUs establish the formal relationship between

them. The MoU would set out (i) the investment program AUWSSC-HQ was

committed to implement and the additional production and distribution capacities

to be created; (ii) the minimum service standards the SBU will have to be achieve,

(iii) the minimum financial standards that the SBU will have to achieve; (iv) the

financial assistance AUWSSC was committed to provide to complement revenue

from user charges; and (v) the format and the frequency of the reporting by SBU

on their technical, commercial and financial operations to AUWSSC-HQ.

4) AUWSSC organization structure

5) Report on establishing a communication and public awareness strategy

24

6) Quarterly Tariff and Cost Recovery Analysis Reports

7) Quarterly Financial Projection Reports

8) Quarterly Operational Reports

9) Proforma Accounts for AUWSSC and the SBUs for FY 1388 (2009/10),1389

(2010/11), 1390 (2011/12) , and 1391 (2012/13)

Training

1) Management Training Plan

2) Training of AUWSSC Board of Directors on their fiduciary role and

responsibilities

Requirements for the operationalization of the financial management, accounting, billing

and collection, and asset management systems, were not completed.

External audit: An external Auditor was appointed under this component to audit the

financial statements of AUWSSC for FY 1388 (2009/10), 1389 (2010/11), 1390 (2011/12),

and 1391 (2012/13).

Pilot scheme for expanding water supply services by small private operators: A study

of private sector water service providers was conducted under this project with support

from the Government of Australia’s aid agency AusAid. The study showed that the

public was willing to pay commercial rates for the convenience of a safe and reliable

piped water supply. Private companies had established commercial operations by

rehabilitating abandoned wells or drilling new wells and installing pumping stations and

reservoirs, as well as networks of pipes to deliver water directly to households through

metered connections, and were charging connection fees, and tariffs from 25 Afs/m3 to

85 Afs/m3. The study concluded that private sector investment in water supply

infrastructure and private participation in the operation of water supply delivery was an

important option for accelerating the provision of safe drinking water for the residents of

Kabul. As follow-up one scheme for expanding water supply services by small private

operators was piloted under this project for the District 2 Qol e Abchakan pilot scheme (i)

wells and pumps including mechanical and electrical equipment (ii) Supply and

installation of transmission and distribution networks (iii) civil works including

guardroom, pumps, generators, boundary walls and office building. The scheme

extended the existing network, and increased the quantity of water supplied, benefiting

1,200 households. The private operator is expected to extend services to an additional

800 households.

Preparation of a new water supply project for Kabul: This was a major consultancy to

develop a feasible program of priority actions for rehabilitating the existing water supply

system and for providing water supply and wastewater services in unserved area in

25

Eastern part of Kabul City. It also included an assessment of the technical assistance

needs for AUWSSC for the next five year period. The Consultant mobilized in May 2013

and produced all the outputs within a 13 month period. The outputs were found to have

partially responded to the terms of reference and lacked the level of rigor that was

necessary in preparing a Bank financed project. The following outputs were produced:

1) Existing water and wastewater situation in project area

2) Rehabilitation needs of the existing water production, transmission and storage

3) Conceptual design report on water and wastewater and phased investment plan

4) Feasibility study report for priority investment and related procurement plan

5) Detailed engineering designs of rehabilitation of the existing systems and draft

bidding documents

6) Design reports for priority investment for water supply and wastewater and draft

bidding documents

7) Final bidding documents for priority investment for water supply and wastewater

Component 2: Financial support to AUWSSC operations

Under this component AUWSSC was entitled to claim the reimbursement of a portion of

reasonable’ operating expenses, including energy, chemicals, parts, small repair

contracts for regular maintenance, and salaries and bonuses of managerial staff.

AUWSSC Management Team, Advisors and Professional Staff: The project financed

the following positions in AUWSSC, which included the senior management team, key

technical advisors, and professional staff competitively recruited under fixed term

contracts that included a market based compensation packages.

Positions Status Contract Signed Contract end

1. Director General Position was filled 06-May-09 30-Jun-14

2. Operations Manager Position was filled 01-March-10 30-Jun-14

3. Internal Auditor Position was filled 14-Dec-13 30-Jun-14

4. SBU Head Herat Position was filled 21-Feb-12 30-Jun-14

5. SBU Head Kundoz Position was filled 14-Sep-10 30-Jun-14

6. SBU Head Kandahar

Position was filled 14-Sep-10 30-Jun-14

7. Finance Manager

Position was filled 08-June-13 30-Jun-14

26

8. Technical Manager

Position was filled 25-Oct-10 30-April-14

9. SBU Head Kabul


10. SBU Head Mazar


11. SBU Head Jalalabad Position was filled 13-Feb-13 30-Jun-14

12. Sr. HR Officer Position was filled 1-Jan-13 30-Jun-14

13. Sr. Accountants Officer Position was filled 26-Mar-13 30-Jun-14

14.

