Malawi - National Water Development Project

Document of The World Bank Report No. 13189-MAI STAFF APPRAISAL REPORT MALAWI NATIONAL WATER DEVELOPMENT PROJECT JUNE 1, 1995 Energy and Infrastructure Operations Division Southern Africa Department  CURRENCY EQUIVALENT (as of December 31 1994) Currency Unit = Malawi Kwacha (MK) US$1.00 = MK15.4 FISCAL YEAR (FY) April I to March 31 WEIGHTS AND MEASURES 1 meter (m) = 3.281 feet (ft) kilometer (km) = 0.621 miles (mi) I square kilometer (km) = 0.386 square miles (sq mi) I cubic meter (m 3) = 264.2 U.S. gallons GLOSSARY OF ABBREVIATIONS BWB = Blantyre Water Board CAS = Country Assistance Strategy DWSF = District Water Supply Fund ESCOM = Electricity Supply Commission of Malawi GDP = Gross Domestic Product GIS = Geographic Information System GOM = Government of Malawi ICB = International Competive Bidding IDA = International Development Association KfW = Kreditanstalt fur Wiederaufbau (Germany) LWB = Lilongwe Water Board MASAP = Malawi Social Action Project MIM = Malawi Institute of Management MIWD Ministry of Irrigation and Water Development MLGRD = Ministry of Local Government and Rural Development MOEP&D = Ministry of Economic Planning and Development MOF = Ministry of Finance MOREA = Ministry of Research and Environmental Affairs MSC Ministry of Statutory Corporations MWS = Ministry of Works and Supplies NCB = National Competitive Bidding NDF = Nordic Development Fund NEAP = National Environmental Action Plan NWDP = National Water Development Project O&M = Operation and Maintenance ODA = Overseas Development Administration (U.K) OPC = Office of the President and Cabinet PPF = Project Preparation Facility PSIP = Public Sector Investment Program PU = Project Unit RWB = Regional Water Board (i.e., Northern Region Water Board (NWB); Central Region Water Board (CWB) and Southern Region Water Board (SWB)) SOE = Statement of Expenditure SUCOMA = Sugar Corporation of Malawi TA = Technical Assistance TOR = Terms of Reference UNDP = United Nations Development Program USAID = United States Agency for International Development WB = Water Board (3 RWBs, BWB and LWB) WD = Water Department WRB = Water Resources Board WRMPS = Water Resources Management Policy & Strategies  MALAWI NATIONAL WATER DEVELOPMENT PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. CREDIT AND PROJECT SUMMARY .............................................I CHAPTER 1. THE WATER & SANITATION SECTOR .............................................1 A. COUNTRY CONTEXT .............................................. B. SECTOR BACKGROUND ............................................ I WATER RESOURCES .............................................1 LEGAL FRAMEWORK .............................................2 SECTOR INSTITUTIONS .............................................2 WATER SERVICES TO THE TWO CITIES .............................................2 WATER SERVICES TO TowNS AND RURAL AREAS .............................................3 WATER RESOURCES MANAGEMENT .............................................3 SAN ITATION .............................................4 RELEVANT LINE MINISTRIES AND AGENCIES .............................................4 EXISTING FACILITIES, LEVELS OF SERVICE AND COVERAGE .............................................4 C(. SECTOR ISSUES .............................................5 ENVIRONMENTAL ISSUES .............................................5 SECTOR WEAKNESSES AND CONSTRAINTS .............................................5 D. PRIORITIES .............................................5 E. THE POLICY FRAMEWORK AND STRATEGIES .............................................6 F. INVESTM ENT .............................................8 G. PREVIOUS BANK INVOLVEMENT AND LESSONS LEARNED .............................................9 CHAPTER 2. THE PROJECT ............................................ 