Documentof The International Development Association Report No. 17026 - KH STAFF APPRAISAL REPORT KINGDOM OF CAMBODIA URBAN WATER SUPPLY PROJECT January 12, 1998 Urban Development Sector Unit East Asia and Pacific Region Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document of
The International Development Association
Report No. 17026 - KH
STAFF APPRAISAL REPORT
KINGDOM OF CAMBODIA
URBAN WATER SUPPLY PROJECT
January 12, 1998
Urban Development Sector UnitEast Asia and Pacific Region
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CURRENCY EQUIVALENTS(as of November, 1997)
Currency Unit = RielsRiels I = US$0.0002941
US$1.00 - Riels 3,400
WEIGHTS AND MEASURES
ha. = hectareMLD = - Million Liters Per Daycu. m = Cubic meters
ABBREVIATIONS AND ACRONYMS
CDC Council for the Development of Cambodia
CC Coordinating Committee for the Water and Sanitation Sector
UPWS Unit of Potable Water Supply
MIME Ministry of Industry, Mines and Minerals
MOE Ministry of Environment
MOI Ministry of the Interior
MPP Municipality of Phnom Penh
MPW Ministry of Public Works
MRD Ministry of Rural Development
PPWSA Phnom Penh Water Supply Authority
RGC Royal Government of Cambodia
SWSA Sihanoukville Water Supply Authority
UFW Unaccounted for Water
FISCAL YEARJanuary I to December 31
Vice President: Mr. Jean-Michel Severino, EAPCountry Director: Ms. Ngozi Okonjo-lweala, EACSMSector Manager: Mr. Keshav Varma, EASURTask Manager: Mr. N. Vijay Jagannathan, EASUR
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KINGDOM OF CAMBODIA
URBAN WATER SUPPLY PROJECT
CREDIT AND PROJECT SUMMARY
Borrower: Kingdom of Cambodia
Implementing Agencies: (i) PPWSA, (ii) MIME, and (iii) CC
Beneficiaries PPWSA
Poverty: Not applicable
Amount: SDR 22.70 million (US$30.96 million equivalent)
Terms: 40 years, including 10 years of grace, at the IDA standard terrns
Commitment Fee: Not to exceed 0.5 % on undisbursed credit balances,beginning 60 days after signing, less any waiver
Net Present Value: US$22.2 million at 10% discount rate on total project costexcluding price contingencies, taxes and duties. Economicinternal rate of return of 17.2% in aggregate for PhnomPenh and Sihanoukville components
Financing Plan: See paragraph 2.33
On-lending terms: Not to exceed 17 years, including a grace period not toexceed 5 years, at 8.5 per cent per annum for the subsidiaryloan between RGC and PPWSA
Staff Appraisal Report: No. 17026 - KH
Map: IDA No. 28934
Project ID No.: 45629
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KINGDOM OF CAMBODIAURBAN WATER SUPPLY PROJECT
CONTENTS
CREDIT AND PROJECT SUMMARY ................................... i
I. INTRODUCTION .................................. 1I
A. Water and sanitation sector background .................................. 1lB. Recent improvement in the water sector ....................................... - . 2C. Government programs and policy .4D. Key issues to address .6E. Lessons from experience .7F. Rationale for IDA involvement .8G. Rationale for project .9
II THE PROJECT .. 10
A Project objectives .10B. Project description .10C. Costs and financing .16D. Procurement .18E. Disbursements .20F. Project management and implementation .22
III. FINANCIAL ANALYSIS .. 24
A. Introduction .24B. Overview of current financial performance .24C. Future financial performance .26
IV. PROJECT BENEFITS AND ECONOMIC ANALYSIS . .29
A. Project benefits .29B. Project costs .32C. Other assumptions .32D. Economic rate of return and sensitivity .33E. Environmental and social impact .33D. Project risks .34
V. AGREEMENTS TO BE REACHED ANDRECOMMENDATION .36
This report was prepared by Messrs./Mmes.: N. Vijay Jagannathan (Sr. Water & Sanitation Specialist/Task Manager),A. Baietti (Sr. PSP/Finance Specialist), T.V. Somanathan (Young Professional), H. Hayashi (Operations Officer), M.El-E,rian (Sr. Counsel), A. Ordu (Sr. Economist), E. Pancaroglu (Sr. Sanitary Engineer). C. del Castillo (Resettlement,1 ecialist), 1. Cameron (Financial Economist, Consultant), J. Bucknall (Young Professional). D. Hughes
(l.Anvironmental Specialist), E. Haythome (Legal Specialist), Barbara Koeppel (Editor), and M. Ochieng (TaskAssistant). Mmes./Messrs. A. Dianderas and G. Tschannerl are the peer reviewers. Mr. Keshav Varmna is the SectorManager, and Ms. Ngozi Okonjo-lweala is the Country Director.
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ANNEXES
1. Commercial Practices In The Cambodian Water Sector ...................................... 382. Cambodian Public Enterprise Legislation ....................................... 493. Letter Of Sector Objectives ................................. 514. Terms Of Reference For Twinning Arrangement ................................. 575. Project Costs Estimate .................................. 646. Phnom Penh Water Supply Improvements ............................. 717. Sihanoukville Water Supply Improvements ............................. 768. Terms Of Reference For Water Policy and
Institutional Consultants .799. Terms Of Reference For Sanitation and Waste
Management Study ............................. 8310. Outline Organization Charts ............................. 8911. Summary Of Project Implementation Plans ............................. 9112. Detailed Disbursement Categories and
Estimated Schedule Of Disbursements ................................. 9913. Project Performance Monitoring and Evaluation ................................. 10114. Supervision Plan ................................. 10515. Financial Statements of PPWSA and SWSA ................................. 10916. Financial Analysis ................................. 11317. Economic Analysis Tables ................................. 12818. Documents In Project Files ................................. 131
CAMBODIA: URBAN WATER SUPPLY PROJECT
1. INTRODUCTION
A. WATER SUPPLY AND SANITATION SECTOR BACKGROUND
1.1 Cambodia has abundant natural fresh water sources--the Mekong and Tonle SapRivers, rainfall of up to 3,000 mm in the highlands, and plentiful groundwater--yet at themost, only 32 percent of the population have access to clean water. Water coverage inPhnom Penh, though better than rest of the country, is low by international standards.This is particularly troubling, because until the late 1960s, Cambodia's water supplyinfrastructure was better than many of its neighbors and provided residents with 24 hourservice. Today, even where piped water is available, its quality is questionable andservice is intermittent.
1.2 Access to sanitation is even worse, with just 16 percent of the population covered,since only those in the built-up areas of the largest cities and towns are connected towastewater systems. Moreover, these are nothing more than open drains that collectrainwater and wastewater, which are then discharged untreated into open watercoursesand lagoons.
1.3 As a result, diarrheal disease is endemic. Further, infant mortality rates at 115 per1,000 live births and morbidity statistics are among the worst in the world. It is estimatedthat water-related diseases account for an estimated 30 percent of all hospitalizations.
1.4 These conditions are largely the result of nearly 25 years of political strife, whenthe water infrastructure was completely neglected: No investment was made ormaintenance carried out from the 1970s through the early 1990s. At the same time, thenumber of skilled manpower dramatically declined, along with institutional capacity, andwater utility records were destroyed, which made it nearly impossible for the utilities todeliver sustainable services.
1.5 Phnom Penh Water Supply Authority (PPWSA), which draws its water from theMekong and Tonle Sap Rivers, has two water treatment plants. Both were rehabilitatedafter 1991, have a combined capacity of 110,000 cubic meters a day, and produce waterthat meets WHO standards. The distribution system extends for 307 km, with pipes ofvarying condition. While there are currently 39,000 legal connections, which coversabout half the population, consumers only receive water for an average of 12 hours a day.The other half of the population must purchase water from vendors or neighbors--at farhigher prices.
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1.6 In the provincial cities, coverage is considerably lower and distribution isinequitable. In the port city of Sihanoukville, for example, an estimated 11 percent haveaccess to piped water provided by the Sihanoukville Water Supply Authority (SWSA):The system has just 750 working connections, and another 250, which do not operate dueto lack of water supply. Tankers deliver untreated water from a freshwater lake toanother 6 percent and the rest of the residents get water from shallow wells, vendors andrainwater.
1.7 Responsibility for different services is fragmented among various organizationsand ministries: PPWSA is under the Ministry of the Interior, while SWSA and otherprovincial water utilities are within the Unit of Potable Water Supply (UPWS) in theMinistry of Industry, Mines and Energy (MIME). The Municipality of Phnom Penh(MPP) and the Ministry of Public Works and Transport (MPWT) are responsible forsanitation and wastewater infrastructure, while the Ministry of Rural Development isresponsible for rural water. The Ministry of Environment is also involved, and theDepartment of Hydrology of the Ministry of Agriculture collects hydrological data, buthas no authority to manage the country's water resources (see Table 1.1).
Table 1.1: Institutional Responsibilities
Water SanitationUrban
Phnom Penh MPP/PPWSA MPPOther areas UPWS of MIME MPWT
Rural MRD MRD
1.8 This complex structure further weakens an already limited institutional capacity.Thus, intervention is urgently needed in two areas: First, targeted investments must bemade into water supply facilities; second, policies must be designed to introduce bestpractices in order to assure the projects can be completed satisfactorily and sustained,once operational.
B. RECENT IMPROVEMENTS IN THE WATER SECTOR
1.9 Despite severe shortages of qualified and experienced staff, water utilities inPhnom Penh and the provinces have progressed remarkably in the past three years. Since1993, PPWSA received $61 million, principally in grants, from France and Japan, torehabilitate the city's water supply infrastructure, while a UNDP/ World Bank TechnicalAssistance Project (CMB /91/007) helped finance TA, training, skill development, andstudies, along with essential spare parts and equipment. At present, the AsianDevelopment Bank (ADB) is funding a water supply project that complements theproposed IDA credit.
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1.10 Assistance from the international community was also responsible for launchingPPWSA on the road to commercialization. However, it must still improve its operationaland financial management before it can function as a commercial water utility. Forexample, PPWSA continues to have one of the highest ratios of unaccounted for water(UFW) in Asia (about 57 percent), although the ratio is profoundly better than in 1993,when it topped 80 percent.
1.11 Another $6.7 million of donor assistance financed the rehabilitation of the basicwater supply in provincial towns. For example, in Sihanoukville, SWSA rehabilitated itscollapsed system with UNDP/World Bank technical assistance, and basic service hasbeen restored. Besides installing meters on all its connections and rehabilitating its watertreatment plant and pumping stations, it improved its accounting and billing/collectionssystems. At present, the utility covers its operating costs, although it still cannot financenew source developments to meet current demand. However, before the utility can moveto this stage, it needs to reorganize its structure in ways that will promote financialsustainability, commercial practices and staff accountability.
1.12 IDA's 1994 Emergency Rehabilitation Project (Credit 2550-KH) along withDutch assistance helped rehabilitate systems in five other provincial towns (Kampot,Kampong Chain, Svay Rieng, Prey Veng and Takhmao), which have doubled thepopulation with access to piped water--from an average of 15 percent to 33 percent--andgenerally improved water quality and hours of service. But they still only operate eightor less hours a day and produce water quality below WHO standards (see Annex 1 for adescription of progress at the Phnom Penh and Sihanoukville utilities).
1. .13 Although the physical rehabilitation of the water systems completed to date hasbeen essential, the key element in the utilities' dramatic progress has been the motivationof dedicated staff to acquire skills and information. Before 1993, PPWSA had only fiveengineers, while the other water utilities did not even have staff who could read meters.By 1994, PPWSA had 21 engineers and 28 trained technicians, completed thecomputerization of its billing and collections, and created a program to addressdistribution problems.
1.14 The progress is especially impressive given the country's severe constraints.First, the trade embargo of the 1980s restricted Cambodia's access to materials andequipment (such as good quality pipes) that were needed to maintain the infrastructure.Second, years of centralized managerial and administrative practices had emphasizedconformity, discouraged individual initiative and separated the incentives to performfrom productivity. Moreover, until recently, the water utilities were run as governmentdepartments with no financial or operational autonomy: PPWSA was an arm of theMunicipality of Phnom Penh, under the Governor's control, its revenues were pooledwith general municipal funds, and municipal authorization was needed for all operational
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expenditures. Third, and more fundamentally, no legal or regulatory framework existedto guide policy and practice.'
C. GOVERNMENT PROGRAMS AND POLICY
1.15 The Government approach to the sector is presented in its First Socio-EconomicDevelopment Plan, 1996-2000, which accords water and sanitation a high priority, bothto tackle one of the root causes of poverty and to improve public health. It allots US$160million to the sector over the period (see Table 1.2).
Table 1.2: Plan Outlay for Water & Sanitation (US$ million)
Water Sanitation Total
Phnom Penh 83.2 12.4 95.6
Other urban areas 25.4 0.6 26.0
Rural areas 30.9 7.5 38.4
Total 139.5 20.5 160.0
Source: First Socio-Economic Development Plan, 1996-2000
1.16 According to the document, PPWSA will become a self-sustaining commercialentity, based on full cost recovery, and meet WHO standards for water quality. For theirpart, provincial water utilities will develop technical expertise and become financiallyself-sustaining. The strategy is to transform these utilities into autonomous, commercialinstitutions that will serve at least 70 percent of residential consumers and the majority ofindustrial and commercial consumers.
1.17 The Plan also describes long-term objectives for sanitation and wastewaterdisposal, which will be increasingly important as water supply in the towns increases.For Phnom Penh, it proposes to develop a strategy for collecting and treating sewage,septage and surface run-off from low-lying areas, so that new infrastructure can be bothfinanced and maintained in a cost-effective and sustainable manner. However, before aninvestment program can be developed, sanitation policies must be devised that designate'the roles and responsibilities of PPWSA, the municipality, households and neighborhoodsin terms of choosing service levels, financing investments and operating and maintainingthe systems. The strategy for the provincial towns will be developed after experience isgained from Phnom Penh.
1.18 During the Plan period, the Government aims to rehabilitate and expand watersupply in Phnom Penh, develop technical and operational expertise, and establish a legalbasis for converting PPWSA into a fully commercial, financially self-supporting water
For example, there is no overall water law; all that exists are some normative standards for providingservice.
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utility. The goal is similar for the 22 provincial towns, which would ultimately beexpected to supply water to at least 75 percent of the population.
1.19 With respect to policy, the Government passed an irnportant law on the GeneralStatus of Public Enterprises, in June 1996; it affects their operation, governance andsupervision, and grants them independent legal status and a degree of financial autonomy.However, these entities were still subject to various State controls and placed under a'tutelle' Ministry (see Annex 2). Then, in December 1996, the Government approvedDecree No. 52, which established PPWSA as a public enterprise and obliged it to operateaccording to commercial practices and prepare annual business plans. Specifically, theDecree was designed to:
(a) End the pooling of PPWSA's revenues and expenditures with themunicipality, which was a major disincentive to the utility;
(b) Make Government financial support to the utility more transparent, asPPWSA would now be a specific item in the national budget;
(c) Empower the utility to cut off all public and private customers for non-payment;
(d) Enable PPWSA to charge Government/administrative consumersprevailing tariffs; and
(e) Empower it to develop its own personnel policies, including incentives forhigher productivity.
1.20 Although the law only provided limited autonomy and fell short of the ideal (asdiscussed in Annex 2), given the country's administrative, regulatory, and politicalconstraints, it was an important first step. More important, by transforming PPWSA intoa commercial enterprise that will respond to consumer demand, the Government hassignaled its commitment to reforming the sector. Further, the lessons from PPWSA'scurrent projects will be invaluable when the Government restructures the other urbanwater utilities.
1.21 At present, senior policy-makers agree the country needs a national strategy forsustainable and cost-effective urban water supply and sanitation services. Also, theyrecognize the institutions need to be rationalized so consumer preferences and willingnessto pay form the basis of service. To this end, the Government has moved to simplify thedaunting maze of sectoral responsibilities by creating a Coordinating Committee of seniorrepresentatives from the ministries involved (MIME, Rural Development, Public Worksand Transport, Environment, Economy and Finance), and from the Council for theDevelopment of Cambodia and the Phnom Penh Municipality. Its task is to recommend amedium-long term sectoral strategy.
1.22 Chaired by MIME's senior representative, the Committee will identify the bestcourse to streamline the sector institutions and prepare a statement on:
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(a) The responsibilities of principal stakeholders, including governmentagencies, water utilities, the private sector and consumers with respect tothe urban water supply;
(b) Ways to administer the utilities at the lowest level possible;
(c) Legal and regulatory structures that delineate roles and responsibilities ofnational sectoral agencies, and support the new sector policies;
(d) The manner in which PPWSA and other urban utilities will become self-financing and operate according to commercial principles;
(e) Ways for the national budget to assist low-income consumers;
(f) Mechanisms to coordinate donor support to the sector;
(g) Mechanisms to set and regulate tariffs; and
(h) The sector's overall investment strategy.
1.23 As a first step, the Government sent a letter to IDA in April 1997 (Annex 3)which confirmed its goal to increase the availability of water and sanitation services,according to user demand; also, that it endorsed the principle that water should be treatedas an economic good, and should be managed at the lowest administrative levelappropriate. Assurances were obtained during negotiations that the Goverrnent will (a)present a strategy for the development of water supply and sanitation services inCambodia by December 31, 1999, and furnish a formal statement of sector policyacceptable to IDA by December 31, 2000; and (b) furnish IDA, at mid-term review, areport on the progress achieved in applying its provisions.
D. KEY ISSUES
1.24 The sector currently faces four related issues:
* Inadequate service. Water supply is inadequate throughout the country, andsanitation coverage is even lower. This presents enormous obstacles toimproving public health and expanding industrial activity.
* Inadequate response to consumer demand. With more stable politicalconditions, demand for water has increased. But, because coverage isinadequate, users have turned to expensive private alternatives: Vendor-supplied water in Phnom Penh is about 10 times PPWSA's average tariffs.2
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2 In the provincial towns of Kompong Speu, Bantey Menchey and Takeo, demand is so great thatprivate investors are currently negotiating with MIME to supply water services at substantially highertariffs than the public sector rates.
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Limited institutional capacity. This profoundly affects all aspects of thewater systems. The country has few water supply/sanitary engineers3 or stafftrained in management, finance and accounting. Further, water utilities do nothave enough staff with basic skills, such as the ability to read water meters orrepair plumbing equipment. Thus, those with skills and experience areseverely stretched.
* Inefficient, fragmented institutions. As mentioned earlier, responsibilitiesstretch across various agencies, which delays decision-making and leads tohigh transaction costs, duplicated efforts, and perverse incentives.
E. LESSONS LEARNED
1.25 The proposed project is IDA's first investment in Cambodia's water sector.However, previous and on-going IDA-financed projects in the country, which include theEmergency Rehabilitation Project (Credit 2550-KH), the UNDP/World Bank TA Projectfor Water Utilities (CMB/91/007), the Phnom Penh Power Rehabilitation Project (Credit2782-KH) and the Social Fund (Credit KH-PE-37088), offer important insights intoproblem areas. These include: (a) a lack of familiarity with IDA procurement procedures;(b) delayed and inadequate counterpart funds; (c) weak implementation capacity; and (d)weak coordination among the principal donors (especially Japan, France, the Netherlands,Germany, the EU and the ADB). Further, the Final Report of the Joint Ex-PostEvaluation Mission of the Water Utilities TA Project identified PPWSA's lack offinancial and management autonomy as the most important constraint and stressed thatprojects should not be based on promises of reform. Thus, the issue of PPWSA'sautonomy was addressed during project preparation.
1.26 Issues described in the Bank's Water Resources Policy Framework, which isbased on Bank experience in the sector, were addressed during project design. Forexample, the Framework suggests that services will most likely be sustained if they areconsistent with what consumers want and are willing to pay for, and managed at thelowest administrative level possible. More detailed lessons were summarized in theBank's 1992 OED report on water and sanitation, which stressed the need forenvironmentally sustainable strategies, improved economic analysis, managerialautonomy and arms-length regulations; also, that covenants requiring critical actionsshould be included sparingly in loan/credit agreements. Instead, it noted that keyinstitutional and organizational changes need to be made before a project begins. Further,a 1994 OED study on the Operation and Maintenance of Urban Water and Sanitationidentified three instruments to improve effectiveness and instill commercial discipline inpublic agencies: corporatization, explicit contracts, and effective regulatory arrangementsto ensure that water pricing policies result in full cost recovery. These issues apply to the
3 It is estimated that there are no more than 30.
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proposed project, and the policy component will develop the best course through whichto address them, based on the project experience and global best practices.
1.27 The main lesson from project preparation was that technical assistance fortransferring knowledge and skills must be offered at a level and gradual pace that fitswith staff capacities. Indeed, it was found that because of PPWSA staffs high level ofmotivation, the pace has been steady and predictable. Thus, the project has included acombination of hardware and software investments that can leverage fundamentalchanges in the sector.
1.28 The decision to focus on PPWSA and SWSA grew out of lessons from bothproject preparation and other technical assistance efforts in the Cambodian water sector.By first promoting changes in the relatively sophisticated PPWSA and SWSA, policymakers can get a sense of what will work in terms of conditionalities and policy reforms.Experiences from these two will form the basis for reforming sector policies andinstitutions; the statement of sector policy will not be due until 18 months after the creditbecomes effective.
F. RATIONALE FOR IDA INVOLVEMENT
1.29 In general, the proposed project is consistent with the objectives of the CountryAssistance Strategy (CAS), approved by the Board in February 1997, which identifiesrehabilitation of infrastructure as a priority area for IDA assistance to Cambodia.
1.30 Also, the Bank's Water Resources Management Policy states it "will give priorityto countries where water is scarce or where the problems of water allocation, serviceefficiency or environmental degradation are serious." While water allocation is not yet amajor issue in Cambodia, the country clearly fits the other criteria.
1.31 Specifically, the rationale for IDA involvement is that while the sector hasreceived sizable external assistance--far more than what IDA has given or proposes in thisproject--the sector still needs more investment capital. Indeed, unless Phnom Penh'swater supply is expanded immediately, other transmission and distribution projects indifferent parts of the city, assisted by the ADB and Japan, will not be sustainable.
1.32 Equally important, authorities must work out and fine-tune the sector policies,before the water utilities can respond to the pent-up demand for service:4 It was only witha recently approved ADB project that the issue of tariff hikes for Phnom Penh wastackled as a condition of the loan. However, other issues have not been adequatelyaddressed and IDA's global experience in the sector can make the crucial differencebetween success and failure of Cambodia's policy reforms. The unresolved issues arehow best to:
4 So far, the largest inflow of external assistance in the sector has been from bilateral sources, and thesehave focused on specific investments, technical and training support to the water utilities.
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(a) Expand and sustain water supply in Phnom Penh and provincial cities;
(b) Reduce the water utilities' dependence on donor and Government assistance;
(c) Involve consumers in decision-making; and
(d) Expand sanitation services in a cost-effective and environmentally sustainablemanner.
G. RATIONALE FOR THE PROJECT
1.33 The project focuses on Phnom Penh and Sihanoukville, the country's two largestcities, because a significant share of the urban population lives there and, in the case ofPhnom Penh, its water utility is more capable than those in the provincial towns. Thus, ithas the best chance of demonstrating that service can be sustained when appropriatepolicies are adopted and investments are well funded. Also, the city accounts for atwelfth of Cambodia's population, and the number is rising with in-migration. Also,from a low base, PPWSA has improved coverage and efficiency (see Annex 1), is thecountry's best-run water utility, and has enough capacity to implement and sustain theproposed investments. However, far more of the residents need to be covered, servicemust be sustainable and the utility's capacity must be profoundly improved. Besideshaving the second largest population, Sihanoukville is Cambodia's major port, has thegreatest potential for industrial, touristic and commercial growth, and faces problemstypical of provincial towns. Thus, the lessons learned will provide important exampleson how to expand service and commercialize operations along the lines described in theFirst Socio-Economic Development Plan.
