Colombia - Medium and Small Size Cities Water Supply and Sewerage Project

Document of The World Bank FOR OFFICIAL USE ONLY F1LE c PE Report No. 2275b -CO COLOMBIA TH:IRD MEDIUM AND SMALL-SIZE CITIES WATER SUPPLY AND SEWERAGE PROJECT STAFF APPRAISAL REPORT May 18, 1979 Projects Department Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Peso US$1.00 = Col$41.00 (January 1979) MEASURES 1 mm = millimeter = 0.04 inches 1 cm = centimeter = 0.39 inches 1 m = meter = 3.28 feet 1 km = kilometer 0.62 miles 1 1 = liter = 0.26 US gallons 1 m3 = cubic meter = 264 US gallons 1 m3/sec = cubic meter = 22.82 MGD = million US per second gallons per day ABBREVIATIONS AND ACRONYMS ACUAS - Decentralized Branches of INSFOPAL CAR - Regional Autonomous Corporation of Bogota Plain CONPES - National Council of Economic and Social Planning CVC - Corporation of the Cauca Valley CVS - Corporation of the Sinu and San Jorge Valley DANE - National Administrative Department of Statistics DNP - National Planning Department ECO - External Credit Office of INSFOPAL EMPOS - Regional or Municipal Sanitary Works Company EPM - Municipal Public Company EXIMBANK - U.S. Export Import Bank FOREC - Executing Agencies' Strengthening Program of INSFOPAL HIMAT - Colombian Institute for Hydrology and Land Reclamation IDB - Inter-American Development Bank INAS - National Institute of Health INDERENA - National Institute for Renewable Natural Resources INSFOPAL - National Institute for Municipal Development UDI - Institutional Development Unit USAID - United States Agency for International Development FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY COLOMBIA STAFF APPRAISAL REPORT THIRD MEDIUM AND SMALL SIZE CITIES WATER SUPPLY AND SEWERAGE PROJECT TABLE OF CONTENTS Page No. 1. INTRODUCTION ...................1 2. THE SECTOR ...................... 1 Population ............... I Water Resources and Their Management . ............ 1 Health Situation . . .................................... 2: Sector Organization ................... . 2 Service Levels and Quality ... 4 Past Sector Finances................................. 6 Sector Objectives and Programs . . . 6 Sector Investment Priorities . . . 7 Previous Bank Projects . . . 8 3. THE BORROWER .............................................. 8 Introduction ......................................... 8 Background ........................................... 9 Organization and Functions . . . 9 Personnel ............................................ 10 Planning ............................................. 10 Budgeting ............................................ 11 Accounting ........................................... 11 Auditing ............................................. 11 Insurance ............................................ 12 Review of Previous Loans ... 12 Evaluation of the Borrower ... 12 4. THE BENEFICIARIES ......................................... 15 Introduction ......................................... 15 Organization ......................................... 15 Management and Personnel ............................. 16 Accounting .................................. 17 Planning and Budgeting ............................... 17 Audit .................................. 17 Improvement in Management Systems .................... 17 This report was prepared by Messrs. E. Rodriguez, Engineer; J. Culagovski, Economist; and A. Guzman, Financial Analyst. Messrs. C. Fernandez, Finarncial Analyst, and A. Heron, Financial Analyst, assisted in the preparation of the report, which was edited by Ms. C. Wi:Lson. The appraisal took place in July-August 1978. This document has a restricted distribution and nmay be used by recipients only in the performance of their official duties. Its contenis may not otherwise be disclosed without World Bank authorization.  TABLE OF CONTENTS (Cont'd) Page No. 5. POPULATION, SECTOR SERVICES, AND DEMAND IN THE PROJECT AREA ...................................... 18 Location and Development Prospects . . 18 Water Resources .. 18 Existing Water Supply and Waste Disposal Systems .... 19 Population Served and Service Levels . . 19 Population Projections and Demand for Services .. 20 6. THE PROJECT .............................................. 21 Introduction .... ...... . 21 Project Objectives .. 22 Selection Criteria .. 22 Technological Alternatives and Service Standards .... 23 Project Description . . . 24 Status of Design .. 25 Cost Estimates .. 25 Project Financing .. 27 Implementation .. 28 Procurement .. 28 Disbursement .. 29 Water Resources .. 30 Environmental Aspects . . . 30 7. FINANCIAL ASPECTS .. 31 Introduction .. 31 INSFOPAL - Financial Performance . . 31 INSFOPAL's Lending Policy ............ .............. 32 INSFOPAL's Financial Projections . . 33 Subborrowers' Financial Performance ....... ......... 35 Water and Sewerage Tariffs . . 