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Document of The World Bank

Report No: ICR00001053

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-45070 IBRD-74040)

ON A

LOAN

IN THE AMOUNT OF US$85.0 MILLION

TO THE

DISTRICT OF CARTAGENA

WITH THE GUARANTEE OF THE REPUBLIC OF COLOMBIA

FOR A

CARTAGENA WATER SUPPLY, SEWERAGE AND ENVIRONMENTAL MANAGEMENT PROJECT

June 10, 2010

Sustainable Development Department Colombia and Mexico Country Unit Latin America and the Caribbean Regional Office

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CURRENCY EQUIVALENTS (Exchange Rate Effective June 08, 2010)

Currency Unit = Peso ($) COP$1966 = US$1.00

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ACUACAR Aguas de Cartagena-The Water and Sewerage Company of

Cartagena AGBAR Aguas de Barcelona-The Water and Sewerage Company of

Barcelona BOD Biochemical Oxygen Demand CARDIQUE Corporación Autónoma del Canal del Dique -The Regional

Environmental Authority in Cartagena CAS Country Assistance Strategy CRA Comisión Reguladora de Agua -Water Regulating Committee COD Chemical Oxygen Demand COTELCO Asociación Hotelera de Colombia – Colombia Hotel Association

CORVIVIENDA Fondo de Vivienda de Interés Social y Reforma Urbana del Distrito de Cartagena

DNP Departamento Nacional de Planeación -National Planning Department

EA Enviromental Assessment EBAR Estación de Bombeo de Aguas Residuales- Wastewater Pumping

Station EMP Environmental Management Plan EPD Empresas Públicas Distritales -The Previous Water and Sewerage

Utility of Cartagena) EPA Establecimiento Publico Ambiental -District Environmental

Department GIS Geographic Information System GRP Glass Reinforce Plastic HDPE High Density Polyethylene IBRD International Bank for Reconstruction and Development IADB Inter-American Development Bank ICR Implementation Completion Report IRR Internal Rate of Return ISR Implementation Status Report IP Inspection Panel Km Kilometer Kw Kilowatt m Meter M&E Monitoring and Evaluation MAVDT Ministerio de Ambiente, Vivienda, y Desarrollo Territorial

Ministry of Environment, Housing, and Regional Development MCDP Mitigation and Community Development Program m3/d Cubic meter per day

m3/s Cubic meter per second NDP National Development Plan TKN Total Kjeldahl Nitrogen NGO Non Governmental Organization DO Dissolved Oxygen OPCS Operations Policy and Country Services OSH Occupation Safety and Health PAD Project Appraisal Document PDO Project Development Objective PIU Project Implementation Unit PMR Project Management Report PSP Private Sector Participation RCCP Reinforced Concrete Cylindrical Pipe SS Suspended Solids SSPD Superintendencia de Servicios Públicos Domiciliarios -

Superintendence of Domestic Public Services TA Technical Assistance UFW Unaccounted-for Water WMS Wastewater Management System WSS Water Supply and Sanitation Services WWTP Wastewater Treatment Plant

Vice President:Pamela Cox

Country Director:Gloria M. Grandolini

Sector Manager:Guang Zhe Chen

Project Team Leader:Greg Browder

ICR Team Leader:Greg Browder/Carmen Yee-Batista

COLOMBIA CARTAGENA WATER SUPPLY, SEWERAGE AND ENVIRONMENTAL

MANAGEMENT PROJECT

CONTENTS

Data Sheet

1. Project Context, Development Objectives and Design............................................... 1 2. Key Factors Affecting Implementation and Outcomes .............................................. 5 3. Assessment of Outcomes .......................................................................................... 12 4. Assessment of Risk to Development Outcome......................................................... 20 5. Assessment of Bank and Borrower Performance ..................................................... 20 6. Lessons Learned........................................................................................................ 22 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners........... 23 Annex 1. Project Costs and Financing.......................................................................... 24 Annex 2. Outputs by Component.................................................................................. 25 Annex 3. Economic and Financial Analysis ................................................................. 28 Annex 4. Bank Lending and Implementation Support/Supervision Processes............. 43 Annex 5. Beneficiary Survey Results ........................................................................... 45 Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR..................... 48 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ....................... 49 Annex 9. List of Supporting.......................................................................................... 50 Annex 10. Summary of Inspection Panel Case............................................................. 52 Annex 11. Operational and Financial Performance Indicators..................................... 54 MAPS

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A. Basic Information

Country: Colombia Project Name: CO CARTAGENA WTR SUPPLY & SEWERAGE ENV.

Project ID: P044140 L/C/TF Number(s): IBRD-45070,IBRD-74040

ICR Date: 06/14/2010 ICR Type: Core ICR

Lending Instrument: SIL Borrower:

DISTRITO TURISTICO Y CULTURAL CARTAGENA

Original Total Commitment:

USD 85.0M Disbursed Amount: USD 85.0M

Revised Amount: USD 85.0M

Environmental Category: A

Implementing Agencies: Aguas de Cartagena (ACUACAR)

Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual

Date(s)

Concept Review: 11/29/1995 Effectiveness: 01/19/2000

Appraisal: 05/17/1999 Restructuring(s):

Approval: 07/20/1999 Mid-term Review: 01/21/2005

Closing: 12/31/2004 06/28/2009 C. Ratings Summary C.1 Performance Rating by ICR

Outcomes: Satisfactory

Risk to Development Outcome: Moderate

Bank Performance: Satisfactory

Borrower Performance: Satisfactory

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

Quality at Entry: Moderately Satisfactory Government: Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies:

Highly Satisfactory

Overall Bank Satisfactory Overall Borrower Satisfactory

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Performance: Performance: 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):

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual

Sector Code (as % of total Bank financing)

General water, sanitation and flood protection sector 1 1

Sanitation 32 31

Sewerage 54 50

Sub-national government administration 4 6

Water supply 9 12

Theme Code (as % of total Bank financing)

Access to urban services and housing 25 28

Environmental policies and institutions 13 11

Other financial and private sector development 13 14

Pollution management and environmental health 25 26

Water resource management 24 21 E. Bank Staff

Positions At ICR At Approval

Vice President: Pamela Cox Shahid Javed Burki

Country Director: Gloria M. Grandolini Andres R. Solimano

Sector Manager: Guang Zhe Chen Danny M. Leipziger

Project Team Leader: Greg J. Browder Menahem Libhaber

ICR Team Leader: Greg J. Browder

ICR Primary Author: Carmen Rosa Yee-Batista

Greg J. Browder

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F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) The project development objectives are to: (i) improve the water and sewerage services of Cartagena and the sanitary conditions of the city poorest population, by expanding water and sewerage coverage, particularly in the city poor neighborhoods, (ii) facilitate the environmental cleanup of water bodies surrounding the city (Cartagena Bay, Caribbean beaches and Cienaga de la Virgen estuary) by providing adequate collection, treatment and disposal of the entire flow of the city wastewater; and (iii) improve the sustainability of water and sewerage services in Cartagena by leveraging Bank support to shore up the private sector participation (PSP) model pioneered by ACUACAR, the city mixed-capital water and sanitation utility, against the prospect of political interference. Revised Project Development Objectives (as approved by original approving authority) The PDO was not revised during the 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 : Water Coverage (PDO 1)

Value quantitative or Qualitative)

80% 89%

99.9 % * The Project directly benefited 96,000 people with new water connections.

Date achieved 06/30/1999 12/31/2004 12/31/2009 Comments (incl. % achievement)

Achieved: There is now universal water service coverage throughout the city, including the poorest neighborhoods.

Indicator 2 : Sewerage Coverage (PDO 1)


69% 90%

86% (92%) * The project directly benefited about 255,800 people with new sewerage connections.


Largely Achieved: ACUACAR has provided the sewerage infrastructure to cover 92% of the households in Cartagena, but the actual rate is 86%. A program to connect low income households is expected to achieve 92% in the near future.

Indicator 3 : Continuity of water supply service (percentage of users which receive service 24

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hours per day (PDO 1)


95% 98% 99.9


Achieved: All customers receive 24 hour water supply service.

Indicator 4 : Total coliform (TC) concentration in the water bodies surrounding Cartagena to meet Colombia standards for recreational activity. (PDO 2)


High levels of total coliforms in the Bay and Cienaga (> 5,000 MPN/100 ml)

Colombia standards for recreational use: primary contact: TC not exceeding 1,000 MPN/100 ml and secondary contact: TC not exceeding 5,000 MPN per 100 ml.

Not available.

Date achieved 06/30/1999 12/31/2004 06/01/2010

Comments (incl. % achievement)

Achievement to be Confirmed: The "Effect on Contamination by Sewage (with project)" map shows that after the project, the water bodies surrounding Cartagena will meet the Colombia standards. A monitoring study will confirm these results.

Indicator 5 : ACUACAR Net Profit Margin, NPM (Ratio of net profit after taxes to revenue) (PDO 3)


7.1% 7.5% 8.9%

Date achieved 06/30/1999 12/31/2004 12/31/2009

Comments (incl. % achievement)

Achieved: The increased NPM indicates higher level of profitability despite expanding service to low income households. This was achieved by reducing operating costs, while increasing revenues through new service connections and minor tariff increases.

(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 : Water supply systems constructed and in service in el Pozon and in the Southeastern zone.

Value (quantitative or Qualitative)

No water networks and connections

Facilities completed and in service.

Facilities completed and in service. Water networks were extended to

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other communities located in the North Zone.


Achieved: water coverage increased to 99.9%.

Indicator 2 : Sewerage network in the Cienaga basin constructed and in service Value (quantitative or Qualitative)

No sewerage facilities Facilities completed

Facilities completed


Achieved: Sanitary conditions within the Cienaga basin have improved considerably and the number of discharge points have been reduced, thereby improving water quality along the Cienaga shoreline.

Indicator 3 : Main conveyance system and treatment plant constructed Value (quantitative or Qualitative)

no conveyance system and wastewater treatment plant

Facilities completed and in service

Facilities completed and in service


Achieved: The Paraiso pumping station, 23.85 km long conveyance system and the 1.6 m3/s WWTP have been constructed and will be put into operation when the submarine outfall is installed.

Indicator 4 : Marine Outfall Constructed Value (quantitative or Qualitative)

No marine outfall Outfall constructed and in service

Under construction


Achieved Shortly: The marine outfall is constructed and ready to be installed (i.e. sunk) in mid-2010 when sea conditions permit.

G. Ratings of Project Performance in ISRs

No. Date ISR Archived

DO IP Actual

Disbursements (USD millions)

1 12/27/1999 Satisfactory Satisfactory 0.00 2 05/12/2000 Satisfactory Satisfactory 9.25 3 06/17/2000 Satisfactory Satisfactory 9.25 4 12/15/2000 Satisfactory Satisfactory 9.25 5 06/07/2001 Satisfactory Satisfactory 9.25 6 11/24/2001 Satisfactory Satisfactory 16.25 7 05/31/2002 Satisfactory Satisfactory 16.25 8 12/05/2002 Satisfactory Satisfactory 22.11 9 05/14/2003 Satisfactory Satisfactory 22.11

10 05/29/2003 Satisfactory Satisfactory 22.11

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11 11/26/2003 Satisfactory Satisfactory 25.11 12 06/03/2004 Satisfactory Satisfactory 27.11 13 06/15/2004 Satisfactory Satisfactory 27.11 14 12/01/2004 Satisfactory Satisfactory 31.61 15 04/29/2005 Satisfactory Satisfactory 34.61 16 05/26/2006 Satisfactory Satisfactory 47.42 17 12/21/2006 Satisfactory Satisfactory 55.57 18 05/02/2007 Satisfactory Satisfactory 58.92 19 12/04/2007 Satisfactory Satisfactory 65.92 20 06/30/2008 Satisfactory Satisfactory 67.78 21 12/10/2008 Satisfactory Satisfactory 71.92 22 05/07/2009 Satisfactory Satisfactory 77.35 23 06/01/2010 Satisfactory Satisfactory 85.00

H. Restructuring (if any) Not Applicable

I. Disbursement Profile

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1. Project Context, Development Objectives and Design

1.1 Context at Appraisal 1. The District of Cartagena was one of the first municipalities in Colombia to introduce private sector participation in the water sector following the 1994 Public Services Law that expanded the role of private operators and created a national tariff regulator, the Comisión Reguladora de Agua Potable y Saneamiento (CRA) and a service quality regulator, the Superintendencia de Servicios Públicos Domiciliarios (SSPD). After many years of chronic inefficiencies in the provision of water supply and sanitation services (WSS), the District decided to liquidate the municipal utility and create a new public-private mixed capital enterprise with Bank’s support through a previous technical assistance loan (Loan 2961-CO for the “Colombia Water Supply and Sewerage Sector Project”). In December 1994, Aguas de Barcelona (AGBAR, the privately owned Water Company of Barcelona), was selected as the partner of the municipality, and the mixed enterprise Aguas de Cartagena (ACUACAR) was created with an initial capital of US$4 million. ACUACAR took over the responsibility for the provision of WSS services in June 1995. The District was responsible for capital investments to expand the existing WSS system, while ACUACAR was responsible for capital expenditures to improve the existing system. At appraisal, ACUACAR had been in operation for three and a half years and it had achieved significant improvements in operational performance and service quality.1

2. Despite significant progress in improving the efficiency and quality of WSS service provision, Cartagena still faced many challenges, including: (i) insufficient water supply coverage especially in poor neighborhoods located in the vicinity of the Cienaga de la Virgen; (ii) insufficient sewerage services especially in the poorest areas around the Cienaga and in zones adjacent to the Cartagena Bay in where open sewage canals on streets was common; (iii) inadequate domestic wastewater management system with untreated wastewater discharging to the Cartagena Bay, the Cienaga, and the inner-city water courses; and (iv) industrial wastewater discharges from the Mamonal zone to the Cartagena Bay with minimal treatment. This situation generated public health,sanitation, and environmental problems, which had negative impacts on the quality of life of the local population and posed serious restrictions to the city’s sustainable economic development, especially in the tourism sector.

3. To address the outstanding WSS challenges, the District and ACUACAR developed a water and wastewater master plan and implementation strategy that primarily relied on two projects:

(i) The Cartagena Expansion of Sewerage System financed by the Inter-American Development Bank (IADB) to improve sanitary conditions in the Cartagena Bay drainage basin. The project was completed in March 2006, and it increased sewerage coverage in the basin, rehabilitated old networks and upgraded hydraulic capacity of networks, and rehabilitated the existing outfall located in the Cartagena Bay. The map section of this report depicts a schematic of the IADB-financed works. (ii) The Cartagena Water Supply, Sewerage, and Environmental Management Project (“the Project”) with financing from the World Bank. The Project aimed to expand water supply coverage and production capacity, expand sewerage networks and improve the sewerage system in the Cienaga de la Virgen basin, and enhance wastewater management in Cartagena. The wastewater management plan consisted of a conveyance system for the entire city’s wastewater to a preliminary treatment plant which would

1 From 1996 to 1999, water and sewerage coverage increased from 73 to 80 percent and 61 to 65 percent, respectively; 24 hr continuity of services went from 60 to 70 percent of the customers; water meter installation increased from 77 to 99 percent of the connections; and the number of clients increased from 178,000 to 363,000.

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subsequently discharge the treated wastewater into the Caribbean Sea through a submarine outfall. Schematics of the works under this Project are shown in the map section. 4. The Bank, through Loan 2961-CO for the “Colombia Water Supply and Sewerage Sector Project”, provided technical assistance to support the privatization process in Cartagena and had financed several water sector reform projects in Colombia. Despite the substantial improvements in the late nineties, the reform process was considered vulnerable to political interference from future mayors, since the implementation process was still in its early stage and the District owned 50 percent of ACUACAR’s shares. The Bank’s participation in this Project at this critical juncture was considered to be essential to help consolidate the sector reform and establish a much needed credibility of the mixed enterprise model in Cartagena, where the public sector is responsible for financing major infrastructure investments. 5. The Colombia Country Assistance Strategy (CAS) of 1997 identified the poor and deteriorated state of the country’s infrastructure as a critical constraint to economic growth and the government’s strategy emphasized private sector participation to expand WSS services and improve wastewater treatment infrastructure. The Project contributed to the CAS objectives of improving infrastructure services and ensuring sustainable development.

1.2 Original Project Development Objectives (PDO) and Key Indicators (from Project Appraisal Document)

6. The project development objectives are to (i) improve the water and sewerage services of Cartagena and the sanitary conditions of the city’s poorest population, by expanding water and sewerage coverage, particularly in the city’s poor neighborhoods; (ii) facilitate the environmental cleanup of water bodies surrounding the city (Cartagena Bay, Caribbean beaches and Ciénaga de la Virgen) by providing adequate collection, treatment and disposal of the entire flow of the city’s wastewater; and (iii) improve the sustainability of water and sewerage services in Cartagena by leveraging Bank support to shore up the private sector participation (PSP) model pioneered by ACUACAR, the city’s mixed-capital water and sanitation utility, against the prospect of political interference. 7. The key performance indicators for the project development objectives presented in the PAD are (i) environmental indicators which measure sewerage coverage and volume of sewage treated; (ii) “utility-based” indicators which measure the operational and financial efficiency of ACUACAR; and (iii) financial indicators of the District of Cartagena. Details of the performance indicators are provided in the results monitoring framework (Annex 1 of the PAD), which includes a total of 29 outcome indicators to measure and monitor progress toward the PDOs.

8. Although the outcome indicators were appropriate to measure and define the PDOs, there were too many, and they were not well organized in the results framework, making the monitoring and evaluation process complicated. In an effort to bring order to the evaluation, the ICR simplified the results framework by selecting from the PAD the most relevant indicators to evaluate each PDO. Table 1 shows the simplified results framework. Details on the performance indicators are provided in Section 3 and Annex 11 of this report.

Table 1. Simplified Results Framework

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PDO Outcome Indicators (i) improve the water and sewerage services of Cartagena and the sanitary conditions of the city’s poorest population

Water coverage, sewerage coverage, and continuity of service

(ii) facilitate the environmental cleanup of water bodies surrounding the city.

Total coliform levels in the Cartagena’s water bodies (Cartagena Bay, Caribbean beaches and Ciénaga de la Virgen)

(iii) improve the sustainability of water and sewerage services in Cartagena

Operational indicators: water and sewerage coverage, continuity of service, volume of water distributed, number of connections, and volume lost/connection/month Financial performance indicators: operating margin, net profit margin, return on equity, current ratio, debt service coverage, debt/assets, and uncollectable 18 months.

