Tanzania - Urban Water Supply Project

Report No. 1199-TA Tanzania: Appraisal of Urban Water Supply Project November 30, 1976 Energy & Water Supply Division FILE COPY Eastern Africa Regional Office FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  TANZANIA APPRAISAL OF URBAN WATER SUPPLY PROJECT Currency Equivalents Currency Unit 5 Tanzanian Shilling (T Sh) Tanzania Cents 100 = T Sh 1 T Sh 1 US$0.121 US$1 = T Sh 8.30 Measurement Equivalents and Abbreviations 1 meter (m) = 39.4 inches = 3.28 feet 1 kilometer (km) 2 = 0.62 mile 1 square kilometer (km ) = 0.386 square mile 3 1 cubic meter (m3) 35.3 cubic feet (cu ft) 1 liter = 0.26 US gallon 1 culic meter per day (m /day) = 35.3 cubic feet per day lcd = liters per capita per day Other Abbreviations and Acronyms Government = Government of Tanzania MWEM = Ministry of Water, Energy and Minerals AfDB = African Development Bank EDF = European Development Fund WHO = World Health Organization Gibb = Sir Alexander Gibb and Partners Inbucon = INBUCON International Limited WRI = Water Resources Insitute Government's Fiscal Year: July 1 - June 30  TANZANIA FOR OFFICIAL USE ONLY APPRAISAL OF URBAN WATER SUPPLY PROJECT Table of Contents Page No. SUMMARY AND CONCLUSIONS ............................ i-.i I. INTRODUCTION . ............. ........ .................. I II. THE SECTOR ......... ... ...o.........*.............................. 2 Background ............................... ...... .. . . 2 Water Resources ........ . ............... * .......... 2 Legislation .......................................... *.......... 2 Organization and Finance .......................... 3 Urban Water Supply ..... . .......... .............. . 4 Rural Water Supply ......... .. ................. . 4 Sewerage and Drainage ............................. 5 Long-Term Programs and Policy ......... *........... 5 III. THE PROJECT ........................................... 6 Objectives ........................................ 6 Description . . .6........ 6 Cost Estimates ................................... . 7 Customs Duties and Taxes ...... .................... 9 Loan Amounts ....* ................................. 9 Project Administration, Management and Engineering Consultants ........... . ........ . 9 Procurement .......... ............................. 10 Construction Schedule ...... ....................... 10 Project Expenditures, Loan Disburesment ........... 10 Ecological Aspects ..................... * .......... 11 This report was prepared by Messrs. D. Coyaud and N. Tin with assistance from Messrs. J. Kozel and R. van Wagenen. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  -2- Page No. IV. THE IMPLEMENTING AGENCY ................... .......... 11 The Borrower ...................................... 11 Existing Situation ...... .......................... 12 Changes in Organization ................ . . .......... 12 Organizational set-up of the urban water supply fund ...................................... 13 Morogoro Water Supply Unit ..... ................... 14 Senior Advisers in MWEM's Headquarters ... . ......... 14 Accounting and Audit .............................. 15 Billing and Collection ...* ........................ 15 Project Monitoring System ......... ................ 15 Risks ............................................ 16 V. JUSTIFICATION OF THE PROJECT ..... ................... 16 Institutional Objectives . . ...................... 16 Physical Objectives ................... ............. 17 Comparison of Alternatives ..... ................... 18 Return on Investment ........................... O.. 18 VI. FINANCIAL ASPECTS ....................... .......... . 18 Introduction .............. . ....................... 18 Past Operating Results and Financial Position ..... 19 Water Tariffs ...................................... 20 Financing Plan . .. ...... .............................. 21 Future Operations and Financial Position .......... 22 VII. AGREEMENTS REACHED AND RECOMMENDATION ..... .......... 23  LIST OF ANNEXES ANNEX 1. Existing facilities and new works in Morogoro Diagrammatic representation of new works in Morogoro Major data Technical criteria used in the Project design Morogoro - details of contract 2. Training - Terms of Reference of Senior Advisers. 3. Cost Estimates Costs in T Sh Costs in US$ Program of expenditures Estimated Consultants fees 4. Construction schedule 5. Proposed allocation of Bank loan proceeds. Estimated schedule for disbursements. 6. Organization charts MWEM Headquarters Regional Water Supply 7. Monitoring Indices 8. Return on Investment 9. Actual revenues and expenses accounts 10. Opening balance sheets as of July 1, 1976 11. Average incremental cost of water supply 12. Income statements 13. Funds flow statements 14. Balance sheets 15. Notes and assumptions on financial statements and projections. Maps IBRD 12254 R - Tanzania Urban Water Supply Project - Project Location IBRD 12427 - Tanzania Morogoro Water Supply Project   TANZANIA APPRAISAL OF URBAN WATER SUPPLY PROJECT SUMMARY AND CONCLUSIONS i. This report appraises a project for the construction of a water supply system in the town of Morogoro, the provision of management advisory services and the contribution to a training program for the water supply sector for which an IBRD loan of US$15.0 million is proposed. ii. The project would increase by 25,400 m /day the existing peak water production and transmission capacity of the water supply system of Morogoro which has a population of 39,000. It would increase by more than seven-fold the amount of water available to institutions and industry, including a major directly productive industrial estate presently being considered for financ- ing by the Bank. It would make up for the deficit in the current supply and would provide adequate water to 27,000 additional people up to 1986. The project would provide management advisory services in the headquarters of the Ministry of Water, Energy and Minerals (MWEM) to assist in improving the management and the operation of urban water supply systems. It would also expand the facilities of the Water Resource Institute operated by MWEM in Dar es Salaam for the training of water technicians. iii. The estimated cost of the project is about T Sh 160 million (US$19 million equivalent) before commitment charges and interest during construc- tion. The foreign exchange