Uganda - Water Supply and Sanitation Rehabilitation Project

Document of The World Bank FOR OmCIAL USE ONLY R11t No. P-3857-UG REPOR TND AM EC tIOS OF IE PRESIDELiT OF THE INTERATIONAL DEVELOPAE ASSOCITIO TO T-HE EXECUTIVE DL'sCTORS Ot A PROPOSED DEVELOPMELT CREDIT IN AN AMOUNT OrG SDR 26.9 MILLION! TO THE REPUBLIC OF UGADA FOR A WATER SUPPLY AND SANITATION PROJECT July 5, 1984 IThis dicins. bm a Ps-d cte dkMatm n. =my be _u by _i y in the p_dmic o the fi Endl iudum Is egutmaS may wg elherwbse be diseimi wIho Weed Duk ahudzMh.t.o  CURRENBC EQUIVALENTS (Ars of June 1984) Currency Unit - Uganda Shilling (USh) USS 1.00 = USh 320 USh 1.00 = USS 0.003 From October 1975 to May 1981, the Uganda shilling was tied to the Special Drawing Right (SDR) of the IMF (SDR 1.00 - USh 9.66). However, the Ugandan shilling was devalued by 90% in June 1981 and has subsequently been *loating in relation to a basket of currencies. Since August 1982, -he Bank of Uganda has operated a dual exchange rate system, including a second window at which foreign exchange is traded more freely. An exchange rate of USS1 - USh300 has been used for the calculations for the proposed project. The first and second window rates merged in June 1984. ABBREVIATIONS ANXD ACRONYMS CIB Central Tender Board EEC European Economic Community G:Z Gesellschaft fuer Technische Zusammenarbeit ICB International Competitive Bidding KfW Kreditanstalt fuer Wiederaufbau LCB Local Competitive Bidding LCD Liter/capita/day MLG Ministry of Local Government XLKWR Ministry of Lands, Minerals and Water Resources MOH Ministry of Health NORAD Norwegian Aid Agency NWSC National Water and Sewerage Corporation ODA British Overseas Development Administration PCU Project Coordination Unit SIDA Swedish International Development Authority UNDP United Nations Development Programme WDD Water Development Department WHO World Health Organization FISCAL YEAR Government July 1 - June 30 IWSC July 1 - June 30  FOR OFFICLAL US ONLY UGANDA WAlE SUPPLY AND SANITATION PROJECT CREDIT AND PROJECT SUNMARY BRROWER: Republic of Uganda BENEICIARIES: National Water and Sewerage Corporation (NWSC) and Water Development Departmet (WDD) of the Mnistry of Lands, Mineral, and Water Resources (MLIWR), the Mnistry of Health (MOH) and the city councils of seven major towns through the Ministry of Local Government (MLG). AMOUNT: SDR 26.9 (USS28.0) million equivalent. TERMS: StanAard. RELENDING TERMS: Of the proceeds of the credit, the Government would: Ca) (i) onlend US$10.8 million equivalent to MDSC for 20 years, including four years of grace at a variable interest rate; and (ii) channel US$4.6 million equivalent as equity to NISC; and (b) allocate: Ci) US$8.4 million equivalent to WDD; (ii) US$0.4 million equivalent to the Ministry of Health; and (iii) US$3.8 million equivalent to the Ministry of Local Government. PROJECT DESCRIPTION: The proposed project is designed to assist the Government in financing the rehabilitation of the vater supply and sanitation facilities of seven major towns; and provide training and technical assistance. RISKS: The main risks facing project implementation are weak project implementation organizations and the limited capacity of local contractors. They have been addressed: by providing technical assistance and designing procurement packages which would attract strong contractors for the mechanical/electrical, and civil works; and by retaining consultants for the supervision of construction work. The remaining risk is the still unsettled political and security situation in the country. Under prevailing conditions, the project as designed is feasible. A deterioration, however, could have adverse effects on project implementation, both in terms of cost and completion, and in a severe case may require revisions of the project scope. This document has a restricted distribution and may be used by recpients only in the performance of thber official duties. Its contents may not othew be disclosed without World Bank autboutiouL  - ii - ESTIMAIED COSTS: Local Foreigcr Total - USS million 1. Rehabilitation of and replacements for: water supply facilities 2.18 7.22 9.40 sewerage facilities 0.83 1.90 2.73 2. Supply of refuse dis- posal equipment and septic tank emptiers 0.37 2.63 3.00 3. Low cost sanitation and health education 0.51 0.34 0.85 4. Training 0.01 0.75 0.76 c. Technical assistance 0.32 1.43 1.75 6. Consultancy services 0.70 2.00 2.70 7. Total Base Cost= 4.92 16.27 21.'9 (January 1984) Physical Contingencies 0.77 2.42 3.19 Price Contingencies 2.40 4.05 6.41 Total Project Cost 8.09 22.74 30.83 (net of taxes and - - duties) FINANCING PIAuN: IDA Credit 5.3 22.7 28.0 Government of Uganda 2.8 - 2.8 Total Financing 8.1 22.7 30.8 ESTIMATED DISBURSEMENTS: FY85 FY86 FY87 FY88 FY89 in USS million - Annual 5.0 8.0 7.0 5.0 3.0 Cumulative 5.0 13.0 20.0 25.0 28.0 RATE OF RETURI: 202 on 98.52 of total project costs using current tariffs as a proxy for benefits. APPRAISAL REPORT: Report No. 4968-UG, dated June 25, 1984.  REPORT AND RECXIENDAIION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF UGANDA FOR A WATER SUPPLY AND SANITATION PROJECT 1. I submit the following report and recomendation on a proposed development credit to the Republic of Uganda for SDR 26.9 (US$28.0) million equivalent on standard IDA terms to help finance a water supply and sanitation project. The Government would channel USS 4.6 million of the proceeds of the credit as equity to the National Water and Sewerage Corporation (NWSC) and onlend USS10.8 oillion to NWSC for a masimu of 20 years, including four years of grace. and at a variable interest rate. PART I - THE ECONOMY 1/ 2. An economic mission visited Uganda in May-June 1983 and its report, entitled -Uganda - Country Economic Memorandum (Report No. 4733-UG) dated December 9, 1983, has been distributed to the Executive Directors. A summary of social and economic data is given in Annex I. Background 3. Uganda achieved independence in 1962 with a number of important advantages: (a) a favorable clima-e, fertile soils and rich mineral base for economic development; (b) an established indigenous smallholder sector providing a widening range of export crops and an ample domestic food supply; (c) a small but rapidly growing industrial sector, contributing exports of copper and textiles; (d) a well-developed transport system, including facilities shared with Kenya and Tanzania under the East African Community (EAC); (e) an exportable surplus of hydroelectricity, with substantial scope for further development on the Victoria Nile; and (f) one of the most advanced education systems in East Africa. II Parts I and II of this report are substantially the same as Parts I and II of the President's Report for the Third Highway Project, Report No. P-3729-UG, dated February 22, 1984.  - 2 - The initial years after independence clearly demonstrated the economic potential of the country. Real GDP grew by 4.8% per annum from 1963 to 1970, implying an increase in per capita terms of at least 2Z per annum. The country was also able to maintain a reasonable savings rate (averaging 13Z) which permitted implementation of an ambitious investment program without undue pressure on domestic prices or the balance of payments. Although Uganda's export volumes grew slowly, export earnings were more than adequate to cover import requirements and the country maintained a current account surplus in most years. The Government's budgetary position was also sound: revenue increased faster than recurrent expenditure during the latter half of the 1960s and, together with non-bank domestic borrow- ing, helped finance a significant proportion of development outlays. 