1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and reasons/justification 9. The PDO was not revised.

1.4 Main Beneficiaries (original and revised, briefly describe the "primary target group" identified in the PAD and as captured in the PDO, as well as any other individuals and organizations expected to benefit from the project)

10. According to the Project Appraisal Document (PAD), the primary targeted beneficiaries were 80,000 people located in Cartagena’s poorest neighborhoods. These people were classified as among the first two (and lowest income) consumer categories in Colombia’s six point classification of consumers.

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This group directly benefited from project investments in increasing sewerage and water supply coverage; however, during project implementation the targeted beneficiaries increased to 272,700 due to the inclusion of additional communities.

11. A secondary target group was the entire permanent population of Cartagena (750, 000 inhabitants at the time of appraisal) and the tourist population (700,000 annually), as they would benefit from the improvements in the reliability of the water supply service and especially from the environmental improvements that wastewater collection, treatment and safe disposal systems would bring to the Caribbean beaches, the Cienaga, and the Cartagena Bay. In 2008, the permanent population in Cartagena increased to 902,000 and the tourist population increased to about 900,000 annually.

12. In a larger sense, by strengthening ACUACAR and the reform process, the Project also benefited the water and sanitation sector in Colombia, since ACUACAR has served as a model for the transformation of water utilities nationwide.

1.5 Original Components (as approved)

2 The neighborhoods included in the PAD are San José de los Campanos, El Pozón, Villa Estrella, La Boquilla, Paseo Bolívar, Zona Suroccidental and Zona Suroriental sub-basins which currently discharge their sewage to the Cienaga.

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13. The project components, as presented in the Loan Agreement, are summarized below. 14. Component A – Expansion of the Water Supply System: This component included the following subprojects: (i) expansion and improvement of the water production system; (ii) increase of the water coverage in the city; (iii) replacement of primary distribution mains; (iv) mitigation of environmental impact of water treatment sludge; (v) installation of remote control systems; and (vi) carrying out of a plan to reduce unaccounted water. 15. Component B - Expansion of Sewerage System in the Ciénaga de la Virgen Drainage Basin: This component included the following subprojects: (i) enhancement of conveyance capacity of existing sewage collectors in the southwest, southeast, and central parts of the city; (ii) expansion of secondary sewerage network in the southwest, southeast, and central parts of the city, as well as the Boquilla area; (iii) construction of new pressure lines and pumping stations; and (v) construction of new gravity collectors in residential areas. 16. Component C - Construction of the Main Wastewater Conveyance System: Construction of the main wastewater conveyance system consisting of a 23.85 kilometer long pipeline, including upgrading of the Paraiso pumping station, construction of the effluent pipeline from the treatment plant to the submarine outfall under Part E of the Project. 17. Component D - Construction of the Wastewater Treatment Installations: This component included the construction of a preliminary treatment plant to remove floatable materials, grease, oil, sand, and grit. Treatment facilities included the following or equivalent installations: (i) six rotary screens to remove rags, floatable material, and large solids, and (ii) two vortex-type grit chambers.

18. Component E - Construction of Submarine Outfall: This component consisted of construction of the submarine outfall for the safe discharge of the pre-treated effluent to the Caribbean Sea near Punta Canoa. Total outfall length would be 2,850 m and the discharge point (diffuser area) would be submerged at a depth of 20 m. 19. Component F - Industrial Wastewater Discharge Control: This component addressed the issues related to industrial wastes discharged to the municipal sewerage network, and included the following activities: (i) carrying out a survey to identify key sources of industrial pollution in the city of Cartagena; (ii) establishing a system for regulating the discharge of industrial wastes, either to the sewerage system or to receiving bodies; (iii) establishing a system for auditing the status of industrial wastes discharge; (iv) defining strategies to control small and dispersed sources of industrial pollution discharging to the sewerage networks (gasoline stations and mechanical repair shops); and (v) providing technical assistance in selection and design of pretreatment processes. 20. Component G - Environmental and Social Component: This component sought to implement mitigation measures of the project’s environmental and social impacts. The environmental management program included: (i) environmental supervision during construction; (ii) restoration and conservation of the Ciénaga de la Virgen nature reserve; (iii) carrying out a monitoring program before and after construction of the marine outfall to study the fate of coliforms and other contaminants discharged through the outfall; and (iv) environmental institutional strengthening program. The social management program included: (i) a social consultation and communication program; (ii) organization and strengthening of the communities of La Boquilla, Punta Canoa, Las Palmeras, El Pozon, and Manzanillo del Mar; (iii) construction rehabilitation and equipping of community centers in La Boquilla, Punta Canoa, and Las Palmeras; (iv) supporting in house basic sanitation in La Boquilla; and (v) strengthening of the Community Relations Unit of ACUACAR.

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21. Component H - Project Management, Technical Assistance, Studies, Design and Supervision:Provision of technical assistance in the design and supervision of the activities under Parts A, B, C, D, and E of the Project, the auditing of procurement procedures, and the overall management of the Project.

1.6 Revised Components 22. The project components were not formally revised.

1.7 Other significant changes (in design, scope and scale, implementation arrangements and schedule, and funding allocations) 23. There were no significant changes in the design, scope, scale and implementation arrangements of the Project, but there were changes in the implementation schedule and funding allocations. The implementation of Components C, D, and E, which constitute the wastewater management system (WMS) and represent about 50 percent of project cost, faced significant delays caused by a lengthy authorization of an environmental license for these works, an unsuccessful bidding process that required rebidding, and an Inspection Panel investigation followed by the implementation of a Bank management action plan to respond to the Inspection Panel report. The delays were therefore attributed to the Borrower as much as to the Bank. These events are discussed in more detail in Section 2.2, and a summary of the Inspection Panel is presented in Annex 10. As a result, the Bank provided two extensions to complete the works and meet the PDO: a two-year extension in June 2005, when about 40 percent of the loan amount had been disbursed, and another two-year extension in May 2007, when 70 percent of the loan was disbursed. The Project closed in June 28, 2009, as scheduled in the second loan extension, without being fully executed due to delays in completing two contracts - the land conveyance pipeline and the submarine outfall. Since another extension was not considered critical as the loan was fully disbursed, the Borrower and the Bank agreed to complete all the project works afterwards with counterpart funds. The Bank team continued to provide supervision after the loan closed, as part of the ICR exercise. 24. In addition, three amendments to the Loan Agreement where issued during implementation. The first amendment (2003) was to finance water supply works to poor communities in the north zone of Cartagena and sewerage works to complete the wastewater collection system in the southeastern zone of Cartagena. These two works were originally supposed to be financed by the District, but they were unable to finance them due to the economic crisis that hit Colombia in 2003. The second amendment (2006) involved converting the financial clause of a variable spread loan to a fixed spread loan to provide the Borrower with access to the Bank’s financial products for the purpose of managing the volatility of interest and currency exchange rates. The last amendment (2009) was to increase the Bank’s financing percentage of the Category of Works from 75 to 100 percent to allow full disbursement of the loan and to reallocate funds between categories to adjust the allocation (estimated 10 years earlier) to the Project’s actual expenditures and needs.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry (including whether lessons of earlier operations were taken into account, risks and their mitigations identified, and adequacy of participatory processes, as applicable)

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25. The Project built directly upon the success of the PSP model in Cartagena in which the Bank had been instrumental in helping with sector transformation. The up-front resolution of the Cartagena water sector institutional issues by the creation of ACUACAR ensured high quality provision of services and sustainability of investments, and provided a sound basis for Bank participation in the Project. 26. Background analysis during project preparation was crucial in terms of scope, relevance, and quality for appropriate project design. ACUACAR’s water supply and wastewater master plans provided detailed background information and a solid implementation plan that helped project preparation. Furthermore, international engineering consultants prepared a feasibility study and an environmental assessment that considered a full range of wastewater management alternatives, of treatment options and, subsequently, of outfall construction sites. An international panel of experts and Bank staff provided guidance in carrying out these studies to ensure worldwide experience was considered in the selection process. These activities were partially funded by a Japanese Trust Fund (TF029605). The comprehensive background analyses allowed the Bank to correctly identify and include a number of key project design aspects such as (i) an important poverty focus through the expansion of WSS coverage to impoverished communities; (ii) an environmentally safe and cost-effective wastewater management system solution for a coastal city given the financial constrains of the District and ACUACAR, and the needs to first expand water and sewerage; (iii) technical assistance to control industrial wastewater discharges; and (iv) social and environmental programs to accompany infrastructure components. The lessons that contributed to the success of the Project include front-loading institutional change, safeguards against political interference through loan conditions to maintain PSP, and appropriate design standards to prevent overestimation of water demand and minimize over-design risk of water and wastewater facilities. 27. The three PDOs reflected Cartagena’s essential priorities for the water and wastewater sector as identified by the District, the national government, and the CAS at the time. The PDOs were clear and specific, and the design provided a cause and effect relationship between the PDOs and their outcomes. The component design was found to be adequate to achieving the PDOs and provided important social and environmental dimensions to infrastructure projects. Nevertheless, the Inspection Panel case presented by poor communities in the north zone of Cartagena, reflected the need for a more comprehensive social plan in this area, including a more explicit stakeholder analysis and a stronger communication strategy to dissipate doubts and create a better understanding of the Project. In addition, the original cost estimates formulated during project preparation for the WMS turned out to be low, resulting in subsequent procurement complications when bids for some major works turned out to be much higher than originally budgeted. 28. At the time of appraisal, the commitment of the Borrower was high as evidenced by the privatization reform process and the significant investments in expansion of WSS networks by ACUACAR and the District. Moreover, the technical capacity of ACUACAR for project implementation was strong as demonstrated by the WSS coverage expansion achievements and the development of a comprehensive strategy that laid the foundation for the design of this Project. At the national level, environmental sustainability, improved sewerage coverage for unserved urban areas and the need for private capital for the WSS sector figured highly on the government’s agenda. The District, ACUACAR, and the national government continued to demonstrate ownership after almost 10 years of implementation and the passing of six district administrations. 29. Identification of risks and mitigation measures were generally adequate; however, the risks from a lengthy authorization of an environmental license and opposition from stakeholders to the selected wastewater management solution were not included in the PAD risk matrix, and when these events occurred they caused significant delays in project implementation. Additionally, the risk of not implementing sewerage works financed by other sources was seen as negligible, but this actually materialized when the District suffering from an economic crisis and was not able to finance a WSS

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project in the north zone, which was critical to the overall success of the Project. While a mitigation effort was not indicated during appraisal, the works in the north zone were completed with Bank financing. 30. Despite these aforementioned shortcomings, which were difficult to foresee at the preparation stage, it is noteworthy the close attention paid to the lessons learned under other projects, the due diligence during background analysis, and the close collaboration and ownership created between the District, ACUACAR, the national government, and the Bank team.

2.2 Implementation (including any project changes/restructuring, mid-term review, Project at Risk status, and actions taken, as applicable) 31. The Project has been successfully implemented in spite of serious project delays and other issues indicated in Table 2. Credit for this achievement goes to the strong capacity, commitment and determination of ACUACAR, strong government support, and to a very proactive and experienced Bank task team. As mentioned before, a major factor contributing to the success was the up-front work to strengthen the water sector in Cartagena with the creation of ACUACAR. In addition, the high quality of professional expertise provided by ACUACAR, international consulting firms, Bank staff, and panel of experts during project preparation and implementation contributed to the Project success’s, and this also allowed Bank management to address concerns arising from the Inspection Panel investigation and to prepare a solid action plan that was approved by the Bank Board of Executive Directors and executed successfully.

Table 2. Factors Affecting Project Implementation and Other Main Events

Year Comments 1998 - 1999

Project preparation. Environmental license for the WMS was submitted to the environmental regional authority in Cartagena (CARDIQUE) in April 1998.

2000

Loan agreement became effective on January 19. Environmental license process underway during the first part of 2000, but progress delayed due to objections to the outfall construction from local communities in the north zone and rich land owners with strong political ties.(1) An environmental license authorization was expected in October 2000, but instead CARDIQUE issued a request for additional actions to be conducted by ACUACAR, who shifted priorities from project implementation to respond to this request.

2001

In June, the environmental license was issued, but several citizen groups opposed to the outfall appealed CARDIQUE’s decision. After the appeal was rejected the objecting groups appealed to the Ministry of Environment, and this took almost 10 months to resolve. The District requested that the Bank finance the water and sanitation works for four communities in the north zone that were originally under the District’s responsibility per the Loan Agreement.

2002

The Ministry of Environment rejected the appeals and issued a resolution ratifying the environmental license issued by CARDIQUE. Design for the WMS was completed and bidding documents for four main contracts (Paraiso PS, on shore force main, treatment plant, and submarine outfall) were underway. It was reported that the WMS design took longer than expected due to the technical complexity of the systems.

2003

First loan amendment was approved to finance water and sanitation works in the north zone and complete the wastewater collection system in the southern zone of Cartagena. The District was originally responsible for both works.

2004

The bidding process for the four main contracts initiated in January, but three of the bidding processes (pumping station, treatment plant, and outfall) were voided. The pumping station and the treatment plant were rebid, resulting in successful contracts. On April 24, the Inspection Panel received a request for inspection from members of a Colombian NGO, Corporación Cartagena Honesta representing the north zone residents, which raised concerns about the impact of the Project on their culture and way of life, as well as the pollution impact on their health. The Board of Directors approved the Inspection Panel investigation, which took over a year to complete. The second bidding process for the outfall was postponed pending the completion of the IP.

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Year Comments

2005

The original project closing date was June 30, 2005. The Bank approved a two-year project extension to complete the WMS. The Inspection Panel submitted its final report in June, and management submitted its "Report and Recommendation" with a detailed action plan to the Board in July. In November, the Board accepted the proposed management action plan and instructed management to continue with project implementation while executing the proposed action plan. In addition, the project team agreed to carry out a 3D modeling study, recommended by an Inspection Panel expert, and to proceed with the project on the basis of the results. The 3D modeling was expected to last one month.

2006

Studies under the management action plan were conducted. The 3D modeling lasted 8 months and confirmed the 2D model results that a submarine outfall 2.85 km long was an adequate wastewater disposal solution for Cartagena. The outfall second bidding process initiated after implementation of the action plan and completion of the 3D modeling.

2007

The Bank approved a second two-year project extension due to delays caused by the Inspection Panel investigation, implementation of management action plan, and 3D modeling study, as well as delays caused by an unsuccessful second bidding process of the outfall that required lengthy proposal reviews and negotiations. To avoid further delays with a third bidding process, ACUACAR, with the Bank’s no objection, voided the bidding process and negotiated a direct contract with the lowest bidder.

2008

ACUACAR reported that an additional amount of US$15 million to complete the Project was needed, mainly because of the need to finance works that were originally under the District’s responsibility and to a minor extent because of the devaluation of the US dollar. This amount was available in the Project Fiduciary Account, accumulated by Colombian counterpart funds. Since the outfall works were delayed due to initial contract negotiations, the District decided to borrow counterpart funds from other sections and return the funds when needed.

2009

The Project closed in June 28, 2009 without completing the onshore pipeline and the submarine outfall. The Bank and the Borrower decided to fully disburse the Bank Loan proceeds through a loan amendment to pay for part of these two contracts before the closing date, and the District committed its own funds to bring the Project to a successful completion by the end of 2009. However, due to a severe rainy season and delays in obtaining a road right of way, the onshore pipeline was not completed, and the outfall begun with a slow contract execution, which was then affected by sea conditions that impeded its completion by the end of 2009.

2010 The onshore pipeline was completed in mid April; however, contract execution of the outfall has been slower than expected and its installation is expected to be completed in July and in full operation in September 2010.

(1) The communities include Punta Canoa, Arroyo de Piedra, Manzanillo del Mar living in the north zone of Cartagena near the proposed outfall location.

32. Strong oppositions to the project outfall from local communities in the north zone and special interest groups played a significant role during project implementation, as they contributed to a lengthy authorization of the environmental license (27 months after loan effectiveness) through several appeals and later requested an Inspection Panel investigation (taking about 20 months to complete the process). Despite the small number of people opposing the project, several were considered powerful and well connected. 33. Project preparation envisioned specific activities for the population in the north zone under the Mitigation and Community Development Program (MCDP), including the provision of WSS services and the construction of two community centers to support the District’s Urban Rehabilitation Program. During implementation, these activities fell behind schedule, delaying important benefits to the community, and perhaps contributing to project oppositions. In addition to completing these activities, ACUACAR also arranged for community members to visit existing outfalls in Chile and Uruguay and conducted activities under the Management Inspection Panel Action Plan, including a program to strengthen fishing activities (i.e. training and equipment acquisition), a plant nursery, and a public beach front with tents and sport courts, all to be to be managed cooperatively by the community to create jobs and improve the well-being of the population. Furthermore, ACUACAR employed people from the north zone for the construction and operation of the project facilities. The completion of these actions provided direct benefits to the population, and coupled with the Inspection Panel findings and the decision of the Bank’s Board to continue with the proposed WMS solution after additional technical studies confirmed

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that the outfall would not affect public health and marine ecosystems in the area, helped to dissipate doubts and create a better understanding among stakeholders that improved project acceptance. 34. One of the main issues during the Inspection Panel investigation was the selected option of a submarine outfall for disposing Cartagena’s wastewater and the outfall’s location. The inspection requested that additional technical studies be undertaken to confirm the location and design of the outfall delaying the implementation of the project significantly. Annex 10 provides an overview of the technical issues associated with Inspection Panel request, as well as a summary of other issues brought by the requesters. 35. The Project also encountered significant procurement challenges with the bidding process for the WMS which was divided into four main contracts: (i) Paraiso Pump Station; (ii) preliminary treatment plant; (iii) on-shore force main; and (iv) submarine outfall. During the first bidding process, only the on-shore force main was successfully awarded; the other three bidding processes were voided as the lowest cost proposals were significantly higher than their estimated costs. The pumping station and the treatment plant were successfully awarded after a rebidding process in where ACUACAR divided the contracts into two separate packages: civil works and equipment to attract competition from qualified national and international contractors. In the case of the submarine outfall, ACUACAR adjusted the design and specifications to replace the reinforced concrete cylindrical pipe (RCCP) pipe material to high density polyethylene (HDPE) in an effort to lower the costs. The second bidding process for the outfall was suspended pending the completion of IP. Approximately 20 months after the first bidding process took place, the rebidding of the outfall was carried out, but the results were again unsuccessful as ACUACAR was not able to reach an agreement with the lowest responsive and qualified bidder, who submitted the third lowest price, but was significantly higher than the estimated cost. The bidding process was therefore cancelled for the second time. In an effort to save time, ACUACAR was able to negotiate with the lowest bidder to adjust the offer so as make it technically responsive and received a waiver from the Bank to allow for direct contracting. 36. The project ICR was postponed six months to mid-2010 with Operations Policy and Country Services (OPCS) approval to allow for completion of the WMS. At the end of the ICR preparation, all project activities and contracts were completed except the submarine outfall. From January to March 2010, outfall construction was slower than expected due to rough sea conditions. After March, the weather conditions in Cartagena normally improved, and a Bank mission conducted in April 2010 confirmed that the work was proceeding at full speed. ACUACAR forecasts that the outfall will be completed and installed in July 2010, and commissioned in September 2010. 2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 37. M&E Design. It is important to note that the PAD was formulated in 1999, and there have subsequently been changes in the Bank’s M&E guidelines and the introduction of ISRs. 38. The PAD included three overall key performance indicators for the three parts of the PDO: (i) environmental indicators which measure sewerage coverage rate and volume of sewage treated rate; (ii) utility-based indicators which measure the operational and financial efficiency of ACUACAR; and (iii) financial indicators of the District of Cartagena. Annex 1A of the PAD provided a results framework matrix with details on these performance indicators. The framework included a total of 29 outcome indicators to measure and monitor progress toward the PDO, and five output indicators to measure component objectives. Overall, the indicators were specific in terms of quantity, quality and time, except in the case of two outcome indicators associated with the first PDO, namely: (i) evacuation of wastewater in open channels on the street; and (ii) discharge of wastewater to the Cienaga through the storm drainage system, as these both lacked specificity in terms of data measurement.

