Document of The World Bank

FOR OFFICIAL USE ONLY

Report No: 27758-TM

IMPLEMENTATION COMPLETION REPORT(SCL-41710 TF-25244 PPFB-P3120)

ON A

LOAN

IN THE AMOUNT OF US $30.3 MILLION

TO THE

GOVERNMENT OF TURKMENISTAN

FOR THE TURKMENISTAN WATER SUPPLY AND SANITATION PROJECT

April 29, 2004

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective November 2003)

Currency Unit = Turkmen Manats TMM 1 = US$ 0.000201878 US$ 1.00 = TMM 4, 953.48

US $ 1.00 = 5,194 TMM (Appraisal)

(Exchange Rate Effective at Closing Date February 2004)

Currency Unit = Turkmen Manats TMM 1 = US$ 1.92231 US$ 1 = TMM 5,199.93760

FISCAL YEARJanuary 1 - December 31

ABBREVIATIONS AND ACRONYMS

CC - Component CoordinatorCOM - Cabinet of MinistersDRWSA - Dashogvuz Regional Water and Sanitation AuthorityECSSD - Environmentally and Socially Sustainable DevelopmentFSU - Former Soviet UnionGDP - Gross Domestic ProductGOT - Government of TajikistanGOST - Russian StandardsIBRD - International Bank for Reconstruction and DevelopmentICB - International Competitive BiddingIS - International ShoppingKAP - Knowledge, Attitudes and PracticesMOA - Ministry of AgricultureMOH - Ministry of Health and Communal ServicesMWR - Ministry of Land Reclamation and water MAnagementNCB - National Competitive BiddingNGO - Non Governmental OrganizationO&M - Operation and MaintenancePCC - Project Coordination CommitteePHRD - Japanese Policy and Human Resource Development GrantPIU - Project Implementation UnitPPF - Project Preparation FacilitySAR - Staff Appraisal ReportSES - State Epidemiological ServicesTOR - Terms of referenceUFW - Unaccounted for WaterUNICEF - United Nations Children's Fund

Vice President: Shigeo KatsuCountry Director Dennis de TraySector Manager Sumter Lee Travers

Task Team Leader/Task Manager: Jonathan Kamkwalala

TURKMENISTANWater Supply and Sanitation

CONTENTS

Page No.1. Project Data 12. Principal Performance Ratings 13. Assessment of Development Objective and Design, and of Quality at Entry 24. Achievement of Objective and Outputs 65. Major Factors Affecting Implementation and Outcome 106. Sustainability 147. Bank and Borrower Performance 148. Lessons Learned 179. Partner Comments 1810. Additional Information 19Annex 1. Key Performance Indicators/Log Frame Matrix 20Annex 2. Project Costs and Financing 21Annex 3. Economic Costs and Benefits 23Annex 4. Bank Inputs 24Annex 5. Ratings for Achievement of Objectives/Outputs of Components 26Annex 6. Ratings of Bank and Borrower Performance 27Annex 7. List of Supporting Documents 28

Project ID: P008867 Project Name: Water Supply and SanitationTeam Leader: Jonathan S. Kamkwalala TL Unit: ECSIEICR Type: Core ICR Report Date: April 30, 2004

1. Project DataName: Water Supply and Sanitation L/C/TF Number: SCL-41710; TF-25244;

PPFB-P3120Country/Department: TURKMENISTAN Region: Europe and Central Asia

Region

Sector/subsector: Water supply (77%); General public administration sector (7%); Health (7%); Sanitation (7%); Other social services (2%)

Theme: Rural services and infrastructure (P); Fighting communicable diseases (P); Other urban development (P); Pollution management and environmental health (S); Civic engagement, participation and community driven development (S)

KEY DATES Original Revised/ActualPCD: 03/22/1995 Effective: 08/15/1997 08/15/1997

Appraisal: 12/11/1996 MTR: 11/15/2001Approval: 05/27/1997 Closing: 02/28/2004

Borrower/Implementing Agency: GOVT. OF TURKMENISTAN/MINISTRY OF LAND RECLAMATION AND WATER MANAGEMENT (MWR)

Other Partners:

STAFF Current At AppraisalVice President: Shigeo Katsu Johannes F. LinnCountry Director: Dennis de Tray Yukon HuangSector Manager: Hossein Razavi Robert B. LiebenthalTeam Leader at ICR: Jonathan S. Kamkwalala Rita KleesICR Primary Author: Sanyu Lutalo

2. Principal Performance Ratings

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: U

Sustainability: HUN

Institutional Development Impact: N

Bank Performance: U

Borrower Performance: U

QAG (if available) ICRQuality at Entry: U

Project at Risk at Any Time: YesA Quality at Entry review by the Quality Assurance Group was not carried out for the project because this process was not required at the time.

3. Assessment of Development Objective and Design, and of Quality at Entry

3.1 Original Objective:

The project was part of the Aral Sea Program designed to address the environmental impacts of the Aral Sea disaster. It was specifically intended to improve the health of the population in the region most affected by the disaster, by investing in water and sanitation infrastructure. The project targeted under-served areas with particular attention to secondary cities and the rural population. Due to the significant sector institutional weaknesses both at the national and regional levels, the project was designed to include institutional restructuring and strengthening. Specific objectives of the project were (i) to improve water supply and sanitation in seven etrap centers and nine collective farms in Dashogvuz Velayet; and (ii) to initiate institutional changes in the water and sanitation sector to ensure sustainability of the project.

The project objectives were highly relevant, given their consistency with both regional and national priorities to mitigate the impacts of the Aral Sea environmental disaster, as well as with the Bank's Country Assistance Strategy for Turkmenistan.

3.2 Revised Objective:

The project objectives were not revised.

3.3 Original Components:

The project consisted of four main components: (a) water supply improvements; (b) sanitation and health; (c) institutional strengthening; and (d) project management and construction supervision. Details of each of these components are outlined below.

Component (a): Water Supply Improvements Cost: US$20.14 million (IBRD: US$15.36 million, GoT: US$4.78 million)

This component was designed to rehabilitate and expand water systems in seven etrap centers and nine collective farms in Dashogvuz Velayet, and to provide a supply of spare parts and repair materials to assist in operating these systems for the first year after completion. Project identification and preparation determined that the piped water systems already in place, although in a state of disrepair, were appropriate for the region and the least cost solution for improving drinking water supplies. Since the major needs for access to a safe water supply were found outside the capital city, it was decided to focus the project on the secondary cities, etrap centers and rural farms. The three subcomponents of the water supply improvements included:

1. Urban Water Supply Systems Improvement (US$8.7 million). This sub-component mainly comprised rehabilitation of water facilities in seven etrap centers in the Velayet (Akdepe, Boldumsaz, Gubadagh, Kune-Urgench, Niyazovsk, Tagta, and Yilanly), from the water sources to the public street standpipes. The sub-component aimed to reduce water losses, reduce operation and maintenance costs, improve water quality by reducing the risk of groundwater infiltration to the system, as well as to provide extended hours of water supply to the project areas at adequate pressures. Specific activities under this sub-component included:

· Repair of existing street standpipes and provision of new taps as required

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· Rehabilitation of twenty-six (26) kilometers of transmission mains with diameters ranging from 250 to 400 mm, and 211 kilometers of distribution pipework of diameters between 100 to 300 mm

· Rehabilitation of existing wellfields, and installation of new borehole pumps and controls· Renovation of water distribution centers, and installation of new electrical systems, mechanical

plant, and appropriate chlorination equipment· Replacement of existing street standpipes with an improved design that would reduce wastage and

freezing during the winter months. The sub-component was supposed to finance both civil works and technical assistance.

