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Implementation Completion Report (ICR) Review - Ir-northern Cities Water Supply & Sanitation Project

1. Project Data:   
ICR Review Date Posted:
Project Name:
Ir-northern Cities Water Supply & Sanitation Project
Project Costs(US $M)
 342.00  344.36
L/C Number:
Loan/Credit (US $M)
 224.00  196.69
Sector Board:
Cofinancing (US $M)
Board Approval Date
Closing Date
12/31/2010 12/31/2010
Sewerage (70%), Water supply (30%)
Pollution management and environmental health (25% - P) Urban services and housing for the poor (25% - P) Other urban development (24% - P) Water resource management (13% - S) Other human development (13% - S)
Prepared by: Reviewed by: ICR Review Coordinator: Group:
Elaine Wee-Ling Ooi
Judyth L. Twigg Soniya Carvalho IEGPS1

2. Project Objectives and Components:

a. Objectives:
The project development objective (PDO) in the PAD (page 3) was consistent with that in the Loan Agreement (Schedule 2). The PDO was to:

1) Enhance the quality of life in the four northern cities of Rasht, Anzali, Sari and Babol by: (a) improving the reliability of the water supply systems through rehabilitation and extension of the water supply networks; (b) improving the health and urban environmental conditions by providing wastewater collection services and treatment facilities; and (c) contributing to the environmental protection of the natural resources of the provinces (especially the Anzali Lagoon, an internationally recognized wetland); and, to
2) Improve the operational efficiency and financial sustainability of the Water and Wastewater Companies (WWCs) in Guilan and Mazandaran

b. Were the project objectives/key associated outcome targets revised during implementation?

c. Components:
A. Projects in Guilan Province

Component 1: Rasht Wastewater Collection & Treatment (US$81.5 million at appraisal; US$78.4 million actual)
This component aimed to extend and improve Rasht’s collection network through 70,000 new house connections, construction of approximately 560 km of laterals, interceptors, and trunk mains, and 16 pump/lift stations in addition to collection works already being executed under ongoing contracts. The project was also to upgrade the wastewater treatment plant under construction with a biological nutrient removal unit and measures to reduce the risk of discharge of untreated sewage in the event of temporary plant failure. There also was to be a study and an investment program for septage management (to address the wastes from households not connected to the wastewater network).

Component 2: Rasht Improvement of the Water Supply System (US$50.3 million at appraisal; US$65.7 million actual)
This component aimed to improve service provision in Rasht through regulating the pressure and availability of water in the distribution network, and to reduce losses due to leakage. This was to be achieved by rehabilitation and extension of some 700 km of primary and secondary distribution piping, additional ground storage (two tanks of 40,000 m3 each, in addition to a new reservoir at Lakan of 30,000 m3), and rehabilitation of two existing elevated storage tanks and associate pumping stations. There was also to be a program to improve operational efficiency and reduce unaccounted-for water (including some instrumentation for automation, operation and maintenance equipment).

Component 3: Anzali Wastewater Collection & Treatment (US$45.4 million at appraisal; US$52.3 million actual)
This component aimed to extend and improve Anzali’s collection network through: (i) provision of 27,000 new house connections; (ii) construction of approximately 250 km of laterals, interceptors, and trunk mains; and (iii) 14 pump/lift stations, in addition to collection works already being executed under on-going contracts. The Anzali wastewater treatment plant under construction was to be improved through: (i) upgrading it with a biological nutrient removal unit; and (ii) measures to eliminate the risk of discharge of untreated sewage in the event of temporary plant failure. The project was also to include the construction of the first module of the Ghazian wastewater treatment plant (12,000 m3/day capacity), and an investment program and associated studies for management of septage from those households that would have not been connected to the wastewater network in the first phase.

