-46unacut of The World Bank FOR OFICAL USE ONLY MICROFICHE COPY Report No. P- 5634-KO Type: (PM) Repot No P-5634-KO KOZEL, J / X80443 / D8007/ AS2IN MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DVELOPMT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$40 MILLION TO THE REPUBLIC OF KOREA FOR A PLSAN AND TAEJON SEWERAGE PROJECT JANUARY 31, 1992 T1is document has a restricted distribution and may be used by recipients only in the performa=ce of their oUfi dties Its cootents may not ithertise be discled without World Bank authorization. C3. CURRENCY EQUSVlEus8 (as of July 1991) Currency Unit Won (w) W 1.00 o US$0.00143 US$1.00 W 720 WIGITS AND MEASURE8 1 meter (m) - 39.37 inches (in) 1 square meter (n) - 10.8 square feet l.cubic meter (m3) 1,000 liters or 264 US gallons, approximately 1 metric ton 1 metric ton (t) - 1,000 kilograms or 2,205 pounds BREVIATNrS AND_ ACRONYMS SMP - Sewerage Master Plans FISCAL YEAR JanuarY 1 to December 31 FOR OMCIAL USE ONLY 'QA PWSAN AND TAEJON SW3RA PFJECT LOAN AD PROJECT SUMMRY Horrzmr: Republic of Korea BOncr.4LAX&SIS Pusan and Taejon City Governments Amounts US$40 million equivalent rera~a 15 years, including five years of grace, at the standard variable interest rate Rn1endina Term: The same terms as the Bank loan, including foreign exchange and interest risks, plus a 0.05% p.a. handling charge RPUMS1A Local Foriupn Total - - US$ million - -- - Internal Cash Generation 122.1 - 122.1 Cities' General Accounts 27.1 37.3 64.4 Regional Development Fund 40.3 - 40.3 Central Government 5.3 - 5.3 IBRD - 40 .0 Total 132 Rate of Returns Not applicable staff Aopraisal Re22rts No. 9904-KO IBRD No. 23319: Project location Ln Pusan IBRD No. 23320: Project location in Taejon This document has a restricted distribution and may be used by recipients onl:' in iht i:t..fonnance of their official duties. Its contents may not otherwise be disclosed without Woa; tdnl authorization. XEMORANDUM AND PEI O F TE PRESIDENT OF THE IZR TO TIl EXCUTIVE DIRECTORS ON A PROPOSED LOAM TO THE RSPUBLIC OF KOREA FOR DSWR PROJECT 1. I submit for your approval the following memorandum and recommenlation on a proposed loan to the Republic of Korea for the equivalent of US$40 million to help finance a project for sewerage in Pusan and Taejon. The loan would be at the Bank's standard variable interest rate, with a maturity of 1S years, including five years of grace. The proceeds of the loan would be relent in equal amounto to the Pusan and Taejon City Governments on the same terms as the Bank loan, including foreign exchange and interest risks, plus a 0.05% p.a. handling charge. 2. * iorond. in 1987, to strengthen water pollution control, the Ministry of Construction began preparation of a long-term plan to improve wastewater treatment facilities and invited the Bank to assist in that task. The resulting Bank sewerage sector study helped formulate th& National Water Improvement Program which was approved by the Government in September 1989. Under the Program, the water quality in rivers will be improved during 1990-96 at an estimated cost of US$3.1 billion equivalent by: (a) relocating some industries from upper catchment areas reserved for water supply; (b) providing wastewater treatment plants for industry and livestock farms; and (c) substantially reducing municipal pollution by constructing sewge treatment plants in municipalities. The project would support investments in two major municipal treatment plants. 