36 Proposed Revenue Covenants for the Project- Beneficiary Cities ................................ 36 Projected Finances of the Project-Beneficiary Cities ............................................ 38 Financing Plan ...................................... 39 Financial Monitoring and Reporting Requirements ..... 40 8. ECONOMIC AND SOCIAL ANALYSIS ............................. 41 Introduction ........................................ 41 Population Benefitted and Urban Poverty Impact ..... 41 Affordability of Project Services for the Urban Poor 43 Least-Cost Solution ................................. 44 Incremental Rates of Return and Marginal Cost ....... 44 Project Sensitivity and Risks ....................... 45 9. AGREEMENTS REACHED AND RECOMMENDATIONS .... .............. 46  TABLE OF CONTENTS (Continued) LIST OF ANNEXES 1. Proposed Works 2. Construction Schedule 3. Characteristics of Beneficiaries 4. Cost Estimates 5. Annual Investments - Schedule of Execution 6. Estimated Schedule of Cumulative Disbursements 7. Quarterly Estimates of Government Funds Disbursements 8. Organization Chart 9. Terms of Reference for the Institutional Development Unit 10. Monitoring Indicators 11. Draft Outline T'erms of Reference for Tariff Studies 12. Summary of Assumptions Used in Financial Projections 13. INSFOPAL - Consolidated Statement of Income and Expenses 14. INSFOPAL - Consolidated Balance Sheet 15. INSFOPAL - Statement of Flow of Funds 16. INSFOPAL - Projected Income and Cash Flow Statement 17. Consolidated Statements of' Income of Empresas Publicas Municipales 18. Consolidated Balance Sheets of Empresas Publicas Municipales 19. Statement of Ir.come of EMPOS 20. Consolidated Balance Sheet:s of EMPOS 21. Financing Plan for the Construction Period 22. Comparative Tariff Structure 23. Projected Avereage Water and Sewerage Tariffs 24. Incremental Rat:es of Return (%) 25. Average Increme!ntal Costs and Tariffs by City 26. Selected Docume!nts and Data Available in Project File LIST OF TABLES 2.1 Population and Water Supply and Sewerage Coverages 2.2 Planned InvestmLents by Institution for the Period 1978-80 6.1 Summary of Project Costs f'or Each City and for the Technical Assistance Program 7.1 INSFOPAL: Summary Stateme!nt of Income and Expenses (1975-77) 7.2 INSFOPAL: Summary Stateme!nt of Income and Expenses (1978-83) 7.3 Summary Cash Flow Statements (1978-83) 7.4 Financing Plan (1980-83) 8.1 Incremental Population and the Percentage of Urban Poor to be Served by City 8.2 Affordability of Basic Consumption LIST OF MAPS No. 13931 Location of Cit:ies Included in the Project   COLOMBIA THIRD MEDIUM AND SMALL SIZE CIT]:ES WATER SUPPLY AND SEWERAGE PROJECT STAFF APPRiISAL REPORT I. INTRODUCTION 1.01 The Government of Colombia has requested B3ank financial assistance for the expansion aind improvement of water supply and sewerage systems in 23 medium and small size cities. Project preparation was carried out by the Instituto Nacional de Fomento Municipal (INSFOPAL) with the assiJs-i:e of the Bank. The total cost of the project is estimated at US$71.9 million, and a Bank loan of US$31.0 million is recommended to cover its foreign exchange component. The Borrower would be INSFOPAL and the beneficiaries would be regional or municipal Empresas de Obras Sanitarias (EMPOS--regional or muni- cipal sanitary works companies) and Empresas Publicas Municipales (EPM-- municipal public companies). The works to be financed are scheduled for con- struction and completion during the four-year period 1980-83. 2. THE SECTOR Population 2.01 The population of Colombia in mid-1978 was estimated to be 25.7 million. It is growing at a rate of 2.1% p.a., 1/ down significantly from the rate of 3.3% p.a. which prevailed in the early 1960s. Of the total population, about 61% live in communities of 2,500 inhabitants or more, defined as urban population for sector purposes. The urban population is growing at an annual rate of 4.5%, down from 6.0% in the early 1960s. The rural population (39% of the total) is estimated to be growing at 1.0% p.a., halting the trend of negative population growth which occurred during the 1960s. In contrast with other Latin American countries of comparable size and development, Colombia has several large urban centers: Bogota, its capil:al city, has about 3.8 million inhabitants; Medellin, 1.3 million; Cali, 1.1 million; and Barranquilla D.8 million, and there are 18 cities with populations ranging from 0.1 to 0.4 million inhabitants. Recent estimates of the rates of net migration indicate that the predominantly urban orientation of migration, although decreasing, conti-iues to be significant. Net inflows have tended to converge on thc0se cities which have the best employment opportunities, creating an increasing demand for public services. Table 2.1 details the populatiLon distribution in Colombia. Water Resources and their lanagement 2.02 In general, water resources for urban and rural areas are ample. Surface water sources do not constitute a limiting factor for water supply for most of the urban concentrations. However, desertic climatic conditions limit surface water availability in the Guajira region, making it necessary to resort to groundwater sources which are often at some distance from the cities. Sewage is dLCscharged into the water bodies without prior treatment. Although self-purification of the water bodies is enough to cope with present 1/ See note in Table 2.1 (page 5).  - 2 - pollution loads from most of the cities, the situation is worsening in rivers downstream from the major cities of Bogota, Medellin, and Cali. The serious- ness of the situation is now being realized by the authorities, and programs acf underway to request industries and municipalities to comply with existing pollution control legislation. 2.03 Responsibility for managing the multiple uses of water sources in Colombia is shared by different institutions on the following basis: (a) Plan- ning: DNP (National Planning Department); (b) Survey, design, and develop- ment: HIMAT (Colombian Institute Eor Hydrology and Land Reclamation) created by Decree No. 132/76, and CVC, CAR, and CVS (regional development institutions which were given the responsibility of managing water use by Decree Nos. 3130/68, 3/61 and 13/73, respectt-vely); and (c) Administration: INDERENA (National Institute for Renewable Natural Resources) by Decree No. 133/78, and CVC, CAR, and CVS. These institutional arrangements date only from 1976 and has still not been fully implemented. At present, there are no problems with the allocation of water for domestic consumption which has traditionally been given the highest priority. Health Situation 2.04 Diar-heal diseases are still the third cause of death in Colombia 1/ whereas for 23 of 34 other Latin American and Caribbean countries, the disease is not among the first five causes of deathi. Mortality stemming from diarrhea and enteritis in 1975 was 49.0 per 100,000 inhabitants. Safe water supply and proper sanitation constitute the most important elements in the long-term control of these diseases. The information available is not accurate enough to establish a direct correlation between high morbidity/mortality indices and a poor infrastructure. However, recent studies show that high morbidity and mortality indices caused by diarrhea and enteritis in the coastal region coincide with a lack of adequate water supply and excreta disposal systems. Although infant mortality has decreased from 75 per thousand in 1969 to 50 per thousand in 1976, infant mortality caused by diarrhea and enteritis has remained relatively unchanged at an index slightly over 10 per thousand. Information on the health situation in Colombia is available in the project file. Sector Organization 2.05 The water supply and sewerage sector in Colombia is under the res- ponsibility of the Ministry of Public Health, which is in charge of overall sector planning under the coordination of the DNP. Responsibility for implement- ing national policies rests with the Instituto Nacional de Fomento Municipal (INSFOPAL) and the Instituto Nacional de Salud (INAS) in urhbal _iil rtral areas respectively. 1/ Source: Health Conditions in the Americas, 1973-76, PAHO/WHO.  - 3 - 2.06 INSFOPAL's role is one of financial intermediary, coordinator, and supervisor of sector activities in cities with populations of more than 2,500 inhabitants. However, utilities in the cities of Bogota, Medellin, Cali, and Palmira function in pract:ice independently since INSFOPAL has not played a sig- nificant role in the financing of their investments. INAS has the same role as INSFOPAL ii communities of 2,500 or fewer inhabitants and is also in charge of supervising construction, operation, and maintenance of its services. 2.07 Direct responsibility for providing water supply and sewerage ser- vices is shared among the following four categories of institutions: (a) Empresas de Obras Sanitarias (EMPOS), with regional or muni- cipal jurisdiction, which were recently created to provide services in conmmunities of 2,500 or more inhabitants. In most cases, EME'OS are the result of the transformation of ACUAS (former cdecentralized INSFOPAL affiliates). In those cities where ACUAS have not yet been transformed into EMPOS, the former still provide water supply and sewerage services. Eighteen percent of the total population of Colombia live in communities under the jurisdiction of the EMPOS; (b) Empresas Publicas Municipa.les (EPMs) provide services in the major cities of the country and are under the direct control of the municipal councils. They were created by municipal decree and are often in charge of multiple activities such as water supply and