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39. One of the outcome indicators “reduction of pathogenic coliform contamination in water bodies” corresponding to the second PDO lacked explicit baseline values in the PAD and a protocol for data measurement. Although the baseline water quality information existed at the time of project preparation, this was not formally incorporated into the PAD results framework. 40. The direct relationship between the District financial indicators and the third PDO was not clear, as the PAD indicated that these indicators would only measure the District capacity to repay the loan and to provide counterpart funding and not to measure the development objective. At the output level, the results framework did not include specific indicators for the industrial wastewater discharge control and environmental and social components even though, on a smaller scale, they also contributed to the PDO. 41. Despite these shortcomings, the ICR considers that the selected outcome indicators were appropriate to measure and define the three PDOs; however, the Project could have benefited from fewer indicators in a simplified framework connecting each PDO with its corresponding indicator.

42. M&E Implementation . The Bank and ACUACAR, in close collaboration with CARDIQUE, collected baseline data and tracked indicator performance during the implementation of the project. ACUACAR submitted periodic reports to the Bank, which included project activities and calculation of performance indicators. The Bank verified, monitored, and evaluated the Project conditions reported by ACUACAR during supervision missions. Furthermore, ACUACAR and CARDIQUE are implementing a water quality monitoring program along the beaches of Cartagena, the Bay, and the Cienaga to measure the before and after effects of the Project and compliance with Colombian water quality standards. To simplify reporting of the PDO indicators, the Project Team only reported three main indicators in the Implementation Status Reports (ISR): (i) water coverage; (ii) sewerage coverage; and (iii) continuity of water supply service. Although these indicators were appropriate, they focused mostly on the first PDO (improve WSS services) and the ISR indicators do not directly address the second and third PDOs-environmental clean-up and sustainability. 43. M&E Utilization. M&E information was used to provide feedback to ACUACAR, the District, and other agencies on issues pertaining to project implementation and sector performance. The Bank team also used the M&E information to report progress and support decision-making. Furthermore, service quality indicators played a key role in enhancing ACUACAR’s internal transparency and responsiveness. 2.4 Safeguard and Fiduciary Compliance 44. Environmental Safeguards. Although the Project had significant beneficial environmental and health impacts as it provided sewage collection and treatment in the City of Cartagena, the Project was classified as a Category A due to potential negative environmental impacts during construction and operation if not properly mitigated. A comprehensive environmental assessment (EA) and environmental management plan (EMP) were developed during preparation, reviewed by an international panel of experts, and consulted with the public following Bank policies. The EMP was implemented satisfactory with close supervision from Bank staff and CARDIQUE, and it included measures to mitigate environmental impacts during construction and other activities to enhance environmental conditions in Cartagena that complemented the benefits from the wastewater works. Noteworthy are the implementation of a comprehensive program for monitoring the quality of sea water and the sea bed before and after construction of the outfall and the Cienaga de la Virgen Restoration and Conservation program resulting in the declaration of the Cienaga as a protected area. 45. Social Safeguards. The social assessment conducted during project preparation indicated that the Project would benefit the poorest communities in Cartagena and that no resettlement or other negative

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impact would result. The Mitigation and Community Development Program (MCDP) was designed and implemented to address concerns raised by low income communities in relation to displacement from tourism and residential urbanization activities once the benefits of the Project were achieved as well as nuisances from construction and perceived water quality impacts from the outfall operation. The activities under the MCDP, which are also part of the environmental and social component, focused on strengthening community organization and consolidating urban and rural neighborhoods. These activities were conducted moderately satisfactorily due to delays in getting benefits to the north zone communities and reduced support from the District after changes in the administration. During implementation, the MCDP was strengthened with training activities and equipment to optimize fishing activities in the north zone as per the outfall environmental license resolution. Moreover, a plant nursery, a beach front, and community participation activities combined with an improved communication strategy were also conducted as a result of the Inspection Panel recommendations. 47. Although resettlement activities were not expected during project preparation, the involuntary resettlement policy was triggered when 37 families informally settled on District property on the planned route of the onshore pressure pipeline, near the Paraiso pumping station, between 2000 and 2003. Consequently, CORVIVIENDA, in collaboration with ACUACAR and Bank social specialists, prepared and implemented a Resettlement Plan that included the resettlement of 24 eligible families.3 The families were resettled to the Villa Zuldany Neighborhood, located approximately 2 km from their previous residency. The compensation package included land tenure and housing with basic services for each family; transition period support; and development assistance, including workshops on hygiene and sanitary conditions in the community and job training. The Resettlement Plan followed Bank policies and received highly satisfactory marks in the ISR for the way this was handled. In a recent ex-post evaluation, the resettled families expressed high levels of satisfaction with their new housing and standard of living compared to what they had before. 48. Financial Management and Procurement. Financial management arrangements were satisfactory through project implementation. Audit and project progress reports were received by their due dates. Financial management and procurement activities were managed by experienced staff within ACUACAR in a satisfactory manner. There was no instance of misprocurement, although as noted earlier the project encountered many procurement challenges and setbacks during implementation.

2.5 Post-completion Operation/Next Phase (Including transition arrangement to post-completion operation of investments financed by present operation, Operation & Maintenance arrangements, sustaining reforms and institutional capacity, and next phase/follow-up operation, if applicable)

49. As the WSS utility in Cartagena, ACUACAR, currently provides operation and maintenance works on the facilities constructed under the Project, and will continue to provide capital investment to improve the existing water and wastewater systems. After almost 15 years in operation, ACUACAR has demonstrated that it is a strong and capable utility, achieving significant improvements in operational performance and service quality, and through the Project it consolidated sector reform and established the credibility of the mixed enterprise model in Cartagena. ACUACAR also has an adequate incentive to ensure appropriate operation and maintenance, as works implemented under the Project generated additional income and strengthen its financial position. In Section 3.2, financial indicators are presented to demonstrate the sustainability of water and sewerage services. In addition, Cartagena has capable environmental institutions in CARDIQUE and the District Environmental Department (Establecimiento

3 CORVIVIENDA is a District agency responsible for the construction, improvement, resettlement, and legalization of low-income housing in Cartagena.

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Público Ambiental, EPA) that will continue conducting water quality monitoring and implementing activities aimed at the restoration and conservation of the Cienaga de la Virgen. 50. According to the environmental license for the WMS, ACUACAR is required to submit to CARDIQUE by the end of 2010 treatment alternatives and a design to expand the existing WWTP in order to comply with Colombian effluent discharge criteria by 2015. In addition, the environmental license requires the implementation of a water quality monitoring study, which will compare water quality data in the Cartagena’s water bodies before, during construction, and after one year of operation of the wastewater management system. According to the license, the monitoring study results will provide scientific information to determine whether treatment expansion is necessary at the WWTP beyond preliminary treatment.

51. Since the wastewater outfall pipe has not yet been commissioned by the ICR due date, and the actual water quality impact of the WMS has not been confirmed, it is recommended that the Bank conducts a one-year post project assessment.

3. Assessment of Outcomes 52. The overall outcome of the project is based on a combination of the following variables: relevance, efficacy, and efficiency. Each of these three variables is given a rating of high, substantial, modest, or negligible.

3.1 Relevance of Objectives, Design and Implementation (to current country and global priorities, and Bank assistance strategy)

53. The close policy dialogue between the Government of Colombia and the Bank, stretching back some four decades, has resulted in a shared vision. The current Country Partnership Strategy, dated March 4, 2008, is derived from the 2006-2010 National Development Plan (NDP). The NDP comprises five development pillars for each of which the Government has clear goals and progress indicators. The objectives are aligned with the “Promotion of Equity” pillar and the goals of “Livable cities”, “Equity and Rural Development” and “Infrastructure for Development”. The first objective relates strongly to equity as it targets higher connection rates among the low-income population in Cartagena. The second objective directly contributes to the targets under the “Environmental Sustainability” pillar through its priority on preventing and controlling environmental degradation of the Cartagena Bay and Cienaga de la Virgen. The third objective also contributes to the “High Sustainable Growth” pillar through its emphasis on competitive contracting procedures and improved sustainability of private operators. Based on the close alignment of the PDO with the current Colombia development priorities, the Country Partnership Strategy, and specific urban development and environmental needs of Cartagena, the ICR rates the relevance of the Project as “high”.

3.2 Achievement of Project Development Objectives (Efficacy) (including brief discussion of causal linkages between outputs and outcomes, with details on outputs in Annex 2)

54. The first part of the PDO was to improve the water and sewerage services of Cartagena and the sanitary conditions of the city’s poorest population, by expanding water and sewerage coverage, particularly in the city’s poor neighborhoods. The PDO was measured by the project’s success in achieving three outcome indicators related to better water and sewerage services shown in Table 3. Table 3. Outcome Indicators to Measure Improved Water and Sewerage Services in Cartagena Outcome Indicator Baseline Value Target Actual Value at

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Completion* Water Coverage, % 80 89 99.9 Continuity of Service** , % 95 98 99.9 Sewerage Coverage, % 69 90 86 (92)*** * December 2009 values. **Percentage of users which receive water supply service 24 hours per day *** 86 percent of households connected to sewers; the sewer infrastructure is sufficient to connect 92 percent of the households. 55. Cartagena’s water coverage increased from 80 percent to 99.9 percent from 2000 to 2009, corresponding to 78,300 new water connections. The Bank-financed Project directly contributed to 13,800 new water connections, particularly in the city’s poor neighborhoods of El Pozon, Villa Estrella, southeastern zone, Plan Barrios, and north zone benefiting a population of 96,000. Furthermore, the expansion and improvement of the water production system as well as the construction of the main distribution pipeline to the north zone area contributed significantly to the other 64,500 new water connections. 56. Cartagena’s sewerage coverage increased from 69 percent to 86 percent from 2000 to 2009, adding 66,900 new sewer connections. The Cartagena Bay Expansion of Sewerage System Project financed by IADB increased the sewer coverage to 75 percent, and the Bank Project increased coverage from 75 percent to 86 percent. The new sewerage networks under the Bank Project added 57,300 sewer connections, corresponding to a population of 255,800 located in the neighborhoods of El Pozon, Villa Estrella, southeastern zone, La Boquilla and surroundings, San Jose de Los Campanos, southwest Zone, and Falda de la Popa. Although the current sewer household connection rate of 86 percent is slightly short of the target value of 90 percent, the infrastructure is in place to connect 92 percent of the households. ACUACAR has a program in place to connect low-income households and expects to reach 92 percent coverage by the end of 2010. 57. Furthermore, ACUACAR was able to improve service quality measured by the percentage of users that receive water supply service 24 hours per day (Continuity of Service), which reached 99.9 percent at project completion. The subprojects under Component A – Water Supply System Expansion, such as expansion of the water production system, replacement of primary distribution mains, installation of remote control systems, and implementation of the UFW reduction plan, directly contributed to the elimination of rationing and intermittent supplies, improvement of pressure, and operation and maintenance cost savings. 58. In addition to increasing water and sewerage coverage, the Project also helped to improve the sanitary conditions of low-income communities located in the Cienaga drainage basin and of the city in general by improving the wastewater collection and conveyance system. As a result of the sewerage improvements, ACUACAR was able to eliminate 18 discharge points located around the city and significantly decrease evacuation of wastewater in open channels on the street. Currently the sewerage system has two discharge points: (i) the Manzanillo outfall located close to the Cartagena Bay and (ii) the Paraiso force main that discharges to the Cienaga de la Virgen. With the installation of the outfall, these two discharge points will be eliminated. 59. The associated rating of the efficacy for the first PDO is considered “high” based on the results described above. 60. The second part of the PDO was to facilitate the environmental cleanup of water bodies surrounding the city (Cartagena Bay, Caribbean beaches and Ciénaga de la Virgen) by providing adequate collection, treatment and disposal of the entire flow of the city’s wastewater. The PDO was

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intended to be measured by the Project’s success in reducing the level of total coliforms along the beaches of Cartagena, the Bay and Cienaga de la Virgen to meet Colombia recreational water use standards.4

However, since the WMS is not yet in operation, existing water quality data can not accurately measure the full benefit of the Project. To evaluate the achievement of the PDO, this ICR assumes the proper functioning of the wastewater infrastructure and the forecast improvements in water quality estimated in the project feasibility study and in the outfall design models. 61. The key following key elements of the WMS have been completed at the time of the ICR: i) Paraiso pumping station, ii) the onshore pressure pipeline, and iii) the treatment plant were completed satisfactorily, and the outfall is expected to be completed satisfactorily in June 2010. When the WMS is completed, Cartagena will have the infrastructure in place to adequately manage all of its domestic wastewater, corresponding to an average flow of 1.6 m3/sec. 62. The Project’s environmental benefits can be appreciated by comparing the water quality situation before and after the wastewater management system, as depicted in the map section of this report. The “Current State of Contamination by Sewage (Without Project)” map shows the water bodies contaminated by raw sewage close to the shoreline and urban areas contaminated by sewage flowing in the streets, as well as Cienaga de la Virgen and the Cartagena Bay. The “Effect on Contamination by Sewage (With Project)” map shows the expected water quality situation after construction of the wastewater management works. This information will be confirmed by the water quality monitoring study conducted by ACUACAR, which will compare water quality data in the indicated water bodies before, during construction, and after one year of operation of the wastewater management system. The Bank will review and file the report in the Bank’s filing system. 63. Another part of the Project that significantly contributed to the environmental clean-up of important water bodies in Cartagena was the implementation of the industrial wastewater discharge control program and the Cienaga de la Virgen restoration and conservation project. The industrial program supported the regulatory functions of CARDIQUE and resulted in (i) an inventory and data base for industrial pollution in a GIS platform; (ii) a regulatory framework for industrial discharges and the design of a control program; and (iii) a monitoring system for regulating discharges and auditing industries. As a result of this program, CARDIQUE reported that 95 percent of the industries have wastewater treatment plants to comply with the new regulations. Noteworthy are the completion of an integrated land use and management plan for Cienaga de la Virgen that includes identification of the main deterioration factors and specific projects to mitigate them, and environmental education activities tailored to increase community support to preserve the Cienaga. As a result, the Cienaga was declared a protected area and CARDIQUE, in collaboration with ACUACAR and the District, began specific restoration projects. 64. The associated rating of the efficacy for the second part of the PDO is considered “substantial” as the anticipated improvements in environmental quality of water bodies are expected to occur shortly after the ICR date. 65. The third part of the PDO is to improve the sustainability of water and sewerage services in Cartagena by leveraging Bank support to shore up the PSP model pioneered by ACUACAR. The PDO was measured by the Project’s success in meeting utility-based indicators which measure the operational and financial efficiency of ACUACAR. The PAD reported 19 operational and seven financial indicators as ACUACAR’s utility-base indicators; however, for evaluating this PDO, this section of the ICR only

4 Primary contact: total coliforms not exceeding 1000 MPN per 100 ml and secondary contact: total coliforms not exceeding 5,000 MPN per 100 ml.

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discusses the most significant ones directly related to utility management best practices and financial sustainability. Annex 11 shows the results of all the 26 indicators resulting in a high degree of achievement when compared to the target values. 66. In regards to the operational indicators, Figure 1 depicts an increase in water and sewerage connections while maintaining the volume of water distributed in 1999 and an improved continuity of service. In other words, with the same amount of water ACUACAR has been able to serve more people and provide a better service, which indicates a significant improvement in water management. ACUACAR was able to do this with support of the Bank-financed Project, especially with the water and sewerage works, remote sensing, and UFW program. For instance, the UFW program resulted in a reduction of water loss from 26 to 13 m3/connection/month - below the 17 target value. In addition, water consumption decreased to about 20 percent from 2000 to 2008 due to a metering program and conservation campaigns.

Figure 1. Operational Indicators - Comparison among Connections, Continuity of Service and Water Distributed (1999-2009)

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67. In regards to the financial performance indicators, Table 4 shows that five of the seven indicators met the expected target values indicating that ACUACAR is in a sound financial situation. Debt to asset was expected to reach values close to 46 percent and the 2009 value was 66 percent. Although the actual value was higher than the target, the level of total debt to operating income was lower than one in the annual financial statements indicating a reasonable debt condition. The debt service coverage was also not met, but a value of 3.4 is considered typical when a healthy financial situation exists. 68. ACUACAR’s numerous actions brought along efficiency gains in operation, in the commercial system, and water usage. Water losses were reduced, consumption per connection decreased, customers database improved, and revenues increased. In addition, ACUACAR has met all financial obligations acquired when the District signed the IADB and the World Bank loans. Annex 3 presents a more detailed financial evaluation of ACUACAR.

