Nicaragua - Second Managua Water Supply and Earthquake Reconstruction Projects

FOR OFFICIAL USE ONLY Report No: 22b9 PROJECT PERFORMANCE AUDIT REPORT NICARAGUA: SECOND MANAGUA WATER SUPPLY PROJECT (LOAN 808-NI) AND WATER SUPPLY COMPONENT OF EARTHQUAKE RECONSTRUCTION PROJECT (CREDIT 389-NI) December 8, 1978 Operations Evaluation Department 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.  FOR OFFICIAL USE ONLY PROJECT PERFORMANCE AUDIT REPORT NICARAGUA: SECOND MANAGUA WATER SUPPLY PROJECT (LOAN 808-NI) AND WATER SUPPLY COMPONENT OF EARTHQUAKE RECONSTRUCTION PROJECT (CREDIT 389-NI) Table of Contents Page No. Preface (i) Project Performance Audit Basic Data Sheets (ii) Highlights (iv) Project Performance Audit Memorandum 1 -2 Attachment: Project Completion Report (Loan 808-NI and Credit 389-NI) I. Introduction Al II. Project Preparation and Appraisal A3 III. Project Content and Execution A3 IV. Operating Performance A10 V. Financial Performance All VIT Institutional Performance A17 VII. Justification A19 VIII. Conclusions and Lessons to be Learned A21 Annexes: 1A Loan 808-NI - Project Description 1B Loan 808-NI - Summary-- Project Results 2A Loan 808-NI - Comparison of Appraisal Forecast and Actual Cumulative Schedule of Disbursements 2B Cr. 389-NI -Comparison of Appraisal Forecast and Actual Cumulative Schedule of Disbursements 3 Loan 808-NI -Withdrawals of the Proceeds of the Loan, Original, Modification after the Earthquake and Final 4 Loan 808-NI -MonitoringIndicators 5 Loan 808-NI -Comparison of Appraisal Forecast and Actual Income Statements 6 Loan 808-NI -Comparison of Appraisal Forecast and Actual Balance Sheet 7A Loan 808-NI -Incremental Benefits and Costs 7B Loan 808-NI/ Cr. 389-NI - Incremental Costs and Benefits since the Proj ect Initia-tion 8 Loan 808-NI - Disbursements and Project Costs 9 Cr. 389-NI - Detailed Project Description 10 Loan 808-NI/ Cr. 389-NI - Transmission and Distribution Pipelines Added between 1972-77 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.  PROJECT PERFORMANCE AUDIT REPORT NICARAGUA: SECOND MANAGUA WATER SUPPLY PROJECT (LOAN 808-NI) AND WATER SUPPLY COMPONENT OF EARTHQUAKE RECONSTRUCTION PROJECT (CREDIT -38-NT) Preface This report presents the result of a performance audit of the Second Managua Water Supply Project and the water supply component of the Earthquake Reconstruction Project in Nicaragua. The Second Managua Water Supply Project was supported by a loan of US$6.9 million (Loan 808-NI). Following the earthquake in Nicaragua, the Bank extended a credit of US$20 million (Credit 389-NI) to the Government of Nicaragua, to support an earthquake reconstruction project with a water supply component of US$2.5 million. The second Managua Water Supply Project and the water supply component of the Earthquake Reconstruction Project were, as events turned out, essentially two financing sources for the same pro- ject and have therefore been dealt with jointly in the performance audit. The Project Performance Audit Report consists of a short Memorandum, prepared by the Operations Evaluation Department (OED), and a Project Completion Report (PCR), prepared by the Latin America and Caribbean Regional Office (LAC). OED has reviewed the PCR, the Appraisal Report and other project documents and discussed the project with Bank staff. Comments made by OED on an earlier draft of the PCR are reflected in the present version. On the basis of this limited review process, OED finds the PCR to be reasonably comprehensive, balanced and internally consistent and accepts its analysis and conclusions. The memorandum therefore summarizes the main findings of the PCR, underlines certain noteworthy features of the project and highlights the points of particular interest.  (ii) PROJECT PERFORMANCE AUDIT BASIC DATA SlFET NICARAGUA: SECOND MANAGUA WATER SUPPLY PROJECT (LOAN 808-NI) Key Project Data Original Actual or Item Plan 1/ Current Estimate Total Project Cost (US$ million) 9.97 8.84 Underrun (%) 11% Loan Amount (US$ million) 6.9 6.9 2/ Disbursed 6.9 6.9 2/ Cancelled 0.0 Repaid to Sept. 30, 1978 0.3 Outstanding to Sept. 30, 1978 6.6 Date Physical Components Completed 12/1975 10/77 Proportion Completed by Appraisal Target Date (%) 100 80 Proportion of Time Overrun (%) - 43 (Incremental) Internal Rate of Return (%) 11% 11-14% Financial Performance satisfactory satisfactory Institutional Performance satisfactory Good Other Project Data Item Original Actual or Plan Revisions Current Estimate First Mention in Files or Timetable 1/6/70 Government's Application 2/22/71 Negotiations 1/17/72 1/17/7.2 Board Approval 3/7/72 3/ 7/72 Loan Agreement 3/17/72 3/17/72 Effectiveness 1/ 6/15/72 4/26/72 Closing Date 1/ 9/30/75 6/3/76 10/25/77 Borrower Empresa Aguadora de Managua Executing Agency " " " " Fiscal Year of Borrower December 31 Follow-on Project Name Managua Water Supply III Loan Number 1496-NI Amount US$10.1 million Mission Data Item Month/ No. of No. of Man- Date of Year Weeks Persons weeks Report Identification Preparation 2/71 1 3 3 2/26/71 Appraisal 5/71 2 2 4 6/11/71 Post-appraisal 2/72 1 2 2 2/25/72 Total 4 9 Supervision 1 11/72 1 2 2 11/21/72 2 2/73 1 2 2 2/08/73 3 6/73 1 2 2 6/08/73 4 11/73 1 1 1 12/14/73 5 6/74 1 2 2 8/02/74 6 2/75 1 2 2 3/28/75 7 11/75 1 2 2 12/01/75 8 3/76 1 1 1 3/24/76 9 10/76 1 3 3 11/12/76 Total 9 17 1/ An agreement modifying the Loan Agreement and extending the Closing Date to June 6, 1976, was signed on June 6, 1973 and was declared effective on August 7, 1973. 2/ Country exchange rate: US$1.00 = 7 Cordobas (appraisal and actual). (iii) PROJECT PERFORMANCE AUDIT BASIC DATA SHEET NICARAGUA: WATER SUPPLY COMPONENT OF EARTHQUAKE RECONSTRUCTION PROJECT (CREDIT 389-NI) Key Project Data Original Actual or Item Plan Current Estimate Total Project Cost (US$ million) 3.0 2.95 Underrun (%) 2% Credit Amount (US$ million) 2.5 Disbursed 2.5 1/ Date Physical Components Completed 12/75 3/78 Proportion Completed by Appraisal Target Date (%) 100 60 Proportion of Time Overrun.(%) 75 (Incremental) Internal Rate of Return (%) n.a. 40% 2/ Financial Performance Not satisfactory Satisfactory Institutional Performance Satisfactory Good Other Project Data Original Actual or Item Plan Revisions Cutrent Estimate First Mention in Files 12/27/72 or Timetable Negotiations 4/18/73 Board Approval 5/08/73 Credit Agreement 6/06/73 Effectiveness 8/07/73 Closing Date 6/30/76 12/31/77 6/30/78 12/31/78 Borrower Government of Nicaragua Executing Agency Empresa Aguadora de Managua Fiscal Year of Borrower December 31 Follow-on Project Name Third Managua Water Supply Project Loan Number 1496-NI Amount US$10.1 million Credit Agreement Earthquake Reconstruction Project Mission Data Item Month/ No. of No. of Man- Date of Year Weeks Persons weeks Report Identification 18/73 Appraisal 2/73 2 2 4 2/73 Supervision Missions made jointly with Loan 808-NI Country Exchange Rates: C6rdobas (C$): 7 = US$ 1 (Appraisal and Actual) 1/ As of 10/26/78, US$1,200 was undisbursed, which is covered by a pending letter of credit. 2/ Loan 808-NI and Credit 389-NI taken together. (iv) PROJECT PERFORMANCE AUDIT REPORT NICARAGUA: SECOND MANAGUA WATER SUPPLY PROJECT (LOAN 808-NI) AND WATER SUPPLY COMPONENT OF EARTHQUAKE RECONSTRUCTION PROJECT (CREDIT 389-NI) Highlights The Second Managua Water Supply project was amended and supplemented by a credit for water supply, as part of a larger earth- quake reconstruction project, following the major earthquake which struck Nicaragua in December 1972. The amended project was success- fully implemented within the estimated cost and met its principal objectives although with a time delay of about 21 months. The finan- cial performance of the water supply company was understandably weak in the years immediately following the earthquake but has been improving, partly due to a series of recent tariff increases. The amended project ib expected to yield an incremental financial rate of return on investment (IFRR) of about 40%. Excluding the water supply component of the earthquake reconstruction project, the IFRR is around 11%, about the same as calculated at appraisal. Perhaps the most striking and satisfactory feature of the experience of the project was the fact that it was successfully completed and its principal objectives met in the face of special and difficult circumstances, due in no small part to the high degree of competence of the utility (PCR paras. 6.01-6.07)and the construc- tive and flexible response of the Bank to the needs of the country. The Bank responded, for example, by modifying the original Loan Agreement (PCR para. 1.06), helping to expedite certain urgent pro- curement matters (PCR para. 3.12), changing the project description (PCR paras. 3.01-3.03) and adopting a helpful posture towards the utility's altered financial situation (PCR paras. 5.02, 5.07). The following additional issues may also be of particular interest: - factors influencing the utility's excellent performance (PCR paras. 6.01-6.07 and 8.01(i)); and - the importance of completing the design of the project before loan approval, thereby reducing price and physical contingencies (PCR paras. 3.15 and 8.01(ii)). p a PROJECT PERFORMANCE AUDIT MEMORANDUM NICARAGUA: SECOND MANAGUA WATER SUPPLY PROJECT (LOAN 808-NI) AND WATER SUPPLY COMPONENT OF EARTHQUAKE RECONSTRUCTION PROJECT (CREDIT 389-NI) 1. Loan 808-NI, for US$6.9 million, was made to Empresa Aguadora de Managua (EAM) to finance the foreign exchange component of a US$9.97 million water supply project in Nicaragua. The loan was signed in March 1972, became effective in April 1972 and was fully disbursed in October 1977. Following an earthquake in December 1972, the Bank Group extended a credit for US$20 million to the Government of Nicaragua (Credit 389-NI) to support an earthquake reconstruction project with five components: sites and services, industry, education, water supply and power. Total project costs were estimated at US$30 million with the water supply com- ponent accounting for US$3 million. Under the terms of the credit, signed in June 1973, US$2.5 million was allocated to the water supply component, for onlending to EAM, which acted as the executing agency. This amount was to help finance the local and foreign costs of repairing and rehabilita- ting parts of the damaged water supply installations in Managua and to cover part of the local cost of civil works under Loan 808-NI, as a consequence of the changed circumstances resulting from the earthquake. The Second Managua Water Supply Project was then amended, since its original objectives and scope changed as the earthquake destroyed most of the city (PCR paras. 