Colombia - Barranquilla Water Supply Project

Document of The World Bank FOR OFFICIAL USE ONLY Axt >63>- co Report No. P-4123-CO REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS O'N A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$24 MILLION TO THE EMPRESAS PUBLICAS MUNICIPALES DE BARRANQUILLA WITH THE GUARANTEE OF THE REPUBLIC OF COLOMBIA FOR A BARRANQUILLA WATER SUPPLY PROJECT November 8, 1985 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Peso - Col$ Average Calendar 1984 US$1 = ColS 100.8 ColS = US$0.00 99 Exchange Rate Effective October 27, 1985 US$1.00 = Col$161.61 Col$1.00 = US$0.0062 Weights and Measures Metric System FISCAL YEAR January 1 to December 31  FOR OMCIAL USE ONLY GLOSSARY OF U BRKVTATIONS DNP Departamento Nacional de Planeac-on (National Planning Departme_t) EAAB Empresa de Akueductoo y Alcantarillados de Bogota (Water and Sewerage Company of Bogota) EPM Eapresas Publicas de nedslen (Medenlin Public Companies) EPMB Empresas Publicas Municipales de Barranquilla (Barranquilla Municipal Companies) FFDU Fondo Financiero de Desarrollo Urbano (Fund for Urban Development) tNAS Inetituto Nacional de Salud (National Institute of Health) JAC Junta de Accion Coimunal (Neighborhood Action Comuittee) INSFOPAL Iastituto Nacional de Fomento Municipal (National Inetitute for Urban Development) JNT Junta Nacional de Tarifas (National Tariff Board) HSP Ministerio de Salud Publica (Mlnistry of Public Health) This document has a resricted distribution and may be used by recipients only in the performance of tiecr official duties. Its contenst may not otherwise be discioed without World Bank authorization.  - i - COLOMBIA BPARPAQUILIA UkTER SUPPLY PROJECT LOAN AND PROJECr SUMMARY Borrower: Empresas Publicas Municipales de Barranquilla (EPNB) Guarantor: Republic of Colombia. Amount: US$24 million equivalent. Terms: 17 years, including a grace period of 4 years, at the standard variable interest rate. Description: Sector. The fiscal and external borrowing constraints imposed by the Government's recently adopted macro- economic stabilization and reform program require increased operating efficiency and internal resource mobilization of utilities in the water supply sector if increased service coverage is to be achieved. The Government is consequently now reexamining sector-wide policies and institutional arrangements and increasingly emphasizing projects which focus on cost-recovery, rehabilitation of water works and more selective invest- ments in system expansion. Project. The proposed project would primarily support programs to: (a) rehabilitate and extend water supply, sewerage and solid waste management facilities in Barranquilla, Colombia's 4th largest city. About 70 percent of the beneficiaries of this program reside in the city's lower income areas; and (b) promote the institutional development of EPMB by strengthening its management, administration and operating efficiency. Such improvements should, in turn, restore the company's finan- cial viability, enabling EPMB, by 1989, to generate suffi- cient funds from internal sources to finance a reasonable share of its investment requirements. The project would include the provision of equipment, civil works and technical assistance for these purposes as well as consultants' services for preparation of subsequent network expansion to meet demand in the 1990s. Risks Project risks center primarily around potential discon- tinuity of management staff and insufficient political support at the municipal level to fully implement the financial and institutional development programs. To mitigate these risks, EPMB has as condition of loan pro- cessing already markedly increased tariffs and taken steps to stabilize operating costs. Technical assistance support, legal covenants, and close Bank supervision should further lower the level of these risks.  - il - Estimated Project Costs: US$ million--- Foreign Local Total Water Supply 7.7 8.0 15.7 Sewerage 0.3 0.6 0.9 Solid Waste 3.6 0.4 4.0 Institutional Improvement 1.8 1.9 3.7 Studies/Engineering 0.1 1.3 1.4 Incremental working capital 2.5 3.7 6.2 Base cost 1/2/ 16.0 15.9 31.9 Physical Contingencies 1.3 1.2 2.5 Price/Exch.Rate Contingencies 2.3 0.5 2.8 Total Project Cost 19.6 17.6 37.2 Interest during construction 4.4 - 4.4 Total Financing Required 24.0 17.6 41.6 Financing Plan: EPMB Internal Cash Generation - 9.9 9.9 FFDU - 3.4 3.4 Department of Atlantico - 4.3 4.3 IBRD 24.0 - 24.0 Total Financing 24.0 17.6 41.6 Estimated Disbursements: Bank Fiscal Year 1986 1987 1988 1989 1990 1991 -US$ Hillion - Annual 1.5 8.7 6.4 4.2 2.3 0.9 Cumulative 1.5 10.2 16.6 20.8 23.1 24.0 Rate of Return: n.a. 1/ Includes about US$2.0 million of value-added tax. 2/ In June 1985 prices.  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO EMPRESAS PUBLICAS MUNICIPAIES DE BARRANQUILLA WITH THE GUARANTEE OF THE REPUBLIC OF COLOMBIA FOR A BARRANQUILLA WATER SUPPLY PROJECT 1. I submit the following report and reco mendation on a proposed loan to the Empresas Publicas Muncipales de Barranquilla for the equivalent of US$24.0 million to help finance a Barranquilla Water Supply Project. The loan would have a term of 17 years, including four years of grace, with interest at the Bank's standard variable rate. PART I - THE ECONOMY 2. An economic mission visited Colombia in July 1982 and its report (4444-CO) was distributed to the Executive Directors in August 1983. A mission to review the external sector and agriculture visited Colombia during April/May 1983, and its report (4981-CO) was distributed to the Executive Directors in April 1984. Macroeconomic policies were also reviewed in the President's Report (P4055-CO) for the Trade Policy and Export Diversification Loan of May 2, 1985. Country data sheets are presented in Annex I. A. Background 3. The Colombian economy has made considerable progress since the early 1950s, evolving from a largely agricultural and rural base, integrated and industrialized, into one that is more open. The growing economic activity, rapid rural-urban migration, increased participation of women in the labor force, and expanded public services have contributed to reductions in poverty and improvements in income distribution. Financial and capital markets have evolved pari passu with the growing needs of the economy, and the country has become an active participant in international capital markets. The state enterprises are few, follow adequate pricing policies, and many have some form cf private sector participation. The country's energy balance has been changing in recent years and the country is expected to become a net petroleum exporter in 1986 and, increasingly, an exporter of theiriial coal. 4. Export promotion has been a concern of the Colombian authorities for some time. Beginning in 1967 authorities adopted an outward-looking development strategy, expanding and diversifying exports. Export promotion policies, including frequent small devaluations of the peso, export tax rebates and other incentives were introduced and the authorities began lower- ing tariffs somewhat and relaxing capital market controls as a means of raising efficiency and increasing the profitability and competitiveness of Colombian goods in external markets. These measures were successful in relieving the foreign exchange constraint and stimulating growth and employment.  B. Economic Performance During the 1970. 5. In the mid 1970's, the economy was subjected to strong inflationary pressures from a sharp increase in world coffee prices. The increased receipts from coffee exports, together with some official surrender of foreign exchange from illegal exports, caused a turnaround in the balance of payments. Incomes rose rapidly stimulating aggregate demand, and inflation accelerated. Economic growth also rose, and unemployment fell substantially in rural and urban areas. Largely as a consequence of increased coffee tax revenues, the public finances generated overall surpluses averaging about 1% of GDP during 1976-78 and, by the end of 1979, net official international reserves had risen to about US$4.1 billion, equivalent to about 12 months imports of goods and non-factor services. 6. While beneficial in many respects, the foreign exchange boom had some negative effects. The rate of currency devaluation was slowed and the conversion of export receipts into pesos was delayed to moderate the growth of domestic demand, with adverse effects on non-coffee exports. The Governmenc also sought to check inflation by maintaining high reserve requirements and expanding controls over credit thereby reducing, in real terms, the financing available to the private sector through the official capital market. 7. The 1977-79 economic program was partially successful in restrain- ing aggregate demand growth, but relatively high inflation persisted. In response to increasing restraint on aggregate demand and troublesome financial market distortions, the authorities began in late 1979 to adjust the program. The rate of peso devaluation was advanced somewhat, and in early 1980 credit restraints were relaxed. At the same time, interest rates on certificates of deposit-and on lending therefrom-were freed from controls. To offset the inflationary effects of these measures, the authori- ties further liberalized import payments and adopted the policy of not expanding the subsidized selective credit operations of the Central Bank in excess of the resources captured from private savings for this purpose. Real GDP growth decelerated to 4% in 1980 from an average of almost 6% since 1960, unemployment started to creep up, and inflationary pressures continued. C. Recent Economic Developments 8. During 1981-83 the economic situation took a turn for the worse in part on account of external factors, with real GDP growth slowing down to 2.3% in 1981 and about 1% on average in 1982-83. Agricultural output was hard-hit as a result of low international prices, reduced input use and adverse weather. Industrial activity deteriorated on account of depressed aggregate demand, and unutilized capacity continued to increase, particularly in manufacturing. Unemployment reached almost 14% of the labor force at the end of the year, up from about 7% at the end of 1981. Inflation, however, slowed down in 1983 to a 20% average for the year, down from 28% in 1981 and 25% in 1982. 