Colombia - Fourth Bogota Water Supply and Sewerage Project

Document of The World Bank FOR OFFICIAL USE ONLY ^IA6 Z - Co Report No. 5278-CO STAFF APPRAISAL REPORT COLOMBIA FOURTE BOGOTA WATER SUPPLY AND SEWERAGE PROJECT February 28, 1985 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 authorization.  CURRENCY EQUIVALENTS Currency Unit = Peso Colombiano (Col$) Col$101.2 = US$1.00 (1984 average appraisal assumption) Col$1,000 = US$9.88 (1984 average appraisal assumption) Col$113.0 = US$1.00 (effective January 1, 1985) Col$1,000 = US$8.84 (effective January 1, 1985) Col$113.6 = US$1.00 (January 1, 1985 appraisal assumption) Col$1,000 = US$8.80 (January 1, 1985 appraisal assumption) WEIGHTS AND MEASURES km = Kilometer (0.62 miles) 1 = Liter (0.2642 US gallons) m3 = Cubic meter (264.2 US gallons) GWh = Gigawatt-hour (1,000,000 kWh) FISCAL YEAR January 1 to December 31 PRINCIPAL ABBREVIATIONS AND ACRONYMS BCH Banco Central Hipotecario (Central Mortgage Bank) CAR Corporacion Autonoma Regional de la Sabana de Bogota y de los Valles de Ubate y Chiquinquira (Regional Bogota Plains Autonomous Corporation) DANE Departamento Administrativo Nacional de Estadistica (National Bureau of Statistics) DNP Departamento Nacional de Planeacion (National Planning Department) EAAB Empresa de Acueducto y Alcantarillado de Bogota (Bogota Water and Sewerage Company) EEEB Empresa de Energia Electrica de Bogota (Bogota Electric Energy Company) EMPOS Empresa de Obras Sanitarias (Sanitation Works Company) EPM Empresa Publica Municipal (Municipal Public Works Company) FFDU Fondo Financiero de Desarrollo Urbano (Fund for Urban Development) IDB Inter-American Development Bank INCOMEX Instituto de Comercio Exterior (Institute of External Commerce) INAS Instituto Nacional de Salud (National Institute of Health) INSFOPAL Instituto Nacional de Fomento Municipal (National Institute of Urban Development) JNT Junta Nacional de Tarifas (National Tariff Board) MSP Ministerio de Salud Publica (Ministry of Public Health)  - i - FOR OMCIAL USE ONLY COLOMBIA FOURTH BOGOTA WATER SUPPLY AND SEWERAGE PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS Page No. LOAN AND PROJECT SUMMARY I. WATER SUPPLY AND SEWERAGE SECTOR. . . . . . . . . . . . . . 1 The Setting . . . . . . . . . . . . . . . . . . . . . . . . 1 Sector Organization . . . . . . . . . . . . . . . . ... . 1 Sector Performance . . . .. . . . . . . . . . . . . . . . 2 Sector Policies and Finances . . . . . . . . . . . .. 3 Bank Role in Sector Lending Strategy. . . . . . . . . . . . 3 II. THE BORROWER AND IMPLEMENTING AGENCY . . . . . . . . . . . 5 General . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Institutional Arrangement and Management . . . . . . . . . 5 Personnel . . . . . . . . . . . . . . . . . . . . . . . . . 5 Project Planning and Implementation . . . . . . . . . . . . 6 Commercial Administration . . . . . . . . . . . . . . . . . 6 Information and Control Systems and Insurance . . . . . . . 6 Plan of Action for the Institutional Strengthening of EAAB. 6 EAAB's Performance Under Past Loans . . . . . . . . . . . . 7 III. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . 9 General . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Project Origin . . . . . . . . . . . . . . . . . . . . . . 9 Project Location . . . . . . . . . . . . . . . . . . . . . 9 This report is based on the findings of an appraisal mission which visited Bogota from June 27 to July 13, 1984. The mission was comprised of Messrs. Richard MacEwen, Engineer, Julio Linares, Financial Analyst, Emmanual Mbi, Economist, Luis Pisani, Training Specialist and Mr. Alfonso Zavala, Engineer. I 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 - Page No. Existing Services . . . . . . . . . . . . . . . . . 9 Water Demand . . . . .. . . . . . . . . . . . . . . . . 11 Project Objectives and the Bank's Role. . . . . . . . . . . 11 Project Description . . . . . . .o. . . . . . . . . . . . 12 Project Cost . . . . . . . . . . . . . . . . . . 14 Project Financing Plan . .. . .a. . . . . . . . . .o. . . 16 Execution of the Project . . . . . . . . . . .... . . . 18 Environmental and Health Aspects. . . . . . . . . . . . . 19 Procurement . . . . . . .. . . . . . . . . 19 Disbursements . . . . . . . . . . . . . . . . . . . . . 20 IV. FINANCIAL ANALYSIS OF EAAB . . . . . . . . . . . . . . . . 22 General . . . . . . . . . . . . . . . . . . 22 EAAB's Past and Current Financial Performance . . . . . . . 22 EAAB's Financial Structure . . . . . . . . . . . . . . . . 24 EAAB's Overall Financial Plan and Investment Program. . . . 25 Financial Projections . . . . . . . . . . . . . . . . . . . 26 Financial Covenants . . . . .. .. ...... . . . . . . 26 Monitoring and Evaluation . . . . . . . . . . . . . . . . . 28 V. ECONOMIC AND SOCIAL ANALYSIS . . . . . . . . . . . . 29 General . . . . . . . . . . . . . . . . . . . . . 29 Least-Cost Solution . . . . . . . . . . . . . . . . . 29 Rates of Return, Long-Run Marginal Costs and Tariffs. . . . 29 Beneficiaries and Impact on the Urban Poor. . . . . . . . . 30 Affordability of Project Services . . . . . .. . . 30 Project Sensitivity and Risks . . . . . . . . . . 31 VI. AGREEMENTS REACHED AND RECOMMENDATIONS. . . . . . 32 LIST OF TABLES 3.1 Summary of Project Cost . . . . . . . . . . . . . . . . . . 15 3.2 Project Financing Plan . . . . . . . . . . . . . . . . . . 16 3.3 Export Credit Financing . . . . . . . . . . . . . . . . . . 17 3.4 Project Cost by Procurement Method . . . . . . . . 19 4.1 EAAB's Selected Income and Cash Flow Data (1980-84) . . 23 4.2 EAAB's Selected Income and Cash Flow Data (1985-93). . 27  - iii - LIST OF ANNEXES Page No. 1. Institutional Assessment of EAAB . . . . . .. . . 34 2. Bogota's Water Supply, Sewerage and Drainage Systems. . . . 40 3. Population, Population Served and Water Demand in the Project Area. . . . . . . . . . . . . . . . . . . . . . 44 4. Project Description . . . . . . . . . . . . . . . . . . . . 52 5. Plan of Action for the Institutional Strengthening of EAAB. 62 6. Project Cost Estimates. . . . . . . . . . . . . . . . . . . 63 7. Project Disbursements by Source . . . . . . . . . . . . . . 67 8. Project Implementation Schedule-Cumulative Completion . . . 70 9. Procurement Schedule for Major Contracts. . . . . . . . . . 71 10. Allocation of Loan Proceeds . . . . . . . . . . . . . . . . 72 11. Loan Disbursement Schedule . . . . . . . . . . . . . . . . 73 12. Financial Statements and Projections. . . . . . . . . . . . 74 13. EAAB's Tariff Schedule as of June 30, 1984. . . . . . . . . 83 14. Monitoring Indicators . . . . . . a . . . . . . . 84 15. Economic and Social Analysis. . . . . . . . . . . . . . . . 85 16. Selected Documents and Data Available in Project File . . . 101 MAP IBRD. No. 18569  - iv - COLOMBIA FOURTH BOGOTA WATER SUPPLY AND SEWERAGE PROJECT Loan and Project Summary Borrower: Empresa de Acueducto y Alcantarillado de Bogota Guarantor: Republic of Colombia Amount: US$129.0 million equivalent Terms: 17 years, including five years grace, at the standard variable interest rate Project The proposed project would continue with the Bank's Description: past efforts to provide essential water supply and sewerage infrastructure for Bogota. It would con- sist of (a) construction of a major water trans- mission tunnel and main; (b) primary water distri- bution system reinforcements; (c) water distribu- tion system rehabilitation; (d) additions to water, sewage and drainage networks for low-income neigh- borhoods; (e) a reservoir for raw water storage; (f) metered house connections; (g) technical assistance for the institutional improvement of EAAB; and (h) implementation planning for a project to control flooding and pollution of the Bogota River. The project would enable EAAB to utilize existing water production capacity which was constructed un- der previous Bank projects. It is expected that approximately 2.1 million persons would benefit from the project by 1992, of which about 54% would be the urban poor. Risks: To finance the proposed project, however, EAAB will have to secure export credits, to contain its costs (especially personnel), and to raise its tariffs by 15% in real terms by the end of 1989. Because the availability of export credits cannot be assured in advance of bidding the equipment to be financed, there is some risk of delay in the implementation of the project. Delays in taking actions to con- trol the costs and to raise the tariffs may ad- versely affect EAAB's financial wosition and the project financing. However, EAAB is an experienced borrower, having successfully implemented a larger and more complicated project than the present one under Loan 741-CO and contingent Bank financing for high priority pipes has also been provided for in the event that appropriate cofinancing cannot be obtained for this item.  v Project Cost: Local Foreign Total ----US$ million - - Primary water distribution 42.9 49.6 92.5 Distribution rehabilitation 8.1 6.9 15.0 Secondary networks 13.6 22.6 36.2 Raw water storage 17.7 22.3 40.0 Bogota River implementation study 1.1 1.0 2.1 Institutional improvement 2.5 13.2 15.7 Engineering and administration 20.8 5.8 26.6 Base Cost 106.7 121.4 228.1 Physical contingencies 7.8 9.3 17.1 Price contingencies 22.7 48.0 70.7 Total Project Cost 137.2 178.7 315.9 Capitalized interest 37.6 37.6 Total Financing Required 137.2 216.3 353.5 Financing Plan: IBRD loan -- 129.0 129.0 Export credits 1/ -- 42.5 42.5 Commercial bank loans 1/ - 7.5 7.5 EAAB's internal cash generation and customer contributions 117.2 37.3 154.5 Other 2/ 20.0 - 20.0 Total Financing 137.2 216.3 353.5 Disbursements: 3/ Bank Fiscal Year 1986 1987 1988 1989 1990 1991 1992 1993 - - - - - - - - - - - -US$ million- - - - - - - - - - Annual 22.5 20.1 22.6 22.7 20.0 14.5 5.9 0.7 Cumulative 22.5 42.6 65.2 87.9 107.9 122.4 128.3 129.0 Rate of Return: About 13% (for the project components which account for about 92X of the total project cost). 1/ Export credits and commercial bank loans will be bid along with goods to be purchased under the project and do not represent firm long-term commitments (para. 3.20). 2/ Contribution of the Bogota Electric Company (EEEB) for the construction of the untreated water storage component (para. 3.19). 3/ Includes retroactive financing of US$3.0 million equivalent.  -1- I. WATER SUPPLY AND SEWERAG.E SECTOR The Setting 1.01 Colombia's population (28 million in 1983) is currently growing at an annual rate of 2.1%, down from 3.0% in 1964, due primarily to a rapid fer- tility decline since 1964. The spatial distribution of the population has also changed considerably in recent years. As a result of high rural-urban migration, the sbare of the urban population has more than doubled, increas- ing from 31% in 1938 to over 662 currently. The four largest cities (Bogota, Call, Medellin and Barranquilla), each with more than a million residents, now account for about half of the total urban population. 1/ 1.02 About 80% of Colombia's urban population has access to piped water through bouse connections, and about 65X is served by a waterborne sewerage system. In rural areas about 18% of the population has access to piped water througb house connections and about 10% to a waterhorne sewerage system. Al- though, with these service levels, Colombia would compare favorably with most middle-income countries in the Region, the quality of the service remains de- ficient, particularly in poor urban neighborboods and rural areas where water and sanitation-related diseases rank among the principal causes of illness and death. Water pollution is rapidly becoming a major prohlem in most large cities which discharge their sewage without treatment. In 1982, infant mor- tality, which can be partially attributed to poor water quality and sanita- tion conditions, was 55 in 1,000 live births in Colombia, as compared with 27 In Chile, 39 in Venezuela, 44 in Argentina and 53 in Mexico. 2/ Sector Organization 1.03 The water supply and sewerage sector in Colombia is under the re- sponsibility of the Ministry of Public Health (MSP) which, in coordination with DNP, formulates national sectoral policies. Two institutions, the National Institute of Urban Development (INSFOPAL) and the National Institute of Realth (INAS), are responsible for implementing these policies in urban and rural areas, respectively. Both of these institutions have central planning and supervisory functions and act as financial intermediaries for sectoral investments. The Urban Development Fund (FFDU) of the Central Mortgage Bank also provides financing for investments in the urban sector. On the local level, different types of institutions have responsibilities for constructing, maintaining and operating water supply and sewerage service facilities. In 28 principal cities, where about 75% of Colombia's urban population is concentrated, Municipal Public Works Companies (EPM) are in charge of water and sewerage services, and in many instances, also provide other public services. In most smaller towns, water supply and sanitation services are provided hy Sanitation iorks Companies (EMPOS) over wbich INSFOPAL exerts considerable influence. In rural areas, water and sanitation facilities are built, operated and maintained by departmental offices of INAS in coordination with the beneficiary communities. I/ The National Planning Department (DNP). The last census took place in 1973. 2/ The World Development Report 1984, The World Bank.  -2- Sector Performance 1.04 The performances of most sector institutions on botb the national and local levels in Colombia leave mucb room for improvement. Weak admini- stracion and management and poor financial performance are the main reasons precluding a more efficient functioning of many operating entities. The comr bined effect of low tariff levels and poor commercial practices, contrasted with fast-rising operating costs (including personnel costs), has been almost a perennial financial problem for many companies. Frequent and often politically-motivated changes in top- and middle-management positions and shortages of funds have been hindering financial and investment planning. These shortcomings, together with a general lack of sufficiently trained work force, manifest themselves, also, in poor upkeep and operation of many water supply and sewerage systems and are reflected in generally high levels of unaccounted-for water. 1.05 In part these shortcomings are related to the less-than- satisfactory performance of INSFOPAL in the sector. INSFOPAL's weak manage- ment has militated against the technical and financial le2dership role it was meant to play in the sector and has allowed deficiencies in performance of most local institutions to proliferate, e.g. inadequate and frequently- changing managements, untrained staff, inefficient administrative and opera- tional procedures, lack of clearly defined financial and lending policies, and heavy dependence on the Covernment treasury for operating and investment funds. Secondly, the fact that the Government which, through its National Tariff Board (JNT), controls the utilities' tariff policies, was in the past reluctant to allow operating entities to increase their tariffs had been a major impediment to a suitable financial development of the sector. Thirdly, strong regional jealousies make it difficult for INSFOPAL to implement changes on the local level. Combined, these shortcomings have precluded any realistic sector investment planning in the past and are responsible for INSFOPAL's poor record in relating its project selection and finance functions to the objectives of promotion and enforcement of sound financial and technical policies by operating entities. 1.06 Under the circumstances, the Bank and Inter-American Development Bank (IDB) expressed their concerns to the Government in late 1983 regarding the status of their respective projects in execution. The Covernment appointed a new manager at INSFOPAL, under whom INSFOPAL's administration has improved considerably, and following the Government's authorization of a major increase in the tariffs, the execution of an ongoing Bank-financed project (Loan 1726-CO) has gained momentum. However, there still remain serious shortcomings in sectoral policy (extending over the areas of investment planning, resource mobilization, portfolio management, sector organization, financial and institutional development) which are at the root of the present difficulties to bring ahout lasting improvement in the sector. Changes in INSFOPAL's financial and credit policies are required for the company to function as an effective intermediary for future external loans for mediumrsize and small cities and towns.  