2. Rural Water Supply Systems Improvement (US$10.4 million). The sub-component supported the rehabilitation and expansion of water supply systems in 47 villages in 9 collective farms distributed among the seven etraps. Activities under this sub-component included:

· Rehabilitation of 64 boreholes in nine wellfields, and installation of pumps and electrical controls· Rehabilitation of 94 kilometers of transmission mains, and installation of 31 kilometers of the same· Renovation of seven water distribution centers· Construction of 125 kilometers of distribution pipes, and rehabilitation of 2,025 kilometers of the

same· Upgrading and installation of a total of about 5200 standpipes.

This sub-component aimed to improve the access to safe water for the rural population through the reduction of water losses, the reduction of operation and maintenance costs, the improvement of water quality by reducing the risk of groundwater infiltration to the system, and the extension of the hours of service. It was also expected to supply about 82, 000 people with chlorinated water for twenty four (24) hours instead of only a few hours a day.

3. Operational Support (US$1.0 million). This sub-component provided additional spare parts, tools, chemicals and other equipment essential for operation and maintenance of the systems. This sub-component was expected to support the investment in the water supply systems by providing required items for their maintenance.

Component (b): Sanitation and HealthCost: US$3.44 million (IBRD: US$2.17 million, GoT: US$1.27 million)

The objective of this component was to optimize the project's health benefits by improving sanitation facilities and hygiene practices, health promotion and hygiene education, water quality monitoring and hygiene surveillance. The component used a community participatory approach to the provision of basic sanitary services developed under the school sanitation demonstration project. Due to the poor sanitation and hygiene conditions, this component was designed to target under-served communal facilities and to demonstrate and educate, through strong community participation, to larger audiences the benefits of improved sanitation facilities. It was aimed to rehabilitate and construct latrines and install handwashing facilities in rural schools and markets in the areas covered by the project. The three subcomponents included:

1. Improvement of Sanitation, Hygiene and Water Supply Facilities Utilizing Community-Based Approaches (US$0.8 million). The objective of this sub-component was to improve sanitation and hygiene practices. It financed the rehabilitation of latrines and installation of handwashing facilities in about 35 schools in the nine collective farms and in one market in each of the etrap centers targeted by the water supply improvements component.

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2. Health Promotion and Hygiene Education in Rural Areas (US$0.7 million). This subcomponent aimed to change knowledge, attitudes and practices related to water, sanitation and health. Health promotion and hygiene education were to be carried out in the schools and markets covered under the Sanitation component. It included rehabilitation of the Dashogvuz Center of Health, provision of equipment, training of trainers, workshops and a study tour.

3. Water Quality, Sanitation, Hygiene and Health Services in Dashogvuz Velayet (US$1.9 million). This sub-component was designed to improve the capacity of the Sanitary and Epidemiological Services (SES) in testing water quality, surveying sanitation and hygiene conditions and conducting environmental epidemiological studies. It was expected to improve the performance of the SES division in Dashogvuz Velayet through purchase of equipment and supplies, technical assistance, and training. Activities under this sub-component were specifically expected to (a) improve water quality monitoring system and sanitation and hygiene surveillance systems; (b) upgrade SES laboratories in the Velayet; and (c) improve data collection, analysis, and reporting, and conduct epidemiological studies.

Component (c): Institutional StrengtheningCost: US$2.4 million (IBRD: US$1.74 million, GoT: US$0.69 million)

The objective of this component was to improve the effectiveness of the delivery of water and sanitation services to the population of Dashogvuz Velayet. The component was designed to address the principal sector weaknesses which were (1) fragmentation of responsibility for the sector among too many governmental agencies; (2) the wide range of responsibilities other than water and sanitation assigned to the principal agency charged with providing water supply; (3) lack of technical and management skills throughout the sector; (4) the absence of a coherent program for the effective operation and maintenance of water and sanitation facilities; (5) inadequate focus on the importance of providing effective means of excreta disposal; (6) inadequacy of funding for both capital construction of new and replacement facilities, and for operation and maintenance of existing facilities; (7) inadequate communication between management and consumers; and (8) a national policy which provides water and sanitation services at no cost to the users. The Institutional development component of the project financed a two-year program of technical assistance, training and equipment to strengthen the capacity of the central and regional governments to manage, operate and maintain the facilities which provide water and sanitation services to the people of Dashogvuz. The centerpiece of this component was the establishment of a Dashogvuz Regional Water and Sanitation Authority (DRWASA). Four sub-components for building capacity for the effective provisions of water and sanitation services were (i) identification of national sector reforms; (ii) reorganization of the water and wastewater sector in Dashogvuz Velayet; (iii) strengthening of the newly established DRWASA; and (iv) a public awareness campaign. The four sub-components included:

1. National Sector Reform Study. (US$ 0.2 million). The objective of this sub-component was to recommend improvements and develop an action plan to strengthen, on the national level, the capacity in Turkmenistan to provide water and wastewater services. Technical assistance was provided to conduct a study which identified the most serious constraints at the national level, recommended legislative or other reforms where the national constraints were the most serious and recommended a plan of action for transferring responsibility for the sector from the national level to local level.

2. Establishment of the Dashogvuz Regional Water and Sanitation Authority. (US$1.0 million). The objective of this sub-component was to establish a specialized regional water supply and wastewater authority under the jurisdiction of the Dashogvuz Velayet, which would have been granted the responsibility and powers to provide sector services to all the people of the Velayet. Results of the National Sector Reform study were expected to guide development of the Authority.

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3. Institutional Strengthening of the Regional Authority. (US$1.1 million). The objective of this sub-component was to strengthen the capacity of the newly established water and wastewater authority to meet its responsibilities. The regional and local organizations that would have been included under the new regional organization had few of the skills or resources required to develop an effective utility, e.g., operation and maintenance of facilities; management; collection and dissemination of information; finance; administration; personnel; customer relations. This sub-component supported the Government in analyzing options for cost recovery and in reaching a decision on which option was most suitable. It also financed technical assistance, training, equipment and supplies.

4. Public Awareness Campaign. (US$ 0.1 million). This subcomponent carried out a public awareness campaign to inform the population in the project area about improvements in service provision and cost-recovery, as well as to educate the general population about water conservation; safe practices for water collection and storage; linkages between water, sanitation and health; and the role of the household and community in properly operating and maintaining the systems.

Component (D): Project Management and Construction Supervision Cost: US$3.1 million (IBRD: US$2.22 million, GoT: US$0.81 million)

This component covered costs of project management and supervision of construction of water supply investments. Overall project management was to be provided by personnel from the PIU, which had personnel in both Ashgabat, the capital city, and Dashogvuz, the regional center. The construction supervision team consisted of both foreign expatriates and local personnel.

3.4 Revised Components:

The project components were not revised, although significant changes were made in the actual implementation arrangements for the Water Supply component, which constituted the largest component under the project. These changes primarily comprised a revision from the originally proposed arrangement of implementing the entire water supply component under a single civil works contract procured under International Competitive Bidding Procedures (ICB), to implementing it in three phases: (i) an Immediate Works contract; (ii) an Urgent Rehabilitation contract; and (iii) a major works contract. Given the implementation delays, and the subsequent premature cancellation of the project, only the first phase (the Immediate Works Contract) was implemented. The Government later made further proposal to the Bank requesting further revisions in the water supply component, primarily to include installation of desalination units in several centers, and construction of a large water treatment plant near Dashogvuz City that would serve the city and the surrounding areas. The Bank requested the Government to justify the economic and financial feasibility of the proposed revisions before the proposal could be considered. This was not done and the Government's proposal was not approved.

