Document Of

The World Bank

FOR OMCIAL USE ONLY

Report No. 6935

INDIA

PUNJAB WATER SUPPLY AND SEWERAGE PROJECT

(CREDIT 848-IN)

PROJECT COMPLETION REPORT

September 16, 1987

South Asia Projects Department

This d _aumat has a retkcd dltrbutu ad may be tued by reipiets 1ly In the perfomnce ofthei offidu. IbD couets may not otherwin be disclosed witbout World Bank authorhaion.

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CURRENCY EQUIVALENTS

Currency Unit = Rupee (Rs)US$1.00 = Rs 8.j (at appraisal, August 1978)US$1.00 = Rs 12.0 (at credit closing, September 1985)Rs 1 lakh = Rs 100,000Rs 1 crore = Rs 10,000,000

ABBREVIATIONS AND ACRONYMS

GOI = Government of IndiaGOP State Government of PunjabLIC Life Insurance Corporation of IndiaMC = Municipal Corporation/CommitteeWHO - World Health OrganizationWSSB = Punjab Water Supply and Sewerage BoardJAL Jullendher Amrlsar Lidhiana

FISCAL YEAR

April 1 - March 31

TfH WORLD BANK FOR OmFCI an yWashtUon. D.C. 20433

U.S.A.

Olic E 0.tv.Gn0 ofaas chwtoaawaa

September 16. 1987

MEMDRANDUM TO THE EYECUTIVE DIRECTORS AND THE PRESIDENT

SUBJF'XT: Project Completion Report on India - Punjab WaterSupply and Sewerage Project (Credit 848-IN)

Atteched, for infornation, is a copy of a report entitled "Project(bmpletion Report on India - Punjab Water Supply and Severage Project(Credit 848-IN)" prepared by the South Asia Regional Office. Furthere-luation of this project by the Operations Evaluation Department hasnot been made.

Attachment

Thi docunmt ha a mstcted dirbution and may bo used by reipis only in the peffofmanmcof their ofcal duties its contents may not otwise be disceed without Wrl Dan authIat_i.

FOR OFCIAL US ONLY

INDIA

PUNJAB WATER SUPPLY AND SEWERAGE PROJECT(CREDIT 848-IN)

PROJECT COMPLETION REPORT

Table of Contents

Page No.

Preface i

Basec Data Sheet ........................................ ..... .... ± iHighlights *e*....eo.eo...ee..eo,e.e..e...,..eeo........ iv

I. Introduction 1

II. Project Identification, Preparation and Appraisal ........... 2

III. Financial Performance 7

IV. Institutional Performance and Development 9

V. Project Implementation ..................................... ; 11

VI. Operational Performance 12

VII. Bank Performance l...*... .. a. ........... ....... 12

VIII. Lessons for Future Projects 13

IX. Perspective 14

TABLESI

1 Financial and Physical Achievements in JALand Five Other Towns ................*..................e 15

2 JAL and Five Other Towns (Water Supply) ................... 16

3 JAL and Five Other Towns (Sewerage) ..***o .eo***.*.***o.*** 17

ANNEXS

1 Comments on PCR by Borrower *...................,.......... 18

This document has a sticted distribution and may be uWd by recipients only in the peformneof their offcal duties. Its contents may not otherwis be diclosed without Wod Bank authorztion.

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INDIA

PUNJAB WATER SUPPLY AND SEWERAGE PROJECT

(CREDIT 848-IN)

PROJECT COMPLETION REPORT

PREFACE

1. This report reviews the preparation, implementation and achievementsof the Punjab Water Supply and Sewerage Project (Credit 848-IN) in India, forwhich a Credit of US$38 million was made to the Government of India (GOI).The proceeds of the IDA credit were made available to the Government ofPunjab (GOP) for onlending to the implementing agency, the Punjab WaterSupply and Sewerage Board (WSSB). The Credit was signed in October 1978 andwas closed in September 1985.

2. The Project Completion Report (PCR) was prepared by the Urban andWater Supply Division, South Asia Projects Department on the basis of a draftPCR prepared by WSSB, the Credit and Project Agreements and all otherinformation available on file.

3. In accordance with the revised procedures for project performant:e,this PCR was read by the Operations Evaluations Department (OED), but tkeproject was not audited by OED staff.

4. Following standard procedures, OED sent copies of the draft report tothe Borrower, GOP and WSSB. Comments from the Borrower were received in July1987 and are reproduced in Annex 1 to this report.

PUNJAB WATER SUPPLY AND SEWERAGE PROJECT(CREDIT 848-IN)

PROJECT CO?MPLETION BASIC DATA SHEET

KEY PROJECT DATA

AppraisalItem Expectation Actual

Total Project cost (USs million) 77.6 78.0Loan Amount (US$ million) 38.0 38.0Disbursed 35.2Cancelled 2.8Date Physical Components Completed 3/31/82 9/30/85Proportion of Time Overrun (Z) 160XEconomic Rate of Return (X) 'NA. N.A.Financial Performance Not SatisfactoryInstitutional Performance Not SatisfactoryPhysical Performance Satisfactory

Cumulative Estimated and Actual Disbursements(US$ millions)

PY 79 80 81 82 83 84 85Appraisal Estimate 3.0 12.3 23.0 33.7 38.0 38.0 3WXActual 1.6 10.0 20.1 25.9 30.6 33.7 35.2Actual as Percentageof Estimate 53.3 90.3 94.4 76.9 80.5 88.7 92.6

OTHER PROJECT DATA

Item Plan Revisions Actual

First Nention in Files - - 04/76Government's Application - 04/76Negotiations - - 05/01/78Board Approval 06/78 - 09/12/78Loan Agrtement - - 10/27/78Effectiveness Date - - 01/25/79Closing Date 03/31/83 09/30/84 09/30/85Last Disbursement Date 05/05/86

Borrower: Government of IndiaExecuting Agency: State of Punjab/Punjab Water Supply & Sewerage Board

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MISSION DATA

Month/ No. of No. of Staff Date ofItem Year Days Persons Days Report

Identification 10/76 2 2 4 11/10/76Pre-appraisal 03/77 17 1 17 04/26/77

04/77 16 1 16 05/11/77Appraisal 10/77 15 2 30 11/17/77Appraisal follow-up 02/78 5 2 10 04/05/78Supervisions 10/78 8 2 16 11/15/78

03/79 3 2 6 03/20/7905/80 10 2 20 07/07/8003/81 8 2 16 04/14/8111/81 7/18 2 25 01/20/8206/82 12 1 12 08/10/8212/82 5 2 10 01/24/8308/84 21 2 42 11/20/8404/85 3 1 3 11/25/85