9. After experiencing a surplus for six years, a deficit of about US$1.4 billion emerged in the resource balance in 1981 and increased to average about US$1.8 billion in 1982-83. These deficits resulted mainly from  - 3 - a drop in exports in real terms: in addition to domestic factors, major reasons were the slowdown in world demand, major devaluations and import restrictions in neighboring countries, and the reduction in Colombia's coffee exports from their previous high levels. Net foreign exchange reserves declined by about USS1.8 billion in 1983 to about US$3.1 billion, equivalent to about six months of imports of goods and non-factor services. On the fiscal side, a slowdown in revenue growth, together with increased current expenditures resulting from a system of automatic transfers and large infra- structure investments in energy and transport led to growing deficits: the overall Central Government cash deficit grew from 2.1% of GDP in 1980 to 4.1% in 1983, while that of the consolidated public sector rose from 3.6% to 7.0%. 10. In 1983 the Government introduced policies to stimulate aggregate demand, and expand non-coffee exports. The rate of peso devaluation was accelerated; the housing construction industry was provided with incentives to mobilize more resources; and selective credit to the productive sectors was expanded. Temporary import restrictions were introduced for stabiliza- tion in addition to measures to reduce the fiscal deficit and ease distor- tions in the financial system. These efforts were insufficient to reverse the deteriorating trends particularly in light of the tight international capital market. Colombia, unlike other Latin American countries, has not had a debt problem because of the high share of official debt in total debt out- standing and the term structure of such debt. Nevertheless, the Latin American debt problem produced a reduction in the credit lines available to Colombia and difficulties in obtaining medium-term loans needed to complete ongoing projects, which contributed in turn to further declines in foreign exchange reserves and to strains in the financial system. 11. During 1984-85 Government policy began to focus increasingly on: additional revenue and expenditure measures to contain the fiscal deficit and monetary expansion; acceleration of the exchange rate devaluations, further increased incentives to exports; measures to improve the profitability of the commercial banking and to resolve the external debt problems of the private sector. The policy reforms began to take hold during the second half of 1984. Real GDP growth increased to 3.1%, the unemployment rate fell to 13% of the labor force at year's end while inflation was brought down to 16.4% on average in 1984. Merchandise exports grew at over 16% in nominal terms compared to 1983; the current account deficit in the balance of payments was reduced by about US$1 billion to 5% of GDP. The losses in foreign exchange reserves, which had accelerated during the first half of 1984, were reduced during the second half of 1984 and reserves remained at about US$1.8 billion (four months of goods and n.f.s. imports). The policies have been deepened in 1985 and the results to date, on the whole, have been positive. Inflation remains under control, while economic growth has picked up modestly, although the unemployment rate remains higher than in recent years. The balance of payments position has been stabilizing. D. Growth and Balance of Payments 12. With further adjustments during 1985-86, Colombia's growth prospects for the rest of the decade are good. The current account deficit of the balance of payments is projected to average about US$1.3 billion per year during 1985-86, equivalent to about 4% of GDP. The deficit is projected to be financed bv increasing disbursements of existing and new public and  - 4 - private sector loans and by direct foreign investment. By the end of this period, net official International reserves would have been maintained at a level of about four and a half months of imports of goods and non-factor services. This should be sufficient to support an average growth of real GDP of 2.5% during 1985-86. Total investment will have to be maintained at over 18.5Z of GDP to complete energy and mining projects; and to avoid too large an increase in foreign indebtedness, gross domestic savings would need to average about 18% of GDP compared to 16.42 during 1981-84, with the public sector generating a significant part of the additional savings. Beyond 1986, real GDP growth should resume at near historical rates, about 4.5% per year on average. The current account deficit should also improve rapidly from 1987 on as a result of increasing export proceeds from new non-traditional exports (particularly crude petroleum and coal), declining to some 1.6% of GDP by 1990. 13. Total gross external medium- and long-term capital requirements (including the private sector) are projected to total about USS5.6 billion for the 1985-86 period. Net foreign investment is expected to account for US$750 million during 1985-86, most of which would be to complete existing energy projects. About US$3.9 billion is expected from multilateral, bilateral and other sources, while about US$1 billion will be the new m6ney needed from commercial banks mainly to complete petroleum and coal projects for export. At the end of 1984, Colombia's public and nublicly guaranteed medium- and long-term external debt, disbursed and outstanding, amounted to US$8.0 billion (22% of GDP). The Bank/IDA share of this external debt i.e. excluding non-guaranteed private was 22.8% which is expected to reach less than 25% by 1986. The public debt service ratio in 1984 was 23.5% and is expected to peak at about 30% in 1987 and then decline gradually to below 30% in 1990. The World Bank's share in M&LT public debt service (excluding non- guaranteed private) is expected to be less than 24% during 1985-86. With sound economic and financial management and the development of new export activities, Colombia is expected to maintain its creditworthiness through and beyond the 1985-90 period. PART II - BANK GROUP OPERATIONS IN COLOMBIA 14. The proposed loan, the 116th to be made to Colombia, would bring the total amount of Bank loans to Colombia to USS5,029.2 million (net of cancel- lations). Of this amount the Bank held, as of September 30, 1985, USS3,758.3 million; IDA made one credit of US$19.5 million for highways in 1961. Disbursements have been comple'.eJ on 72 loans and the IDA credit. Before 1979, disbursements averaged US$86 million equivalent per year, but had increased to US$286 million in FY84 and to USS591 million in FY85, reflecting in part the higher level of commitments in the late 1970s and efforts to build the pipeline. While disbursements in Colombia have been slower than those recorded in the Latin American Region for similar projects, concentrated efforts to overcome problems and to speed the initiation of project execution have resulted Ait a significant increase in disbursements during FY84 and FY85. Improving performance of social sector institutions in  the execution of Bank-financed projects, the gradual containment of inflationary pressures and the effects of the recently-introduced fiscal reforms, which should improve counterpart funding, all point to a higher level of disbursements in the future. IFC has made investments and underwriting commitments of US$144.2 million in 29 enterprises and as of September 1985, it held US$67.3 million. Annex II contains a summary statement of Bank loans, the IDA credit and IFC investments as of September 30, 1985. 15. Since the initial loan was made in 1949, Bank lending to Colombia has become quite diversified. Although through the mid-1960s, 88X of the loans made were for power or transport, since then the Bank has broadened its participation in lending for agriculture and industry, and initiated lending for irrigation and watershed management, education, water supply, telecommu- nications, urban development, l)etroleum development, export diversification, nutrition and health. By the late 1970s, 53Z of the loans made to Colombia were for projects other than transport and power. Of the loans made since 1978, 37% were for power and transport, 15Z for industry, 18Z for agriculture and irrigation, 8% for water supply, 6% for urban, 4% for telecommunications, 2% each for petroleum development and export diversification and 8% for education, nutrition and multipurpose projects. The diversification has indeed helped provide close contact with a broader range of Colombia's development problems. The experience gained has served to identify areas in which the Bank's role can be a marginal one and, thus, to enable lending to be focused upon sectors in which the Bank's presence can have a meaningful - impact. 16. The Bank's dialogue with the Government through its lending activity has focused upon the need to mobilize additional domestic resources, to diversify and expand exports, to develop rapidly the country's energy resources, and to free the economy from excessive controls. The discussions involved fiscal, interest rate and pricing policies, as well as incentives for exports and reduction in the level of effective protection. Positive results have been obtained particularly in the power sector, where power rates were increased sharply and a least-cost expansion was formulated and launched. Similar results have been achieved in respect of some other public services, including appropriate charges for water for irrigation and domestic use and petroleum prices. 