1.34 During project preparation, three alternative strategies were considered withrespect to sequencing. One was to delay physical investments until the institutional andpolicy framework had been worked out. However, this was rejected because: (a) watersupply conditions in urban areas are critical and delaying investments would harm theurban population, especially the poorest; (b) since the IDA credit, designed to financeinvestments at Phnom Penh's water treatment plant, will complement the ADB andJapanese investments in distribution systems in other parts of the city, delays wouldthreaten the sustainability of these on-going projects.
1.35 A second was to develop institutional and regulatory measures, together with theGovernment, that would facilitate private sector participation. However, this wasconsidered premature because the economic, legal and regulatory environment5 must beclarified before private firms will be interested in participating. A third was to expand theproject scope to include sanitation investments, but this was rejected because it wouldentail complex project design and financing arrangements. Instead, the project will helpthe Government guide sanitation investments in a cost effective manner once theinstitutional foundations have been laid.
It is thought that private sector interest in the Cambodian water sector will increase once the project'sinstitutional objectives are accomplished.
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2. THE PROJECT
A. PROJECT OBJECTIVES
2.1 The objectives of the proposed project are to:
a) Improve drinking water coverage and quality in Cambodia's two largest citieson the basis of effective demand;
b) Improve the water utilities' technical and economic performance;
c) Widen the availability of (non-drinking) water for commercial and industrialpurposes so as to spur economic growth and ensure the utilities' viability;
d) Help the Government develop a long-term investment program based on well-articulated water and sanitation policies.
2.2 To achieve these objectives, the credit will finance a first phase of investment inmuch needed physical infrastructure, and provide technical assistance for strengtheningsector institutions and water utility management in Phnom Penh and Sihanoukville.
B. PROJECT DESCRIPTION
2.3 The proposed Urban Water Supply Project will be implemented over the five-year period, 1998-2002, in three components. It will: (a) expand water supply in PhnomPenh and strengthen PPWSA; (b) expand water supply in Sihanoukville and strengthenSWSA, and thus provide a model for other provincial towns; and (c) develop andimplement water and sanitation policies for the whole sector.
Component 1: Expansion of Phnom Penh's Water Supply (base cost US$ 29.17 million).
2.4 This component includes five sub-components and will increase the quantity oftreated water in Phnom Penh by expanding the facilities' physical capacity and improvingefficiency. The city's water system has a distribution network of about 307 km of pipes(80 percent are over 40 years old), two pumping stations, five reservoirs with a totalcapacity of 24,500 cu. m/day, and two treatment plants: Phum Prek and Chamcar Mom,rehabilitated with Japanese and French assistance, can produce 100,000 cu. m/day and10,000 cu. in/day, respectively. The total of 110,000 cu. m/day is completely utilized. Athird treatment plant--the Chruoy Chang War--on the bank of the Mekong River, has notoperated since 1983 due to damaged raw water mains and deteriorated facilities.
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2.5 Subcomponent 1: Water treatment plant. In 1996, the city needed over190,000 cu. m/day for its population of about 1 million--which was 80,000 cu. m/daymore fian what was available. At prevailing tariffs, demand is expected to rise to245,000 cu. m/day by 2000, which means capacity needs to expand by more than 130,000cu. m/day. Although these projections do not consider the price elasticity of demand,when combined with the current low coverage, they suggest the system urgently needs tobe enlarged. To this end, PPWSA proposes to rehabilitate and extend the Chruoy ChangWar water treatment plant, which will be able to produce another 65,000 cu. m/day.Obviously, this will not meet the city's needs; rather, it will only satisfy immediatedemand. However, capacity will not be expanded further until the effect of increasedtariffs on demand is understood.
2.6 The feasibility study for the treatment process at the Chruoy Chang War plantevaluated three alternatives: (a) rehabilitating/replacing the existing facility; (b)rehabilitating/replacing most of the structures; and (c) constructing a new treatment plantelsewhere. It concluded that alternative "b" offered the most cost-efficient course, andpossibilities for future expansion.
2.7 Prelirninary engineering designs, prepared by consultants and reviewed byPPWSA and independent consultants, analyzed soil, topographical and hydrologicalconditions, characteristics of the raw water, and the existing structures. IDA has alsoreviewed them and found them satisfactory. Detailed designs for this subcomponent willform part of a turnkey contract for design, supply, construction, installation and testing.The subcomponents also provide for consultants to supervise construction. This sub-component will finance:
a) Construction of new sedimentation tanks, rapid gravity sand filters and a clearwater reservoir as well as mechanical and electrical equipment to produce65,000 cu. m of potable water per day;
b) Rehabilitation of other existing structures, including all connecting pipes,drains and roads, fencing and lighting;
c) Construction of a new accommodation block and flow meter house;
d) Rehabilitation of two high-level reservoirs;
e) Laying of 2.5 km of 800 mm diameter transmission mains to the city network;and
f) A crossing of the Tonle Sap River by attaching pipes to an existing bridge.
2.8 Subcomponent 2: Pipes, ancillary and leak detection equipment. Thecomponent includes about 85 km of pipes and fittings to provide water in the southerndistrict of Chamcar Morn. The pipes will form the secondary and tertiary network. IDAhas reviewed PPWSA's bidding documents to procure pipes and ancillary equipment andfound them satisfactory. The component will also help finance leak detection equipment
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to tackle the problem of UFW. Specifications and quantities will be finalized duringexecution, in consultation with technical assistance personnel.
2.9 Subcomponent 3: Pilot program for financing domestic connections. PhnomPenh's water distribution system is characterized by single connections that serve severalhouseholds. This can be difficult for the poor, since neighbors often charge a high price,well above the official tariff, also, the practice creates public health hazards, because thereceptacles used to store water are usually unclean. Surveys have found that a mainreason for the relatively small number of individual house connections is the amount ofthe connection fee, which is large when compared to household income. Thus, the projectwill include a pilot program whereby funds would be offered at market interest rates topartially finance the connections and would be repaid through the water bill . If the pilotsucceeds, repayments could feed into a revolving fund for additional connections, asPPWSA expands coverage.
2.10 Subcomponent 4: Technical assistance to improve operational and financialperformance. PPWSA has already made impressive gains in reducing the level ofunaccounted for water (UFW), through bilateral assistance from France. However, theproject will finance a specialist to help the utility lower the level even more. Anotherconsultant will be funded to help PPWSA improve its financial management, billing,collections, cost control and general accounting system. Similarly, the project willfinance a computer technician/training specialist, and a water quality expert. Thiscomponent has been designed so as to avoid overlap with the TA provided by ADB andthe Japanese government.
2.11 Subcomponent 5: Twinning arrangements to develop PPWSA capacity.Although PPWSA staff are extremely motivated and have dramatically improved theutility's performance in the last couple years, their effort has been largely individualisticand ad-hoc. The absence of a corporate culture has been because of the destruction ofvirtually the entire institutional memory during the civil war years, when all records weredestroyed. In addition, during the years of civil war, while water supply was erratic and ofuncertain quality, consumers were given free access through the 1900 public undergroundtanks constructed during the Khmer Rouge era. The significant weakness of capacity isthe absence of a working environment that promotes professional growth and encouragestransparency. Instead, progress has been entirely due to the dedicated work by a fewcommitted staff, which has introduced basic organizational and maintenance proceduresin an essentially ad-hoc fashion. To remedy this, the project includes a twinningarrangement with an Australian water utility with a proven track record of serving itscustomers efficiently; staff will be able to work with counterparts from this commercialutility--both in Australia and in Phnom Penh--that uses state-of-the-art managementpractices, and learn on what it takes to operate a water utility based on sound commercialpractices. Funding for the initial phase (US$250,000) has been provided by theAustralian Aid for the Mekong Basin Financing Facility. Areas of particular interest willbe in developing organizational incentives for tackling the UFW problem, improving
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billing and collections systems, responding quickly to consumer complaints, andpublishing an Annual report on utility performance.
2.12 The effectiveness of the twinning will be evaluated at the end of the first year,when it will be decided if it should be continued or expanded. If the decision is tocontinue, choice of the twin will be made according to World Bank procurementprocedures. At this stage, the arrangement could be widened to include SWSA.
2.13 The project will also support the establishment and operation of a training centerfor the water and sanitation sector. The center will provide courses using PPWSA/UPWSstaff and visiting experts, rather than retain a team of trainers. Courses that are notspecific to the water sector (such as English, bookkeeping, etc.) will be outsourcedthrough service contracts. It will also finance some equipment and the services of visitingexperts.
Component 2: Expansion of Sihanoukville Water Supply (base cost US$3.50 million)
2.14 Until now, provincial utilities have focused on rehabilitating their facilities, andSihanoukville has completed this stage: Refurbished under the UNDP/World Bankproject, the SWSA now meets WHO quality standards of treatment. However, the supplystill falls far short of demand during the dry season and in general, serves only 11 percentof the city's 47,000 residents. To make matters worse, trends indicate the population willgrow rapidly by the early part of the next century. Thus, the component will enableSWSA to increase the quantity of treated water by 400 percent, and adopt sensible pricingpolicies to reduce UFW even more. Further, technical assistance will help the utilityrestructure into a commercial enterprise.
2.15 The city's water supply source is a small shallow lake held in place by a smallweir with a crest about 3.5 m above sea level. It can meet existing demand during the wetseason (May to October), but the level drops by as much as three meters during the dryseason, at which point the supply is just half of what is needed. And, while the city'swater treatment plant, built in the 1950s, has a capacity of 8,000 cubic meters a day, thedistribution system only extends for 27km. As a result, most residents obtain water froma local delivery service that draws and supplies it--untreated--from the lake.
2.16 Water supply is critical, since Sihanoukville has a great potential for growth andemployment in the industrial and service sector (including tourism), and is key to thecountry's economy. To meet this potential, investments under the project would be madein several areas, so as to increase the daily supply to 5,200 cubic meters. This wouldinvolve raising the reservoir's level to allow a draft of 2,100 cubic meters a day, to coverlosses incurred during treatment and transmission.
2.17 Construction Works. The lake presents several problems that project works willresolve. First, the level will be raised through the construction of a new weir crest againstthe existing bridge abutments; this will increase the storage by around 100,000 cu. m,allowing an extra 500 cu. m per day of dry season off-take. Second, the weir (which is a
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low-cost intervention) will reduce the current outflow of groundwater that geologicalinvestigations have identified to be an amount even greater than the daily withdrawal(2,100 cu. m). Afterwards, the draft could be increased (and sustained) by about 1,100 cu.rn/day.
2.18 Besides work on the lake, the project will construct new wells that will provide anextra 1,500 cu. m/day. Finally, it will expand access to water through the construction oftanker filling stations and water selling points. This component, which includesconsulting services for design and construction supervision, will involve:
a) Increasing the storage volume of the raw water lake by raising the outlet weirand sealing off the sand spit;
b) Constructing four new groundwater wells and related works, including adeferrination plant;
c) Connecting wells to the distribution network, including the supply and layingof pipes;
d) Improving the distribution system, including procuring and laying pipes andfittings, and establishing tanker filling and water selling points;
e) Improving the treatment plant and raw water pumping station; and
f) Building another high-level reservoir within the distribution system.
2.19 Technical assistance for Sihanoukville. The component will finance technicalassistance and studies for the UPWS, including: (a) a project engineer to help with overallplanning and management; (b) accounting and computer experts; (c) a procurementspecialist; (d) a training specialist; (e) a socio-economic survey to establish the customerbase and level of effective demand for water service; (f) engineering advice to check thedesign of the groundwater deferrination plant and expansion of the reticulation system;and (g) studies on long-term water sources.
2.20 The primary purpose of the TA consultants, who will be based in Sihanoukville,will be to help SWSA improve its operations. However, the SWSA effort will be amodel for other provincial water utilities to move from rehabilitating facilities tointroducing commercial operations. Thus the TA consultants will help MIME's UPWSstrengthen other provincial utilities (see Annex 7 for details of the Sihanoukvillecomponent).
Component 3: Developing Water Supply and Sanitation Policy (base cost US$2.08 million)
2.21 In general, the project attempts to address both sector-wide and utility-specificinstitutional issues, which are highly connected. In this report, interventions aimed atimproving institutional capacity and efficiency within the entire sector are covered underthis component; those specifically directed to PPWSA and MIME/SWSA are describedunder the technical assistance components and the respective annexes.
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2.22 This component will help the Government create institutions that can maintainand expand service in an efficient, equitable, and sustainable manner, consistent withpublic demands. However, it is the most important and difficult component in terms ofdesign and implementation. Cambodia is a post-Communist transition economy, andattempts at sector reform to date have faced ideological positions that are changing, butonly gradually. Thus, the component has to balance what is optimal from IDA's point ofview, and what is possible. Excessive emphasis on the former could well lead to thewhole reform package being shelved, at high cost to the economy, while too muchattention to the latter would make the project unsustainable. Another obstacle is thelimited policy-making capacity at the national agencies. While staff at utilities likePPWSA have acquired considerable knowledge through practical experience, those atmost ministries are not yet capable of integrating technical, financial, institutional andeconomic aspects into a coherent sector policy. Thus, technical assistance will provideconsultants to the Government and help defray the costs of seminars (organized throughEDI).
2.23 The interventions proposed will help the Government develop the policyframework for water supply and sanitation, and identify future investment priorities andpossible sources of financing.
Consultant Support to RGC
2.24 Water policy consultant. The project will finance a water policy consultant tohelp the Government prepare a draft sector policy paper for water and sanitation (seeAnnex 8 for outline terms of reference). The consultant will build on the results of thefirst EDI serninar and the April 1997 letter of sector objectives. The Government hasrequested that, once the paper is completed, another EDI seminar will be organized inPhnom Penh to discuss the document. During negotiations, assurance was obtained fromthe Government by December 31, 1999, it will develop a national strategy for water andsanitation service provisioning, and that it will enunciate by December 31, 2000, a formalstatement of sector policy acceptable to IDA, which will form the basis of future sectorinvestments.
2.25 A key element in the proposed sector policy will be defining an approach to setand revise tariffs in Phnom Penh and the provincial towns. The Government hascommitted itself to the goals of setting tariffs that recover costs, helping water utilitiesbecome commercially viable and respond to consumer demand, and developinginstitutional/regulatory arrangements by which tariffs can be revised on the basis oftransparent criteria. The sector policy statement will set out the criteria in detail. It willalso describe institutional arrangements that are transparent and sound, and consider theincentives needed for agencies to act in an economically efficient manner.
2.26 Institutional consultant. As a follow up to the EDI seminar and the policyformulation, the project will finance an institutional consultant to help translate the sectorpolicy into specific actions (see Annex 8 for terms of reference). The aim is to produce a
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rational, well-defined policy-making structure, establish clear rules for operationalautonomy within the legal framework, and create mechanisms for utilities' accountabilityto consumers and other stakeholders.
2.27 Sanitation and wastewater management study. The project will finance astudy for Phnom Penh and Sihanoukville that will focus on providing services based onwhat consumers want and will pay for, and managing operations at the lowestadministrative level possible. The study will recommend a cost-effective solution tourban pollution caused by untreated human waste, which could form the basis of nationalpolicy on sanitation and wastewater management (see Annex 9 for terms of reference).
2.28 EDI Seminars. As part of project preparation, the World Bank's EconomicDevelopment Institute held a seminar on water sector policy in Phnom Penh in March1997 that exposed policy makers to current thinking, successful models from the rest ofthe world, and various options. It also helped policy makers develop a consensus about avision for the future. As a result, the Government asked EDI to hold further seminarswhere professionals could share information and discuss the draft policy document to beprepared under the credit.
Summary
2.29 The issues described above were based on discussions during project preparation.However, as other issues will surface during implementation, the assistance packageneeds to be flexible. Emphasis will be on learning by doing and incorporating lessons asthe project progresses. Already, the Government took two important steps, whichdemonstrate its commitment to the project's goals. First, it passed a decree that grantedPPWSA autonomy. Second, it established an inter-ministerial mechanism to coordinatethe sector (the Coordinating Committee for Water and Sanitation), which will oversee thecomponent.
2.30 The approach will involve a two-fold strategy. First, it will engage keystakeholders in a continuing dialogue on policy (such as setting water tariffs,commercializing utilities and financing operations), while learning about what works inthe PPWSA and SWSA components. Second, it will ensure that dialogue occurs at thesame time that a framework of rules and institutions is developed that can providesustainable water and sanitation services.
C. COSTS AND FINANCING
Project Cost
2.31 The total project cost, including taxes, duties and contingencies, is estimated atRiels 154,565 million or US$41.64 million equivalent. Physical contingencies of 15percent were added to works, equipment, and various other items. Price contingencies asshown in Table 2.1 were applied to base costs, including physical contingencies. A
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constant purchasing parity exchange rate was used to convert US dollar amounts to Rielequivalents. Table 2.2 summarizes the estimated cost of each component (see Annex 5for detailed cost tables).
Total Project Costs 52,597 101,968 154,565 14.10 27.54 41.64 66.0 120.0* Including taxes and duties of about US$ 5.16 million equivalent
Financing Plan
2.32 The IDA credit would be lent to the RGC at standard terms, including a 40-yearmaturity period, 10-years grace, standard commitment charge and at a 0.75 percentservice fee. Funds for the Phnom Penh component will be on-lent to PPWSA in localcurrency at 8.5 percent fixed per annum, 17-years maturity, and 5-years grace on therepayment of principal. The RGC would assume the foreign exchange risk. Assuranceswere obtained that it will enter into a subsidiary loan agreement with PPWSA, on termsand conditions satisfactory to IDA. SWSA's loan will be assumed by MIME, but will berecorded on SWSA's books, as if it were an autonomous, commercial enterprise.
2.33 Table 2.3 summarizes the project's net investment requirements and financingplan after import taxes and levies have been deducted (waived by the RGC) and theestimated interest during construction included in total project costs. Total net investmentrequirements are estimated at US$39.79 million, of which the IDA credit will financeapproximately 77.8 percent or US$30.96 million. PPWSA will essentially finance theremaining net investment through its existing cash balances and internal cash flowprojected for the 5-year implementation period. SWSA will assume a small share of theinvestment requirements-the interest during construction--on its portion of the credit.
2.34 Procurement would be carried out according to the Guidelines for Procurementunder IBRD Loans and IDA Credits, dated January 1995, revised in January and August1996 (see Table 2.4 and Annex 11 for procurement arrangements). The total cost ofitems described includes their share of physical and price contingencies and taxes andduties. Standard bidding documents and a standard bid evaluation report will be used forprocurement of works and goods under international competitive bidding (ICB).
2.35 The largest contract (estimated at $23.73 million) will be for the turnkey detaileddesign, supply, installation, construction, and commissioning of the Chruoy Chang WarWater Treatment Plant, which includes mechanical and electrical equipment. Thiscontract will follow ICB procedures and bidders were pre-qualified under Bank pre-qualification procedures; pre-qualification and bidding documents for the turnkeycontract were prepared by PPWSA and cleared by IDA. ICB procedures will also beused for certain works and supply-and-installation activities ($2.86 million) on theSihanoukville water supply component, and for the supply and delivery of pipes andfittings for the works ($2.71 million) in the Chamcar Mom District of Phnom Penh;bidding documents for pipes and fittings were prepared by PPWSA and cleared by IDA.For procurement under ICB procedures, domestic goods, plant and equipment would beallowed a preference margin of 15 percent of CIF or the amount of customs duties,whichever is lower, for bid evaluation. PPWSA will finance US$5.08 million equivalentto install the pipes and related works in the secondary and tertiary network, which will beprocured under PPWSA procedures.
2.36 A general procurement notice was published on August 16, 1996 in DevelopmentBusiness. A pre-qualification notice for rehabilitation and extension of the watertreatment plant and a specific procurement notice for the supply and delivery of pipes andfittings were issued on June 16, 1997 in Development Business. In addition, specific
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procurement notices will be posted for all consultant contracts exceeding $200,000. Nomandatory associations between foreign and local consultants will be permitted.
Table 2.4: Procurement Arrangements (US$ million)
Procurement Method NIF2 TotalICB Other'
1. Turnkey contract for Chruoy 23.73 - 23.73Chang War WTP rehabilitation (20.61) - - (20.61)
2. Other civil works3 2.86 - 5.375 8.23(2.45) (2.45)
Total 29.30 6.12 6.22 41.64_ (25.45) (5.51) (30.96)
Figures in parentheses represent amount financed by the IDA CreditProcurement arrangement by each component is presented in Annex 11.
'Includes national shopping, intemational shopping and engagement of consultants2 Not-IDA financed
Includes supply & installation contracts of Sihanoukville component and PPWSA's contribution for the installation of pipesfor the secondary and tertiary network in the southem district of Chamcar Mom.4 Includes maintenance and insurance costs for computer equipment, reallocation compensation, communication costs, and localstaff costs.5 PPWSA will finance USS5.08 million equivalent to instaul pipes for the secondary and tertiary network in the southem districtof Chamcar Mom, US$160,000 equivalent to construct the training center and US$120,000 to clean the site at Chruoy ChangWar WTP. MIME/SWSA will finance US$13,200 equivalent to improve the access road.6 PPWSA will finance US$36,000 equivalent for equipment for the training center.' PPWSA will finance about US$220,000 equivalent for costs of local staff (training expert, computer expert and water qualityexpert).' PPWSA will finance about US$200,000 equivalent for reallocation compensation, computer maintenance & insurance andlocal staff (administration staft). MIME/SWSA will finance USS54,600 equivalent for local staff (administration staff). RGCwill finance US$44,000 equivalent for local staff of the Coordinating Committee's secretariat.
2.37 Some urgently needed miscellaneous equipment (e.g. computers and computersoftware) will be procured on the basis of national or international shopping asappropriate on the basis of a minimum of three quotes for individual contracts of less thanUS$50,000, with an aggregate value not exceeding US$200,000.
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2.38 Since PPWSA and SWSA/MIME do not have experience with procurementprocedures acceptable to IDA, the project provides assistance in procurement.
2.39 Cost estimates also contain an allowance for consultants to supervise theconstruction of all major works financed under this project. It was agreed at negotiationsthat PPWSA and SWSA/MIME will retain consultants for all TA activities under thecredit according to terms of reference and selection procedures acceptable to IDA."Quality Based Selection" is being used to select a firm to supervise construction for thePhnom Penh component (estimated at $930,000); the request for proposals for thisconsultancy was prepared by PPWSA and cleared by IDA. In view of the highlyspecialized experience required for these positions, the water policy and institutionalconsultants would be individual consultants. The technical assistance personnel forstrengthening PPWSA and SWSA would also be selected as individual consultants. Allconsultancy services will be procured according to the Guidelines for Selection andEmployment of Consultants by World Bank Borrowers dated January 1997. The Bank'sstandard contract form will be used for consultancy services.
2.40 IDA-financed contracts above US$200,000 will be subject to its prior reviewprocedures. For consultancy contracts, the threshold for prior review will be US$100,000for firms and US$50,0C0 for individuals. In any event, all TORs, including sole sourceselections of consultafrs regardless of the value of contract, will be subject to priorreview. In all, about 94 percent of the total project cost will be subject to prior review.The post review of contracts will be carried out on the basis of one in three contracts forgoods and works. Procurement information will be collected and recorded fromcomprehensive quarterly reports to IDA by the project coordinator. These reports willinclude revised time schedules for procurement actions including advertising, contractawards and completion time for individual contracts.
E. DISBURSEMENTS
2.41 The proposed IDA credit would be disbursed against: (a) 100 percent of foreignexpenditures and 50 percent of local expenditures for the turnkey detailed design, supply,installation, construction, and commissioning related to the Chruoy Chang War WaterTreatment Plant, including mechanical and electrical equipment; (b) 100 percent offoreign expenditures and 30 percent of local expenditures for civil works, includingsupply and installation contracts, related to the Sihanoukville component; (c) 100 percentof foreign expenditures for imported equipment and materials; (d) 100 percent ofexpenditures for consulting services; (e) 100 percent of expenditures for the revolvingfund of the pilot domestic connection prograrn; and (f) 100 percent of trainingexpenditures. The credit will be disbursed against the categories in Table 2.5 (see Annex12 for disbursement categories by each component and the estimated schedule).