STAFF INPUT(Staff-weeks from Time Recording System)

FY 77 78 79 80 81 G2 83 84 85J

Pre-appraisal/ 24.5 13.5Appraisal 25.5Negotiations 16.8 7.3Sup rvision 20.9 7.4 9.7 14.7 14.8 14.5 11.3

Totals 24.5 55.8 28.2 7.4 9.7 14.7 14.8 14.5 11.3

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INDIA

PUNJAB WATER SUPPLY AND SEWERAGE PROJECT(CREDIT 848-IN)

PROJECT COMPLETION REPORT

HIGHLIGHTS

1. The Punjab Water Supply and Sewerage Project was designed to respondto a situation in Punjab (not uncommon throughout India) in whichurban water supply and sewerage investments were greatly inadequate, andservice levels were gradually deteriorating in the fast growing urban areas.Operation, maintenance and mabagement of water supply and sewerage systemswere also unsatisfactory (pa'a. 1.03). Project activities called forimprovement and expansion of water supply and sewerage facilities in eighturban towns of the Punjab (Amritsar, Bhatinda, Jullundur, Ludhiana, Moga,Pathankot, Patiala, and Rajpura). In additiont the project includedconsultant assistance, specialized equipment and training in order tostrengthen organization, management and staffing of the implementing agency(WSSB) and the local partners (MCs) (para. 2.14).

Lack of Project Impact on Sector Policies and Practices.

2. Project implementation could be characterized in large part as"business as usual" in the Punjab water supply and sewerage sector, with theexception that financing was provided by IDA. Little new technology wasinvolved, and almost all equipment and supplies were obtained from in-dountrymanufacturers. Although both IDA and the borrower reported that the projectwas successful ir terms of meeting physical construction objectives and inextending service levele, little progress has been reported o.n achieving suchinstitutional improvements as strengthening of billing and collectionactivities, upgrading accounting systems, and decreasing the level ofunaccounted-for water at the MC level (para. 4.05).

Failure of Local Agencies to Adopt and Implement Management Reforms.

3. Although the scale of the physical construction activities was wellwithin the construction implementation capacity of the implementing agency(WSSB), it appears that GOP and IDA were unable to influence the localinstitutional partners to take corrective actions to improve operations,maintenance and management because of the separate nature of state and localgovernments. MCs, for their part, appeared to perceive the project as astate government initiative with IDA, *n which they had little or noparticipation. Thus MCs did not feel obliged to adopt and implement thenecessary financial and operational discipline. GOP's efforts to find andtrain appropriate and qualified staff for improvement of financial management

practices was undercut, partly due to a lack of interest on the part of theMCs and partly due to a shortage of funds at the local level. Thus far nofinncial statements have been made available on the performance of the MCsbecause f the failure to implement commercial accounting systems at thelocal level (paras. 5.05-5.06).

Failure to Improve Implementation Procedures.

4. Implementation experience showed difficulties typicallyencountered by young agencies attempti4g to carry out IDA funded projects forthe first time. For the implementing agencies it was their first encounterwith IDA's objectives, values, and methods of implementation. As is typicalof many water supply and sanitation projects, success was more evident withrelation to physical construction components, since implementing agency staffhad had experience with these' kinds of activities in the past. On theinstitutional side, however, the project called for improvements in areaswhere the implementing agency was weak. Here success was considerably moreelusive (para. 9.01).

Conflicts between State and Local Authorities.

5. Other hindrances were derived from the fact that there were strainedrelations between state implementing auzthorities and the MC partners in theeight urban towns at times, as the state authorities tried to enforcecompliance with covenants. To some extent such implementation difficultiesare the result of an attempt to impose new values on old systems andinstitutions at the local level, institutions which did not fully share theproject's objectives. In addition, however, basic underlying problemsexisted at the local level, where sources of revenue are few and demands onavailable funds are many. Unfortunately, the project did not includecomponents to address the basic underlying local problems (para. 9.02).

Political Interference in Tariff Increases.

6. As is too often the case in water supply and sewerage projects,tariff increases were politicized -- as local officials did not vant to beseen taking such action. A method of depoliticizing tariff increases needsto be found, possibly one in which a state utility commission reviewsproposed tariff increases based upon measurable indicators of capital andoperating costs, and inflationary pressures (para. 9.03).

Lick of Emphasis on Strengthening Management and Operations.

7. In relatively new and expanding utilities it seems to bemuch easier to emphasize coverage targets through construction activitiesinstead of concentrating on less glamorous activities to ensure c2ntinuedfunctioning of the facilities coustructed. It is the difference betweenemphasizing the visible versus the invisible, and inexperienced institutions

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are move likely to emphasize the former. Only after reaching a stage ofmaturity, it seems, do utilities graduate to a long-term viewpoint,emphasising and devoting considerable resonrces to preventive maintenance,repair, and management activities. This is often a slow and painful process,requiring a great deal of political resolve (para. 9.04).

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INDIA

PUNJAB WATER SUPPLY AND SEWERAGE PROJECT(CREDIT 848-IN)

PROJECT COPLETION REPORT

I. INTRODUCTION

Background

1.01 The Punjab Water Supply and Sewerage Project (Cr. 848)5 approved inSeptember 1978, was the third Bank Group financed project for community watersupply and sewerage in India, following projects for the City of Bombay(Cr. 390) and the State of Uttar Pradesh (Cr. 585).

1.02 The State of Punjab, located in the arid plains of northwesternIndia, is one of over 20 states and territories in India. In 1971, about 24percent of the 13.6 million Punjab population lived in 108 urban townshipsscattered throughout the State. Between 1961 and 1971, population hadincreased in urban towns by 25 percent, but the rate of increase was expectedto accelerate to 5 percent per annum during the 1970's because of strongin-migration from rural areas.

1.03 Water supply/sanitation in Punjab faced an all too common situationthroughout India, in which urban water supply and sewerage investments weregreatly inadequate, and service levels were gradually deteriorating in thefast growing urban areas. Operation, maintenance and management of watersupply and sewerage systems were also unsatisfactory. Urban water systemsgenerally supplied water intermittently to consumers throughout the day;system pressures were low and service was unevenly distributed. Compliancewith water quality standards was not assured in urban systems for reasonshaving to do with the intermittent nature of the systems themselves. Wastageand leakage percentages remained high. Instead of operating as an integratedsystem, urban towns were often served by several small zones which functionedindependently, each separately provided with tubewells, overhead tanks anddistribution systems.

