Thailand - Bangkok Water Supply Project

FILE COPY DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. 146a-TH APPRAISAL OF THE BANGKOK WATER SUPPLY PROJECT THAILAND June 8, 1973 Asia Projects Department Public Utilities Division f This report was prepared for official use only by the Bank Group. It may not be published, quoted | or cited without Bank Group authorization. The Bank Group does not accept responsibiity for the accuracy or completeness of the report.  CURRENCY EQUIVALENTS Currency Unit Baht ($) US$1.00 = $20.80 $ 1.00 = US$O.048 $ 1 million US$48,077 MEASURES ATD EQUIVALENTS mm = millimeter (0.03937 inches) cm = centimeter (0.3937 inches) m = meter (39.37 inches) kmn = kilometer (0.62 miles) cn2 = square centimeter km2 = square kilometer (0.386 square miles) !13 = cubic meter (220 Imperial gallons or 264 US gallons) gallons = US gallons (0.833 Imperial gallons or 3.785 liters) 1 = liter (0.220 Imperial gallons or 0.264 US gallons) 1/cd = liters per capita per day 1/sec = liters per second (19,000 Imperial gallons per day or 22,800 US gallons per day) m3/sec = cubic meters per second (19.0 million Imperial gallons per day or 22.8 million US gallons per day or 86,400 m3/day m3/day = cutbic meters per day ,C _ = gallons per minute k;/cn2 k kilograms per square centimeter (14.22 pounds per square inch) ABBREVIATI0!S ANND ACPONYTIS .0.13 = Asian Development Bank M= letropolitan Water Works Authority CD)i = Ca-ip, Dresser & MrlcKee International Inc. (USA) = Booz, Allen and Hamilton International Inc. (USA) ~P-'TJ = Provincial Water Works Division of the Public and Municipal Works Department S}1 = Sanitary Engineering Division of the Denartment of Public Hlealth IeAII) = United States Agency for International Development :7.ST?'i. = -lational Economic and Social Development Board MIT =ERBlack and Veatch International (USA) FTSGAL YEAR October 1 - Sen,tember 30  THAILAND APPPAISAL OF THE BKNGKOK WATER SUPPLY PROJECT Table of Contents Page No. SUNMARY AND CONCLUSIONS ........................ ii I. ITTRODUCTIO ....... ............................1 II. THE SECTOR ........ ............................. 2 General ...................... 2 Sector Development ................. 3 Sector Organization ................. 4 Sector Financing .................... 4 III. T1EE PROJECT .................................... 5 Description .................... 5 Cost Estimates ............................ 6 Loan Amounts .............................. 8 Detailed Design, Construction Supervision and Project Management ................. 8 Procurerment and Construction .............. 9 Disbursements and Closing Date ............ 10 Land Acquisition and Rights-of-Way ........ 11 Ecological Aspects ..... ................... 11 IV. JUSTIFICATIONI .................................. 12 Existing Situation .......... .. ............ 12 Water Supply Requirements for the Future 12 Expected Results of Project ............... 13 Least Cost Solution .......... .. ........... 13 Return on Investment ........... ........... 14 This report is based on the findings of Bank missions consisting of Messrs. P. Callejas, P. Jacob, P.C. Kapur and V. Nwaneri whiclh visited Thailand in July and November 1972. 'Tr. Callejas visited again in Marclh 1973.  -2- Page No. V. T11E BORROWER ................................... 15 The Borrower ............... ............... 15 Ilistory of Operations .................... . 15 Organization and Management ............... 15 Operation of the System ................... 17 Financial Management ........... ........... 17 IMetering, Billing and Collection .......... 17 TManagement Consultants .................. .. 18 Audit ..................................... 19 Insurance ................. ................ 19 VI. FINiANiCIAL ASPECTS ....... ....................... 19 Introduction ....... ....................... 19 Financial Position - Past and Present ..... 19 Financing Plan ........ . .................... 21 Financial Projections ..... ................ 23 Tariffs and Rate Covenant .... ............. 24 Debt Limitation ...... ..................... 24 VII. AGREEMENTS REACHED AND RECOMMENDATION .... ...... 25 LIST OF ANNEXES AND MAPS Annex 1. Population Data and Projections 2. Population and Area Data Used for Project Planning 3. Existing Water Supply System 4. Project Description 5. Cost Estimates for Part A 6. Construction Schedule 7. Annual Project Expenditures 8. Estimated Schedule of Disbursements from Bank Loan 9. Estimated Past and Future Water Production 10. Water Requirements and Production Capacity 11. Internal Rates of Return 12. Consultants' Estimate of Indirect Benefits 13. Incremental Financial Rate of Return 14. MWWA Organization Charts, 1972 15. Approximate Income Statements 1968-1972 16. Estimated Inccme Statements 1971-1982 17. Estimated Sources and Application of Funds 1972-1982 18. Estimated Balance Sheets 1971-1982 19. Assumptions for Financial Projections 20. Schedule of Water Rates  - 3 - Maps IBRD-10208 - Bangkok Metropolitan Area IBRD-10209 - Existing Water Supply System IBRD-10210R- Proposed Water Supply System   THAILAND APPRAISAL OF BANGKOK WATER SUPPLY PROJECT SUMMARY AND CONCLUSIONS i. This report covers the appraisal of a water supply project for the Bangkok metropolitan area for which a Bank loan of US$55.0 million is proposed. A parallel loan of US$19.6 million for the project is being considered by the Asian Development Bank. ii. The borrower would be the Metropolitan Water Works Authority (MWWA) of Bangkok, an autonomous body established in 1967, which is respon- sible for water supply in metropolitan Bangkok. MWWA has begun a major effort, supported by the Government of Thailand, to strengthen its organization and management and improve its operations and financial performance. Continu- ance of this effort to achieve acceptable levels of service and efficiency will be a prime and most demanding objective of the proposed project. iii. The recent history of the water supply systems in the four rapidly growing municipalities which make up metropolitan Bangkok is marked by in- ability to meet runaway demand in spite of rapid system expansion and by financial dependence on government subsidies. At present, almost 40% of the population, mainly of the lowest income, has no service and less than one-quarter of the area served has a continuous supply of water at adequate pressure. Meanwhile, the population and water demand of the metropolitan area continue to grow and a program to increase water supply, to extend distribution and to make drastic improvements in the efficient use of the