F L O'Eo C 0P 'o Y Report No. P-1203-BD

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use F L O'Eo C 0P 'o Y Report No. P-1203-BD REPORT AND RECOMMENrIATION OF.THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON PROPOSED CREDITS TO THE PEOPLE'S REPUBLIC OF BANGLADESH FOR THE DACCA WATER SUPPLY AND SEWERAGE PROJECT AND THE CHITTAGONG WATER SUPPLY PROJECT March 10, 1973 This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for. the accuracy or completeness of.the report. -

2 CURRENCY EQUIVALENTS Currency Unit: Taka (Tk) A. Used in Project Cost CaPzulations US$1.00 Tks 7.28 Tk 1 US$.137 Tks 1,000 = US$137 Tks 1,000,000 = US$137,000 B. As of February 20, 1973 US$1.CIO = Tks 7.7 Tk 1 - US$.130 Tks 1,000 US$130 Tks 1,000,000 US$130,000 Note: The Taka is officially valued at to the Pound Sterling. The Pound is now floating relative to the U. S. dollar and consequently the Taka-U.S. dollar exchange rate is subject to change. FISCAL YEAR July 1 - June 30

3 INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON PROPOSED CREDITS TO THE PEOPLE'S REPUBLIC OF BANGLADESH FlOR THE DACCA WATER SUPPLY AND SEWERAGE PROJECT AND THE CHITTAGONG WATER SUPPLY PROJECT 1. I submit the following report and recommendation on proposed development credits in amounts in various currencies equivalent to US$13.2 million and US$7.0 million respectively to the People's Republic of Bangladesh, on standard IDA terms, to help finance the Dacca Water Supply and Sewerage Project and the Chittagong Water Supply Project. These Credits would replace credits of the same amounts (net of cancellations) to the Islamic Republic of Pakistan for the same projects (Credits Nos. 41-PAK and 42-PAK of August 1963) on the basis set out in paragraphs 2 and 3 of my Report and Recommendation to the Executive Directors dated September 15, 1972 on the Second Chandpur Irrigation Project (IDA/R 72-77). PART I - THE ECONOMY 2. A report entitled "Reconstructing the Economy of Bangladesh" (dated September 25, 1972) was circulated on October 13, 1972 (R72-230). A Country Data Sheet is attached as Annex I. PART II - BANK GROUP OPERATIONS IN BANGLADESH 3. The operations of the Bank Group in Bangladesh are described in Part II of my Report and Recommendation referred to above. Since that report, we have signed agreements with Bangladesh for a US$50 million reconstruction imports program credit and five credits totalling US$62.3 million replacing amounts included in previous credits to Pakistan for the same projects. Annex II gtves the status of Bank Group Operations in Bangladesh. PART III - THE PROJECTS 4. The proposed credits would help finance improvements in water supply and sewerage services in Dacca, the capital of Bangladesh with an estimated population of close to 1 million, and water supply services in Chittagong, which is the principal port of Bangladesh and a developing industrial center, with an estimated population of 550,000. Credits Nos. 41-PAK for US$26 million equivalent and 42-PAN for US$24 million equivalent were made on August 16, 1963 to help finance water and sewerage projects in Dacca and Chittagong respectively. Due to difficulties in project execution

4 and higher than expected costs, it was agreed with the Government that the original projects had been too ambitious, and in 1969 the projects were revised and the credit amounts were reduced to US$13.2 million for Dacca and US$7.0 million for Chittagong. The reductions in credit amounts were mainly due to the utilization of ground water instead of developing more expensive river water sources, together with a more gradual rate of expansion of water and sewerage services in Dacca, and the reduction in size of the surface water treatment and pumping facilities and the elimination of the sewerage component in Chittagong. Construction of facilities included in the revised projects proceeded reasonably well until 1971 when implementation was impeded by the disturbances which culminated in the emergence of an independent ]3angladesh. The Government has now requested new credits of US$13.2 million for Dacca and US$7.0 million for Chittagong to reactivate these projects. In July 1972 a mission visited Bangladesh to reappraise these projects,, and project summaries, as well as technical notes describing the findings concerning the Dacca and Chittagong projects, are attached as Annexes III, IV, V and VI, respectively. 5. The principal works included in the water portion of the Dacca Project as revised in 1969 were 26 tubewells, improvements in an existing surface water treatment plant to double its capacity, 114 miles of water distribution piping, 3 or IMg elevated water storage tanks, 15,000 to 20,000 new water connections, 21,000 to 34,000 meters, and 1,500 public street hydrants. The sewerage portion of the Dacca Project included a new treatment plant, pumping stat:ions, and about 100 miles of sewers. The project also included provision for engineering and management consultant services, staff training programs, equipment and tools, and workshops and stores facilities. The project to be financed with the proposed credit would remain fundamentally the same as the 1969 revised project except that (i) to meet increased water demand resulting from population increase and industrial growth, and because new areas were added to the jurisdiction of the Dacca Water and Sewerage Authority, the number of tubewells to be financed from the project would be increased from 26 to about 46 and the mileage of water distributiorl pipe would be increased from 114 miles to about 170 miles; (ii) to cover new areas in the Authority's jurisdiction, the mileage of sewers to be financed would be increased from 100 miles to about 150 miles and one addit.ional pumping station would be built; and (iii) only three 1.0 IMg elevated water tanks would be constructed, with the proposed fourth tank either deferred or replaced by smaller low level tanks. The water supply portion of the project is now about 75 percent completed and the sewerage portion is about 45 percent completed. Due to the changes indicated above and cost increases since project reappraisal in 1968, the total cost of the project has increased from US$33.5 million to US$41.6 million (with abou.t half of the increase resulting from additional works and half resulting from cost increases). The proposed credit would finance (i) notional repayment of amounts previously disbursed under Credit No. 41-PAK (about US$6.0 million), thus debiting Bangladesh with this amount; (ii) project expenditures incurred prior to December 29, 1971 for which IDA has not made disbursement (about US$0.7 million); and (iii) about 40 percent of the cost of completing the project. The latter item includes

5 -3- the reimbursement to Sweden for such disbursements as may have been made under an interim credit which is financing foreign expenditures on the project prior to effectiveness of the proposed new credit (about US$600,000 equivalent). 6. The principal works included in the Chittagong Project as revised in 1969 were 8 to 14 tubewells, an iron removal plant, a small surface water treatment plant and related facilities, a 6.0 IMg reservoir, 72 miles of water distribution piping, 10,000 to 12,000 new water connections, and 800 to 1,000 public street hydrants. The project also included provision for engineering and management consulting services, staff training programs, equipment and tools, and workshops and stores facilities. The project as now proposed is basically the same as the 1969 revised project, except that (i) because of industrial growth and population increase, the mileage of water distribution pipes financed from the project would be increased from 72 miles to 107 miles; and (ii) due to the water production from groundwater in greater quantities than could have been safely predicted prior to the drilling of the wells, the construction of the surface water treatment plant and related facilities would be deferred (except for site development and the access road); however, the project would include the preparation of the final designs for the treatment plant so that it can be constructed when needed. The project is now about 60 percent completed. Due to the changes indicated above and to cost increases since project reappraisal in 1968, the cost of the project has increased from US$18.1 million to US$23.8 million. The proposed credit would finance (i) notional repayment of amounts previously disbursed under Credit No. 42-PAK (about US$3.3 million), thus debiting Bangladesh with this amount; and (ii) about 40 percent of the cost of completing the project. The latter item includes the reimbursement to Sweden for such disbursements as may have been made under an interim credit which is financing foreign expenditure on the project prior to effectiveness of the proposed new credit (about US$200,000 equivalent). 7. In both cases, the proposed credits would finance about 30 percent of total costs of the projects. Although the impact of recent international monetary adjustments (the devaluation of the U.S. dollar and the movement of the Taka from 7.28 to 7.7 per U.S. dollar) is difficult to assess with precision at the present time, it is estimated that the net impact on remaining project costs will be very slight. The increase in the dollar value of the foreign costs of the project likely to result from the dollar devaluation will be offset by the reduction in the dollar value of local costs resulting from the change in the Taka/dollar exchange rate. While the percentage of remaining local currency expenditures financed by the credits is likely to be reduced slightly, the percentage of total remaining project costs financed by the credits will be essentially unchanged. If the impact of these monetary developments should exceed current expectations and significantly reduce the share in local currency financing provided by the credits, the Association would be prepared to consider providing further support for these projects under future lending anticipated to the water and sewerage sector in Bangladesh.

