Document of The World Bank FOR OMCIAL USE ONLY /,X. -2 >C 9 -,7 CDq 1>~--z-M Report No. 5733-IN STAFF APPRAISAL REPORT INDIA THIRD BOMBAY WATER SUPPLY AND SEWERAGE PROJECT October 31, 1986 Urban and lWater Supply Division South Asia Projects Department This dcmeult has a restricted distribution and may be used by recipients only in the performnsce of their oflicial dutis. Its contents may not otberwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit = Rupee (Rs) US $1.00 = Rs 13.0 Rs 1.00 = US $0.0769 MEASURES AND EQUIVALENTS I = millimeter (1 millimeter = 0.039 inches) m = meter (1 meter = 3.28 feet) km = kilometer (1 kilometer = 0.62 miles) ha = hectare (1 hectare = 10,000 square meters = 2.47 acres) km2 = square kilometer (1 km2 = 0.386 square miles) 1 = liter (0.22 Imperial gallons or 0.264 US gallons) lcd = liters per capita per day m3 = cubic meter (220 Imperial gallons or 264.2 US gallons) mL = million liters or 1,000 cubic meters mLd = million liters per day (0.220 million Imperial gallons) per day or 0.264 million US gallons per day) Rs I Lakh = Rs 100,000 Rs 1 crore = Rs 10,000,000 mgd = million Imperial gallons per day (I mgd = 4545 m3/day) ABBREVIATIONS AND ACRONYMS BEST = Bombay Electricity Supply and Transport Undertaking BMC = Bombay Municipal Corporation (or Municipal Corporation of Greater Bombay) BMR = Bombay MetropoLitan Region BMRDA = Bombay MetropoLitan Region Development Authority FYE = Fiscal Year Ending GOI = Government of India GOM = Government of Maharashtra MWSSB = Maharashtra Water Supply and Sewerage Board WHO = World Health Organization WSSD = Water Supply and Sewerage Department of BMC FISCAL YEAR (FY) April 1 - March 31 FOR OF0ICIL USE ONLY INDIA THE THIRD BOMBAY WATER SUPPLY AND SEWERAGE PROJECT Table of Contents Page No. CREDIT/LOAN AND PROJECT SUMKARY .......................... iv- I. THE WATER SUPPLY AND SEWERAGE SECTOR IN INDIA .... ........ I Sector Organization and Development ....................... 1 National Population Service Levels ........................ 1 Government's Sectoral Policy .............................. 2 Performance in Previous Bank Operations ................... 3 Bank's Sector Objectives ................................. 4 II. THE SECTOR IN BOMBAY ..................................... 5 General ................................................... 5 Sectoral Priorities in the Bombay Metropolitan Region .... 5 Institutional and Financial Background .................... 6 Population ........................................................... 6 Water Demand .............................................. 7 Composition of Water Demand and Availability .............. 8 Water Supply Sources . ..................................... 9 Future Water Sout-i Development ........................... 10 Sewerage, Waste Water Disposal and Sanitation .......... ... 11 III. THE PROJECT................................... ..... 13 Project Objectives .......... . 13 Rationale for Bank Support .............................. . . 13 Project Description . . . 15 Cost Estimates .......................... . .............. 16 Project Financing ................. ....................... . 17 Status of Project Preparation .. ... 17 Land Acquisition ............ .............................. 17 Technical Assistance ...................................... 19 Financial and Management ..... ............. . 19 Engineering ........................................... . 19 Leak Detection Technology ................ .............. 19 Operational Performance of Aerated Lagoons ....... 19 Re-cycling Wastewater at Potable Water Treatment PLants 20 This report is based on the findings of an appraisal mission to India in February, 1985 consisting of Messrs. R.G. KacWilliam (Senior Sanitary Engineer), T. Hall (Sanitary Engineer), A. Kennefick (Financial Analyst) and R. Smith (Consultant Financial Analyst). 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 dischsed without World Bank authorization. -ii- Page No. Procurement ............................................... 20 Prequalification of Contractors and Suppliers . . 22 Local Procurement Procedures . . . 22 Implementation Schedule . . . 23 Disbursements ............................................. 24 Operational Action Plan . ... . ... 25 InstitutionaL Improvements ..... .......................... 26 Financial Improvements ................................... 26 Monitoring Criteria . . . 27 IV. PROJECT ORGANIZATION AND MANAGEMENT ....................... 27 Water Supply and Sewerage Department ...................... 27 Project Management .. 28 Project Implementation .. 28 Training .................................................. 29 Insurance ....... .............................. 29 V. FINANCIAL ASPECTS .. 30 BMC Capital Investments .. 30 WSSD Financial Position and Performance . . 30 Covenant under Second Project ........... .. ............ 31 Departmental Liquidity .. 32 Customer Receivables .. 33 Billing and Collections .. 33 Departmental Debt .. 33 Operating Surpluses and Rates of Return . . 34 Revaluation of Assets .. 34 Tariffs .... 35 WSSD Financial Projections .. 35 Financial Impact of Early Project Completion . . 37 Internal Cash Generation ............. .. ............... 38 Management of Cash Surpluses . . 38 Debt Ceiling Restriction .. 38 Accounts and Audits ....................................... 39 VI. ECONOMIC AND SOCIAL BENEFITS ............. .. ............... 40 Health Benefits and Environmental Impact . . 40 Impact and Benefits for urban Poor .. 40 Least Cost Solution ..................... 41 Economic Analysis .. 41 Risks and Safegu&rds .. 42 VII. AGREEMENTS REACHED, ACTIONS AND RECOMMENDATIONS ........... 43 -iii- Page No. List of Annexes 1. Project Description ........................................ 45 2. Projected Water Availability, Demand and Population .. 53 3. Schedule of Project Components .. 54 4. Cost Estimate and Schedule of Contracts . . 60 5. Implementation Schedule Profile .. 69 6. Monitoring Indicators ......................... .... ..... 71 7. Estimated Schedule of Disbursements ........................ 74 8. Project Organization Chart ................................. 76 9. Position Description for Project Planning & Control Coordinator ................................................ 77 10. BKC Capital Investments .................................... 79 11. Statements of Financial Position ........................... 80 12. Statements of Revenue and Expenditure .. .81.................. B1 13. Statements of Sources and Applications of Funds ............ 82 14. Statements of Working Capital .............................. 83 15. Major Assumptions Underlying Financial Projections ......... 84 16. Financing Plan ............................................. 92 17. WSSD Consolidated Loan Schedule ............................ 93 18. Economic Analysis Data ...................... 94 19. BMC Training Manuals .......................... F 95 20. Technical Assistance ....................................... 97 21. Documents and Data Available in Project File ............... 98 Maps IBRD 18974 Regional Water Resources and BMC Treatment and Transmission and Facilities IBRD 18975 Sewage Collection and Disposal System -iv- INDIA THIRD BOMBAY WATER SUPPLY AND SEWERAGE PROJECT LOAN. CREDIT AND PROJECT SUNMARY Borrower: India, acting by its President. Beneficiaries: Government of Maharashtra (GOM) and Bombay Municipal Corporation (BMC). Amount: Bank Loan: US$40.0 million IDA Credit: SDR 105.5 million (US$145.0 million equivalent) Terms: Bank Loan: Repayment over 20 years including five years' grace, at applicable rate of interest. IDA Credit: Standard Relendint From Government of India (GOI) to GOM as part of central Terms: assistance to states for development projects, on terms and conditions applicable at the time, for relending to BMC at 8.75Z rate of interest, with repayment over 25 years, including 5 years grace. Proiect The project would: (a) provide an increment of 455 million Description: liters of water per day to help reduce Bombay's current deficit; (b) expand Bombay s sewerage system; tc) provide site specific sanitation and water supply facilities to serve the needs of the urban poor; and (d) further strengthen the operational efficiency of BHC's Water Supply and Sewerage Department (WSSD) in areas including revenue collection, financial planning and audit controls, and water vaste and leakage reduction. The project would have the following main impact: water shortage would be reduced from present 36% to 18% of demand, and with particular benefit to the poor, who are less able to afford privately-owned facilities; investment and operational designs and improve- ments in leakage detection, repair, and financial management capacity. In addition, BMCIWSSD, as a well-run public utility under full municipal control, would provide sector leadership in the Region through the demonstration of increasingly efficient financial management and operation to other conurbations. Project risks are considered low because this would be the third Bank operation in the water supply and sewerage sector in Bombay and would be executed by BMC, which is staffed with well-qualified and experienced personnel. However, the project provides for additional professional and training support to enable BMC to further refine and strengthen its project management capability. Estimated Costs: Local Foreian Total -(Uis$ million) Water Supply 134.6 32.6 167.2 Sewerage 23.0 2.9 25.9 Site Specific Facilities for Slum Areas 4.1 0.4 4.5 Technical Assistance and Vehicles 5.4 4.4 9.8 Subtotal 167.1 40.3 207.4 Physical Contingencies 15.9 3.6 19.5 Price Contingencies 61.6 15.8 77.4 TOTAL PROJECT COST 1/ 244.6 59.7 304.3 Financint Plan: Local Foreigtu Total - -(sS$ million)- IBRDIIDA 21 125.3 59.7 185.0 BEC internal cash generation 119.3 - 119.3 TOTAL PROJECT COST 244.6 59.7 304.3 Estimated Disbursement: Bank FY 1987 1988 1989 1990 1991 1992 1993 1994 -cUS$ million) - Annual 2.0 21.5 28.9 35.7 37.8 35.1 20.2 3.8 Cumulative 2.0 23.5 52.4 88.1 125.9 161.0 181.2 185.0 u Includes US$20.6 million of taxes and duties. 2/ The loan/credit would be made available to GOI, which would make the proceeds available to GO! in accordance with GOI's standard arrangements for developmental assistance to the States of India. Economic Rate of Return: About 12Z Appraisal Report: No. 5733-IN dated October 31, 1986. INDIA THIRD BOMBAY WATER SUPPLY AND SEWERAGE PROJECT STAFF APPRAISAL REPORT I. THE WATER SUPPLY AND SEWERAGE SECTOR IN INDIA Sector Organization and Development 1.01 While the Central Government formulates policy guidelines and provides technicaL assistance State Governments in India have primary responsibility for development of water supply and sewerage facilities. They execute their responsibilities through various departments of government and agencies which, in turn, may delegate part or all of their duties to local authorities. In certain cases, legislation has been enacted to permit municipal authorities or other agencies to assume the entire responsibility for planning, design, construction, operation and maintenance of water supply and sewerage services within their jurisdiction. 