Document of The World Bank FILE COP FOR OFFICIAL USE ONLY F Report No. 1659b-PA STAFF PROJECT REPORT RURAL WATER SUPPLY PROJECT PARAGUAY November 22, 1977 Water Supply and Sewerage Projects Division Latin America and the Caribbean Regional Office This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Currency Equivalents Guarani US$ 0 126.0 = US$1.00 0 1.0 = US$0.008 0 1 million = US$7,936.5 Measures 1 m 1.09 yd. 1 m2 = 10.8 ft.2 1 km .62 mile 1 km2 = .39 mile2 1 ha 2.47 acres Abbreviations and Acronyms SENASA: National Service of Environmental Sanitation WHO : World Health Organization PAHO : Pan American Health Organization UNICEF: United Nations Children's Fund AID United States Agency for International Development Fiscal Year January 1 - December 31 FOR OFFICIAL USE ONLY STAFF PROJECT REPORT RURAL WATER SUPPLY PROJECT PARAGUAY TABLE OF CONTENTS Page No. 1. GENERAL ........ .. ............ ....... ....... 1 II. THE SECTOR *....I................o .............o ... A. Background ........*. . . ... .00 ...... S..* ...... 1 B. Sector Development ...... .. .... .. ........... 2 C. Sector Policies .... ...... ...............4...... 4 Do Sector Organization . ....... . ...... ..o * .... .... 5 E. Past Finances and Prospects ..........o ....... 6 III. THE PROJECT ..... o ......... o.... ... .. ........... 7 A. Project Area and Existing Facilities 7........ 7 B. Project Objectives ............... ............. 8 C. Project Description ........... ................ 8 Do Cost Estimates . .... ..... ...... ........... 13 E. Financing ..........* ......... ........ . . 13 F. Implementation ........... ...... . .... 15 Go Procurement . ............. ........ 18 Ho Disbursements ...... ........... ...... 19 IV. THE EXECUTING AGENCY ... ..... . ........ 20 A. General . .20 B. Organization, Management, and Staffing 20 C. Accounting System... ..... 24 D. Audit. .... *** ..... *........* 25 V. FINANCE.. . ... . .... . .. .... 25 A. SENASA'S Past and Present Position . .25 B. Finance at Community Level . .28 C. SENASA's Financing Plan .. 33 This project was appraised in January 1977 by a mission consisting of Alfonso Sanchez (Engineer), Ms. Judy O'Connor (Economist) and Henry Vieilhezcaze (Consultant, Financial Analyst). This document has a rtrictd distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be discloed without World Dank authorization. TABLE OF CONTENTS (Continued) Page No. VI. PROJECT JUSTIFICATION .............................. 35 A. Environment Impact and Health Benefits ........ 35 B. Risks ......................................... 36 VII. RECOMMENDATIONS ................... ................. 37 A. Management and Operations ..................... 37 B. Financial Aspects ............................. 37 C. Project Execution ............................. 38 LIST OF ANNEXES ANNEX 1 - Communities included in the Project ANNEX 2 - Technical Assistance and Consulting Program- Estimates of Costs and Manpower ANNEX 3- - Summary of Terms of Reference for Consulting Services ANNEX 4 - Water Tariffs ANNEX 5 - Monitoring Indicators ANNEX 6 - Additional Information Available in Project File. LIST OF MAPS - Area Covered by the Project PARAGUAY APPRAISAL OF RURAL WATER SUPPLY PROJECT I. GENERAL 1.01 The Paraguayan Government has requested Bank financing for a proposed rural water supply and waste disposal project. The estimated cost of the works is US$9.7 million and a Bank loan of US$6 million is proposea to finance 100% of the foreign exchange requirements, including interest during construction. The loan would be made to the Republic of Paraguay. The execution time for the project would be four years. This would be the first Bank Group financial operation in this sector in Paraguay. 1.02 The executing agency will be SENASA, a specialized department of the Ministry of Public Health, which prepared the project with the assistance of the Pan American Health Organization (WIHO/PAHO). II. THE SECTOR A. Background 2.01 Paraguay is a landlocked country situated approximately in the center of South America (see attached map), bordered by Brazil and Argentina on the east, south 2and west and by Bolivia on the north. The country, with an area of 406,700 km , has vast areas of unutilized lands well suited for agriculture or livestock. 2.02 Estimated population in 1976 was 2.6 million, of which 37% (some 960,000) was urban and 63% (approximately 1,640,000) was rural. The census defines urban population as the population of all municipal districts (cabece- ras municipales) with 100 inhabitants or more; the remaining population is 2 considered rural. The average population density is 5.8 inhabitants per km one of the lowest on the continent. This density is even lower in the western region, El Chaco, where there are only 0.3 inhabitants per square kilometer. The average annual rate of population growth is 2.6%, with 3% in Asuncion and 2.4% elsewhere. 2.03 The country, divided administratively into 19 Departments, has 161 towns or medium size cities, excluding Asuncion, with more than 100 inhabitants. Distribution of urban population on the basis of 1972 census is as follows: - 2 - Table 1 Distribution of Urban Population Total % of Population Range No. of Towns Inhabitants Urban Population 100 - 4,000 134 191,700 21.8 4,000 - 100,000 27 296,100 33.6 100,000 - 500,000 1 392,800 44.6 Totals 162 880,600 100.0 2.04 Recognizing its enormous hydroelectric potential, largely on the Parana river which forms its eastern and southern borders, Paraguay has reached agreements with its neighboring countries for joint international development of these resources by undertaking several large hydroelectric projects. Construction operations to exploit its water resources together with the recent rapid expansion of land under cultivation have resulted in increased economic activity, expanded investment in infrastructure and new patterns of population migration and settlement in the country. 2.05 The effect of increased economic activity is reflected in the recent growth of per capita income from 1.2% p.a. for the 30-year period before 1972, to an annual 5.8% during 1972-76. Per capita GNP for 1975 at market prices is estimated at US$570, which is still one of the lowest in South America. 2.06 The implementation of major land reform and colonization programs by the Government and the construction of new hydroplants have placed heavy burdens on the relatively poor existing infrastructure (transport, education, health, etc.). The Paraguayan Government has already identified this problem and intends to improve and extend basic facilities in order to guarantee continued economic development and productive investment by new settlers. B. Sector Development 2.07 Sector development has been slow. The first water supply system came into operation in 1959 to serve part of the city of Asuncion. Until 1963 it was the only one in existence. Since then, this system has been expanded, and a program financed by the IDB to serve nine additional medium-size towns is under execution. In the rural sub-sector, activities have been limited to case-by-case solutions without a general or sector approach. Only 10 out of 161 towns in the country (excluding Asuncion) had partially developed water - 3 - supply systems in 1976. Recently, however, the Government has tried to establish a systematic, planned program for the sector, as evidenced by in the National Plan of Health 1976-1980 (see para. 2.10). 2.08 Service levels in the water supply and sewerage sector are among the lowest in South America and are low in comparison to other sectors of Paraguay's infrastructure. In 1973, the Ministry of Public Health estimated that only 17.3% of the total population had access to any organized water supply system (about 8% through house connections). In the urban sector, 36.2% of the population was served, and only 6.1% of the rural population had water supply service. The remaining population relies mainly on contaminated surface sources, water holes, and some inadequately protected dug wells. Only Asuncion has water treatment; water supply in other cities is based on raw water of dubious quality, without even chlorination. Service levels for water supply have not changed substantially during the past three years since no major waterworks have been recently completed. 2.09 In 1973, 16% of the urban population, mainly in Asuncion, was served by some sanitary sewerage system; individual solutions for excreta disposal, mainly latrines, prevail, serving some 70% of the total population. Some improvement in the sanitary sewer figures is expected for Asuncion, where the sewerage system has recently been extended. A summary of levels of service is shown in Table 2. Although the figure for population served with individual excreta disposal solutions shows as high as 85%, many of the solutions are completely inadequate against generally accepted standards. SENASA's recent local surveys point to a lower percentage. -4 - Table 2 Water Supply and Excreta Disposal Service Levels - 1973 Total Population Urban Pop. /1 Rural Pop. No. % No. % No. % Total Country Population 2,430,000 100.0 904,000 100.0 1,526,000 100.0 Served with Water Population connected 194,000 8.0 192,000 21.2 2,000 0.1 Population with access 226,000 9.3 135,000 15.0 91,000 6.0 TOTAL 420,000 17.3 327,000 36.2 93,000 6.1 Served with Excreta Disposal Connected to sewers 144,600 6.0 144,600 16.0 0 0 Individual Solutions 1,677,964 69.3 391,084 43.2 1,286,880 85.0 TOTAL 1,822,564 75.3 535,684 59.2 1,286,880 85.0 /1 Figures in this column differ from the ones shown in Table 1 due to slight differences in the definition of urban and rural population between the census and these estimates prepared by the Ministry of Public Health. C. Sector Policies 2.10 In 1972, the Latin American Ministers of Health met in Santiago de Chile and agreed to set goals for 1980 (Plan Decenal de Salud para las Americas), namely: (a) in the urban sector, to provide 80% of the population with house-connected water supply or to reduce by 50% the population without this service; (b) in the rural areas, to provide 50% of the population with piped distribution of water or to reduce by 30% the present population without this service. The Paraguayan Government has adopted these goals as their own, and they have been proposed as part of the National Plan of Health for 1976-80. This is a comprehensive program for the Public Health Sector and is part of the National Economic and Development Plan prepared by the Secretariat of Technical Planning of the Presidency. 