6 Disbursement under the proposed credits would be made against the full foreign exchange costs for supply contracts, the full ex-factory costs of any supply contracts awarded to local firms after international competitive bidding, the total cost:s of consulting services, the foreign exchange cost of training programs, and in the case of Dacca about 25 percent of the costs of remaining civil works contracts for installation of water and sewerage pipes, and in the case of Chittagong about 15 percent of the costs of remaining civil works contracts for the installation of water pipes, a booster pumping station and an elevated storage tank. Construction and supply contracts which have not previously been awarded are expected to be signed during 1973 following international competitive bidding. For supply contracts, local manufacturers will be given a margin of preference equivalent to 15 percent or the actual import duty, whichever is lower. Construction of both projects is expectecd to be completed by December 31, The Dacca Water and Sewerage Authority and the Chittagong Water and Sewerage Authority were both established in 1964 as conditions of effectiveness of our credits. Both Authorities are managed by Boards including representatives of local interests, but the majority of members of the Boards are appointed by the Government. The Authorities are not truly autonomous since budget, capital investment programs, changes in water or sewerage rates, andl any other matters of policy require approval of the Government. Progress in the creation of competent public utility organizations has been slower than anticipated. While there has been some improvement, major efforts are still required to strengthen management, operations and finances. While engineering staffs are now adequate in numbers and technical training, many would benefit from additional practical training. The accounting staffs still need strengthening, and attempts are being made to recruit additional qualified accounting personnel. The proposed projects include funds to finance the foreign exchange costs of approved staff training programs. 10. The Authorities have had a long history of financial difficulties and have not been able to meet the financial performance covenants of the 1963 Project Agreements. The Authorities have always found it difficult to maintain a satisfactory level of collections, but the situation worsened considerably during the period of political disturbances. It is expected that cash collections over the next few years will be sufficient to meet cash operating expenses, but that the Authorities will have to rely upon the Government to provide the full local contribution to project costs, and that the Authorities will not be able to meet their debt service obligations to the Government. However, due to previous accounting deficiencies and the disruption caused by the civil disturbances, reliable information about past financial performance is not available and no recommendations can be made concerning the appropriate steps to improve the position until there is sufficient information to enable financial forecasts to be made. It has therefore been agreed that independent accountants would be employed to review the Authorities' accounts and assist in preparing financial statements, including a balance sheet, for the year endirng June 1972 which would be submitted by June 30, It has also

7 been agreed that audited accounts for the year ending June 30, 1973 would be submitted by December 31, Based upon this information agreement would be reached no later than the end of 1974 on water and sewerage rates, which together with other financial targets will enable the Authorities to meet within a reasonable time the standards of financial performance included in the previous agreements. Agreement would also be reached no later than the end of 1974 on a feasible schedule for debt service payments from the Authorities to the Government. Meanwhile there would be a moratorium on debt service on Government loans to the Authorities. The Government has also agreed to provide all sums required by the Authorities to carry out the projects, and that, in the unexpected event of a deficit in cash to meet operating expenditures, the Government would take action to provide the required additional funds to the Authorities. 11. Upon completion of the projects continuous on-premise water service would be available to 70 percent of the population in both Dacca and Chittagong, with the rest of the population served by public street hydrants. This represents substantial progress since the projects were initiated, at which time only about one-third of the population was provided with any public water services, and the major part of the population had to rely on inadequate and expensive private facilities which constituted a serious problem to public health. The lack of adequate water supplies also was a deterrent to commercial and industrial development. In Dacca sewerage services would become available to about 60 percent of the population, as compared to 10 percent when the project was initiated. While the establishment of efficient and financially viable water and sewerage organizations has been slower than anticipated, there has nevertheless been some progress, brought about in part by the training and technical assistance provided under the projects. Although close project supervision will continue to be required to alleviate important organizational and financial problems, the accomplishments to date in improving the quality of water and sewerage services can still be considered as a valuable contribution to the development of Bangladesh. PART IV - LEGAL INSTRUMENTS AND AUTHORITY 12. The draft Development Credit Agreements between the People's Republic of Bangladesh and the Association, the Reports of the Committees provided for in Article V, Section 1 (d) of the Articles of Agreement and the texts of resolutions approving the proposed credits are being distributed to the Executive Directors separately. Subject to the comments set forth in paragraph 10 above with reference to financial covenants, the provisions of the draft Development Credit Agreements conform substantially to the provisions of the prior Development Credit Agreements with the Islamic Republic of Pakistan and incorporate the relevant provisions of the Project Agreements with the then Province of East Pakistan. As previously, there will not be separate Project Agreements with the two Authorities.

8 I am satisfied that the proposed development credits would comply with the Articles of Agreement of the Association. PART V - RECOMMENDATION 14. I recommend that the Executive Directors approve the proposed development credits. Attachments Robert S. McNamara President by J. Burke Knapp

9 Annex I COUITTRY DATA - Bangladesh A REA POPULATIOtJ D D: SITY TIi,131 kic 75 TTTion (mid-1972) 530 p k Rate of Growth: % (fron 1965 to 1970) 8I0 per km2 of arable land POPjTrATIc,' C'HADGfTERTSTICS 1971 HEALTH 1569 Crude Blr.h fii-e (per 1,000): 50 Population per Physician: B,800 Cruic Death Rate (per 1,000): 20 PopuLation per Hospital Bed: 9,400 Infant Mortality (per 1,000 live births): 1J1 Di.cm... DTSTFRBUFTTON 1970 DISTSIFIOUTTO OF LAND 0Q2-LNSHTP 1971 of National Income, Lawest Quintile: 7 Owrned by TOp 1O~ oi Ohwners: 35 Highest Quintile: 46 % Owned by Suallest lvr of Ovners: I NUTRITION 1972 EDUCATIO ' 19.9 Calorie Intake as % of Reouirements: 90 Adult Literacy Hate: 18 G'P PEH CAPITA IN 1972: USi: G!OSS NATION9AL PROD2,JCT PI 1970 A'^!-fAL RATE OF GROVITH (, Constant Prices) US $ MLn. g G14P at Market Frices 4, Exports of Goods Imports of Goods OUTPUTL 1A-0R FORCE AND PRODUCTIVITY 1> 1970 Value Added Labor Force V.A. per Worker US $ Mln. p' l U Agriculture 2, Industry Services 1,530 3L.0 Unallocated.._.. Total/Average =, L G0VFFCg.1 T FINANCE General Government (An3. Min.) i o'; GDP I 9'(') 1_7 Current Receipts 2, Current Expenditure 1,18! 3.7 Currenit Surplus 1,212 7 Capital Exoenditures 2, External Assistarnce (net) 1, MONEY, CR-EDIT LND PRT-ES Dec. 17, 1971 June 1972 Zkiil1ion Tks. Outstanding; End Period) - Money and Quasi Money ,393 7,039 (Percentages or Index Numbers) Moncy and Quasi Money as % of GDP General Price Index ( ) Annual Fercenltage Change in Ge-neral Price Index BAIAN;E OF PAIYK;TS MERCHANDISE EXPORTS (AVERAGE ) (r.illions US $T) US $ MLn. % Exports of Goods L09 Raw Jute Jute Manufactures Inports of Goods i31, Tea Resource Gap (Deficit - -) -L All Other Commodities Total RATE OF EXCHAiGE ThrougEh - M.y 1972 As of February 20, 1973 US $ Takas US $ Takas T US $ 0.14 T US $ 0.13 South Asia Department/Bangladesh February 20, 1973 not available.not applicable

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11 Annex II Page 1 off 3 STATUS OF BANK GROUP OPERATIONS IN BANGLADESH As of February 2M, 1973 A. IDA CREDITS TO BANGLADESH Credit US $ Million Number Year Purpose Amount Undisbursed Cyclone Area Reconstruction (replaces Credit No. 228 of 1971) Chandpur Irrigation II (replaces Credit No. 184 of 1970) Tubewells (replaces Credit No. 208 of 1970) Telecommunications (replaces part of Credit No. 145 of 1969) Reconstruction Imports / 1973 Small-Scale Industry (replaces Credit No. 192 of 1970) / Total B. BANK LOAN AND IDA CREDITS TO PAKISTAN FOR PROJECTS WHOLLY IN THE TERRITORY OF BANGLADESH (EXCLUDING CREDITS BEING REPLACED BY CREDITS TO BANGLADESH SHOWN IN (A) ABOVE) US $ Million Amount (Less Cancellations) Bank IDA Dacca Irrigation Inland Ports Railways Brahmaputra Flood Control Chandpur Irrigation I Dacca Water and Sewerage 6.o Chittagong Water and Sewerage Education Highways Eastern Railway Inland Water Transport Foodgrain Storage Education Technical Assistance (EPWAPDA) 2.0 S Irrigation Engineering (Dacca Southwest) 0.7 S Irrigation Engineering (Karnafuli-Muhuri) 1.4 Total Of which has been repaid Total outstanding / 1/ Not yet effective. 7/ Amount which wil remain following notional repayment of amounts disbursed under previous credit to Pakistan. 3/ All undisbursed balances under these credits as of September 29, 1972 have been cancelled.

