AFRICAN DEVELOPMENT BANK

Transcription

1 AFRICAN DEVELOPMENT BANK URGENT WATER SUPPLY AND SANITATION REHABILITATION PROJECT COUNTRY: ZIMBABWE SUPPLEMENTARY GRANT Appraisal Team Regional Director Sector Director Division Manager Officer-In-Charge Team Leader: E. Faal, SARC S. B. Jallow, OWAS/FAE O. Chanda, OWAS.2 D. Kitabire, ZWFO E. A. Demissie, OWAS.2/ZWFO OWAS DEPARTMENT June 2013

2 Table of contents EXECUTIVE SUMMARY... iv I. INTRODUCTION... 1 II. ORIGINAL PROJECT Project Background and Origin Project Objective Project Components Project Costs and Financing Arrangements Project Implementation Status... 3 III. REVISED PROJECT FINANCING Objectives and Description Revised Project Cost estimates Revised Implementation Schedule Project Implementation... 8 IV. JUSTIFICATION FOR SUPPLEMENTARY FINANCING... 8 V. LEGAL INSTRUMENTS AND AUTHORITY Legal Instrument Conditions Associated with Bank s Interventions Compliance with Bank Policies VI. CONCLUSION AND RECOMMENDATION Conclusion Recommendation Annex I: Project Cost Estimates- Budget, Engineer Estimate and Actual Bids Annex II : Project Implementation Schedule

3 i Grant Information Client s information BORROWER: Government of the Republic of Zimbabwe Financing Plan Source Amount (US$) Instrument million Zim-Fund Grant TOTAL COST Grant ADB s key financing information Supplementary Grant US$ million Interest type* N/A Interest rate spread* N/A Commitment fee* N/A Other fees* N/A Tenor N/A Grace period N/A EIRR (base case) 14.17% Timeframe - Main Milestones (expected) Approval of Supplementary Financing by Zim-Fund POC 05/04/2013 Approval of Supplementary Financing by AfDB Board 10/07/2013 Effectiveness 10/07/2013 Last Disbursement 31/12/2014

4 ii Currency Equivalents March UA = US Dollar (USD) FISCAL YEAR 1 January 31 December Acronyms and Abbreviations AfDB ADF AWF EIRR GoZ M&E MDTF MMU NRW NGO NPV PA IE POC UWSSRP VFM WASH S&H WSS Zim-Fund African Development Bank African Development Fund African Water Facility Economic Internal Rate of Return Government of Zimbabwe Monitoring and Evaluation Multi Donor Trust Fund Multi Donor Trust Fund Management Unit Non Revenue Water Non-Governmental Organization Net Present Value Procurement Agency Implementation Entity Programme Oversight Committee Urgent Water Supply and Sanitation Rehabilitation Project Value for Money Water and Sanitation and Hygiene Sanitation and Hygiene Water Supply and Sanitation Zimbabwe Multi-Donor Trust Fund

5 OUTPUT OUTCOME IMPACT iii RESULT MATRIX Country and Project name: Zimbabwe Urgent Water Supply and Sanitation Rehabilitation Project The purpose of the Project is to contribute to improved health and social wellbeing of the population through improved provision of water and sanitation servic RESULTS CHAIN PERFORMANCE INDICATORS MEANS OF VERIFICATION RISKS/MITIGATION MEASURES Increased access to improved water supply and sanitation services resulting in improved public health stabilised and restored water and sanitation services improved service delivery Indicator Baseline Target Cholera fatality rate 4.1% (2011) <1% (2020) Diarrhea morbidity in children under 5 7.2/1000(2010) <5 (2020) 90% by 2020, 100% by access to clean water and sanitation in Zimbabwe 40% San. (2010) % by 2020, 100% by 80% Water (2010) 2030 reliable and stable water produced 746,000m3 (2010) 820,000m3 (2014) Quality of water - % of samples meeting standards 70% (2010) 76,325m3/d 90% (2014) waste water treated (2010) 298,000m3/d (2014) no. of people to benefit from improved service N/A 2.4 million (52% women) Reduction in NRW 55% (2011) 52% (2015) Revenue collection Efficiency 40% (2010) 60% (2014) Component 1: Water Supply and Sanitation Infrastructure No. of water treatment works N/A 6 (2014) clean water pump units replaced (to distribution Rehabilitation of water supply system) N/A 13 (2014) infrastructure raw water puming units replaced N/A 6 (2014) No. of reservoirs built N/A 1 (2014) Poor sector financing is a risk overlong term but the improved political and regulatory environment and increased government focus and continued National statistics, DHS development partners support will mitigate this risk. (Demographic and Health Surveys) utility reports, progress reports, works commission reports utility reports, progress reports, works commission reports The risk of failure to operate and maintaine rehabilitated facilities will be mitigated through the capacity building and training of staff and provision of essential O&M supplies

