Document of

The World Bank

Report No. 16144-BD

STAFF APPRAISAL REPORT

BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

November 22, 1996

Infrastructure Operations DivisionCountry Department ISouth Asia Region

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CURRENCY EQUIVALENTS(as of January 1996)

US$ 1.00 - Tk 41.90Taka (Tk) 1.00 = US$ 0.024

WEIGHTS AND MEASURES

1 centimeter (cm) - 0.394 inchI hectare (ha) = 2.47 acres1 kilometer (km) - 0.621 mile1 liter (1t) - 0.220 imperial gallon1 cubic meter (m3) - 219.9 imperial gallons

ABBREVIATIONS AND ACRONYMS

ADB - Asian Development BankADP - Annual Development ProgramCAS - Country Assistance StrategyCIF - Cost, Insurance and FreightCCC - Chittagong City CorporationCWASA - Chittagong Water Supply and Sewerage AuthorityDANIDA - Danish International Development AgencyDCC - Dhaka City Corporation

DND - Dhaka-Narayanganj-Demra

DOE - Department of EnvironmentDPHE - Department of Public Health and EngineeringDTW - Deep Tubewell

DWASA - Dhaka Water Supply and Sewerage AuthorityEIA - Environmental Impact AssessmentERR - Economic Rate of Return

EVZ - Elementary Urban ZonesFFYP - Fourth Five Year PlanGDP - Gross Domestic Product

GOB - Government of BangladeshHSD - Housing and Settlements DirectorateICB - International Competitive BiddingIMGD - Imperial Gallons per DayIRR - Internal Rate of Return

JICA - Japan International Cooperation AgencyNCB - National Competitive BiddingLOI - Letter of Invitation

LGD - Local Government DivisionLGED - Local Government Engineering DepartmentLPD - Liters per Capita per DayMGD - Million Gallons per Day

MGY - Million Gallons per YearMLD - Million Liters per Day

Vice President: Mr. Joseph Wood (SASVP)

Director: Mrs. Mieko Nishimizu (SA1DR)

Division Chief: Mr. Marie Robinson (SAlIN)

Task Manager: Mr. Jonathan Kamkwalala (SAIIN)

MLGRDC - Ministry of Local Government, Rural Development &Cooperatives

MOF - Ministry of FinanceNGO - Non-Governmental OrganizationPAP - Project Affected PeoplePCP - Project Concept PaperRAJUK - Rajdhani Unnayan Kattripakha (Capital Development

Authority)ROW - Right of WaySOE - Statement of ExpenditureSWTP - Surface Water Treatment PlantTOR - Terms of ReferenceTYRIP - Three Year Rolling Investment ProgramUFW - Unaccounted for WaterUNDP - United Nations Development ProgramUNICEF - United Nations Children and Educational FundWASA - Water Supply and Sewerage Authority

FISCAL YEAR

July 1 to June 30

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BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

Table of Contents

Paze No.

CREDIT AND PROJECT SUMMARY ...... .................. i

I. THE WATER SUPPLY AND SANITATION SECTOR. 1

A. Sector Background. 1B. Sector Organization. 2C. Sector Financing. 3D. Sector Issues and Constraints. 4E. The Government's Sector Strategy. 5F. Previous Bank Involvement in the Sector. 6G. The Bank's Strategy and It's Role in the Sector 8

II. THE PROJECT AREA. 9

A. Urban Area and Features of Water Supply System 9B. Level of Water Service .10C. Level of Sanitation Service .11D. DWASA's Investment Program .11E. Groundwater Vs Surface Water Options .12

III. THE PROJECT .14

A. Project Origin .14B. Project Objectives .14C. Rationale for Bank Involvement .15D. Project Description .15E. Project Cost Estimates .18F. Project Financing Plan .19

This report is based on the findings of an appraisal mission to Bangladesh inAugust 1994. Mission members were Messrs. Jonathan Kamkwalala (Sr. FinancialAnalyst, Task Manager), Robert McWilliam (Sanitary Engineer, Consultant), MarcoFierro (Economist, Consultant), and Mohinder Virdy, (Procurement Analyst).Messrs. Arun Banerjee (Senior Operations Officer, Resident Mission), Saibul Huda(Program Officer, Resident Mission), Alf Jerve (Anthropologist) and Zahed Khan(Resettlement Specialist) participated in the project appraisal. The project wasre-appraisal in May 1996 by Jonathan Kamkwalala, and Ms. Helen Nankani (PrivateSector Development Specialist) and Omar Hayat (Financial Analyst - Consultant)assisted in the revision of the project documents. Peer reviewers are GuillemoYepes (Institutional Issues), Neil Boyle (Financial Issues), and Geoffrey Read(Technical Issues). The report has been endorsed by Ms. Mieko Nishimizu(Director, SA1). Ms. M. Robinson (Chief, SAIIN). Secretarial support wasprovided by Ms. Cindy Wong and Ms. Bina Duggal.

Page No.

IV. PROJECT EXECUTION .20

A. Status of Preparation .20B. Project Implementation .20C. Project Management .22D. Project Supervision .22E. Project Reporting .23F. Procurement .23G. Disbursements .25H. Retroactive Financing .25

V. IMPLEMENTING AGENCY .26

A. Implementing Organization .26B. Organization Structure and Management .26C. Operations and Maintenance .27D. Billing and Collections .28E. Unaccounted for Water .29F. Personnel Management and Training .30

VI. FINANCIAL ANALYSIS .32

A. Past and Current Financial Situation .32B. Balance Sheet and Fixed Assets .34

C. Current Water and Sewerage Tariffs .35D. Financial Projections .36E. Performance Monitoring and Evaluation .37F. Accounts and Audits .37

VII. ECONOMIC AND SOCIAL ANALYSIS .39

A. Project Benefits .39B. Economic Rate of Return and Least-Cost Solution 39C. Fiscal Impact .40D. Impact on the Urban Poor .40E. Environmental Impact .41F. Affordability .42F. Project Risks .42

VIII. AGREEMENTS TO BE REACHED AND RECOMMENDATION .43

Page No.

TABLES

2.1 Water Demand, Supply and Capacity .103.1 Project Cost Summary .183.2 Project Financing Plan .193.3 Procurement Arrangements .235.1 Past and Current Financial Statements .325.2 Projected Financial Statements .36

ANNEXES

Annex 1.1 Water Supply and DemandAnnex 1.2 Projected Deficits, Planned Capacity Increase and

Investment ProgramAnnex 2.1 The Institutional Reform ProgramAnnex 2.2 General Operating and Financial Policy StatementAnnex 2.3 Performance Agreement between the Government of Bangladesh

and Dhaka Water Supply and Sewerage AuthorityAnnex 2.4 Contracting out of DWASA ServicesAnnex 3.1 Detailed Description of Proposed Water Treatment PlantAnnex 3.2 Detailed Description of Institutional Strengthening,

Loss Reduction and Technical Assistance ComponentsAnnex 3.3 Terms of Reference for a Strategy Study for Improvement in

efficiency the Dhaka Water Supply and Sewerage SectorAnnex 4.1 TOR for Improved Sanitation ServicesAnnex 5.1 TOR for the Dhaka Water Resources Management StudyAnnex 6.1 Detailed Project Cost Estimates by YearAnnex 6.2 Sumary of Project Cost EstimateAnnex 7.1 TOR for Leak Detection and Loss Reduction ProgramAnnex 8.1 TOR for Management and Operational Support (Twinning)

ProgramAnnex 9.1 Land Acquisition and ResettlementAnnex 9.2 Procurement ArrangementsAnnex 9.3 Project Implementation ScheduleAnnex 9.4 Estimated Disbursement ScheduleAnnex 9.5 Indicative Supervision Mission ScheduleAnnex 9.6 Benchmarks for Assessing Progress at Mid-Term ReviewAnnex 10.1 DWASA Current and Proposed Organization ChartsAnnex 11.1 Assumptions to the Financial ProjectionsAnnex 11.2 Actual and Projected Financial StatementsAnnex 11.3 Water and Sewer TariffsAnnex 12.1 Performance and Monitoring IndicatorsAnnex 13.1 Economic AnalysisAnnex 14.1 Suimmary of Project Environmental Impact AssessmentAnnex 15.1 Selected Documents and Data Available in Project Files

Mai: IBRD-27130

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BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

Credit and Project Summary

Borrower: People's Republic of Bangladesh

Beneficiary: Dhaka Water Supply and Sewerage Authority (DWASA)

Amount: SDR 51.0 million (US$80.3 million equivalent)

Terms: Standard, with 40 years maturity

Commitment Fee: Standard (a variable rate between 0 and 0.5% ofthe undisbursed credit balance set annually byExecutive Directors of IDA)

On-Lending: Interest rate at 7.5% per annum, 25 years maturity,including five years of grace. GOB will onlend theproceeds of the credit to DWASA. Onlending ratesand terms for the Government of France similar to

IDA. The Japanese Government financing will bepassed on to DWASA as a grant.

Financing Plan: See para 3.11 of Staff Appraisal Report

Economic Rate of Return: About 22%

Poverty Category: Not Applicable

Maps: IBRD No. 27130

Prolect Identification No: BD-PA-9482

I

FOURTH DHAKA WATER SUPPLY PROJECT

STAFF APPRAISAL REPORT

I. THE WATER SUPPLY AND SANITATION SECTOR

A. Sector Background

General

1.1 Bangladesh is one of the world's poorest and most densely populatedcountries, having an estimated 1995 population of about 120 million people, withabout 96 million (80%) living in rural areas. The country faces massive urbanpopulation growth challenges due to rural to urban migration, resulting fromincreased rural landlessness, lack of opportunities in rural areas and the effectof natural disasters in rural areas. It is estimated that between 1974 to 1981,the urban population growth rate was 10.6% per annum, declining to 5.4% per annumbetween 1982 to 1990, compared to a total population growth rate of about 2.4%annually during the later period. About 8.0 million of the urban population livein the Dhaka metropolitan area, representing about 30% of the total urbanpopulation. The disproportionate rise in the urban population has created severepressure on existing infrastructure and services, including water supply,sanitation, solid waste collection and drainage services. The environmentalconditions throughout most of the urban areas of Bangladesh are poor, withdischarges of human and industrial wastes into river systems, possiblecontamination of groundwater from lack of adequate sewerage, and inadequatemanagement of solid waste disposal. These problems are particularly severe inDhaka, where the population growth rate is comparatively high and where it isestimated that about 45% of the households have incomes below the poverty line.The size of the urban population, combined with limited financial resources, putsconstraints on the development of adequate urban infrastructure, particularlywater supply and sanitation.

Water Resources

1.2 Bangladesh is located in the Ganges-Brahmaputra river delta, one ofthe largest in the world. The hydrology of Bangladesh is characterized by threemajor rivers, the Brahmaputra, the Ganges and the tributaries forming the Meghna.The country experiences heavy rainfall during the monsoon, generally more than1,500 mm annually. This results in abundant surface water, which is usuallypolluted and requires full treatment involving clarification, rapid sandfiltration and disinfection. A very high incidence of diarrhoeal and otherwaterborne diseases reflects the extent of contamination in the surface water andthe extensive use of untreated water from streams, rivers and shallow tubewells.Most of the country, however has underlying sedimentary deposits containingaquifers, which are the main source of groundwater. This water requires littletreatment and is used by public water utilities and private institutions as amajor source of supply. In the Dhaka metropolitan area, about 95% of the watersupplied by the Dhaka Water Supply and Sewerage Authority (DWASA) is fromgroundwater sources. However, over-abstraction in places, e.g. Central Dhaka,is causing water tables to decline rapidly, resulting in increased abstractioncosts, limited water availability in the dry season in some areas, and widespreadfailure of shallow tubewells. As a result, there is an increasing need tosupplement groundwater sources with treated surface water sources. In addition

to these water sources, analysis of oil well logs has demonstrated that there isa high probability of finding fresh water in several deep artisan aquifersunderlying Dhaka and other areas in Bangladesh at depths of about 2,000 meters(6,560 feet). Potentially, these aquifers could provide partial water supply f orDhaka. Investigations as to the existence of these aquifers have not beenundertaken, and it is believed that initial development costs could besubstantial. Nevertheless, the Government regards this source as a possiblelong-term alternative to current water supply sources in Dhaka and the rest ofBangladesh.

Water SuPplY and Sanitation Coverage

1.3 Although accurate data is not readily available, most of the existingwater supply services in Bangladesh are not capable of meeting demandrequirements. It is estimated that in the urban areas, about 42% of thepopulation has access to reasonably safe water, but the remaining 58% depend oncontaminated traditional sources. In rural areas, it is estimated that 77% of

the population has access to improved water supply through handpumps. Coverageis higher in rural areas because of an intensive tubewell installation programsupported by UNICEF (para. 1.8).

1.4 With regard to sanitation, waterborne sewerage has been introducedonly in parts of Dhaka, but elsewhere, there is general use of unsanitarylatrines, direct disposal of sewage in open fields and to a limited extent, pitlatrines and septic tanks. In urban areas, it is estimated that about 40% of theurban population has access to sanitary waste disposal services. The ruralsanitation situation is much less satisfactory, with only 6% of the ruralpopulation having access to sanitary waste disposal facilities. Because of the

limited sewerage systems and the inefficient sanitary waste disposal facilities,untreated or poorly treated domestic sewage is a major source of water pollution,and the morbidity/mortality rate due to waterborne diseases in Bangladesh isamong the highest in the world.

B. Sector Organization

1.5 The statutory responsibility for the water supply and sanitationsector is under the Ministry of Local Government, Rural Development andCooperatives (MLGRDC). The Ministry, together with the Planning Commission sharethe tasks of sectoral resource allocation, funding and policy decisions, as wellas project appraisal, approval, evaluation and monitoring. All projects in thesector are processed through the Ministry. The Ministry's Department of PublicHealth Engineering (DPHE) is responsible for planning, construction and operatingwater supply and sanitation facilities in smaller towns and rural areas. InDhaka and Chittagong, the Government established Water Supply and SewerageAuthorities (DWASA and CWASA) as autonomous agencies responsible for provisionof water supply and sewerage services. These authorities also come under MLGRDCas public utilities. DWASA is also responsible for stormwater drainage in Dhaka.In the two cities, the Dhaka and the Chittagong City Corporations (DCC, CCC) areresponsible for all other sanitation activities other than waterborne sewerage.Additionally, the Local Government Engineering Department (LGED), also under theMinistry, is responsible for providing technical assistance to sanitation andother municipal services to district towns that do not have municipal corporationstatus. DPHE and LGED assist local governments to construct water supply andsanitation facilities, either through donor or Government financing. The

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mandates of these two agencies are not very clear, and their responsibilitiesoverlap at the district and town level. DPHE lacks adequate manpower and theinstitutional capacity to provide support to the projects it implements indistrict towns. As a result, most of its schemes are not sustainable. LGED hasbetter implementation capacity; however, its focus has been on physicalimplementation aspects rather than improvement of the institutional capacity ofthe municipalities.

C. Sector Financing

1.6 Sector development in Bangladesh has mainly been financed by donorassistance, which has been mainly responsible for the tenfold increase (from alow base) in availability of water supply. Although the Government has declaredits intention to develop safe water supply and sanitation, the level ofinvestment in the sector has remained very low due to funding constraints.Between 1973 and 1990, public outlays for water and sanitation steadily droppedfrom 2.48Z, 2.14% to 1.25% of development expenditures in the first, second andthird five-year plans respectively. This is significantly below allocations inother comparable countries in Asia, e.g., Sri Lanka (6.0%), Nepal (4.0%) andMyannmar (2.9%). In the Fourth Five-Year Plan (1990-1995), allocations to thesector were budgeted to be 1.41% of the development expenditure, which is too loweven to meet the physical targets of the plan. The most recent three-yearrolling investment program (TYRIP) for FY95-97, however, shows a reversal to thistrend. Allocations for this period were 4% of the total expenditure.