2.42 Full documentation will be required for all contracts for equipment and worksvalued at US$200,000 equivalent or more. Disbursements for equipment, works andcosts for implementation support valued at under US$200,000 would be made on thebasis of itemized Statements of Expenditure (SOE). The SOE limit for consultantservices would be US$100,000 for firms and US$50,000 for individuals. The records ofSOE-supported expenditures would be retained and made available to IDA supervisionmissions and regularly audited by external auditors acceptable to IDA. For theSihanoukville component, the condition for disbursement is that average tariffs shouldhave been raised to a level that ensures the financial viability of SWSA.
2.43 To facilitate disbursement from the credit, PPWSA and SWSA/MIME will eachopen and maintain an IDA Special Account in the National Bank of Cambodia authorizedfor this purpose, on terms and conditions satisfactory to IDA, including appropriateprotection against set-off, seizure or attachment. The accounts that cover the IDA shareof eligible expenditures in all disbursement categories would each have an authorizedallocation of US$700,000 and US$400,000 equivalent, for PPWSA and SWSA/MIME,respectively, to be withdrawn from the IDA credit and deposited in the Special Account.
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Unless IDA agrees otherwise, the authorized allocation will be limited to the equivalentof US$350,000 and US$200,000 for PPWSA and MIME, respectively, until disbursementand outstanding commitments against the credit allocated to each component equal orexceed the SDR equivalent of US$2 million. Applications to replenish the Account,supported by appropriate documentation, would be submitted regularly (not less thanquarterly) or when the amount withdrawn equaled 30 percent of the initial deposit.
2.44 The project is expected to be completed by June 30, 2002 and the closing date forthe credit would be December 31, 2002. The estimated disbursement schedule is basedon detailed project implementation schedules in various PIPs (as no Bank disbursementprofile exists for water supply projects in Cambodia, the comparison shows the BankStandard Disbursement Profile (1995) for water supply and sanitation projects in the EastAsia and Pacific Region').
F. PROJECT MANAGEMENT AND IMPLEMENTATION
Project Implementation
2.45 As the project seeks to build institutional, financial and technical capacity in eachof the implementing agencies, no new project unit will be established. Instead, existingstructures in each agency will be strengthened to implement their respective componentswith the help of consultants. In the case of Phnom Penh (see organization chart - Annex10), PPWSA already has established a project management unit (PMU) under themanaging director, supported by three deputy directors and a team of qualified staff. ThePMU's primary responsibility is to implement three projects: the proposed IDA-financedproject, and the on-going ADB and Japan Government financed projects. InSihanoukville, SWSA will implement the project, with support from MIME's UPWS(also see the organization chart in Annex 10).
2.46 The policy framework for the water and sanitation sector will be based on lessonsfrom the PPWSA and SWSA components and implemented by the CoordinatingCommittee, with secretariat assistance from MIME (see para. 1.21). Additional back-upsupport, if required, will be provided by the IDA-financed PMU/Financial Services Unitin the Ministry of Economy and Finance, where local staff gained experience in projectimplementation, including procurement, performance monitoring, and reporting to theBank, under the Emergency Rehabilitation Project. Details of the organization andmanagement of the project are in the project implementation plan, summarized in Annex11.
The bulk of disbursements will take place through PPWSA, which has a better implementation capacitythan water utilities in provincial towns.
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Supervision and Monitoring
2.47 Each agency has prepared a set of the performance monitoring indicators for itsrespective components, which were agreed upon during negotiations (see Annex 13).The key indicators cover each component's objectives, major activities and inputsrequired, expected outputs, and results/impacts to be monitored during projectimplementation. The implementing agencies will submit semi-annual and annual reportsto IDA on the progress of each component. A mid-term review would be carried out afterthe project's second year, estimated to be in June 2000, in conjunction with the RGC, theimplementing agencies, and IDA. Its purpose will be to assess progress, particularly withthe policy framework component.
Financial Management
2.48 PPWSA and SWSA accounting, financial management, and cost control capacitywill be strengthened by the project with consultant support. The technical assistanceprovided will help the two agencies accomplish their medium-term goal of establishingcommercial operations. Within nine months after the end of each fiscal year, theimplementing agencies will submit to IDA an auditor's report, management report andaudited financial statements for the Special Accounts, Project Accounts and SOEs for thepreceding calendar year, audited by an external auditor acceptable to IDA. The audit willensure that: (a) proper accounting and audit procedures were maintained by bothorganizations throughout the year; (b) a sufficient flow of funds contributed to theutilities' investment programs throughout the year; (c) the utilities' profit and lossaccounts fairly assess the year's trading results; (d) the balance sheet provides a fairassessment of the current value of their assets and liabilities; and (e) both will be able tomeet their commitments over the ensuing year.
2.49 After PPWSA and Phnom Penh Municipality agree on the composition ofPPWSA's assets and liabilities, the latest balance sheets, and profit and loss accounts, itwill be audited by an independent auditor acceptable to IDA, financed under the credit.The purpose will be to prepare a base assessment of the utility's financial position anddetermine its capacity to meet commitments under the project. This audit will probablynecessitate a revaluation of the assets held by each organization. The same exercise willbe performed for SWSA.
2.50 During negotiations, the ROC agreed that by December 31, 1998, it would cause arevaluation of the assets of PPWSA and SWSA to be carried out, along with the initialaudits of each entity. An understanding was reached that independent auditors will beappointed for this purpose. Agreement was also reached that the RGC would monitor theprogress of the project according to the agreed performance indicators, and fiumish IDAsemi-annual progress reports.
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3. FINANCIAL ANALYSIS
A. INTRODUCTION
3.1 The financial analysis of the Project involved: (1) a review of PPWSA andSWSA operations and (2) a review of the project and debt service of the two stand-aloneinvestment components. A fully integrated financial model was developed to support theanalyses, particularly for projecting and assessing financial outcomes. Emphasis wasgiven to ascertaining the adequacy of tariff levels in order to fully recover costs as well asevaluating the ability of the water authorities to meet performance improvement targets.Special attention was given to PPWSA's ability to achieve targets for reducing UFW.
3.2 The Phnom Penh component forms part of PPWSA's much larger program toexpand the supply and efficiently distribute water. Besides the proposed Bank-fundedproject to renovate the Chruoy Chang War water treatment plant, the program involvesexpanding and rehabilitating the transmission and distribution system in other parts of thecity as well as expanding the Chamcar Mom and Phum Prek water treatment plants.Financing for these investments have, or are currently being, finalized with the ADB, theJapanese agency JICA, and French aid agencies. Altogether, investments are estimated tobe US$120 million, for the 1996-2002 period.
3.3 Because of the close relationship of these other projects and their benefits to theproject proposed by PPWSA, the financial assessment focused on the combined returnsof the entire investment program by including all the estimated costs, assumed debt andexpected returns in order to evaluate the financial and economic attractiveness of theplanned investments as well as PPWSA's ability to meet current and future debt servicingrequirements. Compared to the Phnom Penh component, the Sihanoukville component isrelatively small and does not rely on the implementation of other projects to achieve itsexpected benefits; however, the component is significant, as it will help improve publichealth and general living standards, and increase industrial output.
B. OVERVIEW OF CURRENT FINANCIAL PERFORMANCE
3.4 Financial and operating highlights for 1996 for PPWSA and SWSA are asfollows:
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Table 3.1: Financial and Operation Performance of PPWSA and SWSA
Indicator Phnom Penh Sihanoukvillel
Total revenues Riels 13.5 billion Riels 393 millionNet income (loss) before Riels 2.5 billion (Riels 33 million)depreciationNet income (loss) (Riels 724.4 million) NATotal assets Riels 264 billion2 Riels 997 million
Total debt Riles 11.6 billionTotal capital Riels 251 billion Riels 846 millionWater supply capacity 110,000 M3 per day 8,000 M3 per dayWater losses 57% 28%Average tariff rate 895 Riels/cm 868 Riels/cmConnections 35,986 886Collection efficiency 85% 95%
3.5 Phnom Penh Water Supply Authority. PPWSA follows conventional accrualaccounting principles. Standard commercial procedures are applied for the accounting ofrevenues and expenses as well as fixed assets and debt obligations. PPWSA hascomputerized most of its accounting, including the general ledger, billings andreceivables; however, the balance sheet opening positions for the new autonomouscorporation have not yet been finalized pending the reconciliation of the inter-governmental trade accounts such as trade receivables and payables and outstanding debt.While some of the debt may be affected by the reconciliation, it is not anticipated to havea material effect on the financial assessment.
3.6 PPWSA past profit performance has been poor, due to high levels of UFW andinadequate tariffs. For 1997, the Authority is estimating a net loss of approximately Riels724 million (US$200,000 equivalent) on revenues of Riels 13.5 billion. However, totalcash flow was positive before depreciation charges. Electricity, maintenance and laborcharges combined made up almost 50 percent of estimated expenses for 1997, whilechemicals accounted for only 5.9 percent. This operating performance is a significantimprovement over 1996, when losses were about $2.0 million; in 1998, it is expected toimprove significantly with the introduction of new tariffs designed to recover all costs.PPWSA's unaudited financial statements for December 31, 1996 are presented in Annex15.
3.7 PPWSA's corporatized opening balance sheet position is relatively strong, withminimal debt to the total level of assets. Total equity at Riels 251 billion comprisesapproximately 95 percent of total assets, yielding a debt-to-equity ratio substantially lessthan 1. However, it has experienced difficulties in managing its working capital. Forexample, inventories, liquid funds and receivables are excessive as are the accountspayable, particularly to the power supplier, Electricite' de Cambodge. Payments to othergovernment agencies are also being delayed. These practices have developed partly from
I Figures are for 10 months in 1997. Asset, debt and capital balances are for 1996.
2 Fixed assets were revalued in 1997.
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the utility's lack of financial autonomy, and the related uncertainties of not having fullcontrol of its financial flows. Now that it has gained corporate autonomy, PPWSAmanagement assures that commercial practices will be strictly followed, including promptdisconnection of delinquent accounts.
3.8 Its other major operating obstacle stems from UFW, which historically has beenas high as 80 percent, one of the poorest records in the region. However, during the pastfew years, it has made impressive gains by introducing an intensive program to reducethese losses (see Annex 1): Technical and commercial losses have dropped toapproximately 57 percent. Much higher gains have been demonstrated in PPWSA pilotareas and even more are expected in the near future, as new investments to rehabilitatethe distribution network, financed by the ADB and Japan, come on-streamn. Technicalassistance is also being made available through existing donor programs and by theproposed project to further strengthen accounting, financial management and commercialpractices through metering and improved billings and collections.
3.9 Sihanoukville Water Supply Authority. SWSA's operational performance issimilar to that of PPWSA's, although it is a much smaller and more manageable system.It is expected to incur a net loss in 1997 despite breaking even on a cash flow basis in1996, as tariffs have not been sufficient to recover depreciation charges. However, tariffswere raised to ensure full cost recovery as well as meet projected debt servicingrequirements. Water losses have been kept at respectable levels, averaging about 28percent or less. Unaudited financial statements for the SWSA for 1996 are summarized inAnnex 15.
3.10 In 1996, fuel and electricity made up 76 percent of expenses, while laboraccounted for 4 percent. Like PPWSA, SWSA holds an excessive level of workingcapital, particularly in inventories. Also, it delays its payments to suppliers, whichproduces an account that is almost twice that of its receivables. Its balance sheet positionis sound, with no long-term debt on the books; however, its equity position, at $300,000,particularly the retained earnings, are greatly overstated, since depreciation charges havenot been counted. Its fixed assets could be revalued, based on current prices. While thiswould substantially increase SWSA's total value, it would also place added pressure onmanagement to achieve returns on a more realistically valued asset base. Given the lackof completeness of SWSA's accounts, its management has assured the Bank it will assessits assets and liabilities as of December 31, 1997 no latter than December 31, 1998 inorder to ensure more reliable opening positions. These findings will then be used tomonitor project and financial performance targets during project implementation.
C. FuTuRE FINANCIAL PERFORMANCE
3.11 Financial projections for both components for the 10-year period 1998-2007 arepresented in Annex 16 along with a description of the underlying assumptions and inputvariables. Summaries of projected financial and operating performance for PPWSA andSWSA are presented below:
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Table 3.2: Projected financial and operating performance of PPWSA
3.12 PPWSA is likely to experience two critical periods in terms of its future finances
during project implementation. The first will probably surface in 1998 and 1999,
immediately after construction begins; the second will probably arise in 2003, once the
project is completed and placed in service. In that year, the projected debt service is
estimated to reach its highest levels--about Riels 20.5 billion on projected revenues of
Riels 43.7 billion. During 1998-1999, the utility will experience significant pressure to
produce enough counterpart funding through internal cash generation, so as to sustain itssizable investment program. By contrast, in 2003, the full force of depreciation charges
from new investments, in addition to the debt service requirements, will affect the
utility's income and cash flow, and seriously challenge its capacity to steer through the
financial obstacles. Thus, its future finances will depend on its ability to: (a) maintain
adequate tariffs; (b) realize performance targets for reducing water losses from the current
57 percent to about 40 percent, by 2003; and (c) impose strict controls on discretionary
spending so the operating ratio can gradually improve as the revenue base expands.
3.13 With respect to water losses, significant improvements are anticipated as the ADB
project to rehabilitate the distribution network proceeds. Conversely, tariff levels must
remain positive vis-a-vis expected inflationary pressures and, lacking an independent
regulatory institution, the Government has assured the Bank that a proper and
depoliticized mechanism will be developed to ensure their adequacy in the future. In
addition, PPWSA management has assured the Bank it will try to maintain the following
financial targets during the five-year investment program: (a) an operating ratio of 50
percent or less; (b) a debt service coverage ratio of 1.3 times or better, beginning in
2003; and (c) an average collection period not exceeding 120 days, up to December 31,
1998, and not exceeding 80 days thereafter
3 A debt-to-equity ratio of 1.0 times equates to a capital structure of 50% to 50% equity. Accordingly, acapital structure of 75% debt to 25% equity equates to a.debt/equity ratio of 3 times.
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Table 3.3: Projected financial and operating performance of SWSA
3.14 SWSA's finances are projected to be more manageable, both during constructionand once debt service begins on the proposed credit. Partly, this is due to the morelenient lending terms provided to SWSA. Still, the project is large when compared toSWSA's total capitalization; thus, the credit will place added pressure on SWSAmanagement to maintain adequate tariffs and control operating costs. In addition, its debtwill increase significantly, particularly in 1999 and 2000, in the early construction period,when its capitalization will essentially be all debt.
3.15 Since SWSA is a unit of MIME and not yet corporatized or autonomous, theproject is designed as a pilot, both for it and other provincial water authorities, to testmanagement's capacity to operate as if it were. Accordingly, the Government and SWSAagreed to adopt commercial financial performance targets during the implementation ofthe credit, as practice for bringing the organization closer to a financially autonomousstatus. The agreed targets are: (a) an operating ratio (excluding depreciation and interestcharges) of 60 percent or less; (b) a collection performance of not less than 90 percent; (c)an average collection period of 60 days or less; and (d) a current ratio of 2:1 or better.
3.16 Given the financial parameters adopted by PPWSA and SWSA and theperformance targets agreed with the Bank, both organizations are expected to recordrespectable financial returns on their proposed investments, with calculated financial ratesof return of 13.6 percent and 11.2 percent, respectively.
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4. PROJECT BENEFITS AND ECONOMIC ANALYSIS
A. PROJECT BENEFITS
Non quantifiable benefits
4.1 One of the main goals of a water supply project is to improve public health andwell-being. Among the most affected by the project will be the poorest, most marginaland vulnerable segments of the population. These are usually women and children, aswell as transients and urban squatters who illegally occupy peri-urban areas withoutpublic services or live on public land, structures, apartment rooftops, drainage canals,embankments, and boengs. Because water is unavailable, they often purchase smallamounts from those with water connections or from vendors. They also rely on pollutedstreams, rivers and wells to draw water for washing and bathing and are routinelyexposed to health and environmental hazards brought about because of a lack of drainageand sanitation.
4.2 The impact of contaminated water is profound, as revealed by hospital morbidityreports. Health problems include not just the diseases associated with lack of clean water,such as gastro-intestinal or infectious diseases, but also dengue fever and malaria, whichare widespread due to water storage practices. Infants and children are particularlyaffected, since exposure to contaminated water has led to one of the highest infantmorbidity and mortality rates in the world; gastro-intestinal and infectious skin diseasesare problems that can be alleviated by improving the quality of and access to water.Thus, the project will target areas where the poor can benefit the most: schools, hospitals,and squatter settlement areas, through communal water selling points. For example,several Sihanoukville schools have no running water for either drinking or sanitation. Ahospital and an orphanage also lack water supply services, and rely on untreated watersupplied by tankers.
4.3 In Phnom Penh, the price of water privately supplied by water tankers andindividuals is estimated to be 10 times PPWSA charges, according to a recent ADBsurvey. In Sihanoukville and other provincial towns, price differentials are even higher.Socio-economic studies reveal that households have an estimated average monthlyincome of only US$23, but spend as much as 73 percent on water purchases.' Thus, the
'There are no reliable estimates of employment generation in the informal sector, although it appears to besubstantial.
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project will markedly lower their costs, because water will be supplied by the utilities(see Annex 1 on commercial practices in the water supply sector).
4.4 As primary health and food providers for their household, women will benefitfrom an improved water supply because it will facilitate better hygiene, food preparation,and general cleanliness, at home and in the surrounding environment. Apart from the costsavings, women will also gain through time-savings associated with procuring water.
4.5 Poor drinking water quality is a particularly serious problem in Phnom Penh,where many supply lines are old and allow treated water to be contaminated. Problemsare severe in Sihanoukville as well, where many residents dig shallow wells that arecontaminated by septage leached through the soil.
4.6 Another major non-quantifiable benefit will be the project's TA impact onCamnbodian water utilities. PPWSA has already generated impressive capacity tounderstand and grapple with the technical and management problems associated withlarge water systems, but the project will offer its personnel additional exposure to a well-run, commercial utility. Thus, the investment program will demonstrate that waterutilities can be transformed into commercial entities that respond to consumer needs,preferences and willingness to pay. Depending on the experience gained in Phnom Penhand Sihanoukville, the component will probably be replicated in other towns.
Quantifiable Benefits
4.7 The benefits described in the above paragraphs are substantial, although difficultto quantify and therefore not included in this analysis. However, even excluding them,the other economic benefits in both cities will be large. In Phnom Penh, revenueproducing water is estimated to increase from about 14.9 million cubic meters a year in1997 to 39.3 million cubic meters in 2002, through this and related projects. Total legalconnections are expected to more than double, from about 39,000 to 90,000 by 2002, andwater supplied to existing connections will be more reliable, both in terms of supply andquality. To improve access to the poor, it has included a pilot to finance domesticconnections.
4.8 In Sihanoukville, the total available water is expected to increase from 0.58million cubic meters a year to 1.77 million cubic meters by 2002, while connections willnearly triple, from 886 to over 2,300. As in Phnom Penh, the Sihanoukville componentwill make water supply more reliable in terms of availability and quality. To ensure thatthose not connected to the system have access, the project will construct water sellingpoints in low income neighborhoods.'
2The water selling points will be located through a process of community consultations, and managedthrough lease or management contracts in 20 locations, and will serve about 2,800 persons.
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4.9 The quantifiable benefits from the project arise from domestic consumption, aswell as industrial and commercial consumption. No attempt has been made to valueexternalities or non-quantifiable benefits, such as public health improvements (thoughthese are very substantial) or increased land values for areas covered by piped water.
4.10 Quantification of benefits was handicapped by the lack of reliable data. Only onesource of data on willingness to pay was available--a study conducted for the ADB byconsultants--which does not cover industrial consumers. The benefit valuation took intoaccount the results of the survey and used information gathered from a recent ADBpublication (Asian Water Utilities Handbook, 1997). Data were also gathered informallythrough discussions with PPWSA and the community on water vending practices by theinformal sector.
4.11 Benefits from the project through higher domestic consumption arise fromresource cost savings and the incremental consumer surplus. For the Phnom Penhcomponent, the resource cost savings is the difference between the cost of water toPPWSA and that of privately vended water (including private wells). Using a figure of$0.67 per cubic meter, the resource cost saving was calculated to be $0.49 per cubicmeter.3 The incremental consumer surplus is estimated at 10 percent of this benefit.
4.12 In Sihanoukville, domestic consumption was broken down into consumption fromthe reticulation system, water vendors, and the 20 new water selling points to be financedby the project. Water resource savings were applied to the additional water piped throughthe reticulation network and from that sold at the water selling points. The cost ofprivately vended water was estimated at US$0.824 per cubic meter, which provided aresource cost saving of US$0.56.
4.13 While the general equilibrium effects of improved water supply on the industrialand commercial sectors are substantially positive, they are difficult to quantify, given theabsence of even rudimentary data. However, these consumers would obviously notpurchase water unless the incremental revenue was at least equal to the price. From thisprice, the cost to PPWSA/SWSA is then deducted. An additional amount of consumersurplus is still not captured by the price, since anecdotal evidence points to industriespaying far more than even the enlarged PPWSA tariff--which indicates the surplus islarge. Evidence also suggests that industry and business start-ups have been retarded bythe lack of reliable piped water. Thus, the approach adopted was to avoid sophisticated
3The price of vended water is reported in the Asian Water Utilities Handbook (1997) to be $1.67 per cu.m.in Phnom Penh. Table A 1.4 in Annex I provides consumption pattern data for Phnom Penh, and thiswas used as a basis for calculating the "without project cost" of water ($0.67).
4Lack of data from Sihanoukville precluded an analysis similar to that for Phnom Penh. For the latter, itwas estimated that 62% of vended and water supplied from rivers and wells was collected byconsumers without charge. Because Sihanoukville has fewer fresh water sources close to the urbanarea compared to Phnom Penh, the ratio was reduced to 50%. The price of vended water was assumedto be $1.64 per cu. m., though anecdotal evidence suggests it is closer to $2.0 cu. m. An overallaverage price for Sihanoukville for vended water was calculated on this basis.
32
analyses and instead use the commercial tariff per cubic meter as a proxy for overallbenefits; this method almost certainly undervalues the benefits.
4.14 The aggregate benefit was calculated by applying the unit benefit per cubic meterto: (a) the volume of water consumption diverted from the higher cost supplier (vendor)to the lower cost supplier( PPWSA/ SWSA) and (b) the volume of increase in overallsupply due to improved distribution (by reducing UFW).
B. PROJECT COSTS
4.15 Project costs, described in the financial analysis section, were transferred to theeconomic analysis, and conversion factors applied. To determine incremental capitalcosts, the analysis used a standard conversion factor of 90 percent. For operations andmaintenance costs, a conversion factor of 75 percent was used for salaries and wages,given the high level of unemployment in Cambodia. Electricity and chemicals wereshadow-priced at 90 percent, to reflect the labor content, maintenance was shadow-pricedat 80 percent of the financial price, given the relatively high labor needed to maintainproduction and distribution systems, and connecting consumers to the delivery networkwas shadow priced at 80 percent, also to reflect the high labor content.
C. OTHER ASSUMPTIONS
4.16 Project analysis. Three analyses were made: one each for Phnom Penh,Sihanoukville, and the overall project.
4.17 Project life. The project was evaluated over 25 years.
4.18 Replacement costs. Post-project replacement costs for the production anddistribution systems were included.
4.19 Capital costs. The opportunity cost of capital used was 10 percent.
4.20 Residual values. No residual values were added at the end of the project'seconomic life.
4.21 Contingencies. Physical contingencies of 15 percent were applied to civilworks, mechanical and electrical works and installation, computing equipment andmaterials. Price contingencies were excluded as were duties and taxes.
4.22 National costs. Costs for the national training center, a study on Sihanoukville'sfuture water needs, a study on sanitation and wastewater, and project coordination werenot included in either the Phnom Penh or Sihanoukville component. Instead, US$2.3million were included in the overall project assessment for these items.
4.23 Other costs. As noted elsewhere, the ADB launched a US$14.6 million watertransmission and distribution project in other geographic sections of Phnom Penh. Thus,
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this capital input had to be included in the analysis (see Annex 18 for tables to support theeconomic analysis).
