Report No. 890a-MA FILE COPY Malaysia Appraisal of the Kuala Lumpur Sewerage Project February 2, 1976 East Asia and Pacific Projects Department Water Supply Division FOR OFFICIALUSE ONLY InternationalBankfor Reconstruction and Development international Development Association Thisdocument hasa restricteddistribution and may be used by recipients only in the performance of their official duties. Its contentsmay not otherwisebe disclosed without World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
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Report No. 890a-MA FILE COPYMalaysiaAppraisal of the Kuala LumpurSewerage ProjectFebruary 2, 1976
East Asia and Pacific Projects DepartmentWater Supply Division
FOR OFFICIAL USE ONLY
International Bank for Reconstruction and Developmentinternational Development Association
This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may nototherwise be disclosed without World Bank authorization.
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CURRENCY EQUIVALENTS
Currency Unit = Malaysian Dollar (M$)M$ 1.00 a 100 centsUS$1,00 - M$ 2.50M$ 1.00 a US$0.40M$1 million = US$400,000
MEASURES AND EQUIVALENTS
1 mm = 1 millimeter = 0.04 inches (in)1 m - 1 meter m 3.28 feet (ft)1 km 1 kilometer - 0.62 miles (mi)mg/i - milligram per literI kg 3 1 kilogram 2.2 pounds (lbs)1 ha - 1 hectare 2.47 acres (ac)1 Ig - 1 Imperial gallon - 1.2 US gallons or 4.55 litersIgd Imperial gallon per day1Mg - million Imperial gallonIMgd - million Imperial gallons per daysec 3 second
PRINCIPAL ABBREVIATIONS AND ACRONYMS
Government - Government of MalaysiaFT = Federal TerritoryCity City of Kuala LumpurSD = Sewerage Department of City
of Kuala LumpurWD Water Division of Selangor StateUDA = Urban Development AuthorityEHE = Environmental Health Engineering
UnitDOE Department of the EnvironmentBOD = Biochemical oxygen demand
FISCAL YEAR
January 1 - December 31
FOR OFFICIAL USE ONLY
MALAYSIA
APPRAISAL OF THEKUALA LUMPUR SEWERAGE PROJECT
TABLE OF CONTENTS
Page No.
SUMMARY AND CONCLUSIONS ................ .......... *. i - ii
I. INTRODUCTION ........................................... 1 .oe oo9
II. THE SECTOR ...................... *. ... ...... 2
The Country and its Economy ...................... 2Sector Development ............................... 2Sector Organization ............oooo.. oo.. *.****..... 4
III. THE PROJECT ....................... 9qo.o.. o....o... ....o . 5
Project Description *........................... 5Cost Estimates .......... ....... *0 5Land ..... .................. * .... 9* .... ..*.*o 6Amount of Proposed Loan .......................... 6Design and Construction Supervision ......... 9..... 7Management Consultants and Training . .... ... . 7Procurement 7**..*............................. 7Disbursement .0.0.0.0.0.0.000 ... 0. ..... * 0 a ......a.............. 000000000 8
Closing Date ........................... 0 0......0 8Environmental Aspects ... 9......................... 9Future Development 0000000000000 .. 0000000000 9Other Issues ..................................... 9
IV. JUSTIFICATION ....... o........... .......... o. 10
V. THE BORROWER AND THE BENEFICIARY ..................... 11
The Borrower *.................................... 11The Beneficiary . .000 * 12Organization and Management 12Accounting and Finance 13Billing and Collection 14Audit 15
This report was prepared by Messrs. K.C. Smeltzer (Financial Analyst)andA.E. Bruestle and E.A. LaBahn (Sanitary Engineers).
This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
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Page No.
VI. FINANCIAL ASPECTS ..............eO9*S 9e**B*9, , . 15
1. Existing Sewerage Facilities2. Description of the Project3. Project Cost Estimates4. Estimated Schedule of Disbursements5. Projected Wastewater Flows 1976-20066. City of Kuala Lumpur - Receipts and Expenditures for Public
Services 1968-19757. City of Kuala Lumpur - Expenditures on Sewerage System 1968-1975
8-A. Income Projections 1976-19858-B. Water Consumption and Sewage Fee Projections 1976-19859. Cash Flow Projections 1976-198510. Balance Sheet Projections 1975-198511. Assumptions for Financial Projections12. Forecast Performance Indicators and Dates for Project Monitoring
CHART
9862 City of Kuala Lumpur - Organization Chart of EngineeringDepartment and Sewerage and Drainage Division(Prior to Establishment of Sewerage Department)
9863 City of Kuala Lumpur - Organization Chart of Sewerage Department9864 Project Implementation Schedule9865 Projection of Population and Selected Utility Characteristics
1970-1990
MAP
11643 Existing Sewerage System and Proposed Project
MALAYSIA
APPRAISAL OF THE KUALA LUMPUR SEWERAGE PROJECT
SUMMARY AND CONCLUSIONS
i. This report covers the appraisal of a project to improve and extendsewage collection and treatment facilities in the Federal Territory, City ofKuala Lumpur, for which a loan of US$21.5 million is proposed. The projectrepresents the first stage, covering the years 1976-1981, of a Master Planto extend sewerage facilities throughout the Federal Territory during the30-year period ending in 2005.
ii. The project is needed to improve standards of health and sanitationwithin the Federal Territory, which is coextensive with the City of KualaLumpur, the Federal capital of Malaysia. The City encompasses a heavilypopulated urban area, whose population of approximately 780,000 is growing atthe rate of about 3.7% annually. Water consumption and liquid waste produc-tion are, moreover, increasing at a much higher rate because of increases inpopulation served with water under Bank-financed water supply projects, in-creasing individual consumption, and a high rate of industrial growth. TheCity's existing sewerage system serves only about 25% of the present popula-tion, confined largely to the central section of the City. Because of thelarge and increasing water demand, the volumes and strengths of liquid wastesin the areas to be served under the project are beyond the handling capacityof the night soil collection systems or septic tanks upon which the City wouldotherwise have to rely. The project will accelerate the extension of theCity's lateral and trunk sewers and treatment facilities which has beenunderway on a modest scale since 1953. It would avoid the necessity of ex-tending night soil collection and use of septic tanks and, with futurestages of the Master Plan, would result in phasing them out as additionalareas are sewered. As a result of the project, the population provided withsewerage service would double from about 200,000 in 1975 to 400,000 in 1981,and the percentage of the total population of the Federal Territory receivingsewerage service would increase from the present 25% to about 45% in 1981.
iii. The Government of Malaysia will be the borrower and the City ofKuala Lumpur will be the beneficiary. A Sewerage Department (SD) has recentlybeen established as a separate Department of the City Administration to operatethe existing sewerage system, to carry out the project, and to operate theexpanded system upon completion. The proceeds of the loan will be relentby Government to the City, on the same terms as those of the Bank loan, forthe exclusive use of SD in meeting project expenditures.
iv. The project is estimated to cost about US$60.5 million (M$151.2million), exclusive of interest during construction, of which about US$11.8million or 20% is foreign exchange cost. The proposed loan of US$21.5 mil-lion will cover about 36% of such total cost. The balance would be financedby Government loans and from internal cash generation. All contracts willbe awarded on the basis of international competitive bidding. Most of the
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equipment will be imported but the pipes are expected to be manufacturedlocally using some imported raw materials. Local manufacturers willreceive a preference of 15% or the prevailing tariff, whichever is less.
v. Revenues will be raised by SD sufficient to pay its operatingexpenses and debt service and to produce a reasonable return on the valueof net fixed assets in service. The sources of revenues will be sewagefees based on metered water consumption and the allocation to SD of aportion of the City's property tax assessment. It is expected that overthe period of the project the direct user charge, represented by the sewagefees, will become the major source of SD's income.
vi. The project is the most practicable solution for collection,treatment and disposal of sewage in the densely populated urban areas ofKuala Lumpur.
vii. The project is suitable for a Bank loan of US$21.5 million fora term of 21 years including a grace period of six years.
MALAYSIA
APPRAISAL OF THE KUALA LUMPUR SEWERAGE PROJECT
I. INTRODUCTION
1.01 The Government of Malaysia has requested a loan of US$21.5 millionto help finance a sewerage project for the Federal Territory, City of KualaLumpur. The project will be carried out by the Sewerage Department (SD) ofthe City of Kuala Lumpur, which has recently been established as a separateDepartment of the City Administration. The project is estimated to costUS$60.5 million equivalent.
1.02 The Bank has made loans to Government to assist in financing twoprojects for water supply for Kuala Lumpur and the Klang Valley region ofthe State of Selangor. The first project was carried out, and the second iscurrently being carried out, by the Water Division of Selangor State Govern-ment, which is responsible for water supply in Kuala Lumpur and the State ofSelangor. The projects are part of a long-term plan for water supply forthe region and involve the development of the Langat River in stages to meetfuture needs. The loan for the first project was provided in August 1968in the amount of US$3.6 million equivalent (Loan 561-MA) to cover the foreignexchange costs of the first stage, which was completed in 1974. The loanfor the second project was provided in August 1973 in the amount of US$13.5million (Loan 908-MA) to cover the foreign exchange cost of the second stage.This project is now underway and is estimated to be completed in 1978. Itis expected to meet the increased water demands of the area, includingKuala Lumpur, beyond the year 1980.
1.03 The proposed sewerage project is the first stage of a long-termplan for the extension of the sewerage system in the Federal Territory andadjacent areas in the State of Selangor. A Master Plan for sewerage andsewage disposal for Kuala Lumpur and environs, covering the period to 2005,was prepared in 1973-1975 with United Kingdom aid, by D. Balfour & Sons(U.K.) in association with Malaysia International Consultants. This studywas supervised by Government's Ministry of Local Government and Environment,and a Steering Committee consisting of officials of Government, the City andthe State of Selangor. The study has been reviewed by them and by the Bankand forms the basis of the proposed project.
1.04 A pre-appraisal mission composed of Messrs. L. Rasmusson andK.C. Smeltzer visited Malaysia in June-July 1974, and one comprisingMessrs. V. Rajagopalan and R. Saunders visited the country in December 1974.These missions reviewed preliminarily matters relating to the scope of theproject, basic design criteria, institutions to carry out the project, andeconomic considerations. It was decided by Government to confine the projectto the Federal Territory (as established in 1974) in which the major part ofthe extensions in the first stage of the Master Plan were proposed. It was
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also decided that the project and sewerage operations would be carried out
by a separate Sewerage Department of the City.
1.05 The project has been prepared by the consultants, Government and
the City. Appraisal of the project was carried out by a mission composedof Messrs. K.C. Smeltzer and E.A. LaBahn who visited Malaysia in March 1975.
This appraisal report is based on information provided by the consultants'study, Government and the City, and the mission's findings.
II. THE SECTOR
The Country and its Economy
2.01 Malaysia consists of the peninsula of Malaysia which lies between
Thailand and Singapore, and the States of Sarawak and Sabah on the island of
Borneo. The aggregate area of Malaysia is about 128,000 square miles; in
1974 it had a population of about 12.2 million growing at an annual rate of2.7%. Kuala Lumpur is the country's capital and its largest and most denselypopulated city; it has a population of about 780,000 (1975) and an area of
94 square miles. The estimated average monthly household income for PeninsularMalaysia is about M$530 (US$212), about 40% below the average urban incomeand 45% below the average of M$990 (US$395) for Kuala Lumpur.
2.02 With a per capita GNP of US$490 (1973), Malaysia is one of the
most prosperous developing countries in Southeast Asia. Rates of growth of
GNP in constant market prices averaged about 6% annually over the past decade.
Agriculture still is the mainstay of the economy and employs over half the
labor force; however, its contribution to GDP in the last decade has declinedfrom about 40% to 33%. Conversely, manufacturing and mining have increasedin the past decade from less than 15% of GDP to 20%, providing employment to
over 11% of the labor force. Since much of industry has developed in the
region of Kuala Lumpur, the shift from agriculture to manufacturing is an
underlying factor in the inordinate growth of water supply and sewerage needs
in the capital city.