4. However, after the coup in 1971, the situation quickly deterio- rated. Under the military regime, many skilled personnel left the country, the parastatal sector became bloated with the addition of many abandoned or confiscated industries, and professional standards within the administra- tion were eroded. On top of these largely self-imposed problems, the Ugandan economy was shaken by a series of external shocks: the sharp rise in petroleum prices after 1973, the breakup of the EAC in 1977, and the damage and looting which occurred during the 1978-79 war. As a result of these developments, real GDP stagnated through 1977 and then fell over the next three years. Import levels had to be cut by 50% from 1970 to 1979, due to lower export volumes, worsening terms of trade (except during the coffee boom years of 1977-79) and dwindling aid receipts. The Government's budgetary position also became increasingly untenable, as the revenue base was undermined and expenditure control collapsed. The resultant deficit was financed increasingly by bank borrowing, leading to monetary expansion and price inflation (averaging 74% per annum from 1977 to 1979). Not surprisingly, critical shortages developed and a large sbare of economic activity was diverted to the pervasive parallel market system called -magendo-. Recent Developments 5. By April 1979, when the military regime was overthrown, the Ugandan economy was in ruins. Initial efforts to promote recovery were constrained by an unstable political situation, administrative weaknesses and a severe shortage of foreign exchange. As a result, many of the adverse trends evident during the 1970s continued through 1980. In partic- ular, real GDP continued to decline while the inflation rate rose above 100% per annum. Then, in mid 1981, the Government made a dramatic break with the past by announcing a major devaluation of the Ugandan shilling and related price adjustments. Through a series of financial programs, sup- ported by assistance from the IMF and other donors, further policy reforms have been introduced over the past two years (see paragraphs 7 to 9). As a result, there has been a marked improvement in economic performance, despite the iegative impact of internal security problems and adverse conditions in the world economy. The difficult security situation results from the disintegration of law and order during the 1970s and the need to rebuild the security forces after the 1978-79 war. Although most of the country is now at peace, periodic incidents have occurred, especially in the areas surrounding Kampala, disrupting production and transport activi-  ties and diverting budgetary resources for security-related activities. As regards the world ecoaomy, although Uganda's terms of trade have improved since 1981, the index remains at less than half the peaks achieved during the coffee boom years of 1978-79, and only 65Z of the level in 1970. Equally important, Uganda's export earnings are noW constrained by the quotas on coffee sales imposed under the International Coffee Agreement (ICA). During 1982/83, for example, Uganda's estimated coffee production was 40Z higher than the quota limit; the balance was either stocked or sold on non-quota markets at discounts of up to 50%. The combination of economic recession and tighter fiscal policies in developed countries has also affected the availability of external assistance. For Uganda, aid mobilization has been made particularly difficult by the legacy of inter- national isolation imposed during the 1970s and continuing concern overseas about the security situation in the country. 6. The economic recovery is evident in a number of indicators. (a) GDP grew on average by 5% per annum during 1981 and 1982, and this growth rate was probably sustained into 1983. The recovery was initially concentrated in subsistence agriculture but has been more generalized over the past two years. (b) Export volumes rose by an estimated 45% from 1980 to 1983, and would have recovered even more without the coffee quota con- straint. Ihis export grow-th, together with improved aid utiliza- tion during 1983, has helped to finance a much-needed expansion of import volumes since 1981. (c) Government revenue has increased more than fourteenfold over the past two years, from 0.8% to 6.3% of GDP. Expenditure growth on the other hand has been less rapid, because the Government has restricted cash release to ministries in order to remain wlthin the IMF ceilings. Consequently, the budget deficit was held to about 2% of GDP during 1982/83. (d) The resultant restraint on bank borrowing by the Government has reduced the rate of monetary expansion. This, together with falling import prices, has helped to control general inflation, which is down from an estimated 100% per annum in 1980-81 to 45% in 1982 and about 30% in 1983. Despite this progress, overall levels of economic activity and trade remain substantially below the peak levels achieved in the early 1970s. As a result, per capita GNP is still only two thirds of the 1970 level. The burden of this income loss falls most heavily on wage and salary earners, especially in the civil service, who often have to resort to secondary employment or unofficial activities in order to survive. The Government's Policies and Programs 7. The Government's primary goal is to restore law and order, a basic prerequisite for future economic progress. Second only to this, however, is the goal of rehabilitating the productive sectors. The first  step towards rehabilitation was the introduction of the financial program for 1981/82, which has been followed by similar programs during 1982/83 and 1983/84. These programs have been supported by three stand-by arrangements with the IMF (for a total of SDR 320 million), drawings from the First and Second IDA Reconstructiou Credits (providing US$145 million after June 1981) and assistance from other donors. Major actions t.ken by the Government are summarized below. (a) The official exchange rate was devalued from under USh8 to USh78 per US dollar in June 1981, and has subsequently been steadily depreciated further to USh 240 per US dollar in January 1984. Since August 1982, the Government has also opened a second window where foreign exchange is more freely traded in an auction system. The rate established at the second window has fluctuated between USh230 and USh330 per US dollar over the past year. These exchange rate adjustments have led to a substantial reduc- tion in the premium and importance of the unofficial market for foreign exchange. tb) The initial devaluation in June 1981 was accompanied by the removal of most price controls. The major exceptions were for producer prices of traditional export crops, retail prices of petroleum products and utility tariffs. For these controlled items, significant price increases have been introduced over the past year. Petroleum prices have been increased by more than twentyfold since December 1980 to reflect fully the impact of window-one exchange rate changes. Producer price adjustments have been more moderate, with increases of about tenfold for most major export crops. However, these increases are still substan- tially higher than general iaflation and net returns from the production of all major export crops are now positive. The most serious lags in price adjustments have been for utility tariffs. Although all major tariffs have been increased by at least IOOZ since 1980, further large adjustments will be required in most cases to reflect present costs of supply, to provide resources for future development and to encourage efficient utilization of services. (c) Various measures have been introduced to improve monetary and fiscal discipline. To help control the demand for money and allocate credit, most interest rates have been nearly doubled over the past two years (although they still remain negative in real terms). As part of its obligations under the IMF stand-by arrangements, the Government has agreed to and met ceilings on the growth of net domestic credit and net credit to the Govern- ment. On the fiscal side, a number of measures were taken in mid 1981 to streamline and improve the elasticity of the taxation structure. Strict control has also been maintained over cash releases to ministries, although this has sometimes been at the cost of underfunding critical functions and the accumulation of domestic arrears.  - 5 - 8. The Government's original Recovery Program, which included proposals for policy and institutional reform as well as a project-specific investment plan for 1982/83 and 1983/84, was presented to the May 1982 meeting of the Consultative Group. All participants at the meeting com- mended the Government's commitment, as reflected in the Recovery Program, to prioritize its rehabilitation activities and to restrict overall resource allocations to realistic levels. Following a recent progress review, the Government published a Revised Recovery Program in October * 1983. This updated document takes account of the resource constraints and implementation problems encountered over the past year and incorporates 1984/85 fully into the investment plan. However, the broad objectives and strategy remain the same, focusing on the short-term revival of the produc- tivp sectors. Priority in all sectors is given to rehabilitation and improved utilization of existing capacity. Although provision has now been made for preparatory work on a number of new projects, most of these do not involve large expenditures through 1984/85 and are essential to maintain momentum in later years. The Revised Recovery Program also includes a number of innovations and changes designed to make it more effective for decision making and to facilitate project implementation. The only major gap is a complete review of requirements of recurrent imports and balance of payment support. Even so, the macro-economic framework of the Revised Recovery Program is broadly consistent with the World Bank staff projec- tions presented in the recent Country Economic Memorandum. Therefore, provided =he key assumptions on the coffee export quota and new commitments of external assistance can be realized, the availability of resources should not act as a constraint on the implementation of the revised invest- ment plan. The Revised Recovery Program was discussed at a further meeting of the Consultative Group on January 25 and 26, 1984, at which participants again welcomed the strategy and priorities of the Revised Recovery Program, and the implied level and composition of Uganda's aid requirements for 1984 and 1985 (see paragraph 16 below). 