Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4707-IN STAFF APPRAISAL REPORT INDIA TAMIL NADU WATER SUPPLY AND SANITATION PROJECT March 1, 1984 Urban and Water Supply Division South Asia Projects 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. INDIA TAMIL NADU WATER SUPPLY AND SANITATION PROJECT Currency Equivalents US$1.00 Rs 9.75 Rs 1.00 = US$0.1025 MEASURES AND EQUIVALENTS mm - millimeter (0.04 inches) cm - centimeter (0.39 inches) m - meter (39.37 inches or 3.28 ft) km - kilometer (0.62 miles) ha - hectare (10,000 square mters or 2.47 sq km - square kilometer (0.386 square miles) 1 - liter (0.22 Imperial gallons or 0.264 US gallons) lcd - liters per capita per day cu.m - cubic meter (220 Imperial gallons or 264.2 US gallons) ml - million liters or 1,000 cubic meters mld - million liters per day (0.220 million Imperial gallons per day or 0.264 million US gallons per day) mgd - million gallons (Imperial) per day Rs 1 Lakh - Rs 100,000 Rs 1 crore - Rs 10,000,000 ABBREVIATIONS AND ACRONYMS AIC - Average Incremental Cost CLPA - Coimbatore Local Planning Area CMS - Cities of Coimbatore, Madurai and Salem GTN - Government of Tamil Nadu GOI - Government of India IDWSSD - International Drinking Water Supply and Sanitation Decade Program ROR - Rate of Return LIC - Life Insurance Corporation of India MMWSSB - Madras Metropolitan Water Supply and Sewerage Board PWD - Public Works Department TWAD - Tamil Nadu Water Supply and Drainage Board UNDP - United Nations Development Programme WHO - World Health Organization FISCAL YEAR April 1 - March 31 FOR OFFICIAL USE ONLY INDIA TAMIL NADU WATER SUPPLY AND SANITATION PROJECT Table of Contents Page No. MANAGEMENT SUMMARY .................... ............................. . . i - iii I. BACKGROUND .... A. India - National Urbanization Trends . . B. The Water Supply and Sewerage Sector . . 1 C. The State of Tamil Nadu .... .... . . .. 2 D. Water Resources ..3................... 3 E. Service Levels .................... ................ 3 F. Sector Organization in Tamil Nadu .. 5 G. Sector Investment in Tamil Nadu .. . 6 H. Bank Group Operations and Experience in the Water Supply and Sewerage Sector in India ................................... 7 I. Context of the Proposed Project . .10 II. POPULATION FORECASTS AND DEMAND PROJECTIONS IN PROJECT AREA .... 11 A. The Project Area . ... 11 B. Present Water Supply in Project Area . .12 C. Existing Sewerage Systems. 13 D. Proposed Service Levels ..13 E. Population Forecasts ............... ............. . ............ 14 F. Future Water Demands and Supplies ........................ . ... 14 III. THE PROJECT ..15 A. Project Objectives ... .15 B. Project Selection Criteria . . . . . ..... 16 C. Project Description ....... . . .16 D. Operational Action Plan ......18 E. Engineering Feasibility Studies .......... F. Cost Estimates ... . 18 G. Financing ..............20 H. Consulting Services ........ .20 This report is based on the findings of an IDA mission consisting of Messrs. D. B. Clement (Mission Leader), G. Sengupta, and H. W. Barker who visited Tamil Nadu in February, 1983. Mmes. M. Keane, M. Alloun and D. Sison assisted in preparing this report in Washington, D. C. 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. -ii- I. Implementation Schedule ......................................... 20 J. Procurement and Contracts ....... ............................... 21 K. Disbursement ................................................... 23 L. Water Resources Management Study ...... ......................... 24 M. Licensing of Wells ............................................. 26 N. Leak Detection ................................................. 26 0. Land Acquisition ............................................... 26 P. Metering ............ 27 Q. Revolving Fund for Metered Connections ......................... 27 R. Low-Cost Sanitation ..... 28 S. Public Health Education ........................................ 29 T. Manpower Evaluation and Training ...... ......................... 29 U. Water Rights . ................................................. 30 IV. PROJECT ORGANIZATION AND MANAGEMENT ............................ 30 A. Implementing Responsibility and Ownership of Assets .......... .. 30 B. The Tamil Nadu Water Supply and Drainage Board (TWAD) .... ...... 30 C. Operation and Maintenance ... ..................................... 31 D. Organization and Management Systems of TWAD .................... 32 E. The Project Team ........... .................................... 32 F. Accounts for Water Supply and Sanitation Operations ............. 33 G. Progress Reporting and Supervision .............................. 33 V. FINANCIAL ASPECTS .............................................. 34 A. The Project and Sector Investments ...... ....................... 34 B. Financial Objectives and Cost Recovery ..... .................... 35 C. Financing Plan and Project Financing ..... ...................... 36 D. On-lending Terms ............................................... 37 E. Guarantee of Payment to TWAD ....... ............................ 37 F. Tariffs ........................................................ 38 G. Financial Condition of Local Bodies ..... ....................... 40 H. Coimbatore's Finances ........ .................................. 42 I. Resource Mobilization of Local Bodies ................... ....... 42 J. Billing and Collection ......................................... 43 K. Financial Condition of TWAD ....... ............................. 43 L. Financial Ratios .................... 45 M. Accounts and Audits ......................... 47 N. Insurance ......................... 47 -iii- VI. ECONOMIC AND SOCIAL ASPECTS .................................... 48 A. Marginal Cost Analysis ......... ................................ 48 B. Rate of Return . ................................................ 49 C. Environmental Health Impact .................................... 49 D. Impact on Poverty Groups ....................................... 50 E. Least Cost Solution and Evaluation of Alternatives .... ......... 50 F. Project Risks and Safeguards ................................... 50 VII. AGREEMENTS REACHED AND RECOMMENDATIONS ......................... 51 List of Annexes 1. Sector Investments ............................................. 54 2. Water Supply Service Levels - Summary .......................... 55 3. Urban Areas Water Supply - Salient Data and Service Levels ..... 56 4. Urban Areas Sewerage - Salient Data and Service Levels ... ...... 57 5. Urban Water Supply Demands - Summary ........................... 58 6. Rural Water Supply Demands ..................................... 59 7. Project Description ............................................ 60 8. Operational Action Plan ....................................... 61 9. Summary of Cost Estimates ...................................... 65 10. Engineering Design and Construction Schedule ..... .............. 67 11. Materials and Equipment Contracts .............................. 68 12. Estimated Schedule of Disbursements ............................. 69 13. Domestic Metering Program ...................................... 70 14. Cost Recovery Guidelines for Low Cost Sanitation Program ... .... 71 15. Low Cost Sanitation ............................................ 73 16. Manpower and Training .......................................... 74 17. Existing Organization Structure - TWAD ......................... 80 18. Proposed Organization Structure - TWAD ......................... 81 19. World Bank Project Cell TWAD .................................... 82 20. Monitoring Indicators .......... ................................ 83 21. Summary of Assumptions for Financial Projections Coimbatore, Madurai and Salem ................................. 86 22. Financial Projections - Coimbatore, Madurai, Salem .... ......... 88 23. Sources and Uses of Funds - TWAD ............................... 97 24. Economic Analysis Data ......................................... 98 25. Mortality Statistics of Water Related Diseases .... ............. 99 26. List of Selected Documents in Project File ..................... 100 Maps IBRD 17229, 17230, 17231, and 17232. INDIA TAMIL NADU WATER SUPPLY AND SANITATION PROJECT Management Summmary i. The rapid growth of cities in India is leading to serious deficien- cies in the provision of urban services. Close to 7 million persons are added to India's urban population annually and close to half of the national population increase over the next two decades will be located in urban areas. The proposed project would assist in providing water and sanitation services mainly to urban areas. It would be the first Bank Group-financed statewide Water Supply and Sanitation project in the State of Tamil Nadu, following similar projects in five other Indian states. ii. The objectives of the proposed project are : (i) to provide better water supply to specific urban and rural areas; (ii) to provide low cost sanitation to selected urban communities; (iii) to assist in improving water resource management strategies; (iv) to strengthen the principal implementing agency's managerial and financial practices; and (v) to assist local bodies in improving their resource base for proper operations and maintenance. Particular emphasis is placed on objectives (iii), (iv) and (v) which provide the basic rationale for IDA support to this project. The proposed project incorporates the lessons learned from completed and ongoing water supply projects in India particularly with regard to (a) the need to involve local governments in the project and support their traditional sector role in retailing and operations and maintenance, (b) the need to use existing agen- cies with well defined sector roles and objectives, and (c) the need to emphasize carefully phased specific action programs to achieve operational and financial improvements. iii. The project is a part of the Government of Tamil Nadu's (GTN) sector investment program during the Sixth (80-85) and the Seventh (86-91) Plan. Total investments in water supply in the State are about 8.5% of total State Plan, compared to about 4% India average. The project represents a reasonable share of the State's sector investments (about 37% during the implementation period of 5 years). Project costs total Rs 149.4 crores (US$153.3 million) with a proposed credit of Rs 71.2 crores (US$73 m.illion). iv. Water is a scarce resource throughout the State and the alternative options for supply are limited. However, the engineering studies have examined all feasible alternatives to determine the least cost solutions. Careful examination has been made of ground water potential, availability of surface water, and the most economic methods of transmission. The economy of deferring capital expenditure by staging capacity has also been studied. Due to unavailability of convenient water sources, in the three large project cities, and generally throughout the State, even the least-cost solutions are expensive. It is unlikely that GTN can continue to sustain the necessary levels of investments in the sector to provide adequate drinking water throughout the State unless less expensive sources can be developed in the future. In the prevailing situation where the most readily obtainable water resources have been almost entirely exploited for irrigation purposes, -ii- increasing drinking water demands have to be met from diminishing and ever more costly alternative sources. There is a real need for a comprehensive state-wide water management policy which recognizes the necessity of allocat- ing available resources on a basis of priority usage, and in a manner which achieves overall economy in transmission and distribution. Until such a policy is implemented, new water supply projects will become increasingly burdensome for the consumer and, in consequence, less financially viable for the supplier. Therefore as a long-term objective of the project, a Stat:ewide Water Resources Management Study is included in order to identify future strategies and options to manage and optimally allocate all available water sources based on inter-sectoral priority of usages, such that overall economy is achieved in transmission and distribution of the already limited water resources. This Study will aim at developing less expensive future water supply schemes, and will probably require substantial re-ordering of priorities and usage before such economies can be achieved. Schemes included under the proposed project are such that their design would not be affected by the findings of the study. V. The Tamil Nadu Water Supply and Drainage Board (TWAD) will implement the project in five years, on behalf of the beneficiary local bodies. The proposed project is well within TWAD's current implementation capacity, representing about 45% of its investments during the implementation period. The ownership of the assets will vest with participating local bodies who will be responsible for servicing the associated debts. Division of respon- sibility for construction and operation and maintenance have been assigned on technical grounds as well as on the basis of current allocation of respon- sibility so that institutional arrangements under the proposed project will cause minimum disruption of current practices. TWAD will construct all facilities and operate and maintain all production systems. Local distribu- tion and levying of tariffs and taxes will be done by each local body. Measures to strengthen overall municipal finance and management have also been provided in the project. In addition, administrative and financial practices of TWAD, the key sector agency in the State, will also be improved through simple and practical modifications. vi. To ensure cost recovery, maximum affordable tariffs and taxes will be imposed upon commissioning of works. However, because certain components of the project are expensive, full recovery of total investments will ncot be possible even with the maximum affordable tariffs and taxes. Adequate revenues can be generated to recover all operations and maintenance costs under the proposed project, but due to (a) the relatively high cost of water supply in Tamil Nadu combined with the limited affordability of the con- sumers, (b) the need for providing significant amount of water through stand- pipes to serve the poor, and (c) the generally low resource base of the local bodies, there will not be enough revenues to recover total investments, after meeting operation and maintenance costs. The extent to which debt service can be met, varies with each local body, depending on specific affordability and resource constraints. Therefore, a financing plan on a city specific -iii- basis has been incorporated in the project. GTN will pass on the capital costs in varying mixes of grants and loans to different cities based on their specific capacity to pay debt service. In the three large project cities, the loan to grant ratio varies between 100% loan to 20% loan, while for the small towns the grant component is about 75% of capital costs. For the project as a whole, total capital costs will be passed on in approximately equal loan/grant portions. The overall loan/grant mix in other statewide water supply and sewerage projects in India ranges from about 33% to 75% of loan and 67% to about 25% of grant. Specific annual financial performance targets, while considering the related capital structure and the resource potential, have been established on a city specific basis with the aim of achieving full coverage of operations and maintenance costs and assigned debt service by 1989/90. By April 1, 1985, there will also be an interim tariff increase in Coimbatore, Madurai and Salem where prevailing tariffs are well below affordable levels. vii. There are a number of interrelated project activities to be under- taken by all participating entities with the common aim of improving operat- ing efficiency and financial viability. These activities draw on the experience of other water supply and sewerage projects and cover (a) institu- tional aspects (staffing, training, financial and administrative systems, etc.); (b) operational aspects (leak detection, billing and collection, metering, etc.); and (c) financial aspects (resource mobilization, financial targets, etc.). All these activities have been grouped into a timebound Operational Action Plan which will be closely monitored, annually reviewed and updated to ensure that project objectives are achieved. I I. BACKGROUND A. India - National Urbanization Trends 1.01 India is primarily an agricultural country with about 76% of its people living in rural areas. According to the 1981 Provisional Census data, the total population is estimated at 684 million. Recently, the urban population of India has expanded rapidly, from about 109 million in 1971 (20.2% of total population) to about 156 million in 1981 (23.7% of total population). During 1971-81, the urban population grew at 3.9% annually (compared to 3.3% during 1961-71) while the rural population grew at an annual rate of 1.75%. Miuch of the growth in urban population is taking place in the large and medium cities. According to the 1981 Provisional Census data, about 60.4% of the urban population live in 216 large and medium cities of more than 100,000 people. An additional 11.6% of urban population live in about 270 towns with population between 50,000 and 100,000. If the present trend continues, the total urban population in India will be about 300 mil- lion by the year 2000, and about 43 cities will have population of over a million. The growth of cities of all sizes is leading to serious deficien- cies in all urban services. B. The Water Supply and Sewerage Sector 1.02 While the Central Government exercises some influence in the sector by providing financial support, the State Governments have primary respon- sibility to develop water supply and sewerage facilities through various departments and agencies which, in turn, may delegate part or all of their duties to local authorities. In certain cases, legislation has been enacted to permit municipal authorities or other agencies to assume the entire responsibility for planning, design, construction, operation and maintenance of water supply and sewerage services within their jurisdictions. 1.03 State Governments have endeavored to meet the increasing sector demands caused by unprecedented rates of urban growth. Prior to 1975, due to competing demands for resources by other sectors, lack of management and planning skills and shortages of key materials and equipment, investments in the sector amounted to only 1 to 2% of total public expenditures. This has led to inadequate levels of water supply and sewerage services. In 1975, it was estimated 1/ that in India 193 million people, or 31% of the then total population of 620 million, had access to reasonably safe drinking water and that 125 million (20%) had acceptable means of disposing of sewage. These levels were lower than the average levels for all developing countries, in which water and waste disposal services reached 38% and 33% of the popula- tion, respectively. While some improvement in water supply service has since 1/ World Health Organization, Community Supply and Wastewater Disposal, Mid-Decade Progress Report, May 1976. -2- been achieved, the percentage of the population receiving waste disposal services has actually declined. 1.04 India's goals of the International Drinking Water Supply and Sanita- tion Decade, to be achieved by 1990, are (a) urban and rural water supply - 100% coverage, (b) urban wastes disposal - 80% coverage, and (c) rural sanitation - 25% coverage. For urban water supply and sewerage in India, the investment in the Fifth Five-year plan for 1974 - 1979 averaged about Rs 1,100 million per year, about 1.5% of the total Plan investment; annual investment in the rural water sector in the same period was Rs 750 million, or about 1.0% of the total Plan investments. More investment will be neces- sary if significant progress towards Decade targets is to be seriously attempted. The Government of India (GOI) and the State Governments are cotmitted to the objectives of the Drinking Water Decade. In GOI's Sixth Five-year Plan (1980-85), 4% of the total Plan provision has been allocated to the sector. The rural water sector under this plan will receive an average of Rs 4,300 million per year, about 2.2% of the Plan. The urban water supply and sanitation sector will receive an average of Rs 3,500 mil- lion about 1.8% of the Plan. These figures represent approximately four times and three times, respectively, the investments made in the individual sectors under the previous Plan, and reflect the importance which GOI attaches to the Decade program. Estimates for the Seventh Five-year Plan (1986-1991) are currently being prepared by individual states. Preliminary indications are that the proportional allocation to the sector in the Seventh Plan will be even higher than that of the Sixth Plan. GOI appreciates that the financial demands of the program can only be met by the use of low-cost techniques in both water supply and sanitation, and has consequently urged State Governments to adopt these techniques where appropriate. The efficient operation and effective maintenance of water and sewerage systems have always presented a serious challenge to Central, State and local bodies. Increases in capital works occasioned by the Decade program must be accompanied by an intensive training of personnel in the sector to achieve a compatible stand- ard of operational competence. C. The State of Tamil Nadu 1.05 Tamil Nadu covers an area of 130,000 sq km, which is about 4% of the national territory and has a population of about 50 million, about 7.3% of natUional total. It is a densely populated State with 372 persons per sq km, compared to the national average of 208. It is the second most urbanized state with 33% of its population in urban areas, compared to a national average of 24%. 