India - Kerala Water Supply and Sanitation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 5397-IN STAFF APPRAISAL REPORT INDIA KERALA WATER SUPPLY AND SANITATION PROJECT June 10, 1985 Urban and Water Supply Division South Asia Projects Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  INDIA KERALA WATER SUPPLY AND SANITATION PROJECT CURRENCY EQUIVALENTS US$1.00 = Rs 11.00 Rs 1.00 = US$0.0909 MEASURES AND EQUIVALENTS mn - millimeter (0.04 inches) cm - centimeter (0.39 inches) m - meter (39.37 inches or 3.28 ft) km - kilometer (0.62 miles) ha - hectare (10,000 square meters) sq km - square kilometer (0.386 square miles) 1 - liter (0.22 Imperial gallons or 0.264 US galLons) lpcd - liters per capita per day cu.m - cubic meter (220 Imperial gallons or 264.2 US gallons) ml - million liters or 1,000 cubic me.ters mld - million liters per day (0.220 million Imperial gallons per day or 0.264 million US gallons per day) mgd - million gallons (Imperial) per day Rs 1 lakh - Rs 100,000 Rs 1 crore - Rs 10,000,000 ABBREVIATIONS AND ACRONYMS AIC - Average Incremental Cost ERR - Economic Rate of Return GOI - Government of India GOK - Government of Kerala IDWSSD - InternationaL Drinking Water Supply and Sanitation Decade KWWA - Kerala Water and Wastewater Authority LIC - Life Insurance Corporation of India PHED - Public Health Engineering Department, Kerala PMU - Project Monitoring Unit PWD - Public Works Department ROR - Financial Rate of Return TAG - Technology Advisory Group IJNDP - United Nations Development Program WHO - World Health Organization FISCAL YEAR April 1 - March 31  .FOR OMCIAL USE ONLY INDIA KERALA WATER SUPPLY AND SANITATION PROJECT Table of Contents Page No. MANAGEMENT SUMMARY iv-v I. BACKGROUND .........1 A. India - National Population Trends .I B. The Water Supply and Sewerage Sector 1 C. The State of Kerala. 3 D. Water Resources in Kerala ............................... 3 E. Sector Investment and Service Levels in Kerala .......... 4 F. Sector Organization in Kerala ........................ 6 G. Sector Finance in Kerala ................................ 7 H. Bank Group Program and Performance in the Water Supply and Sanitation Sector in India .... .............. 8 II. THE PROJECT .11 A. Project Objectives and Rationale .. 11 B. Selection Criteria for Project Components ........en......t 12 C. Project Description .. 13 D. Operational Action Plan .. 14 E. Engineering Feasibility Studies .. 14 F. Cost Estimates and Financing ........................... 16 G. Consulting Services .. 16 H. Implementation Schedule ............... .. ................ 17 I. Procurement and Contracts .. 18 J. Disbursement ..................................................... 19 K. Water Sources and Water Rights . . 20 L. Leak Detection .......................................... 21 M. Metering and House Connections . . 22 N. Central Services. ...... .............. . ..... . ......... 23 0. Low-Cost Sanitation ..................... 23 P. Public Health Education .. 24 Q. Manpower and Training .. 25 R. Land Acquisition ........... . ......... .......... . 26 III. PROJECT ORGANIZATION AND MANAGEMENT ......................... 26 A. The Kerala Water and Wastewater Authority (KWWA) ........ 26 B. Implementing Responsibility and Ownership of Assets ..... 27 C. Operation and Maintenance ............................... 27 This report is based on the findings of an IDA mission consisting of Mr. D. B. Clement, Ms. N. Shapiro, and Messrs. J. B. D'Souza, H. W. Barker, A. M. Jehani and R.D.H. Twigg (Consultant) who visited Kerala in May/June 1984. Ms. Fulvia Toppin, Ms. Mary Keane, and Ms. Helena Reivuo-Yen assisted in preparing this report in Washington, D.C. This document has a restricted distribution and may be used bY recipients only in the performance of their offcial duies Its contents may not otherwise be disclosed without World Bank authorization.  -ii- D. OrganizationaL Structure of KWWA . . 27 E. Project Management . . 28 F. Financial and Accounting Systems in KWWA and Quilon Municipality ............................................ 29 G. Progress Reporting and Supervision ...................... 29 IV. FINANCIAL ASPECTS ........................................... 30 A. The Project and Sector Investments .. 30 B. Financial Objectives and Cost Recovery . . 31 C. Financing Plan and Project Funding .. 33 D. On-Lending Terms .. 34 E. Guarantee of Payments to KWWA ........................... 35 F. Tariffs ................................................. 35 G. Cost and Revenue Study .. 37 H. Interim Tariff .. 38 I. Billing and Collection Performance .. 38 J. Accounts, Audits and Submission of Financial Statements. 39 K. Financial Projections for the Project Areas and KWWA .... 40 L. Insurance ... . 43 V. ECONOMIC ANALYSIS AND PROJECT JUSTIFICATION ................. 43 A. Least-Cost Solution and Evaluation of Alternatives...... 43 B. Marginal Cost Analysis . . . 44 C. Rate of Return . . . 44 D. Environmental Health Impact . . . 45 E. Impact on Poverty Groups ............................... . 46 F. Project Risks ........................................... 46 G. Project Justification . . . 47 VI. AGREEMENTS AND RECOMMENDATION ............................... 48 List of Annexes 1. Summary of Estimated Project Costs 2. Sector Investments In Kerala 3. Existing and Proposed Service Levels for Water Supply in the Project Area 4. Water Supplies for Project Rural Stable Areas (Salient Data and Proposed Service Levels) 5. Water Supplies for Project Rural Developing and Urban Areas (Salient Data and Proposed Service Levels) 6. Project Area Water Supply Demands -- Summary 7. Project Water Supply Components - Physical Description 8. Operational Action Plan 9. Engineering Design and Construction Schedule  -iii- 10. Material and Equipment Requirement 11. Estimated Schedule of Disbursements 12. Water Sources for the Sub-Projects 13. Low-Cost Urban Sanitation Program -- Existing and Proposed Facilities 14. Existing Organization Structure of KWWA 15. Proposed Organization Structure of KWWA 16. Proposed Project Monitoring Indicators 17. Summary of Assumptions for Financial Projections 18. Financial Projections - Project Area 19. Financial Projections - KWWA 20. Kerala Water Supply Systems - Operation and Ownership - 1985 21. List of Selected Documents in Project File Maps 1. IBRD 18422 Location of Project Components 2. IBRD 18423 QuiLon Water Supply Subproject - Proposed Works 3. IBRD 18424 G.C.D.A. Water Supply Subproject - Proposed Works  -irV- INDIA KERALA WATER SUPPLY AND SANITATION PROJECT Management Summary i. The proposed project would assist the Government of Kerala (COK) in providing water and sanitation services mainly to rural areas now without water systems or reasonable access to safe water supply. GOK has steadily increased its funding to the water and sanitation sector which receives about 7% of the state's Sixth Plan (1980-85) investment. While about 75% of Kerala's urban population is covered by adequate water supply and sanitation, only about one-third of the rural population is covered. The project would represent about 30Z of the sector investment in GOK's Seventh Plan (1985-90), which is now being finalized. Estimated project costs are Rs 93.7 crores (US$85.2 million) and the proposed IDA credit is US$41.0 million. ii. The main project objectives are.to help: (a) improve the operating efficiency of the sector through staff development and reduction of water wastage; (b) improve the financial management of the sector through the implementation of sound accounting systems and the introduction and pursuit of cost recovery targets; (c) produce piped water supply for about 1.5 million mostly low-income people, in rural areas with almost no safe supply at present; (d) upgrade and extend distribution of piped water in the Quilon urban area to provide access to about 190,000 mostly low income people and to industrial and commercial establishments; (e) assist low-income households to install house connections through a loan revolving fund; (f) introduce prototype low cost sanitation projects in 10 urban and selected rural areas. iii. The project would be implemented over five years mainly by the Kerala Water and Wastewater Authority (KWWA). The low-cost sanitation components would be implemented by the local bodies with support from KWWA. As the lead agency in Kerala, KWWA executes almost all sectoral investments in the state and operates all production and distribution facilities except in ten municipalities (including Quilon) which own their facilities and operate the distribution systems. Through the project, KUWA will also provide assistance to these municipalities to improve operations. iv. KWWA has been newly formed as a semi-autonomous agency out of the Public Health Engineering Department (PHED) and is expected to manage its operations on a commercial basis. Project objectives involving financial management and operating efficiency are geared to the institutional strengthen- ing of KWWA. Technology and project scope are well within the capabilities, implementation capacity and previous experience of KWWA/PHED. A small Project Management Unit at headquarters would manage project implementation which would largely be executed through the regional divisions of KWWA. v. KWWA's Engineering Department examined feasible alternatives for the most economic development of water sources and transmission of water in project areas. Consideration was given to deferring capital expenditures by phasing key components. For all the project schemes, the use of surface rather than ground water proved to be the least cost solution; sufficiently reliable sour- ces are available for all the project areas. GOK has sanctioned abstraction rights for all schemes over the life of the project. vi. The project will be financed by IDA (50% of the total cost excluding taxes and duties) an GCOK. GOK will make the funds available to KWWA, the  Quilon Municipality and the local bodies with its usual loan-grant mix of 252-75X for rural schemes, 50%-50% for urban schemes and 0-100% for central services. For rural schemes, most states in India have higher grant portion of up to 90% of capital costs. The GOK loans would be at 8.75% annual rate of interest, amortized over 25 years with a five year grace period. vii. For water supply, the project is designed to recover from beneficiaries the full cost of operation and maintenance from the date of commissioning of each facility. In the Quilon urban area and in developing rural areas, accounting for about 60% of total project cost, full debt service cost would aLso be recovered and minimum rates of return of 3% (QuiLon) and 1% (rural areas) are expected to be achieved by 1996. In the poorer rural areas, a progressive share of debt service costs would be recovered, reaching 60X by 1996. In most project areas, no water supply system exists today and tariffs and cost recovery can only be introduced after completion of project works in FY89/90. In Quilon, an inadequate system exists and the water charges do not cover operating and maintenance costs. An interim tariff increase of 50% would be introduced in Quilon by December 31, 1987 to cover operating and maintenance costs and to move tariffs towards the level expected to be required after commissioning of the project facilities in 1990. Also, KWWA would introduce a minimum 20% tariff increase by December 31, 1987 for non-project areas where its systems are currently available. KWWA is expected to cover all its costs by 1990. viii. A cost and revenue study, financed under the project would review the applicability of project financial targets to the whole FWWA service area and recommend a tariff structure to be implemented by 1990. Cost recovery is constrained by the cost of new systems and the level of affordability and "ewillingness to pay", which is estimated in Kerala at about 2% of household income. Nevertheless, the financing formula and cost recovery targets estab- lished for this project would enable GOK to proceed with its planned extension of service coverage to the majority of the population in the State, while remaining within its projected resource availability, with proper operation and maintenance of completed facilities also ensured. ix. For the low cost sanitation components, cost recovery would be accord- ing to the guidelines of the Technology Advisory Group (TAG) under the United Nations Development Program (UNDP). The household beneficiaries would own and maintain their own units and the purchase would be Einanced by mix of debt and grants according to means. For sewerage service, which exists in only two cities, KWWA's newly introduced accounting system will indicate the adequacy of current revenue to cover costs and on this basis KWWA will consider what chan- ges are needed in the sewerage tax and/or charges to cover any deficit. No sewerage works are included under this project. x. The project is justified in terms of: (1) the improvements in KWWA's operations and sector financial management; (2) the project's economic rate of return, which ranges from 7X-14Z over the water supply-subprojects; and (3) the physical objective of meeting priority needs for safe water supply and improved sanitary conditions.  I. BACKGROUND A. India - National Population Trends 1.01 India is primarily an agricultural country with about 76% of its population living in rural areas. According to the 1981 census data, India's total population was estimated at about 685 million. The urban population of India has expanded rapidly since 1971, from about 108 million (20.2% of total population) to about 158 million in 1981 (23.72 of total population). This increase, due partly to immigration from rural areas, corresponds to a total annual growth rate in urban population of 3.8% during the 1971-81 period (compared to 3.3% during the previous decade). The net growth rate in the rural areas has been lower (1.75% per annum during the 1971-81 period), but nevertheless the total rural population increased by 86 million during the decade. Growth rates in both urban and rural areas are creating rapidly expanding demands for housing and for the provision of services, such as water supply and sanitation. While the Central Government has been address- ing this problem in urban areas for some time, through the substantial investment programs in the National Plans, it has only recently begun to focus attention on improvements in rural areas. B. The Water Supply and Sewerage Sector 1.02 The Central Government exercises some influence in the sector through budgetary support, but the State Governments have primary responsibility for the development of water supply and sewerage facilities through various implementing departments and agencies which, in turn, may delegate part or all of their duties to local authorities. In certain cases, legislation has been enacted to permit municipal authorities or other local agencies to assume the entire responsibility for planning, design, construction, opera- tion and maintenance of water supply and sewerage services within their juribdictions. 1.03 Prior to 1975, due to competing resource demands from other sectors, as well as the lack of management skills and shortages of key materials, investments in the sector amounted to only about 1% to 2% of total public expenditures. This situation improved slightly during the Fifth Plan (1974-78) and the two annual plans (1978-80). Investment for urban water supply and sewerage during the Fifth Plan averaged Rs 1100 million per year, or about 1.5% of the total Plan investment; the corresponding figure for the rural areas was Rs 750 million, or about 1.0% of the total Plan's invest- ments. 1.04 Although these investment levels did result in improvements in the sector, they were still quite inadequate to achieve substantial progress in overall service levels in the context of the rapidly increasing population.  -2- Thus in 1980, it was estimated 1/ that in India about 287 million people, or 42% of the total population, had access to reasonably safe drinking water and that only 43 million (6% of the population) were covered by sanitation serv- ices. These figures were among the lowest levels for all developing countries. 1.05 The Government of India (GOI) recognized the importance of raising these service levels and adopted the concepts of the International Drinking Water Supply and Sanitation Decade. The following targets were established, to be achieved in India by 1990: - Urban and rural water supply: 10O coverage - Urban waste disposal: 80% coverage - Rural sanitation: 25Z coverage In response to these targets, GOI has greatly increased the amount of funds available to the sector. Thus in the Sixth Plan (1980-85), 4Z of the total Plan provision has been allocated to the sector. Under this plan, the rural sector receives an average of Rs 4,300 million per year, about 2.2% of the Plan. The urban water supply and sanitation sector will receive an average of Rs 3,500 million per year, or about 1.8% of the Plan. These figures represent approximately four times the investments made in the individual sectors under the previous Plan, and reflect the importance which GOI attaches to the Decade program. The increased emphasis on the rural sector is particularly evident. The Seventh Plan (1985-1990) is currently being prepared; the proportional allocation to the sector is anticipated to be even higher than that of the Sixth Plan. 1.06 While these investment levels do represent substantial increases, it must be recognized that the Decade goals (as stated above) are unlikely to be reached fully by 1990. Studies 1/ have shown that there will still be a substantial shortfall in funds and that lack of sufficient qualified manpower will also be a constraint. The existing institutional problems (paras 1.28-1.32) are also likely to limit the rate of growth which can be achieved in the sector. Equally important in sustaining the achievement of the tar- geted service levels is the efficient operation and maintenance of the sys- tems. This aspect has always presented a serious challenge to the respon- sible authorities, and institutional strengthening and intensive training of personnel at all levels in the sector will be needed to achieve the required standards. 1/ World Health Organization, South East Asia Regional Organization (SEARO) Regional Health Papers No. 1, Decade Commencement Report, 1983.  -3- C. The State of Kerala 1.07 The State of Kerala is located on a narrow stretch of land along India's southwest coast. Its area of 38,864 km2 is divided among coastal plains, midlands and highland regions. In 1981 the populati n of Kerala was estimated to be 25.5 million (a density of 650 people per km ), with about 17Z of the people living in urban areas. Since the early seventies, Kerala's urban population has grown at an average rate of 2.3% a year while its rural population has increased by 1.8% annually. There are now fourteen towns with populations of over 50,000. The largest municipality is Cochin with a population of about 515,000; the capital, Trivandrum, has a population of about 480,000. The weather in the State is generally humid and tropical with a temperature range of 22-34 degrees C and an average annual rainfall of 3,100 mm. Kerala receives both the southwest and northwest monsoons from June to November, with the remaining six months of the year being relatively dry. 1.08 The State's economy is dominated by agriculture which accounts for 44X of its net State domestic product. The major crops are tapioca, rice, rubber, and cashews. Nearly 25,900 km2I or two-thirds of the land in Kerala, is farmed and, of this, 7,000 km are irrigated. The average annual per capita income in the mid-seventies was 10% below the all-India average of Rs 988. Literacy rates are over 75%, compared with the all-India average of 47Z. 1.09 Although the statistics for life expectancy and infant mortality in Kerala are also much better than the all-India averages, surveys indicate serious underlying health problems. The recorded incidence of many diseases is high; in particular, there is a vet.: high occurrence of intestinal parasitism which can be attributed to inadequate water supply and sanitation services. D. Water Resources in Kerala 1.10 Unlike many other states in India, Kerala has generally satisfactory water resources. Forty-one rivers flow down from thb ghats on the State's eastern border. These yield an average of 64,300 Mm of water annually, of which 57% is now being utilized. During periods of low flows, these rivers are subject to tidal and saline intrusion which makes them unsuitable for either irrigation or domestic consumption in the coastal areas. Structures have been constructed to regulate the tides but they also obstruct naviga- tion. Therefore, multi-purpose upland reservoirs have been proposed to regulate the flow of fresh water. About a tenth of the annual yield from the ghats flows eastward into Tamil Nadu; rights to exploit this water are being negotiated between the two states. Irrigation facilities have been installed in eight of the river basins. In addition, four hydroelectric projects have been completed and 12 more are pending. Studies conducted by Central and State hydrogeological departments indicate that although groundwater exists  -4- in the coastal belt, only one localized aquifer in the Quilon - Alleppey Area is capable of yielding good quality water in appreciable amounts (tubewell yields of 40-95m3/h). In other areas of the coastal region, yields are low and unreliable and the quality is poor. In the rocky inland zone, potential for groundwater development is limited and uneconomical. The average yield of wells in this zone is in the order of 40m3/day. A water resource plan is intended to be prepared over the next few years for Kerala by the Center for Water Resources, Ministry of Planning and Economic Affairs, COI. E. Sector Investment and Service Levels in Kerala 1.11 The Government of Kerala (COK) has adopted COI's targets for the International Drinking Water Supply and Sanitation Decade, and has made a heavy commitment to improving conditions in the sector. In the State's Sixth Plan, the allocation to the sector represented 7% of the total investment (double the amount provided in the previous plan); this can be compared with the corresponding national figure of 4Z. So far, the emphasis of GOK's investment program has been on water supply rather than sanitation. In particular, the Sixth Plan has given priority to rural water supply, which received some 65% of the sectoral allocation. However, because of the large rural population, the per capita investment in rural water supply has been only about half that for urban water supply. Kerala's past investments in water supply and sanitation are shown in Annex 2. 1.12 The resulting service levels in the State are shown in Table 1.1 below. table 1.1: KE1ALA rJATER SUPPLY AND SANrr.AXON SERVrcE : F5O THE r RaOD 1974-1983 Pcpulation Se-ved 1974 L978 1983 Service HiLiLon X Hi LILoiL - tnilLion Urban Water SuDOLv By house conneccion 0.4 11 1.4 36 1.9 44 By stand pipe 0.8 20 1.3 31 1.4 32 No piped faciLity 2.6 69 1.3 33 1.1 24 Rural Wacer Suooly By hcuse connection * o. 4* 0.4 2 By stand pipe 3.0 16 4.6 23 6.4 29 No piped facility 15.9 84 15.8 77 15.1 69 Urban Sanitacion Sewer connectio0as I O.l 2 0.2 4 Septic canks 1.0 27 1.5 37 1.7 40 Lacrines/WC l.5 40 2.0 50 2.3 53 Conservancy 0.1 3 0.1 3 0.1 2 No faciLities 1.1 29 0.4 9 * 4* Rural Sanitacion Water-seal Latrine 0.1 0.3 1 Pit lacrines 5.0 26 7.0 34 8.0 37 so Eacilities 13.9 73 13.3 65 13.5 62 * Fewer cthan 100,000 4- Less than 0.5%.  Very substantial progress has been made in the Eield of urban water supply since 1974 and presently about 76% of the population receives a piped supply (1983 figures). While the achieve-nent in rural water supply has been con- siderable, the proportion of the rural population receiving a piped supply is still only about 31%. The remainder of the population (both urban and rural) depend on wells or streams for their suppLy. For those who are provided with a piped supply, the average per capita supply in towns of over 35,000 population is currently abou. 135 lpcd; in intermediate sized towns (down to 20,000 population) the figure is about 90 lpcd; in small towns and rural areas about 25 lpcd is provided. There are presently 33 piped water supply systems in the State; all rely on surface water sources, except for three systems which depend on ground water. 1.13 In the field of urban sanitation, there are now very few people without some type of permanent disposal facility. This has been achieved bv a steady increase in the number of septic tanks (serving 40% of the popula- tion) and latrines (serving 53%). Waterborne sewerage systems are provided in two cities, Trivandrum and Cochin; these serve about 262 and 2% of their respective populations. The situation in rural sanitation is much less satisfactory; 37% of the population use pit latrines and, apart from some water-seal latrines, the remainder of the population has no sanitary facilities whatever. 1.14 In reviewing these existing service Levels against the Decade targets for 1990, it is clear that the largest shortfall is in rural water supply. A very substantial investment of funds and management efforc will be needed to provide compLete coverage of the population and it is unlikely that the Decade target will be achieved before at least the mid-1990s. The target for urban water supply, though Less challenging, is still unlikely to be reached by 1990. Although statistics indicate that that the Decade targets for the sanitation sector (rural coverage: 25X; urban: 80%) have already been ful- filled, much of the coverage is provided by simple pit Latrines, which should not be regarded as a satisfactory long-term solution; moreover in rural areas only about a third of the population have some form of coverage. Studies by the UNDP Technology Advisory Group have indicated that twin-pit pour flush water-seaL latrines would be appropriate to conditions in Kerala and have recommended that a program of conversion and up-grading of latrines should be undertaken. 1.15 Details of the State's Seventh Plan have not yet been finalized (para 4.01), but it is understood that COK intends to continue to concentrate its investment in rural water supply (albeit at a somewhat lower proportion of the total Plan allocation for the sector). The proportional allocation to urban water suoply is expected to remain about the same, but the amounts provided for urban sanitation/sewerage and rural sanitation are likely to  -6- rise sharply. The anticipated large investment in the urban sanita- tion/sewerage sector results from ;he GOI policy to install waterborne sewerage in all Class I towns (over 100,000 population). 1.16 These anticipated investment levels reflect OOK's perception of the State's needs during the Seventh Plan Period and broadly correspond to the outstanding shortfalls in meeting the Decade goals. The principal exception is the priority being given to urban sewerage. At this stage of development, it would be appropriate to defer large investment in waterborne sewerage systems and to place even greater emphasis on providing new rural water supply schemes. F. Sector Organization in Kerala 1.17 Until March 1984, the planning, design and construction of all water supply and sewerage works in the State was the responsibility of the Public Health Engineering Department (PHED), which formed part of the Ministry of Local Administration. PHED was also responsible for the operation and main- tenance of all schemes, with the exception of the distribution systems in ten municipalities. 1/ In these ten towns, the municipalities owned and operated the distribution systems, set tariffs _,a collected the revenues; they also paid PHED for operating their production facilities. In other towns where the assets of already established systems were owned by the local bodies, PHED, as an agent, collected directly from connected consumers and charged the local bodies for all operating, maintenance and overhead costs. 1.18 Under these organizational arrangements, PHED's responsibilities in the sector were limited. There was no obligation for the Department to match its revenues with its expenditures, since additional funds could be sought from Ministry budgets on a regular basis. Thus, there was little incentive to minimize operational costs or to set up effective accounting and cost control systems. Similarly there was no incentive for the Department to propose revisions in the levels of tariffs. 1.19 Consequently in March 1984, GOK passed an Ordinance which transformed PHED from a government department into a semi-autonomous authority -- the Kerala Water and Wastewater Authority (KWWA). The Ordinance, which is now in the process of becoming an Act, gives the new Authority a much more clearly defined and larger role in the sector than in other states in India. The Authority will have wide responsibilities for planning, design, implementa- tion, operation, maintenance and financial control of Kerala's water supply 1/ The ten municipalities are the ten largest towns in Kerala (except for Trivandrum). They own their water systems; Cochin is unique in owning only the distribution system and is therefore charged a bulk rate. In Trivandrum, the systems are State owned.  -7- and sewerage systems. Except for minor works in the State's Seventh Plan, KWWA will be responsible for the Plan's implementation in the sector. With a Board of senior COK officials, KWWA will be more autonomous than agencies within ministries and have the power to initiate proposals for tariff revi- sions and to deal directly with local bodies. KWWA owns the water supply systems in the Trivandrum metropolitan area where it sets the tariffs. All new water supply schemes will also be owned by KWWA. The structure of opera- tion and ownership of Kerala's water supply systems, as of 1985, is sum- marized in Annex 20. 1.20 The local bodies, which currently own their own assets, and the ter- municipalities. which currently operats their own distribution systems, will continue to do so for the time being and will pay KWWA charges to cover its operating costs related to their systems. However, under the Ordinance, at any time after three years COK is empowered to assign to KWWA the full responsibility and ownership for the production and distribution of water in the municipalities and towns. The criteria for such a takeover are left to COK's discretion but the implication is that the municipalities must, within the three year period, improve their current performance in operating, main- taining, billing and collecting and must meet their financial commitments to KWWA. With such improvements, the municipalities would retain their control over distribution. Facilities for training and central services, provided under the project, would be made available also to the ten municipalities to help their current operations. 1.21 Responsibility for implementing and operating urban sewerage systems rests with KWWA. It is intended that the low cost sanitation programs (both urban and rural) will be implemented by the local bodies, assisted by a special cell set up in the KWWA. The individual facilities will then pass into the ownership of the householders with cost recovery and back-up serv- ices being the responsibility of the local bodies. Responsibility for opera- tion of public latrines will continue to rest with the local bodies, which often sub-let this work to private contractors who levy charges for use of the facilities. G. Sector Finance in Kerala 1.22 The water and sanitation sector in Kerala has been financed by COK funds and direct loans to PHED from the Life Insurance Corporation of India (LIC). GOK funds for capital works have been provided on a loan-grant mix of 25Z-75Z for raural schemes and 50X-50Z for urban schemes. In the Sixth Plan, the grant portion was equivalent to about 2/3 of the sector investment or about Rs 17 crore a year, equalling 4-1/2Z of the annual plan. PHED also required subsidies from COK to cover its debt service obligation and, due to poor collections, some of its operating costs (para 1.24). In principle, the tariffs and charges set were adequate to cover PHED's direct operating and  -8- maintenance costs. At the inception of KWWA, GOK loans to PHED were con- sidered as an equity contribution to the new Authority; only loans from LIC appear on KWWA's balance sheet. (See Annex 19). 1.23 For water supply, domestic metered tariffs in major cities -i Kerala typically range between Rs 0.40-0.60 per 1,000 litres. These rates are comparable to those charged in the major Indian cities. In Kerala, commer- cial and industrial tariffs are in most instances at least double the domes- tic rate; this ratio tends to be larger in many other Indian cities, par- ticularly in Bombay. Since all house connections in Kerala are metered, there are no flat rates. In addition, all municipalities impose a water tax (averaging 3Z of the Annual Rental Value) and a sanitation tax (averaging 4Z of the Annual Rental Value). 1.24 The collection of tariffs by PHED and the municipalities was low and GOK has been unwilling to compel the municipalities to make required payments to PHED. Because of PHED's lack of emphasis on financial performance and its poor accounting system, an accurate billing and collection record is unclear. (Estimates and projections of KWWA's finances are given in Annex 19). Tax revenue to pay for the sewerage services in Cochin, and Trivandrum is also inadequate but it is unclear by what degree. KWWA is now impLementing accrual accounting and financial information systems that will supply better information on both water supply and sewerage costs. H. Bank Group Program and Performance in the Water Supply ane Sanitation Sector in India On-going Program 1.25 The Bank Group's involvement in the water supply and sewerage sector in India began in 1974 with the Bombay Water Supply and Sewerage Project (Credit 390-IN of January 1974). Since then, the Bank has made available eight credits totalling US$602 million for water supply and sewerage projects and provided a further US$190 million for water supply and sewerage as part of a broader program of infrastructure development in urban areas. Two projects have been completed: the Bombay Water Supply and Sewerage Project which financed water transmission, distribution and treatment facilities and expansion of the sewerage system in the Greater Bombay area; and a credit for Uttar Pradesh (Credit 585-IN) which supported the construction of water supply and sewerage facilities for five large towns and provided safe piped water to a number of smaller towns and villages. 1/ 1/ Ongoing projects cover -water supply and sewerage for Bombay (follow-up project, Credit 842-IN), Punjab (Credit 848-IN), Maharashtra (Credit 899-IN), Rajasthan (Credit 1046-IN), Gujarat (Credit 1280-IN) and Tamil Nadu (Credit 1453-IN, Special Fund 16-IN). Rural water supply schemes were also included in the two Haryana Irrigation projects (Credits 841-IN and 1314-IN).  -9- 1.26 The two Bombay projects have addressed the water supply and sewerage needs of a single metropolitan area. The other seven water supply and sewerage projects have assisted statewide programs that have included design and construction activities conducted by semi-autonomous state agencies. The First, Second and Third Calcutta Urban Development Projects (Credits 427-IN, 756-IN and 1369-IN) and the Madras Urban Development Project (Credit 687-IN) have provided water supply and sewerage facilities as part of a composite program to develop urban infrastructure. 1.27 The Bank group's goals in the sector are: to support the central and state government s overall objective of extending water and sanitation serv- ices to a majority of the population; and to assist in improving the efficiency of sector operations. In pursuit of these goals, Bank projects have: (a) promoted institutional development through staff training and the introduction of operating efficiencies; (b) encouraged sound financial management through the adoption of commercial styLe accounting systems and controls; (c) assisted in the formulation of tariff policies to promote conservation and equitable access to water and cost recovery; and (d) fostered the reevaluation of design standards and the adoption of lower cost technologies. Project Performance 1.28 The physical works financed by the Bank Group have been implemented satisfactorily, although moderate delays in implementation have been encountered in most projects. Efforts to reduce costs through the judicious selection of service standards and the use of lower-cost technical options have been increasingly successful. Several programs to develop, test and Dromote low-cost sanitation technologies, have been undertaken by state -overnments and by the World Bank/UNDP Technical Assistance Project (UNDP GLO/78/006). The major- concern on the physical side has been the unsatisfac- tory standards in the operation and maintenance of completed facilities, which is directly linked to institutional and financial issues. 