Document of The World Bank jy FOR OFFICIAL USE ONLY Report No. 3380c-PA PARAGUAY SECOND RURAL WATER SUPPLY AND SANITATION PROJECT STAFF APPRAISAL REPORT May 22, 1981 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 = Guarani $126.0 = US$1.00 01.o = US$0.008 ABBREVIATIONS AND ACRONYMS CORPOSANA Corporation for Sanitary Works GTZ Technical assistance agency of the German Government KfW German Development Bank PAHO Pan-American Health Organization SENASA National Service of Environmental Sanitation UNICEF United Nations Children's Fund USAID United States Agency for International Development FISCAL YEAR January 1 - December 31 FOR OFFICIAL USE ONLY PARAGUAY SECOND RURAL WATER SUPPLY AND SANITATION PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS Page No. I. INTRODUCTION .................,... 1 II. THE WATER SUPPLY AND SANITATION SECTOR. 1 Background .. 1 Population .. 2 Health Situation ,. . ... 2 Water Resources .. 2 Sector Organization .. 2 Service Levels and Quality *later Supply . . '' 3 Service Leve-Ls and Quality - Sewerage and Sanitation 4 Past Sector nvestmentsv. 4 Sector Objectives and Programs. 5 Manpower Aspects. 6 Experience Under the Previous Bank Loan. 7 III. THE BORROWER AND THE EXECUTING AGENCY. 7 Introduction. 7 The Executing; Agency. 8 Accounting System ...................................... 10 Audit ...................................... 10 Compliance w:ith Loan Covenants ........................... 10 IV. THE BENEFICIA%RIES ...................................... 11 Organization .......................................-.11 Accounting .......................... 11 Audit . .. 12 V. POPULATION, SERVICES AND DEMAND IN THE PROJECT CITIES.... 12 Introduction .................-.----.12 Water Resources .. 12 This report is based on the findings of an appraisal mission which visited the Republic of Paraguay during December 1st through 12, 1980. The mission was comprised of Messrs. L. Pereira, Financial Analyst, E. Rodriguez, Engineer and J. Culagovski, Economist. This document has a restricted distribution and may be used by recipients only in the performance of their offMcial duties. Its contents may not otherwise be disclosed without World Bank authorization. -2- Page No. Existing Water Supply and Sewage Systems ................. 12 Population Served and Service Levels ..................... 13 Health Related Indicators ................................ 13 Population and Demand Projections ........................ 13 VI. THE PROJECT..............................................13 Introduction ............................................ 13 Project Objectives ....................................... 14 Criteria for Eligibility of Communities .................. 15 Service Standards ................... 15 Status of Design ................... 16 Project Description ................... 16 Project Cost ....................--.-----. 18 Project Financing ................... 18 Project Implementation ................... 18 Procurement ................... 23 Disbursement ................... 24 Environmental Aspects ................................... 26 VII. FINANCIAL ASPECTS .26 SENASA's Financial Performance .26 Past Experience with Beneficiary Financial Performance... 28 Project Financing Plan .28 Community Financing Plan .31 Subloan Agreements .33 Tariff Structure .34 Future Finances of Beneficiary Villages .35 Monitoring Indicators .35 VIII. SOCIO-ECONOMIC ANALYSIS .35 Project Rationale .35 Population Benefited and Poverty Impact-................. 36 Quantification of Benefits .37 Affordability of Project Services .37 Project Risks .37 IX. AGREEMENTS TO BE REACHED AND RECOMMENDATIONS .38 -3- TABLE OF CONTENTS (Continued) LIST OF ANNEXES 1. Tentative List of Communities to be Benefitted by the Project 2. Details of Cost Estimates 3. Water Tariffs 4. Income Statements, Sources and Application of Funds, and Balance Statements for Typical Villages 5. Monitoring Indicators 6. Additional Information Available in Project Files LIST OF TABLES 1 SENIASA Organization Chart 6.1 Total Project Costs 6.2 Execution Schedule 6.3 Schedule of Main Prnigrt- Tn31,S 6.4. Estimated Project Cost 6.:5 Tentative Schedule of Disbursements 7.1; Sources and Utilization of Resources 1977-1980 7.2 Loan Recovery Performance as of December 31, 1980 7.3 Communities Water Systems Balance Sheet and Income Statement as of June 30, 1980 7.4 Project Financing Plan (1981-1985) 7.5 SENASA Projection of Sources and Application of Funds 1981-1985 LIST OF MAPS Map IBRD 15609. PARAGUAY SECCIND RURAL WATER SUPPLY AND SANITATION PROJECT STAFF APPRAISAL REPORT I. INTRODUCTION 1.01 The Government of Paraguay has requested the continuation of Bank financial assistance for the expansion and improvement of water supply in rural communities. 1/ The project will benefit rural communities in the seven departments (para. 5.01) east of the Paraguay River. The project was prepared by the National Service for Environmental Sanitation (SENASA) with the assistance of the resident PAHO consultant and of the Bank. The total cost of the project is estimated at US$18.5 million equivalent. A Bank loan of US$11.8 million equivalent is recommended to finance the foreign exchange component and interest during construction in the amount of US$2.3 million. The borrower will be the Republic of Paraguay, and the executing agency will be SENASA. This will be the second Bank group operation in the sector in Paraguay. The works to be financed are scheduled for construction and completion during 1981-85. II. THE WATER SUPPLY AND SANITATION SECTOR Background 2.01 Paraguay, a landlocked country with an area of 407,000 km 2, is endowed with vast areas of unutilized land well suited to agriculture and livestock. There is substantial hydroelectric potential, largely on the Parana River which forms the country's eastern and southern borders. 2.02 The economic potential of the country began to be more fully re- alized during the 1970's with the rapid expansion of land under cultivation and the construction of hydroelectric plants to tap the Parana River's po- tential. This has resulted in an acceleration of growth: per capita income grew at an average annual rate of 5.2% during the 1972-78 period, compared with the 1.2% averaged during the previous 30 years. Rising per capita incomes have been accompanied by improvements in standards of living. Small landholders, however, continue to have a low standard of living, due in part to limited access to social and production support services despite efforts to expand coverage. 1/ Communities with 400-4,000 inhabitants. For water supply and sanitation activities, centers with populations of over 4,000 inhabitants are con- sidered urban, and those with less than 4,000 inhabitants, rural. -2- Population 2.03 The mid-1980 population of Paraguay was estimated at 3.06 million inhabitants. Urbanization has occurred gradually: only 37% of the popu- lation are living in municipal administrative centers which are defined as urban centers. The annual population growth rate between the 1962 and 1972 censuses was 2.6%, with the urban areas growing at 3% p.a. and the rural areas at 2.4% p.a. The present growth rate for the total population is estimated to have increased to about 2.9% p.a. Health Situation 2.04 Health statistics in Paraguay are only partial and do not permit a thorough analysis of the incidence of water-related diseases. For 1975-80, life expectancy was estimated at 64 years and infant mortality at a high 85 per 1,000 live births (55 in Chile, 50 in Colombia, and 43 in Uruguay). As reported by the Ministry of Public Health, enteric and diarrheal diseases were the second major cause of death for all ages in 1976. These diseases were also among the five major causes of hospitalization. Health statistics are available in project files. Water Resources 2.05 Paraguay is located in the basin of the Parana and Paraguay Rivers, whose affluents provide abundant surface water. Paraguay also has extensive groundwater resources, which provide the supply for domestic consumption in most small communities. 2.06 A hydrological study for the Chaco region was completed in 1979. A similar study is currently being undertaken in the eastern region of the country. These studies by providing reliable information on the availab- ility of groundwater for human and animal consumption will help form the basis for the colonization of new areas and for the expansion of livestock production. Sector Organization 2.07 Overall responsibility for water supply and sanitation sector planning rests with the Technical Planning Secretariat of the Presidency. All plans must be approved by the National Council for Economic Coordination before they become official and eligible for Government financial support. Responsibility for preparing sector plans, however, is left to the initia- tive of the main sector institutions, the Corporation for Sanitary Works (CORPOSANA) and SENASA.1/ A high level Coordinating Committee, composed of representatives of the Technical Planning Secretariat, CORPOSANA and SENASA, was recently established to coordinate sector activities and to prepare a five-year plan. 1) A. third organization under the Ministry of Defense is responsible for sector activities in the Chaco region. 2.08 Present institutional arrangements originated in 1954, when CORPOSANA, a financially autonomous Government agency under the Ministry of the Interior, was created to serve the capital (Asuncion). Since 1965, CORPOSANA has also been in charge of providing water, sewerage and solid waste collection and disposal services to all communities with populations over 4,000. 2.09 Until 1972, the few sector activities carried out in communities * with less than 4,000 inhabitants were under the aegis of the Ministry of Public Health. That year, SENASA, a decentralized agency under the Ministry of Public Health, was created to execute environmental sanitation projects in these communities. In addition to its responsibility for water supply and sewerage services, SENASA is charged with the control of industrial hygiene, food quality, solid waste disposal, vectors, insects and environmental pollution. 2.10 The Pan American Health Organization (PAHO) has assisted SENASA since its creation. The Bank has also been substantially involved in SENASA's development since 1977 through the Rural Water Supply Project, financed under Loan 1502-PA. SENASA's institutional improvements during the last three years such as the creation of units in charge of promoting and coordinating community participation, construction supervision, opera- tion assistance to communities and efficiency in administrative procedures, have been noticeable. SENASA's increasing responsibilities will require, however, further institutional strengthening (paras. 3.06 and 3.07). 2.11 Local Sanitation Committees (Juntas de Saneamiento) constituted by the communities, actively participate in the construction and financing of water supply and sanitation systems. Once the systems are constructed, the Committees administer, operate and maintain them with SENASA technical assistance and supervision. 2412 The institutional sector arrangements summarized above are for the most part satisfactory. The different institutions complement each other, and there is a clear distribution of functions and responsibilities. There are two areas where improvements are needed and for which the Government authorities are considering specific solutions. They are: (a) lack of a national water law to plan and regulate the rational use of hydraulic re- sources and to control water pollution (existing regulations are scattered through many codes); and (b) inadequate coordination of sector plans with other sectors of the economy. The authorities concerned with the lack of unified water legislation are gathering and analyzing existing information with the view of establishing a comprehensive water law. More active participation of the National Council of Economic Coordination in sector planning should help solve the coordination problem (para. 2.20). Service Levels and Quality - Water Supply 2.13 Water supply coverage in Paraguay is among the lowest in Latin America. Coverage in 1980 was estimated at only 22% (664,600 inhabitants) of total dwellings, 18% through house connections and 4% through public stand- pipes. Urban areas had a coverage of 41%. About 58% of the population of -4- Asuncion was served, and the remaining urban areas had an average coverage of 11%. Rural population had to rely on unsafe private wells or water vendors, with consequently high health risks. Only 5% (95,700 inhabitants) of rural dwellings were reported to be served by house connections in 1980, and another 5% were served by public standpipes. 