Ghana - Water Sector Rehabilitation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-4972-GR MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 19.3 MILLION TO THE REPUBLIC OF GHANA FOR A WATER SECTOR REHABILITATION PROJECT MAY 18, 1989 This document has a restricted distribution and may be used by recipients only fa the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS (at appraisal-D%cember 1988) Currency Unit = Cedi (0) US$1.00 = 0228 (Official Rate) US$1.00 0 0330 (Free Market Rate a/) 01 million = US$4386 (Official Rate) 01 million = US$3030 (Free Market Rate a/) SDR 1.00 = US$1.30014 (The US$ISDR exchange rate used in this report is that of April 30, 1989) ABBREVIATIONS AND ACRONYMS AfDB African Development Bank ECG Electricity Corporation of Ghana GOG Government of the Republic of Ghana GnSC Ghana Water and Sewerage Corporation IDA International Development Association KW Kreditanstalt ffr Wiederaufbau ODA Overseas Development Administration (UK) VRA Volta River Authority FISCAL YEAR January 1 - December 31 1/ Foreign exchange bureau selling rate. FOR OFFICIAL USE ONLY REPUBLIC OF GHANA WATER SECTOR REHABILITATION PROJECT CREDIT AND PROJECT SUMMARY Borrower: The Republic of Ghana Beneficiarys The Ghana Water and Sewerage Corporation (GWSC) Amount: SDR 19.3 million (US$25 million equivalent) Termst Standard, with 40 years maturity Onlending Terms: SDR 13.0 million (US$16.9 million equivalent) would be onlent for 20 years, including a five- year grace period at the prevailing Bank interest rate. GVSC would bear the foreign exchange risk. SDR 6.3 million (US$8.1 million) would be passed to GVSC as equity to finance technical assistance and training. Financing Plan: GWSC US$ 18.8 million Austria US$ 19.5 million ODA (UK) US$ 14.6 million IDA US$ 25.0 million Other Donors US$ 47.1 million TOTAL US$125.0 million Economic Rate of Returns 152 Staff Auraisal Report: Report No. 7598-GH IBRD No. 21198 This document has a restricted distribution and may be used by recipients only in the performance of their oficial duties. Its contents may not otherwise be disclosed without World Bank authorization. M4EMORAUDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF GHANA FOR A WATER SECTOR REHABILITATION PROJECT 1. The following memorandum and recommendation on a proposed development credit to the Government of Ghana (GOG) for SDR 19.3 million (US$25 million equivalent) is submitted for approval. The proposed credit would be on standard IDA terms with 40 years maturity and would help finance a water sector rehabilitation project. The project would be cofinanced by the Government of Austria for SDR 15.0 million (US$19.5 million equivalent), ODA (UK) for SDR 11.2 (US$14.6 million equivalent) and other donors to be confirmed. 2. Backaround. The Ghana Water and Sewerage Corporation (GWSC) is responsible for potable water supply and sewerage services throughout Ghana. It is operationally divided into ten regions one of which, the region covering Accra and Tema, is dominant providing some 50Z of total revenues. The rapid decline of the national economy between the years 1978 and 1982 created a very difficult situation in GWSC. There was a depletion of professional staff; regular servicing and maintenance of facilities was severely hampered by shortages of spare parts, materials and funds for the purchase of fuel and other consumables. Coupled with the normal aging of facilities, this resulted in many of the water supply systems in towns and villages throughout the country becoming inoperative and almost all other systems operating below their design capacity. Long delays by Government in approving needed tariff increases were also a significant factor which contributed to the deterioration of GWSC's ability to meet demands for public water supply. Concurrent with the recovery of the national economy, GWSC is now in the process of recovering its organizational and financial capacities and restoring adequate water supplies to its consumers. At a water supply and sanitation conference held in Accra in September 1987, GWSC presented a five-year rehabilitation and development plan, the focus of which is restoring water services in urban and semi-urban areas and improving water supply services in rural areas. 