Sector Development
2.03 Over 50% of the population of Malaysia is served with piped water
supplies. In Peninsular Malaysia and in Sabah State, water systems generallyprovide service on a regional basis rather than to just a single community.These systems, which serve almost all urban areas and adjacent towns and
villages, have enabled rural communities to benefit from water systems theyotherwise would be unable to support. Metered deliveries generally are
provided to individual dwelling units, with public standposts representing a
relatively small proportion of the total number of connections. In SarawakState, where some 80% of the population live in small communities with poorcommunications, water supply systems serve individual communities only.
2.04 The Revised Second Malaysia Plan (1971-75) included M$334 millionfor water supply projects to meet the growing demands of principal urbanareas, to provide water supply facilities to settlers under Federal LandDevelopment Authority schemes, and to continue the process of providingsafe water supplies to an enlarged portion of the population by expandingexisting systems and adding new systems. Capital funding for water supplyprojects has come from Government loans and budget allocations and, for themore developed areas, from state and local sources. International financinghas been used only for the larger projects: the two Bank loans for the KualaLumpur Water Supply Projects (Loan 561-MA and 908-MA) and four Asian Develop-ment Bank loans for water supply projects in both Peninsular and East Malaysia.
2.05 Few satisfactory sewerage systems exist in Malaysia. According tothe 1970 Census, only 20.6% of the population were provided with flushsystems discharging either to communal or municipal sewers or, alternatively,to individual disposal systems. Remaining populations were served by bucket(night soil) collection, pit latrines or open drains. Of the urban areasonly the cities of Kuala Lumpur and Georgetown (Penang State) have sewers;a total of 350,000 people, or 9% of the 1970 urban population of 3.7 millionpersons benefited from this service. The Revised Second MalaysiaPPlanallocated M$23 million to sewerage systems, or only 7% of the water supplyallocation. Wastewater flows are increasing with the increase in pipedwater supply systems but facilities for collection, treatment and safedisposal are not keeping pace. Because of this lag, a team of expertsunder the IBRD/World Health Organization Cooperative Program will surveythe country in early 1976 with the objective of identifying constraintsand promoting development in the urban wastewater subsector.
2.06 Many of Malaysia's principal streams are polluted, although con-ditions are mitigated by frequent and substantial rainfall. Domestic wastesrepresent only part of the problem; land development, industry and miningoperations also are major contributors to water pollution. At present, waterpollution control is handled on an ad hoc basis with solutions attemptedonly after a problem has arisen and been recognized as a nuisance or hazard.Long-range planning and policies in this field have not been formulated,though the Environmental Quality Act of 1974 is an important first step.That Act provides general powers to control pollution of Malaysia's land,air and water resources (para 2.09). The urban wastewater survey, (para2.05) would also examine environmental, technical, institutional and finan-cial problems associated with liquid waste.
2.07 The concept of beneficiaries paying for water service through anadequate tariff is well-established in Malaysia, and water tariffs generallyare sufficient to meet operating costs and debt service and yield a smallsurplus. Billing and collection procedures and results are generally good.Expenses of sewerage service are met principally from general tax assess-ments of local governments.
Sector Organization
2.08 The provision of water supplies is a function of the individualstate governments and is usually handled by the public works departments
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(PWD) of the states. The Water Supply Branch of the Federal PWD providestechnical advice and support to the states but its role is limited becauseof inadequate staff. The Rural Environmental Sanitation Program of theGovernment, which covers water supply and waste disposal, is managed by theEnvironmental Health Engineering Unit (EHE) of the Ministry of Health.
2.09 There are two principal organizations at the national level res-ponsible for environmental sanitation and water pollution control. TheDepartment of the Environment (DOE) of the Ministry of Local Government andEnvironment administers and enforces the Environmental Quality Act of 1974and assists local agencies in sewerage, drainage, solid wastes and housingactivities. The EHE Unit of the Ministry of Health is responsible foridentifying urban sewerage, drainage and solid waste disposal needs, moni-toring environmental quality, and providing technical support to DOE andstate water pollution control boards. EHE prompted formulation of theEnvironmental Quality Act and promoted studies for sewerage in Kuala Lumpurand eight other urban areas.
2.10 Water supply to Kuala Lumpur is provided by Selangor State whichencircles the City. The water system serves about one million persons inthe Federal Territory and State areas through 100,000 connections, all ofwhich are metered. Bank Loans 561-MA (1968) and 908-MA (1973) are helpingfinance capital expansions of this system; when the current project iscomplete, the system will serve about 1.5 million persons. The performanceof the water supply undertaking in operations and in project implementationhas been good. The State, through its Development Corporation, Public WorksDepartment and local town boards, administers some rudimentary wastewatersystems. But the major sewerage system in the region serves and is ownedby the City of Kuala Lumpur (which administers local services in the FederalTerritory with which it is coextensive) and is operated by its EngineeringDepartment (Chart 9862 and paras 5.03-5.04).
2.11 The City's sanitary sewerage system dates back to 1953 and providesservice to approximately 200,000 persons or about 25% of the population. Itserves the central city and two smaller outlying areas. Facilities consistof about 80 miles of sewers, a raw sewage lift station, three treatmentplants and gravity outfalls to the Klang river system. In addition the Cityprovides service to about 5,000 persons in low income areas adjacent tothe Federal Territory through small communal facilities. The remainingpopulation is served by septic tanks, privies and night soil systems. TheEngineering Department has done a good job in operating and maintaining thesystem and is competent in carrying out minor improvements. But due toinadequate staffing it must rely upon engineering consultants to plan, designand supervise the construction of major projects. Because of limitedrevenues and inadequate capital funding, the City has not expanded itssewerage system to match the rate of urban development.
2.12 The consulting association of D. Balfour & Sons (U.K.) and MalaysiaInternational Consultants completed in 1975 a sewerage Master Plan financedby the United Kingdom that identifies a staged program of sewerage develop-ment through the year 2005 to meet the needs of Kuala Lumpur and environs.The study area included the Federal Territory plus adjacent portions of
Selangor State (map 11643). The Master Plan recognized that a single sewer-age authority ultimately should have jurisdiction over the study area. Be-cause of possible administrative and political difficulties it was decidedthat the City and the various State agencies should continue to providesewerage service within their respective boundaries, though a regionalsewerage authority remains an objective. The project, which consists ofthe first stage (1976-1981) of the Master Plan, provides service only tothe Federal Territory. It would be carried out by a newly created SewerageDepartment of the City (Chart 9863; paras 5.05-5.08).
III. THE PROJECT
3.01 The project is the first stage of a long-range sewerage develop-ment plan for Kuala Lumpur and environs. It consists of the expansion andmodification of the City's existing municipal sanitary sewerage system.Construction is scheduled for the period 1976-1980. Details of existingsewerage facilities are described in Annex 1.
Project Description
3.02 In addition to expanding facilities in the existing sewerage zone,the project would provide service to three newly created zones. The workconsists of:
(i) about 52 miles of lateral sewers varying in size from9 to 15 inches;
(ii) about 16 miles of trunk sewers ranging in size from15 to 60 inches;
(iii) improvements to an existing sewage treatment plant;
(iv) construction of four new pumping stations; and
(v) construction of three new sewage treatment facilities.
The treatment units, consisting of sewage lagoons, can be readily and in-expensively upgraded to handle future increases in biologic and hydraulicloading resulting from population and industrial growth. A detaileddescription of the project is included as Annex 2, and the locations ofproposed project works and service areas are shown on Map 11643. An addi-tional 15 miles of lateral sewers would be added to the City's system byhousing developers and these are not included in the project.
Cost Estimates
3.03 The estimated costs of the project are detailed in Annex 3 andare summarized below.
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M$ Million US$ MillionLocal Foreign Total Local Foreign Total
3.04 Cost estimates were prepared on the basis of estimates by theconsultants and are reasonable. Construction costs are based upon preliminarydesign of the project and upon recent tenders awarded for materials, equip-ment and civil works of similar projects in Malaysia and Singapore. Con-sulting services include engineering and management as described in paras3.08, 3.10 and 5.10. An overall provision of 10% on all items excludingland (para 3.06) has been added to the basic cost (January 1976) for physicalcontingencies and is considered adequate. Price contingency allowancesapplied to the January 1976 base prices are: for 1976 14% for civil worksand 10% for equipment; for 1977-1979 12% and 8%, respectively and for 198010% and 7%.
3.05 The cost estimates do not include duties and taxes since Govern-ment has indicated that these will be waived for the project. The foreignexchange component has been estimated on the assumption that most mechanicaland electrical equipment and certain items of general plant will be importedand the construction contracts and most pipe supply contracts will be won bylocal firms. This has occurred under earlier sewerage projects and SelangorState water supply projects.
Land
3.06 In the estimates it is assumed that land not owned by Governmentwill be acquired at market value and Government land will be acquired with-out cost. No price contingency was applied to land costs because steps arecurrently being taken to acquire it. Agreement was reached and a covenantincluded in the draft legal documents that Government land will be providedto SD at no more than nominal cost and that Government will ensure the promptacquisition or holding by right of temporary occupancy of other land requiredfor the project.
Amount of Proposed Loan
3.07 A Bank loan of US$21.5 million is proposed to finance approximately36% of the total project costs of US$60.5 million. The amount of the loancomputed on this basis would be sufficient to cover the estimated foreign
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exchange component (i.e., 20% of the total cost) and 20% of the local costs.The balance of the project costs would be financed by the Government andSD's internal resources.
Design and Construction Supervision
3.08 SD will be responsible for carrying out the project. It willretain consultants in accordance with the Bank's Guidelines on the Uses ofConsultants to provide engineering services for detailed design, preparationof tender documents, evaluation of tenders and supervision of construction.In order to expedite the work, SD is considering retaining more than oneengineering consultant and may, depending upon its ability to increase itsown staff, do some sewer design in-house. Because of uncertainty on howmuch design will be done by SD, the number of man-months of engineeringconsulting services is tentatively estimated to be 400. Assurances havebeen obtained that SD will engage engineering consultants satisfactory to theBank for design and construction supervision (except work designed by SDstaff with prior Bank approval) and that the designs will be acceptable tothe Bank. The City intends to engage consultants in early 1976, and shouldthat schedule be maintained, it is likely that up to US$70,000 will have beenexpended on the project for engineering and management consultants' servicesbefore the proposed Bank loan is signed. Retroactive financing for the costof these services not to exceed the amount of US$30,000 is proposed (i.e.,42% of the cost, see para 3.12).
3.09 Because the boundaries of the sewerage zones are determined by topo-graphy, two of the four sewerage zones covered by the project (Zones 3B and 6)contain areas within both the Federal Territory and the State of Selangor.Although all of the facilities to be built under the project (with the except-ion of one treatment plant) lie within the Federal Territory, it is desirableto size sewers and force mains with sufficient capacity to serve adjacentstate areas. Accordingly, agreement was reached with Government and a cove-nant included in the draft legal documents that all facilities within theFederal Territory will be designed to receive sewage flows from adjacentState areas and that the resulting additional costs will be borne by theState at the time the expenditure is incurred.
Management Consultants and Training
3.10 Management consultants will be retained to assist SD principallyin establishing and installing a commercial accounting system (paras 3.08and 5.10). About 16 man-months of management consulting services areenvisioned.
Procurement
3.11 The schedule for design, procurement and construction of the pro-ject is shown in Chart 9864. Engineering work has been assumed to begin inearly 1976, in which case all project facilities should be commissioned byJune 30, 1981. All construction and supply contracts will be awarded on thebasis of international competitive bidding in accordance with the Bank'sguidelines. Local contractors are expected to win all construction contracts,and local manufacturers are expected to furnish most, if not all, of the sewer
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pipe required in the project. Major mechanical and electrical equipmentrequired for the pumping plant and treatment plant are not manufacturedlocally and will be procured from abroad. A margin of preference to localmanufacturers of 15% or the custom duty, whichever is less, is proposed to beallowed. There are no preferential tariffs applicable to goods likely to beimported for this project.
Disbursement
3.12 The loan of US$21.5 million would comprise about 36% of the costof the project. This is equivalent to 42% of the project's cost excludingland. Accordingly, it is proposed that the loan be disbursed by the Bankin the amount of 42% of all project expenditures, excluding land, up tothe loan total of US$21.5 million.
3.13 In the event that the 42% of project expenditures, excluding land,totals less than the amount of the loan, the unused balance would be dis-bursed against continued expansion of the sewerage system within the FederalTerritory subject, however, to adequate justification (para 3.17).