Sector Policies and Finances 1.07 The Covernment, under its plan for "development with equity," alms at providing adequate water and sanitation services to all its citizens. For 1990, it has projected serv'ce levels of 90% for water supply and 80% for sewerage for urban areas, and service levels of 40% for water supply and 35% for sewerage for rural areas. This would mean reaching an additional 5.5 million people in urhan areas and ahout 2.0 million in rural areas. The to- tal cost would he about US$1,700 million (1983 prices) and would call for an- nual investments of about US$300 million, not including operation and main- tenance costs and investments needed to rehabilitate and repair existing fa- cilities. To achieve the 1990 goals, historic annual average sector invest- ment levels would have to he tripled, which is difficult considering the cur- rent weaknesses of the sector :nstltutions and prevailing budgetary con- straints. The G,overnment is aware of these constraints and is seeking in- creased financing from external lending institutions, as well as advice on the efficient use of available resources. Bank Role and Sector Lending Strategy 1.08 Since 1968, the Bank has made 10 loans, totalling US$251.9 million, for water supply and sewerage development in Colombia. The Bank funds ac- counted for ahout 70% of the external loan amounts made available to the sec- tor. Seven loans, US$184.8 million in total, were made to EPMs in Bogota, Cali, Palmira and Cucuta. By far the largest horrower has heen the Bogota Water and Sewerage Company (EAAB) to which the Bank has lent US$132 million in three lending operations to finance in part total investments of about US$450 million. Three Bank loans, for a total amount of US$67.1 million, were made to INSFOPAL for relending to local companies in support of 16 subprojects in medium-size and small cities and towns (para. 1.05). In addition, INSFOPAL was the channel used to finance water supply components of the Bank financed urban development projects. Several small rural water supply projects were supported through INAS as part of integrated agricultural development projects and nutrition improvement projecte and a recent power loan to Medellin financed a multipurpose project which Included water supply benefits. 1.09 Of the Bank-financed projects, the projects in Bogota have fared better than others in the sector. While EAAB has developed into a relatively efficient institution, the performances of the other companies receiving Bank financing (Cali, Palmira and subhorrowers under INSFOPAL loans) have not been fully satisfactory. Although most of the projects Involved were physically completed after lengthy delays, institutional development goals were only partially achieved and the compa.ies financial performances in most cases have not improvod to a degree originally envisaged (para. 1.04). Project completion reports have been prepared for two projects, and two others have undergone performance audits. 3/ The audit reports have been critical of the 3/ Loan 738-CO, Palmira Water Supply Project, Report No. 4589, June 1983; Loan 1523-CO, Second Cali Water Supply and Sewerage Project (report no. to he assigned); Loan 536-CO, Bogota Water Supply Project, Report No. 2003, March 1978; Loan PU-30-CO, Cali Water Supply Project, Report No. 2618, August 1978.  -4- overestimates of demand for water; delays in project execution which, in an inflationary environment, resulted in cost overruns for most of the projects; and the borrowers' failure to raise water rates and limit the growth of oper- ating costs sufficiently to comply with financial performance targets. 1.10 Lessons learned from the implementatton of earlier Bank projects in Colombia have been taken into account in preparation of subsequent projects. Demand projections are now prepared with greater care, using more conserva- tive estimates of population growth and consumption as the basis for finan- cial projections. Adequate subsurface investigations are being required for tunnels and major structures to minimize delays and cost overruns after con- struction is in progress. More realistic implementation schedules are being adopted, and projects are presented to the Board only when the physical works are ready for bidding. More detailed and specific plans of action are also part of projects that have been considered lately. Most importantly, the Bank has concluded that multi-city lending is no longer feasible until either INSFOPAL can Improve its performance considerably or alternative intermediary arrangements are in place. 1.11 The Bank's current strategy calls for continued lending on a selective basis to the larger municipal companies which have demonstrated the will to improve their standards of performance. The loan which the Bank made to Cucuta (Loan No. 2470-CO) in 1984 was conceived as a part of this strategy, and the proposed loan to Bogota would fall in the same category. Barranquilla and Cartagena, where project preparation work is now in progress, also will benefit from direct Bank lending. The IDB Is involved in lending to two of Colombia's major cities (Medellin and Bucaramanga) and may consider lending to Call. Direct lending to suitable municipal companies in major cities enables the Ba.tk to assist the Government in its efforts to extend improved water supply and sewerage services to large segments of the population (including the urban poor) at minimum unit cost and will have to continue. 1.12 The Bank's resumption of lending for medium-size and simall cities and towns will depend on progress in the implementation of Improved sector policies and the availability of a suitable intermediary for multi-citv lend- ing which would also implement national programs for sectoral improvements (in areas such as leak detection, training, Institutional development, and metering). In spite of recent improvements in INSFOPAL's performance, it still does not have the mandate nor capacity to take on these intermediarv functions. Ongoing sector work is addressing these issues and specific Bank recommendations on these and related matters are expected to be discussed with the Government in the near future. 1.13 A rural water supplv component (total cost USSI6 million), which forms part of the recently appraised health project, will provtde the Bank with the opportunitv to support a modest investment program for rural water supply systems and strengthen INAS, the specialized agencv for rural areas, through a technical assistance program and the preparation of a National Rural Water Supply Plan. This plan is expected to define more accurately the needs and priorities in the rural subsector and develop an Investment strategy, which together with the experience acquired in working with INAS, could help in paving the wav for increased Investment in rural water supplv to be supported by the Bank and other lenders in the future.  -5- II. THE BORROWER AND IMPLEMENTING. AGENCY General 2.01 The Borrower and implementing agency would he Empresa de Acueduc- to y Alcantarillado de Bogota (EAAB), an autonomous municipal agency re- sponsihle for providing water, sewerage, and drainage services to the Spec- lal District of Bogota (includes the city of Bogota and several small neighhoring towns). Since the Bank's first loan in 1968 (para. 2.11), EAAB has not only become financially viahle, hut also has Increased service cov- erage, improved its management efficiency and strengtben Its project implementation capahilities. However, to cope with the complex issues it will face in the future, EAAB needs to further improve its efficiency and increase its productivity. An assessment of EAAB's present institutional capabilities is summarized below and descrihed in detail in Annex 1. Institutional Arrangement and Management 2.02 EAAB is governed hy a seven-member Board of Directors wbich in- cludes two representatives from the District Council, four from financial Institutions (including Banco de la Republica and Banco Central Hipotecario, Government hanks), and the Mayor of Bogota, who chairs the Board. EAAB's annual hudget and contracting of debt, which are approved by the Board, are subject to review by the Bogota District Council. The Mayor, who is appointed by the President of Colombia, appoints the General Manager. The rGeneral Manager appoints all EAAB's employees. EAAB's organizational structure is generally adequate to carry out the project and expand services during project execution (the present organization chart is presented in Annex 1). 2.01 Althougb political considerations have influenced the appointment of EAAB's top management, the resulting teams on balance have been good. The present General Manager is a competent administrator. The second level managers are qualified for their positions also and are running their units efficiently. Professional staff, mostly in their jobs for several years, have provided continuity to EAAB's operations. Personnel 2.04 EAAB's staff is generally qualified at all levels. They could benefit, however, from better directed training to overcome minor shortcomr ings in some areas and achieve state of the art proficiency. EAAB has a very competitive compensation package, and has had no problem in retaining and hiring qualified staff. The present staff to water connection ratio of 4.9 per tbousand is one of the lowest in Latin America and comparable with ratios deemed adequate in industrialized countries. Productivity as deter- mined by this ratio, however, could he further improved by introducing new technology to simplify operating procedures and improve information han- dling. Increased productivity of EAAB's personnel would he an important goal of the proposed project since personnel costs currently are 70% of EAAB's total operating cost.  -6- Project Planning and Implementation 2.05 EAAB prepares and implements projects satisfactorily. Its staff is responsible for planning, designing and supervising the construction of small projects of a routine nature. To design and supervise the construc- tion of complex works, EAAB retains consultants wbo work under the supervi- sion of EAAB's staff. Commercial Administration 2.06 EAAB has a good collection record; however, billings could be speeded up, new connection procedures simplified, and the efficiency of all its commercial operations improved. Also, unaccounted-for water (40% in 1983) remains a problem. Underregistration of meters is suspected as a major cause of unaccounted-for water. Reduction of unaccounted-for water and improved efficiency of EAAB's commercial operations are objectives of the proposed project. Information and Control Systems and Insurance 2.07 Wbile adequate to account for EAAB's investments and operations, EAAB's information systems could he further modernized to enhance manage- ment decision making and control. EAAB's management could significantly benefit from an improved management reporting system, improved financial modeling, and enhanced compatibility among all of EAAB's information sys- temrs. Also, cost accounting should he further developed to allow EAAB to better control costs. differentiate between water and sewerage costs and design a tariff structure which reflects the true division of costs. 2.08 EAAB's overall internal control, audit and i-surance arrangements are satisfactory. The Bogota District Controller's Office carries out an ongoing review of EAAB's operations, which includes the clearance of some transactions (prior control). EAAB carries fire and casualty insurance on buildings, stocks and equipment subject to these risks and tbird party liability for selected exposures. EAAB relies for otber risks in security measures to minimize their occurrence. Plan of Action for the Institutional Strengtbening of EAAB 2.09 To further improve EAAB's efficiency and increase its productiv- ity, during negotiations, EAAB agreed to the Plan of Action described in Annex 5. The Plan of Action is designed to bring about improvements in the following areas: (a) control of personnel costs; (b) reduction of unaccounted-for water; (c) commercial procedures; (d) training; and (e) management information and control systems. EAAB's progress in implementing the Plan of Action would be closely monitored by the Bank. Monitoring indicators would include: (a) employees per 1,000 water connections; (b) percentage of unaccounted-for water; (c) percentage of working meters; (d) personnel costs per ml of water sold; (e) accounts receivable; and (f) water sold per account. Technical assistance to support the Plan of Action is described in para. 3.17 and Annex 4.  -7- EAAB's Performance Under Past Loans 2.10 The Bank has already made three loans to EAAB. The first (Loan 536-CO made in 1968) financed expansion of the Tibito water supply and transmission system. This project was successfully completed in 1976. The second (Loan 741-CO made in 1971) financed construction of the Chingaza di- version (a dam, reservoir, 38 km of tunnel and 6 km of pipe), the Wiesner water treatment plant, the Santa Ana treated water storage reservoir, a 20 km treated water transmission main and 100 km of primary distribution mains. EAAB faced many difficult problems during the implementation of this project. The contractor originally responsible for construction of the Chingaza diversion was unable to comply with the requirements of his contract and had to be replaced. The second contractor encountered high concentrations of methane gas during excavation of the tunnel. The gas created unsafe construction conditions which led to a two year suspension of the work while a solution to the problem was researched and implemented. This problem and the resulting delays increased the cost of the Chingaza diversion from US$85 million at appraisal to a final cost of US$300 mil- lion. At the same time, EAAB's water sales and revenues turred out to be substantially less than the appraisal estimates as a result of an unexpect- ed decline in the growth rate of Bogota's population. To cope with the new situation created by its reduced revenues and the large cost overruns of the Chingaza diversion (in excess of US$200 million), EAAB first delayed implementation and later eliminated the 20 km treated water transmission main and half the length of primary distribution mains included in the pro- ject. A 1975 study undertaken by EAAB indicated that these components could safely be delayed until 1985. The modified project was completed in 1983. 2.11 The third Bank Loan to EAAB (Loan 1697-CO made in 1979) financed primary water distribution mains, secondary water, sewerage and drainage networks, drainage canals and sewerage interceptors. In 1981, water short- ages began occurring in the southwest area of Bogota, four years earlier than indicated in the 1975 study. These unexpected shortages confirmed the need for a major transmission main similar to the one eliminated from the second project. EAAB and the Bank agreed that a new master plan was needed before the transmission main was constructed. Accordingly, the project was modified to make funds available for preparation of such a master plan. It was also decided to delete from the project construction of 25 km of pri- mary distribution mains and concentrate instead on the construction of sec- ondary water and sewerage networks. The execution of the third project as modified is now proceeding well. As of February 18, 1984, the loan was fully committed and 90% of it was disbursed. Project completion is cur- rently scheduled for June 30, 1985. 2.12 EAAB has substantially complied, and complies at present, with financial covenants under Loan 1697-CO. In 1984 the expected rate of re- turn of 4% would be short of the covenanted (6%). EAAB in 1984, neverthe- less, would cover all its cash needs and achieve an adequate financial per- formance to undertake the project (para. 4.03).  -8- 2.13 EAAB has been late in presenting audit reports (its 1983 report was five months late); however, its 1984 report is expected to be submitted on time. Under the project, as in previous Bank-assisted projects, EAAB would be required to annually continue submitting its financial statements audited by external independent auditors satisfactory to the Bank. The auditors' reports would be sent to the Bank no later than four months after the close of each fiscal year.  -9- III. THE PROJECT General 3.01 The proposed project would complement earlier Bank-assisted EAAB projects (paras. 2.10 and 2.11) which helped EAAB develop sufficient water production capacity for Bogota until 2005 but left expansion of the distribu- tion system and construction of emergency storage for later. Of significant importance is the provision for technical assistance for institutional im- provement and for addressing the land development, economic, financial and institutional issues associated with plans to reduce flooding and pollution of the Bogota River (the technical solutions were developed with assistance provided under Loans 741-CO and 1697-CO). The project will be implemented by EAAB. The Bogota District Planning Department and the Regional Bogota Plains Autonomous Corporation (CAR) would participate in the Bogota River studies. Project Origin 3.02 In 1981, areas in the southwest of Bogota began experiencing water shortages due to restrictions in the distribution system. In response to these shortages, EAAB requested that the Bank reallocate funds from Loan 1697-CO to finance a master plan distribution study aimed at identifying the least cost solution for distributing water to meet existing and future re- quirements. The first stage of the plan became the basis for the project. Raw water storage for the Wiesner water treatment plant was added to the project after a blockage of the Chingaza tunnel in January 1984 confirmed that it should no longer be delayed (para. 3.05). Technical assistance for addressing the development and implementation issues associated with the proposed Bogota River pollution and flood control projects and technical assistance for the institutional strengthening of EAAB were added to the project as a result of discussions with EAAB during project preparation. Project Location 3.03 The proposed project is located in Bogota, the capital of Colombia, and also its principal, financial, administrative, commercial, industrial, cultural and educational center. In 1983, the Special District of Bogota had a population of 4.3 million.4/ As center of the national administrative de- cision making process, Bogota has attracted considerable industry. Foremost of these are automotive assembly, printing and publishing, tire and rubber products manufacturing, electrical appliance manufacturing and plastic resin production. Over 30 banks have their main branches in Bogota, including the Central Bank. A stock exchange was established in 1928. Existing Services 3.04 Bogota has high service levels (95Z water and 90% sewage) and ade- quate sources of supply. The existing facilities are described in detail in Annex 2. To ensure the continuation of good water sewerage and drainage ser- vices in the future, additional investments are required to reinforce and ex- 4/ Includes Soacha, an adjacent municipality with a 1983 population of 58,000, which is servlced on a retail basis by EAAB.  -1i- tend the water distribution and sewage collection networks. Water shortages and low system pressures occur in low-income areas in the southwest area of the city due to distribution system restrictions. These restrictions also limit the use of Chingaza water (Loan 741-CO) to 55% of available capacity. Because Chingaza water does not require pumping and is low in turbidity, it has a much lower unit production cost than EAAB's other major sources. To take advantage of the low-cost Chingaza water, to eliminate low pressures and water shortages and to provide for anticipated growth, reinforcement of the distribution system and construction of a major transmission main linking the Chingaza supply source to the southwest areas of the city are needed. 3.05 Initially placed in operation in August 1983, the Chingaza supply system had to be shutdown in January 1984 due to rockfalls in one of the tun- nel sections. The failure took sixteen months to repair and confirmed the need for a raw water storage reservoir near the Wiesner water treatment plant which the system supplies. Storage would allow periodic shutdowns of the tunnel for inspection and maintenance which are needed to prevent future failures. Raw water storage has always been a part of the Chingaza master plan, but until recently, scheduled for implementation in a later stage. It will become more important in the future as the water demand increases and Bogota's dependence on the Chingaza supply system becomes greater. 3.06 In 1983, EAAB experienced over 9,000 water main breaks, an exces- sive number for a system its size. Most of the breaks have occurred in mains constructed with asbestos cement pipe which was not properly protected to withstand the acidic soil prevalent in the Bogota area. A small percentage of the breaks is due to deficient construction techniques. EAAB has taken appropriate measures with new installations but is faced with the need to re- place a significant amount of existing pipe. Not all breaks have been limit- ed to small mains. During the past four years, the 78-in. Tibito transmis- sion main, the largest and most important main in the distribution system, has experienced five breaks. Prestressed concrete pipe was used in the con- struction of this main, and the breaks have resulted from corrosion of the prestressing wire used in the fabrication of the pipe. It is unlikely that the corrosion can be prevented and further breaks are expected in the future. 3.07 Bogota faces serious water pollution and drainage problems. Flood- ing exists in some areas of the city due to lack of adequate drainage works; however, most flooding occurs when the Bogota River overflows its banks. Also, there is severe pollution in the Bogota River because of lack of treatment. Pollution from Bogota has already reached the Magdalena River, a source of water for many cities. Technical solutions to the Bogota River flood and pollution control problems have been defined by other studies financed in part with Loans 741-CO and 1697-CO; however, the economic justification and investment priority of the project is not clear and the institutional, land development, financial and cost recovery aspects of implementing the technical solutions still need to be addressed. EAAB has the responsibility for flood and pollution control but lacks the authority to implement the solutions. Additional planning is required to clarify the economic issues, propose legislative changes, and develop an action plan for the orderly and efficient implementation of this program.  -11- Water Demand 3.08 EAAB's annual water sales are projected to increase by 48X from 241 Mm3 (7.6 m3/sec) in 1983 to 367 Hm3 (11.3 m3/sec) in 1992, the final year of project implementation. Annual production requirements will increase by 20Z from 401 Mm3 (12.7 m3/sec) to 495 Mm3 (15.7 m3/sec) during the same period. These projections are based on a 1992 population of 5.6 million served by 740,000 accounts; water sales per account of 40 m3 per month; and conserva- tive estimates of bulk water sales (3% of total). By 2005, annual production requirements are projected to reach 770 M13 (24.4 m3/sec), the capacity of existing production facilities, allowing for maximum day requirements. De- tailed population and demand projections are included in Annex 3. Project Objectives and the Bank's Role 3.09 The main objective of the proposed project would be to provide the water supply and sewerage infrastructure essential for the uninterrupted growth of Bogota. The project would accomplish this objective by: (a) removing EAAB's water distribution system constraints which now prevent the most efficient use of the existing production capacity and cause water shortages in the southwest (mostly low-income) areas of Bogota; (b) increasing the reliability of water supply to Bogota through the construction of a raw water storage reservoir; and (c) improving EAAB's productivity and increasing its operational efficiency through technical assistance. 3.10 The project would be in line with the Bank's general approach re- lated to infrastructure lending in Colombia, which emphasizes quick yielding investments and a more intensive use of existing facilities before addition of new capacity. These objectives would be achieved by making use of EAAB's heavy infrastructure investments made in the past, especially under the Bank's second project with EAAB (Loan 741-CO). The project would also help the poorer segments of the population. In addition, through its involvement with the project, the Bank would provide continued institutional support to EAAB. It would support sound financial policies by EAAB, including mainten- ance of adequate tariffs. The Bank would also help the Bogota District, through EAAB, to effectively address a major urban environmental issue by un- dertaking studies on the financial, economic, legal, institutional and land reclamation aspects of the Bogota River flood and pollution control plan. Until these problems are solved, the plan cannot be implemented. Finally, the Bank would assist EAAB in securing supplementary external financing for the proposed project.  -12- Project Description 3.11 The project is divided into six parts which are described in detail in Annex 4 and summarized below: Part A: Water Transmission and Distribution Improvements 1. Construction of about 9 km of rock tunnel. 2. Construction of about 43 km of transmission and primary water distribution mains.5/ 3. Construction of 6 booster pumping stations.5/ 4. Construction of 5 storage tanks. Part B: Distribution System Rehabilitation 1. Replacement and/or repair of about 280 km of water distribution mains in poor physical condition. 2. Repair of water main breaks and leaks. 3. Repair of the 78-in. 27-km Tibito transmission main. Part C: Secondary Water, Sewerage and Drainage Networks and Service Tonnections 1. Construction of about 140 km of secondary water distribution mains in low-iacome neighborhoods. 2. Construction of about 280 km of secondary sewage collectors in low- income neighborhoods. 3. Construction of about 420 km of storm water drains in low-income neighborhoods. 4. Installation of about 40,000 metered water service connections and 60,000 sewerage service connections in low income neighborhoods. 5/ 5. Replacement and installation of about 260,000 water meters.5/ Part D: Raw Water Storage 1. Construction of a reservoir in San Rafael with a capacity of 50 million m3. 2. Construction of a pumping station with an initial capacity of about 8 m3/sec.5/ 5/ Includes goods financed with export credits.  -13- Part E: Implementation Planning for the Bogota River Pollution and Flood Control Projects 1. A study of the economic, financial, institutional, and land devel- opment issues related to the control of flooding and pollutior in the Bogota River.6/ 2. Preparation of final designs for the first stage construction of the Bogota River water pollution control plant. Part F: Institutional Strengthening of EAAB 1. The provision of technical assistance to EAAB in the fields of man- agement information and control, financial planning, commercial op- erations, training, and unaccounted-for water reduction.6/ 2. Acquisition and utilization of operation and maintenance equipment, data processing equipment, communications equipment, instrumenta- tion, training equipment and materials and leak detection instruments .7/ 3.12 The transmission and primary water distribution additions included in Part A of the project are sufficient to meet the year 2005 maximum day demand in the present EAAB service area and are consistent with future additions included in the master plan. A large part of the capacity provided by these additions should have been provided by similar additions included in the project descriptions of Loans 741-CO and 1697-CO but not constructed (paras. 2.10 and 2.11). The estiwated construction cost of the uncompleted additions in January 1985 prices is US$61 million (30Z of the estimated base cost of the proposed project less engineering and administration). The conditions which necessitated these distribution system additions being eliminated from the earlier projects were beyond the Government's and EAMB's control and could not be foreseen by them (e.g. difficult geological formations and poor performance by the contractor). In addition, their elimination was justified by the fact that the projected demand did not materialize. In compliance with its commitments under the Bank Loans (741-CO and 1697-CO), EAMB controlled the increase in its costs and raised its tariffs about 50Z in real terms to be able to finance around 35% of its 1971-84 investment program through internal cash generation. Unfortunately, the costs of the transmission and distribution components of these earlier projects were beyond the limits which EAAB could raise from its own resources, or from external sources, given the lack of receptivity in the international capital markets. EAAB's decision at that time to drop these components was, therefore, fully justified under the circumstances, and was taken in consultation with the Bank. 3.13 The rehabilitation component, Part B of the project, would provide funds for the repair of water distribution system leaks discovered as part of the unaccounted-for water control program (Part F of the project) and assist EAAB with its pipe replacement program. A program to locate and reinforce weakened sections of the 78-in. Tibito transmission main would be included in this part of the project. 6/ Terms of reference available in the project file. 71 Includes goods financed with export credits.  -14- 3.14 Most of the secondary networks required to supply new customers are expected to be provided by private developers. The secondary networks and connections included in Part C of the project would be a continuation of EAAB's program begun under Loan 741-CO to construct and finance networks for the poor in illegally constructed subdivisions and squatter areas without services. In 1983, 50 km of secondary networks were constructed under this program. 3.15 The raw water storage in Part D of the project would be provided by the San Rafael reservoir. The reservoir would consist of 50 million m3 off-stream storage in a natural depression located near the Wiesner water treatment plant on land already owned by EAAB. Excess water from the Chuza reservoir, the main raw water source for Bogota, and the unregulated flows from the Blanco and Teusaca Rivers would be diverted to the reservoir and stored for use during periods when the Chingaza tunnel is shut down for inspection and maintenance. A pumping station would be constructed to pump water from the reservoir to the plant. The San Rafael reservoir would also provide an additional 2.0 m3/sec production capacity (needed in 2006) and 15 GWh each year in additional power from existing hydro plants by regulation of the Teusaca and Blanco Rivers. The additional production capacity will make it possible to delay by three years EAAB's next major investment in production capacity. The reservoir would also have recreation benefits due to its close proximity to Bogota. 3.16 Part E of the project would complete preparations for the implementation of the Bogota River flood and pollution control projects. Consultants would be hired to study the issues, propose solutions, complete final design and develop a plan of action for project implementation (para. 3.07). During negotiations, EAAB agreed with the draft terms of reference for the study and plan preparation (available in the project file). 