3. Rationale for IDA Involvement. IDA's past involvement with GWSC (three projects since 1969) places it in a suitable position to act as a catalyst in assembling a %ell-conceived investment package, coordinating donor involvement and influencing sector policies and institutional development. Rehabilitation of existing assets and making full use of existing investments is consistent with the Government's Structural Adjustment Program. Institutional support to GWSC will help strengthen one of the key parastatal organizations singled out for monitoring by the State Enterprise Commission within the framework of the Structural Adjustment Program. Moreover, consolidating donor activities will facilitate the efficient management of GWSC's investment program. -2- 4. Prolect Objectives. The proposed project would continue the ongoing sector reforms started under the Technical Assistance and Rehabilitation Project, Credit 1342-GH, by assisting the Government to strengthen the water and sewerage sector entity, GWSC, to enable it to more effectively administer the sector. In specific terms, the project would aim to: (i) stringthen the managerial, financial and technical capabilities of GWSC both at headquarters and in the regions to enable it to effectively plan and implement a meaningful development program; (ii) improve GWSC's operating and maintenance ability; and (iii) improve GWSC's financial performance so that it may function as a viable institution. The project would also assist GWSC to: (i) reduce the levels of non-revenue earning water; (ii) increase the output of existing water systems by replacement of plant and equipment and by general system rehabilitation; and (iii) provide for the expansion of some systems and completion of others to further increase water availability. 5. Project Description. The project would comprise rehabilitation and high priority expansion of existing water supply systems, as well as institutional development. It would complement rehabilitation works being financed by the African Development Bank (AfDB), the Italian Government, Kreditanstalt fur Wiederaufbau (KfW) and Overseas Development Administration (UK) in the major urban centers of Accra-Tema, Sekondi- Takoradi, Cape Coast and Kumasi. Project components would include: (a) institutional support including technical assistance, studies, training, workshop facilities and spare parts, vehicles, computers, communication equipment and staff housing; (b) a manpower improvement program comprising recruitment, redeployment and training of GWSC staff; and (c) rehabilitationlexpansion of 37 systems in urban and semi-urban areas including nine regional capitals (the system serving the tenth regional capital, the Accra-Tema system, is being addressed under a separate project financed by the AfDB and Italy). The total cost of the project is estimated at US$125 million equivalent with a foreign exchange component of US$85.1 million (68% of total cost). A project cost summary and financing plan are shown in Schedule A. Project procurement arrangements and IDA Credit disbursements are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Ghana are given in Schedules C and D, respectively. A map showing the location of water systems to be improved under the project and the Staff Appraisal Report No. 7598-GH dated May 18, 1989 are attached. 