Colombia - Second Cali Water Supply and Sewerage Project

Documeut of The World Bank FOR OMCAUL USE ONLY RepqtNo. 5389 PROJECT COMPLETION REPORT COLOMBIA SECOND CALI WATER SUPPLY AND SEWERAGE PROJECT (LOAN 1523-CO) December 27, 1984 Projects Department Latin America and the Caribbean Regional Office Tb _documeut bs a rest cted disuibtou ad may be used by reciPints ooly in the perforzace Of i'r Officdl dubes. Its contos ma n d e be diesed wilow World Ban "_ In  MEASURES AND EQUIVALENTS 1 meter (m) 3.28 feet (ft) 1 kilometer (km) 0.62 mile (mi) 1 square meter (m2) 10.8 square fee (sq. ft) 1 cubic meter = 35.3 cubic feet (cu. ft.) 1 US gallon (gal) . 3.785 liters (1) 1 million US gallons per day (mgd) 43.9 liters per second (1/sec) 1 milligram per liter (mg/1) = 0.058 gram per US gallon GLOSSARY OF ACRONYMS BCH = National Mortgage Bank (Banco Central Hipotecario) EXCALI = Cali Municipal Enterprises (Empresas Municipales de Cali) EULABANK = Euro - Latin American Bank NTB = National Tariff Board (Juata Nacional de Tarifas) WSD = Water Supply and Sew-erage Department FISCAL YEAR January 1 - December 31  FOR OFICIAL USE ONLY COLOMBIA LOAN 1523-CO SECOND CALI WATER SUPPLY AND SEWERAGE PROJECT Project Completion Report Table of Contents Page No. Preface . . . . . . . . . . . . . . . . . . . . . . . . . Basic Data Sheet . . . . . . . . . . . . . . . . . . . . HighU.ghts . . . . . . . e . . . . v v v * . e I. Introduction . . . . . . . . . . . . . . . . . . . . . . The Project Area . . . . . . . . . . . . . . . . . . . 1 The Sector . . . . . . . . . .. . . . . . 1 Service Levels . . . . . . . . . . . . . . . . . . . . 1 The Borrower and Executing Agency . . . . . . . . . . . 2 II. Project Preparation and Appraisal . . . . . . . . . . . 3 Preappraisal and Appraisal . . . . . . . . . . . . . . . 3 Negotiations . . . . . . . . . . . . . . . . . . . . . . 3 Principal Objectives . . . . . . . . . . . . . . . . . . 3 III. Project Implementation . . . . . . . . . . . . . . . . . 4 Effectiveness and Start Up . . . . . . . . . . . . . . . 4 Project Execution . ... .. .. .......... . 4 Suspension of Disbursements and Cancellation . . . . . . 5 Procurement . . . . . . . . . . . . . . . . . . . . . . 7 Performance of Consultants and Contractors . . . . . . . 7 Project Cost . . . . . . . . . . . . . . . . . . . . . . 8 Disbursements . . . . . . . . . . . . . . . . . . . . . 9 IV. Operating Performance . . . . . . . . . . . . . . . . . 9 V. Financial Performance . . .. .. . . . . . . . . . . . . 9 Water Supply and Sewerage Department . . . . . . . . . . 9 Power Department, Telephone Department and Consolidated Results . . . . . . . . . . . . . . . . . . . . . . . 11 VI. Institutional Performance and Development . . . . . 11 VII. Project Justification . . . . . . . . . . .. . . 12 VIII. Bank Performance . . . . . . . . . . . . . . . . . . . . 13 IX. Conclusions . . . . . . . . . . . . . . . . . . . . . 13 I This document has a restricted distribution and nay be used by recipients only in the performance of their ofricial duties. Its contents may not otherwise be disclosed without World Bank authorization.  Table of Contents (cont'd) Page No. ANNEXES 1. Organization Chart ........... . ........................... 15 2. Compliance with loan Covenants ,.......... ................... 16 3. Project Description ............................ ........... 17 4. Completion of Project Works ................................ 19 5. Comparative Project Costs ,. .................................. 20 6. Cumulative Scbedule of Disbursements ........................ 23 7. Allocation of Funds .......................................... 24 8. Financial Statements ....................................... 25 9. Valorization ............................................0 30 10. Internal Rate of Return ........................... 0......... 31 11. Letter from the Borrower ................................. 33 Map No. IBRD 17497 tPCR)  - tj ) - PROJECT COMPLETION REPORT COLOMBIA: SECOND CALI WATER SUPPLY AND SEWERAGE PROJECT (LOAN 1523-CO) PREFACE This is a project completion report of the Second Cali Water Sup- ply and Sewerage Project, for which Loan 1523-CO was approved in February 1978 in the amount of US$13.8 million. The Loan was closed in October 1982 after cancellation of US$5.76 4llion. The Project Completion Rjm',ort (PCR) was prepared by the Latin America and Caribbean Projects Der.