Philippines - Second Provincial Cities Water Supply Project

Document of The World Bank FILE C,P FOR OFFICIAL USE ONLY Report No. 2398-PH PHILIPPINES PROVINCIAL CITIES WATER SUPPLY PROJECT II STAFF APPRAISAL REPORT May 11, 1979 Energy and Water Supply Division East Asia and Pacific Regional Department 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 (As of May 1, 1979) Currency Unit = Pesos (P) P 1.00 = US$0.135 P 1 million = US$135,000 US$1.00 = P 7.40 US$1 million = P7,400,000 MEASURES AND EQUIVALENTS mm = millimeter = 0.04 inches cm = centimeter = 0.39 inches m = meter = 3.28 feet km = kilometer = 0.62 miles ha = hectare = 10,000 square meters or 2.47 acres cum = cubic meter = 264 US gallons cumd = cubic meters per day = 264 US gallons per day 1 = liter = 0.26 JS gallons 1pcd = liters per capita per day = 0.26 US gallons per capita per day PRINCIPAL ABBREVIATIONS AND ACRONYMS ADB = Asian Development Bank DANIDA = Danish International Development Agency MPWTC = Ministry of Public Works, Transportation and Communications LWUA = Local Water Utilities Administration MLGCD = Ministry of Local Government and Community Development NWRC = National Water Resources Council USAID = United States Agency for International Development WD = Water District FISCAL YEAR January 1 to December 31 FOR OFFICIAL USE ONLY PHILIPPINES PROVINCIAL CITIES WATER SUPPLY PROJECT II STAFF APPRAISAL REPORT Table of Contents Page No. I. THE SECTOR............... . . . . . . . . . 1 Background .........................1 Metropolitan Manila..................... 1 Other Urban Centers....................2 Rural Areas . . . . . . . . . . . . . ............ 2 Investment Program .....................3 Bank Lending for Water Supply and Sewerage......... . 3 II. THE BORROWER, BENEFICIARIES AND IMPLEMENTING AGENCIES . . . . 4 The Borrower . . . . . . . . . . . . . . . . . . . . . . . . 4 The Beneficiaries . . . . . . . . . . . . . . . . . . . . . 4 Implementing Agencies . . . . . . . . . . . . . . . . . . . 4 Local Water Utilities Administration . . . . . . . . . . . . 4 Staff and Training . . . . . . . . . . . . . . . . . . . . . 5 Management Systems . . . . . . . . . . . . . . . . . . . . . 5 Audit and Internal Control . . . . . . . . . . . . . . . . . 5 Taxation . . . . o. . . . . . . . . . . . . . . * . .* . . 5 Insurance .. . . . . . . . * * * * * * * * * * 6 Billing and Collections of LWUA's Loans to WDs . . . . . 6 LWUA's Performance Strengths and Weaknesses . . . . . . . . 6 Water Districts . . . . . . . . . . . . . . . . . . . . . 6 Ministry of Public Works, Transport and Communications . . . 7 III. THE PROJECT Objectives . . . . . . . . . . . . . . . . . . . . . . . . . 8 Description . . . . . . . . . . . . . . . . . . . . . . . . 8 Concept and Composition . . . . . . . . . . . . . . . . . . 9 Project Area and Served Population . . . . . . . . . . . . . 10 Subproject Preparation and Appraisal . . . . . . . . . . . . 11 Cost Estimates . . . . . . . . . . * . * * . * . . * . *. . 12 Feasibility Studies, Design, Construction and Supervision of Construction . . . . . . . . . . . . . . . 13 Contingencies . . . . . . . . . . . . . . . . . . . . . . . 13 Procurement and Disbursements . . . . . . . . . . . . . . . 14 Financing . . . . . . . . . . . * . * . * * * * * * . . . 15 Project Supervision . . . . . . . . . . . . . . . . . . . . 16 Project Completion . . . . . . . . . . . . . . . . . . . . 16 Environmental Impact . . . . . . . . . . . . . . . . . . . . 16 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. FINANCIAL ANALYSIS.......... ..... . . . . . . .17 LWUA's Past and Present Financial Performance..... . . . 17 LWUA's Financing Plan............ .... . . . 18 LWUA's Future Financial Performance. ........ . . . .19 Water Districts' Future Financial Performance. . . . . . . . 20 Tariffs.................. ... . . . . .21 V. JUSTIFICATION.......... .. .......... . . . 22 General . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Project Benefits . . . . . . . . . . . . . . . . . . . . . . 22 Service to the Poor . . . . . . . . . . . . . . . . . . . . 23 Employment . . . . . . . . . . . . . . . . . . . . . . . . . 23 Economic Evaluation . . . . . . . . . . . . . . . . . . . . 23 Rural Water Supply and Sanitation. . . . . . . . . . . . . . 24 Project Risks . . . . . . . . . . . . . . . . . . . . . . . 24 VI. AGREEMENTS AND RECOMMENDATIONS. ......... . . . . . . . 25 No. Tables 3.1 Ongoing and Proposed Subprojects in Water Districts . . . . 26 3.2 Population Served - Guagua, Orani and San Jose . . . . . . . 27 3.3 Water District Formation Program . ........ . . . 27 3.4 Status of Water District Formation ....... . . .. 28 3.5 Cost Estimates for the Project. . .......... . . . .29 3.6 Disbursement Schedule........... .... . . . .30 5.1 Income Distribution and Water Consumption...... . . . . 31 5.2 Orani Water District - Consumption by the Poor . . . . . . . 31 5.3 Service to the Urban Poor........ .... . . . . . 32 No. Annexes 1 Subproject Criteria....................33 2 Financing Plan for the Project . ..............39 3 LWUA's Financing Plan. . . . . . . . . . . . . . . . . . . . 40 4 LWUA's Financial Projections . . . . . . . . . . . . . . . .41 5 Assumptions for LWUA's Financial Projection. ....... 44 6 LWUA's Monitoring Indicators ................46 7 Financial Projections for Orani, San Jose and Guagua . . . . 47 8 Assumptions for the Financial Projections of Orani, Guagua, and San Jose Water Districts. . ..............56 9 Internal Economic Rates of Return and Average Incremental Costs for Orani, Guagua and San Jose Water Districts. . 58 10 Selected Documents and Data Available in the Project File. 63 -3- Page No. No. Organization Charts and Schedule 19883 Local Water Utilities Administration ............... 64 16703 Water District ..................................... 65 19866 Task Force on Rural Water Supply ................... 66 19963 Project Implementation Schedule ................... 67 No. Maps IBRD 14132 Water Districts with Ongoing Projects IBRD 11133 Proposed Subproject Water Districts This project was preappraised in June 1978 by A. Saravanapavan and appraised in October/November 1978 by a mission composed of A. Saravanapavan and A. Mejia.  PHILIPPINES PROVINCIAL CITIES WATER SUPPLY PROJECT II I. THE SECTOR Background 1.01 The Philippines is endowed with abundant water resources. Not only does the country have an average annual rainfall of about 300 cm, but it also has nine major river basins, many lakes and streams, and extensive groundwater resources sufficient to cover foreseeable needs in most areas of the country. However, public investment in the water supply sector has traditionally been very low, with the result that the infrastructure for water supply, sewerage, and drainage is currently inadequate throughout the country. Only about 39% of the population has access to safe water. Sanitation facilities are in great need for improvement. About 5% are served by public sewerage systems; some 37% depend on individual septic tanks or pit latrines and the rest are without any facilities. The Government's objective is that by the end of the current five-year plan in 1982, water supply should be available to about 62% of the population and sewerage facilities to about 46% of the population. 1.02 The sector can be divided into three parts: Metropolitan Manila Area (MMA); other urban centers; and rural areas. Except for MMA in which about 82% of the population has access to piped water, in other areas and in the rural communities only about 51% and 33%, respectively, obtain a safe supply through piped systems, artesian wells, and springs. In communities with piped water systems, the growth in demand, the advanced age of the systems and the high leakage rates arising from inadequate maintenance have all gradually reduced water main pressures and lowered the quality of the water supply. Many water systems are operated to supply water for only a few hours a day to avoid loss of water during the off-peak hours. About 61% of the population manage with water which is often of doubtful quality from sources such as open wells, handpumps, rain water cisterns, lakes, rivers, and streams. Metropolitan Manila 1.03 Water supply and sewerage is the responsibility of Metropolitan Waterworks and Sewerage System (MWSS) in MMA. Of MMA's 1977 population of 5.8 million,about 3.1million (or about 53%) obtain water from MWSS. The $397.1 million Second Manila Water Supply Project, for which the Bank and ADB made loans totaling $188.3 million, will go part of the way to meeting Government's objective in the five year plan. The project will about double the water supply and provide safe drinking water to nearly 4 million additional residents, as well as improve the present unsatisfactory service to about 3 mil- lion. A sewerage and sanitation improvement project is also included in MWSS' construction program for 1980-1985. With these investments, totalling about $650 million, the water supply and sanitation services in MMA would improve greatly and the danger to public health would accordingly be reduced. -2- However, by the end of 1982 only about 78% of MWSS' service area population will have access to safe public water supplies. The Government is therefore preparing the Third Water Supply Project for Manila. 1.04 In May 1977, under the Provincial Cities Water Supply Project (Loan 1415-PH) the Bank made available US$4.0 million to MWSS for preparing a sewerage and sanitation project for MMA. Project preparation is advanced and will soon be ready for possible Bank financing. MWSS is also preparing a Solid Wastes Management Project. These two projects would significantly improve the existing poor sanitation of the city, especially in the low income areas. Other Urban Centers 1.05 The Local Water Utilities Administration (LWUA) is responsible for developing water utilities in some 628 provincial cities with populations exceeding 20,000. LWUA assists with the formation of Water Districts (WDs) in these cities and provides them with technical, managerial and financial assistance. Water Districts are locally controlled public utility organizations created under Presidential Decree No. 198. As of March 1979, 82 cities had formed Water Districts and some 60 others had expressed interest in doing so. Fifty-four of the 82 cities have ongoing water supply projects. Water supply in the cities which have not yet formed WDs continues to remain the respon- sibility of the local authorities until such time as LWUA and the local authorities reach agreement on forming WDs. 1.06 Out of a total urban population of 8.4 million living outside MMA about 51% has access to safe water. Several external agencies USAID, DANIDA, ADB and the Bank have made loans, through LWUA to WDs aggregating about $73.0 million, for the construction, expansion and rehabilitation of water supply facilities in the WDs. Most of these projects are still under construction and progress is generally satisfactory. Rural Areas 1.07 An IBRD/WHO sector study made in 1976 recommended the creation of a specialized institution for rural water supply. The Government in recent times is placing great emphasis on the development of rural water supplies and also on rural sanitation. Presidential Letter of Instruction (LOI) 683 of March 30, 1978 established policies for providing water supplies in communities with less than 20,000 inhabitants. The Government is also taking keen interest in the promotion of environmental sanitation and is participating in an UNDP demonstration project for developing low cost water supply tech- niques. -3 - 1.08 LOI 683 also created a Task Force on Rural Water Supply in the National Water Resources Council (NWRC/TF) under the Ministry of Public Works Transport and Communications (MPWTC) to: (a) coordinate and develop rural water supply; and (b) propose a permanent institution for the rural water sector. The Task Force has completed a few pilot projects and is preparing to launch a major program with assistance from the proposed Bank Group financing. Investment Program 1.09 To remedy the past neglect of this sector, the Government has embarked upon an ambitious water supply program in the country. LWUA's program for assisting WDs in provincial cities in the five years 1980-84 would amount to about $218 million, an average of about $44 million per annum compared to $16 million in 1977. For the rural areas, the Five-Year Plan envisages an investment of $210 million, an average of about $42 million per annum compared with about $2 million per annum in 1973-76. While these targets are ambitious, the Government has taken important steps within the sector to establish the organizational arrangements necessary to implement the program. A Bank loan of $23 million (Loan 1415-PH) was made to the Government in 1977 for the First Provincial Cities Water Supply Project. Progress in implementing this project is generally satisfactory. A second Bank loan of $88 million (Loan 1615-PH) was made last year to help improve and expand the MMA water supply system, finance detailed design and fea- sibility studies for water supply in provincial cities and prepare a rural water supply program. To complement the water supply and sewerage program, the Government has recently adopted large urban programs *to expand basic services in low-income urban areas in integrated packages of water supply, sewerage, roads and other infrastructure. These programs are being carried out by the National Housing Authority and municipal governments, and Bank assistance for them is planned. Bank Lending for Water Supply and Sewerage 1.10 The Bank's strategy in the water supply and sewerage sector is to support the Government's investment program for improving water supply, sewerage and sanitation facilities and to provide technical assistance and training for institution building and staff development. The Bank's future lending program includes a loan for sewerage and sanitation in Manila and a loan for construction of additional water supply systems in provincial cities and rural areas. Bank-financed urban and rural development projects are also providing water supply and sanitation systems for low-income groups. II. THE BORROWER, BENEFICIARIES AND IMPLEMENTING AGENCIES The Borrower 2.01 An IDA credit of $22.0 million and a Bank loan of $16.0 million are proposed. The Borrower will be the Republic of the Philippines which will relend $30 million of the proceeds of the credit/loan under a subsidiary loan agreement to LWUA. The terms and conditions of the Government loan to LWUA will be set out in a subsidiary loan agreement which would be signed before the credit/loan becomes effective. LWUA will relend under subsidiary loan agreements to about 50 WDs $28.5 million for water supply construction and retain $1.5 million to prepare future projects. Government will provide from out of the remainder of the proceeds of the credit/loan (a) $6 million to the WDs to help finance local currency expenditures; and (b) $2.0 million to MPWTC for rural water supply construction and to develop rural sanitation. The Beneficiaries 2.02 The main beneficiaries of the Bank Group financing will be the (a) Water Districts in about 50 provincial cities; and (b) Rural Water Associations (RWAs) in about 1,000 rural communities. LWUA will benefit in respect of feasibility studies for water supply projects, a pilot sanitation project, training and equipment. The Implementing Agencies 2.03 The implementing agencies will be LWUA for water supplies for about 50 WDs, training and feasibility studies; and MPWTC (a) through the Task Force on Rural Water Supply of the National Water Resources Council (NWRC/TF) for water supplies for about 1,000 RWAs, pilot sanitation studies in rural areas and detailed design of rural water supply projects; and (b) through LWUA for pilot sanitation studies in urban fringe populations. Local Water Utilities Administration (LWUA) 