1.02 Since the early 1950's, State Governments have endeavored to meet the increasing sector demands caused by rapidly expanding populations and unprecedented rates of urban growth. However, competing demands for resources by other sectors, inadequate management and planning skills, shortages of key materials and equipment, as well as foreign exchange constraints, have resulted in only 1Z to 3% of public expenditure being invested in the sector, prior to 1975. This situation continued during the Fifth Plan (1974-78) and the two subsequent annual Plans (1978-80), leading to inadequate levels of water supply and sewerage service. Investment for urban water supply and sewerage during the Fifth Plan averaged Rs 1100 million per year, or about 1.52 of the total Plan investment; the corresponding figure for the rural areas was Rs 750 million, or about 1.0% of the total Plan investment. National Population Service Levels 1.03 Although these investment levels did result in improvements in the sector, they were still inadequate to achieve substantial progress in overall service levels in view of the rapidly increasing population. Thus in 1980, it was estimated 1/ that in India about 287 million people, 42% of the total population, had access to reasonably safe drinking water and that only 43 1/ World Health Organization, Southeast Asia Regional Organization (SEARO) Regional Health Papers No. 1, Decade Commencement Report, 1983. -2- million (6% of the population) were covered by sanitation services. These figures were among the lowest levels for all develcping countries. Governments' Sectoral Policy 1.04 The Government of India (GOI) recognized the importance of raising these service levels and adopted the concepts of the International Drinking Water Supply and Sanitation Decade. The following targets were established to be achieved in India by 1990: - Urban and rural water supply: 100% coverage - Urban waste disposal: 80Z coverage - Rural sanitation: 25% coverage These are ambitious targets and imply providing water supply to about 410 million people and sanitation services to around 210 million people during the 1980's. In 1985 prices, this program of invesuLnent may possibly cost US$17 billion (Rs 22,300 crores) and the cost of operating and maintaining these assets is estimated around Rs 5,000 crores oer year. In response to these targets, GOI has greatly increased the amount of funds available to the sector. Thus in the Sixth Plan (1980-85), 4Z of the total Plan provision has been allocated to the sector. Under this Plan, the rural sector receives an average of Rs 4,300 million per year, about 2.2Z of the Plan. The urban water supply and sanitation sector will receive an average of Rs 3,500 million per year, or about 1.8% of the Plan. These figures represent approximately four times the investments made in the individual sectors under the previous Plan, and reflect the importance which COI attaches to the Decade program. The increased emphasis on the rural sector is particularly evident. The Seventh Plan (1986-1991) allocation to the sector is Rs 6,522 crores and higher than that of the Sixth Plan. 1.05 While these investment levels do represent substantial increases, it must be recognized that the Decade goals (as stated above) are unlikely to be reached fully by 1990. Studies 1! have shown that there will still be a substantial shortfall in funds and that lack of sufficient qualified manpower also will be a constraint. The existing institutional problems also are likely to limit the rate of growth which can be achieved in the sector. Equally important in sustaining the achievement of the targeted service levels is the efficient operation and maintenance of the systems. This aspect has always presented a serious challenge to the responsible authorities, and institutional strengthening and intensive training of personnel at all levels in the sector will be needed to achieve the required standards. 1/ World Health Organization, Southeast Asia Regional Organization (SEARO) Regional Health Papers No. 1, Decade Commencement Report, 1983. -3- 1.06 The magnitude of the Indian water supply and excreta disposal problem emphasizes the importance of minimizing the cost of developing, operating and maintaining these facilities. Progress is being made by GOI in collaboration with UNDP and the World Bank in int;:ducing less costly facilities and the development of low cost technologies for drilling. and pumping ground-water. However, the most significant reductions in cost are likely to derive from improved operation and maintenance of facilities, and the greater control of leakage from the water distribution systems which could reduce the investment required for new production facilities by Rs 5,000 - 7,000 crores, or about 25Z. Performance in Previous Bank Operations 1.07 The Bank Group's involvement in the water supply and sewerage sector in India began in 1974 with a US$55 million Credit for the First Bombay Water Supply and Sewerage Project. Since then, the Bank has made available nine Credits totalling US$643 million for water supply and sewerage projects and provided a further US$200 million for water supply and sewerage as part of a broader program of infrastructure development in urban areas. Three projects have been completed: the First Bombay Water Supply and Sewerage Project, for which the Project Performance Audit Report has been issued, financed water transmission, distribution and treatment facilities and expansion of the sewerage system in the Creater Bombay area; a US$40 million Credit for Uttar Pradesh which supported the construction of water supply and sewerage facilities for five large towns and provided safe piped water to a number of smaller towns and villages; and a US$48 million credit for the Haharashtra Water Supply and Sewerage Project providing expanded water and sewerage services to large municipalities and a number of smaller communities throughout the State. On-going projects cover water supply and sewerage for the city of Bombay, and the states of Punjab, Rajasthan, Gujarat, Tamil Nadu and Kerala. Rural water supply schemes were also included in the two Haryana Irrigation Projects. 1.08 The physical works financed by the Bank Group have been implemented satisfactorily, aLthough moderate delays in implementation have been encountered in most projects. Efforts to reduce costs through the judicious selection of service standards and the use of lower-cost technical options have been increasingly successful. Several programs to develop, test and promote low-cost sanitation technologies have been undertaken by state governments and by the World Bank/UNDP Technology Advisory Group financed first under UNDP CLO/78/006, and then continued under UNDP CLO/INT/81/047. The major concern on the physical side has been the unsatisfactory standards in the operation and maintenance of completed facilities, which is directly linked to institutional and financial issues. 1.09 Past projects have not been fully successful in achieving institutional, financial or economic goals. The Bank shares the GOI's concern over this, and is collaborating with GOI through the Central Ministry of Urban Development and the relevant State Governments in a review of past performance. This review has revealed that many of the initiatives agreed under past projects have not been fully or successfully implemented. These failures have contributed to inadequate cost recovery, and thus under-financing of operations and maintenance. The difficulties appear to -4- have resulted from several interrelated problems. First, the initiatives themselves were ambitious. Second, the reforms and the detailed operating procedures needed to implement them have not been thoroughly developed or adequately presented. Third, realistic schedules needed for implementing new procedures have not been planned or coordinated with the training and technical assistance needed to facilitate the changes. 1.10 Furthermore, strong public opposition to tariff increases and metering of consumption has arisen from the traditional concept held by consumers that water and sewer services are a "public good" which should be provided free of charge, while Government has argued for subsidies for the poor. Nonetheless, there is a growing recognition amcng policy makers that in order to extend water and sanitation services to the majority of the population, a large porcion of the needed funds must be generated through direct user charges. 1.11 Given the preceeing issues, the Bombay Water Supply System is one of the better managed operations in India. Major objectives under the First Project were achieved and the Water Supply and Sewerage Department (WSSD), operating under the Bombay Municipal Corporation (BMC), has performed well in meeting its financial obligations, and is currently providing more than half of its investment needs (in addition to covering its operating costs) from internal cash generation. The WSSD has developed plans to overcome service deficits, has been following up on training, and is generally striving to maintain its performance goals. However, WSSD is trying to catch up with a backlog of work under its investment program. WSSD's difficulties in implementing projects on schedule stem largely from its outmoded procurement procedures, which are being modified and improved along lines recommended by IDA. Under the ongoing Second Project, WSSD is also developing a project monitoring system (PMS) to provide management information on a contract-by- contract basis for physical works progress, and for capital and reimbursable expenditures. A costing system for the existing Bhandup complex (Bombay's major water supply) also is being developed to provide essential operational costing data. Both systems are being designed to improve the project implemeutation and operational management performance of WSSD, and will become increasingly useful management tools for WSSD as the Bombay water supply system expands both in size and complexity. Bank's Sector Objectives 1.12 The Bank Group's goals in the sector are: to support the central and -state go-.ernments' overall objective of extending water and sanitation services to a majority of the population and to assist in improving the efficiency of sector operations and distribution of services. In pursuit of these goals, Bank projects have: (a) supporred institutional development and the formation of semi-autonomous water supply and sewerage authorities; (b) encouraged the financial viability and managerial efficiency of sector institutions through the adoption of commercial style accounting systems and controls; (c) assisted in the formulation of tariff policies to promote equitable access to, and conservation of water, and to help finance operations; and (d) fostered th. reevaluation of design standards and the adoption of lower cost technologies. _-5_ 1.13 The growing acceptance by the GOI of the fundamental objectives incorporated in the Bank's sector program suggests that there is a substantial potential to achieve improved sector performance over the medium to long term. Persistent supervision of ongoing projects and strengthened sector policy work will be required to achieve this performance. But it must be recognized that the attitudinal and institutional adjustments underway in the sector will take time, and that project objectives need to be formulated accordingly. Follow-up projects and the extension of projects to other States will be needed to maintain continuity and consistency in the sector policy dialogue and to pursue the issues now being identified in more detail. At the same time, more active participation by central government agencies as policy intermediaries for dissemination of sector policies and experiences to the different State Governments is envisaged for the future. II. THE SECTOR IN BOMBAY General 2.01 Continuous population increases and dynamic economic growth in Bombay has created a demand for water supply and sewerage service that is still not satisfied. The gap between supply and demand will widen unless the facilities are expanded as proposed under this project which serves the area within Bombay Municipal Corporation's jurisdiction (BMC). The BMC is part of the Bombay Metropolitan Region (BMR), which is a legal planning jurisdiction, in the State of Maharashtra. As the third largest state in India, Maharashtra has an area of 306,000 Km2 and an estimated population of around 60 million. Bombay is the capital city of Maharashtra State and the Largest city in India. It has the largest port and industrial center in the country, and accounts for about 30Z of India's industrial production. The original Bombay city limits were extended in 1951 and 1958 to include areas designated as 'Suburbs' and 'Extended Suburbs' creating what is referred to as Greater Bombay or Bombay City, which is administered by BMC and now extends to some 440 KW. Today, Greater Bombay has a population of about 9.3 million, as compared to a BMR population of about 11.6 million. Sectoral Priorities in the Bombay Metropolitan Region 2.02 Sustained development in Bombay is paralleled by equal emphasis being placed on balanced growth in the secondary towns in the State of Maharashtra; a major statewide water supply project is currently under preparation for which Bank assistance may be sought. The Seventh Plan (1986-91) anticipates that for the BMR some 34% of total public investment will be in the transport sector, 25% in shelter, and 24% in water supply and sanitation. Hence, these three sectors are the focus of priority in the BMR, comprising 83% of budgeted plan outlays. With the recent launching of the IDA-financed Bombay Urban Development Project, and the proposed Bank financing of this Third Water Supply and Sewerage Project, the mix of BMC investments in the shelter and water supply sector will be consistent with these BMR sectoral priorities (para 5.02). -6- Institutional and Financial Background 2.03 The Bombay Municipal Corporation is responsible for the provision of many local services including water supply, sewerage and sewage disposal within Bombay. BMC has been able to maintain considerable autonomy in the provision of services but the GOM, on the other hand, is able to introduce legislation to control BMC activities should this be necessary. 