Document of The World Bank FOR OFFICIAL USE ONLY AV / 02-Z teport No. 7650-BR STAFF APPRAISAL REPORT BRAZIL WATER SECTOR PROJECT IN THE STATE OF SAO PAULO MAY 17, 1989 LAI Department Latin American and the CaribLean Regional Office This document has a restricted distribution and may be used by recipients only in the performanee of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document of
The World Bank
FOR OFFICIAL USE ONLY
AV / 02-Zteport No. 7650-BR
STAFF APPRAISAL REPORT
BRAZIL
WATER SECTOR PROJECT IN THE STATE OF SAO PAULO
MAY 17, 1989
LAI DepartmentLatin American and the CaribLean Regional Office
This document has a restricted distribution and may be used by recipients only in the performanee oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.
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CURRENCY EQUIVALENTS
January 15, 1989
Currency Unit - Novo Cruzado (NCz$)US$ 1 - NCz$ 1NCz$ 1 - US$ 1
FISCAL YEAR
January 1 - December 31
ABBREVIATIONS AND ACRONYMS
AOM - Administration, Operation, and Maintenance CostsBNH - Banco Nacional da Habitacao (National Housing Bank)CEF - Caixa Economica Federal (Federal Savings Bank)CMG - Comunidades de Medio e Grande Porte (Large and Medium-sized
Communities)
CPP - Comunidades de Pequenho Porte (Small Communities)CY - Calendar YearDAEE - Department of Water and Electricity (SAo Paulo)FAE - Fundo de Agua e Esgoto (State Water and Sewerage Fund)FY - Fiscal Year
ICB - International Competitive BiddingIDB - Banco Interamericano de Desenvolvimento (Inter-
American Development Bank)IPC - Indice de Preco do Consumidor (Consumer Price Index)IRR - Internal Rate of ReturnLCB - Local Competitive Biddinglpd - litres per perso.i per dayLRAIC - Long Run Average Incremental CostsLRMC - Long Run Marginal CostMCL - Minimum Consumption LevelMMC - Minimum Monthly Charge
NTL - Ley Nacional de Tarifas (National Tariff Law)OCC - Opportunity Cost of CapitalOTN - Obriga,6es do Tesouro Nacional (National Treasury Bonds)PCR - Project Completion ReportPLANASA - Plano Nacional de Saneamento (National Sanitation Plan)RMSP - RegiAo Metropolitana de Sao Paulo (Sao Paulo Metropolitan
Region)SABESP - Companhia de Saneamento Basico do Estado de SAo Paulo
(SEo Paulo State Water Company)SWC - State Water Company
lL - ALt iL
BRAZIL
WATER SECTOR PROJECT IN THE STATE OF SAO PAULO
STAFF APPRAISAL REPORT
TABLE OF CONTENTS
Page No.
I. THE SECTOR ................................................ 1
Background .................... : ......................... 1Population .......... ...................................... 2Service Coverage .......................................... 2Sector Policies ........................................... 2Sector Institutional Structure ............................ 3Past Sector Investment in Urban Areas ..... ................ 3Bank Experience and Current Strategy ...................... 4
II. THE PROJECT .......... ..................................... 4
Background ........... ..................................... 4Project Objectives ........................................ 4Project Description. 5Project Costs. 6Project Financing. 7Status of Project Preparation. 8The Borrower and the State ................................ 9The Borrower's Past Finances ............................. 10Present Financial Situation ............................. 11Future Financial Performance ............................. 12Finances of Sao Paulo State . 13Monitoring Indicatcrs .13Demand Analysis .13Brazilian Water Supply and Sewerage Tariffs .14Tariff Structure .15Urban Poverty Impact and Affordability .16Internal Rate of Return .17Environmental Impact .17Project Risks .18
The project was appraised by a mission which visited Brazil from January3-27, 1989. This report was prepared by Messrs. Emilio Rodriguez(Principal Sanitary Engineer), Carlos E. Velez (Economist), Guille,mo Yepes(Water/Urban Unit Chief), Tim Campbell (Principal Urban Planner) andMs. Mary Sheehan (Financial Analyst, Consultant).
This document has a restricted distribution and may be used by recipients only in the. performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
1.2 Basic Sanitation, Simulated "Deficits' for Brazil,1985-90 .27
1.3 Regional Distribution of Urban Service Levels, 1988 282 The PLANASA System ....................................... 292.1 PLANASA Investments, 1968-87 ............................. 323 Bank Loans to Brazil for Water Supply and Sewerage ....... 334 Letter of Agreement between SABESP and Sao Paulo .... ..... 345 SABESP's Investment Program, 1989-93 ..................... 396 Detailed Project Costs ................................... 487 SABESP's Organization Chart .............................. 508 SABESP's Institutional Data .............................. 519 Financial Statements of SABESP ........................... 5210 Transfers of the State to the Sanitation Sector .... ...... 5511 Notes and Assumptions for SABESP Financial Forecasts ..... 5612 Water Sector Finances .................................... 6013 Monitoring Indicators ..................... - 61±4 Methodology and Results of the Marginal Cost Pricing
Analysis . .............................................. 6215 Brazilian Water Supply and Sewerage Tariffs .... .......... 7916 Loan Disbursement Schedule ....... ........................ 8717 Documents and Data Available in the Project Files .... .... 88
LIST OF MAPS
IBRD 21459 Water Sector Project: State of Sgo Paulo ............ 90
BRAZIL
WATER SECTOR PROJECT IN THE STATE OF SAO PAULO
STAFF APPRAISAL REPORT
Loan and Project Summary
Borrower: Companhia de Saneamento Basico do Estado de Sao Paulo(SABESP).
Guarantor: Federative Republic of Brazil.
Amount: US$280.0 million equivalent.
Terms: Repayment in 15 years, including five years of grace,with interest at the Bank's standard variable rate,
ProjectDescription: The project consists of: (i) selected water supply and
sewerage subprojects; (ii) engineering and consultingservices as required for design and constructionsupervision; (iii) st:dies and technical assistance tostrengthen capacities for planning, marginal costanalysis and pricing, reductions in costs, and domesticwaste water pollution assessment; and (iv) institutionaldevelopment to improve operations and maintenance.Parts (i) and (ii) account for 902 of the project costs.The project covers a portion representing about 35Z ofSABESP's total investment program for the period1989-1993. Financing for remaining investments would beprovided by the state, CEF and IDB. The projectprovides funds for civil works, equipment, technicalassistance, studies and training, amounting to US$600million equivalent and with a foreign exchange componentof US$150 million (251). Compared with past programs,increased emphasis is given to sewerage works and tosmall and medium cities rather than metropolitan areas.While covering urgently needed extension of services,this project would strengthen the capacity of the statewater company to carry out more efficient planning ofinvestments, improved internal revenue mobilization andincreased efficiency of operations. The project wouldhelp to benefit 6.1 million people in water supply and2.9 million in sewerage. Forty percent of thebeneficiaries of water and 37% of sewerage would beurban poor.
ProjectRisks: There are no serious technical risks irn the project.
The main risks are associated with: (i) the unknowneffects of inter-governmental financial reforms on the
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state's revenues, and their impact on counterpartfunds; (ii) the impact of inflation on project costs,tariff levels and the financial viability of thecompany; and (iii) political interference in the settingof tariffs and priorities for investments. Fiscalreforms are expected to benefit Sao Paulo Stateproportionally more than other states, diminishing therisk to counterpart funds. In 1988 tariffs were raisedto adequate levels in real terms and the state andSABESP would continue the successful strategy offrequent small tariff increases to maintain the realvalue of tariffs. In addition, close supervision ofprogress in the Letter of Agreement, the annual reviewof investment program and financial situation with theBank, and prompt completion of tariff 3tudies wouldfurther mitigate these risks.
Project Costs and Financing Plan: 1/
Local Foreign Total---------(USS million)---------
Water Supply 249.7 83.3 333.0Sewerage 57.2 19.1 76.3Institutional Development 40.5 13.5 54.0Construction Supervision 25.2 8.4 33.6
1.01 The demand for basic sanitation services in urban areas of Brazilis now growing faster than supply, and the ability of the sector to meetthe needs for these services over the next several decades is uncertain inview of financial constraints in the country. Since its establishment in1968, the National Water and Sanitation Prograrn (PLANASA)1 has produced animpre-sive record, adding over 55 million new water connections and over 24milli n new sewerage connections to the Brazilian water and sanitationsystem. However, demand is outpacing supply because of rapid urbanizationand an accelerated household formation which will generate nine million newurban households by the turn of the century. Meeting national sector goalsof 901 coverage in water supply and 65% in sewerage will require arestoration of former levels of investment. In addition, the newconstitution and the fiscal and administrative reforms promulgated in 1988resulted in greater financial resources and responsibilities for states andmunicipalities but diminished the federal governr:ent's own expenditures inthe sector. Although the effects of the reform are not yet clearly known,with this receding federal role, state and municipal entities must becomemore active and efficient in both resource mobilization and allocation.
1.02 The Bank's assistance in the past has placed emphasis on thestrengthening of sector financial viability and the institutionalcapacities of SWCs. The project continues this strategy by choosing one ofBrazil's SWCs as a borrower. The loan goes directly to SABESP, the SaoPaulo state-owned water and sewerage company, to finance a portion of itsfive-year investment program, increase the efficiency of public sectorinvestments, improve --ter and sewerage pricing, and strengthen thefinancial and institu onal relationship between SABESP and the State ofSao Paulo. SABESP hats nade progress oveL the past decade in closing theservice deficits in the sector, and partly for this reason has beenselected to address the new challenges of extending service to secondary
1/ The National Water and Sanitation Program (PLANASA) is a national levelprogram that involves planning and policy making at national andregional levels. It is carried out by the Caixa Economica Federal(CEF) as the 'apex' financial institution; the state water companies(SWCs) as operating agents at the local level; and the state water andsewerage funds (FAEs) as revolving funds channeling state and localresources to match federal investments from the CEF. See Annex 2 for adetailed description of PLANASA.
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cities and towns, especially among the urban poor, where most of Brazil'snew water connections during the next decade are needed. In addition,SABESP and the State of Sao Paulo are strong Institutionally, technicallyand financially, and are therefore in a position to carry out this projectsuccessfully. The issues in the sector, and further details on the Bank'sapproach in the project, are outlined in the succeeding sections.
Population
1.03 Although the overall rate of population growth in Brazil isslowing to under three percent p.a., urbanization rates will continue toexert pressure for expansion of basic infrastructure. The total populationof the country (close to 150 million), is expected to reach nearly 180million by the turn of the century. Over 74Z (110 million) of this totalis presently living in cities, and nearly 802 will be urban by the year2000 (see Annex 1). The distribution of this population has a pronouncedeffect on the demand for infrastructure and key demographic variables haveinfluenced the approach adopted under this project. First, ruralpopulations are nearly steady, and even declining in some regions. Seccnd,the rates of growth and population totals are unevenly distributed in thecountry. The heaviest urban populations are found in the South andSoutheast regions. Third, although the Northeast has the largestpercentage of poor, the largest absolute numbers of urban poor are found inthe South and Southeast. Fourth, the relatively 'bottom heavy" agedistribution of the population pyramid implies that household formationrates are 202 higher than urban growth rates as a whole. This signifies aneven higher demand for infrastructure coanections than wou'ld be suggestedmerely by urban population growth alone. Finally, the urbanizationprocess is inzreasing the number of secondary and tertiary cities andtowns. This fact complicates the administrative burden of meeting the needfor water and sanitation, given the present emphasis on decentralization.
Service Coverage
1.04 Brazil has produced one of the most impressJve records inexpansion of water service of any country in the Region. Over the past twodecades, more than 55 million people have been connected to water andanother 24 million to sanitation services. As a result of this effort, 872of the urban households are presently connected to water and 392 tosanitation services, as opposed to coverage levels in 1968 of 502 and 30Z,respectively. The rate of service growth in water has outpaced populationand even urbanization rates overall. Sanitation services have laggedbehind water because water is the first priority and because sanitationincluding treatment is more expensive and harder to finance from internalresources (see Annex 1.3 for a regional distribution of water andsanitation services in the PLANASA system). Service levels have droppedperceptibly in the recent past. Projections based on 1985 survey data showthat merely to maintain present levels of wate, and sanitation servicenearly 650 thousand new households must be connected each year to water andmore than 1.85 million to sanitation systems between 1985 and 1990.
Sector Policies
1.05 Much of the reason for the priority given to investments in thewater sector is founded on the need for basic infrastructure and protection
of public health. The progress made in water connections over the pastseveral decades is reflected in improvements in health indicators. Childmortality and morbidity, two indicators sensitive to sanitation services,have improved by about 172 nationwide since 1970. However, as suggestedearlier, these improvements are found mostly in large cities and regionswhere not only are water services more widespread, but health services,education, and income are also better. Nevertheless, marked differences inhealth levels by region and income level remain to be addressed. Forinstance, child mortality among the poorest neighborhoods in all Braziliancities is 60 to 702 higher than the average for urban Brazil. Continuedimprovements in the living conditions of the poor will require increasedinvestments in water and increased emphasis on sanitation.
1.06 Brazil has adopted PL.ANASA goals of reaching 90Z of the overallurban population with water and 652 with sanitation by the turn of thecentury. New emphasis is being given to waste disposal. However, thelarge financial requirements implied by these goals, combined with a numberof policy constraints, make it unlikely that the goals can be met. Toachieve even more modest targets, it is urgent to address a range of thepolicy and financial issues including overall policy formation, long rangeplanning, sector coordination, and tariff levels. The project seeks toaddress the most important among these policy issues, especially thoserelating to public sector efficiency and institutional arrangements.
Sector Institutional Structure
1.07 Most of the past progress in this sector has been the result ofPLANASA. Established in 1968, PLANASA greatly improved planning andprogramming, establishing a national tariff law, standardizing accountingpractices and procedures, setting up criteria for project screening andappraisal, and building information systems (see a description of PLANASA'sorigins, operational arrangements and performance in Annex 2). The PLANASAsystem consists of a central financial and technical intermediary, theCaixa Economica Federal (CEF), which plans, coordinates, and lends directlyto states and water companies for capital investments. CEF funds are alsochanneled indirectly through the State Water and Sewerage Funds (FAEs),rz---olvirg funds set up to maintain sources of financing for sectorinvestments at the state level. Inflation and the economic crisis inBrazil since 1983 have eroded the financial viability of the system.Recently, the water companies have managed to avoid major capiLaldepreciation and serious reductions in service levels through capitaltransfers directly from state governments, and as of 1987-1988, by raisirgreal tariff levels.
Past Sector Investment in Urban Areas
1.08 With the exception of investment made in municipalities that havenot joined PLANASA, this program has been the sole source of financing forwater and sanitation in urban areas. Since 1968. PLANASA has invested morethan US$11 billion in the sector--68.4Z in water and 31.6Z in sanitation--benefitting nearly 80 million people in more than 4,000 communities.Almost two-thirds of these investments came from the central government--the CEF and its predecessor in the sector, the National Housing Bank (BNH)--nearly a quarter from the states (a portion of which had been lent to thestates by CEF), and the rest from grant and outside financing (see Annex 2,
Table 2.1). PLANASA investment represents more than 80 of Brazil's totalinvestment in water and sewerage.
Bank ExWerience and Current Strategy
1.09 The Bank has lent US$1.1 billion since 1970 in 12 operations invater supply, sewerage, and pollution control (basic data, including thecurrent status of each operation, are sumuarized in Annex 3). Bankassistance to date has concentrated on urban water and sewerage and isdesigned to support the objectives of PLANASA through institutionaldevelopment and the adoption of appropriate sector policies. Bankparticipation accounted for about 10 of PLANASA investment in the 1970s,and then increased dramatically after 1983. In 1983, the Bank approved thefirst sector loan. This helped greatly to achieve standardization inpolicies, tariffs, information, and management. Since then, two pilotoperations have addressed rural water and low income populations in urbanareas.
