India - Second Madras Urban Development Project

Document of The World Bank FILE COPY FOR OFFICIAL USE ONLY Report No. 2893a IN INDIA STAFF APPRAISAL REPORT SECOND MADRAS URBAN DEVELOPMENT PROJECT November 26, 1980 Urban Projects Department 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 = Rupees (Rs) US$1.00 = Rs 8.4 Rs 1.00 5 US$0.12 Rs 1 lakh (107) = US$11,905 Rs 1 crore (10 ) = US$1.19 million MEASURES AND EQUIVALENTS 1 meter (m) = 39.37 inches (in) or 3.28 ft 1 square meter (m3) = 10.8 square feet (sq ft) 1 cubic meter (m ) = 35.3 cubic feet (cu ft) 1 kilometer (km4 = 0.62 mile (mi) 1 square kilometer (km ) = 0.386 sq miles 1 hectare (ha) = 2.47 acres (ac) or 10,000 sq meters 1 kilogram (kg) = 2.2 pounds (lb) 1 liter (1) = 1.057 quarts liquid or 0.26 US gallon (gal) or 0.908 quart dry (qt) 1 liter per capita = 0.26 US gallon per capita per per day (lcd) day (gcd) 1 million liters 0.01 cubic meters per second per day (mld) PRINCIPAL ABBREVIATIONS AND ACRONYMS DOE Department of Education DOH Department of Health DHRW Department of Highways and Rural Works DSW Department of Social Welfare EWS Economically Weaker Sections GOI Government of India GTN Government of Tamil Nadu IDBI Industrial Development Bank of India LIG Lower Income Group MC Madras Corporation MIG Middle Income Group MMA Madras Metropolitan Area MMDA Madras Metropolitan Development Authority MMWSSB Madras Metropolitan Water Supply and Sewerage Board MUDP I First Madras Urban Development Project MUDP II Second Madras Urban Development Project PTC Pallavan Transport Corporation PWD Public Works Department SIDCO Small Industries Development Corporation TNHB Tamil Nadu Housing Board TNSCB Tamil Nadu Slum Clearance Board TNEB Tamil Nadu Electricity Board UNDP United Nations Development Program WHO World Health Organization FISCAL YEAR April 1 - March 31  INDIA FOR OFFICIAL USE ONLY SECOND MADRAS URBAN DEVELOPMENT PROJECT STAFF APPRAISAL REPORT, Table of Contents Page No. I. BACKGROUND ............ .............................. 1 A. Urban Development in India and Tamil Nadu ....... 1 B. Madras Metropolitan Area ........................ 3 C. Urban Services and the First Madras Urban Development Project ..................... 4 II. THE PROJECT ....................................... 10 A. Objectives oooo...........o.......o .............. .oo..o.o. 10 B. Main Features ... .... ............................ 10 C. Detailed Description ..o............................ 12 III. PROJECT COSTS, EXECUTION AND FINANCING ........ .... oo. 25 A. Cost Estimates .................. ....................& 25 B. Execution ...........o............................ o....oo...... o 25 C. Financing ....................................... 28 D3 Cost Recovery .o ..... . .. .. ....... ... . ........... 30 E. Affordability ........* ..................... .. 34 F. Procurement and Disbursement .................... 35 G(3 Accounts and Audits ....... ....................... 36 H. Monitoring and Evaluation ....................... 36 I. Supervision .......... ..... o... oo....o.......................... 36 IV. ORGANIZATION, MANAGEMENT AND FINANCE ....... o......... 37 A. Madras Metropolitan Development Authority ....... 38 B. Madras Corporation ...................... ....... 39 C. Pallavan Transport Corporation .................. 40 D. Tamil Nadu Housing Board ..... .................... 42 E. Tamil Nadu Slum Clearance Board ...ooeso ..... .... 43 F. Small Industries Development Corporation ....... 44 V. JUSTIFICATION ......................................* 45 VI. RECOMMENDATIONS *. . ... ... ....o... .................... * 48 This report is based on the findings of an appraisal mission which visited Madras in October 1979. The mission consisted of Mr. M. Cohen (Mission Leader), Messrs. E. Rotner, C. Godavitarne and Ms. N. Shapiro (IDA) and Messrs. L. Casazza, J. Racki and G. Sengupta (Consultants). The report was prepared by E. Rotner, C. Godavitarne and N. Shapiro. This document has a resticted distribution and may be used by recipients only in the performance of their ofricial duties. Its contenst may not otherwise be disclosed without World Bank authorization.  - ii- Table of Contents (Continued) CHARTS Chart 1. Household Income Distribution Chart 2. Project Impact on Slum Hutment Population Chart 3. Implementation Schedule Chart 4. Flow of Funds SKETCHES 1. Sketch 21110. Sites and Services Plot and Core Options. 2. Sketch 21111. Possible Evolution of Plot Type A3. ANNEXES I. BACKGROUND 1. Population and Public Investment in Tamil Nadu and MMA 2. Employment in Manufacturing and Non-Manufacturing Sectors, Madras City 3. Large- and Small-Scale Manufacturing in Tamil Nadu and MMA 4. Employment in the Organized Sector, Tamil Nadu and MMA 5. Annual Housing/Plot Supply in MMA II. THE PROJECT 1. Sites and Services: Standards and Specifications for On-Site Infrastructure 2. Sites and Services: Standards and Specifications for Off-Site Infrastructure 3. Sites and Services: Summary of Plot Options and On-Plot Development 4. Sites and Services: Chargeable Unit Costs of Plots 5. Slum Improvement: Chargeable Unit Costs 6. Slum Improvement: Off-site Infrastructure: Drainage 7. Pallavan Transport Corporation: Age-Distribution of Buses 8. Pallavan Transport Corporation: Bus Acquisition Program 9. Pallavan Transport Corporation: Past and Projected Performance Indices  - iii - Table of Contents (Continued) III. PROJECT COSTS, EXECUTION AND FINANCING 1. Sites and Services - Summary Costs 2. Slum Improvement - Home Improvement Loans and Grants 3. Slum Improvement - Summary Costs 4. Transport - Summary Costs 5. Solid Waste Management and Maintenance of Municipal Services - Summary Costs 6. Technical Assistance - Summary Costs 7. Sites and Services - Revolving Fund Cash Flow 8. Slum Improvement - Revolving Fund Cash Flow IV. ORGANIZATION, MANAGEMENT AND FINANCE 1. Madras Corporation: Revenue and Capital Expenditure 2. Madras Corporation: Revenues 3. Pallavan Transport Corporation: Operating Statement 4. Pallavan Transport Corporation: Comparative Balance Sheets 5. Pallavan Transport Corporation: Sources and Application of Funds V. SELECTED DOCUMENTS AND DATA AVAILABLE IN THE PROJECT FILE MAPS 1. IBRD 14761 - Slum Improvements and Sites and Services 2. IBRD 14760 - Mogapper Sites and Services: Layout and Land Use Plans 3. IBRD 14758 - Mogapper Sites and Services: Typical Block Details 4. IBRD 14780 - Slum Improvements: Typical Details by Level   INDIA SECOND MADRAS URBAN DEVELOPMENT PROJECT STAFF APPRAISAL REPORT I. BACKGROUND A. Urban Development in India and Tamil Nadu Urbanization Trends 1.01 India is primarily an agricultural country with about 80% of its people living in rural areas. The total population was estimated at 640 million in mid-1978. Due largely to migration, the urban population has been growing at a higher annual rate (3.3%) than the general population (2.2%). Nearly 4.3 million people per year are being added to urban areas, creating demands for shelter, infrastructure services, and employment. About 50% of the urban population is concentrated in the more than 135 medium-sized cities with populations between 100,000 and 1,000,000. According to IDA estimates, the absolute urban poverty level income was about Rs 57/capita/month in 1977 in various Indian states (Rs 314 per month per household). About 47% of urban households had incomes below this level. Urban Policy and the Draft Sixth Plan 1.02 The Draft Sixth Plan (1980-85) stipulates general objectives which are relevant to urbanization in India and suggests that expansion should take place in medium-sized cities and small towns, while there should be an investment moratorium in very large cities. Programs supported by the Government of India in pursuit of the Sixth Plan objectives, however, have so far tended to neglect the complementarity of rural and urban development in achieving basic national objectives. Despite major efforts by state governments to formulate and implement urban policies in the largest cities, such as Bombay, Calcutta, Delhi and Madras, comprehensive and articulated national and state urban policies remain at an early stage of development in India. 1.03 The share of public investment in the housing and urban development sector in total public investment has responded somewhat to urbanization and expanded from 1.7 to 3.3% of the total outlays of the Fourth to the Sixth Plans, respectively. Yet the absolute amounts of public investment in housing have been relatively small, compared to the size of the problem. Conditions in the growing slums of most urban areas demonstrate that the services provided are scarcely reaching low-income groups. There is a need to re-orient public investment to benefit these households more; programs with higher cost recovery and low-cost alternatives, such as sites and services and slum improvement schemes, could reach many more poor households  -2- than conventional urban shelter and infrastructure programs. There is also a need to strengthen local governments, both administratively and financially. 1.04 Bank group assisted urban projects in India include the Bombay Urban Transport Project (US$25 million Loan) to support bus operations and traffic management measures, the First Calcutta Urban Development Project (US$35 million Credit) to support a broad program of urban infrastructure works, the Second Calcutta Urban Development Project (US$87 million Credit) which is oriented towards slum improvement and low-cost shelter components, the Calcutta Urban Transport Project (US$56 million Credit) and the First Madras Urban Development Project (US$24 million Credit) (para. 1.15). Tamil Nadu 1.05 Tamil Nadu, with a population in 1979 of about 48 million, growing at about 2% per annum, is the third most densely populated state (after Kerala and West Bengal) and the most urbanized state in India (32% urban population in 1977). 1.06 Total Tamil Nadu State income grew at 2.7% per year (in constant prices) from 1960/61 to 1973/74. However, considering population increases of 2% per year over that same period, per capita state income grew minimally over 15 years. 1.07 The economy of Tamil Nadu is characterized by a relatively small agricultural sector, accounting in 1975/76 for about 35% of net state domestic product (NSDP), and a relatively large manufacturing sector, accounting for about 22% of NSDP. Trade, storage, banking, and insurance contribute 19% of NSDP, mainly reflecting the role of Madras as the commercial center for South India. In agriculture, Tamil Nadu has the third highest total rice production of the Indian states and the highest rice yield per hectare, almost twice the national average. About 75% of the State's irrigation potential has been developed, the highest level of any state, and in fertilizer consumption, the State is second only to the Punjab. Nevertheless, in recent years, there has been little or no growth in real agricultural NSDP. Agriculture employs around 60% of the labor force of whom 50% are estimated to be landless. The stagnant economic conditions of the rural sector of the State probably contri- bute to the high rate of migration to urban areas where economic growth and job generation is higher. 1.08 In contrast to agriculture, manufacturing NSDP in the State, mostly by small establishments of recent origin, grew at a high rate of about 5% per annum in real terms in the 1960s and early 1970s. Trade, storage and hotel NSDP grew at lower real rates of about 2% per annum and stagnated in the first 6 years of the 1970s. The State's leading industries are textiles, electrical machinery, and transport equipment. 1.09 Average per capita income in Tamil Nadu is less than the national average and the State ranked 9th in per capita income in 1978. Tamil Nadu's  -3- rural and urban areas rank well below the national average in per capita daily food intake at 2,012 calories in rural areas and 2,092 in urban areas (compared to the national average of 2,263 and an estimated need of 2,400). B. Madras Metropolitan Area (MMA) Population 1.10 The MMA had an estimated 1979 metropolitan population of about 4.8 million of which 69% were in Madras City, (Annex 1, Table 1). About one-third of the State's urban population and 10% o5 the State population live in the MMA, which covers an area of about 170 km . From 1961-71 it had the highest annual population growth rate (5% per annum) of all the major metropolitan centers in India, due largely to migration (42% of growth) from poor stagnant rural areas. Average population densities in Madras are much lower (60 persons/ha) than in the other three major Indian metropolitan areas. But in congested areas of the old city, densities are as high as 1,500 persons/ha. The Madras population has a high literacy rate (62%) and school enrollment compared to other Indian cities. Official statistics indicate that Madras birth rates (34/1,000) are higher than the State (23/1,000). The death rate in Madras (13/1,000) is also higher than the State (8/1,000). Average per capita 1975 incomes in Madras of about Rs 875/year (US$104) are low. (The Bombay average was Rs 1,940/capita/year in 1970/71.) Approximately half of the population have incomes below the absolute urban poverty line (Chart 1). 1.11 Madras is the trade and commercial center of southern India and contains the fourth largest port in the country. The machinery, transport, rubber and chemical products industries account for 80% of value added and 69% of industrial employment in the MMA. It is estimated that employment in the organized manufacturing sector 1/ in the MMA grew rapidly at a rate of over 20% per annum in the early 1960s, while declining to about 4.5% per annum from 1965 to 1975. Activity in the port also slowed in the 1970s partly due to the development of other ports. Employment in the non-manufacturing sector grew from 1961 to 1971 at a more modest rate than manufacturing, of about 2.9% per annum. However, as about 78% of the work force was in the non-manufacturing sector, its absolute contribution to employment was 2.5 to 3 times greater than the manufacturing sector (Annex 1, Tables 2 and 4). 1/ Organized or registered manufacturing is covered under the Factories Act of 1948, employing 10 or more workers with electricity, or 20 or more without.  - 4 - 1.12 Small-scale businesses (employing 1-9 persons) are an important source of about 43% of jobs in Madras (Annex 1, Table 3). Many of these are one-man businesses and are characteristically low-skilled, easy entry and low paid (average 1979 monthly wage was Rs 177 or US$22). About 10% of the small-scale jobs are in manufacturing (processing, repair) while the rest are in trade, services and transport. The small establishments are not well tied into the organized sector, and sell about 95% of their goods and services to businesses like themselves and individual consumers. The growth in popula- tion, government activity, and commerce is expected to generate some natural expansion of small-scale employment, particularly in services. Public Investment Trends in Tamil Nadu 1.13 In 1970/71, the per capita public investment in the MMA (Rs 52 or US$6.20) was double the State's (Annex 1, Table 1). Eowever, the MMA share of State public investment recently has declined to about 8% of total State plan investment and is less than the MMA's 10% share in the State population. In 1976/77, total per capita public investment in the MMA was about Rs 50 (current prices), while that of the State was Rs 58. However, if annual public investments are compared to annual population increments, per capita investments in the MMA are currently only about one-third of the State-wide average. Institutions 1.14 Local governments within the MMA consist of the Madras Municipal Corporation, four small municipalities, four townships and 20 panchayats. The Government of Tamil Nadu (GTN) exerts a strong positive influence on the MMA through the Madras Metropolitan Development Authority (MMDA), the local governments, its own departments and statutory bodies such as the Madras Metropolitan Water Supply and Sewerage Board (MMWSSB), Tamil Nadu Slum Clearance Board (TNSCB) and Tamil Nadu Housing Board (TNHB), which have major sector responsibilities. Madras is also characterized by the extensive efforts of private voluntary agencies in social programs, particularly in providing health services and education. About half of all primary and high schools in the city are private. C. Urban Services and the First Madras Urban Development Project 1.15 Madras suffers from serious deficiencies in key service sectors, particularly water supply and shelter. Investment in public services has failed to keep pace with the increase in population and service levels have been deteriorating, as reflected in the growing proportion of the population living in poorly serviced slum settlements. Physical conditions and Madras' location lead to high costs for water supply, sewerage and drainage, further compounding the problem. To redress the the situation, urban development  - 5 - policies and investment strategies are gradually being re-oriented to extend services to the majority of the poor within existing resource constraints. Revised design standards and improved cost recovery are principle parts of these strategies. The First Madras Urban Development Project (MUDP I, Credit 687-IN), which was approved in 1977, is assisting GTN in this regard. 