3.5 Quality at Entry:

The project was prepared jointly with the Borrower, and its objectives were relevant and consistent with both regional and national priorities at the time for ameliorating the effects of the Aral Sea disaster. Economic, financial, technical, and institutional aspects, as well as the Bank’s safeguard policies were taken into consideration. Most of the major risks to the success of the project, including the risk of insufficient Government commitment to the reform process were identified, but were underestimated. The risks of unsatisfactory governance and political interference, which ultimately contributed to the project’s

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failure were not identified however. The scope of the project was too wide (both rural and urban water supply, sanitation, hygiene and health, and institutional reform) for a first operation in a country where capacity and knowledge of Bank procedures was low. On balance, the quality at entry for the project is rated as unsatisfactory.

4. Achievement of Objective and Outputs

4.1 Outcome/achievement of objective:

A. Achievement of Objective (i) To improve water supply and sanitation in seven etrap centers and nine collective farms in Dashogvuz Velayet:

Achievement of the above objective is rated as Unsatisfactory because the project did not result in any significant improvements in quantity, quality or reliability of water supply and sanitation services in the project areas. This was due to a number of major shortcomings that ultimately resulted in failure to complete most of the investments envisaged under these components of the project. Progress was extremely slow throughout the project implementation period. Of the US$20.14 million allocated for the Water and Sanitation improvement component, less than US$1.1 million (5.5%) was disbursed. Similarly only about 48% of the funds allocated to the Sanitation and Health component were disbursed. The actual investments on the ground were even less because although some of the goods and materials for the investments were purchased, the largest proportion of them were not in fact installed or constructed. According to records from the regional water agency, DashogvuzAgyzSuv, trends in water supply service coverage between 1998 and 2002 showed a slight increase (38% in 1998, compared to 43% in 2002), but it is not clear whether this is a result of the project. In terms of service quality, there were no significant improvements in the number of hours of service to consumers, and quality of water supplied remained poor (see section 4.2 below).

B. Achievement of objective (ii) to initiate institutional changes in the water and sanitation sector to ensure sustainability of the project

Technical and financial sustainability of the project, which was the main outcome envisaged from this objective, was not achieved given the almost complete failure to complete the physical investments under the water supply and sanitation components. Failure to complete the investments and in turn to improve service delivery made it impossible to charge for water among the beneficiary communities. In addition the presidential decree allowing for cost recovery for operation and maintenance expenses, which was issued as a condition of effectiveness was later repealed, and Government reinstituted the requirement for water supply services to be provided to the population free of charge. With no revenue inflows the financial performance of the water providers remained dire. Although some of the outputs of the technical assistance under this objective, including the National Sector Reform Study and the Action Plan for its implementation were prepared, and sector management was decentralized from Central to Regional Government in Dashogvuz Velayet, most of the recommendations of the Study and the Action Plan were not in fact implemented. The newly formed water supply agency at the regional level also faced numerous challenges that hindered its effectiveness, including the lack of a clear mechanism for receiving much needed resources.

Overall, the project's outcome is rated as Unsatisfactory due to the numerous shortcomings in implementation, in addition to the failure to achieve the objectives. Of the US$30.3 million loan, only US$6.10 million (20.1%) was disbursed by the time the project closed. Of the amount disbursed about US

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$3.7 million (61%) was spent on technical assistance, while the remainder was spent mainly on procurement of goods and operational costs. Both the Bank and Government were frustrated by the slow implementation progress, and Government was especially critical of the gross imbalance in the proportion of technical assistance activities carried out vis-a-vis investments. Other shortcomings that contributed to the negative outcome included: (i) poor management of project implementation, characterized by lack of awareness of, and failure to adhere to Bank procurement policies and procedures, leading to significant delays; (ii) corruption charges occurring at both project and country portfolio level, which led to the project being suspended on two different occasions by both the Bank and the Government, and losing at least fifteen months of implementation; and (iii) a reluctance on the part of Government to implement reforms. Although the Bank supervision team discussed and agreed with the Government on a detailed action plan to resolve some of the implementation difficulties faced by the project in order to meet the development objectives, the action plan was never implemented. The Government later changed its priorities with regard to project design and requested the Bank to approve some major revisions in project design as follows: (a) to construct a large central water treatment plant near Dashogvuz City, with the city and the etrap centers and villages included in the project being connected to this system; (b) to finance small desalination plants for each etrap center; and (c) to consolidate the procurement of all goods/materials into one large international Competitive Bidding (ICB) contract in order to reduce the delays. The Bank rejected the proposal because it was deemed not economically and financially feasible. Given the implementation problems, combined with the lack of tangible results on the ground and the emerging disconnect between Borrower and Bank priorities, Government through a letter from the Cabinet of Ministers requested the Bank to suspend the project in March 2002. Following the visit of the President of the Bank to Turkmenistan in April 2002 however, the Government expressed renewed interest in continuing with the project, but still lacked the commitment to meet the recommendations included in the Action Plan for propelling the project forward. The Government eventually requested the Bank to cancel the remaining part of the Loan in January 2003. This literally severed any further chances for future completion of, and sustainability of investments.

4.2 Outputs by components:

Water Supply Improvements

The physical objective of this component, which was to construct water supply investments in order to improve water supply in the project areas, is rated as Unsatisfactory because most of the investments were not completed, thus the project did not realize any significant improvements in quantity, quality or reliability of water supply services. The entire works under this component were initially lumped together into a single Turnkey International Competitive Bidding (ICB) Contract for Construction and Renovation of Water Supply Systems in Dashogvuz Velayet. This resulted in very high and widely varying bids from prequalified bidders, that were all considerably in excess of (45%-95% above) the US $ 21 million budget estimated for the contract during project preparation. Implementation of such a large and diverse contract was very difficult to implement given that the large number of project sites (sixteen) and the fact that they were widely dispersed geographically. Because the bids were all far in excess of the budget, it was finally recommended in consultation with the Bank's OPRC Committee that (i) the tender documents be revised primarily to scale down the works to cover fewer sites that would cost within the available budget estimate; (ii) the technical specifications be clarified and modified to reduce the risk of diverse quotations; and (iii) all six prequalified firms be invited to re-bid. When implementation arrangements for the project were reviewed in preparation for resuming project activities, further revision of this component was done, and it was separated into three phases:

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1. Immediate Minor Rehabilitation Works: This phase comprised procurement of ten (10) well pumps, five (5) pumps for pumping stations, and twenty (20) sets of accessories and spare parts both for the two types of pumps, as well as installation of the equipment mentioned above. This phase was to be carried out over a two-month period, and procurement was done by International Shopping.

2. Urgent Rehabilitation Works: These works, which were to be implemented over a nine month period, comprised a pumping station and surface water intake wells at a new water intake works in Kunya-Urgench City, and pumping station and surface water intake wells in Enayeva Daykhan Association/Collective farm of Akdepe Etrap.

3. The third phase, which was to be implemented over a twenty four month period, would then comprise the remaining works under the construction and rehabilitation of water supply systems in the selected sites, under the main contract. Only the first phase of urgent minor rehabilitation works, comprising rehabilitation of ten wells and three pumping stations in only three out of the seven etrap centers, was completed. Moreover, even in these areas, with the exception of one Collective farm (Esaryeva in Etrap Ak-Depe), the actual quantities of water pumped did not increase, and the quality of service delivery remained low, with consumers continuing to receive as little as 2 hours of service. In the Collective farm in Etrap Ak-Depe, one of the few areas that achieved any benefits from the project, water quantities were almost doubled by the drilling of five wells under the first phase of emergency works. Although most of the goods and materials for the second phase of works were purchased, they were not installed due to suspension by the Government of the procurement process for selecting contractors. Overall, the work actually done at the time of project cancellation represented only about 5% of the total amount allocated for this component.

