Document of The World Bank S 4 - f£>\ FOR OFFICIAL USE ONLY Report No. 4007-ME MEXICO THIRD MEDIUM-SIZE CITIES AND SINALOA STATE WATER PROJECT April 19, 1983 Projects Department 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 Currency Unit = Peso Since December 20, 1982, Mexico has the following exchange rates: (i) a sliding controlled rate for priority imports, most exports and serv- ice payments on foreign debt; this was set at 95.0 pesos per dollar on December 20 and was about 104.0 on March 15, 1983; and (ii) a free exchange rate for all other transactions; in recent days the free peso has been trading around 150 per dollar. MEASURES 1 mm = milimeter = 0.04 inches 1 cm = centimeter = 0.39 inches 1 m = meter = 3.28 feet 1 km = kilometer = 0.62 miles 1 1 = liter = 0.26 US gallons 1 m3 = cubic meter = 264 US gallons 1 m3/sec = cubic meter = 22.82 MGD = per second million US gallons per day ABBREVIATIONS AND ACRONYMS BC Companies = Beneficiary Cities Water Supply and Sewerage Companies BANOBRAS = National Bank for Public Works (Banco Nacional de Obras y Servicios Publicos S.A.) CEAPAS = Sinaloa Water Board (Comision Estatal de Agua Potable y Alcantarillado de Sinaloa) DIGESAPA = General Directorate for Water Supply and Sewerage Systems for Urban Areas (Direccion General de Sistemas de Agua Potable y Alcantarillado) FIFAPA = Investment Fund for Water Supply and Sewerage Works - (Fondo de Inversiones Financieras para Agua Potable y Alcantarillado) FOR OFFICIAL USE ONLY - ii - ICB = International Competitive Bidding IRR Incremental Rate of Return SAHOP Secretariat of luman Settlements and Public Works (Secretaria de Asentamientos Humanos y Obras Publicos) SEDUE= Secretariat of Human Settlements and Ecology (Secretaria de Desarrollo Urbano y Ecologia) SHCP Secretariat of Finances (Secretaria de Hacienda y Credito Publico) SPP Secretariat of Programming and Budgeting (Secretaria de Programacion y Presupuesto) UNDP United Nations Development Programme VAT Value Added Tax GOVERNMENT OF MEXICO FISCAL YEAR January 1 - December 31 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. - iii - MEXICO STAFF APPRAISAL REPORT THIRD MEDIUM SIZE CITIES AND SINALOA STATE WATER PROJECT Table of Contents Page No. I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . 1 II. THE SECTOR . . . . . S . R . . . . . . . . . . . . . . . 1 Population . . . . . . . . . . . . . . . . . . . . . . . 1 Water Resources. . . . . . . . . . . . . . . . . . . . . 1 Health Situation . . . . . . . . . . . . . . . . . . . . 2 Sector Objectives. . . . . . . . . . . . . . . . . . . . 2 Sector Organization. . . . . . . . . . . . . . . . . . . 2 Service Levels and Quality . . . . . . . . . . . . . . . 3 Manpower Aspects . . . . . . . . . . . . . . . . . . . . 4 Past Sector Investments .. 4 Review of Previous Bank Loans. . . . . . . . . . . . . . 4 Future Bank Role in the Sector . . . . . . . . . . . . . 5 III. THE BORROWER AND EXECUTING AGENCY. . . . . . . . . . . . 5 The Borrower (BANOBRAS). . . . . . . . . . . . . . . . . 5 FIFAPA Trust Fund. . . . . . . . . . . . . . . . . . . . 6 The Executing Agency (SEDUE) . . . . . . . . . . . . . . 7 IV. THE BENEFICIARIES. . . . . . . . . . . . . . . . . . . . 8 General. . . . . . . . . . . . . . . . . . . . . . . . . 8 The BC Companies . . . . . . . . . . . . . . . . . . . . 8 CEAPAS . . . . . . . . . . . . . . . . . . . . . . . . . 9 Regional Companies. 9 Accounting .10 Accounts Receivable. . . . . . . . . . . . . . . . . . . 10 Audit. . . . . . . . . . . . . . . . . . . . . . . . . . 10 Tariffs. . . . . . . . . . . . . . . . . . . . . . . . . 10 V. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . 11 Introduction . . . . . . . . . . . . . . . . . . . . . . 11 Objectives . . . . . . . . . . . . . . . . . . . . . . . 11 This report is based on the findings of an appraisal mission which visited Mexico from March 9 to 28, 1982. The mission was composed of Messrs. L. Pereira, FNA; J. Culagovski, Economist; Ms. Lea Yacub, EGR; and Mr. L. F. Correa, CONS and a post-appraisal mission from February 13 to 25, composed by Mr. Rene Costa, Division Chief, Ms. Lea Yacub, EGR; and Mr. Jorge Infante, CONS. - iv - Page No. Descriptio n . . . . . . . . . . . . . . . . . . . . . . . 12 Priority and Selection Criteria. . . . . . . . . .14 Technological Alternatives and Service Standards . . . . 15 Status of Project Preparation. . . . . . . . 15 Cost Estimates . . . . . . . . . . . . . . .. . . 15 Implementation . . . . . . . . . . . . . . . . . . . . . 17 Supervision . . . . . . .. . . . . . . . . . . . . . . . 17 Procurement.... . . . .4 . . . . . . . . 18 Disbursement . . . . . . . . . . . . . . . . . ,. 18 Environmental Aspects. . . . . . . . . . . . . . 19 VI. FINANCIAL ASPECTS. . . . . . . . . . . . . . . . . 20 BANOBRAS-Financlal Performance . . . . . . . . . . 20 Subborrowers' Financial Performance. . . . . . . . . 20 Financing Plan . . . . . . . . . . . . . . . . . . 22 Revenues . . . . . . . . . . . . . . . . . . . . . . . . 23 Subloan Agreement. . . . . . . . . . . . . . . . o 23 Future Ffnances of Beneficiaries . . . . . . . . . . . . 24 Reporting Requirements . . . . . . . . . . . . . . . . . 25 VII. ECONOMIC AND SOCIAL ANALYSIS . . . . . . . . . . . 25 Introduction . . . . . . . . . . . . . . . . . 25 Least-Cost Solution. . . . . . . . . . . . . . . . . . . 26 Population Benefitted and Urban Poverty Impact . . . . 26 Return on Investment and Marginal Costs. . . . . . . 26 Project Sensitivity and Risks. . . . . . . . . . . . . . 28 IX. AGREEMENTS REACHED AND RECOMMENDATIONS . . . . . . . . . 29 List of Tables 5.1 Project Cost. . . . . . . . . . . . . . . . . . . . . 16 5.2 Categories of Disbursement. . . . . . . . . . . . . . 19 6.1 Project Financing Plan 1983-88. . . . . . . . . . . . 22 7.1 Incremental Rate of Return. . . . . . . . . . . . . . 27 List of Annexes 1. Mexico Population Distributed by State. . . . . . . . . . . 32 2. Water and Sewerage Service Levels in Mexico . . . . . . . . 34 3. Organization Chart. . . . . . . . . . . . . . . . . . . . . 35 4. State Water and Sewerage Board (CEAPAS) . . . . . . .. 36 5. Institutional Overview of Regional Companies. . . . . . . . 40 6. Main Characteristics of Water and Sewerage Services in Appraised Cities (1981). . . . . . . . . . . . .41 -v - Page No. 7. Population and Demand Projections . . . . . . . . . . . . . 42 8. Suggested Terms of Reference for the Institutional Development Program . . . . . . . . . . . . . . . . . . . 43 9. Detailed Cost Table - Sinaloa State Water Company . . . 49 10. Detailed Cost Table - Medium-Size Cities. . . . . . . . . . 54 11. Project Cost Summary.. . . . .... . . . 59 12. Suggested Outline of Terms of Reference for the Health Education Program . . . . . . . . . . . . . . . . . . . . 62 13. Construction Schedule . . . . . . . . . . . . . . . . . . . 65 14. Estimated Schedule of Loan Disbursements . . . . . . . . . 66 15. Consolidated Balance Sheet as of Dececember 31, 1981. . . . 67 16. Appraised Medium-Size Cities Financial Statement as of December 31, 1982 . . . . . . . . . . . . . . . . . . . . 73 17. Appraised CEAPAS Cities Financial Statement as of December 31, 1982 . . . . . . . . . . . . . . . . . . 74 18. Monitoring Indicators . . . . . . . . . . . . . . . . . . 75 19. Summary of Assumptions Used in Financial Projections for Medium-Size Cities and CEAPAS Regional Companies. . . . 76 20. Financial Plan (1983-1989) . . . . . . . . . . . . . . . 78 21. Selected Financial Data - Medium-Size Cities . . . . . . . 79 22. Selected Financial Data-Cities in the State of Sinaloa. . . 80 23. Subsidiary Sub-Loan Agreement . . . . . . . . . . . . . . . 81 24. Incremental Population Served 1983-87-Cities under the Jurisdiction of the State Water Company . . . . . . . . 85 25. Incremental Population Served 1982-86-Medium-Size Cities. . 86 26. Other Projects in Mexico with Bank Financing. . . . . . . . 87 MAPS IBRD - No. 16392 IBRD - No. 16393 MEXICO THIRD MEDIUM SIZE CITIES AND SINALOA STATE WATER PROJECT STAFF APPRAISAL REPORT I. INTRODUCTION 1.01 The Government of Mexico has requested the continuation of Bank financial assistance for the expansion and improvement of water supply and sewerage systems in a number of medium-size cities. The project was pre- pared by the new Secretariat of Human Settlements and Ecology (SEDUE) with Bank assistance. The total cost of the project is estimated at US$193 mil- lion equivalent; a Bank Loan of US$100.3 million is recommended to finance the foreign exchange component and front-end fee. The Borrower will be the National Bank for Public Works (BANOBRAS), and the Executing Agency will be SEDUE. As in the two previous Bank-financed operations with BANOBRAS, beneficiaries will be autonomous state- or municipality-owned water supply and sewerage companies. A special feature of the proposed project would be a pilot program for the State Water Board of the State of Sinaloa (CEAPAS). Bank and Government funds will be onlent to beneficiary cities through the FIFAPA trust fund administered by BANOBRAS. The works to be financed are scheduled for construction during 1984-89. II. THE SECTOR Population 2.01 The 1980 population of Mexicol/ was 67.4 million (Annex 1), of which 44.6 million or 66.2% lived in urban centers and 22.8 million in rural areas. Population growth has declined from 3.5% p.a. in the 1960s to 2.6% p.a. at present. This decrease has been the result of an aggressive family planning program launched by the government in 1972 with the ambi- tious goal of reducing population growth to 1% p.a. by the year 2000. 2.02 The problems that rapid population growth has created for the provision of public services are compounded by uneven geographic distribu- tion. Twenty percent of the total population lives in the congested Mexico City metropolitan area, and the other 80% is scattered among almost 100,000 localities. The percentage of urban population is expected to increase from 66% of total population in 1980 to about 80% in 2000. Water Resources 2.03 Mexico has water resource limitations. Rainfall ranges from 100 mm per year in dry areas to 5,000 mm in the tropical low lands. About 82% of Mexico's surface water resources are found below 500 m of elevation, but 76% of the population is located and 80% of the industrial output is pro- duced above this level. 1/ Preliminary information, 1980 census. -2- Health Situation 2.04 Reporting of national health statistics has improved in recent years; reporting in rural areas remains less accurate than in urban zones because of dispersion of the population, difficult communications, and lack of health services. The mortality rate for enteritis and other diarrheal diseases in 1979 was 72.5 per 100,000 inhabitants,2/ compared with 119 per 100,000 in 1963. Mortality rates from these diseases, however, was still the second most common cause of death in 1981e Of all waterborne and sani- tation-associated diseases, enteric infections and diseases account for the highest mortality rate in Mexico. In contrast to tne declining mortality rate, the combined morbidity rate for diarrhea, dysentery and salmonellosis rose from 3,250 per 100,000 inhabitants in 1963 to 5,424 per 100,000 inha- bitants in 1981.3/ Sector Objectives 2.05 The Government's sector objectives are: (a) to reduce mortality and morbidity from enteric and diarrheal diseases, a principal cause of illness and death in tne country; (b) to accelerate infrastructure develop- ment required for balanced urban development and to stimulate economic growth in specific urban centers in order to direct urban population away from the largest cities; (c) to substantially improve the social and health conditions of the urban and rural poor; and (d) to reduce environmental de- gradation through control of discharges into receiving waters. 2.06 The Government's specific water supply and sanitation obiectives are to provide, by the year 2000, 95% of the urban and 70% of the rural po- pulation with piped water, and 80% of the urban and 42% of the rural popu- lation with sewerage or sanitation services. The intermediate targets for 1990 are to provide potable water to an additional population of 27.8 mil- lion in urban centers other than the Mexico City metropolitan area and to 3.8 million additional people in rural areas. The estimated investment program for the period 1983-90 necessary to achieve the Government's goals would be US$3.4 billion in 1980 prices for urban areas and US$3.8 billion for rural areas. Sixty percent of urban and 70% of the rural investment would be dedicated to rehabilitation works. The proposed investment pro- gram would more than double the past decade's annual investment in water supply and sanitation services outside the Mexico City metropolitan area. The Government's goals may have to be revised in accordance with the pre- sent economic situation. Sector Organization National Level 2.07 During the previous administration, the Secretariat of Human Settlements and Public Works (SAHOP) was in charge of the planning, con- struction. supervision, operation and maintenance of water and sewerage systems in urban centers other than Mexico City and in rural areas. In 2/ For selected countries in Latin America mortality rates in 1979 per 100,000 inhabitants were: Peru 44.6; Venezuela 38.2; anjd Argentina 20. 3/ Health statistics are available in Project File. December 1982, the new Administrative Law reorganized some Secretariats. SAHOP was abolished and SEDUE was created. The new Secretariat is now re- sponsible for the planning and supervision of all water supply and sewerage systems in the country, except for those in Mexico City. Operation and maintenance will continue to be the responsibility of autonomous state-or municipality-owned companies. Reponsibility for construction has been legally transferred to the states. Because of the states' lack of experi- ence, however, SEDUE will provide technical assistance to the beneficiaries in discharging their new responsibilities. Since many states are not pre- pared to assume the construction function at this time, SEDUE will continue to be responsible for construction. However, SEDUE may assign this responsibility to the beneficiaries (para. 3.08). State and Local Level 2.08 All the states have created state water and sewerage companies to operate and maintain the systems transferred to them by SAHOP in November 1980. The scope of responsibilities entrusted to these new companies ranges from those with state-wide responsibilities to those responsible for a single system only. Some local water supply and sewerage systems have not yet been established as autonomous entities and continue to be operated by the municipal departments in charge of these services. Service Levels and Quality 2.09 Service levels for 1981 have been estimated on the basis of data provided by SEDUE and by extrapolation of preliminary 1980 census data. The percentage of total population with access to water supply systems has increased from 49% in 1970 to 58% in 1981. Sewerage service levels in- creased during the same period from 37% to 38%. An estimated 29.8 million people (17 million in urban areas) remain without access to water supply systems, while 43.3 million people (21 million in urban areas) lack access to sewerage facilities (Annex 2). Service levels in the Mexico City metro- politan area are estimated at 91% for water and 80% for sewerage. 2.10 Water service coverage through house connections in urban areas other than Mexico City has decreased from 65% in 1970 to 55% in 1981,4/ and sewerage service levels have decreased from 55% to about 43% over the same period. These decreases were offset by increases in access to water services from 21% in 1970 to 51% in 1981 (44% through house connections and the remainder by public standpipes) in rural areas. Rural sewerage service levels increased during the same period from 4% to 13%. These changes in service levels stemmed from heavy investments made in rural areas and high rates of migration from low-income rural areas to urban areas which infra- structure was inadequate to accommodate the new arrivals. 2.11 Quality of service is deficient, and many systems are not oper- ated and maintained properly. In 1979, SAHOP carried out a pilot survey in the state of Tlaxcala to assess the quality of existing services. The re- sults indicated that: (a) only 16% of the urban systems met the national water quality standards; (b) 51% of the urban systems had intermittent 4/ In 1978 service levels by house connections in selected Latin American countries were: Colombia: 61% water and 42% sewerage; Peru: 34% water and 34% sewerage. - 4 - service; and (c) 13% of the rural systems met the water quality standards. SEDUE has estimated that 40% of- the urban systems and 70% of the rural sys- tems need urgent rehabilitation. The level of unaccounted-for water is high (currently estimated between 30-50%). A program for metering and leak detection is included in the proposed project and will benefit the benefi- ciaries of FIFAPA l(para. 6.12). Manpower Aspects 2.12 In 1981, about 60,000 people were working in the sector. Manage- ment of the local systems and operation and maintenance of services suffer most from lack of funds and skilled staff. Engineers are generally well trained, but management and analysis of projects have been inadequate be- cause of lack of qualified managerial, financial and economic staff. To improve this situation SAHOP initiated in 1976 an ambitious National Train- ing Program. Since then about 4,000 participants received training through 53 courses given in different regions of the country. SEDUE will continue carrying out the National Training Program with particular emphasis to the specific needs of each beneficiary (para. 8.01(1)(b)(i)). Another program is in progress to train administrative and technical personnel of cities under the FIFAPA scheme. Loan 1186-ME includes US$200,000 to partially finance its cost. SEDUE will be responsible for its implementation. The proposed loan would further enhance training activities (paras. 