D. ECONOMIC RATES OF RETURN AND SENSITIVITY
Phnom PenhBase case:Internal rate of return 18.8 percentNet present value at 10% $24.05 millionSensitivity:UFW remains at current level (EIRR) 12.8 percentUFW at 50 percent (EIRR) 14.7 percentOperating costs up by 30 percent (EIRR) 18.4 percentBenefits down by 30 percent (EIRR) 12.2 percentBenefits down by 30 percent and operating costs up by 30 percent (EIRR) 11.7 percent
SihanoukvilleBase case:Internal rate of return 10.1 percentNet present value at 10 percent $0.3 millionSensitivity:Water tariffs remain at current level (EIRR) 6.1 percentOperating costs up by 30 percent (EIRR) 8.6 percentBenefits down by 20 percent (EIRR) 3.9 percentBenefits down by 20 percent and operating costs up by 30 percent (EIRR) 2.1 percent
Overall project economic assessmentBase case:Internal rate of return 17.2 percentNet present value at 10 percent $22.2 million
E. ENVIRONMENTAL AND SOCIAL IMPACTS
4.24 The proposed project was rated a "B" as there are no major environmentalproblems. The principal environmental irnpact is the larger volume of sewage theincreased water supply will generate. In Phnom Penh, sewage outfalls discharge into theTonle Sap river and a nearby lake. The project includes a study on sanitation policy thatwill guide investments in Phnom Penh and the provincial cities; the recommendationswould be included in an investment program prepared under the project for futurefunding. In Sihanoukville, the proposed water system includes environmental mitigationmeasures for the weir design, reservoir expansion, and alum sludge disposal.
4.25 In Phnom Penh, the only direct social impact of the project is the displacementand resettlement of 26 households (144 people) living at the site of the Chrouy Chang
34
War treatment plant that belongs to PPWSA. These are retired and current employees ofPPWSA, as well as 18 households of illegal immigrants. The utility had allowed them tolive here because the plant was not operating and PPWSA did not need the land.Regardless of tenure issues, PPWSA prepared a Land Acquisition, Compensation andRehabilitation Plan according to Bank policy (OD 4.30); eventually, many of itsprovisions were not needed, because the families opted for cash compensation. To ensurethat all provisions were met, the Bank suggested and PPWSA agreed that prior toappraisal, an independent external agency evaluate the manner and transparency of thecompensation, and the current conditions of the resettled residents. Based on thisassessment, which was done in February 1997, all seemed to be in order and no furtheraction is expected by PPWSA. In Sihanoukville, the component was designed so as toavoid resettlement at the present time. If any is needed later, it would be in connectionwith part of one well, and Sihanoukville authorities would acquire it directly from theowner.
F. PROJECT RISKS
Financial risks
4.26 The main financial risks would arise if PPWSA cannot achieve the agreedoperational targets.
a) Reducing UFW. As explained in the financial analysis, UFW bears heavilyon the project's viability, reducing it is a complex multi-disciplinary effort(even in the best circumstances), and success cannot be taken for granted.However, the target of 40 percent is not overly ambitious, as it is still abovethe average for developing countries (37 percent) in the Bank's Water andWastewater Utilities Indicators sample study. The project design wouldmitigate these risks by introducing the proposed technical assistanceimmediately after credit effectiveness, which would include the twinningarrangement.
b) Raising tariffs. Between the time the project was appraised and negotiated,estimates of inflation and depreciation of the Riel against the dollar changedsignificantly because of the region's macroeconomics crisis. Thus, theproject's financial sustainability will depend on how quickly water tariffs inPPWSA and SWSA are adjusted to cover the increased operating costs. Therisk will be mitigated by an annual review of tariffs during IDA supervisionmissions.
c) Achieving a mix of commercial and domestic consumption. The financialanalysis assumed that when the expansion is complete, the shares of overallconsumption will change: Domestic consumption will rise; commercialconsumption will decline, from the current 45 percent to 38 percent.However, commercial consumption will rise in the aggregate, by 8 percent,
35
which is critical to the utility's financial viability. Thus, the long-term riskdoes not appear large.
d) Increasing the number of revenue-earning connections. Connection costscontinue to be high relative to per capita income, and experience elsewhereindicates that this often prevents poor and middle class consumers frombecoming connected. This risk will be mitigated by the pilot scheme ofassistance to domestic consumers to finance connection fees.
Political and other risks
4.27 Cambodia depends on donor support for a considerable part of its budget. Thus,reduced donor support has severely reduced resources for counterpart funding. In thecase of the major component, to be implemented by PPWSA, it is expected the waterutility will generate enough funds internally to meet not only its counterpart fundrequirements, but those of the entire project. This would reduce the burden on thenational budget and limit the government's "contribution" to taxes and duties exemptions.However, the risk is serious. Thus, during negotiations, assurances were obtained fromthe Ministry of Economy and Finance that in the event PPWSA experiences financialdifficulties and cannot meet its counterpart funding obligations, it will earmark therequired counterpart funds from the Government budget.
428 Political risks remain that could reduce the Government's ability to develop thesector policies and introduce the required institutional reforms. These risks are mitigatedby three factors. First, the policy making process will be developed in a participativemanner, involving key stakeholders (consumers, utility employees, key political andofficial representatives). The Government has already signaled its conmnitment byforming an inter-ministerial Coordinating Committee to develop a comprehensive andlong-term national policy for water and sanitation services, and to streamline its functionsin the sector. Second, the project's approach to policy and institutional development isbased on learning by doing, which means lessons can be quickly incorporated,adaptations can be made according to changed economic and political conditions, and thedesign reworked, if necessary. Third, a series of seminars have been proposed, organizedby the Bank's Economic Development Institute (EDI), to inform stakeholders about thebenefits of early action and the costs of inaction.
4.29 The lack of staff with experience in externally funded projects is a concern. Asthis is the first project for the agencies, the risk is that, without enough technicalassistance, problems could arise: For example, at the early stages, the agencies' lack offamiliarity with Bank procedures could slow procurement and general projectimplementation. For these reasons, the project will provide capacity building, technicalassistance and staff training, especially at the beginning
4.30 Finally, the only risk that could not be reduced through careful preparation wasthat related to security and the unstable political situation. To mitigate this, activities havebeen limited to the two major urban areas, which are less likely to be affected.
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5. AGREEMENTS REACHED ANDRECOMMENDATION
A. AGREEMENTS
5.1 Principal Agreements reached at negotiations were that RGC will:
(a) enter into a subsidiary loan agreement with PPWSA, on terms and conditionssatisfactory to IDA (para. 2.32);
(b) provide counterpart funding for all project components, in event PPWSA isunable to meet its counterpart funding commitments (para. 4.27);
(c) furnish to IDA a comprehensive national strategy for water supply andsanitation by December 31, 1999, and adapt thereafter a formal Statement ofSector Policy by December 31, 2000 (para. 1.23, 2.24 and 4.28);
(d) carry out satisfactory procedures for monitoring the progress of the project inaccordance with agreed performance indicators, and furnish IDA semi-annualprogress reports (para. 2.47);
(e) fwunish to IDA at project mid-term review to be held no later than June 2000, areport on the overall accomplishment of the project and progress achieved incarrying out the key elements of the Statement of Sector Policy (para. 1.23).
5.2 Principal Agreements reached at negotiations were that PPWSA and SWSA will:
(a) retain consultants according to terms of reference and selection proceduresacceptable to IDA for all technical assistance activities financed by the credit, andan action plan and timetable for the carrying out of studies and theimplementation of agreed recommendations thereon (para. 2.39);
(b) cause a revaluation of PPWSA and SWSA assets and the initial audit ofaccounts as of December 31, 1997, by an independent auditor acceptable to IDA,no later than December 31, 1998 (para. 2.50 and 3.10);
(c) provide annual audited financial statements to IDA no later than nine monthsafter the close of each of its fiscal years, prepared by extermal auditors acceptable
37
to IDA; and provide financial statements two months after the close of the fiscalyear (para. 2.48); and
5.3 Principal Agreement reached at negotiations was that PPWSA will:
maintain a debt service coverage ratio better than 1.3, an average collection periodnot exceeding 120 days, up to December 31, 1998, and not exceeding 80 daysthereafter, and an operating ratio not exceeding 0.50 (para. 3.13).
5.4 Special Condition for credit effectiveness is that:
the RGC and PPWSA shall have signed a subsidiary loan agreement satisfactoryto IDA (para 2.32).
5.5 Condition of disbursement against the SWSA project is that:
that RGC shall have raised the average tariff to a level acceptable to IDA, whichensures the financial viability of the SWSA (para. 2.42).
B. RECOMMENDATION
5.6 On the basis of the above agreements, the proposed project would be suitable foran IDA Credit of SDR 22.70 million (US$30.96 million equivalent) to fteKingdom of Cambodia for a period of forty years, including a grace period of tenyears on standard IDA terms.
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ANNEX I
CAMBODIA
URBAN WATER SUPPLY PROJECT
COMMERCIAL PRACTICESIN THE CAMBODIAN WATER SUPPLY SECTOR
Background
1. Previous investments in the water supply sector have focused on rehabilitatingphysical works, on training and on improving cost-recovery. This has built up a core teamof staff in PPWSA and in SWSA, although there are still major deficiencies in institutionalcapacity. The focus on cost recovery needs to continue, but there is now a need tocommercialize sector institutions, and increase their accountability to service consumers.
2. Past accomplishments have been fairly significant: utilities in both Phnom Penh andSihanoukville have made substantial progress both in expanding service coverage and inmanaging their services more efficiently. However, there is still considerable room forimprovement, indicated by the continued high rate of unaccounted for water (UFW) inPPWSA.
Unaccounted for water
3. While unaccounted for water (UFW) is currently running at about 57% in PhnomPenh, it has registered consistent declines from 1992 onward: from 80% in 1992 to 73%in 1993, 64.5% in 1994, 64.2% in 1995, and 61% in 1996. UFW figures at even theexisting levels indicate that PPWSA operations have substantial room for improvements.
4. The significance of the scale of UFW can be demonstrated by the fact that of thetotal capacity of about 110,000 cubic meters of the two Phnom Penh water treatmentplants daily, in 1996 only about 41,000 cubic meters was paid for, even though PPWSAhas incurred the expenditure to produce and distribute a total of about 105,000 cubicmeters. Because of the financial strains placed on PPWSA resulting from the UFWproblem, increases in water tariffs are not able to cover costs. For example, an averagetariffs of KR 800 per cubic meter with the current rate of UFW is equivalent to only KR310 per cubic meter at zero UFW to retain the same income base.
5. UFW and its associated costs take on fuirther dimensions when new investmentprograms are implemented. For example, with the proposed PPWSA investment programApproximately $45 million will be spent to increase production capacity to 175,000 cubicmeters per day, improve the transmission and distribution network. If the levels of UFWwere 60%, this means the total investment for the improvement of the network would be
39
about $640 per cubic meter distributed per day. If UFW were zero the capital cost percubic meter delivered per day would be lowered to $260.
6. PPWSA recognizes the significance of the UFW problem and included a majorsection on the problem in its five year development plan (1996 to 2000) dated April 1996.PPWSA identified the following reasons for its high level of UFW:
* The distribution network has a high rate of technical losses due to age and lack ofmaintenance;
* The customer file has not been kept up-to-date;
* All connections were not metered, and many meters were defective;
* Billing by flat rate used a rate which is below the actual quantity taken;
- Consumers took advantage of the chaotic situation a few years back to invest in illegalconnections;
- Supply from public wells managed by PPWSA was free;
- Some connections (notably Government employees and organizations) were not billed,and
3 Squatters in low income settlements refused to pay on the grounds that they were toopoor (although they continued t pay exorbitant prices for vended water)
7. PPWSA has undertaken a two-pronged strategy to tackle the problem of UFW;both of which will receive support from the project. One part of the strategy is to utilizedonor assistance to finance a comprehensive program of general network rehabilitation(i.e. pipe replacement and pipe renovation) in all the districts of Phnom Penh. IDA,together with ADB, Governments of Japan and France are financing a combined programthat covers the whole city. The other part of the strategy is to launch a water loss controlprogram aimed at understanding and controlling the high water losses at the retail(consumer) level. The latter program was launched in 1996 with French bilateralassistance, and has intensively investigated in a pilot zone - suitably isolated from the restof the distribution system - the reasons why UFW is so high. The investigations revealedthat losses were caused by a variety of factors, both technical and non-technical. Amongthe technical factors were poor quality of pipes, fittings and jointing, heavy traffic aboveareas where water pipes had been laid, and deterioration of the water mains. Among thenon-technical factors were unauthorized practices by consumers, such as illegalconnections to the distribution system, broken and missing water meters, presence of anumber of unmetered public underground tanks from which water was consumed withoutpayment, and non-payment of dues by public agencies.
On the non-technical side (i.e. financial and accounting) PPWSA program now includes:
40
* Increasing the per capita consumption billing base for flat rate bills;
* Completing the registration of all customers on to the computerized billing system anddeleting disused accounts;
* Instituting an incentive scheme and procedures for PPWSA staff, collection personneland meter and pipe connection teams to eliminate illegal connections,
* A major program to increase the number of metered connections (in 1993 there were3,391 metered connections and at the end of November 1997 this had increased toabout 39,000 out of a total of 41,735 connections);, and
* Phasing out of public underground tanks and public wells'.
Progress to date in PPWSA
8. The program for general network rehabilitation has been recently completed forthe Dom Penh District of Phnom Penh, with assistance from the Government of France.The results have been quite dramatic: the monthly volume of water billed in the Dom PenhDistrict appears to have increased significantly. In the December 1995 quarter the averagevolume of water billed was about 300,000 cubic meters per month. For the two monthsJuly and August 1996 the average was 450,000 cubic meters per month. Water usage inJuly and August could be expected to be higher than the period October to Decemberbecause the latter is the rainy season and tail of the rainy season. Nevertheless, the datadoes suggest that progress has been made even though there is no macro meter data toconfirm this assertion. Data from PPWSA also shows that the number of flat rate bills as aportion of total billed water has declined over the period January/February 1995 toJuly/August 1996. This decline, in addition to the increase in volume of billed meteredwater, suggests that users who were billed on a flat rate basis were consuming more thanwas allowed in the flat rate charge.
9. The issue of UFW has been discussed at length with PPWSA, and seniormanagement is aware that UFW can undermine the viability of this project and theautonomy recently vested by RGC. PPWSA expects to gain significant benefits byexpanding the pilot water loss control program through the IDA credit. The twinningarrangement with an Australian water utility is also expected to help maintain themomentum of the UFW program..
10. As noted above, UFW is the key to financial and economic viability. Because ofthe effort that is being put into the reduction of the problem, the financial analysis has
It should be noted that as of October 1996, there were 1,945 public wells served by PPWSA with eachwell used by at least 20 families. It is estimated that approximately 10 cubic meters of water isextracted each day from each well which equates to about 19,450 cubic meters per day or about 20%of current plant output. Policing of wells is a difficult task, and PPWSA is attempting to developneighborhood water selling points, to be managed locally by communities through cost recovery.
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assumed that UFW will fall from 57% in 1997 to 40% by 2002. In view of the magnitudeof the problem in Phnom Penh, and the Bank's experience with similar projects in othercountries and UFW in other developing countries, it is perhaps unrealistic to project amuch greater improvement in the rates.
Revenue collection efficiency
11. PPWSA has undertaken a vigorous program to improve cost recovery. In 1992and 1993, the authority's receipts were less than half of its operating expenses; howeverby 1995, receipts exceeded expenses by 30%. To achieve this, the PPWSA actedsimultaneously on several fronts. First, in revamping its customer list, PPWSA found thatalmost 60% of those on the 1993 database did not correspond to actual customers. It hasnow established an accurate database by eliminating files of non-existent customers andremoving duplicate entries. This initiative initially led to a decline in the total number ofregistered connections, but as illegal connections were cut and new customers registered,the number began to increase.
12. Second, PPWSA embarked on an aggressive metering campaign to ensure thatbills sent .out correspond more closely to the amount of water each customer uses. Thisprogram has led to a dramatic increase in the proportion of metered connections from only13% in 1993 to 55% in 1995 and 81% as of September 1996.
13. Third, with a fully computerized customer database and billing system, excessivedelays in tariff collections have been reduced. Collection ratios have increased from 41%in 1993, to 51% in 1994, 61% in 1995 and 93% in 1996. Collection ratios are high for allclasses of customer except for public institutions. Data from different consumer groupsshows that the collection ratio from domestic and commercial consumers is about 100%.However, the major problem is amounts owing from public institutions. In the May 1 toJune 30 data, these institutions had paid only 15% of outstanding accounts. During thisperiod public institutions accounted for about 6% of total billed consumption.
14. Even though PPWSA's collection ratio appears in order, an analysis of debtorsshows that the average collection period exceeds the periods indicated by the collectionratio. The debtors' data shows that PPWSA's debtors owe PPWSA about four timesaverage monthly sales. This means that, on average, it takes about four months to collectsales revenue. The worst customers are the public institutions which owe about 12 timestheir average monthly consumption.
15. PPWSA has made considerable progress with the establishment of itscomputerized billing and accounting system. The billing system uses the Aquarius systemwhich is based on the Orac,i application and it produces all bills (about 30,000) for allPPWSA metered and unmetered customers as well as a range of management reports.The system was installed at PPWSA in late 1994 and it was developed in France. PPWSAhas had considerable help from both the French Government and the UNDP/World Bankproject in the accounting field. Electricite de Cambodge does not have a computerizedbilling system and would appear to be several years behind PPWSA on this aspect of its
42
operation. In addition to Aquarius, PPWSA also runs the Accpac 2000 system for generalaccounting purposes. The major problem is that the two systems cannot be integrated.This issue, and other financial accounting issues, will be addressed as part of the PolicyFramework component of the project.
16. During appraisal PPWSA acknowledged the problem associated with length of theaverage coliection period. It was agreed that PPWSA would develop a plan and instituteprocedures to recoup the outstanding accounts prior to project effectiveness.
Tariffs
Phnom Penh
17. Prior to September 1993 the tariff for all consumers in Phnom Penh was KR166per cubic meter of water. In September 1993 the rate for commercial users was increasedto KR 515 per cubic meter. Rates were increased again in November 1993 and again inJuly 1994 when domestic rates were set at KR 250 per cubic meter and KR 700 forcommercial users and some wholesalers.
18. In a report commissioned by the Asian Development Bank, the Consultants,Sogreah Ingenierie, determined that the cost of producing water in 1996 was $0.44 percubic meter or KR 1144 at an exchange rate of $1=KR 2600. This was significantlyhigher than the existing tariff of $0.10 for domestic users and $0.27 for commercial usersper cubic meter.
19. The Draft Memorandum of Understanding between the Ministry of Economy andFinance and the Municipality of Phnom Penh and the Asian Development Bank FactFinding Mission of May 1996 identified the critical nature of the water tariffs problem andthe need of cost recovery. The Draft Memorandum concluded that the financialperformance targets set for PPWSA are to recover operating and maintenance (O&M)costs including depreciation by 2000 and to recover O&M plus debt service expenses by2005. Sogreah's analysis suggests that to achieve these targets the average tariff wouldneed to be increased to KR 1,100 per cubic meter. New tariffs adopted have consequentlybeen progressive. These will encourage water conservation and allow cross subsidiesfrom high consumption users to low consumption users and from commercial andindustrial users to domestic users.
20. In the Loan Agreement between the Government of Cambodia and the ADB, theBorrower and PPWSA agreed to implement the new tariff structure and to reduce thewater connection fee by half The new tariff schedule, implemented in June 1997 is shownbelow.
43
Table A1.1:
New Tariff structure for PPWSA
Residential Industrial &commerciala
m3/month tariff KR/ m3/month tariff KR/rn nlm3
0-15 400 0-100 900
16-30 600 101-200 1200
31-100 900 201-500 1500
> 100 1200 501- 180010000
a For consumption greater than 10,000M3 /month, a 10% discount will be applied
21. The new tariff schedule was utilized in the financial projections for PPWSA.However, since June 1997, the changed macroeconomic scenario in Cambodia, and in therest of the East Asia region necessitates a periodic review of tariffs. PPWSA is likely to beaffected by two types of pressures on the costs side. First, any increases in power rateswill affect the costs of water production. As power accounts for about 60 per cent ofoperations and maintenance costs, the impacts are likely to be substantial. Second, ifinflation rates begin to rise, the pressures on the wage bill, as well as materials andequipment will begin increasing. Hence, a tariff adjustment mechanism needs to beinstituted, that would be a transparent process, rather than being, as it currently is, apolitical process requiring cabinet approval. During negotiations RGC agreed that annualreviews with IDA missions could be one way introducing a tariff adjustment mechanism.
Vended water in PPWSA
22. The prices consumers pay for water supply outside the public water utilities is agood indicator of the seriousness of the water supply crisis. ADB has recently completeda survey of water utilities across Asia, and its data indicate that the price of vended waterin Phnom Penh is approximately ten times the tariffs charged by PPWSA.
44
23. Consultants to the ADB conducted a socio-economic survey in Phnom Penh, whilepreparing the ADB's Phnom Penh Water Supply and Drainage Project. One of theobjectives of the survey was to determine the extent to which the population is affected bywater supply and sanitation services and its willingness to participate in the upgrading ofthese services. The survey identified three consumer profiles.
* Consumers already connected to the PPWSA network;
* Consumers supplied by neighbors, and
* Consumers who obtain their water from vendors, wells or rivers.
24. Even though the survey estimates that 42% of households are connected to thenetwork the quality, rate of flow, pressure and supply of water are low resulting in aninadequate service. As a consequence, even this portion of the population would besignificant beneficiaries of the proposed project. The table below summarizes key surveydata.
Table A1.2: Key socio-economic survey data
Description Category 1 Category 2 Category 3
(Connected to piped (supplied by (supplied by vendorswater) neighbors) & from rivers/wells)
Percentage of households 42 16 42 (16% vendors)
Average income (KR/month) 1,375,000 325,000 1,020,000
Av. consumption (M3/mth) 37 14 20
Old Tariffs
Av. cost per M3 (KR) 280 2652 2124
Av. cost per M3 (US$) 0.08 0.78 0.62
Weighted av. cost of Category - 0.67 0.672 and Category 3 (US$)
Total expenditure (KR/mth) 10,360 37,128 42,480
Water cost as % of income 0.8% 11.4% 4.2%
New Tariffs and connect toPPWSA network
Ave tariff/M3 (KR) (1) 575 400 450
Total expense (KR/mth) (2) 21,275 5,600 9,000
Water cost as % of income 1.5 1.7 0.9%
(1) Assumes each category will connect to the network. (2) Assumes consumption remains constant.
45
Source: ADB T.A. No. 2280.CAM Urban Water Supply and Sanitation Project. Volume 2 Present Situationand Development for the Future June 1996
25. The World Health Organization (WHO) considers expenditure on water up to alevel of 5% of household income as affordable. With this yardstick, the Category 1 and 3households in the analysis above are easily within the WHO standard but the category 2households pay more than double what WHO considers affordable. Further, given theassumptions used in the analysis, the data shows that both the category 2 and 3 consumerswill be better off even under the new tariff regime if they connect to the PPWSA networkand if they retain their current level of consumption. The major benefit is achieved by theCategory 2 consumers who's expenditure on water for the month would decline fromKR37,000 to KR5,600.
26. Affordability of domestic water supplies of a number of cities in Asia wasestimated in the ADB Water Utilities Data Book published in 1993. The study showedthat the average expenditure on water as a portion of household incomes in 19 (of 23cities surveyed) was 2% or less. The new charges proposed by PPWSA for Phnom Penhdomestic users (given estimated consumption levels) are well within the 2% for themajority of the cities in the region as quoted in the ADB publication.