2.04 Organization and Structure. LWUA was established in September 1973 with an authorized capital of 500 million pesos (US$67.6 million),/l in pursuance of the Provincial Water Utilities Act in 1973 embodied in Presidential Decree No. 198, primarily to function as a specialized institution for the promotion, develompent and financing of local water utilities. Its main objectives are: (a) to assist in the formation and development of technically sound and financially viable locally controlled WDs; (b) to provide loans to WDs for the improvement and expansion of water supply and waste water disposal systems; (c) to provide technical assistance and personnel training for WDs; and (d) to establish and enforce standards of water quality and service. It /1 By PD 1479 of June 1978 LWUA's authorized capital was increased to 2.5 billion pesos (US$337.8 million). - 5 - is attached to MPWTC and enjoys more or less complete autonomy, subject to the general policy directives of Government. The only control exercised by MPWTC is that the award of all contracts must have its prior approval. It is expected that this approval would be given within a period of less than one month. The Board appoints the General Manager, who is also an ex-officio member of the Board, and is responsible for all aspects of LWUA's management subject to the policies established by the Board. Because of the importance of his position it was agreed during negotiations that LWUA should afford the Bank an opportunity to comment on the qualifications of any new appointee to this position. LWUA has five main departments and the organization is shown in Chart 19883. This structure is satisfactory and during negotiations assurances were obtained that without prior consultation with the Bank, no major changes will be made in LWUA's charter and organization. These cove- nants are the same as in the first loan. Staff and Training 2.05 LWUA has been increasing the recruitment of both technical staff and support personnel to meet its growing operational requirements. Techni- cal staff has grown from 36 in 1974 to 270 at the end of 1978. LWUA plans to double it by 1982. Personnel turnover is high mainly because young engineers often leave to join consulting firms, after they have gained some experience in LWUA. The quality of LWUA personnel is good. LWUA's training program covers both its own staff and the staff of WDs and is satisfactory. Management Systems 2.06 The management systems introduced by the consultants at the time LWUA was organized are working well. However, there is an urgent need to (a) develop a financial planning and control system; (b) improve coor- dination within the organization; and (c) strengthen project management through the appointment of a Project Manager (para. 2.11). During negotia- tions understandings were reached that by January 31, 1980 LWUA would have prepared and implemented plans acceptable to the Bank (a) to increase coordination between its departments; and (b) for a comprehensive financial planning and control system. Audit and Internal Control 2.07 LWUA's operations are audited by the Commission on Audit (COA). Audited reports have been presented for 1976 and 1977 and are satisfactory. A copy of LWUA's audited accounts and auditors report will be sent to the Bank not later than six months after the close of each fiscal year. Taxation 2.08 Under P.D. 1177 of 1977 which applies to government controlled corporations, LWUA has to start paying corporate taxes in 1979, but it is expected that Government will eventually reimburse these payments. -6- Insurance 2.09 LWUA has insurance coverage against the normal risks related to its operations. Billing and Collections of LWUA's Loans to WDs 2.10 LWUA's lending program is growing very fast. To make sure that the institution will be able to handle the resulting large volume of operations, it has to define responsibilities, policies, procedures and control sytems for collection of principal and interest on loans to WDs. During negotiations it was agreed that LWUA will present for Bank's comments not later than January 31, 1980, policies and procedures for collection of principal and interest on loans. Also LWUA will establish procedures satisfactory to the Bank for making provisions for bad debts. LWUA's Performance, Strengths and Weaknesses 2.11 Project Implementation. Progress on water supply construction for the six WDs under Loan 1415-PH is behind schedule by about nine months because of (i) slow progress by the consultants in preparing the designs, contract drawings and bid documents, and (ii) difficulties encountered by LWUA in organizing the project and retaining a competent project manager. To correct this situation LWUA has recently appointed a senior individual as Project Manager with full time responsibility for implementing the project. 2.12 Compliance with Covenants. Consumer complaints to the Government by some WDs led to the issue in September 1978 of Presidential letters of Instruction (LOIs) 700 and 744 directing that tariff increases should not exceed 60% at a time and that public hearings should be held before any proposed tariff increase is put into effect. LWUA therefore needed time to comply with a covenant in the ongoing project (Loan 1415-PH) which required that by October 1, 1978 the six WDs should have reviewed their tariffs and any increase or change in structure should be implemented by January 1, 1979. Compliance with this covenant is a condition for effectiveness of the proposed credit/loan. Water Districts 2.13 WDs are formed on a local option basis by a resolution of the municipality or local authority. Once a district is formed, the local author- ity ceases to have jurisdiction over it and the district can be dissolved only by a resolution of its Board of Directors. Financial viability of operations is a basic requirement. The WDs can borrow money for improvement of water supply but if a district has borrowed funds from LWUA it cannot incur any further indebtedness without LWUA's prior approval. The organization of a typical WD is shown in Chart 16703. -7- Ministry of Public Works, Transport and Communications (MPWTC) 2.14 The MPWTC will be the implementing agency for the rural water supply and sanitation components of the project. Since LWUA is attached to MPWTC, coordination and exchange of information between NWRC's Task Force on Rural Water Supply and LWUA will be more effective. The proceeds of the credit/loan will be channeled through MPWTC to the Task Force for the rural water supply project and to both the Task Force and LWUA for the pilot sanitation studies. Natural Water Resources Council/Task Force (NWRC/TF) 2.15 NWRC/TF is a temporary organization and has just started preparing itself for the task of providing about 1,000 rural water supply schemes under the proposed project. The Bank is financing technical assistance in: (a) staff training; (b) preparation of a data base for the rural water supply sector; (c) preparation of a design manual; and (d) preparation of the rural water supply component of the proposed project. The organization of the Task Force is shown in Chart 19866. Because NWRC/TF is a temporary organization it was agreed during negotiations that the establishment of an organization for rural water supply satisfactory to the Bank will be a condition of disbursement of the rural water supply component of the proposed project. - 8 - III. THE PROJECT Objectives 3.01 The primary objective of the project is to provide improved water supplies by carrying out rehabilitation and construction works in about 50 WDs in the provincial cities and about 1,000 rural communities. A list of the proposed and ongoing LWUA subprojects is at Table 3.1. 3.02 The feasibility studies and detailed designs covering 28 WDs are being prepared by LWUA with the assistance of consultants C. Lotti Associati (Italy) and Motor Columbus (Switzerland), financed under technical assistance components in Bank Loans 1415-PH and 1615-PH. MPWTC, also with the help of consultants financed under Loan 1415-PH, is carrying out training and the preparation of rural water supply projects. Description 3.03 The principal features of the project are as follows: Part A (a) Source development, mostly springs and wells, rehabilitation and construction of transmission and distribution systems, installation of new service connections, public faucets, metering, leak detection and repair and improvement of existing facilities in (i) Iloilo, the fourth largest city in the Philippines with a served population of about 200,000 and (ii) about 50 small WDs each with served populations varying between 10,000 and 30,000; (b) technical assistance for project preparation, detailed designs and supervision of construction. Part B (a) Technical assistance for reconnaissance surveys for about 150 communities, and detailed design for future water supply and sanitation projects for WDs; (b) training of LWUA and WD staff including needed equipment; and (c) vehicles and equipment for WDs. Part C (a) Construction of wells, development of springs, pumping stations, pipelines, public faucets and house connections for some 1,000 rural communities. -9- Part D Pilot sanitation study for about eight rural communities. Concept and Composition 3.04 Water Districts in Provincial Cities. To meet the Government's objectives of speedily providing safe water supplies to most of the provincial cities, four modifications have been made to the approach adopted under the ongoing first project (Loan 1415-PH): (i) Unlike the first project in which the feasibility studies on the six big WDs were completed at the time the loan was made, in the proposed second project there are about 50 WDs /1 and for these only about 12 feasibility studies would be completed at the time of loan effectiveness; 16 more feasibility studies would be completed in each year thereafter for three years./2 As this project will aim at reaching 10 times as many communi- ties in comparison with the first project, understandings were reached during negotiations for the annual review of project implementation (see para. 5.09); (ii) Secondly, in the first project the designs were made to meet demand for five to eight years after project completion. This has caused hardship to some communities because of the larger debt service. The Second project would be designed to meet water supply needs for about six years after project completion. If the WD so desires construction would be in two phases. Each one of these phases would be technically sound and be compatible with the total design and will meet needs for about three years after construction completion. During negotiations this was discussed with LWUA and understandings reached on the criteria to be used for subproject design and implementation as set out in Annex 1, Part 1. /1 The biggest WD in the proposed project is Iloilo for which feasibility studies are expected to be completed in June 1979. It is similar in size to the WDs in the first project and based on that experience, a first stage project is estimated to cost P 66 ($9.0) million. /2 The feasibility studies are divided into four packages (details are at Table 3.1): Package #1 = 12 studies, started December 1977; Package #2 = 16 studies, started February 1979; Package #3 = 16 studies, starting September 1979; Package #4 = 16 studies, starting scheduled for June 1980; total = 60. - 10 - (iii) In the ongoing first project, because of poor communication between some WDs and their consumers there has been opposition to water tariff increases. Therefore, in this Second project public hearings would be held at critical stages of subproject preparation to keep WD consumers informed of the proposals; water tariffs would be reviewed annually and so designed that no single increase would be greater than 60% and made only after a public hearing. (iv) Finally, each WD in the first project is providing 10% equity contribution from internal cash generation. The servicing of the resulting 90% debt has proven to be a burden for these cities, which are comparatively larger and wealthier. There- fore for the WDs in the proposed project (except for Iloilo), Government will match a 10% contribution by WDs with a 20% equity contribution for each subproject in order to reduce the required financing to 70% of the subproject cost. This was agreed during negotiations with Government. 3.05 Rural Water Supplies. About 875 rural water supply subprojects have been prepared by the Rural Development Division of the Bureau of Community Development. These subprojects are in sufficient detail for immediate review by NWRC/TF which would, in addition, prepare the remaining 125 subprojects for implementation mostly through Electric Cooperatives and other Government Departments. An understanding was reached with Government during negotiations on the criteria for rural water supply subprojects as set out in Annex 1, Part 2. 3.06 Rural Sanitation Studies. These studies, which will include pilot projects would be carried out by LWUA and NWRC/TF. The rural sanitation studies and pilot projects would be prepared to criteria acceptable to the Bank. Project Area and Served Population 3.07 LWUA's subprojects are scattered throughout the Philippines and are shown in Maps 14132 and 14133 and listed in Table 3.1. Until the feasi- bility studies for subprojects are completed it would not be possible to accurately estimate the population served by the project. For the three sample cities of San Jose, Orani and Guagua on which feasibility studies are completed total population served in the project is expected to increase by two and a half times from 21,300 to 54,900 as shown in Table 3.2. 3.08 The distribution of the estimated 875 communities by Region for which rural water supply projects have been prepared and which will form RWAs is given below: Region I II III IV V VI VII VIII IX X XI XII Total Subprojects 88 173 43 86 32 100 89 103 19 68 26 68 875 - 11 - 3.09 The total urban population served in 1982 in the subproject WDs and Iloilo will be approximately one million. Assuming an average village of 100 households, and an average family size of 5.8 persons per household the total rural population served under the project would be about 580,000. Subproject Preparation and Appraisal 3.10 Every WD, as soon as it is formed becomes eligible for inclusion in one of four packages for the preparation of feasibility studies, detailed design and construction. The rate of water district formation is about two per month and the status of WD formation for the project as of March 1979 is at Tables 3.3 and 3.4. The first package of 12 WDs for this project was put together in December 1977 and the feasibility studies are expected to be completed by mid-1979 (see Implementation Schedule - 19963). The second package of 16 WDs have been formed and the consultants Motor Columbus started work on February 15, 1979. LWUA expects to have formed 16 more WDs (third pack- .ge), bringing the total to 44 and be ready to start feasibility studies on this package by September 1, 1979. 3.11 LWUA wishes to make the feasibility studies for packages three and four by itself without assistance from consultants. However, LWUA's managerial and technical capability for making these studies to acceptable standards and to the tight schedule is untried and recent delays in the first project give rise to serious doubts. LWUA has therefore agreed that it will, in consultation with the Bank, appoint consultants to carry out feasibil- ity studies, detailed design and construction of the project. 3.12 LWUA's Project Manager responsible for carrying out the project would appoint an expert team, with one member external to LWUA, to review the draft final feasibility study reports and check if each subproject meets the agreed criteria. LWUA would then hold a public hearing and obtain the WD's agreement to the subproject and timing of tariff increases. If a subproject does not meet the agreed criteria, it would not be included in the project and would be replaced by another subproject. 