Haiti - Provincial Towns Water Supply Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 1694b-HA HAITI STAFF APPRAISAL REPORT PROVINCIAL TOWNS WATER SUPPLY PROJECT November 30, 1977 Water Supply and Sewerage Division Latin America and the Caribbean Regional Office 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.  CURRENCY EQUIVALENTS US$1 = Gourdes (G) 5.00 Gourde (G)1 = US$0.20 WEIGHTS AND MEASURES Metric System 1 meter (m) = 39.37 inches 1 kilometer (km) 0.62 mile 1 hectare (ha) = 2.47 acres 1 square kilometer (km2) = 0.386 square mile 1 kilogram (kg) = 2.205 pounds 1 liter (1) = 0.264 gallons ABBREVIATIONS BNRH = Banque Nationale de la Republique d'Haiti CAMEP = Centrale Autonome Metropolitaine d'Eau Potable CIDA = Canadian International Development Agency COALEP = Cooperative pour l'Alimentation d'Eau Potable CONADEP = Conseil National de Development et de Planification IDA = International Development Association IDB = Inter-American Development Bank PAHO = Pan-American Health Organization SH = Services Hydrauliques de la Republique d'Haiti SNEP = Service National d'Eau Potable UNCDF = United Nations Capital Development Fund UNDP/OPE = United Nations Development Program. Office of Project Execution UNICEF = United Nations Children's Fund GOVERNMENT OF HAITI Fiscal Year October 1 - September 30  FOR OFFICIAL USE ONLY HAITI PROVINCIAL TOWNS WATER SUPPLY PROJECT TABLE OF CONTENTS Pae N2_. I. THE WATER SUPPLY AND SEWERAGE SECTOR ..1... I Introduction ... e....................... _ Background ..e.os...o...... eo..... 0...0.....eo.o.... I Population ......... ............................... 1 Health Aspects .o........eoooo..o .oooe. ooe.. 2 Service Levels ..........................e.oe - 2 Institutional Framework ......... ............- 4 Past Sector Investments .. ..... ................0 - Planned Investments and Financing .................. Government Objectives ...................... . ...... 6 Bank Role and Sector Lending Strategy ......... . 6 II. THE BORROWER ........ e..................... X 7 Introduction .................... ,.e.=. . 7 Organization ............................o.t.o .*... 7 Personnel Review ........ ............ 7 Billing and Collection . . . . . . . 8 Accounting Practices and Procedures ............ 8 III. PROJECT COMPONENTS, COSTS AND FINANCING .......... .o. 13 Introduction . ... .. . . .. .. 13 Scope and Design Objectives ......s....0 .....Oe 13 Existing Facilities .................0....0.09... 14 Project Description ....0.....................O 15 Cost Estimates ..................................... 18 Financing ...............o.. o.. . . er.oo.=o. 19 IV. DEMIND AiD MARKET ASPECTS ............. ...es. .ooeo. 20 Population Forecast ................................ 20 Production and Consumption ............ . 20 Consumption Forecasts ........................ .. 20 This report is based on the findings of an appraisal mission to Haiti in May/June 1977, consisting of Messrs. R. Costa, G. Yepes, J. Culagovski and A. Mejia (Consultant)0 The report was prepared by Messrs. GC Yepes, J. Culagovski and A. Mejia. 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.  TABLE OF CONTENTS (cont'd) Page No. V. PROJECT IMPLEMENTATION D Na ........... 23 Investments ................... ......... 23 Procurement ....................... 24 Disbursement ..................... ..... 24 Monitoring Indicators ............. .... 26 Environmental Aspects ............. ....... 27 VI. FINANCIAL ANALYSIS ............ 29 Introduction ....... . .- 29 Past Finances . ................. 29 Water Tariffs ........ .......... ....... 29 Revolving Fund *...................... - teo,oe- . 30 Financing Plan .............................. 30 External Auditing . 32 Evaluation of Financial Performance ... 32 Financial Covenant ......... .. 33 Financial Rate of Return ........ O1-Oo . 34 Assumptions for Financial Projectionls --m .... 35 VII. ECONOMIC AiALYSIS ........... 39 Introduction ................ . . 39 Population Benefited ........ ...... 39 Project Justification ............ ................ 39 Incremental Rate of Return ....... 40 Risk Considerations and Sensitv5 i- 41 VIII. RECOMMENDATIONS .......... ....... 42 Conditions for Credit Effectiveness( 42 Conditions for Disbursement c 42 Other Covenents. ............. 42 Financial Covenant ..............>. 43 Retroactive Financing ............... 44  TABLE OF CONTENTS (cont'd) TABLES Page No. Water Supply Statistics 1975 ................. 3 Project Cost Estimates ............... ............... 19 Population, Demand and Service Level Projection ..... 22 Annual Project Investments ........................... 23 Estimated Schedule of Credit Disbursements ........... 26 Monitoring Indicators ................. ............... 27 Financing Plan ....................................... 31 Statement of Financial Results ....................... 37 Balance Sheet ........................................ 38 Incremental Rate of Return ............... 40 HAP Provincial Towns covered by the Project. ANNEXES 1. Technical Assistance Program. Summary of Terms of Reference and Cost Estimates. 2. Additional Information Available in Project File.   1. THE WATER SUPPLY AND SEWERAGE SECTOR Introduction 1.01 The Government of Haiti has requested IDA assistance in financing a water supply project for seven provincial towns. The estimated cost of the project is US$8.0 million and an IDA credit of US$6.6 million is proposed to finance 100% of its foreign exchange component. The project would benefit about 155,300 inhabitants by the end of the construction period in 1982 and would have adequate capacity to serve about 216,000 inhabitants - 90% of the forecast population - by 1993. About 40% of the population to benefit from the project is within the category of absolute poverty. 1.02 The project would be IDA's first water supply operation in Haiti; however, a recently approved rural development project (Credit 675-HA) includes a water supply component of US$0.2 million. Service National d'Eau Potable (SNEP), a new decentralized agency under the Mlinistry of Public Works, would carry out the project which was prepared by PAHO under a grant from UNDIP. Bank staff helped in the preparation of the project and appraised it in May/June 1977. Background 1.03 Haiti is the poorest country of the Americas. Per capita GNP in 1975 was US$180. In constant terms, GDP grew by about 2.5% p.a. and gross domestic income by about 3.8% p.a. between 1971 and 1975, thanks to favorable terms of trade. 1.04 The income distribution pattern for 1970, obtained from a survey of the Hlaitian Institute of Statistics, shows that about 85% of the total popula- tion was earning an average income of less than US$60 p.a. which is not considered enough to acquire the goods and services essential to life. The situation was estimated to be somewhat less drastic, but still dramatic, in the urban areas, where about 60% of the population fell within the category of absolute poverty. Population 2 1.05 The Republic of Haiti with an area of 27,700 km , had a total esti- mated population in 1975--based on the 1971 census--of 4.6 million growing at an average annual rate of 1.7%. About 19% or 0.9 million live in urban areas--communities of 5,000 and more--growing at an average of 4.1'% per year, while about 81% or 3.7 million inhabitants live in rural areas, growing at an average annual rate of 1.1%. If this trend is maintained, as expected, the percentage of urban population will increase to more than 30% by the turn of the century.  -2- 1.06 About 70% of the urban population, or 620,000 inhabitants, is con- centrated in the Port-au-Prince metropolitan area 1/, the nation's capital, wnich dominates the pattern of urban growth. It is forecast that, if decentralization policies which are still in an early stage of development, are not implemented, the capital's population will represent more than 90% of the urban population and about 30% of the total population by the year 2000. The heavy migration to urban areas and especially to Port-au-Prince is caused by the search for better living conditions including job opportunities, health care and availability of basic public services. 1.07 Apart from Port-au-Prince, there are only seven urban cernters with more than 15,000 inhabitants each of which four are included in the project (Table 4.1). The rural population is scattered and about 85% live in communi- ties of less than 300 inhabitants. Health Aspects i.08 The health situation is precarious: the infant mortality rate reaches 150 to 200 per 1,000 and life expectancy is less than 50 years. There are no meaningful statistics on waterborne or water related diseases, but all indications are that their incidence on mortality rates is high. A survey undertaken in 1975 indicated that waterborne diseases, diarrhea and typhoid represented 15% of the registered cases of diseases in the country. According to limited reports from hospital centers, 54% of reported deaths in 1973, were caused by gastroenteric diseases, but since more than 90% of total deaths are not reported, this reference must be considered in a limited context. Service Levels 1 09 The level of water supply service in Haiti is the lowest in Latin America2 Only 10.2% of the total population had access to piped water in 1975 39% of which was through house connections and the rest through public stand- pipes. The following table indicates the levels of service throughout the country . 