1.7 IDA has been the main donor in the urban water supply sub-sector,having financed a total of five projects, (two in Chittagong and three in Dhaka),for a total investment of US$108 million. The basic objective of these projectswas to improve the level of water supply services in the cities of Dhaka andChittagong and the efficiency and performance of the utilities. The AsianDevelopment Bank (ADB) has been involved in financing water supply and urbaninfrastructure in secondary towns and districts. In addition, ADB has also beeninvolved in an Urban Infrastructure Improvement Project in Dhaka, which includesa component being implemented by DWASA, to provide water supply in low costhousing areas. The Netherlands Government has also assisted the Government withtwo projects (12 District Towns Project and 18 District Towns Project) to improvewater supply and sanitation focusing on extension of hygiene education, serviceexpansion and community involvement.

1.8 In the rural water supply and sanitation sub-sector, developmentactivities have been supported by the UNICEF, the World Health Organization, theUNDP/World Bank Sanitation Program, Danish International Development Agency(DANIDA) and the Swiss Development Corporation. Although these donors' focus hasbeen rural, some of their work has extended to urban slum and peri-urban areas.Most of the assistance in this sub-sector has financed the development andinstallation of handpumps in rural areas and low-cost sanitation facilities(i.e., latrines). UNICEF's program has been very successful in increasing watersupply coverage in rural areas. Continued assistance by UNICEF, however, is nowbeing limited due to funding constraints. Most UNICEF assistance expired inFY95, with no funding allocated for FY96. Total allocation for rural watersupply in the TYRIP was 12, which is clearly inadequate.

1.9 Although DWASA and CWASA are supposed to be commercial and autonomous,their capacity to generate financial resources to finance their own investmentshas been limited. Donor resources for financing investments in the sector havenormally been supplemented by Government equity contributions and grants. Foroperations and maintenance, tariff levels have generally been inadequate to fully

meet all operating costs and cover debt servicing costs. The resulting deficitsare usually financed by the Government indirectly by not servicing debt andinterest.

D. Sector Issues and Constraints

1.10 A number of issues hinder sector development and performance. Theseinclude problems related with inadequate funding of investments and poor resourcemobilization; the Government's management of the sector, lack of commercialorientation in operations; and a weak planning capacity.

Fundina of Investments and Resource Mobilization

1.11 The availability of local funds to support investments in the sectoris generally inadequate. Government counterpart funds, even when budgeted for,

are not always made available when required, due to competing demands, thusdelaying project execution. Inadequate tariffs, poor revenue collection and a

high level of systems losses in the sector institutions (DWASA and CWASA) hamperthe mobilization of adequate internal resources to finance capital expendituresfor water and sanitation. In the municipalities, revenues are totally inadequateto finance development and operating expenditures. A 1986 analysis of 42

district towns shows that revenues on average covered only 29Z of currentexpenditures. Foreign assistance through multilateral sources accounts for about80Z of investments in the sector.

Sector Manazement

1.12 Overall sector management is characterized by Government control and

interference in the planning and operation of the water sector entities. WhileDWASA and CWASA are supposed to be autonomous, most management decisions,including tariff reviews and adjustments, staffing and investment decisions havebeen controlled by the Government through MLGRDC. There are no clearly definedguidelines for sectoral development or mandates for DWASA and CWASA's operations.As a result, the WASAs have never had real commercial or management autonomy,which has significantly hampered their performance. In addition, management and

staff of these sector institutions lack the necessary skills, experience and

training to effectively manage, operate and maintain the systems.

Lack of Commercial Orientation

1.13 DWASA and CWASA also suffer from a lack of commercial orientation and

accountability, poor management systems, and shortage of trained and motivatedstaff. Poor billing and collection practices, a high level of unaccounted-for-water, and high accounts receivable arrears are typical examples of this lack of

accountability. In a local zone serviced by DWASA, it was estimated that thelevel of unaccounted for water was as high as 53% in FY93, thus reducing revenuesignificantly and resulting in higher tariffs for the population paying thebills. Of this, a large percentage (about 35%), is attributable to technicallosses while the remaining losses are classified as commercial or administrative

losses, e.g. under-billing as a result of unmetered connections, illegalconnections, inaccurate and tampered meters and rent-seeking activities of themeter inspectors.

Weak Plannina Cai,acitv

1.14 Development in the sector tends to be adversely affected by optimisticand ambitious goals that do not take into account the physical and financialcapacity of the sector institutions to carry out investments programs. Sectordevelopment activities are planned on a project by project basis, without aguiding framework. In addition, lack of a clear operation and maintenanceprograms and funding makes planned investments unsustainable. As an example, inDWASA and CWASA, planned maintenance is limited to pumping stations and does notinclude regular checks on distribution system mains for leaks.

E. The Government's Sector Strategv

1.15 The Government recognizes the urgent need to improve water supply andsanitation in Dhaka and other areas. The Government also acknowledges the poorperformance of the water supply utilities, and how this performance has affectedefficient provision of water and sanitation services. The Government's sectorobjective is to improve health and human productivity through the development ofservices that are affordable and sustainable to as many people as possible, whileimproving the efficiency of the sector institutions. The Government's policy andstrategy for water supply and sanitation sector development as seen in thecontext of the national development strategy outlined in the Fourth Five-YearPlan emphasizes, among other things, a "gradual shift of public service deliveryagencies from being providers of service to facilitators", and to encourage themobilization of local resources. Such a shift implies a move by the Governmentfrom public provision of services to that of setting policy, while increasing therole of the private sector in providing such services. Local resourcemobilization is especially important because the Government's efforts to improvewater supply and sanitation services in Dhaka and other areas are constrained inpart, by a lack of adequate resources. In addition, investments in the sectorare usually lumpy, requiring significant financial resources to implement plannedcapacity additions. IDA's 1989 Country Economic Memorandum (Bangladesh: PublicExpenditure Review, Public Resource Management during the Fourth Five-Year Plan,(FFYP) FY91-95) identified major investments on the order of $350 million asbeing necessary for the water supply sector during the FFYP period. Because ofresource constraints, the Government's medium terms strategy is to emphasize therehabilitation of existing systems, where possible together with improvements inefficiency, operations and maintenance. This rehabilitation would need to befollowed with carefully planned expansion of selected new systems, to provideacceptable service to the rapidly expanding population. Such programs would haveto be accompanied by institutional strengthening, institutional and policyreforms to bring about efficiency in operations and improvements in servicelevels at the least cost possible. The proposed project follows this strategy.The proposed new investments represents less than 50% of the investmentsidentified for the FFYP, but with efficiency gains expected from policy andinstitutional reforms, substantial benefits would be achieved in serviceprovision. The project follows from the Third Dhaka Water Supply Project, whichfinanced substantial rehabilitation of the existing distribution system.

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F. Previous Bank Involvement in the Sector

1.16 IDA's lending to the water sector supply dates back to the 1950's.A review of IDA's experience in lending to the water supply and sanitation sectorwas recently undertaken with the objective of ascertaining the impact of Bankinvolvement and refining some of the lessons of the experience (Water Supply andSanitation Projects, The Bank's Experience - 1967-1989). The report highlightedseveral areas where IDA assisted projects had failed to achieve statedobjectives. The most persistent problems include inadequate pricing, highunaccounted-for-water, poor financial management and cost recovery. Otherprincipal areas of concern include the lack of autonomy from the centralauthority, continuous political interference, lack of continuity of topmanagement, and poor incentives. The lessons learned from this study were: (i)institutional performance, particularly in the areas of operations andmaintenance, unaccounted-for-water and human resources management, has been goodonly where there was autonomy in utility management and an arms-length regulatorysystem; (ii) sector organizations have relied too much on Government involvementand public finances; (iii) the environmental impact of water projects were notwell documented, and the environment may have suffered as a result of weaknessesin sector institutions and key policies, like pricing; and (iv) projectcomponents, and related financial and operational covenants, did not specificallyaddress broader policy or development objectives, thus contributing to poorsustainability.

1.17 IDA's experience in South Asia, and in particular in Bangladesh,reflects this experience. In Bangladesh, IDA has assisted the Government in thewater supply and sanitation sector since 1963, having financed five water supplyprojects in the cities of Dhaka and Chittagong. The First Dhaka Water SupplyProject (Credit 368-BD, 1973) was initially approved in 1963 as Credit 41-PAK forUS$26 million. This was later reduced to US$13 million, and financed groundwaterdevelopment involving tubewells and strengthening and extension of the existingsewerage system. Implementation of this project was delayed due to the politicalevents that led to Bangladesh's independence from Pakistan. The Second DhakaWater Supply Project (Credit 941-BD) approved in 1979 (US$20.5 million) helpedfinance more tubewells, water distribution system improvements, elevated servicereservoirs, service connections, training and consulting services. The ThirdDhaka Water Supply Project (Credit 1734-BD), approved in 1986 (US$35 million) andcompleted in March 1994, helped finance the upgrading and expansion of the watersupply and sanitation facilities in Dhaka and the surrounding areas. InChittagong, the First Chittagong Water Supply Project (Credit 367-BD, 1973)approved as Credit 42-PAK in 1963 provided US$20 million to finance groundwaterdevelopment, extension of the distribution system, metering and technicalassistance. The Second Chittagong Water Supply Project (Credit 1001-BD) of US$20million financed the development of a surface water treatment plant and theextension of the distribution system.

1.18 While physical objectives of these projects were basically met and thewater supply increased substantially, the financial and institutional objectiveswere not fully met. A review of the performance of the Third DWASA Projectprovide a good example. The project development objectives were to improveDWASA's operational and financial performance, to strengthen sectoral trainingand sectoral planning and to address immediate needs for additional supplies ofwater and sanitation services. Some of the specific objectives were to: (a)continue the institutional development of DWASA emphasizing operationalefficiency, cost recovery and manpower development; (b) further develop Dhaka's

groundwater resources in order to increase cost-effectively the supply of potablewater and expand distribution of water to areas where service is poor or non-existent through additional connections; (c) strengthen DWASA's control ofleakage and unaccounted-for-water, and rehabilitate parts of DWASA's distributionsystem; and (d) extend secondary sewer to areas in which conventional sewerageis affordable to maximize the existing waterborne sewerage system. A review ofprogress against original project components at project completion showed thatDWASA exceeded original physical targets, and increased water production by 42%beyond the targets in the appraisal report, and provided water to an additional100,000 people.

1.19 Financial and institutional performance was, however, not fullysatisfactory. Although DWASA's revenues during the project period were close to

appraisal estimates, DWASA was unable to meet financial covenants set under theproject. Several reasons explain this performance. First, the financial and

institutional objectives established in the project were not supported by actualcomponents to address identified problems or to provide monitorable indicators.There were no specific components in the project to improve financial andinstitutional performance, or to help DWASA meet financial covenants. As aresult, DWASA did not have a clear perspective of why its performance wasconsidered unsatisfactory especially since actual results were in line withprojected performance. Even if DWASA had fully met physical and financialcovenants, its institutional and operational performance would still be weak,since issues like poor management performance, system losses and poor efficiencywere not particularly addressed under the project. Secondly, DWASA's poorperformance was also caused by excessive control of the institution by GOB whichcreated obstacles to good performance. Lack of commitment to financialobjectives resulted in GOB's refusal to authorize required tariff increases tocompensate for increases in operating costs. In general, implementation wasdelayed due to problems associated with political transition in the earlierprojects and procurement problems, primarily in the appointment of consultants.

Lessons Learned

1.20 The implementation issues of the Third DWASA Project indicates clearly

that it is not sufficient to concentrate on financial and operational covenants,financial results, and related tariff adjustments to bring about sustainablechanges in the institutions' operating practices. A more sustainable reformprogram must address the underlying institutional arrangements, or morespecifically the relationship between the Government and the operating authority.A more sustained policy dialogue with the Government on the need for reformsprior to project processing is also necessary to ensure Government commitment torequired reforms. In addition, project objectives need to be clearly reflectedin specific actions and programs in the project components, with monitorabletargets and output indicators.

1.21 In preparing the proposed project, this approach has been followed indesigning the reform program to enhance DWASA's efficiency. The strategyinvolves public enterprise reform and contracting out some services. At the sametime, the Government would develop a strategy for mobilizing finance andincreasing efficiency. The scale of investment requirements means that thisstrategy will require greater private sector participation, probably through aconcession. Under the public sector reform strategy, the institutional reformprogram and its components address the broader sector objectives and draws on thelessons learned as follows: (i) the comprehensive modification of the WASA

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Ordinance and the establishment of a Policy Statement, aimed at reducingGovernment interference in DWASA operations and increasing its autonomy; (ii) theproposed leak detection and rehabilitation program, the Twinning Program, theplan to contract out DWASA services and the Crash Meter Installation Program willreduce unaccounted-for-water and improve operations and maintenance; (iii)

pricing issues are being addressed under a program to revise the tariffstructure, based on Tariff Study undertaken as part of project preparation; (iv)environmental issues and the need for strategies in water resources managementthat strike an adequate balance between competing uses of water are beingaddressed under the Water Resources Management Study and the strategicsanitation program in the project; and (v) necessary studies would be carried outfor identification of the specific privatization alternatives, and identificationof changes needed in the legal/regulatory framework.

G. The Bank's Strategy and It's Role in the Sector

1.22 The Bank's objectives for lending to the water supply and sanitationsector seeks to achieve four objectives. First, the Bank seeks to assist thegovernment to achieve the least-cost solution to providing water supply andsanitation services. Second, the Bank seeks to foster institution building,including the ability by the Government to plan and facilitate national orregional programs by mobilizing adequate resources necessary for sectordevelopment, through multilateral and private sector participation, andestablishing a sound regulatory and pricing framework including adequate pricing.Third, the Bank seeks to act as a catalyst for attracting increasing amounts ofinvestment finance. Finally, the Bank seeks to ensure the availability of aminimum supply of safe water and sanitation facilities to an increasing share ofthe population, particularly lower income groups.

1.23 The Bank's role in the sector is to assist the Government inimplementing its sectoral program through the provision of much needed financialresources and in gradually resolving the sectoral issues and constraintsmentioned above. The Bank's involvement in the sector has been instrumental inhelping the Government to develop and implement feasible and least cost watersupply and sanitation investments in urban areas in Bangladesh. More recently,the Bank has been instrumental in helping the Government gradually developinstitutional and financial reforms and policies for the sector. This isconsistent with the overall public sector reform strategy as defined in the FY96country assistance strategy (CAS). The CAS emphasizes reduction of public sectorlosses and increasing their efficiency as urgent priorities, particularly forpublic enterprises, like DWASA. The proposed reforms under the project whichinvolve commercialization of DWASA through introduction of private sectorparticipation, leading to privatization arrangements during implementation, areconsistent with the CAS strategy for reforming state owned enterprises. Theproposed program under this project is considered the first phase of sectorreform. It will be followed by a water supply and sanitation sector study thatwill focus, inter alia, on overall sector reform, using Dhaka as a case study.The sector work will cover needed changes in the legal and regulatory framework,the roles of the public and private sectors in meeting investment needs andachieving operational efficiency and will provide an action plan for facilitatingprivate sector entry. Provided that agreement is reached with the Government onsuch an action plan, the Bank would expect to support sector restructuringthrough future operations.

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II. THE PROJECT AREA

A. Urban Area and Features of Water Supply System

Background

2.1 The City of Dhaka is the administrative, commercial and industrialcenter of Bangladesh. Dhaka's population has grown rapidly in recent times, thehighest growth rate (12.5%) being achieved between 1971 and 1985. It isestimated that the metropolitan Dhaka's current population is about 8.0 million,approximately 30% of the total urban population. By the year 2000, it isestimated that Dhaka will have a population of about 9.6 million. It isestimated that about 45% of Dhaka's population lives below the poverty threshold.The greater Dhaka area includes the township of Narayanganj, located on thesouthwest part of the city.