1.29 In India, strong public opposition to tariff increases and metering of consumption has arisen from the traditional concept held, by both consumer and government alike, that water and sewer services are a "public good" which should be provided free of charge, as are medical care and education. However, there are increasingly competitive demands on the limited property tax revenues for provision of a wide range of other local services (such as  -10- road construction and maintenance, solid waste collection and drainage) where the opportunities for direct user charges are more limited than they are for water. There is a growing recognition among policy makers that in order to extend water and sanitation service coverage to the majority of the popula- tion, the sector must strengthen its institutions and generate a larger portion of its funds through direct user charges. 1.30 Past projects have not been fully successful in achieving institu- tional, financial or economic goals. The GOI shares the Bank's concern over this and is collaborating with IDA through the CentraL Ministry of Works and Housing and the relevant State Governments in a review of past performances. The objectives of this on-going study are to identify the reasons for not achieving agreed upon targets and to lay out an action plan for improving future performance. The study is also expected to provide a basis for futher dialogue with GOI and State Governments on sectoraL issues. 1.31 The review has revealed that many of the initiatives agreed under past projects have not been fully or successfully implemented. These failures have contributed to inadequate cost recovery and thus under-financing of operations and maintenance. The difficulties in retrospect appear to have resulted from several interrelated problems. First, the initiatives themselves were ambitious. Projects have sought the reor- ganization of participating agencies and introduced wholly new concepts and targets for cost recovery and new systems for reporting and accounting. Often the agency role in the sector was not sufficiently well defined and the statutory practices were ignored for the operation of the public agencies. Second, the reforms and the detailed operating procedures needed to implement them have not been developed in sufficient detail or adequately presented. In several cases, the agencies have relied heavily on local consultants with limited experience in sector finances or operations. Additionally, incentives to promote change that accrue to the managers of water supply and sanitation agencies have not been recognized and modified to encourage reform. Third, the process of innovation has itself been poorly managed. Realistic schedules needed for phasing in and implementing new procedures have not been planned nor coordinated with the training and technical assistance needed to facilitate the changes. 1.32 The growing acceptance by GOI of the fundamental objectives incor- porated in the Bank's sector program suggests that there is a substantial potential to achieve improved sector performance over the medium to long-term. Persistent supervision of ongoing projects and strengthened sector policy work will be required to achieve this. It must be recognized that the attitudinal and institutional adjustments underway in the sector will take time and that project objectives need to be tailored to this reality. Follow-up projects and the extension of projects to other States are still needed to maintain continuity and consistency in the sector policy dialogue and to pursue the issues now being identified in more detail. At the same time, more active participation by Central Government agencies as  -11- policy intermediaries for dissemination of sector policies and experiences to the different State governments is envisaged for the future. II. THE PROJECT A. Project Objectives and Rationale 2.01 The Kerala project has been formulated with the broad aim of improv- ing institutional, operational and financial performance throughout the sector, while also tackling specific physical needs which have been iden- tified. The objectives of the proposed project are: (a) to help strengthen sector-wide management in the newly created KWWA and municipalities which operate their own distribution systems by promoting manpower training, operational efficiency (through the reduction of water wastage and improved central services), sound accounting systems and development of cost recovery targets. (b) to provide piped water supplies to about 1.5 million people residing in six rural areas, most of whom have no safe supply at present. (c) to increase the supply of water and to extend the distribution facilities in one urban area so as to provide reasonable access to about 190,000 (mostly low income) people; (d) to introduce low-cost on-site sanitation facilities and to finance their construction so as to benefit about 200,000 people residing in ten urban areas and to undertake a similar pilot program for low-cost sanitation in rural areas. 2.02 During project preparation, consideration was given to the points discussed in paras 1.28-1.32 regarding Bank sector experience in India. Circumstances in Kerala appear particularly appropriate for a state-wide water supply and sanitation project. With demonstrable poLitical support from GOK, the implementing body KWWA has been formed out of PHED with clear authority to function as the semi-autonomous agency for the sector. Unlike similar lead agencies, in other state projects, KWWA has the responsibility for production, distribution and retail of water services and has the statutory obligation to run on commercial lines. Before Appraisal, GOK had hired local consultants to help KWWA set up accrual financial systems, do preliminary financial and socio-ecoi )mic studies, and review the organiza- tional structure. These consultants had previous sector experience both with other agencies in India and with other Bank projects. Project objectives were designed in view of these studies and KWWA current capabilities. The  -12- Action Plan (Annex 8) is structured to help clarify the implementation of the project's institutional and policy components and to assist the monitoring of this process. The project's major goals of improved cost recovery and operating efficiency in the sector would be phased in over a five year period. By 1990, when the project is commissioned and the financial targets become effective, KWWA's financial and reporting systems, leak detection and training prograLms would be in place. 2.03 The engineering components of the project have been selected by GOK and IDA staff consistent with the State's sectoral objectives, as discussed in paras 1.11 to 1.16 above. Thus the project water supply is directed to rural communities which currently have no piped water, and in particular to those which have unsafe or distant sources of supply; about 75% of the project's funds will be allocated to this component. A small urban water supply component is also included, to provide up-grading and extension of an existing system; this component will also allow operational techniques (such as leakage control) to be developed and tested under the project. Low cost sanitation components are included, in the form of pilot programs for both urban and rural areas. In view of the high cost of water-borne sewerage systems and the other more pressing priorities in the sector, no sewerage component has been included in the project. B. Selection Criteria for Project Components 2.04 In determining the priorities for the development of individual water supply schemes, GOK has paid close attention to meeting the needs of "problem villages". l/ COK has identified priority areas comprising rural areas which have a high proportion of problem villages together with urban areas which have poor existing supplies. The six rural and one urban water supply schemes included in the project have all been selected from this priority list. About 80% of the rural water supply schemes cover villages in the 'problem village' category. Other priority schemes included in the Seventh Plan are being financed by State funds or by Dutch and Danish bilateral aid. 2.05 The locations of the selected water supply schemes are indicated on Map IBRD 18422. The rural schemes cover the areas of: Puthencruz, Adoor, Chithara, Vilappil, Kottayam, parts of the Greater Cochin Development Area (GCDA) and rural panchyats surrounding Quilon Municipality; the urban com- ponent provides improved and extended service to Quilon Municipality. 11 GOI has defined "problem villages" as: those which lack a reliable supply within a depth of 15m or a distance of 1.5km; or those in which the supply either has a high incidence of water-related disease or con- tains excessive fluorides, iron or chlorides.  -13- 2.06 In determining appropriate supply levels, the rural areas have been divided into two categOrieS: 'stable' and 'developing'. The 'stable' areas are expected to retain their rural character over the project period and to generate no industrial and limited commercial demand for water supply. The 'developing' rural areas lie close to existing major towns which are expected to expand their zone of influence into the adjacent rural areas; in these areas it is anticipated that a significant industrial demand will develop and that a higher proportion of house connections can be afforded by the domestic consumers. The schemes for Kottayam, GCDA and Quilon panchyats are categorized as developing rural areas, while the remaining rural areas are regarded as stable. 2.07 The ten towns covered by the urban low-cost sanitation project are shown on Mep IBRD 18422. These towns, which are not covered by the GOK or bilateral programS, were selected by GOK and the Technology Advisory Group (TAG) 1/ as a pilot project on the basis of socio-economic and physical conditLons in the state. The rural low-cost sanitation component has been included as a pilot program for future development; towns to be covered by this component vill be identified in the feasibility study to be undertaken by TAG. C. Project Description 2.08 The principal project components are summarized below. Further details of the water supply schemes are included in Annex 7. Rural stable Areas - Design and construction of four new schemes to provide a design total supply of 32 million liters per day (mld) to four rural 'stable' areas: Puthencruz, Adoor, Chithara and Vilappil. Each scheme will rely on a single source and will include an intake, treatment plant, transmission, distribution works and meters. Rural Developing Areas - Design and construction of schemes to supply three rural 'developing' areas: Quilon panchayats, Kottayam panchayats and the Greater Cochin Development Area (GCDA). The design supplies for these schemes total 147 mld; Quilon panchayats will share the production facilities of the Quilon Municipality (see below). Each scheme will rely on a single source and will include treatment plant, transmission, distribution works and meters. A plan of the system for GCDA is shown in Map IBRD 18424. 1/ The TAG program is administered by the World Bank under the UNDP India Low Cost Sanitation Projects (IND/81/014 and IND/84/016) and the UNDP Interregional Project (INT/81/047).  -14- Urban Area - Design and construction of a scheme to augment the supplies to the Quilon Municipality. The design supply of the scheme will be 33 mld. The scheme will include intake, treatment plant, transmission, distribution works and meters. RepLacement of a deteriorated transmission pipeline will reduce water wastage. A plan of the system for Quilon and its panchayats is shown in Map IBRD 18423. Urban Low Cost Sanitation - A prototype subproject to provide low-cost sanitation facilities to 10 towns which have been selected under the UNDP India Low-Cost Sanitation Project. Rural Low Cost Sanitation - A similar prototype subproject to provide low-cost sanitation facilities to rural areas in the State; the scope and locations will be determined in a feasibility study to be undertaken by a team from the Technology Advisory Group (TAG) of the UNDP India Low-Cost Sanitation Project. Technical Assistance - Assistance to KWWA and to the Municipalities (which currently operate their own distribution systems) in developing sector-wide training services and providing centralized services which will include leak detection units, meter repair facilities, workshops, laboratories and stores. In addition, consulting services are included for implementation of comprehensive financial systems, training in these systems, a valuation of KWWA's assets and a state-wide water tariff study. Revolving Fund for Connections - A revolving fund for the provision of loans to assist low-income households to meet their costs for completion of house-connections. D. Operational Action Plan 2.09 There are a number of interrelated project activities to be under- taken by participating agencies with the common aim of improving their operating efficiency and financial viability. Although these actions are discussed in various places of the SAR, because of their interdependence these have been grouped into an Operational Action Plan. The components of this Plan were discussed during appraisal with GOK anid KWWA and the timing of their implementation were reviewed and confirmed during negotiations. Assurances were received at negotiations that KWWA will annually review and update the Action Plan in a form that is satisfactory to IDA. The elements of the Plan are included in Annex 8. E. Engineering Feasibility Studies 2.10 Frc.a a technical and engineering point of view, the project has been well conceived. The feasible alternatives have been studied and the overall designs of the proposed schemes represent least cost solutions. Particular aspects of the preliminary designs will be further refined by KWWA during the detailed design stage (for example, the optimum phasing of construction of the service reservoirs).  -15- F. Cost Estimates and Financing 2.11 The estimated cost of the cotal project :s Rs 937 million (US$85.2 million) including contingencies, duties and taxes. The estimated costs of components with the breakdown of local and foreign costs are summarized in Table 2.1. Estimated annual expenditures are shown in Annex 1. 2.12 Civil works costs are based on the quantities estimated in the preliminary designs and the prevailing rates for construction. Materials and equipment costs are based on estimates from Indian and foreign suppliers and on recent supply contracts. Physical contingencies have been allowed at 10% of the base cost for civil works and 5% for materials and equipment. Price contingencies for both local and foreign costs have been projected in accord- ance with standard IDA guidelines, as follows (base costs as of January 1, 1985). Fiscal Year Local Costs Foreign Costs 1984/85 8.0Z 8.0% 1985/86 7.0% 9.0X 1986/87 7.0% 9.0Z 1987/88 7.0Z 9.0Z 1988/89 onwards 6.0% 6.5% 2.13 An amount of US$41.0 million, representing about 50z of the total project cost of US$82.3 million excluding duties and taxes is proposed to be financed as an IDA credit. GOK will finance the remaining project costs through budgetary allocations in the State's Seventh Plan. C. Consulting Services 2.14 In addition to the engineering feasibility studies completed by KWWA, two other studies were financed by KWWA and carried out by consultants as a part of project preparation; (a) a study of the organizational structure, staffing, systems and procedures needed for the newly formed KWWA; this was accompanied by a preliminary tariff study and a socio-economic survey to establish affordability levels and the preparation of financial projections for the Authority. (b) an accounting and finance study, giving recommendations for accrual accounting, performance budgeting and management information sys- tems, together with proposed staffing requirements for the financial functions. 2.15 Consultancies to be undertaken as part of the project and financed under the credit will comprise: (i) assistance in the full implementation of the accounting systems (para 4.26) and (ii) a cost and revenue study for the sector (para 4.18). The above studies will require an estimated input by local consultants of 48 man months. Procedures to appoint consuLtants will be according to IDA guidelines and subject to IDA approval.  -16- INDIA Table 2.1: KERAIA WATER SUPPLY ANfSANITATION PROJECT SUIQIARY OF ESTIMATED PROJECT COSTS - Local-and Foreia,n Costs TOTALS TOTALS Z of I Local For'n Total Local Forun Tot-l total foreign -- Rs million--- - USS million- - cost exchange Rural Stable Areas Civil 42.79 5.54 48.33 3.89 0.50 4.39 7.26 11.39 Water Supply Mat'l 56.53 21.13 77.66 5.14 1.92 7.06 11.68 27.20 Duties 8.37 0.00 8.37 0.76 0.00 0.76 1.26 0.00 Total 107.69 26.67 134.36 9.79 2.42 12.21 20.20 19.82 Rural Civil 118.81 19.91 138.71 10.80 1.81 12.61 20.87 14.35 Developing Areas Mat'l 100.67 83.14 183.81 9.15 7.56 16.71 27.65 45.24 Water Supply Duties 17.83 0.00 17.83 1.62 0.00 1.62 2.68 0.00 Total 237.30 103.05 340.35 21.57 9.37 30.94 51.20 30.28 Urban Civil 18.37 3.82 22.20 1.67 0.35 2.02 3.34 17.33 Water Supply Kat'l 11.10 30.61 41.71 1.01 2.78 3.79 6.27 73.35 Duties 3.04 0.00 3.04 0.28 0.00 0.28 0.46 0.00 Total 32.51 34.43 66.94 2.96 3.13 6.09 10.08 51.40 Low Cost Sanitation Civil 13.05 0.00 13.05 1.19 0.00 1.19 1.97 0.00 Urban Mat'l 19.48 2.04 21.53 1.77 0.19 1.96 3.24 9.69 Duties 0.91 0.00 0.91 0.08 0.00 0.08 0.13 0.00 Total 33.44 2.04 35.48 3.04 0.19 3.23 5.35 5.88 Low Cost Sanitation Civil 11.45 0.00 11.45 1.04 0.00 1.04 1.72 0.00 Rural Xat'l 17.13 1.81 18.93 1.56 0.16 1.72 2.84 9.30 Duties 0.79 0.00 0.79 0.07 0.00 0.07 0.12 0.00 Total 29.37 1.81 31.18 2.67 0.16 2.83 4.68 5.65 SUB-TOTAL 440.31 168.01 608.32 40.03 15.27 55.30 91.51 27.61 Central Met.Wkshop 0.90 0.09 0.99 0.08 0.01 0.09 0.15 0.11 Services Meters 0.00 16.36 16.36 0.00 1.49 1.49 2.47 100.00 Vebs, Misc 4.84 0.25 5.09 0.44 0.02 0.46 0.76 4.35 Total 5.74 16.70 22.44 0.52 1.52 2.04 3.38 74.51 Others Revl Fund 15.26 0.00 15.26 1.39 0.00 1.39 2.30 0.00 Land 9.31 0.00 9.31 0.85 0.00 0.85 1.41 0.00 Training 6.84 1.01 7.85 0.62 0.09 0.71 1.17 12.68 Consult'y 1.57 0.00 1.57 0.14 0.00 0.14 0.23 0.00 Total 32.98 1.01 33.99 3.00 0.09 3.09 5.11 2.91 SUB-TOTAL 479.03 185.72 664.75 43.55 16.88 60.43 100.00 27.93 Engineering 90.58 0.00 90.58 8.23 0.00 8.23 13.62 0.00 Physical Contingency 30.35 10.22 40.57 2.76 0.93 3.69 6.12 25.20 Price Contingencies 92.93 47.77 140.70 8.45 4.34 12.79 21.16 33.93 TOTAL 692.89 243.71 936.60 62.99 22.16 85.15 140.90 26.02 KEY: Civil - Civil Works Nut'l - Materials & Equipment Duties - Duties & Taxes Net Wkshbop - Meter Repair Workshop Vebs,Misc - Vehicles & Miscellaneous Equipment Rewl Fund - Revolving Fund  -17- 2.16 The feasibility studies for the urban and rural low-cost sanitation component are being done by the Technology Advisory Group (TAG) under the United Nations Development Program (UNDP) funding (para 2.33). The urban study is already completed and the rural one is expected to be finished by October 1985. In addition, there wiLl be a small input by the TAG team to assist in implementation of the low-cost sanitation components (para 2.34); this input will be financed out of the Credit. H. Implementation Schedule 2.17 KWWA would implement the project over five years. The smaller water supply components are expected to be completed in early 1989 and the two larger schemes (GCDA and Quilon) in early 1990. The preliminary engineering is already sufficiently detailed to allow the material and equipment require- ments to be specified with minimal refinement. Although some detailed design work would continue throughout the first project year (Action Plan, Annex 8), preparation of tender documents should be sufficiently well advanced to bid and award some of the major material and equipment contracts by the second half of :985. Civil engineering contracts can be awarded shortly thereafter. The low-cost sanitation components are expected to be completed by early 1990. Annex 9 includes simplified bar charts showing major activicies for all project components. Project completion is scheduled for March 31, 1990 and the credit clcsing date for March 31, 1991. 2.18 The scheduled implementation period of five years is judged to be feasible in view of the following factors: (a) The project had been scaled back during preappraisal. At appraisal, preliminary engineering had already been completed in substantial detail and KWWA staff are currently working on the preparation of final specifications and bid documents for equipment which involve long delivery times, so that critical contracts could be awarded at an early stage; (b) The technical components and scope of the project are within the existing experience and competence of KWWA staff; the technical competence of the staff is well developed, to the extent that con- sultants were not required for the engineering feasibility study work. Operational procedures within the KWWA are established and proven in practice. Untried or particularly sophisticated technology has not been incorporated in any of the schemes. (c) The size of the project is within KWWA's own capacity for implemen- tation and operation; the project would equal about 30X of COK's anticipated Seventh Plan investment in the sector, and, by 1990, would serve about 9% of KWWA's connected users and 7% of its stand- post users. The buildup of staff required to handle this project and  -18- other work under the Seventh Plan is in Line with the rate of expan- sion which KWWA has recently experienced. The consultants who studied KWWA's organizational structure have specified the recruit- ment needed for the professional staff. The extensive training component is oriented to the technical manpower requirements for the next five years (paras 2.39-2.43). (d) The local capacity for construction activity has proven adequate in other KWWA projects of similar magnitude. I. Procurement and Contracts 2.19 Equipment and material contracts would be awarded under international competitive bidding in accordance with IDA guidelines with the following exceptions: contracts valued under US$200,000; contracts for concrete and asbestos cement because of their fragility and high transportation costs. These items would be procured under local bidding procedures acceptable to IDA. 2.20 Most civil works would be carried out through a large number of relatively simple contracts by contractors registered in Kerala or other parts of India. These works, which are widely dispersed, do not require speciaL equipment or techniques and are labor intensive; they include water transmission mains, pumping stations and distribution facilities. Since foreign bidders could not successfully compete with local bidders for works of this type and size, these would be subject to local competitive bidding. The treatment plants will be constructed on a turnkey basis. The value of the contracts (an average base cost of $295,000 for each plant) is unlikely to be large enough to attract foreign interest and these will also be bid locally. 2.21 In evaluating bids for equipment and materials, domestic manufac- turers would be given a preferential margin equal to 15Z of the c.i.f. of the competing imports, or the existing rate of customs duty, whichever is lower. Material and equipment requirements for the project and tentative contract packages are shown in Annex 10. Irrespective of the pipe materials and quantities indicated under items la, lb and lc of Annex 10, for pipes of diameters 400 mm and above, bids will be invited from a range of materials that includes asbestos cement, cast iron, ductile iron, steel and prestressed concrete. All bidding packages for materials worth over US$200,000 equiv- alent, all bids for treatment plant and pumping equipment, and civil works contracts over US$600,000 equivalent, would be subject to IDA's prior review of procurement documentation and awards. These would cover about 39% of the total estimated project costs. In addition, to ensure that contracts are standardized in a form satisfactory to IDA, the first five bid documents including both LCB and ICB would be reviewed by IJA. The balance of con- tracts would be subject to random post review by IDA after contract award.  -19- The consulting services will be awarded in accordance with the Bank's guidelines for the use of consultants (August 1981). Procurement arrange- ments are summarized in Table 2.2. Table 2.2: PROCUREMENT AND CONTRACTS (US$ Million) Procurement Method TotaL Project Element ICB LCB N.A. Cost Civil Works - 31.4 - 31.4 Portion financed by IDA: (6.3) (6.3) Equipment and Materials 32.9 9.1 - 42.0 Portion financed by IDA: (30.3) (1.8) (32.1) Training and ConsuLtants 0.1 1.0 - 1.1 Portion financed by IDA: (0.1) (1.0) (1.1) House Connection Fund - - 1.5 1.5 Portion financed by IDA: (1.5) (1.5) Land - - 1.0 1.0 Engineering - - 8.2 8.2 TOTAL 33.0 41.5 10.7 85.2 Portion Financed by IDA: (30.4) (9.1) (1.5) (41.0) Notes: Figures in parentheses are the respective amounts financed by the Credit. N.A.: Not applicable. J. Disbursement 2.22 The proceeds of the credit would be fully disbursed over a six and one-half year period. The project closing date would be scheduled for one year after the project completion period to allow for repayment of 'retention money' to contractors. A minimal amount of d4sbursement is expected for the six month period after project completior.. An estimated disbursement schedule is shown in Annex 11. The proposed amounts of disbursements of the credit by category are shown in Table 2.3.  -20- Table 2.3 DISBURSEMENT BY CATEGORY Amount of Credit Disbursement Category Allocated Rate (US$ million) 1. (a) Equipment and material 28.3 100% of foreign procured under international expenditures or 100% bidding. of local expenditures ex-factory. (b) Equipment and material procured 1.5 202 of expenditures under local bidding. 2. Civil works awarded under Local bidding 6.1 20% of expenditures 3. Consulting services and training 1.1 100X of expenditures 4. Loan Fund for house connections 1.5 100X of amounts disbursed. 5. Unallocated 2.5 TOTAL US$41.0 2.23 No disbursements would be made against administrative costs. Disbur- sements for small civil works payments of about Rs 300,000 or less, for equipment and material payments of about Rs 150,000 or less, and for amounts disbursed under the house connections Loan fund, would be made against State- ments of Expenditures (SOE), certified by the Project Director (or other appropriate officer). Supporting documentation for items disbursed against SOEs will be retained centrally and made available for IDA for review dn request. The expenditures disbursed under SOEs will be audited annually by independent auditors, acceptable to IDA (para 4.29). 2.24 This six and one-half year schedule is about one year shorter than the Bank disbursement profile for India. It is based an the implementation schedule which was estimated considering the factors discussed in paras 2.17 and 2.18. K. Water Sources and Water Rights 2.25 Careful consideration was given by PHED/KWWA to the selection of the project's water sources. Surface water resources are widely available in Kerala, but groundwater is generally unreliable and of poor quality (para 1.10). Even in cases where groundwater is available, sample studies for  -21- groundwater development conducted by PHED have indicated that, whereas the capital costs would be comparable to those for surface water sources, the operating costs would be high, making the groundwater alternative uneconomic. Surface water sources have therefore been selected for all seven of the water supply schemes. Where feasible alternative surface waLer sources were avail- abLe, the choice was based on the criteria of least-cost and water quality. 2.26 During appraisal, it was demonstrated that sufficiently reliable sources are available for all the schemes considered. In five nf the seven cases, the avaiLability of water will depend on other major impounding projects (hydro-electric, irrigation or water supply) which are either com- pleted or will be by the end of 1985. In one of these cases (Quilon), KWWA needs an allocation from the Irrigation Department. The two remaining schemes (Adoor and Chithara) will rely on unregulated run-of-river fLows; consideration of the hydrological data available for these two sources indi- cates that sufficient yield will be available to provide reasonable long-term reliability. Details regarding each source are given in Annex 12. 2.27 In order to ensure that the supply requirements are available from the respective sources throughout the life of the project, Government sanc- tions and agreements have been promulgated: (a) to grant the requisite water abstraction rights for each of the schemes, taking full account of existing abstraction rights; (b) to ensure that no further abstraction rights be granted (either upstream or downstream of the intakes) that would prejudice KWWA's rights of abstraction; (c) to ensure that the Irrigation Department permit the necessary allocation to provide the new supply of water required for Quilon. L. Leak Detection 2.28 KWWA will be required to establish within its organization a unit to detect and reduce unaccounted for water in the water supply systems. It is proposed that this unit will form part of the Authority's centralised serv- ices (para 2.32) and that it will be based initially at KWWA's Headquarters. In due course, as the extent of the unit's services expand and trained teams of staff are assembled, the leak detection function can be gradually devolved to the proposed regional operating centres. The leak detection unit will be available to undertake surveys on a sector-wide basis, thus covering the systems operated by the Municipalities as well as the Authority. Assurances were received at negotiations that KWWA will prepare a leak detection program for review with IDA by December 31, 1985 and that the leak detection unit be fully equipped, trained and operational by April 1, 1986 (Action Plan, Annex  -22- 8). Thereafter, this program will be implemented and its progress reviewed by IDA at re;gular intervals. M. Metering and House Connections 2_99 Metering of all individual domestic connections is accepted practice in Kerala and KWWA proposes to continue this policy under the project, both to measure usage for better billing and to curtail consumer and system wastage. Public standposts will not be metered, except to sample water usage. The levying of flat-rate per capita charges for public supplies is considered more practical than the regular metering of the standposts. All non-domestic connections (such as commercial, industrial and institutional) will be metered. 2.30 The wide-spread use of meters makes it imperative for KWWA to have good meter repair facilities. Currently about 20% of the meters are not in working order; there is a meter repair shop in Trivandrum but its capacity is limited. Under the project, a fully equipped meter repair workshop would be set up at each of the regional operating centers. In addition to dealing with KWWA's own meters, a repair service would be available to the Municipalities at a reasonable charge. Each repair workshop would be equipped with a meter test bench in addition to all the necessary tools and a supply of spare parts. The costs of these proposed workshops is included in the estimates for the project. 2.31 The cost of providing a consumer connection from the distribution main up to the property line would be included in total project costs and collected from the consumer as part of the water tariff. This approach encourages consumers to apply for connections by reducing high initial con- nection costs. The provision of all pipework and plumbing beyond the property line would be the responsibility of the consumer; however low-income households would be assisted in meeting the initial costs of this work, by the availability of soft loans from a revolving fund to be set up under the project. During negotiations, it was agreed that maximum loans of Rs 500 would be made available to households with monthly incomes up to Rs 700. Loans would be repaid, in conjunction with the water bill, in equal monthly instalments over ten years at an interest rate of 8.75% per annum. Proceeds from the fund could be used for future connections outside the project area. In all cases, the meter will remain the property of KWWA, which will impose a monthly rentaL charge to consumers in order to cover repairs and maintenance. As far as possible, consumer connections will be made at the time of con- struction of the distribution main.  -23- N. Central Services 2.32 As part of the program to strengthen and improve the organization and management of KWWA, central services will be set up to provide assistance to the operating units. These services will be based in KWWA Headquarters but may have subsidiary units in the regions. The services will include: (a) Regional workshops for routine repair of plant and equipment. (b) Water quality laboratories in each of the regions. (c) Meter repair workshops in each of the regions (para 2.30) (d) A leak detection unit (para 2.28). (e) General stores at regional centers, stocked with consumables and spare parts. Funds have been included in the project zosts for provision of these serv- ices. 0. Low-Cost Sanitation 2.33 A feasibility study for a low-cost sanitation program in 10 towns in Kerala has been carried out by the TAG team. The implementation of the sanitation program for these towns has been included in this project. With regard to the rural sector, there is currently a general lack of appropriate low-cost sanitation facilities and GOK desires to make substantial progress in this area before 1990. A rural low-cost sanitation component has there- fore been included as part of the project and a provisional cost has been allowed for this. Assurances were received at negotiations that the scope and location of these rural schemes will be determined by a feasibility study (para 2.16) to be carried out by the TAG team, and completed by October, 1985 (Action Plan, Annex 8). 2.34 The local bodies would be responsible for the implementation of the low-cost sanitation component of the project with KWWA playing an active supervisory and monitoring role. To attend to these responsibilities assurances were received at negotiations that a new low-cost sanitation ceLL be established within the KWWA organisation by August 1, 1985 (Action Plan, Annex 8). KWWA already possesses the technical expertise and infrastructure to assist the program and it is proposed that the cell would form part of the overall project team. There would be merit in enlisting the services of the Directorate of Municipal Administration (DMA) in the monitoring effort. As well as monitoring the progress of the low-cost sanitation project, this body could assist in coordinating and promoting related project activities. To help the low-cost sanitation cell in its responsibilities during implementa- tion, the advisory assistance of the TAG team would be-obtained for  -24- approximately 6 man-months input, on an intermittent basis (para 2.16). Suitable provision has been included to cover the technical assistance for this project component. The responsibilities of KWWA in monitoring this program would include the training and licensing of small contractors to carry out the installation work; provision for this has been made in the training component of the project. 2.35 GOK would fund the low-cost sanitation components with a 50Z-S0Z loan grant mix for urban and 25Z-75Z mix for rural schemes. The loans would be made to the locaL bodies on terms similar to those for the rest of the project (para 4.08). The full funds would be made available to the local bodies for implementation and the finished works turned over to the householders. During negotiations, assurances were received that the local bodies would be responsible for the cost recovery from the householders on terms that are consistent with the TAG report 11. 2.36 Regulation is needed for the construction of low-cost sanitation units and the locating of such units in order to limit pollution. The pass- ing of by-laws satisfactory to IDA, and based on the model included in the UNDP Global Project feasibility report, would be required as a condition of disbursement of funds for each participating town included in this component of the project (para 6.02). 