3.17 Under Part F of the project, consultants would be hired to assist EAAB in carrying out the Plan of Action to improve its efficiency and increase its productivity (para. 2.09 and Annex 5). A management consultant would be hired to provide technical assistance for improving EAAB's commercial operations and its management information and control systems. An engineering firm would be engaged to assist with the unaccounted-for water control program, and training consultants would be hired to assist EAAB to implement a training plan prepared during appraisal. During negotiations, EAAB agreed with draft terms of reference for the institutional technical assistance, the draft unaccounted-for water reduction program and the draft training plan (available in the project file). Part F of the project also provides for the purchase of equipment and scholarships to support the Plan of Action and the purchase of equipment to improve EAAB's maintenance capabilities. Project Cost 3.18 The project cost, excluding interest during construction is estimated at US$316 million. EAAB is exempt from import duties but must pay a sales tax on imported goods, a value added tax on locally manufactured goods and a special tax on foreign consultant fees. Taxes totalling US$10.8 million are reflected in the local cost component of the taxed items. Consulting services are estimated to cost US$5.6 million for technical  -15- assistance, studies and designs and US$15.3 million for construction supervision. Man-month requirements for total consulting services are estimated at 2,023 of which 275 would be for foreign consultants. A breakdown of consultant man-month requirements and cost estimates are available in the project file. Physical contingencies add US$17.1 million (about 8% of base cost) and price contingencies another US$70.7 million (about 31% of base cost). Capitalized interest and fees during construction bring the total financing required to US$354 million. The foreign exchange cost of the project, including project investment, capitalized interest and fees amount to US$216 million (61% of total financing required). The project cost estimate is summarized in Table 3.1. Detailed cost estimates and assumptions are included in Annex 6. Table 3.1: SU4MW OF PER 0gr load Foi1i Tota IOCAl Fob1p Tbtal as 2 of as % of ---- (bl$ billor- - -- - - --US$ Idluta ---- lIbtal a/ Bw a Primwy Mater Distrflxuim 4.9 5.6 10.5 42.9 49.6 92.5 54 41 (Part A) DistribhtiAn Rhabilitatinm 0.9 0.8 1.7 8.1 6.9 15.0 46 7 (part B) Sew2dlary *tmrks (Part C) 1.5 2.6 4.1 13.6 22.6 36.2 62 16 S41 Rafw. 1eserwir (Part D) 2.0 2.5 4.5 17.7 22.3 40.0 56 18 Ibtgta Rimer temntatim 0.1 0.1 0.2 1.7 1.0 2.1 45 1 SCWJ (part E) Thatttial lqrowuast 0.3 1.5 1.8 2.5 13.2 15.7 84 7 (Part F) &wseriqg ard lnistratiom 2.4 0.6 3.0 2D.8 5.8 26.6 22 12 (AU Parts) Bae Cost (Jan. 1965 12.1 13.7 25.8 106.7 121.4 228.1 53 100 prices) Physicl (bnttlCides 0.9 1.1 2.0 7.8 9.3 17.1 55 7 Price Git1ngniea 13.9 19.8 33.7 22. 48.0 70.7 68 31 Total Prolect Cost 26.9 34.6 61.5 137.2 178.7 315.9 57 138 Cuized Interest - 7.6 7.6 _ 37.6 37.6 100 16 Total TDY Req!tred 26.9 42.2 69.1 137.2 216.3 353.5 61 155 Based an project eost In US dollas.  -16- Project Financing Plan 3.19 The Bank Loan would finance US$129 million of the project's US$216 million foreign exchange requirements. The Bank Loan would be repaid over a period of 17 years, which includes five years of grace. The remaining US$87 million in foreign exchange would be financed with US$42 million in export credits, US$8 million in foreign commercial bank loans and US$37 million (capitalized interest and fees) from EAAB's internal cash generation. The commercial bank loans would finance the down payments required for goods purchased with export credits. Both the export credits and complementary Bank loans are expected to be obtained at a total financial cost of about 12X a year and to be payable in eight years after completion of the components for which goods are acquired. EAAB would finance US$117 million of local cost out of its internal cash generation and contributions from developers and customers. EEEB is expected to contribute US$20 million towards the local cost of the San Rafael Reservoir in return for power benefits it would derive from it. To assure the Bank of EEEB's participation and the financial feasibility of the San Rafael reservoir, during negotiations, EAAB agreed not to request disbursements for this component until it signed a cost-sharing agreement with EEEB satisfactory to the Bank. The project financing plan is summarized in Table 3.2 (EAAB's overall financial plan is presented in para. 4.12). Table 3.2: PROJECT FINANCING PLAN locAl Fbreipn Total local Foreign lbtalO Pre ----CAl billon--- - ----us$ug1ijIu---- Thtai Poject Costs 26.9 34.6 61.5 137.2 178.7 315.9 90 Intezest aags - 7.6 7.6 - 37.6 37.6 10 Total Requirmits 26.9 42.2 69.1 137.2 216.3 353.5 100 BaIna*Tnw - 25.0 25.0 - 129.0 129.0 37 Exort Credits - 8.2 8.2 - 42.5 '2.5 12 Conrdl BMnk loan - 1.4 1.4 - 7.5 7.5 2 EAAS Cash a/ 23.1 7.6 30.7 117.2 37.3 154.5 43 Conr1ibitlos (EMB) 3.8 - 3.8 20.0 - 20.0 6 Total Sours 26.9 42.2 69.1 137.2 216.3 353.5 100 a/ Inclues customer contriuitions.  -17- 3.20 Export credits and complementary commercial bank loans would be used to finance pipe, valves and fittings and pumping equipment, under Parts A.2, A.3, D.1 and D.2 and a part of the operation and maintenance equipment under Part F.2 of the project as shown in Table 3.3. For the financing of these goods, the Bank on behalf of EAAB has already contacted the US, German, Japanese, Canadian, Austrian and French export credit agencies and all have indicated an interest in providing financial assistance. The availability of export credits and commercial bank loans, nevertheless, cannot be assured until after bids for the goods to be financed are received. Most of the goods to be financed with export credits are not scheduled for bidding until after Board presentation. Thus, during negotiations, assurances were obtained from EAAB that, failing to secure the necessary export credits and complementary commercial bank loans, they would secure alternative financing for the project satisfactory to the Bank. As the pipe for Part A.2 of the project is of the highest priority for overcoming existing water shortages, during negotiations, the Bank agreed to allow EAAB to use Bank loan funds for this item In preference to other items scheduled for procurement later in the project, but only in the event that it were unsuccessful in obtaining cofinancing for the pipe. Table 3.3: EXPORT CREDIT FINANCING Years when goods Financing required Goods to be Financed are required (USS million) a/ 43 km of pipe (16- to 60-in.) 1986-88 20.2 including fittings, valves and accessories (Part A.2) Pumping and electro-mechanical 1986-87 9.6 equipment for 5 pumping stations with capacities ranging from 88 to 1,300 1/sec (Part A.3) Gates and mechanical equipment 1989 4.7 for the San Rafael reservoir (Part D.1) Pumping and electro-mechanical 1989 9.4 equipment for a pumping station with an initial capacity of 14,000 1/sec (Part D.2) Operating and maintenance equipment 1991 E(.1 (Part F.2) b/ TOTAL 50.0 a/ C.I.F. price in current US dollars. b/ Some operating and maintenance equipment included in Part F.2 of the project would be contracted separately under ICB and financed with Bank loan funds.  -18- 3.21 The overall risk of the financing plan is considered moderate. With Government support, EAAB could cover any shortfall in export credit fi- nancing through a combination of some financing from local official banks and foreign banks, slight realignment of investment priorities and moderately higher tariffs. Execution of the Project 3.22 EAAB will be responsible for Implementing the project. An engineer in EAAB's Planning Department has been selected as overall project manager and will have the responsibility of coordinating the project and responding to Bank requests. Personnel from the various EAAB Departments will manage specific components. 3.23 Final designs for the major construction components (tunnel, prima- ry distribution mains, pumping stations, distribution reservoirs and San Rafael reservoir) have been or are being prepared by consultants satisfactory to the Bank. Final designs for secondary networks and specifications for the purchase of equipment would be prepared by EMAB's own staff. Consultants would be used to supervise the construction of the major works such as the tunnel, the larger primary distribution mains, the pumping stations and the San Rafael reservoir. During negotiations, assurances were obtained from EAAB that consultants satisfactory to the Bank would be hired to supervise construction of the tunnel. Construction supervislon of the secondary networks and some of the smaller primary distribution mains would be by EAAB's own staff. EAAB inspectors would be used on all project works and those assigned to the larger works would report to the consultants. Technical assistance for the Plan of Action would be provided by both local and foreign consultants. These consultants would be supervised by individuals from the departments affected with overall coordination being provided by the project manager. 3.24 The Bogota River implementation study would be carried out by EMAB in cooperation with the Regional Bogota Plains Autonomous Corporation (CAR), a regional planning agency, and the Bogota District Planning Department. A coordinating committee of representatives from these agencies, established to carry out the technical studies financed under the Bank's third project with EAAB (Loan 1697-CO), would also carry out the new study. EMAR would continue as the lead agency. In this capacity, EAAB would hire all consultants, pay their fees, supervise the financial, institutional and economic aspects of the study and supervise the final designs of the water pollution control plant. The Bogota District Planning Department would supervise the land de- velopment aspects of the study. CAR would act in an advisory capacity as a member of the coordinating committee. During negotiations, EAAR agreed that they would coordinate the carrying out of the studv with CAR and the District Planning Department. 3.25 All steps necessary to permit immediate initiation of the project execution once the loan is signed and declared effective have been taken. Land required for the San Rafael reservoir, pumping stations and distribution reservoirs is already owned by EMSB. Right-of-way for some of the water dis- tribution mains are still required; however, no acquisition problems are an- ticipated. Final designs for 70X of the works to be constructed have been completed. A project schedule is included in Annex 8. Annex 9 includes a list of key dates for the bidding and award of major contracts, including those financed with export credits. All works would be completed by December 31, 1992.  3.26 The San Rafael reservoir would include the construction of dikes which exceed the Bank's minimum requirements for the appointment of a design review board and inspections during operation. During negotiations, EAAB agreed to the appointment of a board satisfactory to the Bank and to inspections by a qualified engineer during operation of the reservoir. Environmental and Health Aspects 3.27 By increasing the water supply to the Bogota District, the project will increase sewage flows discharged into the River which is already heavily polluted. Although no immediate improvement in the quality of the Bogota River water will result from the project, the ultimate implementation of works designed to reduce pollution and improve the water quality of the River in the future will be brought closer to realization as a result of implemen- tation studies included in the project. With the project, however, low pressures in the distribution system and intermittent water supply that create unsafe conditions for the distribution of water for domestic use will be overcome. In addition, the provision of sewerage networks under the project, by removing sewage from densely populated areas, would improve health conditions. Procurement 3.28 Procurement arrangements are sumuarized in Table 3.4 below. Table 3.4: PROJECT COST BY PROCUREMENT METHOD a/ (current US$ million) Procurement Method Total Project Element ICB LCB Other N.A. Cost Equipment and materials 38.0 12.3 55.0 b/ -- 105.3 (34.4) (6.5) (0) -- (40.9) Civil works 135.9 5.8 25.2 -- 166.9 (63.1) (1.9) (8.3) -- (73.3) Consultants -- -- -- 22.9 22.9 -- -- -- (14.2) (14.2) Scholarships - 0.3 0.3 __ - -- (0.3) (0.3) EAAB salaries & costs - -- -- 20.6 20.6 __ __ -- ( 0) (0) Front-end fee -- -- -- 0.3 0.3 __ __ - (0.3) (0.3) TOTAL 173.9 18.1 80.2 44.1 316.3 (97.5) (8.4) (8.3) (14.8) (129.0) a/ Figures in parenthesis are the respective amounts financed by the Bank. b/ Equipment and materials purchased with export credits. Includes US$5.0 million in duties and taxes.  -20- 3.29 Civil works contracts larger than US$1,000,000 and goods contracts larger than US$200,000 financed in part with Bank loan funds would be procur- ed through international competitive bidding (ICB). Local competitive bid- ding (LCB) would apply for procurement below these limits except for the in- stallation of secondary networks and repair work which would be contracted directly by work order to prequalified contractors at unit prices set by EAAB. A similar procedure was used successfully under Bank Loan 1697-CO. The maximum value of a work order would not exceed US$40,000. Bidding for pumping equipment and heavy construction equipment financed with export credits and complementary commercial bank loans would be limited to suppliers who could provide financing. Bid evaluation would take into account financ- ing offered as well as price of the equipment and materials bid. Pipes for Part A.2 of the project (para. 3.20) would be bid following Bank ICB guidelines with requests for optional submission of financing offers. Once bids are received for the pipes, if it is determined by EAAB in consultation with the Bank that there are no suitable financing offers, the Bank would release loan funds to cover the procurement awarded to the lowest cash evaluated bid. All consulting contracts would be procured in accordance with Bank guidelines. The limits for prior review of bidding documents by the Bank (US$500,000 for equipment contracts and US$2,000,000 for civil works contracts) would result in a coverage of about 90% of the total estimated value of the goods contracts and 80% of civil works contracts. 3.30 Contracts for the supply of pipe, meters, equipment and materials with an aggregate estimated value of US$93 million are expected to go to for- eign manufacturers. This amount includes equipment, pipes and materials to be financed with suppliers credits. Small diameter pipes with an aggregate estimated value of US$12 million would probably be won by local manufactur- ers. Qualifying local manufacturers would receive a preference in bid eval- uation of 15% of the CIF price or the prevailing import duty, whichever is less. The tunnel contract with an estimated value of US$41 million would probably be won by a foreign contractor. The remaining civil works contracts with an aggregate estimated value of US$125 million will probably go to local contractors. Most of the consulting contracts are expected to go to local firms who would then either joint venture with foreign firms or subcontract expertise which is not available locally. A list of major contracts expected to be awarded and the value of each is included in Annex 9. EAAB agreed to the -above procurement arrangements during negotiations. In separate negotiations, the Government has provided assurances that import licenses for Bank-financed and export credit financed goods under all Bank projects would be granted promptly by the Institute of External Commerce (INCOMEX). Dlisbursements 3.31 The Bank would disburse as follows:  -21- (a) 100% of foreign expenditures and 70% of local expenditures for materials and equipment; (b) 65% for civil works for the tunnel under Part A.1 of the project and 32% for all other civil works; (c) 100% of foreign expenditures and 50X of local expenditures for consultants' services; and (d) 100% of expenditures for scholarships and training. 3.32 Disbursements for all foreign currency expenditures would be sup- ported by standard documentation. Reimbursements through statement of ex- penditure (SOE) would be allowed for all local expenditure disbursements Extensive use of the SOE procedure is justified on the Bank's past good ex- perience with EAAB in adhering to Bank procedures and guidelines. Retroactive financing of up to US$3.0 million equivalent for expenditures incurred after July 1, 1984 would be permitted. The proposed allocation of loan proceeds is shown in Annex 10. The loan closing date would be June 30, 1993, six months following project completion. The disbursement period would be eight years, the average disbursement period for all loans to Colombia. The schedule of expected disbursements by quarter is presented in Annex 11. 