Component 4: Anzali Improvement of the Water Supply System (US$9.1 million at appraisal; US$15 million actual)
This component aimed to rehabilitate and extend Anzali’s water distribution network with: (i) 155 km of primary and secondary distribution network, (ii) a new 30,000 m3 reservoir at Ghazian; and (iii) associated pumping stations. There was also to be an investment program to improve operational efficiency and reduce unaccounted-for water (including instrumentation for automation, operation and maintenance equipment).

Component 5: Support to Guilan Water & Wastewater Company (US$ 20.9 million at appraisal; US$17.7 million actual)
Under this component the project aimed to provide technical assistance, training, and consultant services for institutional development and an environmental management plan, a Technical Support Unit (TSU), engineering design, and construction supervision.

B. Projects in Mazandaran Province

Component 6: Sari Wastewater Collection & Treatment (US$40.3 million at appraisal; US$46.3 million actual)
This component included construction of a wastewater collection and treatment system in Sari through: (i) the provision of 16,000 new house connections; (ii) the construction of approximately 240 km of laterals, interceptors, and trunk mains; (iii) two pumping stations; and (iv) construction of the first module of the Sari wastewater treatment plant (23,200 m3/day).

Component 7: Sari Improvement of the Water Supply System (US$4.8 million at appraisal; US$7 million actual)
This component aimed to extend and rehabilitate Sari’s distribution network through: (i) replacement of 50 km of existing pipe; (ii) extension of the network with 65 km of pipe; and (iii) addition of 85 km of lateral pipes, and some 5,500 new water meters. The component also was to include an investment program and studies to improve operational efficiency and reduce unaccounted-for water (including operation and maintenance equipment).

Component 8: Babol Wastewater Collection &Treatment (US$30.3 million at appraisal; US$58.4 million actual)
The wastewater component was to include: (i) the provision of 16,300 new house connections; (ii) the construction of approximately 130 km of laterals, interceptors, and trunk mains; and (iii) six pumping and lift stations. The wastewater treatment plant currently under construction was to be improved through the construction of a 4km outfall main plus the provision of facilities to store wastewater in case of emergencies.

Component 9: Babol Improvement of the Water Supply System (US$6.1 million at appraisal; US$3.5 million actual)
This component was to include: (i) the provision of pumping equipment for five existing wells and collection lines; (ii) the construction of a 20,000 m3 ground reservoir and pumping station; (iii) the replacement of 40 km of existing pipe mains; (iv) extension of the network with an additional 32 km of mains; and (v) some 125 km of lateral pipes and 4,500 water meters. There also was to be an investment program (and associated studies) to improve operational efficiency and reduce unaccounted-for water (including operation and maintenance equipment).

Component 10: Support to the Mazandaran Water & Wastewater Company (US$10.241 million at appraisal; US$0.06 million actual)
Under this component the project was to provide technical assistance, training, and consultant services for institutional development, technical support, engineering design, and construction supervision.

d. Comments on Project Cost, Financing, Borrower Contribution, and Dates
Project Cost: 87% of the loan amount (US$ 196.7 million) was disbursed. US$ 27.32 million was cancelled. Many physical works (wastewater treatment plants and pumping stations) were not completed, and only US$ 8.83 million was spent (by utility companies and beneficiaries) against an expected US$ 60.8 million at appraisal. Some priority works are being continued/constructed after project closing using government and utility company funds.

Financing/Borrower Contribution: Cost overruns were absorbed by the government, resulting in a US$ 140.22 million government contribution against US$ 58.7 million planned at appraisal.

Dates: The project became effective 5 months after approval in May 2005.. United Nations sanctions were imposed against Iran in late 2006/2007, creating massive implementation delays (severely delayed release of project funds, requirement of corresponding banks, onerous procurement approval processes, and travel restrictions).. The Bank did not agree (ICR, page 9) to extend the project, and it closed as scheduled on December 31, 2010.