Sr. Planning and Budget

Officer Position was filled 1-Jan-13 30-Jun-14

15. Sr. Commercial Officer Position was filled 16-Feb-13 12-Jun-13

16. Contracts Engineer Position was filled 25-Sep-13 30-Jun-14

17.

Sr. Strategic

Communication officer Position was filled 24-Mar-13 31-March-14

18.

Finance officer for

Receivable and Payables Position was filled 25-Feb-14 1-Jun-13

19.

Finance officer for fixed

asset and inventory Position was filled 15-Oct-11 30-Jun-14

20.

Surveyor for Technical

Department Position was filled 8-Oct-13 30-Jun-14

21.

Corporate Services

Manager Position was filled 1-Jan-13 12-Jun-13

22. Executive assistant to GD Position was filled 1-Jan-13 28-Feb-14

23. IT officer Position was filled 25-Sep-13 30-Jun-14

24.

Sr. customer officer for

KSBU Position was filled 15-Mar-14 30-Jun-14

25. D Design Engineer for Position was filled 15-Mar-14 30-Jun-14

26.

Sr. Engineer project

implementation Position was filled 16-March-14 15-May-14

27. HR assistant Position was filled 08-Jan-14 30-Jun-14

28.

Sr. Finance officer for

KSBU Position was filled 15-April-14 30-Jun-14

27

29.

Sr. Operation officer for

KSBU Position was filled 21-Jan-14 30-Jun-14

30.

Sr. Engineer project

development Position was filled 01-Jan-14 30-April-14

31. I

n

International Technical

Advisor Position was filled 5-Jan-14 30-Jun-14

32. S Senior Advisor Position was filled 1-April-14 30-Jun-14

33. Internal Auditor Position was filled 14-Jan-13 15-June-13

34. Finance Manager Position was filled 05-Dec-10 30-August-11

35. Internal Auditor Position was filled 01-Jan-12 20-March-12

36. Finance Manager Position was filled 01-Sept-11 31-Dec-12

37. Internal Audit Position was filled 01-April-10 30-Aug-11

38. Senior Accountant officer Position was filled 15-Oct-11 30-June-13

39. Senior Accountant officer Position was filled 15-Oct-11 31-Dec-12

40. SBU Head Jalalabad Position was filled 14-Sept-10 31-Dec-12

41. IT Assistant Position was filled 01-July-14 NA

42.

Performance Reporting

Coordinator Position not filled

43.

Customer Service


44.

Water Supply network


45.

Water and Waste Water

Treatment Coordinator Position not filled

In addition to the salaries of managerial and non-managerial staff, the project financed

operations and maintenance costs, including electricity and parts. Operational equipment,

including survey equipment, lab chemicals and equipment, chlorine, and water pumps

were purchased. The project financed the procurement of office equipment, including

computers, scanners, printers, furniture, the bidding documents for office buildings for

AUWSSC Headquarters.

28

Tariff adjustment. An improvement of AUWSSC’s Working Ratio was unlikely to be

achieved by improving commercial operations (metering, billing and collection) and

reducing operating costs, such as pumping costs, and by reducing physical leaks. Thus, it

was necessary to increase the average revenue per cubic meter (m3) of water billed and

collected. An estimate of a sustainable water tariff, based on available data prepared by

the technical assistance consultant in the Quarterly Tariff and Cost Recovery Analysis

Reports, was used to justify an adjustment in the tariff level. The following tariff

adjustment was approved:

AUWSSC tariff before and after the tariff revision approved in June 2012

Tariff category Before revision After revision

Metered Connections (Afs/m3)

Commercial 20 35

Residential Planned

½ inch connection 6 25

¾ inch connection 8 25

1 inch connection 10 25

Residential Unplanned 4 12

Unmetered Connections (Afs/month)

Commercial




Residential Planned




Residential Unplanned 50 150

Connection Fees (Afs/connection)