2.11 Although the National Plan of Health does not specifically mention coverage goals in terms of percentage of population served, its action programs for the rural sub-sector would reduce by 30% the present rural popula- tion without service by 1980. This objective means providing water to some additional 500,000 rural inhabitants before that year. This seems to be an -5 - unattainable aim in terms of time, annual investment, and execution capa- bilities required. New more realistic objectives have to be established for the next decade (see para. 3.03). 2.12 The urban sub-sector service goal of reducing by 50% the population without service before 1980 would require provision of water to some additional 315,000 inhabitants. Ongoing programs (see para. 2.14) could attain this objective, a clear indication of inbalance between recent improvements in the urban sub-sector and the relatively slow development of the rural sub-sector. 2.13 The Government is highly concerned to meet the need for water supply and waste disposal solutions, since rates of morbidity in the country- side due to water-related diseases as well as infant mortality (75% of the cases caused by diarrheas and enteritis) are the highest in South America. The Government which has made rural water supply programs a first priority and an essential part of the National Health Plan's investment program, has requested financial and technical assistance for institution building from the Bank and other agencies like PAHO and UNICEF. D. Sector Organization 2.14 The present institutional organization of the water sector in Paraguay began in 1954 with the creation of the Corporacion de Obras Sanitarias for the city of Asuncion. Since 1966 the Corporacion de Obras Sanitarias (CORPOSANA), an autonomous and publicly-owned agency, has been responsible for the provision of water and sewerage services in all towns of more than 4,000 inhabitants. This represents 29% of the country's total population. CORPOSANA now supplies water in Asuncion through some 40,000 house connections (50% of the city's population) and is constructing systems in nine towns for a total of 54,000 new house connections. CORPOSANA operates under the coordination of the Ministry of the Interior. 2.15 Since 1972 the rural sector has been administered by the Ministry of Public Health through a specialized agency, the Environmental National Sanita- tion Service (Servicio Nacional de Saneamiento Ambiental-SENASA) (see Chapter IV). SENASA is responsible for the water supply and sanitation services in villages with 4,000 or fewer inhabitants and similar services for the dispersed population, in addition to industrial hygiene, food quality control and general sanitation (which includes solid waste disposal, vector control, pollution control, etc.). The bulk of SENASA's operations are, however, concentrated in the water sector. 2.16 The Juntas de Saneamiento (Sanitation Committees) are bodies respon- sible for the administration, operation, and maintenance of rural water systems in those localities where systems are under SENASA's jurisdiction. SENASA, in association with local municipalities, is active in establishing these committees throughout Paraguay. They work under SENASA's supervision and assistance and should cooperate in programming, financing and construction of new systems. Their authority is derived from Law No. 369/72 which estab- lished SENASA, and Decree No. 8910/74 which approved regulations governing their formation and responsibilities. Sanitation Committees have legal status - 6 - conferred on them by the Ministry of Public Health and Social Welfare. Their 5- to 9-member Board of Directors is elected by public vote and consists of a Chairman, Vice Chairman, Secretary and Treasurer, and from 1 to 5 other voting members. 2.17 After villagers have indicated their desire to have a potable water system, the village is required by SENASA, with its assistance, to form a Sanitation Committee, usually composed of civic leaders and prominent citizens. This committee discusses with SENASA the type of system the community would like constructed. The committee raises contributions to the initial cost, partly in cash and materials, and organizes the contribution in labor during construction. When construction is completed, the system is operated and maintained by the committee with SENASA's assistance. At that time, a contract is signed between SENASA and the Committee establishing, among other things, amortization and replacement installments, to repay SENASA part of the initial investment and to constitute in addition a replacement fund for future major repairs and expenses. In addition, the committee collects the monthly tariff revenues and connection fees, and keeps the accounting records for the system. This approach to village organization is working successfully in 10 already completed systems and will be followed for future projects. E. Past Finances and Prospects 2.18 During the past 5 years (1971-75), the total investment in the sector has been approximately ¢ 2,800 million (US$22 million) of which only 3% has been executed by SENASA, and 97% by CORPOSANA. Programmed invest- ments for the period 1977-81, totalling ¢ 7,502 million (US$59 million), are indicated in the following table: Table 3 Past and Future Investment in the Sector (Million of ¢ at current prices) Actual --------------------Estimates----------------------- 1971-76 1977-81 1977 1978 1979 1980 1981 CORPOSANA 2,700 5,777 1,027 1,440 1,543 1,224 543 SENASA 70 1,725 20 225 435 385 275 Total 2,770 7,502 1,047 1,665 1,978 1,609 818 - 7 - Investment in the period 1971-1976 in the water supply sector represents 7% of the total public sector investment. Investment programmed in water supply and waste disposal for 1977-1981 would also be 7% of total public sector investment (excluding investments in Itaipu), but in absolute terms it triples the 1971-76 amount. The total for the water supply sector includes the proposed investment in the SENASA's rural project, amounting to ¢ 1,222 million (US$9.7 million), of which the proposed Bank loan would finance US$ 6 million. 2.19 Past external financial assistance to the sector has been basically channeled to CORPOSANA, and amounts to US$29 million as follows: Year Amount Financed by Loans from (in millions) 1955 US$ 7.0 U.S. Eximbank 1969 US$ 4.0 IDB 1974 US$ 8.0 IDB 1976 US$10.0 IDB Total US$29.0 Sector sources of funds for the next 5 years are planned to be approximately: (i) internal cash generation 15%; (ii) external loans 60%; and (iii) govern- ment contribution 25%. External support for the rural water sector has been scarce, limited to technical assistance and small donations of equipment and machinery from agencies such as PAHO, UNICEF, USAID, and other bilateral agencies. 3. THE PROJECT A. The Project Area and Existing Facilities 3.01 The Project would serve 42 rural communities with populations between 100 and 4,000 inhabitants in the Departamentos Central, Paraguari, and Cordi- llera (see Map), where 36% of the country's population lives (excluding Asuncion). These Departamentos are the most densely populated with 137 and 43 inhabitants per square kilometer respectively, compared to 5.8 inhabitants per square kilometer for the country as a whole. The main activities are agriculture (around 75% of the population), handicrafts and small industries. According to SENASA's socioeconomic survey, yearly per capita income averages around US$200 in the villages to be served. This figure is much lower than the US$570 annual per capita income for the country as a whole in 1975. 3.02 Since SENASA's formation in 1973, it has added seven systems to three existing systems. In another 22 villages throughout the country systems are partially completed or under construction (six of them in the project area). Typically, water is supplied from a drilled well, six to ten inches in diameter and distributed through a plastic pipe network. On the -8 - average, 50% of the houses are presently connected to the systems, and the remainder is served through public standpipes or individual dug wells. At present some 25,000 people (3%) out of a total of 800,000 living in the project area are adequately supplied with water; the remainder of the popu- lation relies on individual wells or often contaminated surface sources. B. Project Objectives 3.03 The project's main objectives are: (a) To provide safe water to around 63,000 inhabitants by the end of 1981. That figure represents approximately 30% of the urban population within SENASA's jurisdiction or 4% of the total rural population of the country. Of the population served, 60% on the average will be served through house connections and 15% through public standpipes. This amounts to 75% of the inhabitants of the villages to be served by the project. (b) To provide adequate individual waste disposal solutions to at least 50% of the houses connected to water systems; (c) To strengthen the managerial and operational capabilities of SENASA and the communities by means of a technical assistance and training program; (d) To promote community participation in the project and to improve sanitation and public health through educational programs on water uses and basic public health. (e) To ensure a financial policy consistent with the capability of the beneficiaries to contribute to services rendered through community participation in initial investment and tariffs designed to cover operation, maintenance and partial recovery of investment. C. Project Description 3.04 This project is the first stage of a National Sanitation Plan (Programa de Accion Concentrada - P.A.C.) prepared by SENASA in 1976 and in- cluded as part of the National Plan of Health 1976-1980. SENASA has selected 42 communities which have requested construction of a new water supply system of which have partially constructed systems. At appraisal time, SENASA had prepared detailed engineering designs and socioeconomic reports for 20 villages which were reviewed and found technically sound and acceptable. Reports and detailed designs for the remaining villages will be prepared on a timely basis within the first two years of project execution and will -9- be submitted for Bank review before construction begins. SENASA will do the basic field work for data collection and will design the systems with its own staff since its experience in carrying out the already completed 20 systems has been very satisfactory. SENASA will receive technical assistance from external consultants or specialized agencies in matters such as procure- ment and general project management and supervision areas in which previous experience is limited. 