3. Most municipalities have combined sewer systems carrying both stormwater and wastewater and discharging the mix directly into the nearest river. Sewage treatment plants constructed for such systems include interceptors laid along the rivers to collect flows from sewer outlets and to deliver raw sewage to the treatment plant. The Government acknowledges the need to convert combined systems to hygienically-superior separate systems, in which sanitary sewers collect and convey wastewater to treatment plants and storm sewers collect and convey stormwater to the nearest stream. Plans for the conversion of two of these systems would be prepared under the project. 4. Proiect Obiectives. The objectives of the project are tot (a) improve environmental conditions in Pusan and Taejon, Korea's second and sixth largest cities; (b) reduce pollution in Korea's water courses and coastal waters, which is crucial to the well-being of a large part of the population; (c) reduce health hazards associated with contaminated river water, particularly for the lowest-income population which has the greatest exposure to this water; and (d) continue supporting technological and institutional improvements in the sector. 5. pescrigton. The project would have two componentst (a) construction of the first phase of Yongho sewage treatment plant in Pusan, with a daily maximum capacity of 340,000 un/d, a sewage pumping station and about 11.4 km of interceptors to carry sewage to the plant (78% of total costs); and (b) constructton of the second phase of Wonchon Dong sewage treatment plant in Taejon and 11.9 km of interceptors, to double existing capacity to 300,000 m3/d at completion (21% of total costs). Technical assistance (1I of total costs) would be provided to eac! city tos (i) supervise construction and (ii) update the cities' Sewerage Master Plans (SMPs), including a review of policies and management systems for sewerage activities and design of a program to convert the existing combined sewer systms to separate systems. *t breakdown of couts 4nd the financing plan are shown in Schedule A. Amounts and methods of procurement and disbursement, and the disbursement schedule, are shown in Schedule S. A timetable of key project processing events and the status of Bank Group operations in Korea are given in Schedules C and D, respectively. Mapa are also attached. The Staff Appraisal Report, No. 9904-RO dated January 31, 1992, is being distributed seaprately. 6. *m^ltation The project would be carried out over a five-year period by the Pusan and Taejon municipalities assisted by consultants. The agencies are considered capable to implement the project in view of recent successful performance in constructing two similar projects in Pusan and one in Taejon. 7. =roeat utstainabillit. Project beneficiaries would collect through user charges adequat- funds to secure financing for satisfactory operation and maintenance of provided facilities. In addition, the updating of SMPs under the project would establish programs for the conversion to sanitary separate sewer oystems, including design of procedures improving institl~ttional arrangements. 