Document of THE WORLD BANK FOR OFFICIAL USE ONLY Report No. P-7039-BD MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT IN AN AMOUNT EQUIVALENT TO SDR 51.0 MILLION TO THE PEOPLE'S REPUBLIC OF BANGLADESH FOR A FOURTH DHAKA WATER SUPPLY PROJECT November 22, 1996 Infrastructure Operations Division Country Department I South Asia Region 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 (as of January 1996) US$ 1.00 = Tk 41.90 Taka (Tk) 1.00 = US$ 0.024 WEIGHTS AND MEASURES 1 liter (1t) = 0.220 imperial gallon 1 cubic meter (m) = 219.9 imperial gallons ABBREVIATIONS AND ACRONYMS CCC - Chittagong City Corporation CWASA - Chittagong Water Supply and Sewerage Authority DCC - Dhaka City Corporation DND - Dhaka-Narayanganj-Demra DPHE - Department of Public Health and Engineering DWASA - Dhaka Water Supply and Sewerage Authority GOB - Government of Bangladesh IMGD - Imperial Gallons per Day LGED - Local Government Engineering Department MLGRDC - Ministry of Local Government, Rural Development & Cooperatives UNICEF - United Nations Children and Educational Fund FISCAL YEAR July 1 to June 30 Vice President: Mr. Joseph Wood (SASVP) Director: Mrs. Mieko Nishimizu (SA1DR) Division Chief: Mrs. Marie Robinson (SAlIN) Task Manager: Mr. Jonathan Kamkwalala (SAlIN) FOR OFFICIAL USE ONLY BANGLADESH FOURTH DHAKA WATER SUPPLY PROJECT Credit and Prolect Summary Borrower: People's Republic of Bangladesh Beneficiary: Dhaka Water Supply and Sewerage Authority (DWASA) Amount: SDR 51.0 million (US$80.3 million equivalent) Terms: Standard, with 40 years maturity Commitment Fee: Standard (a variable rate between 0 and 0.5% of the undisbursed credit balance set annually by Executive Directors of IDA) On-Lending: Interest rate at 7.5% per annum, 25 years maturity, including five years of grace. GOB will onlend the proceeds of the credit to DWASA. Onlending rates and terms for Government of France financing similar to IDA. The Japanese Government financing will be passed on to DWASA as a grant. Financing Plan: See Schedule A. Economic Rate of About 22% Return: Poverty Category: Not Applicable Map: IBRD No. 27130 Proiect BD-PA-9842 Identification No: 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 wiLhout World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE PEOPLE'S REPUBLIC OF BANGLADESH FOR A FOURTH DHAKA WATER SUPPLY PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed Development Credit to the People's Republic of Bangladesh for SDR 51.0 million (US$80.3 million equivalent) to help finance a Fourth Dhaka Water Supply Project. The proposed Credit would be on standard IDA terms, with a maturity of 40 years. The proposed project would be cofinanced by the Government of France, for US$31.3 million on grant terms and the Government of Japan grant funds (US$1.3 million). SECTOR BACKGROUND 2. Bangladesh is one of the world's poorest and most densely populated countries, having an estimated 1995 population of about 120 million people, with about 96 million (80%) living in rural areas. The country faces massive urban population growth challenges due to rural to urban migration, resulting from increased rural landlessness, lack of opportunities in rural areas and the effect of natural disasters in rural areas. It is estimated that between 1974 to 1981, the urban population growth rate was 10.6% per annum, declining to 5.4% per annum between 1982 to 1990 and 4% between 1990-1995 (compared to an average total population growth rate of about 1.6% annually during 1990- 1995). About 8.0 million of the urban population live in the Dhaka metropolitan area, representing about 30% of the total urban population. The disproportionate rise in the urban population has created severe pressure on existing infrastructure and services, including water supply, sanitation, solid waste collection and drainage services. The environmental conditions throughout most of the urban areas of Bangladesh are poor, with discharges of human and industrial wastes into river systems, possible contamination of groundwater from lack of adequate sewerage, and inadequate management of solid waste disposal. These problems are particularly severe in Dhaka, where the population growth rate is comparatively high and where it is estimated that about 45% of the households have incomes below the poverty line. The size of the urban population, combined with limited financial resources, puts constraints on the development of adequate urban infrastructure, particularly water supply and sanitation. 3. Although accurate data is not readily available, most of the existing water supply services in Bangladesh are not capable of meeting demand requirements. It is estimated that in the urban areas, about 42% of the population has access to reasonably safe water, but the remaining 58% depend on contaminated traditional sources. With regard to sanitation, about 40% of the urban areas have access to sanitary waste disposal services. Because of the limited sewerage systems and the inefficient sanitary waste disposal facilities, untreated or poorly treated domestic sewage is a major source of water pollution, and the morbidity/mortality rate due to waterborne diseases in Bangladesh is among the highest in the world. 4. In Dhaka it is estimated that the population served by the water supply system is 4.1 million, representing about only 50% of the population of - 2 - the metropolitan Dhaka area. At present, Dhaka does not have an adequate sewerage and sanitation system. The waterborne sewerage system only covers about 15% of the total population of Dhaka. It is estimated that another 30% of the population uses approximately 50,000 septic tanks and another 15% have access to bucket and pit latrines. The remaining population do not have any form of acceptable sanitary disposal system. Much of the sewage collection system is in poor condition due to lack of a proper repair and maintenance program, which leads to sewage overflow into storm drains during the rainy season. This results in insanitary conditions, which are aggravated by the lack of a well functioning sullage drainage system. The proposed project includes a technical assistance component for the preparation of a comprehensive long-term program to address sanitation and sewerage issues in Dhaka, including the execution of priority investments for low cost sanitation and sewerage system rehabilitation. 