&rtment on the basis of the findings of a July 1983 mission, documents contained in regional files and information provided by Bank staff involved during various stages of the project cycle. The Borrower (Cali Municipal Enterprises - EMCALI) was most helpful in providing information. The Borrower's opinion on the project experience is attached as Annex 11. In accordance with the revised procedures, for project performance audit reporting, this PCR was read by the Onerations Evaluation Department COED) but the project was not audited by OED staff. Following normal procedures, OED sent a copy of the draft report to the Government and the Borrower for their comments, but none were received.  - (ni) - LOAN 1523-CO SECOND CALI WATER SUPPLY AND SEWERAGE PROJECT PROJECT CONPLETION REPORT Basic Data Sheet KEY PROJECT DATA Appraisal Item Estimate Actual Total Project Cost (US$ alllion) ai 33.68 44.50 overrun (underrun) - 32Z Loan Amount (USS million) 13.80 13.80 Disbtrsed 13.80 8.04 Cancelled - 5.76 b, Date Physical Components Completed 12/31/81 6/86 Portion Completed by Appraisal Target Date (Z) - less than 502 :4 Portion of Tine Overrun - ll72 Economic Rate of Return (Z) 22 21 dt Financial Performance Uncertain Paor Institutional Performance Uncertain Fair OTHER PROJECT DATA Original Item Plan Revisions Actual First Mention in Files 4116/75 Government Application 4/28/75 Negotiations 3/77 05/77 12/12/77 6/27/77 9110177 10/10/77 11/14/77 12/11/77 12/05177 12/12/77 Board Approval 2/77 4/77 2/21/78 3/77 4/77 6/77 5/77 8/77 9/77 11/77 12/77 1117/78 1/31/78 2/21/78 Loan Agreement Date 6/20/78 Effectiveness Date 9/20/78 11/15/78 1/31/79 12/14/78 1/31/79 Closing Date 6/30/82 6/30/82 b/ Borrower and Executing Agency Empresas Municlpales de Cali Fiscal Year of Borrower January I - December 31 Loan Data Interest Rate 7.452 Commitment Fee 314 of IZ Term 17 years Grace Period 4 years Amortization 26 semi-annual payments Follow-on Project Name none a/ Including interest and other charges during construction. b/ Cancelled on October 22, 1982 when loan account was closed. c/ Completlon of works representing 6% of appraisal cost estimate has been post- - poned indefinitely. Some work has been done, but estimated cost of completion Is not known. d/ Indicative internal financial rate of return.  - (iii) - LOAN 1523-CO SECOND CALI WATER SUPPLY AND SEWERACE PROJECT PROJECT COMPLETION REPORT Basic Data Sheet MISSION DATA Month/ No. of No. of No. of Date of Type of Mission Year Weeks Persons Staff Weeks Report Identification 04/75 1 1 1 05/09/75 Preappraisal 05/76 .5 3 1.5 06/02/76 Supervision Ln. 682-CO d/ 10/76 1 2 2 11/18/76 Post-Appraisal 02/77 1.5 3 4.5 03/07/77 Post-Appraisal 04177 1 3 3 - Post-Appraisal 07/77 1 .5 .5 07/29/77 Post-Appraisal 09/77 1 2 2 12/05/77 Post-Negotiation 02/78 .5 2 1.5 03/08/78 Supervision 03/78 1 2 2 03/27/78 Supervision 07/78 1 2 2 08/02/78 Limited Supervision 10/78 .5 2 1 11/02/78 Supervision 01/79 1 2 2 04/25/79 Supervision 06/79 2 1 2 07/05/79 Limited Supervision 10/79 1 2 2 11/15/79 Limited Supervision 04/80 1 2 2 06/16/80 Supervision 11/80 1 2 2 01/12/81 Supervision 10/81 1 2 2 10/30/81 Supervision 06/82 1 3 3 07/09/82 Supervision 09/82 - 3 - 10/13/82 Completion 07/83 1.5 21 2 - -5J 11. COUNTRY EXCHANGE RATE DATA Name of Currency: Peso (Col$) Year: Exchange Rate: Appraisal Year Average (1977) US$1 - Col$36.775 Intervening Years' Average (1978-1981) US$1 - Col$45.854 Final Year Average (1982) US$1 - Col$64.102 d/ Mission collected data necessary for appraisal.  - (iv) - PROJECT COMPLETION REPORT COLOMBIA: SECOND CALI WATER SUPPLY AND SEWERAGE PROJECT (LOAN 1523-CO) HIGHLIGHTS This project was the second Bank-financed operation in the sec- tor in Cali. The project included water supply, sewerage and drainage works in Cali, Colombia's third largest city, and Yumbo, an industrial center to the north of Cali. A primary objective was to strengthen the Borrower's (Cali Municipal Enterprises - EMCALI) management and its finan- cial position. Project execution proceeded more slowly than anticipated in the overly optimistic schedule prepared at appraisal. The delays began in the early stages of execution with managerial/staffing problems (para. 3.03), compounded by technical difficulties (Annex 4) and, most importantly, EKCALI's continuously poor financial performance. ENCALI 'S financial problems became evident during execution of the first Bank-financed water and sewerage project (Loan 682-CO, US$18.5 