6. Agreed Actions. Agreement has been reached with the Government and GWSC to: (a) implement a major staff recruitment and retrenchment program; (b) restructure the capital of GWSC; (c) adjust tariffs regularly to levels sufficient for GWSC to fully meet cash operating costs and debt service and to finance a significant part of its investment program from internally generated funds; (d) submit annually to IDA for review GWSC's rolling corporate plan and draft performance contract and regularly monitor GWSC's performance against agreed monitoring indicators; and (e) limit other investments during the project implementation period to those the viability of which has been established through appropriate feasibility studies. Conditions of credit effectiveness include implementation of the first phase of GWSC's manpower improvement program, execution of onlending and co-financing agreements and effectiveness of GWSC's capital restructuring program. -3- 7. Benefits. An adequate and reliable public water supply is essential to maintaining the health and welfare of the people and to supporting Ghhna's economic recovery. By rehabilitating existing plant and equipment and improving operational efficiency, the proposed project will improve water supply in many areas throughout the country. Institutional strengthenirl will enhance GWSC's ability to finance and implement needed investments as well as to effectively operate and maintain the rehabilitated systems. The internal economic rate of return is estimated to be 152, which is satisfactory. 8. Risks. Possible risks relate to GWSC's ability to generate sufficient internal cash flow to contribute the required counterpart funds and the capability of GWSC to satisfactorily implement a project of this size. However, project components to reduce the level of non-revenue producing water, improve financial management at the regional I-vel and substantially strengthen GWSC's Project and Construction Management Unit effectively mitigate these risks. 9. Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber B. Conable President Attachments Washington, D.C. May 18, 1989 -4- Schednle A REPUBLIC OF GHANA WATER SECTOR REHABILITATION PROJECT ESTIMATED COSTS AND FINANCING PLAN Estimated Costs a/ Local Foreign Total ---------US$ Million-------- Replacement of Plant and Equipment 0.9 4.1 5.0 Rehabilitation and Completion of Systems 6.9 16.3 23.1 Expansion of Systems 7.8 16.4 24.2 Buildings 4.3 3.0 7.3 Essential Equipment and Materials 0.7 7.9 8.6 Engineering, Studies and Technical Assistance 3.4 10.4 13.8 Staff Redeployment 4.0 - 4.0 Base Cost 28.0 58.0 86.0 Physical Contingencies 4.1 9.8 13.9 Price Contingencies 7.8 17.3 25.1 Total Project Costs 39.9 85.1 125.0 Financing Plan GWSC 18.8 - 18.8 Austria 2.7 16.8 19.5 ODA (UK) - 14.6 14.6 IDA 4.6 20.4 25.0 Other Donors 13.8 33.3 47.1 Total 39.9 85.1 125.0 A/ Excluding duties and taxes, from which GWSC is exempt. -5- Schedule B Pege 1 of 2 REPUBLIC OF GHANA WATER SECTOR RERABILITATION PROJECT PROCUREMENT METHOD AND DISBURSEMENTS Project Element Procurement Method Total ICB LCB Other N.A. Cost -----------(US$ million)--------- Replacement Plant and 2.7 3.3* 6.0 Equipment (supply and (0.7) (0.7) installation) Rehabilitation, Completion 8.7 9.8* 18.6 and Expansion of Water (0.7) (0.7) System (supply and installation) Rehabilitation, Completion 24.4 31.1* 55.6 and Expansion of Water Systems (civil works) Building Improvements 10.1 10.1 (workshops, stores, (0.4) (0.4) training centers, staff housing) Vehicles 4.0 4.0 Spares, Computers, 7.0 0.1 7.1 Communication and (4.0) (4.0) Laboratory Equipment, Tools, Chemicals and Meters Technical Studies 3.9 3.9 (3.9) (3.9) Technical Assistance 8.1 8.1 and Training (8.1) (8.1) Engineering 7.1 7.1 (7.1) (7.1) Staff Redeployment 4.6 4.6 TOTAL 46.9 10.1 63.5 4.6 125.0 (5.4) (0.4) (19.1) (25.0) Note: Columns may not add due to rounding. Figures in parenthesis are the respective amounts financed by the Association. * Includes amounts for items financed by bilateral donors and procured under their