12 Annex II Page 2 of 3 1/ C. Projects in Execution Cr. No. 339, Cyclone Area Reconstruction Project; $25.o Million Credit Tof October lc', 1972; Closing Date June 30, This Credit became effective on January 17, Implementation of the original project, financed under Credit No. 228-PAK of 1971, did not commence prior to the suspension of disbursements. The Government has now set up the central organization for the project, and task forces for the execution of the sub-projects are being assembled. Sites for cyclone shelters are being selected, tenders for construction have been invited, and the Project Coordinator is hopeful of completing sixty shelters before the onset of the monsoon season. On the primary roads sub-project, surveyors are in the field determining alignments and making detailed assessments of work quantities. On the Cyclone Warning sub-project, the sub-project manager is finalizing specifications of equipment which must be imported to strengthen the meteorological stations serving the coastal area. Other sub-projects (inland water transport, telecommunications, feeder roads, and coastal filsheries) are less advanced. A supervision mission now in the field is reviewing with Government the actions required to expedite implementation of these sub-projects. Cr. No. 340; Chandpur Irrigation II Project; $13.0 Million Credit of Oct,ober 15, 1972; Closing Date December 31, This Credit became effective on January 17, When work on the project, previo-usly financed under Credit No. 184-PAK of 1970, was suspended in 1971, the major project civil works were about half completed. The contractor manufacturing equipment for the regulators had also made substantial p.rogress. Interim financing by Sweden has allowed reappointment of project consultants, resumption of construction and renegotiation of the contract for manufacture and installation of the equipment for the regulators. Cr. No. 341 Tubewells Pro-ject; $14.0 Million Credit of November 6, 1972; Clssing Date December 31, The project is also being assisted by a $6 million credit from Sweden and a $6 milliorn grant from Canada. The IDA and Swedish eredits became effective on January 17, The project was originally financed by IDA Credit No. 200-PAK of 1970 and credits from Sweden and Canada. Bids for -the drilling of project wells had been received in 1971 but no contracts were awarded due to the disturbed conditions. Interim financing from Sweden has permitted reappointment of project consultants and retendering. Bids have been received for well drilling and supply of pumps and engines for the wells, and contracts are expected to be awarded in the next few weeks. Contracts have been awarded for required vehicles and miscellaneous equipment. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects inececution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.

13 Annex II Page 3 of 3 Cr. No. 343 Telecommunications Project; $7.3 million Credit of November 15, 1972; Closing Date December 31, Credit became effective January 17, The project was originally financed as part of Credit No. 145-PAK of 1969, and goods and services valued at about US$2.2 million were received in Dacca prior to suspension of disbursements. Orders had also been placed for the remaining equipment now to be financed under Credit No. 343, and the suppliers are understood to be prepared to resume work at the original contract prices. Cr. No. 345 Reconstruction Imports Project; $50.0 million Credit of November 30, 1972; Closing Date August 31, Credit became effective January 30, The Government has prepared a statement allocating the proceeds of the credit among the various eligible categories of expenditure, taking into account funds expected to be available from other sources of assistance. Disbursements are expected to commence shortly. Cr. No. 353 Small-Scale Industry Project; $3.0 million Credit of January 19, 1973; Closing Date June 30, Not yet effective. The project was originally financed by IDA Credit No. 192-PAK of By December 1971, when disbursements were suspended, 28 sub-projects had been approved and $2.19 million had been allocated to these projects. Work has now begun on reactivation of the interrupted sub-projects and canvassing for new sub-projects. South Asia/Bangladesh Division HPGassner:lgr March 6, 1973

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15 ANNEX III Page 1 of 3 BANGLADESH DACCA WATER SUPPLY AND SEWERAGE PROJECT PROJECT SUMMARY Borrower: Beneficiary: Anount: Terms: Relending Terms: Project Description: People's Republic of Bangladesh The Dacca Water Supply and Sewerage Authority US$13.2 million equivalent Standard In accordance with a schedule to be agreed between the Government and the Association no later than the end of The construction of drilled wells as the major water source, the rehabilitation and modification of the old surface water treatment plant, distribution system and elevated storage, the rehabilitation of the old system and the installation of new connections and meters. The sewerage component includes lateral and trunk sewers, lift stations, a main pumping station, treatment works, outfall channel and installation of connections. Workshops, equipment, vehicles and the provision of management and technical assistance and staff training are also part of the project.

16 ANNEX III Page 2 of 3 Estimated Cost:- Local Foreign Total ---in US$ million---- a. Water Supply Land Tubewells Treatment Plant Rehabilitation Distribution System Elevated Storage Service Connections and Meters Buildings & Equipment Expenditures prior to July Sub-total b. Sewerage Land Treatment Facilities Lift Stations Mains & Laterals Old System Rehabilitation Service Connections Buildings & Equipment Expenditures prior to July Sub-total Disbursements: Engineering & Management Consultant Services and Training Total Disbursed Prior to Estimated in Fiscal Years Dec. 29, / / /75 Total IDA Credit /b Government /c Total /a Project costs were computed before the recent dollar revaluation and at a time when the Taka/U.S. dollar exchange rate was Since that time the dollar has been devaluated (increasing the dollar value of foreign costs) and the Taka/dollar exchange rate has risen to 7.7 (decreasing the dollar value of local costs). The net impact of these developments is difficult to quantify with precision at the present time, but they are expected to have only a negligible impact on remaining project costs. /b Includes disbursement to repay interim funding by Sweden of foreign costs from January 1, 1972 and to cover project expenditures incurred prior to December 29, 1971 for which payments had not been made. /c Includes disbursements for local costs from January 1, 1972.

17 ANNEX III Page 3 of 3 Procurement: Consultants: All contracts will be awarded on the basis of international competitive bidding. The supply contracts still to be awarded are for well supplies and pumps, distribution system piping, service connection supplies, additional sewage pumps, pipes and fittings and maintenance equipment and tools. Local manufacturers will be given a margin of preference of 15% or import duties, whichever is lower, as allowed under Credit 41-PAK. The project consultants (Messrs. Parsons and Co., a U.S. firm) will continue to develop the detailed designs, specifications, and tender documents. They will supervise the mechanical and electrical installations and the Authority will supervise pipe installation. Appraisal Report: A Technical Note is attached as Annex V.

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19 ANNEX IV Page 1 of 2 BANGLADESH CHITTAGONG WATER SUPPLY PROJECT PROJECT SUMMARY Borrower: Beneficiary: Amount: Terms: Relending Terms: Project Description: People's Republic of Bangladesh The Chittagong Water Supply and Sewerage Authority US$7.0 million equivalent Standard In accordance with a schedule to be agreed between the Government and the Association no later than the end of The construction of drilled wells as the water source, an iron removal plant, a booster pumping station, distribution system and elevated storage, the installation of new connections, meters and street hydrants, construction of workshops and stores facilities, the purchase of land, access road and site development work, and detailed design, for the surface water treatment plant to be constructed in the next stage of the long-range program, and the provision of management and technical assistance. Estimated Costs:/ in US$ millions----- Local Foreign Total Land and site work Tubewells Distribution system Booster pump station Elevated storage Service connections and meters Work Shops, stores and equipment Expenditures prior to July Engineering and management consultant services and training /a Project costs were computed before the recent dollar devaluation and at a time when the Taka/U.S. dollar exchange rate was Since that time the dollar has been devalued (increasing the dollar value of foreign costs) and the Taka/dollar exchange rate has risen to 7.7 (decreasing the dollar value of local costs). The net impact of these developments is difficult to quantify with precision at the present time, but they are expected to have only a negligible impact on remaining project costs.

20 ANNEX IV Page 2 of 2 Disbursements: in US$ million equivalent Disbursed prior to --Estimated in Fiscal Years-- 12/29/ / / /75 Total IDA Credit 3.3 8a Government /b Total /a Includes disbursement to repay interim funding by Sweden for foreign costs from January 1, /b Includes disbursements for local costs from January 1, Procurement: Consultants: All contracts will be awarded on the basis of international competitive bidding. The supply contracts still to be awarded are for the service reservoir, distribution pipes and accessories and certain workshop and maintenance equipment. Local manufacturers will be given a margin of preference of 15% or import duties whichever is lower as allowed under Credit 42-PAK. The present consultants (Messrs. Parsons and Co., a U.S. firm) will continue to develop detailed design, specifications and tender documents. They will supervise the mechanical and electrical installations and the Authority will supervise pipe installation. For the detailed design of the surface water treatment plant, consultants that are specialists in this field will be employed. Appraisal Report: A Technical Note is attached as Annex VI.

21 ANNEX V INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION BANGLADESH TECHNICAL NOTE ON DACCA WATER SUPPLY AND SEWERAGE PROJECT Public Utilities Division Asia Projects Department

22 CURRENCY EQUIVALENTS US$1.00 = Taka (Tks) 7.28 Tks 1.00 = US$0.137 Tks 1 million = US$137,000 MEASURES AND EQUIVALENTS gallon = Imperial gallon (1 gallon = 4.5 liters or 1.2 U.S. gallons) IMgd = million Imperial gallons per day (1 IMgd = 4,544 cubic meters per day) gpd = gallons per day (1 gpd = 4.54 liters per day) IMg = million Imperial gallons cusec = cubic feet per second (1.0 cusec = 0.54 IMgd) PRINCIPAL ABBREVIATIONS AND ACRONYMS USED WASA = Chittagong lwater and Sewerage Authority FISCAL YEAR July 1 - June 30

23 BANGLADESH TECHNICAL NOTE ON DACCA WATER SUPPLY AND SEWERAGE PROJECT TABLE OF CONTENTS Page No. I. INTRODUCTION... 1 II. BACKGROUND... 1 A. Dacca... 1 B. Project History... 2 C. Present Status of Works... 3 III. THE PROJECT A. Description of the Project... 3 B. Cost Estimates... 6 C. Procurement and Disbursement... 7 D. Engineering and Construction... 8 IV. JUSTIFICATION... 8 V. INSTITUTIONAL ASPECTS... 9 A. Management and Organization... 9 B. Operations and Staff... 9 VI. FINANCIAL ASPECTS A. Background B. Water Rates and Collections C. Short Term Financial Requirements D. Long Term Objectives VII. RECOMMENDATIONS Appendix 1 Appendix 2 Complete Project Description Estimated Disbursement Schedule Map IBRD Proposed Water System Map IBRD Proposed Sewerage System