3.05 From its own past experience and with the assistance of PAHO i>XiASA has developed a set of practical criteria to select communities for the project. Main criteria are: (i) population size and density; (ii) possibility to develop easily and economically a reliable source of water; (iii) desire and initiative of the community to obtain water supply and excreta disposal systems; together with community organization (formation of the Sanitation Committee) to participate actively in planning and construction of the system and to care for future administration, operation and maintenance; (iv) willing- ness and ability to contribute to construction costs with a minimum of cash, labor, materials, etc., (para. 3.24) and to pay for the required periodic charges for system operation, and to maintain the system in proper operative condition. Community interest and participation are considered an essential condition for inclusion of a system. In addition to these criteria the per capita subsidy for each subproject will be computed before initiation as a means to guarantee that this subsidy remains within reasonable limits. The Bank will request additional justifications in those cases where subsidy is over 80% of the estimated average per capita cost (US$50 at 1977 price level) of the the whole water supply component of this project. Annex 1 gives a list of preselected communities; their grouping according to population range is as follows: Table 4 Distribution of Size of Population of the Villages Included in the Project Population Range (1976) Number of Communities Under 1,000 5 1,000 - 2,000 22 2,000 - 3,000 6 3,000 - 4,000 9 Total 42 3.06 Although SENASA considers that the communities included in the list given as Annex No. 1 fulfill the requirements of the selection criteria, eventual failures in meeting the initial commitments can happen, and a few of them could be replaced by others not now included. Assurances should be obtained during negotiations that different villages will be brought into the program only if the Bank concurs in the decision. - 10 - 3.07 The components of the project are as follows: (a) Construction and extension of water supply systems in 42 preselected villages. A typical system would consist of: (i) A drilled well 80 to 120 m deep adequately equipped with pump and motor (diesel or electric); (ii) A storage tank 20 to 100 cubic meters in capacity depending on the village size; (iii) A feeder line and distribution network; (iv) A chlorination system; (v) Household connections serving 50% to 80% of the population, depending on the local conditions of each village, and public standpipes for the remainder of the villagers; (b) Execution of a pilot project for individual waste disposal solutions, including approximately 4,500 tile fields (privies provided with septic tanks and percolation systems to the ground) and 2,000 sanitary units (small units provided with shower, toilet, lavatory and laundry facilities). (c) A technical assistance program for SENASA in the areas of management, operations and financial administration. The program is basically oriented towards in-service training of the office and field personnel required for the execution, future operation and management of the project. This program would include the following aspects: (i) Consulting services for project management (43 man-months), financial management (6 man-months), general administra- tive matters (6 man-months), commnunity organization (2 man-months), tariffs (1 man-month); (ii) Local courses and seminars for various levels of SENASA's personnel in water supply planning for the rural sector, financial analysis, basic sanitation, well construction, training for sanitary inspectors and auxiliaries, plumbing in the rural areas; (iii) Overseas training for SENASA's personnel in hydrogeology, drilling techniques, communications and community pro- motion; - 11 - (iv) Specific consulting services, totalling 20 man-months, in well construction, drilling equipment selection, procurement, basic health education for communities, public relations, water quality monitoring and control and other areas as required; Assurances were obtained during negotiations that consultants will be employed according to the following schedule: - Project Management - Before loan effectiveness - Procurement - No later than June 30, 1978 - Basic health education - No later than June 30, 1978 (d) An education and promotional program in basic public health, both during preparation to stimulate village participation, and during execution to ensure that project benefits are fully realized. This program would include seminars for Sanitation Committee members on basic administration and operation of rural systems, operators' training, seminars and lectures to housewives and school children in the villages on water uses and their benefits, and basic sanitary practices. A total of eleven courses are planned in the four- year period for operators and members of committees, and at least one course for each village for housewives in addition to the regular promotional activities. Purchase of required material and equipment is also included in this component. A detailed implementation schedule for the education component of this program will be submitted by SENASA to Bank approval no later than December 31, 1978. (e) Acquisition of miscellaneous construction equipment and shop tools. 3.08 Upon completion of construction SENASA will provide assistance to the communities and sanitation committees in the areas of administration, operation, and maintenance of the systems. SENASA has already prepared and implemented simple and practical standards and models for accounting, billing and collection. Operation and maintenance manuals for use of villages are being prepared. In addition, SENASA will prepare plans for (i) the coordination of purchase and distribution of supplies and spare parts; (ii) attendance to major repairs; (iii) training for operators and administra- tors. Assurances were obtained during negotiations that SENASA will retain the services of qualified external consultants or specialized agencies, on terms and conditions satisfactory to the Bank, for the preparation and review of these plans and manuals, as well as for the community education programs. The final plans will be presented to the Bank for approval no later than December 31, 1978. Table 5 Total Project Costs Description US$ Thousands ------- ------- Millions--------- 1. Construction Works Local Foreign Total Local Foreign Total % (a) Water Supply Systems 910 1,930 2,840 115 243 358 27 (b) Sanitary Units 800 390 1,190 101 49 150 11 (c) Tile Field Privies 1,100 150 1,250 139 19 158 12 2. Tools and Equipment -- 530 530 -- 67 67 5 3. Technical Assistance to SENASA -- 300 300 -- 38 38 3 4. Community Education and Promotion 70 50 120 9 6 15 1 5. Engineering and Administration 1/ 250 220 470 31 27 53 5 TOTAL BASIC COST 3,130 3,570 6,700 395 449 845 64 6. Physical Contingencies (12%) 370 430 800 47 54 101 7 7. Price Contingencies (33%) 1,100 1,100 2,200 139 139 277 21 TOTAL COST OF THE PROJECT 4,600 5,100 9,700 581 642 1,223 92 8. Interest During Construction -- 900 900 -- 113 113 8 TOTAL COST INCLUDING INTEREST 4,600 6,000 10,600 581 755 1,336 100 1/ Includes SENASA's own engineering and external consulting services - 13 - D. Cost Estimates 3.09 Detailed project cost estimates have been based on the 20 designs already prepared, taking into consideration the latest data from the Paraguayan Construction Chamber as of December 1976. Data from recent SENASA contracts were used for checking. 3.10 The total project cost is estimated at US$9.7 million and includes: (i) 8% of construction costs for supervision and administration; (ii) 12% of the base cost for physical contingencies; and (iii) 33% of the base cost for price contingencies (10% per annum for local costs and 7.5% for foreign costs, consistent with Bank guidelines). E. Financing 3.11 The total financing requirement for this project during the 1978-1981 period will be US$11.0 million, US$9.7 million for project investment, US$0.9 million for interest during construction, and US$0.4 million for an increase in SENASA's working capital needed to properly execute the project. About 55% of this would be financed by the proposed Bank loan, 15% by communities' con- tribution, and the remaining 30% from government contributions. The proposed financing plan is shown in Table 6. - 14 - Table 6 Financing Plan Application Funds ----US$ thousands…--- -------- millions---------- Local Foreign Total Local Foreign Total % Proposed Project 4,600 5,100 9,700 579.6 642.6 1,222.2 88 Increase in Working Capital 400 400 50.4 50.4 64 Interest During Construction 900 900 113.4 113.4 8 Total Applications 5,000 6,000 11,000 630.0 756.0 1,386.0 100 Sources of Funds IBRD Loan 6,000 6,000 756.0 756.0 55 Communities Contribution 1,600 - 1,600 201.6 201.6 15 Government Contribution 3,150 - 3,150 396.9 396.9 28 Other 250 250 31.5 31.5 2 Total Sources 5,000 6,000 11,000 630.0 756.0 1,386.0 100 3.12 The basic assumptions for this financing plan are: (a) An IBRD loan of US$6.0 million (with 7.9% interest rate and total maturity of 17 years including a grace period of 4 years). (b) Communities' initial contribution of 15% of the total project financing requirements in the form of cash, labor and materials; (c) A Government contribution estimated at US$3,150,000 equiv- alent; (d) Other minor sources of funds e.g. from PAHO and UNICEF under existing cooperation agreements. 3.13 Community participation in initial investment has been considered a basic element in the future success of the project. Since SENASA's forma- tion in 1972, community contributions to the capital cost of village water - 15 - supply systems have averaged 33% of the total. This amount includes (i) cash (mainly through connection fees and donations) and (ii) labor and materials. It is apparent that the bulk of donations come from relatively wealthy farmers in the region and from natives of the communities living in Asuncion. It is, however, unrealistic to assume this level of contribution in the future because of: (i) the increase in capital cost of projects now planned in comparison to completed projects. In Paraguay construction costs have been rising rapidly due to the ongoing execution of large hydroplants and other projects. (ii) the inclusion in the project costs of components such as more elaborated waste disposal solutions, technical assistance, community education, etc., not always provided in previous projects. (iii) the relatively low savings capacity of the villages to be served in the future and the diffi- culties of estimating contributions from people living outside the community. Estimates made during appraisal based not only on the experience of SENASA's construction engineers and Juntas de Saneamiento but also on an assessment of the tasks that can be performed and materials provided locally, led to the conclusion that overall communities initial contribution would total about 15%. The figure for each village can deviate from the average according to local conditions and system's costs. However, a minimum contribution of 10% to the initial investment will be required from the community to be eligible for financing under this project. F. Implementation 3.14 The project will be executed during 1978 - 1981 according to the construction schedule shown in Figure 1. However, some preparatory activities will be anticipated and carried out during 1977. These preparatory activities are not proposed for retroactive financing under the Bank loan. The estimated annual investment is given in Table 7. 