Dowses of The World Bank FOR OMCALu USE ONLY cA ,?A/.?..kS; Report No. P-4374-MAI REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT !N AN AMOUNT OF SDR 16.6 MILLION TO THE GOVERNMENT OF MALAWI FOR THE SECOND LILONGWE WATER SUPPLY PROJECT October 30, 1986 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 BOUIVALENTS Currency Unit = Malawi Kwacha (Mg) US$1.00 = MK 1.80 (July, 1986) MK 1.00 = US$0.5556 100 Tambala = MK1 WEIGHTS, VOLUMES AND MEASURES 1 Cubic Meter (m3) = 220 Imperial Gallons, 264.2 US Gallons, or 1 Kiloliter (kl) I Liter per Capita per Day = I lcd 1 Meter (m) = 3.28 Feet (39.37 inches) 1 Kilometer (Km) = 0.62 Mile 1 Square Kilometer (Km2) = 0.386 Square Miles = 247 Acres (ac) ABBREVIATIONS AND ACRONYMS BWB = Blantyre Water Board DOW = Department of Water EIB = European Investment Bank ERR = Economic Rate of Return LCS = Low Cost Sanitation LWB = Lilongwe Water Board ODA = Overseas Development Administration FISCAL YEAR Government of Malawi and Lilongwe Water Board : April 1 to March 31 FOR OFFICIAL USE ONLY MALAWI SECOND LILONGWE WATER SUPPLY PROJECT Credit and Project Summary Borrower: Republic of Malawi Beneficiaries: Lilongwe Water Board, Ministry of Local Government, and Lilongwe City Council Amount: SDR 16.6 million (US$20.0 million equivalent) Terms: Standard IDA terms Relending Terms: The Government will onlend US$19.4 million equivalent to the Lilongwe Water Board (LWB) at a rate of interest of 11 percent per annum, for a period of 25 years, including six years grace, during which period the interest due to the Malawi Government would be capitalized. The Government would bear the exchange rate risk. The onlending rate is expected to be positive in real terms over the life of the project. Project Description: The objectives of the project are to extend and improve the water supply system of Lilongwe, Malawi's capital city, to strengthen LWB's management and operational efficiency, and to study future options for LUlongwe's water disposal and sanitation systems. The project includes construction of a new earthfill dam, remedial works on an existing dam, extension of the water treatment plant and of the water distribution system, training and management staff support for LWB, and feasibility studies on Lilongwe's sanitation and sewerage systems. The project would provide safe water for an additional 110,000 inhabitants of Lilongwe. Risks: The main risk is that LWB would not generate enough revenue to ensure its financial viability. To minimize this risk, the project is based on conservative demand forecasts. The Government, in line with its overall policy regarding financial self-sufficiency of parastatals, has agreed to permit LWB to increase water charges as needed so as to be financially self-supporting. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. - ii - Estimated Cost: Local Foreign Total -----(US$ million) Water Supply Extension 7.1 11.8' 18.9 Management Staff Support and Training 0.0 1.0 1.0 Sanitation Pilot Project and Study 0.1 0.4 0.5 Total Base Costs 7.2 13.2 20.4 Physical Contingencies 0.9 1.4 2.3 Price Contingencies 3.5 4.3 7.8 TOTAL COSTS 11.6 18.9 30.51/ = -~~~~~~~~~~~ Financing Plan: Local Foreign Total ---(US$ million)---- IDA 4.5 15.5 20.0 European Investment Bank 3.7 2.8 6.5 Overseas Development Administration - 0.7 0.7 LWB 2.2 - 2.2 Government of Malawi 1.1 - 1.1 TOTAL 11.6 18.9 30.5 Estimated Disbursement of IDA Credit: IDA FY 1987 1988 1989 1990 1991 1992 1993 ~- --'--US$ million)------- - Annual 0.6 2.6 4t-7 4.9 4.4 2.3 0.5 Cumulative 0.6 3.2 7.9 12.8 17.2 19.5 20.0 Rate of Return: Important non-quantifiable benefits would accrue from improved health, improved environmental conditions, and increased labor productivity. Based on incremental water sales and increased tariff levels the economic rate of return is 5.5 percent. Staff Appraisal Report: Report No. 6212-HAI dated October 24, 1986. Maps: IBRD 19697, 19698 1/ Taxes are negligible since virtually all items would be exempt from import duties and sales taxes. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO TRE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF MALAWI FOR THE SECOND LILONGWE WATER SUPPLY PROJECT 1. I submit the following report and recommendation on a proposed credit to the Republic of Malawi for SDR16.6 million (US$20.0 million equivalent) on standard IDA terms to help finance the Second Lilongwe Water Supply Project. PART I - THE ECONGIY 2. A Country Economic Memorandum (Report No. 5801-MAI) dated October 4, 1985, was circulated to the Executive Directors on October 15, 1985. Annex I contains the basic country data. Background 3. Malawi is a small (118,500 sq km), densely-populated (about 7 million people in 1985), landlocked country in southeastern Africa. Its main assets are moderately fertile soils, good water resources and a climate favorable to crop production. Unlike its neighbors, Malawi has no known substantial mineral resources. 4. With a GNP per capita of US$170, Malawi has been identified by the United Nations as one of the world's poorest countries. Nevertheless, from independence in 1964 until 1979, Malawi had steady economic growth, averaging 6 percent per annum in real terms (3 percent per capita). The leading sectors were agriculture and manufaccuring. Investment rose from 9 percent of GDP at independence to 33 percent in 1979, financed by increased domestic savings (from nil to 14 percent of GDP in 1979), and rising official and private capital inflows. In 1980 and 1981 Malawi met with serious difficulties drie to world economic conditions, and GDP contracted by 6 percent over those two years. Consumption fell somewhat, but savings and Investment were reduced drastically. Recovery began in 1982, with growth averaging 3.2 percent through 1985. 5. Malawi's economic growth has been due in large part to the pragmatic policies of the Government. Malawl has adopted an outward looking strategy based on agriculture, consistent with the country's resource endowment. Government investment has concentrated on provision of infrastructure, utilities and support services to encourage private initiative. The Government has also emphasized smallholder agriculture, a sound policy given that 90 percent of the population lives in rural areas and depends on agriculture for its livelihood. Traditionally, more than half of the development budget has been directed towards agriculture and transport. 6. Malawi's economy is heavily dependent on three primary commodity exports (tobacco, tea, and sugar) and is highly vulnerable to international price fluctuations. In 1980-85 these three commodities averaged 70 percent of total exports and 16 percent of CDP. Since 1974, there have been periodic balance of payments problems of increasing severity due primarily to (a) rapid escalation in import prices, particularly of fuel and intermediate and capital goods; (b) cyclical swings in export prices of tobacco, sugar and tea; (c) significantly higher costs of transport for exports and imports owing to rising ocean freight charges, port congestion in Mozambique, and, more recently, severe disruptions of overland transport routes through Mozambique resulting in complete severance of direct rail links to Mozambique ports in 1984; and (d) an increasing debt service burden. Economic Crises 1978-81 7. Beginning in 1978, Malawi's chronic balance of payments problems became less manageable. The current account deficit rose from a level of 8-9 percent of GDP in the mid-1970s to 18 percent in 1978 and 23 percent in 1979. Import prices rose by 39 percent over this period, primarily due to petroleum price hikes. Conversely, export prices declined by 16 percent (due mainly to falling tea and tobacco prices). In 1980 and 1981, a drought led to reduced agricultural exports and necessitated increased Imports of