Document of The World Bank

Report No: ICR0000835

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-H1000)

ON A

GRANT

IN THE AMOUNT OF SDR 10.2 MILLION (US$ 15.0 MILLION EQUIVALENT)

TO THE

REPUBLIC OF KENYA

FOR THE

NAIROBI WATER AND SEWERAGE INSTITUTIONAL RESTRUCTURING PROJECT

August 27, 2008

Water and Urban 1 (AFTU1) Eastern Africa Country Cluster 2 (AFCE2) Africa Region

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CURRENCY EQUIVALENTS

(Exchange Rate Effective June 2, 2008)

Currency Unit = Kenyan Shillings (Ksh) US$1.00 = Ksh 62.00 SDR 1.00 = US$1.62

FISCAL YEAR

July 1 – June 30

ABBREVIATIONS AND ACRONYMS

ADB African Development Bank AFD Agence Française de Développment (French Development Agency) AWSB Athi Water Services Board CAS Country Assistance Strategy CCN City Council of Nairobi CFAA Country Financial Accountability Assessment DA Development Agreement ERSWEC Economic Recovery Strategy for Wealth and Employment Creation GOK Government of Kenya GTZ Gesellschaft für Technische Zusammenarbeit (German Technical Cooperation) ICR Implementation Completion Report IDA International Development Association JICA Japan International Cooperation Agency KRA Kenya Revenue Authority KfW Kreditanstalt für Wiederaufbau (KfW Banking Group) MDG Millennium Development Goal MOWI Ministry of Water and Irrigation NWCPC National Water Conservation and Pipeline Corporation NCC City Council of Nairobi NWSB Nairobi Water Services Board (former name of Athi Water Services Board) NWSC Nairobi City Water and Sewerage Company O&M Operations and Maintenance PPIAF Public-Private Infrastructure Advisory Facility PRSP Poverty Reduction Strategy Paper PSP Private Sector Participation SIDA Swedish International Development Agency SPA Service Provision Agreement SIG Specific Investment Grant UfW Unaccounted for Water UNDB United Nations Development Business WaSSIP Water and Sanitation Service Improvement Project WSB Water Services Board WSD Water and Sewerage Department WSP Water Services Provider WSP-AF Water and Sanitation Program (Africa Region) WSS Water Supply and Sanitation

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WSTF Water Services Trust Fund WSTG Water and Sanitation Technology Group WRM Water Resources Management WSRB Water Services Regulatory Board

Vice President: Obliageli K. Ezekwesili Country Director: Michel Wormser (Acting) Sector Manager: Jaime Biderman Project Team Leader: Fook Chuan Eng ICR Team Leader: Andreas Rohde

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REPUBLIC OF KENYA Nairobi Water and Sewerage Institutional Restructuring Project

CONTENTS

Data Sheet A. Basic Information B. Key Dates C. Ratings Summary D. Sector and Theme Codes E. Bank Staff F. Results Framework Analysis G. Ratings of Project Performance in ISRs H. Restructuring I. Disbursement Graph 1. Project Context, Development Objectives and Design................................................... 12. Key Factors Affecting Implementation and Outcomes .................................................. 43. Assessment of Outcomes ................................................................................................ 94. Assessment of Risk to Development Outcome............................................................. 145. Assessment of Bank and Borrower Performance ......................................................... 146. Lessons Learned............................................................................................................ 167. Comments on Issues Raised by Borrower/Implementing Agencies/Partners............... 17Annex 1. Project Costs and Financing.............................................................................. 19Annex 2. Outputs by Component...................................................................................... 20Annex 3. Economic and Financial Analysis ..................................................................... 23Annex 4. Bank Lending and Implementation Support/Supervision Processes................. 31Annex 5. Beneficiary Survey Results ............................................................................... 33Annex 6. Stakeholder Workshop Report and Results....................................................... 36Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ......................... 39Annex 8. List of Supporting Documents .......................................................................... 48MAP.................................................................................................................................. 49

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A. Basic Information Country: Kenya Project Name:

Nairobi Water and Sewerage Institutional Restructuring Project

Project ID: P049618 L/C/TF Number(s): IDA-H1000 ICR Date: 08/27/2008 ICR Type: Core ICR

Lending Instrument: SIL Borrower: GOVERNMENT OF KENYA

Original Total Commitment:

XDR 10.2M Disbursed Amount: XDR 10.2M

Environmental Category: C Implementing Agencies: Nairobi City Water and Sewerage Company Athi Water Services Board Cofinanciers and Other External Partners: B. Key Dates

Process Date Process Original Date Revised / Actual Date(s)

Concept Review: 10/29/2003 Effectiveness: 09/22/2004 09/22/2004 Appraisal: 03/08/2004 Restructuring(s): Approval: 06/17/2004 Mid-term Review: 12/14/2005 Closing: 06/30/2007 12/31/2007 C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Satisfactory

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

Quality at Entry: Satisfactory Government: Satisfactory

Quality of Supervision: Satisfactory Implementing Agency/Agencies: Satisfactory

Overall Bank Performance: Satisfactory Overall Borrower

Performance: Satisfactory

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C.3 Quality at Entry and Implementation Performance Indicators Implementation

Performance Indicators QAG Assessments (if any) Rating

Potential Problem Project at any time (Yes/No):

No Quality at Entry (QEA):

None

Problem Project at any time (Yes/No):

No Quality of Supervision (QSA):

None

DO rating before Closing/Inactive status:

Satisfactory

D. Sector and Theme Codes

Original Actual Sector Code (as % of total Bank financing) Water supply 100 100

Theme Code (Primary/Secondary) Other urban development Primary Primary E. Bank Staff

Positions At ICR At Approval Vice President: Obiageli Katryn Ezekwesili Callisto Madavo Country Director: Michel Wormser (Acting) Makhtar Diop Sector Manager: Jaime M. Biderman Jaime M. Biderman Project Team Leader: Fook Chuan Eng Fook Chuan Eng ICR Team Leader: Andreas Rohde ICR Primary Author: Andreas Rohde F. Results Framework Analysis Project Development Objectives (from Project Appraisal Document) 1. The development objective of the project was to build a strong governance, institutional and service delivery framework that will enable the efficient and sustainable delivery of water and sewerage services to the population of Nairobi. It is consistent with and supported the implementation of the Water Act (2002). 2. The project supported the operationalization and strengthening of new autonomous and ring-fenced service provision utilities with clear roles, responsibilities and contractual arrangements. The key anticipated outcome was an institutional framework that is capable of delivering safe, clean and affordable services to all strata of the Nairobi population in accordance with commercial and sustainability principles. Progress towards achieving the development objective was monitored through the improvement in operating sustainability of the service delivery institutions throughout the project implementation period.

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Revised Project Development Objectives (as approved by original approving authority) 3. The PDO was not revised. (a) PDO Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Volume of Water Sold Value quantitative or Qualitative)

75 million m3 per year 91 million m3 per year 94 million m3 per

year

Date achieved 04/01/2004 07/31/2007 06/30/2007 Comments (incl. % achievement)

(b) Intermediate Outcome Indicator(s)

Indicator Baseline Value

Original Target Values (from

approval documents)

Formally Revised

Target Values

Actual Value Achieved at

Completion or Target Years

Indicator 1 : Ratio of Operating Expenses divided by Operating Revenue Value (quantitative or Qualitative)

None (new companies) <0.9 AWSB <0.9 NWSC <0.8 AWSB

<0.92 NWSC

Date achieved 04/01/2004 07/31/2007 06/30/2007 Comments (incl. % achievement)

AWSB exceeded the target value and NWSC marginally missed the target. Both entities have managed to cover their operating expenses.

Indicator 2 : Billing Efficiency Value (quantitative or Qualitative)

100% 100% 92%

Date achieved 04/01/2004 07/31/2007 06/30/2007

Comments (incl. % achievement)

The decrease of billing efficiency in the target year is not a negative sign. This is due to the migration to a computerized billing system and changes in the company's billing policy which includes not billing unverified accounts while aggressively reducing these accounts. (see para. 31)

Indicator 3 : Billing Lateness Value (quantitative or Qualitative)

6 months (est) 0 months 0 months

Date achieved 04/01/2004 07/31/2007 06/30/2007 Comments (incl. % achievement)

Indicator 4 : Collection Efficiency

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Value (quantitative or Qualitative)

65% 70% 74%

Date achieved 04/01/2004 07/31/2007 06/30/2007 Comments (incl. % achievement)

The baseline is most likely an overestimate. It is also important to note that the revenues increased from Ksh 1.5 billion to Ksh 3.2 billion during the implementation period.

Indicator 5 : Unaccounted for Water (UfW) Reduction Value (quantitative or Qualitative)

50% (est) 39% 43%

Date achieved 04/01/2004 07/31/2007 06/30/2007

Comments (incl. % achievement)

All UfW values are estimates because the system is not completely metered. During the project the metering rate and accuracy has increased so that the UFW values have become more reliable. Other indicators were tracked to augment indicators of service improvements. (see paras. 32 and 33)

Indicator 6 : Annual Workshops

Value (quantitative or Qualitative)

NA Once a year

Once a year in the last two project years (not in the first year)

Date achieved 04/01/2004 07/31/2007 06/30/2007 Comments (incl. % achievement)

G. Ratings of Project Performance in ISRs

No. Date ISR Archived DO IP

Actual Disbursements (USD millions)

1 06/30/2004 Satisfactory Satisfactory 0.00 2 12/13/2004 Satisfactory Satisfactory 1.25 3 04/18/2005 Satisfactory Satisfactory 1.25 4 08/02/2005 Satisfactory Moderately Satisfactory 1.70 5 01/31/2006 Satisfactory Moderately Satisfactory 2.82 6 09/14/2006 Satisfactory Moderately Satisfactory 4.62 7 04/26/2007 Satisfactory Moderately Satisfactory 8.22 8 11/30/2007 Satisfactory Satisfactory 12.66 9 12/27/2007 Satisfactory Satisfactory 12.66

H. Restructuring (if any) 4. Not Applicable

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I. Disbursement Profile

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1. Project Context, Development Objectives and Design

1.1 Context at Appraisal Sector Background 1. At the time of appraisal, the delivery of water supply and sanitation (WSS) services in Kenya

was fragmented into various regimes. The Ministry of Water and Irrigation (MOWI), the corporatized National Water Conservation and Pipeline Corporation (NWCPC) and local authorities were responsible for the supply of water and/or sewerage services in various urban and rural areas. MOWI and NWCPC did not operate wastewater facilities, leaving these (where they existed) to local authorities. Ten gazetted local authorities (including Nairobi) operated their own water and sewerage systems. “Self help” groups (registered with the Ministry of Gender, Sports, Culture and Social Services) operated piped water supply schemes to several other urban and rural areas.

2. In Nairobi, the service was provided by the Water and Sewerage Department (WSD), a technical department of the City Council of Nairobi (CCN). WSD’s lack of operational and financial autonomy was a major cause of poor and unsustainable operations. The service was caught in a cycle of declining investment, quality of service and financial returns characterized by: (i) low coverage and unreliable service; (ii) high level of unaccounted for water (UfW) and of unpaid bills; (iii) very poor financial management; (iv) tariff collection insufficient to cover operations and maintenance (O&M) costs; and (v) inadequate commercial management. This had translated into inadequate service to the population, including to the informal settlements where the vast majority of the urban poor resides.

3. The Government of Kenya’s (GOK) National Water Policy (1999) and the Government Action Plan for the implementation of its poverty reduction strategy call for full coverage of access to safe and clean water to the country’s population. GOK’s long-term goal as reflected in the Economic Recovery Strategy for Wealth and Employment Creation (ERSWEC)—Kenya’s PRSP—and the Bank’s CAS envisages the expansion of services from an estimated 60% to 90% by 2024. In the medium term, the Millennium Development Goal (MDG) target envisages about 70% coverage by 2015. The MDG also envisages access to improved sanitation reaching about 93% by 2015. Achieving these development goals represents a big challenge to the GOK.

4. The GOK recognized the need for comprehensive institutional reform and investments in the Water Supply and Sanitation (WSS) sector in order to remove the bottlenecks to achieving its set poverty reduction objectives. The GOK formulated a clear policy and strategy to address the fragmented institutional framework for service delivery in form of the Water Act which was enacted in 2002. The Water Act (2002) is aimed at providing for a harmonized and streamlined management of water resources and water supply and sewerage services. It calls for a uniform service delivery institutional framework to be put in place country-wide, and clarifies the new mechanisms and the role of the various actors within that framework. Responsibility for infrastructure development and the provision of services moved to the new Water Services Boards (WSBs). These WSBs contract out water delivery services to Water Service Providers (WSPs). WSPs can be public or private entities dedicated to water service provision. Sector regulation is provided by the Water Services Regulatory Board (WSRB). A Water Services Trust Fund (WSTF) is assisting in financing the provision of water services to areas without adequate services. At the time of appraisal, the WSRB, WSTF and seven

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WSBs, including the Athi (Nairobi and surroundings) Water Services Board (AWSB), had been established.