million, approved May 26, 1970; para. 1.07) and continued throughout the life of the second project. A major factor in EMCALI's poor financial per- formance was the political pressure which offset measures designed to improve EMCALI's position, (para. 9.03). Other factors were slow growth in demand, high inflation and difficulties in collecting betterment levies. In mid-1979, EMCALI arranged for a loan from the Euro-Latin American Bank, guaranteed by local banks in return for a revenue pledge, and requested that the Bank waive its negative pledge rights. The Bank decided to use granting the waiver to cause EMCALI to improve its finan- ces. Over the next three years, proposed Bank solutions met with little success, leading to suspension of disbursements between January and September 1981, and refusal to extend Loan closing beyond the original date of June 30, 1982 (paras. 3.06-3.13). About 42% (US$5.76 million) of Loan funds was cancelled. The project was slightly less than 50% complete by the closing date. Two subprojects have been postponed indefinitely, but most other works are scheduled for completion by end-1984. The last project component is to be completed in 1986 (para. 3.05). This schedule is financially and technically feasible (para. 9.01). Population befitting from the project will be close to the number estimated appraisal (para. 7.01). An indicative estimate of the overall internal financial rate of return is 21%, versus 22% estimated at appraisal (paras. 7.03-7.04). But EMCALI remains financially troubled, and unable to set realistic goals and achieve them.  COLOMBIA LOAN 1523-CO SECOND CALI WATER SUPPLY AND SEWERAGE PROJECT PROJECT COMPLETION REPORT I. INTRODUCTION The Project Area 1.01 The project was to finance water supply, sewerage and drainage works in Cali and Yumbo, both located in the Cauca River valley. Cali, Colombia's third largest city, had an estimated population of over one mil- lion In 1976, 20% of whom were urban poor. The Municipality of Yumbo, about 10 km north of Cali, is the area's Industrial center. Its 1976 popu- lation was estimated at 32,400. Both cities had grown rapidly until 1975; annual growth rates were expected to level off at 2.8% in Cali and 5% in Yumbo during 1976-86. The Sector 1.02 The Ministry of Public Health is in charge of overall sector planning under the coordination of the Wational Plann--n Department. The National Institute for Municipal Development (INSFOPAL), a decentralized Government agency under the Ministry of Health, is in theory the principal financial, coordinating and supervisory agency for water supply and sanita- tion activities in urban areas.1/ In practice, however, INSFOPAL has little or no influence on sector activities in the 21 major cities which contain about 40% of the country's total population. In these cities, including Cali, water supply and sewerage services are provided by munici- pal enterprises. Many of these entities also provide such services as power, telecommunications and solid waste disposal. Service Levels 1.03 Cali is served by one treatment plant which draws water from the Cali River and two which draw water from the Cauca River. At appraisal, 96% of Cali's population was connected to the water supply system. Indus- trial users in Yumbo were not connected to a public water supply system and only 60% of residential demand was being met. Yumbo's distribution system was in poor repair, largely because the municipality had been unable to finance an adequate maintenance program. 1/ Cities with more than 2,500 inhabitants.  1.04 About 80% of Cali's population was connected to the sewerage sys- tem at appraisal, but service was so poor as to pose a health hazard. Con- centration of population growth in the southern part of the city overloaded tb- com.ined stormwater drainage and sanitary sewage system, ard caused sewage to back up into open stormwater drainage canals. In addition, about 200,000 people living in the south and southwest discharged raw sewage into an open stormwater drainage canal that crcossed a densely populated area. Raw sewage from another 200,000 Inhabitants in the southern and southwest- ern parts of the city was discharged directly into a stormwater drainage canal which flowed into the Cauca River upstream from the Intake for the two water treatment plants. The Borrower and Executing Agency 1.05 The Borrower and executing agency is Municipal Enterprises of Cali (ENCALI), a decentralized municipal agency responsible for administra- tion, construction and maintenance of water supply, sewerage, power distri- bution and telephone facilities in Cali. At appraisal ENCALI was also res- ponsible for power distribution and telephone services in Yumbo and had agreed to provide water supply services as well. At appraisal, EMCALI had about 2,500 employees, 988 of whom were assigned to the Water Supply and Sewerage Department (WSD). With 7 employees/l,000 connections, EMCALI was not overstaffed. 