Residential




Commercial




Labor for Connection 300 450

Meter Maintenance (Afs/year) 300 450

29

Annex 3. Economic and Financial Analysis

Not applicable

30

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/

Specialty

Lending

Christophe Bosch Lead Water & Sanitation Spec. GWADR Task team leader

Charles Delfieux Water & Sanitation Specialist GWADR Technical specialist

Nagaraja Rao Harshadeep Sr. Environmental Spec. GENDR Water resources

specialist

Alain Locussol Consultant SASDU Technical specialist

Sheila Braka Musiime Chief Counsel LEGES Legal

Asta Olesen Senior Social Development Spec SASDS Safeguards

Supervision/ICR

Deepal Fernando Senior Procurement Specialist ECSO2 Procurement

Karine Fourmond Water & Sanitation Specialist SASDU

Task Team

Leader ARTF and

PPIAF Grants

David C. Freese Senior Finance Officer CTRFC-

His

Financial

Management

Mariam Haidary Program Assistant SASHD Program assistance

Philippe Huc Sr Water & Sanitation Spec. MNSWA Task team leader

Abdul Wali Ibrahimi Operations Officer SASDU Operations support

Asila Wardak Jamal Consultant SASDI Social Development

Specialist

Shyamal Sarkar Sr Sanitary Engineer SASDU Task team leader

Alain R. Locussol Consultant SASDU Technical specialist

Pratibha Mistry Water & Sanitation Specialist GWADR ICR author

Sheila Braka Musiime Chief Counsel LEGES Legal

Kenneth O. Okpara Sr Financial Management Specia SARFM Financial

Management

Asta Olesen Senior Social Development Spec SASDS Safeguards

Maria Perisic Senior Operations Officer SASDA Small scale operators

study

Mohammad Arif Rasuli Senior Environmental Specialist SASDI Safeguards

Richard L. Symonds Consultant FFIDR Sr Legal Counsel

Deepali Tewari Lead Urban Specialist GSURR Task team leader

Minerva Espinosa-Apurada Program Assistant GWADR Program assistance

(b) Staff Time and Cost

Stage of Project Cycle

Staff Time and Cost (Bank Budget Only)

No. of staff weeks USD Thousands (including

travel and consultant costs)

Lending

FY04 3.25 20.01

FY05 14.15 61.28

FY06 37.77 175.78

http://isearch.worldbank.org/skillfinder?qterm=&title=Water+%26+Sanitation+Specialist

31

FY07 0.00 2.08

FY08 0.00 0.00

Total: 55.17 259.15

Supervision/ICR

FY04 0.00 0.00

FY05 0.00 0.00

FY06 0.00 4.66

FY07 24.89 117.96

FY08 25.97 116.74

FY09 70.64 255.88

FY10 41.91 151.01

FY11 23.17 78.78

FY12 32.63 136.48

FY13 28.50 109.06

FY14 47.55 170.89

FY15 24.10 56.41

Total: 319.42 1197.87

32

Annex 5. Beneficiary Survey Results

Not applicable

33

Annex 6. Stakeholder Workshop Report and Results

Not applicable

34

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR

Project Profile

Details of Financing Agreement

Name of Project Afghanistan Urban Water Supply Project

Grant No. H-2250

Project ID P087860

Grant Amount SDR 27.9 Million = USD 43.775 Million

Parties to Agreement

Between the Islamic Republic of Afghanistan and

International Development Association (IDA)

Project Implementation entity MUDA, CAWS, AUWSSC

Key Stakeholders MoF, World Bank, MUDA, CAWS, AUWSSC

Grant Agreement Date July 5th 2006

Project Closing date June 30th 2010

Amendment no.1

Project is extended up-to June 30th 2012 with

cancelation of SDR 15.664 Million from the original

Grant amount as a result SDR 12.236 Million

remained balance of Grant

Amendment no.2 Project is extended up-to 30th June 2014

Background of the Project

1. Government of Islamic Republic of Afghanistan (GOIRA) entered into a Grant

Agreement with the World Bank International Development Association (IDA) on July 5,

2006 for a grant of SDR 27.900 million (USD 43.775 million). The stated objective of the

grant was to increase access to and ensure reliability of water supply and sewerage

service in urban centers. The stipulated closing date of the project was June 30, 2010

which the IDA extended twice. IDA first extended it up to 30 June 2012 and then up to

30 June 2014. While approving the second extension IDA cancelled USD 24.577 million

(SDR 15.664 million) as well as they have replaced one of the project developmental

objective which was “Extension of the Kabul water supply system” with the new activity

of (i) preparation of a new water supply project for Kabul, and (ii) a pilot scheme for

expanding water supply services by small private operators as a result only USD 18.9

million grant’s fund remained available for a project.