Rationale for Bank Assistance 5. The Project directly supported the GOK’s policy and strategy in reforming the WSS sector –

a sector critical to the GOK’s economic recovery strategy. The Bank was uniquely positioned to assist the GOK to reform and improve the WSS services in Nairobi, having had substantial experience in supporting WSS projects in Nairobi and Mombasa. Although it closed its previous WSS operation in 1998, the Bank [with significant participation of the Water and Sanitation Program - Africa (WSP-AF)] continued an active dialogue with the GOK on sector reform issues and contributed substantially to the formulation of the sector reform plans. In 2000 the Bank led (in collaboration with KfW, GTZ and AFD) a joint comprehensive review of the WSS sector covering aspects such as demand assessment, pricing, decentralization, private sector participation, financing mechanisms and capacity building. The review was aimed in part to assist the GOK in finalizing the Water Act that was under preparation at that time. The Bank further assisted the GOK with studies to investigate private sector options in Nairobi, Mombasa and the Coastal Region, and Kisumu. The Bank did not insist on the implementation of every recommendation of its studies. The Water Act (2002) drew from various advice and consultations and represents the GOK’s own comprehensive sector-wide framework. The Bank together with development partners rallied to support the comprehensive reform program.

6. Given that the Nairobi Water and Sewerage Institutional Restructuring Project (NWSIRP) represented one of the first GOK actions in implementing the Water Act, the Bank supported the GOK at a crucial point of sector reform. A deliberate phased support plan was adopted, and a calculated risk taken to help build up the service provision institutional framework on which future phase operations are envisaged to scale up into sector wide institutional reform and infrastructure investments. Throughout the project preparation and implementation, the Bank kept up discussions, cooperation and coordination among development partners through the development partners sector working group – the Water and Sanitation Technology Group (WSTG).

Higher Level Objectives 7. The ERSWEC, inter alia, calls for the implementation of structural reforms to make water

and sewerage services autonomous (including introducing commercial and private sector principles), the mobilization of investment for construction and rehabilitation, and partnership with community based organizations to expand services to the urban poor and rural communities. The Project intended to contribute to the ERSWEC by supporting the implementation of these reforms. The Water Act (2002) is the main vehicle by which the GOK intended to carry out structural reforms in the sector. A successful implementation of the Water Act (2002) was expected to lead to a harmonized institutional and service delivery framework for the WSS sector in Kenya.

8. The CAS determined that deteriorated infrastructure based services including water and sewerage seriously impacted the private sector’s ability to contribute to Kenya’s economic growth. The CAS targeted the Bank’s contribution to the GOK’s sector strategy by focusing on the setting-up, operationalization and strengthening of new autonomous and professionally managed service delivery institutions in Nairobi capable of delivering sustainable service. This was expected to create a conducive environment for large and sustainable capital investment, cost recovering operations and/or private sector participation in the future. The

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project was directly aligned with the CAS outcomes of reducing the costs and improving the reliability of water services in Nairobi over the CAS period (FY04-FY08).

1.2 Original Project Development Objectives (PDO) and Key Indicators

9. The development objective of the project was to build a strong governance, institutional and service delivery framework to enable the efficient and sustainable delivery of water and sewerage services to the population of Nairobi. This is consistent with and supports the implementation of the Water Act (2002). The project intended to support the operationalization and strengthening of new autonomous and ring-fenced service provision utilities with clear roles, responsibilities and contractual arrangements. The expected key outcome was an institutional framework that is capable of delivering safe, clean and affordable services to all strata of Nairobi’s population in accordance with commercial and sustainability principles.

10. Progress towards achieving the development objective was to be monitored through the improvement in operating sustainability of the service delivery institutions throughout the project implementation period. The key PDO indicator was volume of water sold. This indicator was considered to be an overall proxy of the ability to reduce leaks, increase water supply, and to bill for the supplied water.

11. In addition, the results indicators were: • Ratio of Operating Expenses divided by Operating Revenues (for both, AWSB &

NWSC) • Billing efficiency [in percent] • Average lateness in billing • Collection efficiency [in percent] • Unaccounted for water [in percent] • Annual workshop report on stakeholder consensus on way ahead

1.3 Revised PDO and Key Indicators, and reasons/justification 12. The PDO and/or key indicators were not revised.

1.4 Main Beneficiaries 13. The main beneficiaries captured in the PDO are the customers of the Nairobi City Water and

Sewerage Company (NWSC). Other more indirect beneficiaries are customers of other WSPs in the area covered by the AWSB, as well as the broader beneficiaries of the institutional reforms that were initiated/implemented with the support of this project and are now being mainstreamed elsewhere in Kenya.

1.5 Original Components 14. The total estimated project costs at appraisal were USD16.8 million equivalent, of which IDA

was expected to finance USD15.0 million equivalent. The remaining USD1.8 million was expected to come from direct Government contribution and internal revenue of the water and sewerage operations.

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Component 1: Institutional Strengthening of New Service Delivery Framework (about USD6.1 million including contingencies). 15. This component was foreseen to support the operationalization and strengthening of (i) a new

autonomous asset holding entity – AWSB; and (ii) a new autonomous and ring-fenced water and sewerage service provision company for Nairobi – NWSC. The new institutions were foreseen to be appropriately strengthened to ensure professional management and commercial operations.

Component 2: Immediate Service Delivery Improvement Program (about USD7.0 million including contingencies). 16. This component was foreseen to support selected activities aimed at strengthening the

commercial, financial and technical operations of NWSC. The focus was on strengthening the commercial operation of the six new area/business centers. Some tangible service improvements to consumers were expected and specific service target were set for the new institutions for the duration of the Project.

Component 3: Project M&E, Consultations and Communications, and Preparation of Follow-on Program (about USD3.7 million including contingencies). 17. This component was foreseen to support monitoring of project activities, implementation of a

complementary communications program in support of the new institutional transformation in service provision. In particular, the progress and interim results emanating from the Project would be communicated to the public and these would be discussed, debated and feedback obtained. This component was foreseen to also support the preparation of follow-on investment programs in Nairobi, Mombasa and possibly other urban centers.

1.6 Revised Components 18. The components of the Project were not revised.

1.7 Other significant changes 19. There were no formal changes in the project’s original design, scope and scale, and

implementation arrangements. The project closing date was extended once, by six months. This was done (i) to provide sufficient buffer time in case some ongoing contracts were delayed; (ii) to ensure smooth payments and disbursement; and (iii) to complete the preparation activities for the follow-up project, the Water and Sanitation Service Improvement Project (WaSSIP), which were financed under the NWSIRP.

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry 20. The project preparation benefited from the continuous dialogue which was maintained by the

Bank with the GOK and development partners throughout the GOK’s formulation of its sector reform program. Project design considered the lessons from previous Bank projects, particularly the Third Nairobi Water Project (TNWP) which was closed in 1998 with an unsatisfactory outcome rating. In focusing on institutional strengthening before considering significant infrastructure investments, the project specifically recognized the lesson “that without a strong institutional development to create an autonomous and dedicated service

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delivery framework where investments and revenue are protected for use in maintaining and improving services, major investments in the WSS sector are likely to be unsustainable.” In addition, the PAD mentioned the following specific lessons:

• The project should be compatible with and complementary to overall Government

activities: The project was specifically designed to support the GOK’s own sector reform effort under the Water Act (2002).

• There should be an effective champion: This champion had emerged in form of MOWI as key driver of the Water Act (2002). Recognizing the importance of institutional reform to prove the new service delivery institutional framework, the GOK agreed to forgo two major investment projects in the pipeline at the time to concentrate instead on a small and focused institutional strengthening project.

• WSS operational autonomy is critical for success: The Water Act (2002) enshrined this lesson and provides for the implementation of autonomous and ring-fenced service providers. This was applied in Nairobi by transferring the WSD into NWSC as a commercially autonomous company with a Chairman and Board members that mainly came from outside the city council. AWSB was also formed as a ring-fenced state parastatal. The relationships between the sector institutions were governed by the legislations or by clear and transparent agreements which formed project pre-requisites.

• Stakeholder consultation is important for success: Significant communication activities by all stakeholders were viewed as instrumental for consensus building and wide stakeholder support.

21. No formal Quality at Entry Assessment was carried out, however, with the benefit of

hindsight it can be said that the project was carefully prepared regarding its development objective, project components and institutional set-up. The project design recognized various unknown factors e.g., that the sector reform was just starting, the new institutions unproven, the service provision in Nairobi was deteriorated and available data for project assessments and baseline estimations were not fully reliable. A deliberate phased support plan was adopted, taking a calculated risk through a small first phase project to build up the service provision institutional framework before considering scaling up into wide institutional support and infrastructure investments.

22. Reflecting the unknown factors, some project assumptions in hindsight were overoptimistic:

• the assumption that institutional change alone, without major investments, can bring significant level of service improvement, were proven in some instances e.g., in increasing financial sustainability of operations and increasing provision of water to Nairobians, but were overoptimistic in some other cases, e.g., the indicator of UFW should have taken into consideration that institutional reform alone can reduce administrative losses, but normally has only limited impact on technical losses;

• the risk that “new institutions do not have autonomy to execute their mandates” was rightly rated as substantial. However, the risk mitigation measures focused solely on pushing back the influence of the CCN over the Board of NWSC, but did not consider the risk that new players such as the MOWI might also threaten the autonomy of the new service providers. The composition of the Board of AWSB at project effectiveness reflected all major stakeholders. While AWSB and NWSC were able to execute their mandates during the project, subsequent appointments of new Board members by MOWI may have increased the control the MOWI has over AWSB. This was possible due to a lack of clear procedures for the selection of WSB Board members.

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2.2 Implementation 23. During project implementation no major shifts in the GOK’s water sector policy occurred and

therefore no major changes in project design or in the institutional set-up were deemed necessary. At no time was the project at risk status.

24. Several major factors contributed to the successful implementation of the project. The project concept and approach were appropriate given the situation in Kenya at that time and that the MOWI continued to be the champion of the GOK’s water sector reform. Throughout the project, MOWI continued with the sector reform – with development partner support in various areas. This provided for a conducive environment for the implementation of NWSIRP (as well as other development partner efforts) and allowed the implementing agencies to implement institutional changes and improvement to carry out their mandates. Development partner partnership strengthened during the period – periodic WSTG-GOK meetings were instituted, a Partnership Principles agreement was signed between DPs and GOK, and an annual sector conference started in 2006.

25. The Bank provided technical assistance through close supervision and allowed the project to

flexibly respond to emerging issues and needs (within the scope of the project) while keeping the focus on the ultimate institutional objective of the project. The Bank facilitated partnerships between AWSB/NWSC and regional utilities in Uganda and Tanzania e.g., through exchange visits and cross-learning and through a small project-supported consultancy where the successful National Water and Sewerage Corporation of Uganda advised NWSC on billing and collection systems and reorganization issues. The Bank leveraged joint missions with Kreditanstalt für Wiederaufbau (KFW) and Agence Française de Développment (AFD), and full participation at the WSTG, to highlight and address sector reform issues beyond the ambit of the project.

26. The only implementation issue which emerged was delays in payment of invoices. Due to

constraints in Kenya’s legal framework, the implementing agencies cannot administer their own Special Accounts but have to rely on the MOF to do so, with the MOWI as another approval authority. This delayed funds flow and disbursement affecting Bank projects in general. In NWSIRP, this was resolved after significant effort of the implementing agencies to reach agreed funds applications and flow procedures with MOF and MOWI. Later in the project, improved financial performance further mitigated this issue by allowing NWSC to utilize its own funds in advance, for later reimbursement by IDA (although timely payment of invoices improved through this method, the later IDA reimbursements show up as delayed project disbursement).

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization 27. PDO Indicator: The PDO was to build a strong governance, institutional and service

delivery framework that will enable the efficient and sustainable delivery of water and sewerage services to the population of Nairobi. The volume of water sold was monitored as the PDO indicator. Although the target of this indicator was overachieved, it needs to be noted that this indicator (and its target) was very ambitious. The volume of water sold captures much more than only building the enabling framework for service delivery targeted by the PDO. It already is an indicator for real service improvement, and its achievement implies that this project has more than achieved its originally stated PDO.

28. The fluctuation of the values of this indicator in the ISR reporting shows the difficulty to

reliably measure this indicator in the given environment. At project start the calculation of

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this indicator was based on a customer database which could not differentiate between active and inactive customer, and which was not verified by a customer survey (mapping and identification) foreseen under the project. Measurement of this indicator was further complicated by moving from a mainly unmetered to a largely metered system which gradually substitutes assumed with real quantities of water sold. As such, the measurement would have been more accurate at project end. Because of the above, other indicators reflecting only the governance, institutional and service delivery framework could also have been sufficient, such as an indicator on number of corruption cases or/and improvements in continuity of supply observed by customers (based on a representative customer questionnaire).

29. Results indicator for component 1: The indicator of operating expenses divided by operating

revenues seems very appropriate for measuring the success of the Institutional Strengthening Component. However, the reliability of the baseline for this indicator is questionable given the errors in the billing system inherited from the CCN (identified in the financial audits). The baseline was likely overstated and this might have let to an underestimation of what the project has achieved.