2.37 Present and proposed sanitation service levels in towns included in the low-cost sanitation program are shown in Annex 13. P. Public Health Education 2.38 Potential benefits from the project will be maximized if accompanied by a comprehensive public health education program to improve sanitary habits and to encourage the use of the facilities provided. Traditionally, public health education has been the responsibility of government public health departments. Recently, bilateral donors, United Nations agencies and volun- tary non-governmental organizations have been active in this field by spon- soring public health education in Kerala, either directly or through projects financed by them. There is no public health education component in this project, but there are public health education components in the current Dutch and Danish bilateral aid programs for Kerala rural water supply and 1/ A means test would ensure that grants or partial grants would be avail- able to lower income groups: for households with no utilities (water or electricity), 75% grant; with one utility, 50% grant; and two utilities, no grant. Repayment of the loans by households would be over 25 years including four years of grace at 8.75X interest per annum. Panchayats would collect as part of general tax and revenue collection.  -25- KWWA is investigating whether these efforts can be extended for the benefit of project areas as well. Q. Manpower and Training 2.39 Systematic in-house training of the technicaL staff is not currently provided by KWWA. As a component of the project, KWWA would begin to develop a comprehensive scheme of education and training and to establish training facilities. The training system to be developed wouLd not be limited to project-related needs, but should meet sector manpower development require- ments beyond the project. With respect to low cost sanitation, the training program would have a practical emphasis and would take account of evaluation studies to be made on the operation and use of facilities. 2.40 The total staff employed within the water sector of Kerala, in all categories is about 5500; this includes municipalities currently operating their own water distribution systems and work-charged staff. Manpower projections for the remainder of the Decade, based on sector development targets and the Organization and Management Study, indicate an annual average recruitment rate of about 440 staff members per year. This includes the staff required for the planning, construction, operation and maintenance of the sub-projects covered by the project. Although substantial, the project training component would be unable to address the full training needs of the large, diverse, and widely dispersed work force. It would therefore be designed as the first phase of a long term training strategy for the whole sector. 2.41 InitiaLly, training priority would be given to: needs arising from institutional reorganization; the introduction of new management, financial, and central support services; and the upgrading of operation and maintenance skills. The component would include a Stage I preparatory phase, a Stage II training implementation program and a training evaluation mechanism. Assurances were received at negotiations that Stage I will commence by January, 1986 and be completed within twelve months. Invitations to consult- ants to submit proposals for Stage II would not be extended until a KWWA Training Steering Committee has confirmed the satisfactory completion of Stage I. The timing of Stage II would be agreed later with KWWA (Action Plan, Annnex 8). It is intended that this sector training plan would be developed and executed in cooperation with the training systems currently being developed and operated by other State Water Agencies. 2.42 The capitaL and start-up costs of the sector training scheme would be met by a 100X grant from GOK. Operating costs would be met by KWWA which will pro-rate appropriate charges to local bodies benefitting from the train- ing scheme. Any shortfall in operating costs would be covered by GOK. 2.43 The total cost of the training component is estimated at US$773,000 of which about US$100,000 would represent foreign exchange.  -26- R. Land Acquisition 2.44 Land to be acquired for project purposes has been assessed and the estimated cost has been included in the project costs. Purchase of private land would be required for the sites of service reservoirs, pumping stations and treatment works; pipelines sited alongside roads would not require land acquisition, while those across private land may do so. KWWA is starting the necessary planning and legal negotiations for land purchase and during nego- tiations provided a firm timetable for land acquisition, particularly with regard to those lands for works to be executed in the first half of the project period. Not much land would be required during the first year of implementation. As part of its new organizational structure, KWWA is con- sidering setting up a small land acquisition cell in each of the three regions in order to expedite the processes for obtaining the land. III. PROJECT ORGANIZATION AND MANAGEMENT A. The Kerala Water and Wastewater Authority 3.01 GOK has already promulgated the Kerala Water and Wastewater Authority Ordinance, which defines the powers of KWWA. The Ordinance empowers KWWA to operate and maintain all production systems as well as all distribution systems except in the ten Kerala municipalities which operate their own distribution systems and will continue to do so (para 1.20). However, under the provisions of the Ordinance, after three years, or at such time there- after as GOK may specify, KWWA may be assigned responsibility for these systems as well. 3.02 Although the Ordinance establishing KWWA has the power of law, its provisions cannot be regarded as permanent since, if the Ordinance is not re-confirmed at the statutory six month intervals, it would automatically lapse. Therefore, assurances were received at negotiations that GOK shall provid.e the necessary legal cover to maintain YWWA's legal status, powers and fun.cions substantively as vested in it by virtue of the ordinance. 3.03 KWWA is managed by a Board of Directors, the Chairman of which is the State Minister responsible for the water supply and sanitation sector. The Managing Director, a qualified full-time public health engineer nominated by the Government, acts as its Chief Executive. The remainder of the Board comprises three ex-officio members who are the secretaries to the State departments for finance, local administration and public health engineering, together with two individuals nominated by the Government.  -27- B. Implementing Responsibility and Ownership of Assets 3.04 KWWA would be the implementing agency for the proposed project except for the low-cost sanitation components which will be implemented by the local bodies. COK wouLd make funds available to KWWA and to the local bodies for the execution of sub-projects. Ownership of all works constructed under the project, with the exception of those relating to the Quilon municipality and the low-cost sanitation components, would vest with KWWA. In the case of Quilon, all assets created under the project would be handed over to the Quilon Municipality after completion. 3.05 KWWA would be responsible for repaying to GOK all debts associated with the project on the basis of an agreed financing plan. Quilon Municipality and the local bodies benefitting from the low-cost sanitation component would be responsible for repaying their associated debts to COK. C. Operation and Maintenance 3.06 Those works within the present jurisdiction of KWWA will continue to be operated and maintained by KWWA. Following current arrangements, KWWA will operate and maintain the production and transmission facilities of the ten municipalities (including Quilon), while the municipalities themselves will continue to operate their own distribution systems. Except for Cochin, which is charged a bulk supply rate, KWWA will be reimbursed by the ten municipalities for KWWA's operation and maintenance expenditures with respect to their production facilities plus an administrative charge. D. Organizational Structure of KWWA 3.07 The present organizational structure of KWWA is shown in Annex 14. Three Chief Engineers, responsible for General and Planning, Rural Water Supply and Urban Water Supply, report to the Managing Director. As part of project preparation, consultants were appointed to study the organizational structure, staffing, systems and procedures needed for the new Authority to meet its wider responsibilities. Their recommendations include specific proposals for improvements in the organizational plan, staffing pattern, delegation of powers, material systems, project planning and control systems. The consultants considered several different forms of organizational struc- ture for KWWA and finally recommended a structure based on three operational regions supported by a strong Planning and Services division based at head- quarters. This framework would provide for a considerable degree of decentralization of the functional aspects of KWWA, under the guidance of four Chief Engineers who would report direct to the Managing Director. 3.08 The appraisal mission reviewed these recommendations and supported them, subject to some qualifications. The more important of these are as follows:  -28- (a) The upgrading of the status of the senior Financial Officer and his staff commensurate with their important functions in a major retailing organization. (b) The creation of a unit to manage, monitor and report on the project (para 3.09). It was confirmed during negotiations that a proposed organizational struc- ture, which takes into account the recommendations of the report and the above modifications, has been agreed by COK. An outline of this structure is shown in Annex 15. Assurances were received at negotiations that the four posts of Chief Engineer and one post of Financial Advisor and Chief Accounts Officer will be sanctioned and filled by August 1, 1985. E. Project Management 3.09 KWWA will establish a Project Management Unit to impLement the project. The Unit would comprise a sm,ll team based at KWWA headquarters, which would coordinate all aspects of the work by managing, monitoring and reporting on the project. Design and construction supervision would remain at the regional or headquarters division level with the Unit maintaining overall responsibility for the project's procurement and implementation. This arrangement would provide for effective control of the project, while avoid- ing the unnecessary disruption which would be caused to KWWA's organization by the creation of a large special design and supervision team. On completion of the project, KWWA could continue operation of the Unit for similar large projects. 3.10 At negotiations, assurances were received that KWWA will fully staff the unit by August 1, 1985 (Action Plan, Annex 8). To achieve effective design and implementation, KWWA will maintain the same key personnel in the Unit to the maximum extent possible. In view of the magnitude of the works included in the project, and its size in relation to the overall investment program of KWWA for the remainder of the decade, assurances were received at negotiations that KWWA will appoint a senior engineer, preferably of a rank of at least Deputy Chief Engineer, to head the Project Management Unit by August 1, 1985. 3.11 At appraisal, preliminary engineering had been compLeted in suffi- cient detail to permit detailed design to proceed immediately. However, a concerted effort will have to be made by KWWA to achieve design targets on time and the design sections for the project, headed by suitably qualified engineers. KWWA confirmed during negotiations that the design cell was in place and that designs would be completed on time.  -29- F. Financial and Accounting Systems in KWWA and Quilon Municipality 3.12 Consultants have prepared detailed recommendations for systems of accrual accounting, performance budgeting and management information for KWWA. They have also recommended staffing requirements at the divisional level for accounting, billing and collection activities. Their recommenda- tions would serve to maximize the use of present staff in the divisions. KWWA intends to implement these recommendations, including the appointment of suitably qualified financial staff to all corporate and divisional posts. It was confirmed during negotiations that the post of Financial Advisor and Chief Accounts Officer will be sanctioned and filled by August 1, 1985 and that consultant support will be provided over 2-1/2 years starting December 1, 1985, to assist in the full implementation of the financial accounting systems. 3.13 Quilon Municipality will retain ownership of its water supply assets and operation of its distribution system. In order for it to properly monitor its financial performance, Quilon Municipality has adopted a resolu- tion to set up a separate cell for reporting its water and sewerage finances by August 1, 1985 (Action Plan, Annex 8). The cell will keep accounting and financial records in the accrual format similar to that being implemented by KWWA and would report on its activities separately from the other operations of this municipality. The consultants will assist the Municipality in set- ting up the separate reporting and accounting cell. G. Progress Reporting and Supervision 3.14 The Project Management Unit (PMU) to be established in KWWA will be responsible for reporting progress to IDA on various physical, financial, technical and institutional aspects of the project on a quarterly basis. Suggested project monitoring indicators are included in Annex 16. Assurances were received at negotiations that a specific progress report format satis- factory to IDA will be developed by August 1, 1985 and that quarterly progress reports will be submitted to IDA, starting with the quarter ending December 31, 1985 (Action Plan, Annex 8). It is estimated that about 75 staff-weeks of IDA field supervision will be required during implementation, with more effort being made during initial years of the project.  -30- IV. FINANCIAL ASPECTS A. The Project and Sector Investments 4.01 The project forms part of GOK's investment program during the Seventh Plan (1985-90). The Seventh Plan figures are tentative at this point, but sector investments are estimated to be Rs 2,750 million; this is about twice the size of the Sixth Plan sector investments in current terms and is about 50Z larger in real terms. Based on the preliminary figures for the Seventh Plan, the proposed project would represent about one-third of the sector's investment program. The Table 4.1 summarizes the Sixth Plan, estimated Seventh Plan and the proposed project's sector investments. Table 4.1: KERALA WATER SUPPLY AND SANITATION SECTOR - SUMMARY OF SIXTH PLAN AND ESTIMATED SEVENTH PLAN EXPENDITURES Total Sixth Sixth Plan Estimated Project Plan Annual Average Seventh Plan** Costs * (million) million tmillion) (miLlion) Rural Water Rs 819 (64%) Rs 163 Rs 1350 (49%) Rs 665 (77%) Supply Urban Water Rs 352 (28%) Rs 70 Rs 650 (24%) Rs 98 (11%) supply Rural Sanitation Rs 9 (1%) Rs 2 Rs 150 (5%) Rs 50 (6Z) Urban Sanitation Rs 91 (7%) Rs 18 Rs 600 (22%) Rs 51 (6%) TOTAL Rs 1271(100%) Rs 253 Rs 2750 (100Z) Rs 864 (10Z0) = 31.4% of Estimated Seventh Plan * Central Services have not been added. ** Estimated figures for the Seventh Plan are those provided by KWWA and are subject to finalization. 4.02 Although the Seventh Plan's sectoral allocation would be sig- nificantly larger than its predecessor, the increase is estimated to be similar to the Sixth Plan's increase over the Fifth. KWWA's (then PHED's) actual work program during the Sixth Plan was inflated by an emergency works program, costing Rs 220 millions; this was instituted during Kerala's drought period in the early 80's and was funded directly by GOI. Including this program, the Seventh Plan estimates for the sector represent only about a 26% increase, in real terms, over the Sixth Plan.  -31- B. Financial Objectives and Cost Recovery 4.03 KWWA is responsible for achieving long-term financial viability in the water and sanitation sector. The subsidies currently given by GOK to the sector in the form of capital grants (para 4.08) will need to be continued in the near-term to provide affordable levels of service to consumers. The project is mainly a rural one and the 75% grant element to rural schemes is below the 90% level provided by many other state governments in India. However, given this large grant element and the reduced debt service, it is reasonable to expect a high degree of cost recovery through consumer charges to cover operating costs, the reduced debt service and, if possible, to generate a rate of return. The paragraphs below relate to project cost recovery by KWWA in water supply components. For low-cost sanitation (para 2.35), the local bodies would be responsible for cost recovery from the consumers on terms consistent with the TAG recommendations (para 2.35). 4.04 Cost recovery targets for water supply in the subproject areas are summarized in Table 4.2; they have been thoroughly discussed with KWWA and GOK. The targets are designed for KWWA to recover from the date of commis- sioning the cost of operation, maintenance and overhead. Within the context of affordability limits for tariffs, the largest portion of debt service will also be recovered and, where feasible, a positive rate of return will be generated by the subprojects over time. Consultants, hired by KWWA, have made socio-economic and financial studies to analyze the threshold of con- sumer affordability with a view to establishing appropriate water charges in the project areas. An affordability and 'willingness to pay' limit equal to 2% of monthly household income has been justified; this same limit has been found in several other Bank water projects. In Kerala, affordability is conditioned by the availability of low quality water as an alternative source and the need to encourage house connections and usage of KWWA's service by commercial and industrial users. 