3.13 Any rural community with households ranging from 50 to 600 and willing to form a rural water supply association, contribute labor and materials to not less than 10% of the project cost, repay the remainder of the project cost at 4% interest over 20 years and be also willing to operate and maintain the system, would be eligible for a rural water supply subproject. Ahe established community organization system in the country is suited for effectively operating and maintaining these simple rural systems. Although the Bank will have the right to review all such subprojects, in practice its review would be limited to the larger rural water supply subprojects and those identified as needing special justification. During the initial period of implemenetation at least 10 rural water supply subprojects would be closely reviewed by the Bank. - 12 - Cost Estimates 3.14 The total cost of the project is estimated to be $64.0 million with a foreign exchange component of $32.0 million. The proposed IDA credit and Bank loan of $38 million will finance the foreign exchange cost plus local currency costs of $6.0 million. The project cost estimates are at Table 3.5 and the summary cost estimates are given below: Foreign exchange Local Foreign Total Local Foreign Total component ---- (P million) ---- ---- ($ million) ------(%) -- - Part A - Water Districts in Provincial Cities Water supply subprojects 137.15 142.04 279.19 18.59 19.23 37.82 Contingencies: Physical 13.72 14.20 27.92 1.86 1.92 3.78 Price 29.59 24.61 59.20 4.00 4.00 8.00 Engineering 28.49 24.79 53.28 3.85 3.35 7.20 Total Part A 208.95 210.64 419.59 28.30 28.50 56.80 50 Part B Technical assistance for project preparation 13.13 5.00 18.13 1.65 0.68 2.33 Vehicles & equipment - 2.19 2.19 - 0.30 0.30 Training - 4.18 4.18 - 0.57 0.57 Total Part B 13.13 11.37 24.50 1.65 1.55 3.20 48 Part C - Rural Communities Rural Water Supply Subprojects 13.32 13.32 26.64 1.80 1.80 3.60 50 Part D - Rural Sanitation Rural Sanitation Study & Pilot Sanitation Subprojects 1.48 1.48 2.96 0.20 0.20 0.40 50 Total financing required 236.88 236.81 473.69 31.95 32.05 64.00 50 - 13 - 3.15 The cost estimates are based upon preliminary engineering studies prepared by the consultants for Orani, Guagua and San Jose WDs and preliminary costs provided by the WD manager for Iloilo, information supplied by LWUA on WDs and data provided by NWRC/TF on rural water supply subprojects. The subprojects for WDs are based on a per capita cost of P 224 ($30) with average populations decreasing from 17,000 to 11,000 from the first package (excluding Iloilo) through to the fourth package. The foreign exchange cost of 50% is only a little higher than the first Provincial Cities Water Supply Project (Loan 1415-PH) in which it was 49%. The cost estimates do not include duties and taxes on imported goods since LWUA and NWRC/TF will be reimbursed such charges. All prices are adjusted to a base line of June 1979 and are reasonable. Feasibility Studies, Design, Construction and Supervision of Construction 3.16 Construction supervision of the subprojects in the WDs will be mostly by LWUA with minimal assistance from local consultants. However, because of general inexperience in the supervision of drilling high yielding long life municipal wells to satisfactory standards, 24 man-months of such assistance from internationally recruited consultants is included in the cost estimates for packages three and four. The project provides for a total of 126 man-months of internationally recruited consultants at an average man-month cost, of $6,500 excluding transportation, housing and local costs which are variable depending on home station and family circumstances of individual consultants. As these consultants would be experienced senior staff, this is a reasonable cost. The experience and qualifications of LWUA's team conducting the feasibility studies, and of local and internationally recruited consultants, and the terms and conditions of employment of all consultants should be acceptable to the Bank. Some equipment and two vehicles have been included to help carry out LWUA's public education program in the WDs and also to facilitate the presentation of projects at the mandatory public hearings. For those WDs that are desperately short of urgently needed tools and vehicles, a budgetary provision of US$250,000 has been made in the estimates. In addition, 150 man- months for training LWUA and WD staff are included. The training program will be formulated and sent for Bank review by January 31, 1980. Contingencies 3.17 As most of the works are below ground and scattered throughout the country, unforseen obstructions, corrosive soils and poor foundation condi- tions are likely to be encountered. Also, in well drilling, some dry holes or holes with poor quality water are likely. Therefore a physical contingency provision of 10% for both civil works and equipment has been made in the cost estimates. This is a reasonable provision. International and local inflation for 1979-85, were taken into account in assuming a price contingency of7.5% p.a. during the project implementation period both on civil works and equipment. - 14- This is also a reasonable provision. Similar contingency provisions are built into the estimates for consultant services. The total of US$8.0 million provided for price increases in Part A is 17% of the baseline cost plus physical contingencies and engineering. This cost is reasonable because of the lead time required to prepare packages two, three and four. Procurement and Disbursement 3.18 Except for Iloilo, procurement of all equipment and civil works required for each water supply subproject, which on an average are estimated to cost below $1.0 million equivalent for each WD, will be packaged by LWUA into single contracts, satisfactory to the Bank, and will be awarded on the basis of competetive bidding advertised locally in accordance with Government procedures which are acceptable to the Bank. These works would account for 75% of the total project cost. LWUA's local procurement procedures are satisfactory and appropriate for these works. Equipment and civil works for the Iloilo subproject, estimated to cost $9.0 million (14% of the total project cost), will also be packaged into a single contract, but will be awarded on the basis of international competitive bidding (ICB) in accordance with Bank Group Guidelines. For the rural water supply subprojects (6% of the total project cost) all equipment would be obtained by MPWTC through bulk procurement on the basis of international competitive bidding. Procurement of vehicles, tools and equipment (less than 1% of the total project cost) will also be made through ICB. A preference limited to 15% of the c.i.f. price of imported goods or the prevailing customs duty, whichever is lower, would be extended to local manufacturers for procurement through ICB. Except in cases where voluntary labor is offered, MPWTC would follow local procurement proced- ures, which are satisfactory and appropriate, for minor civil works in laying pipes, constructing intakes and small reservoirs, installing public faucets and related items for rural water supply projects. Both LWUA and MPWTC will also follow local procurement procedures for the pilot rural sanitation projects. The Philippines has a growing construction industry and almost all contracts are expected to be won by local contractors. The subprojects (except for Iloilo) are not only small in value but are also scattered through- out the country and are therefore likely to evoke little interest from inter- national contractors. Goods costing less than $15,000 equivalent needed for the public education program, carrying out public hearings, training and for urgently required off-the-shelf items for project completion may be procured through local shopping procedures satisfactory to the Bank provided the total cost of such items does not exceed $100,000 equivalent for both Parts A and B and $20,000 for both Parts C and D, respectively. 3.19 Disbursements for civil works would be (a) 100% of foreign expendi- tures for mobilization; and (b) 65% of other civil works expenditures. For equipment and materials, disbursements would be at 100% of the foreign exchange cost of directly imported equipment, 100% of the ex-factory price of locally manufactured equipment and 65% of imported goods procured locally. For costs of consultants and overseas training, disbursements would be 100% of expendi- tures. Disbursements in respect of overseas training would be made against the training program (para. 3.16). The quarterly disbursement forecast is shown - 15 - in Table 3.6. It is the intention that the IDA Credit funds be fully committed before disbursements commence on the Loan. Financing 3.20 Government wishes to be assured of the financing for the total project at this time so as to ensure the implementation of an uninterrupted stream of subprojects following the completion of feasibility studies. The detail financing plan for the project is presented in Annex 2 and a summary follows: (US$ million) % Requirements Part A (including IDC) 56.8 89 Part B 3.2 5 Part C 3.6 5 Part D 0.4 1 Total requirements 64.0 100 Sources IBRD loan 16.0 IDA credit 22.0 Total IBRD/IDA 38.0 59 Government contribution: 20.3 32 WD's internally generated funds 5.7 9 Total sources 64.0 100 3.21 The Government would relend $30.0 million of the proceeds of the credit/loan to LWUA with a term of 20 years, including 5 years grace period, and with the same interest as the Bank loan. LWUA would retain $1.5 million of the proceeds of the subsidiary loan to finance preparation of future projects. LWUA would relend the balance of $28.5 million together with $13.1 million of its own resources to the WDs for development of their water supply systems. LWUA's loans to the WDs would have a term of 30 years including a grace period equal to the construction period at an interest rate of 9% per annum. WDs would finance $5.7 million (10% of project costs) from internal cash generation. Government will make available $6.0 million from the proceeds of the credit/loan plus $3.5 million from its own resources, as its equity contribution to the small WDs representing 20% of project costs of the water supply program. Financing by LWUA of interest during construction is necessary in view of the cash requirements of the WDs in the initial years of formation and the need to keep tariff increases to within the ability to pay of the small and poor communities. As in the first loan (Loan 1415-PH), Government - 16 - will finance the interest on the portion of the proceeds of the credit/ loan ($30.0 million) onlent to LWUA. The terms and conditions of the subsidiary loan agreements between LWUA and the WDs will be approved by the Bank. 3.22 The Government would use the remainder of the proceeds of the credit/ loan of $2.0 million to finance the foreign exchange costs of the rural water supply component ($1.8 million) and rural sanitation studies ($0.2 million). MPWTC would be responsible for implementing these components and would finance the local costs of $2.0 million through Government budgetary allocations. Project Supervision 3.23 Review by Bank staff of the implementation of subprojects would be mostly made in the field with approvals given for carrying out the next step. For part A, each of the subproject sites will be visited once during the project period but for Part C Bank review would be restricted to selected samples. Each mission is expected to be at least two weeks in the Philippines and in the first two years would occur around every 4 months. Project Completion 3.24 Construction of major components would be completed by December 31, 1984, but because of seasonal bad weather near the end of the year installation of service connections on some of the later subprojects in WDs would be completed in the forthcoming dry season. The project is therefore expected to be completed by June 30, 1985 and to permit disbursement of contract retention monies, etc., the closing date would be December 31, 1985 (see Implementation Schedule - Chart 19963). Any surplus funds would be used for additional subprojects. Environmental Impact 3.25 As this is a project essentially for providing domestic water supply, some pollution of surface waters can be expected from the used water. Most of these cities and villages cannot afford conventional sewerage or sanitation systems. However, research and development of low cost alterna- tives is expected to provide affordable and practical systems which could be included in the next stage project. Meanwhile, because of the high rainfall and the general nature of the terrain in the several islands which constitute the project area, the natural drainage and dilution is adequate to ensure that there is no significant increase in the pollution to the environment because of the project. - 17 - IV. FINANCIAL ANALYSIS LWUA's Past and Present Financial Performance 4.01 LWUA's history is too short to discern any well defined trends. Nevertheless it is clear that it is growing fast and so far is doing well. The following table summarizes LWUA's performance in this initial stage: 1978 1976 1977 (estimate) ----------P million--------- Interest on loans to WDs 3.3 12.7 23.9 Interest on investment and other income 4.8 9.1 7.5 Total income 8.1 21.8 31.4 Financial expenses 0.3 3.3 4.6 Administrative expenses 4.2 7.8 9.1 Total expenses before provisions 4.5 11.1 13.7 Net income before provisions 3.6 10.7 17.7 Key Indicators: Percent---------- 1. Total income /a 6.2 8.1 7.5 2. Financial expenses /a 0.2 1.2 1.1 3. Gross profit /a (1-2) 6.0 6.9 6.4 4. Administrative expenses /a 3.2 2.9 2.2 5. Profit before provisions /a 2.8 4.0 4.2 6. Interest earned on loans as % of average loan portfolio 5.2 7.6 7.6 7. Financial expenses as % of average borrowings 1.1 4.1 3.0 8. Average gross interest spread (6-7) 4.1 3.5 4.6 9. Long-term debt to equity 0.32:1 0.54:1 0.65:1 /a As % of average total assets. 4.02 A good percentage of LWUA's revenues has come from the return on short-term Government securities bought with the unused portion of the capital contributions received from Government. This has given LWUA a reliable base to finance its operations in this early stage. Gross spread is large because a high percentage of the borrowings committed so far comes from soft loans./l The ratio of longterm debt equity at the end of 1978 was 0.65:1 well below /1 LWUA has received $2.5 million interest free from DANIDA and $35.0 million from USAID at 2-3% interest. - 18 - the limit of 3.0:1 covenanted in Loan 1415-PH. In June 1978 LWUA's authorized capital was increased from P 0.5 billion to P 2.5 billion ($338 million). This is a good indication of the intention of the Government to continue supporting LWUA. Paid in capital as of September 30, 1978 was, however, only P 239.2 million ($32.3 million). 