Philippines - Provincial Cities Water Supply Project

Report No. 1434-PH Philippines: The Provincial FILE COPY Cities Water Supply Project The Cities: Baguio, Cabanatuan, Lipa, Lucena-Pagbilao-Tayabas, San Fernando (La Union) and Tarlac April 14, 1977 East Asia and Pacific Region Projects Department Energy and Water Supply Division FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (As of March 31, 1977) Currency Unit Pesos (P) P 1.00 - US$0.133 P 1 million - US$133,000 US$1.00 - F7.50 US$1 million = P7,500,000 MEASURES AND EQUIVALENTS mm = millimeter = 0.04 inches cm = centimeter = 0.39 inches m = meter = 3.28 feet km kilometer = 0.62 miles km2 square kilometer = 0.39 square miles ha hectare = 10,000 square meters or 2.47 acres i3 cubic meter = 264 US gallons m 3/sec cubic meters per second = 22.8 million US gallons per day 1 = liter - 0.26 US gallons 1/sec liters per second = 22,800 US gallons per day 1/cd liters per capita per day 0.26 US gallons per capita per day PRINCIPAL ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank CDM5 Camp Dresser and McKee International Inc. DPWTC Department of Public Works, Transportation and Communications JMM = James M. Montgomery, Consulting Engineers, Inc. LWUA = Local Water Utilities Administration !MA = Metropolitan Manila Area MWSS = Metropolitan Waterworks and Sewerage System USAID = United States Agency for International Development WD = Water District LWUA's FISCAL YEAR January 1 to December 31  FOR OFFICIAL USE ONLY PHILIPPINES APPRAISAL OF THE PROVINCIAL CITIES WATER SUPPLY PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ............ .. ................. i - ii I. INTRODUCTION ....................................... 1 II. THE SECTOR ........................................ 2 A. Background ................................... 2 B. Sector Organization .......................... 3 C. Sector Development and Financing .... ......... 4 III. THE PROJECT ....................... 5 A. Background and Objectives . .................. 5 B. Description ...... ............................ 5 C. Cost Estimates ...... .................. . 7 D . Contingencies ...... .................... 9 E. Amount of Loan ...... ......................... 10 F. Project Financing ..... ....................... 10 G. Procurement ...... ............................ 10 H. Disbursements ................................ 11 I. Design, Construction and Supervision of Construction of Water Supply Project ....... 11 J. Implementation Schedule ................... ... 12 K. Environmental Impact ...... ................... 12 IV. THE BORROWER, THE BENEFICIARIES AND THE IMPLEMENTING AGENCIES ....... .................... 13 A. The Borrower and the Beneficiaries .... ....... 13 B. Implementing Agencies ...... .................. 13 C. Local Water Utilities Administration .... ..... 14 D. USAID Financed Consulting Services .... ....... 15 E. Training and Staff Development ..... .......... 15 F. Water Districts ........ ...................... 16 G. The Project Water Districts ..... ............. 16 H. Billing and Collections ...... ................ 17 I. Metering . .................................... 17 J. Accounts and Audit . .......................... 17 This document has a restricted distribution and may be used by recipients only in the performance of their oMcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  -2 Page No. V. JUSTIFICATION ......................... .... ....... 18 A. General ...................................... 18 B. Population and Demand Projections ............ 19 C. Least Cost Solution ..... ..................... 20 D. Economic Evaluation ............ .............. 20 E. Project Risks ....... ........ ................. 21 F. Manila Sewerage Design Study ....... .......... 21 VI. FINANCIAL ASPECTS ................................. 22 A. General ...................................... 22 B. Past and Present Financial Performance ....... 22 C. Assets Taken Over by the Water Districts 23 D. Financing Plan ............. .. ................ 23 E. Financial Projections ........... ............. 25 F. Water Rates ................ .................. 26 G. Financial Resources of LWUA .................. 29 VII. AGREEMENTS REACHED AND RECOM4MENDATIONS .... ........ 31 LIST OF ANNEXES ANNEXES 1. Description of the Project 2. Feasibility Study for Water Supplies to Ten Cities 3. Manila Sewerage Design Study 4. Water Supply Construction - Summary Cost Estimates 5. Estimated Schedule of Disbursements 6. Implementation Schedule 7. Existing Water Supply Systems and Sources 8. Population and Water Demand Projections 9. Organization Chart of the Local Water Utilities Administration 10. Status of Formation of Water Districts 11. Typical Organization Chart of a Local Water District 12. The Project Water Districts 13. Justification for Metering 14. Internal Economic Rates of Return and Average Incremental Costs 15. Baguio WD-Income Statement, Flow of Funds and Balance Sheets 1976-85 16. Cabanatuan WD-Income Statement, Flow of Funds and Balance Sheets 1976-85 17. Lipa WD-Income Statement, Flow of Funds and Balance Sheets 1976-85 18. Lucena-Pagbilao-Tayabas WD-Income Statement, Flow of Funds and Balance Sheets 1976-85  - 3 - 19. San Fernando (La Union) WD-Income Statement, Flow of Funds and Balance Sheets 1976-85 20. Tarlac WD-Income Statement, Flow of Funds and Balance Sheets 1976-85 21. Financing Plan of Water Districts (1977-81) 22. Assumptions for Financial Projections 23. Forecast Performance Indicators 1977-83 24. LWUA's Guidelines for Water Rates 25. Schedule of Water Rates 26. Schedule of LWUA's Foreign Loans 27. LWUA's Income Statement, Flow of Funds and Balance Sheets MAPS IBRD 12542-Location Map IBRD 12543 to 12548-Existing and Proposed Water Supply Systems   PHILIPPINES APPRAISAL OF THE PROVINCIAL CITIES WATER SUPPLY PROJECT SUMMARY AND CONCLUSIONS i. This report covers the appraisal of a project to rehabilitate, construct, improve and extend water supply systems in the 6 Water Districts (WDs) in the cities of Baguio, Cabanatuan, Lipa, Lucena-Pagbilao-Tayabas, San Fernando (La Union) and Tarlac, all on the main island of Luzon in the Philippines. The project is the first stage, covering the fiscal years 1977 through 1981, of a long range water supply improvement program in these cities extending through the year 2000, and aims to help implement the Government's policy of improving water supply services in the population centers of the country. The project also includes financing of: (a) feasibility studies for improving water supply systems in the next group of 10 cities; (b) review and design studies for a first stage sewerage and sanitation improvement program for the Metropolitan Manila Area (MMA); and (c) training of staff of the Gov- ernment's departments and agencies in the sector in designing and constructing water supply systems in small communities. ii. The Government of the Philippines will be the borrower and the bene- ficiaries will be (a) the Water Districts in the 6 cities, (b) Local Water Utilities Administration (LWUA) for the feasibility studies for the next 10 cities, (c) Metropolitan Waterworks and Sewerage System (MWSS) for the Metro- politan Manila Sewerage Studies and (d) Department of Public Works, Transport- ation and Communications (DPWTC) for training of staff. iii. The main objective of the water supply project is to provide improved water supply, at an adequate level of service, to the urban population in the 6 WDs. It is estimated that by 1985 the population served in these WDs will in- crease from about 155,000 in 1977 (31% of the population) to about 373,000 (59% of the projected population). iv. The total financing required for