Colombia - Second Bogota Water Supply Project

RTUR' Tol REPORRTS DES RESTRICTED WI|THN l Report No. PU-66a ONE WEEK This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views, INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF THE SECOND BOGOTA WATER SUPPLY PROJ'ECT COLOMBIA May 6, 1971 Public Utilities Projects Department  3 DESK CURRENCY EQUIVAIZNTS 2 '91% (as of January 1, 1971) J ' (see also paragraph 8.15) Currency Unit = Peso (Col$) US$1.00 - Col$19.10 Col$1.00 - US$0.05 Col$l million = US$52,360 IEASURES AND EQUIVALENTS 1 Aillimeter (am) 0.04 inches (in) 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) 2 = 0.62 miles (mi) 1 square meter (m ) = 10.8 square feet (sq ft) 1 hectare (ha) - 10,000 square meters 2 or 2.47 acres (ac) 1 square kilometer (km;) = 0.386 square miles (sq mi) 1 liter (1) 3 0.26 US gallons (gal) 1 cubic meter (m ) 3 35.3 cubic feet (cu ft) 1 million cubic meters (Mm3 = 811 acre feet (ac ft) 1 cubic meter per second (m /sec) = 31.5 million cubic meters per year or 22.8 million US gallons per day (Mgd) or 35.4 cubic feet per second (cusecs) ABEREVIATIONS AND ACRCNYMS CAR Corporacion Autonoma Regional de la Sabana de Bogota y de los Valles de Ubate y Chiquinquira (Regional Development Corporation) EABA = Empresa de Acueducto y Alcantarillado de Bogota (Bogota Water Supply and Sewerage Company) EEEB = Empresa de Energia Electrica de Bogota (Bogota Power Company) IFI = Instituto de Fomento Industrial (National Institute for Industrial Development) ISA = Interconexion Electrica S.A. Special District = Distrito Especial de Bogota (Special District of Bogota)  COLOMBIA SECOND BOGOTA WATER SUPPLY PROJECT TABLE OF CONTENTS Page No. SUMMARY AND CONCLUSIONS ............................... i 1. INTRODUCTION .......................................... 1 II. THE ECONOMY ......... ............... 2 A. Basic Data ......... .......................... 2 B. Urban Development ............................ 2 III. THE SECTOR .. 2 A. Organization .................................. 2 B. Investment Program ............................ 3 C. Role of Bank and Other Foreign Lenders .... ... 4 IV. BOGOTA AND ITS PRESENT WATER SUPPLY, SEWERAGE AND DRAINAGE FACILITIES ...... .................... 4 A. Background ................................... 4 B. Water Supply, Sewerage and Drainage .... ...... 4 V.* THE PROJECT..6 A. Description ................................... 6 B. Cost Estimates ............................... 7 C. Construction Schedule ........................ 9 D. Amount of Proposed Loan ...................... 9 E. Procurement .................................. 10 F. Disbursement ................................. 10 G. Administration ............................... 11 H. Power Aspects ................................ 12 I. Ecology ...................................,. 12 J. Sewerage, Drainage, Flood Control and Urban Development ..... ........... 13 VI. JUSTIFICATION .. ................ 14 A. Demand Forecasts and Investment Objectives ... 14 B. Selection of Proposed Project ...... ........... 15 C. Internal Financial Return ....... .............. 15 This report is based on the findings of a Bank mission in October and December 1970, composed of Messrs. J. Krombach and E. Wessels. The power aspects of the Project were reviewed by Messrs. E. Friedmann and M. Isla of the Bank.  TABLE OF CONTENTS (Continued) Page No. VII. THE BORROWER A. Organization and Management ..... ............. 15 B. Operations ............ ....................... 16 C. Management Systems ....... .................... 16 D. Audit .1....................................... 17 VIII. FINANCE .............................................. 17 A. Financial Position ............. .............. 17 B. Water and Sewerage Charges ....... .. .......... 18 C. Past Earnings ............... ................. 19 D. Financing Plan ............... ................ 19 E. Future Finances .............. ................ 21 IX. RECOMMENDATIONS ........................................ 21  LIST OF ANNEXES AND MAPS ANNEXES 1. Existing EAAB Facilities, First Project and Present Operations 2. Bogota Water Resources Development Plan 3. Chingaza Scheme 4. Technical Details of Proposed Project (Chingaza-I and related works) 5. Project Cost Estimates 6. Construction Schedule 7. Investment and Lcan Disbursement Schedules 8. Demand and Supply Projections 9. Cost-Benefit Analysis 10. EAAB Organization Chart 11. Water Tariffs 12. Balance Sheets 13. Income Statements 14. Sources and Applications of Funds 15. Notes on Financial Statements MAPS 1. Bogota Water Resources Development 2. Chingaza Scheme and Bogota Water Distribution, Sewerage and Flood Control Plan   COLOMBIA APPRAISAL OF THE SECOND BOGOTA WATER SUPPLY PROJECT SUMMARY AND CONCLUSIONS i. This report covers the appraisal of a water supply project for Bogota, the capital of Colombia, for which a Bank loan of US$88 million equivalent is proposed. The borrower would be the Empresa de Acueducto y Alcantarillado de Bogota (EAAB), an autonomous public enterprise owned by the Municipality of the Distrito Especial de Bogota (Speciatl District) and in charge of the Special District's water supply, sewerage and drainage services. ii. In 1968 EAAB received a US$14 million Bank loan (536-CO) for the First Bogota Water Supply Project, which has been proceeding very satisfac- torily and is expected to be completed on schedule in 1972. Because of some additions to the original program that have doubled (at a small addi- tional cost) the capacity provided by the First Project, it: will cover de- mand through 1976 instead of through 1973 as first planned.. iii. Starting with the first loan for Bogota, the Bank has become increasingly involved in the Colombian water supply and sewerage sector. This is reflected in a loan for Cali (682-CO in 1970), the proposed loan for Palmira, and loan requests for projects in various other medium-size cities. iv. The proposed Project is the second stage of EAAB's long-range water supply master plan and comprises the first phase of ithe Chingaza water diversion scheme, additions to the Bogota water distribution system, the supply of equipment, and engineering services. The major elements of the Project are: (a) a dam on the Chuza river in the Chingaza area, a previously almost inaccessible mountain range east of Bogota; and (b) a 39-km conveyance system, consisting of 33 km of tunnels and 6 km of pipe- lines, from the dam to the city. The exceptional length of these tunnels determines the six-year project construction period (1971-1976). V. The diversion of water to Bogota will increase considerably the hydroelectric power generation potential of the Bogota River since its average flow will nearly double after full development of the Chingaza scheme. The present flow is utilized by the Empresa de En,ergia Electrica de Bogota (EEEB) in its 550-MW power generation system, developed since 1960 with substantial Bank assistance. Because of these iimportant power benefits, EEEB has agreed to make a financial contribution to the Project. Studies are under way to analyze the implications of the Chingaza water diversion on the Colombian power generation program. vi. EAAB's water supply master plan is closely coordinated with its sewerage and drainage master plan, started in 1965. The objectives of these master plans are to (a) eliminate the deficiencies in water supply, sewerage  - ii - and drainage services, which had not kept pace with the rapid growth of Bo- gota (b) assure, in adequate stages, additional water supply capacity to keep ahead of the increasing demand; and (c) provide a basic water distribu- tion, sewerage and drainage grid in undeveloped areas of the Special District which would help to guide future growth in accordance with Bogota's urban de- velopment plan. As Executing Agency for the current UNDP Urban Transport and Development Study for Bogota, the Bank is helping the national and local au- thorities to coordinate planning and prepare high-priority urban projects. vii. The Project is needed to prevent a water supply deficit in Bogota after 1976, and is the least-cost alternative for the next supply scheme after the First Project. The internal financial rate of return is expected to be 14% for the water supply and sewerage program of which the proposed Project is the main element. viii. The total estimated cost of the Project is US$118 million, includ- ing interest during construction on the Bank loan. The proposed Bank loan of US$88 million would cover (i) the full estimated foreign exchange cost of all civil works and equipment supply contracts, including contingencies, of US$70.6 million, (ii) US$3.1 million of the cost of engineering, repre- senting about 50% of the total engineering cost, and (iii) interest during construction on the Bank loan, of US$14.3 million. ix. EAAB's total construction expenditures during the period over which the proposed Bank loan would be disbursed (1971-1977) are estimated at Col$5.3 billion (US$228 million). These expenditures would be financed by internal resources (49%), the proposed Bank loan (39%), the undisbursed portion of Loan 536-CO and the joint loans for the First Project (4%), EEEB's contribution (5%) and local borrowing (3%). Thus, although the pro- posed Bank loan would cover 85% of the cost of the Project (excluding in- terest during construction), a major portion of EAAB's total construction ex- penditures would be covered from its own cash generation and other local sources. x. Except for minor works, procurement for all civil works and equip- ment supply contracts under the Project would be on the basis of interna- tional competitive bidding. Local equipment manufacturers would be given a 15% preference in comparing their bids with bids from foreign manufacturers. xi. EAAB has made considerable progress since 1968 in iniproving its operations and organization, and further improvements are expected under the proposed loan. Performance of the present management has been good, the financial position is sound, and earnings have been satisfactory with rates of return of 9% to 10% on the revalued rate base. The financing plan is acceptable and future earnings are expected to be satisfactory, with rates of return of 9% to 12% during construction, 7% in the first year of operation, and 8% or more thereafter. xii. The Project is a suitable basis for a Bank loan of US$88 million equivalent to EAAB for a term of 30 years, including 7 years of grace.  