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25 BANGLADESH TECHNICAL NOTE ON DACCA WATER SUPPLY AND SEWERAGE PROJECT I. INTRODUCTION 1.01 Credit 41-PAK for US$26 million was made to Pakistan on August 16, 1963 to help finance a water supply and sewerage project in Dacca. The project is being carried out by the Dacca Water and Sewerage Authority (WASA) which was established for this purpose. The project was substantially revised in 1969 by eliminating the large surface water treatment plant and long transmission main and the Credit was reduced to US$13.2 million After the project was revised, construction made good progress until the political disturbances in March Despite adverse conditions, work has continued since then with the exception of the war period in November and December The war seriously disrupted the construction program, but fortunately no significant interruption of water supply occurred. On December 29, 1971, the Association, after consultation with the Government of Pakistan, suspended disbursements for the project, after the disbursement of US$6.0 million equivalent under the Credit. As a consequence, foreign suppliers interrupted deliveries of materials. Latterly, the Government of Bangladesh has supplied the local currency required for the construction program but from December 29, 1971 until June 1972 no foreign currency was available. In June 1972, the Kingdom of Sweden agreed to provide an interim credit to finance urgent expenditure under this project and other interrupted IDA projects With a view of extending a Credit to Bangladesh to enable it to complete the project financed under Credit 41-PAK, a mission comprised of Messrs. P. Jacob, C. Spangler and E. Greenwood visited Bangladesh from June 28, 1972 to July 19, 1972 to reappraise the project. This report is based on the mission's findings after discussions with Government, the Authority and the engineering consultants and also after inspecting the project and operating facilities in Dacca. An IDA credit of US$13.2 million equivalent to Bangladesh is proposed to replace the US$13.2 million credit (41-PAK) to Pakistan. II. BACKGROUND A. Dacca 2.01 The population of Dacca was estimated at about 650,000 in It is difficult to estimate the present population. During the war many people left Dacca but it is assumed they have now returned. In addition many people have moved into Dacca looking for employment and there are many now living in temporary "squatter" type shelters. WASA estimates that the

26 population would be about 1.0 million people. Dacca is now the capital of the country and its central position in regard to transport and government will contribute to an accelerated rate of growth At the time of the original project in 1963 water was supplied from drilled wells through 16 separate systems. In the old city a surface water treatment plant took water from the Burhi Ganga River. Additions had been made to the plant from time to time, but most of the equipment had deteriorated and extensive repair and rehabilitation was required. Water from the various sources was pumped into about 20 elevated storage tanks about 60 feet high and from there, released to the distribution system, usually a few hours in the mornings and evenings. About 200 miles of mains from 2" to 16" in diameter delivered water to the consumers. The sewerage facilities consisted of about 86 miles of sewers, six intermediate pumping stations and the main Narinda pumping station discharging to an overloaded treatment plant located just east of the city. The Dacca Municipal Committee was responsible for water and sewerage within the Municipality and the Directorate of Public Health Engineering (DPHE) for the suburbs. B. Project History 2.03 The original project (1963) provided for a new large surface water treatment plant on the Lakhya River, about 21 miles of large transmission mains, about 157 miles of distribution system piping, a 3.0 IMg elevated tank, about 23,000 new connections and 37,500 meters. The sewerage component consisted of about 150 miles of lateral sewers for 10,000 new connections, about 19 miles of primary sewers from 2 to 4-1/2 feet in diameter, 3 large intermediate pumping stations, new pumping facilities at a new treatment plant and an outfall to the Burhi Ganga River below Dacca. A new autonomous Water and Sewerage Authority (WASA) was to take over from the Dacca Municipal Committee and DPHE all water and sewerage in the metropolitan area. The project also included engineering and management consultant services, and some equipment and tools and workshop facilities. This project which was estimated to cost US$55 million equivalent, was too large and complex and required too rapid expansion of WASA's operations. The project was revised in 1969 and reduced in scale by about 32% The revised project deferred the new surface water treatment plant and provided instead for about 26 new large tubewells, improvements and modifications of the old surface water plant to double its capacity, about 114 miles of distribution piping, three or four 1.0 lmg high level elevated tanks and modification of most of the low level tanks, 15,000 to 20,000 new connections, 21,000 to 34,000 meters and 1,500 new or rebuilt public street hydrants. The sewerage component was modified by reducing the length of lateral and main sewers to about 100 miles and constructing seven small pumping stations instead of three large ones. The main pumping station and treatment works remained the same except for changing the outfall from the plant to the river from a pipe to an open channel. The provision for engineering and management consulting services was increased, a training program was added to the project, and the provision for equipment, tools, workshops and stores facilities was expanded.

27 -3- C. Present Status of Works 2.05 In spite of the political disturbances in 1971, considerable progress was made on the overall project, and it is now about 60% completed. 26 new tubewells have been drilled and new 2.0 cusec pumps have been installed in seven and five of these are now in operation. Ten other new wells are operating with smaller 1.0 cusec temporary pumps. Other old wells have been rehabilitated. The equipment for the modification of the old surface water treatment plant has been delivered and the work on rehabilitation is starting. The three high level 1.0 IMg elevated storage tanks are about 95% completed. Almost all of the water distribution pipes are installed, about 11,000 new connections have been made for a total of about 28,000 of which about 12,000 are metered. No progress has been made on improving the public street hydrants in the old city. The sewerage component of the project has not progressed as well as the water supply. About 40% of the laterals, main sewers and intermediate pumping stations have been completed. The main lift station and treatment facilities are about 70% completed and about 2,400 new connections have been made for a total of about 11,000. III. THE PROJECT A. Description of the Project 3.01 From the proceeds of the proposed US$13.2 million credit, US$6.0 million would be used to reimburse IDA for disbursements under Credit 41-PAK, and about US$0.7 million would be used to meet commitments for services performed prior to the suspension of the credit, leaving US$6.5 million to complete the project and to reimburse Sweden for disbursements made under interim financing arrangements (see para 3.09). The project would remain basically the same as provided for under Credit 41-PAK as revised in 1969 (Appraisal Report No. TO-363d dated September 27, 1968) and described in paragraph 2.04 above. However, after detailed review with WASA and its consulting engineers (Messrs. Parsons & Company, a U.S. firm of consulting engineers) the following modifications have been discussed and agreed with the Government: (a) In order to meet the water needs of new areas not previously the responsibility of WASA and the increasing domestic and industrial demand, the number of tubewells to be financed from the project would be increased from 26 to 46 and the distribution pipe to be financed from the project would be increased from about 114 miles to about 170 miles; (b) Only three elevated water storage tanks of 1 IMg capacity each should be completed, and the proposed fourth high level tank in the old city area should be deferred. Instead four smaller (about 100,000 gallons capacity) low level tanks

28 may be constructed if the measures taken by WASA to control wastes through public street hydrants are effective; and (c) In order to meet the sewerage needs of new areas not previously the responsibility of WASA, the length of sewers to be financed under the project would be increased from about 100 miles to about 150 miles and the number of pumping stations would be increased from seven to eight. A complete project description, taking into account the above modifications, is given in Appendix I The US$6.5 million available for the completion of the project would be used to finance the completion of those parts of the old project as are urgently required and the construction of the additional facilities described in paragraph Continuation of efforts to develop WASA into an adequate organization for efficient operation would also be part of the project. Taking into account the proposed modifications in the project, the works yet to be accomplished are: A. Water Supply 1. The completion of the 26 tubewells and the construction of 20 additional wells. 2. The rehabilitation and modification of the old surface water treatment plant. 3. The installation of about 55 miles of distribution system and the continuation of street hydrant, service connection and metering programs. 4. The completion of the three 1.0 lmg elevated storage tanks and the possible construction of four small low-level tanks. 5. The purchase of land for the additional tubewells and elevated tanks. B. Sewerage 1. The completion of sewers under construction, the rehabilitation of old sewers and construction of additional sewers. 2. The completion of the intermediate pumping stations, the rehabilitation of several old ones and the construction of an additional one. 3. The completion of the main sewage pumping station, the stabilization pond and the discharge channel.

29 -5-4. The continuance of the connection program. 5. The purchase of land for one additional intermediate pumping station. C. Buildings and Equipment 1. The completion of stores facilities, workshops, and provision of equipment and vehicles. The part of the project already completed and the work still to be carried out are shown on the attached maps Disbursements from IDA Credit 41-PAK to December 29, 1971 by categories are: US$ 1. Water Sources and Storage 1,334, Distribution Mains 1,292, Meters and Services 208, Sewerage Works 328, Sewer Connections - 6. Sewers 1,007, Vehicles and Equipment 38, Engineering and Management Consultant Services 1,826,133 Total 6,036,178

30 -6- B. Cost Estimates/ 3.04 The cost estimates to complete the project are: Water Supply Sewerage Million Takas Million US$ Local Foreign Total Local Foreign Total Land Tubewells Treatment Plant Rehabilitation Distribution System Elevated Storage Service Connections Buildings and Equipment Water Total Land Treatment Facilities System Lift Stations Mains and Laterals Old System Rehabilitation Service Connections Buildings and Equipmeni: Sewerage Total Total Works Contingencies Sub-Total Engineering and Training Total /a Project costs were computed before the recent dollar devaluation and at a time when the Taka/U.S. aollar exchange rate was Since that time the dollar has been devalued (increasing the dollar value of foreign costs) and the Taka/dollar exchange rate has risen to 7.7 (decreasing the dollar value of local costs). The net impact of these developments is difficult to quantify with precision at the present time, but they are expected to have only a negligible impact on remaining project costs.

