Honduras - Water Supply and Drainage Project

Document of The World Bank FOR OFFICIAL USE ONLY FILE COPY Report No. 471>HO) STAFF APPRAISAL REPORT HONDURAS WATER SUPPLY AND DRAINAGE PROJECT April 30, 1984 Projects Department Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorizatiora.  CURRENCY EQUIVALENTS Currency Unit = Lempira (L) US$1.0 = L 2.0 L 1.0 = US$0.5 FISCAL YEAR January 1 to December 31 MEASURES AND EQUIVALENTS Mgd Million gallons per day m Meter (39.39 inches) Km Kilometer (0.6214 mile) 1l Liter (0.2642 US gallons) m3 Cubic meter (264.2 US gallons) Mm3/year = Million cubic meters per year (0.7238 Mgd) 1/cd Liters per capita per day ha Hectare (2.471 acres) PRIDKIPAL ABBREVIATIONS AND ACRONYMS USED CONSUPLANE National Superior Council for Economic Planning CDC Commonwealth Development Corporation DIMA Municipal Water Division of San Pedro Sula DREE French Directorate of External Economic Relations DSA Directorate of Environmental Sanitation IBRD International Bank for Reconstruction and Development ICE International Competitive Bidding IDB Inter-American Development Bank INA National Agrarian Institute LCB Local Competitive Bidding MC San Pedro Sula Municipal Corporation MH Ministry of Health PAHO Pan American Health Organization SANAA National Autonomous Water and Sewerage Service SPSUA San Pedro Sula Urban Area USAID U.S. Agency for International Development  FOR OFFICIAL USE ONLY HONDURAS WATER SUPPLY AND DRAINAGE PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS Page No. LOAN AND PROJECT SUMMARY I. THE SECTOR . .......................................... 1 Background ....................................... . ...... I Water Resources and Existing Sector Service Levels ................................. 1 Institutional Framework .......................... 2 Government Policy Framework and Objectives ....... 3 Sector Financing. 3 Bank Strategy. 4 II. THE BORROWER AND IMPLEMENTING AGENCIES ............... 4 General .... 4 Institutional Arrangement and Organization of DIMA ........................... 4 Institutional Arrangement and Organization of SANAA .......................... 7 III. THE PROJECT .......................................... 7 General . ........ . ...................... 7 Project Origin ...... .................... 7 Project Objectives ............. . 8 San Pedro Sula Component Description ............. 9 SANAA Component Description . . 10 Project Cost .. ......... 11 Project Financing.* ..................... 13 This report is based on the findings of an appraisal mission which visited Honduras from May 16 to June 4, 1983 and a post-appraisal mission which visited Honduras from September 12 to 16, 1984. The appraisal mission was composed of Mr. Richard MacEwen, Engineer and Mr. Thomas Zearley, Financial Analyst. The post-appraisal mission consisted of Mr. Richard MacEwen, Engineer, Mr. Alfonso Zavala, Engineer and Ms. Constance Mejia, Loan Officer. 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.  - ii - TABLE OF CONTENTS (Continued) Page No. San Pedro Sula Component Implementation .......... 15 SANAA Component Implementationr . . 16 Environmental and Health Aspects . ................ 16 Procurement ...................................... 17 Disbursements .............. 18 Retroactive Financing . . 19 IV. FINANCIAL ANALYSIS ................................... 19 General .................................... 19 DIMA's Past and Current Financial Performance .... 19 DIMA's Revenues ........ ......................... 20 DIMA's Financing Plan and Investment Program ..... 21 DIMA's Financial Prospects ....................... 22 Accounts of MC and DIMA .......................... 23 Financial Covenants ................... .., 23 Monitoring and Evaluation ........................ 24 V. ECONOMIC AND SOCIAL ANALYSIS ......................... 25 Project Benefits . . 25 Least Cost Solution . . 25 Return on Investment and Average Long-Run Incremental Cost . . 25 Impact on the Urban Poor . . 26 Affordability of Service to the Urban Poor .. 26 Risks . .. 26 VI. AGREEMENTS REACHED AND RECOMMENDATIONS .... ........... 27 LIST OF TABLES 3.1 Summary of Project Cost ................................... 12 3.2 Project Financing Plan Summary ............................ 14 4.1 DIMA Selected Income and Cash Flow Data (1981-83) ......... 19 4.2 DIMA Financing Plan (1983-90) ............................. 21 4.3 DIMA Selected Income and Cash Flow Data (1984-90) .23  -iii - TABLE OF CONTENTS (Continued) Page No. LIST OF ANNEXES 1 Division Municipal de Aguas - Current Organization Chart ... 30 2 Institutional Assessment of DIMA .. 31 3 Monitoring Indicators for DIMA .. 36 4 Action Plan for Strengthening DIMA's Institutional Performance .............................................. 37 5 San Pedro Sula Population and Demand Projections . . 39 6 San Pedro Sula Existing Water Supply, Sewerage and Drainage Systems ..... 45 7 San Pedro Sula Component Project Description . . 48 8 SANAA Component Project Description . . 54 9 Project Cost Estimate . .... 55 10 Annual Project Costs and Financing Plan .................... 60 11 Implementation Schedule -- Cummulative Completion (%) ...... 61 12 Procurement Schedule for Major Contracts . . 63 13 Allocation of Loan Proceeds .. 64 14 Loan Disbursement Schedule .. 65 15 Financial Statements and Projections ....................... 66 16 Economic Analysis .. 72 17 Selected Documents and Data Available in the Project File .. 75 MAP IBRD No. 17457 - San Pedro Sula Metropolitan Area.   - iv - HONDURAS WATER SUPPLY AND DRAINAGE PROJECT Loan and Project Summary Borrower: Republic of Honduras Beneficiaries: San Pedro Sula Municipal Corporation (MC) National Autonomous Water and Sewerage Service (SANAA) Amount: US$19.6 million equivalent, including the capitalized front-end fee Terms: Repayable in 20 years with 5 years of grace at standard variable rate Relending Terms: Same as to Borrower. The foreign exchange risk would be borne by the MC and SANAA Cofinanciers: Commonwealth Development Corporation (CDC) and the Directorate of External Economic Relations (DREE) of the French Ministry of Finance Project Description: The proposed project consists of two main components, the larger of which would provide improvements to the water supply and drainage systems in San Pedro Sula and technical assistance for institutional improvements for DIMA, the autonomous operational division of the MC responsible for providing water, sewerage and drainage services. This component would benefit approximately 521,000 persons by 1994. The second component would provide technical assistance to SANAA for support in formulating sound financial policies at the national level in the water supply sector, for developing an action plan to improve its operational and financial performance and to improve planning at the national level Risks: The San Pedro Sula component of the project would involve risk stemming from DIMA's planned assumption of expanded responsibilities and the consequent pressure on its financial resources; however, this risk has been  -v - lessened by the advanced stage of project preparation, the willingness of DIMA to use qualified consultants to assist with project implementation and the redefinition of DIMA's legal status, which will allow it to operate on an independent basis and obtain needed tariff increases on a timely basis. The main risk associated with the SANAA component involves the continued commitment to providing a suitable environment at the national level, in which the various water supply and sewerage companies can operate. Achievement of ultimate objectives will also depend on application of consultants' recommendations, where appropriate. These would be addressed through close supervision and dialogue with Government.  - vi - Project Cost: Item Local Foreign Total