subsistence crops (maize). Nevertheless, by 1981 Malawi enjoyed a surplus on the merchandise trade balance thanks mainly to a contraction In Imports and has increased this surplus steadily since 1981. Continuing current account deficits were due to a large deficit on the service accounts. Transport costs for imports and exports were greatly increased due to continuing problems with traditional export routes through Mozambique. Debt servicing also contributed to the deficit on the invisibles account. These current account deficits were initially financed by sharply increased private capital inflows. These were still not sufficient to finance the current account deficit and the country drew down its foreign reserves to less than one month of imports by end 1983. In 1984, the current account deficit was greatly reduced to three percent of GDP and reserves were increased by US$65 million. This was due to improvements in the terms of trade, led by record tea prices, and a sharp increase in exports, as previous stocks of tobacco and sugar were moved out of the country, resulting in a large trade surplus, nearly matching the deficit on the services account. By contrast, in 1985 terms of trade experienced a drastic downturn, mainly owing to a sharp drop of tobacco prices, which in conjunction with expansionary fiscal and monetary policies provoked a current account deficit of 9 percent of GDP. The outlook for 1986 is of a slight reduction in the deficit to about 8 percent of GDP. 8. The economic difficulties of 1980-81, as well as problems with public corporations, led to an increase in the Government budget deficit reaching 16.5 percent of GDP in 1981, double historic levels. This was due primarily to a rapid increase in government expenditures, attaining 35 percent of GDP in that same year. Much of this was made up of recurrent expenditures, especially interest payments. Revenues did not increase commensurately, given the recession, hence the large fiscal deficit. These deficits were financed by government borrowing, primarily domestic. Public -3- sector credit represented 60 percent of total domestic credit in 1984 and as a percentage of GDP it increas2d to 13 percent in 1984 as compared to 9 percent in 1974. The fiscal position has improved since, with increased revenues and restrained spending, so that the deficit was reduced to 8.9 percent of GDP by FY84185 and 10.9 percent by FY85/86, an improvement, though still above target levels. Improving expenditure control is a key element to continuing Malawi's economic recovery. Inflation has been within a range of 10-15 percent since 1981. 9. Given Malawi's early stage of development, foreign capital inflows, especially of a public nature, have been important in development financing. In the pre-recessionary period (1969-79), foreign savings financed approximately half of domestic investment. During the recession (1980-81), public and private capital inflows were used to maintain consumption levels, and domestic savings fell. Since 1981, domestic savings have been increasing, while private inflows have virtually ceased. Public transfers continue, financing approximately 50 percent of all investment. While multilateral assistance, led by World Bank Group loans and credits, has increased, grants and bilateral transfers have declined from past levels, and have not kept pace with Malawi's needs. Stabilization and Adjustment Programs 10. Initially, the country attempted to offset the economic downturn of 1979-1980 by increased external borrowing, mostly on commercial terms, in order to maintain Import levels and thus production, employment and consumption. It soon became evident that with increasing inflationary pressures and fiscal and balance of payments disequilibria, more stringent adjustment efforts were needed. The Goverrnment, therefore, launched a stabilization effort designed to reduce short-term fiscal and balance of payments disequilibria and a structural adjustment program designed to improve efficiency of resource use and ensure that positive growth of per capita income can be reestablished and sustained over the medium and longer-term within the context of a manageable balance of payments current account deficit. The structural adjustment program 's broad-based; aimed at encouraging diversification of production and exports, improving performance of productive sectors, rehabilitating, restructuring and otherwise strengthening key development lnstitutions, and improving resource mobilization and allocation in the publlc sector. 11. The Government and the IMF egreed to a standby program for SDR 22 million in August 1982. A first phase of a multi-year stabilization effort, the program aimed at reducing both the balance of payments current account deficit and the budgetary deficit. As part of the program, the Goverrment devalued the kwacha against the SOR by 15 percent in April 1982. The other performance criteria involved phased ceilings on net domestic assets of the banking system and on net credit to the Government and a limit on government external commercial borrowing. The standby was implemented satisfactorily, and the Government and the IMF concluded a new multi-year program. A three year Extended Fund Facility was approved in September 1983 and, was successfully implemented until April 1985. In early 1986 due to a combination of unfavorable terms of trade and inadequate domestic policy response, the programmed targets for public - 4 - sector deficit and domestic credit expansion were not achieved. As a result, the Extended Facility became inoperative. Under the Extended Facility program an active foreign exchange policy was pursued. Thus, in September 1983 the Government devalued the Kwacha against the SDR by 12 percent and in January 1984 the Kwacha was pegged to a basket of seven currencies. In April 1985, the Kwacha was depreciated again by 15 percent in terms of the 'reference basket to reverse a real appreciation which had taken place since late 1983. Recently the Government has agreed with the IMF on a new 19 months stand-by, totalling SDR 24 million, for the period ending March 1988, and a three year SAF program. The program aims at bringing the current account into a sustainable path, increasing foreign reserves and curtailing inflationary pressures. As an initial step, the Government devalued the Kwacha by 10% In August 1986. 12. The Bank's first Structural Adjustment Loan in support of the Government's program was made in June 1981, for US$45 million. After initial difficulties, good progress was made in implementing the Government's adjustment program. Additional funds were allocated to the agricultural sector, certain agricultural prices were adjusted, public utility tariffs were increased and the budget for 1982-83 was trimmed, with sufficient resources provided for major development sectors. The second tranche was released in April 1982. However, during 1982 the country's efforts were set back by increased disruption of the traditional transport routes and continued depressed demand for Malawi's export products. Nevertheless, the country was able to hold its current account deficit to 11.3 percent of GDP in 1983, reduce the budgetary deficit for FY1982183 to 9 percent of GDP, and meet its IMF standby borrowing ceilings. 