6 KEY ACTIVITIES OUTPUT iv RESULTS CHAIN PERFORMANCE INDICATORS Indicator Baseline Target No. of waste water treatment works N/A 9 (2014) rehabilitation of sanitation infrastructures No. waste water effluent Pumping units 0 functioning 9 (2014) No. of raw sewage pumping units 0 functioning 19 (2014) km of rehabilitated sewer line N/A 13km (2014) sewer cleaning capacity sewer cleaning equipment no capacity 6 (2013) Component 2 Sanitation and Hygiene Promotion S&H needs assessment and baseline report gender MEANS OF VERIFICATIO RISKS/MITIGATION MEASURES S&H needs assessment and program development (gender sensitive) Taining and promotion activities responsive N/A yes by 2013 S&H education program developed N/A yes by 2013 community groups and school WASH groups trained (60% women) N/A 120 No. School WASH groups trained (60% girls) 60 No. of people trained N/A 6000 (60% trainees women) Risk of power insecurity: this will be mitigated through the ongoing EPIRP and next phase project which will improve reliabiity at the facitlities Component 3: Institutional capacity building No. of people reached through the program N/A 2.4 million (52% women) Qualitative rapid assessment of past trainings N/A yes by 2013 Capacity building for operation maintenance training package/module prepared N/A yes by (20% women) by O&M staff trained N/A 2014 capacity building goods supplied N/A yes by 2013 Revenue and Cost Recovery Revenue and cost recovery strategy N/A 6 by 2014 Medium and long term investment plans prepared Investment plans N/A 6 by 2014 Component 4: Engineering Services and Project Management Independent Procurement agent engaged N/A yes by Nov 2011 Effective project management system established Implementing Entity engaged N/A yes by Nov 2011 Project Steering Committee established N/A yes by Apr 2012 project audited N/A yes 2013, 2014 COMPONENTS INPUTS Component 1 : Rehabilitation of water supply and sanitation infrastructure Component 2: Hygiene Promotion Component 3: Institutional capacity building Component 4: Engineering Services and Project Management Original Risk of implementation delays. To be mitigated through close follow-up and monitoring of progress by the Bank through the MMU and closer collaboration with GoZ institutions and Municipalities, adn the project steering committee; Million USD Revised at Implementation Component 1: Component 2: Component 3: Component 4: Total:

7 v EXECUTIVE SUMMARY A grant amounting to USD million from the resources of the Zimbabwe Multi-Donor Trust Fund to finance the Urgent Water Supply and Sanitation Rehabilitation Project (UWSSRP) targeting six municipalities (Harare, Chitungwiza, Chegutu, Masvingo, Kwekwe, and Mutare) was approved in April 2011 with the Protocol of Agreement being signed in June The envisaged outcomes of the intervention include: increased reliability, quality and availability of water supply in the Project areas; restored wastewater treatment capacity; and reduced incidence of cholera and other water related diseases. The Project was launched in December 2011 following the recruitment of the Implementing Entity and Procurement Agent in November Since then, significant progress has been achieved. The technical assessments, definition of scope of works and services and preparation of procurement documents were completed followed by launch of procurement process. The tenders evaluation for all major packages have almost been completed. The rehabilitation works and the sewer cleaning equipment contracts for Mutare have been awarded while those for Harare, Chitungwiza, Chegutu, Kwekwe and Masvingo are being finalised. The audit services, investment plan, and hygiene and sanitation services contracts are in the final stages of conclusion. The physical works commenced in March 2013 with the handing over of the Mutare site to the contractor who has started mobilizing its key staff to site. Despite the good progress made in the procurement process, the high bid prices obtained for the tenders pose challenges for the implementation of the Project. Priced bids received were significantly higher than the budgeted figures estimated in the Project Appraisal Report and the Engineer s recent estimate. The reasons for the high bid prices were (i) the complexity of the rehabilitation works and associated risks; (ii) the gap of information in terms of manuals, procedures, and as built drawings for existing systems (iii) lack of recent, similar projects with a similar scale in Zimbabwe to use as references; and (iv) perceived risks by the market in relation to the unusual complex implementation arrangement. Considering the concluded tenders and making estimates on further requirements during implementation, the expected total value of the Project is now estimated at US$ million in order to execute the project as originally envisaged. The additional resources required are therefore US$ million. It is highly recommended that if the Project goals and objectives are to be met, the Project must be completed as per the original plan. Reducing the scope of works will result in the Project failing to achieve its objectives. The supplementary resources being requested will make it possible for the Project to be completed as planned. Taking this into account, the Program Oversight Committee (POC) of the Zim-Fund approved the supplementary Grant on 5 April 2013.

8 1 REPORT AND RECOMMENDATION OF MANAGEMENT FOR A PROPOSED SUPPLEMENTARY GRANT TO ZIMBWBWE FOR THE URGENT WATER SUPPLY AND SANITATION REHABILITATION PROJECT (UWSSRP) Management hereby submits this report and recommendations concerning a proposal to grant a US$ million supplementary grant to the Republic of Zimbabwe from the resources of the Zimbabwe Multi-Donor Trust Fund (Zim-Fund) to finance the shortfall in financing for the full implementation of the UWSSRP. I. INTRODUCTION 1.1 It is to be recalled that on 7 April 2011, the Board approved, on a lapse-of-time basis, financing of the UWSSRP targeting six municipalities (Harare, Chitungwiza, Chegutu, Masvingo, Kwekwe, and Mutare) for the stabilisation and improvement of water and sanitation services. The envisaged outcomes of the intervention include: increased reliability, quality and availability of water supply in the Project areas; restored wastewater treatment capacity; and reduced incidence of cholera and other water related diseases. 1.2 The original estimated cost of the Project was US$ million. The Project Protocol of Agreement is dated 10 June 2011, and the Project was launched on 15 December 2011 after the recruitment of the Implementing Entity and Procurement Agent was finalized in November 2011, followed by technical assessments, preparation of tender documents, and commencement of the tendering process. By 31 December 2012, the tendering of the major components of the Project had been completed. The tendering resulted in high bid prices beyond the budgetary provisions of the Project. Due to the importance of implementing the full scope of the Project for achieving the Project objectives, this report is requesting supplementary financing in the amount of US$ million to enable the full implementation of the Project as originally envisaged. II. ORIGINAL PROJECT 2.1 Project Background and Origin The political and economic situation in Zimbabwe for the last decade has severely affected all sectors of the economy including infrastructure. With limited resources for maintenance, most of the infrastructure including water supply and sanitation infrastructure has fallen into disrepair with inevitable deterioration that seriously compromising service delivery. The dilapidated state of the infrastructure was a major contributing factor to the severe cholera outbreak during 2008/09 rainy season. Until the delivery of water supply and sanitation services is improved, the threat of outbreaks of water-related diseases, including cholera, will remain. A rapid assessment to establish the status of the main water supply and sewerage infrastructure in most of the bigger towns throughout the country was carried out in 2009 and 2010 with support