1.06 Although ENCALI's accounting practices and procedures were con- sidered adequate, management information provided by the computerized accounting system needed improvement. Budget controls were weak. There was a need to strengthen coordination among departments. 1.07 EMCALI's most serious problems were financial, mainly because of WSD's poor performance in 1972-75. The sources of WSD's financial diffi- culties were: (a) low water sales caused by slow growth In demand; (b) high operating expenses caused by inflation; (c) delayed and insufficient tariff increases; and (d) substantial cost overruns in improvements of the water supply and sewerage system, particularly those financed under the Bank-financed First Water Supply and Sewerage Project.2/ Despite substan- tial transfers from the Power Department, large tariff increases in late 1975 and heavy medium-term borrowings, WSD's financial performance con- tinued to be poor. WSD had not complied with the rate of return covenant under Loan 682-CO and was unable to contribute the agreed percentage of project investment. 2/ Loan 682-CO (US$18.5 million) approved May 26, 1970; see Project Performance Audit Report No. See.N79-632 of August 22, 1979.  -3- II. PROJECT PREPARATION AND APPRAISAL Preappraisal and Appraisal 2.01 The project works were part of Call's water and sewerage master plan, prepared in 1969 and financed under Loan 682-CO. EMCALI and its con- sultants completed feasibility studies of the planned works in October 1975. There were two major issues during preparation and appraisal: whether two components could be included in the project; and EMCALI's poor financial performance. 2.02 Construction of the Aguablanca sewerage interceptor and the Napoles stormwater drainage canal had been dropped from Loan 682-CO because of overall project cost overruns, and because changes in urban development patterns and unexpectedly heavy flooding during project execution made it necessary to redesign both components. ENCALI was to have financed the works, but lacked the funds to do so. It was decided that the components were so different from the original concept that they could be included in the second project. 2.03 The Bank informed EMCALI in July 1976 that the new project would not be appraised until substantial tariff increases had been implemented. ENCALI's Board of Directors opposed the tariff increase and proposed a property reassessment scheme that was to increase revenues by moving con- sumers Into higher rate categories. The reassessment scheme, combined with a one-year extension of the investment period and public sector loans of Col$600 million, was to provide the necessary improvement in ENCALI'a finances. The Bank agreed to this proposal, and the tariff increase requirement was dropped. Negotiations 2.05 Negotiations with representatives of the Ninistry of Finance, the City of Cali and ENCALI were held in Washington In mid-December 1977. Major topics of discussion included the type of assurances that would be given to ensure the provision of the public sector loans; establishment of a system to ensure that interdivisional transfers of funds would be handled on commercial terms; agreement on the annual amount to be collected through valorization and the mechanisms for collecting it; and arrangements for EKCALI to take over Yumbo's water supply system. The Loan covenants related to these and other key issues are summarized In Annex 2. Principal Objectives 2.06 The project was aimed at improving sanitary conditions, Increas- ing utilization of installed water production capacity, Improving living standards in low-income areas (Barrios Populares), increasing the area  -A- available for urban growth and strengthening EMCALI's management and finan- cial position. The project components designed to meet these goals are presented in Annex 3. The sewerage and drainage component-s were to benefit 250,000 people