17. The Bank has been supporting the Government's efforts to iv -ease economic growth and exports with financial stability, raise utilization of domestic energy sources, provide key infrastructure, and improve the living conditions of the poor. More recently, in response to Colombia's adjustment process the thrust of the Bank's support has shifted towards loans to finance directly productive activities, such as agriculture and industry, support efforts to raise productivity, income and employment, increase and diversify exports and help develop renewable sources of energy through lending for hydropower and arranging associated cofinancing. Loans recently approved by the Board and in advanced stage of preparation reflect the emphasis on:(i) increasing output rapidly; (ii) reorienting production towards exports and efficient import-competing goods; (iii) suporting quick-yielding infrastructure investments, particularly those that enable the use of existing facilities more intensively; and (iv) increasing resource mobilization.  - 6 - 18. The Bank's lending in FY85 consisted of loans for agricultural diversification, small-scale industry, petroleum, development banking, water supply and sewerage and trade policy and export diversification, totalling JSS707.5 million. Thne trade policy loan is designed to support the first 1hase of trade policy adlustments in Colombia. Besides the already approved T.ublic health, port rehabilitation and electricity distribution projects, work is underway on projects for irrigation rehabilitation, agricultural technology transfer, and financial sector management. In infrastructure, the Bank is stressing rehabilitation, modernization and a more intenslve use of the existing facilities in ports rehabilitation, water supply and rural feeder roads. Finally, several projects in preparation will also support the Government's efforts to help the poorer segments of the Colombian population. Proposed lending for further rural development, agricultural credit, and water supply and waste, will help improve the standard of living of the poor, while being designed to make better use of existing capacity and reduce losses. 19. The operations of external lenders in Colombia are shown in Annex I. While IBRD, IDB and bilateral sources provided about 75% of total external financing to Colombia in the 1961-72 period, their share has decreased since then to some 49% for the 1975-82 period and is expected to decline further to about 40% of external capital requirements during the eighties. IDB has given increased emphasis to energy-related projects, in addition to those for low-cost housing, urban and rural development, agrarian reform, university education, water supply, rural electrification and land erosion control, which are aimed at improving living standards of the lower-income population. In the future, it proposes to assist Colombia in developing sources of domestic energy and in expanding productive sector activities to help generate increased employment. USAID has supported programs in education, rural development and small farm development, but is phasing out its program in Colombia. The Governments of Canada, the Federal Republic of Germany and the Netherlands have also provided concessional financing for basic needs and regional integration projects. PART III - WATER SUPPLY AND SEWERAGE SECTOR The Setting 20. Colombia's population (28 million in 1983) is currently growing at an annual rate of 2.1%, down from 3.0% in 1964, due primarily to a rapid fertility decline since 1964. The spatial distribution of the population has also changed considerably in recent years. As a result of high rural-urban migration, the share of the urban population has more than doubled, increasing from 31% in 1938 to over 66% currently. The four largest cities (Bogota, Cali, Medellin and Barranquilla), each with more than a million residents, now account for about a half of the total urban population. The small (10,000-50,000) and intermediate-size (50,000-500,000) cities, each account for about a quarter of the total urban population.  21. About 83% of Colombia's urban population has access to piped water through house connections, and about 65% is served by a waterborne sewerage system. In rural areas about 182 of the Population has access to piped water and only about 10% to adequate sanitation facilities. Although, with these service levels, Colombia compares favorably with most middle-income countries in the Region, the quality of service remains deficient, particularly in poor urban neighborhoods and rural areas where water- and sanitation-related diseases rank among the principal causes ol illness and death. Water pollution is rapidly becoming a major problem in rivers and streams downstream of most large cities which discharge their sewage without treatment. In 1982, infant mortality, which can be partially attributed to poor water quality and sanitation conditions, was 54 in 1,000 live births in Colombia, as compared with 27 in Chile, 39 in Venezuela, 44 in Argentina and 53 in Mexico. Sector Organization 22. The water supply and sewerage sector in Colombia is under the responsib- ility of the Ministry of Public Health which, in coordination with the National Planning Department, formulates national sectoral policies. The National Institute of Urban Development (INSFOPAL) and the National Institute of Health (INAS), are responsible for implementing these policies in urban and rural2/ areas, respectively, and along with the Fund for Urban Development (FFDU) of the Central Mortgage Bank, they provide financing for investments in the urban sector. On the local level, municipal public works companies, independent of the Central Government, are in charge of water and sewerage services in principal cities, and in many instances also provide other municipal services such as solid waste collection and disposal. Tn most smaller towns, water supply and sanitation services are provided by Sanitation Works Companies over which INSFOPAL exerts considerable influence and in rural areas, by departmental offices of INAS in coordination with the beneficiary communities. Water, sewerage and solid waste tariffs are controlled by the Central Government through the National Tariff Board which acts on proposals submitted by operating companies. Sector Performance and Prospects 23. The performance of most sector institutions on both the national and local levels in Colombia leaves much room for improvement. Poor financial performance and weak management are the main problems impeding efficient operations and service expansion. The combined effect of often low tariff levels, poor commercial practices and fast-rising operating costs (mainly personnel costs) have been the key obstacles to achieving financial viability for many companies. Frequent and often politically motivated changes in top- and middle-management positions and poor administrative, budgeting and planning systems are generally at the heart of ineffective management. These shortcomings, together with a general lack of a sufficiently trained work force, manifest themselves in poor upkeep and inefficient operation of many water supply and sewerage systems and are reflected in generally high levels of unaccounted-for water. 2/ Communities with less than 2,500 inhabitants.  24. Further, Central Government institutions have often not provided the support and incentives needed by utilities at the local level to improve their performance. In particular, INSFOPAL has generally not been able to appropriately assert its technical and financial leadership role. in the sector. In addition, the ready availability in the past of grant funds from the national treasury, one of the most important sources of finance particularly for small- and medium-sized city companies, has effectively deferred the need for utilities to improve their financial and operational performance. 25. Under its plan for "development with equity", the Government aims to provide adequate water and sanitation services to all its citizens and to this end it has adopted ambitious targets for service coverage. Maintenance of the level of investment necessary to meet these targets will be a difficult task, however, given the current weaknesses of sector institutions and prevailing fiscal and borrowing constraints. Consequently, and in light of its recently adopted macro-economic reform program, the Government is currently reexamining sector policies and institutions, with particular emphasis on (a) adequate cost recovery, investment and credit policies; (b) tariff policies based on financial and operating criteria and the beneficiary's capacity to pay; (c) strengthening of utilities through technical assistance programs, such as the FOREC program developed by INSFOPAL under Loan 1726-CO; and (d) a stronger institutional framework at the central level through which investment funds can be channelled and sector policies enforced. Past Bank Experience in the Sector 26. Since 1968, the Bank has made 11 loans, totalling US$380.9 million, for water supply and sewerage development in Colombia. The Bank funds have accounted for about 70% of the external loan amounts made available to the sector. Eight loans, US$313.8 million in total, were made to EPM's ir. Bogota, Cali, Palmira and Cucuta. By far the largest borrower has been EAAB in Bogota, to which the Bank has lent US$261 million in four lending operations, which have contributed to a total investment of about US$800 million and a significant strengthening of the entity. Three Bank loans, for a total amount of US$67.1 million, were made to INSFOPAL for relending to local companies in support of a total of 36 snbprojects in 30 medium-size and small cities and towns. In addition, INSFOPAL was the channel used to finance small water supply components of Bank-financed urban development projects. Several small rural water supply projects were supported through INAS, as part of integrated agricultural development projects and nutrition improvement projects. 