servi4e is required. The objectives of the proposed project are to meet these requirements. iv. Over a five year period, the project would about double MWWA's water supply and distribution capacity. The major water system components added by the project, together with some future additions to the distribution network, would be capable of serving about 2.5 million more people than are presently served and the safety and reliability of the service to the two million persons presently served should improve from poor to good. Effective water use control measures would be imposed and the MWWA would approach financial self-sufficiency. This would be a formidable undertaking with many problems and would require. considerable cooperative effort and support by MWWA, involved government agencies, the financing institutions and the general public. v. The estimated total cost of the project is about Baht 4,417 million (equivalent to about US$212 million) before interest and commitment charges during construction. Foreign exchange costs would be equivalent to about US$76.7 million (36%), substantially all of which would be financed by the proposed Bank and ADB loans. MWWA is expected to meet about 25% of the project costs with funds generated by operations during the construction 2eriod, which would be a dramatic change from MWWA's past reliance on govern- ment subsidies. The balance of the project expenditures (39%) would be financed by government loans.  - ii - vi. The project would be carried out by MWWA with the assistance of engineering and management consultants. The arrangements for design, pro- curement, construction supervision, management and control of the project are suitable. The project is technically sound and the estimated costs and time schedule are realistic. The project is scheduled for completion about mid 1978. vii. All supply and construction contracts would be awarded on the basis of international competitive bidding in accordance with the Bank's guidelines. Local firms are in a good position to win all of the pipe installation contracts and some of the pipe supply contracts. Bids of local manufacturers will receive a preference of 15% or applicable customs duties, whichever is less. Foreign suppliers and contractors (probably in association with local firms) are expected to win the contracts for the large and complex equipment and construction works which comprise most of the project component proposed for financing by the Bank. viii. New water rates which went into effect in July 1972, together with a modest increase immediately following the project construction period should put the MWA in a fairly sound financial position. The determining factors would be the effectiveness of programs, now underway, to improve metering, billings and collections. Projected results include an annual financial return on fix-d assets of almost 8% in 1980 and over 8.0% thereafter. ix. The expected incremental financial return on the water supply facilities included in the project is about 8%. The return on the project as a whole, which also includes investments in improved metering and billing, would be about 12%. X. The project is suitable for a Bank loan of US$55.0 million equivalent for a term of 26 years including a grace period of 6 years. It would be guaranteed by the Kingdom of Thailand.  THAILA'ND APPRAISAL OF BANGKOK WATER SUPPLY PROJECT I. INTRODUCTION 1.01 The Government of Thailand has requested parallel loans from the Bank and the Asian Development Bank (ADB) to finance the foreign exchange costs of a US$212 million project to increase the water supply capacity, extend the water distribution system and improve water supply operations in the Bangkok metropolitan area. A Bank loan of US$55 million and an ADB loan of US$19.6 million are proposed to be made to the Metropolitan Water Works Authority (MWWA), which is responsible for water supply in the area. 1.02 The project is part of a 30-year water supply program, underway since 1971, based on a Water Supply and Distribution Master Plan completed for the Government in February 1970. The Master Plan was financed by the Government and prepared by Camp, Dresser & McKee (CDM), Consulting Engineers, USA, in association with various other specialized consultants. 1/ 1.03 Bank participation in project preparation began in 1968 at the Government's request for technical advice. Early in 1970 the Bank reviewed the Master Plan and commented on the decisions and actions required before a discrete project would be ready for consideration by international finan- cing agencies. Since then, Bank assistance on project preparation has been given on a number of occasions, including field missions. A critical element in project preparation was the time required to acquire land. Others included development of MWWA's project administration capability and estab- lishment of appropriate charges for water service. These issues have now been substantially resolved. Early in 1971, at the request of the Government, the ADB began considering possible lending for the part of the project comprising distribution and metering. The Bank and ADB parts of the project are mutually dependent and project planning has involved close cooperation between the two institutions. 1.04 Field appraisals of the project were carried out concurrently by the Bank and the ADB in July 1972. Because of a number of pending issues, post-appraisal missions from both agencies visited Bangkok in November 1972 and March 1973. The Bank appraisal team comprised Messrs. P. Callejas, P. Jacob, P.C. Kapur and V. Nwaneri. 1/ The special consultants included: Booz, Allen & Hamilton, Management and Financial Consultants; the Pitometer Associates, Engineers (leakage and water use studies); Geraghty & Miller, Consulting Groundwater Hydrologists; Haley & Aldrich, Consulting Soils Engineers; and Jenny Engineering Corporation, Tunnel Consultants.  