Closing Date
3.14 The Closing Date for the proposed loan would be December 31, 1981which allows a margin of about twelve months after the estimated completionof the works. This margin is considered appropriate to accommodate thefinal payments on contracts and some slippage of the project.
Environmental Aspects
3.15 By extending sewer service to populations now relying upon night-soil collection and sullage drains, the project will reduce health hazardsand improve aesthetics of the urban environment. The project will also helpto keep organic pollution of the Klang River and its tributaries from exceed-ing present levels despite steadily increasing quantities of domestic andindustrial wastes. Although downstream use of the Klang as a water sourceis limited, the project would reduce downstream water treatment problemsand costs, and improve the overall aesthetics of the river and the recipientmarine environment.
3.16 Pollution by industry, housing development and mining operations,both within and outside of the Federal Territory, is a continuing problemin the Klang Valley. Present pollution control laws appear to be adequatebut enforcement practices must be strengthened. In order to promote equit-able and economic use of the project facilities and the surface waters whichwill receive the treated wastes, assurances were obtained and are includedin the draft legal documents that Government would prepare by July 1, 1977,a program for the implementation of existing pollution control legislation asit relates to the quality of surface and ground waters in the Klang Valley.Government is considering making a request to the United Nations DevelopmentProgramme for technical assistance on environmental protection measures; theBank has assisted in outlining a draft project document.
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Future Development
3.17 A program that would provide for continued expansion of seweragesystems within the Federal Territory and also provide for the extension ofpublic sewers to adjacent developed areas of Selangor State has been identi-fied by the consultants as part of the sewerage Master Plan for Kuala Lumpurand environs. Construction of Stage 2 facilities is planned for the period1981-1985 and later improvements for the period 1986-2005. Principal facil-ities proposed as part of these future projects are shown on map 11643.
Other Issues
3.18 Regional sewerage systems, preferably managed and operated by asingle agency, would permit more effective control of the Klang Valley'swater resources. The single regional agency concept should therefore be agoal of Government. However, because of the complexity of the institutionaland financial problems associated with forming a single agency, it is intendedthat sewerage planning and project implementation will, at least in the nearterm, be done by the City and by a Selangor State agency, each for its ownarea of jurisdiction. To help ensure the compatibility of constructionprograms and the uniformity of pollution abatement measures, an intra-govern-mental coordinating committee comprising sewerage and pollution controlagencies has been established by Government, and assurances were obtainedand recorded in the draft legal documents that Government would use itsbest efforts to cause the State of Selangor to designate or create anagency responsible for sewerage in the State by July 1, 1977.
3.19 Although investments in excess of M$200 million are proposed byvarious Governmental agencies in the near term for sewerage, drainage,roads and transport in the Kuala Lumpur area, spatial development planningis incomplete and zoning regulations are only partly enforced. Significantchange in land use from that assumed in planning the project could resultin premature obsolescence of project facilities and unanticipated futureexpense for replacement or supplementation. Land issues are being examinedfor Government and the City by a consultant and it is expected that thiswork will result in recommendations for a program of institutional, legis-lative, fiscal and planning measures. Assurances therefore were obtainedfrom Government and incorporated in the draft legal documents that:
(i) a task force will be established and staffed with specialistsby July 1, 1976 to carry out development policy analysis,broad spatial planning, capital programming and projectreviews within the Federal Territory;
(ii) a detailed two-year work program for the task forcewill be prepared by September 1, 1976;
(iii) recommendations will be prepared for an institutionalframework and processes to carry out, over the longerterm, the work of the task force described in (i) above;
(iv) a ten-year spatial development plan and five-year capitalbudget will be prepared for the area under the City's jur-isdiction by January 1, 1978; and
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(v) Government will use its best efforts to have the State ofSelangor formulate and adopt by January 1, 1978 such aspatial development plan for areas adjacent to theFederal territory as will permit efficient infrastruc-ture planning.
3.20 It is anticipated that up to 600 families would have to be re-settled from lands required for sewerage purposes under the Master Plan.Provision has been made under the Second Urban Transportation Project toprovide financial and technical assistance to develop sites and services,and possibly some housing, for displaced families. Assurances were obtainedand are included in the loan documents that FT will relocate persons occupy-ing land, either as squatters or owners, in a socially acceptable mannerand in adequate time to avoid hindrance to the project.
3.21 The project is not specifically designed to serve one class ofconsumer or income group in preference to another. In fact the spatialnature of sewerage systems makes such design difficult and costly, parti-cularly in cities such as Kuala Lumpur, where various income classes aredispersed throughout the urban area. Nevertheless there is a financialbias favoring the poor because a part of sewerage revenues are derivedfrom the property tax (para 6.09).
IV. JUSTIFICATION
4.01 The population of Kuala Lumpur, currently 780,000, is growing ata rate of 3.7% annually or 1.4 times the national growth rate of 2.7%.Water consumption and liquid waste production are increasing at aboutdouble the population rate because a greater proportion of the populationis being served, individual consumption is growing, and industrial outputis expanding at about 10% annually. Water production capacity for theKuala Lumpur region is being enlarged under two Bank-financed water supplyprojects (Loans 561-MA and 908-MA) to meet water supply needs through 1981.Because of the large, economically justified water demand, the volumes ofliquid waste in the areas to be served under the project have reachedlevels which are clearly beyond the handling capacity of rudimentary septictank or night soil systems. In the appraisal reports for the water supplyprojects, attention was drawn to the sewage problem and the steps beingtaken for its solution. Those steps led to the formulation of the projectwhich is the subject of this appraisal report.
4.02 The sewerage project is a logical continuation of the M$50 million(1975 prices) sewerage construction program undertaken by the City and finan-ced by Government since 1953. It represents the least cost piped sewagecollection and disposal system for the areas to be served and would (i)maximize the use of the existing system; (ii) reduce dependency upon nightsoil collection and septic tanks in developed areas; (iii) eliminate theneed for owner constructed septic tanks and other disposal methods in areaspresently under development; and (iv) help to stabilize the level of pollu-tion in receiving water-courses through simple, effective sewage treatmentprocesses.
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4.03 Measurable benefits of sewerage projects are difficult to quantifybecause the supporting assumptions are necessarily speculative, hence thejustification for this project is essentially qualitative. Wevertheless,it is known that the project will effect cost savings in terms of (i) re-duced expenditures for construction and maintenance of septic tanks andfor night soil collection; and (ii) reduced medical costs and reduced lossof income due to sickness related to poor sanitary facilities.
4.04 Furthermore, the impact on aesthetics and consumer convenienceis far superior to the alternative of septic tanks. Thus, in additon tothe benefits resulting from cost savings, the project has non-measurable"quality of life" benefits - for example, odors and insect nuisanceswould be reduced, septic tank problems would diminish, and sewage wouldbe eliminated from many roadside drainage channels.
4.05 Benefits will also arise from the development of a satisfactoryinstitution to operate the facilities provided by the project and to carryout its objectives. The introduction of operating and management systems,training of staff at all levels in good sewerage public utility practice,and the creation of an organization with the necessary power and authorityto control these activities are all part of this institution building.
4.06 Revenues for sewerage service will be derived from a six of realproperty taxation and user charges based upon metered water consumption(herein called the sewage fee). At present all sewerage service revenuescome from taxation; the sewage fee will be introduced in 1976 as an adjunctto the project. About 40% of total revenues in 1976 will be from thesewage fee (with almost 60% from real property taxation); the sewage feeproportion will gradually rise to about 77% in 1985. Since connection tothe sewerage system and payment of the sewage fee will be compulsory, thefee is not a measure of willingness to pay. As such, it cannot be creditedwith guaranteeing the efficient allocation of resources nor can it be usedas a measure of economic returns. However, since the price for water roughlyreflects its economic cost (the internal financial rate of return of thecurrent water supply project is about 8.6X), the addition of the sewagefee to the water tariff is believed to result in a combined charge suffi-cient to curb wasteful water consumption and thereby increase the likelihoodthat the sewerage system would be used efficiently.
V. THE BORROWER AND THE BENEFICIARY
The Borrower
5.01 The Government of Malaysia will be the borrower and will relendthe proceeds of the Bank loan to the City of Kuala Lumpur on the same termsas those of the Bank loan (para 6.05).
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The Beneficiary
5.02 The Sewerage Department (SD) of the City of Kuala Lumpur, thebeneficiary, will implement the project and operate the sewerage system.The City, as the local government administration headed by the Mayor,provides public services in the Federal Territory under the general direc-tion of the Ministry of Local Government and Environment, which is respon-sible for the Federal Territory. The proceeds of the Bank loan, togetherwith the proceeds of additional loans to be made by Government to the Cityfrom its own funds, will be applied through SD exclusively to expenditureson the project.
Organization and Management
5.03 Sewerage and related sanitary services in Kuala Lumpur have inthe past been provided by the City Engineer's Department and the UrbanServices Department of the City administration. The City Engineer'sDepartment (Chart 9862), in addition to other responsibilities, has dealtwith sewerage, drainage and the servicing of septic tanks. Night soildisposed of at the system's sewage treatment plant is collected by theUrban Services Department, which will continue to perform this functionas part of its refuse collection service.
5.04 While the City has had considerable experience over the pasttwenty years in operating a sewerage system, its goal of extending thesystem to serve the entire City has been constrained. There have beenshortages of funds for extension of the sewerage system, as well as pro-blems of staffing primarily because of shortages of available engineersand technicians. The City Engineer's staff, consisting of about 96 em-ployees devoted to sewerage operations and including three engineers, twochemists, and three technicians, has been insufficient in number to domore than maintain the existing system and design small reticulation schemes.A considerable portion of the staff's time is devoted to checking the plansof developers for adherence to regulations and the issuance of permits.While the City contracts construction work, it has insufficient staff tosupervise the work adequately. Despite these constraints, the City's exist-ing sewerage service can form the nucleus of an organization designed tomeet the needs of the project and the operation of an extended system.
5.05 A restructured SD separate from other departments of the Cityadministration will assume responsibility for all aspects of seweragedesign, construction and operation within the Federal Territory. Theorganizational structure and functions are shown in Chart 9863.
5.06 The principal responsibilities of SD in respect of the FederalTerritory will be (a) participation in the planning of urban developmentas related to sewerage facilities; (b) development of sewerage projectsfor financing and construction; (c) design of sewerage systems by depart-mental staff or consultants; (d) construction of sewerage systems by forceaccount or contract; (e) operation and maintenance of the sewerage systems;and (f) the administration of matters relating to effluent disposal, includ-ing the control of industrial wastewaters, the servicing of septic tanks,
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and the disposal of night soil. The effectiveness of operations will besubject to appropriate external checks by other Government organizationsconcerned with environmental and health matters, i.e., the Ministry ofHealth with respect to the adequacy of arrangement for sewage disposal; theDepartment of Mines and the Factories and Machineries Department concerningcontrol of industrial wastewaters; and DOE and the Drainage and IrrigationDivision on standards for discharges into watercourses.
5.07 SD will be under the general direction of the Mayor, who will beassisted by the City's Director General and the Chief Engineer of SD in form-ulating the general policies for development and operation of SD. The Mayorhas appointed the Chief Engineer who, as the head of SD, will be responsiblefor recommending and implementing policies and for day-to-day control ofoperations. He will be assisted by the principal officers of SD, consistingof the Deputy Chief Engineer and the heads of the Divisions listed withtheir proposed functions in the organization chart (9863). The staffingplan for SD (Annex 2, Table 1), formulated in the course of project prepara-tion, shows the types and estimated annual numbers of staff for these Divi-sions from the inception of SD through 1980 and is satisfactory. This planis intended as a guide and will be subject to review in the course of proj-ect implementation. During negotiations, City representatives gave theBank a satisfactory list of qualifications for the posts of Chief Engineerand Senior Accountant and a satisfactory timetable for the appointment ofstaff.
5.08 The sewerage operations of the City have been carried out by unitswhich have had other functions as well. Changes will be needed to concentratethe sewerage service in a single department. These will include the selec-tion or recruitment at an early stage of qualified technical and financialpersonnel, particularly at management levels, to operate an extended seweragesystem and to undertake the responsibilities of project work. Agreement wasreached and is incorporated in the draft legal documents that: (i) the sepa-rate SD will function along the lines proposed in paras 5.05-5.07; (ii) thefunctions of SD will be restricted to sewerage unless the Bank otherwiseagrees (the Bank has accepted that SD would do a small amount of drainagework until a separate drainage unit is established in about two years time);(iii) SD will be staffed at all times with qualified persons adequate tomeet the needs of the project and operations; (iv) future appointments to thepost of Chief Engineer will be made in consultation with the Bank; and (v)Government and the City, in consultation with the Bank, will formulate andinitiate a training program for staff not later than January 1, 1977.