2.14 SENASA did not start investing in water supply for rural areas until 1976. As a result of this late start, service coverages are still extremely low. Asuncion has benefited from about 85% of CORPOSANA's sector investments for urban areas in the last nine years. The rest of the urban areas, harboring about 55% of the urban population, have received only 15% of CORPOSANA's investments. As a result, people living in urban areas outside Asuncion have, for the most part, no access to piped water. Although no comprehensive plan has yet been developed (para. 2.07), present investment programs have been so designed as to partly remedy the unbalanced distrib- ution of past sector investments. 2.15 CORPOSANA regularly monitors water quality only in Asuncion, where the quality of water is satisfactory; two other urban systems under CORPOSANA, using surface water do not have systematic quality control. The remaining 20 urban public water systems use groundwater, which is chlorinated and of acceptable quality. Private wells are, for the most part, unsatisfactorily constructed and present high risks of contamination. Service Levels and Quality - Sewerage and Sanitation 2.16 Only Asuncion has sewerage services (a coverage of about 50% or 340,000 inhabitants). The rest of the urban areas have either septic tanks or latrines. In rural areas, the use of latrines is widespread. In 1980, about 90% of dwellings used that means of excreta disposal. Most of these homemade latrines do not comply with minimum standards of safety. They constitute a considerable health hazard not only for the users, but also for the population of the area. About 9% of the country's dwellings were re- ported not to have any means of human waste disposal in 1980. Past Sector Investments 2.17 Annual sector investments in 1970-79 averaged US$9.0 million in 1980 prices. The problem of this low level of investments in relation to needs was compounded by the unbalanced geographical distribution of invest- ments. Sector investments until 1975 were undertaken only by CORPOSANA, with Asuncion receiving a disproportionately high share of the total. Since 1976, CORPOSANA has gradually increased the investment share for other urban areas, and SENASA has slowly started to invest in water systems for rural areas. 2.18 External financing has played an important role by helping finance almost all sector investment programs implemented during the past 10 years. External Lenders have been ERXK NK, USAIJD, IIDR, andj, t4xc) l977, th, Rn and KfW for rural areas and UNICEF for rural dispersed populations (below 400 inhabitants). -5- 2.19 There is no comprehensive financial policy for the sector as a whole. Investments in urban areas have been undertaken without any policy of recovery from the users. Even operating costs have been routinely sub- sidized. SENASA, on the other hand, requires rural communities to provide 100% of operating and maintenance costs, not less than a 10% initial con- tribution to investments (part in cash and the remainder in labor and ma- terials) and debt service on a minimum of 10% of investment costs. These financial terms are considered affordable by the larger rural communities. The terms might have to be somewhat softened, however, for smaller com- munities if a lower capacity to pay so warrants. Sector Objectives and Programs 2.20 Lack of adequate sector planning has resulted in the absence of long- or medium-term investment programs. Programs developed independently by each sector institution appear unrelated to financial and absorptive capacities. Furthermore, sector development has not yet been analyzed in a macro-economic context. The recent creation of the Coordinating Committee and more active participation of the Technical Planning Secretariat will provide the basis for the establishment of a comprehensive sector investment program. 2.21 A report produced in November 1980 by PAHO consultants and par- tially financed by Loan 1502-PA (available in project files) thoroughly analyzes the sector, identifies its major constraints and proposes a ten- year investment program. It also proposes a set of measures to overcome the most pressing cornstraints to sector development. This report was prepared with the active participation of the Technical Planning Secretariat, CORPOSANA and SENASA and is now under Government consideration. 2.22 The proposed investment program, with a cost of about US$300 mil- lion equivalent -in 1980 prices, would require average annual investments of about US$30 million, or a 230% increase over average annual sector invest- ments during the past decade. This increase, although impressive at first sight, should be achievable if the low present coverage levels and the low investments undertaken during the past ten years are considered. Further- more, sector investments in the year 1979 amounted to US$14 million. 2.23 The proposed plan would be financed through increases in Govern- ment contributions, based on identified projects up to 1985 and on subsequent increases proportional to the growth of GDP thereafter. The financing of the program also relies on increased internal cash generation and user contrib- utions, mainly from urban systems administered by CORPOSANA. Finally, ex- ternal borrowing should also play a major role in the financing of sector development. The proposed investment program would be financed by approx- imately 40% Government contribution, 40% external borrowing and 20% internal cash generation (CORPOSANA and SENASA) or consumer contributions. Detailed sources and uses of funds are available in project files. - 6 - 2.24 The proposed ten-year investment program aims to reach the fol- lowing coverages by the year 1990: Water Supply 1980 1990 1980-1990 (Incremental Population Served) (%) (%) (Thousand Inhabitants) House Connections 18% 33% 813 Public Standpipes 4% 14% 457 Total Served 22% 47% Sanitation Sewerage 11% 13% 184 Septic Tank 26% 29% 391 Latrines 54% 55% Total Served 91% 97% 2.25 As explained before, the proposed targets appear achievable pro- vided that the sector institutions substantially improve their performance especially in the areas of financial policies and cost recovery, manpower and programming. Manpower Aspects 2.26 In 1980, the sector employed about 1,498 people (1,046 in CORPOSANA, 392 in SENASA and 62 in private consulting firms). About 7% of them were professionals, and 60% technicians or white collar workers. The remaining 23%, unskilled labor. Uncompetitive remuneration, especially when compared with employment opportunities in the major hydroelectric plants at Itaipu and Yacireta, have adversely affected the ability of the two main sector institutions to hire and retain qualified professional staff (para. 3.05). 2.27 The National University of Asuncion prepares professionals in the fields of civil and sanitary engineering. Presently, about 60 professionals a year are graduated from the six-year study program, of which about ten begin their professional lives in the water supply and sanitation sector. About 20 specialized technicians are trained at the National University's Basic Sciences Institute each year. Sector manpower preparation and train- ing is insufficient to significantly accelerate sector development. Major efforts are planned to increase training possibilities, especially for second-line executives and specialized technicians. -7- Experience Under the Previous Bank Loan 2.28 Implementation of the US$9.7 million rural water supply and sani- tation project (Loan 1502-PA) is proceeding satisfatorily. A delayed start of works, mainly due to administrative problems, has been compensated for by better-than-expected performance during 1980. It is expected that the pro- sject will be completed by August 1982, without major delays beyond appraisal estimates (Dec. 81). Disbursements as of May 1, 1981, amounted to US$3.0 million or 50% of the total Loan amount (US$6.0 million). Physical execution equivalent to about 52% of the total cost of works had been completed as of that date. Community participation has been successful, not only in the financing of the works, but also in helping SENASA to implement the project (para. 4.03). SENASA has a high demand for sanitary units; however, the installation of these units has been going at a slow pace. Constraints affecting the initiation of the bidding processes have been removed and no further problems are envisaged for the units' installation. 2.29 SENASA has greatly benefited from the technical assistance program financed by Loan 1502-PA and is acquiring valuable experience in dealing with rural water supply and sanitation programs. Consulting services in the areas of accounting, inventory control, operation and maintenance of water systems equipment, and for drilling have been provided. Their performance has been satisfactory. Their participation has helped SENASA to better tackle its growing responsibilities. The performance of the project (contracted under agreement with PAHO) has been an important factor in improving SENASA's managerial capabilities. PAHO has completed studies in the areas of account- ing, operation of water systems, supply of materials and inventory control. The recommendations of these studies are being implemented with satisfactory results. III. THE BORROWER AND THE EXECUTING AGENCY Introduction 3.01 The Borrower will be the Government of the Republic of Paraguay, which is also the Borrower in the first Bank-financed rural water supply project (Loan 1502-PA). 3.02 SENASA, formed in 1972 as an agency of the Ministry of Health, will be the executing agency. SENASA is in charge of planning, preparing, promoting, financing, constructing and supervising construction and admini- stration and control of services of sanitary works for villages with fewer than 4,000 inhabitants. It is also responsible for the same activities for the dispersed population. In addition, SENASA is in charge of supervising activities in the areas of industrial hygiene, food quality control and general sanitation, including solid waste disposal, vector control and pol- lution control. -8- The Executing Agency 3.03 SENASA's present organization (Figure 1) includes seven depart- ments under the responsibility of the General Director, who reports to the Minister of Public Health. There is also a permanent legal advisor. Four of the departments deal with general sanitation, industrial hygiene, food insp- ection and community promotion, and training. Another is responsible for SENASA's general administration and accounting. The two last departments are responsible for engineering and project design, and project implement- ation and operations. 3.04 SENASA's General Director is required by law to be a civil engineer specialized in sanitary engineering. He is appointed by the President of the Republic upon the recommendation of the Minister of Health. The Director is assisted by an advisory committee whose members, all specialized civil servants, are appointed by the President upon recommendation of the Minister of Health. The General Director controls technical, administrative and financial activities, and acts in close coordination with the Ministry of Public Health. 3.05 SENASA is staffed by 392 civil servants. The qualifications of these employees, particularly those of the engineers and specialized tech- nicians, are satisfactory. The country's rapid economic growth and con- sequent increased demand for professional services have caused a shortage of qualified, higher-level professionals in the fields of engineering, adminis- tration and finance. The shortage is aggravated by the low level of salaries in SENASA. Inadequate compensation has caused many trained staff to take positions in the private sector where salaries are substantially higher. A change in SENASA's remuneration policies would be necessary in order to slow down the drain of top level personnel. It will not be easy to effect improvements of compensation for professionals in SENASA. Top Government officials fear that any such change could have a chain reaction in the rest of the public sector and could result in an excessive burden on Government finances. 