9 2 from development partners, identifying emergency, short-term and medium term rehabilitation works As a result, the six urban areas of Harare, Chitungwiza, Mutare, Masvingo, Kwekwe and Chegutu were chosen for this Project. The Project is part of the ongoing efforts to improve the Water Supply and Sanitation infrastructure. The Project entails urgent repairs and rehabilitation of critical installations including pumping stations, electro-mechanical works, and water treatment plants. For sanitation, the urgent repairs include critical trunk and outfall sewers, booster pump stations and treatment works, as well as treated effluent disposal facilities. The Project will also support community sensitization and promotion of improved sanitation and hygiene. In addition, the Project will provide capacity building support to the municipalities and assistance in developing medium- and long-term development plans for water and sanitation services. 2.2 Project Objective The main Project objective has not changed and is to provide urgent support for restoration and stabilization of water supply and sanitation services in the municipalities of Harare, Chitungwiza, Mutare, Chegutu, Masvingo and Kwekwe, and to improve their sustainability. 2.3 Project Components As appraised in 2010/11, the UWSSRP was the first intervention proposed for financing under the Zim-Fund. The Project was prepared through wide consultations with donors in Zimbabwe and various arms of the national government and local authorities. The Project components have not changed and are as follows: A. Rehabilitation of Water Supply and Sewerage Infrastructure B. Promotion of Improved Sanitation and Hygiene Education C. Institutional Support D. Project Management and Engineering Services. 2.4 Project Costs and Financing Arrangements The total Project estimated budget at appraisal was US$ million (approximately UA million). The tables below provide details on the original amounts allocated by component and category of expenditure.

10 3 Table 1: Project Cost Estimates by Component Components US$ (million) A Rehabilitation of Water Supply and Sewerage Systems in the Six Urban Areas B Promotion of Improved Sanitation and Hygiene Education C Institutional Support D Project Management and Eng. Services Total Project Implementation Status Table 2: Project Cost by Category of Expenditure Category of Expenditure USD (million) A Works B Services C Miscellaneous TOTAL PROJECT COSTS The Project became effective for disbursement only in May 2012 due to the time taken for the Government of Zimbabwe (GoZ) to fulfill the conditions precedent to first disbursement. This delay slowed down the initial technical assessment phase for the preparation of detailed scope, specification and design of Project interventions. The overall slippage from the implementation schedule set out in the Appraisal Report is currently estimated at 12 months. Despite the delays, the Project has made steady progress and achieved the following milestones: Completion of the technical assessments and definition of scope of works and services for all six municipalities; Preparation of procurement documents; Launch of procurement process including prequalification process; Completion of tenders evaluation for all major packages; Negotiation with recommended bidders either completed or near completion; Award of Contracts (supply of sewer cleaning equipment-uwssrp/009 and works contract for Mutare UWSSRP/004); and Commencement of physical works for the Mutare package The detailed status of implementation of the Project by component is as follows: 2.6 Rehabilitation of Water Supply and Sewerage Systems Infrastructure The tendering process for all works packages have reached advanced stages. The Mutare works package (UWSSRP/004) was awarded in February The Contractor, Technofab-

