Burundi - Bujumbura Water Supply Project

FILE COPY' RESTRICTED Report No. TO0-476c This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION APPRAISAL OF THE BUJUMBURA WATER SUPPLY PROJECT THE KINGDOM OF BURUNDI March 18, 1966 Projects Department  CURRENCY EQUIVALENTS U.S. $1.00 = BF 87. 50 (BF - Burundi Franc) 1,000 BF - U.S. $11.43 1,000,000 BF = U.S. $11,429 Abbreviations m3 = cubic meter (264 gallons) lcd = liters per capita per day mn /d = cubic meters per day mn /yr = cubic meters per year Fiscal Year January 1 thwough December 31  APPRAISAL OF THE BUJUMBURA WATER SUPPLY PROJECT THE KINGDOM OF BURUNDI TABLE OF CONTENTS Paragraphs SUMMARY AND CONCLIJSIONS i-vi I. INTRODUCTION 1-2 II. THE PROPOSED BORRGr.FR 3-5 III. THE PRESENT ORGANIZATION OF REGIDESO 6-17 IV. THE PRESENT SYSTEMS, WATER, SEWAGE, ELECTRICITY 18-31 A. The Existing Water System Sources and Faciliti.es 18-21 B. The Distribution System 22 C. Fire Hydrants 23 D. Water Connections 24-25 E. Metering 26 F. Water Quality and Public Health Aspects 27-28 G. Present Drainage and Sewer System 29 H. Present Electrical System 30-31 V. FINANCIAL ASPECTS 32-48 A. Water Rates 32-33 B. Present Financial Situation 34-48 VI. THE PROJECT 49-65 A. Water Use Estimates and Design Requirements 49 B. The Proposed Water Source 50-53 C. Proposed Works 54-55 D. Project Costs 56_60 E. Design, Procurement and Construction 61-65 VII. FINANCING PLAN AND PROJECTIONS 66-78 A. Proposed Financing Plan 66-71 B. Financial Projections and Water Rates 72-78 VIII. JUSTIFICATION OF THE PROJECT 79-83 IX. CONCLUSIONS AND RECOMMENDATIONS 84-86 This report is based on the findings of two missions, one in October 1964 composed of Messrs. Kreuter and Shipman, and the second in November 1965 composed of Messrs. Rajagopalan, Renger, and Shipman, and on a report prepared by Mr. A. Thys, WHO Consultant.  TABLE OF CONTENTS (Cont'd.) ANNEXES 1. Organization Chart - REGIDESO, Burundi 2. Existing Water Facilities 3. Number of New Water Connections by Year - 1953, 1957, 1960-1963 4. Water Consumption by Types of User - 1959, 1960, 1963 5. Water Service Charges and Rates 6. Income Statements 1961-1964 7. Balance Sheets 1961-1964 8. Comments on Financial Statements 1961-1964 9. Population and Water Consumption Projections, 1963-1978 10. Water Production and Consumption Projections, 1956-1976 11. Construction Costs by year, 1966-1969 12. Activity Control Schedule 13. Income Statement Forecasts, 1965-1973 14. Sources and Requirement of Funds Forecasts, 1965-1973 15. Balance Sheet Forecasts, 1965-1973 16. Assumptions for Financial Forecasts IMAPS 1. Burundi 2. Bujumbura, Burundi, Existing and Proposed Water System  APPRAISAL OF THE BUJUMBURA WATER SUPPLY PROJECT KINGDOM OF BURUNDI SUMMARY AND CONCLUSIONS i. The Kingdom of Burundi has requested a credit from the Interna- tional Development Association to help finance part of the costs of major improvements to the water system for Bujumbura. The project includes construction of an intake, a new water treatment plant, and additional storage and transmission facilities. REGIDESO (Regie de Distributions dtEau et d'Electricite), the national water and electric authority, to whom the credit would be re-lent, would execute the project and operate the system upon completion. ii. Present water sources are inadequate and are subjected to damage and interruption during heavy storms. Water service is now deteriorating with certain sections of the city receiving no water during the periods of peak demand. New facilities are required to solve these problems. iii. The proposed project would provide an adequate quantity of pure water from a practically unlimited source, Lake Tanganyika. The facili- ties to be constructed could be easily and economically extended and ex- panded in successive stages to meet all future demand. The construction to be undertaken immediately would meet the projected requirements for about 10 years after completion in 1969. iv. REGIDESO has operated under a highly competent administration. During the past few years, since independence, there has been a tendency for the administration to become less efficient due, among other things, to a limited number of trained personnel. Provision is made in the pro- posed project for strengthening management and for retaining existing key foreign staff until such time as local personnel can be trained to take over all operations. v. An IDA credit of U.S.$1.1 million would cover approximately 65% of the total project cost estimated at U.S.$1.7 million (BF 149.5 million). The remaining portion would be financed out of cash reserves and from revenues generated during the construction period. Projections indicate a financially satisfactory situation throughout the construction period and the years following. Though interest during the construction period will be capitalized for accounting purposes, it will be paid when due. A water rate increase of about 20% will be required at the end of the construction period around January 1, 1970. vi. With the contractual arrangements recommended in paragraph 85, the project provides a suitable basis for an IDA credit of U.S.$1.1 million equivalent to the Government of Burundi, to be re-lent to REGIDESO at an interest rate of 5k%efor 14; years, including 5 years of grace.  I. INTRODUCTION 1. The Kingdom of Burundi has requested a credit from the Interna- tional Development Association to help finance an expansion of the existing water supply facilities for the City of Bujumbura (see Maps 1 and 2). An IDA credit of $1,100,000 would cover approximately two-thirds of the total project cost. The remainder of funds required for the project would be made available by REGIDESO (Regie de Distributions d'Eau et d'Electricite) through accumulated funds and from funds generated during the construction period. 