8. Lessons Learned from Previous Bank Involvement. Previous Bank-assisted projects in the sub-sector were for water supply. Of the five pro;ecto in total four were successfully completed. Evaluations (Schedule C) indicate that adequate preparation and realism in setting project targets contributed to that success. The construction of municipal wastewater treatment plants started in Korea only within the last decade with Bank involvement limited to the sewerage sector study. Latest progress in planning and constructing facilities and development of sector institutions, which both reflect recommendations of the Bank's study, indicate Cevernment's strong commitment to development of the sewerage sector. In line with these lessons, preparation of the proposed project is well advanced, and actions sought under the project have firm support from the responsible authorities. 9. Rationale for Bank Involvement. Bank involvement in the project is justified by its familiarity with the Korean water supply and sewerage sector, and its particular interest in addressing environmental issues, an interest now shared with the Korean Government. The project would also be a logical outgrowth of the Bank's 1988 sewerage sector study by providing an opportunity to render assistance in implementing the study's two main recommendations which advised phased construction of wastewater treatment facilities and accelerated conversion of combined sewers. Both activities would have a substantial and lasting impact on improvirg the environment of Korea's rivers and coastal waters. 10. Actiong Aqreed. Effectiveness of the Bank loan would be conditional on the execution of Subsidiary Loan Agreements between the Government and the two project cities. Assurances were obtained from the Pusan and Taejon City Governments that they woulds (a) update 'heir Sewerage Master Plans by December 31, 19921 (b) prior to project completion, prepare an Environmental Monitoring Program to evaluate the environmental impact of the facilities providedt and (c) from January 1, 1993, charge sewerage tariffs to achieve a rate of return on revalued net fixed assets in operation of not less than 5 p.a. and 3% p.a. in Pusan and Taejon, respectively. 11. ZnamMja gggg&s. The overall environmental impaft of the project is highly positive: together, the treatment plants would each d'iy remove from the cities' wastewater the equivalent of about 63 tons of biochemical oxygen demand and 58 tons of suspended solids which now pollute the environment. Satisfactory measures woui'd also be taken to mitigate negative environmental impacts of treatment plant construction and operation. In addition, the project citiee would institute Environmental Monitoring Programs to collect and evaluate data on pollution in water courses, for improved water pollution control. 12. Proar&m_ blective Cateaories. The project would particularly benefit the health of the low-income residents of Pusan and Taejon, who tend to have greatest exposure to the inner-city waterways now contaminated by considerable volumes of raw sewage. 1-3. Benefits. The project would improve the environment by providing wastewater treatment for about 1.75 million people, increasing the population served from 43% to 60% in Pusan and from 35% to 55% in Taejon. The interceptors and the treatment facilities would ensure that wastewAter would be contained within the system, would thereby eliminate health hazards, odors, and other pollution- related problems from the inner-city rivers and would contribute to increasing values of properties along the strea cleaned as a result of the project. Updating of SMP's would establish programs for the conversion to more sanitary acceptable separate sewer systems, and define procedures to streamline institutional arrangements, which may be replicated by other municipalities. The Bank's review of designs during project preparatior. haa also resulted in changes which have improved treatment technology and facility operations. 