3.06 The start of operations of the systems financed under Loan 1502-PA and the execution of the project will increase SENASA's responsibilities. After SENASA has executed the works, it will be in charge of overseeing administration and major maintenance of the rural sanitation systems. SENASA will also be responsible for supplying any necessary technical sup- port to the communities, which will in turn be responsible for the day-to-day operation of the systems. These responsibilities will further tax SENASA's limited staff resources. SENASA has agreed to increase the number of its higher level staff to better cope with its expanded responsibilities. Agree- ment was reached during negotiations (para. 9.02 (a)) that SENASA will provide to the Bank, by December 31, 1981, a comparative study of SENASA's remuneration vis-a-vis other government agencies and the private sector, and by June 30, 1982, a plan of action including an implementation schedule, satisfactory to the Bank addressing the problem of salary levels and provid- ing actions that SENASA will take to resolve this problem and a plan and implementation schedule satisfactory to the Bank to hire a suificient number of qualified, permanent staff members to execute Loan 1502-PA and the project. The plan should also include the organization of technical assist- ance and training for the communities benefitting from both projects. PARAGUAY RURAL WATER SUPPLY PROJECT ORGANIZATION CHART SERVICIO NACIONAL DE SANEAMIENTO AMBIENTAL SENASA MINI$TAY If orPFULIC HEALrF IH I ... T. . . . .. FOOD l^~~~~SNITATION | _ I -I ANO PROMOTIONm1 ENGINEERINO | {OJ(CTI 'Figure 1 H AND TNAkStO73T - 10 - 3.07 SENASA plans to adopt a new organization structure that while keeping intact the Departments of General Sanitation, Industrial Hygiene, Food Inspection and Community Promotion, Training, and Administration (para. 3.03), would place systems operation and maintenance under a new department. The Department of Construction would join the Project Design and Imple- mentation Department. The new organizational structure would formalize SENASA's present informal structure which has been working satisfactorily. It is expected that the reorganization will be in operation before December 31, 1981. Three fixed-term consultants will be hired under the technical assistance component of the project (para. 6.13) to work in close coordin- ation with and provide on-the-job training to the heads of the Departments of Administration and Finances, Planning and Engineering, and Operation and Maintenance. Appointment of these consultants will be a condition of Loan effectiveness (paras. 6.20 and 9.03). Accounting System 3.08 As part of the technical assistance program financed under Loan 1502-PA, SENASA has developed a standard accounting system to record its operations. The system will permit SENASA to produce yearly balance sheets and income and cash flow statements. The system will also permit SENASA to keep project accounts separate from its other accounts. SENASA has started to implement the new system and has produced its first annual statement of accounts (December 31, 1980). The project aims to continue to assist SENASA in the implementation of the new accounting system (para. 6.13 (b)). Train- ing of accountants and bookkeepers in the new accounting procedures would be part of the technical assistance program (para. 6.13 (c)). Audit 3.09 SENASA is audited by two different Government entities. The per- manent auditors of the Ministry of Health carry out internal auditing once a year. The General Controllers Office, which maintains a permanent office in SENASA, checks all vouchers and reports quarterly to the Minister of Health. In compliance with a covenant under Loan 1502-PA, an independent external auditor prepares an audit based on generally accepted accounting principles and sends the reports to the Minister of Public Health and to the Bank. The independent auditing is performed on accounts dated as of December 31 of each year. Audit reports prepared by Mr. Insfran Lopez are satisfactory. Assur- ances were obtained during negotiations that SENASA will continue to have its accounts as of December 31 of each year audited by external account- ants acceptable to the Bank and submit a report on the results of the audit to the Bank not later than four months after the end of each year (para. 9.02 (b)). Compliance with Loan Covenants 3.10 SENASA is in compliance with all loan covenants; however, even if most of the communities are complying with the covenanted initial 5% con- tribution to investment (Loan 1502-PA), seven communities out of 19 which have works under construction have failed to comply with this covenant. Prior to loan negotiations, SENASA furnished the Bank with a satisfactory plan to resolve this situation (para. 7.06). - 11 - IV. THE BENEFICIARIES Organization 4.01 The beneficiaries of the Loan will be the Sanitary Committees of the village covered by the proposed Loan. The Committees are in charge of the operation and maintenance of water services at the local level. The Committees are also responsible for preparing proposals to SENASA on tariffs for water services. 4.02 The Committees follow a standard pattern set by SENASA in the Rules and Regulations for the Sanitary Committees (Reglamento de las Juntas de Saneamiento, Decree 8910, Sept. 10, 1974). This document spells out the organization and the obligations of each committee and defines the relation- ship between the Committees and SENASA. The Committees manage their own assets and funds, and have Boards of Directors and Legal Representatives. The Committees are first organized on a provisional basis by SENASA. Once they obtain their legal charters, new Boards are elected. Each Board is usually composed of five people (the number can be increased to nine): the executive officer (who is also the President and Legal Representative) named by the municipality, and four members elected by the community. 4.03 Experience under Loan 1502-PA has shown that the Committees are willing to learn and that in general the village water supply systems are well managed. All Committees, however, share the following problems: (a) lack of previous experience in water supply; (b) lack of training in accounting and basic managerial skills; and (c) inadequate experience in operational and maintenance prac- tices. SENASA is aware of these shortcomings. The training program designed by SENASA aims to teach managerial and technical skills to the Committees through: (a) training courses at the village level in the operation and maintenance of water systems; (b) specific technical assistance programs for each community to teach accounting principles; and (c) specific assistance in the formulation and implementation of tariff structures that would guar- antee the finlancial viability of each entity (para. 6.12). Accounting 4.04 Each Committee is required by SENASA to implement an accrual ac- counting system based on guidelines prepared by SENASA. Since most of the beneficiaries have never had water systems, lack of experience impedes im- plementation of the accounting systems. The project aims to correct these deficiencies by providing part-time consultants to train SENASA personnel, who in turn will organize and implement an adequate accounting system in each beneficiary village (para. 6.12). - 12 - Audit 4.05 Because of the small size of the operation in each community, annual external audits will not be required. Assurances were obtained from SENASA during negotiations that specialized personnel from SENASA's account- ing department will audit the accounts of each Committee once a year (para. 9.02 (k)). The technical assistance program would include the creation of a procedure for internal audit, including the audit of Committee accounts. V. POPULATION, SERVICES, AND DEMAND IN THE PROJECT CITIES Introduction 5.01 The project area (Map 15609), embracing seven departments, 1/ re- presents only about 15% of the country's area, but contains about 40% of the country's population (1980 estimates). The project area is the most rapidly developing region in the country as a result of the expansion of the agri- cultural frontier and the decision to build three large hydroelectric pro- jects (Itaipu, Yacyreta, and Corpus) in the area. To support this growth, complementary rural infrastructure, transportation and industrial projects are underway. Additional rural and urban projects are under consideration. Geographic and socio-economic data on the area are available in the Project File. 5.02 In recognition of the increasing developmental potential of this area, the Bank's strategy is to emphasize operations in the southeastern part of the country. The expected result of this emphasis is to maximize the benefits of complementary investments in that area. The proposed project is in line with the Bank's strategy. Water Resources 5.03 Water resources do not limit the provision of water supply ser- vices in the project communities. Surveys of sources, mostly groundwater, are being financed under Credit 587-PA (Preinvestment Studies Project). Ex- perience under Loan 1502-PA has shown that aquifers are frequently within a depth of 100-200 m in sandstone. Water quality is good and the only treat- ment necessary would be chlorination. Information on water resources is available in the Project File. Existing Water Supply and Sewage Systems 5.04 In the communities to be benefited by the project, water is ob- tained from shallow wells or nearby rivulets. Water from these unreliable sources is distributed to most of the population by water carriers who sell 200-liter cans at prices of up to US$1.60 per can. Excreta disposal systems (latrines) are in most cases unsatisfactory. 1/ Alto Parana, Itapua, Misiones, Caaguazu, Neembucu, Guaira', and Caazapa. - 13 - Population Served and Service Levels 5.05 In 1980, the population living in communities of less than 4,000 inhabitants and in dispersed rural areas was estimated as about 2.1 million, or 72% of the country's total population. Only 5% of this rural population had access to water supply. The project would provide chlorinated water to 65,000 people in 49 villages, 80% by house or courtyard connections and 20% * by access to public standpipes. The project, together with projects financed by Loan 1502-PA, KfW lending and other minor programs, would increase house connections for water to about 80% of the population in 118 communities with 400-4,000 inhabitants. 1/ Health Related Indicators 5.06 Health statistics in Paraguay are seriously distorted because of the lack of an efficient information system. Health conditions are poor compared with those of other countries with similar GNP. Life expectancy is 64 years, and infant mortality is as high as 85 per 1,000 live births. Diarrheal and enteric diseases are the second most common cause of mortality for all ages. These diseases are closely linked with unsafe water supply and poor sanitation conditions. Population and Demand Projections 5.07 Population growth for the communities that would benefit from the project is estimated at 2.4% per year. Design horizon is assumed at 20 years with an intermediate stage of 10 years for some installations (mainly pro- duction, pumping and water storage). Per capita demand has been estimated as 120 1/day through house connections and 30 1/day through standpipes. 5.08 Water metering in the new systems is not planned. Water will be billed in accordance with a tariff structure based on consumption per unit of sanitary features in use in each dwelling (Annex 3). This system, widely used in rural areas of Paraguay, is satisfactory (para. 7.17). VI. THE PROJECT Introduction 6.01 The project is a follow up of the project financed under Loan 1502- PA. The Government requested Bank participation in the project in 1979. Since then, three Bank missions have visited Paraguay to assist SENASA with project identification and preparation. 1/ The number of communities within this range is estimated at 200, with a total population of about 200,000. - 14 - 6.02 The project would provide water supply and sanitation services to about 49 rural communities with populations of 400-4,000 in seven depart- ments not covered by Loan 1502-PA. The aggregate 1980 population of these 49 communities (about 65,000 inhabitants) represents 33% of the total pop- ulation living in the 200 communities of 400-4,000 inhabitants. The project is expected to be completed by December 1985. 6.03 The following table gives the distribution of population of the communities which have been identified by SENASA to be included in the project. Population Range (1980) Number of Communities Under 1,000 20 1,001 - 2,000 25 2,001 - 3,000 3 3,001 - 4,000 1 Total: 49 Project Objectives 6.04 The main project objectives are to: (a) provide chlorinated water to 100% (80% through house con- nections and 20% through standpipes) of the 1985 population of 49 rural communities. (b) provide sanitary units for 2,000 families in these rural com- munities and to assist in the construction of safe latrines for another 2,000 families in these communities; (c) promote better hygiene habits and contribute to public health improvement; (d) continue strengthening the managerial and operational cap- abilities of SENASA; and (e) promote community participation in the project, and thus ensure a financial policy of community contribution in ini- tial investment and tariffs to cover operation, maintenance and partial recovery of investment. - 15 - Criteria for Eligibility of Communities 6.05 SEINASA has identified 49 rural communities in need of construction or extension of water supply systems (Annex 1). SENASA agreed on the following selection criteria: (a) all communities would have populations of 400-4,000 inhab- itants; (b) all communities would be located in the seven specified departments (paras. 