India - Kanpur Urban Development Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 3 504-IN STAFF APPRAISAL REPORT INDIA KANPUR URBAN DEVELOPMENT PROJECT September 25, 1981 South Asia Projects Department Urban Division 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 Currency Unit = Rupees (Ks) Rs 1 = US$0.125 US$1 R Rs 8.00 MEASURES AND EQUIVALENTS 1 meter (m) = 39.37 inches 1 meter (m) 2 = 3.28 feet 1 square meter (I) = 10.76 square feet 1 cubic meter (m ) = 35.31 cubic feet 1 kilometer (km) 0.62 miles 1 hectare (ha) = 2.47 acres or 10,000 square meters 1 liter (1) = 1.06 quarts liquid or 0.26 gallons lcd = liters per capita per day mld = million liters per day PRINCIPAL ABBREVIATIONS AND ACRONYMS DOI = Directorate of Industries EWS = Economically Weaker Section GIC = General Insurance Corporation GOI = Government of India GOUP = Government of Uttar Pradesh RIG = High-Income Group HUDCO = Housing and Urban Development Corporation KAVAL = [a group of towns]: Kanpur, Agra, Varanasi, Allahabad, Lucknow KDA = Kanpur Development Authority KESA = Kanpur Electricity Supply Administration KJS = Kanpur Jal Sansthan (city water and sewerage authority) KNM = Kanpur Nagar Mahapalika (municipal authority) KUDP = Kanpur Urban Development Project LIC = Life Insurance Corporation LIG = Low-Income Group MIG = Middle-Income Group UNICEF = United Nations Children's Fund UP = Uttar Pradesh UPJN = Uttar Pradesh Jal Nigam (State water and sewerage authority)  FOR OFFICIAL USE ONLY STAFF APPRAISAL REPORT INDIA KANPUR URBAN DEVELOPMENT PROJECT Table of Contents Page No. I. BACKGROUND ......... ............... . 1 A. Urbanization Trends in India and Uttar Pradesh. 1 B. Urban Policies and Programs in India and Uttar Pradesh 2 C. Bank Group Role and Strategy in India's Urban Sector 3 D. Kanpur . .......... .... . , ......... 4 II. THE PROJECT ..... .. .................... ......... 9 A. Objectives .... .. .. ....... ......... 9 B. Main Features .. 9 C. Project Description ...................... ..... ..... 11 III. PROJECT COSTS AND FINANCING .. . .. ... 23 A. Cost Estimates . ............................. 23 B. Financing .................................. 25 IV. PROJECT MANAGEMENT, ORGANIZATION AND FINANCE .. ........... 26 A. Project Management ... .. . ............ .. .... 26 B. Kanpur Development Authority. 27 C. Kanpur Nagar Mahapalika . . ....................... 29 D. Kanpur Jal Sansthan ................ ....................... 31 E. Financial Statements .....35 V . PROJECT IMPLEMENTATION ... .. .. .. ....................... . 36 A. Execution ..................... 36 Be Implementation Schedule ...... 37 C. Procurement and Disbursement ... . .37 D. Accounts and Audits . . ...................... .40 E. Monitoring and Evaluation.. ....... 40 F. Supervision . ........... .. .. .......... ........... 40 VI. COST RECOVERY, PRICING AND AFFORDABILITY ..40 A. Cost Recovery ...... 40 B. Pricirng . . . ................................................ 43 C. Affordability ............................................. 44 This report is based on the findings of an appraisal mission which visited Kanpur in February 1981. The mission comprised Messrs. C. Godavitarne, K. Willen (IDA), A. Bertaud and G. Sengupta (Consultants). | This document has a restricted distribution and may be used by recipients only in the performance of I their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii Table of Contents (Continued) Page No. VII. PROJECT JUSTIFICATION .. .... ............... 46 A. Economic Evaluation ,... .. . ................... 46 B. Risks .....@ ...........,........ . .... 48 VIII. AGREEMENTS REACHED AND RECOMMENDATIONS ....................... 49 TABLES 2.1 Main Project Components and Costs ...................... 10 3.1 Summary Costs .................... ............. ......... 24 3.2 Financing Plan ................................. 25 3.3 Annual Capital Expenditure Plan .......................... 26 5.1 Estimated Disbursement Schedule ... ........................., 39 6.1 Sites and Services: Plot Options, Costs, Indicative Charges, and Affordability ........... 45 6.2 Slum Upgrading: Plot Sizes, Costs, Indicative Charges, and Affordability ............ OO ..... ............ 45 ANNEXES I Summary of UNICEF-sponsored Urban Community Development Project Table 1: Projected Urban Population Growth in Uttar Pradesh 2 Table 1: Sites and Services: Summary of Land Use (Percentages) Table 2: Sites and Services: Residential Plot Distribution Table 3: Sites and Services: Standards and Specifications for Infrastructure Table 4: Sites and Services: Details of Small Industry Plots Table 5: Solid Waste Management Component: Detailed Cost Estimates Table 6: Details of Technical Assistance Table 7: Sites and Services: D'etailed Cost Estimates Table 8: Slum Upgrading: Detailed Cost Estimates Table 9: Environmental SanLitation, Maintenance and Traffic Management Measures: Detailed Cost Estimates Table 10: Technical Assistance and Institutional Strengthening: Detailed Cost Estimates Table 11: Urban Poverty Impacts Chart 1 Slum Household Income Distribution Chart 2 Project Impact on Growth of Unserviced Households in Kanpur Chart 3 Flow of Funds Chart 4 Project Implementation Schedule Sketch: Sites and Services: EWS Plot Options  - iii - ANNEXES (Continued) 3 Kanpur Development Authority - Organization Chart Kanpur Nagar Mahapalika - Organization Chart Kanpur Jal Sansthan - Organization Chart Table 1: Kanpur Development Authority: Statement of Receipts and Payments (with Projections) Table 2: Kanpur Nagar Mahapalika: Statement of Receipts and Payments Table 3: Kanpur Jal Sansthan: Statement of Receipts and Payments Table 4: Kanpur Development Authority: Capital Investments 4 Tables 1-4: Kanpur Jal Sansthan: Operational Targets 5 Selected Documents and Data Available in Project File MAP S 1 IBRD 15671K: Location of Slum Upgrading and Sites and Services 2 IBRD 15672R: Barra Sites and Services - Layout 3 IBRD 15673R: Pokharpur Sites and Services - Infrastructure Details 4 IBRD 15674R: Typical Slum Upgrading Layout: Gwaltoli No. 12/480   STAFF APPRAISAL REPORT INDIA KANPUR URBAN DEVELOPMENT PROJECT I. BACKGROUND A. Urbanization Trends in India and Uttar Pradesh 1.01 India is primarily an agricultural country with about 80% of its people living in rural areas. Total population is estimated at 683 million according to provisional 1981 census figures. Due largely to migration, the urban population, over the period 1971-1981, has been growing at a higher annual rate (3.3%) than the general population (2.2%). About 4.5 million people per year are being added to urban areas, creating demands for shelter, infrastructure services, and employment. About 50% of the urban population live in the more than 135 medium-sized cities with populations between 100,000 and 1 million, while about 25% live in ten cities with more than 1 million people each. Urban growth is more pronounced in the medium-sized cities, averaging about 6% annually, and by the year 2000 more than 40 cities in India are expected to exceed 1 million in population. According to IDA estimates, the absolute urban poverty income level was about Rs 88/capita/ month in 1980 in India (Rs 485 or about US$61 equivalent per month per household). About 41% of urban households had incomes below this level. 1.02 Uttar Pradesh (UP) is India's most populous state, with an estimated population of about 110 million according to the provisional 1981 census. It is also one of India's poorest states, with an annual per capita income of about Rs 1,000 (US$125), which is about 30% below the average for India. The 1971 census indicates that agriculture dominates the UP economy, with 86% of the population residing in rural areas, 75% of all workers engaged in agricul- ture, and over 50% of total output arising from agriculture. Industry accounted for less than 12% of state income in 1977-78. In terms of output and employ- ment, agricultural processing industries remain the state's most important industrial sector, followed by the engineering and textile industries. Despite the slow growth in traditional industries, light engineering and chemicals industries have been growing much more rapidly than the average and now account for a significant proportion of output and employment in the UP organized sector. 1.03 Urban growth in Uttar Pradesh has gained momentum in the last two decades. The 1971 census indicated an urban population of 12.4 million, or 14% of the total state population. The growth rates of urban population during the decades 1951-61 and 1961-71 were 0.9% and 2.7%, respectively, and this trend is continuing. The provisional 1981 census indicates that 18% of the UP population lived in urban areas, reflecting an urban population growth of 4.9% per year for the period 1971-81. The 1971 figures show that, out of a total of about 290 cities and towns distributed fairly evenly throughout the state, 22 cities had populations of 100,000 or more. The projected growth in urban population is unevenly distributed, with over 40% going into cities with populations of 100,000 or more (Annex 1, Table 1). The urban migration is  - 2 - typically by low-income agriculture groups, primarily because of fragmentation of rural holdings, surplus rural labor force, and fluctuations in agricultural production. Approximately one-third of Uttar Pradesh's urban population is concentrated in the five largest cities, Kanpur, Agra, Varanasi, Allahabad and Lucknow, referred to as KAVAL towns, with 1981 populations conservatively estimated at 1.7, 1.0, 0.8, 0.8 and 0.7 million, respectively. B. Urban Policies and Programs in India and Uttar Pradesh 1.04 While responsibility for formulation and implementation of urban development programs in India rests with state governments and local bodies, overall development policies and strategies are influenced by objectives laid down in the national five-year plans. Planned urban development did not receive any particular attention by the Government of India (GOI) until the 1960s. The Third and Fourth National Five-Year Plans, 1961-66 and 1969-74 were aimed at control of urban land values, land use planning, standards for housing and other services, and strengthening of municipal administrations. The Fourth National Plan recommended the enactment by state governments of comprehensive Town and Country Planning Acts. Also, it stressed the need for positive steps to prevent unrestricted growth of metropolitan areas, by a balanced regional approach to urbanization. These objectives were further emphasized in the Fifth National Five-Year Plan, 1974-79, and the need for integrated development of urban settlements and of improving the housing con- ditions of the urban poor was highlighted. The Sixth National Five-Year Plan (1980-85) stresses the need for providing affordable shelter to the urban poor, safe water supply and adequate sanitation. To achieve these objectives, particular attention would be given to, inter alia, modification of existing by-laws, land use controls and minimum plot size requirements. Efforts would also be made to address problems of slums by improvement and upgrading rather than by relocation, to maintain easy access to employment centers and avoid destruction of existing housing stock, however substandard it may be. Con- tinuing efforts would also be made to curb migration from rural areas to large cities, by distribution of economic and job opportunities in such a way that expansion takes place in medium-sized cities and small towns. Various plan objectives reflect a growing concern about achieving consistent urban policies at the national and state level, 1.05 In terms of central funding of urban programs, GOI made a serious effort in the early 70s to begin tackling urban deterioration in larger metro- politan areas, by direct financial assistance to Calcutta. Similar efforts in Bombay and Madras followed. Also, a National Minimum Needs Program was introduced under the Fifth National Plan, including emphasis on provision for improvements in the environment of urban slums. Mention should also be made of the Housing and Urban Development Corporation (HUDCO), a Government of India (GOI) enterprise set up in 1970. HUDCO is funded by GOI allocations and market borrowings mainly from the Life Insurance Corporation (LIC) and the General Insurance Corporation (GIC). Its mandate is to advance loans to state government undertakings for housing and urban development programs. Through FY1979/80, total HUDCO loan commitments were about Rs 5,550 million (US$694 million), corresponding to, inter alia, a nationwide sanction of about 620,000 residential dwellings and about 31,600 sites and services plots. About 65% of  - 3 - houses sanctioned by HUDCO are for Economically Weaker Section (EWS) families with incomes less than Rs 350 per month, and another 32% are for Low Income Group (LIG) families with incomes between Ks 350 and Ks 600 per month. Total loan sanctions in FY1980/81 are expected to be about Ks 890 million (US$111 million). About Rs 6,000 million (US$750 million) would be available from HUDCO in the 1980-85 plan period for urban development. 1.06 Successive Uttar Pradesh (UP) State plans have stressed the impor- tance of power, rural development and agriculture sectors. The 1978-83 UP State Plan provided a modest 2.8% (Rs 2,160 million) of the total Plan's allocation of Rs 77,500 million (US*9,688 million) for urban investments, comprising Rs 1,510 million for water supply and sewerage, Rs 350 million for other infrastructure and Rs 300 million for housing. HUICO funding of housing programs is classified as non-plan expenditure. 1.07 The relatively low priority accorded to urban development at the national and state level results from the policy of encouraging rural develop- ment, with the growth of small- and medium-sized towns and the creation of industrial centers in special growth zones identified as a means to contain urban migration to large urban areas. Heanwhile, urban service delivery continues to deteriorate, creating adverse effects on the urban economy and on the welfare of the population, especially for the urban poor. The absence of shelter and other urban services affordable to the poor has created new pressures requiring the adoption of hitherto unconventional approaches. The effects of rent control and the Urban Land Ceiling Act have severely constrained private sector participation in development. The fiiiancial resources of municipalities are inadequate to provide a reasonable level of services, which continue to deteriorate. Urban management is so weak that while current fund allocations are inadequate to respond to actual urban needs, the absorption capacity for increased allocation is limited. 1.08 However, there is now wide recognition among national policy makers and those in UP of the need to strengthen urban management and finance and reorient investments to benefit the majority of the urban poor. In UP, new initiatives have been adopted to provide minimum basic needs through slum improvement, water supply and sanitation and sites and services developments and EWS shelter programs with HUDCO's assistance. C. Bank Group Role and Strategy in India's Urban Sector 1.09 In India, there are six urban projects assisted by the Bank Group. The First Calcutta Urban Development Project (Cr 427-IN, 1973/74-1978/79, US$35 million) supported a broad program of urban infrastructural works to meet the most urgent needs of the metropolis, and measures to begin urban institutional and financial reform. The Second Calcutta Urban Development Project (Cr 756-IN, 1977/78-1981/82, US$87 million) covers a large number of sectors, including components directly aimed at low-income groups such as area development, slum improvement, primary education, health care, and small-scale enterprises. It also continues the support of institutional and  - 4 - fiscal reform, and lays the foundation for formulation of a long-term urban developmenit plan for Calcutta. The First Madras Urban Development Project ( 68711N. 1977/78-1981/82, US$24 million) supports strengthening of metro- polLtan planning and capital programming, and includes low-cost investments in shelter and infrastructure services. The Second Madras Urban Development Pro!ect (Cr 1982-IN, 1980/81-1984/85, US$42 million) supports continued re-orientation of shelter and infrastructure investments for the benefit of the urban poor, and provides continued support for effective metropolitan planning. The latter two projects include rather substantial support of .llrbani transport, which also is the direct focus of the Bombay Urban Transport Proiect (Ln. 1335-IN, 1977/78 - 1982/83, US$25 million) and the Calcutta Urban Transport Project (Cr 1033-IN, 1980/81-1983/84, USE56 million). These projects assist in improving the quality and quantity of mass transport services in Bombav (buses), Madras (buses), and Calcutta (buses and trams), by providing for investments in public transport facilities and traffic engineering measures, and supporting institutional and productivity improvements. Finally, in the speciFic context of UP, the Uttar Pradesh Water Supply and Sewerage Project (Cr 585-1N, 1977/78-1981/82, US$40 million), now nearing completion, supports water supply and sewerage schemes in the five KAVAL towns, as well as about 300 subproiects in rural areas. 1.10 The Bank Group's strategy in the urban sector, as reflected in the design of all these projects, has been to support GOI's and state governments' recognition of the need for the rapid expansion of service programs which maiDly focus on improved efficiency in the urban economy and on the needs of urban low-income groups and the continued reorientation of these programs toward low-cost replicable service systems. The strategy also focuses on strengthening of local institutions, in support of their efforts to sustain and expand their programs. D. Kanpur Perspective and Economy i.1.1 With an estimated 1981 population of about 1.7 million, Kanpur is the eighth largest metropolis in India, and Uttar Pradesh's largest and most important industrial city. The population increased in the 1970s at a decennial rate of 32.2% (2.8% p.a.), against 25.8% (2.3% p.a.) in the district an2 19.8% (1.8%o p.a.) in the state. The K2npur district area is about 6,12U km of which Kanpur occupies about 300 km . The district's total population is estimated at about 4 million, of which 58% live outside the city in 2re- dominantly rural areas. Population density is about 490 persons per km in the dilstrict and 4,300 in the city. 1.JL 2anpur's industrial base was laid in the mid-1800s with the estab- listymeut of cotton and wool textile mills. Leather tanning and leather making industries followed. World War II caused a large increase in demand for Kanp-ur's products. After Independence, a large fertilizer factory and several af-oaments factories were added. Light engineering such as rerolling, casting,  - 5 - manufacture of agricultural implements, bicycles, chemicals, paints, varnish and other miscellaneous items dominate Kanpur's small-scale sector. In the early 1970s, the Kanpur district accounted for 70% and 41% of the net value added in the cotton textile and leather industries in the state, respectively. Overall industrial growth has declined in the post-war period, yet in 1977 Kanpur accounted for about 15% of the total employment and output in the state's organized manufacturing sector, as well as a significant proportion of the informal small-scale production sector. 