11 4 Gammon Joint Venture, has mobilised and physical works commenced shortly thereafter in March These works are scheduled for completion by the year-end The contract for the supply of sewer cleaning equipment (UWSSRP/009) was also awarded in February 2013, and delivery of all equipment will be completed within six months from the date of the confirmed order, which is expected to be 30th October The other bids received for the remaining two works packages (1) Harare and Chitungwiza, and (2) Chegutu, Kwekwe and Masvingo were judged to be high compared to the engineer s estimates and budget. Following a request from the Zim-Fund contributing donors, a value for money (VFM) analysis was conducted. The assessment concluded that there was no VFM for the two works packages due to some items being priced higher than market value. Following the VFM outcome discussions, the POC authorised the MMU to proceed to negotiate with the recommended bidder with a view to remove the high priced pond desludging activities from the scope and retender those activities following revision of specification and requirements. The preparation of the bidding documents was completed and tendering is in progress. The two main works packages, as re-scoped to remove the pond desludging activities, have been successfully negotiated for revised scope in line with the Bank s Rules and Procedures for Procurement of Goods and Works. 2.7 Promotion of Improved Sanitation and Hygiene Education The terms of reference for this component were prepared based on the recently prepared Urban Hygiene and Sanitation Promotion Guidelines and other guidelines for participatory health and hygiene education and consultation with the participating municipalities. The activities under this component include comprehensive review of similar activities carried out in the recent past in urban areas, and conducting pilot baseline survey to establish the demographic and social economic situation of communities in typical high density areas. On the basis of the findings of the baseline study, the appropriate promotion and education program will be designed and implemented. The recruitment of a suitable NGO to carry out this assignment was concluded in April 2013 with activities commencing on 20 th May Institutional Support Following an initial scoping assessment of each municipality, a capacity building program was designed. The institutional capacity building will include training module development and training in water and waste water treatment process, operation and maintenance of sewer cleaning, occupational health and safety procedures, and water quality monitoring. This component will also engage each municipality to develop cost recovery strategy with improving service levels to residents. The recruitment process of a suitable service provider is in progress with the contract anticipated to be finalized in June 2013.

12 This component also envisages providing planning support for each municipality in medium (2020) and long-term (2030) water and sanitation investment plan preparation. The outcome of the exercise will enable the municipalities to prepare bankable investment plans on the basis of their priorities and in view of their medium and long-term requirements. The contract for the service provider was concluded in April 2013 with activities commencing on 20 th May The provision of capacity building goods/equipment will be synchronized with the work of the institutional development consultancy and investment plan preparation services. 2.9 Project Management and Engineering Services The GoZ procured the services of Lahmeyer GKW Consult GmbH (formerly Poyry Environment GmbH) as an Implementing Entity (IE) for the Project with assistance by the MMU through advanced contracting procedures with the procurement process commencing prior to the approval of the Project by the Board of the AfDB. In line with the Zim-Fund Operations Manual, the IE provides project management, coordination, technical assessment, preparation of technical documents for tenders and supervision services. The IE and GoZ entered into the Implementing Entity Agreement in November 2011, with the IE mobilization commencing in December In accordance with the the Zim-Fund Operations Manual, the GoZ similarly recruited Crown Agents (UK) as a Procurement Agent (PA) for projects financed under the Zim-Fund, initially with resources from the Fragile State Facility. The PA is responsible for providing procurement services and is acting as the procuring and contracting entity on behalf of GoZ. The GoZ and the PA concluded the Procurement Agent Agreement in November 2011, again using advanced contracting with the assistance of the MMU, and the PA commenced its services in December Following the recruitment of the PA and IE, the Project was officially launched in December Both the PA and the IE have performed well to date and shown an admirable willingness to ensure achievement of the Project objectives under difficult circumstances To date, the IE has been active in conducting technical assessments, providing technical inputs for tender document preparation process, prequalification, tendering process, evaluation process, and contract award negotiations. With the technical input from the IE, the PA is effectively leading and administering the procurement process. The procurement process for most of the packages is near completion and the next phase of the PA role will focus on administering the contracts on behalf of GoZ. The IE will have the role of engineer to supervise the works and services to be provided The Project audit for the year ending 2011 was postponed as justified by the absence of any financial transaction and low level of activities during that year and the project s first audit is due by the end of June 2013 and will be cover all project activities up to December The