1.04 In the early 1970's, the State of Punjab had been relativelysuccessful in increasing the coverage of piped water supplies throughouturban areas. Urban population covered increased from 21 percent in 1971 to44 percent in 1976, serving 59 out of the 108 townships, although onlypartially. However, service levels were deteriorating against a backdrop ofrelatively small investments together witih increases in population andurbanization. People without access to piped water supply in urban areasrelied mainly on shallow wells, while industries not connected to publicsupplies developed their own systems.

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PCR Prepgration

1.05 The Project Completion Report (PCR) is bas.d upon a review of projectfiles, available Bank Croup reports, and discussions with relevant Bankstaff. This report also benefits from material prepared by the Punjab WaterSupply and Sewerage Board in support of the PCR effort. In general,materials found in the files and other reports were sketchy and incomplete,and left several questions unanswered. However, it has not been possible forIDA staff or consultants to visit the Punjab during the preparation of thisreport because of restricted access due to area tensions.

II. PROJECT IDENTIFICATION, PREPARATION AND APPRAISAL

Project Origin

2.01 Although the Central Government -- through its Five-Year Plans,special programs and recently, its International Decade for Water Supply andSanitation (IDWSS) Decade Plan -- has had considerable influence on sectordevelopment, State governments in India are the primary authority fordevelopment of water supply and sewerage systems. The states execute theirresponsibilities through various departments and agencies, which in turn maydelegate part or all of their duties to local authorities. In certain cases,municipal authorities or other agencies have assumed authority throughspecial legislation for planning, design, construction, and operation andmaintenance, of water supply and sewerage szrvices within theirjurisdictions.

2.02 In November 1976, Punjab sector institutions were upgraded under thePunjab Water Supply and Sewerage Board Act in an effort to attract finan-ialsupport for needed water supply and sanitation projects. Some functions ofthe Public Health Branch (PHB) of the Public Works Department (PWD) werereassigned to the uewly established Punjab Water Supply and Sewerage Board(WSSB), which was given responsibility for the construction if urban watersupply and sewerage systems. However, operation and maintenance of thesesystems largely remained the responsibility of individual municipalauthorities (municipal corporations/committees, MCs). 1/ The PHB retainedresponsibility for development of water and sanitation facilities in ruralcommunities.

2.03 The Punjab Water Stpply and Sewerage Project was originally preparedjointly by WSSB and PUB as part of a program to be implemented during the1977-1980 period. The project was submitted to the Government of India (GOI)and emerged for consideration by the International Development Association(IDA) in April 1976 after being judged by GOI as being one of the best

1/ The Punjab Municipal Corporation Act 1976 is also of interest.

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prepared state projects and one of the most able to attract internationalfinancing (Project Brief (PB), para 3.01). The original project proposedfinancial support for water supply and sewerage facilities in three urbantowns (Amritsar, Jullundur, and Ludhiana) and support for water supplyfacilities in 1782 rural communities (PB, para 1.05). The scope of theproject was subsequently modified during pre-appraisal discussions to includefive additional urban towns (Bhatinda, Moga, Pathankot, Patiala, andRajpura), while the rural component of the project was deleted.

Preparation and Appraisal

2.04 An IDA pre-appraisal mission visited the Punjab in March- April 1977to meet with government officials regarding the proposed project. Thiseffort was linked in the field with a mini-sector study undertaken by theWorld Health Organization (WHO)/World Bank Cooperative Program, WHO staffbeing officed in New Delhi. Discussions with government officials centeredaround a Project Report, which laid heavy emphasis upon construction --rather than subsequent operation and maintenance, but did take into accountthe financial aspects and their effect on tariffs. Nonetheless IDA staffbelieved that the proposal required more work before it could be consideredsuitable for IDA funding.

2.05 During preparation, disagreement emerged between IDA and theGovernment of Punjab (GOP) regarding the proposed rural water supplycomponent and whether sewage treatment would be included. IDA'spre-appraisal mission felt that further institutional reorganization would benecessary if rural water supply were to be included in the project, andsuggested that consultants be engaged to analyze possible organizationalalternatives to find a solution. The GOP, however, did not agree to the needfor such a study, and maintained that the present organizational structurewas effective. Other difficulties were foreseen if the rurat component werefunded, particularly IDA's insistence that cost recovery be pursued in ruralcommunities, while GOP exercised a policy 100 percent grants forconstruction, and subsidized a portion of operation and maintenance costs.In the absence of agreement on the issues mentioned above, GOP withdrew therural component of the project.

2,06 During pre-project discussions the urban component was extended to atotal of eight towns in order to reduce the per-capita investment, avoidimplementation difficulties which could develop if all constructionactivities were concentrated in only three towns, and extend and improve theservice for a larger population (PB, para. 6.10). At the same time, GOPaccepted as an objective the strengthening of WSSB, and the development ofviable municipal water works agencies under the authority of individual MCsfor system management on a self-supporting basis. GOP also agreed to passamending legislation so that WSSB could ta6: over operation and maintenanceof the MC's water supply and sewerage systems in case of default ormismanagement.

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2.07 The Punjab Water Supply and Sewerage Project was appraised by IDA inOctober-November 1977.

Conditions of Agreement

2.08 The project was approved by IDA in September 1978 and projectagreements were signed in October 1978. Legal agreements regarding theproject included the Development Credit Agreement (between GOI and IDA), theProject Agreement (between IDA and WSSB), and the Punjab Agreement (betweenIDA and GOP). As a condition of the Punjab Agreement (section 2.04), each MCwould be required to ensure efficient operation and maintenance in thefuture. To achieve this objective, GOP was required to cause each MC to:

- establish a separate advisory committee with the authority torecommend policy relating to water supply and sewerage services;

- establish a separate MC water supply and sewerage department byMarch 31, 1979, and require the head of the department to reportdirectly to the Commissioner or President of such MC;

- ensure that the MC water supply and sewerage department maintainseparate accounts for water supply and sewerage services ard have itsown budget and bank account;

- ensure that the MC water supply and sewerage department maintainseparate accounts in accordance with a full public utility commercialaccounting system beginning April 1, 1980;

- ensure that key MC personnel with appropriate qualifications serve inthe water supply and sewerage department; and

- ensure that the MC's water supply and sewerage department wouldoperate and maintain the water supply and sewerage systems within itsjurisdiction in accordance with sound engineering, administrative,personnel, financial and public utility practices.

2.09 Although the above conditions were further formalized throughsubsidiary loan agreements between WSSB and each MC individually, suchformalization came about only in early 1979, after all other aspects of theproject had been finalized. There remained a feeling among MCs that they hadnot been full partners in project preparation, particularly regarding theinstitutional issues.