5. The responsibility for the water supply and sanitation sector is under the Ministry of Local Government, Rural Development and Cooperatives (MLGRDC). The Ministry, together with the Planning Commission shares the tasks of sectoral resource allocation, funding and policy decisions, as well as project appraisal, approval, evaluation and monitoring. In Dhaka and Chittagong, the Government established Water Supply and Sewerage Authorities (DWASA and CWASA) as autonomous agencies responsible for provision of water supply and sewerage services. These authorities come under MLGRDC as public utilities. DWASA is also responsible for stormwater drainage in Dhaka. In the two cities, the Dhaka and the Chittagong City Corporations (DCC, CCC) are responsible for sanitation activities other than waterborne sewerage. 6. A number of issues hinder the water supply and sanitation sector development and performance. These include problems related with funding of investments and resource mobilization; the Government's management of the sector; lack of commercial orientation in operations; and a weak planning capacity. The availability of local funds to support investments in the sector is also generally inadequate. Foreign assistance through multilateral sources accounts for about 80% of investments in the sector. Furthermore, overall sector management is characterized by excessive Government control and interference in the planning and operation of the central utilities. While DWASA and CWASA are supposed to be autonomous, some operational decisions, including tariff reviews and adjustments, staff appointments, and most policy and investment decisions are controlled by the Government through MLGRDC. There are no clearly defined guidelines for sectoral development or mandates for DWASA and CWASA's operations. As a result, the utilities have no real commercial or management autonomy, which has significantly hampered their performance. 7. In addition, management and staff of these two public water utilities lack the necessary skills, experience and training to effectively manage, operate and maintain the systems. DWASA and CWASA also suffer from a lack of commercial orientation and accountability, poor management systems, and shortage of trained and motivated staff. Poor billing and collection practices, a high level of unaccounted-for-water, and high accounts receivable arrears are typical examples of this lack of accountability. Investment programs in the sector tends to be adversely affected by optimistic and ambitious goals that do not take into account the physical and financial - 3 - capacity of the sector institutions to implement the programs. Sector development activities are planned on a project by project basis, without a guiding framework. Lessons Learned from Previous IDA Involvement 8. In Bangladesh, IDA has assisted the Government in the water supply and sanitation sector since 1963, having financed five water supply projects in the cities of Dhaka and Chittagong. While the physical objectives of these projects were basically met and water supply increased substantially, financial and institutional objectives were not fully met. The most recent of these projects is the Third Dhaka Water Supply Project (Cr. 1734-BD), whose development objectives were to improve DWASA's operational and financial performance, to strengthen sectoral training and sectoral planning and to address immediate needs for additional supplies of water and sanitation services. A review of progress against original project objectives and components at project completion showed that DWASA exceeded original physical targets, and increased water production by 42% beyond the targets in the appraisal report. Financial and institutional performance was, however, not fully satisfactory. Although revenue performance during the project period was close to appraisal estimates, DWASA was unable to meet financial covenants set under the project. First, financial and institutional objectives established in the project were not supported byoproject components to address identified problems or to provide monitorable indicators. Second, issues like weak management performance, system losses and poor efficiency were not particularly addressed under the project. DWASA's poor performance was also caused by excessive control of the institution by GOB which created obstacles to good performance, and lack of commitment to financial objectives which resulted in GOB's refusal to authorize required tariff increases to compensate for increases in operating costs. In preparing the proposed project, these issues have been addressed in the reform strategy to enhance DWASA's efficiency, through an approach that involves public enterprise reform, some private participation through a program to contract out some services, and an initiative to develop a strategy for mobilizing private finance and increasing operating efficiency. Under the public sector reform strategy, the institutional reform program and its components address the broader sector objectives and draws on the lessons learned as follows: (i) the comprehensive modification of the WASA Ordinance and the establishment of a Policy Statement are is aimed at reducing Government interference in DWASA operations and increasing its autonomy; (ii) a proposed leak detection and rehabilitation program, a Twinning Program, a plan to contract out DWASA services are