1.16 The basic objectives of MUDP I are (a) to help develop and promote low-cost solutions to Madras problems in shelter and infrastructure services, particularly to make the investments responsive to the needs of the poor on a replicable basis, and (b) to help strengthen metropolitan planning and capital programming and budgeting as well as municipal finance and administra- tion, with a particular focus on MMDA and the Madras Corporation. The project includes: (a) sites and services for about 13,500 households in three loca- tions; (b) slum improvement affecting about 30,000 households; (c) serviced plots, work sheds and loans to small businesses in the sites and services and slum improvement areas; (d) priority rehabilitation of city-wide water supply and sewerage systems; (e) city-wide transport improvements, focusing on the elmination of bottlenecks in the road network, strengthened traffic engineer- ing and management, expanded pedestrian and bicycle facilities, and expanded bus services including the provision of about 285 buses; and (f) consultant and advisory services and training. Total project cost is US$52 million supported by an IDA Credit of US$24 million. 1.17 Progress under MUDP I has been good. The overall feasibility and acceptance of the basic project objectives and of the design approaches has been demonstrated. Implementation of physical works is proceeding roughly in accordance with the appraisal schedule for most components, except for sites and services where an initial delay of approximately 18 months occurred largely because of land acquisition problems and cumbersome contracting procedures. These problems have now been overcome and steps have been taken to ensure that they do not recur under the proposed second project (paras. 3.04 and 3.23). Implementation of the sites and services and slum improvement components under MUDP I has now reached a stage where these programs during fiscal year 1980/81 will provide new or improved services to about 3,000 and 7,000 households, respectively. The timing of the proposed second project is largely determined by the need to maintain and gradually expand the scope of these programs (paras. 1.28 and 2.03). About 54% of the IDA credit had been disbursed as of September 30, 1980 (about 64% of the appraisal estimate). 1.18 Whereas physical progress has been generally good, there had been significant delays on two related non-physical aspects of the project. First, while slum improvement works affecting about 15,000 households had been completed, the procedures for the granting of legal land tenure and collection of improvement and maintenance charges from beneficiary households did not start until October 1979, mainly because of delays in obtaining the necessary GTN decisions and in organizing the staff required. However, final approval of the procedures was given by the State Government in August 1980. The charges to be levied are about 50% higher than those originally anticipated under MUDP I, due to GTN's wish to recover the value of the publicly owned  -6- land on which the MUDP I slums are located. By November 1980, over 2,000 households had concluded lease-cum-sale agreements which will lead to them obtaining legal tenure on their plots. Initial down payments have been deposited in a Slum Improvement Revolving Fund which has been established under MUDP I (para. 3.15). 1.19 Second, while physical works had been largely completed for one sites and services scheme under MUDP I (at Arumbakkam) and are well under way at the second of three schemes, procedural problems in the conclusion of lease-cum-sale agreements with beneficiary households and in the issuance of individual building permits had caused delays in plot occupancy. The above- mentioned procedures were reviewed and simplified in October 1979. The rate of plot occupancy improved dramatically and by March 1980, all legal and administrative procedures were completed for the settlement of the 2,200 households who have already been allotted plots at Arumbakkam and by August 1980 about 800 households were actively constructing houses. Payments col- lected from beneficiary households are being deposited in a Sites and Services Revolving Fund which has been established under MUDP I (para. 3.10). 1.20 The progress under MUDP I and the gradual resolution of the inevit- able implementation problems reflect the effectiveness of MMDA in coordinating and guiding project implementation and also the effectiveness of each imple- menting agency within its sector. MMDA was from the outset designated by GTN as its representative for the purposes of coordinating, monitoring and evaluating the implementation of MUDP I, while not being either a financial intermediary or directly involved in the implementation of sectoral invest- ments. This is in contrast to the approach adopted under the Calcutta and Bombay urban projects where the metropolitan development authorities are directly engaged in project financing and/or implementation. The MMDA approach is working well in the Madras context with capable sector agencies and a tradition of inter-agency cooperation (paras. 4.02-4.05). 1.21 Due to the extensive need for MMDA to work with sector agencies in initiating the implementation of MUDP I and to assist in resolving start-up problems, the strengthening of its own planning and capital programming and budgeting functions has been delayed. However, work has been initiated in each of these areas and a number of preliminary studies have already been completed. 1/ This work has assisted MMDA in determining the focus, scope and location of the investments proposed under the second project and also helped place these investments within a preliminary MMA capital budget. Further strengthening of these MMDA functions is expected under the second project. This, in combination with the competent management of MMDA and the increasing experience of its staff, should permit MMDA to exert a gradually expanding influence on the development of the MMA in line with the basic objectives of the two urban projects. 1/ These include: a structure plan, economic profile and financial re- sources of the MMA and studies of incomes and employment in slum hutment areas, slum typology and property taxes.  -7- 1.22 In addition, improvements in accounting and financial management in the Madras Corporation aimed at under MUDP I were delayed, partly because of the attention that GTN and MMDA have had to devote to other aspects of the project and partly because of the severity of the problems. Analyses carried out by MMDA and its consultants under MUDP I have, however, helped clarify the problems of local government finance in the MMA and also helped identify the steps that need to be taken to improve the generation of financial resources, particularly by Madras Corporation. Following these studies, GTN in October 1980 took several steps to initiate the required improvements by: (a) appoint- ing a Chief Accountant in the Madras Corporation; (b) appointing consultants for the design and installation of a new accounting system and for training of related staff; and (c) preparing specific proposals for increasing the revenues of Madras Corporation (paras. 4.06-4.12). 1.23 Improvement of The.financial situation of Madras Corporation is an important prerequisite for the Corporation to effectively discharge its many responsibilities. Of particular importance is its responsibility for infra- structure maintenance and for solid waste collection and disposal within its jurisdication, including the project areas. Lack of adequate maintenance of completed facilities by the Corporation has been identified as a problem under MUDP I and will be specifically addressed under the second project (para. 2.39). 1.24 A brief summary of the main features of key service sectors in MMA and recent developments relating to the urban projects follows. 1.25 Shelter. The slum population in hutment areas was about 200,000 households in 1976 (about 25% of the total population) and was estimated to be increasing at a rate of about 4.5% per year. Of these, about 166,000 were located within the Madras Corporation. In addition, there were 180,000 low-income households living in relatively poor environmental conditions in dense slums in older parts of the city. These areas have better services than the hutment areas but typically at least eight households share one tap and one toilet. Priority needs for these households are environmental improvements such as garbage clearance and social, health and recreational facilities. In the past, some slum hutment areas have received limited physical improvements under various GTN schemes. But in varying degrees, they lack adequate basic infrastructure facilities and security of tenure. 1.26 Until 1976/77, when the MUDP I program commenced, almost all of the Tamil Nadu Housing Board (TNHB) output was priced beyond the reach of low- income households. The average unit cost for its Economically Weaker Sections (EWS) 1/ housing was about Rs 12,000 (US$1,430), or about 3 times what would be affordable at the middle of the EWS income range. Total formal public and private sector investment in housing is relatively high, averaging about Rs 6,500 per household added to the MMA population. About 46% of these investments are made by public agencies (Annex 1, Table 5). However, as unit 1/ The Indian definition of Economically Weaker Sections includes households with incomes of Rs 350 per month or less. These households, containing on the average 5.5 persons, are below the IDA-estimated absolute urban poverty threshold.  -8- costs are also high, relatively few units are produced. Unit costs under MUDP I average about Rs 5,670, and the annual provision of 3,000 units meets about 17% of new EWS household demand. With some 36,000 new households formed each year, the gap,between formal supply, including MUDP I, and need is about 20,000 units annually. This gap is met through hut construction (about 10,000 huts annually) on unserviced land and double occupancy. 1.27 The primary approach of the Tamil Nadu Slum Clearance Board (TNSCB) was in the past to demolish existing hutment areas and rehouse the population in rental units in 4-story tenements constructed on the cleared site. The average cost per tenement unit is over Rs 10,000 (US$1,190). Rental charges of only Rs 10/month (US$1.19) recovered less than 10% of the cost of construc- tion, maintenance, and other overheads. At most, TNSCB produced about 4,000 units per year while destroying about an equal number of huts valued at about Rs 1,500 (US$180) per hut. Under the slum improvement program financed under MUDP I, average costs are about Rs 1,300 per household, of which about 75% is being recovered. Under MUDP I, GTN agreed to limit the clearance program to a maximum of Rs 3.75 crores (US$4.5 million) annually. 1.28 The initiation of sites and services and slum improvement programs under MUDP I, which now affect about 10,000 households annually, represents an effective two-pronged approach to the provision of improved shelter and related services to the lowest income groups. The scale of the program is now just sufficient to ensure that the total number of households living in unserviced hutment areas does not increase. A substantial expansion of the program would be required to eliminate the current backlog (Chart 2). 1.29 Transport. The people of Madras rely heavily on walking, bicycling, and buses for transport. Pedestrian and bicycle trips each account for about 21% of all trips, buses for 42%, trains for 11%, and cars and motorcycles for the remaining 5%. Low-income households make 60% or more of trips on foot; 80% do not even own a bicycle, and the bus is their main mode of vehicular transport. 1.30 Motor vehicle congestion is not serious even during the peak hours and ownership of cars is scarcely increasing. However, on several major roads where bicycles form 50% of traffic, motorized vehicles are a hazard to bicycl- ists. Road space for pedestrians and bicyclists is inadequate to cope with the volume due to encroachments, poor maintenance of existing facilities and lack of improvements. Moreover, with the expansion of the urban area, the lack of a city bypass and links to the peripheral new residential and indus- trial areas has caused serious circulation problems. 1.31 MUDP I incorporates measures for eliminating bottlenecks at inter- sections, narrow bridges, and road crossings with heavy pedestrian traffic. The works include part of the Inner Ring Road, road widening, pedestrian underpasses, cycle tracks and sidewalks. A large proportion of these works have been completed and are operating successfully. Further improvements of a similar nature are being undertaken by Madras Corporation and the Depart- ment of Highways and Rural Works (DHRW) with their own funds. Two hundred and  eighty five buses procured under MUDP I have contributed to improved services by the Pallavan Transport Corporation (PTC). 1.32 Solid Waste Collection and Disposal. About 1,000 tons of refuse per day is collected by the Madras Corporation using a fleet of 135 refuse trucks, 700 cattle-drawn carts and 6,000 conservancy workers. An estimated 200-300 tons remain uncollected. The annual costs of this service are about Rs 330 lakhs (US$3.9 million) or Rs 5 per household per month. The Corporation spends more on conservancy, which is funded out of general revenues, than any other service (Annex 4, Table 1). 1.33 Refuse is collected by conservancy workers and put into large, pre- cast concrete bins located at intervals on vehicular roads where collections take place. This involves excessive handling, and due to bin location, the service does not extend into the high density slums. Refuse vehicles are also underutilized due to excessive idle time involved in collection and loading. The use of open flat-bed trucks also results in half-laden trucks traversing long distances to dumping grounds. Disposal takes place without sanitary filling and valuable opportunities for land reclamation are being lost. 1.34 Drainage. Following monsoon rains large areas of the city are inundated for several days (Map IBRD No. 14761). Due to their poor location, water remains standing in hutment and other slum areas for several weeks. Inadequate and badly maintained secondary and arterial drains, the increased run-off resulting from urban expansion and limitations in the discharge capacity of the Adyar and Cooum Rivers and the Buckingham Canal result in substantial flood damage to property. GTN spends up to Rs 150 lakhs (US$1.8 million) per year on relief operations. GTN has formed a task force to study the problem and prepare an investment plan to address the flooding problems of Madras. 1.35 Water Supply and Sewerage Systems. The Madras Metropolitan Area (NMA) has one of the poorest water supply systems of any major urban area in India. The estimated reliable yield of water from all sources is about 290 mld. Normally only 69 mld would be available to 3.7 million residential consumers at a rate of 19 lcd, the remainder being needed by industry and other non-residential users. The present practice of overdrawing the Poondi Reservoir reduces the reliability of the source to a very low level, but raises the average quantity available to residential consumers to about 135 mld, equivalent to 36 lcd. Two million people in the Madras Metroplitan Water Supply and Sewerage Board (MMWSSB) service area are connected to the distribution system. The other 1.7 million people in the service area, most of whom belong to the EWS, dwell in hutment and other slum areas and obtain water from public taps at a rate of about 240 persons/tap. One million people outside the MMWSSB service area obtain water through wells from a falling supply of ground water. 2 1.36 The sewerage system covers an area of 102 km , or about 60% of the total area of the MMA. Pumping is required because of the flat Madras terrain. There are four sewage farms with a total capacity of 95 mld. Four new sewage treatment plants with a total capacity of about 140 mld are either operating or nearing completion at Kodungaiyur, Koyambedu, Nesapakkam and Perungudi.  - 10 - The collection system suffers from poor maintenance and is inadequate to cope with the increasing density of population in some areas. 1.37 A UNDP/WHO study completed in 1978 identified an immediate action program amounting to Rs 10 crores (US$11.9 million) to initiate improvements in the water supply and sewerage systems. These works, being implemented under MUDP I, include improvements to the water distribution system and sewage pumping stations. To relieve the severe shortage of water in Madras in the immediate future and to extend and improve the sewerage system, GTN has recently prepared a project for IDA-s consideration. 1.38 The MMWSSB was established in 1978 by GTN as a corporate body to bear responsibility for water supply and sewerage services in the MMA, formerly borne by Madras Corporation and the Groundwater Directorate (GWD) of the GTN Public Works Department. The MC responsibility for billing and collecting water and sewerage charges was assumed by MMWSSB in October 1979. II. THE PROJECT A. Objectives 2.01 The main objective of MUDP II is to further develop and expand low- cost solutions to urban problems in Madras initiated under MUDP I, particu- larly in the shelter sector. The proposed project would support the continued re-orientation of shelter and infrastructure investments and programs in the MMA making them more responsive to the needs of the urban poor. In support of this objective, MUDP II would aim at expanding the capacity of the institu- tions in Madras which provide shelter, infrastructure and transport. To ensure replicability, the principle of full cost recovery for sites and services introduced in MUDP I would be continued and cost recovery in slum improvement and other sectors would be further increased. The project would provide continued support for effective metropolitan planning and capital programming and budgeting. B. Main Features 2.02 The project would comprise the following:  - 11 - Rs US Dollars (crores) (million) A. Sites and Services: Construction of serviced residential plots, core housing and community facilities and provision of shelter loans for about 15,000 primarily low-income households (about 83,000 people) and serviced land, sheds and machinery loans for industrial and commercial uses, at two sites covering a total area of 180 ha. 15.2 18.1 B. Slum Improvement: Improvements in on and off-site infrastructure, provision of land tenure, home improvement loans and community facilities for 50,000 slum households, plus home improvement loans for households in slums improved under MUDP I. 19.1 22.7 C. Transport: Provision of about 550 buses and depot improvements for Pallavan Trans- port Corporation, construction of 6 km of Inner-Ring Road and general improve- ments to 14 km of Madras-Tiruvellore Road. 12.6 15.0 D. Solid Waste Management and Maintenance of Municipal Services: Provision of civil works and equipment to MC to improve its solid waste management and maintenance of municipal services, and consultancy services for the review of organizational, technical and financial aspects of these services. 