Uganda - Second Water Supply Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 8254-UG STAFF APPRAISAL REPORT UGANDA SECOND WATER SUPPLY PROJECT MARCH 22, 1990 Infrastructure Operations Division Eastern Africa Department This document has a restileted distributlon and may be used by recpients only in the performance of their officrl duties. Its contents may not otherwise be disclosed without World Bank authoIaton.  CURRENCY (December 1, 1989) Currency Unit Ugand Shillin (USh) USS 1.00 - USh 370 USh 1.00 - USS 0.0027 SDR 1.00 - USS 1.26 FISCAL YEAR Goverment, WISC July 1 to June 30 WEIGHTS AND MEASURES metric System ABBREVIATIONS AND ACRONYMS AfDB African Developmt Bank CTB - Central Tender Board DANIDA - Danish International Development Agency EC - European Economic Comuunity GDP - Gross Domestic Product Ou - Govermieat of the Republic of Uganda GTZ - Gesellechaft fuer Technische Zusa_menarbeit ICB - International Competitive Bidding RCC - Kampala City Council KfU - Ireditanstalt fuer Wiederaufbau LCB - Local Competitive Bidding EPED a Ministry of Planning and Ecoanmic Development mimD - Ministry of Water and Mineral Development NNSC - National Water end Sewerage Corporation PCU - Project Coordination Unit RWSG - Regional Water and Sanitation Group (Nairobi) UNICEF - United Nations International Children's Emergency Funtd WHO - World Health Orgmaisation WDD - Water Development Department WSSRP - Water Supply and Sanitation Rehabilitation Project (supported by IDA Cr.1510-UG of 1985)  FOR OMCIL USE ONLY UGAND SECOND WATER SUPPLY PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS Page No. CREDIT AND PROJECT S12(ARY . . . . . . . . . . . . . . . . . . . I. COUNTRY BACKGROUND A. Geography, Climate, Population, Resources . . . . . 1 B. Surface and Groundwater Resources . . . . . . . . . 1 C. Economic Performance . . . . . . . . . . . . . 2 II. THE WATER SUPPLY AND SANITATION SECTOR A. Previous Sector Activities and Projected Investment Level . . .. . . . . . . . .... 3 B. Water Supply and Sanitation Sector Organization . . 4 C. Sector Legislation . . . . . . . . . . . . . . . . 6 D. Standards and Levels of Services . . . . . . . . . 7 E. Cost Recovery and Tariffs . . . . . . . . . . . . . 9 F. Sector Objectives and Strategy . . . . . . . . . . 9 G. Development Constraints . . . . . . . . . . . . . . 11 H. Experience with Past Lending and Bank Sector Strategy . . . . . . . . . . ...... 11 III. THE PROGRAM A. Program Origin and Preparation . . . . . . . . . . 14 B. Program Objectives and Strategy . . . . . . . . . . 14 C. Program Area * . ... . . . . . . . . . 15 D. Existing Water Supply and Sanitation Facilities . . 15 E. Population Projections for Seven Towns . . . . . . 16 F. Water and Sanitation Demand and Service Projections . . . . . . . . . . . . . 17 G. Program Description . * .............. . 18 - Main Civil Works . .. ................ . 18 - Organization Strengthening and Minor Works and Supplies . . . . . . ............. . 23 H. Program Financing .... . . . . ... .......... 25 This report was prepared by Mr. Karl Kleiner (Task Manager), Ms. Hayley Goris (Senior Economist), Mr. Lars Rasmusson (Lead Adviser), Mr. Takao Ikegami (Engineer), Mr. Claus Kuhlmann-Capito (Senior Financial Analyst, Consultant), Mr. Reinhard Gnilsen (Consultant, Government of Austria), and Mr. Gerhard Tschannel (Senior Municipal Engineer). This document has a restricted distribution and may be used by recipients only in the perfornance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  IV. THE PROJECT A. Project Cost Sumuary . .. . ... . .... . . . 28 B. Project Financing . ..a........a........ .. sa.... 30 C. Project lmplementation . . . . . . . . . 4 . . . . 31 D. Procurement ... . . . . . . . . . . . . . . * * * 31 E. Disbursement . ... . . . . . ... . . 33 F. Accounts ad Audits .............. so 33 G. Project Monitoring .... . . .............. . 34 H. International Water Rights . . . . . . . . . . . 34 I. Land Acquisition ................. 35 J. Resettlement ................... 36 V. THE BORROWER AND THE iLEMENTATION AGENCI A. The Borrower . . . . . . . . . . . . . . . . . . . 37 B. National Water and Sewerage Corporation . . . . . . 37 - Organization and Management . . ........ 37 - Staffing, Training and Technical Assistance . . . 37 - Accounting . . . . . . . . . . . . . . . . . . . . 