implementation completion report republic of cyprus (loan 3222-cy) · 2019. 1. 16. · drainage...

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 16786

IMPLEMENTATION COMPLETION REPORT

REPUBLIC OF CYPRUS

Limassol-Amathus Sewerage and Drainage Project

(Loan 3222-CY)

June 25, 1997

Infrastructure DivisionSoutheastern Europe DepartmentEurope and Central Asia

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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CURRENCY EQUIVALENTS

Currency Unit Cyprus Pounds (F. Cyp)

1992 1993 1994 1995 1996

US$1.00 = 0.450 0.490 0.497 0.446 0.440

WEIGHTS AND MEASURES

Metric System US System

1 meter (m) 3.281 feet

I kilometer (km) 0.621 miles

I square kilometer (km2) 0.386 square miles

1 metric tonne (m. ton) 0.984 long ton

ABBREVIATIONS AND ACRONYMS

BOD5 - Five Day Biochemical Oxygen DemandCERF - Council of Europe Resettlement Fund

EIB - European Investment BankIBRD - International Bank for Reconstruction and Development

IDA - International Development AssociationMOF - Ministry of Finance

PIU - Project Implementation UnitSBLA - Sewerage Board of Limassol-Amathus

SOE - Statement of ExpendituresSS - Suspended Solids

STP - Sewage Treatment Plant

TTP - Tertiary Treatment Plant

CYPRUS FISCAL YEAR

(January 1 to December 31}

Vice President: Mr. Johannes Linn, ECADirector: Mr. Kenneth Lay, ECI

Division Chief: Mr. Ricardo Halperin, ECIINResponsible Staff: World Bank Team - Anita George (Task Team Leader and Financial Analyst), Takao

Ikegami (Sanitary Engineer), Lea Donaldson (Sanitary Engineer); Borrower Team -Mr. lacovos Papaiacovou (General Manager) and Mr. Angelos Christou (Engineer),Sewerage Board of Limassol-Amathus.

FOR OFFICIAL USE ONLY


REPUBLIC OF CYPRUS

Limassol-Amathus Sewerage and Drainage Project

Loan 3222-CY

Table of Contents

P R E F A C E ....................................................................................................................................................................... i

EV A L U A T IO N SU M M A R Y ...................................................................................................................................... ii

PART 1. PROJECT IMPLEMENTATION ASSESSMENT ........................................................................................ I

A . P R O JEC T B A C K G R O U ND............................................................................................................................................

B . PRO JECT D ESIG N A N D O BJECTIV ES ..................................................... ...................................................................... 2C . PRO JECT C O STS A N D FIN A NC IN G : ...................................................... .................... ........ ........................................ 3

D . IM PLEM EN TA TIO N E X PER IEN C E .......................................................... ...................................................................... 4

E . P R O JEC T R E SU L T S ............................................................................... ...................................................................... 5

F. PERFORMANCE OF PROJECT EXECUTING AGENCY............................... ............................................................. ..... ... 7

G . B A N K P E R FO R M A N C E ......................................................................... ...................................................................... 8

PA R T II. STA T IST IC A L T A B L E S ............................................................................................................................. 10

T A BLE 1: SUM M A RY O F A SSESSM ENTS...................................................................................................................

TABLE 2: R ELATED BANK LOANS/C REDITS ............................................................................................................ 13

T A BLE 3: P RO JEC T T IM ETA BLE ................................................................................................................................ 14

TABLE 4: LOAN/CREDIT DISBURSEMENTS: CUMULATIVE ESTIMATED AND ACTUAL (US$ THOUSANDS).................14

TABLE 5: KEY INDICATORS FOR PROJECT IMPLEMENTATION..................................................................................15

TABLE 6: KEY INDICATORS FOR PROJECT OPERATION.............................................................................................16

T A BLE 7: ST UDIES INCLUDED IN PROJECT ................................................................................................................ 17

T A B L E 8A : P R O JEC T C O ST S ........................................................................................................................................ 8T A B LE 8B : P RO JEC T F IN A N C IN G ................................................................................................................................. 19

TABLE 9: ECONOM IC COSTS AND B ENEFITS....................................... ..................................................................... 20

TABLE 10: STATUS OF LEGAL C OVENANTS...............................................................................................................

TABLE II: COMPLIANCE WITH OPERATIONAL MANUAL STATEMENTS ..................................................................... 23

T A BLE 12: B AN K R ESO URCES: M ISSION S ........................................... ..................................................................... 24

TABLE 13: BANK RESOURCES: STAFF INPUTS..................................... ..................................................................... 25

Appendixes:A. Mission's aide-menoireB. Borrower contribution to the ICRC. Miscellaneous appendixesD. Map

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.


REPUBLIC OF CYPRUS

LIMASSOL-AMATHUS SEWERAGE AND DRAINAGE PROJECT {LOAN NO. 3222-CY}

Preface

This is the Implementation Completion Report (ICR) for the Limassol-Amathus Sewerage andDrainage Project in Cyprus, for which Loan 3222-CY in the amount of US$25 million equivalent wasapproved on September 12, 1990 and made effective on December 11, 1990.

Although the Loan 3222-CY was fully disbursed on April 11, 1996 the project's objectives werefully realized only by February, 1997. The original loan closing date for this project is June 30, 1998.Co-financing for the project was provided by the Council of Europe's Resettlement Fund (CERF).

The ICR was prepared jointly by Anita George (EC I IN) and by the borrower, the SewerageBoard of Limassol-Amathus (SBLA) with contributions from the task team members, includingMr. Takao Ikegami (Sanitary Engineer) and Ms. Lea Donaldson (Sanitary Engineer). The ICR has beenreviewed by Mr. Ricardo Halperin (Chief, Infrastructure Operations, ECIN) and Mr. George Zaidan(Project Advisor, ECIDR). The Borrower team, comprising Mr. lacovos Papaiacovou (GeneralManager, SBLA) and Mr. Angelos Christou (Chief Engineer, SBLA) contributed considerably to thesuccessful completion of the project and to the writing of the ICR. The Borrowers also made a Bank-wide presentation regarding the lessons learned from the Project and recommendations on improvingproject implementation. The Borrower's comments are attached as Appendix B to the ICR.

Preparation of this ICR was begun after a presentation by the Borrower on October 31, 1996, inWashington DC, regarding the problems faced and lessons learned from the project. The ICR is basedon material in the project file, including aide-memoires from past supervision missions.

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REPUBLIC OF CYPRUS

LIMASSOL-AMATHUS SEWERAGE AND DRAINAGE PROJECT

LOAN NO. 3222-CY

Evaluation Summary

Introduction

I. The Limassol-Amathus Sewerage and Drainage Project services a population of 125,000residents, rising to above 200,000 during the peak tourist season. Limassol is the second largest urbanarea in Cyprus, and one of its most important tourist sites. In 1984, the Bank approved a loan (Loan2211 -CY) for financing a sewerage and drainage network and treatment facility in the Limassol area.However, due to disagreement on the location of the Sewerage Treatment Plant, the project did notprogress and the loan was canceled in 1987. After considerable consultation with leaders of thesurrounding communities, an alternative site was located and a new project appraised for which a loanof US$25 million was made to the Sewerage Board of Limassol and Amathus (SBLA) in 1990. Theoriginal project closing date was June 30, 1998. Physical construction was completed and the loan fullydisbursed by May, 1996, while the main financial and institutional objectives of the project weresuccessfully achieved by February, 1997.

2. To make the ICR process participatory, in October, 1996, the Chairman and the GeneralManager of the Sewerage Board of Limassol-Amathus (SBLA) visited Washington DC, to present to aBankwide audience their observations and the lessons learned from the project. The Borrower'scontribution to the ICR is given in Appendix B.

Project Objectives

3. The Project objectives, as presented in the Staff Appraisal Report of May 14, 1990, were asfollows:

(i) to provide a safe, reliable system for the disposal of human, commercial and industrialwaste water; and thereby eliminate the nuisance and health risks, including the threat tothe area's water supply and important tourist industry, that arise from the presentunsatisfactory disposal arrangements;

(ii) to provide key elements of a stormwater drainage system in areas subject to severeflooding during the rainy season, which causes damage and disrupts commercial,industrial and other activities;

(iii) to contribute to improved environmental management by identifying and promoting theoptimum use of sewage effluent and sewage sludge in the project area; and

(iv) to strengthen the institutional capacity of the SBLA, which at the time only had anucleus of staff.

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The project was designed to meet the sewerage needs of the Greater Limassol area up to the year 2010,in two phases. The first phase (Phase 1) was to construct a sewage network, including laterals and mainsewers, main interceptor, pumping stations and basic storm water drainage for part of the GreaterLimassol area. Also, a sewage treatment plant (STP) of 23,600 m3/day, a sea-outfall, environmentalstudies on sludge and effluent reuse, and consultant services for project implementation and institutionbuilding were envisaged. Construction was to be completed in December, 1997, and the facility was tobegin operations before June 30, 1998, the official loan closing date. The Bank loan helped to financethis first phase.

Implementation Experience and Results

Overall, the project has been successfully implemented with physical construction beingcompleted almost two years before schedule, despite the addition of a Government-financed tertiarytreatment and effluent re-use network. Achievement of the institutional and financial objectives tooksome additional time, but they are now well established.

The implementation problems faced during the construction phase of the project were bothtechnical and commercial in nature. The technical problems can be summarized as follows:

Problem Solution

(i) relocation of STP site due to public The Government paid for the additional costsopposition; arising from relocation of STP site 1500

meters eastward of the current site.

(ii) the re-alignment of the main collector due to SBLA decided to re-align the main collector,opposition by hoteliers whose properties were taking into account the opinion of affectedin the path of the planned route; hoteliers. The Government agreed to finance

the additional costs of re-routing.

(iii) diversion of the main collector due to Government paid the additional costs of theantiquities found in the ancient Amathus area; diversion tunnel created to safeguard the

antiquities.

The relocation of site, the re-alignment of the main collector and building the diversion tunnel,coupled with the imposition of the value added tax, resulted in the project costs increasing from theestimated US$69 million to over US$85 million . The delays in construction caused by the abovementioned problems were overcome by accelerating the construction schedule such that the entiresystem, including the tertiary STP, was completed and operational by July, 1996. This is a noteworthyachievement of SBLA management and staff. The standards for effluent quality at the secondary andtertiary stage of treatment have been met. Minor problems of odor at the pumping station have beencontrolled through the effective use of chemicals.

The commercial problems were related primarily with the lack of acceptance of the project byparticular users such as the major hoteliers in the Limassol-Amathus area. In particular, sewerage

I SBLA is currently in the process of negotiating claims from contractors which could range anywhere betweenUS$1 million to US$5 million. SBLA expects settlement at around US$1-2 million.

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charges were perceived as a new form of taxation and there was considerable resistance especially duringthe first two years of construction, before the system became operational. The hoteliers, especially theones that had already invested in their own biological treatment plants, believed that they were beingasked to make a double investment. Also the rates for hotels were almost four times those charged for thepopulation at large and two times those charged to industry. However, the actions of SBLA staff and thesupport of the Board members, and close follow-up by Bank staff, resulted in the issue being resolved inFebruary, 1997, with SBLA winning court cases at the High Court and Supreme Court which now legallyestablish the obligation of all hotels to pay their sewage dues. Similarly, it was consistently difficult forthe SBLA to collect dues from Government institutions since it was contested whether the Governmentcould be made liable to pay sewerage rates which were argued to be equivalent to taxes. The SewerageLaw of 1971 (that governs the Sewerage Boards in Cyprus) was amended in 1995 to explicitly state thatthe Government is required to pay sewerage dues. As of May, 1997, the Government had also paid upmost of its dues, and, in future, payment from the Government is not expected to pose any problems.