2.04 During the preparation of the First Water Supply and Sewerage Project, a separate Water Supply and Sewerage Department (WSSD) of BMC was established in the interests of efficiency and to improve the provision of water supply and sewerage services throughout the Bombay metropoLitan area. The organization and operation of the USSD is more fully described in paragraphs 4.01 through 4.03. 2.05 Since it became a separate accounting entity in BMC, the WSSD has established separate funds and accounts, and has been preparing financial statements using commercial accounting principles. The financial performance of the WSSD since 1975 has been very good. Over the past five years it has realized operating surpluses sufficient to finance about 50X of its capital investments; it has maintained strong liquidity positions; and it has rates of return in excess of its average cost of borrowing. The financial position and performance of WSSD is more fully covered in paragraphs 5.04 through 5.14. Populaticn 2.06 The 1981 census, which was undertaken by district wards, provided a fresh base for population projections in addition to the data available from previous studies. Projections through 2001 were developed by Tata Consulting Engineers during the preparation of the Feasibility Report for this project. 1/ The 1981 population of Greater Bombay of 8.23 million was used as a data base and projected tiirough year 2001 using predicted growth factors by wards. Since the 1951 census the overall population in Bombay has increased at an average rate of around 3.4% per annum. However, when taken on a ward by ward basis there are marked variations in growth rates between city and suburban wards. In the city wards the percentage growth rate appears to be reducing whereas the suburban figures indicate an increasing trend in recent years compared with the 1970's. This terdency is consistent with the apparent migration of popuLation to the suburbs from the more densely populated city wards and the conversion of tenements from residential to commercial use. It is considered that suburban population will continue to grow in the medium term despite Government of Maharashtra (GOM) restrictions on the development of new industries. Population figures of 10.75 and 12.78 million are forecast for years 1991 and 2001 respectively representing annual growth rates of 2.7% for the period 1981-1991 and 1.7% for 1991-2001. The corresponding growth rates for the BMR are substantially higher, at about 5%. 1/ Bombay Water Supply and Sewerage Project (Bombay III) for Municipal Corporation of Greater Bombay by Tata Consulting Engineers, India, 1983. -7- Water Demand 2.07 It can be seen from the population projections that an increase of some 2.5 million people in Bombay is anticipated during the decade through 1991 when the proposed project would be commissioned. The main increase in population is expected in the low income groups occupying tenement and slum accommodation with relatively low water demands, since lack of storage and continued intermittent supply hours will minimize any increase in per capita demand. Domestic demand has been assessed on the basis of sample surveys in 1977 and 1984 for various housing categories, resulting in the following average per capita demand figures for the housing categories surveyed. Table 2.1: WATER DEMAND CRITERIA Serial Housing Hours of Average current No. Category Supply per capita demand Remarks lcd 1. Apartment 24 306 Floor area >100 m with bath and more than one toilet 2. Apartment 24 220 Floor area <100 m0 with one toilet 3. Chawl /b 4-6 146 Private tap and toilet facility 4. Chawl 4 110 Private tap but shared toilet facility 5. Slum 4 90/a Communal tap /a 90 lcd considered in view of efforts to improve water and sanitation facilities to slum colonies. /b Single storey dwelling. 2.08 Based on the above survey the overall average domestic per capita demand is estimated around 180 lcd in 1991 rising to about 190 lcd in year 2001, after allowing for modest per capita demand increases (about 1% per year) in domestic consumption for all categories of consumers on account of continuing improvement in living standards. The industrial and commercial demand represents about 28% of the net water demand; this demand is based on historical data and is increasing at about 2% per annum. -8- Composition of Water Demand and Availability 2.09 The present and projected patterns of water demand and availability are summarized in Tables 2.2 and 2.3 and shown graphically in Annex 2. Table 2.2: POPULATION AND ESTIMATED WATER DEMAND 1981 1986 1991 2001 Population - million 8.23 9.40 10.75 12.78 Water Demand - mld Domestic 1,407 1,692 1,961 2,457 Industrial, commercial, Governnental 548 650 785 975 Sub Total 1,955 2,342 2,746 3,432 Distribution System Losses Ia 430 661 686 753 Net Demand 2,385 3,003 3,432 4,185 Transmission and Treatment Losses /b 83 114 136 173 Other Supplies (Bulk) /c 20 20 - - Gross Demand 2,488 3,137 3,568 4,358 Source Availability - mld (i) Current 2,020(19) 2,020(36) 2,020(43) 2,020(54) /d (ii) With Second Project 2,475(21) 2,475(31) 2,475(43) (iii) With Third Project - - 2,930(18) 2,930(33) /a 22% through 1986 reducing to 20% in 1991 and 18% in 2001 as a result of more leak prevention measures. /b 5Z less 36 mld recovered from Bhandup treatment plant. 7c Direct supplies to be phased out. 7- Percentage deficit on gross demand in brackets. 2.10 From Table 2.2, it can be seen that the anticipated water demand is expected to increase by 2.6X per annum through 1991 and thereafter at 22 annually and that without the Third Project the water deficit would increase to around 31% in 1991. After commissioning this project, the deficit would reduce to about 18% of the total demand; Table 2.3 indicates that per capita domestic water availability would increase to 137 lcd. This, however, would still represent a deficit of about 24% of the average domestic demand estimated at 180 lcd, at that time; this could only be reduced by curtailing the demands of commerce and industry on which Bombay's prosperity is largely founded. -9- Table 2.3: WATER AVAILABILITY AND DISTRIBUTION Mld 1986 1986 1991 2001 Available at Source /e 2,020 /a 2,475 /b 2,930 /c 3,320 /d En route supplies 20 /f - - - Transmission Losses 40 50 59 66 Treatment Plant Losses /g 25 38 51 64 Quantity for Distribution 1935 2387 2820 3190 Distribution System Losses /h 426 525 564 574 Industrial, co ercial and governmental use 650 650 785 975 Net quantity for domestic distribution 859 1212 1471 1641 Average per capita domestic availability mld 91 129 137 128 /a Before commissioning of Second Bombay Water Supply Project. Tb After commissioning of Second Bombay Water Supply Project. 'c Assumes development of third tranche of 455 mld from Bhatsai. 7!d Assumes future resource development (Middle Vaitarna scheme, para 2.13). 'e Figures rounded. 7f Towns outside BMC area, to be supplied from other sources. ' Recovery of 36 mld considered from Bhandup treatment plant. X_ 22Z through 1986 reducing to 20% in 1991 and 18% in 2001 resulting from adoption of more efficient Leak prevention measures. Water Supply Sources 2.11 Bombay has relied traditionally on obtaining its water supplies from upland surface sources, commencing with the development of Vihar lake which was brought into use in 1860, followed by the commissioning of Tulsi reservoir in 1879. Later, towards the end of the 19th century as the water demand of the city increased, BMC developed the Tansa reservoir thus ensuring adequate supplies until around 1944. At that time BMC sanctioned the commencement of work on the Vaitarna scheme and the lower Vaitarna reservoir was commissioned in 1957. Following an unusually dry year in 1966 BMC obtained approval from GOM to construct an intake on the river Ulhas; this was commissioned in i967 and yields 91 mld. The Upper Vaitarna reservoir was completed around 1972, raising the total water availability for BMC to around 1565 mld (344 mgd) (see Map IBRD 18974). -10- 2.12 In order to safeguard future supplies, BHC instituted an investigation in 1964 to determine future sources of supply. The appointed committee recommended the development of the Bhatsai scheme to provide a conjunctive use source for potable and irrigation water supply. This scheme is designed to supply, ultimately, 1,365 mld (300 mgd) of potable water to BMC (in three tranches) and a further 455 mld (100 mgd) for irrigation use. Construction of this impounding reservoir is being carried out in three stages; the first stage was completed in 1979 when the first tranche of 455 mld (100 mgd) was released to BMC. This provided the source water for the First Bombay Water Supply and Sewerage Project (Credit 390-IN). Dam construction is now sufficiently advanced to enable the second tranche of 455 mld (100 mgd) to be released to BMC as soon as the works on-going under the Second Project are complete (estimated 1986187). The appraisal mission obtained confirmation that the Bhatsai Dam would be completed on schedule by 1989 to provide the third and final tranche of 455 mld (100 mgd), on which this project is based. Nevertheless, assurances were obtained at negotiations that this increment of supply from the Bhatsai Dam would be available for the project. Thus the gross potable water availability for BMC at that time will be around 2,930 mld (645 mgd) compared with an estimated gross demand at that time of about 3,568 mld (785 mgd). Future Water Source Development 2.13 The Central Design Organization (CDO) of the GOM Irrigation Department has previously carried out Master Plan Resource studies to meet the anticipated water demand of the Bombay Metropolitan Region (BMR) through 2001. The Bombay Metropolitan Region Development Authority under the GOM's Department of Urban Development is responsible for physical planning and investment programming in the BMR and overall regulation of land use. The Water Resources Management Board of BMRDA has elected to develop the following basins: Seventh Five Year Plan (1985-1989): - Middle Vaitarna Project (potable use by BMC) - Kalu Project (potable use by BMC and irrigation use) Eighth Five Year Plan (1990-1995): - Gargia Scheme (potable and irrigation use) Detailed investigations have been undertaken by CDO for the Middle Vaitarna and Kalu schemes; the Gargia scheme investigation has not yet commenced. These alternatives were further studied at feasibility level within the Bombay Water Supply and Sewerage Project (Bombay III) study undertaken for BMC by Tata Consulting Engineers in 1983. This study compared Middle Vaitarna, Kalu and Cargia developments. It concluded that, based on capital, operation and maintenance costs, as well as land acquisition, population relocation and other social considerations, the Middle Vaitarna Project would provide the least cost development for the next water source for BMC. The estimated net yield from this source would be around 390 mld (after taking into account a reduction in yield of the existing Lower Vaitarna reservoir resulting from overall Vaitarna basin development). This scheme would -1l- complete the logical developmen, of the Vaitarna basin (Upper and Lower Vaitarna reservoirs are already in use by BMC). The Vaitarna scheme is planned to be operational by 1994 and could be commissioned progressively, as the dam is raised, since the existing conveyance and Bhandup treatment facilities could be used initially to deal with the additional supply. In 1994 the water demand of BNC is estimated around 3700 mld (see Annex 2); the Middle Vaitarna scheme would increase water availability to about 3320 mld thus further reducing the shortfall at that time to about 10%. In the event that population and water demand continue to increase as predicted then the development of the Kalu scheme (with an estimated yield to BMC of around 500 mld) would be needed before year 2000 in order to meet the suppressed water demand and prevent any unacceptable deterioration in water service levels. Sewerage, Waste Water Disposal and Sanitation 2.14 The sewerage facilities in Bombay date from about 1865; the original Worli outfall was completed in 1880 when sewage from within the city was conveyed to Lovegrove and thence to the sea through the Worli outfall. The present system was established in 1905 and subsequently the sewerage conveyance system was extended to newly developing areas and treatment facilities were provided at Bangaga, Dharavi and Dadar. In an effort to provide a service for the rapidly growing population, extensive relief measures were sanctioned in 1948 but these measures which were rapidly overtaken by industrial and commercial development and population growth, did little to improve the situation. The need for system improvements was further increased by two extensions of BMC's boundaries in 1951 and 1958. 