2. This appraisal is based on information contained in a report prepared by a consultant of the World Health Organization and submitted by the borrower, and from information collected by two IDA missions, one in October of 1964, composed of Gunther Kreuter and Harold Shipman, and the second in November 1965, composed of Messrs. Renger, Rajagopplan and Shipman. II. THE PROPOSED BORRO14ER 3. The proposed IDA credit would be made to the Kingdom of Burundi which would re-lend the proceeds to REGIDESO, an agency of the government under the Ministry of Public Works. REGIDESO has operated under a high degree of administrative and financial autonomy and is charged with responsibility for the production and distribution of water and electricity in Burundi. It may also be authorized, on decision of the Minister of Public Works, to take over responsibilities connected with other public services and which either directly or indirectly relate to its major objec- tives as, for example, sewage disposal. 4. REGIDESO of Burundi was established by a legislative ordinance on June 22, 1962, and is the successor of REGIDESO which served the Belgian Congo and Rwanda-Urundi from 1939 to 1960, and Rwandi-Urundi only from 1960 to 1962. 5. The proceeds of the credit made to the Government of Burundi will be re-lent to REGIDESO through the channel of the Royal Bank of Burundi which would act on behalf of the Minister of Finance. III. THE PRESENT ORGANIZATION OF REGIDESO 6. The General Manager of REGIDESO is nominated by the Minister of Public Works and the appointment made by the King after consultation with his advisers. The manager appears to have all of the powers necessary to properly administer and manage the affairs of REGIDESO. Proposals for changes in rates for water and electricity are forwarded to the Minister of Public Works by the General Manager of REGIDESO, and authority to approve any change is vested with the Minister. The Minister of Public Works also has authority to issue the general regulations governing water and power operations. REGIDESO has operated over the period of its existence with little or no interference from government.//Assurances have been obtained from the government that this favorable policy will be continued.  7. The chart presented in Annex 1 reflects the organization as it now exists. REGIDESO was undoubtedly a very well run organization at the time it was under the parent body operating from Brussels. It now shows some of the signs of a young organization that is learning to function without the guidance and support of a central office, and without a suffi- cient number of trained workers. All senior staff are overworked and little opportunity exists for planning, training, and evaluation. With particular attention given to collection of accounts and general improve- ment of management, REGIDESO should return to the position of a well run utility. Some assistance by a competent consultant in improving records and in modifying billing and collection procedures was proposed during the appraisal, and a request submitted to WHO (World Health Organization) from REGIDESO has resulted in assignment of a short time consultant to Burundi to assist REGIDESO on these problems. 8. REGIDESO operates only two water systems in the country, one in Bujumbura having a population estimated at about 67,000, and the other in Kitega. The same policies are followed in administering each system and the Kitega system although small (about 200 connections and 12 employees) yields a high return on investment. Because other communities of Burundi are smaller than Kitega and most have hand pumps or springs, no immediate demand exists for providing piped facilities of the type for which REGIDESO has responsibility. It is expected that such demand will develop slowly. 9. In addition to a General Manager, who is a Burundian, and four foreign technicians, there are a total of 192 personnel employed by REGIDESO in its water and electrical operations. There is no civil service and all personnel fall within employment policies established by REGIDESO. Although not unionized, there was a strike of the employees over an appar- ent misunderstanding in 1964. 10. The General Manager has occupied his present post for several years and appears to be regarded very highly by not only his colleagues but by the public in general. Only qualified persons should be nominated to fill vacancies which develop in this post and it has been agreed that before appointment, IDA will be given the opportunity to comment. 11. There are only a few national personnel employed by REGIDESO who have a high school education. The effect of this is to make extremely difficult the delegation of authority with assurance that it will be proper- ly used. Absence of such staff is particularly evident in the engineering field and high level administrative work. It is apparent that if some day REGIDESO is to function under complete national staffing, a long range program of training and development will be required. It is visualized that at least four or five selected high school graduates should be sent abroad for college training in the fields of engineering and public admini- stration. These trainees should be followed in successive years by others. Information received by IDA indicates that the National Planning Office is coordinating all fellowships made available through multilateral and bilateral assistance programs and that currently three engineers are under training in Europe. This program will be continued and REGIDESO will have a hand in the selection of promising high school graduates who, after  - 3 - their return, can be given in-service experience and instruction within the Authority and, when fully qualified, appointed to responsible posts. All existing and new expatriate staff will be given a specific responsibility for the training of national staff with the objective of turning over to them as rapidly as possible, all functions of REGIDESO. 12. There is some evidence that the performance of the present admini- strative staff of REGIDESO is improving and it is considered desirable to review the record after one more year to determine whether the present staff can bring about the required changes. As will be noted in paragraphs 38 and 49, there is a problem in the collection of accounts and in the reduction of unaccounted-for water. It has been agreed that unless within one year 92% of current accounts are being collected and unaccounted-for water has been reduced to 30% or less, a qualified administrator will be added to the staff to concentrate on these and other problems. 