II. THE SECTOR General 2.01 Thailand has an area of 514,000 sq km and a total population (1970) of about 36.2 million. The population growth rate between 1960 and 1970 was about 3.1% per year. During the decade total urban population increased about 4.9% per year and by 1970 urban population in communities of more than 3,000 people totaled about 20% (7.25 million) of the national popula- tion. Thailand's urban development is largely synonymous with the Bangkok metropolitan area which in 1970 had a population of about 3 million (about 40% of total urban and more than 8% of national population). The next largest urbanized areas have populations in the order of 100,000. Annex 1 shows the population growth of Thailand and the Bangkok metropolitan area. 2.02 In the absence of large secondary cities in Thailand, the dominance of the Bangkok metropolitan area reflects far more than population alone. It is the residence of the King and most Government functions are concen- trated there. It is the main port, the center of finance and commerce and most of Thailand's manufacturing industry is located there. It is the center of higher education in Thailand, a popular tourist center and the regional headquarters i- Southeast Asia for a number of international agencies and commercial organizLions. Metropolitan Bangkok comprises the four munici- palities of Bangkok, Thonburi, Nonthaburi and Samut Prakan with a total area of about 300 sq km ({ap IBRD-10208). The estimated annual population growth rate between 1960 and 1970 averaged about 5.7% (Annex 1), due in part to extension of municipal boundaries in 1965 and 1967. The rate of increase as of 1970 was about 4% per year. About 10% of the municipal population are squatters. Bangkok's development has not been according to any plan. The rapid rate of growth along with a lack of any control over land use have severely strained public services, particularly transportation and water supply. 2.03 Forecasts of future growth of metropolitan Bangkok through the year 2000 are given in Annex 1, which shows a range of predictions by various authorities including the project consultants. Annex 2 summarizes the popu- lation and area data used for project planning. For project purposes, the 1985 population is estimated at about 6.1 million (including some areas served by MWA outside municipal boundaries) and in the year 2000 - signifi- cant only as a very broad planning framework - almost 10 millior.. There are Government proposals for promoting growth of other urban centers in Thailand as a means of controlling Bangkok's growth. Ilowever, the resul_s of such action would not be strongly felt in Bangkok for some time. In the meantime, the city would continue to grow and the problems of coping with this growth, including the provision of adequate urban infrastructure, would increase.  -3- Sector Development 2.04 The water supply sector in Thailand can be divided into three parts: (a) rural communities with populations less than 5,000; (b) urban communities with populations greater than 5,000 except Bangkok; and (c) the Bangkok metropolitan area. 2.05 About 29 million people (1970) live in about 45,000 rural communities with populations of 5,000 or less. About 15% of this population, in about 10,000 communities, are served by some kind of public water system. Most of these were developed during Thailand's Second Development Plan (1967-1971). About 4 million people live in urban communities, other than Bangkok, with populations over 5,000. Public water systems serve about one-third of this population. During the Second Plan there were about 100 projects to provide new water systems or expand existing ones in these urban communities. The rural and urban population not served by the public systems use shallow wells, rivers, streams, canals and rain water collected from roofs, which generally are unsafe water sources without treatment. 2.06 During the Third Plan (1972-76) the Government proposes to con- struct 50 new urban water systems, expand another 50, and provide water supplies to 20,000 more villages. These objectives are ambitious but foreign exchange requirements are low and the funds allocated appear adequate. A Bank sector mission in 1971 reported, however, that technical assistance was required for most efficient use of the funds and that attaining the village program objectives probably required resolution of inter-agency overlapping. A project to help improve the services and facilities, in- cluding water supply, of four secondary cities in the Northeast is being prepared with the Bank's help. 2.07 The most acute current sector problems that could be resolved by outside financial assistance are in Bangkok. Bangkok's existing water supply system (1972) is described in Annex 3 and the major elements are shown in Map IBRD-10209. The system has a productive capacity of about 1,150,000 m3/day; 70% treated water from the Chao Phya River and 30% ground- water. Another estimated 300,000 m3/day is drawn from groundwater sources by private tubewells, mainly serving industrial, commercial and institutional establishments. The public system provides service, generally unsatisfactory, to about 63% of the 3 million population in the metropolitan area, including nine small outlying communities with separate systems. About 20% of the existing capacity has been added by improvements to the system since 1970. Since 1950, when only about 20% of the metropolitan area was served, the average annual increase in production has been about 12%. Yet demand has not been met and service has been consistently poor (Annex 3 and paragraphs 4.01 through 4.03). If metropolitan Bangkok's population approaches 10 million by the year 2000, the Master Plan consultants estimated that an  - 4 - investment of some US$600 million equivalent (1969 prices) over 30 years would be required; of this, about US$335 million would be necessary over the first 15 years. 2.08 Thailand has no significant separate sewerage systems to collect and safely dispose of waste water from residences, industries or commercial and institutional establishments in urban areas. Most waste water is dis- charged directly or indirectly to storm water drains, surface drains, canals or natural water courses. Water pollution is becoming an increasingly serious aesthetic nuisance and health hazard in urban areas, especially in Bangkok and along the nearby coast. Substantial investments, estimated to total about US$140 million equivalent over a 15-year period, are required to provide sewerage and improve drainage in the most densely developed portions (about 50 km2) of metropolitan Bangkok. A Master Plan for sewerage, drainage and flood protection in the metropolitan areas was completed in 1968 and approved in principal by the Government in 1969. Detailed design of a first stage project was completed in about 1970. Implementation would require major programs of institution building (including legislation) and construction, but little progress has been made. Planning for waste disposal in other urban areas also is required. Sector Organization 2.09 The water supply system of the Bangkok metropolitan area is the resporLsibility of the Metropolitan Water Works Authority (MWWA), the proposed borrower described in Section V of this report. 