9. A decisive start to the process of economic recovery has now been made. The basic priority for further action is to strengthen the adminis- trative framework for implementing the Government's programs, for carrying them forward and making them more effective. In some cases, strengthening means rebuilding what already existed in the early 1970s; in others, it means developing new institutions and policies relevant to today's real- ities. The administrative I3aknesses faced by Uganda (and many other Sub- Saharan African countries) are inherently difficult to tackle and progress will be slow. However, the magnitude of the task ahead should not be allowed to undermine the commitment to much-needed economic reforms. The Government has already initiated action in this area: the Report of the Public Service Salaries Review Commission, which covers many issues relating to the organization and operation of the civil service besides salaries, was presented in November 1982 and is presently under review by the Government; the Government passed the Expropriated Properties Act in February 1983 to provide a legal basis for resolving ownership issues, and is about to start a series of financial and accounting studies on major parastatal organizations; various measures have been introduced over the past two years to improve foreign exchange budgeting and import licensing procedures; and, the Agricultural Policy Committee was established in August 1982 to advise the Government on prices, marketing and resource  allocations for the agricultural sector. Not surprisingly, given the severe erosion of the country's productive base and infraatructure during the 1970s, much remains to be done before Uganda's recovery can be con- sidered complete. But, the Government's Revised Recovery Program and evolving policies are headed in the right direction, and merit support from tne international community. Sectoral Priorities 10. Economic revival will depend on increasing production levels, especially of exports. This entails the highest priority initially being given to export crop production, to the supporting transport and communica- tions infrastructure, and to the production of basic consumer goods, build- ing materials and agricultural inputs by the industrial sector. Other sectors, especially the social sectors, also require urgent rehabilita- tion. But in the near future, the rehabilitation of these sectors must be limited to the extent of their potential contribution to the recovery process. Improvements in medical services, the repair of damaged class- rooms and the rehabilitation of hazardous urban water systems, for example, may be expected to provide an important, if unquantifiable, incentive to producers. II. Agriculture dominates the Ugandan economy, providing livelihood to 902 of the population and supplying almost all Uganda's exports in recent years. Ugandan agriculture is largely dependent on small- and mediumr-scale peasant farms; no attempt was ever made to encourage expatri- ate settlements, and even today, large-scale estates are only significant in tea and sugar production. With its favorable natural conditions, Uganda produces an overall food surplus in most years, though areas like Karamoja in the north-east, which are vulnerable to drought and which depend on a traditional trade of cattle for grain, have suffered periodic food short- ages as a result of low rainfall and insecurity. The rehabilltation of agriculture is the top priority for Uganda's economic recovery. Coffee, cotton, tea, and tobacco exports could all continue to grow rapidly over the next three years (although the previous peak levels are not likely to be reached until later in the 1980s and coffee exports will probably remain subject to ICA quota constraints). In addition, scope exists for expanding non-traditional exports (e.g., hides and skins, foodstuffs and fertilizers) to neighboring countries. The revival of cotton and other agricultural production would also supply some domestic industrial needs. During the rehabilitation phase, the Government has decided to give top priority to improving incentives, including changes in producer prices and the market- ing system. Closely related to this is the supply of inputs, implements, spares for processing and transport, and consumer goods to stimulate the production of surpluses. Over the longer term, agricultural services, including research and extension, will also need more attention. 12. Although Uganda's industrial sector has always been relatively small, it did in the past make a valuable contribution towards supplying the domestic market with basic goods and, in some instances (e.g., textiles and copper), produced a surplus for export. However, the sector largely collapsed during the 1970s. Although industrial production did begin to recover during 1982, performance of the sector remains very uneven, with  many enterprises still closed down and average capacity utilization of only about 30X. At present, the most obvious and generally binding constraint is the severe shortage of foreign exchange. However, the longer-term decline in the sector reflects more fundamental constraints which are reemerging as the foreign exchange situation improves. These include: shortages of qualified managerial and technical expertise, problems of creditworthiness (resulting from ownership uncertainty, financial indisci- pline and, more recently, the impact of devaluation on costs), and over- expansion and political interference in the management of the parastatal sector. The Government has now declared its intention to follow a 'mixed economy- strategy, with only essential public services reserved exclusively for the public sector. In other areas, domestic and foreign private enter- prise is to be encouraged, either wholly owned or in joint ventures with the Government. The Government expects to close down or sell off a number of the existing industrial enterprises, while the financial viability of the remaining parastatals is to be restored through increased tariffs, asset revaluation and injections of new capital. Actions initiated by the Government in this area, including the Expropriated Properties Act and a program of financial and accounting studies, were noted in paragraph 9. However, the modalities for restructuring the parastatal sector are still to be worked out fully. 13. Uganda's transport system, formerly one of Africa's best, deteri- orated rapidly during the 1970s for the same general reasons outlined ear- lier: the departure of skilled personnel, political interference, and in- adequate provision of resources for essential functions like maintenance. In addition, the breakup of the East African Community (EAC) in 1977 had a serious effect, especially on Uganda's access to international trade routes. As a result Uganda lost virtually all railway rolling stock and aircraft and her part-ownership of railways and port facilities in Kenya and Tanzania. This both necessitated heavy new investments by Uganda, and seriously disrupted international traffic movements while increasing their cost. Transport wes moreover the sector possibly most seriously affected by the war and the widespread looting which followed. The vehicle fleet in particular was decimated. Rehabilitation of the transport system and sector institutions, thus becomes a key requirement for economic recovery. 