3.33 In order to reduce the interval during which EAAB would finance with its own funds the Bank's share of the project, a Special Account would be opened at the Bank of the Republic, Colombia's Central Bank, and a initial deposit of US$8.0 million would be made into it through one or more withdraw- als from the Loan Account. EAAB would be entitled to make withdrawals from the Special Account upon application to the Bank of the Republic. At the same time, EAAB would forward disbursement applications covering the amount of its withdrawals to the Bank which would replenish the Special Account. During negotiations, EAAB agreed that the Special Account would be audited annually by independent auditors acceptable to the Bank.  -22- IV. FINANCIAL ANALYSIS OF EAAB General 4.01 EAAB bas been able to overcome a cash shortage caused by cost overruns in its sizeable 1971-83 investment program. An a result of appro- priate financial measures, EAAB is now in an adequate position to undertake additioaal large investments to meet the water supply and sewerage needs of Bogota. Througb careful control of costs and a moderate and gradual increase in the level of tariffs in real terms, EAAB is expected to satisfactorily finance the project and other priority investments during 1985-93. EAAB's Past and Current Financial Performance 4.02 EAAB carried out substantial investments and covered all of its cash requirements in 1980 and 1981. In 1982 and 1983, bowever, cost over- runs ia the Cbingaza project taxed EAAB's financial capabilities to the limit. Because of these overruns, increased expenditures, delayed tariff action and lack of mediumr-term financing, EAAB was severely short of work- ing capital in 1982 and 1983. Summary income and cash flow data, extracted from EAAB's financial statements for 1980-19848/ are sbown in Table 4.1 4.03 Through a combination of appropriate financial measures, EAAB has achieved a satisfactory financial performance in 1984. EAAB increased tar- iffs by about 27% in real terms in mid-1983 and has received Government ap- proval to continue for an indefinite period 1.5Z montbly tariff increases (whicb are about in line with inflation), for whicb previous autbority ex- pired by mid-1984. In April 1984, it obtained through the Government a US$20 million mediumr-term foreign bank loan to finance completion of the Chingaza project. In addition, EAAB stopped hiring new staff and restrict- ed investments to those already committed or urgent as a result, EAAB is expected to cover all of its 1984 cash requirements and meet the 1.5 debt- service coverage ratio covenanted for Loan 1697-CO. However, its 1984 rate of return will only be 4Z versus 6% covenanted for Loan 1697-CO. 4.04 A 6% rate of return on revalued fixed assets is no longer consid- ered necessary for EAAB's short-term cash needs or to finance its long-term investments, including tbe proposed project. The 6% rate of return under Loan 1697-CO was based on investment needs of a 1984 population of 5.3 mil- lion, growing at an annual rate of 5.62. In sbarp contrast, Bogota's 1983 population was 4.3 million and the current annual growth rate is only 3.6%. Water sales per account are also lower than projected under Loan 1697-CO (40 m3/month actual versus 49 m.31month projected). Because of these fac- tors, water sales are now about 23% lower than Loan 1697-CO appraisal pro- jections and EAAB's production capacity including the Chingaza project (Loan 741-CO) is now sufficient until 2005. Consistent with these develop- ments, EAAB prudently deferred not only investments in water production ca- pacity, but also in water distribution and drainage canal construction. 8/ Financial statements of 1982 and 1984 are presented in Annex 12; those for 1980 and 1981 are available in the project file.  Table 4.1: EAAB SELECTED INCOME AND CASH FLOW DATA (1980-84) (Current Col$ million except as indlcated) 1980 1981 1982 1983 1984 Revenues 2,596.80 4,165.60 5,397.00 7,104.00 9,413.20 Operating Expenses 1,897.10 2,325.70 3,449.10 4,580.90 5,839.10 DepreciaLlon 626.50 733.50 854.80 1,062.00 1,716.40 OperaLing Income 73.20 1,106.40 1,133.49 1,461.00 1,858.70 NeL Income a/ 907.20 1,295.70 804.70 1,133.30 906.70 Average Tariff Revenue per m3 (Col$) 9.20 14.90 18.77 25.57 31.91 Average Tariff Revenue per m3 In 1984 Prices (Col$) 21.20 27.00 27.02 30.68 31.91 Average CosL per m3 Sold (Col$) 8.50 9.90 14.70 19.34 22.82 Average COSL per m3 Sold In 1984 Prices (Col$) 19.60 17.90 21.20 23.20 22.82 Rate of ReLurn (%) 0.00 7.20 6.00 6.90 4.20 DebL Service Coverage RaLio 3.90 5.70 3.90 2.40 1.60 ContLribuLion to InvesLmienL (%) b/ 36.40 53.50 50.70 42.40 21.00 InvestmenlLs 2,790.20 3,439.40 6,131.40 3,897.10 3,789.20 Borrowings 1,929.30 752.80 2,704.10 2,213.30 3,104.80 a/ Non-operaLing income, mainly on account of reestimatLion of pension reserves, was Col$1,134 mUlllon in 1980. b/ In 1982, EAAB's working capital was minus Col$1,910 million.  -24- 4.05 To compensate in part for lower sales, EAAB has raised its tar- iffs 50% in real terms since 1980. As a result, the current average tarift is now 10% higher than the long-run marginal cost of water. By further raising tariffs 15% in real terms during implementation of the proposed project, EAAB would achieve 3.5Z to 4.5% rates of return and generate enough cash to finance about 54Z of total investments during the same per- iod. Rates of return in this range are recommended for EAAB's existing loans and the proposed loan (paras. 4.15 and 4.18). EAAB's Financial Structure 4.06 EAAB's main revenues are income derived from the provision of wa- ter and sewerage services and charges for new water and sewerage connec- tions. EAAB also derives some income from non-operational activities (about 3% of operating revenues). Capital contributions in the form of secondary water, sewerage and drainage networks from developers, contribution to the cost of secondary networks from customers and betterment levies (about 52 of gross income) complement EAAB's income as a source of funds. 4.07 Under the present tariff structure (Annex 13), EAAB's customers are divided into four categories: official, commercial, industrial and res- idential. Residential customers in turn are divided into six categories based on the location and quality of dwelling. EAAB's tariff structure is progressive in that the cost per ml increases both with incremental co.an- sumption and with the customers capacity to pay. Since all customers are metered, the present structure encourages an efficient use of water. Cus- tomers with sewerage service pay a 45-55% surcharge over the water bill, which is consistent with the estimated costs of these services. EAAB's tariff structure includes a minimum water allowance of 10 M3 per month at a cost which makes basic services affordable to the poor (para. 5.08). 4.08 Connection charges account for about 11% of EAAB's operating rev- enues. They include assessments of around 3% of property values and fees for the right of service for new water and sewerage connections. The aver- age charge for water/sewerage connection is Col$35,000 (US$350). Except for those customers in the lowest residential tariff category, wbo have fi- nancing available of up to five years, customers pay connection charges be- fore the connections are made. 4.09 EAAB's personnel costs account for about 70Z of total operating costs. Its competitive compensation package has permitted EAAB to attract and retain qualified staff, and tbus consistently improve productivity. Salaries in real terms, nevertheless, outgrew productivity substantially during 1980-84 due to political pressure from EAAB's unions. During this period, personnel costs increased at an average annual rate of 6% in real terms, causing personnel costs per ml of water sold in 1984 prices to increase from US$0.124 in 1980 to US$0.157 in 1984. EAAB's goal in the future is to keep salary increases in real terms in line with increases in productivity. To protect EAABTs financing plan, maintenance of personnel costs per .3 in real terms at 1984 levels is included in the Plan of Action  -25- (Annex 5) and EAAB agreed during negotiations to review its financial projections following any action, including a new wage and benefit agreement with its labor unions, which would result in an increase in its operating costs in excess of the increase in the consumer price Index for the corresponding period (para. 4.17). 4.10 Mainly because of loans obtained to finance cost overruns and the accelerated devaluation of the Colombian peso, EAAB's debt service obliga- tions including the proposed loan would have caused EAAB to exceed by about 40% a 0.2 maximum debt-service/revenue ratio established by the Bogota Dis- trict Council for all its semi-autonomous companies. This limit would have unduly restricted EAAB beyond what its financial security requires and would have impaired its ability to meet the demand for services. EAAB has obtained a waiver from the Bogota District Planning Department in accordance with the Council's act. During negotiations, EAAB confirmed the existence of the waiver. EAAB, nevertheless, needs to limit new debts and nonpriority investments to protect the financing plan for the project and other identified investment priorities. A limitation on new debt and investments other than the project would he covenanted (para. 4.16). 4.11 One aspect of EAAB's finances resolved since appraisal was the sbaring of costs for the Chingaza project with EEEB.9/ The signing of a cost sharing agreement between the two agencies has been a concern of the Bank since 1978. Although no major variations are expected from the estimated long-terr receivable for EAAB as a result of the settlement (about Col$7,000 million), the settlement would further ensure the stability of EAAB's financing plan during project execution. EAAB's Overall Financial Plan and Investment Program 4.12 During project execution (1985-92), EAAB plans total investments equivalent to about US$587 million in current prices of which US$354 mil- lion, including capitalized interest, are for the Bank-financed project (para. 3.18). The remaining US$233 million to he invested during project execution are for: (a) the provision of water, sewerage and drainage services for the Cuidad Bolivar Urban Development Project and neighboring areas (assisted by the IDB); (b) some water and sewerage secondary networks and minor main- tenance investments; and (c) canal and interceptor construction which would he carried out mainly after 1990. 91 EEEB uses water from the Chingaza project to generate power. EEEB agreed to participate in the cost of the Cbingaza project before construction began and made a one-time contribution based on the original cost estimate whicb was substantially less than the final cost. EEEB has agreed to increase its contribution to the project based on a joint EAAB-EEEB study of the costs and benefits wbich was completed in 1982.  -26- External financing under the proposed project would provide 30% of total requirements (para. 3.19). The Bank would also provide about US$2 million under Loan 1697-CO. IDB would provide an additional 3% (US$18 million). Contributions from developers, customer and other entities (US$71 million) are estimated to cover 12% of requirements during the period. EAAB would provide the remaining US$317 million (54% of total requirements) from its internal cash generation. A detailed financing plan is presented in Annex 12. Financial Projections 4.13 Financial projections for EAAB for the years 1985-93, indicate EAAB will need inter alia to: (a) gradually increase tariffs in real terms by 15% between 1985-89; (b) reduce unaccounted-for water from 40% to 26% by 1990; (c) reduce the staff/1000 connection ratio from 4.9 to 4.5 by 1990; and (d) control operating costs, especially those for personnel. Selected data from EAAB's projected income and cash flow statements and key financial indicators are shown in Table 4.2. Detailed financial statements, as well as the assumptions on which they are based, are presented in Annex 12. 4.14 EAAB's financial performance is projected to improve substantial- ly during project execution. To enable EAAB to finance the proposed in- vestment program, its rates of return would grow from 3.5% in 1985 and 1986, to 4.0% in 1987, 4.5% in 1988 and remain at this level thereafter. The debt-service coverage ratio would vary between 1.5 and 2.6 between 1985-1993. During this period, the current ratio would be above 3. The debt/debt plus equity ratio would reach a maximum of 25 in 1985 and drop to about 11 in 1993. Financial Covenants 4.15 Consistent with the financial requirements of EAAB's investment needs, assurances were obtained from EAAB during negotiations that it would achieve a rate of return on revalued fixed assets not lower than 3.5X in 1985 and 1986, 4% in 1987 and 4.5% in 1988 and thereafter and that it would annually adjust its level of revalued fixed assets according to the consumer price index (indice al consumidor obrero) published by the Government. 4.16 So that the Bank can comment on its proposed investments other than the project and monitor its financial performance, assurances were obtained from EAAB during negotiations that it would send to the Bank before October 31 each year a five year investment plan and financial  Table 4.2: EAAB SELELIED TNCME AND CASH FlOW I)0TA (1985-93) (Qirrent Col$ nillion exrpt as Indicated) 1985 1986 1987 1988 1989 1990 1991 1992 1993 Reversrs 12,099.66 15,119.49 19,467.17 24,2R9.52 30,l10.45 36,855.19 44,959.77 54,950.44 67,141.35 Operatrg FJXprnses 7,043.17 8,961.45 10,994.94 13,099.45 15,971.65 19,111.62 23,613.53 29,148.20 35,977.18 Dbpreclatlon 2,472.20 3,086.51 3,858.78 4,823.65 6,136.54 7,894.70 9,787.25 11,795.93 14,394.81 1 Operating Innmu 2,584.29 3,065,53 4,613.45 6,366.42 8,002.26 9,848.86 11,558.98 14,006.32 16,769.36 b Nbt Tncsir 660.82 1,051.74 2,417.96 4,2)6.49 5,956.01 7,864.93 9,263.66 11,522.23 13,840.36 Awr.Ve Revemne per m3 (COl$) 39.57 48.52 60.56 72.84 87.15 102.95 121.62 143.69 169.78 AveraW %evenLe per m3 In 1984 Prtces (Cbl$) 32.96 33.67 35.61 36.35 36.87 36.86 36.97 36.93 37.01 Averrge OCht per m3 (Cbl$) 26.06 31.65 37.27 42.71 50.11 57.75 68.83 82.04 97.83 AvrAge Cost per m3 In 1984 Prlces (Cbl$) 21.71 21.97 21.92 21.31 21.19 20.67 2D.92 21.08 21.33 Rate of Return (M) 3.58 3.46 4.22 4.72 4.69 4.54 4.39 4.51 4.50 Cebt Service (bwrirge Rntio 1.51 1.46 1.63 1.8E 1.88 2.17 1.84 2.45 2.62 Caitribution to Investment (%) 54.72 37.14 36.97 47.98 49.09 60.02 64.67 78.27 90.17 InveAtrentA 4,862.20 9,144.26 12,810.18 13,663.23 17,421.16 2,353.37 18,404.02 21,628.10 23,867.47 Borrunlgp 1,072.10 4,249.29 6,277.86 5,601.06 6,917.80 6,085.36 4,942.69 2,704.92 0.00  -28- projection, including the current fiscal year,for the Bank's review and comment. To protect EAAB's financing plan, assurances were obtained from EAAB during negotiations that it would not without the Bank's consent: (a) incur any long-term debt that would cause its forecasted debt service during any fiscal year to fall below 1.5 times its forecasted net revenues; and (b) undertake nor commit itself to undertake investments (other than those included in the project) which are not economically and financially justified, not part of its investment program (other than investments of less than US$3.0 million equivalent) and not supported by appropriate financir.g. 4.17 Using the latest financial projection agreed upon with the Bank, EAAB would be expected to review its compliance with the rate of return covenant by October 31 each year and whenever there is an expected increase in its operating costs in the coming 12 months in excess of the expected increase in the consumer price index for the corresponding period. Assurances were obtained during negotiations that EAAB would undertake these reviews and based on the results, take measures necessary, including the adjustments of its tariffs to maintain its compliance with the covenanted rates of return. 4.18 The agreements of the three pre':ious loans to EAAB would be amended by the proposed loan so that the financial covenants of all the Bank's outstanding loans to EAAB are consistent. Monitoring and Evaluation 4.19 During negotiations EAAB confirmed that the proposed monitoring indicators (Annex 14) reflect the expected improvements in EAAB's operations, while the construction and disbursement schedules represent forecasts of implementation progress. EAAB would submit to the Bank semi-annual reports (due February 28 and August 31) on the progress of project implementation and its operating and financial performance during the preceding semester ending December 31 and June 30. The reports would measure performance against the monitoring indicators and construction and disbursement schedules.  -29- V. ECONOMIC AND SOCIAL ANALYSIS General 5.01 The proposed project is fully justified in economic terms as it represents the expanded use of existing capacity, yields relatively high re- turns and improves efficiency through the rehabilitation of infrastructure. The project also has a high social impact in that 54% of the beneficiaries would be urban poor who would be provided a dependable water supply at af- fordable rates. The results of the economic and social analysis of the pro- ject are described below. The calculations are presented in Annex 15. Least-Cost Solution 5.02 The project components represent the least-cost solution for achieving the desired benefits (Annex 4). Most of the components represent extensions and/or rehabilitation of existing systems and will be constructed according to existing and proven design standards. Rates of Return, Long-Run Marginal Costs and Tariffs 5.03 Economic rates of return (ERRs) have been calculated for the various project components and for the total project both with and without sunk costs. Assumptions and details of the analyses are described in Annex 15. The estimated ERR for the water supply component (86% of project cost) is 12%, and for the sewerage and drainage component (6% of project cost) 23%10/, yielding a weighted rate of return of 13% for 92% of the project cost. When sunk costs related to the Chingaza production facilities constructed under Loan 741-CO are taken into consideration, the ERR of the project lowers from 13% to 8% because of the very high cost of these facilities (para. 2.10). Despite this low ERR, the Chingaza project still represents the least-cost solution for meeting Bogota's water supply needs. The San Rafael reservoir by itself (18% of project cost) has a ERR of 10%. Its main purpose is to allow routine inspection and maintenance of the Chingaza tunnel, thus decreasing the risk of a tunnel failure which would result in a major disruption in the supply of water to the city. This benefit has not been quantified. ERRs were not computed for the technical assistance, studies, and the purchase of maintenance equipment because the benefits of these components can not be quantified reliably. The cost of these items is, however, small, equalling only 8% of total project cost. All costs are expressed in January 1985 prices and include engineering, administration and physical contingencies and are cxclusive of taxes and custom duties. 5.04 The ERRs were calculated using revenues from consumer charges as a proxy for the economic benefits of the project. As in all water supply and sewerage projects, the full economic impact cannot be evaluated since many benefits such as improvement of public health and hygiene and enhanced pro- perty values cannot be quantified reliably and therefore are excluded from the ERR calculations. The consumer surplus is excluded from the calculations also. As a result, the ERRs are understated. Revenues were calculated using covenanted tariffs held constant in January 1985 prices. The calculated ERRs indicate that the project is fully justified in economic terms. 10/ The sewerage and drainage components are considered together because they largely serve the same areas and complement each other in terms of effects.  -30- 5.05 Long-run marginal costs for water and sewerage were calculated sep- arately using the Average Incremental Cost (AIC) method (Annex 15) with an 11% discount rate. All costs are expressed in January 1985 prices. In both cases, non-tariff revenues (connection and right of service fees) were de- ducted from total costs, so that the resulting AICs are comparable to tariffs in evaluating pricing and resource allocation. The AIC for water was estimated to be Col$22.4/m3 ll/ which is lower than the projected average 1989 tariff levels expressed En January 1985prices of about Col$24.5/m3. The highest two residential consumption blocks are presently levied tariffs of Col$37.4 and 53.4/m3, respectively, for consumption of 20 m3 and an average of Col$32.0 and 34.0/m3 for consumption in excess of 20 m3. The AIC for sewerage is Col$7.8/m3 which is substantially lower than the projected average tariff for 1989 in real terms of about Cal$12.2/m3. Details and assumptions for the calculation of these AICs are in Annex 15. The fact that the financial rates of return during the project implementation period seem low even though tariffs are high (3.5% to4.5%) is due to the large sunk costs in water production capacity included in EAAB's asset base. EAAB's current production capacity is sufficient until the year 2005. To serve new customers, EAAB need only invest in distribution. Beneficiaries and Impact on the Urban Poor 5.06 Direct benefits of the water supply component of the project would accrue to about 2.1 million people by the end of 1992. Beneficiaries would include about 1.0 million people, who would receive water services and about 1.1 million existing consumers whose services would be upgraded in quantity a-nd quality through elimination of supply interruptions. By the end of 1992, the project would serve about 0.8 million more people with sewerage and drainage than at present. The impact of the project will continue to in- crease as complementary works are completed. 5.07 The direct impact of the project on the poverty group, defined as families earning a monetary income of less than Col$24,000 in September 1984 prices, 12/ was estimated by calculating the proportion of urban poor in the total incremental population served by each project component. About 54% of water supply beneficiaries would be the urban poor. The number of urban poor with water connections will rise from 1.1 million in 1985 to 1.6 million in 1992, with the share connected rising from 79Z to 93%. All of the benefici- aries of the sewerage and drainage works would be the urban poor. As a re- sult of the project, the number of poor with sewerage will rise from 0.9 mil- lion to 1.1 million, with the share connected rising from 63% to 66% during 1985-92. An estimated 60% of the project cost will benefit the poor. Affordability of Project Services 5.08 An evaluation of the affordability of water supply and sewerage services was made based on 1984 tariffs under the current tariff structure (Annex 15). The low income consumers are subsidized by high volume, commer- cial and industrial consumers. In 1984, an extremely poor family with a monthly income of half the poverty threshold (ColS12,000) would have paid 11/ The AIC for water calculated without deducting non-tariff revenues was Col$28.0/m3 (Annex 15). 12/ On an annual basis, this corresponds to approximately one-third of the national per capita income.  -31- about 3.1% of its income for minimum water and sewerage service provided un- der the project (10 m3/month/account). This percentage includes repayment of a connection fee and network construction costs with EAAB financing. When all one-time charges are repaid in 10 years, a poor family would pay only 0.4% of its income for minimum service. Assuming that family income increas- es in line with inflation, only a minor increase in the portion of family in- come spent on water and sewerage services would result during the rest of the 1980s as tariffs are projected to increase at a rate only slightly higher than inflation. Project Sensitivity and Risks 5.09 There is a high degree of certainty that the project will provide the desired benefits and that it will be implemented properly. The effect of variations in costs, benefits and implementation delays on the project's rates of returns has been analyzed (Annex 15). The analysis demonstrates that the ERRs are moderately sensitive to changes in costs and benefits. Revenues are not expected to deviate significantly from those projected since EAAB has been granted a firm 1.5% monthly tariff increase and the composition of consumption is expected to result at least as projected. In addition, revenue estimates are conservative considering that: (a) sales per connec- tion are assumed not to Increase; (b) new connections are based on the lowest of the forecasted population growth rates; and tc) sales are not dependent on reductions in unaccounted-for water forecasts. 5.10 Most of the project works are of conventional design and well with- in the capability of local civil works contractors to construct. Lessons learned from problems experienced during the construction of the Chingaza tunnel (para. 2.10) have been taken into account in the preparations for con- structing the tunnel included in the proposed project. Due to its shorter length, proximity to Bogota and more favorable geological conditions of the route, the proposed tunnel will be a much simpler undertaking than the Chin- gaza tunnel. The project tunnel cost estimate, which is based on a detailed geological investigation of the tunnel route, includes adequate contingen- cies. The risk that problems similar to those experienced with the Chingaza tunnel will be repeated is, therefore, minimal. 5.11 The financing plan has minor risks. There is a risk that EAAB's internal cash resources might fall short of needs to meet the cost of the project if efforts to contain operating cost increases are not successful. Also, there is a slight risk of a shortfall in the export credit financing. However, if this should occur, it could be minimized by a combinat40n of alternatives including higher tariffs, government loans, increased commercial bank financing and a realignment of investment priorities. The worst result would be a delay in project implementation while new financing is arranged. To prevent the possibility of a delay in implementation of the high priority water distribution component (Part A of the project) Bank luan funds would be made available on a contingent basis for the financing of the pipes in tne event that appropriate cofinancing is not obtained for this item.  -32- VI. AGREEMENTS REACHED AND RECOMMENDATIONS 6.01 During negotiations, assurances were obtained from EAMB that it would: (a) carry out the Plan of Action in Annex 5 for institutional strengthening (paras. 2.09 and 3.17); (b) take all actions necessary to secure additional financing on terms satisfactory to the Bank to ensure the timely procure- ment of the goods and services required for the project (para. 3.20); (c) hire consultants satisfactory to the Bank to supervise the construction of the tunnel in Part A of the project (para. 3.23); (d) coordinate the carrying out of the Bogota River implementa- tion planning study with CAR and the District Planning De- partment (para. 3.24); {e) appoint a panel of experts satisfactory to the Bank to review the design and construction of the San Rafael reservoir and arrange for periodic inspections by a qualified engineer during its operation (para. 3.26); (f) earn rates of return on revalued fixed assets of 3.5% in 1985-86; 4.0% in 1987 and 4.5% in 1988 and thereafter (para. 4.15); (g) not incur any long-term debt that would cause its forecasted debt service to be coverer; less than 1.5 times by its net revenues (para. 4.16); (h) not undertake nor commit itself to undertake investments (other than those included in the project) which are not economically and financially justified, not port of its in- vestment program (other than investments of less than US$3.0 million equivalent) and not supported by appropriate financ- ing (para. 4.16); (i) send to the Bank before October 31 in each year for review and coment an investment plan and financial projections for the current year and the following four years (para. 4.16); and  -33- (k) review its financial projections on or before October 31 each year and whenever there is an expected increase in operating costs in the coming 12 month period in excess of the expected increase in the consumer price index for the corresponding period, and based on the results of any such review, take measures necessary to comply with the covenanted rates of return (para. 4.17). 6.02 During negotiations, EAAB confirmed that: (a) a waiver of its debt limit has been obtained from the Bogota District Planning Department (para. 4.10); and (b) it has signed with EEEB a cost sharing agreement for the Chingaza project defining investment costs, terms of payment and responsibility for operating costs (para. 4.11). 6.03 In separate negotiations, the Government has provided assurances that import licenses would be granted by INCOMEX in a timely fashion (para. 3.30). 6.04 There are no special conditions for effectiveness. 6.05 The proposed Bank loan would include retroactive financing of an amount not to exceed US$3.0 million equivalent for expeditures incurred after July 1, 1984. 6.06 With the above assurances, agreements and conditions, the prcpos- ed project would be suitable for a Bank loan of US$129 million to be repaid over a period of 17 years, which includes five years of grace.  -34- ANNEX 1 Page 1 COLOMBIA FOURTH BOGOTA WATER SUPPLY AND SEWERAGE PROJECT Institutional Assessment of EAAB General 1. EAAB is an autonomous municipal agency responsible for providing water, sewerage and drainage services to the Special District of Bogota and Soacha. EAAB's institutional capabilities, although adequate to carry out the project and expand services, could be further improved to control costs and better serve its customers. Assessments and recommendations by management area are provided below. Institutional Arrangement and Maiagement 2. Board of Directors and Appointment of Employees. EAAB, according to its statute agreed upon between the Special District of Bogota and cred- itor banks for the period 1955-2001, is governed by a seven-member Board of Directors, which includes: the Mayor of Bogota (who chairs the Board and is appointed by the President of Colombia); two representatives of the Bo- gota District Council; three representatives of creditor banks (one of them Banco Central Hipotecario, a Government agency); and Banco de la Republica (Colombia's Central Bank). The Board approves EAAB's organization, annual budgets, the contracting of debt, investment projects, contract awards and tariffs. The contracting of debt (the service of which unless waived should not exceed 20% of operating revenues according to District resolu- tion) and investment projects are subject to review by the Bogota Dis- trict. Tariffs are subject to approval by the Junta Nacional de Tarifas. The Mayor alone, according to national legislation, appoints EAAB's General Manager. The General Manager appoints all EAAB's employees. EAAB's organ- ization and autonomy, which is similar to that of other large water compan- ies in Colombian cities, has in general led to satisfactory results. 3. Managtment. The present General Manager is a competent adminis- trator who has the support of the Mayor of Bogota and the Bogota District Council. The present second level managers are qualified professionals and familiar with EAAB's operations. 4. Organization. Although management has been considering some changes, EAAB's current organizational structure (Attachment 1) is suitable for activities during project execution. Present major organizational di- visions, the heads of which report to the General Manager, are: Opera- tions, Technical (engineering and project supervision), Financial, Plann- ing, Secretariat (includes Legal) and Administrative. The commercial unit  - 35 - ANNEX 1 Page 2 is an Administrative Division responsibility which includes meter reading and customer relations. Other commercial related functions are carried out by the Financial and Operations Divisions. Management has explored the possible integration of all commercial activities under an indelandent comr- mercial division without conclusive results. This would be considered with the assistance of consultants under the project, in connection with studies to further improve EAAB's staff efficiency and information and control sys- tems. Personnel 5. Staffing. EAAB's staff is generally qualified at all levels. Total staff at appraisal numbered 2,613, of which 170 were professionals, 960 office employees and technicians and 1,483 field laborers. With 4.9 employees per 1,000 water connections, EAAB compares favorably with water utilities in developing as well as in industrial countries. EAAB expects, nevertheless, to reduce this ratio, a measure of water company productiv- ity, to 4.5 or less during project execution. This goal is considered realistic because: production facilities are already fully staffed and new production facilities will not be required until 2005; engineering and pro- ject supervision personnel, because of the completion of the Chingaza project, are already in excess of the numbers required for the proposed project; telemetering and other technology could further improve the productivity of personnel working in operations; and better document flows could further improve the productivity of personnel working in financial, commercial and other management areas. Technical assistance would be provided under the project to assist EAAB in further improving staff productivity. 