the project is estimated to be US$44.6 million equivalent including US$6.3 million equivalent for interest during the construction period of the water supply systems in the 6 WDs. The proposed Bank loan of US$23.0 million equivalent will finance about 52% of the total costs to cover the estimated foreign exchange expenditures plus US$3.3 million for interest during construction on the Bank loan. The balance of US$21.6 million equivalent (48%) will be provided as follows: (i) by LWUA, US$15.5 million equivalent (35%); (ii) by WDs, US$3.8 million equivalent (8%); and (iii) by MWSS, US$2.3 million equivalent (5%). v. The water supply project in the 6 WDs includes some rehabilitation works and construction of wells equipped with pumps, storage tanks, buildings, about 312 km of transmission and distribution pipelines, and the procurement of leak detection equipment, water meters, vehicles and engineering and consulting  - ii - services. These works will be executed by LWUA (on behalf of the WDs) with the assistance of engineering consultants and the completed water supply systems will be owned, operated and maintained by the respective WDs. The feasibility studies for water supply and sewerage will also be carried out by LWUA and MWSS respectively with the assistance of engineering consultants. The training of staff in designing and constructing water supply systems in small communities will be the responsibility of DPWTC. vi. All supply and civil works contracts will be awarded on the basis of international competitive bidding in accordance with the Bank's guide- lines, except that contracts for pipe cleaning and lining, construction of operational buildings and related equipment, estimated to cost about US$1.2 million equivalent, will be advertised only in local publications. There is adequate competition and foreign firms can participate. Urgently required off the shelf items for rehabilitation works estimated to cost less than US$10,000 each and not exceeding US$200,000 equivalent in the aggregate, will also be procured on the basis of local bidding. A preference limited to 15% of the c.i.f. price of imported goods or the prevailing customs duty, whichever is lower, would be extended to local manufacturers in the evaluation of bids. vii. The water supply project for each WD represents the least cost solution for meeting the project objectives at a discount rate of 12%. The internal economic rate (IER) of return based on the projected 1982 tariffs, which it is assumed the consumers will be willing to pay, is estimated to range between 3% in one WD and 7 to 11% in the other 5 WDs with an average, for the 6 WDs, of about 8%. The wide variations in the IER are due to differ- ent water rates and variations in the investment and operating costs. These returns are calculated by measuring the benefits from revenues only without taking into consideration health and other related benefits. The main justi- fication for the project rests on the need to provide the residents of the six cities, a modest level of safe water service rather than on the financial forecasts which do not fully measure the project's contribution to the economic and social development of the country. The hazards to health of failing to provide an adequate supply of safe water could be serious. viii. The project is suitable for a Bank loan of US$23.0 million equiva- lent for a term of 20 years including a grace period of 4-1/2 years. The Government of the Philippines will relend, on the same terms as the Bank loan, US$18.8 million of the proceeds of the loan to LWUA and US$4.0 million to MWSS and will allocate US$0.2 million to its DPWTC. LWUA will, in turn, relend US$18.0 million to the WDs repayable over 30 years inclusive of a grace period of 4-1/2 years.  PHILIPPINES APPRAISAL OF THE PROVINCIAL CITIES WATER SUPPLY PROJECT I. INTRODUCTION 1.01 The Government of the Philippines has requested a loan of US$23.0 million equivalent to finance the foreign exchange costs of a project con- sisting of the following four parts - (A) rehabilitation, construction and improvement of water supply systems of the 6 Water Districts (WDs) formed by the cities of Baguio, Cabanatuan, Lipa, Lucena-Pagbilao-Tayabas, San Fernando (La Union) and Tarlac, all on the island of Luzon (Map IBRD 12542), (B) feasi- bility studies for water supply projects in another 10 WDs, (C) feasibility studies and design for a first stage sewerage and sanitation improvment program in Metropolitan Manila and (D) training of staff in designing and constructing water supply systems in small communities. The total financing required for the project is estimated to be US$44.6 million including US$6.3 million for interest during the construction period of the water supply systems in the 6 WDs. The proposed Bank loan will finance about 52% of the total costs which represents the estimated foreign exchange expenditures plus US$3.3 million for interest during construction on the Bank loan for part A. 1.02 The Government will relend US$18.8 million of the proceeds of the Bank loan to the Local Water Utilities Administration (LWUA) to cover foreign exchange expenditures of parts A and B and US$4.0 million to the Metropolitan Waterworks and Sewerage System (MWSS) to meet the foreign costs of the con- sultants services for part C and $0.2 million to the Department of Public Works Transportation on Communication (DPWTC) for part D. LWUA will, in turn, relend US$18.0 million to the Water Districts (WDs) who will be the ultimate beneficiaries of the major part of the loan. 1.03 The water supply project in the 6 WDs is a part of the Government's long-term plan for development of water supplies in the population centers of the country and constitutes the first stage of development in these WDs under the master plans extending to the year 2000. Projects for improvement of water supplies in 12 other WDs have been financed by the United States Agency for International Development (USAID), Asian Development Bank (ADB) and Danish International Development Agency (DANIDA) (paras 2.06 and 2.07). 1.04 LWUA will be the agency of the Government responsible for implement- ing parts A and B, MWSS will be responsible for part C and DPWTC for part D. After completion, the water supply systems constructed under part A will be owned, operated and maintained by the respective WDs. 1.05 The proposed project would be the Bank's second operation in the Philippines in the water supply sector. The first loan (Loan 386-PH of US$20.2 million) was made in 1964 to the National Waterworks and Sewerage Authority (NWSA) for expansion, extension and improvement of the water supply system in Manila and improvement of NWSA's operations and management. NWSA's  - 2 - performance was, however, disappointing. Project execution was impeded by legal complications in contract awards and continually deteriorating financial operations of NWSA caused by inadequate tariffs, low collections, staff indis- cipline and poor management. A sum of US$19.6 million was disbursed against the loan and the balance of US$0.6 million was cancelled in 1970. Most of the project components were completed in 1972 (as against the original completion schedule of 1966) though some works continued until 1975. In 1971, NWSA was dissolved and MWSS was created under a new charter which took over the obli- gations of the Bank loan. Since the creation of MWSS, there has been improve- ment in the management of water supply operations of Metropolitan Manila. Water tariffs were increased in 1974 and all past Government loans to MWSS were converted into equity together with a restructuring of its authorized capital, which helped MWSS to earn a surplus in FY1975. 