5.01); (c) subprojects must have a per capita construction cost of less than US$130 1/ in January 1981 prices; (d) hydrogeologic studies demonstrating the possibility of de- veloping reliable sources of water easily and economically must have been completed (para. 5.03); (e) a sanitation committee (para. 4.01) must be set up in each community to: (i) participate actively in the planning and construction of the system; and (ii) take responsibility for future administration, operation and maintenance of the system. Assurances were obtained from SENASA during negotiations that the above selection criteria will be applied to all subprojects to be financed under the Loan (paLra. 9.02 (c)). 6.06 Priority should be given to the communities that expressed to SENASA the desire to obtain water supply and excreta disposal systems, and demonstrate the willingness and ability of the community to contribute to construction costs. 6.07 Because the list of communities given as Annex 1 is preliminary, it is possible that some might not comply with the selection criteria. In this case, the communities would be replaced by others which meet the selection criteria. Service Stanidards 6.08 Water services in the project communities would be provided to 80% of the population through house connections and to 20% through public stand- pipes (para. 6.04). These standards are in accordance with the populations' habits, expectations and ability to pay. It is not economically feasible to extend service by house connection to all the population as many people are scattered on the outskirts of the communities. Thus, water services would be 1/ Experience under Loan 1502-PA shows that a per capita cost of US$130, at January 1981 prices, has been the average for water works for urban com- munities of this size. - 16 - supplied through house connections in areas with more than five houses per 100 m of street length and through public standpipes to be located at less than 200 m from the dwellings in areas with a density of less than five houses per 100 m. Water systems would be properly designed to suit the least-cost solution. 6.09 The project includes the construction of sanitary units (shower, toilet, lavatory, laundry facilities and a septic tank) for an estimated 20% of the population of the project communities. For the rest of the pop- ulation, the project will provide assistance for the construction of latrines and septic tanks. Status of Design 6.10 The project would be started by mid-1981 to ensure the steady continuation of the project under Loan 1502-PA. The shortage of technical personnel in SENASA, however, could delay the timely completion of the neces- sary studies and engineering designs. It has therefore been agreed that SENASA will hire qualified short-term consultants to assist in preparing the necessary designs and studies. SENASA will pay the consultants from its own 'budget. Final designs will be prepared in the following steps: (a) com- munity socioeconomic studies; (b) topographic surveys; (c) feasibility studies; and (d) final designs. SENASA submitted to the Bank feasibility studies and final designs for subprojects representing about 40% of the cost of the project works prior to negotiations. Assurances were obtained from SENASA during negotiations that final designs for the remaining communities will be completed before December 31, 1981 (para. 9.02 (d)). Project Description 6.11 The project would consist of: (a) construction of new or extension of existing water supply systems in 49 rural communities (Annexes 1 and 2); a typical water system would include: (i) a drilled well, 100-200 m deep; (ii) pumping equipment and a chlorination system; (iii) a 10-100 m3 storage tank; and (iv) a distribution network with house connections serving about 80% of the population, and standpipes to serve the remaining population; (b) installation of about 2,000 sanitary units; (c) provision of equipment, tools and technical assistance for the construction of latrines and septic tanks; - 17 - (d) procurement of equipment and tools for regional laboratories and well drilling operations, and for community repair shops; (e) procurement of trucks for SENASA's construction supervision; (f) provision of educational and promotional programs in the participating communities in basic public health, during both preparation and execution of the project; and (g) provision of a technical assistance program to SENASA in project management, and in operational and financial ad- ministration (para. 6.13 (c)). 6.12 The purpose of the educational and promotional program is to stimulate village participation in the project and to ensure that project benefits are fully realized. This program, a continuation of one begun under Loan 1502--PA, would include seminars for Sanitation Committee mem- bers on basic administration including basic accounting and assistance in the formulation of tariff structures and operation of rural systems. It would also train operators. In addition, the program would provide se- minars and lectures to housewives and school children in the villages on water uses and benefits, and basic sanitation practices. 6.13 Strengthening of SENASA's capabilities in project preparation and supervision is essential to the implementation of the proposed pro- ject, as well as to other current and future rural water supply and san- itation projects. Because of its shortage of qualified top-level pro- fessionals, SENASA has been relying on expatriate consultants (para. 2.29). This practice is considered essential in the short term and should continue during implementation of the project. The technical assistance program, an expansion of the program under Loan 1502-PA, is intended to provide long-term strengthening of SENASA's abilities. The program would include: (a) services of three consultants for project management for two to four years each (one to act as Project Manager and Advisor to the head of the Planning and Engineering Depart- ment, one to advise the head of the Administration and Finance Department and one to advise the head of the Opera- tion and Maintenance Department); (b) specific consulting services for SENASA's headquarters staff in well construction, operation and maintenance of systems in the communities, accounting and other areas as required; (c) courses and seminars for various levels of SENASA field personnel, sanitary inspectors and plumbers in the com- munities, and SENASA staff in the administrative and finan- cial areas; and (d) overseas training for SENASA's personnel in hydrogeology, drilling techniques and other areas as required. - 18 - Project Cost 6.14 The total cost of the project is estimated at US$18.5 million equivalent, of which US$9.5 million (51%) represents the foreign exchange component. The project cost includes: (a) 7% of the construction cost for engineering and administrative expenses related to the project; (b) 12% of the base cost for physical contingencies; and (c) 40% of the January 1981 project cost (US$5.30 million) for price escalation. Price contingencies for the local component were estimated using the following inflation in- dexes: 21.5% in 1981, and 17.0% in 1982 and thereafter. Price contingencies for the foreign component were estimated at 9.8% in 1981, 8.5% in 1982 and 7.5% in 1983 and thereafter. Interest during construction, not included in this amount, is estimated at US$2.3 million equivalent. Table 6.1 summarizes the investment costs. Detailed costs for a typical system is presented in Annex 2. 6.15 Cost estimates are based on unit costs of recent contracts under Loan 1502-PA for similar civil works and equipment. SENASA applied these costs, in January 1981 prices, to sample average communities. The mission found the approach satisfactory and the estimates reliable. 6.16 About 110 man-months of consulting services are included for the technical assistance to SENASA (an average of about US$6,000 per man-month). Completion of final engineering designs and construction supervision will require an additional 60 man-months of consulting services (at about US$2,600 per man-month). The average man-month cost represents the rate billed by consulting firms for individuals and includes salaries, social costs, travel, and the firm's overhead and profits. Consultants for tech- nical assistance to SENASA are expected to be foreign; those for completion of final designs and construction supervision are expected to be local. Project Financing 6.17 The Bank Loan would finance the project's US$9.5 million foreign exchange component and US$2.3 million of interest during construction (56% of the financing requirements, para. 7.08). The Government of Paraguay has agreed to provide or cause to be provided financing in the amount of US$5.7 million (27%). The balance (US$3.7 million, or 17%) would be provided from community contributions. 6.18 SENASA would receive from the Government (the Borrower) the pro- ceeds of the Bank loan and the Government contributions as a grant. Part of these funds would be lent to the sanitary committees, and the remainder would be granted (para. 7.13). Characteristics of loans and grants to the communities and of recovery of funds are detailed in paras. 7.13 - 7.15. Project Implementation 6.19 The bulk of the project would be executed during 1982-85 according to the implementation schedules shown in Tables 6.2 and 6.3. This schedule is compatible with SENASA's execution capabilities. SENASA will hire the management consultants and will procure tools ior well driYYitv andA weYA equipment during 1981. The procurement, after negotiations and during - 19 - Table 6.1: TOTAL PROJECT COSTS US$ Thousands f Million Description Foreign Local Total Foreign Local Total Construction Works (a) water supply systems 4,653.7 3,312.0 7,959.3 586.4 417. 1,002.9 (b) sanitary units 816.8 1,028.5 1,851.7 102.8 129.6 233.2 (c) equipment 308.3 50.8 359.1 38.8 6.3 45.1 Total Construction Cost 5,778.8 4,391.3 10,170.1 728.0 553.2 1,281.2 Engineering & Admin. Expenses 404.5 307.1 711.6 50.9 38.7 89.6 Studies and Designs 28.5 111.9 140.4 3.6 14.1 17.7 ;echnical Assistance 706.2 54.0 760.2 88.9 6.8 95.7 Total Base Cost 6,918.0 4,864.3 11,782.3 871.4 612.8 1,484.2 Physical Contingencies 830.2 583.3 1,413.5 104.6 73.5 178.0 Price Contingencies 1,751.8 3,552.4 5,304.2 220.7 447.6 668.3 Total Cost of the Project 9,500.0 9,000.0 18,500.0 1,197.0 1,134.0 2,331.0 Interest During Construction 2,300.0 -- 2,300.0 289.8 -- 289.8 Total Financing Required 11,800.0 9,000.0 20,800.0 1,486.8 1,134.0 2,620.8 Table 6.2 PARAGUAY SECOND RORAL EATER SUPPLY AND SANITATION PROJECT Execution Schedule 1981 1982 _ 1983 1954 1 2 85 4th. 1st. 2nd. 3rd. 4th. lst . 2nd. 3rd. _ th. 1st. 2nd. 3rd. 4th. ltr. 7 -2nd. 3rd. 4th. Ott. Ott. Ott. qLtt. Ott. Ott. Ott. Ott. O. tt. Ott. Ott. Ott. Ott. Ott. Ott. Ott.rt .sttc l-r s 5-;nC-ag't, 2 4_ A ----- ----- ___ _4----- r_4____4_.-__4_, 4-------- _4_____ -----_ --__ ,,,4__,_ ---- ----- ------ ----- ----- ----- ------ ----- S- cI ebia .=sac _ _ _ _ ____ __.____ ____ *uicalAssistance { _______ _ = _ ,54 c, ------ e ------_ 3 3 3 ~~~~~~~~~~~~~~~~~~3.. PARAGUAY Table 6.3: SCHEDULE OF MAIN PROJECT TASKS l l Calendar Year and Quarter _ i Task Completion Date 1981 io'/2 I iLYs3 I94lo 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 Completion of final design preparation No 10 39 Signature of contracts SENASA - Co mmunities N° 7 8 8 8 8 5 5 Filters and pipes for drilled wells X Pumps and chlorinators X X Materials for storage tanks and sanitary units X X n Equipment for SENASA X X X m Civil works - Installation of equipment in communities X X X Civil works - Storage tanks X X Completion of water systems No 15 18 16 PARAGUAY Table 6.4: SECOND RURAL WATER SUPPLY AND SANITATION PROJECT Estimated Project Cost Foreign Costs 103 US$ Construction Costs at January 81 Prices Local Cost t Million US$1 = t126 Total 1981 1982 1983 1984 1985 Foreign Local Foreign Local Foreign Local Foreign Local Foreign Local Foreign Local Water iSupply Sytems Wells - materials 456.7 11.2 294.7 7.4 126.3 3.2 - - Wells - drilling 246.8 53.0 34.1 7.5 159.3 35.3 34.1 7.5 - - - - Pumps and electrical materials 1003.0 24.5 - - 554.8 14.0 369.9 9.3 - - _ Chlorinators 252.7 6.2 - - - - 46.6 1.2 212.8 5.1 _ Equipment in&tallation 73.0 35.2 - - - - 26.9 13.4 46.1 21.6 - - Electrical connection 64.3 10.5 - - - - 23.7 4.0 27.1 4.3 28.7 2.5 Equipment shelters 171.7 31.5 - - - 63.3 12.0 72.3 13.0 76.5 7. 