2.15 Subsequently, various studies were undertaken during the period through 1979 when a Sewerage Master Plan was developed 1/ to provide a basis for the treatment and disposal of Bombay's wastewater through yea: 2005. The recommendations of this report provide the basis for the implementation started under the First Bombay Water Supply and Sewerage Project (Credit 390-IN) and continued iG the on-going Second Bombay Water Supply and Sewerage Project (Credit 842-IN). 2.16 The First Project originally included about 130 km of conveyance sewers, the construction of seven pump stations, rehabilitation of nine existing pump stations and improvements to existing sewage treatment works. Due to budget constraints this component of the project was re-defined and reduced to about 50 km of conveyance mains, rehabilitation of one existing pump station and construction of eight new pump stations providing sewage collection and conveyance over about 50% of BMC area. The treatment and disposal facilities, however, remained inadequate. 1/ Methods for Treatment and Disposal of Wastewaters from Greater Bombay - Metcalf and Eddy Inc. and Environmental Engineering Consultants, May 1979. -12- 2.17 The Second Bombay Water Supply and Sewerage Project set out to rectify this situation by the inclusion of conveyance, treatment and disposal facilities in the five drainage areas of Colaba, Malabar and Worli, Chembur, Harve and Mahim. This system is designed for year 2005 flows and the conveyance network will extend coverage to over 902 of the properties in the BMC area. The sewerage component in the Second Project when completed in 1987 will provide the following service facilities: Colaba Area - Discharge of effluent into Bombay harbor through a 1.2 km long outfall pipe after preliminary treatment by screening and grit removal (42 mild). Malabar and Worli Zones - Disposal of effluent from these areas to the Arabian Sea through a 3 km ocean outfall after screening, grit removal and chlorination at Lovegrove Treatment Plant (800 mld). Chembur Zone - Disposal to Thane Creek after preliminary treatment consisting of screening and grit removal. (Aerated Lagoons proposed for biological treatment at this site have been deferred for subsequent implementation after 1990 when operating experience has been obtained from similar fulL scale trial lagoon facilities under construction at Versova site) (582 mld). :arve Zone - Disposal to Malad Creek after preliminary treatment by screening and grit removal. As stated above, the Versova experience will be used to determine appropriate design/construction parameters for biological treatment facilities proposed at Chembur and Malad sites (411 mld). Mahim Zone - Disposal to the Arabian Sea through a 3 km ocean outfall after screening, grit removal and chlorination at Bandra Treatment Plant (800 mld). On completion of the facilities in 1987, about 65% of the waste flow will be discharged to the sea and the balance flow to tidal creeks after screening. 2.18 A sanitation component has been undertaken in the on-going Second Project by BMC, in parallel with the sewerage facilities described above, to provide improved sanitation to urban fringe areas not covered by the sewerage facilities. This component, undertaken by the Slum Improvement Cell of BMC included public latrine facilities, surface drainage and provisions for the disposal of domestic sullage water. This program is being further expanded in the Bombay Urban Developr.ent Project which is providing land infrastructure services and slum upgrading benefitting around one million persons classified as urban poor. 2.19 Further water service improvements and sanitation facilities which will directly benefit slum dwellers would be provided under the proposed project. -13- III. THE PROJECT Project Objectives 3.01 This project is part of a continuing program to improve further BMC's project implementation and operational performance; and to expand the water supply and sewerage facilities for the city of Bombay, to keep pace with increasing demand from population growth and expansion of industrial and commercial activities. The objectives of the Third Bombay Water Supply and Sewerage Project would be to: (a) Continue and expand on the efforts of previous projects in improving sector efficiency through improvements in project management, procurement, billing and collections, and leak detection and repair in the WSSD; (b) Expand water supply and sanitation facilities for the urban poor by (i) providing the water delivery capability in support of the Bombay Urban Development Project, which will be benefitting some 1 million persons classified as urban poor; (ii) providing suction tanks and pumping arrangements for slum colonies on high ground; (iii) providing tubewells and extensions of mains to other slum areas; and (iv) providing improved sanitation facilities in fringe areas of the city; (c) Increase the supply of water to the Bh5 area by 455 mld to a total of 2930 mld, compared to an anticipated demand of some 3568 mld in 1991. After allowing for commercial, industrial and other uses and losses, this would increase the average per capita availability to 137 lcd for the 10.75 million population projected for 1991; (d) Expand the sewerage conveyance facilities in isolated developed areas of the city which are not already served; and (e) Evaluate operating experience and develop appropriate design criteria and technical options for future investments in sewage treatment in Bombay and other parts of India. Rationale for Bank Support 3.02 The rationale for continued Bank support to the BMC/WSSD investment program rests on the contribution that the Bank can make to the achievement of key sector objectives, particularly in the areas of improved operational performance and project implementation capability. Bank involvement during project preparation has helped give more emphasis to the following specific project objectives: (a) improved detection and repair of leaks and waste reduction through the introduction of new technologies (e.g., noise correlation equipment); -14- (b) improved water revenue collection efficiency through improved customer records and associated management reporting; (c) strengthened project planning and control, using network based management systems for more timely and lower cost implementation of project components; (d) improved procurement performance through prequalification of contractors and suppliers for all major contracts; (e) follow-up and assessment of the operational performance of alternative sewage disposal systems (lagoons and sea-outfalls) with a view to establishing appropriate design parameters for use in future investments in Bombay and elsewhere in the region; and (f) expansion of sector training programs focusing on operations and maintenance and construction management. 3.03 Bank participation in the project preparation process has also ensured that aLl major engineering components were analyzed for cost effectiveness and designed in sufficient detail. Appraisal was delayed for about one year partly on this account. A major quantifiable saving which was achieved during this year, through an expanded search for lower-cost engineering designs, was in the tunneling component of the project where estimated costs were reduced by about US$8 million, or 15Z of the cost of the component as originally designed. However, to ensure construction of the 3000 m transmission system at least cost, certain contracts, currently scheduled for surface construction, may include an alternative for tunnelling for the purpose of obtaining realistic cost comparisons, including the cost of land acquisition and human settlement relocation. 3.04 BMC/WSSD also has the potential for providing sector leadership in the region by demonstrating effective approaches to financial and operations management. Over the longer term, the Bank will increasingly assist in disseminating the lessons Learned by the emerging competent cadre of BMC/WSSD staff. 3.05 It is noteworthy that the WSSD is in fact a department under the BMC and therefore under full local (municipal) government control. As such, WSSD is the most promising local government water supply undertaking in South Asia and provides an interesting counter-point to the prevailing trend in the region of removing the water supply function from local government control. -15- Project Description 3.06 The project components are described in Annex 1 and scheduled in Annex 3. The principal features of the project are shown in Maps IBRD 18974 and 18975. The components and all inclusive costs are summarized below: Water Supply (a) System Distribution (Rs 222.5 crore; US$171.2 million) (i) Construction of 52 km of trunk mains, diameter range 600 mm to 3000 mm; (ii) Construction of 49 km of distribution, diameter range 150 mm to 1800 mm; (iii) Construction of 9 km of 3000 mm diameter transmission tunnels; (iv) Installing 76 km of internal cement mortar pipelining, diameter range 1200 mm to 3000 mm; and (v) Provision of leak detection, system instrumentation and control equipment, valves and about 32,000 water meters. (b) Treatment Capacity, Pumping and Storage (Rs 97.6 crore; US$75.0 million) (i) Construction of a 455 million liter per day (mld) capac..ty water treatment plant, together with staff quarters for operators; (ii) Building and installation of pumping capacity of 2,233 mld in 17 units; and (iii) Construction of about 144 million liters of clear water storage in four service reservoirs. Sewerage and Sanitation (c) Sewers and Pumping (Rs 50 crore; US$38.5 million) (i) Construction of about 54 km of sewers, diameter range 230 mm to 1000, -; and (ii) Building and installation of equipment pumping capacity of 150 mld in 12 units. (d) Sanitation (Rs 8.6 crore; US$6.6 million) (i) Provision of low-cost on-site waste disposal facilities in selected areas of Bombay not covered by water-borne sewerage; and (ii) Provision of suction tanks, local pumping arrangements, tubewells and minor mains to service the urban poor in slums. -16- Technical Assistance and Vehicles for Operations (e) Training (Rs 4.5 crore; US$3.5 million). Training for BMC/WSSD staff in system maintenance and operations at facilities in Bombay and abroad, including development and expansion of course curricula at BMC's existing training center (para 4.08). (f) Consultancy (Rs 10.4 crore; US$8.0 million) Appointment of consultants to: (i) improve WSSD's project planning and implementation capability; to enhance the water and sewerage billing and collection; to strengthen financial audit procedures; and to enhance financial analysis operations; (ii) help implement the project and prepare preliminary designs for the next tranche of source development (Vaitarna) to meet future water supply needs; and (iii) review and develop design parameters in waste water disposal systems, based on stabilization pond technology (Versova), examine the possibilities for recycling wash-water at the potable water treatment plants and to reduce distribution system water losses by the application of improved techniques. (g) Vehicles for Operations (Rs 2 crore; US$1.5 million). Supply of 83 trucks, four wheel drive vehicles, buses and other vehicles for project implementation and operations. Cost Estimates 3.07 Cost estimates (base costs in December 1985 prices) for the project are sumrarized on page 19 in Table 3.1. Cost details and the proposed Bank Group financing share are detailed in Annex 4 on a concract by contract basis. 