directly, of whom 155,000 were urban poor. Another 160,000 inhabitants, 70,000 of whom were uzban poor, were to benefit from house water connections. III. PROJECT IMPLEMENTATION 3.01 The Board approved the project on February 21, 1978. Because of delays in Government approval, the Loan was not signed until June 20, 1978. The original effectiveness date was set for September 20, 1978, and comple- tion was expected in December 1981. Effectiveness and Start Up 3.02 There were two special conditions of effectiveness. The condi- tion requiring that Telephone Department tariffs be increased was met in January 1978. The condition requiring that satisfactory arrangements be made for the Government and BCH loans to ElCALI was fulfilled in late 1978. In the meanwhile, it had become evident that WSD would not meet the covenanted 3% rate of return in 1979 unless tariffs were substantially increased. In November 1978, the Bank informed EMCALI that the Loan would not be declared effective until EMCALI's Board approved a tariff increase sufficient to increase revenues by 39%. The increase was to become effec- tive January 1, 1979. On January 5, 1979, EKCALI's Board approved a 25% increase which the Bank believed would allow the Borrower to comply with the rate of return covenant, even though WSD was still expected to incur a net loss in 1979. The Loan was declared effective on January 31, 1979. Project Execution 3.03 The contracting schedule prepared at appraisal was overly opti- mistic. In addition, EMCALI's managerial/staffing problems and lack of funds caused delays during the early stages of execution. EICALI did not put into effect the organizational structure adopted in March 1977 until one year later, and was slow to reassign personnel thereafter. This prob- lem was compounded by a change in management in 1978 and a labor problem that resulted in the resignation of more than half WSD's engineers in January 1979. These positions were not filled until mid-1980. 3.04 Because of the shortage of funds, ENCALI was unable to pay its consultants. EMCALI's Board delayed some project components in 1979 while financial problems were being reassessed. Another major source of delay was the lengthy process of arranging for the collection of betterment  -5 - leVIes (valorization) for the sewerage and drainage works and for the Ymubo component, a condition of disbursement. The agreements with the valoriza- tion off-ces of the Cauca Valley Department (for Yumbo) and the Municipal- ity of Cali (for the sewerage and dralnage works) were signed In March 1980 and collection began in March 1981. 3.05 Because of these delays, continuing shortages of funds and tech- nical difficulties discussed In Annex 4, the project was slightly less than 50% complete by the time of cancellation. Completion of two subprojects, representing 6% of the appraisal cost estimate, has been postponed indefi- nitely. Most components are scheduled for completion by the end of 1984, while completion of network rehabilitation In Yumbo's residential area is projected for mid-1986. These goals are attainable, if timely financing is obtained. Suspension of Disbursements and Cancellation 3.06 After effectiveness, ERCALI's financial situation remained poor. The property reassessment program was implemented but did not generate the hoped-for revenue increase. Tne tariff increase approved in January 1979 as a condition of effectiveness was not implemented until June 1, 1979. Payments on EKCALI's short-term debt, incurred to finance overruns under Loan 682-CO and to cover uncollected valorization, were overdue and subject to penalty Interest of up to 36% per annum. The Bank suggested that EKCALI refinance the debt, but attempts to do so had been unsuccessful. EWCALI was financing its deficits by deferring its accounts payable. 3.07 By early June 1979, EKCALI had arranged to borrow USS21.8 million from the Euro-Latin American Bank (EULABAKK) to refinance its short-term debt. As the Government was not willing to guarantee the loan, EKCALI obtained the guarantee of a consortium of local banks, on the - condition that EKCALI pledge a portion of Its revenues as collateral. ENCALI reqti. sted that the Bank waive its negative pledge rights. The Bank decided to use granting the waiver as leverage to ensure that ENCALI would take measures to improve its financial position. 