Philippines - Manila Sewerage and Sanitation Project

Document of The World Bank FOR OFFICIAL USE ONLY F L E COPY Report No. 2742-PH STAFF APPRAISAL REPORT PHILIPPINES MANILA SEWERAGE AND SANITATION PROJECT March 3, 1980 East Asia and Pacific Region Regional Projects Department This document has a restricted distribution and may be used by recipients only in the performan^e of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (As of March 3, 1980) Currency Unit = Peso (P) P 1.00 (100 centavos) = US$0.135 US$1.00 = P 7.40 MEASURES AND EQUIVALENTS mm = millimeter = 0.04 inches cm = centimeter = 0.39 inches m = meter = 3.28 feet km = kilometer = 0.62 miles sq km = square kilometer = 0.39 square miles ha = hectare = 10,000 square meters or 2.47 acres cu m = cubic meter = 264 US gallons cu m/s = cubic meters per second = 22.8 million US gallons per day 1 = liter = 0.26 gallons lcd = liters per capita per day = 0.26 US gallons per capita per day Mld = megaliters per day = 0.26 million US gallons per day mg/l = milligrams per liter = parts per million m/s = meters per second = 3.28 feet per second ng/l = nanograms per liter = parts per billion PRINCIPAL ABBREVIATIONS AND ACRONYMS ADB = Asian Development Bank LWUA = Local Water Utilities Administration MMA = Metropolitan Manila Area MMC = Metropolitan Manila Commission MWSS = Metropolitan Waterworks and Sewerage System MPW = Ministry of Public Works NPCC = National Pollution Control Commission UP = University of the Philippines MWSS' FISCAL YEAR January 1 to December 31  FOR OFFICIAL USE ONLY PHILIPPINES MANILA SEWERAGE AND SANITATION PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS Page, No. I. THE SECTOR . . . . . . . .......... . *.1 Background . . . . . . . . . . . . . . . . . . . . . . . 1 The Sewerage and Sanitation Sector . . . . .. . . I Sanitation in Metropolitan Manila . . . . . . . . . . . . . 2 Waste Water Discharges into Manila Bay . . . . . . . . . . . 5 Other Sewerage Projects . . . . . . . . . . . . . . . . . . 7 Relationship to Bank's Third Urban Development Project . . . 8 Bank Lending for the Sector . . . . . . . . . . . . . 8 II. THE BORROWER BENEFICIARIES AND IMPLEMENTING AGENCIES . . . . . 9 The Borrower and Beneficiaries . . . . . . . . . . . 9 Metropolitan Waterworks and Sewerage System . . . . . . . . 9 Billings, Collections and Receivables . . . . . .. . 11 Accounts and Audit . . . . . . . . . . . . . . . . . . . . . 12 National Pollution Control Commission . . . . . .. . 12 Metropolitan Manila Commission . . . . . . . . . . . . . . . 13 University of the Philippines . . . . . . . . . . . . . . . 13 III. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . . . 14 Objectives . . . . . . . .............. 14 Project Description 14 Project Concept and Composition . . . . . . . . . 15 Cost Estimates . . . . . . . . . . . . . . . . .. . . .. . 16 Population Served . . . . . .. . . . . . . . . . . . . . . 18 Project Cost and Financing . . . . . . . . . . . . . . . . . 18 Contingencies . . . . . . . . . . . . . . . .. 20 Procurement and Disbursement . . . . . . . . . . . . . . . . 20 Design, Construction and Supervision of Construction . . . . 21 Project Implementation . . . . . . 22 Coordination with Third Urban Development Project . . . . . 23 Industrial Wastes . . . . . . . . . . . . . . . . ..... 23 Operation and Maintenance . ....... . . . . .... .. 24 Project Supervision . . . .. . . . . . . . 24 The project was prepared by the Metropolitan Waterworks and Sewerage System and appraised by Messrs. Saravanapavan and Mejia in July/August 1979. I This document has a restricted distribution and may be used by recipients only in the performance of their offiil duties. Its contents may not otherwise be diaclosd without World Bank authorization.  -2- Page No. IV. FINANCIAL ANALYSIS .... . ...... . . . . . . . . . . . 24 Past and Present Financial Performance . . . . . . . . . . . 24 Financing Plan . . . . . . . . . . . . . . . . . . . . . . . 25 Future Financial Performance ...... 27 Tariffs and Rate of Return . . . ... . 28 Ability to Pay . . ....29 Duties and Taxes . . . . . .. . . . . 30 Revaluation of Assets ... ...30 Debt Control....... 30 Monitoring Indicators and Reports . . . . . . . . . . . . . 31 V. JUSTIFICATION.. . . . . . . 31 General . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Least Cost Solution ..31 Service to the Poor ..32 Economic Evaluation . . . . . . . . ... . 33 Long-Run Marginal Cost and Wastewater Tariffs . . . . . . . 33 Employment .... . . . . . . . .... . . . . . . . . . . 34 Environmental Impact ... . . . . ..... . . . . . . . . 34 Project Risks ..... . . . . . . . . . . . . . . . . . . . 35 VI. RECOMMENDATIONS ... . . . . . . ...... . . . . . . . . 35 TABLES No. 3.1 Project Cost Estimates - Sewerage . . . . . . . . . . . . . 37 3.2 Project Cost Estimates - Sanitation . . . . . . . . . . . . 38 3.3 Population Served . . . . . . . . . . . . . . . . . . . . . 39 3.4 Estimated Schedule of Disbursements . . . . . . . . . . . . 40 3.5 Contract Schedule for Combined Sewers . . . . . . . . . . . 41 4.1 Consolidated Income Statement. . . . . . . . . . . . . . . . 42 4.2 Consolidated Sources and Applications of Funds . . . . . . . 43 4.3 Consolidated Balance Sheet . . . . . . . . . . . . . . . . . 44 4.4 Income Statement for Sewerage Operations . . . . . . . . . . 45 4.5 Income Statement for Water Operations. . . . . . . . . . . . 46 4.6 Monitoring Indicators . . . . . . . . . . . . . . . . . . . 47 5.1 List of Alternatives Studied . . . . . . . . . . . . . . . . 48 ANNEXES 1.0 Economic Evaluation . . . . . . . . . . . . . . . . . . . . 49 2.0 Assumptions in Financial Forecasts . . . . . . . . . . . . . 56 3.0 Selected Documents and Data Available in the Project File. . 60  -3- Page No. CHARTS IBRD No. 20879 MWSS' Organization . . . . . . . . . . . . . . . . . . . . . 63 20880 Project Organization . . . . . . . . . . . . . . . . . . . . 64 20970; Construction and Operating Costs . . . . . . . . . . . . . . 65 20969 Present Worth Comparison ..... . . . . . .. . . . . . . . 66 20968 Ranking of Alternatives. . . . . . . . . . . . . . . . . . . 67 20976 Implementation Schedule. . . . . . . . . . . . . . . . . . . 68 21342 Mminute - Progress Organizational Chart . . . . . . . . . . 69 MAPS IBRD No. 14464 - Sewerage Master Plan 14463 - Central Service Area Rehabilitation 14462 - Sanitation Upgrading Program 14723 - Manila Bay - Wind Roses and Freshwater Flux  I I I I  1. THE SECTOR Background 1.01 The Mletropolitan Manila Area (NMA) is one of the most densely populated urban areas in the world with an average density of 193 persons per hectare. Almost 20% of the nation's population resides on MMA in only some 0.2% of the national land area. Though the population in MMA produces 90% of the national revenue, the Government has only recently attempted to alleviate some of the serious sanitation 11 problems, which include inadequate water supply, human exposure to sewage caused by the high population density and a poorly managed system for the collection and disposal of solid wastes. The Sewerage and Sanitation Sector 1.02 The most recent National Health Plan (1975-85) cited poor sanita- tion as a major factor in the high incidence of communicable diseases in the country. Urban sewerage and sanitation has, up to now, been given little attention in the Philippines. According to the most recent estimate only about 32% of the total population was served by individual water carriage systems of excreta disposal, 24% had latrines, pit privies, etc., and the rest no facilities at all. The sector can be divided into the rural areas and urban areas. The urban areas can be subdivided into the provincial cities and MMA. 1.03 Rural areas. In these areas 15% of households have closed pit latrines, 28% have open pit latrines and 1% use public toilets. About 11% have flush toilets and 45% have no facilities. The Environmental Sanitation Division of the Department of Health (DOH) is responsible for the rural excreta disposal program in the Philippines. Private companies make the water seal latrine pans and concrete slabs to health department standards, and DOH can make loans to poor households for their purchase. The program is considered to be a success compared to those in most other countries in Asia. DOH is intensifying the program in an effort to control fecal pollution with special emphasis in areas experiencing schistosomiasis or cholera. The Bank, through the recent Second Provincial Cities Water Supply Project, is assisting the Local Water Utilities Administration (LWUA) and the National Water Resources Council with a pilot sanitation study for about eight rural communities to provide a basis for a future project and until this study is completed no major Bank involvement is proposed for rural sanitation. /1 Sanitation is defined as the promotion of hygiene and prevention of disease by the maintenance of a clean and healthy environment. Sewerage is the removal and disposal of waterborne wastes through an underground piped system. The sanitation improvements in this project would provide means for the removal of unhealthy wastes and improving the environment in low income areas. The sewers in the project would provide for the conveyance and ultimate disposal of these and other waterborne wastes.  -2- 1.04 Provincial Cities. There are reportedly only six major Provincial Cities with public sewerage systems. Sanitation in most low income areas is bad, sewage and foul water and decaying garbage is present in the streets or adjoining ditches. LWUA has an ambitious water supply program for the Provincial Cities with populations of 15,000 and above, but there is no equivalent program for the safe disposal of the harmful waste water generated by these water supply schemes. LWITA started planning in 1979 for sanitary sewers in some Provincial Cities and with assistance from TTSAID is making pilot studies on different types of sewer systems since most urban communities cannot afford conventional piped sanitary sewer systems. Low cost solutions to improve sanitation developed by the Bank based upon the experience in Manila are therefore being considered by LWUA. Sanitation in Metropolitan Manila: The Project Area 1.05 The sanitary and public health conditions in MMA vary widely. The upper income residents have piped water, sewage treated in septic tanks with the effluent led into covered roadside drains, and regular garbage collec- tion. In contrast, about 2 million poor people live in dense and abject conditions in blighted areas. Their housing is predominantly makeshift; water is handcarried in open containers from far-off sources; drainage is poor and the areas are subject to deep flooding during rains; sewers (sanitary or combined) are rare. The predominant method of sewage disposal is through a manual flush toilet to septic tanks, cesspools, vaults and pits, which are often improperly designed. Effluent from these facilities and grey water from kitchen wastes drains to the nearest watercourse. Impervious and saturated soil types which are predominant in Manila prevent the proper functioning of subsurface drainage and seepage pits. Typhoid, cholera, gastroenteristis are endemic; in 1972 morbidity and mortality from these diseases were 1,800 and 80 respectively per 100,000 popuation. More recent statistics are unavailable and will be compiled under the proposed project. MWSS' 1980 service area covers all of MMA (less one municipality)/l and 11 contiguous municipalities that are currently not in MMA. Reclamation of the shore area is expected to add 664 ha in 1982 and 748 ha in 1987, thereby increasing MWSS' service area from the present 148,691 ha to 149,355 and 150,103 ha in those years. About one-third, 51,710 ha, of the MWSS area is urban and forms eight drainage basins which are studied in detail in the project- this is slightly less than that of MMA which has an area of 60,500 ha. Maps IBRD 14464, 14465 and 14466 give details. 1.06 In 1957, there were 172 public toilets in Manila; today there are only 54, most of them poorly maintained by the cities and municipalities. Public toilets are used by a large number of people; in Tondo, despite neglect, strong odor problems and lack of water, one such public toilet is used by some 2,000 to 3,000 people. MWSS is presently carrying out pilot /1 MMA includes 5 major cities and 22 municipalities.  - 3 - studies on public toilet use and design. The Metro-Manila Commission (MMC) with technical assistance from MWSS and the Ministry of Public Works (MPW) will construct and maintain public toilets in areas where such facilities are found to be necessary. 1.07 Public Health Hazards. One of the main goals of the project is the reduction of health hazards arising from bad sanitation caused by the presence of sewage in Metropolitan Manila. MMA has been graded into areas with four classes of health hazards as follows: Class 1: No Hazard. There are essentially no sewage related health hazards in such an area and the likelihood of human contact with sewage is very small. Class 2: Moderate Hazard. Only minor opportunities exist for human contact with sewage in these areas. Class 3: Significant Hazard. Opportunities for public contact with sewage are widespread in these areas. Most of the sewer system consists of open, ill-defined ditches and ponding of sewage in these ditches encourage mosquito breeding. Many of the water supply service connection pipes are situated in channels carrying sewage. Slum area children often play barefoot in and around ditches filled with sewage. A total of 5,228 ha of Class 3 areas has been identified. About 13% of this area (682 ha) is included in the proposed project for upgrading to Class 2 standards (para. 3.02). The rest of the Class 3 areas (4,546 ha) are planned for improvement after 1982. Class 4: Great Hazard. In these areas it is difficult for the public to avoid contact with sewage; poor drainage often causes sewage to run over open ground. Public markets in such areas are surrounded by open, poorly defined drains which carry sewage and are clogged with vegetable and other organic refuse. A total of 730 ha Class 4 areas have been identified and under the proposed project all Class 4 areas would be upgraded to Class 2 standards. The Class 3 and Class 4 areas are shown in IBRD Map 14462. 1.08 Sewerage Systems in the Project Area. The sewage presently generated in Metropolitan Manila is about 760 Mld. About 1.14 million of the 1980 population (estimated at 6.73 million in 1980) living in 2,450 ha of the service area are served by public sanitary or combined sewer systems./I Another 2.28 million of the population living in 10,970 ha of the service area are served by communal or single septic tanks of varying standards of efficiency. The remainder have pit privies or, as in some poverty pockets, no service at all. 1.09 Sewage Disposal in Poverty Areas. In poverty areas which cover about 10% of MMA and contain 35% of its population, sewage is commonly dis- charged into street gutters, open canals, esteros /2 or rivers; these are /1 This includes the new Tondo and Dagat-Dagatan sytems which are now in operation. /2 Esteros are shallow inlets from the rivers and the sea.  - 4 - generally Class 4 areas. Because of the lack of services and public facilities, streets in poverty areas are littered with vermin infested garbage and excreta and esteros are often clogged with wastes. These discharges cause waterways to be biologically degraded and septic conditions to be prevalent 4 to 10 months in the year. 1.10 Septic Tanks. Most of the sewage generated in MYA is discharged into individual septic tanks which are without sub-surface filters and are not cleaned on a regular basis. Community systems with septic tanks serve many home developments and institutions- approximately 1,300 ha serving 320,000 of its population./I Because of bad design, irregular cleansing and poor maintenance, most of these septic tanks function poorly. The project provides a septic tank emptying service. MWSS is acquiring expertise in low cost sanitation technologies through a Bank Loan (Loan 1415-PH) and will provide technical assistance to .M-A's urban development program /2 for design and appropriate technology for the disposal of human wastes. MWSS will appoint within its Office of rngineering and Special Projects an experienced sanitary engineer to provide this technical assistance and advice on sewerage and sanitation. This function is temporarily provided by an expatriate consultant (para. 3.19). 1.11 Central Service Area and Makati Sanitary Sewer Systems. The major sanitary sewer system is a conventional system serving 828,000 people living in 1,880 ha called MWSS' "central service area". It serves 3.5% of MMA and 13.5% of its population. It includes a collection network, seven lift stations, trunk sewers and an outfall pump station, force mains and an ocean outfall at Tondo, the submarine part of which has been washed away. The land based part of the broken outfall now discharges raw sewage around the mouth of the Pasig River causing heavy shore pollution. The only other sanitary sewer system serving MMA is a privately owned modern collection system and treatment plant, owned and operated by the Ayala ('orporation serving Makati, a private residential/commercial development. It serves approximately 650 ha of NMA and S6,400 of its population. Proposals for MWSS to take over this system in the near future are presently under study. The two systems are shown in IBRD Map 14464. 1.12 The central service area sewer system is overloaded, badly deteriorated and requires rehabilitation./3 Unless this is done the additional sewage generated under the Manila Water Supply Project II (Loan 1615-PH) will overflow through the manholes into the streets in many parts of this highly congested area, where most of the country's trade. commerce and some industry is centered. Most of the lift stations in the system are Lb It is estimated that there are about 190,000 individual septic tanks and 37 community septic tanks that can be pumped. There are about 200,000 vaults or pits in lower income areas. /2 MMA has three urban development programs named Zonal Improvement Program (ZIP), Metro Manila Infrastructure and Utilities Program (MMINUTE) and Bagong Lipunan Improvement of Sites and Services (BLISS) shown in IBRD Map 14462 which would also benefit from MWSS' technical assistance. /3 See project file for details.  -5- worn out, obsolete and require rehabilitation: this work is included in the proposed project. Simultaneous operation of all stations over a 24-hour period is unattainable due to their poor mechanical condition and an acute shortage of trained manpower. The proposed project therefore provides for training in sewerage operations. 1.13 The Tondo Outfall. Sewage collected within the central area collection system flows to the Tondo pumping station from where it is pumped into Manila Bay at the mouth of the Pasig River through a badly eroded 1,050 mm outfall. Recently, breaks have occurred at several points along the route of the outfall, two of which are beyond repair. 1.14 To remedy this problem, plans have been prepared by MWSS for replacing the land based part of the outfall at a cost of P 29.16 million under the Bank's First Urban Development Project. The proposed project provides for a new pumping station, extending this outfall and laying a 2.4 km long submarine section with diffusers at the end to disperse the sewage and enable purification through the natural assimilative capacity of water in Manila Bay (para. 1.23). Waste Water Discharges into Manila Bay 1.15 Manila Bay is a marine inlet of the South China Sea and is the final receiving water for all the agricultural runoff from the Pampanga River watershed, sewage and urban runoff generated in MMA, and runoff from the smaller catchments around the Bay. The Bay has a coastline of approxi- mately 190 km and a surface area of about 1,800 sq km. The Bay represents a major economic asset to the inhabitants of the Bay area who use it for commercial fishing (fishponds, shellfish harvesting, fish traps), shipping, recreation (beach resorts), boating and salt production. The increasingly uncontrolled pollution of the Bay by pesticides and fertilizers from the Pampanga River, sewage discharged into the Pasig River, and urban runoff from Manila is adversely affecting shell fish harvesting, bathing and boating in the Bay. 1.16 In recent times the Bay has been monitored by the National Pollution Control Commission (NPCC), though not to a planned program. However, it has not been possible to differentiate between the relative impacts of controllable and natural noncontrollable material discharges into the Bay. The Pampanga River watershed has over 17 times more surface areas than MWSS' service area, and about five times the area of Manila Bay. MWSS' service area represents only 3% of the total watershed draining to Manila Bay (see Map No. 14723). 1.17 Existing Pollution. The level of pollution of the Bay is not fully known. Dissolved oxygen in open surface waters of the Bay is generally good, varying between 6.3 mg/l (saturation value) and 8.5 mg/l, but high values as much as 11 mg/l have been recorded in the daytime at  mouths of rivers./1 In deeper waters, oxygen depletion increases at depths during the wet season indicative of oxygen consuming organic sediment being washed into the Bay from the Pasig and Pampanga Rivers. The proposed project therefore includes a Bay monitoring program to determine the relative pollution loads of these rivers degrading water quality (para. 2.13). Near-shore data reflects large oxygen variations (with few values below 5 mg/l at the mouth /2 of the Pasig River), and points to pollution resulting from urban sources. 1.18 Waters in the open Bay are generally clear, yet shoreline waters. especially during the wet season, have high turbidity indicating gross pollution. Total coliform bacterial counts along the east and south shoreline of Manila Bay often exceed standards for bathing water quality and fish farming. The use of total coliform as indicator bacteria is not specific enough to show whether all beaches are contaminated by fecal pollution. However, this would seem the case along the Metro Manila shore line which, despite the high turbidity and heavy pollution from sewage has popular bathing areas for the poorer people who cannot afford to travel to less polluted beaches. The project provides for monitoring fecal pollution in these beaches. 1.19 Trace metals (mercury, copper, lead, zinc, cadmium) occur occasionally in water samples in concentrations well above anticipated natural background levels. Cadmium in particular is present in concentra- tions at times exceeding 0.5 mg/l, i.e. 50 times greater than the NPCC cadmium limit of 0.01 mg/l indicating a point source problem. Mercury is present in Manila Bay fish and other marine products utilized for human consumption. The observed concentration levels for mercury in fish tissue are, with few exceptions, below the acceptable upper limit values of 2,000 ng/l set by NPCC. NPCC is planning to assist industry with the construction of facilities to reduce the discharge of wastes containing mercury, cadmium and other heavy metals into MWSS' sewer system and the Pasig and Paranaque Rivers, as part of the Manila Solid Wastes Mangement Study financed under Loan 1415-PH. 1.20 Pesticides (chlorinated hydrocarbons) from agricultural use and runoff are present in Manila Bay surface waters and rivers flowing into the Bay. However, the observed concentration levels are, with the exception of endrin, below the acceptable upper NPCC limits. Endrin exceeded the allowable limit of 0.02 mg/l with maximum concentrations coinciding with the May to September planting season. The pH in open Bay waters varies between 7.5 and 8.5 and in shoreline areas between 6.8 and 8.7. The upper values indicate algal activity. Shoreline BODs vary between 5 mg/l and 8 mg/l in the dry and wet seasons. In the open waters BODs are generally less than 1 mg/l with no seasonal trends. The amount of data available on water /I Supersaturation due to photosynthesis from sunlight by algal blooms caused by discharges of nutrients. /2 Minimum to support most forms of fish life is 4 mg/l.  - 7- quality parameters such as COD, color, detergents, total suspended and dissolved solids, and hardness are insufficient to form any conclusions or establish trends. 1.21 Oceanographic conditions such as wind, wave and current conditions, fresh wate- renewal and evaporation have been studied to estimate the assimilation capacity of Manila Bay. MWSS' catchment of 5.7 sq km is only 3% of the total watershed draining to Manila Bay. The highest fresh water flow to Manila Bay occurs in August (1,858 cu m/s) while the minimum (102 cu m/s) is in April. The estimated long-term annual fresh water inflow is 25 x 109 cu m per year. After allowing for evaporation which varies between 80 mm in December and 200 mm in April the fresh water budget is positive throughout the year in the Bay (see Map No. 14723). 1.22 Recent oceanographic studies show that in addition to fresh water inflow currents, wind and tidal currents also greatly influence Bay current conditions. The likelihood of a wind induced south to southwest net movement of surface waters off Manila in the dry season, from about the proposed Tondo Outfall alignment (para. 1.13) to Cavite, has been substantiated by these studies. Otherwise there appear to be no strong or persistent onshore currents in the Bay and the danger of floatables and greases being carried to the shore at Cavite would not be more than 10% of the time in a year. The consultants calculate that the combined wind and tide induced dispersion provides in the inner part of the Bay a flow of about 1,000 cu m/s, available for dilution. In the wet season fresh water runoff increases this rate to about 2,000 cu m/s. Because of the complexity of the currents, further studies are required to obtain more data for future design. 1.23 Assimilative Capacity of the Bay. Nutrient loads, based upon available information calculated for an 8.4 million watershed area popula- tion, with corresponding livestock and fertilizer loadings indicate that discharges of sewage into Manila Bay through well-designed ocean outfalls equipped with diffusers would be possible without serious or irreversible water quality degradation. The initial dilution from efficient diffusers would be so large that reduction in dissolved oxygen caused by BOD would not be significant. BOD is therefore not a critical parameter and sewage discharged into Manila Bay would therefore be safely assimilated. The decrease in diversity of flora and fauna and an increase in biomass will probably be experienced near the diffusers. However, both the Bay and the proposed Tondo outfall would be monitored by MWSS and NPCC to guard against any unforeseen situation degrading water quality and beneficial uses of the Bay (paras. 2.13 and 3.19). MWSS is also making arrangements to acquire sites at the general locations of three proposed outfalls for future sewage treatment plants should they be needed and assurances were obtained during negotiations that arrangements to acquire a suitable site at the Tondo outfall would be completed by December 31, 1981. Other Sewerage Projects 1.24 Laguna Lake Development Authority (LLDA). The LLDA drainage area overlaps that of MWSS in the municipalities of Montalban, San Mateo, Marikina, Quezon City, Pasig, Cainta, Pateros, Makati, Taguig and Paranaque. LLDA is authorized to levy charges for sewerage services in these areas over which MWSS also has authority to levy similar charges. The issue of  - 8 - coordinated action between LLDA and MWSS will take time to resolve and an assurance was obtained from Government during negotiations that it would take such inter-agency coordination measures as necessary to ensure that there is no duplication of sewerage charges in the area under the jurisdiction of MWSS. 1.25 Manila-Cavite Coastal Road and Reclamation Project (MCCRRP). MCCRRP consists of diverse improvements integrated in and around land fill and water channels which will occupy an area of 2,915 ha from the Cultural Center in downtown Manila to Baccor, a total length of 16 km and a varying width of 1 to 3 km along Manila's forefront. MCCRRP has agreed to coordinate with MWSS the plans for providing the sewerage services in the reclaimed areas. 1.26 Tondo Foreshore Project. This project serves the Tondo waterfront, the North Harbor and the Vitas areas of MMA. The estimated population directly served by this project is 160,000. The sewage collection system when complete would be connected to the existing Tondo pumping station. 1.27 Dagat-Dagatan Project. The Dagat-Dagatan area was reclaimed and recently developed as a planned program for low-income housing. The estimated population served by Phase I of this project is 240,000. The project is planned to eventually pump its waste water into the MWSS system. Relationship to Bank's Third Urban Development Project 1.28 This urban project is for the MMA and has three components which provide water supply, combined sewers, public toilets with bathhouses and community septic tanks. These are: (a) the Zonal Improvement Program (ZIP) involving comprehensive slum upgrading; (b) the Metro Manila Infrastructure Utilities and Engineering Program (MMINUTE) which includes water supply, construction of public toilets, combined and sanitary sewers including sewage disposal facilities and road improvements; and (c) a sites and services program to encourage local entrepreneurs in developing housing sites. MWSS would be closely involved in providing the water supply, and sewerage services and construction of public toilets in the Third Urban Project and would also be responsible for the construction of combined sewers in the Manila Sewerage and Sanitation Project. Arrangements have been made for coordinating the two projects in areas where such coordination would be beneficial (see para. 3.17). Bank Lending for the Sector 1.29 The Bank's strategy in sewerage and sanitation is to support the Government's investment program for improving water supply, sewerage and sanitation facilities aimed at serving the low income groups and to provide technical assistance for institution building and staff development. Three Bank loans of $23 million, $88 million and $38 million were made in 1977, 1978 and 1979 for water supply projects in provincial cities and Metropoli- tan Manila. The proposed project would be the Bank's first major involvement in a sewerage and sanitation project in the Philippines. It is expected that future Bank assistance for similar projects will be proposed for urban  -9- areas outside Manila. Investments may also be proposed for a solid wastes management project in Manila as the next priority for improving sanitation. 