3.15 Due to its relatively reduced experience in project implementation, SENASA will require assistance in several execution areas. Assurances were obtained during negotiations that SENASA will employ suitable qualified consultants or will request proper assistance from specialized agencies acceptable to the Bank to assist among other things in: (i) project manage- ment; (ii) preparation of bidding documents; (iii) analysis of tenders; (iv) construction supervision; (v) construction programming and control. An estimated 55 man-months of consulting services will be required for these tasks. Appointment of the consultant in project management will be a con- dition of loan effectiveness. In addition to this SENASA will look for assistance in training, community education and other specific fields as detailed in paragraphs 3.07(c) and 3.07(d). Estimated total cost for these consulting services is at US$220,000 with an average of US$4,000 per man- month. A summary of consulting services costs is shown in Annex 2. Annex 3 presents a summary of terms of reference for major consulting works. Table 7 Annual Investments (In thousands of US$ and millions of ¢) Description 1978 1979 1980 1981 Total US$ ¢ US$ ¢ US$ ¢ US$ ¢ US$ 1. Design and Construction (a) Water Systems 720 90.7 1,120 141.1 670 84.4 330 41.6 2,840 357.8 (b) Sanitary Units 180 22.7 350 44.1 380 47.9 280 35.3 1,190 150.0 (c) Tiles, Fields, Privies 190 23.9 380 47.9 380 47.9 300 37.8 1,250 157.5 2. Tools and Equipment 100 17.A 330 41.6 100 12.6 530 66.8 J. Technical Assistance 150 18.9 d0 13.1 50 6.3 20 2.5 300 37.8 4. Community, Promotion and Education 20 2.5 40 5.0 40 5.0 20 2.5 120 15.0 5. Engineering, Supervision and Administration 110 13.9 100 12.6 150 18.9 110 13.9 470 59.3 Total Basic Cost 1,470 185.2 2,400 302.4 1,770 223.0 1,060 133.6 6,700 844.32 6. Physical Contingencies 150 18.9 320 40.3 220 27.7 110 13.9 800 100.8 7. Price Contingencies 213 26.9 570 71.8 780 98.3 637 80.3 2,200 277.3 8. Interest during Construction 70 8.8 160 20.2 290 36.5 380 47.9 900 113.4 Total Including Interest 1.903 239.8 3,450 434.7 3,060 385.5 2,187 275.7 10,600 1335.7 PARAGUAY RURAL WATER SUPPLY PROJECT EXECUTION SCHEDULE Project Activities 1977 1978 1979 1980 1981 Promotion and village organization Community educational program Engineering and design _ Tools and Construction equipment _W_ I 7 I IIssIIIIIIIIII Materials and equipment for the systems Ih_ l_.'I E _IPiIII IIIIIIEIsssIUI ISSSSSSSSSSSSSS Construction of wells WAV w - I - Constr. of other components Zone 1 Zone 2 -m Technical assistance and training 3 - I r_ _, Preparation 0,r Bidding mlum,,., Deliveries Execution Note: Year 1977 is included in this schedule since some preparatory activities will take place before 1978. FIGURE 1 Zone 1: Central Department Zone 2: Cordillera Department World Bank-17366 Zone 3: Paraguari Department - 18 - G. Procurement 3.16 All contracts for the purchase of materials and equipment or for civil works with an estimated cost of US$30,000 or more (estimated at US$4,000,000) would be awarded under international competitive bidding in accordance with the Bank's guidelines for procurement. Contracts under US$30,000 equivalent may be awarded on the basis of competitive bidding locally advertised and in accordance with local procurement procedures acceptable to the Bank, provided however that the aggregate cost of the contracts does not exceed US$300,000. Local manufacturers will be given a 15% margin of preference of the c.i.f. value or the applicable custom duty, whichever is the lower. Pipes and cement supply are the only items expected to be supplied by local manufacturers. Consulting services would be awarded on terms and conditions satisfactory to the Bank. Bank procurement practices and policies were discussed with SENASA officials, explained to them and accepted by SENASA. 3.17 Since a necessary condition for the success of rural projects is com- munity participation in the form of labor, materials, transportation, storage areas, cash contributions, etc., it is more practical to execute part of the civil works through small local contractors combined with voluntary community work and force account in some cases where other systems are not feasible. SENASA intends to do around 75% of the well drilling through private contrac- tors, (estimated at US$675,000). Contracts will be awarded by competitive bid- ding locally advertised according to para 3.16 and to the Bank's guidelines and practices and will be open also to foreign contractors. The remainder of the well drilling will be done by SENASA's own personnel with adequate technical assistance, to improve their capability and skills in this aspect of the wo rk. 3.18 An annual purchase program starting no later than March 31, 1978 (and yearly thereafter) for the materials required by the project, will be agreed upon between SENASA and the Bank according to the requirements of the project schedule. Consequently, successive bids would be invited according to the needs. - 19 - H. Disbursements 3.19 Disbursements of the Bank loan will be made according to the following categories: Category Amount (US$) % I Procurement of materials and 100% of imported equipment for water systems 1,390,000 materials and in approved subprojects equipment or 65% of locally manu- factured materials and equipment (representing the estimated foreign component expendi- ture) II Contracts for well construction 540,000 80% of total expenses (repre- senting the esti- mated foreign component expend- iture) III Materials and equipment for 540,000 25% of total the waste disposal program expenses (repre- senting the esti- mated foreign component expend- iture) IV Miscellaneous construction tools and equipment other than those under 530,000 100% of the Category I and III foreign expend- itures V Consulting, training, 570,000 100% of the technical assistance and foreign community education expenditures VI Interest and charges during 900,000 amounts due construction on the Bank Loan VII Unallocated 1,530,000 Total 6,000,000 - 20 - 3.20 The loan would be disbursed over a four-year period against the estimated foreign component according to the percentages shown in paragraph 3.19. The estimated quarterly disbursements are shown in Table 8. The closing date for the proposed loan would be June 30, 1982. 3.21 As a condition of disbursements for Categories I, II, and III, SENASA should sign contracts with Sanitation Committees of at least 10 of the communities included in this project, establishing a minimum community contri- bution to the construction cost of 10%, and an initial downpayment of at least 5% of this cost, unless the Bank and SENASA agree on a different figure. In addition, it is also required, as a condition of disbursement for these cate- gories, that the Bank agree upon the purchase program mentioned in para 3.18. IV. THE EXECUTING AGENCY A. General 4.01 The project would be carried out by SENASA. SENASA was formed in in 1972 by Law 369 as an agency within the Ministry of Public Health and Social Welfare. SENASA is responsible for planning, promoting, financing, executing, administering, and supervising the water supply and sanitation services for villages with fewer than 4,000 inhabitants as well as for the rural dispersed population. B. Organization, Management, and Staffing 4.02 As shown in the organization chart (Figure 2), SENASA's structure includes seven departments under the responsibility of a Director, who reports to the Minister of Health. Four of the departments deal with general sanita- tion, industrial hygiene, food inspection, and community relations and training. Another is responsible for SENASA's general administration and accounts. The two last departments are technical and dedicated to engineering and project design, project implementation and operations. Although shown in the organi- zation chart, there is no permanent legal advisory section. When required, SENASA uses the services of a legal consultant of the Ministry of Public Public Health. 4.03 SENASA's Director is required to be a civil engineer with speciali- zation in sanitary engineering and is appointed by the Government upon proposal of the Ministry of Health. He is in permanent control of SENASA's technical, administrative, and financial activities. Closely dependent on the Ministry of Health, he has very limited management autonomy, particularly in SENASA's budget administration. According to Law 369, the Director should be assisted by an advisory committee whose members, all civil servant specialists, would be appointed by the Government upon recommendation of the Minister of Health. 21 _ Table 8 Estimated Schedule of Loan Disbursements (In US$ thousands) IBRD Fiscal Year Quaterly Cumulative % of Total and Quater Disbursement Disbursement 1977/78 June 30, 1978 50 50 0.8 1978/79 September 30, 1978 100 150 2.5 December 31, 1978 350 500 8.3 March 31, 1979 440 940 15.6 June 30, 1979 500 1440 24.0 1979/80 September 30, 1979 500 1940 32.3 December 31, 1979 500 2440 40.7 March 31, 1980 500 2940 49.0 June 30, 1980 460 3400 56.7 1980/81 September 30, 1980 500 3900 65.0 December 31, 1980 500 4400 73.3 March 31, 1981 500 4900 81.7 June 30, 1981 400 5300 88.3 1981/82 September 30, 1981 400 5700 95.0 December 31, 1981 200 5900 98.3 March 31, 1982 100 6000 100.0 June 30, 1982 6000 100.0 PARAGUAY RURAL WATER SUPPLY PROJECT ORGANIZATION CHART SERVICIO NACIONAL DE SANEAMIENTO AMBIENTAL SENASA OPUBLIC HEALTH t ~~--CE | ADVISORY ROARD…DIRECTOR A IDEPARTMENT OF DEPARTMENT DEPARTMENT OF DEPARTMENT DEPARTMENT OF DEPARTMENT OF FOOD QUALITY OF INNi RAL INDUSTRIAL OF CONSTRUCTIONS PROMOTION ADMINISTRATIVE _ CONTROL SANlTATION _ HYGIENE PROJECTS AND OPERATIONS AND TRAINING DEPARTMENT _ INDUSTRY TIH THE l _ LA8ORATORY STUDIES CONSTRUCTION PROMOTION ACCOUNTING |E CAPATAL CTTY FOCUEME_ FIE PROMONITATION OPEAIATM CR WAREHOUSE,S EAND TRANSPRT _| OF U RBAN l METHODS.. | LEANING _~j L 1PERSONNEL FIGURE 2 Wo-,d -k 17367 - 23 - 4.04 The Government has already initiated actions to guarantee that SENASA's budgetary operation and financial administration are in agreement with the requirements for sound project execution. The aim is to: (i) Simplify the disbursement procedures once the funds are formally allocated to SENASA. (ii) Give sufficient authority and implementation to SENASA's director to manage the funds, to administer the accounts, and to authorize payments up to a certain amount, satis- factory to the Bank and compatible with sound administration practices. 