27. As the analysis in paragraphs 23 and 24 shows, connecting to the water supplysystem results in significant savings for the lower income level of the population. The main.impediment to increasing the number of connections is the cost of connecting to the watersupply system. Current information indicates that the average cost of connecting is aboutUS$200 per connection. However, as part of ADB's negotiations, PPWSA agreed toreview and eventually lower the connection fees. Nevertheless, even if the fee were to belowered to US$150, this still exceeds one month's income for the Category 2 householdsand about 40% of the average monthly income for the Category 3 households. Thesecosts are likely to preclude many poorer families from the connection program. TheEconomic and Social Commission for Asia and the Pacific of the United Nations hasfound that the poor often face considerable difficulties in raising the capital required forthe initial costs of connecting to a piped water supply system. Studies in India, Pakistan,and Bangladesh have shown that connection rates can be increased substantially if watercompanies provide financing to poor customers for the cost of connecting to the pipedsystem.
28. Because of the need to increase access of the poor to piped water and because ofthe financial risks associated with the project it was agreed with PPWSA during finalproject preparation that the project would include a pilot scheme of financing domesticconnections. It was also agreed that agreements to be reached at negotiations will includethat the RGC will cause PPWSA to revise its connection fees on the basis of actual cost.
Sihanoukville
Current tariffs and the water supply pattern in Sihanoukville are shown in the table below.
Consumer group Number of Monthly Average tariffconnections consumption (M3) (KRIM3 )
Domestic 750 10,500 500
Brewery 1 28,500 900
Hotels 15 6,000 500
Factories 4 1,800 500
Port 1 600 500
Subtotal treated water 771 47,400 740
Reticulation loss 12,685(19%)
Backwash loss (10%) 6,676
Plant production 66,761 741
Tankers (untreated) 3,000
Water from lake 69,761
29. The table shows that the average tariff is currently KR741 (US$0.27) per cubicmeter and that the brewery, which takes about 60% of the treated water sold by SWSA,pays, on average, KR 900 ($0.33) per cubic meter. Project preparation documentsprepared for MIME show a consumption profile for SWSA after the completion of theproject. This profile is reproduced below.
Consumer group Number of Monthly Average tariffconnections consumption (M3) (KR/M3 )
Domestic 2000 36,000 700Brewery 1 45,000 1,200
Hotels 20 10,500 700
Factories 5 7,500 700
Port 1 15,000 700
Tanker (treated) 15,000 600
Water points (5) 15,000 500
Subtotal treated water 2033 144,000 825
Retic. losses (20%) 36,226
Backwash loss (0.5%) 906
Plant production 181,132
47
Table A1.5: Sihanoukville- 1998 amended consumption profile and tariffs
Consumer group Number of Monthly Average tariffconnections consumption (KRIM3)
(M13)
Domestic 2000 36,000 900
Brewery 1 35,000 1,800
Hotels 20 10,500 1,800
Factories 5 7,500 1,800
Port 1 15,000 1,800
Tanker (treated) 7,000 500
Water points (20) 33,000 500
Subtotal treated water 2033 144,000 1,214
Retic. Losses (20%) 36,226
Backwash loss (0.5%) 906
Plant production 181,132
30. The tariffs in the table above show significant variation between the commercialand domestic tariffs. It may be argued that if similar tariffs to those in Table AA.4 wereput in place there would be a significant cross subsidy from the brewery and industrialsector to domestic consumers and consumers buying water at water selling points. Thisargument is not believed to be valid. In the SWSA project preparation material, a total101,000 cu. m./month is estimated to be available from the existing water supply source ifthe level of the weir is raised, the sand spit sealed and the efficiency of the existing watertreatment plant is improved. This volume is approximately equal to the sum of the originalcommercial consumption and the estimated new domestic consumption resulting fromimproved facilities. The total estimated cost of raising the lake, sealing the sand spit andimproving the existing water treatment plant up to the level required to meet these needsis about $0.6 million. Given these works will provide an estimated additional 65,000 cu.m/month this equates to a capital cost of $9.20/month per cu. m of water produced. Theestimated marginal cost of improving capacity a further 31,000 cu. m/month to satisfy theanticipated additional commercial needs is $1.3 million or $41.90/month per cu. m ofwater produced. Because of this apparent significant difference in the cost of supply andthe fact that this project is to be funded by IDA, it may not be unreasonable to have ahigher commercial tariff of the magnitude discussed in this analysis.
Staffing
31. PPWSA has improved human resources management significantly in recent years.One major innovation has been to change the incentives for staff in order to encouragehonesty and efficiency. The new incentive system operates effectively even within the
48
rigidities of municipal rules, such as those that limit [certain] salaries to the equivalent ofUS$10 per month. The most important part of the incentive system gives a bill collector abonus for each illegal connection he or she reports. At the same time, if someone fromanother department of PPWSA reports an illegal connection, that person receives thebonus, and the collector responsible for the part of the city in question must pay a penaltyto the authority. The bonus is 20% of the fine levied on the illegally connected customer.Since the implementation of this system, the average number of new connectionsregistered per month has doubled to 860 between 1995 and 1996. The number ofconnections cut off has increased steadily from 262 to 623 during the period January-September 1996.
32. Overall, management of staff has iriiproved over the past three years at PPWSA.Contrary to experience in many low income countries, PPWSA has not been an employerof last resort. The number of staff per thousand connections has dropped from 18 in 1992to 15 in 1995. The accuracy of meter reading has also improved over time from 83percent in 1995 to 87 percent by August 1996. In addition, operating as an autonomousentity under the new Decree, PPWSA has wider discretion to reward good performanceand penalize poor performance.
33. One key element of the project will be staff training and development. The projectbudget includes approximately $0.25 million for a national water training center in PhnomPenh. This facility will serve both Phnom Penh and all urban regional water supplyutilities. Courses will cover both managerial and technical topics. In addition to thistraining, the project's budget also includes a significant allowance for both specializedtraining in Cambodia and abroad. Training will also be a key element in the proposedtwinning arrangement.
49
ANNEX 2
CAMBODIA
URBAN WATER SUPPLY PROJECT
CAMBODIAN PUBLIC ENTERPRISE LEGISLATION
1. Concerned, among other things, with the need for greater clarity regarding thelegislative framework in which publicly funded and managed services operate, in June1996 the Government of Cambodia enacted a Law on the General Status of PublicEnterprises2. This Law provides rules for the operation, governance and supervision of allpublic enterprises. Although granted independent legal personality and ostensible financialautonomy, each public enterprise is placed under a Government Ministry or some otherpublic authority and made subject to various State controls. In all cases, these comprise:
(a) control by the "tutelle" Ministry, exercised by its representative(s) on theBoard of Directors of the enterprise, with a view to ensuring conformity ofBoard decisions with Government policy or directives of the "tutelle"Ministry;
(b) the "Controle des Inspections ministerielles et services assimiles" whichconsist of periodic assessments of a technical nature; and
(c) control by a "State Controller", namned by the Minister of Economy andFinance from within the ranks of the Ministry's senior officials, so as toensure:
(i) compliance by the enterprise with its legislative and regulatoryobligations;
(ii) the appropriate application of any decision taken by the enterprise;
(iii) all necessary follow-up regarding the operations of the enterpriseand their appropriate evolution; and
(iv) the appropriateness of any transaction which might have a financialimpact on the enterprise.
2. State controllers work under the directives of the MOEF to whom they reportregularly. They are required/entitled to attend enterprise Board meetings and shareholders'meetings. They have discretionary power to object to decisions of the Board of Directorsif the decision appears to them to be illegal, likely to diminish the "rights and interests"either of the enterprise or the State, or incompatible with the "purposes" of the enterprise.
2 No. 0696/03 of 17 June 1996
50
Such objections must be provided on a timely basis to the Board, the MOEF and thetutelle Ministry, with the Ministries having the power to modify or confirm the decision.The Law is however silent on cases where the two Ministries disagree.
PPWSA-specific Legislation
3. It is within this context - applicable to all public enterprises - that RGC, by Decreeof 4th December 1996, established PPWSA as a public enterprise under the "tutelle" ofthe Ministry of the Interior. The enterprise is declared to have separate legal personalityand "administrative and financial autonomy"3.
4. PPWSA's purpose is to ensure the production and distribution of water for publicconsumption within the city of Phnom Penh. Importantly, however, PPWSA is, for thefirst time, obliged to organize, manage and operate its activities independently inaccordance with conmmercial business principles and practices4. In this connection,PPWSA is authorized to cut-off water supply to any customer (whether public or private)in arrears in the payment of the relevant tariff beyond the period stated in the Authority'scontract with the customer.
5. Although it is too early to judge the extent to which non-commercial and politicalobjectives may conflict with PPWSA's principal objective to operate on a cost efficientbasis (and by the year 2002 without any RGC subsidy), the Decree does reducebureaucratic controls on managers to the maximum extent possible in the context of theLaw on Public Enterprises.
6. Also, although the Decree does not deal directly with the issue of PPWSA's tariffpolicy and the basis on which its tariffs may be permitted or required to change, theDecree does require PPWSA's Director General to prepare an annual business plan, whichwill reflect the tariff structure, for approval by PPWSA's Board of Directors,
7. Finally, in terms of its RGC subsidized support, PPWSA operates with a certainfinancial autonomy and transparency in the sense that, rather than having its accountsmerged with those of the Phnom Penh municipal government as was the previous practicesince its establishment, PPWSA has now been allocated a separate line item in the nationalbudget.
The Authority was formerly a public agency under the Governor of Phnom Penh and, as such, part ofthe city's municipal administration.
4 See Article 4 of the Authority's Decree.
51
ANNEX 3CAMBODIA
URBAN WATER SUPPLY PROJECT
Letter of Sector Objectives
53 ANNEX 3
KINGDOM OF CAMBODIANATION RELIGION KING
ROYAL GOVERNMENTCouncil for the Development of CambodiaRef: 5S2 l g;J CDC/CRDB Phnom Penh, o4 April 1997
Mr. JavAd Khalilzadeh-ShiraziDirector, East Asia Country Department IThe World Bank1818 H Street, N.W.,Washington D.C. 20433 USAFax No:202 477 6594
Dear Mr. Shirazi,
Proposed Water Supply Project - Letter of Sector Objectives
1. As you are aware, the Royal Govemment of Cambodia is committed, and has beenworking with IDA, to implement the proposed.water project. During the preparation, we havemet with various IDA missions, the latest being the mission of March-April 1997. We havealso benefted considerably from the Seminar on Water Sector Policy held by the EconomicDevelopment Institute of the Bank at the time of this mission.The purpose of this letter is toset out our objectives in the urban water and sanitation sector and indicate our commitmenttowards their attainment.
2. The Govemment's First Socio-economic Development Plan 1996-2000 enunciatesthe overall priorities of the Govemment. As emphasised therein, the wider provision ofpotable water and sanitation in both rural and urban areas, both as a means of tackling oneof the root causes of poverty and as a means of improving public health, is a high priordtyfor the Govemment. In formulating policies for this sector we recognise that water andsanitation need to be managed as economic goods. Our main objective is therefore toincrease the availability of all water and sanitation services, and to do so in a manner that isguided by demand for services from users, and encourages economic efficiency andsustainability. To achieve this objective, we recognise that services need to be managed atthe lowest appropriate level, by organisations that are accountable to users for good andcost effective service.
3. The Govemment's immediate objective for Phnom Penh is to make the PhnomPenh Water Supply Authority (PPWSA) a financially self-sustaining commercial entitywhich will supply adequate water meeting WHO standards. Phnom Penh accounts for anestimated 40% of the nation's GDP and the provision of reliable and cost-effective watersupply will be important to the nation's prospects for rapid growth. The Govemment iscommitted to making PPWSA financially and operationally autonomous to contribute toeffrient operation and conserve scarce Govemment resources. PPWSA has been alreadybeen corporatised as a public enterprise under the Public Enterprise Law, as part of thisprocess.
54
4. The objective for the provincial towns is to develop financially self-sustainablecommercial organisations and to transform them into autonomous bodies. As a first step,the water authority in Sihanoukville has been granted a large measure of financial andoperational autonomy by Ministerial Decree No.524 dated 02 September 1996. TheSihanoukville Water Supply Authority is empowered to collect its own revenues, incurexpenditures and manage ts operations as a commercial undertaking and is no longersubject to the Treasury Law applicable to Government Departments.
5. There are additional current constraints in transforming the water supply units inother towns into autonomous commercial undertakings. These are the acute shortage ofskilled manpower to operate these undertakings, the current inter-relationships between theelectricity and water operations which are under the same administrative control in mosttowns, and the absence of adequate accounting and financial systems to ensureaccountability for revenues and expenditures. Our objective for these towns is to addressthese institutional constraints by a concerted programme of actions. These will includetraining of staff in technical, accountingl and administrative skills, and preparing andimplementing a revised institutional structure. The new institutional structure should enablethe sector to be managed at the local level, guided by local demand for services. It isexpected that the Unit for Potable Water Supply in the Ministry of Mines, Industry andEnergy will continue to provide technical support and assistance to the provincial towns. Weare now receiving technical assistance from the ADB for the restructuring of the provincialwater supply institutions. The proposed IDA project will complement this and assist usthrough its training and institutional strengthening component.
6. The Government recognises the vital importance of improved sanitation in promotinggreater well-being and better public health. The need for sanitation services is acute and willbecome more so with increased water supplies. Our immediate objective is to develop aSanitation and Waste Water Management Strategy that is, as far as possible,implementable, guided by demand, and fiscally sound. The Government will utilisecomponents of the proposed IDA Project in attaining this objective.
7. We recognise that the level of tariffs and the manner in which tariffs are set andrevised are crucial to the autonomous commercial operation of water utilities. We arecommitted to setting tariffs at levels that recover costs and assist water undertakings tobecome commercially viable and cost efficient. Our objective is to develop institutionalarrangements which will enable tariffs to be revised periodically on the basis of pre-determined rational commercial criteria. The institutional strengthening component of theproposed World Bank project will assist us in this.
8. Considering the severe resource constraints the nation faces, it is desirable toencourage the participation of the private sector in water supply and sanitation. TheGovemment is conscious of the need for a suitable policy framework to attract privateparticipation and will work towards the evolution of an appropriate framework.
9. The Govemment recognises that the attainment of these objectives will require acomprehensive, coherent and long-term national policy for this sector. The Govemment iscommitted to the preparation and implementation of such a Statement of Policy inconsultation with all relevant stakeholders and seeks the assistance of IDA, through theproposed project, in this important endeavour.
10. The First Socio-economic Development Plan recognises that responsibility within theGovemment for urban water and sanitation is dMded not only vertically but horizontally.
55
There is a need for a more streamlined and rational structure for policy-making andregulation in the sector. The evolution of such a rational structure, in consultation with IDA,will form part of the proposed Statement of Policy. In the interim, (as already stated in theCDC's letter 2674/96 CDC/CRDB dated 6th December 1996) a Coordinating Committee hasbeen constituted to co-ordinate policy in the water and sanitation sector. The CoordinatingCommittee consists of senior representatives of the Ministry of Mines, Industry and Energy,the Ministry of Public Works and Transport, the Ministry of the Environment, the Ministry ofEconomy and Finance, the Council for the Development of Cambodia and the Phnom PenhMunicipality. The Committee , which is chaired by the representative of MIME, will overseethe prepaiation of the Statement of Policy.
We request the World Bank to e issing of this important and long-awaited Project, which will go a Ion Govemment in its efforts toachieve the ambitious objectives set oonomic Development Plan.
Yours sincerely,
h h eatoChhonSr. Minister in Charge of Rehabilitation and Development
Minister of Economy and FinanceVice Chairman, CDC
cc: - Ministry of Economy and Finance- Minsitry of Planning- Ministry of Industry, Mine and Energy- Ministry of Public Works and Transport-Phnom Penh Water Supply Authority- CDC/CRDB
I
57
ANNEX 4
CAMBODIA
URBAN WATER SUPPLY PROJECT
TERMS OF REFERENCE FOR TWINNING ARRANGEMENTBETWEEN PPWSA AND AUSTRALIAN UTILITY
Background
1. Twinning arrangements, as an instrument of technology transfer and capacitybuilding have a mixed record. In the water sector in Latin America, they have had a mixedrecord. In the Philippines energy sector on the other hand recent interventions have beenquite a success. These are also successes in the Indonesian petroleum sector and the Fijiantelecommunication sector.
2. The Banks Handbook of Technical Assistance defines twinning as "theestablishment of an institutional relationship between an organizational entity in adeveloping country (the 'recipient') and a similar but more mature entity in anothercountry (the 'supplier'). It notes that twinning is mainly aimed at (and best suited to)transfer of managerial, financial and technical skills and systems that involve the numerousfunctional aspects of the recipient entity. It cites a number of advantages of twinning -opportunities to integrate training with TA, greater flexibility to alter work programs toneeds, long-term cooperation, lower expense, encouraging developing country expertise inconsulting (where the supplier is from another developing country). It also mentions thepossible disadvantages - the supplier may lack consulting experience and developingcountry experience and twinning could be a hidden form of tied aid. It recommends thatmore than one TA supplier from the donor countries should tender for twinning contracts.
3. In the design of the twinning arrangement these factors have been borne in mind.The Phnom Penh Water & Sanitation Authority (PPWSA) needs an infusion of a numberof multi-functiorial inputs covering the whole spectrum of managerial, financial andtechnical systems, broader than could be delivered by specific TA. Twinning doestherefore fit the context. Among the potential disadvantages, the first two - lack ofexperience in consulting/lack of developing country experience are unlikely to apply tomajor suppliers from Australia. The issue of 'tied' supply remains. However, in thecontext of the urgency of Cambodia's need in preparing for the IDA project, the scarcityof resources and the ready availability of Australian funds, the commencement of atwinning arrangement with an Australian supplier seems the most effective practicablesolution.
58
Objective
4. The objective of the twinning will be improve the institutional effectiveness ofPPWSA in respect of:
(a) improved technical expertise in operations and maintenance;
(b) reduction in unaccounted for water;
(c) streamlined institutional arrangements within PPWSA for projectexecution; and
(d) operations & maintenance, so as to prepare PPWSA for successful- implementation of the proposed IDA project.
Considerations in Design and Adaptive Learning
5. The following factors have been borne in mind in designing the TOR:
(a) Experience has shown the importance of institutional factors includingcultural settings and social norms in affecting program effectiveness.
(b) One way transfers of knowledge from developed to developing countryhave generally failed or if successfil, not been sustainable because ofinstitutional differences.
(c) Adaptive learning, whereby state-of-the-art practices are observed,understood and then adapted to local circumstances, offers a better chanceof success.
(d) The proposed Project has specific components of TA for procurement andaccounting, and these need not be duplicated in the twinning.
Description of Work Program
Module 1: Australian experts visit to Cambodia
6. (a) The Australian entity (hereinafter referred to as 'the twin') shall depute ateam of 2 experts to Phnom Penh to assess the status and needs ofPPWSA. The assessment shall be made with PPWSA staff in acoliaborative manner.
(b) The team shall comprise:
59
(i) a technical expert with extensive experience of water supplysystems especially transmission and distribution, and experience inunaccounted for water reduction including at least 3 years indeveloping countries; and
(ii) a management expert with extensive senior level generalmanagement experience in a water utility, preferably includingdeveloping country experience, with a sound knowledge of generalmanagement issues including personnel, relations with customersand government regulators, billing and collection problems,organization structure and delegation of powers etc.
7. The technical expert shall first arrive in Phnom Penh for a two month stay,followed a month later by the management expert for a period of one month.
8. The PPWSA shall identify specific counterparts to work with the twin, for each ofthe following 6 functional areas:
i. Transmission system maintenance and leak detection, operations andmaintenance of treatment plants
ii. Distribution system maintenance and leak detection.
iii. Accounting
iv. Metering, Billing and Collection Management.
v. Personnel Management and Training.
vi. General management and relationship with Government/Regulator andconsumers.
9. In carrying out the assessment, the following shall among other things, beconsidered:
reasons for illegal connections and non-detection.
existing system of bulk water metering.
existing methods of meter installation, configuration, replacementworkshop practices including repair, testing, spare parts, meterfitting, meter reading.
use of water for operational purposes.
60
review of distribution system, assessing pipe materials used,construction and pipe installation methods, repairs and maintenancemethods, soil etc. conditions, traffic loadings, distribution systempressure and variability, system mapping.
plans for leak detection, monitoring and rectification including districtmetering, regular sounding, pressure management, valve inspections,data handling and analysis, equipment and skills availability and needs.
10. The experts shall prior to departure from Cambodia prepare a report setting out a)the findings of the assessment and b) making specific recommendations to remedy thevarious problems identified. While the report may cover the whole gamut of issues, itshall (in addition to general findings) have specific sections on each of the six functionalareas listed in paragraph 4 above. The experts shall discuss, as far as may be practicable,their recommendations with the identified PPWSA counterparts for each functional area.A copy of the Report shall be furnished to the IDA Project Coordinator and to MIME (forinformation).
Module 2: Overseas study tour and hands-on learning
11. This module will comprise two parts. The first will be a long duration study tour tothe Australian utility ( 45 days) which will expose the Cambodian team to efficient utilitypractices and involve hands-on learning by the Cambodians in the context of an actualrunning utility. The second will be a short duration study tour (1-2 weeks) of one otherdeveloped country (to be determined in consultation with IDA). This tour (estimated tocost about $25,000 but in any case not to exceed $30,000) will involve visits to, andinteraction with, a public sector utility and an independent regulator, with emphasis onregulatory, tariff-setting and policy aspects. The sequence of the two tours is flexible. Thecomposition of the Cambodian team for the short duration study tour (to be finalized inconsultation with IDA) will reflect the emphasis on regulatory issues and may includerepresentatives of concerned Ministries.
12. As soon as the experts return to Australia at the end of Module 1, the twin shallmake preparatory arrangements for the visit to Australia of the Cambodian counterparts.
13. Approximately a month after the departure of the experts, the five Cambodiancounterparts (other than the counterpart dealing with general management) will proceedto Australia for a 45 day adaptive learning visit. One person among the five (whomPPWSA shall so designate) shall be the team leader and will coordinate the visit. The teamshall also be accompanied by a seventh member deputed by MIME. All members of theteam shall be Cambodian nationals. The functional counterpart dealing with generalmanagement and regulatory issues ( who is expected to be the Executive Director ofPPWSA) will join the team for the last 15 days of its visit.
61
14. During their stay in Australia, the twin shall demonstrate and explain to theCambodian team the prevailing practices of the twin in all functional areas with specialemphasis on aspects where PPWSA has major problems. The emphasis shall be onhands-on training and field visits. The 2 Experts who went to Cambodia shall be closelyassociated with the team as far as practicable.
15. Apart from unaccounted for water, 0 & M and technical and managerial areasidentified by the experts, the team -- particularly the functional member on Management'issues from PPWSA and the MIME member -- shall study the:
i. Scheme of delegation of powers - the types of matters that are referredto the Board of the twin, the extent to which operational staff can takedecisions, financial powers at various levels, personnel hiring/firing
powers.
ii. Manner in which the twin is regulated; when and how the regulator/Government. exercises control
iii. Twin's procedures for redressing customer complaints,remedies (including legal) available to consumers againstthe utility.
iv. Twin's system of management information and control;how staff who are given more authority, are madeaccountable.
v. Twin's financial rules and procedures, systems for fraudprevention.
vi. Twin's tariff structure and the rationale therefor.
The above list is inclusive and not a full listing of areas to be covered.
16. Pnor to departure from Australia, each member of the PPWSA team shall preparea report on his functional area in which he shall cover:
(a) what he has seen and learnt during the visit;
(b) whether, in the light of his experience, he wishes to accept,modify or reject the recommendations made earlier by theAustralian experts; and
(c) his own further specific recommendations in his functional area.
62
17. These reports shall be given to the twin before departure. The twin will commenton the report within one month of the Cambodian team's departure
18. The team member from MIME shall prepare a report on his experiences andrecommendations applicable to his organization.
19. On return to Cambodia, the reports (along with the comments of the twin) shall becompiled and placed before the Board of PPWSA. Copies of the report (& comments)shall be sent to the IDA / PC I MIME/ Coordinating Committee.
Module 3 : Australian experts' second visit to Cambodia
20. At such time as PPWSA and the twin may deem most appropriate, but not morethan 5 months after the return of the Cambodian team, the Australian experts shall returnto Cambodia for a 45 day stay. This visit shall be used for assessment and problem-solving on the following:
(i) how much of the recommended action has been implemented;
(ii) problems encountered during implementation;
(iii) if any recommendation has not been implemented, reasonstherefor; and
(iv) further suggestions and plans of action.