2.3 2.7 E. Technical Assistance to MMDA, PTC, SIDCO and MC for special studies to identify priorities and prepare programs for medium and long-term investments and for institu- tional strengthening and training, particu- larly for MMDA. 1.0 1.1 Total Base Cost (October 1980 prices) 50.2 59.6 Design, Supervision and Management 2.9 3.5 Physical Contingencies 3.0 3.6 Price Contingencies 17.8 21.2 Total Project Cost 73.9 87.9  - 12 - Total unit costs per household, including costs for community facilities, off-site infrastructure, materials and home improvement loans, design, super- vision and management charges and physical contingencies for the sites and services and slum improvement components would be Rs 15,970 (US$1,900) and Rs 4,789 (US$570), respectively. Shelter Investment Program Policy Shifts 2.03 Compared to MUDP I (para. 1.28), MUDP II would further increase the proportion of investment and the output of affordable EWS shelter in the programs of TNHB and TNSCB in the MMA. The proportion of investment in affordable EWS housing in TNHB's program would increase from zero % in 1976/77 and 20% in 1978/79 to about 45% in 1982/83, by which time TNHB would be providing shelter for over 6,000 EWS households annually. The investment in TNSCB-s tenement program would continue to be limited to Rs 3.75 crores per year. This amount would comprise an increasingly smaller proportion of TNSCB's investment and, as a result of inflation, produce a decreasing number of tenements. Jointly, these TNHB and TNSCB programs would benefit about 22,000 EWS households per year. This would be sufficient to begin reducing the backlog of families in unserviced slums. By maintaining an increase of 10% per year in the real value of TNHB and TNSCB investment in the MMA, by concentrating TNSCB's program in slum improvement and by maintaining at least 45% of the value of TNHB's MMA investment in sites and services schemes, in 1991 only about 10% of the MMA population would be living in unserviced hutment areas. Without the program shifts which would be introduced during MUDP I and MUDP II, about 32% of the MMA population would be living in un- serviced hutment areas by that time (Chart 2). Accordingly, during negotia- tions, assurances were obtained that: (i) commencing April 1, 1982 TNHB would limit its annual investment in housing other than for the EWS, to not more than 55% of its total investment in housing and plot development in MMA; (ii) TNHB would construct housing for the EWS under its MMA program in accor- dance with physical standards mutually acceptable to IDA; and (iii) TNSCB will limit its annual expenditure on its slum clearance-cum-tenement program during the period April 1, 1981 to March 31, 1986 to not more than Rs 37,500,000 annually. C. Detailed Description Sites and Services 2.04 Location. Two sites, Mogapper and Nerkundram located 16 km west of the city center (Map IBRD No. 14761) would be developed to provide 14,900 plots, comprising 10,230 plots on 123.5 ha at Mogapper and 4,670 plots on 56.5 ha at Nerkundram. The sites have been selected on the basis of their suita- bility for residential development, proximity to employment opportunities, availability of off-site infrastructure, transport links, price of land, and ease of acquisition.  - 13 - 2.05 Though located outside the city boundaries (but within the MMA), the sites abut developing urban areas such as Ambattur, Avadi, and Koyambedu industrial and commercial centers. They are also close to the large middle- income residential areas of Anna Nagar and KK Nagar and the MUDP I sites and services areas of Arumbakkam and Villivakkam. The latter two sites were outside the Madras Corporation boundaries prior to the start of MUDP I, but as agreed by Government, have since been incorporated within the Corporation's boundaries. GTN has indicated that Madras Corporation would also incorporate Mogapper and Nerkundram within its boundaries. 2.06 Access. Access to Mogapper would be provided from the south by a short link (700 m) and a bridge across the Cooum River from Poonamallee High Road, financed under the project. Additionally, the main spine road through Mogapper would provide a connection to Ambattur and the Madras-Tiruvellore Road. Access to the Nerkundram site would be provided from liesapakkam Road, running parallel to the eastern boundary of the site, connecting Poonamallee High Road and Arcot Road. A portion (1.5 km) of Nesapakkam Road and a short link road would be improved to provide access to the Nerkundram site. An existing track located northwest of the Nerkundram site would also be improved to provide pedestrian access to Poonamallee High Road and Mogapper. 2.07 Water Supply. Mogapper and Nerkundram would be provided with indi- vidual groundwater systems initially. Preliminary investigations by MMWSSB indicate that borewells on site could supply between 25 to 30 lcd initially, which is equivalent to the prevailing city-wide supply. As improvements to the city water supply system are made (para. 1.37), the demand for additional water would be met from city sources at a higher standard of per capita consumption. Thirteen borewells (eight for Mogapper and five for Nerkundram) would be constructed under the project, along with treatment facilities, and elevated tanks. MMWSSB would construct and maintain these facilities. 2.08 Sewage Disposal. The occurrence of clay resulting in low perme- ability, small plot sizes, and high densities has precluded the use of pit latrines. Sewage pumping stations would be constructed on both sites and sewage would be pumped to the nearby Koyambedu treatment plant. The Koyambedu plant (34 mld capacity) is one of four plants located along the city periphery and has adequate capacity to receive flows from the two project sites. MMWSSB would construct and maintain these facilities. 2.09 Electricity. Electricity for Mogapper would be supplied from the Ambattur substation, while the supply for Nerkundram would be from Porur. The available capacities of both substations are limited and are not adequate to meet projected demand when the plots are fully developed. In the initial stages, however, power supply would be limited to street lighting, to LIG/MIG plots and to industrial and commercial plots. The Tamil Nadu Electricity Board (TNEB) is upgrading the capacity of the Ambattur sub-station from 33/11 KV to 110/11 KV and constructing distribution facilities to meet the power requirements of the residential, commercial, institutional, and industrial users in the MUDP I and MUDP II sites and industrial users in the general area in which the project sites are located.  - 14 - 2.10 Site Layout and Land Use. Both sites have been designed to connect with existing road networks and developed areas. The amount and location of commercial and industrial land uses are based on projected demand and on locational and access opportunities within the site. The layout design is efficient and allocates 72% of the site to marketable land and only 19% to circulation, minimizing the length of infrastructure needed. The layout design would facilitate the phasing of construction and site occupation through the provision of blocks of self-sufficient neighborhoods, each with a representative mix of plots, land uses and community facilities (Map IBRD No. 14760). 2.11 The land use for each site is shown in Table II-1. Table II-1: SUMMARY OF LAND USE (ha) Mogapper Nerkundram Total % A. Marketable Land (a) Residential 65.0 30.0 95 52.8 (b) Commercial 6.0 3.0 9 5.0 (c) Institutional 8.5 3.5 .12 6.7 (d) Industrial 9.0 4.0 13 7.2 Subtotal 88.5 40.5 129 71.7 B. Non-Marketable Land (a) Open Space 9.0 4.0 13 7.2 (b) Roads 23.5 10.5 34 18.9 (c) Reserve for Main Drain 2.5 1.5 4 2.2 Subtotal 35.0 16.0 51 28.3 TOTAL 123.5 56.5 180 100.0 2.12 MC, MMWSSB, TNHB, TNSCB, TNEB and MMDA have agreed that lower infrastructure standards and specifications (Annex 2, Tables 1 and 2) than those used in MUDP I would be adopted to achieve lower costs and improve functional design. These are: increased spacing for manholes, use of precast concrete manhole covers, open masonry drains, reduced road base and surfacing thicknesses and overhead distribution for electricity and street lighting.  Table II-2: PLOT OPTIONS, INDICATIVE CHARGES AND AFFORDABILITY (1979 PRICES) SITES AN9 SERVICES 1. Plot type Al A2 A3 Bl B2 Cl C2 LIG1 LIG2 MIr Commercial -aIndustrial a Institutional 2. No. of plots 2 1457 1898 3273 1959 1960 712 306 1461 859 1015 9.0 ha 13.0 ha 12.0 ha 3. Plot sizes (m ) 33.5 33.5 35.5 44.5 44.5 44.5 44.5 74.0 140.0 220.0 4. Plot dimensions (ft) 30x12 30x12 32x12 40x12 40x12 40x12 40x12 50x16 50x30 60x40 5. Infrastructure cost, including connections (Rs) 948 948 986 1158 1158 1158 1158 1988 3387 5083 6. Superstructure cost (Rs) 167 1198 1467 2287 2327 3377 4457 7. Total price for land, infrastructure, connections, super- structure, and c bj bi b/ management charge (Rs)- 407 1683 2176 3712 3712 5261 6598 3700 7700 15400 90.0 lakhs-- 117.0 lakhs- 21.5 lakhs- 8. Downpayment (Rs) 41 168 218 371 371 526 660 370 770 1540 9. Loan balance (Rs) 366 1515 1958 3341 3341 4735 5938 3330 6930 13860 10. Monthly payments on loan balance (RsO-/ 4.4 18.2 23.5 40.1 40.1 56.8 71.3 40.0 83.2 166.3 11. Maintenance charge (Rs) 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 3.0 12. Total monthly payment (Rs) 7.4 21.2 26.5 43.1 43.1 59.8 74.3 43.0 86.2 169.3 13. Percent incomes on shelter 5-4 11-9 13-11 17-14 17-14 20-17 25-21 12-10 19-14 28-17+ 14. Optional shelter loan (Rs) 1100 800 1100 800 800 500 500 - - 15. Monthly payments on shelter loan (Rs) 13.2 9.6 13.2 9.6 9.6 6.0 6.0 16. Total monthly payments on land, infrastructure, superstructure, management, maintenance, and loan (Rs) 20.6 30.8 39.7 52.7 52.7 65.8 80.3 17. Monthly incomes (Rs) 150-200 200-750 20-2Z50 250-300 250-00 303:'0 303OU-> 350-450 450-600 600-1000+ 18. Percent incomes on shelter (with loan) 14-10 15-12 20-16 21-18 21-18 22-19 27-23 - - 19. Percentiles 10-18 18-30 18-30 30-39 30-39 39-47 39-47 47-64 64-78 78-100 a/Number of plots to be determined later; therefore, total areas given in hectares. b/Denotes total prices for land development, excluding building and sheds c/Residential plots differentially priced to reflect extent of core unit construction, location, and accessibility within layout. Prices include design, supervision, and management charges (12.5 %), physical contingencies (107), and interest during construction. d/Repayments based on interest rate of 12 % for 15 years with 10% down payment on residential and commercial plots and 11% over 8 years with 20% down payment for industrial Dlots.  - 16 - 2.13 Plot Services and Shelter Options. Plot sizes, standards and on-plot development for 78% of residential plots would be affordable to beneficiaries with household incomes between Rs 150 (US$18) and Rs 350 (US$42) per month in about the 10th to 47th percentile of the Madras income distribution (Chart 1). Three plot sizes and seven on-plot development alternatives would be provided for the EWS (Table II-2). Plot and core options and the evolution of a house on a typical plot are shown in Sketches 21110 and 21111. Based on the expe- rience of MUDP I, smaller plots and more diverse on-plot developments have been provided to suit the needs of lower income households. Marketing and plot allocation procedures would ensure that the different alternatives would be reserved for the designated incomes (para 3.10). 2.14 All plots would have individual metered water supply and sewer connections. The two lowest cost options, Al and A2, would have a water tap and squat pan set on a slab but no walls. The beneficiary would make arrangements for its enclosure. The on-plot superstructure provided for each plot type and unit costs are described in Annex 2, Tables 3 and 4. EWS plots would front pedestrianways or minor vehicular routes and would have street lighting but no initial provision for individual domestic electricity. All the larger LIG and MIG plots would have individual water and sewer connec- tions, front surfaced vehicular roads with street lighting, and provision for domestic electricity supply. Basic shelter loans for the expansion and construction of homes on the seven EWS options would be financed under the project. Prices of the EWS options, without building loans, would range from Rs 407 (US$48) for the lowest priced A plot to Rs 6,598 (US$785) for the C2 plot, and with building loans from Rs 1,507 (US$180) to Rs 7,098 (US$845), respectively. 2.15 Community Facilities. Pre-schools, primary schools, high schools, community centers and medicare centers would be provided in Mogapper and Nerkundram at the same standards used in MUDP I (Table II-3). The layouts for sites and services would accommodate all land requirements, but only part of the facilities would be project-financed. Some sites for schools (secondary and primary) and community centers would also be made available for sale/lease to voluntary organizations or private developers. Table II-3: SITES AND SERVICES COMMUNITY FACILITIES Mogapper Nerkundram Project- Non- Project- Non- Financed Project Financed Project Standard Pre-schools 51 - 23 - One per 200 households. Primary schools 10 9 5 4 One school of 300 pupils per 545 households. High schools 3 3 2 1 One school of 300 pupils per 1,820 households. Community centers 2 1 1 - One per 2,730 households. Medicare centers 2 1 1 - One per 5,000 households.  - 17 - 2.16 The target group for the pre-schools would be about 52,000 children in the age group 0-5 and their mothers. Activities would include education and supplementary feeding, nutrition programs and mothers- education. Each school would be. manned by one Balasevika (teacher) and two helpers. The nutrition program would use the identification, feeding, training and monitor- ing and evaluation methods adopted in the recently approved Tamil Nadu Nutri- tion Project. The operational responsibility for pre-schools would rest with the Department of Social Welfare. Primary and secondary schools would be the responsibility of the Department of Education, although some would be operated by voluntary agencies. 2.17 Buildings and equipment for three medicare centers in Mogapper and Nerkundram would be financed under the project. These centers would primarily serve EWS families and would provide simple curative and preventive medical facilities, family planning, health education and monitoring and community health programs. Each center would be operated by a voluntary agency under the supervision of the Department of Health (DOH) and would receive annually Rs 9,000 (US$1,070) assistance from the Government to service 1,000 families, with the voluntary agency providing matching funds. One pilot medicare center, staffed by a voluntary agency, has been operating in the Vyasapardi slum improvement area of MUDP I. Other similar centers are operating success- fully in rural areas of Tamil Nadu. 2.18 Small-scale Businesses (SSB). Experience at MUDP I's Arumbakkam site and at the Small Industry Development Corporation-s (SIDCO-s) other Madras sites has shown that there is a strong demand for the small industry services provided by SIDCO, including serviced sites, sheds and machinery loans. This package is particularly important to new and expanding businesses which do not have established lines of credit with the banks. At Arumbakkam, the demand for larger plots and sheds (1,000-3,000 sq. ft.) proved much greater than that for the smallest sheds (500 sq. ft.) and for serviced land without sheds. However, SIDCO's evaluation of Arumbakkam indicates that the percentage of unskilled (to total) workers remained about the same 45% for the A, B, and C sheds (2,000-500 sq. ft.) and reached 67% for the two L sheds (3,000 sq. ft.). Also fixed assets per employee stayed between Rs 12,000-18,300 for all shed types, the lowest amounts being associated with the L and C sheds; the average current cost per job at Arumbakkam is about Rs 17,000. To provide a range of options for different sized businesses, SIDCO would offer in MUDP II: (i) serviced sites with SIDCO built sheds; (ii) serviced sites with loans for shed construction by entrepreneurs; and (iii) serviced sites alone (shed construction to be financed independently of the Project). Machinery loans would be available to about 1/3 of the businesses in all three options. Under MUDP I, no loans were made available to entrepreneurs for self-help shed construction and machinery loans were only available to those purchasing sheds built through SIDCO. The more flexible approach adopted for MUDP II may result in a different demand pattern than that of MUDP I. This will be closely monitored during implementation and adjustments in land development and shed construction will be made as necessary. 