component would amount to about US$9.5 million equivalent (49%). The proposed IBRD loan would finance 78% of the project costs. The balance of the project expenditures would be financed by the Government. iv. The project would be carried out by MWEM with the assistance of engineering consultants and senior advisers. The new installations are scheduled to be in operation by October 1979. v. Although one of the major constraints to the development of the water supply sector is institutional, the Bank's ability to discuss broad sectoral reform is limited as this project would finance water supply ex- pansion in one town only. Yet, as a result of the Bank's concern with regard to the existing revenue collection and accounting procedures in the urban water sector, a number of major reforms in that area have been proposed by MWEM and recently endorsed by the Government. An urban water supply fund will be established at MWEM to receive water revenues from Morogoro and all other towns, except Dar es Salaam. All operating costs, debt service and minor capital expenditures would be met from the fund. An urban water supply unit would be formally set up in Morogoro to be responsi- ble for operation, maintenance, billing and accounting for the water supply system in the town. The Bank also expects to improve the performance of  - ii - the water supply sector as a whole by adding to the quality of technicians trained at the Water Resources Institute and of the managers in MWEM's head- quarters who would be trained on the job by the senior advisers funded under the project. vi. All contracts over $100,000 for construction of new facilities to be financed by the IBRD loan would be awarded on the basis of international competitive bidding in accordance with the Bank/IDA guidelines on procurement, allowing for the usual preference to domestic suppliers and contractors. It is expected that most of the pipes would be manufactured locally but that pumping and treatment equipment would come from abroad. Civil works contrac- tors might be foreign or local. vii. The Government would be required to maintain water tariff at the present level in real terms by adjusting the tariff at periodical intervals when significant increases occur in general price indices. Water supplied through public standpipes, which is presently free of charge, will be metered and the urban water supply fund will recover the cost from the Treasury. Projected financial results indicate that the Morogoro town water supply would be financially viable. viii. If benefits are valued on the basis of the present water tariff (T Sh 2.20/m ) and foreign exchange shadow-priced at 1.35, the return on the project would be 7.9%. This return does not measure adequately the merit of the Project as significant health benefits will result. ix. The project is suitable for IBRD finance of US$15.0 million equiva- lent. The loan would be made to the Government and would be for 20 years including a grace period of 4.5 years. It has been assumed in the financial projections that the Government would pass on the proceeds of the proposed IBRD loan to the Morogoro town water supply at interest rate of 8.7% per annum over 20 years, including a grace period of 4.5 years.  TANZANIA APPRAISAL OF URBAN WATER SUPPLY PROJECT I. INTRODUCTION 1.01 The Government of Tanzania has requested a Loan from the Bank to help finance a US$19 million project for developing the water supply system in Morogoro, improving technical and managerial capabilities in MWEM's head- quarters and assisting in the development of MWEM's training program. An IBRD Loan of US$15 million is proposed to be made to the Government. 1.02 Originally, a scheme for expansion of the water supply in seven towns (Iringa, Lindi, Mbeya, Morogoro, Mtwara, Mwanza, Shinyanga) was con- sidered and prepared. It was appraised by the Bank for possible inclusion in a project to be co-financed by the African Development Bank (AfDB) and the Arab Bank for Economic Development in Africa (BADEA). Subsequently, AfDB chose to finance separately two towns (Lindi and Shinyanga) but BADEA withdrew from this project. The Government therefore approached the European Development Fund for the financing of three towns (Mbeya, Mtwara and Mwanza) and this application is under review. No sources of funds have so far been identified for financing the expansion of the water supply system in Iringa. 1.03 The Project would be the first Bank Group operation in the water supply sector in Tanzania although a number of rural development and agri- cultural projects financed by the Bank Group have water supply components. Sir Alexander Gibb and Partners (Gibb), consulting engineers from the UK and Kenya, prepared the final feasibility study for Morogoro which consisted of an updating of a study previously completed by H. P. Gauff from Germany. Organization studies, leading to recommendations for the creation of a central parastatal covering the original seven towns, were made by the Consultant, INBUCON International Limited from the UK. These recommendations were not en- tirely accepted by the MWEM which has proposed new arrangements within the Ministry. The studies by Gibb and Inbucon were financed by the Government and by the Association with funds available under a National Sites and Services project. 1.04 Preparation of the Project with the assistance of the Bank began in 1973 when the Government expressed interest in the possibility of a loan in the sector. The Bank Group assisted in project preparation on a number of occasions by field missions. 1.05 Field appraisal of the Project was carried out during December 1975 by a team which comprised Messrs. D. Coyaud, N. Tin, J. Kozel and J. Adams. In February 1976, Mr. R. van Wagenen visited Tanzania to assist with deter- mining the training component of the Project.  - 2 - II. THE SECTOR Background 2 2.01 Tanzania has a total area of about 940,000 km . It has 800 km of Indian Ocean shoreline of low and wet coastal plain rising in gradual terraces up to the high plateau in the center of the country. A tropical climate exists in the greater part of the country. In 1975, the popula- tion was about 15 million with density highest in the coastal area, on the shores of Lake Victoria, on the slopes of Kilimanjaro and Meru, and in the area north of Lake Malawi. In contrast, the center and south are almost empty. Most of the population (93%) live in rural areas, usually in small isolated communities; the remaining population of about 1.1 million live in 17 towns and 11 townships. The population is increasing at about 3% annually with distinct migration to urban areas, which grow at about 7.5% a year. Over 90% of the population is engaged in agriculture. Tanzania is one of the 25 "least developed" countries; per capita GNP is estimated at US$174 in 1975. Water Resources 2.02 Tanzania is generally a dry country, poor in surface and ground- water. The rivers belong to three drainage basins. The eastern basin, which is drained into the Indian Ocean, includes a few small coastal rivers of which the Pangani and Rufiji are the largest. The western basin is drained into Lake Tanganyika and the Congo River. The northwest basin is drained into Lake Victoria and the Nile. The driest regions are in the cen- ter and in the Rift Valleys, where there are no rivers and groundwater is scarce. The central plateau gets less than 1 m of rainfall and the Rift Valleys, protected from the wet winds, are much drier. Springs and small perennial rivers are found in the mountains around Kilimanjaro and north of Lake Malawi, both areas having rainfall over 1.5 meters. The presence of turbidity in surface water, salinity in many groundwater resources and high fluoride content in some aquifers also creates problems of water quality. 2.03 The hydrological and hydrogeological information concerning avail- able water resources is scarce and confined ususally to a few sporadic observations. In 1969, the Government decided to investigate and prepare an inventory of the water resources in each region. At present, the work has been completed in two regions and is underway in several other regions by consultants working under different bilateral assistance programs. Legislation 2.04 The major legal document dealing with water resources is the Water Utilization Act (1974), which states that all water rights are vested in the government, sets conditions for the use of water, and establishes a  - 3 - Principal Water Officer and a Central Advisory Board resposible for apportion- ment of national water resources. The Act is complemented by two subsidiary laws: the Water Utilization Regulation specifies the procedures for the Advisory board and lists rivers designated as national water supply sources which are under regulation; the Water Works Ordinance deals with urban water supplies, defines water supply areas and rights to supply water in these areas, and sets countrywide water rates for the different types of consumers. The legislation on the sewerage sub-sector covers only the construction of sewers and particularly the quality of workmanship and materials. 2.05 For the purpose of the project, no further legislation would be required. Organization and Finance 2.06 Several years ago, the activities in the sector were administra- tively divided among the Ministry of Works, responsible for urban water supplies, the Ministry of Local Government, for sewerage, and the Ministry of Agriculture, for water resources and rural water supplies. In 1969, the Ministry of Water Development and Power was established to consolidate within one ministry all activities in the water and power sectors. In 1975, the Ministry's responsibility was extended to the field of mineral resources and their exploitation and the name changed to the present Ministry of Water, Energy and Minerals (MWEM). 2.07 Under the decentralization policy adopted by the Government in 1972, the role of MWEM in the water supply sector has changed from one of managing and controlling the entire water program to one of providing policy direction, technical assitance to the regions, procurement, manpower train- ing and disposition, and initiating and executing "national water projects" including those in major urban areas. Each region's water department is headed by a Regional Water Engineer, who is responsible for operation and maintenance and for the design and implementation of extensions and improve- ments to the water supply systems within his region. The Regional Water Engineer is responsible to the Regional Development Director for administra- tive and financial matters and to MWEM for technical matters. 2.08 MWEM is presently in the process of reorganizing due to its added responsibility for mineral resources. It would consist of four technical divisions and three administrative units responsible to the Principal Secre- tary (organizational chart shown in Annex 6, page 1). The technical divisions would be oriented for central as well as for regional needs. The planning division would concentrate on overall sector statistics and planning. The project preparation division would include sections for hydrology, geology and research working on national basis. The manpower division would recruit and train manpower for the whole sector. Finally, the construction and main- tenance division would control several construction and drilling units avail- able for hire by the regions. Two units, administration and finance, would act for matters inside the Ministry. A supply section would arrange procure- ments for central as well as regional projects.  - 4 - 2.09 The regional water organization differs from region to region, depending on regional conditions, but it has usually an administration and accounting section, an engineering section responsible for planning and design, a construction section, an operation section and maintenance work- shops. Each regional water organization averages about 300 to 500 persons. 2.10 Capital and running expenditures for the sector are financed through the Government's budget with allocations to the MWEM and the regions. Annual capital expenditures for the entire sector reached over T Sh 400 million in the last few years representing about 2% of the national development budget. The main expansions of urban water supplies in Dar es Salaam, Tanga and Tabora and the entire rural water supply development have been largely financed from bilateral assistance programs channeled through the central budget. Total operating expenditures for the entire sector (urban and rural) reached over T Sh 55 million in 1975. Water revenues are paid into the national treasury. Total revenues for the urban water supply sub-sector in 1975 were T Sh 42 mil- lion. The present accounting system does not permit any firm conclusions as to the financial performance of individual urban water schemes. Urban Water Supply 2.11 It is estimated that about 85% of the urban population has access to water, but the level of service varies in both quality and quantity. In general, the water supplies are piped systems, supplying about 20% of the con- sumers through private connections and 80% through public standpipes. Water is usually treated and chlorinated. Water supplied through p5ivate connec- tions is metered and charged at a uniform rate of T Sh 2.20/m ; water supplied through public standpipes is free of charge. Industry is limited and located in only a few towns. Its share is on average about 10 to 15% of the total urban water consumption. 