aimed at improving efficiency. Under the strategy to increase private participation, necessary studies would be carried out for identification of the specific privatization alternatives, and identification of changes needed in the legal/regulatory framework. Rationale for IDA Involvement 9. IDA has supported GOB and DWASA develop and improve the urban water supply and sanitation sector for many years. While much has been accomplished on the physical side, the increase in water produced per capita has been marginal due to the high population growth of Dhaka and other urban areas. Further investments are required to rehabilitate the system, reduce losses and increase supply. Institutional performance has been unsatisfactory, while financial performance has been erratic. The objectives being pursued in this project are part of the broad fundamental reforms IDA is pursuing in the country's public utility sector including power and gas as well as water. This approach is built on the recognition that the investments needed in these sectors to support growth and public welfare exceed the fiscal prospects of the public sector; it also recognizes that successive governments have not been able to produce efficient, financially self-sustaining public utilities. It looks to maximizing the role of the private sector, under a sound, transparent and independently administered regulatory framework. Furthermore, as the lead donor in Bangladesh, IDA can play a major catalytic role by giving the Government's institutional reform program the support it needs, by encouraging the Government to continue with the reform process and sustain its momentum and by assisting in coordinating donor participation within the reform framework. IDA's involvement will also assist in the orderly and efficient development of the sector by helping DWASA better define and rationalize its investment options, GOB to plan and analyze such investments to increase availability of water and sanitation services, promote private sector participation and better water resource management, and finally help define a sanitation strategy for Dhaka. The Bank's involvement will also afford DWASA opportunities to draw on the Bank Group's experience in utility reform in other countries. The project is fully consistent with the overall public sector reform strategy as defined in the FY96 Country Assistance Strategy (CAS) discussed by the Executive Directors on November 9, 1995 and its progress report discussed on November 26, 1996. THE PROJECT Project Objectives 10. The basic objectives of the project are: (i) to commence a program of institutional reforms that would lead to efficient operation of the water and sanitation sector in Dhaka on a commercial basis and prepare a strategy to enhance private operations and mobilize private finance; (ii) to increase the life of existing assets and reduce water losses through a water loss reduction and rehabilitation program; (iii) strengthen water resources management for the greater Dhaka area, by optimizing use of available water resources in the most economic and environmentally acceptable way; and (iv) to increase potable water supply in the Dhaka area by effectively utilizing available surface and groundwater resources to expand water supply in the Dhaka metropolitan area. The focus of the project is on: (a) institutional strengthening and achievement of financial and operational autonomy to ensure that DWASA, within a reasonable time frame, is able to provide efficient and reliable services; and (b) increasing available water supply to alleviate shortages through loss reduction and capacity additions. The institutional components will address some of the key sectoral constraints identified, namely the lack of commercial orientation in DWASA operations, weak planning capacity and excessive control by GOB on DWASA's day-to-day operations. The physical components will improve DWASA's capacity to provide water supply and sanitation services more efficiently and expand its service to new areas. Technical assistance will support better operations under a private sector manager supported with a twinning arrangement, and including study leading to a higher degree of private sector participation and mobilization of private finance. Proect Desciption 11. io achieve the project objectives, the project consists of the following components: (a) The institutional reform program: Comprising of: (i) amendment of the WASA Ordinance to provide DWASA with operating conditions that would approximate those of commercial organizations established under the Companies Act, and obtain greater autonomy from GOB by strengthening and streamlining DWASA's existing Board to establish a Board of Directors along the lines of commercial utilities; (ii) defining the Board's role on policy matters relating to corporate planning, tariff setting, staffing, appointment of senior management and remuneration, with the objective of separating the responsibilities of the Government, the Board and management; (ii) establishing and enforcing management accountability by requiring DWASA to meet operational and performance targets; (iv) re- organization of DWASA's activities into profit/loss centers to introduce transparency into operations; and (v) introduction of activities to involve private sector participation in DWASA operations, including possible concession arrangements. (b) capacity additions and service extensions consisting of: (i) a 50 IMGD treatment plant and associated works including intake structures and pump station (6.6 cu.m./sec) at the Lakhya River; treatment plant electromechanical equipment and civil works, including mixing tanks, flocculators, pump stations, settling basins, filters, sludge recovery facilities and ponds; ancillary works, administration and office buildings; and (ii) 38 km of primary and secondary transmission mains; (c) loss