3.08 The overall project cost is estimated at US$304.3 million including US$20.6 million equivalent in customs duties and taxes. The cost estimates are considered to be reasonable and are based on WSSD's and its consultants' estimates (adjusted to December 1985 base) prepared after the completion of the detailed design and tender documents for the major project components. The base costs reflect WSSD's experience of the on-going Second Bombay Water Supply and Sewerage Project and other similar externally financed recent projects in India. In view of the extensive preparations already undertaken by WSSD and its consultant, and since detailed engineering of major components has already been completed, the allowances included for physical contingencies have been minimized; 10Z has been added for civil works with the exception of the distribut.Lon tunnels and Panjrapur Treatment plant where a figure of 15% has been adopted in view of the greater degree of uncertainty of these major components. A 10% physical contingency has also been included for the supply of materials and equipment resulting in an overall weighted -17- average of 10.4Z on the base cost. To provide for inflation through the expected dates of project completion, the following price escalation rates have been used; for local expenditures, 72 for 1985/86, 7.5Z from 1986/87 through 1989/90 and 52 thereafter, and for foreign expenditures 7.5Z in 1986187, 8Z from 1]87188 through 1989/90 and 5% for 1990/91 and onwards. 3.09 The project implementation period of 7-1/2 years is based on Bank experience in implementing similar projects in the sector. However, WSSD is aiming to implement the project in 6-1/2 years and this would reduce the overall project cost by about US$21.4 million. The effect of earlier completion would enable WSSD to optimize its financial objectives (para 5.17). Project Financing 3.10 Annex 16 presents the project financing plan fcr FY86 through FY95. A Bank Loan of US$40 million and an IDA Credit of US$145 million is proposed for the project. This would provide for about 65% of total project costs, net of taxes and duties. The Loan and Credit would be made to the Government of India, who would make the proceeds available to the Gonernment of Maharashtra in accordance with GOI's standard arrangements for developmental assistance to the States of India. Assurances were obtained at negotiations that the COM will lend funds to the WSSD for not less than 60% of annual capital expenditures, with WSSD covering 40% of annual capital expenditure from operating revenues. These funds would be lent to the WSSD from GOM for a 25-year term, including a five-year grace period on principal repayment, at an interest rate of not less than 8.75%. Status of Project Preparation 3.11 As already mentioned (para 3.08), USSD and its appointed consultants have already completed satisfactory designs and draft tender documents for the major water supply components of the project. All major contracts have been identified and the site investigation for the two distribution tunnels totalling 9 km in length (E Moses Road to Malabar and Futka to Sewree) has been completed. The contracts are listed in Annex 4. 3.12 Prequalification of firms for major contracts including Panjrapur Treatment Plant, pumping plant, tunnelling and pipelaying contracts has been completed. Land Acquisition 3.13 It is not anticipated that land acquisition will present major problems on this project since most of land required has been obtained by BMC during the on-going Second Project. For exemple pipeline easements for the trunk transmission system have already been acquired and the formation preparation works have been carried out. BMC already has commenced negotiations for the purchase of several small parcels of land required for reservoirs at Malabar and Raoli and extensions at Panjrapur Treatment Plant site. BNC brought to negotiations satisfactory evidence confirming that outstanding land purchase arrangements had been completed. -48- Table 3.1: SUNNARY OF FSTIMAXED PROJECT COSTS 11 Total Z of Item Loc-al Foreign Total Local Foreign Equiva- Total S Foreig Ra Million ---US$ Million--lent Base Cost Exchange Water Suiuly Civil Works 1077 176 1253 82.8 13.6 96.4 Equiment 233 246 469 17.2 18.9 36.1 Subtotal 1300 422 1722 100.0 32.5 132.5 70.9 24.5 Severate Civil Works 235 26 261 18.1 2.0 20.1 Equipment 2 12 14 0.2 0.9 1.1 Subtotal 237 38 275 18.3 2.9 21.2 11.3 13.7 Site Specific Facilities for Slum Areas Water service 28 3 31 2.2 0.2 2.4 facilities Law Cost Sanitation 15 2 17 1.1 0.2 1.3 Subtotal 43 5 48 3.3 0.4 3.7 2.0 10.8 Common services Vehicles 9 2 11 0.7 0.1 0.8 Staff quarters 9 2 11 0.7 0.1 0.8 Meters. leak detection & Miscellaneous Equipment 5 31 36 0.4 2.4 2.8 Subtotal 23 35 58 1.8 2.6 4.4 2.4 59.0 Other Training & Studies 18 14 32 1.4 1.1 2.5 Site investigation for Middle Reservoir 6 - 6 0.5 - 0.5 Connulting Services 31 10 41 2.4 0.7 3.1 -3C Engineering 244 - 244 18.8 - 18.8 Land Acquisition 2 - 2 0.1 - 0.1 Subtotal 301 24 325 23.2 1.8 25.0 13.4 7.2 Total Base Cost 1905 523 2428 146.5 40.3 186.8 100.0 21.5 Contingencies Physical 207 47 254 15.9 3.6 19.5 10.5 18.5 Price 800 206 1006 61.6 15.8 77.4 41.4 20.4 Subtotal 1007 253 1260 77.5 19.4 96.9 51.9 20.0 Total before Taxes & Duties 2912 776 3688 224.0 59.7 283.7 151.9 21.0 Taxes and Customs Duty 268 - 268 20.6 - 20.6 11.0 TOTAL PROJECT COST 3180 776 3956 244.6 59.7 304.3 162.9 19.6 jJ Figures rounded to Re 1.0 million and USSO.1 million. -19- Technical Assistance 3.14 Financial and Management. Financial and management technical assistance for this project will cover four important areas: project management; computerized billing and collections; the strengthening of financial audit procedures; and computerized modeling of WSSD financial operations. The project management assistance is described in para 4.04; the improvement to computerized bilLing and collection is described in para 5.09; and the strengthening of audit procedures is described in para 5.22. 3.15 The WSSD used the services of Tata Consultancy Services (TCS) in modeling WSSD finances during the preparation of this project. As part of this project, TCS will assist the WSSD in refining the model and assisting with its continued operational use in the WSSD. The model would be structured for use on a microcomputer within the office of the Additional Chief Accountant. 3.16 Engineering. The project also includes technical ass.Stance to BMC to support: (a) improved leak detection technology; (b) a review of the operational performance of the aerated lagoons at Versova; and (c) an economic analysis of re-cycling wash water at potable water treatment plants. 3.17 Leak Detection Technology. The assistance in connection with improved leak detection technology would complement the BMC staff training (both in country and overseas) and provide exposure to the latest technological developments in this very important aspect of water supply operational management with a view to reducing the system losses and unaccounted for water. Over the past few years WSSD has made a substantial effort to minimize water losses and has been routinely carrying out a leak detection and waste control program. The entire distribution system is divided into 540 sub-zones each of 250-300 connections. Each sub-zone is monitored on a 3-year cycle, leaks are located, repaired and systematically recorded. Owing to network valving arrangements in parts of the old system in the city and the continued need to provide a supply on an intermittent basis, it is difficult to apply waste metering techniques and determine losses on a quantitative basis but in some suburbs with modern network systems, losses of 15-20% have been reported following waste metering analyses. Transmission system losses are particularly low (typically less than 1Z) and leaks are easily identified and quickly repaired since these mains are laid mostly above ground and are of welded construction. 3.18 Following the introduction of noise correlators and other recent technological developments it is anticipated that the overall distribution system water loss may be progressively reduced from the present estimate of around 22% to about 20% in 1991 and to 18% by year 2001. 3.19 Operational Performance of Aerated Lagoons. As mentioned previously (para 2.17), full scale trial aerated lagoons comprising two parallel treatment systems are under construction at Versova site to provide biological treatment of sewage from the Versova drainage basin prior to discharge into Malad Creek. It is expected that these facilities will be commissioned in 1987. Technical assistance will be provided within the proposed project to assist WSSD in evaluating the operating performance and -20- appropriateness of these treatment systems in order to determine criteria for subsequent investment in this sector in Bombay (to complete the facilities at Bhandup, Chembur and Malad which were deferred from the on-going project) and to provide guidelines for use elsewhere in India. 3.20 Re-cycling Wastewater at Potable Water Treatment Plants. On commissioning of the water supply component in this project, WSSD will increase the supply of fully treated water to around 2930 mld (compared with a demand of about 3570 mld at that time); major facilities at Bhandup and Panjrapur will provide treatment for about 95% of this total. Washwater used during the treatment process at that time could account for as much as 150 mld. It is therefore proposed to provide technical assistance to enable WSSD to carry out an economic analysis of the possible benefits to be obtained from re-cycling filter washwater and clarification discharges. In view of the continued unsatisfied water demand in Bombay this could possibly reduce the deficit to around 141 from the 18% shortfall estimated in 1991 and impact on future resource developments in the sector. 3.21 About 120 man months of local consultant services and about 5 man months of expatriate consulting services will be provided to WSSD under the categories outlined above together with micro-computer support facilities. Further details are given in Amnex 20. Procurement 3.22 All major equipment supply and civil works would be awarded on the basis of international competitive bidding (ICB) in accordance with Bank Group guidelines, with the exception of contracts referred in para 3.25 beLow. In evaluating the bids for equipment and materiaLs, local mannufacturers participating in international bidding would be given a preferential margin equal to 15% of the c.i.f. costs of rho competing imports, or the existing rate of customs duty, whichever is lower. A preferential margin of 7 1/2% would be allowed for local contractors in evaluating civil works bids. It is likely that the majority of contracts for equipment and materials supply and all contracts for civil works (with the exception of Panjrapur Treatment Plant turnkey contract and cement mortar lining contracts) would be won by local contractors. 3.23 The value of civil works and materials and equipment contracts to be awarded under ICB procedures is estimated, -.-spectively, at the equivalent of US$131 million and US$54 million, totalling US$185 million. Procurement arrangements are summarized in Table 3.2. -21- Table 3.2: PROCUREMENT TABLE (US$ Million) Procurement Method Project Element ICB LCB NA /a Cost Civil Works 130.7 56.4 - 187.1 (82.5)/b (35.6) (118.1) Materials and Equipment 54.2 7.4 - 61.6 (54.2) (4.4) (58.6) Consulting Services, technical assistance and training - 0.6 7.7 8.3 (0.6) (7.7) (8.3) Land - 0.2 0.2 Engineering - 26.5 26.5 Taxes and Duties - - 20.6 20.6 Total 184.9 64.4 55.0 304.3 (136.7) (40.6) (7.7) (185.0) /a Not applicable. 