2.12 During recent years, expansion of urban water supplies fell notice- ably behind the growth of urban population and industrial needs due to the scarcity of funds. Water systems have been operated to their maximum capaci- ties with no production reserves and water shortages have occurred periodi- cally at times of peak consumption. Standards of operation and maintenance have suffered from inadequate funds for recurring expenditures. Water quality has also deteriorated. Extensions of distribution systems to new housing estates have been stopped for lack of water. Non-availability of reliable water supply for industrial use is starting to be an important inhibiting factor for future development of industry in Tanzania. Rural Water Supply 2.13 At present, about 22% of the rural population draw water from vil- lage water systems under the responsibility of MWEM. The level of service provided ranges from a single protected spring or well with a hand pump to a distribution system serving consumers through public standpipes. Water is free of charge; house connections and water billing are not used. It is estimated that in addition to MWEM's supplies, 10% of the rural population draw water from private and community supplies and from acceptable traditional sources (streams, rivers, lakes).  - 5 - 2.14 Capital expenditures on rural water supply have been mainly funded by Sweden. The Swedish aid program started in 1962 and represented T Sh 55 to 65 million yearly to which the Tanzanian Government added 20-30% except for the last two years when the Swedish contribution was the only develop- ment allocation. Selection of villages within the rural water supply construc- tion program is fully decentralized and is made by the regional administration. The program is implemented by the Regional Water Engineer with funds supplied through the Central Government. Water systems are run and maintained by the regional organization and are funded centrally. Recurrent cost require- ments for currently existing systems are estimated to be T Sh 43 million while budget allocation in 1975/76 was only T Sh 18 million, less than half that which is necessary. 2.15 In spite of systematic effort, progress in rural water supply devel- opment has been held back mainly by lack of technical manpower, lack of hydro- geological surveys and inadequate institutional arrangements. Sewerage and Drainage 2.16 There are only six towns with partial water-born sewerage services: Arusha, Dar es Salaam, Moshi, Mwanza, Tabora and Tanga; the population served totals about 200,000. Various governmental institutions like boarding schools, hospitals, prisons, police or army camps near towns are served by separate sewerage systems, which usually have oxidation ponds for treatment. Expansion of water-born sewerage systems has low priority; public sewerage is not essential where density is low and disposal of wastes by means of pri- vate systems is possible. 2.17 The sewerage systems are always separated from storm water drainage, which is generally carried out in conjunction with road construction. Both sewerage and storm water drainage systems are operated and maintained by local authorities, but to very low standards. Long-Term Programs and Policy 2.18 The long-term program of rural water supply, which was prepared in 1971, planned that all rural population would be provided with reasonably accessible water by 1991. Towards the end of 1974, the Government decided to accelerate the program to provide a permanent water source in every village by 1980. However, the financial implication of this decision seems enormous and may force the Government to decide to postpone the target year. 2.19 The long-term program for urban water supply is considered separately for each town depending on its condition, stressing the needs for securing adequate services to the growing urban population and industry by timely ex- tensions of existing water systems. However, due to the country's difficult economic situation in the last few years, the expansion program has been implemented in only three towns (Dar es Salaam, Tabora, Tanga) where ex- ternal finances were available. Implementation of the remaining part of the program depends on availability of further external funds. The most  - 6 - acute current sector problem that could be resolved with new outside fi- nancial assistance are in the seven urban water supply centers which were appraised: Shinyanga, Lindi, Morogoro, Mbeya, Mtwara, Mwanza and Iringa. AfDB agreed to assist in financing Shinyanga and Lindi water supplies, and the European Development Fund is considering financing Mbeya, Mtwara and Mwanza. Morogoro water supply would be financed through the present proj- ect. Up to now, no funds have been found to finance Iringa water supply. 