Accounting and Finance
5.09 In the past, accounts for sewerage services provided by the CityDepartments have not been maintained separately from the City's generalaccounts, and these are on a cash receipts and disbursements basis customaryin government operations. Revenue to finance services has been raised largelyby City tax assessments on property (Annex 6). While most direct expenditures
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can be identified by separate services or departments, the latter do notfunction as individual accounting units. Agreement was reached and provisionincluded in the draft legal documents that SD will function as a self-account-ing department with its own commercial accounting system and separate bankaccount into which its revenues will be deposited and from which its expend-itures will be paid. This will permit the preparation of separate financialstatements for SD and will provide the basis for effective evaluation andsound financial planning and management.
5.10 The City Treasurer's Department would provide the bookkeepingservices required to maintain the accounts of SD, since the City has thenecessary staff and facilities for this work and can provide these serviceseconomically. However, SD would have an Accounting Division headed by theSenior Accountant who would see that the basic accounting records were main-tained for SD in a manner compatible with its commercial accounting systemand would prepare SD's financial statements and other information needed forfinancial planning. The public utility accounting and budgeting systemwould be developed for SD by management consultants, who would assist SDin installing the system; in preparing opening financial statements on acommercial accounting basis; and in valuing and classifying in approximateamounts the fixed assets for the opening balance sheet. The draft termsof reference for management assistance is satisfactory to the Bank, and thecontract for the management consultants is expected to be signed by March1976.
Billing and Collection
5.11 Unlike the existing sewerage service, SD will not be dependentsolely on allocations of City tax revenues to meet its expenses. It willraise revenues for a substantial part of its annual expenditures throughsewage fees on the metered water consumption of users connected to thesewerage system.
5.12 The billing and collection of sewage fees will be done for SD bythe Water Division (WD) of Selangor State Government. WD will include thesewage charges in combined bi-monthly water and sewerage bills for thosecustomers connected to the sewerage system and will collect and remit theproceeds to SD. It will deduct a fee for its service presently estimatedat 1% of the billings, subject to agreement between Government and theState.
5.13 The existing staff and facilities of WD are adequate for thesewerage billing and collection. An interdepartmental comuittee for theproject has found the arrangement to be acceptable. It will be necessaryto amend the Water Supply By-Laws to require joint payment of charges andto empower the cut-off of water supply in the event of non-payment of anyof the charges. Assurances were obtained and are included in the draftlegal documents and supplemental letter that the necessary authorizations,including joint billing, will be secured and that appropriate steps willbe taken to enforce the payment of billings until the authorizations are
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effective. WD has an effective billing and collection system for watersupply, and uncollectible accounts have been insignificant. The proposedarrangement is satisfactory.
Audit
5.14 The Auditor General of Malaysia conducts independent external auditsof government units. It audits the account of the City and of WD to assurecompliance with Government requirements and also to review WD's commercialaccounts and financial statements under generally accepted accountingstandards. The quality of the audits is satisfactory and audit of theaccounts of SD by the Auditor General would be acceptable. Assuranceswere obtained and are included in the draft legal documents that the accountsof SD for each fiscal year will be audited by the Auditor General of Malaysiaor another independent auditor acceptable to the Bank, and that the auditor'sreport and financial statements will be sent to the Bank not later than ninemonths after the end of the fiscal year.
VI. FINANCIAL ASPECTS
Record of Finances
6.01 Analysis of finances of the City's past sewerage operations doesnot serve as a meaningful guide to future performance. Revenues to payfor public services have been raised by the City primarily through generaltax assessments on property (Annex 6). Expenditures for past sewerageservices are for the most part identifiable from City accounts (Annex 7).However, they are confined largely to costs of maintaining a system muchmore limited than is proposed and of limited design work on small reticula-tion schemes.
6.02 In the absence of accounts for fixed assets in the City's system,the original cost of existing fixed assets for SD was estimated by con-sultants from records of the City's capital expenditures on sewerage works;accumulated depreciation of such assets was estimated on the basis of theage and expected service lives of the properties. For purposes of theprojections, the gross fixed assets and accumulated depreciation were re-valued by the appraisal mission for the opening balance sheet at December 31,1975 by increasing the figures based on cost by the percentage changes inthe Consumer Price Index for West Malaysia from the time the expendituresfor the properties were made. By the time the project is completed, theexisting fixed assets will account for only about 25% of the total fixedassets. A more accurate revaluation and a classification of SD's existingfixed assets will be made by the management consultants (para 5.10). Mostof the fixed assets were financed by Government loans. In the openingbalance sheet, the estimated value of net fixed assets and materials in-ventory, less the balance of loans previously made by Government to theCity for the construction of sewerage facilities, is the initial amountof City contributed capital.
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Financing Plan
6.03 Financial projections and assumptions for the years 1976-1985 arein Annexes 8-11, which include the projections of annual cash flow inAnnex 9. This shows the financing plan for the project period 1976-1981,which is sumnarized below:
Financing Plan 1976-81
US$Equivalent Percent
-- millions-
Applications of Funds
Capital Expenditures:Project 151.0 /a 60.4 72.2Stage 2 30.0 12.0 14.3Other Capital Works /b 0.8 0.3 0.4Interest During Construction 22.9 9.2 11.0
Internal Cash Generation 62.6 25.0 30.0Less Debt Service (Excluding
Interest During Construction) 22.1 8.8 10.6Net Cash Generation Applied
to Sewerage Program 40.5 16.2 19.4
Total Sources 209.0 83.6 100.0
/a Excludes M$0.2 million management consulting fees to be charged tooperations.
/b For completion of trunk sewers in 1976 from funds provided by the City.
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6.04 The proposed Bank Loan of US$21.5 million equivalent would coverabout 26% of the total funds required for SD's development program for 1976-1981, Government loans would provide about 42%, and self-generated fundswould cover approximately 19%. The balance of about 13% would be providedfor the commencement of Stage 2 construction in 1981 by loans which it isassumed will be committed for that purpose in the latter part of the projectconstruction period. It is anticipated under the Master Plan (paras 1.03and 3.17) that Stage 2 will be coordinated with the project construction soas to provide a continuous program of extension of the sewerage system. How-ever, the projections indicate that should the start of Stage 2 be delayedbeyond 1981, the financing plan shown in para 6.03 would not be adverselyaffected. The proposed financing plan is satisfactory.
6.05 The proposed Bank loan would be repayable over a period of 15 yearsafter a six-year period of grace. The assumed interest rate is 8-1/2%. Theproceeds would be relent by Government to the City on the same terms as thoseof the Bank loan, and this is acceptable.
6.06 Government loans would be made to the City in the additionalamounts needed to finance the project, less such amounts as SD is able togenerate for construction purposes. These Government loans would be at 6%interest and repayable over 30 years after a six-year grace period. Assur-ances were obtained and are included in the draft legal documents that Gov-ernment will make funds available to the City sufficient to provide SD withthe amounts, as needed, to meet the capital costs of the project until itscompletion, other than the amounts provided by the Bank loan and amountsgenerated internally by SD for construction. Agreement was reached and isrecorded in a draft supplemental letter on the terms of relending of theBank loan proceeds and the lending terms for the Government financing. Arelending agreement acceptable to the Bank is a condition of Loan effective-ness.
6.07 SD's cash account from its establishment as a separate department(para 5.09) should be maintained at a level adequate to meet its capital andoperating costs. Assurances were obtained and are contained in the draftlegal documents that until the cash account becomes self-sustaining fromSD's own internal cash generation, adequate working capital will be providedby Government from its proposed loan. The total amount of Government loansfor the project will not be increased by this provision of working capital,since all surplus internal cash generation of SD will be applied to theconstruction program.
Financial Projections
6.08 Projections of annual income and cash flow for the years 1976-1985are in Annexes 8A and 9, respectively. Annex 8-B supplements the incomeprojections with annual figures for 1976-1985 on water consumption andsewage fee revenue. Projected balance sheets for the year-ends 1975-1985are in Annex 10. The assumptions for the financial projections are inAnnex 11.
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Revenue Sources
6.09 The projections have been prepared on the assumption that therevenues of SD will be derived from two principal sources: (i) the allo-cation to SD by the City of a portion of the Federal Territory area taxaveraging each year at least 2% of annual value of property whether seweredor not, and (ii) a sewage fee to be charged on metered water consumptionin sewered areas. 1/ Government favors such an approach, and agreement wasreached on these sources of revenues (para 6.16).
6.10 The sewage fee, together with the area tax assessment, will pro-duce revenues at least sufficient to cover SD's operating expenses anddebt service. The projections assume that net cash generation will coverdebt service at least 1.2 times and will provide some funds for the con-struction program. As shown in Annex 8-B, the projected sewage fee rateswould average M$0.60 per 1,000 Ig of water consumed in each of the years1976-1978, M$1.10 in 1979 and 1980, and would increase thereafter to M$1.30in 1981 and M$1.50 in 1982 and subsequent years when full debt service onthe project loans is payable.
6.11 The revenue projections indicate that the area tax assessment of2% of annual value, as estimated by the City on the basis of its recentrevaluation of properties, would be about M$4.8 million in 1976 and wouldincrease gradually to about M$5.7 million in 1980 and M$7.5 million in 1985as new properties are added. In comparison, the estimated revenue providedby the sewage fees, while lower than the tax revenue in the beginning, wouldincrease more rapidly than the tax assessment, primarily because of increasesin customers and in rates charged. The estimated sewage fee revenue startsin 1976 at about M$3.5 million or 40% of total revenue, increases to aboutM$11.5 million or 65% of total revenue in 1980, and to M$27 million or 77%in 1985. Thus, direct user charges would become the principal means ofpayment for sewerage service.
Sewage Fee Rates
6.12 In selecting the sewage fee as the principal revenue source, Gov-ernment recognized that much of the operation and maintainance cost of thesewerage system is a function of the volume of water consumed. Proportion-ing sewerage charges to water use at the individual properties is an equit-able basis for charging and is particularly appropriate in the FederalTerritory where all water use is metered. With the engagement of WD ofSelangor State for billing and collection, this method of charging caneasily be implemented (paras 5.12-5.13).
6.13 WD presently charges M$1.20 per 1,000 Ig for water supply todomestic consumers and M$1.70-2.00 to commercial and industrial users.Based on existing water rates, the initial average sewerage charge of
1/ Area tax refers to the general property tax based primarily on the annualrental value of the property (Annex 6, para 2). The 2% of annual valuerepresents about one-sixth of the total annual tax.
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M$0.60 per 1,000 Ig of water would thus increase the rates for domesticcustomers connected to the sewerage system by about 50S, or by a smallerpercentage if domestic customers will be charged sewage fees below thoseof commercial and industrial users. (This may be done for income distribu-tion purposes and because the costs of serving commerce and industry maybe greater than the cost of serving households.) The bills of householdswhich adopt flush toilets where sewers are available will increase ingreater proportion than the percentage increase in rates because of in-creased water use. However, taking increased water use into account, thesewerage charges are considered to be within the ability of customers topay, as the average combined domestic billings for water and sewerage wouldapproximate 2% of average household income. 1/ If the area tax assess-ment is also taken into account, it would on the average increase the costby less than 1/2 of 1% of average household income; this percentage wouldvary among households depending upon the annual value of the householder'sproperty on which the tax is based. 2/
6.14 The projected increases in the average sewage fee rate over theperiod 1976-1982 (para 6.10) are required primarily to compensate for theeffect on capital and operating costs of allowances made for price contin-gencies (para 3.04; Annex 11, paras 5-8). These allowances are necessaryto lessen the possibility of unanticipated cost overruns and consequentunderfinancing of the project. If constant prices were assumed, i.e., thecontinuation of January 1976 price levels, the projected average sewagefee rates would continue at about M$0.60 through 1981 and would increase toabout M$0.90 in 1982 when full debt service is payable on the project loans.In making prudent allowance for future price increases in project and operat-ing costs, it should be recognized that to the degree they materialize,general wage levels are also likely to increase so that the ability ofcustomers to pay the higher rates required to compensate would be correspond-ingly maintained.