4.05 SENASA's staff to date includes 165 civil servants among whom there are engineers (8), draftsmen (2), calculators (2), topographers (1), chemists (2), psychologists (1), promotion specialists (3), sanitary educators (2), and audio-visual technicians (1); administrators (2); accountants (3) and administrative clerks (13); sanitary supervisors (3), inspectors (62), and assistants (17) and 43 in charge of the general services; workshop drilling equipment, repairs, and maintenance. The qualification of employees is satis- factory particularly for engineers and specialists. Their number, however, will have to be increased in the technical and administrative departments to meet the expansion of works resulting from implementation of the project. SENASA will prepare and submit for Bank approval the final detailed plans for: (i) Staffing for project execution and future operations, no later than June 30, 1978. (ii) Organization of training and technical assistance for the communities, no later than December 31, 1978. 4.06 Staff recruitment is relatively easy for administrativ, personnel, clerks and inspectors, but difficult for engineers and specialists who find more attractive salaries in private companies. Newly recruited personnel are first trained on SENASA procedures in training centers of the Ministry of Health and then they receive practical instruction through work in SENASA services. Some trainees are sent abroad for a few months to specialize in particular fields. 4.07 To properly execute the project, SENASA will require additional staff to be hired and trained over the execution period. A summary of the estimated additional staff by departments and specialties is given below: - 24 - Community Construction Promotion Administration Engineers 2 Supervisors 3 Mechanics 2 Plumbers 5 Auxiliaries 5 Drillers 1 Drivers 2 Secretaries 2 Sanitary Inspectors 12 Sanitary Auxiliaries 30 Specialists in Community Education 3 Accountants 2 Accounting Auxiliaries _2 Total 22 45 4 Part of this personnel would be assigned to work in Asuncion headquarters but the majority will be in the field where three regional supervision and con- struction offices would be established under a chief engineer. The proposed organization and staffing plan prepared by SENASA are acceptable and it is considered adequate to execute and operate the project with the proper external assistance as planned. C. Accounting System 4.08 SENASA's financial operations are recorded under the single entry budgetary accounting system. There is no journal, no ledger, and no period- ical trial balances or annual balance sheet as in commercial accounting. 4.09 Except for annual summaries of resources and utilization of re- sources submitted for 1975 and 1976 to the Ministry of Health, no statement of SENASA's financial position is available. SENASA has no adequate detailed chart of accounts and sometimes SENASA and community expenses are registered in the same account. 4.10 SENASA's present accounting weaknesses could be eliminated by a thorough revision of records and a more detailed chart of accounts. Consider- ing the enterprise nature of SENASA's activities and their expected signifi- cant expansion under project implementation, a commercial bookkeeping system would be needed. Assurances were obtained during negotiations that SENASA will implement before June 30, 1978, commercial accounting practices satisfac- tory to the Bank. Project accounts would be kept separate from SENASA's other accounts. Assurances were obtained during negotiations that SENASA will retain the services of consultants or specialized agencies to assist in plan- ning and installing the system and training accountants and bookkeepers in the new accounting procedures, under conditions satisfactory to the Bank. The - 25 - accounting system will be such as to permit SENASA to produce yearly balance sheets, income and cash flow statements. 4.11 The Communities (Juntas) bookkeeping has been well organized under the commercial system and is supervised by SENASA's senior accountant who periodically inspects the Junta records and presents a constructive report conducive to adequate improvements and clearer understanding of accounts. Records consist of one journal, one cash book, and one ledger. Payments and collections are supported by discharged invoices or receipts. Accounts, however, were not up to date at the time of the appraisal. It was agreed during negotiations that SENASA will reinforce its junta supervision and guidance team to cope with the increased number of communities provided with water supply systems. D. Audit 4.12 SENASA is under two different controls: (a) internal control carried out by the Ministry of Public Health once a year, and (b) control by the General Audit Department, at the Ministry of Finance level, also exe- cuted once a year. Both cover the administrative and financial aspects of SENASA's activities. 4.13 The control carried out by the Ministry of Public Health is under reorganization. The controller would have his office on SENASA's premises. He would be in permanent control of all operations and would check (rather than spot-check) all vouchers. He would report quarterly to the Minister of Public Health. 4.14 Assurances were obtained during negotiations that SENASA will submit yearly a report on the records and accounts mentioned in para 4.10 prepared by accountants acceptable to the Bank, no later than four months after the end of each such year. The first of such reports should cover fiscal year 1978. V. FINANCE A. SENASA's Past and Present Position 5.01 Apart from an initial Government grant of ¢ 16.3 million to be utilized when required for office buildings, furniture and equipment, engi- neering and laboratory equipment, workshop and central stores, SENASA has no resources of its own. Administrating and operating expenditures as well as investments in water supply and sanitary units are financed by the Government budget and an earmarked tax on beer consumption (on the basis of ¢ 1 per liter of locally brewed beer and ¢ 2 per liter of imported beer) to complement - 26 - regular government budget funds. Annual budgeted resources correspond to the annual general expenditures and investments as budgeted by SENASA. When supplementary resources are needed for an unbudgeted program, the authoriza- tion of the Minister of Finance is required. 5.02 SENASA's annual budget is submitted by the Director to the Ministry of Public Health for its consideration. Once reviewed and discussed with SENASA, it is included in the general budget of this Ministry which is submit- ted to the Budget Department of the Ministry of Finance for final approval and presentation to the Parliament. 5.03 As shown in Table 9, SENASA's resources have almost doubled since 1973 to reach an estimated ¢ 63.3 million (US$502,000) at the end of 1976. Financial resources have been drawn from the following: (i) earmarked beer tax (53%); (ii) direct government grants (45%); and (iii) communities' repay- ment of debt to SENASA (deposited in a special revolving account) and fees charged to communities for drilling and workshops services (2%). 5.04 The beer tax has increased from ¢ 20 million (US$160,000) in 1973 to 0 32.6 million (US$259,000) in 1976 (annual average increase of 16%). Debt recovery from the communities began to operate in 1976, having been of no importance in the past. 5.05 The cost of community water supply and sanitary systems is pre- dominantly financed by SENASA's budgeted resources in addition to community and municipal contributions, and donations from UNICEF, USAID, Catholic Relief Funds, and other similar agencies to the communities or to SENASA. Once works are completed and the system is operational, SENASA (in consul- tation with the Ministry of Public Health and with local socioeconomic conditions in mind) determines which part of the funds advanced will have to be repaid and which part will be considered as government grant. The amount of the grant depends on the cost of the system, the number of house connections and the community's ability to pay. The portion to be repaid has averaged 25% of the total cost in the past (see Table 10). 5.06 In addition to the loan amortization and interest, communities have to deposit with SENASA a monthly provision for assets replacement, that represents a reserve which is immediately available for meeting major repairs or maintenance expenditures without resorting to credit. Provisions for replacement are registered by SENASA as a deposit made by communities. Assurances were obtained that SENASA would keep this account separate from other recoveries deposited in the general revolving account. SENASA should arrange to deposit communities' replacement funds in an account productive of interest. Table 9 Sources and Utilization of Resources 1973-1976 (Thousands of ¢) 1973 % 1974 % 1975 % 1976 % Total Sources of Funds Initial Government Grant 5157 13 4200 11 4200 9 7200 11 20757 11 Beer Tax 20000 52 20000 51 26607 54 32567 52 99174 52 Government Ordinary Budget 13366 35 14386 36 17328 35 20475 32 65555 34 Revolving Account - - - - - - 480 1 480 1 Other 1/ - - 926 2 1217 2 2535 4 4678 2 38523 100 39512 100 49352 100 63257 100 190644 100 Uses of Funds SENASA Administrative & Operating Expenses 24575 64 27164 69 31381 64 37419 59 120539 63 Construction of Water Supply 8110 21 4483 11 7604 15 7231 11 27428 14 Systems Of which repayable (loan) - (1836) (520) (5533) (7889) SENASA's other programs 2/ 6499 17 7866 20 10367 21 17999 28 42731 23 39184 39513 49352 62649 190698 Balanrz (661) (2) 608 1 (53) 38523 100 39513 100 49352 100 63257 100 190645 100 1/ Donations Fro- external agencies and miscellaneous charges to the communities. 