1/ Includes Port-au-Prince, Petionville and Carrefour.  TABLE 1 HAITI PROVINCIAL TOWNS WATER SUPPLY PROJECT WATER SUPPLY STATISTICS 1975 /1 C: :AIO:: El7.CO-) (19>/l) RU'RAL POPUliATION 3,740,000 (81%) TOTAL POPULATION 4,615,000 (1001.) 4-'n'al 't-e of Growth 4.09/) (Annual Rate of Growth 1.137) (Annual Rate of Growth 1.6971) ?,'?,I.ation Served 355,000 Population Served 112,000 Population Served 467,000 ' Of UrDan % Of Rural % of Total ?c,xIati-cn 40.6% Population 3.0% Population 10.22 zop,:la .ic- Served Population Served Population Served .-- o se Scnnections 177,000 by House Connections 4,000 by house Connections 181,000 O Of Urban % Of Rural % Of Total *20.2% Population 0.1% Population 3.9x. Pop-21atlon Served Population Served Population Served by pblic Standpipes 178,000 by Public Standpipes 108,000 by Public Standpipes 286,000 * . :'bFn % Of Rural ,. Of Total 20.3% Population- 2.9% Population 6.2S /1 Source: SH 1.10 Water service levels in the Port-au-Prince Metropolitan Area are the highest in the country with 22% of the population served by house connections and an additional 23% by public standpipes. There are about 20,000 house con- nections and 40 standpipes that provide service to about 45% of the population; the remaining population obtains its water from illegal connections or from private water vendors at relatively high prices (US$2.0 per cubic meter). 1.11 The situation in other urban areas is much worse; in 1975, only 14.4% of the population was served by house connections and an estimated additional 11% by public standpipes. Although no reliable information is available, the lack of investments and proper operation and maintenance indicates that the situation has been steadily deteriorating during the past two decades. Only 3% of the population in rural areas is served with safe water, mostly by public standpipes. 1.12 The quality of service is poor. In urban areas, piped water is often provided for no more than two to four hours a day. Water is not chlorinated. In general, water works are old and in poor condition. Many of the standpipes are not operative, and in cases where they do operate, the sanitary conditions are so bad that they frequently constitute a health hazard. 1.13 There are no sanitary sewage systems in the country. However, Port-au-Prince and Cap Haitien, the two largest cities, are served by limited piped drainage systems to which illegal connections have been made. These systems are inadequate to meet the needs of the population. Many pipes are obstructed, and since the low-lying areas of these cities are flooded  - 4 - during heavy rains, these sewerage systems constitute a health hazard. Septic tanks and latrines are in common use in urban and rural areas, and are frequently a source of contamination to public and private water sources due to lack of adequate control. Institutional Framework 1.14 The Central Autonome Metropolitaine d'Eau Potable (CAMEP) is in charge of supplying water to the Port-au-Prince Metropolitan Area. CAMEP's financial situation is precarious and its organization structure needs to be improved, despite the technical assistance it has received (para. 1.22). Studies financed by IDB are being undertaken to improve its performance and include: (a) management reorganization, (b) updating cadastral infor- mation, (c) assessment of water resources in the metropolitan area. 1.15 The Services Hydrauliques (SH) was responsible for the planning, execution and operation of water supply systems in all other urban communities. In 1975, there were 14 communities with more than 5,000 inhabitants, in addi- tion to the capital. Only nine of these 14 communities have public water systems operated by SH. The other five communities have systems operated locally or not serviced at all. 1.16 The Cooperative pour l'Alimentation d'Eau Potable (COALEP) was the institution responsible for providing water to the rural communities. COALEP was a cooperative society under the authority of the National Council of Cooperatives. SH staff operated five of the six COALEP water systems, and one is operated by a local community. Three other rural communities have water systems operated by local bodies without COALEP's participation. 1.17 SH and CAI4EP have operated under the Ministry of Public Works, Transportation and Communication, which also controls Electricite d'Haiti, Telecommunications d'Haiti, and the Road Mtaintenance Authority. While CAMEP is an autonomous agency with its own Board of Directors, SH was a Division of the Ministry itself without any administrative or financial autonomy. 1.18 There is no single agency responsible for providing sanitary systems to both urban and rural areas. The Ministry of Health has a Sanitation Division but the Ministry of Public Works has authority in the sector as well. As stated (para 1.13), only two cities are served by limited drainage systems to which illegal connections have been made. Septic tanks and latrines are widely used in the country, but most of them have been built by private individuals without institutional guidance or adequate safeguards to prevent contamination. A clear definition of responsibilities within the sanitary sector is needed so that effective programs can be developed and health hazards mitigated. The Government with PAHO's assistance is considering the necessary administrative arrangements to deal with this problem. 1.19 The Conseil National de Developpement et de Planification (CONADEP) is responsible for preparing national investment plans and coordinates all sector planning. However, water and sewerage sector planning developed by the individual institutions has been weak in practice and has been hampered by lack of funds.  1.20 The Government is conscious of the weakness of the present sector organization, and especially of the need to strengthen its planning, financial and executing capabilities. To this end, the Government has enacted a law creating the Service National d'Eau Potable (SNEP), which merges the functions of SH and COALEP and gives SNEP the necessary autonomy in financial, administ- rative and technical matters. In addition all future investments in the water supply sector, with the exception of Port-au-Prince, will be channeled thirough SNEP. Past Sector Investments and Financing 1.21 Capital expenditures have been very low over the past decade. The average annual public investment in the water sector (US$0.5 million equiv- alent) represented only 1.6% of the total public investment during the Government's FY period 1971-1975 and was mostly directed to Port-au-Prince. 1.22 Port-au-Prince (CAHEP) has benefited from two loans from IDB (US$2.4 million in 1964 and US$7.4 million 1/ in 1975). In addition, IDB has provided technical assistance to CAMEP in engineering and financial matters. Since 1970, SH investments have totaled US$0.6 million for water works in the cities of Croix-de-Bouquets, Mirabalais, Gonaives and Kenscoff. Investments in the last decade by COALEP and by the Ministry of Health in the rural areas have been negligible. IDA recently approved a rural development project (Credit 675-HA) in the northern area of the country (Cap-Haitien and St. Raphael) which includes a water supply component of US$0.20 million. This will help finance the development of 400 hand-dug wells and six spring water sources to provide safe water for approximately 20,500 persons. Water works at Petit-Goave are being financed by CIDA. Other minor investments have been made in the sector by bilateral agencies and religious groups with little government coordination. Planned Investments and Financing 1.23 The Government's FY 1977-1981 investment plan includes a total of US$18.3 million (annual average of US$3.7 million) for the water sector of which about 70% is allocated to Port-au-Prince. This plan represents more than seven times (in current prices) the average annual investment of the past five years, and if it is to be carried out, will undoubtedly require major efforts in improving the implementation capabilities of the water institutions. The Government's plan assumes that 50% of this investment program will be financed through foreign credits and grants. 1.24 The United Nations Capital Development Fund (UNCDF) approved in May 1977 a grant of US$1.34 million to finance water supply systems in three provincial towns--Les Cayes, Saint lMarc and Leogane. The development cf these works will be undertaken in close liaison with IDA to assure coordination in 1/ I.e., rescheduling of a 1970 non-disbursed US$5.1 million loan plus an additional loan of US$2.3 million.  6 - technical, organizational and financial aspects with the proposed project. Some other investments to be financed by bilateral agencies and other donors w:ill be coordinated by SNEP as well., SNEP, with help from the technical assistance program included in the proposed project, will develop sector goals including the identification of water supply and sanitation programs that eventually could be considered for financing by external sources. 