1.30 Basic citywide needs are all linked and improvements are being developed simultaneously in an effort to keep Manila reasonab'y clean. These include the supply of adequate quantities of safe water to keep the population clean and healthy, the efficient and quick disposal of human wastes, the organized distribution of fruits, vegetables, fish and meat coupled with the timely collection and disposal of their residual organic wastes and the reduction of air and water pollution by industrial wastes. In the next review of the Capital Improvement Folio (CIF) these needs should be stressed and it should be emphasized that such utility services can be provided at little or no cost to governments' capital budget and particu- larly to the urban poor through external financing, local loans and cross subsidies administered through efficient public utilities. The Bank should continue its present support for such projects. 2. THE BORROWER, BENEFICIARIES AND IMPLEMENTING AGENCIES The Borrower and Beneficiaries 2.01 The Borrower of the proposed Bank Loan of $63.0 million will be the Republic of the Philippines which will relend, on the same terms and condi- tions as the Bank loan, the bulk of its proceeds ($62.5 million) to MWSS to finance a part of the Manila Sewerage Project. The Government will provide the balance of $0.5 million to NPCC for monitoring water quality in Manila Bay. The beneficiaries of the project will be some 3 million people living mostly in congested and low income areas who will have improved sanitation. Metropolitan Waterworks and Sewerage System (MWSS) 2.02 History. MWSS is a wholly government-owned public utility corpora- tion. Prior to its creation in 1971, responsibility for all water supply and sewerage systems then existing in the country devolved on the National Waterworks and Sewerage Authority (NWSA), which had been established in June 1955 under Republic Act 1383. NWSA was abolished in September 1971 and MWSS was created in its place under a new charter (Republic Act No. 6234), primarily to serve the needs of MMA. Steps were taken in 1974 to strengthen MWSS' financial position by the restructuring of its capital and raising of water and sewerage tariffs. Since then MWSS has received loans from ADB ($100.3 million) and IBRD ($85.0 million) for the on-going Second Manila Water Supply Project (Loan 1615-PH) and is developing steadily into becoming a reasonably good utility. 2.03 Organization. MWSS is organized and functions as a modern public utility with a fair degree of autonomy. Overall control and responsibility for policy decisions and supervision is vested in a Board of Trustees consisting of 5 members: a Chairman, 3 Trustees and a General Manager (who is also the ex-officio Vice-President of the Board), all appointed by the President of the Philippines. The Board formulates policies, approves budgets, recommends tariff adjustments, determines the system's staff  - 10 - pattern and the number of personnel, fixes their salaries and other emoluments (subject to government's general directions in these matters) and defines their powers and duties. It issues necessary regulations for the conduct of business. 2.04 The day-to-day management is vested in the General Manager who is assisted by four Assistant General Managers (appointed by the Board subject to the approval of the President of the Philippines) one each for engineering; operations; finance and administration; commercial and customers services; and 13 Heads of Departments who work under the Assistant General Managers. In addition, there are the Corporate Services, Internal Audit and Corporate Planning Offices. MWSS' organization is shown in Chart 20879. 2.05 The engineering department is responsible for the conception, design and construction of new works. It also contains the office for Engineering and Special Projects (ESP), which is responsible for the Manila Water Supply Project, (Loan 1615-PH) the proposed Sanitation and Sewerage Project and for planning the next stage water supply and sewerage projects. The operations department consists of divisions for sources, treatment, and distribution. The commercial department has divisions for customer services, meter reading, billing and collection. The finance and administration department is responsible for administration and accounting, and financial planning and control. This organizational structure is satisfactory. It is provided in Loan 1615-PH that before any major changes are made in this structure in future, the Bank would be given an opportunity to comment on the proposed changes. 2.06 Management. The present Acting General Manager is experienced and qualified and manages MWSS satisfactorily. He has the stature to work with the Government and MWSS' Board in the making and implementation of major policy. The Assistant General Managers are also well qualified and experienced. 2.07 The ESP is headed by a competent manager/engineer who works harmoniously with the expatriate consultants assisting with the design and supervision of project construction. He is also the Assistant General Manager (Engineering). ESP has been recently strengthened by the addition of two Project Managers, one for water supply and another for sewerage. The position of a new Project Manager for Sanitation is expected to be created shortly (see Chart 20880 for ESP organization). The present management team is competent and Loan 1615-PH provides that before filling any future vacancies in the key positions of the General Manager, the Assistant General Managers and the Project Mlanager for Water Supply it would give the Bank an opportunity to comment on the qualifications and experience of the proposed candidates. A similar assurance was obtained during negotiations for the positions of Project Managers for Sewerage and Sanitation. The position of Project Manager for Sanitation is expected to be created and filled by mid- 1980. 2.08 MWSS has made steady progress since its creation in 1971. Unaccounted for water has been slightly reduced from 50% in 1976 to 46% in 1979. Loan 1615-PH provides for the metering of all service connections. About 140,000 new meters have already been installed (there are 300,000  - 11 - service connections at present) and financial results have improved. The heavy investment program which MWSS is undertaking is beyond any comparison with its past achievements and it is therefore seeking expert advice and technical an- managerial assistance for implementing the program and deriving its full benefits. For this purpose, the on-going water supply project includes engineering consultants for design and construction supervision and adequate management consulting services. MWSS is also about to decentralize operations and maintenance functions for water supply and sewerage and organize and equip an urgently needed water supply and sewerage staff training school. Training consultants for 24 man-months to help establish the training school and formulate and implement the training program have been selected and are expected to be appointed in mid-1980. MWSS is preparing a staffing plan to adequately cope with its expanded activities including sanitation and sewerage. The locations of the existing sewerage house connections in the central service area are not exactly known. When the system is expanded to Dagupan and Pandacan, house connections will have to be given without delay. MWSS should also make required changes to the organization for efficiently operating and maintaining the system. Assurances were obtained during negotiations that by January 1, 1981 MWSS would: (a) organize and staff a Connections Office for Sewerage with a Task Force to ensure that house connections are made to a schedule to be agreed with the Bank; and (b) reorganize the branch offices in the Central Sewer District, with sufficient staff, to operate and maintain the system. Billing, Collections and Receivables 2.09 Billing is computerized and bills are issued to consumers on monthly cycles. Collections are decentralized and are the responsibility of 15 branch offices. As of June 30, 1979 receivables from customers represented more than 6 months of billings. Although some improvement has been shown, unless effective actions are taken, MWSS will not be able to meet the target set in Loan 1615-PH of reducing the receivables at the end of 1980 to no more than 4 months of billings. Disconnection procedures need to be reviewed and implemented in a stricter manner. MWSS is preparing a comprehensive action program for improving collections, to be put in operation in early 1980. This will include the different aspects of customer service relations, as well as a plan to further reduce unaccounted for water. 2.10 At the end of 1978 accounts receivable from water and sewer custom- ers were P 115.5 million and the allowance for doubtful accounts was P 85.2 million. This provision is adequate to cover all overdue receivables older than 6 months. In Loan 1615-PH it was agreed that MWSS will write off and remove from its books the receivables which it considers uncollectible. About half of the uncollectible accounts beyond 1967 have been written off and MWSS is awaiting Commission on Audit's (COA) approval for writing off the remainder.  - 12 - Accounts and Audit 2.11 MWSS has an adequate commercial accounting system. The staff which includes a number of CPAs, is competent. The audit of the accounts is carried out by a resident Auditor of COA who certifies the annual financial statements and reports to the Board. The audit is independent and is gener- ally satisfactory. As agreed in Loan 1615-PH, MWSS' accounts will be audited by COA or other independent auditors acceptable to the Bank and the annual audited financial statements and the auditor's report to management will be furnished to the Bank within four months of the close of each year. 2.12 Prior to 1976, the COA's staff also carried out internal audit functions. In April 1976, the scope of COA's internal audit was reduced to cover only certain specified types of transactions and the responsibility for pre-auditing other transactions was assumed by MWSS, and is carried out partly by the cashiers and the accounting divisions and partly by the management services office. To discharge the internal audit functions efficiently, MWSS undertook in Loan 1615-PH to establish and staff an internal audit division directly responsible to the General manager and lay down detailed procedures for internal audit. The internal audit office has since been set up under the General 1Manager, is being staffed and will become fully operational in early 1980. National Pollution Control Commission (NPCC) 2.13 The NPCC was created on June 18, 1964 under Republic Act No. 3931, as amended by Presidential Decree No. 984. Its powers and functions include: investigating the extent and magnitude of pollution of air, water and land resources; taking necessary measures to prevent and abate pollution; issuing standards, rules and regulations for permits for wastewater treatment and disposal systems, including those of private industry; and establishing receiving water quality standard and promulgating rules and regulations to protect receiving waters. Direct coordination between NPCC and MISS is essential for controlling the water pollution in 1414A. NPCC is presently carrying out a limited monitoring of Manila Bay shoreline waters, which will be considerably expanded into a comprehensive program with equipment purchased under the project and assistance by consultants. Assurances were obtained during negotiations that by July 1, 1981, NPCC, with the assistance of consultants acceptable to the Bank, would have commenced work on the sampling program for Manila Bay and would furnish quarterly reports to the Bank with an analysis of the results. The NPCC would closely follow NWSS' monitoring program of the new submarine outfall and would advise on the timing of providing sewage treatment. NPCC has recently set up a Task Force to study methods for encouraging industry to remove toxic substances before the disposal of industrial wastes (see paras. 2.15 and 3.19).  - 13 - Metropolitan Manila Commission (MMC) 2.14 The Metropolitan Manila Commission (MMC) was created under Presidential Decree No. 824 on November 7, 1975. It is the gmjerning body with executive power over Metro-Manila, a public corporation created under the same decree. MMC is headed by a Governor, assisted by a Vice-Governor and three Commissioners or Board Members and is the central administrative agency in charge of all activities, projects and programs in the whole of Metro Manila. The powers and functions of MMC within Metro Manila include the following: to act as a central government to establish and administer programs and services; to review, amend, revise or repeal all ordinances, resolutions and acts of cities and municipalities; to coordinate and monitor governmental and private activities pertaining to essential services such as transportation, flood control and drainage, water supply and sewerage, social health and environmental services, housing, park development and others; to establish a garbage disposal operation center which will direct garbage collection and disposal operations; to ensure and monitor the undertaking of comprehensive social, economic and physical planning and development. MWSS will construct the combined sewers in the project in the respective cities and municipalities of the metropolitan area in coordination with MMC (see para. 3.17). 