The delays in payment by two major groups of users resulted in difficult cash flow problems forSBLA during the heavy investment expenditure phase 1992 to 1994, and SBLA was unable to meet theself-financing ratio covenant of the Loan Agreement. However, SBLA expanded the project area andcorresponding increased collection of dues as well as rescheduled Government debt and all thesemeasures allowed it to make a modest contribution to investment during the years 1992 to 1994; by 1995SBLA exceeded the self-financing ratio target of 20%. (Refer Table 6 on Key Monitoring Indicators forProject Operation). The debt-service coverage ratio throughout the project was lower than expected, butabove 1.2 in each year.

The Limassol-Amathus project provides several useful lessons. The primary one is theimportance of public acceptance of waste treatment facilities. Despite the overall positive benefits ofsuch facilities, the "not-in-my-backyard" principle has led to almost every site being vulnerable to publicopposition at any time through the course of the project life. SBLA has learned this lesson through thecourse of the project and increasingly used public relations measures to create greater publicacceptability. SBLA sponsored radio and television programs to emphasize the benefits of managedsewage systems and the cost of the lack of such systems, in the form of illegal dumping and need foradditional policing. For the Bank, the experience from this project, underlines the use of a moreparticipatory approach of site selection and ensuring that all legal hurdles to the utilization of the selectedsite have been overcome before the loan is approved. Although there was considerable amount of publicconsultation carried out by the Borrower, as described in the Borrower's contribution in Appendix B, itwas more reactive than proactive and therefore proved inadequate among certain customers. TheBorrower has suggested an approach to streamline the procurement process of the Bank which isdescribed in paragraph 25 of this ICR and in the Borrower's contribution in Appendix B.

The economic rate of return (ERR) for the project is 12% (taking into account only the secondarylevel of treatment considered in SAR), is lower than the SAR projection of 17.6%2, due to the 20%increase in capital costs, and the higher than expected operation and maintenance costs. However, it isstill above the estimated opportunity cost of capital. The assumptions on stream of costs and benefitsfollow ones used in the SAR for consistency. As noted in the SAR, the ERR calculation is veryconservative since it excludes many benefits that are difficult to quantify, in particular, the projectprovides the first operating treatment facility that allows for re-use of treated effluent in Cyprus, and it

2 However, a re-calculation of the ERR using the same stream of net benefits as shown in the SAR, yields an ERRof 16%, which may suggest a computation error (or a misprint of some of the figures used). Unfortunately, theworksheets could not be located in regional files.

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corrected the problem of untreated effluent being dumped or leaking into the sea. For Cyprus, theMediterranean Sea is a very valuable asset that enables it to sustain the tourism industry, the largestforeign exchange earner in Cyprus. The groundwater sources which had started to be at risk of gettingpolluted due to seepage and leakage of untreated effluent is also protected and provides better qualitywater supply to the citizens and tourists. Also, as an extremely water scarce society, the treated effluentprovides an alternative source of water for agriculture and other sectors.

The institutional capacity of SBLA has increased considerably from the start of the project, whenthere was only a small nucleus of staff. The highly qualified and committed core staff of SBLA, inparticular, the General Manager and Chief Engineer, with the support of their Board members, wereinstrumental in building up institutional capacity which led to successful completion of the project.SBLA has secured financing from the European Investment Bank (EIB) and commenced implementationof Phase II of the project.

The table below summarizes the project objectives and the specific results achieved.

Prqject Obiective Project Results

(i) to provide a safe, reliable system for the (i) the project is currently able to serve 36% ofdisposal of human, commercial and industrial the population higher than the planned 33%.waste water. Connection to a well run system with reuse of

effluent, has begun to minimize disposal ofuntreated effluent into the sea and increasingwater availability in the area. The reduction ofseptic sewage in the Vati disposal areaprotects the Polemidia Dam and improves thegeneral sanitation and hygiene of the area.

(ii) to provide key elements of a stormwater (ii) the main storm water drainage network hasdrainage system in areas subject to severe been constructed and the flooding problemflooding. experienced in the area in the past has been

eliminated. A storm drainage Master Plan hasalso been prepared and distributed to allinterested local authorities as a generalguideline document for the region.

(iii) to contribute to improved environmental (iii) the project, with the addition of themanagement by identifying and promoting the Government financed tertiary treatment plantoptimum use of sewage effluent and sewage and irrigation network, had an environmentalsludge in the project area. impact beyond what was expected. A number

of studies including an environmental studyfor the location of the STP, optimal disposalof effluent, effluent and sludge reuse etc. havebeen carried out contributing to the overallenvironmental management capacity in thearea. The quality of bathing waters on thebeach has improved and meets national andinternational standards. Also prior to theproject, the individual septic sewage was

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being disposed at the Vati disposal area. Thishas now been reduced by half, reducing theenvironmental problems near Polemidia Dam.

(iv) to strengthen the institutional capacity of the (iv) SBLA made significant improvements inSBLA. institutional capacity. Most of the key staff

are in place and many have benefited fromtraining. SBLA had a successful twinningwith Thames Water International(UK) whichallowed interaction of key SBLA staff withinternational professionals in the field.Subcontracting services from the privatesector used for project management andtechnical services for plant maintenance,sludge management and security.


REPUBLIC OF CYPRUS

LIMASSOL-AMATHUS SEWERAGE AND DRAINAGE PROJECT

Part I. Project Implementation Assessment

A. Project Background

I. The Limassol-Amathus Project and the Bank's past involvement in the water and seweragesector reflects the importance of these two sectors to the economy and tourist industry in Cyprus. Waterresources available to Cyprus are scarce and their rational management and development is critical toefficient economic development. The treatment of wastewater and its re-use has become a key part ofthe strategy of water resources and environmental management. The successive projects of the Bank,including the Limassol-Amathus Project, have contributed to this strategy.

2. The first loan for collection and treatment of wastewater in Cyprus dates back to 1971 with theNicosia Sewerage Project (Ln. 729-CY) and Famagusta Sewerage and Drainage Project (Ln. 730-CY).These projects provided for sewage collection and disposal facilities. However, due to the events thattook place in 1974, the implementation of both projects was suspended. The Nicosia project (Ln. 729-CY) was subsequently completed and operations began in 1980, and today the Nicosia Sewerage andDrainage Board is an efficient, financially viable and well functioning utility. The Famagusta loan (Ln.730-CY) was closed in 1981 and the works remain to be completed, since Famagusta is currently part ofthe Turkish controlled territory in the north of the island. The Bank also assisted in the implementationof two multi-purpose water resource development projects -- the Vasilikos- Pendaskinos (Ln. 1658-CY,completed in 1987) and the Southern Conveyor Projects for water resource development (SCPI Ln 2386-CY - completed in 1991) and the Southern Conveyor Project - Phase II (SCPI LN 2914-CY) completedin December, 1996. Following the Limassol-Amathus Project, in 1991, the Bank made its last loans tothe sector, the Southeast Coast Sewerage and Drainage Project (Ln 3398, 3399 and 3400-CY), under oneproject designed to build sewerage and drainage networks and STPs serving three municipalities on theSoutheastern Mediterranean coast; the Larnaca component (Ln. 3398-CY) of this project is beingimplemented satisfactorily, and the other two loans (Lns. 3399 and 3400-CY) are expected to becanceled due to re-financing from the European Investment Bank(EIB) on more favorable terms. Inaddition, at the request of the Government, the Bank carried out a sector study on Water ResourcesManagement which was completed in 1995.

3. The Limassol-Amathus Sewerage and Drainage Project is part of a first phase, Phase 1, of aprogram to provide sewerage and drainage systems in the Limassol-Amathus area. The southern coastaltown of Limassol along the Akrotiri Bay, has a population of 125,000 which increases to above 200,000during tourist season. (Map presented in Appendix D). The Greater Limassol area which is consideredthe total project area, has a population of 200,000 and is the second largest urban area in Cyprus and oneof the principal tourist sites. Prior to the project, the town had no central sewerage system and thepopulation was served by individual disposal units consisting of septic tanks and percolation pits, and insome cases by small biological package treatment plants. Although a similar project was appraised in1984, because of strong local opposition to the siting of the Sewage Treatment Plant (STP), that projectwas not implemented and no disbursements were made, and the loan was canceled in 1987.

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B. Project Design and Objectives

4. In 1990, the Government requested a new appraisal based on a new site for the treatment plant,to which the Bank agreed and a loan of US$25 million was eventually made to SBLA. The project wasdesigned to meet the sewerage and drainage needs of the area up to the year 2010, and followed the basicstrategy laid out in the Master Plan for Sewerage and Drainage for Limassol and the feasibility study forthe project that was prepared in 1989. Originally, the project design did not include the tertiary treatmentplant (TTP) or the re-use network. Although at project preparation it was considered that tertiarytreatment and effluent re-use in a water scarce economy such as Cyprus was desirable, it was agreed atthat time that tertiary treatment would have been too expensive for the municipality to fund on its own.Subsequently, during the preparation of the Southeast Coast Sewerage and Drainage project (Lns.3398,3399,3400-CY), in discussions with the Government, it was decided that this project would includetertiary treatment and a re-use network, which would be fully financed by the Government. SBLA wasquick to take advantage of the Government's willingness to finance tertiary treatment and revised theoriginal project design to include a TTP and the re-use network. The sea-outfall planned under theproject was re-designed and constructed as an emergency outfall to be used if and when treated effluentcannot be re-used.

5. The Project objectives as defined in the Staff Appraisal Report of May 14, 1990, were asfollows:

(a) to provide a safe, reliable system for the disposal of human, commercial and industrialwaste water; and thereby eliminate the nuisance and health risks, including the threat tothe areas's water supply and important tourist industry, that arise from the presentunsatisfactory disposal arrangements;

(b) to provide key elements of a stormwater drainage system in areas subject to severeflooding during the rainy season, which causes damage and disrupts commercial,industrial and other activities;

(c) to contribute to improved environmental management by identifying and promoting theoptimum use of sewage effluent and sewage sludge in the project area; and

(d) to strengthen the institutional capacity of the SBLA, which at the time only had anucleus of staff.

6. The project proposed a six year construction period (1991 to 1997) for Phase I which wouldinclude the following major components:

(i) a sewage collection system consisting of about 152 kilometers (km) of laterals and mainsewers, in sizes from 150-300 millimeters (mm) diameter, and about 9,000 serviceconnections to be progressively implemented by 1999;

(ii) a collector sewer, i.e. main interceptor/force main consisting of about 20 km of sewerpipe varying in size from 400 to 1300 mm diameter;

(iii) five pumping stations;

(iv) sewage treatment plant of 23, 600 m3/day capacity;

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(v) a 900 mm dia. Sea outfall, of total length 2,100 m (1,500m land, 600 m sea section);

(vi) upgrading the existing storm drainage system by provision of about 21 km of stormdrains throughout the SBLA area, and improvements to existing drainage catchmentbasins and inlet structures to drains;

(vii) operation and maintenance equipment for the sewerage and drainage systems;

(viii) consultant services for project implementation, including institutional development ofSBLA and updating of the master plan for drainage; and

(ix) study of the environmental impact of the effluent outfall to determine the design of theoutfall, and ensure an effluent of acceptable quality.

7. The works to be constructed in Phase II would consist of additional lateral and main sewerextensions to the collection system, expansion of the sewage treatment plant, and additional equipmentfor the pumping stations.

8. During implementation the Bank staff and Borrower worked closely to deal with the practicalproblems that arose and in doing so some aspects of the original project design were changed withoutaffecting the jointly agreed objectives of the project. Some of the changes, described in Paragraph Dresulted from the change in the treatment plant site, re-routing the main collector due to the request ofsome hoteliers whose properties were to be crossed, and due to the antiquities found on the original pathof the main collector, and extension of the covered project area. However, some other changes, such asthe addition of the tertiary treatment plant (financed by the Government) increased costs but also resultedin a better than planned environmental impact and increased the possibility of effluent and sludge re-use.