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Project Objectives

2.10 As stated in the Appraisal Report (SAR, para. 4.01), the projectobjective was to improve service levels so that "safe" and "continuous" watersupply could be provided to the entire population of eight towns, as well assatisfactory wastewater removal to the extent that it was financiallyfeasible. Actually, the SAR overstated the objective when calling for "safe"and "continuous" water supply, 2/ since as early as the PB the objectives forphysical components had been downgraded to an "increase in service levels"(para. 4.01). The President's Report (PR) more accurately stated theobjectives, calling for an effort "to improve and expand water supply andsewerage facilities," as well as improvements in "operational and managementtechniques".

2.11 The SAR (para. 4.04) also included other more specific projectobjectives, as follows:

- to maximize the utilization of existing water production capacity by(i) revision of the zoning systems; (ii) the extension of metering tothe extent economically justified; (iii) the introduction of astepped tariff structure to limit waste; (iv) changing theoperational pattern; and (v) the reduction of unaccounted-for waterby leak detection and repair and other measures;

- to maximize the utilization of the existing sewerage systems by theincrease of sewer connection rates, the extension of laterals inareas already provided with trunk sewers, and system rehabilitationby, among other things, desilting; and

- to increase the number of water and sewerage connections to theeconomically weaker sections of the community by the provision ofcredit on easy terms to cover connection costs and basic water closet(WC) installations.

2.12 In addition to the construction of physical works in eight towns ofthe Punjab, the project was to include a major component for institutionalstrengthening in the sector. As stated in the PR (para. 38), GOP'sobjectives for the development of its water supply and sewerage sectorincluded:

- developing an adequate instituticnal framework to provide urban watersupply and sewerage services rapidly,

2/ The activities funded by the project would not have been sufficielit toensure "safe" and "continuous" water supply in the eight urban towns.

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- making the urban water supply and sewerage systems i ancially selfsufficient,

- better utilization of existing water supply and sewerage systemf,and

- extending and improving services where the needs are greatest.

2.13 Thus the strengthening of WSSB's capabilities was to be an importantfirst ste., as it woultd provide GOP with a suitable base for furtherinstitutional development within the sector.

Project Description

2.14 The project included three major components:

1) water supply and sewerage works in eight towns of the Punjab(Amritsar, Bhatinda, Jullundur, Ludhiana, Moga, Pathankot, Patiala,and Rajpura);

2) consultant assistance for institutional strengthening in the areasof management, organization, and staffing of MCs and WSSB; and

3) specialized equipment to upgrade WSSB capabilities, antd provisionfor staff training, both in WSSB and the participatiAg MCs.

2.15 The SAR details the major construction activities of the project onlyin terms of targets over a time horizon. 3/ Components specified includedtubevells, service reservoirs, distribution mains, service connections,standposts, and (for Rajpura and Bhatinda) water treatment works; details forsewerage included sewer connections, laterals, interceptors, pumpingstations, outfall mains, and disposal facilities.

2.16 Feasibility and engineering design studies of sewage treatment plantsin the eight towns were to be a part of the project in order to develop afuture package for possible IDA support. Detailed estimates of costs forconsulting services and training activities were not included in the SAR,although such efforts were to include studies of tariff questions,development of a training plan for WSSB staff, and development of staffingpatterns for revenue generation operations.

3/ e.g., 56 tubevells in Ludhiana by end 1983, 60 tubewells by end 1984, etc.

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Project Costo. Financins

2.17 Project costs were estimated at US$77.6 million equivalent, includingabout US$2.5 million of taxes and duties. The principal categories were:(a) water supply schemes (US$15.9 million), (b) sewerage works (US$31.8million), (c) engineering costs (US$10.0 million), (d) specialized equipment,consultancy services and training (US$1.2 million), (e)physical contingencies(US$5.7 million), and (e) price contingencies (US$13.0 million) (PR, para.50).

2.18 An IDA credit of US$38.0 million equivalent was to finance about 50percent of project costs, net of taxes and duties. The credit was to financeall foreign exchange costs (US$5.5 million) and a portion of local costs(US$32.5 million). The balance of funds for the project were to be providedby the Life Insurance Corporation of India (LIC), the Government of Punjab(GOP), and participating MCs. LIC had been actively involved in lending forstate water supply schemes, and agreed to provide $15.1 million equivalent inlocal currency, or about 20 percent of the total financinig required. 4/ Stateand local governments participating together would provide the balance ofUS$24.5 million equivalent.

2.19 The proceeds of the IDA Credit were channeled through GOI to COP onstandard IDA terms, as part of central assistance provided to stategovernments for development purposes. GOP was to onlend these funds to WSSBat 8.5 percent interest for a period of 25 years, including three years ofgrace. Under subsidiary loan agreements between WSSB and each participatingMC. these funds would be relent by WSSB to the respective MCs. Suchagreements also made MCs liable for repayment of the loan to WSSB at 8.5percent interest over 25 years. The signing of the subsidiary loanagreements was a condition of credit disbursement. Terms of LIC loan to WSSBwere also 8.5 percent interest, for a period of 25 years (with three yearsgrace period).

III. FINANCIAL PERFORMANCE

Financial Covenants

3.01 According to the Punjab Agreement (Section 2.10), GOP had theresponsibility of ensuring financial performance on the part of MCs, asfollows:

4/ LIC had a similar role in CR-585, th Uttar Pradesh Water Supply andSewerage Project.

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during the construction period, GOP would cause each MC to coverannual operating expenses, working capital and debt service ordepreciation, whichever is higher;

GOP would cause each MC to generate internal cash at the rate of atleast 30 percent in FY83, 35 percent in FY84, and 40 percent fromFY85 onwards. 5/

3.02 Full assessment of the achievement of these covenants is not possiblebecause financial statements are not available on the financial performanceof the MCs. Although 12 accountants were recruited and trained by GOP andplaced in the individual MCs in 1983, all but two left their positions withina few months because of lack of support and/or insufficient funds at the MClevel. It can be assumed, however, that the cash generation covenants citedabove were not met because revenues have been only abouc 25 to 50 percent oftargeted amounts in all MCs.

3.03 Financial periormance by the MCs was severely hindered by a number offactors, including:

- the inability or unwillingness of MCs to raise water and seweragetariffs due to an unfavorable political environment;

- the overall situation in the Punjab, particularly in regard to thesporadic civil unrest during project implementation;

- poor progress in the installation of new water meters and the repairand maintenance of existing meters;

- the inefficiency of MCs' billing and collection activities;

- the high percentage of unaccounted-for water in most MC water systems(30-45 percent); and

- the inability of MCs to retain the trained accountants recruited byGOP for the project.

