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Implementation Completion Report (ICR) Review - Tamil Nadu Urban Dev II

1. Project Data:   
ES Date Posted:
Project Name:
Tamil Nadu Urban Dev II
Project Costs(US $M)
 205.0  189.0
Loan/Credit (US $M)
 105.0  82.2
Sector, Major Sect.:
Sub-national government administration, Roads & highways, General water/sanitation/flood protection sector,
Law and justice and public administration; Transportation; Water sanitation and flood protection
Cofinancing (US $M)
L/C Number:
Board Approval (FY)
Partners involved
Closing Date
11/30/2004 11/30/2004
Prepared by: Reviewed by: Group Manager: Group:  
Nilakshi M. De Silva
John R. Heath Alain A. Barbu OEDSG

2. Project Objectives and Components:

a. Objectives
To improve urban infrastructure services in Tamil Nadu in a sustainable manner, through (a) strengthening the managerial, financial and technical capabilities of urban local bodies (ULBs); (b) mobilizing resources for basic urban infrastructure investments; and (c) securing sustainable funding sources for the urban infrastructure investment.

b. Components
Part A: Line-of-Credit (appraisal estimate US$173.0m; actual cost US$160.1m) to finance through the Tamil Nadu Urban Development Fund (TNUDF) basic urban infrastructure investments sponsored by eligible ULBs, statutory boards and private investors.

Part B: Integrated Sanitation Program (ISP)(appraisal estimate US$10.0m; actual cost US$15.8m) to provide capital grants to urban communities for public sanitation and solid waste collection and disposal.
Part C: Institutional Development Component (appraisal estimate US$20.95m; actual cost US$12.04m) for (i) capacity building of ULBs; (ii) capacity building of the Department of Municipal Administration and Water Supply (DMAWS); (iii) Technical Assistance to the TNUDF and selected ULBs to raise resources from the domestic capital market; (iv) Technical Assistance to municipalities for project preparation and implementation, and recruitment of outside experts; (v) staffing and incremental expenses of the Project Management Unit (PMU).

c. Comments on Project Cost, Financing and Dates
Final project costs were about 92% of appraisal estimates. Actual costs of Parts A and C were less than appraisal estimates by 7% and 43% respectively, due in part to the uncertainty created by the fiscal crisis faced by the Government of Tamil Nadu (GoTN) in FY01-02.

3. Achievement of Relevant Objectives:

Improve urban infrastructure services in a sustainable manner: Achieved. Through the TNUDF, the project has supported the improvement of infrastructure services in over 25 municipalities in Tamil Nadu. Improved urban infrastructure services include (i) road transport infrastructure, such as better surfacing on more than 150 kms of roads, renovation or improvement of at least 5 bridges, better street lighting in four municipalities, construction of 3 subways for pedestrian crossings and construction of bus stands and bays; (ii) water supply infrastructure including water supply connections to about 19,500 households, increased supply to urban areas by over 340 lpcd, which together are estimated to have benefited almost 100,000 urban residents; and (iii) solid waste management including the provision of collection equipment such as trucks, lorries and containers in seven municipalities. Through the ISP component 1,245 public sanitary units were constructed, reducing outdoor defecation by 80%. The TNUDF model - of a public-private joint financial intermediary to mobilize resources for ULBs without resorting to government guarantees - has proved a sustainable approach to improving urban infrastructure services.
(a) strengthen the managerial, financial and technical capabilities of ULBs: Partially Achieved. Under the project, ULBs have moved from single-entry cash accounting systems to double-entry computerized accounting systems, which has reduced the time to close the accounts and improved the morale of municipal accountants. All municipalities and corporations have introduced public information kiosks providing residents with information regarding their property taxes, water charges etc, which has improved transparency in municipal taxation. About 11,400 man days of training has been provided and the resulting familiarity with the new accounting system has reduced the time taken to carry out audits. Some ULBs have increased water tariffs and, with the assistance of TNUDF, pioneered the practice of obtaining advance deposits from users to defray part of the capital costs of infrastructure investments. However, the financial capabilities of ULBs have not been strengthened to the extent envisaged at appraisal, mainly because of cuts and delays in State financial transfers and non-implementation of an area-based property taxation scheme.
(b) mobilize resources for basic urban infrastructure investments: Achieved. In addition to US$62 m financed directly by the Bank, a further US$97 million was mobilized for urban investments, marginally overshooting appraisal target. In addition, the TNUDF has reduced the costs of project preparation from 13% to 7.5% of project costs, which translates to savings of about US$5m.
(c) secure sustainable funding sources for the urban infrastructure investment. Partially Achieved. TNUDF has successfully facilitated ULBs’ introduction to financial markets. It assisted ULBs to explore innovative project structures and new sources of funding such as BOT structures, outsourcing, issuance of tax-free municipal bonds and issuance of pooled financing bond to provide water facilities to several towns. However, the expanded involvement of the participating financial institutions (PFIs) who, with the Government, are the shareholders of TNUDF, in municipal infrastructure did not materialize as envisaged at appraisal and the limited autonomy of ULBs has also limited the amount of investments which can be funded by capital markets.