4.03 Because of the public reaction against large tariff increases by water districts the Government has been considering the reduction of the interest rates charged by LWUA to WDs. Unless this move is accompanied by complementary actions to decrease LWUA's cost of capital there is the risk of making LWUA financially nonviable. Since actions like these may endanger the future of the institution, during negotiations it was agreed that, in future, LWUA's operating and financial policies will not be modified without prior consultation with the Bank. LWUA's Financing Plan 4.04 A summary of LWUA's financing plan for the project period 1980-84 follows. Further details are presented in Annex 3. Requirements P US$ % Lending Program to WDs: Proposed project 307.6 41.6 18 Other programs 1,306.2 176.5 76 Total lending program 1,613.8 218.1 Other requirements (including feasibility studies, fixed assets, working capital, Government equity contribution to WDs) 100.6 13.6 6 Total requirements 1,714.4 231.7 100 Sources LWUA's Net Internally Generated Funds 244.6 33.1 15 Long-Term Borrowing: IDA/IBRD proposed loan 222.0 30.0 13 IBRD, ADB, DANIDA, AID 245.0 33.1 14 Unidentified sources 260.6 35.2 15 Total borrowings 727.6 98.3 42 Government Contribution (To LWUA's capital) and WDs' equity) 742.2 100.3 43 Total sources 1,714.4 231.7 100 - 19 - 4.05 Government would relend $30.0 million of the proceeds of the credit/ loan to LWUA. In addition, LWUA's borrowing program for 1980-84 includes $68.3 million of which $33.1 million will come from loans already contracted with AID, ADB, IBRD and DANIDA and the balance of $35.2 million from sources not yet fully identified. Contacts with ADB, DANIDA and AID have been made in this regard. LWUA's lending program for 1980-84 is $218.1 million which includes $41.6 million to WDs covered by the proposed project. 4.06 The Government is expected to contribute to LWUA the equivalent of $100.3 million of which $9.5 million will go to the WDs as an equity contri- bution. The balance of $90.8 million will be the Government's capital subscrip- tion to LWUA. This represents an increase of about 80% over the average capital payments received by LWUA from Government in the past three years. It was agreed during negotiations that Government will increase LWUA's paid-in capital to meet its annual requirements, estimated at $18.0 million equivalent. The financing plan is reasonable and reflects the level of operations that LWUA has to undertake to help in the reduction of deficiencies in the sector. Government will provide any shortfalls in WDs cash generation and any other funds for the satisfactory completion of the project. LWUA's Future Financial Performance 4.07 LWUA's projected financial statements are presented in Annex 4. Based on the underlying assumptions, LWUA's outlook is satisfactory. After corporate taxes of 35%, net income as a percentage of average equity is expected to increase from 1.1% in 1978 to 4.5% in 1986. As a percentage of average total assets, net income grows from 0.7% in 1978 to 2.5% in 1986. 4.08 Nevertheless, as loans with higher interest rates become a larger percentage of the total borrowings, the gross spread is cut in half from 4.6% in 1978 to 2.3% in 1986. This reinforces the point made in para. 4.03 that lending rates should not be lowered without other compensating actions. 4.09 During the period under consideration - 1978/86, LWUA's capital structure is expected to remain sound with a long-term debt to equity ratio under 0.8:1, well below the maximum of 3:1 covenanted in Loan 1415-PH. Debt service coverage, although decreasing through the years, remains satis- factory above 1.8. It was agreed during negotiations that LWUA's long-term debt will not at any time exceed its equity by more than three times. 4.10 LWUA's liquidity is very important for the adequate implementation of its lending program. Assuming that government payments to its capital subscription are received on time no difficulties are expected in this area. Current ratio remains above 1.7. The forecast includes cash on hand and funds available in the Treasury that are expected to be on the average not less than the equivalent of one month cash operating expenses of LWUA plus expected disbursements for WDs' investment program. In addition, it is - 20 - assumed that LWUA will keep the present level of investment in short-term securities as a necessary cushion. 4.11 A summary of some indicators of LWUA's future performance follows: 1979 1980 1981 1982 1983 1984 1985 1986 Total income /a 7.9 8.2 8.0 8.4 8.4 8.5 8.8 8.9 Financial expenses /a 1.5 1.9 2.2 2.5 2.5 2.7 2.7 2.7 Gross profit /a 6.4 6.3 5.8 5.9 5.9 5.8 6.1 6.2 Administrative expenses /a 1.9 1.8 1.8 1.7 1.7 1.6 1.5 1.6 Profit before provisions /a 4.5 4.5 4.0 4.2 4.2 4.2 4.6 4.6 Net income as % of average equity 2.1 1.8 3.0 3.7 3.7 3.7 4.4 4.5 Interest on loans as % of average loan portfolio 8.1 8.4 8.1 8.4 8.4 8.5 8.8 8.8 Financial expenses as % of average borrowings 3.9 4.6 5.2 5.6 5.9 6.2 6.4 6.5 Gross interest spread 4.2 3.8 2.9 2.8 2.5 2.3 2.4 2.3 Long-term debt to equity .7:1 .8:1 .8:1 .8:1 .8:1 .8:1 .7:1 .7:1 /a As % of average total assets. 4.12 Because of the presently weak financial condition of the WDs and thin spread between LWUA's onlending rate (9%) and the interest charged by Government (8%) on the portion of proceeds of the loan relent to LWUA, the Government will bear the risk of exchange for the loans disbursed to LWUA in foreign currencies and this should be provided in the subsidiary loan agreement between LWUA and Government. Water Districts' Future Financial Performance 4.13 From the experience gained so far with LWUA's program, four modifi- cations made to the approach adopted in the first project (Loan 1415-PH) are described in paragraph 3.04. There are important financial and tariff implications to the WDs because of these modifications. During the project construction period, water tariffs of each WD will be so set as to generate internal cash of at least 10% of the project expenditures. To assist in achieving this and to make a gradual raising of the tariffs possible, WDs will be required to earn rates of return of 3% in the third year following the start of project construction increasing to 4%, 5%, 6% and 7% respectively in each succeeding year, and 8% thereafter. This covenant was agreed during negotiations and also that the following covenants in the first project will be equally applicable to this project: - 21 - (a) LWUA will cause each WD to establish and maintain realistic values of their assets and to maintain complete records of their physical values and locations; (b) the project WDs will adopt accounting procedures acceptable to the Bank; (c) LWUA will cause each WD to have its accounts and financial statements certified by an independent auditor acceptable to LWUA and submitted to LWUA not later than six months after the end of each year; (d) during the project construction period WDs will not undertake any major capital expenditures /1 other than those included in the sub- project and after project completion would not incur any indebted- ness unless their internal cash generation for the past fiscal year (or a later 12 months period prior to incurring such debt) is at least 1.3 times the maximum debt service requirement on all its long-term debt for any succeeding fiscal year; (e) during the project period the performance of each WD will be monitored using performance indicators acceptable to the Bank. 4.14 Annex 7 presents the projected financial statements for Orani, San Jose and Guagua, three of the water districts expected to be financed through the proposed loan. 4.15 Tariffs. The Presidential Decree establishing LWUA stipulated that the WDs shall fix rates and charges for water adequate to cover operating expenses and debt service as well as to provide a reasonable surplus for investment in the improvement and expansion of the system. Presidential letters of Instruction 700 and 744 issued in September 1978 further directed that tariff increases should not exceed 60% at a time and that public hearings should be held before any proposed tariff increase is put into effect. LWUA guidelines on tariffs now include the following criteria: (a) tariffs shall be progressively stepped upwards with any one increase not to exceed 60% at a time for domestic service; (b) the tariff structure will achieve both financial and equity goals; and (c) those families who consume less than 10 cu m per month will spend no more than 4% of family income for water. These guidelines are reasonable and LWUA has been informed that in addition, the top block of non domestic services should be based on marginal supply cost. The tariffs for the lower income categories who consume about 10 cubic meters per month would be subsidized through higher charges to larger domestic consumers and commercial and industrial users. During negotiations it was agreed that LWUA will cause each Water District included in Part A of the Project to: (i) carry out an annual review of the rate structure and level of its tariffs; (ii) furnish such review to the Bank for its comments, not later than October 1 in each year from 1979 through 1984 and thereafter at such intervals as the Bank may request; and (iii) taking into account the comments of the Bank, implement the findings of such review by January 1 of the following year. /1 Major capital expenditures are defined as these exceeding 20% of the sub- project cost. - 22 - V. JUSTIFICATION General 5.01 The justification for the project is that it will provide a basic need to some of the poor urban and rural communities in the Philippines. It comprises a big step in LWUA's long range ambitious program to provide water supplies to some 628 provincial cities and will assist the Government in its efforts to improve the standard of living of its citizens by increasing access to safe water in both urban and rural areas and take the first steps to improve rural sanitation. LWUA would be developed through the project to take a sectoral approach in implementing community water supplies. In turn the communities benefitting from subprojects would have greater involvement in the development of their respective WDs through the opportunities to partici- pate in the decision-making process starting from the feasibility studies through tariff setting and construction completion. 5.02 The subprojects to be financed under this credit/loan will be the least cost solution and will: (a) provide investments in small urban and rural communities, with emphasis upon the low income groups of these communities, most of which have dilapidated or no water supply systems and little or no hope of improving their systems except through this type of program; (b) be selected and reviewed in accordance with criteria acceptable to the Bank to ensure that the subprojects will be justified on finan- cial, economic and equity grounds. Each subproject would be selected out of three feasible technical alternatives of which the alternative chosen for design would be the least cost solution at a discount rate of 10% and would be designed to meet water supply needs for about six years after project completion. If the WD so desires construction would be in two phases. Each one of these phases would be technically sound and be compatible with the total design and will meet needs for about three years after construction completion; and (c) demonstrate to these communities that with relatively modest and timely increases of water tariffs the communities could improve and expand their water supply systems and gradually become more self- reliant. Project Benefits 5.03 Safe Water. With the project, all consumption and production will be measured, leaking pipes identified through leakage surveys for replacement, needed extensions made in each system and chlorinators installed to make the water safe for consumption. Without the project gastroenteritis and other water related diseases, which mostly go unreported, would continue to delibi- tate the working population and affect the growing children. Mortality and morbidity rates due to such diseases would remain high and there would be a continuous threat of epidemics of cholera, typhoid or infectious hepatitis. - 23 - 5.04 Service to the Poor./l There are no reliable estimates on the number of poor in these provincial cities and rural areas. According to Bank group estimates 39% of the estimated urban population of 13 million and 44% of the rural population of 32 million of the Philippines were below the absolute poverty line in 1977. In the three sample cities the 1978 income distribution (based upon local perceptions) of consumers with house connec- tions is shown in Table 5.1. In these cities the percentage of people, below the absolute poverty line with house connections and standpipes, according to the Bank's definition will be about 42% in Guagua, 70% in Orani and 64% in San Jose. Assuming that the subproject WDs are similar to the sample WDs, it is reasonable to conclude that between 40% and 60% of the population served would be the absolute poor. In the same three cities about 16%, 33% and 26% of the consumption will be by the absolute poor. On the basis of consumption, about 25% of the total cost of the 3 subprojects of $2.05 million for these cities will be for the absolute poor. Therefore, out of the total project cost of $64 million, about $16 million is directly attributable to the absolute poor. 5.05 Taking only the incremental number of persons served in the three sample cities (33,600) the capital cost of providing the incremental service is about P 441 ($60) per person. This is a low cost because the first stage project aims at making immediate improvements and some extensions to demons- trate to the communities the advantage of a safe and affordable public water supply and will be a catalyst for further improvements and extensions by these communities. Employment 5.06 It is estimated that an average of 860 skilled and 1,300 unskilled jobs will be provided over 4 years during project construction, LWUA's engi- neering staff will increase by about 100% and each project WD will have a small increase in operational staff because of the program. Economic Evaluation 5.07 Because the subprojects for this loan are in various stages of preparation and identification, it is impossible to calculate an overall internal rate of return for the project. However, for the three sample cities of Guagua, Orani and San Jose, using future tariffs (in constant prices) as a minimal measure of economic benefits and assuming a foreign exchange conver- sion factor of 0.9, the internal rates of return are 7.4%, 6.6% and 9.8%, respectively. These presume a willingness to pay future tariffs on the part of the consumers. In addition, these rates do not include the /I For 1977, the Bank group has defined the absolute urban and rural poverty lines in the Philippines as $250 and $190 per capita per annum respec- tively (P 1,877 and P 1,410). - 24 - "consumer surplus", or value of water to the consumer beyond that which he is asked to pay. A more direct measure of the internal economic rate of return is impossible due to the difficulty of quantifying health benefits. The average incremental cost of water in these three cities is close to future tariffs. (See Annex 9). Rural Water Supply and Sanitation 5.08 The rural water supply component of the project is part of Govern- ment's basic policy to increase the public water supply coverage to about 85% of the total population by 1987 with special attention to the rural areas. This component will help the establishment of an organization for rural water supply and also lay the foundation for future programs. The pilot rural sanitation projects would assist the Government in planning of future rural sanitation programs. Project Risks 5.09 This is a large project in the context of LWUA's management capa- bility, staff availability and the capacity of the limited local consulting services. On the other hand, there is great pressure from the Government and the people for an affordable water supply program on a scale much larger than what has ever been attempted before. Therefore, in order to ensure that the project generates the expected benefits, it is important that (i) the Water Districts'are formed to schedule; (ii) feasibility studies and detailed designs completed on time; and (iii) subprojects implemented efficiently within the time and cost allowed for in the implemetnation schedule. The Bank is providing technical assistance for training LWUA staff in preparing the financial projections for the large number of subprojects. LWUA has a Project Manager for supervising the feasibility studies, preparation, detailed design and supervision of construction. It was agreed during negotiations that LWUA will complete the formation of 50 subproject WDs by June 30, 1980. At the end of each year after the date of effectiveness, LWUA will review progress in project implementation and make necessary changes to ensure that the project is completed on time. 5.10 The project also faces the risk that since experienced expatriate consultants are being replaced by relatively inexperienced but enthusiastic local consultants there may be delays in the preparation of detailed designs and in project implementation. Also in the preparation of the feasibility studies, to be done mostly by LWUA staff there may be delays because of poor management by relatively inexperienced project managers and untrained staff if there is no improvement in LWUA's present high turnover. There is a provision for technical assistance in the project which with timely use would alleviate these risks (see para. 3.11). 