1.10 The project represents a logical extension of Ban' strategy in thewater and sanitation sector. As in the past, the project works within thebroad framework of PLANASA to support policies and investments that willencourage economic growth and social development in the context ofmacroe Jnomic stability. This project would strengthen the capacity ofSABESP to carry out more efficient planning of investments, improvedinternal revenue mobilization and increased efficiency of operations, whilecovering urgently needed extension of services.
II. THE PROJECT
Background
2.01 The project follows up previous Bank operations in the watersector which began in 1971. Through these operations, the Bank hasnurtured sector financial viability and the institutional capabilities ofSWCs to plan and execute investments and operate their systems. Startingin 1989, the federal government is transferring considerably greaterresources and responsibilities to states and municipalities whilecurtailing its own direct expenditures and activities in the sector. Inline with these policies, the loan will be made to and the project executedby the state water company of Sao Paulo with complementary state financing.The project seeks to strengthen the state water sector planning andfinancial capacities, meet the state's top priority needs for water supplyand sewerage, and develop sound strategies to respond to increasing wastewater pollution control needs in the state. Two Bank missions haveassisted SABESP on project preparation and in particular on gearing itsinvestment programs to stay within available financial resources and toselect a least cost alternative. The project was appraised in January,1989.
Project Objectives
2.02 The main project objectives are to: (i) help optimize theallocation of scarce sector resources through better investment planning,
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and marginal cost analysis and pricing; (ii) increase SABESP's operationalefficiency and financial health; (Mii) improve environmental and healthconditions in Sao Paulo's urban areas through water service and waste waterdisposal; (iv) help develop new strategies to improve SABESP's ability toimplement projects with high social importance but not necessarily highfinancial returns; and (v) support government efforts in decentralizationby commitment of resources from the State of Sao Paulo and SABESP.
2.03 Participation by the Bank in this operaticn is geared to supportSABESP's investment program for 1989-1993. This program, consisting of anefficient and financially viable set of investments, was carefully preparedto cover urgently needed extension of services within the existing economicand financial constraints while permitting the financial and institutionalstrengthening of SABESP. The project aims to build the company's capacityto mobilize investment resources internally. SABESP is expected tocontribute as a minimunm counterpart funds amounting to 112 of the plannedinvestments or 32% of the total project costs (132 and 372 respectively,including interest during construction) during the period 1989-1993. Themarginal cost studies to be carried out in the project will constitute animportant tool for planning, subproject selection and cost analysis; andwill enable SABESP to design a more efficient pricing policy. SABESP'splanning and programming will be further supported by a performanceagreement (expressed as Letter of Agreement) between SABESP and the Stateof Sao Paulo. This agreement will make explicit the expectations andresponsibilities of each party in carrying out the investment plan. Adraft of the Letter of Agreement appears in Annex 4.
2.04 The project forms an important part of the 1989-1993 investmentprogram which would help benefit about 6.1 million people with water supplyand more than 2.9 million with sewerage services in hundreds of cities andtowns in the State of Sao Paulo. It is estimated that over 40% of thebeneficiaries with water and 372 of the beneficiaries with sewerage are inthe poverty group.
Project Description
2.05 The project represents about 352 of investments to be made bySABESP in the State of Sao Paulo in the period 1989-1993 and includes alarge group of subprojects which become eligible for financing under theBank loan by complying with agreed upon economic criteria (para. 3.01).Subprojects included in the investment plan for the project implementationperiod which are not Bank-financed also are expected to comply with similareligibility criteria. The project includes the following (see Annex 5):
(a) construction of the first stage of the South West Water SupplyScheme to increase raw water supply for the RMSP by 3 m31s,which includes: (i) three dams that form two impoundingreservoirs with about 214 million m3 (Alto and Medio Capirariand Embura); (ii) an outflow control structure and channei atEmbura; and (iii) a pumping station to transfer 5 m31s of waterfrom Medio to Alto Capivari reservoirs;
(b) improvements to the water production installations of Cabucu,Guarau and Alto Coitia in the RMSP;
(c) construction of about 2,000 km of water transmission anddistribution pipelines, an aggregate capacity of about 100,000m3 of storage tanks and 200,000 water connections in RMSP;
(d) construction, extension and/or improvement of water systems inabout 50 medium-sized cities and about 200 small towns;
(e) construction of 2 km of interceptors, a pumping station and a1.8 m3/s sewage treatment plant in the city of Sao Jose dosCampos;
(f) construction and/or extension of sewage systems and sewagetreatment facilities in about 19 medium-sized cities and 50small towns;
(g) institutional development, including technical assistance,materials and works for an unaccounted-for water reductionprogram; other improvements in operational and commercialsystems of SABESP, such as in the user's cadastre and metering;
(h) an assessment of and a program for financing appropriateinvestments in municipal waste water pollution in the State ofSao Paulo;
(i) staff training; and
(j) consultant services for engineering, designs and supervision ofconstruction.
Project Costs
2.06 The cost of the project is estimated to be US$600 trillionequivalent excluding interest during construction. The foteign exchangerequirement is estimated to be US$150 million. Costs are based on December1988 prices, and include an average of 72 for physical contingencies andprice contingencies of 5.3Z per year for 1989 and 1990 and 4.1Z for 1991and thereafter. Costs include direct taxes (about US$40 million). Costestimates for major subprojects are based on bills of quantities and unitprices prepared by consultants and SABESP. Estimates for other subprojectsare based on unit costs of similar works recently bid. The costs of theinstitutional development programs are estimated in accordance withprevailing costs of materials and services.
2.07 Project costs and costs associated with other investments duringthe project implementation period 1989-1993 are detailed in Annex 6.Project costs are summarized in Table 2-1:
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Table 2-1
Project Cost Sumnary(US$ millions)
Local Foreign Total
Water Supply 249.7 83.3 333.0Sao Paulo Metropolitan Region 148.1 49.3 197.4Medium-sized Cities 37.7 12.6 50.3Small Towns 7.6 2.5 10.1Other 56.4 18.8 75.2
2.08 A Bank loan to SABESP amounting to US$280 million equivalent wouldfinance the foreign component plus local costs amounting to 222 of theestimated project cost. The loan would have a term of 15 years, includingfive years of grace at the Bank's standard variable interest rate(currently 7.652). The balance would be provided hy the state (US$126million) and SABESP (US$194 million). This state contribution--which islower than in previous years--would be made as a direct capital increase.Assurances were obtained from the State that this contribution would bemade available according to the project schedule and be totally disbursedby June, 1994.
2.09 The financial success of the project depends largely on the self-financing capacity of the borrower. This is a departure from practices inthe past where investments were done with near total debt financing. Underthe project, SABESP agreed to provide a minimum counterpart cashcontribution amounting to 32% of the project (37Z including interest during
construction).
2.10 The remainder of SABESP's investment program for the projectimplementation period would be financed largely by the CEF2 and the State.During this period, it is estimated that CEF would lend about US$300million to SABESP under terms of 18 years, including three of grace, at 122interest. The state water and sanitation revolving fund (FAE) wouldprovide resources amounting to US$300 million under terms of 18 years,three years grace and interest of 3Z for water works, and 30 years, threeyears grace ank interest of 22 for sewerage works. The funds from the CEFand the FAE are based on SABESP's aEsumption that new lending will matchdebt service payments to be made by SABESP to both sources. In addition,SABESP will receive a further US$111.4 million from the IDB (terms: 20years, including three years grace, at 8.52 interest), under an on-goingoperation. SABESP would be Borrower of all loans. The financing plan isshown in detail in Annex 9. Assurances were obtained from SABESP duringLoan Negotiations that annual investments during the project implementationperiod will not be changed by more than 202 of the original investmentamount without prior Bank approval.
2.11 Table 2-2, which summarizes SABESP's financing plan, includesinterest during construction amounting to US$46 million under the proposedproject and US$20 million for other investments. Interest duringconstruction on the World Bank loan would be financed by SABESP.
Table 2-2
SABESP's 1989-1993 Investment Financing Plan andProject Financing Plan
(US$ millions)
1989 - 1993Project Financing Investment Financing
Entities Amount 2 Amount z
World Bank (IBRD) 280.0 43.0 280.0 16.0Caixa Economica Federal 0.0 0.0 300.0 17.0State Water & SewerageFund (FAE) 0.0 0.0 300.0 17.0Inter American DevelopmentBank (IDB) 0.0 0.0 111.4 6.0
State of Sao Paulo 126.0 20.0 552.0 31.0SABESP Internal Cash 240.0 37.0 240.0 13.0
TOTAL 646.0 100.0 1,783.4 100.0
Status of Project Preparation
2.12 Project preparation conforms to the proposed annual investmentplans. Final designs for major works, which are expected to start in 1989,
2/ See "An Analysis of the Financial Viability of Caixa Economic Federal"by M. Dorfman, 1988, Project Files.
are being completed by consultants. Designs for extensions of waterdistribution or sewage systems in many cases follow existing master plansand only minor revisions are needed. Designs for medium-sized and smallcommunities, in most cases, require a lead time of only two to threemonths. In order to assure an early start of disbursement of loan fundsafter signature, SABESP furnished to the Bank satisfactory final designscorresponding to twenty percent of the total estimated project cost. Worksin RMSP include the construction of three dams. Agreement was reachedduring Loan Negotiations that disbursement of Loan proceeds forexpenditures made on the three dams would be contingent upon satisfactorycompliance with OHS 3.80, including the Bank's approval of selection ofconsultants, and State and Bank approval of environmental impact reports(RIMA) and relocation studies.
The Borrower and the State
2.13 The Borrower will be SABESP. SABESP has been a Bank borrowerunder the Greater Sao Paulo Sewerage and Sewage Treatment Project (1525-BR,1978) and in earlier water and sewerage projects (757-BR, 758-BR, 1981). Inaddition, SABESP has been a beneficiary in the First Water Sector Loan(2249-BR, 1983). The company has performed satisfactorily under theseloans and developed a good working relationship with the Bank.
2.14 SABESP was created in 1973 with State Law No. 119 kJune 29, 1973),by the fusion of the then-separate water and sewerage companies, CompanhiaMetropolitana de Aguas de Sao Paulo (COMASP) and Companhia Metropolitana deSaneamento de Sao Paulo (SANESP). SABESP is a limited corporation 93Zowned by the State of Sao Paulo, through the Department of Water andElectricity (DAEE).
2.15 As shown in the organization chart (Annex 7), SABESP is governedby a management council (Diretoria) comprised of the Executive Presidentand Department Directors. The Governor of the state appoints the Presidentfor a four-year term. The Diretoria is ultimately responsible to anAdministrative Council--comprised of nine members and presided over by thepresident--with responsibility for such functions as ex-ante approval ofinvestment programs and issuing of new shares, and a Financial Council,comprised of five members, responsible, among other things, for approvingex-post all budgets and financial closings. The structure is common tomost Brazilian state-owned companies.
2.16 At the end of 1988, SABESP staff numbered about 21,000.Distribution of personnel among departments is shown in Annex 7. Theemployee efficiency of SABESP, as measured by the consumer per employeeratio of 206 in 1987, is higher than the sector average of 181 for the sameperiod (see Annex 12). During the project period this ratio would continueto improve (see para. 2.28). A program for institutional development,including training, technical assistance, and managerial skills upgrading,forms a prominent part of the Managerial Development Program (PDE) to befinanced by the proposed project.
2.17 Water services are constitutionally delegated to themunicipalities; therefore SABESP, like all SWCs in Brazil, operates underconcessions granted by the municipal governments. Under the PLANASAsystem, standard concession conitracts have been developed with a duration
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of 30 years and the possibility of renewal. SABESP's area ofresponsibility covers 416 (or 73Z) of the municipalities in the state,covering about 66Z of the state's urban population. Six municipalitiesreceive water in bulk (paying directly and charging their consumers).
2.18 SABESP employs a computerized, double-entry, cost-centeraccounting system developed under PLANASA and used by many SWCs in Brazil.Major accounting procedures (reviewed in Annex 11) are consistent withinternationally-accepted accounting standards and include provisions forinflation adjustments. Monthly closings are completed within 30 days, andthe results circulated as a management report. Year-end closings arefinalized within three months of year's end. Private external auditorsreview annually SABESP's financial statements. These arrangements conformto the accounting and auditing guidelines of the Bank.
2.19 Customer meters are read monthly by company staff on a rotatingbasis by region, and bills processed internally. The company confronts theproblems of long billing periods (from meter reading to due date) and apoor accounts receivable records, due both to non-payment of municipal bulkconsumers and the company's inability to cumulatively adjust consumer billsfor inflation. These circumstances have contributed to liquidity problems(see para. 2.24). The project proposes measures to improve the accountsreceivable situation (see para. 2.24), and performance standards regardingbilling and collection (see Annex 13).
The Borrower's Past Finances
2.20 The financial situation of all Brazilian SWCs has been seriouslyaffected by the country's unstable economic environment since 1983: highinflation (nearly 1,000X in 1988), periodic differentials between inflationindexes, and the macroeconomic adjustment plans of 1986, 1987 and 1989.Although Brazilian corporate law provides for inflation accounting(National Law No. 6404, December 15, 1978), the magnitude of themacroeconomic shocks, and the variance in movement of the adjustmentindexes, have made difficult line-by-line comparative interpretations ofhistorical financial statement or precise conclusions regarding SWCprofitability.
2.21 The past and projected financial statements for SABESP arepresented in Annex 9. A summary of Sao Paulo State's financial. performanceis presented in Annex 10. Major accounting procedures, and the notes andassumptions for the forecasts, are provided in Annex 11. Financialperformance during the period 1984-1987 was weak due largely to low federalgovernment-set retail tariffs, which lagged behind inflation. Otherfactors included escalating operating costs, particularly chemicals andelectric power. These factors were exacerbated by the debt service burdenrelated to investments made under PLANASA and large investments in sewagetreatment in RMSP (SANEGRAN) undertaken without a certain financing plan.This led SABESP to rely on contributions from the state government in theform of direct equity injections to cover working capital, and debt serviceassistance to partially cover SANEGRAN investments. During this time,SABESP barely covered its operational costs, depreciation charges andfinancial expenses, and did not generate sufficient revenue to meet the
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National Tariff Law (NTL),3 despite a financial recuperation plan4 designedto achieve this goal.
2.22 However, this performance must be viewed in the context of thesector as a whole. SABESP's 1984-1987 average operating ratio of 75Z wasfar healthier than the sector average of nearly lOOZ for the same period,and its rate of return on remunerable investments in 1987 of 3.7Z wassignificantly higher than the sector average of -1.42. Other ratios (seeAnnex 12) similarly demonstrate the comparatively strong financialperformance and position of SABESP in the sector.
Present Financial Situation
2.23 During 1988, financial health throughout the sector improved withthe de facto transfer of authority for tariff-setting, brought about byconstitutional reforms, from the federal to the state governments. Whilethe real average tariff had gradually increased under federal controlduring the early 1980s, the macroeconomic crisis of the mid-1980s resultedin substantial erosion, with the average tariff reaching a low in 1986 ofjust 652 of the real 1982 level. During 1987-1988, water and seweragetariffs increased about 1052 in real terms, to a combined average ofUS$O.37/m3 as of December, 1988. This has led to substantially improvedoperating results in 1988, as demonstrated by the rate of return onremunerable investment of over 82, and compliance with the targetsestablished in the financial recuperation plan as well as with the NTL.
2.24 The inability to make inflationary corrections on consumer bills,however, has led during the past year to liquidity problems. SABESPpresentiy requires only a one-time penalty charge on overdue accounts.With accelerated inflation during 1988, accounts receivable fromoperations, as measured by the average collection period, climbed to 110days. In addition, SABESP has had three bulk municipal consumers withlong-term (over one year) outstanding bills. During negotiationsassurances were obtained from SABESP that it: (a) reduce its average(year-end) number of days accounts receivable to not more than 70 by theend of 1993, following the gradual improvements shown in the MonitoringIndicators (Annex 13); (b) by end-1990 adjust overdue accounts forinflation, or take other measures which would reduce the financial lossesresulting from overdue bills; and (c) ensure that bulk supply consumers'individual days accounts receivable at year-end do not exceed the yearly
3/ The National Tariff Law (1978) establishes guidelines for tariff-setting on the basis of financial remuneration. Tariffs should besufficient to enable SWCs to cover operating costs, depreciation, and aremuneration at least equal to annual debt service costs. Thisremuneration should not exceed a maximum of 12% of remunerableinvestments (see Annex 15 for a detailed description of the water andsewerage tariff system currently applied in Brazil).
