Uganda - Small Towns Water and Sanitation Project

D_mnt of The World Bank FOR OMCIAL USE ONY Rapart . P-6181-UG MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON &L PROPOSED CREDIT OF SDR 30.4 MILLION TO THE REPUBLIC OF UGANDA FOR THE SMALL TOWNS WATER AND SANITATION PROJECT FEBRUARY 17, 1994 MICR. MJRAPHICS Report No: P- 6181 UG Type: MOP Tbi document has a restricted distibution and may be ued by reipients only in the performane of their officia duies Its content may not otherwise be discosed widuwt Wodd Dank authorization.  CURRENCY EQUIVALENTS Currency unit = Uganda Shiling (USh) US$ 1.00 = USh 1174 (October 29, 1993, official rate) USh 1 = US$ 0.0008517 SDR 1 = US$ 1.3934 (October 31, 1993) US$ 1.00 = SDR 0.7177 WEIGHsS AND MASURES Metdc System ABBREVIATIONS AND ACRONYMS DSAP - Water Supply and Sanitation Development Strategy and Action Plan DWD - Directorate of Water Development (formerly the Water Development Department, WDD) GDP - Gross Domestic Product GNP - Gross National Product GIOU - Government of Uganda ICB - International Competitive Bidding IDA - International Development Association LCB - Local Competitive Bidding NGO - Non-Govemmental Organiation NWSC - National Water and Sewerage Corporation PPF - Project Preparation Facility RC - Resistance Council RTWSP - Rural Towns Water and Sanitation Program WSC - Water and Sanitation Committee WSG - Water User Group WUA - Water User Association GOVERNMEN FISCAL YEAR July 1 - June 30  FOR OFMCIL USE ONLY REPUBLIC OF UGANDA SMALL TOWNS WATER AND SANITATION PROJECT CRED1T AND PROJECT SUMMARY Borrower: The Republic of Uganda Implementing Directorate of Water Development (DWD); Agency and National Water and Sewerage Corporation (NWSC) for a portion Beneficiary: of the credit Credit Amount: SDR 30.4 million (US$ 42.3 million equivalent) Terms: Standard IDA terms with a maturity of 40 years Relending Out of a total passed on to NWSC of approximately US$ 22.0 Terms: million, 50 percent or approximately US$11.0 million would be passed on to NWSC as equity, and 50 percent relent at the prevailing minimum rate charged by commercial banks in Uganda for commercial loans to companies, plus 3 percent, repayable over 25 years including 5 years of pace. The foreign exchange risk of the NWSC portion of the credit would be bome by the Govemment. Project The Project would support the Government's economic recovery Objectives: program by extending the rehablitation and upgrading of water supply and sanitation services to towns that have so far not been covered. It would (i) improve health conditions through better water supply, excreta disposal, waste water management, and public hygiene; (ii) alleviate poverty and improve the lot of women; and (iii) reduce environmental degradation through better waste management. Project The Project would provide 12 small towns and Jinja with Description: improved and sustainable water supply and sanitation through: (i) the rehabilitation and/or expansion of water supply and sanitation facilities; (ii) hygiene education related to water supply and sanitation; (iii) community participation in planning, implementation, operation, and maintenance of water supply and sanitation facilities; and (iv) institutional strengthening, technical assistance and training for the organizations in the sector. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - Benefits: The creation of water supply and sanitation systems would improve the health and well-being of the population of the towns in the project area. A large share of the benefits would go to the poor by including them in the coverage with an appropriate technology. Women's traditional burden to provide water and look after the health of children would be lesseed, and they would have more time to devote to other activities, including income generating activities, as a result of improvements in water supply and sanitation. Better sanitation at a household level would mean improved health for the entire family. The Project would also bring about environmental improvements thorough the safe disposal of excreta and waste water. Risks: The implementation of the Government's administrative decentralization p%iicy, which was approved in July 1992, has not yet progressed to a level where the new relationship between central government and the distnct and town administrations is completely defined. The rsk of local government and cental government institutional conflict does exist and needs to be monitored. Similarly, the newly established Water User Groups, Water User Associations, and Water and Sanitation Committees would require project implementation experience before the risk of management problems, due to overlapping responsibilities and functions, is removed. Penodic folbow-up and supervision would be provided by DWD monitanng the performance of the Water User Groups and Associations and the related Water and Sanitation Committees to ensure that this concern is properly addressed. There is a risk that the technical and managerial capabilities of the town and district administrations may initially be insufficient for effective project implementation. Select staff of the town administrations and possibly some personnel from the district administrations directly involved with project implementation would receive appropriate training through the Project. Back-up arangements would be made by DWD to support the town administrations particularly in the early stages of project implementation.  Estimated Costs Fore LOA Total % of (US$ million) Small Towns 11.1 4.4 15.5 39 Jinja-Njeru 15.4 5.6 21.0 52 Institutional Strengthening 0.9 1.1 2.0 5 Project Preparation Facility 1.2 0.3 1.5 4 Total Base Cost 28.6 11.4 40.0 o00 Contingencies Physical 2.4 0.8 3.2 Price 3.4 1.4 4.8 Sub-Total of Contingencies 5.8 2.2 8.0 TOTAL PROJECT COST 34.4 13.6 48.0 Taxes and Duties 0.8 0.8 TOTAL COST NET OF TAXES AND 34.4 12.8 47.2 DUTIES FInancng Plan Foreign Local Total % of -==== (US$ million) IDA 34.4 7.9 42.3 88 Government of Uganda 2.5 2.5 5 NWSC 3.2 3.2 7 TOTAL PROJECT COST 34.4 13.6 48.0 100 Estimated IDA Disbursements IDA Fiscal Year 1994 1995 1996 1997 1998 1999 2000 2001 (US$ million) Annual 4.0 5.2 6.2 9.5 6.1 4.7 3.7 2.9 Cumulative 4.0 9.2 15.4 24.9 31.0 35.7 39.4 42.3 Rate of Return: Not Applicable Poverty Category: Program of Targeted Interventions Staff Appraisal Report No.: 12296-UG Map No.: IBRD 25071  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DlECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF UGANDA FOR THE SMAL TOWNS WATER AND SANITATION PROJECT 1. I submit for your approval the following memorandum and recommenation on a proposed development credit to the Republic of Uganda for SDR 30.4 million (US$42.3 milion equivalent) to help finance a Small Towns Water and Sanitation Project. Tne proposed credit would be on stndard IDA terms with a maturity of 40 yes. A pordon of the credit proceeds (US$22.0 million equivalent) would be passed on to National Wate and Sewerage Corporation (NWSC), of which 50 prcent (US$11.0 equivalent) as equity ant! 50 percent relent at the prevailing minimum rate charged by commercial banks in Uganda, plus 3 percent, repayable over 25 years including 5 years of grace. The foreign exchange rsk of the entire IDA Credit would be borne by the Govemnment. 