5.03, 5.04 and 5.09). Past Sector Investments 2.13 During 1974-80, annual investments in the sector totaled Mex$8 billion (US$320 million in 1980 prices). Investments in rural areas in- creased from 34% to 50% of total sector investments in 1977-80. On aver- age, Federal funds financed 50% of total sector investment. These funds were provided in the form of grants or loans. Most loars were interest free with repayment periods of 10-20 years. In practice, however, most of the loans were not repaid. 2.14 BANOBRAS is an exception to the grant pattern (para. 3.01). Its Trust Fund for Water Supply and Sewerage Works (FIFAPA, para. 3.03) is be- ing supported by Loans 1186-ME and 1913-ME, and would receive financing under the proposed project. FIFAPA has financed so far 7.2% of total sec- tor investments. Under the present financial difficulties the Government's policy is to reduce net public outlays. FIFAPA will be used to introduce on a large scale the concept of cost recovery in water supply and sewerage projects. Therefore, it is expected that FIFAPA share of sector financing will be increased to about 80% during the forthcoming year. Review of Previous Bank Loans 2.15 The Bank has been assisting Mexico with the implementation of water supply and sewerage projects since 1973. It helped finance: (a) a US$155 million bulk water supply project for the Mexico City metropolitan area (Loan 909-ME, signed in June 1973, US$90 million); (b) a US$100 mil- lion water supply and sewerage project for medium-size cities (Loan - 5 - 1186-ME, signed in January 1976, US$40 million); and (c) a US$297 million water supply and sewerage project for medium-size cities (Loan 1913-ME, signed in November 1980, US$125 million). The project under Loan 909-ME has been completed; it encountered delays because of inadequate project preparation and institutional problems, US$11.8 million of the Loan was cancelled because of changes in project scope. A PCR for this project was issued on July 1982. In addition, the Bank has participated in the financ- ing of water supply and sewerage components under several other projects in the tourism, urban and rural development sectors (Annex 26). 2.16 As of April 15, 1983, seventy four percent (US$29.6 million) of Loan 1186-ME and sixteen percent (US$19.9 million) of Loan 1913-ME has been disbursed, and all funds for both loans are fully committed. Financial and operating performance of beneficiary water and sewerage companies has been largely satisfactory. Tariff increases required for 1983 to comply with loan covenants have already been approved in all but four of the benefi- ciary cities under Loans 1186-ME and 1913-ME. Taking into consideration the present economic situation of the country and the high rate of infla- tion, the early compliance with tariff increases in the majority of cities is satisfactory and demonstrates the willingness of the beneficiary cities to continue to increase tariffs that would give them financial self- sufficiency. Future Bank Role in the Sector 2.17 Bank's participation in the sector would continue to promote the implementation of national financial policies and the establishment of state organizations able to tackle urban basic needs. This is expected to be achieved through continous Bank support to the FIFAPA scheme which should permit sector lending in the forthcoming years. Technical assist- ance to the executing agency, introduction of low-cost technologies and ac- celeration of provision of basic services to the low-income population of Mexico's largest urban areas would be the cornerstone of this strategy. Growing emphasis would also be given to pollution control, solid waste dis- posal and rural water supply and sanitation, as the objectives in medium- size cities and State Water Companies are progressively achieved. Sector work in these areas is scheduled for FY85. III. THE BORROWER AND THE EXECUTING AGENCY The Borrower (BANOBRAS) 3.01 The Borrower will be BANOBRAS, the Borrower in the first and se- cond Bank-financed water supply and sewerage project for medium-size cities (Loans 1186-ME and 1913-ME). BANOBRAS is a public development bank, and a financial agent of the Federal Government. It obtains its funds from the Mexican Government and in the international market. BANOBRAS operates several trust funds, each corresponding to a specific investment program, in sanitation, urban development, market places, state and municipal gov- ernments and other agencies. According to BANOBRAS' Organizational Law, - 6 - the Federal Government controls its policies and supervises its borrowing and lending activities. The Secretariat of Finances (SHCP) has veto power over the resolutions of BANOBRAS' Board of Directors and approves BANOBRAS' yearly budget. BANOBRAS is authorized to carry out such other functions related to its credit activities as may be approved by SHCP. BANOBRAS is legally empowered to act as a Bank Borrower. 3.02 BANOBRAS finances water and sewerage works through three dif- ferent lending windows at different rates. While its normal credits carry interest rates of 6 to 15% less than the ACF (CpP)5/ BANOBRAS' soft-loan window, the Municipal Development Fund (Fondo Fiduciario Federal de Fomento Municipal) lends at 5% p.a. and FIFAPA (the water supply and sewerage fund) lends at 15% p.a. FIFAPA is partially funded by the Bank through Loans 1186-ME and 1913-ME and would serve as the channel for the proposed Loan. FTFAPA Trust Fund 3.03 In 1975, the Mexican Government established FIFAPA as a revolving investment fund, under BANOBRAS, to finance water and sewerage invest- ments, The Government has used the fund to progressively replace the Federal contribution to investments in cities with population over 50,000. With the proposed project, FIFAPA will continue to finance projects in medium-size cities (para. 4.01 (a)) but will also include cities under the jurisdiction of CEAPAS with population over 5,000 (para. 4.Oi (b)). 3.04 For Loans 1186-ME and 1913-ME FIFAPA's equity capital was raised to an amount equal to the sum of the Bank loans and Government counterpart funds. The Mexican Government considers that the US$600 million already capitalized gives a good capital base to the Fund. Accordingly, the Gov- ernment has decided that additional capitalization of the Fund might be limited to the Bank loan. If the general economic condition of the country permits, the Government will continue capitalizing the counterpart funds. Agreement was reached with the Government that FIFAPA's capital will be in- creased at least in an amount equivalent to US$100 mill-on equal to the Bank loan. Compliance wiEth this requirement will be a condition of ef- fectiveness of the proposed Loan (para. 8.02(a)). 3.05 FIFAPA will relend the proceeds of the Bank Loan and Government counterpart funds to the BC Companies and to CEAPAS which, in turn, will relend the funds to the Regional Companies under the same terms and condi- tions of FIFAPA loans (para. 4.01). Disbursements to contractors and sup- pliers will be made by FIFAPA, after certification of payment has been given by SEDUE. FIFAPA will also be responsible for the timely collection of debt service payments from the BC Companies and CEAPASa in order to re- flect the Government investment policies for the sector which call for a progressive improvement of the terms used in FIFAPA operations, FIFAPA's onlending interest rates were increased from 15% to 25%. The final matu- rity of the loans would be 15 years after a grace period equal to the con- struction period (3 to 4 years) (para. 6.12). 5/ ACF is the average cost of term funds for multipurpose banks over a twelve-month period. 3.06 Although the 25% minimum rate is lower than the cost of capital in Mexico, and negative at current rates of inflation,6/ a higher rate would result in increased pressure from local authorities for interest-free Federal Government funds. Moreover, the new onlending rate would compare well with the medium-term inflation rate of 20% estimated for 1986 on. Efficiency in resource allocation would be ensured by the selection cri- teria of subprojects financed under the proposed Loan (para. 5.10). Sub- loan agreements include revenue covenants stipulating that tariffs will cover the full cost of services and will be based for all beneficiaries on net fixed assets revalued at a rate equal to 100% of the price index pub- lished by the Bank of Mexico (85% of the index was used in Loans 1186-ME and 1913-ME) (para. 6.12). Finally, distortion in investment decisions or in financial management of local institutions would be avoided by ensuring that: (a) the least cost alternative is selected; (b) while consumers in the lower income brackets receive the benefit of the subsidies that might be implied in the onlending rate and water charges for basic volume con- sumption are kept at levels affordable to the poor, all consumption above this basic volume is charged at above the long range average incremental cost of the services. The increase of the onlending rate to 25% and the new base for revaluation of assets are positive steps toward a more ra- tional financial policy in the sector. 3.07 Compliance with the external audit requirement under Loans 1186-ME and 1913-ME has been satisfactory. FIFAPA's 1981 financial state- ments were audited by the international firm of Ernst and Whinney-Despacho Freyssinier Morin S.C.. The 1982 financial statements are being audited. FIFAPA's accounts will continue to be audited each year by independent and qualified auditors, and copies of the annual audit report will be submitted to the Bank no later than six months after the end of each calendar year (para. 8.01(2)). The Executing Agency (SEDUE) 3.08 The executing agency would be SEDUE. The new agency has been or- ganized into three major "Subsecretariats". SEDUE was created under the new Public Administrative Law of December 1982 following the general organ- ization and responsibilities of the former SAHOP. Under the Subsecretariat of Urban Planning, a General Directorate for Water Supply and Sewerage (DIGESAPA) is being organized (Annex 3), which among other things will be responsible for: (i) planning of national policies in the water and sewer- age sector in the country (with the exception of Mexico City); (ii) promot- ing a better sector strategy for the medium- and long-term coordination of all actions by the States or Municipalities that would affect the sector; (iii) promoting technical assistance to the States and municipalities; and (iv) supervising the construction of all subprojects. According to the National Administrative Law, SEDUE may assign the obligation to carry out the construction of a subproject to any beneficiary. The Government agreed during negotiations that SEDUE will make this selection in accordance with technical and administrative criteria satisfactory to the Bank (para. 6/ The annual average inflation rate in Mexico was 34.6% in 1981, 60% in 1982. Inflation is forecasted at 70% in 1983, 50% in 1984, 30% in 1985 and 20% in 1986 and thereafter. - 8 - 8.01(1)(b)(i)). The obligation of such beneficiary will be duly reflected in their respective Subloan Agreements (para. 6.12). 3.09 The changes introduced in the sector organization will not affect the implementation of the proposed project. On the contrary, they will help setting up uniform sector policies and facilitate the dialogue with State Governments. All qualified managers formerly with SAHOP have been appointed to key positions in DIGESAPA (para. 2.07). Assurances were ob- tained during negotiations that DIGASAPA is properly staffed with qualified professionals and that it will be responsible for the supervision of the construction of all projects under FIFAPA (para. 8.01(1)). IV. THE BENEFICIARIES General 4.01 The beneficiaries of the proposed loan will be: (a) a group of medium-size cities similar to those benefitting from Loans 1186-ME and 1913-ME. FIFAPA onlending agreement would require that all beneficiary systems not under CEAPAS be organized as autonomous municipal water companies (BC Companies) (para. 5.10 (b)); and (b) the Sinaloa Water Board (CEAPAS), an autonomous agency of the State of Sinaloa that regulates and coordinates the activities of the five semi-autonomous regional water and sewerage companies (Regional Companies) (para. 4.04). It is expected that the experience with CEAPAS, if successful, will be re- plicated in other states. The BC Companies 4.02 All the BC companies manage their own assets and funds, and would have independent Boards of Directors. Generally, the Board of Directors has five members: one appointed by SEDUE, one by the State Governor, one by the Municipal Council and two by representative groups from industrial, commercial or consumer organizations. 4.03 Most of the BC Companies appraised share the following similar problems: (a) lack of competent senior staff; (b) poorly trained interme- diate level staff; (c) inadequate operational and maintenance practices, as reflected mainly in a high percentage of water losses and deficient meter- ing; (d) lack of clear financial objectives and tariff policies; and (e) inadequate management information systems. SEDUE is well aware of these shortcomings. During negotiations, assurances were obtained from SEDUE that the training program already devised by SAHOP and the institutional development programs established under Loan 1186-ME (para. 2.12) will be - 9 - implemented in the BC Companies of the proposed project (paras. 5.05 and 8.01(1)(b)(ii)). CEAPAS 4.04 The legal framework for water supply and sewerage activities in the State of Sinaloa was set up by Decree of August 21, 1981 (Summary of the Law in Annex 4). The Decree regulates the function of the State Advi- sory Board, the Sinaloa Water Board and the Regional Water and Sewerage Companies, and defines the relation of entities with the State Public Works Department and the municipalities. CEAPAS, organized in September 1981, is an autonomous public entity. It is governed by a Board of Directors inte- grated by the Governor and a representative of the State Congress, the municipalities, and several trade and labor organizations within the State. CEAPAS acts as a regulating and coordinating authority. CEAPAS controls the activities of the five semi-autonomous Regional Companies that own and eventually will operate all water and sewerage systems in the State. Its responsibilities are to establish investment priorities to ne- gotiate the financing of investment for water and sewerage projects, to prepare proposals for the approval of the State Congress of tariff and to monitor the Regional Companies' operations (para. 6.12). 4.05 CEAPAS lacks experience and competent staff to properly carry out its functions. Insufficient attention has been paid by the state authori- ties to define the organizational and operational systems best suited to CEAPAS' responsibilities. The proposed project will provide funds for con- sultant services to study the situation and to develop and implement the best fitted organization and systems (para. 5.05). Regional Companies 4.06 Three of the five Regional Companies (Rio Humaya, Rio Fuerte and Rio Baluarte) have been incorporated into CEAPAS. The other two Regional Companies (Rio Evora and Rio Sinaloa) are still in the process of incorpo- ration. As a condition of disbursement of loan proceeds to CEAPAS, the five Regional Companies should have been incorporated to CEAPAS, their or- ganization set up and key personnel appointed (para. 8.04(c)). 4.07 Less than 40% of Sinaloa's water supply and sewerage systems are managed by the Regional Companies. The integrated systems are, the largest systems of the main cities (para. 6.06). The general objective of CEAPAS is that all systems should be under their corresponding Regional Companies by 1986. 4.08 The Regional Companies will be more complex to manage than Bank project beneficiaries in medium-size cities. In addition to the many sys- tems they would have to administer, they will be confronted with an acute shortage of qualified professionals and a higher than average population growth in the larger urban centers which have become important market places due to the states' well diversified agriculture and general dynamic economic characteristics. - 10 - 4.09 CEAPAS has begun to organize all Regional Companies with stand- ardized structures and procedures. The typical organization comprises three departments: operations and maintenance, commercial activities, and accounting and administration. Currently, these simple organizational features are considered adequate because of the yet limited number of sys- tems under the Regional Companies' management, and because SEDUE would be responsible, for the time being, for most project construction activities. Organizational improvements would, however, be necessary in time as the Regional Companies take over responsibilities for all systems. The pro- posed project aims at improving the organization and capabilities of the Companies through the provision of an extended institutional building pro- gram (paras. 