31 As regards physical and price contingencies, discussions were held with local officials engaged in public works and the WASA staff and the consulting engineers. The cost estimates include provision of physical contingencies of 20% to take into account unforeseen technical difficulties, possible changes required in the rehabilitation of the surface water treatment plant and construction problems encountered during the monsoon season. The estimate also includes a price contingency at 10% per annum. Import duties and sales taxes are included in the local currency costs The following table shows the estimated project costs from the 1968 appraisal to the 1972 reappraisal. The estimated cost of the works to be constructed under the 1968 project are considerably Ligher than was estimated by the 1970 supervision mission. However, the elimination of one large elevated water storage tank and the re-routing of a trunk sewer has resulted in the cost to complete the present works being a little less than the 1970 cost estimate. The additional elements of distribution pipe, wells and sewers make up the additional cost of US$4.5 million equivalent that increases the overall costs. Comparison of Project Cost Estimates September 1968 appraisal 33.5 December 1970 Supervision 37.4 July 1972 Reappraisal (less additional works) 37.1 Million US$ Equivalents Spent to December 31, Needed to complete present works Additional works (see para 3.01) 4.5 Total cost reappraised project 41.6 C. Procurement and Disbursement 3.07 All remaining contracts will be awarded on the basis of international competitive bidding. The civil works contracts are expected to be won by local contractors. The supply contracts still to be awarded are for well supplies and pumps, distribution system piping, service connection supplies, additional sewage pumps, pipes and fittings and maintenance equipment and tools. The supply contracts are expected to be won by foreign suppliers. However, local manufacturers will be given a margin of preference of 15% or import duties, whichever is lower, as allowed under Credit 41-PAK Disbursements will be against 100% of the C.I.F. costs of imported goods, 100% against the ex-factory cost of any supply contracts awarded to local manufacturers on the basis of international competitive bidding, the foreign exchange costs of training and the total costs of consultants' service. It is estimated that the above would require about US$5.2 million

32 -8- of the US$6.5 million balance available to complete the project. The remaining amount of US$1.3 million is proposed to be disbursed against about 25% of the cost of civil works contracts for the installation of water mains and sewers. An estimated schedu:le of disbursements is at Appendix To enable the project to be carried out without delays pending reactivation of disbursements from the Association, the Government of Sweden is providing funds through SI]DA for foreign exchange expenditures under an arrangement with the Government and the Association. The funds provided under this arrangement should be adequate to meet expenditures incurred prior to the effectiveness of the proposed new credit. D. Engineering and Construction 3.10 The contract for the services of the consulting engineers is being negotiated at present with Messrs. Parsons & Co,, who have been working on this project. It is proposed that two expatriate engineers will be assigned to Dacca to direct the work. The consultant's local staff will be responsible for the design and the supervision of mechanical installations. The WASA engineering staff will be responsible for the construction of the distribution system and the operations. This arrangement is satisfactory The remaining supply contracts and the main construction contracts are likely to be awarded during Construction of the project is expected to be completed by December 31, The closing date for the credit would be June 30, IV. JUSTIFICATION 4.01 The water supply portion of the project as revised in 1969 is about 75% completed. The rehabilitation of the old water treatment plant and the construction of the three large elevated storage reservoirs is necessary in order to fully uttilize the works already completed. The additional wells and distribution system are required to meet the increasing demand. The project when completed should permit continuous on-premise water service to about 70% of the population, with the rest being served by public hydrants The sewerage portion of the project as revised in 1969 is only about 45% completed. The completion of the collection system, pumping stations, and treatment facilities is required to be able to fully utilize the works already under construction. The additional collection system and intermediate pumping station will permit the collection of sewage from parts of the city, such as the cantonment area which have recently become the responsibility of WASA. The project when completed should permit the sewerage services to be available to about 60% of the population The demand for water and sewerage services will continue to increase now that Dacca is the capital of an independent country, as well as the

33 -9 - main government, commercial and business center. Unless both parts of this project are completed, the existing sanitary conditions will deteriorate with definite adverse implications with regard to the public health of the city. V. INSTITUTIONAL ASPECTS A. Management and Organization 5.01 The Dacca Authority (WASA) was established under the East Pakistan Water Supply and Sewerage Ordinance, WASA was intended to be a largely autonomous, financially viable public entity, the policy of which was to be controlled by a Board including representatives from local government, the Provincial Government and private interests, while the daily business was to be managed by a Chairman, functioning as a general manager. The former Government, however, exercised control over day-to-day operations to a much larger degree than was consistent with this concept, resulting in the Chairman of WASA functioning as an administrator. Frequent changes of senior personnel contributed to the weakness of the Authority Since the formation of Bangladesh, WASA reports to the Ministry of Public Works and Urban Development instead of the Ministry of Local Government. It has not yet been decided whether there would be any modifications in the Ordinance creating the Authority, and it is too early to say what influence the Ministry of Public Works and Urban Development will bring to bear on the Authority. However, the Ministry expressed its approval of the concept of financially viable autonomous authorities for water and sewerage operations. In view of the extensive shortage of experienced managerial personnel available in the sector, some thought has been given to the advantages of a larger Authority encompassing both Dacca and Chittagong and possibly other cities, but no decision has been taken. The Government has agreed to consult with the Association before taking any action modifying WASA's area of jurisdiction. B. Operations and Staff 5.03 Generally, the number of staff employed is excessive for the present level of operations. Because of labor unrest, it has been extremely difficult to reduce the staff. However, it is expected that the problem of excess staff can be solved in the future if WASA's operations expand without proportionate staff increases WASA's engineering staff is adequate in numbers and technical training. However, too much work, including that of a routine nature, has been carried out by consultants. Not enough attention has been given by WASA's engineers to everyday work relating to operations; in particular, the quality of supervision requires improvement. The progress made should be reviewed during supervision of the project. WASA's engineers could also benefit from on-the-job experience working with the consultants.

34 The commercial and accounting staff requires strengthening. The senior position, that of commercial manager, has been vacant for some months. The function of chief accountant is carried out by an accounts officer who returned to Dacca recently, after a long absence. The accounts officer performs the functjion on an acting'basis only pending the hoped for return of more senior accounting personnel who had been working in Pakistan. Efforts are being made to recruit a qualified person as commercial manager WASA should insti:tute a staff training program including on the job training as well as some overseas training. An amount of $50,000 has been included in the credit: to finance the foreign exchange costs of such training in accordance with a training program acceptable to the Association. Progress of the training program would be reviewed regularly during supervision of the project. VI. FINANCIAL ASPECTS A. Background 6.01 WASA has been plagued by a long history of serious financial and accounting problems, including an inability to achieve a satisfactory measure of financial viability; a lack of timeliness and accuracy in financial reports; a lack of financial control; poor collection performance and defects in basic recordkeeping. The last auditor's report, which covered FY 1970, contained major qualifications including reservations relating to fixed assets and depreciation, stores, the collectibility of receivables, the recording of revenues, possible billing omissions and the maintenance of some of the records. Financial and accounting problems have been due mainly to a lack of experienced personnel in WASA. B. Water Rates and Collections 6.02 The present water and sewerage rate schedule was introduced in November Unmetered connections are billed on the basis of the annual rental value of properties. Metered sales are at a flat rate of TK 2.00 (US$0.27) per 1,000 gallons for domestic sales and a flat rate of TK 4.00 (US$0.55) per 1,000 gallons for commercial and government sales. Industrial sales are at a reducing scale for higher levels of consumption. Sewerage charges for properties having water and sewerage connections are equal to water charges WASA has always found it difficult to maintain a satisfactory level of collections, and receivables at June 30, 1970 equaled 1.6 times the revenues for FY Lack of sufficient Government support for revenue collection efforts has contributed to the Authority's difficulties. C. Short Term Financial Requirements 6.04 Reliable information about past financial performance is not available and meaningful financial forecasts cannot be made from available

35 financial information. Financial statements are not, therefore, included in this report. It is probable that cash generated from operations during the project implementation period FY 1973 to FY 1975 will be sufficient to cover cash operating expenses. Cash from operations cannot, however, be relied upon to provide any contribution towards project costs and Government has agreed to provide funds needed to complete the project On this basis, the financing plan for the completion of the project is as follows: FY1973 to FY1975 Source of Millions Millions of Finance of Takas US$ equiv. Percent IDA Government Total As a prerequisite for setting future financial performance standards, a thorough review of the Authority's accounts will be carried out by competent auditors and audited financial statements made available as soon as possible. Selection of auditors is already under way and Government approval is expected shortly. After the auditors are appointed, a review of WASA's accounts will be made and financial statements for the year ending June 30, 1972 including a balance sheet as at that date will be developed to provide a firm basis for preparation of future financial statements. Government has agreed to make available to the Association these statements by June 30, For FY1973 and future years, Government has agreed that audited accounts will be submitted to IDA promptly after the end of each financial year. D. Long Term Objectives 6.07 WASA has never been able to meet the financial performance covenant in the 1963 Project Agreement. This covenant requires that water and sewerage rates be set at a level sufficient to cover (a) operating expenses, including interest and depreciation; (b) principal payments on longterm indebtedness to the extent they exceed depreciation; and (c) yearto-year extensions and a reasonable part of the costs of major extensions During the project implementation period FY1973 to FY1975, although water revenues are not expected to be sufficient to meet the rate covenant mentioned in paragraph 6.07, as mentioned earlier, there is a fair probability that cash collections will be sufficient to meet cash operating expenses. However, Government has agreed that, if this is not the case, it will meet the deficiency. Government has also agreed that by no later than the end of 1974, when reliable financial information about the two proceding years' operations is expected to be available, in consultation with the Association, water rates will be reviewed and financial targets set for WASA which will enable it to meet the financial performance covenant within a reasonable time.