2. background - Uganda's popuation, as enumerated in the 1991 census, is 16.7 million and growing at about 2.7 percent annualy. Per capita GNP is estimated (1992) to be US$170; about 90 percent of the population is rural. Due to Uganda's prolonged politcal and economic dificulties in the past, migration to urban areas was relively low but as the economy improves this is expected to increase. Kampala is by far the largest urban center with a 1991 census population of nearly 800,000, followed by Jinja with a population of 60,000. 3. At independence in 1962, Uganda had one of the strongest, most promising economies in Sub-Saharan Africa. The country is not well endowed withi minerals or fossil fuels, but has rich soils and a favorable climate for agricultural production. It has extensive surface water resources and a very lrge hydroelectric potential which has only partially been exploited. The years immediately after independence demonstrated the country's economic potential: real GDP grew by 5.8 percent per annum from 1962 to 1970, with per capita GDP increasing more than 2.8 percent per annum. 4. The political and economic turmoil in the country during the last twenty years has resulted in a severe decline in the living standard of most Ugandans. By 1986, Government expenditure on education was one-third the 1970's level; health expenditure was one-tenth of former level; and infrastructure expenditure, one-quarter. This resulted in a massive disruption of essential services and various health programs were discontinued. Outbreaks of waterbome and water-related diseases increased as a result of broken down rural and urban water supply systems and new construction failing way behind the population increase. Coverage with piped water supplies is about 50 percent in the nine towns under NWSC, but only about 15 percent in the other towns have an adequate water supply at present. In rural areas the coverage with adequate water supply is about 20 percent. About 60 percent of Uganda's population  -2 - have some kind of excta disposal facility, more than half of which is, however, unhygienic. In rural areas the problem stems from a lack of both user contributions and Government finances to pay for operation and maintenance costs. Except for tariff increases made by NWSC in its service area in the last three years, in most urban areas unrealistic tariff strucures (not adjusted to inflaton and devaluation) povide insufficient funds to operate and maintain the systm The years of civil strive and the resulting displacement of populations also led to the rapidly increasing spread of the Acquired Inmune Deficiency Syndrome (AIDS). 5. OrgaizatIon and Sector Polcy - The main organitns responsible for the sector are (i) the Directrate of Water Development (DWD) in the Ministry of Natural Reources, the responsibility of which is changing from an inplementor for all water supply construction and opaion and maintenance in the country not under the respondbilit of NWSC to that of a planner, promoter, and regulator; and (ii) NWSC, a parastal organiztion, which is currently responsible for nine major towns, including the two largest, Kampala and Jinja. Both os are relatively wel managed with adequate staff to fulfill their respective mandates. The Ministry of Health has overall responsiblity for sanitation as part of its mandate for public heath, but operationally the responsibility for urban station (except for towns under NWSC) lies with the Ministry of Local Government and, through it, the town admistations. In 1989, the Government of the Republic of Uganda issued the Water Supply and Sanitation Sector Development Strategy and Action Plan (DSAP) in which the strategy for the water and sanitation sector was reined in the context of the existing conditions in Uganda. The sategy includes: Q1) Further strengtmening of NWSC into an organization able to operate urban water supply and sanitation systems on a self-acoounting, commercial basis; (ii) Strengthening of DWD to enable it to facilitte development and opration and mantenance of water supply and sanitation systems in all ural areas and urban areas not covered by NWSC; (iii) Promotion through DWD of commumity manent, operaton, and maintenance of water supply facilities such as spring catchments, hand dug wells, boreholes fitted with handpumps, and simple reticulated systems; DWD to organize and enable individual communities to contribute to the construction costs and pay for the recurrent costs; and (iv) Creaton of a sound fincial foundation for the sor through setfing of user charges sufficient to cover operaon, maintenance, replacement, and, to the extent possible, investments in new works. 6. The origins of the Government's Rural Towns Water and Sanitation Program which this Project would support are contained in the DSAP. The Program  -3- has been newly added by the Government to its investment plans in order to fiU the gap between the large urban program under NWSC and the rural program. It focuses on mnicipalities, towns, and trading centers not under the sponsibility of NWSC. The objective is to use a demand driven approach where communities plan, operate and maintain their systems. ITe private sector would be involved in technical assistance, cons.tucton, spare parts and repair services, and the Government would finance part of the capital costs and would provide back-up for maintenance. This would allow technologies to be chosen according to the users' wilingness and ability to pay for the recurrent costs and would direct the Government's scarce financial resources towards the constiucon of new syste