2/ Mainly for major repairs and remodelling of Government owned SENASA's premises. - 28 - 5.07 Community down payments, monthly loan installments for principal and interest, and monthly provisions for asset replacement are paid against receipt in a revolving account, opened for SENASA at the Central Bank. This revolving account is credited, also by law, with resources coming from inter- national or national institution loans, donations without specific object, and any other extraordinary resources. Funds available from the revolving account are, by law, reinvested to finance SENASA programs as long as reimbursement is not claimed by the Government to meet its borrowing commitments for the same programs. 5.08 Except for the initial grant of ¢ 16.3 million in 1973 which was exclusively allocated for SENASA installation, resources from the Government budget and from the beer tax are both utilized for two groups of expenses: (a) SENASA's current administrating and operating overheads, and (b) capital investment in communities for water supply and waste disposal construction as well as in SENASA for mechanical equipment and workshops. Use of these resources is not strictly demarcated. Construction materials, for instance, can be financed by resources belonging to group (a) expenses or by those of group (b), and may be related to SENASA's own constructions as well as to those of community schemes. 5.09 SENASA's investments in construction of water supply systems have ab- sorbed to date not more than 15% of the total allocated resources as shown in Table 9. Most of these resources went to SENASA administrative expenses (63%) and installation and equipment (20%). This high percentage for administrative expenses includes costs of project preparation and engineering. Due to its short existance (four years) SENASA has been under consolidation process, and invest- ment, has been reduced in comparison to other expenses. Among water supply systems financed as of December 31, 1976, eight were partially completed for a total cost of e 30.3 million (US$240,000) of which 0 7.9 million (US$63,000) was repayable under SENASA loan terms and ¢ 22.4 million (US$178,000) was sub- sidized by the Mfinistry of Public Health, UNICEF, USAID, Catholic Relief Fund, or by communities' contributions in cash and kind (see Table 10). Table 11 shows the recovery performance for the eight above-mentioned loans, which is considered satisfactory, with the exception of Rosario and General Artigas. B. Finances at Community Level 5.10 Tariff levels are agreed between SENASA and the Sanitation Committee (para. 2.16) for each community on the basis of the local ability to pay and the resources required for the system operation and ordinary maintenance. In all cases, tariffs should cover these costs as a mirimum. In addition, as mentioned above, the community is required to deposit in SENASA a certain amount for replacement and major repairs. In most cases, the community amortizes part (25% in the average) of the initial nvestment. Tariffs are re- vised periodically, usually yearly, by the Committee with the assistance of SENASA to keep them compatible with the system's requirements of funds. The Table 10 Cost and Financing of Water Supply System Completed as of 12131177 (Guaranies) Contribution Loan from SENASA GRANTS of Total Ministry Coamunities Community Cost Down Long-term of Public UNICEF USAID Rellef and Payment Debt Total Health P Various 1. Villeta 5,103,258 50,000 1,786,145 1,836,145 1,130,664 603,000 225,875 - 1,307,574 2. General Artigas 6,097,650 - 520,000 520,000 1,737,452 603,000 378,000 1,008,000 1,851,198 3. Rosario 2,261,984 160,000 407,302 567,302 304,808 603,000 52,540 327,272 407,062 4. Arroyos y Esteros 2,694,320 224,000 900,100 1,124,100 477,930 603,000 179,500 - 309,790 5. Caraguatay 3,678,119 - 1,051,645 1,051,645 197,568 603,000 378,000 1,447,906 6. Caaguazu 5,226,521 - 1,030,600 1,030,800 1,478,301 603,000 378,000 - 1,736,420 7. San Jose 4,869,063 150,000 1,209,592 1,359,592 752,630 603,000 492,000 250,000 1,411,841 8. Cerrito 400,000 - 400,000 400,000 - - - - - Total 30,330,915 584,000 7,305,584 7,889,584 6,079,353 4,221,000 2,083,915 1,585,272 8,471,791 February 1977 Table 11 Loans Recovery Performance as of December 31, 1976 ( Guaranies) Installments Overdue No. of From From From Balance as Monthly 1976 1975 1974 Total at 12/31/76 Install- Loan Prin- Prin- Prin- Prin- -rn-i Cummunities ments Amount No. cipal Int. No. cipal Int. No. cipal Int. No. cipal Int. No. cipal 1. Villeta 240 1,786,145 4 17,588 33,626 - - - - - - 4 17,558, 33,626 216 1,687,842 2. Gral Artigas 96 520,000 6 28,422 13,122 - - - - - - 6 28,422 13,122 76 431,175 3. Arroyos y Esteros 240 900,000 5 9,846 22,404 - - - - - - 5 9,846 22,404 240 900,100 4. San Jose de los Arroyo 180 1,209,592 2 8,465 11,949 - - - - - - 2 8,465 11,949 177 1,197,052 5. Caraguatay 240 1,051,645 1 2,326 5,212 - - - - - - 1 2,326 5,212 236 1,042,457 0 6. Rosario 120 407,302 12 31,280 22,984 4 10,017 8,071 - - - 16 41,297 31,055 120 407,302 7. Cerrito 180 400,000 2 2,579 3,993 - - - - - - 2 2,579 3,993 180 400,000 8. Caaguazu 15 1,030,800 1 70,000 15,462 - - - - - - 1 70,000 15,462 15 1,030,800 Total 1,311 7,305,584 33 170,476 128,752 4 10,017 8,071 - - - 37 180,493 136,823 1,260 7,096,728 ,. ~ ~ = .= = == ==,c== __ __ _ 1/ Quarterly installments February 1977 - 31 - rates are fixed as a basic amount for a patio connection plus an additional charge based on the number and type of sanitary fixtures in use in each house. Normally, this assures that rates and ability to pay are in close relation. Tariffs range from 0 300 (US$2.40) to ¢ 400 (US$3.20) per month for house connections and from ¢ 50 (US$0.40) to $ 75 (US$0.60) per month for public standpipes. Annex 4 shows the system by which tariffs are established. Monthly tariffs represent around 7% of average monthly family cash income in the region. This has been the level of tariffs attained in the past with almost zero default. In addition reductions in the standards and levels of service provided for in the project are not advisable according to generally accepted sanitation practices. 5.11 The amount charged to the community in addition to operation and maintenance expenses includes the following: (i) The house connection costs which have to be repaid in not more than 8 to 12 monthly installments; financing is free of interest; (ii) The loan itself, the balance of which, after a variable down payment, is redeemable in 10 to 20 years by equal monthly installments at a rate of interest of 6% per annum and a penalty of 2% in case of late repayment (para. 5.05). In the past the loans have represented in average 25% of the total investment. 5.12 The system of setting tariffs is considered satisfactory and assur- ances were obtained that it will not be changed without the Bank's agreement. It was also agreed upon during negotiations that SENASA and the communities will at least once a year review the rate for the water supply services, and will take the necessary steps to set and maintain tariff levels to produce for every system revenues in such amount to cover at least: (i) operation and maintenance costs of the systems; (ii) debt service commitments with SENASA according to the contract signed between this agency and the Sanitation Committee; and (iii) provision for major repairs and assets replacement as agreed in the contract signed with SENASA. It is expected that tariff revenues and initial contribution will cover in total at least 20% of investment cost except in cases where the Bank approves justification for a lower figure (very small and poor villages). It is expected also that in the average communities will repay 25% of total investment (18% at present value). 5.13 The interest rate charged to the communities (6%) for the loan compares to about 4% which is the weighted cost of funds available to SENASA, if government funds are considered free. If local funds are considered at opportunity cost capital in Paraguay, the interest of the combined funds would be around 10%. It is not possible to charge higher rates to the communities unless the proportion of the investment to be recovered as a loan is reduced to keep periodic payments at similar levels since the ability to pay is very limited. Extensions in payment period are not advisable beyond the economic - 32 - life of the systems due to difficulties that would arise to finance replacement of worn out assets. Interest rates could be modified in the future once income levels, and consequently ability to pay, reach higher levels. The present system of assessing the amount to be charged as a loan to the communi- ties and of establishing interest, based on ability to pay, seems satisfactory and practical. It has the benefit of creating consciousness in the villagers of the cost of capital and of the need of recovering capital investment. 5.14 The Committees are responsible for billing and collecting water service charges. Practices vary from village to village, but there are basically three systems: (i) Billing and later collection by a collector; (ii) Collection by a collector house by house with issuance of a receipt; (iii) Billing and payment in the local bank. In the case of public standpipes, collections are the responsibility of a Junta sub-committee constituted by the users. In other cases, the standpipe is installed in the patio of a house and a list of users is kept by the owner of the house who collects the money periodically. In all communities, there are practically no delinquent payments. This is basically due to the high level of community feeling and cooperation that exists as a consequence of educational and promotional programs. In addition, the Juntas exercise firm controls over anyone falling behind payment. 