5.04-5.05). An institutional overview of each Regional Com- pany is summarized in Annex 5. Accounting 4.10 All BC Companies, CEAPAS and its Regional Companies have cash ac- counting systems which do not permit the preparation of acceptable finan- cial statements. Their accounting methods, procedures and policies, are not satisfactory. Fixed assets are not properly kept, depreciated, or re- valued. Some BC Companies do not have separate accounts for water and sewerage services. Cost accounting methods do not segregate costs by type of service. The subloan agreement contemplates measures to be taken to correct this situation (para. 6.12). Accounts Receivable 4.11 All BC and Regional Companies have serious problems with their accounts receivable. They are recorded inaccurately, a large proportion is estimated to be old or seemingly incollectable, and no allowance for doubt- ful accounts is generally made. Audit 4.12 State or municipal authorities audit all the appraised BC Compa- nies every two years. Because CEAPAS was formed so recently, neither it nor its Regional Companies have been audited. Audit procedures are far from satisfactory. Under each subloan agreement the BC Company or the Re- gional Company concerned would be required to have its accounts audited every year by independent auditors satisfactory to BANOBRAS/SEDUE (para. 6.12). Such audit reports and its supplementary letter will be available to the Bank for review. A similar requirement was included in Loan 1186-MF and performance has been satisfactory. Tariffs 4.13 The BC Companies and CEAPAS do not have the power to set tariffs, as this right rests with the congresses of the states. On the premise that water is a social good, tariffs have often been left unchanged for many years. A major contribution of FIFAPA would be the introduction of annual reviews of tarif£E levels against clearly specified financial criteria - 11 - (para. 6.12). With regard to structure, tariffs and other charges gener- ally do not reflect the real cost of the services to the Companies. To correct this situation, a national water supply and tariff study which will serve as a framework to design and implement tariff structures and levels in medium-size cities, has been completed, subject to the final comments from the Bank. SEDUE, within the framework recommended by the national tariff study will carry out in each one of the BC and Regional Companies (para. 8.01(1) a specific tariff study not later than six months after subloan signature. Based on this study, each BC or Regional Company would develop and implement a specific tariff structure satisfactory to BANOBRAS and the Bank six months after subloan signature (para. 6.12). V. THE PROJECT Introduction 5.01 The project is a follow-up of previous Bank operations in the water supply and sewerage sector in Mexico. The beneficiaries under pre- vious loans were limited to autonomous water and sewerage companies in medium-size cities. The Government realized that this scheme was not suited for smaller cities, where autonomous water companies would not be viable. It decided to promote the creation of autonomous state water com- panies to take over the responsibility for all water supply and sewerage systems in each State. This scheme would permit to properly supervise pro- ject implementation, to achieve economies of scale associated with large companies, to decentralize the decision-making process which has been con- centrated in Mexico City and to establish a uniform financial scheme. 5.02 The proposed project will be carried out by SEDUE. Reponsibility for construction will be progressively transferred to State or Municipal Water Companies (para. 3.08). The project consists of three main compo- nents. The first component would support the creation of a pilot state water board in the State of Sinaloa, in charge of the operation and the construction of the urban and rural water supply and sewerage systems in the whole State; and an investment program in selected cities with popula- tion of more than 5,000 inhabitants. The second component will help to im- prove and extend water supply and sewerage systems in medium-size cities outside the State of Sinaloa. The third component will help SEDUE (DIGESAPA) and FIFAPA to improve their performance (para 2.07). It will also finance studies to improve the efficiency of the sector. The main characteristic of water and sewerage services in appraised cities are pre- sented in Annex 6. Objectives 5.03 The objectives of the proposed project will be: (a) to support, through the development of a model state water and sewerage company the government's efforts to decentralize the sector at state level; (b) to pro- mote the development of basic infrastr(ucture in medium-size cities as a - 12 - tool to improve the population distribution in the country and promote in- dustrial growth, in accordance with Government objectives; (c) to improve the environmental and health conditions in medium-size cities through: ex- pansion of water and sewerage services, especially to low-income areas; im- plementation of chlorination programs to provide bacteriologically safe water to the urban population; implementation of leak detection programs; and provision of sewage treatment in cities where pollution problems are more pressing or where downstream water use requires it; (d) to improve the environmental and health conditions of the population of Sinaloa State by assisting CEAPAS in implementing a pilot health education program; (e) to assist DIGESAPA and FIFAPA in the improvement of its efficiency through a technical assistance program and the purchase of operational equipment. Description 5.04 The first component of the proposed project will be executed in the State of Sinaloa and consists of an institutional development program for CEAPAS, construction of water supply and sewerage facilities in commu- nities of more than 5,000 inhabitants, a health education program and the purchase of operation and maintenance equipment for CEAPAS, such as meter repairs, topography equipment, excavators, laboratory leak detection and construction equipment. This component would benefit an estimated popula- tion of 1.5 million people. A schedule of expenditures is presented in Annex 14. This component represents 36% of total project cost. 5.05 An outline of terms of reference for the institutional develop- ment program is presented in Annex 8. The hiring of consultants to carry out this program will be a condition of disbursement for the first compo- nent. SEDUE shall furnish to the Bank not later than June 30, 1985 for its comments, the conclusion of the diagnosis on the institutional development program and by December 31, 1987 a program for its implementation in terms satisfactory to the Bank (para. 8.04(a)). 5.06 The construction program in Sinaloa will be implemented in four cities: Culiacan, Los Mochis, Topolobampo and Mazatlan (Map 16392). The population, services and demand in these cities are presented in Annex 7, and the proposed works, which would benefit an estimated population of 400,000 people, is presented in Annex 9. 5.07 The Health Education Program will promote better sanitation habits among the population. Water supply and sanitation investments usually require the acceptance, utilization and continuous maintenance of new, perhaps unfamiliar, technologies by the community. Collective beha- vioral change is required in order to achieve measurable impact on both in- dlvidual and community health status. This subcomponent of the project consists of design and implementation oE a two-year program including the hiring of consultant services and purchasing of equipment for its implemen- tation. An outline of Terms of Reference for the HIealth Education Program is presented in Annex 12. 5.08 The second component of the proposed project consists of improv- ing water supply and sewerage systems in medium-size cities outside of - 13 - Sinaloa State. The four appraised cities, Celaya, Colima, Cd. Guzman and Tapachula (Map 16393), are representative of the whole component. A de- tailed component scope for each of the appraised cities is presented in Annex 10. In summary, this component, which represents 63.7% of total pro- ject cost, will include: (a) provision of new production facilities and improvement of existing ones to increase capacity to meet demand needs up to 1995; (b) chlorination of all water supplies for bacteriological safety and provision of laboratory equipment to control water quality; (c) construction of transmission pipelines from the new produc- tion facilities to the distribution systems, and of addi- tional storage capacity; (d) extension of the water system to areas without service and improvement of the water distribution system to increase its delivery capacity; (e) installation of new metered house connections and provision of meters for currently unmetered connections to cover 95% of ali connections; (f) purchase and installation of production meters and meter re- pair shops, and implementation of leak detection surveys and leak detection and control programs to reduce unaccounted- for water to about 25% by 1987; (g) construction of sewer interceptors and outfalls to eliminate sewage discharge in populated areas; (h) extension of sewer pipes to areas without sewerage services, including the construction of house discharges; (i) construction of sewage pumping stations, where topographic conditions precltude the use of gravity systems; and (j) construction of sewage treatment plants, where downstream use requires improvement in water quatlity. 5.09 The third component of the proposed project, consists of (a) a program to improve the institutional capacity of DIGESAPA and FIFAPA (para. 3.03, 3.08), especially designed for the Departments responsible for supervising the implementation of the FIFAPA projects, including the pur- chase of operational equipment; (b) studies to further improve the effi- ciency of the water supply and sewerage sector such as pilot programs for metering and control of water quality. To carry out these studies SEDUE will present terms of reference satisfactory to the Bank; and (c) a study - 14 - to review SEDUE's guidelines for project preparation in accordance with terms of reference satisfactory to the Bank. The revision aims at updating technical, financial and economic criteria. This study will be carried out by June 30, 1985 (para. 8.01(1)(b)(vii)). Priority and Selection Criteria 5.10 Subprojects in all beneficiary cities have been selected in ac- cordance with the priorities set forth in the National Urban Development Plan (PNDU). Quality of services, the existence of idle production capa- city allowina increase in coverage by complementary investments and/or the urgent need to rehabilitate existing systems were taken into account in the selection. Because of the large number of subprojects that would be eligi- ble to participate in the project, BANOBRAS/SEDUE will make the selection according to the following criteria (para. 8.01(2)(b)): (a) a feasibility study would be prepared for each proposed sub- project in accordance with SEDUE guidelines for project pre- paration in a manner satisfactory to the Bank and would cor- respond to the least-cost solution; (b) the water supply and sewerage facilities to be improved or expanded under the corresponding subproject shall be oper- ated and maintained by an autonomous water supply and sewer- age company (BC Company) except for cities in the State of Sinaloa (para. 4.01(a)); (c) for subprojects to be carried out in cities with present po- pulations greater than 50,000 inhabitants, the internal rate of return (IRR) should be at least equal to 11% (estimated opportunity cost of capital in Mexico); (d) for subprojects to be carried out in cities with present populations between 10,000 and 50,000 inhabitants, the IRR should be at least equal to 6%;7/ (e) if the IRR of subprojects under (c) and (d) above are lower than required, a subproject would be eligible if the tariffs for both water supply and sewerage for consumption above the minimum levels (15 m3/conn./month) are at least equal to the respective long-run average incremental costs; (f) subproiects to be carried out in cities with populations of less than 10,000 inhabitants should have a per capita con- struction cost for its water and sanitation systems of less than the equivalent of US$200 for each systemn; and 7/ Unit costs per population served are higher than those for cities with populations over 50,000 inhabitants and capacity to pay is generally lower. The lower IRR should still ensure that consumers in these towns pay tariffs similar to those in larger cities. - 15 - (g) subprojects not meeting the criteria set forth in the pre- ceeding literals should be redesigned to lower acceptable standards. If the subproject does not fulfill the criteria after it has been redesigned, it would be eligible for Bank financing, only if quantitative evidence indicates the existence of unusually high mortality or morbidity rates as a consequence of the lack of adequate water and sanitation conditions. 5.11 There is a risk that some of the selected cities might not agree to the onlending conditions (para. 6.12) (Annex 23). They would not be eligible for FIFAPA financing and would be excluded from the proposed pro- ject. In the event that an investment program for any appraised city is fully or partly cancelled, other high priority subprojects could be in- cluded, provided it complies with the above-mentioned criteria, and would be submitted to the Bank no later than December 31, 1984 (para. 8.01(2)(b)). Technological Alternatives and Service Standards 5.12 Under the proposed project appropriate technological alternatives and water and sewerage service standards will be tailored to medium-size or small cities in CEAPAS. Medium-size cities are expected to build con- ventional systems with most consumers served through house connections and waterborne sewerage. In the smaller cities, the lower ability to pay, as well as less exposure to urban standards, require a progressive approach. Initially, the primary objective will be to improve public health. Impro- vements in the quality of service can be made at a later date when the com- munity can afford their costs. This primary health objective can be fully achieved by low cost sanitation technologies, which are much simpler and cheaper than conventional ones. 5.13 In order to ensure that CEAPAS will be able to select the most appropriate technology and standards of service for any given community, the institutional development program will assess the present situation and will determine the way to upgrade the systems according to long-term needs. Status of Project Preparation 5.14 SEDUE prepared twelve feasibility studies, eight of which were appraised. These feasibility studies represents about 60% of total project cost. Their final designs are complete and available in the Project File. Final designs for three additional subprojects are 75% complete and would be called for bid during the first year of project execution. Cost Estimates 5.15 Detailed project costs are presented in Annexes 9, 10 and 11 and are summarized in Table 5.1. The estimated total cost of the project (not including front-end fee) is US$193 million equivalent with a total foreign exchange cost of US$100 million (52%) (Table 5.1). Total project cost is - 16 - exclusive of interest during construction, which would be financed by FIFAPA. Base cost estimates, expressed in prices of December 1982, were based on bills of quantities from those subprojects with advanced engineer- ing designs, and on unit prices from SEDUE's 1982 unit price catalogue. The Bank compared these unit prices with recent bids for similar civil works, materials and equipment in Loan 1913-MF and found them to be sound. 5.16 Physical contingency allowances were estimated on the basis of the type of terrain where the project is to be constructed, climatic condi- tions, access to the site of the works, amount of field work which has been completed, and degree of preparation of final engineering designs. The average allowance was 10% for civil works, 15% for water or sewerage treat- ment plants, and 5% for supplies and equipment. No physical contingency was assumed for consulting services. As 40% of total project cost has not been allocated to specific subprojects, physical contingencies for defined components have been incorporated in their basic costs. Price contingen- cies were based on a six-year construction program for the total project, starting in 1984. Price contingencies for the local component were based on projections of the Mexican price index: 70% in 1983; 50% in 1984, 30% in 1985 and 20% from 1986 until project completion (1989). Price contin- gencies for the foreign component were based on international inflation forecasts of 8% in 1983, 7.5% in 1984, 7% in 1985, and 6% from 1986 to 1989. Variations in the exchange rates were assumed to compensate for the difference between local and international inflation rates. Engineering and administrative expenses were estimated at 7% of the investment cost on the basis of experience obtained during the execution of Loans 1186-ME and 1913-ME. Table 5.1. PROJECT COST _ US$ (Million) Components Local Foreign Total CEAPAS 31.4 32.0 63.4 Medium-Size Cities 55.0 55.0 110.5 Institutional Building Program 2.1 1.0 3.1 Total Basic Cost 88.5 88.5 177.0 Price Contingencies 4.5 11.5 16.0 Total Project Cost 93.0 100.0 193.0 Front-end fee - 0.3 0.3 Interest during const. 8/ - 53.7 53.7 Total financing required 93.0 154.0 247.0 5.17 Final engineering designs, supervision of construction and the institutional development program will require about 1,460 man-months of consultant services, of which only 31 man-months (2%) would be interna- tional. The estimated average cost per man-month for local consultants, 8/ Interest and commitment fees paid to the World Bank from date of effectiveness to project completion in June 1990. - 17 - including salaries, social costs, firm's overhead and fees is estimated at US$2,400. The average cost per man-month for foreign consultants, includ- ing the same items as the cost of local consultants, plus overseas allow- ance, is estimated at US$13,600. FIFAPA's subsidiary loan agreements would provide that consulting services for final engineering designs and con- struction supervision would be charged to each subproject. 5.t8 The B.ank Loan will finance the US$100 million foreign exchange component of the project, plus the US$0.3 million front-end fee. The Mexican Government has agreed to make available to FIFAPA as needed, the necessary counterpart funds and the funds to cover cost overruns (paras. 