14. Risks. The project'. physical components present no special risks. A possible risk could be that delays in adequate tariff increases would limit internal cash generation. In view of coamitments of the cities it can be assumed that such a shortfall would be compensated from the general revenues and would not result in delays of construction. Implementation of improvements in the sewer systems to be outlined in the SMPe and realization of the environmental benefIts expected from the conversion to sanitary sewer system lie beyond the project time frame and consaquently cannot be assured. However, popular pressure now being exerted in Korea for much stronger environmental protection measures significantly increases the probability that the SMPs' recommendations will be carried out. 15. *eg mmndationI I am satis£fed that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve it. Lewis T. Preston President Attachments Washington, D.C. January 31, 1992 -4- Schedulg A ROR15A PUSAN AND TANJON SmNURAa Pn03CT Ratimat'0_osts and Financing Plan (US$ illlion) Local Foreign Total 3stimated Proiect Cost , Sewage Treatment Plants 69.2 S5.4 124.6 interceptors 49.0 11.0 60.0 Technical Assistance 3.0 0.1 3.1 Land Acquisition &La 0 Ala Base Cost 162.4 66.5 228.9 Physical Continencies 8.1 3.3 11.4 Price Contingencies 19. 5LI 2A4. Total Project Cost 189.6 75.1 264.7 Interest During Construction Lb 5- .4A Total Finncing Required Financing Plan Regional Development Fund 40.3 - 40.3 Cities' General Accounts 27.1 37.3 64.4 Internal Cash Generation 122.1 - 122.1 Central Government 5.3 - 5.3 IBRD - AM.0 4.02 Total 77.3 27.1 La Including taxes and duties equivalent to US$23.2 million. Lb IDC is computed on basis of Cities' commitments plus borrowing for the project from the Bank and the Regional Development Fund (for 10 years including 2 years of grace and 8 interest). The aggregate amount of IDC is based on Cities' paying an average interest rate of 7.81% on borrowing of up to US$80.3 million to support the proposed project. The portion corresponding to the Bank' s interert (on borrowing of up to US$40 million) is allocated as foreign cost, while the remainder is allocated as local cost. Cities would finance the TDC from internal resources. _ 5 _ ~~~~~schedule A XmA PEau ANM TAIJON 5EWERAGE PROJECT Procuemnt Method and Disbursements (US$ Million) Procurm2nt Metho AI Total proieot sleoent lea I3 L Q£hRr NLL., Onto Civil Works - 148.7 - 148.7 148.7 Equipment 65.3 3.0 - 28.3 68.3 (38.0) (2.0) (40.0) Technical Assistance - - 3.5 3.5 3.5 Land Acquisition - - 44.2 44.2 44.2 TOTAL 65.3 151.7 47.7 224.7 264.7 ML2U I0A.01 JA2&L LS Figures in parentheses are the respective amounts financed by the Bank and include contingencies. N.S.P. are amounts Not Bank-Financed. Dimbursaments (US$ million) CateaorY amount Mxoenditures to be Financed Equipment 40.0 100% of foreign and of ex-factory and Materials local expenditures 65% of other local expenditures TOTAL IBED Fiscal Yea9 Annual 12.0 22.0 6.0 Cumulative 12.0 34.0 40.0 -6- Scheduie_C PgM- AND TAEJON SEWERAGE PROJECT eia e,&_Je of Rev Proiect Proc2esino Stevs * (a) Time taken to prepare the projects 8 months (b) Prepared by: Cities and local consultants * assiated by the Bank (c) First Bank missiont November 2, 1990 (d) Appraisal mission start-up: June 23, 1991 (e) Negotiations: January 14. 