1.06 The project for 5 WDs was prepared by Camp Dresser and McKee Inter- national Inc., (CDM) and for the sixth WD (Baguio) by James M. Montgomery (JMM)/Adrian Wilson, all consulting engineers of USA. 1.07 Appraisal of the project was carried out by a mission composed of Messrs. Kapur and Saravanapavan and Ms Julius in September 1976. The first two had also visited the Philippines in November 1975 for identification of the project. II. THE SECTOR A. Background 2.01 The Philippines is a country of some 7,100 islands, many of which are uninhabited. Eleven large islands account for about 95% (300,000 km ) of land area of which some 70% is in the two main islands of Luzon and Min- danao. The country is endowed with abundant water resources. It has 8 major river basins, many lakes and streams and extensive groundwater resources. The average annual rainfall is about 3048 mm, with large variations caused by monsoon winds and mountains, ranging from 5486 mm in Baras on the island of Catanduanes to 889 mm in the Cagayan Valley on Luzon. The country's popula- tion has been growing at an annual rate of approximately 3% over the past decade and in 1975 was about 42.5 million; 12.3 million (29%) in urban areas and 30.2 million (71%) in rural communities. The growth rate of the urban residents is much higher at about 4% compared to about 2.6% for the rural dwellers. Metropolitan Manila, the nation's capital, with 5.6 million in- habitants occupies a dominant position in the country and provides a means of livelihood to some 46% of the total urban population. 2.02 The Philippines economy is based primarily on agriculture, which employs about half the labor force. During the 1960's the country's economy grew at a rate of about 5% per annum. As a result of improved monetary and fiscal policies and a series of social and economic reforms in the early 1970's the GNP grew by 10% in 1973 but after 1973, sharply rising prices for imported food, the oil price increase and the resulting prolonged recession in the  industrialized countries adversely affected the growth rate. Consequently, for the period 1970 to 1975 the GNP growth was around 6%. Prospects for growth at an annual rate of about 7% over the next 5 to 10 years are reasonably good. B. Sector Organization 2.03 The Government of the Philippines has taken some positive steps to organize the sector and upgrade its efficiency. NWSA, which was plagued by financial and labor problems, was dissolved in 1971 (para 1.05) and MWSS was created under a new charter to take over some of its rights and obligations. Only about 1,900 of the defunct NWSA's 2,700 employees were appointed in MWSS. Another step in this direction was the creation in 1973 of LWUA to develop and finance local water utilities in the population centers of the country. The sector is now divided into the following three parts: (i) Metropolitan Manila Area (MMA); (ii) large urban centers with populations exceeding 30,000; and (iii) small urban communities and rural areas. MWSS is responsible for Metropolitan Manila and for some 82 systems 1/ in the provincial cities. LWUA helps the formation of WDs in the large urban centers and provides them with technical and financial assistance. There are about 300 urban centers of which, as of September 30, 1976, 37 had formed WDs and another 30 had expressed interest in doing so. Responsibility for water supply in the urban centers which have not yet formed WDs, as well as for the rural areas, rests with the local authorities and it is this segment of the sector which needs particular development (para 2.04). At the request of the local authorities the Bureau of Public Works (BPW), through its Provincial Waterworks and Wells and Springs Sections, makes grants, gives technical assistance and constructs piped water systems or drills wells and develops springs according to local needs. The Community Development Division of the Department of Local Government and Community Development (DLGCD) also, in some cases, provides funds to the smaller communities for constructing wells and springs on a self-help basis, with the communities providing labor and local materials. There are approxi- mately 1,300 small piped water systems in the country. The number of rural communities with non-piped supplies is not known. The other agencies involved in the sector are: (i) Environmental Sanitation Division of the Department of Health (DOH), which exercises surveillance of water quality, approves sites for water resources development and is responsible for rural exereta disposal; (ii) National Water Resources Council which coordinates all water resource planning; and, (iii) National Pollution Control Commission which is responsibile for controlling the discharge of wastes into rivers, lakes and waterways. 2.04 The water supply and sewerage sector study, carried out in late 1976 by staff of the WHO/IBRD Cooperative Program, identified serious deficiencies in the provision of these basic services to those communities which are out- side MMA and are too small to form Water Districts eligible for LWUA support. Poor data, unclear responsibilities, lack of technical expertise in identify- ing and evaluating alternative affordable solutions, inappropriate construction 1/ This anomaly whereby MWSS continues to be responsible for a large number of provincial water supply systems persists from the time of dissolution of NWSA.  - 4 - techniques, poor operation and maintenance practices and serious budget con- straints all contribute to this unsatisfactory situation. The sector study report has identified, as a first priority, the need for training technical and managerial personnel to be drawn from DOH, BPW, LWUA, MWSS, DLGCD and other agencies active in the sector. Training would be organized by DPWTC. A sum of US$200,000 is included in the proposed loan (para 3.07) to cover the foreign exchange costs of equipment and expatriate experts for conducting the training courses. C. Sector Development and Financing 2.05 The present water supply facilities are inadequate throughout the Philippines. More than half the population does not have access to safe water supply. It is estimated that about 18.4 million people (43% of the country's population) are served by public water supply systems, of which 4.6 million are in Metropolitan Manila, 3.7 million in other urban centers and 10.1 million in rural areas. In Metropolitan Manila, 82% of the popu- lation has access to piped water but in other urban centers and in the rural communities only about 55% and 33% respectively get a safe supply through piped systems, artesian wells and springs. The remaining 24.1 million (or 57% of the population) manage with water, often of doubtful quality, from other sources such as open wells, handpumps, rain water cisterns, lakes, rivers and streams. In the piped water systems, the growing demand, the advanced age of the systems and the concomitant high leakage rates all have gradually reduced water main pressures. Many systems are operated to supply water only for a few hours a day to avoid loss of water during the off- peak hours. Sewerage and drainage facilities are also in great need of im- provement. In 1975 not a single municipality in the country was completely sewered. Many cities rely principally on pit latrines, individual septic tanks and the direct discharge of untreated sewage into nearby watercourses. 