3. Relevance of Objectives & Design:

a. Relevance of Objectives:
The project is consistent with the four objectives of the Country's Five Year Development Plan (2005-2010), which were to distribute benefits and services to a wider population, especially the poor; build an efficient, accountable, and transparent public sector; improve natural resource management and reduce pollution; and move to a market economy and reduce subsidies. The project was a product of the Bank’s Water and Sanitation note (2002) for Iran, which grew out of the Bank’s Interim Strategy for 2001-2004. At appraisal, 98 % of the urban population had piped water, but less than 23% had sewerage. Highly subsidized tariffs caused very high water consumption rates estimated at 70% more than international standards. Waste water and raw sewage were discharged into open drains, contaminating ground water and posing public health risks especially for the poor living in low-lying areas. Where sewerage existed, the collected wastes were largely not treated before disposal and therefore degraded the environment. The project would directly reduce the degradation of the Anzali Lagoon (an important wetlands in Gilan) and the Caspian Sea. The project is consistent with national plans, and also relevant in improving public health and environmental outcomes.

b. Relevance of Design:
The project's design put appropriate emphasis on sewerage and sanitation, which were its core issues. Besides civil works for waste water treatment plants, the project also introduced biological nutrient removal technology, technical studies on sludge management and disposal, and public outreach programs to gain greater acceptance, including to future tariff increases. It introduced new concepts to the sector (environmental management plans, emergency operating plans for earthquake-prone northern Iran, monitoring and studies on environmental and health outcomes, and health and safety issues at the workplace).

The primary PDO was stated as "to enhance the quality of life in the four cities," but this is a very broad objective and the project did not articulate how planned activities would produce enhanced quality of life, nor how this would be measured. The outcome measures the project planned to track -- reliability of water in the distribution network; health conditions (measured by incidence of diarrhea in children under 5 years) in the urban environment; and water quality in the Anzali Lagoon (an important wetlands) -- could reasonably have served as measures of enhanced quality of life, but this was not articulated in the project's results framework. The project's design would have been improved through the articulation of a more specific and focused objective than "enhance the quality of life."

Otherwise, the individual sub-objectives were clearly stated, and in the results framework project interventions were plausibly linked to intended outcomes. Rehabilitation, construction, and appropriate operation of wastewater collection networks and treatment facilities would lead to an improved urban living environment, as well as reduce pollution of natural water bodies. Introduction of improved technical and business practices to the utility companies, and improved instruments for automation, tracking, operation and maintenance, should lead to improved operational efficiency and financial sustainability.

4. Achievement of Objectives (Efficacy) :

Under the first objective, efficacy is assessed against the following three sub-objectives in the cities of Rasht, Anzali, Sari and Babol: improving reliability of water supply systems; improving health and urban environmental conditions; and contributing to environmental protection of natural resources.

Reliability of water supply systems: Substantial

The majority of planned physical works was completed. Almost 100% of the planned distribution networks in all 4 cities were completed. The underground reservoirs (20,000 and 30,000 cu.m) in Anzali and Babol were completed and operational. In Rasht two smaller water reserve tanks (4,000 cu.m) were completed, while the 30,000 cu.m unit was near completion at project closing. Targets for rehabilitation and expansion of distribution lines for all 4 cities were met or overachieved: Rasht (680 km); Anzali (200 km); Sari (180 km); Babol (195 km).

Some interventions (UFW studies and installation of control equipment) to reduce water losses in the distribution network were completed.

The project reached its targets for reducing water losses in both provinces: Guilan from 35% to 27%; and Mazandaran from 33% to 28%.

Health and environmental conditions: Negligible

(Sari and Babol)
All planned wastewater treatment plants (WWTP), sewerage outfalls, and sludge storage tanks were completed. Both pumping stations in Sari were completed, while Babol had just begun construction on 3 at project closing (out of targeted 6). 369 km (target was 240 km) of sewerage main lines and interceptors were completed in Sari. Babol completed 20Km against a targeted 127 km. Two thirds of 16,000 planned wastewater household connections were completed in Sari, compared to a 50% completion rate in Babol.