13. The second phase of the structural adjustment program was supported by a Second Structural Adjustment lending operation approved by the Board in December 1983. The second phase builds upon the reforms of SAL I, focussing on measures to improve the mobilization and management of resources, to strengthen key institutions, and to upgrade the performance of the public sector. The program has been successful in achieving most of its objectives. Among the achievements of the program have been (a) increased smallholder export production following an increase in price incentives; (b) increased industrial production and investment incentives resulting from a program of price decontrols; (C) increased domestic energy production; (d) a strengthening of the financial position of key public and private enterprises; and (e) a reduction in the budgetary and balance of payments deficits. Efforts to improve the control and allocation of pub'lic expenditures and to reduce the overall size of Government have been slow, but steps in the right direction have been taken. While the economy has grown at a moderate rate in 1983-85, prospects are for continued economic difficulties and the need for continued adjustment to balance of payments, fiscal and transport constraints. 14. An IDA Credit for US$30 million equivalent and a US$ 40 million equivalent African Facility Credit for the Third Structural Adjustment Operation were approved by the Board on December 19, 1985. The program is designed to encourage productivity and efficiency, diversify the export base and promote exports, strengthen the Government's policy making capability, and improve the performance of development institutions. The - 5 - Government has taken actlon, inter alia, to reduce subsidies, complete the price deregulation process, strengthen its policy and planning units, reduce parastatal deficits, and rationalize the role of the Agricultural Development and Marketing Corporation. Second tranche release is expected in October 1986, about three months behind schedule principally because of delays in preparing the Government's three year public sector investment program and setting up an export promotion program. External Debt Restructuring 15. By the end of 1985, Malawi's external public debt outstanding and disbursed totalled US$786 million. In late 1982, Malawi rescheduled both its official and commercial debts. Otherwise its debt servicing, including repayments to the IMF, would have amounted to over US$130 million, equivalent to about 48 percent of exports of goods and services. This compares to a level of about 10 percent in the mid-1970s. A second year of rescheduling was agreed to in October of 1983, keeping the debt service ratio to 28 percent in 1983. The Government has indicated that it will not be asking for any further rescheduling, and the debt service ratio is expected to be 38 percent in 1986 before falling to about 26 percent in 1989. Because of this high debt service ratio, commercial bank borrowing will have to remain sharply curtailed and the balance of payments gap should be closed by concessionary financing. Similarly, constraints on local borrowing would indicate the need for local cost financing to be provided by donors. PAT II - BANK GROUP OEnRATEONS IN MALAWI 16. Over the past 20 years, Malawi has received 35 IDA credits and one Special Fund credit, totalling about US$492 million, and 10 Bank loans totalling US$124 million, of which 2 were oa third window terms. Malawi has also rcceived one African Facility Credit totalling US$40.0 million equivalent. The first Bank loan to Malawi was made on third window terms in June 1976 and the first standard Bank loan in April 1977. Of the Bank Group assistance, some US$182 million (29 percent) was for agriculture, US$108 million (18 percent) for education, USS114 million (18 percent) for roads, US$168 million (21 percent) for structural adjustment, US$39 million (6 percent) for power, US$11 million (2 percent) for water, and the ba'ance of US$35 million (6 percent) for health, development finance, technical assistance, and urban housing. In FY86, a credit of US$11.6 million equivalent for an Agricultural Extension and Planning Support Project, a US$30.0 million equivalent IDA Credit and a USS40.0 million African Facility Credit for the Third Structural Adjustment Operation, a US$7.6 million loan for an Industrial and Agricultural Credit Project, and a loan of US$16.7 million equivalent for a Second Wood Energy Project were approved. For FY87, lending operations are planned in water supply, transport, health, and education. IFC's equity participations and lending commitments in Malavi total about US$27.9 million and include investments in textiles, sugar, a Development Finance Corporation (INDEBANK}, tourism, the manufacture of alcohol from molasses and a leasing and finance company. In addition, a US$0.5 million equity subscription and USS3.2 -6- million loan investment in the Viphya Plywoods and Allied Industries United were approved in August 1984 and August 1986. Annex II contains a Summary Statement of Bank Group Operations as of September 30, 1986. Bank Lending Strategy 17. Support for the Government's structural adjustment program vill continue to remain a focal point of the Bank's lending and economic and sector work program. Greater emphasis will be placed, however, on new initiatives designed to achieve more effective productivity gains, and to bring about more vigorous production and export diversification results. Equally important will be efforts to help the Government strengthen its institutions in charge of economic management with a view to solidifying the policy changes that have been made and expanding the capacity for taking future policy initiatives. Another area of emphasis will be human resource development. Malawi's life expectancy, infant survival, primary school enrollment and completion, and secondary school enrollment rates are among the lowest in the world, while the population growth rate is among the highest in the world. Finally, Malawi needs support in its efforts to further improve the efficiency of resource use, identify potential sources of future growth and promote resource conservation. Increased aid coordination and mobilization will be needed for Malawi to reach its growth potential. 18. Our economic and sector work will focus on helping the Government formulate its medium and longer tern development strategy. The next CEM (FY87) will focus on this topic. Other ESW will complement the program related to institutional and human resource development and diversification. Identifying areas of development management that need strengthening will contribute to helping the Government to institutionalize the reforms that it has been making. To help develop a strategy for diversification and privatization will require in depth looks at the National Rural Development Program (NRDP) and the agricultural sector as a whole as well as defining an industrial development strategy. As progress has been made in the SALs to improve the industrial policy environment, the focus of the industrial sector work would be on institutions and policies which affect investment incentives and opportunities. The recommendations of a report on the parastatal sector, to be completed shortly, will provide a basis for the Government's restructuring of parastatals. Sector work on local governments will focus on increasing cost recovery for urban services and on strengthening the role of local authorities in providing for urban services. 