1.06 The climate, though tropical, is tempered because of its proximity to the sea, with maximum and minimum temperatures of 43 and 18 degrees C. The annual average rainfall is 946 mm, the greater part of which occurs during the two monsoon periods: the southwest monsoon from June to September (307 mm) and the northeast monsoon from October to December (450 mm). -3- 1.07 Tamil Nadu's agricultural area covers approximately 56% of the state's surface, of which approximately 35% is irrigated. Its economy is primarily agricultural, and agricultural production increased 55% during the last decade. Industrial development in recent years has declined, which in some cases have been partly due to inadequate water supply. The average per capita income was estimated at Rs 1,030/annum for 1977/78 which approximates to the all-India average for the same period. D. Water Resources 1.08 Almost the entire surface water in Tamil Nadu has been harnessed and utilized for irrigation. The primary sources are the five independent major river basins of the Palar, Pennar, Cauvery, Vaigai and the Tambiraparani. Most rivers in the State rise in the adjoining states of Karnataka and Kerala. Abstractions from these rivers generally require an interstate agreement. Only the Cauvery and Tambiraparani are perennial rivers, and there is extensive impounding on the lesser, non-perennial rivers to permit greater exploitation for irrigation needs. 1.09 The average annual discharge of the rivers in Tamil Nadu is less than 1% of the total national potential whereas the population represents about 7.3% of the national total. As most of the surface water resources are reserved for irrigation, the water supply demands of the increasing popula- tion have to be met either by an increased dependence on groundwater or by bringing scarce surface supplies from long distances at great expense. Fur- thermore, the State has poor groundwater reserves which are often isolated from population centers. Deep aquifers capable of yielding potable water in sufficient quantities for urban water supply have only been discovered near the coastal belt. Limited groundwater reserves are progressively becoming depleted and, currently, about two-thirds is being extracted annually for drinking water supply. E. Service Levels 1.10 The overall service levels in the State are far from satisfactory. Although the rural population was hitherto given little priority in State Plans, the situation in rural water supply is now improving. Currently, about 47% of the rural population is served. The State Government's goal is to serve all problem villages 1/ with safe drinking water by 1985, but this goal may not be achieved by then. The problem villages which fall under the 1/ Problem villages are villages without wells, with wells which are seasonally dry, with wells of water which do not fulfill drinking water standards and where the distance to a safe water source is more than 1 km. -4- category of "no source" villages will be given priority attention in this program. In all villages, drinking water is provided through public stand- posts. 1.11 On the basis of population served, the urban situation is somewhat better. Of 740 towns, 222 have an organized water supply system, and schemes for 70 more towns are currently under execution. However, the population of the 448 remaining towns which lack these facilities represents only 28% of the urban population. The provision of water supply to those 448 towns and improvement to existing systems in 72 towns are proposed as part of the International Drinking Water Supply and Sanitation Decade program (IDWSSD). New water supply schemes in 97 towns and for upgrading existing supplies in 20 more towns are currently being examined. In all urban areas, only inter- mittent service is available. A large proportion of the urban population is served by standposts. 1.12 Sewerage systems in Tamil Nadu are less developed than water supply. Thirteen towns have water-borne sewerage facilities. Execution of sewerage schemes is in progress in six more towns, and the provision of sewerage facilities for five more towns is currently being investigated. Within the scope of the IDWSSD program, new sewerage systems for all nine larger Class I (Population > 100,000) towns are proposed; in the remaining towns (Classes II, III, and IV) sanitation facilities will be based on low-cost sanitation techniques as demonstrated in the UNDP Global Project. These will involve the conversion of bucket latrines into water-seal latrines and the provision of these units to the population which presently have no such facilities. Provision of limited sullage disposal facilities in urban communities located near major watercourses is also planned. 1.13 Rural sanitation has hitherto received scant attention, priority being given to the more congested urban areas. In accordance with India's IDWSSD goals, 25% of the rural population are targetted to be provided with low-cost sanitation by 1990. But this goal is not likely to be achieved because of financial constraints. 1.14 The existing and planned service levels are summarized as follows: -5- Table 1.1: POPULATION RECEIVING WATER SUPPLY AND SANITATION SERVICE Service Level Population Served 1971 1980 1985 1/ Million % Million % Million % Urban Water Supply 7.6 56 10.4 65 13.4 86 - by house connection 2.6 17 3.6 23 5.4 34 - by standpost 5.0 39 6.8 42 8.0 52 Rural Water Supply 2.5 10 13.5 47 30.0 92 - by house connection - - - - - - - by standposts 0.5 2 7.5 26 16.0 49 - by handpumps 2.0 8 6.0 21 14.0 43 Urban Sewerage 3.6 23 3.8 25 5.7 37 - by house connections 1.1 7 1.3 9 2.3 15 - by septic tank N/A N/A N/A N/A N/A N/A - by conservancy systems N/A N/A N/A N/A N/A N/A N/A - Not available 1/ Based on actual physical progress to date, it is unlikely that these targets will be met. F. Sector Organization in Tamil Nadu 1.15 With the exception of the Madras Corporation, the statewide respon- sibility for the planning, design, and construction of water supply and sewerage systems rests with the Tamil Nadu Water Supply and Drainage Board (TWAD). Generally, after commissioning, TWAD hands projects over to the urban local bodies for operation and maintenance. TWAD may also assume responsibility for the operations and maintenance of rural systems in the State. In 1978, the Madras Metropolitan Water Supply and Sewerage Board (MMWSSB) was created as an autonomous body to assume the sector respon- sibilities formerly held by the Madras Corporation within its city limits. In time, its jurisdiction will extend to the Madras suburban areas, which are currently TWAD's responsibility. 1.16 TWAD, as the oldest board of this type in the country, has well developed policies and procedures. It is currently reviewing these to assure continued applicability. To date, the divided responsibility between implementation and operation and maintenance has not caused any major problems. However, to ensure efficient operations and maintenance, espe- cially because water is scarce in Tamil Nadu and schemes are expensive, TWAD will need to be more involved in the operational aspects of the sector. This -6- is particularly true of major regional schemes where a single source may supply many individual communities. The operation of production and trans- mission facilities in such cases should sensibly be vested in one authority suchi as TWAD. C. Sector Investment in Tamil Nadu 1.17 The proposed project is a part of GTN's sector investment program during the State's current Sixth Plan Period (1980-85) and the following Seventh Plan Period (1986-91). Annex 1 shows past and future investments in the sector by Government of Tamil Nadu (GTN) and Life Insurance Corporation of India (LIC). A detailed breakdown of total sector investment is not available, but the order of magnitude of investments is presented. 1.18 The Sixth Plan shows a 250% increase in the outlay for rural water supply over the Fifth plan. There is an urgency to overcome the backlog in rural water supply. The level of urban water supply investments in the Sixth Plan shows an increase of 400% over that of the Fifth Plan. This program was based on the assumption that IDA assistance would have been available mostly during the Sixth Plan. However, the proposed project will now fall mainly within the Seventh Plan. 1.19 Under the Sixth Plan, GTN has allocated about 8.5% of the total State Plan for water supply and sanitation (para 5.01) as compared to about 4% India average, which reflects both the priority the State Government attaches to the sector and the high cost of providing water in Tamil Nadu. Annual investments in the sector are currently averaging about Rs 75 crores (US$ 77 million). Firm estimates for the Seventh Plan period are not yet available but early indications are that there would be a significant increase over current levels of investment. However, if future annual investments remain at the current level in real terms, the proposed project would account for about 37% of the GTN sector investment program during the project period. 1.20 Water is a scarce resource in the State and alternative options for supply are limited (para 1.09). It is expensive to develop new sources of drinking water and these investments are generally beyond the affordability level of consumers. The combination of high capital costs and inadequaite opportunity for full cost recovery has eventually caused GTN to provide significant amounts of subsidies by way of capital and operating grants. In the proposed project, about half of total project cost would be provided by GTN to sector agencies on a grant basis. Beneficiary charges will be suffi- cient to cover operation and maintenance costs fully, as well as debt servic- ing on the loan portion (paras 5.04-5.06). This financing formula would allow GTN to sustain its ambitious sector investment program over the longer term but this requires that future sources of water be exploited at affor- dable cost levels. -7- 1.21 Future sources of water, beyond the proposed project, are, however, likely to become more expensive as lower cost sources are gradually exploited. This suggests the possibility of an increasing capital grant requirement for future sector investments which would threaten the financial viability of the program. There is an immediate need to address this long-term issue by developing a comprehensive statewide water resources management policy which recognizes more fully the necessity of allocating available resources on a priority basis and to achieve better overall economy in water utilization in the State. Such a policy will need to address inter-sectoral issues. Conservation of water through measures such as reduc- ing wastage, improved recycling and better pricing policies in all water using sectors will be necessary to reduce the future financial burden on the State for making adequate drinking water available. Drinking water repre- sents about 5% of total water use in the State. Thus, even a small increase in irrigation efficiency through greater conservation could provide sig- nificant amounts of water for drinking purposes. The proposed project will include a Water Resources Management Study (paras 3.19-3.25) to address this fundamental sector objective. A good data base has been established in Tamil Nadu through several previous studies focusing on more narrow sector issues, largely of a technical nature, and the availability of data would therefore permit the proposed study to focus on broader issues of sector management and policy. An expert panel, on which IDA would have observer status, will be established to guide this study. H. Bank Group Operations and Experience in the Water Supply and Sewerage Sector in India Projects and Approaches 1.22 The Bank Group's involvement in the water supply and sewerage sector in India began in 1974 with a US$55 million credit for the Bombay Water Supply and Sewerage Project (Credit 390-IN of January 1974). Since then, the Bank has made available seven credits totalling US$529 million for water supply and sewerage projects and provided a further US$190 million for water supply and sewerage as part of a broader program of infrastructure develop- ment in urban areas. The Bombay Water Supply and Sewerage Project which financed water transmission, distribution and treatment facilities and expan- sion of the sewerage system in the Greater Bombay area, and a US$40 million credit for the Uttar Pradesh Water Supply and Sewerage Project Credit 585-IN of September 1975), which supported the constructioni of water supply and sewerage facilities for five large towns and provided safe piped water to a number of smaller towns and villages, have been completed. The ongoing projects include the Second Bombay Water Supply and Sewerage Project (Credit 842-IN of November 1978); Punjab Water Supply and Sewerage Project (Credit 848-IN of October 1978); Maharashtra Water Supply and Sewerage Project (Credit 899-IN of June 1979); Rajasthan Water Supply and Sewerage Project (Credit 1046-IN of June 1980) and the Gujarat Water Supply and Sewerage Project (Credit 1280-IN of November 1982). -8- 1.23 All projects with the exception of the Bombay Water Supply Projects, have been formulated on a statewide basis with responsibility for construc- tion of facilities entrusted to a state-level agency. The Second Bombay Water Supply Project like its predecessor (Credit 390-IN), addresses the specific water supply and sewerage needs of a single city viz. the Bombay Municipal Corporation. A third approach has been the provision of water supply and sewerage facilities as part of a composite program of urban infrastructure development as under the First, Second and Third Calcutta Urban Development Projects (Credit 427-IN, 756-IN and 1369-IN, respectively) and the Madras Urban Development Project (Credit 687-IN). Credits 427-IN and 687-IN have been fully disbursed. 1.24 The sector objective of the Government of India and the State Govern- ments is to extend water and sanitation services to a majority of the popula- tion (para 1.04). The purpose of the Bank Group's involvement in the sector is to assist in establishing viable sector policies and programs in support of this overall objective, with particular attention being given to (a) institutional development, (b) financial viability and pricing issues, and (c) choice of technology and promotion of lower cost designs. Our sector lending program has now matured sufficiently to permit a critical evaluation of achievements or lack thereof in these three areas. Performance and Problems 1.25 The physical and technological objectives of the Bank Group supported water supply and sewerage projects in India have generally been met. Actual implementation of construction works has been satisfactory. There has also been some progress in lowering per capita costs, partly through efforts made to encourage a more analytical and thorough search for alternative technical solutions as part of project preparation, and partly through a Bank-executed UNDP-financed program to develop, test and disseminate lower cost sanitation technologies (UNDP GLO/78/006) which are now becoming widely accepted in India. Of major concern on the physical side are the relatively unsatisfac- tory standards in the operation and maintenance of completed facilities, which is directly linked to institutional and financial issues (paras 1.27-1.28). 1.26 Achievement of project institutional and financial goals, including cost recovery, has been unsatisfactory. GOI shares our concern in this regard and is collaborating with us through the Central Ministry of Works and Housing and all concerned State Governments in a close review of the institu- tional and financial performance of all completed and on-going water supply projects. The objective of this review, which was initiated in mid-1983, is to identify the underlying causes and the corrective actions needed to improve institutional and financial performance in the sector, based on the lessons learned from completed and ongoing projects. The data collection phase of this review has been completed and preliminary findings are under -.9- review. When completed by June 1984, the review should provide the basis for further dialogue with GOI and State Covernments on the issues identified and also provide options and guidelines for future project formulation which are practical and adaptable under local circumstances. 1.27 Initial findings from the review indicate that poor cost recovery is symptomatic of several underlying institutional and operational problems. While there is a lack of political will on the part of some State Governments to increase tariffs, resolution of the underlying institutional and opera- tional problems which have been identified, may also result in a beneficial political effect on tariff and cost recovery issues. The review has tenta- tively identified three such problem areas related to unsatisfactory institu- tional and operational performance: (i) new sector agencies have been established through most of the Bank-supported water supply and sewerage projects in India but their appropriate sector roles and objectives have not yet become sufficiently well defined, incentives for effective sector management remain ambiguous, and the relationship between the internal processes of these agencies and the political decision-making processes at state and local government levels needs to be more fully considered; (ii) traditional roles of local governments in the sector require more attention in project design and execution, partic- ularly as regards retailing of water, operation and mainte- nance, billing and collection, and public education; and (iii) specific programs and actions to improve sector management and operational efficiency have not generally been identified in sufficient detail and vigorously pursued during project implementation by the agencies and local governments con- cerned, partly because of the lack of an appropriate incen- tive structure, as noted above. 1.28 In considering the above causes for poor institutional and financial performance and in identifying potential counter-measures, it should be stressed that the delivery of water has traditionally been perceived in India as a local government function of providing a municipal service, with the cost covered by general tax revenues, particularly property tax revenues. The concept of water supply as a separate utility operation is not fully accepted by policy makers or by the public. Strong public opposition to tariff increases and metering of consumption has arisen from the traditional concept held by both consumer and government alike that water and sewer services are a "public good" which should be provided free of charge, as are medical care and education. However, there is now a growing recognition, particularly among policy makers, that in order to extend service coverage to the majority of the population, the sector must strengthen its institutions -10- and generate a larger portion of its funds through direct user charges. Contributing to this recognition are also the increasingly competitive demands on limited property tax revenues for the provision of a wide range of other local services where the opportunities for direct user charges are more limited, such as traffic management, road maintenance, solid waste collection and disposal, and drainage. 