13. At least one qualified engineer is required by REGIDESO to help it during the construction program and to assist in the improvement of engineering operations. It is possible that assistance in the provision of such an engineer may be forthcoming through the United Nations Technical Assistance and the World Health Organization. 14. It is expected that some opposition will be encountered to a continuation of foreign personnel in REGIDESO over an extended period. However, it is believed that in the interests of the government for the maintenance of proper service and for assurance that obligations under- taken in a project can be met, foreign staffing must be continued for such time as IDA and REGIDESO agree. Assurances were obtained from the govern- ment to this effect. Changes in the Legislative Ordinance (Charter) 15. The Charter, which sets forth the guidelines under which REGIDESO functions, was revised after the first appraisal visit in order to enable REGIDESO to function with somewhat more autonomy and to permit it and the government to follow sound policies in operation and control. Although it is believed that in the future further revision may prove desirable, the present Charter is considered acceptable for at least the period of the project. -- 16. The REGIDESO Charter provides that the Minister of Public Works may determine the categories of decisions concerning the conduct of the operations of REGIDESO which will be subject to his approval. As this feature of the Charter could have a direct impact upon the autonomy of REGIDESO, assurances were obtained that no undue influence will be exerted by the government on the day-to-day operations of REGIDESO. 17. REGIDESO now is able to charge for all services provided in water and electricity. This situation will continue and REGIDESO will not be required to provide either these or added services except where ade- quate provision is made to compensate for all costs incurred.  - 4 - IV. THE PRESENT SYSTEMS, WATER, SE7WAGE, ELECTRICITY A. The Existing Water System Sources and Facilities 18. The present water system, completed in 1949, consists of a spring source and a river source, treatment works, storage and distribution facili- ties. Information on each system is given in Annex 2. 19. The system has been operating at capacity for a number of years and since 1961, the treatment plant for river water has been functioning at a rate of 33% above its designed capacity. The combined total production of 9000 cubic meters per day (m3/d) cannot meet present demands and the number of areas in the city without water during part of the day is increasing. 20. Six wells installed in 1957 and 1958 near the lake (Map 2) have been abandoned. Four of the wells had a very high iron content which would have necessitated treatment, and the yield of the other two decreased from 50 m3/hr. to 10 m3/hr. During 1964, the rise in lake level caused flooding of all the well sites. Further development or use of these wells is not being considered by REGIDESO. 21. The treatment facilities are of modern design and are reasonably well maintained. Operation could be improved by on-the-job training of the existing personnel by a specialized advisor. B. The Distribution System 22. The present distribution network consists of 165 kilometers of mains and 63 kilometers of connecting lines. Most of the mains are of steel, although some asbestos cement pipe is used. Five reservoirs with a total capacity of 2,020 m3 are located on the distribution system. There are two pumping stations, one located adjacent to the treatment plant, and the other at an elevation above the treatment plant for supply of water to the higher districts of the city. C. Fire Hydrants 23. Although fire is stated not to be a problem in Bujumbura, there are 220 fire hydrants located throughout the distribution system. These are installed and maintained by REGIDESO without compensation. D. Water Connections 24. Annex 3 shows the year-by-year record of new connections, con- sumers, number of meters in service, and extensions to the system. There are at present 3,976 registered water consumers representing around 20,000 people. The balance of the population is primarily served from public taps. It is apparent from the record that the number of new connections per year is very limited and the number of people served by house connec- tions is low. It is believed that this can be explained in part by the very conservative business policies followed by REGIDESO in the past and which have required the payment of a substantial fee for the initial service  - 5 - connection. The result of this policy has been to limit new connections to the better class housing areas where cash in excess of BF 5000 (US$60.00) can be paid for a connection. A more liberal policy for pay- ment of service connections over a period of time might be considered by REGIDESO as a mechanism for increasing home services and extending both the market and the benefits of water. Annex 4 shows the water consumption by type of consumer in the years 1959, 1960 and 1963. 25. In addition to the house service connections, there are 17 public laundries and 96 street fountains which serve the mass of the population. Of the 17 public laundries, most have been disconnected because of the cost of supplying water to the facilities, a cost covered by the municipality and which it has felt was beyond its means. These laundries have been well received by the public and it is believed that means might be found whereby use of the facilities could be restored and made self-supporting through nominal payments by the users. REGIDESO has agreed to study both this possibility and that related to amortization of costs for new service connections. E. Metering 26. All service connections in Bujumbura are metered. This policy applies not only to house connections but also to public taps and public buildings. Bills for the public taps are sent to the municipality for payment. This procedure should be continued. All meters are of the tur- bine or velocity type and of two different makes, both manufactured in Belgium. Turbine meters usually are found to under-register and