Financial Covenants
6.15 Government has decided that while the area tax assessment andsewerage charges would be set at levels at least sufficient to coveroperating expenses and debt service, it will work toward charges whichwill also produce a reasonable return on capital invested. The financingplan in itself, in requiring the generation of sufficient funds to coverdebt service on a capital structure consisting principally of loans, willgive some assurance that an acceptable rate of return for a sewerage opera-tion will be achieved. The projections show for 1982, when full debt ser-vice is payable on the loans, that with a debt service coverage of 1.2 times,the rate of return on fixed assets would be about 8% (Annexes 8-A and 9).
1/ Income figures are based on Draft of Final Report, Urban Transport Policyand Planning Study for Metropolitan Kuala Lumpur, by Wilbur Smith andAssociates, et. al., 1974.
2/ The tax impact would be indirect on householders renting their dwellings.
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This rate of return does not reflect any revaluation of fixed assets forpossible future increases in price levels from the time of construction(or from 1975 in the case of existing fixed assets), whereas the rates ofreturn in the covenants referred to in para 6.16 will be calculated on thebasis of fixed assets valued or revalued in accordance with sound methodsof valuation acceptable to the Bank.
6.16 In order to assure the objectives of a sound financial structureand a reasonable return, it was agreed and provided in the draft legaldocuments that Government and the City will maintain for the exclusive useof SD an area tax assessment and sewerage charges that will provide netinternal cash generation sufficient to cover annual debt service at least1.2 times, and that will, commencing not later than January 1, 1979, producea reasonable annual return on the value of net fixed assets in service. Itwas also agreed that Government and the City will complete a study, inconsultation with the Bank, before the end of 1978 to determine the appropri-ate rate of return and any further revision of such assessment or seweragecharges required to achieve it. The annual rate of return should in anyevent, be not less than 7%. Finally, it was agreed that the initial areatax assessment will average at least 2% of annual value, and the initialsewerage charges will average at least M$0.60 per 1,000 Ig of water consumed.The tax assessment and sewerage charges have accrued to the benefit of SDfrom January 1, 1976.
6.17 The covenants in para 6.16 will assure that a reasonable marginof coverage will be provided for debt service to preserve the financialviability of SD. They will also provide some internal cash generationwhich will be devoted to payment of a share of project costs so as toreduce the amount of Government loans which would otherwise be required.They will give Government and the City a period of transition from thepresent situation of reliance solely on general tax assessments todetermine, in the light of actual experience, the specific long-term ratepolicies which should be followed.
6.18 The sewera-e charge referred to in para 6.16 is an average forall customers, and tne tax assessment rate is the overall rate applicableto the annual value of properties assessed. Government and the City willdecide whether there Will ie differences ir. the sewerage charges amongvarious classes of customers and whether the tax rate will be varied amongproperties assessed (para 6.13). The sewerage charges or tax rates can bevaried, in accordance with these decisions, as long as the average seweragecharge and the overall tax rate specified are maintained.
6.19 To ensure that delays in the making of connections or in thelevying of sewerage charges would not occur, regulations have been institutedwhich provide that whenever the sewerage system is extended to a point within100 feet of a property (i) sewerage charges would be assessed on that pro-perty on water consumed and (ii) the waste producer would be required toconnect to the system. To ensure that the sewerage and treatment systemsare used efficiently, the City has agreed to review and, as necessary,modify and supplement its existing sewerage by-laws by January 1, 1978.
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This review should consider, among other things, surcharges for industrialwastes. These points are incorporated in the draft legal documents.
6.20 The cost of connection to the sewerage system will, as in thepast, be paid by the property owner who also must pay for any plumbing inthe dwelling necessary for connection. In order to promote connectionsby all consumers including the poor, the Government has agreed in a draftsupplemental letter to take appropriate measures to provide financialassistance to those householders faced with financial difficulties inmeeting the costs of sewer connection and household plumbing or replumbing.Since the amount of funds required for the purpose can be determined onlyby experience as the system is extended, an assessment of the amounts re-quired will be made by SD when the project is underway.
Future Finances
6.21 The financial projections indicate that on the basis of Govern-ment's decision to finance the project with loans, the debt of SD will berelatively high, approximately 80% of combined debt and equity at the end ofthe period of funds disbursement in 1981. However, this method of financingwill assure a flow of funds back to Government through debt service payments,which can assist Government in the financing of future stages of the sewer-age program or facilitate the financing of other essential needs.
6.22 Annual debt service requirements would be covered from 1.2 to1.3 times during the projection period, except in the first two years whenthe coverage would be higher. SD, on the basis of the projections, willgenerate sufficient cash to provide about 19% of the funds required forits construction program.
6.23 During the project period the performance of SD will be monitored.Performance indicatorsand target dates for key actions are set forth inAnnex 12.
6.24 With respect to any indebtedness which might be proposed tofinance SD other than under the project, it was agreed that the City willseek the Bank's consent to incur any such debt if net income of SD beforeinterest and depreciation would be less than 1.2 times the maximum debtservice in any future year.
VII. RECOMMENDATIONS
7.01 During negotiations, agreement was reached on the followingprincipal points:
(a) Provision of Government and private land (para 3.06).
(b) Employment of engineering and management consultantsand the execution of engineering designs (paras 3.08and 5.10).
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(c) The design and construction of sewerage in Zones 3B and6 to receive sewage flows from the State of Selangor(para 3.09).
(d) Preparation of a program to implement existing pollutioncontrol legislation (para 3.16).
(e) Establishment of an intra-governmental coordinatingcommittee for sewerage and pollution control and thedesignation of an agency responsible for sewerage inthe State of Selangor (para 3.18).
(f) Measures for improving urban planning in the FederalTerritory and adjacent state areas (para 3.19).
(g) Establishment and functioning of a separate SewerageDepartment (paras 5.08-5.09).
(h) Appointment and training of staff (para 5.08).
(i) Billing and collection of sewerage charges andthe audit of accounts (paras 5.12-5.14).
t;) Provision of adequate funds for the Project and forworking capital, the terms of relending of theBank loan, and lending terms for Government financing(para 6.06).
(k) The nature and level of sewerage charges and restrictionson the incurrence of debt (paras 6.16 and 6.24).
(l) Review and modification of sewerage by-laws (para 6.19).
7.02 The execution by Government and the City of a relending agreementacceptable to the Bank would be a condition of loan effectiveness (para 6.06).
7.03 The project is suitable for a Bank loan of US$21.5 million equiv-alent for a term of 21 years including a grace period of six years.
February 2, 1976
ANNEX 1Page 1
MALAYSIA
KUALA LUMPUR SEWERAGE PROJECT
Existing Sewerage Facilities
1. Existing sewerage facilities and additions presently under designor being constructed are shown on Map 11643. Only principal facilities, i.e.,trunk sewers, major treatment works and disposal facilities are shown there-on.
Sewerage Systems
2. Numerous sewerage systems, both public and private, exist withinthe Federal Territory (FT). However, the Pantai system, owned and operatedby the City of Kuala Lumpur, is the only one of significance. Remainingsystems are limited to Besi and Wardieburn, serving a military encampmentand a military housing estate, respectively, and numerous small sewer systemsserving private housing developments. Approximately 200,000 persons ofFT's 1975 estimated population of 780,000 are served by the Pantai system,approximately 10,000 persons by the Besi and Wardieburn systems. The Pantai,Besi and Wardieburn systems cover a combined area of about 1,610 ha (3,980 ac)and are delineated on map 11643. An estimated additional 160,000 persons areserved by the smaller systems, which are widely disbursed throughout FT.The latter discharge to approximately 60 Imhoff tanks and an unknown numberof septic tanks, all of which are privately owned and located within FT.The remaining population is dependent upon night soil collection or priviesfor sanitation service.
3. Four additional sewer systems discharging to Imhoff tanks areoperated and maintained by the City. They provide service to approximately5,000 persons resident in low-cost housing estates located outside butimmediately adjacent to the FT boundary in the Upper Kerayong area. Thearea is outside the City's jurisdiction, but the City agreed to providesewer service at the request of Government.
Pantai System
4. The Pantai system, which began operations in the mid-1950's, con-sists of a gravity-flow collection system, a single wastewater treatmentplant and disposal works. This system forms the nucleus of planned futureadditions and is described in more detail in the following paragraphs.
ANNEX 1Page 2
Reticulation (lateral) Sewers
5. Reticulation sewers consist of gravity mains ranging in diameterfrom 100 mm (4 in) to 375 mm (15 in) and constructed either of reinforcedconcrete pipe or vitrified clay pipe. Clay pipe presently is used only forsizes up through 12 inches in diameter and is constructed of cement-mortaredbell and spigot joints. Reinforced concrete pipe is internally protectedagainst corrosion by extra-thickness, high-alumina cement mortar andutilizes rubber-ring gasket joints. Both types of pipe are locally manufacturedand normally are laid with Portland cement concrete bedding. Current policyrequires that private developers finance the capital costs of lateral sewersneeded to serve newly-developed areas. All other lateral sewers arefinanced by the City of Kuala Lumpur.
Trunk Sewers
6. The Pantai zone also is served by 48.3 km (30.0 mi) of gravitymains 450 mm (18 in) to 1,500 mm (60 in) in size. Trunk sewers are constructedof reinforced concrete pipe similar in design to that used for reticulationsewers and are owned and maintained by the City. A portion of the capitalcost ot certain trunk sewers is borne by developers.
Treatment Works
7. The existing Pantai treatment works provide primary treatmentonly and include an influent lift station, grit chamber and comminutors,primary clarifiers, a gravity outfall to the River Gombak (major tributaryof the Klang River) primary and secondary sludge digesters and sludge-dryingbeds. The plant also has facilities for accepting and processing night soilwith the sewage sludge. The clarifiers have a combined rated hydrauliccapacity of 6 IMgd based upon a detention time of 4-1/4 hours. Other plantcomponents have capacities substantially in excess of this with the liftstation having a firm capacity of 25 IDMgd and the grit chamber and com-minutors designed for flows in excess of 30 IMgd. Current average daily flowapproximates only 11 IMgd. Biologic loading, however, represents a problembecause Pantai's primary treatment works are relatively ineffective inreducing the biochemical oxygen demand (BOD) of the waste. Tentative stan-dards of discharge quality recently developed by the consultants for theKlang system, if adopted, will require the upgrading of existing treatmentprocesses so as to limit the BOD of treatment plant effluent to no more than50 mg/l. The BOD of recent Pantai discharges has approximated 85 mg/l. Thepresent treatment plant site is suitably located so as to service additionalproperties within the Pantai zone that may be developed and sewered in thefuture. However, the site is not sufficiently large so as to provide all of
the space required for future plant expansion.
Sungei Beasi System
8. The Sungei Besi system is a small, isolated system located inthe extreme southeast portion of FT that provides service solely to the
ANNEX 1Page 3
Royal Military College and appurtenant facilities. It is maintained by theSelangor State Public Works Department. The system consists of a collectionsystem, two pump stations and appurtenant pumping (force) mains, treatmentworks and a gravity outfall to the Besi River. The treatment works providesecondary treatment and consist of: inlet works, primary clarifiers, acti-vated sludge units using surface aeration, secondary clarifiers, sludge di-gesters and sludge drying beds. The hydraulic capacity of the plant is esti-mated to be about 1.0 IMgd. The consultants have indicated that wastewaterreaching the plant is weak and represents only a small fraction of theplant's rated hydraulic capacity. Partly for this reason, the aerationfacilities are operated only intermittently. Despite this, a good qualityeffluent (less than 20 mg/l BOD) is achieved although the facilitiesreportedly are in poor condition. From a topographic standpoint the plantis poorly located and cannot provide economical sewer service to the entireBesi zone. Because of a high reliance upon mechanical equipment, the treat-ment works are difficult to maintain and expensive to operate. It is intendedto continue to utilize the existing treatment works until such time as a moresuitably located facility is constructed downstream to serve all of the zone.