I. INTRODUCTION 1.01 Empresa de Acueducto y Alcantarillado de Bogota (EAAB), the autonomous water and sewerage public enterprise owned by the Municipality of the Distrito Especial de Bogota (Special District), has applied for a Bank loan to help finance its Second Water Supply Project. 1.02 EAAB received a US$14 million Bank loan (536-CO) in 1968 1/ to help finance its First Water Supply Project; joint loans f'or this project were made to EAAB by the US Export Import Bank (US Eximbank) and by the Kreditanstalt fuer Wiederaufbau of Germany, for US$4 million and DM2.4 million, respectively. EAAB's performance under Loan 536-CO has been good and it has made remarkable progress in improving its operations. 1.03 The First Project (Tibito-II scheme) will increase the capacity of Bogota's water supply system by 150% (from 5.5 m3/sec to 13.5 m3/sec), sufficient to eliminate the present supply deficit and keep ahead of demand through 1976. This capacity increase is twice as large ast was expected at the time of project appraisal because small additions to the catchment works (partial regulation and diversion of the nearby Teusaca RiLver) will assure a higher average raw water yield at Tibito and will permit the scheme to be operated almost continuously at its peak capacity. These additions to the First Project account for some of the cost increase from Col$310 million and US$17.3 million to Col$525 million and US$18.5 millioni, an increase of 70% and 7%, respectively. Most of the First Project's cost increase was caused by additional distribution works and local engineering services, as well as the higher-than-estimated cost of preparatory wor]ks for the Second Project (technical investigations, access roads). Nevertlheless, due to the large capacity increase resulting from the low cost additions to the First Project, Tibito-II has become even more attractive than originally assumed and has allowed EAAB to postpone the next supply increment from 1974 to 1976 (Annex 1 and Map 2). 1.04 Implementation of the First Project is well advanced: 75% of the originally programmed works was completed by 1970 and most of them will be commissioned by September 1971; completion of the full expanded project is scheduled for 1972, within the original closing date (June 30, 1972). 1.05 With completion of the expanded Tibito-lI scheme, all water resour- ces in the Bogota river basin upstream of Bogota city will have been fully developed for water supply purposes, to the extent this is economically just- ified at this time. The next supply scheme will therefore require diversion of water from outside basins to Bogota. This is the objective of the Chin- gaza scheme, of which the first stage (Chingaza-I) is the main element of the proposed Project. 1/ Reports Nos. TO-639a and P-597 of May 6 and 16, 1968, respectively, Loan Agreement dated June 3, 1968.  -2- This report is based on the findings of a Bank mission in October z,ti.l Dezenmber 1970, composed of Messrs. J. Krombach and E. Wessels. The pow- -r ispects of the Project were reviewed by Messrs. E. Friedmann and M. Isla ol '. Bank. A feasibility study for the Project was prepared by Ingetec LH iA. a Colombian consulting firm, in cooperation with foreign experts. II. THE ECONOMY A. Basic Data >101 Colombia, occupying an area of some 1.15 million km2, has a popullation of 22 million. The population growth rate over the past two deailes has been 3.3%, one of the highest in Latin America, which averaged '.9G Due to rural migration, the country's urban growth has been twice that rate (5% to 8%). 2.02 Annual growth of the gross domestic product (GDP) has increased fronu ;iround 5% in the early 1960's to 7% by the end of the decade. The GDP Was Col$96 billion in 1968 (US$300 per capita), of which 31% was con- tributed by agriculture and 17% by manufacturing industry. A severe constraint on the growth of the economy has been imposed by cyclical swings in the capacity to import caused by fluctuating world market prices for coffee, Colombia's major export commodity. To reduce this dependence on coffee, other exports are being promoted and have shown an impressive growth from US$100 million in 1964 to US$240 million in 1969 (compared with US$350 million of coffee exports in 1968/69). B. Urban Development 2.03 At present, urban population is about 57% of the total, compared with less than 40% in 1960. The government's urban development policy, set out in its 1970-1973 Economic and Social Development Plan, is intended to induce some reasonable balance in the growth rate of the various regions and cities. The long-term objective is to reduce the rate of migration to the large cities, including Bogota, by fostering the growth of the medium and smaller cities. III. THE SECTOR A. Organization 3.01 The Colombian water supply and sewerage sector comprises three major groups: (i) The larger cities (population above 50,000), of which 21 have organized their own municipal Empresas (public enterprises) to provide public services. These, especially the larger ones, are generally well run. Bogota has separate Empresas for water supply and sewerage (EAAB), power, telephones and public trans- port.  (ii) The smaller cities (population between 2,500 and 50,000), of which 750 have water supply and sewerage systems tnder the con- trol of the Instituto Nacional de Fomento Municipal (INSFOPAL), a unit of the Ministry of Health. These systems are run on a regional cooperative basis and have required substantial finan- cial support from the government. Their administrative compe- tence is usually poor. (iii) The rural communities (population below 2,500) where the Instituto Nacional Para Programas Especiales de Salud (INPES), another unit of the Ministry of Health, has embarked on a program to improve the poor sanitary conditions. 3.02 National agencies with important functions in the sector are: The Fondo Nacional de Proyectos de Desarollo (FONADE), for Einancing and administration of feasibility studies; the Servicio Nacional de Aprendizaje (SENA), for vocational training; and the Asociacion Colombiana de Acueductos y Alcantarillados (ACODAL), an association of sanitary engineers. B. Investment Program 3.03 The relative importance of the three groups in th,e sector, and the sector investment program and financing plan are shown in the government's 1970-73 Plan (see paragraph 2.03) as follows: Actual Forecast Expected Total % served (1966-69) (1970-73) Increase Million Water Sewerage ----billion Col$---- Z --------POPULATION--------- ----------INVESTMENTS----- Empresas 7.5 85 70 1.6 3.2 100 INSFOPAL 6.0 55 50 0.4 1.1 175 INPES 8.5 25 30 0.1 0.4 300 Total 22.0 43 49 2.1 4.7 125 --------SOURCES OF FUNDS- Own resources and local bonds 0.7 1.6 130 Government budget 1.1 1.8 65 Foreign loans 0.3 1.3 335 Total 2.1 4.7 125 3.04 Government budgetary assistance will concentrate on the smaller and rural systems. Services in the larger cities are expected to become gradually self-supporting because their per-capita costs for system improve- ments are generally below those of the smaller communities, while higher per-capita income permits the charging of adequate tariffs. These cities also offer the best hope for institutional improvements in the short term.  C. Role of Bank and Other Foreign Lenders 3.05 Starting in 1965, the Bank has become increasingly involved in the Colombian water supply and sewerage sector as a whole. So far, it has made two loans totalling US$32.5 million, for Bogota (536-CO) and Call (682-CO). Besides the current loan proposals for Bogota and Palmira, it is expected that loan requests for projects in a group of several other medium cities will soon be processed. The Bank's knowledge of the sector has been enhanced through the sector review included in the 1970 preinvestment survey for Coloui- bia (Report Number WH-200a, dated November 1, 1970). 