2.06 To remedy the past neglect of this sector, the Government has em- barked upon an ambitious water supply program. In Metropolitan Manila, the first part of an expansion project, financed by an ADB loan of US$51.3 million, which is now under construction is expected to increase water supply by about one-third (0.45 million m3/day). The second part of the project to be taken up after completion of the first part, will increase the system's capacity by a similar quantity and is expected to meet Metropolitan Manila's water requirements until about 1985. USAID has made loans aggregating US$25.0 million for feasibility studies, consulting services, construction of water supply projects in 5 WDs, and immediate improvement works in 10 WDs. The Government expects a further USAID loan of US$10.0 million in 1977 for addi- tional feasibility studies and immediate improvement projects. ADB made a loan of US$16.8 million for water supply projects in 5 WDs and DANIDA provided US$2.3 million equivalent for improvement of water supply in two WDs. The proposed Bank loan will finance water supply projects in 6 WDs and feasibil- ity studies for a second package of 10 WDs, as well as the Manila sewerage design studies. 2.07 The investment in water supply projects during the years 1973 through 1976 was about 445 million Pesos (US$59 million), or an average of about 111  million Pesos (US$15 million) per year. The agencies involved in the sector have proposed an investment of 4,471 million Pesos (US$596) million) or an average of 894 million Pesos per year (US$119 million) during the five years 1977-81. This would involve an eight fold increase in the average annual expenditures and is clearly beyond the capacity of these agencies to execute. It is probable that the investments during the period would be about half the proposed level. III. THE PROJECT A. Background and Objectives 3.01 The primary objective of the project is to provide improved water supplies by carrying out rehabilitation and construction works in six WDs and assisting in the development of efficient public utility organizations for these WDs. Population served with piped water supply will increase from 155,000 in 1977 to about 373,000 in 1985. The project also includes feasi- bility studies for supply projects in 10 WDs and review and design studies for a first stage sewerage project for the Manila Metropolitan Area. B. Description 3.02 A full description of the project is in Annexes 1, 2 and 3. The locations of the cities and the principal physical components are shown in Maps IBRD 12542 through 12548. A brief description of the project follows: Part A - Water Supply Except for the rehabilitation works which are so described all other items represent new construction in wells with pumps, storage tanks, pipelines, pumping stations, buildings and the procurement of water meters, chlorinators, hydrants and vehicles. The consultants' proposals for the six WDs were reviewed and in consultation with LWUA the WDs and consultants, the proposed investments for Baguio and La Union WDs were reduced by about 28%. Baguio Water District Rehabilitation of Buyog Spring and Santo Thomas Reservoir. Well field to produce about 130 1/sec with pumping system. About thirteen kilometers of transmisslon pipelines and two 3,800 m3 capacity storage tanks with a booster pumping station. About one hundred and ten kilometers of distribu- tion pipelines and the rehabilitation of Kilometer 8 storage tank.  - 6- Cabanatuan Water District Rehabilitation of two existing wells and the construction of a new well field to produce 180 1/sec and one well to produce about 12 1/sec. Two storage tanks each 1200 m3 capacity or additional wells to meet peak hour demand. About fifty kilometers of distribution pipelines. Lipa Water District Rehabilitation of two existing wells, storage tank and the construction of a well field to produce 100 I/sec. About thirty kilometers of distribution pipelines. Lucena-Pagbilao-Tayabas Water District Expansion and improvements to May-it Spring intake works and 8 km of transmission pipelines. Two storage tanks, 500 m3 and 700 m3 capacity, rehabilitation of Tongko stor- age tanks and 8 km of pipelines. About fifty kilometers of distribution pipelines. San Fernando (La Union) Water District Six induced infiltration wells in the Bauang and Baroro river banks to produce 100 1/sec and about thirty five km of transmission and distribution pipelines. Tarlac Water District Rehabilitation of two existing wells and the construction of a new well field to produce 180 1/sec. Two storage tanks each 2100 m3 and 600 m3 capacity. Twenty-four kilometers of distribution pipeline. General - In all Water Districts Immediate improvement works to provide better service. Leak detection surveys. Replacement of leaking service connections, provision of new service connections, meters, hydrants and chlorination equipment. Ten vehicles suitable for operations and maintenance, office accommodations, meter shops, laboratories and stores with required equipment. Test wells as needed for field investigations. Engineering Consultant services for the technical and economic review of pre- liminary engineering studies, updating demand projections, field investiga- tions, revision of cost estimates, final design, prequalification of con- tractors, preparation of bid documents, evaluation of bids and supervision of construction.  - 7- Part B - Feasibility Studies Feasibility studies for water supplies to a second package of 10 WDs. Part C - Manila Sewerage Studies Technical review of the 1967-69 feasibility study, additional economic and tariff studies, sanitation studies and detailed design. Part D - Training Training of staff of the DOH, BPW, LWUA, MWSS, DLGCD and other agencies active in the sector in designing and constructing water supply schemes for small communities. C. Cost Estimates 3.03 The estimated costs of the water supply project, the studies and training are summarized below and are detailed in Annexes 2, 3 and 4.  -8- Part A Foreign Exchange Water Supply Local Foreign Total Local Foreign Total Component Construction: -----million Pesos---- ----million US$ ----- percentage Water Districts Baguio 12.25 14.47 26.72 1.63 1.93 3.56 Cabanatuan 16.56 10.67 27.23 2.21 1.42 3.63 Lipa 6.44 6.18 12.62 0.86 0.82 1.68 Lucena 14.81 18.23 33.04 1.98 2.43 4.41 San Fernando 10.42 9.19 19.61 1.39 1.23 2.62 Tarlac 11.66 10.66 22.32 1.55 1.42 2.97 Sub Total; 72.14 69.40 141.54 9.62 9.25 18.87 49 Engineering 8.49 8.56 17.05 1.13 1.14 2.27 Contingencies Physical 11.44 11.13 22.57 1.53 1.49 3.02 Price 21.99 21.46 43.45 2.93 2.86 5.79 Land 2.72 - 2.72 0.36 - 0.6 Total Part A 116.78 110.55 227.33 15.57 14.74 30.31 49 Part B Water Supply Feasibility Studies: 4.62 6.60 11.22 0.62 0.88 1.50 59 Part C Manila Sewerage Studies: 17.32 30.15 47.47 2.30 4.02 6.32 64 Part D Training - 1.50 1.50 - 0.20 0.20 100 Total Project Cost Parts A-D 138.72 148.80 287.52 18.49 19.84 38.33 52 Interest during con- struction for Part A 22.73 24.45 47.18 3.03 3.26 6.'.9 52 Total Financing Required 161.45 173.25 334.70 21.52 23.10 44.62 52 3.04 The costs for the works are consultants' estimates developed from local and foreign price indices. These costs compare closely with recent bids received for similar projects financed by ADB (see Annex 1, para 5). The foreign exchange costs include both direct and indirect costs and are also based upon consultants' estimates. The total foreign exchange cost of  - 9 - 49% for water supply construction compares closely with other civil engi- neering construction in the Philippines. The cost estimates do not include duties and taxes on imported goods since LWUA is exempted from such charges. All prices are adjusted to a baseline of May 1977 and are reasonable. 