14. The Bank Group recently completed an assessment of Uganda's energy sector. Energy use is primarily based on electricity, petroleum and woodfuels. At the present time, Uganda's electric generating capacity is underutilized. However, the surplus could be quickly absorbed as the economy recovers and the opportunities are taken to substitute for more * expensive fuels (such as petroleum products) and to secure long-term export agreements with neighboring countries. As a result, the Government has initiated two studies on the power subsector, one on the rehabilitation of the Owen Falls Station and the other to help prepare a least-cost power development program. As regards petroleum, the Government has succeeded in reducing the cost of imports over the past two years, through the impact of higher retail prices on domestic consumption and smuggling as well as improvements in supply arrangements. Preliminary work to ascertain the extent and economic viability of petroleum resources in the Lake Albert area has also been started, although local oil production remains very much a longer-term and uncertain prospect. Woodfuels are estimated to account  for 95Z of total energy and 71% of commercial energy consumption in Uganda. There is therefore mounting concern that uncontrolled cutting will even- tually deplete the most accessible forest resources and lead to further Boil erosion problems. 15. The Government endorses the goals of the International Drinking, Water Supply and Sanitation Decade and is giving high priority to the water and sewerage sector. The main objective for this sector is to restore the basic services through rehabilitation of existing water supply and sewerage facilities. In addition, with the assistance of UNDP and the Bank Group an updated water sector study/action plan will be produced in 1984 using various studies previously prepared by WHO, SIDA and UNICEF. This study will help to improve the Government's planning capacity in the water sector. Aid and Debt 16. Under the base-case as.enario presented in the recent Country Economic Memorandum, Uganda's GDP is projected to grow by 4.7% per annum through 1985 and 3.6% per annum over the subsequent five years. These projections assume a steady improvement in the internal security situation and continued progress on economic reforms. The viability of this scenario is also critically dependent on the availability of foreign exchange to finance recurrent imports and priority rehabilitation projects. The recent recovery in export performance is expected to continue. However, an impor- tant factor in this assumption is that Uganda's coffee quota will be increased from 2.3 million bags in 1983 and 1984 to 2.5 million bags in 1985. Although Uganda's case for a higher quota is strong, such an in- crease is not assured and this represents a major uncertainty in the coun- try's future. The current account deficit, in real terms, is projected to rise in 1984 and then steadily decline over the remainder of the decade. This has major implications for external financing requirements. (a) Commitment levels are required to increase by 72 during 1984 to USS430 million and then to continue rising by about 4% per annum (below the projected rate of international inflation). As debt relief and private loans are expected to fall, other forms of external assistance will have to increase by as much as 47% during 1984. (b) The composition of commitments is as important as the levels themselves. Under Ugandan conditions, balance of payments support will continue to be essential for at least the next two to three years. However, project aid will become increasingly important during the second half of the decade and even has a role to play in the short term, provided it is consistent with the rehabilitation priorities in the Revised Recovery Program. Technical assistance, while not as large in dollar terms, is important for improving public administration and making other forms of aid effective. (c) The net benefit to Uganda of higher commitments could soon be eroded if they are not provided on concessional terms. This does  - 9 - not preclude the possibility of utilizing some commercial bank loans or ;-uppliers' credits in association with concessional assistance, but only for selected projects which generate addi- tional net foreign exchange earnings to cover fully the related debt obligat-ions. However, arrangements which involve prior claims on foreign exchange, such as coffee barter deals, should be avoided. On the Ugandan side, every effort must be made to strengthen aid coordina- tion and administration. To this end, the Government has now reaffirmed that formal responsibility for aid management, including signing agreements and approving disbursements, lies with the Ministry of Finance. To facili- tate this function, an aid coordinator has been appointed at the Permanent Secretary level and he is to be assisted by a staff of twelve. In addi- tion, MPED has a vital role to play in assuring that aid mobilized is in line with the priorities of the Revised Recovery Program and in monitoring aid utilization and project implementation. Therefore, appropriate staff, facilities and technical assistance should also be allocated to MPED so that these functions can be performed effectively, and working level cortacts between MPED and the Ministry of Finance should be strengthened. 17. Uganda's external debt outstanding and disbursed had reached an estimated US$713 million by the end of 1982. Of this amount, 3.5Z was due to IBRD (for Uganda's notional share of EAC loans) and 13.5% to IDA. For- tunately for Uganda, the terms of new aid commitments since 1979 have been highly concessional, with about half being grants and the balance of loans having a grant element of 60Z. However, other debt obligations, such as war-related assistance and IMF purchases, have helped to raise the overall debt service ratio to around 50Z during 1981-83. Under the base-case scenario in the Country Economic Memorandum, the debt service ratio is projected to fall back to 46Z in 1984 and 31% by 1990. This, however, is stili cause for concern. Further, the down-side risks are very real: Uganda's cxport structure is stiU heavily dependent on coffee, earnings which could be constrained by further quota restrictions and unfavorable price movements; the Government may find it difficult to reduce the import requirements of security-related activities; and adequate amounts of assistance, on concessional terms, may not be forthcoming to support the recovery effort. This outlook reinforces the importance of external debt management. Progress has been made over the past year in improving debt recording and an External Debt Management Office has been established. The real priority now is to develop an appropriate borrowing program for Uganda and ensure that it is adhered to by centralizing the authority to contract debts. PART II - BASK GROUP OPERATIONS 2/ 18. Bank Group operations in Uganda began with an IBRD loan of US$8.4 million for hydroelectric power development in 1961. Between 1967 and 1971 Uganda received seven IDA credits totalling US$48.0 million for projects in 2/ Parts I and II of this report are substantially the same as Parts I and II of the President's Report for the Third Highway Project Report No. P-3729-UG, dated February 22, 1984.  - 10 - education, roads and agriculture (tea, tobacco and beef ranching). In addition, Uganda benefitted from 10 loans totalling USS244.8 million which were extended for the development of the common services and the East African Development Bank operated jointly by Kenya, Tanzania and Uganda through their association in the former East African Community (EAC). Anmex II contains a summary statement of Bank Group operations. IFC's first investment in Uganda, in a textile company, was sold to the Government in 1970. The second, to help finance two lodges in the national parks was cancelled in 1972 before construction began. IFC approved new investments in the Toro and lttyana Tea Company and in the Sugar Corporation of Uganda in FY83 and in the Uganda Tea Corporation in FY84. 19. There was a hiatus in Bank Group operations from 1971 until February 1980, when a Reconstruction Program Credit of USS72.5 million (including a participation of US$17.5 million by the Xetherlands) and an EEC Special Action Credit of USS20.0 million were approved (Nos. 983/ 983-1-UG and 54-UG). Ihe Association also acted as Administrator of a CanS3.0 million grant from the Government of Canada and of a USS5.0 million program loan from the OPEC Fund. The Reconstruction Credit originally experienced delays and disbursements were slow; it is now fully disbursed. The Second Reconstruction Credit of US$70.0 million equivalent (No. 1252-UG), approved in May 1982 has now been fully committed. In addition, the Association has provided USS193.0 million through the First and Second Technical Assistance Credits (No. 1077 and 1434-UG), a Water Supply Engineering Credit (No. 1110-UG), a Phosphate Engineering Credit (No. 1228-UG), an Industrial Rehabilitation Credit (No. 1248-UG), an Agricultural Rehabilitation Credit (No. 1328-UG), a Third Education Credit (No. 1329-UG) and a Posts and Telecommunications Rehabilitation Credit (No. 1367-UG). A USS58.0 million credit for a Third Highway Project and a Third Reconstruction Credit were approved in March and May 1984 respectively, and signed in April and June 1984 respectively. 