30. Result indicators for component 2: The indicators billing lateness and collection efficiency

are well suited to cover improvements in the commercial operation of the NWSC. The baseline for collection efficiency in a none-computer based system is generally not reliable and might in reality have been significantly lower, which would mean that the improvements are even higher than stated in the monitoring data.

31. Although billing efficiency at appraisal was reported at 100%, this was based on a manual

database. It was decided that this indicator would be tracked as the customer database is improved and a fully computerized billing and collections system is implemented under the project. The decrease of billing efficiency in the target year is due to the migration to a computerized billing system and changes in the company's billing policy which includes not billing unverified accounts while aggressively reducing these accounts. In hindsight, it is evident that this indicator does not fully capture the specifics of the significant progress NWSC made regarding cleaning up their customer data base and switching to volumetric billing.

32. Unaccounted for Water (UfW) is an appropriate indicator for measuring operational and

commercial improvements, if it can be measured reliably. In the case of the NWSC neither production metering nor end-user metering was in place at project start (and is still not completed at project end), so that reliable UfW rates cannot be established. Therefore the project’s M&E system should have relied more on customer questionnaires and stakeholder workshops which were carried out under the project and which provided clear indication that duration and quantity of water supply has improved in Nairobi. Alternatively a few randomly installed customer meters and pressure monitors could have been monitored during the project period to capture changes in water delivery.

33. During Mid-Term Review (MTR), it was noted that although the project indicators were

largely relevant, calculations for some indicators i.e., volume sold, collection efficiency and unaccounted-for-water, UfW) were susceptible data reliability issues. These indicators were retained (especially given the short project duration), but were subsequently augmented with other indicators that could provide a proxy for improved reliability and sustainability. Available information on customer satisfaction and expansion of services (to augment service reliability indicators) and actual revenue collection (to augment sustainability indicators) were subsequently tabulated.

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2.4 Safeguard and Fiduciary Compliance 34. The project was classified as Environmental Category C, because it focused on institutional

development and contained only minor investments. The project did not have to deal with any significant environmental issues during implementation.

35. Procurement of works, goods and consultancy services was efficiently conducted by the

implementing agencies – AWSB and NWSC. IDA and the implementing agencies had worked out an elaborate procedure of preparing, reviewing and clearing procurement documents. While the process was slow at the beginning, it latter picked up and procurement was done for all the activities under the agreed procurement plans. There were no major bottlenecks, however, three minor issues were noted and adequately resolved. These issues were as follows:

(i) There were initial delays in obtaining exemption of duty before the delivery of goods

from outside the country. This was, however, addressed through the use of advanced in-principle blanket exemptions, which expedited the process of custom clearance as specific goods were imported throughout the project.

(ii) In two goods contracts under NWSC the awarded lowest evaluated bidder submitted faked bank guarantees. NWSC brought these to the Bank’s attention. Both bidders were disqualified and the second lowest evaluated bidder awarded the contract. Since the contract was NCB, NWSC took appropriate measures under the government regulations.

(iii) In a consultancy contract under AWSB, one of the applicants had questioned the process of award of the contract. An explanation was provided and the complainant was satisfied with the explanation given.

2.5 Post-completion Operation/Next Phase 36. As envisaged in the NWSIRP, the successful completion of the project to demonstrate a

successful service delivery institutional framework as the pre-requisite to a scaled-up follow on project has been realized. The Water Supply and Sanitation Improvement Project (WaSSIP) was approved in December 2007 and will continue to provide assistance to institutional reform. It will also have a large investment component aimed at expanding service provision coverage including in informal settlements. WaSSIP also scales up the scope of support to three WSBs - the Athi, Coast and Lake Victoria Water Services Boards. The partnership with the German and French development agencies were leveraged towards cooperative and coordinated project preparation – WaSSIP is being parallel financed with KfW and AFD with significant cross support activities. The inclusion of two additional WSBs allows the Bank to scale up its institutional strengthening support to other areas based on the successful approach in NWSIRP. However, institutional support alone cannot solve the problems of water supply and sanitation services in Nairobi or elsewhere in Kenya, therefore WaSSIP will help to strengthen the proven institutional framework and couple this with significant and sustainable infrastructure investments in the sector.

37. It is important to note that a monitoring and evaluation system is in place that will continue to

monitor the project’s performance indicators. Most of the project’s performance indicators are also performance indicators under the follow-up WaSSIP. Only the indicators “billing lateness” which is currently already at zero month and the indicator billing efficiency which as discussed above is not very useful, have been dropped.

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3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation 38. The objective of the NWSIRP continues to be highly relevant to achieve Kenya’s priorities

outlined in the GOK’s PRSP document, the ERSWEC, which foresees the implementation of structural reforms to improve water and sewerage services and to make them autonomous. This is completely in line with the NWSIRP’s development objective to build a strong governance, institutional and service delivery framework that will enable the efficient and sustainable delivery of water and sewerage services to the population of Nairobi.

39. As outlined above, the objective of the NWSIRP was also highly relevant to the FY04 CAS which supported the ERSWEC and foresaw the Bank supporting the GOK’s efforts in setting up, operationalize and strengthen the new autonomous WSPs. The FY07 CAS Progress Report re-emphasized the relevance of the project to achieve outcomes related to (i) reducing cost and improving reliability of water services in Nairobi; (ii) establishing a conducive institutional and regulatory environment; and (iii) improving financial viability.

40. The project design targeted both the NWSC as the WSP in charge of the operation of the water supply and sanitation system in Nairobi, and the AWSB responsible for water infrastructure development and for the provision of water supply and sanitation services in Nairobi (and elsewhere in its service area). The design features of the project supported: (i) improvements in governance; (i) increased technical and financial efficiency of the operation; (iii) improved service delivery; and (iv) better communication.

3.2 Achievement of Project Development Objectives 41. All three objectives of the PDO [improved (i) governance, (ii) institutional set-up, and (iii)

service delivery] were achieved through the support provided by the NWSIRP:

• Governance: The establishment of autonomous institutions for developing infrastructure and providing services in the water sector would have materialized even without the project. However, the project provided the technical assistance, training and tools to improve many areas of governance in the day-to-day work of these institutions. A benchmarking exercise by WSRB to monitor and benchmark the six WSBs in the country against each other is in its infancy. However, it already seems evident that the AWSB is the best performing WSB. In a national benchmarking exercise, AWSB was ranked as the fifth best state corporation overall and ranked first among Kenya’s service delivery entities. AWSB and NWSC introduced a Code of Ethics for both the employees and the board of directors to enhance corporate governance. AWSB has entered into annual Service Performance Agreements (SPAs) with WSPs in its service area. The Bank financed independent financial and technical audits which monitored compliance with the PAD and the SPAs. Both AWSB and NWSC are financially ring-fenced and subject to annual statutory audits. Operational funds are traceable and audited. Early in its formation, NWSC requested the partnership of Transparency International Kenya (TI-K) to perform an independent survey and recommend actions. NWSC has been able to act on many of the recommendations. 75 of NWSC’s staff members were dismissed because of fraudulent practices. Competitive recruitment of new staff, many of them from the private sector, was carried out. Changes in staff remuneration from mainly age based to group performance based and now moving on to individual performance based were carried out (only possible because of the project financed Service Management System). NWSC has reduced its staff by about 17 % (although it is still high with 10 staff per 1,000

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connections). One problem NWSC is facing regarding the staff reduction process is the lack of sufficient funds for early retirement benefits. • Institutional set-up: The organizational setup of AWSB was completed. NWSC, which inherited its operational organization from the WSD of CCN, carried out a re-organization into area business units to be closer to its customers. AWSB is now ISO:9001 certified while NWSC is pursuing similar certification. NWSC was able to implement a Bank financed computerized billing and collection system which is now up and running (although some issues still need to be improved). With this system NWSC is now cleaning up its customer accounts database and identifying inactive and non-existing customers. NWSC is shifting from flat rate billing to volumetric billing. These are major institutional changes which will allow NWSC to improve demand management and conserve water which can be made available to un- or under-served customers. It will also allow NWSC to improve further its revenue generation. Significant improvements also occurred in the Financial Management system, the Record System and the asset valuation.

• Service delivery: The PDO indicator “Volume of Water Sold” is a direct indicator for the service delivery improvements and the indicator has increased from 75 million cubic meter per year to 94 million cubic meter per year, above the ambitious project target of 91 million cubic meter per year. NWSC revenue improved from Ksh1.5bn to Ksh3.2bn (with no tariff changes). Workshops and surveys show that consumers appreciate improvements in reliability and services delivery. NWSC’s pilot schemes in several informal settlements were beginning to test out models for service delivery in Nairobi slums. There seems to be a causality between this improvement and the Bank’s intervention given that these improvements were not observed before the project started. In addition, other WSPs that were not covered under the project did not achieve these results.

42. Most of the achievements with regard to the PDO mentioned above were caused, initiated or

implemented with the direct support of the NWSIRP. The outputs by component are presented in Annex 2.

3.3 Efficiency 43. During project preparation a financial forecast for both AWSB and NWSC was carried out.

In Annex 3 these forecasts are compared to the actual data during the project period. Although there are some discrepancies in the PAD forecast figures and the actual data right from project start, it can be noted that the financial performance of both entities substantially improved. NWSC’s net income increased from around Ksh48 million to Ksh506 million (adjusted based on first three quarters). This is significantly above the Ksh140 million forecast in the PAD. AWSB’s operating income before interest and taxes remained positive throughout the project period. During the third (last full) project year AWSB’s operating income was Ksh43 million, which falls a bit short of the PAD forecast of 61.5 million. However, it needs to be noted that the forecast at appraisal was done before AWSB and NWSC were operational.

3.4 Justification of Overall Outcome Rating Rating: Satisfactory 44. The PDO remains highly relevant (see chapter 3.1) and the GOK and the Bank have agreed to

scale-up their cooperation on the PDO areas of governance, institutional and service delivery

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framework by including under the follow-up project (WaSSIP) two additional WSBs. This support will be carried out in close cooperation with other donor partners (KfW and AFD).

45. Using the PDO as the yardstick, the different outcomes of the project are mainly rated

satisfactory or highly satisfactory. AWSB and NWSC have improved their governance, their institutional set-up and capacity, and have improved the service delivery to their customers, and the project was instrumental to bring about this change. Water delivery increased from 75 million to 94 million cubic meter per year. Both AWSB and NWSC are covering their operating expenses. The billing lateness was reduced from six months at project start to zero at project completion. The collection efficiency increased from 65 to 74 percent (above the target of 70 percent). The UfW was reduced from an estimated 50 percent to about 43 percent, which is slightly above the very ambitious target of 39 percent. This was achieved mainly by improving the technical and commercial operation, since only very few funds were available for investments to reduce technical losses. That makes the significant UfW reduction even more remarkable. AWSB also conducted two major workshops to improve stakeholder consultation and communication. All of the above achievements are rated satisfactory to highly satisfactory.

46. The only project indicator that did not improve was the billing efficiency, which decreased

from 100 to 92 percent from project start to project completion. However, as discussed earlier, this was due to NWSC cleaning-up their customer database and discontinuing billing unverified accounts (mostly old accounts that were not deleted after people moved away or accounts set up with incorrect or non-existing post office boxes that did not belong to the customer). NWSB should be commended for cleaning up its database. Once this exercise is completed, the billing efficiency is expected to reach 100 percent again.

47. A detailed analysis of the outputs by component is presented in Annex 2. Component 1: Institutional Strengthening of New Service Delivery Framework (USD 6.1 million PAD, USD 5.21 million actual) – Rating: Satisfactory 48. Two sub-components provided support to the operationalization and strengthening of NWSC

and AWSB. Activities under these sub-components are rated satisfactory or highly satisfactory. They were instrumental in building-up the institutional capacity of both entities. Besides creating a conducive work environment for the staff, these sub-components provided technical assistance and training to staff and Board members which were instrumental to increase the capacity of staff and to change their mindset. The change in human resources policy and practice which was initiated and supported by these components brought about institutional change. Such change is visible in actions such as: staff numbers were reduced, new staff from the private sector was competitively recruited, remuneration moved towards performance based remuneration, and operations reorganized to respond to customer needs. But also the delivery of goods, such as the motorcycles for the meter readers, was very important to enable the NWSC to increase the collection rate and to move away from flat rate billing towards volumetric billing.

49. The only reason that the entire component is not rated highly satisfactory is the moderately

unsatisfactory rating of the third sub-component which was aimed to support the Water Service Regulatory Board (WSRB), although this subcomponent represents only about one percent of the total project cost. During project preparation, it was decided a small provision would be made to assist WSRB (through AWSB) to conduct several regulatory studies. In the event, capacity weaknesses in WRSB resulted in activities completely driven by AWSB and therefore not welcomed by the WSRB. The studies were also delayed and overlapped

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with the activities of other stakeholders. This created some confusion. The tariff review foreseen in the PAD was carried out outside of the project. So far, tariff adjustment requests have not been made. However, AWSB intends to follow-up and draft a tariff adjustment request in accordance with the current WSRB guidelines. As this was a side support to a separate institution (WSRB), there were no material adverse effects on the project indicators for AWSB and NWSC.

