Afghanistan - Kabul Water Supply and Sanitation Project

CIRCULATING CiOPY FiLE COPY TO BE REURNED TO REPORTS DESK FILE COPY eIRCULATtNG COPY TO BE RETURNED TO REPORTS DEF DOCUMENT OF INTERNAT4INAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. Pv1598-AF REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF AFGHANISTAN FOR THE KABUL.WATER SUPPLY AND SANITATION PROJECT May 23, 1975 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 It may not be published, quoted or cited without Bank Group authorization.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 responsibility for the accuracy or completeness of the-report.  Currency Unit Afghar&i (Af) US$1 Afghalnis 60.0 * das I US$. 001667 ifs l US$ 16,666.67 Fiscal year March 21 to March 20 * Rate of exchange prevailing at the time of appraisal and used in the Appraisal Report. The official exchange rate on April 30, 1975 was: us$ 1.00 = Afs 57.5.  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF AFGHANISTAN FOR THE KABUL WATER SUPPLY AND SANITATION PROJECT 1. I submit the following report and recommendation on a proposed de- velopment credit to the Republic of Afghanistan for the equivalent of US$9 million on standard IDA terms to help finance the Kabul water supply and sanitation project. $3.48 million equivalent of the proceeds of the credit would be relent to the Afghan Water Supply and Sewerage Authority (AWSSA) on terms satisfactory to the Association. $5.22 million equivalent of the credit would be contributed by the Government to the equity of the Afghan Water Supply and Sewerage Authority and the balance ($300,000) would be passed on to the Municipality of Kabul as a grant for sanitation improvements. PART I - THE ECONOMY General 2. A report entitled "Current Economic Position and Prospects of Afghanistan" (SA-29a) dated February 1, 1972, was distributed to the Execu- tive Directors in February 1972 (R72-39 and R72-42). Updating missions visit- ed Afghanistan in September 1972 and July 1973, and most recently in October- November 1974. The findings of this last mission are reflected in the follow- ing analysis. 3. The Republic of Afghanistan was established in July 1973, following a military coup in which King Mohammed Zahir Shah was deposed by his cousin and brother-in-law, Sardar Mohammed Daud Kahn, who had served as Prime Min- ister from 1953 to 1963. Daud serves as both President and Prime Minister; he also retains the portfolios of Foreign Affairs and Defense. The Govern- ment abrogated the 1964 Constitution and dissolved Parliament and the Supreme Court. The focus of power is now in the office of the president and in a Central Committee. Government Objectives 4. The Republican Government's major objectives were stated in President Daud's speech of August 23, 1973. The President indicated that the state sector would be strengthened, and importance would be given to the development of heavy industries based on the country's mineral resources. He also committed the Government to basic economic and social reforms including reforms of the systems of taxation, land tenure and public administration.  5. While political objectives have dominated government policies so far, the Government hias made a promising beginning in the field of economic development policy in accordance with President Daud's speech of August 1973. New economic legislation is under preparation and some laws have been passed, including a revised customs law and a new foreign and domestic private invest- ment law. Organizational changes aimed at more effective development and policy planning have been initiated (e.g. reorganization of Ministry of Planning and a new Secretariat for the High Economic Council in the Prime Minister's office). An active policy of mobilizing and diversifying foreign assistance flows has been adopted. 6. Strong Government efforts to eradicate corruption and improve tax collection have resulted in an increase in revenues. The Government has also committed itself to keeping the prices of certain essential products stable (e.g. sugar, edible oils, fertilizers and some kinds of textiles) with, as a result, increased claims for subsidies from the budget. Some major elements of the Republican Government's program, however, including taxation, land, and public administration reform have still to be undertaken. Economic Performance and Structure 7. Afghanistan is an extremely poor, landlocked country with severe structural, fiscal, and debt service problems. With a population variously estimated at between 13 and 18 million and a per capita income of below US$100, it is one of the largest of the countries designated as "least devel- oped" by the United Nations. The country's prospects for development have been limited by a rugged physical terrain, arid conditions, and a paucity of physical and skilled human resources. Agriculture accounts for over half of CDP and engages perhaps 70 percent of the non-nomadic population. Nomads constitute an estimated 16 percent of the population, and 13 percent of the total population live in the cities. The Basic Data provided in Annex I highlight some other structural features of the economy: the low degree of monetization; the low share of government revenues in national income; the heavy budgetary dependence on foreign assistance and on central bank financ- ing; the relatively heavy burden of servicing foreign debts; and other weak- nesses in the country's balance of payments position. Recent Developments 8. Afglhanistan's economy suffered a major setback when severe droughts in 1970 and 1971 followed by the severe winter of 1971/72, caused declines in wheat, fruit and livestock production, and especially heavy losses in the livestock population. Improved weather conditions and increased usage of farm inputs resulted in a good harvest in 1972 and in a record wheat crop in 1973, creating an overall surplus of production over consumption requirements. The harvest in 1974 was about at the 1973 level despite lower precipitation.  - 3 - 9. The value of the Afghani has increased by 30 percent against the US dollar as compared to the average rate during 1972/73. The appreciation of the exchange rate has tended to discourage traditional exports (carpets and karakul) while, on the other hand, cushioning the impact of the inter- national intlation on domestic prices in Afghanistan. The Government is intervening in the market in an effort to bring down the Afghani/dollar rate. 10. The international rise in oil prices at the beginning of 1974 did not have an immediate direct impact on Afghanistan since almost all require- ments of oil and oil products were met under a bilateral agreement with the USSR under which prices remained unchanged. This agreement has just been re- negotiated and the price of oil has been raised significantly. At the same time, however, the prices of gas exports to the USSR have been increased to such an extent that the net impact on the balance of payment will be positive for Afghanistan. The energy crisis has, however, had a major indirect impact on Afghanistan. The rise in fuel costs has led to an increase of about 10 percent in the already high cost of transporting commodities to and from Karachi. Even more important is the problem created by the rise in fertilizer prices, particularly as the Government's agricultural policy has been encourag- ing more intensive cultivation and higher yields. The consumption of fertil- izer in 1973/74 was about 50,000 tons and is expected to rise by 10-20 percent annually. Fertilizer imports in 1973/74 reached 80,000 tons in anticipation of price increases in forthcoming years. In general, the recent rise in international prices has inflated the import bill adding a new burden to Afghanistan's balance of payments. On the other hand, the rise in inter- national prices has encouraged domestic import substitut on. Development Prospects and Constraints 11. The large undeveloped human, agricultural and mineral resources of Afghanistan provide the basis for a favorable assessment of the country's long-term development potential. Although the economic performance in the last two decades, characterized by an average growth rate of GDP not much above the rate of population growth, and by a low level of mobilization of domestic resources for development, discourages optimism about the pace of growth prospects, the commitment of the top leadership t( development and economic and social reforms gives rise to hope that the potential could be realized. Also, the recent offers of aid, notably from the Islamic oil pro- ducing countries are likely, in the near future, to increase the external capital flow into the country. 12. The realization of the development potential of the country, how- ever, requires timely and vigorous action to remove a number of obstacles that have severely inhibited the country's economic and social development in the past. Included among these are: (a) inadequacies in project preparation and the resulting shortage of projects to be financed relative to offers of external eco- nomic assistance:  -4- (b) inadequacies in public administration and manpower development which lead to inefficiencies in the implementation of policies and projects; (c) shortfalls in domestic resource mobilization and the need for new policy measures (improvement of public enterprises, tax reform, mobilization of private savings); and (d) absence of a well-defined framework for the examination and co- ordination of policies. The Government is well aware of these problems and has already taken some actions aimed at eventual solutions. Particular attention is being given to improve the taxation system and the efficiency of public enterprises since, in the past, Afghanistani heavily depended on external assistance for the exe- cution of its development plan. Total budgetary revenues in 1973/74 amounted to $118 miilion or 9 percent of the estimated GNP, public savings were about $8 million, 0.6 percent of the estimated GNP. The development budget, however, showed a deficit of $60 million of which 70 percent was financed through ex- ternal funds. External Debt 13. As of March 20, 1974, the end of the Afghan fiscal year, Afghanistan's disbursed external debt amounted to $719.9 million. The major creditors are the USSR (73.4 percent), the USA (12.4 percent) and the Federal Republic of Germany (9 percent). Loans from governments account for 98 percent of all disbursed external public debt. Obligations to IDA amount to 1 percent of disbursed amounts. There were some $243.7 million in undisbursed funds avail- able in March 1974; most of these funds ($163.8 million) were part of a frame agreement with the USSR. Meanwhile, Afghanistan has also received aid offers from a number of oil producing countries, notably Iran and Saudi Arabia. No precise figures can be given at this time for the commitments for project aid that may eventually result from these offers. 