Liberia - Second Water Supply Project

Document of The World Bank FOR OMCIAL USE ONLY C,g. /S 3- 2 / Retpt N6. 5223-LBR STAFF APPRAISAL REPORT REPUBLIC OF LIBERIA SECOND WATER SUPPLY PROJECT February 15, 1985 Western Africa Projects Department Water Supply Division Tis document as a restsictd dstribtom ad -y be used bY recipents only in the pedformance of their offiial dutie. its ctntess my nut d&erwise be discosed withet World Bank uboria*o.  CURRENCY EQUIVALENTS The official monetary unit is the Liberian Dollar with par value equal to the US Dollar (US$). The US Dollar is legal tender in Liberia. MEASURES AND EQUIVALENTS 1 millimeter (mm) = 0.04 inches (in.) 1 meter (m) = 39.4 inches (in.) = 3.28 feet (ft) 1 kilometer (km) = 0.62 miles (mi) 1 square kilometer (kM2) = 0.386 square miles (sq. mi) 1 cubic meter (m3) = 35.3 cubic feet (cu. ft) 1 liter (1) = 0.264 US gallon (gal) 1 cubic meter per second (m3/sec) = 22.8 million US gallons per day (ngd) 1 cubic meter per day (m3/day) = 264 US gallons per day liters per capita per day (lcd) = 0.264 US gallons per capita per day 1 hectare (ha) = 2.47 acres (ac) ABBREVIATIONS AND ACRONYMS AfDB African Development Bank CDC Commonwealth Development Corporation (United Kingdom) GOL Goverment of Liberia GTZ Gesellschaft fur Technische Zusammenarbeit (German Technical Assistance Agency) KfW Kreditanstalt fur Wiederaufbau (German Reconstruction Bank) LWSC Liberia Water and Sewer Corporation PPF Project Preparation Facility of the World Bank PVC Polyvinyl chloride SAC Structural Adjustment Credit UNICEF United Nations International Children's Emergency Fund US United States USAID United States Agency for International Development FISCAL YEAR - GOL and LWSC January 1 - December 31, prior to FY81 Januarv 1, 1980 - June 30, 1981, for FY81 July 1 - June 30 subsequent to FY81  FOR OMCUIL USE ONLY REPUBLIC OF LIBERIA SECOND WATER SUPPLY PROJECT TABLE OF CONTENTS Page No. DOCUMENTS CONTAINED IN PROJECT FILE ..... .............. iv CREDIT AND PROJECT SUMMARY ....... ..................... v-vi I. THE WATER SUPPLY AND SANITATION SECTOR A. General I A.Geerl .............................................. 1 B. Water Resources ................................. I C. Organization ........................1............ D. Development and Objectives ................... 2 E. Water Supply Service Levels .................... . 3 1. Urban ..................... 3 2. Rural ........ 3 F. Sewerage ....... ... 3 G. Bank Lending and Assistance Strategy ........... 3 II. THE PROJECT AREA A. Location ............. ........................... 5 B. Population Growth ....... ........................ 5 C. Water Demand Projections ...... .................. 6 D. Existing Water Supply Facilities ..... ........... 6 E. Sewerage ............ ............................ 8 III. THE BENEFICIARY A. Background ......................... 8 B. Management and Organization ..................... 9 C. Personnel ......................... 9 D. Operations and Maintenance .......... ............ 10 E. Metering ........................................ 10 F. Billing and Collection ...... .................... 11 G. Accounting ...................................... 11 H. Training ........................................ 11 I. Insurance ............ 12 This report was prepared by Mr. E. P. Aikins-Afful (Sanitary Engineer and Lead Project Officer) and Ms. E. W. Patterson (Financial Analyst) based on the findings of an appraisal mission comprising Messrs. J. H. Nebiker (Sanitary Engineer and Mission Leader), Eric Williams (Consultant Financial Analyst) and S. Katsu (Economist) who visited Monrovia in June 1983. The report was processed by Miss E. Yan and Mrs. L. Iacono. Thi document has a restricted distribution and may be used by recipients only in the performance of teiofric dutes. Its contents ay not otherwise be discosed without World Bank authorizaton.  - ii -! Table of Contents (Continued) Page No. IV. THE PROJECT A. Genesis ..................... 12 B. Project Objectives ...... 12 C. Investment;Program..... 13 D. Project Dehcription..... 13 E. Project Cost Estimates ...... 15 F. Project Financing ...... 17 G. Implementation..... 18 H. Training ...... 19 I. Implementation Schedule .... 19 J. Procurement. ....... 20 K. Disbursements ...... 22 V. FINANCE A. Financial Performance .... ......... ......... ... 23 B. Billing, Collection and Liquidity 25 C. Capitalization .................. . ....... - 25 D. Accounts and Audit .. .. .................... 26 E. Tarif fs ............... ,......0...... 27 F. Prospects for Improved Financial Performance .... 28 G. Financing Plan . ..28 H. Revaluation of Fixed Assets . .30 I. Future Financial Performance . .30 VI. PROJECT JUSTIFICATION AND BENEFITS A. Project Benefits .. .32 B. Least-Cost Analysis and Alternatives ... 32 C. Access to Service by the Poverty Group . .32 D. Affordability . . ............. 33 E. Rate of Return ...34 F. Project Risks ...34 G. Environmental Considerations . ................ 34 VII. AGREEMENTS AND RECOMMENDATION A. Agreements Reached ............................ 35 B. Conditions of Credit Effectiveness ... 36 C. Recommendation .......... .... . 36  - iii - Table of Contents (Continued) ANNEXES 2-1 Monrovia Water Supply - Population, Demands and Capacity 2-2 Monrovia Water Demand Forecast 3 Organizational Chart L.W.S.C. 4-1 Investment Program - Greater Monrovia Water Supply System 4-2 LWSC Manpower & Training 4-3 Implementation Schedule 4-4 Action Program 4-5 Estimated Credit Disbursement Schedule 5-1 LWSC - Income Statement 5-2 LWSC - Balance Sheet 5-3 LWSC - Funds Flow Statement 5-4 LISC Water Rate vs. Inflation 5-5 Assumptions Used in Financial Forecasts MAP: Liberia - Monrovia Water Supply System (IBRD Map No.17710)  -iv - REPUBLIC OF LIBERIA SECOND WATER SUPPLY PROJECT DOCUMENTS CONTAINED IN THE PROJECT FILE File Code A. Reports and Studies Related to the Sector Al. Liberia excluding Monrovia - Part I, prepared ) CR. 859-LER by PWL, July/August 1980 ) 122.945 (P3_5) A2. West Africa Regicn, Vater Supply and Sanitation ) Africa - VS Sector Strategy Paper, prepared by the Water ) Sector Bank Supply Division, Projects Department, West ) Reports Africa Region, World Bank, August 1982 ) A3. An Act to Amend the Public Authorities Lay to ) VS Sector - create the Liberia Water and Sever Corporation ) Liberia 620 (approved January 30, 1973, published j Aprii 10, 1973) A4. Monrcvia Sewerage Project, Tcp Priority ) CR. 859-LBE Measures, Report and Dravings, prepared by ) 125.186(3) PYL, May 1981 ) A5. Monrovia Sewerage Project, Long-Term Concept, ) C!. 859-LBE Repcrt, Addendum and Dravings, prepared by ) '25.185 (B1-3) PYL, June/October 1981 ) B. Reports and Studies Re6ated to the Project El. Wazer Sector Study, Part II, Mcnrovia ) CR. 859-LBR Conurbation, prepared by PL, Reporzs and ) 122.945 Drawings, August 1960 ) (1-2, 6-10 B2. %anagement :mpr-vement Prcgra= (Ccr Liber_a CB. 859-'. Water and Sever Ccr:orazion) prepared by ) 123.297 CA-P) PAS/PiW1, 1979-80 B3. Rec=cended 5MG Steel Stand-pipe and Bcoster ) CR. 859-L3E Pumping Station, Mcnrovia, prepared by ABE, ) 128.616 August 1982 ) B4. FEgineering Review Study, Mcnrovia Water ) CE. 859-LBR Supply System, Report, prepared by ABE, ) 128.677 CD-F) May 6, 1983 with Supplementa In formation ) May 25, 1983, and Data Wcrk Bcok, 1983 )  - v - REPUBLIC OF LIBERIA SECOND WATER SUPPLY PROJECT CREDIT AND PROJECT SUMMARY Borrower : Republic of Liberia Beneficiary : Liberia Water and Sewer Corporation (LWSC) Amount : SDR 5.1 million (US$5.0 million equivalent) Terms Standard Relending Terms : US$3.0 million of the proceeds of the credit would be invested in LWSC's equity capital and US$2.0 million would be on-lent for 20 years, including 5 years of grace, with interest charges of 10 percent per annum. Project Description : The project's principal objective is to strengthen LWSC and improve its financial and operational performance. LWSC's accounting and financial systems would be revamped to improve financial management, while technical assistance and staff training would be provided to improve the efficiency of operations. Modest investments would be made in rehabilitation and maintenance of LWSC's assets to prevent their further deterioration. Construction of a storage reservoir and selective extension of the distribution system would also improve the quality and reliability of water supply in Monrovia. The principal benefit of the project would be improved water supply service in Monrovia. Improvements in LWSC's operating efficiency and financial performance would, over time, equip LWSC to undertake and operate future expansions to meet Monrovia's increasing water supply needs. Construction and supply risks on the project are low, but the technical assistance could be impacted by country risks.  - vi - Estimated Cost: 11 Estimated Cost: I/ Foreign Local Total (US$ million) - Technical Assistance 2.4 .1 2.5 Training .1 .2 .3 Studies/Designs .5 .1 .6 Equipment/Supplies 1.0 .1 1.1 Distribution/Transmission 3.8 1.0 4.8 Base Cost 7.8 1.5 9.3 Contingencies: Physical .4 .1 .5 Price 1.8 .4 2.2 Total Project Cost 10.0 2.0 12.0 Financing Plan: Foreign Local Total - (US$ million)- IDA 5.0 - 5.0 African Development Bank 3.8 .2 4.0 Germany (GTZ) 1.2 - 1.2 LWSC - 1.8 1.8 10.0 2.0 12.0 Estimated Disbursements: IBRD Fiscal Year FY86 FY87 FY88 FY89 FY90 - - (JUS$ millionn)- Annual 1.5 0.6 1.2 1.6 0.1 Cumulative 1.5 2.1 3.3 4.9 5.0 Economic Rate of Return : As the project does not provide additional supply sources or treatment capacity, it does not lend itself to a rate of return analysis. President's Report P-3865-LBR of February 27, 1985 Map : IBRD No. 17710 1/ Net of taxes and duties, from which the project is exempt.  REPUBLIC OF LIBERIA SECOND WATER SUPPLY PROJECT I. THE WATER SUPPLY AND SANITATION SECTOR A. General 1.01 Liberia has a surface area of some 42,500 sq. mi (111.000 km2) and a population estimated at about 1.9 million. Nearly one-third of the total population now lives in urban areas. Monrovia, which has grown at an annual rate of 72 (compared to 3% country-wide growth) during the period 1974-1984 now has a population of over 400,000. The economy is dualistic with a traditional sector which is mainly agricultural and a modern enclave sector which is export oriented, producing iron ore, rubber and forestry products. B. Water Resources 1.02 The hot and humid climate of Liberia is characterized by an intense rainy season from May to November, followed by a relatively drier season from December to April. Annual precipitation averages about 200 in. (5,000 mn) at the coast, declining inland to about 120 in. (3,000 mm). As a consequence of its high rainfall, Liberia has an abundance of water supply sources, including six major river regimes and hundreds of small streams and creeks. Groundwater can be found, generally in small quantities, in the lateritic overburden oI in the upper weathered part of the basement complex, particularly in valleys and along rivers and streams. However, no extensive exploration of groundwater has been undertaken. C. Organization 1.03 The Liberia Water and Sever Corporation (LWSC), created in 1973, is empowered by law to establish and operate water supply and severage facilities throughout Liberia, but until the late 1970s, LWSC operated only in Monrovia and two other towns. Since that time, eight additional towns (so-called outstations) have been equipped with reticulation systems. LWSC manages the outstations on behalf of Government (under an implicit management contract) and is reimbursed for operating deficits. Outside of these towns, there are a number of small-scale