are par- ticularly inaccurate at low flows and low pressures. They also require more frequent maintenance. However, in view of the fact that all meters now installed, and all new meters in inventory are of this particular type, it does not seem advisable to embark immediately on a wide scale pro- gram of replacement. At such time as new meters are ordered, consideration should be given to procurement of a displacement type. F. Water Quality and Public Health Aspects 27. Raw water from both of the existing sources can be considered to be satisfactory, being low in hardness and relatively free of bacterial contamination. Water from the spring source is high in iron. Water enter- ing the distribution system is of good quality except that the chlorine dosage is usually below the levels normally recommended by the World Health Organization, and does not permit a residual concentration throughout the distribution system. As the demand increases and the water shortages become more acute, opportunities for contamination to enter the water dis- tribution system will become more frequent since adequate pressures cannot be maintained with present facilities. 28. Public health information made available through the World Health Organization shows that the incidence of parasitic diseases of faecal origin is 5 times as high in the districts of Bujumbura which are not  - 6 - served by sanitary facilities (water and sewerage) as in the areas where such facilities are available. These figures also show that the bacterial diseases are 3 times as high in the groups not served. In interpreting these results, it is well to point out that other factors in addition to water and sewerage are probably involved. It can be expected, however, that reduction in the parasitic and bacterial diseases would occur could more families in Bujumbura be supplied by water at the house and with ade- quate sewage facilities. Liberalization of the policy on payment for new connections as mentioned in paragraph 24 should encourage a gradual in- crease in the number of homes served by water. It is anticipated, however, that for the mass of the low income group, reliance on public taps will prevail for the foreseeable future. G. Present Drainage and Sewer System 29. At the present time, there is no planned sewerage system in Bujumbura. Most dwelling houses, commercial buildings and schools dis- charge their waste waters into septic tanks. The effluent from these tanks frequently findsits way to drainage ditches or drainage lines which eventually discharge to the lake. Ngara, a suburb of Bujumbura (popula- tion approximately 15,000), is served by the Bujumbura water supply and has a complete sanitary sewerage system which has not been maintained. The urban sewer system in Bujumbura is the responsibility of the Civil Engineering Department of the Ministry of Public Works. Because of its responsibility for water supply and the need to prevent pollution of its water sources, and because it has experience in providing municipal ser- vices, REGIDESO is particularly suited to carry responsibility for sewer services as well as water and electricity. It appears that within a few years after completion of the proposed project for improvement of the water system, REGIDESO may have a considerable amount of funds which might logically be applied against improvement of the sewer system. The present ordinance provides that the Minister of Public Works may designate REGIDESO as the agency responsible for such a function. H. Present Electrical System 30. REGIDESO has responsibility for providing electricity to the entire country. In recent years REGIDESO has purchased its power for use in Burundi from a power plant located at Bukavu in the Congo. Because of the severance of relations between Burundi and the Congo, this power supply was cut off in the middle of 1964 and REGIDESO was forced to revert to use of its own generation plant which has been maintained on stand-by status for a number of years. This plant is a diesel driven facility which consists of two 400 KVA, four 500 KVA, and two 800 KVA generators. These deliver 6,600 volts at 50 cycles. REGIDESO is completing the in- stallation of 5 additional generators (four of 225 KVA each and one of 450 KVA). Diesel fuel has to be brought from Dar es Salaam by rail to Lake Tanganyika and then trans-shipped by boat to Bujumbura. This resulted in a great increase in the cost of electricity in Burundi during 1964 and power prices had to be doubled to BF 4.00/kwh.  31. In early February of 1965, improved relations between Burundi and the Congo resulted in restoration of power supplied from Bukavu. As Bukavu could not continue to provide power at the old rates of BF 1.00/kwh, the rate was initially increased to BF 1.30/kwh. Bukavu is pressing for a further increase.  - 8 - V. FINANCIAL ASPECTS A. Water Rates 32. The schedule of water rates in use in Bujumbura is shown in Annex 5. This was the rate schedule already used before devaluation of the currency and resulted in an average charge in 1963 of BF 7.00/m3 (about U.S.$0.53 per thousand gallons, a charge which was considerably higher than that prevailing in most cities of the world). Starting in 1964 the average charge worked out to be around BF 7.50/m-) (about U.S.$0.32 per thousand gallons after devaluation, a figure which is somewhat nearer current charges in other cities). This is BF 0.50/m3 higher than calculated at the time of the appraisal in October/November 1964. 33. Aside from the observation that the charges for water used in swimming pools appears to be too low in proportion to other uses, it is believed that the present system is simple and equitable. It has been acceptable to the consumers and no advantages in change of the system appear to excist at the present time. B. Present Financial Situation 34. The government has recently devalued its currency from the original BF 50 = U.S.l.00 to BF 87.5 U.S.$l.00. The latter rate of exchange has been used for all costing in this report. Fixed assets have not been re- valued. 