7b Credit/Loan amount shown in parentheses. 3.24 The Panjrapur Treatment Plant contract would be bid as a turnkey contract against a performance specification combining the evaluation of the supply of equipment with the civil works to determine the least cost; for this purpose operating costs would be capitalized to compare alternative offers. BMC and its consultant are completely familiar with water treatment plant bidding and evaluation procedures having previously bid similar contracts against performance specifications when equipment and civil works contracts were evaluated separately. 3.25 Civil works contracts with an aggregate value of US$56.4 million equivalent would be awarded on the basis of local competitive bidding (LCB) procedures acceptable to the Bank, since these are all relatively small contracts which could not be combined into larger coatracts and which world not attract international bidders. These contracts would be for laying distribution mains, supplying and laying sewers, construction of small sewage pump stations, staff quarters, and provision of improved water service and sanitation facilities for the urban poor. The LCB procedures are satisfactory, and are described in para 3.29. Minor contracts for electrical and lifting equipment and pumping plant not exceeding US$200,000, individually, and aggregating to not more than US$1.0 million, which are readily available locally, and the fabrication of steel pipes with a high labor content where international contractors are not competitive with Indian -22- bidders would also be awarded under LCB procedures. The total estimated value of these contracts is about US$7.4 million equivalent. 3.26 Prior review by the Bank of invitations to bid and of proposed awards and final contracts would be required for (a) all ICB contracts, (b) alL civil works LCB contracts over US$500,000 and (c) all material and equipment supply LCB contracts over US$200,000. Thus more than 902 of the total estimated contract vaLue would be subject to Bank review. Nevertheless every effort will be made to group contracts, in the interests of efficiency and to reduce the total number. 3.27 BMC have already appointed consultants, 1/ who are acceptable to the Bank, to assist WSSD with project preparations. These same consultants were engaged to assist in the implementation of the ongoing project and their performance has been satisfactory. Retroactive financing from March 1, 1985, not exceeding US$250,000 is recommended for project related expenditures for consulting services for (a) the preparation of detailed designs, (b) preparation of tender documents and (c) evaluation of prequalification of contractors for water supply components of the project. 3.28 Prequalification of Contractors and Suppliers. In order to avoid delays caused by post qualification of bidders which has occurred on the on-going Second Bombay Project, all major contracts will be bid among experienced prequalified contractors. Draft prequalification documents have already been reviewed by the Bank. Prequalification for the following major contracts has been completed; Pise Pumping Plant, Panjrapur Treatment Plant, Transmission pipeline Majwade-MGL/EEH junction, Futka-Sewree and E Moses Road-Ruparel College distribution tunnels, Panjrapur Pump Station civil works and pumping plant. These contracts amount to Rs 144 crore, or about 402 of estimated project cost. 3.29 Local Procurement Procedures. The local procurement procedures (LCB) adopted by WSSB have been reviewed and found satisfactory; foreign bidders will not be precluded from bidding under these procedures. The findings are summarized as follows: (a) Tender documents are based on the same general conditions of contract as used in ICB contracts; (b) Contractors are registered on the basis of their past performance, solvency and ability to deliver in the category and scale of work for which they applied for registration; (c) Tenders are invited by public advertisement; If Tata Consulting Engineers, Bombay, India in association with Binnie and Partners, London, United Kingdom. -23- (d) For civil works, WSSD issues priced tenders and invites contractors to offer plus or minus percentages on scheduled rates. In such cases the scheduled rates are updated annually. Documents prepared by consultants (generally for larger contracts) are issued with unpriced Bills of Quantities; (e) Selected tenders are sometimes invited for urgent or specialized works; (f) Tender validity is usually 120 days and bids must be accompanied by a tender guarantee; (g) Tenders are opened publicly by a representative of the Additional Chief Accountant; bids are scrutinized by the concerned department and evaluation reports are presented for award recommuendation decisions by the tender committee; (h) No price negotiations are allowed or take place after the bids are received. Typically the time required from advertisement to award decision is about 6 months with a further 2-4 months for the signing of a contract; and (i) WSSD has now adopted prequalification procedures for the supply of equipment and civil works under LCB procedures. In such cases, priced bids are called only from selected bidders after scrutinizing and reconciliation of the firms' technical proposals. A period of two months is usually allowed for this type of invitation. Implementation Schedule 3.30 Schedules for the design, procurement and construction of the project are shown in Annex 5. Two schedules are presented; one based on a 7-1/2 year implementation program which corresponds to the Bankwide 8 year sector disbursement profile, on which project costs and financing have been predicated, and the second based on a 6-1/2 year accelerated implementation program assuming that the project is executed more efficiently and with fewer delays thaa in the past. These programs take into account that WSSD and its consultant have already prepared detailed designs and draft tender documents for the major water supply components of the project, and are proceeding to complete the prequalification of contractors for major contracts prior to Negotiations. 3.31 Some tenders could be invited before Credit/Loan effectiveness, and the initial contract for the purchase of steel plates for the fabrication of transmission pipeline materials could be placed in early 1987. Completion of the entire project is expected by December 31, 1993 based on the extended implementation period, but one year earlier if this accelerated program is achieved. -24- Disbursements 3.32 The proposed Bank Group funds of US$185 million would be disbursed in 8 years. An estimated disbursement schedule is shown in Annex 7. The amount of disbursement by category is shown in Table 3.3. Table 3.3: DISBURSEMENT BY CATEGORY Credit/Loan Percentage Category Allocation Disbursement l(a) Equipment and materials 54.2 10O of foreign expendi- procured under interna- tures or 100% of ex-factory tional bidding local expenditures (b) Equipment and materials 4.2 60% of expenditures procured under local bidding 2(a) Civil works awarded under 79.5 63% of expenditures international bidding (b) Civil works awarded under 34.9 63% of expenditures local bidding 3 Consulting services, site 8.3 100l investigations and training 4 Unallocated contingencies 3.9 TOTAL 185.0 3.33 No disbursements would be made against administrative costs, taxes and duties in India, or against contributions to projects financed under any other IDA Credit. Disbursements would be fully documented, except for those on small civil works contracts under US$500,000, and equipment and material contracts under US$200,000, for which disbursements would be made against certified statemcnts of expenditures (SOE). Supporting documentation for items disbursed against statements of expenditure would be retained by WSSD and made available to IDA staff for review on request. Such expenditures would be audited annually by BMC municipal chief auditor. 3.34 The estimated disbursement pattern shown in Annex 7 is consistent with the standard Bankwide disbursement profile for the sector. Steps have been taken to prevent delays in project execution by (a) the use of retroactive financing for critical preparatory activities; (b) consultants acceptable to the Bank are already appointed and are working on final designs and tender documents, and (c) prequalification of contractors for major contracts. The ability of WSSD to execute major water supply components, which comprise the major part of this project, is well established; this is confirmed by the performance on the on-going project for this activity when compared with the sewerage components. Some of the proposed work forms part -25- of a series of repeater contracts (e.g. major pump and transmission main- laying contracts) and accelerated disbursement within the estimated profile shown in Annex 7 should be possible. Operational Action Plan 3.35 There are a number of interrelated project activities to be undertaken by WSSD with a common aim to improve its operating efficiency and financial viability. These are discussed elsewhere in this Report and, because of their importance, have been grouped into an Action Plan. The components of this Plan were discussed during project appraisal and the timing of their implementation reviewed and agreed during negotiations. Progress on this Plan would also be reported in iSSD's normal quarterly reports and annually reviewed and updated in a manner satisfactory to the Bank Group. Assurances to this effect were obtained at negotiations. The Plan contains the following elements: ACTION PLAN A. Operational Improvements Due Date 1. Prepare Terms of Reference (for review Completed and agreement by the Bank) for the appointment of consultants to assist WSSD with preliminary engineering and site investigation for Middle Vaitarna Reservoir para 3.06 (f)(ii). 2. Appoint consultants to assist WSSD with Completed preliminary engineering and site inves- tigation for Middle Vaitarna Reservoir (para 3.06 (f)(ii). 3. Complete engineering and investigation September 30, 1988 in (2) above and review findings with the Bank (para 3.06 (f)(ii). 4. Prepare Terms of Reference for technical September 30, 1987 assistance to review operational perfor- mance of trial aerated lagoons at Versova and submit to the Bank for review (paras 3.06 (f)(iii) and 3.19. 5. Employ consultants, or provide in-house, January 1, 1988 technical assistance to review opera- tional performance of trial aerated lagoons at Versova (paras 3.06 (f)(iii) and 3.19). 6. Review findings of study in (5) above with April 30, 1989 the Bank and prepare an Implementation Plan (paras 3.06 (f)(iii) and 3.19. -26- 7. Prepare Terms of Reference for technical December 31, 1986 assistance to evaluate recycling of wash- water from potable treatment plants and submit to the Bank for review (paras 3.06 (f)(iii) and 3.20. 8. Employ consultants or provide in-house April 30, 1987 technical assistance to evaluate economics of recyclying wash-water from potable water treatment plants (paras 3.06 (f)(iii) and 3.20. 9. Review findings of study in (8) above with July 1, 1988 the Bank and prepare an Implementation Plan (paras 3.06 (f)(iii) and 3.20. 10. Review leak detection activities, determine December 31, 1986 program to progressively reduce distribution system waste to 20% by 1991 and submit to the Bank for review (paras 3.17, 3.18). 11. Implement leak detection program including July 1, 1987 technical assistance component (para 3.17, 3.18). 12. Prequalification of contractors for major Completed contracts (para 3.28). 13. Prepare a renewals program for replacement December 31, 1986 of worn out assets for review by the Bank (para 4.07). 14. Prepare and impLement staff training December 31, 1986 program (paras 4.08, 4.09). 