3.06 Other foreign lending agencies that have provided financing to the sector are the Inter-American Development Bank (9 loans totalling US$43 mil- lion), US-AID, US Eximbank and the German Kreditanstalt. IV. BOGOTA AND ITS PRESENT WATER SUPPLY, SEWERAGE AND DRAINAGE FACILITIES A. Background 4.01 Bogota is the capital of Colombia and its main administrative, industrial, commercial and educational center. The city's present 2.5 million population represents 12% of the total population of Colombia and 46% of that of the four largest cities (the others are Medellin - 1.4 million, Cali - 1.0 million, and Barranquilla - 0.7 million). It has one of the country's highest urban population growth rates (close to 7% per year) and rural migration to the city has been higher than in any other region. As Executing Agency for the current UNDP Transport and Urban Development Study for Bogota, the Bank is helping the national and local authorities to coordinate planning and prepare high-priority urban proj- ects. 4.02 Bogota is situated on a plain, known as Sabana de Bogota, at an altitude of 2,600 m. This accounts for its natural attractions -- such as the cool climate, absence of tropical diseases (which exist in many other parts of the country) and ample space for expansion. Another important fea- ture is the availability of abundant and favorably located water resources for water supply and power generation purposes. All these attractions make it doubtful whether migration ta Bogota can be reduced substantially. But even if its growth rate would gradually decline, the city's population along with the demand for public services will continue to grow rapidly at least over the next decade. Except for the adequate power supply, achieved with substantial Bank assistance, there are still large deficiencies in public services. B. Water Supply, Sewerage and Drainage 4.03 At present, 95% of Bogota's population is served by the EAAB water distribution system (totalling 3,000 km) through 225,000 house connections and 400 public stand-pipes (supplying about 200,000 people); the remaining 5%  - 5 - depend on small local systems, water-ULuk t.rucks or tndlvidtial nupp lI.' The EAAB sewerage system (1,500 km of sewers and sewage interceptors) and drainage system (60 km of large drainage channels) serve 80% of the popula- tion; most of the remaining 20% have septic tanks, leavini only a very small portion of the population with no sewage disposal facilities. 4.04 The EAAB systems do not extend at present beyoncl the limits of the Sanitary District of Bogota, representing the urbanized 20),000 ha of the Special District. With high mountains to the south (where the remaining 160,000 ha of the Special District extend) and east, the city can grow only toward the west and north into areas of the Sabana outside the Special Di- strict, where the Corporacion Autonoma Regional de la Sabana (CAR), a nation- al agency, is in charge of planning and providing infrastructure. EAAB and CiR have begun to examine the possibilities of supplying water from the EAAB system to those communities in the future "Bogota MetropoLitan Area" where alternative individual schemes are either not available or too expensive. 4.05 Bogota's water supply system is based entirely on surface water catchments from the Bogota River and its tributaries. The system was de- veloped over the past 75 years, starting with the catchment of small streams flowing through the city, followed in 1938 by the Tunjuelo River gravity scheme and in 1959 by the first Bogota River pumpiLng scheme (Tibito-I). Although there is some groundwater in the Sabana, the qual- ity is poor and the quantity barely sufficient to supply a few small com- munities and to be used for some irrigation in the Sabana. 4.06 Except for a short period after 1959, Bogota has suffered from a continuous supply deficit since 1950. The two expansions of the Tibito-I scheme (in 1965 and in 1969, the latter under the emergency phase of the First Project) have only temporarily reduced this deficit. With a total supply capacity of 6.5 m3/sec and an estimated demand of 8.1 m3/sec, the supply deficit by the end of 1970 was 24%; compounded by insufficient dis- tribution capacity, it has affected 65% of the population (55% by low pressures and 10% by discontinuous supplies). 4.07 The supply deficit will be eliminated as the three major phases of the First Project are completed: the pipeline in mid-1971, and the expanded treatment and pumping works and the Bajo Teusaca works in 1972 (paragraph 1.03). Some deficiencies in the water service are likely to continue through 1974, however, because the distribution system can be rehabilitated and expanded only gradually (Annex 8). EAAB's existing systems and the First Project are shown on Maps 1 and 2; details are in Annex 1.  - 6 - V. THE PROJECT 5.01 The proposed Project is the second stage of the long-range Bogota water supply master plan developed in 1966-1968 in preparation of the First Bogota Water Supply Project. Its main feature is the diversion of water from the Chingaza area, a previously almost inaccessible mountain range 40 km east of Bogota city, through a series of tunnels and pipeline sections to the city. The long construction period for these tunnels determines the timetable for the entire Project, which has to be completed by 1977 to prevent a new supply deficit. Of the total estimated yield of 20 m3/sec, which could be diverted by gravity from the Chingaza area, the Project (Chiugaza-I) would develop at least the first 7.5 m3/sec and possibly up to 12 m3/sec (Maps 1 and 2, Annex 3). 5.02 Because the 39-km conveyance system cannot be staged, capital xequirements for this initial stage are high, but operating costs will be considerably lower than those of the existing schemes as no pumping (gravity transmission) and very little treatment (excellent raw water quality) are required. The Chingaza scheme will therefore be operated to provide the future base load for Bogota's water supply. 5.03 The diversion of water to the Bogota River will substantially increase its hydroelectric power potential. This will permit additional power generation in the existing plants of Empresa de Energia Electrica de Bogota (EEEB) on the Bogota River and might justify, particularly after -ompletion of future stages of the Chingaza scheme, installation of subs- tantial additional power generating capacity in the Bogota basin (Map 1, paragraphs 5.20-5.22, and Annex 2). A. Description 5.04 The Project consists of: (i) engineering for, and construction of, the first stage of the Chingaza Water Diversion Scheme and related dis- tribution works; (ii) provision of equipment; and (iii) engineering studies for future schemes in EAAB's systems. Its principal elements are as fol- lows (for details see Annex 4): (i) Chingaza Scheme (a) a dam on the Chuza River, above its confluence with the Guatiquia River; to create a reservoir of about 200 mil- lion m3; (b) a water conveyance system between the Chuza reservoir and Bogota, including about 33 km of tunnels with sev- eral vertical intake shafts (for en-route catchments in the Rio Blanco area) and about 6 km of pipelines;  - 7 - (c) the first stage of a water treatment plant with a ca- pacity of up to 13 m3/sec.; (d) about 35 km of access roads (in addition to the 76 km constructed under the First Project); and (e) expansion and rehabilitation of the water ,distribution system, including the installation of about 20 km of large-diameter and about 100 km of medium-diameter pipes, storage tanks with a combined capacity of about 200,000 m3, and booster pumping stations. (ii) Provision of Equipment (a) Operational, engineering and maintenance equipment, in- cluding water meters, maintenance vehicles, and commu- nications equipment, required by the expansion of EAAB's operations under the Project. (iii) Studies for Future Schemes (a) Engineering studies for future water supply, sewerage, drainage and flood control schemes in the Bogota metro- politan area; and (b) Studies of pollution control through treatment of sewage discharged by EAAB's sewerage system. 