13 6 recruitment of the Project auditor was concluded in May 2013 and the auditor commenced its service as of 29 May The auditor services will include both the Zim-Fund [Phase 1] water and power projects Despite the good progress made in the procurement process under each of the above components, the high bid prices obtained for the tenders pose challenges for the implementation of the Project. Priced bids received have been significantly higher than the budgeted figures set out in the Project Appraisal Report, as well as the engineers estimate at bidding stage. Further details on the bid amounts and additional resources requirement is covered in section 3 of this report. III. REVISED PROJECT FINANCING 3.1 Objectives and Description The Project objectives have not changed and remain as described in section 2.2 above. However the total population estimated at appraisal in the Project beneficiary municipalities has changed from 4.15 million to 2.4 million following the national population census conducted in August This has been reflected in the revised Project Log frame. 3.2 Revised Project Cost estimates The bidding process for most of the Project packages has been completed and the current status of the budget in relation to the received bid prices is provided in Annex I. The received bid prices exceeded the budget by a margin ranging from 25 % to 108 %. The principal reasons for the high tender price outcomes were due to (i) The complexity of the rehabilitation works and associated risks with shorter duration for execution in operational plants; (ii) the gap of information in terms of manuals, procedures, and as built drawings for existing systems (iii) Lack of recent, similar projects with a similar scale in Zimbabwe to use as references; and (iv) Complexity of implementation arrangement and perceived risks Considering the concluded tenders and making estimates for outstanding contracts and requirements during works execution phase, that include the new packages dealing with the pond desludging activities, that was removed from the scope of works for the two remaining rehabilitation packages, the extra management and engineering services, and the contingency, the expected total value of the Project is estimated at the revised total amount of US$ million as shown in Table 3.1 and 3.2 below. Additional resources amounting to US$ is therefore required for the Project to achieve its original objective.

14 A B 7 Table 3.1: Revised Project Cost Estimates by Component Components At Appraisal US$ (million) Revised at Implementation US$ (millions) Rehabilitation of Water Supply and Sewerage Systems in the Six Urban Areas Promotion of Improved Sanitation and Hygiene Education C Institutional Support D Project Management and Eng. Services Total Total Contingency at 5% Additional Resource Required Table 3.2: Supplementary Financing Categories of Expenditure Categories of Expenditure Amount in US$ Works Services - Miscellaneous Goods - Contingency Total Further details on costing contract by-contract is provided in Annex I. 3.3 Revised Implementation Schedule The revised implementation schedule is being determined based on the anticipated commencement of the Harare and Chitungwiza (UWSSRP/002) and Chegutu, Kwekwe and Masvingo (UWSSRP 003) rehabilitation works contracts. The proposed new works packages for the pond desludging activities for UWSSRP/002 and 003 will be scheduled to run parallel with the main works contracts. There have been several delays in the Project since its beginning due to delay in recruitment of the IE and PA, delay in project effectiveness, late advance payments to

15 8 the IE and PA, late completion of the technical assessment, longer period taken for the procurement process, and delayed conclusion of the works and services packages. It is now envisaged that the Project components will be completed by end-march In this regard, the deadline for last disbursement was extended from 31 December 2013 to 31 st December 2014, which will apply equally to the supplementary financing. A revised project implementation schedule is at Annex II. 3.4 Project Implementation Implementation Arrangement: The original institutional and implementation arrangements of the Project will continue. The POC provides an overall strategic and policy oversight for the Zim-Fund. The MMU under the Bank s oversight provides portfolio management support. The Implementing Entity and Procurement Agent procured through the program provide project management and procurement services respectively on behalf of the Government of Zimbabwe. The Project receives guidance from a Project Steering Committee comprising beneficiary municipalities and key Ministries Monitoring and Evaluation: Zim-Fund has recruited a consultant to develop the M&E framework for the Project, and the M&E framework will be rolled out from June The Project result matrix has been updated on the basis of the technical assessment and recent data available. It was also prepared in line with the new template approved by the Bank Social and Environmental Management Plan: An Environmental and Social Management Plan specific to each municipality was developed for implementation and monitoring. The Plan has been systematically included in the works packages for implementation by the contractors and its implementation will be monitored and supervised by the supervising engineer. IV. JUSTIFICATION FOR SUPPLEMENTARY FINANCING 4.1 The supplementary financing proposal was approved by the Program Oversight Committee of the Zim-Fund, which is composed of the Zim-Fund donors and GoZ representatives, on 5 April 2013, after consideration of the importance of achieving the original objective of the Project. The Project is in alignment with the Bank Group Country Program Brief and the Bank s Strategy for The inadequate provision or lack of clean water supply and sanitation services has affected the vulnerable and poorer segment of the residents of the beneficiary municipalities the most. It therefore significantly responds to the inclusive agenda and should be supported for the achievement of the full Project objective. 4.2 This supplementary financing proposal meets the applicable general conditions and specific conditions for supplementary financing set out in the Bank Group Policy and Procedures for Supplementary Financing (ADB/BD/WP/97/83). The execution of the Project has