Water quality monitoring records available at Exploitation Service of DashogvuzAgyzSuv, SEI, indicated poor water quality in the project areas, with over 80 % of samples in five out of nine Etraps, and more than 60% of water samples in all the Etraps failing bacteriological tests for quality.

Sanitation and Health

Capacity building and education activities ("Software aspects") under this component of the project were completed satisfactorily, and received positive response and participation among the rural population. Vehicles were purchased for Etrap Centers and SEI, and Participatory Health Promotion and Hygiene Education activities were carried out by the consultants, involving the communities and other stakeholders, and relevant visual aids and materials were produced. Close collaboration between the project and UNICEF, who has a strong track record of implementing small scale hygiene and sanitation improvement programs in Dashogvuz, was established, providing a potential opportunity for scaling up their experience. Although hygiene education efforts need to be supported by actual provision of safe water supply and sanitation services ("hardware aspects") in order for the population to receive the full health benefits, little was achieved in this regard.

The Turkmen authorities did not approve implementation of most of the physical investments with respect to sanitation, such as construction and rehabilitation of latrines, and installation of handwashing basins in schools and markets even though relevant studies and construction documents were prepared by the consultants. The award of a contract for rehabilitation works for the Dashogvuz Center for Health was also not approved by Government. The failure to install the sanitation hardware, in addition to the limited achievement of the water supply investments, denied the beneficiaries the opportunity to realize the full health benefits from this component. Although the Sanitation Epidemiological Inspection and Health

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Department records indicate a general reduction in the occurrence of waterborne diseases among children, by about half between 1999 and 2002 (1095 cases in 1999 and 536 cases in 2002), these diseases were still significantly prevalent. This situation could be linked to not only the sanitation systems but also to the quality of water services.

Some of the relevant institutional strengthening activities such as the training program for water quality monitoring and for laboratory personnel, as well as establishment of teams responsible for sanitary activities, and establishment of offices for the Sanitary Epidemiological services were carried out. Although some of the equipment for laboratories was procured, it could not be installed because the laboratory buildings were not in fact rehabilitated as had been planned. Failure to install the necessary equipment denied the institutions the full benefits of training the relevant personnel.

Institutional Strengthening

The benefits of this component, which was to initiate institutional changes in the water and sanitation sectors in order to ensure that the project is financially and technically sustainable, were not fully realized, partly due to the complementary nature of this component with the investment components which were also not completed. Although the first steps in the institutional reform process, which included (i) preparation of a national sector reform study, and agreement on a plan of action for addressing the most serious sector constraints; and (ii) decentralization of sector management to the regional level, and to this effect creation of a Regional Water and Sanitation Authority, were initiated, the process stalled, and most of the recommendations of the sector reform study were not implemented. Although the Regional Water and Sanitation Authority (DashogvuzAgySuv) was formed in 1998, it was constrained by lack of adequate funds for operations and maintenance due to underfunding by central government, in addition to not being allowed by law to collect water fees from domestic customers. Given the lack of funds, Dashogvuzagyzsuv was unable to carry out any capital expenditures, and spending for regular operation and maintenance was maintained at a minimum level to allow reserve funds for emergencies. Several sub-components of this component were, however, carried out, including the (i) leak detection and Cartography programs; (ii) Water quality training program; (iii) training seminars for sub-contractors and engineers; and 4) information technology. A new computerized financial management and accounting system was installed in Dashogvuzagyzsuv with Technical Assistance from the consultants, and personnel trained in its use for regular operations. The system, however, provided no management accounting information, and there was no routine created to monitor the agency's performance, let alone to address problems.

Project Management and Supervision

This component covered costs of project management and supervision of construction of water supply investments. Although overall project management was to be provided by personnel from the PIU, which had personnel in both Ashgabat and Dashogvuz, the construction supervision team consisted of both foreign expatriates and local personnel. A contract was signed in June 1997 with a consultant who would take the lead in this sub-component, but when the Bank suspended disbursements on its entire country portfolio, the consultant demobilized their staff. Their contract was later terminated by the Government in 1999. When implementation of the project was resumed, and the project was restructured, it was decided that supervision of the works under the water supply component (Urgent Rehabilitation Works) be included under the contract with the Institutional Strengthening Consultant. Due to the issues that resulted in the project being eventually suspended, this sub-component was not completed.

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4.3 Net Present Value/Economic rate of return:

The Economic Rate of Return (ERR) estimated for the project at appraisal was 22.2% for the etrap cities sub-component, and 10.6% for the collective farm sub-component. The ERR was not calculated at the ICR stage in view of the almost complete lack of investments.

4.4 Financial rate of return:

A financial rate of return was not estimated at appraisal, nor for the ICR.

4.5 Institutional development impact:

The sector reform objectives of the project comprised two main activities: (i) preparation of a National Sector Reform Study, and agreement on a Plan of Action for addressing the most serious sector constraints by December 31, 1998, and (ii) the decentralization of sector management to the regional level of government, and creation of a Regional Water and Sanitation Authority by December 31, 1998. Although by design, these activities were expected to contribute to the Government of Turkmenistan's ability to manage the sector more effectively and to improve water and sanitation service delivery to the project areas, the institutional development impact of the project is rated as negligible, because although the Sector Reform Study was prepared, and the Action Plan for addressing the most serious sector constraints was developed, the recommendations therefrom were not actually implemented to realize the intended benefits, again due to the overall lack of Government supportive to reform. Moreover, even though a Regional Water and Sanitation Agency was formed, it remained largely ineffective due to resource constraints.

5. Major Factors Affecting Implementation and Outcome

5.1 Factors outside the control of government or implementing agency:

A. Suspension of Country Portfolio

The Bank's suspension of its entire Turkmenistan Country Portfolio between March 1998 and June 1999, resulted in a loss of at least fifteen months of project implementation, after the project had been effective for only about six months. The PIU staff had to be terminated during the portfolio Suspension period. This suspension, though not specifically related to the project contributed to a loss of momentum of the project even after implementation resumed, and is also likely to have impacted the relationship between the Borrower and the Bank. These factors contributed to the poor outcome of the project.

B. Weaknesses in Project Design

Several weaknesses in project design contributed to difficulties in implementation. Given the Bank's ladvisory role in this respect, responsibility for implementation in this respect cannot be attributed to Government alone. First, the scope of the project was too wide. At appraisal a thorough assessment of the needs with respect to the water supply and sanitation sectors in Dashogvuz Velayet was done, and although the project design scaled down its geographical and budgetary scope by leaving out Dashogvuz city, it still attempted to address all or most of the technical, operational, and institutional issues in the sectors in the secondary cities (etrap centers) and rural areas (including collective farms) in the Velayet. This approach seems unrealistic given the limited project timeframe, the high level of existing institutional weaknesses, the limited Bank and Borrower experience with each other, and the political-economy in Turkmenistan, especially the attitude towards reform.

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Furthermore, the broad design of the project to cover both urban and rural water supply, in addition to lwater quality, sanitation, health and hygiene components, made it difficult to coordinate activities between the multiple institutions responsible for each of these sub-sectors in Turkmenistan.

Project implementation was further complicated by the fact that the urban and rural water supply lrehabilitation components were initially lumped together into a single Turnkey International Competitive Bidding (ICB) Contract for Construction and Renovation of Water Supply Systems in Dashogvuz Velayet. This resulted in very high and widely varying bids from prequalified bidders, that were all considerably in excess (at least 145%) of the US $ 21 million budget estimated for the contract during project preparation. Implementation of such a large and diverse contract was very difficult given the large number of project sites (sixteen) and the fact that they were widely dispersed geographically. Because the bids were all far in excess of the budget, it was finally recommended in consultation with the Bank's OPRC Committee that (i) the tender documents be revised primarily to scale down the works to cover fewer sites that would cost within the available budget estimate, (ii) the technical specifications be clarified and modified to reduce the risk of diverse quotations, and (iii) all six prequalified firms be invited to re-bid. This resulted in significant delays, as it not only constituted considerable dialogue with the Borrower and the need to select a suitable consultant to revise the bids, but also coincided with the overall suspension of project activities in light of the portfolio-wide disbursement suspension that was effective between March 1998 and June 1999. When implementation arrangements for the project were reviewed in preparation for resuming project activities, further revisions of this component were done as described in Section 4.2 above.