3.04 The project did lead to some progress toward financial targets, sinceby 1984/85 the MCs' billing and collection activities had become moreregular, and revenues had increased above previous levels. Data areinsufficient, however, to fully gauge the progress during this period.

5/ The GOP's fiscal year (FY) begins April 1st.

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IV. INSTITUTIONAL PERFORMANCE AND DEVELOPMENT

Parastatal Development

4.01 Although both IDA and the borrower report that the project wassuccessful in terms of meeting physical construction objectives and inextending service levels, there is less agreement regarding the project'scontribution toward the institutional objectives. This is probably to beexpected, since there was a lack of broad consensus among the various parties(IDA, COP, WSSB, MCs) at appraisal about what the institutional objectivesshould be, particularly at the local MC level.

4.02 GOP enactment of the Punjab Water Supply and Sewerage Board Act 1976,which authrrized the establishment of WSSB and reallocated to it activitiesfor urban water supply and sewerage construction, reportedly was taken inorder to attract outside funding to the Punjab. In initial discussions onthe project, IDA pushed for further institutional changes, seeking tostrengthen WSSB's role. Thus the Bank wanted WSSB to become a strongparastatal with not only responsibility for construction activities, but withresponsibility for operation and maintenance of facilities as well. Bowing topolitical forces, however, IDA agreed to allow each MC to-retainresponsibility for operation and maintenance and management of completedfacilities. Each MC was to form its own water supply and sanitationdepartment, with bank accounts and accounting systems separate from those ofother MC activities.

4.03 Unfortunately, there :as not enough discussion at the initial stageswith the MCs regarding how they could participate in the project, and howthey would eventually undertake operation and maintenance and managementtasks once construction had been completed.

Commitment to Project Objectives

4.04 IDA staff saw a need for sector improvements at the pre- appraisalstage and hoped to use the project as a vehicle for their implementation. Inaddition to construction activities, the project called for efforts towardinnovation in sector institutions. There is little evidence, however, thatthe WSSB and the MCs shared these concerns with IDA in the same way. Therewas clearly more agreement among the parties involved regarding theconstruction objectives than regarding the objectives for institutionalstrengthening, primarily added at IDA's insistence. In retrospect,sufficient incentives were not built into the project to ensure that the MCswould fulfill the institutional components. As has been pointed outelsewhere, 6/ covenants built into proiect agreements are not sufficient to

6/ "Operational Policy Review, Compliance with Loan Covenants," OED reportNo. 4090, September 1, 1982.

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ensure that implementing agencies will carry out those items with which theydo not fully share an interest.

4.05 In large part, project implementation could be characterized as"business as usual" in the Punjab water supply and sewerage sector, with theexception that financing was provided by IDA. Little new technology wasinvolved, and almost all equipment and supplies were obtained from in-countrymanufacturers. General improvements in operation, maintenance, andmanagement lagged behind construction activities. Little significantprogress has been reported on the problems of unaccounted-for water, billingand collection, and in upgrading accounting systems at the MC level.

4.06 Even if the MCs had been fully committed to the institutionalobjectives there would still have been problems in implementation, sinceimprovements in these areas can only be expected over the long term. However,in the absence of full commitment, little progress was possible.

4.07 In a related issue, IDA seemed unaware of the need for institutionalstrengthening at the MC level. In retrospect, more time should have beenspent during the pre-appraisal period to develop a consensus on theinstitutional objectives of the project, especially at the local level.During implementation, IDA failed to act in a catalytic role to help sort outthe problems between WSSB and MCs as they developed. Supervision missionsconcentrated mainly on monitoring compliance with project covenants in asomewhat mechanical way, rather than attempting to provide enlightenedguidance and perspective on the problems.

Management and Training Assistance

4.08 The project was planned such that local (in-country) consultants wereto be engaged for guidance on major issues for institutional strengthening.Local consultants were hired by WSSB to develop a plan for organization,management and staffing for local water and sewerage departments at the MClevel. However, the work was judged by WSSB to be unsatisfactory, as therecommendations would have been of minimal use in upgrading these activities.The general impression was that the consultants were strong in accounting andfinancial areas, but weak in their knowledge of municipal organization andstaffing. Preliminary reports were sent to the MCs with the suggestion byWSSB that appropriate recommendations be implemented, however, laterinquiries made during IDA missions indicated that MCs were unaware of reportcontents.

4.09 Local consultants also were recruited to assess training needs and tosuggest training courses and policies, both in WSSB and the MCs. A6ain, WSSBwas less than satisfied with the results of the effort. The report did notfully respond to the terms of reference, and recommended training that wouldhave cost 10 times the available funds. Although the consultants hadexperience in their respective specialities, they did not have experience in

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working with institutions for water supply and sanitation, and theirrecommendations were not particularly relevant to the situation. Recentinformation from WSSB iidicates that a training program for WSSB and MCs'staff has been undertakenx since 1985 in cooperation with a Punjab stateinstitution, although no details are available.

4.10 Local consultants were found who successfully provided computeranalysis of distribution systems in several of the urban towns.

V. PROJECT IMPLEMENTA-T7ON

5.01 The Development Credit Agreement between GOI and IDA was signed inOctober 1978, became effective in January 1979, and the conditions ofdisbursement were met in six towns by March 1979. Implementation wasgenerally hampered by sLow start-up, early difficulties in procurement ofmaterials, inflation during the 1979- 80 period, and civil unrest in Punjabafter late 1984. Despite implementation delays, the progress and quality ofphysical construction was reported to be good once construction began.Throughout the implementation period, however, little prgress was formallyreported on institutional and financial objectives which t';e projectdesigners sought to address. Although the project was expected to becompleted by March 31, 1982, delays required extension of the closing date by2.5 years, from March 31, 1983 to September 30, 1985, when disbursement endedand the remaining undisbursed credit of US$2.8 million was cancelled.

5.02 Annex 1 compares the estimated versus actual works completed by majorcategories. According to WSSB, the slow start was the result of a number offactors, including slow delivery of counterpart funds to WSSB from GOP andthe MCs in comparison to targets fixed at appraisal; the delay in signingsubsidiary loan agreements between WSSB and the respective MCs; and slowdelivery and shortages of materials, particularly with respect to cast ironpipes and cement. Additional project delays and difficulties were attributedto civil disturbances in the Punjab, particularly after late 1984, making itdifficult not only for IDA missions to visit the field to monitor efforts,but also for work to be completed on the project.