5.11 Bank supervision missions would play a key role in minimizing the project risks. Not only should they occur at around every four months, more than the normal amount of staff time will be needed in the technical and financial reviews of subprojects. - 25 - VI. AGREEMENTS REACHED AND RECOMMENDATIONS 6.01 During negotiations agreement was reached with Government and LWUA on the following main points: (i) policies and procedures for collection (para. 2.10); (ii) criteria for water supply subprojects in WDs (para. 3.04); (iii) equity contribution of 20% to WDs (para. 3.04); (iv) criteria for rural water supply subprojects (para. 3.05); (v) LWUA's financial policies (para. 4.03); (vi) increase of LWUA's paid-in capital (para. 4.06); (vii) rates of return for WDs (para. 4.13); (viii) annual review of WDs' water charges (para. 4.15). 6.02 Conditions of credit/loan effectiveness would be: (i) the execution of the subsidiary loan agreement between Government and LWUA on terms and conditions acceptable to the Bank (para. 2.01). (ii) review of water tariffs for the WDs in the ongoing project and implementation of needed tariff increases (para. 2.12). 6.03 As a condition for disbursements of the rural component of the credit/loan, MPWTC should have established an organization for rural water supply (para. 2.15). 6.04 Subject to the above the project is suitable for an IDA credit of $22.0 million on the usual terms and a Bank loan of $16.0 million for a term of 20 years incuding a grace period of five years. -26- PHILIPPINES PROVINCIAL CITIES WATER SUPPLY PROJECT II Table 3-1 Ongoing and Proposed Projects in Water Districts As of March 15, 1979 Funding agency/ Estimate of Funding agency/ Estimate of Water District population served Water District population served a Provicial Cities Water Supply Project II Ongoing Projects Proposed Subprojects I. DANIDA VI. IDA/IBRD 1. Batangas 19,004 Feasibility Studies and Detailed 2. Marawi 11,772 Designs Underway - Package 1 3. Alaminos 2,570 1. Orani 4. Hagonoy 6,314 2. Guagua 5. Puerto Princess 2,394 3. San Jose, Nueva Ecija 6. -Bulan 4,819 4. Dumaguete 7. Malaybalay 5,184 5. La Carlota 8. Gingoog 2,412 6. Pagadian 7. San Jose, Occ. Mindoro II. USAID (First Tranche) 8. Lingayen 1. San Fable 49,653 9. Vigan 2. Davao 33,672 10. North Cotabato 3. Leyte 23,779 11. Iloilo 4. Bacolod 47,410 12. San Carlos 5. Cagayan de Oro 30,945 Feasibility Studies Underwa- Package 2 III. USAID (Second Tranche) 13. Passi 1. Urdaneta 3,203 14. Sta. Cruz 2. Silay 6,142 15. Ilagan 3. Gapan 4,790 16. Odiongan 4. Bangued 6,703 17. Catbalogan 5. Calamba 6,174 18. Sipocot 6. San Fernando, Pampanga 10,632 19. Talibon 7. Tabaco 9,878 20. Dingle-Pototan 8. Mati 1,560 21. Donsol 9. San Juan 5,509 22. Natividad-Tayug-Sn. Nicolas 10. Camiling 3,213 23. Bayombong-Solano 11. Sorsogon 5,442 24. Basis City 12. Paniqui 3,500 25. Balayan 13. Bislig 4,284 26. Calbayog City 14. Los Ballos 10,136 27. Gumaca 15. Baybay 6,138 28. Tuguegarao 16. Cotabato 14,586 17. Roxas 8,240 Feasibility Studies for Completion 18. Olongapo 43,806 in 1980 - Package 3 19. Lopez 1,345 29. Digos- 20. Solana /a 30. Santiago 21. Mondada 1,750 31. Naga Metro 22. Aparri /a 32. Matnog 23. Siargao 7i 33. Oton 24. Mabalacat 1,680 34. Ajuy 25. Masbate la 35. Buenavista 26. Basey /a 36. Pilar 27. Mariveles Ia 37. Danao 28. Kabankalan 2,303 38. Toledo 29. Bansalan 2,709 39. Escalante 30. Balaoan 1,680 40. Guihulngan 31. Kalibo /a 41. Tagkawayan 32. Prosperidad /a 42. Bocaue 33. Victorias /a 43. Guinobatan 34. Romblon 7a 44. Sta. Cruz 35. Siocon /a 36. Bani /a Feasibility Studies for Completion 37. Binmaley /a in 1981 - Package 4 38. Tagaytay 7-a 45. Aroroy 39. Calamba /a 46. Cawayan 47. Ragay IV. ADB 48. Cadiz 1. Cebu 85,358 49. Carcar 2. Zamboanga 57,846 50. Villasis 3. Misamis Occidental 34,998 51. Palompon 4. Butuan 3,708 52. Calumpit 5. Camarines Norte 30,345 53. Gasan 54. Naguillan V. IBRD - Provincial Cities water 55. Estancia Supply Project - Loan 1415-PH 56. Polangui 1. Baguio 58,726 57. Calatrava 2. Tarlac 5,614 58. Sagffay 3. Lipa 9,066 59. Rosario 4. Cabanatuan 21,327 60. Camalig 5. Lu-Pa-Ta 35,245 6. La Union 149,650 Ia Feasibility study not yet finished. - 27- Table 3.2: POPULATION SERVED - GUAGUA, ORANI AND SAN JOSE Present Phase 1 Phase 2 Guagua WD 1978 1982 1986 Total population 70,660 77,090 82,820 Service area population 16,220 25,710 39,900 Population served 11,100 21,200 38,200 Percentage of service area population 68 82 95 Orani WD Total population 32,410 35,880 39,280 Service area population 19,020 22,480 27,400 Population served 6,000 18,400 23,600 Percentage of service area population 32 82 86 San Jose Total population 63,260 69,570 75,700 Service area population 11,930 20,130 28,530 Population served 4,200 15,300 23,300 Percentage of service area population 35 76 82 Total for the Three WDs Total population 166,333 182,540 197,800 Service area population 47,170 68,320 95,830 Population served 21,300 54,900 85,100 Percentage of service area population 45 80 89 Table 3.3: WATER DISTRICT FORMATION PROGRAM - MARCH 1979 Water districts Feasibility studies Package Being - starting and no. Formed formed Applied Interested Total completion dates First 12 - - - 12 12/01/77 - 06/01/79 Second 12 4 - - 16 02/01/79 - 06/01/80 Third 0 4 4 8 16 09/01/79 - 03/01/81 Fourth 0 4 3 9 16 06/01/80 - 12/31/81 Standby 1 5 4 7 17 Total 25 17 11 24 77 - 28 - Table 3.4: STATUS OF WATER DISTRICT FORMATION FOR THE PROJECT As of 15 March 1979 Formed with CCC /1 Formed w/o CCC Being Formed Applied Interested Second Package-16 Cities 3 9 4 0 0 1. Passi 1. Ilagan 1. Natividad-Tayug-San Nicolas 2. Sta. Cruz 2. Odiongan 2. Bayombong-Solano 3. Tuguegarao 3. Catbalogan 3. Balayan 4. Sipocot 4. Calbayog City 5. Talibon 6. Dingle-Pototan 7. Donsol 8. Bais City 9. Gumaca Third Package - 16 Cities 0 0 4 4 8 1. Digos, Davao del Sur 1. Oton 1. Danao City 2. Santiago, Isabela 2. Ajuy, Iloilo 2. Toledo City 3. Metro Naga 3. Buenavista 3. Escalante 4. Matnog 4. Pilar, Capiz 4. Guihulngan 5. Tagkawayan 6. Bocaue 7. Guinobatan 8. Sta. Cruz Fourth Package - 16 Cities 0 0 4 3 9 1. Aroroy 1. Cadiz City 1. Calumpit 2. Cawayan 2. Carcar 2. Gasan 3. Ragay 3. Villasis 3. Naguillan 4. Palompon 4. Estancia 5. Polangui 6. Calatrava 7. SagRay 8. Rosario 9. Camalig Standby Package - 17 Cities 0 1 5 4 7 1. Talisay 1. Calauag 1. Maasin 1. Dalaguete 2. Dapitan-Dipolog 2. Pinamalayan 2. Bacolor 3. Mogpog 3. Badoc 3. Mauban 4. Loon 4. Pozorrubio 4. Tigaon 5. San Jose 5. Surigao City 6. Tubigon 7. Dasmarifas /1 CCC = Conditional Certificate of Conformance - 29 - Table 3.5: PROJECT COSTS Local Costs Foreian Costs Total Item 1980 1981 1982 1983 1984 Subtotal 1980 1981 1982 1983 1984 Subtotal costs -------------------------------------------- P thousand------------------------ Part A 1. Water Supply Subprojects in 59 Water Districts 10,547 12,388 26,055 36,447 25,345 110,782 12,568 14,015 26,959 36,875 25,336 115,753 226,535 Contingencies: Physical 1,055 1,239 2,605 3,645 2,534 11,078 1,257 1,401 2,696 3,687 2,534 11,575 22,653 Price 788 1,270 5,963 10,555 7,930 26,506 788 1,270 5,968 10,562 7,938 26,526 53,032 Total Contingencies l4 2509 8,568 14.200 10,464 37.584 2,045 2,671 8,664 1 10,472 38,101 75,685 Engineering 7,794 6,507 36327 3 1.814 23178 9.981 8,118 4,972 1,719 24,790 47.968 Total 59 Water Districts 20.184 21.404 37.950 54,383 37623 171544 2 94 24804 40.595 52.843 35,808 178,644 350,188 2. Iloilo Water District 198 26,177 - - - 26,375 - 26,288 - - - 26,288 52,663 Contingencies: Physical 20 2,618 - - - 2,638 - 2,628 - - - 2,628 5,266 Price - 3,084 - - - 3,084 - 3,084 - - - 3,084 6,168 Total Congintencies 20 5,702 _.. - 5,722 - 5,712 _ - - 5712 11434 Engineerig: 3,392 1,920 - - - 5,312 - - - - - - 5,312 Total Iloilo Water District 3,610 33799 _ - 37409 32,000 32.000 69,409 Total Part A 23.794 55.203 37.950 54.383 37.623 208.953 24.594 56,804 40.595 52,843 35808 210.644 419,597 Part B Reconnaissance surveys of 150 WDs - - 150 75 - 225 - - - - - - 225 Detailed design 32 WDs - - 2,000 6,000 4,300 12,300 - - - - - - 12,300 Technical assistance - - - 300 300 600 - - - 2,500 2,500 5,000 5,600 Training - - - - - - - 1,400 1,400 1,381 - 4,181 4,181 Equipment, vehicles and tools - - - - - - 335 370 370 370 740 2,185 2,185 Total Part B - - 2,150 6 4,600 13,125 335 1270 1,70 4,251 3240 1 6 24,491 Part C Rural water supply - 3,330 3,330 3,330 3,330 13,320 - 3,330 3,330 3,330 3,330 13,320 26,640 Part D Rural sanitation - 370 370 370 370 1,480 - 370 370 370 370 1,480 2,960 GRAND TOTAL 23,794 58,903 43,800 6 45.923 236,878 24,929 62.274 46,065 60,794 42,748 236,10 473,688 - 30 - Table 3.6: ESTIMATED SCHEDULE OF DISBURSEMENTS Cumulative disbursements IDA/IBRD fiscal year at end of quarter and quarter ending (US$ million) 1980 March 31, 1980 0.53 June 30, 1980 1.21 1981 September 30, 1980 2.14 December 31, 1980 3.96 March 31, 1981 6.12 June 30, 1981 8.19 1982 September 30, 1981 9.89 December 31, 1981 12.41 March 31, 1982 14.49 June 30 1982 15.84 1983 September 30, 1982 17.87 December 31, 1982 20.90 March 31, 1983 23.63 June 30, 1983 26.96 1984 September 30, 1983 29.17 December 31, 1983 31.15 March 31, 1984 32.22 June 30, 1984 34.46 1985 September 30, 1984 36.03 December 31, 1984 38.00 - 31 - Table 5.1: INCOME DISTRIBUTION AND WATER CONSUMPTION Family distribution Monthly Family Income Average Consumption Guagua Orani San Jose (Pesos) (lpcd) Income group (%) below 300 90 3 25 10 300 - 800 110 25 30 43 800 - 1,500 130 28 35 26 Over 1,500 160 14 10 21 Table 5.2: ORANI WATER DISTRICT - CONSUMPTION BY THE POOR Poor population Barrio Concentrated in Scattered Number of Consumption poverty pockets in barrio public faucets cumd Poblacion 180 1,240 17 32.2 Abar 1 600 1,310 14 34.1 Calaocan 230 260 4 6.8 Sibut 230 240 5 6.2 Malasin - 80 1 2.1 Sto Nino I 80 160 2 4.2 Total 1,390 3,290 43 85.6 - 32 - Table 5.3: SERVICE TO THE URBAN POOR - 1982 Guagua Orani San Jose Total Absolute Poor: Public faucets 1,412 4,680 3,292 House connections 7,518 8,228 6,451 Subtotal 8,930 12,908 9,743 31,581 Other Groups: Domestic 10,709 5,140 4,473 Commercial 461 352 884 Subtotal 12,270 5,492 5,557 Total Served 20,100 18,400 15,100 53,600 Absolute poor served (%) 42 70 64 59 Total service Area population 1982 25,710 22,485 20,130 68,325 Total served 1982 population (%) 78 82 75 79 Present served population 10,464 4,800 5,500 20,764 Newly served population 9,636 13,600 9,600 32,836 33 -ANNEX 1 Page 1 PHILIPPINES PROVINCIAL CITIES WATER SUPPLY PROJECT II Subproject Criteria Discussed with LWUA and Government Officials During Negotiations and Included in the Agreed Minutes Part 1 - Water Districts Eligibility, Preparation, Review, Appraisal and Design Criteria for Subprojects in Water Districts A. Eligibility. Before a feasibility study on a subproject is started the concerned WD should have: (a) obtained a Conditional Certificate of Conformance; (b) authorized LWUA to act in its behalf as an agent of the WD in the WD's dealings with the Bank; (c) obtained general approval from the consumers through public hearings to higher rates for improved service. A quarterly statement indicating the status of these actions should be sent to the Bank. B. Preparation. The terms of reference for the preparation of the feasibility studies for each package would be approved by the Bank and be based upon the ongoing master plan and feasibility studies for the first package. LWUA would follow technical guidelines and methodology satisfactory to the Bank and in effect on the date of the agreement including the following provisions: 1. Water District Formation. The third and fourth groups of 32 candidate water districts for feasibility studies should have Conditional Certificates of Conformance (CCCs) issued by September 1, 1979 and June 1, 1980 respectively. The fifth and sixth groups should have CCCs issued by December 31, 1981. 2. Master Plans. Study period up to year 2000. 3. Feasibility Studies. First stage design period - 6 years First phase - 3 years Served population - not less than 70%, through house connections and public faucets 4. Least Cost Solution For each subproject three feasible technical alternatives will be chosen for preliminary study; the alternative to be selected for detailed study will be that with the lowest present value of incremental capital investments and operational expenses during the design period discounted at a rate of 10%. - 34 - ANNEX 1 Page 2 5. Tariffs (i) Tariffs shall be progressively stepped upwards with any one increase after the initial not to exceed 60% at a time for domestic service; (ii) The tariff structure will achieve both financial (para. 6) and equity goals; the top block of non-domestic services will be based on marginal supply cost; (iii) There will be an annual review of tariffs and those families who consume less than 10 cu m per month will spend no more than 4% of family income for water. In very exceptional cases this could be increased to 5% of family income. This block would be subsidized through higher charges to larger domestic consumers and commercial and industrial users. 6. Cost Estimates and Financial Projections (i) The cost estimates and projections for each subproject will be prepared with assumptions and contingency provisions satisfactory to the Bank; (ii) For each subproject the rate of return on average revalued net fixed assets in operation will be assumed to be 3% in the third year of construction, increasing to 4%, 5%, 6% and 7% respectively in each succeeding year and 8% thereafter. (iii) Each WD will contribute over a period of five years at least 10% of the project cost from internally generated funds. C. Application for Government Equity Contribution 1. The following steps will be taken by LWUA for subprojects to be financed by 20% equity contribution from Government: (i) LWUA will submit the draft final feasibility study report to the Water District at a public hearing. (ii) Conclusive public hearing: LWUA will submit to the Bank the draft final report with the written agreement by the WD to the progressive increase of tariffs and 10% equity contribution for expert internal review. (iii) Inconclusive public hearing: LWUA will within one month present a modified subproject at a final public hearing. (iv) LWUA will, release the 20% Government equity contribution for subprojects in category (ii) pari passu with LWUA's disbursements. 35 - ANNEX 1 Page 3 (v) LWUA will submit regular statements to Government of projects financed by the equity contribution. D. Subproject Review by LWUA 1. LWUA will appoint an independent expert technical review team acceptable to the Bank composed of an engineer, hydrologist financial analyst and economist with one member external to LWUA to review in detail the master plan and feasibility study, of each subproject. The team would normally make a recommendation in four working days which may include a site visit. 