3.04 and 8.01(a)). Implementation 5.19 SEDUE, through DIGESAPA (para. 3.08), would be in charge of: (a) supervising the work of engineering consultants; (b) preparing bidding documents and tender analysis; (c) supervising construction; (d) monitoring project execution and compliance with subloan agreements by the beneficia- ries; (e) providing technical assistance in all areas of management to the local water authorities; (f) monitoring execution of the health education and institutional development programs for CEAPAS; (g) executing its insti- tutional development program and the studies to improve the efficiency of the sector; (h) being responsible of the construction of all FIFAPA pro- jects; and (i) selecting as the case may be and in accordance with tech- nical and administrative criteria satisfactory to the Bank, the benefi- ciary to which SEDUE may assign the responsibility to carry out the con- struction of a subproject (para. 3.08). The proposed investment program has been discussed with BANOBRAS/SEDUE and is compatible with their execu- tion capabilities. 5.20 The project will be implemented during 1984-89 and will be com- pleted by December 31, 1989. The closing date will be June 30, 1990 to allow for processing of pending disbursement applications. Annual project investments are presented in Annexes 9, 10 and 11. The construction sched- ule is presented in Annex 13. 5.21 As a condition of disbursement the Bank will review and approve feasibility studies and procurement plan for all BC cities. If a project includes as a component the construction of water or sewerage treatment plants, the Bank will not disburse this component until final engineering designs have been presented to the Bank for its approval. Supervision 5.22 The project will consolidate SEDUE's and FIFAPA's management capabilities and improve management practices and procedures in CEAPAS and the BC Companies. Bank supervision will monitor the implementation of the institutional building components of the project and provide technical as- sistance to SEDUE in technical matters. The Bank's supervision effort has been estimated at about 18 staff-weeks/year for the first three years (1984-87) and 15 staff-weeks/year thereafter. - 18 - Procurement 5.23 Procurement procedures will be similar to those followed under Loans 1186-MF and 1913-ME. All goods and services will be procured in ac- cordance with Bank guidelines. To the extent practicable, civil works, materials and equipment should be grouped so as to make them attractive for international competitive bidding (ICB). As a condition of disbursement for each individual subproject, BANOBRAS/SEDUE will furnish the Bank, for comment, the bidding package for each subproject, and would make such modi- fications as the Bank may suggest (para. 8.03(b)). Contracts in excess of US$2.5 million for civil works and US$500,000 for the purchase of equipment and materials would be procured on the basis of ICB. Contracts for civil works of less than US$2.5 million but over US$250,000, or less than US$500,000 but over US$150,000 for the purchase of equipment would be pro- cured on the basis of local competitive bidding, for which the procedure is satisfactory. Contracts of less than US$250,000 for civil works and less than US$150,000 for materials subject to a maximum aggregate of US$8.0 mil- lion (4% of total project cost) could be procured directly on the basis of a minimum of three quotations. No force account works are envisaged. 5.24 Given the advanced degree of development of the civil works con- struction industry in Mexico, all civil works contracts are expected to be won by local contractors. For all contracts under ICB, BANOBRAS/SEDUE will make copies of bidding documents, bid analysis reports and recommen- dations for awards available to the Bank for prior review and approval. General conditions for tender documents to be used for ICB and local procu- rement were prepared under the two previous FIFAPA operations and are ac- ceptable to the Bank. Contracts awarded under local competitive bidding procedures will be submitted to the Bank for ex-post review. If the review reveals misprocurement, the corresponding Loan funds will be cancelled. Goods manufactured locally and procured under ICB would be allowed a pre- ference over foreign goods of 15% of the CIF price or the level of import duty, whichever is lower. A modification in the original price of an awarded contract up to 30% will not require further review and approval of the Bank. Disbursement 5.25 Bank financing of the foreign component (52%, Table 5.1) will be achieved by disbursing 55% of all payments to contractors except the repay- ment of the 5% retention withheld from civil works contractors. BANOBRAS will also be reimbursed 55% of the sum paid to consultants for engineering designs, construction supervision and technical assistance. Annex 14 shows the estimated schedule of disbursements. This schedule is based in past experience on Loans 1186-ME and 1913-ME, one year shorter than the average experience for all sector operations which the Bank has financed in Mexico. The closing date will be June 30, 1990. The advance state of pro- ject preparation indicates that this shorter disbursement period is likely to be achieved. Proceeds of the proposed Bank loan upon presentation of normal documentation would be disbursed under the following categories: - 19 - Table 5.2: CATEGORIES OF DISBURSEMENT Category Amount % of Expenditure -________ _ ____ _________ (US$ million) to be financed 1. For the CEAPAS Component Equipment, materials, civil 35.6 70% up to Dec. works, and consulting services 1985 and 39.0% for engineering and management thereafter for assistance a consolidated average of 55% 2. For Medium-Size Cities Component Equipment, materials, civil works, 62.0 Same as above and consulting services for engine- ering and management assistance 3. SEDUE and FIFAPA Institutional Building Program Equipment, consulting services and studies 2.4 Same as above 4. Front-end fee on Bank Loan 0.3 100% 100.3 5.26 Under the present circumstances of important changes in the sec- tor, it is very important that this project does not encounter difficulties due to slow disbursements as a consequence of the government's temporary cash flow problems. In order to avoid slippage in the implementation of the project, principally at its early stages, Bank's disbursements will be increased from 55% to 70% up to December 1985. After that date, the dis- bursement rate would be 39% to achieve the consolidated average disburse- ment rate of 55%. Environmental Aspects 5.27 The proposed project will have positive effects on the environ- ment by improving the sanitary conditions, mainly in low-income areas in the subproject cities. These improvements would be expedited in the State of Sinaloa because the public would be better informed of how water supply and sanitation services can be utilized for their personal benefit through a health education program (para. 5.07). There will be, however, an in- crease in the volume of sewage discharged into water courses. In many in- stances, the proposed works will help to reduce health hazards from sewage spillovers caused by insufficient delivery capacity of existing sewer sys- tems (para. 5.08(g)). The project includes the construction of adequate sewerage treatment facilities (para. 5.08 (j)) in those cities where domes- tic and industrial pollutant loads could cause adverse effects on down- stream domestic and agricultural water uses. In some cases, sewage treat- ment will not be part of the proposed works as sewage pollution loads (both current and those caused by the project) will be low compared with the - 20 - self-purification capacity of the receiving waters and will not interfere with downstream use. The monitoring and control of water quality will be enhanced by the proposed project through the execution of the pilot program to improve water quality (para. 5.09) and the provision of laboratory equipment in all subproject cities (para. 5.08(b)). VI. FINANCIAL ASPECTS BANOBRAS - Financial Performance 6.01 BANOBRAS operations have been growing at a high rate since its inception in 1933. Its 1981 annual lending program amounted to about US$2.1 billion and its net profit after taxes was US$37.58 million equiva- lent. Total assets as of December 31, 1981 amounted to US$10.4 billion. Consolidated financial statements for 1979-1981 are shown in Annex 15. In the past BANOBRAS has had a satisfactory financial position. However, the future financial and cash flow position of BANOBRAS would depend on its ability to recover large loans from local companies that due to the present situation of the Mexican economy are experiencing problems. Also, BANOBRAS manages several trust funds for which repayment depends on the ability of the Government to raise users charges or alternatively channel budgetary funds to cover payments due from the beneficiaries of these funds. 6.02 FIFAPA has been an important factor in helping the Federal Govern- ment to reduce its grant financing to the water supply and sewerage sec- tor. FIFAPA has contracted financing with 13 sector entities, 6 covered by the first Medium-Size Cities Project, and the remaining 7 by the second operation. FIFAPA will continue to grow, and it is expected that by the end of 1984, with the addition of the proposed Project, the total FIFAPA commitments will reach about US$678 million. Between December 31, 1979 and December 31, 1981, FIFAPA's assets had increased from US$28 million equi- valent to US$109 million equivalent, or a 288% growth. During the same period, FIFAPA's net worth has grown from US$27.5 million equivalent, to US$106 million equivalent, a 286% increase. In 1979, FIFAPA had a net in- come of US$1.96 million equivalent compared with US$7.36 million equivalent in 1981, representing an increase of 275%. Past financial and income statements are presented in Annex 15. The Federal Government also assumes the foreign exchange risk related to FIFAPA operations. BANOBRAS services the debt service to the Bank. Subborrowers Financial Performance Medium Size-Cities 6.03 The financial performance of the four medium-size cities ap- praised (Celaya, Colima, Cd. Guzman and Tapachula) provides a wide range of financial results quite representative of all medium-size cities water and sewerage companies which would benefit from the proposed project; this - 21 - mainly because all these companies have similar accounting, financial and administrative problems and constraints, as stressed in paras. 4.03, 4.10- 4.13. 6.04 In 1981, the financial performance of the five cities appraised varies substantially (Annex 16). Working ratios ranging from: .50 in Tapachula to 1.10 in Colima clearly indicate important differences in the operational efficiency from one city to another. All cities, except Tapachula, show a negative net income before interest. However, these re- sults are not representative since fixed assets are neither revalued, de- preciated, nor recorded properly. The rate base is unrealistically low and the estimated rates of return are not representative of financial perform- ance. Accounts receivable, as a percentage of total revenues, range from 4% to 90%. This reflects the other large discrepancy existing among the cities in matters of commercial efficiency. Long-term debt is almost non- existent in most cities, except in Colima and Tapachula, where it repre- sents 6% and 4.7% respectively of total assets. This situation illustrates the fact that most of the investments have been financed by Federal and/or State Government grants. CEAPAS 6.05 CEAPAS acts as a regulatory agency for water and sewerage acti- vities in the State of Sinaloa, and as a financial intermediary, which will relend the proceeds of the Bank loan to the Regional Companies. Since its creation, CEAPAS costs have been covered by the State budget. The State Government's objective is to fully recover CEAPAS' operating costs through a scheme of fees to be paid by the Regional Companies. As a condition of disbursement to CEAPAS, fees acceptable to the Bank to be charged to all Regional Companies will be developed (para. 8.04(b). The service payments on existing debt of the systems that CEAPAS is taking over are paid by the state, and therefore no long-term debt appears in CEAPAS' balance sheet. Regional Companies 6.06 Only the Regional Companies of Rio Fuerte, Rio Baluarte and Rio Humaya have prepared preliminary financial statements. They include only the syste.ms of the appraised cities of Mazatlan, Culiacan and Los Mochis, which are the only cities that have been transferred so far to the Regional Companies (para. 4.07). In general, they indicate a weak financial situa- tion, as of December 1982 (Annex 17). The working ratios were somewhat high in Mazatlan (116) and Los Mochis (151). Cash flows and net incomes were negative. Their rates of return were also negative, but are not really representative of financial performance, since the cities face serious accounting problems similar to those of the appraised medium-size cities. On the other hand, Culiacan, a beneficiary city under Loan 1186-ME, presented well prepared financial statements and better financial results which can be attributed to the improvements introduced during pro- ject implementation. The financial covenant (para. 6.12) (Annex 23) and the technical assistance program included in the proposed project are in- tended to make the Regional Companies financially viable. - 22 - Financing Plan 6.07 The financing plan for each one of the five appraised BC Compa- nies and for the appraised cities under the regional companies is shown in Annex 20. 6.08 The consolidated financing plan for the project is presented in Table 6.1. Table 6.1: PROJECT FINANCING PLAN 1983-88 Applications (US$Mill) (%) Total financial requirements (Table 5.1) 247.0 73.2 Interest during construction on FIFAPA loans to subborrowers 62.1 18.4 Other works and replacements 28.1 8.3 Total financing requirements 337.2 100.0 Sources IBRD proposed loan 1/ 100.3 29.7 Federal Government 146.7 43.5 Interest during construction (FIFAPA) 62.1 18.4 Regional and BC Companies Internal cash generation 28.1 8.3 Total 337.2 100.0 17 The Mexican Government has requested the financing of the front-end fee. 6.09 During 1984-89, the total financing requirements of US$343.6 mil- lion equivalent would be financed as follows: a) The Bank's contribution to FIFAPA would represent 55% of the cost of each subproject, up to a total amount of US$100.3 million (29.7% of total financial requirements), to finance the foreign exchange component of the project and the front-end fee; b) The Federal Government will provide US$146.7 million of counterpart funds (43.5% of total financial requirements, including VAT and interest paid to the World Bank) to FIFAPA, on an equity basis; c) FIFAPA will finance interest during construction on its loans (18.4% of total financial requirements) to the benefi- ciary cities; and - 23 - d) The Regional and BC Companies will finance minor extensions and replacements (8.3% of total financial requirements) from their own internal cash generation. Revenues 6.10 In most beneficiary cities, water and sewerage tariff levels and structures are inadequate. There is no differentiation between types of consumers. Minimum consumption allowance is often too large (up to 20 m3 per month). Charges are not sufficiently progressive to discourage water waste and to allow cross-subsidization. Low fixed sewerage charges are widely used and are frequently levied on all consumers including those lacking this service. CEAPAS does not have a uniform tariff level and structure for the entire state. Each municipality sets its own tariff. CEAPAS intends to have a uniform tariff for each Regional Company. In principle, this would permit cross-subsidization among users of different income levels and from richer to poorer localities. The national framework tariff study being carried out under Loan 1913-ME (para. 4.13) will help the Regional Companies and the medium-size cities to implement uniform tariff levels and structure. 6.11 Connection fees charged to new consumers include: (a) a fee (derecho de conexion) for the right of access to the service; and (b) a charge for the materials and labor costs incurred in connecting to the sys- tem. The rationale for these fees and charges and the amount assessed does not follow a uniform or consistent pattern. Because the companies may modify these charges without approval from the State Legislature, these are frequently adjusted to meet the Companies' financial needs. This practice makes commitment fees often so high that low-income consumers may be de- prived from connecting to the water and sewerage systems. In some in- stances, a special charge (cuota de cooperacion) has been instituted to partially recover the costs of water production and complementary works considered to benefit specific areas. This special charge is based on the lot area. Property owners are assessed and pay under terms and conditions set by each BC Company. Subloan Agreements 6.12 FIFAPA would relend the proceeds of the Bank Loan and Government contribution to the BC Companies and CEAPAS, who in turn would relend its funds to the Regional Companies under the same terms and conditions re- ceived by FIFAPA. The FIFAPA loan will cover the cost of construction and consulting services, the corresponding VAT, and interest during construc- tion. Subloans agreement eligible for inclusion in the project, should be signed before December 31, 1984. Each subloan would carry an interest of at least 25% p.a. and a 15-year term after a grace period equal to the con- struction period but not greater than 4 years. The amount of each subloan would not be modified without prior Bank approval. Each subloan will be secured by contractual agreements between FIFAPA/SEDUE, the BC Companies or CEAPAS, as the case may be, and the Government of the State. The state governments will give FIFAPA a lien on the state's share of Federal taxes - 24 - and will guarantee repayments, as well as punctual performance by the bene- ficiaries of all other obligations under the subloan agreement. Each sub- loan agreement between FIFAPA and the BC companies and CEAPAS, and between CEAPAS and its Regional Companies will require Bank approval as a condition of disbursement. They will include the specific conditions listed in Annex 23. However, if a beneficiary has been selected by SEDUE to carry out the construction of the respective subproject, this specific subloan agreement will include the obligation to procure the goods and civil works needed for the project in accordance with the procedure stated in para. 5.23 and to carry out the project with due diligency and efficiency. Future Finances of Beneficiaries Medium-Size Cities 6.13 Assumptions for financial projections for the period 1982-1988 are presented in Annex 19. Financial projections for the five BC companies are in project files. Selected financial data is presented in Annex 21 and was prepared, taking into consideration the accounting and administrative problems discussed in para. 4.10. Financial data is presented in current Mexican pesos. 