3 Storage tank0 987.2 115.5 - - 182.1 21.9 364.0 43.9 415.5 47.4 - Distribution networks materials 1140.9 55.4 - - 315.5 15.8 736.3 36.8 - - - Distribution networks instillation 257.4 74.3 - - 47.5 14.1 108.2 30.6 229. v 34.0 Sanitary Units Imported materials 264.9 - 24.4 219.8 - - - Local materib1s and labor 551.9 129.6 - - - - 101.8 22.1 406.6 97.3 122.6 13.- Equipment 308.3 6.4 - - 185.0 3.8 123.3 2.6 - - - Total ConstrOction Cost 5778.8 553.3 328.8 14.9 1,547.4 94.0 2,157.2 166.9 1,288.6 219.3 456.8 58.2 Engineering bupervision & admin. 404.5 38.7 23.0 1.0 108.3 6.6 151.0 11.7 90.2 15.4 32.0 4.0 Studies and d1esigns 28.5 14.1 8.6 4.2 14.3 7.1 5.6 2.8 - - - - Technical asistance 706.2 6.8 212.0 1.5 160.6 1.2 155.2 1.2 106.4 1.2 72.0 1.7 Base Cost 6918.0 612.9 572.4 21.6 1,830.6 108.9 2,469.0 182.6 1,485.2 235.9 560.8 63.9 Physical Confi,gencies 830.2 73.5 68.7 2.6 219.7 13.1 296.3 21.9 178.2 28.3 67.3 7.6 Total JanuarY 1981 Cost 7748.2 686.4 641.1 24.2 2,050.3 122.0 2,765.3 204.5 1,663.4 264.2 628.1 71.5 Price Contin5encies 1951.8 447.6 52.1 6.2 278.8 38.8 627.7 110.8 530.6 212.4 262.6 79.4 Total Projecr Cost 9500.0 1134.0 693.2 30.4 2,329.1 160.8 3,393.0 315.3 2,194.0 476.6 890.7 150.9 - 23 - completion of Loan 1502-PA, would not require significant Government alloca- tions of manpower since most of the items would be imported materials with standards and specifications developed under the first project. To this end, the project contains retroactive financing of up to US$100,000 for the purchase of tools for well drilling and well equipment. Estimated annual investments are given in Table 6.4. 6.20 Feasibility studies and final designs for work corresponding to about 40% of the project works (para. 6.10) were prepared by competent local consultants. For the remaining 60%, SENASA will use consultants to carry out the surveys in situ and prepare data, and would use its own staff to complete the final designs. Construction supervision is expected to be shared between consultants and SENASA's permanent staff. SENASA would be responsible for community promotion and providing assistance for the construction of indi- vidual excreta disposal systems. Other Ministry of Health personnel would provide assistance for health-related activities. Assurances were obtained from SENASA during Loan negotiations that it will employ qualified con- sultants acceptable to the Bank to assist at the department level in project management, operation and maintenance, and finances and administration (para. 9.02 (e)). Assistance in project management would continue to be carried out by the project manager position provided under Loan 1502-PA. Appointment of the management consultants will be a condition of loan effec- tiveness (para. 9.03). Procurement 6.21 All goods and services would be procured in accordance with Bank guidelines. All contracts for the purchase of imLaerials and equipment with an estimated cost of US$100,000 equivalent or Ii1nrrG and all contracts for civil works with an estimated cost of US$200,00r equivaient or more would be awarded under international competitive bidding. To ,-e extent practicable, civil works, materials and equipment would be so grouped as to make the contracts attractive for international competitive bidding. Contracts for equipment and materials under US$100,000 and for civil works under US$200,000 may be awarded on the basis of locally advertised tuOiiietitive bidding in accordance with procedures acceptable to the Bank. The total cost of items procured under such procedures should not exceed an aggregate of US$2,000,000 equivalent. Contracts for goods and for civil works estimated to cost less than US$10,000 may be procured in accordance with local procure- ment procedures, satisfactory to the Bank. The total cost of items so procured should not exceed an aggregate of US$100,000. Spare parts for equipment used in the execution of the project may be procured through negotiated purchases from established and reliable suppliers, provided, how- ever, that the total cost of the items so procured shall not exceed an aggregate of US$250,000. Local manufacturers would be given a 15% margin of preference of the cif value or the applicable custom duty, whichever is lower. Pipes and cement are the only materials expected to be supplied by local manufacturers. During negotiations, agreement was reached on a pro- curement schedule for the second semester of 1981 (para. 9.02 (f)). Not later than October 31 of each year, as long as goods or works remain to be procured, the Bank and SENASA should agree on a procurement schedule for the following year. 6.22 Since a necessary condition for the success of rural projects is community participation in the form of labor, materials, transportation, storage areas, cash contribution, etc., part of the civil works would be executed by small local contractors, combined with voluntary community work - 24 - and force account methods. Well drilling will be carried out mostly by SENASA personnel. SENASA personnel are working on similar tasks under the ongoing project and are being trained on site by a qualified consultant. Because the number of wells to be drilled under the project is large, the possibility of using private drilling companies as well should be considered. 6.23 SENASA has already made available to the Bank a general procure- ment notice to be published in the Development Forum. Assurances were obtained during negotiations that SENASA will update the notice annually as long as any goods or works remain to be supplied (para. 9.02 (g)). The Bank would have prior review and approval of invitations to bid and proposed contract awards for all civil works contracts estimated to cost US$200,000 or more and for contracts for materials and equipment estimated to cost US$100,000 or more. For all other contracts, SENASA will submit to the Bank for review copies of each contract together with the respective bidding documents, bid analysis report and recommendations for award. Disbursement 6.24 Disbursements of the Bank Loan, supported by normal documentation, would be made over a four-year period according to the following categories and percentages: Category Amount (US$) % I Materials and equipment 8,090,000 100% of imported materials for water systems; and equipment, or if materials and equipment purchased locally 35% for sanitary units of local expenditures II Materials, tools and equipment 430,000 100% of foreign expenditures other than those under or if purchased locally Category I 35% of local expenditures III a) Management 735,000 100% consultants; b) Training fellowships, 98,000 40% community education and other technical assistance; c) Engineering 147,000 40% IV Interest and other charges 2,300,000 Amounts due on the loan accrued on or before July 31, 1985 TOTAL 11,800,000 The estimated quarterly disbursements are shown in Table 6.5. The dis- bursement profile is in accordance with SENASA's present capabilities. Loan 1502-PA will be disbursed in five years, instead of four years as estimated - 25 - Table 6.5 TENTATIVE SCHEDULE OF DISBURSEMENTS (US$ Thousands) IBRD Fiscal Year Quarterly Cumulative % of and Quarters Disbursements Disbursements Total FY82 Dec. 81 250 250 2 Mar. 82 500 750 6 Jun. 82 550 1300 11 FY83 Sep. 82 700 2000 17 Dec. 82 725 2725 23 Mar. 83 725 3450 29 Jun. 83 850 4300 36 FY84 Sep. 83 950 5250 45 Dec. 83 1100 6350 54 Mar. 84 1075 7425 63 Jun. 84 775 8200 69 FY85 Sep. 84 725 8925 76 Dec. 84 700 9625 82 Mar. 85 500 10125 86 Jun. 85 500 10625 90 FY86 Sep. 85 450 11076 94 Dec. 85 250 11325 96 Mar. 86 250 11575 98 Jun. 86 225 11800 100 - 26 - at appraisal. This was principally due to initial delays resulting from SENASA's inexperience, lack of drilling machines and delays in staffing the institution. SENASA has resolved most of these problems satisfactorily and disbursements and bidding for the 1980-81 purchase program have been pro- ceeding at a good pace. The closing date for the proposed Loan would be June 30, 1986. 6.25 Assurances were obtained during ne&Rtiations that prior to the initiation of works or provision of equipment and materials in each community, the concerned Sanitary Committee should provide an initial cash downpayment of at least 2.5% of the construction cost of the water system (para. 9.02 (h)). Environmental Aspects 6.26 Water and excreta disposal problems would be dealt with simulta- neously. Therefore, no adverse effects can be expected from the project; on the contrary, surface levels of soil contamination would be reduced as a result of latrinization in the rural areas. VII. FINANCIAL ASPECTS SENASA's Financial Performance 7.01 SENASA is a department of the Central Government under the Ministry of Public Health. Its administrative and operating expenses and investments requirements in water supply and sanitary units are financed by the Government's ordinary budget and from the special budget. The special budget is funded by a tax on beer consumption (¢1 per liter of locally brewed beer and 02 per liter of imported beer). Since 1977, SENASA's investment in rural water supply systems and technical assistance has absorbed 65.5% of its total allocated resources (Table 7.1). Operating expenses, including costs of project preparation, engineering and supervision, amounted to 18.4% of total resources. Other programs, UNICEF and GTZ absorbed the remaining 16.1%. 7.02 SENASA's annual budget is submitted to the Ministry of Public Health for consideration. After the budget has been reviewed and discussed with SENASA, it is included in the Ministry's General Budget and is submitted to the Budget Department of the Ministry of Finance for final approval and presentation to the Parliament. When supplementary resources are needed for an unbudgeted program, the authorization of the Minister of Finance is required. 7.03 As shown in Table 7.1, SENASA's resources increased from an estimated 073.5 million (US$583,000) in 1977 (US$1.1 million 1980 equiva- lent), to 0696.0 million (US$5.5 million) in 1980. The main reason for this growth is the increase in Government budgetary support from ¢33.1 million (US$262,700) in 1977 (US$550,000 1980 equivalent) to 0267.5 million (US$2.1 million) in 1980. 7.04 Receipts from the tax on beer, are lower than forecast. The tax per liter has not been changed thou%ix the grtc-e to cometr Was erow te_x times. This situation has affected the availability of funds for SENASA operations, as the Government has not budgeted additional amounts to cover the shortfalls. Higher-than-expected contributions to investments by some communities (095.4 million in 1980, compared with 018.6 million in 1979) have helped resolve this situation. - 27 - Table 7.1: SOURCES AND UTILIZATION OF RESOURCES 1977-1980 (Thousands of Guaranies) 1977 1978 1979 1980 Total % Sources of Funds Beer Tax 37,675 41,032 59,625 60,104 198,436 15.1 Ordinary Budget 33,176 50,100 177,586 267,469 528,331 40.2 Community Contribution 2,692 1,264 18,601 95,387 117,944 9.0 IBRD - - 152,118 223,218 375,336 28.6 UNICEF and KfW - - 35,571 45,220 80,791 6.1 Loan Repayment - 1,300 1,820 2,070 5,190 0.4 Revolving Fund - 2,970 1,603 2,573 7,146 0.6 73,543 96,666 446,924 696,041 1,313,174 100.0 Uses of Funds Operating Expenses 47,727 59,899 60,966 72,961 241,553 18.4 Investment in Water and Sewerage System 13,260 19,355 206,023 344,662 583,300 44.5 Technical Assistance and Preinvestment Fund 100,000 174,000 274,000 21.0 Other Programs 12,556 17,412 24,264 27,198 81,430 6.1 UNICEF/GTZ - - 55,671 77,220 132,891 10.0 73,543 96,666 446,924 696,041 1,313,174 100.0 - 28 - 7.05 Community water supply and sanitary systems are financed by pro- ceeds of the Bank Loans complemented by SENASA's budget resources and com- munity contribution. Financing is also being provided to SENASA by KfW, and donations from UNICEF. Past Experience with Beneficiary Financial Performance 7.06 Before 1977, when Loan 1502-PA was signed, SENASA financed the installation of 14 water supply systems from its budget at a total cost of 044.1 million (US$350,000). Recovery of funds for these 14 projects is considered satisfactory, although 5 communities have overdue accounts (Table 7.2). Prior to negotiations, SENASA furnished the Bank with a satisfactory plan to deal with these overdue accounts. Updated cost estimates for the water systems in the 48 beneficiary villages under Loan 1502-PA is 0878 million (US$7.0 million). The combined cost of the 25 communities, for which contracts between SENASA and the committees have been signed, amounts to 0595 million (US$4.7 million). This cost has been shared as follows: 20.5% by community contributions; 41% by the Bank Loan and the remaining 38.5% by the Government. The community will repay about 11.5% of the cost over 15 to 17 years, together with interest of 6%. 