4/ As a result of the unstable macroeconomic environment during the 1980s,and its impact on water sector finances, all the SWCs developedfinancial recuperation plans, agreed with the CEF, to establish targetsfor improved performance. In 1987, the recuperation plans were revisedto achieve NTL compliance by 1989, and relevant Bank loan documentswere amended accordingly.
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averages stipulated in (a) above. Assurances were also obtained from theState that it takes all legal and/or administrative actions on its part toensure that SABESP complies with (b) above.
2.25 Company net fixed assets at end-1988 were about US$2,600 million.These are comprised largely of water and sewerage systems. Because of thebook-value distortions caused by inflation adjustments during the pastdecade, it is likely that SABESP's assets are undervalued. This hasserious implications for SABISP's tariff-setting policy (which is based ona return on assets), and the annual inflation adjustments which have beenresponsible for large losses in the past years. During Negotiationsagreement was reached that the company undertake a study on the amount andfiscal implications of a physical inventory and asset revaluation. Thestudy would be baRel on current replacement costs and useful asset life andthe results would be incorporated into the company's financial statementsby fiscal year 1990. In addition, SABESP would be requested to update thisrevaluation no later than every four years. Because of off-setting equityentries, this step would improve the capital structure of the company,which had a debt/equity ratio of 63/37 as of end-1988, in addition toproviding a more accurate base for tariff-setting and for yearly inflationadjustments.
Future Financial Performance
2.26 Financial forecasts for the period 1989-1995 (Annex 9) are basedon conservative assumptions: a continuation of constrained investmentresources under PLANASA; maintenance of existing water coverage levels anda small increase in sewerage coverage; and constant tariffs in real terms.The investment program provides least-cost solutions, with the non-projectcomponents financed by the CEF and by the State's FAE at levels equivalentto annual payments. Any increases in the combined average tariff level forwater and sewerage services brought about by improvements in (i) thestructure of SABESP's tariff schedule (resulting from the ongoing LRMCstudy--see para. 2.33); and/or (ii) its consumer cadastre (estimated in1989 to yield a 6Z real increase in the average tariff) would yieldincreased interna! cash, and enable SABESP to further improve its self-financing ratio, as targeted in the Letter of Agreement with the Stategovernment. Real tariff increases have not been considered, however,because there exists a risk of tariff erosion in real terms (as during theperiod 1984-1987) due to Brazil's macroeconomic situation. Further,SABESP's historic financial performance demonstrates that it is capable ofcoping with difficult macroeconomic circumstances, as it has maintained aposition of relative financial strength in the sector.
2.27 To further strengthen the company, assurances were obtained duringNegotiations that the company will: (i) comply with the requirements of theNational Tariff Law (i.e., to cover all operating costs, depreciationcharges and debt service costs, within the limit of a maximum 12Zremuneration on assets) and (ii) generate sufficient internal cash to coverannually no less than 322 of the total projected costs excluding interestduring construction, and in 1993 and thereafter would generate sufficientinternal cash to cover annually not less than 20% of SABESP's totalinvestment program. Assurances were also obtained from the State thattariffs be set in order to achieve this compliance. In addition, duringNegotiations agreement was reached that SABESP's debt/equity ratio does not
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exceed 70/30 in 1989, 65/35 in 1990 and 60/40 in 1991 and thereafter, norits debt service coverage ratio fall below 1.5 during the project period.Agreement was also reached that SABESP submit a general five-yearproiection, with specific details for the upcoming year, by November 30,specifically targeting its self-financing ratio (with a goal of achieving302 by 1995). Maintenance of the current tariff level in real terms overthe project period would enable SABESP to continue to meet the requirementsof the NTL, meet its minimum counterpart cash contribution, and comply withthe other agreed financial ratios.
Finances of Sao Paulo State
2.28 As its major shareholder, the State has an obligation to ensurethe financial solvency of the SWC. This has meant both injections ofworking capital and payment of debt service, as well as contribution ofcounterpart funds for specific investments and contributions to the FAEs.Total transfers to the sector in Sao Paulo have averaged 1.52 of totalstate revenues during the period 1984-1987. Total contributions areestimated to reach US$159.2 million (2.23% of total state revenues) in1988, largely due to an increase in the direct contribution to SABESP,which will be 1.76X, compared with the period average of 1.12 (see Annex10). Under favorable economic conditions this increased directcontribution would be expected to continue during the project period, andwould be a major source of funding for the non-project investments.However, with the current financial tightening at the federal level, theadequacy of state funds (a large percentage of which are borrowed at afederal level) is called into question. For this reason the financing planfor the proposed project relies on a conservative amount of state equityfunds of just 212 of total project costs, and the financing plan for theglobal investment program of the company would be reviewed annually withthe Bank and the State.
Monitoring Indicators
2.29 Financial and operational monitoring indicators for the project(Annex 13) were agreed during Loan Negotiations. The indicators form anintegral part of the Letter of Agreement, which specifies performancestandards and responsibilities of the state government and the Borrower.During Loan Negotiations, agreement was reached on the levels ofperformance for the following ratios: accounts receivables comparator;consumer to employee ratio and unaccounted-for water. These ratios wereincorporated into the legal agreements. (Levels per year are shown inAnnex 13.)
Demand Analysis
2.30 Water supply and sewerage service demand projections are madeaccording to administrative regions5 and are satisfactory. As shown inAnnex 14, these projections assume annual population growth rates, dailywater consumption per person, household sizes and persons per connection to
5/ These administrative regions are the RMSP's Integrated System, theRMSP's Isolated System, the Baixada Santista, the Interior's Large andMedium Cities (CMG) and the Interior's Small Communities (CPP). SeeIBRD Map 21459 for a delineation of these regions.
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be constant over the life of the project; sewerage connections to increaseat a higher rate than water connections; and unaccounted-for-water todiminish at reasonable rates.
2.31 The project is designed to meet water supply and sewerage demandsin the 416 municipalities served by SABESP in the state of Sao Paulo--29 inthe RMSP, 10 in the Baixada Santista and 377 in the Interior. With thisproject, SABESP will extend water supply and sewerage services into thenext century, covering additional populations of about 6.1 million in waterand 2.9 million in sewerage. This will allow the water supply coveragelevel to remain approximately constant at its present level of 90Z and thesewerage coverage to increase to 672 from its present level of 612.
Brazilian Water Supply and Sewerage Tariffs
2.32 The Bank has been closely involved with the Brazilian authoritiesin the design of water and sewerage tariff structures over a long period oftime, including participation in the formulation of the National Tariff Law(NTL). The promulgation of the NTL is one of PLANASA's most importantachievements. This law has proved to be adequate from the financial pointof view, i.e., in terms of defining appropriate average rate levels, butcontains some deficiencies with regard to the tariff structure. Notably,it does not use marginal cost concepts and gives inadequate guidance on:the degree of cross-subsidies for the financing of services to the poor,the relationship between water and sewerage charges, and the appropriatestructure of charges to be applied to large and small consumers. Adetailed description of the water and sewerage tariff system currentlyapplied in Brazil is presented in Annex 15.
2.33 The Brazilian authorities, aware of these anomalies, organized anational workshop in April, 1988, with Bank assisvance, to examine thelevel and structu.-e of water supply and sewerage tariffs. As a result ofthat workshop, six SWCs in Brazil, SABESP, SANEPAR, COPASA, COSANPA, CAGECEand SANESUL6 are presentlr carrying out detailed studies of their marginalcost structures under the coordination of the CEF and with the Bank'sactive support and guidance. These studies are expected to produce ageneral methodology which can be applied to the entire country, providingthe Government and SWCs with a valuable tool for r'vising present criteriafor water supply and sewerage planning, operations and pricing. Terms ofreference for the elaboration of these studies are in the LAC files.
2.34 Pending the outcome of these studies, the mission carried out apreliminary analysis of SABESP's tariff structure and long-run marginalcosts (LRMC) in its water and sewerage systems. While this analysis mustbe viewed as approximate, it has identified the main issues which arereported in paragraphs 2.34-39. These issues will be investigated furtheiin the rclevant detailed tariff study mentioned in paragraph 2.32 andaddressed in the longer term under an action program to be agreed with theBank. Specifically, during Loan Negotiations, the borrower agreed to: (i)complete the studies by end 1989; and (ii) discuss the results, agree on aset of recommendations and define an implementation plan with the Bankbefore December 1990.
6/ SWCs in the states of Sao Paulo, Parana, Minas Gerais, Para, Ceara andMato Grosso do Suil, respectively.
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Tariff Structure
2.35 The tariff structure in SABESP's systems is presented in Annex 14,Attachment 12. Overall, resulting average water rates and the combinedaverage rates for water and sewerage are in line with the LRMCs in the RMSPand in the Baixada Santista--as may be seen in Annex 14, Attachment 13.While there are divergences between the LRMC and the level of tariffs inthe large and medium cities of the Interior, they are relatively small.The major differences between the LRHC and tariffs occur in SABESP's smallcommunities--where the LRMC exceeds average tariffs by more than S02.However, such differences are not an immediate cause for concern, given thepreponderance of low-income consumers in those centers and the fact thatthey account for a relatively small proportion (132) of SABESP's totalmarket.
2.36 SABESP's consumers face a minimum monthly charge (MMC) for aminimum consumption level followed by a system of increasing block tariffs,in line with the Brazilian practice (see Annex 15). This tariff scheduletranslates into a set of average prices that decreases sharply until aminimum point is reached at a monthly consumption of 10m3, and then beginsto increase. Figure 2-1 illustrates this behavior for the case ofresidential consumers in the RMSP, and simultaneously shows therelationship of this curve with prices of the different blocks and with itscorresponding marginal cost of supply. The consumption level at whichaverage tariffs equal marginal costs varies greatly between consumercategories and regions, being usually about 25 and 35 m3 for smallconsumers. However, where subsidies are large, equality is reached only ata very high consumption level: for example, in the small communities ofthe Interior, equality is reached at 577 M3 per residential customer.
Figure 2-1
Residential Average Price and Marginal Costand Prices in the RMSP
0.,
0o-
0.3
S ~ ~ ~ i/S0.-
1 5 -
2.37 SABESP's tariff structure has four main deficiencies which need tobe addressed in the longer term. First, the relative prices charged todifferent consumers within the non-residential category are not related torelative marginal costs. Aa a group, non-residential consumers pay morethan the LRMC: such a policy has the advantage that it facilitates thecross-subsidization of service to lower-income consumers, but the sameresult could be achieved with a more rational structure. Second, thedistinction between residential and non-residential consumers is entirelyarbitrary, bearing no relationship to the marginal cost of supply. T.iird,the system of increasing block tariffs--while typical in developingcountries as a way of encouraging water conservation and implementingcross-subsidies from higher- to lower-income consumers--may not beachieving the desired result. Recent evidence7 suggests that a significantproportion of the cross-subsidy is enjoyed by medium- and high-incomeconsumers, while some of the poorest consumers are charged high averagerates, due to their very low consumption. Fourth, the rates for combinedwater ard sewerage service in the RMSP appear to be above the correspondingLRMC, which in principle could provide a source of financing for SaoPaulo's ambitious program to clean up its polluted waterways. However,before firm practical conclusions can be drawn, a more refined calculationof LRMC is required,8 and consideration needs to be given to the potentialand rationale which might exist for alternative sources of financing.
Urban Poverty Impact and Affordability
2.38 The urban poor constitute a significant fraction of thebeneficiaries of this project. Urban poor are defined in Brazil asfamilies earning a monetary income of three regional minimum salaries orless. Taking into account the life of the project, about 2.4 million poor(about 40Z of all beneficiaries) will be connected to water and 1.1 millionpoor (about 37Z) will be connected to sewerage.
2.39 The minimum consumption level (MCL)--typically 10m3 per month--isintended to provide consumers with a quantity of water sufficient tosatisfy basic needs and maintain minimum health and sanitary conditions.The NTL provides that the minimum monthly charge (MMC) for this quantity--in the case of residential consumers--should not exceed 35Z of one OTN(US$2.42) for water and 50Z of one OTN (US$3.46) for water and seweragecombined. In fact, most SWCs charge well bellow this legal limit for the
7/ Hugo de Olivera, Uma Analise Critica da Atual Sistematica deTarifacao Aplicada ao Setor de Saneamento no Brasil, SABESP, 1988.
8/ Lack of information required to make strong assumptions regarding theprojected volume of effluents collected and treated, and the expectedgrowth of installpd capacity utilization at existing and future sewagestations. Additionally, although the existing system exhibits aconsiderable amount of sunk costs, LRMC may have been underestimateddue to: (i) the aggregation into a single system of several independentsub-systems, which artificially overestimate the treated volumeeliminating idle capacity at the treatment stations, and (ii) the lackof differentiation among treatment technologies, i.e., consideringprimary and secondary treatment, and submarine emissions as a singletype of treatment without cost differences.
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MCL (about half on average), so that wate- and sewerage charges areaffordable even for the poorest segment of the population.
2.40 In the case of SABESP, the MMC for water and sewerage hasrepresented under 5? of one minimum salary with only rare exceptions since1977. In addition, SABESP does not charge a connection fee for serviceconsisting of one tap and minimum flow. Tariff increases since January of1988 have pushed the MMC to near 6? of one minimum salary, or 2S of thethree minimum salaries defined as the poverty income level. Domesticconsumers of the Interior face a slightly smaller MMC. A standard oftenaccepted in Bank projects has been to keep water and sanitation chargesunder 5% of three minimum salaries.
Internal Rate of Return
2.41 As is usual in water supply and sanitation projects, incrementalrevenues have been used as a proxy for the benefits of the project.Incremental revenues are a minimum measure of benefits as: (i) theyunderestimate 'willingness-to-pay", by excluding consumer surplus (whichcannot be measured in light of available information); and (ii) there areimportant non-quantifiable benefits which in any case are not likely to becaptured by "willingness-to-pay," notably better public health and a betterquality of life which result from improved water supply and sanitation. Aninternal rate of return (IRR) has been calculated for water and sewerage asa joint service, since in many cases consumers pay a combined bill forboth. Although separate charges are provided in the tariff structures forwater and sewerage (see Annex 14, Attachment 13), it is not possible toidentify the 'willingness-to-pay' for each service separate.l. All costsand revenues are expressed in constant market prices (US$ as of December1988), including all complementary investments necessary to achieve thefull benefits of the project. Investments not related to incrementalbenefits (such as plant replacement or major maintenance) have beenexcluded from the analysis.
2.42 The calculated IRR is 122 for water and sewerage combined, usingJanuary 1989 average tariffs (US$0.34/m3 for water and US$0.36/m3 forsewerage) as a proxy for economic benefits.9 The return is moderatelysensitive to increases in costs or decreases in revenues: an increase of1OZ in costs combined with a 10? decrease in revenues, for example, reducesthe return to 9Z (see detailed calculations in Annex 14, Attachments 25 andproject files).
Environmental Impact
2.43 The mission discussed several environmental aspects of the projectwith SABESP and arrived at agreement on strategies and conditions to
9/ This a realistic assumption regardless of likely reductions that mayresult from the recently adopted "Plano Verao", because SABESP'saverage tariff is expected to have a real in-rease of about 62 aroundmid-1989. This increase will simply result from the effectiveapplication of the existing tariff differentiation to the RMSP's smallfinal consumers.