2.15 MWSS in coordination with 11Mc is planning to carry out a Solid Wastes Management Study for Metro-Manila with Bank assistance /1 and financing under Loan 1415-PH. MMC has set up a task force to identify areas of gross pollution by organic wastes, such as by public markets, and to ensure good planning for the efficient distribution of perishable foods such as meat, fish, fruits and vegetables and the subsequent collection and disposal of the organic wastes. Assurances were obtained during negotiations that MWSS in cooperation with MMC carries out the Solid Wastes Management Study, (incorporating the recommendations of MMC's Task Force and NPCC's Task Force on toxic industrial wastes), and furnish to the Bank the findings by December 31, 1981. University of the Philippines: Institute of Public Health 2.16 The Institute of Public Health of the University of the Philippines (UP) will collect health statistics for the health monitoring program. The statistics would be obtained from health clinics in the proposed project's low income areas. MWSS and UP have generally agreed on the details (and reports to the Bank) and would continuously analyze the results. Assurances were obtained during negotiations that UP and MWSS would by January 1, 1981, enter into arrangements satisfactory to the Bank for the implementation of the health monitoring program. /1 The Bank's cartography division is providing technical assistance through the use of computer mapping.  - 14 - 3. THE PROJECT Ob_Jectives 3.01 The project is consistent with the Government's strategy to improve basic services to the urban population and is part of a Master Plan for Sewerage and Sanitation for Metro-Manila. The main objectives of the project are to improve sanitation in the poor and densely populated areas of Metropolitan Manila and develop an institutional strategy for implementing similar projects in future. The project would remove stagnant pools of sewage from most of the streets of the city; collect health statistics in these areas for a health monitoring program; train IIWSS personnel in constructing, operating and maintaining a modern sanitary sewer system, and in constructing combined sewers. Water quality in Manila Bay would be monitored as a basis for improving the Bay's beneficial uses and preserving its assimilative capacity. Project Description 3.02 The project has four components: sewerage; sanitation; prepara- tion of future projects and overseas training; and water quality monitoring. The sewerage component is proposed for financing by the Asian Development Bank (ADB) and the other components for financing by the Bank. The main features of the project are summarized below: ADB Financing Part A (a) Construction of a 1.8 m diameter and 3.6 km long outfall at Tondo into Manila Bay for disposal of sewage from Central Manila; (b) construction of a new pumping station to replace the obsolete main Tondo pumping station with an increase of capacity from 3.6 to 5.5 cu m per second; (c) rehabilitation and upgrading of seven sewage lift stations at Sta. Anna, Sta. Cruz, Legarda, Luneta, Port Area, Malate, and Paco; (d) reduction of inflow and infiltration, repairing clogged and broken sewer pipes, sealing connections to the Pasig river and rehabilitating approximately 120 km of existing trunk sewers in the central service area system; and (e) detailed design and construction supervision.  - 15 - Bank Financing Part B (a) Construction of a sanitary sewage collection system, including house connections, covering 280 ha in Dagupan and 360 ha in Pandacan contiguous to the central service area system; (b) providing technical services for improving sanitation in low income blighted areas; (c) implementation of a pilot sanitation project; (d) construction of combined sewers in about 730 ha of low income areas with conditions of great hazard to public health, and in about 680 ha with conditions of significant hazard to public health (para. 1.07); (e) equipment for (i) a septic tank emptying program; (ii) maintenance of sanitary sewers- and (iii) maintenance of combined sewers; (f) monitoring of the new submarine Tondo outfall including a waste water laboratory; (g) health monitoring and (h) detailed design and supervision of construction. Part C (a) Detailed design of next stage water supply, sanitation and sewerage projects; and (b) overseas training of MWSS staff in sewerage operations. Part D (a) Monitoring of Manila Bay water quality including needed equipment. Project Concept and Composition 3.03 The project offers an affordable solution to MMA's problems on sanitation. MMA will have the opportunity to achieve and maintain a decent standard of sanitation within a reasonable time frame. The project concept and composition are unique because this is the first time that a broad based plan has been developed for tackling one of the principal causes of bad urban sanitation, i.e. the lack of safe disposal of human wastes. This is also the first time that a city has been graded for sanitation and an attempt  - 16 - been made to remove the urban poor's contact with sewage. The proposed project was prepared by MWSS with the assistance of James M. Montgomery (USA), DCCD Engineering Corporation (Philippines) and Kampsax-Kruger (Denmark), (JDK), financed under Loan 1415-PH. From options believed to be affordable by MMA's residents, twenty-one alternatives were studied by the consultants. Thirteen of the alternatives were selected for final evaluation. From the thirteen alternatives an action plan for the period 1980-2000 was selected, sizes and prices of physical components of systems were calculated and construction, operation and maintenance costs were compared by present worth analysis (see paras. 5.02 and 5.03 for details) in arriving at the least cost solution. 3.04 The consultants' approach included identifying poverty areas; determining income levels, income distribution, food consumption, shelter, utilities, etc.; determining willingness to pay and desired priorities for water and wastewater; analyzing river hydrology and flood incidence as related to public health and other sanitation parameters. Based upon this study a matrix for sanitation improvement in low income areas was prepared for use by MWSS to guide all public agencies such as those providing rehabilitation of depressed areas, community housing, etc. This matrix is based on physical and social factors and determines appropriate systems for excreta disposal. Factors such as existing sanitary levels, population density, soils, topography, and lot size are on the matrix. Sanitation and/or wastewater units are so priced and designed that units can be combined to arrive at low cost site specific solutions./l Following the grading of those areas of the city (para. 1.07) where the hazard of people making contact with sewage exists, a pilot project was started to determine the best and most affordable method of removing the sewage through the construction of combined sewers in those areas./2 3.05 The study of alternatives showed that the first step in providing sewerage and sanitation to Manila at the lowest per capita cost should be a project comprising the rehabilitation and expansion of the existing central sewer system, starting a program for building combined sewers, and providing for the safe disposal of excreta in low income areas. Cost Estimates 3.06 The summary project cost estimates are based on recent construc- tion bids and are given below. The detailed cost estimates are at Table 3-1 and 3-2 and the facilities are illustrated in IBRD Maps 14462, 14463 and 14464. /1 Substantial input was provided from the Bank's research work in this field. /2 Generally referred to as a Program for Removing Sewage from the Streets (PROGRESS).  - 1 7 - COST ESTDIATES Foreign Project costs Local Foreign Total Local Foreign Total exchange ------- P million ------- ---- US$ million ------- %) ADB Financing Part A Total cost - sewerage rehabilitation 301.8 316.5 618.3 40.8 42.8 83.6 51 (Details at Table 3-1) Bank Financing Part B Collection system: Sanitary sewers 65.8 33.2 99.0 8.9 4.5 13.4 Combined sewers 85.7 52.8 138.5 11.6 7.1 18.7 Pilot project 1.7 0.9 2.6 0.2 0.1 0.3 House connections 13.3 6.7 20.0 1.8 0.9 2.7 Wastewater laboratory 2.3 1.4 3.7 0.3 0.2 0.5 14aintenance equipment 3.9 22.7 26.6 0.5 3.1 3.6 Mlonitoring programs 2.7 2.2 4.9 0.4 0.3 0.7 Subtotal Part B 175.4 119.9 295.3 23.7 16.2 39.9 41 Part C Detailed design: Water supply 33.8 65.8 99.6 4.6 8.9 13.5 Sewerage and sanitation 27.1 40.5 67.6 3.6 5.5 9.1 Overseas training - 3.4 3.4 - 0.4 0.4 Subtotal Part C 60.9 109.7 170.6 8.2 14.8 23.0 64 Part D l4anila Bay monitoring 2.8 3.2 6.0 0.4 0.4 0.8 Subtotal Parts B to D 239.1 232.8 471.9 32.3 31.4 63.7 49 Detailed Design and Construction 23.6 8.6 32.2 3.2 1.2 4.4 47 Supervision Baseline cost Parts B to D 262.7 241.4 504.1 35.5 32.6 68.1 48 Contingencies Physical 28.1 20.0 48.1 3.8 2.7 6.5 Price 82.4 59.9 142.3 11.1 8.1 19.2 Subtotal Contingencies 110.5 79.9 190.4 14.9 10.8 25.7 Total Cost - Sanitation 373.2 321.3 694.5 50.4 43.4 93.8 46 TOTAL PROJECT COST 675.0 637.8 1,312.8 91.2 86.2 177.4 48  - 18 - Population Served 3.07 The population projections and water usage are similar to those developed for the Mlanila Water Supply Project II /1 (Loan 1615-PH) which was made effective on December 21, 1978. These projections have been reviewed and found to be valid. MWSS is presently measuring sewage flows from housing in various income levels. For the purposes of the master plan studies sewage generation was assumed to be 70% of water consumption as calculated in the water supply project. This is a reasonable assumption given that all of the waste water does not flow into the sewers. The total served population at the time of project completion at end-1984 is summar- ized below for each component of the project. Details are at Table 3-3: 1980 1982 1984 -----(thousands)----- Total population in MWSS service area 6,733 7,561 8,125 Population Served /a Sanitary sewers: Rehabilitation of Central Sewer System 497 552 610 Extension of sewers to Dagupan and Pandacan - 54 169 Combined sewers Upgrading class 4 area to class 2 - 635 691 Upgrading class 3 area to class 2 - 198 215 Septic tank emptying service Community septic tanks - - 320 Household septic tanks - - 1,000 Total served population 497 1,439 3,005 /a Includes population served by public toilets. Project Cost and Financing 3.08 The project is estimated to cost $177.4 million including a foreign exchange expenditure of $86.2 million. ADB is considering parallel financing of $42.0 million to cover the foreign exchange component of Part A. The proposed Bank loan of $63.0 million together with ADB's loan will finance 59% of the total project cost. The $63.0 million would be 67% of the Bank project (Parts B, C and D) and would include $19.6 million of local currency expenditures. This amount of local cost financing is justified to help the country meet its external financing needs. The total financing required for the project including interest during construction and working capital is $230.8 million. The Bank and the ADB loan would meet about 45% of these financing requirements. A summary of its financing plan for the project is as follows: /1 SAR No. 1978-PH dated July 7, 1978.  - 19 - p US$ - million ----- Percentage Requirements Manila sewerage and sanitation project 1,312.8 177.4 77 Interest capitalized during construction 386.1 52.2 22 Increase in MWSS' working capital 9.0 1.2 1 Total requirements 1,707.9 230.8 100 Sources of Funds MWSS' Internal cash generation 356.0 48.1 21 Less: Debt Service 54.5 7.3 3 Net Internal cash generation 301.5 40.8 18 Borrowings: from IBRD 466.2 63.0 27 from ADB 310.8 42.0 18 from Government 255.2 34.5 15 Total borrowings 1,032.2 139.5 60 Government capital contributions 374.2 50.5 22 Total Sources 1,707.9 230.8 100 3.09 Borrowings will provide 60%, Government capital contributions 22% and MWSS's internal cash generation 18% of the project requirements. The Government will relend to MWSS $62.5 million of the proceeds of the loan under a subsidiary loan agreement satisfactory to the Bank. The terms and conditions of the subsidiary loan agreement will be the same as those of the Bank loan, 20 year repayment period, including a 5 year grace period and an interest rate of 8.25% p.a. The foreign exchange risk would be borne by MWSS. Government will allocate the balance of $0.5 million to NPCC to finance the foreign component of the Monitoring of Manila Bay. It was agreed during negotiations that a condition of disbursement for Dagupan and Pandacan collection systems in Part B(a) of the project would be the execution of a loan agreement between MWSS and ADB for Part A of the project (see Para. 3.08). Retroactive financing of $250,000 for the ongoing pilot sanitation project representing 75% of total costs and $750,000 for the foreign costs of consulting fees for detailed design is recommended. In addition, the Government will contribute P 369.5 million (US$49.9 million) to MWSS's equity, P 1.1 million (US$0.2 million) to the University of the Philippines (UP) to finance the Health Monitoring Program and P 3.6 million (US$0.5 million) to NPCC to finance the local component of the Bay Monitoring Program. The financing plan is satisfactory and was agreed with the Government during negotiations.  - 20 - 3.10 A Government loan to MWSS of P 255.2 million (US$34.5 million) is expected to be required. Government is evaluating alternative procedures for making this loan. For projection purposes, the same terms agreed for financing the Second Manila Water Supply project have been assumed (20 years including 5 years grace period and 12% p.a. interest rate)./l Contingencies 3.11 Most of the project construction is below ground in densely populated areas with many other utilities and uncertain soil conditions. Physical contingencies of 20% of the baseline cost of the sewerage and sanitation component have been provided except for the Tondo sewage pump station on which detailed design is nearing completion and a reduced contingency of 15% has been provided. Provision for price contingencies has been made as follows: 16% for 1980, 10% for 1981, 7% for 1982 and thereafter for the local component; the foreign component was escalated at 10.5% for 1980, 9% for 1981, 8% for 1982 and 7% from 1983 to 1985. Procurement and Disbursement 3.12 The Dagupan and Pandacan collection systems estimated at $8.41 million (P 62 million) and $5.0 million (P 37 million) respectively are suitable for international competitive bidding following Bank procedures. Two bids would be called for these works after approval by the Bank of the bid documents and detailed design. The installation of service connections estimated at $2.7 million (P 20 million) would form part of these contracts./2 The sanitation component consists of the construction of combined sewers in most of the municipalities in the project area. These works are scattered throughout Metro-Manila and so as not to disrupt traffic the work has been scheduled for staged construction throughout the 1980-82 construction program. The contracts for the works in each area are generally small in nature, ranging from $0.5 to $1.0 million and call for the supply and installation of the combined sewer pipes. Such works are likely to be more attractive to local contractors though foreign contractors would be permitted to bid. The four PROGRESS Project Teams (see para. 3.17) responsible for constructing the combined sewers would, to the extent practicable, group together contracts to make them attractive for large as well as small contractors. Pipes for combined sewers are /1 If the Government's equity contribution and loan to MWSS were to be avoided a wastewater charge of about 20% on the water bill would be required, instead of the 10% considered feasible by the Government. The implementation of such a large charge is not considered practicable at this time. /2 House connections, i.e. the sewer pipeline connecting the service connection from the boundary of the property at the curb to the sanitary fittings will be financed to low income families with repayment up to five years.  - 21 - expected to be of calcareous reinforced concrete designed with extra thickness for hydrogen sulphide attack and would be produced locally by several small factories scattered throughout the project area. A total of some 40 to 60 small contracts are expected for combined sewers and would be awarded after competitive bidding advertised locally in accordance with MWSS' local competitive bidding procedures which are satisfactory and appropriate for these works and acceptable to the Bank./l These contracts are expected to be won by local contractors and account for 47% of the Bank's component of the project. All equipment required for the monitoring programs and MWSS' new laboratory would be grouped together and procured through international competitive bidding. Most of this equipment is not available in the Philippines. Vehicles, tools and maintenance equipment would also be procured through international competitive bidding. A preference limited to 15% of the c.i.f. price of imported goods or the prevailing customs duty, whichever is lower, would be extended to local manufacturers for procurement through international competitive bidding. Off-the-shelf items costing less than $20,000 each, urgently required for project completion, would be procured through local shopping procedures satisfactory to the Bank provided the total cost of such items does not exceed $500,000 equivalent. 3.13 Disbursements for civil works would be 75% of expenditures. For equipment and materials, disbursements would be at 100% of the foreign exchange cost of directly imported equipment, 100% of the ex-factory price of locally manufactured equipment and 75% of goods procured locally. For detailed design, construction supervision and overseas training, disbursements would be 100% of expenditures. The estimated schedule of disbursements is at Table 3.4. Design, Construction and Supervision of Construction 3.14 MWSS will be solely responsible for installing the sanitary sewers. MWSS would install the combined sewers and coordinate their work with MPW and MMC. MWSS and NPCC will carry out the Bay monitoring program; MWSS and UP will undertake the health monitoring program. JDK consultants will assist in the preparation of detailed design and bid documents, evaluation of bids and supervision of construction. Detailed design was assumed to be 6.5%, construction supervision 5.5%, and MWSS administrative costs as 3% of the baseline project cost. A small contingency provision, ranging from 5.5% to 10% has been made for these items to allow for unforseen changes. MWSS is currently negotiating with JDK for the above services and also for carrying out detailed design for the next stage sanitation and sewerage project and providing technical assistance for the /1 Because these works are similar in nature the format of the bid docu- ments would be standardized and agreed with the Bank to facilitate and expedite review.  - 22 - Outfall monitoring programs. In total an estimated 800 /1 man-months of internationally recruited consultants services has been provided for these services. The total support provided by local consultants is about 2,680 man-months T stly in services such as drafting and assisting the foreign consultants. MWSS will employ engineering consultants whose experience and terms and conditions are acceptable to the Bank for updating feasibility studies and carrying out detailed designs for the next stage water supply project for which an estimated 850 /2 man-months of internationally recruited consultant services and about 1,400 man-months of local consultant support services have been provided in the project. Assurances were obtained during negotiations that the experience, terms and conditions of all consulting services in the project will be acceptable to the Bank. The average man- month cost for internationally recruited consultants including transportation, housing and local costs, in 1980, is estimated to range from US$8,000- US$10,000 depending on qualifications and experience. This is reasonable. Local professionally qualified senior consulting staff are estimated to cost P 10,000 per man-month; local draftsmen are estimated at P 3,500 per man-month. Project Implementation 3.15 Project implementation is expected to begin in 1980; the construc- tion of the sewerage component should be completed by 1985. Construction of the combined sewers in Part B is expected to be completed by end 1982. The contract schedule is shown in Table 3.5. The training and detailed design components in Part C are expected to be completed by end 1984. NPCC will implement Part D as a continuing program. The closing date for the loan is December 31, 1985. 3.16 MWSS' ESP will provide the overall supervision and administration for project implementation. The project managers for Sewerage and Sanitation will be responsible for day-to-day liaison with the consultants. The project manager for the next stage water supply project assisted by consultants will be responsible for reviewing feasibility studies and carrying out detailed design for this part. The implementation schedule is in Chart 20976. MWSS' specially created training division would implement the training program in sewerage maintenance and operations and would take responsibility for administering the staff training provided in the project. /1 Engineering Office 60; design of full combined sewer program, advisory services in sanitation and construction supervision 166; Next stage project design 382; Dagupan and Pandacan supervision of construction 43; water quality monitoring and miscellaneous sanitation services, 149. (Does not include supervision of construction of ADB's sewerage component - this is included in Part A.) /2 Project Management 80; dam and appurtenant works 220; treatment 220; transmission and storage 60; distribution 270.  - 23 - Coordination with Third Urban Development Project 3.17 MWSS would set up four PROGRESS Project Teams in the four District Offices in the four cities of Manila, Quezon, Caloocan and Pasay as proposed in the Ban 3 Third Urban Development Project. These Project Teams would be responsible for designing and constructing the PROGRESS (combined sewers) component of the project. The City Engineers in the four cities would be ex-officio District Managers of the four District Offices and would be assisted by full time Deputy District Managers. The four PROGRESS Project Team Leaders will report through their respective District Managers to the PROGRESS Project Manager in the Program Office headed by one Program Director for both PROGRESS and MMINUTE. The Program Director will be directly respon- sible and report to MWSS on PROGRESS through an Executive Committee composed of officials from MPW, MMC and MWSS. MMC will receive on-the-job-training in the construction of the combined sewers and take them over for maintenance. A condition of effectiveness of the proposed loan will be the execution of an agreement acceptable to the Bank between MWSS and MMC defining responsibilities and procedures for constructing the combined sewers. 3.18 Coordination with the Bank's Third Urban Development Project has been ensured by having one Program Director and Program Office for both the MMINUTE and PROGRESS works in the construction of combined sewers. Other components of the MMINUTE program such as water supply, sanitary sewers and sewage disposal facilities would be constructed by MPW and turned over to MWSS. The organizational arrangements are illustrated in Chart 21342 and were discussed during negotiations and were found to be satisfactory. Similar arrangements are proposed for the Third Urban Development Project. Industrial Wastes 3.19 While there would be an immediate improvement to public health arising from the project there is a danger that the industrial wastes discharged into the sanitary or combined sewers could adversely affect water quality in Manila Bay. NPCC has set up a task force to study methods for financing industries to construct, operate, and maintain facilities to remove toxic substances from industrial wastes now polluting MMA. MWSS and NPCC would incorporate the findings of the task force in the Solid Wastes Management Study (discussed in para 2.15). Assurances were obtained during negotiations that (a) Government would promulgate by January 1, 1981 suitable industrial wastes regulations in order to reduce or eliminate toxic discharges from industry into rivers, esteros and Manila Bay; (b) beginning January 1, 1982 MWSS would carry out a monitoring program of the new Tondo Outfall with assistance from consultants acceptable to the Bank. It is understood that MWSS would promptly implement the industrial wastes regula- tions promulgated by Government. MWSS expects to appoint, within its Office of Engineering and Special Projects, a senior official to provide external liaison with Government agencies on sewerage and sanitation, coordinate action on all of the components of the project, and advise on sanitation and sewerage in accordance with the Sewerage Master Plan. The appointment would be made before the expatriate consultant now carrying out this function is terminated on June 30, 1980.  - 24 - Operation and Maintenance 3.20 MWSS will operate and maintain the sanitary sewer system and the septic tank maintenance program. MC will operate and maintain the combined sewer system. The project provides for the initial purchase of the labor intensive type of equipment needed for removing blockages from the combined sewers and for the training of MMC staff. Assurances were obtained during negotiations that MMC would provide the required organization staff and funds for operating and maintaining the system. Prolect Supervision 3.21 Review by Bank Staff would cover the preparation of detailed designs and supervision of construction. As far as possible this would be coordinated with the timing of supervision missions by the Urban Development Division. It is estimated that a minimum of two missions per year would be required during the initial period with less frequent visits thereafter. 4. FINANCIAL ANALYSIS Past and Present Financial Performance 4.01 MWSS' financial position improved greatly in 1974 when Government converted into equity all the loans previously granted to the system and increased tariffs by 100%. In subsequent years increases in operating costs coupled with large cash requirements to meet its development program, made it necessary to have a tariff increase of about 60% in October 1978. The following is a summary of MWSS' financial results in the past four years:  - 25 - 1979 1976 1977 1978 (estimate) ----------(P million)----- Operating revenues 133.0 136.7 169.1 261.0 Operating expenses 76.9 93.3 103.1 132.6 Depreciation 21.6 20.3 30.8 52.6 Total operating costs 98.5 113.6 133.9 185.2 Operating income 34.5 23.1 35.2 75.8 Interest charged to operations 7.5 7.0 6.8 5.4 Nonoperating revenues 19.3 30.0 25.0 28.6 Net income 46.3 46.1 53.4 99.0 Key Monitoring Indicators Rate of Return 2.5 2.2 1.6/a 3.0/a Operating ratio /b 74 83 79 71 Average water rates (P/cum) 0.48 0.48 0.56 0.88 Sewer rate (% of water bill) 50 50 50 50 j/ On revalued net fixed assets. lb After depreciation. 4.02 The full impact of the tariff increase will be reflected in fiscal year 1979. For that year it is expected that MWSS will be able to meet the 3% rate of return on net revalued fixed assets convenanted in Loan 1615-PH. 4.03 MWSS has an authorized capital of P 3.0 billion. Nevertheless, its paid-in capital was only P 602 million as of December 31, 1978. Government equity contributions have been P 16.0 million in 1976, P 10.0 million in 1977 and P 112.0 million in 1978. Because of the slow starting on the major investment programs, this has not presented any problems to MWSS. Financing Plan 4.04 MWSS' financing plan for the project construction period 1980-85 is presented below:  - 26 - p US$ million million Percentage Requirements Manila Sewerage and Sanitation Project /a 1,303.3 176.1 Second Manila Water Supply Project 2,927.8 395.6 Third Manila Water Supply Project 2,929.7 395.9 Other capital works 589.3 79.6 Interest capitalized during construction 1,107.6 149.7 Increase in working capital 106.1 14.4 Total requirements 8,963.8 1,211.3 Sources Internal cash generation 4,071.9 550.2 Less: Debt service (excluding IDC) -979.8 -132.4 Net cash generation 3,092.1 417.8 34 Foreign borrowings: IBRD proposed loan 462.5 62.5 Other foreign loans 3,127.0 422.5 Total foreign borrowings 3,589.5 485.0 40 Government's equity contribution 898.2 121.4 10 Government's loans 1,222.8 165.3 14 Customers' contributions 161.2 21.8 2 Total sources of funds 8,963.8 1,211.3 100 /a Excludes the cost of Health Monitoring to be implemented by the University of the Philippines and the Monitoring of the Bay under the responsibility of NPCC. 4.05 MWSS' financial requirement for its investment program over the period 1980-85 is about P 8.9 billion ($1.2 billion). This represents a substantial increase over the investment level of the past five years, when expansion of Manila's water and sewerage facilities was neglected. In addition to the proposed project, MWSS investment program includes the Second Manila Water Supply project financed under Loan 1615-PH, a future water supply project under study at present, and the second stage of the combined sewerage program. Contribution to MWSS financial requirements from its internal cash generation is expected to be about 34%; 40% will come from foreign loans; Government is expected to contribute about 24%  - 27 - (10% as equity and 14% as loans); and consumers' contributions will account for about 2%. This is a satisfactory financing plan. Assurances were obtained during negotiations that MWSS will: (a) carry out an annual review of the financial requirements for the coming year in order to determine: (i) amount o'f equity contribution required from Government; (ii) amount of local borrowings required; and (iii) tariffs required for water and sewerage; and (b) furnish such review to the Bank for comments, not later than October 1 of each year commencing in 1980 through 1985. Future Financial Performance 4.06 MWSS projected financial statements are presented in Tables 4.1 to 4.5. A summary of the Income Statements from 1980 to 1985 follows: 1980 1981 1982 1983 1984 1985 ------------------- (P million) -------------- Operating revenues 363.0 612.6 1,011.0 1,274.5 1,431.8 1,613.0 Operating expenses 198.2 287.0 364.0 426.9 478.9 533.4 Depreciation 68.6 92.2 145.9 204.0 235.5 269.8 Total operating cost 266.8 379.2 509.9 630.9 714.4 803.2 Operating income 96.2 233.4 501.1 643.6 717.4 809.8 Interest charged to operations 23.4 33.2 32.8 30.1 183.6 206.5 Nonoperating revenues 18.4 8.9 3.9 4.9 5.9 7.5 Net income 91.2 209.1 472.2 618.4 539.7 610.8 Rate of Return 3.0 5.7 8.1 7.7 7.6 7.7 Average water rate (P/cum) 1.02 1.21 1.66 1.85 1.95 2.01 Sewer rate (% of water bill) 50 60 60 60 60 60 Waste water rate (% of water bill) - 10 10 10 10 15 4.07 For 1979 MWSS is expected to meet the rate of return of 3% covenan- ted in the Second Manila Water Supply Project. MWSS is however unlikely to meet the rate of return of 5% covenanted for 1980 (see paras. 