27. Most Bank-financed projects have experienced lengthy delays in physical execution and shortfalls in financial and institutional development goals. Project completion reports have been prepared for two projects,3/ and two others have undergone performance audits.4/ The audit reports have been critical of the overestimates of demand for water; delays in project execution which, in an inflationary environment, resulted in cost overruns for most of the projects; and the borrowers' failure to raise water rates and to limit the growth of operating costs sufficiently to comply with financial performance targets. 3/ Loan 738-CO, Palmira Water Supply Project: Report No. 4589, June 1983; Sec 85-029, December 1984, Loan 1523-CO, Second Cali Water Supply and Sewerage Project. 4/ Loan 536-CO, Bogota Water Supply Project: Report No. 2003, March 1978; Loan PU-30-CO, Cali Water Supply Project: Report No. 2638, August 1978.  - 9 - 28. Lessons learned from the implementation of earlier Bank projects in Colombia have been taken into account in preparation of subsequent projects. Demand projections are using more conservative estimates of population growth and consumption as the basis for financial projections. Adequate sub-surface investi- gations are being required for tunnels and major structures to minimize delays and cost overruns after construction is in progress. More realistic implementation schedules are being adopted, and projects are presented to the Board only when a substantial part of physical works is ready for bidding. More specific plans of action for financial and institutional reform and earlier discussion of them with the borrower have also characterized projects that have been considered recently. Bank Sector Strategy 29. The Bank's current sector strategy distinguishes between three major sector segments (large cities, small- and medium-sized towns, rural areas), each of which covers about one-third of Colombia's population. The strategy calls for continued lending on a selective basis to the larger municipal companies which have demonstrated the will to improve their standards of performance, and emphasizes lending for rehabilitation of existing facilities to permit improve- ments in operational efficiency and more intensive use of water production capacity which is already in place. Direct lending to suitable municipal companies in major cities enables the Bank to assist the Government in its efforts to extend water supply and sewerage services to large segments of the population, particularly to the urban poor, at minimum unit cost and to support its efforts to upgrade the financial and operating performance of the public sector. The sound performance of the EAAB in Bogota, which the Bank first began assisting in 1968, and of EPM in Medellin attest to the fact that with persistent effort other such municipal companies have the potential to develop into well-run institutions. The proposed loan has been designed to help initiate a similar development process in Barranquilla Municipal Companies (EPMB) so that eventually its own performance level will match that of these other municipal utilities. 30. Over the longer run, the Bank's aim is to progressively support the sector's development in urban areas through intermediary arrangements capable of providing a full range of development banking services and implementing sector policies. In spite of recent improvements in its performance, INSFOPAL does not have the capacity to carry out such functions. Current discussions within the Government (para. 32) and with the Bank, however, should lead to decisions on a set of institutional and policy reforms which would form the core of better intermediation for the sector and which the Bank could support through a sector adjustment loan. 31. A rural water supply component costing US$16 million forms rart of the recently approved Health Project. It provides the Bank with the opportunity to support a modest investment program for rural water supply systems and strengthen INAS through a technical assistance program and the preparation of a National Rural Water Supply Plan. This plan is expected to define more accurately the needs and priorities in the rural sub-sector and develop an investment strategy. Together with the experience acquired in working with INAS, this could help prepare the way for increased investments in rural water supply, with Bank support.  - 10 - Water, Sewerage and Solid Waste Services of EPMB in Barranquilla 32. Barranquilla, commercial center of Colombia's Atlantic Coast Region, is the country's fourth largest city, with an estimated present popu- lation of about 1.1 million and annual growth of about 3.5%. Public services In Barranquilla are the lowest in coverage and quality among Colombia's larger cities. EPMB, the proposed borrower and project executing agency, is an autonomous municipal agency responsible for the following services: water, sewerage, solid waste collection and disposal, street cleaning, park maintenance, public markets and a zoological park. The Mayor of Barranquilla serves as the Chairman of EPMB's Board, which includes representatives of the city's main political and civic groups. EPMB's General Manager is appointed by the Mayor. 33. EPMB's water supply facilities serve about half of the city's total population through residential, industrial and commercial connections. EPHB estimates that a further 150,000 persons receive water through illegal con- nections. The remaining population, Barranquilla's poorest who live predomi- nantly in the south-western part of the city, purchase water from private vendors. The state of maintenance and repair of the water system is very poor. This was illustrated dramatically in April 1985 when the failure of a pump for treated water transmission paralyzed most of Barranquilla's water system and left some 400,000 of EPMB's customers without water for almost 4 days. A similar water emergency was also experienced in June, 1985. The proposed project focuses on rehabilitation of the most deteriorated parts of the system in order to reduce the risks of future breakdowns and to increase the system's efficiency. 34. Extensive leakage, a great many illegal connections, and the virtual absence of consumption metering are responsible for a high level of unaccounted-for water (about 45% of total production). Lack of meters and the tropical climate encourage high water use which is estimated at about 300-350 l/cap/day. Under these conditions, the capacity of EPMX's facilities is not even sufficient to meet the demand of those connected and rationing is widespread. However, EPHB is constructing a fifth treatment plant (Planta No. 5) which, when completed by the end of 1985, should boost total net water production capacity to a level sufficient to satisfy Barranquilla's water de- mand until the early 1990s. The proposed project would finance investments in additianal transmission capacity as the current capacity is insufficient to deliver the additional production from the new treatment plant to the low income south-western part of the city. 35. EPMB has about 80,000 registered sewer connections (48% service coverage level). The present system is severely overloaded, creating over- flow of sewage in some sections of town. EPMB forecasts the addition of ano- ther 40,000 connections by 1990, which would increase the service level to about 58% of the population. Many of these new connections already exist but need to be registered. The proposed project would include the expansion of the capacity of two interceptors designed to eliminate sewage overflows in some crucial downtown areas. It would also, through technical assistance, support a program to register existing connections.  - 1 1 - 36. EPMB has traditionally provided door-to-door collection of solid waste to about half of Barranquilla's population. Recently, however, collec- tion efficiency and service quality have dropped dramatically as EPMB's equipment, because of age and deficient maintenance practices, is becoming obsolete. Solid waste management in public markets is very poor and there is no organizea collection of solid waste in the poor neighborhoods at all. Uncontrolled dumping of waste in vacant lots has become increasingly a nuisance and public health problem in many parts of the city. Likewise the city's waste dump is poorly controlled and a growing health hazard. To address the most urgent needs of EPMB's solid waste operation, the proposed project would finance the purchase of much needed equipment and vehicles to upgrade and extend collections, and technical assistance to improve equipment maintenance and to introduce more sanitary waste disposal practices. 37. EPMB is a weak and inefficient institution. It is heavily over- staffed, with 1,600 employees in total, of which 780 for water and sewerage, or about B per 1,000 water connections. General managers change frequently, staving in post on average about 1.5 years. The quality of staff is generally deficient. Strong trade unions oppose improved efficiency and have been successful in securing expensive compensation packages. Administrative and financial systems are weak and do not permit adequate management control. Lack of equipment, trained staff and procedures hinder the systematic maintenance and operation of EPMB's facilities. Because of its inability to provide acceptable services in an efficient manner, EPMB's image in Barranquilla is poor. 38. In recent years, EPMB experienced substantial consolidated operating and cash deficits. These deficits resulted mainly because municipal property taxes, 95% of which are assigned to EPMB to cover services other than water supply and sewerage, were frozen between 1979 and 1984 at levels insufficient to cover the operating deficits incurred by these services. Inadequate water and sewerage tariff levels, poor collection of accounts and excessive operating costs have also contributed to EPMB's poor overall financial performance. EPMB's cash deficits have been financed mainly by commercial bank overdrafts and by a large increase in arrears to suppliers and creditors which currently totals about Col$1,l00 million (US$8.1 million equivalent). During the last four years, EPMB's only major investment was its recent undertaking to construct a new water treatment plant costing USS12 million. Previous Bank Lending to EPMB 39. EPMB was among the beneficiaries of Loan 1072-CO made to INSFOPAL in 1972. The loan proceeds allocated to EPMB were US$10.5 million. The Barranquilla sub-project was completed in 1982 after considerable delay. A project completion report for Loan 1072-CO is under preparation. EPMB did not meet the rate of return covenant and other financial, institutional, and operational targets laid down in the subsidiary agreement with INSFOPAL partly because various governments were not prepared to authorize the tariff levels needed by EPMB. Other shortcomings in the execution of the sub-project can be attributed to EPMB's institutional weakness (para. 37) and INSFOPAL's inability to provide sufficient supervision and support.  - 12 - PART IV - THE PROJECT Project Origin and Rationale for Bank Involvement 40. Feasibility studies completed under the Bank's purview in July 1983 by consultants to Empresas Publicas Municipales de Barranquilla (EPMB), the proposed borrower, identified an investment program in water, sewerage, and solid waste with a total estimated base cost of about US$65 million (1983 prices). However, it was evident from EPMB's inefficient operations and poor financial performance that the company could not support an operation of this magnitude. In August 1984, under the direction of new management, EPKB renewed discussions with the Bank and requested financing for a smaller project which would emphasize financial rehabilitation and institutional development and the execution of only the most urgently needed investments in water supply, sewerage, and solid waste facilities. As a condition of loan processing, EPMB subsequently identified and took initial key steps to imple- ment the institutional and financial recovery program agreed upon with the Bank. Particularly after the water emergency in April 1985 (para. 33), local authorities are prepared to support EPMB's current rehabilitation efforts. They realize that drastic measures are necessary to reverse the deterioration of public service in Barranquilla. 41. The proposed Bank participation in the project stems from a country strategy designed to support Colombia's efforts to promote socio-economic investments substantially benefitting lower-income segments of the population, rehabilitate existing facilities and bring about better financial and institutional performance of public sector entities. For Barranquilla in particular, the Bank would, among other things, help to ensure an effective project design for the vital institutional development program for EPMB and provide the reinforcing incentives and conditionality needed for EPMB's management to implement the program. At present these are beyond the capabilities of local institutions to undertake alone. 42. The proposed project was appraised in February 1985 and negotia- tions took place in Washington on October 16-18, 1985 with the Colombian delegation headed by Dr. Guido Borrero Duran, Mayor of Barranquilla. A Staff Appraisal Report (No. 5631-CO of October 29, 1985) is being distributed to the Executive Directors separately. Supplementary project data are shown in Annex III. Project Objectives 43. The proposed project would address the urgent need to restore and extend acceptable water, sewerage and solid waste services to Barranquilla's population and to bring about the financial strengthening and institutional development of EPMB. Its immediate objectives would be: (a) Service rehabilitation and expansion program: (i) restore the most deteriorated parts of the water system; (ii) expand service to low income neighborhoods in the south-west part of the city so as to increase water supply coverage from a current 50% to about 95% by 1990 (75% through house-connections and 20% by public standpipes); (iii) eliminate sewerage overflows in some key downtown areas and residential neighborhoods through the expansion of collector capacity; and (iv) reestablish regular door-tc-  - 13 - door solid waste collection services to about 50 percent of the city's area and establish proper waste management services for public markets, currently unserved poor neighborhoods and waste disposal sites; (b) Financial and institutional program: (i) improve EPMB's finan- cial performance so as to achieve an internal financing capacicy of about one-third of its investment needs by 1989; (ii) increase the operating efficiency of all EPMB services, and for water, reduce unaccounted-for water from the currently estimated 45 percent to about 32 percent by 1991 and stabilize the cost per M3 of water sold at its present level in real terms through 1990; and (iii) establish an adequate capacity for the repair and maintenance of equipment and facilities. 44. The successful execution of the service rehabilitation and the financial and institutional strengthening programs would put EPMB in a better position to undertake the larger investments which will be needed in the 1990s to maintain in Barranquilla water, sewerage, and solid waste disposal services at levels comparable to those in other large Colombian cities. Thus the project would also include engineering services to prepare studies for this next phase. Project Description 45. The proposed project would include the following components: (a) Water supply and sewerage: Construction of transmission mains, a storage tank, reequiping of pumping stations, repair and improvement of treatment plants and transmission and distribution facilities (leak detection and repair), rehabilitation and expansion of the water delivery system in the south-western zone including the construction of about 50 public standpipes, the purchase of about 40,000 and installation of 70,000 water meters and of 20,000 house connections, and capacity expansion of 3 sewerage collectors; (b) Solid waste: Purchase of about 25 collection trucks, 3 street sweepers, 2 front loaders, 2 bulldozers, 3 lifting trucks and various containers and tools and spare parts for the repair shop; (c) Institutional development: Technical assistance, training of EPMB's staff, and the purchase of vehicles and equipment, to improve existing or implement new systems and procedures in management, financial and operational areas of EPMB's business; (d) Engineering services: Supervision of construction, survey of existing network conditions and preparation of a rehabilitation and service expansion plan in south-western zone, an update of existing feasibility studies and the preparation of designs and bidding documents for the next stage of water and sewerage investments, and a solid waste study to define a cost-effective and environmentally acceptable long term solution to the final disposal of wastes; and (e) Incremental permanent working capital: A contribution of US$2.5 million to be disbursed against chemicals and spare parts purchases between March 1, 1985 and December 31, 1987 to cover EPMB's needs for increased permanent working capital resulting from the project. This would also indirectly help to restructure EPMB's effectively negative working capital position and reestablish its credit standing with local banks.  - 14 - Project Cost and Financing 46. The total cost of the proposed project (including US$4.4 million in interest during construction and US$6.2 million for incremental working capital) is estimated at US$41.6 million equivalent, of which 58% or $24.0 million is foreign exchange. The local cost component of $17.6 million equivalent includes sbout US$2.0 million equivalent of tanes charged against the purchase of equipment and materials and foreign consultants' fees which the Bank would not finance. The base cost, expressed in June 1985 prices, is US$31.9 million. Physical contingencies are calculated to be about 10%. Price and ColS devaluation contingencies, equivalent to about 81 of the sum of base cost and physical contingencies, were included assuming that local inflation varies from 22% in 1985 to 18% in 1990 and international Inflation of 5% in 1985, 7.5% in 1986 and of 8% through 1991. 47. The Bank would provide US$24 million or 58% of total financing required. The loan would cover the foreign exchange cost of the project's investments totalling US$17.1 million, interest during construction up to a maximum of US$4.4 million, and the US$2.5 million foreign exchange component of EPMB's incremental permanent working capital needs. The financing plan also includes a loan of US$3.4 million from FFDU, which has already been contracted, to support initial project costs during 1985 and 1986 and includes a grant from the Department of Atlantico totalling US$4.3 million equivalent. Assurances were obtained from EPMB that no later than January 31, 1986, EPME would enter into an agreement with the Department to this effect. EPMB would contribute a total of US$9.9 million. Of this amount, about US$3.7 million would be used to meet incremental working capital needs and about US$6.2 million would finance project investments beginning in 1987, when EPMB's financial position is expected to have improved. To ensure that these funds for project investments would be made available, FFDU has provided EPMB and the Bank with a letter indicating its intent to cover any shortfall with an additional loan. Project Imnlementation 48. Project implementation would take place over six years with comple- tion expected by mid-1991. It in fact began in February 1985 with EPMB's purchase with FFDU funds of pipes for the transmission main and 20,000 water meters. Contracts for the installation of transmission mains and the storage tank have already been awarded and bids for other important items (pumps, water meters and vehicles) are scheduled to be issued in early 1986. 