2.2 Dhaka and Chittagong are the major economic centers of Bangladesh, andapproximately two thirds of the current employment in these two cities is in theinformal sector. Dhaka's economic growth depends on the small scale,manufacturing industry, which accounted for 80Z of its GDP in 1993. The city'sstrategy is to encourage the growth of processing and manufacturing, includinggarment manufacturing, food processing and jute processing which together accountfor one-third of the workforce. Manufacturing and the informal sector will becritical to future labor absorption and provision of the bulk of the employmentto the urban poor in Dhaka, which has 36% share of the national large scalemanufacturing activity.

The Water Supply and Sewerage System

2.3 Up to 1989, the service area of DWASA was confined within themetropolitan area. At the beginning of 1990, the Narayanganj area was includedwithin the jurisdiction of DWASA. At present, the service area extends in thenorth to Mirpur and Uttara, and to Narayanganj in the south. Water supply to thegreater Dhaka area has increased ten-folds since the 1960's. However, thequantity of water produced per capita has not increased much because of the rapidpopulation growth of the city. Current water production is estimated at 768million liters per day (mld) (166.0/IMGD). Out of this total, 729 mld (95%) isproduced from about 181 tubewells in Dhaka City and about 8 mld (1%) from 9tubewells in the Narayanganj area. The Chandnigat Water Treatment Plant, locatedin Dhaka produces about 16 mld (2%), while two treatment plants located inNarayanganj produce 15 mld (2%). In 1995 gross requirements for water wereestimated to be about 1,150 mld, and expected to grow to 2,482 mld by 2000. Thetotal forecasted demand and supply of water from DWASA is shown in Annex 1.1 andsummarized in Table 2.1 below. The forecast is based on the projected growth inthe population of Dhaka and increased water consumption. The supply outlook isbased on the implementation of the phases of DWASA's long-term investmentprogram. Even with the planned additions to DWASA's capacity, Dhaka is going tocontinue to face water shortages during the investment program period (1996-2020).

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Table 2.1 Water Demand. Supply and Capacity

1995 2000 2010 2020

Total Requirements (IMGD) 262 302 388 546

Installed DWASA Capacity (IMGD) 192 266 386 503

Production (IMGD) 166 256 375 491

Water Shortage (1I4GD) 96 46 13 55

2.4 At present, DWASA has about 160,080 service connections, of which110,177 are metered. The present water supply distribution system extends oversome 1,260 km with diameters ranging from 450 mm to 75 mm, and pipe materialscomprising asbestos cement, poly-vinl chloride (PVC) and mild steel of variousages and quality. However most of the system is reported to be of steel, over50 years old, corroded in many places and in need of repairs, in particular, thesecondary distribution system which consists of pipes made from materials thathave been phased out. All operating deep tubewells are connected to thisdistribution system, but supply is localized to the area in which the tubewellis located. The pressure is generally low, ranging from 2 to 4 meters in thesouth and central part of the city, with slightly higher pressures in some partsof the city. There are supply deficiencies throughout the city, promptingcomplaints from consumers. A total of 35 elevated storage reservoirs areprovided in the system, but because of the large demand for water and the lowpressure in the system, the water is pumped directly into the distributionsystem, by-passing the elevated reservoirs. The project will provide anexpansion of the distribution system network, expected to provide water to anadditional 500,000 people, as well as reducing suppressed demand over the wholeDWASA area.

2.5 Dhaka's sewerage system extends over 450 km, and consists of lateraland trunk lines, interceptors and lift stations. Due to the flat terrain of thecity, sewage flows by gravity to lift stations, until it reaches the PaglaTreatment facility, from which the treated effluent is discharged into theBuriganga River. Currently there are about 40,790 sewer service connections,covering only 29% of the population served by DWASA water supply. Waterbornesewerage is expensive and the investments involved are beyond DWASA's resourcecapability. With the increasing population, it will be necessary for DWASA topursue less costly on site sanitation alternatives, including rehabilitation ofthe existing system to ensure that the majority of the population has access tosafer sanitation services.

B. Level of Water Service

2.6 At present, it is estimated that the population served by the DWASAwater service is 4.1 million, representing about 65Z of the total population ofDWASA's service area, and only 50Z of the population of the metropolitan Dhakaarea. Actual production is estimated at 166 IMGD, while total billed consumptionin FY95 was estimated to be 80.0 IMGD. Of the total population served,approximately 92%, equivalent to 3.6 million are supplied through houseconnections while the remaining population (300,000) is supplied through 1,680

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standposts located in high density areas throughout the city. Presently, thepopulation served through house connections is estimated on the basis of 24.4people per connection, while the population per hydrant is estimated to be 175people per hydrant. This is considerably higher than other countries, butreflects the crowded conditions of most housing areas in Dhaka, the tendency inDhaka to live in high rise apartments, and the high population growth rate. Theprojections further assume that the average number of households per connectionis 2.4.

2.7 About 7%-12Z of DWASA's customers in Dhaka (excluding Narayanganj) areclassified as commercial and industrial. Commercial customers include hotels,office building and restaurants, while manufacturing and processing industries,e.g., tanneries are classified as industrial. Most industrial and largecommercial concerns have a private supply, usually obtained by installing a deeptubewell. This explains the lov level of industrial and commercial consumptionfrom DWASA's supply. Until recently, such private tubewells were unregulated,leading to excessive groundwater abstraction and wasteful water use practices andthreatening the availability and sustainability of groundwater as a long-termresource. Recently, the Government introduced legislation to regulategroundwater use, by requiring all private tubewells to be formally registeredwith DWASA and users to pay an initial and annual license fee. Although thislegislation is in place, enforcement is very weak, and most tubewells stilloperate unregulated. A review of the regulatory framework for the water resourceuse will be conducted under the Water Resources Management Study in the projectto address in the management of water resources, including the effective controlof private and industrial use (para. 3.7(d)(ii)).

C. Level of Sanitation Service

2.8 At present, Dhaka does not have an adequate sewerage and sanitationsystem. The waterborne sewerage system operated by DWASA only covers about 15%of the total population of Dhaka (or 29% of the population in DWASA servicearea). It is estimated that another 30% of the population uses approximately50,000 septic tanks and another 15% have access to bucket and pit latrines. Theremaining population do not have any form of acceptable sanitary disposal system.Much of the sewage collection system is in poor condition due to lack of a properrepair and maintenance program, which leads to sewage overflow into storm drainsduring the rainy season. This results in insanitary conditions, which areaggravated by the lack of a well functioning sullage drainage system. Under anADB financed project, DWASA is installing a "small bore sewerage system" inMirpur. Other programs include a recently completed rehabilitation of the PaglaTreatment Plant, financed by JICA, and a sanitation component under IDA's UrbanDevelopment Project (Credit 1930-BD) involving the construction of latrines inslum areas. The proposed project includes a technical assistance component forthe preparation of a comprehensive long-term program to address sanitation andsewerage issues in Dhaka, including the execution of priority investments for lowcost sanitation and sewerage system rehabilitation. (para. 3.7(c)(iii).

D. DWASA's Investment Program

2.9 In order to meet future water demand, four alternative programs wereconsidered under the long term investment program for water supply andsanitation. These alternative programs are combinations of expansion phases of

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surface water treatment plants at two sites (Saidabad, from the Lakhya River andFriendship Bridge, from the Buriganga River) and the development of additionaltubewells conjuntively to supplement surface water sources. However, in theshort run the Friendship bridge alternatives were shown to present problems dueto possible pollution at the identified site, and land acquisition difficulties.The alternatives were thus reduced to different phases of the Saidabad plant.For future groundwater development, the basic decision of investments must bebased on an in-depth analysis of the technical aspects of groundwater resourceavailability, and a well-defined and enforceable plan to regulate private andpublic production from groundwater.

2.10 _ Annex 1.2 shows the various components of the long-term investmentprogram. This program represents the priority investments needed to reduce watershortages and meet future demand from 1996 to the year 2020. The basis of theinvestment program is a least cost combination of deep tubewells and surfacewater treatment plant. Included in the program are activities to expandsewerage, costing about US$1.2 billion. Clearly, these would be reviewed andevaluated in the context of available financial resources. However, sanitaryconditions in Dhaka are poor and deteriorating (current coverage is about 15%),and investments in sewerage expansion are critically needed. The sanitationcomponent under the project will redefine the sewerage investment program toidentify less costly options for sanitation in Dhaka, including investments inlow cost sanitation to be undertaken in the medium term.

2.11 The total long-term investment program for water up to 2020 is US$588million, which involves capacity additions from surface water of 50 IMGD in 1999and 2008, and 100 IMGD in 2016, and deep tubewell field construction in 2002/03.However, the development of deep tubewell capacity will have to be based on anassessment of groundwater sources and a plan for adequate management of theaquifer based on the results of the Water Resources Management Study in thisproject. IDA's involvement in the program is a time slice of US$175.8 million(30%) in the first phase, whose objective is to reduce supply deficits, andimprove the distribution network to reduce losses.

2.12 The program would allow for modest increases in water supply andsanitation coverage. Much larger investments would be required if adequatecoverage (over 90% for water and 60% for sanitation) is to be provided for Dhaka.Such investment requirements are beyond the financing capability of theGovernment and donors. Under this project, a study to assess private sectorparticipation in DWASA would also explore private financing for the acceleratedinvestment program.

E. Groundwater Vs Surface Water Options

2.13 DWASA's earlier projects financed by the Government and IDA developedwater supply primarily from groundwater sources. However, the need for a surfacewater treatment plant to increase the water supply in Dhaka has been recognizedfor some time due to the considerable lowering of the groundwater table in Dhaka.Studies undertaken during the preparation of the Third Dhaka Water Supply Project(Cr. 1734-BD) recommended the construction of a surface water treatment plant asthe next major investment for water supply for Dhaka (Report No. 5964-BD). Under

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Credit 1734-BD, a Dhaka Region Groundwater and Subsidence Studyl was undertakenwith the objective of assessing the impact of construction of additionaltubewells within the Dhaka area to the current groundwater levels. Specificobjectives were to: (a) assess the impact of increased groundwater abstractionin the greater Dhaka area; (b) quantify future groundwater abstraction, wellfieldlocation and management of groundwater resources; and (c) evaluate the effect ofincreased abstraction on the compaction of clay and silt layers overlying themain aquifer.

2.14 The findings of this study showed that groundwater levels beneathDhaka City have fallen steadily over the last 25 years in response to continuallyincreasing abstraction. Water levels have dropped in the Motijheel, Tejgaon andOld Dhaka areas and reached a maximum depth of 20 meters below ground surfacelevels in 1989 (from about 3 meters in 1965). The groundwater resource modeldeveloped under this study also showed that if no new wells are commissioned inDhaka City and the existing wells continue to operate at their presentdischarges, a steady state would be achieved by 1992/93 without reducing thecapacity of the existing DWASA tubewells, although there would be reduction inyields in private wells whose pumps were set at depths of less than 20 meters.If additional wells were commissioned, the groundwater level would continue tofall, thus affecting the yield of existing DWASA wells. The study however notedthat abstraction in Dhaka City did not affect groundwater levels in wellfieldsoutside Dhaka City (North and West of Dhaka, Savar, Tongi and Keraninganj).

2.15 Based on this analysis, the study recommended that subject to furtherinvestigations, there should be limited development of groundwater between DhakaCity and Narayanganj because of limited recharge potential, and the risk ofincreased drawdown in the groundwater. While the study recommended developmentof groundwater in the areas outside the city, it also noted that this may causesome adverse effects to irrigation and industrial users who are located in theseareas. The study also noted that the cost of bringing water from outside Dhakainto the city could be high (transmission pipes, land acquisition, rivercrossings); thus, it recommended that well fields outside the city should bedeveloped for localized supply instead of supplying the city.

2.16 The economic costs of bringing water from these areas for Dhaka Citywere analyzed during the preparation of this project. Based on this analysis,it was concluded that the most effective option in the short-run would be thedevelopment of surface water to supply water to Dhaka City, coupled with thedevelopment of wellfields outside Dhaka in the medium term, to meet needs as thecity expands closer to those areas.

1 EPC, Mott MacDonald, Camp Dresser McKee, "Dhaka Region Groundwater andSubsidence Study" Volume 2, May 1991.

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III. THE PROJECT

A. Proiect Origin

3.1 In the past three decades, the Government of Bangladesh has sought toformulate a long-term water master plan for the city of Dhaka, using the least

cost method and utilizing available water resources to alleviate water shortagesin the city. A feasibility study and the master plan, financed by bilateraldonor assistance was prepared in 1992. Project preparation since the completionof the study emphasized on reaching agreement in principle with the Governmentof Bangladesh on the institutional and financial reforms required to enable DWASAto operate with more autonomy and efficiency as a truly independent commercialutility capable of generating adequate revenues to cover all its operating andmaintenance costs, and servicing its debt. Agreement in principle on the reformprogram was a condition to further preparation of the physical components of theproject.

3.2 The project represents the least cost feasible solution for the

provision of 50 IMGD to meet demand projections. As discussed above, thedevelopment of an equivalent 50 IMGD well field source at Keraninganj, on the

right bank of the Buriganga River (including transmission, and access roads) tosupply Dhaka City is estimated to exceed the cost of the Saidabad surface watertreatment plant and transmission, not counting the cost of well replacementswhich would be necessary over the life of the project. Deep tubewells willrequire to be redrilled every 10-15 years just to maintain output.

3.3 Difficulties with the well-field solution include the acquisition ofagricultural land, access and technical problems with the river crossing. Thedevelopment of surface supplies will also help arrest the continuing decline inthe water table which is resulting in higher pumping costs in the most depletedareas of the well field. This draw-down eventually leads to the suspension ofproduction altogether. DWASA on average, is currently replacing seven tube-wells

every year. The project is justified on economic, financial and technicalgrounds as the next step for DWASA in the provision of safe drinking water inDhaka.

B. Proiect Obiectives

3.4 The basic objectives of the project are: (i) to commence a program ofinstitutional reforms that would lead to efficient operation of the water andsanitation sector in Dhaka on a commercial basis and prepare a strategy toenhance private operations and mobilize private finance; (ii) to increase thelife of existing assets and reduce water losses through a water loss reductionand rehabilitation program; (iii) strengthen water resources management for thegreater Dhaka area, by optimizing use of available water resources in the mosteconomic and environmentally acceptable way; and (iv) to increase potable watersupply in the Dhaka area by effectively utilizing available surface andgroundwater resources to expand water supply in the Dhaka metropolitan area.

3.5 The focus of the project is on: (a) institutional strengthening andachievement of financial and operational autonomy to ensure that DWASA, withina reasonable time frame, is able to provide efficient and reliable services; and(b) increasing available water supply to alleviate shortages through lossreduction and capacity additions. The institutional components of the project

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will address some of the key sectoral constraints identified, namely the lack of

commercial orientation in DWASA operations, weak planning capacity and excessivecontrol by GOB on DWASA's day-to-day operations. This effort is consistent withthe country objectives for public enterprise/utility reforms. The physicalcomponents will improve DWASA's capacity to provide water supply and sanitationservices more efficiently and expand its service to new areas. Technicalassistance will support better operations under a private sector managersupported with a twinning arrangement, and including a study leading to a higherdegree of private sector participation and mobilization of private finance.