35. The first complete financial statements for the operations covered since independence by REGIDESO date back to the fiscal year 1961 (January 1 - December 31). The most recent statements are for the year 1964. These are still subject to government audit. Income statements and balance sheets for the years 1961 to 1964 are shown in Annexes 6 and 7, comments are given in Annex 8. 36. In reviewing the statements it is apparent that the short financial history of the Authority is closely related to the political events which marked the country during the same period. In 1961, the Authority operated at a normal pace and yielded satisfactory results. This picture altered considerably during the independence year 1962 when operations generally deteriorated. Finally, in 1963 and 1964 a certain recovery took place but REGIDESO has not yet been able to regain fully its earlier level of performance. 37. Despite a continuous increase in water production, readings and billings fell back in 1962 as a result of a general relaxation of admini- strative discipline. There was, however, some improvement in 1963, al- though the gap between production and billings could not be narrowed. Also, the bills issued in 1963 reflect a general water rate increase that took place in March of that year. Similar developments although less pronounced, could be observed in connection with the sale of electricity. The current income from power sales amounts to about three times that of the water department.  - 9 - 38. The impact of national events was accentuated by a sharp decline in bill collections for which the Authority seemed momentarily to have lost control in 1962. Accounts receivable from sales on both water and power increased from BF 9.9 million in 1961 to BF 31.6 million in 1963 and BF 43.5 million in 1964. Net receivables from sales were equivalent to 3 months at the end of 1961, to more than 7 months at the end of 1963, and to more than 8 months at the end of 1964. 39. There is growing evidence that a large part of the accounts re- ceivable is uncollectable. Many clients have left Bujumbura and even Burundi. Others have accumulated debts as a result of deferred billing or deliberate non-payment and are now unable to honor their obligations. 40. Partly under the influence of the almost perfect collection record of the administration in the pre-independence period and partly to avoid showing too unfavorable results, no allowance was made for bad debts in 1962. To correct the situation, total profits for the years 1963 and 1964 were reserved against bad debts. The loss of BF 686 thousand shown on the Incorne Statement for 1963 on Annex 6 is due to the fact that after reserving the entire profit for 1963 of BF 6.1 million against bad debts, depreciation was increased with BF 686 thousand, representing charges referring to 1962, when the required 4% depreciation was not fully charged in order not to show a loss for that year. 41. A precise assessment of uncollectable accounts should be made as soon as practicable and appropriate allowances provided for in the profit and loss account. Moreover, the government, its agencies, and the city should immediately settle any outstanding accounts and hereafter pay promptly their current bills. 42. The total cost of water has increased only moderately during the period 1961-1964, the increase generally being in proportion to the production increases. The average water cost per m3 therefore shows only slight variations. Including a straight-line depreciation of 4% on gross fixed assets, which is conservative, the water department made an apparent net profit in each of the four years under consideration. The power de- partment, in contrast, showed a net profit only in 1961, increasing losses in 1962 and 1963 and a small profit again in 1964. These figures include also depreciation of 4%. However, these results must be con- sidered in the light of the non-existing or insufficient allowance for bad debts referred to in paragraph 40. 43. REGIDESO ended the year 1961 with an overall profit of BF 3.8 million, the accounts for 1962 and 1964 show neither profit nor loss, while 1963 shows a small loss (see paragraph 40). "Other income" in- cludes interest on funds placed with local banks. 44. As shown in the balance sheets on Annex 7, REGIDESO has no long- term debt. The reason for this is that all investments in fixed assets were financed either by self-generated funds or the country's extraordinary budget and took the form of a capital contribution. This results in the  - 10 - capital being roughly equal to gross fixed assets. As the laws of REGIDESO provide for the principle that "it shall meet expenditures out of its in- come", the capital is a priori not intended to yield any return. 45. Figures on the amount of gross fixed assets as shown in the balance sheets were given to the Authority by the former Belgian agency for the Congo and Rwanda-Urundi. These have not been checked and verified by a complete physical inventory. Total depreciation has been taken equiva- lent to about one-third of gross fixed assets. It is believed that this reflects conservatively the actual physical depreciation of the installations. Because specialized assistance will be needed in undertaking a revaluation it has been agreed to complete the work within one year of the date of arrival of the engineer REGIDESO is to add to its staff. 46. The current ratio including inventories continued to remain favorable and was 9.3:1 at the end of 1964. Among the main reasons for this surprisingly high ratio is the large cash position which amounted to BF 30.0 million at the end of 1964. The amount is largely a legacy of the former Belgian administration and most likely attributable to the high rate of depreciation. The cash position has been affected only moderately by the sluggish bill collection referred to above. 47. A yearly audit is carried out by the government's audit service. The proposed Project Agreement provides that an annual audit in a manner satisfactory to IDA will be carried out. Originally it was recommended that the audit should be performed by an independent auditing firm. There are no such firms in Burundi, however, and there is need to determine whether the government audit can be upgraded sufficiently to be acceptable to IDA or whether, in spite of the disadvantage, an outside firm will be required. 