15. Implement the renewals program which would Annually be reviewed annually by the Bank (para 4.07). February/March B. Institutional Improvements 1. (a) Appoint a consultant project Completed planning and control coordinator. (paras 3.14 and 4.04 and Annex 9). (b) Establish a project management cell Completed (para 4.04). C. Financial Improvements 1. Take required administrative action toward Administrative timely enactment of tariff increase to action completed. meet the projected financial performance Final decision of this Project (para 5.06). pending. -27- 2. Develop and implement a write-off policy March 31, 1987 for doubtful or disputed accounts (para 5.08). 3. Develop monthly delinquency reports and December 31, 1986 reminder letters. This effort is projected to increase collection efficiency to 85Z by FYE 88 (para 5.09). 4. Take required administrative actions toward Administrative timely enactment of necessary statutory action completed. amendments to the Bombay Municipal Corporation Act to allow the debt ceiling to be raised to four time the rateable value base applicable only to WSSD borrowing (para 5.20). 5. Employ consultants to provide technical November 30, 1986 assistance to improve BMC and WSSD's audit procedures (para 5.22). Monitoring Criteria 3.36 The Project will be monitored by performance and program indicators which will be useful to WSSD in controlling and developing the efficiency of its operations. The monitoring criteria are set out in Annex 6, and assurances were obtained at negotiations that such information would be reported to the Bank for review within six months of the end of each quarter. WSSD would continue to report to the Bank for about five years after project completion, and would be responsible for preparation of the project completion report. IV. PROJECT ORGANIZATION AND MANAGEMENT Water Supply and Sewerage Department 4.01 BMC, the beneficiary, established under the Bombay Municipal Corporation Act, 1888 is the largest Municipal Corporation in India. The council of 140 elected representatives is responsible for the provision of aLl municipal services including water supply, sewerage and sanitation in Greater Bombay to more than 8 million people. BMC maintains considerable autonomy in the provision of services by amendments to the 1888 Act which have been effected by GOM legislation. -4.02 A separate Water Supply and Sewerage Department (WSSD) of BMC was established in 1973 by an official order of the Municipal Commissioner and is responsible to the BMC Standing Committee for the planning, development, operation and maintenance of water supply, sewerage and sewage disposaL services. These services were previously the responsibility of several Connittees and Departments. -28- 4.03 The Municipal Commissioner, appointed by COH, is the principal officer of BMC and retains overall responsibility for WSSD assisted by a Director of Engineering Services and the Deputy Municipal Commissioner, Special Engineering (DMC(SE)). The Municipal Commissioner has traditionally been a senior civil servant from the Indian Administrative Services with wide experience in state and local administration. WSSD is organized into five separate sections (See Organization Chart, Annex 8) for management purposes - water supply projects,severage projects, common services engineering, and hydraulic engineering, each headed by a Chief Engineer. The finance and administration section is headed by the Additional Municipal Chief Accountant. All five section heads are responsible to the DMC(SE). Project Management 4.04 Project management on the Second Water Supply and Sewerage Project has been weak, particularly with respect to the sewerage component of the project. The interrelationship of activities on both the on-going and proposed projects are complex and improvement is needed in systems and procedures to continually monitor and relate project schedules, costs and technical performance. Specifically there is a need to provide early recognition of problems to identify critical activities, alert persons responsible for action, and then to follow-up antil problems are resolved. To achieve this the WSSD intends to establish a special project management cell under the direction of an experienced consultant, who will serve as a project planning and control coordinator, as part of the technical assistance component of this project (para 3.14). This project management assistance would be in support of the section heads of WSSD, and would not supercede their current responsibilitieis. An outline job description for the project planning and control coordinator appears in Annex 9. This coordinator was appointed in August 1986, and the project management cell formed in September 1986, in accordance with the Action Plan. Project Implementation 4.05 The project components would be implemented by the respective Water Supply and Sewerage Project Departments who are already completely familiar with similar project components which are on-going in the Second Project. 4.06 For the preparation of designs, Lender documents, tender reviews and supervision of major water supply components, WSSD will be assisted by local consultants (already appointed and acceptable to the Association). The design and supervision of the sewerage component, which extends the sewerage service coverage in small isolated areas within the Municipal limits, will be undertaken by WSSD Sewerage Project Section. Water service facilities for the urban poor will be dealt with by the Hydraulic Engineer's section, which is also responsible for distribution system extensions, cement mortar Lining, metering and improved leak detection and waste control. The provision of low cost sanitation facilities in the fringe areas of Bombay will be undertaken by BMC Sanitation Cell in collaboration with the Sewerage Project Section. The procurement of materials for both water supply and sewerage components of the project will be undertaken by the Common Services Section. -29- 4.07 The WSSD also needs to deveLop a program for the efficient and timely replacement of worn out assets for which a specific cash account will be established (para 5.19). To achieve this end, a plan must be drawn up by ISSD involving the financial planners and the technical staff responsible for carrying out a renewals program. Therefore WSSD will prepare a comprehensive renewals program, by end-1986, and thereafter review its implementation on a regular basis (para 3.35). Training 4.08 The training provided under the proposed project will extend and continue the programs already initiated in the First and Second Projects. The BMC Training Establishment at Borivili under the direction of BMC Civic Training Institute and Research Center, is already functioning and courses in cathodic protection and sewer cleaning have already been held. Training manuals have been prepared by BMC covering a wide range of water supply and sewerage operational requir.ments. These manuals take cognizance of existing facilities elsewhere ir -.aia and make use of material provided by British Water International (formerly National Water Council). These are listed in Annex 19. 4.09 The facilities and training to be provided under the proposed project include: (a) the development of Dadar Sewage Pump Station as a sewerage research and training center; (b) extension of Borivili Training Institute to provide student residential accommodation; (c) provision of workshop, laboratory, hydraulic and audio visual equipment at Borivili Training Institute; (d) the continued support of overseas training of BMC personnel to increase job skills and improve operational and management efficiency. Under the proposed project a total of 51 BMC personnel would receive overseas training with the major emphasis on financial and construction management, operation and maintenance, wastewater control and instrumentation system operation. A training program is. being prepared for Bank review, and will be finalized and implemented on or before December 31, 1986, according to the Action Plan; (e) the continued support of training of BMC officers at various training institutes in India including the Indian Institute of Technology, the National Institute for Training in Industrial Engineering and the National Productivity Council; and (f) training of BMC personnel at Borivili Training Institute and Research Center. Insurance 4.10 Assurances were obtained at negotiations that materials and equipment for the project will be insured and that all other public utility risks will -30- continue to be borne by internal Insurance Funds. Assurances were also obtained at negotiations to ensure that the existing separate Fire/Accident and Third Party insurance funds of WSSD in respect of other risks will be maintained by annual contributions by WSSD in accordance with principles agreed for the Second Bombay Water Supply and Sewerage Project and which are acceptable to the Bank. V. FINANCIAL ASPECTS BMC Capital In istments 5.01 The project is part of GOM's investment program during the Seventh Five-Year Plan (1986-91). For the Bombay Metropolitan Region (BMR) the Spventh Plan anticipates some 342 of total investment needs in the transport sector, 252 in shelter, and 241 in water supply and sanitation. These three sectors are the focus of priority in the BMR, comprising 83% of budgeted plan outlays. The Seventh Plan calls for about 68% of the BMR investment funds in water supply and sanitation to come from COM sources, including IDA additionality. It anticipates more than 50Z of the funds for shelter to come from private investment (which is noticeably optimistic), and about 75% of the funds needed for transport to come from the GOI. 5.02 A summary analysis of BMC capital investments is shown in Annex 10. During the last ten years (1975-84) water supply and sewerage amounted to 53% of BMC's total investment. While some 762 of BMC's investment was in the areas of water supply and sewerage, shelter, and traffic management, the investment in shelter was a relatively small 72. However, the recent launching of the IDA-financed Bombay Urban Development Project (BUDP) substantially improves the mix of BMC sector investments. With the BUDP and this Third Water Supply and Sewerage Project, the BMC sector investments for 1985-95 are projected to comprise about 37% water supply and sewerage, 27% shelter and 15% traffic operations. This is consistent with the priorities of the Seventh Plan. 5.03 The BMC investments projected for 1986-91 would be within the present financial capacity of the corporation. Recurrent annual costs for water supply and sewerage investments in the BMC amount to only about llZ of capital investment costs, and are entirely covered by direct charges to consumers. The additional BMC general revenue requirements for the annual recurrent costs of the increased shelter investments will amount to only about 71 of current revenues. For analysis purposes other investments were projected to remain at past levels. However, if they were to be increased materially, especially in education or traffic operations, substantial increases in property tax or other general revenues could become necessary to cover annual recurrent costs. WSSD Financial Position and Performance 5.04 The WSSD became a separate accounting entity within the BMC in 1974, as a condition of Credit effectiveness of the First Bombay Water Supply and Sewerage Project. Separate funds and accounts were established for the WSSD in 1975, and the Department began reporting its financial position and -31- resuLts of operations using commercial accounting principles beginning in 1979. The performance of WSSD in implementing its accounting systems, including some computerization, has been impressive. Also, the financial performance of WSSD since 1975 has been very good. 5.05 Annexes 11 through 14 present summary historical financial statements for the WSSD. Included are statements of financial position, income and expenditures, sources and applications of funds, and working capital. Table 5.1 presents key indicators of WSSD's financial performance for fiscal years ending 1981-85, derived from the financial statements. 