2.20 The aim of the Government is to make the urban water supply sub- sector financially self-supporting. However, it is the Tanzanian policy, for water supplied through public standpipes not to charge directly the consumers at the standpipe. It is the MWEM's intention to phase out the existing standpipes and to install only house connections but this will be practically possible only over a long period of time and in the meantime an alternative mechanism for financing standpipe service will be developed (para. 6.07). In rural areas, the Government hopes that village coopera- tives would generate enough income in the near future to meet the expenses of operating their water supply systems. III. THE PROJECT Objectives 3.01 The project would contribute to the investment program of the urban water supply sector. It would develop the production and distribu- tion capacity of Morogoro water supply system to make up for deficits in current supply and to meet future demand up to 1986. The project would also improve management and technical capabilities in MWEM, and assist in the development of MWEM's training facilities. Description 3.02 The principal project components are as follows: a) Construction of an 1,650 m long, 12 m high earth dam across the Ngerengere river near Morogoro with tower intake, culvsrt and spillway. This dam would retain 10 million m of water at full capacity. b) Construction of production facilities including transmission pipelines, treatment and pumping sta- tions, storage reservoirs and reticulation exten- sions in Morogsro. The project would increase by about 25,400 m /day the existing peak water produc- tion and transmission capacities to satisfy the water demand up to 1986 (water supply requirements are de- tailed in Sara. 5.07 to 5.09). It would also increase by 5,450 m the storage capacity and amend and extend  the existing distribution networks up to an efficient state by early 1979. It would involve the laying of about 13.5 km transmission mains with diameter 400 and 450 mm and about 14 km pipes with diameter 150 mm or less. c) Supply of new vehicles for the urban water supply unit in Morogoro (4 four-wheel drive and 2 seven-ton lorries). d) Management advisory services in MWEM's headquarters. This would provide for three senior advisers, including a technical expert, a financial expert, and a personnel and training expert, who, over about two to three years, would assist the MWEM in improving the management and the operation of urban water supply systems (see para. 4.11). e) A contribution to the MWEM's training program for the whole sector, consisting mainly in the expansion and diversification of the Water Resources Institute (WRI) which is responsible for pre-service training of water technicians in the sector. 3.03 Existing facilities and details of the proposed development in Morogoro are described in Annex 1; essential data are also shown on maps. The existing training program and the training component of this Project are detailed in Annex 2. Cost Estimates 3.04 The estimated total cost of the project is about T Sh 160 million (US$19.2 million). Foreign exchange costs would be equivalent to about US$9.5 million (49%). The cost estimates are detailed in Annex 3 and sum- marized below:  - 8- TSh Million US$ Million (Equivalent) Local Foreign Total Local Foreign Total % I. New Works in Morogoro Dam 21.23 17.00 38.22 2.56 2.05 4.60 23.9 Civil Works 13.92 12.55 26.47 1.68 1.51 3.19 16.6 Pipes and Fittings, Supply 2.02 4.70 6.72 0.24 0.57 0.81 4.2 Pumping Equipment 0.45 2.03 2.48 0.05 0.24 0.30 1.6 Treatment Equipment 0.80 4.23 5.04 0.10 0.51 0.61 3.2 II. Vehicles for Morogoro 0.39 0.39 0.78 0.05 0.05 0.09 0.5 III. Engineering Consultant 3.33 5.51 8.84 0.40 0.66 1.06 5.5 IV. Technical Assistance and Training Management Advisory Services 2.15 3.28 5.43 0.26 0.39 0.65 3.4 Training Program 12.07 5.17 17.24 1.46 0.62 2.08 10.8 V. S/total Base Cost Estimates 56.36 54.86 111.22 6.79 6.61 13.40 69.7 VI. Contingencies - Physical 9.51 9.08 18.59 1.15 1.09 2.24 11.6 - Price Increase 15.28 14.52 29.80 1.84 1.75 3.59 18.7 Total Cost of Project 81.15 78.46 159.61 9.78 9.45 19.23 100.0 3.05 These cost estimates are expressed in December 30, 1976 prices. They are based on data provided by the engineering consultants who carried out the feasibility studies. The unit prices used are based on suppliers' quota- tions and on tenders received for similar projects in Botswana, Malawi and Tanzania. The engineering costs for the new works are about 10% of construc- tion costs and cover design and supervision fees, the cost of site supervisory staff and general reimbursable expenses. Engineering services would involve about 293 man-months and the fees for management advisory services correspond to 100 man-months (see Annex 3, page 4). 3.06 Physical contingencies of 15% have been added, except for the con- struction costs of Morogoro dam where 20% have been added because rock excava- tions could be higher than in the base estimates. Price contingencies allow- ances totalling 18.7% of the total cost of the Project have been added to base costs and physical contingencies (see Annex 3, page 3). They are based on following annual rates in accordance with Bank guidelines.  1977 1978 1979 1980 1981 Equipment and Services 8% 8% 8% 7% 7% Civil Works 12% 12% 12% 10% 10% 3.07 The foreign exchange cost of the project ($9.5 million) is the sum of direct payments made in foreign currencies for equipment, materials, con- sulting services and contractors ($7.5 million) and of cost estimates for im- ported items used to manufacture local materials (cement, steel reinforcement, PVC pipes, etc.) that are paid for in local currency ($2.0 million). Customs Duties and Taxes 3.08 Equipment imported directly for the project is assumed as exempt from customs duties and taxes. However, it is assumed that some would be purchased by contractors in the local market and hence would be taxed. The local costs of the project include allowances for import duties and sales taxes on these materials, which are estimated to be about $0.7 million or 3.6% of the total project cost. Loan Amounts 3.09 The project is intended to be financed as follows: TSh Million US$ Million IBRD Loan 124.5 15.0 Government contribution 35.5 4.2 Total 160.0 19.2 Project Administration, Management and Engineering Consultants 3.10 MWEM would have the responsibility for project administration. MWEM for that purpose would be assisted by the three senior advisers financed under the project through management advisory services (para. 4.11 and 4.12). 3.11 To carry out the detailed design and supervise the construction of new works in Morogoro, MWEM appointed Sir Alexander Gibb and Partners (Gibb) as engineering consultants; this firm which has updated the feasibility studies for this project, is acceptable to the Bank. To carry out design and supervise construction of new training facilities which would be funded under this proj- ect, MWEM has appointed an engineering consultant NEDECO of the Netherlands already working and financed by local funds.  - 10 - 3.12 Details of estimates for engineering consultant fees and cost of senior advisers are given in Annex 3, page 4. Retroactive financing of $500,000 from the loan is proposed for expenditures to be spent for in- vestigations of the Mindu-dam site and for fees to be spent from the date of the consultants' appointment (July 76) to the date of loan signing. 3.13 Agreement was reached that senior advisers would be appointed by June 30, 1977 and engineering consultants acceptable to the Bank would con- tinue to be employed to assist MWEM in carrying out the project. Procurement 3.14 Construction of new facilities in Morogoro would involve a total of 5 main contracts including 2 contracts for civil works (Mindu dam and other civil works contract) and 3 contracts for equipment supply. Construction of new facilities included in the training component would involve one civil works contract and several contracts for equipment supply. 3.15 Contracts under $100,000 would be awarded in accordance with local procedures which are satisfactory to the Bank. Total expenditures under such contracts would not exceed $500,000. All contracts over $100,000 to be financed by the Bank Loan would be awarded on the basis of international competitive bidding in accordance with the Bank guidelines on procurement. A preference of 15%, or the applicable customs duty, whichever is lower, would be applied to the bids of local manufacturers of equipment. A pref- erence of 7.5% would be applied to bids from local civil works contractors. It is expected that most of the pipes will be manufactured locally but that pumping and treatment equipment will come from abroad; civil works contrac- tors might be foreign or local. Construction Schedule 3.16 Tenders for civil works would be called for in June 1977 for Morogoro. Tenders for supply contracts would be called for in February 1977 for treatment equipment and in July 1977 for pumping equipment. If the proposed schedule is adhered to, the new installations would be in operation by early July 1979. However, various kinds of problems (delivery, transportation, etc.) may lengthen the construction period and an allowance has been made for a delay of three months in the commissioning date of the new facilities. This extended construction period has been taken into account in the cost estimates, disbursement schedule and financial projec- tions. The schedule for design, procurement and construction of the project is shown in Annex 4. Project Expenditures, Loan Disbursement 3.17 The forecasts of annual project expenditures are shown in Annex 3, page 3. These forecasts are derived from the construction schedule given in Annex 4.  - 11 - 3.18 The proposed allocation of the proceeds of the Bank loan is given in Annex 5 page 1. 3.19 The estimated disbursement schedule for the proposed loan is shown in Annex 5 page 2. The proposed Closing Date would be June 30, 1981. Any unused balance of the loan after completion of the project could be used, subject to Bank approval, for extension of distribution systems, further improvement of production or transmission facilities in Morogoro, for MWEM training program, or feasibility studies for subsequent projects in the sector. Ecological Aspects 3.20 The project is intended to provide sufficient piped water to people in Morogoro who do not have adequate amount of safe water now and to satisfy reasonable needs up to 1986, Thus, it is expected that the incidence and risk of diseases attributable to the lack of safe and adequate water supply would be reduced during the next decade in spite of the population increase. 3.21 Water rights of existing riparian estates below the Mindu reservoir have been taken into account by allowing water to be constantly relsased from the reservoir to the Ngerengere river at a minimum rate of 16,000 m /day. Actually, water downstream of the future reservoir would be available with increased reliability. 3.22 Sludge from the water treatment plant constructed under the project would be returned to the river below the intake of raw water. The effect on the characteristics of the river water would be slightly negative but quite acceptable. 3.23 The increase of water supply would lead to an increase of waste water. This would be no particular problem in the project area where popula- tion density is low. IV. THE IMPLEMENTING AGENCY The Borrower 4.01 The Government of Tanzania would be the borrower. The proceeds of the proposed loan would be applied to expenditures on the Project through the Ministry of Water, Energy and Minerals (MWEM).  - 12 - Existing Situation 4.02 The existing institutional framework of the water supply sector is described in paragraphs 2.04 to 2.10. The standards of administration, tech- nical operations and financial control in the sector are generally poor. This stems mainly from: i) the shortage of trained personnel at all levels; ii) the lack of funds required for proper operation and maintenance of the water supply systems; and iii) the limited usefulness of the accounting and fi- nancial information presently provided for man- agement control purposes. 4.03 In view of these problems, the Government recognizes the need to strengthen the existing institutional arrangement and to embark on a training program for the entire water supply sector. As a result, the Government engaged joint engineering/management consultants (Gibb-Inbucon) in January 1975 to review the situation and propose suitable institutional arrangements for the water supply sector. Changes in Organization 4.04 In their final reports, which were completed in February 1976, Gibb-Inbucon contended that the best institutional arrangement in the long run would be a water supply and sewerage corporation answerable to MWEM for all matters pertaining to the sector. Since the immediate creation of such a wide-ranging body would be too costly in terms of money and manpower, the consultants recommended that the water supply and sewerage utility so con- ceived should be started by establishing a nucleus of water supply systems in the form of a corporation directly responsible for the operation of the seven towns under the general supervision of MWEM. It was intended that this nucleus would provide the opportunity to develop, test and modify sys- tems, practices and procedures before embarking on progressive expansion towards a fully comprehensive and nation-wide utility. 