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address environmental issues related to the proposed project (see Annex 5).First, three dams are to be constructed as a part of the company'sproduction program. The environmental consequences of the dams wereinvestigated carefully, and SABESP agreed that detailed impact studies becarried out. Moreover, SABESP is required by Federal Law (Resolution 001,23 January 1986) to prepare an environmental impact report (RIMA) followingstate guidelines. During appraisal the Bank mission reviewed with SABESPBank policies for dam and reservoir projects as well as the policies andlaws of the federal and state governments. The state guidelines which aremore elaborated for diagnostic purposes will be complemented by Bankguidelines which are more detailed for purposes of developing andevaluating options and making recommendations. Prior to Negotiations,SABESP presented terms of reference for the environmental impact study, fora study on relocation of affected populations, and for the work regardingdam safety as required by the Bank. Prior to Loan Disbursement for thesubprojects involving the construction of dams, SABESP should submit to theBank satisfactory evidence of compliance with the Bank's guidelines on damsafety, approval by the State and the Bank of the environmental impactreport.
2.44 A second environmental aspect taken up in this project concernspollution control of municipal waste water discharged in receiving bodiesof the state. SABESP's record is better than most other Brazilian SWCs inproviding was e water treatment and is already advanced in the diagnosticphases of a study in the state's nine water basins. With assistance fromthis project, SABESP will carry out a study including a detailed assessmentof the degree of treatment required for sewerage effluents in the state,their benefits and costs and the sources of revenues to meet therecommended investments and their operational costs. Assurances would besought during Negotiations that this study be completed by December 31,1991.
2.45 In addition, the project finances sewerage in much greaterproportions in middle-sized towns than in past Bank projects, althoughrecent deteriorations in the levels of water service make water systems thefirst priority. SABESP's waste water treatment includes facilities at SaoJose dos Campos, a medium-si7ed city on the Paraiba, and one of the mostpolluted in Brazil, as well as investments in many small communities inorder to avoid water pollution problems in the future. Also, SABESP'sSANEGRAN project will continue with IDB financing in parallel with thisproject.
Project Risks
2.46 There are no serious technical risks in the project. The mainrisks are associated with: (i) the unknown effects of inter-governmentalfinancial reforms on the state's revenues, and their impact on counterpartfunds; (ii) the impact of inflation on project costs, tariff levels and thefinancial viability of the company; and (iii) political interference in thesetting of tariffs and priorities for investments. Fiscal reforms areexpected to benefit Sao Paulo State proportionally more than other states,diminishing the risk to counterpart funds. In 1988 tariffs were raised toadequate levels in real terms and the state and SABESP would continue thesuccessful strategy of frequent small tariff increases to maintain the realvalue of tariffs. In addition, close supervision of progress in the Letter
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of Agreement, the annual review of investment program and financialsituation with the Bank, and prompt completion of tariff studies wouldfurther mitigate these risks.
III. PROJECT EXECUTION
Selection Criteria
3.01 Assurances were obtained during Loan Negotiations that theBorrower will use the following criteria for selection of subprojects: (a)least cost alternative; and (a) long-run average incremental cost. Thejustification of each individual subproject will be made using marginalcosts calculated on the basis of the investment progra-m of the subprojectand its complementary works.10 Water projects will be approved only if theSWCs water average tariff, present or prospective in the short term,exceeds 752 of the marginal cost of providing the service to the smallesttype of consumers connected to the system.11 Sewerage subprojects will beapproved only if the SWCs sewerage average tariff, present or prospectivein the near future, exceeds 60Z of the marginal cost of providing theservice--sewage collection, transpcrtation and treatment, if available--tothe smallest type of consumers connected to the system. The use ofmarginal costs simplifies project selection, provides useful informationregarding cost and tariff structures, and is easy for policy makers tounderstand and apply. In addition, marginal cost data generate usefulstatistics for the companies on investment costs, operating and commercialexpenses, and on cost differentials between regions and cities.
3.02 Projects not satisfying the above conditions but which aredesigned for minimum cost may be accepted by the Bank on a case-by-casebasis. The analysis should consider inter-alia: (a) poverty levels andhealth conditions; (b) the lack of alternative water sources; (c) theimpossibility of recovering costs through tariffs; and (d) an evaluation ofbenefits in other sectors of the economy. These projects are likely to bein towns where urban poverty prevails and large investments are needed tocompensate for the lack of previous investments. Assurances were obtainedduring negotiations that subprojects must meet project selection criteriaas a condition of disbursement for the specific subproject. During thecourse of project execution, amendments to selection criteria may be madeas a result of marginal cost pricing studies. Subprojects outside theBank-financed portion of SABESP's investment program are financed by theCEF, FAE and IDB, under project selection criteria acceptable to the Bank.Assurances were obtained during negotiations that SABESP agree toselection, design and the carrying out of future investments using similareligibility criteria agreed for subprojects under the loan.
10/ The use of the IRR as an additional criterion tor accepting orrejecting a subproject with Bank financing should be discontinued giventhat it is redundant and misleading.
I1/ Sixty percent of the marginal costs in cities with less than 50,000inhabitants.
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Prolect Implementation
3.03 The loan would be made with the guarantee of the State of SaoPaulo and the Federal Government. The contractual documents are as follows:(i) a Loan Agreement between the Bank and the Borrower; (jA) a ShareholderAgreement between the Bank and the State Government (through DAEE); and(iii) a Guarantee Agreement between the Bank and the Federal Government.In addition, assurances were obtained during Loan Negotiations that aLetter of Agreement between the State and SABESP would be signed prior toLoan Effectiveness.
3.04 The project would be implemented during 1989-1993. Annual projectinvestments are presented in Annex 6. This investment table would beupdated annually and, together with the monitoring indicators (Annex 13),the financial projections, and the Letter of Agreement, would form thebesis for semi-annual progress reports. During Loan Negotiations,assurances were obtained that the Letter of Agreement, including annualinvestment and company financial forecasts, be reviewed annually, no laterthan December 15. The investment schedule is compatible with the executingcapabilities of SABESP. The project is expected to be completed byDecember 31, 1993. Agreement was reached during Loan Negotiations onannual investment figures and monitoring indicators and on the submissionto the Bank by November 30 of annual revisions of project investments, aswell as submission of semi-annual reports and a project completion report(PCR). Two workshops would be held for purposes of orientation andexplanation of Bank procedures: the first not later than two months afterLoan Signature and the second during implementation but before the end of1991.
Project Supervision
3.05 Supervision of construction would be the responsibility of theSABESP and would be carried out mainly by consultants. In view of thereceding role of the CEF, and because of detailed institutional andfinancial aspects, the project wi:: require more than customary supervisionby the Bank.
Procurement
3.06 Civil works would represent 722 of the total project cost,equipment and materials 26Z, and engineering and consulting services theremaining 2?. All contracts which can be packaged to exceed the equivalentof US$5 million for civil works and US$250 thousand for equipment ormaterials would be procured on the basis of international competitivebidding (ICB) following the Bank's guidelines for procurement. All othercontracts for civil works and equipment or materials will be procured underLCB procedures acceptable to the Bank. Under these assumptions, 47Z ofworks and materials will be procured under ICB. The nature of the rest ofthe civil works to be executed (amounting to about 38Z of pro,ect cost)preclude the efficient packaging of services to be bid, because civil workscould be carried out in many towns. Under these circumstances, it isunlikely that foreign firms would be interested in participating in thebidding and thus, many works would be built by local contractors. Thelarge number of experienced Brazilian contractors guarantees a meaningfulcompetition. Foreign firms would be allowed to participate in LCB.
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SABESP's LCB procedures have been reviewed by the Bank and foundacceptable. Standard bidding documents are under prenaration. Projectcosts by procurement method are presented in Table 3-1. Figures inparentheses are the amounts financed by the Bank.
Table 3-1
Project Cost by Procurement Method(USS millions)
Project Element ICB LCB Other Total
Civil Works 203.5 230.6 0,0 434.1(87.5) (99.2) (186.7)
Equipment and 146.8 11.8 0.0 158.6Materials (82.0) (5-1) (87.1)
Engineering and 0.0 0.0 7.3 7.3Tech. Asst. (6.2' (6.2)
Total 350.3 242.4 7.3 600.0(169.5) (104.3) (6.2) (280.0)
3.07 Consultants for detailed engineering, the training program, andthe various studies (under technical assistance) would be selected inaccordance with the Bank's Guidelines for the Use of Consultants (August1981).
3.06 All bidding procur,d under ICB would be subject to the Bank'sprior review of bidding documents, awards, and contracts. In the interestof expediting project execution, the balance would be subject to ex-postreview by sampling. In order to ensure adequate procurement procedures,the Bank will review and approve--irrespective of the amount--the first twocontracts for LCB for goods and for works, respectively. If the Bankdetermines in the review by sampling that procurement is inconsistent withagreed procedures, no expenditures for such itenis would be financed out ofthe proceeds of the Loan and the Bank may cancel an equivalent amount ofthe Loan.
Disbursements
3.09 The loan would be disbursed as follows: (i) 100% of foreignexpenditures for imported equipment and materials: (ii) 432 of localexpenditures for civil works, equipment and materials; (iii) 100% ofexpenditures for services of foreign consultants; and (iv) 85% ofexpenditures for services of consultants domiciled in Brazil. In order toexpedite project execution, a Special Account in the amount of US$15.0million would be established in the Banco Central de Brasil. Loandisbursements for civil wotks amounting less than US$l million and goods toUS$100,000 would be made against Statements of Expenditure prepared bySABESP. Detailed dccumentation would be retained by the Borrower forinspection during supervision missions and for audit by its externalauditor. No force account works are envisaged. The estimated schedule of
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disbursement provides for Loan disbursement in six years (see Annex 16).This disbursement schedule is consistent with previous Bank operations inthe sector in Brazil. The closing date would be June 30, 1994.
Advanced Contracting and Retroactive Financing
3.10 The Bank loan would finance works to be carried out duiring theperiod 1989-1993. Some of the wcgrks are urgently needed--for instance torehabilitate and expand systems and to maintain current levels of service--and these are scheduled to start early in 1989. Other works are parts ofannual investment programs with expenditures spread over the agreedinvestment period. In view of these needs, the project provides for thefollowing: (a) advanced contracting as of January 1, 1989, and amounting toUS$40 million; and (b) retroactive financing as of the same date, andamounting to US$10 million.
Auditirig Arrangements
3.11 During Loan Negotiations, agreement was reached that externalauditors will carry out an audit on the following: (i) Project Accounts;(ii) Financial Statements; (iii) Statement of Expenditures; and (iv)Special Accounts. It was also agreed at negotiations that the audit reportcorresponding to each year (starting in 1989) will be submitted to the Bankno later than June 30 of the following year.
IV. AGREEMENTS AND RECOMMENDATIONS
4.01 Prior to Loan Negotiations, SABESP furnished to the Bank thefollowing:
(i) final designs for subprojects amounting to 20Z of thetotal estimated cost of the project (para. 2.12). Finaldesigns are well advanced and no problems are anticipatedin meeting this requirement;
(ii) satisfactory evidence of its compliance with the financialrecuperation plan agreed with the CEF for 1988 (para.2.23); and
(iii) terms of reference for the environmental impact study,relocation plans, and the safety program regarding worksinvolving the construction of dams (para. 2.43).
4.02 During Loan Negotiations, agreement was reached on the following:
(a) from the State of Sao Paulo:
(i) provision of an equity counterpart contribution ofUS$126.0 million, to be fully disbursed no later than June30, 1994 (para. 2.08);
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(ii) undertaking of all legal and/or administrative actionswhich might be required to enable SABESP by end-1990 toadjust, or otherwise compensate for financial losses dueto overdue bills (para. 2.24); and
(iii) authorization of tariff increases as and when necessary toenable SABESP to comply with the provisions of the LoanAgreement (para. 2.27).
(b) from SABESP:
(i) to make no changes of more than 202 in the annualinvestment program without the approval of the Bank (para.2.10);
(ii) to take the following actions regarding receivables:(a) to reduce its average year-end accounts receivable tono more than 70 days by end-1993, according to theMonitoring Indicators; (b) by end-1990, to adjust forinflation or to take other measures which would reduce thefinancial losses resulting from overdue bills; and (c) toensure that bulk supply consumers' individual accountsreceivable at year-end do not exceed the yearly averagesstipulated in (a) above (para. 2.24);
(iii) to undertake a preliminary feasibility study on the likelyamounts involved and fiscal impact of an assetrevaluation, to incorporate the results of a formal assetrevaluation into the audited financial statements offiscal 1990, and to update the revaluation at least everyfour years thereafter (para. 2.25);
(iv) (a) assurance that yearly operating revenues cover, as aminimum, operational expenses, depreciation andamortization charges, and all debt service costs, up to a122 remuneration on net fixed assets in operations (i.e.compliance with the NTL); and (b) generation of sufficientinternal cash annually to cover at least 32? of totalproject costs excluding interest during construction, andin 1993 and thereafter, at least 20I annually of SABESP'stotal investment program (para. 2.27);
(v) that its debt/equity ratio does not to exceed 70/30 during1989, 65/35 during 1990, and 60140 during 1991 andthereafter; and debt service coverage not to fall below1.5 during the project period (para. 2.27);
(vi) submission to the Bank, not later than November 30 of eachyear, a general financial projection for the followingfive-year period, with specific details on investmentplans for the upcoming year and targeting self-financingratio (para. 2.27);
(vii) agreement on choice of parameters for, and levels of,operational and financial monitoring indicators (para.2.29);
- 24 -
(viii) achieve an unaccounted-for water level of 22Z and aconsumer/employee ratio of 235 by end-1993, according tothe gradual improvements shown in the MonitoringIndicators (para. 2.29);
(ix) completion of marginal cost pricing studies by end-1989,and agreement on a set of recommendations and animplementation plan for those agreed recommendationsbefore December 1990 (para. 2.34);
(x) assurance that the water pollution control study becompleted by December 31, 1991; and that by the same datea planning and financing strategy for investmentsrecommended by the study be developed taking into accountthe results of the marginal cost pricing study (para.2.44);
(xi) terms of reference for environment study, relocation planand safety program for dams (para. 2.43);
(xii) eligibility criteria for subproject selection consistingof least cost alternatives and long-run averageincremental costs (para. 3.01);
(xiii) continuation of the use of project selection criteriaacceptable to the Bank for future investments (para.3.02);
(xiv) submission of annual revisions of investment plans, semi-annual reports and a project completion report (para.3.04);
(xv) holding with the Bank an annual review of the Letter ofAgreement including annual investment program and cumpanyfinancial forecasts to take place no later than year-end(para. 3.04);
(xvi) the external audit of Project Accounts, FinancialStatements, Statement of Expenditures and Special Account(para. 3.11);
4.03 Prior to Loan Effectiveness, SABESP should have signed the Letterof Agreement with the State (para. 3.03).
4.04 Prior to Loan Disbursement for each subproject. SABESP shoulddemonstrate satisfactory evidence of compliance with the agreed projectselection criteria (paras. 3.01 and 3.02.
4.05 Prior to Loan Disbursement for the subcomponents related toconstruction of dams, the Bank should receive from SABESP satisfactoryevidence of compliance with the Eank's guidelines on dam safety andapproval by the State and the Bank of the environmental mpact report,mitigation measures, and relocation plans in connection iith theconstruction of dams (para. 2.43).
-25 -
4.06 With the above agreements, the project would be suitable for aBank loan of US$280 million to SABESP for a period of 15 years, including afive-year grace period. Advanced contracting for up to US$40 milliota andretroactive financing for up to US$10 million for expenditures incurredafter January 1, 1989, is also recommended (para. 3.10).
- 26 -
ANNEX 1Table 1.1
BRAZIL
WATER SECTOR PROJECT IN THE STATE OF SAO PAULO
Urban and Rural PopulationsHistoric (1970/1980) and Projected (1985/2000)
Millions of Inhabitants Z of Total PopulationYears Total Urban Rural Total Urban Rural
1970 95.9 53.6 42.3 100.0 56.0 44.0
1980 121.3 82.0 39.3 100.0 67.6 32.4
1985 135.6 97.6 38.0 100.0 72.0 27.9
1990 150.4 112.7 37.7 100.0 74.9 25.1
1995 165.1 128.0 37.1 100.0 77.5 22.5
2000 179.5 143.1 36.4 100.0 79.7 20.3
Source: Luiz Armando de Medeiros Frias, PROJE96ES DA POPU'A,AO RESIDENTE EDO NOMERO DE DOMICILIOS PARTICULARES OCUPADOS: 1985-2020, Textospara Discussao, Maio de 1988, DPE-88 005.