20. A comparison with other portfolios in the Eastern Africa Region indicates that the disbursement rate in Uganda has been higher than the average in the Region, ranging as a proportion of outstanding commitments from 43% in FY80 to 30% in FY83 (compared with 19% and 26% in the same years for the Region as a whole). Disbursements under the Water Supply Engineering, and the Phosphate Engineering Credits are continuing satisfactorily. Progress under the Agricultural Rehabilitation Project is good and disbursements are satisfactory. Disbursements from the Industrial Rehabilitation Credit (due to the time needed to appraise sub-projects in detail) and the two credits for the Third Education, and the Posts and Telecommanications Projects are just beginning. 21. The Bank Group also administers an Agricultural Reconstruction Program (No. 80-UG) of US$20.0 million equivalent financed by the International Fund for Agricultural Development and a UNDP-financed Planring Assistance Project. In the immediate future, Bank Group opera- tions will remain focussed on rehabilitation projects, such as the proposed project and a power rehabilitation project which is under preparation. The emphasis will shift gradually into traditional projects in the agriculture, industry, transport and energy sectors.  - 11 - 22. The developments affecting the East African Community (EAC) were outlined to the Executive Directors in memoranda dated December 29, 1977 (R77-312) and May 14, 1984 (R84-125) and in a statement made on May 6. 1980 (SecM8O-364). One of the positive results of the mediation process has been the Partner States' decision, taken upon the Mediator's recomendation, that the East African Development Bank - one of the former Coummnity's institutions - should continue, and a revised charter to this effect has been enacted. The three Governments commented on the Mediator's proposals for the three Partner States during their meeting in Nairobi in July 1981, and decided to commence negotiations based on the Mediator's proposals. Negotiations, which started in December 1981 and continued through 1982 and 1983, focussed on details of a division formula for assets and debts. While it was generally accepted that both the location of assets and the principle of equal rights of all former EAC partners should be taken into account, the weight to be attributed to these principles was a major issue. On November 15 and 16, 1983 the negotiations culminated in a meeting of the three Heads of State in Arusha in which full agreement was reached on all outstanding issues, including the prominent weighting question. The agreement follows the recouimendations of the Mediator and provides debt and asset shares of 42Z for Kenya, 32% for Tanzania, and 262 for Uganda. As a result of this formula, Kenya and Tanzania have excess assets over their agreed shares, while Uganda has a shortfall. The Agreement that established the above division formula was signed by the three Heads of State in Arusha on May 14, 1984. It incorporates as attachments bilateral agreements that settle Kenya's and Tanzania's compensations due to Uganda for the shortfall in assets it holds, and that also contain provisions to compensate for over- and underpayments by the three countries, measures against the newly agreed division formula of 42:32:26, in servicing EAC debts between 1977 and 1984. PART III - THE WATER SUPPLY SECTOR 23. Uganda lies virtually within one major river basin, the upper White Nile Basin, and is generally rich in surface water resources. In all, about 20% of the total area is covered with bodies of water. Annual rainfall varies considerably within the country. The northeast has an arid climate averaging 500 am of rain annually, while the south receives about 1,400 am. There are normally two dry spells per year, one from December to February, the other in June and July. Since Uganda lies on a -basement e complex- of pre-cambrian rocks consisting of schists, marbles, granites, gneisses and quartzites, ground water resources are generally poor. But low yield boreholes, protected sprin- and shallow wells provided with hand pumps (drilled or dug vells, sometimes with swamp-side filtration) are believed to be suitable for wide application in water supply of small rural communities. Sector Organization 24. The Ministry of Land, Mineral, and Water Resources (NLMWR) has the sole responsibility for water resources development, operation and maintenance of water supply and sewerage systems in Uganda. The Water  - 12 - Development Department (WDD) of _WXWR carries out this responsiblity in urban water supply and sewerage, and in rural water supply. In 1972, a parastatal body, the National Water and Sewerage Corporation (NWSC) was established to take over all urban water supply and sewerage operations on a self-sustaining basis. It initially took over operations of Kampala and Jinja and, also, in 1973, -he system of Entebbe. The water supply systeMs for the four remaining towns, i.e. Masaka, Mbale, Mbarara, and Tororo will be taken over by NWSC once this institution has been strengthened (Section 4.06 of the Development Credit Agreement). 25. Until recently, protection of springs and wells in rural areas was the responsibility of the Ministry of Health (MOR). In 1982, this was transferred to WDD. Sanitation is, in general, the responsibility of XOR. To this effect, it is responsible for controlling effluent qualities o' urban sewerage systems and developing sanitation of rural areas as well as, in collaboration with town councils, improving low cost sanitation in unsewered urban areas. MOR is also responsible for initiating and delivering health educatiou in the country. 26. City municipal and town councils, which are under the -inistry of Local Government (MLG), are responsible for refuse collection and disposal. Within the city and town councils, the Public Health Department is in charge of these services. The MLG has a supervisory function, advises on standardization of equipment in order to facilitate operation, spare part supply and training, and has to approve the purchase of equipment. Levels of Service 27. Urban Water Supply. There are altogether 56 urban centers in Uganda with a population over 2,000, out of which 11 have a population of over 15,000. Thirty-three towns have central water supply systems. The existing schemes serve at present only about 40Z of the total urban population. All these water supply systems have been badly neglected in the past ten years and necessary replacements have not taken place. As a result, all existing systems are operating below their design capacity. Water losses in the distribution system are high ;25-40Z) and water is wasted due to the absence of water metering and low tariffs. This situation would be gradually reversed with services improved under the Water Supply Engineering, and the proposed projects. The unserved population obtains its supplies from unprotected sources (wells, rivers or lakes). 28. Rural Water Supply. This consists of boreholes equipped with handpumps, protected springs and small dams and valley tanks. Uganda has an extensive network of boreholes (over 5,000 in total) and some 950 dams and valley tanks, but over the last decade, as very little maintenance work was done, boreholes became largely inoperative and surface reservoirs silted up. Population coverage in rural water supply is estimated to be in the order of 7 to 8%. Walking distances to improved water sources are in the range of 0.5 km up to 10 km which results in people using polluted traditional water sources whenever there is such a source nearer than the improved source.  - 13 - 29. Sewerage/Sanitation. Out of the 56 urban centers, some 13 have sewer systems although today most of them are not in full operation. It is estimated that only some 20% of the total urban population would be served even if these systems were rehabilitated to operate at their design capacity. Taking into account properly constructed and maintained alternative methods of excreta disposal, mainly septic tanks, it is estimated that some 30% of Uganda's urban population has appropriate seweragelsanitation service. The use of pit latrines is rather common in Uganda as building regulations traditionally require construction of appropriate ercreta disposal facilities at each individual house. In general, however, the standard of latrines and other facilities needs to be improved. It- is estimated that only 10% of the rural population have adequate sanitation facilities. 