3.01-3.07). The amended project and the water component of the earthquake reconstruction project were complementary, were executed concurrently and were basically two financing sources for the same project. 2. The amended project - consisting mainly of the construction and repair of reservoirs, water wells, a pumping station and administrative facilities, and the installation and repair of service connections, trans- mission and distribution pipelines - was successfully implemented within the estimated cost but with a time delay of about 21 months (PCR paras. 3.09-3.10 and 3.13-3.17)1/. Supervision of the project was satisfactory. The operating results have been impressive and, in some respects, better than estimated at appraisal (PCR paras. 4.01 and Annex 4). The financial performance of the company was understandably weak during the years follow- ing the earthquake, which destroyed many of EAM's assets, but is improving, and the rate of return on unrevalued assets for 1978 is expected to surpass the 5% agreed to in the credit documents of 1973 (PCR paras. 5.01-5.06 and Annexes 5-6). In spite of the difficult circumstances, EAM was able to finance about 32% of the investment program during 1972-77. 3. The main objectives of the project, i.e. to provide a safe, potable water supply to Managua's population and to repair earthquake damages, were successfully met. The amended project was, in retrospect, the least cost solution in meeting these objectives and is estimated to yield an incremental return on the investment of about 40% (PCR paras. 3.04 and 7.01-7.05). Excluding the earthquake component, the project is esti- mated to have an incremental return of about 11%, the same as estimated at appraisal (PCR Annexes 7A and 7B). The two returns are not strictly comparable, due to the slight modification of the project after the earth- quake occurred. 1/ Although 90% of the project was in operation six months after the target date. -2- 4. A striking and satisfactory feature of the experience of Loan 808-NI and Credit 389-NI was the fact that the project was success- fully completed and the parties involved responded in a very productive and cooperative manner in the face of special and difficult circumstances. Despite widespread destruction of certain water supply facilities, service was restored in 15 hours, thus helping to cope with one element in a potentially dangerous sanitary situation (PCR paras. 6.02 and 8.02). The percentage of the population served in Managua is now impressively high - partly due to the rapid increase in the number of connections, the normalization of the volume of water sold, and the positive efforts to provide the low income population with an access to water supply (e.g., through tariff policy and arrangements to facilitate the payment of con- nection fees). Water losses, which had understandably increased substan- tially following the earthquake, have now been reduced to an acceptable level (PCR paras. 4.01, 5.04 and Annex 4). 5. The success of the project is in no small measure due to the high degree of competence of EAM (PCR paras. 6.01-6.07). The Bank also responded constructively and flexibly to the needs of Nicaragua, not merely through its speed in extending the credit when the emergency arose, but also, for example, through its pragmatic modifications to the loan agreement (PCR paras. 1.06 and 6.08). Attachment NICARAGUA: SECOND MANAGUA WATER SUPPLY PROJECT (LOAN 806-NI) AIAJ WATER SUPPLY COMPONENT OF EARTHQUAKE RECONSTRUCTION PROJECT (CREDIT 389-NI) COMPLETION REPORT I. INTRODUCTION 1.01 In 1970, Nicaragua had an estimated population of 1.9 million, of which 45% lived in urban areas. The Nicaraguan Government has attached high priority to public water supply in these urban areas, especially in Managua. The Pan-American Health Organization reported that by 1971 about 67% of the urban population had water house connections and 33% had sewerage connections, while about 72% of the Managua population were served by water house connec- tions. Managua, the capital, is the center of Nicaragua's economic activity with a population almost seven times as large as Leon, the second largest city. The 1971 census reported that the population of Managua was 399,000 inhabitants, or about 21% of the country's total population. Managua's population growth averaged 5.9% per year between 1950 and 1963 and 6.3% per year from 1950 to 1971, almost twice the rate of the country's population growth as a whole. 1.02 In December 23, 1972, Managua was struck by one of the worst earth- quakes recorded in Latin America. The earthquake killed about 16,000 persons, injured 20,000 more, destroyed or damaged 53,000 houses (45% of the total number of houses) and 95% of the commercial zone, with total losses of around US$1 billion. About 200,000 inhabitants (50% of total population) were forced to abandon the city. The total metropolitan population of Managua (estimated at 448,000 persons in June 1972) was reduced to 213,000 persons by February 1973, but recuperated to 310,000 by June 1973. Most of the displaced population went to nearby cities (Masaya, Tipitapa, Granada, and Leon) but continued to work in Managua. 1.03 The Managua earthquake brought about a complete new organization of the city. The Central area was almost entirely destroyed and construction was prohibited in this area until approval was given recently by the Vice- Ministry of Urban Planning to a Master Plan for that zone. Managua's population moved to the former suburbs along the hills, decentralizing the city. A comparison between appraisal and actual results of the project should be viewed from the perspective of this calamity and the dramatic effect that it had on the city, its inhabitants, and the scope of the project. Bank Operations 1.04 The IDA Credit 26-NI (First Managua Water Supply project), granted in 1962 to the Empresa Aguadora de Managua (EAM), was the fourth water supply project in the Bank's history and the first in Nicaragua. This credit of US$3 million helped finance US$6 million of works including pumping, transmission and distribution lines and installations. The project was completed satisfac- torily in 1966, having attained virtually all the institutional objectives sought by IDA. As a result of this project, the number of connections more than doubled from 15,300 before the initiation of the project to 39,200 by 1972; the population served increased by 115% and the percentage of the total population served increased from 52% in 1963 to 72% in 1972. A2 1.05 The Second Managua Water Supply project, Loan 808-NI, which is the subject of this completion report, was the second stage in the enlargement and improvement of Managua's water supply system in terms of population served and quality of service. This project had an estimated cost of US$9.97 million, and the Bank loan financed the foreign cost component, estimated at US$6.9 million. Loan 808-NI was signed on March 17, 1972. 1.06 A few months after the project's initiation, the earthquake struck, destroying most of the city and resulting in changes in the project's objectives, scope, and plans. The Bank, responding to this tragedy, agreed to the modification of the Loan Agreement and an amendment to the loan agreement was signed on June 6, 1973. The major changes affected the project description (Annex 1) and the withdrawal of funds schedule (Annex 2). The Bank also agreed to finance the loan interest, extended by one year the closing date and the grace period, and exonerated the Empresa Aguadora de Managua from the rate of return covenant (which was at that time 5%) until 1977. The minimum covenanted annual rate of return on unrevalued assets was changed to 2% in 1977, 5% in 1978, and 7% thereafter. 1.07 After assessing the effects of the earthquake, and the advantages of reconstructing the city on its former location, the IDA decided to assist the Government of Nicaragua in its reconstruction efforts. Credit 389-NI for US$20 million was signed on June 6, 1973, and includes a water supply component esti- mated at US$3 million. The Second Water Supply project (Loan 808-NI) and Component B of the earthquake reconstruction (Credit 389-NI) project were comple- mentary, were executed concurrently, and were basically two financing sources for the same project. It was therefore decided to evaluate their completion per- formance in one single report in order to avoid duplication of efforts. 