Project Objectives:

a) Institutional development of AUWSSC;

b) Financial Support to AUWSSC;

c) Extension of the Kabul water supply system where it was replaced by a new

activity “(i) preparation of a new water supply project for Kabul, and (ii) a pilot scheme

for expanding water supply services by small private operators” during second

amendment

35

Part-1 of the project: Institutionalization of AUWSSC:

AUWSSC was newly established corporation and it was totally new formation of the

governmental entity in form of corporation which was always a big challenge to manage

and operate independently, BCE consultant was hired under the project to form a

structure and policies for the newly established corporation, but the existent management

situation and its human capital adoptability to a new system was not diagnosed

systematically and without considering these factors BCE’s assignment was designed in

terms of its ToRs also selected methodology for the improvement in its management

system was not effective that’s why its result was not as desired at overall but despite that

AUWSSC had done better efforts in its institutionalization process.

If we refer to the description of the Schedule-1 of financing agreement project objectives

descriptions are highlighted below:

(a) Reorganization of CAWSS governmental enterprise into a public Corporation

which was decided based on the presidential decree and the process of hiring key

personnel, managerial staff, Director General was supported by the this project to

organize this new corporation for the better management and development of urban

water supply and sewerage services as well as quality management of overall water

supply activities throughout the country, fortunately this process is successfully

completed and a new AUWSSC is organized well established and managing its water

supply services properly throughout the country where we can judge its performance

results based on the performance indicators and its results which is highlighted in the

aide-memoire prepared during mission.

(b) Development and enhancement of capacity in the newly formed AUWSSC

through the provision of technical assistance and training, (i) preparation of operations,

procurement, accounting and financial management procedures are in place as per the

government of Afghanistan accepted regulations, (ii) Internal audit is in place, (iii) HR

department is developed, (iv) the carrying out of feasibility studies are responsibility of

AUWSSC Technical department which is in place, (v) AUWSSC’s each year financial

statements are audited by the External auditors, (vi) proper management of planning,

financing, and water supply activities are in proper and continue operation.

Component-2: Financial Support to the CAWSS Operations (USD 9.6 M)

At the time of project preparation, AUWSSC was facing significant financial problems

where before the establishment of new corporation, CAWSS was operating as

government enterprise having low revenue compare to its expenses that’s why

government of Afghanistan was supporting it by giving subsidies financial support each

year to recover its deficit financial position. Operational costs were partly and irregularly

paid, no financial resources were available to recruit more staff as required to operate the

rehabilitated and extended CAWSS systems throughout the country.

36

Government of Afghanistan has decided to replace CAWSS by new corporation as

Afghanistan Urban Water Supply & Sewerage Corporation (AUWSSC) where the new

AUWSSC will have to do an independent operation and also take-off the financial burden

from government which was paid to it as subsidies each year. By the date…….. New

AUWSSC is established where the newly established corporation was required to manage

its operation without the government financial support.

At this crucial and challenging time period under the world bank project AUWSSC got

the provision of 40% of financial support against its operational expenses for four years

SY-1388, 1389, 1390, 1391 and for the six months of 1392 which added a great value to

AUWSSC and it helped the corporation to take out the corporation from deficit to a

surplus financial position, during the project time AUWSSC has cleared its all liabilities

and dues which was left from that CAWSS financial performance and now in future

AUWSSC can bear it’s all type of operational expenses by generating its own revenue

through the supply of enough clean drinking water services to its customers.

Objective no.3: Extension of the Kabul SBU water supply network:

During 2nd amendment of the project some amount of grant fund was canceled and this

project developmental objective was also replaced by construction of TWO CDC projects

was added to the project and also designing of the new Investment project for Kabul SBU,

fortunately the CDC Qule-Abchakan project is successfully implemented and the 2nd

CDC Dogh-Abad project is not implemented because of time constraints and the lengthy

and rigid procurement procedures, 2nd the Kabul SBU new investment project designing

is successfully implemented where AUWSSC is now working the proposal finalization

which will be officially submitted to the bank for their further support.

Key Factors Affecting Implementation and Outcomes

Though ultimately the project objectives are achieved, but the project is not

implemented as it was planned from timing perspective, the slow pace of

disbursement and improper monitoring over the project progress asked 3-times more

time period.