30. Before 1972 all major Ugandan towns had a well organized refuse collection and disposal system. In Kampala and Jinja, refuse was collected from dustbins by compacting refuse trucks. In all cases, refuse was disposed of on landfill sites. Today, only a fraction of the 1972 refuse equipment is available. Services are not regular and cover only the central areas of town. Sector Constraints 31. The major constraints to improvement and expansion of the water supply and sanitation services are: (a) the scarcity of local currency resources; (b) staffing problems due to a shortage of qualified and experienced engineers and administrative staff, and to extremely lov' salary levels which provide little incentive to existing staff; (c) inadequate local construction capacity and output of building materials; and (d) weak institutions in the sector. Given this situation and considering the enormous backlog in services, high degrees of service coverage by the end of the decade will be difficult to reach. The proposed project, which is focusing on rehabilitation of existing facilities of water supply, sewerage and refuse disposal in seven major towns in Uganda would therefore be of great importance and has high priority within the sector objectives. 32. Cost Recovery. NWSC, which presently is responsible for three urban centers (Kampala, Entebbe and Jinja), is required under the National Water and Sewerage Decree of 1972 to ensure that its revenues cover all its costs and provide a reasonable return on investment, but its hitherto low tariffs, combined with poor collections, have made achievement of this d objective impossible. In areas not served by NWSC, Government policy generally has been to provide water free of charge to villagers and at a modest fee to the rest of the population. As a result, tariffs for water supplied under systems under WDD's control have remained virtually unchanged since 1964 and tariffs for water supplied from NISC's systems were last increased in December 1981. The Water Supply Engineering Project (Cr. 1110-UG) therefore provided funds for consultant services to undertake a tariff study, the results of which are expected by December 1984. Recognizing the urgent need for adjustments, and pending the results of this study, the Government has increased the tariffs with effect from May 1, 1984 by 710% for institutional, commercial and industrial users, and by 39% for domestic users. To ensure that NWSC would move toward eventual  - 14 - full cost recovery and accumulate cash balances needed for a modest capital investment program from FY88 onward, tariffs would be required to be ma-ntained a: levels to generate revenues sufficient to cover cash operating costs plus increasing percentages of depreciation on a revalued basis (Section 4.04 of the Project Agreement). For refuse collection, government policy is full cost recovery by local authorities, but in practice block grants provide 60-85% of operating expenditures. The Bank Group's Lending Strategy 33. Other than the Water Supply Engineering Project (Cr. lllO-UG, see paragraph 35 below), the proposed project would be the first Bank Group activity in the water supply and sanitation sector. Consistent with the overall strategy as outlined above, the Bank Group aims at assisting the Government in the rehabilitation of existing urban water and sewerage facilities and improving the operating efficiency of the principal sector institutions, 1NWSC and WDD. After this rehabilitation phase, the Government would need further assistance in extending the existing facilities in order to service a much higher percentage of the rapidly growing urban population. Donors other than the Bank Group are involved in the water and sewerage sector. The EEC, the African Development Bank, the Islamic Development Bank, Germany and France help to rehabilitate existing urban water supply schemes and to strengthen the respective sector organizations through technical assistance. These activities have been taken into account in designing the proposed project in urban water supply. Existing sewerage systems would be rehabilitated under the proposed project and an ADB project. Major extensions of the sewerage systems are not anticipated because of their costs. PART IV - THE PROJECT 34. The proposed project was appraised in October 1983. A Staff Appraisal Report entitled -Uganda - Water Supply and Sanitation Project", Report No. 4968-UG, dated June 25, 1984, has been distributed to the Executive Directors separately. Negotiations were held in Washington in June 1984. The Ugandan delegation was headed by ?rs. Janet Opio, Permanent Secretary in the MLMWR and included representatives of the Ministries of Finance and Justice. A Credit and Project Summary is at the front of this report. Supplemental project data are in Annex III. Background 35. Shortly after the war in 1979, the Government invited the Bank Group to help reactivate a project initially examined in 1970 to expand the water supply and sewerage systems in Kampala and Jinja. When the status of the earlier work was reviewed, it was concluded that the available information should be updated and additional work be undertaken to cover other priority towns. Recognizing the Government's manpower constraints, an engineering project was proposed to the Executive Directors and approved in March 1981 (Cr. 1110-UG). It assisted the Government with the preparation of master plan updates, feasibility and detailed engineering studies for the rehabilitation of the water supply and sanitation  - 15 - facilities of seven major towns (see Nap IBRD No. 17806): Kamnala, jinja, Entebbe, Masaka, Nbarara, Tororo and Nbale. The seven towns have a combined population of about one million or about 752 of the total urban population of Uganda. Project Objectives and Description 36. The main objectives of the proposed project in these seven towns are: (a) to alleviate the existing emergency situation in water supply and sewerage through rehabilitation of existing facilities and of refuse collection and disposal; (b) to demonstrate the benefits of low cost sanitation through the introduction of a pilot scheme for latrine construction, combined with a health education program; and (c) to strengthen the two water sector agencies, NISC and WDD, with the main emphasis on NISC (in view of the Government's commitment to expand its role) through provision of technical assistance and training. 37. The main component of the proposed project is the rehabilitation of existing water and severage treatment works in the seven towns. This would include mechanical and electrical works and civil works to replace corroded water mains, reservoirs and the construction of oxidation ponds. The project would further provide for the supply of the most urgently required equipment for refuse collection and disposal and for septic tank emptying. It would also include spare parts for the rehabilitation of sewer maintenance equipment. The project would provide technical assistance to NWSC and WDD, including consulting services for the supervision of the rehabilitation works, and a training program. This training program is based on a comprehensive sector manpower and training study, financed from the Water Supply Engineering Credit. It would ensure that the manpower requirements related to the proposed project are met and would begin to establish the necessary sector training capability. International Water Rights Issues 38. Water for three towns included in the proposed project (Kampala, Entebbe and Jinja) is drawn from Lake Victoria, which is part of the Nile e river system. Although the proposed project is not expected to adversely affect the interests of the riparians, the Government of Uganda has contacted all riparians and informed them of the proposed project. The Governments of Egypt, Sudan, Kenya, and Tanzania have voiced no objections to the project. 