5.15 Taking the actual figures of costs and revenues for a typical com- munity of about 1,500 inhabitants, the income statement would be as follows (at December 1976 price level): - 33 - Table 12 Annual Income Statement for a Typical Community (thousands of ¢) OPERATING REVENUES Tariffs: Average monthly charge of ¢ 350 756.0G Other operating revenues 50.00 Total Revenues 806.00 OPERATING COSTS Wages 120.00 Fuel and Electricity 154.10 Ordinary maintenance and repairs 24.00 Travel expenses 6.00 Supplies 8.40 Telephone 2.40 Total Operating Costs 314.90 Contingencies (10%) 31.49 Operating Income 459.61 Depreciation Provision 60.00 Available for debt service 399.61 The amount available for debt service would cover a loan approximately equiv- alent to 25% of the system's cost at 6% per annum and 15-year period, includ- ing water and waste disposal facilities. C. SENASA's Financing Plan 5.16 Table 13 shows SENASA's financing plan for the four-year period of 1978-1981. The major assumptions made for this projection are the following: (i) Beer consumption in volume will increase at 8% per year in accordance with estimates prepared by the Secretariat of Technical Planning of the Presidency. In addition, it was assumed that the beer tax will increase at 0 0.25 per liter and per year to reach 0 2.00 per liter in 1981. - 34 - Table 13 SENASA Projection of Sources and Uses of Funds 1978 - 1981 (Millions of ¢) Sources of Funds 1978 1979 1980 1981 Total Government Budget Contribution 174 139 88 31 432 Beer Tax Revenues 36 49 63 90 238 IBRD Loan 63 244 247 202 756 Communities Contribution 34 67 58 43 202 Other 16 8 8 - 32 Recovery of Loans 1/ 7 25 44 60 136 Total of Sources 330 532 508 426 1796 Uses of Funds SENASA Administrative Expenses 45 48 51 55 199 Project Investment 2/ 240 435 385 276 1336 Increase in Working Capital 25 25 - - 50 SENASA's Investment in Other Programs 3/ 20 24 29 35 108 Increase in SENASA's Capital for Future Investments - - 43 60 103 Total of Uses 330 532 508 426 1796 1/ Includes principal and interest. 2/ Includes interest during construction and project engineering and supervision. 3/ Different of water supply and waste disposal. - 35 - (ii) According to the project's objective to assist SENASA carrying out future investments in the sub-sector, it is assumed that the revenues from recovery of loans after 1980 will be retained by SENASA, and that the Government will repay the debt to the Bank. (iii) General SENASA overheads will increase 20% in 1978 with the commencement of the project and 8% annually in 1979-1981; (iv) SENASA's investments in other programs different from water supply and waste disposal will increase at 20% annually during 1978-1980. 5.17 Assurances were obtained during negotiations that the Government will take the appropriate steps to provide SENASA with funds in sufficient amount to execute the project. 5.18 Government contribution to this project during construction and for the first five years after project completion would be as follows: --------- Construction ----- ---------- Debt Service ------------ Year 1978 1979 1980 1981 1982 1983 1984 1985 1986 US$ 1206 1119 571 246 935 899 862 790 753 Millions of ¢ 152 141 72 31 117 113 109 100 95 Contributions during construction include revenues from beer taxes. These government contributions during project execution would cover SENASA's expenses in community promotion and organization but excludes: (i) SENASA's general overheads (Administrative Department) and (ii) contributions to other programs different from water supply and waste disposal. VI. PROJECT JUSTIFICATION A. Environmental Impact and Health Benefits 6.01 The proposed project has been considered by the Paraguayan Government as a basic and essential part of the National Health Plan of 1976-1980. In fact, it is recognized that although difficult to quantify or to express in economic terms, the most important benefit from improving the quantity and quality of water supplies and waste disposal is an improvement in public health. This program, combined with the basic public health education component and the complementary measures considered in the National Health Plan, like immuniza- tion, better medical services, nutritional program, etc., will lead to a general improvement in health conditions in the rural sector as well as contributing to the eradication of certain endemic diseases. It is too early - 36 - to draw meaningful conclusions from the figures available for the villages already served, but according to the local doctors in two of the completed systems (Villeta and San Jose de Los Arroyos), the number of cases of hepatitis and infant diarrheal diseases during the dry season in the past two years has been reduced between 60% and 70%, compared to the number of cases before system operation. 6.02 According to the National Health Plan the major causes of general mortality in Paraguay in the period of 1964-1974 were diarrhea and enteritis; 75% of the cases and 71% of the deaths were recorded in the infant population less than one year old. Infant mortality is among the highest in Latin America (85 per thousand). Ankylostomiasis has an estimated prevalence of 70% in the rural population followed by other parasitic diseases like ascariasis and oxyuriasis. These figures show that the water supply project could be one of the most cost-effective components of the National Health Plan and that investment in prevention of water related diseases is among the most urgent needs in the country. 6.03 In addition to the health benefits, this project will strengthen the operating and executing capabilities of SENASA to undertake future tasks in the sector. Community organization and fostering of local leadership will help in the execution of other rural-oriented programs in the future. 6.04 Systems' design using underground water is the least cost solution for the levels of service planned. Other alternatives based on treatment of surface waters proved to be more expensive approaches mainly because of high treatment and conduction costs. In addition sophisticated operational tech- niques might be required. 6.05 No attempt is made to quantify the economic benefits of the project since it is not possible to isolate adequately benefits from water supply only to public health, when other public health measures are being taken simul- taneously. B. Risks 6.06 The main risks are related to SENASA's short experience in project implementation, timeliness of the initial contribution by the communities, and organization for future in-operation assistance to the communities. However, project size has been tailored to maintain these risks at a reasonable level and adequate assistance to SENASA has been included and financed to guarantee permanent support during execution. In addition, community contri- butions have been estimated conservatively to prevent potential shortfalls of local funds. The overall risk of not achieving the project objectives is judged medium. - 37 - VII. RECOMMENDATIONS 7.01 The following agreements were reached or confirmed during negotia- tions: A. Management and Operations (i) SENASA will retain the services of qualified consultants or will request proper assistance from specialized agencies acceptable to the Bank to assist the institution in project management, analysis of tenders, construction supervision, and construction programming and control during project execution (paras. 3.04 and 3.15); (ii) An annual purchase program for the materials required for the project, starting on March 31, 1978 (and yearly thereafter) will be agreed upon between SENASA and the Bank (para. 3.18); (iii) A condition of disbursement would be that SENASA sign contracts with Sanitation Committees of at least 10 of the communities included in the project and that the annual purchase program including the expenditures of these 10 communities be approved by the Bank (para. 3.21); (iv) SENASA will prepare and submit for Bank comments no later than June 30, 1978, final detailed plans and implementation schedule for staffing, and training (paras. 4.05, 4.07 and 4.11). B. Financial Aspects (i) SENASA will sign a contract with the Sanitation Committee before construction commencement of any individual system, specifying the works that would be carried out by SENASA, the community's contribution to the initial investment, and the formula to be used for tariffs and connection charges. In any case, the contribution to the initial cost would not be less than 10%; and, unless the Bank otherwise agrees, SENASA will cause each Junta to make an initial downpayment of 5% as a condition of implementation of the works at the village level (para. 3.21); - 38 - (ii) SENASA will adopt before June 30, 1978, commercial accounting practices satisfactory to the Bank and will employ consul- tants or specialized agencies to assist in planning and installing the system. The accounting system will be such as to permit SENASA to produce yearly balance sheets, income and cash flow statements (para. 4.10); (iii) SENASA will submit yearly beginning in 1978, a report on its records and accounts prepared by accountants acceptable to the Bank not later than four months after the end of each fiscal year (para 4.14); and (iv) Unless the Bank agrees otherwise, SENASA will not introduce changes in the present system of establishing tariffs. SENASA will review at least once a year the rates for the water supply services, and will take the necessary steps to set and maintain tariff levels so that every system will produce revenues to cover at least: operation and main- tenance costs of the systems; debt service commitments with SENASA; and provisions for major repairs (para. 5.12). It is expected that tariff revenues and initial contribution will cover in total at least 20% of investment costs except in cases where the Bank approves a justification for a lower figure. C. Project Execution (i) All subprojects will be submitted for Bank review. A basic list of communities (Annex 1) has been agreed during nego- tiations. Inclusion of any other community, different from those agreed during negotiations, into the project will require prior approval by the Bank (paras. 3.04 and 3.06); (ii) Detailed implementation schedule of the community educational program mentioned in para. 3.07(d) will be submitted for Bank consideration before December 31, 1978 (para. 3.07); (iii) SENASA will employ consultants acceptable to the Bank according to the following schedule (para 3.07); - Procurement - No later than June 30, 1978 - Basic health education - No later than June 30, 1978 - 39 - (iv) SENASA, with the assistance of external consultants or specialized agencies acceptable to the Bank, will prepare plans for technical assistance to the communities during operation. The plans will be submitted to the Bank together with the implementation schedule before December 31, 1978 (para. 3.08 and 4.05); (v) Appointment of a consultant in project management, under terms and conditions satisfactory to the Bank, is a condition of effectiveness (para. 3.07). 7.02 Provided the foregoing conditions are met, the proposed project is suitable for a Bank loan of US$6.0 million for a term of 17 years in- cluding a grace period of 4 years. ANNEX 1 Page 1 of 2 pages PARAGUAY RURAL WATER SUPPLY PROJECT COMMUNITIES INCLUDED IN THE PROJECT Name Population in 1976 % to be Department Central Total To be Served Served 1. Villeta 3,490 1,950 55 2. Capiata 3,120 2,500 80 3. Guarambare 4,020 3,220 80 4. Limpio 2,450 1,960 80 5. Nueva Italia 1,670 1,340 80 6. Villa Elisa 680 530 80 7. Remby 950 750 80 8. Cerrito 690 170 25 9. Ybysunu 270 145 54 10. Aregua 4,350 3,500 80 11. Ypare 1,630 330 20 12. Cacupe Mi 1,830 550 30 Department Cordillera 13. Caraguatay 1,590 910 57 14. Arroyos y Esteros 1,380 680 49 15. Pribebuy 4,970 3,045 61 16. Itagua 4,160 3,330 80 17. Emaboscada 1,350 400 30 18. Tobati 5,500 4,400 80 19. Altos 1,590 1,270 80 20. Atyra 1,580 1,260 80 21. Itacurubi de la C. 2,200 1,720 80 22. Valenzuela 1,220 980 80 23. Santa Elena 1,590 1,270 80 24. Isla Pucu 1,950 1,560 80 25. Fulgencio Yegros 1,490 450 30 26. 