1992 (f) Planned date of effectiveneoss June 29, 1992 (9) List of Relevant PCR. and PPARs: L-oan HQ.. PJodet PCR No. and Date -PAR No. and Date 2072-Ro First Water Supply Project - No. 8174 of 11/89 SecM89-1544 2350-RO Second Water Supply Project No. 8675 of 5/90 No. 8675 of 06/90 (Nakdong Barrage) 5ecM90-753 SecH90-753 2491-RO Third Water Supply Project Under Preparation (Metropolitan Region) 2615-RO Fourth Water Supply Project Submitted to OED (Namgang and Taegu) 3178-RO Juam Regional Water Supply Under Construction Project (Kwangju) Schedule D _ 7 _ ~~~~~~~~~~P.5 1 of 2 THE STATUS OF ANK GROUP OPERATIONS IN THE REPWULIC OF KORE A. Statement o Bank Loans and I&s Credits L (As of DecembMr 81I, 191) Loan or Amount (USS *milion) Credit Flsoel (loes cancellation) Number Year Of rrower Purpose Bank IPA Unalsbursd Ninety-three loans and nine credits fully disbursed 6,916.67 115.68 of which SECALn, SAL., and Program Loans 2071 1982 Repubitc of Korea Structural Adjustment Loan 250.00 2854 1984 Republic of Korea Structural Adjustment Loan 2I 800.00 2671-0+1 1985 RepublIc of Korea Second Industrial Finance 178.06 2514 1985 SMo Seoul Urban Transportation 28.78 4.18 2571-2* 191S Repubtlc of Korao Second Industrial Finance 4.00 1.20 2600 1986 Republic of Korea Seoul-Busan Corridor 84.80 8.12 2726 1986 Republic of Korea Porta III 134.60 1.68 2905 1988 Republic of Korea Kyonggi Regional Transport 116.00 9.32 2908 1986 Taegu City Government Taegu Urban Transport 80.00 16.48 2913 1988 Korea Technology Corp. Third Technology Dovolopment 50.00 2.61 8087 1989 Repubict of Korea Technology Advancement 18.40 9.1? 806l 1989 Republic of Korea Road Improvement 200.00 179.08 8179 1990 Republic of Kore Jusm Water Supply 84.00 34.00 8202 1990 Republic of Kore Technology Advancement II 81.60 29.00 8208 1990 Republic of Korea Science Technology Reseorch 46.00 42.00 8814 1991 RepubiIc of Korea Vocational Education Project a8 VD 80.00 8815 1981 Republic of Korea Technology Advancement III a .00 80.00 8829 1991 Repubitc of Korea Housing Project 100.00 98.00 8880 1991 Repubi c of Korea Health Technology 2 60.00 60.00 8418 1992 Ropublic of Korea Gao System Expansion 100.00 100.00 Total 6,991.58 116568 074.78 of which has been repaid 4 087 07 19.72 Total now held by Bank and IDA 4e -W.W Amount sold 181.61 of which repaid 93.50 Total undisbureed B74.78 - e74.78 Le Th- status of the projects listed In Part A Is described In a separate report on all Bank/IDA-financed projects in execution, which Is updated twice yearly and circulated to the Executive Directors on April 80 and October 81. s SAL, SECAL or Program Loan -8 - Schedul 0 B. Statent of IFC Rnvest.entu (Ae v of ener *1, 1zea) Undisburged Total held including Fiseal Type of Oriinal Comltmnt by IFC partclipsnts Year Obligor Busl nesi an rquity *tO (at Cost) portion -----,JS8 Mililon----- 1*18/74/ Korea Long-Term Credit ftevelopment Finance 16.6 24.8 41.4 22.0 - 78/77/78/ Bank La 80r/8/9/ 1970 Atlee Paper Co. Pulp A Papor 4.6 .6 6.0 - - i1s" Hones Silk & Ind. Co. Textiles 1.4 .8 1.7 - - 197i/7'/7e Korea Invetmhnt & Capital market - 12.4 12.4 8.4 - 79/80/82 Finance Corporation 85/80/91 1875/76/ Gold Star Co. Ltd. Electric and 28.0 17.6 63.6 19.5 - 77/79/80/ Electronics 84/85/87/ 88/89 197/m/so/ Korea Securities Capital Markate 5.0 8.4 8.4 - _ 82/84 Finance Corporation 1975/80 Has Un Doe Dvelopment Tourism 2.8 1.2 4.0 1.2 1975/88/89 Tong Yong Nylon Co. Ltd. Tire Cord Fabric 6.9 6.2 18.1 5.6 - 1976/84/67 Chonju Paper Mfg. Co.Ltd. Paper 6.0 .9 6.9 - - 1976/86/fl Korea Zinc Co. Ltd. Zinc Refining 21.0 6.6 26.6 9.4 - 1077/79/87 Kore Dev. Leasing Corp. Leasing 16.0 1.8 16.8 1.2 - l861 Tathan Bulk Terminal Grain Bulk Term. 7.0 2.5 9.5 2.5 - 1982 Kore Tech. Adv. Corp. Reserch & Dev. - .6 .8 - - 1988 Korea ev. Invest. Corp. Money A Cap. Mar. - 6.7 6.7 6.7 2.2 1984 Hall& Cement Cemnt A Constr. 