3.08 EMCALI was officially informed of the Bank's conditions for waiv- ing Its negative pledge rights in July 1979. Tne major conditions required that EXCALI: increase water and telephone tariffs to ensure compliance with the rate of return covenants; start collecting valorization charges; present a financial plan to cover the projected deficits; and ensure that funds would be provided from the public sector loans. These conditions were not met, -out as ENCALI had made some efforts to improve its position, the Bank extended deadline for compliance until tne end of February 1980. EICALI was warned that non-compliance could result in suspension of dis- bursements.  - 6 - 3.09 In mid-February, URCALI dropped its request for waiver of the negative pledge rights and arranged to grant the Bank an informal revenue pledge similar, but not equivalent, to the one granted to EULABANK. ERCALI and the Bank began negotiating a formal agreement. A request for water and telephone tariff increases was presented to the Wational Tariff Board (UTB) at the end of January, and valorization agreements with the Departmental and Municipal offices were signed in March. The Bank decided to extend the deadline for compliance until May 31, 1980. 3.10 A water tariff restructuring and Increase, below the amount the Benk had recommended, were implemented In Jume 1980. The Bank Informed ENCALI that it would have to begin collecting valorization by the end of October, increase phone tariffs by the end of September and request another water tariff Increase In September, or the Bank would suspend disburse- ments. The telephone Increase was Implemented In November 1980, but col- lection of valorization was postponed, and EXCALI's Board was not willng to take any action to increase water tariffs until mid-1981. Disbursements were suspended In January 1981. 3.11 ENCALI was informed that before disbursements would be resumed, it would have to: (a) implement tariff increases that would allow RSD to meet its rate of retu-rn covenant In 1981 and thereafter; (b) collect the first valorization payments; (c) furnish adequate financing plans for all three Departments; and (d) complete arrangements to provide the Bank with a revenue pledge equivalent to the one given to EULABANK. 3.12 In August 1981, ERCALI and the Bank agreed that ENCALI would i^plement one-time water and sewerage tariff Increases of 21% In September 1981 and 10% in July 1982. Automatic monthly Increments were to be increased and continued Indefinitely. ENCALI was to take any other mea- sures necessary to permit WSD to earn a 5% rate of return in 1982. ERCAL had begun to bill for valorization charges in March 1981, but collections had reached only 47% of billings. ENCALTI agreed to ensure that at least 50% would be collected in 1981 and thereafter, and to prepare a plan to improve the collection rate. As part of this plan, EKCALI was to provide evidence that the Cauca Valley Department had provided ENCALI with two pay- ments of ColS50 million each In December 1981 and June 1982. EMCALI also agreed to revise WSD's Investment program to keep it consistent with avail- able Internal resources. Interdepartmental transfers were to be treated as commercial loans, in accordance with the Loan Agreement. Because of Government objections to ENCALI's plans to enter Into an agreemen.: with the Bank on the negative pledge rights, the Bank decided to resolve the issue with the Government, rather than ENCALI. Disbursements were resumed on September 4, 1981.  - 7 - 3.13 In mid-June 1982, EMCALI requested that the closing date be post- poned from June 30, 1982 to June 30, 1984. Byr the time of the request, It had become evident that ENCALI's compliance with the August 1981 conditions was mixed. Tariffs were Increased by about 25% in September 1981, but no farther tariff action was planned until October 1982, and the agreed rate of return would not be met. Valorization collections had Increased to 53%, but the plan to further Increase the percentage had not been prepared. The Department had made its December 1981 payment, but the June 1982 payment was delayed. Tnterdepartmental transfers were not yet accruing interest. There had been no progress on resolving the negative pledge rights issue. In early August 1982, the Bank Informed ENCALI that St could not then extend the closing date, but that It would not make a formal decision until after the newly elected municipal government had been able to review the situation. After a thorough review of aUl the issues In September-October 1982, the Bank decided not to extend the closing date and to cancel the remaining funds (US$5.76 million). Procurement 3.14 All contracts were awarded In accordance with Bank guidelines. Civil works and consulting contracts were awarded to local fims. Con- tracts for supply of equipment and materials were awarded to local and foreign firms. 