39 - Tariff Level and Structure . . . . . . . 39 - Insurance . . . . . . . . . . . . . . . . . . . . 39 C. Project Coordination Unit . . . . . . . . . . . . . 40 VI. FINANCIAL ANALYSIS A. Financial Performance . .............. 41 - Past and Present Performance ... ... .. . 41 - Compliance with Financial Covenants Under Cr.1510-UG . .............. 42 - Billing Efficiency ............... 43 - Collection Efficiency ............... 43 - Proposed Water and Sewerage Tariff . . . . . . . 44 B. Financial Forecasts ................ 45 C. Performance Targets . . . . . . .. . . . ......... 47 VII. ECONOKIC AND SOCIAL ANALYSIS A. Program Benefits ................. 49 B. Least Cost Solution .... . . . . . . . . . . . . 49 C. Return on Investments . . . . . . . . . . . . . . . 50 D. Affordability ................... 52 E. Environmental and Public Health Aspects . . . . . . 52 F* Women's Role . . . . . . . . ... .. . . . .. . . . 53 G. Project Justification and Risks . . . . . . . . . . 53 VIII AGREIENTS AND CONDITIONS BETWEEN GOV AND IDA A. Agreements Reached During Negotiations . . . . . . 55 B. Conditions of Credit Effectiveness . . . . . . . . 57 C. Recommendation ............... ... 58  LIST OF ANNEXES Annex 1 - Current and Projected Water Sector Investments Annex 2 - Existing Water Supply and Sanitation Facilities Annex 3 - Population/Water Demand/Waste Water Production/ Service Levels Annex 4 - Detailed Program Description, Cost Estimate and Finance Main Civil Workst Summary Component No. 1. Kampala Water Works Gaba 2 2. Kampala Water Supply & Sewerage Expansion Phase I 3. Kampala Water Supply & Sewerage Expansion Phase II 4. Kampala Water Supply & Sewerage Expansion Phase III 5. Jinja Water Supply & Sewerage Expansion Phase I 6. Jinja Water Supply & Sewerage Expansion Phase II 7. Mbarara Water Supply Expansion 8. Mbale Water Supply and Sewerage Expansion 9. Masaka Water Supply and Sewerage Expansion 10. Entebbe Water Supply and Sewerage Expansion 11. Tororo Water Supply and Sewerage Expansion Ortanization Strengthening & Minor Works and Supplies: Component No. 12. Technical Assistance 13. Computerization of Billing 14. Training Program 15. Water Quality Control 16 Block Mapping Survey 17. Kampala Leak Detection and Repair 18. Kampala Sewer Cleaning and Repair 19. Water Meter Supply and Installation 20. Supply of Spare Parts, Chemicals, Materials 21. Project Coordination Unit, KCC Roof Repair Annex 5 - Project Implementation Schedule Annex 6 - Project Cost Schedule Annex 7 - Schedule of IDA Disbursements Annex 8 - Withdrawal of Proceeds of the Credit Annex 9 - Amounts and Methods of Procurement Annex 10 - Project Monitoring Guidelines Annex 11 - Land Acquisition and Resettlement Annex 12 - Organization Charts NWSC and PCU Annex 13 - NWSC's Past and Projected Financial Performance Annex 14 - Proposed Water and Sewerage Tariff Structure Annex 15 - Economic Rate of Return and Sensitivity Analysis Annex 16 - Terms of Reference for Technical Assistance and Studies - Technical Assistance to NWSC - Computer Expert for NWSC - Review of Sector Legislation Annex 17 - Environmental Assessment Annex 18 - Guidelines for ICB and LCB MAP IBRD No. 21985  UGANDAL MSECOND WATER SUPPLY PROJECT Credit and Proiect Sumnary Borrower: The Republic of Uganda Implementation Atencv and Beneficiary: National Water & Sewerage Corporation (NWSC) Credit Amount: SDR 45.1 million (US$60 million equivalent) Terms: Standard IDA terms with a maturity of 40 years OnlendinA 50 percent or approximately (US$58.44 million) as a loan to Terms: NWSC at variable counsercial lending rates plus 3 percent, repayable over 25 yeass including 5 years grace, and 50 percent as equity. Prolect The proposed Project is part of an Urban Water Program Obiectives with a combination of economic, social, environmental and institutional objectives, specifically: improving public health, enabling increased production of goods and services, preventing environmental pollution, and easing women's burden by expanding and improving water supply systems as well as waste water treatment facilities and service capacities. The water supply systems would cater for most of the increased demand in five major towns up to about the year 2000; the percentage of domestic users served would increase from about 50 percent at present to nearly 80 