1.25 The Ministry of Health has prepared a sanitation program for the northern and southern departments of the country for the years 1977 to 1979. This program which will be financed by the Ministry, the Pan American Health Organization (PAHO) and the United Nations Children's Fund (UNICEF) includes the construction of hand-dug wells in communities with 1,500 inhabitants or fewer and the construction of about 20,000 latrines. Governmento i 1.26 The Government is giving high priority to the development of the water supply sector. A general objective of the five-year plan (1977-1981) is to improve the living conditions of the urban and rural population of the country by more and better water supply systems and sanitation, and to use the sector as a means of encouraging industrial decentralization and inte- grating the rural population into the economy. 1.27 Although the five-year plan includes specific programs for the water supply sector, their actual imiplementation depends heavily on the availability of financial resources and on a significant improvement in the implementation capabilities of the sector institutions. Thus, administrative and institu- tioral reforms are necessary in order to have a meaningful and realistic long term development plan for the sector while, at the same time, effectively coordinating specific programs on a year to year basis. Banik Role and Sector Lending Strategy 1.28 The need to improve and expand both urban and rural water systems to provide safe water to a greater proportion of the population and to strengthen the sector agencies is in accordance with the Bank's policies of helping the development of projects aimed at improving the living conditions of the poor. 1.29 The proposed project supports the Government's objectives. It ainms primarily toward improving and expanding the supply of water to the poor areas in. seven provincial towns, and controlling water wastage by thes use of flow-limiting devices. It also includes a technical assistance component to help the planning process and to strengthen the organizational, managerial and financial capabilities of SNEP. The participation of IDB in Port-au--Prince has induced the Government to seek IDA financing and UNCDF funding to improve water supply services in other large towns. As a second stage, the Government expects to launch a comprehensive program to alleviate water supply and sani- tation problems in other areas of the country.  -7- II. THE BORROWER Introduction 2.01 The Borrower would be the Government of Haiti and the executing agency the new Service National d'Eau Potable (SNEP). SH and COALEP, the previous sector agencies, have been merged to form SNEP, an autonomous agency responsible for the planning, building and operation of all water supply systems in the country, except in the Port-au-Prince metropolitan area. Organization 2.02 The law creating SNEP has been enacted. The Board of Directcrs has six members; the Secretary of State for Public Works, Transportation and Communications, who is its chairman; representatives from the Banque National de la Republique d'Haiti (BNRH), the Ministry of Agriculture, the Ministry of Finance, the M4inistry of Public Health and SNEP's general manager. Board members are appointed for periods of four years. SNEP's general manager is appointed by the President of the Republic for a renewable period of fLve years, however, he has no voting rights. 2.03 The proposed organizational structure for SNEP is shown in Figure 2.1. It is divided into three major departments: Operations and Maintenance, Projects and Finance and Administration. The Operations and Maintenance Department will have the following functions: water quality control, manage- ment of watersheds, installation of new house connections, operation oE water systems and maintenance and execution of minor works. The Project Department will be in charge of the planning, design, bidding and construction super- vision of new projects and development of design and construction standards. The Finance Administrative Department will have, in addition to accounting, financial and administrative areas, such commercial activities as control of house connections and billing, supervision of accounts receivable and tariffs. A Community Participation Unit within the department will be responsible for promoting and organizing the participation of consumers in the construction of future water supply projects and operation of water systems and encouraging potential users to connect to the water systems under construction. Ihe unit would be created not later than January 1, 1979. 2.04 Assurances were obtained during negotiations that SNEP's internal regulations will be prepared not later than nine months after credit signature and IDA should be given the opportunity to comment on them. Assurances were also be obtained, during negotiations, that major changes affecting SNIEP's structure or the appointment of its General Manager or department heads would not be made without obtaining prior approval from IDA. Personnel Review 2.05 SH/COALEP has III employees, 23 of which are headquartered in Port-au-Prince and the rest in regional offices. The ratio of employees to population served is 1.6 per 1,000 persons served (17.3 employees per  - 8 - thousand connections), which is over the accepted standard of about one employee per 1,000 persons served, but acceptable in the particular case because the systems under operation are small and require a minimum staff to operate. It is expected that personnel action will be required to streng- then SNEP's capability to carry out the project; this will call for the reallocation of some personnel and mainly the appointment of capable depart- mental heads. Management consultants (para. 2.09) will help establishing procedures to define responsibilities and the number of employees required, their qualifications and salary levels. Billing and Collection 2.06 Water systems have no connection meters and tariffs are set accord- ing to the connection diameter. SH does not have a billing system; customers pay at the local offices but there is no reliable internal control of the collections. There is no accurate way to establish the amount of accounts receivable, and it is estimated that 15% of customers have accounts more than a year overdue. Accounting Practices and Procedures 2.07 SH's accounting system fails to serve as a tool for management information and control. It is a cash basis system and should be changed to an accrual system. The procedures followed are outdated. No proforma financial statements are prepared. Audit and Internal Control 2.08 SH is audited by the government comptroller's agency, the Cour Superieure des Comptes. Some of the activities of SH are not subjected to the usually accepted internal control principles. This occurs mainly in the assignment of incompatible responsibilities to the same person and the lack of control on accounts receivable. Technical Assistance and Training Program 2.09 The proposed project aims toward strengthening the institutional capability of SNEP, developing administrative and financial procedures with respect to organization, maintenance operation and design and construction standards. Two factors are required to accomplish this target: first, SNEP should appoint competent heads for each of the three departments; and second, SNEP should hire management and engineering consultants to assist with the design and implementation of sound administrative, financial and engineering practices and train SNEP's staff in these areas. To this end, the project includes a US$400,000 component for technical assistance. The government has signed an agreement with PAHO to coordinate their program. 2.10 A detailed implementation schedule for the Technical Assistance Program, satisfactory to IDA, would be prepared by SNEP as a condition of effectiveness. The program (summary terms of reference are shown in Annex 1) would be carried out over a period of 30 months and will cover, the following main areas:  -- 9 -t (a) Accounting - an accounting system would be desLgned and implemented and, at a later stage, accounting manuals and flow charts, would be prepared; (b) Financial Reporting - the accounting s-stem will be designed to fulfill the reqairema-ats : financial in- formation with the level of detail and accuracy needed for management control and decision-naaking, as well as to serve as a basis for plannirng and budgeting; 'c) Planning and Budgetig - for each area of the organization, procedures would be developed to prepare plans and programs that assure the accomplishment of the institutional targets. In the financial area, a budget system that reflects insti- tutional planning would be developed. SNEP's staff would be trained in the preparation and utilization of tuiese tools; (d) Internal Control - procedures and systems woul'd f3a designed to comply with requirements of modern irnternal control praotices; (e) Organizational Structure responsibilities and main fun .os for each of the three departments would be defined as well as lines of coordination and supervision. This definition would serve as the framework for the development of procedures for each area; (f) Personnel Administration - procedures would be established and implemented for the different areas related to this function (recruiting, remuneration, promloti-on, training); (g) Commercial