reduction, sanitation and efficiency improvements consisting of: (i) a distribution system rehabilitation program to identify physical leaks in DWASA service area and a system rehabilitation program based on the results of the leak detection activities; and a tubewell regeneration program to replace, rehabilitate, and reset low yielding tubewells; (ii) expansion of service connections, consisting of a tertiary distribution system and connection program; a Crash Meter Installation Program to reduce unmetered connections to about 5% within two years; an improved sanitation program consisting of a study and preparation of a sanitation master plan for Dhaka for the period 1996-2020; and first stage investments in low cost sanitation and rehabilitation of selected sewerage systems assets; (d) Institutional Development Technical Assistance consisting of: (i) Management and Operational Support (Twinning) Program from an efficient utility to assist DWASA improve its financial and operational performance and efficiency; (ii) a Water Resource Management Study of the Dhaka Region to obtain adequate knowledge for management of water resources in Dhaka and effectively monitor and regulate the quantity and quality of water in the region; (iii) a program to contract out DWASA billing, collections and meter - 6 - repair services to the private sector; (iv) management support to senior contract staff on fixed term appointment to provide needed incentives to retain staff with necessary skills; (v) a training program for DWASA staff to improve skills in the commercial operation of utilities; and (vi) a study to assess options for private sector participation including a strategy for mobilizing private financing and improved efficiency, leading to increased private sector participation. (e) Prolect Preparation and Implementation Support Technical Assistance consisting of: (i) miscellaneous equipment (motor vehicles, computer equipment, meters etc) to support institutional strengthening efforts; (ii) consulting services for the design of ancillary works, the drafting of the revised WASA Ordinance; (iii) construction supervision of the treatment plant, distribution system, and consulting services for a Network Analysis; and (iv) consultancy services to assist DWASA implement a revised tariff structure. 12. The total project cost, including contingencies is estimated at US$175.8 million equivalent (Taka 7.4 billion), of which US$88.1 million (50.1%) is in foreign exchange. The project cost includes taxes and duties estimated at about US$35.5 million. The base cost is expressed in January 1996 prices. Cost estimates for the project are based on consultant feasibility studies and preliminary design, and the cost of recently awarded contracts for similar works, updated to January 1996 price levels during reappraisal. The project cost estimates are based on a five year implementation period. This is shorter than the regional disbursement profile of seven years for similar projects, but attainable because of the turnkey arrangement of the main contract, the treatment plant. The project financing plan includes the proceeds of the credit, co-financing from the Government of France and the Government of Japan, and counterpart financing from the Government of Bangladesh. The proposed IDA credit of US$80.3 million would finance 45.7% of the total project cost (excluding taxes). The Government of France would finance US$31.3 million, equivalent to 17.8% of the total financing requirements. The Government of Japan would finance about US$1.3 million of the project which would be administered by IDA. The remaining funds (US$62.9 million) will be provided by the Government of Bangladesh and DWASA. IDA funds would be onlent to DWASA at an interest rate of 7.5% and would be repaid over a period of 25 years, including five years of grace. The Government of France financing would be onlent at the same terms as the IDA funds. The Government of Japan financing would be passed on to DWASA as a grant. Signing of the Japanese and French Grant Agreements are conditions of credit effectiveness. A breakdown of the project costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and shown in Schedule B. A timetable of key project processing events, and the status of Bank Group Operations in Bangladesh are presented in Schedules C and D, respectively. A status of the Country at a Glance is included as Schedule E. A map is also attached. The Staff Appraisal Report, No. 16144-BD dated November 22, 1996, is being distributed separately. -7- Procurement Arrangements 13. Procurement of civil works and goods under the project will be in accordance with World Bank Procurement Guidelines. Consultancy services and technical assistance will be procured in accordance with principles and procedures satisfactory to IDA, based on the Guidelines for the Use of Consultants by World Bank Borrowers and the World Bank as Executing Agency (August 1981). About US$68.2 million of civil works would be carried out on the basis of international competitive bidding (ICB). These represent civil works for the treatment plant, transmission mains, intake and culvert from the DND canal to the treatment plant site and primary and secondary distribution network. All other civil works would be awarded on the basis of national competitive bidding (NCB) procedures acceptable and satisfactory to IDA. These represent small civil works contracts for the expansion of service connections, development of sewerage and sanitation schemes and distribution system rehabilitation, which are unlikely to attract international bidders. About US$3.1 million of goods will be procured following ICB procedures. These represent equipment and materials for the intake and pump station, and miscellaneous equipment, including meters for service connections. About US$0.2 million of the equipment will be procured using NCB procedures. All