2.10 Two major Government organizations are responsible for most com- munity water supply in the other parts of Thailand. The Provincial Water Works Division (PWWD) of the Public and Municipal Works Department in the Ministry of Interior deals with communities of over 5,000 people. The PWWD is responsible for the design, construction and operation of 144 municipal water systems which it owns and also acts as consultant to 45 water systems owned by municipalities. The Sanitary Engineering Division (SED) of the Department of Public Health in the Ministry of Health deals with communities of 500 through 5,000 where SED is responsible for the planning, design and construction of water systems which are then turned over to the communities for operation. SED staff train plant operators and advise on operations and maintenance. Eight other Government organizations are active on water supply in communities under 500 population. Sector Financing 2.11 Since its establishment in 1967, and through FY 1972, MWWA has incurred annual cash losses which were met by Government budget contributions. The Government also made giants for capital improvements by MWWA until 1971 when it changed to a loan basis with the first of two loans for improvements. These loans carry interest of 4% and are repayable in 20 years after five ye-rs of grace. The past and expected future financing of MWWA's part of the sector are described in Section VI of this report.  - 5 - 2.12 PWWD water systems are metered for the most part, and water rates are uniform at Baht 2.00/m3. Except in some of the smaller systems, col- lections cover cash operating costs before depreciation. Cash surpluses accumulate in a central revolving fund and have been used to finance less than 10% of capital expenditures. Charges for water supply service by most SED systems are flat rate charges for service from public taps or from ser- vice connections. Collections are difficult. SED also manages a small revolving fund to help some communities. Most capital costs of both the PWWD and the SED systems are financed by Government grants. USAID provided about 40% (US$4 million) of the Government funds for SED projects during the period 1966 through 1970; this source of aid has since been terminated. III. THE PROJECT Description 3.01 The proposed project would be the first major construction stage (July 1973-June 1978) of a long-range program (paragraph 1.02) to increase the water supply capacity, extend the water distribution system and improve the water supply operations of the MWWA. 3.02 The project details are given in Annex 4 and the major elements are shown in Map IBRD-10210R. Because of the proposed parallel financing by the Bank and the ADB, the project is divided into two parts, (A) and (B), to indicate the components that would be financed by each agency. The principal project components are as follows: Part A (Proposed for Bank Financing) (a) Raw Water Transmission Facilities - A new raw water pumping station at Sam Lae, improvements to 21 km of the open raw water transmission channel (Bang Luang Reservoir and Klong Prapa) and a new siphon at Klong Rangsit. (b) Water Treatment Plant - A new water treatment plant at Bang Khen built in two phases. Total maximum reliable capacity would be about 1,200,000 m3/day. Phase One would be 800,000 m3/day and, Phase Two, 400,000 m3/day. The plant includes the transmission pumping station; (c) Transmission Tunnels - 32.5 km of reinforced concrete lined transmission tunnels, 2.0 to 3.4 m in diameter, constructed in two phases; (d) Reservoirs and Pumping Stations - Four 40,000 m3 ground level reservoirs and pumping stations (distribution centers) which receive water from the transmission tunnels and pump into the distribution system. These would be constructed in two phases of two units each;  - 6 - (e) Sam Sen Reservoirs - New treated water storage capacity (40,000 m3) in three reservoirs at the existing Sam Sen water treatment complex; (f) General Use Equipment - Shop, maintenance, service, miscellaneous treatment, office and transportation equipment; (g) Consulting Engineering - Detailed design and construction supervision of Part A, general engineering advisory services for project management and control and training of engineering and operating personnel; and (h) Management Consulting Services and Administrative and Financial Training. Part B (Proposed for ADB Financing (a) Trunk Mains - 188 km of trunk mains from the distribution centers, 400 mm to 1,500 mm diameter; (b) Distribution Mains - 975 km of distribution mains from 150 mm to 30^ mm diameter; (c) Metering Program - A meter maintenance shop, overhauling of serviceable meters, and the purchase and selective installation of 158,000 new ones; (d) Tubewells - 50 new 300 m3/hour tubewells, located in areas where groundwater is good, to maintain MWWA's total groundwater sources at about 330,000 m3/day capacity; and (e) Consulting Engineering - Advisory services for detailed design and construction supervision of Part B. Cost Estimates 3.03 The estimated costs of Part A of the project are detailed in Annex 5. The summarized costs of Parts A and B are given below:  -7- Baht US$ Part A Local Foreign Total Local Foreign Total -millions~~~---- - - - - - Raw water facilities 54 25 79 2.6 1.2 3.8 Water treatment plant 354 353 707 17.0 17.0 34.0 Transmission tunnels 514 250 764 24.7 12.0 36.7 Distribution reservoirs and pumping stations 182 189 371 8.8 9.1 17.9 Sam Sen Reservoirs 37 9 46 1.8 0.4 2.2 General use equipment 18 27 45 0.9 1.3 2.2 Land 157 - 157 7.5 - 7.5 Engineering Consultants: Design 49 44 93 2.4 2.0 4.4 Construction Supervision 146 108 254 7.0 5.2 12.2 Special Services & Training 6 16 22 0.3 0.8 1.1 MWWA Engineering 61 - 61 2.9 - 2.9 Management Consulting & Training 22 23 45 1.1 1.1 2.2 Contingencies: Physical 108 73 181 5.2 3.5 8.7 Price 99 72 171 4.7 3.5 8.2 Subtotal 1,807 1,189 2,996 86.9 57.1 144.0 Part B Trunk and distribution mains 738 247 985 35.4 12.0 47.4 Metering program 41 44 85 2.0 2.1 4.1 Tubewells 17 31 48 0.8 1.4 2.2 Engineering 36 18 54 1.7 0.9 2.6 Contingencies: Physical 80 32 112 3.9 1.5 5.4 Price 101 36 137 4.9 1.7 6.6 Subtotal 1,013 408 1,421 48.7 19.6 68.3 TOTAL 2,820 1,597 4,417 135.6 76.7 212.3 3.04 The cost estimates are realistic. They were prepared by the en- gineering and management consultants and M}WA. Estimates of the Part A construction components and contingency allowances are based mostly on detailed designs and on March 1973 1/ prices for equipment, materials and construction costs in Bangkok. General use equipment estimates were developed by the manage- ment consultants and MWWA. Land costs are quite firm. The estimated costs of the physical components of Part B are based on CDM's Master Plan estimates 1/ Including the expected effects of currency realignments through March 1973.  -8- uodated to March 1973 by 1M,AWWA and ADB, using costs of current MSWA contracts and quotations for equivalent work. 1/ 3.05 The allowances added for physical contingencies on Part A supply and construction contracts range from 5% to 10% of the estimated bid prices befcre price contingencies. Considering the advanced state of design and the information about sites, foundation conditions, construction and costs used by the consultants, this allowance appears adequate. The price contingency allowance for Part A amounts to 8.1% of the major construction components (including general use equipment and physical contingencies but excluding land) and is based on escalation at the rate of 5% per year for foreign and local costs between March 1973 and the expected dates of contract awards. These allowances result from the consultants' evaluation of recent experience on cost trends in Thailand on similar works, and are appropriate for the project. The estimated costs of proposed Part A engineering supervision contracts include price contingencies of 6% per year. The foreign exchange components of total costs are based on assumptions as to the expected results of bidding (paragraphs 3.16 and 3.17) and detailed analyses of the indirect foreign exchange components of supplies and materials purchased locally by contractors. 3.06 The estimated costs include allowances for duties and charges on imports and income and business taxes on contractors and consultants. These total about Baht /90 million (10%) of the estimated cost of the total project (excluding land). Loan Amounts 3.07 A Bank loan of US$55 million equivalent is proposed to cover 96% of the estimated foreign exchange costs of the Part A project, including engineering consulting services related to Part A and the management consulting services. The proposed loan amount excludes US$1.6 million of foreign exchange expenditures on detailed engineering design of Part A under a contract awarded in June 1971 (paragraph 3.08). A loan of US$19.6 million equivalent is expected from the ADB to finance 100% of the estimated foreign exchange costs of Part B. Neither loan amount includes interest during construction which would be covered by funds generated by MWWA operations. Detailed Design, Construction Supervision and Project Management 3.08 MWWA has responsibility for carrying out the project. CDM was engaged under two contracts for detailed design and preparation of tender documents for Part A. Work under the first contract, involving most of the project, has beer completed. The second contract for transmission tunnels began in September 1972 with the agreement of the Bank in order not to delay the project. The tender documents for the last tunnel segment are scheduled to be finished by about October 1973. The consultants were engaged under terms and conditions acceptable to the Bank, and the work has been good. IWWA financed the first contract from its own resources. Retroactive financing of the foreign exchange costs of the second contract since 1/ Including the expected effects of currency realignments through March 1973.  September 1, 1972 from the Bank loan is proposed and the amount of US$0.5 million is included in the loan. 3.09 Detailed design and preparation of tender documents for Part B of the project are being done by NWWA's Department of Engineering. MWWA will engage a second consulting engineering firm, subject to the approval of the ADB, to act in an advisory capacity to review and guide the Engineer- ing Department's work on Part B. The foreign exchange costs would be financed by the proposed ADB loan. 3.10 The responsibility for construction supervision for Part A is to be delegated by NMWWA to engineering consultants. A contract is being negotiated with a joint venture comprising Black & Veatch International (BVI) and CDM, subject to Bank approval. The foreign exchange costs would be financed by the proposed Bank loan. The start of work under the construction supervision contract is critical to the procurement and construction timetables for Part A of the project but requires a letter of intent authorized by the Government. Since the time required to complete this process is uncertain, it was agreed during negotiations that Government authorization to appoint the required consultants would be a condition of effectiveness of the loan. 3.11 Construction supervision of Part B will be done by MWWA with the advice and guidance of the Part B consultants (paragraph 3.09). The foreign exchange costs would be financed by the proposed ADB loan. 3.12 Overall project coordination, control and administration are the responsibilities of MWWA. Since this is a very formidable undertaking, MWWA would arrange for the assistance of independent engineering advisers and short-term specialists as needed on special problems. Engagement of the advisers and the specialists would be subject to the approval of the Bank. The foreign exchange costs of the advisory group would be financed by the proposed Bank loan. 3.13 During negotiations assurances were obtained that consultants acceptable to the Bank will continue to be engaged as outlined above (para- graphs 3.08, 3.10 and 3.12) to assist MWA in carrying out the project. Procurement and Construction 3.14 The schedule for design, procurement and construction of the project is shown in Annex 6. Part A would be divided into about 30 major contracts. The water treatment plant, transmission tunnels and the ground level reservoirs and pumping stations would be built in two phases to permit changes in the second phase should demand studies to mid-1975 demonstrate the need (paragraph 4.10). Invitations for bids on the first 13 Part A contracts would be advertised during the period August-October 1973. Tendering for the second phase contracts would start during the last half of calendar 1975. Part A would be completed in about June 1978.  - 10 - 3.15 The pipeline components of Part B of the project will be carried out through a number of smaller contracts spread fairly evenly over the project period. The metering program and tubewell construction are to be carried out mostly during the period 1973 through 1975. Completion of Part B is scheduled for about the end of 1977. The construction priority of the various trunk main and distribution main segments would be reviewed prom time to time taking account of water system operating data and the -rend of water demand at various points of the system. A computer model of the system, developed originally for the Master Plan, is to be brought up-to-date by ?MWWA periodically as required for use in evaluating priorities. Assurances to this effect were obtained during negotiations. 