C. Project Costs and Financing :

9. Details on planned and actual project costs and financing for the project is shown in theStatistical Annex, Tables 5 and 6. The original project costs for Phase I of the project increased by 22.5%from the estimated US$69.1 to US$84.7 million(excluding the costs of the tertiary treatment plant andre-use network which were not included in the original project costs). The main reasons for the increasein project costs are explained in the section on Implementation Experience (given below) and can besummarized as follows:

Reason for Cost Increase Cost Increase (US$ m)

Construction of Amathus Tunnel 4.2Re-location of the STP 4.6Re-alignment of Main Collector 1.0Imposition of VAT in 1992 5.IQTotal i4l

The increases arising from the relocation of the STP and partly for the Amathus Tunnel were financed bythe Government (US$6 million equivalent from its own resources and US$3.7 million equivalent fromloan to the Government from the Social Development Fund of the Council of Europe). The remaining

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increases were funded from the Social Development Fund of the Council of Europe (US$4.0) andSBLA's own resources (US$1.1 million).

D. Implementation Experience

10. During the construction period (1992 to 1995) there were several technical and commercialproblems faced by the SBLA. The technical problems included:

(i) Relocation of the Sewerage Treatment Plant (STP) and realignment of the main collectorresulted in delays and additional costs. The additional costs of STP relocation wasborne by the Government.

(ii) Antiquities were found in many places during construction and required diversionswhich added to project cost . Remarkable is the fact that despite the resulting delays theconstruction was completed almost two years prior to the anticipated completion date.

(iii) Given the narrow streets, particularly in the older sections of the town, temporary roadsfor traffic diversions had to be constructed in many instances.

(iv) Underground utilities such as electricity, telephone and water caused some technicalproblems resulting in delays and additional costs.

(v) Land acquisition (right-of-way) caused delays.

(vi) System commissioning problems experienced during the initial stages including odorproblems.

11. The major commercial problem faced by the borrower was the non-payment of sewage bills.The revenue projections of the SBLA included three major user groups - households, hotels and hotelapartments and Government. The sewage rates were charged starting in 1991, even before constructionof the project began. While the population at large paid their dues on time, hoteliers, many of who hadtheir own biological treatment plants, felt they were paying for a service in advance of delivery, and thatthey were making double investment. Also the rates to hotels were almost four times those charged forthe population at large and two times those charged to industry. From 1992 onwards, the hoteliers, withsome exceptions, decided to abstain from paying their dues. The Government also delayed on itspayments, in some cases because of technicalities (such as responsibilities on payments of dues onproperties with a long term lease agreement with refugees), but also because of disputes on whetherGovernment was required to pay. It was argued that since sewer rates are based on property values, theywere equivalent to taxes, that government institutions are exempt from paying. SBLA also experienceddelays in reimbursement of payments on relocation and the diversion tunnel expenses and the tertiarytreatment plant. The next section explains how SBLA addressed the technical and commercial problemsfaced during implementation.

The Government also delayed on its payments, in some cases because of technicalities (such asresponsibilities on payments of dues on properties with a long term lease agreement with refugees) , butalso because of disputes on whether Government was required to pay. It was argued that since sewerrates are based on property values, they were equivalent to taxes, that government institutions are exemptfrom paying. However, as suggested by the Bank and due to the efforts of the SBLA, the Sewerage Lawwas changed in 1995, which clarifies the responsibility of the Government to pay sewer rates. SBLA

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also experienced delays in reimbursement of payments on site relocation and the diversion tunnelexpenses and the tertiary treatment plant.

E. Project Results

12. The major objectives of this project have been met and overall the outcome of the project ishighly satisfactory. The physical works were completed almost two years ahead of the loan closing date.The more challenging institutional and financial aspects of the project took a somewhat longer period,but nonetheless were also attained. The fact that the institutional and financial objectives of the projecthave been met underlines the sustainability of the achievements of this project.

13. The first phase of operation of the treatment plant and network was launched in December 1995.The wastewater treatment plant facilities provide for removal of grit, oil grease and large solids in theprimary stage, followed by secondary biological treatment (oxidation ditch system). The sludge isanaerobically digested and dewatered on belt presses. Gas produced in the digestion process will be usedto heat the digesters. The secondary treatment plant meets the design criteria of effluent with a 5-dayBiochemical Oxygen Demand (BODS) of 20 mg/I and total Suspended Solids (SS) of 20mg/. The meanflow rate at the first phase is estimated at about 22,000 m3/day and it is expected to go up to 48,205m3/day at the ultimate stage. Tertiary treatment is achieved through sand filtration and chlorinationprocess. The biological load of the effluent achieved after the tertiary treatment is 5mg/1 of BOD5 and 5mg/I of SS, which is higher than the design criteria of 10mg/ or less for both parameters.

14. The house connections (8,700) up to the property boundaries have been completed. The cost ofconstruction of the house connection within the property boundaries is borne by the property owner. Sofar the rate of connections within the property boundaries is 4,000 (as of March, 1997) which is higherthan the targeted level. According to the Master Plan the house connections are to be completed by1999. However, SBLA launched a major publicity campaign to encourage further acceleration in houseconnection, since the treatment facilities have been completed ahead of schedule. Most of the hotelssituated along the touristic coastal area have been connected to the system. There has been a perceptibleimprovement with the odor and other nuisance problems in the area and it is believed that health andhygienic conditions will improve as well. The volume of septic sewage disposed under the old system atthe Vati disposal area by tankers, has been reduced by more than half. It is expected that as the houseconnections to the system continue to increase, the volume of effluent disposed at the area shall reducedramatically and resolve the environmental problem in the area and nearby Polemidia dam.

15. The key storm water drainage network has been constructed and the flooding problemsexperienced in selected areas in the past have been eliminated. A second phase for extending the stormdrainage works is underway. A storm drainage Master Plan was also prepared and is publicly available.The project has certainly improved management of the environment through the centralized sewagetreatment and the Government, by financing the tertiary treatment plant and irrigation network hasallowed for re-use of the treated effluent. The quality of bathing waters of the beaches of Limassol meetall relevant national and international standards.

16. On the commercial side, the Bank followed up during each supervision mission on the progresson collection of dues, particularly from the hotels and the Government. SBLA took the politicallydifficult decision to take the non-paying hoteliers to court. The case went through the Lower, Higher andSupreme Court. Finally, on February 7, 1997, SBLA informed the Bank that the Supreme Court hadruled the case in favor of SBLA, and the hoteliers were asked to pay all past and future dues. SBLA is

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now in the process of working out payment arrangements with the hoteliers which will enable them torecuperate the previous lost dues as well as surcharge on these dues. The payment issue with theGovernment was also resolved with the Government amending the Sewerage Board Law of 1971 toincorporate explicitly that the Government was liable to pay sewerage rates.

17. The financial performance of SBLA was stable though at less than targeted levels, primarily dueto the huge receivables that accumulated due to non-payment by the Government and hotels. Theacceleration in construction and subsequent concentration of draw down on loans in the years 1993 to1995, also contributed to a drop in the debt service coverage ratio below targeted levels. Similarly, theself-financing ratio was also below the targeted levels. However, SBLA managed to maintain sewer rateshigher than the average assumed in the SAR, as shown in Table 6. SBLA adjusted its rate structureaccording to its financial objectives, and was successful in raising revenues from US$3.0 millionequivalent in 1991 to US$13.0 million equivalent in 1997. As planned, SBLA in addition to sewer ratesbased on property values, began in 1995 to charge a surcharge on water consumption for those propertiesconnected to the system. Details on the rate structure are presented in the Borrower's contributionpresented in Appendix B. The higher than anticipated levels of revenue enabled SBLA to remainfinancially viable, and by 1995, most of the financial targets were being met. As of 1997, payment ofdues by the hoteliers and Government, will enable SBLA to improve cash management by reducingreceivables, and thereby improving its overall financial position.

18. SBLA has developed from the beginning its own accounting and budgeting system, inaccordance with International Accounting Standards and Guidelines and in line with the provisions of theSewerage and Drainage Law of 1971. Most functions of the Accounting Department have been fullycomputerized. The billing system, general ledger, receivables, collections are all inter-connected throughan integrated information system. Audited financial statements were submitted annually to the Bank ontime, and were for the most part unqualified. 3

19. The SAR had calculated an Economic Rate of Return (ERR) of 17.6% . This was based on thePhase I costs of the project (including contingencies and adjusting the costs of the main collector andinterceptor). The sewer rates charged by SBLA were used as a proxy for benefits from the project.Although the SAR recognized additional benefits from the project such as improvement in theenvironment, positive impact on tourism, health benefits and mitigation of flooding and consequentreduction in damage, only the easily quantifiable benefits were taken into account. The SAR notes thatthe ERR is conservative given all the benefits not included in the calculation. Using the same basis, therecalculated ERR is around 12%, primarily due to the 20% increase in capital expenditure (net of taxesand duties) from the levels expected during appraisal. The ERR for the whole project, including theTTP , is higher at 14%. The underlying assumptions and the economic benefits presented in Table 9 ofthe Statistical Appendix, does not include several benefits which are difficult to quantify. If the value ofprotection to the Mediterranean Sea and the protection of the ground water sources, and the resultingincrease (or reduction of diversion) of tourists is taken into account, and a price for the treated effluent

In one year prior to the change in Law which establishes the Government's responsibility to pay, the auditorsquestioned SBLA's assumption that Government was liable to pay dues.4See Footnote 2.s The assumptions made to quantify the benefits of the tertiary system include: a gradual buildup of effluent re-use,starting with 20% in 1996, 50% in 1997 and 90% from 1998 onwards, valued at the price of freshwater supply toagriculture. As of now the re-use effluent is supplied free of charge.

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reflect the true opportunity cost of additional water in a water scarce society, the economic rate of returnwould be much higher than the actual numbers discussed above. Without question, it may be nowconfirmed that the project was economically justified.

20. The institutional development of the Board has also been promoted and most of the staff havebeen hired and many have been trained. This again, is a commendable achievement given that the projectbegan with a small nucleus of staff. However, the qualifications and commitment of the financialcontroller and the engineer who formed the core project team, and the support of the Board members,enabled this small group to build a capable and sustainable institution. In fact, SBLA staff havecontributed, on an informal basis, to the institutional capacity of the Sewerage Boards carrying out Bankfinanced projects in other municipalities as well. While some of the activities of the Board in theoperations and maintenance of the system are being contracted out, over time the SBLA will decide themost cost effective method (recruiting additional technical staff versus contracting out) to carry out suchfunctions.

21. The Board also had a successful twinning arrangement with the Thames Water International instaff development and training and overall institutional development. Further details on institutionalaspects is given in the Borrower's contribution to the ICR presented in Appendix B. The existence of awell managed and fairly autonomous Board is a key factor that will make the project sustainable. SBLAis progressing with Phase II of the project, with financing from the EIB and the CERF. An OperationPlan to be followed by the Borrower to guide them in the management of the sewerage system ispresented as Appendix C.

F. Performance of project Executing Agency

22. The project Executing Agency, the Sewerage Board of Limassol-Amathus, is a public utilityestablished by the Council of Ministers Order 248/80. The high quality of performance of the projectExecuting Agency is evidenced by the results achieved; not only have the physical works beenimplemented on schedule, but the more difficult financial and institutional problems have been resolvedstep by step. These results would not have been achieved without the persistence and hard work of thestaff and management of SBLA. It should be mentioned that at the beginning of the project, the SBLAstaff was just three members. One of the difficult objectives of the project was building the institutionalcapacity and the number of staff. Despite this constraint, the core staff of SBLA were able to achieve themajor objectives of the project.