3.05 Renardet Engineering - ICE (France) was retained by LWUA in Sep- tember 1976 to provide consulting engineering services for the ADB financed water supply project. LWUA has retained Renardet also for the detailed design and supervision of construction of the water supply for the 6 WDs. The amount of P 17 million provided for these services in the project cost estimates is 10% of the baseline cost including physical contingencies and is reasonable. Consultants to be appointed by LWUA will be responsible for making the master plans and feasibility studies for water supplies in 10 more WDs. Consultants to be appointed by IWSS will update past studies, prepare cost estimates, detailed designs and contract documents for a first stage sewerage project estimated at about US$170 million equivalent. The amount of US$6.3 million equivalent provided in the proposed loan for consultants' services will be about 3.7% of the estimated construction cost and is reasonable. An expa- triate senior technical advisor to the MWSS project manager will ensure the correct execution of the studies which also includes the development of an immediate sanitation program for priority areas that will not have water borne sewerage in the near future. All consulting agreements will provide for training of Filipino staff. The average man-month rate, excluding travel, housing and local costs for expatriate consultants is estimated to vary be- tween US$6,000 and US$7,000 equivalent, depending on the length and nature of the work. These costs are reasonable. 3.06 In view of the urgency to commence the project Renardet started work on January 3, 1977. It is therefore proposed that the Bank reimburse expendi- tures for those services incurred after that date. The total retroactive financing is estimated to be about US$200,000 equivalent. The Government, LWUA and MWSS will employ engineering consultants, whose qualifications, experience and terms and conditions of employment are satisfactory to the Bank, for the Water Supply Feasibility and Manila Sewerage Design Studies. 3.07 An amount of US$200,000 equivalent is provided for equipment and an expatriate engineer/consultant for training staff in designing and construc- ting water supply projects in small communities. No local costs are provided for this training in the project because the staff costs of the trainees will be met from the normal budgetary allocations of the agencies concerned. The Government will appoint an engineer/consultant to carry out the training program on terms and conditions acceptable to the Bank. D. Contingencies 3.08 The cost estimates are based on quantities derived from prelimin- ary designs prepared by the consultants who made the feasibility studies. Most of the works in the project are below ground and in the case of Baguio WD the terrain is hilly and some excavation in rock may be needed. Several  - 10 - high capacity water wells at depths greater than drilled in the past are pro- posed and one out of the four test wells drilled recently was dry. Some dry holes and quantity variations in pipeline construction are therefore antici- pated and a physical contingency of 20% has been allowed for Baguio and 15% for the other five cities in the project. These provisions are reasonable for projects of this type. The total amount provided is P 22.6 million equal to about 16% of the baseline cost. 3.09 On the basis of discussions with the National Economic Development Authority the consultants have made provision for price increases, on both civil works and equipment, these being almost equal in costs, of 10% in 1978 and 1979 and 8% per year thereafter to reflect declining inflationary trends. The total amount provided is P 43 million, about equally divided between local and foreign costs and equal to about 26% of the baseline cost plus the physical contingency. This provision is in general conformity with other forecasts for civil engineering construction, and is reasonable. E. Amount of Loan 3.10 The proposed Bank loan of US$23.0 million equivalent will finance the estimated foreign exchange costs of the project which represent about 52% of the total project costs, plus US$3.3 million for interest during construc- tion on Part A. Financing of interest during the construction period is jus- tified on the grounds of cash flow of the WDs, which have been formed only recently and can hardly meet their cash operating expenses. The present tariffs are very low and will be raised gradually, keeping in step with improvements in service (para 6.13 and 6.14). However, until the project is fully operational about December 1981 and substantial improvements in service are provided to the consumers (para 3.18), the WDs will not be able to generate sufficient cash to meet the interest on the project investment. F. Project Financing 3.11 Of the total financing of about US$44.6 million equivalent required for the project, US$23.0 million equivalent (52%) will be met from the Bank loan. The balance of about US$21.6 million equivalent (48%) will be provided as follows: (i) by LWUA, US$15.5 million equivalent (35%) - US$14.8 million for Part A and US$0.7 million for Part B; (ii) by WDs from their internal cash generation, US$3.8 million equivalent (8%) for Part A; and, (iii) by MWSS from its internal resources, US$2.3 million equivalent (5%) for Part C. The financing plan for Part A, the water supply construction project, is in para 6.05. G. Procurement 3.12 All procurement and civil works contracts will be awarded on the basis of international competitive bidding in accordance with the Bank Group Guidelines dated August 1975. A preference limited to 15% of the c.i.f. price of imported goods or the prevailing custom duty, whichever is lower, would be extended to local manufacturers in the evaluation of bids. LWUA's local procurement procedures are appropriate for contracts covering pipe cleaning  - 11 - and lining, operational buildings and related equipment estimated to cost about US$1.2 million equivalent, because the advantages of international com- petitive bidding would be clearly outweighed by the administrative costs involved. The local procurement procedures are different from international competitive bidding in that advertisement will be confined to local publi- cations. There is adequate competition and foreign firms can participate. Off the shelf items, each costing less than US$10,000 equivalent, urgently needed for the rehabilitation works, would also be purchased under LWUA's local procurement procedures. The total cost of such items would not exceed US$200,000 equivalent. H. Disbursements 3.13 Disbursements for civil works would be made at the rate of 15% of local expenditures or 100% of foreign exchange costs. For equipment and sup- plies, disbursements would be at the rate of 100% of the foreign exchange cost of imported equipment, 100% of the ex-factory price of locally manufactured equipment and 65% of imported goods procured locally. For costs of consul- tants and training, disbursements would be 100% of the foreign exchange costs. Interest during construction would be disbursed up to November 30, 1981 to a maximum of S$3.3 million. The quarterly disbursement forecast is shown in Annex 5. 3.14 It is proposed that any unspent balance of the loan be used in making further extensions to the distribution networks in the project WDs. I. Design, Construction and Supervision of Construction of Water Supply Project 3.15 LWUA will be responsible for carrying out the project. Renardet will assist in the updating of the preliminary engineering studies, making leakage surveys, preparation of detailed designs and bid documents, evalua- tion of bids, supervision of construction and training of staff. 