4.05 Unlike other IDA water projects in India, the financial targets can be stated only from the end of the project implementation period. This is because in the project areas, except the Quilon Municipality, water systems are being provided for the first time and there can be no cost recovery until comissioning. Assurances were received at negotiations that the financial targets set for 1990 (see Table 4.2) are accepted by GOK. Projections indi- cate that the later targets could be achieved if tariffs are adjusted for inflation. Assurances were received at negotiations that tariff increases will be instituted on a regular basis, as necessary, from 1990. Interim increase for tariffs in the Quilon Municipality and areas under KWWA juris- diction and fcr the Cochin bulk rate (paras 4.23 - 4.24) wouLd be introduced before December 31, 1987 (Action Plan Annex 8). In those areas where the municipalities and local bodies own the existing water system, KWWA is required by its ordinance to charge the full costs of its operation, main- tenance and overhead for the production and distribution systems.  -32- 4.06 Setting specific targets for 1990 are needed to establish the finan- cial principle for the project's cost recovery. A cost and revenue study, to be initiated in 1987 (para 4.18), will review KWWA's costs and it is recog- nized that the targets might have to be somewhat modified in light of the study. Cross-subsidy within the sub-project areas is achieved by the dif- ferential rate structure among domestic and commercial and industrial users and the graduated tariff scale for the domestic users. Since most of the project is directed to the rural areas, realistic cost recovery targets in these areas must recognize the lack of cross-subsidy from industrial users and the fact that over one-half of the beneficiaries at commissioning would be standpost users. The tentative tariff structure throughout the project area (Table 4.4) is kept within a narrow range largely because, according to affordability limits, the financiaL targets vary for the sub-project areas and because COK allows a larger grant element (para 4.08) in the capital financing of rural (as opposed to urban) projects. 4.07 By the mid-nineties, the stable rural areas should be covering a majority of their debt service, and the developing rural areas, as well as the urban area, should be generating positive rates of return. All the water supply assets in the project rural areas, and a bulk of the assets in Quilon, will be new under the project and thus valued at the current price levels prevailing during project implementation. The value of existing assets in the Quilon Municipality have been estimated but there may be some modifica- tion when consultants evaluate the fixed asset accounts for KWWA and the Quilon Municipality (para 4.26). If the Rates of Return indicated in the Financial Targets for later years are achieved, there is also projected to be sufficient cash flow to cover all operating and maintenance costs plus debt service. Given the rural nature of the project, the targets would represent a very positive step toward cost recovery goals in the Indian water supply sector.  -33- Table 4.2: KERALA WATER SUPPLY & SANITATION PROJECT FINANCIAL TARGETS FY89/90 * FY96/97 FY2000/2001 FY90/91 1. Quilon Cover all opera- Generate sufficient Generate sufficient Municipality ting and mainten- revenues to yield revenues to yield ance costs plus at least a 3% Rate at least a 5Z ROR debt service of Return (ROR) on on ANFA Average Net Fixed 2. Rural Devel- Assets (ANFA) oping Areas (A) Quilon Cover all opera- Generate sufficient Generate sufficient Panchayats ting and mainten- revenues to yield at revenue to yield at (B) GCDA ance cost plus least a 1.5% ROR on least a 3X ROR on Panchayats debt service ANFA ANFA (C) Kottayam Panchayats ** 3. Rural Stable Cover all opera- Cover all operat- Cover all operating Areas ting and mainten- ing and maintenance and maintenance ance costs costs, plus at costs plus debt least 602 of debt service. _service * For the Kottayam and Panchayats in Rural Stable Areas, works will be conmissioned in March 1989, and the financial targets isply starting from FY1989/90. For Quilon Municipality and Quilon and GCDA Panchayats, works wiLl be commissioned in March 1990, and the financial targets apply from FY1990/91. * In Kottayam Panchayats, it will be difficult to meet the initial targets due to high O&M costs, but it is expected that the staL:d financial targets can be achieved by 1996. Note: Rate of Return is defined as the Net Revenue (after covering operating, maintenance, ove-head costs and depreciation) divided by Average Net Fixed Assets (ANFA). C. Financing Plan and Project Funding 4.08 GOK has agreed to finance the proposed project on its usual loan-grant mix of 25Z-75 for rural schemes, 50Z-50Z for urban schemes and O-lOOZ for central services. Given the economic analysis of project design (para 5.11) and Kerala's relatively low population growth, the water supply schemes have been designed so that no further capital investment would be required in project areas until 2001. Th2 grant amount represents about 7OZ of project financing due to the preponderance of rural schemes. As mentioned  -34- (para 4.03), the GOK funding pattern for rural investments has higher loan and lower grant amounts than is found in many Indian states. Provision has already been assured by GOK for the proisct's grait and loan funding in the State's Seventh Plan. 4.09 Table 4.3 indicates the project financing plan. Table 4.3: PROJECT FINANCING PLAN LOAN TO BE COMPONENT COST FINANCED BY REPAID BY Rs US$ GOK COK Million Million Loan Grant (Z) (Z) Water Supply: Rural Stable Areas 185.22 16.84 25 75 KWWA Rural Developing Areas 481.34 43.76 25 75 KWWA Urban Area 97.70 8.88 50 50 Quilon Low-Cost Sanitation: Rural Areas 50.07 4.55 25 75 Loc.1 Bodies Urban Areas 51.32 4.67 50 50 Local Bodies Central Services 70.95 6.45 - 100 Project Subtotal: 936.60 85.15 27 73 Plus Interest During Construction 35.39 3.23 100 _ Overall Project Financing 972.19 88.38 30% 70% D. On-Lending Terms 4.10 The proposed credit of US$41 million would be passed on by GOI to GOK in standard center-to-state arrangements. COK would make available to KWWA, the Quilon Municipality and to the local bodies (for the low-cost sanitation work) all funds required by the project, including the proceeds of the IDA credit in a combination of loans and grants (para 4.08). The terms of GOK loan would be at 8.75% annual rate of interest to be amortized over 25 years on equal annual payments to GOK. There would be a five-year grace period for principal and interest payments, during which time the interest due will be capitalized and added to the principal loan amount. 4.11 The interest rate is equivalent to that currently charged by the Life Insurance Corporation of India (LIC) when financing projects of a similar type. This rate is expected to be positive in real terms for the forseeable  -35- future since India's average annuaL inflation rate is estimated by the Bank to range between 6% and 8% over the project period. KWWA would be respon- sible for repayment of all project loans except those associated with the capital costs for the Quilon Municipality and for the low-cost sanitation components. 4.12 Beneficiary local bodies outside the jurisdirtion of KWWA have adopted resolutions agreeing to participate in the ;uject and to conform to the associated financial, operational and institutional requirements. E. Guarantee of Payments to KWWA 4.13 Until FY90, KWWA is expected to have insufficient cash resources to service its total existing debt from GOK and LIC (para 4.33). Given the current water tariff structure, the billable charges to connected private users are insufficient to cover the total amount for KWWA's operating, main- tenance, overhead costs plus debt service. 4.14 At present, KWWA also bills the municipalities and local bodies which own their own water systems for its cost of production/distribution and overhead expenses; charges Cochin a bulk supply rate; and bills local bodies within its jurisdiction for the usage of public standpost water. The record of payment for all these charges has been poor. 4.15 Assurances were received during negotiations that GOK would guarantee any shortfall in KWWA revenues to cover its operating, maintenance, overhead and debt service costs, until the beginning of FY90 (Action Plan, Annex 8), when the cost and revenue study recommendations should be implemented (para 4.21). F. Tariffs 4.16 A tentative tariff structure for connected users (1990 prices), has been estimated to meet cost recovery targets (para 4.06) at commissioning of the project. These tariff rates are within the limit of affordability (2% of average household income) established by the socio-economic surveys l/. It is assumed that there would be graduated tariff slabs for domestic con- sumption; the first slab, representing basic household needs of up to 5000 1/ Affordability calculations for future years have been based on estimated increases in income levels and in general price levels.  -36- liters per month, would be priced at the lowest rate of Rs 1.00 per 1000 liters 1/. The estimates of 1990 tariffs, over the project areas are shown in Table 4.4 below. Table 4.4: KERALA WATER SUPPLY AND SANITATION PROJECT - ESTIMATED TARIFF STRUCTURE FOR PROJECT AREAS Tentative estimate for /a The range of urban and rural charges User Category over project area - 1990 prices (Monthly Consumption) (Rupees per 1000 liters) Domestic users: Under 5000 liters 1.00 5000-15000 liters 1.50-2.00 Over 15000 liters 2.00-2.25 Commercial users: 2.00-2.50 Industrial users: 3.00 /a These tariffs are in line with other states' tariffs inflated to 1990 prices. The recent Tamil Nadu Project (Cr. 1435/SF16-IN) indicates that the urban tariffs at commissioning in 1988-89 will be from Rs 1.35-1.90 per 1000 liters. 4.17 In Quilon, there is currently a water tax established at 4% of annual Rental Value. It is expected that this will continue to generate sufficient funds to pay for public standpost supply. In non-urban project areas, where there is now effectively no water tax, the financial analysis indicates that the cost of standpost water would be about Rs 1 per capita per month. This amount would be raised by the local bodies (Panchayats) from general revenues 21. 1/ No domestic free allowance is envisaged but a minimum charge could be levied against the first 5000 liters per month. 2/ Current legislation limits Panchayat direct collections for water serv- ices to a maximum of 12 1/2% of total annual Panchayat revenue from all internally generated resources. Any additional revenue required for standpost supply is provided as a subvention by GOK.  -37- C. Cost and Revenue Study 4.18 KWWA is now implementing a commercial accounting system which will allow better analysis of its cost of operations and its financial status. Also, over the next five years, KWWA may take over the distribution systems of the ten municipalities. It would therefore be appropriate to reconfirm the estimated tariff structure, based on the cost recovery targets, when better financial information is available, when there is a more precise picture of KWWA's future responsibilities and when it is closer to project commissioning. As part of the project, a state-wide cost and revenue study for water supply will be initiated by December, 1987 (Action Plan, Annex 8). As well as evaluating the actual tariffs for the project area, this study would provide the factual basis for development of a structure for water supply tariffs and charges throughout the State (including rates for bulk supply, public standposts and private, commercial and industrial consumers). When the costs of the sewerage system are better established through the new accounting system, KWWA will examine the issue of sewerage charges separately. 4.19 The study is expected to take 12 months to complete. Terms of reference for the study were reviewed and agreed with IDA at negotiations. 4.20 Future tariff policy must essentially address the entire sector and not confine its attention to the limited project areas. Project area finan- ces simply form a part of the Authority's financial picture. The cost recovery targets that have been defined above for the project area may be equally appropriate for the sector as a whole, particularly as GOK's grant policy has been similar throughout the sector. 4.21 During negotiations, assurances were received that COK and KWWA will review the cost and revenue study with IDA and establish an equitable, statewide structure for tariffs no later than April 1, 1990 1/. Under its ordinance, KUWA must charge the municipalities and local bodies, which own their own systems, the current rates for KWWA's operation, maintenance and overhead costs for their systems. Assurances were also received that GOK will implement the new tariffs, based on the cost and revenue study recommen- dations, for all those systems in operation at the time and for other systems as they are commissioned (Action Plan, Annex 8). The tariffs and charges would then be reviewed and revised on a regular basis, as necessary, in order to adjust for inflation and other factors (Action Plan, Annex 8). 1/ In the case of project areas where new water systems will be commissioned by March 1989, new tariffs will be introduced from April 1, 1989.  -38- H. Interim Tariff 4.22 Tariffs in Trivandrum and several other areas were raised in 1984, but will need to be raised again before project commissioning in order for revenues to cover direct operating costs and debt service. Tariff analysis, geared to the cost recovery targets defined above (para 4.06), indicates that future tariffs for planned systems will have to be substantially increased from existing levels to obtain a reasonable degree of financial viability in the sector. To meet inflation alone, there is justification for a gradual increase in tariffs on a regular basis. To phase in present tariff levels with those proposed at the end of the decade, and to alleviate the need for any operating subsidy by COK, tariffs throughout the sector should be raised in the intervening period, before the introduction of new tariffs and charges based on consideration of the cost and revenue study. 4.23 Within the project areas, only Quilon Municipality will have a water supply system in operation before FY90. At negotiations, assurances were received that Quilon Municipality would raise the current average tariff of Rs 0.40/1000 liters by 50% for domestic usage, and correspondingly for com- mercial and industrial usage, by December 31, 1987. 4.24 In areas under the ownership of KWWA, current tariffs are about Rs 0.5011000 litres for domestic usage. Assurances were given during nego- tiations that KWWA will increase the present levels of water rates by 20% for domestic, commercial and industrial usage by December 31, 1987. Based on current service, KWWA estimates that such an increase would be sufficient to cover all its operating, maintenance and overhead costs. Local bodies out- side the jurisdiction of KWWA would be expected to continue to reimburse KWWA for the full charge of operation, maintenance and overhead costs of their production and/or distribution facilities. Failure on the part of these local bodies to pay these costs would constitute a legitimate reason for GOK, in keeping with the terms of the Ordinance, to request KWWA to assume full responsibility for operating these systems. Cochin Corporation, which cur- rently pays Rs 0.20/1000 liters to KWWA for its treated bulk water supply, would be expected to pay a bulk supply rate adequate to cover KWWA's operat- ing expenditures. Assurances were received at negotiations that KWWA will implement an interim increase in the Cochin bulk supply rate to a minimum of Rs 0.25/1000 liters by December 31, 1987. I. Billing and Collection Performance 4.25 Up until now, billing and collection of water charges from private connections have not been stressed by KWWA and the records appear to be incomplete. Meter readings are done monthly but billings are done in a more sporadic fashion and collections represent only about 70% of what is billed. About 20% of the meters are not in working order. During appraisal, the IDA mission emphasized that in building the financial side of its organization, KWWA must give particular and immediate attention to biLling and collections. With the new accounting system, it will become easier to measure the  -39- efficiency of the effort. ConsuLtants have already recommended the staffing, procedures and bookkeeping required to achieve acceptable billing and collec- tion rates. At negotiations, assurances were received that the following billing and collection targets will be achieved in the medium term: by the end of FY87, 80% billing of accounts and 80% collection of billings; and by the end of FY88, 95Z billing of accounts and 90% collection of billings. J. Accounts, Audits and Submission of Financial Statements 4.26 Consultants have designed accruai accounting, financial control and management information systems for KWWA and are also responsible for their preLiminary implementation. Finances of area schemes would be identifiable as categories under the regional division finances. The systems were reviewed by the appraisal mission and were found to be adequate for recording and reporting all project related financial transactions. The thorough introduction and instruction process for the new systems is proving more time consuming than originally anticipated. To promote the full initiation of staff in the new accounting, assurances were received at negotiations that KWWA will retain the services of the consultants over a two and one-half year period, commencing on December 1, 1985 (Action Plan, Annex 8). The systems should be sufficiently operable to record project expenditures, which are expectea to start in late 1985. Terms of Reference (TOR) for the consultancy were confirmed with IDA at negotiations. The TOR would cover the following activities: (i) assistance in implementing KWWA's new financial systems and modifying them as found advisable for practical use; (ii) staff training at all levels; (iii) preparation of the first year's financial statements (FY87) and IDA progress reports and guidance with the preparation of the second year's statements and reports (FY88); (iv) valuation and preparation of ICWWA's fixed asset account on a scheme-wise basis. The consultants would also assist Quilon Municipality officers to: set up and train the Quilon reporting cell; implement Quilon's accrual accounting systems; assist with preparation of statements (FY87 and FY88) and IDA progress reports; value the KWWA and Qui lon Municipality's water and sanitation sector fixed assets. The minimum consultancy input anticipated for this assignment is about 18 man-months over the two and one-half year period. Funds for consultancy fees have been included in the project costs. 