Rasht and Anzali
One WWTP was completed (Anzali) with another (Rasht) under construction. The planned upgrade of the WWTP to include a biological nutrient remover was cancelled. The 24-hour emergency waste water reservoir planned for Guilan was also cancelled. Fifteen out of the planned 30 pumping stations in Rasht and Anzali were under construction at project closing. With respect to household sewage, all 27,000 connections in Rasht were completed. In Anzali only 20,000 out of 70,000 connections were achieved.

At project closing, fewer than half the total number of pumping stations were completed, and less than 50% of the planned length of sewerage lines in the networks had been laid down. About 66,000 household connections (out of 130,000 planned) were constructed. Crucially, none of the planned household sewer connections were operational at the time the project closed because the rest of the network system was incomplete (Annex 2, ICR). The waste water/septage management studies planned for both provinces were completed. The studies provided options for sanitary and hygienic treatment/disposal of waste for those households that would not be covered in the sewerage network.


The ICR reports that an additional 10-15% of waste water in Anzali, Babol and Sari were being treated. No evidence is presented, however, that this may have affected health conditions. The indicator selected by the project to measure improved health conditions was the incidence rate of waterborne diseases (acute diarrhea in children under 5 years). No baseline is available for 2005/6 for this indicator, and a health study in 2009/2010 of the four cities showed an incidence rate of 8-12 %. Since the project-supported sewerage components were largely non-operational, the outcome is assessed as negligible.

Environmental protection of natural resources: Negligible

Environmental protection of the Anzali Lagoon (which drains into the Caspian Sea) relies on the operationalization of the WWT facilities in Guilan province, involving processing of household sewerage at the Rasht and Anzali treatment plants. Since the network is not yet operational, there can be negligible improvement in the water quality in the Anzali Lagoon. Moreover, the Biological Nutrient Remover and the 24-hour emergency waste water reservoir planned for Guilan had been cancelled at MTR due to the slow implementation. At project close achievement of this subobjective is therefore rated as negligible. The Government and WWC have indicated they will continue the rest of the planned project activities and construction using their own resources.

Under the second objective, efficacy is assessed against: improving the operational efficiency of the Water and Wastewater Companies (WWC) in Guilan and Mazandaran; and improving those WWCs' financial sustainability.

Operational efficiency: Substantial


Specific interventions to address operational efficiency of the utilities and unaccounted-for water (studies, operational, maintenance, and control and analytical equipment) were partially completed for Sari and Babol but cancelled for Rasht and Anzali. Nonetheless, at project closing the government was promoting private sector participation in performance-based operations and maintenance contracts for the WWCs.


The project achieved its set targets (Guilan 27 % and Mazandaran 28%, from 35%) for reducing losses due to unaccounted-for water. The ICR also reports that collection efficiency improved, but no specific data are provided. Improvement in the operational efficiency of the WWCs is therefore assessed as substantial.

Financial sustainability: Modest


In December 2010 the government planned the elimination of subsidies to the various utilities, replacing these with targeted subsidies to low-income beneficiaries. This would imply that average tariffs would rise from 8 cents/m3 to 28 cents/m3. The implementation of such reforms would in principle ease cost recovery for WWCs and promote financial sustainability.


Planned increases in tariffs were not yet in place at the time of project closing. The working ratio (WR) had deteriorated: Guilan was 1.98 and Mazandaran was 1.6, compared to 1.15 and 0.97 respectively in 2005.
Originally rated by IEG as Negligible, financial sustainability has been raised to Modest, in light of additional comments by the Project Team that the Government is seriously implementing private sector participation and performance based operation and maintenance contracts, and will likely implement the tariff changes.

5. Efficiency:

At appraisal, the Financial Rate Return (FRR) for Mazandaran and Guilan was estimated at 23% and 12% respectively. Coverage would be for the entire project and based on: (i) savings from maintenance of wells/non-piped sources; ii) reduction in water-borne diseases and associated costs of hospitalization, medication, and loss of workdays and school days; (iii) reuse of treated waste water in irrigation with associated increases in agricultural value-added; and (iv) increase in tourism activity in the popular summer resort in Anzali. The main assumption behind the calculations was that tariff increases would fully cover operations and maintenance expenses.