5.05 Subject to the satisfactory outcome of a special feasibility study on advancing certain works of the second stage of the Chingaza Scheme, it could be justified to include in the Project the run-of-the-river diversion from the Guatiquia River (a 3.5 km tunnel from the Guatiquia River to the Chuza reservoir, and related intake works). The earliest date at which such a proposal could be considered would be after receipt and evaluation of al- ternative bids for the tunnel works (with and without the Guatiquia tunnel), scheduled for September 1971, and a final decision may have to be postponed until construction of the Chuza-to-Bogota conveyance system is sufficiently advanced to confirm its actual cost and the availability of funds for addi- tional works. B. Cost Estimates 5.06 Estimated Project costs are summarized below; dletailed cost esti- mates and an explanation of the unit prices of the main components are in Annex 5:  -8- % of Total Col$ (million) US$ (million) Project Item Local Foreign Total Local Foreign Total Cost 1. Civil Works a) Chuza Dam 32 117 149 1.7 6.1 7.8 7.5 b) Chuza-Bogota Conveyance 145 489 634 7.6 25.6 33.2 32.0 c) Sapo Treatment Plant 33 32 65 1.7 1.7 3.4 3.3 d) Distribution Works 63 69 132 3.3 3.6 6.9 6.6 e) Access Roads 11 8 19 0.6 0.4 1.0 1.0 284 715 999 14.9 37.4 52.3 50.4 2. Equipment Supply a) Equipment for Installation under Civil Works 23 139 162 1.2 7.3 8.5 8.2 b) Other Equipment 6 94 100 0.3 4.9 5.2 5.0 29 233 262 1.5 12.2 13.7 13.2 Subtotal Civil Works and Equipment Supply 313 948 1 ,261 16.4 49.6 66.0 63.6 3. Land Acquisition 19 - 19 1.0 - 1.0 1.0 4. Engineering 103 21 124 5.4 1.1 6.5 6.3 TOTAL (Net of Contin- gencies 435 969 1,404 22.8 50.7 73.5 70.9 5. Contingencies a) Physical 99 241 340 5.2 12.6 17.8 17.1 b) Price 179 470 649 4.0 8.4 12.4 12.0 TOTAL PROJECT COST 713 1,680 2,393 32.0 71.7 103.7 100.0 6. Interest during construction on Bank loan 14.3 AMOUNT TO BE FINANCED BY PROPOSED BANK LOAN 2.0 86.0 88.0 5.07 The cost estimates were prepared by Ingetec and EAAB. Except for the dam and tunnels, they are based on current cost data of the First Project. For the dam, comparable cost data were available from several recent Colombian projects, especially the Bank-financed Chivor hydroelectric project (Loan 681-CO).  5.08 Special attention was given to estimating the tuinel cost, by far the largest and most critical item of the Project. The adopted cost estimates appear reasonable: they take into account available experLence from tunnel projects in Colombia and other countries and are about 10% above the estimates prepared by Jacobs A-ssociates, a U.S. consulting firm, in an independent cost study. llowever, because of the special characteristics of the Chingaza tunnels (exceptional length, small diameter, difficult access, high altitudes), there remains a more than usual uncertainty on the actual cost of these tunnels, which is reflected in the higher contingencies provided for this item. The cost estimates do not include the Guatiquia tunnel (esti- mated to cost US$2.5 million), becauise this tunnel would only be included in the Project, if the advancement of its construction can be shown to be eco- nomically justified and financially feasible. 5.09 Physical contingencies include 30% for the tunnels and 20% for all other works. This is considered sufficient to absorb possible cost increases due to higher-than-expected basic bid prices and to any addi- tional works required during execution of these contracts. Price contin- gencies have been calculated assuming total cost increases of 3% per year on the foreign (expressed in US$) and of 8% per year on thie local (expressed in Col$) costs. These assumptions are supported by experience with cost increases on similar civil works projects in Colombia over the past few years. 5.10 The estimated foreign cost portions of the civil works elements (72%-78% for the major civil works and 40%-55% for the others) take into account that Colombia is a net importer of fuel, cement, structural steel and other important construction materials. The higher percentage for the major civil works (dam and tunnels) reflects the special characteristics of these works, which will require highly mechanized construction methods. C. Construction Schedule 5.11 The construction schedule for the Project is shonm in Annex 6. The long construction period of six years (1971-1976), including bidding and mobilization, is due to the estimated time required to construct the 28 km main tunnel (Palacio-Rio Blanco). Construction of ithe other ele- ments of the Chingaza scheme (dam, short tunnels, pipelines, treatment plant) requires only two to three years and is therefore scheduled for the latter part of the 1971-1976 period. Access roads into the Chingaza area and distribution works under the proposed Project ar,e a continuation of those being constructed under the First Project, and will start after that project's completion in 1972. D. Amount of Proposed Loan 5.12 A loan of US$88 million is proposed to finance (i) the full esti- mated foreign exchange cost of all civil works and equipment supply contracts, including contingencies, of US$70.6 million, (ii) US$3.1 million of the cost of engineering, representing about 50% of the total engineering cost and (iii) interest during construction on the Bank loan, of US$14.3 million.  - 10 - The provision under (ii) would ensure that the amount of Bank financing for engineering would not be affected by the proportion in which consultants contracts are placed among local and foreign firms and would be consistent with the practice adopted in other recent Bank loans, to avoid discrimina- tion against Colombian consulting firms. E. Procurement 5,13 Except for minor works (civil works of US$50,000 or less and equip- ment supplies of US$5,000 or less), procurement for all civil works and equip- ment supply contracts under the Project would be on the basis of internation- al competitive bidding. For the purpose of evaluating bids, a 15% preference will be allowed for equipment manufactured in Colombia. This is not expected to substantially change the distribution of equipment supply contracts among local and foreign firms and its effect, if any, will probably be limited to a few items, such as certain electrical equipment and water meters. In any case, with equipment representing only 13% of the estimated Project cost, the effect of such preference on the Project cost will be negligible. 5.14 The contracts for construction of the Chuza dam and of the main tunnel cannot be divided and no local contractor is large enough to compete successfully for these contracts, except in a joint venture with a major foreign firm. In the bidding for the main tunnel contract, which has start- ed on March 2, 1971, construction of the two shorter tunnels has been includ- ed as an option (a further option in this bidding is the inclusion of the Guatiquia tunnel; see paragraph 5.05). A final decision on the scope of this contract will be taken when bids have been evaluated (bid opening scheduled for early July 1971). None of the other civil works contracts (construction of treatment plant, storage tanks, and access roads, and pipe installation) is likely to attract foreign firms and it is assumed that they will be carried, out by local firms. F. Disbursement 5.15 It is proposed to disburse the Bank loan against the estimated foreign exchange requirements of the Project, using as a basis for dis- bursement the following cost percentages: Civil Works (i) 100% of the downpayment on the main tunnel contract; (ii) 74% of the contracts for construction of the dam and of the conveyance system (except for the downpay- ment on the main tunnel contract covered under ()); (liM) 50% of tlhe contracts for construction of the treatment plant and for distribution works; and (iv) 40W of thie contracts for construction of the access roads;  - 1 1 - Equipment Supply (v) 100% of the CIF cost of all direct imports; Consultant.s Services (vi) 50% of all contracts with local and foreign consultants (up to a total amount of US$3.1 million); Interest on Bank Loan (vii) 100% of the interest and other charges accruing during the Project construction period. 5.16 Details of the proposed allocation of the proceeds from the loan are in Annex 5 and quarterly disbursements forecasts in Annex 7. G. Administration 5.17 EAAB's Construction Department would be responsible for the design work and supervision of construction, to be carried out by con- sultants or EAAB staff. Performance of the Construction 'Department under the First Project has been good. As in the First Project, local consultants, some in joint venture with foreign firms, will carry out the design work and supervision of construction for the major Project elements (dam, conveyance system, treatment plant). EAAB staff would be directly in charge of the other elements (access road construction, dis- tribution pipe installation, etc.). 5.18 The following engineering services for the Project have already been contracted, in consultation with the Bank, under the First Project: (i) design and preparation of specifications for the Chuza-Bogota convey- ance system (tunnels and aqueducts), by Ingetec (paragraph 1.06); (ii) investigations and preliminary engineering for the treatment plant, by a joint venture of Engineering Science International, a U.S. firm, and Sal- gado, Piedrahita & Escallon, a Colombian firm. The foreiLgn cost portion of expenditures under these contracts through 1971 is financed under Loan 536-CO and the joint loan from the US Eximbank. Engineering services still to be contracted are: (Mi) construction supervision of the conveyance system and the dam; (iv) design of the dam, for which Ingetec has done the preliminary engineering; and (v) final design and construction supervision of the treatment plant. The most urgent of these pending engineering services, supervision of the tunnel construction, is expected to be con- tracted before July 1971; the others are scheduled to be contracted not later than December 1971. 