1.08 The Bank's involvement in the sector continued with Loan 1496-NI, the Third Managua Water Supply project for US$10.1 million (signed in January 1978) for the expansion of Managua's water supply system. Simultaneously Loan 1495-NI, the Rural Sanitation Project for US$3 million, signed in February 1978, will substantially increase the present extremely low levels of rural population served with safe water (14%) or with latrines (24%) within the framework of an innovative approach to integrated sanitation. Sector Organization 1.09 The Empresa Aguadora de Managua (EAM--the borrower for Loan 808-NI) is under the Ministry of Public Works and provides water for the city of Managua. The Departamento Nacional de Agua Potable y Alcantarillado (DENACAL), under the Ministry of Health, administers the Managua sewerage system, the water and sewerage systems for all other urban areas, and some solid waste collection and disposal services. DENACAL performance is generally satisfactory but its tariffs, with the exception of Managua do not cover its operating expenses. Rural water supply and excreta disposal are the responsibility of the Ministry of Public Health. Under Loan 1496-NI (the Third Managua Water Supply Project), a study would be made on methods of improving the coordination between EAM (water) and DENACAL (sewerage) for the city of Managua, in order to optimize these services. This coordination is considered important now given the growth of Managua and the size of EAM and DENACAL. A3 II. PROJECT PREPARATION AND APPRAISAL Loan 808-NI 2.01 The Second Managua Water Supply project was first conceived in 1957. At that time a first stage was planned for 1958-1962; it was executed only during the period 1962-1966 1/ and financed by Credit 26-NI. The second and third stages, planned for 1963-1967 and 1968-1969, became the second and third Managua Water Supply project, respectively financed by Loan 808-NI (1972-1977) and Loan 1496-NI (1978-1981). The feasibility report "Mas Agua para Managua" corresponding to the second stage was prepared by consultants (Hazen and Sawyer-Agustin Chan) and reviewed by the Bank in September 1970. 2.02 The project was well prepared and only minor changes would have been needed should the earthquake not have stricken the city. The Bank's recommen- dations to include a new building to replace the inadequate facilities and the employment of management consultants were accepted by EAM and the Government. 2.03 During negotiations the key issues were: (i) modification of Credit 26-NI's operating ratio financial covenant to a rate of return covenant, which was accepted by EAM; (ii) the uneconomical design of the proposed administrative building the scope of which was reduced, and (iii) creation of an internal auditing position which was left to be studied by consultants (their recommendation to create this position was later imple- mented by EAM). The Bank also requested the appointment of engineering consultants whose selection and terms of reference were approved by the Bank. Credit 389-NI 2.04 After the earithquake, several Bank missions appraised an Earthquake Reconstruction project which had an estimated cost of US$30.3 million. Credit 389-NI financed US$20 million worth of works in five components: sites and services, industry, education, water supply, and power. The water supply component of this credii: had an estimated cost of US$3 million and a project agreement with EAM for a credit of US$2.5 million on this portion was signed on June 6, 1973, to finance (i) repair and rehabilitation of severely damaged pipelines, service connections, reservoirs, pumping stations; (ii) equipment for repairs; and (iii) 55% of the total expenditures for civil works to complement the 28% financing provided under Loan 808-NI (Annex 9). III. PROJECT CONTENT AND EXECUTION Second Managua Water Supply Project - Loan 808-NI 3.01 The project's objective was to provide safe, potable water to Managua's population up to 1980 and to expand transmission and distribution facilities to create a production capacity which would enable about 27,000 new water connections to be installed between 1973 and 1980 and 9,400 to be installed during the implementation stage (1972-1974). The Empresa would also be strengthened by management and administrative consultants to cover the following areas: salaries, budgetary control, accounting, inventory control and computer utilization. The project supported government and Bank objectives 1/ Due to delays in obtaining the required financing. A by increasing the service level in Managua to reach most of their inhabitants. A total population of about 250,000 persons was expected to be served with the project. The initial project works were modified for adjustment to post- earthquake conditions and the resulting changes in the location of the popula- tion, (Annex 1). The following works, which were no longer neededtwere elimi- nated: (a) increase in capacity of the high booster pumping station (5.0 mgd), (b) construction of a well at St. Cristobal, and (c) construction of a 28 mgd low service pumping station. Other changes included a 21% increase in the length of the transmission lines, a 257% increase in the length of the distri- bution lines, which was justified because of a more dispersed population and substitution of the administrative building for other administrative facilities more adapted to post-earthquake conditions. The purchase of mobile construction equipment was transferred to Credit 389-NI. 3.02 The works to be carried out were those included in the amended Loan Agreement of June 6, 1973 as follows: (i) Construction of water wells to supply about 14 mgd; (ii) Construction of a new booster pumping station of about 10 mgd, and an increase of about 16 mgd in the aggregate capacity of the existing stations at Laguna Asososca; (iii) Supply and installation of about 70 km of transmission pipe- lines and about 150 km of distribution pipelines; (iv) Installation of about 9,400 service connections; (v) Construction of two service reservoirs with a capacity of about 500,000 gallons each; (vi) Construction of administrative facilities; and (vii) Improvement of EAM's organization and operations. 3.03 Additional changes during project execution were in response to the needs for a variation in size of different project components in the post-earthquake environment. These changes were to be expected since the project modifications after the earthquake were not based on a thorough study of population needs because of the lack of information. The main changes (see Annex 1A and 1B) were: (i) Construction of two more wells at Las Mercedes, increasing the capacity from 13 to 17 mgd; (ii) Digging of an additional well at Altamira; (iii) Increase in the number of service connections at project completion (33,600 instead of 9,400, or 257% more than estimated); (iv) Reduced construction of transmission mains (55.4 km or 25% below the revised estimate), but increased distribution lines (182.5 km or 22% more than the revised estimate); and AS (v) Increase of 600% in the service reservoirs capacity (16 reservoirs). EAM, using its own resources, the Bank loan and other funds, installed a total of almost 400 km of transmission and distribution pipeline between 1973-1977 (Annex 10), or 100% more than the 220 km agreed upon in the amended loan agreement. 3.04 The project was and continues to be the least cost solution at any positive rate of discount, as all other water sources are more than 15 km distant and require treatment and additional pumping costs. 3.05 The project's concept of increasing capacity in gradual steps resulted in the Managua Water Supply III project, to be followed by further expansion in 1983. Water Component of the Earthquake Reconstruction Project - Credit 389-NI 3.06 The objective of this project was to restore water supply in Managua, repair earthquake damages to distribution lines and reservoirs and, given the critical financial situation of EAM (due to a reduction in connections and water sales by almost half), to finance 55% of civil works performed under Loan 808-NI. 3.07 The project, which was the only alternative to cope with the damages which occurred during the earthquake, was not modified during execution (Annex 9). It includes: (i) emergency repair and rehabilitation of existing installation; (ii) materials and equipment for repair and maintenance; and (iii) civil works under the Managua Water Supply II project. Loan Effectiveness 3.08 The modification of EAM's bylaws (Reglamentos) was the only condition of effectiveness for the Second Managua Water Supply loan and provided EAM with a precise definition of the responsibilities of the different departments and with additional flexibility regarding,the setting of tariffs. The "Reglamento", as agreed to by the Bank, was published in "La Gaceta" on March 13, 1972 and the loan was declared effective on April 26, 1972, forty days after loan signature. Credit 389-NI was declared effective on August 7, 1973, four months after signature. Implementation Schedule 3.09 The Second Managua Water Supply project was forecasted to start in January 1972 and be completed by December 1974. Initial delays in the start-up of the project 1/ and the impact of the earthquake required an initial extension of the completion date to December 1975. Delays in deliveries of materials, a 1/ Including lack of supervision during the Bank's reorganization period. A6 GRAPH 3.1 EMPRESA AGURD RA DE MANAGUA- PCR SECOND MANAGUA WATER SUPPLY PROJECT RPPRRISAL AND RCTUAL CONSTRUCTION RCTIVITY SCHEDULE RCTVITES t72 173 1974 19716 1976 t877 JF MAN F N FNOM0M NJJF M,A NELL AND NELL PUMPS-APPRArSAL CONSTRUCTION OF THREE NELLS (3) CMLORINArION EGUrPMENT (9)m MASTER METERS.JOINT8.VRLVES (8... LAS MERCEDES.DPEN S.NELLS (5) TUR8NE PUMPS (10) VERTICRL PUMPS (I1A) TRRMSFORMER.ELECTRrC CONTROLS( SE .F. PUmPrNo STrroNS-APPRArSAL ØM 6«v= HORr3ONTIL CENTRIFUGAL PUMPS (SA) PumPrNG srTfTroN AND CMLORtTRTORS(11: TRRNSMISSION MArNS SUPPLY-APPRANSAL TRRNSMI SSr0N MArNS INSTRLLAPON APP ; - CRS3 IRON PrPES SUPPLY (2R) CRs rRON PrIPES rNSTRLLArON (8) CAST rRON PIPES AND VALVES (14A.C) DrSTRIBUT'rON MIrNS-SUPPLY-APPRAISAL OrSTRIBUTrON MArNS-fNSTLLAT ION-APP« RSBEST-CEMENr AND PVC PIPES SUPPLY(: VALVES.HYORANTS.ANO ACCESORIES (20) PIPE rNSTRLLArION (88) ASBEST-CEMENT PrPES AND RCCESORrES I SERVICE RESERVOIRS-APRR6AIL 3 RErNFORCE CONCRETE TANKS (4) SM.EL TANKS (7) VALVES (90) CONCRETE TANK (12) CONCRET TANKS (13) SERVrCE CONNECrroNS-,APPRKSAL METERS.VRXES .VLVES( .E) METERS.VALVES (15A.8) METERS.VALVES (18.20) a IM) ADMINrSTR rON BULO~rNO-APPRRISL C ------------ ROMINrSrArON FACILPrES (17) M06tE EQUr?MENT%-APPRAISRL MOBrL CRRNE (15) EMERGENCY EQUIPmENr AND MIATERrALS ( ENGINEERING AND SUPERVrSr0N !EE (D DESIGN BIoDDNG 0 ANARDING [! SUPPLY * CONSTRUC'YON A7 labor strike suffered by one of the major contractors, and difficulties in obtaining materials and qualified workers due to several reconstruction works being carried out at the same time, postponed the completion of project works until October 1977, which meant a total time overrun of 21 months (43%) in relation to the amended agreement. Nevertheless, 90% of the works were already in operation by July 1976 (six months after the forecasted completion date) and water was first pumped from Las Mercedes in early 1976. Graph 3.1 compares the appraisal construction schedule and actual execution of the 20 contracts approved for this project and other project activities. The appraisal imple- mentation schedule was realistic and the delays which occurred were mostly beyond EAM's control. The installation of the transmission and distribution lines between 1972-1977 is shown in Annex 10. 