48. The mission reviewed the accounting system and came to the con- clusion that although too simplified for the long run, it is basically sound since the separation of accounts between the water and power departments, abandoned as a result of personnel shortage, has been re-established. More- over, the mission's impression is that with the exception of the handling of the allowances for bad debts, REGIDESO generally has followed sound financial practices within the framework of its laws.  - 11 - VI. THE PROJECT A. Water Use Estimates and Design Requirements 49. Annexes 9 and 10 show a projection of the population growth for Bujumbura together with the estimated consumption and production require- ments for water until the year 1978. Because the accuracy of information on population over the past years in Bujumbura is subject to some question, conservative figures have been used in making the projections. The growth rate for the period 1938 to 1963 is stated in the WHO report to be 8.3% per annum. A figure of 6% is used in the projections. Present per capita consumption is now shown as somewhat in excess of 80 liters per capita per day (lcd). In the period from 1963 to 1968, it has been assumed that the per capita consumption would drop from 100 to 79 lcd because of the inabili- ty of present water sources to meet the demand. From 1969, when more water becomes available, the per capita usage would gradually increase reaching 135 lcd in 1978. Production requirements have been projected on the assumption that non-revenue water (water lost by leaks, under-registration of meters, etc.) could be reduced from the present level of about 38% to 20% after approximately 10 years, and should remain at no more than 20% thereafter. B. The Proposed Water Source 50. The requirement for additional water to supply Bujumbura has lead to a consideration of three possible sources from which to take the water. These are the Ndahangwa River, ground water, and Lake Tanganyika. Although the river source has the advantage of providing water by gravity to much of the city, experience in utilization of this source over the past fifteen years has shown it to involve costly maintenance and to be unreliable during part of the year. At periods of flood, clogging of the treatment plant with sediment carried by the river reduces availability of water from this source. Furthermore, the erosion damage at the intake works had lead REGIDESO and the WHO consultant to the opinion that further development of this source should not be considered. 51. Ground water has not received favorable consideration because of the poor experience with existing wells as discussed in paragraph 20. 52. Lake Tanganyika provides a practically limitless source of water of good quality and is readily accessible to the city. Because of its elevation, all water from this source would have to be pumped. Treatment of the water to control contamination which enters the lake from drainage systems, surface run off, and ships, will be required. Location of the intake at a point where deep water begins and at some distance from the shore should ensure that within the foreseeable future, pollution will be very limited. The low turbidity of the lake water and very small amounts of biological matter lead to the opinion that treatment of the water can be minimal. 53. It is the recommendation of the WHO consultant that Lake Tanganyika be selected as the source of water for all future needs of  - 12 - Bujumbura. This appears to be based on sound argument. Existing facili- ties on the river and spring would continue to be used with the proviso that if the river works become too badly damaged by floods, a decision will have to be taken, based on an economic evaluation, as to whether re- construction should be undertaken or that system abandoned. C. Proposed Works 54. The proposed works would provide facilities sufficient to sup- ply around 14,500 m3/d and with existing sources, would meet require- ments until about 1978. If the river source had to be abandoned, addi- tions to the treatment plant and some minor changes in pumps and piping would take care of the additional water needed from the lake. 55. The facilities to be provided by the project are shown on Map 2 and would be as follows: a) Intake Works: An intake crib would be constructed at a point approximately 800 meters from shore. A pipe of about 30" diameter would extend along the lake bottom from the crib to the shore and to a pump station located on high ground about 300 meters inland. Water would be drawn from the pipeline by pumps located at the station and would be forced to the treatment plant. b) Treatment Works: Because the initial cost of slow filters should not be greatly different than the cost of rapid sand filters, estimates have been based on the assumption that these filters will be installed. The decision on the type of treatment to be employed should be left to further studies by the consultants who prepare the final design for the project. Limited storage of water in clear wells at the filters, a pumping station, and a laboratory and control building would be constructed at the treatment plant site. c) Distribution and Storage Works: Additions to the present distribution system are proposed primarily to permit equal- ization of pressures and flows within the present grid. Extension of the lines to areas outside the present system is not visualized within the framework of the project. Extensions will be made from existing pipe inventories and as a part of normal operations. A new reservoir would be constructed at a site on the higher part of the city adjacent to the present reservoirs. A reinforced concrete structure with a capacity of 2500 m3 is proposed. This would provide storage of about 5 hours for all the water supplied from the lake source in 1978. After that time, additional storage would probably be required.  - 13 - D. Project Costs 56. The total cost of the project is estimated at BF 149.5 million (US$1.7 million) as shown below: Foreign BF Local Exchange Equivalent Currency Total (in thousands) US$ BF BF BF Intake Works 119 10,438 7,919 18,357 Treatment Works 252 22,050 8,925 30,975 Storage, Pumps, & Distribution 345 30,231 14,157 44,388 Electrical Facilities and : Equipment 40 3,456 3,062 6,518 756 66,175 34,063 100,238 Contingencies 172 15,000 5,320 20,320 Engineering and Management Services 172 15,075 4,367 19,442 Interest During Construction - - 9,500 9,500 Total 1,100 96,250 53,250 149,500 Interest during construction amounting to BF 9,500,000 would be capitalized but paid when due. 57. Annex 11 shows the estimate for funds by year during construction. Cost estimates are based on data assembled by the WHO consultant from con- tractors working in the area and from costs of similar facilities in other countries of Africa. The estimate on the cost of the intake works is taken on the high side because of uncertainty on the soil conditions on the lake bottom. Until studies of the lake bottom are completed, it will not be known whether piling will have to be used for anchoring the line or whether it may simply be trenched in the bottom. The cost estimate assumes that some piling may be necessary. 58. Nearly all equipment, supplies, and materials including cement, will have to be imported from outside Burundi. Skilled labor, engineering services, and specialized construction workers do not exist in Burundi and will have to be brought in. Distribution of total costs between local and foreign reflect this situation. 59. Although it can be expected that all local costs will not in- crease in proportion to the amount of the devaluation, for purposes of the estimates it_ has been assumed that the local costs would increase by that extent. Lccal contingencies have been taken at around 15% while total contingencies and escalation are taken at 20%, excluding engineering and management services.  - 14 - 60. Provision has been made for engineering and management services to cover costs of design and supervision of construction and of short time advisers in water supply operation and management. E. Design, Procurement and Construction 61. The preliminary studies on which the project has been developed have been carried out by a sanitary engineering consultant of WH0. REGIDESO has requested proposals from a number of European engineering firms to review the preliminary plans, prepare final plans. and specifica- tions, assist in selection of contractors, and supervise construction. IDA has received copies of draft contracts forwarded by REGIDESO and has offered its comments on each. REGIDESO officials informed the Association that they considered the proposal of the German firm, IGIP, most favorable and planned tc sign a contract as soon as negotiations were completed. This firm is specialized in water supply and is considered competent. 62. A critical path diagram (Activity Control Schedule) showing an estimate of the time requirements for carrying out the project is shown in Annex 12. From this, it will be noted that the project could be com- pleted by early 1969 if the engineering is started in the first half of 1966. 63. REGIDESO has been exempted by special agreement with the govern- ment from paying duties on imported items. This agreement was probably based on a precedent established in waiving duties on supplies associated with the previous Bank loan to the trusteeship of Rwanda-Urundi for the highway project. 64. Procurement would be by international competitive bidding. It is expected that bidding for construction contracts will be primarily from foreign firms, although one local construction firm has the capacity to undertake certain parts of the project. Because the project itself is not large, it may prove desirable to break the work into not more than two or three units in order to attract foreign bidders. 65. REGIDESO has the right of land acquisition and expropriation for public use. Because the government owns considerable property throughout Bujumbura, the mission was informed that any sites required by REGIDESO for the project could be obtained without charge. No provision has there- fore been made in cost estimates for purchase of sites. Pipe line routes will follow streets and therefore no right-of-way costs are anticipated.  P- 15 - VII. FINANCING PLAN AND PROJECTIONS 66. Financial projections are attached showing income statements, sources and application of funds, balance sheets and assumptions on which they are based. (Annexes 13 to 16). The projections cover the period until 1973. 67. The cash amounts available at the beginning of the construction period and the subsequent buildup of cash is assumed to be placed in time deposits for amounts exceeding the current cash needs. (See Annex 16, paragraph 5). There is, however, the possibility that these cash reserves may be used in the future for some other project within the framework of REGIDESOts statutory activities such as additional investments in the power sector and sewer construction. During negotiations, it has been agreed that before undertaking any future major projects (in excess of US$200,000 equiv- alent), REGIDESO will consult with IDA to insure that obligations incurred could be met without jeopardizing the financial position of the Authority. A. Proposed Financing Plan 68. REGIDESOts financial requirements for the project and other capital outlays during the construction period from 1966 to 1969 are as follows: Requirement of Funds BF U.S.$ Equiv. (in thousands) Proposed Project Foreign Cost 96,250 1,100 Local Cost 43,750 500 Interest during Construction 9,5oo 109 Total 149,5oo 1,709 Other Fixed Assets (extensions and improvements, power department) 4'500 51 Total Requirements 154OOO 1,760 Capital expenditures detailed in Annex 11 would be concentrated in the years 1967 and 1968. Interest during construction would be capitalized, but paid when due. The IDA credit represents the foreign exchange part of the pro- posed project. 69. REGIDESO would meet its requirements from the following souirces: Sources of Funds BF U.S.$ Equiv. % (in thousands) Proceeds of IDA Credit 96,250 1,100 62 Funds Generated from Operations 51,014 583 33 Decrease in Working Capital 6,736 77 5 Total Sources 154,000 1,760 100  16 - 70. The financing plan above shows the Authority's ability to secure the necessary local funds for carrying out the project. The foreign fund require- ments would be met by the proceeds of an IDA credit, while all the other re- quirements would be covered by internally-generated funds. It is expected that the projected decrease in working capital can be obtained without re- ducing the current ratio below 4.6:1, excluding inventories. 