2.19 As under MUDP I, serviced plots would be prepared by TNHB and marketed by SIDCO. About 200 plots would be provided at Mogapper and Nerkundram. It  - 18 - is estimated that on half of these SIDCO would construct sheds. Entrepreneurs would build the rest of the sheds. Shed demand is expected to be equally divided among the types L (3,000 sq. ft.), A (2,000 sq. ft.) and B (1,000 sq. ft.). However, entrepreneurs could purchase smaller plots and sheds of the C type or smal-er. The actual mix, of plot sizes and of SIDCO versus entrepre- neur built sheds, would depend on demand. To estimate shed costs for MUDP II it has been assumed (based on SIDCO experience) that each SIDCO-built shed would cost an average of Rs 170,000 and each entrepreneur-built shed margin- ally less. Project funds of Rs 2.6 crores (US$3.1 million) would therefore cover SIDCO's construction costs for about 100 sheds and an average of 50% of the financing of the other sheds. Machinery would be provided through hire purchase. The average machinery loan is estimated at Rs 324,000 per shed based on the Arumbakkam experience. The project would finance 1/3 of this need for all 200 sheds, at a total cost of Rs 2.2 crores (US$2.6 million). 1/ 2.20 Through local technical assistance the component would develop the capacity of SIDCO for business promotion and the ability of MMDA to assist small entrepreneurs and to formulate an employment strategy for the MMA. In SIDCO the project would finance technical assistance to strengthen SIDCO-s operations in marketing and production activities (2 man years) and in organization planning, including preparation of a five-year program (2 man years). In MMDA the project would finance: (i) a training and manpower advisor to assist the Community Development Wing in evaluating job demand and training needs for the MMDA (1-1/2 man years); (ii) an advisor to improve the bank loan program for small entrepreneurs, particularly in slum areas (1 1/2 man years); and (iii) consultants for an Employment Sector Study (two man years). 2/ Slum Improvement 2.21 Slum hutment areas, inhabited by about 50,000 households, would be provided with improved water supply, drainage, sanitation, roads, street lighting and refuse collection services with minimal displacement of existing households. Households in the improved areas would be provided with security of tenure. Health, nutrition and child welfare programs would be provided under the project. 1/ Component costs in Chapters II and III include the costs of design, supervision and management, and physical contingencies, where applicable, and also price contingencies, except when otherwise specified. 2/ MUDP I also includes assistance to cottage industries, principally aimed at supporting manpower training and small business activities in slums being improved. Progress has been slow, however. While MUDP I provides for 100 small production centers only 6 are operating, while 39 more centers are being constructed. Only about 20% of about 1,500 persons trained so far in the slum areas have found employment. The provision of commercial bank loans to small entrepreneurs has also been low. Due to this slow progress, no further direct support to cottage industries has been included under MUDP II. Instead, part of the technical assistance provided for MMDA is aimed at evaluating the progress made and assisting MMDA in using more effectively funds available for cottage industries under MUDP I.  - 19 - 2.22 Six types of hutment areas have been identified (Table II-4 and Map IBRD 14780). Hutment areas for improvement would be selected from Type D areas which contain 113,300 households (57% of slum households in 1976). This type lends itself to improvement as in MUDP I, with the provision of physical and social infrastructure and tenure. Due to earlier improvement schemes, however, most of these areas have some services. It would therefore be necessary to design improvements of different kinds based on the level of existing facilities. Type D slums have been therefore grouped into three categories according to the availability of services, viz, "very poor", "poor" and "fair". The estimated number of households in each group is given in Table 11-5. Table II-4: TYPES OF SLUM HUTMENT AREAS (1976) Type No. of Households % A Linear development along water courses 2,600 1 B Linear development on rights-of-way 10,200 5 C Huts on space reserved for public use 8,700 4 D Clusters of huts on identifiable sites 113,300 57 E Planned hut settlements (open development plots e.g.,serviced sites with no tenure) 30,900 16 F Rural settlements 34,000 17 TOTAL 199,700 100 Table II-5: SERVICES IN TYPE "D" SLUMS Approximate % in MUDP II Improve- Level of Services No. of Households Each Group ment Program Very Poor (Level I) 44,410 39.2 25,000 Poor (Level II) 52,460 46.3 16,000 Fair (Level III) 16,430 14.5 9,000 113,300 100.0 50,000  - 20 - 2.23 Improvements would be provided under MUDP II to about 45% of slum households in the above three levels. A representative mix of the three levels by size, distribution and location would be selected (Map IBRD No. 14780). By the provision of varying degrees of improvements the following service standards (which are somewhat lower than MUDP I ) would be achieved in all slums included in MUDP II: (i) community water points at the rate of 1 per 20 households; (ii) storm water and sullage disposal including filling of low-lying areas; (iii) public conveniences at the rate of 1 seat per 10 households and washrooms at the rate of 1 room per 20 households; (iv) paved roads and pedestrianways; (v) security/street lighting; (vi) landscaping and provision of refuse bins; (vii) pre-schools at the rate of 1 per 200 house- holds; and (viii) medicare centers at the rate of 1 per 5,000 households. 2.24 The average costs per household for improvements, inclusive of design, supervision, management and physical contingencies (excluding land), would be Rs 974 (US$116), Rs 735 (US$88), and Rs 407 (US$48) for Levels I, II and III, respectively (Table II-6). Detailed unit cost estimates are in Annex 2, Table 5. 2Land would be priced at Rs 500 (US$60) per plot based on an average of 20 m per household. 1/ Improvements, including the cost of land, would be affordable to the 4th percentile of the Madras income distribu- tion. Tenure would be provided to present occupiers of land through lease-cum- sale agreements on terms and conditions satisfactory to IDA (para. 3.15). Table II-6: SLUM IMPROVEMENT COSTS (1979) (Rupees) Average Cost Level I Level II Level III of Improvement 25,000 Hhlds. 16,000 Hhlds. 9,000 Hhlds. Per Household A. Land 500 500 500 500 B. Site Preparation 37 36 18 33 C. On-site Infrastructure 707 532 297 577 D. Hut Relocation 9 - - 5 Subtotal (A-D) 1,253 1,068 815 1,115 Design Supervision & Management (12.5%) 94 71 39 77 Subtotal 1,347 1,139 854 1,192 Physical Contingencies (15%) 127 96 53 104 TOTAL 1,474 1 235 907 1,296 2.25 Based on an estimated 75% rate of uptake, home improvement loans of Rs 1,500 (US$180), Rs 2,500 (US$300), and Rs 3,500 (US$420) per household would be available for households with monthly incomes from Rs 250 to Rs 600 (Table III-5). The loan amount would be adequate for the installation of a 1/ Price and loan amounts are at 1979 prices and would be adjusted during implementation in accordance with movements in prices and incomes.  - 21 - clay tile roof or additions/strengthening of the basic shelter, with house- holds contributing labor. The Government is convinced that the poorest households cannot afford improvement loans and that this has led to the sparse shelter improvement under MUDP I. It therefore feels strongly that corrective action is required to ensure that even low-income households have the oppor- tunity to effect basic improvement to shelter. A grant of Rs 600 (US$70) for slum households with incomes less than Rs 200 a month would be provided for this purpose. 1/ Similar home improvements loans and grants would be provided for 50Z of the 30,000 households improved under MUDP I. 2.26 Community Facilities. Community facilities to be provided under slum improvement would be limited to pre-schools and medicare centers. Based on the standards, staffing and operational details set out in Table II-3, 250 pre-schools and 15 medicare centers would be provided. Six of the 15 medicare centers would cater to the 30,000 slum households upgraded under MUDP I. The medicare centers substitute for mobile clinics provided under MUDP I, which by themselves did not provide adequate health care coverage or personnel. The mobile units will continue to operate but now in support of the'medicare centers. Due to the distribution of slum households throughout the city, the small size of individual slums (100 to 150 families per slum) and the lack of space, slum households would continue to depend on nearby primary and high school facilities. 2.27 0ff-site Infrastructure. All hutment areas selected for improvement would be within the Madras Corporation boundaries where off-site infrastructure requirements are expected to be minimal. Where water supply is unavailable, or in the case of low pressures, independent ground water systems would be established. Septic tanks would be provided where public conveniences are located in unserviced areas. From experience gained under MUDP I, however, it is apparent that on-site improvements alone fail to protect against flood- ing arising out of slum location in low-lying land, the inadequacy and poor maintenance of drainage channels and water courses and the unplanned use of irrigation tanks for urban expansion. Areas indicated in Map 14761 are largely occupied by slum and hutment areas, which are inundated almost every year following the monsoon. GTN spends about Rs 150 lakhs (US$1.8 million) per year in flood relief activities and there are additional costs due to damage to public and private property. In the absence of measures to deal with these problems, many improved hutment areas would be inundated and improvements would be damaged. 2.28 The project would therefore provide for the construction of new arterial and feeder drains and missing links in the drainage system, repair and desilting of drains and the filling of low-lying areas at a cost of Rs 483 lakhs (US$5.8 million). The proposals would primarily affect the hutment areas selected for improvement under MUDP II, those improved under MUDP I and other unimproved slums nearby. The main arterial drains, to be constructed or improved by the Public Works Department (PWD), include the Mambalam, Nandanam, Virugambakkam, Saligramam and Arumbakkam drains. Also a large number of city 1/ GTN operates a similar grant scheme in its rural housing program. The grant is in 1979 prices and would be adjusted during implementation in accordance with movements in prices.  - 22 - feeder drains maintained by the Madras Corporation would be repaired and desilted and new drains would be constructed (Annex 2, Table 6). All drains would be left uncovered where feasible. The long-term effectiveness of these measures would depend upon the discharge capacities of the Adyar and Cooum Rivers, the Otteri Nullah and the Buckingham Canal, which are affected by increased run-off, silting and constriction at outfalls. GTN has established an inter-agency committee to develop a long-term plan to control flooding and inundation. Transport 2.29 Buses. PTC's operating and maintenance efficiency is high, result- ing in low costs and a good financial performance. From 1973/74 to 1978/79, the number of passengers carried by PTC increased at a rate of about 8% per year. Over the same period, the bus fleet increased by only about 3.5% per year. Staggering of working hours in offices and schools did not reduce peak demand, and the increasing age of the bus fleet further reduced the peak and average carrying capacity of the fleet. These factors caused severe over- crowding of up to 140 passengers per 65-passenger bus on a significant number of routes. The total bus procurement program of PTC to cater for the require- ments from 1980/81 through 1982/83 is estimated to be 770 buses. The project would provide for the procurement of about 550 single-deck bus chassis, spare parts and bodies at a cost of Rs 1,204 lakhs (US$14.3 million). Of these, 195 buses would be used to reduce overcrowding and 360 buses would replace buses 12 years old and over which are uneconomic to operate (Annex 2, Tables 7 and 8). Out of its own resources, PTC would purchase 214 buses to augment the fleet during the project period through 1982/83. Buses acquired for augmenta- tion and to reduce overcrowding would increase the number of buses in the fleet at a rate of 7% per annum. The joint effects of additions to the fleet for augmentation and of increases in average kilometers run per bus in a younger fleet would be to increase bus passenger kilometers from 1979/80 through 1982/83 at a rate of 8% per year. 2.30 The project would also provide for the construction of one depot (Rs 48 lakhs or US$0.57 million), communication and workshop equipment (Rs 8.8 lakhs or US$0.1 million) and technical assistance (para. 2.40) for depot and workshop cost studies and surveys to improve operating procedures (Rs 2.5 lakhs or US$30,000). 2.31 PTC is surveying trips by student commuters, particularly conces- sional pass holders, to assess methods of staggering school and college hours to reduce peak demand. It has implemented a number of other measures to increase peak hour carrying capacity, including the reduction of unproductive kilometers run, the construction of new depots, the introduction of daytime servicing and refueling, the introduction of express services and studies for the rationalization of stages and stops. Additional improvements in operating performance are targeted for the project period (Annex 2, Table 9). 2.32 A major objective of the bus component would be to consolidate the improvements in PTC's finances begun under MUDP I. This would be achieved through retaining most of the cash generation from fare increases in deprecia- tion reserves, which would only be used for capital investment. The investment  - 23 of cash surpluses would improve the capital structure of PTC and lower the debt to equity ratio during the project period (paras. 4.16 and 4.17). 2.33 Roads. The project would provide Rs 381 lakhs (US$4.5 million) for the construction of 6 km of the Inner Ring Road from Padi to National Highway 5, near Madhavaram, constituting an extension of the works commenced under MUDP I. The road design provides adequate pedestrian and bicycle facilities and consists of a two-lane carriageway, 7 m wide, and 2-m cycle tracks and footpaths. Where the road crosses the Madras-Bombay railway, grade separation would be provided. Together with the sections constructed under MUDP I, it would provide the only direct route linking the sites and services areas of Arumbakkam and Villivakkam and the new sites of Mogapper and Nerkundram to areas of employment at Avadi, Ambattur and Guindy. It would also provide an orbital route presently lacking in the northwest part of the city and divert through traffic from the inner city. 2.34 The project would also provide for improvements to 14 km of the Madras-Tiruvellore Road, which is one of the major district roads radiating from Madras and is on the main axis of residential and industrial development in the MMA. Improvements costing Rs 151 lakhs (US$1.8 million) would involve the widening of the carriageway to 7 m and the incorporation of cycle tracks, 2 m wide, on either side to improve conditions for heavy bicycle, bus and truck movements. In built-up areas, drainage would be extended and curbs with raised footpaths would be provided. The improvements would provide easier access from sites and services areas to employment areas and increased safety for pedestrians and cyclists who constitute a large portion of the work force living in the nearby areas. Solid Waste Management and Maintenance of Municipal Services 2.35 Solid Waste Management. The project would assist the Madras Corporation in extending the coverage of its refuse service, especially to areas occupied by the EWS households, where presently a substantial portion of the refuse is uncollected. The project would also assist the Madras Corporation in formulating long-term strategies for cost-effective solid waste collection and disposal service to its expanding population. Better informa- tion on refuse generation, collection and disposal systems would be collected. A number of options would be explored on an experimental basis and would be monitored and evaluated over a two-year period with technical assistance funded under the project. 2.36 Vehicles, equipment and civil works costing Rs 161 lakhs (US$1.9 million) would be financed under the project, including 3,000 handcarts, 14 refuse trucks, 2 bulldozers, 2 front end loaders and 6 dump trucks, plus other equipment for waste collection and disposal and civil works for a transfer station and 8 vehicle depots (Annex 3, Table 5.) 2.37 , In order to achieve the widest coverage, a handcart collection system would be introduced. Refuse from houses and roads would be brought in small bins on handcarts to collection points along vehicular roads. These bins would be emptied directly into refuse vehicles, thereby reducing vehicle delay involved in collection at numerous points.  - 24 - 2.38 The sides of existing 7-ton refuse trucks would be raised to increase their volume and weight per load and reduce the excessive mileage and high operating costs due to under-loading of vehicles and the long distances to dumping sites. The city would be divided into 12 zones to facilitate collec- tion and disposal. The suitability and economies of compactor and tipping- compacting type vehicles would be tested. One transfer station would be con- structed under the project on an experimental basis. The transfer station would have one half-day storage capacitv and a conveyor belt facility for sorting recyclable material such as paper, rags and metal. Refuse would be conveyed to the transfer station by a fleet of one-ton short-wheel base vehicles, again to be tested on an experimental basis. Disposal by sanitary landfill would be introduced using tipper trucks and other plant financed under the project. 