5.06 Covenant Under Second Project. Under the Second Project the WSSD must maintain tariff levels to generate annual cash surpluses to cover at least 33% of its capital expenditures in any year, and at least a 40% average in two years. The WSSD is expected to satisfy this covenant for the fiscal years ending March 31, 1985 and 1986. However a tariff increase of about 30% will have to become effective during FY86 to satisfy the covenant in FY87, and to meet the projected financial performance under the proposed project (para 5.15). The WSSD has prepared a proposal for this tariff increase for BMC approval. As part of an Action Plan (para 3.35), the WSSD has taken the necessary administrative action toward the implementation of this tariff increase. -32- Table 5.1: WSSD HISTORICAL FINANCIAL PERFORMANCE FY81 FY82 FY83 FY84 FY85 (actual) (actual) (actuaL) (actual) (estimated) Financial Indicators Quick current ratio /a 2.2 2.0 2.1 1.8 2.0 Debt to equity ratio /b .30 .26 .27 .28 .30 Average age of customer receivables (months) 8.1 7.7 6.7 5.7 5.9 Working ratio /c .58 .54 .60 .64 .55 Rate of Return /d 9.5 9.0 11.5 11.1 9.3 Customer receivabLes/billings .68 .65 .56 .47 .49 Financial Operations (Rs million) Operating revenues 591 615 853 1041 1010 Operating expenditures /e 249 284 338 378 450 Operating surplus 342 331 515 663 560 /a Current assets, excluding inventories, divided by current liabilities. 7b Long-term debt divided by equity plus long-term debt, excluding revaluation reserve. /c Operating expenses, excluding depreciation, divided by revenues. 7i let income after depreciation divided by average current net fixed assets, plus average current working capital. /e Excludes interest and depreciation. 5.07 Departmental Liquidity. The liquidity position of WSSD has been consistently good over the past five years. Its quick asset ratio has averaged 2:1 and has been stable. This would indicate that the WSSD has been readily able to convert its working capital into cash to cover current liabilities. This in fact has been the situation, even though almost half of WSSD's customer receivables at March 31, 1985 may have represented old, disputed billings. Nonetheless, if this disputed amount was not considered the quick asset ratio would still be noticeably good in FY85, approximating 1.8:1. -33- 5.08 Customer Receivables. The WSSD has made imp nvements over the past five years in reducing its customer receivables relativce to billings, but they still remained significantly high at FYE85, amounting to some 49% of billings. In effect the average age of customer receivables has ranged between 6 and 8 months over the past five years. In iY78 customer receivabLes were about 39% of billings, and the Bank obtained assurances from WSSD on the Second Water Supply and Sewerage Project that customer receivabLes would be reduced to not more than 20% of billings by March 31, 1984. This target proved unrealistic given the timing of biLling and collecting on a quarterly basis, but the 49% figure is undesirable nonetheless. The underlying problem has to do with a lack of established policies and procedures for writing-off doubtful or disputed accounts, rather than with poor collection of billings in the year they are due. Indeed, WSSD's annual collection efficiency was betweei 75% and 80% in FY85. The objection to not writing-off doubtful accounts is that it could overstate WSSD's n2t income in any given year, and as tne doubtful -ccounts have accumulated it is beginning to overstate the WSSD's liquidicy position. Hence, as part of an Action Plan (para 3.35), the WSSD will develop and implement a write-off policy for doubtful or disputed customer accounts by March 31, 1987, and accordingly for the fiscal year ending March 31, 1988, the WSSD will charge off accrued customer receivables with appropriate current or prior-period adjustments to the accounting records. 5.09 Billing and Collections. WSSD billings are performed by the data processing department of BMC. The system of computerized billings is well controlled and operated. However, no routine reports are prepared to aid in monitoring and following up on delinquencies. As part of this project, technical assistance will be provided (para 3.14) to develop computer programs to zutomatically produce monthly delinquency reports, and to automatice y print reminder letters to customers whose bills are over 30 days in a. ears. As part of an Action Plan (para 3.35), the WSSD will employ consultants, by December 31, 1986, to provide technical assistance to develop and implement these computer programs. It is projected that this enhancement of the billing and collection system will increase collection efficiency to 85Z by FYE88. 5.10 Departmental Debt. Table 5.2 summarizes the long-term debt position of WSSD for FYE84, and the estimated position for FYE85. A more detailed schedule of WSSD's historical and projected debt appears in Annex 17. Over the past five years WSSD's debt to equity ratio has ranged between 0.26 and 0.30, which represents a relatively low level of debt compared to equity :apital, and is indicative of WSSD's ability to sustain substantially higher debt levels to finance capital works expansion. -34- Table 5.2: WSSD LONG TERM DEST (Rs millions) FY84 FY85 (actual) (estimated) Loans from GOI and GOM: First Water SuppLy and Sewerage Project 329 396 Second Water Supply and Sewerage Project 450 861 Loans prior to 1974 20 18 Other borrowing 648 511 Total 1440 1786 5.11 Operating Surpluses and Rates of Return. The WSSD has consistently generated operating surpluses over the past five years. During this time it has had a working ratio ranging between .54 and .64, leaving ample cash available each year to fund debt service and depreciation actually charged. Also, sufficient operating cash surpluses have heen available each year to finance capital works. To date these annual surpluses have been sufficient t-o enable WSSD to finance an average of about 60Z (compared to the 40Z requirement) of its annual investment outlays under the Second Water Supply and Sewerage Project. However, this has occurred largely because WSSD)'s investment program proceeded slower than anticipated. 5.12 Annual operating performance of the VSSD over the past five years has yielded satisfactery Rates of Return on fixed assets averaging about 10.1Z. These Rates of Return were based upon net fixed assets that were revalued in 1975, but not thereafter. A revaluation of fixed assets during FY81-85 would have reduced the Rates of Return to an estimated average of about 6.5X. This would still have been a satisfactory level, in view of the average cost of borrowed funds for WSSD being only about 4Z during' the past five years. 5.13 Revaluation of Assets. The WSSD revalued its fixed assets in 1975 to allow for more realistic depreciation charges reflecting the replacement cost of the aseets. The assets were to be revalued at regular intervals in the future using a general price index for India. However, the periodic revaluations have not been done. The GOI has stated that accounting for and reporting fixed assets at replacement value does not conform to generally accepted accounting principles in India. Hence, for purposes of establishing cash reserves for planned rehabilitation or replacement of WTSSD plant and equipment, WSSD will notionally revalue fixed assets annually, using an appropriate index. This eas recorded in the Agreed Minutes of negotiations. Depreciation amounts calculated on these asset replacement values would then be the basis for deposits to a specific cash account to be used for asset rehabilitation and replacement (para 5.19). -35- 5.14 Tariffs. Table 5.3 summarizes the current WSSD tariff structure for water and sewerage. Some 75Z of billed water and sewerage revenue comes from metered charges, with charges to industrial and commercial users amounting to about 54Z of total billed revenue. About 402 of the rateable value of properties in Bombay is accounted for by industrial and commercial properties. Thus, when both metered and unmetered charges are considered, industrial and commercial users are paying at least six times the amount domestic users are paying for a liter of water. At current water consumption levels, the average monthly domestic water and sewerage bill amounts to about Rs 20. Even for a relatively affluent domestic consumer the bill would not exceed about Rs 35 per month. A Rs 20 monthly bill would approximate 2Z of an average family income, suggesting that higher domestic tariffs would still be affordable. Indeed in the nearby towns of Kalyan and Dombivli, domestic consumers are paying Bs 5/10,000 liters, compared to the Rs 3 charged in Bombay. Presently, the overall effective tariff rate in Bombay amounts to about Rs 19/10,000 liters. An economic analysis (para 6.10) estimates that the average incremental cost of water under this project will be about Rs 29/lo,000 liters, assuming 12% opportunity cost of capital. Hence, effective tariff increases of about 30X in FY86, 401 in FY88 and 40% in FY92 will be needed to bring average incremental revenues in line with costs. The weight of these increases is likely to fall on domesic consumers. Hence, it will become important for the WSSD to also consider the relative tariff implications for low income and high income households. WSSD Financial Projections 5.15 Annexes 11 through 14 present summary projected financial statements for the WSSD, extending to FY95. Included are projected statements of financial position, income and expenditures, sources and applications of funds, and working capital. The assumptions underlying the projections are presented in Annex 15, and should be viewed as an integral part of the projected statements. Table 5.4 presents key ir.dicators of WSSD's projected financial performance, derived from the projecr.s.d financial statements. These indicacors have been included in the monitoring criteria to be used during supervision of the project (para 3.36 and Annex 6). For comparison purposes, some of these same indicators also are used in the presentation of WSSD historical financial performance (Table 5.1). -36- Table 5.3: WATER AND SEWERAGE TARIFFS Percent of Tariff /a revenue yield Wate: Metered charges: Domestic Rs 3/10,000 liters 14 Industrial and commercial Rs 20-60/10,000 liters 42 Metered bulk supplies: Local government Rs 5/10,000 liters Other government Rs 8/10,000 liters Trade and construction Rs 50/10,000 Liters 3 Non-metered charges: Tax on rateable vaLue 9Z of R.V. /b 4 Water benefit tax 6% of R.V. 11 74 Sewerage Metered charges: Domestic 50% of water charges 4 Industrial and commercial 50% of water charges 12 Non-measured charges: Tax on rateable value 5% of R.V. 3 Sewerage benefit tax 4Z of R.V. 7 26 100 /a Effective FY84. 7T R.V. = rateable value of real property. 5.16 The projected financial statements indicate noticeably satisfactory performance for the WSSD, predicated on tariff increases of about 40Z each enacted in the years in which works are commissioned (FY88 and FY92) for both the Second and Third Water Supply and Sewerage Projects. The liquidity position of WSSD is projected to remain very sound, with large cash balances accumulating. These balances will be needed as contributions to a specific cash account (para 5.19), for the periodic replacement or rehabilitation of capital assets. The remaining unrestricted cash in WSSD should be limited so the quick current ratio does not exceed 2:1. Collection efficiency is expected to increase to 85Z as a result of technical assistance to improve the computerized monitoring and follow-up of customer billings (para 5.08). This would have a direct impact on improving the average age of customer receivables to under four months. Debt service coverage is projected to remain satisfactory, reaching a relatively low but safe level of 2.3 in FY93, and improving thereafter. The Rate of Return on assets also is projected to remain satisfactory, averaging about 9.1Z during FY86-95. -37- Table 5.4: VSSD PtO31C1U rWCIA IICT5S Fn 1966 n? 1987 nF Igoe PT 1989 n_29 1 XO FT 1991 FY 1992 flf223 FT 1994 ry 2l95 Qoiclc current ratio .11 3 2.2 2.4 3.3 4.2 4.8 5.2 5.3 6.7 9.0 11.0 eyS a e of cuatomer recivsbles (soeths) Z/ 4.6 4.5 3.3 3.5 3.3 3.4 3.4 3.4 2.8 3.0 Collecti efficiency (z) s 80 3 05 8S 5 35 es 85 85 85 Debt to equity ratio 3f V .43 .45 .43 .42 .40 .39 .38 .37 .36 .29 Bat service coverage A/ 5.3 6.2 4.8 4.5 5.1 4.1 2.6 2.3 4.4 4.2 Operating revenue Ms ailli
Groupe de la Banque mondiale · Staff Appraisal Report
India - Third Bombay Water Supply and Sewerage Project
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