39. Water for the town of Tororo has been drawn since 1948 from the river Malaba which over a certain distance forms the boundary between Kenya and Uganda. The Government of Uganda has therefore contacted the Government of Kenya to seek its agreement to an increased abstraction of water from the river for the water supply of the town of Tororo. The  - 16 - Government of Kenya has stated its agreement to the proposed increased abstraction of water from the river to meet the requirements of the proposed project. Project Cost and Financing 40. The total project cost is estimated at US$30.8 million, excluding taxes and duties (averaging L2%). Approximately 74% or US$22.7 aillion would be foreign exchange costs. Of the US$28.0 million credit, the Government would onlend about USS10.8 million to NWSC for 20 years, including four years of grace, at a variable interest rate linked to the interest rate set by the Government for commercial bank loans (Section 3.01(c) of the Development Credit Agreement); about US$4.6 million would be passed on to NWSC as Government equity; about US$8.4 million would be allocated to WDD, while the balance of US$4.2 million would be allocated to the Ministries of Health and of Local Government. The Government would bear the foreign exchange risk. Execution of a subsidiary loan agreement between the Government and NWSC would be a condition of effectiveness for the Credit (Section 6.01(a) of the Development Credit Agreement). 41. Major cost components would be: rehabilitation, replacement and minor extension works for the water supply and sewerage systems of the seven towns (USSl2.l million), equipment for refuse disposal and septic tank emptiers (USS3.0 million) and the low cost sanitation and health education component (US$0.9 million). Consultancy services would account for US$2.7 million, and technical assistance and training for US$1.5 million. Improvements for NWSC and WDD (supply of vehicles, office equipment and chemicals for water works, and housing) are estimated to cost US$1.0 million. Physical and price contingencies account for US$3.2 million and US$6.5 million respectively, of project costs. 42. Of the proposed credit, US$9.4 million would be allocated for the civil works and US$5.4 million for the mechanical/electrical works for the rehabilitation of water supply and sewerage systems. US$5.1 million would be allocated for equipment, materials, vehicles and a mobile workshop. The credit would also be used for consultant services and technical assistance (USS3.8 million), training, fellowships and health education (US$1.5 million). The equivalent of US$0.5 million would be used to establish a Revolving Fund (paragraph 52 below) and the balance of US$2.3 million would remain unallocated. The proposed creuit of US$28.0 million would finance about 90% of total project costs. The Government would contribute the remaining US$2.8 million of local costs and taxes and duties. As a condition of effectiveriess, it would establish a Project Advance Account with an initial deposit of USh 90 million (Sections 3.01(e) and 6.01(c) of the Development Credit Agreement). Project Implementation 43. The following agencies would be responsible for implementation of the proposed project: (a) the National Water and Sewerage Corporation (NWSC), for the water and sewerage component in Kampala, Jinja and Entebbe;  - 17 - (b) the Water Development Department (WDD) of the Ministry of Lands, Mineral, and Water Resources (MLMWR) for the water and sewerage component in Masaka, Mbarara, Mbale, and Tororo; (c) the Ministry of Health, for implementing the health education component; and, (d) the city councils in the seven towns, under the supervision * of the Ministry of Local Government, for the refuse collection component. 44. A Project Coordination Unit (PCU) has been established under the Water Supply Engineering Project and has been strengthened by technical assistance financed under that project (Cr. lllO-UG). The PCU would be further strengthened by the provision of a refuse expert under the proposed project, and would be responsible for the coordination between the various project implementation agencies and for the total project accounting (Section 3.02 of the Development Credit Agreement). 45. The consultants hired under the Water Supply Engineering Project, for the preparation of detailed engineering and tender documents for the seven towns, would be retained by MIMWR for the supervision of construction work. Detailed design and tender documents under the Engineering Project are expected to be completed in June 1984. All major contracts under the proposed project would therefore be awarded by October 1984. Construction under the project would be substantially completed by July 1988. The project completion date would be December 31, 1988. 46. The Ministry of Health and the city councils in the seven towns are adequately staffed to implement the components of US$0.4 million and US$ 3.8 million respectively entrusted to them. 47. The National Water and Sewerage Corporation (NWSC) and the Water Development Department (WDD). NWSC and WDD would have prime responsibility for implementation of the physical components of the proposed project. NWSC, a parastatal reporting to MLMWR, was established in 1972 to develop and operate water supply and sewerage systems in any area specified by MLMWR. NWSC is headed by a Board of Directors. Day-to-day control over NWSC's activities rests with the managing director, the incumbent is well qualified. A finanue manager and a management technical adviser are financed by the EEC. Overall, NWSC is hampered by a lack of trained staff t in all of its departments. Some professional staff will be financed by a German grant. Unattractive terms of employment, the results of low tariffs and inadequate levels of billing and collections, are the mai reasons for NWSC's inability to attract and retain competent staff in sufficient numbers. NWSC's salaries and wages have fallen behind those of WDD, and to improve the situation, NWSC's staff remuneration has been adjusted so as to restore parity. WDD in many respects is in a situation similar to NWSC's. But as the towns of Masaka, Mbarara, Mbale and Tororo are scheduled to be transferred to NWSC's control by July 1988 (see paragraph 24), and due to the availability of limited funds, the proposed project would generally strengthen WDD only in terms of its accounting and finance functions by requiring organizational, staffing and procedural changes.  - 18 - 48. Since July 1983, NWSC has billed its consumers for water supply and sewerage services in all three towns on a monthly basis. While billing is normally carried out promptly during the early par: of each month, collections remain substantially in arrears. Concentrated efforts to improve collections, including a rigorous disconnection program, have resulted in a considerable reduction in accounts receivable. Government agencies are estimated to account for about 50% of water consumption billed, but they represent the bulk of accounts receivable (71% as of March 31, 1984). The Government would -- as a condition of effectiveness (Sections4.05(i) and (ii), 6.01(d) of the Development Credit Agreement) withhold from the monthly budget releases to its ministries monies owed to NWSC as of June 30, 1984 and pay such amounts to NWSC. In future, the Government would take all necessary measures not to allow the indebtedness of its ministries to exceed two months' billing (Section 4.05(iii) of Development Credit Agreement). Accounts and Auditing 49. NWSC and WDD follow different accounting and auditing procedures. Although NWSC's accounting procedures are basically adequate to provide information needed for financial control, and planning and management reports, its accounts have not been finalized since 1978. This has been due mainly to the general shortage of accounting staff caused by unattractive employment conditions, and to the widespread destruction of records during the war. NWSC has prepared a new set of accounts based on a "statement of affairs' as of June 30, 1983. As higher tariffs (see paragraph 32) and improved collections (see paragraph 48) gradually allow NWSC to offer more attractive compensation, the quality of the staff is expected to improve. WDD's accounting records have been maintained at MLMWR's headquarters. Starting January 1, 1984, they have been separated from the accounts of other MLMWR departments. They are prepared on a cash basis in accordance with government accounting procedures. 