7.07 The financial statements of 4 of the 14 villages that benefited from SENASA financing were analyzed as representative of financial perform- ance to be expected under the proposed project (Table 7.3). The economic and social aspects of the four beneficiaries are similar to those of the com- munities that would benefit from the Loan. Working ratios 1/ did not vary widely. All villages show strong incomes from water sale revenues and all of them had an acceptable net income. Average tariffs were in the range of 0500 to 0600 per connection per month. Accounts receivable are low. Long-term debt is low as most of the investment was subsidized by the Ministry of Health. Fixed assets are not revalued and accumulated depreciation is low since, in most cases, use of the new accounting system has only recently begun. Thus, even though some problems exist, SENASA appears to have been successful in implementing rural water systems through Sanitary Committees. Project Financing Plan 7.08 The total cost of the project is US$18.5 million equivalent. In addition the project requires financing of US$2.3 million of interest during construction, to be also covered by the Loan which will not be charged to the beneficiaries. The consolidated financing plan is presented in Table 7.4. Table 7.4: PROJECT FINANCING PLAN (1981-1985) Sources US$ Millions % of Total IBRD Loan 11.8 56 Government contribution 5.7 27 Community contribution 3.7 17 21.2 Applications Project cost I8.S 7 Interest during const. 2.3 11 Working capital 0.4 2 21.2 100 1/ Operating expenses before depreciation to operating income. - 29 - Table 7.2: LOAN RECOVERY PERFORMANCE AS OF DECEMBER 31, 1980 (Guaranles) Community Total Cost Loan Amount No. of Monthly Monthly Installments __________ of System Installments Payment Overdue Villeta 5,103,258 1,786,145 240 12,796 - Gral. Artigas 6,097,650 520,000 96 6,834 - Arroyos y Esteros 2,261,984 900,000 240 6,450 16 Caaguazu 2,694,320 1,030,100 15 70,000 6 Caraguatay 3,678,119 1,051,645 240 7,538 11 Carapegua 5,226,521 2,400,000 180 20,254 5 San Jose de los 4,869,063 1,209,592 180 10,207 22 Arroyos Carmen del Parana 2,146,938 644,200 180 20,320 - Rosario 407,302 120,000 96 1,577 - Tabati 6,243,910 1,773,210 240 12,640 - Lumpio 255,692 76,150 96 998 - Itacurube 1,320,200 300,108 240 2,150 - Guarautare 3,410,080 1,100,104 240 7,541 - Cerrito 400,000 120,242 180 1,022 - Total: 44,115,037 13,032,496 - 30 - Table 7.3: COMMUNITIES WATER SYSTEMS BALANCE SHEET AND INCOME STATEMENT AS OF JUNE 30, 1980 (Thousand Guaranies Pounded) Balance Sheet ARTIGAS CAAGUAZU VILLETA CARAPEGUA Assets Fixed Assets 5103 8857 8436 12384 Accumulated Dep. 881 402 752 1907 Net Assets 4221 8455 7674 10476 Cash 112 198 388 410 Accounts Receivable 192 222 210 280 Investments 0 35 64 0 Other current assets 336 222 46 160 Total Assets 4861 9132 8384 11327 Liabilities Accounts Payable 10 33 40 45 Total current liabilities 10 33 40 45 Long Term Debt 131 1322 1615 2314 Total liabilities 141 1355 1655 2359 Equity 4719 7777 6728 8968 Total Liab. & Equity 4861 9132 8384 11327 No of connections 230 256 347 374 Average Tariff (0/conn/month) 550 600 500 500 Income Statement Water Sales 1385 1292 2192 2312 Connection fees 106 389 535 0 Total Revenues 1492 1682 2728 2312 Operating & Maint. Costs 1092 1147 1880 1118 Depreciation 222 402 752 574 Operating Income 177 132 95 620 Non operational revenues 0 0 0 0 Net income 177 132 95 620 Working ratio 1/ 73 68 68 48 I( Operating expenses before de.recation to opexating imcoe. - 31 - The Bank's contribution would cover the foreign exchange component and interest during construction. The Government contribution would be in the form of grants to SENASA, to be invested in the communities. The contribu- tions of the communities would cover partial payment for water supply systems and full payment for the sanitary units. 7.09 Table 7.5 shows the projected annual cash flow for SENASA during the period 1982-85. Because of the Government's decision not to increase SENASA's ordinary budget by more than 10% a year (aside from amounts required for debt service) and the low receipts expected from the tax on beer, the Government will have to provide SENASA with budgetary allocations to cover its total contribution to the project. During negotiations, assurances were obtained from the Government that it will provide the required budgetary funds for the project (para. 9.01). A supplementary letter to the legal documents was agreed indicating the estimated annual Government contribution to the project cost. Community Financing Plan 7.10 The total investment for the community water systems would be financed by the sum of the following: (a) initial community contribution; (b) a loan from SENASA (with interest) to the community; and (c) a grant or government contribution. 7.11 Community participation in initial investment is considered funda- mental to the success of the project. As noted in para. 7.06 contributions have amounted to 20.5% of investment cost in the first 25 communities. Some decline in the average level of contributions is expected because of: (a) the increase in capital cost of the project compared with previous projects; and (b) the relatively lower saving capacity of the populations in the smaller villages due to the recent immigration to the area of many inhabi- tants and the consequent need to invest in such areas as housing and agri- cultural improvements. 7.12 Until recently, most of SENASA's services had been concentrated in areas nearer its headquarters in Asuncion. According to SENASA's records, the community contribution in new areas has been no greater than 15% of total investment. On the basis of mission estimates and SENASA's experience, initial community contribution can be expected to total no more than 15%. The contribution from each village will vary according to local ability to pay. Each community will, however, be required to contribute a minimum of 10% of the initial investment cost to be eligible for financing under the project. 7.13 SENASA would finance with the proceeds of the Bank Loan and Govern- ment contributions the cost of construction of the water system, minus the initial community contribution, plus the cost of material for individual sanitary units. Based on the socioeconomic study of the community, which would indicate its ability to pay, SENASA and each community would agree on the portion of capital expenditures that would be converted into an interest- bearing loan which should cover at least 12% of the total investment. Under Loan 1502-PA the average loan was 11% of the investment. Initial community contribution and tariff revenues would cover in total at least 22% of invest- ment costs, except in cases where SENASA and the Bank agree to a lower - 32 - Table 7.5: SENASA PROJECTION OF SOURCES AND APPLICATION OF FUNDS 1981-1985 (Millions of Guaranies) Sources of Funds 1981 1982 1983 1984 1985 Community contributions 69 62 75 102 103 Recovery of Loans 1/ 4 14 18 22 38 Revolving fund 6 8 9 14 22 IBRD Loan 399 433 427 276 112 Other (KFW & UNICEF) 320 142 47 Subtotal 798 659 576 414 275 Additional Funds 2/ 28 86 250 26 Gov. Budget contribution 3/ 393 433 477 524 576 Beer tax revenues 4/ 61 67 74 82 90 Subtotal 454 528 637 856 692 Total of Sources 1252 1187 1213 1270 967 Uses of Funds SENASA's administrative exp. 5/ 117 198 295 390 538 Project investments IBRD 6/ 118 452 744 753 264 Investments under Loan 1502-PA 556 246 Investments under KFW/UNICEF 406 241 114 65 70 Others 55 50 60 80 95 Total 1252 1187 1213 1270 967 / It is assumed that revenues from recovery of Loan will be retained by SENASA, and that the Government will repay the debt to the Bank. 2/ See para. 7.09. 3! It is assumed that Government budget contribution will not increase more than 10% over the previous year. 4/ Beer tax revenue estimates prepared by SENASA based on present tax structure and collection efficiency. SENASA's general overhead will increase 69% in 1982 and 50% in 1983 with the starting of the project and salary increases above inflation rates. An increasp of 327' annunlly is projected during 1984-1985. as a result of furtbpr needs and salary increases. 6/ Not including interest during construction. - 33 - figure. SENASA and each community will enter into a subloan agreement, specifying the amount and terms of the SENASA loan and the total community participation, including cash payments (para. 7.16). The Sanitary Committees would repay the loan in equal monthly installments over 15 to 20 years, with interest of 9.6% after a grace period equal to the construction period plus 6 months. The cost of material for individual sanitary units would be paid back in full over a period of 3 years with interest of 9.6%. The Government would bear the foreign exchange risk. 7.14 The interest rate charged to the communities is equal to the inter- est the Bank is charging on the Loan (now 9.6% per annum). Although the interest rate would be higher than the one charged under Loan 1502-PA (6%), it would still be negative in real terms in view of current and expected high inflation rates. The subsidy implied in the element of grant financing and low interest rates is necessary to promote improvement of sanitary con- ditions in villages with less than the country's average ability to pay. Since works would be designed according to the least cost alternative (para. 6.08) and the comparison of alternatives will be quantified at a discount rate equal to the country's estimated opportunity cost of capital, distor- tions in resource allocations within the sector would be minimal. 7.15 The payment period (para. 7.13) is considered satisfactory. Its extension beyond the economic life of the system is not advisable because of the difficulties that would arise from financing replacement of worn out assets. The present system of assessing the amount to be charged as a loan to the community and of establishing interest seems satisfactory and practical. It has the benefit of making the villages conscious of the cost of capital and the need to recover capital investments. Subloan Agreements 7.16 Each contract between SENASA and the beneficiary Sanitary Com- mittees would require Bank approval prior to the initiation of work or provision of equipment and materials to the communities (para. 9.02 (i)); the contract will include the following specific conditions: (a) Sanitary Committee: each Sanitary Committee should have been duly recognized as a legal entity; (b) Project Description: each agreement will include a de- tailed description of each project component, and of its quantities and costs; the contract will also list all proj- ect plans and documents; (c) Initial Contribution: total community contribution to the construction cost of the water project should be specified and equivalent to not less than 10%; unless the Bank other- wise agrees, SENASA will cause each Committee to make a cash down payment of 5%. An initial cash down payment of 2.5% is a condition of initiating the works and providing of equipment or materials to the village, with the remaining 7.5% to be paid in the form of 2.5% in cash during the construction period and 5% in material or labor; and - 34 - (d) Revenue Covenant: each Sanitary Committee will set tariffs and other charges for water service at such a level as to obtain enough revenues to cover: (i) normal operation and ordinary maintenance of the wa- ter system; (ii) the deposit in SENASA of an amount for replacement and major repairs, to be determined by agreement be- tween SENASA and the community; (iii) debt service to cover the loan from SENASA to the community; in any case a minimum of 12% of the total investment (para. 7.13). (e) Sanitary Units: the number of sanitary units to be built and the terms of repayment will be specified. Tariff Structure 1/ 7.17 The tariff levels would be based on the communities' ability to pay, as determined by the socioeconomic studies prepared by SENASA, and on the level of total revenues as covenanted (para. 7.16). Tariffs are revised periodically (usually yearly) by the Sanitation Committees with the assistance of SENASA. To keep tariffs in line with requirements for funds, the rates are fixed at a basic amount for a courtyard connection, plus an additional charge based on the number and types of sanitary features used in each house. Normally, this assures that rates are closely related to ability and willingness to pay, since the connection to the system and the number of features are made at the request of the consumers. Basic tariffs for yard connections range from 0350 (US$2.78) to 0650 (US$5.16) per month and from 050 (US$0.40) to 075 (US$0.59) per month for public standpipes. Monthly tariffs represent a maximum of 7% of average monthly family cash income in the region. This level of tariffs has been implemented in the past with very good results. 