21. During the second visit the technical expert shall also, in consultation with theTeam Leader in PPWSA, prepare a suggested list of equipment or other items to beprocured for reduction of technical losses under the relevant component of the project.
22. At the conclusion of the second visit, the twin shall prepare a completion reportsetting out its findings and recommendations, based on paragraphs 13 and 14 above. Thereport shall be submitted to PPWSA with copies to the IDA Project Coordinator, MIMEand IDA.
General
23. Throughout the duration of the arrangement, the twin shall ensure that technicalassistance, advice and inputs given under the arrangement are fully consistent with thetechnical assistance received by PPWSA under the proposed IDA project and for thispurpose shall maintain a close liaison with the IDA Project Coordinator and all IDAProject technical assistance personnel. The aim should be to achieve a consistency ofstrategy, avoid duplication or contradiction and maximize synergy.
Estimated Costs:
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24. The expected costs are as follows:t ~~~~~~~~~~~~U.S.-$
Module 1 65,000Module 2 95,000Module 3 60,000
220,000Add: Contingencies @ 10% 22,000
Total 242,000
Continuation of twinning arrangement
25. The results of the twinning arrangement will be evaluated. If the arrangement isfound to have been a success, funds available under the Reduction of Unaccounted-forWater sub-component of the proposed IDA-financed Cambodia Urban Water Supplyproject can be used to finance a new, longer term, twinning arrangement, the twin beingselected in accordance with World Bank procurement guidelines.
64
ANNEX 5
CAMBODIA
URBAN WATER SUPPLY PROJECT
Project Cost Estimates
Table A 5.1: Cost Summary - Phnom Penh Water Supply Component:Base cost, contingencies and annual requirements (1998-2002)
Table A 5.2: Cost Summary - Phnom Penh Water Supply Component:Total cost, contingencies and annual requirements (1998-2002)
Table A 5.3: Cost Summary - Sihanoukville Water Supply Component:Base cost, contingencies and annual requirements (1998-2002)
Table A 5.4: Cost Summary - Sihanoukville Water Supply Component:Total cost, contingencies and annual requirements (1998-2002)
Table A 5.5: Cost Summary - Policy Framework Component:Base cost, contingencies and annual requirements (1998-2002)
Table A 5.6: Cost Summary - Policy Framework Component:Total cost, contingencies and annual requirements (1998-2002)
Table A 5.1: Cost Summary - Phnom Penh Water Supply Component: Base cost, contingencies and annual requirements (1998-2002)
Breakdown of Totals Ind. Cont. (Fiels 0OD)
Base Cost (Piels 000) Local (BEcc. Duties &
1998 1999 20OD 2001 2002 Total For. Exch. Taxes) Taxes Total
TotMl 1,754.9 15.51.7, 12,559.4 3,747.9 2,092.9 35,738.8 2Z620.6 8,634.6 4,481.6 35,736.8Due to rouding the last digit n totas nay appear differeat than sumn of digits.
Table A 5.3: Cost Summary - Sihanoukville Water Supply Component: Base cost, contingencies and annual requirements (1998-2002)Breakdown of Totals hid. Cont (Eels 'OO)
one Cost (Eels '000) Local (Ect. Outies AIs *N 2000 20 2002 Total For. Exch. Teaxs) Taes Total
A. Cvi Works . 451,503.0 6,781,608.6 - - 7,233,111.6 8,340,847.3 664,057.2 1,478.650.6 10,483,555.1
L Equipment - 153,085.0 10,200.0 - 163,285.0 202,651.2 27,357.9 230,009.1
C. Consu1. Construction supervision 283,220.0 351,220.0 214,200.0 - 848,640.0 941,742.4 - 94,174.2 1,035,916.62 TA
Table A 5.4: Cost Summary - Sihanoukville Water Supply Component: Total cost, contingencies and annual requirements (1998-2002)Breakdown of Totals Jncl. Cont. (iels '000)
Totals Including Contingencies (Riels '000) Local (Exd. Duties &199B 1l00 200 2001 2002 Total For. EKch.. Taxes) Taxes Total
A. Ciil Works 542,526.0 9,941.029.1 - - - 10,483,555.1 8,340,847.3 664,057.2 1,478,650.6 10,483,555.1
Due to rounding the last digit in toass may appear diffeent than sum of digis.
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ANNEX 6
CAMBODIA
URBAN WATER SUPPLY PROJECT
Phnom Penh Water Supply Improvements
1. Works
1.1 This component of the project is designed to increase the quantity of treated wateravailable in the City of Phnom Penh. The City's water supply system comprises adistribution network of about 307 km of pipes, 80% of which are over 40 years old, twopumping stations, five reservoirs with a total capacity of 24,500 cu. m, and two treatmentplants--Phum Prek (with production capacity of 100,000 cu. ni/day) and Charncar Mom(with production capacity of 10,000 cu.m./day), both of which have been rehabilitatedwith Japanese and French assistance, respectively. The total supply of 110,000 cu. n/dayis being fully absorbed. A third treatment plant--the Chruoy Chang War--on the bank ofthe Mekong River has been out of operation since 1983 on account of damage to rawwater mains and deterioration of the facilities.
Water Demand:
1.2 PPWSA has adopted the water demand forecast which has been prepared byconsultants for planning the implementation schedule of water treatment plants and for thecalibration of the distribution network. The demand is based on population projections forPhnom Penh which show and increase from 1,075,000 in 1995 to 1,450,000 in 2005 and2,240,000 in 2015. The average day demand is estimated at 193,390 m3/day (maximumday demand 248,700) in 1996--83,390 m3/day in excess of the available supply. Demandis projected to rise to 211,500 m3/day by the year 2000. Capacity will have to be raisedby an additional 101,500 m3/day to meet the projected demand. Recently PPWSA revisedthis level upwards using a higher consumption figure.
1.3 To meet the increased demand PPWSA proposes to rehabilitate and extend theChruoy Chan War water treatment plant. At full operation, the plant is expected toprovide an additional 65,000 m3/day.
1.4 The scope of work under this sub-component of the project covers: (i) therehabilitation and extension of the Chruoy Chan War water treatment plant; and (ii) thesupply of pipes and ancillary equipment.
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Water Treatment Plant
Design considerations:
1.5 The design considerations for the selection of the treatment process at ChruoyChang War focused on three altematives: (a) the rehabilitation/replacement of the existingplant facilities; (b) the-rehabilitation/replacement of most of the existing structures of theplant; and (c) the construction of a new treatment plant at a different location. Thefeasibility study conducted an evaluation of these alternatives including impact evaluation,technical comparison, estimation of investment and recurrent costs as well as an economiccomparison of alternatives. Alternative (b) offers the best balance between the simplicity inoperation, cost efficiency and possibilities for future extensions. Optimum utilization of theexisting facilities and structures were considered while maintaining the desired plantefficiency. The proposed scheme is a well-proven, conventional treatment process forsurface water which would be easy to operate and maintain. It comprises basically thefollowing steps: coagulation/flocculation, sedimentation, filtration and disinfection and pHcorrection (if necessary).
1.6 Preliminary engineering designs prepared by consultants, were reviewed byPPWSA and the Bank. The Bank also employed the services of a leading consultancy firmexperienced in the design of water treatment plants for an independent review of thedesign. The basic aspects of the preliminary designs considered soil conditions andinvestigations, topographical and hydrological conditions, characteristics of the raw water,and an analysis of existing structures. The Bank has reviewed the preliminary designs andfound them satisfactory. The work will be bid and executed on a turnkey basis includingdetailed design, supply, construction, installation and testing.
1.7 This component will consist of
(a) Construction of new sedimentation tanks, rapid gravity sand filters andclear water reservoir as well as mechanical and electrical equipment toproduce 65,000 cu. m of potable water per day;
(b) Rehabilitation of other existing structures including intake structure, riverbank protection, laboratory, pumping station, 2,000 cu. m clear wellreservoir, gatehouse and pipework;
(c) All interconnecting pipework, drains and roads, fencing, lighting, etc.;
(d) Construction of new accommodation block and flow meter house;
(e) Rehabilitation of two high level reservoirs;
(f) Laying of 2.5 km of 800 mm diameter transmission main, and
73
(g) Crossing of the Tonle Sap River by attaching two pipes to the ChrouyChang War Bridge.
Supply of Pipes and Ancillary Equipment:
1.8 The scope of work for the Phnom Penh Water Supply component also covers thesupply of about 85 km of pipes and fittings. Pipe material for about 14 km will be ductileiron and the rest will be high density polyethylene (HDPE). These will provide piped watersupply in the southern district of Chamcar Morn District which has been designated byPPWSA for IDA assistance. The pipes will form the secondary and tertiary network in thearea and will serve many income groups, including low income communities whichcurrently do not have access to piped water. The Bank has reviewed the biddingdocuments prepared by PPWSA for the procurement of pipes and ancillary equipment andfound them to be satisfactory. PPWSA will finance the installation of the pipes and relatedworks in the secondary and tertiary network, at an expected cost of $ 5.49 million.
Operation and Maintenance:
1.9 The turnkey contractor will prepare a detailed O&M manual for the site and worksfor routine operation procedures and maintenance requirements to be followed on a daily,weekly, monthly and yearly basis. These will include training requirements for skilledoperators and maintenance personnel, treated raw water sampling and testing records,chemical storage and use, dosing levels, checks on electrical and mechanical equipment,routine and specific maintenance of plant and health and safety regulations. PPWSA plansto deploy 40 personnel for operation and maintenance of the plant which is consideredreasonable in relation to the 45 personnel currently employed in the existing Phum PrekWTP. Personnel will be selected from among PPWSA staff and/or recruited as necessary.They will undergo on-site training one month before commissioning of the plant and threemonths during commissioning.
74
2. Pilot Proeram for Financial Assistance for new connections
Background:
2.1 Given the low levels of income, the cost of connecting to the water system isbeyond the means of many households. Yet, once connected, households realize largesavings since the recurring costs of alternative sources of water are far higher. A schemeof financing which enables households to defer payment of the initial connection costwould have the following benefits:-
a) it would give access to cheaper, cleaner drinking water to some of thehouseholds who need it most;
b) it would assist the utility in its process of commercialization by expanding themarket for its water.
2.2 To be sustainable however, any such scheme would need to be financially viable tothe utility in terms of both, recovering the loan itself and in terms of covering the cost offunds, and to be administratively practicable. The outline scheme described below attemptsto meet these criteria.
Details of Pilot program:
2.3 Any person wishing to take a domestic water connection from PPWSA will beeligible to be financed under the program, if he agrees to the terms of the program.
2.4 The program will finance part of the cost of a new water connection subject to amaximum per connection which will be determined by PPWSA. Initially it is expected thatthe maximum financing will be $100 per connection but this may be reduced whenconnection costs are reduced under the project.
2.5 Applications for financing will only be considered after the applicant has depositedan application fee of such sum as PPWSA may determine. This sum is initially expected tobe in the region of $20. The application fee will be refunded if the application is rejected.If the application is accepted, the application fee will be adjusted against the downpayment due from the applicant.
2.6 In order to keep the administration of the scheme simple, avoid accountingproblems and reduce administrative overheads, financing will only be offered in a standardpackage or a maximum of two standard packages. The exact size of the package(s) will bedetermined by PPWSA. A standard package would comprise:-
i. a standard loan amount (say, $50)ii. a standard repayment period (say, 24 months)iii. a standard interest rate
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iv. a standard set of monthly or bi-monthly or quarterly installments payablewith the water bill, calculated on the basis of i. to iii above.
2.7 PPWSA may determine the details of the package(s) subject to the followingparameters:-
a) the rate of interest charged shall reflect the prevailing cost of funds forconsumer loans from the banking system and PPWSA's overheads inadministering the program, but shall in no case be less than 18% per annum;
b) financing shall always be partial and shall never exceed $100 per connection;
c) the repayment period shall not exceed 2 years from the date of connection.
2.8 On approval of an application for financing under the program, the applicant shallbe required, within such period as PPWSA may specify, to make a down payment whichshall cover the difference between the cost of the connection and the amount of financing(after adjusting the application fee already paid under paragraph 3 above). It is to be notedthat since the package itself will be of a standard amount, the down payment will varyfrom case to case depending on the cost of a particular connection.
2.9 All persons who receive financing under the program shall enter into a bindingagreement with PPWSA whereby they agree to pay the agreed installments along withtheir water bills and whereby non-payment of any installment will entitle PPWSA todisconnect water supply even if water bills have been paid. This agreement shall be in suchform as PPWSA may, on appropriate legal advice, determine to be necessary and adequateand may contain such other terms as PPWSA may deem necessary to ensure operationalfeasibility and promote loan recovery.
2.10 All amounts, including interest, received as installments from consumers shall becredited to a separate Revolving Fund account and shall not be credited to generalrevenues of PPWSA. Balances in the Revolving Fund shall be used for further financingunder the same terms.
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ANNEX 7CAMBODIA
URBAN WATER SUPPLY PROJECT
SIHANOUKVILLE WATER SUPPLY IPROVEMENTS
1. Works
1.1 This component of the project is designed to increase the quantity of treated wateravailable in the port city of Sihanoukville. The 1,700 cu. m per day of water produced bythe Sihanoukville Water Supply Authority (SWSA) currently meets the needs of only 11percent of the city's population of 47,000. Yet, the opportunities for employment withsupport and service industries associated with the port, tourist activities and newbusinesses establishing in Sihanoukville, has necessitated further improvements andupgrading of the water supply system to serve the residents and the increasing population.Based on current population trends, the average daily demand for water is projected at10,000 cu. m in the year 2000. This is far in excess of the proposed daily supply of 5,200cu. m under the project. Capacity will have to be raised even further in the medium termthrough the exploration of alternative sources of water.
1.2 To meet part of the demand for water it is proposed under the project to augmentsupply and improve distribution and access. On the supply augmentation side theproposals are the following:
(a) The lake level will be raised by constructing a new weir crest against theexisting bridge abutments. This will increase the lake storage by around100,000 cu. m/day and the dry season draft by 500 cu. m/day.
(b) Geological investigations associated with the development of the finaldesign for the new weir structure have identified the existence ofconsiderable groundwater flow through the area of the lake andsurrounding country. The volume of this flow is greater than thewithdrawal presently made from the lake (2,100 cu. m/day). The retentionof the flow through the lake and the consequent losses through the sandspitto the sea would optimize the benefit of raising the lake level. The civilworks contract for the raising of the weir will therefore includeinvestigations to confirm the estimates made of the depth of the sandspitand the construction of an impermeable barrier at the lake edge to reducethe losses. This low-cost intervention will increase the safe sustainable draftfrom the lake by about 1,100 cu. m/day. (Lowering the foot-valve in thesuction intake to the raw water pumps can provide a further sustainablecapacity of up to 300 cu. m/day.)
77
(c) Four new wells--with total capacity of 1,500 cu. m/day--will beconstructed and equipped.
1.3 To expand the availability of the increased supply to a larger section of thepopulation, 20 tanker filling and water selling points will be constructed as alsoimprovements to storage capacity through the construction of a high level reservoir.
Design:
1.4 The component would thus involve:
(a) Increasing the storage volume of the raw water lake byraising the outlet weir, and sealing off the sand spit;
(b) Installation of four new groundwater wells in proximity tothe former wells which have been out of operation; installation of powersupplies, standby generators and control panels;
(c) Improvements to treatment plant and raw water pumping stationincluding: (1) procurement and supply of pipes and fittings andaccessories, raw water pumps, generator, control panels and metering; (2)procurement of laboratory and office equipment;(3) procurement of avehicle and 7 motorcycles; (4) tools and equipment; (5) backwash
recycling tank, and (6) sandbag for sludge removal;
(d) Improvements to distribution system includingprocurement and laying of pipes and fittings; establishment of tankerfilling and water selling points;
(e) connection of wells to distribution network includingsupply and laying of pipes,
(f) additional 3,000 cu. m high level reservoir within distribution system; and
(g) consulting services for: (i) one full time professionalsupport to the Unit of Potable Water Supply for overall planning andmanagement; (ii) a socio-economic survey to establish the customer baseand their effective demand for water services; (iii) engineering advice tocheck design of groundwater deferrination plant and expansion ofreticulation system; (iv) the development of SWSA's accounting andmonitoring system to meet the requirements of the authority as afinancially autonomous entity; and (v) studies on long term water sourcesfor Sihanoukville.
78
1.5 Engineering design for (a) and (b) has been carried out by consultants. Biddingdocuments are under preparation. Since the safe yield from the groundwater wells and thechemical quality will only be determined after drilling and testing of wells, final design andspecifications for the submersible pumps, the deferrination plant, and distribution workswill be undertaken following the drilling of the wells.
79
ANNEX SCAMBODIA
URBAN WATER SUPPLY PROJECT
Terms of Reference for Consultants
1. Water Policy Consultant
Objective:
1. The objective of this consultancy will be to prepare, in consultation with the RGC and allstakeholder institutions, a draft water policy for Cambodia. The consultant would build on theoutcomes of the EDI Seminar held in March 1997.
Duration of Assignment: 4 months.
Qualifications:
2. Masters level qualification in Economics, Public Policy, Public Health Engineering, PublicAdministration or related field with minimum 15 years experience in the water / infrastructuresector with at least 3 years developing country experience in dealing with water and sanitationpolicy formulation, including tariff matters, at sectoral level.
Tasks:
Months 1-2
1. To consult all the Ministries and official institutions involved in the water sector, as wellas non-governmental organizations, other stakeholders and any other groups representingconsumers, as well as IDA on the issues covered and conclusions reached in the EDISeminar in order to convert the broad conclusions thereof into specific action points,
2. To assist Coordination Committee to prepare a first draft of the Water Policy covering:
(a) Tariff policy (to cover both Phnom Penh and provincial towns):
General principles: treatment of water as a scarce economic good, principle of costrecovery, payment for water by administrative consumers, policy on cross-subsidization, bearing in mind deleterious consequences of excessive cross-subsidization on growth and welfare; and
Measures for protecting the poor: Mechanism for revision of tariffs on rationalcommercial criteria: demand and willingness to pay, adjustment of nominal tariffswith inflation, need for cost recovery based on local costs relevant to each utility,tariffs to recover full long term costs (including depreciation and expansion needs)
80
of efficient operation without passing on to consumers costs of utility inefficiency,incentives for productivity improvement, indicators for productivity measurement,institutional arrangements for tariff revision providing for promptness,transparency, user consultation with appropriate incentives for all agencies to actin an economically rational manner.
(b) Water resource allocation policy - prioritization of water demand for drinking,irrigation, commercial and other uses where allocation conflicts arise;
(c) Reorganization of policy-making at Government level minimizing number of agenciesinvolved in order to ensure coordinated and unified sector decision-making, and timeframe for reorganization.
(d) Autonomy of water utilities in Phnom Penh and provincial towns, principle ofaccountability to Government for specified outputs rather than day-to-day decisions, andto consumers for good service;
(e) Prioritization of public expenditure on water and sanitation in rural and urban areas,b- between rural and urban areasb between water and sanitation
taking into account demand, willingness to pay, economic viability, self-financingpotential of urban utilities, poverty, externalities like congestion and resultant health risk,and private / public sector managerial capacities
(f) Broad benchmarks for performance of urban water utilities by the year 2000, to coverefficiency aspects (operating ratios, unaccounted-for water, staff-to-connection ratio) andservice coverage/quality (percentage of population covered, quality standards).
(g) Government's approach to private participation in individual aspects of waterindustry, areas in which private participation would be encouraged/permitted immediatelyand those where it would be considered later.
(h) Time-bound Action Plan for implementation of key actions in (a) to (g) above
Months 3-4
3. Hold detailed consultations on draft policy with all stakeholders, organizeappropriate workshops (including proposed EDI Seminar) to ensure informed discussionby all concerned;
4. Assist Coordinating Committee in preparing final draft of Statement of Policy andformal submission to RGC.
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2. INSTITUTIONAL CONSULTANT
Objective:
3. The objective of this consultancy will be to assist the RGC in implementing theinstitutional aspects of the proposed water policy, by providing detailed advice and expertise, andto improve institutional effectiveness in the sector as a whole.
Duration of Assignment: 9 months.
Qualifications:
4. Masters level qualification in Public Administration, Public Policy, Public Health or relatedfield with minimum of 15 years experience in Government/quasi-government organizationsincluding at least 3 years in public sector reform in developing countries. Experience in a waterutility, especially in a developing country, would be an added advantage. The candidate'sexperience profile would be the crucial factor in determining suitability.
Task:
5. General approach: The Consultant shall be guided by the need to ensure that incentives fordifferent organizations are carefully structured to ensure that all of them work towards agreedeconomically rational objectives; the existence of appropriate organizational incentives for allstakeholders will be crucial in minimizing conflict and in coordinating efforts. The Consultant shallensure that suggested organization structures are designed to take this into account and shalldesign administrative processes that reflect the appropriate incentive structure rather than astructure of "command and control". Within this overall framework the Consultant shall:-
(a) Prepare detailed administrative guidelines for the allocation of work amongst thedifferent policy-making ministries/bodies, pursuant to the principles ofreorganization set out in the water policy, including procedures for resolvinginter-departmental differences in a time-bound manner
(b) Review organization structure of reorganized Ministries/other policy-makingbodies and suggest improvements;
(c) Review procedures for processing of all water sector decisions in the Ministriesand suggest incentive improvements in different functionaries and agencies toact promptly and rationally, and building capacity for analysis of investments oncost-benefit basis.
(d) Identify specific training needs for Ministries, etc. for funding under the project;
(e) Draw up detailed and specific guidelines for matters which:(a) will,
82
(b) will not require ministerial approval under the autonomy granted/tobe granted to utilities, keeping in mind the need for adequate autonomy in utilitymanagement;
(f) In respect of matters which will require ministerial approval, prepare a clear,simple and prompt procedure for approval, with time limits; "negative' approval -i.e. proposals deemed to be approved if not objected to within a specified period -should be considered whenever possible, especially in respect of procurement andtariff matters:
(g) Prepare guidelines for Government nominee directors and the State Controller onthe Board's of utilities on their roles and functions as non-executive directors,keeping in mind the need for operational autonomy;
(h) Streamline procedures for release of funds to utilities from the government budget;
(i) Evolve a mechanism for fiduciary accountability of the utility to government asowner, for results and impacts (rather than processes and procedures), through the
Business Plan and Budget using such devices as may be appropriate, e.g.- targets for expansion of coverage- targets for billing efficiency ,collection and coverage of the poor- targets for return on capital employed- targets for completion of capital works on schedule- targets for productivity of labor and cost effectiveness.
(i) Evolve a strong institutional mechanism for accountability to consumers andresponsiveness to consumer grievances.
(k) Review internal procedures of utilities other than PPWSA, delegation of powersto various levels, etc. and suggest improvements to enhance effectiveness. Inrespect of procurement procedures, the consultant shall work in consultation withthe Project Coordinator, who shall be primarily responsible for procurementaspects of procedures;
(1) Assist the Project Coordinator/Team Leader and AccQunting Expert in PPWSA inprocedural reform to the extent requested by them.
Outputs:
6. The Consultant shall submit a written report on each of items (a) to (k), of which thereport on items (a) to (b) shall be submitted within 3 months of commencement of assignment.The Report will be submitted to the Council for the Development of Cambodia with copies to theIDA Project Coordinator, and IDA.
83
ANNEX 9
CAMBODIA
URBAN WATER SUPPLY PROJECT
Terms of Reference for Sanitation and Waste Water Management Studyin Phnom Penh and Sihanoukville
Background
1. Cambodia has requested assistance from the World Bank to finance reconstruction of thecountry's urban infrastructure. During the preparation of the Bank-financed Water RehabilitationProject in Phnom Penh and Sihanoukville, concerns have been raised that sanitation and wastewater management problems have not been mitigated. In order to mitigate against long termenvironmental damage, a consultant team, consisting of individuals with global sectoralknowledge will assist RGC's Coordinating Committee for the Water and Sanitation Sectordevelop a sanitation policy framework, which will lead to a strategic and cost-effective programof investments in sewerage and drainage infrastructure in Phnom Penh and large provincial towns.