C. Rationale for Bank Involvement

3.6 IDA has supported GOB and DWASA develop and improve the urban watersupply and sanitation sector for many years. While much has been accomplishedon the physical side, the increase in water produced per capita has been marginaldue to the high population growth of Dhaka and other urban areas. Furtherinvestments are required to rehabilitate the system, reduce losses and increasesupply. Institutional performance has been unsatisfactory, while financialperformance has been erratic. The objectives being pursued in this project arepart of the broad fundamental reforms IDA is pursuing in the country's publicutility sector including power and gas as well as water. This approach is builton the recognition that the investments needed in these sectors to support growthand public welfare exceed the fiscal prospects of the public sector; it alsorecognizes that successive governments have not been able to produce efficient,financially self-sustaining public utilities. It looks to maximizing the roleof the private sector, under a sound, transparent and independently administeredregulatory framework. Furthermore, as the lead donor in Bangladesh, IDA can playa major catalytic role by giving the Government's institutional reform programthe support it needs, by encouraging the Government to continue with the reformprocess and sustain its momentum and by assisting in coordinating donorparticipation within the reform framework. IDA's involvement will also assistin the orderly and efficient development of the sector by helping DWASA betterdefine and rationalize its investment options, GOB to plan and analyze suchinvestments to increase availability of water and sanitation services, promoteprivate sector participation and better water resource management, and finallyhelp define a sanitation strategy for Dhaka. The Bank's involvement will alsoafford DWASA opportunities to draw on the Bank Group's experience in utilityreform in other countries.

D. Prolect Description

3.7 The project components are described in detail in Annexes 2.1, 2.2,2.3 and 2.4, 3.1 and 3.2 and will include major activities as follows:

- the institutional reform program;

- capacity additions and service extension;

- loss reduction, sanitation and efficiency improvement activities;

- institutional development technical assistance; and

- project preparation and implementation support technical assistance.

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(a) The institutional reform Program: This includes:

(i) amendment of the WASA Ordinance to provide DWASA with operatingconditions that would approximate those of commercialorganizations established under the Companies Act, and obtaingreater autonomy from GOB by strengthening and streamliningDWASA's existing Board to establish a Board of Directors alongthe lines of commercial utilities;

(ii) defining the Board's role on policy matters relating to corporateplanning, tariff setting, staffing, appointment of seniormanagement and remuneration, with the objective of separating theresponsibilities of the Government, the Board and management.Under this arrangement, the Chairman of the Board would beappointed from outside the Government while the Board wouldappoint the Managing Director of DWASA, subject to GOBconfirmation. A draft Policy Statement is attached at Annex 2.2;

(iii) establishing and enforcing management accountability by requiringDWASA to meet operational and performance targets;

(iv) re-organization of DWASA's activities into profit/loss centers tointroduce transparency into operations; and

(v) introduction of activities to involve private sectorparticipation in DWASA operations, including possible concessionarrangements.

(b) capacity additions and service extensions: (US$140.9 million) Thiswill mainly consist of the construction of a 50 IMGD conventionalsurface water treatment plant and associated works, includingtransmission lines. Sub-components under this include:

(i) land acquisition for intake, culvert and the treatment plant site(US$24.5 million);

(ii) treatment plant and associated work consisting of intakestructure and pump station (6.6 cu.m./sec) at the Lakhya River(US$3.7 million); rehabilitation of the DND Canal and sitedevelopment (US$3.0 million); construction of a 1.7 km culvertfrom DND canal to the treatment plant site (US$3.8 million);treatment plant electromechanical equipment and civil works,including mixing tanks, flocculators, pump stations, settlingbasins, filters, sludge recovery facilities and ponds (US$76.8million); ancillary works, administration and office buildings(US$2.6 million); and 38 km of primary and secondary transmissionmains (US$26.6 million);

(c) loss reduction. sanitation and efficiency improvements: (US$18.0million) This will consist of various actions to reduce water loss,increase revenue and improve DWASA efficiency, including a sanitationprogram. Subcomponents include:

(i) a distribution system rehabilitation program consisting of a LeakDetection Program to identify physical leaks in DWASA service

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area (US$1.2 million); a system rehabilitation program based onthe results of the leak detection activities (US$8.0 million);and a tubewell regeneration program to replace rehabilitate, andreset low yielding tubewells (US$1.0 million);

(ii) expansion of service connections, consisting of a tertiarydistribution system and connection program (US$1.9 million); anda Crash Meter Installation Program to reduce unmeteredconnections to about 5Z within two years (US$1.0 million);

(iii) an improved sanitation program consisting of a study andpreparation of a sanitation master plan for Dhaka for the period1996-2020 (US$0.8 million), and first stage investments in lowcost sanitation and rehabilitation of selected sewerage systemsassets (US$4.2 million);

(d) Institutional Development Technical Assistance: (US$8.9 million).This will consist of institutional strengthening to support thefollowing programs and studies:

(i) Management and Operational Support (Twinning) Program from anefficient utility to assist DWASA improve its financial andoperational performance and efficiency (US$4.0 million);

(ii) a Water Resource Management Study of the Dhaka Region to obtainadequate knowledge for management of water resources in Dhaka andeffectively monitor and regulate the quantity and quality ofwater in the region (US$1.3 million);

(iii) a program to contract out DWASA billing, collections and meterrepair services to the private sector (US$0.8 million);

(iv) management support to senior contract staff on fixed termappointment to provide needed incentives to retain staff withnecessary skills (US$0.9 million);

(v) a training program for DWASA staff to improve skills in thecommercial operation of utilities (US$1.1 million); and

(vi) a study to assess options for private sector participationincluding a strategy for mobilizing private financing andimproved efficiency, leading to increased private sectorparticipation (US$0.8 million).

(e) Prolect Preparation and Implementation Support Technical Assistance:(US$8.1 million). This will consist of the following subcomponents:

(i) miscellaneous equipment (motor vehicles, computer equipment,meters etc) to support institutional strengthening efforts(US$1.7 million);

(ii) consulting services for the design of ancillary works, thedrafting of the revised WASA Ordinance; (US$0.1 million);

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(iii) construction supervision of the treatment plant, distributionsystem, and consulting services for a Network Analysis (US$6.2million); and

(iv) consultancy services to assist DWASA implement a revised tariffstructure (0.1 million).

E. Proiect Cost Estimates

3.8 The total project costs, including contingencies is estimated atUS$175.8 million equivalent (Taka 7.4 billion), of which US$88.1 million (50.1Z)is in foreign exchange. The project cost includes taxes and duties estimated atabout US$35.5 million. The base cost is expressed in January 1996 prices. Costestimates for the project are based on consultant feasibility studies andpreliminary design, and the cost of recently awarded contracts for similar works,updated to January 1996 price levels after appraisal.

3.9 Physical contingencies are estimated at 5 to 10% for all the civilworks, equipment and consultancy services. Estimated price increases over theproject period amounted to 5% of the base costs plus physical contingencies.Price escalations for foreign costs are estimated at 4.5% for FY95, 2.9% forFY96, 2.0% for FY97, 2.1% for FY98, 2.3% for FY99, 2.4% FY00, 2.3% for FY01, and2.2% thereafter, and for local costs at 4.0% for FY95, 5.0% for FY96, and 4.0%for FY97 and thereafter. It is estimated that the exchange rate adjustment wouldon average, maintain purchasing power parity during the project implementationperiod. Summary project cost estimates are shown in Table 3.1 and detailed costestimates are given in Annexes 6.1 and 6.2.

Table 3.1 Project Cost Summary 1/

ILocal Mfion) (US$ Million)

% % Totel % TotalForeign Baee Foreign Bae

Locol Foreign Total Exchange Coata Local Foreign Total Exchange Coats

A. Land Acquisition 963.6 - 963.6 16 22.8 - 22.8 - 16

B. Treatment Plsnt & Associated Works 67 2

1. Intake Sarufia 56.3 72.5 127.8 67 2 1.3 1.7 3.02. Canal Rehabilitation & Site 108.2 - 10.2 - 2 2.6 - 2.6 2

3. Culvert from OND Canal to Site 123.2 1.7 124.9 1 2 2.9 3.0 1 2

4. Treatment Plant 1247.6 1,797.1 3,044.S S9 46 29.8 42.6 72.2 58 48

S. Ancillary Structure 79.9 4.6 84.6 6 1 1.9 0.1 2.0 6 1

Subtotal Treatment Plant & Associatd 1,614.2 1,875.9 3,490.1 54 53 38.3 44.5 82.7 64 63

WorksC. New Pipelineo

1. Primry Transmieion Mains 312.4 426.4 730.8 58 11 7.4 10.1 17.6 se 11

2. Secondary Tranamission Mains 69.7 122.3 192.0 64 3 1.7 2.9 4.6 64 3

Subtotal New Pipelinee 382.1 648.6 930.7 59 14 9.1 13.0 22.1 W9 14

D. Distribution System Rehabilitation 130.4 228.8 369.2 64 5 3.1 6.4 8.6 64 6

E. Expansion of Service Connections 36.4 60.1 96.5 62 1 0.9 1.4 2.3 62 1

F. DOevelopent of SeveroaelSenitation 60.6 101.5 171.0 s9 3 1.6 2.4 4.1 59 3

G. Inrtitutional Development 113.0 183.4 29S.4 82 6 2.7 4.3 7.0 62 5H. Project Prepwration nd 20.0 262.7 272.7 93 4 0.6 6.0 8.5 93 4

Implementation SupportTotal BASELINE COSTS 3,329.1 3,251.1 6,5s0.3 49 100 78.9 77.1 158.0 49 100

Physical Contingencis 138.0 193.0 331.0 58 5 3.3 4.6 7.8 S8 6

Price Contingencims 201.4 336.3 537.7 63 8 5.6 6.6 12.0 64 8

Total PROJECT COSTS 3,669.6 3,780.4 7,449.0 51 113 87.7 88.1 176.8 50 113

1/ Figwes may not add up due to rourading.

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3.10 The project cost estimates are based on a five year implementationperiod. This is shorter than the regional disbursement profile of seven yearsfor similar projects, but attainable because of the turnkey arrangement of themain contract, the treatment plant.

F. The Proiect Financing Plan

3.11 The project financing plan includes the proceeds of the credit, co-financing from the Government of France and the Government of Japan, andcounterpart financing from the Government of Bangladesh. The proposed IDA creditof US$80.3 million would finance 45.7% of the total project cost (excludingtaxes). The Government of France would finance US$31.3 million, equivalent to17.8% of the total financing requirements. The Government of Japan would financeabout US$1.3 million of the project which would be administered by IDA. Theremaining funds (US$62.9 million) will be provided by the Government ofBangladesh and DWASA. The financing plan for the project is summarized in Table3.2 below.

Table 3.2 Proiect Financing Plan (US$ Million)

The Goverment/ Government of Japanese LocalDhaka WASA IDA rance Government Total Foreign (Excl. Duties I

Amount X Mount X Amount z Amount 1 Aiount 1 Exch.ae Taxes) Taxes

I. Investment Costs

A. Land 24.5 100.0 - - - - - - 24.5 13.9 - 24.5 -

B. Civil Works 14.8 18.7 64.2 81.3 - - - - 79.0 44.9 40.1 22.1 11.8

C. Electrical i 23.1 41.8 0.9 1.6 31.3 56.6 - - 55.3 31.5 32.2 - 23.2Mechanical

D. Tecbnical 0.0 - 14.0 91.5 - - 1.3 8.5 15.3 8.7 8.3 5.6 -Assistance

E. Equipment 0.5 29.4 1.2 70.6 - - - - 1.7 1.0 7.5 - 0.5

Total Disbursement 62.9 35.8 80.3 45.7 31.3 17.8 1.3 0.7 175.8 100.0 88.1 52.2 35.5

3.12 The proposed IDA credit would finance 63.5% of the project's foreign

costs while the French Government would finance 35.6%, and the Government ofJapan would finance the remaining 0.9%. The IDA credit would finance intakeworks and the pump station at Sarulia on the Lakhya River, the culvert from theDND Canal to the treatment plant site and ancillary structures, civil works for

treatment plant, primary transmission and secondary distribution mains, systemrehabilitation institutional strengthening and all technical assistance with theexception of the Water Resource Management Study. The French co-financing wouldfinance the foreign exchange costs of the equipment supply and installation ofthe treatment plant. The Government of Japan financing will cover the consultingservices for the Water Resources Management Study. The Government counterpartresources would finance customs duties and taxes, land acquisition, while DWASAwould finance the rehabilitation of the DND Canal and development of the SaidabadTreatment Plant site.

3.13 The IDA credit would be made to the Government of Bangladesh onstandard IDA terms for a duration of 40 years including 10 years of grace. Thecredit would be onlent to DWASA under a subsidiary loan agreement, and will berepaid over twenty-five years, including five years of grace, at an interest rateof 7.5%. The French Government financing will be on-lent to DWASA at the sameterms. Like past DWASA projects, the foreign exchange risk on the IDA creditwould be borne by the Government of Bangladesh. The execution of a SubsidiaryLoan Agreement between DWASA and GOB and the French Government and the JapaneseGovernment Agreements would be conditions of credit effectiveness.

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IV. PROJECT EXECUTION

A. Status of Preparation

4.1 Project preparation is significantly in advanced stage. Land has beenacquired for the treatment plant and the designs of the civil works for treatmentplant and ancillary works are in progress. The contract for the supply ofequipment for treatment plant has been awarded. Detailed designs, bid documents,and prequalification documents have been finalized for the Lakhya Pumping Stationand the intakes, primary and secondary distribution mains, and the culvert from

the DND canal to the treatment plant site, and have been reviewed by IDA and theprequalification of contractors for these works is in progress. Therehabilitation of the DND canal and development of the treatment plant site beingfinanced by DWASA and GOB have been awarded and works are about to be completed.

4.2 Regarding technical assistance and institutional strengthening,contracts for the Management Operational Support (Twining) Program and theStrategic Sanitation Program are ready to be awarded. Draft Terms of Reference(TOR), letters of invitation (LOI) and shortlists have been prepared for theWater Resources Management Study and construction supervision of the treatmentplant, and consultants are about to be appointed. Bidding documents for theprogram to contract out billing and collections are being finalized for IDA'sreview and tenders will be invited shortly. The first phase of the LeakDetection and Rehabilitation Program and the Crash Meter Installation Program isin progress. TOR and LOI for all other technical assistance have been prepared.The Project Concept Paper (PCP) for the proposed project has been approved byGOB.

B. Prolect Implementation

4.3 The project will be implemented by DWASA, which will be accountableand responsible for meeting agreed project and operating objectives. With thecompletion of the Third DWASA Project in March 1994, and experience in

implementation of ADB and Japanese funded projects, DWASA has demonstrated itsability to satisfactorily implement medium sized civil works projects. It isestimated that the project will be implemented over a period of five years, whichis less than the average implementation period for similar projects inBangladesh. This is due to the turnkey arrangements for the installation of thetreatment plant equipment. To speed implementation after project approval, GOBand DWASA have already completed work on the improvement of the DND Canal, tointroduce canal overflow structures for maintaining the canal operation level at5 meters above current levels and the back fill of the Saidabad treatment plantsite.

4.4 Project implementation will give priority to the construction of thesurface water treatment plant, Phase 1 of the Leak Detection and RehabilitationProgram, the Crash Meter Installation Program, and the management consultancyservices for the improvement of the operations and management of DWASA. Thesigning of the contracts for the Sanitation Program and the management operationsupport (twinning) program would be conditions of credit effectiveness.