23. The Management Board of SBLA, comprising the council members of the LimassolMunicipality and Mayors or Representatives of other Municipalities or Communities falling within theGreater Limassol area, also contributed to the progress in project implementation. Throughout projectimplementation SBLA staff, supported by the Bank, sought to increase autonomy to improve the speedand effectiveness of decisions. Several of the changes made to the SBLA By-Laws to delegate authorityto the management of the Sewerage Board, are quoted in the Borrower's contribution given in AppendixB of this ICR. The Board of SBLA delegated some of its authority to the management of SBLA, thusenabling more effective day-to-day management of the sewerage board. In addition, the House ofRepresentatives, through the SBLA By-Laws, gave the authority to the Board to increase sewer rateswithin a pre-approved ceiling. This in turn, gave SBLA the needed flexibility for adjusting tariffsaccording to cost recovery principles.

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G. Bank Performance

24. The best judge of the Bank's performance is the client, whose views are attached in Appendix Bof this report. What is notable in the Bank's performance, from the design phase of this project has beenthe willingness to hear the clients concerns, to understand them well and to alter or reinforce courses ofaction accordingly. This spirit of co-operation and good communications were the cornerstone ofsuccess. Although there were changes in the Bank staff handling the project, overall the transfer ofresponsibility was handled smoothly. In many respects, as the borrower assumed responsibility for theproject and handled it well, the Bank had to play a less active role.

25. There were a few matters of contention between the Bank and the Client; primarily on theprocurement requirements and on the financial covenants. On the procurement issue, the Client hassuggested that just as the Bank has a partial waiver system for timely payers of interest obligations,similarly, clients who demonstrate that they can follow Bank guidelines without extensive review atevery stage of the bidding process, should be allowed to proceed with procurement with only an ex-postaudit on compliance with Bank rules. If there was any deviation, then the client would loose his"preferred customer" status and revert back to having apriori reviews on all procurement packages as percurrent Bank practice. This recommendation was also verbally expressed by the Chairman of the Boardand the General Manager at a presentation they made to Bank staff in Washington on their experiencewith implementation of Bank financed projects.

26. The financial covenants were not met in three out of five years of project implementation. TheBorrower was of the view that the requirement of a 20% self-financing ratio throughout the constructionperiod was a very stringent target. SBLA was unable to meet this target for two primary reasons: (a) non-payment by hoteliers and government, which together accounted for 50% of the projected revenue base;and (b) the acceleration in construction due to the initial delays caused by the site change and otherunplanned construction difficulties explained earlier. A major part of each supervision mission wasspent on reviewing SBLA's actions to take remedial steps to be able to comply with the financialcovenants. SBLA, in turn, took politically tough decisions, such as suing the hoteliers for non-paymentand finally after three years, in February 1997, managed to get the highest court's judgment favorable toSBLA. The Board also took a very proactive dialogue with the Government to address non-payment bythe Government and these efforts have paid off and their dues are being collected. Again, the credit forovercoming the commercial problems faced in the project, goes to the financial management and staff ofSBLA who collaborated closely with the Bank.

Summary of Findings, Future Operations, and Key Lessons Learned

27. The findings from the project are the following:

(i) The importance of a participatory approach, including public relations and publicinformation campaigns to educate the public and gain acceptance for such a project,which during the construction phase imposed certain hardships on the general public andwhere charges were levied even before the system become operational. SBLA appointeda private firm as a permanent public relations advisor. SBLA also had daily radioannouncements on progress in project implementation. Regular press releases weremade and in 1994, a trip to Israel was arranged to allow the Cyprus media to see thatreuse of treated effluent is possible and beneficial. All of these actions, contributedtowards gaining public support for this project.

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(ii) Close cooperation with Central Government, local authorities and groups such as, theHotel Owners Association, Shop Owners Association, Chamber of Commerce and otherconsumer groups, was critical throughout the project implementation period.

(iii) Delegation of authority in terms of project implementation. Although the Board ofSBLA comprises the Municipal Council with the Mayor as its Chairman, a SteeringCommittee was established and empowered to approve payments up to a certain limitand take necessary actions to solve day to day problems of project implementation.Changes were made to the By-laws to delegate authority to the management and staff ofSBLA. This facilitated day to day management very significantly.

(iv) A dedicated and qualified staff and management with the capacity and the autonomy tomake quick decisions was critical to the successful implementation of the project.

28. Another lesson learned from this project is that a utility in the public sector can perform well ifgiven the right support and autonomy by the local authorities and managers. However, even under suchcircumstances there are several areas where being in the public domain proved to inhibit quick actionwhich could have further enhanced project implementation. For example, staffing has always been along procedure and usually there have been delays in recruitment. Similarly, it could be argued that thereluctance of hoteliers and the Government (initially) to pay could have been because services areprovided by a public utility and not a private firm, which would enter into operation only aftercontractually establishing payment responsibilities and deterring penalties for non-payment of dues..

29. Despite all the efforts made in terms of dissemination of public information, a lot more couldhave been done in the early stages, particularly during the site selection stage and early constructionphase. During the discussions for the location of the STP to the west of Limassol, the SBLA could forexample, have arranged a tour of community leaders and the media to neighboring countries wheresimilar projects have been operating for many years in order to see first-hand the benefits of installing asewerage system. Such a tour organized in 1994, yielded very favorable results. Similarly, the relativelylow collection rate, faced in the early years of the project, could have been improved through intensivepublic campaigns informing the public of the rationale for the sewage rates. Although SBLA reallymade significant efforts to notify and involve the public at various stages of the project, several of theseefforts were reactive rather than proactive. It could be said in hindsight, that a well thought out andexecuted public consultation plan at the start, and throughout the course of the project, could have helpedto improve project acceptance by the public at large.

30. The project has a significant and positive environmental impact and results in commercialbenefits as well. Tourism is an industry where it takes only one incident caused by unhealthy bathingwaters or other negative environmental effects to result in a major slump, particularly given thecompetition for tourists in the Mediterranean area. Also the risk of polluting ground water sources andcausing damage to public health, was high.. This project provides Limassol and Cyprus an insuranceagainst and a mitigation of such environmental risks. This is the first operating TTP in Cyprus, and is agood example of efficient use of water in a water scarce country. Most important, the problems faced bySBLA have enabled the Board to legally establish the liability for major users to pay for sewerageservices. SBLA has more than understood the importance of public consultation and participation forproject success, and is already incorporating the lessons learned in implementing the second phase of theproject. All these elements will contribute to the sustainability of the objectives of the project.

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Part II. Statistical Tables

Table 1: Summary of AssessmentTable 2: Related Bank Loans/CreditsTable 3: Project TimetableTable 4: Loan/Credit Disbursements: Cumulative Estimated and ActualTable 5: Key Indicators for Project ImplementationTable 6: Key Indicators for Project OperationTable 7: Studies Included in ProjectTable 8A: Project CostsTable 8B: Project FinancingTable 9: Economic Costs and BenefitsTable 10: Status of Legal CovenantsTable I1: Compliance with Operational Manual StatementsTable 12: Bank Resources: Staff InputsTable 13: Bank Resources: Missions

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Table 1: Summary of Assessments

A. Achievement of Objectives Substantial Partia Negligible Not applicable

Macro Policies 0 0 0 0

Sector Policies 0 0 0 0Financial Objectives 0 0 0 0Institutional Development D 0 O OPhysical Objectives 0 0 0 0Poverty Reduction 0 0 0 0Gender Issues 0 0 0 EOther Social Objectives 0 0 0 0Environmental Objectives 0 0 0 0Public Sector Management 0 0 0 0Private Sector Development 0 0 0 0Other (specify) 0 0 0 0

(Continued)

B. Proiect Sustainability Likdly Unlikely Uncertain

0 0 0

C. Bank Performance satisfaciory Satisfactor Deficient

Identification 0 0 0Preparation Assistance 0 0 0Appraisal 0 0 0Supervision 0 0

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High*D. Borrower Performance satisfactoy Satisfactory Dficien

Preparation O 0 0Implementation E ] OCovenant Compliance 0 0 0Operation (if applicable) E O O

Highly HighlyE. Assessment of Outcome satisfactory Satisfactory Unsatisfactory unsatisfactory

0 0 0 0

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Table 2: Related Bank Loans/Credits

Loan/credit title Purpose Year of approval Status

Preceding operations

I.Ln. 729-CY Building a sewerage and 1971 Completed and began

Nicosia Sewerage Project Drainage system for operations in 1980Nicosia

2. Ln. 730-CY Building a Sewerage and 1971 Not completed and loanDrainage system for canceled in 1981, due to

Famag Srge Famagusta the division of the Islandof Cyprus. Project area inNorthern part of theIsland.

3. Ln. 1658-CY Multi-purpose water Completed in 1987resource development

Vasilikos-PendaskinosWater Resource Project project.

4. Ln. 2386-CY Water resource Completed in 1991

Southern Conveyor development project.

Project - Phase I

5. Ln. 2914-CY Water resource Completed in December,

Southern Conveyor development project. 1996.

Project - Phase II

Following operations

1. Loans 3398, 3399, Developing a sewerage Approved in 1991 Closing dates June 30,3400CY and drainage network and 1999. Larnaca component

treatment facilities for should be completed bySoteaseand Coag Larnaca, Paralimni and 1998. Paralimni and Ayia

Ayia Napa. Napa may cancel IBRDloan and replace by EIBfinancing,

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Table 3: Project Timetable

Steps in Project Cycle Date Planned Date Actual/Latest Estimate

Identification (Executive Project Summary) March 1989 April 1989

Preparation May 1989 December 1989

Appraisal January 1990 February 1990

Negotiations March 1990 April 1990

Letter of Development Policy (if applicable)

Board Presentation May 1990 June 1990

Signing June 1990 September 1990

Effectiveness December 1990 December 1990

First Tranche Release (if applicable)

Midterm review (if applicable)

Second (and Third) Tranche Release (if applicable)

Project Completion December, 1997 June, 1997

Loan Closing June 30, 1998 March, 1997

Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual(15$ thousands)

FY92 FY93 FY94 FY95 FY96 FY97 FY98

Appraisal estimate 1,800 5,000 9,300 15,800 21,800 24,500 25,000

Actual 1,821 7,901 14,897 23,953 24,997

Actual as% ofestimate 101% 158% 160% 152% 115%

Date of final disbursement 1-9-92 2.16.93 2.14.94 5.30.95 4.11.96

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Table 5: Key Indicators for Project Implementation1990 1991 1992 1993 1994 1995 1996 1997

Engineering - Detailed Design 80 10%Engineering - Construction and Supervision 2M 85% 95% 100%Laterals/Main Sewers/DrainsContract 11 A and 11 B 5% 65% 100%Contract 11 C and I1 D 5% % 80% 1007

Pumping Stations and Main Collector -W10% 50% 85% 100%Secondary STP 50% 100%Tertiary STP 85% 100%Sea Outfall 8Drains (outside sewerage area) 10% 80% 95% 100%

Land - with title T0% T0% 30% o50% 75% 100%Operation and Maintenance Equipment* 10% 20%Technical Assistance - Twinning & Studies

Twinning 0 90% 100%Sea Outfall Study 100%Waste Water Re-use Study 30% /0% 100%Rural Sanitation Study 60% 100%Urban Drainage Study 100%

*Most of the Maintenance Equipment planned were not purchased since Maintenance ansome operation activities have been sub-contracted.

NOTE: The above table tries to capture as much as possible the classification of project components as given in theSAR, Annex 4, Pg.58. However, due to changes in the way contracts were clubbed an exact comparison was notpossible since it would not be meaningful. However, the above results indicates that after initial delays up to 1993,the project implementation was accelerated and completed well before the expected project completion date ofDecember 31, 1997.