3.10 Implementation of the water supply component of Credit 389-NI took longer than expected, and completion, originally forecasted for December 1975, was in March 1978. The reasons for the delay were the same as those applying to the Second Managua Water Supply project, as well as delays in the delivery of equipment and materials for other components of Credit 389-NI. 3.11 EAM's satisfactory progress reports, which mainly covered the engineering aspects of the project 1/ were usually sent to the Bank about two months after the end of each quarter. For the Managua Water Supply III project the reporting requirements have been improved to cover other aspects of EAM's management (including project cost details, monitoring indicators, graphs, and financial tables) to produce a report equally useful to the Bank and the Borrower. Procurement 3.12 Procurement for the project proceeded with no major problems. EAM carried out procurement under Bank guidelines and most contracts were awarded under international bidding procedures. However, shortly after the earthquake, the Bank responded to the Borrower's needs for urgent procurement and allowed non-international bidding and the negotiation of contracts for emergency equip- ment and repairs, the drilling of three wells, and the stabilization of the side slope of Asososca. Only one complaint from bidders was recorded and that was the 75% copper content requirement for water meters which was justified by the aggressive nature of Managua's volcanic soils. 1/ But to a lesser extent the project costs. A8 Second Managua Water Supply Project. Loan 808-NI: Cost and Disbursements 3.13 Total project costs are summarized below: Cordobas (million) US$ (million) Project Cost Local Foreign Total Local Foreign Total Appraisal estimate 21.5 48.3 69.2 3.07 6.9 9.97 Actual 20.6 41.3 61.9 2.94 5.9 8.84 Loan 808-Actual 1.0 47.3 48.3 0.15 6.75 6.90 PROJECT COSTS (in US$ millions Rounded) Local F o r e i g n To tal Appraisal Actual Appraisal indirect Direct lotal Appraisal Actual 1. Supply Systems (wells, pumping stations, chlorination) .39 .81 1.26 0.35 1.25 1.60 1.65 2.41 2. Transmission and distribution system 1.03 1.03 3.10 0.23 2.41 2.64 4.13 3.67 3. Service connections .20 0.22 .44 0.02 0.53 0.56 .64 .77 4. Service reservoirs .08 .66 .04 0.07 0.20 0.28 .12 .94 5. Administrative facilities .21 0.13 .18 0.01 0.01 0.02 .39 .15 6. Equipment - 0.09 .04 0.04 0.09 0.13 .04 .22 7. Land .10 - - - - - .10 - 8. Engineering and Consultants .30 - .51 - 0.68 0.68 .81 .68 9. Contingencies .76 - 1.33 - - - 2.09 - TOTAL 3.07 2.94 6.90 0.73 5.17 5.90 9.97 8.84 3.14 Actual foreign exchange costs are difficult to compare because only the direct foreign component is recorded. It is estimated that the indirect foreign component amounted to about 20% of the civil works. 1/ 3.15 In the 1960s, inflation in Nicaragua had been low. The GNP deflator shows a total increase of only 26.7% between 1960-1972, equivalent to 2% per year. The appraisal assumed a rate of 5% per year for both local and foreign inflation, which was reasonable at that time but proved to be too low, since average inflation in the industrial countries supplying the foreign component averaged 9% per year during 1972-1976 2/ (due to the energy crisis), and because the increase in construction prices in Managua, resulting from the sudden demand for construction materials and personnel, was almost 40% in 1973, and averaged 16% per year during the period 1972-1976. The comparison between original and actual project costs by line item is not very meaningful due to the substantial changes in project scope. However, in spite of the 1/ The indirect foreign component, as a percentage of civil works, is esti- mated at about 30% for wells and equipment, 20% for pumping stations, 25% for transmission mains, 13% for distribution mains, and 10% for service reservoirs and house connections. 2/ Based on the International Monetary Statistics. A9 time overrun, and the higher-than-anticipated price escalation over the project period, the total costs were 88.7% of the original estimate. This cost underrun is due to several reasons: (i) a relatively small local component (33%), which minimized the effect of local inflation; (ii) designs were ready from the beginning of the project and most contracts were signed at an early stage and at fixed prices before the high price increases in 1973-1974 took place; (iii) the change in project components the effect of which it is difficult to assess; (iv) a reduction of about 21% in the transmission lines; and (v) overestimation of the basic costs in the original project. The balance of Loan 808-NI was applied to the financing of $850,000 of interest during construction. 3.16 Projected and actual disbursements are shown in detail in Annexes 2 and 8. Disbursement lagged considerably behind the appraisal estimate, and the closing date was October 1977, 33 months after the original schedule and 21 months after the closing date in the amended agreement. By the time forecasted for full disbursement, 30% of the loan still remained undisbursed. The delays in disbursement and project implementation are explained in paragraph 3.09. The "unallocated" amounts were distributed among categories I, II and III, as shown in Annex 3, increasing each by about 25% and re- allocation to category II for equipment and materials was the most important item in absolute terms, using 74% of the "unallocated" funds. Earthquake Reconstruction, Component B for Water Supply of Credit 389-NI- Costs and Disbursements 3.17 Total costs are summarized below. All project components were executed satisfactorily. The cost to secure the enbankment in Lake Asososca was smaller than forecasted, but the repair and construction of reservoirs was more expensive. Item 7 is only a supplementary financing provided to the Managua II project, Loan 808-NI. (million Cordobas) (US$ million) Component B Local Foreign Total Local Foreign Total Appraisal estimate 17.0 4.0 21.00 2.44 0.56 3.00 Actual (as of 5/31/78) 17.0 3.5 20.5 2.44 0.5 2.94 Credit 389-NI 14.0 3.5 17.50 2.00 0.5 2.50 C R E D I T 389-NI - PART B COST S (US$ thousands) Loca 1 Foreign To ta 1 Apptaisal Actual Appraisal Actual Appraisal Actual 1. Service Reservoirs 85 337 70 225 155 562 2. Correct Unstable Embankment 220 3 90 - 310 3 3. Secure Lake Asososca Power Line 10 4 - 4 10 8 4. Maintenance Building and Chlorination Station 100 82 50 20 150 102 5. Leakage Survey - - 50 50 50 50 6. Equipment and Supplies - - 200 198 200 198 7. Local Costs of Civil Works Performed under Loan 808-NI 1, 6 - - 2,01 Subtotal 2,075 2,443 460 497 2,535 2,940 8. Physical Contingencies 242 - 70 - 312 - 9. Price Contingencies 125 28 153 - Total 2Y,442 2,43 58 -497 3,000 2,940 Al0 Consultants 3.18 The consultant engineers for the works were Hazen and Sawyer (USA), and Agustin Chan, a local consultant who prepared the feasibility study, made the final designs, and supervised project execution. The initial performance of the consultants was satisfactory but EAM decided not to rehire Hazen and Sawyer for the Third stage, as they felt that the majority of the work was done by the associate local firm of Agustin Chan. 3.19 The leak detection consultants (Pitometer) were quite successful in their task of reducing unaccounted-for water. Unaccounted-for water, which amounted to about 60% by mid-1973, was reduced to 32% in 1975. 3.20 The management consultant was the Pan-American Health Organization (PAHO). PAHO made a study on salary levels (which were subsequently increased almost 60% to reach competitive levels), improved inventory control, recom- mended internal control, produced an accounting manual, and helped in the implementation of several applications on the computer. However, due probably to personnel turnover in the computer department and lack of documentation and flow diagrams, many programs were unreliable and required extensive modifica- tion and improvement, changes which have recently been carried out satisfactorily by local consultants. IV. OPERATING PERFORMANCE 4.01 The comparison of actual and forecast demand shows the following results (Annex 4, Monitoring Indicators): (i) Present population estimates are close to 95% of the appraisal forecasts, indicating Managua's quick recovery from the earthquake (see Graph 4.1); (ii) The larger than forecasted increase in the number of connections was due to the arrangement of payment facilities for connection fees created by EAM 1/ and the changes in project scope. The percentage of population served, assumed to reach 81% by 1977, reached 96% (15% higher than the forecast); (iii) The volume of water sold in 1977 is very close (1%) to the appraisal forecasts for this year. This is because of two-offsetting factors: consumption per connection is about 4% below appraisal estimates, but the number of connections is 5% above the forecasts (see Graph 4.2); (iv) The reduction in unit consumption per connection is due to the low use of water by the substantial number of low income users (para. 5.04). As the tariff is progressive, this low consumption 1/ A Revolving Fund (US$1 million) to finance the connection fees of low income users repayable over 10 years was created with funds provided by USAID. All also reduces the average