3.16 Authority to make contractual decisions, to sign contracts on be- half of the WDs, and to make all decisions relating to the proposed works will be delegated to LWUA by the respective WDs. LWUA has a division within its organization in the Technical Services Department to provide the overall supervision and administration for the implementation of on-going projects in WDs. This division is headed by a Project Manager who is a qualified and experienced senior water supply engineer. The Project Manager has project officers, who are qualified water supply engineers, for carrying out the on going projects. One project officer is normally assigned to one or two WDs depending on the degree of attention needed. Project offices are set up in each WD to supervise construction at the local level. These local offices are staffed by the consultants' supervisory personnel and WD operational staff who will be trained by the consultants. The responsible LWUA project officer routinely visits the local project office, inspects the works and reports progress and problems to the Project Manager.  - 12 - 3.17 The Project Manager is responsible for providing the supervision and administration of the project. This includes approval of the technical proposals and documents submitted by the consultants and all matters related to procurement. He will advise the WDs on technical matters and will be res- ponsible for liaison with other Government agencies concerned to ensure the timely acquisition of land for the project. The Project Manager is also res- ponsible for the day-to-day liaison with the consultants and WDs, and for monitoring the progress of project implementation. He will have to take par- ticular care in the award of contracts to avoid the legal complications expe- rienced in the first loan to the sector (see para 1.06). It is too early to assess the efficiency of this new division which is currently responsib'le for the ADB financed projects. Close supervision by the management consultants will be needed to insure the successful completion of the project on schedule (see para 4.10). Bank supervision missions would be scheduled to make semi- annual visits from about July 1977 until the end of the construction of major project components in 1980. J. Implementation Schedule 3.18 Construction is expected to begin about January 1, 1978, with com- pletion of all works on December 31, 1981 (Annex 6). The closing date of the loan will be three months later - March 31, 1982 - to allow for unforeseen delays. Much of the major construction works in the laying of transmission and distribution pipelines, wells and storage tanks are expected to be com- pleted by the end of 1980. These facilities will undergo testing and will be gradually brought into service in the following year when final completion certificates will be issued. During 1980 and 1981 meters and service con- nections will be provided and other minor works such as pipe cleaning and lining completed. In most of the cities the new construction involves re- placement of pipelines, wells and storage tanks which are long past their useful lives (see para 3.01). The water supply service will, therefore, be intermittent and unsatisfactory until the completion of all works in December 1981. 3.19 Land acquisition for the well and storage tank sites and operational buildings should take place before construction starts. The extent of land needed is relatively small, in the order of an eighth of a hectare or less for the wells and a little more for the storage tanks and buildings. Most of the lots that have been identified are vacant and resettlement of people is not anticipated. LWUA will acquire land in accordance with a timetable consistent with the construction program and as shown in the implementation schedule (see Annex 6, part A). K. Environmental Impact 3.20 The proposed project would directly benefit the sanitation in the 6 WDs by making it unnecessary for a substantially greater proportion of the population to use insanitary private shallow wells. In each WD there is a provision for improving and extending water service to a larger number of people thereby improving their personal hygiene and to a smaller degree environmental sanitation. LWUA is aware that environmental sanitation will have to be improved with the next stage of water supply development and  - 13 - preliminary proposals for conventional sewerage systems have been made by CDM. None of the cities can, however, at the present time provide the necessary funds nor the trained personnel for the construction and mainte- nance of conventional sewerage systems. Planning for the future will there- fore include studies for affordable low cost drainage and sanitation systems. 3.21 The more densely populated parts of the service areas of the proj- ect WDs are conveniently situated for the drainage of their used water, which includes kitchen and bathroom wastes and also septic tank and cesspool over- flows, into nearby rivers. In Baguio WD the hazards to the health of down- stream users of the river water has been recognized and a new sewage treatment plant to treat sanitary sewage is under construction. The National Pollution Control Commission is expected to set more stringent standards for such dis- charges in the future, at which time the other project WDs will also have to consider some degree of sewage treatment. IV. THE BORROWER, THE BENEFICIARIES AND THE IMPLEMENTING AGENCIES A. The Borrower and the Beneficiaries 4.01 The Government of the Republic of the Philippines will be the bor- rower and will relend under subsidiary loan agreements and on the same terms and conditions as the Bank loan: (a) about 82% of the proceeds of the loan (US$18.8 million) to LWUA to cover the foreign exchange expenditures plus interest during construction on the Bank loan for the water supply projects in the 6 WDs and the foreign exchange expenditures of the feasibility studies for development of water supply in another 10 WDs, and (b) about 17% (US$4.0 million) to MWSS for the Manila Sewerage Study. The execution of the subsi- diary loan agreements will be a condition of effectiveness of the Bank loan. The Government will allocate the remaining about 1% (US$200,000) to its DPWTC for training of staff in designing and constructing water supply systems in small communities. LWUA will, in turn, relend US$18.0 million to the WDs. 4.02 The main beneficiaries of the Bank loan will be the 6 Water Dis- tricts in the cities of (i) Baguio, (ii) Cabanatuan, (iii) Lipa, (iv) Lucena- Pagbilao-Tayabas, (v) San Fernando (La Union) and (vi) Tarlac, all on the main island of Luzon. LWUA and MWSS will be the beneficiaries of the loans for the feasibility and design studies and the DPWTC will be the beneficia- ry of the training component in the loan. B. Implementing Agencies 4.03 LWUA will be the executing agency responsible for implementing the water supply project. After completion, the project facilities will be owned, operated and maintained by the WDs. The Feasibility Studies for the next group of 10 WDs and for the Manila Sewerage Study will be tho responsibility of LWUA and MWSS respectively.  - 14 - C. Local Uater Utilities Administration (LWUA) 4.04 LWUA was established in September 1973 with an authorized capital of 500 million Pesos (US$66.7 million), in pursuance of the Provincial Water Utilities Act of 1973 embodied in Presidential Decree No. 198, primarily to function as a specialized institution for the promotion, development and financing of local water utilities. Its main objectives are: (i) to assist in the formation and development of technically sound and financially viable locally controlled WDs, (ii) to provide loans to WDs for the improvement and expansion of water supply and waste water disposal systems, (iii) to provide technical assistance and personnel training for WDs and (iv) to es- tablish and enforce standards of water quality and service. It is attached to DPWTC and enjoys more or less complete autonomy, subject to the general policy directives of Government. The only control exercised by DPWTC is that the award of all contracts must have its prior approval. This is not expected to cause any delays in the award of contracts under the project. 