Component 2: Immediate Service Delivery Improvement Program (USD 7.0 million PAD, USD 9.23 million actual) – Rating: Satisfactory 50. There were three subcomponents, each supporting improvements in the commercial, financial

and technical operations (respectively) of AWSB and NWSC. All three are rated satisfactory. Under this component about 48,000 water meters were installed which allowed NWSC to conserve water which can be used for under- or non-served customers. Originally the installation of only 15,000 water meters was envisaged, but shifting of financial resources allowed for a much larger number. The installation of these water meters was coordinated with the implementation of a computerized billing and collection system. By project completion this system was operational and was used for billing. In addition NWSC commenced to clean-up its accounts database by identifying dormant and false accounts, and it discontinued billing of unverified accounts. This commendable exercise resulted in a temporarily drop in the billing efficiency which is one of the outcome indicators. However, this drop of the billing efficiency should not be considered as a negative sign, it is actually caused by a positive development.

51. Other achievements under this component were the installation of financial management

software which is now used by trained staff, the overhaul of the record system, the implementation of a customer care program, and the commencement of an asset revaluation program (which could not be completed in the time frame of the project). One minor shortcoming of this financial sub-component which reduced the overall component rating from highly satisfactory to satisfactory was the delay in carrying out the important customer survey (identification and mapping of customer), which would help the identification of illegal customers. This would increase NWSC’s revenue generation and water conservation. However, consultancy services were carried out to determine the requirements of a GIS based customer identification system and digitalized cadastral maps were procured by NWSC outside the project. With this already done, it is expected that the customer survey will be carried out swiftly under the WaSSIP.

Component 3: Project M&E, Consultations and Communications, and Preparation of Follow-on Program (USD 3.7 million PAD, USD 2.3 million actual) – Rating: Satisfactory 52. There were three sub-components. The project monitoring and evaluation was carried-out

regularly for all project indicators and financial and technical audits were conducted. Given the problems to measure these indicators with more reliability (as discussed in chapter 2.3) could have been addressed better, only a satisfactory rating is provided for this sub-component. The stakeholder consultation and communication campaign sub-component is also rated satisfactory. Both AWSB and NWSC have substantially improved their communication and consultation activities, which is evident by the stakeholder workshops, prevalent use of information leaflets addressing various sector issues, broad presence in media reports, the development and maintenance of public webpages, etc. A Communications Strategy was prepared as part of project preparation. This strategy was revised to support the communication plans of AWSB and NWSC. This support was documented in the supervision reports and procurement plans and was implemented well.

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However, the Appraisal stage Communication Strategy itself was never formally revised and the revision recorded. Therefore this sub-component was only rated satisfactory. The third sub-component to help prepare the follow-up project (WaSSIP) was commendable. Through this component, important activities for project preparation were carried out both in Athi and Coast WSB areas, including the preparation of tender documents for the follow-up project. This sub-component is rated highly-satisfactory.

3.5 Overarching Themes, Other Outcomes and Impacts (a) Poverty Impacts, Gender Aspects, and Social Development 53. The PAD on page 3 states that “The project will create sustainable service delivery

institutions that can expand provision of services into unserved areas. In Nairobi, these areas are mainly the informal settlements where the majority of the urban poor lives.” The project rightly focused on the general strengthening of the institution and envisaged actual infrastructure investments for expanding services to the informal settlements in the follow-on project. This was followed-up and it is noted that the WaSSIP includes significant investments to expand service provision to informal settlements in the areas of Athi, Coast and Lake Victoria North WSBs.

54. Nevertheless, improved operations and financial sustainability achieved by NWSC enabled it

to already embark on efforts to reach out to informal settlements. The project supported the establishment of six regional centers of NWSC to make the system more manageable and bring NWSC closer to the consumers. The ICR mission visited the regional center which is responsible for an area which includes the informal settlement of Kibera, which is Kenya’s largest informal settlement. This regional center has already created a special task force solely devoted to improve water services in informal settlements. This Task Force includes social experts who are working closely together with the local communities in the informal settlements and some small projects are already implemented or under implementation. NWSC also carried out pilot scheme in the Mukuru informal settlements. These activities informed the formulation of informal settlement plans which will be significantly expanded once additional funds under WaSSIP become available.

(b) Institutional Change/Strengthening 55. As mentioned before, the project assisted in significantly improving the institutional set-up of

the sector and strengthening of its operation. However, the significant development of the sector towards sustainability brings up new sector issues which will have to be addressed in future phases of support.

56. The PAD (on page 14) already points out that Nairobi is supplied by several transmission

mains from outside of Nairobi, the longest about 60 km long, and mentioned that “illegal offtakes may exist along the transmission lines reducing the water quantity available in Nairobi”. It is still unclear if a substantial number of illegal connections exist, but one institutional issue which has arisen is the following: NWSC supplies customers along the transmission mains which are outside of its service area and are now covered by newly formed WSPs, all under the AWSB. Discussions have commenced if NWSC’s service area and the service areas of some of the other WSPs need to be revised to reflect the real service area of NWSC, or if NWSC should become a bulk water supplier and hand over its customers along the transmission mains to local WSPs. Because of the importance of controlling the water consumption along the transmission mains, the GOK and the Bank should assist AWSB and the WSPs to implement the best institutional set-up.

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(c) Other Unintended Outcomes and Impacts (positive or negative) 57. None were observed.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops 58. The summaries of the stakeholder workshops held in December 2005 and May 2007 are

shown in Annex 6. In general it can be stated that service and performance improvement are acknowledged by a large majority of stakeholders. The customer satisfaction survey carried-out in 2007 showed that: (i) 83% felt that water service delivery had improved; (ii) 89% expressed satisfaction with the quality of water supplied (up from 45% in 2005); and (iii) 87% reported uninterrupted water supply (up from 75% in 2005).

4. Assessment of Risk to Development Outcome Rating: Moderate 59. The development outcomes of the project which should be sustained are the improved

governance, institutional and service delivery framework for Nairobi’s water supply and sewerage services. The institutional change AWSB and NWSC have experienced is so deep that the risk of complete reversal seems negligible. However, as discussed earlier, there is some risk that the autonomy of these institutions to execute their mandate might be reduced. This risk emanates from the lack of clear procedures for the selection of AWSB’s Board members which opens up the possibility for the MOWI to control the Board and by doing so diminishing the autonomy of AWSB. This change, should it occur, would be detrimental to the sustainability of the project’s development outcome. Because of this risk the overall assessment of risks to development outcome is rated moderate. It should be noted that through the phased support, the WaSSIP and continued coordination with development partners provide avenues for these emerging issues to be addressed.

60. The risk that the improved service levels cannot be sustained is rated negligible to low,

particularly because it is expected that the follow-up project (WaSSIP) will continue to provide institutional support and also much needed investment support. Even with the best institutional set-up in place, infrastructure deteriorates over time and needs to be replaced; therefore the investment under the WaSSIP is instrumental for keeping up or improving service levels to Nairobi’s growing population.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance (a) Bank Performance in Ensuring Quality at Entry 61. Rating: Satisfactory

62. The Bank drew the right conclusions from the unsatisfactory Third Nairobi Water Project

(TNWP) and focused on the institutional development of autonomous entities in charge of WSS services before considering significant investment support. For this project, the Bank based its support on the existing GOK strategy already in place and focused on supporting the implementation of this strategy in Nairobi, without doubt Kenya’s most important city. By taking a carefully phased approach of institutional strengthening first, to be followed by

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investments, the Bank controlled and ensured quality at entry. The importance of development partner cooperation and common approach was recognized early. A Memorandum of Understanding with the German development agencies were in place prior to entry. Coordination with the AFD (then preparing a separate project to support AWSB) was already initiated during entry. The principle of phased long term support implied partnering the GOK from the very start of and throughout the sector reform and entailed taking a calculated risk to help build a new unproven institutional framework. This meant that the Bank had to accept some level of uncertainties in the policy, institutional and operational framework at entry. Some consequences of these uncertainties were evident during project implementation (e.g., overoptimistic initial assumptions / targets, unanticipated sector reform implementation issues) and required adjustments, augmentation and intervention. The project design did attempt to take these uncertainties into account - the consistency with the Water Act (2002), coordination and cooperation with development partners, and limited project size and timeframe helped to ensure some measure of risk control and enabled adjustments and required interventions to be acted upon during implementation.

(b) Quality of Supervision 63. Rating: Satisfactory

64. The supervision by the Bank was intensive and competent. The Bank fielded five supervision

missions during the three and a half years, staying engaged with the implementing agencies, GOK and other donor partners active in the sector (including conducting joint missions with KfW and AFD). There was a high degree of continuity in the Bank team with only one Task Team Leader from identification to completion and very low team turnover. Supervision focused on identifying key emerging institutional issues (including AWSB/NWSB business plans, the stability of NWSC Board structure, the stability of the service delivery framework, and the reorganization in NWSC) and team resources were flexibly used to address them. This was particularly critical given the premise at entry as described in para. 62 and was a crucial contributor to the ultimate successful implementation of the project. Supervision reporting was excellent, bringing important issues to management’s attention, and followed-up until issues were resolved. The team realistically rated the implementation progress to ‘MS’ once the funds flow and VAT exemption issues (see paras. 26 and 35) were identified and followed-up until they were resolved. No deviation from Bank policies and procedures occurred at any time. The project finally disbursed all of the available funds, as well as implemented all the significant institutional measures highlighted in this report.

65. The same Task Team Leader as well as other members of the Task Team prepared the

follow-up project (WaSSIP). Through this follow-up project they ensured complementary activities towards the sustainability of development outcomes after closing of the project. This is highly commendable.

(c) Justification of Rating for Overall Bank Performance 66. Rating: Satisfactory

67. Based on the evaluation of the Bank performance for quality at entry and quality of

supervision, the overall Bank performance is rated satisfactory.

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5.2 Borrower Performance (a) Government Performance 68. Rating: Satisfactory

69. The GOK actively maintained and continued to implement its sector reform without major

changes throughout the implementation period. It continuously maintained dialogue with the Bank and other donor partners on sector issues. These are highly commendable and are key to providing the conducive environment for the project to succeed. However, the project at the outset did experience delays in obtaining exemption of duty for goods delivered from abroad and delays in funds flow. These issues were subsequently resolved. The provision of budget to the WSBs and their full staffing also experienced some delays but was also resolved, with the exception that some sector funds are still provided by the GOK to NWCPC for direct intervention directed by the GOK, instead of funneling all sector funds through the WSBs. Overall, the Government performance is rated satisfactory.

(b) Implementing Agency or Agencies Performance 70. Rating: Satisfactory

71. Both implementing agencies were staffed through a competitive way with highly qualified

staff (although with some delays), including staff previously working for the private sector. Both implementing agencies carried out the project implementation in a swift and highly professional way without any fiduciary issues arising. Reporting on project progress during project implementation and at completion was timely and of high quality. The good performance of the implementing agencies, together with the support from the Bank team, resulted in all project activities being completed and the full disbursement of the project funds.

72. According to the PAD the expected Recipient contribution to the project cost should be USD

1.81 million equivalent, which should come out of the revenue generation of AWSB and NWSC. At project completion the total contribution was USD 1.81 million equivalent which includes project activities hundred percent financed by AWSB and NWSC, such as the purchasing of digitalized cadastral maps or communication activities.

(c) Justification of Rating for Overall Borrower Performance 73. Rating: Satisfactory

74. Based on the separate evaluation of the performance of the Government and of the

performance of the implementing agencies, the overall performance of the Borrower is rated satisfactory.

6. Lessons Learned 75. The project should be part of the overall strategy the Government has for the sector.

The design was to directly support the implementation of the already existing strategy the Government had for the sector. This strategy was outlined in the GOK’s PRSP document (the ERSWEC) and the Water Act (2002). The main project activities were spearheading and complementing other Government activities for sector reform.

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76. There should be a champion capable of leading sector reform activities. The MOWI took leadership for the sector reform and continuously followed up on the implementation of this reform. It was also important that AWSB and NWSC were championing and piloting the day-to-day implementation of the sector reform, and that both agencies were well suited to do so because of the capacity they already had and which they were constantly increasing throughout the project’s implementation period.

77. The project focused its support on one Water Service Board and one Water Service Provider only. By doing so the project avoided overstretching financial resources as well as implementation capacity on the Borrower’s and the Bank’s side. With the selection of AWSB and NWSC as the agencies for implementing the sector reform first, the project focused on stakeholders which already had some capacity which increased the likelihood of success.

78. Ring fencing the main agencies in charge of service delivery and provide them with

operational autonomy and accountability is critical for success. Both entities in charge for water supply which were supported by this project were autonomous entities. AWSB was created by MOWI based on the Water Act (2002) which provides for its autonomy and legal authority for water supply and sanitation services. NWSC (which was founded by CCN) is an autonomous, commercially run company founded in accordance with the Companies Act, with its own chairperson and a majority of Board members from outside CCN.