10 A. PROJECT OBJECTIVES ............................................ 10 B. PROJECT OUTCOMES ............................................ I 0 C. RATIONALE FOR IDA INVOLVEMENT .............................................1.1 D. PROJECT STRATEGY ............................................ I 1 E. SUMMARY PROJECT DESCRIPTION ............................................ 1 3 F. INSTITUTIONAL REFORM AND STUDIES ............................................ 14 INSTITUTIONAL RESTRUCTURING AND CAPACITY BUILDING .14 WATER DEPARTMENT.1. 4 URBAN WATER AND SEWERAGE SERVICES .16 STUDIES.17 1. INVESTMENT COMPONENTS.18 G. PROJECT COSTS .................................... 19 H. PROJECT FINANCING .................................................................................................................. 21 CHAPTER 3. PROJECT IMPLEMENTATION ..................................... 23 A. IMPLEMENTATION PROGRAM ............................... 23 B. SYSTEMATIC CLIENT CONSULTATION ..................................... 29 C. TECHNICAL ASSISTANCE ..................................... 30 D. STATUS OF PREPARATION ..................................... 30 E. PROCUREMENT ...................30 F . DISBURSEMENT ...................3 3  G. ACCOUNTING AND AUDITING ......................................................... 34 H. BANK SUPERVISION AND REPORTING REQUIREMENTS ......................................................... 34 CHAPTER 4. JUSTIFICATION, BENEFITS AND RISKS ......................................................... 35 A. PROJECT BENEFITS AND JUSTIFICATION ......................................................... 35 B. ENVIRONMENTAL IMPACT ......................................................... 35 C. RIPARIAN RIGHTS .............................................................. 35 D. POVERTY IMPACT ......................................................... 35 E. FNANCIAL ANALYSIS ......................................................... 36 F. ECONOMIC ANALYSIS ......................................................... 40 G. RiSKS .........................................................40 CHAPTER 5. AGREEMENTS REACHED AND RECOMMENDATION ......................................................... 43 A. CONDITIONS OF BOARD PRESENTATION ......................................................... 43 B. CONDITIONS OF EFFECTIVENESS ......................................................... 43 C. CONDITIONS FOR DISBURSEMENT ......................................................... 43 D. AGREEMENTS REACHED AND ASSURANCES GIVEN DURING NEGOTIATIONS ......................................................... 44 E. RECOMMENDATION ......................................................... 45 Annexes Annex 1 1.1 Executive Summary of Water Resources Management Policy and Strategies Annex 2 2.1 Detailed Project Description 2.2 Rural Water Supply Reform 2.3 Project Costs Estimates 2.4 Financing Plan Annex 3 3.1 Critical Path Management Chart 3.2 Estimated Disbursement Schedule 3.3 Supervision Plan Annex 4 4.1 Forecast Financial Performance of RWBs and LWB 4.2 Executive Summary - Environmental Impact Assessment (EIA) - Zomba Upper Mulunguzi Dam 4.3 Documents in Project Files This report is based on the findings of a Bank appraisal mission which visited Malawi in June/July 1994, comprising Mr. E. Aikins-Afful (Senior Sanitary Engineer and Mission Leader), Mr. K. John Shepherd (Water Resources Management Specialist), Mr. H.A. Garn (Economic Advisor), Ms. N.D. Nikoi (Operations Officer), Mr. Ivor Beasley (Financial Analyst Consultant), and Ms. Nga Nguyen (Sr. Staff Assistant). Ms. Nga Nguyen and Ms. Robin Harris (Staff Assistant) provided administrative support in the preparation of the project. Mr. Randolph A. Andersen and Mr. Walter Stottmann were the peer reviewers. Mr. Jeffrey Racki and Ms. Katherine Marshall are the Managing Division Chief and Department Director, respectively.  -i- MALAWI NATIONAL WATER DERVELOPMIFNI PROJECT CRERI AND PROJECT SUMMARY Borrower: Republic of Malawi Beneficiaries: Ministry of Irrigation and Water Development, Lilongwe Water Board and three Regional Water Boards. Poverty Category: The project would contribute to poverty reduction by improving access to safe water and thus reducing the incidence of water-borne disease and increasing productivity by reducing the time and effort expended on fetching water. Amount: SDR 50.3 million (US$79.2 million equivalent). Terms: Standard IDA terms with a maturity of 40 years including a 10-year grace period. On-Lending Terms: To the Lilongwe and Regional Water Boards using a combination of commercial debt and equity contribution. Interest Rate on the debt would be 2% above prevailing inflation; Repayment of principal over 25 years, including a 5-year grace period. Financing Plan: IDA - US$79.2 million; NDF - US$5.3 million; GOM - US$9.6 million Economic Rate of Return: Average of 25% estimated for candidate urban schemes. Staff Appraisal Report: No. 13189-MAI Map: IBRD 26497 Project Identification Number MW-PA-1667  -ii- Estimated Project Costs: (USS Million) % % Total Foreign Base Local Foreign Total Exchange Costs A. Institutional Reform, Technical Assistance, and Studies 1. Institutional Development 1.5 2.0 3.5 57 5 2. Implementation Support - National Water Dev. Project 1.6 3.9 5.5 71 8 3. Implementation Support - LWB - 1.4 1.4 100 2 4. Studies 0.2 1.8 1.9 92 3 Subtotal Institutional Reform, Technical Assistance, and Studies 3.3 9.1 12.3 74 17 B. Rehabilitation of Existing Systems 1. Urban Water 0.2 0.7 0.9 75 1 2. Rural Gravity-Piped Water 0.5 1.4 1.8 75 3 3. Borehole 1.2 2.4 3.6 66 5 4. Protection of Catchment Areas 1.0 0.6 1.6 37 2 Subtotal Rehabilitation of Existing Systems 2.9 5.1 8.0 63 11 C. New Schemes 1. Urban Water 0.3 0.9 1.2 75 2 2. Sewerage 0.7 1.3 1.9 66 3 3. Boreholes 1.1 3.4 4.6 75 6 4. Sludge Disposal 0.1 0.1 0.2 36 - 5. Gravity Fed Rural 0.8 2.3 3.1 75 4 Subtotal New Schemes 2.9 7.9 10.9 73 15 D. Extension of Existing Schemes 1. Zomba Dam 3.4 6.1 9.4 64 13 2. Zomba Water Supply 1.9 5.9 7.9 75 11 3. Urban Water (29 Schemes) 2.9 8.9 11.9 75 16 4. City Water (LWB) 0.6 1.1 1.6 64 2 Subtotal Extension of Existing Schemes 8.8 21.9 30.8 71 42 E. Equipment 1. Lab. and Office Equipment - 1.5 1.5 100 2 2. Vehicles & Motorcycles 0.0 0.3 0.3 92 - 3. Spares, Pipes and Trmt. Plant Equipment (LWB) 0.7 5.0 5.7 87 8 4. Measuring Equipment 0.1 1.5 1.6 92 2 Subtotal Equipment 0.9 8.1 9.0 90 12 F. PPF Refinancing - 1.5 1.5 100 2 Total BASELINE COSTS 18.8 53.7 72.5 74 100 Physical Contingencies 1.7 4.8 6.5 73 9 Price Contingencies 10.8 4.4 15.2 29 21 Total PROJECT COSTS 31.3 62.8 94.1 67 130 Estimated Financing Plan US$M % IDA 79.2 84 NDF 5.3 6 Government 9.6 10 TOTAL 94.1 100  -iii- Estimated IDA Disbursements: Fiscal Year Ending June 30 (US$ million) Year 1996 1997 1998 1999 2000 2001 2002 2003 Annual 5.5 8.2 15.1 15.2 18.1 9.2 6.1 1.8 Cumulative 5.5 13.7 28.8 44.0 62.1 71.3 77.4 79.2 % of Loan 7 17 36 56 78 90 98 100   CHAPTER 1. THE WATER & SANITATION SECTOR A. Country Context 1.1 Malawi is a relatively small country with a surface area of 119,140 square kilometers, of which Lake Malawi occupies about 20%. The topography varies from the Rift Valley floor at almost sea level to high escarpments rising to 3,000 meters above sea level. Related to this are wide ranges in climate with average annual temperatures ranging from 15