Table 4. ACUACAR Financial Performance Indicators Outcome Indicator Baseline Value Target Actual Value at

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Completion Operating margin, % 15.3 12.6 21 Net profit margin, % 7.1 7.5 8.9 Return on equity, % 17.3 14.4 22 Current ratio, times 1.26 1.14 0.98 Debt service coverage, times 1.46 3.99 3.4 Debt/assets, % 68.9 45.6 65.9 Uncollectable 18 months, % 8 8 6.0

69. In addition, Cartagena was able to maintain the private sector participation model pioneered by ACUACAR over six political administrations, serving as an example for other cities in Colombia. The project had an important influence over this political stability as the Cartagena District Government had a legal obligation to preserve ACUACAR in order to access the Bank funds, as this was included in Bank Loan Agreement.5

70. The District financial indicators were not considered in the evaluation of this PDO, as the PAD indicated that these indicators would only measure the District’s capacity to repay the loan and to provide counterpart funding and not to measure the development objective. However, Annex 3 provides an evaluation of the District financial situation based on the indicators. Overall, the District complied with the financial indicators expected at appraisal. 71. The associated rating of the efficacy for the third part of the PDO is considered “high” based on the results presented above. 72. The ICR rates the composite achievement (efficacy) of the three parts of the PDO as “substantial” given the fact that efficacy is rated as “high” for the first and third of the sub-objectives while the second is rated as “substantial.”

3.3 Efficiency (Net Present Value/Economic Rate of Return, cost effectiveness, e.g., unit rate norms, least cost, and comparisons; and Financial Rate of Return)

73. An economic and financial analysis for the project was undertaken based on actual investment and operating costs, as well as actual benefits. All costs and benefits were transformed to 1999 prices to make it comparable with results obtained at appraisal. The 12 percent discount rate used during appraisal was used for this evaluation. Details of the evaluation are presented in Annex 3. The analysis was conducted for (A) water supply; (B) sewerage; and (C) the overall project. The first two components are fully implemented and the customers are getting the associated benefits. 74. The financial returns for the water component are estimated at 33 percent and 28 percent for the sewerage component, which are both significantly higher than the PAD forecasts for 18 percent and 4 percent respectively. The financial analysis is based on using the increase in revenue by ACUACAR due to service expansion, compared with the actual financial costs of the project investments. 75. The benefits for water and sewerage components are estimated based on avoided costs by project beneficiaries. For the water component, the benefits are related to the elimination of the water rationing and the expansion of water service. For sewerage component, the benefits are associated with the

5 Loan Agreement, December 10, 1999, Article V, Section 5.01 (d)

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elimination of alternative on-site sanitation solutions. The rate of return for the water component is estimated at 50 percent with net benefits of US $44 million. The rate of return for the sewerage component is estimated at 14 percent with net benefits of US $4 million. 76. Cartagena has experienced remarkable growth in tourism and property development over the last decade. An efficient and reliable water utility, such as ACUACAR, is a necessary but not sufficient condition to sustain this type of growth. Prior to the project, water rationing was common and streets were often flooded with wastewater. The remarkable service improvements provided by ACUACAR have helped contribute to economic growth in Cartagena. It is difficult to accurately quantify how much of the economic growth is due to improvements in water and sewerage service, but this may be one the biggest economic benefits of the project. In attempt to capture this benefit, the economic analysis quantified the increase in tourism and real estate values in Cartagena over the last decade, and then conducted a sensitivity analysis to examine returns on the project by changing the percentage of the tourism and real estate growth that could be imputed to the project. 77. The table below summarizes the results of the economic analysis. The overall economic return on the project, considering the costs of the WMS but without considering benefits from economic growth, is estimated at around 16.9% which is similar the PAD estimates. When only 1 percent of the growth in tourism and real estate development is taken into account the rate of return jumps to 29 percent. Although the project demonstrates an acceptable rate of return, it should be noted that the delays in project implementation partially undermined the overall efficiency of the project.

Table 5. Economic Results Comparison with PAD Economic results PAD Actual Water component 15% 50% Sewerage component 16% 14% Subtotal water and sewerage n.a 31% Wastewater management component (1% of actual benefits imputed to the component) 15% n.a Total project—Without Economic Growth Benefits 16% 16.9%

Total project---1% of Economic Growth Benefits n.a. 29%

78. An important economic aspect of the project was the cost effective approach to providing the WMS. The preliminary treatment with submarine outfall option was clearly the most cost-effective solution. A more expensive option, such as secondary treatment, would have increased costs and therefore reduced overall benefits. 79. Based on the results of the economic evaluation, the outcome for efficiency is considered “substantial” based on the reasonably good economic returns, but with a minor shortcoming due to delays in project implementation.

3.4 Justification of Overall Outcome Rating (combining relevance, achievement of PDOs, and efficiency)

80. The ICR rates the overall outcome of the Project as “satisfactory” based on a “high” rating for relevance, and “substantial” ratings for efficacy and efficiency. The minor shortcomings in the project stem from the delays in implementing the WMS, which affected efficiency and also prevented the confirmation of achievement of the 2nd PDO: environmental cleanup of water bodies. It is recommended that the Bank conduct a one-year post project evaluation to confirm the achievement of the 2nd PDO.

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3.5 Overarching Themes, Other Outcomes and Impacts (if any, where not previously covered or to amplify discussion above) (a) Poverty Impacts, Gender Aspects, and Social Development

81. The Project brought significant public health and economic benefits with increased water and sewerage coverage especially in the city’s poor and marginal areas corresponding to Strata 1 and 2 (highest level of poverty according to Colombia’s stratification system). It also improved overall living standards in the city, especially in poor neighborhoods in the southeast urban areas (around the Cienaga) and the north zone rural areas, and reduced urban pollution citywide. Higher connection rates in poor neighborhoods do not only imply greater convenience and access to safe water, but also enables the connected households to access the subsidies as a proportion of the tariff bill, ranging from 70 percent (tariff Strata 1) and 40 percent (tariff Strata 2). By connecting to the public network, low-income households will not only reduce their expenditure per cubic meter consumed but they will also likely reduce their absolute household expenditure for water. For example, low-income households in the sub-project “El Pozon” purchase water from water-tankers at a cost of US$3 per cubic meter ($/m3) and are currently paying about US$0.40/m3 for Strata 1 and US$0.45/m3 for Strata 2. 82. ACUACAR’s attention to social issues significantly increased during the course of the project through the implementation of the MCDP, which supported social development in poor communities by installing in-house connections and basic sanitary facilities; constructing and furnishing community centers to promote community organization and development; and supporting fishing and tourism activities in the north zone. 83. Furthermore, the Project has enhanced the socio-economic development of the region by reducing environmental pollution and public health risks providing great benefits to the tourism and real estate industries in Cartagena. (b) Institutional Change/Strengthening (particularly with reference to impacts on longer-term capacity and institutional development)

84. Particular efforts were made under the Environmental Institutional Management Program to strengthen the technical and operational capacities of CARDIQUE and the Establecimiento Publico Ambiental (EPA) to ensure institutional capacity to implement the environmental management program. Professionals from these two agencies received training workshops, study tours, and specialization courses in topics such as wetland restoration, pollution control, water quality monitoring, and environmental audits. In addition, the Project supported CARDIQUE with hardware and software to establish a GIS platform to control industrial discharges and land use in the Cienaga. 85. Indirectly, the Project also allowed ACUACAR to improve its operational and financial efficiency by allowing the company to consolidate the sector reform and establish the credibility of the mixed enterprise model adopted in Cartagena. For instance, a 2009 customer satisfaction survey reported that 92 percent of the customers were either highly satisfied or satisfied with the service and only 2 percent indicated some degree of dissatisfaction. Also noteworthy is the strengthening of the PSP mixed capital model against political interference, as the Project continued despite six changes in the District administrations. (c) Other Unintended Outcomes and Impacts (positive or negative)

86. ACUACAR has transformed Cartagena’s municipal utility into a modern, efficient, and commercially sound operation that was able to expand coverage to Cartagena’s lowest income

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populations. In a larger sense, by strengthening ACUACAR and the reform process, the Project also benefited the WSS sector in Colombia as a whole, as ACUACAR has served as a model for the transformation of the water sector nationwide. First with the Bank-financed Water Sector Reform Assistance Project that facilitated the incorporation of PSP into the management and operation of water utilities in small and medium size municipalities in the Caribbean Coast, and later with a number of policy actions to enable this framework and sustain reform at a national level.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (optional for Core ICR, required for ILI, details in annexes)

4. Assessment of Risk to Development Outcome Rating: Moderate 87. Technical Sustainability. This refers to the risk that the investments will not be sustainable because the technical choice was inappropriate or because the systems are not properly maintained. This risk is rated “moderate” since the water and sewerage works and wastewater management system are proven technologies and careful attention was given to the design and construction of the wastewater management system, especially the submarine outfall. In addition, as a result of the Inspection Panel investigation, additional studies and minor design changes were conducted to reduce risks in the outfall operation. To ensure sustainability, during the selection of technologies, ACUACAR paid special attention to adopt a low-cost efficient wastewater solution that took into consideration the environmental and financial conditions of Cartagena. ACUACAR is responsible for the operation and maintenance of the facilities, ensuring high performance and efficiency as demonstrated in Section 3 of this ICR. ACUACAR has 11 more years under its contract and it is there long-term interest of the private operators to honor its signed commitments. 88. Financial Viability. This refers to the risk that ACUACAR will not be able to generate and obtain the financial resources to operate and maintain the facilities constructed under this Project and build new ones to continue providing high quality service. The risk is rated “low” and is mitigated by the proven tariff regulation that subsidizes low-income households. The risk is also mitigated by Law 715 that stipulates revenue sharing to all municipalities of central government revenue. The financial indicators in Section 3 also demonstrate that this risk is low. 89. Government Commitment. This refers to the risk that the District will not support the institutional PSP model and that political objection will arise. This risk is rated “moderate” due to ACUACAR’s success in providing high quality water and sewerage services to Cartagena and high approval ratings from customer satisfaction surveys, making it difficult for future administrations to withdraw their support to the institutional model. Rating: The ICR rates the composite Risk to Development Outcome as “moderate”.

5. Assessment of Bank and Borrower Performance (relating to design, implementation and outcome issues)

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry (i.e., performance through lending phase) Rating: Moderately Satisfactory

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90. The Bank’s performance in the identification, preparation and appraisal of the Project is considered moderately satisfactory. The Project was consistent with the government’s development priorities and the Bank’s CAS. In addition, the Bank covered in-depth engineering, institutional, tariff, and demand-side issues when designing the Project. The Bank took into account the adequacy of project design and all major relevant aspects, such as technical, financial, economic, environmental, social, institutional and fiduciary aspects. Lessons learned from earlier projects in Colombia were considered and incorporated into the project design. 91. In addition, the Bank’s participation provided a poverty focus and ensured that ACUACAR’s efficiency gains benefited the poor. Bank-financed investments in water supply and especially in sewerage infrastructure in the impoverished sub-basins that drain to the Ciénaga had a direct impact on improving the quality of life of the poor. 92. Although project design mitigated high level threats, such as political interference, a stronger social emphasis with specific actions during preparation, such as more inclusive and extensive consultations with the affected communities and stakeholder analysis, could have reduced project opposition during implementation. In addition, the risks from a lengthy authorization of an environmental license and opposition from stakeholders to the selected wastewater management solution were not envisioned during appraisal, and when these events occurred they caused significant delays in project implementation. Furthermore, the Project could have benefitted from a more explicit M&E results framework design with less outcome indicators covering all three parts of the PDO. (b) Quality of Supervision (including of fiduciary and safeguards policies) Rating: Satisfactory 93. The Bank’s performance during project implementation was satisfactory. Sufficient budget and staff resources were allocated and the project was adequately supervised. A single task manager oversaw the entire operation from project preparation to closing. This ensured continuity of dialogue and uninterrupted supervision. The task team also maintained continuous monitoring of the project and a higher level policy dialogue with national authorities (Minhacienda, MAVDT, and DNP). 94. Aides memoire were regularly prepared and the performance of the project both in terms of achievement of development objectives and implementation were realistically rated in the ISRs. The review of procurement of goods and works was in accordance with the provisions stipulated in the Loan Agreement and the Bank’s Procurement Guidelines. Likewise, the selection of consultants was reviewed by the Bank in accordance with the provisions stipulated in the Loan Agreement and the Bank’s Guidelines for the Selection and Employment of Consultants. 95. Noteworthy issues are also the Bank team’s management of the Inspection Panel investigation and the preparation of the action plan that was later approved by the Bank’s Board and executed successfully by the task team. (c) Justification of Rating for Overall Bank Performance Rating: Satisfactory 96. Based on Bank performance during the lending phase as well as supervision, overall Bank Performance is rated Satisfactory.

5.2 Borrower Performance (a) Government Performance

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Rating: Satisfactory

97. During project preparation, the Borrower demonstrated strong commitment and ownership by actively participating in the project design. Nevertheless, the Borrower commitment ebbed and flowed during implementation due to successive changes in administration. Specific examples include not financing the north zone water and sewerage project as indicated in the Loan Agreement and decreased support on the urban rehabilitation and community development programs, two important social activities to mitigate the objection of the outfall construction. The local government performance is considered moderately satisfactory. 98. Although sometimes the local government interest on the project fluctuated, the national government, in particular the Department of National Planning and the Ministry of Finance remained strongly committed to the Project. This was especially important to ensure that the District honored its agreement during the last loan amendment to complete the works with counterpart funding. The national government performance is considered satisfactory.

(b) Implementing Agency or Agencies Performance Rating: Highly Satisfactory 99. ACUACAR demonstrated commitment to fulfilling the PDO and provided adequate internal staff and resources to ensure success despite the numerous challenges experienced during implementation. It complied with all Bank loan covenants, progress reports and discharged its fiduciary duties in a satisfactory manner. In addition, ACUACAR provided technical input and support for the Bank team during the Inspection Panel process and provided additional financial and human resources to implement the Management Action Plan. As indicated in Section 2.2, the Project suffered significant delays due to major factors that were outside the control the implementing agency; however, mainly due to ACUACAR commitment, strong capacity, and determination the Project has been executed successfully. (c) Justification of Rating for Overall Borrower Performance Rating: Satisfactory 100. Based on the discussion below, the overall Borrower Performance is rated Satisfactory.

6. Lessons Learned (both project-specific and of wide general application) 101. Long Term Bank Involvement in the Water Sector Can Nurture Institutional Reforms: The Bank strategy to continue supporting ACUACAR through the project was instrumental to consolidate the sector reform initiated in Cartagena under a previous Bank operation, and to establish the needed credibility of the mixed enterprise model. ACUACAR’s notable improvements in the quality and access of water and sewerage provision coupled with providing wastewater treatment and adequate disposal have significantly increased the well being of the population. Therefore, consumer confidence was quickly restored, the benefits of competent management were acknowledged, and local authorities became convinced that the system was working to their own advantage without major conflict between private and public interests. Furthermore, ACUACAR’s positive experience has served as a model for the transformation of the water sector at a national level. The Bank should take a long-term view of the evolution of the water sector and provide not only infrastructure financing but also promote and protect necessary institutional reforms. 102. Wastewater Management Requires Quality Planning and Design: Providing wastewater collection, treatment and disposal to a large urban city in a developing country is a complex and

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challenging endeavor requiring careful design and technical expertise to provide an adequate wastewater management system using a strategy of minimum cost that considers financial and economic limitations, but is also protective of the environment. During project preparation, in depth engineering studies and several technical consultations were carried out with international specialists through a panel of experts to select and design the most appropriate system for the specific conditions in Cartagena. The careful attention to technical considerations during project preparation was instrumental when defending the Project during the environmental license process and the investigation panel investigation. It is therefore important to make the necessary up-front investments in planning and design for large wastewater projects and to include a panel of experts for complex wastewater management projects. 103. Wastewater Management is a Complex Political and Social Process That Requires Time: Even through the project was well-prepared technically, implementation took over a decade due to complications in obtaining the environmental license, local opposition to the outfall solution, and the Inspection Panel case (as well as procurement delays). In retrospect, these delays are not surprising, and local opposition to almost any wastewater treatment and disposal option is almost inevitable—particularly an ocean outfall in a coastal city dependent one tourism. The typical Bank standard of five year projects may be too optimistic for large wastewater projects. The average life of Category A WSS project in the LAC region is estimated at 8.4 years, and projects with significant wastewater treatment and disposal components probably take longer.6 Large wastewater projects should not underestimate the risk of delays and set realistic project durations.

104. Social Assessment and Consultation are Keys to Successful Projects: Complex projects should include inclusive and extensive consultations with stakeholders to explain objectives, design, approach and benefits. A stakeholder and political analysis during project preparation should help to identify project champions and those in opposition, understand personal interests, and anticipate probable reactions, thus assisting in consultation and communication strategies and implementation of a social plan. In addition, a comprehensive communication strategy, to create a better understanding of the project and dissipate erroneous information, and promised activities that benefit the affected population should be conducted at an early stage during project implementation.