5.19 Agreement was reached during negotiations with EAAB that (i) con- sultants for the pending engineering services for the Project would not be contracted without the Bank's prior concurrence and (ii) the Bank would be given an opportunity to comment on all other important aspects related to engineering for the Project and for the other elements of EAAB's program  - 12 - during Project construction (design criteria, specifications, construction programming, etc.). H. Power Aspects 5.20 As indicated in paragraph 5.03, the Project has important power implications because the water diversion from Chingaza increases the hydro- electric power generation potential of the Bogota River downstream of Bogota city. This will permit additional power generation in EEEB's exist- ing hydroelectric plants on the Bogota River (total installed capacity 550 MW), constructed with substantial Bank assistance since 1960 (Loans 246, 313 and 537-CO totalling US$85 million) and could justify the future instal- lation of additional power generating capacity in the Bogota basin. Thus, the Project would be the first step of a coordinated water resources devel- opment plan in the Bogota region for water supply and power generation pur- poses. This plan envisages at least two other major diversion schemes (Sumapaz with 30 m3/sec and Suarez with 10 m3/sec) to be developed after Chingaza, which will further increase the power generation potential of the Bogota River (Annex 2). 5.21 The Colombian power entities, particularly EEEB and Interconexion Electrica S. A. (ISA), have fully recognized the important power implica- tions and benefits of these diversion schemes. EEEB and ISA have started, in cooperation with the National Planning Department, a joint analysis of the possible new hydroelectric developments in the Bogota basin, as part of the power generation program for ISA's interconnected system. 1/ 5.22 On the basis of a preliminary study by EAAB, EEEB and Ingetec to determine the present worth of benefits resulting from additional power generation in EEEB's existing plants with water from Chingaza (for details see Annex 9), EEEB has agreed to make a contribution of Col$ 280 million to the financing of the Project (see paragraph 8.14 and Annex 15, page 7). I. Ecology 5.23 The Project is not expected to have any adverse ecological ef- fects on the Guatiquia basin, where water will be impounded and diverted, or on the Bogota basin, which will receive additional water. 5.24 Guatiquia Basin. The diversion of up to 20 m3/sec will have a small effect on the Guatiquia River and a negligible effect on the river basins of which it is a tributary (Meta). The area to be submerged by the Chuza and Chingaza reservoirs (and possibly a third reservoir) is not in- habited nor used for any agricultural or forest purposes. Because of its 1/ ISA's interconnected system will include, besides ISA's own transmis- sion network and power plants, the systems of Bogota (EEEB), Medellin (EPM), Manizales (CHEC/ICEL), Cali (CVC/CHIDRAL) and the Northeast. ISA's interconnection network and first power plant (Chivor) are pre- sently under construction with Bank financing (Loans 575-CO and 681-CO).  - 13 - location, topograpy, altitude anid adverse cltimute, flwe Mttta 01teLs li,i poict% tial for such uses. At these high altitudes, plant growtlh Is extremiely .ilw and the thin grass cover must be protected from erosion, which would cause more rapid siltage of the reservoir and affect the excellent raw water qual- ity. 5.25 Bogota Basin. Although the average flow of the Bogota River down- stream of Bogota would be almost doubled after full development of the Chin- gaza scheme, the additional 20 m3/sec represent an increase of only 25% of the normal "winter flows" and are negligible in comparison with the recorded or potential floods of the river (10-year flood 700 m3/sec, 50-year flood 1,000 m3/sec). On the other hand, because of EEEB's water diversion for pow- er generation, the natural river bed in the first 25 km of the section down- stream of Bogota (including the touristically attractive Tequendama Falls) is almost dry during long periods of the year. 5.26 As would be true for any scheme for increasing Bogota's water supply, the water diverted by the Project will be transformed into sewage and increase pollution of the Bogota River unless sewage treatment plants are built. However, the Project has the important advantage of temporarily reducing river pollution because less water will be taken from the Bogota River at Tibito (paragraph 5.02), thus assuring a higher flow of unused water in the river. This might permit temporary deferment of sewage treat- ment works. 5.27 Studies and pilot plant operations to determine the most feasible alternative for the treatment of Bogota's sewage have been under way for several years. The timing for actually constructing sewage treatment facil- ities will depend largely on (i) the pattern and timing of urban develop- ment in the areas adjacent to the river in the Sabana, and (ii) the quality standards for the river section downstream of Bogota, which have to be estab- lished by CAR. During negotiations, EAAB agreed to undertake, as part of the Project, studies of pollution control through treatment of sewage discharged by its sewerage system into the Bogota river and to consult with the Bank upon completion of these studies on the resulting recommendations and on their im- plementation. 5.28 Cooperation between EAAB and CAR in determining the requirements of pollution control near and downstream of Bogota city, and of pollution prevention upstream of the Tibito water treatment plant, has been good. For example, based on CAR's recommendation supported by ]EAAB and the Bank, the government recently decided to relocate a steel mill project, a poten- tial major water polluter, which had been planned immediately upstream of the Tibito water intake. J. Sewerage, Drainage, Flood Control and Urban Development 5.29 EAAB's sewerage and drainage master plan, under construction since 1965, will provide a new system of large open-drainage channels with paral- lel sewage interceptors in the Sanitary District of Bogota (paragraph 4.04).  - 14 - i.xpenditures during 1971-1977 are expected to total Col$ 713 million. In conjunction with the program for installation of a basic water distribution grid under the First and proposed Second Water Supply Projects, this will permit full development of all areas within the Sanitary District under ade- (luate conditions. The water distribution program under the proposed Project is flexible and can be adjusted to any future growth pattern of the city. 5.30 Any development beyond the Sanitary District would require substan- tial additional investments for sewage, drainage and flood control works not included in the current master plan (Map 2). Some of these investments are likely to be needed before 1977, hence EAAB's investment program includes a reasonable provision of Col$ 400 million for these additional works. 5.31 A major expansion of the city toward the west (defined as the most feasible alternative in the recently completed Phase I of the UNDP study) will require regulation of the Bogota River along a 40-km section upstream of Alicachin (straightening the course and deepening the bed of the river), because under the present conditions large areas are frequently flooded. The river regulation project will presumably be carried out by CAR (most of the project area is located outside the Special District), but EAAB and the Mtnicipality are expected to participate in the preparation, and may have to contribute to the financing, of this project. VI. JUSTIFICATION A. Demand Forecasts and Investment Objectives 6.01 The main characteristics of Bogota and its present water supply situation are described in paragraphs 4.01 through 4.06. Water demand is expected to grow 9% per year -- from 8 m3/sec (255 Mm3) in 1970 to 14 m3/sec (460 Mm3) in 1977, the year the Project would be completed, and to 21 m3/ sec in 1982, the year the next increment of investment would be required. These forecasts assume no noticeable changes in the historic annual growth rates of population (6% - 7%), and per-capita consumption (2%) through 1980 (Annex 8). The population assumption, according to which Bogota's 1977 population would be 3.9 million, has been supported by several inde- pendent studies including the current UNDP/IBRD Transport and Urban Devel- opment Study. The per-capita consumption assumption is reasonable. 6.02 With these demand forecasts, the capacity increase provided un- der the First Project would be absorbed by 1976. To prevent a new supply deficit, EAAB and the Municipality are planning to have the proposed Proj- ect completed by the end of 1976. It would cover the increase in water demand from 1977 through 1982 (assuming an initial diversion of 7.5 m3/sec by the Chingaza scheme) and possibly through 1985 (assuming a diversion of 12 m3/sec, which would be achieved by adding the Guatiqufa tunnel; nt:u i aragrdphs 5.05 and 5.08). Details of the demand forecast and of the pro- gram for introducing future supply schemes are shown in Annex 8.  - 15 - B. Selection of Proposed Project 6.03 The long-range water supply master plan identified three major future schemes (Chingaza, Sumapaz and Suarez), which could cover demand for water in Bogota through the year 2,000. The Chingaza scheme is the most economical solution because its sources are relatively, close to Bogota (40 km), it has very attractive technical features (no pumpling, little treatment, availability of good reservoir sites), and there! are no competi- tive water and land uses (Annex 2 and Map 1). 6.04 The particular design for water diversion from the Chingaza area (tunnel conveyance system) and the proposed staged development up to the full potential yield of 22 m3/sec are the least-cost solutions at discount rates of up to 20%. The possibilities for staging were limited because only the 6-km pipeline sections (two parallel pipes) of the 39-km convey- ance system could be staged and because the selected tunnel diameter (3.6 m) is the minimum feasible for construction (Annex 3). C. Internal Financial Return 6.05 The internal financial rate of return for development of the Chingaza scheme up to a capacity of 12 m3/sec is 14%. It was computed as the discount rate equalizing the present values of the net benefits attrib- utable to the scheme and its capital costs. This return is less than the full economic return, which includes benefits that are at present unquanti- flable such as public health, general improvement of the urban environment, and temporary reduction of river pollution (to the extent ithat these benefits are not included already in the charges for water and sewerage). Also excluded are benefits for which adequate information is nort available, such as increased reliability of water supply and related savings in building costs (no further need for roof tanks and individual booster pumping facil- ities, except in high-rise buildings), irrigation benefits for farm land in the Sabana, and power benefits resulting from possible new hydroelectric developments in the Bogota River basin. Annex 9 gives details on the cal- culation of the internal financial return. The rate of return was found to be relatively insensitive to higher operating costs or :shortened physical life. A rate of return in excess of 12% would be achieved even if demand should be 20% below forecast, or if capital costs increase by 20%. VII. THE BORROWER A. Organization and Management 7.01 EAAB, the proposed borrower, is an autonomous public enterprise owned by the Municipality of the Special District. It was organized in 1955 under a decree of the Municipal Council, and is in charge of planning, building and operating all water supply, sewerage and drainage facilities in the Special District.  - 16 - 1.02 EAAB is governed by a seven-member Board. Three Board members re- p.resent the Municipality, one the Banco de la Republica, and three the hold- ers of EAAB's bonds. The Board takes all major decisions and appoints the general manager, who is the chief executive officer, and the four department managers. The present general manager has been in charge since 1969; his performance and that of the other key FAAB staff have been good. 7.03 The organizational structure (Annex 10) is functional and adequate. EAAB had about 1,700 employees in 1970, of which 140 were professionals, 600 administrative and skilled employees, and the rest unskilled. The general level of competence of the staff is adequate. 7.04 Under Loan 536-CO, EAAB agreed (a) to inform the Bank of any proposal to appoint a new general manager or new department managers and give the Bank the opportunity to express its views on such appointments; (b) to give the Bank the opportunity to comment on any proposed substantial reorganization of EAAB; and (c) that any amendment in the municipal decree concerning the constitution of EAAB, without the Bank's prior agreement, would constitute a default under the Loan. These provisions have been fully complied with, and they would be repeated under the proposed loan. B. Operations 7.05 EAAB has made remarkable progress in improving its operations over the past three years: (i) Unaccounted-for water (difference between volume of water produced and billed) has been reduced from 32% to 24% (ii) Monthly billings and collections have increased by 121% and 133%, respectively (reflecting the 80% tariff increase in mid-1968 and a reduction of uncollected billings from 7% to 2%) (iii) 115,000 water meters have been installed, 80,000 in existing connections (52% of all connections in 1968) and 35,000 in new ones; as a result, metered consumption has increased from 81% to 92% of the total. C. Management Systems 7.06 Billing and collections are well organized. Budgeting should be improved and EAAB has agreed to introduce a more effective budget control system by the end of 1971. The accounting system is satisfactory, and dur- ing 1970 EAAB made considerable progress in improving accounting reports. Thle principal remaining deficiency is in the revaluation of fixed assets; which, while carried out for rate of return calculations, is not reflected in the financial statements and does not cover the local cost component of work in progress. In connection with the proposed loan, EAAB has agreed to present in its financial statements, starting with fiscal 1971, fixed  - 17 - assets (including work in progress) revalued with the same index used for rate of return calculations (paragraph 8.03). D. Audit 7.07 EAAB's financial statements are audited by a Colombian firm, Fermin Paba & Cia. This arrangement is satisfactory. EAAB also has an internal auditor appointed by and reporting to the Municipality. The following agreements under Loan 536-CO relating to the aud:Lting would be repeated under the proposed loan: EAAB will have its accounts audited by independent auditors acceptable to the Bank and will send the auditor's report to the Bank no later than four months after the end of the fiscal year. VIII. FINANCE 8.01 EAAB's finances have remained generally sound since Loan 536-CO was made in 1968, although the current position was tight in 1968 and 1969. Earnings have been good, with rates of return on the revalued rate base of over 9%. Gross fixed assets have grown by about 70%, and about 50% of this rapid expansion was financed by internal resources. EAAB's financial posi- tion and earnings are expected to remain satisfactory during and after the construction period. A. Financial Position 8.02 1968-1969 balance sheets, based on audited statements, and a preliminary balance sheet for 1970 (summarized below), are shown in Annex 12. Long-term capitalization as of December 31, 1970, was provided principally by equity (74%), with long-term debt, deposits and provisions for social benefits accounting for the remaining 26%. Annex 15 gives details on the composition of liabilities and equity and other important notes to the financial statements. Col$ US$ Million Million ASSETS Current assets 130 6.8 Net fixed assets 2,016 105.5 Other assets 36 1.9 2,182 114.2 LIABILITIES Current liabilities 156 8.2 Deposits & provisions 37 1.9 Long-term debt (net) 481 25.2 Retained earnings & contributions 943 49.3 Revaluation surplus 565 29.6 2,182 114.2  - 18 - 8.03 Fixed assets in the above presentation are revalued using the official cost of living index. This method, which is also used for rate of return calculations, is reasonable and it would be required under the proposed loan. Additions to fixed assets in recent years have been sub- stantial; gross fixed assets at the end of 1970, expressed in 1967 prices, are 170% of the end-1967 figure. Further substantial additions are ex- pected in 1971-1972 in connection with the First Project. 8.04 EAAB's current position was tight in 1968 and 1969, but it has now improved. Current liabilities consist mainly of accounts payable by EAAB to contractors in connection with water supply and sewerage projects presently under construction. During 1968 and 1969, EAAB had difficulty in making timely payments to its suppliers and contractors, due to slow disbursements by the Instituto de Fomento Industrial (IFI), a government financial institution which is assisting EAAB in the financing of the local currency cost of its current water and sewerage investment program. Disbursements by IFI during 1970 have been punctual, allowing EAAB to meet its obligations on time, and accounts payable are now at a reasonable level. Current liabilities exceed current assets due to EAAB's tight con- trol of accounts receivable and inventories. B. Water and Sewerage Charges Water Tariffs and Derechos 8.05 EAAB's principal sources of revenue are water tariffs (they also cover sewerage) and charges known as derechos, collected from pro- perty owners and land developers (Annex 15). Water tariffs are subject to the approval of the Junta de Tarifas, the public utility tariff board of the National Planning Department. 