79. A phased approach whereas the first phase is focusing on well targeted institution

reform and the second phase is scaling up this institutional reform and supporting it with significant investment, can work if the environment is right. In the case of Kenya there was a well developed sector strategy in place, which was owned by the Government, and its implementation was supported by a champion, capable to lead sector reform implementation. Therefore this phased approach cannot be applied generally, but seems to be most suitable for places with a similar set-up. It was also important that the Bank showed long term commitment to support Kenya’s water sector right from the beginning, so that it was clear for all stakeholders, that if successful, the support to institutional support would be scaled-up and be followed by substantial investments. The successful preparation of the follow-up operation diminishes any sustainability thread for the outcomes of the project that might exist.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/implementing agencies 80. The draft ICR will be presented to the Borrower for comments. (b) Cofinanciers 81. The project did not have any other cofinanciers other than the Borrower and implementing

agencies. (c) Other partners and stakeholders 82. During the ICR mission the Kreditanstalt für Wiederaufbau (KfW) which is providing

support to the Water Service Regulatory Board (WSRB) raised the issue that the project’s support for the WSRB could have been better coordinated with less delay, and that the WSRB should have been more involved in implementing the project supported studies.

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83. During the ICR mission the Agence Française de Développment (AFD) suggested that based

on the achievements in the sector, the GOK and the donor partners should move faster towards a sector wide approach.

84. Other comments on the sector reform process supported by this project, including comments from NGOs, private sector and civil society can be found in the report of the Second Stakeholder Workshop on Nairobi Water and Sewerage Institutional Restructuring Project, May 3-4, 2007 (see Annex 6).

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Annex 1. Project Costs and Financing

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

Components Appraisal Estimate (USD millions)

Actual/Latest Estimate (USD millions)

Percentage of Appraisal

INSTITUTIONAL STRENGTHENING OF NEW SERVICE DELIVERY FRAMEWORK

5.50 5.21

IMMEDIATE SERVICES DELIVERY IMPROVEMENT PROGRAM

6.08 9.23

PROJECT M&E, CONSULTATIONS AND COMMUNICATIONS AND PREPARATION OF FOLLOW-ON PROGRAM

3.24 2.37

Total Baseline Cost 14.82

Physical Contingencies 0.21

Price Contingencies 1.78

Total Project Costs 16.81 16.81 100 Front-end fee PPF Front-end fee IBRD Total Financing Required 16.81 16.81 100

(b) Financing

Source of Funds Type of Cofinancing

Appraisal Estimate (USD millions)

Actual/Latest Estimate (USD millions)

Percentage of Appraisal

Borrower 1.81 1.81 100 IDA GRANT FOR POOREST COUNTRY 15.00 15.00 100

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Annex 2. Outputs by Component Below the project’s output by component are discussed to support the discussion in Section 3: Assessment of Outcomes.

Project achievement of outputs by component

Component Subcomponent Output Comments Rating

1.1.1 Office Rehabilitation, Carried out as planned. Satisfactory 1.1.2 Vehicles, Motor cycles Carried out as planned Satisfactory 1.1.3 Office Equipment, Carried out as planned Satisfactory 1.1.4 Office Management Expenses Carried out as planned Satisfactory 1.1.5 Capacity Building Consultancy Capacity issues were widely addressed and

substantially improved. The asset management system could not be completed during the project time frame and was deferred to WaSSIP. This will include buying a module for track down developed and rehabilitated assets.

Highly Satisfactory

1.1 Support to Operationalization and Strengthening of the Nairobi Water Services

1.1.6 Training (including workshops, courses and study tours)

Carried out as planned Satisfactory

1.2.1 Office Rehabilitation, Carried out as planned Satisfactory

1.2.2 Vehicles, Motor cycles Increased mobility achieved through this sub-component was instrumental for customer control/management. However, mobile workshops were only delivered towards the end of the project so that their benefits (for reducing UFW) cannot be measured during implementation period.

Highly Satisfactory

1.2.3 Office Equipment, Carried out as planned Satisfactory

1.2.4 Transitional Establishment and Operation Expenses

Carried out as planned. Satisfactory

1.2.5 Technical Assistance Capacity issues were widely addressed and improved. This part of the project was instrumental to achieve improvements in project indicators.

Highly Satisfactory

1. Institutional Strengthening of New Service Delivery framework

1.2 Support to Operationalization and Strengthening of the Nairobi City Water and Sewerage Company

1.2.6 Training and Capacity Building Carried out as planned. Highly Satisfactory

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1.3.1 Regulatory Design & Review Advisory Services

This program was not driven by the Water Services Regulatory Board (WSRB) but by AWSB due to lack of capacity at the WSRB and came only after similar exercises were completed outside the project. Therefore this program was of limited value. A tariff review was completed using non project funds and the AWSB will now follow the established WSRB guidelines for drafting a tariff adjustment request for NWSC.

Moderately Unsatisfactory

1.3 Support to Activities of the Water Services Regulatory Board - WSRB (about

1.3.2 Consumer and Social Protection Assessment

Carried out as planned. Satisfactory

2. Immediate Service Delivery Improvement Program

2.1 Improvements in Commercial Operations

• Comprehensive Customer Survey; • Customer billing system; • Customer Care Program; • 15,000 additional domestic meters and bulk and zonal meters

• The important customer survey (mapping and identification) experienced delays and could not be completed in the narrow project timeframe. Need to be completed under WaSSIP. However, consultancy services were done to determine the requirements of a GIS based system. In addition, cadastral maps were procured outside the project • Experience shows that installation of billing systems is a long and complicated process which often cannot be completed successfully. However, the NWSIP was successful in getting the system up and running and the NWSC works very determined on solving outstanding issues which are mainly related to cleaning up the customer database and increasing the volumetric billing of these accounts. • Customer Care Program was implemented as planned. • The AWSB has to be commended for shifting more resources to the important meter program so that 48,000 meters were installed under the project. However, more emphasis should have been on tamper-proofing these meters. Connection seals and a comprehensive meter care and maintenance program should be added under the WaSSIP.

Satisfactory

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2.2 Improvements in Financial Operations

• Financial Management Software • Overhaul Financial Management and Record System • Asset Revaluation

• Financial Management Software was installed and staff trained. • Overhaul of the Financial Management and Record System was successfully completed • Asset valuation has progressed but could not been completed during project time frame. .

Satisfactory.

2.3 Improvement of Technical Operations

• Spare parts • Minor civil works to reduce UFW and

rehabilitate commercial centers • Modeling of WSS network

This sub-component was rightly and deliberately kept small and will be expanded substantially under WaSSIP. The modeling of WSS networks was successfully completed.

Highly Satisfactory.

3.1 Project Monitoring and Evaluation

Technical & Financial Audit Services and project reviews.

Carried out as planned. Satisfactory

3.2 Stakeholder Consultation and Communication Campaign

• Communication Strategy • Project Workshops • Donor consultation • Capital Investment Program consultations

Although the NWSC diverted from the appraised communication strategy, it is impressing what the Communication Department of the NWSC has achieved by opening new communication channels in a very professional way.

Satisfactory

3. Project M&E, Consultations and Communications and preparation of Follow-on program

3.3 Preparation of the follow-on WSS Program

Water Resources Assessment Service demand Forecast Institutional and Legal Framework Review for AWSB, including the drafting of SPAs Capacity Building and Institutional Development Environmental and Social Assessment Preparation of tender documents for the follow-on WSS Program;

Very ambitious forward looking project component. All stakeholders can be commended for designing and implementing it.

Highly Satisfactory

23

Annex 3. Economic and Financial Analysis NWSC

Assumptions Datasheet                             

Water Services (Technical)                            

      Year 1  Actual  Year 2  Actual  Year 3  Actual  Year 4  Actual 

PRODUCTION      July 2004/2005    July 2005/2006    July 2006/2007    July 2007/2008  Apr‐08 

                             

Capacity   ml m³/y 

                       

Production    m³/y  150,000,000  145,487,369  150,000,000  161,912,488  150,000,000  166,580,338  150,000,000  150,089,689 

Customers Connection                             

Domestic   Nos  164,172  115,175  164,172  120,891   164,172  125,652   164,172  125,807  

Non‐Domestic      18,123  27,308   18,123  27,797   18,123  28,011   18,123  28,011  

Communal   Nos                         

Consumption per connection     m³/y     761      784      767      689  

Increase  in  consumption  per connection due to reducing UFW 

         10.00%     10.00%     10.00%    

Domestic   ml m³/y 

0.52  n/a  0.68  n/a   0.75  n/a   0.3  n/a  

Non Domestic   ml m³/y 

5.59  n/a   6.15  n/a   6.76  n/a   7.44  n/a  

UFW  (%)  50%  46 %   45%  45 %  39%  43 %  33%    

Sewerage Services (Technical)                            

Customer/Connections                            

Domestic   Nos  110,000  43,657   110,000  52,387   110,000  57,117   110,000  57,449  

Non‐Domestic   Nos   18,123  5,096    18,123  5,396    18,123  6,461    18,123  6,461  

Communal   Nos                         

Domestic    m³/d  0.42  n/a   0.46  n/a   0.50  n/a   0.55  n/a  

Non‐Domestic    m³/d  5.59  n/a   6.15  n/a   6.76  n/a   7.44  n/a 

24

NWSC – Profit and Loss

  Year 1  Year 2  Year 3  Year 4 

   May 2004‐ June 2005   July 2005‐ June 2006  July 2006‐ June 2007  July 2007‐ March 2008 

   Actual     Planned    Actual     Planned    Actual     Planned    Actual     Planned  

Operating Revenue                 

Water services                 

Billing Domestic    2,011,007,718      446,161,000  2,467,676,037     490,777,100  2,239,079,192     539,854,000  1,803,711,090     445,379,250 

Billing Non‐Domestic       997,920,000    1,097,712,000    1,207,483,000       996,174,000 

Sewerage Services                 

Billing Domestic       531,515,728      106,821,000     690,521,612     117,503,000     715,366,320     129,254,000     687,171,177     106,634,250 

Billing Non‐Domestic       369,600,000       406,560,000       447,216,000       368,953,500 

Other Income                 

Grant income         49,695,001      110,233,000       51,545,750       87,992,000       92,215,426       79,995,000     114,819,247                     ‐   

Other income( Meter rent)       187,555,024        49,041,000       64,359,473       49,041,000       77,990,471       49,041,000       69,068,214       36,780,750 

Miscellaneous income         42,537,448         14,208,000        37,841,825        14,208,000        80,353,582        14,208,000        93,962,813        10,656,000 

Other income( gain on disposal) 

              179,090                     ‐              867,265                       ‐     

Gross operating income    2,822,310,919   2,093,984,000  3,312,123,787  2,263,793,100  3,205,872,256  2,467,051,000  2,768,732,541  1,964,577,750 

Provision for non collection(WSS) 

 (1,042,398,763)     (672,175,000)       (87,344,190)     (739,392,500)     (250,814,354)     (697,142,000)     (414,509,407)     (383,427,750) 

Provision for non collection(Non‐WSS) 

               

Net operating Revenue    1,779,912,156   1,421,809,000  3,224,779,597  1,524,400,600  2,955,057,902  1,769,909,000  2,354,223,134  1,581,150,000 

Operating Expenditure                 

Payment to NWSB (lease)       166,536,681        62,416,000     406,962,730     102,987,000     519,170,176     162,666,000     375,266,316     153,371,250 

Payment to WSRB(PAID THRU NWSB) 

          6,242,000            6,866,000            8,133,000          15,374,250 

Payment to NCC for lease (paid thru NWSB) 

        62,416,000        102,987,000        162,666,000        153,371,250 

Personnel costs                 

Salaries       351,922,881      439,000,000     508,372,621     478,510,000     614,550,671     521,575,900     474,178,065     426,388,298 

Cost of retirees         87,330,475          6,000,000       70,940,729         6,540,000       96,243,825         7,128,600       67,651,829         5,827,631 

25

Other Allowances , bonus and overtime 

     249,772,245         40,000,000      369,831,178        43,600,000      450,595,505        47,524,000      357,692,353        38,850,870 

  Year 1  Year 2  Year 3  Year 4 

  May 2004‐ June 2005  July 2005‐ June 2006  July 2006‐ June 2007  July 2007‐ March 2008 

  Actual  Planned  Actual  Planned  Actual  Planned  Actual  Planned 

Remuneration of Board           9,527,268          5,016,000       10,123,128         5,467,000       10,362,356         5,959,030         6,345,776         4,871,507 

Operating Expenses                 

Electricity Bills         95,532,300      100,000,000     136,158,269     109,000,000     127,273,183     118,810,000     110,159,427       97,127,250 

Insurance         14,183,067        20,000,000       21,762,270       21,800,000       23,025,680       23,762,000       29,227,788       19,425,435 

Operations       331,805,491      220,000,000     681,084,212     239,800,000     575,009,219     261,382,000     308,301,019     213,679,785 

Chemicals       132,247,176      206,000,000     136,228,494     224,540,000       99,233,095     244,748,600       83,575,493     200,081,981 

Consultancy           4,188,303        66,777,000       20,283,979       87,992,000     105,109,961       79,995,000       66,174,608                     ‐   

Depreciation         25,795,819        15,259,000       52,514,556       21,633,000       62,808,244       23,449,000     119,846,814       17,586,750 

Amortization of Grant             501,014          8,643,000         1,447,378       36,468,000         4,856,781       48,210,000    (56,220,403)       36,157,500 