Note: The adjusted 1970 and 1980 population figures and the projectionsfor total resident population are from: IBGE/Centro LatinoAmericano de Demografia -- CELAGDE, BRASIL: ESTIMACIONES DEPOBLACION 1950-2025, Fasciculo F/BRA 1, Julio 1984.
- 27 -
ANNEX 1Table 1.2
BRAZIL
WATER SECTOR PROJECT IN THE STATE OF sAO PAULO
Basic SanitationSimulated Deficits' for Brazil: 1985-90
(000's of Units)
Simulation:Rate of Growthei
Adjusted deficits: Absolute and RelativeCharacteristic 1985d/ Deficits: 1990
Total Urban Rural Total Urban Rural
TOTAL HOUSEHOLDS 30,900 23,100 7,800 35,900 27,900 8,000
Not Connected toGeneral Water Network
Absolute 2,978 n.a. 3,627 n.a.2 of Units 13.0% 13.0%
Without Piped Watera/Absolute 9,725 4,046 5,679 10,711 4,887 5,825Z of Units 31.51 17.5Z 728X 29.82 17.5Z 72.8%
Without General SewerSystem or SepticTankb/
Absolute 16,007 8,917 7,090 18,041 10,769 7,272Z of Units 51.82 38.6Z 90.92 50.3Z 38.6% 90.92
Without Any SanitaryFacilityc/
Absolute 6,652 2,541 4,111 7,285 3,069 4,216Z of Units 21.52 11.0% 52.7% 20.3% 11.0% 52.7Z
Source: IBGE, PNAD-85, adjusted for 1985 recount.
Notes: a/ Without piped water from the general network, well or spring.b/ Without general sewer system or septic tank or with shared
facility.c/ Without any facility or with shared facility.d/ Adjusted using total from Table 1. Due to rounding, the urban
and rural deficits do not always sum to exactly the total.e/ Assumes that the number of households served grows at the same
rate as the number of rural and urban households.
- 28 -
ANNEX 1Table 1. 3
BRAZIL
WATER SECTOR PROJECT IN THE STATE OF SAO PAULO
Regional Distribution of Urban Service Levels, 1988
Water SeweragePopulations Populations1l/
Region (Million) Z Served (Million) 2 Served
North 2.5 72.5 0.1 5.2
Northeast 16.8 80.6 16.8 17.7
Southeast 35.2 90.0 19.6 48.8
South 11.4 88.9 2.2 19.4
Centerwest 6.4 85.9 2.5 38.9
Total Brazil 72.3 82.6 27.3 37.8
1/ Refers only to water-borne sewerage, not to other forms of waste-waterdisposal. Service is percentage of urban population with water.
Source: CEF, Consolidated EVG's.
- 29 - ANNEX 2
Page 1 of 3
BRAZIL
WATER SECTOR PROJECT IN THE STATE OF SAO PAULO
The PLANASA System
Origins of PLANASA
The National Sanitation Plan (PLANASA) was created in 1968 in aneffort to improve national water and sewerage service levels, at the time50Z and 30?, respectively. Brazil was undergoing a very rapid increase inurbanization at a time of unprecedented expansion in the national economy.These forces put into relief the need for, and possibilities of, bettersanitation conditions. Until 1968, water and sanitation services had beenthe responsibilities of relatively weak municipal governments whichoperated in a confusing policy environment in which states, severalregional authorities, and numerous federal entities supported water andsanitation programs. Coverage was uneven and the sector disorganized inthe sense that no coordinated systematic policy making and planning werecarried out at the national level.
With this as a backdrop, the idea of a concerted national effortin sanitation, known as PLANASA, was conceived and made a part of the 10-Year National Economic and Social Plan. PLANASA set new goals for thesanitation sector--to achieve 80Z coverage in water and 502 in sewerage by1980. More important, the plan for the sector established a system ofinstitutions, procedures, and financing geared to address the need forplanning and policy at national and regional levels. PLANASA was designedto address operational and investment needs at the state level in order totake advantage of economies of scale sufficient to establish a self-sustaining financing system to operate and expand services. Theinstitutional vehicles of this system consisted of (1) the National HousingBank (BNH) as the 'apex' financial institution, (2) state water companies(SWCs) which would take concessionary responsibility from municipalities tooperate and improve water and sanitation service at the local level, and(3) state water and sewerage funds, known as FAEs, set up as revolvingfunds, managed usually by state banks, to channel state and local resourcesto match investments from BNH. The plan also called for municipalinvestments in the sector, although this proved to be difficult to sustain.
Financial and Technical Arrangements
The financial and technical arrangements in PLANASA are simple inconcept and difficult to implement. The financial resources mobilized forthis system were of three types: (1) the Time-on-Joll Guarantee Fund (FGTS)created by an 82 tax on the wage bill; 302 of this amount was to beinvested by the National Housing Bank (BNH1 in water and sanitation; (2)internal and external credits; (3) budgetary resources from stategovernments, some provided on a grant basis to launch the system andestablish the FAEs. Technically, sector planning and programming werecoordinated by a central unit in BNH based on rolling five year investment
- 30 -ANNEX 2Page 2 of 3
plans prepared by the SWCs. In addition, BNH (and later its successor, theCaixa Economica Federal or CEF) monitored tariff increases, set standards,and helped carry out training and technical assistance.
Once established, the FAEs and state governments were to match BNHcontributions for capital investment. The FAEs were to be subtained bycash generation from company operations in addition to resources providedby state capital injections. When a state's contributions exceeded 52 ofits budget, BNH could finance the difference charging an interest rate atleast equal to urbanization rate of states. Thus the FAEs were consideredto be the principal and permanent source of finance for state investments.Additional financing programs were set up in early '70s during boom yearsto stimulate sewerage treatment, help cut poorer states, and give incentiveto training and technical assistance.
PLANASA Performance
More than 55 million people have been connected to water, another24 million to sewerage under the PLANASA system. Over the period1968-1986, more than US$10.23 billion reaching service levels of 87Z and39Z, respectively, were invested in the sector. In the first eight yearsof the program, total combined investments in the sector averaged US$324million per year. This figure was more than doubled during the "miracle"years (roughly 1977-1982), to about US$844 million, but fell again to lessthan half that level beginning in 1983. The geographic pattern ofinvestments follows roughly the regional population distribution, except inthe Southeast and the North, where investments are, respectively, slightlyless and slightly more than population distribution. Overall, more than712 of the investments went to water supply, 28.9Z to sewerage. Seweragenever reached planned investment levels because sewerage is roughly twiceas expensive as water and because it takes much longer to recover seweragecosts. In addition to service increases, PLANASA made important gains inimproving sector policy making, planning, and coordination, in settingtariff levels, and in developing and diffusing project evaluation andscreening techniques.
Average annual investments for the past five years has been insteady decline. The recession, followed by economic crisis over the pastthree years, drained the financial viability of the PLANASA system inseveral ways. First, incomes dropped along with mortgage payments, meaningthe principal sources of finance for the BNH (now the CEF) were drasticallyreduced. Second, states were unable to sustain counterpart financing.State water companies, under political pressure to maintain low tariffs,also lost the capacity to clear their debts with the FAEs. Simning up thisexperience, the FAEs got 39.1% of money from states, 33.32 came from BNH orthe CEF, and only 27.6? directly from users. Over tte past several years,with few exceptions, returns to the FAEs from SWCs hEre been negligible.
Although PLANASA was instrumental in putting Brazil near the topof urban water service levels in the Region, the performance in seweragefell short of the original goal. At the same time, the PLANASA systemproved adaptable. New programs were added, for instance, in low costsanitation and for rural water, and special incentives were cffered to
- 31 -ANNEX 2Page 3 of 3
achieve specific objectives. For instance, to improve service in smalltowns, special incentives led to an increase in the number of systemsoperated by SWCs from 1,200 to nearly 3,300 in the period 1979-1983. Over802 of the increase were in small towns.
The Future of PLANASA
Aside from the financial and economic crisis in the country atpresent, the many political and institutional changes since the opening ofthe New Republic, along with demographic shifts, constitute a newenvironment for PLANASA and the sector. Brazil is now undergoing ademographic transformation in which the number of households is growing 202faster than urbanization as a whole. By the turn of the century, the totalnumber of urban households will rise to over 37 million, more than doublingthe 1980 figure (18 million). At the same time, the new constitution,along with fiscal and administrative reform, tend to favor municipalitiesfinancially and politically. This shift of emphasis to the local level--along with the increasing demands for public sector efficiency, tariffcontrols, and improvements in pollution control and solid waste--arecurrently being reviewed by sector officials in order to determine the bestcourse for PLANASA and the sector.
- 32 -
ANNEX 2Table 2.1
BRAZIL
WATER SECTOR PROJECT IN THE STATE OF SAO PAULO
PLANASA Investments 1968-1987
Investments MunicipalitiesSubsector (USS billion) Served
Water Supply 7.8 3,011Sewerage 3.6 570
Total 14.4 -
State GrantsShare CEF Counterpart and Other
Billion USS 7.1 2.7 1.6Percent 622 24Z 14%
BRAZIL
WATER SECTOR PROJECT IN THE STATE OF SXO PAULO
Bank Loans to Brazil for Water Supply and Sewerage
Amount/Borrowor Status as of 12/31/88Year Loon No. (US1 Millions) Purposo Commitments Disbursements Comments
1971 757-BR 22.0 City Water Sio Paulo water distribution 100X 100X Project Performanco audit datedCompany and storago. April 4, 1980.
1971 758-BR 12.0 City Water Sbo Paulo sewago collection 100X 1001 Idm. Loon amount reduced fromCompany and disposal. USS1t.0 million.
1974 1009-BR 38.0 BNH Water supply and sewerage in 100X 100X Project completion report datedthe state of Minas Gorsis. June 10, 1981.
1976 1309-BR 40.0 BNH Water supply and seworage in 1001 1001 Project complotion report datedthe state of Minas Gerais. May 18, 1964.
1979 1663-BR 100.0 BNH Water supply and sewerage in 1001 1001 Projoet completion report datedthe states of Bahia, Ceari, February 27, 1987. Land Pernambuco.
1980 1823-BR 130.0 BSh Water supply and sewerage in 100X 1001 Project completion roport datedthe states of Parand, Santa April 27, 1987.Catarina, and Rio Grande doSul.
1980 1860-BR 139.0 BNH Third Minas Gerais water 100X 100X Project completed satisfactory insupply and sewerage. December 1987.
1981 1970-BR 180.0 BNH Multi-state water supply and 100X 100X Project completed in December 1987sewerage project in the states with the exception of works in theof Amazonas, Goids, Mato Grosso city of Brocrlia which aredo Sul, Parn, Paraiba, and the expected for completion by JuneFederal District. 1988.
1983 2249-BR 302.3 BNN Water supply and sewerage 100X 99X Project satisfactory completed insector project; sub-projects Decembr 1987 with the exception Iin 23 states and territorios. of an ongoing Tech. Assistance
Program.
1986 2632-BR 16.3 GOVT. of Technical assistance to 201 121 Technical assistanc portionBRAZIL develop national rural water satisfactory; pilot component has
and sanitation paraomters, and not yet started.a pilot rural proj et in onestate.
1988 2983-BR 80.0 CEF Water Sector Project for 25X OX Loan becam effective on Februarymunicipalities and low- 23, 1989.income aras.
- 34 -ANNEX 4Page 1 of 5
BRAZIL
WATER SECTOR PROJECT IN THE STATE OF SAO PAULO
Letter of Agreement betweenSABESP and the State of Sao Paulo
I. Objectives of the Agreement
The purpose of this agreement is to clarify the respectiveresponsibilities of SABESP and the State of Sao Paulo in relation to theprovision of water and sanitation and to improve mutual understandingregarding accountability in the respective roles. The need for theagreement arises from the process of governmental and financial reformbrought about under the new constitution, tributary reform, 'OperacaoDesmonte,' and other changes related to macroeconomic strategy. Thesereforms signify a growing role of the State in the planning and finance ofwater sector investments and a receding federal role. The rationale forthis agreement arises from the mutual interest of SABESP and the State inthe need to:
o optimize the programming, finance, and execution of investments inorder to reach the established goals of the State in water andsanitation;
o specify SABESP's investment levels and performance standards andlevels of funds to be provided by SABESP and the State;
o avoid unnecessary losses due to downtime and discontinuities inoperations and investments;
o improve management and strengthen the institutional and financialautonomy of SABESP;
o maintain tariffs at levels which sustain the economic andfinancial viability of SABESP, as far as SABESP and the State areentitled to it.
II. Period of Agreement
This agreement covers the period that goes from the date thisdocument is signed to June 30, 1994 and coincides with the estimated US$1.7billion "minimum" investment plan of SABESP. However, the period of theagreement may be amended at any time with the conse'nt of both signatories.
III. Commitments and Responsibilities
Each of the signatories agrees to make the good faith effort toabide by specific targets or actions as set forth in detail in Annexes Onethrough Five.
- 35 -ANX 4Page 2 of 5
1. Institutional Strengthening and Performance. SAUESP willcontinue to improve administration and manag e nt with a view towardincr*eaing efficiency by cutting costs and increasing output during theperiod of agreemnnt. SAIUSP agrees to achieve performnce levels asweasured by monitoring indicators appearing in Annez One. Toward this end,SAJISP has prepared an Institutional Development Program that followsguidelines set forth in Annex Two.
The State supports SABZSP's efforts to improve efficiency inadministration, manag e nt, and operations.
2. Marginal Cost Pricina. SAIBSP will complete the -preparationof a marginal cost pricing study by end-1989, and will discuss the resultsand agree with the Bank on a set of recouoendations for application ininvestment planning, operations, and pricing. If the tariff structure orlevels reco m nded by this study implies changes in the present ones,SABESP agrees to support the need for these changes and to supply technicaland financial justification for them. The State also agrees to support theneed for these changes, and investigate alternative means to-implementthem.
3. Tariffs Levels. Changes in tariff levels will be proposed bySABESP and approved by the State in accordance with prevailing statutes andadministrative regulations in order to attain the financial resources asprojected in the Financial Plan (Annex Three). The objective is to setrates in order to allow SABESP to comply with the NTL, and at least tomaintain the average combined tariff at its present level in real terms.Justifications for any tariff increases must be accompanied by evidence,based on the monitoring indicators set forth in Annex Two, that SABESP ismaking progress in increasing the efficiency of the company.
4. The net level of cash to be generated from SABESP's internalsources should be equal to a minimum of 201 of the value of SABESP's totalinvestment program in the year 1993 and thereafter. As of October 31, 1989ind for each year thereafter, SABESP's financial projections for the five-year rolling plan should provide that the net level of cash generatedinternally should be at least equal to 201 of the value of the totalinvestment program in the year 1993 and thereafter.
5. Investment Plan. The Investment Plan, described in AnnexThree is based on tte following assumptions and subject to a number ofconsiderations to wLich both SABESP and the State agree:
a) Assumptions.
o Central Bank Resolutions Nos. 1469 and 1486, imposing
limits on indebtedness and public sector lending, willremain in effect;
o World Bank and Inter-American Development Bank willfinance investments in water and sanitation in the amountsindicated in Annex Four;
o The State will budget regular contributions of no lessthan the amount shown in the Investment Plan (Annex Four);
- 36 -ANNEX 4Page 3 of 5
o SABESP's investment program will be evaluated inaccordance with the marginal cost criterion.
