Jamaica - Kingston Water Supply Project

RESTRICTED rLE COPY Report No. P-686 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE WATER COMMISSION OF JAMAICA WITH THE GUARANTEE OF JAMIACA April 16, 1969  INMERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOP4ENT REPORT AIM RECOIEllMNfDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE WATER COIMMISSION OF JAIAICA WITH THE GUARANTEE OF JAMAICA 1. I submit the following report and recommendation on a proposed Loan in an amount in various currencies equivalent to US$5 million to the Water Commission, Kingston, Jamaica (the Commission). PART I - HISTORICAL 2. In June 1966 the Commission approached the Bank for assistance in a water supply development for the Kingston area, costed at US$40 million. A Bank mission examined this proposal and recommended a study of alternative, more economical schemes. This study was completed in early 1968 and a Bank mission visited Jamaica in February and July/August 1968 to appraise the project. 3. Negotiations for the proposed loan were held in Washington from January 6 to 10, 1969. Principal representatives in the negotiations were, for the Borrower, iM1r. H. L. Priestly, Deputy Secretary Manager of the Commis- sion, and for the Guarantor, ivIr. H. G. Barber, Deputy Financial Secretary. 4. The following is a summary of Bank loans to Jamaica as of MIarch 31, 1969: (US$ Million) Loan Year Borrower Purpose Amount Undisbursed 408-JM 1965 Jamaica Highways 5.5 4.7 45h-JM 1966 Jamaica Public Service Co. Power 22.0 3.3 468-JM 1966 Jamaica Education 9.5 7.9 481-JmH 1967 Jamaica Telephone Co. Telecommuni- cations 1/ - Total (less cancellations) 37.0 Total now outstanding 37.0 Amount sold 1.2 Total now held by Bank 35.8 Total Undisbursed 15.9 1/ This loan of $11.2 million was cancelled by the Borrower in 1968, follow- ing a change in the ownership of the majority equity holding in the Company. About $13,000 withdrawn under the Loan was prepaid in full.  - 2 - 5. The highway loan has been delayed by about two years due to (i) an initial delay in the selection of consultants and (ii) a significant increase in the estimated cost of the project, on the basis of which a reduction in the scope of the project was agreed to with the approval of the Executive Directors in August 1968. Bids on the reduced project were opened on April 1, 1969, and satisfactory progress is now expected. 6. On the basis of the findings of a recent Bank mission to help pre- pare a family planning program in Jamaica, the Bank is exploring with the Government the possibility of a loan to assist in the construction of facilities related to family planning. A request for Bank assistance in the financing of a power project has been under consideration, but recent indications are that the financing is likely to be sought from another source. There are no other loan proposals under advanced consideration by the Bank. However, the Government has expressed its interest in ob- taining Bank financing for industrial and agricultural credit, sewerage, tourism infrastructure and the next phase of secondary education. PART II - DESCRIPTION OF THE PROPOSED LOAN 7. Borrower: The Water Commission, Kingston, Jamaica Guarantor: Jamaica Amount: The equivalent in various currencies of US$5.0 million. Purpose: To help finance a project to improve and expand the water supply facilities in the Kingston area. Amortization: In twenty years, including a four-year period of grace, through semi-annual installments beginning April 15, 1973 and ending April 15, 1989. Interest Rate: 6-1/2% per annum Commitment Charge: 3/4 of 1% per annum Estimated rate of return: 22% PART III - THE PROJECT 8. An appraisal report entitled "Appraisal of the Kingston Water Supply Project - Jamaica" (TO-69ha) is attached. 9. The Commission, a semi-autonomous agency, is responsible for the provision of water supply and sewerage services in the two parishes of  - 3 - Kingston and St. Andrew, known together as the Corporate Area. The rest of the island is served by the twelve local parish councils, which in turn purchase part of their water requirements from the National Water Authority, another government agency. The Commission is administered by a Board of nine members, including the Chairman, who are all appointed by the Minister of Local Government. The Chairman is also the chief executive officer of the Commission. 10. The proposed project, which would increase the water production of the Commission by about 12.5 million gallons a day, will derive water from two underground sources (i) Tulloch Spring, about 20 miles from Kingston, and (ii) wells in the Spanish Town area, about 12 miles from Kingston. The project would consist of the construction of the intake, pumping and chlorina- tion works at the sources, pumping mains, reservoirs, distribution mains and otlher incidental works. 11. The total cost of the project is estimated at about US$9.1 million. The proposed Bank loan would cover US$5 million of this total and would finance the foreign exchange costs of imported equipment and materials, consulting services and interest during construction. It would also cover part of the foreign exchange component of civil works contracts and locally procured goods. The loan would cover the foreign exchange cost of consulting services from July 1, 1968 in the amount of about $100,000 which was incurred to accelerate the progress of the project. 12. All contracts for procurement under the project will be awarded on the basis of international competitive bidding except in respect of items costing $2,500 or less. In evaluating the bids, the Commission will allow a margin of preference to local suppliers of 15 percent or the prevailing rate of customs duty, whichever is thle lower. 13. The proposed project is expected to be completed in October 1971 and to meet requirements up to 1976/77. Based on the recently approved increased water rates, the Commission should be able to generate funds which would be adequate, together with the Bank loan, to carry the project to completion. 14. The Government of Jamaica is giving high priority to the provision of adequate water supply in Kingston, the capital and largest city in Jamaica. Based on the increased water rates, the rate of return on the incremental investment is estimated to be about 20 percent. PART IV - LEGAL INSTRUivEITS 15. The draft Loan Agreement between the Bank and the Commission, the draft Guarantee Agreement between Jamaica and the Bank, the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement and the text of a Resolution approving the proposed Loan are being distributed to the Executive Directors separately. The draft Loan Agreement and the draft Guarantee Agreement conform substantially to the pattern of loan and guarantee agreements used for projects of this kind.  - 4 - PART V - TfE ECONOMY 16. A report (VH-187a) on the "Current Economic Position and Prospects of Jamaica" was distributed to the Executive Directors on December 26, 1968. The conclusions of that report remain valid. Under responsible management by the authorities, the economy has been growing at a satisfactory rate. The prospects for a continuation of sound policies are good and the outlook for the continued steady growth of the economy is favorable. The country can be considered creditworthy for substantial external borrowing to help finance priority investment requirements. Among the major problems con- fronting the Jamaican economy are the high rate of population growth and infrastructural bottlenecks reflecting inadequate preparation and implementa- tion of projects in the past. The Jamaican authorities are addressing them- selves seriously to these problems. PART VI - COIMIPLIANCE ITTH ARTICLES OF AGREEMENT 17. I ar satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VII - RECOIIMENDATION 13. I recommend that the Executive Directors of the Bank approve the proposed loan. Attachment Robert S. McNamara President Washinggton, D.C. April 16, 1969