4.2 8.9 8.1 - - Material loss/88 Korea Fund Money A Cap. Mar. - 12.8 12.8 18e7 KBRI Money A Cap. Mar. - .2 .2 - 1988 Anne Industrial Co. Electronics - 15.7 15.7 16.7 198s Oriental Chsicol Chmicale - 15.2 15.2 - - Total orew Comitmeut. 115.4 142.3 257.7 92.2 2.2 L Forerly known as Korea Development Finance Corporation. IBRD 23319 DE POEA ' 7_ -35-20C' 129 C', OF 0 N 35 20' \2Seou \ t .b-.s ' . a e,d'i K ,. - I I .',- ofm on f 9m .. , /he // ~ ir,'Mv/ 0'a~~~~~~~~~~~~~~~~~~~' /1' ("SUKDAE SAN'.ITARY ,,LANDFILLS1TE HAE UNDAE L. A ~ ~ N\ 35'10'~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~50 YOGDO REPUBLIC OF KOREA STP jPUSAN AND TAEJON -SEWERAGE PROJECT PUSAN COMPONENTS 2~~~~~~~~~~~~~~~~L 1 2f 1 WOLOMETR AGLIMI CI MMON 11VU Nh.) . 41 @S&ErA GUTREA ANT S MAE R TRS 'a-NTERPTOS RCOA Gru. Thu dnsinaon \Zus. -Tedam@ 'fldaPUdMPINGt, STATKON rSEWERAGE CATCHMENTBOUNtARIES ,wN orld a" &o",o, PUMPIN STATON (STORM WATE) C" O BOUNDARES 7VWmen an th legal of smpAno pirt or . NIGH. SOIE TREATMENT PLANW s~~~~~sc6 &ossdae*s. ~~~~~~~~~~~~~~~~~~~~~~~~~~~129'10' FEBUARY 1992 IBRD 23320 OIM.ftEaneBP ty7i' Iz _ OF PK OA REPUBLIC OF KOREA npumc ~~PUSAN AND TAEJON SEWERAGE PROJECT OF TAEJON COMPONENTS KOREA I RUBM PROJECT :lo 0 0 s SEWERAGE TREATMENT PLANTS RIVERS f-t jix - INTERCEFTOR - ROADS N 01 w \ @t PUMPING STATION (SEWERAGE) -* CITY BOUNDARIES w4 . 4 3s , \ ' SERVICE AREAS .,(l~ - TAUI4< i' s ativ Jw ' TAEDOt4on, O~~~~~~~~ 10 20 30' ~~~ J~~~~;l f 20~~PoaMM CH'UNGNAM Thansmap han been pr pored byI ff/ J ToWorld Bank's spatenfoclaninely _*l{f/ t i ton,onifnre af raders and is e frloinel for rhe i R. I internol use of Th.a World anlk Grasp The denominations used and th boundaries shown - *: - N_ oa this meap de not imply, an the _ part of The World Bank Groaup, I any judg "ent on the legal stu a any territorya'anys *t f INDUSTRIAL such basndrien HIGHiTECH COMPLEX R'' IN~~~~~~~~~~~~~~~~~~~~~*I |CHUNGNAM 551 CbPE g ,rX y y fi - g ~~~~~~~~~~~~~~~~~~Taejon. kI. . on D S t ~~~~~~~~~~~~~~~Reservoir s { 1 / \ . WONCHON fil \ \ J 9 t - ; / o> _; 4s ~~~~DONG s STING S O LDWS5 E \_ ,r .... - / } ST EoF /\ g tS 3~~~~~~DFLL IT I *ed' ,' d. \~~~~~~~~~~~~~~~~Teo . ,, w ,, ERWORKS ICE ( CHUNGBUK FEBRUARY 1992 IBRD 2332Q OEM PEOPIE'SREP I> 130' Of KORfA - i REPUBLIC OF KOREA PUSAN AND TAEJON SEWERAGE PROJECT -& OF 0 TAEJON COMPONENTS KORE EM7N UK PO C Iy, e 7 36 32 s |g SEWERAGE TREATMENT PLANTS RIVERS - e-v J / , - INTERCEPTOR - ROADS PUMPING STATION (SEWERAGE) CIlY BOUNDArPIS SERVICE AREAS 1i2,$' s~ IAV,f~ * ' rALD')NG )90 10 20 30 ---- T.s;nop bw' prepored by f llfi . -ME,CHUNGNAM TM0 World Qanks saI eoclusirely for the convenience oJ readers I, and is xclusive * ty O he fl }2g onmeal us* of The World Sank _ u RI Group The denominations used nd the boondor,es s8hosn /- on this mop do not imply, an the N part of The World Banx Group, 0 endorsement or accptanc of 0 INDUSL such boundarie. HGHINUTREAL COMPLEX CHUNGNAMjSIE& ). -i t g ~~~Taejon : --, A ONG t OI. ILLSITEReservoir '_ =-- - / > _ h WONCH~ ~~O N |O STINlG 5SOLDWSTE i - /}SITE OF EXPO'~9 ) NI WAT ~~~~ER WORS/C < ! X > (FCHUNGBUK FE8RUAIRY I1992