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Land Acquisition and Resettlement

4.5 Details of land acquisition for the project are shown at Annex 9.1.

Land for the treatment plant is already owned by DWASA and a provision has beenincluded in the project cost for its value. Land acquisition necessary for theconveyance route from the Sitalakhya River to the treatment plant site amountsto a total of 6.1 acres. This includes 0.91 acres at the pump-house site, 1.55acres for the right-of-way (ROW) for the culvert to the DND Canal, and 3.64 acresfor the ROW for the culvert from the DND Canal to the Saidabad treatment plantsite. A total of 37 small plots are involved. Five plots contain temporary shedsand other temporary buildings that will be removed prior to construction.Compensation has already been paid for the loss of property. A cadastral map isavailable that details the canal routing in relation to the plots concerned. Theacquisition involved some involuntary resettlement. In view of the small numberof buildings to be removed, no full resettlement action plan was required. DWASAfollowed IDA's resettlement guidelines in compensation for all project affectedpeople and appointed a local consultant to assist in providing compensation andsupport to resettlers and monitor progress of payments by the DistrictAdministrator.

4.6 The process of land acquisition is carried out by the Ministry ofEstablishment at the direction of the Ministry of Land, following DWASA'srequest. During negotiations, GOB confirmed that the acquisition of the 6.1acres was completed and DWASA had possession of the land. Payment of Tk. 21.6million was made to the District Administrator (DA) which included compensationfor loss of land and property on the site. GOB also confirmed that payment ofcompensation to affected people would be completed a minimum of three monthsprior to handing over of land to the contractors.

4.7 Access to the Saidabad treatment plant site is via a public roadthrough Jatrabari Point. The contractors for the site development component ofthe project have constructed the access road from the existing all weather roadto the western side of the Saidabad site.

4.8 Along the DND Canal, rehabilitation of the embankment involved theremoval of a number of trees and temporary shacks where retail trading activitiestake place. The contractor responsible for the rehabilitation facilitated theremoval of these sheds as part of the canal rehabilitation process. DWASA agreedto pay a lump sum cash compensation to these shack owners for temporary loss ofincome, and to cover relocation costs, in accordance with IDA resettlementrequirements. A sturdy fence has been constructed on both sides of the DNDcanal, as part of the contract to rehabilitate the canal. This fence is designedto prevent access to the canal itself and thereby avoid pollution. Handpumps forwater supply, latrines, and several bridges will be provided along the DND Canalin order to provide squatters who use the canal with alternative facilities. Noland acquisition is necessary as part of the DND Canal rehabilitation or as aresult of DWASA's use of the canal because the land and the canal belong to theBangladesh Water Development Board (BWDB). As part of the agreement betweenDWASA and BWDB, the land will remain in the ownership of BWDB, although operationand maintenance of the canal along the conveyance route will be theresponsibility of DWASA. DWASA is required to continue to supply existingirrigators, and extra pumps are planned for the pump station in order to carrythis out.

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4.9 As part of the resettlement process, DWASA prepared a plan for impactmitigation along the route of conveyance. This plan included a map of thelocation of the temporary shops to be removed, together with consultation withthe local people regarding the location of new handpumps, latrines and bridges,and compensation to cover relocation costs and temporary loss of income to bepaid to the shack owners. Details of these plan were reviewed during appraisaland were found to be satisfactory.

C. Proiect Management

4.10 The project will be managed by the Planning and Development Department(PDD) of DWASA. The PDD will execute the project, and supervise and monitor allcontracts and maintain all the records including the original copies of allcontracts and purchasing documents. A Project Director has already beenappointed from DWASA, who will have overall- responsibility for the project,including the co-ordination of construction of IDA and French financedcomponents. In addition, the Project Director will also have responsibility forthe implementation of the technical assistance for the project.

4.11 To assist the Project Director in the management of the project,construction supervision consultants will be appointed. The first will be forthe supervision of the construction of the Surface Water Treatment Plant,including intakes and the culvert, for about forty eight months. The other willbe for the construction of the primary and secondary distribution system,expansion of service connections and rehabilitation of the distribution system.These consultants will report to the Project Director and will coordinate theoverall implementation including verification of compliance with specificationsfor goods and works, commissioning of completed works, advice on training ofstaff to operate the completed facilities and preparation of necessary documentsfor the procurement of all equipment, and civil works.

D. Prolect Supervision

4.12 Project supervision by IDA and the French Government would becoordinated and agreed at the Project Launch Workshop, to be undertaken at thebeginning of project implementation. IDA supervision of the project wouldrequire about 95 staff weeks, of which about 20 would be needed in the first yearfor review of project start-up, procurement, bid specifications, and consultancyappointments. This will likely involve three supervision missions in the firstyear, and two in the later years. Supervision would be coordinated with IDA'sresident mission staff in Bangladesh. Supervision during project implementationwould be provided by sanitary engineering and financial staff, and would focuson financial management, construction administration review, procurement actions,etc. However, in the first year, additional special expertise would be requiredin areas like leak detection, management of utilities and operationalimprovements and institutional restructuring. A mid-term review would beundertaken mid-way through project implementation, but no later than December 31,1998 to assess project management, implementation status, including progress ininstitutional reform including increased private sector participation, progressagainst agreed performance indicators and to recommend proposals for any changesin the project scope, costs, timetables and agree on any necessary correctiveactions. A tentative staffing and timing schedule of supervision missions is

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given in Annex 9.5. Benchmarks for assessing progress at the mid-term review areset out in Annex 9.6.

E. Proiect Reporting

4.13 Progress reports, prepared by the PDD and provided monthly willdescribe the work done on each of the components of the project to date,detailing actual and anticipated progress, actual and estimated costs for thework completed and disbursement from the credit with estimates in the AppraisalReport. The reports will highlight causes for delays, if any, and proposemeasures to overcome them, and will anticipate any changes in the projectcompletion date, or the project costs. Details will be given of contract forworks, goods and services that have been awarded, invited or received during thereporting period, with reasons for any changes made in the estimatedimplementation schedule, quantities and costs. Two copies of the progressreports will be sent to IDA and the French Trade Commission in Dhaka within threeweeks of each reporting period. Separate project reports on institutionaldevelopment components and consultant activities will also be provided asspecified in the TOR of these components. The format for these progress reports,including pertinent information to be included in the reports, was agreed atnegotiations. Within six months of completion of the project or the closing ofthe credit, DWASA will prepare its part of the Implementation Completion Report,with the assistance of the PDD.

F. Procurement

4.14 Procurement arrangements for the project are summarized in Table 3.3below and details are provided in Annex 9.2.

Table 3.3 Procurement Arrangements ($ millions) /

Procurement Method

Proiect Element ICB NCB Other NBF2/ Total3|

Civil Works 68.2 7.8 3.0 - 79.0(56.7) (7.5) - - (64.2)

Goods and Equipment 3.1 0.2 - 53.7 57.1(1.9) (0.2) - - (2.1)

Consultancy Services - - 14.0 1.3 15.3- - (14.0) - (14.0)

Land Acquisition - - - 24.5 24.5

Total 71.3 8.0 17.0 79.5 175.8(58.6) (7.7) (14.0) - (80.3)

1/ IDA amounts in brackets.2/ Non Bank financed.3/ Figures may not add up due to rounding

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4.15 Civil Works: The project includes about US$79.0 million in civilworks. About US$68.2 million of these works would be carried out on the basis ofinternational competitive bidding (ICB). This represents civil works for thetreatment plant, transmission mains, intake and culvert from the DND Canal to thetreatment plant site. Procurement for the primary and secondary distributionnetwork will be undertaken through a "Supply and Lay" type of contract to avoiddelays and problems associated with procuring pipes separately. For all civilworks contracts awarded on the basis of international competitive bidding, localcontractors will be eligible for a margin of preference of 7h%. Civil workstotalling US$7.8 million would be procured under national competitive bidding(NCB) procedures acceptable and satisfactory to IDA. These works relate to theexpansion of service connections, development of sewerage and sanitation schemesand distribution system rehabilitation. These works represent small contractsspread through the life of the project, and are unlikely to attract international

bidders. GOB has already awarded the contracts for the development of the

treatment plant site and DND canal rehabilitation for an amount of US$3.0 millionunder its own procedures and its own financing arrangements. A contract has

already been awarded for the supply of the electrical and mechanical equipmentfor the water treatment and the civil works final design is now progress. The

civil works bidding documents, prepared in accordance with ICB procedures, willbe submitted for Bank review prior to bidding.

4.16 Goods: There is a total of about US$57.1 million of equipment and

materials in the project, of which US$3.1 million will be procured following ICBprocedures. These represent equipment and materials for the intake and pumpstation, and miscellaneous equipment, including meters for service connectionexpansion. For this procurement, local bidders will have a domestic preferencelimited to the lesser amount of 15Z of the CIF price or the actual amount of

customs duties and import taxes. About US$0.2 million of the equipment will beprocured using NCB guidelines. Other equipment and materials would be financedunder the French Grant assistance.

4.17 Consultant and Contract Services: Consultancy studies and engineeringdesigns for about US$15.3 million will be carried out by consultants whose

qualifications, experience and terms and conditions shall be satisfactory to the

Association. These will be selected in accordance with the Bank's Guidelines,Use of Consultants by World Bank Borrowers and by the World Bank as ExecutingAgency.

4.18 Land Acquisition: Land estimated to cost US$24.5 million, includingthe land for the treatment plant already in possession of DWASA, and right-of-way(ROW) for other works was procured using Government procedures.

4.19 All civil works contracts in excess of US$300,000, all goods packagecontracts in excess of US$200,000 and all consulting firm contracts in excess ofUS$100,000 (US$50,000 for individual consultants) will be subject to priorreview. With respect to all consulting contracts, irrespective of value, priorreview will continue to be required for: (a) terms of reference; (b) singlesource contracts regardless of value; (c) all consultant contracts andassignments of a critical nature (for example because of environmental safety orpublic health considerations) regardless of value; and (d) contract amendmentsvalued at more than US$100,000 (US$50,000 for individual consultants) equivalent,or those that raise the total contract value above US$100,000 (US$50,000 forindividual consultants) equivalent. All procurement will be carried out inaccordance with the Bank's Guidelines for Procurement (January 1996) and the

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Bank's latest Standard Bidding Documents for Works, Goods and ConsultingServices. At least 10Z of all other contracts will be subject to ex-post review.However, to ensure that adequate procurement procedures are being followed, thefirst two contracts under NCB for works, irrespective of the amount, will besubject to IDA's review.

G. Disbursements

4.20 Disbursements of the IDA credit proceeds will be on the followingbasis:

(a) 100 percent (CIF) of total foreign expenditures and 95Z for localexpenditures (ex-factory) on civil works for the treatment plant,culvert, intake, ancillary works, sanitation program;

(b) 100 percent of foreign expenditures ex-factory, 100 percent for localexpenditures, and 65Z for other local expenditures procured locallyfor all materials, equipment, miscellaneous equipment and machinery,motor vehicles, water meters and training equipment;

(c) 100 percent of total expenditure for consultancy, advisory andtechnical assistance services; and

(d) 100 percent of total expenditures for training costs.

4.21 In order to facilitate timely provision of funds for the project, theGovernment would establish a Special Account in the amount of US$3.0 million withBangladesh Bank, for eligible expenditures under the project. Disbursementswould be made on the basis of statements of expenditure (SOEs) for contracts forworks less than US$300,000, goods less than US$200,000, consulting firms lessthan US$100,000 (or US$50,000 for individual consultants) and training less thanUS$100,000 equivalent. For all other contracts above these limits, includingsingle source (individual consultants), disbursements would be made on the basisof standard documents. Documentation supporting SOEs would be retained in thePIU, and made available for review by IDA upon request.

H. Retroactive Financing

4.22 To expedite implementation of the project, the Government hasrequested that advance procurement, contracting and retroactive financing bepermitted for some of the contracts. The estimated value of this retroactivefinancing is US$2.0 million. This would finance part E of the project,consisting of: (a) Part I of the Leak Detection Program (para. 5.10) for theprocurement of equipment, materials and initial consulting services for leakdetection activities to commence; (b) the first phase of the Crash MeterInstallation Program, to be used for contractual services for meter installation(para. 5.8(b)); (c) preparation of designs and bid documents for ancillary works;and d) procurement of equipment and other services to support the program tocontract out DWASA's services (para. 5.8 (a)). Advance contracting andretroactive financing will be subject to the condition that the components areeligible for IDA financing at the time of procurement and that the Bankprocurement guidelines should have been followed. Expenditures incurred duringthe year after December 1995 up to the signing date will be eligible forretroactive financing.

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V. IMPLEMENTING AGENCY

A. Implementing Organization

5.1 DWASA was established under the East Pakistan Water Supply andSewerage Authority Ordinance of 1963, as an autonomous body to provide adequateand safe drinking water and sewerage facilities in the city of Dhaka. DWASAoperates under the Ministry of Local Government, Rural Development andCooperatives (MLGRDC). Its functions are to construct, improve and operate watersupply and sewerage works, and other facilities to improve environmentalsanitation in the city. The Ordinance spelt out the extent of Government controlover the day-to day operations of DWASA by requiring that DWASA be guided onmatters of policy by such directions as the Government may, from time to timegive. In addition to water supply and sewerage, DWASA was in 1989 given theresponsibility of operating Dhaka's stormwater drainage system. DWASA's servicearea, which includes the city of Narayanganj, has been divided into sevengeographical areas for purposes of operation and maintenance.

B. Organization Structure and Management

5.2 The original WASA Ordinance stipulated that DWASA would have a Boardof Directors consisting of thirteen members, mainly officials of the Government.This arrangement was however not efficient in that as government bureaucrats, theBoard members had no decision-making authority and deferred all policy decisionsto the Government, through MLGRDC. The Ordinance was later amended to revise theBoard composition and create an internal Board of Directors, consisting of threepeople. This internal Board operated along functional lines, e.g., Finance,Engineering, Administration; and the incumbents were effectively managers ofDWASA, without any policy responsibility. DWASA was headed by a Chairman,appointed by the Ministry of Local Government and responsible for the day-to-dayoperations of the authority. Key decisions regarding staffing, investmentdecisions, remuneration and tariff setting were however made by the Governmentand DWASA effectively operated as a Government department. Under the reformprogram in the proposed project, GOB has enacted a new WASA Ordinance tostrengthen and streamline DWASA's Board, commercialize its operations, and giveand DWASA more autonomy. The new Board consists of seven members most of whomhave been has been selected from outside the Government. The objective of thisstreamlining is to create a Board along the lines of commercial utilities.Additionally, the Board's role on policy matters relating to corporate planning,tariff setting, staffing and appointment of senior staff has been clearly speltin a Policy Statement, adopted by DWASA with the objective of separating of theroles and responsibilities of the Government, the Board, and management. Underthe new structure, the Government's role will be limited to that of ashareholder, setting the general policy environment within which DWASA willoperate, while the Board's overall responsibility would be the implementation ofthe Government's policy. In addition, the appointment of the Chairman and seniorstaff would be on the basis of recommendation of the management. The revisedWASA Ordinance was reviewed by IDA during preparation and found satisfactory.A Policy Statement describing the functions and responsibilities of the new DWASABoard shown at Annex 2.2, has been adopted.

5.3 DWASA's present organization structure is divided along threefunctional departments, viz., Administration, Engineering and Commercial. TheAdministration Department provides the administrative support services, including

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public relations. The Commercial Department handles the billing and collection

of revenues, and provides the accounting and financial control functions. TheEngineering Department is responsible for operating and maintaining the utilitysystems and in implementing project. DWASA's current organization structure andthe proposed new structure are attached at Annex 10.1. Under the project, an

organizational study will be undertaken to identify the features essential to an

effective organization and set up an incentive system for DWASA staff. Thisstudy will be undertaken and the results implemented under the Twinning Program.An additional organization change is the creation of profit and/or cost centers,

in order to introduce transparency and accountability in DWASA's operations. Thenew structure will separate water production from distribution, and a transfer

price will be established between the two units. The Twinning ProgramConsultants will assist DWASA in finalizing the reorganization and in setting up

the accounting system and the staffing for each profit/cost center.