49. Continuity of management staff and EPMB's policies is vital to the rehabilitation process and to the success of the project. To this end, assurances were obtained from EPMB and the Government that EPMB would maintain continuity and a minimum of turnover in the management of the company, and assure an adequate level of competence of its management staff. 50. Draft terms of reference for technical assistance associated with the project's institutional development component have already been prepared and agreed upon by EPMB and the Bank. Responsibility for the administration of this component would rest with EPMB's Planning Department under the direct  - 15 - supervision of the General Manager. Assurances were obtained from EPMB that it would maintain a unit, with staff and functions acceptable to the Bank, in the Planning nepartment to coordinate this component of the project. The technical assistance would be likely to be provided mainly by local consultants who would employ foreign expertise in special areas. In view of lengthy local procurement proctedures, signature of contracts with the consultants selected for this component would be a condition of loan disbursement of all project components except for working capital. EPMB would give the Bank ample opportunity to comment on the consultant's recommendations and their implementation. All construction would be supervised by engineering consultants under the direction of EPMB's Construction Supervision Department. The signing of a contract for construction supervision with consultants satisfactory to the Bank would also be a condition of loan disbursement. 51. The public standpipe network in the south-western part of the city would be constructed in close coordination with neighborhood leadership organizations known as Juntas de Accion Comunal (JAC). Many of the JAC's have already indicated their desire to work with EPKB in selecting standpipe locations, maintaining and operating them, and collecting payments for water consumed. Each standpipe would be metered. Assurances were obtained during negotiations that, as a condition for providing water through standpipes, EPMB would enter into arrangements with JAC's assigning them responsibility for selection of locations for and proper maintenance of standpipes and establishing a mechanism for collection of payment on EPMB's behalf for water consumed. Procurement 52. Contracts awarded under the proposed project through international competitive bidding procedures (ICB) would account for about 50% of total project costs. Contracts for most equipment are expected to be won by foreign manufacturers while those for pipes, accessories and civil works are likely to be awarded to local firms. Qualifying domestic suppliers would be given a preference in bid evaluation of 15% of the c.i.f. bid price or the applicable import duty, whichever is lower. About 90% of the professional services required for the project are expected to be provided by local consultants. 53. Civil works contracts larger than US$1 million equivalent and good3 contracts larger than USS50,000 equivalent would be procured through (ICB). Local procedures acceptable to the Bank would be used to award contracts with estimated costs below these limits. Open bidding would be used for contracts between US$10,000 and US$50,000 and local shopping based on price quotations from at least three qualified local bidders for contracts of less than $10,000. The installation of water meters and house connections would be contracted directly by work orders to pre-qualified contractors at unit prices established by EPMB. Individual work orders would be limited to a ceiling of IJSS20,000 equivalent. Spare parts and chemicals, financed under the working capital component, would be procured through local shopping procedures or by directly negotiated purchase from one supplier (for chlorine  - 16 - products). The limits for prior review of bidding documents by the Bank (US$50,000 equivalent for equipment/material contracts and US$500,000 equivalent for civil works contracts) would result in a coverage of about 90Z of the total estimated value of goods contracts and about 50% of civil works contracts. The Government provided assurances at negotiations that import licenses for goods purchased under the project would be issued promptly by the Instituto de Comercio Exterior (INCOMEX). Disbursements 54. The Bank loan would be disbursed against: (a) 100% of foreign expenditures for all direct imports; 40% of local expenditures for imported equipment and materials procured locally and 40% of ex-factory cost of locally manufactured goods; (b) 40% of total cost for expenditures for the purchase of spare parts and chemicals purchased after March 1, 1985 and before December 31, 1987 up to a maximum of USS2.5 million equivalent; (c) 40% of total expenditures for civil works; (d) 100% of total expenditures for consulting services and training under the institutional development component; (para. 45(c)); (e) 40% of total expenditures for consultants for engineering services (para 45(d)); and (f) amounts due for interest on the Bank's loan up to a maximum of US$4.4 million. 55. For contracts whose value is less than USS20,000 equivalent, dis-bursement would be against statement of expenditures certified by EPMB. A provision for retroactive financing up to a total of $2.0 million from March 1, 1985 would be made to facilitate project start-up in view of EPMB's currently poor financial condition. In order to expedite project execution, a special account would be opened in Colombia's central bank with an initial deposit of up to USS2.0 million. The closing date of the loan would be December 31, 1991. EPMB's Financial Prospects 56. Measures taken by EPMB since late 1984 under its recovery program (para. 40) in five main problem areas have markedly improved its financial prospects. Operating costs are being stabilized with the dismissal so far of some 150 staff performing redundant tasks, and the strict control of overtime. An aggressive campaign has been mounted to connect and bill unregistered customers and to collect past due accounts, which has to date resulted in a 20% increase in monthly collections for water supply and sewerage services. Financial deficits of the public markets have been eliminated by cutting expenditures and collecting payment arrears. Rescheduling of past due debt owed to major domestic creditors of EPMB is being negotiated. And finally, EPMB obtained from the National Tariff Board in May 1985 an effective aggregate increase of about 10 percent in its tariffs above the 1.8 percent increase per month already in effect, and is the main beneficiary of a nearly 250% increase in municipal property taxes effected earlier in the year by the Municipal Council of Barranquilla.  - 17 - 57. While these measures will help EPMB to attain a balanced cash flow for 1985, the Company will have to continue to take financial adjustment measures over the project implementation period to develop a capacity to generate funds internally to cover a reasonable share of its future investment needs. The most important measures would include: substantial increase in solid waste tariffs; continued tariff and municipal property tax increases approximately in line with average domestic inflation rates; maintain tight control over operating costs, particularly for personnel; and limit strictly capital expenditures and long-term debt. To help ensure that these measures are achieved, assurances were obtained from EPMB that, for its water supply and sewerage operations as well as for the Company as a whole, it would take all actions necessary to generate sufficient revenues to cover operating and maintenance expenses, working capital needs, debt service requirements, including rescheduled payments to major creditors, and contributions of not less than 10% of capital expenditures starting in 1987, increasing to 30% by 1989. Assurances were also obtained from EPMB that it would not incur any additional long-term debt or undertake any capital expenditures in excess of US$200,000 equivalent per year without the Bank's agreement and would reschedule and then pay off its overdue debt with major creditors and suppliers in accordance with agreement subject to the Bank's approval, which would be a condition of loan effectiveness. 58. These financial policies need to be complemented by adjustments in EPMB's operations in order to achieve the financial performance sought. To help meet projected revenues, the project would include provisions for performance targets to increase the number of new water connections from about 97,000 in 1985 to about 160,000 in 1990, improve the proportion of billit:gs and property taxes collected from about 70% in 1985 to 90% in 1990, reduce personnel per 1000 connections from 10 in 1984 to 7 by 1986, and reduce the level of unaccounted-for-water from the present 44% to 34% by 1990. Assurances were obtained from EPMB that it would take all actions necessary to achieve these targets which would be jointly revised from time to time as required. Assurances were also obtained that EPMB would provide the Bank regularly with sufficient information to enable it to monitor EPMB's investment program, financial position and success in meeting performance targets. 