7.18 The Committees also charge new customers a fee for access to the service. They also levy charges to cover materials and labor costs for connection to the system. These fees vary from one village to another, but SENASA ensures that their level does not prevent low-income people from connecting to the system. 7.19 The Committees are responsible for billing and collecting water service charges. In the case of standpipes, collections would be the responsibility of a subcommittee of users. Where standpipes are installed in the courtyard of a house, the owner of the house would keep a list of users and collect the money periodically. Experience in all communities where water systems are in operation has shown that the overdue accounts are nil except in five communities (Table 7.2). This is basically because of the high level of community participation and cooperation resulting lrom SENASA's educational and promotional programs. 1/ Annex 3 contains details on the tariff structure. - 35 - 7.20 The system of setting and reviewing tariffs is considered satis- factory. Assurances were obtained during negotiations (para. 9.02 (j)) that: (a) the system will be continued unless SENASA and the Bank otherwise agree; (b) SENASA and the communities will at least once a year review the tariff levels; and (c) SENASA will cause the Sanitary Committees to take all necessary measures to produce revenues sufficient to comply with the revenue covenant. Future Finances of Beneficiary Villages 7.21 Financial projections for 1983-87 have been prepared for two representative villages. The basic information on expected revenues and costs were taken from the villages' financial statements most recently sent to SENASA. The projections and basic assumptions are presented in Annex 4. It is important to note that after the systems are delivered to the communities, the Committees should be able to cover operating and maintenance expenses from system revenues. In later years, the Committees should be able to finance other investments, such as extension and normal repairs from their operating incomes. The financial positions of the Committees as measured by their abilities to comply with the revenue covenant is satisfactory. Monitoring Indicators 7.22 SENASA provided the Bank with assurances (para. 9.02 (1)), that in order to ensure satisfactory project monitoring, SENASA will establish a system of monitoring indicators and execution targets on the basis of the indicators set forth in Annex 5. VIII. SOCIOECONOMIC ANALYSIS Project Rationale 8.01 The project aims at alleviating the precarious living and health conditions of the inhabitants of about 49 rural communities located in the most rapidly developing area of the country by providing safe water supply and sanitation facilities. The late start of sector activities in Paraguay, as explained in Chapter II, has resulted in a failure of basic public services to keep pace with the the rapid development of productive activities. This in turn has impaired gains in labor productivity and access of the low-income rural population to the benefits of economic growth. - 36 - 8.02 The project also aims at continuing to strengthen SENASA's ability to execute projects, effectively promote community participation during construction and train the villagers to operate and maintain the systems once they are completed. This aspect of the project is particularly important as SENASA is significantly increasing its activities in rural areas and will have to continue doing so in order to successfully meet with its sector objectives. Population Benefited and Poverty Impact 8.03 The project would provide safe water through house or courtyard connections to about 60,000 inhabitants of 49 rural communities by 1985. Most of the remaining 20% of the inhabitants of these communities would receive water through public standpipes. The project would also provide sanitary units to about 11,000 inhabitants and latrines to about 28,000 inhabitants in the same communities by 1985. 8.04 A recent survey estimated that in 1977, about 56% of Paraguay's rural population earned an annual per capita income of less than 020,000 (US$160). It was also estimated that on-farm consumption represented about 45% of annual monetary income. This poverty threshold expressed in terms of monetary income would be equivalent to about 25% of the national per capita income for the same year. Based on the USAID study, complemented by more recent information gathered by SENASA in some of the project communities, it is estimated that about 60% of the families belong to the poverty target group. About 20% earned between 020,001 and 040,000 per capita (US$160), and 20% earned more than 040,000 per capita. These income distribution indica- tors have been corroborated by other poverty indicators, such as access to basic services, housing quality and household possessions. 8.05 About 40% (24,000 people) of those who would benefit from the water subprojects through house or courtyard connections are estimated to belong to the poverty group, as do all of the beneficiaries through public standpipes. One hundred percent of the population to be benefited by the provision of latrines also belong to the poverty group. 8.06 The project would also have income distribution effects, since about half of the families without access to public 3supplies purchase water from private vendors at prices of up to 01,000/m (US$8/m ). These consumers are presently spending more than 018,000 a year, or more than 12% poverty group, for provision of limited and unsafe water. With the proj- ect, they will have access to larger volumes of safe water at a family expenditure of up to 06,000 a year, or about 4% of the annual income poverty threshold. Another significant part of the dwellers lacking access to public water supplies has to walk distances of up to 2-½2 km to carry water. This causes one or two persons of the household to be unable to earn outside income or, in the case of children, to obtain an education. - 37 - Quantification of Benefits 8.07 The economic return on investment was not quantified because of the impossibility of assigning a monetary value to health benefits stemming from the project. However, to obtain at least an approximate value for the level below which the economic rate of return is not likely to lie, a calculation was made for two villages (of 8,000 and 2,800 inhabitants) of the present value of capital and operating costs, including complementary investments for a 10-year period, at an 11% discount rate, corresponding to the approximate opportunity cost of capital. In both cases, the net present value would be positive on the assumption that consumers assign a value equal to what they are now paying to vendors--or half that amount when they are carrying their water from nearby sources--for volumes consumed at present, and a value equal to 015/m3 for additional consumption. These sample calcu- lations suggest that even without computing the value of public health and other benefits, the economic rate of return of the project is likely to exceed the opportunity cost of capital in Paraguay. 8.08 The latrine component of the proposed project is justifiable in terms of its low cost and the health hazards it would help reduce. The beneficiaries of the sanitary unit component of the project would fully repay the costs in three to five years; the only element of subsidy would be the subsidized interest rate. Populations of similar rural comunities included in the project financed under Loan 1502-PA have already demonstrated their willingness to pay by signing the onlending agreements, purchasing the local materials and providing labor. Affordability of Project Services 8.09 Water services provided by the project are estimated to be fully affordable to the village populations. The lowest income inhabitants (about 20%) will have access to public standpipes at a token cost. The monthly bill for low-income populations having access to a courtyard connection (0500 or US$4) would not exceed 4% of the minimum monthly salary (0132,000) or 4% of the monthly poverty income monetary threshold at December 1980 prices. 1/ Materials and technical assistance for the installation of latrines would be provided free of charge. The cost of the foreign component of each sanitary unit is estimated at US$120 in December 1980 prices. The purchaser must buy the local materials and provide the labor. 2/ It is estimated, on the basis of the experience gained in the project financed under Loan 1502-PA, that these sanitary units would be affordable to about 20% of the communities' families. Project Risks 8.10 The main risk is related to the still limited implementation capa- bilities of SENASA. The project has been prepared to reduce these risks to a reasonable level by providing a strong technical assistance program. In addition, the project has been scheduled to avoid overlapping with the proj- ect under Loan 1502-PA. 1/ If on-farm consumption is added to the monetary income, the percentage to be paid for water is less than 3. of the total monthly family income. 2/ The cost of the local component and hired labor is estimated at US$250 at TYecember 1980 prices. - 38 - IX. AGREEMENTS REACHED AND RECOMMENDATIONS During negotiations assurances were obtained as follows: From the Government that: 9.01 It will provide the required budgetary funds for the project (para. 7.09). 9.02 That it would cause SENASA to: (a) present to the Bank not later than December 31, 1981, a plan of action on staffing for SENASA (paras. 3.06); (b) continue having its accounts audited by external auditors acceptable to the Bank (para. 3.09); (c) apply the selection criteria agreed upon to all subprojects to be financed under the Loan (para. 6.05). (d) complete all final designs before December 31, 1981 (para. 6.10); (e) employ qualified consultants acceptable to the Bank (para. 6.20); (f) present to the Bank a procurement schedule for the project covering the second half of CY81 (para. 6.21); (g) update the notice on the Development Forum annually as long as any goods or works remain to be supplied (para. 6.23); (h) cause each sanitary commitee to meet a cash down payment of at least 2.5% of construction works in each community prior to the initiation of works or provision of equipment and ma- terials (para. 6.25); (i) execute subloan agreements that will include the specific conditions listed in para. 7.16; (j) continue to use its present tariff system and review tariffs for each community each year and revised them if necessary in order to comply with the revenue covenant (para. 7.20); and (k) ensure that specialized personnel from SENASA's Accounting Department wiil audit tne account o. eachi community (para. 4.05); and (1) set up a system of monitoring indicators (para. 7.22). - 39 - 9.03 As a condition of Loan effectiveness, SENASA will appoint the management consultants (para. 6.20). 9.04 Retroactive financing for US$100,000 from May 1, 1981 (11% of the loan) is recommended for urgently needed goods (para. 6.19). 9.05 Provided the foregoing conditions are met, the project would be suitable for a Bank Loan of US$11.8 million. The loan would be for a period of 17 years, including a grace period of four years. ANNEX 1 40 - Page 1 of 1 PARAGUAY SECOND RURAL WATER SUPPLY AND SANITATION PROJECT Tentative List of Comunities to be Benefitted by the Project DEPARTMENT COMtflITY EST. POPULATION (Inhabitants) Alto Parana Nacundav 1,200 Itapua Jesus 2,000 Robledo 600 Hohenau 1,500 Fram 1,400 Cap Matiauda 1,400 Trinidad 1,100 Obligado 900 Cap. Miranda 800 Gral Delgado 800 T. Cosme 800 Mijiones V. Florida 1,500 Santiago 1,500 S. Maria 1,000 S. Patricio 1,300 S. Miguel 1,200 Caaguazu Caraiao 1,900 C. Baez 2,000 R. Stroesner 800 J.R. Chavez 700 S. Joaquin 2,800 Yhu 1,600 Repatriaci5n 1,000 Neembucu Runaita 1,100 P. de la Patria 800 S. Juan 800 Gral. Diaz 700 Villa Oliva 700 Yabebiry 1,000 Guaira Cr. Martinez 1,800 Independencia 1,200 Itap; 1,500 M.J. Troche 1,200 Talavera 1,400 Numi 1,000 F. Cardozo 800 Cr. Garay 800 S. Salvador 1,500 Yataiti 1,300 Mbocayati 1,000 Borja 600 Fassardi 900 Iturbe 3,000 Caazapa Abai 1,700 B. Vista 1,600 Gr. Morinigo 1,500 k. 5\an '. 