4.05 Gibb-Inbucon's recommendation was not entirely accepted by the Gov- ernment, which considered the setting up of such a new parastatal undesirable at the present time when the political mood in Tanzania appears unfavorable towards parastatals and the Government is engaged in a major campaign to streamline and revitalize the operations of these organizations. 4.06 MWEM submitted instead its own proposal, which is summarized as follows:  - 13 - an urban water supply fund (hereinafter referred to as the Fund) would be set up for 95 urban water supply systems excluding Dar es Salaam, which would have its own fund. The Fund would contain recurrent accounts. It would collect water revenues from all the urban water systems from which operating and maintenance expenses, debt service and expenditures for routine extensions would be met. In the long run the recurrent budget would be expected to operate on an overall no profit no loss basis but in the interim Government subsidies would meet any shortfall. Capital accounts for major expansions would remain in MWEM's government budget. Assets and debt obligations would be transferred to the Fund when the major expansions are completed. This proposal was recently approved in concept by the Tanzanian Cabinet. an urban water supply unit would be set up in Morogoro and other towns to be responsible to the respective Regional Water Engineer for operation, maintenance, billing and accounting for water supply system in the town. - three temporary senior advisers would be attached to MWEM's headquarters to strengthen MWEM's technical and managerial capabilities. 4.07 While these new arrangements do not go as far toward establishing the commercial independence of the water sector as the Bank had originally hoped, it is clear that they represent a significant step forward from the existing system and they are acceptable to the Bank. It is expected that with experience under the new system, the full potential of a commercially independent water sector will be the focus of extensive discussion between Government and the Bank. It was agreed that the new arrangements would be reviewed from time to time with the Bank to identify any problems which may arise so that appropriate adjustments or changes could be quickly ini- tiated. Organizational set-up of the urban water supply fund 4.08 The Fund would be administered by MWEM advised by a Board of Advisers consisting of, among others, the Regional Development Directors. An officer responsible directly to the Principal Secretary of MWEM would be assisted by a number of staff tc (i) ensure that water revenue would be collected and channeled to the Fu:._; (ii) coordinate preparation of annual budgets for individual _ st -i ,-.resent budgets for review by the Principal Secretary and the Board c^ Advisors; and disburse the funds to the systems as approved;  - 14 - and (iii) review water rates periodically and advise the Principal Secretary on appropriate rate changes. The Officer of the Fund would be appointed as soon as possible in order to initiate implementation of the Fund on July 1, 1977. Morogoro Water Supply Unit 4.09 The organizational structure of the future Morogoro urban water supply unit is shown in Annex 6, page 2. The unit would be headed by a manager responsible to his Regional Water Engineer. The manager would be assisted by two assistant managers: one for operations, the other for accounts and administration. It is expected that all the positions of manager and assistant manager for operations and the staff for the Morogoro urban water supply unit will be filled with personnel existing in Morogoro. The positions of assistant manager for accounts and administration, however, would have to come from outside the region. 4.10 In each urban water supply unit, the Regional Water Engineer would be responsible to MWEM for: - the preparation of annual recurrent budgets for their respective systems; - the maintenance of the accounts referred to above in accordance with established procedures; - the billing and collection of water revenues and keeping of arrears under control; and - the efficient operation, maintenance and routine expansion of their respective system. Senior Advisers in MWEM's Headquarters 4.11 Management advisory services to be financed under the proposed project would provide for three senior advisors to be attached to MWEM's headquarters, including a technical expert, a financial expert and a per- sonnel and training expert. MWEM's organization in headquarters is shown in Annex 5 page 1. The technical expert would be attached to the MWEM's Construction and Maintenance Division for a minimum of two years. He would primarily advise and assist the heads of the Construction and Maintenance sections in the Ministry and the assistant managers for operation of the urban water supply units in the regions. He would pay particular attention to the training of the staff in these units. The financial expert would be attached to the Fund for a minimum of three years. He would primarily advise and assist the heads of the accounts and budgeting sections in the Ministry and the assistant managers for account and administration of the urban units in the regions. He would pay particular attention in the design and implementa- tion of the billing, accounting and financial control systems, preparation of budgets and training of the staff. The personnel and training expert would assist the Director for Manpower Development of MWEM for a minimum of one and  - 15 - a half years in assessing the training needs for the entire sector and esta- blishing training programs, not only for Morogoro, but also for the rest of the sector. He would also work closely with managements of the urban water supply units to develop detailed organizational structures and staff estab- lishments, prepare job descriptions and identify training requirements. The terms of reference of the three senior advisers are detailed in Annexes 2, pages 12 to 15. Accounting and Audit 4.12 As the financial information which could be provided by the cash basis accounting system would be of limited use to management, MWEM intends to introduce commercial accounting in the urban water supply sector. Assisted by the senior financial adviser, MWEM would implement appropriate procedures as rapidly as proves feasible. The senior financial adviser would have a central role in setting up procedures for the Fund. He would be appointed