36 WASA's audited balance sheet at June 30, 1970 shows that total assets of TK million are largely financed through government loans of TK million. Until WASA's financial position is strengthened, and its accounting difficulties overcome so that reliable forecasts can be made, it would not be realistic for WASA to assume any debt service obligations. Government has agreed to a moratorium on debt service on its loans to WASA until the end of FY1975, and that by no later than the end of 1974, it will decide to what extent its interest in WASA should be in the form of debt, and it will also agree upon a plan acceptable to the Association for debt service payments by WASA to Government, which will include the proposed credit to be made available to WASA. VII. RECOMMENDATIONS 7.01 It is recommended that the proposed development credit of US$13.2 million equivalent be made to the Government of Bangladesh to permit completion of the Dacca Water Supply and Sewerage Project The following conditions under Credit 41-PAK which are still applicable without modification have been agreed to by the Government: (a) The Government will provide WASA with all sums required for carrying out the project (paragraph 6.04). (b) The Government will cause WASA to employ contractors and consultants acceptable to the Association on terms and conditions satisfactory to the Association. (c) The Government will cause WASA not to incur any long term debt, unless net revenues during a preceeding 12-month period exceeded 1.25 times the maximum debt service requirement. (d) (e) The Government will cause WASA not to incur short-term debt except in the ordinary course of business for working capital purposes. The Government will cause WASA not to undertake functions other than water supply and sewerage without prior consultation with the Association. (f) The Government will inform the Association of any proposal to change the Chairman of WASA and give the Association a reasonable opportunity to express its views on the proposed candidate for this position The following conditions under Credit 41-PAK which are still applicable with necessary modifications have been agreed to by the Government:

37 (a) A financial statement and balance sheet for the year ending June 1972 will be submitted by June 30, 1973, and for 1973 and future years audited accounts will be submitted promptly at the end of each financial year (para 6.06). (b) The Government will cause WASA to set rates no later than the end of 1974, in consultation with the Association, which together with other financial targets would enable WASA to meet the financial performance convenant set forth in paragraph 6.07 within a reasonable time (paragraphs 6.07 and 6.08). (c) The Government will relend the proceeds of the credit to WASA on terms and conditions to be agreed between the Government and the Association no later than the end of 1974 (paragraph 6.09) In addition the following assurances have been obtained from the Government:- (a) It will consult with the Association before taking any action modifying WASA's area of jurisdiction (paragraph 5.02). (b) (c) It will meet any cash deficiencies in WASA's operations (paragraph 6.08). It will agree to a moratorium on debt service on its loans to WASA until the end of FY1975, and by the end of 1974 agree to a feasible schedule for debt service payments from WASA to the Government (paragraph 6.09).

38

39 APPENDIX 1 Complete Project Description The complete project, including the works already finished, comprises the following components: A. Water Supply 1. The construction of 46 tubewells; 2. The rehabilitation and modification of the old surface water treatment plant; 3. The installation of about 170 miles of distribution system consisting of 4" to 18" diameter pipes, the reconstruction or installation of about 20,000 new service connections and 30,000 meters, and about 1,500 street hydrants; 4. The construction of three 1.0 IMg elevated storage tanks and the possible construction of four 100,000 gallon capacity tanks in the old city area; and 5. The purchase of land for tubewell and elevated storage tank sites and a future surface water treatment plant. B. Sewerage 1. The construction of about 150 miles of sewers from 8" to 54" in diameter and the rehabilitation of old sewers; 2. The construction of about eight intermediate sewage pumping stations and the rehabilitation of several old ones; 3. The construction of a main sewage pumping station, stabilization ponds for treatment, and a discharge channel to the river; 4. The installation of about 12,000 connections; and 5. The purchase of land for the sewage pumping stations and treatment facilities. C. Buildings and Equipment 1. The provision of stores facilities, meter shop, work shops, and equipment; and 2. The supplying of the necessary vehicles. D. Organising a Water Supply and Sewerage Authority and providing it with management and technical assistance.

40 APPENDIX 2 BANGLADESH DACCA WATER SIJPPLY AND SEWERAGE PROJECT Estimated Disbursement Schedule IDA Fiscal Year and Quarter Cumulative Disbursement at End of Quarter (US$'000's) 1972/73 June 30, , /74 September 30, ,700 December 31, ,900 March 31, ,200 June 30, , /75 September 30, ,100 December 31, ,600 March 31, ,800 June 30, ,200 Notes: 1. The amounts shown are net of the approximate US$6.0 million reimbursement to IDA on account of disbursements made under the original Credit. 2. It is assumed that, prior to the IDA Credit to Bangladesh becoming effective, payments will be made under the Swedish interim financing arrangement. Closing Date: June 30, 1975

41 IBRD ' _ 000M8 CTbR. 197-,,'2 o 2 A \ \ \ ' ~~~~~~~~~~~~~~- 4 ' l ;--,.. P R ~.- V -. j \ ''I' t t R p U R \. *1 '! ~~~ ' H L. r? 1 'S1/s-~~~~. '''' 1t i..:, <a t K : <: / i I - D:,!-_.-, -. e - 'i.-',env ;I :' "_;,.M MILES 1 ~~~~~~~~~~~~~~~~~ \ :. A t \KILOMETERS -A 44PUkP4 - d,,,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~*- I ~~~~~~~~~~~ rl -J~~~~~~~~~~~- BANGLADESH CITY OF DACCA PROPOSED WATER SYSTEM Construction completed C To be constructed - Over 18 pipelines Secondary /siriy,u/on T Under 18" pipelines mo ms no shown. Elevated storage tanks (1.0 lmg.) Wells 7 '. Additional ' distribution areas Main roads Railways Th, bhw-ida-iec tin, I,in tp do ton, Sec Secondary roads ---- Rivers ip,it -d--irt1 -eapit- byi tth W-nod B-At -ld it., afliaf,e v.

42

43 IBRD I -i r:e 'ug.'r -, '~~~~~~~~~~~~~~~~~~~~~~~~~~~C.,S,.'.'- ~~~~ >'* -'- :::"'- -An' 'b''- -^;''s'1a--s 5p g 1 - -'I I.tSA wa' --- t.a L,A,., ', I., KILOMETE RS 9w't~~~~~~~~~~r J. U;:- YL 7l BANGLADESH P>v CITY OF DACCA- Li-> ; N PROPOSED SEWERAGE SYSTEM / Construct on To be JI;- To treatment plant Existing corrpleted constructed J *.ai e is int 0 Over 18 pipeline p,r/cipol sewers shown. Under 18" pipeline Secondcarysewersnotshown -. 0 Q Pump stations *-k,.. f.'.additional ~ areas to be sewered Ma,n roads - Railways - Secondary roads Rivers Th, 1....

44

45 ANNEX VI INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION BANGLADESH TECHNICAL NOTE ON CHITTAGONG WATER SUPPLY PROJECT Public Utilities Division Asia Projects Department

46 CURRENCY EQUIVALENTS US$1.00 = Taka (Tks) 7.28 Tks 1.00 = US$0.137 Tks 1 million = US$137,000 MEASURES AND EQUIVALENTS gallon = Imperial gallon (1 gallon = 4.5 liters or 1.2 U.S. gallons) IMgd = million Imperial gallons per day 1 IMgd = 4,544 cubic meters per day) gpd gallons per day ( 1 gpd = 4.54 liters per day) 1Mg = million Imperial gallons cusec = cubic feet per second = 0.54 IMgd PRINCIPAL ABBREVIATIONS AND ACRONYMS USED WASA = Dacca Water and Sewerage Authority FISCAL YEAR July 1 - June 30

47 BANGLADESH TECHNICAL NOTE ON CHITTAGONG WATER SUPPLY PROJECT TABLE OF CONTENTS Page No. I. INTRODUCTION... 1 II. BACKGROUND... 1 A. Chittagong... 1 B. Project History... 2 C. Present Status of Works... 2 III. THE PROJECT... 3 A. Description... 3 B. Cost Estimates... 5 C. Procurement and Disbursement... 6 D. Engineering and Construction... 6 IV. JUSTIFICATION... 7 V. INSTITUTIONAL ASPECTS... 7 A. Management and Organization... 7 B. Operations and Staff... 8 VI. FINANCIAL ASPECTS... 9 A. Background... 9 B. Water Rates and Collection... 9 C. Short-Term Financial Requirements D. Long-Term Objectives VII. RECOIkENDATIONS Appendix 1 - Appendix 2 - Complete Project Description Estimated Disbursement Schedule Map IBRD Water Supply Project