105. Private Sector Participation in the Water Sector Can be Pro-Poor: The mixed-enterprise ACUACAR model has proved to have a dramatic impact on the lives of the poor in Cartagena. The almost universal coverage in the Cartagena, means that not only the affluent sections of the city but also the poor neighborhoods are receiving good service. The resources for expanding coverage in poor areas were generated mainly from efficiency improvements and subsidies, with only minor increases in tariffs.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies

106. Refer to Annex 7 (b) Cofinanciers—Not Applicable

(c) Other partners and stakeholders (e.g. NGOs/private sector/civil society) N/A

6 LCSDE Website, Frequently asked questions, procedures for closing.

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Annex 1. Project Costs and Financing

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

Components Appraisal Estimate (USD millions)

Actual/Latest Estimate (USD

millions)

Percentage of Appraisal

EXPANSION OF WATER SUPPLY SYSTEM

8.62 13.69 159%

EXPANSION OF CIENAGA SEWERAGE SYSTEM

30.16 33.87 112%

CONSTRUCTION MAIN WASTEWATER CONVEYANCE SYSTEM

22.81 29.86 131%

CONSTRUCTION OF WASTEWATER TREATMENT INSTALLATIONS

5.61 15.36 274%

CONSTRUCTION OF SUBMARINE OUTFALL

18.11 17.61 97%

INDUSTRIAL WASTES DISCHARGE CONTROL

0.5 0.23 46%

ENVIRONMENTAL AND SOCIAL COMPONENT

2.75 2.39 87%

PROJECT MANAGEMENT, TA, DESIGN AND SUPERVISION

7.6 13.84 182%

Total Baseline Cost 96.16 126.86 132% Physical Contingencies 9.31 0 -- Price Contingencies 10.85 0 --

Total Project Costs 116.32 126.86 109% Front-end fee PPF 0 0 -- Front-end fee IBRD 0.85 0.85 100%

Total Financing Required 117.17 127.71 109%

(b) Financing

Source of Funds Type of Cofinancing

Appraisal Estimate

(USD millions)

Actual/Latest Estimate

(USD millions)

Percentage of Appraisal

Borrower (The District of Cartagena) 7.6 18.15 239 ACUACAR (The Water Company of Cartagena

4.6 4.6 100

Government of Colombia 20 20 100 International Bank for Reconstruction and Development

85 85 100

Total Financing Required 117.2 127.75 109

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Annex 2. Outputs by Component Component A – Expansion of the water supply system: This component is 100 percent completed and in operation, and it included the following works: (i) Expansion and improvement of the water production system:

• Solution to crossing of creeks by the artificial channel Juan Gómez-Dolores: installation of overflow weirs and two steel gates;

• construction of a parallel pipeline Dolores-Piedrecitas-Albornoz to increase reliability in the system;

• construction of a Power Line of 13.8 Kv of 2.2 km for the Albornoz pump station; • expansion of the Albornoz Reservoir; and • construction of the drinking water supply system for the northern area of Cartagena to extend

coverage to Tierra Baja, Puerto Rey, Manzanillo del Mar, and Punta Canoa. (ii) Increase of the water coverage in the city:

• Water networks in the city benefiting a broad sector of the city that included barrios El Pozón, La María, San Francisco, Escallón Villa, Calamares, La Conquista, La Esperanza, Boston, Puerta de Hierro and Navas Meisel

(iii) Replacement of primary distribution main: • Colina Tank Drive. • Construction of the extension of Aqueduct network of diagonal 31E

(iv) Mitigation of environmental impact of water treatment sludge: • Construction of sludge treatment plant

(v) Remote control systems: • Installation of remote control systems in the raw water conduction system, water distribution

networks, and El Bosque drinking water treatment plant; • modernization of the control center system; and • installation of a remote control system in the wastewater pumping stations

(vi) Unaccounted For Water (UFW) reduction plan though sectorization and optimization of the distribution networks. Component B - Expansion of sewerage system in the Ciénaga Basin: This component is 100 percent completed and in operation, and it included the following works: (i) Enhancement of conveyance capacity of existing sewage collectors in the southwest, southeast, and central parts of the city that currently drain to the Ciénaga:

• Collector Paseo Bolívar-Cabrero-Marbella, Collector Crespo-El Oro, Collector Predro Romero Maria Auxiliadora, Collectors Blas de Lezo Izquierdo y Derecho, San Fernando-Medellin-Los Ciruelos, Collector Ternera-Recreo-El Edén;

(ii) Expansion of secondary sewerage network in the southwest, southeast, and central parts of the city, as well as the Boquilla area, that drained to the Cienaga:

• Barrios de El Pozón, Villa Estrella, San José de los Campanos, Olaya Herrera, La Candelaria, La Esperanza. Rafael Núñez, Líbano, Ricaurte, Tabú, El Progreso, María Cano, El Educador, La Sierrita, Simón Bolívar, Villa Fanny, San Fernando, and La Boquilla zone;

(iii) Construction of new pressure lines and pumping stations; • Pump Station El Oro Drive and Pump Station Blas de Lezo Drive. • Construction of pressure lines (i) El Bosque-Amberes, (ii) Ceballos-Buenos Aires Drive, (iii)

María Auxiliadora-Tabú , (iv) Tabú-Ricaurte Drive.

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• Rehabilitation of Tabú and María Auxiliadora pumping stations. (v) Construction of new gravity collectors in residential areas:

• (Collector Amberes-Ricaurte and Collector Buenos Aires-Blas de Lezo. Component C - Construction of the main wastewater conveyance system: This component is 100 percent completed and included the following works: (i) Upgrading of the Paraíso pumping station; (ii) construction of the force main from Paraíso pumping station to the treatment plant site - 19.3 km

of pipe in polyester fiber-reinforced glass, with inner diameter of 1800 mm; and (iii) Construction of the effluent pipeline from the treatment plant to the submarine outfall at the

Caribbean shoreline: Component D - Construction of the Wastewater Treatment Installations: it is 100 percent completed, but is not in operation. The Plant is scheduled to be in operation in September 2010 after the construction of the submarine outfall.

• When in operation, the preliminary treatment plant will remove floatable materials, grease, oil, sand, and grit. Treatment facilities include six rotary screens (1.5 mm clearance) followed by two vortex-type grit chambers. The rotary screens will remove rags, floatable material, and large solids. The expected volume of screenings generated by the rotary screens is about 8.5 m3/d. In addition, the vortex-type grit chambers will remove about 5.1 m3/d of sand and grit. The average flow into the treatment is 1.6 m3/s and will increase up to 4 m3/s.

Component E - Construction of Submarine Outfall: This component is 70 percent completed. ACUACAR forecasts that the outfall will be completed and installed in July 2010, and commissioned in September 2010.

• This component consists of construction of the submarine outfall for the safe discharge of the pre-treated effluent to the Caribbean Sea near Punta Canoas. The main conveyance system will connect the treatment plant with the submarine outfall. The outfall would be constructed using a 72" HDPE pipe. Total outfall length would be 2,850 m and the discharge point (diffuser area) will be submerged at a depth of 20 m. The diffuser will have a length of 540 m, with a riser spacing of 20 m, i.e., a total of 27 risers. Each riser will be made of a 12” diameter pipe, 2 m long. The upper end of each riser pipe will be sealed by a welded plate, and it will have 2 openings close to the plate, each of 8” diameter, i.e., the total number of discharge ports will be 54. In the surf zone between the shoreline and the 3 m-depth contour, outfall pipes will probably be laid using a trestle built over the water. At greater depths, a barge-mounted crane would probably be used for construction.

Component F - Industrial Wastewater Discharge Control: This component addressed the issues related to industrial wastes discharged to the municipal sewerage network. It is 100 percent completed, and it included the following activities: (i) Carrying out a survey to identify key sources of industrial pollution in the city of Cartagena.(ii) Establishing a system for regulating the discharge of industrial wastes, either to the sewerage system or to receiving bodies; (iii) Establishing a system for auditing the status of industrial wastes discharge; (iv) Defining strategies to control small and dispersed sources of industrial pollution discharging to the sewerage networks (gasoline stations and mechanical repair shops); and (v) Providing technical assistance in selection and design of pretreatment processes.

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To date, approximately 27 monitoring campaigns have been conducted and 87 points in sewage pumping stations and inspection cameras have been sampled. Through this Project, 383 samples and 4,521 analysis, covering a total of 20 parameter (heavy metals, total hydrocarbons, BOD, COD, TKN, DO, total phosphorus, fats, OSH, temperature, pH, conductivity) have been performed. All the information gathered has been stored in a Geographic Information System. Component G - Environmental and Social Component: This component implemented mitigation measures of the environmental and social impacts of the project. It is 100% completed: The environmental management program included: (i) environmental supervision during construction (on-going with the construction of the submarine

outfall); (ii) (restoration and conservation of the Ciénaga de la Virgen nature reserve; (iii) carrying out a monitoring program before and after construction of the marine outfall to study the

fate of coliforms and other contaminants discharged through the outfall (on-going); and (iv) environmental institutional strengthening program.

The social management program included: (i) organization and strengthening of the community; (ii) construction rehabilitation and equipping of community centers; (iii) support to in-house basic sanitation in La Boquilla; and (iv) strengthening of the Community Relations Unit of ACUACAR. Component H - Project Management, Technical Assistance, Studies, design and Supervision: This component supported and partially financed the following activities: (i) project management; (ii) design and supervision of the water supply systems works; (iii) design and supervision of the sewerage systems works; (iv) design of the main wastewater conveyance system, treatment installations and submarine outfall; (v) supervision of the main conveyance system works; (vi) supervision of the treatment installation and submarine outfall works; and (vi) procurement audits.

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Annex 3. Economic and Financial Analysis (including assumptions in the analysis) This annex presents three analyses: (i) economic and financial evaluation of the project; (ii) financial evaluation of ACUACAR; and (iii) financial evaluation of the District of Cartagena. The main results of this annex are summarized below:

• Cost benefit Analysis. The water and sewerage components had benefits higher than expected at appraisal with 29 percent financial return and 31prcent economic return. The wastewater management component cost is not in operation yet; however when its costs are included without any associated benefit, the economic returns for the whole project are USD 19 million and rate of return of 16.9 percent . The project has additional benefits related with the economic growth that Cartagena has seen in the last years, caused by various infrastructure project implemented by the National Government and the District. If one percent of these benefits were imputed to the project, the profits increase to USD 63 million and the rate of return 29 percent .

• Financial Analysis of ACUACAR. Overall ACUACAR financial performance surpassed targets and showed a healthy financial situation; and

• Financial Analysis of the District. Overall the District complied with all financial indicators

expected at appraisal. A. Economic and Financial Analysis of the Project

1. Project components. For the purpose of this evaluation, the project is divided into three main components: (A) water supply system; (B) sewerage system; and (C) wastewater management system. The first two are fully implemented and the customers are getting the associated benefits; however, Component C, which includes main collectors, wastewater treatment plant, and submarine outfall (Components C, D, and E in the PAD) is partially implemented pending the installation of the submarine outfall and is not in operation yet.

2. The economic and financial analysis for each component was based on actual investment and operating costs, as well as actual benefits. All costs and benefits were transformed to 1999 prices to make it comparable with results obtained at appraisal. The 12 percent discount rate used during appraisal was used for this evaluation.

3. Cost benefit analysis results for the water and sewerage components show financial returns of USD 11 million and 29 percent internal rate of return (IRR) and economic results with net benefits of US$ 48 million and 31percent IRR. The economic benefits obtained with the water and sewerage components compensate for the investment and operating costs of the wastewater components resulting in a total project net benefit of USD 19 million and a 16.9 percent IRR when no benefits from the economic growth of Cartagena are included in the equation.

4. The Project has contributed to the economic growth that Cartagena has achieved in last decade,

especially in the tourism and real estate sectors, by improving water supply reliability and eliminating overflows on the street and discharges in the city water courses and shorelines. Although information was not available to quantify how much of the economic growth was caused by the Project, the economic analysis indicates that if only one percent of the estimated benefits derived from tourism and real estate sectors, is imputed to the Project the returns will increase to 29 percent and profits to USD 63 million.

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5. Costs. The real investment cost is presented in the following table INVESTMENT SUMMARY (USD million) ACTUAL Component A. Expansion of the Water Supply System

Increase of water system capacity 4.72 Secondary network El Pozon 1.61 Secondary network Plan Barrios 0.23 Secondary network Zona Suroriental 0.28 Secondary network Northern Zone 5.03

Total component A 11.88 Component B. Expansion of the Sewer System in the Cienaga Basin

Enhancement of conveyance capacity of existing collectors 6.59 Secondary sewerage networks 11.93 Pumping stations and pressure lines 10.62 New gravity collectors 2.92 Total component B 32.06

Component C. Construction of the main conveyance system of the WWTP Upgrading the Paraiso pumping station 13.43 Construction of the effluent pipeline from the WWTP to submarine outfall 14.62 Total component C 28.05

Component D. WWTP 13.55 Component E. Submarine Outfall 15.80 Component F. Industrial Wastewater Discharge Control 0.23 Component G. Environmental and Social Component 2.39 Others

Designs & UPI 13.84 Land acquisition 2.98 Taxes and import duties 1.88 Commissions and others 4.20 Subtotal designs, UPI and others 22.90

TOTAL 126.86

6. Subsidy. The financial evaluation includes the subsidy on investment costs granted by the National Government and the District of Cartagena to ACUACAR. The participation on investment financing was as follows: National Government (16%); District of Cartagena (68%), and ACUACAR (16%). The participation from National Government and the District, 84%, is considered as a subsidy.

National District of

PROJECT FINANCING (million US$) TOTAL Government Cartagena

ACUACAR

ACTUAL IBRD Loan 85.0 - 69.6 15.4 Counterpart Funds 41.9 20.0 17.3 4.6 Total Project 126.9 20.0 86.9 20.0 Percentage of Total, % 100% 16% 68% 16%

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7. The operating costs included for this evaluation corresponded to the actual ones ACUACAR is incurring for operation. Regarding the operating costs of the wastewater treatment plant and submarine outfall, the annual operating cost corresponded to the estimated value in the Environmental Assessment Study of USD 0.8 million (including the operation of pumping stations, wastewater treatment plant and some needed replacement)7.

8. For the economic evaluation, the flow of financial costs was transformed to economic costs using conversion factors to eliminate market distortions. The same conversion factors used for the appraisal were applied to this evaluation.

9. Benefits. The benefits for water and sewerage components were estimated based on the actual avoided

costs that the population had with the implementation of the project. Additional project benefits were estimated as a portion of the economic growth that District of Cartagena experienced. These benefits were estimated as follows:

10. Financial Benefits for water component. As it was expected at appraisal, the project eliminated the rationing and intermittence of water supply, which by then affected about 21 percent of the population. The quality of services got better due to improvement of pressure, and a better water usage. The results show reduction of water losses; decrease of water demand due to incentive for better water usage; increase on coverage, reduction of required production per connection; and continuity of water supply 24/7.

11. The financial benefits were estimated through the increase of revenues and the reduction of operating

costs. Increase in revenues was estimated based on the bills paid by customers. For some of the beneficiaries, the bills increased when rationing was eliminated and consumption was higher; for others, the bills decreased when water efficiency measures induced reduction on consumption; and those who previously did not have service started paying for their bills. Reduction of operating cost occurred due to reduction of water losses, reduction of water produced per connection, and efficiency gains on operating the system.

12. Financial benefits for the sewerage component. As in the water component the financial benefits for

the sewerage component were estimated as the increase of revenues when service was expanded. Given that the beneficiaries belonged mostly to lower income levels, so were the tariffs applied for the evaluation.

13. Sewerage beneficiaries. Sewerage extension has been possible with the implementation of two

projects: IADB and the World Bank project. With the IADB the coverage increased from 65 percent to 75 percent and with the World Bank project the coverage increased from 75 percent to 86 percent. The final capacity of the sewerage system is 92 percent. The evaluation considered 255,760 beneficiaries, which correspond to about 48, 000 connections that are effectively connected to the sewer network and are already in the commercial database in 2008.

14. Financial Results. Results show that all the projects were financially profitable except in the northern

zone, as the investment cost per connection was higher than the benefits obtained. The present value of net benefits for the water and sewerage components are USD 3.4 million and USD 7.6 million, respectively; for a total of USD 11 million. The internal rates of return are 33 percent in water and 27.7 percent in sewerage, and 29 percent for both

7 Fundacion Neotropicos-ACUACAR. Estudio de Impacto Ambiental Emisario Submarino de Cartagena de Indias. Marzo de 1999.

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Net present value of Cash flows (000 US$)

Results of the Financial Evaluation

Costs Benefits Net

benefit IRR Component A. Expansion of the Water Supply System

Increase of water system capacity 6,829 9,579 2,750 33.5% Secondary network El Pozon 3,124 3,744 620 45.1% Secondary network Plan Barrios 272 414 141 47.4% Secondary network Zona Suroriental 299 520 221 67.4% Secondary network Nothern Zone 1,084 791 (293) n.a

Total component A 11,608 15,048 3,440 32.7% Component B. Expansion Sewer System Cienaga Basin

Total component B 8,566 16,152 7,587 27.7% Components A plus B 19,795 31,200 11,027 29.0%

The benefits were higher than expected at appraisal, when 18 percent was expected in the water component and only 4 percent in the sewerage component.

RESULTS OF FINANCIAL EVALUATION PAD ACTUAL Financial results

Water component 18% 33% Sewerage component 4% 28% Subtotal water and sewerage 29%

15. Economic Benefits of the water component. At appraisal the economic benefits of the water component were measured through the incremental revenues obtained when consumption increased due to rationing reduction. For this evaluation, the benefits were estimated through the avoided costs obtained when intermittent water supply was reduced or eliminated. For this calculation, information about the way population dealt with rationing or absence of water connection was collected, as well as their associated cost of these solutions.

a. The first solution found in the project area, before project was implemented, consisted of installing and operating a storage tank in the dwellings. The cost of the reservoir is about of US$ 0.42/m3 8, plus the cost of each cubic meter provided by ACUACAR, US$ 0.48/m3 for residential customers in average. The resulting rationing cost for this solution is US$ 0.90/m3. When the project was implemented the costs incurred by beneficiaries were only the tariffs to be paid to ACUACAR, and so the avoided cost consisted on the difference between both situations.

b. The second solution found consisted on buying the water to water-trucks and storing it in several containers of 200 liters capacity each. The cost of this solution was estimated as

8The cost of installing and operating these reservoirs is estimated as follows: (i) investment US$160 with 5-year lifetime, and

(ii) operating costs equivalent to 5% of investment cost. This results in a cost of US$ 0.42/m3 for a consumption of 10 m3 per month

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US$ 2.05/ m3 9. When the project was implemented the costs incurred by beneficiaries were only the tariffs to be paid to ACUACAR, and so the avoided cost consisted on the difference between both situations.

16. Economic Benefits of the Sewerage Component. At appraisal the economic benefit of this component

was estimated as the willingness to pay for the service. For this evaluation the actual avoided costs when having sewerage connection were estimated.

17. Expansion of sewerage coverage. Households without sewerage service had on-site solutions, which varied from septic tanks, pit tank, latrines or nothing at all. For septic tanks the benefit was estimated at US$13.9/hh/month10. For pits, the benefit was estimated as US$11.3/hh/month11. For other solutions the benefit was estimated as US$ 3.8/hh/month. The benefit was partially offset with the cost that some of the households had to incur for adjusting the in-house connection and sanitary equipment to make possible the access to the service. The cost of in-house connection was estimated at US$250.

18. Economic Results of Water and Sewerage Components. The results show net benefits of US$ 44

million for the water component and US$ 4 million for the sewerage component; the associated internal rates of return are 50 percent and 14 percent, respectively. The results of both components indicate a net benefit of US$ 48 million and an IRR of 31percent.

19. If the investment of the wastewater component is added without including any associated benefit, the

returns are still positive with US$ 19 million net benefits and a 16.9 percent IRR.