19. A Consultative Group meeting was held in January 1986 with the objective of improving donor coordination and increasing the level of resources needed to support Malawi's adjustment process. Local aid coordination efforts have been increasing and a second CG is expected in 1987. External Debt 20. The Bank Group's share of Malawi's external debt (disbursed and outstanding) at the end of 1985 was about 52 percent (IBRD: 10 percent, IDA: 42 percent), and its share in debt service was about 12 percent. -7- Because Malawi is one if the least developed countries, may other donors give aid on grant terms. Other major donors have been the United Kingdom, the Federal Republic of Germany, the European Economic Community, and the African Development Bank. Disbursements 21. The levels of disbursements for Malawi, including program lending, were as follows: in 1982, US$70.1 million; in 1983, US$33.2 million; in 1984, US$58.2 million; In 1985, US$46.4 million; and in 1986, US$68.3 million. Disbursements of the Bank Group loans and credits in Malawi have generally been good and compare favorably with other countries in the region and even on a Bank-wide basis. The disbursement rate on loans and credits to Malawi (excluding the effect of non-project lending) has averaged about 26 percent per annum, significantly higher than the Eastern Africa Regional average of 19 percent and the Bank-wide average of about 21 percent. Project Inplementation 22. Overall, implementation of Bank projects continues to be good. The Audit and Project Completion Reports underscore Malawi's sound development record and progress in extending nationwide the benefits of its investments. During the period 1983-85, there were problems due to inadequate budget provisions, but since then these problems have been satisfactorily resolved. PART III - THE WATER SUPPLY SECTOR 23. About one quarter of the area of Malawi is covered by lakes, with Lake Malawi being by far the largest, and 70 percent of the country drains into Lake Malawi or the Shire River (the lake's only outlet). There is ample surface water in Malawi; however, supply is dependent, to a great extent, on rainfall which has marked seasonality and wide variation in total precipitation from year to year. Apart from the lakes and rivers, surface water in Malawi is stored in reservoirs or dams built for water supply and conservation purposes near Blantyre, the largest city, and Lilongwe, the rapidly growing capital, as well as near smaller towns and cities and agricultural areas. 24. The two major cities of Blantyre and Lilongwe have adequate water supplies. The Blantyre Water Board (BWB) serves 90 percent of its population of 360,000. Of Lilongwe's estimated population of 169,000, about 100,000 people receive full water service from direct connections, a further 50,000 purchase water from kiosks provided by the Lilongwe Water Board (LWB), and some 20,000 people rely upon wells and streams. Based on Lilongwe's expected population growth, piped water supply will need to increase from 22,000m3 per day in 1985 to about 67,000m3 per day in 1997. In addition to the two main cities, over the past decade piped water - 8 - supplies have been made available in about 50 smaller urban centers. Over 40 percent of the rural population has access to safe water from piped gravity systems, boreholes and dug wells, and private or institutional supplies. Self-help schemes are making a significant contribution to improved water supplies in the rural areas. 25. About 15 percent of the urban population is connected to community waste water systems, with the remainder using septic tanks and pit latrines. To improve and expand alternative, low-cost sanitation (LCS) technologies, an LCS demonstration project is being carried out under the Lilongwe Water Supply Engineering Project (Credit 1272-MAI). 26. In 1979, a comprehensive reorganization of the management of activities in the sector was undertaken, leading to the creation of the Department of Water (DOW) in the Ministry of Works and Supplies. Currently, the three major institutions dealing with water supply in Malawi are DOW, BWB, and LWB. The DOW has primary responsibility for developing and managing water resources throughout Malawi, except in the municipalities of Blantyre and Lilongwe. It currently operates about 60 urban and institutional water supply systems in the country and has constructed more than 40 rural piped water supply schemes. It is also responsible for water resources planning and water pollution control and provides training for its lower level staff. Currently, UNDP is assisting DOW to draw up a Water Resources Master Plan for Malawi. 27. BWB is an autonomous statutory body responsible for water supply in the city of Blantyre. BWB has a reputation for good management. It uses local staff, with a few expatriate managers, to plan, design and supervise minor construction and to operate and maintain a large and fairly sophisticated water supply system. A "twinning arrangement with a UK waterworks company has helped BWB to strengthen its internal management. 28. In 1982 an autonomous Lilongwe Water Board was formally established. LWB's financial plans and budget proposals are reviewed by the Controller of Statutory Bodies and a joint presentation by the Controller and the Board is made to the Treasury for its approval. Senior staff appointments are also subject to the Controller's approval. A Chairman and 12 members designated by the Government, with an observer from the Department of Statutory Bodies, constitute the Board. The Engineer/Manager is the Chief Executive Officer and is also responsible for day-to-day management, coordination and direction of functions in the various departments. Despite being relatively young, the LWB has become an efficient and relatively well-managed institution. However, assistance is required to further strengthen its management, including support for high level managers and engineers, training, and short-term technical assistance. 29. LWB's accounts have been maintained on a commercial basis since FY83. From that time to the end of FY85, revenues rose on average by 21 percent (mainly from a 33 percent increase in sales volume following the completion of an augmentation scheme) while operating expenditures (including depreciation) grew by 23.5 percent. There was limited investment in current assets and an increase in accounts payable. The - 9 - operating ratio was unsatisfactory and the return on revalued net fixed assets was negative. ro help put its finances on a sound basis, and In line with the Government's overall policy to establish financial self-sufficiency of parastatals, LIB was granted a tariff increase of 23 percent effective June 1, 1985 and a tariff increase of 14 percent effective September 1, 1986. Bank Strategy in the Sector and Experience with Past Lending 30. The Bank Group has, to date, financed three water supply and urban sector development projects in Malawi. The first (Credit 711-MAI), signed in 1977, provided US$7.0 million for the augmentation of the water supply to Blantyre and for strengthening BWB's management and technical capabilities. The technical aspects of the project were successfully implemented. BWB's institutional development and organizational performance improved considerably and BWB has earned a reputation as one of the best managed water supply organizations in the region. However, because the growth of water consumption was lower than anticipated, BWB's financial performance has been significantly below expectation. This experience has been taken into account in the proposed project, which is based on conservative estimates of consumption increases compared to expected population growth. 31. The Lilongwe Water Supply Engineering Project (Credit 1272-MAI), signed in 1982 for US$4.0 million equivalenc, and due to close June 30, 1987, is assisting the Government and LWB to formulate a long-range water supply program for Lilongwe, prepare a feasibility study and detailed engineering designs for the water supply extension, strengthen LWB through improvements in management, financial, and cost recovery capabilities, and assess the sector's organizational, manpower, and training needs. The project also provides for a pilot project on low-cost technologies for sewerage and sanitation. The project is being effectively implemented and the feasibility studies and engineering design work form the basis of the proposed project. 