water supply services established by various Government ministries and some private systems operated by the mining and plantation companies. Construction and maintenance of rural water supplies are the responsibility of the Ministry of Rural Development, which oversees a disparate collection of well and borehole development  -2- activities. The Ministry of Public Health is involved in water quality surveillance, but its role is limited by inadequate funding. The organization of the sector is workable and can be satisfactory if sufficient numbers of adequately qualified staff are available to manage it. Although LWSC is responsible for sewerage in Monrovia, sanitation, drainage, and refuse collection are nominally the responsibilities of local authorities which are financially weak and have attendant shortages of qualified staff and support services. D. Development and Objectives 1.04 Development of the sector has been intermittent, depending on the availability of external financing. The first Monrovia water supply, financed by the Government of Liberia (GOL), was constructed in 1953 and augmented in 1960. Except for the transmission main, these works were abandoned and replaced by a treatment plant constructed at White Plains in 1969. The White Plains treatment plant with a capacity of 8 mgd (30,500 m3/day) was financed by a loan from the United States Agency for International Development (USAID) in the amount of US$7.0 million. In 1973 the African Development Bank (AfDB) granted a US$2.2 million equivalent loan to LWSC for improvements to the then existing system and for the des4gn of further expansions. An IDA Credit of US$8.0 million (CR.859-LBR) and co-financing from the Commonwealth Development Corporation (CDC) equivalent to US$2.0 million made available in 1979 financed the expansion of the White Plains treatment plant to 16 mgd (61.000 m3/day) and improvements in the delivery system. A raw water transmission main was constructed with parallel financing (US$2.8 million equivalent) from AfDB. The Federal Republic of Germany has financed construction of the outstations water supply systems through Kreditanstalt fur Wiederaufbau (KfW) and technical assistance for institutional strengthening and manpower development through Gesellschaft fur Technische Zusammenarbeit (GTZ). Construction of Monrovia's sewerage system including the sewage treatment plant in the late 1960s was financed by USAID and renovations in 1983 were financed by KfW. 1.05 A detailed water sector study covering all of Liberia was completed under the Monrovia Water Supply Project (the first project) in 1980, and subsequently a long-term sewerage development plan for Monrovia was prepared as well. Both provide a basis for sound sector development, but the uncertainties of obtaining adequate internal and external financing prevent establishment of a definitive implementation schedule. The water sector study emphasizes systematic maintenance and rehabilitation in the near term in order to improve operational efficiency and to extend the useful life of the facilities, thereby deferring the need for extensive capital investments in the sector. At present, village water supply programs are being supported by the Danish Government and United Nations International Children's Emergency Fund (UNICEF). USAID is also interested in rural water supply activities.  -3- The Bank, through the Second Bong County Agricultural Development Project (CR.1447-LBR), will also be involved in the rural water supply sub-sector. E. Water Supply Service Levels 1. Urban 1.06 Some two-thirds of all urban inhabitants, or about 425,000 people, including 305,000 in Greater Monrovia, have access to public water supplies through individual connections, standpipes or vendors. Those not served rely on wells and streams, supplemented by collected rainfall. Almost all public water supplies are in urban areas, and Monrovia accounts for about 70% of these. During the period 1978-1984, construction of eight additional outstation water supply systems increased by about 100,000 the number of urban inhabitants outside of Monrovia having access to public water supplies. 2. Rural 1.07 Of the approximately 1.3 million people living in rural areas, only about 6% have access to safe water supplies, mainly because of local pollution of shallow wells, streams and springs. Various rural water supply programs (see para 1.05) have attempted to redress this situation, through borehole drilling and improvements to existing sources, but poor maintenance frustrates the success of these programs. Many boreholes intercept groundwater which is unsuitably high in iron content. F. Sewerage 1.08 Monrovia's public sewerage system serves about 4,000 buildings in downtown Monrovia, the Sinkor area and the port area (Bushrod Island), including many commercial, institutional, and governmental premises. In newer areas and for better housing, septic tanks and cesspools are used. The great majority of Monrovia residents rely on primitive latrines. G. Bank Lending and Assistance Strategy 1.09 The Bank's overall strategy for Liberia, in the near term, is to improve the country's creditworthiness. Because public sector wages consume 54% of total revenues, strengthening and improving the efficiency of public sectol institutions has been identified as a key element in achieving this goal. Rehabilitation has also been cited as a least-cost solution for maintaining and/or expanding productive capacity. A proposed structural adjustment credit (SAC) which includes a substantial component for public enterprise reform would be complemented by this project which is directed at strengthening LWSC.  - 4 - While the SAC will aim at improving public sector institutions' efficiency by instituting broad-based policy reforms, the proposed second water supply project (the second project) will address specific institutional, financial and operational weaknesses of LWSC, one of the six enterprises on which a structural adjustment credit now under consideration will focus. 1.10 The Bank's water supply sector strategy in Liberia--to improve system reliability and efficiency and to establish financial viability--is consistent with the program outlined for improving the overall creditworthiness of Liberia and if met should enable LWSC to compete for external financing in the future. Construction of a distribution storage reservoir under the second project will immediately improve LWSC's operational efficiency by reducing excessive pumping and wear as well as energy consumption. 1.11 The second project is a follow-on to the Bank's first project in Monrovia (CR.859-LBR), which was completed in 1983. (A project completion report was issued in June 1984.) The first project (with the exception of the raw water pipeline) was prepared as a short-term measure to ensure an adequate water supply for Monrovia through 1984. Although the physical components of the project were quite successfully completed, the institutional and operational aspects were not as successful, in large part because of management changes and increased Government intervention since the 1980 coup, resulting in deterioration of the financial position and operating capability of LWSC, which is now on the brink of financial collapse. The second project is conceived as a rescue operation, with emphasis on technical assistance, institutional development, and rehabilitation to prevent irreversible decay of the physical system and to develop an institution which can meet the water supply needs of Monrovia's rapidly growing population. Based on experience with the first project, physical components will be undertaken only after certain institutional and financial targets have been met (para 5.18) and they will be limited to the most pressing needs of the system with due regard for the budgetary constraints of GOL. 1.12 The second project also provides a follow-on to the Monrovia Urban Development Project (CR.1223-LBR), which is scheduled for completion in 1986. The Urban Development Project will improve water supply to Monrovia's urban poor through installation of 52 additional standpipes. Maintenance of standpipes (para 6.04) and improving the reliability of water supply will be elements of the second project. The Urban Development Project is also financing a water tariff study, the recommendations of which would be implemented, as agreed with IDA, during the term of the second project.  -5- II. THE PROJECT AREA A. Location 2.01 The second project is centered in Monrovia, the capital city, coimercial center and main port of Liberia. It will directly benefit all of LWSC's operations in Greater Monrovia. Institutional development of LWSC through technical assistance and training to be provided by the project will also benefit LWSC water supply operations in 10 other towns (outstations) with a total population of about 125,000 persons. 2.02 Topography of Monrovia is generally flat, with the exception of the rocky prominence of Mamba Point which rises to about 230 ft (70 a). The large elevation variations in this area make it difficult to iaintain uniform water supplv pressures. The near-surface presence of rock in the area also creates difficulty in the laying of water mains. To save on costs, much of the original system in the downtown area was built at ground level on rights-of-way, now mainly built over and inaccessible. Also, because of rock, many house connections lie on or are shallowly buried in the ground, and are thus subject to ready breakage and attendant leakage. Flexible polyvinyl chloride (PVC) connection pipe to be supplied by the project will require replacement at greater depth. 2.03 The significant fresh water resource in the area is the St. Paul River, which serves as the sole source of water supply for Monrovia. It is dammed 21 mi (34 km) from Monrovia to create Mt. Coffee Reservoir, which serves as the major source of electrical power for the country. Plows during dry seasons of the last decade have been inadequate to prevent tidal intrusion into the LWSC intake structure and low-lift pumps below the dam, introducing intolerable salinity levels to the water supply. To remedy this difficulty, the first project financed the construction of a 36 in. (900 mm) diameter, 15,000 ft (4.6 km) long rav water transmission main from the dam itself. B. Population Growth 2.04 The 1974 census determined a population for Monrovia of 204,200. The present estimated population is about 422,000. With Liberia experiencing an annual rate of population increase of 3.4%, which is not only among the highest in Sub-Saharan Africa, but in the world, there is little basis to assume Monrovia will not continue its historic growth rate of about 7% per annum in the next decade which is due to both migration and a high rate of natural growth. Thus, by 1998, the population of Monrovia is estimated to be about one million (see Annex 2-1). Thereafter, some reduction in the rate of growth might occur through family planning programs which are only gradually being introduced.  -6- C. Water Demand Projections 2.05 Demand projections for the project period and beyond are presented in Annex 2-2. In the absence of reliable data since relatively few meters are accurately measuring individual consumption (para 2.09), the following assumptions have been made for the projections: (a) physical losses estimated at over 26Z will decrease to about 20% with improved future operations; and (b) unbilled water which is primarily the result of illegal connections is presently put at about 24% of production; it is expected to decrease to about 10% during the project period. Thus unaccounted-for water (physical losses and unbilled water) is, therefore, assumed to decrease from the present 50% of production to about 30% as a result of anticipated improvements in operations and maintenance during the second project. House (domestic) connections are assumed to serve 15 persons, with standpipes serving about 500 persons each. Average consumption for house connections is estimated at about 18 gcd (70 lcd). D. Existing Water Supply Facilities 2.06 The present water treatment plant for Monrovia is located at White Plains on the St. Paul River. The treatment plant was built in two stages. The first stage, financed by USAID, was constructed in 1969, and provided 8 mgd (30,000 m3/day) of nominal capacity. The size of the plant was doubled to 16 mgd (61,000 m3/day) nominal capacity in 1983 by the first project which also financed the raw water transmission main from the Mt. Coffee Reservoir. The alternate intake works are a low-lift pumping station comprising three pumps each of 8 mgd (30,500 m3/day) and one pump of 4 mgd (15,250 m3/day) capacity for pumping raw water directly from the St. Paul River. A high-lift pumping station, consisting of four pumps each of 8 mgd (30,500 m3/day) and one pump of 4 mgd (15,200 m3/day) capacity, discharges treated water into two transmission mains, one of prestressed concrete 36 in. (900 mm) and the other of cast iron 16 in. (400 mm) diameter leading to Monrovia. Treatment is of the conventional type to reduce turbidity and produce a potable water: floculation, sedimentation, rapid sand filtration and chlorination. The treated water tends to be corrosive due in part to inadequate lime addition. Corrosivity of the water is of concern and is to be studied as part of the second project in order to reduce deterioration of the distribution/transmission system. 2.07 There is no distribution storage in the system except for the high elevation service area at Mamba Point. As a result, the  transmission mains are required to supply peak instantaneous demand which necessitates that the high-lift pumps work continuously at the White Plains treatment plant resulting in excessive pow-r costs. With the completion of the recent treatment plant expansion, production is about 14 mgd (53,000 m3/day) with a daytime peak of an additional 20%, a low figure reflecting high average night-time consumption (estimated to be about 70% of the day-time flow). There are no significant seasonal variations in demand. Over 90% of the flow enters the city via the 36 in. (900 vm) diameter transmission main, which was designed for a flow of 16 mgd '61,000 m3/day). Because of the long pumping distances involved and the resultant high headloss and inadequate pressures. service in the high elevation Mamba Point area was particularly poor. To alleviate this problem, the first project financed the Mamba Point Booster Pumping Station, which pumps from the distribution system into a separate high-service distribution system that uses the two storage reservoirs on Mamba Point for pressure equalization. These reservoirs, with a combined capacity of 1.6 mg (6,100 m3) are thus not available for pressure equalization for the remainder of the system. Service in the Mamba Point area improved substantially with the first project. The proposed 5 mg (19,000 m3) storage reservoir in the second project will reduce pumping costs, improve pressures, and provide reserve capacity during power outages (para 6.02). 2.08 There are approximately 18 mi (29 kn) of 36 in. (900 mm) prestressed concrete and 11 ml (18 km) of 16 in. (400 mm) diameter cast iron transmission mains in addition to about 80 mi (129 km) of distribution pipes of varying sizes from 2 in. (50 mm) to 12 in. (300 mm) serving Monrovia, dating back to 1953. The majority of the distribution pipes is of cast iron, although recent additions are ductile iron, asbestos-cement, and PVC. Corrosivity has severely lowered the carrying capacity of the cast iron pipe, at a rate of about 1% per year, and gradually the capacities of the prestressed concrete and ductile iron pipes have diminished as well. Service connections are primarily made with low quality galvanized steel pipe. The estimated useful life is only five years, after which the original diameter is reduced by half due to corrosion and tuberculation. 2.09 Customer service, in principle, is by metered house connection with a limited number (100) of public standpipes to serve the low-income areas. The ongoing Monrovia Urban Development Project (CR.1223-LBR) provides for the installation of 52 additional standpipes in the urban poor areas. A block mapping program showing locations of all connections, completed under the first project, was recently updated with PPF funds from the proposed second project. It revealed that of 17,000 connections, 11,300 (66%) were metered (and legal), 1,700 (10%) connections were legal but without meters. and 4,000 (24%) were illegal. The illegal connections identified through the block mapping program are now being regularized and added to LWSC's billing base. Of the 11,300 metered connections, the program found about 40% of taie meters to be  - 8 - broken, in poor condition, or disconnected. The functioning metered connections were basically those of larger users (so-called demand customers) such as embassies, businesses and large residences. A task force at LWSC is currently investigating the use of a different and more durable type of meter requiring less maintenance. It is expected that the combination of improved treated water quality (to reduce corrosion) and rehabilitation of the distribution system (to reduce backflow), both objectives of the second project, would help to reduce the incidence of meter malfunctioning due principally to clogging as a result of sediment deposition. E. Severage 2.10 Sewerage was introduced in 1950 and expanded in 1969 with USAID funding. It has recently (1983) been partially rehabilitated with the assistance of KfW at a cost of US$3.5 million. The system consists of some 38 mi (61 km) of sewers and force mains serving major portions of downtown Monrovia, Bushrod Island and the Sinkor area. The system includes four pumping stations and a sewage treatment plant in Sinkor with 5 mgd (19,000 m3/day) design capacity. The plant was designed to provide sedimentation and secondary (biological) treatment with trickling filters. After disinfection, the treated effluent is discharged into the Mesurado River. Although the system is for sanitary wastes only, much extraneous unpolluted water enters it through illegal connections with storm drains and from infiltration of groundwater. Frequent clogging from siltation and misuse, coupled with lack of maintenance results in the diversion of much of the flow to overflows, and the treatment plant receives only about half of its design flow. There are approximately 4,000 registered connections to the sewers. Expansion of the sewerage system is not considered necessary nor would it be economically viable at the present time. The project includes a preventive maintenance program for the sewerage system. III. THE BENEFICIARY A. Background 3.01 The ultimate beneficiary of the credit would be LWSC, estab- lished in 1973 by the act amending the Public Authorities Act. Under the Act, LWSC is empowered, inter alia, to establish and maintain water supply and sewerage facilities throughout Liberia; to set rates, fees and charges; to borrow or raise money; and to sue and be sued. LWSC's by-laws define the composition of its Board of Directors; the Board's  -9- powers and responsibilities, as well as those of the Managing Director, and the frequency of and use of proxies at LWSC Board Meetings. B. Management and Organization 3.02 LWSC is Government-owned but is not administratively linked to any particular Government department. Its nine-member Board consists of three Cabinet Ministers, the Managing Director of the Corporation and five persons from the private sector. The Minister of Rural Development is currently the Chairman of LESC's Board. The Minister of Planning and Economic Development and the Deputy Minister of Finance are also members. The private sector is represented by a medical doctor, a banker, two businessmen and a lawyer. 3.03 The current organization of LWSC is shown in Annex 3. As indicated, there are four Deputy Managing Directors reporting to the Managing Director. The Deputy Managing Directors and certain other key managers comprise the Management Advisory Council which meets weekly to discuss institutional problems and proposes solutions to the Managing Director. The present Managing Director, an experienced Liberian engineer, was appointed to his position in October 1982. Organizational studies financed by the first project made recommendations, many of which were not implemented in the aftermath of the 1980 coup which has increased Government involvement in LWSC's management. Under the second project, these studies will be reviewed and updated for implementation, subject to review by IDA. 3.04 As noted earlier (para 1.03). LWSC manages the outstations on behalf of Government and is reimbursed for operating deficits. While it is not clear that this arrangement results in the optimal sector organization, at the present time it is too ambitious (and unrealistic) to suppose that LWSC can make a sufficiently rapid turnaround to achieve full cost recovery on both the Monrovia and outstations operations. During negotiations it was agreed that GOL would continue to reimburse LWSC for operating deficits related to the outstations operations (para 7.01 (a)(i)). The outstations, therefore, have no net effect on either LWSC's net income or its financial position. C. Personnel 3.05 LWSC had 360 employees in 1978, but after the change in Goverment in 1980, there were substantial increases in all levels of staff, frequently the result of direct Government intervention. By 1983, the payroll had swelled to over 640. Overstaffing, evident especially in the lower grades, results in low morale and indiscipline and contributes to overall operational shortcomings. For certain activities such as meter reading, treatment plant operation and maintenance, a survey based on operational parameters reveals that LWSC has about twice the number of staff of well-run West African utilities.  - 10 - LWSC has recently eliminated the most obvious staffing redundancies and total staffing now stands at just under 600. Agreement was reached during negotiations that there would be no new hires of unskilled staff during the project term, and that LWSC would undertake to effect further staff reductions (para 7.01 (b)(i)). D. Operations and Maintenance 3.06 Unaccounted-for water (the difference between water produced and water billed) is consistently at an unacceptable level of about 501 of production (para 2.05). Much of the difference arises from the substantial number of illegal connections, leakage from the transmission and distribution systems and poor quality house connections. Errors in meter readings, defective meters, a rather makeshift billing system, and a shortage of meters for new connections are also factors. LWSC is attempting to reduce these losses, but it is hampered by lack of essen- tial equipment and GOL interference in implementing disconnections. The project components for updating block mapping and providing new meters and spare parts, together with vehicles, technical assistance and training should eventually reduce the unaccounted-for water level to a more reasonable figure of 30%, which would enhance the potential for revenues. 