1.29 The on-going review of Bank-supported water supply and sewerage projects in India, combined with the growing acceptance by the Government of the fundamental objectives incorporated into these projects, suggests that there is a substantial potential to achieve improved sector performance over the medium to long-term. Intensified supervision of ongoing projects and strengthened sector policy content in upcoming projects will be required to achieve this. It must, however, be recognized that the attitudinal and institutional adjustments under way in the sector are far reaching and will take time and that project objectives need to be carefully tailored to this reality. Follow-up projects will be required to maintain continuity and consistency in the sector policy dialogue and to pursue the issues now being identified in more detail. At the same time, more active participation by Central Government agencies as policy intermediaries for dissemination of sector policies and experiences to the different State governments is envisaged. I. Context of the Proposed Project 1.30 Although the sector portfolio review and evaluation is still under way, and no definitive conclusions can therefore be drawn, the preliminary findings discussed above suggest that no drastic departure from our current sector assistance strategy and basic sector objectives (para 1.24) will be required. Rather, increased attention to the sector issues referred to above (paras 1.24-1.29), including a fuller recognition of the time and effort required to affect change through a series of projects, is suggested. Only a gradual adjustment of our sector work program to incorporate these findings is required at this stage. Accordingly, the proposed project does not reflect a significantly different sector approach but is, in its content and design, consistent with the findings referred to above. Firstly, the prin- cipal project implementing agency is well established and has a proven track record with a well accepted sector role in the State. It will be further strengthened through a carefully designed support program of simple yet practical improvements in staffing, administrative and financial systems and procedures, and monitoring practices. Secondly, steps are being taken through the project to support and strengthen the traditional sector role of local governments in distribution and retailing of water through better training and staffing, and through improved local government systems and procedures for billing, collection and operation and maintenance (such as metering, leak detection, etc.). Measures are also being taken to improve not only the revenues from water supply operations, but also the general resource base of the local governments through a Resource Mobilization Study. - l - Thirdly, a detailed Program of Action to improve sector management and opera- tional efficiency of all participating agencies has been developed which outlines specific timebound steps to achieve agreed objectives and provide a better basis for project supervision and monitoring (para 3.05 and Annex 8). Finally, in order to move the GTN towards taking a broader view of the sector and identifying cost-effective alternatives for its longer-term sector development, a state-wide Water Resources Management study will be undertaken (paras 3.19 and 3.25). 1.31 The nature of investments in the towns under the proposed project represent least cost solutions and the results of this Study will not affect the current selection. The City of Madras, the State capital, is not one of the towns under the proposed project. The acute water crisis in Madras is a well known fact. GTN has now embarked upon the ultimate and long-term solu- tion to Madras's water needs by bringing water to the city from the Krishna-Pennar source (para 5.02). This is an expensive scheme and is now at a very early stage of planning. It is unlikely that Madras will benefit from this scheme in the near future; certainly not during the implementation of the proposed project. Therefore, means for providing immediate supplementary supplies to Madras from the internal water resources of the State must be explored as a priority. The above Study will accordingly examine means of achieving interim relief for Madras from sources not yet fully identified. Meanwhile, the proposed project will attend to the equally urgent needs of the towns included. II. POPULATION FORECASTS AND DEMAND PROJECTIONS IN PROJECT AREA A. The Project Area 2.01 A water supply and sanitation sector memorandum for the State of Tamil Nadu was prepared by the World Bank/WHO Cooperative program (IBRD/WHO CP) in late 1979, where the status of the sector and investment priorities were identified. In keeping with these priorities, GTN prepared a project package consisting of: (i) water supply augmentation for the 3 major cities of Coimbatore, Madurai and Salem; (ii) new water supplies for 75 small towns, 20 of which lie within the Coimbatore Local Planning Area (CLPA), 11 belong- ing to the Salem system and 44 others spread throughout the State; (iii) new water supplies for villages within the CLPA and Salem systems; and (iv) low cost sanitation for 14 small towns. The justification for the selection of these components which form the project is given in paragraph 3.02. -12- B. Present Water Supply in Project Area Major Project Cities 2.02 Coimbatore, Salem, and Madurai rely almost exclusively on surface water for their supply. To meet seasonal demand, supplemental groundwater is pumped in limited quantities from wells either within or close to municipal boundaries. Coimbatore receives its water by direct abstraction from distant river sources. Madurai and Salem are supplied through allocations granted to them by GTN from the Irrigation Department's impounding reservoirs. Existing resources are insufficient to keep up with the demand of expanding domestic and industrial usage, and current service levels are barely adequate. 2.03 Service levels in Coimbatore are expected to improve significantly by the end of 1984 when a new augmentation scheme from the Siruvani river is completed. This is barely adequate for current needs, and additional sup- plies will be needed to meet the demand of a rapidly expanding population. Madurai has an annual allocation of water reserved in the Vagai irrigation dam.. This allocation has never been properly exploited because there is no transmission line between the dam and the city. Releases of water into the river bed in dry weather do not effectively recharge the river bed acquifers at the existing points of abstraction, and supplies at these times become severely restricted. Salem is currently facing a water shortage because its existing allocation from the Mettur dam is inadequate. Salem will continue to meet is needs from Mettur and abstractions from this source are not likely to be restricted. 2.04 Extensive distribution systems exist in the major cities, and these have been extended periodically. The Coimbatore distribution system is currently being upgraded under the Siruvani project to fully meet future flow requirements and will not need further extension under this project. Because of the poor conditions of water supply in Madurai, its distribution system is less developed and is particularly deficient in elevated reservoir capacity. The existing distribution system of Salem will only require some additional elevated storage and minor augmentation in new areas to meet future needs. Small Towns 2.05 Almost all the small towns, comprising the satellite towns of Coim- batore and Salem and others located elsewhere within the project area, pos- sess only skeletal piped water systems served either by open wells or by infiltration gallery systems. Over time, these sources have proved to be unreliable in quality and yield. In summer months the populace use old private wells located at considerable distances which are also liable to contamination. The average per capita supply from these existing systems ranges from 5 lcd to 20 lcd. -13- 2.06 Existing water service levels in the urban project areas are shown in Annexes 2 and 3. C. Existing Sewerage Systems 2.07 In Coimbatore and Madurai, extensive water borne sewerage systems already exist and are now being upgraded to accommodate the higher discharges anticipated from increased water supply. There is no water borne sewerage system in Salem. However, a new system with extensive coverage has been approved for Salem by GTN, and its construction is expected to start in 1984. 2.08 In project areas where no water borne sewerage systems exist, sanita- tion is generally provided in the form of bucket or pit latrines. In municipal areas, an increasing number of water seal latrines connected to septic tanks or leaching pits is being used. 2.09 Present and proposed sanitation levels and information on sewerage systems in the major project towns are shown in Annex 4. D. Proposed Service Levels 2.10 The objective of the proposed project is to provide a minimum domes- tic supply of 90 lcd to connected consumers and 30 lcd to standpipe users. In Coimbatore and Salem, where future supply is assured, these objectives may be realized within project period. In Coimbatore levels somewhat in excess of these standards will be achieved in the initial years. Madurai's access to water supply is limited to an irrigation source and no other economically viable alternative source of supply exists. Under the proposed project, although supply levels in Madurai will double from present, the levels of service will be somewhat less than in Coimbatore and Salem. To maintain reasonable levels of service in Madurai, for the increasing population, additional supplies will be needed early in the next decade. 2.11 Smaller towns within each group will also aim at 90 lcd for connected consumers and a slightly lower standpipe level of 25 lcd. Rural water sup- plies will be provided to consumers entirely by standpost at an assumed average level of 40 lcd. 2.12 Future service levels and projected total demand for urban water supply projects are summarized in Annexes 2 and 3. Industrial and commercial demands have been based on projected requirements and have been included in the projections for total demand. Proposed domestic service levels are modest compared with urban service levels in other parts of India, where 140 lcd for connected consumers and 40 lcd for standpipe users are normally accepted design criteria. -14- E. Population Forecasts 2.13 Forecasting of future population in the project areas has been based on past population growth rates, adjusted where appropriate to take into account factors such as migration and the impact of other policy measures. Present and forecast population in the project area are summarized in Table 2.1. Table 2.1: POPULATION IN PROJECT AREA Urban Areas Present Intermediate Long Term 1982 1996 2011 -----------------Thousands----------------------- Group I Coimbatore 700 975 1,325 20 rowns 175 374 564 Group II Madurai 940 1,281 1,700 Group III Salem 361 520 700 11 Towns 166 248 335 Group IV 44 Towns 488 636 792 Total 2,830 4,034 5,416 Rural Areas Group I 368 424 479 Group II 205 236 266 Total 573 660 745 F. Future Water Demands and Supplies 2.14 Demand projections for water supply for urban and rural areas of the project are summarized in Annex 5 and 6, respectively. Accurate production and consumption data are not available for any of the project towns, as bulk metering is non-existent and consumer metering is incomplete. Present system losses vary from one town to another but the projections assume that during project implementation, through improved operations and maintenance and the implementation of a leak detection program, the unaccounted for water in all towns will be reduced to a reasonable level of 25% to 30%. -15- 2.15 Extensive studies have established that no additional supplies can economically be obtained from ground water sources in the three large project cities. 2.16 The future requirements of Salem and other beneficiaries in the Salem group will be met by increased abstraction from the Cauvery river downstream of Mettur dam, to which GTN has already agreed. In Coimbatore, the commis- sioning of the Siruvani augmentation project (para 2.03) will fully exploit the resources of this river. The Bhavani River is the immediate alternative source which can meet the future needs of Coimbatore. Long term gaugings have demonstrated that there is adequate flow in the river at all times to meet demands up to the design year of 1996. Present minimum river flows are inadequate for Coimbatore's requirements beyond this year. To meet require- ments beyond 1996, additional water will have to be released into the upper reaches of the Bhavani river from Kerala State. Madurai, so far, has not effectively exploited the volume reserved for it in the Vagai dam (para 2.03). If piped, this entitlement together with yields from existing sources will double the present supply. Future augmentation beyond these limits will, however, present major difficulties. The proposal currently being considered by GTN for meeting future demands of Madurai will involve costly capital works and an interstate agreement with Kerala. Other less costly alternatives are: (i) the appropriation of additional quantities of water from the Vagai dam on grounds of priority, and (ii) the generation of surplus reserves in the dam through more conservative use of irrigation water. The Water Resources Management Study included in the proposed project (paras 3.19-3.25) will focus on such problems. 2.17 All proposed groundwater sources for the small towns have been tested and proven. III. THE PROJECT A. Project Objectives 3.01 The proposed project will have the following objectives: (i) to improve water supply in larger urban areas and to provide a safe water supply to certain smaller towns and rural areas which are currently without these facilities; (ii) to provide proper low-cost sanitation to selected urban communities to improve public health standards; (iii) to assist GTN and TWAD in developing water resource management strategies aimed at achieving overall economies in providing drinking water; -16- (iv) to enable low-income groups to connect to the systems, or alternatively to provide adequate standpost facilities; (v) to strengthen TWAD's institutional, managerial, and financial practices through training and technical assistance; and (vi) to assist urban local bodies in identifying measures to improve their resource base for proper operations and maintenance of investments. B. Project Selection Criteria 3.02 The technical and administrative capability of TWAD and the manageability of the number of subprojects are key factors in identifying suitable project components. The priority placed by GTN on water supply development in small towns which have no safe supply merit the inclusion of this component. Impact of coverage in urban water supply is optimized by concentrating investments in the augmentation of supplies in three major population centers currently facing a water crisis and where distribution capacity already exists. Financial constraints and low affordability exclude investments in expensive water borne sewerage schemes. To compensate for this, a low cost sanitation component is included. The following factors, which will also simplify project implementation, were also taken into account when defining the project: (i) the investments in the major cities are mainly in new production facilities, principally long transmission mains with limited distribution works; (ii) the source development for the small towns has already been partially completed, and the remainder will be executed under one drilling program, while the associated rudimentary distribution systems may be easily implemented in small contracts of short duration. C. Project Description 3.03 The principal project elements are illustrated in Maps IBRD 17229, 17230, 17231 and 17232. A physical description of major subprojects is included in Annex 7. The project is summarized below: tGroup I. Design and construction of intake, treatment, transmission and distribution works to provide an additional gravity supply of about 125 mld from the Bhavani River to Coimbatore, -17- 20 urban communities and various rural areas within CLPA. Group II. Design and construction of intake, treatment, transmission and distribution works drawing a new gravity supply from the Vaigai Dam to provide an assured total supply averaging 90 mld to Madurai. Group III. Design and construction of intake, treatment, pumping, transmission and distribution works to provide Salem, 11 satellite towns and peripheral rural communities with an additional 85 mld pumped from immediately downstream of the Mettur Reservoir. Group IV. Provision of acceptable amounts of drinking water to about 44 small towns currently lacking a protected reliable source. New sources will comprise tube wells, open wells, and infiltration galleries. Group V. A prototype subproject to provide low-cost sanitation facilities to 14 towns throughout Tamil Nadu selected under the Global UNDP Low-Cost Sanitation Project. Group VI. Provision of services by TWAD for sectorwide training, leak detection, and meter repair. In addition, consultant services for a Statewide Water Resource Management Study, implementation of accounting and material management systems for TWAD, implementation of water supply sector accounting system for local bodies and a resource mobilization study for local bodies are also included. Group VII. A revolving fund for the provision of meter connection loans in Coimbatore, specifically for low income households. 3.04 Although the subprojects in groups I and III are designed primarily to provide water to Coimbatore and Salem, they will also serve en route a number of rural communities which would otherwise have no viable source of supply. In both cases, the headworks, treatment plants and main transmission lines, are commonly shared for both urban and rural supplies. The total cost of shared facilities is included in the project, although rural distribution facilities will be constructed separately. -18- D. Operational Action Plan 3.05 There are a number of interrelated project activities to be under- taken by participating agencies with the common aim of improving their operating efficiency and financial viability. Although these actions are discussed in various places of the SAR, because of their relevance, these have been grouped into an Operational Action Plan. The components of this Plan were discussed and agreed during appraisal with GTN and TWAD and the timing of their implementation was reviewed and confirmed during nego- tiations. Assurances were obtained from TWAD that the progress on this Plan will be annually reviewed and updated in consultation with IDA. The elements of the Plan are included in Annex 8 (references are made to the paragraphs in this SAR). E. Engineering Feasibility Studies 3.06 From an engineering point of view, the project has been well con- ceived. Feasibility studies for all project towns have been completed by TWAD staff and the schemes proposed represent the least-cost solutions. Because of unavailability of convenient water sources, the water supply components are costly and capital intensive. In Coimbatore, Madurai and Salem, which together account for approximately 50% of total project costs, there are large investments in conveying water over long distances. In Salem, there is the added high operational cost of pumping water from Mettur to Salem, with further expensive boosting to Attur. F. Cost Estimates 3.07 The estimated cost of the total project is Rs. 1,494 million (US$153.3 million) including contingencies, duties and taxes. The estimated costs of the various components are summarized in Table 3.1. Detailed cost breakdowns and estimated annual expenditures are included in Annex 9. Duties and taxes are about US$7.0 million, and land acquisition is about US$2.0 million. 