14. In recent years, over 65 percent of public investment in Afghanistan has been externally financed with gross aid inflows ranging from about $40 to $80 million annually. Even though most of the borrowing over the past 20 years was on quite soft terms, a heavy debt burden has resulted from the emphasis on long-gestation infrastructure projects with little export-generating or import- saving impact. Thus, the growth of the debt-servicing capacity has not been commensurate with that of the debt-servicing obligations. With fairly rapidly increasing exports, the debt service ratio is now expected to remain roughly unchanged at the present level of 19 percent. Given the country's debt burden, its poverty and its development stage, Afghanistan does not have the capacity for sustaining external borrowing on conventional terms and needs substantial capital inflow on concessionary terms. It also requires special consideration from external lenders in financing the local costs of development projects.  -5- PART II - BANK GROUP OPERATIONS IN AFGHANISTAN 15. IDA has provided nine development credits totalling US$53 million (net of cancellations) to Afghanistan. IFC invested $0.3 million in the Industrial Development Bank of Afghanistan in July 1973 and the IFC Executive Directors approved a loan of $1.3 million for the Kabul Spinning Mills, Inc. in December 1974. Annex II contains a summary statement of IDA credits and IFC investments as of April 30, 1975; and notes on the execution of the on- going projects. 16. Bank Group lending in Afghanistan began in 1964, with an education project, but by agreement between the Government and the Association, a major portion of the credit was cancelled in 1969. A resident mission was estab- lished in Kabul in that year, and since that time, with a considerable input of staff time and effort on project-preparation, the Bank Group has provided development assistance to Afghanistan at an average level of about $7 million annually. Between FY69 and FY72, the Association made three credits totalling $15 million in the agriculture and transportation sectors. In FY73, three more credits were made for livestock, industrial development bank and aviation projects. In FY74 the Association committed $11.5 million for a transporta- tion sector project. The recently signed $13 million credit for the Second Agricultural Credit Project and the proposed credit would bring commitments in FY75 to a total of $22 million. 17. We have experienced difficulties in making disbursements under IDA .credits made since 1971. The main reasons for this have been substantial delays in fulfilling effectiveness conditions, slow progress with selecting consultants, minor project changes and, in the case of the Industrial Devel- opment Bank project, the need for security arrangements and a lack of sub- projects. In most cases these problems have been corrected satisfactorily with the assistance of our resident mission in Afghanistan, but delays incurred have aggravated the effect of very heavy inflation on project costs, in parti- ciular, in the case of the irrigation and livestock projects. The progress of the latter two projects and consequently their disbursement schedule depends on the result of current government efforts to find a satisfactory solution to the problem of substantial cost increases. Disbursements under the avia- tion and highway credits made in this period should now proceed on a normal schedule since the construction works for the aviation project (Cr. 374-AF) are expected to start soon, and the selection of consultants under the high- way credit (Cr. 449-AF), which became effective only in June 1974, is now under way. Progress under Credit 380-AF for the Industrial Development Bank (IDBA) will depend on the Government's efforts to encourage new investments in the country and grant necessary incentives. In general, it should be expected that future IDA financed projects would be started without undue delays and would proceed at a more normal pace. In close cooperation with IDA staff, the Government is trying to remove potential obstacles to good proj- ect implementation for those projects currently being prepared. The Govern- ment has also gained experience during implementation of several projects and continues its efforts to increase the administrative capabilities of the proj- ect authorities concerned and to streamline its procedures.  - 6 - 18. The Bank Group's lending strategy recognizes that special efforts are required to help Afghanistan. Its landlocked position, its extreme poverty and difficult economic problems, the structure of its political and economic framework, and shortage of physical and trained manpower resources pose severe limitationis on absorptive capacity and development. Considera- ble staff time is required, therefore, in identifying, preparing and imple- menting future projects. We hope to establish a basis for financing two or three projects each year, which, in addition to their developmental and institution-building impact, would assist in expanding production, increasing the foreign exchange earning capacity, enlarging government resources for de- velopment and improving absorptive capacity. To that end, technical as- sistance will continue to be an integral feature of most future projects. 19. A feasibility study has been initiated with UNDP financing and the Bank acting as Executing Agency for a proposed power project which is ex- pected to be ready for consideration by the Executive Directors early in FY76. This project, besides satisfying the country's development needs, is designed to help improve the institutional arrangements in the country. Based on the UNESCO/IBRD Cooperative Program's report on the education sector in Afghanistan completed in Mtarch 1974, the Government is finalizing its objec- tives in the sector, and preliminary discussions with the Bank were held in February 1975 in order to explore the possibility of future assistance in the field of education. A feasibility study for a second livestock development project is being finalized for lending in FY76. Further lending to the Industrial Development Bank of Afghanistan might become necessary in FY77. IFC has presently no further projects under consideration. PART III - WATER SUPPLY AND SEWERAGE IN AFGHANISTAN 20. Afghanistan's topography ranges from the mountainous Central High- lands of the Hindu Kush massif to desolate sandy deserts in the south-west. The country's landlocked location limits its rainfall and a semi-arid steppe climate is prevalent. In most districts average annual precipitation is below 350 mm, falling almost wholly between November and May. The Amu Darya (Oxus river) in the north, the llelmand river in the southi-west, the Hari-Rud in the west and the Kabul river, all witli their respective tributaries provide ir- rigation water. In general, however, river flows are seasonal, depending largely on snow-melt, and many rivers end either in shallow lakes or by dis- appearing into the ground. Surface water resources are therefore unreliable in many areas, irrigation and potable water supplies depend on groundwater. 21. The water supply sector in Afghanistan is in a very early stage of development. Piped water supply is limited to the capital and four major cities serving all together less than 500,000 people. Kabul, the capital of Afghanistan and its largest city, is the main transportation, commercial and communication center in the country. Situated at the junction of the Kahul and Logar rivers, at an elevation of 1,800 meters, it contains a university, a polytechnic, major hospitals, government institutions and important manufacturing facilities. The present population, believed to be in excess of 600,000, is expected to rise to 750,000 by 1979. About 180,000  - 7 - persons are accommodated in the old city area with its narrow unpaved streets, mudbrick housing and unsanitary living conditions. In sharp contrast the residential development to the north of the Kabul River consists of substantial properties, at much lower densities, generally served by paved streets. Low cost housing has been developed at Khair Khana to the north of the city center and at Sia Sung, to the east, but the continued development of these areas is severely hampered by lack of potable water. Another new housing project nearing completion at Mikro Royan, built with the assistance of the USSR, will house 10,000 persons. This development is fully served by paved roads, district heating, sewerage and a reliable water supply system. Water supply systems in Kabul range from shallow wells and a few private deep boreholes mainly used by hospitals, embassies and hotels, to public distribution systems serving the population mainly through public standpipes or metered service connections. An important feature in Kabul is the water carrier or "saquau"' who delivers and sells water from a goatskin bag. Apart from the housing development at Mikro Royan, there is virtually no public sewerage system in the country. Dry closets with night soil collection are normally in use, while properties with piped water rely on septic tanks, disposing of effluent in the sub-soil. 22. While the major provincia1 water supply systems are comparatively new, construction having begun in 1972 with Japanese technical and finaucial aid, construction of the first piped water supply system in the old city of Kabul goes back to the early years of this century. This system originally received its water from a spring. However, this source has been replaced by a well adjacent to the Kabul river. Unmetered public standpipes supplying water for only a few hours a day are the main source of potable water in the Old City; however, they are generally in a very poor condition so that much water is lost by leakages or waste. A very serious aspect of the system is the "negative" pressure induced by lack of water and permitting the absorption of polluted groundwater into the pipes for distribution when later recharged. 