Procedures and Practices - administrative procedures would be developed and implemented for the different functions of this area: (i) insLalling house connections; (ii) setting up a house connection control system; (iii) billing; (iv) supervision of collections (but not collecting); and (v) tariffs. The consultants would also train SNEP's staff in these operations; (h) Tariffs - a study would be carried out during the first year of the project and presented for IDA review not later than December 31, 1978. The study would include assessment of appropriate financial policies and be based on what woulld be feasible, equitable and economically sound; it would also include an implementation program. The study would aim at the following objectives: (i) develop a tariff structure and level based on long-run incremental costs charges consumers according to their ability to pay, and takes into account cross subsidiza- tion between consumer groups and the appropriateness of applying different tariffs to different towns to reflect differences in construction and operating costs;  - 10 - (ii) study a practical system to establish a charge for standpipe users; (iii) assess the advisability of installing water meters for large consumers and design and implement the necessary administrative procedures for doing so. (i) Design and Construction Standards - design and construction standards would be developed to reflect the living con- ditions and ability to pay of the population to be served in urban and rural areas as well as the availability of equipment and materials and skilled labor. Bidding and procurement procedures acceptable to the Government and IDA would be developed. (j) Maintenance Procedures - simple maintenance and operational procedures for the water systems would be developed, taking into consideration their technical characteristics and the availability of skilled labor; (k) Community Participation - the potential of community participation in the construction and operation of future SNEP projects would be tapped and potential users would be encouraged to connect to the system. Consultants would help in developing such an office within SNEP; (1) Training in the following areas: (i) water quality control and laboratory procedures; (ii) ground water management and operation of pumps and chlorination facilities; (iii) installation of house connections and construction systems; (m) Sector Goals and Strategies - sector goals and strategies would be developed in coordination with CONADEP, including the identification of water supply and sanitation programs that could eventually be considered for financing by external sources. 2.11 The technical assistance and training program would be oriented towards the design and implementation of practical procedures for each area, and the training of SNEP's staff in its operation. Manuals would be prepared only after the procedures are fully implemented to serve as a,future guide or reference. Systems must be established to keep them updated as changes in operations and procedures are introduced.  - 11 2.12 The technical assistance program would be carried out by two resident consultants, one sanitary engineer, and one finance and management expert, all of whom would be in Haiti for a period of 30 months. In addition, short-term consultants would be retained to help in specialized areas. The total technical assistance program included in the project consists of 100 man-months. 2.13 The appointment of department heads and of resident consultants, to carry out the technical assistance program, should be satisfactory tc IDA and would be a condition of effectiveness.  Fig. 2.1 REPUBLIC OF HAITI PROVINCIAL TOWNS WATER SUPPLY SERVICE NATIONALE D'EAU POTABLE - SNEP - PROPOSED ORGANIZATION CHART EXTERNAL | OARD OF AUDITORS _ DIRECTORS OP T TECHNICAL I GENEBRAL ;ASSISTANCE, ENGINEERING PROJECTS MAINTENANCE ANCtATIVE 2 T CONSULTANTS DEPARTMENT DEPARTMENT TO PROJECT DPRMN > ADESIGN PLANNING W VATERt IUALITY CONTROL_-..G_I SUeERVISION ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~PERASONE _ SUPERiVISION STANDARDS PRODUCTION RECORDS i P NEL c DESIGN INSTALLATION OF HOUSE PARTICITI ACCOUNTING TREASURY COMMERCIAL GENERAL -@ BIDDING CONNECTIONS SERVICES - z SUPERVISION OF MINOR EXTENSIONS F m CONSTRUCTION MAINTENANCE AND REPAIRS ACCOUNTING PAYMENTS BILLING PERSONNEL 0) O 4 WATERSHED CONTROL ACCOUNTS CONTROL COLLECTIONS ACCOUNT RECEIV. PURCHASES STOCK CONTROL SUPERVISION STOCK J_r PLANNING AND TARIFFS MANAGEMENT BUDGETING CONNECTIONS LOCAL OFFICES CONTROL uw U X O _ Wodid 8ilnk. - '7672 Z  - 13 - III. PROJECT COMPONENTS, COST AND FINANCING Introduction 3.01 In late 1975, UNDP granted US$155,000 to the Government to finance the feasibility studies for water supply systems in ten towns. This grant was increased to US$227,000 in FY1977. The activities financed by the UNDP grant (with PAHO as the executing agency) covered the preparation of feasibilil:y studies for the ten towns, an analysis of SH's financial and administrative situation and a study of the socioeconomic conditions of the population in these towns. Three towns have been selected by the Government for financing under a UNCDF grant; the project proposed for IDA financing will cover th,le remaining seven towns (para 3.04). Scope and Design Objectives 3.02 The project involves improvements and extensions of the water supply systems of Cap-Haitien, Gonaives, Jeremie, Port-de-Paix, Jacmel, Miragoane and Aquin. It is intended to eliminate deficiencies in the existing systems and to extend service to a large segment of the population that does not have adequate and safe water supply. The project would also contribute to improve the institutional and operational capabilities of the sector agency SNEP, to develop long-range pblicies for the sector, and to assess the needs and define priorities for future programs. At the end of the construct:ion period, the project would (a) provide potable water to about 155,300 people by 1982 by rehabilitating and extending the distribution system; the systems would have adequate production capacity to serve 215,500 people by 1993; (b) control water wastage by the use of flow-limiting devices (restricted orifice) in all house connections and public standpipes; (c) improve the efficiency of SNEP's management and operations; and (d) develop a long-range plan to improve the service levels in both the urban (except for the metro- politan area of Port-au-Prince) and rural areas. 3.03 The physical components of the project are designed to substantially improve the reliability of existing systems, and would have adequate capacity to service about 90% of the population in these towns (50% from house connec- tions and 40% from public standpipes) until about 1993, and permit phased expansion in capacity as demand increases. The 10% of the population not served is located in sparsely populated areas, where it would be very costly to provide service. The project would satisfy the basic water requiremnents of most of the population and reduce considerably the incidence of disease from unsafe water. 3.04 Parallel to this project, UNCDF has given a grant of US$1.34 million with UNDP/OPE as executing agency, for the construction and improvement of water supply systems in Saint Marc, Les Cayes and Leogane. Close coordination between UNCDF and IDA will assure that the same design and construction standards will be applied to the two projects and that both organizations will  - 14 - act in parallel to improve SNZEP's administration and finances. The UNCDF project will provide safe water to a population of about 54,400 by 1982 and will have adequate capacity to meet demand up to 1993 in these three project towns. Existing Facilities Cap-Haitien 3.05 Located in the northern part of Haiti, it is the country's second largest city with a population of 53,800 growing at a rate of 3.1% per year. The existing water system provides service 12 hours a day for three to four days per week to about 23% of the population. Because of the inadequate service provided, the number of active house connections has decreased in the past five years from 1,800 to about 1,000. There are 8 public standpipes serving an estimated 4,000 people. Water from wells and springs 10 km away is pumped to hhe city. There are three storage reservoirs with a total capacity of 4,200 m , all of them out of service; two built in 1896 cannot be repaired, but: a steel tank that leaks badly can be restored to service after repair. The distribution system, with 27 km of pipes, was built in 1922 and extended in 1952, and is in very poor condition. Cap-Haitien and Port-au-Prince are the only two cities in the country with limited drainage systems. Gonaives 3.06 Located 180 km to the north of Port-au-Prince, it has a population of 35,000 growing at a rate of 3.7% per year. The existing water system provides limited service eight hours a day to about 17% of the population through 490 house connections and six public standpipes. Water from one well is pumped directly into the distribution system since there is no storage reservoir. The distribution system has 33 km of pipes, most of them in good condition, Jeremie 3.07 Located in the southwestern part of the country, 240 km from Port- au-Prince, it