3.07 Maintenance of the LWSC system throughout is haphazard, the result of improper and inadequate supervision, unqualified staff, and lack of equipment and spare parts, compounded by difficulties caused by certain design features, topography and climate. The second project will finance equipment, vehicles and spare parts to improve maintenauce through a well organized preventative maintenance program; project technical assistance and training should also result in improvements in LWSC's operating performance. E. Metering 3.08 In theory, LWSC operates under a system of universal metering. In practice, due to a fairly high proportion of defective meters, partial metering is in effect (para 2.09). The feasibility of selectively metering industrial, comnercial, institutional and high volume residential consumers will be considered in conjunction with the restructuring of LWSC's tariff once the results of the ongoing tariff study (para 1.12) are available. The second project will provide technical assistance in the form of a distribution engineer, who will supervise the installation of zonal meters and will assist in implement- ing a comprehensive re-metering program, starting with the high service, severed areas. The second project will also provide funds for meters and for setting up a meter repair workshop.  - 11 - F. Billing and Collection 3.09 LWSC's billings are prepared by a contractor who handles the assignment by renting computer time wherever and whenever possible. The billing software has been modified over time, but the documentation has not been maintained. As a result, LWSC's current billing system is essentially a "tblack box" operation which produces output of questionable validity. Unreliable billing and accounts receivable data hinder collection efforts. Collections from private (i.e., non-governmental) consumers have declined from 78% of billings in 1978 to 62% in 1983, despite the fact that the tariff has remained unchanged in nominal terms and, hence, has actually decreased in real terms. Improvements in billing and collection are critical to improving LWSC's financial and operating performance. Consequently. PPF funds have been provided for a new billing and accounts receivable system which will be run at a well managed Monrovia service bureau. C. Accounting 3.10 LWSC's accounts are maintained under a manual system, the maintenance of which has deteriorated over time, due primarily to attrition of qualified accounting personnel. Although accounting transactions are recorded on a more or less timely basis, LWSC lacks the in-house capability to prepare comprehensive financial statements. Hence, heavy reliance must be placed on the work of the external auditors and the annual audited accounts. The second project will finance the acquisition of an automated accounting system as well as technical assistance to support its implementation. H. Training 3.11 The Management Improvement Program, a component of the first project, included some training elements, but these were not fully effective. Part of the planned training never materialized, and the considerable turnover of LWSC staff that had been exposed to training further limited the success of the training program. In addition, the increase in number of staff on the LWSC payroll and the hiring of employees without proper qualifications have lowered overall staff capability and effectiveness within the organization. A Training Section, staffed by a Training Director and a secretary, works within the Manpower Development Department without any effective operating budget or training facilities. Training activities include in-house workshops and seminars to upgrade employee knowledge and skills, and occasional management seminars at local Institutions. In addition to LWSC internal training, technical assistance under the direction of GTZ has accomplished extensive training of technical personnel for the outstation operations. This effort has included on-the-job training and four training fellowships in the Federal Republic of Germany. The second project would finance technical assistance to further develop and  - 12 - strengthen the capabilities of LWSC's Training Section. It vould also provide for on-the-job training through counterpart arrangement with experts from either a consulting firm or a major urban water utility in a developed country by secondment of staff to LWSC for various periods of time (twinning). I. Insurance 3.12 LWSC does not currently insure any of its assets, but agreed during negotiations to undertake to develop a phased pLan acceptable to IDA for insuring all of its assets. rV. THE PROJECT A. Genesis 4.01 The Monrovia Water Supply Project, approved in 1978, was conceived as a short-term program (with the exception of the raw water pipeline) that would ensure adequate water supply for Monrovia through 1984. At the same time, it was expected to prepare the ground for a follow-on project as part of a rational long-term development program. Because demand has been somewhat lower than anticipated when the first project was appraised, LWSC's production capacity is adequate to fully meet current demand. With increased operating efficiency, a prime objective of the second project, the current capacity should be adequate to meet demand through 1987 and possibly to 1990. As production capacity is sufficient in the near term and as many of the institut!.onal objectives of the first project were not fully met (para 1.11), the emphasis of the proposed second project is on institution building, rehabilitation and improving operating efficiency, rather than on expansion of the production facilities. A PPF advance of US$450,000 was approved in April 1983, and the project was appraised in June 1983. B. Project Objectives 4.02 The second project is conceived as a rescue operation with emphasis on institution building, rehabilitation and maintenance to protect the already extensive investment in the sector from further deterioration. The project is designed to steer LWSC away from complete financial collapse by revamping its accounting and financial systems while simultaneously improving the efficiency of its operations through staff training and by modest investments in maintenance and rehabilitation to extend the useful life of the physical facilities and reduce operating costs.  - 13 - 4.0: !ithin the context of the sector strategy (para 1.10), the specific objectives of the second project can be defined as follows: (a) to effectively and efficiently manage the financial and human resources of LWSC; (b) to make repairs and limited expansions to the distribution system to enhance the availability and reliability of supply; (c) to improve billing and collection performance; and (d) to achieve operational efficiency in the use of energy, supplies and manpower by eliminating waste. C. Investment Program 4.04 The second project will be of limited scale, directed at correcting present deficiencies and using available facilities to their fullest, while at the same time curtailing excessive consumption through an appropriate tariff structure. Nonetheless, construction of capital works, which is not a major objective of the second project, cannot be forestalled for long. Even under the most optimistic of scenarios, additional transmission capacity from the White Plains treatment plant will be necessary within a few years, coupled with additional treatment plant capacity and distribution system enlargement. Annex 4-1 indicates the size of these physical works projects, estimated to cost some US$82 million over 15 years in 1984 terms. The timing and size of these projects reflect significant reductions in unaccounted-for water relative to total production (from 50% to 30%) to be made possible by improved operations supported by the second project. Under prevailing economic and financial conditions in Liberia and world-wide, any commuitment to the financing of the future projects must remain uncertain. Both GOL and LWSC, however, are aware that sharply-improved operations at LWSC are necessary to attract future project financing. Failure to do so and provide the necessary expansions will result in increasingly serious shortages of water throughout the city, but particularly in the areas most distant from the major 36 in. (900 mm) transmission main; i.e., downtown Monrovia and the port area. D. Project Description 4.05 The second project (which is primarily for rehabilitation and maintenance) would provide necessary improvements to the distribution system (para 6.02) as well as to operational support facilities (vehicle and meter repair workshops and data processing facilities). Also, a supply of critically needed spare parts is incorporated in the second project as well as technical assistance, training, and engineering studies, design and supervision. By its emphasis on rehabilitation and  - 14 - human resources development, the second project complements the technical assistance program of GTZ which has been extended to November 1986. As previously indicated (para 4.02), this project is a rescue operation and includes only the most critical elements required for more efficient operation of the existing system. It is intended that no major construction should be started until certain institutional and management targets (para 5.18) have been attained. The proposed components of the second project are as follows: (i) Technical Assistance and Training a) ten man-years of technical assistance for the positions of financial controller (3 years), distribution engineer (3 years), water engineer (3 years) and training specialist (1 year) preferably through a technical co-operation agreement which may eventually develop into a "twinning" arrangement with a well-run water utility. These are in addition to technical assistance provided by GTZ (para 4.12); b) support for training including tuition, training equipment and supplies; (ii) Studies and Designs c) design and supervision of construction of items (i), (j) and (k) below; d) consultant services for (1) revision of Management Improvement Program studies prepared under the Monrovia Water Supply Project, (2) fixed asset revaluation, (3) data processing, (4) groundwater exploration, and (5) public relations; (iii) Equipment and Supplies e) supply of communications equipment to facilitate information exchange and transmittal and data processing equipment to improve billing, financial reporting, financial and management planning and control (minor office equipment would also be provided); f) supply of equipment, tools and spare parts for the motor vehicle repair shop and the meter repair shop; g) supply of vehicles and field equipment comprising three cars, eight light trucks, five heavy trucks, compressor and generator;  - 15 - b) supply and installation of chemical dosage equipment and supply of bulk chemicals to improve treatment processes including operation and maintenance and to reduce internal pipeline corrosion; (iv) Distribution and Transmission i) supply and laying of approximately 6 mi (10 km) of 8 in. (200 mm) and 12 in. (300 mm) diameter pipe in the Congotown, Sinkor and Mamba Point areas to strengthen pressures; j) construction of a 5 mg (19,000 m3) distribution storage reservoir of reinforced or prestressed concrete construction in Paynesville to store and regulate the transmission of water from the White Plains treatment plant into the city, thereby improving pumping operations, reducing energy consumption, and improving reliability of adequate supplies and pressures; k) installation of 11 large zonal meters to allow monitoring of consumption in the various districts of Greater Monrovia; 1) repair and rehabilitation of valves, hydrants and standpipes; and mi) supply of approximately 5,000 service meters, together with PVC pipe and fittings for 6,000 house connections; and the supply of spare meter parts and pipes. E. Project Cost Estimates 4.06 Total estimated cost of the project is US$12.0 million with an offshore component of US$10.0 million, representing about 84% of total costs. The project will be exempt from local taxes and duties. Component cost estimates are provided in the following table. Estimates for technical assistance and engineering costs are based on the on-going GTZ experience at LWSC and quotations. The estimated cost of technical assistance includes salary, allowances, housing and relocation expenses of appointed staff plus support costs. Supply and construction cost estimates for the distribution and transmission system extensions and repair are based on detailed consultant studies of unit costs incurred in the Monrovia Water Supply Project and of the recent sewerage system rehabilitation financed by KfW. Design services are based on a percentage of the cost of the proposed physical works (about 6%).  - 16 - , Pwject Costs (1984 pricer) X of Bae local Foreign Total cost US$' 000 Telrdcal Assistance salaries - 1,636 1,636 Beuis 126 772 898 126 2,40B a/ 2,534 27.4 Training Specialit 44 100 144 Training Support 136 10 146 180 110 290 3.1 Sbrlies and DJesigw Accounting Systems 5 45 50 *t. Studies, PublicP Relaticas 6 31 37 PThed Asset Revalbatim 20 80 100 Gruzmdwater Studies 15 35 50 B 3gneering Desigu 30 180 210 Oxistructiam Su;ervision 34 145 179 110 516 626 6.8 Bylupmnt andx Supplis Accounting Systems 15 105 120 Camand.catios F.uipmet - 100 10D r*te Repar Stx-p - 10 10 *wo Vehicle Rqair Sbp 20 110 130 Veiicles and Tnruks 15 245 260 FIel Epuipmnt 5 70 75 IWter Trat PFJt 40 80 12D 3alk Chicals - 250 250 95 970 1,065 11.5 1)istrixitm ain! ssin Sti- KiRcks 60 40 10O Valves, Hydrants & Sta3dpipe Repair 25 95 120 Zmal Meters and Tnstaflatilm 15 75 90 Pepair of Traxiuussim Valves 20 80 100 Savice aters and Spare Parts - 284 284 *js Caihctias and Spare P#e - 518 518 Pipe, Fittings - Dlsributim 35 655 690 LTying of Pipe 200 634 834 Distrihatiti Storase 540 1,260 1,800 StoragePiping 70 130 200 965 3,771 4,736 51.2 Total Base Cost 1,476 7,775 9,251 100.0 Ccmtin:ides: PhYsical (15% on csruci compoents) 127 401 528 5.7 Price (26%) 373 1,828 2,201 29.5 Total Project Cost 1j976 10z004 11.980 29.5 at Incles tJS$1.2 mulIm eqtivleit to be pallel finmacd by GIM  - 17 - 4.07 Physical contingencies have been set at 152 on construction components, which is adequate to cover the risk associated with possible change of project scope. In addition, allowance has been made for price escalation as follows: Price Contingencies Year 1985 1986 1987 1988 1989 1990 Foreign 8.0 9.0 9.0 9.0 7.5 6.0 Local 6.0 6.5 7.0 7.0 7.0 7.0 The net effect of the price contingencies is an increase of the foreign exchange component of the project costs, expressed in mid-1984 prices, by about 26Z and of the local costs by 23Z through the implementation period to 1990. The Liberian tie to the US dollar tends to minimize local inflation in comparison with most of Liberia's neighbors. Strong competition among the several foreign contractors active in Liberia has resulted in very competitive prices in recent years. F. Project Financing 4.08 The project is to be financed as follows: Freign Local Total ___- US$' 000 - IDA 5,000 - 5,000 AfDB 3,804 196 4,000 GTZ 1,200 - 1,200 LWSC - 1,780 1,780 1 004 1.976 11.980 The AfDB loan is proposed for parallel financing of the distribution storage reservoir and enhancement of the distribution system and it may be used for local costs. Thus, the LWSC contribution is about US$0.2 million less than the total anticipated local costs of the project. GTZ will also finance US$1.2 million equivalent of the technical assistance program in parallel. 4.09 The borrower will be the Government of Liberia. Because of the very weak state of LWSC finances (see Chapter V), it was agreed during negotiations that US$3.0 million of the the proceeds of the credit be passed on to LWSC as equity and the remainder be on-lent on commercial terms-i.e., five years grace, 15 year repayment period, 10l interest (para 7.01 (a)(ii)). The proposed AfDB loan to GOL equivalent  - 18 - to US$4.0 million would also be on-lent to LWSC. Effectiveness of a lending agreement with AfDB and a grant agreement with GTZ (para 7.02 (a)) and execution of an on-lending agreement between GOL and LSWC (para 7.02 (b)) are to be conditions of credit effectiveness. G. Implementation 4.10 LWSC, assisted by consultants, would be the implementing agency for the project. A project management unit in LWSC headed by a capable Liberian engineer has now managed several projects including the Monrovia Water Supply Project and several KfW financed projects. This unit would receive technical assistance support as needed. GTZ has invited proposals from potential twinning partners and it is expected that selection and employment would be completed by mid-1985. 4.11 An engineering review of the transmission mains and distribution facilities has been completed. Several foreign consulting firms, including three with significant experience with LWSC, are being considered to prepare engineering designs, including preparation of tender documents for the distribution piping and the storage reservoir. It is intended that supervision of construction would also be awarded to the consultant selected for design. Design and supervision of construction for transmission and distribution system rehabilitation and installation of zonal meters will also be undertaken by this consultant. Additionally, consultants will be retained for revisions to the Management Improvement Program and fixed assets revaluation. A Liberian consultant will be sought to advise LWSC and its customer relations unit on public relations and to prepare materials for distribution to the public. 4.12 The GTZ technical assistance team presently with LWSC consists of a general advisor, a commercial advisor and an outstations advisor. GTZ has committed an additional DM 3.8 million (about US$1.2 million) for 1985-86, extending the contracts for the three advisors by two years beyond the 1984 expiration date. The additional commitment would also provide five and a half man-years of technical assistance to LWSC in other critical positions as follows: - electromechanic (24 months) - vehicle workshop supervisor (18 months) - accounting advisor (24 months). The proposed 1985-86 GTZ program would also finance equipment, tools and spare parts for the vehicle workshop, block mapping for the outstations, three vehicles for the additional experts, and training materials. Although LWSC's technical assistance requirements should begin to taper off beyond 1986, if GTZ is not able to continue providing support in this area, other sources of assistance will have to be identified.  - 19 - 4.13 In light of GTZ's ongoing technical assistance program to LWSC, it is proposed that GTZ become the executing agency for all project technical assistance with the Bank reserving the right to approve selection of prospective candidates. This would consolidate available resources, facilitate administration of this component, and obviate the need to implement parallel programs which could run the risk of not being fully complementary. GTZ has maintained close supervision of its program through visits and supervision reports which supplement the monthly reports of its team. These reports have been regularly sent to the Bank. The Bank has a number of projects for which GTZ acts as executing agency (Haiti - "Organisme de Developpement du Nord"; Indonesia - Small Enterprises Development Project; Lesotho - Basic Agricultural Services Project; and Tanzania - Coconut Rehabilitation Project). Recruitment of experts by GTZ is international. Priority will be given to recruitment of a technical assistance team from a well-run water utility to provide a twinning opportunity for LWSC (para 4.05 (i)(a)). 4.14 The role of technical assistance experts at LWSC will be primarily as line managers, with emphasis on providing on-the-job training (para 4.15). The financial controller will be responsible for developing a proper system of financial planning and control; the distribution engineer will supervise all distribution operations and will direct metering and leakage and waste control programs for all of Monrovia; and the water engineer will oversee the operation and maintenance of the water and sewage treatment plants and the Monrovia sewerage system. H. Training 4.15 The second project will finance a consultant who will provide technical assistance in carrying out manpower and training needs anAlyses of LWSC. The consultant will work on site, intermittently over a two to three year period and will also assist LWSC's training section in co-ordinating in-house training, training at local institutions, counterpart training and on-the-job training related to the technical assistance program. The project will also provide funds for tuition at local training institutions. Details of the training component, including costs and an implementation schedule, are included as Annex 4-2. I. Implementation Schedule 4.16 The time-table for implementation is shown in Annex 4-3. Because of its emergency nature, the project is designed to be completed in four to five years instead of seven or more years as is usual in West Africa. The two major construction components (distribution system extensions and storage reservoir) will be implemented toward the latter part of the project to allow time for necessary institutional and  - 20 - management improvements (para 5.18) to be made. An action program (Annex 4-4) outlining the steps required to achieve these objectives was agreed during negotiations and LWSC also agreed to provide by December 31, 1985 an updated detailed plan of action for increasing operational efficiency and achieving its financial goals, including specific measures for reducing operating costs, bad debt expense and unaccounted-for water (para 7.01 (b)(ii)). J. Procurement 4.17 Supply of pipe, fittings, zonal meters and house connections, and other supply contracts for goods above US$250,000 as well as civil works for the laying of distribution pipe, installation of zonal meters and erection of distribution storage reservoir would be awarded under international competitive bidding, in accordance with Bank Group Guidelines for items financed by IDA, or for items financed by the AfDB, in accordance with AfDB Guidelines which are acceptable to IDA. Procurement of vehicles, data processing equipment, spare parts, and miscellaneous supplies estimated to cost more than the equivalent of US$100,000 but less then US$250,000 would be carried out through competitive bidding, advertised locally and conducted in accordance with procedures satisfactory to IDA. Contracts for the purchase of goods estimated to cost less than the equivalent of US$100,000 would be procured on the basis of negotiated purchases after solicitation of price quotations from at least three established and reliable suppliers. LWSC will undertake repair of distribution valves, hydrants and standpipes, and modifications to the meter repair shop, vehicle workshop and treatment plant, under force account or alternatively through contractors under day-work rates, in accordance with programs and procedures to be approved by IDA. The work involved will cost in total about US$150,000 (exclusive of spare parts and miscellaneous supplies). All technical assistance positions would be filled and consulting services undertaken by persons with qualifications and experience and on terms and conditions satisfactory to IDA. The procurement methods may be summarized as follows:  - 21 - Procurement Arrangements a/ (US$'000) Project Element I__ b/ LCB Other N.A. Total Equipment/Supplies 4.423 1,398 - - 5,821 (1.068) (1.152) (2,220) Civil Works and 1,958 170 - 2,128 Construction (303) (80) (383) Services - 2,381 - 2,381 (1,947) (1,947) PPF Refinancing 450 450 _ _ - (450) (450) Total 6,381 1,398 2,551 450 10,780 (1,371) (Ial52) (Qj027) (450) (50) a/ Excluding Technical Assistance from GTZ but including contingencies. Figures in brackets are the respective amounts financed by the IDA Credit. -/ Procurement under the AfDB parallel financed component is assumed to be by ICB. 4.18 Prequalification will be required for all civil works contracts. International contractors, active in Liberia, are likely to receive awards (para 4.07). Liberia is not eligible for domestic preference for civil works contractors or suppliers. Based on technical requirements reflecting local conditions, procurement will be li-ited to ductile iron or PVC distribution pipe; PVC house connections; and a reinforced or prestressed concrete storage reservoir. Purchase of meters and vehicles and smaller items wlll reflect consideration of the advantages of standardization. Procurement experience on the Monrovia Water Supply Project was good. Bids are received at LWSC and are opened in public, followed by evaluation by an LWSC committee assisted by consultants. The award recommendation, approved by the LWSC Board of Directors, is sent to the National Bidding Committee for review and final approval.  - 22 - K. Disbursements 4.19 The proceeds of the proposed credit for US$5.0 million would be used to finance the foreign content of the components identified for IDA financing and would be disbursed as follows: Allocation and Disbursement of the IDA Credit Estimated Amount % of Expenditure Component Category (US$'000) Financed Equipmeut and supplies (1) 2,044 100% of foreign Civil works (2) 383 50% of total Consulting services, (3) 1,947 100% of foreign technical assistance and training support Special Account (4) 50 - PPF (5) 450 100% of total Unallocated (6) 126 Total 5,0=00 An initial advance of US$50,000 will be made to a Special Account, to be established on terms and conditions acceptable to IDA as a condition of credit effectiveness (para 7.02 (c)). If requested by LWSC and agreed by IDA, the amount of the advance may be increased to US$200,000 after LWSC has effected required changes in its accounting systems (para 5.10). Amounts advanced to this account will be used to finance small foreign and local expenditures. Replenishments of the Special Account will be subject to submission of satisfactory documentation evidencing amounts withdrawn from the Special Account. Disbursements will be made on the basis of Statements of Expenditures for payments against contracts of less than US$20,000. Documents related to these purchases will be retained by LWSC and made available upon request for review by visiting Bank missions. Annual audit reports will include a separate opinion covering amounts withdrawn from the credit account on the basis of Statements of Expenditures. 4.20 LWSC's counterpart funding requirement for the construction components will be paid into a project account. To ensure the availability of counterpart funds, construction of the distribution storage reservoir and extension of the distribution system will not commence until at least US$550,000 has been deposited into the project  - 23 - account. Semi-annual payments of US$200,000 will be made beginning not later than June 30, 1986 (para 7.01 (b)(iii)). The project account will be subject to regular review by the Bank and an annual external audit. The establishment of the project account and the schedule of payments into it was agreed with LWSC during negotiations. 4.21 The estimated schedule of disbursements for the credit is shown in Annex 4-5, with closing of the project on December 31. 1990. It is fast-disbursing in its supply contracts as well as the two major civil works contracts. The Monrovia Water Supply Project with costs of over US$18.0 million was completed within five years from the date of approval. Thus, the projected disbursement profile for the proposed second project is based on the actual disbursement profile of the first project. This is far faster than the regional West Africa disbursement profile for similar projects (8 years). V. FINANCE A. Financial Performance 5.01 Annexes 5-1 to 5-3 set out financial statements for LWSC for FY81 and FY82. with estimates for FY83 and FY84 developed from the unaudited financial statements of LWSC, and projections up to FY90. The accounts as presented reflect the current arrangement whereby LWSC operates the outstations under an implicit management contract with GOL (para 3.04); the outstations still belong to the Government, so neither the assets nor the related loan debt (about US$25 million) appear in LWSC's balance sheet. Accordingly, only cash receipts and payments in respect of these centers, together with operating subsidies, are included in LWSC's accounts. Other loan debt is shown in LWSC's books, but since the Government does not regularly bill LWSC for debt service paid on LWSC's behalf, the records are incomplete. The following table summarizes the salient features of LWSC's finances for the period FY81-84; subsequent accounts are expected to reflect substantial modifications and are reviewed later (paras 5.21 and 5.22).  - 24 - LWSC Finances - FY81-84 (US$' 000) FY81-/ FY82 FY83 FY84 -- Actual - - Estimated - Revenues 6,929 5,111 4,100 4,813 Operating Expenses 8,515 6,707 7,105 7.726 Deficit before Interest (1,586) (1.596) (3.005) (2.913) Net Fixed Assets 44,096 42,739 48,049 46,339 Customer Arrears 9,753 13,078 15,426 18,487 LESS Bad Debts Provision (5,900) (7,406) (8,999) (11,044) Cash 1,602 (22) 50 245 Other Assets 3,663 7,551 1,129 977 Total 53,214 55.940 55.655 55.004 Representing: Equity 26,196 24,825 21,980 18,737 Loan Debt 21,745 24,478 25,799 25,799 Other Creditors 5,273 6,637 7,876 10,468 Total 53,214 55 940 5 5.650 Operating Ratio (Z) 81 76 58 62 Current Ratio 1.2 0.9 0.9 0.8 a/ 18 months (change of fiscal year). 5.02 LWSC's accounts reflect a disastrous trend with revenues falling increasingly short of operating expenses. Although accounts are shown on a consolidated basis, the separate accounts which are maintained for water supply and sewerage indicate that substantial deficits are incurred on the latter service. Although fewer than 25Z of the water customers have access to the sewerage system, sewerage operating deficits account for about half of LWSC's total annual operating deficit. Out of a total accumulated deficit of US$11.4 million at June 30, 1983, US$5.5 million was related to sewerage. However, the allocation of expenses between water and sewerage is somewhat arbitrary, so the apportionment of the deficit is not very meaningful. This project proposes to finance the acquisition and implementation of a new accounting system which will include separate cost center accounts for Monrovia water, sewerage and outstations.  - 25 - B. Billing, Collection and Liquidity 5.03 Consumer billing has suffered from serious delays and errors which impair customer relations (corrections and adjustments sometimes exceeded the original billing total). A new billing and accounts receivable system financed by the PPF is being implemented and will allow cross-checking of consumption trends to assist in the identification of incorrect bills. Updated block-mapping information (also financed by the PPF) is being integrated into the billing data base. 5.04 Improvements in the billing system should also improve collection. At present, collection efforts are hindered by unreliable billing data, and the effect of the recurring revenue deficits is compounded by unsatisfactory rates of collection of water and sewer charges. In respect of non-government accounts, LWSC's collections in FY83, for instance, represented only 62% of billings; at the end of the year, arrears totalled US$11.4 million-equivalent to nearly three years' billing--partly covered by a doubtful debts provision estimated at US$9.0 million. It is believed that this total includes large numbers of "dead" accounts and erroneous charges, but undoubtedly also represents a large number of delinquent accounts; LWSC is now carrying out a program of service cut-offs but illegal reconnections are believed to be numerous. In respect of Government accounts, collections are even more deficient; in FY83 they represented only 40% of billings and arrears at the end of the year amounted to US$4.1 million, plus US$0.7 million in respect of the outstations subsidy. The Ministry of Finance makes lump-sum payments on behalf of all public departments as and when funds are available, but often without indicating the accounts to be credited; payments are never sufficient to meet even current billings, so that the arrears continue to mount. Agreement was reached during negotiations that GOL would make adequate provision in its budget to pay its water and sewerage bills in a timely manner (para 7.01 (a)(iii)). The proposed SAC (para 1.09) will also emphasize fiscal responsibility of governmental entities and parastatals. 5.05 These billing and collection deficiencies create enormous cash flow problpms for LWSC. It has paid no debt service for about four years (no doubt in partial setoff against the Government's unpaid billings); by the end of FY83 it owed over US$7.6 million to suppliers, public corporations and other creditors; and on occasion it has been unable to meet the payroll on time. C. Capitalization 5.06 Due to substantial operating deficits over the years, LW4SC's equity has been almost totally eroded by the large accumulated deficit. LWSC's outstanding debt totalled some US$25.8 million at the end of FY83  - 26 - against an equity of about US$0.7 million (ignoring the US$21.2 million notional surplus from the revaluation of fixed assets in 1978), yielding a debt/equity ratio of about 40:1. As a first step in establishing LWSC as a financially viable utility, it is proposed that its capitalization be restructured to result in a more reasonable balance between debt and equity by GOL's making an equity contribution out of the proceeds of the IDA credit and by adjusting certain long-standing debts between Government and LWSC. 5.07 Of the proceeds of the IDA credit, US$3.0 million will be passed on to LWSC as a GOL equity contribution and US$2.0 million will be on-lent to LWSC (para 4.09) with five years grace (both principal repayment and interest). After the grace period, LWSC will be required to repay principal over 15 years (30 equal payments) at 10% interest. 5.08 LWSC and GOL have begun to clear by means of offset some of the reciprocal liabilities existing between them. On the one hand LWSC is in arrears with respect to debt service due to GOL under various on-lending agreements, while on the other hand GOL has failed to fully reimburse LWSC for operating deficits related to operation of the outstations and has never compensated LWSC for sewerage system operating deficits, despite its contractual obligation to do so under previous loan agreements with donor agencies (GTZ, AfDB and IDA). The Government also owed LWSC US$4.7 million for unpaid water and sewerage charges at the end of FY83. GOL has agreed that it would, as a condition of credit effectiveness, execute an agreement converting LWSC's overdue debt service payments to GOL to equity contributions (para 7.02 (d)), and that LWSC's ongoing financial agreements with the Government would be rationalized and clarified. 