other goods and materials will be financed by the French Government Assistance and would be procured following internationally acceptable procurement procedures agreed with IDA. All consultancy services will be carried out by consultants whose qualifications, experience and terms and conditions shall be satisfactory to the Association. Project Implementation 14. The project will be implemented by DWASA, which will be accountable and responsible for meeting agreed project and operating objectives. It is estimated that the project will be implemented over a period of five years, which is less than the average implementation period for similar projects in Bangladesh. This is attainable due to the turnkey arrangements for the installation of the treatment plant equipment. Project implementation will give priority to the construction of the surface water treatment plant, Phase 1 of the Leak Detection and Rehabilitation Program, the Crash Meter Installation Program, and the management consultancy services for the improvement of the operations and management of DWASA. Proiect Sustainability 15. The proposed project will assist DWASA in its efforts to improve the provision of water and sanitation services in the Dhaka area. The institutional reform efforts will improve DWASA's efficiency, and increase its effectiveness in providing these services. Technical assistance under the project will develop DWASA's capability to operate as a more autonomous and commercially managed water supply institution. To ensure project sustainability, performance objectives and targets in financial, operational and technical areas have been established as part of the institutional development components, which will be used to monitor actual performance. -8- Agreed Actions 16. During negotiations, agreements were reached with GOB and DWASA as follows: (a) on project specific matters: i) to carry out resettlement activities in accordance with IDA's resettlement and rehabilitation guidelines; ii) the content and timing of a mid-term review, including benchmarks for assessing progress against objectives; iii) format for progress reports, including information to be provided in the report; iv) to carry out a strategy study to assess privatization options and commence the implementation of the results of the study by February 28, 1998; v) to maintain accounts receivables to no more than four months of total billing by June 1998; vi) to appoint Deputy Managing Directors for Finance and Administration, Technical and Planning and Development by June 1997; vii) to carry out a staff rationalization program to assess staff strength and weaknesses by March 1997; viii) to establish a system to reduce public sector arrears to no more than 90 days of public billings; ix) to conduct an assessment of stores and inventories by March 1997, and write off mismatched, obsolete and slow moving stocks by December 1997; x) to conduct an assessment of all receivables to identify uncollectible receivables by March 1997, and write off uncollectible arrears by December 1997; xi) to have DWASA's accounts and financial statements audited and furnish to IDA copies of audits within six months of the end of the fiscal year; xii) to commence the implementation of the results of the Water Resources Management Study by January 1998; and xiii) to establish an environmental cell within DWASA to monitor water quality by March 31, 1997. (b) On actions to be completed before credit effectiveness: i) DWASA/GOB will execute the subsidiary loan agreement to cover the onlending terms of the credit; ii) DWASA will sign the contracts for the Sanitation Program and Twinning Program; iii) DWASA will commence the strategic study to assess private sector options; and iv) DWASA will execute the French and Japanese Grant Agreements. Environmental Aspects 17. An Environmental Impact Assessment (EIA) of the project was carried out and a final Report is available, dated April 1994. Key environmental impacts identified include the following: (a) for raw water quality: positive impacts through continuing monitoring of raw water at source, and long-term protection of water quality through restriction of industrial discharges; (b) for raw water intake and transmission, construction and operation: some long term effects on river flows during the dry season, land based effects along the transmission alignment (both physical and social), short-term construction and nuisance effects; - 9 - (c) for surface water treatment plant construction and operation: long- term physical and social effects at the site, short-term construction nuisance; and (d) for treated water distribution network: short-term construction nuisance, especially traffic disruption, long-term impacts on public health and disposal of wastewater. Positive impacts include the provision of a 50 IMGD increment of treated surface water supply to the DWASA system, planned conjunctive use of ground and surface water (thus reducing groundwater overpumping), and improved environmental management and monitoring of the water sources as a result of the Water Resources Management Study to be undertaken under the project. Positive impacts will be strengthened by the concurrent program of leak detection and rehabilitation which will enable greater pressures to be maintained in the distribution system and system integrity to be improved, with greater amenity and public health benefits. The treated surface water is to be supplied to areas of the city where groundwater drawdown is most severe, thus allowing the groundwater resources to recover from overpumping. Potential negative impacts of the project include: (i) the increased discharge of wastewater to the shallow surface aquifer through (a) household on-plot sanitation facilities, (b) the existing sewerage system, and (c) surface drainage channels; (ii) further growth in urban development (supported by the increased availability of water supply through the project); and (iii) necessary restriction or regulation of industrial and other discharges along a stretch of the Sitalakhya River in the vicinity of the raw water intake (to be further investigated in the water resource management study). Mitigation measures have been incorporated in the project to reduce or eliminate the potential negative impacts associated with necessary fencing of the DND Canal, including the removal and relocation of shacks used by small businesses, the removal of domestic and commercial washing points along the canal, and the production of large volumes of sludge. 