tariff. The elasticity to water consumption was found to be very low (less than 0.04) and does not explain the reduction in consumption since the total tariff increase between 1963-1975 was 52% in current terms which did not fully compensate for the cost of living increase in the 11 years during which the tariff remained constant; 1/ (v) Unaccounted-for water was originally forecasted at 19%. EAM recorded 16% in 1972, but the earthquake increased this amount to 60% at the beginning of 1973. EAM's success in reducing water losses is outstanding: by 1975 water losses were 32% and at the end of 1977 there had been further reductions to 19%, one of the lowest percentages in Latin America. The figures recorded up to the end of 1975 are engineering estimates (based on the number of hours of the rated capacity of pumping equipment), since it was only then that water production began to be continuously metered; and (vi) EAM did an excellent job in restoring the water service and increased the number of connections by almost 38,870, all of them metered during project execution (up to 1977) versus 9,400 forecasted in the appraisal for 1974 and 17,000 between 1973 and 1977. V. FINANCIAL PERFORMANCE 5.01 The appraisal forecast and actual income statements and balance sheets for 1971-1977 are attached as Annexes 5 and 6. The financing plan is shown in para. 5.06. However, EAM's financial performance was severely disrupted by the earthquake destruction of the downtown area, damage to many of its assets, a decrease by half of its customers, and a rapidly increasing demand for services in areas not previously populated!!. Thus, a comparison cannot be made meaningfully between the actual financial performance and the appraisal estimates during the period in question. 5.02 To alleviate EAM's financial position, the Bank agreed to finance 55% of the civil works for the Second Managua Water Supply project from the proceeds of Credit 389-NI. The Government also announced a moratorium on payments of Government loans and Credit 26-NI (equivalent to three years debt service). This rescheduling of debt contradicted the debt service ratio 1/ The GDP deflator, used as a proxy for Consumer Price Index which did not exist before 1974, shows an increase of 84% between 1960-1975, and almost 50% between 1972-1975. 2/ Following the December 1972 earthquake, about 100,000 people (25% of Managua's population) moved from the city center to areas ac far away as 15 km, and to higher altitudes. This called for an expansion of distribution networks and the addition of reservoirs and booster pumping stations to provide water to a more widely-dispersed population, under more difficult conditions than originally envisaged in either the loan or the credit. A12 GRAPH 4.1 NICARROUA EMXRESA ROADØRA DE MRNAGUW- PCR LORN 809-«D RPPRASAL AND ACTJRL PDPULArON.POPULAtION SERVED AND ATER CONNECTrONS. 65 66 67 68 69 70 71 72 73 74 75 76 77 500 65- RPPRAI8AL POPULAMION S/450 po , MIVE so - 35 -I-300 S7 w - + M MA1ER COmEC1rmNS M30- 2C- 250 25 200 20 150 65 66 67 68 69 70 71 72 73 74 75 76 77 Y E R R 8 -A13 CAPACDTY.RPRrSAL AND ACTUAL WATER CONSUMPTiMN AND PRODUCTION GRRPH 4.2 , NICARAGUR EMPRESR RGUROORA DE iANfiuun- PCR LORN 808-Nt 9 e l'I i 1 i I¥ i l ii¥ I li i e II I I l ei I f f¥ lwo PR PUCTIONa ^ COaUMrnPrI * .AVEMAGE PIO0UCTJ0 OlWCGPctr ø APPfArsat CON8UNett0N 0 * APPRA8AL PROOUCTION - - -0 f 2 0 C0 66 69 70 71 72 73 74 75 76 77 Y E R R 8 A14 in the Loan Agreement, but under the special circumstances prevailing, the Bank waived fulfillment of this covenant. The rate of return, 1/ which was 5% in 1972, became negative during 1973 and 1974. Tariff increases at the end of 1974 and mid-1975 have allowed to reach a positive rate of return from 1975 on. The rapid improvement in EAM's financial position is illustrated by the reduction in the operating ratio from 112% in 1973 to 76% in 1975. 5.03 EAM's past financial statements for selected years are summarized below: Description 1970 1972 1974 1975 /1 1976 1977 ----------------- (C$ millions) ----------------- Revenues 13.1 15.6 15.7 26.2 33.6 46.97 Operating Costs (7.0) (9.5) (14.8) (20.0) (26.9) (35.9) Depreciation (2.3) (1.1 (3.4) (3.6) (5.1) 6.0 Income before Interest 3.8 3.3 (2.4) 2.5 1.6 3.42 Operating Ratio 53.0% 61.0% 94.0% 76.0% 80.0% 76.4% Rate of Return - unrevalued assets 6.7% 5.3% (3.5%) 2.5% 1.3% 2.5% Rate of Return Covenant - - - - - 2.0 Average Tariff /2 2.4 2.5 2.8 3.8 3.8 4.17 Average Tariff in 1975 Prices /3 3.8 3.5 3.1 3.7 3.7 3.6 /1 Rounded to one decimal and based on EAM's financial statements for consistency and due to the lack of information on the 1975-1976 audit statements. /2 Cordobas per thousand gallons. /3 Cordobas per thousand gallons. The December 1977 tariff was C$ 4.9 per thousand gallons at current prices. Operating costs per unit of volume produced were more than twice those fore- casted. This is due to two main factors: higher than expected price increases, especially in energy, and the unforeseen need to adjust EAM's salaries to competitive levels (Annex 5). EAM's financial situation was satisfactory and even under the difficult circumstances after the earthquake, was able to generate 35% of the investment during 1972-1977. 1/ Based on unrevalued assets, as specified in the Loan Agreement. A15 Tariffs 5.04 The water tariffs, which remained constant from 1963 to 1974, were increased in 1974 by 14% and in 1975 by 34% in order to compensate for infla- tion. In November 1977, a 25% tariff increase was made in consultation with the Bank, increasing tariff progressivity by 50% to reduce water wastage. The increase promoted water conservation, a more equitable distribution of water charges (according to income), and the reduction of water charges to the urban poor who consume less than the minimum. The minimum consumption was reduced from 8,000 to 5,000 gallons per month in all residential categories. The effect of the new tariffs was to increase EAM's average charge without affect- ing the lower-income residents of Managua, who constitute about 60% of its population. The average water charge for 1978 is expected to reach C$ 5.30/ 1,000 US gallons (US$0.20/m3) 1/, which is within the range of the highest tariffs prevailing in Latin America. A tariff increase of about 10%, required to reach a rate of return of 4% on EAM's revalued assets is scheduled for July 1978 in compliance with Loan 1496-NI. Accounts Receivable 5.05 The level of accounts receivable increased to almost seven months during 1973. Measures taken by EAM to disconnect the water service for delays in payment reduced the accounts receivable from private users to about two months by 1977. However, the collection of accounts receivable from Government agencies, to which about 15% of sales are made, exceeded three years of sales by 1977. Since 1975, EAM has been taking positive steps to reduce Government accounts by deducting payment owed by the Empresa to the Government on Credit 26-NI and Government loans from these balances. IDA did not object to this practice. On the Third Managua Water Supply project, agreement was reached (a) to settle, as a condition of effectiveness, about C$ 6.5 million due from public entities against overdue debt service payments owed to the Government, and (b) that accounts receivable from the Government will not be in arrears for more than two months. Financing Plan 5.06 The original (1972-1975) and actual (1972-1977) financing plans are shown in Table 5.1. As a result of the additional reconstruction works and the effect of inflation, the total investment amounted to C$ 109.3 million, 30% more than the appraisal projection. Loan 808-NI and Credit 389-NI financed 60% of the actual total investment, close to the original 58% assumed in the appraisal for Loan 808-NI. The net internal contribution to the investment was 32%, which, although below the 42% assumed in the appraisal, is a very satisfactory achievement under the post-earthquake circumstances. Government loans financed the remaining 8% of the total investment. 3 1/ Comparable cities Santiago, (Chile) US$0.09/m , Bogota, (Colombia) US$0.15/m3, Mexico City (Mexico) US$0.11/m3, Sao Paulo, (Brazil) US$0.19/m3. Table 5.1 LOAN 808-NI - SECOND MANAGUA WATER SUPPLY PROJECT EMPRESA AGUADORA DE MANAGUA - FINANCING PLAN (Million Cordobas) Appraisal 1972-75 Actual 1972-77 - - - - - - - - - - - - Actua l - - - - - - - - - - - Million C$ % Million C$ % 1972 1973 1974 1975 1976 1977 Income before depreciation 37.1 44.2 45.839 41.9 8.424 1.696 8.156 6.463 9.628 11.472 Non-operational revenues 10.0 11.9 13.044 11.9 0.780 0.776 1.335 7.638 2.064 0.721 Internal cash generation 47.1 56.1 58.883 53.8 9.204 2.472 9.491 13.831 11.692 12.193 Debt service (-) -14.6 -17.4 -23.499 -21.5 -3.174 -3.275 -2.871 -3.925 -3.686 -6.568 Working capital needs (-) 1.9 2.3 + 7.565 + 6.9 -1.042 -4.256 4.162 -3.041 -2.607 14.349 Other liabilities (+) or assets (-) 1.2 1.4 - 7.627 - 7.0 0.342 4.677 -13.246 -2.891 5.455 -1.964 Net internal resources 33 .T ~T7 T TUT-3.M Project investment 1/ 75.8 90.3 98.482 2 90.1 5.307 5.814 18.932 23.524 26.619 18.286 Other works 8.1 9.7 10.880 9.9 1.446 0.758 0.546 0.945 0.960 6.225 Total investment 83.9 100.0 109.362 100.0 6.753 6.572 19.478 24.469 27.579 24.511 Net to be financed (+) 48.3 57.6 74.040 67.7 1.423 6.954 21.942 20.495 16.725 6.501 Financed by: Loan 808-NI 48.3 57.6 48.3 44.2 1.423 2.583 17.153 11.987 13.183 1.971 Credit 389-NI - - 17.36 15.9 - 1.096 1.709 6.483 3.542 4.53 2/ Government loan - - 8.38 7.7 - 3.275 3.080 2.025 - - Total financing 48.3 57.6 74.04 67.7 1.423 6.953 21.942 20.495 16.725 6.501 1/ Including interest during construction. 2/ Including disbursements during the first three months of 1978. 