O Thte five-year investment plan will be updated annually toevaluate the feasibility of, and sources of funds for,proposed investments, and its incidence on SABESP's tarifflevels.
b) Other Considerations
o Other Programs in the Investment Plan involve issues whichare still to be resolved by SABESP in concert with theState, and the CEF. The main issues are 1) financialarrangements to reestablish a viable, self-sustainingsystem to finance future investments and 2) criteria forproject selection. The State and SABESP agree to explorea mutually satisfactory solutior. to financing futureinvestments and to the project selection criteria agreedwith the World Bank in the Loan Agreement.
O Investments in addition to those set forth in theInvestment Plan (required in order to maintain or improvepresent levels of service in water and sanitation) facingsimilar issues to those in the "Other Programs," will beprepared using the same standards.
o Institutional Development Program. SABESP will definefurther the elements of the Program, establish priorities,and prepare terms of reference regarding itsimplementation.
o The State will analyze on a yearly basis SABESP'sinvestment plan and will recoimmend modifications ifnecessary.
o SABESP will submit a quarterly progress report to theState based on guidelines to be defined by the PlanningSecretariat of the State.
B. Other Points (for Further Discussion)
1. Revaluation of Physical Assets of SABESP. SABESP willrevaluate its physical assets aiming at establishing depreciation andremuneration rates compatible with the real value of its systems.
2. Recapitalization of State Financing System. SABESP and theState agree to formulate a strategy and respective responsibilitiesregarding the recapitalization of a financially viable, sustainablefinancing system at the state level.
3. Participation of CEF. SABESP and the State agree to the termsand conditions regarding the financial and technical roles of CEP (asoutlined in Annox Five).
-37- ANNEX 4Page 4 of 5
4. Accounts Receivable. The State agrees to assist SABESP todefine criteria, and possibly an indexation system to maintain the value ofaccounts receivable, some several years past due (mainly arrearage on thepart of municipa. governments). Subsequently, a plan for recuperation ofreceivables agreed by both parties, is to be put into effect for the timelyliquidation of these obligations. The plan should take into accountnational and state legislation and the financial situation of SABESP.
IV. Evaluation and Compliance
Both parties are responsible for the evaluation and control of theplan.The purpose of the evaluation is to monitor the responsibilities andtargets of each party by using the indicatora in the InstitutionalDevelopment Plan and to prepare quarterly reports. The terms of thisLetter of Agreement may be revised at any time by a mutual agreement ofboth parties involved.
Sao Paulo, date
GESP SABESP
- 38 -ANNEX 4Page 5 of 5
List of Annexes
1. Financial and Operational Monitoring Indicators.
2. Institutional Development and Managerial Performance Program.
3. Investment Plan.
4. Financing Plan.
5. Technical and Financial Participation of the CEF.
- 39 -ANNEX 5Page 1 of 9
BRAZIL
WATER SECTOR PROJECT IN THE STATE OF SAO PAULO
SABESP's 1989-1993 Investment Program
1. SABESP's five year investment program (1989-1993) has beenconceived to increase water and sewerage service levels and the operationalefficiency of the company. The main physical objectives are:
Indicator 1988 1993 Increment
State Urban Population (millions) 28.4 33.7 5.3
SABESPTotal Urban pop. (millions) 18.9 21.5 2.6
Water SupplyServiced Population (millions) 17.0 19.4 2.4
2. A total of US$ 1,717 millions will be invested to meet thesegoals. The Sao Paulo Metropolitan Region (SPMR), which accounts for 662 ofthe urban population in the state, will receive 69' of the plannedinvestments while the Baixada Santista and medium and small cities willreceive 24Z. US$ 113 million (7Z) will be allocated to institutionaldevelopment programs. Investments in sewerage and water will account for512 and 42Z, respectively, of the total.
3. The main investment components are:
- 40 -ANNEX 5Page 2 of 9
Sao Paulo Metropolitan Region
Water Supply
a. Water Production. Production capacity will be increased by8.2 d3/seg (258.6 million 33/year). This includes construction of the firststage of the South West Water Supply Scheme ( more details given inattachment 1 to this annex). This scheme comprises three dams (Alto andMedio Capivari and Embura) which will fom two reservoirs (Alto and MedioCapivari) with a total capacity of 214.5 million m3 (M3). It also includesimprovements to the Guarau and Cantareira, Rio Grande, Alto Cotia andSoutheast water systems and water treatment plants, the first stage of AltoTiete water treatment plant and other works.
b. Transmission pipelines. A total of 127 kms of large diameterpipelines will be built to improve the reliability of the delivery s"stemsfrom the water treatment plants to the storage tanks.
c. Storage Tanks. Storage capacity will be increased by 190,000cubic meters. This component includes construction of some 18 large tanks(1000 m3 and larger) and improvements to water storage installations inseveral municipalities.
d. Distribution System. Some 2,500 kms of pipes and 250,000water connections will be installed.
e. Rehabilitation and Other Programs. Small investment programsthroughout the SABESP water supply system wi]l be made to improve thereliability of the systems, remove bottlenecks and reduce operating costs.
Sewerage
a. Interceptors and Treatment. Completion of works to put intooperation a first stage of the Barueri (7.0 m3/seg) and ABC (3.0 m3/seg)waste treatment plants. First stages will also be built of Parque NovoMundo (2.5 m3/seg) and Sao Miguel (2.2 m3/seg) and Sao Jose dos Campos (1.7m3/seg) waste treatment plants. Small waste treatment plants will beinstalled in several small municipalities.
b. Collection network. Construction of some 4100 kms of seweragepipes and 343,600 house discharges.
c. Rehabilitation and other programs. Small investment programswill be made throughout SABESP sewerage system to improve service, removebottlenecks and reduce operating costs.
Baixada Santista and interior Cities
Water Supply
Expansion programs are included to increase service levels andrelishilitv of service. These programs entail construction of some 2,000kms *of plpes rtnd 23n.ooo00 house cnnnevt itoir. They inrludp,
- 41 -ANNEX 5Page 3 of 9
a. Expansion for vegetative growth. Programs in distributionsystems to accommodate demands from new customers in already servicedareas.
b. Medium Size Cities. Programs in 53 medium size cities toimprove delivery capacity. Includes construction of 86 kms of transmissionpipes and additional storage of 39,900 m3.
c. House Connections Program. Provision of water distributionpipes and house connections to serve new housing developments. Includesconstruction of 78 km8. of pipes.
d. Small cities. Programs in some 100 small cities to improveservice levels.
e. Rehabilitation and other programs. Programs to improvereliability of service and service coverage and to reduce operating costsin 45 cities. Includes construction of 267 kms. of pipes and 35,600 m3 ofstorage capacity.
Sewerage
Expansion programs in the sewerage collection network to increaseservice levels. These programs entail construction of some 1,900 kms. ofpipes and 230,000 house connections.
a. Expansion to cover vegetative growth. To meet demand in areaswith trunk sewers.
b. Medium Size Cities. Programs in 19 medium size cities toimprove service levels. This includes construction of 42 kms. ofinterceptors and collectors and of 4 sewage treatment plants.
c. House Connections Program. Provision of sewerage collectionnetworks to new housing developments. Includes construction of 85 kms. ofpipes.
d. Small cities. Programs in some 100 small cities to improveservice levels.
e. San Jose Dos Campos. Construction of 2.2 kms. ofinterceptors, one pumping station and a 1.8 m3/seg activated sludge wastetreatment plant.
f. Rehabilitation and other programs. To improve service levels,reliability of services and reduce operating costs. Includes constructionof 274 kms. of interceptors and collectors, 52 pumping stations and 32waste treatment plants.
Maintenance Programs
Water and sewerage works to improve quality of operations,increase efficiency and reduce operating costs. The stock of parts will beprovided to respond to emergency situations.
- 42 -ANNEX 5Page 4 of 9
Operational Development
Programs to improve user's cadastral information in some 239cities with 738,000 service connections. Continuation of physical inventoryof networks (3,200 kie). Repair of about 138,000 service meters.
Eniinserinp
Final engineering designs for some of the investment componentsand feasibility studies to meet future needs and supervision duringconstruction.
Institutional Development
Technical assistance, materials and works for:
a. Macrometering. To improve reliability and coverage ofproduction metering.
b. Pitometry. To improve pressure zoning, ascertain piperoughness coefficients and delivery flows.
c. Micrometering. Development of maintenance and replacementprograms and meter repairs.
d. Consumer Service. Programs to improve SABESP's response toconsumer complaints.
e. Technical Cadastre. First stage to update and computerizeinventory of all physical assets.
f. Operational Units. Development and executior of maintenanceand rehabilitation programs to be carried out by the differ nt operationalunits.
g. Rehabilitation Works. Pipe cleaning and relining.Electrical and mechanical systems. Reconstruction of house connections.
h. Planning and Operational Control. To improve operation oftreatment plants, define zones to control unaccounted for water andtelemetering systems and develop operational rules for water production andpumping.
i. User's cadastre. Assessment and redesign of basicclassification of users in Sao Paulo Metropolitan Region.
j. Billing and Collection. To reduce billing time and improvecollection efficiency.
k. Commercial System. To improve company response to consumercomplaints.
1. Higher level staff overseas training. To help familiarizeSABESP's professional staff with state of the art developments in wateranti ws te watro tet.liinlf.'gy includi lg Itw c,ist optionns * ,n't el'titf 'o I9prflgtaams and co"meetial systems.
- 43 -ANNEX 5Page 5 of 9
Domestic Waste Water Pollution Assessment
a. Inventory of point sources of domestic waste water dischargesand quantification of pollution loads ( in progress).
b. Definition by environmental control state agency of effluentquality standards.
c. Assessment of degree and type of treatment required and ofinvestment requirements.
d. Assessment benefits and costs and of priorities over short,medium and long range planning horizons.
e. Assessment ef ability and willingness to pay of populationaffected by proposed programs.
f. Assessment of sources of revenues to meet investment andoperating requirements. Internal cash generation (tariffs, specialassessments), state taxes and equity contributions, and other possiblesources of revenues.
g. Recommendations for implementation of domestic sewagepollution control program, including suggested revisions of state waterpollution standards.
Sewerage 91.9 68.5 160.4 9Vegetative Growth 30.0 30.0Medium Size Cities 23.0 23.0Housing Program 3.9 3.9Small Cities 16.0 16.0San Jose dos Campos 19.0 19.0Other Programs 68.5 68.5
Maintenance Programs 24.0 24.0 l
3. Engineering. Water and Sewerage 40.0 89.9 129.9 8
4. Institutional Development. 64.4 48.9 113.3 7Domestic Waste Water Assessment
Total SABESP .......................... 600.0 1,117.4 1,717.4 100
1/ Costs include physical and price contingencies and taxes (US $ 40million for IBRD project and US$ 77 million for 'other" projects). TotalsmAy not Add hpcatice of rolindinp.
- 45 -ANNEX 5Page 7 of 9
Attachment 1
South West Water Supply Scheme
1. This water supply scheme, which has been studied to a feasibilitylevel, will increase the provision of raw water to the Sao PauloHetropolitan Region. The proposed scheme includes:
a. Capivari - Los Honos dams and reservoirs sub-system which willallow transfer of the Capivari river and tributaries flows to theGuarapiranga River and water supply system.
b. Alto Juquia subsystem. Dams and reservoirs on the Juquiariver and tributaries which will allow transfer of water from the Ribeirade Iguape basin into the Guarapiranga system.
c. Possible use of Billings Reservoir as a source of watersupply.
2. The first stage of the South West Water Supply Scheme, which willbe financed under the IBRD loan, will increase the raw water supply by 3m3/sec and includes:
a. Alto Capivari and Embura dams which will form the AltoCapivari reservoir ( 4.5 Mm3 ).
b. Embura outflow control structure and Embura Channel to connectto the Vermelho river, which in turn discharges into the Embu-Guacu riverwhich feeds the Guarapiranga Reservoir.
c. Medio Capivari dam and reservoir (210 Mm3).d. Pumping station to transfer 5 m3/sec. in a first stage ( 15
m3/sec final) from the Medio to the Alto Capivari reservoir.
Geography and Hydrology
3. The 70 km2 watershed that drains into the Alto and Medio Capivarireservoirs is located south west of Sao Paulo, at an elevation of 740 mts.above sea level (m.s.l.). It is formed by the Capivari River and itstributaries and receives an annual rainfall of about 1,500 mm. The averageunregulated flow is 7.6 m3/sec.
4. This hydrographic system drains to the south of Sao Paulo, overthe Cubatao Escarpment, into the Rio Branco which then flows to theAtlantic Ocean. The watershed is well covered by high trees and is freefrom soil erosion areas. The entire project area is within protectedwatershed areas. To the south of this area a state park reserved area islocated. At a future stage, the Lower Capivari dam and reservoir and theLos Monos reservoir will be built downstream form the Medio Capivari dam.These future developments may impinge upon the sate park area. Immediatelyafter the Lower Capivari dam the Capivari river exits the CubataoEscarpment through a fall (at an elevation of about 700 mts. in.s.l) and avery steep river channel bed and drains into the Rio Branco, 7 kmsdownstream (at an elevation of about 75 mts. m.s.l.). After the confluenceof the Capivari River, the Rio Branco flows very slowly through a wideflnodplain with some agricultural activity, and discharges into the seasfmw 30 km. d,,wniusltam.
- 46 -ANNEX 5Page 8 of 9
Attachment 1
Population Aspects
5. According to SABESP's estimates some 1000 people (200 houses) nowlive in the watershed area of whom some 250 (50 houses) would be directlyaffected by the flooded area and will need to be relocated. All thewatershed area is the property of the state or SABESP.
Physical Characteristics
Dams Alto Capivari Embura Baio Capivari
Type Rock with Earth with Rock withinner filter inner filter inner filter
Flooded Area (km2)Normal level 0.7 14.0Minimum level 0.6 4.5
Water Level (mts. m.s.l.)Maximum 750.5 745.0Normal 748.0 742.5Minimum 746.0 726.0
Average Regulated Flow (m3/sec) 0.7 3.0
Transfer Systems
Pumping Station (first stage).Capacity (m3/sec) 5Dynamic head (mts) 23Power (h.p.) 2000
Outflow Control StructureCapacity (m3/sec) 20
Embura ChannelCapacity (m3/sec) 20
- 47 - ANNLXS
Page 9 of 9
Attachment 2IBRD Project Description
Sao Paulo Metropolitan Region
Construction of the following water production schemes:
South Vest--includes the Alto and Medio Capivari and Embura Damsand related structures and water transfer facilities.l
Rio GrandeCabucuGuarau water treatment plantAlto Cotia
Pipelines for transmission and distribution of water, waterstorage tanks and house connections throughout the distribution system.
Interior Cities and Baixada Santista
Improvements to water production facilities and conveyancesystems.
Pipelines for transmisaion and distribution of water, waterstorage tanks and house connections.
Improvements to sewerage facilities and conveyance systems.
Pipelines for collection and disposal of sewage and houseconnections.
San Jose dos Campos: sewage treatment plant, pumping station,collectors and house connections.
Institutional Development Program
Equipment, materials and consultant services for:
Macro and micro meteringPitometryConsumer services and technical and user's cadastrePlanning and operational controlBilling and collection and conmnercial systemsOverseas training of professional staffDomestic waste water pollution assessment
Engineering
Consultant services for final designs and supervision ofconstruction.
1/ Financing of the whole South West water scheme is contingent upon: a)compliance with OMS 3.80 on dam safety and b) approval by the Bank of asatisfactory Environmental Impact Study including its terms ofreference.
- 48 -
ANNEX 6Page 1 of 2
BRAZIL
WATER SECTOR PROJECT IN THE STATE OF SAO PAULO
Detailed Project Costs(USS million equivalent)
I of199 1990 1991 1992 1993 TOTAL Ease
S. ISRO PROJECT
A. SAO PAULO METROPOI.ITAN REGION 7.6 32.4 62.1 58.9 46.4 197.4 39.711. Wat*r Supply: 7.6 32.4 52.1 58.9 46.4 197.4 39.7%
RoR Avg Net Fixed Assets(Un-revolued Basis) e6 SS 53 43 aS 12X 14S 1S 15% 153 15S 11
NOTE:
Th. unusually high inflation adjustment of 1986 masks the significant improvement in performance, genorated by a 675
real increase in average tariffs. This improvement can be seen in the financial ratios, and in operating income.