59. In the past few years, EPMB's weak financial position has forced it to pledge a portion of its collections to commercial banks to secure long-term loans. The level of pledged collections is modest, about 20Z of EPMB's total collections, and is expected to be phased out gradually during project execution as these loans are repaid. In addition, as interest on the Bank loan is to be capitalized during this period, the Bank would effectively be in an inferior position vis a vis other creditors only from 1990 by which time improvements in EPMB's financial condition should have been realized. Given this, the Bank would not seek pari passu treatment with respect to such security as a condition of extending the loan. However, during negotiations EPMB agreed that loans secured by pledges would be repaid as they become due and that no further pledges conflicting with the Bank's negative pledge clause would be made following loan signing. Some short-term debt is also secured by pledged collections, though this does not conflict with the Bank's negative pledge clause and is a frequent practice in the sector. The proceeds from the working capital component or the Bank loan and additional revenues to be generated during project implementation are expected to permit  - 18 - EPMB to meet its future working capital requirements with a minimum of such pledging. EPMB thus agreed during negotiations that the proportion of total collections pledged to repay short-term debt would not exceed more than 5% from 1986. Project Justification, Benefits and Affordability 60. Host of the proposed investments would be used to repair, rehabili- tate and replace existing facilities and equipment and to assist EPMB in its efforts for institutional and financial reform. The benefits to be derived from the project are difficult to quantify realistically and therefore a specific financial and economic rates of return have not been calculated. They become apparent from the consequences of not doing the project, namely the continued (a) deterioration of EPMB's water facilities leading to more serious service interruptions like those experienced in April 1985 and again in June 1985; (b) poor management performance of EPMB making it impossible to mount the large medium- and long-term investments needed to provide acceptable water, sewerage and solid waste services to Barranquilla's population in the 1990s; (c) rationing and irregular water supply to most of Barranquilla's population; (d) increasing public health hazards as solid waste collection and disposal service progressively deteriorate; and (e) dependence of about 400,000 people, most of them belonging to Barranquilla's poorest, on often unsafe water purchased from vendors at high prices. The benefits from the project's alleviation of these circumstances are believed to be high and, on these grounds, the project would be financially and economically justified. 61. By 1991, about 600,000 additional people would have access to potable water from the project. About 400,000 of them would live in the city's southwestern zone belonging to the lowest income group. Of these about 100,000 would receive service through house-connections and 300,000 through public standpipes. Investments in solid waste would allow EPMB to reinstitute regular door-to-door service to some 50% of Barranquilla's population, put in place a regular clean-up system around public markets, initiate solid waste removal in some of the city's poor neighborhoods and make final disposal practices more sanitary. These investments would remove the public health hazard now created by the indiscriminate dumping of waste in empty lots and bring about more sanitary disposal of waste. 62. EPMB's new tariff structure recently approved by the National Tariff Board as a condition of loan processing will substantially increase both EPMB's revenues and the progressivity of its tariffs. The average tariff is now about Col$18/m3 (US$.13 equivalent), which is close to the estimated long-term average marginal cost for water in Barranquilla. A family in Barranquill-'s lowest income group would pay about Col$100 per month (US$74 equivalent) for a supply of 1Dm3, well within this group's capacity to pay, considering that the average monthly income of even a poor family exceeds Col$10,000. A family belonging to the highest income category would have to pay Col$670 for the same 10m . The new structure also provides important incentives for water conservation as the tariff becomes quite progressive for consumption above 30m3/month, independent of the socio-econo- mic status of the user. The public standpipe service to be provided in the city's southwestern part would significantly reduce the amount of family income spent on water; today water purchased through vendors can cost up to  - 19 - Col$1200/family/month and in extreme cases reach up to 10% of family income. Under the project, charges to be paid by public standpipe users would be about Col$50 and more consistent with a poor family's financial capacity to pay. Project Risks 63. Physical implementation of the proposed project carries little risk as the works themselves are simple and straightforward. Considerable risk exists, however, that the management continuity and political support needed to sustain the financial and institutional program cannot be maintained. A sensitivity analysis on the project demonstrates that a shortfall of more than about 20% in reaching any of the performance targets for tariff and tax increases, collection efficiency, operating costs, and the number of new water connections would prevent EPMB from generating sufficient internal funds to finance its investment program. However, the substantial measures already taken toward financial recovery (para. 56) as a condition of loan processing reflect considerable willingness of the authorities so far to take the difficult steps required to achieve EPMB's rehabilitation. Assumptions underlying the rate of rehabilitation of EPMB in coming years are also on the cautious side. The technical assistance in support of EPMB's rehabilitation, the regular joint reviews of agreed upon performance targets, and back-up arrangements to ensure availability of EPMB's project contribution (para. 47) should also help to yield an acceptable project risk level given the dangers of further deterioration in services in Barranquilla if the project were not undertaken. PART V: RECOMMENDATION 64. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve the proposed loan. A. W. Clausen President Attachments Washington, D.C. November 8, 1985  - 20 ANNEX I S^L.LLJ Pax*1 of 6 u ~~~~- MAL. ESIACIfS 4S _' NM - sstw unwim llalBW tUlZ I100ml ..A iI1lk iu" k LAT. &MICA A CM Icam AM ( q -4 0 SOX^ UNA|. 1136.9 AIN,t . 4UtALWLUL 350.5 330.5 355.. m m *m). *- 130.0 1ju53. 2144-. arv ouu im smut (lzuL_A OF OIL UqVY ) 353.0 493.0 6*0.0 61.6 1119 PIOUPITIN.ID-11AR (ISUAIu) 15734.i 21266.0 27515.0 cum 1IWLI CS 0Z OTTAL) 66.3 57.2 46.1 6717 47.3 1WLAZD ZN Illa me0 (NELL) 37.0 6TAT1ON*RT IOHLATZOU (NKM. 10.0 UUSLAI -SU 1.6 n IQ. U. 13.8 16.7 21.2 46.0 64.7 Mn IQ. W. w. u 43.0 60.7 75.6 91.1 16.5 POWUATUM SS 230C13 (3) 0-L1 TM 46.7 4.1 37.7 36.3 31.2 15-4 i3 50.2 51.0 56.6 57.1 41.5 65*30AmA13 2.9 2.7 3.6 4.2 7.2 POIUATION GUM AM CXS) TOM 3.1 3.0 2.0 2.4 1.4 11331 35.7 3.2 2.7 3.6 3.7 033 Kum 1413 CIa hogS) 47.2 33. 2J.0 30.9 23.4 *-; 351 lam CM T3006) 17.4 9.7 7.3 6.0 6.9 e_O66 U3000TIO Rag 3.3 2.6 l 2.0 1.3 ACPU3. IGIAL ( ) .. 115.4 192.8A UrsE CZ OF PARRIZD1 wAu) . 34.0 53.0 4133 Mu Of NM PROD. PO CAPITL (19ro-71.100) 100.0 99.0 117.0 109.6 109.1 f CAPu sumT OF CAL03136 (20f SX*MU UlS) 102.0 69.0 110.0 113.2 131.5 PUBINU CUIBS PM ) 45.0 46.0 37.0 69.4 92.4 or XW *1.36 AM PUmL 26.0 24.0 25.0 7d 34.2 34.5 WNILD CAMS 1-4) O3*13 9.4 6.6 3.0 4.6 4.7 Lln WlT. AX KM (t23n) 33.1 56.9 ".1 "a 67.2 NAgNT31M. 32 (VIM TOM) 93.5 10.3 33.0 59.7 53.3 A=S To San WYM Mo) 202*L 30.0 63.0 92.0 e 65.3 70.2 uUh 34.9 as.0 100.0 76.5 69 RURAL 6.8 26.0 79.0 c *4.2 57.0 UZ2RU tO ffrmDlbOUT. (Z OF POIUL*TZ TOUL .. 47.0 63.0 56.3 ".6 - gamy3 .. 75.0 100.0 j 73.4 65.9 3L. .. -J 4.0 E 25.s 47.6 ?OWLLT*O Pm 1161C0A. 2640.9 WM3.0 1710.0 / 1909.7 1070.A Mr. m mJIM u* 422.0.0 /r 730.0 500.0 601.2 76943 POP. is W1UAL U3 20.11 260.0 430.0 360.0 / 362.0 32n.3 UN .. 360.0 490.0 422.0 201.9 RUom .. .. .. 2716.7 4319.1 AUI 6 IIONS UD61171. 13 .. 22.9 29. . 27.5 20.0 T0TAL .. 1.67 . AVEAC 80. OF PIsO/M 0LL .. 1.8 .. D0*1 .. Z.4 . . . PiaNNIor DOiLLZISS WM S. 2O0*1 47.0 /h 56.1 . D333* 83.079 87.5 .. RURAL .07 13.2 .  - 21 - ANNEX I T A I L E 1A Page 2 of 6 COLOMIA - SOCIAL INDICAT0RS DATA SHEET COLOMBIA ERPERDICE GROuPS WElCITD AVERAGES) /a MOST (OT RECENT ESTIMTE) /b RECENT MIDDLE ZICOHE MIDDLE INTy- 1960Lt 197D/b unESTItA LAT. AMERICA CAR EUROPE ADJUSTED ECRIOLUIN RATIOS PRIMARY: TOAL 77.0 108.0 130.0 106.7 101.9 LALE 77.0 107.0 129.0 108.5 106.2 FEMu 77.0 110.0 132.0 104.6 97.5 SECONDARn: UOL' 12.0 25.0 46.0 64.2 57.5 HLEA 13.0 25.0 45.0 42.7 , 64.9 FEULE 11.0 24.0 51.0 44.9 50.0 VOCATMOAL (Z OF SECONDRYr) 30.8 /L 20.2 21.6 Id 13.3 21.0 PUPIL-TEACHER RATIO PRIM 38.0 38.0 31.0 29.9 25.1 SEODMDARY 11.0 17.0 20.0 16.7 19.1 PASSEGE CARSITUSANIID POP 5.7 11.2 16.6 /d 46.0 54.2 RADIO RECEIJERS/l1OUSD POP 125.1 104.3 131.7 328.3 170.7 TY REGC11ERS(TNDUSAUD POP 9.5 38.1 86.9 /c 112.4 149.3 NESPAPMRCK "A33T GENERAL INTEREST) CIALETIO PER THIUSAND POPULATIO 50.0 10.17 t1.0 51.1 97.0 CI111A ANEAL AXTA CAPTA .. .. 2.6 2.4 2.7 TOTO L R FORCE (TICUS) 4727.0 6353.0 9084.0 nUIL CPzRWT) 19.2 24.8 24.6 23.6 36.3 AICILZURE (PERWY) 51.6 37.9 25.8 /c 31.4 60.8 INDsR (PERWT) 19.2 21.0 21.2 7c 24.3 23.3 PARTXCIPATI0U RATE (PERCT) TOAL 30.0 Z9.9 33.0 33.5 43.1 MALE 48.8 45.1 49.4 51.3 55.1 FEMALE 11.5 14.8 16.1 15.9 31.4 ECONOMIC DEPCY RATIO 1.7 1.6 1.3 1.3 0.9 o DIS PCRCCNT OF RVATE ICM RECKEIVD BT RICHEST 52 or D 5uLI 61.2 /j 31.9 i HSSIIS 20S 07 RONSUECLUS 67.7 t 60.1 . . LODIWSr ZCS or HOUU EIS S 2.1 3 3.5 . LOUIS? 4020O UIUSEDS 6.8 1 0.1 -, TA S ESTIMATED ABSOLI P09RT INCONK LEVL (CUSS PE CAPIT) 11W .. .. 214.0 /d 288.3 RURAL .. .. 197.0 /d 165.3 ESTIMATED RELATIVE POVZE ITl LEEL USS PER CAPITA) URA .. .. 267.0 Id 519.8 Im7RL .. .. 122.0 7 359.7 ESTIMATZD POP. BELOW ABSOLUrg POVERTY INCE LVL (S) URUII .. .. 34.0 Id RURAL .. .. NOT AVALLAJZ .