4.27 The Authority's accounts will be audited by independent commercial auditors, acceptable to IDA. The financial statements will include balance sheets, income statements and funds flow statements. The first year to be audited under the new accrual accounting system is FY87. KWWA audit reports, as well as the Quilon and low-cost sanitation audit reports discussed below, will be submitted to IDA within nine months of the end of each fiscal year, starting with FY87. 4.28 Under its SLA, Quilon Municipality is required to keep commercial accounts for its water and sanitation operations separate from its other municipal accounting. These accounts, as well as project accounts similar to those required of the Authority as a whole, may be audited by independent  -40- commercial accountants acceptable to IDA or by the Commercial Wing of the Kerala Accountant General's Office. For the low-cost sanitation sub-projects, the collective project expenditure and cost recovery accounts will be maintained by the Department of Local Administration; the local bodies would be responsible for cost recovery from the households. The Examiner of Local Fund Audits will audit these reports. 4.29 In addition to the above audit requirements, the independent auditors acceptable to IDA are required to certify that all funds provided KWWA by GOK, through the proposed IDA credit, have been used for the projects iden- tified. When IDA reimbursements are requested through Statements of Expendi- ture, the auditors are required to certify that underlying files and data fully support the requests for disbursements. 4.30 Assurances were received at negotiations that all the above audit requirements will be met by KWWA, GOK and Quilon Municipality. K. Financial Projections for the Project Areas and KWWA 4.31 PHED, now KWWA, has kept their accounts on a simple cash basis and the present records are insufficient and difficult to analyze. As part of the preparation for this project, KWWA engaged consultants to set up and help institute an accrual accounting system for the Authority as a whole. Consult- ants were also contracted to do separate financial forecasts for each sub-project area incorporating the results of their tariff studies. Based on this work and the tentative tariff structure, financial projections have been made for the project areas (FY91-FY2000) and are shown in Annex 18; projec- tions have also been made for the Authority as a whole and are shown in Annex 19. Assumptions for the Financial Projections are indicated in Annex 17. 4.32 A summary of the project's financial projections is shown in Table 4.5. These results conform to the project targets (Table 4.2): from FY91, the urban and rural developing areas (except for Kottayam in the ini- tial years) cover all operating, maintenance and debt service costs, and from FY97 they generate Rates of Return of about 1.5X to 3.5%; the rural stable areas from FY90 cover all operating maintenance and overhead costs and by FY97 meet about 60X of their debt service requirements. The sub-project areas (with rural stable areas grouped as one sub-prcject) were analyzed separately to effectively analyze cost recovery and to ensure the financial viability of the project investments.  Zak1s.Al: KERALA WATER SUPPLY AND SANITATION PROJECT SUHHARY OF FINMCIAL PROJECTIONS - PROJECT AREAS (Rs millions) Quigo.....nis,nSLi; QuLnu.i os-gDhsYU& z i,*l._ s1;LaUL-.... ......bsQ&fiMIu. FY90191 FY96197 YY90/91 FY96/97 FY90/91 FY96/97 FT90191 FY96/97 FY90/91 FY96/97 Revenues 9.42 13.64 6.29 9.94 17.11 27.21 4.17 7.79 7.14 13.28 Working Income 5.65 8.30 3.62 5.39 9.95 14.54 1.15 2.87 1.22 4.01 -Depreciation 3.02 3.02 2.75 2.75 8.47 8.47 1.81 1.81 4.96 4.96 Operating Income 2.63 5.28 0.87 2.64 1.48 6.07 -0.66 1.06 -3.74 -0.95 -Interest 4.95 4.48 2.63 2.38 '.91 7.17 1.75 1.61 4.88 4.43 NET INCOME -2.32 0.80 -1.76 0.26 -6.43 -1.10 -2,44 -0.55 -8.62 -5.38 Internal Sources 5.65 8.30 3.62 5.39 9.95 14.54 1.15 2.87 1.22 4.01 Loans - - - - - - - - - - Grants _7" .~w,w _Zi -j _t2L..Lw.: 163 TC TAL nt ORCES 5.65 C.MO 3.62 5.39 9.95 14.54 1.15 2.87 1.22 6.63 Capital Espen. - - - - - - - - - - Change in Working Capital (w.o cash) -1.06 0.40 1.07 0.37 4.05 0.82 0.02 0.38 0.01 1.03 Change in Cash 1.06 2.25 -0.45 2.02 -3.14 -4.68 -0.90 0.46 -4.37 0.02 Debt Service _..65 I I53qQ 3UQO 2.t. ?Q4, MI.f 2Q3 53IS 5 TOTAL APPLICATIONS 5.65 8.30 3.62 5.39 9.95 14.54 1.15 2.87 1.22 6.63 IALAUC5LUI Net Current Assets 7.45 15.81 4.04 12.84 8.07 27.90 2.86 2.65 6.40 3.73 Net Fixed Assets AH B LQBJi.iU jj ILLI6U ULQ& .dZ 1L.A iGfiL Wll2 TOTAL NET ASSETS 109.99 97.21 108.15 97.70 326.38 286.92 69.09 56.21 187.01 149.65 Debt 61.32 54.88 30.55 27.15 93.83 83.50 18.97 16.67 51.46 45.07 Equity (grants) A6iLZ_ &ll ILJ UsZ..AQ i5 ,2 ,QI.&A I.QA& ltal UL 3. iIJL45 TOTAL DEBT PLUS GRANTS 109.99 97.21 108.15 97.70 326.38 286.92 69.09 56.21 187.61 149.65 aig' Operating Income as a Z of Revenues 282 392 142 272 92 222 - 142 - - Rate of Return on Net Fixed Assets 2.62 6.4% 0.82 3.1% 0.52 2.32 - 1.9X - - Debt Service Coverage 1.0 1.5 1.2 1.8 1.6 1.62 0.6 1.4 0.2 0.7  -42- Table 4.6: KERALA WATER AND WASTE WATER AUTHORITY SunnuAry of Financial Projections (Rs millions) FY85/86 FY88/89 FY91/92 FY94/95 Income Statement Revenues 98.1 151.1 478.8 745.1 Working Income 18.9 (2.8) 197.1 318.6 - Depreciation 51.3 77.2 128.7 161.5 Operating Income (32.4) (80.0) 68.4 157.1 - Interest 30.7 61.7 113.6 136.4 NET INCOME (63.1) (141.7) (45.2) 20.7 Funds Flow Statement InternaL Sources 18.9 (2.8) 197.1 318.6 Loans 177.8 205.5 143.6 143.6 Grants 334.6 479.9 293.6 293.6 TOTAL SOURCES 531.3 682.6 634.3 755.8 Capital Expenditure 474.9 597.9 437.2 437.2 Change in Working Capital and Cash 1C.3 5.7 44.6 121.8 Debt Service 38.1 79.0 152.5 196.8 TOTAL APPLICATIONS 531.3 682.6 634.3 755.8 Balance Sheet Net Current Assets 31.0 48.3 229.5 519.4 Net Fixed Assets 1,604.5 2,487.3 4,242.6 5,102.6 Work in Progress 148.7 824.3 95.0 95.0 TOTAL ASSETS 1,784.2 3,359.9 4,567.1 5,717.0 Debt 403.4 1,044.3 1,429.7 1,700.6 Equity 1,380.8 2,315.6 3,137.4 4,016.4 TOTAL (Debt+Equity) 1,784.2 3,359.9 4,567.1 5,717.0 Ratio Operating Income as Z of Revenues - - 14% 21% Return on Average Net Fixed Assets in Operation (2.0%) (3.2%) 1.6Z 3.1% Debt Service Coverage - 1.3 1.6  -43- 4.33 The opening KWWA accrual accounts have been estimated by consultants. Based on these, projections have been made for KWWA from FY86-FY95. Through FY89, an average uniform tariff is assumed, similar to what exists now in the State of Rs 0.50 per 1000 liters. From FY90, the tariffs assumed are the ones tentatively estimated for the project. A summary of KWWA's financial projections is shown in Table 4.6. The need for a tariff revision is apparent from the statements. Until FY90, an annual revenue grant (of up to about Rs 85 million in FY89) will be required from GOK for KWWA to cover the total of its operating and maintenance expenses, interest payments and repay- ment of principal. From FY90, due to the proposed tariff restructuring, sufficient cash would be generated to cover all operating costs and debt service obligations and to generate Rates of Return on Net Fixed Assets of about 2%. If an interim tariff increase at the uniform level of Rs 0.60 per 1000 liters is implemented in FY88, the need for revenue grants is minimized to about Rs 32 million total in FY89 and FY90. There is the possibility that by 1990 the Authority will take over the ownership of existing water supply systems owned by the municipalities and local bodies. Projections incor- porating this possibility for the ten large municipalities have been made for the Authority from FY91- FY95 (these projections are available in the Project File) and they indicate that the Authority's overall financial position would be marginally improved by the takeover. L. Insurance 4.34 Assurances were received at negotiations that GOK would cover project property loss and damage risks througb self-insurance and would provide funds for any losses which might occur. V. ECONOMIC ANALYSIS AND PROJECT JUSTIFICATION A. Least-Cost Solution and Evaluation of Alternatives 5.01 KWWA's engineering department examined all feasible engineering alternatives for development of water sources and transmission of water in the project areas. To arrive at least-cost solutions, an analysis of capi- tal, operating and maintenance costs was done on a discounted cash flow basis with a 9% discount rate. Consideration was given to deferring capital expen- ditures by phasing key components including pumpsets, treatment plants and service reservoirs. The selection of iater sources was based on least-cost criteria and reliability of flow (para 2.25-2.27). 5.02 If a useful life for the project's assets cf 30 years is assumed, it is estimated to provide about 36 million person years of residential service. Approximately 59% of the tot-l volume would be consumed by residential cus- tomers; the remaining 41% would be consumed by commerce, industry and public institutions. The present value of project costs per person year of service  -44- is Rs 22 in Quilon, Rs 19 in the rural developing areas and Rs 11 in the rural stable areas. If the costs of the project are allocated between residential and non-residential users in proportion to the volumes of projected demand, the per capita costs for residential users are Rs 16, 11 and 5 per year for the Quilon Municipality, rural developing areas and rural stable areas, respectively. (All calculations are in FY91 prices with a 9% discount rate). B. Marginal Cost Analysis 5.03 The long-term marginal cost for water has been estimated using the average incremental cost (AIC). Price distortions are judged to be of minor significance except for wages paid to unskilled labor. The wage bill for unskilled workers represents slightly over 2% of the present value of project costs; and therefore shadow prices were not applied. All calculations refer to constant FY91 prices. Table 5.1 below indicates the AIC per 1,000 liters, for each sub-project, at a 9% discount rate calculated over a project life of 40 years. Table 5.1: AVERAGE INCREMENTAL COST PER 1,000 LITERS - Rural Stable Areas Rs 2.61 - Rural Developing Areas Rs 2.71 - Urban Rs 2.46 WEIGHTED AVERAGE Rs 2.61* * The AIC is sensitive to the assumed discount rate. At an 8% discount rate, the weighted average for the AIC would be Rs 2.39/1,000. 5.04 The tentative tariff (in Rs/l,000) for domestic slab rates is about Rs 1.00-2.00/m3; for commercial, Rs 2.25-2.501m3; and for industrial, Rs 3.00/m3. These rates are limited by households' ability to pay and the need to discourage consumers from using alternative water sources which are pol- luted. Thus, the AIC is reasonably related to the tentative tariff struc- ture: industrial and commercial users would pay rates which approximate the average incremental costs; rural domestic users who dominate the project, would pay about 60% of the AIC. C. Rate of Return 5.05 Financial and economic appraisals have been conducted under the assumption that industrial customers would be charged about Rs 3.00/m3 and commercial customers Rs 2.50/m3. Progressive tariffs would be applied to residential customers. The tentative tariff structure will be finalized  -45- following completion of a cost an' revenue study to be financed under the project (paras 4.18-4.21). The value of incremental project benefits has been estimated as the area beneath the demand curve c3rresponding to incremental consumiption plus the cost savings accruing to consumers as a consequence of reduced expenditures to obtain preproject supplies. The details of the calculations are summarized in a working note in the Project File (Annex 21). Table 5.2 presents the economic rates of return (ERR) for the three subprojects together with estimates of the impact of changes in the parameters of the analysis. Table 5.2: ESTIMATED RATES OF RETURN FOR SUBPROJECTS Quilon Municipality Developing Rural Stable Rural Estimated ERR 12.2Z 14.1% 7.1% Impact on ERR of 102 change in tariffs +0.6 +0.3 +0.8 1% change in rate of new connections +0.3 +0.4 +0.6 2 year delay in -0.9 -2.0 -1.1 implementation Reduction in Rate +0.1 +0.1 40.1 of Unaccounted-for water of 10% Constant Power Cuts +0.2 +0.4 +1.5 D. Environmental Health Impact 5.06 In the rural areas, where the existing water sources are poor in quality and in reliability, the impact of the new water supply schemes would be substantial. The availability of sufficient quantities of good quality water should lead to a marked reduction in the incidence of water-related diseases (para 1.09). The urban water supply component in Quilon would improve present environmental conditions by increasing service levels, providing more uniform distribution of piped water and meeting the increased demand due to population growth. The low-cost sanitation components would make much-needed improvements in the sanitation conditions in the selected town and rural areas. By promoting an equitable distribution of wholesome water, and improved disposal of human waste, the project would help reduce sources of disease which presently pervade both rural and urban communities.  -46- E. Impact on Poverty Groups 5.07 The poorer groups in the rural areas of the project would benefit most directly from the provision of public standposts. The design criteria for the standposts provide for 180 people per tap, which allows the walking and waiting times for water collection to be reduced. A socio-economic study for the project area reported that households currently spend an average of one hour 40 minutes per day in fetching water, often from unsatisfactory sources. Conditions are worse during the dry season when many sources disap- pear. The urban water supply component of the project would ensure that satisfactory service levels (per capita allowance, pressure and supply hours) are provided at the standposts in Quilon Municipality. The low-cost sanita- tion components will have a substantial impact on poverty groups, since the project will provide 100% coverage of the population in the selected com- munities. 5.08 Identifying the poverty group among beneficiaries is difficult as the poor in Kerala are geographically dispersed in the project areas. It is reasonable to assume that the numbers in the poverty groups receiving benefits will be proportionate to their population within each subproject area. Components such as low-cost sanitation and the revolving fund for house connections wiLl benefit a higher proportion of the poverty group. The rural poverty threshold for Kerala was estimated in 1979 at an annual income of Rs 550 per capita, which is the equivalent of about Rs. 890 per capita in 1985 prices. On this basis about 78% of project beneficiaries are poor. These beneficiaries are expected to demand two-thirds of the quantity of water supplied for residential use. About 47% of project costs (US$40 mil- lion) will be spent on providng water to the poor. Because of the cross subsidies imbedded in proposed tariff structures, the poor will pay only about a quarter of the capital and operating costs of supplying water under the project. F. Project Risks 5.09 Because the project is large and extended over a substantial area, implementation will have to be well coordinated and monitored for the project to be finished on time. Since KWWA is newly established, there is a risk that the organization structure may not function compLetely smoothly. For- tunately, KWWA's technical staff (in its previous role in PHED) has hod considerable experience in handling projects of similar magnitude and scope. Also, the organization, management and staffing of KWWA are being strengthenea (para 3.07-3.08) as part of the project. Along with the Opera- tional Action Plan (Annex 8), consultants will help design and introduce a project monitoring system. 5.10 Achieving the project's financial objectives has been a major concern in most water supply projects. To minimize the risk of failure, realistic financial targets have been set; the Action Plan has been detailed (Annex 8) to help improve both cost recovery and operating efficiency; and improved  -47- financial and accounting systems are being implemented which will help measure and control KWWA's financial performance. Assurances were received at negotiations on the implementation of: interim tariffs required to phase in the 1990 financial targets; a cost and revenue study to recommend state-wide cost recovery targets (para 4.18); and the application of tariffs to the entire KWWA service area in 1990. The project seeks the achievement of financial targets not just in discrete project areas but to assure the financial viability of KWWA as a whole. C. Project Justification 5.11 The project is justified by: (a) the physical objectives of meeting priority needs in the sector; (b) the project's economic and financial rates of return; and (c) the improvements which can be achieved in the sector's institutions and policies. 5.12 The main physical objective is the provision of piped water supplies to rural communities which have no safe supply at present. About three-quarters of the project's construction funds will be allocated to this purpose. More than 80% of the project's rural water supply is for schemes that faLl into COI's 'problem village' category; sonme 60% of the people in these villages are below the absolute poverty threshold. The project's design supply is for about 1.5 million people in rural areas and 190,000 people in the urban area. The urban water supply component of the project allows rehabilitation and extension of an existing system and also facilitates provision of supplies to adjacent rural areas. The sanitation components will promote appropriate low-cost technology in the State and, for the first time, a program will specifically address rural needs. 