16 9 commenced and is progressing satisfactorily from the technical perspective but will require additional resources to achieve its objectives and the GoZ is not in a position to provide additional financing. In this regard, the Zim-Fund POC took into account the factors enumerated below in approving the supplementary financing: a) There is need to build upon the recent water supply and sanitation interventions so as to improve the deteriorated water supply and sanitation infrastructure in the beneficiary municipalities. A delay in improvement of water and sanitation services has high tangible and nontangible economic and social costs. b) The Project Appraisal cost estimates were derived from the emergency works in 2009 and prices then-prevailing in the country. The estimates were not based on a detailed feasibility study but were prepared rather as an urgent response with technical assessment and project execution combined. Notwithstanding the IE s scoping which took into account the available budget, the bid prices were surprisingly high for certain value works and goods items. Although re-scoping is possible to match the available budgets, this would result in the original objectives of the Project not being met. c) The various elements of the works identified for rehabilitation are interdependent and the intended objective cannot be achieved if some of the elements are removed. In particular, two of the principal outcomes of the current intervention would be at risk, namely: (i) stabilization of bulk of water supply in several of the project municipalities; and (ii) reduction of pollution of water sources with untreated sewage discharges in several of the project municipalities. d) An alternative of reducing the scope to match the available budget would be the removal of one or more of the beneficiary municipalities from the Project. This would however result in a significant proportion of the originally identified target communities being excluded with a corresponding reduction in the overall impact of the Project. The removal of any municipality is also sensitive and would risk damaging the reputation of the Zim-Fund in the eyes of the local governments and the population. e) The project is technically and economically viable even with the revised cost. The economic cost benefit analysis of the revised project has been carried out by comparing the with and without project scenarios. The revised EIRR for the project is 14.2% and NPV (at 10%) is US$ 15.6 million, which is lower than the estimate at appraisal, EIRR 22% and NPV US$ 37.2 million. However, the value is higher than the opportunity cost of capital for similar projects estimated as 12%. As such, the project is considered economically viable.

17 10 V. LEGAL INSTRUMENTS AND AUTHORITY 5.1 Legal Instrument The legal instrument to finance the supplementary grant will be a Protocol of Agreement between the Republic of Zimbabwe and the Bank, in its capacity as the administrator of the Zimbabwe Multi-Donor Trust Fund (Zim-Fund), for a grant from the resources of the Zim-Fund. 5.2 Conditions Associated with Bank s Interventions Conditions Precedent to Entry into Force of the Grant The Protocol of Agreement will enter into force on its date of signature by the Recipient and the Bank Conditions Precedent to First Disbursement of the Grant The conditions precedent to first disbursement of the initial grant, which will be extended to the supplementary grant, have been fulfilled. As such, disbursements may be made from the supplementary grant upon entry into force of the Protocol of Agreement. 5.3 Compliance with Bank Policies The proposed supplementary grant complies with all applicable Bank policies, including the Bank Group Policy and Procedures for Supplementary Financing. VI. CONCLUSION AND RECOMMENDATION 6.1 Conclusion Priced bids received have been significantly higher than the budgeted figures from the estimates arrived at during the Project Appraisal stage and by the Engineer s estimate. Considering the concluded tenders and estimates on the outstanding packages and the requirements during execution, the expected total value of the works is estimated at US$ million, thus a requirement of additional resources of US$ million is needed in order to achieve the objectives of UWSSRP. 6.2 Recommendation Considering the many socio-economic and environmental benefits of this Project, it is recommended that the Bank approves this supplementary grant, from the resources of the Zim- Fund, for the amount of US$ million for the UWSSRP.