Table 6: Key Indicators for Project Operation - Estimated and Actuals*

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

Operational% of Population Served

- Estimated: 0 0 0 0 22 33 44 55 66 77- Actual 0 0 0 0 28 35 45 78 85 90

Sewer Population (000's):- Estimated: 0 0 0 0 11.4 17.1 22.8 28.5 34.3 44.0- Actual: 0 0 0 0 1.0 18.2 24.0 41. 45.0 51.0

Sewerage Connection:- Estimated: 0 0 0 0 2000 3000 4000 5000 6000 7000- Actual 0 0 0 0 900 3500 5500 7000 8000 8500

FinancialSewer Rates (per C£ 1000 of

Property Assessment)Project Area (Phase I)

- Estimated: 2.30 2.30 3.65 3.65 3.65 5.50 5.50 5.50 6.25 6.25- Actual: - Hotels & Restaur. 7.00 7.00 7.00 8.00 8.80 8.80 8.80 9.5 9.5 10.00- Industries: 1.80 1.80 1.80 4.00 4.40 .4.40 4.4 4.8 4.8 5.00- Others: 1.80 1.80 1.80 2.00 2.20 2.20 2.2 2.6 2.6 3.00- Project Area BI - -- -- -- 2.20 2.20 2.2 2.6 2.6 3.00- Project Area B2 -- -- -- -- 1.25 1.25 1.25 1.25 2.6 3.00

General Benefit Area:- Estimated: 0.70 0.70 1.10 1.10 1.10 1.95 1.95 1.95 0 0- Actual: 0.50 0.50 0.50 0.50 0.60 0.60 0.60 0.70 0.70 1.00

Water Surcharge:- Estimated: 0 0 0 0 0.17 0.17 0.17 0.20 0.20 0.20- Actual: 0 0 0 0 0.10 0.10 0.10 0.15 0.20 0.20

Operating Ratio:- Estimated: 7 10 7 10 21 25 334 37 25 25

- Actual N/A 11 11 11 15 20 25 40 30 30

Self Financing Ratio:- Estimated: 44 29 26 26 24 30 59 32 82 69

- Actual N/A 11 4 17 30 58 53 99 124 115Debt Service Ratio:

- Estimated: 7 5.6 5.7 3.2 2.0 1.5 1.4 1.4 2.1 1.8- Actual N/A 3.4 1.6 1.9 1.7 1.2 1.2 1.5 1.3 1.0

Receivables (Monthly Revenues):- Estimated: 3 3 3 3 2.2 2.2 1.8 1.8 1.8 1.8- Actual 9.6 12 15 15 18 2.3 2.3 2.3 2.3 2.3

*Estimated refers to SAR estimates, Actuals refers to actuals up to 1996 and projections from 1997 to 2000

Table 7: Studies Included in Project

PURPOSE AS DEFINED ATSTUDY APPRAISAIUREDEFINED STATUS IMPACT OF STUDY

I Twinning Arrangement Technical assistance and Guidance Completed and being The proposals for the organization chart,in order to assist institutional implemented. staff training, maintenance policy, etc., aredevelopment, staff training, being implemented.definition of policies, etc.

2 Environmental Impact Assessment This study has been combined with Completed and implemented. A sea outfall has been constructed at 250of Sea Outfall (Optimal Disposal the study for the optimal disposal. meters long instead of 1000 meters asof Effluent Study) Main purpose was to assess the originally was anticipated, resulting in cost

potential effluent disposal methods savings of about US$2 million.and their environmental impact.

3 Effluent and Sludge Re-use Study Define all potential uses, establish The effluent reuse study has been Potential effluent reuse areas have beenvolumes, assess benefits, etc. undertaken by the Government and established and decisions have been taken,

is completed. The sludge reuse and reuse projects have started to bestudy shall be done in 1997. implemented.

4 Rural Sanitation Study Sanitation in villages Governments Responsibility Sewerage systems are being developed andoperated in many villages.

5 Master Plan of Drainage for To update and expand the 1974 Completed and implementation has Detailed designs for £.Cyp.12 millionGreater Limassol Area Master Plan to include the already started drainage works have been prepared. The

expanded Greater Limassol Area Master Plan is used as a guideline andreference throughout the region.

7 Critical Path Analysis (Not defined Main purpose to shorten the Completed and implemented. Implementation period shorted from sevenin the Staff Appraisal Report) project implementation period years to 30 months. Actual

implementation took 40 months.

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Table 8A: Project Costs

Appraisal Estimate Actual/Latest Estimated

(US$ million) (US$ million)

Local Foreign Local ForeignItem Costs Costs Total Costs Costs Total

Sewerage SystemSewage Collection 10.9' 10.6 21.5 25.8 27.8 53.6Secondary Treatment & Outfall 5.2 12.0 17.2 8.7 11.0 53.6Land Acquisition 1.1 -- 1.1 1.4 -- 1.4

Drainage System 4.3 1.9 6.2 3.0 3.0 6.00O&M Equipment and Supervision 1.5 1.4 2.9 1.6 2.0 3.6Technical Assistance, Training and

Studies 0.3 0.2 0.5 0.1 0.3 0.4

Base Cost 23.3 26.1 49.4 40.6 44.1 84.7

Physical Contingencies 2.3 2.7 5.0 -- -- --

Price Contingencies 6.3 8.4 14.7 -- -- --

Total Project Cost 31.9 37.2 69.1 40.6 44.1 84.7

Main Increases due to- Construction of Amathus Tunnel 1.8 2.4 4.2- Relocation of STP 3.6 1.0 4.6- Re-alignment of Main Collector 0.5 0.5 1.0- Imposition of VAT in 1992 5.0 -- 5.0

TOTAL 10.9 3.9 14.8

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Table 8B: Project Financing

Appraisal Estimate Actual/Latest Estimated

(USS million) (USS million)

Local Foreign Local ForeignSource Costs Costs Total Costs Costs Total

IBRD 2.5 22.5 25.0 2.50 22.50 25.00

Social Development Fund of the Councilof Europe 15.3 14.7 30.0 20.00 22.10 42.10

Government Grants -- -- -- 6.00 -- 6.00

SBLA 14.1 -- 14.1 11.60 -- 11.60

~IL9 lu OA 4 44MQ Kn2

Note: Out of the US$42.10 million loan from the Social Development Fund of-the Council of Europe, an amount ofUSS3.6 million has been withdrawn specifically for financing the construction of the Amathus Tunnel. This loanis serviced by the Government.

Table 9: Economic Costs and BenefitsLIMASSuL-AMAlHUS SbWERAtiE AN) 1RAINAGE PkUJECI

Economic Analysis - Implementation Completion Report I(Cyprus Pounds)

Capital Costs 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 200

Capital Expenditure I 255.000 3 090 212.458 6.7 5.10W -1.847.340 1`709 6.695,831 i710.T61- 0 0 0Buildings 74.186 74.186 74186 -74T86Sewers & Pumping Stations 3.9M.5W T_920580 424T3580 4T7380Sewage Ireatment: Secondary 288326 2,883,25 2,883,236

SIPl Control System & Lab Eqpt. 188,717Work mn Progress'I 538,528Land __363,164 7,9_

Operation and Maintenance - Secondary 210,8U5 480,000 _5D4,000 I529,200 ,0 -893,447Administration Expenses 40_ Y8W9 262,443 349246 376,974 50 5 -53,6"7 53.14U 547,074 563,486

Operatin and Maintenance - Fertary - - - 1000 1000 11063 121,551

Total Costs (minus Tertiary) 255.000 309,000 212,458 6499.978 12,547.133 7,324,016 15318,039 9918 1 1,01970 1340 146929Total Costs (including Tertiary) 255,00 30000 212,458 6,49978 12.547,133 7,324,0 16I16,153,263 10,853,785 I

Revenue for Phase1o22228 2564991 3, 64 T O 6 4 57 7 3599 753,69

Value for Reused Effluent 29,424 3,6 255,008 317,963 333,861

Net Benefits (Excluding Tertiary) (25 0 (309_0) 212458) T4,2387750) (998T42) (4,006,33 (11,218,039) (5,564,540) 3,636,774 4,664,396 5,162,865 6,385,765Economic Rate of Return 12%_ _1

Net Benefits (Including Tertiary) (255.000) (39O,O) (212,458) (4,238,750) (9:9842 (4,006,332) ( =2,3263) (6,47340) 730 5,979744 6,583,562 I 7,8667555Economic Rate of Return 1____4o

Net Benefit flows in SAR (2 0 ( (94,880) (1,608,220) (320,320)1 (4,334,230) 5,417,000 260,000 1898730 2921990 164U00 1543500Economic Rate of Return in SAR 16%

Key Assumptions: ERR assumptions and methodology follows those used in SAR, however the ERR in SAR is 17.6%, whereas the above shows 16%.Period of costs and benefits considered from 1989 to 2008, as in SAR.Cost of Sewers and Pumping Station Infrastructure, net of taxes, and adjusted to reflect only Phase I flows.Revenues adjusted to show benefits derived only from Phase 1 of the project.Operating and Maintenance costs for Secondary and Tertiary differentiated, however total Administrative Expenses all assigned to both treatment levels.Value of re-used effluent based on gradual build-up of water re-use, starting in 1996 (20%,50%,70% and 90%) and price of freshwater supplied to agriculture.

Table 10: Status of Legal CovenantsCyprus - Limassol Amathus Sewerage Project

Covenant Type Present Original Revised Description of Covenant Comments

Agreement Section Status Fulfillment FulfillmentDate Date

GA.1 3.01 Environmental Complied 06/30/92 Guarantor to carry out a 12 months Broadened study (including land

Covenants with study on the environmental impact disposal of unused effluent option) has

of the sea outfall at Moni, been completed and agreementregarding effluent utilization reachedwith the Government.

GA.2 3.03 Environmental Complied Guarantor to ensure that industrial Though the Government may not be

Covenants with enterprises in urban areas follow forceful in ensuring compliance on

Partially wastewater discharge practices as this issue. SBLA has been informingper requirements on industrial waste all local industries of the requirements

treatment already in place. on them for wastewater treatmentbefore discharge. SBLA is alsoseeking from bilaterals funds forintroducitng a monitoring and testingsystem.

LA.1 5.02 (a) Financial Performance Complied 1991, and Internal funds generation at least This ratio was not complied with

with in after 1994 20% of anticipated average annual during the years 1992 to 1994 due to

some expenditure for the next three years accelerated investment schedule and

years. less than targeted internal cashgeneration.

LA.2 5.02(b) Financial Performance Complied 06/30/92 Annual review of rates and charges SBLA consistently adjusted rates to

with. for the next three years. achieve its financial objectives and

cost recovery.

LA.3 5.03 Financial Performance Complied 12/31/91 Borrower shall not incur any other The Debt Service Coverage Ratio

with debt unless revenues exceed 1.3 (DSCR) is 1.2 in 1996 and projected

times maximum debt service to be below 1.3 in 1997 and 2000.

requirement. However, given SBLA's strongfinancial management and as longterm loans get repaid, the longer termDSCR projections exceed the target.

LA.4 5.04(a) Management aspects Complied 12/31/93 Make arrangements for billing Done.

of the Project or of its with sewerage on water consumption.

executing agency

Table 10: Status of Legal CovenantsCyprus - Limassol Amathus Sewerage Project

Agreement Section Covenant Type Present Original Revised Description of Covenant CommentsStatus Fulfillment Fulfillment

Date Date

LA.5 5.04(b) Financial Performance Complied 06/30/94 Furnish proposed rate structure Done.with including sewerage surcharge on

water consumption.LA.6 5.04(c) Financial Performance Complied 12/31/94 Adopt such agreed rate structure. Done.

withLA.7 5.05 Financial Performance Complied 12/31/90 12/31/95 Arrange with Guarantor for Done after some delay due to

with consolidation and repayment of negotiations of terms of repayment.principal amount and accrued interestunder loans made by Guarantorthrough 12/31/90.