sewerage, telecommunications, energy, slaughterhouses, market places, and solid wastes. Forty-one percent of the total population of Colombia live in communi- ties under the jurisdiction of the Empresas Publicas Municipales; (c) Municipalities which are not linked to any national sector institution prcvide water supply and sewerage services, using their own administrative structure and financial sources. Three percent of the total population of Colombia live in communities under the jurisdiction of these munici- palities; and (d) The Instituto Nacional de Salud (INAS) provides water supply and sewerage services or alternative excreta disposal facil- ities to communities with 2,500 or fewer inhabitants. These services are provided by INAS directly through its regional branches or via decentralized regional agencies which depend on local authorities but are coordinated by INAS; 38% of the total population of Colombia are under the jurisdiction of this system.  - 4 - INSFOPAL supervises utilities in categories (a) and (b) above. In those EMPOS and Empresas Publicas where partial financing is obtained through INSFOPAL, the latter exerts close control over the finances and administration of their activitiesj sipervising all project works. INSFOPAL has the authority to intervene in the running of any Empresa that is not performing adequately. 2.08 In addition, there are other institutions linked to the sector. Among them, the most imtiportant are the autonomous regional corporations whose objectives and planning are coordinated by DNP. These institutions promote the socio-economic development of the regions and have authori.ty ,vx,er their resources, including water (para 2.03(b) and (c)). They also have responsi- bility for protecting the environment. Service Levels and Quality 2.09 The availability of water supply and sewerage services in Colombia ranks among the highest in Latin America. It is estimated that by the end of 1978, about 73% of the urban population had access to potable water through house connections and about 60% were connected to sewerage systems. Service levels in the rural areas are lower, with about 40% of the population having access to water supplies through house connections and about 12% having access to waste water disposal systems. For the most part, the urban dwellers who are not served with piped water and sewerage constitute the lower income popu- lation. Service levels are shown in Table 2.1. 2.10 The percentage of total population served with piped water rose from 51% in 1970 to 61% in 1978, a substantial increase in rural population served being offset by a small decrease in the urban population served. Rural migration into urban areas and the reclassification of some communities with public water systems from urban to rural since 1970 could account for the reported decline in urban service levels. Nevertlheless, larger investments in water supply are needed if the provision of water services is to keep pace with net migration into urban areas (para. 2.01). 2.11 The percentage of total population served with sewerage in 1978 was 41% while in 1970 it was 39%. Again, this is the net result of an increase in coverage in rural areas and a decrease in urban areas. However, in this case, the differences can be explained almost entirely by the changes in definition of urban and rural population between 1970 and 1978. 2.12 Water supply in Colombia is provided through house connections. Public standpipes are only used as an interim solution to provide services to dispersed urban and rural population. According to recent diagnoses made by DNP, of the 11.5 million inhabitants receiving piped water in urban areas, about 7.1 million, or 61%, receive water which has been fully treated. The remaining 39% receive water which has been partially treated by chlorination, or not treated at all. Sector authorities are aware of this problem and are planning the necessary steps to provide adequate treatment to all water sup- plies according to national water quality standards. There is no information  -5- COLOIBIA Table 2.1: THIRD MEDIUM AND SMALL-SIZE CITIES WATER SUPPLY AND SEWERAGE PROJECT POPULATION AND WATER SUPPLY AND SEWERAGE COVERAGES Urban under Empresas Mun c. Urban Rural Concen- and Munici Under trated Rural Total ~Urban palities NFOA Rural ,under INAS Dsee (million) (million) (million) (million) (milliot) (million) (million) Population 20.6 11.5. 6.4 5.1 9.1 8.1 1.0 Water Supply Coverage(million) 10.4 8.8 5.2 3.6 1.6 1.6 _ % 50.7 76.5 81.5 70.1 17.7 19.8 o ___ _ _ _ _ __ _ _ _ _ _ _ Waste Water Disposal Coverage (million) 8.0 7.3 4.9 2.4 0.7 0.7 % 39.3 63.8 76.6 47.8 7.9 8.8 - Population 25.7 15.7 11.1 4.6 10.0 8.7 1.3 Water Supply Coverage (million) 15.5 11.5 8.3 3.2 4.0 4.0 % 60.5 73.3 74.5 70.3 40.3 46.3 _ a, Waste Water Disposal Coverage (million) 10.7 9.5 7.6 1.9 1.