No FRR was estimated by the ICR because a large part of the civil works had not been completed. Given the tremendous delays and poor progress, the efficiency of the project is assessed as Modest.

a. If available, enter the Economic Rate of Return (ERR)/Financial Rate of Return at appraisal and the re-estimated value at evaluation:

Rate Available?
Point Value
ICR estimate:

* Refers to percent of total project cost for which ERR/FRR was calculated

6. Outcome:

Project objectives and design were rated as substantial and modest, respectively. Achievement of two of the project's five evaluated subobjectives (improvement of health and environmental conditions ) is assessed as negligible because so little of the sewerage treatment works were completed or operational. Achievement of reliability of water supply systems and operational efficiency were assessed as substantial. Financial Sustainability is assessed as Modest. Project efficiency is assessed as modest, due to incomplete works and extended delays.

a. Outcome Rating: Unsatisfactory

7. Rationale for Risk to Development Outcome Rating:

The project may not have achieved its expected targets and outcomes, but major civil works were completed or were in the process of being completed at the time the project closed. Substantial institutional development efforts (modern project management skills, financial management capacity, monitoring of health and environmental conditions, public outreach communications, environmental management practices and technical know-how) were initiated in the project's first two years. These accomplishments risk being lost if the project activities are not fully completed. The WWCs have indicated that they will complete the planned activities with their own resources.

a. Risk to Development Outcome Rating: Significant

8. Assessment of Bank Performance:

a. Quality at entry:
Project preparation was sound, targeting relevant and high-priority issues including the poor state of environmental and health conditions in urban Iran, Extensive training and capacity building (technical, financial and operational) were provided during project preparation and continued into the first two years of implementation. However, the planned five-year project was overly ambitious in scope. The WWCs were also new Bank clients and had to adjust to the Bank ‘s procurement procedures. The project also expected cost recovery quickly, which is very difficult to achieve with sewerage investments, especially in a country accustomed to heavy subsidies.

Quality-at-Entry Rating: Moderately Satisfactory

b. Quality of supervision:
United Nations sanctions began in September 2006, not long after project effectiveness, resulting in severe impediments to the project. Fund releases from the Bank to the country were severely delayed, as was the approval process for procurement of consultants, contractors, and equipment for this big construction project. The project team noted that all procurement went through a special vetting panel and against a list approved by the UN Security Council, and that every financial transaction required specialized and specific scrutiny by the United States Treasury. All funds went through a limited list of intermediary banks. As a result some suppliers, contractors and bidders (even the intermediary banks) dropped out or stopped working because of the lengthy process.

Bank supervision was also restricted, especially in the last two years (no missions were undertaken between January 2009 and May 2010). Some of the slack was taken up by Bank specialists based in Beirut. Overall, the project was adversely affected by the above events, and the Bank was not able to overcome or work around the impediments.

It was not feasible for the activities to be completed within the original time frame, especially with the UN sanctions, but no project extension was given by the Bank. Project extension and an enhanced Bank role during supervision would have benefited the project and its outcomes. Borrower Comments in the ICR (Annex 7) place high value on the additionality of the Bank, acknowledging the benefits of the technical, financial and management processes introduced, but they also criticize the Bank's decision not to extend the project.

Quality of Supervision Rating: Moderately Unsatisfactory

Overall Bank Performance Rating: Moderately Unsatisfactory

9. Assessment of Borrower Performance:

a. Government Performance:
According to the ICR, the central government gave high priority to the sector and showed commitment and ownership to the project. The Ministry of Energy financed several background studies and some construction works even before the project began. The National Water and Wastewater Company (NWWEC), which had the national oversight role for the project, was instrumental in keeping the project going forward amidst all the challenges and impediments encountered during the sanctions.