2.39 Maintenance of Municipal Services. Maintenance of main roads in Madras is generally satisfactory, but the maintenance of secondary roads, footpaths, drains, street lighting and public conveniences is poor. The project includes technical assistance (para. 2.40) to review the technical and financial aspects of maintenance services by MC. The consultancy report is expected to make specific recommendations for improvement in equipment and depots. In order for its recommendations to be quickly implemented, a provisional sum of Rs 147 lakhs (US$1.8 million) has been included in the project costs. Expenditures would be incurred for this purpose only after GTN, MC and IDA have agreed on the course of action to be taken and equipment to be purchased. Technical Assistance and Training 2.40 To support development planning, investment programming, employment generation and improvements in local services, technical assistance would be included in the project at the cost of Rs 126 lakhs (US$1.5 million). MMDA would obtain technical assistance to: (i) continue the work program begun in MUDP I in preparing economic, social and spatial development programs; (ii) study employment and manpower training needs (para 2.20); (iii) review the economic, financial and technical feasibility of major investment projects; (iv) develop and install a planning and development information system; and (v) train MMDA and implementing agencies staff in organization and management of urban systems, project preparation and financial analysis. SIDCO would obtain technical assistance for developing its capacity in business promotion and for organizational planning (para. 2.20). Madras Corporation would obtain technical assistance to: (i) gather better information on solid waste genera- tion, collection and disposal and monitor and evaluate alternative solid waste collection and disposal systems, and (ii) evaluate and improve its facilities and organization and methods for maintaining municipal services (paras. 2.35 and 2.39). PTC would obtain technical assistance for depot and workshop cost studies to improve operating procedures (para 2.30).  - 25 - III. PROJECT COSTS, EXECUTION AND FINANCING A. Cost Estimates 3.01 The total project cost, including physical and price contingencies, is estimated at Rs 73.9 crores (US$87.9 million). The foreign exchange component is estimated at Rs 11.5 crores (US$13.5 million) or about 15% of project costs with Rs 3.2 crores (US$3.9 million) estimated as taxes and duties. Estimated land acquisition costs are Rs 3.5 crores (US$4.2 million). Costs are summarized in Table III-1 (Detailed Cost Estimates by Component, Annex 3, Tables 1-6). Base costs are in October 1980 prices. Cost esti- mates for the sites and services component are based on final engineering. Cost estimates for the slum improvement component are based on preliminary engineering for typical slums, representing the three levels of upgrading, and actual costs on similar MUDP I works. Cost estimates for road construction and improvements and community facilities are based on recent contracts for similar works under MUDP I or other programs. Recent quotations from sup- pliers for materials, vehicles, and equipment have been used to compute costs for the bus, solid waste and maintenance components. Average man-month costs for consultant and advisory services including salaries, overhead, profit, travel and subsistence are estimated at US$7,000 for foreign services and Rs 8,500 (US$1,000) for locally procured services. The total cost of the techni- cal assistance component would be Rs 126 lakhs (US$1.5 million), most of which would be allocated to MMDA. Assurances were obtained at negotiations that technical assistance would be obtained on terms and conditions satisfactory to IDA. Physical contingencies have been allowed at the rate of 10% for civil works in the roads component and sites and services, and 15% for civil works in slum improvement. No physical contingencies have been applied to land, vehicles, equipment, building material loans and other loans and technical assistance. Price contingencies have been applied to all items except land already publicly owned (in the slum improvement component) from 1980/81 through 1984/85, at rates of 11.0, 7.7, 7.7, 7.7 and 5.5% per year for local procurement and 10.5, 9, 8, 7 and 7% per year, respectively, for foreign procurement. The design, supervision and management costs of implementing agencies have been estimated as 12.5% of base costs, excluding land and shelter loans. B. Execution 3.02 The project would take about four and a half years to be completed, including the disbursement of shelter and improvement loans (Chart 3). The responsibilities for implementation of the individual project components are indicated in Table III-2. 3.03 In MUDP I, MMDA has demonstrated an effective capacity for co- ordinating project execution, monitoring and evaluation, and preparing  Table III-1: SUMMARY COSTS Rs(Crores) US$ million - % Foreign % of Component Local Foreign Taxes Total Local Foreign Taxes Total Exchange Total I. Shelter (a) Sites and Services 13.7 0.9 0.6 15.2 16.3 1.1 0.7 18.1 6 30 (b) Slum Improvement 18.0 0.7 0.4 19.1 21.4 0.9 0.4 22.7 4 38 31.7 1.6 1.0 34.3 37.7 2.0 1.1 40.8 68 II. Transport (a) Roads 2.6 0.8 0.1 3.5 3.1 0.9 0.2 4.2 21 7 (b) Buses, Equipment 2.6 5.5 1.0 9.1 3.1 6.5 1.2 10.8 -60 18 and Depot 5.2 6.3 1.1 12.6 6.2 7.4 1.4 15.0 25 III. Solid Waste Management and Maintenance of Municipal Services 2.2 0.1 - 2.3 2.6 0.1 - 2.7 4 5 IV. Technical Assistance 0.8 0.2 - 1.0 0.9 0.2 _ 1.1 18 2 and Trainingn Total Base Cost 39.9 8.2 2.1 50.2 47.4 9.7 2.5 59.6 16 100 Design and Supervision 2.5 0.3 0.1 2.9 3.0 0.3 0.2 3.5 9 Physical Contingencies 2.6 0.3 0.1 3.0 3.0 0.4 0.2 3.6 11 Price Contingencies 14.2 2.7 0.9 17.8 17.1 3.1 1.0 21.2 15 Total Project Costs 59.2 11.5 3.2 73.9 70.5 13.5 3.9 87.9 15 a/ US$ equivalent computed at the rate of US$1 = Rs 8.4.  quarterly progress reports aind would carry the same responsibility as GTN's representative in MUDP ll. The execution of on-site slum improvement would be carried out largely by TNSCB with the Madras Corporation executing improve- ments in some slums located on Corporation land. TNSCB has adequate capacity to implement civil works on the scale envisaged for the slum improvement component in MUDP IT. Measures have been taken to increase TNSCB's capacity to design improvement schemes, undertake community development work and administer home improvement loans (paras. 4.23 and 4.24). The planned shift of investments by TNSCB from the tenement program to slum improvement (para. 2.03) would be achieved without reduction in the overall value of TNSCB's program of capital works. Measures to increase TNHB's capacity to implement sites and services civil works under the project and administer the program for settling households on sites and administering home improvement loans have been taken (paras 4.20-4.21). Off-site feeder drains for slum improvement would be carried out by the MC and repairs, widening and desilting of arterial drains would be carried out by the PWD. Table III-2: IMPLEMENTATION RESPONSIBILITIES Primary Implementing Other Agencies Component Agencies a/ Involved I. Shelter Sites and Services TNHB MMDA: Site plans MC: Street lights TNEB: Electricity MMWSSB: Water and sewerage DHRW: Access roads DOE: Schools Slum Improvement TNSCB M(: Street lights, and off-site feeder drains PWD: Arterial drainage Collector of Madras (GTN): Surveys and land acquisition Health, Nutrition DSW, DOH, Voluntary and Child Welfare Organizations Small Scale Business MMDA, SIDCO II. Transport Buses PTC Roads DHRW III. Solid Waste Management MC and Maintenance IV. Technical Assistance MMDA, MC, PTC, SIDCO a/ DHRW, TNHB and TNSCB would have individual responsibility for land acquisition.  - 28 - Land Aquisition 3.04 A number of steps have been taken to minimize land acquisition problems in MUDP II. To facilitate land acquisition a Land Acquisition Officer is stationed full time in TNHB. MMDA regularly monitors, coordinates and aids in solving land acquisition problems. In the sites and services component the final valuation statement for Mogapper site was approved in November 1980. The enquiry which follows establishes compensation for the land and normally takes 2 months, following which TNHB could commence construc- tion. Slums identified for upgrading under MUDP I were located entirely on public land. Sixty percent of the land in the MUDP II slum improvement program is in public ownership, allowing work to commence in those areas in 1981. The remaining 40% of the land would have to be acquired from private owners. In order to ensure the subsequent availability for improvement of slums located on private land and the completion of lease-cum-sale agree- ments to transfer tenure to slum households, GTN intends to amend the Slum Clearance/Improvement Act, 1971, for the consideration of the State legislature by March 31, 1981 in order to facilitate the acquisition of privately owned land soon after. Land acquisition for the proposed Inner Ring Road section has begun and it is expected that all other land required for the project would be acquired in accordance with construction schedules. C. Financing 3.05 The proposed IDA credit of US$42 million would finance 50% of total project cost net of taxes and duties. The credit would cover 100% of the estimated foreign exchange costs (US$13.5 million) and 40% of local costs. The credit would be made available to GOI, which will pass it on to GTN on its standard terms and conditions as part of central assistance to the State. GTN would make total project funds available to the implementing agencies on the terms and conditions indicated in Table III-3. The various interest rates applied to GTN loans reflect the prevailing GTN interest rate structure for various capital uses.  - 29 - Table III-3: FINANCING PLAN (US$ Million) Grants and Direct Total Of which Agency Expend. Loans Cost IDA Funds Sites and TNHB 22.6 a/ - 22.6 10.9 Services SIDCO - 5.7 b/ 5.7 1.4 Slum Improvement TNSCB 33.1 c/ - 33.1 12.7 Transport: Roads DHRW 6.3 - 6.3 2.9 Buses PTC - 15.0 d/ 15.0 10.1 Solid Waste Management and Maintenance MC 1.8 1.9 e/ 3.7 2.5 Technical Assistance f/ 1.5 - 1.5 1.5 Total 65.3 22.6 87.9 42.0 a/ Part passed directly from GTN to budgets of GTN Departments as follows: Schools (US$0.9 million) Department of Education; Pre- schools and Medicare Centers (US$0.5 million) Department of Social Welfare and Health; Community Halls (US$30,000) Department of Social Welfare. b/ GTN terms to SIDCO would be 8.5% per year over 10 years. c Part passed directly from GTN to budgets of Departments of Social Welfare and Health for Pre-schools and Medicare Centers (US$2.3 million). d/ GTN terms to PTC would be 10.5% per year over 15 years for chassis and 12.5% per year over 15 years for other capital investments. e/ GTN loan terms to Madras Corporation would be 11% per year over 20 years with 3 years grace. f/ Passed directly from GTN to: MMDA (US$1.3 million); SIDCO (US$48,000); PTC (US$35,000); and MC (US$86,000). 3.06 As in MUDP I, GTN would provide the project funds for TNHB and TNSCB on a grant basis and the revenues from sites and services and slum improvement schemes would be deposited in the revolving funds to finance future sites and services and slum improvement schemes. 3.07 Annual expenditures during the project period would be (Table III-4):  - 30 - Table III-4: ANNUAL CAPITAL EXPENDITURE PLAN (Rs lakhs) FY1981 FY1982 FY1983 FY1984 FY1985 TOTAL A. Sites and Services 50.3 352.1 774.5 925.3 277.5 2,379.7 B. Slum Improvement 257.0 587.4 766.7 303.9 265.5 2,780.5 C. Transport Roads 112.5 143.0 162.7 113.9 - 532.1 Buses 107.6 331.5 456.0 365.3 - 1,260.4 D. Solid Waste Management and Maintenance - 85.4 153.9 68.7 - 308.0 E. Technical Assistance 14.7 43.0 46.2 22.1 - 126.0 Total 542.1 1,542.4 2,360.0 2,399.2 543.0 7,386.7 D. Cost Recovery 3.08 A fundamental premise of the project would be to maximize the recov- ery of investment costs in order to assure the replicability of the program in the future. This would apply in different measures to almost all components as listed below and shown in Chart 4. Expenditure Item Means of Cost Recovery I. Shelter 1. Sites and Services Land Plot charges On-site infrastructure Plot charges Off-site infrastructure Partially recovered from user charges On-plot development Plot charges Shelter loans Loan charges Community facilities Partially recovered through charges to voluntary agencies 2. Slum Improvement Land Plot charges On-site infrastructure Plot charges Off-site infrastructure Partially recovered from user charges Home improvement loans Loan charges Home improvement grants Not recovered Community facilities Not recovered  - 31 - II. Transport PTC buses Bus fares PTC civil works Bus fares Madras-Tiruvellore Road improvements Not recovered directly Inner Ring Road Not recovered directly III. Employment SIDCO sheds and plots Plot charges Machinery and shed loans Loan charges IV. Solid Waste Management and Maintenance Equipment Not recovered directly Civil works Not recovered directly V. Consultant and Advisory Services Technical assistance to MMDA Not recovered and executing agencies Sites and Services 3.09 Sixty-six percent of component cost is for directly-chargeable cost items (land, site preparation, on-site infrastructure, on-plot development and shelter loans) and would be fully recovered through plot sales and loan repayments. In addition to price differences due to infrastructure and the extent of core unit construction on each plot option, the price of options would be further differentiated by their location and accessibility within the residential layout. Prices of EWS plots would be set at affordable levels, lower than chargeable costs. LIG, MIG, commercial and industrial plots would be sold at market prices. Sites for private schools would be priced at about half of chargeable cost, while the cost of land for other community uses would not be recovered. Twenty-eight percent of component cost is for off-site infrastructure which would be partially recovered through electricity, water and sewerage tariffs. Six percent of component cost is for community facilities (land, infrastructure, buildings and equipment) which would not be directly recovered, except for the costs of serviced land for private schools. 3.10 Residential plots would be sold with freehold titles with a minimum 10% down payment, the balance payable in monthly installments by beneficiaries at 12% interest per year over 15 years. Maintenance charges of Rs 3 per month per plot would be added to the monthly payment. Beneficiaries may not sell their plots for a period of 5 years without giving TNHB first option to purchase and set the sales price. Basic shelter loans at 12% interest per year for 15 years would be provided for purchasers of the seven EWS options to construct or expand homes. The loan amounts approximately reflect the cost of material for a basic room with the beneficiary contributing labor. No materials loans would be provided in the project for LIG and MIG households who would obtain housing finance from commercial banks, cooperative societies and other sources. Land for schools allocated to non-public users would be priced at about half the cost of servicing in accordance with normal GTN practice. Private voluntary agencies would charge for health-care services in medicare centers,  - 32 - in order to recover their operating costs. Commercial land will 2be sold at market value, estimated at an average of Rs 100 (US$11.90) per m , in 1979 prices, at 12% interest per year over 15 years with 10% down payment. Assurance were pbtained during negotiations that (a) settler selection criteria, including income levels; and (b) terms and conditions for plot sales would be satisfactory to IDA. All revenues from plot and housing sales would be deposited in the Sites and Services Revolving Fund established under MUDP I. By 1984/85 about Rs 270 lakhs (US$3.2 million) would be generated annually in the Revolving Fund (Annex 3, Table 7). 3.11 The average rate of inflation in India has been over 12% per year, but is expected to decrease to 5% per year by 1984/85. The interest of 12% per year charged for plot and basic shelter loans in the sites and services component and for infrastructure improvements and home improvement loans in the slum improvement component is therefore positive in real terms. Government agencies and housing cooperatives are charging about 11% per year and commer- cial banks are charging about 15% per year for housing loans. (However, TNHB charges 5% for loans to the EWS). 3.12 The full cost of small industry sites, sheds and machinery loans would be recovered. SIDCO would act as an agent to TNHE in the sale of sites. Terms of the sale of sites, SIDCO-constructed sheds and shed loans would be 20% downpayment and payment of the balance at 11% interest per year over eight years after two years grace. 1/ The 1979 sales price of serviced land and shed types L, A and B would, respectively, be Rs 211,200 (US$25,100), Rs 142,900 (US$17,000) and Rs 106,400 (US$12,700). The 1979 price of the s2rviced land included in these sales prices has been estimated at Rs 90 per m . This is the estimated market value and is above the average unit cost of serviced land. Revenues generated by land sales, after deduction of 2.5% of chargeable costs by SIDCO for its administrative costs and technical assistance, would be placed in the Sites and Services Revolving Fund. Average machinery loans (hire-purchase) of Rs 324,000 would be financed under the project and made available to 1/3 of all plot recipients on terms of 20% down payment with repayment at 11% interest per year over seven years after one year grace. 