4.09 and 4.11). Starting with 1981, when MWSS is expected to commence preparing separate Income Statements for water and sewerage (see para. 4.12), the projected financial statements are the consolidation of projections prepared separately for water supply and sewer operations. The projected revenues for water are based on tariffs required to meet rates of return on net revalued fixed assets of 5% in 1981 and 8% in 1982 and thereafter. Revenues from sewer charges were projected as the minimum required to meet operation and maintenance  - 28 - costs and depreciation or debt service, whichever is higher. The tariffs required to meet this criteria are discussed in para. 4.11. 4.08 During the period 1980-85 operating revenues are expected to quad- ruple due to increases in tariffs, volume of water sold and wastewater charges. Based on the underlying assumptions NWSS is expected to have a satisfactory financial performance. Tariffs and Rate of Return 4.09 MWSS increased its water tariffs by about 60% in October 1978 to an average of P 0.88 per cu m ($0.12). Two additional increases of P 0.25 per cu m each ($0.03) were approved for implementation in January 1980 and January 1981. The January 1980 increase was postponed largely because of the overall impact of inflationary pressures resulting from recent oil price increases (see para. 4.11). 4.10 At present only those in the Central Service area who are connected to the sewerage system pay a 50% sewer surcharge on the water bill for waste water disposal. To meet the cost of the sewerage and sanitation component the Government has approved in principle a waste water charge of 10% on the water bill on all those served by MWSS who consume more than 30 cu m of water per month, whether connected to the sewerage system or not. Exempting those families consuming less than 30 cu m of water per month, is expected to facilitate the implementation of the new charge since about 47% of the consumers will not be affected. On the other hand, the foregone revenue as a result of that exemption is not expected to exceed 6% of the forecast revenues. The 10% charge will also apply to the Central Manila Sewerage system increasing the surcharge from 50% to 60%. Assurances were obtained during negotiations that MWSS would implement by January 1, 1981 a waste water disposal charge of 10% on the water bill for those who consume more than 30 cu m of water per month. 4.11 Financial projections of sewerage and sanitation operations show that the wastewater disposal charge would be adequate to meet its operating costs including provision for depreciation and debt service to the extent it exceeds depreciation till 1985 when it would need to be raised to about 15%. During negotiations MWSS agreed that starting with 1981, it would generate adequate revenues from sewerage charges to produce a positive rate of return on net revalued fixed assets in operation in the sewer system and to cover operating and maintenance cost and depreciation or debt service, whichever is higher. For water supply operations, as covenanted in Loan 1615 PH. MWSS is required to set and maintain its water tariffs at such levels as would be necessary to achieve a rate of return of 5% in 1980 and 1981 and 8% in 1982 and thereafter on revalued net fixed assets related to its water supply operations. During negotiations the Bank was informed that because of (a) unforseen construction delays IIWSS was unlikely to produce for sale the projected additional 100 million cubic meters of water in 1980 and (b) postponement of the planned increase of 25 centavos per cubic meter in October  - 29 - 1979 it was unlikely that MWSS would achieve the 5% rate of return for that year. It was therefore agreed that MWSS would achieve this rate of return in 1981. However, a condition of effectiveness of the Sewerage and Sanitation loan is an increase in water charges of 25 centavos per cubic meter. 4.12 To enable monitoring of these covenants, agreement was obtained during negotiations that MWSS will set dp by January 1, 1981 an accounting system, satisfactory to the Bank, which will produce separate Income Statements for its water and sewer operations. 4.13 In order to improve MWSS revenues in the future and thus help reduce its reliance on external financing, MWSS agreed during negotiations to study, under terms of reference acceptable to the Bank, the possibility of creating new sources of revenues to reduce future dependency on Govern- ment contributions. This will include, inter alia, evaluating the feasi- bility of: (i) charging, both for water and sewerage, all those consumers using ground water; (ii) assessing betterment taxes to those benefitting from works such as sewerage and drainage; (iii) increasing the water connec- tion fees for water to wealthier consumers and developers; and (iv) charging industries according to their types of wastewater discharges. MWSS would seek to carry out the study and implement the findings at the earliest possible time. A report on this analysis would be presented for Bank comment by March 1, 1981. Ability to Pay 4.14 For a poor family of 8 members, typical of MIA, living in the central service area and consuming about 15 cu m per month (which is an adequate amount for meeting basic needs) the monthly water and sewer charge would be P 9.60 ($1.30) under the present tariffs. Assuming this family has an income of P 600 ($81) per month (less than half the poverty line) /1 the water and sewer bill will be about 1.6% of household income. For a family with an income of P 900 ($122) per month (3/4 the poverty line) and assuming a higher water consumption of 30 cu m per month, the water and sewer charge would be about 2.4% of household income. These charges are affordable. Families without sewer connections would have public toilet facilities at a nominal charge. 4.15 Families living outside the Central Service Area will be served by the combined sewerage system in the project. However, the wastewater charge of 10% of the water bill will be paid only by those consuming more than 30 cu m of water per month. This represents a cross subsidy to families in the lower income groups, estimated to be about 47% of the consumers in the service area. /1 The Bank has defined the absolute urban poverty line in the Philippines as $250/capita/annum in 1977.  - 30 - Duties and Taxes 4.16 A Presidential Decree (No. 1177 of 1977) requires that Government- owned corporations shall pay income tax, customs duties and other taxes and fees. Nevertheless, so far no taxes or duties have been levied on HWSS. The Government has indicated that in any event those corporations originally tax exempt like 1WSS, will be refunded the taxes so levied./1 Accordingly, no taxes or duties were included in the project cost and financial projections. This reflects the actual practice followed by MWSS. It was confirmed during negotiations that there has been, up to date, no substantial change in Government's position regarding duties and taxes. Revaluation of Assets 4.17 MWSS has recently completed a revaluation of its fixed assets and the resulting figures were incorporated in MWSS's books as of December 31, 1978. Since then assets have been adjusted yearly using the consumer price index for Manila as produced by the Central Bank. Debt Control 4.18 The present and forecast debt equity ratio and debt service coverage are satisfactory throughout the projected period. However, to safeguard against MWSS incurring additional heavy debt which may jeopardize its financial position and involve unduly large debt service burden, agreement should be obtained during negotiations that without the Bank's consent HWSS would not incur any long-term debt unless its net income for the 12 months immediately preceding the incurrence of such debt is at least 1.5 times the maximum debt service in any future year. With a view to ensuring that during the project construction period (1980-85), unduly-large funds are not allocated by MWSS to capital works other than the Manila Water Supply Project II and the Mlanila Sewerage and Sanitation Project, agreement was reached that MWSS during that period would not undertake, without the Bank's approval, any major capital works (estimated to cost $6 million or more) and that expenditures for capital works other than the project would not exceed $12 million in any fiscal year. /1 Budget Circular No. 289, May 9, 1978.  - 31 - Monitoring Indicators and Reports 4.19 The following are some of the key monitoring indicators for MWSS during the period 1981-87: 1981 1982 1983 1984 1985 1986 1987 Rate of return - water /a 5.0 8.0 8.0 8.0 8.0 8.0 8.0 Rate of return - sewer /a 22.0 8.8 5.6 5.2 6.1 5.9 5.5 Unaccounted for water (%) 45.0 42.0 36.0 31.0 28.0 25.0 25.0 Operating ratio (%) 62 50 49 50 50 50 51 Debt service coverage 4.6 8.7 11.6 2.9 2.8 2.4 1.9 Debt equity ratio 30:70 33:67 32:68 31:69 30:70 28:72 26:74 Current ratio 1.5 2.2 2.3 1.7 2.1 1.5 1.3 /a On revalued net fixed assets. These indicators reflect the assumptions incorporated in the financial projections and depend largely on the effectiveness of the actions expected to be taken by MWSS and the Government. The reporting requirements intro- duced under the Second Manila Water Supply will be continued with the necessary adjustment to enable separate monitoring of the rate of return for water and sewer operations. 5. JUSTIFICATION General 5.01 Sanitation in the Mlanila Metropolitan Area has been steadily deteriorating since the early 1890s. Only 9% of the area is presently served by conventional sanitary sewerage systems and the construction of such systems is beyond the financial capability of the people. Providing such conventional systems would not be justified, except in some of the more densely populated areas. The project, therefore, offers a manageable and sequential program for improving public health through an innovative approach using a combination of methods which would evolve with the growth of the Metropolitan Area. Least Cost Solution 5.02 Alternative Solutions. Planning and design criteria suited to local conditions were selected for developing alternative solutions. Cost curves were drawn based upon local information and experience elsewhere.  - 32 - For some major components, these curves were compared against recent bids received for the Second Manila Water Supply Project and were found to be quite accurate. Economic life of pumping stations was assumed to be 30 years and of the sewers, 60 years. With this planning and cost criteria, 21 technically feasible alternatives were developed for comparison. The alternatives ranged from full treatment and disposal to the bay (or to inland waters) through lesser degrees of improvement in stages, including the use of combined sewers. The alternatives studied are at Table 5.1; costs are at Chart 20970 and the results of the present worth analysis using 8% discount rate are at Chart 20969. Alternative 11 offers the best and the least cost solution; 8.9 million population would be served at a cost of P 1,250 ($169) per capita. 5.03 Ranking of Alternatives. Thirteen of the 21 alternatives designed to serve a population of 8.9 million were then subjectively graded by three teams having mixed disciplines using a range of 1-10 points per factor for (i) Environmental Effectiveness; (ii) Quality of life and Health Benefits; (iii) Implementation Capability and Flexibility; (iv) Operational Effect- iveness; and (v) Investment Impact. The result of the ranking is at Chart 20968. Alternative 11 comes out to be the optimum solution. In addition, Alternatives 1, 3, 4 and 11 were tested with foreign exchange shadow prices at 1.11 and unskilled labor at 0.5. Change of present worth per person served in all cases was less than 2% and did not affect the ranking of alternatives. Five of the top ranked alternatives were also analyzed with the opportunity cost of capital assumed to be 10% and 12% and the relative differences in the rankings were found to be substantially unchanged. Alternative 11, which in the first phase proposes rehabilitation of the central service area and combined sewers for areas with greatest health hazards, is part of a program of works having a special emphasis on meeting the needs of the urban poor and is clearly demonstrated to be the optimum solution to meet project objectives. Service to the Poor 5.04 There are no reliable estimates of the number of urban poor in Manila. About 2 million reportedly live in some 415 blighted areas but such depressed areas are scattered throughout the city either as squatters on public land or as groups of one or two families intermingled with middle and upper income neighbors, or beside commercial and industrial areas. The methods of excreta disposal in these highly dense areas and absence of drainage causes sewage and foul water to flow around houses and in the streets mostly in the poorer areas of the city. This project aims at making an immediate improvement in the living conditions of these poor people to Class 2 standards (para 1.07) by providing a system of combined sewers in 1,412 ha and sanitary sewers in 640 ha of low income areas where sewage is present in the streets or in adjacent ill-defined ditches (Class 4 and 3 areas). The number benefitting from this component of the project would be about one million. In addition, MWSS would provide assistance for providing  - 33 - appropriate excreta disposal facilities where upgrading programs for blighted areas are currently being executed. 5.05 Taking only the 900,000 persons (1984) served by the Bank-financed program for building combined sewers estimated at US$26 million, the unit cost of providing the service is about US$30 per person, most of whom are the urban poor. This is a very low cost in comparison with the high public health benefits of the upgraded Class 2 service. The sewerage program costing US$100 million would additionally provide benefits through improved service (Class 1) to 780,000 persons living in the Central Service area at US$130 per person and at the same time reduce environmental pollution of neighboring shore waters. Economic Evaluation 5.06 Most benefits resulting from this project are related to improved health and environmental conditions and are not readily quantifiable. Nevertheless, a computation of the IERR was made using the expected increases in land values to measure some of the benefits received by those living in the project construction area. In addition, the incremental revenue from the wastewater charge was used to reflect the benefits received by those living outside the areas where the combined sewers will be built but benefiting from the general improvement in the health and living conditions of the city. Using border prices, the IERR for the project is about 14%. Sensi- tivity analysis indicates that the rate of return would drop to about 12% and 10% if the investment cost increases by 10% and 20% respectively. Similarly, the IERR would be about 11% and 8% in case the benefits drop by 10% and 20% respectively. Should the revenues from wastewater charges collected from those not connected to the Central Manila System be excluded from the benefits the IERR is 11%. 