C. Operations and Maintenance

5.4 DWASA's operational performance is affected by several institutionalweaknesses. These include production and distribution inefficiency; inadequateperformance monitoring; inefficient billing and revenue collection practices; a

very high level of unaccounted-for water; poor institutional management and lackof clear regulatory responsibility. Maintenance is carried out in response to

consumer complaints and component failures. Routine maintenance is not usuallyplanned or allocated adequate resources. Maintenance is also hampered by lack

of proper spare parts and procurement planning. Because much of the system is

over thirty years old, leakage is very common, leading to substantial water loss.To improve operational efficiency, the Twinning Program will focus on improved

operations and maintenance, management efficiency, and implementation of improved

utility management practices. The Twinning Program will cover operations andmaintenance, billing and collection, metering, financial management and training.Terms of Reference for this program are shown in Annex 8.1. The signing of the

contract for the Twinning Program Consultants will be a condition ofeffectiveness.

5.5 Under the Third Dhaka Water Supply Project (Credit 1734-BD), a pilot

leak detection program was undertaken in two zones to identify physical leaks andimplement a program to rehabilitate the distribution system. A Consumer Surveywas also completed in May 1993 to identify and correctly classify all consumers,and upgrade DWASA's customer data base. To improve systems maintenance, a LeakDetection and Rehabilitation Program will be implemented under this project as

a follow-up to the program in the previous project (para. 5.10). To furtherimprove operational efficiency, the reform program also includes actions toestablish and enforce accountability by requiring DWASA to meet agreedoperational and financial performance targets. These will be enforced through a

Performance Agreement to be signed -between DWASA and the Government which willset out the operational, implementation and financial performance targets thatDWASA should achieve yearly. Some of the targets will include: (i) achievementof agreed operating cost or revenue levels every year; (ii) reduction inunaccounted for water to agreed levels every year; (iii) reduction in accountsreceivable to agreed levels each year; and (iv) implementation of an acceptableconsumer connection program.

5.6 To further improve DWASA efficiency, a strategy study will beundertaken in the project to assess options for private sector participation in

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DWASA, and mobilization of private financing for its investment program. Thesigning of a contract for the study will be a condition of effectiveness, andimplementation of the results of the study a dated covenant. Draft terms of

reference are shown at Annex 3.3.

D. Billing and Collections

5.7 Currently, about 110,177 of DWASA's 160,080 (about 69%) consumerconnections are metered. The remaining unmetered connections are billed on thebasis of plot size and property value, regardless of the amount of waterconsumed. It is believed that the amount of actual consumption from non-meteredconnections is significantly much higher than DWASA's estimates. DWASA carriesout meter readings on a bi-monthly basis, with half of the consumers billed in

one month and the remaining consumers billed in the following month. Billingprocedures have improved over the past five years, under initiatives undertakenunder the Third DWASA Project. However, more improvements are still required to

increase billing efficiency and reduce the level of un-billed water. Collectionshave always lagged behind billings, and between 1990 and 1993, DWASA's revenuecollections were about 80% of billings, and accounts receivable arrears were

about 6.5 months of billings. A major problem is irregular payments by theGovernment for water supplied to Government departments and other publiccorporations. Other problems include lack of an effective disconnection policyand lack of a reliable information base on consumer accounts, which results insome consumers not being billed.

5.8 Under the Third Dhaka Water Supply Project (Credit 1734-BD), aConsumer Survey was undertaken to record and correctly classify all DWASAcustomers. Using this information DWASA embarked on a program to disconnectaccounts over six months in arrears, implement computerized billing system andupdate its billing records. This has resulted in some improvement in the levelof billing. This data base will also be used in the preparation of action plansunder the proposed project to improve billing and collection efficiency. Theprograms and actions to be undertaken to improve billing and collection andefficiency are as follows:

(a) contracting Out DWASA Services: As part of an efficiency drive toimprove billing and revenue collection, DWASA will commence a programto contract out some of its services to local contractors. Detailsof the program and contract outline are attached at Annex 2.4. Thecontract calls for the reading of meters, preparation of bills,delivery of bills and follow-up of defaulters in case of non-payment.The program will start in two zones of DWASA's service area, whichwere selected, among other things for potential revenue gains. Theexperience gained in these two zones will be used for planning futureactivities.

(b) Crash Meter Installation Program: To reduce unmetered consumption,the project includes the implementation of crash program to installmeters in unmetered connections, to achieve a metering level of 95%of its accounts by June 1998. The contract for the program has beensigned and work has started.

(c) Legislation to Reduce Water Loss: As part of the amendment to theDWASA Ordinance, DWASA will be required to introduce regulations and

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enact measures to reduce water loss, including penalties for obtainingDWASA water illegally. The measures have been incorporated intoDWASA's regulations, prepared under the revised Ordinance. A newlyformed unit called the System Monitoring and Water Prevention Circlewill be responsible for monitoring waste and illegal activities, andenforcing penalties.

(d) Reduction of Public Sector Arrears: Of DWASA's total receivables,arrears from government departments and public corporations comprise

- about 21%. Payment for these accounts are irregular, and accumulatedarrears adversely affect DWASA's cash flows. The Government hasagreed to take action to address the problem. The Government reducedthese arrears to no more than ninety days as a condition ofnegotiations, and has now put in place mechanisms to address publicsector arrears including timely budgetary allocation of funds.

(e) Billing and Collection Performance Targets. As part of theperformance objectives to be agreed between DWASA and the Government,DWASA will be required to maintain its accounts receivables arrearsto no more than four months of its total billing by June 1998. Thiswill also be incorporated into the Project Agreement with IDA.

E. Unaccounted for Water

5.9 During a pilot leak detection and waste prevention program undertakenin one operating zone, completed in 1991, it was estimated that, of the totalwater produced by DWASA in that zone only 44% was billed. The remainder wasattributed to administrative losses, (31%) and technical losses (25Z). The majorfactors contributing to administrative losses were: (i) incomplete customer database; (ii) unmetered service connections; (iii) illegal and illegallyreconnected service connections; (iv) inaccurate and tampered meters; and (v)wrong meter reading, faulty invoicing and rent seeking behavior by revenueinspectors. Technical losses were mainly caused by leaking pipes, serviceconnections, inoperational fittings, and overflow from tanks and pump stations.Although reliable information is not available, DWASA's systems' losses arebetween 45% to 50%.

5.10 The proposed project includes a comprehensive Leak Detection andDistribution System Rehabilitation Program, to cover the remaining zones in theDWASA service area. Results from the pilot program show that such a program willreduce the level of unaccounted-for-water significantly. The Leak DetectionProgram will be undertaken in three phases. Phase I is an Immediate ActionProgram and Training for revisiting the pilot areas completed under the Credit1734-BD, while Phase II would cover about 70,000 service connections, over aperiod of three years, and Phase III would cover the remaining 80,000 serviceconnections. The training to be undertaken in Phase I will consist of: (a)preparation of maps and drawings of DWASA service area; (b) checking of availableinstrumentation for performance, ordering of new instrumentation, and trainingof staff in their operations and maintenance; (c) reporting leaks as originallydone in the service area to update the distribution network drawings; and (d)analysis of results and updating of programs for infill, extension andrehabilitation works.

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5.11 The first phase program is in progress. To facilitate theimplementation of the program, DWASA created the System Monitoring and WasteControl Circle, whose responsibilities will be to coordinate all leak detectionactivities, procure all required equipment, materials and services, and monitorwater use in DWASA service area and enforce measures to conserve water and reducewasteful water practices. The proposed program would reduce technical systemslosses. Terms of reference for the second and third phase activities are shownat Annex 7.1. Together with other initiatives to reduce administrative lossesdescribed above, it is expected that unaccounted for water will be reduced to 30%by 2001. Achievement of these targets of unaccounted for water will beincorporated in the Performance Agreement to be signed between DWASA and GOB(Annex 2.3).

F. Personnel Management and Training

5.12 DWASA's management and staff lack accountability, and do not haveincentives to perform duties efficiently and effectively. Management also lacksthe necessary skills and experience to manage and operate the institution, andthere are no clear institutional performance objectives and targets. DWASA'sstaff is generally engineering oriented and the technical staff are of reasonablequality. There is, however a general lack of capability and weakness incommercial and accounting section staff, in particular, revenue and meterinspectors. In addition, DWASA is responsible for the operation and maintenanceof the Dhaka stormwater drainage system for which it has no technical staff.

5.13 As of January 1996, DWASA had a total staff of about 3,020 on apermanent basis. This translates to a staffing ratio of about 20 employees per1,000 connections, which would be considered high by most standards. However,the staff/connection indicator does not provide a full picture of the staffingsituation in DWASA. First, given the low cost and efficiency of labor incountries like Bangladesh, labor tends to be substituted for capital, thus DWASAis less capital intensive than other utilities in developed countries. Second,in Dhaka, a lot of DWASA residential consumers live in apartment buildings whereconsumption is not always individually metered; thus service to an apartmentbuilding appears in DWASA's records as one connection. This limits the numberof connections and undermines the number of consumers. A more representativeindicator of staff efficiency would be the ratio of personnel costs to operatingcosts. This has been around 15% in DWASA, considerably lower than otherdeveloping or developed countries. While the project will not recommend areduction in staff, IDA will seek assurances that DWASA would only hireadditional staff based on needed expansion of service and scope of operations.In addition, DWASA's Board will review its staffing structure on a regular basisto determine required staffing levels. This will be incorporated in thePerformance Agreement to be signed between the Government and DWASA.

5.14 To improve DWASA's efficiency, there is need to modify theorganizational structure to rationalize staff responsibilities, introduce asystem of incentives to staff commensurate with their performance, and improvetheir skills through appropriate training. The following actions will beintroduced under the proposed project:

(a) the appointment of an experienced managing director and appropriatelyskilled deputy managing directors from the private sector to headcritical units, e.g., commercial and finance; water production,

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distribution and administration, with -measurable objectives

established for judging their performance. To attract staff with thenecessary skills and experience, these managerial positions willinitially be filled by local contract staff on fixed termappointments, to be initially financed from the project, but gradually

transferred to DWASA. The Managing Director has been appointed. ByMarch 1997 DWASA shall appoint Deputy Managing Directors for Financeand Administration, Technical and Planning and DevelopmentDepartments.

(b) provision of technical assistance under the project to help DWASAimprove its management and technical capabilities to improve

efficiency in operations. This technical assistance will be through

the management operational support (twinning) program. The twinning

arrangement would be rendered over a period of four years, but

renewable every year with long and short term personnel, whoseduration would be determined during implementation, to provide themost effective transfer of knowledge to assist the Managing Directorand his deputies. A critical task of the program will be to develop

performance objectives on which management and staff performance wouldbe assessed, and which would form the basis for performance incentives

and penalties. Terms of reference for the Twinning Program are at

Annex 8.1. In addition, preliminary studies leading to further

privatization be undertaken in the project, with the objective of

signing of a contract by mid-term review of the project. Terms of

reference for the preparatory activities are at Annex 3.3.

(c) a staff rationalization program to be carried out by June 1997 underthe Twinning Program to assess staff strength and weaknesses, and toensure that staff are re-assigned to areas with staff shortages; and

(d) training programs in various areas, with emphasis on the commercialoperations of water utilities. The training programs will be

developed under the management operational support (Twinning) Program.

Additional training is being provided under the first phase of theLeak Detection and Rehabilitation Program (para. 5.10). Included inthis is an incentive system to be financed by DWASA, to motivate staffworking on leak identification and rehabilitation. DWASA has alreadyapproved an incentive system for the staff on the leak detectionprogram, in line with the proposals made by IDA.

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VI. FINANCIAL ANALYSIS

A. Past and Current Financial Situation

6.1 DWASA's audited financial statements for FY92 to FY95 and projectedstatements from FY96 to FY2001 are detailed at Annex 11.2 and summaries of thepast and current statements are shown in Table 5.1 below.

Table 5.1 Past and Current Financial Statements

Income Statement

FY92 FY93 FY94 FY95('000) ('000) ('000) ('000)

Total Revenue 479,030 659,024 821,579 992,906Direct Expenses 330,772 403,099 491,739 552,877Administrative Expenses 66,740 86,661 123,547 145,390

Income before Depreciation 81,518 169,264 206,293 294,631Depreciation 115,701 117,927 140,669 126,303Interest 35,706 107,794 166,114 201,547

Other Income 74,464 67,548 32,568 33,219Net Earnings 4,575 11,091 (68,923) 36,407

Balance Sheet

FY92 FY93 FY94 FY95('000) ('000) ('000) ('000)

Total Fixed Assets 5,190,929 6,116,086 7,021,588 8,000,197Current Assets 1,847,431 1,747,716 1,567,003 1,915,168Total Assets 7,038,360 7,886,802 8,588,591 9,915,365

Equity 5,285,500 6,006,410 6,874,432 7,931,051Long-term Liabilities 1,596,758 1,755,298 1,510,759 1,725,061Current Liabilities 156,102 102,094 203,400 259,253Total Equity/Liabilities 7,035,360 7,863,802 8,588,591 9,915,365

Debt/Equity Ratio 23.20% 22.61Z 19.93% 17.76%

6.2 DWASA's past audited income statements show that between FY92 andFY95, its total operating revenue increased by about 107% (i.e. 38% between FY92and FY93, 25% between FY93 and FY94 and 21% between FY94 and FY96). Theseincreases were partly due to tariff increases of 10% in October 1991 as anadjustment against power cost increases, 15% in October 1992, and 10% in November1993, and increased water production as a result of new tubewells commissionedunder the Third DWASA Project. Despite these revenue improvements, DWASA'sperformance was not altogether satisfactory. Net profits fluctuated frommarginal profits in FY92 and FY93; a loss in FY94 and a profit in FY95. Electric

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power costs (representing 56% of operating expenditures) increased by 83% mainlydue to increased pumping costs as a result of the drawdown of the groundwatertable in the service area. Interest charges also increased significantly during

the period, particularly in FY94, due to new loans incurred by DWASA.

6.3 DWASA's cash flow statements showed positive annual cash balances inFY92, FY94 and FY95 and huge accumulated cash balances because:

(a) it did not service principal and interest due on its loans because oflack of proper records in the Ministry of Finance (MOF). This leftDWASA with cash balances equivalent to the unpaid amounts (e.g., inFY92, interest due according to the income statement was Taka 35.7million, and interest actually paid, according to the cash flowstatement was Taka 15.0 million); and

(b) annual development grants disbursed by GOB and donor agencies forinvestment programs, without regard to actual annual work programs tobe implemented, resulted in cash balances being carried forward, thus

enhancing DWASA's cash flow position.

These issues reveal the lack of financial accountability that exists in DWASA.More importantly, they also reveal the lack of accountability and weakness withinthe government establishment responsible for monitoring and enforcing payment ofactual debt service due. They also reveal weaknesses in audits, which shouldhighlight these issues. While accountability within DWASA would be addressedunder this project, the lack of proper debt service records in MOF, a systemicproblem affecting all Government agencies in Bangladesh, requires wider reformsof public sector and civil service practices.

6.4 DWASA did not always meet the covenants agreed for the Third DWASA

Project (Credit 1734-BD) although overall, actual performance was close to theagreed covenants, which were to achieve a rate of return on fixed assets of 5%beginning in FY91 (DWASA's rate of return was 2.3% in FY92 and 4.7Z in FY93);reduce accounts receivables arrears to six months of billings (DWASA achieved aratio of 6.35 months in FY92 and 5.9 months in FY93 and 4.0% in FY94); and meet

subsidiary loan obligations. Outstanding debt service arrears were alwayscapitalized into new debt.

6.5 DWASA's erratic performance is due to a number of reasons, some ofwhich are:

(a) Inefficient operations: Despite high tariffs and low cost operations,DWASA is an inefficient operator. These inefficiencies are passed onto consumers in form inadequate service coverage, low quality supplyand high tariffs.