~~~~~~~~~~ . WT V NOT ALICAeE 1* The groop avrag for each indicator are populatio-wel5htd. arithetic mom. Coverae of cotntrie mog the indcatore depea on aD ailebility of data and is no uniform. /b Unlaes othbelae noted. Datca for 196 refer to an year bt_en 1959 en 1961; 'Data for 1970" between 1969 and 1971; ad data for "Not Recat Estlirt" botirnn 1981 and 1983. /c 1980; Id 1977; /a 1978; /f 1962; i 1973; lh 1964; /I Includiq teacher tcranxg at the certicry leve; a Econor _ ly acte popolation. JUNE. 1985  - 22 - ANNEX I PaRe 3 of 6 DEFINITIOS OF SOCIAL INDICATORS Noten Although the data aredwn frsaun som grnmly jdd she mast authortative nd reilable. it shoul also b noted thai they my not be intmtinally compsrtble becuse of the lack of standardiud deitons and conceps use by diffrent cumnri in collecing thge da The data are. nonmthues usful to decrnbe orders of mnanatude indicste trend. and charctenre cemtn major dilffeen betw en countri. Te ref eence groups re (II the sae country group of the subjct county nd (2 country group with somewhat higher avera income than the country group o thestUbjict cuntry tcefpt er -Higb Incorm Ol Exporters" grup ere -Middk Income North Africr and Middl Ea chosen beamuse of strongr socio-cultura alniites In the refee group dtu dti averaes ar population weightd arithmec means for each indintor and shown only when naority of the countnes n g roup has data for that indicator. Since te covarg ofcountrie among the indicators depends on the availabiUty ofdat nd aisnai unironn. caution must be excised in relaing avesps of one indicator to anoeher Thee avenzge are only usful In comparing the value otone mndicasor a a time among the country and reference groupL AREA (thousand sq.km.) Crudr Ak Rate (per thesuad- Number of livc births in the year Toral-Total surface ara compnsing land area and inland waters; per thousand or mid-year populauon 1960. 1970. and 1983 data. 1960. 1970 and 1983 dat. Crsdr Death Rut (per rthousnvd)-Number of deaths in the year Agrksul-Fstimate of agriculturd area used temporarily or per thousand or mid-year population; 1960. 1970. and 1983 data. permanently for crops. pastures. market and kitchen gardens or to Gres Rep_daia Rate-Average number of daughters a woman lie rallow. 1960. 1970 and 1982 dan. will bear in her normal reproductive period if she experiences present age-specific rertility rates: usually five-year avenges ending GN- PER CAPITA (USS)-GNP per capita estimates at current in 1960. 1970. and 1983. market pnces. calculated bv same conversmon method As World i P AwAeJrs. Annual fuhouzandsr-Anw"al num- Bank Atlas [ 1981-83 basis 1; 1983 data. ber ofacceptors ofbirth-control devices under auspices ofnational ENERGY CONSUMPTION PER CAPITA-Annual apparent family planning pro- rm. consumpaon of commercial pnmary energy (coal and lignite. Fanuai(p, Plamay-Uws (perent tePfswrd-ww.)--Thse prcen- petroleum. natural gas and hydro-. nuclear and geothermal cekc- tage of married women of child-bearing age who am practicing or tricity) in kilograms of oil equivalent per capita: 1960. 1970. and whose husbands are practicing any form of contaception. Wbmen 1982 data. of child-bearing age are generally women aged 15-49. although for sone countries contraceptsve usage is measured for other age POPULATION AND VITAL STATISTCS groups. Total P bpatim. M.Uid- Year (thzssn-As of July 1: 1960. 1970. FOOD AND NUTRITION and 1983 data. UranPpr ooof urban to total Index ofFood Poddo Per Capi (16971= 1I)-Index of per prJa Popn tiereon (perfent of rrald) Lnrc ma anet cotal capita annual production of all food commodities. Production population: different definstiona of urban areas mpdudes animal feed and seed ror agriculture. Food commodities ability or data among countnes: 1960. 1970. ard 19- 3 data. include primarv commodities (e.g. sugarcane instead of sugar) Poplatin P-je'iou which are edible and contain nutrients (e.g. coffee and tea are Population in year 2000-The projection of population for 2000. excluded); they comprise cereals. root crops. pulss. oil seeds. made for each economy separatelv. Starting with information on vegetabls, fruits. nuts. sugarcane ane sugar beets livestock, and total population by age and sex. fietlity rates, mortality rates, and livestock products. Aggregate production of each country is based international migration in the base year 1980. these parametr on natw;nal average producer price weights 1961-65. 1970. and were projected at five-year intervals on the basis of generalized 1982 data. assumptions until the population became stationary. Pr Coputa &5p ofCaris (prcent ofreqalroesn-C omput- Stationary popdartion-ls one in which age- and sex-spec'. mor- ed from calorie equivalent of net food supplies available in country tality rates have not changed over a long period. while age-specific per capita per day. Available supplies comprise domestic produc- fiertility rates have simultaneously remained at replacement level tion. imports less exports. and changes in stock. Net supplies (net reproduction rate = I). In such a population. the birth rate is exclude animal feed. seeds for use in agriculture, quantities used in constant and equal to the death rate. the age structure is also food processing. and losses in distribution. Requirements wer constant. and the growth rate is zero. The stationary population estimated by FAO based on physiological needs for normal activity size was estimated on the basis of the projected characteristics of and health considering environmnental temperature. body weights. the population in the year 2000. and the rate of decline of fertility age and sex distribution of population. and allowing 10 percent for rate to replacement level. waste at household level: 1961. 1970 and 1982 data. Population Momentrw-Is the tendency for poputation growth to Per Caeta Supply ofP1wein (grams per dqj-Protein content of continue beyond the time that replacement-levd fertility has been percapita net supply of food per day. Net supply of food is defined achieved: that is. even after the net reproduction rate has reached as above. Requirements for all countries established by USDA unity. The momentum of a population in the year t is measured as provide for minimum al;owances of 60 grams of total protein per a ratio of the ultimate stationary population to the population in day and 20 grams of animal and pulse protein, of which 10 grams the year t. given the assumption that fertility remaias at replac- should be animal protein. These standards are lower than those of ment lewel from year t onward. 1985 data. 75 grams of wtal protein and 23 grams of animal protein as an popuation Densit average ror the world, proposed by FAO in the Third World Food Per sqkm.-Mid-year population per square kilometer ( 100 t Supply: 1961. 1970 and 1982 data. tares) of total area 1960. 1970. and 1983 data. Per Capia Proein Supply frm Animl and Puke-Protein supply Per sqkm. agriultural kind-Computed as above for agricultural of food derived from animals and pulses in grams per day: 1961-65. land only. 1960. 1970. and 1982 data. 1970 and 1977 data. Aopulation AgeSirrncru (percetn-Children (0-14 yearsl. work- Cfid (ages 1-4) DeashRare(perrtousand)-Numberofdeathsof ing age(I 5-64 years). and retired (65 years and over) as percentage childrcn aged 1- years per thousand children in the samne age of mid-ycar population: 1960. 1970. and 1983 data. group in a given year. For most developing countries data derived Popuaton Growth Rate (peArcen-total- Annual growth rates of from life tables: 1960. 1970 and 1983 data. total mid-year population for 1950460. 19t60-70. and 197O-13. HEALTH Popution Growth Rate (percenrt-,rban--Annual growth rates Lie Epctancy t Birth (yearsn-Number of vcars a newbom of urban population for 1950-60. 1960-70. and 1970-83 data. infant would live if prevailing pattems of mortality for all people  ANNEX I - 23- Page 4 of 6 at the time of of its birth were to stay the same throughout its life; PApd-teader Rotio - primary. and secondary-Total students en. 1960, 1970 and 1983 data. rolled in primary and secondary levels divided by numbm of Woefsat Mat sA e (p. thuaaa)-Number Or infants who die tetcies in the corresponding klvels before reaching one year of ae per thousand live births in a given year 1960, 1970 and 19h3 data. CONSUMPTION Aces ea Safe Wtr (pfr- t pun)t _ d fsjq Cars (per tb._ad pop. J -Passenger cars con- r_al-Number of people tt-u. urban and rural) with reasonable prise motor car seating less than eight persons; excludes ambul- access to safe water supply (includes treated surface waal or atces hearses and military vehides. untrnated but unwcontmited water such as that from protectd Rieb Rect (pfr ea Jdp-pd I)-A types of receivers borhoks. springs and sanitary wells) as pcentags of their mqec- for radio broadcasts to general public per tholaund of population; tive populations. In an urban ar a public fountain or sandpost excludes ic-lnsed receivers in countries and in years when located not more than 200 meters from a house may be considered registration of radio sets was in effect; data for recent years may as being within reasonable aces of that house. In rural ares not be comparble since most countries abolished licensing. reasonable ac' would imply that the housewife or member of the houselhold do not have to spend a disproportionate part of the day TVRtv (pr h p.-TV vers for brost in fetching the family's water ncets. to gencral pubbc per thousand populaion; exckudes uncesetd TV A a. & Dupesai e .juiata.ajaesa~ mien receivers in countries and in years when regstratio of TV sets was Ace"s toxe &on Dipmfi (pertem of e hm o)-J s arb a efect. and rural-Number of people (total. urban. and rural) served by m excreta disposal as percentages of their respective populations. A"'Fa.g Cicd.tigw (per thnasu.dpepdti..i-Shows the aver- Excreta disposal may indude the collection and disposaL with or age circulation of -daily general interst newspaper.' defined as a without treatment, of human exereta and waste-water by water- periodkal publication devoted prinarily to recording geeral news. borne systems or the use of pit privies and similar installations It is considered to be 'daily' if it appamm at kast four times a week. Popak