3.16 All supply and construction contracts for Parts A and B would be awarded on the basis of international competitive bidding in accordance with the Bank's and ADB's guidelines respectively. A preference of 15% or the applicable customs duty, whichever is lower, would be applied to bids for Part A contracts from local manufacturers. No preference would be given on ADB financed contracts. However, local firms are expected to have little difficulty in winning some of the contracts for pipe supply under Part B, and for substantially all of the pipe laying contracts. 3.17 Foreign suppliers and contractors (probably in association with local firms in most case ) are expected to win the contracts for the large and complex equipment anc" construction works comprising Part A. However, substantial amounts of materials and supplies (such as pipe) which go into the construction contracts would almost certainly be obtained locally by the contractors. Substantially all required labor, with the possible exception of some very specialized skills, are available locally and would be obtained in Thailand by the contractors because of cost advantages. Disbursements and Closing Date 3.18 Annex 7 shows the forecasts of project expenditures on an annual basis for Parts A and B. These forecasts were derived from the construction schedules (Annex 6) and the expected periodic progress payments on the various contracts, including consulting contracts. 3.19 It is proposed that the loan for Part A be disbursed for: the estimated foreign exchange component (37%) of civil works contracts; the C.I.F. costs of equipment directly imported; the ex-factory costs of locally manufactured goods; 65% of imported but locally procured goods (i.e. off-the- shelf items); and the foreign exchange costs of consulting services. The estimated quarterly disbursements from the loan are given in Annex 8. The estimated disbursements in the first two quarters include reimbursements for US$1.0 million of prior expenditures on consulting services (paragraphs 3.08 and 5.14) proposed for Letroactive financing.  - 11 - 3.20 The Closing Date for the proposed Bank loan would be June 30, 1979 which allowsabout 12 months beyond the scheduled project completion date for final contract payments and some slippage in the project. 3.21 In the event that the foreign exchange costs of Part A of the project eligible for disbursements from the proposed Bank loan are less than the amount of the loan, the unused balance of the loan would be cancelled. Land Acquisition and Rights-of-Way 3.22 Land required for the raw water facilities, water treatment plant (including future extensions) and the ground level reservoirs and pumping stations has been acquired. The transmission tunnels (Part A), with the following exception, and the trunk and distribution mains (Part B) are designed to be installed in public property and do not require land acquisition or rights-of-way. The exception for transmission tunnels is one section under railway property for which approval by the railway authorities has been obtained. In cases where detailed tunnel design shows possible savings by crossing under small segments of private property, the NWWA would attempt to obtain rights-of-way. Ilowever, if the cost of the right-of-way proves to be too high or the acquisition procedures too lengthy, the short-cut would not be taken. Ecological Aspects 3.23 The project is intended to eliminate the deficiencies of the existing water supply systems in the metropolitan area and to extend services to substantial numbers of people who do not now have adequate amounts of safe water conveniently available from the present public system. Thus the need for the majority of the population to satisfy some or all of their water requirements from unsafe water sources will be substantially reduced, and the incidence and risk of diseases attributable to the lack of a good water supply, a serious health problem in Thailand, would be reduced. 3.24 The increase of water supply, as a result of the project, would cause significant changes in the nature and location of water pollution problems. Bangkok already has a waste water disposal problem (paragraph 2.08) and, therefore, some definite plan of action for a sewerage program should be formulated and actions initiated as soon as practicable. The Government noxw has the basis for a sewerage, drainage and flood protection program in the metropolitan area (paragraph 2.08) but little action has been taken. 3.25 It would be unrealistic to expect that a significant sewerage program could get underw.ay within the next two or three years. However, within that period definite progress on deciding how and when to deal with the sewerage problem is possible and should be made. Therefore, as a means of promoting action, assurances were obtained from the Government during negotiations that positive action toward resolution of the sewerage and drainage problems in the metropolitan area will be taken. Toward this end, by December 31, 1974, the Government,in consultation with the Bank, would prepare specific proposals including timetables and financing plans for:  12 - (a) development of the institutional structure required for carrying out Bangkok's sewerage projects and operations; and (b) for emba-king on a significant construction program. The covenant also requires the Government to seek the enactment of '!egislation to create the institutional framework mentioned above. IV. JUSTIFICATION Existing Situation 4.01 There are very serious deficiencies in the existing MWWA and private water supply systems in the Bangkok metropolitan area and with the service which MWWA can now provide (paragraph 2.07 and Annex 3). Alterna- tives to the MWWA supply are limited almost exclusively to deep tubewells. However, groundwater sources are being overused with the result that many wells are failing or must be abandoned in an expanding area where the chloride and iron content of the groundwater has increased to unusable levels (Annex 3, paragraph 10). Also, reduced groundwater levels are resulting in settlement of parts of the city witl a resulting increase in drainage and flood protection problems. 