In the initial years, the central government was not timely in providing counterpart funds to acquire land needed for the treatment plants, pumping stations, and drainage outfall, delaying these aspects of project execution. Tariff reforms (controlled by the National Economic Council) were also delayed and affected the working ratio of the WWCs during the project. In December 2010, the government announced the elimination of subsidies in many sectors, including water supply and waste water. Instead, low-income populations are to receive direct subsidies. The implementation of such reforms may ease cost recovery and financial sustainability for the WWCs. In addition, the central government has committed to completing the majority of planned activities with its own resources.

Government Performance Rating: Moderately Satisfactory

b. Implementing Agency Performance:
The two WWCs lacked the procurement and overall project management capabilities to manage this complex project, which was an additional factor (besides UN sanctions) to slow project progress. It should be noted, however, that these were new clients of the Bank. Many of the concepts and practices introduced by the project were new to them. They had also limited experience with sewerage and wastewater treatment operations. It also takes time for heavily subsidized utilities to switch to cost recovery mode. Given these challenges, the WWCs have performed quite satisfactorily.

Borrower comments in Annex 7 of the ICR show that the overall project experience has been beneficial to the WWCs and that they have taken ownership of and will continue practicing new approaches (social, technical, and operational) introduced by the Bank.

Implementing Agency Performance Rating: Moderately Satisfactory

Overall Borrower Performance Rating: Moderately Satisfactory

10. M&E Design, Implementation, & Utilization:

a. M&E Design:
The project did not specify what indicators would be used to measure the first PDO, "to enhance the quality of life in the four cities." However, appropriate indicators were chosen to track intermediate and ultimate outcomes leading to all five sub-objectives. The six main outcome indicators were: (i) availability of water from the distribution network, (ii) incidence of waterborne diseases, (iii) quality of water in receiving water bodies, (iv) working ratio of the WWCs, (v) unaccounted-for water, and (vi) months of receivable at the WWCs. At the time the PAD was written, baselines or targets were not yet set for measuring water availability, disease incidence, and quality of water in bodies receiving treated sewage. These were to be determined after project launch. Intermediate indicators. which were appropriate, included number of new house connections for water and sewerage, percentage of wastewater treated, and percentage reduction of water losses. Baselines and targets were set for these.

The responsibility for all Monitoring and Evaluation was assigned to members of the Technical Supervision Units (TSU) assigned to each of the two provincial utility companies.

b. M&E Implementation:
There were no major issues with M&E implementation. Data on the progress of selected indicators were maintained by the TSUs. TSUs maintained data on procurement and contract management and monitored the progress of project components. In general, due to slow project implementation the TSUs were preoccupied with procedural issues (sanctions, Bank procedures, etc.). As required, the utility companies provided data on working ratio (WR) and unaccounted-for water (UFW) in a timely manner. All output indicators were monitored (Annex 2).

A number of studies were conducted by project consultants to establish baselines for disease incidence and quality of water bodies. A summary of the findings is presented in Annexes 2 and 10 of the ICR, providing a cross-sectional view of the situation. No details were provided from which to ascertain the quality of these studies. There are indications the TSU had reached out to the Department of Environment to assist in the monitoring of water quality, but this collaboration has not yet been achieved.

a. M&E Utilization:
Some of the results (WR and UFW) were used by the WWCs to guide their performance and financial sustainability. Since a large part of the sewerage and treatment plants are not yet completed or operational, the M&E system is not yielding universally useful data.

The National Water and Wastewater Company has shown keen interest (ICR, Annex 7) in the monitoring and survey tools (health and environmental management and monitoring studies, population surveys) that are new to water utility companies, and have indicated they will continue using them when the civil works become operational.