Expenditure    1,469,342,720   1,257,769,000  2,415,709,544  1,488,190,000  2,688,238,696  1,716,009,130  1,942,199,084  1,382,113,756 

Operating income before interest and tax  

     310,569,436      164,040,000     809,070,053       36,210,600     266,819,206       53,899,870     412,024,050     199,036,244 

Non operating Adjustments 

     235,621,009                      ‐       254,953,168                     ‐           3,887,150                     ‐                       ‐     

Income before interest and tax 

       74,948,427      164,040,000     554,116,885       36,210,600     262,932,056       53,899,870     412,024,050     199,036,244 

Cost of Financing                 

Interest Payments         26,980,577            7,625,717         24,456,261         31,713,837   

Total Expenditure         47,967,850      164,040,000     546,491,168       36,210,600     238,475,795       53,899,870     380,310,213     199,036,244 

Income before  tax         47,967,850      164,040,000     546,491,168       36,210,600     238,475,795       53,899,870     380,310,213     199,036,244 

                 

Tax at 30 %                      ‐         49,212,000                     ‐         10,863,180                     ‐         16,169,961         59,710,873 

Net income         47,967,850      114,828,000     546,491,168       25,347,420     238,475,795       37,729,909     380,310,213     139,325,371 

Dividend @ 0%                      ‐                         ‐                       ‐                       ‐                         ‐     

Retained Earnings         47,967,850      114,828,000     546,491,168       25,347,420     238,475,795       37,729,909     380,310,213     139,325,371 

26

NWSC

BALANCE SHEET   Year 1 Year 2 Year 3 Year 4   May 2004‐ June 2005  July 2005‐ June 2006 July 2006‐ June 2007 July 2007‐March 2008FIXED  ASSETS   Actual    Planned  Actual   Planned   Actual   Planned  Actual   Planned Fixed Assets in Operations     274,534,377                 ‐      464,660,395  106,813,000   805474356 151,641,000  932,387,121 123,108,000  Fixed Assets under construction         2,237,630  106,813,000    152,361,585   44,828,000   174,997,193  12,503,000  208,068,386  Accumulated depreciation    (26,322,017) (15,259,000)  (86,366,552) (36,922,000)  (184,074,565) (60,371,000) ‐303,921,378 (62,865,000) Net Fixed Assets      250,449,990    91,554,000     530,655,428  114,719,000       796,396,984  103,773,000       836,534,129    60,243,000  CURRENT ASSETS     Cash         1,859,497        974,000      16,531,629   74,374,000       67,985,829  194,466,000  (6,522,572) 351,018,000  Accounts Receivables‐Trade debtors  9,340,132,323  355,452,000  3,200,553,311  381,100,000   2,571,762,900  442,477,000  2,805,465,540 395,287,500  Accounts Receivables‐IDA  13,579,800.00                ‐    32,203,059.00   105,807,465 112,138,230  Stocks‐Chemicals       58,732,371   51,500,000    186,447,001   56,135,000       41,376,046   61,187,000   39,770,539.72   50,020,500  Stocks‐Others      227,246,354     197,514,399        300,008,257  314,081,238      9,641,550,345  407,926,000   3,633,249,399  511,609,000    3,086,940,497  698,130,000    3,264,932,977  796,326,000  CURRENT LIABILITIES     Accounts Payables‐Trade creditors    1,206,158,021  187,217,000   1,100,521,111  225,360,000    1,126,794,542  267,031,000  990,511,150 214,316,250  Accounts Payables‐(NWSB)     5,542,499.76    15,604,000   35,819,652.68    25,746,000    73,456,218.99    40,667,000  132,668,518.35    38,343,000  Accounts Payables‐(WSRB)        113,112.24      1,560,000       731,013.32      1,716,000      1,499,106.51      2,033,000      2,707,520.78      3,834,000  Accounts Payables‐(NCC)    13,954,206.00    15,604,000   36,550,666.00    25,747,000    74,955,325.50    40,666,000  135,376,039.13    38,343,000  Accounts Payables‐(Capital credit.)                     ‐       Provision     1,528,632,359     523,580,176        358,590,406  363,562,595  Tax payable                     ‐      49,212,000                    ‐      10,863,000                     ‐      16,169,000    59,721,750  Divided payable                     ‐                     ‐                        ‐     LT debt due in less than one year        13,930,153       13,930,153        213,930,153  118,017,192      2,768,330,351  269,197,000   1,711,132,772  289,432,000    1,849,225,752  366,566,000    1,742,843,016  354,558,000  Total Assets    7,123,669,984  230,283,000   2,452,772,055  336,896,000    2,034,111,729  435,337,000    2,358,624,090  502,011,000  Equity and Long term liabilities     Share Capital             100,000                 ‐              100,000             100,000             100,000   Capital Grant          1,007,350  106,813,000       83,807,118  151,641,000       304,163,173  164,144,000  379,048,480.43 123,108,000  Cumulative write on Grant             (25,184)    8,643,000        (8,763,906)   45,081,000        (30,997,703)   93,291,000  ‐96,091,146.95 106,125,750  Revenue Reserve        47,967,850  114,827,000     593,750,142  140,174,000       964,932,028  177,902,000  1,259,853,385 272,777,250  Long Term Debt        62,015,617       81,704,050          98,690,821  121,659,167  Capital Reserve    7,012,604,351   1,702,174,651        697,223,410  694,054,205  Equity and Long term liabilities    7,123,669,984  230,283,000   2,452,772,055  336,896,000    2,034,111,729  435,337,000    2,358,624,091  502,011,000 

27

NWSC – Cash Flow

  2005 2006 2007 2008Surplus (Deficit) for the Period   47,258,974 679,197,259 238,475,795 380,310,213Adjustments for : Depreciation  23,819,802 62,546,750 97,708,013 119,846,814(Deficit) Surplus before working capital changes 71,078,776 741,744,009 336,183,808 500,157,027Trade and other receivables  315,044,893 (660,675,068) (293,123,697) (302,499,620) Trade and other payables  (132,984,572) 140,172,926 121,773,059 (344,863) Inventories  (61,249,341) 108,432,076 (131,062,576) (12,467,475)Net Cash absorbed by Operating Activities  120,810,980 (410,070,066) (302,413,214) 184,845,069Cash flow from Investing Purchase of fixed Assets  (236,478,778) (380,543,202) (363,449,570) (159,983,959)Net Cash from Investing  (236,478,778) (380,543,202) (363,449,570) (159,983,959)Cash flow from Financing Share Capital  100,000 0 0 0Net proceeds from borrowings  45,347,153 (8,519,655) 183,010,917 (101,821,223)Net proceeds from grant  982,166 74,061,046 198,122,258 2,451,712Net Cash from Financing  46,429,319 65,541,391 381,133,175 (99,369,511)Net Increase in cash and cash Equivalents  1,840,297 14,672,132 51,454,199 (74,508,400)Cash and cash equivalents at the beginning  of the Period 19,200 1,859,497 16,531,629 67,985,829Cash and cash equivalents at the end  of the Period 1,859,497 16,531,629 67,985,828 (6,522,571)

28

AWSB Profit & Loss Year 1 Year 2 Year 3 2005/2005 2005/2006 2006/2007

Actual Target Actual Target Actual Target Ksh 000 Ksh 000 Ksh 000

OPERATING REVENUE Lease Fees : NWSC 166,536 131,274 407,793 212,840 500,242 333,465 Other WSPs 14,258 Other Income 400 0 1,410 0 3,436 0Grant Income 21,143 65,853 130,109 230,894 205,971 183,809Net Operating Revenue 188,080 197,127 539,312 443,734 723,907 517,274 OPERATING EXPENDITURE Employee / Personnel 26,115 22,800 50,481 24,852 69,136 27,089Office Expenses and Running Cost 16,114 3,183 34,290 3,469 44,964 3,782Depreciation 255 8,643 3,538 36,438 8,145 48,210Payment to NCC 83,268 62,616 203,753 102,987 251,416 162,666Payment to WSRB 6,242 27,537 6,866 20,740 8,133Grant Reserve Write down 5,838 15,259 100,939 21,663 203,285 23,449Consultancy Expenses(Operation) 8,380 64,824 38,943 229,687 83,591 182,356Total Operating Expenditure 139,970 183,567 459,481 425,962 681,278 455,685 Operating Income Before interest and Taxes 48,110 13,560 79,832 17,772 42,629 61,589

29

AWSB Balance Sheet Year 1 Year 2 Year 3 2005/2005 2005/2006 2006/2007

Actual Target Actual Target Actual Target Ksh 000 Ksh 000 Ksh 000

FIXED ASSETS Net Fixed Assets 8,694 45,242 37,262 218,144 116,468 277,097 CURRENT ASSETS Cash & Bank balances 104,552 12,807 129,413 18,505 92,469 118,591Deferred Income (IDA Grant) Accounts Receivable(Trade Debtors) 15,743 49,232 82,766 110,933 167,960 129,319Stock Total Current Assets 120,295 62,039 212,179 129,438 260,429 247,910 CURRENT LIABILITIES Accounts Payable (trade creditors) 16,967 17,960 68,743 28,330 131,625 43,645Deferred Income 56,795 35,915 28,487 Tax Payable 4,068 5,331 18,477Total Current Liabilities 73,762 22,028 104,657 33,661 160,112 62,122TOTAL ASSETS 55,227 85,253 144,784 313,921 216,785 462,885 EQUITY AND LIABILITIES GOK Grant 0 60,501 255,066 337,469Retained Earnings (Accumulated funds) 48,110 9,492 127,941 21,932 170,061 65,045Cumulative Write-down on Grant (Deferred income) 7,117 15,259 16,843 36,922 46,725 60,371 Total Equity and Long term debt 55,227 85,252 144,784 313,920 216,785 462,885

30

AWSB Cashflow Flow statement Year 1 Year 2 Year 3 2005/2005 2005/2006 2006/2007

Actual Target Actual Target Actual Target Ksh 000 Ksh 000 Ksh 000

Cashflow form Operations 113,500 6,191 56,731 20,473 43,088 124,847 Cashflow from Financing 0 60,501 0 194,565 0 82,403 Cashflows from Investing -8,948 -53,885 -32,107 -209,340 -80,032 -107,163 Net Increase in cash and cash equivalents 104,552 12,807 24,624 5,698 -36,944 100,087 Cash and cash equivalents at beginning of period 0 0 104,552 12,807 129,413 18,505Prior Year Adjustments 237 Cash and cash equivalents at end of period 104,552 12,807 129,413 18,505 92,469 118,592

31

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Responsibility/ Specialty

Lending Devendra Bajgain Operations Officer AFTU1 Francis Ato Brown Sector Leader AFTU1 Hyacinth D. Brown Senior Finance Officer LOAFC Disbursement Pascale Helene Dubois Evaluation and Suspension Officer OES Fook Chuan Eng Sr Financial Analyst SASDU Wambui G. Gichuri Sr Water & Sanitation Spec. ETWWP James N. Karuiru E T Consultant AFTU1 Perla San Juan Sr Program Asst. AFTU1 Dahir Elmi Warsame Sr Procurement Spec. AFTPC Moses Sabuni Wasike Sr Financial Management Specia OPCFM

Supervision/ICR Solomon Alemu Sr Sanitary Engineer AFTU1 Henry Amena Amuguni Financial Management Spec. AFTFM Devendra Bajgain Operations Officer AFTU1 Francis Ato Brown Sector Leader AFTU1 James N. Karuiru E T Consultant AFTU1 Midori Makino Sr Financial Analyst AFTU1 Smita Misra Senior Economist SASDU Dahir Elmi Warsame Sr Procurement Spec. AFTPC Moses Sabuni Wasike Sr Financial Management Spec. OPCFM

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

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

travel and consultant costs)Lending

FY971 15.77 FY98 122.40 FY99 0.00 FY00 54.44 FY01 45.35 FY02 9 200.34 FY03 17 102.52

Total: 79 426.60

1 The project under preparation in FY97 & FY 98 was a multi city project much different from the project eventually prepared. However, the project ID was not changed.

32

Supervision/ICR FY03 149.81 FY04 137.44 FY05 39 189.27 FY06 27 63.04 FY07 51 0.00 FY08 23 0.00

Total: 140 539.56

33

Annex 5. Beneficiary Survey Results

1. Below is the Executive Summary of the Nairobi Water Consumers Perception Survey, April 2007. The complete report is in the files.

EXECUTIVE SUMMARY

2. The Water Consumer Perceptions Survey was commissioned by the Athi Water Services Board (AWSB) in collaboration with Nairobi Water and Sewerage Company (NWSC). The survey was carried out by PPD Consultants Limited in preparation for Nairobi Water and Sewerage Institutional Restructuring Project (NWSIRP) Stakeholder Workshop of May, 2007. 3. The objective of the Survey was to carry out an assessment and provide feedback on the level of consumer satisfaction with the water and sewerage services provided in Nairobi. The survey covered all the five NWSC management zones, comprising of Northern, Southern, Central, Western, and Eastern Regions.