5.03 In contrast to the good physical progress, the financial andoperational aspects of the project posed major problems. An early problemwas that the MCs failed to contribute their agreed share towards capitalexpenditures; but by March 31, 1983, the MCs had contributed 96 percent oftheir target share. Another problem was inadequate billing for sewerage atthe MC level; however, by early 1983 IDA staff reported that all MCs hadbegun billing every two months for sewerage in accordance with projectagreements.

5.04 Other problem areas at the MC level were low water rates, inadequatebilling and collection procedures for water supply, inability of MCs toretain trained accountants provided by GOP, and inadequate project monitoring

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and financial management. Supervision missions reported critical financialand operational problems in three of the urban towns (Ludhiana, Pathankot,and Patiala).

5.05 In summary, it appears that GOP and IDA were unable to influence theMCs to take the necessary corrective actions, because of the separate natureof state and local governments. MCs, for their part, appeared to perceivethe project as a State government initiative with IDA, in which they had hadlittle or no participation. Thus MCs did not feel obliged to adopt andimplement the necessary financial and operational discipline. GOP's effortsto find and train appropriate and qualified staff for improvement offinancial management practices in MCs was undercut, partly due to a lack ofinterest on the part of the MCs and partly due to a shortage of funds at thelocal level. Thus far no financial statements have been made available onthe performance of the MCs because of the failure to implement commercialaccounting systems at the local level.

5.06 IDA staff report that the scale of the physical constructionactivities was well within the construction implementation capacity of WSSB,the implementing agency. In addition, no major difficulties orirregularities surfaced in the procurement process, based upon limitedevidence in the files. Through association with IDA, WSSB has also beenexposed to concepts and procedures that can lead to further institutionalimprovements in the future, but that may be slow in manifesting their fullimpact. In general, the project was relatively successful in terms ofphysical construction, but future improvements need to be made in financialand cost recovery aspects, as well as in operation, maintenance, andmanagement at the local MC level.

VI. OPERATIONAL PERFORMANCE

6.01 There is very little detailed information regarding the effectivenessof operational measures at the MC level, although problems are evident basedupon recent sketchy reports. Questions that remain unanswered include theefficiency of billing and collection operations, the effectiveness of meterrepair facilities, the progress of leak detection and repair activities, aswell as the status of accounting practices, staffing, and training at the MClevel.

6.02 As an example, consider the problem of meter repair facilities.According to project targetsp meter repair workshops were to be opened in alleight towns by March 31, 1979. Recent indications from WSSB are that onlythree meter repair workshops have been established, at Amritsar (servingAmritsar, Pathankott and Jullundur), Ludhiana (serving Ludhiana and Moga),and Patiala (serving Patiala, Rajpura, and Bhatinda). Much work needs to bedone to improve these operations, since a total of only 3,356 meters had beenrepaired, while a total of 19,623 are lying out of order as of September

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1985. The problems that are being experienced at these facilities have notbeen reported to IDA.

VII. BANK PERFORMANCE

7.01 As reported above, although the implementing agency was able toachieve the construction objectives, it was not generally successful inachieving stated institutional and management improvements, particularly atthe local level. The rc'asons for this failure can be partially attributed,as noted previously to a failure of project designers to fully involve localMCs in A dialogue about the institutional issues at an early date. No doubt,however, basic underlying problems also exist at the local level, wheresources of revenue are few and the demands on available funds are many.

1.02 From a review of supervision mission reports, it can be seen that IDAstaff spent some effort addressing institutional issues throughout projectimplementation, although in a rather mechanical way through monitoringcompliance with covenants. By late 1984 some progress had been made inincreasing revenues, and in improving billing and collection activities.However, civil unrest after that time redirected local priorities, divertingattention to other matters. At tines, IDA missions were only able to visitNew Delhi because of tensions in Punjab.

VIII. LESSONS FOR FUTURE PROJECTS

8.01 With a view toward future projects, the following ideas emerge forconsideration:

_. sufficient time should be spent at the pre-appraisal stage to developconsensus on the institutional objectives, particularly with locallevel officials and their staff;

2. progress on institutional objectives should be linked closely withmeasurable indicators, such as improvements in billing andcollection, cash generation covenants, reductions of leakage,wastage, and unaccounted-for water;

3. appraisal of proposed institutional improvements should be made onlyon the basis of detailed studies, much in the same way that physicalcomponents are appraised only on the basis of detailed designs; and

4. the financing of connection fees for water and sewerage in low incomeareas proved to be very popular, and has the potential to increasethe number of connections in other projects.

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IX. PERSPECTIVE

9.01 Implementation experience showed difficulties typically encounteredby young agencies carrying out IDA funded projects for the first time. Itwas the first experience of the implementing agency with IDA's objectives,values, and methods of implementation. As is typical of many watersupply/sewerage projects, success was more evident with relation to physicalconstruction components, since implementing agency staff had had experienceimplementing these kinds of activities in the past. On the institutionalside, however, the project called for improvements in areas where theimplementing agency was weak. Here success was considerably more lusive.

Local Accountability

9.02 Accountability at the local (MC) level was not achieved in theproject. There was evidence of strained relations between state implementingauthorities and the Y- partners in the eight urban towns, as the stateauthorities tried to enforce compliance with covenants. To some extent it isa reflection of an attempt to impose new values on old systems andinstitutions at the local level, institutions which did not fully share theproject's objectives. Unfortunately, at the project preparation stage IDAdid not see the MC level as being in need of strengthening.

Pricing

9.03 Tariff increases were politicized, since local officials did not wantto be seen taking such action. A method of depoliticizing tariff increasesneeds to be found, possibly one in which a state utility commission reviewsproposed tariff increases based upon measurable indicators of capital andoperating costs, and inflationary pressures.

Construction

9.04 In relatively new and expanding utilities it is much easier toemphasize coverage targets through construction activities rather thanconcentrate on the less glamorous activities to ensure continued functioningof the facilities constructed. It is the difference between emphasizing thevisible versus the invisible, and inexperienced institutions are more likelyto emphasize the former. Only after reaching a stage of maturity, it seems,do utilities graduate to a more long-term viewpoint, emphasizing and devotingconsiderable resources to preventive maintenance, repair, and managementactivities. This is often a slow and painful process, requiring a great dealof political resolve.