1.13 Economic conditions continue to remain stagnant, reflecting national trends for the traditional industries. The very slow growth in UP's agricul- tural sector contributes to the lack of a buoyant market for consumer goods such as textiles and leather products. Successive state plans stress the importance of small-scale and "tiny" enterprises, generally in the informal sector. Their contribution to employment is clearly significant, though their share of total industrial output is less than 30% in UP. 1.14 According to the 1971 census, 35.5% of the working population of approximately 380,000 in Kanpur was employed in industry and more than 60% was employed in trade, commerce and other services. The annual per capita income of Kanpur was estimated at Rs 860 (US$104 equivalent) in 1978 compared with Rs 817 (US$98) for the state as a whole. About 45% of Kanpur's population, or about 800,000 persons, belong to households in the economically weaker sec- tion, with a monthly income of Rs 350 (US$44) or less per household in 1979. Institutions 1.15 The main agencies responsible for urban services are the Kanpur Development Authority (KDA), the municipal authority or the Kanpur Nagar Mahapalika (KNM), the water and sewerage authority or the Kanpur Jal Sansthan (KJS) and the Kanpur Electricity Supply Administration (KESA). 1.16 KDA's investments have been steadily increasing over the past years to about Rs 40 million in 1979. Over the years, the functions of KNM have been pruned, transforming it largely into a maintenance organization. State- wide planning and execution of water supply and large sewerage works was centralized in 1975 under a State Water Supply and Sewerage Corporation, UP Jal Nigam (UPJN), supported by Cr 585-IN (para 1.09). Corresponding respons- ibilities for operation and maintenance were then successively transferred from local bodies to local water and sewerage authorities, Jal Sansthans. KJS is one of the five Jal Santhans. KDA lacks the capability for financial analysis, cost control of projects and forward planning and budgeting. KNM operations currently suffer from many organizational and financial problems. KJS is operating under severe constraints resulting from inadequate staffing, operating funds, accounting, billing and collection. Further details of KDA, KNM and KJS are given in Chapter IV. 1.17 KESA is responsible for electricity generation and distribution in Kanpur. Unreliability and frequent interruptions to the supply have resulted in some larger industries either generating their own power or having standby facilities. The present consumption pattern indicates that 75% of power generated by KESA is used by industries.  - 6- Environmental and Health Conditions 1.18 Environmental and health conditions in Kanpur are widely regarded as much worse than in other cities in the state, and indeed in India. Infra- structure facilities have not been significantly expanded in the recent decades, and poor maintenance of existing infrastructure has rendered much of existing services unusable. About 47% of Kanpur households live in slum areas and "ahatas"--which are privately owned slum compounds--in extremely overcrowded and unhygienic conditions, with virtually no access to basic sanitation. The health of the population, especially in slum areas, is at a low level, with a high incidence of waterborne and communicable diseases, such as gastro- enteritis, cholera, hepatitis and skin, eye and throat ailments. Kanpur has the highest incidence of tuberculosis in India with an estimated 60% of children in slum areas affected by the disease. The 1965 figures indicate an extremely high infant mortality rate, 249 per 1,000 live births. 1/ Smoke and gas emissions from factories and the discharge of toxic effluents from tanneries and textile mills may have a direct connection to the malaise. Thirty percent of the slum population has been classified as being "con- tinuously sick" and it is estimated that the average absenteeism among indus- trial workers runs as high as sixty days per year per worker. Status of Basic Urban Services 1.19 Housing. Migration of labor to Kanpur has generated housing demands, particularly in the two last decades, which have not been adequately met. Of about 340,000 households in Kanpur, about 160,000 are estimated to be living in slum conditions. A recent survey indicates that about 67% of total house- holds live in single rooms. Many people live in crowded conditions in rented rooms in ahatas (slums on privately owned land) that are small in area and volume, have limited access to water, and lack basic sanitation and other services. About 30,000 households living in slums on publicly-owned land have received basic services under the GOI-initiated 'minimum needs program' com- menced in 1972. This is a grant program with no tenure or cost recovery, and the improved slums quickly fall back to their original state due to lack of maintenance. The ahatas in the central core have received no services, due to legal restrictions of entering upon private land. Yet people have continued to crowd into existing substandard dwellings under extremely unhygienic conditions. 1.20 The ahatas are on well located land, and starting in 1968 the then development wing oF the KNM acquired a number of ahatas with a view to redevel- oping them as commercial areas. However, due to difficulties of relocation, these plans have not been implemented. Owners of ahatas have little incentive to upgrade or redevelop them. The UP Slum Areas (Improvement and Clearance) Act 1962 provides protection to tenants against eviction. Private sector investments in shelter are generally minimal and nonexistent for low cost shelter. The Rent Control Act and the Urban Land Ceiling Act act as disincen- tives to private sector shelter investments. Planning regulations discriminate 1/ Upper Volta had the highest infant mortality rate of 263/1,000 in 1960, according to World Development Report, 1980.  against private developers, especially with regard to minimum plot sizes, permissible under the public sector schemes. The burden of shelter provision continues to rest in the public sector schemes. Within the resources available to the public sector, there is little hope of meeting this demand. Any long- term effort at solving the shelter problem should count on private sector par- ticipation, and this will only occur when sufficient incentives are provided. 1.21 New household formation in Kanpur is estimated at about 10,000 families per year of which about 50% are EWS households. Previous efforts mainly by KDA to increase the supply of adequate shelter for various economic groups have been insufficient. Since its establishment in 1974, KDA has provided about 6,400 new housing units, of which about 3,300 were for the EWS group. An additional 5,400 units are currently under construction. KDA took significant initiatives in 1978 to correct the serious imbalance in the provision of shelter for low-income groups, increasing the proportion of investments in shelter for this group. With the assistance of the state and HUDCO, the delivery by KDA of shelter to EWS households was increased to about 1,800 annually by 1980, compared to an annual demand estimated at 5,000 new units for this income range. 1.22 KDA has completed a pilot sites and services scheme comprising 860 plots. This scheme was developed with financial assistance from HUDCO. Two other sites and services projects comprising about 1,220 plots, also assisted by HUDCO, commenced in late 1979, one of which is nearing completion. The pilot scheme has been popular and has been completed at an average cost of Rs 2,700 (US$340 equivalent) per plot including a core unit. These schemes are specifically designed to meet the needs and affordability of EWS. Until the inception of these programs, any housing project aimed at EWS families had to be heavilv subsidized. The new concept of incremental housing through sites and services has been accepted by the state, and KDA plans to increase its investment in sites and services. However, the gap between annual formal sector shelter delivery and new household formation is about 7,000 units. Growth of EWS households is estimated at an annual rate of about 5,000 house- holds. Substantial expansion in the program would be required to accommodate growth and to eliminate the shelter backlog estimated at about 60,000 units. 1.23 Water Supply. About 80% of present water production for domestic requirements is drawn from the River Ganga, and the balance from tubewells. During the past year a 20-22 hour supply has been maintained for some zones. Total production averages about 230 mld. The water distribution network, which is mostly over 50 years old, has incomplete coverage and is inadequate for current demands. Unaccounted for water is estimated at about 40%. About 50% of Kanpur's population is served by direct water connections. The remainder depends on water supplies from about 2,500 public standposts, and to a lesser extent on shallow wells. About 50 households share supplies from each stand- post at an average consumption estimated to be about 30 lcd, compared to a city-wide average from all sources of about 125 lcd. Under the UP Water Supply and Sewerage Project (Credit 585-IN), 42 new tubewells would be installed to increase the installed capacity to about 385 mld by 1982. However, additional improvements to the zonal pumping stations, the distribution network and  - 8 - reduction of wastage and leakage will be required to achieve an equitable distribution of the improved water supply in Kanpur and would have priority over further capital investments in sources of supply. 1.24 Sewerage. No central sewage treatment facilities exist in Kanpur. Raw sewage is either discharged directly into the Ganga, or mixed with river water for irrigation on a sewage farm of about 3,100 ha. The existing trunk sewer network covers the central area of Kanpur, but is underutilized al- though branch sewers cover about 40% of the municipal area. Actual connec- tions serve only about 10% of the total population. Trunk sewers as well as branch sewers are old, and the latter are partly blocked with silt and solid wastes and have inadequate flows. Additional connections take place only to a limited extent because of high hook-up charges and lack of efficient enforcement. Thus, about 600,000 persons depend on badly maintained public conveniences or have no means of sanitation. About 400,000 persons depend on septic tanks, and about 580,000 persons are served by bucket latrines. 1.25 Stormwater Drainage. Thirteen main drainage outfalls (nallas) take stormwater north to the River Ganga and three south to the River Pandu (Map IBRD No. 15671R). These nallas also carry considerable amounts of sullage and sewage. Design capacity of all the outfalls is sufficient, but lack of mainteniance has reduced their efficiency, requiring desilting, regrading, and widening in places. Collector drains in developed areas are inadequate in number and not functional due to blockage by silt and garbage. Slum areas without proper stormwater drainage become essentially flood storage basins during the monsoon, since many dwellings are constructed out of excavated earth from within the plinth area. 1.26 Solid Waste Management including Night Soil Collection. Refuse collection in Kanpur is generally satisfactory, except in the central area. About 900 tons of refuse is generated daily, of which about 30% is not collected. About 5% of refuse comprises food, leaves, vegetables and other organic matter which provides food for cattle and dogs that roam the streets. The remainder of uncollected refuse litters slum areas, drains and backyards, where people pick recyclable material. Part of the collected refuse is treated in a composting plant commissioned in 1980, with a design capacity of about 350 tons per day, and the balance is dumped and spread in depressed land areas near the outskirts of the city, in a highly unsatisfactory manner. Night soil collection in the city is also inadequate. It is estimated that only about 15,000 liters out of 375,000 liters of human waste generated daily from unsewered areas of the city are collected by KNM. A further 190,000 liters are collected by private sweepers and deposited in authorized collection depots. An estimated 85,000 liters/day of night soil from bucket latrines are dumped by private collectors and householders in open drains, while another 85,000 liters/day from households with no toilet facilities are estimated to be found in open areas. Seventeen pail depots exist, but nightsoil is ille- gally dumped in open channels and down manholes. The inadequate collection of refuse and night soil seriously affects the proper functioning of storm- water drains and sewers in the central area of the city.  -9- 1.27 Roads, Traffic Management, and Street Li.ght:ing- Kanpur has a reason- ably adequate road network, constituting about 12%0 of the developed areas of the city. Two-hundred-and-fifty kilometers of the ci-ty-roads are surfaced; a further 350 km consist of narrow roads with various standards of construction, mainly used for pedestrian access. While roads proper are comparatively well maintained, drains and sidewalks are not fully functional. They are poorly maintained, with manhole covers and pavement slabs often missing, and encroach- ments by hawkers with temporary structures are common. Such conditions often make the use of sidewalks impossible, and pedestrians generally use the carriageway, in competition with other modes of traffic. 1.28 Bicycles are the dominating mode of traffic, representing over 75% of all vehicles on Kainpur roads and about 50% of the peak hourly volume. The total slow moving vehicles--including also cycle rickshaws and hand and ox-drawn carts--comprise about 90% of traffic and 83% of peak traffic, not considering the spillover into road space of pedestrians. Existing traffic problems in Kanpur, particularly in the central area, are characterized by conflicts between fast and slow moving modes of traffic, exacerbated by undis- ciplined road user behavior, encroachment, and inadequate traffic enforcement and management. A first step solution should focus on enhanced enforcement and development of improved traffic management and circulation schemes; yet no traffic management and engineering function exists in the Kanpur Nagar Mahapalika. II. THE PROJECT A. Objectives 2.01 The main objective would be to increase the supply of serviced land to the poor through the provision of low-cost serviced residential and small business plots and to address the worst environmental conditions prevailing in the privately-owned ahatas and other slum areas in and around the central core of the city. Transfer of land ownership to beneficiaries and the phased construction of dwellings would be a cornerstone of this approach. The reduc- tion and elimination of direct subsidies inherent in the ongoing "minimum needs program" and other shelter programs would be pursued. Full cost recovery of allocable costs in the sites and services and slum upgrading components would be aimed at, to enable replication of project features. The second objective of the project would be to strengthen key urban institutions in Kanpur, particularly management and financing of service delivery. The third objective would be to develop a strategy for state-wide urban development and management. Implementation of the recommendations of already initiated insti- tutional and financial studies for KNM and KDA early in the project implemen- tation period is envisaged. B. Main Features 2.02 The main project components and costs are as shown in Table 2.1.  - 10 - Table 2.1: MAIN PROJECT COMPONENTS AND COSTS (March 1981 Prices, US$1 = Rs 8.0) Rs US$ Million Million A. Shelter (i) Sites and Services: about 14,800 residential plots, core housing, shelter loans, community facilities and 540 serviced small business plots at three sites totaling about 200 ha and benefiting about 83,000 residents 138.3 17.3 (ii) Slum Upgrading: upgrading ahatas and other slum areas comprising about 20,000 households on about 105 ha, including grant of tenure, improved infra- structure services, home improvement and sanitary core loans, community facilities and small business support, benefiting about 112,000 residents 69.4 8.7 B. Environmental Sanitation, Maintenance and Traffic Management (i) Water Supply, Sewerage and Drainage: measures to maximize use of existing trunk infrastructure in central Kanpur, and extension to water supply, sewerage and drainage networks directly affecting proposed shelter components, and a sewer connection loan program 53.5 6.7 (ii) Solid Waste Management: improved facilities for collection and disposal of refuse and night soil, and workshop and depot improvements 10.4 1.3 (iii) Maintenance: equipment and tools for improving the cleaning, repair and maintenance of roads, sewers and drains 8.1 1.0 (iv) Traffic Management Measures: low-cost measures to improve traffic flows in areas adjacent to proposed shelter components and for enforcement of traffic regulations 7.3 0.9 C. Technical Assistance and Institutional Strengthening Consultant and advisory services and training for state- and local-level agencies. 8.0 1.0 Base Costs 295.0 36.9 Physical Contingencies 20.1 2.5 Design, Supervision and Management 31.2 3.9 Price Contingencies 67.2 8.4 TOTAL 413.5 51.7  1 Ii - 2.03 Total average costs per household, includiing costs for community facilities, on- and off-site irnfrastructure, building materials/home improve- ment loans, design, supervision and management charges and physical contin- gencies for the sites and services aInd slum upgrading components would be Rs 10,850 (US$1,360) and Rs 3,900 (US$490), respectiveljl. 