5.09 While LWSC is a net creditor of the Government and most parastatals with respect to current liabilities, it is a net debtor of the Liberia Electricity Corporation, with accumulated arrears totaling US$3.5 million at June 30. 1983. During negotiations it was agreed that LWSC would proceed with a program to effect the offset of mutual liabilities with other parastatals by April 30, 1985. D. Accounts and Audit 5.10 Inadequate accounting systems and lack of qualified accounting personnel are among LWSC's most critical institutional deficiencies. The unavailability of reliable financial information clearly has an adverse impact on LWSC's ability to conduct its operations efficiently. The project will provide funds for a commercially-oriented, automated accounting system comprising general ledger, billing and accounts receivable, accounts payable, fixed assets and payroll subsystems. The system will be operated under a time sharing arrangement by a Monrovia service bureau. The project will also finance through technical assistance, a Controller for three years. to support the GTZ experts (accounting and commercial advisors) in implementing the new system and training LWSC staff.  - 27 - 5.11 Because of the substantial weaknesses in LWSC's accounting system and financial controls, significant reliance must be placed on the annual audits of LWSC's accounts. At negotiations, it was agreed that audited accounts for FY83 and FY84 would be submitted to IDA by June 30, 1985 (para 7.01 (b)(iv)). In addition, the Project Agreement includes the standard covenant that LWSC employ external auditors acceptable to IDA and submit to IDA within nine months after the close of the fiscal year the auditor's report and all related documents (para 7.01 (b)(v)). E. Tariffs 5.12 From July 1978 until December 1984, LWSC maintained without change a simple two-tier tariff structure, with the lower tariff being levied on the first 20,000 gallons of consumption per month. Effective January 1, 1985, LWSC revised its tariff structure. The lower rate of US$2.10 per 1,000 gallons (US$0.55/m3) now applies to the first 6,000 gallons of consumption per month while a rate of US$2.80 per 1,000 gallons (US$0.74/m3) applies to consumption above that level. (These rates represent a 25% increase above those previously in effect.) There is a minimum charge equivalent to 2,500 gallons per month (US$5.25). However, many consumers are unmetered or have inoperative meters, and in such cases a flat rate is levied, equivalent to 6,000 gallons per month (US$12.60). Since this does not discourage excess consumption, there is a presumption of lost revenues and waste of water. Many connections are shared and, if, for example, three families (18 consumers) shared a single connection, 6,000 gallons per month would be equivalent to only 40 lcd or 11 gcd, about 60% of the expected value in Monrovia (para 2.05). For sewer customers, a sewer-use fee is levied at 60% of the water bill. 5.13 Water connection charges are set at a US$20.00 refundable deposit for households and US$50.00 (US$20.00 refundable deposit plus a US$30.00 connection fee) for commercial and larger users. LWSC provides the meter and one length (approx. 39 ft or 12 m) of small-diameter pipe for each household connection. Water connection fees are purposely kept low to encourage consumers to have registered, rather than illegal, connections. All water customers living within 100 ft (about 30 m) of a sewer main are charged for sewerage. There is no connection charge as connection costs are assumed to be recovered in the sewer-use fee. 5.14 Annex 5-4 graphically compares changes in LWSC's tariff to local inflation rates and clearly shows that increases have been significantly less than would have been warranted to compensate for infl&.ion. Even so, LWSC's tariff is one of the highest in West Africa. Therefore, the project will emphasize improving financial performance by increasing operating efficiency to the fullest extent. Preliminary analysis indicates that a further tariff increase could be deferred until FY90 if LWSC succeeds in reducing operating costs and in  - 28 - appropriately billing and collecting for water produced. During negotiations, it was agreed that LWSC would carry out a program of selective metering and implement charges sufficient to cover its cash operating expenses and debt service from FY86 and to cover cash operating expenses plus depreciation on revalued fixed assets from FY90 and which reflect such recommendations of the tariff study commissioned under the Monrovia Urban Development Project (para 1.12) as are acceptable to and agreed with IDA (para 7.01 (b)(vi)). F. Prospects for Improved Financial Performance 5.15 In the light of the foregoing, it is impossible to pretend that LWSC is an efficient and financially sound institution, or that it is capable of being speedily turned into one. Rather, the need is to mount a rescue operation to endeavor to remedy the more flagrant deficiencies and to promote a gradual improvement in its performance. Hence, there is little practical purpose in setting early targets for financial performance by LWSC. On the contrary, it will be an achievement if LWSC's dangerous slide toward complete bankruptcy can be reversed. If it can keep solvent in the immediate future, gradually improve its operating efficiency and manage its finances prudently within the constraints of rational tariff levels, it mav be in a position in about five years' time to begin to achieve the sort of financial performance normally expected from water utilities. This possibility is considered in para 5.22; however, certain impediments must first be addressed to give LWSC an incentive and a reasonable prospect of survival and standing on its own feet. G. Financing Plan 5.16 On the basis of the assumptions for financial projections outlined in Annex 5-5, the financing plan for the projecr period FY86-90 would be as shown in the following table:  - 29 - Financing Plan - FY86-90 US$'000 Z Sources Internal Cash Generation 14,139 LESS Net Increase in Working Capital 3,104 11,035 56 Proposed IDA Credit 5,000 24 AfDB Loan 4,000 20 Total 20.035 100 Applications Debt Service 6,549 33 Capital Outlay: - Proposed Project (excluding non- capital components) 7,000 35 - Future Project 3,000 15 - Other Capital Works 3,486 17 Total 20.035 100 5.17 The financing plan reflects the fact that certain components of the proposed project are of a non-capital nature-the technical assistance element (the ongoing GTZ assistance will in fact probably not appear in LWSC's accounts at all) and certain repair works which would be recorded as operating expenses, with counterpart financing from current revenue. The future project referred to represents estimated initial expenditure on the "Near-Term Program" (para 4.04); while the item "Other Capital Works" represents routine extensions and replacements for the Monrovia water supply system; no major expenditure is foreseen within the period under survey in respect of the sewerage system, which has recently been upgraded. 5.18 At present, LWSC's financial situation worsens with each gallon of water produced and distributed. The project has been designed so that the construction components aimed at increasing distribution will be delayed until, as a result of improvements in the billing and collection system and increased tariffs, they are likely to also produce financial benefit to LWSC. After FY86, if projected net revenues materialize, LWSC could be in a position to finance a growing share of capital expenditure itself, insofar as the expenditure is not covered by the proposed project credits. During negotiations LWSC agreed that the major construction components of the project will not be undertaken until a substantial amount (US$550,000) of the counterpart funds required have been generated by LWSC and deposited in a project account (para 4.20).  - 30 - Further borrowing is anticipated to be necessary after the project implementation period, when the next major development scheme gets underway. 5.19 At this stage, however, projections are conjectural to an unusual degree in view of the many uncertainties existing; for example, LWSC's present unstable financial situation and operational shortcomings, the lack of reliable data on demand and consumption patterns, the difficulty of predicting how far LWSC will succeed in capturing potential revenues from the services it provides, and the prevailing climate of illiquidity in Liberia generally. H. Revaluation of Fixed Assets 5.20 LWSC's fixed assets were revalued in 1978, but the valuation has not subsequently been updated. Since annual revaluation is probably beyond the capabilities of LWSC's present staff, it is proposed that fixed assets should be professionally revalued every five years, the next revaluation to take place before the beginning of FY89. For projection purposes, actual and projected international inflation rates (para 4.07) since 1978 were applied. Actual and projected domestic inflation rates were also used in forecasting operating expenses. On this basis, and on the capital program used for projections, net fixed assets in FY90 would be slightly over US$71 million. I. Future Financial Performance 5.21 The financial projections compiled for LWSC's operations up to FY90 are presented in Annexes 5-1 to 5-3. The following table sets out the principal elements in summary form.  - 31 - LWSC Finances - FY85-90 (US$' 000) FY85 FY86 FY87 FY88 FY89 FY90 Revenues 6,442 8,694 10,048 11,173 12,416 14,180 Operating Expenses 8,457 9,637 10,508 12,684 13,423 14,030 Surplus (Deficit) before Interest (2A015) (943) (460) ( &521) (1,007) 150 Net Fixed Assets 44,125 41,962 41,122 71,373 69,052 71,277 Customer Arrears 7,907 4,875 3,852 3,724 3,637 4,062 LESS: Bad Debt Reserve (4,524) (2,638) (2,039) (1,748) (1,486) (1,589) Cash 1,006 233 1,186 621 954 1,554 Other Assets 483 813 1,035 4,271 6,624 3,899 Total 48 997 45.245 45X156 78.246 78,781 79A203 Representing: Equity 24,736 23,507 23,258 56,009 55,841 55,844 Loan Debt 20,066 19,524 20,223 20,463 21,814 22,175 Other Creditors 4,195 2,214 1,675 1,774 1,126 1,184 Total 48X997 45.245 45.156 78 246 78AZ71 Z2A203 Operating Ratio (%) 76 90 96 88 93 101 Current Ratio 1.1 1.4 2.2 1.9 3.4 4.1 a/ After revaluation. 5.22 It must again be emphasized that the projections are conjectural to an unusually large extent, resting on many assumptions which may or may not be substantiated. If the assumptions, however, prove to be valid, there would be a marked improvement in LWSC's financial situation, to the point where it is able to discharge its obligations and generate cash towards future investment needs. GOL's financial obligations with respect to LWSC should be limited to timely paying of its water bills and reimbursing LWSC for the operating losses incurred on outstations' operations. One possible result if such an improvement materialized would be a lessening of the perceived need for intervention in LWSC's affairs by Government, thus contributing to a further strengthening of the utility's autonomy. Even so, it is highly unlikely that LWSC would achieve a positive rate of return on net fixed assets revalued until FY90 at the earliest. Therefore, the financial targets for FY86-90 agreed upon during negotiations are stated in terms of cash generation only.  - 32 - VI. PROJECT JUSTIFICATION AND BENEFITS A. Project Benefits 6.01 In the short-term, the principal benefit of the project will be improved water supply service in Monrovia. In the longer term, the main benefit will be a gradual improvement in the financial and operational health of LWSC so that it can implement and operate future expansions to meet the rapidly growing water supply needs. Both the immediate and longer-term benefits will favorably impact on the well-being of the urban poor, on commercial and industrial -uevelopment, and on the general economy of the country. B. Least-Cost Analysis and Alternatives 6.02 The two significant physical components of what is basically a technical assistance and rehabilitation project are the distribution system extensions and the distribution storage reservoir. The extensions have been proposed for many years and their favorable impact on local service pressures and flows has been confirmed by computer simulation performed separately by two different consultants. Determination of the size and location of distribution storage was also analyzed by computer simulation, but the results are affected by a number of assumptions. The studies of one consultant suggested a number of reservoirs to be located in different areas of the city together with substantial additional investment in transmission capacity. Subsequent studies by a second consultant, proposed only a 5 mg (19,000 m 3) reservoir to be located adjacent to the White Plains transmission main on a high point in Paynesville. Its purpose is to allow the White Plains pumps to be operated in an energy-efficient manner, to reduce excess pump wear caused by continuous pumping, and to provide emergency storage during power interruptions or pump failures. The reservoir will contribute to a more even supply and pressure than at present and will reduce both the problems of excess pressures (causing waste and leakage) and of insufficient pressures (allowing introduction of contaminated water into the system and operational problems for water meters). The size of the reservoir is considered optimal, based on the low elasticity (n = 0.6) of the size/cost function and the rule-of-thukbi to provide at least four hours of maximum daily flow of storage capacity. Alternative types of conscruction have been analyzed (steel, reinforced concrete or prestressed concrete). Either of the latter two will be specified in light of the humid climate of Monrovia and the resulting corrosion problems. C. Access to Service by the Poverty Group 6.03 The nature of Monrovia's urban development is such that low income residents are found scattered throughout the city among higher  - 33 - income areas as well as in concentratlons in peripheral and newly developing areas. For the former, water supply is readily available through shared connections, resale and illegal connections. In the dense low income areas, standpipes are essential for water supply. Construction of an additional 52 standpipes and associated strengthening of the tertiary distribution system in selected low income areas are being completed under the Monrovia Urban Development Project (para 1.12). Vendor-supplied water is sold in some areas where standpipes are not readily accessible. The price is about US$0.07/gallon, about thirty times the LWSC rate. Vendor sales are low, however, as this source is typically supplemented by roof-fed cisterns and wells (usually contaminated). 6.04 The standpipe program has met with limited success. In many areas, the standpipes have been well maintained by -the populace, and satisfaction is very high. However, only about 100 of the 140 standpipes constructed under the Monrovia Water Supply Project are still in operation. LWSC views the standpipes as a drain on revenue, as GOL has not paid for standpipe consumption as previously agreed, and standpipes can serve as a source of "free" water to customers whose service has been disconnected for non-payment. LWSC is currently considering various alternatives for privatization of the standpipes through licensing to private vendors. Such an approach is beneficial in that it will allow LWSC both to derive revenue from the standpipes and to be relieved of the responsibility for standpipe maintenance. The proposed second project provides funds for repairing and securing standpipes (through locked kiosks) to support privatization. During negotiations it was agreed that LWSC would furnish a standpipe prLvatization plan acceptable to IDA by December 31, 1985 (para 7.01 (b)(ii)). Of primary concern will be instituting an affordable charge structure and ensuring that standpipes are well maintained and remain in service so that the maximum number of users can be served. D. Affordability 6.05 Real incomes of a large proportion of the urban population have declined in recent years. The relative urban poverty line is estimated at US$220 per capita per annum, or about US$110 per month for a household of six. The majority of urban poor are currently served free of charge through standpipes and the number having access should grow as the privatization program increases the number of operating standpipes so long as charges remain reasonable. Others are served mainly through shared house connections. Although the minimum unmetered rate of US$12.60 per month is very high for a single family (11% of income), if two or three families share an unmetered connection, the cost is reduced to 4-6% of household income. Connections with operating meters are charged a minimum of US$5.25 per month, less than 5% of household income. Future tariff increases will be structured to maintain affordability for levels of consumption required to meet basic  - 34 - human needs, but will be more sharply progressive to encourage individual connections and to discourage excess consumption and waste. E. Rate of Return 6.06 As the project does not provide additional supply sources or treatment capacity, it does not lend itself to an economic rate of return analysis. Any rate calculations based on assumed reductions of unaccounted-for water would be spurious because much of the water is used, but is simply not billed. However, unquantifiable benefits of the project are many, including reduction in morbidity and mortality rates, as a result of a more reliable supply of safe water and its improved accessibility to low income groups. F. Project Risks 6.07 Construction financed by the project is of a standard nature, without significant construction risks or likelihood of significant cost overruns. Similarly, supply will be straightforward, and no procurement problems are envisioned. The institutional development objectives of the project involve greater risks. Consequently, the project will require very intensive supervision. While the financial objectives of the project may appear modest, it will be a major accomplishment if LWSC can keep solvent in the immediate future and begin to contribute to capital expansion in the longer term. The technical assistance component of the project especially faces substantial risks, many of the same risks that adversely impacted the Monrovia Wat2r Supply Project: lack of qualified counterparts, institutional lethargy and lack of management support. However, three experts from GTZ (para 4.12), who have been at their posts for about two years, are being well received and are getting good support. Appointment of suitable counterparts to the technical assistance positions is to be a condition of credit effectiveness (para 7.02 (e)). General country risks (both economic and political) could also be significant. On the other hand, failure to proceed with the project will bring great risks to the population of Monrovia, as the safety and reliability of water supply is increasingly jeopardized by the decline in operating capabilities of LWSC. The project is designed to improve operating efficiency at all levels by reducing energy costs, maintaining existing investments, reducing excess consumption, waste and leakage, and improving utilization of staff and equipment. G. Eavironmental Considerations 6.08 No environmental issues are apparent.  - 35 - VII. AGREEMENTS AND RECOMMENDATION A. Agreements Reached 7.01 During negotiations agreements were reached on the following points: (a) with Government of Liberia that it would: (i) continue to reimburse LWSC for operating deficits related to the outstations operations (para 3.04); (ii) provide to LWSC US$3.0 million of the proceeds of the IDA credit as equity and on-lend to LWSC US$2.0 million on terms and conditions providing a five-year grace period (with respect to both principal and capitalized interest), with repayment of principal in thirty equal semi-annual installments at an interest rate of 10% per annum (para 4.09); and (iii) adequately budget for and pay water and sewerage bills within 60 days of receipt (para 5.04). (b) with Liberia Water and Sewer Corporation that it would: (i) not employ new unskilled staff during the project term and undertake to effect further staff reductions (para 3.05); (ii) submit by December 31, 1985, a detailed plan of action acceptable to IDA for increasing operational efficiency and achieving its financial goals including specific measures to be taken to reduce operating costs, bad debt expense and unaccounted-for water (para 4.16) and for privatization of standpipe operations (para 6.04); (iii) deposit US$550,000 into a project account prior to commencing construction of a storage reservoir and supply and laying of pipes to extend the distribution system; four semi-annual payments of US$200,000 would be made to the project account beginning June 30, 1986 (para 4.20); (iv) submit its audited financial statements for FY83 and FY84 to IDA by June 30, 1985 (para 5.11); (v) employ external auditors acceptable to IDA and submit the auditor's report to IDA within nine months after the close of each fiscal year (para 5.11); and  - 36 - (vi) carry out a program of selective metering and implement such recommendations of the tariff study commissioned by the Monrovia Urban Development Project as are acceptable to and agreed with IDA and adjust its tariffs as required to generate sufficient cash to cover all cash operating expenses and all debt service from FY86 and all operating expenses including depreciation on revalued fixed assets from FY90 (para 5.14). B. Conditions of Credit Effectiveness 7.02 The following conditions of credit effectiveness were agreed upon during negotiations: (a) effectiveness of a lending agreement with AfDB and a grant agreement with GTZ for co-financing of the project (para 4.09); (b) execution of an on-lending agreement between GOL and LWSC (para 4.09); Cc) opening of a Special Account on terms and conditions acceptable to IDA for the deposit of funds advanced to finance small foreign expenditures (para 4.19); (d) execution of an agreement between GOL and LWSC converting LWSC's overdue debt service payments to equity contributions (para 5.08); and (e) appointment of suitable counterparts to the technical assistance positions, including appointment of a controller or chief accountant whose qualifications and experience shall be satisfactory to IDA (para 6.07). C. Recommendation 7.03 Subject to the above agreements and conditions, the proposed project would be suitable for an IDA Credit of SDR 5.1 million (US$5.0 million) at the prevailing terms. WAPWS February 1985  - 37 - REPUBLIC OF LIBERI ANE 2-1 SECOND WATER SUPPLY PPOJECT MONROVIA WATER SUPPLY Populatn. Demands and Capociy IAOO / ! 12P0- I~~~~~~~~~~~~~~~~ __~~ToP> / ' MEN POgIEnn f ...... ... w-o A.. DOv 6OD- 6mm0m -k_ Da -~~~~~~~~~~~~~~~~~~~~~-0 / b-l jf_ . I I I di~I 20 19U50 1970 .sa' o 50- /Ye/ar: -160 ~~~~~~~~~~~~~ a now B-25703 200-eliber lro