1 de Marzo 770 620 80 27. Juan de Mena 1,130 910 80 Department Paraguari 28. Carepegua 3,770 3,020 80 29. Acahay 2,140 1,700 80 30. Ybycui 1,920 1,530 80 31. Escobar 600 480 80 32. Sapucai 2,060 1,650 80 33. Caballero 1,350 1,080 80 ANNEX 1 Page 2 of 2 palges Name Population in 1976 % to be Department Paraguari Total To be Served Served 34. Ybytimii 900 720 80 35. Yaguaron 3,720 2,980 80 36. Qrundy 2,950 2,350 80 37. R. Gonzalez 1,510 1,220 80 38- La Colmena 1,990 1,590 80 39- Mbuyapey 1,720 1,380 80 40. Caapucu 1,550 100 6 41. Pirayu 2,980 2,380 80 42. Quyquyho 1,025 930 90 Totals 87,905 62,880 72 ANNEX 2 Page 1 of 2 pages PARAGUAY RURAL WATER SUPPLY PROJECT TECHNICAL ASSISTANCE AND CONSULTING PROGRAN ESTIMATES OF COSTS AND MANPOWER (US dollars) A. Technical Assistance 1. Institution Building Man-months Cost Assistance in: (a) Financial management, accounting and aduditing 6 21,000 (b) Administrative systems (personnel, purchases, inventories, transport, etc.) 6 21,000 (c) Community organization 1.5 5,250 (d) Tariff analysis 1 3,500 (e) Project scheduling and control 1 3,000 (f) Water quality 3 10,500 (g) Community education 3 10,500 (h) Miscellaneous 3 10,500 (i) Travel and other 25,000 Sub-total 110,250 2. Training Program No. Total Cost (a) Courses for staff in rural water supply 2 13,000 (b) Courses in financial analysis and management 2 3,000 (c) Courses in construction supervision 4 8,000 (d) Seminars for inspectors and sanitary auxiliars 8 24,000 (e) Courses in rural plumbing 2 6,000 (f) Courses for wells and sanitary units construction and Maintenance 8 9,000 (g) Seminar of program evaluation 4 5,000 ANNEX 2 Page 2 of 2 pages Training Program No. Total Cost (h) Overseas training in hydrogeology 5,000 (i) Well drilling and equipment 8,300 (j) Community promotion 2,000 (k) Administration and finance 8,300 (1) Materials, equipment, travel and other 50,000 Sub-total 142,100 B. Project Supervision and Engineering Man-months Cost Consulting services (a) Project management 43 170,000 (b) Well construction and drilling equipment 4 14,000 (c) Procurement and bid analysis 4 14,000 (d) Other to be determined 4 12,000 Sub-total 210,000 Total External Assistance Technical Assistance 252,350 Supervision and Engineering 210,000 Sub-total 462,350 Contingencies (10%) 46,000 Total 508,350 ANNEX 3 Page 1 of 3 pages PARAGUAY RURAL WATER SUPPLY PROJECT SUMMARY OF TERMS OF REFERENCE FOR CONSULTING SERVICES A. Project Management 3.01 SENASA would retain the services of a consultant, under terms and conditions satisfactory to the Bank, to assist the Director in the following areas: (a) Scheduling and control of project activities; (b) Design and timely elaboration of reporting systems to the agencies involved in the project; (c) Coordination and review of procurement documents, review and discussion of bid analysis reports with other consultants; (d) Coordination of preparation of documents related to the project that have to be submitted to the Bank and other agencies; (e) Contract negotiations with contractors and suppliers; (f) Organization and control of construction supervision activities; (g) Updating of investment programs for the project and forecast of requirements of funds; (h) Internal coordination of various SENASA departments involved in the project; (i) Identification of potential or real problems for pro- ject implementation and recommendation of measures required to overcome these problems; (j) Selection of consultants and coordination of consulting activities for project engineering and supervision. ANNEX 3 Page 2 of 3 pages B. Financial Management and Accounting 3.02 Consulting services in this area will cover the following main activities: (a) Design of a commercial accounting system for SENASA; (b) Elaboration of the appropriate chart of accounts and complementary accounting manuals; (c) Schedule and assistance for implementation of the new system; (d) Adjustments to the manuals if required after a reasonable trial period; (e) Training of SENASA's accountants and auxiliaries in the new system; (f) Preparation of models for elaboration of financial state- ments; (g) Preparation and test of a simple community auditing manual for SENASA; (h) Preparation and implementation of a budget and control sys- tem for programs and projects for SENASA. C. Consultants in General Administration 3.03 Main tasks for the consultant in General Administration will be to: (a) Review internal administrative systems and procedures of SENASA in the areas of staff recruitment and selection, internal information system, inventory policies, purchasing procedures, and distribution of supplies and spare parts to the communities; (b) Recommend the required changes to adapt SENASA's systems to the new scale of operations; (c) Produce appropriate manuals and assist SENASA in the im- plementation of the proposed reforms; (d) Assist SENASA in the implementation adjustments required after a reasonable test period; and (e) Assist SENASA in the establishment of the administrative organization required to supervise and help communities during systems operation. ANNEX 3 Page 3 of 3 pages D. Procurement and Bid Analysis 3.04 Consultants in this area would assist SENASA in the following tasks: (a) Preparation of annual purchase programs for materials; (b) Preparation of bidding documents required for the project and advertising procedures; (c) Bid analysis and preparation of awarding reports; (d) Contract negotiations with contractors. E. Community Education 3.05 Assistance in this area would cover: (a) Preparation of curricula for the courses to be offered at community levels (committees and villagers); (b) Preparation of the corresponding schedule for the courses; (c) Preparation of materials and other aids required for implementation; (d) Selection and training of trainers; (e) Periodic review of the program. ANNEX 4 Page 1 PARAGUAY RURAL WATER SUPPLY PROJECT WATER TARIFFS 1. Tariff levels and structures in villages being served by SENASA are based on financial considerations, and are established and designed for each village using the same consistent methodology. They are always agreed upon by SENASA and the local Sanitation Committee. 2. Tariff levels are determined by the funds necessary to keep systems operating properly and the villagers' ability to pay. The necessary operating funds are estimated on the basis of: (i) Operation and routine maintenance costs, labor, fuel or electricity, lubricants, spare parts, office supplies, and communications and miscellaneous; (ii) Contributions to the replacement funds for major or extra- ordinary repairs or replacement of worn out parts. This is calculated on the basis of the economic life of pieces of equipment and parts subject to more frequent replacement (usually pumps, motors, and related equipment); (iii) Debt Service: Amount to be repaid to SENASA, variable according to initial community contribution, ability to pay, and systems size. Ability to pay is estimated on the basis of the socio-economic surveys carried out by SENASA for every village. 3. In the past, the average amount repaid by the village to SENASA has been 25% of the total cost. This proportion is expected to be maintained in the future. 4. For the purpose of determining tariff levels, SENASA has prepared the following table in which a weight (Unidades) is assigned to every sanitary fixture. ANNEX 4 Page 2 Fixture Units Domestic lavatory 1 Public lavatory 2 Domestic water sealed toilet 3 Public water sealed toilet 5 Flush toilet 10 Domestic shower 1 Public shower 1 Patio faucet only 6 Patio faucet with hose connection 10 Patio faucet if others exist in the house 1 Kitchen faucet 2 Kitchen faucet for restaurants 4 Public urinal with valve 3 Flushed public urinal 6 Domestic laundry faucet 3 Public laundry faucet 6 Tube 6 5. Use are classified as residential and commercial, although a few villages hav,. ome industrial consumers, Villeta for example. A typical tariff structure is as follows: Residential Consumption ¢ Fixed charge 250 (maximum limit - 8 units installed) Additional charge up to 12 units 100 Charge over 12 units 350 plus 0 200 per additional 5 units Commercial Consumption 50% in excess of the residential charges 6. Tariff levels are revised every year with the assistance of SENASA to keep them adequate to the financial needs of the system. ANNEX 5 PARAGUAY RURAL WATER SUPPLY PROJECT SUGGESTED MONITORING INDICATORS The following monitoring indicators are suggested for project supervision: 1. Water Systems (a) Number of water systems completed (b) Number of house connections for the systems (c) Number of public standpipes installed (d) Estimated population served. 2. Waste Disposal (a) Number of sanitary units completed (b) Number of tile-field privies completed ANNEX 6 PARAGUAY RURAL WATER SUPPLY PROJECT ADDITIONAL INFORMATION AVAILABLE IN PROJECT FILE 1. Plan Nacional de Salud 1976 - 1980, MIinisterio de Salud Publica y Bienestar Social. (National Health Plan 1976 - 1980) 2. Proyecto de Agua Potable y Saneamiento Rural - SENASA. (Rural Water Supply and Sanitation Project) 3. Memoria de la Corporacion de Obras Sanitarias (CORPOSANA) - Diciembre 31, 1973 - CORPOSANA. (Corposana's Report of 1973) 4. Proyecto de Abastecimiento de Agua y Saneamiento Rural - Preparacion del Proyecto - Ing. Javier Bacigalupo, Consultant. (Rural Water Supply and Sanitation Project) 5. Ley No. 369 - Que crea el servicio Nacional de Saneamiento Ambiental - SENASA. (Law creating SENASA) 6. Decreto 8910 - Por el cual se reglamenta la creacion y funciones de las Juntas de Saneamiento. (Decree regulating operation of Sanitation Committees) 7. Estados y Proyecciones Financieras - CORPOSANA. (Financial Projections and Statements) 8. Informacion Financiera Comunidades. (Financial information about villages) 9. Calculos de Poblacion. (Population estimates) 10. Plan de Cuentas para una Junta de Saneamiento. (Sanitation Committee Chart of Accounts) 11. SENASA's Audited reports of 1976 and 1977 12. Hydrogeological Reconnaissance Study cl, -11,~~~~~~~~~~~~~~~~~~~~~~~~80-20 ABQaE NfIfNtA - N o I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~, / 244ˇ N [4