18. Land acquisition necessary for the conveyance route from the Sitalakhya River to the treatment plant site involved some involuntary resettlement and payment of compensation for loss of property, which has been completed. In view of the small number of buildings to be removed (about twenty households at the intake site, 180 temporary trading shacks along the conveyance canal), no full resettlement action plan was required. IDA's resettlement guidelines were followed in compensation for all project affected people. Prolect Benefits 19. The proposed project would introduce the first primary water treatment plant in Dhaka and would therefore provide urgently needed safe water to the area, relieving current water shortages, particularly to areas that are currently not served by piped water. The project, when in full operation will supply 223 million cubic meters (50 IMGD) of potable water, equivalent to the consumption requirements of 2.3 million people. This will be the joint contribution of additional capacity provided by the Saidabad treatment plant and the loss reduction activities. The economic value of this additional supply is considerable because it will reduce costs and allow an - 10 - increase in consumption by low income groups. These groups pay as much as Tk. 27.00 (US$0.675) per cubic meter for water purchased in small volumes and consume as little as 30 lpd (liters per capita per day), while the current DWASA price of water for residential connection is Tk 3.49 (US$ 0.09) per cubic meter, and consumption of the population served with direct residential connections, although low, is about 90 lpd. The population of Dhaka as a whole will benefit from the additional supply since it's current per capita consumption is already low. The economic price of this consumption is nearly Taka 15.00 (US$0.375) per cubic meter. The value of the additional supply is therefore significant, as expected in a large and growing city with relatively low consumption due to supply restrictions, large water deficits, low coverage, and high costs for those without direct water service. The economic rate of return for the project is estimated at 22%. Net benefits amount to Tk 4,823.93 million (US$120.60 million) which are more than 60% of the project costs. The main factor affecting economic rate of return is the value of water since the willingness to pay is substantial and the estimates used in the analysis may be conservative, given the critical water supply situation in Dhaka and its possible development in the coming years. The net fiscal impact of the project on the Government budget will be positive, through increased tax revenues on DWASA's water and sanitation income. The project does not therefore distort the Government's budget priorities. Project Risks 20. The main risk of this project is delay in implementation of the various components of the project, causing possible postponement in overall project completion. DWASA has adequate experience in the implementation of World Bank financed projects, and with the assistance of consultants for construction supervision, the proposed project should be implemented without major delays. DWASA's experience was evident under the Third DWASA Project (Credit 1734-BD), in which major civil works were completed before the original closing date. In addition, the procurement processing for main civil works under the project have already been completed. This should help mitigate some of the risks of delays. With its own financing, GOB has already commenced the implementation of two components critical in the project to speed implementation. The other major risk is the possibility that the Government and DWASA may not follow through with the reforms under the project, due to political constraints, and possible resistance to reforms by major interest groups. To minimize this risk, IDA's project processing was preceded by continued policy dialogue with the Government. The risk was approached by requiring upfront actions on the reform programs as a means of demonstrating commitment, on critical components such as the program to contract out billing and collections to the private sector. The National Cabinet has approved a program of reform. The Government has already amended the regulatory framework, and the new WASA Ordinance has been enacted, a private sector manager has been recruited and DWASA has started the Leak Detection program. Annual comprehensive reviews and a mid-term review of project progress against specific performance objectives would provide opportunity for corrective action if necessary. - 11 - Recommendation 21. I am satisfied that the proposed Development Credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. James D. Wolfensohn President by Gautam S. Kaji Attachments November 22, 1996 Washington, D.C. - 12 - Schedule A BANGLADESH FOURTH DHAKA WATER SUPPLY PROJECT Estimated Cost and Financing Plan (US$ Million) Estimated Costs:i/ Local Foreign Total Land Acquisition 22.80 0.00 22.80 Treatment Plant and Works 38.30 44.50 82.80 Primary, Secondary Transmission 9.10 13.00 22.10 Distribution Rehabilitation 3.10 5.40 8.50 Expansion of Service Connections 0.90 1.40 2.30 Sewerage/Sanitation 1.60 2.40 4.00 Institutional Strengthening 2.70 