4.05 LWUA is governed by a Board of Trustees composed of a chairman and four other members appointed by the President for a 5-year 1/ term each having experience in certain prescribed fields of activity (e.g. finance, economics, management, engineering). At least 3 of the Trustees must be employees of the National Government. The Trustees appoint the General Manager, who is also an ex-officio member of the Board, and is responsible for all aspects of LWUA's management subject to the policies established by the Board. The Trustees also appoint a secretary and a legal counsel. All other appointments are made by the General Manager but supervisory level appointments require the Board's confirmation. LWUA and WDs were initially exempt from civil service regula- tions but with the promulgation of Presidential Decree No. 807 in October 1975, they have been brought under the jurisdiction of the Civil Service Commission. No administrative difficulties are, however, being experienced by LWUA (and WDs) as a result of this change. 4.06 LWUA has five main departments, namely (i) Technical Services Department, (ii) Regulatory Department (iii) Loans and Programs Department, (iv) Administrative Department and (v) Office of Financial Services, besides the Offices of the Legal Counsel, Secretary 2/ and Auditor. Its organization has been developed with the assistance of the management consultants and is satisfactory (para 4.10). LWUA's organization chart is shown in Annex 9. Its present staff of about 280 is adequate for its current operations, but will need to be augmented as its operations expand with the formation of more WDs. LJUA will consult the Bank before making any major changes in its organization. 4.07 LWUA's present General Manager is a competent civil engineer and heads a good management team of experienced department chiefs. Ilowever, most 1/ The Act provides that of the first four trustees initially appointed, one shall serve a term of 5 years, the second 4 years, the third 3 years and the fourth 2 years. 2/ At present the Offices of Legal Counsel and Secretary are combined.  - 15 - of the younger engineers and other staff, though qualified and energetic, lack experience. LWUA recognizes this deficiency and has been conducting various training courses for such staff (para 4.12). The present management team, assisted by consultants, is adequate and can be relied upon to execute the Bank project in a satisfactory manner. Future appointments to the position of General Manager of LWUA will be made only after giving the Bank a reason- able opportunity to comment on the candidate's qualifications and experience. D. USAID Financed Consulting Services 4.08 For good reasons LWUA has been relying heavily on foreign consultants. Its own staff is small and relatively inexperienced. Training of LWUA and WDs personnel has been an important part of the consultants assignments, and will continue to be so for some time. The consultants services have been financed by USAID. 4.09 CDM has carried out feasibility studies for 10 Water Districts of which projects in 5 WDs have been financed by ADB and 5 are included in the package of 6 proposed for Bank financing. They have also completed a pre- feasibility survey of about 100 cities from which LWUA will select some 30- 40 cities for immediate improvement and rehabilitation of their water supply systems. These are referred to by LWUA as "Demonstration Projects". In June, 1976 CDM was commissioned to carry out feasibility studies for another 10 cities. In carrying out these studies, CDM has been using LWUA's young engi- neers (cadets) for the field and desk studies and has thus been training them to undertake such studies independently in due course. 4.10 JMM has also been providing engineering and management consulting services to LWUA. It carried out feasibility studies for water supply proj- ects in 6 districts of which 5 have been financed by USAID and one (Baguio) is included in the proposed Bank project. JMM's current consulting con- tract covering about 650 expatriate man-months over the period July 1974 to January 1979 includes, inter alia: (i) institutional development of LWUA and up to 30 water districts; (ii) training programs in engineering, water dis- trict management and operation; (iii) comprehensive technical assistance for design and construction of the 5 USAID funded projects and up to 60 interim improvement projects; and, (iv) general technical advisory assistance. Sycip, Gorres, Velayo and Company (SGV), a local management consulting firm working as a sub-contractor to JMM, has prepared accounting procedure manuals for LWUA and WDs. 4.11 These services are useful and in due course should enable LWUA to operate independently and without any outside help. E. Training and Staff Development 4.12 Recognizing that training and development of staff in the newly created organizations of LWUA and WDs are vital for their future successful operations, LWUA with the assistance of its consultants, has been pursuing a vigorous training program. Extensive training facilities have been pro- vided ranging from seminars for policymakers (i.e. Directors of WDs) and  - 16 - managers to courses for accountants, operators, and other staff. Overseas training for several LWUA engineers and WD managers was arranged through a grant from USAID. LWUA has also been operating a cadetship course under which young engineers receive full time training and take examinations for appointment to regular positions. 37 young engineers have thus been recruited on completion of their training and passing the examination. Renardet will provide practical training to LWUA and WDs staff (para 3.05). These training and staff development arrangements are satisfactory. F. Water Districts 4.13 The Presidential Decree of 1973 authorized the formation of Water Districts on a local option basis by a resolution of the municipality or local authority. Once a district is formed, the local authority ceases to have jurisdiction over it and the district can be dissolved only by a resolution of its Board of Directors under the procedure stipulated in the Act. The Board comprising 5 members, representing various groups (civic, professional associations, business, educational, women's organizations etc.) is appointed by the mayor or governor from amongst the nominations made by the respective groups, for a six-year 1/ term. To guard against any political influence, the Act forbids appointment of any public official to serve as a Director. Formulation of policy is the function of the Board and its implementation is the responsibility of the General Manager, whom the Board appoints. Financial viability of operations is a basic require- ment and the Act makes specific provisions for setting of water rates (para 6.11). The Water Districts can borrow money for improvement of water supply but if a district has borrowed funds from LWUA it cannot incur any further indebtedness without LWUA's prior approval. 