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49 BANGLADESH TECHNICAL NOTE ON CHITTAGONG WATER SUPPLY PROJECT I. INTRODUCTION 1.01 Credit 42-PAK for US$24.0 million equivalent was made to Pakistan on August 16, 1963 to help finance a water supply and sewerage project in Chittagong. The project is being carried out by the Chittagong Water and Sewerage Authority (WASA) which was established for this purpose. The project was substantially revised in 1969 mainly by eliminating the sewerage component and the credit was reduced to US$7.0 million equivalent After the project was revised good progress was being made until the political disturbances in Mar-h Despite adverse conditions work has continued since then, although at a slower pace, with the exception of the war period in November and December The war seriously disrupted the construction program, but fortunately no significant interruption of water supply occurred. On December 29, 1971, the Association, after consultation with the Government of Pakistan suspended disbursements for the project after the disbursement of US$3.3 million under the credit. As a consequence, foreign suppliers interupted deliveries of materials. Throughout the construction program, the Government has supplied the local currency required, but from December 29, 1971 until June 1972, no foreign currency was available. In June 1972, the Kingdom of Sweden agreed to provide an interim credit to finance urgent expenditure under this project and other interrupted IDA projects With a view of extending a credit to Bangladesh to enable it to complete the project financed under Credit 42-PAK, a mission comprised of Messrs. P. Jacob, C. Spangler and E. Greenwood visited Bangladesh from June 29, 1972 to July 19, 1972 to reappraise the project. This report is based on the mission's findings after discussions with Government, the Authority and the engineering consultants, and also after inspecting the project and operating facilities in Chittagong. An IDA credit of US$7.0 million equivalent to Bangladesh is proposed to replace the US$7.0 million credit (42-PAK) to Pakistan. II. BACKGROUND A. Chittagong 2.01 Chittagong's population was estimated at 360,000 in It is now believed that the population is closer to 550,000 including large numbers of people who have moved into the city in the last six months with the hope of finding employment. Chittagong, which is the principal port of Bangladesh, is a developing industrial center with a steel mill, oil refinery, soap works, tanneries, a large number of light industrial plants and the railroad and

50 - 2 - Port Trust facilities. At present, business activity has been reduced by disruptions in rail, road and river transportation caused by the war. However, when normal transportation is restored, Chittagong's industrial and business activity is bound to experience an accelerated growth The water supply prior to the construction of the present project comprised a number of old drilled wells of various capacities. Several wells supplied water to an old iron removal plant located near the center of the city. These wells supplied water to five small elevated storage tanks which furnished water for short periods in the mornings and evenings. The better homes had roof storage tanks while the poorer homes stored water in containers or obtained water from nearby small tubewells with hand pumps. Many individuals had their own wells as did most industries including the Port Trust and the railway. B. Project History 2.03 The original project, which was appraised in 1963, included a surface water treatment plant with an intake on the Halda river, transmission mains, distribution system, elevated storage, service connections, meters and some public sanitary facilities. A sewerage component included lateral and main sewers, pumping stations, treatment works and outfall. The project also included engineering and management consultant services and some equipment and tools and work shop facilities. This project, then estimated to cost US$47.7 million equivalent, was found to be too ambitious and required too rapid an expansion of WASA's operations. The project, therefore, was revised and reduced in scale by about 58% in In the revised project, the design and construction of the sewer system was deferred because of very high costs due to construction problems. The revised project included a small surface water treatment plant and a small scheme to collect and divert industrial wastes away from the intake areas. In addition, ground water was to be developed from a well-field comprising 8 to 14 tubewells. In order to improve the quality of the ground water, iron removal facilities were included in the revised project. The revised project also included about 72 miles of water distribution pipes, a 6 lmg storage reservoir, 800 to 1,000 new or rebuilt public street hydrants, and about 10,000 to 12,000 new water connections. The provision for engineering and management consulting services was increased, a training program was added to the project, and the provision for equipment, tools, workshops, and stores facilities was expancied. C. Present Status of Work 2.05 Considerable progress has been made on the revised project in spite of the disturbances during Ten wells have been drilled of which five are now in service and the transmission mains and distribution pipes are in use. The iron removal facility and booster pumping station are under construction. About 700 street hydrants have been installed but only 50% of them have been connected to the distribution system. About 2,000 house

51 -3- service connections have been made of which 1,870 are metered. All major contracts under the project revised in 1969 have been awarded except for the 6.0 IMg storage reservoir and the surface water treatment plant. Land has been purchased for the surface water treatment plant and some site development work is underway. III. THE PROJECT A. Description of the Project 3.01 From the proceeds of the proposed US$7.0 million credit, US$3.3 million would be used to reimburse IDA for disbursements under Credit 42-PAK, leaving US$3.7 million to complete the project and to reimburse Sweden for disbursements made under interim financing arrangements (see para 3.09). The project would remain fundamentally the same as provided for under Credit 42-PAK as revised in 1969 (Appraisal Report No. TO-369d dated September 27, 1968) and described in paragraph 2.04 above. However, after detailed review with WASA and its consulting engineers (Messrs. Parsons & Company, a U.S. firm of consulting engineers) the following modifications have been discussed and agreed with the Government: (a) At the time of the 1969 revision the amount of groundwater which could be produced from the project tubewells could not be fully determined, and the project included in addition to the tubewells a surface water treatment plant, together with an intake from the Halda River, and facilities to divert industrial wastes to a point downstream from the intake. It has now been determined that sufficient water can be obtained from the well-field to meet expected water demand for the next five years. Moreover, the optimum size and design of the surface treatment plant and related facilities should be based upon present analysis rather than the information available at the time of the 1968 reappraisal. Therefore the surface water treatment plant and the related intake and waste diversion facilities will be deferred to the next stage of the program. Meanwhile the site development work for the treatment plant and the access road currently under construction will be completed, and the project will also include the preparation of detailed design for the surface treatment plant and related facilities. (b) In order to meet the increasing water demand, about 35 additional miles of main and distribution pipe will be installed in rapidly growing residential and industrial areas, increasing the piping to be financed from the project to about 107 miles. A complete project description, taking into account the above modifications, is given in Appendix I.

52 The US$3.7 million available for the completion of the project would be used to finance the completion of those parts of the old project and the construction of new facilities as are urgently required. Continuation of efforts to develop WASA into an adequate organization for efficient operation would also be part of the project. Taking into account the modifications in the project described in paragraph 3.01, the works yet to be accomplished are: (a) the completion of the 13 tubewells, the iron removal facility and the booster pumping station; (b) the construction of about 35 miles of mains and distribution pipe, and the continuation of the installation of street hydrants, service connections and meters; (c) the construction of the 6.0 IMg Battali Hill reservoir; (d) the completion of the construction of workshops and stores facilities and provision of equipment and vehicles; and (e) the purchase of land, completion of access road and site development work and the preparation of the detailed design for the surface water treatment plant and related facilities. The part of the project already completed and the work still to be carried out are shown on the attached map The disbursements from IDA Credit 42-PAK up to December 29, 1971, by categories are as follows: Amounts in US$ (a) Tubewells, treatment facilities, pumps storage tanks, buildings 328,430 (b) River intake protection 6,944 (c) Distribution system 981,318 (d) Service connections, meters, street hydrants 240,096 (e) Vehicles and equipment 52,455 (f) Engineering and management consultant services 1,693,874 3,303,117

53 -5- B. Cost Estimates! 3.04 The cost estimates to complete the project are: Million Taka Million US$ Local Foreign Total Local Foreign Total Land and site work Tubewells Distribution System Booster station Battali Hill Storage Service connections Buildings and equipment Total works Contingencies Sub-Total Engineering Consulting Services and Training Total As regards physical and price contingencies, discussions were held with local officials engaged in public works and the WASA staff and the consulting engineers. The cost estimates include provision of physical contingencies of 20% to take into account unforseen technical difficulties, possible changes required in the design of the iron removal plant and construction problems encountered during the monsoon season. The estimate also includes a price contingency at 10% per annum. Import duties and sales taxes are included in the local currency costs The following table shows that the estimated project costs are now about US$1.7 million equivalent higher than was estimated during the supervision mission in October Cost increases since 1970 and additions to the planned distribution system, would normally have caused this figure to be much higher, but these were largely offset by deferring the water treatment plant and the associated industrial waste diversion scheme. 1/ Project costs were computed before the recent dollar devaluation and at a time when the Taka/U.S. dollar exchange rate was Since that time the dollar has been devalued (increasing the dollar value of foreign costs) and the Taka/dollar exchange rate has risen to 7.7 (decreasing the dollar value of local costs). The net impact of these developments is difficult to quantify with precision at the present time, but they are expected to have only a negligible impact on remaining project costs.