6. Personnel Management. Adequate. Employee moral is high. Up to the third management level, there is a good opportunity for career growth and job security, and EAAB pays its employees a competitive compensation package. Thus, it is able to retain and hire staff of good quality. 7. Training. Needis improvement. EAAB has no formal training program, although there are opportunities available to take courses at local universities in the evenings and some Departments provide informal training on their own. Training that does exist is considered deficient for the following reasons: (a) it doesn't have any impact on efficiency and productivity; (b) the substance of the courses is obsolete and does not always correspond to the specific needs of the institution; and (c) not enough emphasis is given to the professional and technical staff. A major reason for the weakness of the programs is that training is a collateral responsibility of the training officer who lacks the authority and means to execute a training program in accordance with the demand and needs of the operational and technical units. Project Planning and Execution, and Operations 8. Investment Planning. Adequate. EAAB prepares its long-range investment plans with its own staff assisted by consultants. It chooses its priorities well, takiig into account project economic benefits and prepares good feasibility studies.  -36- ANNEX 1 Page 3 9. Financial Planning. Needs improvement. Financial planning is the responsibility of the Financial Manager and coordination with the Plan- ning Department is poor. Investment programs included in the financial projections do not always agree with programs proposed by the Planning Man- ager. Also, financiaL modeling techniques need improvement. The present models/methods do not adequately take into account working capital require- ments, which leads to a time consuming consultation process to obtain reli- able cash flow projections. Also, the models are not compatible with EAAB's accounting and budgeting systems. A financial modelling system cor- patible with the budget would be introduced under the project through tech- nical assistance complemented by staff training. 10. Project Preparation. Good. Feasibility studies are the respons- ibility of the Planning Unit. Consultants are used for large projects (distribution system master plan, San Rafael reservoir, etc.). The Techni- cal Unit is responsible for preparing final designs, contracting of works and supervisic, of construction. This unit employs consultants to design large projects but uses its own staff to design works of a routine nature such as secondary networks. When consultants are used, they are selected fairly and efficiently and are supervised effectively. 11. Project Execution. Good. Contractors carry out all construct- ion. EAAB hires consultants under EAAB's staff supervision to supervise large construction projects but supervises directly most routine works with its own staff. In the past it has hired consultants to manage its own per- sonnel for the supervision and inspection of construction. The proposed project is within EAAB's project management capabilities. Operation and Maintenance 12. Adequate in most areas. EAAB's operation and maintenance is well organized and effective in most areas. Preventive maintenance programs are in place, reported leaks and pipe breaks are repaired quic'Kly and record keeping is good. Only meter maintenance (para. 14) and control of unac- counted-for water (40% in 1983) remains a problem. It is suspected that most of the unaccounted-for water is lost through pipe breaks and under- registration of meters. The frequency of pipe breaks is abnormally high in Bogota because of the acidity of the soil which affects asbestos cement pipes which were installed without proper protection and make up most of the secondary networks. Many of the meters in service are over 20 years old and while EAAB's meter testing and repair facilities are sufficient, there is no routine meter testing program ln place. Production meters are few and and these are tested routinely. EAAB recognizes that it has prob- lems with its customer metering and is now reorganizing its mecer mainten- ance effort. In view of the overall complexity of the unaccounted-for wa- ter problem. technical assistance would be provided under the project to improve EAAB's unaccounted-for water reduction program. Commercial 13. Customer File. Needs improvement. Illegal connections are esti- mated at about 3% of legal connections, a low percentage compared to  ~ 37 - ANNEX 1 Page 4 other large Colombian and Latin American cities. However, procedures for obtaining a service connection are complicated and time consuming. Simpli- fication of the new connection application procedure and reduction of the time between the receipt of a request and the installation of a new con- nection would help to eliminate one cause of illegal connections. EAAB keeps the customer file of its legal connections current, and the inform- ation provided by this file is sufficient for customer service and bill collection. 14. Metering. Needs improvement. Coverage is adequate, however, meter maintenancerequires improvement. A recent survey indicated that 15% of all installed meters were not functioning. Also, there is no routine testing program in place to insure meter accuracy. Under registration of meters could be responsible for a significant percentage of the unaccounted-for water. 15. Billing. Needs improvement. EAAB's computer center prepares bimonthly billings with an average reading-billing lag of one month, which could be improved. Procedures could be simplified and made more efficient with new data processing equipment. 16. Collections. Good. Customers pay in EAAB's offices, and in Banks within ten days after bills are issued. EAAB charges a 2Z monthly interest on accounts one month overdue, and disconnects the service on ac- counts 45 days overdue. Outstanding bills are kept below two months of billings. Procedures could be simplified. Management Information and Control Systems 17. Management Reporting. Needs improvement. EAAB prepares finan- cial statements, budget compliance repo ts, some technical indicators monthly and a detailed statistical repor._ annually. These reports and diverse records some units keep provide substantial information. However, this information is not presented in a meaningful way for management to monitor operating and investment performance and take timely corrective actions. Consultants under the project would assist EAAB in implementing an improved management information and reporting system. 18. Accounting System. Needs improvement. EAAB could streamline procedures and integrate financial accounting systems to reduce the workload. It could also introduce a simple cost accounting system (compatible with financial accounting and the reporting/budgeting systems) to monitor controllable costs and identify separately water and sewerage costs. Consultants under the project would assist EAAB in introducing these improvements. 19. Fixed Asset Accounting and Control. Adequate. Work in progress is incorporated promptly, when completed, to the asset base. EAAB has in- dividual records of fixed assets. It revalues the total balances of fixed assets annually following a satisfactory methodology. EAAB does not carry the revaluation on its books but prepares financial statements on a reval- ued basis.  - 38 - ANNEX 1 Page 5 20. Budgeting System. Needs improvement. While the budgeting system works well to monitor compliance with Board of Directors authorization and Bogota District regulations, it provides information of limited use for management control. Taking into account compliance with District regulations, consultants under the project would devise a budget system which would be more useful as a management and planning tool and compatible with the accounting system. 21. Electronic Data Processing. Needs improvement. EAAB's billings, payroll, fixed assets, inventories, accounts payable and general accounting are computerized. EAAB has its own staff of analysts, programners and operators but shares a computer facility with EEEB. Improvements in the areas of financial and cost accounting, budgeting, and integration among systems will require additional systems and programming work. EAAB's staff is prepared to undertake most of these tasks with some assistance from consultants. Considering the expansion of EAAB's operations, the loan would include funds to purchase a computer. 22. Internal Auditing. Adequate. As is standard practice in Colombia for municipally owned agencies, the office of the District Controller performs this function. The District auditors assigned to EAAB (76 auditors on EAAB's payroll - 3% of EAAB's staff) concentrate in the detailed review of transactions (prior control) while they are in process, rather than in ensuring that EAAB's internal controls work. While the prior control is costly, it ensures that transactions are properly authorized and recorded. It is not realistic to expect that the District audit would be streamlined and refocused in the near future. Insurance 23. Adequate. EAAB carries fire and casualty insurance on buildings, stocks and equipment subject to those risks, and third party liability for selected risk exposures. Because of the cost of coverage, EAAB relies for other risks (dam failure, pipe bursts) on security measures to control their occurrence.  COLOMBIA FOURTH BOGOTA IWATkR SUPPLY AND SEWERACE PROJECT Bogota Water and Sewerage Company Organization | exd d tXtectcxs I HII r3I |O,olions r | crial A | Mt^slfaliv | | chn^kw Uvifon s Mon DM"csot n I Dlt Wa&n ,~~~~~Manaic M*s ,t --n - a, J l, ,n F-~~~~~~~~~~~~~~~~~~~~~~~~~~~- ~,etatIan ine NcesIngmw Se4o oltat nfl MsteM Pla %Wad Bar - 26639  -40- ANNEX 2 Page 1 COLOMBIA FOURTH BOGOTA WATER SUPPLY AND SEWERAGE PROJECT Bogota's Water Supply, Sewerage and Drainage Systems General 1. Bogota has a modern water supply system which serves 95% of the population with metered connections. The remainder of the population is served by public standpipes connected to the distribution system, trucked water, systems which store rainwater, shallow wells and small streams. There are four water supply systems with full treatment which account for 99% of the total supply capacity. The Bogota River and its tributaries are the source of supply for three of the systems. A tunnel diversion from the Chingaza area is the source of supply for the fourth and newest system. The remaining supply capacity (less than 1%) consists of small intakes located in the hills to the east of the city. Water from these sources receive chlorination only. 2. The city has both sanitary and storm water drainage systems with- in the boundaries of an established sanitary district. The systems are separate except in the area of the old city where they are combined. Sew- age is discharged without treatment into the Bogota River and its tributar- ies. Water Supply System 3. The principal water supply systems and their capacities are as follows: Production Capacity System (m3/sec) Tibito 12.0 Chingaza 14.0 Tunjelo/San Cristobal 1.5 La Laguna 0.3 San Francisco 0.1 Other (chlorination only) negligible TOTAL 27.9  -41- ANNEX 2 Page 2 4. The Tibito system obtains a major part of its water from an in- take on the Bogota River, 35 km north of the city and upstream of the sec- tion where industrial and domestic wastes pollute the River. The River at the intake is partially regulated by three reservoirs in the upper river basin with storage totalling 900 million m3. These reservoirs belong to and are operated by EEEB and CAR, but a joint commission of EAAB, EEEB and CAR coordinates the releases according to the needs of the three entities. Wa- ter is also diverted from the Teusaca River to the treatment plant at Tibito. Water from the Chingaza system can reach the Tibito plant through releases to the Teusaca River upstream of the plant. The combined safe yield of the Bogota River sources is 10 m3/sec. The use of water from the Teusaca River and Chingaza is limited by the 5 m3/sec capacity of a pumping station used to lift water from the Teusaca River to the intake of the plant. 5. The Tibito water treatment plant provides flocculation, sedimen- tation and filtration. The plant was originally designed for 4.0 m3/sec. Between 1972-76 the capacity was increased to 12 m3/sec by adding only new flocculation and sedimentation capacity, replacing the sand in the existing filter basins with dual filter media (anthracite and sand) and introducing more efficient operating procedures. 6. Two raw water pumping stations pump water from the Bogota River to the plant and a third raw water pumping station (maximum capacity of 5 m;3sec) pumps water from the Teusaca River. The treated water can either flow by gravity from the filter well through parallel 60 and 78-in. pipe- lines to the city or it can be pumped to a treated water reservoir at Tibito and then flow to the city through the same pipelines. The 60-in. pipeline terminates at the Usaquen pumping station in the city. The 78-in. line transmits its water to the southwest end of the city and terminates at the Casa Blanca storage tank. The combined capacity of both pipelines with water released from the treated water reservoir is 15.0 m3lsec. 7. The Tunjuelo supply system is an all-gravity system which draws water from the Regadera reservoir on the Tunjuelo River, 25 km south of the city. Water from the reservoir Is treated at two separate treatment plants: one at Vitelma with a capacity of 1.2 m3/sec and at a plant called La Laguna located near Usme with a capacity of 0.35 m3/sec. Both treatment plants are directly connected to the distribution system and serve the high lying areas along the eastern city limits. 8. The San Cristobal, San Francisco and other minor intakes on the hills east of the city are of little significance compared to the Tibito, Chingaza and Tunjuelo systems. The San Cristobal supply is connected by gravity to the Vitelma treatment plant; however, when turbidities are low, the water is fed directly to the system with chlorination only. The San Francisco system has its own small treatment plant located at San Diego. The other systems which serve isolated high lying sections of the city are provided with chlorination as the only means of treatment.  -42- ANNEX 2 Page 3 9. The Chingaza system has a capacity of 14 m3/sec. Its main fea- ture is the diversion of water from the Chingaza water shed 40 km east of Bogota through a series of tunnels and conduits. The system also diverts an average of 1 m3/sec of uncontrolled flow from the Blanco River. The principal components of the Chingaza system are: (a) a dam and 200 million m3 reservoir on the Chuza River above its confluence with the Guatiquia River; (b) a 45 km conveyance system between the Chuza Reservoir and Bogota consisting primarily of tunnels with an average diameter of 3.7 m; (c) the Weisner water treatment plant at El Sapo with a capacity of 14 M3/sec expandable to 22 m3/sec in the future; (d) 100 km of access roads; (e) a run of the river diversion from the Guatiquia River which consists of a 3.5 km tunnel from the Guatiquia River to the Chuza Reservoir and related intake works; and (f) a run of the river diversion from the Blanco River which enters the main diversion tunnel through three vertical drop shafts. Treated water from the Wiesner plant flows by gravity through a short tun- nel and pipe system to the Santa Ana storage tank at Usaquen and from the storage tank to the distribution system through a 2 km 60-in. main. Water Distribution 10. The city is divided into three distribution pressure zones (low, intermediate, and high). The low zone supplied by the Tibito and Wiesner treatment plants is by far the largest, serving about 70X of the city's area. The intermediate zone forms a narrow band between the two other zones and supplies approximately 10% of the city area. It is connected to the Parque Nacional tank which receives its water from the Tibito and Wies- ner water treatment plants by a booster pumping station at Usuaquen. The high zone, representing about 20% of the city area, is supplied by the Vitelma, San Diego and Laguna treatment plants. 