Net present value of Cash flows (000 US$)Results of the Economic Evaluation

Costs Benefits Net benefit IRR Component A. Expansion Water Supply System

Increase of water system capacity 8,850 46,063 37,213 113.4%

9 The cost of buying and cleaning the water containers is estimated as follows: (i) investment US$20 with a 2-year lifetime, and (ii) cleaning costs of about US$ 10 per month. Plus the tariff charged by the water trucks.

10 The estimation was based on the following costs: (i) an investment cost of a typical septic tank of US$355 with a lifetime of 15 years; (ii) maintenance and repair cost of US$120/year, incurred once every three years; and (iii) cleaning cost of US$ 75 per year. The total cost per year is US$ 13.9/household per month.

11 The estimation was based on the following costs: (i) an investment cost of a typical septic tank of US$290 with a lifetime of 15 years; (ii) maintenance and repair cost of US$120/year, incurred once every three years; and (iii) cleaning cost of US$ 53 per year. The total cost per year is US$ 11.3/household per month.

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Secondary network El Pozon 3,940 10,159 6,220 50.4% Secondary network Plan Barrios 400 1,164 763 39.7% Secondary network Zona Suroriental 454 1,674 1,220 52.5% Secondary network Nothern Zone 2,838 1,738 (1,099) n.a

Total component A 16,482 60,798 44,316 50.4% Component B. Expansion Sewer System Cienaga

Basin Total component B 23,149 27,768 4,262 14.4%

Components A plus B 39,631 88,566 48,578 30.9% Components C to G: Construction main conveyance, WWTP, Submarine outfall 29,155 - (29,155) n.a

Total project 68,786 88,566 19,423 16.9%

20. The returns for the water component are higher than expected at appraisal, when 15 percent return was expected, while actual returns are 50 percent. For the sewerage component the returns are similar: 16 percent at appraisal, and 14 percent real values. The higher returns obtained in the water component compensate for the costs of wastewater management component, allowing a 17 percent return for the whole project, even without considering any benefit for this component. The returns are higher than expected at appraisal.

RESULTS OF ECONOMIC EVALUATION PAD ACTUAL Economic results

Water component 15% 50% Sewerage component 16% 14% Subtotal water and sewerage n.a 31% Wastewater management 15% n.a Total Project 16% 17%

21. Additional Benefits obtained with the Project. Even though the wastewater management component is not in operation yet, and so the benefits that come along with the whole project are not fully obtained, the partial implementation of the project has already contributed with, the economic growth observed in the District of Cartagena in the last years. The benefits for the whole city are due mainly to the improvement of water reliability and elimination of sewage overflows previously seen along the city streets. Project’s works along with many other actions and infrastructure projects that the District of Cartagena and the National Government have carried out, have contributed to the growth and development that Cartagena has had in the last seven years, which has boosted the construction activity, increased property values, and increased tourism dynamics.

22. During appraisal, the benefits of the wastewater management component were quantified as the

willingness to pay for wastewater treatment. For this evaluation, it was not possible to measure the benefits of this component since it is not in operation yet. Moreover, it was not possible to isolate the actual impact on the economic growth of Cartagena imputed to the works implemented so far with the project. The following steps were taken to calculate additional benefits to be used for this evaluation: (i) a quick estimation of total increase on the property value in the whole District and of the economic impact of tourism growth in Cartagena; and (ii) a sensitivity analysis to find returns on the project by changing the percentage of the economic growth imputed to the project.

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23. Benefits of the boom of construction and real estate market. The construction of new buildings and new houses has gone up significantly since 2000. According to ACUACAR the number of residential dwellings in Cartagena has increased 33 percent since 2000, at a rate four times higher than the population growth. Additionally, there have been important changes in the real estate market, not only in the historic part of the city, but also in the areas along the beach, as well as in the poor neighborhoods. The city’s improvement increased the demand for new vacation homes, new buildings, and new investments.

24. According to a group of real estate agents, the property’s value in Cartagena had a fourfold increase

in the last five years. In 2003, the average price per square foot was USD 54.70 and went up to about USD 200 in 200812. The price differs among areas from USD 570 per square foot in the historic center to USD 96 in Crespo. There are some concerns, however, regarding a possible real state bubble and if so, the price will come down at some point. Several investors and real estate agents say that the prices can fell down as much as 50 percent. This evaluation was carried out on a conservative side and included this possible decrease in price; therefore, the estimation was made considering the increase from USD 54/sq ft to USD 100/sq ft, i.e., a 100 percent increase. This raise is similar to the increase of property tax billed by the District in Cartagena during the same years (117%). The resulting present value of the incremental benefit originated on properties value increase is about USD 2.6 billion13.

25. Increase in tourism. The tourism sector experienced important improvements as well. According to COTELCO, the Colombian tourism industry association, during the last four years, the number of tourists arriving by air increased about 30 percent , and tourists arriving on cruises increased fivefold. The tourism impact on the overall economy was measured through the revenue obtained by the hotel industry in Cartagena as well as all the indirect impacts that come from other sectors, such as restaurants, commerce, and others. To calculate the benefits from tourism, this evaluation relied on statistics from the Central Bank of Colombia (Banco de la Republica).14

Number of Tourists 2,005 2,006 2,007 2,008 Growth 2008/05

Domestic 436,835 539,623 552,432 567,728 30%

International 87,917 105,130 80,708 119,333 36%

Cruises 35 38 76 137 291%

Passengers on the cruises 41,542 42,024 108,892 206,691 398%

Source: Corporacion de Tursimo de Cartagena

26. The economic benefit generated by each tourist was calculated as follows: (i) information of the production of the hotel industry in Cartagena; (ii) indirect impact on other sectors, which was measure as the percentage of input required per dollar produced in the tourism sector15. Industries such as hotels, restaurants, travel agencies and alike, were included; and (iii) average expenses per family while on vacation, broken down by type of expenses.

12 Analysis of Cartagena’s real estate prices. June 2008. www.cartagenarealty.com 13 Number of dwellings about 194 thousand in 2009 (according to ACUACAR) and average size of dwelling 870 square feet. 14 Banco de la Republica. Aguilera, Maria M; Bernal, Camila; Quintero Turismo y Desarrollo en el Caribe Colombiano. Documentos de Trabajo sobre la Economia Regional. Noviembre 2006.

15 Estimated by the Central Bank of Colombia as the technical coefficient which measures the relationship between the values of all production inputs, to the value of production. This is calculated for each type of industry. For this evaluation, the results of the hotel industry, the restaurants, and the travel agencies and alike were used.

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27. Using information from the Central Bank on the revenue produced by the hotel industry in Cartagena, about USD 65 is spent on lodge per tourist (which corresponds to about USD 260 per family). Additionally to lodge, tourists spend on restaurants, sightseeing, and other activities for a total estimated of USD 850 per family. The Central Bank estimates that one dollar produced in the lodge industry, requires inputs for USD 0.49 from other sectors; the same from restaurants, which require USD 0.64 from other sectors per dollar produced; and travel agencies and alike require to buy USD 0.35 in inputs from other industries per dollar produced. Adding all of this, it was estimated that a family of four spends about USD 850 on direct expenses and generates an indirect impact of USD 370 on other sectors, for a total of approximately USD 1200 per family (USD 300 per tourist).

28. The calculation above differed from those arriving on cruises, which do not spend in lodging and expenses in restaurants are lower.

29. The resulting present value of the impact of the increase in tourists, including the cruises, is about USD 308 million.

30. Total Benefits of Cartagena’s growth in construction and tourism. In summary the present value of

the incremental benefit obtained from improvements in the District of Cartagena is USD 4.4 billion, which consists of USD 3.9 billion increases on properties value and USD 464 million due to the increase in tourism.

31. When only one percent of the benefits are imputed to the results show that the project has benefits of USD 63 million and 29 percent economic returns.

Net present value of Cash flows

(000 US$)Results of the Economic Evaluation Costs Benefits Net benefit IRR

Component A. Expansion Water Supply System 16,482 60,798 44,316 50.4% Component B. Expansion Sewer System Cienaga 23,149 27,768 4,262 14.4% Components A plus B 39,631 88,566 48,578 30.6% Components C to G: Construction main conveyance, WWTP, Submarine outfall 29,155 One percent of benefits from economic growth in Cartagena 43,833

Total project 68,786

132,399 63,255 29.1%

32. Comparing the results with the ones expected at appraisal, results show that benefits surpassed expectations with a rate of return of 29 percent versus a 16 percent foreseen at appraisal

Economic results PAD Actual

Water component 15% 50% Sewerage component 16% 14% Subtotal water and sewerage n.a 31% Wastewater management component (1% of actual

benefits imputed to the component) 15% n.a Total project 16% 29%

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33. The higher the percentage of economic benefits imputed to the project the higher the returns. When 2 percent is assigned to the project the benefits would increase to US$107 million and internal rate of return of 39 percent.

B. Financial Evaluation of ACUACAR

34. The financial evaluation of ACUACAR was based on the audited financial statements from 1999 to 2009 (Attachment 1 presents a summary of financial statements). The results show that financial situation at ACUACAR has been better than expected at appraisal.

35. Income statements show that revenues have increased at a higher pace than operating and financial expenses. Increase in revenue has been 23 percent in real terms, which is due not only to increase in tariffs but also to increase in clients. It is important to note that this increase occurred despite the 35 percent decrease in average consumption per connection (from 26 m3/hh/month in 1999 to 17 m3/hh/month in 2009) and that most of new customers belong to the two lowest socio-economic strata that have the lowest tariffs.

36. On the other hand the operating expenses increased only 4% in real terms during the whole period.

This made possible an important increase in the profit indicators, such as, net margin, which increased from 6.8 percent in 1999 to 9% in 2009, and return on equity, which increased from 14 percent to 22.6 percent. The operating margin16 remained around 20 percent in the period.

16 Defined at appraisal as Earnings before interest and taxes (EBIT/) divided by total revenues.

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37. The financial indicators from the balance sheets show a sound financial situation as well. The relationship between total debt and assets has remained around 62 percent, and debt has been lower than total revenues during the period. A summary of the financial statements is presented in Attachment 1.

38. All the risks foreseen at appraisal were targeted by ACUACAR with results better than expected. At time of appraisal there were liquidity problems due to commercial bank loans, poor commercial performance, and required operating efficiency. All these problems were faced by ACUACAR, increasing its current ratio to values higher than one, but in 2009 when it reached 0.98, due to some short term liabilities to be paid during 2010. The liquidity improved as a result of numerous actions, which brought along lower commercial debts, higher revenue collection rate, and improved operating efficiency. The account receivable decreased from 4.6 months of billing in 1999 to 2.2 months of billing in 2009; the operating cost increased 4 percent in real terms during the whole period, water clients increased 72 percent and sewerage clients 68 percent. It is worth to highlight the achievement on commercial efficiency gain given that most of the new clients are at the lowest income level and hence in a more difficult situation to pay.

39. Regarding the financial obligations that ACUACAR acquired when the District signed the loans with the IADB on March 1998, and with the World Bank on December 1999, ACUACAR has been complying. For the IADB loan, ACUACAR was obliged to transfer 4.8 percent of water and sewerage revenues to the District from 2001 to 2017, with which has complied to date. For the World Bank loan, ACUACAR was obliged to: (i) pay for designs, studies and supervision of the project (US$ 4.6 million); and (ii) pay to the District of Cartagena USD 15.4 million from 2005 to 2011 as contribution for the debt service. With both obligations ACUACAR has complied to date.

40. All the indicators show better results than expected at appraisal, but two: debt to assets and debt service coverage. Debt to asset was expected to reach values close to 45 percent and the 2009 value was 65 percent. Although the actual value was higher than the target, the level of total debt to operating income was lower than one. The debt service coverage was also not met, but a value of 3.4 is considered typical when a healthy financial situation exists.

Financial Indicators Selected at Appraisal (For more detail see Attachement 2) Actual Values 1999 2000 2001 2002 2003 2004 2008 2009

Operating margin 20.0% 17.5% 18.7% 18.8% 19.2% 22.5% 20.4% 21.0%

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Net profit margin 6.8% 8.8% 7.4% 7.4% 7.4% 9.3% 8.9% 8.9%

Return on equity 14.4% 16.3% 14.2% 14.7% 15.8% 20.0% 21.9% 22.6%

Current ratio 1.46 1.12 1.03 0.96 1.08 1.30 1.26 0.98 Debt service coverage 1.6 1.6 1.5 1.8 2.0 2.5 2.4 3.4

Debt/assets 62.7% 61.0% 65.8% 56.3% 56.8% 55.3% 64.4% 65.9% Uncollectable18 month 10.4% 10.0% 9.4% 8.9% 8.6% 8.8% 7.3% 6.0%

Expected Values at Appraisal 1999 2000 2001 2002 2003 2004

Operating margin 9.8% 12.3% 15.5% 13.0% 12.4% 12.6%

Net profit margin 0.7% 4.6% 7.5% 6.5% 6.6% 7.5%

Return on equity 1.7% 11.5% 18.0% 14.5% 13.7% 14.4%

Current ratio 0.95 0.91 0.92 0.91 0.99 1.14 Debt service coverage 0.8 0.9 1.3 1.2 1.5 4.0

Debt/assets 65.3% 63.3% 58.2% 55.0% 50.7% 45.6% Uncollectable18 month 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%

C. Financial Analysis of the District of Cartagena

41. The financial targets set at appraisal were broken down in two categories: (i) Revenues to be allocated for sewerage investments, which consisted of four sources: property taxes, 20 percent of National transfers, 100 percent of environmental fee, and 5 percent of royalties; and (ii) Financial indicators, which consisted of property tax collection rate, and three debt indicators, measuring the capacity of the District to comply with the debt services. The debt indicators had as reference the ceilings imposed to public entities by the National Government.

42. Regarding the first set of indicators, the earmarked revenues, the District complied with all of them,

but the environmental fee. The total earmarked revenue was twice as much as it was expected at appraisal.

43. Regarding the second set of indicators, the District also complied with all of them except with one:

earmarked revenues/debt service which it is lower than expected. The following is brief analysis of the District real values compared with the target values during appraisal.

a. The property tax collection rate was higher than expected. b. Debt to current revenue was higher than 90 percent until 2005, but it decreased in 2008 and

by 2009 it was 41percent. The maximum ceiling allowed by the National Government in this indicator is between 70 percent and 80 percent, which means that the District complied as well with the National Government requirement.

c. Interest to Net operational surplus. Complied with the criteria until after 2004 d. Net operational surplus to debt service met the target in 2004 and by 2009 it reached 18 times

exceeding expectations.

Indicators selected at appraisal Actual figures 2000 2001 2002 2003 2004 2008 2009

Earmark Revenues (US$ million) 18% of property tax 6.6 6.6 7.6 8.4 10.2 14.2 10.0 20% of Ntt Gvt transfers 7.5 9.3 10.9 10.0 7.2 6.6 14.4

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100% Environmental fee - - - - - - -5% of Royalties 1.7 1.6 1.7 2.5 4.1 6.5 4.0 Total earmarked revenue 15.8 17.5 20.1 20.9 21.5 27.3 28.3

Financial Ratios Property tax collection rates n/a n/a n/a n/a n/a n/a n/a Interest/Net operational surplus -29% 297% 39% 21% 6% 4% 2.3% Debt/current revenue 114% 108% 90% 55% 97% 35% 41% Net operational surplus/debt

service -1.3 1.3 1.7 1.8 8.1 11.3 18.0 Earmarked funds/debt service

(times) 1.0 1.3 0.8 0.9 0.9 0.8 1.31 Expected targets at appraisal 2000 2001 2002 2003 2004

Earmarked Revenues (US$ million) 18% of property tax 4.1 4.3 5.0 5.0 5.0 20% of Ntt Gvt transfers 3.7 3.7 3.8 3.8 3.9 100% Environmental fee 0.4 0.4 0.4 0.4 0.4 5% of Royalties 0.3 0.3 0.3 0.3 0.3 Total earmarked revenue 8.4 8.6 9.4 9.4 9.5

Financial Ratios Property tax collection rates 49% 51% 51% 51% 51% Interest/Net operational surplus 17% 16% 14% 13% 11% Debt/current revenue 57% 68% 70% 70% 64% Net operational surplus/debt

service 3.5 3.7 5.2 5.7 6.5 Earmarked funds/debt service

(times) 1.9 2.1 1.8 1.9 2.0

Attachment 1. Financial Statements ACUACAR (million Col $)

INCOME

STATEMENT 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Revenues 57,642 58,982 67,703 73,193 82,654 91,079 96,319 103,966 111,234 120,844

130,119 Operating

expenses 46,131 48,638 55,012 59,436 66,795 70,590 62,453 66,616 71,556 82,190 87,926

EBTDA 11,511 10,343 12,692 13,757 15,858 20,489 33,865 37,350 39,678 38,654 42,193

Depreciation - - - - - 15,595 16,573 16,470 13,959 14,803

Other Rev/exp (5,413) (4,033) (6,211) (4,779) (5,048) (6,269) (5,570) (5,244) (7,618) (9,507) (9,549)

EBIT 6,098 6,311 6,481 8,978 10,810 14,219 12,700 15,533 15,590 15,189 17,840 Financial

expenses - (1,706) (1,266) - - - - - - - 0

Taxes (2,170) (2,812) (2,711) (3,546) (4,713) (5,765) (4,930) (5,995) (5,620) (4,430) (6,320)

Net Income 3,928 5,205 5,036 5,432 6,097 8,454 7,770 9,539 9,970 10,758 11,521

BALANCE SHEET 1,999 2,000 2,001 2,002 2,003 2,004 2,005 2,006 2,007 2,008 2,008

Assets

Current assets 25,628 31,988 52,058 27,472 29,606 32,231 30,783 33,251 34,784 33,971 48,289

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Long term assets 47,373 49,709 51,532 56,934 59,759 62,292 99,560 97,736 97,940 103,886

100,794

Total assets 73,001 81,697 103,590 84,405 89,365 94,522 130,343 130,987 132,724 137,858

149,083

Liabilities Current

liabilities 12,991 28,469 50,710 28,679 27,295 24,824 24,029 26,762 28,205 26,906 49,143

LT liabilities

Debt 32,776 21,355 17,405 18,849 22,824 24,661 36,228 36,774 42,546 50,715 44,003 Pension

Fund - - - - - 25,126 20,115 13,492 9,922 4,497

Other LT - - - 618 2,832 2,593 2,424 1,230 1,277 564

Total liability 45,767 49,824 68,116 47,527 50,736 52,317 87,976 86,075 85,473 88,821 98,208