Other aspects of technical design were also lacking, for instance, although water quality analysis lduring project preparation showed very poor existing water quality, the design still hinged mainly on rehabilitating the existing piped water supply systems because it was the least cost solution. This became an issue later during implementation when consumers complained about the poor water quality and Government requested for a major design revision to include desalination plants. Although these plants were not installed due to the overall failure to complete investments, significant dialogue on this matter occurred and designs had to be prepared.

While the institutional component under the project tried to address the existing institutional problems lthrough sector reforms, including establishing a decentralized Regional Water and Sanitation Agency, and developing an Action Plan to strengthen its capacity, the success of this strategy was highly dependant on the presence of Government support and buy-in to the reform process which unfortunately did not occur. In spite of the Bank’s continued dialogue with the Government, the Action Plan was not implemented, and the capacity of the newly formed Agency remained weak. Furthermore, the actual implementation process on the ground continued to hinge on inputs and approvals from different institutions, making coordination difficult. Without Government commitment to the much needed reforms, the benefits of the institutional component were not realized.

5.2 Factors generally subject to government control:

Complex Institutional Arrangements and Changes in Implementing Agency

The institutional structure for managing the water sector in Turkmenistan, at Appraisal was quite complex and included fragmentation of responsibilities among several different government ministries/agencies. This situation was not made easier by the combination of components in the project design, including urban and rural water supply, sanitation, and water quality monitoring, each of which was managed by a different

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Government institution. As a result subsequent responsibility for the different components under the project was divided among different Ministries. Initially the project was implemented under the Ministry of Water Resources, later transferred to the Purified Water Supply Management Committee, and finally to the Ministry of Economy and Finance in 2001. The transitions from one body to another and the associated activities, for instance the dissolution of the Purified Water Supply Management Committee, created further difficulties in coordination and confusion in project implementation, with conflicting instructions being received from different agencies. In addition a dual project steering and evaluation committee was established at Central Government level in Ashgabat, and at the Regional level in Dashogvuz, and although it was supposed to bring together all the key stakeholders to ease coordination and consensus-building, some key stakeholders such as the Dashogvuzagyzsuv General Manager who represented the main recipient body for most of the infrastructure and technical assistance activities were excluded. All these changes contributed to an inefficient decision-making process and frequent delays in obtaining required approvals. Moreover, the institutional discontinuity resulted in inadequate transfer / retention of knowledge and capacity developed for managing the project, contributing to the poor management of the project, and ultimately to the poor project outcome.

Complexity of Public Procurement Procedures and Inadequate Awareness of Bank Procurement Procedures

The process of clearing awarded contracts under the public procurement procedures in Turkmenistan was characterized by a large number of approval requirements from the Government. Awarded contracts needed to be registered with the Commodities Exchange Office under the Cabinet of Ministers and with the Service for Foreign investments under the President of Turkmenistan. This not only resulted in substantial delays in the delivery of goods and execution of working activities, but also generated ambiguous and conflicting instructions within the project, especially after the Purified Water Management Committee was dismissed for lack of accountability. The problems were exacerbated by lack of awareness of Bank policies with respect to methods of awarding contracts and selecting goods and suppliers, and this contributed to the unsatisfactory overall procurement capacity under the project. On several occasions the Government complained of prices being 'too high' leading to further delays. It was not surprising that only a small number of companies participated in the bidding process, possibly due to frustration with the system. Detailed recommendations were made by the last Bank Supervision mission, to streamline the procurement process, including the necessary approvals. Unfortunately these measures were not implemented by the Government, and the project was cancelled not long afterwards.

Governance and Corruption Issues

Project implementation and ultimate outcome was impacted by corruption issues and lack of good governance not just at the project level, but also at the portfolio-wide level of Bank operations in Turkmenistan at the time. Project implementation was suspended on three occasions, mainly on charges related to corruption. Between March 1998 and June 1999, the Bank suspended the entire Turkmenistan country portfolio, and the project lost fifteen months. The Government also suspended or dismissed some of the project officials on charges of corruption related to procurement, and dismissed members of the Purified Water Management Committee for lack of accountability. The aggregate of these events not only led to significant delays in progress, but also contributed to a general attitude of fear and mistrust among officials, that was not conducive to efficient implementation.

Changing Government Priorities

During the course of implementation, the Government of Turkmenistan requested the Bank to change the scope of the project based on a new scheme that would involve (i) Construction of a Water Treatment

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plant with a capacity of 250,000 cubic meters per day, to be located at the Turkmen Darya Canal, five (5) kilometers from Dashogvuz City, at an estimated cost of US $17-18 million; and (ii) Construction of transmission mains conveying the treated water to the etrap centers and daihan economies, with an envisaged network extension of about 170 kilometers, at an estimated cost of US$20- 22 million; and (iii) installation of desalination plants. The Bank rejected the proposal because it was deemed not economically and financially sustainable unless large subsidies were provided by Government for operation and maintenance of the system. The Bank informed the Borrower that the proposed revised design could only be considered if the Government carried out a feasibility study that demonstrated economic and financial sustainability of the proposed schemes, providing justification for their construction. The conflict in the position of the Bank and the Government with respect to the feasibility of the proposed changes in project design may have contributed to the apparent deterioration in the Government’s attitude towards completion of the project. In March 2002, the Government, through the Cabinet of Ministers, wrote to the Bank communicating their desire for the project to be suspended, but following the visit of the President of the Bank to Turkmenistan in April 2002, they temporarily showed a renewed interest in continuing with project implementation. Ultimately in January 2003, the Government finally requested for the project to be cancelled.

Lack of Government Commitment

There was inadequate commitment on the part of Government to adhere to some of the key actions agred upon during missions and reflected in the relevant aide memoires, to ensure that the project was put back on track and made sustainable. This was evident from policy actions such as the repealing of the policy requiring nonpayment of charges for water consumption, raising serious questions regarding the future sustainability of the project. In addition, the Borrower's failure to adhere to the detailed action plan agreed with the Supervision missions, which defined specific steps and milestones to complete key activities, such as completing preparation of designs, selecting contractors and completing outstanding construction, and making of key decisions on the project's future, signalled a lack of commitment on the part of the Borrower to completing the project in accordance with the implementation procedures for Bank financed projects.

5.3 Factors generally subject to implementing agency control:

Insufficient Authority for Decision-making

There was insufficient authority at the local implementing agency level (DashogvuzAgySuv) and at the PIU in Ashgabat for decision-making. This greatly slowed down implementation progress as most decisions had to be referred to higher levels, delaying progress, as described previously.

Inadequate Communication Between Different Stakeholders

There was insufficient and sometimes inaccurate dissemination of information related to the on-going project activities between the central and regional government agencies responsible for the project, and between different officials. This created conflicts and misunderstandings between some officials involved in project implementation, which made management of the project activities more difficult.