3.08 Civil works costs are based on estimates of work for which prelimi- nary designs have been completed. Materials and equipment costs are based on estimates from Indian and foreign suppliers. Physical contingencies of ].0% have been allowed for civil works and 5% for materials and equipment. Price contingencies for both local and foreign costs have been projected as follows (base costs as of April 1, 1983): 1983/84 - 7.0%; 1984/85 - 7.0%; 1985/86 - 7.0%; 1986/87 - 6.0%. -19- Table 3.1: SUIMAMRY OF ESTIMATED PROJECT COST % Of % Group Details Local Foreign Total Local Foreign Total Total Foreign -----US$ million ----- ----- Rs million----- Cost Exchange I. Coimbatore Area: Civil Works 10.4 3.7 14.1 101.8 36.2 138.0 9.2 Materials & Equipment 13.5 1.4 14.9 131.2 13.7 144.9 9.7 Subtotal 23.9 5.1 29.0 233.0 49.9 283.0 18.9 17.6 II. Madurai: Civil Works 5.7 2.0 7.7 56.2 19.4 75.6 5.0 Materials & Equipment 9.7 2.1 11.8 94.2 20.6 114.8 7.6 Subtotal 15.4 4.1 19.5 150.4 40.0 190.4 12.7 21.0 III. Salem Area: Civil Works 7.3 2.0 9.3 70.9 19.8 90.7 6.0 Materials & Equipment 10.6 3.5 14.1 103.8 34.0 137.8 9.2 Subtotal 17.9 5.5 23.4 174.7 53.8 223.5 15.3 24.1 IV. 44-Small Towns: Civil Works 4.5 0.9 5.4 43.8 8.8 52.6 3.5 Materials & Equipment 5.8 3.0 8.8 57.4 29.4 86.8 5.8 Subtotal 10.3 3.9 14.2 101.2 38.2 139.4 9.3 27.4 V. Low Cost Sanitation: Civil Works 2.8 0.7 3.5 27.4 7.3 34.7 2.3 Materials & Equipment 0.4 - 0.4 3.7 - 3.7 0.2 Subtotal 3.2 0.7 3.9 31.1 7.3 38.4 2.5 17.9 VI. Training 0.5 0.1 0.6 4.6 1.1 5.7 0.3 Consultants 1.5 1.2 2.7 14.3 12.0 26.3 1.7 Equipment 0.3 - 0.3 3.0 - 3.0 0.2 Subtotal 2.3 1.3 3.6 21.9 13.1 35.0 2.3 37.4 VII. Others Revolving Fund 1.0 - 1.0 10.0 - 10.0 0.6 Land Acquisition 2.1 - 2.1 20.2 - 20.2 1.3 Duties & Taxes 6.9 - 6.9 67.2 - 67.2 4.5 Total Before Contingencies 83.1 20.6 103.7 809.8 202.5 1012.3 67.7 20.0 Contingencies a) Physical 5.4 1.4 6.8 53.0 14.1 67.1 4.4 b) Price 15.4 3.4 18.8 148.0 32.8 180.8 12.1 Subtotal 20.8 4.8 25.-6 201.0 46.9 247.9 16.6 18.9 Eng. Cost 24.0 - 24.0 233.9 - 233.9 15.6 TOTAL PROJECT COST 127.9 25.4 153.3 1244.7 249.4 1494.1 100.0 16.7 -20- G. Financing 3.09 A total of US$73.0 million, representing about 50% of the total project cost of US$153.3 million excluding duties and taxes, is proposed to be financed by US$36.5 million from IDA's Special Fund and the remaining US$36.5 million as a regular IDA credit. H. Consulting Services 3.10 In addition to the engineering feasibility studies, four other studies were carried out by consultants as a part of project preparation: (i) Socio-economic study to determine affordability thresholds of consumers in each subproject area; (ii) Study of the urban poor to locate slums, recommend provision for their water supply, and collect relevant data for appraisal purposes; (iii) Study reviewing management systems and procedures to improve TWAD's operations; and (iv) Studies to design commercial accounting systems for Coimbatore, Madurai and Salem and modified cash account- ing systems for all other local bodies for the water supply and sewerage operations only; and to report TWAD's own financial position. 3.11 Consulting studies to be undertaken as part of the project and financed under the credit will include (i) a Water Resource Management Study (para 3.19); (ii) Training Study (para 3.41); and (iii) a Resource Mobi- lization Study for the three major cities (para 5.22). Total cost of the above studies will be about US$2.5 million with an estimated input of about 600 man months, including a provision for 130 man months of foreign exper- tise. Cost of local consultants has been estimated at about US$2,500 per man month and that of foreign consultants at about US$10,000 per man month. I. Implementation Schedule 3.12 TWAD will implement the project over five years with a completion date early in 1989 and credit closing date of September 30, 1989. The small town components are expected to be completed about eighteen months before other subprojects as these can be constructed in short duration and in paral- lel with one another. The preliminary engineering is already sufficiently detailed to define the broad elements of the projects so that with minimal refinement the material and equipment requirements can be specified. Although detailed design will continue throughout the first project year, preparation of tender documents are sufficiently well advanced to bid and -21- award some of the major material and equipment contracts by September 1984. Civil enginering contracts can be awarded shortly thereafter. Pert charts have been prepared for all components of the project. Annex 10 includes simplified bar charts showing major activities for all project components. The schedules are realistic and provide reasonable allowance for contingen- cies. However, careful planning and good management will be required to complete all works in time. J. Procurement and Contracts 3.13 50% of the total credit would be financed from IDA's Special Fund. An allocation of this has been made against various disbursement categories. Countries eligible for tender submission for contracts to be awarded under the IDA's Special Fund would be restricted to the participants in the Fund (Australia, Belgium, Canada, Denmark, Federal Republic of Germany, Finland, France, Ireland, Italy, Luxembourg, New Zealand, Norway, Sweden, United Kingdom and Part Two Countries). Procurement restricted to the above countries would not adversely affect the Borrower's ability to obtain the required standards and quality of goods and services necessary to complete the project satisfactorily. 3.14 Equipment and materials contracts will be awarded under international competitive bidding in accordance with IDA guidelines with the following exceptions: contracts valued under US$150,000; contracts for fragile water supply or sewer pipes of glazed stoneware, asbestos cement, and concrete construction and other materials which are difficult to transport and are readily available locally. These items would be procured under local bidding procedures acceptable to IDA. 3.15 Most civil works would be carried out through a large number of relatively simple contracts by contractors registered in Tamil Nadu or other parts of India. These works which are widely dispersed do not require spe- cial equipment or techniques and are labor intensive. Such works, which include water transmission mains, pumping stations, and distribution facilities, would not attract foreign bidders since overseas firms could not successfully compete with local bidders for works of this type and size. These would be subject to local competitive bidding. Major treatment plants to be constructed on a turnkey basis, if combined in one package, may attract foreign interest and would be bid internationally. 3.16 In evaluating bids for equipment and materials, domestic manufac- turers would be given a preferential margin equal to 15% of the c.i.f. of the competing imports, or the existing rate of customs duty, whichever is lower. A preferential margin of 7 1/2% would be allowed for local contrac- tors on evaluating civil works bids. Most of the contracts for equipment, materials and civil works are likely to be won by local firms. Materials and equipment requirements for the project and tentative contract values are shown in Annex 11. All bidding packages over US$150,000 equivalent, all bids -22- for treatment plant and pumping equipment, and civil works contracts over US$500,000 equivalent, would be subject to IDA's prior review of procurement documentation. These would cover about 85% of the total estimated project costs. The balance of contracts would be subject to random post review by IDA after contract award. The consulting services will be awarded in accord- ance with the Bank's guidelines for the use of consultants (August 1981). Procurement arrangements are summarized in Table 3.2. Table 3.2: PROCUREMENT TABLE (US$ Million) Procurement Method Total Project Element ICB LCB N.A. Cost Civil Works 6.5 47.0 - 53.5 (4.5) (23.5) - (28.0) Equipment and 12.5 49.7 - 62.2 Materials (12.5) (25.0) - (37.5) Training, Consultants 1.3 2.3 - 3.6 and Special Equipment (1.3) ( 2.3) - ( 3.6) House Connection Fund - - 1.0 1.0 (1.0) (1.0) Land - - 2.1 2.1 Engineering - - 24.0 24.0 Duties & Taxes - - 6.9 6.9 20.3 99.0 34.0 153.3 (18.3) (51.8) (1.0) (70.1) * Notes: Figures in parentheses are the respective amounts financed by the Credit. * An amount of US$2.9 million of the credit has not been allocated to any specific project element. N.A: Not applicable. -23- K. Disbursement 3.17 The proceeds of the credit would be disbursed over a six-year period. An estimated disbursement schedule is shown in Annex 12. Amount of disburse- ments by category is shown in Table 3.3. Table 3.3: DISBURSEMENT BY CATEGORY Amount of Credit Disbursement Category Allocated Rate (US$ Million) 1. (a) Equipment and material procured 12.5 100% of foreign under international bidding. expenditures or 100% of local expenditures ex-factory. (b) Equipment and material procured 25.0 50% of expenditures under local bidding. 2. (a) Civil works awarded under 4.5 70% of expenditures international bidding (b) Civil works awarded under 23.5 50% of expenditures local bidding 3. Consulting services and training; 3.6 100% of expenditures 4. Loan Fund for house connections. 1.0 100% of amounts disbursed. 5. Unallocated 2.9 No disbursements would be made against administrative costs. Disbursements for small civil works payments for about Rs 300,000 or less, for equipment and material payments for about Rs 150,000 or less, and for amounts disbursed under the house connections loan fund, will be made against Statements Of Expenditures (SOE), certified by the Project Director (or other appropriate officer). Supporting documentation for items disbursed against SOEs will be retained centrally and made available for IDA for review on request. The expenditures disbursed under SOEs will be audited annually by independent auditors, acceptable to IDA (para 5.32). 3.18 The expected pattern of disbursement for the project compares reasonably with the Bankwide disbursement profile for the subsector, although the period of disbursement of six years is somewhat shorter than the average of about eight years. This is based on the assumption that the project would -24- progress according to the estimated implementation schedule. There are several factors which are reassuring in this regard: (i) At appraisal, preliminary engineering had been completed in some detail and TWAD staff are currently working on preparation of bid documents for equipment which involve long delivery times, so that critical contracts may be awarded at an early stage; (ii) Topographical surveys are already well advanced and all hydrogeological investigations have been satisfactorily concluded; (iii) TWAD staff has had considerable experience working together in projects of similar magnitude and scope and design and operational procedures within TWAD are well established and proven in practice; (iv) The principal elements of the major subprojects which represent over 70% of total project costs, will be executed in a few simple contracts of a repetitive nature. A similar project, the Siruvani project for Coimbatore, was recently designed and is being executed by TWAD well within the project schedule. L. Water Resources Management Study 3.19 The problem of obtaining drinking water in sufficient quantities at an affordable cost to consumers is becoming increasingly acute in Tamil Nadu, and merits a comprehensive review and study. Extensive groundwater studies incorporating modern technological methods are continuing on a Statewide basis to assess more accurately its groundwater potential. These studies have demonstrated that the State has poor groundwater reserves which are generally distant from population centers. Deep aquifers capable of yielding potable water in sufficient quantities for urban water supplies have only been discovered near the coastal belt. Surface water resources have also been investigated and quantified thoroughly for many years, but almost all have been harnessed and committed. 3.20 Currently, most of the readily obtainable water resources are reserved for irrigation purposes. Therefore, increasing drinking water needs have to be met from diminishing and expensive alternative sources. More efficient use of irrigation water by reducing losses and improving irrigation methods can free substantial additional water resources and provide drinking water more economically. The tradeoff of groundwater conveniently available for local irrigation in exchange for surface water currently reserved for this purpose may permit the release of surface water which could be economli- cally' transmitted by gravity for use in urban centers. -25- 3.21 There could be substantial benefits from a comprehensive Statewide Water Resources Management Study which recognizes the need for and develops water management strategies and options to allocate available resources on the basis of priority usage and to achieve overall economy in transmission and distribution. This would help in developing less costly water supply schemes in the future. 3.22 Exhaustive data on groundwater and surface water potential has already been compiled by PWD over a number of years, and previous studies have provided valuable information. The availability of this data will greatly assist the execution of the proposed study and reduce study costs. However, expertise of a high order will be required to compile and analyze this data. To fully use local expertise, GTN has agreed to employ the United Nations Department of Technical Cooperation for Development (UN/DTCD) who would collaborate with a team of local specialized personnel to conduct the Study, under terms of reference agreed with IDA. The Study would be super- vised and guided by a Review Panel of GOI and GTN representatives and an independent local expert satisfactory to IDA. IDA will be provided with reports of this Panel for review and comment at regular intervals during implementation of the Study. 3.23 To keep the scope of the study reasonable and within funding limits, it would focus only on those priority areas which will face severe problems in obtaining adequate supplies at affordable cost over the next twenty five years. If there are competing claims on the same source of water for both urban and agricultural purposes, the alternative water uses will be evaluated to determine the most appropriate allocation. 3.24 The first part of the study will i-dentify those areas which will be the subject of the study together with full justification for their inclu- sion. Because of acute water shortage in Madras Corporation, means of providing immediate supplementary supplies to Madras from the internal water resources of the State should be investigated in this Study. Although an ultimate solution to the Madras problem is being pursued by GTN, obtaining lnterim relief from sources not yet fully identified is still a worthwhile objective. 3.25 The study will probably take two years to complete. Assurances were obtained from GTN that a team of experts will be engaged to commence the study by January 1, 1985, under terms of reference satisfactory to IDA and with the objective of completing the study in two years (Action Plan, Annex 8). The services of UN/DTCD will be paid for as a consulting service under the Credit. -26- M. Licensing of Wells 3.26 Throughout Tamil Nadu, industrial consumers frequently develop their own water sources from private wells and do not use the municipal water supply systems. Although they bear the cost of constructing these wells, this unrestricted exploitation of groundwater resources by private industry deprives the community at large of this public resource. It also does not contribute towards meeting the operating costs of the public water supply systems. Appropriate legislation requiring industrial consumers to obtain license for existing wells, meter supplies from these sources and obtain permits for the construction or reconstruction of wells would benefit the sector. 3.27 GTN is actively considering a draft bill -- The Tamil Nadu Ground Water (Control and Regulation) Bill, 1983 -- which addresses the issues outlined above. A select committee has been formed to review the bill and make recommendations. Enactment of such legislation has been endorsed by IDA and GTN has been urged to give this matter priority attention. Certain measures have already been taken by GTN to regulate abstraction of groundwater for industrial and agricultural use in certain scheduled areas. Assurances were obtained from GTN that it will make its best efforts to introduce suitable measures to monitor and control the exploitation of groundwater by commercial and industrial users taking into consideration the findings of the Water Resources Management Study and thereafter will keep IDA informed in this regard. N. Leak Detection 3.28 With low pressure and intermittent supply, current distribution losses are estimated at between 20% and 25%. These losses might increase significantly when normal system pressure and continuous supply are achieved. Losses could be substantially reduced by proper maintenance of the systems. TWAD will establish a unit to undertake a program to reduce unaccounted for water and make a leakage survey on behalf of local bodies who will pay TWAD for this service. This program will initially be limited to the project towns and is to be later extended to the whole sector. TWAD will prepare a leak detection program for review with IDA by June 30, 1985 and that it will ensure that the leak detection unit would be fully equipped, trained and operational by December 31, 1985. Thereafter, this program would be imple- mented and its progress reviewed with IDA at regular intervals (Action Plan, Annex 8). 0. Land Acquisition 3.29 Not much land would be required during the first year of implementa- tion. Land to be acquired has been assessed and the estimated cost has been included in project costs. In instances where long transmission mains would traverse large tracts of land, TWAD has confirmed that the acquisition of -27- such land would present no problem because it has little or no agricultural or commercial value. Not much land would be required during the first year of implementation. TWAD has provided a firm timetable for land acquisition. P. Metering 3.30 In view of the scarcity of water resources in the State, metering is desirable as a measure to reduce wastage. However, given the poor main- tenance record of existing meters in Tamil Nadu and generally in India, their use on a large scale should be approached with caution. In Coimbatore, Madurai and Salem, where use of domestic metering is well established, there is merit in progressing towards eventual total metering. TWAD has agreed to implement from June 1985, an annual metering program for each of these cities as indicated in Annex 13. These targets for both conversion of unmetered connections and metering of new connections will be monitored closely during implementation to achieve maximum possible coverage (Action Plan, Annex 8). 3.31 Domestic metering in small towns will be deferred until more experience with their use has been gained and maintenance facilities are more accessible. Therefore, proper meter repair workshops will be established by December 31, 1985 as part of TWAD-s metering program (Action Plan, Annex 8). Since TWAD will be providing centralized services to the sector, it would own and operate meter repair shops at its regional centers and provide service to local bodies at a reasonable charge. Costs of meter repair facilities for the metered areas are included in the project. 3.32 In Coimbatore and Salem, legislation exists for compulsory metering of both existing and new connections, and the accompanying bylaws have been strengthened to provide greater enforcement powers. No such legislation exists in Madurai. The enactment of new bylaws to ensure metering of both existing and new connections in Madurai will be a condition of disbursement 1/ for the Madurai subproject (Action Plan, Annex 8). Q. Revolving Fund for Metered Connections 3.33 Costs of meters and connections for Madurai and Salem have been included in the project, to be recovered from consumers on quarterly install- ments at 8 1/2% annual interest over 10 years. In Coimbatore the distribu- tion system is being constructed under the Siruvani scheme wherein meters are compulsorily installed and paid for by consumers when provided with new connections. To comply with existing bylaws, unmetered connections are also being gradually metered. The costs of this metering program are not included 1/ It was agreed during negotiations that if this disbursement condition was met prior to the signing of the Development Credit Agreement, it would be deleted. -28- in the construction costs for Coimbatore. To facilitate the agreed metering targets in Coimbatore (Annex 13), a separate revolving fund of Rs 10 million has been included in the project to provide loans for meter connections to low income households in Coimbatore. To qualify for this loan, consumers will have to meet certain affordability criteria, to be agreed with IDA by September 30, 1984 (Action Plan, Annex 8). R. Low-Cost Sanitation 3.34 The efforts of the Technology Advisory Group (TAG) of UNDP Global Project GLO/78/006 to promote low cost technology to meet Decade sanitation goals have resulted in an increasing commitment by Central and State Govern- ments to adopt these techniques. A feasibility study for a low-cost sanita- tion program for 15 towns in Tamil Nadu was carried out by TAG under the first stage of this UNDP Project. One Class I town has since been excluded from the scope of this program. The first stage of the program for the remaining 14 towns is included in the project. TWAD would be responsible for implementating this component and will establish a new low-cost sanitation cell for this purpose by December 31, 1984 (Action Plan, Annex 8). 