percent in 2000 on average, including an improved coverage of low-income consumers. Full coverage of low- income water consumers in the five towns has to be postponed to a later time because the institutional and financial focus of this Project is the further strengthening of NWSC to enable it to operate and maintain the existing installations and carry out a programmed expansion of the facilities. This requires financial viability, which would be achieved through cost recovery, improved financial and technical efficiency, and increased institutional capacity. The Project would also assist the Borrower in improving its water sector legislation. The Project objectives are in line with broad Government objectives for economic development, namely restoration of production and rehabilitation of economic and social infrastructure. It also fits into Uganda's sector strategy for water supply and sanitation.  - ii - Project The proposed Project would include physical and Descri2tion: institutional components for the expansion of water supply facilities in five towns and for strengthening NWSC and Improving water legislation: (I) Physical components: Expansion and Improvement of water supply and rehabilitation of sewerage facilities in Kampala, Jinja, Masaka, Mbarara and Mbale simultaneously with programs for the reduction of water vastage such as leak detection and repair of the distribution system and installation of water meters in order to stop water waste by consumers; (ii) Institutional components: Strengthening of NWSC's finance, operation and maintenance capacity through technical assistance and training as well as continuation of customer surveys and introduction of computerized billing procedures; and (iii) Introduce a streamlined legal and institutional framework for the water sector, including pollution control. Justifclation The proposed Project would assist the Government in and Risks: its efforts to rehabilitate and upgrade the country's economic infrastructure ant. social services after a long period of decline. Safe water supply is a basic human need. Without the Project poor health conditions and high mortality would persist. By increasing the service coverage for water supply from 50 to 80 percent of the population in the project towns and improving sewerage services, health conditions would considerably improve leading to higher attendance and productivity of both men and women in the workplace and enhanced wellbeing at home. Women's traditional burden to provide water would be lessened, and a larger proportion of low income consumers would be provided with potable water at an affordable price. Economic activities in manufacturing, commerce and tourism would no longer be restricted by lack of water. At the same time, funds would be provided for the prevention of environmental pollution. Execution of the physical components would be technically straightforward, but financial constraints in Government and NWSC might delay release of local counterpart funds and also cause continued institutional weaknesses. The shortage of qualified staff, low salaries and possible reluctance of the Government to allow tariff increases for non-economic reasons will make achievement of institutional objectives difficult in the short term. However, the strong Government commitment to economic recovery and the measures proposed in this Project (training, technical assistance, and improving the revenue base of NWSC), should reduce these risks over time.  - ill - stmate Cost: ComOononts Local Foreign Total Percentace (Jn USI allIEIon) -Water Supply & Snwerup Expansion/rehab. In 6 towns 7.77 6.907 08.74 68.409 -Tech. assistance, training and other measures to Improve NWSC'o financitl performance 0.94 16.62 17.66 14.903 -Construction supervision a Project Coordinatlon Unit 6.62 4.12 4.64 8.9ax -Land com_nsation/resettlomnt a.8o - 9.89 a.89x -Base Cost 9.68 81.71 91.28 77.49X -Physical Contingencioe 0.90 7.71 8.69 7.8si -Price Contingencies 6.46 11.60 17.96 16.20X Total Project Costs 16.63 163.6 117.90 160.099 Finnetim Plan: IDA 0.5 69.9 eo.o 60.90 EEC 2.8 21.5 28.8 20.21 Italy 1.3 12.7 14.6 12.8X Austria o.8 4.4 4.7 4.0X GTZ 0.1 2.6 2.9 2.65 OOU/NWSC 11.9 - 11.9 1O.1l TOTAL 16.9 199.9 117.8 160.09 EstMated IDA Dtidgreesntes FY91 FY82 FY08 FY94 FY90 FY06 (tWUS aionT __ Annul 1:4.5 le.? 1S