4.14 To qualify for financial assistance from LWUA, a Water District must hold a "Certificate of Conformance" (CC) or a "Conditional Certificate of Conformance" (CCC) issued by LWUA. A CC is granted by LWUA after a WD meets certain minimum standards of utility management in quality of service. However, since a complete conformance with LWUA's minimum standards may not be possible in the formative years of a Water District, LWUA awards a CCC upon being satisfied that the WD has adopted procedures and practices to as- sure such conformance within a reasonable time. Annex 10 shows the status of formation of the Water Districts and the issue of CCCs as of September 1976. As of that date no WD had qualified for a CC. G. The Project Water Districts 4.15 The 6 WDs covered by the proposed Bank project were formed on various dates in 1974 and 1975 and each has been issued a CCC by LWUA during the period January - August, 1975 (serials 12 and 14 - 18 of Annex 10). A typical organiation chart of a WD developed by LWUA on the recommendations 1/ The Act provides that of the five initial directors of a newly formed district, 2 shall be appointed for a maximum of 2 years, 2 for a maximum of 4 years and one for a maximum of 6 years.  - 17 - of the management consultants is at Annex 11. This Chart shows that a WD should have five main divisions - Administrative, Commercial, Engineering, Production and Construction/Maintenance - each under the charge of a Division Chief, besides the offices of Secretary, Legal Counsel and Auditor. The Baguio WD which has about 7,000 connections and employs about 120 persons, has adopted this organization but the others which are relatively small and employ between 20 and 55 persons are presently combining the technical functions (engineering, production, construction and maintenance) in one or two divisions. The project WDs and their organizations are briefly explained in Annex 12. H. Billing and Collections 4.16 Billing in all the 6 WDs is on a monthly basis. Except in Lucena- Pagbilao-Tayabas WD, billing work is up-to-date and customers accounts are maintained on a current basis. Consumers are required to pay the bills in the district offices, by prescribed dates, and delinquents have to pay a penalty for delayed payment. Non-payment, after due notice, entails discon- nection and payment of a fee for reconnection. Collection efficiency is satisfactory and accounts receivable are small. I. Metering 4.17 Universal metering of all service connections is the declared policy of LWUA. In Baguio all consumers are metered but in the other 5 WDs most of the connections are without meters. In mid-1976 LWUA procured some 3,300 water meters and allocated 1,000 to Lipa WD, 800 to Cabanatuan, and 500 each to Lucena, San Fernando (La Union) and Tarlac WDs. These are gradually being installed and after they are installed about half the con- sumers in these 5 WDs would be metered. 4.18 The experience with the installed meters indicates that metering will eliminate considerable wastage, improve pressures in the system and increase revenues. An exercise was carried out to analyze the economic costs and benefits of metering in the 6 WDs. This is shown in Annex 13. The analysis indicates that the metering costs are considerably lower than the estimated benefits. For these WDs therefore, the policy of metering is fully justified and should be supported. J. Accounts and Audit 4.19 The management consultants prepared in 1975 a comprehensive "Com- mercial Practices Manual" based on commercial accounting principles for adoption by all the WDs (para 4.10), and trained qualified LWUA staff in the concepts of the manual. The trained LWUA staff have the responsibility for training WDs' staff and assisting them in implementing the procedures. LWUA has helped install the commercial accounting systems in some of the districts formed earlier and is currently training staff for introducing them in the 6 WDs. Good progress has been made in the Baguio and Cabanatuan WDs; the other 4 WDs are in various stages of learning and implementing the manual.  - 18 - 4.20 The consultants also prepared in September 197o an accounting manual for LWUA's headquarters, which is currently being tried. By January 1, 1978 LWUA and WDs will fully adopt the commercial accounting system proposed by the consultants. 4.21 Section 20 of Presidential Decree No. 198 provides that the WDs' accounts shall be audited by a certified public accountant not in government service. However, since the 6 WDs in the proposed Bank project have been in existence for very short periods and have not been maintaining accounts on a regular basis, their accounts have not been audited yet. An initial balance sheet of each of the 6 WDs as of December 31, 1976, duLy certified by an independent auditor acceptable to the Bank, will be submitted to the Bank by September 30, 1977, and commencing with FY 77, the audited accounts of these WDs and the auditors' report will be sent to reach the Bank not later than 6 months after the close of each fiscal year. 4.22 LWUA's accounts are required to be audited by the Government auditors. For this purpose, a team from the Audit Commission is permanently stationed in LWUA, but no audit reports have been produced as yet. Thus, whether or not the Government audit would be satisfactory cannot be determined at this stage. In principle the audit of LWUA's accounts by the Government's Auditors is accept- able. However, if in the opinion of the Bank this audit is not adequate, the Bank will require that LWUA's accounts be audited by an independent auditor acceptable to the Bank. Beginning with the year ending December 31, 1976 a copy of LWUA's audited accounts and the auditors' report will be sent to the Bank not later than 6 months after the close of each fiscal year. V. JUSTIFICATION A. General 5.01 The six project WDs comprise a fourth package of water supply pro- jects in LWUA's ambitious long range development plan to provide water supplies to some 300 provincial cities where circumstances are appropriate to the creation of water districts. Most of these cities have old water sys- tems, often past their useful lives and consequently suffer from high leakage, unreliable service, inadequate disinfection and poor maintenance. The deli- vered water is at best of poor quality and bacteriologically unsafe. The existing water supply systems and water sources for the project WDs are des- cribed in Annex 7. 5.02 The project will help reduce these problems in the 6 project WDs by improving institutional efficiency, extending water supply services to the extent feasible in a first phase, and training staff to design, operate and maintain water systems. The long range objective is to put the water supply program on a self supporting basis using the projects assisted by the proposed loan as a vehicle. The funds included in the loan for the feasibility studies will provide the means for bringing ten more cities into the program.  - 19 - B. Population and Demand Projections 5.03 In Annex 8 are discussed the population and water demand projec- tions for each of the six WDs up to 1985. In the previous decade the country as a whole had a high annual population growth rate of about 3% because of high fertility and low mortality. The cities in the project WDs, however, had growth rates ranging from 2.5% to 4.1%. In the tourist cities of Baguio and San Fernando (La Union) there is no reliable data on the seasonal population and several assumptions were made in the preliminary studies which will require updating before detailed design. 5.04 Because of the project, the total service area of the 6 WDs is expected to increase from about 3,646 ha to 9,670 ha and served population from 31% to 59% by 1985 as summarized below: Water Present Number Popula- Project Pop- Number Popula- Dis- Service Popula- of Con- tion Service ula- of Con- tion trict Area tion nections Served % Area tion nections Served % ha '000 '000 ha '000 '000