2.04 The annual supply of affordable EWS shelter through the sites and services program would increase from about 1,800 to 2,500 units per year. The slum upgrading program would affect about 5,000 households per year. Together, the two programs would help contain the growth of slums during the project period (Chart 2, Annex 2). By continuation and expansion of the programs further reduction of slum areas could be achieved. The institutional strengthening programs commenced under the project would enable KDA, KNM and KJS to better service the needs of Kanpur residents. Community Development 2.05 UNICEF would collaborate with GOUP and IDA for implementation of a valuable and essential support activity of the project, namely, community development. UNICEF has reachled agreement with GOI and the Government of Uttar Pradesh (GOUP) for assistance for the Urban Community Development Project (Kanpur) to be implemented concurrently with the proposed project. It will provide education, health, nutrition, employment generation and community development facilities in the project areas with emphasis on women and children, The project cost is estimated at about Rs 3.5 million (US$0.4 million equiva- lent). IDA has collaborated with UNICEF in the preparation of this project through joint missions, and coordination throughout project execution will be maintained. Further details are given in Annex 1. C. Project Description Sites and Services 2.06 Three sites located within 3.5 km to 6 km of the city center (Map IBRD 15671R) would be developed to provide about 14,780 residential plots and about 540 small-business plots. They are Barra (8,359 plots), Gujaini (5,658 plots) and Pokharpur (760 plots), totaling about 200 hectares. Sites have been selected on the basis of proximity to employment opportunities, availability of trunk infrastructure, existing residential development and status of land acquisition. The sites are also within a 20 minute cycling distance of the city center--an important consideratiorn in view of the dominant role of the bicycle and cycie rickshaw as popular modes of trans- portation in Kanpur. All land for the component has been acquired. 2.07 The Barra site (187 ha), located south of the city, is 5 km from the city center. Only 123 ha would be developed in the first phase under the project. The Guja.ini site (74 ha) is within 1 km of Barra and located 3.5 km from the city center, Both sites have access to existing roads and would have access in future to the city bypass under construction, Power supply is available and adjacent to both sites. City water and sewer networks are not  - 12 - available to serve the two sites. The Pokharpur site (6 ha) is located east of the city center close to the tanneries. Water, sewer and electricity networks are available adjacent to the site. Site Layout and Land-use 2.08 Layouts for the three sites have been finalized. The design ensures the most effective use of land and infrastructure (see IBRD Maps 15672R and 15673R). Most of the smaller residential plots would have pedestrian access only. Vehicular access would be limited to primary and secondary roads, providing access to within about 60 m of every plot. Plots are distributed in such a manner that the larger residential plots, commercial and small-business plots would have vehicular access. The locational and service advantages of these plots would be taken into account for differential pricing of land. A typical cluster type layout has been adopted giving an average net density of about 800 persons per ha. About 66% of the land would be marketable, about 25% would be allocated to circulation, and about 9% to open space as indicated in Annex 2, Table 1. Plot Sizes and Plot Development 2 2 2 2 2.092 Five residential plot sizes of 37 m , 58 m , 81 m , 180 m2 and 300 m , would be provided. The residential plot distribution by site is shown in Annex 2, Table 2. About 68% of the residential plots in Barra ayd Gujaini and 75% of residential plots in Pokharpur would constitute the 37 m plot size, designed for families with incomes les2 than Rs 350 per month (EWS). Four options would be available in the 37 m plot based on varying on-plot develop- ment. There will be no on-plot development on the low-income group (LIG), middle-income group (MIG) anj higher-iecome group 2HIG) plots. LIG plots would be of two sizes: 58 m and 81 m . The 58 m plots would have locational advantages such as being corner plots facing open spaces and fronting 4.5 m and 7.5 m roads. 2.10 On-Site Infrastructure: Due to existing soils conditions and the large number (70%) of small plots, low-cost sanitation systems are not suit- able. Water and sewer networks would be laid to the boundaries of all plots at the time of initial construction. This approach would avoid costly and destructive road cuttings, and encourage maximum utilization of the installed networks, 1/ Water and sewer connections would be made to the sanitary cores on the EWS plots only, with two plots sharing one inspection chamber. Owners of other plots would effect connections, which do not form part of the project, by application to KJS. Most smaller plots would face 3.5 m and 4.5 m walkways surfaced with brick-on-edge pavements. 2/ Larger plots would face rights-of- way ranging from 7.5 m to 18 m which would have a single lane 3.7 m wide with 1/ One of the reasons for the constant blockages in the Kanpur sewer system is the lack of sufficient flows to effect adequate self-cleansing of pipes. 2/ Stone aggregate is not available in the Kanpur areas. Brick is mostly used due to the abundance of clay.  - 13 - bituminous macadam surfacing. For rights-of-way (ROW) greater than l m con- stituting a main access, spine road or bus route, two-lane surfaced carriageways would be provided. Street lighting would be provided throughout accessways and bus routes. Electricity networks to permit individual domestic supply would be provided under the project, but connections would be made by Kanpur Electricity Supply Administration at the request of beneficiaries and would not be included in the project. Concrete refuse bins would be located on access ways within easy reach of all plots. Tree planting would also be under- taken. Service standards for infrastructure are given in Annex 2, Table 3. 2.11 Off-Site Infrastructure: Both Barra and Gujaini would be provided with independent water supply and sewage disposal facilities. Barra would be provided with five on-site tubewells each about 300 m deep, along with two service reservoirs. Gujaini would be provided with three on-site tubewells of about the same depth, with one service reservoir. Both will operate indepen- dent of the city water supply system. Each site will have stabilization ponds for sewage treatment. The ponds will discharge to the river Pandu. 2 2.12 The smallest plot of 37 m alone would be provided with four alter- native on-plot developments. The options range from a bare plot with a sanitary core, to a completed room with sanitary core, courtyard walls ana shelter loans as indicated in Sketch, Annex 2. The provision of courtyard walls facilitates quick and simple expansion of dwellings to suit individual requirements. Plot options in the EWS category would be as follows: EWS 1: Plot with sanitary core without roof. optional shelter loan of Rs 1,500 I/ for self-help first room construction for all beneficiaries. EWS 2: Plot with anitary core without roof, common walls for 21.8 m room with no roof or shutters, and courtyard walls. Optional shelter loan of Rs 90U 1/ for roof construction and shutters for all bene- ficiaries. EWS 3: Plot with sanitary core with roof, common walls including roof for 21.0 m room with no shutters, and courtyard walls. Optional shelter loan of Rs 500 I/ for 25% of beneficiaries. EWS 4: Completed sanitary core and 21.0 m2 room with shutters, and courtyard walls. Optional shelter loan of Rs 500 1/ for 25% of beneficiaries. Optional shelter loans of Rs 3,000, Rs 3,500, Rs 4,000 and Rs 4,UO 1/ would be provided for the LIG 1, LIG 2, LIG 3, and LIG 4 plots, respectively at an estimated 25% rate of uptake. Loans would be administered by KDA. 1/ Loan amounts are in 1981 prices.  - 14 - 2.13 Plot options, costs, indicative charges and affordability, in March 1981 prices, are set out in Table 6.1. Prices of the EWS options with- out shelter loans would be Rs 2,160, Rs 4,230, Rs 7030 and Rs 8,500, after differential pricing (para 6.08 and Table 6.1). Community Facilities 2.14 The layouts provide all land requirements for community facilities. The project would provide the initial requirements of buildings that are con- sidered essential for the community and for marketability of plots, and hence avoid delays in beneficiary settlement. A UNICEF-assisted Community Develop- ment Project would provide additional support during the project period. 2.15 The project would provide 18 primary schools and 3 high schools having 5 and 7 classrooms per school, respectively. The above provision is based on the following average enrollment rates for Kanpur: 65% and 25% in primary and high schools, respectively, with 40 students per class. Over 50% of the schools are expected to be operated by private organizations, as is done traditionally. 2.16 Three health centers, two at Barra and one at Gujaini, operated by KNM would be provided to serve a total population of about 72,000. Each center, for 24,000 people, would have a six-bed ward, one labor room and ancillary facilities. The health centers would primarily serve EWS families and would provide curative, maternal and child, and preventive medical facilities. 2.17 Two sub-post offices would be provided, one each for Barra and Gujaini. One police post and one police/fire station would be provided in Gujaini and Barra, respectively. Additionally, three multi-purpose community centers would be provided, two at Barra and one at Gujaini. The community centers would consist of a hall, library, stores and offices. The UNICEF- assisted Community Development Project would provide equipment for the community halls. KDA would operate the community centers, which would be available to the public on a rental basis for social occasions. Small-Scale Industry and Commercial Activities 2.18 Economic activities including retail trade and small-scale business would be permitted on household plots, provided that they are not noxious trades or activities that constitute a nuisance to the community. Consultants engaged by the Directorate of Industries (DOI) have conducted a comprehensive survey in 1980 of formal and informal business activity in Kanpur. The study indicates that considerable economic activity takes place in low-income resi- dential areas. The demand for business plots, training and common facilities centers is based on this study.  - 15 - 2.19 Small-Scale Industry: The project would provice a total of b30 plots for small-scale business activities under the sites and services com- ponent. The 2b8 plots in the Pokharpur site would be residential plots of thle EWS and LIG types, on which small business activities would,be carried out by beneficiaries. A further 542 open plots of bO m and 120 m would be provided in Barra and Gujaini for resiaential-cum-small business activities. The DOI would select beneficiaries for the 830 plots and 1QA would offer the lease and administer building loans as for the residential plots. Plots not taken up for business purposes will be offered for residential use. Of the 26b plots in Pokharpur, 237 would be of the EWS 1-4 types. EWS 1-3 types may be upgraded to the EWS 4 type, by KDA, at the request of the beneficiaries, for which an amount of Rs 0.5 million has been provided. The other plots would have no on-plot development, but an amount of Rs 2.U 1/ million would be provided for loans for building construction or extension. Loans for machinery and working capital would not be provided under the project. Plot details for residential- cum-small-business activities are given in Annex 2, Table 4. 2.20 DOI would provide assistance to small businesses in project areas to improve skills and expand operations as part of the technical assistance under the project. This program (base cost is 0.5 million, US*0.06 million equivalent) would comprise: (a) identification of small entrepreneurs; (b) providing training for skills upgrading and apprising them of existing schemes and facilities for expansion; and (c) assisting and arranging contact between beneficiary and banks and UP Finance Corporation (where applicable) for credit facilities for equipment and working capital. 2.21 Two common facilities centers (base cost is 0.67 million, USE0.08 million equivalent) would be constructed, one each at Barra and Pokharpur, and operated by DOI. The centers would provide equipment, tools and quality control facilities for small businesses unable to afford high initial invest- ments. Upon selection of beneficiaries, DOI would equip the centers with tools and equipment that would be in greatest demand. A charge to cover use of equipment and tools will be levied. Except for the EWS plots, all other plots are priced at market prices, higher than cost. Profits generated from plot sales would be used to reduce plot prices for low-income households. 2.22 DOI would use the services of the state industrial agencies to carry out the above program and private dealers for operation of marketing outlets. The project would also provide for monitoring, follow-up and post implementa- tion counseling to beneficiaries. DOI is capable of handling the program with some consultant assistance provided under the project. 2.23 Commercial Activities: The sites and services areas would have about 6.6 ha (4.4%) of land for convenience shops and for commercial purposes. Plot sizes, distribution and layouts would be prepared based on demand. Plots would be fully serviced but will have no on-plot aevelopment. Commercial plots would be auctioned and profits generated would be used to reduce plot prices for low-income households. 1/ Loan amounts are in 1981 prices.  - 16 - Slum Upgrading 2.24 Eighty-nine ahatas located in the central core of the city would be priority areas for upgrading under the project (Map IBRD No. 15671R). These ahatas contain about 20,000 households. 2.25 Twenty-eight ahatas comprising 7,070 households are in the posses- sion of KDA, having been acquired at various times commencing 1968. Acqui- sition of the remainder started in March 1981 with the publication of the notice of 'Intention to Acquire' in respect of the first group of 40 ahatas. Acquisition is being carried out under the provisions of the UP Slum Areas (Improvement and Clearance) Act 1962, applied for the first time in the state. Physical works in the ahatas could commence only after the 'right of access' stage of the acquisition process is reached--estimated to take not less than one year. In order to provide sufficient areas in which upgading could proceed without interruption, four abadis (villages) located within and adjacent to the three sites and services project sites, comprising 1,650 households, have been included. Abadis are former villages now within the city boundary, where residents have traditional land ownership rights but have no formal title. Abadis lack basic services and conditions are similar to other slum areas. The total number of slum households thus immediately available (8,720) would be sufficient for two years' upgrading work commencing April 1981. 2.26 Ahatas are located on potentially valuable land in and around the central commercial area. The Act specifies the formula for compensation (100 times monthly rental income), but litigation over this issue is likely, and the final cost of acquisition will not be known for some time (para. 6.09). Some ahatas are likely to be excluded from the program if the cost of acqui- sition or the cost per capita for services becomes prohibitive. If it becomes apparent that not all of the ahata acquisition program is likely to succeed, additional slums on public land (outside the central core) will be substituted for the ahatas. 2.27 The slum upgrading process would comprise provision of basic infra- structure services, home improvement loans, grant of tenure to the present occupiers of the land and recovery of costs of land and improvements from beneficiaries. Displacements and demolitions would be kept to a minimum, limited to requirements of essential infrastructure. Due to high densities prevailing, lack of space and soil conditions, low-cost sanitation systems are not appropriate for the ahatas. Waterborne sanitation has been adopted in view of the availability of trunk sewer capacity. Education in the use of facilities and the need for flushing will be emphasized through community development. 2.28 Layouts would take regard of existing land-use patterns based on densities and community preferences. Where space is available, additional (infill) plots would be created. Most ahatas would be provided with internal pedestrian access only, as they have access to existing external roads. Commercial and small business plots would be created, when feasible, near access points to ahatas. Land provision for community facilities except for small community rooms would be minimal due to space constraints. Densities in layouts already prepared range from about 400 to 2,100 persons per ha.  - 17 - 2.29 The average plot size would be about 25 m2 and conforms to the curr2nt average lang occupancy in ahatas. Plot sizes would vary from about 15 m to about 80 m . Price of plots will be differentiated based on plot size, with smaller plots being sold at less than the cost of development and the larger plots at higher than cost. This measure would discourage larger plot sizes, encourage plot exchanges and subdivisions, and above all enable accommodation of poorer beneficiaries. 2.30 Detailed upgrading proposals have been prepared for ten typical ahatas and component costs have been based on the average cost for the ten ahatas. A scheme for a typical ahata is indicated in Map IBRD No. 15674. The upgrading of one ahata (Rolling Mill ahata) was taken up in late 1980 as a pilot project, using criteria proposed for the project. It was success- fully completed in March 1981. A key factor in the smooth implementation of the project has been the community involvement and understanding of the objectives of upgrading by residents. Infrastructure services proposed would include brick-paved pedestrian access, water supply and sewerage networks sized to permit individual connections, drainage, landscaping and street lighting. Surveys have indicated that about 70% of beneficiaries would wish to obtain individual water and sewer connections. Facilities for refuse collection would also be provided. 2.31 The following service levels would be provided where possible: (a) Circulation: Pedestrian access lanes, about 2 m wide, to all dwellings and vehicular access to within about 75 m in the larger ahatas. (b) Water Supply: One standpipe and one bathing facility for 35 persons, for the estimated 30% of all households that will have no individual facilities. (c) Sewerage: Facility for individual connections to most dwellings. For residents that remain unconnected (about 30%), one toilet per 35 persons. (d) Street Lighting: One security light per 40 m. 2.32 Two types of optional loan schemes would be provided for beneficia- ries in the upgraded areas. A home improvement loan of Rs 500 1/ per house- hold to supplement the beneficiaries' own efforts on additions or improving the dwelling structurally would be provided by KDA based on an estimated 30% rate of uptake. A second loan of Rs 1,000 1/ per household would be provided by KDA for construction of a sanitary core incluoing the water and sewer connections for 50% of the beneficiaries. The two loan schemes would cater for those households wishing to have individual connections, estimated at 70% from surveys, and able to afford the loans. The home improvement loan would be given in cash and/or building materials, to permit beneficiaries the option of paying artisan fees. The construction of the sanitary core comprising the seat, including connections, and the water point would be carried out by KDA as part of the project. 