(b) Unaccounted for water: The level of unaccounted for water, estimatedto be as high as 50% (para. 5.9) reduces actual revenue substantiallyand increases unit operating costs.

(c) Collections: DWASA was unable to collect all of its revenue billed;the ratio of collections to billings fluctuated between 75% to 80Zduring the period. Some of the collection problems stem from consumerresistance to pay for poor service, irregular payments by the

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Government for service provided and lack of a reliable system forarrears follow-up and disconnection.

DWASA however had adequate cash reserves to service its debt (para. 6.3). As acondition of appraisal, DWASA paid GOB Taka 400 million in FY94 to reduce itsdebt service arrears.

6.6 Under the project, initiatives to be taken to improve revenueperformance include the following:

(a) commitment by DWASA to achieve agreed levels of financial performanceand cost recovery. These performance objectives will be establishedin the Performance Agreement to be signed between DWASA and theGovernment. The performance indicators to be achieved are shown atAnnex 12, and include collections to billings ratios; debt servicecoverage; receivables/billings and debt/equity;

(b) an agreement by GOB to grant autonomy to DWASA to adjust tariffs onan annual basis, based on an agreed inflation index. This agreementwould be reflected in the Operating Policy Statement which would formthe basis for DWASA operations;

(c) a comprehensive leak detection program (para. 5.5) to reduce technicalwater losses, the Crash Meter Installation Program (para. 5.8(b) toreduce unmetered connections and the program to contract out billingand collections to enhance revenues (para. 5.8(a).

B. Balance Sheet and Fixed Assets

6.7 DWASA's audited balance sheets for FY92 to FY95 are shown at Annex11.2. DWASA's long terms assets include stormwater drainage assets which weretransferred from DPHE in 1989, and water and sewerage investments financed by IDAcredits, ADB loans, and Japanese grants. Over 90% of DWASA's outstanding loansare from IDA. DWASA's debt to equity ratio was about 20:80 during the period inreview, which indicates that DWASA is low leveraged. This is due to the factthat: (a) Government allocations to various DWASA investments are usually in formof grants and equity; (b) apart from IDA and ADB loans, there are apparently noonlending terms for other bilateral funds transferred to DWASA, which are shownas grants in its balance sheet; and (c) the value of drainage assets transferredfrom DPHE in 1989 was treated as equity in DWASA's accounts. Because of this,the level of equity increased much faster than debt during the years in review.DWASA's debt level is, however, high when compared to the level of itsoperations. In FY93, total debt service was 42% of revenue. With theintroduction of additional loans under proposed project, DWASA's debt obligationswill be higher. Improvements in efficiency, reductions in water losses andregular tariff increases will therefore be critical to generate more revenues andimprove asset utilization. These issues are being addressed under the projectthrough performance enhancements and agreed targets, tariff increases to enableDWASA to cover its costs, including additional debt service.

6.8 DWASA's current ratio, which ranged from 11.8:1 in FY92 to 7.3:1 inFY95 is high by any standards. This ratio reflects: (a) uncollected revenuearrears for water billed including arrears from Government departments some ofwhich have been outstanding for years; (b) a high level of stocks for materials

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and consumables, e.g., pipes, valves, meters which were procured under previousprojects, but never used, and some of which are now unusable and obsolete; (c)a high level of advances for materials, representing funds advanced tocontractors, which are not reconciled with contractor's payments; and (d) a lowlevel of accounts payable due to the nature of its operations (payables mainlyconsist of outstanding amounts on power bills). Actions to be taken under theproject to address these issues are:

(a) agreement with the Government on a system of allocating adequate fundsto Government departments and public institutions to enable them topay water bills and arrears in time. This would be included under thePerformance Agreement whereby DWASA would be allowed to offsetoutstanding public sector arrears with debt service payments due tothe government in case of continuous failure to make payments toensure that by June 1997, public sector arrears are no more than 90days of billings.

(b) an assessment and evaluation of all stores and inventories by March1997, and agreement to sell or dispose all mismatched, obsolete andslow-moving stocks by December 1997. These actions will be datedcovenants and defined in the Performance Agreement;

(c) an assessment of all receivables to identify all uncollectible arrearsby March 1997 and agreement to write off uncollectible amounts byDecember 1997. These actions will be defined in the PerformanceAgreement; and

(d) under a program to improve DWASA's accounting system to be undertakenunder the Twinning Arrangement, a reconciliation of outstandingadvances and writing off uncollectible amounts.

C. Current Water and Sewerage Tariffs

6.9 DWASA has separate tariffs for metered and non-metered customers. Themetered charge (which applies to about 76% of its customers) is Taka 15.84 per1,000 gallons for domestic consumers and Taka 51.48 per 1,000 gallons forcommercial and industrial users. Unmetered customers are charged on the basisof the valuation of the property supplied with the connection. Currently, thisis 22.62% of the annual valuation of the property for residential, community andindustrial buildings, prorated on a monthly basis. The sewerage charge is 100%of the water tariff for all water and sewer connected buildings. A reduced waterand sewer rate applies to properties with water supply but unconnected to a sewerline that is within 100 ft. Annex 11.3 shows current tariff rates and othercharges and proposed tariff structures.

6.10 DWASA's tariffs, which are currently regulated by the Government, donot reflect DWASA's cost structure and are not designed to respond to changes inDWASA's financial requirements. Tariff increases have been irregular in thepast. However, since 1985, adjustments have been more regular, with GOBauthorizing tariff increases of 10%, 15% and 10% between FY91 and FY94, resultingin a total increase of 39Z. Even with these recent increases, which makesDWASA's tariffs high by South Asia standards, DWASA is still unable to fully meetits total costs. Tariffs do not properly reflect the cost of service providedto consumers because: (a) they convey the wrong economic signals, since

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inefficiencies and distortions (e.g., systems losses) are passed on to consumers;(b) they do not give adequate guidance on whether there should be cross-subsidiesor the degree of such subsidies to the poor; (c) they do not provide enoughjustification on the charges being applied to small, large, domestic orcommercial consumers; (d) they do not reflect externalities, (e.g., the cost oftreating pollution to the water supply and how this would be reflected in thecharges); and (e) being non-progressive, they encourage wasteful waterconsumption practices, particularly among upper income and unmetered consumers.

6.11 To address these concerns, a Tariff Study was completed thatrecommended a revised tariff structure. The new structure is progressive, andwould enable DWASA to address the needs of affordable water supply for the urbanpoor and allow it to meet its financial requirements. Implementation of therevised system would be a dated credit covenant. Tariff increases would beincluded as part of the performance objectives, to be enforced under thePerformance Agreement. Agreement has also been reached that after theimplementation of the revised structure, DWASA will be allowed to raise tariffsannually by up to 5% as needed to reflect inflation, without Government approval.A 10% tariff increase was implemented in FY94, as a condition of preappraisal.

D. Financial Proiections

6.12 DWASA's financial projections, and the assumptions used in developingthem are given in Annex 11.1 and 11.2. These projections are summarized below.

Table 5.2 Projected Final Statements

1996 1998 2000

Income Statement('000)

Revenue 1,081,711 1,518,116 2,045,500Working Expenses 760,374 1,005,909 1,365,934Depreciation 149,037 211,704 206,985Interest 164,913 327,157 425,961Net Earnings 24,271 7,598 82,297

Balance Sheet('000)

Total Fixed Assets 9,903,488 12,969,815 13,629,465Current Assets 2,028,436 2,339,204 2,867,590Total Assets 11,931,924 15,309,018 16,497,055

Total Net Worth 8,914,830 10,008,571 10,491,026L.T. Loans 2,731,510 4,950,945 5,500,320Current Liabilities 285,584 349,502 505,709Equity/Liabilities 11,931,924 15,309,018 16,497,055

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6.13 A major objective of the project is to improve the operational andfinancial performance of DWASA. The proposed strategy is to cover all costs of

operations, including debt service within a period of four years, by FY99.Improvements in DWASA's financial performance will come about as a result of: (a)

regular and automatic tariff adjustments tied to the Bangladesh inflation indexto cover increases in operating costs, as agreed annually between GOB and DWASA

and reflected in the Performance Agreement; (b) efficiency gains from operationaland financial improvements expected under the reform program, and through theTwinning Program; (c) increased revenue from additional sales volume generated

by the proposed project and other initiatives, including the program to contract

out billing; and (d) reduced water losses as a result of the Crash Meter

Installation Program, and the Leak Detection and Rehabilitation Program. The

proposed efficiency improvements, including estimated tariff increases will be

incorporated into the Performance Agreement (Annex 2.3), which will be reviewed

by IDA and GOB to ensure compliance by DWASA.

E. Performance Monitoring and Evaluation

6.14 DWASA has made some efforts to improve its planning capability and

management information systems over the last five years. Under the Third DWASA

Project, IDA assisted in this effort by helping to develop management informationsystems and to improve efficiency. However, DWASA's systems are still inadequate

and further improvements are needed to help it accurately forecast its finances,revenue and water demand, which are critical to its planning and financial

viability. Currently, budgetary control is very weak and needs to be improved

significantly. Improvements in planning, budgeting and financial reporting would

be introduced under the Twinning Program being undertaken is the project.

6.15 A set of operational and financial monitoring indicators developedduring project preparation are attached at Annex 12.1. These indicators willconstitute the basis for reviews by GOB and IDA on DWASA's financial and

operational performance during the period of project implementation. Particularattention will be paid to the level of unaccounted for water; billings/accountsreceivable ratio; percentage of water connections with meters, and service

coverage. These monitoring indicators will be included in the PerformanceAgreement between DWASA and GOB, and will have the same legal standing as

covenants in the Project Agreement.

F. Accounts and Audits

6.16 Although the WASA Ordinance specified that DWASA would maintain asingle entry accounting system, DWASA has now adopted a double-entry accrualbased commercial accounting system, as required under previous IDA creditcovenants. The system is however not fully efficient to allow DWASA to operateas a well managed commercial concern. First, the system is still manual, andfinancial statements are prepared only once a year and seem to be geared mainlyto fulfilling IDA and GOB reporting requirements rather than as a financialmanagement tool. Under the project, the financial management system would beimproved to provide financial results promptly on a monthly basis and atoperational unit level. DWASA will first conduct a full review of its system,prior to the appointment of the Twinning Program Consultant as a basis for theimplementation of a computerized improved information and accounting system thatfacilitates the preparation of a balance sheet, profit and loss statement,

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sources and application of funds statements, and other reports necessary forDWASA's financial management, on a monthly basis throughout the financial year.Terms of Reference for the review were discussed during appraisal and found tobe satisfactory. Implementation of the new system will be undertaken under theTwinning Program.

6.17 Currently there are three levels of audits in DWASA:

(a) Internal Audit: This is mainly an integrated function associated withthe approval procedures for payments, and matters such as financialauthority limitations for senior officers. It does not checkinconsistencies in accounting systems, cash collections, billingprocedures, or advances to contractors.

(b) Government Audit: This is a compliance audit to ensure thatGovernment authority levels have not been exceeded, that proceduresare carried out as directed, that pay scales are followed, etc. Thisaudit, normally carried out by the Comptroller and Auditor GeneralBangladesh (Directorate of Audit) also reviews project specificaccounts to ensure that the project funds are used for the purpose forwhich they were approved; and

(c) External Audit: Under the old WASA Ordinance, the Governmentappointed an external auditor, normally a public accounting firm. Theauditors produce a long-form report, which in other countries wouldbe regarded as management letter. Under requirements from previousIDA credits the auditors also provide a separate opinion on DWASA'sStatement of Expenditure Accounts and Project Accounts. However, thereports are of limited acceptability as they are not based uponaccepted international accounting and auditing standards.

6.18 The above arrangements will continue under the proposed project, andthe external audit would be enhanced by requiring that DWASA appoint auditors ofacceptable quality on a three year contract. To ensure that audited statementsare prepared in time, an agreement will be sought with GOB to have the statementssubmitted to IDA within six months of the end of the fiscal year, i.e., December31, each year. Beginning in FY97, the authority for appointment of auditors andremuneration will be delegated to DWASA Board.

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VII. ECONOMIC AND SOCIAL ANALYSIS

A. Proiect Benefits

7.1 The proposed project would introduce the first primary water treatmentplant in Dhaka and would therefore provide urgently needed safe water to thearea, relieving current water shortages, particularly to areas that are currently

not served by piped water. The project, when in full operation will supply 223

million cubic meters (50 IMGD) of potable water, equivalent to the consumption

requirements of 2.3 million people. This will be the joint contribution ofadditional capacity provided by the Saidabad treatment plant and the loss

reduction activities. The economic value of this additional supply isconsiderable because it will reduce costs and allow an increase in consumptionby low income groups. These groups pay as much as Tk. 27.00 (US$0.675) per cubic

meter for water purchased in small volumes and consume as little as 30 lpd(liters per capita per day), while the current DWASA price of water for

residential connection is Tk 3.49 (US$ 0.09) per cubic meter, and consumption ofthe population served with direct residential connections, although low, is about

90 lpd.

7.2 The population of Dhaka as a whole will benefit from the additional

supply since it currently consumes an average of 90 lpd. The economic price of

this consumption is nearly Taka 15.00 (US$0.375) per cubic meter. The value of

the additional supply is therefore significant, as expected in a large and

growing city with relatively low consumption due to supply restrictions, large

water deficits, low coverage, and high costs for those without direct waterservice.

7.3 Without the proposed project, water shortages would become morecritical, and it is estimated that, with the current population growth of the

City of Dhaka (estimated at 4%) per capita consumption in Dhaka would have todecline and water supply coverage for the service area would drop from the

current 65% to about 45% by the year 2001.

B. Economic Rate of Return and Least-Cost Solution

7.4 The economic analysis of the project is shown at Annex 13.1 The

economic rate of return for the project is estimated at 22%. Net benefits amountto Tk 4,823.93 million (US$120.60 million) which are more than 60% of the project

costs. This means that even if costs increase by 60%, the project will still beeconomically feasible at a 10% discount rate. Moreover, if only 60% of the

estimated benefits are obtained, the project is still economically feasible. The

main factor affecting project feasibility is the value of water since, asmentioned previously, the willingness to pay is substantial and the estimatesused may be conservative, given the critical water supply situation in Dhaka andits possible development in the coming years. It must be noted that the

population growth estimates may also be conservative for a country with a largerural population, few medium or large cities and high rural to urban migrationrate.

7.5 The proposed project represents the least cost solution and bestalternative. Four options were considered, which included the installation of

additional deep tubewells; the conjunctive use of groundwater and surface waterand two surface water treatment options. Because of the decline in the water

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tables in the Dhaka area which has increased abstraction costs and limited theavailability of ground water in the Dhaka area, the continued use of groundwaterwas not feasible as a solution to provide the required equivalent of the 50 mgdwater treatment plant (paras. 2.13 to 2.16). The other surface water treatmentoptions (plant at Buriganga River) were found to be to costly because of the needfor additional land acquisition; the need for river crossing; and pollutionproblems on the Buriganga River.

7.6 It must be noted that the benefits of the project come from both theincreased capacity and the loss reduction activities. Capacity expansion itself,that is, without reduction of losses, would be an economically marginalinvestment. Its net present value would be US$67.5 million (at 10% discountrate) and its IRR is 11.9%. Although loss reduction activities are highlyprofitable in economic terms, with a net present value of US$ 18.5 million, bythemselves, they do not resolve the problem of rapidly growing deficits in anysignificant manner. Furthermore, even though the IRR is higher for the loss-reduction program, the net present value of the overall project (the first ordercondition in this case) is more than six times greater.

7.7 A sensitivity analysis of the project shows that if total investmentcosts increase by 10%, the economic rate of return is reduced to 19.5%, while areduction in revenue of about 15% (resulting from inadequate reductions insystems losses) reduces the economic rate of return to 17.8%. The rate of returnin both cases is above the 12% marginal cost of capital discount rate deemedacceptable reasonable for such projects.