3/ Including Credit 389-NI project. Al7 Covenants 5.07 EAM satisfied all Bank covenants and conditions described in the Loan Agreement. Given the difficult financial situation forecasted after the earthquake, the Bank waived the financial rate of return covenant on unrevalued assets up to 1976, and reduced the previous rate covenant from 5% in 1977 and 7% thereafter, to 2% in 1977, 5% in 1978, and 7% thereafter. EAM's rate of return in 1977 (2.5%) surpassed the covenant of 2%. Achievement of the covenanted rate in 1978 would require a 12% tariff increase which is covered by the 25% increase introduced in November 1977. This was the first step (followed by another 10% in July 1978) toward the achievement of the financial covenant -- a 4% rate of return based on assets revalued with inflation -- for the Third Managua Water Supply project. 5.08 To guarantee protection of EAM's water sources, an agreement was reached with the industries to improve sewage treatment facilities and to discharge the effluent into Lake Managua, preventing contamination of the city's water sources. A groundwater monitoring system has been operating since 1973, and in October 1977, a study was contracted to determine pollution sources in the area of Nejapa-Asososca-Acahualinca and the threat they posed, and to recommend measures to reduce the pollution before it could reach the main water source of Lake Asososca. 5.09 In agreement with the supplementary letter signed with the loan, the Government has not modified sewerage charges without consulting the Bank. EAM bills and collects the sewerage charges for DENACAL. Audits 5.10 Commercial auditing has been performed since 1964 by external auditors acceptable to the Bank. Audits were initially performed by Peat, Marwick & Mitchell, and from 1975 onward by Julio Linares & Touche Ross. The reports have been consistently overdue by about two to three months. The audit report for 1976 was found unsatisfactory by the Bank and a series of measures was recommended to improve the quality of the audit reports, but the 1977 results are satisfactory as well as the internal audit, by the Tribunal de Cuentas. VI. INSTITUTIONAL PERFORMANCE Organization and Personnel 6.01 The Empresa Aguadora de Managua has been an autonomous Government- owned utility since 1932, and although the Ministry of Public Works has de jure authority over EAM, the Empresa operates with considerable independence, made possible in good part through its sound financial policies. 6.02 The high degree of competence of the three managers who directed EAM during the period 1972-1977 is the most important contributing factor to EAM's performance. EAM's response to the earthquake emergency was laud- able: despite the fact that its offices and most reservoirs were completely destroyed and thousands of pipes were leaking, it was able to restore service in 15 hours, thus avoiding a sanitary disaster. Al8 6.03 EAM retains qualified personnel for its management and supervisory positions. The number of employees per thousand connections exceeds the Latin American average of 9:1,000, but was reduced from 14 in 1973 to 10.in 1976, and EAM's management intends to further improve this ratio to reach 8 employees per thousand connections by 1981. 6.04 Poor salaries, below Government levels, have affected recruitment and produced a turnover in critical areas (computer operations, for example). Following a PAHO study, salaries were increased by almost 60% in 1976, bringing them up to competitive levels which are expected to be maintained. 6.05 All EAM's departments work efficiently. There are, however, several potential areas of improvement, especially in the use of the computer, project cost recording, preventive maintenance, pumping optimization and inventory size control, which are to be improved during the Third project. Training 6.06 EAM has always made an effort to improve the quality of its staff: by 1972, EAM provided free courses for foremen and workers, and later, more formal courses were either attended or given by staff at different local institutions (INCAE, UNAM, CONSULTEC) 1/, and by EAM's special training unit. By 1977 about 30% of employees have received training at different levels and additional plans for on-the-job training are being implemented. Factors Influencing EAM's Development 6.07 EAM is considered to be an excellent institution by government officials, and has been described as such by Bank supervision missions, which have generally given the project a rating of one. At no point was the project rated a problem project. The factors contributing mostly to EAM's develop- ment are: (i) Staff independence from political activities, with emphasis on stable career development. The first manager retired after 12 years of service, the second one was promoted to Minister of Health, and the present one has been the manager since 1975; (ii) Sound financial policies, requiring no government grants or loans under normal circumstances; (iii) Commitment and dedication of management; (iv) Competitive level of salaries and good working conditions; and (v) Well established management practices. 1/ Central America Institute of Administration and Economy, National University, and Technical Consultants, respectively. Al9 Role of the Bank 6.08 The Bank has been considered by the Government and EAM an important positive influence, providing not only financial support to its programs, but also sound technical and managerial advice. EAM's bylaws, discussed exten- sively by the Bank, have been appropriate, and Bank intervention on procure- ment has been generally satisfactory to EAM. At the time of the earthquake emergency, the Bank responded rapidly, modifying the Loan Agreement and adding the earthquake reconstruction credit. 6.09 Relations between the Bank and EAM have been excellent. Nine supervision missions were made during project execution, spending a total of 17 man/weeks, or about three man/weeks per year in the field. VII. JUSTIFICATION 7.01 The water supply component of the earthquake reconstruction project fully achieved its objective of restoring water supply and reinforcing the execution of the Second Managua Water Supply project. The quick recovery in the number of connections made and the use of water after the earthquake are illustrated in Graphs 4.1 and 4.2. 7.02 The benefits of the water supply component and of the earthquake reconstruction credit of the Second Water Supply project can be better appreciated when comparing the number of water connections (thousands) served by EAM and the volume of water sold during certain key months. Water Connections (thousand) and V3lume Sold (million gallons) at Some Kev Xonths 12/1972 1/1973 4/1973 8/1973 12/1973 6/1974 12/1974 12/1975 12/1976 12/1977 12/1979 (Foracast) Connections 39.17 ' 21.88 26.87 28.37 30.73 34.59 40.71 46.-3 54.35 60.75 67.00 Volume Sold 517 156 393 348 378 472 503 430 668 852 871 7.03 The total number of new connections installed between January 1973 and December 1977 was 38,870 (a 98% increase), each connection serving about 8.5 persons, and benefitting a total of 330,000 persons. The volume sold increased 446% during that period because many of the new connections had a higher consumption, and pressure and service were erratic after the earthquake. There are clearly two stages in the project: the first was an initial emergency repair stage, which lasted up to December 1973 and made use of existing facilities, and whose benefits, measured by an internal rate of A20 return, were extremely large. The incremental population served and water sales are the benefits of the main project investments. The incremental costs and benefits are computed from 1974 up to 1980, when any additional incremental costs or benefits are assumed to be related to the Third Managua Water Supply project. During the first stage, benefits reached almost 9,000 house connections and 75,000 persons, but the benefits extended to almost 100,000 additional persons who were served by temporary standpipes and water tankers. The total project benefits for the two stages (Annex 7B) have an incremental rate of return of 40%. 1/ 7.04 The "second stage" has resulted in 30,000 connections and 255,000 persons served by December 1977, and the water capacity provided, with addi- tional cost of connections, is assumed to benefit a total of 37,600 connec- tions, or about 320,000 persons by 1980. According to the very uneven income distribution in Managua, about 25% of the population is below the relative poverty levels, 2/ and as the project will serve almost all the population (95% by 1979), about 65,000 urban poor will have benefitted from this project. 7.05 The incremental costs and benefits for the "second stage" are calculated in Annex 7A. Costs are expressed in January 1974 prices, using the Consumer Price Index (CPI). Benefits are calculated using actual tariffs in constant prices. The internal financial rate of return is 11%, 3/ the same as the forecast at appraisal. It should have been even higher given the great need for the project after the earthquake, but the unforecasted large increases in operating costs in constant prices (mainly labor and power) reduced its level. The use of the present (higher) tariff as an indication of the willingness to pay, produces a higher rate of return (14%). The incremental rate of return reflected an underestimation of the benefits of the project, as many of these, such as the well-being of the population, increased work productivity, the reduction of medical and hospital costs, improvement in nutrition due to the reduction of intestinal parasites (especially in children), and more equal access to services, are difficult to measure in monetary units and are not computed. I/ Some of the project investments (administrative facilities) and part of the incremental cost of distribution to improve pressures also benefit the previous consumers. The exclusion of these costs will increase the rate of return. 2/ Persons earning less than one third of the average per capita income. 