5.4 Costs and financing:

Of the original loan amount of US$30.3 million, US$23.97 (79.1%) was cancelled at the request of Government. Implementation progress was extremely slow, and in spite of the project being operational for about 84% of the original lifetime, only about 20.9 % of the total loan was disbursed within this time. Of

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the US$20.14 million allocated for the Water and Sanitation improvement component, less than US$1.1 million (5.4%) was disbursed. Similarly of the US$3.44 allocated to Sanitation, only about US$1.66 (48%) was disbursed. On the other hand by the time the supervision consultants were terminated, about 95% of total disbursements under the project had been made to them from the Institutional Strengthening components.

6. Sustainability

6.1 Rationale for sustainability rating:

The project's sustainability rating is Highly Unlikely. Given that only about 5% of the planned investments were implemented, and the institutional and financial objectives of the project were not realized, the intended development outcomes of the project were not achieved. This situation leaves little or no impact on the ground on which to build sustainability. The project's unlikelihood for sustainability is further compounded by the Borrower's lack of commitment to continue with implementation in order to complete intended project activities, and the unfavorable policy environment in the country, including the requirement for all utility services to be provided free to the population. Although the implementing agencies would favor the project continuing, there appears to be little incentive for them to do so in view of the apparent lack of support from central and regional Government. Another factor that impacts the project's sustainability is the fact that supervision of project implementation carried out by the Government was highly dependant on the use of external consultants. This is likely to have resulted in very limited transfer of capacity to the local staff to continue their work.

6.2 Transition arrangement to regular operations:

N/A.

7. Bank and Borrower Performance

Bank7.1 Lending:

The Bank's performance during project preparation and appraisal is rated overall as Unsatisfactory, because although it was timely and consistent with regional and country strategies of both the Borrower and the Bank, there were a number of shortcomings as well that could have been improved to increase the chances of successful implementation. The project was identified as part of the Bank's response to the requests for assistance from the Aral Sea States, including Turkmenistan, to alleviate the problems caused by the environmental disaster in the Region. One of the objectives of the program was to ameliorate the conditions of the population in the disaster area with a focus on improving drinking water supply and sanitation services. The decision to include this project in the Program was made at a meeting of Heads of Government of all the Aral Sea States, in February 1994, and later endorsed at a donors conference in Paris in June 1994. It was decided that the Bank would take the lead in identifying and preparing the project, focusing on the most affected part of the country, Dashogvuz Velayet. The project was also consistent with the Government of Turkmenistan's specific objectives to advance the development of the water and sanitation sector. The Bank's strategy in the Country at the time was to proceed in phases based on the evolution of the Government's reform effort, emphasizing analytical work, technical assistance and policy dialogue to assist the Government to remove remaining distortions which could constitute barriers to the transition, and to the efficient development of the priority sectors, including the social sectors and infrastructure.

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At appraisal, the project preparation team were able to analyze the status of the water and sanitation sector and to identify the key issues and needs for improving services in the project area. There were however some shortcomings in technical design, for instance in neglecting the severity of water quality aspects in some areas, the Borrower later had to request changes in design to include desalination plants. The project preparation team also identified most of the risks to the project’s successful implementation, including: (a) lack of willingness of Government to commit itself to sector reform, through means such as adoption of recommendations for institutional reorganization and strengthening, and of a policy of cost recovery for the provision of sector services; (b) failure to complete the project facilities on time and within budget; and (c) failure to establish a water and sanitation sector utility in Dashogvuz Velayet capable of operating and maintaining the facilities for which they are responsible. One shortcoming, however, was the failure of the team to identify additional key factors that could contribute to failure to complete the project activities. These factors basically comprise the risks to progress from the Components to the Outputs of the project, for instance: (a) interference of Government or other parties in project implementation causing delays in completing key activities including procurement; and (b) corruption issues and lack of good governance.

Because the project was to be the first infrastructure investment operation in the country, simplicity was advisable. The project design however was not simple to implement technically and administratively because it tried to address in one operation all the identified weaknesses, covering technical, commercial, and institutional issues with respect to rural and urban water supply, sanitation, hygiene and health. Administratively, dealing with all these issues involved coordination with the numerous Government bodies and institutions at central Government and regional level responsible for various aspects, each with their own weaknesses, such as capacity constraints and relative unfamiliarity with Bank operations, in addition to the wider country issues. As discussed earlier, this approach was too ambitious given the existing constraints in the country.

Project preparation otherwise adequately covered most of the core issues relevant to the project, including technical, financial, economic, financial, social, and institutional aspects, and the status of the sector, as well as key issues and needs were identified. The Bank's safeguard policies including environmental issues were also duly considered. Preparation was quite participatory, and engaged stakeholders through nine workshops, to discuss key project issues including cost recovery, reorganization of the water and sanitation sectors, community participation, and project implementation arrangements. In these workshops the stakeholders endorsed the project concept and design, and beneficiaries indicated willingness to participate on a household and community level in operation and maintenance of water and sanitation facilities. Other tools employed by the team to identify needs in the project area and to provide baseline information included a Rapid Needs Assessment followed by a Social Needs Assessment which included seven hundred and ninety (790) household surveys, inventories of communal water supply and sanitation facilities, and fourteen focus groups discussions. Two demonstration projects using community based approaches to water supply and sanitation were also conducted through a local Non Government Organization (NGO) to guide the community based approaches included in the project. Feasibility work was also undertaken using a PHRD grant, and included two demonstration projects: (i) the installation of effective taps on street standpipes in Gubadagh, the results of which formed the basis for the standpipe rehabilitation project; and (ii) the construction of improved latrines and handwashing facilities at a school in Boldumsaz, the results of which contributed to design of the community based school sanitation component, as well as the hygiene and health education activities.

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7.2 Supervision:

A Quality of Supervision Assessment was carried out on September 8, 2000, and the panel rated Project Supervision as Satisfactory overall, with an overall rating of 2. According to this assessment Fiduciary/Safeguard aspects were handled in a marginally Satisfactory manner, while all other ratings were Satisfactory. The Assessment panel was able to appreciate some of the constraints that the Supervision team faced in supervising the project, including the difficult country conditions. At ICR the Bank's performance during supervision is rated as Unsatisfactory. Six supervision missions were carried out over the project implementation period, and included an adequate mix of expertise. Although project implementation was satisfactory in the beginning, it was soon overtaken by constraints such as the lack of willingness of Government to commit itself to implementing sector reforms, and the delayed procurement of key contracts caused by lengthy and complicated approval processes. The Supervision team however demonstrated considerable due diligence in revising implementation arrangements for the project, in particular to address the weakness in design with respect to the water supply component, which had initially been lumped into a single large civil works contract. This design had resulted in very high and diverse bid prices, and in significant delays to implementation. When the project was put under a new Supervision team significant effort was put in revising this component by breaking it into the three phases discussed earlier, in order to make implementation more manageable. Although the Supervision team did their best to engage Government in dialogue in attempts to mitigate existing constraints to smooth implementation, they did not detect some of the problems that the project was facing early enough, nor take proactive measures to address them as soon as possible. Part of the reasons for this may be attributed to some external factors, for instance between April 2001 and February 2002, there were no supervision missions partly due to travel restrictions caused by the September 11, 2001 crisis. The Project Supervision Report update during this period in fact rated all components as Satisfactory, and all performance ratings as Satisfactory. After the supervision mission in February 2002, the project was promptly downgraded to Unsatisfactory status, with all performance ratings and all but one component rating being in Unsatisfactory status. Although it was difficult without a site visit, to obtain a clear picture of what the true situation on the ground was during this most critical period, there is little evidence of Bank efforts to maintain dialogue with the Borrower through other means. At this time, it appears that Borrower's commitment to the project also decreased significantly. Although the February 2002 Supervision mission prepared and discussed a detailed action plan with the Borrower for putting the project back on track by, among other things, completing outstanding key design and procurement activities, the required actions were not implemented. The Borrower eventually requested for the Bank to cancel the loan in January 2003. Overall, supervision was difficult for the Bank team, and in addition to the constraints discussed in Section 5 above, a significant part of the project implementation period was lost due to the entire Bank portfolio suspension. Some of the issues that hindered implementation of this project were not only applicable to this project, but to the entire Bank country portfolio.