6.14 With water tariffs averaging US$0.17/m3 equivalent in 1987, all beneficiaries should be able to meet their revenue requirements and make small contributions to investments for other works (Annex 21). These tar- iffs compare to the actual 1983 average of US$0.14/m3 (expressed in 1987 prices) for BC Companies under Loan 1186-M.E where projects have been com- pleted. Working ratios are generally high at the beginning of the pro- ject. As their administrative efficiency increases, the working ratios im- prove. By 1989, they should range from a low 27% in Cd. Cuzman to a high 44% in Celaya. Tariffs would increase significantly at the end of the grace period when the first debt service payment is due. After that year, tariffs are expected to be maintained in real terms. Since 100% of the investments are financed by FIFAPA, a high debt/total capital ratio is com- mon during the construction period, and improves thereafter. The estimated average rate of return among RC Companies after the construction period is 19.8%, on fixed assets not properly kept, depreciated or revalued (para. 4.10). To correct this situation, the subloaa agreement establish that within a year of subloan signature the fixed assets will he inventoried and revalued (para. 6.12, Annex 3). This will likely result in a reduiction of the above mentioned rate of return. It is expected that the BC Companies will be able to increase their own financing capacity after the completion of the proposed project. CEAPAS Regional Companies 6.15 No meaningful information is available on the financial situation of the Regional Companies of Sinaloa. The main problem in forecasting their performance is to determine at this early stage, the timing of incor- poration of the systems to the Regional Companies. As an alternative, the city with the largest percentage of total population in each of the three - 25 - main Regional Companies was appraised. Los Mochis in the Regional Company of Rio Fuerte represents 38% of the total population of the region. Mazatlan in the Regional Company of Rio Baluarte represents 51% of total population, and Culiacan in the Regional Company of Rio Humaya represents 80% of the total population. Assumptions for financial projections for the period 1982-89 are presented in Annex 19. Selected financial data is pre- sented in Annex 22. 6.16 With tariff levels averaging US$0.15/m3 equivalent in 1987 prices, all beneficiaries should be able to meet their revenue covenant and will progressively increase their contributions to new investments. All of them have the same characteristics of the appraised Medium-Size Cities. Working ratios are generally high at the beginning of project construction and they show high debt/equity ratio during the construction period, with significant improvement afterwards. The rate of return of Los Mochis im- proves from a negative 3.9% in 1982 to a positive 13.1% in 1989. In Mazatlan it ranges from a negative 6.6% to a positive 25.7% at the end of 1989. In Culiacan, the rate of return is always positive from a low .3% in 1982 to 13.0% in 1989. Reporting Requirements 6.17 BANOBRAS would send to the Bank not later than October 31 and April 30 of each year, starting April 30, 1984, reports on project execu- tion and costs and information on the performance of the companies. The information would be based on audited reports and measured by the monitor- ing indicators and compliance with subloan covenants. Financial projec- tions will be updated annually, and will include revision of tariffs and other changes, if necessary, to meet the objectives of the financial cove- nant. BANOBRAS/SEDUE would promptly take such remedial actions as the Bank may request based on the review of these reports. This requirement is also included in previous loans, and compliance has been satisfactory. During negotiations, assurances were obtained from BANOBRAS, that no later than a year after the closing date, they will prepare a completion report, satis- factory to the Bank, describing project execution and its financial and physical achievements and benefits. VII. ECONOMIC AND SOCIAL ANALYSIS Introduction 7.01 The project supports the Government's continuing efforts to achieve a more balanced urban development and to meet the needs of water supply and sewerage services in selected medium-size cities and in other cities under the Sinaloa Water Board. The project would, thereby, enhance the living and health conditions of their inhabitants. The proposed pro- ject would also constitute a step forward to sector development through the improvement of the management and technical operations of the BC Companies, CEAPAS and its Regional Companies. The project, while raising the living - 26 - standards of the low-income population, gives special emphasis on the ap- plication of sound financial policies, as a mean to increase efficiency in the allocation of water resources and alleviate the burden on Government finances. Least-Cost Solution 7.02 Least-cost analysis for all appraised subprojects were reviewed in detail, and it was found that the appraised subprojects are the least- cost alternatives for meeting water and sewerage demands for the selected cities. Investments were staged to minimize idle capacity while ensuring supplies to meet the populations' needs. For subprojects not yet identi- fied, the selection of least-cost alternatives is a condition to receive FIFAPA financing (para. 5.10 (a)). Population Benefitted and Urban Poverty Impact 7.03 The project would provide water supply through house connections to about 800,000 additional inhabitants and sewerage to about 550,000 addi- tional inhabitants by the end of the construction period. About 46% of the additional population to be served with water supply and 40% of the addi- tional population to be served with sewerage are estimated to belong to the urban poverty target group, defined as people earning less than one-third of the annual national per capita income (estimated at US$471.00 in 1982). Annexes 24 and 25 show the incremental population served and the percentage of urban poor for the appraised subprojects. Expansion of water production and distribution facilities, and provision of sewage collectors and inter- ceptors will permit 95% of the 1991 population of beneficiary cities to receive water supply and 80% to collect sewerage through the expansion of secondary networks. On the basis of the appraised cities and their respec- tive feasibility studies, it is estimated that as a result of the project about 1.4 million and 1.2 million additional inhabitants will be connected to the water supply and sewerage systems, respectively, by 1991. 7.04 Water supply coverage for the urban poor will increase from 58% in 1983 to 88% in 1987, while theii sewerage coverage will increase from 35% to 65%°. Coverage will continue to increase in subsequent years. For this purpose, water intake works, major networks and sewage collectors have been designed for a period ranging from 10 to 15 years. Return on Investments and Marginal Costs 7.06 Return on investments for the appraised subprojects have been calculated using covenanted tariff levels as a proxy to value economic benefits (detailed calculation in project file). The forecasted tariff levels are well within the population's capacity to pay. Projections of per capita consumption take into account a likely reduction due to in- creased metering and tariffs. Reductions in unaccounted-for water would result in water being saved and used to serve additional population. Only the estimated volumes to be saved by reducing leakage, as a result of rehabilitation works, were included in the calculation of benefits. - 27 - Volumes previously consumed but not paid for were excluded from the calcu- lation of economic benefits. The rates of return obtained are satisfactory and comply with the selection criteria for the beneficiaries (Table 7.1). Benefits such as improvements in public health, increases in labor produc- tivity, and environmental improvements are either not reflected or are only partially reflected in the tariff paid for these services. The use of re- venues as a proxy for benefits under a progressive tariff structure also understates the benefits of supplying water to low-income population, where the initial volume of low-price water ensures most of the health benefits of providing safe water. 7.07 Incremental rates of return (IRR) were estimated by city for pro- ject investments and complementary works in water supply and water supply and sewerage combined (Table 7.1). No return was estimated for sewerage alone since sewerage tariffs are levied as a percentage of the water charge and do not necessarily reflect the benefits that the users would assign to the sewerage service separately. 7.08 The estimated aggregate IRR for the seven appraised subprojects is 17%. Detailed calculations are in project files. 7.09 Families earning one monthly minimum salary presumably below the critical consumption level of 4 m3 of unsafe water purchased from private vendors, will now have access to safe water. These families would spend, including payments for connection fees, a maximum of 3% of their monthly income for minimum consumption. Services would, therefore, be affordable to the whole population of the benefitted cities. 7.10 The rates of return shown in Table 7.1 indicate that water and sewerage tariffs on average will be close to long-run average incremental costs, estimated on the basis of the same investment programs (discounted at 11%). Higher tariffs per unit volume for water consumption in excess of minimum consumption will be set to reflect the policies of cross-subsidiza- tion to low-income consumers and of avoiding waste in the use of water re- sources. Tariff studies for each city will include detailed calculations for long-run average incremental costs and a comparison with tariff levels and structures. In order to improve resource allocation, tariffs on excess consumption will be set as closely as possible to long-run average incre- mental costs. Table 7.1: INCREMENTAT. RATE OF RETURN (Water Supply and Sewerage) Tapachula Celaya Cd.Guzman Colima Los Mochis Mazatlan Culiacan 15 19 15 15 17 17 20 Long Run Incremental Cost 13.0 5.8 5.0 6.8 2.8 6.1 8.3 Average Tariff (Constant Prices Mex$) 14.6 7.3 6.3 7.3 3.4 9.8 10.2 - 28 - Project Sensitivity and Risks 7.11 The effects of variations on selected cost and benefit variables were tested. This test was done for the city of Los Mochis where an incre- mental rate of return of 17%, close to the average IRR for the whole pro- ject, was considered a typical case. The IRR would still be 11% with the following switching values: Variables Tariffs (Revenues) - 30% Incremental demand - 34% Delay in realization of benefit 2 years Construction costs + 36% Operating costs + 165% 7.12 The most sensitive area is the changes in revenues. Revenues are not expected to substantially deviate from the projected figures for the following reasons: (a) projected tariff increases in real terms used in the finan- cial projections are in line with increases required by pre- vious loans (para. 6.14). With few exceptions, the required tariff increases have been successfully implemented in pre- vious loans (para. 2.19). Despite the high inflation rate in Mexico, the risk of non-compliance with the revenue cove- nant is moderate because of the willingness of the Mexican authorities to implement tariff levels reflecting the cost of providing the service and the proposed revenue covenant that would ensure timely tariff increases (paras. 2.19 and 6.17(d)); (b) incremental demand has been calculated on the basis of de- creasing per capita consumption, and past evidence and pre- sent patterns shown in similar cities in the country. Actual demands are not expected to deviate significantly from those projected; and (c) Construction costs are not likely to exceed those pro- jected. Construction costs were based on the latest cost information from recent bids (para. 5.16); also physical and technical contingencies were calculated with care and are considered satisfactory (para. 5.17). Operating costs were also calculated on past experience and take into account the effect of projected inflation. 7.13 Overall project risks are average. The highest risk is in the implementation of the institutional development program in CEAPAS and in the Regional Companies. Experience with Loans 1186-ME and 1913-ME shows - 29 - that the technical and institutional programs have been subject to diffi- culties in choosing consultants and that their success depends on the wil- lingness of the beneficiary to implement the recommendations. However, im- provement in the organization of SEDUE should prove to be a great help in diminishing this risk. 7.14 Another possible risk is that the project execution might be delayed. During the past year, preparation of new subprojects by SAHOP slowed down, because of repeated changes within its administration and the reorganization of the sector by the new Government (para. 2.07). The pos- sible reduction in number of subprojects could affect the execution of the proposed project if some BC Companies that were scheduled to be financed under the FIFAPA scheme with the old onlending rate decide not to proceed with the project under the expectation that the government would provide Federal grants anyway. This risk is limited as grants would be lower than in previous administrations due to the new government policy in the sector, as discussed in para. 2.14. In addition, SEDUE has a long list of poten- tial beneficiaries. 7.15 The project risks are more than compensated for by the benefits accruing to the beneficiaries and to the sector with the introduction of a pilot program scheme in the State of Sinaloa which could be replicated in other states. IX. AGREEMENTS REACHED AND RECOMMENDATIONS 8.01 During loan negotiations, assurances were obtained as follows: 1. From the Federal Goverhment that it will: (a) provide funds to FIFAPA, as needed (para. 5.18) (Draft G.A., Section 2.02); and (b) through SEDUE to: (i) carry out the project and as the case may be, se- lect the beneficiaries to be assigned the responsi- bility to carry out the construction of a sub- project in accordance to technical and administra- tive criteria satisfactory to the Bank (para. 3.08) (Draft G.A. Section 3.01); (ii) ensure that DIGESAPA is properly staffed with qua- lified professionals (para. 3.09) and that it will be responsible for the supervision of the construc- tion of all projects financed by FIFAPA (Draft G.A., Section 4.02(a)(b)); (iii) implement the institutional development program de- vised by former SAHOP (para. 4.03) (Draft G.A., Section 3.01(c)); - 30 - (iv) carry out specific tariff studies within the frame- work of the ongoing national tariff study in each of the BC and Regional Companies, including a schedule for implementation (para. 4.13) (Draft G.A., Section 3.07); (v) present for Bank approval a list of monitoring in- dicators for CEAPAS Regional Companies not later than December 31, 1984 (para. 6.12) (Draft G.A., Section 3.05); (vi) continue carrying out its national training program (para. 2.12) (Draft G.A., Section 4.03(a); and (vii) carry out the revision of SEDUE's guidelines for project preparation in accordance with terms of reference satisfactory to the Bank by June 30, 1984 (para. 5.09) (Draft G.A., Section 4.03(b). 2. From BANOBRAS: (a) FIFAPA's financial statements would be audited each year by qualified independent auditors (para. 3.07) (Draft L.A., Section 4.02); (b) any subprojects that would be incorporated into the pro- ject after loan negotiations, or which would replace pre- viously selected subprojects, will be selected according to the priority criteria agreed upon and in a manner satisfactory to the Bank (para. 5.10) (Draft L.A., Schedule 2). All new subprojects should be submitted not later than December 31, 1984 (para. 5.11) (Draft L.A., Section 3.02(b)); (c) semi-annual reports on the status of project implementa- tion should be furnished to the Bank (para. 6.17) (Draft L.A., Section 5.01(i)); (d) a completion report should be prepared not later than twelve months after the closing date (para 6.17) (Draft L.A., Section 5.02); and (e) it will cause each beneficiary to produce semi-annual re- ports to monitor its operation and finances (para. 6.12) (Draft L.A., Section 5.01(ii)(a)). 8.02 As a condition of effectiveness of the proposed loan, the Federal Government will have to: (a) increase FIFAPA's equity in an amount equivalent to US$100.0 million (para. 3.04) (Draft L.A., Section 7.01(a)); and - 31 - (b) publish CEAPAS Bylaws to the satisfaction of the Bank (para. 6.12) (Annex 23) (Draft L.A., Section 7.01(b)). 