1/ Loan amounts are in 1981 prices.  - 18 - 2.33 No community facilities would be provided under the project in the upgraded ahatas mainly due to space constraints. Residents would largely depend on existing city facilities in their neighborhood. The UNICEF-sponsored Community Development Project (Annex I) would provide a number of community facilities particularly for women and children. Small plots for multi-purpose community halls would be provided in ahatas, where space permits. The three mobile health clinics recently introduced in Kanpur provide preventive and primary health care for residents of ahatas. Space permitting, one common facilities center would be provided for use of small businesses in ahatas (base cost Rs 0.33 million (US$0.04 million equivalent)). 2.34 The upgrading proposals would be affordable to about 90% of the ahata population. The r2mainder rould also be accommodated where possible, on very small plots (7 m to 10 m ) as was done in the pilot upgrading scheme. It may not be possible, however, to accommodate households below the 7th percentile of the Slum Household Income Distribution, who would be forced to continue as renters. Seventy percent of slum households in Kanpur have incomes less than Rs 350 per month, as indicated in the Slum Household Income Distribution (Annex 2, Chart 1). Approximate plot sizes, indicative charges and affordability, in 1981 prices, are set out in Table 6.2. The average cost of upgrading is Rs 2,725, representing about Rs 1,200 for land and Rs 1,525 for improvements, excluding shelter loans. Environmental Sanitation, Maintenance and Traffic Management 2.35 Investments under this component during the project period would comprise provision of: (i) off-site infrastructure improvements in water supply, sewerage and drainage to serve slum areas; (ii) drainage of the Latouche Road - Cooper Ganj - Bansmadi area; (iii) desilting and remodeling of existing drainage outfalls (nallas) in Kanpur; (iv) improved solid waste management, including night soil collection on a citywide basis; (v) improve- ments in maintenance; and (vi) traffic management measures. KNM would also receive assistance in studies and equipment related to its maintenance func- tions and reorganization of the solid waste management service (paras 2.50 and 2.51). Off-site Infrastructure: Water Supply 2.36 KJS assisted by the UP Jal Nigam has prepared a scheme that would augment water supply to 88 ahatas identified for upgrading under the project. The basis for design is 135 lcd. A total of about 26,000 m of pipes would be installed comprising about 1,340 m of cast-iron pipes, 7,450 m of asbestos cement pipes, and 17,400 m of pvc pipes. In addition, about 155 sluice valves would be provided, as well as necessary interconnections between existing and new mains. Base cost for above works is estimated at Rs 3.7 million (US$0.4 million equivalent). 2.37 A wastage and leakage program would be commenced to assess losses and to implement measures to reduce losses to reasonable limits. Production metering and area-wide bulk metering would be commenced, and category-wise consumption would be established as a matter of priority. Base cost for meters and other equipment for the above program have been estimated at Rs 0.5 million (US$0.06 million equivalent).  -_ 19 - Off-site Infrastructure: Sewerage (Base Cost Rs 37.6 millions US$4.7 million equivalent) 2.38 KNI'1 has prepared a scheme aimed at providing offT- site sewerage Lo all the ahatas identified for upgrading under the project. The total design population is about 60,000 households, of which about 20,000 1ive in the ahatas proper, and about 40,000 in the immediate neighborhoods. Most of the latter are "on-line" with sewer lines from the ahatas to cornecting trunk sewers. A total of about 30,400 mr of new sewer lines would be installed, in diameters ranging from 150 mm to 300 mm. In addition, based on a thorough survey by KhM, about 30,800 m of existing sewer lines in the 250-300 mm range would be replaced. They are either blocked beyornd salvage because of ingress of solid wastes and silt or require upgrading to accommodate increased design flows. Finally, about 53,000 m of existing blocked sewer lines that are salvageable--in the range of 150-600 mm--would be desilted, to obtain design flows. Base cost of civil works is Rs 27.6 million (US*3.5 million equivalent). 2.39 Justification of the above investments in off-site sewerage is dependent on reliable measures to prevent further blockages by ingress of solid wastes, and to maintain necessary design flows. Introduction of an efficient solid waste management system in Kanpur would greatly reduce the occurrence of sewer blockages. Maintenance of adequate flows requires a sufficient degree of household connections to the sewerage system. In Kanpur, household connections have been lagging, due to weak enforcement of existing bylaws, and inadequate incentives to encourage connections. The Government of Uttar Pradesh (GOUP) introduced and funded a one-off program to encourage connections several years ago, which was completed in 1979. It provided assistance on the basis of a 25% subsidy of the connection cost, and albout 2,000 connections were made. 2.40 GOUP has agreed that further measures are required to ensure adequate utilization of sewer lines in Kanpur, particularly those to be constructed under the proposed project. With regard to ahata households, Rs 10 million (US$1.25 million equivalent) 1/ has been provided for optional connection of about 10,000 households, at an estimated cost of about Rs 1,000 i/ per. house- hold, which would be recovered through their mortgage payments. Similarly, GOUP has decided to set up, under the project, an Rs 10 million 1/ revolving loan fund, that would be administered by KJS, to assist households outside the ahatas proper to obtain connections. Concurrently, KJS will take effective enforcement measures to obtain connections as provided for under its Act, Sewer connection loans to beneficiaries would be made at an interest rate of not less than 12% p.a. to be repaid over not more than 4 years. It has been established through a household survey that there is adequate demhand for connections. On the basis of an average 50% loan to households, the loan fund would, during the project period, finance about 20,000 households, which have relatively higher incomes than average ahata households and would be able to contribute half the cost of connection= Up to 75% of the cost of a connection would be advanced under the loan scheme. Inicluding sites and services, the project would provide loan funds for over 40,000 sewer connections, over the next four years. It is expected that additional connections would result from the enforcement of bylaws on the relatively better off households. Beyond the 1/ Loan amounts are in 1981 prices.  20 - project period, KJS will continue the enforcement measures and the loan program (until it is depleted) and achieve not less than 15,000 connections during 1985/86 through 1989/90. Off-site Infrastructure: Drainage (Base cost Rs 11.8 million, US$1.5 million equivalent) 2.41 KNM assisted by the UPJN has prepared a scheme for draining the slum areas to be upgraded under the project. Each slum would be connected to existing outfalls by a stormwater drain, average length about 130 m, and designed to accommodate rainfalls on a two-year frequency basis. 2.42 Annual Work Program: Off-site Infrastructure. As pointed out in para 2.25, about 60 ahatas comprising 11,270 households have yet to be acquired for slum upgrading. For various reasons, some of these ahatas may not become available, and other slums already on public land could be substituted. Addi- tionally, after more detailed investigations, the extension of sewers to some ahatas may have to be reconsidered in view of possible high unit/capital costs, which would adversely affect affordability. Since the above three offsite infrastructure programs are subordinated to slum upgrading, they would then have to be adjusted to provide infrastructure services only to those ahatas acquired. However, the volume of works related to already acquired ahatas is sufficient to provide for at least a one-year work program starting April 1981. It has been agreed that the annual work programs of off-site water supply, sewerage and drainage should be mutually agreed between GOUP and IDA annually, starting by April 1 of each year. 2.43 Drainage of the Latouche Road-Cooper Ganj - Bansmadi Area. This thickly populated area in the central core includes a large slum population, and a hospital. During the monsoon it is badly waterlogged. To remedy this situation the KNM would implement an 1,800 m drainage system, connecting to the existing Sisamau nalla. It would be provided as a stormwater sewer, with gully gratings, since heavy traffic conditions in the area prevent construc- tion of an open or covered stormwater drain proper. The basis of design is rainfalls on a two-year frequency basis. 2.44 Desilting and Remodeling of Existing Drainage Outfalls (Nallas). While the design capacity of existing outfalls is sufficient to dewater respective catchment areas during the monsoon, disrepair and silting has reduced actual discharge capacity. Under the project, KNM would undertake repair and desilting of 13 existing stormwater drains, which drain slum areas. The volume of works represented by this backlog is too large for KNM's regular maintenance staff to handle, and will be carried out by contractors. Solid Waste Management 2.45 Refuse Collection and Disposal, (Base cost Rs 8.1 million, US$1.0 million equivalent). This component is designed to assist KNM to improve and extend refuse collection and disposal within the city, particularly in the central core of the city where most ahatas are located. The project would provide sweeper carts, masonry bins, trucks, frontend loaders and other equip- ment (see Annex 2, Table 5). Depot and workshop facilities would be improved to better utilize vehicles and plant. At present fuel supply for all KNM  - 21 - vehicles is available at one point, leading to considerable idle time for refuse vehicles. The sweeper carts, trucks, and other plant provided would facilitate better collection especially in the area of the central core and commencement of sanitary landfill. The project would also provide for intro- duction of a night soil digesting facility at the composting plant and tech- nical assistance for evaluation of the composting operation. 2.46 While some vehicles would replace old vehicles, the net increase in the fleet would enable KNM to transfer about 90% of the refuse generated. Further improvements would be achieved through increased productivity. 2.47 KNM's present management system for solid waste collection is not fully efficient, because responsibilities for collection workers, transfer workers and vehicles, and disposal workers and facilities are split between the Corporation's Health, Public Works and Mechanical Engineering Departments. Consultants employed by KNM for the organization and management study are expected to recommend a consolidated and improved management structure for solid waste management in KNM (para 2.51). GOUP has undertaken to ensure that KNM would carry out the necessary organizational changes in the solid waste management service no later than April 1, 1983. 2.48 Night Soil Collection and Disposal. (Base cost Rs 2.2 million, US$0.3 million equivalent). Despite extensions to the sewer system proposed under the project, a considerable number of people would remain without adequate sanitation, and the night soil collection service is expected to continue for many years. Substantial expansion in the night soil collection service is required to reduce the existing health risks. The project would provide assistance to KNM to expand the service by the provision of 10 night soil carrier trucks and 150 carts, 400 drums (20-30 liters) and 400 buckets (5-10 liters). The objective would be to collect waste from bucket latrines that now end up in open drains amounting to about 85,000 liters/day (para 1.26), through KNM and private collectors. KNM would operate the night soil carrier trucks to transfer night soil from designated collection points to the points of disposal. Buckets will be issued to private collectors. KNM will register private collectors, issue basic regulations and supervise collections. It is therefore necessary for KNM to develop comprehensive proposals for the reorganization and expansion of the collection service through its own staff and private collectors, providing additional super- visory staff and means to control private collectors, and enforcement of sewer connections (para 2.40). Traffic Management Measures 2.49 The project would assist KNM in establishing a Traffic Engineering and Management Cell (TEMC), and provide funding for low cost traffic manage- ment schemes (base cost Rs 7.3 million, US$0.9 million equivalent). The Cell, to be headed by a qualified traffic and transportation engineer, would over the first four years focus on intersection improvements and road safety measures such as signalization, channelization, provision of cycle tracks, pedestrian movements and enforcement. GOUP has undertaken to ensure that a Traffic Engineering and Management Cell will be set up in KNM no later than April 1, 1982 and schemes for implementation will be agreed between GOUP, KNM and IDA prior to implementation.  - 22 - Maintenance (Base cost Rs 8.1 million, bS1.0 million equivalent) 2.50 Over the years, a considerable backlog of deferred maintenance of services has built up within KNH's jurisdiction, particularly for sewerage, drainage, roads and street lighting. The reasons for this situation are poor operation and maintenance procedures, and inadequate plant and equipment. Consultants employed by KNM1 (para 2.51) will recommend, among other things, appropriate equipment for coping with this backlog and with additional main- tenance requirements caused by added investments under the project. It is expected that the consultants will propose equipment for patch repair of roads and sidewalks (such as road rollers, tar boilers, and trucks), for cleaning of sewers (such as rodding machines, sewer cleaning machines, and gully pit emptiers) and for general maintenance works (such as concrete mixers and vehicles). Equipment relating to sewer cleaning would be provided to KJS since the responsibility for sewerage now rests with KJS. GOUP has agreed that procurement of equipment and plant will be done after KNI1, KJS and IDA have jointly reviewed the recommendations of the maintenance study and agreed on the course of action to be taken and plant and equipment to be procured. Technical Assistance and Institutional Strengthening 2.51 Technical assistance and training would be included in the project to support the strengthening of KDA, KiNM and KJS. KDA has commenced a 47 man-month consultancy study to assist in improving its overall performance in the delivery of shelter and related services. The study covers the specific areas of organization, systems and methods, collection system, accounting system, project cost accounting and management. The strengthening of KNM will be tackled on three broad fronts, given its importance in the provision and maintenance of services. KNI1 has retained consultants for: (a) an insti- tutional strengthening program covering organizational analysis, accounting systems, management information system, stores operation, revenue collection and the property assessment system and project cost accounting (60 man-months); (b) a financial strengthening program to improve the existing system of revenue generation and identify alternative sources of revenue (60 man-months); and (c) a study of its maintenance activities to improve citywide maintenance services (20 man-months). KJS has obtained about 4 man-months of consultancy assistance to commence a billing management program in order to administer more effectively its past due receivables. All the above studies were ini- tiated between December 1980 and harch 1981 using local consultants. Terms of reference for the consultancy studies for KDA, KNM and KJS were agreed with IDA. Finally, the project would provide start-up costs to KNI to help estab- lish the traffic engineering and management cell. 2.52 The state level component would assist the Departments of Housing (formerly Housing and Urban Development) and Urban Development (formerly Local Self-Government) to develop a strategy for statewide urban development and strengthen urban management and finance. A new division would be estab- lished in the Department of Town and Country Planning (T&CPD) which will develop programs in coordination with the Department of Urban Development. This unit will receive assistance to further develop economic, spatial and strategic planning capabilities of T&CPD with particular emphasis on the  - 23 - methodology and incentives for private sector participation in land and shelter development. The assistance would comprise start-up costs for estab- lishment of additional specialist staff, local consultancy assistance for specific studies, equipment, specialized services and training. Based on the institutional and financial strengthening program now being developed for KNM, the unit would introduce and implement similar appropriate strengthening programs in the other four KAVAL towns to strengthen management and finance. Details of the proposal are yet to be finalized. 2.53 The total consultant staff-months for the institutional strengthen- ing programs for both KDA and KNM include staff training provision over and above the training they would receive on the job during the design and imple- mentation phases of these studies. Additionally, agency staff would receive specific short-term training locally, as appropriate. 2.54 betails of costs are provided in Annex 2, Table 10. III. PROJECT COSTS AND FINANCING A. Cost Estimates 3.01 Total project cost, including contingencies, is estimated at Rs 414 million (US$51.7 million). The foreign exchange component is Rs 40 million (US$5 million) or about 10% of project costs with Rs 18 million (US$2.3 million) estimated as taxes and duties. Land acquisition costs are estimated at Rs 51 million (US$6.4 million). Summary cost estimates are given in Table 3.1 and detailed cost estimates for each component are given in Annex 2, Tables 7-10. 