LA.8 5.07 Environmental Complied 06/30/91 Updating of the Drainage Master Master plan updated. Findings wereCovenants with Plan. taken into account in project design.

Covenant types: Present Status:

1. = Accounts/audits 8. = Indigenous people C = covenant2. = Financial performance/revenue generation from 9. = Monitoring, review, and reporting complied with

beneficiaries 10. = Project implementation not covered by categories 1-9 CD = complied3. = Flow and utilization of project funds I1. = Sectoral or cross-sectoral budgetary or other resource with after delay4. = Counterpart funding allocation CP = complied5. = Management aspects of the project or executing 12. = Sectoral or cross-sectoral policy/ with partially

agency regulatory/institutional action NC = not6. = Environmental covenants 13. = Other complied with7. = Involuntary resettlement

Table 11: Compliance with Operational Manual StatementsCyprus - Limassol Amathus Sewerage Project

The project was in compliance with all Operational Manual Statements.

- 24 -

Table 12: Bank Resources: Missions

Prfrmn ring2

Stage of Number of Days in Specialized Staff skills Implementatior Development Types of

Project Cycle Month/year Persons Field represented/1 Status Objectives problems/3

Board Approval June-

Supervision Oct-90 3 11 F,N,E 1 1Supervision D6c-91 4 10 F,N,E 1 1 F,TSupervision Feb-92 2 5 F,N 1 1 F,TSupervision Nov-92 2 E F,N 1 1 F,TSupervision June- 2 10 F,N 1 1 F,TSupervision Nov-93 2 9 F,N 1 1 F,T

Supervision June- 2 10 F,N 1 1 F,T

Supervision Dec-94 1 4 N HS S F,T

Supervision July- F, HS S F,TSupervision May-96 1 F,I HS S F,T

1 -Speciahzation 2-Performance Rating 3-Types of Problems

F= Financial Analyst 1 = Minor F= FinancialE = Economist 2- = Moderate Problems T= TechnicalN= Engineer 3-= Major

- 25 -

Table 13: Bank Resources: Staff Inputs

Stage of Pro.ject Cycle Planned Actual

Preparation to appraisal not available 25

Appraisal not available 33

Negotiations - Board Approval not available 5

Supervision not available 97

Completion not available 5

Total 165

APPENDIX A

REPUBLIC OF CYPRUS

World Bank Supervision Mission May 15, 1996Limassol-Amathus Sewerage and Drainage Project

AIDE-MEMOIRE

1. This Aide Memoire covers the findings of a World Bank mission by Takao Ikegami andAnita George to supervise the Limassol-Amathus Sewerage and Drainage Project (Loan 3222-CY).

2. The mission met with the Mayor of Limassol and staff of the Sewerage Board of Limassol-Amathus (SBLA) and had discussions with the Ministry of Finance. The mission thanks all of themfor their help and hospitality.

Status of Project Implementation

Summary

3. The Limassol-Amathus Sewerage and Drainage Project has been very well executed, twoyears ahead of the original schedule. All major contracts have been completed satisfactorily. Thesewage treatment plant has been in operation since July 1995 and is currently treating about7,OOOm3/day of sewage. It's effluent quality is excellent.

Physical Implementation

4. SBLA has completed about 28% of house connections as of May 1996. The average speed ofthe house connection is about 60 connections per week. SBLA has also launched a public relationscampaign on Television and Radio and by circulating leaflets explaining the benefits of the newsewage treatment facilities and encouraging the public to connect. Most of the major users (such ashotels) have already been connected. SBLA expects to connect all 8,500 house connections in about2.5 years.

5. The effluent quality from the tertiary treatment plant is excellent: 5 ppm BOD (biochemicaloxygen demand); less than 1 ppm suspended solid, and 5 ppm total nitrogen. The design standardsfor the effluent are: 20 ppm, 20 ppm and 10 ppm, respectively for the secondary treatment and10ppm, lOppm and 5 ppm for the tertiary treatment plant. One of the reasons for the good effluentquality is that only one third of the design flow is reaching at the treatment plant at present.

6. Despite the good quality of irrigation water (effluent), the government can only sell 10% ofthe water due to lesser demand than expected. Currently about 90% of irrigation water is disposedthrough the ocean outfall. The government is about to construct an extra pumping station to distributethe irrigation water to wider user groups.

APPENDIX AAIDE-MEMOIRE - 2 - Limassol-Amathus SewerageMay 1996 and Drainage Project

7. The sludge production from the treatment plant is not so large at present in comparison withthe volume of sewage inflow. This is because the sewage is aerated for a longer time as a result oflow sewage inflow. The sludge production rate will increase as the sewage inflow increases. Thequality of produced sludge seems to be a good quality: a healthy black color and well dried. Thedried sludge seems to be a good alternative source for fertilizer, because there are no industry existsthat discharges toxic waste water into the sewerage. SBLA is currently storing the produced sludgewithin the treatment plant area. SBLA is planning to disseminate the reuse of sludge to farmers byoperating a pilot demonstration program. In this respect, SBLA has sought the assistance of theMinistry of Agriculture, Natural Resources and Environment.

Status of Implementation of Major Contracts

Contract Completion Completion NoteRate (%) Date

No. 1 100 2/96 in operation

No. 2A 100 12/94 in operation

No. 2B 100 12/94 in operation

No. 2C 100 9/95 in operation

No. 2D 100 9/95 in operation

No. 4 100 1/95 in operation since 7/95Secondary STP (EIB financing)

No. 4 100 3/95 in operation since 8/95Tertiary STP (EIB financing)

Water Reuse 100 7/95 in operation since 8/95(Gov't financing)

Ocean Outfall 100 7/95 in operation since 7/95(Gov't financing)

Financial Matters

8. While the physical implementation of the project has been outstanding, SBLA is facing severecashflow problems. It is possible that SBLA may even have trouble to make its payment on the Bankloan unless immediate steps are taken to rectify the situation. There are two key problems resultingin the cash flow constraints of SBLA. These are described below.


9. SBLA is owed more than CYP 3 million from the Government for remaining payments due toshifting the location of the Sewage Treatment Plant, operation costs of the tertiary plant which as peragreement is to be financed by the Government, cost overruns on the Diversion Tunnel also agreedto be financed by the Government and, most importantly, the dues on sewer rates.

in CYP million

Type of expenses To be Paid to SBLA Already paid to Owed to SBLASBLA

Shift in Sewage 3.0 1.5 1.5Treatment Plant

Operation Costs of 0.1 0.0 0.1Tertiary Plant sinceJuly 1995

Diversion Tunnel - 0.3 of which evidence 0.0 0.25cost overrun supplied for 0.25

Dues on Sewer rates 1.55 0.284 1.27

TOTAL DUE FROM 4.95 1.784 3.166GOVERNMENT

10. The Sewerage Law has been changed to explicitly state the Government's responsibility to paysewerage charges. The Government has paid part of the rates due for 1995. However, as shown inthe table above, there are still CYP 1.27 million due from the Government for past dues. TheGovernment has not conceded to payment of surcharges for late payments. The staff of the Ministryof Finance also mentioned that payment requests should be timed so as to be included in the budgetexcercise well before final allocations are made. SBLA is aware of this and reiterated that theirrequests have been and will be made in time. Another factor complicating the issue of payments duefrom the Government is that the Government and SBLA have not yet settled the payment ofGovernment advances and interest due. And although a proposal for offsetting these dues againstsewerage charges and surcharges have been sent by SBLA to the Government in April, 1996, theGovernment has not yet responded to SBLA.

11. SBLA has also had trouble to collect dues from the hoteliers. Out of a total of CYP 5.5million, the hotels owe CYP 4.2 million. SBLA has, since 1994 taken legal action against 150hoteliers. The legal process is long, but the cases decided on by the Court so far have been in favourof SBLA. The mission emphasized that the payment from hoteliers on a regular basis has to beestablished since they contribute close to 30% of total revenues, and continued non-payment has ledto the current cash flow constraints. Without resolving the financial issues, it is difficult to state that


this project despite its excellent physical implementation record has not yet achieved its objective ofcreating a financially strong sewerage board.

12. Institutional Strengthening. SBLA has employed 10 staff in 1995, which takes the total staffstrength to 34 employees. However, the operation of the sewage treatment plant has beensubcontracted to a private company, Kruger, since July 1995. SBLA is planning to renew theoperation contract until December 1996, to ensure that the staff hired for the operation departmenthave an opportunity to be trained by Kruger for some months. It is expected that hiring process maybe accelerated after the local election to be carried out in the end of May 1996. The Chairman of theSewerage Board assured the mission that hiring of key staff such as the Executive MaintenanceEngineer will be done before September of 1996. The mission requested and it was agreed thatSBLA would continue to keep the Bank informed on actions taken towards increasing institutionalcapacity.

Implementation Completion Report.

13. Since as of March, 1996, the loan has been fully disbursed, the mission discussed with SBLAhow jointly we could prepare the Project Implementation Completion Report. The outline of theoperation plan discussed with SBLA is included as Annex I to this aide memoire. SBLA will send tothe Bank its contribution by mid-July. The Bank agreed to do likewise by mid-August and aim tofinalize the report by the first half of September. If possible the Chairman and General Manager ofof the Sewerage Board may visit the Bank to share with Bank staff their experience in implementingthis project and the lessons learned.

m:\ag\cyprus\lim\may961im.a-m

APPENDIX AAnnex 1

Limassol-Amathus Sewerage and Drainage ProjectImplementation Completion Report

Operational Plan

* Objectives to ensure the boards utilize its assets optimally by delivering services at acceptablequality standards, at minimum cost, and to its target population

* definition of sewerage boards overall responsibility by law

* mission of statement of the board and corresponding responsibilities:o maintenanceo environmento hygiene/healtho investment/expanding serviceso public relation

* areas to be improved in order to satisfactorily discharge responsibility: tariff policy/surcharge,personnel policy, autonomy, and daily Maintenance & Operation

* Management policy0 management information systema personnel policy

- incentive0 training policy

* financial policy

o Tariff Policy0 Collection policy0 measures to non-payerso connection/disconnection policyo Arrears from government and other users

* Investment Policy

o EIB for second/third phaseo Financial feasibility

- tourism projection- affordability for each investment phase

o Debt services

* Maintenance Operation Policy

0 organizational arrangement/ strengtheningo preventive maintenance vs. investment decisiono spare parts policy0 patrol for illegal discharge/dumpingo punishmento emergency measuremento measures to keep satisfactory water quality for irrigation water0 private sector participation policy

m:\ag\cyprus\lim\icr\oplan

APPENDIX B

LIMASSOL-AMATHUS SEWERAGE AND DRAINAGE PROJECT (LOAN 3222-CY)IMPLEMENTATION COMPLETION REPORT

Borrower's Contribution

INTRODUCTION

This Report (ICR) is prepared for the purposes of the Implementation Completion Report (ICR) inaccordance with the Bank procedures.

THE PROJECT

PROJECT AREA: The project area is the second largest urban area in Cyprus. Located on thesouthern coast along the shore of Akrotiri Bay, it comprises areas within the Municipalities ofLimassol, Ayios Athansios, Mesa Yitonia, Kato Polemidia, Yermasoyia, and the ImprovementBoard of Amathus, and is referred to hereinafter as the Limassol-Amathua area. To the west arethe Akrotiri Salt Lake, and an agricultural expanse which includes extensive orchards andvineyards. The Amathus Improvement area, containing many restaurants and hotels serving thetourism industry, stretches out to the east for several kilometers.

PROJECT HISTORY: The original Master Plan for the Sewerage and Drainage Project of theTown of Limassol, was completed in 1974 and implementation was scheduled to start in the sameyear. The events of 1974 delayed the implementation of the project and in view of the dramaticchanges in population density and the expansion of the residential properties in the area due to themassive influx of refugees, the study was updated in 1977 and in 1979 respectively.