Equity 27,234 31,873 35,474 36,878 38,629 42,206 42,367 44,913 47,251 49,037 50,875 Equity &

liabilities 73,001 81,697 103,590 84,405 89,365 94,522 130,343 130,987 132,724 137,858

149,083

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Attachment 2. PAD’s Financial Indicators

Actual Values 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Operating margin (EBIT/revenues) 20.0% 17.5% 18.7% 18.8% 19.2% 22.5% 19.0% 20.0% 20.9% 20.4% 21.0%

Net profit margin 6.8% 8.8% 7.4% 7.4% 7.4% 9.3% 8.1% 9.2% 9.0% 8.9% 8.9%

Return on equity 14.4% 16.3% 14.2% 14.7% 15.8% 20.0% 18.3% 21.2% 21.1% 21.9% 22.6%

Current ratio 1.46 1.12 1.03 0.96 1.08 1.30 1.28 1.24 1.23 1.26 0.98 Debt service

coverage 1.6 1.6 1.5 1.8 2.0 2.5 2.2 2.5 2.6 2.4 3.4

Debt/assets 62.7% 61.0% 65.8% 56.3% 56.8% 55.3% 67.5% 65.7% 64.4% 64.4% 65.9% Uncollectables in

18 months 10.4% 10.0% 9.4% 8.9% 8.6% 8.8% 8.9% 8.9% 9.3% 7.3% 6.0%

Expected Values at Appraisal 1999 2000 2001 2002 2003 2004 19.0% 20.0% 20.9% 20.4% 21.0%

Operating margin 9.8% 12.3% 15.5% 13.0% 12.4% 12.6%

Net profit margin 0.7% 4.6% 7.5% 6.5% 6.6% 7.5% 2,005 2,006 2,007 2,008 2,008

Return on equity 1.7% 11.5% 18.0% 14.5% 13.7% 14.4%

Current ratio 0.95 0.91 0.92 0.91 0.99 1.14 30,783 33,251 34,784 33,971 48,289 Debt service

coverage 0.8 0.9 1.3 1.2 1.5 4.0 99,560 97,736 97,940 103,886 100,794

Debt/assets 65.3% 63.3% 58.2% 55.0% 50.7% 45.6% 130,343 130,987 132,724 137,858 149,083 Uncollectables in

18 months 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%

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Financial information of District of Cartagena (000 US$) (Estimated Figures)

2000 2001 2002 2003 2004 2005 2006 2007 2008

Current Revenue

Property Tax 36,839 36,520 42,066 46,640 56,626 78,944 67,423 76,170 79,935

Natl transfer 37,360 46,385 54,510 50,125 35,923 33,027 35,127 36,915 33,100

Royalties 34,400 32,364 33,344 49,308 81,518 59,338 82,473 75,598 129,440

Other revenues -32,357 -35,746 -48,895 -53,770 -59,324 -43,334 73,082 305,707 250,450 Total Current

Revenue 76,242 79,523 81,025 92,303 114,743 127,975 258,105 494,390 492,925

Expenses

Administrative Costs 97,460 61,488 38,570 51,710 -73,163 -76,168 88,099 97,846 100,295

Interest 10,751 12,836 7,014 3,807 9,318 6,274 4,278 13,395 15,699 Operational surplus

before amortization -31,969 5,199 35,441 36,786 178,588 197,869 165,728 383,149 376,931

Debt Service

Interest 10,751 12,836 7,014 3,807 9,318 6,274 4,278 13,395 15,699 Amortization of

Principal 5,000 874 17,498 18,881 13,792 49,826 12,213 8,850 16,239

Total debt service 15,751 13,710 24,512 22,688 23,110 56,100 16,491 22,245 31,938

Current deficit -36,969 4,325 17,943 17,905 164,796 148,043 153,515 374,299 360,692

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Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/ Specialty

Lending Menahem Libhaber Task Manager (Sr. Sanitary Engineer) LCSUW Yoko Katakura Financial Analyst CSFDR Caroline Van Den Berg Economist ETWWA Franz Drees-Gross Water Supply and Sanitary Engineer BUEWB Juan David Quintero Sr. Environmental Specialist EASER Maria Elena Castro Social Specialist Livio Pino Financial Management Specialist Maria Victoria Lister Quality Assurance Officer Efraim Jimenez Sr. Procurement Specialist Jose Augusto Carvallho Sr. Counsel Issam Abousleiman Disbursement Officer Carl Bartone Peer Reviewer CONS Robert Taylor Peer Reviewer CIADR Silvia Delgado Staff Assistant LCSUW Martha Gonzalez Staff Assistant LCSUW

Supervision/ICR Anna Wellenstein Sector Manager SACIA David N. Sislen Sector Leader LCSSD Menahem Libhaber Task Manager LCSUWGuang Z. Chen Sector Manager LCSUWJeannette Estupinan Financial Management Specialist LCSFM Diana Ortiz Zuluaga E T Consultant LCSUWLaura Kullenberg Senior Operation Officer LCSSD Juan David Quintero Sr. Environment Engineer EASER Franz Drees-Gross Sector Leader LCSSD Marco Zambrano Consultant Greg Browder Task Manager LCSUWCarmen Yee-Batista CO-Task Manager LCSUWLuz Maria Gonzalez Consultant LCSUWRosa Bellido Program Assistant LCSUW

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(b) Staff Time and Cost Staff Time and Cost (Bank Budget Only)

Stage of Project Cycle No. of staff weeks USD Thousands (including

travel and consultant costs) Lending

FY96 8.01 FY97 1.67 FY98 82.33 FY99 125.86 FY00 13 43.18 FY01 0.00 FY02 0.00 FY03 0.00 FY04 0.00 FY05 0.00 FY06 0.00 FY07 0.00 FY08 0.00

Total: 13 261.05 Supervision/ICR

FY96 0.00 FY97 0.00 FY98 0.00 FY99 2.21 FY00 8 45.37 FY01 9 59.82 FY02 19 103.22 FY03 21 99.42 FY04 13 73.34 FY05 9 70.80 FY06 10 72.57 FY07 8 84.67 FY08 9 60.33 FY09 6 28.70

Total: 125 961.5

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Annex 5. Beneficiary Survey Results (if any)

Overall Customer Satisfaction Survey Opinionmeter, a survey consulting firm, conducted ACUACAR 2009 Customer Satisfaction Survey from September 15th 2009 to January 6th 2010 using a sample of 400 units to determine the level of customer satisfaction and identify elements and strategies to assist ACUACAR to reach optimum quality levels. A summary of this survey is presented in this annex to determine the level of user satisfaction as it relates to the perceived level of satisfaction, customer satisfaction, and company image. The overall satisfaction with ACUACAR’s service based on direct consultations for 2008 and 2009 are presented in Table 1. The 2009 results show that 91.7 percent of the customers were either highly satisfied or satisfied with the service, and only 2.01 percent indicated some degree of dissatisfaction. As show in Table 1, the 2009 results indicated an improvement when compared with 2008 values. Some of the positive comments received during the survey include (i) good service provider, (ii) constant service, and (iii) good water quality. Some of the negative comments are (i) high service cost, (ii) low pressure, (iii) service interrupted, and (iv) no sewerage. Table 1. Overall Customer Satisfaction with ACUACAR’s Service

Level of Satisfaction 2008 %

2009 %

Highly Satisfied 27.6 27.4 Highly Satisfied - Satisfied 82.7 91.7 Unsatisfied – Highly Unsatisfied 1.8 2.0 Sample number 387 398

Opinionmeter also calculated the level of satisfaction applying a methodology developed by the Service Quality Regulator (Superintendencia de Servicios Publicos Domiciliarios –SSPD). In 2009, the customer satisfaction resulted in 88.45 percent for water supply and 76.9 percent for sewerage with combined value of 82.7 percent for water and sewerage using the SSPD methodology. Cartagena’s levels are above the latest national value calculated in 2006 of 65.6 percent for water supply and 69.2 for sewerage. Customer Service and Company Image Level of satisfaction for customer service indicators are shown in Figure 1 for 2008 and 2009. The level of satisfaction ranges from 1 (highly unsatisfied) to 5 (highly satisfied). The results demonstrate a high degree of satisfaction on customer service with all of the indicators between satisfied and highly satisfied. In addition, an improvement is also observed in 2009 compared to 2008 values.

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Figure 1. Customer Service Level of Satisfaction

Opinionmeter also conducted questionnaires to determine the image perception that ACUACAR projects to its customers. Table 2 shows the results of four image parameters (leadership, service quality, responsibility, and environmental stewardship) indicating that ACUACAR’s costumers has a very positive image of the company. Table 2. Company Image Perception

Leadership Service Quality Responsibility

Environmental Stewardship

Highly in agreement 62.6% 69.2% 69.7% 68.4%

In agreement 30.4% 24.7% 22.3% 19.0%

Moderately in agreement 4.2% 4.5% 4.8% 6.4%

In disagreement 2.8% 1.6% 3.2% 6.2%

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Annex 6. Stakeholder Workshop Report and Results (if any) No reports.

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Annex 7. Summary of Borrower’s ICR and/or Comments on Draft ICR The Draft ICR is very comprehensive and reflects accurately the main issues of the projects and results. As mentioned, the Project has been a key for the development of Cartagena and to improve the water and sewerage services particularly in the poorest neighborhood; even though the submarine outfall has not been finished yet, all the other components have been finished successfully and allowed to increase coverage to the level of the proposed objectives; once the outfall is completed it will contribute to the environmental cleanup of the Cienaga de la Virgen and Bahia de Cartagena, allowing in the near future a sustainable use for aquatic, sports and commercial activities. Also, with the project and the experience of the private operator, there was an improvement in the increase and quality of water and sewerage services and strengthened the private sector participation to make the services more sustainable. The implementation of the project took twice the time foreseen originally (5 years) due mainly to complications in getting the environmental license, aggressive social opposition to the project in part manipulated by particular interests, and also the time that the Inspection Panel took to investigate issues that were from our perspective very clear and did not justify the time and money spent for the different issues mentioned in the request for inspection alleging the violation of policies and procedures in the design, appraisal and implementation of the project. The project was carefully prepared and supervised by a panel of experts which allowed a strong tool to defend the project against all the attacks and investigations both local and IP. One point to remark is the continuous support from the World Bank in all the difficulties and processes the project has been through. The World Bank staffs provided valuable inputs and advice in different phases, which was central to the project. The Bank Supervision Missions worked closely and intensively with ACUACAR and the District to solve main problems and to implement the project. The Supervision Missions provided very useful technical inputs and understood the difficulties and gave support to allow and facilitate practical solutions in different areas environmental, social, technical and financial. Without their support and advice it would have not been possible to complete this project.

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Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders No comments

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Annex 9. List of Supporting A. Bank Staff Assessments WORLD BANK (1999), Project appraisal document on a proposed loan in the amount of us$85 million to the district of Cartagena.

WORLD BANK (2007), Implementation completion and results report-Guidelines

WORLD BANK (1999), Loan agreement documents

WORLD BANK (2004), Cartagena Loan Amendment documents

WORLD BANK (to 2008), Implementation Status and Results (ISR) reports

WORLD BANK (to 2008), Aide Memoires

WORLD BANK (to 2008), Project Management Reports (PMR)

B. Other Menahem Libhaber, Philip J.W. Roberts (2002), Social aspects of wastewater submarine outfalls in developing countries: the case of Cartagena, Colombia

BID (2006), Informe de Terminación de Proyecto, PCR HAZEN & SAWYER (2001), Estudio de Factibilidad Para el Tratamiento de las Aguas Residuales de Cartagena y Para la Disposición Final del Efluente Al Mar Adyacente a Través de Un Emisario Submarino- Informe Final HAZEN & SAWYER (2001), Diagnóstico Ambiental

McCarthy, EUGENE (2006), A Public-Private Partnership for the Provision of Water and Sewerage Services in Cartagena, Colombia: Looking back at the first Seven years NEOTRÓPICOS (2002), Estudio de Impacto Ambiental Emisario Submarino de Cartagena Deloitte (2009), Auditoria de los Recursos Administrados 2009 por Aguas de Cartagena S.A. INSPECTION PANEL DOCUMENTS Management Report and Recommendation in Response to the Inspection Panel Investigation Report (2005), Report No. INSP/R2005-0003 Investigation Report (2005), Report No. 32034-CO

ACUACAR (2008), Plan de Monitoreo Ambiental del Proyecto para el Tratamiento y Disposición Final de las Aguas Residuales de Cartagena.

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ACUACAR (2009), Establecimiento de la línea base primera fase del plan de monitoreo ambiental del proyecto para el tratamiento y disposición final de las aguas residuales de Cartagena de Indias ACUACAR (2009), Información Técnica, Económica y Financiera suministrada por staff del PIU. ACUACAR (2009), Estados Financieros del Proyecto. ACUACAR (2009), Indicadores del Proyecto. ACUACAR (2009), Presentaciones Técnica y Financiera. ACUACAR (2009), Evaluación Expost Plan Abreviado de Reasentamiento Barrios Isla de León y Valla Luna ACUACAR (2009), Encuesta de usuarios

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Annex 10. Summary of Inspection Panel Case 1. On April 24, 2004, the Inspection Panel received a Request for Inspection from a Colombian nongovernmental organization (NGO), Corporación Cartagena Honesta, on behalf of residents of the communities Punta Canoas, Arroyo de Piedra, and Manzanillo del Mar living in the north zone of Cartagena, approximately 20 km north of the city. The requesters claimed that they had been harmed and were likely to suffer further harm from the construction of 23.85 km pipeline and submarine outfall that would carry untreated wastewater from the city and discharge it into the Caribbean Sea at a point about 2.5 km from the north zone communities. The requesters raised concerns about (i) the impact of the outfall on their culture and way of life, as well as the impact of pollution on their health, marine ecosystems, and economic well-being; (ii) the Bank failure to identify affected communities as indigenous and to safeguard their livelihood; (iii) the wastewater management evaluation analysis and the Bank’s consultation of locally affected people conducted under the project environmental assessment; (iv) the Bank’s analysis of the economic investment; and (v) the Bank’s supervision of the Project.

2. On July 13, 2004, the Board of Directors approved the inspection panel’s recommendation to conduct an investigation into the claims made by the requesters. The purpose of the investigation was to establish whether the Bank complied with its own policies and procedures in the design, appraisal, and implementation of the Project, and whether non-compliance instances caused, or were likely to cause, harm to the residents in the north zone communities. On June 24, 2005, the Panel submitted the Investigation Report to the Board of Executive Directors.

3. One of the main issues during the investigation was the selected option of a submarine outfall for disposing Cartagena’s wastewater and the outfall’s location due to risk of diapirism (mud volcanism) and potential risk to human health and marine ecosystems. Although the Panel indicated that a submarine outfall is a proven technology for wastewater management in coastal cities, it noted that a computer 2D modeling on which the outfall design was based may not account for special oceanographic conditions of the project areas and recommended the use of more sophisticated 3-D models to assess the potential risks. With respect to diapirism, the Panel found that the potential for the pipeline to be ruptured or disturbed by a diapirism appeared to be low; however, to reduce the remaining uncertainty, it recommended conducting a side scan sonar survey of the proposed outfall trajectory. The Panel also mentioned that the analysis of wastewater management alternatives was not a systematic comparative study of all the potential alternatives as required by the Bank policy on environmental assessments.

4. With respect to the social issues, the Panel indicated that the Bank was not in violation of Bank policy by not regarding Afro-Colombians as indigenous peoples. Nevertheless, the Panel indicated that the requesters, Afro-Colombian people, could have been regarded as indigenous people, and because of this, the Bank would have been well advised to require an Indigenous Peoples Development Plan (IPDP) providing mitigation measures for risks and potential harm. Furthermore, the Panel felt that the full Social Impact Assessment (SIA) did not adequately address the issue of compensation for the affected Afro-Colombia communities in the north zone for bearing most of the risk of negative impacts from the wastewater component of the Project. The Panel noted that some compensation for the potential impacts was included in the SIA; for example, water and sanitation services and a community center in the north zone area. However, it also noted that the implementation of some of these activities seemed to be lagging behind and information about these compensation measures were inadequately disseminated to the village.

5. The Panel analyzed the economic evaluation of alternatives and found that the Bank should have recalculated the costs of the alternative and reviewed the economic analysis based on the new licensing

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requirement of providing for primary treatment of wastewater in ten years. In addition, in the Panel’s judgment, the analysis in the Project’s feasibility study should have provided a clear justification for the land prices used in estimating the cost of the project alternatives.

6. In regards to Bank supervision of ACUACAR, Panel concluded that the Bank closely supervised ACUACAR’s performance and that it was in compliance with Bank supervision policy.

7. Management submitted its Report and Recommendations in respond to the Panel’s Investigation Report on July 29, 2005, which included an Action Plan. In its report, Management emphasized that the submarine outfall is the most cost-effective solution to Cartagena’s wastewater problems and that the environmental, social, economic, technical, and financial studies showed that the outfall will achieve public benefits and will not have significant adverse effects on the environment or the north zone residents. In relation to the environmental assessment, Management felt that the analysis of alternatives for the selection of the wastewater management system was appropriate, comprehensive, and sufficient to select a preferred alternative. As to the issue of inadequate consultations raised by the requesters, Management claimed that consultations were conducted in compliance with OD 4.01 and that a participatory approach was used during project preparation. According to the Management Action Plan, the Bank requested that its expert prepare a second 2-D validation model to incorporate the influence of wind patterns, including an independent review of an international expert. Management also recommended that ACUACAR undertake a side sonar scan survey to strengthen the assessment of risk of diapirism. Other actions to which the Bank committed included updating the results of the economic analysis to take into account the additional investments required by the environmental license that would need to be operational in 2015, and adjusting land values used for the study alternatives. Management also stated a plan to strengthen the social program in the north zone, which included, in addition to piped water, in-house sanitation, and a community center, a fishing program, a plant nursery, and a public beach front with tents and sports courts, all to be managed cooperatively by the community to improve the economic development of the population. The Action Plan also provided for improvement of the communication and outreach programs. 8. On November 8, 2005, the World Bank Board of Executive Directors discussed the findings of the Panel investigation and Management Report and Action Plan. The Board approved Management’s Action Plan, but with the caveat that Management and the Panel meet to discuss the modeling approach for assessing the risks of the submarine outfall and to guarantee that the most appropriate project design is considered. After this meeting, the project team and ACUACAR agreed to carry out a 3 D modeling study, recommended by an Inspection Panel expert, and to proceed with the Project on the basis of the results. The 3D modeling was expected to last one month, but instead lasted eight month, and its results confirmed the 2D model and therefore the original project design and outfall location.