3.35 TWAD will train and license small contractors to carry out this type of work. Provision for this has been made in the training component of the project. TWAD already possesses the technical infrastructure to implement the program, and the low-cost sanitation cell would form a part of the over- all project team. A State level monitoring body on the lines recommended by the UNDP project would also be formed. This body would also assist in co-ordinating and promoting related project activities such as public health education. 3.36 Cost recovery from households benefitting from the low-cost sanita- tion subproject in the form of monthly charges will be in accordance with the recommendations made in the UNDP Global Project Report. The schedule of these charges, which are acceptable, is indicated in Annex 14. Appropriate legislation has been enacted for these arrangements. 3.37 Assurances were obtained from GTN that in order to regulate the construction of low-cost sanitation units and to confine their use to areas where pollution of water sources would not result, bylaws satisfactory to IDA based on the model included in the UNDP Global Project Feasibility Report No. GLO/78/006 would be passed by December 31, 1984 by each participating town (Action Plan, Annex 8). 3.38 Present and proposed sanitation service levels in towns included in the low cost sanitation program are shown in Annex 15. -29- S. Public Health Education 3.39 Potential benefits from the project will be maximized if accompanied by a comprehensive public health education program to improve sanitation habits and encouraging the use of the facilities provided. Traditionally, public health education has been the responsibility of government public health departments. Recently voluntary non-governmental organizations (NGOs) have also been providing increasing role in the health education to the poorer segments of the public. Bilateral donors and United Nations agencies have been active in this field by sponsoring public health education either directly or through projects financed by them. Their experience makes them the most effective for this purpose. There is no public health education component in this project, but NGO participation in promoting health educa- tion is actively being sought as part of the low-cost sanitation program. Public health courses aimed at the operator level will also be given emphasis in the project training program. T. Manpower Evaluation and Training 3.40 The systematic provision of in-service training is not currently provided by TWAD. As a component of the project, TWAD will begin to develop a comprehensive scheme of education and training and establish, or secure the provision of, commensurate training facilities. The training system to be developed will not be limited to project-related training needs, but will also provide a continuing capability to identify and meet sector manpower development requirements beyond the project period. With respect to sanita- tion, the training program will have a practical emphasis and will take account of evaluation studies to be made on the operation and use of facilities, as they are installed. 3.41 The total staff employed within the urban water sector of Tamil Nadu including TWAD, municipal corporations (less Metropolitan Madras), municipalities and town panchayats, is estimated at 10,800 in all categories (including work-charged staff). The manpower required for the planning, construction, operation and maintenance of the subprojects covered by the project is likely to increase this number by about one-third over the project period. The project training component, although substantial, clearly would be unable to address the needs of such a large, diverse and widely dispersed work-force. It will therefore be designed as the first phase of a long term training strategy for the whole sectcr. The component will include a Stage I Training Study to formulate training policy, determine training strategy, and identify and design priority training programs. Stage I of the study is expected to commence by January 1, 1985 and is expected to be completed within six months. (Action Plan, Annex 8). Assistance in setting up the embryo training organization and implementing priority training programs will represent Stage II. Invitations to consultants to submit proposals for Stage II of the training component will not be extended until a TWAD Training Steering Committee has accepted the Stage I study report. The timing of -30- implementation of Stage II will be later agreed with TWAD (Action Plan, Annex 8). It is expected, however, that this sector training plan will be developed and executed in co-operation with the comprehensive training system currently being operated by the MWSSB. 3.42 The capital and start-up costs of the sector training scheme will be met by 100% grant from GTN. Operating costs would be met by TWAD who will pro-rate appropriate charges to the local bodies benefiting from the training scheme. Any shortfall in annual operating costs will be covered by GTN. 3.43 The total cost of the training component is estimated at US$570,000 (excluding contingencies) of which about US$110,000 represent foreign exchange. Further details are in Annex 16. Assurances were obtained from TWAD that Consultants, with terms of reference satisfactory to IDA, will be engaged to complete Stage I of the Training Study by June 30, 1985. U. Water Rights 3.44 Government notifications granting the allocation of water to Madurai and Salem from surface water sources have already been issued. Government Notification granting allocation of adequate surface water from the Bhawani River for the Coimbatore subproject will be a condition of disbursement 1/ for the subproject. No new allocations are required from rivers rising outside Tamil Nadu, and interstate agreements are not necessary under the proposed project. IV. PROJECT ORGANIZATION AND MANAGEMENT A. Implementing Responsibility and Ownership of Assets 4.01 TWAD will be the implementing agency for the proposed project. GTN will make funds available to TWAD for the execution of subprojects. The ownership of all assets (source treatment, transmission and distribution facilities) will vest in the respective local bodies who will also be respon- sible for servicing the associated debts to TWAD based upon an agreed financ- ing plan. TWAD, in turn, would repay GTN. B. The Tamil Nadu Water Supply and Drainage Board (TWAD) 4.02 TWAD was created under the TWAD Act of 1971 from the Public Health Engineering wing of the Tamil Nadu Public Works Department. TWAD is primarily responsible for investigating, preparing and executing water supply 1/ I't was agreed during negotiations that if this disbursement condition was met prior to the signing of the Development Credit Agreement, it would be deleted. -31- and sewerage schemes, subject to reimbursement of all costs by the local bodies concerned. After completion, projects are normally handed over to the local authorities who are thereafter responsible for operation and main- tenance. TWAD engineers are however seconded to municipalities as Municipal Engineers for ensuring effective maintenance and repairs. 4.03 TWAD is managed by a Board of Directors, with a non-executive Chair- man, nominated by the Government. The Managing Director, is the chief execu- tive officer and a full time functionary, also nominated by the Government. By tradition, TWAD's Managing Directors have been officers of the Indian Administrative Service (IAS). The other members of the Board consist of ex-officio members including secretaries of the departments of public works, finance, public health, rural development and individuals nominated by the Government. To permit greater operational efficiency, the organization has been decentralized into several regionally based circles. At present, TWAD employs around 1,200 engineers, 400 technical staff and about 500 non-technical staff. Existing and proposed Organizational Charts of TWAD are shown in Annexes 17 and 18 respectively. C. Operation and Maintenance 4.04 There are certain operational and engineering features of the present project which will require modifications in the current operational and maintenance responsibilities of TWAD and the beneficiary authorities: (a) In Coimbatore and Salem, the supply transmission capacity is shared by more than one community. In Madurai, as well as the above two subprojects, the new supply and transmission facilities are capable of being operated independently of the existing supply systems. In all of these three cities, there are advantages in vesting the responsibility of supply in one central authority. Accordingly, TWAD will be responsible for operating and maintaining both new and existing production and primary transmission facilities for Coimbatore, Madurai and Salem on a long term basis. For the service, TWAD will be paid a semi-annual fee (para 5.09) by the respective local bodies. The distribution systems downstream of terminal meters will be handed over to the local bodies for operation. (b) In the small towns, there are virtually no piped water supply systems in existence and little or no skill exists for proper operation and maintenance. The operation and maintenance of both production facilities and distribution systems for all small towns will be done jointly by TWAD and these small towns for at least two years after commissioning. During these two years, TWAD will train and assist the local bodies in improving their capacity to operate and maintain and will receive reimbursement for associated administration costs. TWAD's involvement will terminate at the end of the two years or when the local bodies can satisfactorily demonstrate to TWAD and GTN that they are capable of assuming full responsibility, in accordance with good maintenance practices. -32- 4.05 GTN has already authorized TWAD to operate the production facilities in the three major cities and has granted TWAD the authority to operate and maintain systems for the small towns as outlined in para 4.04(b). Assurances were obtained that GTN will cause TWAD to operate and maintain (a) the production and transmission facilities in Coimbatore, Madurai and Salem for the :Life of the project; and (b) the production and distribution facilities in the small towns for at least two years after commissioning of such faciLities. D. Organization and Management Systems of TWAD 4.06 Consultants have already completed a review of the Organizational Structure, Staffing, Systems and Procedures for TWAD. Their recommendations include specific improvements in the organizational plan, staffing pattern, delegation of powers, material systems, accounting systems, project plann:ing and control systems, and job responsibilities. There is an urgent need to appoiLnt an Engineering Director, a Finance Director, a Chief Accountant and a Chief Audit Officer. The appointments of Engineering Director and Finanace Director would first require amendment to the TWAD Act. Assurances were obtained from TWAD that above four positions will be staffed by Septemlber 30, 1984 (Action Plan, Annex 8). Under the project, TWAD will engage con- sultants to implement the already recommended improvements in material management systems, project accounting systems and centralized financial management systems. These systems would be fully implemented by April 1, 1985,. Furthermore, TWAD will engage consultants for periodic post implemen- tation review and support for about two man weeks per quarter for at least two years after the implementation of these systems (Action Plan, Annex 8). Funds for the implementation of all the above systems have been included in the project. E. The Project Team 4.07 TWAD has agreed to establish a Project Team, acceptable to IDA, to implement the project. The structure of the team as shown in Annex 19 has been with IDA. Assurances were obtained that in order to ensure effective design and implementation, TWAD will fully staff the agreed Project Team by September 30, 1984 and will maintain continuity of key personnel in the team to the extent possible. In view of the magnitude of the works included in the project and its relation to the overall investment program of TWAD, GTN and TWAD have agreed that a senior engineer, of the rank of Chief Engineer, will be appointed to head the Project Team (Action Plan, Annex 8). 4.08 At appraisal preliminary engineering had been completed in sufficient detail to permit detailed design to proceed. Topographical surveys of the major project elements are well advanced and hydrogeological investigations to prove groundwater sources have been satisfactorily concluded. However, a concerted effort will have to be made by TWAD to complete detailed design on -33- time. To achieve this, the design section of the Project Team is now fully staffed and functional. F. Accounts for Water Supply and Sanitation Operations 4.09 In order to manage and monitor water supply and sanitation operations more effectively, assurances were obtained that GTN will cause Coimbatore, Salem and Madurai to establish and maintain separate accounts for their water supply and sanitation operations by April 1, 1985, (Action Plan, Annex 8). In small towns, water supply and sanitation will continue to operate as an integral part of the overall operations due to their relatively small-scale. 4.10 Consultants have completed a study of the required organizational structure and staffing of the finance and accounting functions for the water supply and sanitation operations for the three large cities. The recommenda- tions include position description and a manning timetable. Maximum use of existing personnel will be made in the implementation of the accounting systems with consultants' assistance. The positions suggested by consultants will be in place by April 1, 1985 (Action Plan, Annex 8). The consultants have also completed the design of (a) an accrual accounting system and (b) management information systems for the water supply and sewerage operations of Coimbatore, Madurai and Salem. In addition, a simpler, modified cash accounting system, also for water supply and sewerage for the small towns has been designed. These systems will be fully implemented in Coimbatore, Madurai and Salem and in the small towns by April 1, 1986 (Action Plan, Annex 8). The systems will be implemented under TWAD's supervision with consultant assistance. Coimbatore, Madurai and Salem will also engage consultants for periodic post implementation review and support for about two man weeks per quarter for at least two years after implementation of these systems, (Action Plan, Annex 8). Funds for the implementation of the above systems have been included in the project. G. Progress Reporting and Supervision 4.11 The Project Team will be responsible for reporting progress on various physical, financial, technical and institutional aspects of the project to IDA on a quarterly basis. The general nature of such information has been agreed with TWAD. As an integral part of the financial and informa- tion management systems in TWAD (para 4.07), a progress reporting format and systems procedure for review of project implementation status will be developed in a manner satisfactory to IDA by September 30, 1984 (Action Plan, Annex 8). Suggested project monitoring indicators are included in Annex 20. It is estimated that about 100 staff-weeks of IDA field supervision will be required during implementation, with more effort during initial years of the project. -34- V. FINANCIAL ASPECTS A. The Project and Sector Investments 5.01 The project is a part of GTN's and TWAD's investment program during the current Sixth Plan (1980-85) and the forthcoming Seventh Plan (1986-91). Under the Sixth Plan, the total capital outlay for all sectors in Tamil Nadu is about Rs 3150 crores (US$3230 million). Of this, planned outlay for water supply and sanitation (both rural and urban) is expected to amount to about Rs 270 crores, (US$277 million) or about 8.5% of total State Plan. 5.02 Of the Rs 270 crores investment in water supply and sanitation during the Sixth Plan, TWAD will be executing about Rs 204 crores of works (about Rs 127 crores for urban (62%) and about Rs 77 crores (38%) for rural schemes), representing about 76% of total State investments in the sector. The balance will be executed by: (a) the MMWSSB for the Madras Metropolitan Area (about Rs 61 crores) and (b) the Department of Rural Development for various rural water supply schemes (about Rs 5 crores). During 1982/83 TWAD actually executed about Rs 60 crores of works. The project would extend well into the Seventh Plan. Preliminary indications are that during the Seventh Plan both total Plan outlay and water and sanitation sector outlay are likely to be more than the Sixth Plan. Although GTN is initiating a major capital investment project to bring water to Madras City from the Krishna-Pennar source, this project is still at a very preliminary planning stage. It is unlikely that GTN will incur any significant expenditure on account of this scheme during the implementaton period of the proposed project. Therefore, in the absence of any reliable data relating to the Seventh Plan, under a set of conservative assumptions, a scenario of sector investments and its relationship to the proposed project is indicated in Table 5.1. This scenario assumes that (a) there will be a small increase per year in total outlay in the sector and (b) TWAD's share of the total sector investments will remain comparable to current levels. Table 5.1: SECTOR INVESTMENTS AND THE PROPOSED PROJECT: FINANCIAL RELATIONSHIP (Rs in crores) Total Recent Sixth Plan Annual ---------- ---------Project Period--- ------------ Total (1980-85) Average 1984/85 1985/86 1986/87 1987/88 1988/89 (84/85 - 88/89) GTN's Sector Investments 270 (100%) 75 (100%) 75 (100%) 75 (100%) 80 (100%) 85 (100%) 90 (100%) 405.0 (100%) TWAD's Program 204 (76%) 60 (80%) 60 (80%) 65 (87%) 65 (81%) 70 (82%) 75 (83%) 335.0 (83%) Of which: The Project - (0%) - (0%) 14 (23%) 40 (62%) 47 (72%) 35 (50%) 13 (17%) 149.0 (45%) Other Works 204 (100%) 60 (100%) 46 (77%) 25 (38%) 18 (28%) 35 (50%) 62 (83%) 186.0 (55%) 204 (100%) 60 (100%) 60 (100%) 65 (100%) 65 (100%) 70 (100%) 75 (100%) 335.0 (100%) -35- 5.03 The project would be well within the current implementation capacity of TWAD, representing about 45% of TWAD's investment program during the implementation period, assuming only modest increases in TWAD's current investment levels. At peak expenditure level during the third year of implementation, the project would represent about 72% of TWAD's capacity. Moreover, the project will not divert investments away from the rural schemes to the urban schemes. During the Sixth Plan, TWAD's investments consisted of about 62% for urban and 38% for rural schemes (para 5.02). The project of Rs 149 crores includes about Rs 135 crores for urban schemes and about Rs 14 crores for rural schemes. During the project period, only about 40% of TWAD's total program will be invested on urban schemes. Majority of the remaining 60% will be available for rural schemes, and would be more than the Sixth Plan level of 38% of TWAD's program for the rural sector. B. Financial Objectives and Cost Recovery 5.04 The financial objectives of this project are significantly influenced by engineering factors and affordability considerations. As stated earlier, even the least-cost solutions are expensive, varying in degree among cities depending on their specific physical circumstances (para 3.06). Maximum affordable tariffs and taxes will be imposed at commissioning of works. However, full recovery of the total investments will not be possible, even with maximum affordable tariffs and taxes. Furthermore, because of the need for extensive use of standpipes to serve a large poverty group, it would also be unreasonable to expect the metered consumers to meet virtually all costs. The tariffs vary among cities, depending on each city's economic base, and are discussed later (paras 5.10 to 5.14). 