by June 30, 1977 and would be responsible for developing an appropriate uniform system of commercial accounts and accounting procedures (manuals, forms, etc.) to be applied by each water supply unit and by the Fund. Among other matters, the accounting system should cover billing and collection, fixed asset accounting, internal financial controls and internal auditing, inventory control and budget preparation. Agreement was reached that the annual accounts of the urban water supply units and the urban water supply fund, will be audited by the Auditor General or by other independent auditors acceptable to the Bank and that such accounts, together with the auditor's report, will be submitted to the Bank not later than six months after the close of each fiscal year. Billing and Collection 4.13 As far as private connections are concerned, water meters are presently read monthly. Bills are prepared at town level by hand and issued direct to the consumers. Revenues are collected by the Treasury through local Revenue Offices. Thus, the responsibility for billing and collection is split between two Ministries. Once the urban water supply fund is established, the urban water supply units of Morogoro and other towns would be responsible for billing, collecLion of revenues and keeping arrears under control. The reve- nues collected will go to the Fund. For public standpipes, water would be metered and the bills sent to the Treasury for payment (see para. 6.07). Project Monitoring System 4.14 It was agreed that MWEM will establish and apply, in consultation with the Bank, suitable indices for monitoring the Project and for measuring the achievement of the staffing, training, financial and water supply goals of the Project. MWEM would be assisted in this regard by the three senior advisers financed under the Project. Proposed guidelines for a project monitoring system are shown in Annex 7.  - 16 - Risks 4.15 There are no undue risks with regard to the physical construction of the expansion of the water supply system in Morogoro. Nevertheless, because of staff shortages and poor motivation of the existing staff, it is possible to encounter delays in the execution of the Project. The three senior advisers should play an important role in avoiding such delays. The Project will require close supervision to correct timely any situation before it seriously affects its implementation. V. JUSTIFICATION OF THE PROJECT Institutional Objectives 5.01 As mentioned earlier in Section IV, the problems which have con- strained the development of the Water Supply Sector in Tanzania are mainly institutional in character. When the Bank was originally hoping to finance water supply expansion in seven towns, it expected to improve the performance in water supply sector by including substantial change in the existing organi- zational arrangements. Now, even though the Bank is directly responsible for financing only one town, it appears that the first step has been achieved in the direction of establishing commercial operations in the sector. With the establishment of an urban water supply fund, water revenues and expenses will now be separate from general revenues and expenditures, therefore provid- ing a basis for ensuring financial self-sufficiency and the availability of adequate resources for operation, maintenance and minor capital investment. While this institutional change had not gone as far toward establishing the independence of the sector as might be preferred, it is properly viewed as the beginning of a dialogue which it is hoped will lead to subsequent improve- ments in the sector's organization. 5.02 The project also involves significant investment in manpower devel- opment, a major constraint to improvement in sectoral performance. This in- vestment would focus on the training of technicians and craftsmen (substan- tial high level professionals are presently in training) and on improving management and technical capabilities in MWEM's headquarters and the regions. 5.03 Water technicians specializing in civil works, hydrology and hydro- geology are trained in the Water Resources Institute. This Institute would be expanded to allow training of an increased number of water technicians to meet the minimum estimated number needed by 1980. Technicians specializ- ing in mechanical and electrical work are being produced by the Dar-es- Salaam Technical College but they need some up-grading to be really useful to MWEM. The WRI would provide short up-grading courses to this category of technicians. In order to improve the quality of all the trainees the project would include the construction and equipping of a workshop, a labo- ratory and a library at the WRI. It would also provide expatriate staff for the WRI expansion to the extent that bilateral aid funds may not become available.  - 17 - 5.04 Craftsmen such as mechanics, plumbers and rural pump attendants are trained on the job in some of the Regional Water Engineers' offices after a year at the National Vocational Training Center in Dar es Salaam, but there is a need for greatly increased number of them. A well-conceived British aid program for the training of water mechanics is now being considered. If this offer of aid is not made or not accepted, the program would be financed by the project through the unallocated training expenditures. 5.05 The project will help improve MWEM's training arrangements by the provision of a training adviser in the management advisory services component. This adviser would assist the Director for Manpower Development in assessing the training needs for the entire sector and establishing training programs not only for Morogoro but also for the rest of the sector. He would also work closely with managements of the urban water supply units to develop detailed organizational structures and staff establishments, prepare job descriptions and identify training requirements. 5.06 To improve management and technical capabilities in MWEM's head- quarters and in the urban water supply units in the regions, the management advisory services to be financed under the proposed project (para. 4.11) would also provide for two additional advisers to be attached to MWEM's headquarters: a technical expert and a financial expert. Physical Obiectives 5.07 The existing water suppiy system of Morogoro is quite inadequate. The present water demand (4,300 m /