1/ Assurances were obtained at negotiations that plot sales and prices will be on terms and conditions satisfactory to IDA. Slum Improvement 3.13 About 72% of the component cost is for directly chargeable costs (land, on-site infrastructure and funds for home improvement) of which about 76% would be recovered through improvement charges and loan repayments. This compares with 50% recovery of directly chargeable costs originally anticipated in MUDP I and subsequently increased to 75% cost recovery by GTN. Twenty-one percent of component cost is for off-site infrastructure which would be partially recovered from electricity, water and sewerage tariffs. The remaining 7% of component cost is for community facilities (land, on-site infrastructure, buildings and equipment) which would not be recovered. 1/ Except in the case of technically-trained enterpreneurs with under Rs 3 lakhs capital, who could pay 10% downpayments, subject to approval of GTN.  - 33 - 3.14 Approximately 40% of the land occupied by slum dwellers in MUDP II is private laVd. Governm2nt orders issued in mid-1979 stipulat2 a land price of Rs 35/m (US$4.20 m ) to be charged for the minimum 20 m plot, on the conclusion of lease-cum-sale agreements for tenure, following slum improve- ment. MMDA has advised Government that the revenues at this price would excede acquisition costs and the price might not be affordable by ho seholds.2 For the purpose of computing costs, land has been priced at Rs 25/m (US$3/m ) without regard to plot size or location. 3.15 The cost of land and improvements would be recovered in monthly payments by households of Rs 13.6 over 15 years. An initial payment for land would be required. A maintenance charge of Rs 2 is included in the monthly payments (Table III-5). Repayment of the home improvement loan would be on the same terms for all households including those in slums already improved under MUDP I. Prepayment of the loan for land and improvement would be permitted at any time without penalty. The sale of the property would be allowed on full payment of principal and interest due on land, infrastructure and home improvement loans. However, beneficiaries may not sell their plots for a period of 5 years without giving TNSCB first option to purchase and set the sales price. Land tenure would be provided to the beneficiaries through lease-cum-sale agreements. All income would be deposited in the Slum Improve- ment Revolving Fund established under MUDP I, which would generate about Rs 270 lakhs (US$3.2 millions) annually by 1984/85 (Annex 3, Table 8). Private voluntary agencies would charge for health-care services in medicare centers, in order to recover their operating costs. Assurances were obtained at negotiations that lease-cum-sale agreements with slmn households and home improvement loans will be on terms and conditions satisfactory to IDA. 3.16 About 11% of component cost is for home improvement grants (para 2.25). In administering this program, grants would be made available only to households with incomes less than Rs 200 (US$24) per month. Households taking grants would be ineligible for project home improvement loans and the total disbursement of grants under the project would be limited to Rs 315 lakhs (US$3.8 million). It is anticipated that households with incomes over Rs 200 per month would choose loans rather than attempt to obtain grants, first, because of the difficulties of obtaining loans on comparable terms from other sources and second, because the loans are sufficiently large, in comparison to the grant, to make a major improvement in the slum shelter. This program will be closely monitored from the outset to determine whether the criteria for its administration need to be adjusted. 3.17 In addition to improved levels of direct cost recovery in the slum component, GTN aims at increasing cost recovery in TNSCB's overall program by limiting the clearance-cum-tenement program to Rs 3.75 crores (US$0.6 million) per year. Under MUDP I, the proportion of tenement investments in TNSCB-s overall program decreased from about 83% in 1977/78 to about 60% in 1979/80. The limiting of TNSCB's clearance program to Rs 3.75 crores (US$4.5  - 34 - million) would result in the clearance program being 41% of TNSCB-s annual estimated program of Rs 910 lakhs (US$10.8 million) (para 2.03). While TNSCB's total investment program would double from 1977/78 to 1983/84, the absolute amount of government subsidy to TNSCB would be reduced each year. Table III-5: SLUM IMPROVEMENT - AFFORDABILITY AND PRICING Monthly household incomes (Rs) 100 150 200 250 300 350 450 600 Percentile a/ 6 (4) 20(8) 47(16) 62(30) 73(38) 83(47) 93(63) 96(78) Percent income on land and improvement b/ 13.6 9.0 7.0 5.0 5.0 4.0 3.0 2.0 Improvement loans (Rs) c/ 600 600 600 1,500 2,500 3,500 3,500 3,500 Percent income on loans - - - 7.0 9.0 12.0 9.0 7.0 a/ Percentiles based on 1979 Madras Slum Survey. Figures in parentheses represent corresponding percentiles in Madras Income Distribution. b/ Uniform monthly payment of Rs 13.6 for all beneficiaries includes Rs 2 for maintenance. c/ Rs 600 represents grants in 1979 prices. Both grant and loan amounts would be adjusted in accordance with movements in prices and incomes. Transport 3.18 The increased PTC bus fares implemented in November 1980 would fully recover all costs including depreciation and debt service. The new fares range from Rs 0.30, (US$0.04), for the first 2 kms to Rs 0.70 (US$0.08) for a 10 km trip. The fare increase which raised the average fare revenue per passenger kilometer by about 30%, was essential to achieving PTC's financial objectives (para. 4.15). E. Affordability 3.19 The lowest cost option in the sites and services areas would be affordable by those in about the 10th percentile on the Madras income distribution curve, after differential pricing. Seventy-eight percent of all plots would be affordable to the EWS households. Eighty-three percent of slum households included in the project are in the EWS range of incomes (Chart 1). Households with monthly incomes less than Rs 150 would be obliged to pay 9% of  - 35 - their incomes for improvements, compared to 5% for plots in sites and services areas. The lower price structure in sites and services is achieved by differ- ential pricing, inapplicable in the slum areas due to the degree of improve- ments not being related to the incomes of beneficiaries. To meet affordability criteria, a uniform recovery of 76% of chargeable cost of improvements would be adopted in slum areas and households with monthly incomes less than Rs 200 would be provided with home improvement grants (paras 2.25 and 3.16). The effect of this grant would be to equalize the subsidy to the lowest income beneficiaries in both the sites and services and slum improvement components. With the above pricing mechanisms, land and infrastructure improvements in improved slums would be affordable to households in the 4th percentile of the Madras income distribution. Households with lower incomes would be renting space from other higher income households and would not directly pay improvement charges. 3.20 The extra expenditure on increased fares (para. 3.18) for bus trips by EWS households is estimated to amount to only a 1% increase in households total consumption expenditure. F. Procurement and Disbursement 3.21 Procurement of bus chassis and spare parts (estimated total value US$8.5 million) 1/ and equipment for solid waste management (excluding hand- carts and refuse bins) (estimated at US$1.1 million) would be on the basis of International Competitive Bidding in accordance with IDA Guidelines for Procurement. Domestic bidders for domestically manufactured goods would be allowed a margin of preference of 15% or the applicable customs duty, which- ever is lower. 3.22 Small contracts of under US$50,000, with a total value of around US$1.4 million, for equipment which, due to its specialized nature and for reasons of economy or standardization, is normally procured without competi- tive bidding, may be awarded after obtaining, wherever possible, price quota- tions from at least three suppliers. Procurement of materials for fabricating bus bodies (US$2.2 million) would be on the basis of local bidding procedures acceptable to IDA. Contracts for all civil works, with an estimated total value of US$42.7 million, would be individually small and dispersed. The bulk of the contracts would be around US$200,000 and are unlikely to attract foreign contractors. They would be awarded under local competitive bidding procedures acceptable to IDA. Bus bodies would be built in PTC's own work- shops at a cost which is competitive with private manufacturers. Technical and consultant services would be procured on terms and conditions satisfactory to IDA. 3.23 Improvements in bidding procedures for civil works have been agreed and are being introduced by all agencies. The improvements concern procedures for preparation of cost estimates, evaluation of bids, payments for price escalation, materials delivered on site and insurance. 1/ Values are ex taxes but include price contingencies.  - 36 - 3.24 Disbursement of the proceeds of the IDA credit would be made on the following basis: (a) 55% of expenditures for civil works, and goods and equipment procured through other than international competitive bidding; (b) 100% of foreign expenditures or 100% of the local ex-factory costs of goods and equipment procured through International Competitive Bidding; (c) 100% of expenditures on technical assistance; (d) 40% of expenditures on loans made to small-scale businesses for sheds and machinery and expenditures on shelter and home improvement loans made to sites and services and slum improvement beneficiaries, respectively. Disbursements under (a) for civil works contracts less than Rs 300,000, (a) and (b) for goods and equipment contracts less than Rs 150,000 and under (d) would be against certified statements of expenditure, documentation for which would be retained in Madras for inspection by supervision missions. All other categories would be fully documented. 3.25 A schedule of disbursements of the IDA credit is shown in Table III-6. G. Accounts and Audits 3.26 Although some problems were experienced with accounts and audits in MUDP I, GTN has begun to improve the situation by appointing consultants in September 1980 to design and initiate a new accounting system in the MC, and appointing a qualified Municipal Chief Accountant in October 1980. MC is also aiming at opening new financial books and auditing and closing earlier accounts as soon as the consultants work permits. With GTN's assistance TNHB and TNSCB have designed and are installing effective collections, accounting and loan administration systems. Assurances were obtained during negotia- tions, that audits of the accounts of PTC and MC, of the Slum Improvement and Sites and Services Revolving Funds, and of the project accounts of TNHB, TNSCB and SIDCO will be furnished no later than ten months after the end of each agency's financial year. In addition, MMDA will keep consolidated accounts of all expenses connected with the Project. H. Monitoring and Evaluation 3.27 As under MUDP I, MMDA would monitor and evaluate project implementa- tion and prepare quarterly reports on the progress of the project towards its physical, financial and programmatic goals. Technical assistance would be provided under the project to assist MMDA to develop evaluation techniques and evaluate project achievements. I. Supervision 3.28 About 135 man-weeks of IDA supervision would be required over the project implementation period.  - 37 - Table III-6: ESTIMATED DISBURSEMENT SCHEDULE Quarterly Cumulative IDA Disbursements Disbursements Fiscal Year Quarter Ending (US$'000) (US$'000) 1981 June 30, 1981 300 300 1982 September 30, 1981 800 1,100 December 31, 1981 1,500 2,600 March 31, 1982 1,900 4,500 June 30, 1982 2,100 6,600 1983 September 30, 1982 2,500 9,100 December 31, 1982 2,700 11,800 March 31, 1983 3,000 14,800 June 30, 1983 3,200 18,000 1984 September 30, 1983 3,200 21,200 December 31, 1983 3,400 24,600 March 31, 1984 3,500 28,100 June 30, 1984 3,400 31,500 1985 September 30, 1984 3,400 34,900 December 31, 1984 2,800 37,700 March 31, 1985 1,600 39,300 June 30, 1985 1,200 40,500 1986 September 30, 1985 1,000 41,500 December 31, 1985 500 42,000 IV. ORGANIZATION, MANAGEMENT AND FINANCE 4.01 One of the key objectives of MUDP II would be to expand the capacity of institutions in Madras to provide shelter, infrastructure, transport and employment to the large number of EWS households in Madras. As discussed in detail below, the institutional areas needing strengthening vary from agency to agency. The focus is in: MMDA on economic and financial planning and investment programming; Madras Corporation on accounting, financial manage- ment, maintenance and revenue generation; PTC on consolidation of long-term financial and operating improvements; TNHB on improved construction management and plot loan and sales administration; TNSCB on layout planning, community development, the administration of surveys to legalize plot tenure and the organization of accounts and systems for collecting improvement charges and managing home improvement loans and grants; and SIDCO on planning and program- ming for employment generation in the small-scale business sector.  - 38 - A. Madras Metropolitan Development Authority 4.02 MMDA would coordinate the financial and physical implementation of the Second Madras Urban Development Project. MMDA is responsible for land use planning and control, the development of the Master Plan and development plans for new towns in the MMA. The MMDA governing board includes senior government officials and the heads of the major implementing agencies. The operating staff of MMDA is administered by the Member Secretary and a chief urban planner. MMDA's staff of architects, planners, engineers and social workers in the Development Planning Department, the Community Development Wing and the Area Development Plans Department are competent to carry out the responsibili- ties for project coordination in MUDP II. A separate unit has been set up and effectively does routine project monitoring and evaluation. 4.03 MMDA staff have been heavily involved in the planning and engineering of the sites and services and slum improvement schemes of MUDP I. Also, the Community Development Wing is attempting, itself, to organize production centers, training, social services, and entrepreneurial financing. As a result, staff resources for overall planning have been limited. In MUDP II, such operational functions would be shifted, to the extent possible, to the appropriate implementing agencies, with MMDA retaining a planning, supervisory and coordinating function. 4.04 MUDP I has helped MMDA to extend the scope of its work on economic and social issues. In particular, the agency has taken the lead in focusing on the problems of the EWS. Concurrently, it has begun to evaluate the financial and physical impact of public and private sector activities in key sectors and has initiated capital programming and sectoral analysis for the NMA, which is starting to form the basis for an MMA public investment strategy. Based on these studies, MMDA would propose future sectoral investment and development programs for various agencies and would review these for economic and financial viability and consistency with development objectives. Acting as the secretariat for the State Review Committee which reviews projects and schemes undertaken for the development of MMA, MMDA is in a position to influence inter-sectoral investment allocations in the MMA. The project includes technical assistance to MMDA to continue the work begun in MUDP I in preparing economic, social and spatial development programs, including sectoral investment programs, to improve the collection of data needed for development planning, to study employment manpower needs and training require- ments (para,2.20) and to review the economic, financial and technical feasi- bility of major investment projects. 4.05 While MMDA's consultants have completed preliminary studies in some of the above areas, MMDA's own staff for financial and economic analysis needs strengthening. A Capital Program and Financial Management Department should gradually be created and technical assistance would be provided under the project for this purpose.  - 39 - B. Madras Corporation 4.06 The Madras Corporation would be responsible for implementing the solid waste and maintenance component of the project, some infrastructure construction for other agencies and maintenance of some city infrastructure built under the project. Madras Corporation, which is normally governed by a council of 120 elected members, has been administered since 1974 by a State-appointed Special Officer. GTN possesses significant control over the administration and finances of MC. Additionally, a Commissioner, who is executive head of MC, is appointed by GTN, and GTN approval is required of MC budgets, tax revisions and borrowings for which GTN is the major source. 4.07 The primary functions of MC are to develop and maintain infra- structure facilities, including roads, drainage, street lighting, solid waste disposal, medical facilities, elementary education and parks and playgrounds. It is also responsible for licensing buildings and industry, controlling building construction and for collecting local taxes. The Corporation employs about 5,000 administrative staff. Approximately 10,000 staff are employed in various service activities following the transfer of 2,500 employees in the water and sewerage services to the MMWSSB. Finances 4.08 The Corporation is statutorily required to raise sufficient revenues to meet current costs including debt service and the costs of operating and maintaining services. It is also required to maintain a minimum balance of Rs 1.5 lakhs on the General Revenue Account. The Corporation finds it impos- sible to comply with the requirement (Annex 4, Tables 1 and 2). Various taxes, principally property and entertainment taxes, and fees anid charges on commercial enterprises and land development provide the Corporation's revenues. These finance general administration, roads, lighting and elementary education services. The Corporation also receives grants and subsidies from the Govern- ment for education, health and family planning services and certain special programs. Capital expenditures are financed by loans from GTN, the Life Insurance Corporation (LIC) and, to a limited extent, financial institutions. 