8.03 The following conditions for disbursement will be included in each subloan: (a) the Bank will review and approve all subprojects for all beneficiary companies and review and approve the design of water or sewerage treatment plants (para. 5.21) (Draft L.A., Section 3.03); (b) BANOBRAS/SEDUE will present to the Bank a list of all contracts the beneficiaries intend to award for each sub- project and they will make such modifications as the Bank may suggest (para. 5.23) (Draft L.A., Schedule 1, para. 3(c)(i)); (c) subsidiary loan agreements approved by the Bank, between FIFAPA and each subborrower shall have to be signed before December 31, 1984 (para. 6.12) under terms and conditions specified in paras. 5.23, and 6.12, including the condition that an autonomous company should have been created for medium-size cities beneficiaries of the pro- posed project (Draft L.A., Schedule 1, para. 3(c)); and (d) each subsidiary loan agreement should be secured by the State Government (para. 6.12) (Draft L.A. Schedule 4, para. B(ii) 1); 8.04 No disbursements should be made for subprojects in any Regional Company under CEAPAS until: (a) consultants to carry out the Institutional Assistance Pro- gram for CEAPAS and the Regional Companies have been hired (para. 5.05) (Draft L.A., Schedule 1, para. 3(b)(i) and Draft G.A., Section 3.02); (b) a scheme of fees to be charged to all Regional Companies, acceptable to the Bank, has been established (para. 6.05) (Draft L.A., Schedule 1, para. 3(b)(ii); and (c) the Regional Companies have been incorporated into CEAPAS, satisfactorily organized and its key personnel has been appointed (para. 4.06) (Draft L.A., Schedule 1, para. 3(b)(iii)3. 8.05 No retroactive financing would be required. Providing the fore- going conditions are met, the proposed project would be suitable for a Bank Loan of US$100.3 million. The loan would be payable over 15 years, including a three year grace period. - 32 - ANNEX 1 Page 1 of 2 MEXICO THIRD MEDIUM-SIZE CITIES AND SINALOA STATE WATER PROJECT Mexico Population Distributed by State State Population (in thousands) Aguascalientes 503 Baja California 1,225 Baja California Sur 221 Campeche 372 Coahuila 1,558 Colima 339 Chiapas 2,096 Chihuahua 1,933 Distrito Federal 9,373 Durango 1,100 Guanajuato 3,044 Guerrero 2,174 Hidalgo 1,516 Jalisco 4,293 Mexico 7,545 Michoacan 3,048 Morelos 931 Nayarit 730 Nuevo Leon1 2,463 Oaxaca 2,518 Puebla 3,279 Queretaro 726 Quintana Roo 209 San Luis Potosi 1,670 Sinaloa 1,880 Sonora 1,498 Tabasco 1,149 Tamaulipas 1,924 Tlaxcala 547 Veracruz 5,264 Yucatan 1,034 Zacatecas 1,145 Total 67,307 Source: Secretaria de Programacion y Presupuesto "Estadistica Economica y Social por Entidad Federativa" - Nov./81 -33 - ANNEX 1 Page 2 of 2 MEXICO THIRD MEDIUM-SIZE CITIES AND SINALOA STATE WATER PROJECT Distribution of Medium-Size Cities Population (excluding Metropolitan Area) Population N° of Cities Total Population (thousands) 20.000 to 50.000 157 6,440 50.001 to 100.000 34 2,550 100.001 to 200.000 26 3,670 200.001 to 500.000 26 7,150 500.001 to 1.000.000 4 2,290 more - 1.000.000 3 6,950 250 29.050 MEXICO THIRD MEDIUM-SIZE CITIES AND SINALOA STATE WATER PROJECT Water and Sewerage Service Levels in Mexico Water Supply Sewerage 1970 1980 1981 1' 1970 1980 1981 1. Total Country Population (million) 48.1 67.4 69.3 48.1 67.4 69.3 Population served (million) 23.8 38.1 40.5 17.6 24.8 26.0 Service level (%) 49 56 58 37 37 38 2. Urrban Areas (Total) Population (million) 28.4 44.5 46.0 28.4 44.5 46.0 Population served (million) 19.6 27.8 28.6 16.8 22.2 23.0 Service lev~el (x) 69 62 62 59 50 50 2.1 Mexico City Metropolitan Area Population (million) 6.7 9.1 9.4 6.7 9.1 9.4 Population served (million) 5.6 8.0 8.5 5.0 7.3 7.5 Service level (M) 83 88 91 74 80 80 2.2 Other Urban Areas Population (million) 21.7 35.4 36.6 21.7 35.4 36.6 Population served (million) 14.0 19.8 20.1 11.8 14.9 15.5 Service level (%) 65 56 55 55 42 42.5 3. Rural Areas Population (million) 19.7 22.9 23.3 19.7 22.9 23.3 Population served (million) 4.2 10.3 11.9 0.8 2.7 3.0 Service level (%) 21 45 51 4 12 13 1/ Estimated. MEXICO MEDHJ*SZE CMES AND SINALOA STATE WATER PROJECT OgonIzaton t * MCCaON G&E*4 Ot EMW L .G"P I 4AALLQZ A V-I m =2 1 UKrXe I +1 q > I q st s -- C1cq ~A Io jdewl A< NDRWS oem lt*snx*m UT A"~~~~~~~~~~~~~ V VcW,Vc P"~~~~~~~~~~~~~~V~r&qVlVSTOjAn W4CO ~ ~ Comao Ten ative.V c,lcA~~~ ~*V2~ - 36 - ANNEX 4 Page 1 of 4 MEXICO THIRD MEDIUM SIZE CITIES AND SINALOA STATE WATER PROJECT Summary of the Law Creating the Sinaloa State Water and Sewerage Board (CEAPAS) 1. The decree which organized the Sinaloa State Water and Sewerage B-ard (CEAPAS) (Comision Estatal de Agua y Alcantarillado de Sinaloa), as a legal and autonomous entity, was published in the official state daily on August 21, 1981. 2. The decree set up the organization and administration of all en- tities within the State responsible for the regulation, construction, ope- ration and maintenance of the water and sewerage systems in the State of Sinaloa. The Governor of the State is the highest authority in matters of objectives and policies to be followed by the different state authorities in the performance of their duties. The Decree also regulates the function of the State Advisory Board (SAB) (Consejo Consultivo Estatal de Agua Po- table y Alcantarillado), the State Water and Sewerage Board (CEAPAS) (Comi- sion Estatal de Agua Potable y Alcantarillado de Sinaloa), the Regional Water and Sewerage Companies (Juntas Regionales de Agua Potable y Alcanta- rillado), and the relation of these entities with the State Public Works Department and the municipalities of the State. 3. The State Advisory Board (SAB) advises the Executive Branch of the Government in all matters related to water and sewerage, to guarantee a uniform policy in the State on design standards, priorities and administra- tive matters. The Board is integrated by the Governor of the State who is also its chairman and a representative of SAHOP, SARH, SSA and BANOBRAS. 4. The Sinaloa State Water and Sewerage Board is an autonomous public entity. It is governed by a Board of Directors integrated by the Governor of the State, a representative of the State Congress, a represen- tative of each municipality within its jurisdiction, and one representative of several trade and labor organizations. 5. Its main functions are as follows: a) to represent the State in discussions with all Federal enti- ties involved in the water and sewerage sectors; b) to assign priority, approve, obtain and negotiate the re- quired financing for all water and sewerage projects, in co- ordination with the Ministry of Public Works of the State; - 37 - ANNEX 4 Page 2 of 4 c) to establish the conditions, norms, and to supervise the en- actment of contracts for the construction and maintenance of water and sewerage projects; d) to monitor the use of any federal, state or municipal grant for any water and sewerage system; e) to advise the Regional Companies in all administrative and financial matters; f) to approve tariffs proposals for the Regional Companies; g) to coordinate joint cooperation of two or more RWSCs in the construction, operation and maintenance of any water and sewerage system that require such action; h) to supervise compliance by the Regional Companies of water quality and sewerage discharge standards; i) to give final approval to the operating and investment budget of all Regional Companies; j) to review and audit the financial statements of the Regional Companies; k) to maintain an updated inventory of all water and sewerage systems in the State; 1) to approve new debts required by the RWSCs to carry out their investment projects; m) to prepare its annual budget for approval by the State Authorities; and n) to establish the norms and regulations of the revolving fund that all Regional Companies should establish to cope with their expansion needs, making sure that such fund is properly used in accordance with the priorities set forth by the State. 6. The Sinaloa State Water and Sewerage Board appoints the General Manager. 7. The Sinaloa State Water and Sewerage Board capital is made of by the contribution of the Regional Companies and any donation or grant that it could receive from the State. - 38 - ANNEX 4 Page 3 of 4 8. For the administration, operation, maintenance, expansion and improvements of the water and sewerage systems in the State of Sinaloa, the law created five Regional Water and Sewerage Companies: the Juntas Regio- nales de Rio Fuerte, Rio Sinaloa, Rio Evora, Rio Baluarte and Rio Humaya. Each Junta is a semi-autonomous entity with its own patrimony and indepen- dent administration. These Juntas have jurisdiction on all matters related to water and sewerage service within its borders. 9. The administration of the Regional Companies is responsibility of its Board of Directors which is formed by the Municipal Head of all Munici- palities under its jurisdiction, by one representative of the Local State Congressman, and by several representatives of trade and labor unions. 10. The Regional Companies' main function and responsiblities are as follows: a) to manage, operate and maintain the water and sewerage sys- tems under its jurisdiction; b) to approve tariff increases, subject to approval of CEAPAS and to bill and collect all charges; c) to coordinate with CEAPAS in all aspects related to the serv- ice of water and sewerage in the area under its jurisdiction; d) to present to CEAPAS for its approval the investment plan for all systems under its jurisdiction; e) to collect connection charges, to promote the installation of water services and sewerage discharges and to keep and update the cadastre of users in all areas under its jurisdiction; f) to pay CEAPAS the fees due as a contribution to cover the administrative expenses of CEAPAS as well as all debt service payments due for the financing provided to the region by CEAPAS; g) to perform all administrative duties required in the normal development of its business; h) to prepare its annual budget for the approval by CEAPAS; and i) to obtain authorization from CEAPAS to contract debts with repayment over one year necessary to finance the construc- tion, operation and improvement of the systems under its jurisdiction; 39 ANNEX 4 Page 4 of 4 11. The Government of the State appoints the General Managers of the Regional Companies, from a list of candidates issued by the respective Board of Directors. 12. The Law establishes the power of attorney of the General Manager and his duties. 13. There is a Section of the Law detailing the rights and obliga- tions of the user towards the utility. MEXCI)C TIIRD MEDII-tZS7E CITES AND S DllA STATE 1450 PW SDR Sinsaloa State Water Supply and Saverage COroqy Institutional Cverviewe of Regional Cnmpanies Regional C'opapRy of Ri ray of Rio erte Regional Cftpany of Rio balarte Regional Gompany of Rio Elvna Regiori Crmpany of Rio Sinaloa Institutional Arranements OrgnizatIon is fully operational sioce Now organization operational since New organization operational since l -v organization since March 1982. Nob 1kw organization since March 1982. No Reptonler 1981, husever, only the SWI5 Janary 1982, only one osaicipality January 1982 - one ranicipality systeom hba ten integrated to the system ban been integrated to the of OCliacan has been fntegrated to tle (fn Machis) has b2en integrated (3OM (Mazatlan) hba been integrated (51% Region. Region. Region (7S% of total population). total population). of total pmoplation). Management Orpotnt and rotiated staff. Top Qapetent staff. Satisfactory top Satisfactory. Relng organiged. Being organized. managreent in considered of beat qua- manageent. irty aoatiabie. Prysical Arrangements Satisfactory. Satisfactory. Satisfactory. Satisfactory. Satisfactory. Management Infortation Systers Satisfactory. Ilefnicest. Deficient. N-ne,dstent. N-ereiatent. Plasng Pmctior basic statistics are being collected; In general n pleasing departrent is Ther- is on planning department. Planning depareent ronedsatert. Planning deparnrent non-existent. very good financial plasing; planniog -,rking. FInancial plrarieg rudAientary. basic statistics unreliable. is done for engineering adn fioance. bdget Fir-t badget prepaced for 192; infar- First budget prepared for 1982; informs- First budget prepared for 1982; informs- Badget for 1982 has not been prepsred Budget for 1982 has not been prepared ostion firm lonal syste ra inadequate, tion from local system wra iosdequate, tion fron local systons sa inadequste, for lark of reliable informstion for lock of reliable inforr-tion therefore, amendtents to the ladget are therefore, amentrents to the budget are therefore, a dents to the udrget are available. available. Common, coCOn, coammo. &agiaering S015 1is in charge of construction of SMP is in csarge of construction of SAHOP Is in charge of construction of SAP1i in charge of the construction S ' Is in charge of the construction large projects; engioeering for sml large projects; engineering for emll lare projects; engineering for sall of large projects. Operaties of sys- of large projects. Operation of sys- extensions osastisfactory; operation extension is satisfactory; operation extensasi is satisfactory; operation of term ant aeste. Maintaaere not tem ret adeqpate. Mainteanore nt of local systeos is adeyqate; radio of local sysemt is adepuate; radio lonal systems is laeuate; radio network adequate. adequate. net-ork is betog inetalld; msictenanoe netr-x is being inastaled; anboternanne is teing Installed; i-ronce is is adequate. is dequate. adequate. 8illing end Collection Sattifortory; cadastre of users in Caastte of usera not aderpuate, unac- Cadastral of eserm avilable, lwevoer Prieritive, all blliUng hadande. Primitloe, all billing hbadbnde. place; rnaccounted-for water ranges counted-for water ranges fwm 407-60i. it is innalspete and has ant been up- Metertng is limited to targest cities, Meterirg is limited to largest cities, fero 30% to 40%; billing is computer- SiLling is e1. dated. Bilting is sn. U cotd- hoereve, lack of laboratory facilities he--ever, lark of laboratory facilities ifod; metering In larger systems is for rater ranges fr-o 40Y0%. for metering servioe askes anteriog for ratering servie mres Amtering adeqnate, in smaller syetems, -ater data unreiiable. data unrellable. is ant properly reasoned. 0 A-erge To-Aif Level To he iop-ood. To be imp-ed. To be impmved. To be improved. To be improved. Accounting and financial Reliable accounting oystem for Crimaan Reliable acorunting ystem oily in Inn Reliable accounting system only in No reliable accounting syster ailable. No reliable accounting yntem available Infona,tion only. No consolidated acceonting -vail- Mnchis. No consolidated acccunting M-aotian. No consolidated accounting able for the ,le nany; reports available on a regut basis. Oniy available on a regular batsis. aily aveilsble nre fi-anlia starenets dni initial blar and star-ments initial btisx nol star-est ts profit/loss statent. available. available. C,et Accrunting There is nore. Nane. None. Nose. None. Financial Management CGopetent. Satisfactory. Nnhe, None. Nosre. P-rsonnel enyar-s,cot PTercl -ound avai.lhble. Iraining Deficient. ell trainiJg progra to uficiest. Ibell training program to Defici ent. l tracinig progro to Rfitlent. Uell tralcing pwgr-m to pwgroao is rhed,-ld by iReFIP for the be givno by SAdP t tnhe are of main- be gioen by 501P in tho erea of main- be givn by SAb'O in the area of onto- be given by Sf'dDP in the area of mno- arem of oiotontrce. tesasce. Purther triniig in other- tensnae. Fartier trriniag in uther terrmce. liar-ier training in other trsnc. Farther traing In other areas sot yet scheduled. areas ant yet schedvied. areas ret yet scheduled. areas ant yet ehai ed. Internal Audit Office already set up. At present, Office already set up. At present, Office already set up. At present, ail None. None. all roperditr-es heon to be approved all expenditur-es hee to be approved errpenditures heo to be approved by by auditor. by arfitor. asuditor. Elternea Audit 1ndepavinet astersal auditing. None. Noe. None. Nne. Pablic Relations A separate deparrtent for customer re- A separate department for customet re- A separate depsrrsent for customer re- A separate depar-tment for custoer re- A separate deparotment for cuatoer re- ltire and pblications h.s bees st latios asd prblications h be ret latio asd poblirtio h- baneen ant -latie eel pablicatie hba been ant latire and publcittios hba bee set up. At present, all information to up. At present, all inforttion to up. At present, all infotrttion to the up. At present, all infor-ation to the up. At present, all informatire to the the peblic pertaining tariffs i re the public pertaising tariffs are public pertaining tariffs are hadiled public pertaining tariffs are handled ptblic pertaining tariffs are halerda hendled by the office of the Co.ernor handled by the office of the Governor by the office of the Covernor in its by the office of the Covernor in Its by the office of tie invernor in its in Its Public Relations Departtent. in its Pablic Relations Saparteant. Public Relations Deporreont. Public Relations Repartment. Public Relations eprtnent. Ibsaroation: ihe prposed project contempiates a large institutional improovat program for the CfAPAS nd eanh of the fion Regional Clapanie.I T'RD MEDIUM SIZE CI1IES AND SINA, SE WATER PROIEC Main Characteristics of Water and Sewerage Services in Appraised Cities (1981) CEAPAS - Cities MEDILM-SIZE Cities Units Culiacan Los Mbchis Mzatlan Topolobampo Cblaya ColiTna Cd.Q=zmn Tapachua Estimated 1981 population Tlousands 390.0 133.9 210.7 8.2 98.0 107.8 110.0 95.0 Population Served Water % 71 88 72 63 70 80 60 66 Sewerage % 32 79 72 0 67 76 49 40 Nunber of connections Water total lTousands 46.2 20.7 30.3 0.9 11.5 14.4 11.5 11.0 Metered x 95 98 91 20 12 98 98 91 House discharges Thousands 20.5 18.7 30.3 - 11.0 13.7 9.4 6.7 Water Supply Pipes Kn 72.3 120.2 330.2 14.5 117.4 146.7 79.4 94.1 Water Pipes/Connection Nts/c 15.6 5.8 10.9 16.1 10.2 10.2 6.9 8.5 Storage Volumne m3 2500 4500 19500 200 1000 7380 4850 1200 Storage Vol/1000 connect. m3/t.c 54 217 643 200 86.9 