M&E Quality Rating: Modest

11. Other Issues:

a. Safeguards:
The project was Category A and triggered Environment Assessment OD 4.01 and Resettlement Policy OP 4.12. An Environmental Management Plan (EMP) was developed, guided by Environmental Impact Assessments conducted for both provinces. An Environmental and Safety Officer was assigned to each Technical Support Unit to help the project satisfactorily provide adequate oversight and implement the EMP. There arose land acquisition and resettlement issues due to the construction of treatment plants and pumping stations. These were satisfactorily handled and followed due protocol. Progress reports were available for 2007 and 2008. Studies were conducted and mitigation plans made (Emergency Operation Plan and Biological Nutrient Removal), to further protect the quality of the Anzali Lagoon and Caspian Sea when the waste water systems become operational.

b. Fiduciary Compliance:
The Bank provided effective financial management and procurement training to counterparts. After the initial learning curve, fiduciary practices were fully satisfactory, with data on commitments, disbursements, projections. and overall financial status provided in quarterly reports for Bank and management review. Regular audits were conducted in a timely manner and were found acceptable to the Bank. Throughout the project, Bank staff from Beirut provided backstopping support to the project implementers.

An ex-post procurement review conducted by the Bank, found the procurement processes followed by the
project to be satisfactory. There were heavy procurement demands, and therefore in addition to extensive training of the TSUs, a consultant expert on Bank procurement procedures was retained for 18 months to assist in the preparation of project bidding documents. Additionally, the UN sanctions brought another layer of review, as project technical specifications had to be reviewed against the UN Security Council list of prohibited items. The project was found compliant with all these requirements.

c. Unintended Impacts (positive or negative):
None indicated.

d. Other:

12. Ratings:

IEG Review
Reason for Disagreement/Comments
Moderately Unsatisfactory
Relevance of project objectives and design were substantial and modest respectively, and project efficiency was modest. Achievement of the most important subobjectives (improvement of health and environmental conditions, and financial sustainability of the WWCs) were negligible and modest respectively because much of the sewerage and treatment works were not yet completed and operational at project close. By IEG guidelines, these ratings translate into major shortcomings, and thus an Unsatisfactory overall rating.  
Risk to Development Outcome:
Bank Performance:
Moderately Unsatisfactory
Moderately Unsatisfactory
Borrower Performance:
Moderately Satisfactory
Moderately Satisfactory
Quality of ICR:
- When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006.
- The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate.

13. Lessons:
The ICR provides the following lessons from the project's preparation and implementation experience:

1. When a project is properly prepared, project design is improved and risks to project development outcomes are reduced.
Realism in project design should be reflected by the project’s complete assessment of all the local realities on the ground during project preparation. In the case of the current project, this should have translated into evidence of adequate completion of preparation work for land acquisition and detailed estimates of engineering designs, and preparation of bidding documents for the first year prepared by the borrower. The construction of wastewater treatment facilities cannot be fully implemented in five years.

2. Despite best efforts of individuals and teams on both sides, exogenous factors beyond the control of the counterpart and Bank teams can have a major impact on project outcomes.
The UN sanctions constituted an impediment to the smooth implementation of the project since they impacted the transfer of funds for project activities. In addition, the inability of the Bank team to travel to Iran for a period of eighteen months created a strained relationship. Without proper and continuous supervision and the financial resources required for planned tasks, it is evident that implementation gets delayed and capacities diminish.

3. Avoid unrealistic expectations in terms of tariff adjustment.
Projects should be designed within the realm of realistic estimates and assumptions. There is also a need to identify indicators that can monitor variables that can be directly attributed to the project. The working ratio is not always the most appropriate indicator for financial sustainability, as there are many external factors that affect it such as cost of materials (steel, cement, and others) and energy. A utility could be improving certain efficiencies but strong increases in market prices will affect the expenses considerably.

14. Assessment Recommended?


15. Comments on Quality of ICR:

The ICR is candid in its assessment of both Bank and Borrower performance. The inclusion of the Borrower's Comments provides a direct view of the Implementing Agency mindset, and shows the value accorded to the Bank and its technical assistance, despite the many challenges faced during implementation. Some of results presented (for example, health outcomes) could be better substantiated, though IEG notes that the ICR depends heavily on data received from the counterparts, and data quality is beyond the control of the ICR.

a. Quality of ICR Rating: Satisfactory

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