23. The "New City" system of Kabul, built about 1960, supplies consumers through some 3,600 service connections and over 360 public standpipes. There are 2,800 metered consumers but over 60 percent of the meters are believed inoperative. Billing on the basis of use, therefore, is largely notional so that a flat rate is generally applied. Looking at Kabul as a whole, water is supplied in two periods of the day, area by area, with total availability of approximately 4-6 hours. Losses of 30 percent to 40 percent through leakage cr waste are common. 24. One of the weakest aspects in the field of public water supply and sewerage has been the diffuse institutional arrangements and lack of clear allocation of responsibilities. There is a Water Management Section in the Government's Water and Power Department to evaluate the country's total water resources and to recommend priorities for all aspects of water usage, includ- ing irrigation, potable water and hydro-power potential. However, the depart- ment is in an early stage of development and little headway has been made as yet on these tasks. No legislation exists in Afghanistan on water rights, though a draft Water Code has been prepared.  25. Urban water systems are administered by the municipalities, and all aspects of the operations of these bodies are subject to close supervision by various ministries and government departments. The Water Supply and Sanita- tion Department of the Ministry of Public Works was until recently responsible for survey, design and construction of new systems, and it provides technical advice to the municipalities. This department was also functioning as the Afghan counterpart agency for new water supply projects funded by foreign donors. The Afghan Government has recently decided to vonvert the Water Supply and Sanitation Departmeat into a Government enterprise (Afghan Water Supply and Sewerage Authority, AWSSA) with a separate legal personality. AWSSA is not fully operational yet but is expected to take over gradually all major responsibilities, including operations, for public water supply and sewerage in the country. PART VI - THE PROJECT Project History 26. The project is the first stage of the implementation of a 30 year master plan for Greater Kabul for water supply and sewerage, prepared under a 1UNDP-financed and WHO-executed project. Consultants Proctor Redfern Inter- national Ltd. (Canada), who prepared the master plan, have completed the pre- liminary engineering study for an integrated water supply system for Greater Kabul and the engineering design drawings and bid documents for the Khair Khana distribution system and the supply of water meters. The project is based on the master plan study and on the findings of an appraisal mission which visited Afghanistan during November 1974. Negotiations were held in Washington from April 21, 1975 to May 1, 1975. The Afghan delegation was headed by His Excellency M.E. Abdullah Malikyar, Ambassador to the U.S.A. Description of the Project 27. The project would (i) improve and extend water supply facilities in the Old City of Kabul and the residential areas Wazir Akbar Khan, Shashdruk and Khair Khana; (ii) improve the sanitary conditions in the Old City where the need is greatest; and (iii) support important institutional improve- ments in the water supply and sewerage sector. the water suppLy component of the project consists of a wellfield at Logar with 20 deep boreholes of which 10 will immediately be equipped with pumps, a 9 km force main to deliver the water to one of two new 5,000 m3 storage reservoirs from where some 225 km of new arterial and local mains plus service connections distribute the water to the consumers. In conjunction with a related project supported by the Federal Republic of Germany (see next paragraph), the project would in- crease the available supply of water from 10,000 m3/day to 70,000 m31day and would introduce a safe and reliable water supply system that would serve about 330,000 inhabitants on project completion (1979), compared with 167,000 now.  - 9 - About half of the additional consumers would be the poorer citizens served by standpipes. The sanitation component provides for improvements to 8,000 latrines together with the supply of vehicles and trailers to collect night soil on a regular basis. This would reduce health hazards in the poorest section of the city. The report of the appraisal mission entitled "Appraisal of the Kabul Water Supply and Sanitation Project" (Report No. 746-AF) is being circulated separately. A credit and project summary is attached as Annex III. 28. CIDA, with WHO as executing agency, will provide consultants to assist in detailed design, preparation of contract documents and bid evalua- tion for the water supply project. The consultants work will also include design of a future sewerage project for which the Government has requested IDA assistance. CIDA's assistance will also include training, four technical fellowships and the secondment of an advisor in administration, management, finance and accounting for two years. An appropriate agreement between CIDA, WHO and the Government, which is presently being prepared, or other satis- factory arrangements, would be a condition of credit effectiveness. Related Aid Efforts 29. IDA and