3.02 Base cost estimates are in March 1981 prices. Cost estimates for the sites and services component are based on final engineering design for all three sites (Barra, Gujaini and Pokharpur). Cost estimates for slum upgrading are based on final engineering for 10 typical ahatas representing varying densities, locations and physical conditions, and costs derived from the pilot upgrading scheme at Rolling Mill ahata commenced in late 1980. Cost estimates for environmental infrastructure improvements are based on preliminary engineering designs for civil works. Recent quotations from suppliers for materials, vehicles and equipment have been used to compute costs for the solid waste management and maintenance subcomponents. Average staff-month costs for consultant and advisory services are estimated at Rs 8,500 for locally procured services. No foreign consultancy services will be required. Physical contingencies have been estimated at 10% for civil works with detailed engineering and 15% for civil works with preliminary engineering. No physical contingencies have been applied to land, vehicles, equipment, shelter loans and technical assistance. Price contingencies have been estimated at 9%, 8.5%, 7.5% and 7.5% for FY82 through FY85 for both local and foreign costs, except for land.  Table 3.1; SUMIARY COSTS Rupees (million) US$ million (US$1 = Rs 8) Foreign of Local Taxes Foreign Total Local Taxes Foreign Total Exchange Total Shelter Sites & Services 122.7 5.3 10.3 138.3 15.33 0.67 1.29 17.29 8 47 Slum Upgrading 63.1 1.9 4.4 69.4 7.89 0.23 0.55 8.67 7 24 185.8 7.2 14.7 207.7 23.22 0.90 1.84 25.96 Environmental Sanitation, Mainte- nance & Traffic Management Water Supply 3.5 0.2 0.4 4.1 0.43 0.03 0.06 0.52 12 1 Sewerage 30.6 1.9 5.1 37.6 3.82 0.24 0.64 4.70 14 13 Drainage 10.3 0.3 1.2 11.8 1.29 0.04 0.15 1.48 10 4 Maintenance 6.5 0.4 1.2 8.1 0.81 0.05 0.15 1.01 15 3 Solid Waste Management 6.2 1.6 2.6 10.4 0.78 0.20 0.32 1.30 25 3 Traffic Management Measures 6.2 0.4 0.7 7.3 0.77 0.05 0.09 0.91 10 2 63.3 4.8 11.2 79.3 7.90 0.61 1.41 9.92 Technical Assistance & Institu- tional Strengthening Consultant and Advisory Services,Training, etc. 6.2 0.2 1.6 8.0 0.77 0.03 0.20 1.00 20 3 Total Base Costs 255.3 12.2 27.5 295.0 31.89 1.54 3.45 36.88 100 Physical Contingencies 16.9 0.9 2.3 20.1 2.11 0.12 0.28 2.51 11 Design, supervision, management 26.4 1.5 3.3 31.2 3.29 0.18 0.42 3.89 11 Price Contingencies 56.6 3.3 7.3 67.2 7.08 0.41 0.91 8.40 11 Total Project Costs 355.2 17.9 40.4 413.5 44.37 2.25 5.06 51.68  - 25 B. Financing 3.03 The proposed IDA credit of US$25 million would finance about 50% of total project costs net of taxes and duties. The credit would cover 100% of the estimated foreign exchange costs (US$5 million) and 45% of local costs. The credit would be made available to GOI, which will pass it on to GOUP on its standard terms and conditions as part of the central government assistance to the state. GOUP would make all project funds available to implementing agencies on terms and conditions indicated in Table 3.2. The terms and conditions conform to current practices. Flow of funds is indicated in Annex 2, Chart 3. 3.04 Retroactive financing would be provided as follows: (a) not exceed- ing US$250,000 to KDA, KNM and KJS for expenditures made after October 1, 1980 for consultant services required for project preparation; and (b) up to US$250,000 to KDA for expenditures incurred after April 1, 1981 for civil works. Table 3.2: FINANCING PLAN (US$ million) Principal Direct GOUP Loans Total of which Agency Expenditure Cost IDA Funds /a /b A. Sites and Services KDA 1.6 23.1 24.7 12.30 B. Slum Upgrading KDA 0.1 11.1 11.2 4.30 C. Environmental Sanitation, Maintenance and Traffic Management Water Supply KJS 0.9 0.9 0.40 Sewerage KJS 7.2 7.2 3.70 Drainage KNM 2.4 2.4 1.20 Solid Waste Management KNM 1.5 1.5 0.95 Maintenance KNM/KJS 1.2 1.2 0.55 Traffic Management Measures KNM 1.4 1.4 0.40 D. Technical Assistance and KDA/ Institutional Strengthening KNM/KJS/ T&CPD/DOI 1.2 1.2 1.20 TOTAL 2.9 48.8 51.7 25.00 /a Passed directly from GOUP to budgets of state departments for schools, health centers, police stations, post offices, community halls, common facilities centers and for state- and local-level agencies for insti- tutional strengthening and training. /b GOUP loans to agencies at interest rate not exceeding 7% p.a. to be repaid over 25 years, which includes a five-year grace period. 3.05 Projections of annual expenditures during the project period are indicated in Table 3.3.  - 26 - Table 3.3: ANNUAL CAPITAL EXPENDITURE PLAN (Rs million) 1981/82 1982/83 1983/84 1984/85 TOTAL A. Sites and Services 30.9 69.9 63.0 33.9 197.7 B. Slum Upgrading 11.8 31.0 31.3 15.6 89.7 C. Environmenal Sanitation, Maintenance & Traffic Management Measures Water Supply 1.0 1.9 2.6 1.2 6.7 Sewerage 7.8 15.3 20.1 14.5 57.7 Drainage 2.6 8.3 7.0 1.1 19.0 Solid Waste Management 6.9 4.4 0.7 - 12.0 Maintenance 2.3 4.9 2.6 - 9.8 Traffic Management Measures 1.0 4.4 4.7 1.3 11.4 D. Technical Assistance and Institutional Strengthening 2.9 2.8 2.5 1.3 9.5 TOTAL 67.2 142.9 134.5 68.9 413.5 IV. PROJECT MANAGEMENT, ORGANIZATION A4D FINANCE A. Project ianagement 4.01 A state-level steering committee formed during project preparation will continue during implementation and will provide guidance on policy and project-related matters. This committee, chaired by the Chief Secretary, includes secretaries of other state departments, chief town planner, and senior officials from relevant organizations such as Jal Nigam, KDA, KNM and KJS. The support and commitment of the State Government to the project has been consistently expressed, during project preparation, through this steering committee. It has provided a forum at the highest level of government for discussion, for the project preparation team and IDA. It has lent support to resolving problems, changing policies and procedures and adopting new ideas. 4.02 A Project Management and Monitoring Committee was established in April 1981 to perform the functions of coordination, monitoring and problem solving related to project implementation at the local level. It will report to the Steering Committee and IDA. The committee comprises the Secretaries of Housing (formerly Housing and Urban Development) and Urban Development (formerly Local Self-Government), the Chief Town Planner, Vice-Chairman of KDA, the Administrator of KNM, and Chairman of KJS.  - 27 - 4.03 The Kanpur Development Authority (KDA) will have overall responsi- b:litv for coordination of project execution at the local level. The two other agencies directly involved in implementing the project are the Kanpur Nagar hahapalika (KNM) (municipal authority) and the Kanpur Jal Sansthan (KJS) (city water and sewerage authority). The Project Management and Moni- toring Committee will receive monthly control and activity reports from KDA, as the coordinating agency, containing progress, status and current problems relating to each component. The information required for these reports will be obtained from the relevant departments of KDA, KNM and KJS and processed by the Organization and Methods (O&M) Officer of KDA. All involved agencies will submit information to the O&M officer on the basis of an agreed format and frequency. Project activity data will originate from the various functional departments of the executing agencies--such as planning, engineering, sales, finance, accounting, etc. 4.04 In varying degrees, serious shortcomings exist in the three local agencies. However, the Kanpur Development Authority has gradually succeeded in improving its operational and management performance. Over the past two to three years, it has increased the shelter program and commenced a sites and services program to reorient shelter investments to the poorer sections of the community. Assisted by KNMi and KJS it has done an excellent and thoroughly professional job of project preparation, completed the upgrading of one ahata as a pilot project and demonstrated innovativeness. About 75% of the total project costs will be directly expended by KDA. Despite their weaknesses, KNIM and KJS have recently begun to show improved performance. They now recognize their weaknesses and support the objectives of the institutional strengthening program in the project. The State Government has given unqualified support to the institutional strengthening program, the recommendations of which may be adopted in other KAVAL towns and perhaps elsewhere. An action program to improve operational efficiency of the agencies has been identified. The project would address organizational improvements, systems and procedures, accounting, billing, collection, revenue generation and management control systems. B. Kanpur Development Authority 4.05 The Kanpur Development Authority (KDA) was carved out of the development wing of the municipal authority in 1974 to undertake develop- ment work and to exercise planning and development control functions over a large area. The KDA is constituted under the provisions of the UP Urban Planning and Development Act 1973. Its functions include: (a) acquisition and development of land for residential and commercial purposes; (b) con- struction of housing as well as commercial and industrial estates; (c) manage- ment of land and buildings inherited from KNM and those developed by itself; and (d) regylation of private building activity. The area of jurisdictio" of KDA (969 km ) is about four times that of the municipal authority (262 km ).  - 28 - 4.06 The State Secretary for Housing (formerly Housing and Urban Development) is the Chairman of the KDA board that directs its activities through the chief executive officer--the Vice-Chairman. The Vice-Chairman is assisted by a Secretary who has direct responsibility for the planning and engineering departments. The sales, stores, accounts and administration departments are directly responsible to the Vice-Chairman. The total estab- lishment of KDA numbers about 1,100. For physical execution of works, there are at present six engineering divisions headed by a chief engineer. An architect/planner deals with planning and development control. Two other departments deal with general administration and accounts. While the plan- ning and execution functions are managed efficiently, the accounts department has few qualified staff. The organization chart of KDA is shown in Annex 3. 4.07 Land, residential and commercial development comprise the bulk of KDA's capital works. The proportion of investments in shelter has been increasing over the years and in 1979/80 about 3,200 units were constructed, as indicated in Annex 3, Table 4. The proportion of investments for EWS shelter has also been increasing steadily, reflecting the government's changing priorities. 4.08 As an executing agency, KDA has demonstrated the capability for effective physical execution of projects. It does not, however, have the financial and accounting capability to undertake appropriate financial analyses and cost control of projects, and forward planning and budgeting. Methods for accountability of funds are inadequate. The project accounting system lacks: (a) internal controls; (b) uniformity in data between operating and accounting departments; and (c) appropriate and timely financial informa- tion for effective management control. 4.09 KDA's expenditures for 1979/80 were about Rs 67 million. Receipts and payments since 1977/78, given in Annex 3, Table 1, indicate a steady growth. The primary sources of funds are sales of serviced land, buildings and public facilities, rents and loan charges, and loans and grants. During fiscal year 1979/80, the total available funds of KDA amounted to about Rs 92 million, of which about Rs 58 million (63%) were loans from Govern- ment and HUDCO, and the remainder, Rs 34 million (37%), was generated from internal operations. Capital investments reached about Rs 40 million in 1979/80 and were about Rs 60 million in 1980/81. As of March 1980, KDA's outstanding debt obligations were approximately Rs 145 million with an average annual debt service of Rs 14 million. In recent years, debt service has been in the range of 14%-22% of gross funds disbursement. 4.10 KDA's ongoing projects, comprising about 5,400 housing units, are expected to be completed in the next two years. The proposed project would be handled as part of KDA's normal operations; and the level of annual capital expenditure is expected to almost double over the next two years from about Rs 50 million to about Rs 100 million. Past trends indicate that expansion of KDA activities to this level in two years would be feasible. KDA will increase its staff to cope with the expanded operation as indicated in the organization chart (Annex 3). A full-time land acquisition officer  - 29 - has been employed and one additional chief engineer will be appointed. Under his direction, the engineering staff will be gradually built up to handle the increasing workload. It is expected that up to eight engineering divisions will eventually be added, starting with four becoming operational in the first year. A town planner, sales staff, accounting staff and an organization and methods officer would also be added to cope with the project functions. Most of the staff will be drawn from the centralized services cadre. 4.11 The area of greatest need for improvements in KDA is administrative and financial management. This would be addressed as part of the project. Consultants have been employed by KDA since April 1981 to design and imple- ment an appropriate accounting system, including training KDA personnel, and effect improvements in the general systems and procedures. Specifically the study will cover organization and methods, collection systems, accounting system, project cost accounting and management, and internal controls for management. The new accounting system would be introduced by April 1982 and would be fully operational by April 1983 (para 4.36). Consultancy assistance would be provided to follow up implementation. As a matter of priority, the consultants will set up a project cost accounting system for use in the project. The program would be completed by March 1983. C. Kanpur Nagar Mahapalika 4.12 The Kanpur Nagar Mahapalika (KNM), the municipal authority, was established under the Nagar Mahapalika Act 1959 to perform functions of civic administration as an autonomous body. The KNM has had no elected council since 1974. It is run by an Administrator appointed by the Depart- ment of Urban Development (formerly Department of Local Self-Government). 4.13 KNM is responsible for solid waste management, sanitation, street lighting, traffic engineering, city roads, and to some extent, maternity and child health, and education. Its duties are mainly operation and maintenance of the facilities, but it also undertakes some new works in roads and street lighting. The functions of the municipal authority have gradually been eroded, firstly by creation of.KDA (para 4.05) and recently by the decision to separate the water supply and sewerage operations into the Kanpur Jal Sansthan (KJS) (para 4.20). The sewerage functions were transferred to KJS on April 1, 1981. 4.14 Departmental organization is vague. Based on the current organiza- tion chart (Annex 3), there appears to be six operational departments. They are administration (including stores), taxes, accounts and audits, health, education arid engineering. However, there are considerable functional over- laps between the departments. Solid waste management, education and accounts functions are split between departments and responsibilities are inadequately defined. The current organization set-up contributes to inadequate control by management.  - 30 - 4.15 The low and deteriorating sanitary conditions prevailing in most of Kanpur are ample evidence that the KNM has not been able to cope with the city's needs. During fiscal year 1979/80 about Rs 33 million (31%) of expenditure was allocated to conservancy and drainage, which together constitutes the largest expenditure category. 1/ A further Rs 6.5 million (6%) is allocated to capital expenditure, virtually all of which was for sewerage. KNM's budget in the fiscal year 1979/80 was about Rs 104 million. Statements of revenues and expenditure from 1977/78 onward are given in Annex 3, Table 2. About 20% of KNM's funds was derived from government and the remaining funds, generated internally. Government grants for recurrent expenditure in 1979/80 amounted to Rs 18 million, or about 17% of total receipts. About 25% of this amount (Rs 4.5 million) comprised a grant for health and education facilities operated by KNM. 4.16 The major source of revenue is octroi--a tax levied on goods enter- ing the city, which constitutes about 45% of the total. Property tax forms about 20% of total revenue, a portion (7.5%) of which was water and sewer tax. Most other categories of revenue have fallen as a proportion of total revenue in recent years, due to the increase in the octroi tax. 4.17 The total property tax levied in 1980/81 was 22% of assessed annual rental value of properties, out of a legal maximum of 25%. However, from April 1981 the water and sewerage tax portion of the property tax is collected directly by KJS. With the separation of the water and sewerage tax portion (7.5%), the KNM portion of tax will now amount to only 14.5% of assessed annual rent values. This permits KNM to progressively increase the property tax from the present 14.5% to 25% and to achieve a significant increase in its property tax revenues. The rental basis of property tax assessment and the existence of rent control tends to keep the assessed rentals artificially low, depriving KNM of much potential revenue. The project would develop options for generating additional property tax revenues (para 4.19). 4.18 The share of KNM's capital expenditure under the project will be limited to drainage, solid waste management, maintenance and traffic management measures. KDA would, however, execute the drainage components on behalf of KNM with additional staff mobilized from the centralized services for physical execution of works (para 4.10). The additional costs to be incurred by KNM in respect of the services expanded under the project would amount to Rs 2 million annually. The maintenance charges from beneficiaries under the project would amount to Rs 1.2 million annually. Additional property taxes will accrue from the MIG, HIG and commercial and industrial properties. The various options for raising additional revenue will be addressed through the resource mobilization study under way (para 4.19). 1/ A major portion of the recurrent expenditure relates to cleaning of sewers. With the improved solid waste management and increased sewer connections planned under the project (para 2.40), this expenditure should reduce substantially in future years, due to reduced blockage.  - 31 - 4.19 As part of project preparation, GOUP and KNM have taken action to effect necessary organizational and financial improvements, with consultant assistance. KNM engaged consultants in December, 1980 for a comprehensive institutional strengthening program to address, specifically, improvements in the organizational structure, systems and procedures for various functions of KNM, design and implementation of an appropriate accounting system, including training KNM personnel in the system. The above program is being developed and is expected to be completed by March 1983. The above engagement provides for consultant assistance to follow up implementation. A resource mobilization study has also commenced in April 1981, with consultant assistance to identify and implement measures to improve the resource base of KNM by: (i) improving internal efficiency; (ii) improving tax assessment and collection machinery; and (iii) tapping additional resources in the city. Following submission of an interim report by consultants, a program for the study will be agreed. GOUP has agreed that following review of the recommendations of the resource mobilization study, due for completion in December 1981, by GOUP, KNM and IDA, GOUP will cause KNM to adopt suitable measures to increase its revenues, satisfactory to GOUP and IDA, no later than April 1, 1983. A third study started in February 1981 to strengthen maintenance is being developed by consultants. It is expected that the recommendations of the study, due about September 1981, would, among other things, include provision of additional plant, equipment and tools to KNM, clearing of the backlog of maintenance services and the adoption of maintenance schedules consistent with current and projected revenues. D. Kanpur Jal Sansthan 4.20 In 1975, the State Government created the Jal Nigam (state-level water and sewerage authority) to handle capital investments in the water supply and sewerage sector and Jal Sansthans (city water supply and sewerage authorities) to handle operation and maintenance. The Kanpur Jal Sansthan (KJS) was legally set up in 1976 by separating the water supply functions from the municipality. Effective operations in water supply by KJS did not commence until April 1980 and the sewerage function was transferred from KNM to KJS only on April 1, 1981. The departmental responsibility for water supply and sewerage within GOUP was transferred from the then Department of Local Self-Government (now Department of Urban Development) to the Department of Housing in April 1980. The Chairman of KJS is also Administrator of KNM. A General Manager is responsible for the operations of KJS. The organiza- tional chart for KJS is shown in Annex 3. 4.21 Through the UP Water Supply and Sewerage Project (Credit 585-IN), it was intended to create an autonomous and financially viable water supply and sewerage authority for Kanpur. The project included urgently needed investments such as tubewells, extensions to distribution networks, metering, a meter repair program and important institutional and financial improvements. 4.22 The civil works for Kanpur under the above project are nearing completion. Due to problems inherited from the time of its formation, KJS's operational and financial performance has, however, been poor. It is in default of the rate of return covenants agreed for 1978 and 1980 under the  - 32 - UP Water Supply and Sewerage Project (Credit 585-IN). In 1978/79 and 1979/80, only about 73% of KJS's operating expenditures (excluding debt service) were covered by self-generated revenues. 1/ Shortage of trained staff, a lagging metering program, faulty water meters, water leakage and difficulties with billing and collection are among the principal reasons for this situation. Quite substantial water tariff increases have been implemented since appraisal of the UP Water Supply and Sewerage Project, but they have not had the expected impact on KJS's financial performance, mainly due to the operational problems cited above. The most recent water tariff increase, averaging 150%, took place in November 1979, bringing: (a) do3estic tariffs up to Rs 0.50 per m and non-domestic tariffs to Rs 1.50 per m for metered connections; and (b) fixed domestic "tap charges" up to Rs 10 to Rs 30 per month depending on pipe diameter. The water tax was doubled as of April 1981, from 6.25% to 12.5% of annual assessed rental value. 4.23 Since early 1980, increasing emphasis has been given to attempts to improve the operational performance of KJS and a rolling action program has been regularly discussed with IDA in the course of the preparation of the proposed urban project. Significant progress has already been achieved and the proposed project will support further improvements. Specific opera- tional and financial performance targets have been discussed and agreed (see para 4.32 and Annex IV). Status of the main issues is summarized in paras 4.24-4.31. 4.24 Staffing. In August 1980, a new middle-level staffing plan for KJS was adopted, with 27 posts. Eighteen appointments had been made as of June 1981 and the remaining nine appointments would be made by October 31, 1981. In February 1981, KJS also created the following additional lower- level posts: 6 accountants, 52 tubewell operators, 40 meter inspection and repair staff, and I public relations officer. Recruitment for these positions is underway. A new General Manager of KJS was appointed in February 1981. 4.25 Metering. During the period October 1980-June 1981, about 3,000 faulty meters were replaced, as compared to about 50 meters during the 12 months prior to October 1980. An estimated further 12,000 faulty meters need to be replaced and this backlog would be eliminated by April 1, 1983. The conversion of unmetered connections to metered has commenced only recently. Over the past few years, only some 1,500-2,000 new metered connections have been installed annually. Meter installation would increase to an average of about 10,000 annually during the project period (about 13,500 conversions of unmetered connections and about 25,000 new connections). The cost effective- ness of the metering program will be closely monitored from the outset to assess whether adjustments in this program should be made. Unmetered connec- tions with fixed tap charges may be more appropriate in areas of low consump- tion, intermittent supply, etc. Households with unmetered connections are the water tax 2/, and the "tap charge" (para 4.22). Production and area bulk 1/ Excluding expenditures and revenues for sewerage which remained with KNM during this period. 2/ No tax is payable for properties with assessed rental value less than Rs 500 per year.  - 33 - meters would be provided under the project to help improve current estimates of production, consumption and leakage with a view to instituting further measures to increase the proportion of water produced that is actually billed (para 2.37). 4.26 Billing. By mid-1981, KJS had become reasonably current in its billing of non-domestic and bulk consumers. The situation is less satis- factory with regard to domestic consumers (currently about 45,000 consumers, representing about 37% of potential revenues), where lack of basic information and effective procedures prevented KJS from starting its billing on a signifi- cant scale until mid-1980. At that time, KJS had completed the preparation of provisional consumer registers from KNM property tax registers. By March 1981, billing for about 40% of due receivables for the period April 1977 to December 1980 had been completed with emphasis on the early part of this period. Many of these bills are being contested, due to incorrect consumer records, faulty meters, time lag, etc. To deal more effectively with domestic billing, KJS has taken the following initiatives: (a) current billing on a six-monthly basis has been initiated as of April 1, 1981, with billing for previous consumption and arrears to continue separately; and (b) consultants have been engaged to analyze the data base on past consumption and arrears and to develop a cost- effective strategy for arrears collection. Quarterly meter reading commenced April 1, 1981 and from April 1, 1982, billing will be quarterly instead of semi-annually. From April 1, 1981, KJS has taken over from KNM the billing for water and sewer taxes, which will allow better billing coordination by KJS and simplify controls. Furthermore, to improve its data base, KJS in October 1980, commenced a survey to provide more reliable information on the number and the status of water connections (metered, unmetered, and illegal, by type of consumer). The survey and related data processing was about 25% complete by June 1981 and will be fully completed by March 1982. 4.27 Collections. Due largely to the stepped up billing program, cash collections have recently improved from Rs 11 million in 1979/80 to about Rs 20 million in 1980/81 - just sufficient to cover operating expenditures for water supply, excluding debt service. The billing delays and previous lack of enforcement of collection through disconnection of defaulting consumers have led to public indifference which has seriously affected KJS's collections. KJS commenced some disconnections of large consumers in early 1981, and will initiate more systematic enforcement in parallel with the improvements in the data base and in billing procedures. 4.28 Working Capital. KJS was established without provision for adequate working capital. As required under the UP Water Supply and Sewerage Project (Credit 585-IN) and in view of the continuing financial difficulties of the agency, GOUP has, in August 1981, given an Rs 12.5 million (US$1.56 million equivalent) loan for working capital to KJS. The loan will be repaid over 7 years, which includes a two year grace period, at an interest rate of 10% per annum. 4.29 Sewerage. The transfer of the sewerage function to KJS on April 1, 1981, will negatively affect KJS's financial performance. In spite of an increase of the sewer tax from 1.25% to 3% of annual assessed rental values from April 1, 1981, sewer revenues are unlikely to cover more than 25% of operating expenditure for sewerage in 1981/82. This would improve during the  - 34 - project period as the number of connections would increase from about 7,000 to about 50,000 with only limited capital expenditure (the capacity of major portions of the network is currently only about 20% utilized due to lagging connections). Projections are shown in Annex IV, Table 5. 4.30 Accounting. An accrual based accounting system for KJS has been prepared by consultants financed under the UP Water Supply and Sewerage Project (Credit 585-IN). Expenditures are accounted for on an accrual basis starting April 1, 1981 and the full system will be in operation from April 1, 1982. The value of KJS fixed assets is being assessed. This will be completed by April 1, 1982, and by March 31, 1983 it should be possible to prepare proper balance sheets for KJS and to properly determine the finan- cial rate of return on its operations. 4.31 Credit 585-IN provides that KJS (including both water and sewerage operations) shall earn rates of return on its net fixed assets of not less than 2%, 4% and 6% at March 31, 1978, 1980 and 1984, respectively. For reasons given above, the first two of these targets have not been achieved. Until better data are available, including revised fixed assets values, it is difficult to assess the likelihood that the 1984 target can be achieved. KJS is now focusing on operational efficiency targets and cash flow targets which would be consistent with the 1984 rate of return target. This will be further assessed over the next 18 months as improved data become available. 4.32 Conclusion. Through on-going works, the installed water production capacity is being increased substantially. It is important that KJS: (a) makes effective use of this capacity, and of existing sewer capacity; (b) improves its internal efficiency; and (c) improves its revenue generation. The actions outlined above have been analyzed in some detail to assess their likely impact on various operating and financial indicators and to help estab- lish realistic targets for the future. This analysis, which has been discussed with KJS, UPJI and GOUP, is presented in Annex IV. The analysis suggests that if the rate of progress achieved in 1980/81 can be maintained, KJS would cover its operating expenditure and debt service starting with FY1983/84 (water sup- ply only) and 1984/85 (water supply and sewerage). This would require, in addition to operating improvements, tariff and tax increases, averaging 30% for water supply and 100% for sewerage. To achieve this cash flow objective, tariff and tax increases would have to be correspondingly higher if operational improvements fail to materialize as projected. 4.33 Accordingly, agreement was reached with GOUP at negotiations that it will cause KJS to: (a) initiate, by April 1982, a wastage and leakage detection pro- gram, including production metering and area-wise bulk metering; develop by September 30, 1982, an action program to reduce wastage and leakage to a level acceptable to IDA; and thereafter implement such action program in accordance with a time schedule acceptable to IDA; (b) initiate an accelerated water connection program, to achieve not less than 80,500 total water-connections by March 31, 1985;  - 35 - (c) introduce quarterly water meter reading and semi-annual bill- ing during 1981/82, progressing to quarterly billing with effect from 1982/83; (d) strengthen its meter repair and replacement capability, through the provision of adequate staff and spare parts, to ensure that not less than 75% and 90% of installed meters are fully func- tional in each quarter with effect from the quarter beginning January 1 and October 1, 1983, respectively; (e) improve its collection procedures, including procedures for disconnection in the event of payment default, to achieve cash collections of at least 60%, 65%, 70%, 75% and 80% of the cur- rent year's receivables during fiscal years 1981/82, 1982/83, 1983/84, 1984/85 and 1985/86, respectively; and (f) generate sufficient revenues, through operational improvements, and if necessary, tariff revisions, to cover not less than (i) 75% of the operation and maintenance costs and debt service requirements for its water supply operations for the fiscal year beginning April 1, 1982, (ii) 100% of the operation and maintenance costs and debt service requirements for its water supply operations for the fiscal year beginning April 1, 1983, and (iii) 100% of the operation and maintenance costs and debt service requirements for its water supply and sewerage opera- tions for each year commencing with the fiscal year beginning April 1, 1984. 4.34 A program to increase sewer connections under the project is discussed in para 2.40. E. Financial Statements 4.35 KDA, KNM and KJS keep their accounts in a rudimentary cash form, with little meaningful analysis. Although some attempt is made, in each case, to separate capital transactions from current transactions, these separations are arbitrary and do not strictly follow any standard accounting logic. It would have been helpful, had these separations been made, to have had separ- ately balancing statements for capital, current and special funds. In present circumstances, such an attempt at sophistication would be pointless. Instead, in Annex 3, simple statements of receipts and payments are given, categorized in the best manner possible from available information. No balance sheets are shown, because assets and liabilities remain to be authentically established. This in itself will be no easy task, even with the assistance of consultants. 4.36 GOUP has undertaken to ensure that adequate accounting systems will be fully operational for KDA and KNM by April 1983 and for KJS by April 1982. In the meantime, adequate arrangements will be in force for the safe and efficient handling of project funds and for the full and proper accounting thereof.  - 36 - V. PROJECT IMPLEMENTATION A. Execution 5.01 Responsibility for execution of the major portion of the project falls on the Kanpur Development Authority. Responsibilities are: 1. Sites and Services and Slum Upgrading - Overall responsibility KDA - Land acquisition KDA - Site development, on- and off-site infrastructure and core housing KDA - Common facilities centers Directorate of Industries - Schools Department of Education - Health centers KNM - Police stations Department of Home - Community centers KDA - Community development activities and training a/ KNM/KDA - Beneficiary selection KDA (Directorate of Industries for small-business plots) - Issue of leases KDA - Collection of charges KDA 2. Environmental Sanitation, Maintenance and Traffic Management - Water supply KJS (executed by Jal Nigam) - Sewerage KJS (executed by KDA) - Drainage KNM (executed by KDA) - Solid waste management KNM - Maintenance KNM - Traffic engineering measures KNM 3. Technical Assistance and Institutional Strengthening - Development of a strategy Departments of Housing and Urban for statewide urban devel- Development, b/ GOUP through Town opment and management and Country Planning Department - Consultant services for organizational management and financial studies KDA, KNM and KJS - Training and other services KDA, KNM, KJS, DOI, T&CPD a/ UNICEF would provide assistance to KDA and KN1* under the UNICEF-sponsored Community Development Project for Kanpur. b/ The former Department of Local Self-Government responsible for local authorities has been recently renamed the Department of Urban Development.  - 37 - 5.02 KDA will implement the shelter components and some of the major off-site infrastructure components of the project as part of its regular activities. For the project period, KDA will increase its staff to cope with the additional workload. KDA will obtain the necessary staff largely from the centralized services on secondment. In addition to implementing the shelter components, KDA will execute the off-site sewerage works or behalf of KJS and the drainage works on behalf of KNM. Off-site water supply will be executed by UP Jal Nigam on behalf of KJS. KNM will implement the solid waste manage- ment, maintenance and traffic management components. 