32. The First Urban Project (Credit 1528-MAI), for USS15.0 million equivalent, signed in 1985, focuses on development of maraet-based and financially feasible housing programs, and also provides for strengthening of management in the sector. The project has had a slow start because of management weaknesses but corrective measures are being taken to speed implementation. 33. The Bank Group's strategy in the sector is to strengthen key institutions so as to ensure their financial and management viability while at the same time providing support for essential capacity expansion. Future Bank Group operations will continue to emphasize training and improvement in administrative and financial management, including implementation of adequate cost recovery policies, and can be expected to focus, in particular, on strengthening urban sector management and developing low-cost sanitation/sewerage systems. - 10 - PART IV - THE PROECT 34. A master plan and feasibility study report for expansion of Lilongwe's water supply, financed under the Engineering Project, was submitted to the LWB in August 1984, and was revised and resubmitted in November 1984. Subsequently, the Government of Malawi and LWB approved the proposals and work on the detailed engineering designs and bid documents was completed by early 1986. Appraisal of the proposed project took place in February 1986. The project was negotiated in Washington, D.C., from September 9 to 12, 1986. The Malawi delegation was led by Mr. J.C. Idbeye, Senior Assistant Secretary, Ministry of Finance. A credit and project summary is given at the beginning of this report and a supplementary project data sheet is provided in Annex III. Proj ect ObJectives 35. The principal objective of the proposed project is to expand Lilongwe's water supply system in order to meet Lilongwe's water demands up to about 1995-1997. The project is also designed to strengthen LWB's management and to help determine an appropriate strategy for Lilongwe's long-ternm sewerage and sanitation requirements. Project Description 36. After review of some 16 potential dam-sites, the two-stage construction of a new dam 6km downstream of the existing dam was found to be most cost-effective. The first stage, to be financed under the project, would serve needs through 1997, and the second, to be put into operation shortly after 1997, would meet needs through 2005. In conjunction with the raising of the existing dam, there would be a virtually zero risk of source failure until 1997. In addition to dam construction, the water treatment plant and related works would be expanded to meet expected demands through 1997. Management staff support as well as a comprehensive training program, including a twinning arrangement with a UK waterworks firm, would continue the process, begun under the Engineering Project, of strengthening LWB's management. A pilot on-site sanitation project initiated under the Engineering Project, and designed to illustrate LCS technologies, would be continued, and a feasibility study of Lilongwe's long-term sanitation and sewerage options would be prepared. The proposed project would include the following components: (a) construction of a new earthfill dam on the Lilongwe River near Masula, which would be 24 meters high and 750 meters long, including site clearance, earthworks, concrete works, instrumentation, pipework, and fencing, and road and water pipeline diversions; (b) remedial works, including the raising of the crest level by one meter, on an existing dam serving Lilongwe; (c) extension of water treatment plant capacity by 32,000 m3/day; - 11 - (d) extension of the water transmission and distribution system, including the laying of transmission mains, and construction of new service reservoirs, elevated water tanks and booster pumping stations; (e) supply of vehicles and equipment to LWB; (f) consultancy services for engineering and construction supervision; (g) strengthening of LWB through management staff support and training; and (b) implementation of the on-site sanitation scheme and preparation of the feasibilitv study of Lilongwe's long-term sanitation and sewerage options. Project Costs 37. Total prolect cost (exclusive of interest during construction) is estimated at MK55 million (US$30.5 million), and is provided in detail in the cost estimate table of the project summary. Physical contingencies are estimated at 15 percent for dam construction, 5 percent for supply of pipes and equipment, and 10 percent for civil works and other miscellaneous items. Price contingencies reflect current international and Malawi price trends. The Government and the Malawi Housing Corporation will finance expansion of the water distribution system, as planned development of Lilongwe proceeds; therefore distribution costs have been excluded from the project, with the exception of minor works for infilling mains in the existing system, and for providing piped water supply in the unplanned areas. In accordance with legislation currently in force, developers of all new planned areas are required to pay for all water reticulation and connections. Since these regulations are strictly enforced, tlae expansion of the water distribution system will be ensured. Financing Plan 38. Details of project financing are provided in the project summary. The proposed IDA credit of USS20.0 million equivalent would cover 65 percent of the total project cost. The European Investment Bank (EIB) would provide US$6.5 million equivalent, or 21 percent of total project costs, to finance a part of dam construction costs as well as water supply and other equipment. The Overseas Development Administration (ODA) would finance training and support for expatriate engineers at an estimated cost of USS670,000, or 2 percent of total project costs. About USS2.2 million equivalent would be financed from LWB's self-generated funds and US$1.1 million equivalent would be provided by the Government of Malawi. 39. An amount of US$19.4 equivalent of the IDA credit would be on-lent to the LWB at an interest rate of 11 percent for 25 years, Including six years' grace during which period the interest due to the Malawi Government would be capitalized. The EIB loan is expected to be - 12 - on-lent to the LWB at the same rate as that of the IDA credit. For the ODA contribution 60 percent would be on a grant basis and 40 percent would be on-lent to LWB on the same terms as that of the on-lending of the IDA credit to LWB. Out of the Government of Malawi contribution, USS1.1 million equivalent would be lent to LWB at 11 percent interest, paid annually, with principal to be repaid beginning in 1993, and US$0.05 million equivalent would be in the form of counterpart funds for the sanitation component. These lending terns conform to standards for lending to revenue-generating entities in Malawi. The on-lending rate would be positive in real terms over the life of the Project. The signing of the subsidiary loan agreement between the Government of Malawi and LWB, and fulfilllment of all conditions for effectiveness of the EIB loan agreement, are conditions of credit effectiveness. Project Implementation 40. LWB would be responsible for the implementation of the water supply component of the project, and would retain engineering consultants for construction supervision and for the detailed civil engineering and structural design of the water treatment plant extension. Project implementation is underway. Bids have been received and a contract for the construction of the new dam and the remedial works of the existing dam will be signed in early 1987. Expansion of the water treatment plant, which is needed by end 1992, would commence in 1990. Imple;aentation of the sanitation component would be carried out by the Ministry of Local Government and the Lilongwe City Council. The qualifications, experience and terms of reference of the LWB's engineer/manager and chief accountant would be acceptable to the Association. A training program