2. Based on the findings of the review LWUA would make necessary changes, and submit the final report for Bank approval together with the report of the team. E. Detailed Design 1. On receipt of the Bank's comments upon the master plan and feas- ibility study for each subproject LWUA would make any agreed changes and prepare detailed design drawings to standard specifi- cations satisfactory to the Bank, which will include but not be limited to: (i) the development of modular designs; (ii) design files for: (a) hydrological studies; (b) pumping tests; (c) hydraulic network analysis; (d) soil and foundation tests. (iii) special engineering economic studies comparing technical specifications, investment costs and operating and maintenance costs for selecting the least cost alter- native for major subproject components, and (iv) design files for pipelines, hydraulic structures and all other major structures. (v) revised cost estimates and financial projections. - 36 - ANNEX 1 Page 4 F. Bid Documents LWUA will prepare for approval by the Bank a model set of bid documents for each subproject compatible with the Bank's procurement guidelines dated March 1977. Subsequent changes to the model bid documents would be made only with the approval of the Bank. Based upon the agreed model LWUA will prepare bid proposal forms for each subproject for Bank review. G. Supervision of Construction LWUA will make arrangements satisfactory to the Bank for the expert review of the detailed design calculations and drawings and supervision of construction. Final completion drawings and a completion report satisfactory to the Bank on each subproject will be prepared within one month of the date of commissioning of the major facilities in each subproject. H. Training LWUA will make arrangements satisfactory to the Bank for (i) use of vehicles and training equipment procured under the project for a public education program in the WDs, schools and for the training of LWUA staff in the design of low cost water supply systems; (ii) overseas training of about 150 man-months of LWUA and WD staff in the preparation, design, management, operation and maintenance of water supply projects. Part 2 - Rural Water Supply Eligibility, Preparation, Appraisal and Design Criteria for Rural Water Supply Subprojects A. Eligibility The eligibility of a rural community for a rural water supply subproject will be: 1. Formation of a Rural Water Supply Association (RWSA); 2. Approval of the RWSA by the National Water Resources Council. 3. Agreement by the RWSA to (a) contribute at least 10% of the sub- project cost in cash or kind such as labor or locally available materials; (b) repay the remainder of the project cost at about 4% interest over a period of 20 years; and (c) set water charges at levels to meet debt service and operation and maintenance costs. - 37 ANNEX 1 Page 5 B. Preparation 1. Subprojects will be prepared by the following Government entities to criteria agreed with the Bank and the Task Force on Rural Water Supply under the National Water Resources Council or its successor organization (NWRC/TF): (a) NWRC/TF; (b) Any government entity acceptable to the NWRC/TF and the Bank. C. Criteria 1. Rural water supply subprojects will be of least cost design to initially provide any one of the following three levels of services: Level 1 - A point source of water which could be a well or a spring to serve about 50 households. Level 2 - A communal faucet system serving about 100 households with one faucet for a group of about 4 to 6 households and delivery between 40 and 80 liters per person. Level 3 - A mixed system of communal faucets and house connections serving up to 600 households but with less than 10% households with house connections. 2. Feasibility study and design reports for each subproject would be reviewed by NWRC/TF. NWRC/TF will follow technical guidelines for detailed design criteria with appropriate technology in the design of low-cost distribution system networks satisfactory to the Bank. D. Procurement 1. NWRC/TF will follow the Bank's procurement guidelines for the bulk procurement of pipes and fittings under the project. 2. The installation of pipes and fittings will be through force account, contribution by the community or civil works contracts based upon the Borrower's normal procurement procedures. E. Supervision of Construction 1. NWRC/TF will: (a) inform the Bank each quarter the number of subprojects approved for construction; - 38 - ANNEX 1 Page 6 (b) make arrangements satisfactory to the Bank for the super- vision of construction of each subproject; and (c) inspect each completed subproject and prepare a completion report as may be reasonably requested by the Bank and send such reports to the Bank each quarter. F. Operation and Maintenance 1. NWRC/TF will study prepare, organize and implement arrangements satisfactory to the Bank for assisting the RWSA's to operate maintain and make extensions to the subprojects. 2. NWRC/TF would as appropriate use any existing community develop- ment organization for collecting revenues and for maintaining the system. - 39 - ANNEX 2 PHILIPPINES PROVINCIAL CITIES WATER SUPPLY PROJECT II Financing Plan for the Project P US$ IDA IBRD Government WDs' (millions) (millions) credit loan contribution self-financing Requirements Part A 419.6 56.8 Part B 24.5 3.2 Part C 26.6 3.6 Part D 3.0 0.4 Total requirements 473.7 64.0 Sources Part A 10% WDs self-financing 42.0 5.7 5.7 20% contribution to WDs: Government 25.6 3.5 3.5 IDA credit 44.4 6.0 6.0 Total 20% contribution 70.0 9.5 Balance of IDA funds 92.2 12.5 12.5 IBRD loan: 118.4 16.0 16.0 Government payment of LWUA's capital 97.0 13.1 13.1 Total A 419.6 56.8 Part B IDA Credit 11.4 1.5 1.5 Government payment of LWUA's capital 13.1 1.7 1.7 Total B 24.5 3.2 Part C IDA credit 13.3 1.8 1.8 Government contribution 13.3 1.8 1.8 Total C 26.6 3.6 Part D IDA Credit 1.5 0.2 0.2 Government contribution 1.5 0.2 0.2 Total D 3.0 0.4 Total Sources 473.7 64.0 22.0 16.0 20.3 5.7 Total: 64.0 ANNEX 3 - 40 - PHILIPPINES PROVINCIAL CITIES WATER SUPPLY PROJECT II Local Water Utilities Administration Financing Plan 1980/84 (millions) P US$ % Requirements Lending Program to WDs: IDA/IBRD program: Disbursements 256.9 34.7 Interest financed 50.7 6.9 Total IDA/IBRD program 307.6 41.6 18 Other programs: Disbursements 1,150.7 155.5 Interest financed 155.5 21.0 Total other programs 1,306.2 176.5 76 Total lending program 1,613.8 218.1 94 Feasibility Studies and Special Projects 10.7 1.4 Fixed assets 5.2 .7 } 2 Increases in working capital 14.7 2.0 Government contribution to WDs 70.0 9.5 4 Total requirements 1,714.4 231.7 100.0 Sources Operating Income before provisions 319.0 43.1 Less: Income tax (74.4) (10.0) Less: Repayment of loans (40.8) (5.5) Add: Collections on loans to WDs 40.8 5.5 Net internally generated funds 244.6 33.1 15 Long-Term Borrowing: IDA/IBRD Program: Disbursements 179.8 24.3 Interest financed 42.2 5.7 Total IDA/IBRD program 222.0 30.0 13 Other programs: Disbursements 473.2 63.9 Interest financed 32.4 4.4 Total other programs 505.6 68.3 29 Total long-term borrowings 727.6 98.3 42 Government payment to LWUA's capital 672.2 90.8 Government contributions to WDs 70 9.5 Total government contribution 742.2 100.3 43 Total sources 1,714.4 231.7 100 41- ANNEX 4(a) PHILIPPINES PROVINCIAL CITIES WATER SUPPLY PROJECT II LOCAL WATER UTILITIES ADMINISTRATION Income Statement (Million Pesos) Historical Projected 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 Income Interest on loans to water districts 3.3 12.7 23.9 42.6 68.3 90.8 116.9 142.3 172.5 207.9 232.1 Interest on investments 4.6 8.7 7.2 7.2 7.2 7.2 7.2 7.2 7.2 7.2 7.2 Other income 0.2 0.4 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Total income 8.1 21.8 31.4 50.0 75.7 98.2 124.3 149.7 179.9 215.3 239.5 Expenses Financial expenses 0.3 3.3 4.6 9.4 17.3 27.5 36.5 45.3 56.6 65.6 71.5 Admin. expenses 4.2 7.8 9.1 11.8 16.6 21.5 25.6 29.0 32.9 37.3 42.3 Total Expenses Before Provisions 4.5 11.1 13.7 21.2 33.9 49.0 62.1 74.3 89.5 102.9 113.8 Operating income before provisions 3.6 10.7 17.7 28.8 41.8 49.2 62.2 75.4 90.4 112.4 125.7 Provision for doubtful accounts - - 12.2 13.7 23.3 14.2 12.6 16.8 18.2 14.1 12.5 Amortization of organizational expenses & feasibility studies - - 2.0 2.0 2.0 2.0 2.4 1.0 3.1 4.5 4.5 Depreciation 0.1 0.2 0.7 1.2 2.0 2.1 2.1 2.2 2.4 2.4 2.4 Total Noncash Charges 0.1 0.2 14.9 16.9 27.3 18.3 17.1 20.0 23.7 21.0 19.4 Net income before taxes 3.5 10.5 2.8 11.5 14.5 30.9 45.1 55.4 66.7 91.4 106.3 Less: Provision for income tax - - - 4.1 5.1 10.8 15.8 19.4 23.3 32.0 37.2 Net: Income after taxes 3.5 10.5 2.8 7.8 9.4 20.1 29.3 35.0 43.4 59.4 69.1 -42 - ANNEX 4(b) PHILIPPINES PROVINCIAL CITIES WATER SUPPLY PROJECT II LOCAL WATER UTILITIES ADMINISTRATION Cash Flow Statements (Million Pesos) Historic Projected 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 * Sources Opera ting income before provisions 3.6 10.7 17.7 28.8 41.8 49.2 62.2 75.4 90.4 112.4 125.7 Less: Income taxes - - - (4.1) (5.1) (10.8) (15.8) (19.4) (23.3) (32.0) (37.2) Net: Income before provisions 3.6 10.7 17.7 24.7 36.7 38.4 46.4 56.0 67.1 80.4 88.5 Collections on loans to WDS - - - - 1.6 2.7 6.4 14.8 15.3 20.7 48.4 Grants and subsidies (1.4) 0.4 11.4 8.6 - - - - - - - Government payment to capital: - For project - - - - 10.0 23.2 28.1 28.6 20.2 - - - For other programs 96.2 53.0 70.0 135.0 135.0 80.0 90.9 120.4 135.8 118.0 110.0 Total 96.2 53.0 70.0 135.0 145.0 103.2 119.0 149.0 156.0 118.0 110.0 Received from Government for project's WDS - - - - 9.0 9.2 15.7 21.4 14.7 - - Long-term borrowings: - Disbursements 34.6 68.5 74.0 96.4 150.4 117.6 95.2 147.1 142.7 111.0 111.0 - Interested financed - - 3.2 7.2 14.3 23.5 8.3 12.3 16.2 - - Total 34.6 68.5 77.2 103.6 164.7 141.1 103.5 159.4 158.9 111.0 111.0 Increase in current liabilities 4.0 4.6 3.5 7.9 8.6 0.4 11.1 11.7 6.4 11.4 6.7 Total Sources 137.0 137.2 179.8 279.8 365.6 295.0 302.1 412.3 418.4 341.5 364.6 Applications Loans: - Disbursements 88.0 116.8 166.3 209.7 300.5 231.9 233.2 317.3 324.7 281.1 281.1 - Interest financed - - 15.9 30.9 37.6 55.6 25.9 32.5 54.6 22.0 17.5 Total 88.0 116.8 182.2 240.6 338.1 287.5 259.1 349.8 379.3 303.1 298.6 Repayment of loans - - - - - 0.9 12.2 12.5 15.2 29.7 51.6 Purchase (sale) of securities 72.5 2.8 - - - - - - - - - Government contribution to project's WDS - - - - 9.0 9.2 15.7 21.4 14.7 - - Increase in fixed assets 0.3 0.3 1.2 23.0 0.3 0.4 0.4 3.4 0.7 - - Deferred assets (1.6) 7.9 - - - 1.4 3.5 10.3 7.1 - - Special projects and advances (net) (0.1) 0.2 7.2 4.8 (11.6) - - - - - - Increase in current assets 1.4 2.3 0.7 1.3 17.9 0.7 8.7 8.0 (0.8) 11.1 14.0 Total Applications 160.5 130.3 191.3 269.7 353.7 300.1 299.6 405.4 416.2 343.9 364.2 Increase (decrease) in cash (23.5) 6.9 (11.5) 10.1 11.9 (5.1) 2.5 6.9 2.2 (2.4) 0.4 Cast balance - Beginning of year 33.5 10.0 16.9 5.4 15.5 27.4 22.3 24.8 31.7 33.9 31.5 Cash balance - End of year 10.0 16.9 5.4 15.5 27.4 22.3 24.8 31.7 33.9 31.5 31.9 - 43 ANNEX 4(c) PHILIPPINES PROVINCIAL CITIES WATER SUPPLY PROJECT II LOCAL WATER UTILITIES ADMINISTRATION Balance Sheet (Million Pesos) Historic Projected 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 ASSETS Current Assets Cash 10.0 16.9 5.4 15.5 27.4 22.3 24.8 31.7 33.9 31.5 31.9 Short-term investments 73.1 75.9 75.9 75.9 75.9 75.9 75.9 75.9 75.9 75.9 75.9 Interest receivable 1.9 4.2 2.0 2.9 7.7 8.8 22.7 27.4 29.5 46.5 53.6 Accounts receivable - - 2.8 3.2 16.3 15.9 10.7 14.4 11.1 5.2 12.1 Supplies inventory 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Current portion of long-term loans - - - 1.6 2.7 6.4 14.8 15.3 20.7 48.0 55.0 Total Current Assets 85.1 97.1 86.3 99.3 130.2 129.5 149.1 164.9 171.3 207.3 228.7 Special Projects (net) (0.6) (0.4) 6.8 11.6 - - - - - - - Medium-term loans to employees 0.4 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 1.5 Long-term loans to WDS 108.1 224.7 406.8 645.7 981.0 1,261.9 1,506.1 1,840.5 2,199.0 2,454.0 2,697.1 Less: Provision for losses - - (12.2) (25.9) (49.2) (63.4) (76.0) (92.8) (111.0) (125.1) (137.6) Net loans to WDS 108.1 224.7 394.6 619.8 931.8 1,198.5 1,430.1 1,747.7 2,088.0 2,328.9 2,559.5 Gross Fixed Assets 2.7 3.0 4.2 27.2 27.5 27.9 28.3 31.7 32.4 32.4 32.4 Less: Cumulative depre- ciation (0.1) (0.3) (1.0) (2.2) (4.2) (6.3) (8.4) (10.6) (13.0) (15.4) (17.8) Net fixed assets 2.6 2.7 3.2 25.0 23.3 21.6 19.9 21.1 19.4 17.0 14.6 Deferred Assets 2.2 10.1 8.1 6.1 4.1 3.5 4.6 13.9 17.9 13.4 8.9 TOTAL ASSETS 197.8 334.8 499.7 762.6 1,090.3 1,354.1 1,604.8 1,948.8 2,297.9 2,568.0 2,813.2 LIABILITIES AND NET WORTH Current Liabilities Accounts payable & retentions 5.7 9.3 13.6 17.2 24.6 19.0 19.1 26.0 26.6 23.0 23.0 Interest payable 0.1 1.1 0.3 0.5 0.7 1.0 7.0 8.2 10.1 16.4 17.9 Current maturities of long-term debt - - - - 0.9 12.2 12.5 15.2 29.7 51.6 55.0 Taxes payable - - - 4.1 5.1 10.8 15.8 19.4 23.3 32.0 37.2 Total Current Liabilities 5.8 10.4 13.9 21.8 31.3 43.0 54.4 68.8 89.7 123.0 133.1 Long-Term Debt (net): Foreign 43.6 112.1 189.3 292.9 456.7 585.5 676.5 821.1 949.9 1,009.3 1,065.3 Local 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 2.2 Total 45.8 114.3 191.5 295.1 458.9 587.7 678.7 823.3 952.1 1,011.5 1,067.5 Equity: Paid-in capital 136.2 189.2 259.2 394.2 539.2 642.4 761.4 910.4 1,066.4 1,184.4 1,294.4 Retained earnings 3.3 13.8 16.6 24.4 33.8 53.9 83.2 119.2 162.6 222.0 291.1 Contributions & grants 6.7 7.1 18.5 27.1 27.1 27.1 27.1 27.1 27.1 27.1 27.1 Total Equity 146.2 210.1 294.3 445.7 600.1 723.4 871.7 1,056.7 1,256.1 1,433.5 1,612.6 TOTAL LIABILITIES AND NET WORTH 197.8 334.8 499.7 762.6 1,090.3 1,354.1 1,604.8 1,948.8 2,297.9 2,568.0 2,813.2 ANNEX 5 Page 1 Assumptions for LWUA's Financial Projections General 1. LWUA's experience is limited only to four years of operations (1975-78) (for the last part of 1973 and 1974 the efforts were mainly directed to organization and promotion). Even today LWUA is still in the learning stage and so its policies and operational procedures need to be periodically adjusted. For this reason the figures used for the projected statements are not an extrapolation of historic behavior but targets or judgements. Revenues 2. Interest on-loans to Water Districts: projections are based on LWUA's lending program. 3. Interest on Investment: it was assumed that LWUA will maintain funds invested in short-term government securities at the level it had at the end of 1978, with a yield of 9.5%. 4. Other Revenues. represent mainly income from sale of bidding documents. In the past fees from training programs and advisory services were charged to WDs. This was a good practice that was discontinued to reduce WDs' costs. Expenses 5. Financial Expenses: forecast on the basis of projected disbursement of loans already contracted, the proposed credit/loan and other loans from sources still not fully identified (para. 409). 6. Administrative Services: plant increases of 30% for 1979 and 1980, 20% for 1981, 10% for 1982 and 5% thereafter are expected to be required to cover LWUA's growing needs until it reaches certain maturity. In addition an inflation rate of 8% per year was included. Provision 7. Provision for Bad Debts: following auditor's advice and Bank's recommendation this provision should be introduced in 1979. Since the level has not been defined by the COA it was assumed as 3% of the outstanding loans at the end of 1978, 4% in 1979 and 5% in 1980 and thereafter. 8. Depreciation: up to 1978 fixed assets were mainly equipment and vehicles and an average life of 5 years was assumed. With LWUA's new building in 1979 an average depreciation rate of 7.5% was assumed to reflect the new mix of fixed assets. - 45 - ANNEX 5 Page 2 Current Assets 9. Minimum Cash Requirement: was estimated as equivalent to one month of cash operating expenses plus one month of disbursement to WDs. 10. Interest Receivable: assumed to be equivalent to 90 days of collectable interest from WDs. 11. Accounts Receivable: include short-term loans to WDs equivalent to 10% of their investment program for the year plus the equivalent of 90 days of loan repayments from WDs for each year. Special Projects 12. Include projects undertaken by LWUA on behalf of the Government. LWUA is reimbursed for its total cost. Deferred Assets 13. Include organizational costs and studies not recoverable from WDs which are assumed to be amortized in five years. Current Liabilities 14. Interest Payable: Assumed equivalent to 90 days of interest payable during the year. 15. Accounts Payable and Retentions: according to the limited histor- ical experience, were projected as equivalent to 30 days of the amount disbursed each year by LWUA for WDs' programs. 