Inflation adjustaents hsv- not been forecast; however, until the asoot revaluation in 1990, theeo effectscould have a negative impact on SASESP's projected booked not revenues.
-53 - ANNEX 9Page 2 of 3
BRAZILWater Sector Proaeet ;A the State of See Paulo
Cempanh~is de San.aento Basic* do Sao Paulo (SASESP)Balance Sheet
% Revenues to Sector 2.0% 1.7X 1.1% 1.3% 2.0% 1.8%X Tronfors to SA8ESP 70.4% 86.2X 70.1U 73.6% 78.9% 93.2%X Tranfors to FAE 29.6X 19.8% 29.9% 26.4% 21.1% 6.8%
- 56 -
ANNEX 11page 1 of 4
BRAZIL
WATER SECTOR PROJECT IN THE STATE OF SAO PAULO
Notes and AssumDtions for SABESP Financial Forecasts
I. INTRODUCTION-
1.01 The financial projections are based ont (a) audited financialstatements of SABESP for FY 1984-1988; (b) FY 1989 budget; and (c)financial projections and explanatory notes for 1989-1995 (EVG), asprepared by SABESP.
1.02 Because of the high inflation in Brazil during the past decade,historical financial statements have been translated into current USdollars (using year-end exchange rates for balance sheets and averageexchange rates for income statements), and projections also have beenprepared in current US dollars. The coefficients used for projected USdollar inflation (source: IBRD OPN 3.11, October, 1988), historic domesticinflation and exchange rates (source: Coniuntural Economica, November 1988?are shown below:
End-yr. Avg. Domestic US $exch. rate exch. rate inflation inflation
1/ February, 1986 (Cruzado Plan): establishment of cruzado (CZS); 83-85exchange rates shown in cruzeiros (CR$).
2/ January, 1989 (Summer Plan): establishment of cruzado novo (NCZ$).
- 57 -
ANNEX 11page 2 of 4
II. INCOME STATEMENT
A. Revenues
1.03 Revenues are derived from the sale of water, sewerage collectionand treatment services, sale of equipment and consumer connection,installation and service fees. Consumers are broken down into five majorcategories: residential, industrial, commercial, institutional and bulkmunicipal sales. Projections assume that net coverage levels for bothwater and sewerage change very little as the proposed project wouldessentially help to maintain current levels in the face of high populationgrowth rates (water maintains the level of 90Z, and sewerage is increasedfrom 61Z to 67Z). The actual increase in absolute volumes averages about2.52 per year for water and about 42 per year for sewerage.
1.04 Retail prices are in para 2.27 and Annex 15. Financialperformance improved dramatically from 1987 to 1988, due to a 67Z realincrease in the average tariff level during 1988. Prices of January, 1989(following the "Summer Plan" announced January 15, 1989) were assumed as abase for the projection. These prices were assumed to maintain constantreal levels over the project period. This level enables SABESP to complywith the conditionality of the loan (see para. 2.27).
1.05 Losses are measured by the difference between water produced andwater consumed, and include losses due to meter errors, theft and otheritems. (The volume of water billed is slightly higher than water actuallyconsumed due to the fact that some residential consumers do not alwaysconsume the full minimum monthly amount.) Forecasts assume SABESP meetstargeted water-loss levels by the end of the project period. (SeeMonitoring Indicators, Annex 13.)
B. Expenses
1.06 Operating expenses include production, maintenance, commercialand administrative costs. Variable costs (chemicals, electricity) wereassumed to increase according to the increase in total volumes sold. Fixedcosts were maintained constant.
1.07 Depreciation is calculated on a straight-line basis. Averagedepreciation period is about 25 years; it has been assumed to remainconstant, although the proposed asset revaluation study may recommendalterations. Provision for doubtful accounts is based on about 4Z ofaccounts receivable.
1.08 Net financial income and expense is the net of interest on long-term debt (excluding interest during construction on the IBRD, CEF and FAEloans, which is capitalized) and interest income from short-terminves.tments.
- 58 -
ANNEX 11page 3 of 4
1.09 Total inflation adiustment is the net of monetary corrections onasset and equity accounts, and monetary variatinns on long and short termdebt. Projections have not provided for inflation adjustment in the futuredue to: (a) the difficulty of projecting inflation in Brazil due to thecurrent economic conditions; and (b) the fact that after the assetrevaluation of 199O, the effects of monetary correction on asset and equityaccounts should more nearly balance the monetary variation on debt.
1.10 Income tax for the water scctor historically has been 62(compared with 35Z private corporate income tax). New tax reforms in 1988increased this level to 30Z as of fiscal 1989. Brazilian corporate lawallows for an income tax loss carry-forward of up to four years, thusSABESP assumed to pay income tax at this rate until previous losses arewritten off (projected for 1989).
III. BALANCE SHEET
D. Assets
1.11 Accounts receivable are assumed to decrease to 60 days of yearlysales revenue by 1995. Accounts receivable consist of accounts billed andunpaid. Accounts not yet billed are shown separately.
1.12 Inventory consists of materials and represents about about 30days of supplies.
1.13 Short term investment is the amount available to the company forfuture phases of investment.
D. Liabilities and Equity
1.14 Long-term debt is detailed in IV below.
1.15 Share capital is assumed to increase with the increased equityparticipation of the state over the period, as shown in the financing plan(see Funds Flow, Annex 9).
1.16 Retained earnings grow with net income (dividends are paid out tothe majority shareholder, DAEE, but are reinvested).
IV. BORROWING AND INVESTMENTS
E. Proiect Financing
1.17 Proposed IBRD loan: US$280 million equivalent borrowed over 15years, including 5 years grace, at standard flexible rate (currently7.65Z). First disbursement: second half 1990; first repayment: mid-1995.Commitment fee: 0.75Z of undisbursed balance.
- 59 -
ANNEX 11page 4 of 4
P. Non-Prolect Investment Borrowing
1.18 IDB loan: US$111.4 remaining for FYs 1989-1991 borrowed over 20years, including 4 years grace, at 8.5Z.
1.19 PLANASA: US$300 million equivalent from CEF and US$300 millionequivalent from FAE borrowed over 18 years (water) and 30 years (sewerage),including 1-3 years grace, at 2Z (FAE-sewerage), 3Z (FAE-:water) and 12Z(CEF). Disbursed and repaid by contract, according to schedule of works.Note: As of 1983 the State of Sao Paulo ceased providing contributions tothe Sao Paulo FAE (preferring to provide any contributions directly to thecompany as equity capital injections); therefore, since 1984, SABESP's useof FAE resources has consisted only of the repayments (or "returns") it hasmade to this fund. Therefore, forecasts of FAE resources for SABESP'sminimum investment program as defined with the Bank were based solely onthe company's estimated repayments to the FAE for the period.
G. Total Investment Costs
1.20 Total investment costs are projected to include interest duringconstruction on the IDRD, CEF and FAE lcan, and administrative costs ofabout 71 of total investments, which are capitalized (representing physicalimprovements and other items, allowed under Brazilian accountingstandards). These items are separated from physical investments.
- 60 -
AN4NEX 12
BRAZ IL
WATER SECTOR PROJECT IN THE STATE OF SAO PAULO
Water Sector Finances(As of end-year 1987)
Volum Averago Operating Return ConsumersBilled Logsse Tariff Costs on Asooto Par
STATE COMPANY ('9ft a3) (I) (US1/ma) (US1/s3) (U) Employee
NOTES: Data gathered during mid-November, 1988; Source: CAIXA ECONOMICA FEDERAL, Rio deJoneiro. Not included are Acre (SANACRE), Amapa (CAESA), Rondonia (CAERD) and Roraima.
Net Internal Cash as 2of Total Investments 11 13 15 17 18 20 25 30
Notes:
(a) volume treated/volume water consumed(b) volume collected/volume water consumed(c) revalued assets, 1990 and thereafter(d) long-term debt
- 62 -ANNEX 14Page 1 of 2
BRAZIL
WATER SECTOR PROJECT IN THE STATE OF SAO PAULO
Methodology and Results of the Marginal Cost Pricing Analysis
1. Marginal costs (MC) for the project's investments andcomplementary works have been estimated using long-run average incrementalcosts (LRAIC). SABESP's water and sewerage MC have been estimated for eachof the five regions in which its market is divided: RMSP's IntegratedSystem, RMSP's Isolated Systems, Baixada Santista, Interior's Large andMedium Cities (CMG) and Interior's Small Communities (CPP).
2. Demand projections have been estimated using expected populationgrowth rates; fixed targets for service coverage; constant parameters forannual per-capita consumption, number of people per household and number ofhouseholds per residential connection; and declining percentages of averagelosses. Therefore, demand projections implicitly assume a price elasticityequal to zero. Disaggregated projections for each market of SABESP and forthe whole company are shown in Attachments 1 and 2.
3. SABESP's nominal capacities of water and sewage treatment stationsand their expected use in each year are shown in Attachments 3 and 4--lackof information required to assume capacities at sewage treatment stationsto be filled at a constant rate until saturation in year 2000.
4. Water investments are divided in production--which includes waterintake, treatment and unaccounted water control, transmission, reservoirs,primary distribution, secondary distribution and connections. Sewerageinvestments are divided in connections, collectors, main collectors,interceptors and treatment. All investments are expressed in market pricesof December 1988 and include engineering and physical contingencies.Complementary investments to be made by the SWCs after project executionare mainly house connections and secondary water distribution pipes andsewage collectors. SABESP's investment programs for water and sewerage areshown in detail in Attachments 5 and 6, while Attachment 7 presents anestimation of its fixed administrative, operating and maintenance--AOM--incremental costs.
5. LRAIC have been calculated at an annual opportunity cost ofcapital (OCC) of 102 for each level in the chain from production to finaldeliver (water) or disposal (sewerage). Figure 1 illustrates thisclassification showing a simplified diagram of the PJISP water supplyintegrated system for year 1994. SABESP's LRAIC are shown in Attachments 6and 7.
- 63 -ANNEX 14Page 2 of 2
figure i. SL.Tpfied %agrasm o :ne IL4S? 'ater S;;r-ytntes:ated System for Year !;9,
-REATMZNT | Cons=rners0.0150Q PLANTS -0 with S;ec4a:
T.0O08Q Contracts
0.0070Q a3 -Lk 5a'e
RESERVOIRS T-L- _ - O.;959Q Consumers
O.O00Q - Cons-.=ersPRIMARY D:STRIBUT:ON O with Spe-.sJ.
_ Losses O Large & Xedi=Q * Total Volume of Connect i'r.s
Treated Water 0 Small Ccrnects.
6. MC for treated water delivered at treatment plants, transmissionpipes, primary and secondary distribution pipes, and meters have beenestimated by adding and adjusting for losses the corresponding LRAIC. MCfor sewage collected and transported to the interceptors reception pointhave been estimated by adding the corresponding LRAIC, and MC for sewagecollected and treated by adding and adjusting for additional effluentsreceived (inverse losses) the corresponding LRAIC. SABESP's complete MCstructure for these services is shown in Attachments 8 and 9.
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MINIMUM THEDLY MONTHLY VATER CONSLWTION (WC) ESTnATECHARCE -------------------------------------------------------- AVERAGE TARIFF
1/ 10 < WC < 20 20 < C < 50 50 < WCC A T E C 0 R Y ----------------------- ----------------------- ----------------------- ----------------------- USS/NS
US6/Conumwr-Month US5/N3 USL/M3 US/3
VATER SEWERACE WATER SEJERACE VATSR SEACE WATER SBiRACE VATS SM-
D*WSTRIAL 1. 932 1.9932 0.3837 0.3837 0.6689 o.a689 0.9737 0.9737- BOATS NA NA 2.7520 NA 2.7520 NA 2.7520 NA- SHIPS NA NA 2.9512 NA 2.9512 NA 2.9512 NA
INTERIOR
FINAL CONYUSS 0.2653 0.2248- DOMESTIC 1.5325 1.2293 0.2591 0.2073 0.453S 0.3627 0.6581 0.526S- CMMERCIAL 1.7636 1.4115 0.2981 0.2384 0.5214 0.4171 0.7568 0.6066- DWSTRI..L 1.9932 1.5945 0.3370 0.2696 0.5893 0.4714 0.8565 0.6643- BOATS NA NA 2.7520 NA 2.7520 NA 2.7520 NA_ SHIPS NA NA 2.9512 NA 2.9512 NA 2.9512 NA
C A T E C O R Y ----------------------------------- ----------------------- --------------------- ------WATPt W A SC 3/ WCST 4/ WATER WMOC8T WATI WCT VAMP v K 50WS rM Utse/ JS4/ UUiA LeO .S s I S
11 Financia mobidies (PS) are defined an fq110: Ki .. (1 - ATi/AT)0100 Iwher: FSi * Financial 5.b*idy '0,ercharg.) Ili,n to coie-,_e cleassfied in category i
ATi - A.eraga Tariff for cone.,.r. cleamifiod in c.*ego,y iAT - SASS'. Anerage Teriff (1E0.331I/PM fer Water .nd L180.6926f/lb for WTC)T)
21 Econo. ie U.sidis (ES) are defind as fo110 s: Si; . (1 - ATiAIC.)100.here: 15i * Economic Sbu.idy (Oesrch.r ,) g,en to con. u,_ classified in cate_y i i
ATi . A.*rage Tariff for con"ar. c1a1eifi*d in cat*.ory ii . lMerg,n-I Coet seoeibtd siP. conc..ra ,i. f.sd in cteogry i
3/ IMOC stand. for *eter s.wppl.d and "asg colect.4/ WISCSET stande for at.r apoied and ea-e. comll*cted nd fflent tr,eetd.
WAT12 !'Vf C iJT El TM 6ArE OF 80 P0A4L.
SAIE5'S ATI0ATW 1M34.V (US6 Hil. .-. f D-o.e., 2964)
1. Brazilian water supply and sewerage utilities have an uniformtariff structure which results from the adoption of a National Tariff Law(NTL) in 1978,1 and the efforts of Caixa Economica Federal (CEF) indefining criteria for its implementation.
2. The NTL and those criteria are based on two general objectives:financial equilibrium and social equity. Financial equilibrium isestablished by requiring utilities to have an average tariff for watersupply and sewerage service that guarantees enough revenues to meet alltheir financial expenses. Social equity is set forth by requiringutilities to consider the customer's ability to pay.
Financial Guidelines2
3. Financial equilibrium is guaranteed by requiring each utility tohave an average tariff for water supply and sewerage service3 such that itshould generate a revenue equal to its service cost (SC). SC is defined asthe sum of exploitation expenses--operating, maintenance, commercial,administrative and fiscal expenses (DEX); annual allowances fordepreciation, doubtful accounts--excluding a reserve for it--andamortization of expenses (DPA); and a remuneration for investment (RI)--theacknowledged investment in operating and immobilized fixed assets times anauthorized remuneration rate. The remuneration for investment should be atleast equal to the debt service (interest payments and capital amortizationdue in a given period of time. The actual annual remuneration rate shouldbe equal to or smaller than 12Z.4
1/ LEI No. 6,528 de Maio 11 de 1978 and DECRETO No. 82,587 de Novembro 6de 1978.
2/ See Jose Carlos CHAVES DE AZEVEDO (1984). Esquema Geral do SistemaTarifario do PLANASA, Convenio de Coopera,co Tecnica BNH/OPAS de22/12/81, juhno/84, Revislo 01.
3/ Average tariffs are defined dividing operational revenue by volumesold. Required average tariffs are defined dividing service cost byvolume sold.