50. At present, a chartered accounting firm, whose staff is adequately qualified, serves as NWSC's auditors. WDD is subject to annual audits which are carried out regularly by the Auditor General's Department. Procurement 51. Since appropriate local contracting capacity is not available, procurement packages have been prepared which would be attractive to international contractors and stringent prequalification procedures would be applied. Contracts for mechanical/electrical works (US$6.4 million) and civil works (US$9.7 million) would be awarded separately or in one contract. Vehicles, a mobile workshop, refuse disposal and sewer maintenance equipment (US$6.0 million) would also be provided through ICB. Construction, and furniture for houses and offices, supply of material for low cost sanitation, for health education and training, of chemicals and leak detection equipment, bic-cles and motorcycles (US$2.4 million) would be purchased through LCB or limited ICB (in which foreign suppliers are eligible to participate) after obtaining at lea:t three price quotations. The balance of US$6.1 million would be for the low cost sanitation  - 19 - component which would be executed by force account or by small contractors, and for technical assistance, training and consultancy services. Consultants for training and technical assistance would be selected in accordance with the Bank Group Guidelines for the Employment and Use of Consultants and procurement would be in accordance with the Bank Group Guidelines for Procurement. The table below summarizes the procurement arrangements. All tender documents for contracts to be awarded under ICB, which would cover 72Z of value of works would be reviewed by the Association prior to issue, and about 6Z of value of works and supplies would be subject to selective post-award review. (M$ mEUioXB) Procurmuat Method Total G3t, IWI. Project Elemit ICB ILB Oer QmtIzrmci Mcba,Ical/electrical works: Gontract TA 2.5(2.4) - - 2.5(2.4) comnrat IB 3.9(3.6) - 3.9(3.6) Civil icrks: Gngxrct IIA 7.6(6.7) - - 7.6(6.7) cGntract IIB 2.1(1.8) - - 21(1.8) Major supply contracts: Rfuse equipmEnt 3.5(3.3) - -5(3.3) Septic tmk emptLers 0.6(0.6) - - 0.6(0.6) Sewer mintenaxe equipment 1.2(1.1) - - 1.2(1.1) Vehicles amd mbbUe workshop 0.7(0.7) - 0.7(0.7) 0inor works a,d supplies: Low cost saoitatm 0.3(0.2) 0.4(0.3) 0.7(0.5) Houses and offices 1.1(0.8) - 1.1(0.8) Funiture, office mnrial, dxmi- cas, leak deection equ1pmt, pipe manterial and waoecsba eqIpent 0.8(0.7) - 0.8(0.7) Others: Health education 0.1(0.1) 0.1i(0.1) 0.4(0.3) 0.6(0.5) Taning 0.1(0.1) 0.1(0.1) 0.9(0.9) l.l(Ll1) Techmical assistance ~~~~~~0.9(0.9) 0.9(0.9) Gonultaicy services 3.5(3.3) 3.5(3.3) Total 22.3(2).4) 2.4(1.9) 6.1(5.7) 30.8(28.0) Nbte: Figures in pareniteses are the respective amounts financed by tXe Association.  - 20 - Disbursements 52. Credit funds would be disbursed against: (a) 1002 of foreign expenditures and 65% of local expenditures for civil works for the water supply and sewerage component; and for consultants' services, and technical assistance; (b) 10OZ of foreign expenditures, 100% of local expenditures (ex-factory cost) and 65% of local expenditures for other items and works procured locally for mechanical/electrical works; (c) 100% of foreign expenditures for equipment, materials, vehicles and the mobile workshop; and (d) 100% of expenditures for health education, fellowships and training. All expenditures would be fully documented. A USS 0.5 million equivalent Revolving Fund would be established in the Bank of Uganda to be used to finance expenditures for all categories (Sectior. 2.02(b) of the Development Credit Agreement). This fund would be replenished periodically against submission of appropriate documentations. Disbursements are expected to be completed by September 30, 1989, nine months after project completion. Benefits and Justification 53. The proposed rehabilitation of the water supply and sewerage systems in seven major towns would bring relief to approximately 62% of the about 1 million people living in the seven towns, and to commercial antd industrial enterprises whose development has been hampered considerably due to the lack or shortage of water. With the provision of water, the incidence and risk of diseases attributable to lack of safe and adequate water would be reduced. Ir addition, the proposed project aims at improving health education. This is particularly important because a large portion of the population is still dependent on unprotected water sources. 54. The overall economic rate of return for the project is 20% on 98.5% of total project costs using current tariffs as a proxy for benefits. The rate of return is sensitive to a 10% increase in costs or a 10% reduction in benefits by about 2%. A combined increase in costs and 10% reduction in benefits would result in an economic rate of return of i6%. Risks 55. The project is designed to cope with the risks which lie in weak project implementation organizations, and the limited capacity of local contractors by providing technical assistance and procurement packages which would attract strong contractors for the mechanical/electrical, and civil works; and by retaining consultants for the supervision of construction work. In addition, intensive supervision of project implementation, including continuous checks on budget allocations, would be required. The remaining risk is the still unsettled political and security situation in the country. Under prevailing conditions, the project as designed is feasible. A deterioration in this situation however could have adverse effects on project implementation, both in terms of cost and time, and may in a severe case require revisions in the project scope.  - 21 - PART V - LEGAL INSTRUMENTS AND AUTHORITY 56. The Development Credit Agreement between the Republic of Uganda and the Association, the Project Agreement between the Association and the National Water and Sewerage Corporation (NWSC), and the recommendations of the Committee provided for in Article V, Section 1(d) of the Articles of Agreement are being distributed separately to the Executive Directors. 57. Additional conditions of effectiveness would be: (a) the execution of a subsidiary loan agreement on terms and conditions satisfactory to the Association for part of the proceeds of the credit passed on from the Government to NWSC (paragraph 40); (b) the opening of (i) a Special Account for the Revolving Fund (paragraph 52), and (ii) a Project Advance Account and deposit of an initial payment of USh 90 million into this latter account (paragraph 42); and (c) MOF withholding from the monthly budget releases to its ministries monies owed to NWSC as of June 30, 1984 (paragraph 48). Special conditions o. the Project are listed in Annex III. 58. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 59. I recommend that the Executive Directors approve the proposed credit. A. W. Clausen President July 5, 1984 Washington, D.C.  - 22 - ANNE I Page 1 of 5 T A B L E 3A PAaL 1 UGANDA - SOCIAL ItoIcATORLS DATA SHEET UCANDA RLFLNENNS GiDOUrPS MlELGHTI AVERACLS) Is HUST (MOST RLCENT ESTINATS) lb RECENT LOW INCOHE HIDOL:TNCOcHE 19bO/ 1970-b ESTIHATE11. AFRICA S. of SAHARA AFRICA s. or SAHARA AMA (u q1u1 SQ. M) TOTAL 236.0 23b.0 23b.U AGIXCULTURAL 93.8 99.8 L06.0 MI?r CAPIA (on) .. .. 220.0 254.6 1147.9 smmT awuuum s conTa (KILOGRAMS OF COAL EQUIVALENT) 39.0 85.0 34.0 79.8 726.2 mOMAnm AM VXTAL AUVEsX POPULATION.MID-YEAR cTmOUIANDS) 7286.0 9758.10 13067.0 URBAN POrULATLON ( OF TOTAL3 5.2 8.0 8.7 19.5 28.2 POPULATION PROJECTIONS POPULATION IN YEAR 2000 CHILL) 25.1 STATIONAAY POPULATION (MILL) 92.1b Y'tA STATIONAY POP. REACHED 2140 PUPULATION DENSITY PER SQ. aM. 30.9 41.3 53.5 29.5 56.5 PER SQ. 11K. AGRI. LAD 77.7 97.d 118.3 94.1 131.d PUPULATION AGE STRUCTUIRE () 0-14 Y" 43.3 14.4 45.1 '5.0 65.9 15-b4 YRS 53.6 52.e 51.6 52.1 51.2 65 AND ASOVE 3.1 3.1 3.3 2.9 2.8 POPULATION GROWTH RATE (C) TOTAL 2.8 2.9 2.6 2.8 2.8 URAN 7.1 7.1 3.4 6.2 5.3 CRUDE BIRTH RATE (PER THOUS) 49.9 49.9 49.9 47.9 47.6 ClUDE DEAlT SATE (PER TOUS) 22.6 16.7 18.0 19.2 15.2 GROSS REPRODUCTION RATE 3.4 3.4 3.4 3.2 3.2 FAMILY PLAUNNOY ACCEPTORS. ANNUAL (TROUS) .. 3.8 16.1c* USERS (t OF MARLED WOMEN) .. .. POFM A- WRTte8 INDEX OF FOOD PROD. PER CAPITA (1969-71-100) 107.0 99.0 85.0 87.8 95.7 POR CAPITA SUPPLY OF CALORIES (2 OF REQUIREMNTS) 96.0 98.0 83.0 B8.0 97.1 PROTFINS (CRAMS PER DAY) 51.0 s5.uJ 50.0 51.2 50.0 OF MICH ANIMAL AND PULSE 21.0 Z4.0 27.0/d 18.1 17.2 CHILD (AGES 1-4) DEATH RATE 19.5 22.3 17.4 25.7 23.6 HEALS LIFE EXPECT. AT BIRTH (YEARS) 41.2 46.3 47.6 467.4 51.9 LFANAT MO.r. RATE (CfR rHOUS) 138.9 113.2 93.8 126.1 117.6 ACCESS TO SAFE WATER (zPOP) TOTAL *- 22.0 35.0/c 24.7 25.4 UReAN .. 86.0 100.07d 56.8 70.5 RURAL *- 17.0 29.07W 16.3 12.3 ACCESS TO EXCRETA DISPOSAL (Z OF POPULATION) TOTAL .. 76.0 94.0/c 28.1 URBAN .. 84.0 8z.o7 65.7 RURAL .. 76.0 95.07W 21.9 POPULATION PER PHYSICIAN 15050.0 9160.0/e 26810.0/d 27420.6 12181.6 POP. PER PURSING PERSON 10030.0 s5io.d7W 4180.07; 3456.Z 229Z.0 POP. PER HOSPITAL BED TOTAL 750.0 840.0 610.0/c 1183.2 1075.4 URUN 80.0 80.0 100.07W 380.6 402.3 RUP4. 1710.0 1820.0 1600.07 3177.5 3926.7 ADMISSIONS PER HOSPITAL RED .. 154.1/f AVERGE SIZE OF HOUSEHOLD TOTAL .. 4.8 URBAN .. .. RURAL .. .. AVERAGE NO. OF PERSONS/ROOM rTOAL .. .. URZAN .. .. RRAL .. .. ACCSSS TO ELECT. (I OF DWELLINGS) TOTAL .. .. URBAN RURAL .. ..  ANNE I -23- Page 2 of 5 S-IND. - S.CIAL 1:I1C