18 ZIMFUND UWSSRP: PROJECT COMPONENTS FINACIAL STATUS 6-Jun Annex I: Project Cost Estimates- Budget, Engineer Estimate and Actual Bids Component Project No. Description Rehabilitation of Water Supply and Sewerage Systems UWSSRP/002 UWSSRP/003 UWSSRP/004 Rehabilitation of Water Supply and Sewerage Systems in Harare and Chitungwiza Rehabilitation of Water Supply and Sewerage Systems in Chegutu, Kwekwe and Masvingo Rehabilitation of Water Supply and Sewerage Systems in Mutare Budget as appraised Cost Estimate by IE Contract Value / Lowest Compliant Bid Price / Revised Estimate Actual Contract or revised estimate Additional Resource Required [USD] [USD] [USD] [USD] [USD] Comment Contracts have been negotiated in line with recommendations from the VFM assessment and pond desludging items were removed from the scope resulting in revised contract amount Contracts have been negotiated in line with recommendations from the VFM assessment and pond desludging items were removed from the scope resulting in revised contract amount Letter of award issued on Contract price reduction was due to removal of bill item for access road. The item removed will be executed through provision sum included in the contract UWSSRP/009 Supply and delivery of sewer cleaning, related equipment and associated services Included in 002, 003 and contract negotiated and awarded UWSSRP/012 Harare and Chitunwiza Pond desludging included in 002 included in UWSSRP/013 Chegutu Pond desludging included in 003 included in these works are the reduced scope from UWSSRP/002 and have been advertised in May 2013 these works are the reduced scope from UWSSRP/003 and have been advertised in May 2013 Sanitation and Hygiene Education Prograrm UWSSRP/005 Sanitation and Hygiene Education Programme , , contract negotiated and awarded

19 - 2 - Component Project No. Description Institutional Support UWSSRP/006 Institutional Development Consultancy Services Budget as appraised Cost Estimate by IE Contract Value / Lowest Compliant Bid Price / Revised Estimate Actual Contract or revised estimate Additional Resource Required [USD] [USD] [USD] [USD] [USD] Prices not yet available. Comment UWSSRP/007 Investment Plan Consultancy Services contract negotiated and awarded UWSSRP/010 Specialist Software and related computer Equipment included in 011 included in 011 Prices not yet available. UWSSRP/011 Capacity Building Goods Prices not yet available. Project Management and Eng. Services UWSSRP/001 Implementing Entity Services Actual contract, signed November 2011 UWSSRP/008 Project Auditing Services contract negotiated and awarded Total 29,650,580 31,512,401 41,530,873 11,880,293 Contingency at 5% 2,076,544 2,076,543.6 Total Additional Funding 43,607,417 13,956,837 Notes: 1. The phsical contingency assumed at 5% overall will cover additional payments for the IE services due to project delay, project audit requirement beyond the current requirement due to increased project duration, and any additional requirement beyond the current contract amounts and due to unavoidable circustances. 2. In the Cost Estimates the estimated cost for UWSSRP/009 separated from UWSSRP/002, 003 and The cost estimate for UWSSRP/004 originally considered the re-use of pipe materials on site for which the contract estimate was at US$4.686 million. However, EU rules regarding the use of Asbestos meant that this was not permitted, with considerable increased cost. The revised engineer estimate stands at US$7.919 million

20 Annex II : Project Implementation Schedule

21 Annex 3 : Map of the Country and Location of the Project Areas