5.07 Since the opportunity cost of capital for the Philippines is esti- mated to be between 10% and 15% and given the fact that most benefits from the project are not quantifiable, the computed rate of return for the project is adequate. 5.08 A similar analysis was done for the total program including the next stage improvements. The resulting IERR is about 17.5% suggesting the advisability of pursuing the program till its completion. 5.09 Detailed computations as well as the conversion factors used are presented in Annex 1. Long Run Marginal Cost and Wastewater Tariffs 5.10 The average incremental cost (AIC) method was used to compute the long-run marginal cost. Using discount rates of 10%, 12% and 15%, the AIC at border prices was estimated to be P 0.63, P 0.70 and P 0.82 per cu m of waste water respectively, or P 0.75, P 0.83 and P 0.97 per cu m of waste water at domestic prices after using a conversion factor for  - 34 - consumption of 0.84. The average wastewater tariff in 1981, deflated to 1980 pesos is P 0.25 per cu m of sewage. This is one third of the AIC computed at 10% discount rate. This low average wastewater rate reflects the fact that about 90% of the population receives limited service through a combined sewer system and accordingly is charged only 10% of the water bill. On the other hand, the tariff for conventional sanitary sewage service in Central Manila area for 1981, (when the sewer surcharge is expected to be increased to 60% of the water bill) will be equivalent to P 0.96 per cu m of waste water deflated to 1980 pesos. This tariff is adequate when compared with the estimated AIC at domestic prices even for the highest discount rate. Detailed computations of the AIC are presented in Annex 1. Employment 5.11 The additional annual construction jobs generated by the two components of the project during the 1980-84 implementation period is estimated to be 990; 3,700; 4,700; 1,300 and 1,400 in each year. An annual average of 55 construction supervisory positions would be generated in this period. Also, during the next five years MWSS will need to increase its operational staff from the present level of 2,500 to 4,000 for the rapidly expanding water supply, sanitation and sewerage programs. Environmental Impact 5.12 Taken with the ongoing major water supply expansion program (Loan 1615-PH) and an upcoming solid wastes management project now being prepared with Bank financing, the proposed sewerage and sanitation project would be the second step in improving the environment of MWSS' Service area and Metropolitan Manila. However, while the project will make an immediate improvement to public health there is a danger that industrial waste water discharged into the sanitary and combined sewer systems could adversely affect water quality in Manila Bay. NPCC has set up a task force to study methods for financing industry to construct, operate and maintain facilities to remove toxic wastes from industrial effluents now polluting Manila Bay. This will be a component of the upcoming solid wastes management study. In the proposed project, MWSS would develop and implement industrial wastes regulations in order to reduce or eliminate toxic discharges from industry into rivers, esteros and Manila Bay (see para. 3.19). 5.13 The rivers and esteros in Metro-Manila show signs of gross pollution at the present time. The San Juan and Pasig Rivers are heavily polluted in the lower reaches even in the wet months. During the dry season the esteros are stagnant and often choked with garbage and solid wastes. The project will not significantly improve this situation since the combined sewers would continue to flow into the esteros but it will clean up the poorer areas. When implemented, the solid wastes management project referred to above would, together with tV,l sewerage project, gradually improve water quality in the esteros and keep these problems within manageable proportions thereby reducing the danger of the esteros becoming  - 35 - completely filled over with solid wastes and aggravating flooding during the wet season. Project Risks 5.14 Since Loan 1615-PH for the Second bIanila Water Supply Project became effective only on December 21, 1978, it is too early to make a judgement on MWSS' performance. There has been substantial compliance with covenants (which included a 60% water rate increase) but there have been construction delays, mostly for reasons outside MWSS' control. Bids have already been received for major pipelines and contracts are expected to be awarded soon; however it is too early to determine if project completion will be substantially affected by these circumstances. 5.15 This is the first major undertaking by HWSS in the field of sewerage and sanitation. Because of the size and innovative nature of the sanitation component a cautious approach is being taken by implementing only 13% of the program for constructing combined sewers in areas with significant hazard to public health at this time. This would allow the institutional arrangements for project implementation to be tried out under field conditions and needed adjustments to be made for completing this component. There is adequate provision in the project for engineering consultants to advise MWSS in designing and supervising of construction of the project's sewerage component and no unusual risks are foreseen. MWSS has, in the last year, taken important steps to strengthen its organization in the field and has made significant changes in its management to improve planning, coordination and staff training. Further improvements will be made during 1980-1983. The Government has shown its support for MWSS' work by approving in 1978 annual increases of water tariffs and in 1979 the new wastewater charge to be implemented in October of 1980. There is a strong enthusiasm among both MWSS' leadership and staff responsible for project implementation for tackling the sanitation problems of the metropolis and the Bank should continue its financial participation and accept the moderate risk associated with any institutional and management problems that may arise during project implementation. Bank supervision missions will give special attention to such problems so that timely steps would be taken to correct any situation before it seriously affects the project. A Bank mission will visit Manila in June 1980 to review institutional arrangements. 6. RECOMMENDATIONS 6.01 During negotiations agreement was reached with the Government and tMWSS on the following main points: (a) acquisition of site at Tondo outfall (para. 1.23); (b) coordination measures to ensure no duplication of sewerage charges (para. 1.24);  - 36 - (c) connections office and branch offices for sewerage (para. 2.08); (d) annual review of financial requirements (para. 4.05); (e) waste water disposal charge (para. 4.10); (f) rates of return (para. 4.11); and (g) new sources of revenues (para. 4.13). 6.02 Two conditions of effectiveness of the proposed loan will be: (a) MWSS and MMC defining responsibilities and procedures for the construction of the combined sewers in the project (para. 3.17); and (b) increase in water tariffs of at least one quarter peso per cubic meter (para. 4.11). 6.03 A condition of disbursement for the Dagupan and Pandacan sanitary collection system (Part B(a) of the project description) will be the execution of a loan agreement with ADB (para. 3.09). 6.04 The proposed project is suitable for a Bank loan of $63 million for a term of 20 years including a grace period of 5 years.  PROJECT COST ESTIMATES Table 3.1: SEWERAGE - ADB FINANCING (Part A) (E million) Total costs 1980 1981 1982 1983 1984 1985 Item Total Local Foreign Local Foreign Local Foreign Local Foreign Local Foreign Local Foreign Local Foreign Submarine outfall 211.21 82.67 128.54 - - 23.98 37.27 58.69 91.27 - - - - Tondo pump station 57.45 20.91 36.54 - - 9.60 16.80 11.31 19.74 - - - - - - Pump station rehabili- tation 69.22 24.70 44.52 - - 11.37 20.50 13.33 24.02 - - - - - - Collection system rehabilitation 118.44 76.01 42.43 - - - - - 25.08 13.99 25.08 13.99 25.85 14.45 Housing relocation 0.50 0.50 - 0.25 - 0.25 - - - - - Land 15.01 15.01 - - - 2.22 - 3.55 - 4.26 - 2.28 - 2.70 - Baseline Cost /a 471.83 219.80 252.03 0.25 - 47.42 74.57 86.88 135.03 29.34 13.99 27.36 13.99 28.55 14.45 Price contingencies /b 146.47 81.99 64.48 0.02 - 10.34 11.54 27.86 34.11 12.12 4.85 14.01 6.16 17.64 7.82 Total Sewerage 618.30 301.79 316.51 0.27 - 57.76 86.11 114.74 169.14 41.46 18.84 41.37 20.15 46.19 22.27 /a Baseline cost includes - Construction supervision, engineering and administration. - Physical contingencies estimated at 15% for the Tondo pumping station and 20% for other civil works. /b Price contingencies - Local costs - 16% for 1980, 10% for 1981, 7% from 1982 to 1985. - Foreign costs - 10.5% for 1980, 9% for 1981, 8% for 1982 and 7% from 1983 to 1985. -  28 PROJECT COST ESTBiATES Table 3.2: SAilITATION - BANK FINANCING (Parts B, C 8 D) Local costs Foreign Costa 1980 1981 1982 1983 1984 Subtotal 1980 1981 1982 1983 1984 Subtotal Total ------------------ I1illion pesos --------------- ------------------- ilillion Pesos ----------------------- Civil Works Combined Sewers Class 4 - 730 ha - 42.93 8.01 - - 50.94 - 26.46 4.93 - - 31.39 82.33 Class 3 - 638 ha - - 34.79 - - 34.79 - - 21.43 - - 21.43 56.22 Pilot sanitation study 1.66 - - - - 1.66 0.91 - - - - 0.91 2.57 Wastewater laboratory - - 2.27 - - 2.27 - - - - - - 2.27 Dagupan sanitary sewers - 20.67 20.68 - - 41.35 - 10.45 10.43 - - 20.88 62.23 Pandacan sanitary sewers - 12.21 12.20 - - 24.41 - 6.18 6.16 - - 12.34 36.75 Service connections - 6.37 6.37 - - 12.74 - 3.22 3.21 - - 6.43 19.17 House connections - 0.20 0.20 0.21 - 0.61 - 0.08 0.08 0.09 - 0.25 0.86 Total Civil Works 1.66 82.38 84.52 0.21 - 168.77 0.91 46.39 46.24 0.09 - 93.63 262.40 Equipnent Septic tank maintenance 0.30 0.60 0.30 - - 1.20 4.40 8.80 4.40 - - 17.60 18.80 Laboratory - - - - - - - - 1.37 - - 1.37 1.37 Sewer mnaintenance - 0.08 0.42 0.79 1.44 2.73 - 0.20 0.89 0.79 3.18 5.06 7.79 Outfall monitoring - - - - - - - 0.06 0.70 0.70 0.70 2.16 2.16 Bay monitoring - - - - - - - 0.09 1.05 1.05 1.05 3.24 3.24 Total Equipment 0.30 0.68 0.72 0.79 1.44 3.93 4.40 9.15 8.41 2.54 4.93 29.43 33.36 Total Civil Works & Equipment 1.96 83.06 85.24 1.00 1.44 172.70 5.31 55.54 54.65 2.63 4.93 123.06 295.76 Hionitoring Programs lianila Bay - 0.06 0.91 0.90 0.90 2.77 - - - - - - 2.79 Tondo Outfall - 0.05 0.61 0.60 0.60 1.86 - - - - - - 1.86 Health 0.21 - 0.34 - 0.30 0.85 - - - - - - 0.85 Total Programs 0.21 0.11 1.86 1.50 1.80 5.48 _ - - - - - 5.43 Detailed Design & Training water supply - 21.87 12.01 - - 33.78 0.13 28.03 33.47 4.23 - 65.86 99.64 Sewerage & sanitation - 4.27 13.66 5.69 3.48 27.10 - 6.49 11.37 13.84 8.8 40.50 67.60 Overseas training - - - - - - - 1.48 1.32 0.57 - 3.37 3.37 Total Design & Training - 26.04 25.67 5.69 3.48 60.88 0.13 36.00 46.16 18.64 8.8 109.73 170.61 Engineering 6 Administration Design 0.10 1.47 2.86 1.61 1.08 7.12 0.29 0.52 0.89 0.96 1.02 3.68 10.80 Construction supervision 0.10 2.64 4.07 1.33 0.77 8.91 0.40 1.28 1.53 0.82 0.87 4.90 13.81 Administration 0.05 2.24 3.60 1.12 0.54 7.56 - - - - - - 7.56 Total Eng. & Admin. 0.25 6.36 10.53 4.06 2.39 23.59 0.69 1.80 2.42 1.78 1.89 8,58 32.17 Baseline Cost Estimate 2.42 115.57 123.30 12.25 9.11 262.65 6.13 93.34 103.23 23.05 15.62 241.37 504.02 Contingencies Physical 0.34 13.12 13.33 0.69 0.66 28.14 0.56 9.22 8.95 0.43 0.83 19.99 48.13 Price 0.22 28.06 43.81 5.35 5.00 82.44 0.35 15.86 28.34 8.12 7.24 59.91 142.35 Total Contingencies 0.56 41.18 57.14 6.04 5.66 110.58 0.91 25.08 37.29 8.55 8.07 79.90 190.48 Total Cost - Sanitation 2.98 156.75 180.44 18.29 14.77 373.23 7.04 118.42 140.52 31.60 23.69 321.27 694.50 (Parts B, C and D) Note: Physical contingencies estimated at 20% of base cost on major civil works. No physical contingencies provided for equipment monitoring prograss and training components. Physical contingency of 10% provided for detailed design, engineering and administration. Price contingencies estimated at 16% for 1980, 10% fo 1981, and 7% thereafter for local costs; foreign costs escalated at 10.5% for 1980, 9% for 1981, 8% for 1982 and 7% thereafter on baseline cost plus physical contingencies.  