7.3 Overall Bank performance:

Overall Bank performance is rated as Unsatisfactory. In lending activities, comprehensive teams were fielded with several members with the required expertise, and needs, strategies to address them, and risks were identified. Project Supervision also fielded comprehensive teams, although the number of supervision missions overall were limited (only six), given certain external factors during implementation, including travel restrictions to Turkmenistan, and extended periods during which the project was suspended. Although implementation of the project experienced many difficulties, and the project was prematurely cancelled, the Bank Supervision team attempted, albeit unsuccessfully, to identify and provide guiding

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measures to put the project on track. One of the overall shortcomings of Bank management of the project was the changes in management, which appears to have contributed to some changing priorities even on the part of the Bank. The project was prepared and initially implemented under the Human Resources Division, Country Department III (basically under what later became Environmentally and Socially Sustainable Development (ECSSD) ), and was later transferred to the ECA Infrastructure and Energy Unit. From preparation to the time it was cancelled the project was managed by a total of five task managers.

Borrower7.4 Preparation:

The Borrower's performance during preparation is rated as Satisfactory. There was close cooperation at the time of preparation between the Government and the Bank, and representatives from all the counterpart agencies were involved in the preparation of the loan. It is not clear however whether during preparation the Borrower articulated for discussion with the Bank alternative priorities for the concept and design of the project, such as those that later emerged during implementation.

7.5 Government implementation performance:

Government implementation performance is rated as Unsatisfactory because of the overall lack of commitment to sector reform, which was one of the cornerstones to ensuring the project’s successful implementation, and achievement and sustainability of its development objectives. Interference of Government in the procurement process, contributing to delays in, and failure to complete several key procurement activities also affected implementation progress. Finally, the changing Government priorities in terms of proposed major revisions to project design without sufficient economic and financial justification affected project implementation.

7.6 Implementing Agency:

Implementation arrangements for the project were changed several times. As explained in Section 5.2 above, the project was initially implemented under the Ministry of Water Resources, later transferred to the Purified Water Supply Management Committee, and finally to the Ministry of Economy and Finance in 2001. The transitions from one body to another created difficulties in coordination, contributing to inefficiencies in the decision-making process and to frequent delays in obtaining required approvals. The institutional discontinuity also resulted in inadequate transfer/retention of knowledge and capacity developed for managing the project, contributing to the mismanagement of the project, and ultimately to the poor project outcome. The overall performance of the Implementing Agency is therefore rated as Unsatisfactory.

7.7 Overall Borrower performance:

Given the failure to follow through on the implementation of the project in accordance with the concept and procedures agreed with the Bank, and to provide needed support to completing the project, the Borrower performance is rated as Unsatisfactory.

8. Lessons Learned

8.1 Lesson 1: Proper Assessment of Government Commitment to Reform

If a project's overall success depends on sector reforms, the level of Government's commitment to reform

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should be critically assessed during appraisal. Although the project design included an institutional component aimed at detailing strategies for reforming the water and sanitation sector, the Government's lack of commitment to reform was not clearly identified, and led to failure to effect critical changes that contributed to the negative outcome of the project.

8.2 Lesson 2: Need for Simple Objectives for New Operations

Design of a first operation in a country where the Bank has little or no previous experience, and where institutional capacity and/or knowledge of Bank operational procedures is weak, should have simple objectives that focus on addressing the most critical problem, rather than trying to address all of the sectoral problems in one operation. In this case, the project scope combining rural and urban water supply, in addition to sanitation, health and hygiene, and sector reforms, in the first operation was too ambitious and contributed to the difficulty in implementing this project.

8.3 Lesson 3: Need for Close Dialogue with Borrower

The Bank needs to maintain a close dialogue with the Borrower, to ensure that the Bank and the Government's priorities for sector and project development and their implications are fully understood and reconciled by all parties before embarking on major operations. The major shift in Government priorities for the sector and with respect to the project design during implementation is not consistent with the generally positive position of Government to the project concept, that was described during preparation.

8.4 Lesson 4: Technical Assistance Needs to be Accompanied by Investments

Technical Assistance components of a project are often perceived as being of little value, especially when not accompanied by investments. The Bank's strategy for Turkmenistan at the time of project preparation emphasized analytical work, technical assistance, and policy dialogue aimed at assisting the Government to remove remaining distortions constituting barriers to the transition and to effective development of the sector, in this case to be achieved through the Institutional Strengthening component. Although Government priorities for sector development at the time also focused on, among other things, restructuring the sector institutions, the increasing frustration with lack of tangible investments on the ground contributed to the deterioration in the attitude towards the project.

8.5 Lesson 5: Need for Adequate Attention to Local Implementation Procedures

During project preparation, local requirements and policy with regard to key project activities such as procurement should be properly assessed and discussed exhaustively with the Borrower especially with reference to Bank procurement procedures, because they can be a source of confusion and impede progress during implementation. Steps should be taken in the project design to strengthen not only the procurement capacity and understanding of the Bank's procurement guidelines at the Implementing Agency level, but also within other relevant institutions of the Borrower that will be responsible for relevant decision-making with respect to approval and contract award. In addition Supervision missions need to give more emphasis to procurement aspects through adequate and periodic technical support to these matters.

9. Partner Comments

(a) Borrower/implementing agency:

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The borrower did not submit any comments to the Bank, although the borrower was provided with a draft copy of the ICR.

(b) Cofinanciers:

(c) Other partners (NGOs/private sector):

10. Additional Information

The Government of Turkmenistan requested the Bank to cancel the loan in January 2003. Of the US$30.3 million principal, about US$24.2 (approximately 80%) was cancelled. Government's future plans for completing activities initiated under the project are unclear.

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Annex 1. Key Performance Indicators/Log Frame Matrix

Outcome / Impact Indicators:

Indicator/Matrix

Projected in last PSR1

Actual/Latest Estimate

- % of population served by water supply system

Not estimated. 43% (Source: Exploitation Service of DashogvuzAgySuv) .

- number of borehole pumps operational/replaced/repaired per month

Not indicated. Total of 10 wells and 3 pumping stations rehabilitated over entire project implementation period.

- number of hours increased in the duration of water supplied

Not indicated No significant improvement.

- % of water quality samples meeting bacteriological water quality standards

Not indicated. Average 79.6 % (Source: Exploitation Service of DashogvuzAgySuv)

- decrease in the incidence of water borne diseases particularly diarrheal diseases, subdivided by sex and age

Not indicated. Trends do not indicate significant improvements. Details are provided in No.4 of the Consultant's report at ICR in Annex 7)

SOCIO-ECONOMIC IMPACT INDICATORS:- timespent collecting water (hours)- % of households within 50m of public standpipes- establishment of Dashkhovuz Regional Water and Sanitation Authority by December, 1998

Done Done

- completion and discussion of the National Water and Wastewater study by December, 1998

Not completed. Not completed.

- Initiating of water charges for cost recovery for operation and maintenance (as systems come in line)

Not done. Not done.

Output Indicators:

Indicator/Matrix

Projected in last PSR1

Actual/Latest Estimate

Kilometers of transmission mains rehabilitated.

Not defined. 0

Number of wells rehabilitated. Not defined. 10

Number of pumping stations rehabilitated. Not defined. 3

Kilometers of distribution pipes rehabilitated Not defined. 0

Number of standpipes installed Not defined. 0

Number of storage reservoirs Not defined. 0

Number of chlorination systems installed Not defined. 01 End of project

The PSR did not directly define nor monitor the indicators, as described in the indicator matrix.