The project area has also been expanded so as to cover the entire Greater Limassol area whichincluded the Improvement Board of Amathus and a number of other smaller Municipalities andcommunities. On the basis of an updated Feasibility Study prepared in 1983, a loan was approvedby the Bank in May 1984 (Loan 221 ICY).

Designed to meet the sewerage and drainage needs of the area up to the year 2010, the projectcomprised the first phase of development of a two-phase sewerage system and high prioritydrainage works. The proposed sewerage system at the time followed the natural slope of theterrain towards the southwest, and resulted in the proposed sewage treatment plant's location beingclose to the sea about 8 km from the western boundary of Limassol.

The original location of the STP situated on the western side of Limassol, was not accepted by theCommunities of the area and due to strong resistance and opposition by those communities, theproject had to be suspended. Due to the great difficulties encountered in agreeing the appropriatelocation for the Sewerage Treatment Plan (STP), the implementation of the project delayed andeventually the loan was canceled in 1987.

1

APPENDIX BPage 2

In 1989 a new updated Feasibility Study was prepared with a proposed site of the STP at theeastern side of Greater Limassol Area at a valley called Moni. New project appraisal andnegotiations started with the Bank which were completed in May 1990 reaching an agreement forfinancing part of the project with a loan of US$ 25 million. The project was designed to meet thesewerage and priority drainage needs of the area up to year 2010 and to be constructed in twophases.

Implementation of Phase I of the Project was planned to start in 1991 and would last for sevenyears, i.e., up to year 1998. In 1991 when implementation of the project was about to start, newproblems have emerged relating once again to the location of the STP. The Government of Cyprusin an effort to resolve the problems, agreed to cover the additional cost for the relocation of theSTP and the Board has agreed to change the site. The new site of the STP was relocated at avalley of about 1500 meters eastwards of the previous site.

Implementation of the project started in April 1992 and another problem has emerged with respectto the alignment of the main collector and antiquities at Ancient Amathus Area. Alternativesolutions have been examined and studied and it was decided to adjust the route of the maincollector in order to bypass some deluxe hotels on the coast which opposed to the placing of themain collector, next to their leisure and entertainment infrastructure. In addition, it was decided toconstruct a tunnel in order to avoid damaging the antiquities of the old city of Amathus, situatedalong a stretch of the main collector of about 800 meters length.

On the basis of the revised implementation plan of 1989, a new target was worked out in 1991 forcompletion of the project within a construction period of 30 months, setting the end of 1994 as anew target for operating the sewerage scheme. Actual completion of constructed works took placein 1995 and the system was put into operation in stages, as major parts of the project werecompleted and taken over.

The first stage of operation has been launched on December 7, 1995 and it covered about 30% ofthe project area. By March 1996 100% of the system is in operation and connection of propertiesto the system is progressing satisfactorily. By the end of June 1997 out of about 9500 houseconnections, 24000 have already been connected to the system. According to the Master Plan,connection of properties should be completed in four years time after operation of the system, i.e.,by 1999.

ASSESSMENT OF PROJECT OBJECTIVES

According to the Staff Appraisal Report of May 14, 1990, the main project objectives are:

(i) To provide a safe, reliable system for the disposal of human, commercial and industrialwaste water and thereby eliminate the nuisance and health risks, including the threat to theareas water supply and important tourist industry, that arise from the present unsatisfactorydisposal arrangements.

2

APPENDIX BPage 3

The project is in operation as from July 1995 and by this time most of the propertiessituated along the touristic coastal area have been connected to the system. Nearly allmajor hotels and tourist resorts and other residential complexes have been connected andthere has been a considerable improvement in health and hygienic conditions in the area.The general situation in the tourist area has improved considerably with nuisance problemsbeing effectively eliminated. The average flow of effluent in the system is about 6000- 7000cubic meters per day.

(ii) To provide key elements of a stormwater drainage system in areas subject to severeflooding during the rainy season, which causes damage and disrupts commercial, industrial,and other activities.

The key storm water drainage network has been constructed and the flooding problemexperienced in those areas in the past has been eliminated. A storm drainage Master Planhas also been prepared and distributed to all interested local authorities and GovernmentDepartments which is now used as a general guideline document. On the basis of the stormdrainage Master Plan, storm drainage works shall be constructed of about £12 millions inthe area. Detailed designs and tender documents for these works have been prepared andconstruction works have started in 1996.

(iii) To contribute to improved environmental management by identifying and promoting theoptimum use of sewage effluent and sewage sludge in the project area.

The environmental aspect of the project objectives has been promoted and implementationof long term environmental projects has also started.

The government has covered the cost of construction of the Tertiary Treatment Plant whichhas been constructed by the Board and it is now in full operation. The tertiary treatedeffluent is of an excellent quality and is now reused at a neighbouring valley.

A number of studies have been performed under the project including an EnvironmentalStudy for the Location of the STP, a study for the Optimal Disposal of Effluent, a study forthe Effluent Reuse, etc.

Implementation of other associated projects of conveying the treated effluent in other areasof reuse, have also started.

The quality of bathing waters of the beaches, adjacing the Limassol Greater Area has alsobeen improved and compliance with all criteria set out by the relevant national andinternational regulations has been secured.

The addition, as a result of the operation of the system along the Coastal Touristic Area, thevolume of septic sewage disposed under the old system at the Vati disposal area by tankers,has been reduced by more than half and it is expected that as the house connections to thesystem continue to increase, the volume of effluent disposed at the area shall be reduced

3

APPENDIX B

Page 4

even more dramatically and this resolving a considerable environmental problem n the areaand the nearby Polemidia Dam.

(iv) To strengthen the institutional capacity of the SBLA, which at present has only a nucleus ofstaff.

The institutional development of the Board has also been promoted and most of the staff isin place. Procedures are now in progress for recruitment of additional technical staffrequired for the maintenance and operation of the system. The situation with respect tostaffing of the SBLA is shown in Table AB- 1.

The twinning arrangement with Thames Water International has been conducted withsuccess and the SBLA has obtained valuable guidance and assistance, especially during theinitial stages, in areas of staff development and training, institutional development, etc.

INSTITUTIONAL DEVELOPMENT

The Borrower, i.e., the Sewerage Board of Limassol - Amathus (SBLA) is a public utilityestablished by the Council of Ministers Order 248/80. The SBLA is managed by a Boardconsisting of the Municipal Counselors of Limassol Municipality and Mayors or Representatives ofother Municipalities or Communities.

Recruitment of SBLA core staff started in 1990, after the loan agreement has been signed. Sincethen a number of employees have been employed in order to implement the project and operate thescheme after implementation. Presently, SBLA staff comprises 33 people and it is expected thatwithin the near future an additional 18 people shall be emplpyed. A Schedule of staff employed bySBLA is shown in Table AB-1.

Training of staff is very highly ranked in the organization and it is received by a number of ways.Through the twinning arrangement which has been agreed with Thames Water International (a UKWater Utility), a number of training attachments have been organized where the staff was trainedon the spot on practical implementation of technical and/or administrative matters.

Training is also being obtained through the Contractors. In particular the SBLA Chemist has had anumber of short term attachments at other sewerage treatment plants abroad operated orconstructed by our contractors. Similar attachments are planned for other technical staff

Subcontracting of services is also extensively utilized by SBLA by obtaining services from theprivate sector. Project management and supervision has been subcontracted to an internationalforeign firm in associated with local associates. About 25 people have been employed for theproject management and supervision.

Other technical services and or "Ad hoc" assignments are also obtained through the private sectoreither on a medium term contract basis or on a temporary basis. The policy of private sectorinvolvement and subcontracting is to be continued in the future.

4

APPENDIX BPage 5

The SBLA has invited tenders from private Security companies in order to obtain guarding andsecurity services for the treatment plant or other basic infrastructure of the system.

The sludge management and disposal services are also obtained though private contractors. Inaddition some laboratory tests and chemical analysis are also obtained through a private laboratory.

A continuous process of upgrading the existing management and information technology is inprocess. The SBLA has tendered out and awarded a contract for upgrading and development of afully integrating computerized management information system for both the financial and technicaldepartments. All maps and drawings have been digitized and a GIS System is now inimplementation. This programme is expected to cost more than 0.5 million US dollars and it iscurrently in progress. It is expected that full implementation shall be achieved by July 1997. Aprivate company of computer experts has also been appointed as a project manager in order tosupervise the development and implementation of the new management information system.

The policy of utilization of subcontractors from the private sector is expected to be continued in thefuture.

Furthermore the SBL has already invited tenders from a short list of preselected internationalconsulting firms for the detailed designs and supervision of the next stages of the project.

STUDIES INCLUDED IN THE PROJECT

Most studies included in the project have been conducted and their results and recommendationshave been or are at the stage of implementation.

The only study that has not yet been fully completed is the sludge reuse study. Several differentoptions are being considered and the study will be completed in 1998. This study is to be financedby the Mediterranean Environmental and Technical Assistance Program (METAP). Detailed list ofthe studies included in the project and their status is shown in the Statistical Appendix Table 7.

EVALUATION OF BORROWERS OWN PERFORMANCE

Up to 1989 the SBLA did not have any permanent staff employed. Administrative and otherservices have been obtained through services from other organizations as for example the LimassolMunicipality and the services of the secretary/accountant of the Sewerage Board of Famagusta.The project design and construction supervision has been contracted out to an internationalconsulting firm, associated with a local firm of consultants.

During the implementation period (1991 - 1995) a number of problems have been faced which havebeen generally overcome successfully. The problems encountered may be classified into two maincategories:

5

APPENDIX BPage 6

(a) Technical Problems

The technical problems have generally been overcome and resolved more easily than the nontechnical problems. The following are the main technical problems which have been encountered:

(a) Antiquities have been found in many places during the construction works.

(b) Temporary roads for traffic diversions had to be constructed in many instances.

(c) Land acquisition and wayleaves was in many cases problematic causing delays and extracosts.

(d) Underground utilities such as electricity, telephone and water caused many technicalproblems, additional costs and delays in many parts of the project.

(e) Relocation of the Sewerage Treatment Plant and realignment of the main collector causedmany technical problems, delays and additional costs.

(f) System commissioning problems. During the first stages of commissioning of the system aseries of many activities and functions had to be performed which needed a great deal ofplanning and coordination between many authorities The initial low flow of effluent causedsome problems of odour and nuisance.

(b) Non Technical Problems

The most important non technical problem was the public acceptability of the project and thecreation of an acceptable public image of the Board. A considerable effort has been put inmaintaining the public image of the Board at relatively high standards. This could be achievedmainly by reducing the nuisance and inconvenience to the public as much as possible. Amechanism has been established for immediate action from the Board in cases of complaints fromthe public.

A number of pressure groups have been lobbying and pressing SBLA in a number of ways. Inmany instances the interest of these pressure groups did not necessarily coincide and the SBLA hadto make compromising decisions in an effort to satisfy to some extent all parties interests. TheHotel Association, the Shop Owners Consumers Association, bus and transportation companies arean indicative list of pressure groups with whom SBLA was in a continuous contact.

Another problem which has been faced during the initial stages of the project implementation wasthe acceptability by the public of the new "form of taxes", i.e., the sewerage charges. Seweragecharges have been considered as a new form of taxation and there has been a considerableresistance especially during the first two years.

6

APPENDIX BPage 7

A public campaign has been undertaken by SBLA. Generally, it can be considered that, now thesewerage charges have been accepted by the majority of the people. The problem with paymentfrom the hotel owners who resist payment of sewerage charges on the grounds that they areunfairly treated. The issue has been referred to courts and a judgement favourable to SBLA wasgranted. 95% of the people at large has paid their dues. There was also a problem with thepayment of sewerage charges due by the Government, but this problem was settled by change in theSewerage Law to explicitly state the Goverrment's responsibility to pay sewerage dues.