has a population of 19,700 with a growth rate of 2.2% per year. Access roads are in bad condition and transportation from the capital is mainly by sea. The existing water system provides good-quality water through a limited gravity service from two spring sources. There are 590 house connections and seven public standpipes that provide service to about 37% of the population. One of the transmission lines Ias built more than 50 years ago and needs to be replaced. There is a 940 m storage tank that must be repaired The distribution system has about 15 km of pipes, most of them in gooci condition. Port-de-Paix 3.08 Located in the northern part of the country, 230 km from Port-au- Prince, it has a population of 17,800 growing at a rate of 3.4% per year. There are 510 house connections and seven public standpipes that provide  - 15 - service to about 35% of the population. Gravity water, from a spring scurce 12 km away, provides limited service. The existing system, built in 1938, is in bad condition; it includes 7.6 km of distribution pipes and a 430 m3 capacity storage reservoir which is out of service because of extensive leakage. Jacmel 3.09 Located 48 km south of the capital, it has a population of 12,200 and is growing at a rate of 1.3% per year. There are 620 house connectLons and 3 public standpipes that provide service to about 43% of the population. Two spring sources feed by gravity directly into 11 km of distribution net- work; there are no storage tanks. The water system is in fair condition. Miragoane 3.10 Located 93 km southwest of Port-au-Prince, it has a population of 3,900 growing at a rate of 1.7% per year. There are 160 house connections and three public standpipes that provide service to about 38% of the population. The water system, built in 1927, is in bad condition and includes (a) one spring source that provides water by gravity to the city; (b) one 115 m3 capacity storage reservoir in bad condition; and (c) 10.4 km of transmission and distribution pipes. Aguin 3.11 Located 61 km northwest of the capital, it has a population of 2,300 growing at a rate of 0.7% per year. There are 110 house connections and two public standpipes that serve about 43% of the population. Water from a nearby river is supplied by gravity and without treatment; the intake is in bad condition. There is no storage tank and water is fed directly to 1.8 km of distribution pipes. Project Description 3.12 The project includes the construction of 10,500 house connections and 109 public standpipes, water storage tanks, chlorination facilities, and installation of 111.6 km of transmission mains and distribution network. All house connections and public standpipes will be equipped with flow limiting devices (restricted orifice) to prevent wastage. In spite of the generally extensive deforestation in the country, all spring sources are located in well preserved forest areas. All production sources will be metered to allow better control of the systems and to develop more reliable information for future projects. The proposed works correspond to the least-cost solution among the technically feasible alternatives. The location of the project cities is shown on the attached map. The major project components are as follows:  - 16 - i ,Cap-Haitien (Population 53,800) (a) Construction of three wells, rehabilitation of existing spring sources and pumping and chlorination facilities; (b) Construction of 29.7 km of transmission and distribution pipes; (c) Rehabilitation oi an elevated stesl storage tank; con- struction of an additional 500 m storage tank; and (d) Construct-on of 2,760 house connections and 30 public standpipes to provide service to 90% of the population. -Llo G'onaives (Population 35,000) (a) Construction of one well and pump replacement in the exis- ting well; (b) Construction of one 1,500 m capacity storage reservoir and provision of chlorination facilities; (c) Construction of 25.3 km of transmission and distribution pipes; and (d) Construction of 2,830 house connections and 26 public standpipes to provide service to 90% of the population. Ill. Jeremie (Population 19,700) (a) Reconstruction of the existing intake works and provision of chlorination facilities; (b) Construction of 11.5 km of transmission and distribution pipes; (c) Repair of the existing storage tank and construction of a 600 m storage tank, and (d) Construction of 1,490 house connections and 14 public standpipes to provide service to 90% of the population. V,T tPort-de-Paix (Population 17,800) (a) Reconstruction of the existing intake works and provision of chlorination facilities; (b) Construction of 12.8 km of transmission and distribution pipes;  (c) Repairs 3to the existing storage tank and construction of a 750 m storage tank, and (d) Construction of 1,550 house connections and 16 public standpipes to provide service to 9r'.' of the population. V. Jacmel (Population 12,200) (a) Construction of a 140 m capaciLy storage tank and pro- vision of chlorination facilities; (b) Construction of 13.4 km of transmission and distribution pipes; and (c) Construction of 1,220 house connections and 12 public standpipes to serve 90% of the population. VI. Mira.goane (Population 3,900) (a) Reconstruction of the existing intake structure and installation of chlorination facilities; (b) Construction of a 100 mi capacity storage tank; (c) Construction of 9.9 km of transmission and distribution pipes; and (d) Construction of 420 house connections and seven public standpipes to serve 100% of the population. VII. Aguin (Population 2,300) (a) Reconstruction of the existing intake structure and installation of chlorination facilities; (b) Construction of a 50 m capacity storage tank; (c) Installation of 9.0 km of distribution pipes, and (d) Construction of 270 house connections and four public standpipes to serve 100% of the population. VIII. Operation Facilities (a) Const5uction of a building in Port-au-Prince to provide 500 m of space for SNEP's offices; storage and shop main- tenance facilities and rehabilitation of local offices; and (b) Acquisition of basic maintenance equipment, vehicles, spare parts and office equipment.  - 18 - IX. Technical assistance Program. Management and engineering consultant services and staff training for SNEP, including technical assistance in organization, long-range planning, accounting, tariff study, community participation, engi- neering design and construction standards, and assessment of future sector investment needs and project identification (para 2.09). X. Engineering services for detailed design and supervision of construction. Cost Estimates 3.13. The estimated cost of the project is US$8.0 million equivalent and includes: (i) 16% of construction costs for engineering and administration; (ii) 15% of base costs for physical contingencies; (iii) 26% of base costs plus physical contingencies for price escalation. 3.14 Costs were verified by direct inquiries to manufacturers and contractors and are based on price levels of January 1977. Physical contin- gencies were based on 10% for the technical assistance program; 15% for construction of the water systems, equipment and materials, and engineering; and 20% for the construction of the office building. Price contingencies were based on disbursement profile of three years starting in 1978; on estimates on worldwide inflation trends, on equipment and materials of 7.5% p.a. for 1977 to 1979 and 7% p.a. thereafter, and a local construction inflation of 12% p.a. for 1977 to 1979 and 10% p.a. thereafter for all local costs and indirect foreign costs, based on the projected increase in local construction costs. Cost estimates are summarized as follows:  - 19 - Table 3.1: PROJECT COST ESTIMATES Gourdes$-(thousand) US$ Thousands Local Foreign Total Local Foreigrn Total I. SEVEN TOTNS Cap Haitien 1,020 5,665 6,685 204 1,133 1,337 Gonaives 920 3,450 4,370 184 690 874 Jeremie 500 1,885 2,385 100 377 477 Port-de-Paix 540 2,160 2,700 108 432 540 Jacmel 375 1,220 1,595 75 244 319 Miragoane 295 1,025 1,320 59 205 264 Aquin 160 610 770 32 122 154 3,810 16,015 19,825 762 3,203 3,965 II. EQUTPMENT AND MATERIALS 25 1,475 1,500 5 295 300 III. OFFICE BUIDLING 275 650 925 55 13C 185 IV. ENGINEERING AND ADMINISTRATION 350 3,100 3,450 70 620 690 V. TECHNICAL ASSIS- TANCE PROGRAI4 - 2,000 2,000 - 400 400 BASE COST 4,460 23,240 27,700 892 4,648 5,540 VI. PHYSICAL CONTINGENCIES 655 3,445 4,100 131 68'3 820 VII. PRICE CONTINGENCIES 1,900 6,300 8,200 380 1,260 1,640 PROJECT COST 7,015 32,985 40,000 1,403 6,597 8,5 00 Financing 3.15 Foreign exchange costs amount to US$6.60 million. The proposed IDA credit of US$6.6 million wvould finance the full foreign exchange costs of the project. The Government would make available funds of US$1.4 million. Chapter VI analyzes the overall financial situation of SNEP.  - 20 - IV. DEMAND AND MiARKET ASPECTS Population Forecast 4.C1 The last two population census counts of 1963 and 1971 are considered reliable and have been used to calculate population growth rates for the project towns. The average urban population growth in the country is 4.1% per year and is highly affected by a 6% annual growth rate for Port-au-Prince, which accounts for 70% of the u2rban population. The project towns with a total population of 144,800 in 1976 have an average growth rate of 3.0% per year; it varies from a high of 3.7% per year for Gonaives to a low of 0.7% per year for Aquin. This trend is expected to continue for the foreseeable future since limited employment opportunities exist in these towns. In the longer run, a more pronounced growth in these towns is anticipated as the Govern- ment's declared decentralization policy starts to show its effects. Population ser-vice levels and water demand forecasts are shown in Table 4.1. Production and Consumption 4.02 The quality of service is poor, as detailed in the preceding chapter. Water is supplied for no more than two to four hours a day. In most towns, waterworks are very old and in bad condition and water losses are believed to be substantial because of the lack of proper operation and maintenance. Water production and consumption statistics are unreliable as a result of meters at production sources and house connections. Production estimates have been based on limited flow measurements or pump production based on electricity consumption and pump characteristics. Average production ranges form a low of 67 lpcd 1/ in Port-de-Paix to a high of 235 lpcd in Gonaives. Because of high water losses, intermittent service, low pressures in the distribution systems and limited number of houses with waterborne waste disposal facilities, per capita consuoption i-s low. Consujmption Forecasts 4.03 Production estimates have been based on comparable water use in similar projects in Latin America and take into consideration the proposed use of flow limiting devices in all house connections and public standpipes. Average production figures have been based on an allocation of between 100 and 150 lpcd for house connections, depending on each town's population and its industry and tourism potential, and 30 lpcd for public standpipes. There are no malor industries in the project towns that would create a heavy demand on the water supply systems and there is a limited tourism water demand in all towns since they are located by the sea. Water production allowances would satisfy the bas2ic human requirements for cooking and personal use. Demand during thle pea1operiod days is estimated at 130% of average daily flow. 1/ lpcd - liters per capita per day.  - 21 - 4.04 The number of house connections in all towns has decreased or remained stationary since dissatisfied consumers have withdrawn from the systems because of the poor service provided. This trend is expected to change once the new systems enter in operation. The number of house connec- tions and the average population served were estimated on the basis of a survey in each town. The location and number of public standpipes were calculated by a similar survey and their numbers were based upon average service densities of 400 to 600 persons per standpipe.  Table 4.1 HAITI PROVINCIAL TPOWNS WATER SUPPLY PROJECT Ppltn,Demand anid Service Level Pr:oetin Ca.R(ait_Iien Gonaives dLeremie Port de Pa_ia Iasl liaon gi Total Population Data 4. Population 1976 (000) 53.8 35.1 19.7 17.8 12.2 3.9 2.3148 Growthl Rate ii per annum 3.1 3.7 2.2 3.4 1.3 1.7 0.7 3.0 Population 1993 (000) 90.5 65.1 28.4 31.6 15.1 5.2 2.6 238.5 Persons per connection 8.9 5.7 6.3 5.3 6.0 5.0 5.0 Service Levels - 1976 H-ouse connections (000) 0.97 0.49 0.59 0.51 0.62 0.16 0.11 3.45 Public standpipes 8 6 7 7 3 3 2 36 Population served by house cooin. (000) 8.6 27.6 3 .7 2.7 3.7 0.8 0.6 22.9 Population served by standpipes (000) 4.0 3.0 3.,5 3.5 1.5 1.5 1.0 18.0 Total popuilation served (000) 12.6 5.6 7 .2 6.2 5.72 2 .3 5.6 40.99 Percent population served 2317 3 7 35 43 59 7 0 28 T~arget ServicLe Levels - 1993 Hiouse connection (000) 5.5 5.7 2.3 3.0 1.3 0.5 0.3 18.2 Public standpipes 70 50 20 25 I12 9 6 192 Population served by hou~se conn. (000) 45.53 32,6 14. 2 15, ~8 7. 6 27.6 1.3 119,4 Population served by sLandpipes (000) 36.2 26,0 11.4 12,6 6.0 2.6 1.3 96.1 'Intal population served (000) 61.5 Oil6 25.6 2813. 1 3.6 5.2 2.6 215,5 Percenr populatrion se,rved 90 910 90 90 90 100 100 90 WaMter Produ,ction and Conuaptinau PerCapi-ta per reuctn/v:~dies( er/d,y) 150/30 (00/o 30 i 25/30 123/30 125/30 100/30 1130/30 Aversge flIn -- liters/second 1976 28 1 5.6 .55.9 1.1 1.,2 63.7 1993 83 66 25 77 13 4 2 225 Year - 1076 1977 1978 15>59 196(0 1981 1982 1983 1984 1985 1690 1993 Lnenlidated Pr cLin Tutal Population (000, 2.7 ?8 240242.8 249.8 2 57 .2 764.8 272.4 280.5 288.9 334.3 365.2 Other SNEP systems- 27.4 27.4 2 8.2 29.5 30,7 31.7 32.6 33.6 34.6 35.6 41.3 45.1 Seven towns pro- nct 144.8 1413.9 153.3 157.9 56 2.7 1 6 i. 4 12 2.4 177.4 182.7 188.2 218.1 238,5 UNCDP project 3. 50.5 52.0 53.4 5 5 .0 56.4 58.1 59,8 61.4 83.2 65.1 74.9 81.6 Population served (00p) 66 .3 692 82.7 97.5~ 159.8 198.3 228.5 236.7 24.-52.6 24.4 321.2 other SHIP systems 13.4 14.0 15.2 15.8 16.4 17.6 18.8 20.0 21.8 23.0 29.0 32.6 Seven towns project 40.9 41.0 50.9 5 5 .7 9 7. 5 127.8 155.3 160.7 165.5 170.4 197.3 215.5 UNC-P project 2/14.0 14.2 16.6 26.0 45.9 52.9 54.4 56.0 57.8 59.2 .8.1 34.1 1lnuse- connection (000) 6.2 6.4 7.1 8.7 14.2 17.8 20,6 21.3 22.2 22.9 27.2 30.0 other SNEP system 1.4 1.5 171819 21,3.5.8.0404.6 Seven town project 3.5 3.6 3.9 4.4 7. 9 10.6 13.0 13.4 13,8 14.2 16.6 18.2 UNCOFpoec . 1.3 1.3 1.5 2.5 4.4 5.0 5.3 5.4 5.6 5.7 6.6 7.2 1/ Townsof Petit G2oave, Kenakoff, Fermathe-Labour-Thomssa, M,irabalais, Croixc des Bousquets. 2Towns of Les Cayes, Saint Marc, Gonaives. LCPWS, June, 1977.  23 - V. PROJECT IMPLEMENTATION Investments 5.01 The project will be carried out by SNEP during 1978-79-80. The estimated annual investments by category are given in Table 5.1, and a bar chart of the work program is shown in Figure 5.1. Table 5.1: ANNUAL PROJECT INVESTMENT IN US$ THOUSANDS Years % of 1978 1979 1980 Total Total CATEGORY Materials and Equipment 985 1792 781 3558 44 Civil Works 251 1420 1276 2947 37 Technical Assistance Program 146 199 181 526 7 Engineering Consultants 296 340 333 969 12 Total Project Cost 1678 3751 2571 8000 100 5.02 SNEP would, as a condition of effectiveness: (a) Hire engineering consultants, acceptable to IDA, who would carry out the detailed engineering studies and supervision of construction. (b) Hire engineering and management-financial consultants, accept- able to IDA under the technical assistance program (see para 2.09 and 2.12) and develop a detailed implementation schedule for this program acceptable to IDA, to strengthen the institutional capability of SNEP. (c) Appoint the necessary engineering, management and service staff to act as counterparts to the consultants. The heads of the Operation and Maintenance, Projects and Administration- Financial Departments satisfactory to IDA should be appointed before the advisors from the technical assistance program start their work (para 2.13).  - 24 - 5.03 ICDA staff would review (a) terms of reference for contracting engineerrlng consultants and the technical assistance program advisors; (b) annual investment programs; (c) criteria for selection of future invest- ments, definrition of priorities and long-range sector planning. IDA super- vision would focus on engineering and management assistance and on training programs. Four supervision missions a year (20 man-weeks per year) are planned in the first two years of the program and three in the third year. 5.C4 The project includes an estimated 170 man-months of consulting ser- vices to assist in the preparation of final designs and project supervision and 100 man-months of technical assistance. The estimated cost of these services, not including physical or price contingencies is US$1.09 million, or an average cost per man-month of US$4,000 Procureme"t 5.05 All procurement woulcl be made in accordance with the Bank Group Procurement Guidelirnes. Contracts in excess of US$50,000 for civil works or US$20,000 for purchase of equipment would be awarded on the basis of inter- national competitive bidding. Contracts of less than US$50,000 but over US$10,000 for civil works, or of less than US$20,000 but over US$10,000 for purchase of equipment would be awarded on the basis of local competitive bidding3 subject to an aggregate maximum of US$500,000. Contracts of less than US$10,000 would be procured directly on the basis of a minimum of three quotations and subject to a maximum aggregate of US$200,000. Since SNEP does not ha-ve procurement guidelines, it would develop such procedures, with help from consultants from the technical assistance program. Contracts would be grouped to make them attractive for international competitive bidding. 5306 Foreig-n suppliers are expected to win all equipment and pipe supply contracts and foreign contractors, probably in association with local firms, are exoecLed to win all major civil work contracts, although local firms are in a faio position to be contractors and subcontractors on civil works. None of the -required equipment and pipes for the project are manufactured in Haiti, howexver basic materials for civil works can be obtained locally. Practically all requlred labor. with the exception of some specialized skills, are avail- able local'lc Goods manufactured locally and procured under International Gompetiti-e Bidding (ICB) would be allowed a preference of 15% (or the level of appllcable import duty, whichever is lower) over foreign goods. For civil work cortracts, procured under ICB, domestic contractors would be granted a 7.5% preference over foreign contractors, for which prequalification would be requirp i Disburs-ment 5OJ7 PcCedts of the proposed IDA Credit would be disbursed under the fclc 1 & _ ca-oegories.  - 25 - AMOUNT CATEGORY US $ _ I. Procurement of materials and 3,150,000 100% of foreign equipment for water systems expenditures maintenance and office building II. Civil works for water system 1,500,000 56% of total and office building expenditures (equivalent to foreign exchange costs). III. Technical assistance program 490,000 100% of total expenditures IV. Engineering consultants 770,000 89% of total expenditures V. Unallocated 690,000 TOTAL 6,600,000 5.08 Disbursements on categories I and II would be made only after final engineering designs have been accepted by IDA. Disbursements for the construction of the office building would be made after the Government has given clear title of the land to SNEP and final designs have been accepted by IDA. The percentages to be disbursed in all categories cover all direct and indirect foreign costs. 5.09 Consultants have been appointed to undertake the technical assist- ance program. IDA should consider retroactive financing for expenses incurred after July 1, 1977 up to an amount of US$200,000, in respect to categories III and IV. 5.10 The estimated quarterly disbursements of the credit are shown in Table 5.2. The closing date would be December 30, 1981.  - 26 - Table 5.2: ESTIMATED SCHEDULE OF CREDIT DISBURSnMENTS - US$ THOUSANDS IDA Fiscal Year Quarterly Cumulative % of and Quarter Disbursements Disbursements Total 1977/78 3rd quarter 80 80 1.2 4th quarter 84 164 2.5 1978/79 1st quarter 565 729 11.1 2nd quarter 783 1512 22.9 3rd quarter 727 2239 33.9 4th quarter 772 3011 45.6 1979/80 1st quarter 778 3789 57.4 2nd quarter 814 4603 69.7 3rd quarter 755 5358 81.2 4th quarter 696 6054 91.7 1980/81 1st quarter 426 6480 98.2 2nd quarter 120 6600 100.0 honitoring Indicators 5.10 Indicators to monitor the financial performance of SNEP and project execution are given in Table 5.3.  - 27 - Table 5.3: MONITORING INDICATORS SNEP Fiscal Year (ending Sept. 30) 1978 1979 1980 1981 1982 Financial Average Tariff per connection (Current gourdes/month) 12.75 20 22 29 32 Operating Ratio (%) 132.7 120.4 84.4 56.6 51.3 Debt Service Ratio - - - 0.95 1.26 Physical House connection (thousands) Project 3.9 4.4 7.9 10.o 13.0 TOTAL SNEP Systems 7.1 8.7 14.2 17.3 20.6 Administrative Employees per thousand connection 16.9 14.9 9.9 8.4 8.0 Environmental Aspects 5.11 The project is intended to eliminate the deficiencies of the existing water supply systems and to extend water services to large numbers of people who do not have adequate and safe water available from the existing systems. The need for much of the population to satisfy all water requirements from unsafe water sources would be substantially reduced as well as the incidence and risks of waterborne diseases. As a result of the project and the expansion of the water supply systems, the additional volume of waste water would not impose a serious problem since most houses with connections have latrine or septic tank facilities. The volume of water used by people served through public standpipes would be modest and allow them to satisfy basic human requirements for cooking and personal use and would not impose any serious disposal problem.  REPUUBLIC OF HAI-S PROVINCIAL 'TOWNS VWAi-Ef .4;UPPLY BAR CHART, BID AND CONSTRUCTION PROJEC 1 IMPLEMENTATION SCHEDULE CALENDAR YEAR t 19781 1979 198() MONTHS AFTERE PROJECT STARTS J A SO N o M A M J JASO N O D A MJ JAS N J F M AM J jA S N D t3 A Q O ~~I N- D- i - -B - -,-"1_ D E _ 1 i- - IY-.C- - | | | || PROJECT COMPONENT t NO I TOVVNS A MIRAGOANE ------ | ULILI LIL 3 SNE NEW u{tDNG ] 1 : |l t"""siilar0 B c El AQUJIN II E 2 mom LI anIIE up mm mm mm Of 13 ~~~DE C C JACMEL S LEGENC E GONAIVES OFag Ns L I COSmL T C F CAP I AITIEN MA u4ai ..U U l1maHUE *ELUL G PORTF- DE8- PAIX Elaso ULIU I UILIL LIIESEEU * L 2 ENGINEERINGUCONSULTANTS EXEECUT!O OF AC.IVT .....CSLE OA SC 0 - C 3 SNEPI NEW BUILDING Isrn umam soa liEEE LI LILIL L I LIL U LENL 4 EQUIPMENT AND MATERIALS mmLEIIEEL III LE L SC ~~~~~~~~~EA 5 TECHNICAL ASSISTANCE LIIEI LiImILIILEIL lm LLELM l L PROGRAM LEGEND IDN,-- - -e DESIGN B RIDDING DE DELIVERY UIEEEEE IDDING,SELECTION OF CONSULTANTS C CONSTRUCTION EA EXECUTION OF ACTIVITY CONSTRUCTION, EXECUTION OF ACTIVITY D DESIGN SC SELECTION OF CONSULTANTS VVorld Bank -17671  - 29 - VI. FIANCIAL ,NALYSIS Introduction 6.01 SNEP, the new sector entLity thatf replaced Sii and COALEP is an autonomous agency that will plan, build anid operate all the urban and rural water supply systems in Haiti, with the exception of Parz-au-Prince ard .cs metropolitan area. Most of the towns covered by SNEP are small (from 23,0C0 to 54,000 inhabitants) and are scattered around the country.. 6.02 SH/COALEP management practlces have been very weak. and have contri- buted to their poor financial performance. olotivation is iow, there is a lack of internal control, and planning and programming have been almost nonexistent in the past. Accounting systems are inadequate, and information about cpera- tions is poor. Past Finances 6.03 Water rates have not been increased since 1-959. S-E andL revenues have never covered their operating costs. Cash deficits ha>e covered partly with loans from the National Pension Fund and partly wLn government grants wjhich represented about US$80,000 a year during the three years. These operating deficits result from the small number of h, I connections, people being reluctant to connect because of poor quality of service. About half of the population is served through standpipes wit'aoutc charge. The rate of collection is low as a result of poor management. There is no billing system and users are supposed to pay at local SEL offices. Operating costs are high since each town requires an administrative strucrure for a small number of house connections. WJater Tariffs 6.04 Water tariffs are monthly flat rates and are the same for all towns. There are no meters and consumers are classified by the diameter of the connection and differentiated by the type of service (residential, comumercial and industrial). Considering the delivery capacity of each tariff group (connection diameter) the tariff structure tended to favor connections with larger diameter. The lowest tariff rate prevailing up to September 1977 was G7.50 (US$1.50) per month for a 1/2" residential connection with one faucet and G 25 (US$5.00) for an industrial connection. The highest was G125.00 (US$25.00) for a 1-1/2" commercial/industrial connection. 6.05 As a result of low consumption and present administrati-ve constraints, it is not advisable to install water meters. Assurances were obtained during negotiations that as an alternative flow limiting devices will be installed on all connections and a study would be undertaken on (a) a more rational tariff structure to be completed within the first year of the project; (b) a systemn to charge for water standpipe use; and (c) the advisability of installing meters for large consumers. The recommendations oL this study will be taken  - 30 - into account in the formulation of appropriate measures and its implementation szhedule. The outcome of this study and its implementation schedule should be satisfactory to IDA. 6.06 In the interim, a new tariff that partia ''y corrects the present problems and generates larger revenues (see 7'able 6.4) has been enacted with the law creating SNEP and its implementation started in October 1977. These tariffs have a minimum charge of G14.50 (US$2.90) per month for 1/2" residen- tial connections. The highest will be G500.00 (US$100.00) for 2" commercial/ inidustrial connections. For the financial projections it was assumed that the new tariff would be fully implemented by Decermber 31, 1977. The average revenue level per connection per month is estimated to be G18 (US$3.60) which compares with average tariff for 1976/77 of G9.00 (US$1.80) or a 100% increase. 6.07 An understanding was reached during negotiations - reflected in the monitoring indicators (para 5.10) - that during the cornstruction period tariffs will be kept at least at the same level in real terms with periodical adjustments according to the consumer price index of Haiti. Upon completion of the project and once the communities have better service an increase of 20% in real terms is required in October 1980, to meet the financial covenant (para 6.16). Revolving Fund 6.08 It is the objective of the Gover-rmer- to strengthen the water supply sector both financially and institution all-y .Repayments of the loarns con- tracted by SNEP (including the proceeds of the proposed IDA credit), as well as other funds allocated to finance SNEP's investments would be credited to a Revolving Fund in the Banque Nationale de la Republique d'Haiti (BU\4RR) to be used to finance future high priority developmuent projects. Financing Plan 6.09 Total financial requirements during th-.e j:oject period (FY78-80) are estimated at G52.6 million (US$10.5 ml1lion)s v ncluding working capital requirements of G1.9 million (US$0.4 milllnorn The financing plan is shown in Table 6.1.  - 31 - Table 6.1: Financing Plan Application of Funds G1.000 US$1.000 % Project Cost 40.000 8.000 76,1 Interest during Construction 3.427 685 6.5 UNCDF Project 6.730 1.346 12.8 Other Works 556 112 1.1 Total Investment 50.713 10.143 96.5 increase in Working Capital 1.862 372 3.5 52.575 10.515 100.0 Sources of Funds _it Internal Cash Generation (221) (44) (0.4) Government Equity Contribution ''Lo Govesr Cash Deficits 1.499 300 2.9 I oans from Govermy:ent 7.000 1.400 13.3 IDA Credit 33.000 6.600 62.8 Revolving Fund Interest during Construction 3.427 .685 6.5 ULLCDF/UUIDP Grant 6.700 1.340 12.7 uontribution from Users (recuperation of house connection costs) 1.170 234 2.2 52.575 10.515 100.0 6.10 In addition to the US$6.6 million IDA credit, the financing plan assumes lending by the Government to cover the local costs of the project (US$1.4 million) and interest during construction (US$685,000). The proceeds of the proposed IDA credit will be made available to SNEP under a subsidiary loan agreement on terms and conditions satisfactory to IDA, including repay- ment of principal in 30 years (including three years of grace) with an interest of 6% per annum, Signing of the Subsidiary Loan Agreement between the Government and SNEP would be a condition of effectiveness. It is the Government's intention to make funds available to SNEP as a loan on the same terns and conditions as those used to onlend the proceeds of the IDA credit. Interest during construction will be capitalized. Repayment of principal and payment of interest will be credited to the Revolving Fund. Debt service to IDA and the foreign exchange risk will be borne by the Government. Assurances were obtained during negotiations that the Government will provide all neces- sary funds for the project including cost overruns and to cover all cash deficits during the construction period of the project. The UNCDF project of US$1.34 million to be built from 1978-1980 was included as a grant to be received in FY80,  - 32 - External Auditig 6,11 In order to improve the reliability of the financial information and the soundness of the accounting practices of SNEP, agreements were reached during negotiations that its financial statement would be audited annually by independent auditors acceptable to IDA. Audited reports would be sent to IDA no later than four months after the end of SNEP's fiscal year. Evaluation of Financial Performance 6.1.2 Consolidated financial projections (income statements, sources and uses of funds, balance statements) are given in Tables 6.4 and 6.5. SNEP's opening balance will be derived from SH's and COALEP's total assets and liabilities at the date SKEP begins its operations. 6.13 On the basis of the assumptions outlined in paragraph 6.21, during the first 5 years lollowing project completion (1981-85) SNEP financial performance will be satisfactory. While total assets will increase by 34% its equity will double from G27.3 to 54.1 million. By the same token, the debt to total capitalization ratio will vary from 61%/o in 1981 to 42% in 1985. Liquid- ity ratio (current assets to current liabilities) remains good throughout the period, being above 3 to 1. Summary balance sheet projections are shown in Table 6.2. Table 6.2: SU.MMARY BALANCE SHEETS - MILLION GOURDES (Fiscal Year ending September 30) 1977 /a 1978 1980 1981 1983 Assets Curren: Assets 0.4 0.8 2.9 2.6 3.3 NTet Fixed Assets 8.9 18.2 61.3 65.9 75.9 Total Assets 9.3 19.0 64.2 68.5 79.2 Liabilities Currert liabilities 0.0 0.0 0.8 0.8 0.9 Long-term debt 0.0 8.6 42.7 42.0 40.4 Equity 9.3 10.4 20.7 25.7 37.9 Total Liabilities & Equity 9.3 19.0 64.2 68.5 79.2 Per foriance Ratios: Current Assets to Currrent Liabilities. N.A. N.A. 3.6/1 3.2/1 3.7/1 Debt to Total capitalization ( N) U.A. 45 67 61 51 /a Starting balance.  - 33 - 6.14 SNEP's revenue base will be increased through the average tariff increase of 100% plus a house connection program which will increase the total number of connection by 250%, from 7,100 in 1978 to 17,800 in 1981. As shown in Table 6.3, this is estimated to cause revenues to increase almost six times, from G1.1 million in 1978 to G6.5 million in 1981. Table 6.3: FINANCIAL PROJECTIONS (million Gourdes) 1977 1978 1980 1981 1]983 Operating Revenues 0.7 1.0 3.4 5.9 8.9 Operating Expenses 1.1 1.7 4.2 5.2 7.0 Net Revenues (0.4) (.7) (0.8) 0.7 1.9 Non Cash Charges 0.1 .3 1.3 1.9 2.4 Internally Generated Funds (0.3) (0.4) 0.5 2.6 4.3 Debt Service 0.0 .0 .0 3.3 3.3 Increase in Working Capital 0.0 .4 1.4 (0.3) .2 Usable Internally Generated Funds (0.3) (0.8) (0.9) (0.4) .8 Borrowings 0.0 8.6 14.9 .0 .0 Government Contributions 0.3 .7 .0 .5 .0 Other Contributions 0.0 0.1 7.7 0.5 .1 0.0 8.6 21.7 0.6 .9 Investment Program: Project Costs 0.0 8.6 14.9 .0 .0 Other Works 0.0 .0 6.8 .6 .9 0.0 8.6 21.7 .6 .9 Performance Ratios: Rate Base - Revalued 8.6 9.0 40.6 61.9 70.8 Rate of Return on Revalued Assets - - - 1.0 2.7 Average Tariff per Connection (month) 9.75 12.75 /a 22.18 29.13 35.30 Operating Ratio (%) 138.7 133 84 57 52 /a Assuming that the new average tariff of G18 per connection would be fully implemented by December 1977. Financial Covenant 6.15 The criterion used to measure SNEP's financial performance should fulfill the following objectives:  - 34 - (a) it must be easy to understand in all its financial implications by SNEP's administration; (b) it has to take into consideration that SNEP's future investment will go to projects with-increasing social content; and (c) it should help to improve SNEP's financial management practices. 6,16 It is considered that a cash flow covenant would adequately serve the foregoing objectives. The proposed cash covenant would require that each f:Lscal year, starting not later than October 1, 1980 SNEP's tariffs be set at such levels as to enable revenues to cover (a) all its operating and mainte- nance expenses and working capital requirements, (b) the higher of either the arnnual interest and debt repayment on all its loans or the annual depreciation charges on revalued fixed assets. In addition, the Government has agreed to make contributions during the project's construction period which would be adlequate to cover SNEP's cash deficits. 6.17 To protect SNEP's financial position, assurances were obtained during negotiations that SNEP would not undertake capital investments outside the project in excess of US$500,000 per year during the construction period without prior consultation with IDA. Moreover, SNEP would not undertake any borrowing other than that required for the project without IDA's agreement if as a result its internal cash generation, excluding debt service, were to cover its maximum projected annual debt service less than 1.4 times. 6.18 SNEP would revalue its fixed assets every year in proportion equal to the consumer price index of Haiti. 6.19 SNEP agreed to prepare quarterly reports on the progress made in aclhieving the financial covenant and monitoring indicators shown in Table 5.3, and to take appropriate remedial actions as IDA might reasonably request. Financial Rate of Return 6.20 The financial rate of return on revalued assets is negative during the project construction period and increases to 1.0% in 1981 and 2.8% in 1985. This is reasonable taking into consideration the high social com- ponent of the project. In the future the financial rate of return would depend, inter alia, on the feasibility of charging low income groups served by standpipes and on SNEP's ability to enlist community participation in the construction and operation of new water supply systems.  - 35 - Assumptions for Financial Projections 6.21 Revenues (a) Water Sales. According to the connection program for the project, the average number of connections per year was used. It was assumed that the new tariff would be fully implemented by December 31, 1977. Yearly increases to compensate for inflation were used as follows: for 1978 and 1979 12 p- * year; from 1980 on 10% per year. For 1981 it was assumed that an addi:lonQl 20% increase in real terms would be implemented. Projections have been ma_ on an accrual basis. (b) Connection Fees. It was assumed that connection fees would average 1/4 of the annual water tariff. Revenues are estimated according to the number of new connections per year, on an accrual basis, assuming payment in 24 months. (c) Contribution from Users. The recuperation of house connection costs is included in the investment program. It is estimated that each house connec- tion has a cost of G150 (US$30). The projection base is the same as that used for connection fees. 6.22 Operat ng Expenses (a) Labor - Central Office. Preliminary projections were made consider- ing the inflation rate plus an annual growth of 5% in personnel and/or wages. Detailed personnel requirements would be assessed by consultants. (b) Labor - Local Offices. It was estimated that the present payroll would have to be increased by 30% in FY78 to comply with operating needs. Projections were made under the same assumptions as those used for the Central Office. (c) Administrative Expenses. These include rental of local offices, communication costs, office supplies, per diem expenses, mail, insurance, etc. They have been adjusted yearly to the inflation rate together with a 5% increase due to