Table 1

FINSANCIAL AND PHYSICALCAcIIEVEE_rTS IN JAL AND FIVE OTR TOWS

Financial Outlays(lacs of Rupees) Physical Taraets and Achievements

Actual ActualAchievement Components Acbievement

Sr. No. Original Revised Upto as per (riginal Revised UptoActivity Targets Tarets 9130185 Aireement Sareet Target 9/30/85

1 _ 2 3 4 5 6 7 8 8

WATER suPPnY

1. Tubevell 98.417 137.08 172.76 28 nos 38 nos 45 nos 45 nos2. Treatment Works 120.15 197.56 209.24 2 nos 2 nos 2 nos 2 nos3. Reservoir Service 401.086 411.69 425.15 33 nos 33 nos 42 nos 39 nos4. Transmission Rising

Mains 83.272 73.04 7.75 ktms 12.11 kms 11.515 kms5. Distribution Mains 944.288 1203.93 1252.93 480.00 kits 565.66 hims 750.588 kmts 821.47 k1s6. 'Water Connections 234.323 103.00 126.1i - 48,009 nos 52,138 ktms 54,954 nos7. Water Meters 173.798 108.16 116.26 - 51,957 nos 52,407 nos 56,535 nos8. Miscellaneous 145.306 47.32 31.69 - _ _ _9. Land Acquisition 19.58 16.01 16.25 - -0. bulk Water Meter 9.89 12.48 7.86 - 62 nos 93 nos 78 kms1. Railway Crossing 1.50 3.502. Total (A) 2230.44 2310.27 2363.49

SEWEGE

1. Lateral Sever 1126.007 1363.55 1367.81 600 kmts 649.50 kIts 777.555 mas 836.878 kIts2. Intercepting Sever 957.083 835.48 801.60 140 kms 100.324 kis 102.48 kits 109.363 ktms3. Outfall Sever 237.709 176.70 170.66 12.47 k.s 8.43 kms 8,285 kis4. Disposal Works 2.247 182.427 162.14 2 nos 2 nos 15. Pumping Station 51.762 - 8.49 2 nos 5 nos 5 nos 5 nos6. Rising Mains 62.724 12.30 11.22 120,000 nos 104,268 nos 106,960 nos 117,064 nos7. W.C. Connections 1671.16 1690.52 1637.64 also includes

wIS connections8. Miscellaneous 194.234 76.79 130.43 -

9. Land Acquisition 6.739 2.90 1.8110.Total (a) 4311.665 4340.66 4300.30

Consultancy: 13.77Total expenditure: 6677.56

Table 2

JAL AND FIVE OTHER TOWRS (1ATmRSUrPLY)

ANNUAL FIR&NCIAL AND PHYSICAL TARGETSIACHIEVEMENTS

Year-wise Financial Targets/Achievements (Rs in lacs) Year-vise Physical Targets/Achievements1984185

1978- 1979- 1980- 1981- 1982- 1983- Upto 1978- 1979- 1980- 1981- 1982- 1983- UptoS.Ho. Activity 79 80 81 82 83 84 9(85 Total 79 80 81 82 83 84 9/85 Total

1. Tubevell * 10.9 26.1 29.5 31.9 - - - 98.4 2 Nos 16 16 4 - - - 38** 5.0 20.3 30.9 8.1 34.8 25.1 48.56 172.76 - 2 5 12 5 11 10 45

2. Overhead Service 37.3 120.0 131.0 112.7 - - - 401.0 - 5 9 26 - - - 43Reservoir 4.1 36.8 63.4 56.7 98.5 88.1 77.55 425.15 - _ 1 6 5 10 14 . 39

3. Treatment Works - 15.7 81.4 23.5 - - - 120.6 - - 2 - - - 2 2- 2.3 25.4 9.5 43.8 80.7 47.54 209.24 - - - - - - -

4. Distribution 108.5 311.3 299.1 277.2 - - - 996.1 76.8kmts 167.1 169.6 152.2 - - - 565.7mains 27.0 221.2 306.4 256.6 148.3 181.3 112.13 1252.93 12.0 75.3 243.3 149.8 116.1 123.7 107.783 832.983

5. New Water Supply 22.9 63.4 73.6 74.4 - - - 234.3 4601 Nos 12564 16483 14361 - - - 48,009Connections _ 6.9 46.4 &0.7 16.8 4.6 10.71 '26.11 - 1760 12152 11815 4109 15704 9414 54954 9

6. Metering of 26.9 58.9 54.2 33.7 - - - 173.7 11348NoS 18608 13337 8664 - - - 51957Unmetered - 16.8 7.7 31.8 46.1(-)19.7 33.56 116.26 2715" 10970 2050 7367 3142 8131 12150 56535Connections

7. Bulk Water Meters 4.1 11.2 12.4 12.1 - - - 39.8 - - - - - - - -

- - - 5.9 1.0 0.5 0.46 7.86 -

8. Miscellaneous 25.9 45.5 37.4 35.8 - - - 144.6 - - _ _ - _ - _- 5.3 6.4 6.3 2.6 8.50 2.59 31.69 - - - - - - - -

9. Land Acquisition 1.1 15.2 2.5 - - - - 18.8 - _ _ _ _ _ _ _- 3.6 2.3 0.2 8.7(-) 0.9 2.35 16.25 - - - - - - _ -

lO.Railway Crossing - 1.5 - - - - - 1.5 -

_ _ - _ - 3.5 - 3.5 - _ _ - _ _ _ _

I1.Spare Pump 1.6 - - - - - - 1.6 - - - - - - - -

12.Total 239.1 669.0 721.0 601.3 - - - 2230.4 - _ - _ _ _ - -

36.1 313.2 488.9 415.8 400.6 371.7 335.45 2361.75 - - - - - - - -

* Targets** Achievements

Table 3

JAL AND FIVE OTHER TOWNS (SEWERAGE)

ANNUAL FINANCIAL AND PHYSICAL TARGETS/ACRIEVEMENTS

Year-wise Financial Targets/Achievements (Re in lacs) _ Year-wise Physical TarntetesAchievements1984/85

1978- 1979- 1980- 1981- 1982- 1983- [pto 1978- 1979- 1980- 198i- 1982- 1983- Upto

S.No. Activity 79 80 81 82 83 84 9/85 Total 79 80 81 82 83 84 9/85 Total

1. Lateral Sever * 138.4 273.3 330.0 387.6 - - - 1128.3 76.0k.t 164.Skmt 192.0 215.8 - - - 649.5

** 44.5 286.7 308.2 269.2 187.4 257.0 14.81 1367.84 56.3" 221.5" 163.3 180.5 98. 6 8G.5 36.178 836.878

2. Intercepting 104.2 257.8 284.2 311.6 - - - 957.8 12.6kat 28.9 33.3 35.5 - - - 110.3

Sewer 6.7 143.2 204.1 143.6 109.2 141.9 52.90 801.60 - 18.6 28.8 20.3 10.3 18.2 13.163 109.363