4.30 7.10 Technical Assistance 0.50 6.00 6.50 Base Cost 79.00 77.80 156.00 Physical Contingency 3.30 4.50 7.80 Price Contingency 5.50 6.50 12.00 Total Project Cost 87.80 88.00 175.80 Financing Plan: Local Foreign Total IDA 24.40 55.90 80.30 French Government 0.00 31.30 31.30 Japanese Government 0.40 0.80 1.20 GOB 63.00 0.00 63.00 Total 87.80 88.00 175.80 Includes duties and taxes equivalent to US$35.5 million. - 13 - Schedule B Page 1 of 2 BANGLADESH FOURTH DHAKA WATER SUPPLY PROJECT Procurement Methods and Disbursements (US$ Million) Proiect Elements Procurement Methods ICB NCB Other NBF Total Civil Works Intake and Treatment Plant 31.5 - 3.0 - 34.5 (31.5) - - - (31.5) Primary/Secondary Transmission 26.5 - - - 26.5 (18.4) - - - (18.4) System Rehab & Service Expansion 10.2 2.8 - - 13.0 (6.8) (2.5) - - (9.3) Development of Sewerage/Sanitation 5.0 - - 5.0 (5.0) (5.0) Equipment Intake & Treatment Plant 1.6 - - 53.7 55.3 (0.9) - - - (0.9) Miscellaneous 1.5 0.2 - - 1.7 (1.0) (0.2) - - (1.2) Consultancy Services Institutional Development - - 7.6 1.3 8.9 - - (7.6) - (7.6) Project Implementation - - 6.4 - 6.4 - - (6.4) - (6.4) Land Acquisition - - - 24.5 24.5 Total 71.3 8.0 17.0 79.5 175.8 (58.6) (7.7) (14.0) (0.0) (80.3) NBF: Not Bank Financed (These include land acquisition and components financed by GOB, the French and Japanese Governments. Note: Figures in parenthesis are amounts financed by IDA Credit. - 14 - Schedule B Page 2 of 2 Disbursements Category Amount Percentage of Amount SDR Expenditures US$ Million Equivalent to be Financed Equivalent 1) Intake & Treatment 14,660,000 100% of foreign expenditures 23.1 Plant & 95% of local expenditures 2) Primary/Secondary 9,840,000 100% of foreign expenditures 15.5 Transmission & 95% of local expenditures 3) Other Civil Works 7,620,000 100% of foreign expenditures 12.0 & 95% of local expenditures 4) Goods 1,280,000 100% of foreign expenditures, 2.0 100% of local expenditures (ex-factory cost) & 65% of local expenditures for other items procured locally 5) Consultant Services 7,370,000 100% of expenditures 11.6 6) Training 510,000 100% of expenditures 0.8 7) Unallocated 9,720,000 15.3 TOTAL 51,000,000 80.3 Estimated Disbursements: IDA Fiscal Year FY97 FY98 FY99 FY00 FY01 FY02 Annual 1.5 15.4 21.4 22.2 13.2 6.2 Cumulative 1.5 16.9 38.3 60.5 74.1 80.3 - 15 - Schedule C BANGLADESH FOURTH DHAKA WATER SUPPLY PROJECT Timetable of Key Project Processing Events a) Time taken to prepare the Project: 4 years b) Prepared by: Government with assistance of foreign/local consultants and IDA c) First IDA mission: October 1992 d) Appraisal mission departure: August 1994 e) Negotiations: June 1995 f) Planned date of effectiveness: March 1997 The following staff were involved in project preparation: Mr. Jonathan Kamkwalala (Sr. Financial Analyst, Task Manager) - (SAlIN); Messrs. Arun Banerjee (Senior Operations Officer) and Saibul Huda (Program Officer) - (SAIBG); Mr. Alf Jerve (Anthropologist) - (ASTHR); Mr. Zahed Khan (Resettlement Specialist) - (SALDR); Mr. Mohinder Virdy (Procurement Analyst) - (ASTTP); Messrs. Robert McWilliam (Sanitary Engineer) and Marco Fierro (Economist) - (Consultants). The project was re-appraised in May 1996 by the following staff members: Mr. Jonathan Kamkwalala (Task Manager) and Ms. Helen Nankani (Private Sector Development Specialist) - PSD. Schedule D -16 - Page 1 of 2 Status of Bank Group Operations in Bangladesh IBRD Loans and IDA Credits in the Operations Portfolio (As of September 30, 1996) Difference between Original amount in US$ millions expected Project Loan or Fiscal and actual ID Credit No. Year Borrower Purpose IBRD IDA Cancellations Undisbursed disbursements' Number of Closed Loans/Credits: 151 Active Loans BD-PA-40985 C29220 1997 GOB POVERTY ALLEVIATION 105.00 104.92 BD-PA-9454 C23400 1992 GOB PRIVATE SEC IND'L CR 25.50 18.62 16.73 BD-PA-9459 C18270 1987 GOB ROAD REHAB. & MAINTE 102.00 12.71 4.13 BD-PA-9461 C20990 1990 GOB BWDB SYSTEM REHAB. 53.90 19.45 22.77 34.33 BD-PA-9464 C23610 1992 GOB PUBLIC RESOURCE MGT 150.00 53.29 49.41 BD-PA-9465 C26380 1994 GOB 2ND ROAD REHAB & MAI 146.80 89.34 -13.44 BD-PA-9467 C19300 1988 GOB URBAN DEV. I 47.60 8.79 22.11 27.82 BD-PA-9470 C23970 1992 GOB FOREST RESOURCES MGM 49.60 29.20 8.97 BD-PA-9484 C28150 1996 GOB AG. RES. MANAGEMENT 50.00 48.49 7.20 BD-PA-9491 C19400 1988 GOB RURAL ROADS & MARKET 62.30 10.15 8.96 BD-PA-9496 C27350 1995 GOB NUTRITION 59.80 57.26 3.57 BD-PA-9506 C20160 1989 GOB POWER DIST. (16 TOWN) 87.00 26.55 21.07 BD-PA-9509 C25690 1994 GOB JAMUNA BRIDGE 200.00 85.73 30.61 BD-PA-9514 C21180 1990 GOB GENERAL EDUCATION 159.30 13.21 44.94 46.65 BD-PA-9516 C22330 1991 GOB AGRIC. SUPPORT SERVI 35.00 22.95 18.87 BD-PA-9519 C21460 1990 GOB FISHERIES III 44.60 28.36 4.90 28.83 BD-PA-9529 C22590 1991 GOB POP. & HEALTH IV 180.00 64.11 44.75 BD-PA-9533 C27200 1995 GOB GAS INFRASTRUCTURE 120.80 99.26 16.08 BD-PA-9540 C22320 1991 GOB INLAND WATER TRANSP 45.00 37.95 22.45 BD-PA-9542 C21290 1990 GOB RURAL ELECTRIF. 111 105.00 47.74 28.63 BD-PA-9544 C22460 1991 GOB NAT'L MINOR IRRIGATI 54.00 30.77 21.84 44.24 BD-PA-9545 C27910 1996 GOB RIVER BANK PROTECTIO 121.90 94.57 19.04 BD-PA-9549 C27830 1996 GOB COASTAL EMBANKMENT R 53.00 49.21 11.70 BD-PA-9553 C25670 1994 GOB JUTE SECTOR ADJ.CRED 247.00 202.05 188.59 BD-PA-9553 C25673 1996 GOB JUTE SECTOR ADJ.CRED 3.40 3.32 BD-PA-9555 C24690 1993 GOB FEMALE SECONDARY SCH 68.00 54.22 4.84 BD-PA-9559 C23930 1992 GOB TECHNICAL ASSISTANCE 25.00 13.32 3.70 BD-PA-9560 C28220 1996 GOB NON-FORMAL EDUCATION 10.50 10.25 0.33 TOTAL 0.00 2412.00 100.58 1351.77 678.06 Active Loans Closed Loans Total Total disbursed (IBRD and IDA) 1034.14 4456.15 5490.29 Of which repaid 0.00 257.65 257.65 Total now held by IBRD and IDA 2311.43 3972.42 6283.85 Amount sold 0.00 0.37 0.37 Of which repaid 0.00 0.37 0.37 Total undisbursed 1351.77 3.32 1355.09 a. Intended disbursements to date minus actual