4.02 MWWA's distribution network is now accessible for on-premises water service to only about 63% of the total population in the metropolitan area. Supply and pumping capabilities are such that MWWA can maintain adequate pressures in only a small part of the distribution system (the consultants estimate about 20%) and consequently distribution is not equitable. At best, customers are able to get adequate amounts of water by pumping from the mains (illegal but commonly practiced) or other expensive means. At worst, the supply is available for only a few hours per week and the mains are under a vacuum for considerable periods of time, permitting intrusion of polluted water and contributing to the malfunction of meters. Most cus- tomers have invested in storage facilities which they attempt to fill when the MWWA supply is available. 4.03 With the existing deficiencies, lower income people in particular are forced to resort to unsafe sources, usually the heavily polluted river and klongs (canals) accessible to them. MRWA delivers water by tank truck to some areas where the shortages are most acute. Those that can afford it purchase bottled water for drinking. There is some sale of water by vendors, usually an expensive a,id unsafe source. Boiling water for drinking purposes is a common and relatively expensive practice. Water Supply Requirements for the Future 4.04 The past and expected future population growth of the metropolitan area (now about 3 million) has been discussed in paragraphs 2.02 and 2.03 and is shown in Annexes 1 and 2. The project consultants' estimates of  - 13 - the total population to be contended with in the service area as the basis for planning the water supply system are for about 3.9 million by 1975, about 4.9 million by 1980 and about 6.1 million by 1985. Although there are a range of rational forecasts by various authorities for the future population of the metropolitan area, the divergence through 1985 is not much and the consultants' estimates for 1975 through 1985 are sound bases for planning this project. 4.05 The design projections for population to be served by the IThMA syster and for future water requirements are shown in Annexes 9 and 10. Annex 10 also shows a higher estimate of future water requirements based on the 12% per year past trend, and a lower estimate of water requirements based on minimum rational assumptions that could be derived from the base data accumulated by the consultants. This minimum estimate results in average requirements about 15% lower from 1978 than used as the basis for project design, but is considered improbable because it assumes that domestic water use per capita served would decline 50% (from about 300 1/cd to 150 1/cd) between 1970 and 1980. Expected Results of Project 4.06 The project as planned would meet the expected water demand of the metropolitan area until about 1982, as calculated by the consultants. If measures proposed as part of the project to reduce wasteful water use and control leakage (paragraphs 5.10 and 5.13) are not successful, the available water supply on completion of the project would be immediately inadequate to meet the project objectives. If the trend of water requirements follows the minimum rational estimate (paragraph 4.05) the project might meet its intended objectives until about 1985. 4.07 As planned the proposed project would provide good quality water service for about 4.6 million people in an area of about 400 sq km. By comparison, at present, about 2 million people in an area of about 180 sq km are poorly served. The distribution system should be under sufficient pressure at all times (Annex 4), except during severe power failures, to supply water to the third level of any building served under conditions of peak demand. 4.08 The project would allow MWA to reduce its reliance on groundwater starting about 1977 and to discontinue such use altogether before 1990. At the same time, MWWA would have capacity to provide most of the requirements of establishments now using groundwater from private tubewells which have to be abandoned (paragraph 4.01). Project planning assumes that total use of groundwater (M7WA and private) will reach a peak of about 700,000 m3/day within the next two years, and then will begin to decline and eventually level off at about 400,000 m3/day by private users. Least Cost Solution 4.09 The most costly elements of the project are the raw water treat- ment and transmission facilities. A number of basic alternatives as to  - 14 - source of water and the location and sizing of units were examined. In the case of the source of water there are no practicable alternatives. The question studied and debated most extensively is whether the proposed additional water suipply capacity provided by the project, and therefore project costs, would be more than enough to satisfy demand for a reasonable period after project completion. Assuming the lowest future trend of water lemand (paragraph 4.05), treatment facilities of about two-thirds the ,roposed size could be adequate until about 1982. Thus, carrying out the -roject as planned could result in an investment (before contingencies) of about US$7.0 million equivalent (4% of the total project costs before contin- gencies) for excess productive capacity some three or four years in advance of actual requiremens. However, as noted in paragraph 4.05 this bLow trend is considered improbable and building the project on that basis could easily result in system deficiencies as soon as the major project investments are completed. The project would then fail to achieve the intended r'esults and this risk is considered too great in relation to potential cost benefits to make this alternative acceptable for Bangkok. 