16. Taxes Payable: starting in 1979 (PD 1177) LWUA has to pay corporate taxes. Although there is a possibility that LWUA will be reimbursed by Government for its tax payments, no specific decision has been made so far. It was assumed that regular corporate tax of 25% on the first P 100,000 of taxable income and 35% on the excess will be applicable. It was assumed that LWUA would pay its taxes during the year following its accrual. Long-Term Debt 17. Each one of loans contracted so far by LWUA and the proposed credit/loan were projected. The balance of borrowings included in LWUA's program (for which sources are not fully defined) was assumed to be contracted with 20 years repayment period including 5 years grace period and an interest of 8% per year. PHILIPPINES PROVINCIAL CITIES WATER SUPPLY PROJECT II LOCAL WATER UTILITIES ADMINISTRATION Monitoring Indicators Historical Projected 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1. As Percentage of Average Total Assets Total income 6.2 8.1 7.5 7.9 8.2 8.0 8.4 8.4 8.5 8.8 8.9 Financial expenses 0.2 1.2 1.1 1.5 1.9 2.2 2.5 2.5 2.7 2.7 2.7 Gross profit 6.0 6.9 6.4 6.4 6.3 5.8 5.9 5.9 5.8 6.1 6.2 Adminstrative expenses 3.2 2.9 2.2 1.9 1.8 1.8 1.7 1.7 1.6 1.5 1.6 Profit before provisions 2.8 4.0 4.2 4.5 4.5 4.0 4.2 4.2 4.2 4.6 4.6 Provisions 0.1 0.07 3.5 2.7 2.9 1.5 1.2 1.1 1.1 0.9 0.7 Profit before income tax 2.7 3.93 0.7 1.8 1.6 2.5 3.0 3.1 3.1 3.7 3.9 Income tax - - - 0.6 0.6 0.9 1.1 1.1 1.1 1.3 1.4 O Net income 2.7 3.93 0.7 1.2 - 1.0 1.6 1.9 2.0 2.0. 2.4 2.5 1 2. Net Income as % of Average Equity 3.6 5.9 1.1 2.1 1.8 3.0 3.7 3.7 3.7 4.4 4.5 3. Interest on loans as % of average loan portfolio 5.2 7.6 7.6 8.1 8.4 8.1 8.4 8.4 8.5 8.8 8.8 4. Financial expenses as % of average borrowings 1.1 4.1 3.0 3.9 4.6 5.2 5.6 5.9 6.2 6.4 6.5 5. Gross spread (3-4) 4.1 3.5 4.6 4.2 3.8 2.9 2.8 2.5 2.3 2.4 2.3 6. Provisions for bad debts as % of portfolio at end of year - - 3.0 4.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 7. Long-term debt to equity (Times) 0.32:1 0.54:1 0.65:1 0.66:1 0.76:1 0.81:1 0.78:1 0.78:1 0.76:1 0.70:1 0.66:1 8. Debt service coverage /a 13.0 4.2 4.6 3.3 7.7 4.8 2.0 2.0 1.9 1.8 1.8 9. Current ratio 14.7 9.3 6.2 4.5 4.1 3.0 2.7 2.4 1.9 1.7 1.7 10. Percentage increase in total assets 200.3 69.2 49.2 52.6 43.0 24.2 18.5 21.4 17.9 11.7 9.5 /a (Total operating income - interest financed to WDs - administrative expenses + collection from WDs) divided by (Financial expenses + loan repayments - interest financed). -ORANI W.D. FINANCING PLAN - P& THOUSAND TOTAL % 1979 1980 1981 1982 --------------------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE DEPRECIATION 1003.09 19.18 123.00 169.93 260.07 450.09 GROSS INTERNAL CASH GENERATION 1003.09 19.18 123.00 169.93 260.07 450.09 TOTAL DEBT SERVICE (-) -265.45 -5.08 0.00 0.00 -31.46 -233.99 TOTAL WORK.CAPITAL NEEDS(-) -236-73 -4-53 -56.00 -5603 -54.66 -70.04 TOTAL CONTRIBUTION TO INVESTMENT 500.90 9.58 67.00 113.90 173.95 146.06 INVESTMENT IN PROJECT 4530.88 86.63 1152.92 2591.44 378.13 408.39 DURING CONSTRUCTION INTEREST 548-95 10.50 13.42 155.42 263.82 116.29 OTHER WORKS BY EXCESS CASH 150.48 2.88 0.00 0.00 147.81 2.67 TOTAL INVESTMENT 5230.31 100.OO 1166.34 2746.86 789.77 527.35 TOTAL TO BE FINANCED (+) 4729.41 90.42 1099.34 2632-96 615.82 381.29 FINANCED BY CONSTRUCTION CONTRIBUTIONS 1016.00 19.43 277.00 623.00 91.00 25.00 NATIONAL LOANS 3681.95 70.40 808.42 1992.42 524.82 356.29 SHORT TERM LOANS 31.46 0.60 13.92 17.54 0.00 0.00 TOTAL LOANS 3713.41 71.00 822.34 2009.96 524.82 356.29 TOTAL FINANCED 4729.41 90.42 1099.34 2632.96 615.82 381.29 * CASH INCREASES INCLUDED IN WORKING CAPITAL, CASH DEFICITS SHOWN AS SHORT TERM LOANS Ot ORANI W.O. SUMMARY FINANCIAL STATMENTS P& THOUSAND 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 REVENUES 236.00 445.70 655.95 982.42 1191.52 1391.65 1662.54 1892.08 2086.76 2281.04 EXPENSES 113.00 275.77 395.88 532.33 665.29 763.25 888.29 1027.80 1126.70 1240.48 DEPRECIATION 56.10 45.84 107.30 169.04 203.23 230.29 254.48 284.21 318.13 357.16 INCOME BEFORE INTEREST 66.90 124.09 152.77 281.05 323.00 398.11 519.77 580.07 641.94 683.40 INTERNALLY GENERATED FUNDS 123.00 169.93 260.07 450.09 526.23 628.40 774.25 864.28 960.06 1040.56 DEBT SERVICE 0.00 0.00 31.46 233.99 367.22 367.22 367.22 367.22 367.22 367.22 WORKING CAPITAL NEEDS (+) 56.00 56.03 54.66 70.04 58.50 44.07 67.22 60.68 55.37 55.32 AVAILABLE FOR INVESTMENT 67.00 113.90 173.95 146.06 100.51 217.11 339.82 436.38 537.48 618.02 PROJECT INVESTMENT 1152.92 2591.44 378.13 408.39 0.00 0.00 0.00 0.00 0.00 0.00 CAPITALIZED INTEREST 13.42 155.42 263.82 116.29 0.00 0.00 0.00 0.00 0.00 0.00 OTHER WORKS 0.00 0.00 0.00 0.00 100.00 120.00 140.00 160.00 180.00 200.00 OTHER OWRKS BY EXCESS CASH 0.00 0.00 147.81 2.67 0.51 97.11 199.82 276.38 357.48 418.02 TOTAL INVESTMENT 1166.34 2746.86 789.77 527.35 100.51 217.11 339.82 436.38 537.48 618.02 NET TO BE FINANCED 1099.34 2632.96 615.82 381.29 0.00 0.00 -0.00 0.00 0.00 0.00 LONG TERM LOANS 808.42 1992.42 524.82 356.29 0.00 0.00 0.00 0.00 0.00 0.00 SHORT TERM LOANS 13.92 17.54 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 CONTRIBUTIONS 277.00 623.00 91.00 25.00 0.00 0.00 0.00 0.00 0.00 0.00 BALANCE NET FIXED ASSETS 914.82 1978.37 4846.11 5792.10 6702.75 7077.79 7705.35 8345.95 9132.97 9974.47 WORK IN PROGRESS 1166.34 2877.00 850.00 650.00 100.00 248.00 272.00 400.00 500.00 650.00 CURRENT ASSETS 74.00 125.75 184.91 260.31 323.12 371.50 443.53 509.41 569.88 630.13 TOTAL ASSETS 2155.16 4981.12 5881.02 6702.41 7125.87 7697.30 8420.87 9255.36 10202.85 11254.60 EQUITY 1314.82 2135.10 2537.14 3023.77 3481.18 4090.00 4854.23 5733.06 6729.47 7835.16 LONG TERM DEBT 808.42 2800.84 3298.78 3616.80 3575.10 3529.64 3480.09 3426.07 3367.20 3303.03 SHORT TERM DEBT 13.92 31.46 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 CURRENT LIABILITIES 18.00 13.72 45.10 61.84 69.59 77.66 86.56 96.22 106.18 116.41 P TOTAL LIABILITIES 2155.16 4981.12 5881.02 6702.41 7125.87 7697.30 8420.87 9255.36 10202.85 11254.60 0 0 *% RATE OF RETURN 7.38 8.58 4.48 5.28 5.17 5.78 7.03 7.23 7.35 7.15 \0 *% OPERATING RATIO 47.88 61.87 60.35 54.19 55.84 54.85 53.43 54.32 53.99 54.38 -ORANI W.D, MONITORING INDICATORS 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 POPULATION AND POPULATION SERVED POPULATION- 19831.00 20678.00 21561.00 22485.00 23624.00 24823.00 26081.00 27400.00 28770.00 30210.00 POPULATION WITH WATER 4797.23 7842.04 10873.29 18358.34 19745.47 21065.29 22271.06 23565.94 24945.51 26356.39 % WITH WATER 24.19 37.92 50.43 81.65 83.58 84.86 85.39 86.01 86.71 87.24 DEMAND CONNECTIONS- WATER 849.00 1372.00 1893.00 2415.00 2660.00 2900.00 3140.00 3381.00 3620.00 3870.00 CONSUMPTION-(000) M3 231.00 350.96 477.00 644.28 705.77 769.86 836.55 902.00 946.40 946.40 CONSUMPTION/CONN/ M3/MONTH 22.67 21.32 21.00 22.23 22.11 22.12 22.20 22.23 21.79 20.38 % UNACCOUNTED FOR WATER 66.00 59.00 50.00 41.00 39.00 37.00 35.00 33.00 30.00 30.00 PER CAPITA PRODUCTION-LCD 388.02 299.06 240.38 162.97 160.54 158.93 158.32 156.52 148.49 140.54 PRODUCTION CAPACITY 738.00 856.00 960.00 1092.00 1157.00 1222.00 1287.00 1352.00 1352.00 1352.00 COSTS EXCHANGE RATE 1US$ = 7.40 7.40 7.40 7.40 7.40 7.40 7.40 7.40 7.40 7.40 COST US$/ M3 SOLD 0.07 0.11 0.11 0.11 0.13 0.13 0.14 0.15 0.16 0.18 COST US $/CONNECTION/MONTH 1.50 2.26 2.36 2.48 2.82 2.96 3.19 3.42 3.50 3.61 REVENUES 1~ AVERAGE TARIFF $/ M3 SOLD 1.00 1.25 1.35 1.50 1.65 1.77 1.93 2.04 2.15 2.35 1 AVERAGE TARIFF US $/ M3 SOLD 0.14 0.17 0.18 0.20 0.22 0.24 0.26 0.28 0.29 0.32 % INCREASE IN TARIFFS 25.00 8.00 11.11 10.00 7.27 9.04 5.70 5.39 9.30 FINANTIAL RATIOS % RATE OF RETURN 7.38 8.58 4.48 5.28 5.17 5.78 7.03 7.23 7.35 7.15 % OPERATING RATIO 47.88 61.87 60.35 54.19 55.84 54.85 53.43 54.32 53.99 54.38 DEBT SERVICE RATIO 8.27 1.92 1.43 1.71 2.11 2.35 2.61 2.83 % RECEIVABLES IN BILLING 22.03 16.00 16.00 16.00 16.00 16.00 16.00 16.00 16.00 16.00 % CONTRIBUT.TO INVESTMENT 7.26 11.19 17.52 51.18 64.06 217.65 290.74 310.66 329.36 348.28 % DEBT/(DEBT+EQUITY) 38.07 56.74 56.53 54.47 50.67 46.32 41.76 37.41 33.35 29.66 CURRENT RATIO 4.11 9.16 4.10 4.21 4.64 4.78 5.12 5.29 5.37 5.41 LA 0 SAN JOSE FINANCING PLAN - P$ THOUSAND TOTAL % 1979 1980 1981 1982 INCOME BEFORE DEPRECIATION 1119.97 16.84 37.00 190.09 343.39 549.49 GROSS INTERNAL CASH GENERATION 1119.97 16.84 37.00 190.09 343.39 549.49 TOTAL DEBT SERVICE (-) -187.71 -2.82 0.00 0.00 -4.53 -183.18 TOTAL WORK.CAPITAL NEEDS(-) -233.80 -3.52 -100.20 -30.21 -48.05 -55.34 TOTAL CONTRIBUTION TO INVESTMENT 698-46 10.50 -63.20 159.87 290.82 310.97 INVESTMENT IN PROJECT 5469.14 82.23 2028.63 2673.47 368.77 398.27 DURING CONSTRUCTION INTEREST 826.63 12.43 26.49 227.64 334.90 23760 OTHER WORKS BY EXCESS CASH 354.85 5.34 0.00 0.00 72.15 282.70 TOTAL INVESTMENT 6650.62 100.00 2055.12 2901.11 775.82 918.57 TOTAL TO BE FINANCED (+) 5952.16 89.50 2118.32 2741.24 485.00 607.60 FINANCED BY CONSTRUCTION CONTRIBUTIONS 1349.00 20.28 522-00 643.00 88.00 96.00 NATIONAL LOANS 4598.63 69.15 1596.29 2093.74 397.00 511.60 \n SHORT TERM LOANS 4.53 0.07 0.03 4.50 0.00 0.00 C -------- -------- -------- -------- -------- --------I TOTAL LOANS 4603.16 69.21 1596.32 2098.24 397.00 511.60 TOTAL FINANCED 5952.16 89.50 2118.32 2741.24 485.00 607.60 * CASH INCREASES INCLUDED IN WORKING CAPITAL, CASH DEFICITS SHOWN AS SHORT TERM LOANS 0 LO4 SAN JOSE SUMMARY FINANCIAL STATMENTS P$ THOUSAND ----------------------------------------------------------------------------------------------------------------------------------------------- 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 REVENUES 294.00 527.42 759.30 1044.05 1237.97 1432.31 1647.40 1846.30 2028.20 2234.50 EXPENSES 257.00 337.33 415.91 494.56 544.22 598.11 656.37 716.35 781.98 855.03 DEPRECIATION 28.36 63.39 143.90 212.88 253.14 284.15 313.38 349.34 393.03 443.82 ----------------------------------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- INCOME BEFORE INTEREST 8.64 126.69 199.49 336.61 440.60 550.05 677.65 780.62 853.18 935.65 ----------------------------------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- INTERNALLY GENERATED FUNDS 37.00 190.09 343.39 549.49 693.75 834.20 991.03 1129.95 1246.22 1379.47 DEBT SERVICE 0.00 0.00 4.53 183.18 458.64 458.64 458.64 458.64 458.64 458.64 WORKING CAPITAL NEEDS (+) 100.20 30.21 48.05 55.34 37.96 37.99 41.25 40.87 37.04 42.72 ----------------------------------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- AVAILABLE FOR INVESTMENT -63.20 159.87 290.82 310.97 197.14 337.56 491.13 630.44 750.53 878.11 PROJECT INVESTMENT 2028.63 2673.47 368.77 398.27 0.00 0.00 0.00 0.00 0.00 0.00 CAPITALIZED INTEREST 26.49 227.64 334.90 237.60 0.00 0.00 0.00 0.00 0.00 0.00 OTHER WORKS 0.00 0.00 0.00 0.00 100.00 100.00 100.00 100.00 100.00 100.00 OTHER OWRKS BY EXCESS CASH 0.00 0.00 72.15 282.70 97.14 237.56 391.13 530.44 650.53 778.11 TOTAL INVESTMENT 2055.12 2901.11 775.82 918.57 197.14 337.56 491.13 630.44 750.53 878.11 NET TO BE FINANCED 2118.32 2741.24 485.00 607.60 0.00 0.00 -0.00 0.00 0.00 0.00 I. LONG TERM LOANS 1596.29 2093.74 397.00 511.60 0.00 0.00 0.00 0.00 0.00 0.00 SHORT TERM LOANS 0.03 4.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 CONTRIBUTIONS 522.00 643.00 88.00 96.00 0.00 0.00 0.00 0.00 0.00 0.00 BALANCE NET FIXED ASSETS 953.36 3150.47 6103.42 7365.38 8263.61 8795.12 9464.48 10318.74 11354.73 12505.39 WORK IN PROGRESS 2055.12 2772.00 703.00 635.00 270.00 453.00 665.00 849.00 996.00 1188.00 CURRENT ASSETS 111.20 146.15 198.13 258.05 298.51 339.05 383.06 426.33 466.19 511.96 ----------------------------------------------- -------- -------- -------- -------- -------- -------- -------- -------- -------- TOTAL ASSETS 3119.67 6068.61 7004.55 8258.43 8832.13 9587.16 10512.54 11594.07 12816.93 14205.35 EQUITY 1512.36 2358.32 2897.85 3663.53 4282.01 5086.04 6064.84 7205.20 8491.99 9950.12 LONG TERM DEBT 1596.29 3690.03 4059.05 4523.36 4471.82 4415.64 4354.41 4287.66 4214.91 4135.60 0 SHORT TERM DEBT 0.03 4.53 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 x CURRENT LIABILITIES 11.00 15.73 47.64 71.54 78.30 85.48 93.29 101.20 110.03 119.63 VLA 0 TOTAL LIABILITIES 3119.67 6068.61 7004.55 8258.43 8832.13 9587.16 10512.54 11594.07 12816.93 14205.35 \D *% RATE OF RETURN 0.93 6.17 4.31 5.00 5.64 6.45 7.42 7.89 7.87 7.84 *% OPERATING RATIO 87.41 63.96 54.77 47.37 43.96 41.76 39.84 38.80 38.56 38.26 SAN JOSE MONITORING INDICATORS 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 ----------------------------------------------------------------------------------------------------------------------------------------------- POPULATION AND POPULATION SERVED POPULATION 13956.00 15494.00 17656.00 20122.00 21962.00 23962.00 26145.00 28527.00 29383.00 3026400 POPULATION WITH WATER 5516.00 7675.24 12734.48 15056.62 17076.85 19111.04 20873.87 22845.36 24614.55 26578.9. % WITH WATER 39.52 49.54 72.13 74.83 77.76 79.76 79.84 80.08 83.77 87.82 DEMAND CONNECTIONS- WATER 1000.00 1379.00 1800.00 2150.00 2516.00 2881.00 3244.00 3610.00 3973.00 4339.00 CONSUMPTION- (000) M3 286.00 382.53 514.00 615.60 725.13 841.50 952.00 1069.00 1176-00 1295.00 CONSUMPTION/CONN/ M3/MONTH 23.83 23.12 23.80 23.86 24.02 24.34 24.46 24.68 24.67 24.87 % UNACCOUNTED FOR WATER 68.00 59.00 48.00 40.00 37.00 34.00 32.00 31.00 30.00 28.00 PER CAPITA PRODUCTION-LCD 443.92 333.04 212.66 186.69 184.66 182.78 183.75 185.80 186.99 185.40 PRODUCTION CAPACITY 902.00 933.00 995.00 1026.00 1151.00 1275.00 1400.00 1555.00 1680.00 1804.00 COSTS EXCHANGE RATE iUS$ = 7.40 7.40 7.40 7.40 7.40 7.40 7.40 7.40 7.40 7.40 COST US$/ M3 SOLD 0.12 0.12 0.11 0.11 0.10 0.10 0.09 0.09 0.09 0.09 COST US $/CONNECTION/MONTH 2.89 2.75 2.60 2.59 2.44 2.34 2.28 2.23 2.22 2.22 REVENUES \-n AVERAGE TARIFF $/ M3 SOLD 1.00 1.35 1.45 1.67 1.67 1.67 1.70 1.70 1.70 1.70 I AVERAGE TARIFF US $/ M3 SOLD 0.14 0.18 0.20 0.23 0.23 0.23 0.23 0.23 0.23 0.23 % INCREASE IN TARIFFS 35.00 7.41 15.17 0.00 0.00 1.80 0.00 0.00 0.00 FINANTIAL RATIOS % RATE OF RETURN 0.93 6.17 4.31 5.00 5.64 6.45 7.42 7.89 7.87 7.84 % OPERATING RATIO 87.41 63.96 54.77 47.37 43.96 41.76 39.84 38.80 38.56 38.26 DEBT SERVICE RATIO 75.87 3.00 1.51 1.82 2.16 2.46 2.72 3.01 % RECEIVABLES IN BILLING 21.77 16.00 16.00 16.00 16.00 16.00 16.00 16.00 16.00 16.00 % CONTRIBUT.TO INVESTMENT 1.58 10.08 23.97 76.34 84.38 375.55 532.39 671.31 787.57 920.83 % DEBT/(DEBT+EQUITY) 51.35 61.01 58.35 55.25 51.08 46.47 41.79 37.31 33.17 29.36 CURRENT RATIO 10.11 9.29 4.16 3.61 3.81 3.97 4.11 4.21 4.24 4.28 01 \0 GUAGUA W.D. FINANCING PLAN - P& (000) TOTAL % 1979 1980 1981 1982 --------------------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE DEPRECIATION 1215.56 16.77 99.27 179.39 334.05 602.85 GROSS INTERNAL CASH GENERATION 1215.56 16.77 99.27 179.39 334.05 602.85 TOTAL DEBT SERVICE (-) -205.99 -2.84 0.00 0.00 -5.32 -200.67 TOTAL WORK.CAPITAL NEEDS(-) -290.02 -4.00 -145.00 -12.54 -55.11 -77.37 TOTAL CONTRIBUTION TO INVESTMENT 719.56 9.92 -45.73 166.85 273.62 324.82 INVESTMENT IN PROJECT 6288.64 86.74 1279.53 4232.17 372.84 404.10 DURING CONSTRUCTION INTEREST 908.65 12.53 17.51 231.47 391.40 268.27 OTHER WORKS BY EXCESS CASH 52.71 0.73 9.16 0.00 43.55 0.00 TOTAL INVESTMENT 7250.00 100.00 1306.20 4463.64 807.78 672.37 TOTAL TO BE FINANCED (+) 6530.44 90.08 1351.93 4296.79 534.16 347.56 FINANCED BY CONSTRUCTION CONTRIBUTIONS 1440.30 19.87 296.54 1027.00 84.76 32.00 NATIONAL