512 421 109 Sewerage Pipe YM 24.3 - 126.8 106.9 71.5 Sewerage Pipe/Cornection m3/c Sewerage Treatment - no no no no no no yes 1 no Production m3/month/c 32 40.8 37.8 34.2 35 26 32 44 Unaccounted-for water % 32 38 56 40 44 39 39 41 Staff/1000 connection 1b./tc 5.7 10.0 6.0 11.0 5.2 4.3 3.2 6.7 1/ Cd. (Gumn has tw sewerage treatment plants but not in service. - 42 - A1NNK 7 MElO) THMI MEDllM SIZE CIEMS AND SINILAU1 Sg4E WAlE PRUFC lbpulation and Demud Projectios Urban naccunted-for Water lmrxd Per Capita Per Capita CM1Y FPolation Service 1aM1-Z Water Million M3/Year Production Qamution (IBuands) Water _r_ 1 Production (2nmption l.c.d. l.c.d. CEAPAS Qiacan 1981 390.0 71 29 32 23.4 17.7 235 178 1985 500.6 88 64 25 35.4 26.6 197 147 1990 595.4 90 80 25 42.2 31.6 197 147 1995 613.3 90 80 25 43.5 32.6 197 147 IDs MDChIS 1981 133.9 88 79 38 13.9 10.1 328 238 1985 180.8 92 81 32 21.0 14.3 303 238 1990 212.6 95 85 25 23.7 17.8 299 238 1995 218.9 95 85 25 24.5 18.4 299 238 Mzatln 1981 210.7 72 72 56 21.4 13.7 392 251 1985 259.3 86 80 25 24.7 18.5 310 230 1990 331.9 95 85 25 34.1 25.6 299 230 1995 423.2 95 85 25 35.2 26.4 299 230 'IbpDlobano 1981 8.2 63 0 40 0.6 0.4 322 215 1985 10.3 98 85 25 0.9 0.7 255 198 1990 13.8 95 85 25 1.1 0.9 233 190 1995 17.4 95 85 25 1.4 1.1 233 190 MILEDfM SIZE Celaya 1981 OQ.n 70 67 40 7.2 4.s 291 194 1985 115.6 90 76 30 9.6 6.8 230 163 1990 140.0 95 80 25 11.5 8.6 230 170 1995 171.1 95 80 25 14.0 10.5 230 170 ColiM 1981 107.8 80 80 44 6.6 4.6 212 148 1985 124.9 90 90 30 10.0 7.0 243 164 1990 150.0 95 98 25 11.8 8.8 226 172 1995 171.9 95 95 25 13.5 10.1 226 172 Cd. Qmzn 1981 107.7 55 49 39 9.5 6.7 307 189 1985 127.5 90 80 25 10.3 7.8 250 189 1990 157.4 90 85 25 12.7 9.6 250 189 1995 194.3 90 85 25 15.7 12.5 250 189 Taachula 1981 95.0 66 40 41 8.2 5.8 363 257 1985 108.3 95 80 25 11.3 8.5 290 218 1990 127.4 95 80 25 12.5 10.0 272 218 1995 150.0 95 80 25 14.7 11.8 272 218 ANNEX 8 - 43 - Page 1of 6 MEXICO THIRD MEDIUM SIZE CITIES AND SINALOA STATE WATER PROJECT Suggested Terms of Reference for the Institutional Development Program A. Introduction 1.01 SEDUE, BANOBRAS, and CEAPAS authorities have agreed on the need to undertake a institutional development program for CEAPAS and the five Regional Companies under CEAPAS coordination. This would be a pilot pro-- gram which could be replicable in other states. Attachment I presents a timetable of consultants' activities. B. General Objectives 1.02 The general objectives of the institutional development program are: (a) to analyze the present organization and operating perform- ance of the companies as well as the needs and the socio- economic aspects of the water supply and sewerage sector in Sinaloa State; (b) to create a model state company applicable to other Mexican state water and sewerage companies which will allow improve- ment of efficiency of sector operations; (c) to help CEAPAS and the Regional Companies to make the neces- sary changes in their current organizations, procedures, in- formation systems and overall operational practices; (d) to implement consultants recommendations agreed upon by BANOBRAS/SEDUE/CEAPAS and the World Bank; and (e) to create in CEAPAS a project evaluation unit which would be in charge of defining the most appropriate technology and service standards for the communities in the State, to pre- pare investment programs compatible with short-term needs and which can he upgraded to meet long-term objectives, and to supervise the constrtuction of the projects. C. Specific Tasks 1.03 The consultants, in coordination with the CEAPAS and the regional offices staff assigned to this task, should: - 44 - ANNEX 8 Page 2 of 6 (a) review the current organization and distribution of func- tions in CEAPAS and the Regional Companies; (b) identify institutional constraints, in particular: (i) the adequacy of CEAPAS' pay scales to attract and re- tain staff of the qualifications required to fill the key posts in the organization structure; (ii) whether the existing policies for promotion and merit increase offer sufficient incentive and reward; and (iii) whether the management system is best oriented to secure efficient working conditions and encourage initiative, and whether decision making is delegated to the lowest level commensurate with the maintenance of adequate control. (c) review existing accounting policies, records and methods of collecting and processing data. Detailed systems analysis is not expected, but the consultants should indicate in what areas further works would be required. The consultants should, in particular, study the following areas: (i) the best accounting system suitable to the entities' needs for information and quality control; (ii) whether fixed assets are adequately recorded and the appropriateness of existing policies of revaluation, and depreciaton, if any; (iii) adequacy of existing procedures for customer billing and collection; (iv) adequacy of existing procedures for recording and controlling inventories; (v) adequacy of existing procedures for accounting and setting suppliers' accounts: (vi) the adequacy of existing procedures for payroll; (viii) existing procedures to produce timely and accurate financial statements and to provide interim financial information required by management; and - 45 - ANNEX 8 Page 3 of 6 (ix) procedures followed for financial planning and budgetary control. (d) carry out a survey of the users (state population) to define short-term needs taking into account such aspects as ability to pay, desirable service levels and local tastes and preferences; (e) assess the levels and quality of service in the state using a representative sample of communities. 1.04 On the basis of their understanding of the objectives of CEAPAS, the current regional sector configuration, the overall requirements of the water supply and sanitation sector in the state and the general principles adopted at national and state level to achieve the viability of the sector, the consultants should develop an appropriate organizational structure. In presenting their recommendations, the consultants should: (a) make specific proposals for the most appropriate form of or- ganization within the existing legal framework of CEAPAS, giving consideration to the adoption of corporate status for the entire Organization; (b) prepare the complete organization chart of CEAPAS and its regional offices and description of the functions and re- sponsibilities of each department proposed; (c) define the most appropriate relationship between the organi- zation and concerned government agencies, including channel of coordination, consultation and liaison both at national and regional levels. The consultants should pay particular attention to interface with those agencies responsible for public health, pollution control and provision of investment funds; (d) evaluate, on the basis of the proposed organization chart and the job description of the key managerial posts, the shortages and supluses of skilled personnel required to im- plement the proposed change. Consultants should also pre- pare a 5 year staffing plan for the proposed organization. (e) develop a long-term training program which will cover the following areas: (i) management; - 46 - ANNEX 8 Page 4 of 6 (ii) technical matters, including operations and maintenance; (iii) financial, accounting and commercial procedures; and (iv) information systems. Consultants should explore the posibilities of training by local and national institutions, and when training can not be provided by these institutions they should develop pro- posals for training programs tailored to the need of the companies and estimate the local and foreign costs of the training program; (f) propose remedial actions to the institutional constraints and to the orderly implementation of the staffing plan; (g) propose the means by which CEAPAS should secure the capital funds it requires. This analisis should include a review of available sources of funds; priorities for allocating scarce funds; the level at which authority for borrowing should be placed; and mechanisms for control of the debt service; (h) propose an information flow system including for each level of responsibility: (i) required input; (ii) degree of processing; (iii) required output; and (iv) destination of output. The consultants should clearly identify the link between the decisions or actions to be taken by each user and the input he receives and requires from the system, and the output the user produces for it; (j) design appropriate performance indicators by which the achievements of the organization may be monitored. The per- formance indicators should cover the three levels: na- tional, regional and local; (k) design or adapt appropriate forms, when necessary or convenient, to record and handle the information aiming at maximum uniformity and standardization; - 47 ANNEX 8 Page 5 of 6 (1) analyze the viability of comnputerizing the information; (m) propose a plan for the implementation of their proposals. The plan should be accompanied by a timetable showing the stages and sequence in which the institutional changes are to be introduced and identification of resources (financial or otherwise) required for its successful execution which should not exceed 24 months except for the training of per- sonnel. In particular, it shall itemize any further studies or consultant services which may be required, together with an estimate of the man-months and cost involved; (n) prepare drafts of new or amended local legislation necessary to implement their proposals, if the consultants' proposals involve changes in exiting laws and regulation affecting the by laws, powers and responsibilities of CEAPAS and the Regional Compantes; (o) compile all documents prepared so they may serve as a model for other state companies in the country. 1.05 The consultants should discuss with CEAPAS/SEDUE/BANOBRAS, the financial objectives of the CEAPAS and the Regional Companies and on this basis propose the financial policies to be adopted by the proposed organi- zation. Central to this question is the degree of financial autonomy which would be appropriate to the CEAPAS as a whole, and to each Regional company. It is envisaged that an important part of the studies leading to these proposals will be an appraisal of the revenue generating capability of the organization and their adequacy to cover operating and maintenance cost, depreciation and debt service payments and contribution to future investment. 1.06 The consultants should prepare users' manuals for the implementa- tion of their recommendations agreed upon with CEAPAS/BANOBRAS/SEDUE and the Bank. The consultants should also prepare terms of reference for any future studies. - 48 - ANNEX 8 Attachment 1 Page 6 of 6 Institutional Development Program to CEAPAS Timetable Activities/year 1983 1984 1985 1986 1987 Select Consultants Diagnosis * Design Model Organizational Structure Discussion of Recommendations ._ . Manuals of Implementation * Terms of Reference * Reports to be presented to the Bank for comments. THIRD MEDIUM SIZE CITIES AND SINALOA STATE NATER PROJECT SINALOA STATE WATER COMPANY Detailed Cost Table Base Costs Quantita (Mex t Millio,,) Phj, ---------------------------------------------- Unit Cost ---------------------------------------------- Cont. For. Gross Susharv Unit 1984 1985 1986 1907 1988 1989 Total (Mex $ '000) 1984 1985 1986 1987 1988 1989 Total Rate Exch. Tax Rate Account 1. INVESTKENT COSTS A. INSTITUTIONAL DEVELOPKENT PROGRAM INTERNATIONAL CONSULTANT Man/Month 24 14 15 5 - - 58 530 12.7 7.4 8.0 2.7 - - 30.7 0 0.85 0.15 IC LOCAL CONSULTANT Man/lMonth 36 36 36 36 - - 144 244.828 8.8 8.8 8.8 8.8 - - 35.3 0 0.29 0.15 LC FIELD SURVEY Lot I - - - - 1 9,266.824 9.3 - - - - - 9.3 0 0.42 0.15 FS OFFICE SURvEY Lot I 1 - I - - 3 4.633.412 4.6 4.6 - 4.6 - - 13.9 0 0.42 0.15 aS IMPLEIENTATION PERIOD No - - - I - - 1 23,167.059 - - - 23.2 - - 23.2 0 0.42 0.15 IMP Sub-Total INSTITUTIONAL DEVELOPMENT PROGRAM 35.4 20.9 16.8 39.3 - - 112.3 B. SUPPLY PICK UP -1/2 Tn. No 10 1S - - - - 25 834.75 8.3 12.5 - - - - 20.9 0 0.85 0.15 PU50 PICK UP -3/4 Tn. No 10 15 - - - 25 1,113 11.1 16.7 - - - - 27.8 0 0.85 0.15 PU75 PICK UP -3 Tn. No 8 7 - - - - 15 1,335.6 10.7 9.3 - - - - 20.0 0 0.85 0.15 PU300 TiOGRPWHY Lot 5 - - - 5 5,546.471 27.7 - - - 27.7 0 0.8 0.15 TOP LABORATORY E0UPIIET Lot 2 1 2 - - 5 1,663.941 3.3 1.7 3.3 - 8.3 0 08 0.15 LB . C11MICATION EQUIPMENT Lot 3 2 - - - 5 33.278.824 99.8 66.6 - - - - 166.4 0 0.8 0.15 Co ' EXCAVATOR No 2 - - - 2 22,260 44.5 - - - - - 44.5 0 0.85 0.15 EX Sub-Total SUPPLY 205.6 106.8 3.3 - - - 315.7 C. HEALTH EDUCATION PROGRAM LOCAL COINS1LTANT Man/Month 12 3 3 1 - _ 19 244.828 2.9 0.7 0.7 0.2 - - 4.7 0 0.29 0.15 LC ItLEIMNTATION PERIOD No I I - - 2 463,341 0.5 0.5 - - - - 0.9 0 0.42 0.15 IMP AUDIOVISUAL E0UIPMENT No 5 - - - - - 5 277.324 1.4 - - - - - 1.4 0 0.8 0.15 AV VEHICLES No 5 - - - - - 5 B34.75 4.2 - - - - - 4.2 0 0.85 0.15 PU50 Suo-Total HEALTH EDUCATION PROGRAN 9.0 1.2 0.7 0.2 11.1 D. CULIACAN WELL AND METER No - 0.5 0.5 - - - 1 76,301.176 - 38.2 38.2 - - - 76.3 0 0.5 0.15 WE TRANSMISSION LINE Km 45 43.9 74.7 - - - 163.6 30416.471 153.7 150.1 255.2 - - - 559.0 0 0.5 0.15 TR PUIIPING STATION No - I - - - - I 7,311.247 - 7.3 - - - - 7.3 0 0.5 0.15 PS REGULATION No - 0.5 0.5 - - - I 3.074.824 - 1.5 1.5 - - - 3.1 0 0.5 0.15 ST POTABILIZATION No - I - - - - I 2,098.024 - 2.1 - - - - 2.1 0 0.5 0.15 CH DISTRIBUTION SYSTEM Km. - 24 32 - - - 56 2t152.376 - 51.7 68.9 - - - 120.5 0 0.5 0.15 DN HOUSE CONNECTIONS No 4,927 4,927 4,927 - - - 14,781 21.182 104.4 104.4 104.4 - - - 313.1 0 0.5 0.15 HC TRUNK SEWER AND INTERCEPTORS Km. 7 7.6 7.7 - - - 22.3 7,060.706 49.4 53.7 54.4 - - - 157.5 0 0.5 0.15 TS SEWER PIPES Km. 51 64 65 - - - 180 21277.647 116.2 145.8 148.0 - - - 410.0 0 0.5 0.15 SP HOUSE DISCHARGES Mo 10,765 15,000 159000 - - - 40,765 20.043 215.8 300.6 300.6 - - - 817.1 0 0.5 0.15 HD SEWERAGE TREATMENT PLANT No - - - - - - - 68.3 68.3 70.4 - - - 206.9 0 0.5 0.15 TP LOCAL CONSULTANT Man/Month 430 430 421 - - - 1.281 244.828 105.3 105.3 103.1 - - - 313.6 0 0.29 0.15 LC Sub-Total CULIACAN 813.0 1,028.9 1,144.6 - - - 2,986.5 ;, i oo z o So 'a MEXICO THIRD MEDIUM SIZE-CITIES AND SINALOA STATE WATER PROJECT SINALOA STATE WATER COMPANY Detailed Cost Table E. LOS HOCHrS RtEGULATION No- - - - - - 6.4 6.4 - - - - 12.9 0 0,5 0.15s ST DISTRIBUTION SYSTEM Km 43 43.6 - - - - 86.6 2,049.882 88. 1 89.4 - - - - 177.5 0 0,5 0.5 118D HOUISE CONNECTIONS No 3,300 2,230 - - - - 5,530 21,182 69.9 47.2 - - - - 117.1 0 0,5 0,15 KC LABORTORY EQUIPMENT No I - - - - 1 1,774.871 - 1.8 - - - - 1.8 0 0,8 0.15 LB LEAK DETECTION No I - 1 4,448,269 4,4 - - - 4.4 0 0.0 0.15 LI TRLMS SEWER AND INTERCEPTORS Ks 32 49 - - - - 81 2,376.725 76.1 116.5 - - - - 192.5 0 0,5 0.15 TS SEVER PIPES Km 13.1 46.3 - - - 59,4 2,414.306 31.6 111.8 - - - - 143.4 0 0.5 0,15 SP HOUS DISCWHARS No 2,500 2,480 - - - - 4,980 20,043 50.1 49.7 - - - 99.8 0 0.5 0.15 HD LOCAL CONSUILTANT I1aif,'Noth 200 231 - - - - 431 244.828 49.0 56.6 - - - - 105,5 0 0.29 0.15 LC Sub-Total LOS MOCHIS 371.2 483.8 - - - - 855.0 F. TOPOLOBAMO TRANMISSION LIKE Km 6.4 - - - - - 6.4 19822.118 11.7 - - - - - 11.7 0 0,5 0.15 TR PIBPINS STATION No - - - - - - - 23.8 - 23.8 0 0,5 0,15 PS REGUATION NO 1I - 1 5,808 5.8 - - - - - 5,8 00.5s 0.15 ST DISTRIBUTION SYSTEM Km 13 - - - - 13 2,049.882 26.6 - - - - - 26.6 0 0.5 0.15 08 HOUS COWECTION NO 409 - - - - - 409 21.182 8.7 - - - - 8.7 0 0.5 0.15 NC TRUNK SEWER ANDINTERCEPTORS Ks 4 - - - - - 4 5,921.882 23.7 - - - - - 23.7 0 0.5 0.15 TS c PUMIPING STATION No - - - - - - 13.5 - - - - - 13.5 0 0.5 0.15 PS SEWER PIPES Km 91 - - - - 91 1,366.588 124.4 - - - - - 124.4 0 0.5 0.15 SP HODJSE DISCHARGES NO 1,537 - - - - - 1,537 20.043 30.8 - - - - 30.8 0 0.5 0.15 HD LOCAL CONSUTANT Nan/NMoth 110 - - - - 110 244,828 26.9 - - -- 26.9 0 0.29 0.15 IC Sub-Total TOPOOBAMPO 295.8 - - - - - 295.8 G., MAZATLAN NELL AND MIEER Nao 11.5 15.3 11.4 - - - 38.2 0 0,5 0.15 AE REGULATION NO - - - - - - 11.0 11,0 - - - - 22.0 0 0.5 0.15 ST TRANSMITION LINE Kmk a 9 - - - - 17 2F240.066 17.9 20.2 - - - - 38.1 0 0.5 0.15 TR DISTRIBUTION SYSTEM Km 50 70 41 - - - 161 2,515,661 125.8 176.1 103.1 - - - 405.0 0 0.5 0.15 DN HOUS CONNECTION No 5~237 50707 7,240 - - 10,184 19.246 100.8 109.8 139.3 - - - 2500 0 0,5 0.15 HC NTERS No 2~500 - - - 2,500 5.761 14.4 - - - - 14.4 0 0.5 0.15 MT TRUNK SCWER AND INTERCEPTORS Kmi 10 2,1 19 - - 61 4P606.541 02.9 110,6 87.5 - 201.0 0 0.5 0.15 TS PUMPING STATIDN No - - - - - - - 11.6 11.6 15,5 - - 38.7 0 0.5 0.15 Ps SENER PIPES Ka 14 15 14 - - 43 2,774,174 38.8 41,6 38.8 - ll-11.3 I 0.5 0.11 SF NOOJSE DISCHARGES No 5,237 5,707 7.240 - - - 18,184 18.221 95.4 104,0 131,9 - - - 321.3 0 0.5 0.15 HDl PRESION TRUNK SEWER Kmk 6 6 6 - - 18 12,123.915 72.7 72.7 72.7 - - - 218.2 0 0.5 0.15 TI LEON DETECTION No 1I - - I 5.041.742 5.0 - - - - - 5.0 0 0.8 0.15 LD CLEANING SEWER EQIUIPMENT NO 1I - - 1 13,311,529 13.3 - - - - 13.3 0 0.8 0.15 Cs LOCAL CONSULTANT Nlan/Month 360 360 360 1 - 0hO0 244.828 88.1 88.1 88.1 - - - 264.4 0 0.29 0.15 LC Sub-Total MAZATLAN 689.5 761.0 688.5 - - - 2,139.0 Total INWESTMENT COSTS 2,419.5 2P402.5 1,853.9 39.5 - - 6t715.5 r Total BASELINE COSTS 2,419.5 2,402.5 1,853.9 39.5 - - 6,715.5 V. …~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I - 51 - ANNEX 9 Page 3 of 5 MEXICO THIRD MEDIUM SIZE CITIES AND SINALOA STATE WATER PROJECT Sinaloa State Water Board Construction Program - Proposed Works 1. CULIACAN 1.1 Water Supply (a) Construction of a deep well and provision of master meter and pumping equipment; (b) construction of 6.2 km of transmission line; (c) construction of one storage tank with a capacity of 300 m3; (d) improvements in the distribution system and construction of 46.6 km of pipes; and (e) construction of 5300 metered house connections. 1.2 Sewerage (a) Construction of 22.3 km of trunk sewers and interceptors; (b) construction of 99 km of sewage pipes; (c) construction of 11.187 house discharges; (d) construction of the first stage of oxidation ponds plant in- cluding a laboratory for physico-chemical and bacteriological analysis; and (e) provision of a cleaning sewer equipment. 