acceptable to the Association has been prepared. A dam expert would review progress in implementation of dam construction to ensure that the dam concept and design is being adequately implemented. Land Acquisition and Relocation 41. The construction of a new dam will require the relocation of about 35 families, most of whom are involved in smallholder farming. A plan acceptable to the Association for acquisition of the land, relocation of affected families, and adequate compensation has been prepared. The value of the land to be purchased is estimated at no more than 1K200,000. The Government would indemnify LWB for future land value litigations in excess of the agreed compensation sum. Implementation of the plan would be rev'ewed during supervision missions. Procurement 42. Procurement of goods, works, and services is summarized as follows: - 13 - PROCUREMENT SCHEDULE 1/ (USS Millions) Project Element ICB LCB Other N/A Total Cost Dam Construction 18.3 18.3 aind Civil Works (9.7) (9.7) Supply of Water 6.1 6.1 Treatment Equipment, (5.5) (5.5) Mechanical, and Electrical Equipment and Pipes Vehicles and Minor 0.2 0.2 Misc. Equipment (0.2) (0.2) Construction Materials 0.1 0.1 for the Sanitation (0.1) (0.1) Component Consultancy, Training, 4.6 4.6 and Technical Assistance (3.5) (3-5) Land Acquisition and 0.2 0.2 Resettlement Costs (0.0) (0.0) Management Staff Support 1.0 1.0 (1.0) (1.0) Total 24.4 0.2 4.7 1.2 30.5 (15.2) (0.2) (3.6) (1.0) (20.0) 1/ Parentheses denote IDA financing. 43. Procurement would follow Bank guidelines for international competitive bidding, except that purchase of vehicles and minor equipment estimated at less than US$50,000 equivalent and not totalling more than US$300,000 equivalent would be procured through local competitive bidding. In addition, construction of individual waste disposal units included in the sanitation component would be carried out by force account and construction materials for the sanitation component up to an aggregate amount of US$100,000 equivalent would be supplied directly from stock items of the Ministry of Works and Supplies or under local procedures acceptable to the Association. A General Procurement Notice calling for prequalification for the Lilongwe Water Supply expansion works was published in the Business Edition of the Development Forum on August 31, 1985. The response was substantial and bids for the first phase of the project, construction of the new dam and related works, were received in August, 1986. - 14 - Disbursement 44. Proceeds from the proposed credit would be disbursed as follows: 70 percent of foreign and 60 percent of local expenditures for dam construction; 100 percent of foreign and 70 percent of local expenditure of eligible civil works, supply, and equipment contracts; 100 percent of total expenditures for all consultancy and advisory services; and 100 percent of foreign expenditure for the engineer/manager and financial controller. EIB would finance 30 percent of foreign and 30 percent of local expenditures for dam construction and 100 percent of total expenditures for mechanical and electrical equipment for the project. 45. In order to expedite the flow of funds for disbursements of small payments, a Special Account with an initial deposit of US$1.5 million would be established in US dollars with a commercial bank for the water supply component. All disbursement requests would be fully documented, except that disbursements against contracts for items under contracts or purchase orders of less than US$20,000 equivalent would be supported by Statements of Expenditures, documentation for which would be held by the implementing agencies and be made available for inspection by supervision missions. Monitoring and Evaluation 46. Project monitoring guidelines have been establi;hed and monitoring of the LWB's acrounts and expenditures has been adequate. LWB would submit a Project Co-mlretion Report six months after completion of the project. AcrIit and Accoiunts 47. LWBts annual financial statements are published promptly and independent auditors have conducted external audits satisfactorily. LWB's audited accounts, as well as accounts for the sanitation component, would be submitted to the Association within six months of the end of each fiscal year. Environmental and Health Aspects 48. The project would help maintain the present high standard of water supply and health conditions in Lilongwe City, and would have no adverse environmental impact, except for loss of about 300 ha of farmland for dam construction. There would be no significant effect on the quantity or quality of water discharged from the Lilongwe River into Lake Malawi, and the riparian states of Mozambique and Tanzania have been so informed. The remedial works on the existing dam would eliminate the danger of accidental flooding caused by major damage or dam collapse. LWB would take all reasonable measures to ensure that the project is carried out with due regard to ecological and environmental factors. - 15 - Financial Analysis 49. The limited financial capability of the LWB Board (para. 29) reinforces the need for a conservative approach to forecasts of demand as well as costs. Out of an expected 200 percent increase in revenues from 1986 to 1992, 42 percent would be accounted for by an increase in average daily sales volume, while the remainder would be met by an increase in tariffs from MK0.42 per m3 in 1986 to MK0.88 per m3 1992, for an average increase of 14 percent per annum or 5 percent in real terms. By 1992, tariffs will have increased by approximately 25 percent in real terms. The increases in volume and tariffs would yield a return of 5.8 percent on revalued net fixed assets in 1992 and would provide an internal rate of return (net of inflation) of 4.6 percent on the proposed project. By FY98, when the new facility is producing at capacity, the debt/service ratio is projected at 1.8, and the rate of return at around 8 percent. 50. The existence of a block tariff system in which different categories of consumers are charged at a different rate allows flexibility in the implementation of tariff increases and limited cross-subsidization among income groups. a. this basis, water tariffs are expected to be affordable by the lowest income groups, 2 percent of whose income would be expected to pay for water tariffs as compared to an international standard of 3.5 percent of income. Computerization of the billing system, currently underway, will enable LWB to target tariff increases more accurately as well as to speed up payments. 51. In order to ensure the financial viability of LWB, the Government would grant the necessary annual tariff increases to enable the LWB to achieve at least the following rates of return on annually revalued net fixed assets: FY89, 2 percent; FY90, 3 percent; FY91, 5 percent; FY92, 5 percent; FY93, 2 percent; FY94, 3 percent; FY95, 4 percent; and FY96, 5 percent. Based on present projections, annual Increases of 5 percent in real terms would be necessary to meet this objective. The Government intends to grant such increases, subject to an annual review of the effect of the existing tariff on LWB's financial performance. If for any reason LWB fails to achieve the agreed upon rate of return in any one year, then in the following year the Government would take the necessary steps to recover the situation. To help meet these targets, LWB would prepare timely requests for annual tariff increases and !fould annually revalue its fixed assets using methods acceptable to the Bank. 52. By June 30, 1988, LWB will increase production capacity by 5,000 m3/day to 35,000 m3/day. The cost of this scheme, estimated at MK600,000, would be financed principally by LWBi's internal cash generation and would result in annual revenue Increases of about MKI.0 million per