Issues that were explored

4. Many water and sewerage services issues were addressed on consumer information and their perceptions. Among the issues covered were: i. Awareness

5. The specific awareness dimensions to be measured were:

• Customer awareness on the water sector reforms;

• Role of AWSB as well as NWSC in the water sector reform process; and

• Customer’s perception of water sector reforms.

ii. Product Quality

6. The study wanted to establish customer’s perceptions on the quality of water provided by NWSC. The determinants of quality included cleanliness, texture, smell and taste of the water.

iii. Consistency

7. How regular NWSC provides the product to its customers.

iv. Service Quality

8. How NWSC provides the said product to its customers

v. Price/Value

9. The perceived costs of service provided.

vi. Responsiveness

10. How NWSC responds in case of failure/call.

vii. Communication

11. How NWSC communicates with its customers.

34

viii. Competence

12. How NWSC staff responds to customer needs.

ix. Courtesy

13. How staff handles its customer.

x. Accessibility

• How NWSC avails itself to its customers while delivering services; and

• Rating of infrastructural requirements.

The Sampling Frame 14. The sample for the survey was based on the master accounts register of NWSC consumers. The accounts were categorized into domestic, commercial, corporate, public institutions, and informal settlements. 15. A random sample of 563 water accounts was selected. A total of 563 respondents drawn from the five zones were interviewed. The five customer segments were represented as illustrated in the table below.

TOTAL Northern

Region

Southern

Region

Central

Region

Eastern

Region

Western

Region

Domestic 55% 56% 51% 49% 62% 55%

Public

Institutions 10% 11% 11% 12% 8% 11%

Corporate 10% 13% 12% 17% 5% 9%

Commercial 11% 9% 12% 11% 10% 13%

Informal

settlement 13% 11% 13% 10% 16% 11%

Awareness about Reforms in the Water Sector

16. Reforms in the water sector were generally known to the consumers of water and sewerage services in Nairobi. The survey established that the reforms in the water sector had also brought about positive changes. The role of AWSB and NWSC were also perceived as being beneficial by water and sewerage customers. 17. The people of Nairobi expressed satisfaction with the quality of the water supplied to them as well as the service they receive from staff of NWSC. They said that, the water was now: clean and safe for drinking; is consistent; has adequate pressure; billing is regular; and that NWSC had established more payment points hence the reduction in size of queues. A major concern was the water billing system. Although it was appreciated as having been improved, bills were largely perceived as containing estimates and not actual readings. A large proportion of the respondents considered the system to be full of errors and called for

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improvement in the reading of meters, preparation and release of bills. Bills were received monthly by many of the consumers. This is an improvement on the part of NWSC since it’s convenient for customers to pay non cumulative bills. 18. In light of the above, water consumers called for improvement in the manner the service was rendered to ensure increased efficiency in terms of: issuance and reliability. 19. The NWSC was also urged to make deliberate moves to increase public awareness on the safety of Nairobi water and to introduce water reservoirs/browsers from which they can sell water to consumers when there were shortages. This is because customers are likely to trust NWSC more than other water vendors. 20. Water consumers in Nairobi expressed the view that water was not expensive. Sewerage Services 21. About 79% of the consumers who had water accounts were connected to the sewerage system. The others relied on septic tanks, while some were assumed to use pit latrines or other methods of waste disposal. Respondents called for an expanded sewerage coverage in order to eliminate the possibility of creating disease vulnerability among the water and sewerage service users in Nairobi. 22. Of those who were connected to the sewerage system it was noted, however, that about 55% were satisfied with the available sewerage services. Those expressing dissatisfaction mainly cited leakages and blockages of sewerage system. Rating of the NWSC Services and Staff 23. A majority of respondents expressed satisfaction with services offered by NWSC. Respondents cited lack of follow ups to solve customer’s problems. The company was urged to take measures to close the small gap in its negative rating. 24. An equally high positive rate was given to company employees for their good attitude during delivery of services to consumers. Only a small percentage of respondents were unhappy with the staff attitude towards service delivery to customers. It was again considered that the company could close this gap with minimal effort.

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Annex 6. Stakeholder Workshop Report and Results 1. Below are the Executive Summaries of the Stakeholder Workshops held in December 2005 and the table of content of the second Stakeholder Workshop held in May 2007. The complete reports are in the files. Stakeholder Workshop (December 2005) SUMMARY OF PROCEEDINGS 2. The Athi Water Services Board jointly with The Nairobi City Water Services Company organised a two-day stakeholders workshop from 5th to 6th December, 2005. The Workshop which was held under the framework of the Nairobi Water and Sewerage Institutional restructuring Project aimed at building a wide stakeholder support and consensus for the water sector reforms. Other objectives of the workshop were to provide a forum for stakeholder evaluation of the project’s progress and to elicit views on the current management framework for service delivery in Nairobi; to facilitate better stakeholder understanding of the challenges faced in the provision of water and sewerage services; and to encourage and strengthen public-private partnerships and investments in the water sector. It was hoped that through these consultations an efficient and widely accepted long-term management solution in the provision of water and sewerage services to residents of Nairobi, Kiambu, Thika, Makueni, Machakos and Kajiado would develop. The participants to the workshop were drawn from a cross-section of stakeholders which included water service providers, Government and Local Government officials, Media, Donors and Consumers. 3. During the first day of the workshop, the occasion was graced by the presence of His Worship the Mayor of Nairobi Councilor Dick Wathika. Other key speakers included the Permanent Secretary Ministry of Water and Irrigation Eng. Mahboub Maalim who opened the workshop; the Chairman of AWSB, Mr Patrick Kinyori; the Chairman of NWSC, Mr. Kabando wa Kabando; World Bank Country Director, Mr. Bruce Collins and the Chief Executive Officers for both the AWSB and NWSC Eng. Lawrence Mwangi and Mr. F K Mugo respectively. 4. The first day activities focused on creating awareness of the existence of both AWSB and NWSC. The activities included an exhibition by the Company of its key functions in the delivery of water and sewerage services to Nairobi residents. These activities included demonstration of water treatment, bulk metering and leakage detection. The Company also held a billing clinic for its consumers. Alongside the exhibition, focused group discussions were held to address in greater depth the issues that had been investigated in the consumer perceptions survey. 5. The second day of the workshop focused on the achievements made by AWSB and NWSC and the challenges that lay ahead in their efforts to deliver water and sewerage services under the framework of the NWSIRP. Presentations were made by the Chief Executive Officer of AWSB and the Managing Director of NWSC. The day also saw the presentation of the findings of the consumer perceptions survey conducted by ACEG on behalf of the AWSB and NWSC. This was followed by a report of the FGDs and plenary discussion of the presentations made. 6. The Permanent Secretary Ministry of Water and Irrigation set the mood for the workshop by observing that water was crucial for economic growth and consequently poverty reduction in Kenya. He further stated that the government was fully committed to the reforms

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in the water sector and it was for that reason it formulated the Water Policy paper which culminated into Water Act 2002. The government had also increased budgetary allocation for the sector from Shs 1.96 billion in 2002 to Shs 9 billion in 2005/6 and facilitated the necessary structures to carry out these reforms. 7. The Managing Director of NWSC narrated the achievements made by the Company in the short period it has been in existence. These were: improving the human capacity of its personnel, giving consumers clean water, and improving the billing system and payments arrangements. The consumer perceptions survey corroborated to a large extent the presentations from the Company. 8. The challenges faced by Company in delivering water services to residents of Nairobi include: the rapid population growth and its implications for the water and sewerage services, the billing system, inculcating business culture on its employees and changing consumer perceptions on the quality of water. Areas for improvement include: expansion of the water and sewerage services to reach the uncovered areas. 9. Eng. Mwangi on behalf of AWSB stated that the Board had a major role to ensure quality water supply to consumers and resources for investment in the water sector. He observed that opportunities existed for both local and foreign investors in the sector. Since the investments in the sector were lumpy, the way forward was to build partnerships between public and private sector. 10. The World Bank Representative thanked the government of Kenya for supporting the Company in its endeavors. He expressed hope that the workshop becomes an annual event in which stakeholders shall be enabled to play the oversight role for the project. He noted that the Bank is extremely impressed by what has been achieved so far by the water company and the government in actualizing the Water Act 2002. He congratulated Kenya for its exceptional performance in implementing reforms. 11. The Representative also observed that huge investment (Shs 70 billion) is required to realize the company’s objectives hence the need for partners to coordinate their efforts in investment in this regard. He noted that there are many challenges involved in the project and that the Bank was going to examine the feedback reports received and later meet the Company to establish how it intends to proceed in addressing these challenges. He concluded with optimism that in future, the financiers will be approaching the Company for partnership and not the water company going to them seeking financial support. 12. In closing the workshop, Dr. Nehemiah Nge’no, Permanent Secretary Ministry of Trade and Industry observed that the forum was important particularly its focus on improvement in the customer service and efficiency. He noted that the Economic Recovery Strategy for Wealth and Employment Creation (ERS) proposed the adoption of a program approach to the water sector management, with strong emphasis on ensuring viability and accessibility of adequate water supply. This, he stated, requires comprehensive institutional reforms in the water sector to facilitate water and sanitation programs. He also remarked that the national water policy will succeed if the Water Services Boards demonstrate strong and vibrant managerial leadership necessary for improved service delivery. The Boards must also improve stakeholder engagement and participation in the sector. The water service providers must be business like and market driven. He explained that this did not mean that the Company should charge its customers market rates but that it should operate on business principles of controlling of costs, maximizing revenue and be customer and environmentally friendly.

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13. In concluding his remarks Dr. Nge’no requested the Company to conduct its business with utmost probity and efficiency since the Government was committed towards fighting corruption and ensuring transparency in the delivery of public services. For this reason he urged the Company to practice the highest level of ethics and accountability. The Company should at all levels of its operations adopt the current best practices and principles of sound corporate governance and accountability.

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

Borrower’s ICR

NAIROBI WATER AND SEWERAGE INSTITUTIONAL RESTUCTURING PROJECT

(NWSIRP)

Project Completion Report

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Borrower’s contribution to Implementation Completion Report (ICR)

NAIROBI WATER AND SEWERAGE INFRASTRUCTURE RESTRUCTURING PROJECT

GRANT No. H100-KE

IMPLEMENTATION COMPLETION REPORT (ICR)

GOK/BORROWER/IMPLEMENTING AGENCY CONTRIBUTION SECTION 1: PROJECT DATA 1.1 Country KENYA 1.2 Project number: P049618 1.3 Project title: Nairobi Water and Sewerage Institutional

Restructuring Project. 1.4 Date of approval of the project: September 2004 1.5 Type of Activity Institutional Strengthening 1.6 Implementing agency: Athi Water Services Board (AWSB)

Nairobi Water and Sewerage Company (NWSC).

1.7 Local executing agency/ Financial intermediary:

Ministry of Finance

1.8 National coordinating agency: Ministry of Water 1.9 Scheduled date of completion: 30th June 2007 1.10 Actual date of completion: 31st December 2007 1.11 Date of project completion report: 1.12 Completion report done by: Athi Water Services Board (AWSB) and

Nairobi water and Sewerage Company (NWSC)

Project Background

1. The NWSIRP is a three year project funded by the International Development Agency (IDA) with counterpart funds provided by the Government of Kenya. The project seeks to build a strong governance, institutional and service delivery framework by providing support for the implementation of the Water Act so as to enable efficient and sustainable delivery of water and sewerage services to the population of Nairobi. The project seeks to support the Operationalization and strengthening of new autonomous, service delivery and regulatory utilities. This is to be achieved through implementation of activities in the three project components. Activities implemented over the life of the project will assist in institutional strengthening, service improvement and project communications, monitoring and evaluation. 2. The project’s three components are implemented by the Athi Water Services Board (AWSB) and Nairobi City Water and Sewerage Company (NWSC). AWSB came into being through enactment of the Water Act and is responsible for provision of Water services in Nairobi City and the five surrounding districts of Kajiado, Kiambu Machakos, Makueni, and Thika. Nairobi Water and Sewerage Company is the water service provider responsible for the provision of water and sewerage services for Nairobi city. It 100% owned by the Nairobi City Council. It

41

provides services previously provided by the Nairobi City Council’s Water and Sewerage Department.