3/ Some of the project investments (administrative facilities) and part of the incremental cost is due to the previous consumers. The exclusion of these costs will increase the rate of return. A21 VIII. CONCLUSIONS AND LESSONS TO BE LEARNED 8.01 The project described in this report was successful in all aspects. Modifications made to the project after the earthquake were appropriate and fulfilled the water needs of Managua. Two main areas which contributed to this success and from which we have learned were: (i) Institutional: A stable and politically autonomous organization, competitive levels of remuneration to maintain motivated, capable staff, management continuity, well estab- lished management practices and appropriate levels of water charges. (ii) Project-related: Approval of the project only after most designs were ready, thereby reducing the possibility of technical contingencies, allowing early bids and reducing the impact of inflation. 8.02 The success, quality, and priority of the project is only partially reflected in the incremental rate of return because: (i) The project avoided a sanitary disaster which could have occurred after the earLhquake; and (ii) The incremental rate is deflated by the effect of justifiable salary increases which were made early in the project. In retrospect, it would have been preferable to study in advance the effect that the adjustment of salaries to competitive levels would have on the economic and financial analysis. 8.03 After the project, EAM's technical and financial position is sound allowing it to continue providing good water service to the population of Managua, and to tackle the third stage of the city's water supply master plan without major problems. Latin America and the Caribbean Regional Office June, 1978 u NICARAGUA - LOAN 808-Ni SECOND MANAGUA WATER SUPPLY PROJECT PROJECT DESCRIPTION LOAN AGREEMENT, MODIFICATION AFTER EARTHQUAKE AND FINAL RESULTS Loan Agreement Project Agreement Amending Original Results Project Works March 17, 1972 June 6, 1973 October 1977 1. Supply Systems (Wells, pumping stations, chlorination) 1.01 Construction of wells at Las Mercedes, east of the city's center 6/15 mgd 6/13 mgd 8/17 mgd 1.02 Las Mercedes high-service booster pumping station 12 mgd 10 mgd 10 mgd 1.03 Las Mercedes chlorination facilities 1 1 1 1.04 Increase the capacity of the Laguna Asososca low-service pumping station from 40 to 48 mgd 8mgd 8mgd 8mgd 1.05 Increase the capacity of the Laguna Asososca high-booster pumping station from 10.5 to 15.5 mgd 5.0 mgd 5.0 mgd 4/ 1.06 Increase the capacity of the Laguna Asososca upper-high booster pumping station from 4.0 to 6.6 mgd 2.6 mgd 2.6 mgd 6 rgd 1.07 Construction of an addition well at Altamira field 1/1 mgd 1/1 mgd 2/1 mgd 1.08 Construction of a high-service booster station at Altamira field 1/2.6 mgd - 1/2.6 mgd 1.09 Construction of a well at the San Cristobal low-service reservoir 1/1 mgd eliminated 1.10 Construction of a low-service booster station at Las Mercedes 1/28 mgd eliminated 1.11 Construction of two wells at Open #3 - 2/0.7 mgd 1.12 Construction of five small booster stat*k'ts 5 1.13 Construction of one well at Carretera Stkr (14.5 kin) -- 1/0.6 mgd 2. Transmission and Distribution Systems 2.01 Construction of trunk mains (12 to 36 i1,es) 581km 70 km 55.4 km 1/ 2.02 Construction of service mains and dist1k6tition networks 42 km 150 km 182,5 km (2 to 8 inches) 3. House Connections 3.01 Installation of 9,400 service connections 9,400 9,400 33,600 3/ 4. Service Reservoirs 4.01 Construction of reinforced concrete reservoirs (each 0.5 mill.gals.) 2/1.0 mg 2/1.0 mg 4/2.0 mg 4.02 Construction of one service reservoir at Open #3 -- 1/0.5 mg 4.03 Construction of various metallic reservoirs m 12/2.0 mg 4.04 Construction of reinforced concrete reservoir - 1/2.5 mg 5. Administrative Facilities 5.01 Construction of a new administrative building X cCriminated X 5.02 Remodeling and repair of administrative facilities x x 1/ Purchased under Loan 808-NI were 54,503 meters of trunk mains, 12 to 36 inches in diameter. Purchased under Loan 808-NI were 106,800 meters of service mains, 2 to 8 inches in diameter. Purchased under the contract were 25,000 water meters of 5/8 and 3/4 inch capacities. 4/ Compensated by addtional capacity of the upper-high booster (3.4 mgd) and Las Mercedes wells (4 mgd). NICARAGUA - LOAN 808-NI SECOND MANAGUA WATER SUPPLY PROJECT SUMMARY -- PROJECT RESULTS Original Loan Amendment Agreement Loan Result Difference Difference March 17, Agreement October Results/ Results/ 1972 June 1973 1977 Original Amendment 1. Supply System 1.01 Wells (capacity in mgd) 17.0 mgd 14.0 mgd 19.6 mgd +15% +40% 1.02 Pumping stations (capacity in mgd) 55.4 mgd 24.0 mgd 24.0 mgd -57% 0% 2. Transmission and Distribution 2.01 Trunk mains (12" to 36") 58 km 70 km 55.4 km -4.5 -21% 2.02 Service mains (2" to 8") 42 km 150 km 182.5 km 335% +22% 3. House Connections 3.01 Service connections 1/ 9,400 9,400 33,600 257% 257% 4. Service reservoirs 4.01 Reservoirs (capacity in mg) 1.0 mg 1.0 mg 7.0 mg 600% 600% 1/ The total number of connections in relation to the post-earthquake figures in the early part of 1973 are 40,000, of which 33,600 are assumed due to the project. The number of new connections after the first year reconstruction efforts amounted to 24,800 (1974-1977). 5/78 NICARAGUA - LOAN 808-NI SECOND MANAGUA WATER SUPPLY PROJECT COMPARISON OF APPRAISAL FORECAST AND ACTUAL CUMULATIVE SCHEDULE OF DISBURSEMENTS APPRAISAL ACTUAL1/ Year and Disbursements Disbursements Quarter (US$ thousands) % (US$ thousands) % 1972 - June 200 2.9 68 1.0 September 860 12.5 136 2.0 December 1700 24.6 203 2.9 1973 - March 2470 35.8 271 3.9 June 3350 48.6 312 4.5 September 4400 63.8 369 5.3 December 5440 78.8 582 8.4 1974 - March 6230 90.3 1409 20.4 June 6500 94.2 2337 33.9 September 6720 97.4 2721 39.4 December 6850 99.3 3213 46.6 1975 - March 6870 99.6 3500 50.7 June 6890 99.9 4007 58.1 September 6900 100.0 4461 64.7 December 4815 69.8 1976 - March 5313 77.0 June 6049 87.7 September 6437 93.3 December 6673 96.7 1977 - March 6712 97.3 June 6831 99.0 September 6900 100.0 1/ Source: IBRD Controller's Dept. NICARAGUA - CREDIT 389-NI MANAGUA EARTHQUAKE RECONSTRUCTION PROJECT - PART B - WATER SUPPLY COMPARISON OF APPRAISAL FORECAST AND ACTUAL CUMULATIVE SCHEDULE OF DISBURSEMENTS Year and APPRAISAL ACTUAL Quarter Disbursements Disbursements (US$ thousands) % (US$ thousands) % 1973 - June 800 32 -- September 1,000 40 --- -- December 1,300 52 157 6.3 1974 - March 1,600 64 187 7.5 June 1,800 72 204 8.2 September 2,000 80 373 14.9 December 2,100 84 485 19.4 1975 - March 2,200 88 738 29.5 June 2,300 92 1,042 41.7 September 2,400 96 1,188 47.5 December 2,500 100 1,327 53.1 1976 - Mar. 1,474 59.0 June 1,589 63.6 September 1,723 68.9 December 1,921 76.8 1977 March 1,964 78.6 June 2,090 83.6 September 2,195 87.8 December 2,246 89.8 1978 March 2,417 96.7 May 2,500 100.0 NICARAGUA - LOAN 808-NI SECOND MANAGUA WATER SUPPLY PROJECT COMPLETION REPORT WITHDRAWALS OF THE PROCEEDS OF THE LOAN, ORIGINAL, MODIFICATION AFTER THE EARTHQUAKE AND FINAL % of Expenditures Amount of Loan Allocated, Expressed to be Financed in Dollar Equivalent Original Amending Final Category 3-1-1972 6-6-1973 10-25-77 I. Civil works other than house connections 28% of total expenditures 660,000 650,000 875,282 II. Equipment and materials 100% of foreign expenditures 4,400,000 3,650,000 4,495,595 or 95% of local expenditures III. Consultants' services 100% of foreign expenditures 510,000 510,000 677,449 IV. Interest 100% of foreign expenditures - 850,000 850,000 V. Unallocated 1,330,000 1,240,000 - TOTAL 6,900,000 6,900,000 6,880,326 NICARAGUA - LOAN 808-NI SECOND MANAGUA WATER SUPPLY PROJECT PROJECT COMPLETION REPORT MONITORING INDICATORS 1972 1973 1974 1975 1976 1977 Population - Thousand Appraisal 415 441 466 492 519 548 Actual 433 360 400 450 500 536 Number of Connections (thousand) Appraisal 37.6 40.6 43.9 47.9 52.8 57.6 Actual 39.2 30.7 40.7 46.5 54.4 60.7 Volume Sold (billion gallons) Appraisal 6.3 6.8 7.4 7.9 8.7 9.6 Actual 6.88 3.73 5.54 6.50 8.11 9.8 Volume Sold/m3 Month/Connection Appraisal 52.5 52.5 52.8 51.7 51.6 52.2 Actual 51.8 38.1 42.6 43.8 46.7 53.5 % Unaccounted for Water Appraisal 19 19 19 19 19 19 Actual 15.6 50.3 37.3 31.5 22.6 20.4 Water Production (billion gallons) Appraisal 7.8 8.4 9.1 9.8 10.7 11.8 Actual 7.68 7.5 8.84 9.48 10.48 12.25 Employees/Thousand Connection Actual 10.6 13.5 12.2 10.8 9.9 9.9 % Personnel/Total Cost Appraisal 47 47.3 47.4 45.8 45.6 45.1 Actual 51 39.8 36.5 38.6 35.8 45.2 Average Tariff US Cents/m3 Appraisal 9.5 9.5 10.5 10.5 10.5 10.5 Actual 9.1 9.5 10.8 14.5 14.5 15.7 Average Tariff Increase - % Appraisal - - 10 - - - Actual - - 14 34 - 25 % Rate of Return Appraisal 8.2 7.3 6.7 4.9 5.9 6.9 Actual 5.3 (6.3) (3.5) 2.5 1.3 2.5 % Operating Ratio Appraisal 53 54 48 49 48 46 Actual 61 112 94 76 bo 76.4 % Population Served Appraisal 73 73 74 76 79 81 Actual 73 59 81 87 92 96 Operating Costs US Cents/m3 Produced Appraisal 4.1 4.1 3.6 4.2 4.1 3.9 Actual 4.7 5.3 6.4 7.6 9.8 13.8 NICARAGUA - LOAN 808-NI SECOND MANAGUA WATER SUPPLY PROJECT COMPARISON OF APPRAISAL FORECAST AND ACTIUAL INCOME STATEMENTS (Million Cordobas rounded to two decimals) 1972 1973 1974 1975 1976 1977 Fiscal Year Ending December 31 Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Number of Connections 1/ 37.6 39.2 40.6 30.7 43.9 40.7 47.9 46.5 52.8 54.4 57.6 60.75 Total Population 1/ 415 433 2/ 441 360 466 400 492 450 519 500 548 536 Population Served ./ 301 306 323 214 3/ 345 323 373 395 410 462 444 516 Population Served (%) 73 73 73 59 3/ 74 81 76 87 79 92 81 96 Volume Produced (billion gallons) 7.8 7.68 8.4 7.50 9.1 8.84 9.8 9.48 10.7 10.48 11.8 12.25 Volume Sold 6.3 6.48 6.8 3.73 7.4 5.54 7.9 6.50 8.7 8.11 9.6 9.76 Unaccounted-for Water (%) 19 15.6 19 50.3 19 37.3 19 31.5 19 22.6 19 2Q.,4 Average Rate (CS/1000 gallons) 2.5 2.4 2.5 2.49 2.75 2.84 2.75 3.80 2.75 3.81 2.75 4.17 Revenues Water Charges 15.8 15.60 17 9.27 20.4 15.74 21.7 26.16 23.9 33.64 26.4 46.97 Operating Costs Labor 3.9 4.86 4.3 4.12 4.6 5.40 4.9 7.75 5.2 11.81 5.5 14.70 Chemicals 0.1 0.11 0.2 0.12 0.2 0.15 0.2 0.22 0.2 0.27 0.2 0.37 Power 2.1 2.34 2.3 2.44 2.5 4.43 2.7 5.52 2.9 6.69 3.2 9.76 Maintenance 0.9 0.79 0.9 0.85 1.0 1.34 1.3 2.55 1.4 3.22 1.4 3.12 Other Direct Costs 0.7 0.46 0.8 0.31 0.8 1.24 0.9 1.53 1.0 2.01 1.1 1.95 Administrative and General 0.6 0.97 0.6 1.16 0.6 1.07 0.7 1.83 0.7 1.98 0.8 4.17 Other Costs -- -- -- 1.36 -- 1.17 -- 0.58 -- 0.93 -- 1.80 Total Operating Costs 8.3 9.53 9.1 10.36 9.7 14.8 10.7 19.98 11.4 T 12.2 35.87 Income Before Depreciation 7.5 6.07 7.9 (1.09) 10.7 0.94 11.0 6.18 12.5 6.73 14.2 11.1 Depreciation 2.3 2.83 2.6 3.02 3.7 3.36 4.6 3.64 4.6 5.09 5.0 7.68 Income Before Interest 5.2 3.24 5.3 (4.11) 7.0 (2.42) 6.4 2.54 7.7 1.64 9.2 3.42 Interest Charged To Operation 1.4 1.26 1.3 1.24 1.3 1.14 4.7 1.07 4.5 1.47 4.3 2.62 Other Revenues (net) 0.3 3.13 0.3 3.56 0.3 9.08 0.3 7.65 0.3 4.93 0.3 2.02 Net Income 4.1 5.11 4.3 (1.79) 6.0 5.52 2.0 9.12 3.5 5.10 5.2 8.15 Operating Ratio (%) 52.5 61 53.5 112 47.5 94 49.3 76.4 47.7 80.0 46.2 76.4 Rate of Return (unrevalued assets) 8.2 5.3 7.3 (6.3) 6.7 (3.5) 4.9 2.5 5.9 1.3 6.9 2.5 Average Rate Base 61.4 65.12 69.2 79.6 111.8 139 1/ End of year - thousands 2/ By December 31, 1972 only 200,000 persons remained in Managua. 