annum. By no later than June 30, 1987 the Government of Malawi will lend to the LWB MK2 million which would be used by LWB for the counterpart financing of the project. Interest on this loan would be no higher than the on-lending terms of the IDA Credit and would be repaid annually. Repayment of principal would begin January 1, 1993. Ownership of a recently completed augmentation scheme which increased the daily capacity of LWB from - 16 - 20,000m3 to 30,000m3 has been transferred to LWB. The terms and conditions of payment by LMB to the Government for the cost of this scheme would be acceptable to the Association and repayment of interest and principal would not begin until December 31, 1994. Project Benefits 53. The project would prevent water shortages in Lilongwe from becoming progressively more severe and enhance the further development of the rapidly growing capital city of Malawi by providing the required water supply infrastructure to meet demands up to 1995-97. Substantial management staff support and training would contribute to the long-term institutional development of LWB. The pilot project and feasibility study would assist in providing a least cost solution to Lilongwe's long-term sewerage and sanitation needs. 54. In estimating the economic rate of return (ERR) of the proposed project, capital and operating costs and all measurable benefits attributable to the investment were taken into account in the cost and benefit streams. Incremental water revenues, calculated on proposed average tariff charges in real terms (based on 1986 price levels), were taken as the best proxy of the benefits. On this basis, the project's estimated economic rate of return is 5.5 percent. In addition unquantifiable benefits would accrue from improved health, and environmental conditions and increased labor productivity. A sensitivity analysis, using a 10 percent reduction in benefits, produced an ERR of 4.6 percent. A 10 percent reduction in costs yielded an ERR of 6.2 percent. The long-term marginal cost of the water, i.e., including the second phase of the long-tens development plan for water supply in the Lilongwe area, is about equal to the average tariff level projected for 1992. Project Risks 55. The main project risk is that LWB would not be able to generate sufficient revenue from incremental water sales for debt service, operation, maintenance, and minor investments. To minimize this risk, the project is based on conservative estimates of demand. The Government, in line with its overall policy regarding self-sufficiency of parastatals, has agreed to permit LWB to increase water charges as needed so as to be financially self-supporting. - 17 - PART V - ECIMENDATION 56. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. B. Conable President Attachments Washington, D.C. October 30, 1986 - 18 - ftpuIsta 7.1.4 (Igo a11j ANNEX I QIP Par Wp1i I I170 (19E6) Page 1 of 3 mm- Emxwc Amua &mduh rae ) (Sdll I3 Mud FiAjatsi biitcat at orrlet iz[s) 1915 19RI 1961 I1Q 1963 1964 1985 1955 1981 3998 1 6 1990 t:ra.cle pficp et/ *1 1096.6 -0.7 -5.2 3.0 3.6 3.3 29 3.1 3.3 3.5 3.7 3.9 4dm1tn 191.1 -6.6 -6?, 6.5 43 5.6 0.9 3.0 3.1 3.3 L5 3.6 ldIsnq 184.8 1.4 -2.6 0.1 3.1 0.4 4.1 3.3 3.5 3.7 3.9 4.1 OKter 59.2 4.0 -3.6 1.3 3.2 2.6 4.2 1t 3.4 3.6 3.8 4.1 °s~tJnu 917.2 -3.6 -4.3 -1.1 3.7 2.6 8.4 -1.1 3.4 2.4 1.9 3.9 Ctn enamx 172.5 -15.7 -34.1 24.4 10.4 -36.5 15.2 11.6 1.5 7.5 6.1 3.9 Rqrt of OnR 281.0 25.8 -19.6 -7.9 4.0 25.8 .2 3.5 3.7 3.9 4.0 4.1 llof tt Gm 32B.3 -9.7 -24.9 -5.0 1.5 -I.Z 13.6 3.0 3.1 3.2 3.3 3.4 Crm 'uttl .w 6Z.9 -4.4 5.7 5L0 14.3 2L9 -537 39.0 5.4 183 236 3.9 PUG! OW def latr (1978 - EmD) 115.0 139.3 152.6 17Q0. 191.7 W7.3 224.0 20 256,0 269.0 2D0 ttlg. rare (UNS/ASch) 1.23 1.12 0.95 0.85 0.71 0.59 0.55 0.48 0.U 0.45 0.45 u of 0p at Ibrket Prit m (X) Aurv hage in rmu (M (at amer prim) 1b (at curat 1978 rlrn 1975 W83 1 195 190 197540 1950465 189540 Gro dntk pnsht 121.o IO.O 1.0 LID 5.6 1.5 3.5 Agrimlt] At factor at a 37.5 37.2 37.7 37.0 5.8 1.8 3.3 Idtry a 2 of CU at IS.6 19.Z 1I.8 19.3 4.7 4.0 3.7 Ifla fatcr c 43.1 43.6 43.5 43.7 5.9 1.5 3.6 OmuoytlB 55.4 86.5 89.3 13.3 5.0 1.9 L.i Grm flruegm 31.6 26.5 15.7 17.8 4.3 -4.1 62 qxtrrm 2* iLs 26.6 24.4 24.6 LJ 1.0 3.8 i t 055 50.9 41.5 30.0 29.5 3Z -6.4 3.2 Cro elocul wades 12.6 18.6 6.6 A4 - 14 1.8 -X of -P 1970t71 1975/76 1981/B2 19181/3 1983/ 194/85 1985/86 FUR= FUSEZ airrat tract 315.5 165 20.0 19.7 19.9 2l9 22.6 aoew qeUtwima 16.5 15.4 24.5' 21.0 20.1 21.6 Z16 9xpl. (4) or defiit (-) -1.1 1.1 -4.5 -1.3 -0.2 -07 -1.0 aptcl tudinna 12.4 12.9 14.5 I1.2 10.0 8L2 9.6 Ibrlge flrsIz 11.2 LB 6.7 9.4 9.0 55 6.5 197540 1990-es 1985-D own imro G cgth rn(Z) 5.8 3.72 3.60 Oi p capit grmh rae (2) 1 .9 0.5 0.40 B3ry acwtlon grothmte (X) 6L1 2.22 2.62 lMM 6.4 8.L0 4.37 tHrg sad a qprate 0.1 -0.75 0.43 blqtelasticty -0.2 -3.50 0.91 OXIPMNEtA arxmS ad at f r at 4 t"ettSyea at sa pie ljcha 0-ba ty itmd e O e F SqtaSur 9. 1986 NrlOIa?T) - 19 - 'pImt : 7.04 (16 aSLUs) ANNE I Q& N! Per piC t U;S170 (19B6) Page 2 of 3 bana cr_uh rate CZ) (c Mt t 1979 prima) Oblm lBS A 1d lnamo at on-rmwIt prMa) 16 l g 9 19B5 1980 1961 19B2 I8 198i 1B6 1966 1967 195 1989 1990 }aUL mum l ae cqt 249.5 2L9 16.5 -1.6 4.3 3L3 2.7 3.5 3.7 3.9 40 4.2 Prl-CY 231.9 17.3 -19.5 -6.1 4.7 34.5 2.5 3.3 3.4 3.6 3.6 3.7 1hafNran 17.6 III.D 9.6 -24.6 0.5 14.1 5.0 6.0 6.5 7.0 7.5 8.0 lkdsnim ieatu 291.2 -5.5 -23.9 -5.0 1.5 -12.0 13.6 3.0 3.1 3.2 3.3 3.4 h3d 20.1 35.0 57.2 -563 -11.4 -317 18.6 10 3.1 3.2 3.3 3.4 fEtralau 42.7 46.6 -5.0 -20.8 1.7 -1.6 3.3 5.1 5.7 5.9 55 5.0 Ictdary wt dpimlzta 66.7 11.9 -51.i -16.9 -3.8 -5.8 35.0 7.2 7_3 7.5 1.0 7.6 Odet 161.7 -24.5 6.4 -8.6 2.5 -19.6 17.0 0.7 . 0 0.5 0.7 m (C1960-r) hport prim t 1.1 39.0 9.1 -1.5 34.4 -22.0 IQ6 1.7 4.2 4.1 4.3 lett prim 21.8 16.9 7.6 23.8 29.2 15.5 11.5 6.6 3.1 0.6 4.5 Ema of e lnEn -17.0 19.0 1L3 -20.5 4.1 -32.5 -0.8 -6.4 0.9 15 4.2 tiqnitim of MWdstdle T1ie (2) hew Ami ma_1 (2mm ) (at crest Prima) (at csatiat 1979 I-) 1975 1911 195 1990 1975-8 192-5 1983-9 tspzta100. 1(20 10 100.0 9.6 L8 3.9 finery 92.6 89.7 90.3 83.0 8.3 3.2 3.5 .r_ar 7.4 10.3 9.7 12.0 17.8 0.9 7.0 Waa r101.0 1000 10.0 IOLO -1.4 -5.2 3.2 Fbo 4.9 7.3 7.1 7.1 -9 -4.5 3.2 f.ttlolea 9.1 13.9 15.2 I.1I 8.3 -5.8 5.4 thary -d equpet Z4.5 34.4 23.7 3.2 1.0 -1Z.6 7.5 atme 61.5 44.4 54.0 46.0 4.5 -3.0 0.6 Sru of Tbae Wd glat Orade wth 9Su of Trk u bxheMIu Onznisa (I) lRn1q2!M Cnstria (2) pta1 p 3 twctsu f z 1970 1975 1160 1970 1975 3198 3970 1975 19W0 P 65.3 76.2 69.0 11.3 10.3 7.0 23.4 13.5 24.0 finery , - - - - _ - 5ajert16.7 64.8 75.0 24.2 14.5 6.0 19.0 20.7 19.0 L/ imka cdriebelaphg Oacde Eesn ar 3ktier AfricA WOOD sc$adr 9, 1956 N1Ot9t) - 20 - lupflie I 7.06(1M5 CISc ANNEX I QW1BwtQ1h i 3170: (195) Page 3 of 3 ma- a is manCs. (-usln no a;m Sm) APd bdicaw M~~~~~~~~~18 1981 I9ll2 1983 Ilf4 1985 l9B6i 18 19111 I9" 193D of b= ad 33L1 329.3 267.5 255.1 311 J2.4 3 X3 335.6 355.3 393.2 427.9 of widdu Ns_mdi f.o.b. 285.2 25. 24:L6 2313 315.7 25L1 295.4 311.6 337.3 365.2 396.9 kquof lW.a W survIces 05.7 -4ff.0 4120 -412.0 356.3 30L1 419.7 42.1 45D 4 4ibb5 5D7.1 of Wddls ldcb et f.o.L -319.2 258.2 -198.5 -19i3.1 162.0 176.9 2D3i2 227.5 24Z.3 251.8 D7LI llst tnfo 16.4 21.1 ZLO 1Z.7 Y.6 5.7 6.2 6.0 L. I 6.3 LO 1tM ammu bamc -Z572 -1M6 -124.5 -144.2 -15.9 -1MO -932 -03.6 -79.0 -67.0 -73.2 Bdvate dirert Investme-nt - - - - Offlw *re am 50A. 4&4 3S.3 29.5 24.4 Ml. 30Q1 33.2 35.3 36.1 35.2 ILT lam (oat) 127.2 87.5 46.1 47 65.8 25.1 MO. 81.7 722 56.3 58.6 CfFIA-l 97.5 70.7 60.6 Y568 94.4 6L9 1169 105.0 92 B 6S.0 61.2 PElla 29.7 16.8 -14.5 -14.1 -28.6 -37.8 -36.1 -23.3 -20.6 -IL.7 -2.6 ft lter 115.2 18.0 -2 51.0 7.9 -5.6 -15.2 -11.3 -11.5 -15.1 -7.4 Cna in (-sre Inceae) -35.3 -18U 463 20A3 -M.2 55.4 -22.5 -20AO -17.0 -10.3 -14.2 ace I nbuai 73.0 49.8 2L6 13.7 59.5 4L 63.2 83.2 1002 110.5 12Z let Lemdml Dwwse ff - - -5.8 -24.6 12L2 45.9 69.1 me n ivro asmmt1.4 1.2 0.7 Q.4 LO0 1.3 1.8 2.3 2L7 LO 2.9 03EKM aVML AM Mr . _m Dlslua .m 210.3 173.6 112.1 lOt.5 135.7 90.4 191.5 170.5 160.5 135.8 15L.6 Otfc a- a 50.1 46.4 3673 29.5 &4 25.1 30.1 33.2 35.3 36.1 42 a*_i&lu It0e fo.