3. Outfall Sewer 34.7 69.8 73.5 60.5 - - - 238.5 1.2 n 3.5 3.7 4.0 - - - 12.4

4.0 12.1 8.2 43.6 67.2 32.7 2.87 170.66 - 1.2 1.6 1.7 3.4 0.4 -. 285

4. Pumping Station - 31.10 7.8 15.1 - - - 54.0 - - - - - - -

- 0.5 1.4 3.4 10.4 77.7 77.22 170.63 - -- _- -

5. Rising Mains - 10.7 47.8 4.2 - - - 62.7 - - - - - - - -

- 2.5 0.1 7.4 2.0 0.4 1.18 13.58

6. W.C. Connec- 109.0 478.4 521.8 561.8 - - - 1580.2 7405.05 30853 31985 34025 - - - 104268

tions 1.4 113.1 455.1 457.7 308.4 217.9 84.04 1637.64 - 9123 35950 33651 22849 10441 5050 117064

7. Miscellaneous 36.5 60.4 64.6 31.9 - - - 193.4 - - - - - -

- 8.1 4.2 6.7 10.7 13.0 87.73 130.43 - - - - - -

8. Land Acquisi- - 6.5 0.2 - - - - 6.7 - - - _ _ _ _

tion - - 1.8 - - 0.01 1.81 - - - - - -

9. Railvay - - 0.8 - - - - 0.8 - - - - - - -

Crossing - - - - - - - -

IO.Total 422.8 1187.0 1329.9 1372.7 - - 4312.4 - - - -

56.6 566.2 983.1 931.6 695.3 140.6 320.76 4294.16 - _ - -

* Targets** Achievements

ANNEX 1.18 Page I of 4

INDIA

PUNJAB WATER SUPPLY AND SEWERAGE PROJECT

PROJECT COMPLETION REPORT

In this annex, the comments by the Government of India on the PCRhave been reproduced. The comments were received under cover of a July 14,1987 letter from the Department of Economic Affairs, Ministry of Finance.

- 19 -

ANNEX 1Page 2 of 4

INDIA

PUNJAB WATER SUPPLY AND SEWERAGE PROJECT

Comments from Government of India on the Project Completion Report

PCR Reference Department of Economic Affairs Response

1. Para 2.09: (..There remained a feeling The relationship and functionalamong MCs that they had not been full arrangement between the State Covernmentpartners in project preparation, and Local Bodies had come into existenceparticularly regarding the long before the project and there isinstitutional issues). considerable evidence on the ground of the

cooperative and fruitful nature of thePara 4.03: (..not enough discussion at relationship. The continuing interaction,the initial stages with the MCs conducted over well established and time testedregarding how they could participate channels of communication and feedbackin the project). transcends the project and covers the gamut of

ur'1an sector activities. It would be unfairPara 4.05: (.."business as usual" in to sit in judgement over this vital relationshipthe Punjab Water Supply and Sewerage as a whole on the basis of impressions gatheredSector). intermittently during a specific project.

Para 4.07: (..the problems between WSSB The MCs were involved at different stagesand MCs). and aspects of the project including Planning,

Execution, flow of funds and Operation andPara 5.05: (..the separate nature of State Maintenance. At the Planning stage, regular&nd Local Governments...State Go!;: nment meetings were held with the Commissioners andinitiative with IDA, in which they had Executive Officers of the Corporations/Locallittle or no participation. Thus MCs bodies to decide the scope of work to bedid not feel obliged to adopt and included in each town. Detailed discussionsimplement the necessary financial and were held with representatives of Municipaloperational discipline). Committees on all aspects of the project.

During the execution of the project, to havePara 9.02: (..strained relations between proper coordination between the MCs and the Board,State Implementing Authorities and the an Advisory committee was constituted underMC Partners in the eight urban towns). the provisions of clause 2.04(a) in the

agreement between the World Bank and Governmentof Purjab.

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Page 3 of 4

In fact a system of regular meetings,detailed discussions/interaction under theCommissioner/DLG/SLUD is now in operation andwould enhance the coordination between theState Government and Local Bodies.

2. Para 3.03: (..the inability or unwilling- The project authorities had indicatedness of MCs to raise water and sewerage that tariff revision was to follow thetariffs due to an unfavorable political results of the tariff study to be conductedenvironment). under the project. Consultants for the

development of tariff structures werePara 9.03: (..State Utility Commission appointed. Revisions were also effected byreviews proposed tariff increases the MCse It would not be correct to state,based upon measurable indicators of as the Project Completion Report has done,capital and operating costs, and that the increases were politicized.inflationary pressures).

Under the present arrangement, tariffrevisions are the responsibility of the StateGovernment which would consider a number offactors before arriving at a decision. Inaddition to quantifiable indicators of capital,operative costs, etc. (which could beadequately looked at by a body appointed forthe purpose), there are socio-economic andadministrative iactors, in consonance withGovernment policies which because of their naturscope and impact would necessarily be evaluatedand an overall decision taken only by theGovernment.

3. Para 2.05: (..institutional reorganization The "disagreement", etc. highlighted inas a condition for taking up rural the PCR is not reflected in Staff Appraisalwater supply component due to Report which is a document prepared afterdisagreement between IDA and Punjab). pre-appraisal and appraisal of the project.

In fact, para 1.28 of SAR refers to the factParu 4.02: (..observations on developing that a Sector study by the World Bank/WHO (CP)the Board with overall responsibility was conducted at the time of pre-appraisalof the entire sector). which brought-forth various organizational

alternatives for discussion with Government ofPunjab and also paras 1.28 to 1.30 refers tothe final arrangement agreed to between GOPand IDA as institutional structure. Observationcontained in paras 2.05 and 4.02 of PCR thereforneeds to be modified to reflect the sit-.ationas contained in Staff Appraisal Report.

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ANNEX IPage 4 of 4

4. Para 9.04: (..Only after reaching a stage The reference to political resolve isof maturity, it seems, do utilities out of place and not based on objectivegraduate to a more long-term viewpoint. evaluation.emphasizing and devoting considerableresources to preventive maintenance,repair, and management activities.This is often a slow and painfulprocess, requiring a great deal ofpolitical resolve).

A number of issues brought out in the report have been highlighted inthe form of summarization at the beginning of the report. Our comments againstspecific paragraphs should also be read with the corresponding portion of the"Highlights."