LOANS 5037.53 69.48 1055.39 3264-47 449.40 268.27 \Lr SHORT TERM LOANS 52.61 0.73 0.00 5.32 0.00 47.29 w TOTAL LOANS 5090.14 70.21 1055.39 3269.79 449.40 315.56 TOTAL FINANCED 6530.44 90.08 1351.93 4296.79 534.16 347.56 * CASH INCREASES INCLUDED IN WORKING CAPITAL, CASH DEFICITS SHOWN AS SHORT TERM LOANS O4 0 GUAGUA W.D. SUMMARY FINANCIAL STATMENTS P& (000) 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 REVENUES 554.27 744.95 1028.22 1453.46 1834.19 2317.98 2840.60 3244.98 3575.15 4012.20 EXPENSES 455.00 565.56 694.16 850.61 1044.90 1367.58 1666.03 1978.12 2157.72 2355.46 DEPRECIATION 21.60 43.55 133.56 222.73 263.27 297.56 330.11 370.68 418.18 476.63 INCOME BEFORE INTEREST 77.67 135.84 200.49 380.12 526.02 652.85 844.46 896.18 999.24 1180.11 INTERNALLY GENERATED FUNDS 99.27 179.39 334.05 602.85 789.28 950.40 1174.57 1266.86 1417.43 1656.74 DEBT SERVICE 0.00 0.00 5.32 200.67 549.70 502.42 502.42 502.42 502.42 502.42 WORKING CAPITAL NEEDS (+) 145.00 12.54 55.11 77.37 77.27 98.38 108.47 84.09 5.29 147.89 AVAILABLE FOR INVESTMENT -45.73 166.85 273.62 324.82 162.31 349.60 563.68 680.36 909.72 1006.43 PROJECT INVESTMENT 1279.53 4232.17 372.84 404.10 0.00 0.00 0.00 0.00 0.00 0.00 CAPITALIZED INTEREST 17.51 231.47 391.40 268.27 0.00 0.00 0.00 0.00 0.00 0.00 OTHER WORKS 0.00 0.00 0.00 0.00 80.00 100.00 120.00 140.00 160.00 180.00 OTHER OWRKS BY EXCESS CASH 9.16 0.00 43.55 0.00 82.31 249.60 443.68 540.36 749.72 826.43 TOTAL INVESTMENT 1306.20 4463.64 807.78 672.37 162.31 349.60 563.68 680.36 909.72 1006.43 NET TO BE FINANCED 1351.93 4296.79 534.16 347.56 -0.00 0.00 0.00 0.00 0.00 -0.00 LONG TERM LOANS 1055.39 3264.47 449.40 268.27 0.00 0.00 0.00 0.00 0.00 0.00 SHORT TERM LOANS 0.00 5.32 0.00 47.29 0.00 0.00 0.00 0.00 0.00 0.00 CONTRIBUTIONS 296.54 1027.00 84.76 32.00 0.00 0.00 0.00 0.00 0.00 0.00 BALANCE NET FIXED ASSETS 730.64 2084.18 6547.14 7650.55 8711.64 9280.62 10106.64 11074.85 12202.37 137P8.36 WORK IN PROGRESS 1297.00 4422.00 800.00 670.00 120.00 300.00 450.00 600.00 850.00 850.00 CURRENT ASSETS 161.00 179.87 240.67 324.35 410.15 518.24 637.82 733.28 744.42 898.83 TOTAL ASSETS 2188.64 6686.05 7587.81 8644.91 9241.79 10098.86 11194.46 12408.13 13796.80 15457.19 EQUITY 1117.25 2338.54 2790.52 3556.40 4243.84 5147.66 6293.69 7563.07 9019.00 10752.57 LONG TERM DEBT 1055.39 4319.86 4738.61 4955.09 4898.62 4837.08 4770.00 4696.89 4617.19 4530.32 SHORT TERM DEBT 0.00 5.32 0.00 47.29 0.00 0.00 0.00 0.00 0.00 0.00 CURRENT LIABILITIES 16.00 22.33 58.68 86.14 99.32 114.11 130.77 148.18 160.61 174.31 0 TOTAL LIABILITIES 2188.64 6686.05 7587.81 8644.91 9241.79 10098.86 11194.46 12408.13 13796.80 15457.19 \0 *% RATE OF RETURN 10.95 9.65 4.65 5.35 6.43 7.26 8.71 8.46 8.59 9.11 *% OPERATING RATIO 82.09 75.92 67.51 58.52 56.97 59.00 58.65 60.96 60.35 58.71 GUAGUA W.D. MONITORING INDICATORS 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 POPULATION AND POPULATION SERVED POPULATION-THOUSAND 18200.00 20422.00 22916.00 25710.00 28694.00 32026.00 35744.00 39900.00 41895.00 43990.00 POPULATION WITH WATER 10464.09 12770.98 15416.28 20134.74 22722.39 25765.95 29136.52 33017.19 35748.40 38690.21 % WITH WATER 57.49 62.54 67.27 78.31 79.19 80.45 81.51 82.75 85.33 87.95 DEMAND CONNECTIONS- WATER 1892.00 2312.00 2789.00 3399.00 3884.00 4459.00 5154.00 5914.00 6459.00 7053.00 CONSUMPTION-(OOO) M3 621.00 766.26 916.56 1059.60 1291.50 1519.32 1751.00 1979.00 1986-60 1986.60 CONSUMPTION/CONN/ M3/MONTH 27.35 27.62 27.39 25.98 27.71 28.39 28.31 27.89 25.63 23.47 % UNACCOUNTED FOR WATER 50.00 46.00 43.00 40.00 37.00 34.00 32.00 30.00 30.00 30.00 PER CAPITA PRODUCTION-LCD 325.19 304-42 285.77 240.30 247.18 244.78 242.13 234.59 217.50 200.97 PRODUCTION CAPACITY 1246.00 1419.00 1608.00 1766.00 2050.00 2302.00 2586.00 2838.00 2838.00 2838.00 COSTS EXCHANGE RATE 1US$ 7.40 7.40 7.40 7.40 7.40 7.40 7.40 7.40 7.40 7.40 COST US$/ M3 SOLD 0.10 0.10 0.10 0.11 0.11 0.12 0.13 0.14 0.15 0.16 COST US $/CONNECTION/MONTH 2.71 2.75 2.80 2.82 3.03 3.45 3.64 3.77 3.76 3.76 I REVENUES AVERAGE TARIFF $/ M3 SOLD 0.87 0.95 1.10 1.35 1.39 1.50 1.60 1.62 1.78 2.00 AVERAGE TARIFF US $/ M3 SOLD 0.12 0.13 0.15 0.18 0.19 0.20 0.22 0.22 0.24 0.27 % INCREASE IN TARIFFS 9.20 15.79 22.73 2.96 7.91 6.67 1.25 9.88 12.36 FINANTIAL RATIOS % RATE OF RETURN 10.95 9.65 4.65 5.35 6.43 7.26 8.71 8.46 8.59 9.11 % OPERATING RATIO 82.09 75.92 67.51 58.52 56.97 59.00 58.65 60.96 60.35 58.71 DEBT SERVICE RATIO 62.78 3.00 1.44 1.89 2.34 2.52 2.82 3.30 % RECEIVABLES IN BILLING 20.93 16.00 16.00 16.00 16.00 16.00 16.00 16.00 16.00 16.00 % CONTRIBUT.TO INVESTMENT 4.22 8.25 16.71 79.56 94.32 447.98 560.13 546.03 571.88 665.95 % DEBT/(DEBT+EQUITY) 48.58 64.88 62.94 58.22 53.58 48.44 43.11 38.31 33.86 29.64 CURRENT RATIO 10.06 8.06 4.10 3.77 4.13 4.54 4.88 4.95 4.63 5.16 0 - 56 - ANNEX 8 Page 1 Assumptions for the Financial Projections of Orani Guagua and San Jose Water Districts Income Statement Revenue 1. Tariff levels were set to meet the following objectives: (a) following government regulations, tariff increases should not exceed 60% of the existing level; (b) revenue generation should be adequate to meet the minimum rates of return on net revalued fixed assets of 3% in 1981, 4% in 1982, 5% in 1983, 6% in 1984; 7% in 1985 and 8% in 1986 and thereafter; (c) net internally generated funds should be at least equivalent to 10% of the project cost. (d) after project completion, the WD should be able to meet its debt service and to undertake a reasonable amount of investment to continue extending and improving the system. 2. In each case, a substantial effort to reduce the percentage of unaccounted-for water is expected. 3. Other operational revenue include penalties, reconnection fees, etc. Operating Cost 4. A general 8% escalation per year on operating cost was used. Wages are expected to increase about 20% to 25% (including escalation) during the project period. This reflects the need of recruiting additional staff as well as improving the remuneration of the present personnel. 5. Chemicals and power increase with water production. Cost of materials increases reflect the need for better maintainance of the present system as well as the expanded facilities. Other indirect cost comprises losses due to bad debts estimated as 2% of water revenues. Depreciation was calculated at 3% of average revalued gross fixed assets in operation. Flow of Funds 6. Government is expected to contribute up to 20% of the investment program to match the WDs' 10% internally generated funds. LWUA's loan, equivalent to 70% of the project, will have a total repayment period of 30 years and 9% interest. In each case, the grace period was set to fit the financial capacity of the W.D. Interest during grace period are financed and capitalized. ANNEX 8 - 5T - Page 2 7. After project completion, the amount of other works indicate the level of investment that the W.D. could undertake with its own internally generated funds without any external financing. 8. Temporary cash deficits are assumed to be covered with short-term loans from LWUA. Balance Sheet 9. Fixed assets are revalued each year at 8% equal to the assumed inflation rate. 10. Minimum cash levels were calculated as equivalent to two months of cash operating expenses. Accounts receivable were assumed equal to 60 days of billings. Inventories were calculated to cover two months requirements of chemicals and materials. Accounts payable were estimated as equivalent to 60 days of cash operating expenses excluding wages and power. 11. Annex 7 presents the projected financial statements for Orani, Guagua and San Jose as well as their monitoring indicators. -58- ANNEX 9 Page 1 PHILIPPINES PROVINCIAL CITIES WATER SUPPLY PROJECT II Internal Economic Rate of Return and Average Incremental Costs for Orani, Guagua and San Jose WDs 1. The incremental return on investment or internal economic rate of return (IER) is the discount rate which equates the present values of the cost and benefit streams attributable to the investment. Project justification is then determined by comparing this rate with the opportunity cost of capital in the economy. When the benefits of a water supply project are minimally approximated by the revenue generated, the same input information can be used to calculate the average incremental cost (AIC) of the water sold. The AIC is the cost per cubic meter of the incremental water sold, averaged over the project's life and discounted back to the present using the opportunity cost of capital. Thus, if the price of water is set equal to its AIC, the internal economic rate of return on the project will just equal the opportunity cost of capital. 2. The assumptions used to calculate the IER and AIC for the three project cities are listed below. (a) All costs are in constant prices of mid-1979, exclusive of taxes and duties. (b) The official exchange rate of P 7.4 per dollar is adjusted by a standardd conversion factor of 0.9 to obtain a shadow exchange rate of P 8.2 per dollar. This means that the shadow exchange rate is 10.8% above the official rate. (c) The opportunity cost of capital is 10%. (d) The projects have a useful life of 30 years. ANNEX 9 - 59 - Page 2 Table ORANI W.D. INCREMENTAL PRODUCTION AND COSTS Incremental values Operating Investment Volume sold Year costs costs (million cu. m.) ---- (million F) ---- 1979 - 1.11 1980 0.14 2.31 0.12 1981 0.22 .31 0.25 1982 0.30 .31 0.41 1983 0.36 - 0.47 1984 0.39 - 0.54 1985 0.43 - 0.60 1986 0.47 - 0.67 1987 0.48 - 0.71 1988 0.49 - 0.71 1989-2012 0.49 - 0.71 - 60- ANNEX 9 Page 3 Table SAN JOSE W.D. INCREMENTAL PRODUCTION AND COSTS Incremental values Operating Investment Volume sold Year costs costs (million cu. m.) ---- (million P) 1979 - 1.95 - 1980 0.05 2.38 0.09 1981 0.09 0.30 0.23 1982 0.13 0.30 0.33 1983 0.14 - 0.44 1984 0.14 - 0.55 1985 0.15 - 0.67 1986 0.15 - 0.78 1987 0.16 - 0.89 1988-2012 0.16 - 0.97 ANNEX 9 - 61 - Page 4 Table GUAGUA W.D. INCREMENTAL PRODUCTION AND COSTS Incremental values Operating Investment Volume sold Year costs costs (million cu. m.) ---- (million P) ---- 1979 - 1.23 - 1980 0.06 3.68 0.14 1981 0.13 0.31 0.29 1982 0.21 0.31 0.44 1983 0.30 - 0.67 1984 0.46 - 0.90 1985 0.57 - 1.13 1986 0.67 - 1.36 1987 0.68 - 1.36 1988 0.69 - 1.36 1989-2012 0.69 - 1.36 - 62 - ANNEX 9 Page 5 Table AVERAGE REVENUE, AIC AND IER Average revenue Average Incremental Internal Economic Return 1978/a 1979 1982 1982 cost at 10% (1982 Tariffs) Deflated /b P (cu m) (%) P/cu m Orani 0.63 1.00 1.50 1.19 1.41 6.6 Guagua 0.81 0.87 1.35 1.07 1.05 7.4 San Jose 0.83 1.00 1.45 1.15 0.92 9.8 /a WD are presently under formation and historical information is incomplete and not fully reliable. /b Deflated to 1979 prices. - 63 - ANNEX 10 PHILIPPINES PROVINCIAL CITIES WATER SUPPLY II Selected Documents and Data Available in the Project File A. Reports and Studies 1. Feasibility Study Reports for San Jose, Guagua and Orani Water Districts 2. Methodology Manual for Preparation of Feasibility Studies B. Selected Working Papers 1. For San Jose, Guagua and Orani Districts: (a) Water Demand Projections (b) Financial Projections (c) Calculation of Economic Rate of Return (d) Calculations of Average Incremental Costs 2. Cost Estimates: (a) Part A - 60 Water Districts (b) Part B - Feasibility Studies, Training, etc. (c) Part C - Rural Water Supply Component (d) Part D - Rural Sanitation Components 3. Monitoring Indicators 4. Table of Cross References to Covenants in SAR and Legal Documents 5. Legislation: (a) Presidential Decree No. 198 - LWUA's Charter and Formation of Water Districts (b) Presidential Letter of Instruction No. 683 - Basic Policies for the Water Supply Sector (c) Presidential Letter of Instruction No. 700 - Regulation of Increases in Water Rates (d) Presidential Letter of Instruction No. 744 - Phasing of Expansion of Systems, etc. PHILIPPINES PROVINCIAL CITIES WATER SUPPLY PROJECT II LOCAL WATER UTILITIES ADMINISTRATION FUNCTIONAL CHART AND PROPOSED CHANGES AUDITING OFFICE mam mm BOARD OF TRUSTEES O PROVIDE AUDITING SERVICES 0 ESTABLISH POLICY I BOARD SECRETARIAT 0 PROVIDE SECRETARIAL AND ADMINISTRATIVE GENERAL MANAGER SERVICES PECULIAR TO THE BOARD 0 PROVIDE GENERAL SUPERVISION, CONTROL AND DIRECTION PROJECT MANAGER MNGMENT STAFF LGLPBLIC INFORMATION FINANCIAL SERVICES FEEE ILEGA FpuOFFICE F OFFICE 0 UNDERTAKE SYSTEMS 0 PROVIDE LEGAL SERVICES 0 UNDERTAKE EDUCATIONAL 0 PROVIDE ACCOUNTING DEVELOPMENT 0 OFFICIAL PUBLICATIONS PROGRAMS ANDBUDGETING SERVICES r 0 FINANCIAL PLANNING I AND CONTROL I TECHNICAL SERVICES REGULATORY LOANS & PROGRAMS ADMINISTRATIVE DEPARTMENT DEPARTMENT DEPARTMENT DEPARTMENT O DEVELOP DESIGN, CONSTRUCTION 0 PROVIDE ASSISTANCE IN WD 0 DEVELOP LOAN APPLICATION 0 PROVIDE ADMINISTRATIVE, PER- AND EQUIPMENT STANDARDS FORMATION CRITERIA SONNEL, CLERICAL. SUPPLY, O ADMINISTER DESIGN & 0 DEVELOP PERrORMANCE AND 0 PROCESS LOANS PROCUREMENT, REPRODUCTION, CONSTRUCTION PROJECTS OPERATING STANDARDS 0 DESIGN LOAN CONVENANTS CASHIERING AND MOTORPOOL O DEVELOP MAINTENANCE PROG. 0 MONITOR AND EVALUATE UTILITY 0 ASSIST IN NEGOTIATING FOR O UNDERTAKE PLANNING SURVEYS PFRFORMANCE AND OPERATION DOMESTIC AND INTERNATIONAL 0 KEEP RECORDS AND FEASIBILITY STUDIES 0 ADMINISTER CERTIFICATION LOANS 0 COORDINATE TRAVEL O CONDUCT TECHNICAL RESEARCH PROGRAM 0 MANAGE LWUAS RELENDING 0 CONDUCT TRAINING PROGRAMS O EVALUATES MONITOR 0 PROVIDE INSTITUTIONAL DEVE- FUND FOR WD AND LWUA PERSONNEL CONSTRUCTION PROGRESS LOPMENT SERVICES 0 ESTABLISH RELENDING RATES 0 PROVIDE MANAGEMENT SERVICES O DEVELOP PROGRAMS FOR PHY- 0 PREPARE LWUAS CAPITAL PROGRAM SICAL IMPROVEMENTS OF WATER UTILITIES 0 PROVIDE OTHER ENGINEERING SERVICES Wrold Bank - 19883 PHILIPPINES PROVINCIAL CITIES WATER SUPPLY PROJECT II TYPICAL ORGANIZATION CHART OF A LOCAL WATER DISTRICT AUDITOR m BOARD OF DIRECTORS LEGAL COUNSEL II SECETRYGEEAMNGR CONSTRUCTION & ADMINISTRATIVE COMMERCIAL ENGINEERIN PRODUCTION MInN DIVISION ON DIVISION DIVISIMAONINTENAN DIDIVISION CHIEF CHIEF HIEF CHIEF ADMINISTRATIVE COMMERCIAL CHIEF PRODUCTION CONSTRUCTION ENGINEER I& MAINTENANCE DIVISION DIVISION ENIERDIVISION&MANENC __ _DIVISION FINANCE OFFICER METER READER ESTIMATOR QUALITY CONTROL FOREMAN PERSONNEL OFFICER SUPERVISOR DRAFTSMAN OFFICER MECHANICS ACCOUNTANT INVESTIGATORS OPERATORS DRIVERS BOOKKEEPER BILLING & POSTING SECURITY GUARDS PLUMBERS CASHIERS/CLERKS CLERKS SECURITY GUARDS METER READERS World Bank-16703 - 66 - PROVINCIAL CITIES WATER SUPPLY PROJECT II TASK FORCE ON RURAL WATER SUPPLY ORGANIZATION CHART NATIONAL WATER RESOURCES COUNCIL MEMBERS EXECUTIVE DIRECTOR DEPUTY EXECUTIVE DIRECTOR r mmmmmmmmm TASK FORCE ON TECHNICAL STAFF RURAL WATER SUPPLY I CHAIRMAN IV ADMINISTRATIVE & m FINANCIAL STAFF F I MANAGEMENT STAFF I LEGALSTAFF INSTITUTIONAL TECHNICAL FINANCIAL MANAGEMENT DIVISION DIVISION DIVISION DIVISION PROJECT IMPLEMENTATION DIVISION 12 REGIONAL TEAMS World Bank - 19866 - 67 - PHILIPPINES PROVINCIAL CITIES WATER SUPPLY PROJECT II IMPLEMENTATION SCHEDULE Project Year 1978 1979 1980 1 1981 1982 1983 1984 1985 Components Quarter 1 4123 4 2 34 12 3412341234123 PART A I I Water Supplies to 60 Legend Water Districts I 2 Part A Package No 12 Water Districts gl s3 I I Package No 2 16 Water Districts Water District Formation Package No 3 16 Water Districtsmmmosimpalli Package No. 4 -16 Water Districts FWAV'9 - - - - - -interdependent Activities- - -*w Feasibility Studies and it o i ma. 1o 11 3 Bank Approval I 4 - - - - - - - - - - - - - - - - - - Detailed Design and b Bank Approval 113 Bidding and BankL Approval ot 3 / 4 Construction of Majormo Components II 00I IN II 3 Training and Bank Procurement of Equip- ment and Vehicles Feasibility Studies * * m m m m m m Detailed Design of - Water Supplies to 32mm-mmmm Water Districts PARTS C AND D RuraliWater Supplies m mi * Umu. to 1000 Communities IMI Rualntation f Vaor mm.-u 8 Communities TWorld Bank - 19963 Procuemen ofeciv Equip - auay1,18  .. --- [..]--- •-- i'l I r .- rHI] F rI. 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