5.03 UP Jal Nigam has undertaken the design of water supply works and the Latuche Road-Cooper Ganj-Basmandi storm sewer for the project. The remaining off-site works of drainage and sewerage, comprising secondary and tertiary networks, have been designed by KDA on behalf of KNM. B. Implementation Schedule 5.04 The project would be implemented over the period, April 1, 1981 to June 30, 1985. An implementation schedule is shown in Annex 3, Chart 4. Final engineering designs for all three sites and services sites have been completed. Bid documents for the two larger sites and services areas have been prepared and reviewed by IDA. Bids for 15 ahatas have been received and awards are to be made soon. A pilot upgrading project has been completed in April 1981 (Rolling Mill ahata). All land for sites and services has been acquired. Twenty-eight ahatas, sufficient for two years work, are in the possession of KDA. Thus far, the preparation team has done an excellent job. GOUP attaches great importance to this project, and has assured every assis- tance in project implementation, including the supply of cement, which is in somewhat short supply in India. Disbursements are expected through March 31, 1986 and the closing date would be June 30, 1986 (para 5.13). C. Procurement and Disbursement Procurement 5.05 Procurement of plant, equipment and vehicles under the project totals about US$2.4 million equivalent, exclusive of contingencies, including an estimate for equipment to be procured for the maintenance component by KNM and KJS, which must await the outcome of the study referred to in para 2.51. Contracts totaling about US$1.9 million equivalent will be awarded on the basis of competitive bidding advertised locally, in accordance with procedures that are acceptable to IDA. The items, to be procured in stages, are varied, small in number and involve a number of manufacturers, and would not attract the interest of foreign manufacturers. It was also recognized that local procure- ment had the important advantage of allowing project authorities to benefit from existing repair and spare parts facilities in the State. Contracts for about US$300,000 equivalent would be awarded on the basis of international competitive bidding in accordance with Bank guidelines. A margin of preference of 15% or the applicable customs duties, whichever is lower, will be applied to domestic bidders offering domestically manufactured goods.  - 38 - 5.06 The remaining equipment to be procured under the project (total value US$200,000) would involve small contracts (under US$50,000) for items normally procured without competitive bidding, which would be procured through normal commercial channels after obtaining quotations from at least three suppliers. 5.07 The total estimated base cost value of civil works contracts under the project is about US$25.3 million equivalent. Larger works comprise sites and services at Barra (US$7.6 million) and Gujaini (US$4.5 million), slum upgrading (US$4.6 million) and off-site branch sewers (US$4.7 million). The smaller works include off-site water supply (US$0.5 million), drainage (US$1.5 million), sites and services at Pokharpur (US$0.4 million), sites preparation for sites and services (US$0.6 million) and traffic management measures (US$0.9 million). 5.08 Concerning the sites and services works, design objectives point to unsophisticated and India-specific construction methods: (a) the use of brick, lime and fly ash to minimize the use of cement, steel and stone aggre- gate (the latter unavailable in Kanpur); (b) the use of material and technology that is simple, flexible and familiar to beneficiaries to permit re-use of material and to facilitate simple additions; and (c) the use of labor-intensive technology. Slum upgrading is distributed over about 90 slums on private land, of which so far 28 have been acquired. The works will have to be carried out on a slum-by-slum basis. As for the branch sewer works, they are subordinated to slum upgrading, and have to be implemented under annual contracts--averaging about US$0.8 million--in step with finalization of the slum acquisition program. The remaining civil works are small and scattered. Because of their numbers, size, nature and staggered implementation phases, civil works contracts would not attract interest from foreign contractors. 5.09 The contracts for sites and services at Barra and Gujaini (totaling US$12.1 million) and for off-site branch sewers (US$4.7 million) will be based on "slice-and-packaging," and will be awarded following competitive bidding among prequalified contractors on an all-India basis. The other contracts will be awarded following competitive bidding advertised locally in Uttar Pradesh. 5.10 The decision of GOUP and the agencies to execute the major civil works through large contracts represents a major advance from current prac- tices. Apart from reducing delays and the burden of administering a large number of small contracts involving materials supply, the new conditions of contract make contracting less of a gamble for contractors. On large contracts, only cement will be supplied to contractors. GOUP and KDA have agreed that a technical consultant, experienced in the administration of large civil works contracts, will be engaged prior to the bid evaluation for the larger contracts. Disbursement 5.11 Disbursement of the proceeds of the IDA Credit would be as follows: (a) 100% of foreign expenditure of directly imported plant, equipment, and vehicles, and 100% of local expenditure (ex-factory) of locally manufactured plant, equipment and vehicles procured through international competitive  - 39 - bidding; (b) 55% of expenditure on contracts for plant, equipment and vehicles, which will be awarded on the basis of competitive bidding advertised locally and through local shopping; (c) 55% of expenditure on contracts for civil works; (d) 70% of expenditure on loans made to beneficiaries for home construc- tion or improvement; (e) 70% of expenditure on loans made to small businesses for construction or extension of buildings; (f) 70% of expenditure on loans made to beneficiaries for sewer connection loans; and (g) 100% of expenditure on technical assistance. 5.12 Disbursements for (d), (e) and (f) above will be made against state- ments of expenditure and the executing agency will retain supporting documents for inspection by supervision missions. All other expenditures would be fully documented. 5.13 A schedule of disbursements of the IDA credit is shown in Table 5.1. The region-wide sectoral disbursement profile for the Urban Sector indicates that disbursements would cover a six-year period. In this project, however, the disbursement period is estimated at five years as: (i) all land for sites and services has already been acquired; (ii) land for 28 out of about 90 slums designated for upgrading has already been acquired; and (iii) sites and services and branch sewer contractors would be prequalified with large contracts being awarded on a "slice and package" basis. The resultant contracts would be fewer in number and easier to administer. Table 5.1: ESTIMATED DISBURSEMENT SCHEDULE Cumulative IDA Fiscal Year Quarter Ending Disbursements Disbursements (US$'000) (USS'000) 1982 September 30, 1981 December 31, 1981 - - March 31, 1982 400 400 June 30, 1982 800 1,200 1983 September 30, 1982 1,600 2,800 December 31, 1982 1,600 4,400 March 31, 1983 1,800 6,200 June 30, 1983 2,000 8,200 1984 September 30, 1983 2,000 10,200 December 31, 1983 2,000 12,200 March 31, 1984 1,800 14,000 June 30, 1984 1,800 15,800 1985 September 30, 1984 1,700 17,500 December 31, 1984 1,600 19,100 March 31, 1985 1,500 20,600 June 30, 1985 1,400 22,000 1986 September 30, 1985 1,200 23,200 December 31, 1985 1,000 24,200 March 31, 1986 800 25,000  - 40 - D. Accounts and Audits 5.14 KDA, KNM and KJS will separately identify project-related trans- actions within their normal accounting and financial reporting systems. Consultant studies currently underway at KDA and KNM have been deliberately designed to improve internal controls and accounting systems. KJS is imple- menting similar systems as part of the UP Water Supply and Sewerage Project. It has been agreed that the three agencies will complete the annual accounts promptly and that they will employ independent auditors acceptable to IDA to audit their financial accounts and statements for each fiscal year. No later than nine months after the close of each financial year, the agencies will submit to IDA audited financial statements and auditor's report together with an evaluation of the internal controls and financial management of the agencies accompanied by recommendations for improvements, if deemed necessary. E. Monitoring and Evaluation 5.15 Throughout project preparation, KDA performed excellently in sub- mitting succinct progress reports, monthly to GOUP and quarterly to IDA. KDA will continue to produce monthly summary status reports of all activities and submit such reports to the Project Management and Monitoring Committee, with recommendations for corrective action. The Project Management and Monitoring Committee will prepare quarterly reports on the progress of the project toward its physical, financial and programmatic goals and submit these reports to IDA within one month of the expiration of each quarter. F. Supervision 5.16 About 70 staff-weeks of IDA supervision would be required over the project implementation period spread evenly. VI. COST RECOVERY, PRICING AND AFFORDABILITY A. Cost Recovery 6.01 The basic premise of the project is to maximize recovery of investment costs in order to ensure financial replicability of the program, as indicated below and in Annex 2, Chart 3.  - 41 - Expenditure Item Means of Cost Recovery 1. Shelter (a) Sites and Services Land Plot charges On-site infrastructure Plot charges Off-site infrastructure Water and sewerage partly recovered through user charges On-plot development Plot charges Shelter loans Loan charges Community facilities Partly recovered (half cost of land for schools and land for community centers) Small business loans Loan charges (b) Slum Upgrading Land Plot charges On-site infrastructure Plot charges Home improvement loans Loan charges Sanitary core loans Loan charges 2. Environmental Sanitation, Maintenance and Traffic Management Infrastructure Water supply and sewerage partly recovered through user charges Sewer connection loans Loan charges Solid waste management Not recovered directly Maintenance Not recovered directly Traffic management measures Not recovered directly 3. Technical Assistance and Institutional Strengthening Consultant and advisory services, training and start-up costs for state- and local-level agencies Not recovered Sites and Services 6.02 About 86% of component cost is for directly chargeable cost items (land, site preparation, on-site infrastructure, on-plot development and shelter loans) and would be fully recovered through plot sales and loan repayments. Five percent of component cost is for community facilities (land, infrastructure, buildings and equipment) which would not be directly recovered, except for half the cost of land for schools and full cost of land for community centers, which will be recovered through plot charges. Off-site infrastructure comprising about 7% of component cost would be partially recovered through user charges. About 2% is for small-business, which is fully recovered except for the costs of common facilities centers, which are partially recovered.  - 42 - 6.03 Beneficiary selection will be mainly based on income. Additional eligibility criteria include residency in Kanpur and no claim to ownership of other properties in the Kanpur district. Income declaration will be based on sworn affidavits by beneficiaries. EWS beneficiaries will be free to construct incremental shelter without the requirement of building permits, subject only to setbacks at the front and rear of the plot and maximum site coverage of 66%. Assurances were obtained during negotiations that benefi- ciary selection criteria would be satisfactory to IDA. 6.04 Residential plots would be sold with 90-year leasehold titles. All EWS (except EWS 1) and LIG plots would require a down payment of 10%, and the balance would be repaid at not less than 12% interest per annum over not more than 20 years. EWS 1 plots would be sold at the same terms except that the down payment would be only 5%. All other plots, including commercial and small business plots, would require a 25% down payment, with the remainder being paid over not more than 10 years at not less than 12% interest p.a. Due to the phased construction of dwellings by beneficiaries, the assessed rental value of dwellings may fall below the threshhold (Rs 500 per year) below which property tax is not chargeable. To assist KNM to maintain the newly developed areas, maintenance charges of Rs 2.5 per month for EWS, Rs 5-11 per month for LIG plots and Rs 30 per month for MIG plots will be levied in the interim period, and would be added to the monthly payment (Table 6.1). Maintenance charges would cease when beneficiaries become eligible for payment of property taxes. KDA will pass on maintenance charges collected, to KNM. Beneficiaries may not sell their plots for a period of 5 years without giving KDA first option to purchase and set the sales price. Thereafter, plots could be freely sold by title holders upon payment of the outstanding principal and interest. Optional shelter loans of Rs 1,500, Rs 900, Rs 500 and Rs 500 would be provided for purchasers of EWS 1, 2, 3, and 4 plot options, respectively, and Rs 3,000, Rs 3,500, Rs 4,000 and Rs 4,000 for purchasers of LIG 1, 2, 3, and 4 plot options, respectively, to construct or expand homes. These loans would be at an interest rate of not less than 12% p.a. over not more than 20 years. Build- ing construction/expansion loans for small businesses would be provided at an interest rate of not less than 12% p.a. over not more than 20 years. No loans would be provided in the project for MIG and HIG households who would obtain housing finance from commercial banks, cooperative societies and other sources. Assurances were obtained during negotiations that conditions of lease and mort- gage and terms and conditions for loans for beneficiaries in sites and services would be on terms and conditions satisfactory to IDA. 6.05 The interest rate of not less than 12% p.a. adopted for plot charges and loans reflects a substantial increase from the 4%-6% p.a. interest rates adopted for EWS and LIG housing under the State and HUDCO-funded schemes. The commercial interest rate for middle and upper income housing is about 14% p.a. currently, and the inflation rate for India is expected to be about 9% p.a. over the project period. Slum Upgrading 6.06 About 99% of the component cost is for directly chargeable costs (land, on-site infrastructure, and funds for home improvement) which would be fully recovered through improvement charges and loan repayments. The remaining 1% of component cost is for the common facilities center which would be partly  - 43 - recovered through charges levied for use of the facilities. The cost of land for the small multi-purpose community rooms would be recovered from benefi- ciaries. Off-site infrastructure for slum upgrading is included in the environmental sanitation component, and would be partly recovered through user charges. 6.07 The cost of land and improvements would be recoverej in monthly payments by hoyseholds ranging in amounts from Rs 13 for 15 m plots to Rs 52 for 45 m plots, over 20 years. A 5% down payment would be required. A monthly maintenance charge of Rs 2.50 for plots below 45 m and Rs 5 for all other plots will also be charged from beneficiaries (Table 6.2) and passed on to KNM. Repayment of the plot charges and home improvement loans would be at not less than 12% interest p. a. over not more than 20 years. Prepayment of the loans for land and improvement would be permitted at any time without penalty. Resale of the plots would be allowed on full payment of principal and interest due on land, infrastructure and home improvement loans. However, beneficiaries may not sell their plots for a period of 5 years without giving KDA first option to purchase and set the sales price. Beneficiaries on plots less than 60 m will be free to construct or improve houses without the requirement of building permits subject only to minimum setbacks. Land tenure would be provided to the beneficiaries through 90-year leasehold titles. Assurances were obtained during negotiations that conditions of lease and mortgage and terms and conditions of loans for slum households would be on terms and conditions satisfactory to IDA. B. Pricing 6.08 Sites and Services. Prices of residential plots would reflect differences in infrastructure levels, on-plot development, location, accessi- bility and plot sizes. As a result, the EWS plot options would be priced at less than average square meter cost, while prices of LIG, MIG, HIG and the commercial and small industry plots would be set at above average costs. Overall, full cost recovery would be achieved. Current market prices charged for commercial and small-business plots are estimated at Rs 200 and Rs 100 per square meter, respectively. The actual selling price would be determined at time of offering, with-the commercial plots generally offered for sale by auction. The sale of commercial plots will not be limited to any income group. Based on current practice, half the cost of land for schools will be charged to the Department of Education. Land for community centers and multipurpose community rooms will be borne by beneficiaries. Price of land for other public and community facilities would be set at cost, and charged to the budgets of the respective government departments. 