Wardieburn System
9. The Wardieburn system also is an isolated, small system. It islocated in the extreme northeast sector of FT and was placed in operationby the City during 1969 in order to provide sewer service to an adjacentmilitary housing estate. The system consists of a collection grid, treatmentworks and a gravity outfall to the Bunus River. The treatment works utilizewaste stabilization ponds and have a rated capacity of 0.4 IMgd for treatingwastes from a design population of 8,000 persons. The facility, which wasestablished as a pilot plant to test the efficacy of this type of treatmentin Malaysia, generally has been operated at less-than-design loadings.Currently the plant is treating 0.3 IMgd of wastewater contributed by apopulation of 7,000 persons and reportedly has provided the indicated reductionof organic loading:
Influent BOD, mg/l 155Effluent BOD, mg/l 29Reduction in BOD
mg/i 126% 81
10. The treatment works have proven to be quite effective. Based uponthe figures shown above, effluent quality more than meets the tentative BODupper limit (50 mg/l) that has been suggested for discharges to the Klangsystem that may occur prior to 1986. However, the site of the treatmentworks is in a location where it cannot economically provide service to theentire service area of the proposed sewerage zone (Zone 3-B) in which itis sited. Current planning is to continue to utilize the facility until aregional system of sewerage is developed to a level sufficient to deacti-vate the present treatment works.
ANNEX 1Page 4
Minor Sewered Systems
11. Remaining sewered populations are served by small, communal systemswhich drain either to Imhoff tanks or to septic tanks. The majority of thesesystems were designed to handle human waste sewage but not sullage. The latteris discharged either directly to the river system or to open surface waterdrains tributary thereto. Industries located within FT also discharge theirwastes to open drains, generally without treatment.
Night Soil Collection
12. Approximately 22% (or about 170,000) of the FT population is pro-vided night soil collection from bucket latrines. Collection generally isat a frequency of several times per week. Collection is done by the UrbanServices Department of the City of Kuala Lumpur and by private contractors.The latter are retained either by the Urban Services Department or directlyby the customer. Disposal of the waste varies by area and by contractingauthority. Most common disposal methods include: delivery to Pantaitreatment works, trenching, discharge to ponds or streams or sale to vegetablefarmers. The average cost to the householder who directly utilizes privatecontractors typically ranges from M$1.00 to M$7.00 per bucket per month.Where the service is provided either directly or indirectly by the City, noseparately identifiable charge is made to the householder.
Privies and Latrines
13. An additional 31% (or about 240,000 persons) of the currentpopulation utilize other forms of sanitation service. The majority ofthese are individually-owned pit privies and over-water latrines construc-ted by the householder.
December 31, 1975
ANNEX 2Page 1
MALAYSIA
KUALA LUMPUR SEWERAGE PROJECT
Description of the ProJect
Introduction
1. The project consists of the expansion and modification of thecity of Kuala Lumpur's existing municipal wastewater system. Constructionis scheduled for the period 1976-80. The project represents Stage 1 of amulti-stage sewerage development program identified for the greater KualaLumpur area for the 30-year planning period 1976-2005. The program wasdeveloped by the consulting firm of D. Balfour & Sons in association withMalaysia International Consultants, with the assistance of the City ofKuala Lumpur and Government. Principal sewerage facilities, both existingand proposed, are shown on Map 11643.
Project ObJectives
2. Although Stage 1 improvements originally were designed to providesewer service to a larger area including adjacent areas of Selangor State,the scope of the original plan has been reduced by Government so as toprovide sewer service only to the Federal Territory (FT). A generalobjective of the project is to provide improved sanitation service to themaximum number of persons in the shortest possible time. Other morespecific objectives are to:
a. obtain maximum utilization from existing municipal sewerage;
b. reduce dependence upon "night soil" collection, septic tanksand other individual waste disposal methods;
c. establish a high priority for future sewer service to nearbydeveloping areas where septic tanks or Imhoff tanks do notexist but are scheduled for early construction and a lesserpriority for sewer service to developed areas whether thosefacilities already exist or have been committed to construc-tion; and
d. provide wastewater treatment processes that are simple buteffective in limiting pollution of the area's surface watersto present levels.
Sewered Population and Service Area
3. The project will provide municipal sewer service to an incrementalpopulation of about 200,000 persons resident within an expanded service areaof approximately 3,600 ha (8,700 ac) by the year 1981.
ANNEX 2Page 2
Physical Elements
Land
4. Land as required for service in Kaula Lumpur and environs duringthe period 1976-2005 is to be acquired or reserved for the sites of treat-ment plant or pumping plant in accordance with the following schedule.
Sewerage Zone Stage of Required Land AreaNo. Name Construction (ha) (ac) Site Usage
1 Pantai I 35.0 86.0 Treatment Works2 Jinjang II 31.7 78.3 Treatment Works2 Jinjang II 0.2 0.5 Pumping Plant3 Bunus I 29.5 73.0 Treatment Works3A Gombak III 0.2 0.5 Pumping Plant3B Bunus I 0.2 0.5 Pumping Plant5 Lower Kerayong I 17.0 42.0 Treatment Works6 Puchong I 129.5 320.0 Treatment Works7 Besi II 24.7 61.0 Treatment Works11 Damansara 8.1 20.0 Treatment Works
The timing on land required for Zone 11 is undeterminate but will dependupon the relative rate of development and the criteria established by therelevant land development authority. Zones other than those shown in thetable are located mainly outside FT. Action relative to the acquisitionor reservation of land required for these latter zones is to be deferreduntil agreement between the City and Selangor State has been reachedregarding future sewer service. Additional as yet unspecified land areasin the form of utility easements (statutory wayleaves) will be required inorder to accommodate alignments to trunk sewers, force (pumping) mains andtreatment plant outfalls (disposal mains) that are proposed outside publicrights-of-way. The areal extent of land to be acquired or reserved is basedupon providing regional sewer service to Selangor State and FT assumingcomplete development within each zone.
Gravity Sewers
5. The project will include approximately 84 km (52 mi) of reticulationsewers varying in diameter from 225 mm (9 in) to 375 mm (15 in) and 25 km(15.5 mi) of trunk sewers ranging in size from 375 mm to 1530 mm (60 inches).An additional 24 km (15 mi) of local sewers are expected to be added to thesystem concurrently outside the scope of this project from contributions madeby land developers in newly developed areas.
6. Vitrified clay (stoneware) and reinforced concrete pipe manu-factured locally according to Australian standards are available for usein the project. Rubber ring gaskets or plastic joint materials will beused to assure water-tight joints.
ANNEX 2Page 3
7. Although vitrified clay pipe currently is manufactured locallyin sizes up to only 300 mm (12 in) and without flexible joints, changesanticipated in the manufacturing process are expected to result in theavailability of clay pipe with a larger range of sizes and improved jointmaterials.
8. Locally manufactured reinforced concrete pipe to be furnished forthe project will be protected from internal corrosion caused by hydrogensulfide. The protection will be provided either by a high alumina cementmortar lining or by a plastic liner.
Pumping Plant
9. Due to moderate slope of the natural ground surface in the servicearea, the need for pumping is minimized. However, that pumping which isrequired will be provided either in the form of lift stations located atthe individual treatment works or, alternatively, at offsite facilities toconvey raw sewage to the treatment works.
Treatment Works
10. Separate facilities incorporating secondary type treatment are tobe provided for each of the sewerage zones with the sites of the facilitiesnormally located adjacent to major tributaries of the Klang River drainagebasin. Tratuent processess will be relatively simple incorporating littlein the way of mechanical equipment and will be provided in two phases:(i) physical separation provided by grit removal, coarse screening, com-minution and metering, and (ii) secondary treatment provided by waste-stabilization ponds. Secondary treatment will consist either of facultativeponds or aerated lagoons with the former utilizing natural processes ofaeration and tha latter supplementing this with mechanical aeration. Sinceaerated lagoons require higher operating costs and greater sophisticationbut a smaller space, their usage will be restricted to zones where the areaof land required is great and the unit cost of land is high. Treatmentunits provided as part of the project will be capable of being upgraded tomeet more stringent discharge requirements which may be imposed at a laterdate. Existing treatment units will continue to be used for the time being.
Disposal Facilities
11. The project makes maximum use of existing watercourses for disposalof treated wastewater and, due to the close proximity of treatment sitesto these streams, little in the way of additional conveyance facilities isrequired in most sewerage zones. In all instances, gravity discharge ispossible. A total of 1.4 km (0.9 mi) of reinforced concrete pipe ranging insize from 1200 am (48 in) to 1500 mm (60 in) is included in the projectas treatment plant outfall.
ANNEX 2Page 4
Other Plant
12. The project also includes sewer maintenance equipment, vehicles,boats and spare mechanical aerators.
Design Criteria
Design Period
13. Project facilities will be designed on the basis of flow estimatedto occur either by the year 1985 or 2005. Those project units, such aspumps and wastewater treatment units which can be readily installed orconstructed in stages, will be sized based upon the earlier year. Otherfacilities such as sewers, the construction of which is not generally amen-able to staged construction, will be sized for flows expected to occur inthe year 2005.
Wastewater Quantities
14. Projections of future wastewater flows (Annex 5) are based uponresidential, commercial and industrial land use of all properties likely tobe connected to the sewers of the Sewerage Department (SD). Averagedomestic flows likely to be contributed by residential and commercial devel-opments were estimated by multiplying the equivalent population by the percapita wastewater production. Equivalent population, as used here, refers toresident population plus the effective population represented by commercialand industrial land use. In detenmining the latter an average wastewaterflow of 3,600 Igd/ac was assumed to be contributed by such non-residentialdevelopment in 1975, increasing to 7,100 Igdfac in 2005. Average annual percapita wastewater contributions are expected to increase in future yearsbased upon a trend of increasing per capita water consumption. Assumed valuesfor each used in project planning are shown below:
Per Capita Flow Rates
Calendar Water Wastewater, 1Year Consumption Contribution-
(Igd) (Igd)
1975 53 43.91980 57 46.21985 60 48.52005 73 59.4
/1 Reflects dry weather flow only.
ANNEX 2Page 5
Design Flows
15. Sewers and pumping plant units are to be sized upon peak flowconsiderations and treatment units upon average annual flow. Peak flow(Annex 5) was estimated by applying infiltration and peaking factors toaverage annual dry weather flows. Peaking factors relative to the domesticfraction of dry weather flows were estimated to vary inversely as equivalentpopulation with the individual factors varying from a maximum value of 5 fora population of 1,000 persons to a minimum value of 3.5 for a population of200,000. A peak factor of 2 was used in estimating peak flows contributedby industrial areas. SD and the consultant are continuing to study therelationship of peak flows. Based upon the results of these studies, it ispossible that the magnitude of peak flow factors used in the project will beadjusted prior to final design.
Design of Sewers
16. Sewers for the project have been sized to carry design flows whenoperating in the flowing full condition. Minimum diameter of gravity sectionproposed is 225 m (9 in). Friction factors assumed for the design of allpiping are based upon the Colebrook-White flow formula with the design ofgravity mains based upon a "ks" value of 0.6 mm and pressure mains basedupon a value of 0.15 mm. Grades are to be utilized that produce flowing-fullvelocities not less than 0.8 m/sec (2.6 ft/sec) but not in excess of3 r/sec (10 ft/sec). Depth of cover over pipe is to be not less than 1.2 m(4 ft) within travelled right-of-way and not less than 0.8 m (3 ft) at allother locations.
Wastewater Quality
17. Criteria established for the design of project treatment facilitiesare based solely upon hydraulic and organic loading with 5-day biochemicaloxygen demand (BOD) being used as the index of organic pollution. Cur-rently, raw sewage tributary to the Pantai treatment works has a BOD approx-imating 170 mg/l. Future sewage strength is likely to be higher than thisdue to the combined effect of reduced infiltration and increased per capitaBOD contributions. Future wastewater produced within FT and tributary toproject treatment units is expected to reflect the following per capitaand per unit area daily contributions of BOD:
Notes: In terms of organic pollution contributed per day.
/1 Per capita:kg BOD/cap. (lb BOD/cap).
/2 Per unit area of industrially-zoned land; kg BOD/ha(lb BOD/ac).