71. The IDA credit of U.S.$1.1 million equivalent would be made avail- able to the Government of Burundi under conventional IDA terms. The govern- ment would relend the proceeds of the credit to REGIDESO in local currency for a period of 14-1/2 years including 5 years of grace. The interest rate would be 9%%. Although the financial projections indicate a cash balance of BF 30 million at the end of the construction period (1969), it was agreed during negotiations that this amount, in fact generated by the power depart- ment, should remain reserved against eventual further investments in the power sector. At the urgent request of the delegates from Burundi it was agreed to extend the grace period of the loan from the government to one year beyond the construction period (1966-1969) in order to allow the water department to generate a small safety reserve in 1970. As indicated in the Financial Projections, the repayment of the loan over a relatively short period should not im=air the financial position of the water department. B. Financial Projections and Water Rates 72. The power department raised its average rates from BF 2.00/kwh to BF 4.00/kwh in September 1964 to cover the increase in generating costs occasioned by interruption of service from the Bukavu plant in the Congo. With restoration of the Bukavu service, the rate was reduced by 10% to BF 3.60/kwh. This rate should not be reduced further, especially since Bukavu increased its bulk rate from BF 1.00/kwh to 1.30/kwh and is pressing for a further increase. 73. Because the present water system is operating at its full capacity, only slight sales increases, attributable to a reduction in unaccounted-for water, are expected until early 1969, when facilities of the proposed project come into operation. The accumulated demand of the preceding years should then cause a significant increase in consumption. 74. Data available for the first half of 1965 indicate that water depart- ment costs may have increased by around 60% in 1965, almost exclusively as a consequence of the devaluation of the local currency. From then on, costs should increase only gradually to reflect increases in power, chemicals, and labor. Depreciation, which was calculated at a rate of 4% through 1964, has been reduced to a more appropriate 2.25% from 1965 on. Allowance for bad debts is conservatively estimated and would be reduced in steps from 15% of the yearly sales in 1965 to 9% from 1969 on. 75. Projections based on data covering the first six months of 1965 indi- cate that the financial results of the water department show a small loss at the end of 1965, but provided the department maintains a rigorous control of its costs, small positive results should be achieved thereafter. A study of an income statement forecast from 1966 to 1973 using the existing rates re- veals that although all costs can be met from revenues, the rate of return of the water department on net fixed assets in operation would continue to remain low. In view of the deteriorating service, however, it was agreed  - 17 - that the present average water rate of BF 7.50/m3 could be maintained during the construction period, 1965-1969, provided no loss is incurred during these years aFor the period after construction, it is believed that a 6% rate of return on net fixed assets two years after the construction has been finished should be the guide for establishing adequacy of water rates. On the basis of the present estimates, an increase in the water rates of about 20% on January 1, 1970, would be required to avoid an unfavorable balance between revenues and costs in 1970 and 1971 and to result in a rate of return of 6% in 1972. The following table shows the effects of the water rate increase on the estimated rate of return by years: Estimated Rate of Return on Net Fixed Assets in Operation 1965 1966 1967 1968 1969 1970 1971 1972 1973 Water Department - 0.5 1.4 0.5 2.3 4.0 5.1 6.1 7.3 REGIDESO 1.7 0.2 1.6 1.3 2.4 3.8 4.8 6.6 8.1 It should be mentioned that on a discounted cash flow basis, the project is estimated to yield a return of 9.4%. 76. The financial projections show that the operations of the water de- partment would at all times after January 1, 1970 provide revenues sufficient to cover the interest on a loan. Cash generation of the department after January 1, 1970 would cover debt service each year without strain. 77. A covenant referring to rates in the documents for the proposed credit provides that rates for water and electricity should each cover all costs assignable for its operation, and that the overall revenues of REGIDESO should be sufficient to cover all costs and generate adequate reserves. For the pur- pose of the test of adequacy the proposed agreements with the Borrower and REGIDESO provide the following: a) REGIDESO as a whole as well as each department independently will cover its costs at all times. To achieve this objective, the water department may capitalize the interest payable during the construction period 1966-1969, though it will pay the interest when due; b) REGIDESO as a whole as well as each department independently will achieve a rate of return on average net fixed assets in operations of at least 6% not later than January 1, 1972. If REGIDESO conforms to this arrangement, it is estimated that in addition to covering all operating costs and depreciation, sufficient funds would be gener- ated to cover costs of normal extensions and to create reserves for future major improvements. 78. The overall financial position of REGIDESO is expected to remain satisfactory. At the end of the construction period the maximum debt/equity ratio of 25:75 should be reached, but should improve to 16:84 in 1973. The current ratio including inventories is not expected to fall below 7.2:1 in 1 It was agreed that for the purpose of establishing rates until January 1, 1970 depreciation may be charged on the value of the assets pr