3. NWSIRP is focused mainly on institutional restructuring - setting up new institutions for Nairobi, operationalizing and strengthening them to ensure they function properly. Successful implementation o f this project will create sustainable service delivery institutions which could lead to further World Bank support to the overall GOK program of sector reform and investment consistent with the Water Act. Activities of NWSIRP are coordinated by the Ministry of Water and Irrigation (MWI). Project development objective and key indicators 4. The development objective of the project is to build strong governance, institutional and service delivery framework that will enable the efficient and sustainable delivery of water and sewerage services to the population o f Nairobi. 5. The project will support the creation and strengthening of new autonomous and ring-fenced service provision utilities - with clear roles, responsibilities and contractual arrangements. 6. The Notable outcome will be an institutional framework that is capable of delivering safe, clean and affordable services to all strata of the Nairobi’s population in accordance with commercial and sustainable principles. 7. The Progress of achieving the development objective will be monitored principally through the improvement in operating sustainability o f the service delivery of AWSB and Nairobi Water throughout the project implementation period. 8. Project preparation started in 2004. The credit became effective in June 2004 and implementation began in September of the same year. The implementation period was anticipated to run for a period of 3 years up to 30th June 2007. There was an initial delay in commencing the project as staff were being recruited. Through the ministry of Finance Athi Water Services Board requested for a six month extension so as to facilitate disbursement and also prepare for the follow on program. The World Bank approved the extension of the life of the grant to 31st December 2007. Summary of Project Components 9. In order to implement the project to achieve the objective above, the Project was divided into three major components, with a total project cost of US$16.8 million equivalent, of which IDA financing totaled US$15.0 million (at the time of signing) in grant. The remaining US$1.8 million from direct Government contribution and internal revenue of the water and sewerage Services operations. Component 1: Institutional Strengthening of New Service Delivery Framework (About $6.1 million including contingencies). 10. This component supported the Operationalization and strengthening of:

(i) A new autonomous asset holding entity - Athi Water Services Board (AWSB); and (ii) A new autonomous and ring-fenced water and sewerage service Provision Company

for Nairobi – Nairobi City Water and Sewerage Company (NWSC).

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11. The new institutions were appropriately strengthened to ensure professional management and commercial operations. Component 2: Immediate Services Delivery Improvement Program (about US$7.0 Million including contingencies). 12. This component supported selected activities aimed at strengthening the commercial, financial and technical operations of NWSC. The focus was on strengthening the commercial operation of NWSC’s business centers. Some tangible service improvements to consumers were realized and specific service improvement targets set for the new institutions for the duration of the Project. Component 3: Project M&E, Consultations and Communications, and Preparation of Follow-on Program (about US$3.7 million including contingencies). 13. This component supported monitoring of project activities, implementation of a complementary communication program in support of the new institutional transformation in services provision. In particular, the progress and interim results emanating from the Project are communicated to the public and discussed, debated and feedback obtained. This component supported the preparation of follow-on investment programs.

A. Objectives

14. The project’s primary objective which is to build strong governance, institutional and service delivery framework that will enable the efficient and sustainable delivery of water and sewerage services to the population of Nairobi City, is clear, realistic and highly relevant. The Project’s consistency with GOK policy and plans is satisfactory and ownership and commitment have been obtained by directly supporting the GOK’s implementation of sector structural reforms outlined in the GOK’s Poverty Reduction Strategy Paper, the Economic Recovery Strategy for Wealth and Employment Creation (ERSWEC), and the Water Act (2002).

B. Achievement of the Objectives

Performance of AWSB 15. The overall assessment of AWSB’s performance in implementing the NWSIRP since inception is satisfactory. Project implementation was initially delayed by the time taken from IDA’s Board Approval to achieve Project Effectiveness (June to September 2005) and the time taken to build project implementation capacity at AWSB and NWSC. 16. Athi Water Services Board is fully established and has contracted 25 water service providers in its area of jurisdiction. In the Financial 2005/ 2006 AWSB was rated 9th Countrywide and 2nd in the services sectors by the inspectorate of state corporations. In 2007 AWSB was accorded ISO 9001: 2000 certification which signified its compliance with worldwide standards of quality management systems. 17. The organization worked with increasing efficiency towards achievement of the project’s development goal and managed to maintain the Ratio of Operating expenditure divided by operating Revenue to below 0.9 as per the development grant agreement.

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Performance of NWSC 18. The overall assessment of NWSC’s performance in implementing the NWSIRP since inception is considered satisfactory. Despite its teething organizational hurdles and legacy of past poor performance, NWSC is beginning to establish itself in the minds of residents of Nairobi as a reliable Water services provider. This is evidenced by a positive feedback report from a recent independent consumer survey where 80% of respondents stated that there have been positive improvements in service delivery over the past year.

AWSB achievement of outputs by component Component Subcomponent Output Rating

Office Rehabilitation, Satisfactory Vehicles, Motor cycles Satisfactory Office Equipment, Satisfactory Office Management Expenses Satisfactory Capacity Building Consultancy

Satisfactory

Support to Operationalization and Strengthening of the Nairobi Water Services

Training (including workshops, courses and study tours)

Satisfactory

Consumer and social Protection

Satisfactory

Institutional Strengthening of New Service Delivery framework

Support to Activities of the Water Services Regulatory Board - WSRB (about

Regulatory Design & Review Advisory Services

Satisfactory

Accounting & Financial Mgt Software

Satisfactory Immediate Service Delivery Improvement Program

Improvements in Financial Operations

Asset Valuation Satisfactory Project Monitoring and Evaluation

Statutory Financial Audit Satisfactory

Technical & Financial Audit Services

Satisfactory

Mid Term review Satisfactory Stakeholder consultation and communication campaign

Satisfactory Stakeholder Consultation and Communication Campaign

Stakeholder consultation review

Satisfactory

Service demand Forecast Satisfactory Study to Review Private Sector Investment Options in Small Scale Infrastructure

Satisfactory

Institutional and Legal Framework Review for AWSB, including the drafting of SPAs

Satisfactory

Training consultant for CWSB

Satisfactory

Preparation of MIS Strategy Satisfactory Preparation of the follow-on WSS Program

Satisfactory

Integration of Asset management, Financial & GIS system

Satisfactory

Operationalization of the Procurement Act

Satisfactory

Project M&E, Consultations and Communications and preparation of Follow-on program

Technical Preparation for Follow on program Nairobi C.I.P

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Environmental & Social Economic Management Framework & Resettlement Policy Framework Consultancy

Satisfactory

Institutional Strengthening - NWSC Billing Support

Satisfactory

Transformative Leadership and Change Management

Satisfactory

Communications Consultant for follow-on-program

Satisfactory

Feasibility Study, Environmental and Social Assessment and Preparation of Tender Documents

Satisfactory

Institutional Risk management framework

Satisfactory

Financial management extension

Satisfactory

Infrastructure & Procurement support

Satisfactory

C. Major factors affecting the project implementation

i. Government control related factors

• Tax Exemption letters: The project being World Bank funded was tax exempt. Initially the processing of the tax exemption letters was taking too long, leading to an overall delay in the whole process.

• Flow of funds: The project was based on reimbursement basis. Being a statement of expenditure (SOE), the process of the funds flow would almost delay for 5 months before the funds are released to the implementing agencies operational account. This led to cash flow problem where invoices had to be held for a longer period until the funds were available.

• Processing of documents by Ministry of water and irrigation and Ministry of finance: Initially processing of documents would take a long time in the Ministry of Water and Ministry of finance but this improved at the completion of the project; however capacity needs to be built in the external resources department.

ii. Implementing agency related factors-NCWSC and AWSB

D. Project sustainability

19. The government has instituted various measures to ensure that the project is sustained. These measures are as follows: -

Implementation of Nairobi Water and Sewerage Emergency infrastructure Program

(NWSEPIP). Formation of Water and Sewerage utilities in AWSBs area of jurisdiction. Preparation of the water and sanitation improvement project (WaSSIP) funded by

IDA which will involve rehabilitation and expansion of existing water and waste

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water facilities in AWSB,CWSB and LVNWSB and also institutional strengthening of Water service providers, Water appeals board and Water regulatory board.

E. World Bank’s performance

World Bank’s performance in project implementation 20. The Bank’s performance was commendable. The Bank project team facilitated the timely implementation of the project from inception to completion. Required clearances under the Development grant Agreement were given without undue delays. The team also offered advice on quality control of documents, disbursement and other important aspects. The Banks consistent project review missions and quick response to implementing agencies queries contributed to successful implementation of the project.

F. Borrower’s performance

i. Government of Kenya (GOK)

The Government’s overall performance was satisfactory. The necessary counterpart funds, office space and staff were adequately provided. The performance of the Recipient is satisfactory. In particular, the Ministry of Water and Irrigation, Ministry of Finance and the City Council of Nairobi have been instrumental in ensuring the consistency of project design with the Government policies and the laws. The Government has consistently assisted in the project implementation in particular in helping to ensure the Operationalization of the new governance framework in AWSB and NWSC. The government was fully committed to the full implementation the Water Act (2002).There have, however, been delays in disbursement which in part stemmed from the delays

• in the issuance of tax exemption letters, and • In the processing of withdrawal applications.

ii. AWSB

The overall assessment of AWSB’s performance in implementing the NWSIRP since inception is satisfactory. Project implementation was initially delayed by the time taken from IDA Board Approval to achieve Project Effectiveness (June to September 2005) and the time taken to build project implementation capacity at AWSB and NWSC.. The organization is working with increasing efficiency towards achievement of the project’s development goal. AWSB is fully operational and has formed 26 water service companies in its area of jurisdiction. Strong corporate governance principles have adopted in running the affairs of the AWSB and to enhance quality in delivery of services, the board was awarded the ISO 9001:2000 certification a highly coveted and valued recognition that confirms that the board has successfully implemented and complied with the quality management system in accordance with the International Organization for Standardization (ISO).

iii. NWSC

The overall assessment of NWSC’s performance in implementing the NWSIRP since inception is considered satisfactory. Despite its teething organizational hurdles and legacy of past poor performance, NWSC is beginning to establish itself in the minds of residents of Nairobi as a reliable service provider. NWSC has successfully executed most Project activities despite delays in the issuance of tax exemption letters from the Ministry of Finance. The volume of water billed increased 75 million m3 to 99 million m3 during

46

the project period while the non revenue water decreased from 50% to 41% and is expected to decrease further with the implementation of the follow on capital investment program.

G. Assessment of outcome

H. Future operations

21. The government is working on the implementation of the follow on capital investment project whose aim is to build on the success of the Nairobi water and sewerage infrastructure restructuring project (NWSIRP).

I. Lessons learned

Flow of Funds: The project was utilizing the reimbursement system and the flow of funds took a long period to get to the implementing agencies bank account. This led to the implementing agencies experiencing cash flow problems.

Outcome Indicators

Baseline Year 1:July 2004-June 2005 Year 2:July 2005-June 2006 Year 3:July 2006-June 2007

Planned Actual Variance Planned Actual Variance Planned Actual Variance

Volume of water Sold

75 Million

m3

75 Million

m3

72 Million

m3

-3 Million

m3

83 Million

m3

79 Million

m3

-4 Million

m3

91 Million

m3

99 Million

m3

8 Million m3

Results Indicators for each component

Component One: Ratio of Operating expenditure divided by operating Revenue

AWSB N/A < 0.9 0.74 0.16 < 0.9 0.85 0.05 < 0.9 0.8 0.1 NWSC N/A < 0.9 0.98 -0.08 < 0.9 0.83 0.07 < 0.9 0.92 -0.02 Component two:

Billing Efficiency % 100% 100% 100% 0% 100% 100% 0% 100% 100% 0%

Average lateness in billing

6 Months 4Months 0

Months Nil 2Months 0 Months Nil 0

Months 0

Months Nil

Collection efficiency increase in %

65% 65% 65% 52% 70% 74%

UFW % 50% 50% 46% 45% 37% 39% 41%

Component three:

Annual workshop report on stakeholder consensus on way forward

None 1 Report 1Report 1 Report

1 Report 1 Report

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Adoption of report based system will lead to faster implementation of the project and satisfaction of suppliers. Greater coordination between the implementing agencies, World Bank staff, parent ministry and ministry of Finance is critical for successful implementation of the projects. Special Accounts:

Reconciliation of the special account was made difficult by the lack of bank statements for the special account. Location of the special account inshore will enable faster reconciliation and reporting for the projects. Usage of country systems:

The project utilized the organizations systems and procedures. This eliminated the need for project management units (PMU). This has led to building of capacity in the institutions on the area of managing projects and enhancing accountability since it’s possible to assign responsibility and project management becomes part normal operations of the business. This ensures sustainability of the projects. Document preparation:

Where Terms of reference, Request for Proposals (RFPs) as and other tender documents were prepared in time and accurately the project was always on time. The assistance provided by the World Bank staff especially continuous training in the areas of procurement, document preparation and disbursement contributed to the smooth flow of the project. Documents flow:

Initially flow of documents from the implementing agency (AWSB and NWSC) to the Ministry of Water and Irrigation and finally to the Ministry of Finance was taking too long leading to delays in disbursement. Coordination efforts between Ministry of Water, Ministry of finance, AWSB, NWSC and the World Bank led to solving the problems that caused delay in the flow of documents. Communication and reporting:

The project had proper communication mechanisms which were done through World Bank mission reviews, stakeholder perception surveys, project review meetings and stakeholder workshops. Two way communication and feedback mechanism is important in project management. Independent customer satisfaction surveys and review missions helped to keep the project on track.

J. Disbursement Status:

22. The project disbursement came to an end on 30th April 2008 and achieved a disbursement rate of 99.30%.

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Annex 8. List of Supporting Documents - Draft Borrower’s Implementation Completion Report - Workshop Report on Second Stakeholder Workshop on Nairobi Water and Sewerage

Institutional Restructuring Project, May 3 -4, 2007 - Workshop Report on Second Stakeholder Workshop on Nairobi Water and Sewerage

Institutional Restructuring Project, December 2005 - Nairobi Water and Sewerage Company Limited - A Survey April - May 2005,

Transparency International Kenya, February 2006