-. 45.2 -.3 54.4 87.0 53.9 148. 111.9 105.3 81.0 2.4 81iC 17.7 IL6 7.9 7.3 6.0 5.0 IQI 10.0 LO IZ I Z0 rcm - - - - - - - - - - - MA 15.1 21.0 36.l 32.5 77.0 34.3 76.5 50.0 3O.. 35.0 G0. adwn 27.2 13.5 I.13 42.6 4.0 5.7 51.4 51.9 2O.2 33.9 10.4 fIal 17 0.2 70.7 360. 17.6 24.3 I6 18.4 15.4 20.1 It.7 25.3 OEEIve 3.7 2L2 3.4 1.2 6.1 9.2 7.4 3.1 6.4 7.B 4.2 6.3 no 7.6 26.7 2-.0 1.5 7.9 -.6 7.2 11.0 10.0 13.0 15.0 Oth-r a (ilmtmml 6.3 3.0 6.7 2.0 4.2 3.5 L 0 .0 -1.03 1.0 14. ChmA t7.9 47.8 2.6 7.4 4.5 0.9 1.0 0.0 0.0 0.0 0.0 llet Ouc t ad DLbtul 4 645. 7 M5 7106 72hf6 738.4 786.2 8-6.5 -9267 91.7 1065.8 9LI nfRm.t 4a176 431.1 4.3 513.4 551.8 637.4 733.8 2M.3 W.9 949.7 26 E ra a nte 227.3 243.8 229.3 215.2 IL6 90.4 191. 89.5 60.5 57.1 54.5 (fbxmd debt m75.2 266.8 6L. 72.5 194.4 299.6 310.8 325.2 3S.2 303.7 35.8 Dtkt seci TKtl P 6 17. 7 16 OL7. 78.6 116.7 . 101.4 102.0 11.0 1205.8 111.3 nt 2 63.0 61.0 42.5 30.3 44.5 46.0 3 6.5 45.9 40. 47.3 46.8 IIP 2 2d kp .6 15.9 20.9 18.3 49.6 23.3 35.1 35.7 33.1 30.Z 2B.I &Fl nR g u x 3 2.2 3.4 31 6.7 34.2 415 3 7.9 33.6 31.0 26.9 26.0 F k n amt cn new 3gxm ( ; 7 5.8 6.7 2 L5 0.2 0 1 .2 1.3 1.0 2 .0 LO L0 eri ni7 of 1 ( ) 23.4 29.8 25.6 19.5 41.6 40. 1.0 0.0 41.0 30.0 37.0 OffIciaL 487467413534518674 138873879W9718. Ae 2 o Debt a at md of , Ise lkwty mucb of debt aotmg mast65 d s 6Itid0 10 3 45-14 rutcmtstnte of dbfit odfsimml FT" adw 2d32 faz3 yaw4. 0 48 I/ W fi d 9 ifda 1 a mTlugatIW IES,135 9. 5se6 - 21 - ANNEx II Page 1 of 2 THE STATUS OF BANK GROITP OPERATIONS IN MALAWI A. STATEMENT OF BANK LOANS AND IDA CREDITS (As of September 30, 1986) Amount in US$ million (less cancellations) Loan or Fiscal Undis- Credit No. Year Borrower Purpose Bank IDA bursed 6 loans and 20 credits have been fully disbursed 74.96 238.54 Cr. 857-MAI 79 Malawi NRDP I 22.00 0.05 Cr. 992-MAI 80 " NRDP II 13.80 3.46 Cr.1123-MAI 81 " Education IV 41.00 10.78 Cr.1183-MAI 82 " NRDP III 7.30 3.07 Cr.1272-MAI 82 Lil. Water Supply Eng. 4.00 0.98 Cr.1330-MAI 83 ' Education V 34.00 28.66 Cr.1343-iAI 83 " NRDP IV 10.60 8.52 Cr.1351-MAI 83 " Health 6.80 4.50 Cr.1352-MAI 83 Smallholder Fert. 5.00 0.02 Cr.1423-MAI 84 - Highway V 26.90al 3.95 al Ln.2363-MAI 84 " Highway V 18.00 15.50 Cr.1428-MAI 84 " Tech. Assist. II 1.50 0.85 Ln.2486-MAI 85 " Wood Industries 6.40 4.56 Cr.1528-MAI 85 Urban Housing 15.00 17.95 Cr.1549-MAI 85 " Natl. Agri. Res. 23.80 27.74 Cr.1644-MAI 86 b/ - SAL III 30.00 11.10 Cr.1626-MAI 86 Agri. Ext. & Planning 11.60 13.64 Ln.2646-MAI 86 " Industrial & Agri. Cr. 7.80 7.80 Ln.2670-MAI 86 ' Second Wood Energy 16.70 16.70 TOTAL 123.86 491.84 179.83 of which has been repaid 6.74 6.77 TOTAL now held by Bank and IDA 117.12 485.07 Amount sold .30 of which repaid .30 TOTAL undisbursed 44.56 123.27 179.83 a/ Includes Special Fund Credit. b/ In addition, a US$40.0 million equivalent credit was provided from the Special African Facility. (annex-2(HT-0. 5) 1 22 - ANNEX II Page 2 of 2 B. STATEMENT oF IFC INVESTMENTS (as of September 30, 1986) Investment Fiscal Type of Number Year Obligor Business Loan Equity Total ---(USS Million)- 326-MAI 76,82 David Whitehead Textiles 10.8 - 10.8 & Sons (Malawi) Limited 362-MAI 77,81 Dwangwa Sugar 11.3 - 11.3 Sugar Corpora- tion Limited 434-MAI 79 Investment and Development - 0.6 0.6 Development Finance Bank of Malawi Company 502-MAI 80,84 Malawi Tourism 2.1 - 2.1 Rotels Limited 542-MAI 81,82 Ethanol Company Manufactur- Limited of ing Alcohol Malawi from Molasses 2.2 0.3 2.5 832-MAI 86 Leasing & Finance Money & Capi- Corp. of Malawi tal Market 0.6 1.0 0.6 Total gross commitments 27.0 0.9 27.9 Less cancellations, terminations, 10.4 - 10.4 repayments and sales Total cowmiitments now held by LFC 16.6 0.9 17.5 Total Undisbursed 0.6 0.1 0.6 [annex-2(MT-0.5)] International Development Association FOR OFFICIAL USE ONLY IDA/R86-113/1 FROM: Vice President and Secretary November 20, 1986 MALAWI: Second Lilongwe Water Supply Project Corrigendum The President's Report and Recommendation regarding a proposed credit to the Republic of t4alawi for the Second Lilongwe Water Supply Project (IDA/R86-113) distributed on October 31, 1986, omitted Annex III (page 23) of the report. This Annex is now attached. Distribution: Executive Directors and Alternates President Senior Vice Presidents Senior Management Council Vice Presidents, IFC Directors and Department Heads, Bank and IFC 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 authoiization. - 23 - ANNEX III MALAWI SECOND LILONGWE WATER SUPPLY PROJECT SUPPLEMENTARY PROJECT DATA SHEET I. Timetable of Key Events (a) Time taken to prepare project: 16 months (b) Prepared by: Government of Malawi (c) First Bank mission to consider project: October 1984 (d) Appraisal Mission Departure: February 1986 Ce) Negotiations: September 1986 (f) Planned date of effectiveness: January 1987 II. Special Bank Implementation Actions None. III. Special Conditions (a) The Government would grant to LWB the necessary annual tariff increases to enable LWB to achieve satisfactory rates of return on annually revalued net fixed assets (para. 51). (b) The Government would lend to the LWB MK2 million which would be used for counterpart financing of the project (para. 52). (c) The terms and conditions of payment by LWB to the Government of the cost of a recently completed expansion of the water treatment plant would be acceptable to the Bank (para. 52). (d) The qualifications, experience, and terms and conditions of employment of the LWB's Engineer/Manager and Chief Accountant would be satisfactory to the Association (para. 40). (e) The signing of the subsidiary loan agreement between the Government of Malawi and LWB, and fulfillment of all conditions for the effectiveness of the EIB loan agreement, would be conditions of effectiveness (para. 39). Lumbadzl Water Tower 95Om3 -- Lumbadzi Booster Station Service Reservoir 4,600m3 Water Tower 150m0 Kamuzu MALAWI International Airport LILONGWE SECOND WATER SUPPLY PROJECT SUPPLY AREA Existing: Proposed: Sandula Reservoir Pipellnes 2,000 A L Booster Pumps 4,00m3 * * Reservoirs 4,600m Waterworks B S. Booster Station m3lday Residential Areas: High Density Medium Density Low Density Industrial Areas 700m x 400mm ,800m3 iB.S. 7,900 7500m3 Kanengo Reservoir Stationttm To MchInI A .i:;',,;11/ <^:<= Booster /nu \ I v~B.S. 22,50 i | NOeet / A S ~~~~~~~~~~~~~~~~~~~~~~~~~~~Cenlter i1 ": // 650m3 Area 9 Water Tower / B.S. 3,460b fo Kamuzu 24 41 Om<7( Barracks Livingstone Reservoirs = ;,/ Town Ground 15,900m3 Water Tower 140m3 l / _) Teabango/s _, , 23m65Cm3 Water Tower Waterworks 2.3OOm3 ~~esrvor OOr~ Area 23 32,000m3ict !tp 5 Dedza J/n Southern Booster A~~/ Om x 3501Mm V2,00CM3 Darn No. 2 7" C- , Kamuzu Dam o z 8 ~ s^*ra v/o 1a eelh -.5 Ml 0fd bT *d &M * h r SW ' U. ...- f W Om _ A _ _ m P-0~~~~~~~~~~~~~~~~~~~~~~Ft CO'pO'IS r7W O-WMbf4f .id VW VWs 5.W-M A. w as -f ivy ge at r4 . of h MSW5nea Faint CnW~eM ." c IBRD 19698 MALAWI LILONGWE SECOND WATER SUPPLY PROJECT PROJECT AREA Lllongwe * Existing Waterworks * Proposed Waterworks r) Existing Dam and Reservoir ( J Proposed Darn and Reservoir Roads " '2_Z) Towns and Villages International Boundaries Likuni.... Village "/ N TANZANIA ZAMBIA I r% F \ MOZAMBIQUE LM A W I of Map\ Dam No. 2 ~~~~~~MOZAMBIOUE - 'Kamuzu Dam It J ZAMBE TANZANIA ZAMBIA 1 -~~~~~~ - - - --" F ~~~~~~~~~~~~~ ZIMBABVVE t ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~- ~ -NAMIBIAd.TSAA>j ~~~~~ . .-S' -'. ,~~~~~C~.. Vrv- iv r., - \ - ~~~~5~W-ZILANO 5 ~~~~~~~10 :Oi- H I~~~~~~~~~~~~~ KILOMETERS .c_ AFRICA 'sm..n - -l u Dam 1986 ,r ,f . y a ZAIHE 1 t ANZANIA~~~~~~~~~~~JNE 98