6.09 Slum Upgrading. The ayerage cost of acquisition of the already acquired ahatas is about Rs 25/m gross. They had been acquired under the provisions of the Land Acquisition Act. The compensation formula for acqui- sition under the Slum Areas (Improvement and Clearance) Act, under which the remaining ahatas will be acquired, provides for 100 times monthly rental including all buildings. From the rent information available at the municipal authority, the likely cost of acquisition. of ahatas under the latter Act has  - 44 - been computed and averages2about Rs 18/mr gross. Including management costs, it would amount to Rs 20/mr gross. The compensation provision is likely to be subject to litigation and the final cost of acquisition will not be known for some time. However, in the computation of affordability a gross square meter cost of Rs 31 has been used, providing a cushion of about 55%. Stamp Duty 6.10 All property transactions attract stamp duty and charges based on the selling price. Minimum per square meter costs based on location are used by the Registrar of Deeds to check evasion of duty. In the case of plot purchase over an extended period, the sum total of the payments (including interest charges) is usually considered as the "selling price." The stamp duty and charges amount to about 11% of the "selling price." In the case of the project, this amounts to about 26% of the price of the option. This amount is required to be paid upfront in one payment. Low income households would face serious problems raising this cash payment. The transfer of title takes place soon after beneficiary selection and the title is then held by KDA until all outstanding payments are made. 6.11 The State Government has agreed to proposals to alleviate the impact of stamp duty especially for the EWS and LIG beneficiaries. Transfer of title for the land only on the basis of the differential pricing system adopted will be done at the outset soon after selection of beneficiaries. This sale of land only will be treated as an outright sale, and KDA will use the down payment from beneficiaries toward stamp duty payments. A separate agreement will be effected between KDA and the beneficiary for the remainder of the outstanding debt. This arrangement will bring the stamp duty and charges to about Rs 230 for the EWS 1 plot option and Rs 360 for the LIG 3 plot option. Stamp duty and charges for the slum upgrading areas would be computed on the basis of selling price for land only, taking account of the differential pricing mechanism. The total down payments will be sufficient to meet stamp duty and charges for the agreement. GOUP has approved these procedures to be followed by the Registrar of Deeds with respect to the imposition of stamp duty on sites and services and slum upgrading beneficiaries. C. Affordability 6.12 About 68% of all plots in the sites and services area would be affordable to EWS households with incomes less than Rs 350 per month, which corresponds to about the 45th percentile of the Kanpur urban household income distribution. The2monthly cParges for upgraded areas would be about Rs 12 and Rs 21 for 15 m and 25 m plots respectively, exclusive of home improvement loans. For households with incomes of Rs 150 and Rs 200 per month, the above monthly charges represent 8% and 10.5% of income toward shelter. About 70% of ahata beneficiaries are estimated to have incomes below Rs 350 per month. The differential pricing mechanism would provide beneficiaries with choices for adjustment of2plot sizes, exchanges within the ahata and further subdivisions. Plots of 15 m would be affordable to the 10th percentile of the Kanpur Slum  - 45 - Income Distribution (Annex 2, Chart 1). Flexibility in the determination of a minimum plot size would ensure that even poorest households would be accom- modated, as demonstrated in the pilot upgrading scheme ai Rolling Mill ahata, where the smallest plot size comprised one room of 7.5 m for a single person. Affordability analysis for sites and services and slum upgrading is given in Tables 6.1 and 6.2, respectively. (reduced Tables 6.1, 6.2 to be inserted here) Table 6.1: SITES AND SERVICES: PLOT OPTIONS, COSTS, INDICATIVE CHARGES, AND AFFORDABILITY (March 1981 prices) EWS1 EWS2 EWS3 EWS4 LIGI LIG2 LIG3 LIG4 IIIG 'dG Plot Size (m 2) 36.75 36.75 36.75 36.75 57.75 57.75 57.75 81 180 300 Number of Plots 1,456 5,000 1,856 1,800 203 612 350 1,620 1,696 184 Percentage of Plots 9.85 33.84 12.56 12.18 1.37 4.14 2.37 10.96 11.48 1.25 Land & Infrastructure Price (Rs) 975 976 1,085 1,085 4,394 4,652 4,824 6,615 17,424 37,831 Superstructure Costs (Rs) 952 2,949 5,549 6,963 Stamp Duty & Bond (Rs) 231 306 400 456 344 361 361 /a /a /a Total Price of Option (Rs) 2,158 4,231 7,034 8,504 4,738 5,013 5,185 6,615 17,424 37,831 Down Payment (Rs) 100 200 350 450 439 465 482 661 4,356 9,458 Recovery Period (years) 20 20 20 20 20 20 20 20 10 10 Monthly Payment (Rs) /b 22.66 44.38 73.60 88.68 47.34 50.07 51.78 65.56 187.49 407.07 Monthly Maintenance Charge (Rs) 2.5 2.5 2.5 2.5 5.00 6.00 7.00 11.00 /c /c Total Monthly Payment (Rs) 25.16 46.88 76.10 91.18 52.34 56.07 58.78 76.56 187.49 407.07 Optional Building Loans 1,500 900 500 500 3,000 3,500 4,000 4,000 - - Monthly Payment on Building Loans (Rs) 16.52 9.91 5.51 5.51 33.03 38.54 44.04 44.04 Total Monthly Expenditure (Rs) 41.68 56.79 81.60 96.69 85.37 94.61 102.82 120.60 187.49 407.07 Monthly Income (Rs) 200 250 300 350 400 450 500 600 1,500 2,500 Percent of Income on Shelter: Minimum /d 12.58 18.75 25.37 26.05 13.08 12.46 11.76 12.76 12.50 16.28 Maximum /d 20.84 22.72 27.20 27.63 21.34 21.03 20.56 20.10 12.50 16.28 /a Beneficiaries of LIG4, MIG and HIG plots will be required to provide stamp duty and and bond charges, in addition to down payment, at transfer of title. /b Recovery of plot charges and loans will be at an interest rate of not less than 12% per annum. Plot charges include physical contingencies, design, supervision and management and interest during construction. /c MIG and RIG will qualify for property tax from the outset. Id Minimum and maximum expenditure relates to without and with building loans, respectively. Table 6.2: SLUM UPGRADING: PLOT SIZES, COSTS, INDICATIVE CHARGES, AND AFFORDABILITY (March 1981 prices) Plot Size 15m2 20m2 252 30m2 452 6Om2 80m2 100m2 Number of Plots 3,647 4,348 3,597 3,230 2,260 1,273 981 526 Percentage of Plots 18.36 21.89 18.11 16.26 11.38 6.41 4.94 2.65 Land & Infrastucture Price (Rs) 898 1,299 1,951 2,603 4,231 6,339 9,615 13,618 Stamp Duty & Bond (Rs) 142 176 235 316 481 /a /a /a Total Price of Option (Rs) 1,040 1,475 2,186 2,919 4,712 7,076 10,743 15,285 Down Payment (Rs) 52 74 109 146 236 354 537 764 Recovery Period (years) 20 20 20 20 20 20 20 20 Monthly Payment (Rs) /b 10.88 15.43 22.87 30.53 49.29 74.02 112.38 159.89 Monthly Maintenance Charge (Rs) 2.5 2.5 2.5 2.5 2.5 5 5 5 Sanitary Core Loan (Rs) 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 Monthly Payment on Construction Loan (Rs) 11.01 11.01 11.01 11.01 11.01 11.01 11.01 11.01 Hone Improvement Loan (Rs) 500 500 500 500 1,000 1,000 - - Monthly Payment on Building Loan (Rs) 5.51 5.51 5.51 5.51 11.01 11.01 - - Monthly Expenditure (Rs) Minimum 13.38 17.95 25.37 33.03 51.79 79.02 117.38 169.89 Maximum 29.90 34.45 41.88 49.55 73.81 101.04 128.39 187.90 Monthly Income (Rs) 150 200 250 300 400 550 650 900 Minimum Percentage of Income 8.92 8.96 10.15 11.01 12.95 14.37 18.06 18.32 Percent of Income with Construction Loan 16.26 14.47 14.55 14.68 15.70 16.37 19.75 19.52 Building Loan 19.93 17.22 16.75 16.52 18.45 18.37 19.75 19.54 /a Beneficiaries of plots greater than 50 m will be required to provide stamp duty and bond charges, in addition to down pay- ment, at transfer of title. /b Recovery of plot charges and loans will be at an interest rate of not less than 12X per annum. Plot charges include physical contingencies, design, supervision and management and interest during construction.  - 46 - VII. JUSTIFICATION AND RISKS A. Economic Evaluation General 7.01 The shift in investments to low-cost shelter, commenced in 1978 in Kanpur, would be given greater momentum through the project. The project would also be instrumental in shifting an increased proportion of GOUP Plan funds to urban development. Institutional weaknesses identified would be addressed on a broad front, through strengthening organization and management, financial management and accounting, resource mobilization and collection. In varying degrees these efforts would affect KDA, KNM and KJS. Experiences of the institutional improvement program would be used to improve the urban agencies in the other KAVAL towns. The adoption of full cost recovery, realistic interest rates and affordable solutions would influence the State Government to expand these measures and thus reduce subsidies to urban areas. The state-level program would develop a strategy for statewide urban develop- ment and management based on the above measures and additional programs introduced under the project. Sites and Services and Slum Upgrading 7.02 Estimates of economic benefits of the sites and services component are derived from imputed rental values of similar serviced residential plots based on recent sample surveys by KDA, and market value of serviced commercial and small-business plots. The costs include shelter loans and all directly chargeable costs of land and on-site infrastructure and maintenance costs of 2-1/2% and excludes taxes, costs of schools, health centers, other community facilities. On the above basis, the economic rate of return for the sites and services component is estimated at 18%. 7.03 The economic benefits of the slum upgrading components are estimated on the basis of the increase in imputed rental value created by infrastructure and service improvement. Costs, net of taxes, include all directly chargeable costs of land, on-site infrastructure, home improvement loans and maintenance costs of 2-1/2%. The economic rate of return on this basis is estimated at 26%. 7.04 Rates of return were not computed for other project components due to difficulties of quantifying their benefits. However, various qualitative benefits are discussed below. 7.05 Health and educational benefits would accrue to 75,000 persons and 43,000 primary and high school students, respectively, through the health centers and schools provided under the project. The general improvements in shelter and health facilities would generate many unquantifiable benefits, particularly reduction in the incidence of tuberculosis and infant mortality. The small-scale business program in the project would improve artisan and entrepreneurial skills of small business persons and lead to increased incomes.  - 47 - Environmental Sanitation 7.06 Though primarily designed to cater for the project slum areas, the benefits of the environmental sanitation subcomponent would accrue to a much wider population, estimated at more than double the direct project benefi- ciaries, or about 200,000 people. 7.07 The program to expand the sewer system, the connection program and its enforcement would achieve a wide health and environmental impact in the central core of the city where almost 50% of the population resides. Generation of sufficient flows in the sewers would reduce the current annual expenditure on clearing blocked sewers, amounting to about 20% of the KNI budget, according to estimates. Extensions to the tertiary sewer system would achieve greater utilization of the trunk sewers installed sometime ago, but currently utilized at only about 20% capacity. The loan scheme for sewer connections and the enforcement program would ensure that these benefits would be realized. 7.08 The solid waste management program would primarily benefit over 100,000 households in the central core where the ahatas are located. Refuse collections would be introduced in this area in a systematic manner where up to now only a skeletal service exists. Improvements to the nightsoil collection and disposal would reduce the serious health risk that now exists for the residents of the slum areas. In addition to expanding the collection of nightsoil, measures would be taken to prevent human excreta from ending up in neighborhood open drains through control over private collectors. Urban Poverty Impact 7.09 The main thrust of the project would be to provide benefits to the urban poor. Eighty-seven percent of the upgrading beneficiaries or 18,000 households are in the urban poverty group. In the sites and services compo- nent, 74% of the plots are affordable by the urban poor. About fifty percent of the environmental sanitation component would benefit the urban poor. Of the total project cost of US$51.7 million equivalent, 69% or US*35.9 equivalent is attributable to the urban poverty group. IDA estimated urban poverty threshold is US$132 per capita per year or Rs 485 per household per month (5.5 persons per household). 7.10 The urban poverty impacts are tabulated in Table 11, Annex 2 and are summarized below: (a) about 74% of residential plots in the sites and services areas are affordable by the urban poor (11,000 out of 15,000 plots); (b) about 50% of the annual demand for new shelter by the urban poor will be met by this project during the project period; (c) about 87% or 18,000 households in the upgrading areas are in the urban poverty group;  - 48 - (d) about 45% of the benefits of the off-site water supply, sewerage and drainage are expected to accrue to the urban poor; (e) solid waste management improvements will accrue mostly to the low-income areas and about 70% of benefits are expected to accrue to this group; and (f) traffic management measures are concentrated in the densest areas of the city and about 45% of the benefits are expected to accrue to the urban poor. B. Risks 7.11 The main risk in the project relates to land acquisition of the ahatas. The ahatas are well located in the central area of the town and the chances of success of the acquisition under the UP Slum Areas (Improvement and Clearance) Act 1962 are uncertain, as the Act is yet to be tested in the State. Some of the ahatas, however, could be substituted with slums on public land. If the compensation payable substantially exceeds the provisions of the Act, there may come a point at which slum upgrading in the central area with full cost recovery would not be feasible. A margin of about 55% has been allowed in the gross selling price for ahata land, yet in the absence of previous experience, the risk remains. If the average costs of acquisition were to exceed the estimates substantially, a number of options would need to be con- sidered, including the deletion of the more expensive ahatas, reduction of infrastructure standards and a subsidy on the cost of land. 7.12 The second set of risks relates to the capacity of the agencies to implement the project in the project period. For KDA, the project would almost double annual expenditures from current levels. Following completion of ongoing works, KDA will need to carefully assess execution capacity before undertaking additional investments. KDA has, however, in the recent years successfully expanded its investment activities without undue strain. The bulk of the civil works would be carried out under large contracts and would considerably ease the burden of administering a large number of small con- tracts. However, KDA would obtain the major portion of staff on secondment from the centralized services. This arrangement will permit KDA to easily adjust its staff strength so that its activity can be most easily ta4lored to fit future availability of funds and to rapidly scale down if such funds are not available. Additionally, supply constraints in materials such as cement and steel constitute risks for timely completion of the works. The steel supply situation has eased, but cement supply and distribution is strictly controlled. KNM and KJS will need to expand its maintenance cap- ability to serve the additional areas developed under the project.  - 49 - VIII. AGREEMENTS REACHED AND RECOMMENDATIONS 8.01 During negotiations, the following principal agreements were reached: (a) GOUP would ensure that, not later than April 1, 1983, the KNM would make such organizational and operational changes in its solid waste management service as would be agreed upon between IDA and the KNM, based on the recommendations of the study being conducted by the consultants on the organization and management of the KNM (para 2.47). (b) GOUP would ensure that KNM would (i) establish, by April 1, 1982, a Traffic Engineering and Management Cell with adequate staff, and (ii) implement such low cost traffic management schemes as would be agreed upon between KNM and IDA (para 2.49). (c) GOUP would ensure that only such investments for maintenance improvements would be undertaken as would be agreed between IDA, KNM and KJS based on the recommendations arising from the study now being carried out of the maintenance functions of the KNM and KJS (para 2.50). (d) GOUP would cause KNM to implement, not later than April 1, 1983, such measures to increase its revenues as would be agreed upon between GOUP, KNM and IDA on the basis of recom- mendations arising from the resource mobilization study, presently being carried out by consultants (para 4.19). (e) GOUP would cause KJS to take steps to improve its operating efficiency and financial performance through: (i) a wastage and leakage program to commence by April 1, 1982, including production and bulk metering; (ii) an accelerated connection program to achieve not less than 80,500 total water connec- tions by March 31, 1985; (iii) more frequent meter reading and billing commencing in the fiscal years 1981/82; (iv) an effective collection program to achieve cash collection targets for the fiscal years 1981/82 through 1985/86; (v) revenue increases to cover fully the costs of operation, main- tenance and debt service for the water supply operation in the fiscal year 1983/84 and the water supply and sewerage opera- tions for each year with effect from the fiscal year beginning 1984/85 (para 4.33). (f) GOUP would cause to be taken all such action as may be necessary to introduce accounting systems, in respect of the KDA, KNM and KJS, satisfactory to IDA and to ensure that said accounting systems shall be fully operational in respect of the KJS by April 1, 1982 and in respect of the KDA and the KNM by April 1, 1983 (para 4.36).  - 50 - (g) GOUP would ensure that KDA, KNM and KJS would (i) have their accounts and financial statements audited annually by independent auditors acceptable to IDA, and (ii) furnish to IDA, no later than nine months after the close of each fiscal year, certified copies of their financial statements and the auditor's report in such scope and detail satisfactory to IDA (para 5.14). (h) GOUP would ensure that in respect of the sites and services to be developed by the KDA: (i) the beneficiary selection criteria, (ii) the terms and conditions of lease and mortgage; and (iii) the terms and conditions of shelter construction and small business loans to the beneficiaries, shall all be satisfactory to IDA (paras 6.03-6.05). (i) GOUP would ensure that, (i) the terms and conditions of lease and mortgage, and of improvement loans, to the benefi- ciaries of slum upgrading (para 6.07) and (ii) the terms and conditions of the sewer connection loans (para 2.40) shall all be satisfactory to IDA. 8.02 On the basis of the above agreements, the project would be suitable for an IDA credit to GOI of US$25 million.  - 51 - ANNEX 1 Page 1 INDIA KANPUR URBAN DEVELOPMENT PROJECT SUMMARY OF UNICEF-SPONSORED URBAN COMMUNITY DEVELOPMENT PROJECT Objectives 1. The objectives of the project would be to: (a) encourage community participation in the planning, provision and maintenance of urban services, (b) develop an awareness of civic responsibilities, (c) provide assistance to beneficiaries to gain access to basic water supply and sanitation, (d) enhance planning and implementation capacities of urban agencies, partic- ularly KNM, to provide basic services to children, women and the urban poor generally, through the provision of programs in health, nutrition, education, income generation, recreation and assistance with shelter improvement; and (e) provide technical assistance and training to agencies and staff of KDA and KNM. Organization 2. The UNICEF inputs will initially be over a three-year period 1981-83. Subject to review and mutual agreement, the program will be extended through 1985. Initial responsibility for the program would be with KDA so that activities could be carried out in parallel with the Kanpur Urban Development Project. Eventually, KNM will take over full responsibility for supervision, implementation, monitoring and evaluation, with a 75% state support for its continuation. Components 3. Project components will include: (a) community participation in physical improvements in the neighborhood; (b) environmental improvements; (c) health, nutrition and educational programs; (d) pre-school and literacy programs; (e) social, cultural and recreational programs; (f) income increasing programs and skills training; and (g) technical assistance and training.  - 52 - ANNEX I Page 2 Costs 4. Project costs over the three-year period are estimated at Rs 3.48 million, with a UNICEF grant of Rs 2.44 million, and the balance shared between GOUP, KNM and KDA, as indicated below: UNICEF GOUP KDA KNM Total --------------Rs '(O,000