4/ Other financial definitions are:Operational income (LO) - Operational Revenue - DEX - DPAGross Income (LB) - LO - InterestsNet Income (LL) - LB - TaxesAmortization < LL
- 80 - ANNEX 15Page 2 of 8
Social Equity Guidelines5
4. The current Brazilian social philosophy on water supply andsewerage tariffs requires utilities to take into account users' ability topay. Rate structures are set forth using minimum consumption levels andincreasing block tariffs. Assumptions underlying Brazilian philosophy are:(i) there exists households which are classified as cosmercial orindustrial customers, and (ii) family income is positively correlated withfamily water consumption. Additionally, current philosophy explicitlydenies subsidies to commercial and industrial customers, and suggests aneutral tariff (a tariff equal to the utility's service cost) for publicusers. Social equity guidelines are discussed in detail in .the followingparagraphs.
Minimum Residential Bill
5. The first guideline establishes that there should be a minimumwater residential bill not exceeding 0.35 OTN (Obrigacoes do TesouroNacional), and a minimum water and sewerage residential bill not exceeding0.50 OTN. In 1983, the average minimum water supply and sewerageresidential bill reached 70Z the maximum value authorized by the law. By1986, this figure was reduced, to less than 602, and the average minimumwater supply residential bill was near 502 the maximum limit.
Minimum Residential Consumption Level
6. A second guideline establishes that: (i) the minimum residentialconsumption level corresponding to the minimum bill should be at leastequal to 103 per household per month, and (ii) this volume should representthe quantity of water a family requires for maintaining minimum andindispensable health and sanitary conditions. Currently, 18 SWCs havetheir minimum consumption level (MCL) at 10 m3/household-month (hm), onehas it at 12 m3lhm, and 2 at 20 m3/hm. The concentration at 10 m3/hm is arelatively recent trend.
7. Establishing a MCL is equivalent to setting a fixed rate with aright to consume the minimum level free of charge. Usually, the mainreason for including MCLs in a rate schedule is that it allows utilities afull or partial recovery of customer-related fixed costs. EstablishingMCLs for accommodating low-income households --as it seems to be happeningin the Brazilian case, does not generally accomplishes its purpose and onthe contrary, contributes to significant departures from the objective ofimproving poor families' welfare when it is handled aggressively.
8. And these problems are even more complicated than having some low-consumption customers paying average tariffs greater than largerconsumption users. It may happen that many residential, commercial,industrial, and public customers who are able to afford the utilities'
5/ See Jos4 Carlos CHAVES DE AZEBEDO e "rera Lucia BAZZANELLA (1984),Modelo de Estrutura Tarifaria, Conv6nio de Cooperac,o Tdcnica BNH/OPASde 22/12/81, Julho, Revisao 00, and ACCORSI & ASSOCIADOS LTDA. (1987).Avaliac5o das Normas e Crit#rios de Fixacao de Tarifas no Setor deSaneamento : Uma Anilise dos Objetivos de Equidade, 2 Volumenes,Curitiba, Agosto, SANEPAR - CEF (BNH).
- 81 - ANNEX 15
Page 3 of a
service cost (without violating NTL's directives) are being subsidized.And because of this policy's consequences on revenues, the very poorfamilies' service affordability remains an unsolved issue.6
Residential Consumption Blocks
9. A third guideline establishes that residential consumption shouldbe differentiated by iakcreasing block tariffs. The blocks' ranges varysignificantly not only from one utility to another, but also between areasbeing served by the same utility (for example, CAERN has three differentschedules). In addition, the blocks' formation does not follow any setguidelines. For example, the second block's range goes from 11 m3/hm to 15m3 /hm in 9 SWCs, from 11 m3 /hm to 20 m3/hm in 6 SWCs, fcom 16 m3/hm to 30m3/hm in 3 SWCs, and exhibits 8 different magnitudes in the remaining 12SWCs.
Rcoidential Water Consumption and Family Income
10. Practical implementation of current Brazilian social philosophy onwater supply and sewerage tariffs is based on the assumption thtt familylevels of income and water consumption are positively correlated. Minimumbills, minimum consumption levels, and principally, consumption blocks, areall rate schedule's elements because of this assumption. However, if thisassumption is proven inaccurate, the entire apparatus involving socialconsiderations may be regressive and some households may be paying billssmalJer than what they can ifford. Additionally, if residential rates aresmalleL Lh.n marginal costs--as is Brazil's most common case, a largemajority of households are subsidized, which gives utilities large room forincreasing revenues just by eliminating unnecessary subsidies now beinggranted to high-income families.
11. Recently, this assumption was examined in Brazil. Its authorsconcluded that 'water consumption is not an appropriate variable for thepurpose of guaranteeing progressive tariffs, because of its weakrelationshin with family income'.7 The correlation coefficient they foundfor these two variables was only 0.21.
12. Table 1 shows average household water consumption by income levelin SANEPAR. The small differences between averages (especially among thefirst four categories), as well as the large standard deviation exhibitedby all income levels, are worth noting. Household water consumptiondistribution for each income level category is shown in Table 2 andillustrated in Figure 1. The small range defined between 7 m3/hm and 15m3 /hm includes almost half of SANEPAR residential consumers.8
6/ See paragraphs 10 to 14 for a more detailed discussion of this issue.
7/ ACCORSI & ASSOCIADOS LTDA. (1987), p.13 8.
8/ These figures are based on ACCORSI 7 ASSOCIADOS LTDA. (1987).
- 82 - ANNEX 15Page 4 of 8
Table 1. SANEPAR'S Household Water Consumption and Income9
Household Income Household Water Consumption(Y) Households (m3 /hm)
(Minimum Salaries -------------- -----------------------------------[MS] per Month) I Z Mean Standard Deviation
Deviation Coefficient
Y < 1 MS 338 6.2 10.4 12.3 1181 MS < Y < 2 MS 806 14.9 11.0 7.7 702 MS < Y < 5 MS 1969 36.4 12.3 7.5 615 MS < Y < 10 MS 1228 22.7 15.7 11.0 7010 MS < Y < 20 MS 674 12.5 22.5 18.5 8220 MS < Y 419 7.3 32.3 24.6 76
TOTAL 5434 100.0 15.5 13.8 89
Table 2. SANEPAR'S Household Water Consumption Distribution10
Water Consumption Household Income Level (Y) (2)i ~~~~(W ) ------------------ ------------ _ ---- -----------------
00 < W < 03 15 12 7 5 3 203 < W < 06 18 15 12 9 4 206 < W < 10 31 31 29 20 13 010 < W < 15 21 24 28 27 20 1615 < W < 25 12 14 19 26 33 2925 < W < 50 3 4 5 11 19 3050 < W 0 0 0 2 8 21
TOTAL 100 100 100 100 100 100
ACCORSI & ASSOCIADOS LTDA. (1987)
10/ACCORSI & ASSOCIADOS LTDA. (1987)
- 83 -ANNEX 15Page 5 of 8
1CURlE I SANEPAR'S HOUSEHOLD WATER CONSUMPTION DI>Tk1IIvBlu.
* Xs i os u 04 60 a n o. 10 E as gr o
j T7.
4-1~
* a. a0 ISV 15 a a 0UUo o IC is garso
S H. A Y in 1(0 Ms 10 KS Y 4Y 2C MSz Y > S' nm
13. A practical consequence of using water consumption as a mainelement in water supply pricing may be that resulting tariff structures arenot as progressive as has been originally planned. And in some cases,these tariff structures may be even regressive. Hence, the growingBrazilian concern about water suply and sewerage tariffs, as expressed byCHAVES DE AZEVEDO and BAZANELLA:1 '. the majority of the tariff
!l/ CHAVES 'D'E AZEVEDO. JA
| 11/ CHaVE EAEEO AAEL 18) pct,p2
- 84 -ANNEX 15Page 6 of 8
structures of the Companhias de Saneamento present unsatisfactoryprogressive levels which cause even inverse transfers of subsidies".However, it would be wrong to argue that the solution is to make the tariffstructure more progressive, sharply increasing the rates belonging tohigher consumption blocks. This proposal may make the tariff structureappear progressive for the average poor family. However, upon closerexamination, it will surelv aggravate the situation for many householdswhen considered individually.
Residential Water Consumption and Other Variables
14. In the above mentioned study, residential water consumption (RWC)was unsuccessfully explained by other variables. Geographical location andthe cities' urban size failed to explain the differences between waterconsumption of households located in different cities. And, an explanationof RWC using variables such as: number of water exits (points) (W), numberof people living in each house (P), number of rooms (R), the area of eachhouse (A), and the type of construction (C). also failed when applied toSANEPAR's case.
Non-residential Tariffs
15. A fourth guideline establishes that tariffs should bedifferentiated by final usage, and that average cormnercial and industrialrates should be greater than the utility's average rate.
16. A fifth guideline establishes that: (i) commercial, industrial,and public12 minimum consumption levels should also be set, and (ii) ineach category, the minimum consumption rate should be smaller than theremaining rates, in that category. Additionally, commercial and industrialminimum rates should be greater than the utility's average tariff, and,thepublic minimum rate should be greater than the residential minimum rate.
17. Differentiating between commercial, industrial, or publiccustomers based on their water consumption level has negative effects onthe resource allocation process. Brazilians seem to be aware of thispoint, as minimum consumption levels for non-residential customers areexplained by some households owning a small family business, and in turn,being classified as commercial or industrial customers. However, a welldesign tariff structure should automatically take care of thisclassifica.ion process. Households having small family business within orattached to their homes should find themselves better off when classifiedas residential customers. Likewise, households having a larger than normalfamily business should find themselves better off when classified as non-domestic customers.
Non-metered Consumption
18. Twelve (12) SWCs only charge non-metered residential customerswith their authorized minimum bills. The remaining companies bill themusing their rate schedules, and water consumption estimates based on thefollowing criteria: dwellings' area in m2 (5), dwelling construction type
12/ The public category also includes some private entities involved insocial activities.
- 85 -ANNEX 15Page 7 of 8
(3), number of rooms (2), number of water exits (1). or a combination ofmore than one of the above (1).
19. Most non-residential water consumption is metered, and thosecustomers that are not metered are generally non-intensive water users.SWCs use one of the following criteria to estimate water consumption:establishment area in m2, economic activity, minimum consumption, number ofwater exits, or a combination of more than one of the above criteria.
Special Contracts
20. Special contracts are celebrated between non-residential customersand eight of the SWCs. These contracts usually guarantee a minimum amountof water to be supplied to the customer benefitting from such a contract.In this case, the customer negotiates his rates aside the actual rateschedule. The water volume sold under this kind of agreement represents asignificant share for some of these companies, regardless of the smallnumber of customers involved.
Sewerage Rates
21. Sewerage and water supply tariff structures are equal, withsewerage rates oscillating between 35; and 100Z of water rates. Currently,there are 15 SWCs applying the 100t overcharge, 9 applying 80%, 2 applying60Z, 2 applying 50%, and three more applying 902, 75Z, and 35X.respectively.
22. Sewerage rates are not based on supply costs, but on financialreasons Explicit charges for treatment do not exist. Systems withouttreatment have rates significantly larger than costs, meanwhile systemswith treatment have costs much greater than rates. Therefore, seweragebystems are usually transferring a large portion of its revenue to watersupply systems, given that in most cases only a small portion (if at all)of the collected sewage is treated.
Complementary Guidelines
23. A long term objective of each utility is to serve the wholepopulation under its influence area. Therefore, as a way to facilitateaccess to their services, most utilities do not charge connection fees totheir customers or, if they do, it only covers materials, labor, and themeter cost, if applicable.
24, SWCs usually have several water supply and sewerage systems withdifferent supply costs which are aggregated and consolidated for financialand pricing purposes. Therefore, SWCs' rate schedules and levels areequally applied to all customers, independent of the individual systemwhich is serving them. This pricing feature introduces a cross-subsidiLation element among customers of a given utility. Furthermore,differences in the interest rate PLANASA applies to the different SWCsintroduces another cross-subsidization element between states.
- 86 -ANNEX 15Page 8 of 8
Efficient Allocation of Resources
25. Water supply and sewerage pricing criteria are complemented byplanning criteria that aim to obtain an efficient allocation of resources.Utilities are required to expand their systems choosing the minimum costalternative,13 and water projects are accepted only if the utility's wateraverage tariff (WAT) is larger than 0.75 of the project's marginal cost(MC), for those cases involving populations larger than 50,000 people. TheWAT should be larger than 0.60 MC for those cases involving populationslarger than 5,000 people, but smaller than 50,000 people. Sewerageprojects are accepted only if the utility's sewerage average tariff is atleast equal to 0.60 MC. However, a project ttiat does not satisfy theseconditions may still be accepted if it is possible to demonstrate thatthere are "special social benefits" attached to its execution.1 4
13/ See BANCO NACIONAL DA HABITACAO (BNH) (1981a), Circular COSAN No.01/81,Disp6e sobre a Escolha de Alternativas nos Relatorios TecnicosPreliminares.
14! See BOANCO NACIONAL DA HABITACAO (BNH) (1981b), Circular COSAN No.02/81,Institui Modelo de Analise Econ6mica de Emprendimentos FinancitveisAtraves do Sistema Financiero do Saneamento e DA Outras ProvidOncias.
- 87 -
ANNEX 16
BRAZIL
WATER SECTOR PROJECT IN THE STATE OF SAO PAULO
Loan Disbursement Schedule
Bank Fiscal Year Quarterlyand Quarter EndinR Disbursement Cumulative Disbursement
1. IBGE/Centro Latinoamericano de Demografia--CELAGDE (1984), Brasil:Estimaciones de Poblacion 1950-2025, Fasciculo F/BRA 1, Julio.
2. MEDEIROS FRIAS, Luiz Armando de (1988), ProjecOes da PopulaCgoResidente e do Numero de Domicilios Porticulares Ocupados: 1985-2020,Testas para Discusao, Maio.
Economics
1. BANCO NACIONAL DA HABITAgAO (BNH) (1981), Circular COSAN Nc.01/81, Dispoe sobre a escolha de alternativas nos relatorios tecnicospreliminares.
2. BANCO NACIONAL DA HABITAgAO (BNH) (1981); Circular COSAN No.02/81, Institui modelo de analise economica de emprendimentos financiaveisatraves do sistema financeiro do saneamento e da outras providencias.
3. BRASIL, Republica Federstiva do (1978a), Lei No. 6528 de 11 demaio de 1978.
4. BRASIL, Republica Federativa do (1978b), Decreto No. 82587 de 06de novembro de 1978.
5. CHAVES DE AZEVEDO, Jose Carlos (1984), Esquema geral do sistematsrif&rio do PLANASA, Convenio de Coopera,ao Tecnica BNH/OPAS de 22/12/81,Junho, Revisao 01.
6. CHAVES DE AZEVEDO, Jose Carlos e Vera Lucia BAZZANELLA (1984),Modelo de estrutura tarifaria, Convenio de Coopera,co Tecnica BNH/OPAS de22/12/81, Junho, Revisao 00.
7. OLIVERA, Hugo de (1988), Uma Analise Critica da Atual Sistematicade Tarifacao Aplicada ao Setor de Saneamento no Brasil, SABESP.
8. YASSUDA, Eduardo Riomey (1988), Sistema de tarifacao brasileiropara servicos de aaua e esgoto, I Seminario Nacional de Tarifaqao deServi,os de Agua e Esgoto, MHU-AESBE, Brasilia, DF, Abril.
9. Terms of Reference for the elaboration of marginal cost pricingstudies in selected SWCs.
10. Computer diskettes containing several economic and financialtables.
- 89 - AEX17Page 2 of 2
Entineering
1. SABESP (1986). Sistema Adutor Metropolitano - Revisao eAtualizac&o. Sintese. Figueiredo Ferraz/Engevis SA. Novembro.
2. SABESP (1989), South West Water Supply Scheme: KaMs and Reports.
Finance
1. DORFHAN, M. (1988), An Analysis of the Financial Viability ofCaixa Economica Federal.
2. CEF (1988), Consolidated Global Feasibility Studies.
3. SABESP (1989), Detailed Tab.es and Reports on Debt, Receivables,Cost Accounting, Investment Planning. Asset Structure and FinancialPerformance.
4. SABESP (1988), Plano de Recuperacao Economic& 1988-90, June.