the Government have worked closely with WHO, the Federal Republic of Germany and the Canadian International Development Agency (CIDA) during preparation of the project. A German financed scheme is planned to complement that proposed for IDA financing by developing a wellfield at Afshar, to the west of Kabul. This project is part of the 30-year master plan and includes the drilling and equipping of five deep boreholes, a high lift pump- ing station, a new 10,000 ml storage reservoir and main transmission lines to the housing development Khair Khana and the existing city distribution network. Project Execution 30. The total construction period for the project is about three years. Construction is expected to broadly coincide with the associated Afshar scheme which will simplify supervision. AWSSA will be responsible for water supply, design, contract preparation and construction and will be assisted by the project consultants financed by IDA and CIDA and employed under the Bank's guidelines. AWSSA would also coordinate activities between the consultants working on the IDA and German supported Afshar projects. The Kabul Municipality will be responsible for the preparation and execution of the sanitation improvements in cooperation with householders. Institutional Arrangements 31. In the course of project preparation the Government decided to establish AWSSA as an autonomous water supply and sewerage authority which will gradually take over operations, including tariff collection and mainte- nance of water supply and sewerage systems, throughout the country. The  - 10 - Government also approved legal articles for the new authority which were pre- pared in consultation with IDA and provide an adequate basis for carrying out its functions in accordance with appropriate administrative and financial principles. AlWSSA is a Government enterprise with national jurisdiction. Ac- cording to its new; articles, AWSSA will be headed by the Minister of Public Works who will be the ex-officio Director General and Chairman of the Board of Directors thicb will supervise the management and will formulate the authority's policies. The President of AWSSA will be responsible for the execution of the resolutions of the Board of Directors and for the management of the authority's current affairs. The appointment of a President, Vice President (technical), General Director of Accounting and qualified and ex- perienced General Director for Kabul would be a condition of credit effective- ness. AWNSSA would also designate a training officer, submit a training pro- gram to IDA within seven months of credit effectiveness and introduce a com- prehensive accounting system. Project Cost and Financing 32. The total cost of the project is estimated at Us$11.7 million equivalent; US$11.3 million equivalent is for water supply, US$0.4 million for sanitation. The foreign exchange component is estimated at US$8.8 mil- lion equivalent of which about US$0.2 million equivalent would be covered by a CIDA grant and the balance of $8.6 million by the IDA credit. The IDA credit would also finance US$0.4 million equivalent in the local costs. The remaining US$2.5 million equivalent or 21 percent of total project cost, would be financed by the Afghan Government, internal resources of the project authority and by CIDA ($90,090). 33. Of the water supply component of the proposed IDA credit US$3.48 million equivalent would be relent to A1WSSA by the Government and $5.22 mil- lion contributed to the equity of AWSSA. The terms of the Government's loan to AWSSA wBould be incorporated in a subsidiary agreement acceptable to IDA; signature of the agreement would be a condition of effectiveness of the IDA credit. It is expected that relending terms would be 25 years. including 5 years of grace, at 8 percent interest. US$300,000 for sanitation improvements, would be passed on to the Municipality as a grant. Procurement and Disbursement 34. Procurement would be under international competitive bidding, ex- cept for small civil works contracts for individual water connections and latrine improvements, which are more suited to local bidding in small pack- ages, and for the drilling of the wells, likely to be carried out by Govern- ment drilling crews. Total cost of these exceptions is not expected to exceed US$250,000 equivalent. Domestic preferences of 15 percent or the applicable customs duty (whic'hever is lower) for equipment, and of 7-1/2 percent for civil works, would be granted. 