Discharge Requirement
18. Existing waste discharges in the Klang system are interferingwith downstream beneficial use. Although the project facilities will inter-cept only certain of these discharges, the consultants have indicated that,by limiting the quality of treated effluent from project facilities to nomore than 50 mg/l of BOD, future pollution through the period 1985 shouldbe held to no more than present levels. Due to the expectation of a continuedincrease in wastewater quantities, further restrictions in the allowablequality of discharge - possibly to as low as 30 mg/l of BOD, may be re-quired after 1985.
Treatment Plant Design Loadings
19. In order to achieve the reduced level of organic pollution recom-mended by the consultants, secondary treatment is required. Due to lessercosts, secondary treatment will be provided at all proposed treatment sitesin the form of waste stabilization ponds. These are of two types. Thefirst type - facultative ponds, will be provided at all sites initiallyexcept at Pantai. Because of the large amount of land required at Pantaiand the high unit cost in acquiring same, aerated lagoons -- which have asignificantly smaller land requirement -- are proposed at that site. Asthe project area continues to develop and wastewater flows consequentlyincrease, it is proposed that certain of the facultative ponds initiallyconstructed elsewhere also would be converted to aerated lagoons. Projecttreatment facilities have been sized and costed based upon the followingupper limits of organic loading:
ANNEX 2Page 7
Upper Limit of Maximum Permissible/2
Treatment Process Organic Loading /1 Effluent Quality -
Some uncertainty still exists as to whether the indicated upper limits of
organic loading are applicable to Malaysia. SD would use the proposedPantai treatment facility as a facultative pond and aerated lagoon pilot
plant in order to verify the organic loading criteria.
Future Sewerage Zones
20. Studies conducted by the consultants indicate that the least
cost of providing sewers to the conurbation area of Kuala Lumpur and environs
can be achieved through the retention of the existing Pantai zone plus thefuture establishment of ten additional sewerage zones each of which would
contain an independent system of sewers and treatment facilities. The
characteristics of each of these zones or subzones (zone 3 has been further
subdivided into three smaller areas termed subzones) and an indication of
timing proposed for future implementated are shown below.
Characteristics of Future Sewerage Zones
Total Projected PortionArea 1985 of Zone Proposed Implementation
Zone Designation of Resident within Present Later
Number Name Zone Population FT ProJect Additions(ha) (000's) (Z)
1. Pantai N.A. 483 100 X X2. Jinjang 5,650 207 85 X3A. Gombak 2,100 63 75 X
3B. Bunus 2,120 88 90 X X
3C. Ampang/Ulu Kelang 3,080 78 15 X
4. Upper Kerayong 2,000 38 20 X
5. Lower Kerayong 1,500 59 100 X X
6. Puchong 4,700 143 85 X X
7. S. Besi 2,360 41 65 X
8. Serdang 1,550 22 0 X
9. Petaling Jaya 2,675 135 5 X
10. S. Way/Subang 1,950 155 0 X
11. Damansara 1,307 43 88 X
ANNEX 2Page 8
Project Improvements by Zone
Summary
21. Project facilities would permit the expansion of sewer service inthe Pantai zone and the creation of three new sewerage zones. The followingtable summarizes the percent of total project cost and the sewer lengths andpumping station capacities for each of the zones, and paragraphs 22-26provide further description of the proposed facilities including detailsof treatment plants.
Sewer Length Pumping Capacity ForceZone and % of Total At Project MainNumber Project Cost Lateral Trunk Existing Completion Ultimate Length
(km) (km) (1/sec) (lJsec) (1/sec) (km)
Pantai 1 45 43 11 1,900 5,700 11.500 /1
Bunus 3 27 10 4 0 700 3,080 1.8
LowerKerayong 5 23 29 6 0 470 1,480 /1
Puchong 6 5 3 3 0 70 /2 70 /2 0.2
0 91 /3 3,010 /3
/1 Pumping plant is at the treatment plant site.
/2 Pumping Station 6A.
/3 Pumping Station 6.
Pantai (Zone 1)
22. Treatment plant capacity would be increased as indicated belowthrough the addition of aerated lagoons.
Treatment Hydraulic Loading Organic LoadingPlant Population
Capacity (1/sec) (IMgd) Kg/BOD/day Equivalent(000 a)
Capacity requiredfor 1985 1,431 27.2 31,200 567
Present capacity 631 12.0 14,700 268
Capacity added by Project 800 15.2 16,500 299
ANNEX 2Page 9
The additions at the treatment works are planned so as to permit later ex-pansion to ultimate capacity at this site for hydraulic loading of 2,9001/sec and organic loading of 55,900 kg BOD/day.
Bunus (Zone 3)
23. In addition to the sewers shown on the table (para 21), a forcemain is required which would connect PS 3B to the site of the proposedwastewater treatment works. The treatment plant facilities would providethe following capacities:
Hydraulic Loading Organic LoadingKg BOD/day Population
Equivalent(1/sec) (IMgd) (000'_)
Capacity provided by project 274 5.2 6,400 117
Ultimate capacity 705 13.4 14,700 245
The capacities shown for treatment facilities reflect service to FT. Theproject also would include a 1.3 km (0.8 mi) long gravity outfall foreffluent disposal to the Gombak River. Design of the outfall would bebased upon maximum development of the zone. Due to the large areas andsubstantial populations that are located outside FT but within the zone(particularly within Ampang/Ulu Kelang Subzone 3C) which need improvedsanitation service, it is important that agreement be reached between theCity and Selangor State regarding future sewer service to these outsideareas prior to finalizing the design of project facilities.
Lower Kerayong (Zone 5)
24. The treatment works would have an on-site raw sewage lift station(PS 5) and disposal facilities. The treatment plant would be constructedin stages with the following capacities:
Hydraulic Loading Organic LoadingKg BOD/day Population
Equivalent(1/sec) (IMgd) (000's)
Capacity provided by project 142 2.7 4,000 72
Ultimate capacity 521 9.9 11,800 197
ANNEX 2Page 10
Since the treatment plant site is located adjacent to the Kerayong River(the recipient of the zone's treated effluent) a short length of gravityoutfall is necessary for disposal. The project would provide treatment onan interim basis to wastewater diverted from adjacent sewerage Zone 6.This diversion would be discontinued at a later date after trunk sewersproposed for Zone 6 have been extended to serve upstream portions of thatzone.
Puchong (Zone 6)
25. Despite the large area and extreme length (about 14 km) of thiszone, interim diversions of wastewater to other adjacent zones (1 and 5)would minimize project costs for the zone. The treatment works and on-siteraw sewage lift station (PS 6) would be located outside the zone (and out-side the FT) in Selangor State and would include disposal facilities. Asmentioned earlier, wastewater tributary to the upstream portion of the zoneinitially would be diverted to the treatment works proposed for adjacentZone 5. Similarly, a temporary pumping facility (PS 6A) would be providedas part of the project to divert wastewater originating in the centralportion of Zone 6 through a 200 m force main of 175 mm diameter to a trunksewer proposed for adjacent Zone 1.
26. The lift station (PS 6) would be expandable to an ultimate capacityof 3,010 1/sec based upon also providing service to zonal areas located outsideFT. Treatment facilities would be designed to provide the following capaci-ties:
Although consideration was given to using an enlarged version of the proposedZone 6 treatment works for also treating flows from other upstream seweragezones (4 and 5) in later years, treatment capacities shown above reflectservice only to Zone 6 and to FT. The disposal facilities would consist ofa short length of gravity outfall sewer for discharging treated effluentfrom the treatment works to the adjacent Klang.
ANNEX 2Page 11
Sewerage Facilities by Others
Lateral sewers provided by developers
27. Lateral sewers scheduled for the project represent only part ofthe total activity of lateral sewer construction expected to occur withinPT during the project period 1976-1981. An additional 25 km (15 mi) ofsuch sewers are to be constructed by private developers but according to thestandards and with the approval of SD.
Sewerage developments by UDA
28. Sewerage facilities also are being planned for selected portionsof FT by the Urban Development Authority (UDA), a National governmentdevelopment agency. Land clearance for a major UDA housing development ofapproximately 253 ha (625 ac) already has begun in the Damansara (Zone 11)area. Planning and design criteria for such developments are determinedby UDA staff in consultation with SD.
Consulting Services
Engineering
29. It is proposed that the services of several organizations beutilized in the implementation of the project. The City's Sewerage De-partment yould administer the project and would engage up to three firms-o0 engineering consultants. A principal firm would be responsible for thepreparation of standard designs and conditions of contract, as well asthe design of a portion of the project facilities. The design and prepara-tion of tender documents for remaining portions of the project would beaccomplished by the other engineering consultants and, possibly, supple-mented by the staff of SD as well. Construction would be supervised bythe same firms responsible for design.
Management
30. The services of a management firm would be retained during the earlypart of the project to assist SD principally in establishing and installinga commercial accounting system.
Staffing Plan
31. Table 1 sets forth a summary of a staffing plan for SD which wasformulated during project preparation and the appraisal mission. The tableshows the types and numbers of employees engaged in the City's sewerage
ANNEX 2Page 12
operations as of March 1975 and projected for SD for each of the years1976-1980.
December 31, 1975
AISfolt 2Table 1
MALAYSIA
KSAIA LU 3T SEWEMRAGE PROJECT
Staffing PI- for Seerage Dtlntent
lumer of PositionsActual March 1975 --- ___ Projected for June 30
Division and Position 'Filled Authorized 1976 1977 1f978 1979 1980
Chief Engineer _ 1 1 1 1 Secretary _ _ 1 1 1 1 1
Sub-total _ - 2 2 7- W 2
Deputy Chief Engineer - - 1 I 1 1 1S-cret-ey - 1 i 1 1 1
Sob-total _ - 2 2 9 2 2
Administrstion DivisionAninistrstive Officer I _ i 1 1 1 1
1 Ps-.e. st for YPrch 1975 one-third of a larger ntber shared wlth the Traffic and Road snitsof the City Dspgineer's Doparest. The cbters projected for tie ye-rs beginning with I976sill b^ -calusively for the Se-esege Dep-otnent btt cill in shared by its Diris.iss.
3 Staffing plna n sunas SD will do a poeticn of the de=ign of ses.
3/ Inclding qsslity coatroi for both ncw and exioting works.
D-ee,,b- 3L, 1975
MALAYSIA
KUALA LUMPUR SEWERAGE PROJECT
Project Cost Estimates
---- LOCAL COSTS -------- --- ___ --------- --- FOREIGN COSTS --------------- -----Year ending December 31 1976 1977 1978 1979 1980 Subtotal 1976 1977 1978 1979 1980 Subtotal Total
/ Projected flows reflect residential, conmercial and industrial landuse on all properties located within the Federal Territory that arelikely to be connected to the sewers of the Sewerage Department;values are applicable to 12-month long period ending on June 30thof indicated year.
/ Average annual dry weather flows.
j Values reflect application of infiltration and peaking factorto average annual dry weather flow as follows:
a. Peak flow factor:
i. Domestic flow peak factor inversely proportional toequivalent population of zone (factor varies frommaximum value of 5 for population of 1,000 to minimumvalue of 3.5 for population of 200,000).
ii. Industrial flow peak factor value of 2 constant.
b. Infiltration:
i. Pantai (Zone 1) infiltration equal to one-half ofdry weather flow.
ii. Zero infiltration assumed for all other zones.
June 2, 1975
ANNEX 6Page 1
MALAYSIA
KUALA LUPFUR SEWERAGE PROJECT
CITY OF KUALA LUMPUR
Receipts and Expendituresfor Public Services 1968-1975
1. The City of Kuala Lumpur and most of the public services requiredby its population have been administered by City Hall. Sanitary serviceshave been provided by the City Engineer's Department and the Health andUrban Services Departments. No specific revenues have been raised to meetthe operating or capital costs of the sewerage system, and accounts of thesystem have not been maintained separately from the general accounts ofthe City.
2. Recurring expenditures of the City Departments have been metfrom the General Rate Fund Revenue Account of the City. The major sourceof this revenue is rate funds from property taxes. The rates are assessedas a percentage of the annual value of property, based primarily on theannual rental value to the owner, and they vary in different areas, withthe annual rate in the major areas being about 16% of annual assessedvaluation. A major valuation took place in 1960, and recently a new valua-tion has been prepared which is expected to result in an increase in totalrateable values by at least 50%. However, it is contemplated that thepercentage assessment rates will be adjusted so that a householder's taxeswill not be increased in proportion to the increase in valuation.