4.09 Up to 1976/77, the Corporation consistently incurred annual deficits on its current accounts, mainly as a result of the deficits in water supply, sewerage, drainage and education services, where revenues covered only about 75% of service costs. As a result, expenditures on other services such as road maintenance, public health and conservancy services had decreased in real terms. 4.10 GTN recognizes the significance of both the financial and accounting problems of the Corporation and agreed in MLJDP I to: (i) establish a Finan- cial Management Unit under the direction of a qualified and experienced advisor; (ii) reorganize the accounting system and update audits; (iii) in- crease self-generated revenues by 8% per year (excluding water supply and sewerage revenues and the increased revenue due to quinquennial property tax revision); and (iv) ensure that debt service payments from FY78 to FY81 did not exceed 20% of self-generated revenues, excluding water supply and sewerage debt service payments and revenues.  - 40 - 4.11 Little progress had occurred on the above measures, or in the Corporation's financial condition, except that the Corporation has kept within the debt service limit agreed in MUDP I. Self-generated revenues of the Corporation in the last four years have been static at about Rs 19 crores (US$22.6 million) per year. This mainly reflects the decline in net property tax revenues which occurred when water and sewerage service revenues and expenditures were allocated to the MMWSSB in 1978. The Corporation forecast a deficit in 1979/80. Its real per capita revenues have declined by about 5% per annum. The need for improvement in the financial condition of the Corpora- tion continues to be urgent. To achieve this, inadequacies in financial management and in the accounting system, books of account and qualifications of accounting staff, need to be rectified. GTN and the Corporation are committed to improvements, and have therefore: (a) submitted to IDA proposals for augmenting the revenue of the Corporation, chiefly by raising the surcharge on the State sales tax applied in the MMA from 5% to 15% (b) issued orders lifting a ban on quinquennial revision of valuation of commercial property; (c) appointed a qualified accountant for the position of Municipal Chief Accountant; and (d) appointed consultants for the design, installation and training of staff for a double entry cash or accrual accounting system. 4.12 Property taxes have accounted for over 57% of the self-generated revenues of the Corporation, a major potential source of revenues. Under- assessment of properties by untrained assessors and ineffective collections are main problems of the property tax system. A GTN survey which indicates that revenue growth has been lower than growth in property values has recom- mended that a Central Valuation Authority be established and that a Chief Valuation Officer be made responsible for the revision of the assessment books. Also consultants- reports of 1970 and 1979 recommended a more system- atic procedure for assessment based on floor area, location and type of property. All of these could provide a basis for the an improvement in property tax revenues. Assurances were obtained at negotiations that GTN will cause the Corporation to: (i) increase its revenues (excluding revenues from surcharge on sales tax and grants) by at least 8% annually; (ii) ensure that, until March 31, 1986, its debt service payments in any fiscal year shall not exceed 20% of its revenues; and (iii) furnish, by December 31, 1981, for review by the Association, the Corporation-s proposals for achieving improve- ments in the collection of property taxes within its jurisdiction. However, court decisions limiting the revaluation of property for tax purposes have severely constrained the possibilities of increasing revenues from this source. Possibly national legislation would be required to alter this situation. Even though revaluation is not possible, the property tax revenues would be in- creased by improving the collections system and procedures for including properties on the tax rolls. C. Pallavan Transport Corporation 4.13 The Metropolitan Wing of the Pallavan Transport Corporation would be responsible, as in MUDP I, for the bus component of the project. PTC is  - 41 - a GTN undertaking incorporated in 1972 as a Public Limited Corporation. It operates all local and long distance bus services, in and from Madras, with Metropolitan, District and Express Wings. The Metropolitan Wing is responsible for service within the MMA. Each wing has its own accounts and balance sheets, although they have a common board of directors. PTC is an efficient, well-organized, strongly staffed organization. The Metropolitan Wing is run by the Managing Director and eight unit level officers. The total staff of the Corporation is about 12,000 for traffic operations, maintenance and administration. 4.14 The Metropolitan Wing has an effective system of financial and management controls. Each bus depot has been designed as a cost center and a close check is maintained on performance indicators. As a result, the performance of PTC's Metropolitan Wing has been above average as judged by its high fleet utilization and a low ratio of 9 staff per bus in service (Annex 2, Table 9). Through effective management control, PTC has been able to moderate the effects of cost increases due to inflation. 4.15 While the Corporation is a semi-autonomous entity, the government exercises a substantial degree of control on its budget and borrowings. All fares must be approved by GTN. Until 1979/80, PTC was able to maintain the financial targets agreed under MUDP I. The operating ratio was to decline from 0.99 in 1977/78 to 0.95 in 1980/81 and debt service coverage was to be maintained at least at 1.5. This has been accomplished through maximum utilization of the aging fleet and overcrowding. However, in 1979/80 the operating ratio was over 1.00 and the resulting deficit was offset by a one-time subvention by GTN. Improvements in efficiency could no longer compen- sate for large increases in fuel, maintenance and other operating costs since the last fare increase in 1976. In November 1980 therefore, GTN implemented a 30% increase in the average fare per passenger kilometer to meet agreed financial and operating objectives. Assurances were obtained at negotia- tions that PTC would operate, inter alia, within the following financial guidelines: (i) minimum current ratio of 1.5; (ii) maximum operating ratio of 0.95; and (iii) minimum debt service coverage of 1.5. 1/ 4.16 A second major objective would be to improve PTC-s capital structure during the project period. In the past, depreciation reserves were used to meet operating losses. These are now carried on the books as a reduction in 1/ Current ratio is the ratio of current assets over current liabilities. Operating ratio is the ratio of operating costs (including depreciation, but excluding internal and other charges on debt, corporate taxes and subventions) over operating revenues. Debt service coverage is the ratio of net revenue over debt service where net revenue means gross revenue from transport operations, less all operating expenses including adequate maintenance, taxes other than corporate taxes or payments in lieu of taxes, if any, and administrative expenses, but before provision for depreciation and interest and other charges on debts. Debt service means the aggregate amount of principle payments (including sinking fund payments, if any), interest and other charges on long-term debt.  - 42 - equity. While the debt to equity ratio improved to an estimated 95:5 in 1979/80, it would further improve to 73:27 by 1982/83. GTN considered con- tributing equity to PTC to achieve recapitalization, but chose to increase fares instead. Since the increased fares are deemed affordable by bus riders, GTN prefers not to divert funds to PTC from other uses. 4.17 Operating under the above guidelines and projections (Annex 4, Tables 3, 4 and 5), PTC would service an additional Rs 14.5 crores (US$17.3 million) in debt during the project period. The total fixed capital invest- ment during the period would be Rs 17.5 crores (US$20.8 million) of which 36% would be covered by internal cash generation and the remainder by IDA and GTN financing. The November 1980 fare increase would yield Rs 23 crores (US$27.4 million) additional revenue from 1980/81 through 1982/83. With this fare increase, PTC will be able to stay within the guidelines (para. 4.15) and make the investments financed under the project. An additional fare increase would be required in FY 1983/84 to finance investments (not included in the project) of approximately US$14 million for the period 1983/84 through 1985/86. GTN and PTC would use at least 90% of the annual depreciation allowance only for capital investment in PTC. D. Tamil Nadu Housing Board 4.18 The Tamil Nadu Housing Board (TNHB) is responsible for implementing the sites and services component of MUDP I and would also implement the sites and services component of MUDP II. TNHB was established as a statutory body in 1961 to undertake housing programs in the entire State. The Board is comprised of ten members, a majority of whom are government officials. TNHB, with headquarters in Madras, maintains a number of regional units. It has a large complement of engineers and supporting staff for administration and accounting. The technical wing has a chief engineer and three superintending engineers who each run an executing circle. Each circle has three to four divisions with 20 middle and junior level engineers. In addition, there are separate wings under the chief engineer for design, planning and architecture and a special cell which handles all Housing and Urban Development Corporation (HUDCO) financed programs. TNHB had relied until recently on MMDA for the design and layout of the sites and services schemes (para. 4.03), but TNHB is preparing a detailed proposal for the addition of site planning and community development personnel to TNHB divisions implementing MUDP sites and services programs. TNHB has designed and is installing a system for administering, collecting and accounting for receipts from the sales of plots and repayments of shelter loans from sites and services programs in MUDP I and II. 4.19 The various schemes of TNHB are financed by loans from Government and public sector agencies such as HUDCO and the Life Insurance Corporation, and to a limited extent from banks and public borrowings. The terms and conditions of the loans vary for different schemes and sources. The sales from housing schemes cover all development, supervision and financial charges. TNHB has a good record of collections. TNHB is beginning to undertake financial and economic analysis of individual projects under MUDP I.  - 43 - 4.20 Measures have already been taken to ensure that implementation problems revealed in MUDP I would not be repeated. The land acquisition process was begun early; contracts would be more realistically bunched for both large and small contractors; and building material procurement would be left to the contractors who would be accorded some cost escalation and payment for materials delivered on-site. Based on past performance, the output of each division seems closer to Rs 70 lakhs a year (1979 prices) rather than Rs 100 lakhs TNHB norm. Accordingly, the three divisions re- quired for MUDP I in 1979/80 would have to be expanded to ten divisions by 1983. Three divisons would be formed by staff promotions from within TNHB, and another four divisions currently working on the other TNHB projects would be redeployed to MUDP I and II. Divisional staff capacity for implementation would be carefully monitored during project execution. 4.21 Delays in completing lease-cum-sale agreements and building permits with beneficiaries of the MUDP I project had also surfaced as a problem. Even when plot construction was substantially completed and all plots had been allocated, many remained unoccupied. MMDA and TNHB subsequently introduced simplified administrative procedures and arrangements were completed for the settlement of all 2,200 beneficiaries at Arumbakkam. E. Tamil Nadu Slum Clearance Board 4.22 The slum improvement component of MUDP II would be implemented by TNSCB as in MUDP I. Established in 1971 as a statutory body, TNSCB took over all slum improvement and clearance/resettlement activities in the City of Madras, which had previously been the responsibility of the Tamil Nadu Housing Board. The TNSCB is comprised of a Chairman appointed by GTN and 23 members, of whom 8 are senior government officials. Under its Act, TNSCB has wide powers for clearance, relocation and improvement of slum areas in Madras. The Board is organized into two functional branches. The Engineering Branch, headed by a Chief Engineer, is responsible for planning, design and execution of all works. Revenue collection, accounting, administration and statistics are under a separate branch, headed by a Secretary. The Chief Engineer is assisted by a Superintending Engineer, an Executive Engineer responsible for design and planning, and one Executive Engineer for each of the six divisions. 4.23 Slum improvement schemes are being implemented by three divisions, each headed by an executive engineer. MMDA staff have, however, borne most of the burden for both scheme design and community development work and TNSCB's three divisions have been able to implement the physical works as scheduled. TNSCB has taken action to improve in-house staff capability in planning, finance and community development in view of the scale and the greater com- plexity of the MUDP II slum improvement component. TNSCB is also considering the use of a lower divisional work norm (Rs 70 lakhs/division in 1979/80 prices) for staffing divisions. TNSCB-s divisional staff capacity for implementation would have to be carefully monitored during project execution.  - 44 - 4.24 In its previous role in slum clearance, TNSCB had paid little attention to cost recovery and the maintenance of financial records. However, financial controls have been introduced since the Slum Improvement Revolving Fund has been set up and land improvement and maintenance charges are being collected (para. 3.15). GTN and TNSCB have also designed and are install- ing a system for collection and administration of home improvement loans for slum households. F. Small Industries Development Corporation 4.25 SIDCO is implementing the small-scale industry shed and plot sales and machinery loans for MUDP I and would continue to do so in MUDP II. A registered company fully owned by GTN, SIDCO was created in the late 1960's to provide financial and technical assistance for small-scale industry. The Director of the Department of Industry and Commerce of GTN is the ex-officio Chairman and Managing Director of SIDCO. He is assisted by a General Manager and a financial and technical team. SIDCO has branch offices throughout Tamil Nadu and a total staff of around 500, of which 150 are assigned to the Madras area. The SIDCO staff is experienced technically and is competent to run the Corporation's present program and to give field assistance, mainly for production problems. Under its mandate, SIDCO is responsible for providing technical and marketing services to small-scale entrepreneurs, for procuring and distributing essential raw materials and import requirements, and for making machinery, worksheds and financial support available. 4.26 SIDCO is the sole purchaser and distributor of the raw material allotment (rationed items like construction steel and cement) to small industry in the State. It charges prices set by the State Government and is assured of a 4-6% commission on its procurement costs. SIDCO shed programs involve development of industrial estates throughout Tamil Nadu, including building in rural areas for the small and cottage sector industries. Market- ing coordination for small-scale industry has only started recently and efforts are currently directed entirely at the government market where small- scale industries are favored suppliers. For machinery loans, except under MUDP I and the proposed MUDP II, SIDCO technical staff makes recommendations to the Tamil Nadu Industrial Investment Corporation which has access to long-term funds from the Industrial Development Bank of India (IDBI) which is supported by IDA funds. In addition, SIDCO administers Government incentive schemes to provide seed capital, capital investment subsidies and interest- free sales tax loans. All these involve small amounts directed to under- developed areas of the State. Only one-third of SIDCO-s activities takes place in the MMA. The MUDP I part of the program comprises about half of SIDCO's shed activity and machinery loans in the MMA. The Corporation is in a sound financial situation. With little of its own equity (Rs 2.5 crores), SIDCO borrows long-term money from the national banks and the Government and charges its program recipients an administrative fee. The total volume of the SIDCO program reaches Rs 15-16 crores a year. The accounting and collection systems are adequate, though little financial analysis or program planning is -currently done.  - 45 - 4.27 In reviewing shed applications under MUDP II, SIDCO would continue to evaluate the candidates' technical qualifications, financial position, previous experience and repaying capacity as well as the employment effects of the business. Preference would be given to businesses which are prepared to recruit labor from the project areas. SIDCO's system and criteria for evaluating applicants are satisfactory. A system for monitoring the perform- ance of these businesses in accordance with project objectives is being set up. Findings would be reported in SIDCO's quarterly progress reports to MMDA and IDA. Through technical assistance, the project would also attempt to help SIDCO develop further as a promoter of small industries (para. 2.20). V. JUSTIFICATION General 5.01 The project would redirect a significant and larger proportion of public investment in the shelter and infrastructure sectors in the MMA into projects and programs benefiting low income people. Institutional weaknesses identified during the implementation of MUDP I would be addressed, in order to increase the long-term capacity of agencies in Madras to meet basic needs. The concept of full cost recovery, introduced in MUDP I, would be further extended in MUDP II, through lower cost and more affordable design solutions for low-income households and financial measures relating to PTC and the Madras Corporation. Sites and Services and Slum Improvement 5.02 The sites and services component would provide affordable shelter for 14,900 households, of which 11,100 households comprising 61,000 persons are between the 10th and 47th percentile of the Madras income distribution. Estimates of the economic benefits of the component are based on the imputed rental value of the serviced residential plots, based upon recent property sample surveys by MMDA, and the market value of the serviced industrial and commercial plots. The costs, net of taxes, include shelter loans and all directly chargeable costs of land and on-site infrastructure, except costs of schools, clinics and medicare centers (the benefits of which are not adequately reflected in imputed rental values). On this basis, the economic rate of return for the sites and services component is estimated at 28%. 5.03 The slum improvement component would extend the major shift in government policy begun in MUDP I from the clearance of slums and the con- struction of high cost subsidized tenements to a slum improvement program benefitting 50,000 households, mostly with incomes below the urban poverty threshold. Households would obtain tenure to the land they occupy. Economic benefits of the component are estimated as the imputed increase in rental value created by infrastructure and service investments. Costs, net of taxes, are all directly chargeable costs of land, on-site infrastructure improvements,  - 46 - a share of off-site infrastructure and home improvement loans and grants. The economic rate of return on this basis is estimated at 13%. 5.04 By 1983, over 21,000 households would be affected annually by slum improvement and sites and services works financed under the project and by shifts towards the EWS which would be made in the overall TNSCB and TNHB programs. This level of effort, if sustained, would be sufficient to reduce the backlog of households in unserviced slums to about 10% of the MMA population by 1991. 5.05 In the shelter components of the project about 77% of project beneficiaries (72,600 households) would have incomes below the absolute urban poverty level. About 63% of the cost of the shelter component would benefit these households. 5.06 The maternal and child health facilities would provide health and nutritional services to about 52,000 children and about half as many nursing and expectant mothers in the sites and services and slum hutment areas at an average annual cost, including the cost of nutritional supple- ments, of less than US$2.50 per capita. The medicare centers would meet the social welfare and medical needs of more than 107,900, mostly poor, families in the MUDP I and MUDP II project areas and adjacent neighborhoods. Basic health, education and functional literacy training would also be provided to about 50,000 women. Reduced morbidity, possibly reduced mortality, improved nutrition and increased productivity of workers would be benefits of the project. 5.07 The small-scale business program in the sites and services component would support at least 4,000 jobs (50% for EWS workers) and serve about 204 new and expanding businesses at an average investment of about US$2,300 per job. Transport 5.08 The bus component would improve services for the population through- out the MMA, reduce extreme overcrowding and provide buses to extend services into the new sites and services areas developed under MUDP I and to be devel- oped under MUDP II. The beneficiaries of these improvements would be indivi- duals in EWS and LIG households who make about 25% and 48%, respectively, of all daily bus trips. Measures which GTN and PTC have taken to increase cost recovery, through fare increases, would generate depreciation reserves which would be used only for capital investment, and would reduce PTC's claims on scarce resources needed by the rest of the state economy. The economic benefits of the component are calculated by taking the incremental revenue accruing to PTC as a proxy for the minimum level of benefits to the public. The costs, net of taxes, include project costs for buses, depots and equipment and incremental operating costs. On this basis, the economic rate of return is estimated to be about 33%. There would be other benefits in the reduction of passenger waiting time, wear and tear on overloaded buses and  - 47 - crowded passengers and reduced operating costs, but these have not been quantified. The economic benefits of the Inner Ring Road Section included in the project are calculated as the value of the time savings to vehicle occupants and cost savings to vehicle operators at current levels of traffic. The costs, net of taxes, include the costs of land, road construction, signals equipment and vehicle operating costs. On this basis the economic rate of return is estimated to be at least 13%. Solid Waste Management and Maintenance of Municipal Services 5.09 The solid waste and maintenance component would particularly benefit households in hutment areas, including 80,000, mostly poor, households in improved areas of MUDP I and II, which are now scarcely serviced by the Madras Corporation. Other households in the Madras Corporation area would also benefit from expected improvements in efficiency and reductions in costs due to investment in the component and related system improvements. The benefits and costs and the economic rate of return are to be studied with the help of technical assistance provided under the project. Risks 5.10 The continuity of implementing agencies and experience gained from MUDP I will minimize the over-all risks in MUDP II. There are, however, two possible classes of risks. Because of delays in providing tenure to slum households and consequent delays in the commencement of the collection of improvement charges, there has been limited experience of the beneficiaries willingness to pay charges or of problems of providing tenure in slums. Experience of the rate of settlement in sites and service areas has also been limited. Actions already initiated have provided satisfactory evidence of the prospects for tenure. The rate of settlement on the first MUDP I sites and services area is satisfactory following improvements in arrangements by TNHB and MMDA. 5.11 The second class of risks concerns the construction and implemen- tation capacity of TNHB and TNSCB. In TNHB-s case, although a variety of problems delayed construction and occupation of the MUDP sites and service areas, a number of steps have been taken to ensure that such problems do not occur during MUDP II. The size of the sites and services component under the project has been restricted and is only about 15% larger than in MUDP I. TNHB and the appraisal mission reviewed the annual staffing requirements, staff productivity and sources of staff and concluded that staff were available for project implementation. Improvements in contracting and procurement procedures have been initiated, as have improvements in the administration of agreements with settlers. 5.12 In TNSCB's case a 70% increase in the annual slum-improvement works under the project is contemplated. A review of TNSCB's overall staff availability, taking into account the staff that would be available for  - 48 - improvement work as a result of phasing down the clearance-cum-tenement program, indicated that staff capacity would not be a constraint. In addi- tion, Madras Corporation has shown that it is willing and able to supplement TNSCB's capacity for slum improvement works. VI. AGREEMENTS REACHED AND RECOMMENDATIONS 6.01 During negotiations assurances were obtained on the following main points: (a) Tamil Nadu would, commencing April 1, 1982, cause TNHB to: (i) limit its annual investment in housing other than for the economically weaker sections, to not more than 55% of its total investment in housing and plot development in MMA; and (ii) construct housing for the economically weaker sections under its MMA program in accordance with physical standards mutually acceptable to the Association and Tamil Nadu (para. 2.03); (b) TNSCB would limit its annual expenditure on its slum clearance- cum-tenement program during the period April 1, 1981 to March 31, 1986 to not more than Rs 37,500,000. Such expendi- ture would be limited to units required for households in areas which cannot be improved in situ, such as the right-of-way of essential transport corridors, along water courses regularly subjected to flooding, and other areas mutually agreed between the Association and Tamil Nadu (para. 2.03); (c) Tamil Nadu would ensure that the investments in equipment and civil works for the purpose of improving maintenance of munici- pal services would be undertaken only after the Association and Tamil Nadu have agreed on the actions to be taken and equipment to be procured (para. 2.39); (d) In order to assist Tamil Nadu in carrying out the technical assistance associated with the Project, Tamil Nadu would employ consultants whose qualifications, experience and terms and conditions of employment would be satisfactory to the Associa- tion (para. 3.01); (e) Tamil Nadu would ensure that, in respect of the sites and services to be developed under the Project, (i) the settler selection criteria, including income levels, (ii) the terms and conditions of sale for plots and housing sites, (iii) the terms and conditions of sale for small industry sites and sheds, and (iv) the terms and conditions of loans extended by SIDCO for small industry sites, sheds and machinery, would be satisfactory to the Association (paras. 3.10 and 3.12);  - 49 - (f) Tamil Nadu would undertake, in respect of the Slum Improvement to be undertaken under the Project: (i) to recover the costs of land, infrastructure, and services in improved slums under lease-cum-sale agreements which allow for the passage of freehold title to residents promptly after the payment by such residents of the full amount due for the plots purchased by them, and (ii) that the charges to slum households for land and improvement and the terms and conditions of lease-cum-sale agreements with households in slums improved under the Project would be satisfactory to the Association (paras. 3.14 and 3.15); (g) Tamil Nadu would ensure that: (i) PTC and the Corporation have their accounts and financial statements (balance sheets, state- ments of income and expenses and related statements) for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors acceptable to the Association; (ii) TNHB, TNSCB and SIDCO have their accounts and financial statements (balance sheets, state- ments of income and expenses and related statements) in respect of the Project for each fiscal year audited, in accordance with appropriate auditing principles consistently applied, by independent auditors, acceptable to the Association; (iii) to be furnished to the Association as soon as available, but in any case not later than ten months after the end of each such year, (A) certified copies of the financial statements for such year as so audited and (B) the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and (iv) to be furnished to the Association such other information concerning the accounts and financial statements and the audit thereof as the Association shall from time to time reasonably request (para. 3.26);, (h) Tamil Nadu would ensure that the Madras Municipal Corporation would: (i) increase its revenues (excluding revenues from surcharge on sales tax and grants from the Borrower and Tamil Nadu) by at least 8% annually; (ii) its debt service payments in any fiscal year would not exceed 20% of its revenues until March 31, 1986; and (iii) furnish, by December 31, 1981, for review by the Association, the Corporation's proposals for achieving improvements in the collection of property taxes within its jurisdiction (para 4.12); (i) PTC would take all such action as is necessary to: (i) main- tain a ratio of current assets to current liabilities (herein- after referred to as the current ratio) of at least 1.5:1;  - 50 - (ii) ensure that PTC's operating costs (which shall include depreciation but exclude interest and other charges on debt, corporate taxes and subvention) do not exceed 95% of its operating revenues; and (iii) ensure that PTC does not incur any long-term debt unless the net revenue of PTC for the fiscal year preceeding the date of such incurrence or for a later twelve-month period ended prior to the date of such incurrence, whichever net revenue is the greater, shall be not less than 1.5 times the maximum debt service requirements for any suc- ceeding fiscal year on all long-term debt of PTC including the proposed long-term debt (paras. 3.18 and 4.15). (j) Tamil Nadu would (i) cause the revenues received from benefici- aries under lease-cum-sale agreements (entered into pursuant to Sites and Services developed under the Project) to be deposited in the Sites and Services Revolving Fund, and (ii) cause the revenues received from beneficiaries under lease-cum-sale agreements (entered into pursuant to Slum Improvement undertaken by the Project) to be deposited in the Slum Improvement Revolving Fund (paras. 3.12 and 3.15). 6.02 On the basis of the above assurances, the project would be suitable for an IDA credit to GOI of US$42 million.  -51- INDIA SECOND MADRAS URBAN DEVELOPMENT PROJECT CHART 1: HOUSEHOLD INCOME DISTRIBUTION (1979 Prices) HOUSEHOLD CUMULATIVE PERCENTILE MADRAS SLUMS 80 INCOME DISTRIBUTION _ , \/ ~~~~MAD RAS(IMMA)>URB9AN 70 INCOME DISTRIBt TION 5C 40 C MAXIMUM INCOME EWS HOUSEHOLDS!] 20 ., SITES AND SERVICES: INCOME OF 1 , -:- vBENEFICIARIES: FREQUENCY DISTRIBUTION 100 200 300 400 500 600 700 800 900 1000 MONTHLY HOUSEHOLD INCOME 1 IDA estimated absolute urban poverty threshold 1977 prices): Rs 57 per capita. This figure up- dated to 1979 for household size of 5.5 approx- imates to Indian definition of EWS household category. World Bank - 21465  -52- INDIA SECOND MADRAS URBAN DEVELOPMENT PROJECT CHART 2: PROJECT IMPACT ON GROWTH OF MADRAS SLUM HUTMENT AREAS PERCENT MMA MILLION POPULATION IN SLUM PERSONS HUTMENT AREAS MRHUTMENT POPUELAETIO A T IM rmPACT OF CONTINUING ALLOCATION OF 45% OF TNHB INVESTMENT TO IMPACT OF . /~ SITES AND SERVICES MUDP I IANDI P R O A21 PROJECTS 197 19 \ | ~FROM TENEMENT / ~~~~~~CONSTRUCTI ON TO SLUM1r n 2OVEMENT18 IMPACTr OF PROGRAM ~~~~~~~~~SHIFTS IN ADDITION TO \ _ ~~~~~~~~~~~MUDP I AND II PROJECTS\_rl 000 ~ ~ |' M UDP I |\ | > | 3~RFLETS ADDITONAL\ iMPACT OF CONTINUING ALLOCATION OF 70% OF TNHB INVESTMENT TO\ SITES AND SERVICES\ 1971 1976 1981 1986 1991 YEAR *Reflects only EWS Housing Construction by TNHB "+TNSCB'S Tenement Construction Program Assurned to have no impact on housing stock WrdBn 18  -53- INDIA SECOND MADRAS URBAN DEVELOPMENT PROJECT CHART 3: IMPLEMENTATION SCHEDULE Ca -rrr,v Year 1980 1981 19 82 1983 1984 1 2 3 4 1 2 3 4 1 213 4 i 2 3 1 2 3 4 I SITES AND SERVICES _ F Mv gapp e S-rvey. Delaled Designs Tender Do-e,ets. Biddai,q .nd A-ard _ _ Constructionl _ _ - _ -_ - - -_ Serrlen-en- and Shellte Lo-ns Ne kundram Su-vev. Derailed Des-ins Tennei Doc-reos. Brddinq and Arari_ Setrleemer and Shelrer Loans - - - - - - - _ Soc-al Services Pm. si,noolk Pr rosay Schools - High Schools C-rn-unity Centers _ _ - Medrcre Cen-ers - - OR1-one Infrysrrucrurn Srs-ny. Deralled Designs Tender D--orrnns Bidding and A-rd Small-Scale Business I SHEDS Bidding and Aard - | - - I SHEDS Con-rruction - r _ - Machinery Loan- - - 2 SLUM IMPROVEMENT En- terarion/Co.n-unty Itnolveren. S-reY. Derailed Designs Tender Don-aeers. Bidding dnd A-aid Congrrnc iron - Plo1 Dem-arc-ion and Tenure |- - - - -- . - Improonment Loans./ranG s MUDP I - - - l I EEI Improv--n-n Lo-ans,'Gans MUDP 11 - - - - | Social Snrriens | I r - - - l l Medicare Centers - - ODH sire Inlrosiruciore I T S-unY, Deioilnd Des.qis Tender Docreors. Biddin, an-I A-aril I I | ConsI aucroln - I - - - I - I - - - - - - RodTRANSPORT F Srvevy De-atled Desiyns - p Tenuer Documenis. Bidclina dn-I Avard - | - - - - i Buses and Depots Testier Documents. Bidrieq and A-darri , | I I - B-as Delvery Cunsiruc iron - - | | - I - 4 SOLID WASTE MANAGEMENT AND MAINTENANCE Su- vr Derailed Designs v nier 8rriu dents. Bidrtiny anil A-.r E Del svry.Coosrucr.n - - i - - - -I M ,,.in. ,,r4. rrri E rirariniti........ TEC(HNICAL ASSISTANCE AND THAININ(. L T Will Err B, k 21466  INDIA SECOND MADRAS URBAN DEVELOPMENT PROJECT CHART 4: FLOW OF FUNDS (RUPEES LAKHS) INTERNATIONAL DEVELOPMENT ASSOCIATION 3528 GOVERNMENT OF INDIA E: _ G. I_VERN-ENT .~ T.LM C _ ~~~~~2380 2781 1260 532 _308 126 .7 < TNHCB | SIDCO