2. LOS MOCHIS 2.1 Water Supply (a) Construction of one storage tank with a capacity of 7,600 m3 (b) improvements in the distribution system and construction of 44 km of pipes; - 52 - ANNEX 9 Page 4 of 5 (c) construction of 5530 metered house connections; (d) provision of a complete laboratory for physico-chemical and bacteriological analysis of water and sewage; and (e) provision of leak detection equipment. 2.2 Sewerage (a) Construction of 29 km of trunk sewers and interceptors; (b) improvements in the sewer network and construction of 32.1 km of sewer pipes; (c) construction of 4980 house discharges; and (d) provision of a cleaning sewer equipment. 3. TOPOLOBAMPD 3.1 Water Supply (a) Construction of 6.4 km of transmission line from the new treat- ment plant to the pumping station and to the storage tank; (b) construction of a pumping station; (c) construction of a storage tank with a capacity of 276 m3; (d) improvements in the distribution system and construction of 13 km of pipes; and (e) construction of 410 metered house connections and 50 stand- pipes; 3.2 Sewerage (a) Construction of 3.4 km of trunk sewers and interceptors; (b) construction of a sewerage pumping station; - 53 - ANNEX 9 Page 5 of 5 (c) construction of i9.7 km of sewer pipes; and (d) construction of 1537 house dicharges. 4. MAZATLAN 4.1 Water Supply (a) Improvements to existing wells including provision of master meters and construction of 4 new deep wells; (b) construction of one storage tanks with a combined capacity of 5,000 m3 (c) construction of 98.3 km of distribution pipes; and (d) construction of 18,200 metered house connections. (e) provision of 2,500 meters. 4.2 Sewerage (a) Construction of 61 km of trunk sewers and interceptors, and 18 km of pression trunk sewers; (b) construction of a sewage pumping station; (c) construction of 43 km of sewer pipes; (d) construction of 12,730 house discharges, and (e) provision of equipment for: (i) complete water and sewerage laboratory; (ii) leak detection; and (iii) cleaning sewer. 54- ANNEX 1O Page I of 5 MEXICO THIRD MEDIUM SIZE CITIES AND SINALOA STATE WATER PROJCT MEDIUM SIZE CITIES Detailed Cost Table Base Costs oantitot (1ex 5 Million) Phs. …----------------------------___--------- Unit Cost …----------------------- Cont, For. Dross Soumars Unit 1984 1985 1986 1987 1988 1989 Total (Hex I '000) 1984 1985 1986 1987 1988 1989 Total Rate Exch. Tox Rate Aecount 1. INVESTMENT CISTS A. CELAYA - GURNAJIATO WELL AND METER No I - - …1 28,869.176 28.9 - - - - - 28.9 0 0.5 0.15 SE TRANSMISSION LINE Ka 3 3.5 6.5 5.523.294 16.6 19.3 - - - - 35.9 0 0.5 0.15 TR REGULATION No 0.5 0.5 1 2 12,356.235 6.2 6.2 12.4 - - - 24.7 0 0.5 0.15 ST POTABILIZATION No 2 9 5 16 2,717.647 5.4 24.5 13.6 - - - 43.5 0 0.5 0.15 CH DISTRIBUTION SYSTEN Ks 11.4 10 11.4 32.8 1,162.873 13.3 11.6 13.3 - - - 38.1 0 0.5 0.15 ON H1USE CONNECTION No 2,000 2.130 2.136 - 6.266 15.146 30.3 32.3 32.4 - - - 94.9 0 0.5 0.15 KC METERS No 4,910 4,910 4,912 - 14,732 4.457 21.9 21.9 21.9 - - - 65.7 0 0.5 0.15 MT LEAK DETECTION No - 1 - 6 6I 694.59 - 6.7 - - - - 6.7 0 0.8 0.15 LD TRUNK SEWER AND INTERCEPTORS Ka 8 14 4 26 1.110.353 8.9 15.5 4.4 - - - 28.9 0 0.5 0.15 TS SEWER PIPES Ks 10 13 13 36 1,628.518 16.3 21.2 21.2 - - - 58.6 0 0.5 0.15 SP HOUSE DISCHARGES No 2000 2.10 - - 4,100 14.349 28.7 30.1 - - - - 58.8 0 0.5 0.15 HD SEWERAGE TREATMENT PLANT Lot - - - - 44.6 44.6 59.5 - - - 148.B 0 0.5 0.15 TP LOCAL CONSULTANT Man/Month 340 340 340 - - - 1020 244.828 83.2 83.2 83.2 - - - 249,7 0 0.29 O.I5 LC Sub-Total CELAYA - GUANAJthATO 304.2 317.2 261.8 - - - 883.2 B. CDLIMA - COLIMA WELL AND METER No 1 1 - 2 13,438.118 13.4 13.4 - - - - 26.9 0 0.5 0.15 ME TRANSlISSION LINE Ks 7 11 20.6 3- - 8.6 4,555.294 31.9 50.1 93.8 - - - 175.8 0 0.5 0.15 TR REGULATION No - I - - - 1 15,749.929 - 15.7 - - - - 15.7 0 0.5 0.15 ST POTA8ILIZATION No 3 2 2 - - 7 9.131.294 27.4 18.3 18.3 - - - 63.9 0 D.5 0.15 CH DISTRIBUTION SYSTEM Km 22.5 15.4 8.1 - - 45.9 1.867.671 41.9 28.7 15.1 - - - 85.8 0 0.5 0.15 DM HOUSE CGNNECTION No 1,000 2.025 2,025 - - 5.050 21.182 21.2 42.9 42.9 - - - 107.0 0 0.5 0.15 HC METERS No 3,750- - - 3,750 6.305 23.6 - - - - - 23.6 0 0.5 0.15 MT LEAK DETECTION No - I - - 1 5,546.471 - 5.5 - - 5.5 0 0.8 0.15 LD LABORATORY EQUIPMENT Lot I 0 - -1 4,437.176 4.4 - - - - - 4.4 0 0.8 0.15 LB TRUlNK SEWER PIPES AND INTERCEPTGRS Km 6.4 7 8 - - 21.4 11.616 74.3 81.3 92.9 - - - 248.6 0 0.5 0.15 TS SEWER PIPES K ID 10 10 - 30 2,277.647 22.8 22.8 22.8 - - - 68.3 0 0.5 0.15 SP PUMPING STATION No - I - _ _ 1 7.060.706 - 7.1 - _ _ 7.1 0 0.5 0.15 PS HUOSE DISCHARGES No - 1,840 1,800 - - 3,640 20.043 - 36.9 36.1 - - - 73.0 0 0.5 0.15 HD CLEANING SEWER EQUIPJMENT No 1 - _ _1 15.088.4 15.1 - - - _ 15.1 0 0.8 0.15 CS LOCAL CONSULTANT an/lMonth 100 154 208 - 462 244.828 24.5 37.7 50.9 - - - 113.1 0 0.29 0.05 LC Sub-Total COLUAN - COLIMA 300.6 360.5 372.8 - - - 1,033.9 C. Cd.GUZlN-JALISCO iELL AND KETER No I I _ 2 51,247.05? 51.2 51.2 - - - - 102.5 0 0.5 0.15 WE TRANSMISSION LINE Ks 2 4 1 _ 7 4,555.294 9.1 18.2 4.6 - - - 31.9 0 0.5 0.15 TR REGULATION No I - - _1 17,993.412 18.0 - - - - - 18.0 0 0.5 0.15 ST POTABILIZATION No I I _ 2 3.261.176 3.3 3.3 - - - - 6.5 0 0.5 0.15 CH DISTRIBUTION SYSTEM Km 20 30 30 - - 80 2i049.882 41.0 61.5 61.5 - - - 164.0 0 0.5 .15 ON HOUSE CONNECTION No 870 4,050 4.050 9- - 8978 20.395 17.7 82.6 82.6 - - - 182.9 0 U.S 8.15 ME LEAK BETECTIDN No I - - _1 5654,471 5.5 - - - - - 5.5 8 0.8 4.15 LD LA8ONATORY EQUIPMENT Lot - I 1 2,279.599 - 2.3 - _ _ 2.3 0 0.8 0.15 LB TRUl SEYER PIPES AND INTERCEPTORS Km 8 11 - 19 14.121.412 113.0 155.3 - - - - 268.3 0 8.5 O.1S TS SEWER PIPES Km 6 to 11 - - 27 2.277.647 13.7 22.8 25.1 - - - 61.5 0 U.S 8.15 SP HOUSE DISCHARGES No 1,508 3,000 3.510 - - 8.010 20.043 30.1 60.1 70.4 - - - 160.5 0 8.5 0.15 HD CLEANING SEWER EQUIPMENT No I _ _… 1 15,086.4 15.1 - - - - - 15.1 O 0.8 0.15 CS LOCAL CONSULTANT Man/Month 100 150 140 - 390 244.828 24.5 36.7 34.3 - - - 95.5 0 0.29 0.15 LC Sub-Total Cd.GUZLAN-JALISCO 342.2 494.1 278.3 - - - 1.114.6 D. TAPACHLILA - CHIAPAS WELL MD METER No 1 1 - _ 2 30,748.235 30.7 30.7 - - - - 61.5 0 0.5 8.15 ME TRANSMISSION LINE Ks 8 9 - 17 2.277.647 18.2 20.5 - - - - 38.7 8 0.5 O.15 TR REGSttATION No I - -- 1 29.586.635 29.6 - - - - - 29.6 0 O.5 8.05 ST DISTRIBUTION SYSTE3S Ka 50 32.5 B2.5 1,594.353 79.7 51.8 - - - - 131.5 0 8.5 8.15 DN OUSE CON7ECTION No 3.000 3,300 - - 6.300 21.182 63.5 69.9 - - - - 133.4 0 0.5 O.1S NC METERS No 850 - …50 6.305 5,4 - - - - - 5.4 0 8.5 8.15 MT METER WORISHO Lot I 5 -,694.118 5.7 - 5.7 88.5 0.15 TN LEAK DETECTION No I 1 5546.471 5.5 - - 5.5 8 0.8 0.15 LD TRLGIW SEWER PIPES AND ITERCEPTORS Ks 13 13 5,694.118 74.0 - - - - - 74.0 0 8.5 0.15 TS SEYER PIPES Ks 57.8 51 _ - - 108.8 1P936 111.8 98.7 - - - - 210.5 8 0.5 0.15 SP HOUSE DISHBMSES Mo 4,000 4,075 - - 8.075 20.043 80,2 81.7 - - - - 161.8 0 0.5 8.15 "D CLEAlING SEWER EtUIPtENT No I - 1 56546.471 5.5 - - - - - S.S 0 0.8 0.15 CS LOCAL COMSILTAT MWMonth 200 227 - - - - 427 244.828 49.0 55.6 - - - 104.5 0 0.29 8.15 LC Sub-Total TAPACHILA - CHIAPAS 558.9 409.0 - - - - 967.9 E. OTHER PROJECTS OTHER PROEACTS Glob. - 771.3 2.699.5 3.085.2 185.8 385.6 385.6 7,712.9 0 8.5 8.15 SU Total INVESTMENI COSTS 2,277.3 4,280.2 3,998.1 385.6 385.6 385.6 11,712.5 Total B LAEI,NE COSTS 2,277.2 4_ 80.2 3_ 998.1 305.0 385.6 385.6 11,712.5 - 55 - ANNEX 10 Page 2 of 5 MEXICO THIRD MEDIUM SIZE CITIES AND SINALOA STATE WATER PROJECT Medium Size Cities - Proposed Works 1. CELAYA 1.1 Water Supply (a) Improvement to 8 existing wells and construction of 4 new wells including provision of master meters; (b) construction of 7.7 km of transmission line; (c) construction of two storage tanks with a combined capacity of 4,000 m3; (d) provision of chlorination facilities for 16 wells; (e) improvement of the distribution system and construction of 21.5 km of pipes; (f) construction of 5,400 metered house connections, and purchase and installation of 13,450 house meters; and (g) provision of a leak detection equipment. 1.2 Sewerage (a) Construction of 21.6 ki of trunk sewer and 5.4 interceptors; (b) improvements in the sewerage network and construction of 45 km of sewer pipes; (c) construction of 3166 house discharges; and (d) construction of the first stage of oxidation ponds plant in- cliding the laboratory equipment necessary for its operations. - 56 - ANNEX 10 Page 3 of 5 2. COLIMA 2.1 Water Supply (a) Improvements to the 8 existing wells and construction of 2 new well including provision of master meters; (b) construction of 21.3 km of transmission line; (c) construction of 2 storage tanks with a combined capacity of 3,400 m3; (d) provision of chlorination facilities; (e) improvements in the distribution system and construction of 44.4 km of pipes; (f) construction of 5050 metered house connections; and (g) provision of 3750 meters and equipment for leak detection and water and sewerage laboratory. 2.2 Sewerage (a) Construction of 57.0 km of trunk sewers and interceptors; (b) construction of a sewage pumping station; (c) construction of 3640 house discharges; and (d) provision of a cleaning sewer equipment. 3. CD. GUZMAN 3.1 Water Supply (a) Construction of 6 deep wells and provision of master meters and chlorinators; (b) construction of 4.1 km of transmission line; (c) construction of a storage tank with a capacity of 4,500 m3; - 57 - ANNEX 10 PaRe 4 of 5 (d) improvements in the distribution system and construction of 29.5 km of pipes; (e) construction of 8971 metered house connections; (f) provision of 8382 meters; and (g) provision of a complete water and sewerage laboratory and leak detection equipment. 3.2 Sewerage (a) Construction of 36.7 km of trunk sewers and interceptor; (b) improvements in the sewerage network and construction of 19 km of pipes; (c) construction of 8013 house discharges; and (d) provision of a cleaning sewers equipment. 4. TAPACHUJLA 4.1 Water Supply (a) Construction of 7 deep wells; (b) construction of 11 km of transmission line; (c) construction of 3 storage tanks with a combined capacity of 7,800 m3; (d) improvements in the distribution system and construction of 14 km of pipes; (e) construction of 6300 house connections; and (f) provision of 850 meters, a meter repair shop and a leak detec- tion equipment. - 58 - ANNEX 10 Page 5 of 5 4.2 Sewerage (a) Construction of 145 km of trunk sewers and interceptors; (b) improvements in the sewerage network and construction of 43.1 km of pipes; (c) construction of 8076 house discharges; and (d) provision of a cleaning sewers equipment. MEXICO THIRD MEDIUM SIZE CITIES AND SINALOA STATE WATER PROJECT PROJECT COST SUMMARY (Mex S Million) (USS Million) X of Z of Foreign X of Total Foreisn % of Total Local Foreign Total Exchange Base Costs Local Foreign Total Exchange Base Costs A. STATE WATER COMPANY INSTITUTIONAL DEVELOPMENT PROGRAM 55.7 56.6 112.3 50.4 0.6 0.5 0.5 1.1 50.4 0.6 SUPFLY 56.9 258.8 315.7 82.0 1.7 0.5 2.4 3,0 82.0 1.7 HEALTH EDUCATION PROGRAM 4.7 6.4 11.1 57.8 0.1 0.0 0.1 0.1 57,8 0.1 CULIACAN 1,525.3 1461.2 2,986.5 48.9 15.9 14.4 13.8 28.2 48.9 15.9 LOS MOCHIS 438.3 416.8 855.0 48.7 4,6 4.1 3.9 8.1 48.7 4.6 TOPOLOBAMPO 150.2 145.6 295.8 49.2 1.6 1.4 1.4 2.8 49.2 1.6 MAZATLAN 1,095.7 1,043.3 2,139.0 48.8 11,4 10,3 9.8 20.2 48.8 11.4 Sub-Total STATE WATER COMFANY 3Y326.8 3,388.7 6.715.5 50.5 35.8 31.4 32.0 63.4 50.5 35.8 B. MEDIUM - SIZE CITIES CELAYA - GUANAJUATO 483.0 400.2 883.2 45,3 4.7 4.6 3.8 8.3 45.3 4.7 COLIMA - COLIMA 521,7 512.1 1,033.9 49.5 5.5 4.9 4.8 9.8 49.5 5.5 Cr, GUZHAN - JALISCO 557.9 556.6 1,114.6 49.9 5.9 5.3 5.3 10.5 49.9 5.9 TAPACHULA - CHIAPAS 491.7 476,2 967.9 49.2 5.2 4,6 4.5 9.1 49.2 5,2 OTHER SUBPROJECTS 3,764.4 3r948.5 7,712.9 51.2 41.1 35.5 37.3 72.8 51.2 41.1 Sub-Total MEDIUM - SIZE CITIES 5,818.8 5,893.7 11,712.5 50.3 62.5 54.9 55.6 110.5 50.3 62.5 C. INSTITUTIONAL BUILDING PROGRAM TRAINING PROGRAM 227.5 95,7 323.2 29.6 1.7 2.1 0.9 3.0 29.6 1.7 EOUIFMENT 0.2 0.7 0.9 80.3 0.0 0.0 0.0 0.0 80.3 0.0 Sub-Total INSTITUTIONAL BUILDING FROGRAM 227.6 96.4 324.1 29.8 1.7 2.1 0.9 3.1 29.8 1.7 Total BASELINE COSTS 9,373.3 9.378.8 18,752.0 50.0 100.0 88.4 88.5 176.? 50.0 100.0 Price Contingencies 8,013.6 9,264.5 17,278.1 53.6 92.1 4.5 11.5 16.0 72.0 9,0 Total PROJECT COSTS 17,386.9 18,643.3 36,030.2 51.7 192.1 92,9 100.0 192.9 51.8 109.0 0 I- ----------------------------------------------~~~~== ==_= === === --------- -------==---_========----==_=--===-- -=---=====---=======--- ===_=_===---- _____________ .......................... _______________ .................................______________________________________________--__---------....................................Lo.f - 60 - ANNEX 11 Page 2 of 3 MEXICO THIRD MEDIUM SIZE CITIES AND SINtLOA STATE WATER PROJECT Summars Account be Time Base Costs Base Costs + Price (Hex S Million) Cont. on Foreign Exchange Unit Cost ---------------------------------------------------------- Base Costs ---------------- Unit (Mex S '000) No. of Units 1984 1985 1986 1987 1988 19B9 Total (USS Million) 0 Amournt I. INVESTMENT COSTS A. CONSTRUCTION METERS No. 4.457-6.305 21,832 65.3 21.9 21.9 - - - 109.1 1.1 51.2 55.8 METERS WORKSHOP No. 5,694.118 1 5.7 - - - - - 5.7 0.1 51.2 2.9 TREATMENT PLANT No. - 112.9 112.9 129.9 - - - 355.7 3.6 51.2 182.1 WELL A;D METER No. 13,438.118-76,301.17 8 135.8 148.8 49.5 - - - 334.2 3.3 51.2 171.1 CHLORINATION No. 2,09B.024-9,131.294 26 36.1 48.1 31.9 - - - 116.0 1.2 51.2 59.4 TRANSMISSION LINE No. 1,822.118-5,523.294 256 259.1 278.4 353.6 - - - 891.1 9.1 51.2 456.2 STORAGE TANK No. 3,074.824-29.586.635 7 77.0 40.9 13.9 - - - 131.0 1.3 51.2 67.5 DISTRIBUTION NETWORK No. 1,162.873-2,515.661 558 416.5 470.8 261.8 - - - 1,149.1 11.5 51.2 588.3 HNUSE CONNECTIONS No. 15.146-21.182 65,490 416.5 489.1 401.6 - - - 1,307.1 13.2 51.2 669.2 TRUNK SEWER AND INTERCEPTORS No. 1,110.353-14,121.412 266 575.0 605.6 312.0 - - - 1,492.7 14.9 51.2 764.1 SEWER PIPES No. 1,366.588-2,774.174 575 475.5 464.6 255.9 - - - 1,196.0 11.9 51.2 612.3 PUMPING STATION No. 7,060,706-7,311.247 2 48.9 26.0 15.5 - - - 90.4 0.9 51.2 46.3 HOUSE DISCHARGES No. 14.349-20.043 B9v291 531.0 663.2 539.0 - - - 1,733.2 17.5 51.2 887.3 GLOBAL No. - 771.3 2,699.5 3?085.2 385.6 385.6 305.6 7,712.9 02.4 51.2 3,948.5 Sub-Total CONSTRUCTION 3,926.7 6,069.9 5,471.6 385.6 385.6 305.6 16,625.1 171.9 51.2 0,510.9 Price Contingencies - 1,428.2 5,001.6 6,710.1 644.8 049.4 1,098.1 15,732.2 - 54.7 8,604.4 Sub-Total INCLUDING CONTINGENCIES 5,354.9 11,071.5 12,081.7 0,030.5 1,235.1 1,483.7 32,357.3 171.9 52.9 17,115.3 Taxes - 803.2 1,660.7 1,827.3 154.6 185.3 222.6 4,853.6 - 0.0 0.0 Foreign Exchanse - 2,892.3 5,871.0 6,386.7 540.3 647.1 777.9 17,115.3 - 0.0 0.0 B. VEHICLES PICK-UP TRUCK .5 TON No. 834.75-834.75 30 12.5 12.5 - - - - 25.0 0.3 85.0 21.3 PICK-UP TRUCK .75 TON No. 1,113 25 11.1 16.7 - - - - 27.8 0.3 85.0 23.7 PICK-UP TRUCK 3 TONS No. 1,335,6 15 10.7 9.3 - - - - 20.0 0.2 85.0 17.0 EXCAVATOR No. 22,260 2 44.5 - - - - - 44.5 0.4 85.0 37.8 Sub-Total VEHICLES 78.9 38.6 - - - - 117.4 1.2 85.0 99.8 Price Contingencies - 34.6 34.3 - - - - 68.9 - 85.0 58.6 Sub-Total INCLUDING CONTINGENCIES 113.5 72.9 - - - - 186.3 1.2 85.0 158.4 Tax:es - 17.0 10.9 - - - - 27.9 - 0.0 0.0 Foreign Exchange - 96.4 61.9 - - - - 158.4 - 0.0 0.0 C. EQUIPMENT COMNUNICATION No. 33,278,824-33!278.82 5 99.0 66.6 - - - - 166.4 1.7 80.3 133.6 CLEANING SEWER No. 5,546.471-15,086.4 4 49.0 - - - - - 49.0 0.5 80.3 39.4 LABORATORY No. 1,663.941-4,437,176 a 7.8 5.7 3.3 - - - 16.8 0.2 80.3 13.5 TOPOGRAPHY No. 5,546,471 5 27.7 - - - - - 27.7 0.3 00.3 22.3 AUDIOVISUAL No. 277.324 5 1.4 - - - - - 1.4 0.0 80.3 1.1 LEAK DETECTION No. 4,448,269-6,694.59 6 16.1 16,7 - - - - 32.8 0.3 80.3 26.3 COMPUTER No. - 0.9 - - - - - 0.9 0.0 80.3 0.7 Sub-Total EQUIPMENT 202.8 89.0 3.3 - - - 295.1 2.9 80.3 236.0 Price Contingencies - 86.8 78.3 4.2 - - - 169.4 - 81.7 138.3 Sub-Total INCLUBING CONTINGENCIES 289.6 167.3 7.6 - - - 464.5 2.9 80.8 375.2 Taxes - 43.4 25.1 1.1 - - - 69.7 - 0.0 0.0 Foreign Exchange - 234.2 134.9 6.1 - - - 375.2 - 0.0 0.0 MEXICO THIRD MfEDIUM-SIZE CITIES AND SINALOA STATE WATER PROJECT Summary Account by Time D. CONSULTANT SERVICES INTERNATIONAL CONSULTANT No. 530-530 58 12.7 7.4 8.0 2.7 - - 30.7 0.3 85.0 26.1 LOCAL CONSULTANT No. 244.828-244.828 5,364 543.0 618.2 466.2 9.1 - - 1,636.4 16.1 29.6 484.6 FIELD SURVEY No. 9t266.824 1 9.3 - - - - - 9.3 0.1 43.2 4.0 OFFICE SURVEY No. 0-4,633,412 3 4.6 4.6 - 4.6 - - 13.9 0.1 43.2 6.0 IMPLEMENTATION PERIOD No. 463.341-23,167.059 3 0.5 0.5 - 23.2 - - 24.1 0.3 43.2 10.4 Sub-Total CONSULTANT SERVICES 570.1 630.7 474.1 39.5 - - 1,714.4 16.9 31.0 531.2 Price Coritiniencies - 182.0 494.3 565.9 65.4 - - 1t307.6 - 35.4 463.2 Sub-Total INCLUDING CONTINGENCIES 752.1 1,125.0 1,040.0 104.9 - - 3,022.1 16.9 32.9 994.4 Ts..4 La Reforma '/ Railroads | \\ c; f~~Bad oguto ,~~~~~~~~~~ :U River N G\ 0 Cncri -25' nentoa Budre \ MEDIUM SIZ CITIES II PRLOJ^ECT La 20k 40 0 140 STATE~~ ~ ~~ OF" SIAO 'CUIACN 'pprise Ciie I9- :Mi 10-R0-o0-adsTNe Seonar Road 13RD 16393 tiN 5 IO ON- MAY 1931 K UNITED STATES OF AMERICA 1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~\ Ensnd .X I-,C t'u. 1'50noto \MEDIUM SIZE CITIES K I ---'" t 'tpe FTr--- STATE WATER COMPANY BAJA 4nullFelipe < Nepoiese49UnPr -: ,f '--X v WATER SUPPLY AND SEWERAGE PROJECT m 55.3 MORN/A / t~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~LCATIONS OF APPRAISED SUBPROJECTS SN 507R 'TN AND PILOT STATE WATER COMPANY .< > a >t ' t g : C ; \, / S V ~~~~~~~~~H V A j j ~ ~ ~ ~ ~ ~ ~~~~~~C cO ¸ˇˇ'Store Pilot P-o1ct -~~~~~~~ r r' 0r0,. 7~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~.d aM,p,,,do >~~ 4) Med,uor Sjaofll,nppraitod cities~~~~~widlj7 M.- S A ii ( / <0" *Macl Meiu Size < IandX,utieslILounsll8bME0 ,lP13 ME _4 4' \ 'r Natio . nal capitol Stote -.pitl.S RA A/ N*., - M','f ,CAI I*RNIA 4%d - - - odd highways Si~~~~~~~~~~~~~~~~~~~~~~~~ . 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