9. A year later to the Board approval, Management submitted a progress report in the implementation of the Action Plan. It is important to mention that none of these actions resulted in a significant change to the original wastewater management system design. According to the progress report, a side scan sonar survey was conducted and as a result the route of the outfall was slightly changed to further reduce the risk of diapirism. The results of the updated economic analysis showed that even with the additional investment, but considering the decreasing land values, the outfall remains the lowest-cost alternative. The completion of social program provided direct benefits to the population and improved communication and outreach activities, which helped to dissipate doubts and create a better understanding among stakeholders improving project acceptance. 10. Additional information about the Inspection Panel Investigation and Management Response are available in the Panel’s Web site at http://www.inspectionpanel.org.

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Annex 11. Operational and Financial Performance Indicators 1. The PAD reported 19 operational and seven financial indicators as ACUACAR’s utility-base indicators. Table 1 shows the results of all the 26 indicators resulting in a high degree of achievement when compared 2009 values with their targets. In cases where indicators did not meet target values, as indicated in bold in Table 1, they mostly correspond to secondary parameters not directly related to ACUACAR’s performance, factors outside ACUACAR’s control, or non-compliance is reasonable and understandable considering the existing situation. 2. ACUACAR was able to meet primary indicators, such as water coverage, volume of water loss, metered connections, continuity of service, staff on payroll/1000 connections, among others indicating a significant improvement in water management. Noteworthy is the increase in water and sewerage connections while maintaining the volume of water distributed in 1999 and an improved continuity of service. In other words, ACUACAR has been able to serve more people and provide a better service with the same amount of water. This was largely possible due to a decrease in water consumption as a result of a metering program and conservation campaigns. Water consumption decreased to about 20 percent from 2000 to 2008. Consequently, indicators affected by water demand, such as volume of water produced, volume of treated water distributed, volume of raw water sold, and volume of treated water sold did not achieve forecasted values. Although water production related indicators were not met, ACUACAR conducted water works under this Project to increase the water system reliability and to reduce the system vulnerability.

3. Unaccounted for water (UfW) is also another indicator affected by a decline in water consumption as its calculation depends on the volume of treated water distributed. Since the volume of treated water is less than expected, the UfW resulted in a higher value than the target of 34 percent. However, volume of water loss, volume lost/connection/month/ and volume loss/km pipe/month achieved targets indicating strong efforts from ACUACAR to reduce UfW.

4. Although sewerage coverage and volume of sewage treated did not meet target values, ACUACAR has actions in place to meet these indicators in a short term. In the case of sewerage, although the current sewer household connection rate of 86 percent is slightly short of the target value of 90 percent, the infrastructure is in place to connect 92 percent of the households. ACUACAR has a program in place to connect low-income households and expects to reach 92 percent. The volume of sewage treated will meet its target value when the outfall is completed and the water management system is in operation.

5. In regards to the financial performance indicators, Table 1 shows that five of the seven indicators met the expected target values indicating that ACUACAR is in a sound financial situation. Debt to asset was expected to reach values close to 46 percent and the 2009 value was 66 percent. Although the actual value was higher than the target, the level of total debt to operating income was lower than one. The debt service coverage was also not met, but a value of 3.4 is considered typical when a healthy financial situation exists.

6. ACUACAR’s numerous actions brought along efficiency gains in operation, in the commercial system, and water usage. Water losses were reduced, consumption per connection decreased, customers database improved, and revenues increased. In addition, ACUACAR has met all financial obligations acquired when the District signed the IADB and the World Bank loans. Annex 3 presents a more detailed financial evaluation of ACUACAR.

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Table 1. Results of ACUACAR Performance Indicators

Indicator Unit Baseline in PAD Actual

2004 Forecast In PAD

Operational

1. Water Coverage, % % 80% 99.9% 89% 2. Volume of Water Produced 1,000 m3/ d 230 246 289 3. Volume of treated water distributed, 1,000 m3/ d 194 195 249 4. Volume of raw water sold 1,000 m3/ d 36 35 40 5. Volume of treated water sold 1,000 m3/ d 109 109 164 6. Volume of water loss, m3/d 1,000 m3/ d 85 120 85

7. Unaccounted For Water (UFW) * % 44% 43% 34% 8. Volume lost/connection/month m3/ Con/ month 26 13 17 9. Volume loss / kilometer pipe / month m3/ km / month 2,750 1,766 2,250 10. Metered connections % 93.0% 99.7% 98% 11. Continuity of service ** % 95.0% 99.9% 98% 12. Staff on payroll/ 1000 connections No. 2.8 2.5 2.8 13. Response time to breaks, days Days 1.3 0.2 1.2 14. W. Pipebreaks/ 100 km/ year No. 256 62 200 15. W$S km with GIS No. 1,700 2,455 2,350 16. Sewerage Coverage % 69.0% 86.0% 89%

17. Volume sewage treated 1,000 m3/ d 0 0 149 18. Km sewerage inspected by TV Km/ year 78 0.10 100 19. No. of sewerage clogging cleared/ 100 km N° 525 333 463 Financial 1. Operating margin % 15 21 12.6 2. Net profit margin % 7 8.9 7.5 3. Return on equity % 17.3 22.6 14.4

4. Current ratio Times 1.26 0.98 1.14 5. Debt service coverage Times 1.46 3.4 3.99 6. Debt/asset % 68.9 65.9 45.6 7. Uncollectable in 18 months % 8 7.3 8

* UFW: Volume of water loss/ volume of treated water distributed

** Continuity of service: percentage of users which receive service 24 hours per day

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Parallel lineDolores-Albornoz

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C O L O M B I ACARTAGENA WATER SUPPLY,


WATER SUPPLY WORKS

0°

75°

0°

5° 5°

10° 10°

75° 70°

PANAMA

VENEZUELA

BRAZIL

P E R U

ECUADOR

Santa Féde Bogotá

C O L O M B I A

Cartagena

C a r i b b e a n

S e a

CartagenaBay

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C a r i b b e a n

S e a

IBRD 30304

JUNE 1999

0 1 2 3

KILOMETERS


VARIOUS WATER SUPPLY NETWORKS

NEW POWER LINE TO ALBORNOZ PUMPING STATION

WATER NETWORKS IN FALDA DE LA POPA

WATER NETWORKS IN INVASION AREAS

WATER NETWORKS IN THE SOUTHEASTERN ZONE

TELECOMMAND INSTALLATIONS

PROJECT WATER SUPPLY WORKS:

1 CANAL JUAN GOMEZ (SEE IBRD 30303) 2 PARALLEL LINE DOLOREZ-ALBORNOZ (SEE IBRD 30303) 3 EXPANSION OF ALBORNOZ RESERVOIR 4 NEW POWER LINE TO ALBORNOZ PUMPING STATION 5 WATER TREATMENT PLANT AND PUMPING STATION ALBORNOZ-PHASE I (BY DISTRICT) 6 SLUDGE TREATMENT AT EL BOSQUE-PHASE I 7 LA LOMA RESERVOIR-PHASE 2 (BY DISTRICT) 8 RELOCATION OF THE 30” AMBERES PIPE 9 CONNECTING COLINAS TANK TO ALCALIS SYSTEM10 WATER NETWORK IN EL POZON11 WATER NETWORK IN FALDA DE LA POPA (BY DISTRICT)12 WATER WORKS PLAN BARRIO13 WATER NETWORK IN THE SOUTHEASTERN ZONE14 WATER NETWORK IN MEMBRILLAL (BY DISTRICT)15 WATER NETWORKS IN INVASION AREAS (BY DISTRICT)16 PARTIAL REPLACEMENT OF SUPPLY PIPE TO COLINAS TANK (BY DISTRICT)18 REPLACEMENT OF WATER NETWORK IN PASEO BOLIVAR (BY DISTRICT)

4

53

15

9

166

12

12

12

7

8

12

13

12

15

1111

18

18

10

12

15

14

submarine outfall

emisario submarino

Wastewater Treatment PlantPlanta de Tratamiento de Aguas Servidas

Paraiso Pumping StationEstación de Bombeo Paraiso

Tierra BombaIsland

CartagenaBay

Cienagade la

Virgen

C a r i b b e a n S e a

0 1 2 3 4 5

KILOMETERS / KILOMETROS

IBRD 33296

MAY 20, 2004

PUNTACANOA

CARTAGENA

ARROYODE PIEDRA

MANZANILLODEL MAR

LABOQUILLA

SUBMARINE OUTFALL (72”) CONSTRUCTED UNDER THE PROJECTEMISARIO SUBMARINO (72”) CONSTRUIDO COMO PARTE DEL PROYECTO

ON SHORE CONVEYANCE SYSTEM (72”) CONSTRUCTED UNDER THE PROJECTLINEA DE IMPULSION TERRESTRE (72”) CONSTRUIDA COMO PARTE DEL PROYECTO

WASTEWATER TREATMENT PLANT CONSTRUCTED UNDER THE PROJECTPLANTA DE TRATAMIENTO DE AGUAS SERVIDAS, CONSTRUIDA COMO PARTE DEL PROYECTO

PUMPING STATION UPGRADED UNDER THE PROJECTESTACIÓN DE BOMBEO REHABILITADO COMO PARTE DEL PROYECTO

RIVERS / RIOS

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors,denominationsand anyother information shownon this map do not imply, on the part of The World Bank Group, any judgmenton the legalstatus of any territory,or any endorsement or acceptance of such boundaries.

Este mapa fue preparado por la Unidad de Diseño de mapas Del Banco Mundial. Las fronteras, los colores, los nombres ytoda otra información contenida en este mapa no denotan, por parte Del Groupo Del Banco Mundial, juicio alguno sobre lacondición jurídica de ninguno de los territorios, ni aprobación o aceptación de ninguna de tales fronteras.

COLOMBIA / COLOMBIACARTAGENA WATER SUPPLY, SEWERAGE,

AND ENVIRONMENTAL MANAGEMENT PROJECTPROYECTO DE ACUEDUCTO, ALCANTARILLADO

Y GESTION AMBIENTAL DE CARTAGENAMAIN WASTEWATER CONVEYANCE SYSTEM,

TREATMENT INSTALLATIONS, AND SUBMARINE OUTFALLSISTEME DE IMPULSIÓN TERRESTRE, INSTALACIONES

DE TRATAMIENTO Y EMISARIO SUBMARINO

COLOMBIA

Cartagena

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominationsand any other information shown on this map do not imply, on the part of The World Bank Group, any judgmenton the legal status of any territory, or any endorsement or acceptance of such boundaries.


COLOMBIACOLOMBIA

CARTAGENA WATER SUPPLY,SEWERAGE, AND ENVIRONMENTAL

MANAGEMENT PROJECTPROYECTO DE ACUEDUCTO,

ALCANTARILLADO Y GESTIONAMBIENTAL DE CARTAGENA

SECONDARY SEWERAGE NETWORKSREDES SECUNDARIOS DE

ALCANTARILLADO

TierraBombaIsland

CartagenaBay

Cienagade la

Virgen

Car ibbean Sea

IBRD 33297

MAY 20, 2004

0 1 2 3

KILOMETERSKILOMETROS

PROJECT SEWERAGE NETWORKS:REDES DE ALCANTARILLADO DEL PROYECTO:1 EL POZON AND VILLA ESTRELLA2 SOUTHEASTERN ZONE / ZONA SURORIENTAL3 LA BOQUILLA4 SAN JOSE DE LOA CAMPANOS5 SOUTHWESTERN ZONE / ZON SUROCCIDENTAL6 CRESPO-EL ORO7 PASEO BOLIVAR

SEWERAGE NETWORKS IN CRESPO-EL OROREDES DE ALCANTARILLADE EN CRESPO-EL ORO

SEWERAGE NETWORKS IN VARIOUS NEIGHBORHOODSREDES DE ALCANTARILLADE EN VARIAS VECINDADES

SEWERAGE NETWORKS IN THE SOUTHEASTERN ZONEREDES DE ALCANTARILLADE EN ZONA SURORIENTALMamonal

6 67

3

3

3

22 2 2

2

21

1

4

5

COLOMBIA

Cartagena

submarine outfall

emisario submarino



Tierra BombaIsland

CartagenaBay

Cienagade la

Virgen


0 1 2 3 4 5


IBRD 33298

MAY 20, 2004

PUNTACANOA

CARTAGENA

COLOMBIA / COLOMBIACARTAGENA WATER SUPPLY, SEWERAGE, AND ENVIRONMENTAL MANAGEMENT PROJECTPROYECTO DE ACUEDUCTO, ALCANTARILLADO Y GESTION AMBIENTAL DE CARTAGENA

ARROYODE PIEDRA

MANZANILLODEL MAR

LABOQUILLASUBMARINE OUTFALL (72”) CONSTRUCTED UNDER THE PROJECT

EMISARIO SUBMARINO (72”) CONSTRUIDO COMO PARTE DEL PROYECTO




RIVERS / RIOS

CONTAMINATION IN THE CIENAGA, ZONE OF EXCEEDANCE OF PRIMARY CONTACT STANDARD (TOTAL COLIFORM DENSITY HIGHER THAN 1,000 MPN/100 ml)CONTAMINACIÓN EN LA CIÉNAGA, ZONA DE EXCEDENCIA DEL ESTANDARD DEL CONTACTO PRIMARIO (DENSIDADA DE COLIFORMES TOTALES MAYOR DE 1,000 MPN/100 ml)

CONTAMINATION IN THE CIENAGA, ZONE OF EXCEEDANCE OF SECONDARY CONTACT STANDARD (TOTAL COLIFORM DENSITY HIGHER THAN 5,000 MPN/100 ml)CONTAMINACIÓN EN LA CIÉNAGA, ZONA DE EXCEDENCIA DEL ESTANDARD DEL CONTACTO SECUNDARIO (DENSIDADA DE COLIFORMES TOTALES MAYOR DE 5,000 MPN/100 ml)

CONTAMINATION IN THE CIENAGA, HIGHLY POLLUTED ZONE WITH OVER 20,000 MPN/100 ml TOTAL COLIFORMCONTAMINACIÓN EN LA CIÉNAGA, ZONA DEL ALTA ZONA DE CONTAMINACIÓN CON MÁS DE 20,000 MPN/100 ml COLIFORMES TOTALES

URBAN AREAS CONTAMINATED BY SEWAGE FLOWING IN THE STREETSZONAS URBANAS CONTAMINADAS POR AGUAS SERVIDAS ESCORIENDO EN LAS CALLES

OFFSHORE ZONES CONTAMINATED BY DISCHARGE OF SEWAGEZONAS MARINAS CONTAMINADAS POR DESCARGA DE AGUAS SERVIDAS



CURRENT STATE OF CONTAMINATIONBY SEWAGE (WITHOUT PROJECT)

ESTADO ACTUAL DE CONTAMINACIÓNPOR AGUAS SERVIDAS (SIN PROYECTO)

COLOMBIA

Cartagena

submarine outfall

emisario submarino



Tierra BombaIsland

CartagenaBay

Cienagade la

Virgen


0 1 2 3 4 5


IBRD 33299

MAY 21, 2004

PUNTACANOA

CARTAGENA

COLOMBIA / COLOMBIACARTAGENA WATER SUPPLY, SEWERAGE, AND ENVIRONMENTAL MANAGEMENT PROJECTPROYECTO DE ACUEDUCTO, ALCANTARILLADO Y GESTION AMBIENTAL DE CARTAGENA

ARROYODE PIEDRA

MANZANILLODEL MAR

LABOQUILLA

SUBMARINE OUTFALL (72”) CONSTRUCTED UNDER THE PROJECTEMISARIO SUBMARINO (72”) CONSTRUIDO COMO PARTE DEL PROYECTO




RIVERS / RIOS

DISCHARGE OF UNCHLORINATED EFFLUENT, ZONE OF EXCEEDANCE OF PRIMARY CONTACT STANDARD (TOTAL COLIFORM DENSITY HIGHER THAN 1,000 MPN/100 ml IN 20% OF THE SAMPLES)DESCARGA DE EFLUENTE SIN PREVIA CLORACIÓN, ZONA DE EXCEDENCIA DEL ESTANDARD DE CONTACTO PRIMARIO (DENSIDAD DE COLIFORMES TOTALES MAYOR DE 1,000 MPN/100 ml EN 20% DE LAS MUESTRAS)

DISCHARGE OF UNCHLORINATED EFFLUENT, ZONE OF EXCEEDENCE OF SECONDARY CONTACT STANDARD (TOTAL COLIFORM DENSITY HIGHER THAN 5,000 MPN/100 ml IN 20% OF THE SAMPLES)DESCARGA DE EFLUENTE SIN PREVIA CLORACIÓN, ZONA DE EXCEDENCIA DEL ESTANDARD DE CONTACTO SECUNDARIO (DENSIDAD DE COLIFORMES TOTALES MAYOR DE 5,000 MPN/100 ml EN 20% DE LAS MUESTRAS)

EFFLUENT CHLORINATED TO ACHIEVE TOTAL COLIFORM CONCENTRATION OF 105 MPN/100 ml AT TREATMENT PLANT WILL MEET BOTH PRIMARY AND SECONDARY CONTACT STANDARDS AT THE DISCHARGE POINT OF OUTFALL AND BEYOND.EFLUENTE CLORINADO PARA ALCANZAR UNA CONCENTRACIÓN TOTAL DE COLIFORMES DE 105 MPN/100 ml EN LA PLANTA DE TRATAMIENTO CUMPLIRÁ CON AMBOS EL ESTÁNDAR DE CONTACTO PRIMARIO Y SECUNDARIO EN EL PUNTO DE DESCARGA DEL EMISARIO Y MÁS LEJOS.

* Chlorination will be activated only in situations of emergency.** Se activará el sistema de cloración sólo en situaciones de emergencia.



EFFECT ON CONTAMINATION BY SEWAGE(WITH PROJECT)

EFECTO SOBRE LA CONTAMINACIÓN PORAGUAS SERVIDAS (CON PROYECTO)

Note*

Nota**

COLOMBIA

Cartagena

World Bank Documentdocuments.worldbank.org/curated/en/... · EBAR Estación de Bombeo de Aguas...

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Transcript of World Bank Documentdocuments.worldbank.org/curated/en/... · EBAR Estación de Bombeo de Aguas...