own procedures. Schedule L Page 2 of 2 Disbursemts Category Amount z (US$ million) 1) Equipment and mate=ials 4.8 100% of foreign supply and installation expenditures 2) Civil and building works 0.4 1002 of foreign expenditures 3) Technical assistance, training, 16.8 1002 technical studies and engineering 4) Refunding of project preparation 0.5 100% advance 5) Unallocated 2.5 25.0 Estimated IDA Disbursements IDA Fiscal Year g9 91 92 93 94 15 96 97 ---------------- US$ killion ---------------- Annual 1.0, 3.3 5.2 4.8 5.2 2.8 2.0 0.7 Cumulative 1.0 4.3 9.5 14.3 19.5 22.3 24.3 25.0 Schedule C REPUBLIC OF GHANA WATER SECTOR REHAILITATIN PROJECT Timetable of Key Project Processina Events (a) Time taken to prepares One year (b) Prepared by: GWSC with IDA assistance (c) First IDA missions November 1987 (d) Appraisal mission departures November 1988 (e) Negotiations: may 1989 (f) Planned Date of Effectiveness: August 1989 (g) List of relevant PCRs and PPARss Water Supply and Sewerage Project (PPAR No. 1683); Second Water Supply Project (PCR No. 4600). Schedule 0 Page 1 of 2 A. THE STATUS OF BANK GROUP OPERATIONS IN GHANA STATEMENT OF BANK LOANS AND IDA CREDITS (As of March 31, 1989) Amount In USS Million Loan or (less Cancellation) Credit Fiscal --------------------- Number Year Borrower Purpose Bank IDA Undisbursed ---- - ----- -- -------------------------- -------------------------- Ton loans and 18 credits fully disbursed 189.72 229.41 1009-CH 80 Ghana Volta Region Agr. Dev. 29.50 0.92 1342-0H 83 Ghana Water Supply TA 13.00 1.69 1373-OH 83 Ghana Energy Project 11.00 7.01 1435-GH 84 Ghana Export Rehabilitation 40.10 1.45 F00901H 84 Ghana Export Rehabilitation 35.90 2.82 1436-GM 84 Ghana Export Rehabilitation TA 17.10 0.11 1446-CH 84 Chana Petroleum Ref. Rehab. A TA 6.90 1.01 1498-OH 84 Ghana Second Oil Palm 25.0 15.35 1664-OH 85 Ghana Accra District Rehab. 22.00 7.81 1573-OH 85 Ghana RIC II 69.00 4.34 A003-GH 85 Ghana RIC II 27.00 0.14 1601-GH 85 Ghana Road Rehab. A Maintenance 40.00 11.91 A061-CH 85 Ghana Road Rehab. A Maintenance 10.00 8.90 1828-OH 86 Ghana Power System Rehab. 28.00 6.18 1653-OH - s Ghana Health 4 Education Rehab. 15.00 9.64 1872-GH 88 Ghana Industrial Sector Adj. 28.60 0.69 A913-GH 86 Chana Industrial Sector Adj. 25.00 1.36 1874-OH 86 Ghana Ports Rehabilitation 24.60 12.08 1744-OH 87 Ghana Education Sector Adj. 34.50 21.85 1759-OH 87 Ghana Northern Grid Extension $.30 1.72 1777-CH 87 Ghana SAC I 34.00 1.49 A025-GH 87 Ghana SAC I 81.00 8.35 A025-1-CH 88 Ghana SAC I 15.00 14.98 1778-CH 87 Ghana Struc. Adj. Inst. Support 19.80 6.81 1801-GH 87 Ghana Agricultural Svces. Rehab. 17.00 16.09 1819-OH 87 Ghana Petroleum Ref. A Dist. 15.00 16.11 1847-CH 87 Ghana Public Enterprise TA 10.50 9.16 1864-CH 88 Ghana Cocoa Rehabilitation 40.00 89.94 1858-OH 88 Ghana Transport Rehabilitation 89.00 54.62 1874-CH 88 Ghana Priority Works 10.60 8.78 1911-CH 88 Chana Financial Sector Adjust. 100.00 61.18 1921-CH 88 Ghana Mining Sector Rehab. 40.00 86.68 1946-OH 89 Ghana Telecomunicatlons II 19.00 16.91 1976-OH 1/ 89 Ghana Forest Res. Management 89-40 89.63 1996-CH 1/ 89 Ghana Private SME Dev. 80.00 28.81 TOTAL 189.72 1251.01 465.64 of which has been repaid 95.22 8.37 TOTAL now hold by Bank and IDA 94.50 1242.64 Amount sold 0.38 of which repaid 8.38 TOTAL undisbursed 0.00 465.64 465.64 1/ Not yet effective as of March 31, 1989. Schedule G Pge 2 of 2 8. STATEMENT OF IFC INVESTMENTS (As of March 31, 1989) Investmunt Fiscal Type of Number Year Obigor Suslnesm ln EquIty Total USI millon --. 777-G 84 Awhanti Goldf leid Minlng 27.5 - 27.5 Corp. 914-Gm 8 Kta Basin Onl 1 - 4.8 4.6 Exploration 978-GH 88 Canadian ogosu Minlng . 1.6 0.6 Resoureas Ltd. 798-Gm 89 Can~dian ogosu Mining - 8.6 8.6 Total gross comitmats 27.5 5.7 88.2 Less caneøllations, terminatione, repayments and sales 1.6 Total comitamt now held by IfC 27.5 T.7 81.8 Total undisbursd - - 10.6 離