3/ Gross estimate as many houses remained semidestructed and inhabitated. NICARAGUA - LOAN 808-NI SECOND MANAGUA WATER SUPPLY PROJECT COMPARISON OF APPRAISAL FORECAST AND ACTUAL BALANCE SHEET 1/ (MILLIONS CORDOBAS-ROUNDED TO TWO DECIMALS) 1972 1973 1974 1975 1976 1977 Fiscal Year Ending December 31 Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual Appraisal Actual ASSETS Gross Fixed Assets (historical costs) 2/ 79.1 75.37 95.4 84.32 148.7 89,53 155.4 112.11 161.5 162.1t 170.6 186.77 Less: Depreciation (historical costs) 13.7 13.33 16.3 16.12 20.0 19.42 24.5 22.94 29.3 27.83 34.3 35.41 Net Fixed Assets (historical costs) 65.4 62.04 79.1 68.20 128.7 70.11 130.9 89.17 132.2 134.28 136.3 151.36 Work In Progress 10.1 4.37 29.7 5.15 0.5 16.82 2.0 28.82 2.2 8.92 3.2 13.78 Total Fixed Assets 75.5 66.41 108.8 73.35 129.2 86.93 132.9 11.9 14.414.0 3956.4 Long-Term Receivables 0.5 1.02 0.5 0.81 0.5 0.81 0.6 0.75 0.7 0.75 0.7 3.89 Cash 14.0 8.49 14.6 10.45 9.4 3.34 6.8 0.83 9.6 0.48 11.9 0.49 Accounts Receivable (Net) 3.6 5.08 3.8 3.82 4.5 8.21 4.9 5.63 5.6 8.78 6.0 20.31 Inventories 3.5 3.71 3.5 5.44 3.5 18.08 3.5 12.45 3.5 16.07 3.5 11.92 Other Receivables -- -- -- -- -- 1.54 -- 3,39 -- 4.37 -- 1.67 Total Current Assets 21.1 18.30 21.9 19.71 17.4 31.17 15.2 22.30 18.7 29.70 21.4 34.39 other Assets --0.66- 0.07 --0.05 --- 1.04 --2.66 Total Assets 97.1 84.77 _131.2 9 3.93 147.1 189 4. 4.4 138T~T 116260 EQUITY AND LIABILITIES Capital 19.4 19.39 19.4 19.39 19.4 19.39 19.4 19.39 19.4 19.39 19.4 19.39 Developers' Contributions 3.9 5.90 4.2 8.95 4.5 8.95 4.8 10.29 5.8 13.19 7.5 26.34 Accumulated Sur-plus 35.3 27.60 41.6 26.70 49.8 32.15 54.4 35.99 61.1 42.88, 69.5 48.48 Total Equity 2/ 586 5.96.2 5.47. C0.48 78.6 65.67 86.3 7.6 9. 42 IDA Loan 26-NI 17.3 17.22 16.5 16.40 15.7 15.08 14.8 15.54 13.9 15.54 12.9 15.54 IDA Loan 389-NI -- -- -- 1.10 -- 3.26 -- 9.29 -- 14.40 -- 15.59 IBRD Loan 808-NI 11.9 1.42 38.1 4.00 48.3 22.50 47.7 33.71 46.5 46.18 45.2 46.10 Government-other Loans 4.2 4.21 3.7 6.29 3.2 8.06 2.6 8.37 2.0 12.21 1.4 15.21 Less: Current Maturities (1.3) (1.31) (1.3) (1.39) (2.1) (1.48) (2.7) 0.52 (2.9) (3.52) 3 (6.78) Total Long-Term Debt 32.1 21.54 57.0 26.40 65.1 47.42 62.4 66.39 59.5 83.81 56- 3 Reserves For Repairs -- 5.62 -- 4.22 -- 3.84 -- -- - -- - Accounts Payable 2.3 0.47 4.7 1.53 3.1 2.76 1.6 1.32 1.4 0.99 1.9 1.71 Accrued Debt Service 0.6 0.59 0.6 0.57 0.5 0.33 0.5 4.25 0.5 7.34 0.3 12.96 Deposits 1.9 2.08 2.1 1.78 2.3 2.41 2.6 2.88 2.9 3.57 3.2 4.60 Current Maturities 1.3 1.31 1.3 1.39 2.1 1.48 2.7 0.52 2.9 3.52 3.2 6.78 Total Current Liabilities 6.1 10.07 8.7 9.49 8.0 10.82 7.4 8.98 7.7 15.42 8.6 26.05 Deferred Revenues-Other 0,3 0.27 0.3 3.0 0.3 0.24 0.3 0.25 0.3 -- 0.3 0.16 Total Equity and Liabilities 97.1 84.77 131.2 93.93 147.1 118.96 142.7 141.04 153.8 174.69 161.6 206.08 Current Ratio 3.3 3.6 2.4 2.5 2.1 2.8 2.0 2.1 2.3 1.9 2.4 1.3 Debt As % of Capitalization 35 28.9 47 32.4 47 43.9 44 50.3 41 52.6 37 47.6 1/ Based on audit reports up to 1976 and estimates for 1977. 2/ Based on unrevalued fixed assets. NICARAGUA - LOAN 808-NI SECOND MANAGUA WATER SUPPLY PROJECT INCREMENTAL BENEFITS AND COSTS (IN MILLION CORDOBAS AT DECEMBER 1974 PRICES-) (Excluding "emeiency works") Incremental Incremental Incremental Avg. Tariff - - - - - - - - - M i 1 1 ion C o r d o b a-s - - - - - - - - - - - - Water Population Total Volume Volume Sold in December Water Year Connections a/ Served b/ Sold Since 1974 Prices Sales Operating Other h/ Project Other Total Benefits (thousands) (thousand) (billion gals.) Dec. 1973 4/ (C$/1000 gals.) Revenues Costs .l Revenues - Works Works i/ i/ 1973 - - - - - - - - 2.6 - -2.6 -2.6 1974 9.97 85 5.584 1.05 3.07 3.22 1.7 3.87 17.9 0.6 -13.11 -11.68 1975 15.79 134 6.498 1.97 3.69 7.28 3.86 3.34 19.4 0.9 -13.54 -12.09 1976 23.62 201 8.107 3.58 3.67 13.14 11.52 7.39 19.8 0.9 -11.69 -8.97 1977 30.01 255 9.759 5.23 3.71 19.42 13.55 5.16 9.7 2.7 -1.37 2.38 1978 31.97 272 9.959 5.43 4.43 e/ 20.05 18.50 1.58 - 0.5 2.63 6.63 1979 35.9 305 10.240 5.71 4.43 e/ 25.30 19.40 4/ 4.41 - 2.0 8.31 8.31 1980-2008 37.60 320 10.240 6.10 4.43 e/ 26.90 20.60 g/ - - - 6.30 6.30 a/ End of year measured in relation to December 1973 (30,733 connections). There are about 10,000 more connections provided during 1973 which are considered benefits for the emergency works. b/ Estimated, using an average of 8.5 persons per connection. c/ Using the GNP deflator for 1972-1974 and the 1974 GNP deflator and Consumer Price Index thereafter. d/ Difference with water sales in December 1973, which was 377.6 million gallons, equivalent to 4.53 billion gallons per year. e/ Based on the present average tariff of 4.90 cordobas per thousand gallons. f/ Difference with the 1973 cost of C$10.36 (in constant prices). g/ Using the average 1977 cost per gallon sold, reduced to 1974 prices (C$3.4/thousand gallons). h/ Connection rights. i/ The internal incremental rate of return is 11%. j/ Using the present tariff as an indication of the willingness to pay. The rate of return is 14%. NICARAGUA SECOND MANAGUA WATER SUPPLY PROJECT AND COMPONENT B OF EARTHQUAKE RECONSTRUCTION PROJECT INCREMENTAL COSTS AND BENEFITS SINCE THE PROJECT INITIATION (million cordobas at December 1974 prices) Tariff Revenues Net Bene fits Year Connections Volume Project Other Operating at Actual 3 Connect. Actual at C$4.43/m3 (thousand) a/ Sold b Works Works Cost Tariffs atC$4.43/m fees tariff d1(thous.gals.)e 1972 - 4.8 1.4 -6.2 -6.2 1973 8.82 1.73 5.9 - - 5.57 7.66 4.60 4.28 6.04 1974 18.82 3.54 17.9 0.6 2.38 10.87 15.69 3.87 -6.14 -1.32 1975 24.62 4.50 19.4 0.9 5.68 16.61 19.94 3.34 -6.03 -2.7 1976 32.52 6.11 19.8 0.9 12.17 22.42 27.07 7.39 -3.06 1.59 1977 38.87 7.76 9.7 2.7 18.18 28.79 34.38 5.16 3.37 8.96 1978 40.82 7.93 - 0.5 18.56 c/ 35.13 35.13 1.38 17.45 17.45 1979 44.75 8.24 - 2.0 19.28 36.50 36.50 4.41 19.63 19.63 1980-2008 46.45 8.63 - - 20.19 38.23 38.23 - 18.04 18.04 a/ End of year measured in relation to January 1973 (21,880 connections). b/ Difference with water sales in January-February 1973, equivalent to two billion gallons per year. C/ Using the 1977 cost per incremental volume sold of C$2.34/thousand gallons. d/ The internal incremental rate of return is 40%. e/ The rate of return using the present tariff of C$4.43/thousand gallons (1974 prices) as an indication of willingness to pay, is 62%. NICARAGUA LOAN 808-NI - SECOND MANAGUA WATER SUPPLY PROJECT DISBURSEMENTS AND PROJECT COSTS (rounded in US$ thousands) Disbursements Loan 808-NI Total Project Cost (Actua 1) 1/ 2/ Appraisal Actual EAM Appraisal Actual 1. Supply systems 303 1,250 1,260 1,553 857 1,650 2,410 2. Transmission and distribution systems 343 2,411 3,100 2,753 919 4,130 3,672 3. House connections 533 440 533 240 640 773 i 4. Service Reservoirs 171 204 40 376 562 120 938 5. Admin. facilities 40 3 180 43 102 390 145 6. Equipment 94 40 94 128 40 222 7. Land 100 8. Consultants 677 510 677 - 810 677 9. Contingencies 1,330 2,090 10. Interest 850 850 Total 857 6,022 6,900 6,880 2,808 9,970 8,837 1/ Disbursements financing the indirect foreign component. 2/ Disbursements financing the direct foreign component. o ANNEX 9 NICARAGUA-EMPRESA AGUADORA DE MANAGUA Water Supply Component of Credit 389-NI, Managua Reconstruction Project - Completion Report Detailed Project Description 1. Emergency repair and rehabilitation of existing installations: construction of three steel reservoirs, repairs of four concrete reservoirs, stabilization of the Laguma Asososca embankment, construction of a maintenance building and chlorination station, and carrying out of a leakage survey. 2. Procurement and use of equipment and materials required for repair, rehabilitation and maintenance works. 3. The implementation of civil works under Parts A, B, C, and E des- cribed in Schedule 2 of the Loan Agreement between the Bank and Empresa Aguadora de Managua (Second Managua Water Supply project) dated March 17, 1972. The original closing date was June 30, 1976. NICARAGUA LOAN 808-NI AND CREDIT 389-NI PROJECTS COMPLETION REPORT TRANSMISSION AND DISTRIBUTION PIPELINES ADDED BETWEEN 1972.-1977 (KILOMETERS) Diameters 1972 1973 1974 1975 1976 1977 TOTAL 1" 467 386 2.293 90 31 400 3,667 Subtotal 467 386 2.293 90 31 400 3,667 2" 14.081 22.009 40.983 48.748 7.769 8.712 142.302 3" 37 16.729 1.543 370 870 1.555 21.104 4" 7.521 17.745 24.412 29.889 13.183 2,416 115.166 6" 7.432 15.410 8.696 23.561 6.885 7.121 69.105 8" 2.134 2.596 3.376 5.118 6.183 163 19.570 10" -- -- -- -- -- -- -- Subtotal 2-10" 31.205 74.489 79.010 107.686 34.890 39.967 367.247 12" -- -- 2.321 13.396 5.512 7.244 28.473 14" -- -- -- -- -- -- -- 16" -- -- -- 4.935 8.963 1.610 15.508 18" -- -- -- -- 60 -- 60 20" -- -- -- -- 963 -- 963 24" -- -- -- -- 7.076 -- 7.076 30" -- -- -- -- 32" -- -- -- -- 2.406 -- 2.406 36" -- -- -- -- 3.185 -- 3.185 Subtotal 12-36" -- -- 2.321 18.331 28,624 8.854 58.130 TOTAL 31.672 74.875 83.624 126.107 63.545 48.821 429.039  離一