5.05 Adequate revenues will be generated in all project cities through the proposed tariffs and taxes to cover all operating expenses excluding depreciation. However, except in Coimbatore, after meeting operating expen- ses, excluding depreciation, there will not be enough funds to recover total investments in any other project city. The extent to which the cities can assume debts within the constraints of cost and affordability, and the associated financing plan, have been determined on a city specific basis (para 5.06). In those cases where internal revenues from tariffs and specifically earmarked water taxes 1/ will not be enough to meet full debt service payments, after covering operations and maintenance costs, excluding depreciation, there are two possible ways to finance the shortfalls. First, if the capital costs are passed on to the local bodies as 100% loan, then GTN will have to provide annual revenue grants to cover the cash shortfall in making debt service payments. The second choice is for GTN to pass on the capital costs in varying mixes of grants and loans to the local bodies based on specific capacity to pay debt service from their revenue base. Although it is financially more prudent for a State to share costs of operating a 1/ Although the specific water tax is a percentage of annual assessed value of the property, this tax is over and above the general property tax and is not an arbritarily allocated portion of the general property tax. -36- local body on an annual basis, GTN prefers the second choice administra- tive:Ly, which is also an acceptable practice in similar water supply projects in India. This arrangement can be accepted since it does not infringe upon the basic financial objectives of the proposed project. C. Financing Plan and Project Financing 5.06 GTN recognizes the need for and will provide capital grants towards major works to the local bodies which need it. Additional capital invest- ments in the water supply sector in these local bodies will not be needed in the near future since the designed capacity of works will in general serve their needs through at least 1995/96. This initial grant, amounting to about Rs 87 crores over the project period, will not be a major burden on GTN's resources. The grant element represents about 3% of GTN's total Plan outlay of Rs 3150 crores during the Sixth Plan (1980-85) and about half of project investments. The former percentage is likely to be even smaller since the project would extend into GTN's Seventh Plan (1986-91) when both total Plan outlay and water sector outlay are expected to be significantly more. Table 5.2 indicates the proposed financing plan on a city-specific basis. Table 5.2: FINANCING PLAN Clity Loan Grant TOTAL Coimbatore 100 - 100 Madurai 80 20 100 Salem 20 80 100 Small Towns: Group I 25 75 100 Group III - 100 100 Group IV 25 75 100 Rural Schemes - 100 100 Low Cost Sanitation 63 37 100 Consultancy, Training, etc., - 100 100 PROJECT AVERAGE /1 49 51 100 /1 Including capitalized interest during construction. The financing plan in other similar IDA financed state-wide water supply and sewerage projects in India are: (a) Rajasthan - 33% loan, 67% grant; (b) Maharashtra - 50% loan, 35% grant, 15% internal contribution; (c) Punjab - 68.5% loan, 31.5% internal contribution; (d) Gujarat - 72% loan, 23% grant and 5% internal contribution; and (e) Uttar Pradesh - 75% loan, 25% grant. 5.07 Based on the above financing plan, the project financing is indicated in Table 5.3. -37- Table 5.3: PROJECT FINANCING (Rs in Crores, US$ in Millions) Sources Rs US$ Percentage GTN Loans 80.3 82.4 49% GTN Grants 84.7 86.9 51% Total Financing Required 165.0 169.3 100% Application Project Costs 149.4 153.3 91% Interest during construction 15.6 16.0 9% Total Application 165.0 169.3 100% D. On-lending Terms 5.08 The proposed credit of US$73.0 million will be passed on by GOI to GTN on standard center - state arrangements. GTN will make available all funds, including the proceeds of the credit, required for the project to TWAD in a combination of loans and grants. The loan funds to TWAD will be at 8.5% annual rate of interest, payable over 25 years in equal quarterly interest and principal payments to GTN. TWAD will pass on the loan funds to various local bodies based on the financing plan as indicated in Table 5.2, with the same terms as the GTN loans to TWAD. The local bodies would repay TWAD, which would in turn use the proceeds to repay GTN. Since revenues from the proposed project will commence only after commissioning, there will be a moratorium of principal and interest for both GTN loans to TWAD and TWAD loans to local bodies, for the first five years, but interest during these five years will be accrued and added to the outstanding principal balance for amortization. All local bodies under the project have adopted resolutions agreeing to participate in the project and to conform to these terms and other associated financial, operational, and institutional requirements. TWAD will enter into Subsidiary Loan Agreements (SLAs) with each local body covering the specific aspects of subprojects. Completion of SLAs, in a manner acceptable to IDA, will be a condition of disbursements on each subproject (Action Plan, Annex 8). E. Guarantee of Payment to TWAD 5.09 Assurance were obtained from GTN that in case a local body fails to pay TWAD the semiannual charges for operations and maintenance (para 4.04), GTN will pay TWAD such amounts. TWAD will recover costs for centralized services of training, leak detection and meter repair to the extent possible, through appropriate charges. Assurances were obtained from GTN that it will meet any shortfall incurred by TWAD in providing such services. -38- F. Tariffs 5.10 Socio-economic studies recently completed by consultants for all project cities indicate that the maximum average affordable 1/ monthly expenditure for water supply is about 4% of average household income. At commissioning (expected during 1988/89) the total maximum affordable monthly expenditure, which includes earmarked water taxes and direct user charges, per household for water will be about Rs 35, Rs 40, and Rs 45 for Coimbatore, Madurai and Salem, respectively, and about Rs 18-21 for the small towns, expressed in 1988/89 prices. Table 5.4 indicates the average domestic metered tariff rates 2/ which will be imposed at commissioning in Coim- batore, Madurai and Salem. The socio-economic study indicates that these rates would be affordable on average to households in the cities concerned and would generate adequate revenues to cover operations, maintenance and debt service requirements. Table 5.4: DOMESTIC METERED RATES (Rs/1000 liters) Current At Commissioning /1 Coimbatore 0.35 1.35 Madurai 0.50 1.80 Salem 0.50 1.90 /1 Represents maximum affordable tariffs, in 1988/89 prices. 5.l1 Although the socio-economic study has provided adequate infornation on1 average income levels in the cities with which to establish the affor- dability of the investments and overall financial feasibility, more precise income distribution data would be required to establish consumption based graduated tariff schedules for these three cities. By April 1987, TWAI) will examine the feasibility of introducing stepped tariffs for metered consumers in Coimbatore, Madurai and Salem after taking into consideration the experience from introducing an interim tariff increase (para 5.15) (Action Plan, Annex 8). 1/ Affordability calculations have been based on likely increases in income levels and likely increases in price levels for the future years. 2/ The categories of tariffs include (a) domestic metered rates, (b) in case of unmetered domestic consumers, equivalent domestic flat monthly rates based on average household size and estimated per capita consumption, (c) metered commercial rates which are twice the domestic metered rates, and (d) metered industrial rates which are three times domestic metered rates. All further discussion on tariff rates in this SAR provides data only for domestic metered rates, with all other types of rates being implicit in the discussion, based on the above relationship. -39- 5.12 In the small towns, where there will be no metering flat charges will be imposed at commissioning. These would be maximum affordable charges of between Rs 12.60 to Rs 15.45 per connection per month, varying among groups of towns. There is inadequate water supply in these towns to merit imposi- tion of any tariff prior to commissioning. After commissioning, all small towns would be able to cover the full cost of operation and maintenance. However, due to the limited resource base, tariffs and taxes will not, in each case, generate enough revenues to fully cover debt service. The annual cash deficits for the selected towns are expected to be marginal and will be met by GTN from marginal surpluses generated by other towns. 5.13 Assurances were obtained that GTN will (a) cause Coimbatore, Madurai and Salem to impose necessary tariffs and take other necessary actions, which will generate adequate revenues by 1989/90 to cover operations and main- tenance costs (excluding depreciation) and debt service requirements; (b) cause all small towns to impose necessary tariffs and take other necessary actions which will generate adequate revenues by 1989/90 to fully cover operations and maintenance costs (excluding depreciation) and to the maximum extent possible, cover debt service requiements; and (c) provide necessary revenue support to those individual small towns which lack revenues to fully cover debt service after covering operations and maintenance costs (excluding depreciation). 5.14 In Coimbatore, Madurai and Salem, tariffs have not been revised since 1970. Current water supply revenues in these cities cover operations and maintenance costs but are not adequate to recover capital costs. The prevailing tariffs are also below affordable tariffs. The production costs in these cities are also generally higher than other comparable cities (para 3.06). An interim tariff increase during the project implementation period will be necessary to (a) reduce the impact of a likely large increase at commissioning; (b) keep pace with normal increases in operating costs before commissioning of proposed investments; and (c) achieve improved financial performance during project implementation period. However, it would be politically difficult to revise tariffs prior to local elections, especially in Coimbatore and Salem where local elections will take place within the next 12 months. It would be also easier to achieve public acceptance, if there is evidence of works in progress. 5.15 GTN feels that, given the above factors, April 1, 1985 would be a suitable date for an interim increase in tariffs. Assurances were obtained that GTN will cause Coimbatore, Madurai, and Salem to adopt the rates indi- cated in Table 5.5, by April 1, 1985. -40- Table 5.5: INTERIM TARIFF INCREASE Domestic Metered Rate (Rs/1000 liters) Interim Increase Current From April 1, 1985 % Increase Coimbatore 0.35 0.90 /1 170% Madurai 0.50 0.75 50% Salem 0.50 0.75 50% /I This large increase is likely to be possible since significant improvements in service levels are expected by end 1984 through an ongoing TWAD project in Coimbatore (para 5.21)._ G. Financial Condition of Local Bodies 5.16 The accounts of all the local bodies are kept on a cash basis. Con- sultants were engaged to estimate the financial position of the water supply operations of Coimbatore, Madurai and Salem on an accrual basis, to the extent possible. 5.17 Table 5.6 indicates the order of magnitude of financial performance (on an accrual basis) of the water supply and sanitation services for Coim- batore, Madurai and Salem. It must be noted that while the operating revenue data is reasonably accurate, operating expense data is possibly understated due to (a) absence of payables "information"; and (b) exclusion of propor- tionate overhead costs of the city. Therefore, net income is probably over- stated and net deficit is understated. -41- Table 5.6: ESTIMATED FINANCIAL POSITION OF CITIES IN WATER SUPPLY AND SANITATION OPERATIONS (Rs in Million) Coimbatore Madurai Salem 1981/82 1982/83 1981/82 1982/83 1981/82 1982/83 Part Part Part Actual Actual Actual Actual Actual Actual Water Sold (MLD) 26.9 26.9 45.5 45.4 16.8 16.8 Revenues: From Taxes 10.3 10.4 10.6 10.7 4.5 4.5 From Direct Charges 1.2 1.2 2.9 2.9 3.1 3.1 11.5 11.6 13.5 13.6 7.6 7.6 Expenses: For Water Supply 8.9 9.2 5.8 6.5 3.9 3.9 For Sanitation 1.2 1.2 2.6 2.7 0.7 0.9 10.1 10.4 8.4 9.2 4.6 4.8 Operating Income <Deficit> 1.4 1.2 5.1 4.4 3.0 2.8 Interest Exp. 14.8 20.0 2.4 2.7 1.6 2.7 Net Income <Deficit> <13.4> <18.8> 2.7 1.7 1.4 0.1 Revenues/1000 liters (Rs) 1.17 1.17 0.81 0.81 1.24 1.24 Expenses/1000 (exc. interest) liters (Rs) 1.03 1.06 0.51 0.56 0.75 0.78 5.18 The financial performance has varied. Coimbatore is incurring major losses (para 5.21). Madurai and Salem, although operating in a marginal surplus, are showing a deteriorating trend. Revenues/1000 liters vary widely among the cities and are declining in real terms. Operating expenses (exclud- ing interest)/1000 liters also vary among cities but in each case are rising. A common feature in all these cities is that operating deficits for water supply have been funded from the general revenues of the city. If the present trend continues, in absence of the financial reforms proposed under the project, water supply and sanitation services will become a major burden on the overall resources of these cities. 5.19 Assumptions and financial projections for the years 1984/85 through 1994/95 (Balance Sheets, Income Statements and Sources and Uses of Funds) for -42- Coimbatore, Madurai and Salem incorporating the impacts of proposed institu- tional, operational and financial improvements are included in Annexes 21 and 22, respectively. 5.20 Little information is available on the current financial activities of individual water supply operations in the small towns, with populations ranging between 10,000-15,000. Due to very limited scale of operations, the revenues and expenditures related to water supply are very small compared to the overall budgets. The general tax revenues of these towns support the water supply operations. After commissioning of the proposed project, average revenues from water supply operations in these towns will be less than Rs 1 million/year per town, representing about 10%-15% of total revenues of these towns. Detailed cash flow projections related to the water supply operations of all the 75 towns are available in project files. H. Coimbatore's Finances 5.21 In Coimbatore, the full benefit and maximum revenue potential of the Siruvani Project (para 2.03) will be realized only upon completion of the distribution system under the proposed IDA financed project. Meanwhile, Coimbatore is incurring large debt service obligations (around Rs 30 million per year in interest and principal) which must be paid annually, without the benefit of the revenues. Up to 1988/89, Coimbatore will incur annual cash deficits amounting to about 60% of the debt service requirements arising out of the ongoing project. Even the large interim tariff increase proposed in 1985/86 (para 5.15) will not generate enough surplus to cover this annual deficit. Coimbatore has up to now been meeting this shortfall from its general revenues, leaving little money to operate and maintain olther municipal services adequately. The above debt is to the Life Insurance Corporation of India and is guaranteed by GTN. GTN is legally required to meet any shortfall in Coimbatore's debt service obligation. Therefore upto 1988/89, by when Coimbatore will have adequate revenues to assume full obligation of debt service on this debt, GTN will assume this obligation to the extent necessary. I. Resource Mobilization of Local Bodies 5.22 Investments, operations and maintenance for water supply cannot be evaluated in isolation from the overall management of resources and expendi- tures of the local bodies. To gradually reduce the burden on GTN budget, the overall resources of the local bodies also need to be improved. To achieve this objective, GTN will undertake a Resource Mobilization Study for Coimbatore, Salem and Madurai. The Study will focus on short-term measures to improve the revenue base of the cities. While the immediate impact of these measures may be marginal because of the fundamental constraints in locELl resource mobilization due to the practiced system of property tax administration generally in India, the Study nevertheless will identify clearly such issues which can then be addressed independently at both GOI and GTN levels as a longterm program for improving local resources. The Rural Development and Local Administration Department (RDLA) of GTN will be respon- sible for this Study. Terms of reference for this Study has been agreed -43- between GTN and IDA. Assurances were obtained that GTN will employ consult- ants acceptable to IDA to commence the study by April 1, 1985 (Action Plan, Annex 8). J. Billing and Collection 5.23 There is scope for improving billing and collection of taxes and charges in all local bodies, especially in Coimbatore, Madurai and Salem. Due to the present nature of the accounting systems, it is difficult to determine the effectiveness of collection in these three cities. Consultants have analyzed the current overall collection efficiency of these cities, but specific performance measures for separate arrears and current collection can be established and introduced only after the proposed accounting systems have been installed (para 4.10). For these three cities, specific collection performance targets indicating (a) general property tax collection percent- ages to be achieved; and (b) current and arrears collection percentages for water tax and water charges to be achieved, will be established by GTN in consultation with IDA after the proposed accounting systems are installed (Action Plan, Annex 8). 5.24 The local bodies will bill the water tax on a semi-annual basis in keeping with the normal property tax collection practice. However, water charges (both metered and flat rate charges) will be billed at least on a quarterly basis from quarter ending June 30, 1985. GTN will cause all the local bodies to observe the above frequency of billing for taxes and water charges (Action Plan, Annex 8). K. Financial Condition of TWAD 5.25 TWAD, an implementation agency, undertakes design and construction supervision on behalf of other government agencies and local bodies. For this, TWAD charges a fee of 19.5% of the value of works executed, which is the major source of revenue to cover its operating expenses. Table 5.7 summarizes the financial position of TWAD in recent years. -44- Table 5.7: FINANCIAL POSITION OF TWAD BOARD 1980/81 1981/82 1982/83 Actual Actual Part Actual (Rs in Millions) Income Statement Summary Revenues: Centage Charges 50 76 81 Interest Income 49 58 23 Others 29 59 10 Total 128 193 114 Operating Expenses Personnel 34 42 62 Administrative 10 11 12 Others 26 53 23 Total 70 106 97 Interest Expense 52 52 15 Net Income Before Appropriations 6 35 2 Less: Appropriation for Sinking Fund - <30> /1 - Net Income 6 5 2 Balance Sheet (Summary) Assets: Cash and deposits 189 81 59 Inventory 32 91 107 Due from Govt. Agencies 246 337 337 Due from Local Bodies 378 401 400 Fixed Assets (Net) 17 28 32 Work in Process 404 431 454 Suspense & Others 223 293 194 Total Assets 1,489 1,662 1,583 Liabilities: Deposit Works 199 199 199 Materials bills payable 277 392 320 Others 50 90 101 Unsecured loans and advances from GTN/LIC 947 956 936 Equity: Grant 6 10 10 Earned Surplus 10 15 17 Total Liabilities & Equity 1,489 1,662 1,583 /1 The money is invested in interest-bearing securities. 5.26 With respect to the proposed project, TWAD will essentially be a "flow through" organization. The financial viability of the project is primarily determined by the financial strength and arrangements of the par- ticipating local bodies. Although TWAD's own future financial position will not directly effect the financial viability of the proposed project, it is nevertheless important in the context of the sector at large. TWAD has so far been able to more than cover its operations, maintenance and debt service -45- interest requirements from its own operating revenues, leaving marginal surpluses. TWAD's major source of capital is unsecured loans from GTN and LIC. So far TWAD has not repaid any principal on these loans. The first tranche of principal will become due in 1988/89 amounting to about Rs 50 million. In 1981/82, TWAD made a provision of Rs 30 million on sinking fund towards this amount. Although not adequate, TWAD has begun to address its debt maturity requirements. 