4. Significant Outcomes/Impacts:

The line-of-credit component was exceptionally well managed. The TNUDF reduced the project preparation costs by half, loan approvals and disbursements were ahead of schedule in many years and the loan recovery rate was 98-99% (which is due in part to TNUDF using an intercept facility provided by the Government to recover sub-loans). Sub-projects were also executed more rapidly, with many roads projects, which usually take 12 months when executed by state departments, being completed in 2-3 months.
  • e-governance initiatives have increased the availability of data allowing ULBs to better track defaulters and improve compliance, and tax collection rates have increased from 65% to 78% over the life of the project.

5. Significant Shortcomings (include non-compliance with safeguard features):

There is little consistency between the PAD Design Summary and the ICR Annex 1, which raises questions about the original targets and whether they were achieved. Many of the indicators set out in the Design Summary are neither appropriate nor meaningful. The ICR does not report against these indicators, including whether or not 20% of the investment in infrastructure required by corporations and municipalities was provided by the project.
  • The project aimed to improve urban infrastructure services and was expected to bring about economic, health and environmental benefits to Tamil Nadu’s urban population. However, the project’s monitoring system is focused on the supply side and ignores the need to systematically monitor the impact of providing more than US$160 million worth of urban infrastructure on the target urban population.
  • This is particularly important when looking at the experience of the Integrated Sanitation Program component, which is facing problems with usage, maintenance and cost recovery. In town panchayats, only 50% of allotted users frequent the facilities, 45% of the units are assessed to be in good working order at project completion and just 20% are collecting user charges from all users. In municipalities, the situation is only marginally better.
  • TNUDF's pricing formula responds to market shifts with a one year lag and this design flaw makes it difficult for TNUDF to respond to competition in a highly liquid financial market.
  • 6. Ratings:ICROED ReviewReason for Disagreement/Comments
    SatisfactoryModerately Satisfactory[The ICR's 4-point scale does not allow a "moderately sat." rating]. Project shortcomings listed in section 5 are significant.
    Institutional Dev.:
    LikelyLikelyHowever, TNUDF's pricing rigidities will need to be addressed to remain attractive as a lender to ULBs.
    Bank Performance:
    Borrower Perf.:
    Quality of ICR:

    7. Lessons of Broad Applicablity:

    Projects supporting decentralization should assess the risk of fluctuating State commitment to reforms as well as identify mitigating measures, at preparation. Decentralization is a process prone to reversals and decelerations but the project did not recognize at appraisal the substantial risk that the State may not sustain the reform process. In fact, the Tamil Nadu Urban Local Bodies Bill was never implemented and ULBs remain highly dependent on the support of the Government for important decisions.
    • While municipal finances may improve with the introduction of partial private sector ownership, this approach has a number of limitations. The creation of TNUDF substantially improved operational efficiency. However, the environment and conditions faced by TNUDF’s clients – the ULBs – did not change and TNUDF is still highly dependent on the decisions of Government to do business. However, many problems were resolved because the TNUDF maintained a good working relationship with the Government, which supported the objectives of the TNUDF.
    • Projects focusing on the supply side of services, such as provision of urban infrastructure, should still monitor the project’s impact on the target population. While the sub-loans component was efficiently managed, in the absence of monitoring data it is difficult to assess the usefulness of this approach for poverty reduction in urban areas.

    8. Audit Recommended?  Yes

              Why?  To verify outcomes and assess sustainability of results, which should inform the design of the follow-on projects currently in preparation.

    9. Comments on Quality of ICR:

    This is a satisfactory ICR but it has several shortcomings. The ICR provides a balanced analysis of project performance, recognizing both strengths and weaknesses of the project. However, more attention should have been paid to assessing performance against project objectives, particularly that of improving urban infrastructure services in Tamil Nadu - about which the ICR only provides fragmented and incomplete information. Also, actual costs of components B and C are substantially different to appraisal targets, which is not adequately explained. Finally, the ICR could have been better organized to improve its clarity.

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