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Annex 2. Project Costs and Financing

Project Cost by Component (in US$ million equivalent)AppraisalEstimate

Actual/Latest Estimate

Percentage of Appraisal

Component US$ million US$ million(a): Water Supply Improvements 20.14 1.05 5.2(b): Sanitation and Health 3.44 1.66 48(c): Institutional Strengthening 2.43 1.75 72(d): Project management and construction supervision 3.03 1.07 35

Total Baseline Cost 29.04 5.53 Physical Contingencies 3.25 Price Contingencies 1.41

Total Project Costs 33.70 5.53Total Financing Required 33.70 5.53

Project Costs by Procurement Arrangements (Appraisal Estimate) (US$ million equivalent)

Expenditure Category ICBProcurement

NCB Method

1

Other2 N.B.F. Total Cost

1. Works 22.60 0.00 0.50 0.00 23.10(20.30) (0.00) (0.40) (0.00) (20.70)

2. Goods 0.80 1.60 0.00 2.40(0.80) () (1.60) (0.00) (2.40)

3. Services 0.00 0.00 6.57 0.00 6.57(0.00) (0.00) (6.30) (0.00) (6.30)

4. Recurrent Costs 0.00 0.00 1.20 0.00 1.20(0.00) (0.00) (0.50) (0.00) (0.50)

5. PPF 0.00(0.00)

0.00(0.00)

0.43(0.43)

0.00(0.00)

0.43(0.43)

6. Miscellaneous 0.00(0.00)

0.00(0.00) ()

0.00(0.00)

0.00(0.00)

Total 23.40 0.00 10.30 0.00 33.70(21.10) (0.00) (9.23) (0.00) (30.33)

Project Costs by Procurement Arrangements (Actual/Latest Estimate) (US$ million equivalent)

Expenditure Category ICBProcurement

NCB Method

1

Other2 N.B.F. Total Cost

1. Works 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

2. Goods 1.77 0.00 0.31 0.00 2.08(1.33) (0.00) (0.31) (0.00) (1.63)

3. Services 0.00 0.00 6.12 0.85 6.97(0.00) (0.00) (3.64) (0.77) (4.40)

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4. Recurrent Costs 0.00 0.00 0.00 0.00 0.00(0.00) (0.00) (0.00) (0.00) (0.00)

5. PPF 0.00(0.00)

0.00(0.00)

0.00(0.05)

0.00(0.00)

0.00(0.05)

6. Miscellaneous 0.00(0.00)

0.00(0.00)

0.00(0.00)

0.20(0.00)

0.20(0.00)

Total 1.77 0.00 6.43 1.05 9.25(1.33) (0.00) (4.00) (0.77) (6.09)

This table has been generated automatically by SAP, based on actual procurement data from this project.1/ Figures in parenthesis are the amounts to be financed by the Bank Loan. All costs include contingencies.2/ Includes civil works and goods to be procured through national shopping, consulting services, services of contracted staff

of the project management office, training, technical assistance services, and incremental operating costs related to (i) managing the project, and (ii) re-lending project funds to local government units.

Project Financing by Component (in US$ million equivalent)

Component Appraisal Estimate Actual/Latest EstimatePercentage of Appraisal

Bank Govt. CoF. Bank Govt. CoF. Bank Govt. CoF.(a) Water Supply Improvements

18.23 1.91 0.00 1.05 0.00 0.00 5.8 0.0 0.0

(b) Sanitation and Health 3.24 0.20 0.00 1.66 0.00 0.00 51.2 0.0 0.0(c) Institutional Strengthening

2.43 0.00 0.00 1.75 0.00 0.00 72.0 0.0 0.0

(d) Project Management and Construction Supervision

2.70 0.30 0.00 1.07 0.00 0.00 39.6 0.0 0.0

1. The financing arrangements were not defined by component at appraisal, and have been estimated here based on several assumptions similar to those used in the SAR Project Description and Cost Estimates section.2. The amounts presented in this table cover only base costs, and do not include contingencies.3. Reliable records of the actual/latest estimates of Government financing for the project are not available. The relevant column although represented as zero is not actual.

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Annex 3. Economic Costs and Benefits

Not applicable. Because of the almost complete lack of investments under the project, economic analysis was not carried out during preparation of this ICR.

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Annex 4. Bank Inputs

(a) Missions:Stage of Project Cycle Performance Rating No. of Persons and Specialty

(e.g. 2 Economists, 1 FMS, etc.)Month/Year Count Specialty

ImplementationProgress

DevelopmentObjective

Identification/Preparation03/22/1995 11 TASK MANAGER (1),

HEALTH SPECIALIST (1), OPERATIONS ANALYST (1), HUMAN RESOURCES (2), LEGAL (1), PROCUREMENT SPECIALIST (1), DISBURSEMENT SPECIALIST (1), CONSULTANTS (3)

Appraisal/Negotiation12/11/1996 7 TASK MANAGER (1),

HEALTH SPECIALIST (1), HUMAN RESOURCES (1), LEGAL (1), CONSULTANTS (3)

Supervision

03/07/1998 3 TASK MANAGER (1); CONSULT/ WS ENGINEER (1); PROCUREMENT ADVISOR (1)

S S

07/14/1999 2 TEAM LEADER/ECONOMIST (1); ENGINEER (1)

U U

05/01/2000 3 TEAM LEADER (1); ENVIRONMENT (1); PROCUREMENT SPECIALIST (1)

U U

08/12/2000 4 TEAM LEADER (1); PR. OPERATIONS OFFICER (1); CONSULTANT (1); SECTOR MANAGER (1)

U U

04/06/2001 2 WATER SECTOR MANAGER (1); CONSULTANT - WTR. ENG. (1)

S S

02/10/2002 5 TEAM LEADER (1); CONSULTANT (1); SR. PROCUREMENT SPEC. (1); SR. WTR & SAN. SPEC. (1); OPERATIONS OFFICER (1)

U U

ICR1 CONSULTANT (1) U U

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(b) Staff:

Stage of Project Cycle Actual/Latest EstimateNo. Staff weeks US$ ('000)

Identification/PreparationAppraisal/NegotiationSupervisionICRTotal 1263.68 **

** The total costs provided only cover project Supervision and ICR activities. This is because reliable resource allocation data for the project, including staff costs is only available for the period after 1998 when the Bank changed to the SAP system. Information on resources utilized for most of the lending activities, including identification/preparation and appraisal is not available.

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Annex 5. Ratings for Achievement of Objectives/Outputs of Components(H=High, SU=Substantial, M=Modest, N=Negligible, NA=Not Applicable)

RatingMacro policies H SU M N NASector Policies H SU M N NAPhysical H SU M N NAFinancial H SU M N NAInstitutional Development H SU M N NAEnvironmental H SU M N NA

SocialPoverty Reduction H SU M N NAGender H SU M N NAOther (Please specify) H SU M N NA

Private sector development H SU M N NAPublic sector management H SU M N NAOther (Please specify) H SU M N NA

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Annex 6. Ratings of Bank and Borrower Performance

(HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HU=Highly Unsatisfactory)

6.1 Bank performance Rating

Lending HS S U HUSupervision HS S U HUOverall HS S U HU

6.2 Borrower performance Rating

Preparation HS S U HUGovernment implementation performance HS S U HUImplementation agency performance HS S U HUOverall HS S U HU

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Annex 7. List of Supporting Documents

1. Staff Appraisal Report (Report No. 16142 – TM)2. Loan Agreement3. Project Supervision Reports4. Project Files5. Consultants Reports6. Local Consultant’s Field Report during ICR Preparation

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