35. For the water supply component of the project, the proceeds of the proposed credit would be disbursed against 100 percent of the cif cost of imported equipment or of the ex-factory cost of locally manufactured equip- ment, 100 percent of the foreign expenditures for consultants services and  - 11 - 60 percent of total expenditures for civil works. For the sanitation component the credit would be disbursed against 75 percent of total expenditures for civil works and 100 percent of cif cost of imported goods or of ex-factory cost of locally manufactured goods. A condition of disbursement for the Khair Khana distribution system would be the establishment of satisfactory arrange- ments for the supply of water by the time the distribution system is completed in that development. Financial Aspects of the Projects 36. There are indications that the present water supply operation incurs substantial losses, though this is difficult to ascertain with precision in the absence of adequate accounts. Water revenues are derived from about 2,800 metered and 800 unmetered connections, plus a contractual payment from the University. Many meters are inoperative and in such cases a fixed charge is substituted. Billing and collection systems are outdated and inadequate. No revenue is derived from public standpipes. Present rate for unmetered supply is Afs 60/month; that for metered supply Afs 0.275/m3, which is insufficient and much lower than the unmetered flat rate. 37. Since average incremental cost of water in Kabul is between Afs 6.6 and Afs 9.2/m3 an initial rate of Afs 7.50/m3 for metered water supply will be introduced commencing with the Afghan FY1976/7. This rate would also be consistent with rates in force elsewhere in Afghanistan. Consumers not effectively metered will continue to be charged a fixed monthly rate of at least Afs 60/month, while the Government will contribute most of the costs of providing water through standpipes and fire hydrants. Universal metering of private water supply will be introduced by 1979. 38. The objectives of the new tariff are to allow AWSSA to earn suf- ficient revenues to meet its financial requirements and to produce a positive rate of return on net fixed assets while giving the lower income groups bene- fits from the new and improved services. Although AWSSA's rate of return for Kabul is forecast to be negative for the first three years of full operations because of its low initial revenue base, tariffs would be fixed to produce a 2 percent rate of return in 1980/1, 6 percent by 1982/3, and 7 percent there- after. In view of the stage of development of this sector, the recent estab- lishment of AWSSA, and the social and health character of the service, these rates are considered acceptable. 39. In order to help AWSSA to avoid initial financial difficulties, the existing water supply assets will be transferred to AWSSA free of debt and the water authority will be reimbursed for all expenses incurred in respect of water systems for which it has not yet assumed full responsibility. AWSSA's assets will be inventoried and properly valued and its accounts will be audited by qualified independent auditors. A debt service clause would limit borrowing by AWSSA without IDA's agreement, unless net cash generation for the year prior to incurrence were at least equal to the maximum future annual debt service on existing and the proposed debt (Section 4.07 of the Project Agreement).  12 - Justification 40. The justification for the proposed project is the social and health benefits as well as the considerable institutional improvements expected to take place in the course of project implementation. The project, wqhich re- presents the least cost solution to meeting a portion of Kabults water re- quirements,will provide a reliable service 24 hours a day for the poorest section of the continuously growing urban community and will bring water to thousands of new consumers. This in turn allows the introduction of a tariff sufficient to discourage waste and excessive consumption of water and to pre- pare the ground for further improvements in the sector. A continuous supply of water would avoid the negative pressure wqhich is significant for the pre- sent system and which encourages infiltration of polluted groundwater. The sanitation component would improve sanitary conditions in the old city where the poorest part of Kabul's populatipn is living and need is greatest. Another important benefit is the strengthening of AWSSA as an institution capable of improving and extending water supply and sewerage services also outside the project area with the goal of serving the whole country. The rate of return is about 9 percent on the basis of the incremental revenues attributable to the project. This moderate rate of return refletts, in part, the fact that no value has been attributed to water supplied without charge through standpipes to the poorest segment of the population. PART V - LEGAL INSTRUMENTS ANn AUTHORITY 41. The draft Development Credit Agreement between the Republic of Afghanistan and the Association, the draft Project Agreement between the Association and Da Afghanistan Da Obo Rasawalo Aow Canalization Roassasa (AWiSSA) the Report of the Committee provided for under Article V of Section 1(d) of the Articles of Agreement, and the text of a Resolution approving the proposed Development Credit are being distributed separately to the Executive Directors. 42. An agreement between CIDA, WHO and the Government on consulting services (see paragraph 28 above) and a subsidiary agreement between the Government and AWSSA,in accordance with Section 3.01(c) of the credit agree- ment,would be conditions of credit effectiveness. 43. I am satisfied that the proposed development credit would comply with the Articles of Agreement of the Association.  - 13 - PART VI - RECOMMENDATION 44. I recommend that the Executive Directors approve the proposed development credit. Robert S. McNamara President Washington, D.C. May 23, 1975   lage 1 of 3 pages COCN1RI DATA - AFGHANISTAN ARU ~~~~~~~~~POPMLAITON ** sSI ,Lo ra 9j iltin (mt&1972 100 Per k.2f! rable lend SOCIAL INOICATORS Afghanist3n 960-- = itf 1970 1- li0 ON PER CAPITA US$ (ATIAS BASIS) o 80 / eo 1o0 a 320 /a DEGRAPHIC CrBud tFnh rate (pr thnusad? 5i 40 45 4/5,j 49 48 4 , Crude death rate (per thousansd 26 4, 23 /c 18 15 /c Infant mortality rate (per thousand live births) .12 /d 93 d Life xpscotanoy at birth (yeara) 38 b h2.1/d 41 B 54 Oross repos daptims rateg 3.4 b.2g 3-0 /h. 3 35 Pplat1in growth 2 0 n1tt 2.8 3 33 Population growth rate - urban 2 3 fa 5 5 5 Ag- aLrucLure (perCent) C0-i14 43C/n 41 5 4P9a 15-o64 54 567i 52 65 and over C3 j 3 Age dependency ratio A5 3.8 40. Eoonoadc depeedenoy ratIo /2 15 - 1.2 1.7 2.5 Urban population as perwnt of total 15 /d.f 2Id. 13 Z5 h4 Ih.s ?spily plannings Wo. of acoptors conuative (thou ..) No. of nars (% of orriad une). * gSuebor force (thousands) L 600a h,yn900 /5 5,ioo /5 1,700 . Psro3ntaga employed in agriculturo 67 . 9h /d 80 /C 5. a Peroentage unemplnyod 8 5 ISCCrB 3ISTRrlRIIICNJ PIroont of notional inooce received by highest 5% Peroect of notional innome r-oeivad by highest 20% Parcent of national incose reosived by lowest 20% Percent of national inomoe received by loweat 40% XSTRIBlflaON OP LaND OmssIP S owned by top 1OL of ownors % owned by smallest 10% of own-er HEALTH AND NUJHITION Population pr physiciao 32,000 A2 20,450 / 19,770 / 15,9hO 3,850 Population per nuraing person 22,760 22,120 /5, 35,6C0 I 1,950 4,460 Population per hospital bed 8,400 Iy 6890 6,750 1,040 9 1 010 hr apite. caloria supply sr % of TOquirsessnt" 5 86 / 60 93 91 102 Par napita protein supply, total (grans per dsyj/4 63 k 58 52 63 70 Of which, anital and pal e 1..1 5 11 24 / 16 /5 Death rate 1-4 years /7 Alji;ied /8 prioary school enrollment ratio 10 22 Jr 31 25 A 88 /a Adjusted ! socondary school enrollment ratio 1 6 r5 7 /5 9 /5 39 Zi TYare of anhooling provided, first and aecond level 12 12 10 12 12 Voaational onrolloent as % of sec. anhool anrolltant ll 6 6/h 1 /k 4 Adult literacy rate % .-l/ 1 19/4 40 / 3verge No. of parsons per room (urban) 2.5 / Pero.ot of ocoupied unite oithnat piped water 36 t.u Ancess to electricity (as % of total population) 26 Peroset of ftral population conoeoted ta sl1ctrinity CONSNtlIONI Rsdio recaivers per 1OOD population 2 16 /v 9 / 80 / 3774 I Pase..ger osra per 1000 population 1 3 ,7 0o.4 2 Llactrio power comsunptiozi (keh p.c.) 9 / 25W 7 L 18 /a 183 , Newsprint consumption p.c. kg per year o Ch . 0.1/5 0.04 /j Notes: Figures refer either to the latest periods or to oaoount of envlr-nmsental tamprature, body weighta, and the latest yearr. latst periods refer in principle to diatribation by age and seI of national populations. the year- 1956-60 or 1966-70; the latest 86 in prin- /6 Protein standards (requireeneat) for all eountri.es ae tab- ciple to 1960 and 1970. lished by PEI Enononic Reasearch Servis provide for a slos. /I The Per Capita GNP estilate ia at arnkrct prior, for alloweomo of 60 grams of total protein per day, and 20 grare of ye,rs other tha 1960, oalnulctad by the -oa onesrdon simal and palae protein, of whiah 10 gras should be animal te.nhique ao the 1972 torld ornk Atls. protein. These atandards are somewhat lower than those of 75 IL Average number of daughters per woman of reprodctive gram. of total protein and 23 grams of anic&A protein as an age. average for the wrld, proposed by rno in the Third Vorld Food / Ppulction growth rates are for the decodes ending in Survey. 1960 and 1970. /7 Soae studies have suggested that orude death rates of children R Natio of population under 15 ad 65 and over to popula- ages 1 through 4 nWa be used as a first approximation index of tion of ages 15-64 for age dependency ratio and to labor salnutrition. force of agoo 15-64 for economic dependency ratio. /8 Percentage enrolled of worrewpohning population of school Age PA 10 refe.-ne atanda-ds represant physialaginal re- as defined for each oyuntry. quirasante for noal activity and health, taking Ia 1972; Ab 1965-70; /c Retimat.; Id 1971; /a 1960-72; / Definition at available; / Sixty-ight towns; - Cities, Ribafase centers and santika cneteral /i 1968-71n 4 Based on ID estimate of labor force; /5 1969; - /I 1962; to: To lading aassistent nurses, midwiieas nd asaista midwives; /n Including maternity end rural hoaptitea; -5 Personnel in government serricea, not all working in the country; /4 GOvernment hospital setabllshments only; /5-1964-66; /5 Pauic education only; /a Including UDRY achools; /t Urban only; /u Inside or outside; /V 1968; / 1961. a Syria's similarity in total population, its arid climate with its heavy reliance an rooftell for agricultural production, the importance of eotton as a Jajor export crop, and finally the dolonant role of the government in the econoay, all provide uasful poiota of .o.parison with Afghaniltan. Its higher literary rate and better heslth facillties are objectives to be aimed at by fghtanietan in the next denude. Updated 1971 Escno in Mission es timAte. AM smB,C Rh Mya 7, 1975  Anmex 1 Page 2 of 3 pages 1naIC fICLRS GW *n_S KAZ~AL PRO~CT 11 1971/hAiL AM TX g 3 -(%. 008tOnt M'a) 1 ~~~~~~~~~~~~~~1967 - 73 aUP at larket P?riajt 1,280.0 i00.o 3.7 Groet oe<t