5.27 TWAD uses these unsecured loans to execute works for other government agencies or local bodies with the understanding that such amounts will be paid to it by the agency or local body upon completion and transfer of con- structed facilities. TWAD's long term financial viability is critically dependent on it receiving monies due to it from the agencies and various local bodies. Current outstanding dues from agencies and local bodies are high, amounting to about Rs 737 million in 1982/83. TWAD's financial infor- mation indicates that these receivables have continued to increase in recent years and that the agencies and local bodies are not repaying TWAD. In 1982/83, these dues account for about 47% of its total assets and 80% of its tnsecured loans. TWAD can repay its long term debt only if it receives monies from these agencies and local bodies. Reliable information on TWAD's debt maturity structure is not presently available, nor is there any definite program to address its debt maturity requirements. Therefore, in absence of such information, it is not feasible at this stage to provide any meaningful financial projections (balance sheets, income statements and sources and uses of funds) for the overall operations of TWAD. TWAD's projected sources and uses of funds under the proposed project for the period 1984/85 through 1991/92 are included in Annex 23. 5.28 As a part of project implementation, basic information on TWAD's long term financial structure would be analyzed and a program will be developed to prevent its potential debt maturity problem. Assurances were obtained that TWAD, in consultation with GTN and LIC, will provide IDA by December 31, 1984 with a satisfactory (a) detailed debt maturity schedule for the period 1985186 through 1995/96; (b) annual program of debt retirement to adequately match its debt maturity schedule from year ending March 31, 1986; and (c) a phased annual program to reduce outstanding receivables so that by March 31, 1989 and for each fiscal year thereafter, such receivables are not more than one and a half times the work-in-progress as of that date. Assurances were obtained that TWAD will conform to the agreed annual program for items (b) and (c) above. L. Financial Ratios 5.29 In order to achieve the financial objectives of the project, finan- cial performance ratios for the water supply and sanitation operations have been established on a city specific basis. Para 5.30 and Table 5.8 indicate targets for Coimbatore, Madurai and Salem. Para 5.31 and Table 5.9 indicate targets for small towns. These ratios will serve as guidelines to achieve the ultimate financial objectives as set forth in para 5.13. These targets are based on detailed financial analysis done at appraisal. They reflect realistic achievement possibilities and take into consideration both finan- cial (tariffs, collection, etc.) and operational (metering, leakage, etc.) -46- improvements envisioned under the project. TWAD will annually monitor the financial performance of the three large cities, beginning 1984/85, using these ratios as indicators and review such performance with IDA (Action Plan, Annex 8). 5.30 For Coimbatore, Madurai and Salem, the targets are indicated in Table 5.8. Working ratio is defined as the ratio of operating expenses excluding depreciation and interest expenses to revenues. Debt service coverage is defined as the ratio of total internal cash generation to the debt service requirement on all outstanding loans. Table 5.8; FINANCIAL RATIOS FOR COIMBATORE, MADURAI AND SALEM Coimbatore Madurai Salem Working Ratio (not more than) 1982/83 /1 75 56 59 1984/85 70 55 35 1985/86 /2 50 55 35 1986/87 50 45 35 1987/88 50 45 35 1988/89 45 50 50 1989/90 30 35 50 User Charges as a % of Total Operating Revenues (not less than) 1982/83 11% 21% 20% 1984/85 25% 20% 20% 1985/86 45% 20% 20% 1986/87 50% 20% 20% 1987/88 50% 20% 25% 1988/89 60% 30% 30% 1989/90 75% 60% 50% Debt Service Ratio (not less than) 1982/83 /3 0.1 1.5 0.8 1984/85 0.3 1.8 1.0 1985/86 0.4 2.0 1.1 1986/87 0.4 2.0 1.1 1987/88 0.4 2.0 1.1 1988/89 0.9 2.0 1.1 1989/90 1.1 1.2 1.1 /1 Part actual data for 1982/83. 77 Expected year of interim tariff increase. /3 See para 5.21. 5.31 In small towns currently, there is insufficient water supply to merit financial targets prior to commissioning of works. Due to their simple ope- rations, the targets will include the following: -47- Table 5.9: FINANCIAL TARGETS FOR SMALL TOWNS Operating and Maintenance Expenses Direct Charges First (excluding Depreciation) plus Debt as a % of Full Year Service as % of Total Total Operating Commissioning Operating Revenue Revenue (not more than) (not less than) (a) 20 towns of Coimbatore 1989/90 120% 80% (b) 11 towns of Salem 1989/90 100% 75% (c) 44 other small towns 1988/89 120% 85% M. Accounts and Audits 5.32 TWAD will maintain separate project accounts which will be audited by independent auditors acceptable to IDA. The first year to be audited will be 1984/85. These audit reports will include balance sheets, income statements and funds flow statements, to be submitted to IDA within nine months of the end of each fiscal year. The audit of the total operations of TWAD (invest- ments under the proposed project as well as TWAD's other capital investments) will be done by the commercial wing of Accountant General as currently prac- ticed. These audit reports will also be submitted to IDA within nine months of the end of each fiscal year. All local bodies will also maintain separate Project accounts. However, only these accounts for Coimbatore, Madurai and Salem will be audited and the audit reports would include balance sheets, income statements and funds flow statements. The audit of these project accounts for these three cities will be done by Examiner of Local Fund Accounts, as currently practiced, and will be submitted to IDA within nine months of the end of the fiscal year, beginning 1985/86. In addition, when IDA reimbursements are requested through the Statement of Expenditure prac- tices, independent auditors, acceptable to IDA, will certify that underlying files and data fully support the requests for disbursements. Assurances were obtained from TWAD and GTN that these audit practices will be followed. N. Insurance 5.33 GTN, like other Government undertakings in India, will cover property loss or damage risks by the process of self insurance, providing funds for losses if, and when they occur. -48- VI. ECONOMIC AND SOCIAL ASPECTS A. Marginal Cost Analysis 6.0L The long-term marginal cost for water has been estimated using the long-run average incremental cost (AIC). Price distortions are judged to be of minor significance except for wages paid to unskilled labor. Thus the analysis has been carried out considering labor cost at the nominal wage rate and at a shadow wage rate equal to 70% of the nominal rate. Annex 24 provides data relating to incremental water sold, incremental costs and revenues. All calculations refer to constant 1987/88 prices. Incremental revenues include both direct charges and earmarked water taxes. The water tax has been included because it is clearly identified as being for water supply and thus reflects in part households' willingness to pay for water supply. The proportion of taxes in total revenue will gradually decrease from about 80% - 90% at present to about 50% - 75% by commissioning. Table 6.1 indicates the AIC per 1000 liters, at discount rates ranging between 6% to 12%. Table 6.1: AVERAGE INCREMENTAL COST/1000 LITERS Coimbatore, Madurai, Salem and Satellite Towns 44 Small Towns AIC at AIC at AIC at AIC at Discount Market Shadow Market Shadow Rate Prices Prices Prices Prices 6% 2.09 1.87 2.01 1.47 8% 2.44 2.18 2.33 2.02 10% 2.83 2.52 2.68 2.33 12% 3.05 2.89 3.06 2.65 6.02 In Coimbatore, Madurai and Salem, the average domestic rate at com- missioning will range between Rs 1.35 - Rs 1.90/1000 liters which is below the AIC. However, these rates reflect the households maximum ability to pay. The high consumption users such as commercial and industrial customers will pay rates above the AIC. The average incremental revenue in these cities upon commissioning will be about Rs 2.48/1000 liters (in constant 1987/88 prices) which compares favorably with the range of AIC's. 6.03 In the 44 small and medium towns, AIC is considerably higher (approximately twice) than the average monthly flat rate charges. The proposed project will provide safe drinking water for the first time in these towns. Due to generally low income levels, higher charges than those proposed would not be affordable by the consumers. Moreover, tariffs based on volumetric consumption would not be economic since the cost of metering would exceed total operating revenues. Finally, approximately 60% of popula- tion in these towns will be served through standposts. The overriding jus- tification for investing in these small towns is the urgent necessity for providing safe water supply. In view of this priority, CTN will bear the costs of these investments as capital grants to the extent necessary (paras 5.06 and 6.06). -49- B. Rate of Return 6.04 The subprojects serving the three major cities are clearly justified on the basis of quantifiable economic returns. Rates of return (RORs) have been calculated for Coimbatore, MIadurai and Salem which will share facilities with their satellite towns, using revenues as the surrogate for benefits. Costs have been adjusted for wage distortions and revenues have been calcu- lated at the highest real tariffs in effect, following these adjustments. The adjusted ROR is a conservative measure of economic rate of return because it does not capture consumer surplus and such benefits as improvements in health which accrue to the community at large. Table 6.2 provides the RORs so calculated: Table 6.2: ECONOMIC RATE OF RETURN Coimbatore, Madurai, Salem and Satellite Towns Labor Rate @ 100% 7.7% Labor Rate @ 70% 9.2% 6.05 In Coimbatore, Madurai, Salem and their satellite towns, the methodology used to determine the ROR yields an adequate rate of return primarily because (a) unit charges for commercial and industrial consumers exceed the AIC and (b) low costs which reflect high utilization of existing distribution capacity. Considering the conservative nature of the methodol- ogy used, it is expected that the true economic rate of return is substan- tially higher than the 8%-9% indicated above. 6.06 The proposed project will also provide, for the first time, a basic level of safe water supply to 44 small towns. Nearly half a million people will benefit - more than half of whom are poor. These towns were selected primarily because the minimal water presently available poses a health hazard through contamination. With the increase in clean and safe water supply under the proposed project, supply will only meet basic human needs. At these low levels of consumption, demand-based pricing is not feasible to the same extent as in the larger towns and, hence attempts at quantification of benefits are not practical. Most of the supply will be via standpipes so that there will be no practical way to collect revenues through the measure- ment of volumetric consumption. Use of a pricing mechanism to control con- sumption will also not be desirable at such low levels of consumption. The revenues that will be collected through taxes and flat charges are neverthe- less sufficient to cover the full cost of operation and maintenance and also to recover approximately 60% of total investments. In these 44 small towns, the balance of the investments, which, due to the choice of least-cost solu- tions, amounts to only about US$12 per capita, will be borne by GTN. The potential benefit will outweigh this small subsidy. C. Environmental Health Impact 6.07 The urban water supply component will improve present service levels, despite increased demand due to the population growth. The incidence of water related disease shown in Annex 25 should decline with the more uniform distribution of piped water, improved pressures, and longer supply hours, -50- particularly for consumers using public taps. In the rural areas where the high incidence of diseases is directly attributable to the poor quality of existing water sources, the impact of improved water supply will be more marked. The Low Cost Sanitation Component will further improve the health aspects of the associated communities. By ensuring an equitable distribution of wholesome water, and improved disposal of human waste, potential sources of disease that presently pervade both urban and rural communities, par- ticularly in slum areas, will be reduced. D. Impact on Poverty Groups 6.08 Increased standpost supply in the urban areas will improve service levels for the urban poor. These public taps will be provided primarily to serve the slum areas, currently not connected to a water system. The design targets in this respect are 100 people per public tap, and a distance of not more than 100 meters between dwellings and taps. Consequently, the daily wa-iting times for water collection will also be reduced and walking distances shortened. In rural communities where the supply is only by standpipe, the design criteria for the physical location of standpipes will ensure thalt all sections of the community will enjoy an equal level of service. For the low-cost sanitation program, a means test will ensure that a significant proportion of the program expenditure is devoted to the low income beneficiaries, free of charge. It is difficult to isolate with any degrese of precision that portion of the investment which is allocated specifical:Ly to poverty groups, as the urban poor in the project are not concentrated in well-defined slum areas but dispersed. It is reasonable to assume that the poverty groups will receive benefits which are proportional to their popula- tion. Components such as low-cost sanitation and the revolving fund for house connections will benefit a higher proportion of the poverty group. Approximately 45% of the total urban population in Tamil Nadu fall below the absolute poverty threshold, estimated at Rs 360 per month per household. On that basis, about 30% of the total project investments of US$153.3 million, or about 43% of the investments in the urban areas of US$138.8 million will be allocated to the urban poor. E. Least Cost Solution and Evaluation of Alternatives 6.09 Water is a scarce resource throughout the state, and the alternative options for supply are limited. However the engineering studies have examined all feasible alternatives and have costed options at discount rates of 8%, 10%, and 12% to determine the least cost solutions. Careful exanmina- tion has been made of ground water potential, availability of surface water, and the most economic methods of transmission and utilization of sources. The design of water distribution systems has been programmed to define the most economic network considering configuration and pipe size. The staging capacity of long transmission lines and the economies of deferring capital expenditure by staggered duplication have also been studied in all sub- projects. F. Project Risks and Safeguards 6.10 The project is complex and extensive. Its execution will require effective management and good coordination by TWAD to avoid delays. TWAD is a well established organization and has experience in executing similar -51- projects, albeit, on a smaller scale. Nevertheless, several measures have been taken to minimize risk of delays. Engineering design will be substan- tially complete early during project implementation (para 4.08). Organiza- tion, management and staffing of TWAD are being strengthened (para 4.06). Extended post implementation support, through consultants, is also being provided for effective implementation of improved financial and management information systems (para 4.06). 6.11 The other project risk concerns the local bodies being unable to achieve the financial objectives of the project. To minimize this risk, realistic and easily measurable financial targets have been established (para 5.29). Improved financial and accounting systems are also being implemented with extended post implementation support (para 4.10). Nevertheless, some delays in achieving the set targets may be expected. The Operational Action Plan (Annex 8) has been designed to closely monitor and update annually the progress in the institutional, operational and financial aspects of the project. VII. AGREEMENTS REACHED AND RECOMMENDATIONS 7.01 During negotiations the following assurances were obtained: From GTN: (a) GTN shall employ a team of experts to undertake a Water Resources Management Study in accordance with terms of reference satisfactory to IDA, to begin by January 1, 1985 and to be completed in about two years (para 3.25): (b) GTN, while taking into consideration the findings of the Water Resources Management Study, will take suitable measures to control exploitation of groundwater by industrial and com- mercial users and keep IDA informed of such actions (para 3.27); (c) GTN will cause each participating town under the Low Cost Sanitation component of the project to pass necessary bylaws by December 31, 1984, regulating construction of such units (para 3.37); (d) GTN will cause TWAD to operate and maintain (a) the produc- tion and transmission facilities in Coimbatore, Madurai and Salem on a long-term basis and (b) the production and dis- tribution facilities in the small towns for at least two years after commissioning of such facilities (para 4.05); (e) GTN will cause Coimbatore, Madurai and Salem to establish and maintain separate water supply and sanitation accounts by April 1, 1985 (para 4.09); (f) GTN will guarantee payment to TWAD in the event of default by local bodies in reimbursing TWAD for operations and maintenance costs (para 5.09); -52- (g) GTN will meet operating shortfalls of TWAD's provision of centralized services (para 5.09); (h) GTN will cause Coimbatore, Madurai and Salem to implement appropriate tariffs and take other necessary actions to gene- rate adequate revenues by 1989/90 to cover all operations and maintenance costs (excluding depreciation) and debt service requirements (para 5.13); (i) GTN will cause the small towns to implement appropriate tariffs and take other necessary actions to generate adequate revenues by 1989/90 to cover all operations and maintenance costs (excluding depreciation) and to the maximum extent possible, cover debt service requirements (para 5.13); (j) GTN will prcvide revenue support to the small towns to meet cash shortfalls, as and when necessaru (para 5.13); (k) GTN will cause Coimbatore, Madurai and Salem to implement an agreed interim tariff increase by April 1, 1985 (para 5.15); (1) GTN will employ consultants acceptable to IDA to commence the Resource Mobilization Study for Coimbatore, Madurai, and Salem by April 1, 1985 (para 5.22); (m) GTN will cause Coimbatore, Madurai and Salem to submit audited financial statements, in a manner acceptable to IDA, within nine months from the end of each fiscal year, beginning from fiscal year 1985/86 (para 5.32); From TWAD: (a) TWAD will submit quarterly progress reports to monitor the project using indicators to be developed by September 30, 1984 (para 4.11) and to indicate progress on the implementation of actions contained in the agreed Operational Action Plan (Annex 8), to be adhered to by TWAD and all local bodies under the project in order to improve operational, institutional and financial performance of TWAD and all local bodies; the said Operational Action Plan to be reviewed and updated annually between TWAD and IDA (para 3.05); (b) TWAD will employ consultants, satisfactory to IDA, to complete the Stage I of the Training Study by June 30, 1985 (para 3.43); (c) TWAD will appoint an Engineering Director, a Finance Director, a Chief Accountant and a Chief Audit Officer by September 30, 1984 (4.06); (d) TWAD will fully staff the agreed Project Team by September 30, 1984 and will ensure continuity of key personnel in the project team (para 4.07); -53- (e) TWAD will provide IDA by December 31, 1984, with a satisfactory (i) debt maturity schedule for 1985/86 - 1995/96; (ii) an annual program for sinking fund contribution beginning from year ending March 31, 1986; and (iii) an annual program to reduce outstanding receivables from agencies beginning from year ending March 31, 1986 such that by March 31, 1989 and at the end of each fiscal year thereafter, such dues are not more than one and a half times the work-in-progress as of that date and (iv) that TWAD will conform to the annual program outlined in items (ii) and (iii) above, commencing 1984/85; (para 5.28); and (f) TWAD will submit audited financial statements in a manner acceptable to IDA, within nine months from the end of each fiscal year, beginning from fiscal year 1984/85 (para 5.32). Conditions of Disbursement 7.02 It was agreed during negotiations that, the following actions will need to be completed before funds are disbursed against expenditures of the related subprojects: (a) GTN will cause Madurai to pass new bylaws to ensure metering of existing and new connections (para 3.32); (b) GTN will issue necessary Government Notification covering allocation of adequate surface water for Coimbatore (para 3.44); and (c) TWAD will enter into subsidiary loan agreements, satis- factory to IDA, with each local body under the project covering the financial, operational and institutional requirements of specific subprojects (para 5.08). Recommendation 7.03 Subject to above conditions, the proposed project is suitable for an IDA credit of US$36.5 million equivalent and an IDA Special Fund Credit of US$36.5 million equivalent to the Government of India. INDIA TAMIL NADU WATER SUPPLY AND SANITATION PROJECT Sector Investmentg (In current prices) 1974-1978 1978-1980 1980-1985 1966-1974 (Fifth Plan) (Annual Plan) (Sixth Plan) Subsector Annual Average Annual Average Annual Average Annual Average Increase in Total Rs Rs Rs Per * Total Rs Rs Rs Per** Total Rs Rs Rs Per *** Total Rs Rs Rs Per @ Sixth Plan Million Million Capita Million Million Capita Million Million Capita Million Million Capita Over Fifth Plan Urban Water Supply 329.00 41.13 9.96 310.00 77.50 23.10 115.10 57.55 17.97 1324.90 264.98 19.17 427 Urban Sewerage Rural Water Supply 183.08 22.89 - 328.89 82.22 -- 242.90 121.45 - 819.20 163.84 - 249 Latrine Conversion Program - - - - - - 1.75 0.87 - - - -- Public Latrine 2.67 0.33 0.02 3.56 0.89 0.05 - - Research & Development - - - 1.75 0.44 - Total Govt. Allocation 514.75 - - 644.20 - - 359.75 - - 2144.10 - - 333 L.I.C Loans 151.49 - - 194.80 - - 113.50 - _ 558.30 _ _ 287 TOTAL INVESTMENTS 666.24 3- _ 39.00 _ 473 25 - _ 2702.40 & - - 322 * Based on 1974 population (Projected) & - Urban Water Supply & Sewerage 1267.50 ** Based on 1978 population (Projected) Rural Water Supply 766.70 *** Based on 1980 population (Projected) Rural Water Supply to be executed by DRD 52.50 @ Based on 1985 population (Projected) M.M.W.S.S. Board 615.70 INDIA TAMIL NADU WATER SUPPLY AND SANITATION PROJECT Water Supply Service Levels - Suimmary Present Service Levels (1981-1982) Future Service Levels (1996-1997) No. Group House Standposts Other Consumption Consumption House Standposts Other Consumption Consumtpion No. Group Connection Municipal Sources (lcd) for (lcd) for Connection Municipal Sources (lcd) for (lcd) for (Municipal Water Non- Population Population (Municipal Water Non Population Population Water) Municipal Served by Served by Water) Municipal Served by Served by Water House Con- Standposts Water House Standposts nection Connections 1. Group I Coimbatore 52 32 16 61 15 84 13 3 100 48 20 Towns 2 73 25 57 23 42 58 - 90 25 2. Group II 40 53 7 60 29 60 40 - 68 27 3. Group III Salem 64 34 2 60 20 69 31 - 90 30 11 Towns 15 47 37 16 13 44 56 - 94 26 4. Group IV 3 55 42 20 14 38 62 - 90 25 INDIIA TAMIL NADU WATER SUPPLY AND SANITATION PLROJ.ECT URBAN AREAS WATER SUPPLY Solicnt DaiL and 8ervice Leon0 Group I GIoUP 11 Group III Group TV CoEibaLor 20 Towns Modura. Salem 11 To.ns 44 Tnnnn 1981-82 1988-89 1996-97 1981-82 1988-89 996-97 1981 82 1988-89 1996-9 1981-82 198l8-8 1996 07 1981-82 1988-R9 1996-97 1991-82 1986-811996-97 1. PopulsiEon (non.) 700923 808670 975000 176549 268070 373430 817502 1050000 1281000 361177 440000 520000 163708 214000 252100 488186 535581 636450 2. PopulORioE S-rd 2.01 Byonnernlnns (nn..- 367565 679860 918790 3458 109900 155720 323350 630000 768600 231030 308000 360000 25430 92760 110300 16015 189290 239370 2 of tntrl Popoultion 52 84 84 2 41 42 40 60 60 64 70 69 15 43 44 3 35 38 Averoge Nn. Connntinons 13 12 14 6 5 5 10 15 16 10 10 10 13 5 5 7 5 5 2.02 By stntdponts (now.) 224814 104550 128520 129130 158170 217710 43701: 420000 512400 121440 132000 160000 77178 121240 141800 268689 346291 397080 of -otal Popultion 32 13 13 73 59 58 53 40 40 34 30 31 47 57 56 55 60 62 Average No. Cpnnecti.ns 101 138 170 135 399 394 230 187 200 114 114 114 183 323 322 174 352 352 2.03 By o-her muons (ono.) 108544 24260 27690 43961 - - 57200 - 8707 - - 61100 - - 198387 - Z of total Pnpulatio- 16 3 3 25 - 7 - 2 - 37 - - 42 3. Cn.notl..ns/wtandpontw (ano) 3.01 Dnme sti Wetered 24019 56655 58485 - - - - 40335 49200 22019 30800 36800 1605 1605 1605 91 91 91 Unmestred 5010 - - 551 21980 31144 32335 - - 1084 - 399 16047 20455 2063 37717 47783 TotaE 29029 56655 58485 501 21980 31144 32335 40335 49200 23103 30800 36800 2004 18552 22060 2154 37808 47874 3.02 C.o -eroial (tket-od) 1250 1650 693 817 2480 3500 4270 397 500 600 58 292 369 4 3000 3500 754 3.03 InduRtrial (smererd) 350 430 - 89 146 120 200 240 6 8 12 - 301 51 - 220 300 3.04 Tonal C--nnEtio.s (now.) 29783 58255 60565 551 22702 32117 34935 44035 53710 23516 31308 37412 2062 18878 21880 4312 41028 51674 3.05 Staudpostn 2216 756 756 957 396 552 1900 2242 2560 1065 1158 1335 420 375 440 1548 983 1127 4. waner Demund (Max./day lcd) 4.01 Dumestio 61 110 100 57 90 90 60 83 68 60 90 90 16 94 94 20 90 90 4.02 Standposts 15 49 48 23 25 25 29 33 27 20 30 30 13 26 26 14 25 23 5. Water Demand (M3/day) 5.01 Do-ostic -o-rnwmption 22300 74800 81900 189 9892 13815 19401 52000 52000 13862 27720 33120 422 8762 10399 319 17120 21525 5.02 Snudposts onsu.mptioo 3315 5150 6200 2948 3959 5518 12774 14000 14000 2588 3960 4560 1027 3176 3916 3699 8639 9944 5.03 Coamercial -o-sumptiou 10550 19000 - 1390 1938 3500 5400 5400 183 2218 2638 41 1083 1280 9 2502 3036 1351 5.04 Industrial -onn-npnion 19350 26800 - 696 967 1148 1791 1791 183 1584 1884 - 596 701 - 1103 1450 5.05 othnr. 922 1045 1385 615 - 420 - - - - 1154 - 883 - - 5.06 Unoocpunotd fEr 1112 25900 29100 241 3984 5560 8177 16809 16809 5684 8871 10551 290 3404 4074 401 7353 9097 5.07 Tntal DIRod (M3/day) 29000 136595 164385 4003 19921 27798 45420 90000 90000 22500 44353 52753 2934 17021 20370 5321 36717 45050 6. Water Produtinon oap. (M3/day) 6.01 S-rf-ue Watwn 27900 163000 163000 - 27798 27798 45420 90000 90000 22500 68761 2934 26745 76745 273 8448 8448 6.02 ..ound sater 1100 1383 1385 4003 - - - - - - - 2934 - 5048 49486 49486 No. of r-holwn 7 7 46 - - - - - - 467 44 44 6.03 Tonal 29000 164385 164385 h003 27798 27798 45420 90000 90000 22500 68761 68761 2934 26745 26745 5321 57934 57934 7. Water Supply System 7.01 Storage RCs-r.oorw (sos.) 2 13 18 96 34 34 8 18 10 5 15 15 28 19 19 111 89 89 Capacity (5) 10456 23956 23956 1080 11320 11320 12408 37908 37908 5454 23354 23354 2017 8924 8924 2105 20195 20195 Y nf Den..d 36 21 19 27 57 38 28 42 42 24 55 45 69 58 47 40 35 35 7.02 Tramsolsioo Msins (IC,) 37 92 92 - 7 20 125 125 48 98 98 125 22 22 819 294 294 7.03 Dritrthotton -MainR (lM) 167 167 167 39.5 169 169 171 299 299 132 240 240 18 159 159 81 627 627 The quastity includes also indoNslT roqulremen no outside Coimbatoto Corpora ton. -57- ANNEX 4 IND [A TAMIL NADU WATER SUPPLY AND SANITATION PROJECT URBAN AREAS SEWERAGE Salient Data and Service Levels Coimbatore Madurai Salem S1. No. Description 1981-82 1988-89 1996-97 1981-82 1988-89 1996-97 1981-82 1988-89 1996-97 1. Population (Nos.) 700,923 808,670 975,000 817,562 1,050,000 1,281,000 361,177 440,000 520,000 2. Population in areas to be provided with sewerage system (Nos.) 405,000 490,000 600,000 519,000 666,550 813,190 - 440,000 520,000 3. Population served 3.01 By connections (Nos.) 205,000 380,000 597,000 298,000 466,580 813,190 - 190,000 311,000 Percentage of (2) 50.6 77.6 99.5 57.5 70.0 100.0 - 43.2 59.8 Percentage of (1) 29.3 47.0 61.2 36.5 44.4 63.5 - 43.2 59.8 Persons per Connection - - - - - - - - - 3.02 By septic tanks (Nos.) 148,600 98,000 99,500 163,500 136,500 128,100 182,357 125,000 122,000 Percentage of (1) 21.2 12.1 10.2 20.0 13.0 10.0 50.5 28.4 23.5 3.03 By Conservancy System (Nos.) 347,323 330,670 278,500 355,640 447,300 339,470 178,820 125,000 86,800 Percentage of (1) 49.5 40.9 28.6 43.5 42.6 26.5 49.5 28.4 16.7 3.04 By other means (Nos.) - - - - - - - - - Percentage of (l) - - - - - - - - - 4. Connections Domestic - - - 37,200 51,840 67,760 - 33,600 48,300 Commercial - - - 4,340 4,800 5,300 - 520 618 Industrial - - - 960 1,050 1,125 - 280 315 Total 17,778 30,190 101,195 42,500 57,690 74,185 - 34,400 49,233 5. Sewerage systems Laterals (km) 123.711 119.145 119.145 - - - - 80.00 86.842 Interceptors (km) 8.889 27.845 27.845 - - - - 25.00 22.432 Outfalls (km) - 5.570 5.570 - - - - 9.60 9.60 Pumping Stations (Nos.) 1 2 2 8 8 8 - 1 1 Treatment Works (Nos.) 1 2 2 - - - - 1 1 INDIA TAMIL NADU WATER SUPPLY AND SANITATION PROJECT Urban Water Supply Demands - Summary Total Supply (Gross) Present Supply (1981-82) Proposed Water Supply (1996-97) Si. Design Present Design Total (Net) Domestic (Net) Total (Net) Domestic (Net) No. Group Year (Mld) (Mld) (Mld) (Mld) (Mld) (Mld) 1. Group I Coimbatore 1996 29.000 164.385 27.888 25.615 135.285 88.100 20 Towns 1996 4.003 27.798 3.762 3.137 22.238 19.333 2. Group II 1988 45.420 90.000 37.243 32.175 73.191 66.000 3. Group III Salem 2011 22.500 68.761 16.816 16.450 42.202 37.680 11 Towns 2011 2.934 26.745 2.644 1.449 16.296 14.315 4. Group IV 2011 5.321 57.934 4.920 4.018 35.953 31.467 Unaccounted-for water assumed to be 25-30X of gross demand. -59- ANNE;X 6 INDIA TAMIL NADU WATER SUPPLY AND SANITATION PROJECT Rural Water Supply Demands Union 1981-82 1988-89 1996-97 2011-12 No. of Village Panchayats Population Net Demand Population Net Demand Population Net Demand Population Net Demand (Mld) (ld) (Hld) (Mld) GROUP I: 1. Madukkarai (9) 24,900 0.996 26,768 1.071 28,635 1.145 32,370 1.295 2. P.N. Palayam (8) 58,640 2.346 63,038 2.522 67,436 2.697 76,232 3.049 3. S.S. Kulam (7) 28,390 1.136 30,519 1.221 32,648 1.306 36,907 1.476 4. Sulur (13) 46,425 1.857 49,907 1.996 53,388 2.136 60,353 2.414 5. Palladan (21) 57,561 2.302 61,878 2.475 66,195 2.648 74,829 2.993 6. Pongalur (16) 74,395 2.976 79,975 3.199 85,554 3.422 96,714 3.869 7. Sultanpet (20) 78,130 3.125 83,990 3.360 89,850 3.594 101,569 4.063 TOTAL 368,411 14.738 396,075 15.844 423,706 16.948 478,974 19.159 GItOUP III: 1. Mangavalli (3) 7,942 0.318 8,538 0.342 9,133 0.365 10,325 0.413 2. Mecheri (5) 12,303 0.492 13,226 0.529 14,148 0.566 15,994 0.640 3. Tharamangalam (5) 6,176 0.247 6,639 0.266 7,102 0.284 8,029 0.321 4. Omalur (17) 22,572 0.903 24,265 0.971 25,958 1.038 29,344 1.174 5. Salem (18) 60,628 2.425 65,175 2.607 69,722 2.789 78,816 3.153 6. Ayothiapattinam (11) 34,744 1.390 37,350 1.494 39,956 1.598 45,167 1.807 7. Valapadi (5) 11,330 0.453 12,180 0.487 13,030 0.521 14,729 0.589 8. Peddanaicken- pakayam (7) 12,592 0.504 13,536 0.541 14,481 0.579 16,370 0.655 9. Attur (18) 36.675 1.466 39.426 1.577 42,176 1.687 47,678 1.907 TOTAL 204,960 8.198 220,335 8.814 235,706 9.427 266,452 10.659 -60- INDA ANNEX 7 TAMIL NADU WATER SUPPLY AND SANITATION PROJECT Project Dlecription Component Location Description Capacity/size Function GSIWP I - MAIN PROJECT Pick up weir At Bh-vani River near 131.25 mld For drawol of the border of ger.ia water from thi and Tasil Nad. States n.urce. inside Tasil Nadu territory. RSw water tranesio - Tunnel: Bed slope - 262.5 mld/ Tc convey rw 1 in 5900 3.3 en, 1.5c water frio pick up Length - 6300m weir to the treat- cnnt works, Tr-eatment Works At Anscor village 6.3 km Foil scale treatment units 131.25 rld In treat the rw from head works with aeratre. clarifloc- water. oularer, rapid sand filters and chlorination plant Clear water rranmmission - Gravity mains of PSC pipcn 125 mId To convey clear 1500 me die, 32270 n water to the 1200 me dis, 4013 a riou benefici- rise. 800 m dia, 9727 o 600 me die, 7630 c 300 =m dia, 10780 = Tunnel 2100 n long 262.5 rld/3.3 an 1.5 = GROUP II - MADIRAI Headwork. River Vaigai - 70 km 4.5 = n 10.0 = in-take well 71.6 mld River Ictake away (upstream) from channel. Madur-i City. Raw water ponpeters Over the ic-take well S omits Turbine punpsetn 71.6 mld Pumping rw atoer Each unit of 100 HP with from in-take well a duty of 16565 lpn to the treatment against 16 a head works. Raw water transm.ission Headworks to treatment Pumping main of PSC pipes 71.6 mid, 1000 = die Conveying raw water man works eit. 300 m 10-6 from heed works tu treatment works. Treatment works 300 a way from hkedworks Pull scale treatment unite 71.6 mid To treat rw water with Aerator, Clarifloc- culatore, rapid sand filters and chlorimation plant Clear water Tr.sn.id- Treatment works to the Gravity Main of PSC pipes 67 mid, 1000 - dia, To convey clear nion main storage reservoirs in 42228 m water from treat- the town 1100 di, 9000 ent works to thk town 900 e dis, 17700 = GROUP III - MAIN PROJECT Headworks 500 = downstream of In-take well and pumphou.e 68.341 mld (2nd stage) Rw water intake Stanley reservoir at Mnttor in Cauvery river. Row water pumpse.t Over the in-take well 3 turbine pumpeets (one as 21,700 lp=/650 HP/82= To pump standby) head Rfw water trBansission Between panphiume and Pumping maie of Steel 1 2 x 900 me die steel - To convey water main treatment works PSC pipes 000 =, 1000 m die PSC from in-take well to 2800n Treatment works 33 k- away from head- Full scale treatment unite 63.0 mld. To treat rw water works at Eorburankadu with aeraptor, lanifl-ccl- (First stage) torn rapid sand filters& chlorination plant Clear water pumpeeta At the treatment workc 3 turbine puapsets (sne an 20675 lp=/800 HP/ Pumping clear water standby) 105 hbad from treatment work* to various bene- ficiaries. Clear water trans..asion 1) Treatment works to i) pumping maims of steel 1100 m die steel - To convey treated maim break pressure task No.2 and PSC pipes 1700 m water to various 1100 m die PSC - beneficiaries 5500 m 2) B.P. Tank No. 2 tr ii) gravity mains of PSC and 1100 me PSC - B.P. Tank (El-vated) Ne.3 steel pipee 1975 On 1100 m Steel - 3500 = 3) B.P. Tank No.3 to iii) gravity/pumping mains 1100 u dia PSC - 7800 m B.P. Task No. 4 of PSC and steel pipes 600 me di. PSC - 3000 = 500 = dis PSC - 3450 m 700 me die Steel - 1000 a 700 an die PSC - 10600 = 4) B.P. Tank Ro. 4 to iv) gravity main- of PSC 500 nn dia PSC - 11000 a B. P. Tank No. 3 pip.. 400 m di. PSC - 3320 c 5) B. P. Tank No. S v) gravity maims of PSC 50 m dia PSC - 15600 = to Attor pipes 400 m dia PSC - 3000 m 350 me dia PSC - 2480 a -61- ANNEX 8 Page 1 of 4 pages INDIA TAMIL NADU WATER SUPPLY AND SANITATION PROJECT Operational Action Plan (Dated February 14, 1984) I/ A. Operational and Technical Considerations Agency Due Date 1. Commence Water Resources TWAD January 1, 1985. Management Study (para 3.25). 2. Take measures to control exploitation GTN -- of groundwater by industrial and commercial users (para 3.27). 3. (a) Prepare a leak detection program for TWAD June 30, 1985. review by IDA (para 3.28); (b) Leak detection unit of TWAD to be TWAD December 31, 1985. fully equipped, staffed, trained and operational (para 3.28); (c) Implement the leak detection program TWAD From January 1, 1986 (para 3.28). and to be reviewed periodically with IDA. 4. (a) Implement a metering program according TWAD, CMS* June 1985. to targets agreed (para 3.30). (b) Establish meter repair facilities TWAD December 31, 1985. (para 3.31). 5. Enact new bylaws in Madural to ensure GTN/CMS Condition of disburse- metering of existing and new connec- ment for Madurai sub- tions (para 3.32). project. 6. Establish criteria for house connection TWAD To be agreed by loans (para 3.33). September 30, 1984. 7. (a) Establish a low cost sanitation TWAD December 31, 1984. cell (para 3.34); 1/ Paragraph references are to the relevant sections of the Staff Appraisal Report. The specific actions and related dates were reviewed and agreed during negotiations. -62- ANNEX 8 Page 2 of 4 pages (b) Pass bylaws to regulate the Local December 31, 1984. construction of low cost bodies sanitation units (para 3.37). 8. (a) Training component (Stage I): TWAD Date of completion by study to formulate training policy, June 30, 1985. determine training strategy and identify- ing priority training needs (para 3.41); (b) Training component (Stage II): TWAD To be later agreed implement the training program with IDA. based on results of Stage I (3.41). B. Institutional and Legal Aspects 1. (a) Appoint an Engineering Director, a TWAD September 30, 1984. Finance Director, a Chief Accountant and a Chief Audit Officer (para 4.06); (b) Implement improvements in material TWAD April 1, 1985. management system, project accounting system and financial management system (para 4.06); (c) Use consultants for post implementation TWAD Periodic review review and support for about two man- by IDA. weeks per quarter for two years after implementation of (para 4.06). 2. Fully staff the Project Team (para 4.07). TWAD September 30, 1984. 3. (a) Establish Water Supply and Sewerage CMS April 1, 1985. Accounts (para 4.09); (b) Fully staff accounting and finance CMS April 1, 1985. functions (para 4.10) for maintaining water supply and sewerage accounts; (c) Implement accounting, and management CMS April 1, 1986. information systems for water supply operations (para 4.10); (d) Implement modified cash accounting All other April 1, 1986. system (para 4.10); local bodies -63- ANNEX 8 Page 3 of 4 pages (e) Use consultants for post implementation CMS Periodic review review and support for about two by IDA. man weeks per quarter for two years after implementation (para 4.10). 4. Prepare a progress reporting system TWAD September 30, 1984. satisfactory to IDA (para 4.11). C. Financial Aspects 1. Complete subsidiary loan agreements between TWAD Condition of TWAD and local bodies (para 5.08). disbursement. 2. TWAD to examine the feasibility of introduc- TWAD April, 1987. ing stepped tariffs for metered consumer based on volumetric consumption in the Project Cities and advise IDA on its findings (para 5.11). 3. GTN to cause Coimbatore, Madurai and Salem GTN April 1, 1985. to set interim tariffs (para 5.15). 4. Commence Resource Mobilization GTN April 1, 1985 Study for Coimbatore, Salem, and Madurai (para 5.22). 5. (a) Establish billing and collection GTN/CMS Upon installation percentages for current and arrears of accounting amounts for both property tax and systems. water taxes and charges (para 5.23); (b) Bill water charges at least on a quar- CMS/All Beginning quarter terly basis (for both metered and other lo- ending flat rate charges) (para 5.24). cal Towns June 30, 1985. 6. (a) Prepare a debt maturity schedule TWAD December 31, 1984. for the period 1985/86 through 1995/96 (para 5.28); (b) Prepare an annual program of debt TWAD December 31, 1984. fund contributions to match its debt maturity schedule from year ending March 31, 1986 (para 5.28); (c) Prepare a phased program to reduce TWAD December 31, 1984. outstanding receivables so that by March 31, 1989 and each fiscal year thereafter, receivables do not exceed -64- ANNEX 8 Page 4 of 4 pages one and a half times the value of work-in-progress as of that date (para 5.28); and (d) Implement (b) and (c) above TWAD Commencing (para 5.28). FY 85/86. 7. Monitor and review achievement of financial TWAD/CMS Commencing performance of Project Cities with respect FY 84/85. to the indicative financial performance ratios (para 5.29). * CMS - Coimbatore, Madurai and Salem. -65- ANNEX 9 Page 1 of 2 pages INDIA TAMIL NADU WATER SUPPLY AND SANITATION PROJECT Summary of Cost Estimates (Rural Component) %on Particulars 1984-85 1985-86 1986-87 1987-88 1988-89 Total 1984-85 1985-86 1986-87 1987-88 1988-89 Total Total Cost -----------------Rs in thousands ------------------- ---------------------US$ equivalent---------------------- GROUP I Civil Works 2,400 6,854 8,436 7,030 2,812 27,532 246 703 866 721 288 2,824 19.5 Materials and Equipment 2,997 7,492 8,990 7,492 2,996 29,967 307 769 922 769 307 3,074 21.2 Duties & Taxes 429 1,073 1,287 1,073 429 4,291 44 110 132 110 44 440 3.0 Subtotal 5,826 15,419 18,713 15,595 6,237 61,790 597 1,582 1,920 1,600 639 6,338 43.7 GROUP III Civil Works 416 2,439 3,275 2,729 1,092 9,951 43 250 336 280 112 1,021 7.0 Materials & Equipment 1,759 4,397 5,275 4,397 1,758 17,586 180 451 542 451 180 1,804 12.4 Duties & Taxes 236 590 707 590 236 2,359 24 61 72 61 24 242 1.7 Subtotal 2,411 7,426 9,257 7,716 3,086 29,896 247 762 950 792 316 3,067 21.1 Total 8,237 22,845 27,970 23,311 9.323 91,686 844 2,344 2,870 2,392 955 9,405 64.8 Land Acquisition 1,088 466 - - 1,554 112 47 - - - 159 1.1 Total Before Contingencies 9,325 23,311 27,970 23,311 9,323 93,240 956 2,391 2,870 2,392 955 9,546 65.9 CONTINGENCIES a) Physical 607 1,631 1,984 1,653 661 6,536 62 167 203 170 68 670 4.6 b) Prior 372 2,808 5,537 6,386 3,113 18,216 38 286 568 655 319 1,868 12.9 Subtotal 979 4,439 7,521 8,039 3,774 24,752 100 455 771 825 387 2,538 17.5 Engineering Cost 2,360 5,411 6,921 6,113 2,554 23,359 242 555 710 627 262 2,396 16.6 Total Cost 12,664 33,161 42,412 37,463 15,651 141,351 1,298 3,401 4,351 3,844 1,604 14,498 100.0 _=_=== ~ ~~~~ ~ =_= ==== = = = =-= ==_ = ==-,= = == A == = ==- -sB =
Groupe de la Banque mondiale · Staff Appraisal Report
India - Tamil Nadu Water Supply and Sanitation Project
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