3,400 Yegras 1,300 Yuty 2,600 - 41 - ANNEX 2 Page 1 of 2 PARAGUAY SECOND RURAL WATER SUPPLY AND SANITATION PROJECT Details of Cost Estimates (US$ Thousands) A. Cost of a Typical Community System Well materials 10.1 Well drilling 12.9 Pumps and electrical materials 22.2 Chlorinator 5.6 Equipment installation 6.7 Electrical connections 2.8 Shelters and fences 7.9 Storage tanks 35.7 Distribution network materials 29.5 Distribution network installation 18.4 151.8 B. Cost of a Sanitary Unit Imported materials 0.12 Other construction materials 0.35 Labor 0.33 0.80 C. Equipment Drilling tools 240.0 Eight pick up trucks 54.0 Laboratory 18.0 Basic tools for communities 32.0 Concrete mixers and molds 15.0 359.0 - 42 - ANNEX 2 Page 2 of 2 D. Technical Assistance Management consultants (6,000/month x 104) 624.0 Consultants, specific areas (4 x 1.5 month x 6,000) 36,0 Organizational courses 77.0 Scholarships 23.0 760.0 E. Studies and Designs Preparation of final designs for 10 communities 50.0 Preparation of final designs for 40 communities 90.0 140.0 /rs. - 43 - ANNEX 3 Page 1 of 2 PARAGUAY SECOND RURAL WATER SUPPLY AND SANITATION PROJECT Water Tariffs 1. Tariff levels and structures in villages served by SENASA are based on financial needs and are established for each village using the same methodology. They are always agreed upon by SENASA and the local Sanitation Committee. 2. Tariff levels are determined according to the funds necessary to keep systems operating properly and the villagers' ability to pay. Ability to pay is estimated on the basis of the socio-economic surveys carried out by SENASA for every village. The revenues are estimated on the basis of: (a) operating and routine maintenance costs, labor, fuel or electiricty, lubricants, spare parts, office supplies, com- munications, and miscellaneous; (b) contributions to the replacement funds for major or extra- ordinary repairs or replacement of worn out parts, cal- culated on the basis of the economic life of equipment and parts subject to more frequent replacement (usually pumps, motors, and related equipment); and (c) debt service to be repaid to SENASA, varying according to initial community contribution, ability to pay, and system size, but never less than the one corresponding to a debt equivalent to 10% of the subproject cost. 3. For the purpose of determining tariff levels, SENASA has pre- pared the following table in which a weight (Unidades) is assigned to every sanitary fixture: Fixture Units Domestic lavatory 6 Public lavatory 12 Domestic water sealed toilet 10 Public water sealed toilet 18 Domestic shower 14 Public shower 20 Patio faucet only 24 Patio faucet with hose connection 7 Patio Eaucet if others exist in the house 4 Kitchen faucet 5 Kitchen faucet for restaurants 10 Z?ames t: c 2.qurydrzd1 faucet 2 Tube 20 - 44 - ANNEX 3 Page 2 of 2 In most cases, there would be three residential categories: (a) up to 25 units as a basic charge; (b) up to 41 units; and (c) more than 41 units. The first category corresponds to dwellings with only one courtyard faucet. The second category includes dwellings with complete sanitary units. The third category includes relatively high-income consumers, with more sanitary facilities. Commercial consumers will be charged 50% in excess of the third category residential charges. A fixed charge for use of standpipes would be also set up (para. 7.17). 4. Tariff levels are revised every year with the assistance of SENASA to keep them adequate to meet the financial needs of the system. The present tariff structure is designed with a certain degree of pro- gressivity. This allows a reasonable amount of cross-subsidization. - 45 - ANNEX 4 Page 1 of 6 PARAGUAY SECOND RURAL WATER SUPPLY AND SANITATION PROJECT Village of 880 Inhabitants Income Statement (in Thousands of Guaranies) 1983 1984 1985 1986 1987 Connections 100 160 164 168 172 Consumption/m3/Connec/month 19.8 19.8 19.8 19.8 19.8 Volume sold - thousand/m3 24 38 39 40 41 % Unaccounted-for water 30 30 30 30 30 Water production - million/m3 34 54 55 57 59 Average tariff G/m3 35 41 48 56 65 Water sales 832 1,559 1,870 2,235 2,656 Other (Miscellaneous) - 2 4 5 6 Other (Conn. fees) 250 150 10 10 10 TOTAL REVENUES 1,082 1,711 1,884 2,250 2,672 Wages 519 607 670 784 917 Chemicals 2 5 6 7 8 Energy 240 446 522 610 715 Materials 4 4 8 10 12 Other (Administration) 6 6 6 7 8 Other (Major repairs and reserves 10 47 57 67 80 for bad accts. and repairs) TOTAL COSTS 781 1,115 1,269 1,485 1,740 Income before depreciation 301 596 615 765 932 Depreciation 200 400 450 500 500 INCOME BEFORE INTEREST 101 196 165 265 432 Operational Interest 45 138 128 119 109 Non-operating revenues 10 10 10 10 10 NET SURPLUS (+) 66 68 47 156 333 Average Cost/Volume sold 33 29 33 37 42 Operating ratio(%) 72 65 67 66 65 - 46 - ANNEX 4 Page 2 of 6 Village of 880 Inhabitants Sources and Application of Funds (in Thousands of Guaranles) 1983 1984 1985 1986 1987 Income before depreciation 301 596 615 765 932 non-operating revenues 10 10 10 10 10 GROSS INTERNAL GENERATION 311 606 625 775 942 Working Capital Needs (+) 51 154 44 50 55 Other Assets (+) or Liabilities - 37 37 37 37 Amortization 35 99 99 99 99 Operational Interest 45 138 128 119 109 TOTAL DEBT SERVICE 80 237 227 218 208 CONTRIBUTION TO INVESTMENT (+) 180 178 317 470 642 Project Investment 13,800 1/ 1,080 2/ - - Capitalized Interest - - Other Works - - - - Other Works - 300 300 450 500 TOTAL INVESTMENT 13,800 1,380 300 450 500 NET TO BE FINANCED (+) 13,620 1,202 -17 -20 -142 FINANCED BY: IBRD Loan 1,380 108 - - Other - - Other - - TOTAL LOANS 1,380 108 - - Contributions and Grants 12,420 3/ 972 - - Debt Service Ratio 3.9 2.6 2.8 3.6 4.5 Increase (+) or Decrease in Cash 180 (122) 17 20 142 1/ Total cost of project accounted at the moment SENASA transfers its operation to the Sanitary Committees. 2/ Most of the investment comes from installation of house connections. 3/ Community contribution and Government grants. - 47 - ANNEX 4 Page 3 of 6 Village of 880 Inhabitants Balance Statement (in Thousands of Guaranies) 1983 1984 1985 1986 1987 Fixed Assets 12,700 15,180 15,480 15,930 16,430 Accumulated depreciation 200 600 1,050 1,550 2,050 NET FIXED ASSETS 12,500 14,580 14,430 14,380 14,380 Work in Progress 1,100 - - - - Cash 180 58 75 95 237 Accounts receivable 57 206 250 300 355 Inventories 4 4 4 4 4 Other current assets - - - - - Other assets - 37 74 111 148 TOTAL ASSETS 13,841 14,885 14,833 14,890 15,124 Accounts payable 10 5 5 5 5 Other current liabilities - - - - - Other liabilities 99 99 99 99 99 Long-term debt 1,244 1,255 1,156 1,057 958 Equity 12,488 13,526 13,573 13,729 14,062 TOTAL EQUITY AND LIABILITIES 13,841 14,885 14,833 14,890 15,124 % Debt/(Debt Equity) 11 10 9 8 7 Working capital 132 164 225 295 492 Current ratio 2.2 2.6 3.2 3.8 5.7 - 48 - ANNEX 4 Page 4 of 6 Village of 2,800 Inhabitants Income Statement (in Thousands of Guaranles) 1983 1984 1985 1986 1987 Connections - 000 300 497 509 521 533 Consumption/m3/conn./month 19.8 19.8 19.8 19.8 19.8 Volume sold - thousand/m3 71 118 121 124 127 % unaccounted-for water 30 30 30 30 30 Water production - million/m 101 169 173 177 181 Average tariff G/m3 35 41 48 56 65 Water sales 2,495 4,842 5,805 6,932 8,232 Other - 5 10 10 10 Other 750 500 30 30 30 TOTAL REVENUES 3,245 5,347 5,845 6,972 8,272 Wages 1,168 1,367 1,508 1,764 2,064 Chemicals 7 15 16 18 20 Energy 710 1,385 1,620 1,891 2,212 Materials 13 13 15 18 20 Other 80 100 117 137 151 Other 125 188 203 221 240 TOTAL COSTS 2,103 3,068 3,479 4,049 4,707 Income before depreciation 1,142 2,279 2,366 2,923 3,565 Depreciation 400 700 1,000 1,100 1,160 INCOME BEFORE INTEREST 742 1,579 1,366 1,823 2,405 Operational interest 110 309 287 265 243 Non-operating revenues 15 15 15 15 15 NET SURPLUS (+) 647 1,285 1,094 1,573 2,177 Average Cost/Volume sold 30 26 29 33 37 Operatin% ratio 65 57 60 58 57 ANNEX 4 Page 5 of 6 Village of 2,800 Inhabitants Sources and Application of Funds (in Thousands of Guaranies) 1983 1984 1985 1986 1987 Income before depreciation 1,142 2,279 2,366 2,923 3,565 non-operating revenues 15 15 15 15 15 GROSS INTERNAL GENERATION 1,157 2,294 2,381 2,938 3,580 Working capital needs (+) 49 485 145 150 181 Other assets (+) or liabilities 50 100 100 100 100 Amortization 90 223 223 223 223 Operational interest 110 309 287 265 243 TOTAL DEBT SERVICE 200 532 510 488 466 CONTRIBUTION TO INVESTMENT (+) 858 1,177 1,626 2,200 2,833 Project investment 30,400 1/ 3,000 2/ _- - Capitalized interest - - - - - Other works - - - - Other works - 1,000 1,200 1,500 1,600 TOTAL INVESTkENT 30,400 4,000 1,200 1,500 1,600 NET TO BE FINANCED (+) 29,542 2,823 - 426 -700 -1,233 FINANCED BY: IBRD loan 3,040 300 - - - Other - - Other - - TOTAL LOANS 3,040 300 - - - Contributions and Grants 27,360 3/ 2,700 - - - Debt service ratio 5.8 4.3 4.7 6.0 7.7 Increase (+)or Decrease inCash 858 177 426 700 1,233 1/ Total cost of project accounted at the moment SENASA transters its operation to the Sanitary Committees. 2/ Most of the investment comes from installation of house connections. 3/ Community contribution and Government grants. - 50 - ANNEX 4 Page 6 of 6 PARAGUAY SECOND RURAL WATER SUPPLY AND SANITATION PROJECT Village of 2,800 Inhabitants Balance Statement (in Thousands of Guaranles) 1983 1984 1985 1986 1987 Fixed Assets 28,600 34,400 35,600 37,100 38,700 Accumulated depreciation 400 1,100 2,100 3,200 4,360 NET FIXED ASSETS 28,200 33,300 33,500 33,900 34,340 Work in progress 1,800 - - - - Cash 858 1,035 1,461 2,161 3,394 Accounts receivable 134 624 774 924 1,100 Inventories 15 20 25 25 30 Other current assets - - - - - Other assets 50 150 250 350 450 TOTAL ASSETS 31,057 35,129 36,010 37,360 39,314 Accounts payable 100 110 120 120 120 Other current liabilities - - - - - Other liabilities 223 223 223 223 223 Long-term debt 2,727 2,804 2,581 2,358 2,135 Equity 28,007 31,992 33,086 34,659 36,836 TOTAL EQUITY AND LIABILITIES 31,057 35,129 36,010 37,360 39,314 % Debt/(Debt Equity) 11 10 9 8 7 Working capital 684 1,346 1,917 2,767 4,181 Current ratio 3.1 5.0 6.6 9.1 13.2 - 51 - ANNEX 5 Page 1 of 2 PARAGUAY SECOND RURAL WATER SUPPLY AND SANITATION PROJECT Monitoring Indicators The following monitoring indicators were agreed by SENASA for project supervision: 1. Indicators related to Water Systems completed: YEAR: 1981 1982 1983 1984 1985 A) Number of systems Systems completed 20 28 29 20 19 Accumulated 26 54 83 103 121 B) Number of house connections Completed 4700 6630 4630 3650 3500 Accumulated 5300 11930 16560 20210 23710 C) Number of public standpipes Completed 140 168 174 120 114 Accumulated 156 324 498 618 732 D). Estimated population served Incremental 24500 33150 23150 18250 17500 Accumulated 26500 56300 79450 97700 115200 E) Water produced Conn. month m 19.8 19.8 19.8 19.8 19.8 F) Water billed/ 3 Conn. month m 15.8 15.8 15.8 15.8 15.8 G) Total Revenue of water sold thousands of 0 per year 31080 74640 109884 157104 215772 2. Indicators Related to SENASA A) Total number of staff 415 443 466 498 521 B) Staff executing water systems and sanitation project 130 130 130 130 130 C) Staff operating water and sanitation systems 91 108 120 140 150 D) Staff in other SENASA's operations 120 126 132 140 148 - 52 - ANNEX 5 Page 2 of 2 E) Staff in water for scattered areas 74 79 84 88 93 F) Staff in project execution per system completed in year (average) 6.5 4.7 4.5 6.5 6.8 G) Staff in system operation per system (average) 3.5 2.0 1.4 1.4 1.3 H) Maximum time elapsed between contract signing and beginning of works (month) 4 3 3 2 2 - 53 - ANNEX 6 Page 1 of 1 PARAGUAY SECOND RURAL WATER SUPPLY AND SANITATION PROJECT Additional Information Available in Project Files 1. Documento de la unidad de Planificacion de SENASA para la eva- luacion del Segundo Proyecto de Agua Potable (Document prepared by SENASA's Planning Department for the evaluation of the pro- posed project). 2. Ley #369-Que crea el servicio Nacional de Saneamiento Ambiental SENASA (Law creating SENASA). 3. Decreto 8910-Reglamentacion de las Juntas de Saneamiento (Decree regulating operation of Sanitary Committees). 4. Financial statements for the villages of Artigas, Caaguazu, Vi- lleta, and Carapegua. 5. SENASA's audited financial report for December 31, 1979. 6. Progress report on project under Loan 1502-PA as of December 1980. 7. Educational material being used by SENASA in the communities under Loan 1502-PA. 8. Sector Analysis and Proposed Investment Project-A report pre- pared by PAHO consultants-Nov. 1980. 9. Financial projections for villages of 880 and 2,100 inhabitants. .~~~~~~~~~~~~~~~~~~~y - 4' 9' g' ~~~~1Ijt .