disbursements to date as projected at appraisal. Note: Disbursement data are updated at the end of the first week of the month. Schedule D - 17- Page 2 of 2 Bangladesh - Statement of IFC Investments Committed and Disbursed Portfolio As of September 30, 1996 (In US Dollar Millions) Committed Disbursed EC ' 1IFC I I I I FYApproval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1980 IPDC 0.00 1.05 0.00 0.00 0.00 1.05 0.00 0.00 1983/85 Bata Shoe BD 0.00 0.13 0.00 0.00 0.00 0.13 0.00 0.00 1985/95 IDLC 0.00 0.15 0.00 0.00 0.00 0.15 0.00 0.00 1991 Dynamic Textile 2.28 0.00 0.00 1.77 2.28 0.00 0.00 1.77 Total Portfolio: 2.28 1.33 0.00 1.77 2.28 1.33 0.00 1.77 Approvals Pending Commitment Loan Equity Quasi Partic 1996 ICT-B 0.00 0.00 0.00 0.00 1996 ICT-W 0.00 0.00 0.00 0.00 Total Pending Commitment: 0.00 0.00 0.00 0.00 - 18 - Schedule E Page 1 of 2 Bangladesh at a glance POVERTY and SOCIAL South Low- Bangladesh Asia Income Development diamond' Population mid-1995 (mllons) 119.8 1.243 3.188 GNP per capita 1996 (USS) 240 350 460 Life expectancy GtLP 1995 (bilians (155) 28.6 435 1,466 Average annual growth, 1990-85 Population (%1 1.6 19 1.8 GNP Gross Labor force (%) 2.7 2.4 19 per "y primary Most recent estimate flatest year available since 1989) capita enfollmen[ Povety: headcount Inder (% of poputbon) 48 - . Urban population f% of total population) 18 26 29 Life expectancy at birth (years) 58 61 63 Inftff mortality (per 1,000 Ie bit 79 73 58 Access to sale water Child malnutrition t% of chlde under 5) 84 62 38 Access to safe walert% ofrpopuladon) 84 81 75 Iilteracy (% of population age 15+) 62 50 34 - Bangladesh Gross primary emoltment (% ofschoolage population lit1 98 105 Male 128 110 112 - Low-ncome group Female 105 87 98 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1975 1985 1994 18 Economic ratlos* GOP (bilons USS) 143 15.7 25.8 291 Gross domeshe investmentlGDP 6.1 12.9 154 16.8 Exports of goods and non-factor servicea/GDP 2.9 7.4 11.9 14 2 Openness of economy Gross domesic savngs/GDP 09 2.0 9.1 8.3 Gross national savingsjGDP 1.1 4.5 13.8 13.1 Current account balanceGDP -7.0 -8.4 -1.8 -35 Interest payments/GDP 0.1 0.6 0.8 0.7 Savings . Investment Total debtiGDP 12.9 46.5 64-3 583 Total debt servicelexporls 23.3 22.7 152 12.4 Present value of debt/GDP .. .. 32.5 Present value of cebtlexports .. -- 195.7 Indebtedness 1975-84 1985-95 1994 1995 1996-04 (average annual growth) - Bangladesn GOP 4,9 4.1 4.2 47 4.8 GNP per capda 2.3 2.1 2.8 2.6 25 -Low-incoegroup Exports of goods and tf 6.8 10.2 4.1 301 8.4 STRUCTURE of the ECONOMY (% of GDP) 1975 1985 1994 1995 Growth rates of output and Investment (%) Agriculture 62.0 41.8 29.7 30.9 20 Industry 11.6 16.0 17.7 17.6 Manufacturing 7.0 9.9 9.8 9.6 o Services 26.4 42.3 52.6 51.5 o . . Private consumption 95.9 90.6 76.6 77.9 -10 General government consumption 3.2 7.3 14.3 13.7 GOI GDP Imports of goods and non-factor services 8.1 18.3 18.2 22.5 1976-84 1985-95 1994 1996 (average annual growth) Growth rates of exports and Imports (%) Agriculture 3.5 2.2 0.3 -1.0 40 Industry 4.7 6.2 7.8 8.4 Manufacturing 3.1 5.5 7.8 8.6 m Services 6.5 5.0 5.8 6.9 Private consumption .. .. 5.1 14.2 0 General government consumption .. .. 8.3 1.0 g 02 93 94 5 Gross domestic investment 9.5 3.4 16.7 3.1 -2 I Imports of goods and non-factor services 7.9 2.8 0.9 34.1 Exports -0-Imports Gross national product 4.8 4.2 4.7 4.5 1 Note: 1995 data are preliminary estimates. The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. Schedule E - 19 - Page 2 of 2 Bangladesh PRICES and GOVERNMENT FINANCE 1975 1985 1994 1996 Domestic prices Inflation (%) (% change) is Consumer prices 21.9 10.7 1.8 5.2 10 Implicit GDP deflator .. 11.1 4.3 9.7 Government finance (% of GDP) a Current revenue .. 8.5 12.2 12.1 9s 9 Current budget balance 1.3 6.1 6.4 GOP dot. CPl Overall surplus/deficit -9.1 -6.0 -6.8 TRADE 1975 1985 1994 1996 (millions USS) Export and Import levels (miff. USS) Total exports (fob) .. 940 2.534 3,473 6,000 Other agriculture .. 151 57 Shrimp, fish and froglegs .. 70 211 306 Manufactures .. 506 1,737 2,356 4,ooo Total imports (cif) .. 2,647 4,191 5,834 Food .. 601 131 500 2.000 Fuel and energy .. 359 323 407 Capital goods .. 691 1,300 1,303 a . . , , Export price index (1987=100) .. 74 101 .s .0 91 92 93 94 95 Import price index (1987=100) .. 104 101 . 0 Exports 0 Imports Terms of trade (1987-100) .. 71 99 BALANCE of PAYMENTS 1975 1985 1994 1996 (millions USS) Current account balance to GDP ratio (%) Exports of goods and non-factor services 427 1,162 3,057 4,130 o Imports of goods and non-factor services 1,459 2.864 4,693 6,545 as o 53 a 5 Resource balance -1,033 -1,702 -1,636 -2,415 -2 Net factor income -6 -90 -30 -41 Net current transfers 35 477 1,247 1,426 - Current account balance, before official transfers -1.003 -1,314 -420 -1,030 Lj Financing items (net) 1.048 1,237 1,045 1.304 Changes in net reserves -45 77 -625 -274 -a Memo: Reserves including gold (mill. US$) 148 356 2,852 3,070 Conversion rate (local/USS) 8.9 26.0 40.0 40.2 EXTERNAL DEBT and RESOURCE FLOWS 1975 1985 1994 1996 (millions USS) Composition of total debt, 1995 (mill. US$) Total debt outstanding and disbursed 1,841 7,278 16,569 16,974 IBRO 55 55 58 55 F G A IDA 295 2,021 5,378 5,638 251 210 55 Total debt service 104 360 653 679 B IBRD 0 3 7 8 5638 IDA 2 22 71 83 E Composition of net resource flows 6156 Official grants 315 472 759 800 Official creditors 576 603 730 445 Private creditors -3 -3 -11 0 C Foreign direct investment 0 0 11 125 622 Portfolio equity 0 0 47 22 D 4042 World Bank program Commitments 205 398 597 356 A - IBRD E - Bilateral Disbursements 91 288 412 197 B - IDA 0 - Other multilateral F - Private Principal repayments 0 6 37 46 C . IMF G - Short-term Net flows 91 282 375 151 Interest payments 1 20 43 46 Net transfers 90 262 332 105 International Economics Department 8/20/96  г о � � ш и а а �  又   N Td GlN T 9 i