2. Cambodia, one of the poorest countries in the world, is currently rebuilding itsinfrastructure after decades of internal conflict and genocide. As part of the reconstruction effort,RGC has requested assistance from the World Bank to finance investments and develop anappropriate water and sanitation policy framework.
3. Urban sanitation problems in Cambodian cities affect all sections of the population. Inparticular, the poor residents are severely affected as poor are they are often live in low-lyingareas, and use on contaminated water supply sources for washing, bathing, and often even fordrinking. The problem of inadequate sanitation infrastructure has been accentuated by the absenceof a coherent policy framework, and limited capacity in sectoral institutions to develop such aframework to lay out pricing rules, investment criteria and financing options to tackle theproblems of urban sanitation and disposal of untreated wastewater. Cambodian institutions thusstand to benefit from global best practices on how to invest in basic sanitation and wastewaterdisposal infrastructure in a sustainable and cost-effective manner.
Objectives and Scope of Consultancy
4. The purpose of the Consultancy is, to advise RGC, and major water utilities (PPWSA andSWSA), on the basis of global best practices, on how best to address current waste watermanagement problems, so that services are provided on the basis of (i) what beneficiaries andcommunities want and are willing to pay for, and (ii) the services are managed at the lowestappropriate level.
5. In order to accomplish the consultancy objectives, the consultant team will distill bestpractices from the global experience, utilize information gathered from existing studies on thesubject in Cambodia, and recommend to RGC a strategic plan for resolving the problems of
84
sanitation and wastewater collection and disposal in Phnom Penh and Sihanoukville. The lessonslearned from the exercise is expected to be applied in other Cambodian provincial towns as well.
6. The consultancy will be funded through the Water Policy component, under the overallsupervision of the Coordinating Committee for the Water and Sanitation sector. Day to daysupervision will be exercised by MIME. The consultant team will endeavor to build consensusand involve all the stakeholders - from the community level to the government level - in theprocess of developing the strategy. Since sanitation and waste water management issues cutacross several sectors, the consultant's recommendations will be coursed a Committee - eitherdirectly through the Coordination Committee, or any Steering Committee nominated by theformer, and comprising key stakeholders from the Government, PPWSA and SWSA,municipalities and community representatives. The Steering Committee, with technical assistancefrom the consultant, will also supervise the completion of a Strategic Sanitation Plan (partiallyfinanced from this TA), that would propose a series of investments after undertaking a process ofuser consultations. Mitigation activities proposed thereafter could be packaged as investmentprograms for possible funding by donor agencies, including IDA.
Summary of activities and expected outputs
ACTIVITY DESCRIPTION OUTPUTS
Initial Review The Consultant in consultation with RGC staff, undertake an initial Initial Strategy Report forreview of the sector performance, summarize key findings from earlier Sanitation and Wastewaterstudies, and facilitate the formation of a Nationil Steering Committee, provisioning in Phnom Penhunder overall guidance of the Coordination Committee. and Sihanoukvilbo.
Steering Committee Formation and The Steering Committee with technical assistance from Consulant, Endorsement of ConsultantManagement discusses Initial Report findings with key stakeholders, including Report by Steering
beneficiaries conmmunity groups, NGOs, PPWSA and SWSA staff and Committee.RGC officiafi
Health and Enviromnental The Steering Committe, with technical assistance from consultants, willMonitoring & Awareness Program share draR Report with NGOs and comunity leaders who currently are Prelinary consultations(HEMA) working in water, sanitatio, education, community development, or with stakeholder enable
related areas, and collect available information on above topics. Based on finalization of Initial Strategythe feedback received, an information collected, the National Sanitation Reportand Wastewater Strategy Report will be finalized, laying out a policyframework
Mitigation Activities The Consultant will evaluate technical options, that could address septage Report identifie feasible, andRecommendations on technical dispsal and waste water mitigation in a cost-effective manner in the cities cost effective techncaloptions for on-site treatment, off-site of Phnom Penh and Sihanoukvile options available in Phnomtreatment, collection and conveyance Penh and Sihanoukville tosystems mnitigate urban sanitation and
waste water problems
Preliminary feasibility study, and Based on the results above, a straegic sanitation plan will be developed. Strategic Sanitation Plan forpiloting of user consultations T beneficiaries, commuities and c Phnom Penh and
repesetaive th tchncalopion avilblevwthin the budet envelope PnmPn navailable to these groups. The budget envelope will be developed for the Sihanoukville, with identifiedcity level/PP WSA or SWSA through the use of a Long-term Financial proposals for investmentsPlanning model.
7 There are five main project components: i) Initial Review; ii) Steering Committee; iii)Health and Environmental Monitoring Activities (HEMA); iv) Initial Mitigation Activities; and vi)Preliminary feasibility studies.
Initial Review
85
8. The initial review will be a desk review of available documentation. The Consultant isexpected to be fully versed with global best practices in the water and sanitation sector. As far asthe Cambodian literature and experiences, the consultant will be expected to thoroughly reviewthe information available. Several Government agencies, NGOs, and donors are currently workingin this sector, and their help and participation will be encouraged. Below is an indicative list ofthe organizations with interests in this sector:
i. Comite' International de la Croix Rouge - ICRC ICRC Water and SanitationProgramme in Cambodian Prisons
ii. Partnership for Development in Kampuchea Urban Community DevelopmentProgramme Redd Bama Project
iii. United Nations Children Fund - UNICEF Water and Environmental Sanitation WorldFood Programme - WFP Infrastructure Development and & Employment Creation
iv. SKIP (Stiftung Kinderdorf Pestalozzi) Urban Community Development
9. Other agencies with interest in the sanitation and wastewater sector:
Caritas CambodiaOXFAMPrivate Agencies Collaborating Together (PACT)Voluntary Service Overseas (VSO)United Nations Development Program (UNDP)Asia Development Bank (ADB)World Health Organization (WHO)Public and Private SchoolsCommunity OrganizationsPublic Works DepartmentDepartment of HealthMinistry of the Environment
86
Mitigation Activities
10. During the preparation of the Project, several environmental issues were raised regardingwaste water management in Phnom Penh and Sihanoukville. The consultant team is expected tofacilitate common understanding of the issues, and recommended possible technical solutions thatare consistent with the feedback from users in order to finalize a Sanitation and WastewaterManagement Strategy Report. The expectation is that the lessons derived from the pilot activitieswould be applicable to all other urban areas in Cambodia.
Strategic Sanitation Plan for Phnom Penh and Sihanoukville
11. After the Strategy Report is completed the consultant team will assist RGC supervise thedevelopment of a Strategic Sanitation Plan for Phnom Penh and Sihanoukville, based on localconditions (described below). These Plans will consist of (i) verification, through thedevelopment of a long-term financial planning model, the willingness and ability to pay by RGC,municipal agencies and the respective water utilities for the proposed trunk investments, (ii) apreliminary feasibility study, outlining the strategic trunk investments considered essential tosupport a sanitation and wastewater infrastructure plan, and (iii) user decisions on the requisitefeeder infrastructure, based on local preferences and willingness to pay. Items (ii) and (iii) willrequire separate financing, and are not covered by this TOR. However, the consultant team willbe expected to provide guidance and specialized inputs in these activities as well, which will leadto the finalization of Strategic Sanitation Plans for Phnom Penh and Sihanoukville.
Sanitation and Waste Water Management problems in Phnom Penh
12. Currently, the residents of Phnom Penh are relying on poorly constructed septic tanks andpit latrines for human waste disposal. The drainage system in the city functions as open sewers,and untreated effluents are discharged into the Tonle Sap River through four outfalls and to anearby lake through four or five main discharge points. One discharge to the lake is throughapproximately six kilometer of open sewer. The sewage is high in surfactant. Though surfactantsare not usually harmful, they lower oxygen levels and there is a tendency for other pollutants,including pathogens, to concentrate in the foam. The need is clearly to develop a cost effectiveand strategic investment program for tackling the problem of inadequate sanitation andwastewater infrastructure.
Sanitation and Waste Water Management problems in Sihanoukville
13. Sihanoukville is a relatively small town compared to Phnom Penh. However, the town isan unspoiled coastal community, with tremendous potentials for tourism. As in the case ofPhnom Penh, there is virtually no sanitation or waste water infrastructure. For example, a newhousing scheme was constructing a sewage outfall with direct discharge to a recreational beacharea. Additionally, a brewery in Sihanoukville, which is consuming a considerable part of thewater supply, has no waste water disposal mechanisms, aside from direct dumping into the oceanbecause legal liabilities of polluters have not been adequately defined.
87
14. The Strategic Sanitation Plan for the two cities will be developed through a participativeprocess, involving the key stakeholders in deciding between technical options, agreeing to thefinancing plan, and finalizing the operations and maintenance program, after construction has beencompleted.
SCHEDULE
ACTIVITY QUARTER
23 4 5 6 7 8
Initial Review f
Steering Committee Formed_ _
Steering Committee Actions |*11*il
HEMA
Mitigation ActivitiesII 1
Strategic Sanitation Plan X*XE
88
Staffing Requirements and Budget
STAFF REQUIREMENT UNIT COST
*Environmental Engineer (Team Leader) 6 mo 60,000BS in Environmental Engineering MS in Environmental Engineering orEnvironmental Science. Registered as a Professional Engineer in his or hercountry of origin. Minimum of 10 years experience in sanitation, includingintermediate sewer technologies, design and construction of waste water systems,and community participatory approaches. Must have at least 5 years experiencein developing countries with preference to the Asia Region.*Sanitation Policy Advisor: 3 mo $30,000BS in Civil Engineering and MS in a related field with a focus towards utilitiesand institutional management. At least 10 years experience working withsanitation policy development, intimate knowledge of global best practices.Experience with participatory approaches and stakeholder committees. At least10 years working with utilities in the developing world setting, at least 5 of whichare in Asia.* Community Participation Specialist: 4 mo $40,000MS in a Social Science field with at least 10 years experience in participatoryplanning approaches in the water and sanitation sector. Must be capable ofcommunicating technical issues to stakeholders, and completing negotiations onservice levels and cost recovery arrangements.*Water Supply and Sanitation Engineer (locally based): 6 mo $15,000Minimum of a MS in Water related field. This position is based in Cambodia eand is responsible for ensuring the day to day operations of the program. Abilityto speak the local language and knowledge of the government structure. Shouldhave some office management experience.Financial Specialist: 3 mo $30,000Capable of developing a long-term financial planning model for financing trunkinvestmentsLocal Consultants (i.e. NGOs) as needed LS $11,000Local Office Staff LS $11,000Administration Costs (Local Transportation, Housing, and Office Costs) LS $50,000Travel and Per Diem (assuming 20 trips) LS $56,800Training LS $17,000Contingency $46,400
Total $367,200*Core Team - Other staffing requirements may be recruited after the core team has donethe initial assessment. The Project Engineer located in MIIME for the Sihanoukville watersupply component would be required as part of his duties to assist the Task Team incarrying out and coordinating the program.
Supervision SupervisionConsul t ant _ Consultant -
C rator C rar
* Coordinating Committee consists of senior representatives of the Ministry of Industry, Mines andEnergy, the Ministry of Rural Development, the Ministry of Public Works and Transport, the Ministryof the Enviromnent, the Ministry of Economy and Finance, the Council for the Development ofCambodia, the Pbnom Penh Municipality, and PPWSA. This Committee is chaired by the seniorrepresentative of MIvIE.
92
Table Al 1. 1-3 shows implementation responsibilities of key entities (by each project component)after the IDA loan becomes effective.
Table A11.1 Responsibilities for Implementation: Policy Framework ComponentEntities Responsibilities
Coordinating Comnmittee (with Overall Project Implementation, including:secretariat assistance by - Procurement of consulting servicesMIME) - Monitoring performance of consultants
- Analysis and evaluation of project experiences- Report to IDA on progress, disbursement, and otheraccomplishment
Consultants Conduct project-specific studies and technical assistanceAssist the Committee and its secretariat in the project Monitoring andEvaluation and semi-annual feedback on project experiences andprogresses
Table A11.2 Responsibilities for Implementation: Phnom Penh ComponentEntities Responsibilities
PPWSA Project implementation: design, procurement, and constructionPost-implementation: Operations and maintenanceMonitoring financial terms/physical progress of projectimplementationAnalysis and evaluation of project experiences_Report to IDA on progress, disbursement, and other accomplishment
Consultants/contractors Conducting of project-specific studies and technical assistanceProviding the project Monitoring and Evaluation (M&E) team semi-
.______ _ annual feedback on project experiences and progresses
Table Al 1.3 Responsibilities for Implementation: Sihanoukville ComponentEntities Responsibilities
MIME SupervisionSWSA Project implementation: design, procurement, and construction
Post-implementation: Operations and maintenanceMonitoring financial terms/physical progress of projectimplementationAnalysis and evaluation of project experiencesReport to IDA on progress, disbursement, and other accomplishment
Consultants/contractors Conducting of project-specific studies and technical assistanceProviding the project Monitoring and Evaluation (M&E) tearn semi-annual feedback on project experiences and progresses
93
2. Overall Implementation Schedule
Figure A11.2 Overall Time Schedule
1997 1998 1999 2000 2001 2002Activities lIII IV I II I VI II IIIIIV IIII I III VII nIVI IIIV I II II I
1. Bank Appraisal & Loan Agreement
2. Phnom Penh Componenta. Chruoy Chang War WTP
1) Procurement (ICB)2) Construction m _ _ _ E_3) Supervision E E IEE
b. Chamcar Water Distribution Network1) Pipes and fittings procurement ([CB)2) Pipe delivery3) LayingIE E H E
c. TA1) Consultants engagement2) TA EE EEEEIE E3) TrainingE EE E E E M l E l E
3. Sihanoukville componenta. Rehabilitation (current system)b. Drilling of Wellsc. Supervision
d. Socio-economic surveye. Detail design Deferrin.f. Detail design Reticulationg. Supply and Installation of Well Fitout and m _
connection to the Networkh. TA and Training iEEIEEIEEEEEEEIEEI
4. Policy Framework Component
a. Policy developmentb. Institutional development/strengtheningc. Sanitation and Waste Water Management Study _ _
94
3. Procurement Arrangements by Component
Table A 11.4: Procurement Arrangements - Phnom Penh Component
4. ConsultantsA. Construction Supervision - 0.93 0.93
- (0.84) - (0.84)B. TA - 1.18 0.226 1.40
- (1.06) - (1.06)5. Revolving funds for the pilot - 0.30 - 0.30domestic-connection program - (0.26) - (0.26)
6. Training - 0.43 - 0.43- (0.38) - (0.38)
7. Incremental Operating Costs3 - 0.207 0.20
8. Land Acquisition - - 0.26 0.26
Total 26.44 3.22 6.08 35.74_ (23.00) (2.87) - (25.87)
1 Includes national-shopping, international-shopping and engagement of consultants2 Not-IDA financed3 Includes maintenance and insurance costs for computer equipment, local staff costs, and reallocation
compensation.4 PPWSA will finance US$5.08 million equivalent for the installation of pipes for the secondary and tertiary
network in the southern district of Chamcar Morn, US$0.16 million equivalent for construction of the trainingcenter and US$0. 12 million for site cleaning of Chruoy Chang War WTP.
5 PPWSA will finance US$36,000 equivalent for equipment for the training center.6 PPWSA will finance about US$0.22 million equivalent for costs of local staff (training technician, computer
technician and water quality technician).PPWSA will finance about US$0.2 million equivalent for reallocation compensation, computer maintenance &insurance and local staff (administration staff).
Total 2.86 1.25 0.10 4.21_____________________________ (2.45) (1.13) (3.58)
'Includes national-shopping, international-shopping and engagement of consultants2 Not-DA financed3 Includes supply & installation contracts4Include communication costs and local staff costs5 For Well Treatment Plant.6 MIME/SWSA will finance US$13,200 equivalent for costs of improving access road.7 MME/SWSA will finance US$54,600 equivalent for local staff (administration staff).
Table A 11.6: Procurement Arrangements - Policy Framework Component(US$ million)
Procurement Method NIF2 Total_________________________ _ X ICB O therl
1. Equipment 0.19 0.19(0.18) (0.18)
2. Consultants (TA) 1.46 1.46. (1.33) - (1.33)
3. Incremental Operating Costs3 0.044 0.04
Total - 1.65 0.04 1.69:l_________________________________ - (1.51) - (1.51)
Includes national-shopping, international-shopping and engagement of consultants2 Not-IDA financed3 ITclude computer maintenance costs and local staff costs4 RGC will finance US$44,000 equivalent for local staff of the Committee's secretariat.
Major Procurement Schedules*
I) Chruoy Chang War WTP - Tumkey Contract (ICB)
2 Q297 [ Q3 97 Q4'97 | Q198 0 Q2'8ID Task Name Duration Start Finish Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun JulI Specific Procurerent Notice Od 6/16/97 6116/97 16 12 Draft pre-qualification documents (PD) 6w 313/97 4/11/97 .
3 IDA approval on the PD 2w 5/12/97 5/23/97
4 Draft bidding documents (ICB) 8w 3/3/97 4/25/97
5 IDA approval on the ICB 2w 5/12/97 5/23/97 .
6 Issuance and submission of PD 11.2w 6/16/97 9/1/97
7 Evaluation of pre-qualified (PO) firm Sw 10/3/97 11/6/97
8 The Government approval of PO firms 7w 11/7/97 12/25/97
9 IDA approval of P0 firms 3w 12126/97 1/15/98
10 Issue ICB to pre-qualified firn 12w 1/16198 419/98
11 Opening ICB submitted Od 4/9/98 4/9198 419
12 Evaluation of bids (BER) 5w 4/10/98 5/14/98 :
13 The Govemment review & approval 2w 5/15/98 5/28/98
14 IDA approval 4w 5/29/98 6/25/98
15 Contract award 2w 6/26/98 7/9/98
Task Summary Rolled Up ProgressProject: Progress Rolled Up Task
Milestone *Rolled Up Milestone
Detail procurement schedules of other subcomponents are shown in the project implementation plans of each component.
Major Procurement Schedules*
2) Chamcar Mom District Distribution Network - Supplying Pipes and Fittings (ICB)
Q2'97 Q3 '97 04'97 Q1 '98ID Task Name Duration Start Finish May Jun Jul Aug Sep Oct Nov Dec Jan Feb |MarI Specific Procurement Notice Od 6/16/97 6/16/97
2 Draft bidding documents (ICB) 8w 511/97 6/25/97
3 IDA approval on the ICB 2w 6/26/97 7/9197
4 Issue ICB 6.3w 8/20/97 10/2/97
S Opening IC1B submitted Od 10297 10/2/97
6 Evaluation of bids (BER) 8w 10/2/97 11/27/97
7 The Govemment review & approval 4w 11/27/97 12/25/97
8 IDA approval 4w 12/25/97 1/22/98
. Contract award 6w 1/22/98 3/5/98
Task Summary Rolled Up Progress
Prjete:199 Progress Rolled Up Task:.
Milestone *Rolled Up Milestone
*Detail procurement schedules of other sub-components are shown in the project implementation plans of each component,
Major Procurement Schedule*
3) Engagement Schedule of Supervision Consultants
Q3 Q4 QlID Task Name Duraton Start Jul Aug Sep Oct Nov Dec Jan Feb MarI Preparation of Request for Proposal (RFP) 1.6w 8/1/97
2 IDA approval of RFP 1.3w 8/13/97
3 Issuance of RFP 6.5w 8121197
4 Evaluation of technical proposals (PPWSA) 11w 1017/97
5 Aaproval by the evaluation comnmittee 3w 12123197
2. Estimated schedule of loan disbursement (in US$ million)
Bank's Year and Loan Loan Loan SectorFiscal Semester Disbursement in Disbursement Disbursement DisbursementYear Ending Semester Cumulative Percent of Total Profile
1998 06/30/98 0.85 0.85 3% 0%
1999 12/31/98 0.85 1.70 5% 50% l
06/30/99 8.32 10.02 32% 58%
2000 12/31/99 8.32 18.34 59% 70%
06/30/00 4.98 23.32 75% 78%
2001 12/31/00 4.98 28.30 91% 86%
06/30/01 1.26 29.57 96% 90%
2002 12/31/01 1.26 30.83 99% 98%
l 06/30/02 0.13 30.96 100% 100%
Note: The sector disbursement profile has been developed on the basis of several typical watersupply and one sewerage project in the region.
101
ANNEX 13
CAMBODIA
WATER SUPPLY PROJECT
Project Performance Monitoring and Evaluation
L. Overview
1. Cambodia Urban Water Supply Project Monitoring and Evaluation (M&E) system - whichwas be confirmed at negotiations - was designed to provide project managers with information onprogress made towards accomplishing project objectives and its impact on beneficiaries.Information on institutional, technical and financial aspects will also be periodically collected sothat the specific needs of a 'bottom-up', transparent, project design are met.
2. The M&E system has two distinct aspects. The first relates to tracking quantitativeinformation showing financial and physical progress in achieving project milestones. The secondrelates to reviewing the impact of project implementation, so that there is an opportunity tochange or modify the succeeding year's program design. The latter depends on the extent towhich information gathered enables contractors, consultants, PPWSA, MIME/SWSA, relevantnational agencies, and IDA understand what appears to be working and what isn't during thecourse of project implementation. Financial and physical progress will be gathered from (i)supervision reports on financial and accounting information and (ii) project team staff,consultants, and contractors during studies, design works, civil works, and project supervisions.Collected information will be analyzed jointly by project consultants, PPWSA, MIME/SWSA, theCoordinating Committee, and IDA.
3. Key performance indicators, which can be either numeric or qualitative, were confirmed atnegotiations. The indicators are classified into the following categories:
a) Input indicators measuring the quantity (and sometimes also quality) of resourcesprovided for project activities.
b) Output indicators measuring the quantity (and sometimes quality) of services that havebeen created or provided through the use of inputs.
c) Outcome indicators measuring the quantity (and sometimes quality) of direct results thathave been achieved through the provision of project services.
d) Impact indicators measuring the degree to which wider sector/project objectives are beingachieved through the direct outcomes of project activities.
4. Overall, input/output indicators are measures of implementation performance, andoutcome/impact indicators form the basis for monitoring the impact of the project. Theseindicators will be supplemented by qualitative evaluations of project performance.