54 - 6 - Comparison of Project Costs Estimates September 1968 appraisal 18.1 October 1970 supervision 22.1 July 1972 reappraisal 23.8 Million US$ equivalents Expenditure up to December 31, Funds required to complete project C. Procurement and Disbursement 3.07 All remaining contracts will be awarded on the basis of international competitive bidding. The remaining civil works contracts, with the exception of the contract for the installation of the service reservoir, are expected to be won by local contractors. The supply contracts still to be awarded are for the service reservoir, distribution pipes and accessories and certain workshop and maintenance equipment. These contracts are expected to be won by foreign suppliers. However, local manufacturers will be given a margin of preference of 15% or import duties whichever is lower as allowed under Credit 42-PAK Disbursements will be made against 100% of the C.I.F. costs of imported goods, 100% against thle ex-factory cost of any supply contracts awarded to local firms on the basis of international competitive bidding, the foreign exchange costs of training and the total costs of consultants' service. It is estimated that the above would require about US$3.3 million of the US$3.7 million balance available to complete the project. The remaining amount of US$0.4 million is proposed to be disbursed against about 15% of the cost of construction contracts for the booster pumping station, major distribution system extensions and the storage reservoir. An estimated schedule of disbursements is at Appendix To enable the project to be carried out without delays, pending reactivation of disbursements from the Association, the Government of Sweden is providing funds through SIDA for foreign exchange expenditures under an arrangement with the Government and the Association. The funds provided under this arrangement should be adequate to meet expenditures incurred prior to the effectiveness of the proposed new credit. D. Engineering and Construction 3.10 The contract for the services of the consulting engineers is being negotiated at present with Messrs. Parson & Co., who have been working on this project. It is proposed that two expatriate engineers would be assigned to Chittagong to direct the work. The consultants' local staff would be

55 responsible for the design and the supervision of mechanical installations. The WASA engineering staff would be responsible for the construction of the distribution system and the operations. This arrangement is satisfactory. For the detailed design of the surface water treatment plant, consultants that are specialists in this field will be employed The remaining supply contracts and the main construction contracts are likely to be awarded during Construction of the project is expected to be completed by December 31, The closing date for the credit would be June 30, IV. JUSTIFICATION 4.01 The water supply project as revised in 1969 is about 60% completed. Unless the iron removal facility, the service reservoir and distribution system are also constructed the works completed thus far cannot be fully utilized. The construction of the Battali hill reservoir is necessary to ensure continuous water supply to the population. The project when completed would permit continuous on-premise water service to about 70% of the population. The rest of the population will be served by public hydrants Water demand in Chittagong has been increasing rapidly due to an increase in population. Apart from this it is expected that industrial demand would increase appreciably as Chittagong's importance as a port increases. Unless the project is constructed water demand cannot be met and the existing water supply will further deteriorate with part of the population having to use water sources that pose a continuing health hazard The future demand of the city will require the utilization of a surface water source. The present well field would have to be supplemented in about five years' time. By preparing the detailed designs for the surface water treatment plant at this time, construction can start during 1975 and the plant should be in production by V. INSTITUTIONAL ASPECTS A. Management and Organization 5.01 The Chittagong Authority (WASA) was established under the East Pakistan Water Supply and Sewerage Ordinance, WASA was intended to be an autonomous, financially viable public utility, the policy of which was to be controlled by the Board, including representatives from local government, the provincial government and private interests, while the daily business was to be managed by a chairman, functioning as a general manager. The former Government, however, exercised control over day-to-day

56 - 8 - affairs to a much larger degree than was consistent with this concept, resulting in the chairman of WASA functioning merely as an administrator. Frequent changes of senior personnel contributed to the weakness of WASA Since the formation of Bangladesh, WASA reports to the Ministry of Public Works and Urban Development instead of the Ministry of Local Government. It has not yet been decided whether there would be any modification in the Ordinance creating the Authority, and it is too early to say what influence the Ministry of Public Works and Urban Development will bring to bear on the Authority. However, the Ministry expressed its approval of the concept of financially viable autonomous authorities for water and sewerage operations. In view of the extreme shortage of experienced managerial personnel available in the sector, some thought has also been given to the advantages of a larger Authority encompassing both Chittagong and Dacca and possibly other cities, but no decision has been taken. The Government has agreed to consult with the Association before taking any action modifying WASA's area of jurisdiction. B. Operations and Staff 5.03 Generally, the number of staff employed I.s excessive for the present level of operations. Because of labor unrest, it has been extremely difficult to reduce the staff. However, it is expected that the problem of excess staff can be solved in the future if WASA's operations expand without proportionate staff increases WASA's engineering staff is adequate in both numbers and technical training. However, its performance and especially the quality of supervision requires improvement. This is indicated by high water losses, often poor quality water and the dependence on consultants for much of the work relating to connections and routine extensions. Most of the public street hydrants now have faucets but about half of these are not yet in operation. These should all be put in service and an intensive effort should be made to educate the consumers not to waste water. Surveys need to be made of house fixtures and roof tanks to repair leaks and stop wastage. As more elements of the project are completed and become operative, WASA should be able to divert its staff from construction supervision to operations management. This should lead to improvement in operations in the future. The progress made would be reviewed during supervision of the project Unlike the engineering staff, the accounting staff needs to be strengthened by qualified and experienced people. The commercial manager has adequate training and experience to fill the position effectively. He is handicapped, however, by inadequate supporting staff. Attempts are being made to recruit a senior accounts officer to strengthen the staff WASA should institute a staff training program including on the job training as well as some overseas training. An amount of $50,000 has been included in the credit to finance the foreign exchange costs of such

57 - 9 - training in accordance with a training program acceptable to the Association. Progress of the training program would be reviewed regularly during supervision of the project. VI. FINANCIAL ASPECTS A. BackRround 6.01 WASA has been plagued by a long history of serious financial and accounting problems including an inability to achieve a satisfactory measure of financial viability; lack of timeliness and accuracy in financial reports; lack of financial control; inadequate auditing services; poor collection performance and defects in basic record-keeping. The last audit covered FY 1970 and, although the auditors' report revealed the need for many accounting adjustments, strong doubts exist as to the quality of the audit work. Financial and accounting problems have been due mainly to the lack of experienced personnel in WASA referred to earlier (paragraph 5.04). B. Water Rates and Collection 6.02 The present water rate schedule was introduced in November Unmetered connections are billed on the basis of the annual value of properties. Metered sales are at a flat rate of TK 2.00 (US$0.27) per 1,000 gallons for domestic sales and a flat rate of TK 4.00 (US$0.55) per 1,000 gallons for commercial and government sales. Industrial sales are at a reducing scale for higher levels of consumption. Revenues from the present water rates are expected to be adequate to cover cash operating expenses but will not also cover debt service WASA has always found it difficult to maintain a satisfactory level of collections, and receivables at June 30, 1971 exceeded revenues for FY The extent to which domestic billings, especially for the last year, can be collected is difficult to predict. Accounts are paid at local banks, but detailed collection reports have not been submitted to WASA for some time because of staffing difficulties experienced by t'hlese banks. C. Short-Term Financial Requirements 6.04 Reliable information about past financial performance is not available and meaningful financial forecasts cannot be made from available information. Financial statements are not, therefore, included in this report. It is probable that WASA's water revenue collections during the project implementation period FY 1973 to FY 1975 will be sufficient to meet cash operating expenses. Cash collections cannot, however, be relied upon to provide any contribution towards project costs and Government has agreed to provide the funds needed to complete the project On this basis, the financing plan for the completion of the project is estimated as follows:

58 FY 1973 to FY 1975 Source of Millions of Millions of Finance Takas US$ equivalent Percent IDA Government Total As a prerequisite for setting future financial performance standards, a thorough review of WASA's accounts will be carried out by competent auditors and audited financial statements made available as soon as possible. Selection of auditors is already under way and Government approval is expected shortly. After the auditors are appointed, a review of WASA's accounts will be made and financial statements for the year ending June 30, 1972 including a balance sheet as at that date will be developed to provide a firm basis for preparation of future financial statements. Government has agreed to make available to the Association these statements by June 30, For FY 1973 and future years, Government has agreed that audited accounts will be submitted to IDA promptly after the end of each financial year. D. Long-Term Objectives 6.07 WASA has never been able to meet the financial performance covenant in the 1963 Project: Agreement. This covenant requires that water and sewerage rates be set at: a level sufficient to cover (a) operating expenses, including interest: and depreciation; (b) principal payments on long-term indebtedness to the extent they exceed depreciation; and (c) year-to-year extensions and a reasonable part of the cost of major extensions During the project: implementation period FY 1973 to FY 1975, although water revenues are not expected to be sufficien!t to meet the rate covenant mentioned in paragraph 6.07, cash collections are expected to be sufficient to meet cash operating expenses. However, Government has agreed that, if this is not the case, it will meet the deficiency. Government has also agreed that by no later than the end of 1974, when reliable financial information over the preceding two years is expected to be available, in consultation with the Association, water rates will be reviewed and financial targets set for WASA which will enable it to meet the financial performance covenant within a reasonable time At June 30, 1971, WASA's total assets are estimated at TK75 million. These assets are 'Largely financed by Government loans amounting to about TK 70 million, including the IDA Credit 42-PAK relent to WASA. Until the accounting problems of WASA are resolved and its financial position improves, it will not be possible for WASA to assume any debt