11. The total length of distribution system pipe is 4,500 km, includ- ing the two transmission lines from the Tibito treatment plant. Pipes range in size from 3 to 78-in. The majority of the pipes (94%) are 14-in. and smaller. Commonly used pipe materials are galvanized iron for diame- ters 3-in. and smaller, asbestos cement for diameter 4 to 12-in. and pre- stressed concrete for pipes 24-in. and larger. Recently, PVC pipe has been used in sizes below 12-in. and ductile iron pipe has been used in place of asbestos cement pipe for diameters of 12 to 42-in. 12. Distribution storage capacity totals 334,000 m3. The major part of this capacity is located in the low pressure zone. The largest tank in the system is the Casa Blanca storage tank with a capacity of 140,000 m3.  43NEX 2 Page 4 Sewerage and Drainage Systems 13. About 30% of the area of Bogota, the older part of the city,has a combined sewerage and storm water drainage system. The rest of city is served by separate systems. These systems, including the combined systems serving the older part of the city, are divided into four main sectors. Each sector corresponds to the drainage basin of the following small streams which are tributaries to the Bogota River: Torca, Salitre, Fucha and Tunjueio. The sewerage and drainage master plan provides for the cana- lization of these streams and the construction of parallel sanitary inter- ceptors to collect all sewage discharges. At the present time, there is 50 km of completed canals with 70 km of tributary remaining to be lined. At present, there is no sewage treatment.  -44- ANNEX 3 Page 1 COLOMBIA FOURTH BOGOTA WATER SUPPLY AND SEWERAGE PROJECT Population, Po ulation Served and Water Demand in the Project Area Population 1. Bogota's average 1983 population is estimated to be 4.3 million, accounting for about 15% of the total population of Colombia and 24% of the urban population. The basis for the current estimates is a statistical anaylsis prepared by the National Statistical Agency (DANE) in 1978. The last complete census was carried out in 1973. Between 1973 and 1978, Bogota's population grew at an annual rate of 5.8% primarily reflecting heavy immigration from the rural areas. The current growth rate is estimated at 3.6% per annum. Projections of future population growth have been prepared by a number of agencies in recent years. These projections include the official government estimate prepared by the National Department of Planning (DIP) in 1978, the CCRP/EAAB study estimates prepared in 1980 and a Department of Transportation estimate prepared in 1979. The year 2000 population projected by these studies varies from a low of 6.9 million to a high of 7.5 million. 2. The above estimates apply only to the Special District of Bogo- ta. At the present time, BAkB provides retail water service to an estimat- ed population of 58,000 in Soacha, a rapidly growing area to the southwest of Bogota and bulk water to an estimated population of 30,000 in nearby communities of Chia and Cajica. Although there are no plans at present, EAAB has the potential to serve other nearby towns with a combined population of 200,000. 3. Separate projections have been made for retail and bulk custo- mers. The service area for retail customers was assumed to include the Special District of Bogota and Soacha. Projections of the potential popu- lation for bulk water sales by EAAB includes the communities it presently serves and communities which could be extended service at relatively minor cost. Bulk and retail area population projections are given in Attachment 1. The retail service area population projections are based on the low  -45- ANNEX 3 Page 2 CCRP/EAAB estimates for the Special District of Bogota. Population projec- tions for Soacha are based on a DNP sponsored planning study prepared in 1982. Population projections for the communities receiving bulk water ser- vice now and potentially in the future are the official projections of the Population Division of DNP. Population Served and Service Standards 4. At the end of 1983, EAAB serviced 518,000 water accounts through 540,000 water connections. The population served by direct connections based on 8 persons per account was 4,144,000 or 95W of the estimated total population. Another 5,000 persons are estimated to be served through 50 standpipes. The population receiving bulk water from EAAB is estimated at 30,000. Those individuals within the District's sanitary perimeter, butnot legally connected to the EAAB system or served by standpipe, obtain water from private wells or illegal connections. The sanitary perimeter is a legal boundary established by the Bogota District Council. 5. From about 1976-82, EAAB's supply fully met the demands of con- nected customers and provided a highly reliable 24 hour-a-day service. Be- ginning in 1982, restrictions in the distribution network have resulted in water shortages in the southwest area of the city which affects approxima- tely 200,000 persons at present. 6. About 88% of Bogota's population is served by direct connections to EAAB's sewerage system. The remainder of the population, located mainly outside the sanitary district perimeter, is served by septic tanks, private or community storm drains or latrines. At the end of 1983, EAAB serviced 479,000 sewage accounts through 499,000 sewage connections. Composition of Sales 7. About 66% of EAAB's water sales are to residential customers, 27% to comnercial and industrial customers and 7% to government. Unac- counted-for water use, the difference between production and water sales, was 402 of production in 1983. During the past 10 years, unaccounted-for water has ranged from a low of 20% in 1978 to a high of 40% in 1983. The division of sales between residential, commercial and industrial and gov- ernment has remained about the same over this period. Past Water Sales and Production Per Account 8. In 1983, monthly water sales per account was 39 m3 and production per account was 66 m3. Water sales do not include water distributed through standpipes which are unmetered. During the past 10 years, water sales per account has declined from a high in 1975 of 52 m3/per/month.  -46- ANNEX 3 Page 3 This decline is explained by a decrease in the number of persons per household, the incorporation of low income consumers, by substantial tariff increases in real terms (about 35% during 1977-84) and more recently by restrictions in the distribution system. Production per account has declined from a high 72 m3/per/month to 66 m3/per/month over the same period. The year by year values based on data from EAAB's records are as follows: Water Sold a/ Water Produced Unaccounted-for Year (m3/acct/month) (m3/acct/oonth) Water (M) b/ 1974 51.9 71.9 28 1975 52.5 67.3 22 1976 50.9 66.0 23 1977 48.5 66.4 27 1978 45.2 65.2 31 1979 43.2 64.8 33 1980 44.1 66.4 34 1981 44.4 66.5 32 1982 41.7 63.2 33 1983 39.3 66.5 40 a/ Based on retail sales only. b/ Includes bulk water sales. Water Sales and Production Prolections 9. Separate projections have been prepared for retail and bulk water sales. Projected retail water sales have been derived from expected popu- lation growth, EAAB's capacity to install new service connections, an as- sessment of the market for new connections and assumptions regarding water sales per account. The market assessment gave consideration to projects in the planning and implementing stages which will provide the primary dis- tribution necessary for the development in new areas. Per capita consump- tion was not used since the population served and the number of persons served per account are at best only estimates, and therefore do not lend themselves to precise monitoring. Projections for increases in bulk water sales have been based on a potential population that could be served within a close proximity to Bogota, consideration of the availability of local supplies, a per capita requirement of 100 lpd for the population served and a steady increase in the percent served until the year 2000 when a 95% ser- vice level is assumed to be reached. The bulk water sales projection rep- resents more of an allowance than a projection based on historical data. Whether or not the communities close to Bogota are extended service by EAAB is influenced primarily by political decisions at both the national and  -47- ANNEX 3 Page 4 local level. As a result, projections are subject to a high degree of speculation. However, this is not a serious problem since in the year 2006, when the projections indicate the need for additional production capacity, bulk water sales represent only 9% of total sales (3X in 1992). 10. Production requirements are based and water sales projections plus an allowance for unaccounted-for water. Beginning in 1990, the allow- ance is 26Z. Reductions in unaccounted-for water are assumed to reduce wa- ter production and have no effect on water sales. 11. Past projections of water sales and production requirements in Bogota have consistently been overstated. The reasons are as follows: (a) projection of high population growth rates which have not materialized; (b) assumption that per capita or per connection consumption would continue to increase; and (c) assumption that reductions in unaccounted-for water would be translated into increased sales rather than reductions in production requirements (reason for water sales being over- stated). The projections for this project are based on conservative assumptions with regard to population, unit consumption and the results of efforts to reduce unaccounted-for water. 12. Historical and projected water sales and production requirements, including significant indicators used in the projections are included in Attachment 2. Adequacy of Existing Production Capacity 13. Projected productlon requirements and available supply are pre- sented graphically in Attachment 3. Available production capacity should be compared to the maximum day requirements which based on past experience is equal to about 15% of the average production requirement in Bogota. Based on these projections, EAAB supply capacity of 25.6 m3/sec will be sufficient to meet the projected maximum daily demand until the year 2005. Sewage Service Level Projections 14. Sewerage service levels in the district are only 88X as opposed to 95% population served with water. Sewerage service levels are expected to increase in the future so that by the end of the project, 91% of the population will have sewerage service. This increase is considered reasonable in light of the fact that in the last five years EAAB has installed 50% more sewerage connections than water connections and its current backlog of requests for new sewerage services is twice that of the requests for water. Historical and projected sewerage service requirements, including all relative indicators,are listed in Attachment 4. Data for 1983 and earlier are actual data based on EAAB's records.  ANNEX 3 -48- Attachment 1 CbLOMBIA FOURTH BOGOTA WATER SUPPLY AND SEWERAGE PROJECT Population Projections a/ * (thousands) Retail Area Population -------------------------------------- Bul k Sales Total Bogota Area Area Year District Soacha Total Population Population 1980 3,793 49 3,842 171 4,013 1981 3.931 52 S.983 181 4.164 1982 4,074 55 4,129 192 4,321 1983 4,221 58 4.279 200 4,479 1984 4,370 62 4,432 208 4,640 1985 4,523 65 4,588 217 4,805 1986 4.677 69 4,746 237 4,984 1987 4.834 72 4,907 258 5,165 1988 4,994 76 5,070 278 5,348 1989 5.155 s0 5,234 299 5,533 1990 5.315 84 5,399 320 5,719 1991 5.473 86 5.561 339 5,900 1992 5,629 92 5,721 358 6.079 1993 5.786 96 5,883 377 6,260 1994 5,945 101 6,046 396 6,442 1995 6,105 105 6.211 415 6,626 1996 6,247 110 6,357 434 6,791 1997 6,423 115 6,538 452 6,990 1998 6.578 119 6,698 470 7,168 1999 6.732 124 6.857 489 7,345 2000 6.887 130 7,016 507 7.523 2001 7.039 135 7,174 539 7,713 2002 7.168 141 7.328 572 7,900 2003 7.33- 147 7,479 604 8,083 2004 7.477 153 7,629 636 8,266 2005 7,620 159 7,779 669 8,448 a! Average population for the year.  FOURTH BOGOTA WATER . & AND SEWERAGE PROJECT Historical and Projected Water Sales and Production Requirements ............................................................................................................................................................................... ...... .......................................................... veer 3984 393l 1142 393 3914 M1 194* 14 33 3im 3it" 3993 392 ......................................................................... ....................................................................................................... , , _ _ _ .... too rnd popololtle 13I0303). 3II 4055 423 4115 4S 09 44417 4324 414 5152 5331 5432 5443 S10 PpoIoI|io la oilit e. Ot343) 134 Ila 151 311 358 3St 1*2 3iS IIS 395 3s5 I&I Popula.tl..l c* 3 It1.10 3.4U 3.0 3. 115 3 .O .40 3.3J 3.30 3.20 3.10 2.90 ?.15 o mi, to popslatiat wonv 313031i 1521 3405 13922 4144 4351 454* 471 4148 5t49 5213 5312 5520 548 ftit Nud popolis.m unwed 3II 9. 94.11 1 93.11 15.31 94.42 92. t r.Qv 93.uO 14.00 980 981.00 9.4o 91.40 PoulaItia 4n,ed thaIe I38I303 I13 251 .2i 213 23O ILI ISO 3II 132 342 ISI I58 populatim swell clio 111 3.153 1.01 5.*1 5.33 4.33 1.51 3.l35 3.34o 3.70 3.14 2.90 2.rU IOU old V uttsc; 333IO3I 431.42 452.43 41.2u 138.02 548.o 513.0(2 b2.41 *24.4? 413.43 41.49 1g2.23 111.31 11.83 kgcouts duAl 3333033 39.34 34.12 340.82 3. Oi 3u.O 28.41 24.31 24.41 21.23 21.14 25.32 A2. b kiouts t14sl11 it 4.1 1.*1 4.13 5.11 1.41 4.21 4.01 3.91 3.31 3.11 3.5 3.33 An9rrC populiotuo lIelOlI S1I8 3983 4121 4211 4432 M 414143 4II XtlO 1234 5s39 1543 s3 Ainwi aopulIaem onosi 13.10(33 3195 3194 lu 4250 44U02 h43 4863 41.8 S3O S1il 5410 5U4 Aiwn,, .u..bs eml ccowt;ls 493IE(3, 442.55 4*9.34 102.43 5J3.02 561.02 Shv.23 t34.14 .t9.01 l44.0 4.8 7I 114.79 140.19 Oeor .t potr 0 ptr ntetwI q 3,1 3.3 l.OS 3.00 1.91 /.9lv 1.01 1.84 I.I1 P.I9 1.5 1.40 1.55 313413 mamr haIhgi/edccwat s3,laI 44.11 41.71 39.2l 40.00 4t.0 40.00 40.roO 44.O0 4I.O 40.40 40.40 40.101 Rlail Itiu hilled 36*3. t22.47 235.42 1S.23 )J .6 211.31, 21o.25 210.13 094.11 l3D.14 J3.14 3ISO 343.30 315.21 boll sitot hilled 33.3l 2.22 2.44 3.39 4.31 4.40 ..40 j.39 1.I? 1.21 1.J4 8.41 '1l1 1I.21 0t34I wtsr k illed h8433 224.8 2378.24 239.12 243.14 24i.39 214.15 2i0.0 302.3. S34.0? 324.0 3S.4 352.31 J44.54 later produced I3 311ff l33 3.90 99.44 *S.0 240.08 240.O0 244.00 243.00 240.0 292.04 310.81 329, 4 tlatet pruced 3 1ibi* 38433 301.20 I33.40 333.90 24.80 235.18 J33.41 341.34 150.24 1*2.43 066.92 320.00 320.48 320.00 VIte produced 8 uiof sinrcns 11313 83.00 .40 If 40. 43.04 44.0 44.04 44. 0 40.00 4*.Ot 44.00 44.0 44.0 44.0o 3lt3l itot powdced 38431 S31.20 513.00 35.3* 401.30 40*.18 419.41 833.34 444.24 443..3 452.92 49.0" 414.815 493.3 tkeccomtesd-lw voter 3 i.). 334.14 331.3. 140.14 134.44 141,L2 342.94 l42.11 334.53 320.31 139.25 23.713 325.71 4nccrwn,tm-do edlt 603 310 3t.10 31.9, 39.93 3.o0 34.00 Jl..O 31.u 30.04 2D.00 24.100 24A.00 2.O Motor reomer at litle 8433 3S01.44 3010 Iv9.11 32v.39 322.03 325.34 3;!.11 I33.21 48.30 45.9 4.3 431.49 40.14 t - gmwd 44,113043 351.20 311.9? IIS.7? 318.21 IS3.34 9L.A IV3.1* 3*9.v 34.22 86.01 A155 1.44 8.31I .......,.........,...... .. . .... ... :... .... ... . -- - - - -- -- - .. ..... ..... ...... . ..... .. .... ........ .. ............ . ....... . .. ........... ....................... . . .. .. ............. .......................... .......... s IaIi 3- I933 3'r91 I995 349* 3.3I" 190 I'rii 200 MoI 2h gO)l 204 aol iso, oil popaItisa ihldlSil 19*4 *33 4: 9 mIl IV 39 *111 0193. I d9 1lQt 1444 31I 1104 233 *Iat l shll e mp IlIIilOiI 3*Z 134 135 *1 344 343 159 1;9 130 I54 152 10 350 31 Papulotiw, chooqo Ii 2.30 2.15 .10 2.MO 2.50 I.40 2.3 2.30 2.20 2.30 2.U0 3.99 3.91 fee, 0*4 pOpsIeIIa 4st,N 30301 3Ii 5841 4005 *It3 4321 3 434 *42 *l43 *454 1307 124 1403 1550 191 leo; cAd populotiu served11 n9.0 93.04 98.o00 93.00 98.80 n.t .00 WA.R0 91.00 n1.00 n8.oo "8o0 93.0 lopulttinf utiwsd tchuog i10(33lI 319 34l 132 300 158 354 154 354 I3s 349 147 141 I31 PopulotihOs Cild chonqo it) 2I80 2.15 2.10 2.43 ?.5e 1.40 2.15 2.13 2.20 7.10 2.03 1.91 1.95 wlat eu4 ottou lsO M INA 0.39 129.28 801.030 344 *. 82 14.49 93 912.40 3,003.00 3,025.24 3,053.30 1,015.54 3,08.05 kto 11t 9 13*300