102
H. Summary of M&E Responsibilities
5. Table A 13.1 below shows how M&E responsibilities will be shared among the differentstakeholders.
Table A13.1 M&E Responsibilities
Entities ResponsibilitiesCoordinating Committee (CC) with Overallsecretariat assistance by MIME's - Policy and Overall GuidanceUPWS - Applying the lessons learned for future projects
For Policy Framework Component- Administration of M&E system at both implementation and post-implementation stages- Collecting raw data for performance indicators-Monitoring financial terms/physical progress of projectimplementation- Analysis and evaluation of project experiences- Applying the lessons learned for future projects-Report to IDA
PPWSA For Phnom Penh Component- Administration of M&E system at both implementation and post-implementation stages- Monitoring financial terms/physical progress of projectimplementation- Analysis and evaluation of project experiences- Report to World Bank
SWSA For Sihanoukville Component- Administration of M&E system at both implementation and post-implementation stages-Monitoring financial terms/physical progress of projectimplementation- Analysis and evaluation of project experiences-Report to IDA
Supervision Consultant(s) For Phnom Penh and Sihanoukville Components- Collecting raw data for performance indicators.-Assisting PPWSA and SWSA in analysis and evaluation of projectperformance-Report to PPWSA and SWSA
Other Consultants and Contractors - Assisting the project coordinator and supervision consultants to. collect raw data for the project performance indicators
103III. Key Performance Indicators
CAS Objectives IMPACTS: Did the project achieve lobjectives? (CAS Objectives to BankMission)
1. Rehabilitation of essential 1. Annual increase in access of urban population to safe drinking water and Strategic monitoring of project Risks:infrastructure in urban areas improved sanitation outcomes by donor community - Key reforms in legal and regulatory arrangements2. Improve coordination between 2. Annual investments by private sector in water supply infrastructure and RGC in terms of delayeddonors supporting the Cambodian 3. Reduction in annual financial support from RGC budget to urban water accomplishing CAS objectives Assumvtion:water sector utilities Risk will be mitigated by long-term collaboration
between RGC and donor community
Project Development Objectives OUTCOMES: Did the project achieve its development objectives? (Development Objectives to CAS Objectives)Risks:
1. Water supply constraints reduced for all categories of consumers - Political risks reduce effectiveness of programAugment water supply m Phnom 2. Multiplicity in sector responsibilities eliminated CDC, MOEP and MOEF - Differences in donor conditionalities reducePenh and Sihanoukville cities 3. PPWSA graduates from financial dependence on RGC monitor and evaluate project development outcomes
perforsnance, and finalize a Assumptions:Assist RGC develop water and national water and sanitation Risks nitigated by:sanitation sector policies that provide policy framework - Involving key stakeholders in policy dialoguessustainable services to urban - Providing sufficient time to implement sector policiesresidents
PPWSA Component : Year Persons served lFW Oreratina Ratio AveraeeTariff RisksT A T A T A T A PPWSA/MOEF - Implementation capacity constraints reduce UFW
1998 40% 53% 65% 796 796 program effectiveness1999 48% 48% 65% (in Riels) - Power rate increases opeatng costs2000 60% 44% 65% Assumptions2001 70%/o 42% 65% Risks mitigated by:2002 85% 40%: 65% - Periodic reviews of financial performance
- TA support through consultants and tWinming____ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ ___ _ _ ___ ___ ___ ___ ___ ___ ___ arr ange men ts
Slhanmoukvifle Component Year Persons served UFW Operating. Ratio Averaee Tariffs Risks:T A T A T A T A - Excess demand in town remains unhanged, to the
1998 15% 18% 60% 1241 1241 SWSA/MIME/MOEF detriment ofthe poor and local conmercial/indusrial1999 20% 18% 60% (in Rids) growth2000 30%h 18% 60% Assumptions2001 40% 17% 60% Risks will be mitigated by:2002 50% 18% 60% - Regular reviews of tariffs
- Financing of study of supply augmntdation option andcommercialization of SWSA- Specific steps to protect poor consumers
WSS Poqcy Component Letter of Sector Policy Action Plan to implemelt specific Risks: :recommendations - Problems of coordinaing between
T A T A CC/MIME/MOEF/PPWSA different RGC agencies1999 2000 - Difficulty in understanding policy implications of
WSS Pollcy Component N/Ad T A N/A N/A T A CC/MIME/MOEF Risks:1998 1998 10% - Imiplemenmtation capacity problems
1999 56% - Difficulty in pulling togetr sector policy experience2000 23% Assumptions:2001 10% Risks mitigated by:2002 1% m Appoinent of consultants with proven track records
Note: N/A- Not ApplicableT - TargetA - ActualUFW - Unaccounted for water
105
ANNEX 14CAMBODIA
WATER SUPPLY PROJECT
Supervision Plan
IDA Supervision Input into Key Activities
1. The staff input indicated in Table A13.1 below is in addition to the regularsupervision needs at headquarters to review progress reports, procurement actions,correspondence, etc., and to write an implementation completion report, which isestimated at 6 staff weeks during FY98 and 10 staff weeks during FY99 through FY02.The Bank Resident Office assistance (from the Thailand office for procurement) isestimated at 8 staff weeks from FY99 to FY02. Accordingly, the total IDA supervisioninput is estimated at 72 staff weeks, of which 18 staff weeks would be at headquarters, 46staff weeks in the field, and 8 staff weeks would be from the Bank's Thailand Office.
Table A 13.1: Bank Field Supervision Input into Key Activities
2. Overall coordination of the project would be the responsibility of MIIME as asecretariat of the Coordinating Committee comprising the Mnistry of Economy andFinance, CDC, MNIME, MPWT, the Ministry of Environment, the Phnom PenhMunicipality, and PPWSA. This would include inter alia (i) providing guidance on timingand form of reporting implementation progress; (ii) arranging meetings with governmentofficials during mission's field visits; (iii) chairing mission's opening and wrap-upmeetings; and ensuring timely information to the Bank and proposals for satisfactoryresolution of any unexpected issue during implementation.
3. The following Reports on Implementation Progress would be submitted to theBank:
Semiannually: - Project status reports on implementation, including monitoring of state ofenvironment;
Annually: - Annual updated financial projections of PPWSA and SWSA- Audited financial statements of PPWSA and SWSA, including a separate
opinion on Statement of Expenditures and the Special Account for thecredit; and
Other: - Evaluation report on project implementation.
4. Information collected for the Project Performance Monitoring System (describedin Annex 13) will be utilized to prepare the semi-annual report and the Project EvaluationReport.
Outline of semi-annual status report
5. The semi-annual status report will be prepared by PPWSA and SWSA. The reportshould comprise a descriptive part and appendices; the descriptive part should not exceedtwenty pages and should cover the following items:
(a) General description of the project: A concise summary of projectobjectives, description cities' components, financing, initial and latestestimated costs, initial and latest schedule, key data of credit and projectagreements and of various amendments;
(b) Project overview, physical accomplishment: Status of implementationprogress for each component of the project, procurement, information oninspection of manufacturing, input of supervising consultant; monitoring ofenvironment, compliance during the reported period;
(c) Procurement status: List of awarded contracts with dates of award, startand completion of contract, allowed time extensions, and variations,
107
contract amounts in various currencies and status of disbursement forcontracts, projected and actual disbursement S-curve for the total cost;
(d) Institutional status: Progress of institutional improvements in watercompanies, performance of advisers and achievements in staff training;
(e) Problems affecting implementation: Description of problems and proposedor taken actions.
6. Appendices will list personnel provided by the implementing agencies, by theconsultants and by contractors, key meetings, important visits on site, photographs,location plans of the project showing planned and achieved progress and monitoring &performance indicators.
7. The report will include key monitoring indicators shown in Annex 13.
Outline of the evaluation report on project implementation
8. The evaluation report will be prepared by PPWSA (for Phnom Penh component),SWSA (for Sihanoukville component) and the Coordinating Committee with secretariatassistant by MIME (for Policy Framework component). It should not exceed ten pagesand the performance judgments and analyses should cover the following specific aspects:
(a) Project objectives: A concise statement and evaluation of major objectivesas presented in the SAR, including any changes made duringimplementation. The evaluation will assess the clarity of the objectives,their realism, and whether they are important for the country and sector.
(b) Achievement of project objectives: An assessment of the project's success(substantial, partial, negligible) in achieving its major objectives, inconnection to outputs of the Monitoring and Evaluating System (Annex13).
(c) Implementation record and major factors affecting the project: An analysisof the factors that affect implementation. The factors are divided intothose not generally subject to government or provinces control, thosesubject to government and provinces control, and those subject to thewater supply authorities control.
(d) IDA performance: An assessment of IDA's performance (highlysatisfactory, satisfactory, deficient) in project identification, preparationassistance, appraisal, and supervision.
(e) Water supply authorities and provinces performance: An assessment of theperformance of involved water companies and provinces (highly
108
satisfactory, satisfactory, deficient) in preparing, implementing, andoperating the project.
(f) Assessment of outcome: A rating of outcome (highly satisfactory,satisfactory, unsatisfactory, or highly unsatisfactory) based primarily onhow well the project achieved its objectives and how sustainable it is likelyto be.
(g) Future operation: A description and assessment of the plan for theproject's future operation, including understanding the measures tomaximize the project benefits, and the indicators for monitoring andevaluating future operations.
(h) Key lessons learned: A discussion of the most significant positive andnegative lessons learned from the project's implementation, showing howthey are reflected in the arrangements for its future operations. Thissection also identifies those lessons most relevant to similar future projectsin this sector in Cambodia.
9. PPWSA and SWSA will submit the evaluation report to IDA after completing theproject and in time stipulated in the Project Agreement.
109
ANNEX 15CAMBODIA
URBAN WATER SUPPLY PROJECT
Financial Statements of PPWSA and SWSA
Unaudited Income Statement- Phnom Penh Water Supply AuthorityYear ended December 31, 1996
Item KR ('000) )(000)
Water sales 5415626.6 1969.3Connection fees 2925141.5 1063.7Ret. eaniing adjustment 205844.1 74.9Other income 1417090.3 515.3Total income 9963702.5 3623.2
Cost of salesSpare parts 792268.2 288.1Spare parts costs 157735.9 57.4Cost of meters 420533.6 152.9External install. Cost 102552.0 37.3Labour cost on installation 395293.8 1868383.5 143.7 679.4lectricity 3007402.3 1093.6
Current liabilities- Electricity 3299548.4 1199.8- Refundable deposits 634903.2 230.9- Other 445956.1 4380407.7 162.2 1592.9
Non current liabilities- Owed to Govermment 574334.1 208.8- Foreign grants 13048412.2 4744.9- World Bank loan 5847073.1 19469819.4 2126.2 7079.9
Total liabilities 23850227.1 8672.8
Capital account- Revaluation reserve 130318846.4 47388.7- Opening retained eanings -2257433.4 -820.9- Loss for year -5492548.4 -1997.3-Othercapital 24121105.6 146689970.2 8771.3 53341.8
Unaudited Income Statement- Sihanoukville Supply AuthorityYear ended December 31, 1996
KR(OO) SCOOO)
incomeComm water sales 293157.7 106.6Other water sales 188929.5 482087.2 68.7 175.3Penalty revenue 126 0.0Total income 482213.2 175.4
Current liabilitiesFournisseurs 146764.8 53.4Taxes on salaries 4181.2 1.5Total current liabilities 150946 54.9
EquityGovernment capital 349447.3 127.1
Grants from foreign countries 564367.5 205.2Subventions 62910.4 976725.2 22.9 355.2Retained earnings -130425.1 0.0 -47.4Total equity 846300.1 0.0 307.7
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ANNEX 16
CAMBODIA
URBAN WATER SUPPLY PROJECT
Financial Analysis
A. Financing Rationale
1. The proposed project will finance the expansion of water supply and distributionfor the Phnom Penh Water Supply Authority (PPWSA) and the Sihanoukville WaterSupply Authority (SWSA) as well as strengthen the institutional capacity of bothinstitutions to improve operating and financial performance. The successful financing ofthe proposed project rests on a number of important outcomes, including:
1) Approval and implementation in 1997 of the proposed tariff structurewhich will allow the Phnom Penh Water Supply Authority to fully recover costs.
2) Implementation of the sub-decree which commercializes Phnom PenhPPWSA and establishes it as a financially autonomous entity.
3) Adoption and retention by PPWSA's new board of directors of policieswhich are consistent to the organization's long-term financial sustainability.
4) Establishment of a regulatory and institutional framework for maintainingservice standards and for ensuring the long-term financial viability of theenterprises within the sector, particularly in re-setting tariffs to ensure full costrecovery.
5) Continuation of PPWSA's recent progress in improving its operating andfinancial performance efficiency, particularly with regard to water losses,commercial practices and the management of its working capital.
B. The Water Authority Financial Projection Model
2. A fully integrated financial projection model was developed to support thefinancial analysis of the proposed project and to assess the financial implications to *
PPWSA and the SWSA of the various policy options that are currently underconsideration by the Government. The model addresses the implications of the new watertariff levels and structure and the new installation charges that were adopted by theGovernment. Essentially, all important elements of the project were incorporated in orderto assess the related financial implications and long-term viability. The financial model
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accepts as inputs, basic assumptions on revenues, operating expenses, new investment andongoing capital expenditures, financial management and current operating performanceefficiency, in addition to other assumptions on financing and amortization of existingloans.
3. The financial model was programmed to simulate the activity of a water authoritywhich focuses essentially on water supply and distribution to its customer base. Existingfinancial and accounting principles currently adopted by the water authority wereincorporated to simulate as much as possible the financial management principles ofPPWSA and SWSA. As such, the total funds available through internal and externalfinancing sources are allocated based on specific priorities as would typically be done bytheir respective directors of finance. Requirements for working capital, obligations fordebt servicing are fiilfilled first in order to finance ongoing operations of the waterauthority. Then, new investment requirements are satisfied, first from the remaininginternally generated funds and then estimated secured debt and new equity financing.Specifically, external sources of funds, including both borrowings and equity contributionsare drawn as independent variables in order to bridge whatever financing gap may resultbetween the estimated capital expenditures and remaining cash available after debt serviceand working capital obligations. As such, the model draws only those funds that may beabsolutely necessary to meet the needs of the project while still maintaining adequatelevels for working capital.
4. Annual cash surpluses are initially reinvested in short-term deposits earning aminimal rate of return. Cash deficits that may result in any given year during the projectedperiod, would be financed, first by the sale of excess short-term deposits or other currentassets while still maintaining an appropriate level of current assets to meet ongoingworking capital requirements. Unidentified debt financing is not considered an option formeeting shortfalls in cash during the latter years of the projection period. Therefore, newequity contributions are regarded as the only final source of financing year-end shortfallsof cash. However, since these additional equity contributions may not necessarily beidentified or assumed at the outset of this assessment, other assumptions such as, scalingdown or extending the program are revised first in order to derive a workable solution. If,on the other hand, there is absolutely no conceivable way to achieve this and still retain theintegrity of the proposed project, it would therefore be necessary to assume contributionsof additional equity that would necessarily be agreed with the project sponsor and theGovernment. If this cannot be accomplished satisfactorily, while maintaining a healthyfinancial position, major revisions in the program would then need to be seriouslyconsidered.
1. Significant Accounting Principles
5. The PPWSA and SWSA follow conventional accounting principles and standardssimilar to other commercial utilities. However, accounting for SWSA will need to be
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strengthen considerably for consistency and reliability. Accounting is done on an accrualbasis, and standard commercial procedures are utilized for the accounting of revenues andexpenses as well as fixed assets and debt obligations. During the review, several accountsof PPWSA were still undergoing a process of reconciliation as part of the corporatizationof the water utility. These involved particularly the reconciliation of inter-governmentaltrade accounts such as trade receivables and payables, as well as determination ofoutstanding debt obligations which may or may not be left with the utility for debtrepayment. In the past, both PPWSA and SWSA had been holding excessive workingcapital in the form of inventories, liquid funds, and receivables and had also laggedsignificantly in making timely payments to suppliers, particularly Electricite' de Combodgeand other Government agencies. These practices stem in part from lack of financialautonomy of either authority, and the related uncertainties of not having full control of theenterprise's financial flows. With the implementation of the decree which corporatizes thePPWSA, greater financial autonomy will be granted to the authority for undertakingreasonable commercial and financial management practices. On the other hand, it isanticipated that SWSA will continue to function essentially as a department of MIMEeven though the accounts can be fully separated as it were functioning as a financiallyautonomous entity.
2. Assumptions to the Financial Proiections
a) General Projection Parameters
- Projection Period. For projection purposes the total project period isapproximately 13 years, starting 1998 as the first projection year.
- Currency. Riels in millions.
- Exchange Rate. An exchange rate of 3,400 Riels to US$ 1.00 wasutilized.
- Price and Cost Escalation Rates. Projections of both revenue andexpense items were made in current terms.
- Income and Other Taxes. The water authorities are currently exemptfrom income taxes. However, new policies from the Governmentconcerning PPWSA's tax liability are in the process of beingdeveloped. The Ministry of Finance is also in the process of applying a1% turnover tax which for projection purposes it is assumed thatPPWSA would pass on to its customers.
- Depreciation. For projection purposes, fixed assets are depreciatedbased on a schedule of 65 years for PPWSA and 40 years for SWSAonce they are placed in service.
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b) Key Operating Assumptions
Key operating assumptions are presented in the table below.
Item Phnom Penh Sihanoukville
Plant design capacity before project 110,000 M3 per day 8,000 M3 per dayPlant design capacity after project 175,000 M3 per day 9,500 M3per dayRevenue producing water before 40,800 M3per day 1,600 M3per dayprojectRevenue producing water at year 2003 100,100 M3 per day 5,100 M3per dayUnbiled water 1997 57% 28%Unbiled water 2003 40% 17%Average tariff rate 1998 1,353 RieLskm 868 RielscmConnections before project 34,000 868Connections at 2003 90,397 2,039Ave. domestic taifiM 3 2003 1,743 1,118Ave. comniercial tariff/ M3 2005 $0.38 $0.65Billing efficiency before pioject 92% 95%Billing efficiency 2007 98% 98%
6. Revenues. PPWSA Water realize their revenues purely from water sales based onusage, and commodity and installation charges. In addition, each water authority realizeother earnings from interests on short-term deposits. Summarized below are importantassumptions concerning the derivation of projected revenues.
7. Water Production Capacity. Presently, PPWSA generates all its water capacityfrom the surface water of the Mekong River. Current pumping capacity is approximately40.15 million cubic meters annually and production is at almost at this peak, given thecurrent installed technical capacity of the plant and the high volume of unaccounted forwater, which in 1995 was more than 60% of total water production. The proposedproject which will add to the pumping capacity another 23.7 million cubic meter ofcritically needed water supply to the system.
8. SWSA has a installed water supply capacity of 800,000 cubic meters annually.The project will expand total water supply to 2.14 million cubic meters annually.
9. Service Connection Program. Since both PPWSA and SWSA currently cover avery small percentage of the total population, limitation to water supply and distributionwere based solely on the technical water production capacity as well as the ability of thewater authority to actually connect new customers. As such, a five year connectionprogram formed the foundation for driving water sales projections. Opening activeconnections for year-end 1997 for PPWSA and SWSA were respectively, 34,000 and 868.
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Over the five year period it is projected that these would increase to 90,397 for PPWSAand 2,329 for SWSA.
9. Water Losses. Water losses were divided into two categories: (i) technical lossesarising through seepage during distribution; and (ii) unaccounted non-technical lossesarising mostly through theft or improper commercial practices. This differentiation isimportant because on the technical side, such losses affect mostly operating costs, whilenon-technical losses affect mostly the revenue side of the operation. Together however,they are factored to estimate the actual annual water production that is needed to equateto the water sales derived by the projected consumption, which in turn is derived by theprogrammed installation of new service connections. PPWSA has had substantialproblems with unaccounted for water, at more than 80% only several years ago. Morerecently measures have been taken to reduce sharply both technical and non-technicallosses and at year end 1997, unaccounted for water had already been reduced to 57%. Itis anticipated with the additional interventions water losses will continue to decline overthe 5-year investment program period to approximately 42% in year 2001.
10. SWSA's water losses are significantly lower, averaging about 28% and less during1997 and prior years. It is anticipated with new investments and stricter controls thatthere losses can be reduced to 18% by the year 2000.
11. Water Sales TanffStructure Water sales are projected based on a tariffstructure that, with few exceptions consists of the parts: (i) usage charges by type ofcustomer (ie. residential or commercial); and (ii) an installation charge. Both thePPWSA and SWSA have recently implemented new tariff increases which are designed tofully recover costs. Such tariff levels however, will need to be periodically adjusted tostay at pace with inflation as it affects the cost of doing business.
12. Discountsfor On-Time Payment and Penalties and Fines. Either authority doesnot apply either discounts for on-time payments nor penalties and fines on overdueaccounts.
13. Sewerage Operations. No sewerage operations are contemplated at this time.
c) Operating Expenses
14. Power, chemicals and labor comprise the major operating cost elements for thesupply and distribution of water.
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15. Power. Power is required for pumping for surface water and for distributing itthrough the network. The kilowatt requirement for PPWSA per cubic meter of water isestimated at a constant .23 at a cost per kilowatt of 353 Riels based on historicalexperience. SWSA's power costs are significantly highly due to the need to pump surfacewater to a high elevation where the treatment plant is situated. In turn the kilowattrequirement for SWSA per cubic meter of water is estimated from .83 to .77 at a cost perkilowatt of 550 Riels based on historical experience.
16. Chemicals. Alum, Chlorine and Lime are the primary chemical s used fortreatment. Based on historical usage an average .03 52 tons of a mix of these chemicals isrequired per cubic meter of water at an average cost ranging from 428,000 Riels per tonto 1.05 million Riels per ton. In addition, chemical requirements are also applied a 17%factor on total water production.
17. Transportation & Equipment. This cost item represent primarily fuel costs forvehicles servicing the system which are estimated for both authorities at approximatelyone vehicle per 1200 service connections. Fuel and maintenance costs per are estimated at7,000 Riels per vehicle.
18. Maintenance Materials and Expenses. These expenses are based on 3% of thenet assets values of the SWSA plant and 1% for PPWSA. The difference stems primarilyfrom the fact that PPSWA has revalued its fixed assets while SWSA has not. Once, thenew investments come on stream for SWSA at the more current costs, the assumption formaintenance will also drop to 1% of net fixed assets.
19. Labor Costs. Operational labor expenses are estimated based on a ratio ofoperational employees to service connections which are estimated for PPWSA and SWSAbased on historical their respective performance of 106 and 24 service connections peremployee. However, over the five-year investment program period operationalimprovement should allow for greater efficiency of personnel thus increasing for bothauthorities allowing them to increase the connections per required employees.
20. General & Administration Expenses. These expenses are estimated based on 825Riels annually per employee of SWSA and 3,700 Riels per employee for PPWSA, basedon past experience.
21. Other Operating Expenses. This expense category includes other operatingexpenses and miscellaneous items which have not been specifically identified and areestimated at 2,000 Riels annually per service connection for SWSA and 3,200 Riels perconnection for PPWSA.
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d) Capital Expenditures
22. The financial projections factored a 5-year capital investment program for thewater authority made up of a series of projects to be financed by IDA the ADB as well asother donor agencies. These include:
Five-Year Investment Program for Each Component(in Billion Riels)
Description Phnom Penh SihanoukvilleIDA - Water Supply - 15.4Japan - Distribution Network 65.5
IDA - Urban Water Supply 132.9ADB - Distribution Network 50.4
Total Investment 248.8 15.4
23. IDA. The proposed project will finance: (i) the Choury Changwar pumpingstation and treatment plant; (ii) Accounting and Technical TA for institutional building;and (iii) Chacar More Pipes and (iv) the Water Supply Project for SWSA.
24. ADB. The project includes improvement of main feeders for an approximate costof 50.4 million Riels over a four year program period. A loan of Riels 37.9 billion hasbeen approved by the ADB at 20 years maturity, 5 years grace and at an interest rate of6.5%.
25. JICA. The 7 January Rehabilitation project is estimated to cost approximately65.5 million Riels and will be funded as a grant to PPWSA.
e) Sources of Financing
26. PPWSA. The component will be financed approximately Riels 95.8 billionthrough a 17-year loan with 5 year grace and an interest rate of 8.5%.
27. SWSA. The component will be financed approximately Riels 13.1 billion through a40-year loan with 5 year grace and an interest rate of 1.0%.
Phnom Penh Water Supply AuthoritySUMMARY OF KEY FINANCIAL INDICATORSMillion Riels 3400 Riels = 1US$
TOTAL LIABS. & NET WORTH 2,494 16,829 19,958 20,897 21,308 21,614 21.666 21,798 22,045 22,418
ANNEX 17CAMBODIA
URBAN WATER SUPPLY PROJECT
Economic Analysis Tables
Table A17. 1 Phnom Penh Water Supply Project- Economic Analysis
costs Water billed Physical water benefits Prices dom. Res Con Price Economic Benefits Net NPVYear Year With proj. W'out With W'out Incr. Domestic Comm Total incr water saving surp comrn Domestic Comm Total Benefit 10%No Capital O & M O & M Incr. roj proj Res cs Con surp. Wih W'out with water uc Con sup proiy
Table A17.2 Sihanoukville Water Supply Project - Economic Analysis
Costs Water consumned Physical water benefits Dom. Prices Res Con Conmm Economic benefits Net NPVYear Year Wit proj W'ot Inc With W'ot Incr. Domestic consumption Conum Total With W'out Sav Surp Water Domestic Comm Total Bem @No Cap O&M O&M Proj Proj Res Tanker Water Con cons proj proj with price Res Tanker Water Con 10%
say del point ~suip proj Say points SurpSmiu Smit Smtil Smilt z00 _ _ _ _ _ '1yOWm/y _00fy _m/y SM3 _M S/M3 1 _ $mil Smin$ll lSl m aI $Mill i SmiD Smill