AUWSSC management’s capabilities of project implementation were not taken into

account, how much they need support from government and the Bank as project

supervisory entity.

Duties and responsibilities within the AUWSSC were not defined clearly for each

managers and subordinates in-part of project implementation that’s why AUWSSC

management faced problems and project required 3-times extension.

AUWSSC existing problems in management system were not diagnosed by Board of

Director and the Bank to help them accordingly.

37

BCE assignment was not termed based on AUWSSC actual need also methodology

for the capacity building and system development was not based on the existing

situation diagnostics that’s why its result is not as it was desired.

Lesser control or watch of HQ over its SBUs & Sub SBUs.

Lesser direction, guidance or no constant watch of borrower over the project

implementation and its outcomes during project progresses (time period).

Condition of external auditors for reimbursement and mixing of duties in external

auditors ToRs where external auditors were required to complete the expenditure

verification and financial statements audit together.

Though the planned activities under the project didn’t took place on time but still it is

been managed with initial allocated fund and did not required additional cost caused

by extra time. AUWSSC has got the maximum possible benefit of the project

allocated profit where it has played a vital role in the betterment of overall financial

position.

Financial management and procurement: During initial stages of the project

implementation it was quite challenging for newly established corporation to manage

the procurement and financial issues effectively but specially at the last two years the

management has learnt lessons from the project past experiences and they were able

to manage their procurement and financial activities effectively and efficiently which

helped AUWSSC to disburse the remaining fund under the project in limited time

period and get the targeted result.

Assessment of Outcomes

The project had three developmental objectives, 1st Institutionalization of newly

established corporation AUWSSC, where based on systematic evaluation we can

observe certain improvements in its general management and its operational activities

which helps AUWSSC to utilize the available resources efficiently and have

expanded its services to many new cities also provide far better services than that of

old enterprise and also generate two times better revenue compare to that SY-1388

financial performance which all are because of new management team and their

policies.

2nd objective was to give financial support to AUWSSC which will bring the newly

established corporation from deficit to a consistent and perpetual surplus financial

position, fortunately AUWSSC financial position shows extra ordinary financial

performance in last two years, the reason behind the current better financial position

is that project had got about 40% financial burden of the corporation at the beginning

38

stages and later on gradually AUWSSC did managed to take out itself from deficit to

a consistent better financial position.

3rd objective of the project was to extend the Kabul SBU water supply network

which was latter on replaced with the CDC project implementation and fortunately

one of the CDC project which was Qole-Abchakan CDC is implemented successfully

and one of that left because of time limitation and improper planning for the project

procurement activities and the rest staff. Also the Kabul SBU new investment project

is designed through one of the International consultants and the project is

implemented successfully and AUWSSC will be requesting for its construction work

and its actual implementation which will add greater value to AUWSSC and

specifically this project will fulfill the needs of major portion of the Kabul city which

was not benefited from AUWSSC services.

Project achievements

Project has bring the governmental enterprise to a new independent Corporation and

supported the corporation to standardize its managerial and operational activities and

take-off the financial burden from government and perform independently, generate

its own revenues and bear its own expenditures.

Project has financially supported the newly established corporation which was in

deficit financial position and now within 5-years corporation has cleared its all

liabilities and from now onward it can perpetually perform independently with

providing better services.

CDC project is implemented for Kabul SBU which helped in the expansion of

services and raised the capacity of production and services.

AUWSSC team has experienced some new managerial practices which helped in the

management capacity building.

Overall outcome Rating

AUWSSC Management team do rate the overall project output as Highly Satisfactory

result, though the project implementation got certain delays but ultimately the

project’s overall values are absorbed and got the maximum benefits of it.

Risks to development outcome

AUWSSC had done significant achievements in a too shorter period of time but it do

needs further support in standardizing its management information systems also

retaining of the competent managerial staff whose role was of value to AUWSSC.

Following are risks which can affect AUWSSC perpetual performance in the sector:

39

AUWSSC may lose the management team who was managing the newly established

corporation overall activities during last five years, and they were paid under World

Bank project fund.

AUWSSC’s information management system is still not standardized where it was

expected that these activities will be managed under new World Bank project. And if

it doesn’t happened the current information system will be negatively interpreting

organization’s performance, and organization’s performance cannot be secured in

long run, as we are currently facing a problems with the Board of Directors in case of

our Financial Statements material misstatements which is caused by improper

financial management system.