3. The following table summarizes the General Rate Fund RevenueAccount of the City, showing its revenues and expenditures for the years196 8 -1974 and the budget estimate for 1975. The 1975 revenues from ratesare based on the existing assessed values, since the new ones are notexpected to go into effect until January 1, 1976. The 1975 expendituresreflect increased services and expected price increases.
ANNEX 6Page 2
CITY OF KUALA LUMPURGeneral Rate Fund Revenue Account 1968-1975
M$ millions
Year Ending December 31 1968 1969 1970 1971 1972 1973 1974 1975Est.
4. Capital expenditures of the Departments of the City were met fromthe City's General Development Fund to which the major part of the SpecialServices funds shown in the above table were transferred prior to their use.Capital expenditures for the sewerage system (Annex 7, para 4) have beenfinanced with the aid of Government loans to the City, of which about M$22million are outstanding in 1975.
June 2, 1975
ANNEX 7MALAYSIA Page 1
KUALA LUMPUR SEWERAGE PROJECT
CITY OF KUALA LUMPUR
Expenditures on Sewerage System 1968-1975
1. Annex 7, Page 2, shows the operating and capital expenditures made bythe City of Kuala Lumpur on the sewerage system during the years 1968-1974 and
estimated for the year 1975. The sewerage accounts have not been maintainedseparately from the accounts of the City, and expenditures are recorded on acash rather than an accrual accounting basis. Operating expenditures of CityDepartments have been met from the General Rate Fund and Capital expendituresfrom the General Development Fund (Annex 6).
2. The general salaries and other staff expenses are not recorded sepa-rately between the sewer system and septic tank servicing, although there hasbeen separate recording for the treatment works, which is the largest categoryof expense. The recurring expenditures on page 3 reflect an allocation ofsalaries, allowances, and other staff expense in the ratio of 80/20 between thesewer system and septic tanks.
3. Operating expenditure estimates for the year 1975 reflect volume ofwork approximating the 1974 level and increased prices, including a new person-nel compensation structure provided employees of local authorities.
4. Capital expenditures for the sewer system totalled approximatelyM$24.4 million from inception through 1967. Page 2 shows additional capitalexpenditures for the years 1968-1975 of approximately M$11.1 million, for atotal of M$35.5 million of capital expenditures from inception through 1975.
5. The costs of connection to the sewerage system are paid by house-holders, who are required to connect when a sewer is brought within 100 feetof their property.
6. Septic tanks are provided by the owner of the property. The Citycharges owners for servicing septic tanks according to the tank's capacityand whether the owner has entered into a maintenance agreement. However,many owners are served directly by private contractors. The total revenueto the City for septic tank servicing varied from about M$55,000 in 1968 toan estimated M$100,000 in 1975, approximating the cost to the City of thedirect expense of servicing the tanks.
7. The City provides conservancy services by the bucket system throughits Urban Services Department for about 50,000 people. Annual expense of thisservice to the City, which is met from the General Rate Fund, averages aboutM$12 per person. It is also estimated that over 100,000 squatters in theCity engage private contractors for a more limited service at an averageannual cost to them of over M$5 per person.
MALAYSIA
KUALA LUMPUR SEWERAGE PROJECT
CITY OF KUALA LUMPUR
Expenditures on Sewerage System 1968-1975
M$ 000O
Year Ending December 31 1968 1969 1970 1971 1972 1973 1974 1975Eea=ate
1. The financial projections in Annexes 8 through 10 cover the six-year period 1976-1981 for the proposed project to be financed with theassistance of the IBRD loan, plus an additional four years through 1985involving a second stage for which additional extensions to the system havebeen proposed in the Master Plan.
INCOME STATEMENTS-REVENUE
2. Sewage Fees Based on Water Consumption
Sewage fees are based on the estimated water consumption of theexisting population connected to the sewerage system and the additionalpopulation to be connected annually as a result of the proposed sewerageextensions. The details with respect to projected water consumption andsewage fees are in Annex 8-B.
The domestic per capita water consumption used in projecting thesewage fees is based on the experience of the Selangor State Water Divisionfor urban metered consumption and on surveys of metered water use of con-sumers in sewered areas. Moderate increases per capita from about 53 Igd in1974 to 60 Igd in 1985 are assumed. The commercial and industrial categoriesare estimated on the basis of surveys by the consultants.
The projected sewage fee rates are the estimated average rates per1,000 Ig of water consumed which, together with the projected area taxassessment for sewerage service (para 3), will produce sufficient revenuesto cover annually SD's operating expenses and debt service (to the extentit exceeds the provision for depreciation), with net cash generation coveringdebt service at least 1.2 times. The projected average rates per 1,000 Igare M$0.60 in_1976-78, M$1.10 in 1979 and 1980, and increase thereafter toK$1.30 in 1981 and M$1.50 in 1982 and subsequent years, as shown inAnnex 8-B. These rates are also intended to provide some internalcash generation which will be devoted by SD to its construction program.
A fee payable to the Water Division of 1% of the sewage fees ascompensation for its service of billing and collecting the fees for SD isassumed. A provision for bad debts of 1/2 of 1% of billings is assumed and
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is considered adequate in the light of the experience of the Water Divisionwith its collections.
3. Area Tax Assessment
The area tax assessment for sewerage is the estimated tax revenueof the City assumed to be allocated to SD for sewerage service, projectedat the rate of 2% of annual property value as developed in a recent revalua-tion by the City. The annual estimate takes into account a gradual increasein the tax revenues as new properties are taxed, assuming the same tax rateand basis of valuation.
4. Septic Tank Servicing Fees
Septic tank servicing fees represent the projected revenues ofSD from the owners of septic tanks for the service of desludging and othermaintenance of such tanks in unsewered areas of the City. They assume anincreasing level of service through the year 1981 as the capabilities ofSD to perform the service in the extended Federal Territory are increasedas a result of the project. It has been assumed that the servicing feeswill cover SD's cost of rendering the service.
OPERATING EXPENSE
5. Personnel
Personnel costs, including salaries, wages and allowances, arebased on the estimated numbers and categories of staff projected in theproposed organization and staffing plan for SD. Increases in compensationare assumed at the annual rate of 10% in 1976-1980, and at the increased 1980price level thereafter ("inflation factor").
6. Power
Power costs are projected primarily for the estimated volumeof sewage to be pumped, and allowance for price increases is included atthe inflation factor.
7. Maintenance
Maintenance, other than labor included in the item of personnelcosts, is estimated at approximately 0.35% annually of gross fixed assets(excluding land) in service at the beginning of each year.
8. Septic Tank Servicing; Administration
Septic tank servicing expense represents the estimated expenseof operation of vehicles and equipment used in servicing the septic tanks.Administration covers the estimated expense of general administration of
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SD, based on the experience of the City Administration and the requirementsof SD as a separate department. The items of expense in these two categoriesexclude personnel costs, shown separately, and include allowance for priceincreases at the inflation factor. Estimated management consulting feesof M$110,000 annually for 1976 and 1977 are included in administration expense
for those years.
9. Depreciation
Depreciation is calculated on the straight-line basis at composite
rates determined by using estimated service lives of 50 years for structures
and sewers, 15 years for stationary equipment, and 10 years for mobile
equipment. The composite rates, which are applied to gross fixed assets (ex-
cluding land) in service at the beginning of each year, decline graduallyfrom approximately 2.80% in 1976 to 2.55% in 1985 as the proportion of
longer-life property increases as a result of the construction program.
BALANCE SHEETS AND CASH FLOW STATEMENTS
10. Opening Balance Sheet
In the absence of accounts for the fixed assets devoted to sewer-
age service, the original cost of fixed assets at December 31, 1975 was
estimated by consultants on the basis of the capital expenditures for sewer-
age works in Kuala Lumpur through 1974 and the estimated expenditures for1975. Accumulated depreciation was estimated on the basis of the expired
lives of the fixed assets, using the estimated service lives set forth in
para 9 for the various components. The gross fixed assets and the ac-
cumulated depreciation were revalued by the appraisal mission for the
opening balance sheet of SD at December 31, 1975 by increasing the figures
based on cost by the percentage changes in the Consumer Price Index forWest Malaysia from the time the expenditures for the properties were made.
The "Government Loans-Existing" shown in the opening balance sheetconsists of a remaining balance of M$22.2 million of loans made by Governmentto the City since 1954 for the sewerage system now operated and an additionalamount of M$1 million assumed to be loaned for sewage treatment pilot plantequipment and studies. The past loans bear interest at rates ranging from5% to 6-1/2% and are repayable over various periods, of which the latestends in 1999; the new loan is assumed at 8-1/2% interest and repayable overa 20-year period ending in 1995. In the opening balance sheet the amountof net fixed assets and estimated materials inventory, less the balance ofGovernment loans, is the initial amount of City contributed capital.
11. Cash Account
It is assumed that SD will function from January 1, 1976 as aself-accounting department with its own commercial accounting system and
ANNEX I 1Page 4
a separate cash account into which its revenues will be deposited and fromwhich its expenditures will be paid. The cash account is to be maintainedat a level adequate to meet SD's capital and operating costs, assumed at about30% to 35% of annual cash operating expense. It is assumed that until theaccount becomes self-sustaining from SD's own internal cash generation, thefunds required will be provided by Government.
12. Capital Expenditures
Additions to fixed assets in the years 1976-1980 reflect theprojected capital expenditures for the project shown in the annual projectcost estimates (Annex 3) plus interest during construction on the loans tofinance the project. The non-project capital expenditures in the periodafter 1980 are for additional extensions to the system included in Stage 2of the Master Plan, projected at assumed 1980 price levels. The only othernon-project capital expenditures included in the projections are M$815,000in 1976 for completion of construction of trunk sewers for which funds havebeen committed by the City as contributed capital.
13. Current Items
Accounts receivable are estimated at approximately two-months'net billings of sewage fees and septic tank servicing fees. Inventory isestimated at one-half the annual amount of maintenance materials expense.Accounts payable are projected at one-half month's cash operating expense.
14. Service Connections
The cost of connections to the reticulation system will, as in thepast, be paid by the property owner who will also pay for any plumbing inthe dwelling necessary for connection. Government has agreed to take appro-priate measures to provide financial assistance to those householders facedwith financial difficulties in meeting such costs. Since the amount offunds required for the purpose can be determined only by experience as thesystem is extended, an assessment of the amounts required will be made whenthe project is underway.
15. Project Financing
The projections reflect the following assumptions as to thefinancing of the project:
(a) IBRD Loan
An IBRD loan of US$21.5 million (M$53.75 million equivalent)will be made, repayable in 30 equal semi-annual installments ofprincipal and interest after a six-year grace period for repay-ments of principal. The interest rate will be 8-1/2% andcommitment fee 3/4 of 1%. Bank disbursements (Annex 4) willfollow the capital expenditures on the project with a time lag
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of about six months. The loan is assumed to be effective inthe second quarter of calendar year 1976; the closing date willbe in the last quarter of 1981; and repayments on the loan willcommence in the second quarter of 1982.
(b) Government Loan
Government will relend the proceeds of the Bank loan tothe City on the same terms as those of the Bank loan. Govern-ment loans will be made to the City in the additional amountsneeded to finance the project, less such amounts as SD is ableto generate internally for construction purposes. These loans,estimated in the projections at a total of about M$87.6 million,would be at 6% interest and repayable in 30 equal annualinstallments after a grace period of six years from the firstdisbursement for repayments of principal.
16. Stage 2 Financing
It is assumed that capital expenditures by SD beyond the projectconstruction period ending in 1980 will be financed by loans having thesame terms as the 6% loans made by Government to finance the project andby such funds as SD is able to generate internally for construction purposes.
December 31, 1975
ANNEX 12Page 1
MALAYSIA
KUALA LUMPUR SEWERAGE PROJECT
Forecast Performance Indicators (1976-1982)and Dates for Project Monitoring
The following indicators and target dates will assist in monitoringthe performance of the Sewerage Department, which will be requested to includethem in its reporting and to compare its achievements with the forecast.
A. General and financial indicators.
Year ending December 31 1976 1977 1978 1979 1980 1981 1982
Total Population (000) 810 838 867 897 928 960 994
Population Sewered (000) 213 216 226 254 378 436 488
% of Population Sewered 26 26 26 28 41 45 49
Number of HouseholdsSewered (000) 38 39 41 47 70 81 92