8.06 Under Loan 536-CO, it was agreed that EAAB should earn a rate of return of at least 5% on its average revalued net fixed water supply and sewerage assets in operation until completion of the First Bogota Water Supply Project and 9% thereafter. EAAB's performance under this cove- nant is reviewed semi-annually, and compliance has been satisfactory. It would be repeated, except as stated below, under the proposed loan. 8.07 Due to the heavy cash requirements of EAAB during the period 1974-1977, the minimum required rate of return would be 9% up to 1973, and 10% between 1974 and completion of the Project. After the Project is completed, cash needs are expected to be adequately covered with a rate of return of 7 to 8%. The rate of return to be maintained after completion of the Project would be established at that time in agree- ment with the Bank after a review of FAAB's financial requirements (paragraph 8.17). 8.08 Average revenue from water tariffs in 1970 was Col$ 1.22 per m3 (US$ 0.25 per thousand gallons). A substantial tariff increase (ef- fective November 15, 1970) is expected to lead to an increase in 1971 of about 28Z in the average revenue expressed in US dollars (to Col$ 1.68 per m3 - US$ 0.32 per thousand gallons). This, together with as-  - 19 - sumed increases in average revenue of 8% per year in the period 1972-1977 (Annex 15), will allow EAAB to make a satisfactory contributiorn to the fi- nancing of the Project. 8.09 The tariff structure, as is customary in Colombia, is based on property values (Annex 11). Under Loan 536-CO, EAAB agreed to further simplify and improve its tariff structure. The new tariffsg are a sub- stantial step In this direction. During negotiations, EAA13 agreed to carry out periodic studies of its tariff structure and reviLew with the Bank the recommendations resulting from such studies. Other Charges 8.10 Customers pay the cost of the connection, including the cost of the water meter. Land developers are expected to install or pay for the installation of local networks (pipes of up to 12-inch diameter). A special property improvement tax, known as Valorizacion, is levied on all property owners benefiting from the sewerage master plan works. C. Past Earnings 8.11 Audited income statements for 1968-1969 and a preliminary income statement for 1970 are presented in Annex 13. Revenues increased by 55% over the period and expenses, other than depreciation, by 60%. Due to sub- stantial additions to EAAB's assets mentioned above, depreciation charges, which average about 2% of the value of gross fixed assets in operation, in-- creased by 95%. EAAB was able to maintain a satisfactory rate of return of 10% in 1968 and 9% in 1969 and 1970 - well in excess of the minimum of 5% required under Loan 536-CO. Debt service coverage was ample: in 1970, in- ternal cash generation was 2.3 times debt service. D. Financing Plan 8.12 The forecast of sources and applications of fund[s for 1971-1979 is shown in Annex 14. EAAB's construction expenditures duLring the period over which the proposed Bank loan would be disbursed (1971-1977) total Col$ 5.3 billion (US$228 million), including Col$ 2.4 billion (US$104 million) for the Project. 8.13 The proposed plan for financing these expenditures, summarized below, is satisfactory. Details on the assumptions for the financial projections are in Annex 15.  - 20 - Col$ US$ Billion Million % internal Resources: Internal cash generation 2.90 123 54 Valorizacion 0.35 15 7 Customer contributions 0.74 32 14 Less: debt service (1.21) (52) (23) increase in net current assets (0.13) (_6) (_3) 2.65 112 49 EEEB Contribution: 0.28 12 5 tiorrowing: Proposed Bank Loan 2.05 88 39 Loan 536-CO and joint loans 0.17 8 4 IFI 0.09 5 2 Bonds and other 0.06 3 1 2.37 104 46 5.30 228 100 8.14 Internal cash generation would be supplemented by proceeds of the Valorizacion tax, customer contributions and a contribution from EEEB (para- graph 5.22). The proposed Bank loan has been assumed to carry interest at a rate of 7-1/4%, and to have a term of 30 years, including 7 years of grace. The other borrowing (for assumed terms see Annex 15) is covered either by existing contracts or by firm commitments. 8.15 As stated in paragraph 5.09, construction costs include a provi- sion for price increases of 8% annually for local costs and 3% for foreign costs. Similar provisions are included in the projection of operating costs and revenues. The assumption has also been made that the government will follow its present policy of keeping the exchange rate flexible and that the present relation between internal and external prices will be maintained. T'o this end, the financial projections include an allowance for a 5% annual increase in the rate of exchange between the US dollar and the Colombian pe- so during 1971-1977. Projections after 1977 are based on constant 1977 prices. 8.16 Based on the above financing plan, EAAB would be able to carry out its proposed US$228 million program through 1977. However, to ensure that investments other than the Project would only be undertaken if ade- qut ite financing is avallable, the proposed Loan Agreement requires that c owii11it a:nnu.1 v wtlt the flank on its total investment program dur- Itish pk- poiAto. of construetton of the Project.  - 21 - E. Future Finances 8.17 Income statements for the period 1971-1979 are forecast in Ani- nex 13, on the basis of the assumptions shown in Annex 15. The forecasts show that EAAB's financial performance would continue to be good, withi rates of return of between 9% (1972) and 12% (1976). EAAB's rate base would be substantially expanded when the Project is transferred to fixed assets in operation in 1977. This would lead to a decline in the rate ut return to 7% in 1978 and 8% in 1979 (see also paragraph 8.07). Debt service coverage would be satisfactory at its lowest level (2.1 in 1971). 8.18 In connection with Loan 536-CO, EAAB agreed that it would not incur debt without the Bank's consent unless net income before interest and depreciation is at least 1.5 times the maximum debt service in any future year. This covenant has been repeated in the agreement for the proposed loan. IX. RECOMMENDATIONS 9.01 During loan negotiations, agreement was reached on the following principal points: (a) upon completion of pollution control studies, EAAB will consult with the Bank on the resulting recommendations and on their implementation (paragraph 5.27); (b) the Bank will be given an opportunity to comment on any proposed new appointment to the positions of gen,eral manager or department managers, as well as on any pro- posed substantial reorganization of EAAB (paragraph 7.04); (c) EAAB will earn a rate of return on its average revalued net fixed assets in operation of at least: 9% until 1973 mnd 10% from 1974 until completion of the Project, when an ap- propriate rate of return for subsequent years would be es-- tablished after agreement with the Bank (paragraphs 8.07 and 8.17); (d) EAAB will consult annually with the Bank on its total in- vestment program during the period of construction of the Project (paragraph 8.16). 9.02 The Project constitutes a suitable basis for a Bank loan of USS3 million for a term of 30 years including 7 years of grace. May 6, 1971   ANNEX 1 Pa,ge 1 of 7 pages COLOMBIA SECOND BOGOTA WATER SUPPLY PROJECT EXISTING FACILITIES, FIRST PROJECT AND PRESENT OPERATIONS All important data on Bogota's water supply, water distribution and sewer- age facilities, existing or under construction under the current First Project (financed under Loan 536-CO), are tabulated on pages 5 and 6, and statistics on EAAB's operations from 1968 to 1970 are summarized on page 7 of this Annex. The following notes explain the background for these data (see also flaps 1 and 2). Water Supply: 1. The Bogota water supply system consists of: (i) the Tibito scheme, commissioned in 1959, with an initial capacity of 2.5 m3/sec, expanded to 5.0 m3/sec in 1965, and currently being further expanded to 12.0 m3/sec (under the First Project); (ii) the Tunjuelo scheme, commissioned in 1938 and expanded in 1953, with a capacity of 1.2 m3/sec; and (iii) several small schemes (San Cristobal, San Francisco, La Osa, Arzobispo, La Vieja), developed between 1897 and 1966, with a combined capacity of about 0.5 m3/sec. 2. The Tibito scheme is based on a water intake from the 3ogota River, 35 km north of the city, upstream of the point where industrial and domestic wastes start to pollute the river. The dogota River is par- tially regulated by three reservoirs in the upper river basin (totalling 890 Mm3). These reservoirs belong to, and are operated by, the EEEB and CAR, but a joint conmission of EAAB, EEEB and CAR is coordinating the releases from these reservoirs according to the needs of the three entitics. Because these needs are sometimes conflicting, it was not expected at the time of appraisal of the First Project that EAAB could be assured an ab-- straction of more than 8 m3/sec, of the 12 m3/sec total annual average flow at Tibito. However, further studies in 1968/69 resulted in the Bajo Teusaca scheme which will partly regulate, and divert to Tibito, the nearby Teusaca tributary of the Bogota River. This will permit to operate the Tibito scheme continuously at its full design capacity of 12 m3/sec (Map 2).  