3.15 A procurement problem arose over a disagreement on how to dis- burse for EXCALI's expenditures for the supply of pipe fabricated locally from Imported steel plate. ENCALI's contract with the pipe fabricators caUled for ENCALI to pay the suppliers of the materlals directly, in dol- lars. ENCALI wanted the procurement of materials to be treated as a foreign cost (and thus reimbursable at 100%) and the cost of fabrication, a local cost. The Bank considered the entire cost local. The Bane allowed the purchase of the materials to be treated as a foreign cost on an excep- tional basis because obtaining foreign currency would have caused delays and increased costs. Performance of Consultants and Contractors 3.16 The consultants retained to prepare feasibility studies and final designs and to supervise construction performed well, with one excep- tion. The designs for the Cauca interceptors were found to be based on In- adequate soil studies. The consultants in charge of supervising construc- tion completed the studies. The designs for the pumping station caisson and for some sectors of the interceptor then had to be revised.  -8- 3.17 Civil works contractors and suppliers generaUly performed satis- factori}y. One prime contractor, however, had little experience with the unstable solls along the Cauca river. The contractor and ENCALI are set- tling the resulting claims for pipe failure. A contract with one local pipe supplier who failed to supply pipe of the specified quality was can- celled. Project Cost 3.18 Project cost estimates are summarized on the following page, and presented in detail in Annex 5. ENCALI's cost estimates are acceptable, if there are no furtner delays in execution. Overruns in project cost, excluding interest and other charges during construction, are estimated at 68% in current prices and 13% in 1977 prices. Altnough the costs of all components exceeded appraisal estimates, overruns in the Tumbo, Cauca interceptor and sanitary sewerage components are responsible for the greatest increases. The cost of the Yumbo component increased because the condition of the network in the residential area was worse than expected. The appraisal estimates for the Cauca interceptor and sanitary sewerage components were not based on final designs, and thus were subject to varia- tion. In addition, the scope of the sewerage component was expanded. 3.19 Interest and other charges during construction were 85% less than estimated during appraisal in current prices, and 90% lower in 1977 pri- ces. This was caused by the delays in drawing down the Loan, the Bak *s not financing charges during the time disbursemeents were suspended and a reallocation of funds to cover cost overruns in other categories. Summary of Project Costs = -In Current USS'OOO------ -In 1977 USS000- Appraisal Estimate Current Estimate i/ Current Estimate I/ Local Foreign Total Local Foreign Total Local Foreign Total A. Water Supply 1.39 1.14 2.53 2.67 1-17 3.84 1.91 0.81 2.72 B. !Ymbo 1.21 1.98 3.19 7.38 0.91 8.29 4.55 0.60 5-15 C. Reforestation 0.35 0.13 0.48 0.86 -- 0.86 0.60 - .60 D. Cauca Interceptor 3.29 2.49 5.78 13.45 2.90 16-35 8.84 1.91 10.75 E. Stormwater Drainage 1.71 0.57 2.28 2.86 0.63 3.49 1.98 0.40 2.38 P. Sanitary Sewerage 1.65 0.55 2.20 3.47 2.53 6.00 2.52 1.61 4.14 C. Sewage Treatment Studies 0.12 0.06 0.18 0.06 -- 0.06 0.04 - 0.04 E. Maintenance Equipment - 0.82 0.82 0.46 0.98 1.43 0.30 0.66 0.96 Construction Cost 9.72 7.74 17.46 31.21 9.12 40.33 20.73 6.00 26.73 I. Engineering and Adainistration 0.87 O.S 1.75 2.98 -- 2.98 2.38 -- 2.38 Base Cost 10.59 8.62 19.21 34.19 9.12 43.31 23.11 6.G0 29.11 J. Physical Contingencies 1.59 1.29 2.88 N.A. N.A. li.A. N.A. N.A. N.A. 1977 Project Cost 12.1S 9.91 22.09 34.19 9.12 43.31 23.11 6.00 29.11 K. Price Contingencies 2.12 1.48 3.60 l.A. N.A. ll.A. l.A. N.A. N.A. Project Cost 14.30 11.39 25.69 34.19 9.12 43.31 23.11 6.C0 29.11 L. Interest and Other Charges During Construction 5.61 2.38 7.99 -19 1.19 - 0.83 0.83 T2OTAL PROJECT COST 19.91 13.77 33.68 34.19 10.31 44.50 23.11 6.83 29.94 __