Assessment of Bank and Borrower Performance

Bank Performance

The Bank team did not evaluated the client’s capabilities of managing the project

implementation, as well as they did not diagnosed the existing problems within the

management system of newly established corporation which has direct impact on the

project implementation and opportunities utilization.

At the ending period of the project they have diagnosed the existing problems within

the management system that’s why they turned their attention and did constant watch

over the project implementation and the client’s performance and ultimately the client

could disbursed the whole project fund according to the financing agreement

provisions and achieved its targeted objectives.

At final stages of project the Bank staff listened to client’s suggestions and

accordingly they showed flexibility which helped client to get the desired results

efficiently.

As proper management and effective implementation of project was challenging for

newly established corporation. If the Bank could have constant watch on the project

implementation process on quarterly basis it would have pushed the client to expedite

the project implementation and would have helped the client to move forward and get

the desired result efficiently.

We rate the Bank’s performance satisfactory as over-all but Highly satisfactory ate

the last 12-months of the project period which helped AUWSSC to manage the 50%

of remaining project developmental objectives in a 25% remaining time period.

Managing these bulky activities in such a limited time period was just because of

close coordination and some flexibilities of Bank’s staff which added a great value to

the project and basically to AUWSSC.

Borrower Performance

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During the last year of the project life we have observed our implementation

weaknesses and ultimately in too limited time period we were able to manage the

project developmental objectives and get the maximum benefits of the project fund.

With the help of the project and its values we were able to take-out the corporation

from its financial deficiencies to a better financial position where now AUWSSC can

independently take-on its burden, and can provide 3-times more water supply services

than that of CAWSS enterprise where it was 50% financial burden on government.

Better management team is in place which can manage its project and better water

supply services to its customers.

AUWSSC could have done better if they had a proper project implementation plan as

well as annual action plan, also they should have a monitoring and evaluation

practices which could have helped them diagnose their problems and find

recommended solutions.

At the beginning stages of the project during FY-2006, the project was managed

under the old CAWSS and MOUD management team where up-to year 2010 the

project did not had any significant achievements as a portion of the grant amount was

canceled during first amendment on October 2010 and the important time period is

wasted that’s why the project got too much delays and it does affected the project.

Lessons Learned

The Bank’s policies and generally accepted regulations are better cleared to the client.

Management have learnt that at the beginning of the project we should have a proper

project implementation plan, and a monitoring team to make sure that project is going

on as it is planned and the targeted objectives are achieved.

The obstacles affecting the project implementation process is highlighted and can be

minimized during coming projects.

The project progress and its outcome have to be checked periodically and proper

policies and procedures has to be in place to make sure the project’s objectives are

secured and achieved.

Client has to get the close coordination of the Bank and get advantages of their

consulting activities.

During the designing of the new project the borrower should give an opportunity to

the client what they basically need, what are their priorities, and which work adds

more value to them which can be included in the next projects.

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The Bank’s management team should have a constant watch on the project progress

and ask the client regarding its performance results and outputs.

The Bank should give an independency and freedom to client to take decision in

prioritizing the project activities and also have both client and borrower should have a

close coordination meetings an order to make better the project implementation.

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Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders

Not applicable

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Annex 9. List of Supporting Documents

1. Project Technical Annex

2. Financing Agreement.

3. Project Restructuring Papers.

4. Mission Aide Memoires and Management Letters.

5. Project Implementation Status Reports.

6. Government of the Islamic Republic of Afghanistan (2006) Interim Afghanistan

National Development Strategy: An Interim Strategy for Security, Governance,

Economic Growth & Poverty Reduction

7. Government of the Islamic Republic of Afghanistan (2008-2013) Afghanistan

National Development Strategy: A Strategy for Security, Governance, Economic

Growth & Poverty Reduction

8. Implementation Completion Report for the Afghanistan Short Term Urban Water

Supply and Sanitation Project (P092162)

9. Implementation Completion Report for the Afghanistan Emergency Infrastructure

Reconstruction Project (P077779)

10. Implementation Completion Report for the Kabul Urban Reconstruction Project

(P083919)

11. World Bank, Afghanistan Transitional Support Strategy, March 2003

12. World Bank, Afghanistan Interim Strategy Note FY12-14

13. Extension of the Kabul Water Supply System, Final Design of Headworks Short

Term Project, Vol. 1.1 Design Report, January 2008, JV Beller Consult - IGIP –

BETS

14. AUWSSC Financial Statements and Auditor’s Reports

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MAP