Measures taken by SBLA

During the implementation period the policy adopted by SBLA concentrated on the followingareas:

1. To maintain a continuous productive dialogue and preserve a framework of satisfactorycooperation with all interested parties, and

2. Establish an efficient and effective procedure for solving the day-to-day problems.

These have been achieved through the following measures:

(i) Prepare a CCP Analysis

Before commencement of implementation of the project, the SBLA has appointed anexperienced Engineer from a UK Water Company who has prepared a Complete CriticalPath Analysis (CCP). On the basis of that CPP, the original implementation Plan has beenrevised. It was decided that the works should be performed more intensively and the wholeproject was divided into six contracts instead of four as was originally planned.

The whole project area has been divided into eight main sectors which have been allocatedinto four lateral contracts. All contracts have been tendered out at once and in this mannerthe implementation period has been reduced from seven years to thirty months. However,actual completion of the project took about forty months.

(ii) Establish a Steering Committee

A Steering Committee was established consisting of Board Members and with clear termsof reference empowered to make decisions with respect to the project implementation.Certain authorities and statutory powers of the Board have been delegated to the SteeringCommittee so as to be in a position to approve payments up to a certain limit and take whatever decisions are necessary for solving the day-to-day problems during the projectimplementation. The Steering Committee had regular weekly meetings.

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APPENDIX BPage 8

(iii) Press Conferences and Workshops - Press Releases

The SBLA conducted regular press conferences and workshops informing the media aboutthe latest developments in the project implementation. Regular press releases were alsoissued to the media.

(iv) Daily announcements through all the local radio stations

SBLA has reached special agreement with all authorized local radio stations.Announcements and advertisements by all local stations were made a number of times daily.

(v) Close cooperation with the Police Department and other Government Departments

Traffic and other road arrangements were tackled on a daily basis. This has been achievedby establishing a permanent connection link with the Police Department. A person fromboth organizations has been assigned with this responsibility.

(vi) Establish a Complaints Department

All complaints reported were recorded and action was pursued through either the ResidentEngineer or through the SBLA's own staff.

(vii) Appoint a Public Relations Advisor

The SBLA has appointed private company as a permanent Public Relations Advisor.

However, there are areas where the SBLA could have performed better and avoid certain problemswhich have been encountered.

(i) Staffing

Staffing of the organization has always been a long procedure and usually there has beensome delay in recruitment of the necessary staff The managerial and key staff of theorganization should have been employed well in advance before the commencement of theworks during the design stage of the project in order to have a full knowledge of the projectfrom the very beginning. Employment of the Financial Controller and the Chief Engineertook place well after the completion of the designs but nevertheless before thecommencement of the works.

(ii) Public Relations

In the public relations area, some problems with respect to the acceptability of the locationof the STP might have been avoided if a massive public campaign took place in advance

8

APPENDIX BPage 9

with the participation and cooperation of the Government. The public relations Consultantalthough employed before the commencement of the works, could probably achieve letterresults if employed even earlier.

During the discussion for agreeing to the location of the STP to the west of Limassol, theSBLA could also arrange a short visit (tour) of community leaders and of the media, inneighbouring countries where similar projects have been operating for many years in orderto see on the spot the benefits of the reuse of treated effluent and the benefits of thesewerage system generally. Such tour was organized by SBLA only in 1994 and the resultswere impressive.

Public perception with respect to the potential hazards or risks from the operation of atreatment plant in the area, might have been less negative if a more tentative public relationscampaign took place in advance. Of course it has to be stressed that the public at large hasnever objected or resented to the need of a centralized sewerage system in the GreaterLimassol Area but due to the objections of the communities in the eastern side of Limassol,a misconception has been developed with respect to potential risks of having a seweragetreatment plant near the residential or agricultural areas.

(iii) Collection record and outstanding sewerage charges

An aspect on which the SBLA should have performed better is the collection of seweragecharges. In spite, the firm political decision and the enactments to impose rates on allproperties including the Government properties, when time has come to apply the Law, thecivil service mechanism found some difficulties in implementing the political decision.Better coordination between the Government Departments could have avoided some of theproblems encountered with respect to payment of sewerage charges from GovernmentDepartments.

In addition, the legal framework could have been improved in order to bypass someconstitutional problems which have arisen later relating to the liability of the Government topay sewerage charges.

With respect to the relatively low collection rate, faced in the first years of imposition of thesewerage charges, the situation could have been better if a public campaign was undertakenwell in advance the first years of imposition of the sewerage charges. The public could havebeen better informed before receiving the sewerage charges bills.

EVALUATION OF FINANCING ORGANIZATIONS

(a) IBRD (The Bank)

From the experience obtained during the implementation of the project it is obvious that thecooperation and assistance of the financing bodies to SBLA was absolute and perfect. With respect

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APPENDIX BPage 10

to the IBRD's contribution to the success of the project, it has to be mentioned that, should therehave not been the assistance, goodwill and persistence shown by the World Bank in implementingthis project, it is certain that further delays would happen and the project might not have beensuccessfully implemented by 1995.

The close and practical involvement of the Bank's staff and specialists, from the very beginning ofthe project during the design and the project appraisal stage, has helped the SBLA to overcomesuccessfiully the many problems encountered. The decisions which have taken place by the SBLAand the Bank, during the initial stages of implementation, with respect to many practical andtechnical problems, has contributed tremendously to the success of the project. At the initial stagesthe Borrower comprised a nucleus of staff and the experience and guidance given by the Bank'sstaff was invaluable.

It is certain that the active involvement of the Bank in advising and solving practical, technical andadministrative problems, secured the efficient utilization of the funds borrowed. The Bank'sdemanding and strict procedures have been used as a guideline and as a compliance standard whichthe SBLA staff had to follow, therefore transmitting to the Borrower the required attitude,motivation and management behaviour and style which contributed to the success of the project.

However, it should be noted that strict and demanding procedures and Bank regulations causeshigh administrative costs on both the Bank and the Borrower and in some cases, not the requiredflexibility.

It is true though that the application of strict regulations and procedures ensures the properutilization of the Bank Funds and the proper implementation of a project which is to the interest ofthe Borrower.

In view of the above arguments it might be worthwhile, the Bank considering the introduction of asystem of "credit rating" or "incentive scheme" in order to impose under certain circumstancesmore lenient regulations, less documentation, etc.

In order to avoid problems of discretionary or unfair treatment the scheme could operate on asimilar basis as the "Waiver of Interest" scheme which is granted only to the "punctual" borrowers.At the initial stages of a project implementation the general framework of procedures andregulations should be applied to all borrowers strictly and indiscriminately.

As the project progresses, however, a system of points or marking could be applied whereby eachborrower should be awarded certain marks according to his tract record of response, adherence tothe rules progress of works, performance with respect to timetables, etc. Certain objective criteriaand procedures should also be established in awarding the points. As the project implementationtime passes, certain relaxations should be allowed to borrowers according to their record or pointsof performance described above.

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APPENDIX BPage 11

(b) Social Development Fund of Council of Europe

During the implementation period the SDFCE was not actively involved in the progress and closemonitoring of the works. A brief progress report is submitted to the SDFCE at regular intervals bythe Ministry of Finance.

FINANCIAL OBJECTIVES

Accounting and Auditing

SBLA has developed its own accounting and budgeting system, on the basis of acceptableaccounting principles in accordance with the International Accounting Standards and in line withthe provisions of the Sewerage and Drainage Law of 1971.

Most functions of the Accounting Department have been fully computerized. The Billing System,General Ledger, Receivables, Collections, Budgeting, etc., have been computerized through a fullyintegrated system.

Financial Statements consisting of Balance Sheet, Income and Expenditure Account, Sources andApplication of Funds Statement, etc., are prepared annually.

Annual audits of the Financial Statements and the Special Account are systematically carried out bythe Auditor General of the Republic of Cyprus.

Although actual construction started in 1992, billing and collection of Sewerage Charges hasstarted in 1991 in accordance with the procedures and details agreed with the Bank.

Billing and collection of Service Charges on water consumption has also started in 1995 as agreedwith the Bank. The SBLA has entered into agreement with the three Water Authorities within theProject Area of the billing and collection of this charge from all beneficiaries connected to thesystem.

Rate Structure and Revenues

The agreed rate structure has been applied and implemented as from 1991. In addition the Boardhas approved the introduction as from 1997 of another charge, known as the "Drainage charge"with the main objective of financing the new Storm Drainage Works to be constructed in the nextfour years (1996 - 1999) of total cost of about US$11 million.

The main sources of Revenues of SBLA are as follows:

(i) Sewer rates on property assessed values(ii) Sewerage surcharge on water consumption (Service Charge)(iii) Drainage rates on property assessed values (To be imposed from year 1997 onwards)

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APPENDIX BPage 12

(iv) Extra house connections requested from the public(v) Connections fees(vi) Interest received(vii) Other income

On the basis of a study, a differential or discriminatory rate structure has been imposed with higherrates imposed on Hotels than lower rates on industrial areas and even lower rates on otherproperties situated in the Phase A project area. The lowest rates have been imposed on propertiessituation in Phase II.

As from year 1995 onwards another classification of rates has been introduced as follows:

Project Area B I

This new classification of rates is imposed on properties situated in the area which shall be seweredin the next five years (which for convenience has been called as Area B 1) and is practically anexpansion of Phase A Area. These rates are exactly the same as those for Phase A.

Project Area B2

This classification covers the area which shall be sewered after the next five years, i.e., it is the areawhere construction works are planned to commence on year 2000 onwards. These rates are higherthan the rates of Phase B but lower than those for Phase A and B 1.

Apart from the Drainage rate introduced by SBLA, a number of other changes have been promotedand enacted on SBLA By-Laws, the most important ones being the following:

Act No. 194/91 Duties and Responsibilities of the Sewerage Boards for submittals to theGovernment Regulations relating to personnel management and development

Administrative Power of SBLA to use alternative property valuation estimated by theAct No. 259/92 Lands and Survey Director in cases of lack of 1980 valuation

Administrative Charge in the SBLA By-Laws so as to be able to impose rates within certainAct No. 86/94 specified limits so as to avoid the need to require the approval of the House of

Representatives of every charge in the rates levels.

Administrative Increase in sewerage rates for Phase BAct No. 90/95

As shown in Table 6 of the Statistical Appendix, the sewerage charges have been regularlyreviewed and increased in order to meet the SBLA's financial objetives.

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APPENDIX C

Limassol-Amathus Sewerage and Drainage ProjectImplementation Completion Report

Operational Plan

Objectives: to ensure the boards utilize its assets optimally by delivering services at acceptable qualitystandards, at minimum cost, and to its target population.

* Basis of operation as defined in the Sewerage Law 1971 and all amendments thereof.

* Mission statement of the board and corresponding responsibilities in each of the following areas:* maintenance* environment* hygiene/health* investment/expanding services* public relation and public consultation

* Areas to be monitored in order to satisfactorily discharge responsibility:* management policy* management information system* personnel policy and incentive system* training policy

* Maintenance Operation Policy* organizational arrangement/ strengthening* preventive maintenance vs. investment decision* spare parts policy* policing and penalties for illegal discharge/dumping* emergency measures* measures to keep satisfactory water quality for irrigation water* private sector participation policy

* Financial policy* tariff policy* collection policy* measures against non-payers* connection/disconnection policy* arrears from users

* Investment Policy* phase II project finaced by EIB and CERF* financial feasibility for future investments* tourism projection and demand* affordability for each investment phase* debt service management

fBRD 22254

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implementation completion report republic of cyprus (loan 3222-cy) · 2019. 1. 16. · drainage...

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