ANNEX 1 Page 2 of 7 pages 3. The water pumping and treatment plant at Tibito (conventional treat- ,e.It: flocculation-sedimentation-filtration) was originally designed for 3 m31sec with a provision to double its capacity to 6 m3/sec by duplicating all installations. Ilowever, based on more advanced treatment design criteria, the First Project will increase the treatment capacity to 12 m3/sec (four times the initial capacity) by adding only 50% of new flocculation-sedimenta- tion capacity, replacing the rapid sand filters of the existing filter basins by dual filter media (anthracite-sand), and introducing more efficient oper- ating rules. The First Project includes also a second raw water pumping station (operating in parallel with the existing station) and a treated water booster pumping station operating over both transmission lines. The water transmission capacity, initially limited to 2.5 m3/sec under a gravity opera- tion of the 60-inch pipeline, has been increased to 4.7 m3/sec by booster pLumping on both ends of that pipeline (Tibito and Usaquen) and will reach 12 rLu3/sec after completion of the new 78-inch pipeline. 4. The Tunjuelo scheme is a gravity scheme, drawing water from the Regadera Reservoir on thle Tunjuelo River, 25 km south of the city, with a treatment plant (Vitelma) at the southern city limits. This treatment plant is directlv connected with the distribution system and serves most of the high lying areas along the eastern city limits. The Tunjuelo River Ls insufficiently regulated by the three small reservoirs of the EAAB (totalling 11.5 Mm3) and causes frequent serious flooding in the south-western sections of the city. Another reservoir (Cantarrana) is therefore planned iv connection with the future Sumapaz scheme (Annex 2 and Map 1). Original- ly, the Cantarrana reservoir was designed as the main element of a separate niew 2.0 m3/sec supply scheme, and was expected to be constructed in 1973/74. The favorable results of the investigations on the larger Chingaza scheme, hiowever, have made that scheme much more attractive as the next supply in- crenment after Tibito. 5. Of the small schemes, listed under (iii) above, only the San CrisLobal scheme, connected to the Vitelma treatment plant, and the San Francisco system, with a separate small treatment plant (San Diego), have somle significance. The others are serving isolated high lying sections of tile city. Water Distribution: 6. The city is divided into three distribution zones (low, intermediate, jll is), of which the low zone, supplied from Tibito, is by far the largest. The intermediate zone forms a narrow stretch between the two other zones; it is conlnected to the Parque Nacional tank which receives some water by gravity from Vitelma, and some from Tibito with booster pumping at Usaquen. This intermediate zone will be abolished and incorporated partly in the low, partly in the high zone, as soon as service conditions and water pressures im,uprove after completion of the First Project. 7. Total length of the distribution system is about 3,000 km; 90% of the pipes lhave diameters below 10-inch. The usual pipe materials are  ANNEX I Page 3 of 7 pages galvanized iron for diameters of 3-inch and smaller, asbestos cement (68% of all distribution pipes) for diameters from 4-inch to 12-inch, and con- crete for most of the pipes of 24-inch and above. 8. The distribution program under the First Project includes the following elements: (i) The main grid will be substantially expanded with a 25 km 78-inch trunk pipe (continuation of the new Tibito trans- mission line) connecting the northern and the south-western parts of the city, and terminating in the new Casablanca tank. About 70 km of large diameter (24-inch and 42-inch) pipes will link the 78-inch trunk pipe with the existing grid of the city center. The Casablanca tank (140,000 m3) will almost double the installed storage capacity and -- by bal- ancing pressures throughout the city -- help to improve water service in the heavily populated and industrialized south and south-west. (ii) About 85 km of additional medium diameter (12-inch) pipes will support the expanded grid and improve the hydraulic capacity of the existing grid. (iii) The entire distribution system will be rehabilitated, based on a comprehensive pitometric survey carried out in 1968-70. Coupled with an intensive metering program (replacement of old, not repairable meters, repair of damaged meters, instal- lation of meters in previously unmetered connections and in all new connections), this will improve water service and help to locate water losses and reduce wastage. Sewerage and Drainage 9. The Bogota sewerage system is divided into three sectors, which correspond to the natural drainage basins of the small Salitre, Fucha and Tunjuelo streams flowing from the east to the west of the city, and discharging into the Bogota River. About 60% of the 20,000 ha forming the Sanitary District are developed areas; of these, half (the older part) have a combined sewerage/strom water drainage system and the other half a separate system. After completion of the current sewerage and drainage master plan, the present system (serving about 80% of the 2.5 million population) will be expanded to serve a population of 3.5 million (expected by 1975). The master plan provides for a system of large open drainage channels with parallel sewage interceptors covering the entire Sanitary District and extending over a distance of 15 km from the eastern city limits to the Bogota River. 10. The limited hydraulic capacity of the natural Bogota River bed prevents a full discharge of the storm water and sewage flows from Bogota city whenever the flow of the river is above normal, and causes frequent  ANNEX 1 Page 4 of 7 pages flooding in large areas along the Bogota River and, compounded by its own floods, the Tunjuelo River. This problem will be largely resolved, when the planned BogoL" River regulation project (canalization along a 40 km section upstream Alicachin, with straightening of the river course and deepening of the river bed) will be completed. Feasibility studies for this project, which will probably be executed by CAR (because it will be located mostly outside the limits of the Special District), are under way; the time-table for construction will depend on several factors, including the urgency with which the Special District wants to develop the areas now subject to flooding. 11. Another problem is the increasing pollution of the Bogota River by the - so far - untreated sewage from Bogota and from industrial plants located between Bogota city and the Tibito water supply plant. Various sewage treatment alternatives have been studied since 1965. The use of sewage oxidation lagoons, at some stage considered to be the most economical solution, was discarded because it would have required large areas of valuable land and would have been a barrier for development of the city toward the west. Current studies concentrate on one or several sewage treatment plants to be located prior to the discharge into the Bogota river, or -- alternatively -- a high capacity sewage interceptor to be constructed along the future Bogota River channel and discharging directly into the tunnel-penstock system of the Bogota hydroelectric power scheme. The second alternative would, of course, not resolve, but only remove the pollution problem from the Bogota area further downstream (where less people would be affected and where additional tributaries would help to dilute the pollution). As indicated elsewhere in this report, the Chingaza water supply scheme will, at least, temporarily reduce the pollution problem because during the early years after completion of the various stages of this sclheme, the EAAB will operate the Tibito scheme only as a supplement to Chingaza and abstract less than the full 12 m3/sec from the Bogota River. larch 9, 1971  SECOND BOGOTA WATER SJPRIY PROSECT 7.rf7PP EXISTING EAiN FACILITIES, FIRST PROJECT SINE PRESENT OREIRATIDNS Tahblatiln of iy Elea-hi ofBEEO A. ater CtENEm5tE ToatmNt sd T-O.E15.iEN Wo-ks San 'cistohal (i924) I SOCTA/TibitO (end fear of SI' Freommioco Ti92/5T6) -T1 IJC1971i3S/725 osehashmo and nod~~~~ moho avis 8ros 197/1 6) I E2-I I e959/G966) SI-I(9735 sapesasion) I ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~(first BatE ERSIsRt) samc'. setm-l oN IrSeN eooto nthe OsoEve n of m rtRibtiharle Eogto " rIe (Enoldioa ToaSe NR sdea Tihito, Pius anoonson range borSr-o the Cast of 1 Ithe iooaisroiiaiNsotol 508rttrem ohgatonrth Tooharor,0tihtiry drfasbasins : tie city isfor i- oh -sa Toitot StrRngS the 3Sota river wet of She ie&I8egnLins&Z total 0~~~~~~0 lam2 163 MlC (at RegoS-r) l17o (of bD,hOto- vita "IX t>o Te--ac SIDELD ii ac rotot-bl 35 T90)smea Dibi,-i PI'. aceag ad 2) SNo Fraytan 10 (6-id) lxI 1.05T- ansthEy fboa- Ar-bioo. 5 1000 La Soda I __________ _____________ LCD~~~~~~~~~10 (oS-5O) 1.2 (0.9-1.51 (,4j-.:, o .6 -~C oSIo n/s 7 50 Oil-h) 0. (0.5-5.5) SOC 070-365) 22(SI RAS WATER smali - -siro3ir-: Ibreee--MsLr 1(oTvm 7 CATCRIWENIc -oaslaograeo- 'oSREN NAM 1 Y01 S TOm DRAGE 059 ALTZ--jE NAmom Shim STORAGE SOOT LT Wl-U50E1 2) T.opDa,a ....-..em. cS LTEI.V/XLUe HESTHTN TJOn DGONTR.vSSfITa ffl155l TIJDE Eajo Denc-- le (I. )ht3! Regaler 19336 .1 29 5502 EWAS mlm.t_saett 10092 i9G 42 2629 EKES aolt T-itoU PIsrlmetr 1Cihaao 1951 5.0 34 olIsi SAAB ml Slsga 1951 JOG 52 2699 COmm AssE I -fsin 1350 2m.4 5 3695 EGOS 'mons. 9Si15 05