39 Table 3.3: POPULATION SERVED BY PROJECT AND LONG-TERM SANITATION PROGRAM ------------------------- Sanitary sewers --------------------------------------- ------ Combined sewers ------- Central service area system Dagupan & Pandacan system Population Class 4 Upgrading - Project Year Population Connected Connected Population Connected Connected served Population ('000) (Z) population ('000) (1) population ('000) Area Population served ('000) ('000) (ha) per ha ('000) 1980 828 60 497 514 - - 497 - - _ 1981 839 62 520 526 - - 520 573 832 477 1982 849 65 552 538 10 54 606 730 870 635 1983 860 68 585 550 20 110 695 730 908 663 1984 871 70 610 562 30 169 779 730 946 691 1985 882 71 626 574 40 230 856 730 984 718 1986 892 72 642 585 50 293 935 730 994 726 1987 903 73 659 597 60 358 1,017 730 1,005 734 1988 914 74 676 609 65 396 1,072 730 1,015 741 1989 924 75 693 621 70 435 1,128 730 1,026 749 1990 935 76 711 633 76 481 1,192 730 1,036 756 1991 946 77 728 645 77 497 1,225 730 1,047 764 1992 957 78 746 657 78 528 1,274 730 1,057 772 1993 968 79 765 669 79 529 1,294 730 1,068 780 1994 979 80 783 681 80 545 1,328 730 1,078 787 1995 990 81 802 693 81 561 1,363 730 1,089 795 1996 1,000 82 820 704 82 577 1,397 730 1,100 803 1997 1,011 83 839 716 83 594 1,433 730 1,110 810 1998 1,022 84 858 728 84 611 1,469 730 1,121 818 1999 1,033 85 878 740 85 629 1,507 730 1,131 826 2000 1,044 85 887 752 85 639 1,526 730 1,142 834 --------------------------- Combined sewers --------------------------- Class 3 Upgrading - Project Class 3 Upgrading - Program Total population served Year Population Population Area Population served Area Population served Project Program (ha) per ha ('000) (ha) per ha (O000) ------- ('000) ------ 1980 - 265 - - - - 497 497 1981 - 277 - - - - 997 997 1982 682 290 198 682 290 198 1,439 1,439 1983 682 302 206 1,620 302 489 1,573 1,847 1984 682 315 215 2,558 315 806 1,685 2,275 1985 682 327 223 3,497 327 1,144 1,797 2,718 1986 682 342 223 4,435 342 1,517 1,894 3,178 1987 682 357 244 5,220 357 1,864 1,995 3,615 1988 682 372 253 5,220 372 1,942 2,066 3,755 1989 682 387 264 5,220 387 2,020 2,141 3,897 1990 682 402 274 5,220 402 2,098 2,222 4,046 1991 682 417 284 5,220 417 2,177 2,273 4,166 1992 682 432 295 5,220 432 2,255 2,344 4,304 1993 682 447 305 5,220 447 2,333 2,379 4,407 1994 682 462 315 5,220 462 2,412 2,430 4,527 1995 682 478 326 5,220 478 2,495 2,484 4,653 1996 682 493 336 5,220 493 2,573 2,536 4,773 1997 682 507 346 5,220 507 2,646 2,589 4,889 1998 682 522 356 5,220 522 2,725 2,643 5,012 1999 682 538 367 5,220 538 2,808 2,700 5,051 2000 682 553 377 5,220 553 2,887 2,737 5,247  40 Table 3.4: ESTIMATED SCHEDULE OF DISBURSEMIENT Quarterly Cumulative disbursements IBRD fiscal year disbursement at end of quarter and quarter ending ---------------- US$ million --------------- 1981 December 31, 1980 0.14 0.14 March 31, 1981 0.28 0.42 June 30, 1981 0.44 0.86 1982 September 30, 1981 2.76 3.62 December 31, 1981 4.33 7.95 March 31, 1982 6.74 14.69 June 30, 1982 8.91 23.60 1983 September 30, 1982 2.82 26.42 December 31, 1982 5.39 31.81 March 31, 1983 7.97 39.78 June 30, 1983 10.54 50.32 1984 September 30, 1983 0.89 51.21 December 31, 1983 1.53 52.74 March 31, 1984 2.17 54.91 June 30, 1984 2.80 57.71 1985 September 30, 1984 0.73 58.44 December 31, 1984 1.21 59.65 March 31, 1985 1.44 61.09 June 30, 1985 1.91 63.00  41 Table 3.5: CONTRACT SCHEDULE FOR COMBINED SEWERS (1980-84) Class 4 Class 3 Total Total areas areas no. of No. of contracts in each year (ha) (ha) (ha)ft contracts 1980 1981 1982 1983 1984 ---Project---/2 --Stage--- 1. Manila & Quezon City District Offices (Central Sector) Manila City (Suboffice) 246 30 215 10 1 1 2 3 3 Quezon City 280 - 280 11 - - 3 4 4 Mandaluyong 278 120 158 11 1 2 3 3 2 Marikina 78 10 68 3 1 1 1 - - Pasig 265 90 175 10 1 2 2 3 2 San Juan 19 - 19 1 - - 1 - - Subtotal 1,165 250 915 46 4 6 12 13 11 2. Caloocan City District Office (North Sector) Caloocan City 378 100 278 15 1 2 4 4 4 Malabon 137 - 137 5 - - 1 2 2 Navotas 247 110 137 10 1 2 3 2 2 Valenzuela 65 30 35 3 - 1 1 1 - Subtotal 827 240 587 33 2 5 9 9 8 3. Pasay City District Office (South Sector) Pasay City 158 70 88 6 1 1 2 1 1 Las Pinas 663 50 613 27 - 2 7 9 9 Makati 14 - 14 1 - - I - - Paranaque 187 40 147 8 1 1 2 2 2 Pateros 85 - 85 3 - - 1 1 1 Taguig 123 - 123 5 - - 1 2 2 Subtotal 1,230 160 1,070 50 2 4 14 15 15 4. Areas Outside Metro-Manila (Office of Special Projects) Cainta 11 - 11 1 - - 1 - - San Mateo 60 60 - 2 1 1 - - - Taytay 45 20 25 2 1 1 - - - Subtotal 116 80 36 5 2 2 1 - - Grand total 3,338 730 2,608 134 10 17 36 37 34 Assumptions: 1. Each contract would be about P 3 million. 2. Length of drains: 10 km in 25 ha. 3. Construction period five months. L Only 50% of Class 3 areas (2,608 ha) are shown in this schedule. The remaining 2,608 ha would be built in 1985-88. /2 Proposed project covers period up to 1982, and will upgrade 730 ha Class 4 aand 682 ha of Class 3 areas.  -MWSS CONSOIIDATED INCOME STATEMENT MILL.PHIL$ --------------------------------------------------------__-------------------__------------------------------------------------- 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 POPULATIGN-THOUSAND 6099.00 6408.00 6733.00 7074.00 7561.00 7838.00 8125.00 8423.00 8796.00 9148.00 POPULATION SERVED- WATEP(Q00)3255.73 3866.69 4587.84 5104.65 5661.46 6225.86 6340.26 6700.67 6972.97 7319.67 POPULATION BY STAND-POSTS 000)498.00 738.00 828.00 617.40 368.40 388.20 406.80 406.80 479.40 666.00 % POPULATION WITH WATER 53.38 60.34 68.14 72.16 74.88 79.43 78.03 79.55 79.27 80.01 CONNECTIONS- WATER(COO) 268.51 305.93 375.38 465.03 555.61 612.65 625.68 658.68 681.80 695.11 SEWER CONNECTIONS-THOUSAND, 59.12 60.09 61.04 62.88 64.38 67.72 71.06 74.40 77.74 81.08 VOLUME SOLD-MILLION M3 254.29 254.73 313.99 425.00 519.00 593.00 635.00 666.00 696.00 701.00 CONSUMPTION/CONNEC/MONTH 78.92 69.39 69.71 76.16 77.84 80.66 84.57 84.26 85.07 84.04 % UNACCOUNTED FOR WATER 45.87 46.19 44.00 45.00 42.00 36.00 31.00 28.00 25.00 25.00 PRODUCTION-MILL. M3 469.78 473.39 560.70 772.73 894.83 926.56 920.29 925.00 928.00 934.67 PER CAPITA PRODUCTION LCD 395.32 335.42 334.84 414.74 433.03 407.74 397.68 378.21 364.62 349.85 AVERAGE WATER TARIFF / M3 0.56 0.88 1.02 1.21 1.66 1.85 1.95 2.02 2.08 2.22 WATER REVENUES 142.71 224.16 321.00 514.47 862.92 1098.89 1235.90 1346.32 1447.76 1554.52 SEWER REVENUES 18.32 28.13 32.27 86.30 133.90 159.80 179.40 248.30 307.90 341.40 OTHER OPERATIONAL REVENUE 8.10 8.70 9.73 11.79 13.88 15.28 15.76 16.71 17.46 18.04 TOTAL REVENUES 169.13 260.99 363.00 612.56 1010.70 1273.97 1431.06 1611.33 1773.12 1913.96 WAGES- WATER 29.04 39.11 56.52 75.62 92.11 103.41 112.38 126.82 138.56 152.49 CHEMICALS 18.39 21.31 30.04 46.78 58.77 65.12 69.20 74.43 79.90 86.10 POWER 18.78 21.76 30.67 47.77 60.02 66.50 70.67 76.01 81.59 87.93 MATERIALS 3.39 5.99 12.39 17.18 19.04 28.51 37.31 40.76 44.67 48.70 OTHER COST WATER 11.50 15.08 22.07 30.92 40.93 52.55 64.67 76.11 89.59 105.44 DIRECT COSTS-WATER 81.10 103.25 151.69 218.27 270.88 316.09 354.23 394.13 434.30 480.67 SEWER WAGES 9.40 10.41 12.80 14.95 16.48 18.62 20.65 23.10 25.29 27.53 SEWER MATERIALS 1.10 1.10 6.10 7.10 8.60 9.20 9.90 10.00 10.00 10.00 SEPTIC TANK MAINT. 0.00 0.00 3.28 7.42 8.05 8.62 9.22 9.87 10.56 11.30 OTHER COSTS SEWER 2.50 3.28 4.80 6.72 8.90 11.42 14.06 16.55 19.48 22.92 DIRECT COSTS SEWERAGE 13.00 14.79 26.98 36.20 42.03 47.85 53.83 59.52 65.33 71.75 TOTAL DIRECT COSTS 94.10 118.04 178.67 254.46 312.91 363.95 408.06 453.65 499.63 552.42 OTHER INDIRECT COSTS 7.06 12.62 17.66 30.66 50.14 62.99 70.82 79.72 87.74 94.81 NON-CASH EXPENSES 1.93 1.93 1.93 1.93 1.00 0.00 0.00 0.00 0.00 0.00 TOTAL COSTS 103.09 132.59 198.26 287.05 364.05 426.94 478.88 533.37 587.37 647.23 INCOME BEFORE DEPRECIATION 66.04 128.40 164.74 325.50 646.65 847.03 952.18 1077.96 1185.75 1266.73 DEPRECIATION 30.77 52.57 68.65 92.25 145.87 203.97 235.54 269.81 304.93 334.86 ======== ======== ======== ======== ======== ======== ======== ======== ======== ======== T: INCOME BEFORE INTEREST 35.27 75.83 96.09 233.26 500.78 643.06 716.63 808.15 880.82 931.88 INTEREST CHARGED OPER. 6.81 5.42 23.46 33.21 32.84 30.09 183.65 206.55 278.28 336.06 H NON OPER.REVENUES (+) 25.00 28.61 18.46 8.95 3.91 4.90 5.90 7.50 8.55 9.70 NET SURPLUS (+) 53.46 99.02 91.09 209.00 471.84 617.87 538.88 609.10 611.09 605.51  -MWSS CONSOLIDATED FLOW OF FUNDS MILL.PHIL$ ------------------------------------------------------------__---------------__------------------------------------------------ 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 SOURCES OF FUNDS INCOME BEFORE DEPRECIATION 66.04 128.40 164.74 325.50 646.65 847.03 952.18 1077.96 1185.75 1266.73 NON-OPER.REVENUES (NET) 25.00 28.61 18.46 8.95 3.91 4.90 5.90 7.50 8.55 9.70 NON-CASH EXPENSES 1.93 1.93 1.93 1.93 1.00 0.00 0.00 0.00 0.00 0.00 GROSS INTERNAL GENERATION 92.97 158.94 185.13 336.38 651.56 851.93 958.08 1085.46 1194.3C 1276.43 OTHER CONTRIBUTIONS 0.00 11.30 7.26 35.67 23.93 39.88 28.39 19.33 17.89 10.86 EQUITY INCREASE 112.26 100.00 250.00 230.00 145.00 80.00 136.87 56.36 155.00 160.00 IBRD LOAN 0.00 0.00 8.38 181.30 211.12 38.84 22.86 0.00 0.00 0.00 OTHER FOREIGN LOANS 28.92 256.88 501.42 619.89 445.95 496.09 539.20 524.42 516.37 435.69 NATIONAL LOANS 0.00 0.00 140.00 535.00 270.00 70.00 122.81 85.00 0.00 0.00 TOTAL LOANS 28.92 256.88 649.80 1336.19 927.07 604.93 684.87 609.42 516.37 435.69 TOTAL SOURCES 234.13 527.12 1092.19 1938.25 1747.56 1576.74 1808.21 1770.57 1883.56 1882.98 APPLICATIONS OF FUNDS INVESTMENT IN PROJECT 0.00 0.00 10.06 418.85 601.88 107.45 96.65 68.47 0.00 0.00 CAPITALIZED INTEREST 5.21 23.63 49.14 121.69 221.80 303.43 197.91 213.63 169.25 131.78 MANILA WATER II 50.95 355.51 1047.41 1437.98 397.64 44.81 0.00 0.00 0.00 0.00 I OTHER WORKS-WATER 24.73 53.91 91.87 5.80 358.52 678.34 1023.22 771.95 994.41 801.89 LA.) TOTAL INVESTMENT 80.89 433.05 1198.47 1990.29 1583.33 1301.69 1548.14 1235.84 1418.66 1195.06 FOREIGN LOAN AMORTIZATION 6.73 6.73 30.46 39.71 42.08 43.51 93.66 125.88 138.95 241.76 NATIONAL LOAN AMORTIZATION 0.00 0.00 0.00 0.00 0.00 0.00 46.25 48.43 74.24 77.74 SHORT TERM LOANS AMORTIZ. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 TOTAL AMORTIZATION 6.73 6.74 30.46 39.71 42.08 43.51 139.91 174.31 213.19 319.50 OPER.INTEREST LONG T.DEBT 6.81 5.42 23.46 33.21 32.84 30.09 183.65 206.55 278.28 336.06 TOTAL OPERATIONAL INTEREST 6.81 5.42 23.46 33.21 32.84 30.09 183.65 206.55 278.28 336.06 TOTAL DEBT SERVICE 13.54 12.15 53.92 72.92 74.92 73.60 323.56 380.86 491.46 655.56 INCREASE IN WORK.CAPITAL 138.76 83.84 -158.27 -123.03 91.24 202.45 -63.50 153.88 -26.56 32.37 OTHER ASSETS -1.93 -1.93 -1.93 -1.93 -1.93 -1.00 0.00 0.00 0.00 0.00 TOTAL APPLICATIONS 234.13 527.12 1092.19 1938.25 1747.56 1576.74 1808.21 1770.57 1883.56 1882.98 IR:  -MWSS CONSOLIDATED BALANCE SHEET MILL.PHIL$ 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 A S S E T S FIXED ASSETS IN OPER. 2933.85 3691.03 4661.01 5929.69 9345.10 10940.66 12151.63 13992.99 15327.15 16762.60 MINUS ACCUM.DEPRECIATION 553.65 728.02 913.15 1096.71 1319.36 1615.69 1964.33 2371.64 2842.59 3376.42 NET FIXED ASSETS 2380.20 2963.01 3747.86 4832.98 8025.74 9324.97 10187.31 11621.35 12484.56 13386.18 WORK IN PROGRESS 261.12 582.44 1401.49 2589.20 1172.20 1532.49 2635.50 2880.59 3944.60 4777.10 CASH AND BANKS 24.87 35.91 40.60 83.14 71.35 73.04 85.00 86.16 75.72 81.26 ACCOUNTS RECEIVABLE 42.36 67.86 94.38 159.29 262.88 331.37 372.27 419.37 461.73 498.55 SHORT TERM INV. 322.29 373.36 233.02 48.80 0.00 95.00 0.00 75.00 30.00 0.00 INVENTARIES 22.65 14.20 24.25 35.53 43.21 51.41 58.21 62.59 67.28 72.40 TOTAL CURRENT ASSETS 412.17 491.33 392.25 326.76 377.44 550.82 515.48 643.12 634.73 652.21 OTHER ASSETS 15.45 13.52 11.59 9.66 7.73 6.73 6.73 6.73 6.73 6.73 LOANS TO LOCAL WW, 5.02 5.02 5.02 5.02 5.02 5.02 5.02 5.02 5.02 5.02 OTHER ASSETS 33.97 33.97 33.97 33.97 33.97 33.97 33.97 33.97 33.97 33.97 TOTAL ASSETS 3106.00 4085.43 5586.39 7789.87 9613.37 11445.28 13375.29 15182.06 17100.89 18852.49 EQUITY AND LIABILITIES EQUITY 602.07 702.07 952.07 1182.07 1327.07 1407.07 1543.94 1600.30 1755.30 1915.30 CONTRIBUTIONS 0.00 11.30 18.56 54.23 78.16 118.04 146.43 165.76 183.65 194.51 REVALUATION SURPLUS 2071.79 2595.43 3069.51 3444.30 3782.61 4344.41 4997.16 5710.27 6523.76 7397.68 OPERATIONAL SURPLUS 221.33 320.36 411.45 620.45 1092.29 1710.16 2249.04 2858.14 3469.23 4074.75 TOTAL EQUITY 2895.19 3629.16 4451.59 5301.05 6280.13 7579.68 8936.57 10334.47 11931.95 13582.24 LONG TERM DEBT(NET) 146.18 372.60 982.68 2276.80 3160.36 3625.37 4135.94 4532.17 4729.04 4776.39 ACCOUNT PAYABLES 29.71 32.75 91.95 149.49 108.92 79.86 108.02 81.78 99.95 85.06 TRUST FUNDS 16.06 16.06 16.06 16.06 16.06 16.06 16.06 16.06 16.06 16.06 DEFERRED CREDITS 9.14 1.42 1.42 1.42 1.42 1.42 1.42 1.42 1.42 1.42 CURRENT MATURITIES 6.73 30.46 39.71 42.08 43.51 139.91 174.31 213.19 319.50 388.34 TOTAL CURRENT LIABILITIES 61.64 80.70 149.14 209.05 169.91 237.25 299.81 312.45 436.93 490.88 TOTAL LIABILITIES 210.81 456.27 1134.80 2488.82 3333.25 3865.60 4438.72 4847.59 5168.95 5270.25 TOTAL EQUITY-LIABILITIES 3106.00 4085.43 5586.39 7789.87 9613.37 11445.28 13375.29 15182.06 17100.89 .18852.49 I0  -MWSS SEWER ONLY INCOME STATEMENT WILL. P$ -------------------------------------------------------------------------__--__------------------------------------------------- 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 =C===5= ==== = -= = =* =S. f========== ==,=======S. = ... = === = ========,================== SEWER REVENUES 18.32 28.13- 32.27 86.30 133.90 159.80 179.40 248.30 307.90 341.40 OTHER OPERATIONAL REVENUE 0.14 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 0.16 TOTAL REVENUES 18.46 28.29 32.43 86.46 134.06 159.96 179.56 248.46 308.06 341.56 SEWER WAGES 9.40 10.41 12.80 14.95 16.48 18.62 20.65 23.10 25.29 27.53 SEWER MATERIALS 1.10 1.10 6.10 7.10 8.60 9.20 9.90 10.00 10.00 10.00 SEPTIC TANK MAINT. 0.00 0.00 3.28 7.42 8.05 8.62 9.22 9.87 10.56 11.30 SEWER OTHER COSTS 2.50 3.28 4.80 6.72 8.90 11.42 14.06 16.55 19.48 22.92 DE CTSEE3 14.78--- 26.98--- 36.20--- 42.03--- 47.86--- 53.83--- 59.52--- 6___.32_ 71.75--- DIRECT coSTS SEWERAGE 13.00 14.78 26.98 36.20 42.03 47.86 53.83 59.52 65.32 71.75 TOTAL DIRECT COSTS i3.00 14.78 26.98 36.20 42.03 47.86 53.83 59.52 65.32 7i.75 OTHER INDIRECT COSTS 0.86 1.41 1.61 4.31 6.70 7.99 8.97 12.42 15.40 17.07 TOTAL COSTS 13.86 16.19 28.59 40.51 48.72 55.85 62.80 71-93 80.72 88.82 INCOME BEFORE DEPRECIATION 4.60 12.10 3.84 45.94 85.34 104.11 116.76 176.53 227.34 252.74 DEPRECIATION 2.74 3.27 4.11 8.55 22.79 36.30 42.79 57.96 75.97 88.45 INCOME BEFORE INTEREST 1.86 8.83 -0.27 37.39 62.55 67.81 73.97 118.57 151.37 164.28 INTEREST CHARGED OPER. 0.00 0.00 0.00 0.00 0.00 0.00 0.00 24.64 107.35 111.32 NET SURPLUS (+) 1.86 8.83 -0.27 37.39 62.55 67.81 73.97 93.93 44.03 52.96 D  -MWSS WATER ONLY INCOME STATEMENT MILL.PHIL$ --------------------------------------------------------__-----------------------------------------------____________---________ 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 VOLUME SOLD-MILLION M3 254.29 254.73 313.99 425.00 519.00 593.00 635.00 666.00 696.00 701.00 CONSUMPTION/CONNEC/MONTH 78.92 69.39 69.71 76.16 77.84 80.66 84.57 84.26 85.07 84.04 % UNACCOUNTED FOR WATER 45.87 46.19 44.00 45.00 42.00 36.00 31.00 28.00 25.00 25.00 PRODUCTION-MILL. M3 469.78 473.39 560.70 772.73 894.83 926.56 920.29 925.00 928.00 934.67 PER CAPITA PRODUCTION LCD 395.32 335.42 334.84 414.74 433.03 407.74 397.68 378.21 364.62 349.85 AVERAGE WATER TARIFF / M3 0.56 0.88 1.02 1.21 1.66 1.85 1.95 2.02 2.08 2.22 WATER REVENUES 142.71 224.16 321.00 514.47 862.96 1098.89 1235.90 1346.32 1447.76 1554.52 OTHER OPERATIONAL REVENUE 7.96 8.54 9.57 11.63 13.72 15.12 15.60 16.55 17.30 17.88 TOTAL REVENUES 150.67 232.70 330.57 526.10 876.68 1114.01 1251.50 1362.87 1465.06 1572.40 WAGES- WATER 29.04 39.11 56.52 75.62 92.11 103.41 112.38 126.82 138.56 152.49 CHEMICALS 18.39 21.31 30.04 46.78 58.77 65.12 69.20 74.43 79.90 86.10 POWER 18.78 21.76 30.67 47.77 60.02 66.50 70.67 76.01 81.59 87.93 MATERIALS 3.39 5.99 12.39 17.18 19.04 28.51 37.31 40.76 44.67 48.70 OTHER COST. WATER 11.50 15.08 22.07 30.92 40.93 52.55 64.67 76.11 89.59 105.44 _ _ _ _ _ _ _ _ - - - - - - - - - - - - - - - - - - - - - - - - - --- - _- - - -- _ _ - - - - - - - - - - - - - - - - - - - - - - - - DIRECT COSTS-WATER 81.10 103.25 151.69 218.27 270.88 316.09 354.23 394.13 434.30 480.67 OTHER INDIRECT COSTS 6.04 11.21 16.05 26.35 43.44 55.00 61.85 67.30 72.34 77.74 NON-CASH EXPENSES 1.93 1.93 1.93 1.93 1.00 0.00 0.00 0.00 0.00 0.00 ======= ======= =============== ======= ===== ==r ===== ===== ======== TOTAL COSTS 89.07 116.39 169.67 246.55 315.32 371.09 416.08 461.43 506.64 558.41 ________ -------- -------_- _ -- -- _- -_--____ -------- -------- ------- -- -- - ____ ___ ___ ___ INCOME BEFORE DEPRECIATION 61.60 116.31 160.90 279.56 561.36 742.93 835.42 901.44 958.42 1013.99 DEPRECIATION 28.04 49.34 64.63 83.77 123.15 167.81 192.85 211.96 229.05 246.50 ====== ===== ===== = ======= =r======= ======== ======== ======== ======