4.10 As noted earlier (paragraphs3.02 and 3.14), the treatment plant is being built in two phases with the second phase starting toward the end of 1975. A continuous program of investigation, data collection and analysis of water use and trends would be initiated promptly by MWWA to provide a much better basis for pl. lning, and this would be monitored carefully during the first years of the project. If the results of the water use control program are better than expected and demonstrate that demand is substantially less than predicted, part or all of the second phase of the water treatment plant would be deferred to another future project. The portion of the Bank loan required for the second phase (now estimated to be about US$4.0 million) would be cancelled then if not required for other eligible project contracts. During negotiations assurances were obtained that the decision to proceed witli phase two contracts will be made about July 1975, based on new demand studies, and will be subject to the approval of the Bank. 4.11 Aside from the above question about capacity, the proposed project is clearly the least cost solution to the problem of providing an adequate public water supply system for metropolitan Bangkok. Return on Investment 4.12 The incremental financial return on the 1973-82 time slciee of the MWWA expenditures on expanded supply facilities, of which the present project consti.utes roughly 90%, is calculated to be about 8% (Annexes 11 and 13). Sensit-vity analysis indicates that the return could drop to about 7% if the project costs exceed the estimates by 20%, and could increase to over 10% if such costs were 20% lower than estimated. The return is not sensitive to increases in operating expenses, but a decrease of 20% in revenues lowers the rate of return to about 6%. The return on the project as a wtole, which also includes investments in improved metering and billing, would be about 12%. 4.13 The above return estimates suggest that present water charges are not too far out of line with the costs of providing improved service. They do not provide the substantive justification for the project. The project  - 15 - is the least cost means of providing a satisfactory water supply system for the cultural, commercial and economic center of Thailand. The alternative, which would he the indefinite continuation of the present deficiencies, with their adlverse public health and economic implications, is not acceptable to Thailand. 4 V. THE BORROWER The Borrower 5.01 The borrower would be the Metropolitan Water Works Authority (MWWA), an autonomous body established under the Metropolitan Water Works Authority Act of 1967, which took over the responsibility for water supply in an area of 3,130 sq km including the four municipalities of Bangkok, Thonburi, Non- thaburi and Samut Prakan (Annex 3 and Map IBRD-10208). The Act empowers MWWA to borrow money subject to prior approval of the Council of Ministers when in excess of Baht 5 million (US$0.2 million). History of Operations 5.02 The history of MWWA and its predecessor organizations is marked by rapid expansion in a generally unsuccessful effort to catch up with demand and by the problems that go along with ungainly growth. Problems in the technical area were compounded by gross deficiencies in administration and accounting. 5.03 From its inception, MWWA has been a weak organization. The tran- sition from the earlier form of municipal operations to that of a public utility was a difficult one. In the first few years the consolidation of activities of the four independent systems proved to be largely super- ficial in as much as no uniform procedures were adopted and work was carried on, without overall direction, in much the same fashion as before. MWWA's problems were attributable largely to the lack of trained manpower, low staff morale, lack of strong management control, physical system deficiencies and, until recently, a most uneconomic water tariff. The management con- sultants (paragraph 5.14), engaged since January 1971, have helped consider- ably to improve the situation. With continued management assistance which MWWA has already decided to retain, and continuation of MWWA's own recent efforts, it should be possible to build in the course of the next few years a fairly efficient and financially independent institution. Organization and Management 5.04 The MWWA Act, 1967 defines broadly areas of responsibility within IWIA generally based on the principle of vesting (i) overall control and responsibility for policy decisions in a Board composed of representatives of various Government departments and the General Manager of MWWA, (ii) over- all Government supervision of MWWA's activities through the Ministry of the Interior, and (iii) responsibility for day-to-day management, in accordance  - 16 - with Board policy and Government directives, in the General Manager. From a strictly legal standpoint the Act provides a suitable framework for an independent water supply utility. In the past, however, because of dependency on government grants, most major decisions were made by special committees, consisting of a variety of Government representatives. As MWWA establishes its financial independence it should be able progressively to assert its institutional autonomy. A modest beginning has already been made. 5.05 The present General Manager (since 1976) is corrpetent and experienced and enjoys considerable support from the Government authorities. Under his leadership, VWA is beginning to progress. lIowever, he will soon be reaching retirement age and it is uncertain whether he will be given an extension of serv_ce. Under the Act, the General Manager's appointment is to -be approved by the Council of Ministers. Assurances were obtained during negotiations that the Bank would be consulted in advance about future appointments to the General Manager's position. 5.06 MWWJA's organization chart, including a change for financial management adopted in February 1973, is in Annex 14. The General Manager is being assisted by three deputies - one for Engineering and Operations, one 'or Administration and Services and the third for Finance, a new post. Because of low salary grades, 1! MWWA has not so far succeeded in recruiting a full time, permanent Deputy General Manager (Finance), As a temporary measure, in consultation with the Bank and ADB, a senior civil servant has been appointed to this position on a part-time basis in addition to his duties in the National Economic and Social Development Board (NESDB). To date, this has oroved to be a very beneficial step for MW%TA, but knowing the importance of the post, M4WWA is continuing its efforts to fill the position on a permanent, full-time basis. Assurances that this will be accomplished by March 31, 1974 were obtained during negotiations. In view of the critical nature of all the Deputy General Manager positions, assurances were also obtained that the 3ank would be consulted in advance about future changes in appointment to any of these posts. 5.07 MW!A has had problems filling other key positions, and was able only recently to recruit the Chief of the Finance Divis,on, the Public Relations Officer and the Budget Analyst. However, three muiore positions (Personnel Officer, Management Analyst and Legal Adviser) considered important for strengthening MWWA are still vacant. MWWA appears confident thal appointments to these positions will be made shortly. MAMWA has been quiize successful in filling engineering posts. 5. 0.6 MI