5.13 The proposed water supply financial targets for the project have been set at realistic levels, which result in tariffs that are affordable to domestic consumers and allow satisfactory ccost recovery for the KWWA; there would be full coverage of project operating and maintenance cost from commis- sioning and rates of return would be generated in the subproject rural developing areas over time and in the urban area from commissioning. All the subprojects have been designed technically to use least-cost solutions. The project results in acceptable economic rates of return of between 7 to 14X, with the industrial and commercial users expected to pay rates which approximate the average incremental cost. 5.14 The project has a strong institutional and policy emphasis. It is expected to strengthen financial managemJent (through full implementation of the new accounting systems), to improve central services (through meter repair and leak detection programs) and to develop staff capability (through a comprehensive training component). Low cost sanitation will be promoted in rural and urban areas as an alternative to water-borne sewerage. And for the first time in Kerala, financial accountability will be adopted in the sector. The project addresses the issue of cost recovery on state-wide basis, by supporting interim tariff increases in 1987 and a cost and revenue study which will make recommendations for a 1990 tariff and charge structure for the whole state including areas outside the project.  -48- VI. AGREEMENTS AND RECOMMENDATION 6.01 The following assurances were received at negotiations: From GOK to: (1) Cause the Local Bodies to be responsible for the cost recovery from household beneficiaries of the urban and rural low-cost sanitation components (para 2.35). (2) Sanction and fill four posts of Chief Engineer and one post of Financial Advisor and Chief Accounts Officer by August 1, 1985 (para 3.08). (3) Fully staff the Project Management Unit by August 1, 1985 (para 3.10). (4) Cause Quilon Municipality to set up a separate cell for report- ing and monitoring its water supply and sewerage finances by August 1, 1985 (para 3.13). (5) Adopt financial targets for the subproject areas from the date of project commissioning: Quilon Municipality and Quilon and GCDA Panchayats to cover all operating and maintenance costs plus debt service from FY90/91; Kottayam, Puthencruz, Adoor, Chithera and Vilappil Panchayats to cover all operating and maintenance costs from FY89/90 (para 4.05). Institute regular tariff increases, as necessary (para 4.05). (6) Guarantee for years FY86 - FY89 any shortfall in KWWA revenues required to cover all operating and maintenance costs and debt service to LIC (para 4.13-4.15). (7) Initiate a state-wide Cost and Revenue Study to start by Decem- ber 1987 (para 4.18), on consideration of which state-wide tariffs and charges would be established by April 1, 1990 para 4.21). (8) Cause the Quilon Municipality to implement an interim tariff increase by December 31, 1987 (para 4.23). (9) Implement an interim tariff increase in the KWWA service area and an interim increase in the bulk rate to Cochin, by December 31, 1987 (para 4.24). (10) Cause the Quilon Municipality: to maintain accrual accounts for its water sector finances; to have the financial statements audited by independent auditors, acceptable to IDA, or by the  GOK Accountant General's office, Commercial Wing; and to have the audit submitted to IDA no later than nine months after the end of each fiscal year, starting FY87 (para 4.28). (11) Cause the Department of Local Administration: to maintain project expenditure and cost recovery accounts for the urban and rural low-cost sanitation components; to have the reports audited by the Examiner of Local Fund Audits; and to have the audit sent to IDA not later than nine months after the end of each fiscal year, starting FY87 (para 4.28). (12) Cover project property loss and damage risk, through self- insurance, and provide funds for any losses which might occur (para 4.34). From KWWA to: (1) Review and update annually the Action Plan in a form that is satisfactory to IDA (para 2.09). (2) Prepare a leak detection program for review by IDA by December 31, 1985 and set up a fully operational leak detection unit by April 1, 1986 (para 2.28). (3) Set up a Low-Cost Sanitation cell within KWWA by August 1, 1985 and, with TAG support, prepare a feasibility study for rural low-cost sanitation schemes by October 1, 1985 (para 2.34.). (4) Commence design of priority training component by January 1, 1986 (para 2.41). (5) Prepare a progress reporting system satisfactory to IDA by by August 1, 1985 and submit quarterly reports to IDA starting with the quarter ending December 31, 1985 (para 3.14). (6) Meet billing and collection targets agreed at negotiations (para 4.25). (7) Retain consultants, under Terms of Reference acceptab'e to IDA, for a 2-1/2 year period starting December 1, 1985 to assist in the: full implementation of the accrual accounting system; training of the financial staff; preparation of the FY87 and FY88 accounts and the progress reports to IDA; setting up of the Quilon Municipal accounting cell for sector finances; valua- tion of the KWWA and Quilon Municipal fixed assets for the water and sanitation sector (para 4.26).  -50- (8) Have KWWA's Financial Statements audited by independent commer- cial auditors, acceptable to IDA, and submit audit to IDA no later than nine months after the end of the fiscal year, start- ing FY87 (para 4.27). (9) Have independent auditors, acceptable to IDA, certify that all funds pro-vided KWWA by GOK, through the IDA credit, have been used for the project work identified, and that the underlying files and documents support the disbursement requests madp through the Statements of Expenditure (para 4.29). 6.02 The following item will be a Condition of Disbursement for the funds allocated to the relevant subprojects: (1) All local bodies, participating in the Low-cost sanitation components, to pass by-laws satisfactory to IDA to regulate the construction and location of sanitary units so as to limit the pollutant effects, (para 2.36). 6.03 Subject to the above conditions and agreements, the proposed project is suitable for an IDA Credit of US$41.0 million equivalent, to the Govern- ment of India.  -51- K53&~~~~~~~~~~~~~Ap 1AE D nT 85186 86187 87188 88/89 89(90 Total 85/86 86/87 87/88 88/89 89/90 Total -a million- - lUs million- Rural Stable Civil 0.00 11.85 16.38 20.10 0.00 48.33 0.00 1.08 1.49 1.83 0.00 4.39 Areas Water mat'l 6.01 31.67 33.51 6.47 0.00 77.66 0.55 2.88 3.05 0.59 0.00 7.06 supply Duties 0.63 3.41 3.61 0.71 0.00 8.37 0.06 0.31 0.33 0.06 0.00 0.76 Total 6.65 46.93 53.51 27.27 0.00 134.36 0.60 4.27 4.86 2.48 0.00 12.21 Rural Dev- Civil 0.00 33.37 39.00 41.83 24.51 138.71 0.00 3.03 3.55 3.80 2.23 12.61 loping Areao 1at'1 15.59 50.79 61.80 50.53 5.10 183.81 1.42 4.62 5.62 4.59 0.46 16.71 Water Supply Duties 1.48 4.93 6.00 4.91 0.51 17.83 0.13 0.45 0.55 0.45 0.05 1.62 Total 17.07 89.09 106.81 97.26 30.11 340.35 1.55 8.10 9.71 8.84 2.74 30.94 Urban Civil 0.00 5.20 5.91 6.22 4.87 22.20 0.00 0.47 0.54 0.57 0.44 2.02 Water Supply at'l 3.26 10.58 12.21 12.92 2.75 41.71 0.30 0.96 1.11 1.17 0.25 3.79 Duties 0.23 0.77 0.89 0.94 0.20 3.04 0.02 0.07 0.08 0.09 0.02 0.28 Total 3.49 16.55 19.01 20.08 7.81 66.94 0.32 1.50 1.73 1.83 0.71 6.09 Low Cost Saul- Civil 1.89 3.27 4.01 3.87 0.00 13.05 0.17 0.30 0.36 0.35 0.00 1.19 cation Urban Kt'l 3.14 5.34 6.58 6.46 0.00 21.53 0.29 0.49 0.60 0.59 0.00 1.96 Duties 0.11 0.23 0.34 0.23 0.00 0.91 0.01 0.02 0.03 0.02 0.00 0.08 Total 5.15 8.84 10.93 10.56 0.00 35.48 0.47 0.80 0.99 0.96 0.00 3.23 Low Coat Sani- Civil 0.00 1.61 2.06 2.06 5.72 11.45 0.00 0.15 0.19 0.19 0.52 1.04 tation Rural kat'l 0.00 2.66 3.40 3.40 9.47 18.93 0.00 0.24 0.31 0.31 0.86 1.72 Duties 0.00 0.10 0.15 0.15 0.40 0.79 0.00 0.01 0.01 0.01 0.04 0.07 Total 0.00 4.37 5.61 5.61 15.58 31.18 0.00 0.40 0.51 0.51 1.42 2.83 RUE-TOTAL 32.36 165.79 195.88 160.78 53.51 608.32 2.S4 15.07 17.81 14.62 4.86 55.30 Central )Iet.Wksbop 0.00 0.00 0.37 0.62 0.00 0.99 0.00 0.00 0.03 0.06 0.00 0.09 Services Meters 0.00 0.00 4.09 9.95 2.32 16.36 0.00 0.00 0.37 0.90 0.21 1.49 Veha, Iisc 0.00 2.85 0.00 2.24 0.00 5.09 0.00 0.26 0.00 0.20 0.00 0.46 Total 0.00 2.85 4.46 12.81 2.32 22.44 0.00 0.26 0.41 1.16 0.21 2.04 Others Revl Fund 0.CO 0.00 0.00 7.85 7.41 15.26 0.00 0.00 0.00 0.71 0.67 1.39 Land 4.81 4.50 0.00 0.00 0.00 9.31 0.44 0.41 0.00 0.00 0.00 0.85 Training 3.85 3.59 0.22 0.19 0.00 7.85 0.35 0.33 0.02 0.02 0.00 0.71 Consulty 0.39 0.22 0.96 0.00 0.00 1.57 0.04 0.02 0.09 0.00 0.00 0.14 Total 9.05 8.31 1.18 8.04 7.41 33.99 0.82 0.76 0.11 0.73 0.67 3.09 SUB-TOTAL 41.41 176.95 201.52 181.63 63.24 664.75 3.76 16.09 18.32 16.51 5.75 60.43 ENGINEERING 4.69 24.53 29.00 24.14 8.22 90.58 0.43 2.23 2.64 2.19 0.75 8.23 Physical Contingency 1.66 10.24 12.31 11.60 4.77 40.57 0.15 0.93 1.12 1.05 0.43 3.69 Price Contingencies 1.62 20.84 41.07 53.85 23.32 140.70 0.15 1.89 3.73 4.90 2.12 12.79 TOTAL 49.38 232.55 283.91 271.22 99.55 936.60 4.49 21.14 25.81 24.66 9.05 85.15 m.: civil - Civil Works Nat'l - Naterials & Equipment Duties - Duties & Taxes Met.Wksbop - Meter Repair Worksbop Vebas,isc - lehicles & Miscellaneous Equipment Revl Fund - Revolving Fund  RAIJA WATER SUPPLY & UNITATION PROJECT sector Inyeatanta In Karala (Xs Current Prices) 1966-1974 1974-1978 1978-1980 1980-1985 luavease (Fifth Plan) (Annual Planc) (Siztb Plan) in Sixth Plan Re S1. Sub Sector per yr No. Annual-Average Annual AveraRa Annual AvCrage Annual Average over Fifth Total Total R.e 2 Total ls. 3/ Total Plan Rs. Il. Re.per R/ Is. Re. per Rs. Rs. per Re. Ra. R.per / (X) Million Million Capita Million Million Capita Million Million Capita. Million Million Capita 1. Urban Water Supply 397.00 49.62 13.61 210.72 52.68 13.24 115.98 57.99 12.39 351.76 70.35 13.70 34 2. Urban Beverage/Sanitation 8.11 1.01 0.27 7.23 1.80 0.45 15.31 7.66 1.64 90.92 18.18 3.54 910 3. Rural Water Supply 108.54 13.57 0.71 112.57 28.14 1.36 124.59 62.30 3.07 819.29 163.86 7.36 482 4. lural Sanitation 0.50 0.06 - 2/ 1.14 0.28 0.01 0.18 0.09 - 8.77 1.75 0.08 525 5. Research & Development 0.11 0.01 - 0.34 0.08 - 0.24 0.12 - 0.61 0.12 - 50 6. Water & Air Pollution -...- J4f- - 1.00 .01,25 - g.Q L --.- .85 JJL. _L TOTAL 514.26 64.28 - 333.00 83.25 - 256.91 128.45 - 1277.20 255.43 - 207 Funded from: - LIC Loans 232.21 29.03 - 130.46 32.62 - 44.67 22.34 - 149.92 29.98 - -8 - Government Allocation 282.05 35.25 - 202.54 50.63 - 212.24 106.11 - 1127.28 225.45 - 345 1/ Based on 1974 Population (Interpolated) 2/ Based on 1978 Population (Interpolated) 3/ Based on 1980 Population (Interpolated) 4/ Based on 1985 Population (Projected) 5/ Less than 0.01.  -53- INDIA ANNEX 3 KERAIA WATER SUPPLY AND SANITATION PROJECT Page 1 of 2 Existing and Proposed Service Levels for Water Supply in the Project Area In most of the rural areas, existing water supplies are drawn directly from wells. This source is unsatisfactory, since the wells are subject to contamination and often dry up in the summer months. Although minor piped water systems have been installed to cover small parts of some areas, the sources provide a yield which is inadequate and unreliable. In the subproject area for GCDA, limited piped supplies have been provided to a part of the population by extensions to the existing system supplying the Cochin Corporation. Where appropriate, components from existing schemes will be incorporated into the project's comprehensive scheme. In the rural areas surrounding Quilon, the predominant reliance on dug wells is supplemented by some small piped schemes depending on tubewells and on limited supplies drawn from the existing municipal system. In the Quilon Municipality, only about 20% of the population cur- rently receives a piped water supply through house connections; the remainder rely on standposts or non-piped supplies. The existing system does not meet the present demands at all times and is inadequate to supply expanding domes- tic, commercial and industrial requirements. The source of water for the Quilon scheme is the Sasthamcottah Lake, from which water is abstracted, treated and pumped through a 26 km pipeline. Water supply systems exist in all of the ten towns included in the urban low-cost sanitation component. Wherever possible, the rural areas to be selected for installation of low-cost sanitation will be restricted to areas where piped water supply will be already available. None of the areas which will receive water supplies under the project has a water-borne sewerage system. Waste disposal for the one urban area, Quilon, will be taken up under other COK projects. Sanitation is generally provided in the form of bucket or pit latrines. Similar conditions exist in the ten towns which are the subject of the low-cost sanitation component. Proposed Service Levels for Water Supply The objective of the proposed project is to provide virtually all consumers in the project area with at least a basic safe domestic supply (30 liters per capita per day) by 1990, and thereafter to increase the proportion of consumers with direct house connections steadily up to the end of the project design period in the year 2011. By that time, the net service levels for house connections would be as follows: (a) Stable Rural Areas - 40% of the ponulation served would have a house connection providing 60 lpcd. (b) Developing Rural Areas - In two of the three subproject areas (Kot- tayam and Quilon panchayats), 60% of the population served would have  _54_ ANNEX 3 Page 2 of 2 a he-use connection providing 60 lpcd. In GCDA the project would provide the standard of service for urban areas (as described below) by the end of the project period. (c) Urban area - 80% of the population would have a house connection providing 112.5 lpcd. The remainder of the served populations in both the urban and rural area would receive 30 lpcd through public standposts. All the above per capita consumption figures are expressed net of losses in the system; the net consumptions are based on gross figures less an allowance of 25% for water wastage. Details of proposed service levels for the various project components are given in Annex 3. In the urban and developing areas, between 15% and 25% of total supply is expected to be sold to industrial and commercial consumers. The domestic service levels proposed for the project are in line with current policy appLicable to other schemes in Kerala, and are relatively modest compared with the guidelines proposed by GOI for urban supplies: 140 lpcd for house connections and 40 lpcd for public standposts. Population and TotaL Demand Forecasts Forecasting of future population in the subproject areas has been based on the 1981 census figures and past population growth rates in the areas. The forecasts for the project are summarized in Table 1 below. Table 1: POPULATION IN PROJECT AREA At Long census Commissioning Intermediate Term Subproject 1981 1990 2001 2011 -------Thousands- RURAL STABLE AREAS Puthencruz 77 86 104 124 Adoor 138 157 184 213 Chithara 109 124 145 168 Vitappil 23 27 32 38 RURAL DEVELOPING AREAS Kottayam 146 162 184 207 GCDA 324 381 465 556 Quilon (Panchayats) 143 167 202 241 URBAN AREA Quilon (Municipality) 138 152 170 189 TOTAL 1,098 1,256 1,486 1,736 Demand projections for water supply in each of the subproject areas after commissioning are given in Annexes 4 and 5, and are summarized in Annex 6. The existing supply situation in Quilon Municipality is also indicated in Annex 5.  INDIA KERALA WATER SUPPLY AND SANITATION PROJECT Summary of Usage and Per Capita Consumptions for House Connections and Public Standposte Proportion of Proportions of served Net per capita total popula- population supplied by consumption tion served house connections and norms (lped) by scheme public stand posts. 1990 2011 1990 2011 HC PSP SC PSP HC PSP HC PSP Rural (Stable Population) 4 schemes: 90% 30% 70% 40% 60% 60 30 60 30 Rural (developing populations) GCDA 90% 30% 70% 80% 20% 60 30 112.5 30 Kottayam 90% 40% 60% 60% 40% 60 30 60 30 Quilon (panchayate) 100% 40% 60% 60% 40% 60 30 60 30 Urban Quilon (Municipality) 100% 50% 50% 80% 20% 112.5 30 112.5 30 Notes: HC - house connection; PSP a public stand post. Per capita consumption figures are expressed net of losses in the system: W the net consumptions are based on gross figures less an allowance of 25X for system losses. The Quilon Panchayats and Quilon Municipality are supplied by a single scheme.  -56- TRDIA ANEr 4 XERALA WATER SUPPLY AND SANITATION POECT Water Supl_iee for Projeet Stable Rural Areas [Salient Data and Eroposed Service Jevels) ----_---________-------_____--------_--------_--------__--__----_ Ut. Puthencuz. Adoor Chithara ViSlapil e. 1990 2001 2011 1990 201X 2011 1990 2001 2011 1990 2001 2011 ---------------------------------------------------___-__--_________ 1. rnInLatie Das 65890 104100 124000 157000 154360 213500 124000 145110 167560 26020 32400 3e470 2. Pnunmltiom laraed 2.01 Si Conoctlosa. - 'lee. 23190 32900 44640 42390 58260 76060 33480 45850 60320 7240 10240 13850 _% of total population. 27 31.60 36.00 27 31.60 36.00 27 31.60 36.oo 27 31.60 36-00 - Average number pe connectiones. 5 5 s s 5 5 5 5 5 S 5 S 2.02 pt standposta. - Nos. 54110 60794 66960 96910 107670 115290 76120 84750 90460 16900 18920 20770 - 1 of total population. 63.0 53.4 54.0 63.0 58.4 54.0 63.P 58.4 54.0 63.0 58.4 54.0 - Average munber per connection. 180 160 160 180 180 Leo 180 1S9 ISO 180 18o 1SO 2.03 by otheor meats. - Noe. 8590 10410 12400 15700 18430 21350 12400 14510 16760 2660 3240 3850 - S of total population 10.0 10.0 10.0 10.0 10-0 10.0 10.0- 10.0 10.0 10.0 10.0 10.0 3. Connpetionalstand Paste t1a) 3.01 Domestic (metered) 4636 6579 8928 8476 11652 15372 6696 9170 12064 1446 2045 2770 3.02 Cousercial(Cmtermd) 1130 1425 1760 2068 2523 3028 1633 1985 2375 360 443 545 3.03 Total No.o2 connfctlone 5768 8004 10668 1os46 14175 18400 8329 11155 14439 1808 2491 3315 3.04 Stadposts 301 338 3n2 50 598 640 434 411 o03 94 105 its 4. Net meter Daesd (laed) -Domestic 60 60 60 60 60 60 60 60 60 60 60 60 -Stanl posts 30 30 30 30 30 30 30 30 30 30 30 30 5. Water emased 1a3/dayl 5.S1 Domestic Conesumption 1391 1974 2678 2543 3496 461l 2009 2751 3619 434 614 531 8.02 Stand Post consumption 1623 1824 2009 2967 3230 3459 2344 2143 2714 507 565 623 5.03 Coemercial conmptlon 452 570 704 627 1009 1211 653 794 950 141 177 218 5.04 Useccounted for 1155 1456 1789 2113 2578 3094 1667 2029 2428 365 453 556 5.05 Total demand 4621 5824 7188 8450 10313 12375 6673 8117 9711 14i2 1812 2230 6. oter ductioA Cmapacty 4