C. Fiscal Impact

7.8 The project's fiscal impact is expected to be positive. Currently,the Government implicitly subsidizes DWASA's net losses through the non-servicingof debt charges by DWASA. Since the objective of the project is to reduce theselosses, this implicit subsidy will be eliminated. In addition, GOB charges a 15%tax on DWASA water and sewerage revenues. Since the project will increaseDWASA's revenues, the net revenue flows to the Government over the life of theprojects asset will be positive. The project will, therefore, not distort theGovernment's budget priorities.

D. Impact on Urban Poor

7.9 The urban poor will benefit from this project through reduced costsfor water. Currently the poor pay a high price for small volumes of waterpurchased daily. Access to direct connections substantially reduces the cost ofwater and increases their consumption. Benefits to this income group wouldinclude improved sanitation services from the sanitation component under theproject, although this is difficult to quantify. It is estimated that about 45%of the people in Dhaka are below the poverty line. The project would serve anadditional 500,000 people, and reduce suppressed demand over the DWASA servicearea. It has been estimated that the additional water supplied would serve250,000 people below the poverty line.

7.10 The provision of water through house connections to this income groupwould also have considerable impact of freeing the urban poor, particularly womenfrom the task of carrying water from public standposts. The introduction of a

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progressive tariff structure under the project would have the added benefit ofcross-subsidizing the poor, thus ensuring equity in the availability of watersupply.

E. Environmental Impact

7.11 An Environmental Impact Assessment (EIA) of the project was carriedout by BCEOM (French Engineering Consultants) with local partners EPC(Engineering and Planning Consultants Ltd.) during the period February-April1994. A Draft Final Report is available, dated April 1994. Details of theanalysis are provided in Annex 14.1. The consultants specifically investigatedthe impact of the 50 IMGD increment which would be supplied to the DWASA systemfrom the Sitalakhya River through the first phase Saidabad Treatment Plant, yetwere mindful that future additional increments of treatment plant investments (upto a total of 200 IMGD) are expected at the same site, and raw water conveyanceis expected to be located along the same route. Key environmental impactsidentified include the following:

(a) for raw water quality: positive impacts through continuing monitoringof raw water quality at source and long-term protection of waterquality, through restriction of industrial discharges;

(b) for raw water intake and transmission, construction and operation:some possible long term effects on river flows during the dry season;land based effects along the transmission alignment (both physical andsocial), short-term construction and nuisance effects;

(c) for surface water treatment plant construction and operation: long-term physical and social effects at the site, short-term constructionnuisance; and

(d) for treated water distribution network: short-term constructionnuisance, especially traffic disruption, long-term impacts on publichealth and disposal of wastewater.

7.12 Positive impacts include the provision of a 50 IMGD increment oftreated surface water supply to the DWASA system, planned conjunctive use ofground and surface (thus reducing groundwater overpumping), and improvedenvironmental management and monitoring of the water sources as a result of theWater Resources Management Study to be undertaken under the project.Commencement of the implementation of the results of this study will be a datedcredit covenant. Positive impacts will be strengthened by the concurrent programof leak detection and rehabilitation which will enable greater pressures to bemaintained in the distribution system and system integrity to be improved, withgreater amenity and public health benefits. The treated surface water is to besupplied to areas of the city where groundwater drawdown is most severe, thusallowing the groundwater resources to recover from overpumping. Potentialnegative impacts of the project include: (i) the increased discharge ofwastewater to the shallow surface aquifer through (a) household on-plotsanitation facilities, (b) the existing sewerage system, and (c) surface drainagechannels; (ii) further growth in urban development (supported by the increasedavailability of water supply through the project); and (iii) necessaryrestriction or regulation of industrial and other discharges along a stretch ofthe Sitalakhya River in the vicinity of the raw water intake (to be furtherinvestigated in the water resource management study). Mitigation measures are

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being incorporated in the project to reduce or eliminate the potential negativeimpacts associated with necessary fencing of the DND Canal, including the removaland relocation of shacks used by small businesses, the removal of domestic andcommercial washing points along the canal, and the production of large volumesof sludge. During negotiations. IDA and GOB agreed on the establishment of anenvironmental cell within DWASA to monitor water qualitV and advise onenvironmental issues, as a credit covenant.

F. Affordability

7.13 Surveys conducted during project preparation indicated that thepresent tariffs are considered affordable for both residential and industrialuse, being between 2.8% of monthly income for consumers with an average incomeof between Taka 1,000 and 3,000 to 1.0% for consumers with an average income ofover Taka 20,000. The critical test for affordability is however, the low incomepopulation. Using the minimum wage of Taka 1,400 per month and assuming a percapita consumption of 30 lpcd in a family with 6.5 people, the cost per monthwould be Taka 21.10 representing 1.5% of the minimum wage. Even with theexpected tariff revisions under this project, the monthly cost of water wouldstill be below the 5% to 7Z percentage considered standard in other countries.At a consumption of 30 lpcd, and if the current income tariffs is doubled thewater bill would be below 5% for all consumers except those with a monthly incomeof Taka 900.00.

G. Proiect Risks

7.14 The main risk of this project is delays in implementation of thevarious components of the project, causing postponement in overall projectcompletion. DWASA has adequate experience in the implementation of World Bankfinanced projects, and with the assistance of consultants for constructionsupervision, the proposed project should be implemented without major delays.DWASA's experience was evident under the Third DWASA Project (Credit 1734-BD),in which major civil works were completed before the original closing date. Inaddition, the main civil works under the project will be contracted before Boarddiscussion of the IDA credit. This should help mitigate some of the risks ofdelays. With its own financing, GOB has already commenced the implementation oftwo components critical in the project to speed implementation.

7.15 The other major risk is the possibility that the Government and DWASAmay not follow through with the reforms under the project, due to politicalconstraints, and possible resistance to reforms by major interest groups. Tominimize this risk, IDA's project processing was preceded by continued policydialogue with the Government. The risk was approached by requiring the takingof upfront action on the reform programs as a means of demonstrating commitment.The National Cabinet has approved a program of reform. The Government is in theprocess of amending the regulatory framework, recruiting private sector managers,and has started the Leak Detection program. Annual comprehensive reviews and amid-term review of project progress against specific performance objectives wouldprovide opportunity for corrective action if necessary.

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VIII. AGREEMENTS TO BE REACHED AND RECOMMENDATION

8.1 During negotiations, the following was agreed with DWASA/GOB:

(a) to carry out resettlement activities in accordance with IDA'sresettlement and rehabilitation guidelines (para. 4.5);

(b) the content and timing of the mid-term review, includingbenchmarks for assessing progress against objectives (para.4.12);

(c) format for progress reports, including information to be providedin the reports (para. 4.13);

(d) carrying out a strategy study to assess privatization options andcommencement of the implementation of the results of the studyby February 28, 1998 (para. 5.6);

(e) by June 1998, maintain its accounts receivable arrears to no motethan four months of its total billings (para. 5.8(e));

(f) by June 1997, appoint the Deputy Managing Director for Financeand Administration, Technical and Planning and Development (para.5.14(a));

(g) by June 1997, carry out a staff rationalization program to assessstaff strengths and weaknesses (para. 5.14(c));

(h) establish a system to reduce public sector arrears and maintainthem at no more than 90 days of public billing (para. 6.8(a));

(i) conduct an assessment of stores and inventories by March 1997 anddispose off all mismatched, obsolete and slow moving stocks byDecember 1997 (para. 6.8(b));

(j) conduct an assessment of all receivables to identify alluncollectible arrears by March 1997, and write off uncollectibleamounts by December 1997 (para. 6.8(c));

(k) DWASA to have its records accounts and financial statementsaudited and furnish to IDA copies of such audits within sixmonths of the end of the fiscal year (para. 6.18);

(1) commencement of the implementation of the results of the WaterResources Management Study by January 31, 1998 (para. 7.12); and

(m) establishment of an environmental cell within DWASA to monitorwater quality and advise on environmental issues by March 31,1997 (para. 7.12).

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8.3 The following are conditions of credit effectiveness:

(a) the execution of a Subsidiary Loan Agreement between DWASA andGOB to cover the onlending terms of the credit to DWASA (pars.3.13) and the signing of a Performance Agreement between DWASAand GOB, to cover performance indicators to be achieved by DWASA(para. 6.6(a));

(b) the signing of the contracts for the sanitation Program andTwinning Program, (para. 4.4);

(c) commencement of the strategic study to assess private sectoroptions (para. 5.6); and

(d) execution of the French and Japanese Grant Agreements (para.3.13).

8.4 With the above agreements and assurances, the proposed projectwill constitute a suitable basis for an IDA credit of SDR 51.0 million (US$80.3million equivalent) on standard IDA terms with 40 years maturity to the People'sRepublic of Bangladesh.

Annex 1.1Page 1 of 8

BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

Water Supply and Demand

Proiect Area

1. DWASA' a service area includes Dhaka City and the township ofNarayanganj, located to the south-east of the Dhaka metropolitan area. DWASA'sservice area is bounded by the Tongi River in the North and the Balu River in theEast, the Lakhya River in the South East and the Buriganga River in the South-West.For purposes of the proposed project, the relevant area has been defined as a partof the Dhaka Statistical Metropolitan Area, which in turn is part of Greater Dhaka.It comprises the present urbanized area which is also the Dhaka WASA Service Area,and includes Dhaka City, Narayanganj, and two suburban areas, North and South. Thearea has been divided into 36 elementary urban zones (EUZ), according to currentland use patterns. The population of each of the 36 EUZs was projected from theresults of the 1981 census, and updated during the 1993 census.

Population

2. Between 1974 and 1981, total population in Dhaka City increased by over6Z per annum. In 1981, the population of Dhaka was 2.3 million people. Thisincreased to 3.5 million in FY91. Population growth rates for the sub-urban areasare not very reliable. However, detailed population estimates for each EUZ wereprepared on the basis of: (a) the existing land use (i.e. agriculture, commercial,industrial, etc.); and (b) the expected land use patterns in future by taking intoaccount the possible extension of housing areas, the present population density andthe rate of urbanization. Population projections for the years 1994, 2000, 2010and 2020 were prepared and are summarized below in Table 1.

Table 1: Population Proiections

1981 1991 1995 2000 2010 2020

Total Study Area 2,878,180 4,816,387 5,647,991 6,778,340 9,261,394 12,618,842Dhaka City 2,273,357 3,804,140 4,355,216 5,025,655 6,174,268 7,172,236Narayanganj 197,733 252,977 313,394 414,523 598,621 785,069Suburban (North) 120,615 246,888 330,258 465,427 902,990 1,349,409Suburban (South) 286,474 512,381 649,123 872,736 1,585,515 2,910,328

The projections shows that the population of the DWASA service area will grow to6.8 million, and 12.6 million by the years 2000 and 2020 respectively. The highergrowth rates will be in Narayanganj and the suburban zones north and south of thecity, rather than in Dhaka City itself. A large percentage of this population willcontinue to live in slum areas with minimum water service and poor housing. Theseestimates seem reasonable even conservative, given probable rural-urban migrationrates in a country with a large rural population and a growing industrial base.This growth will add pressure for DWASA to increase system coverage.

Coverage

3. It is estimated that 3.53 million people (65% of the population), areserved by the DWASA system through direct household connections. Since the numberof residential connections was 130,143 (June 1994), the average number of personsper connection is about 26; there are 3 to 4 households per connection, on average.

Annex 1.1Page 2 of 8

This is high for urban standards. Actual coverage is difficult to estimate becauseof the substantial volume of floating population and slum dwellings. The meaningof service coverage is in itself particular to the characteristics of Dhaka.Coverage would be best defined in terms of access; that is, in terms of providingthe non-connected population with access to potable water not necessarily throughhousehold connections. The 1,680 stand posts (street hydrants) still inoperation' are estimated to supply water to 300,000 people. The remainingpopulation - 1.6 million people - use "neighboring" connections both legal andillegal, purchase water in small volumes from other users and DWASA trucks, and usehand pumps in fringe areas. In this context, community stand posts and other formsof delivery to irregular holdings could be part of DWASA's strategy to increasecoverage (access).

Level of Consumption

4. Current per capita production from DWASA sources, using June 1994data, is 136.45 lpd. Assuming 34% physical losses (estimated as shown in para 12),per capita consumption would be 90.05 lpd. However, DWASA supplies only a smallfraction of non-domestic (industrial, commercial, government institutions)consumption. Private deep tubewells (DTWs) supply the bulk of these sectors'consumption. For a city like Dhaka, consumption of the non-domestic sector may beas much as 24 million m for each million peog1e. This would amount to 130 millionm3 of which DWASA supplies only 13 million m . This implies an additional 59 lpdas consumption by the non-domestic sectors not presently supplied by DWASA.Therefore, total estimated consumption would be 149 lpd. This is still low for acity like Dhaka taking into account its climatic conditions and the fact that itis the country's main commercial and industrial center as well as the location ofall national government institutions.

5. Average consumption for the population with direct connections is102.18 lpd; for the non-domestic sectors combined; consumption from DWASA sourcesis the equivalent of 6.55 lpd. The 300,000 people using stand posts consumed 62lpd (assuming that 1,680 stand posts deliver 18,630 m3 daily2). The remainder ofthe population (not connected), 1.6 million people I consume 46.3 lpd, assuming thatthey "recover" 10% of production from the system . The weighted average of thesevalues is 90.05 lpd. It is estimated that I million slum dwellers consume anaverage of 30 lpd.4

1 According to some accounts DWASA has attempted to close stand posts, asregular connections are installed, because it cannot control their use. Thegovernment paid Tk 14.02 million (US$ 350,500) for water consumed from standposts in 1993-94.

2On the basis of 2,500 gallons per day per post.

3 These estimates are based on a total production reported by WASA of 740.9million 1/day (June 1994 MIR) and estimated population of 5.43 million.

4 UNICEF, Study to formulate a national policy on water, sanitation andhygiene in urban slums and fringes. Dhaka, May 1994.

Annex 1.1Page 3 of 8

Industrial and Commercial Consumption

6. Private companies mainly use their own tubewell installations for theirwater supply needs. Currently, industrial and commercial consumers connected toDWASA represent only 3,170 connections (i.e. about 2Z of total connections). InFY93, industrial and commercial consumption represented 11X of total waterconsumption, and contributed about 28Z of the total revenue. However, futureindustrial consumption from DWASA water is likely to be influenced by thegovernment policy concerning groundwater abstraction by industries, which isaffecting the levels of the water table. In this context, legislation alreadyexists to discourage industrial and commercial users from excessive groundwaterabstraction, through a levy on tubewells based on tubewell sizes. However,enforcement is lax and most industrial and commercial consumers continue to usetubewells without the payment of the levy. The Water Resources Management Studyto be undertaken under the project will recommend measures and legislation toregulate water abstraction by industrial and commercial users.

Demand Proiections

7. As for any other commodity, demand growth for potable water servicesis a function of market size (population) growth, consumer's income growth andprices. The effect of each depends on its elasticity which measures consumersresponse to changes in each variable. There are no estimates of demandelasticities for water in Dhaka, and they are difficult to estimate because actualdemand is unobservable due to permanent supply restrictions, and adequate data isnot available. It is evident, however, that - at current prices - demand is farlarger than supply.

8. If we consider at least two markets: low income and other incomeconsumers, there may be a decline in consumption by the latter due to an increasein the tariff, as waste is reduced. For the low income group, this effect is smalldue to their already low consumption; however, the relevant impact for this groupis related to service coverage: an increase in coverage normally implies asubstantial reduction in cost for the newly connected customer and therefore asignificant increase in consumption. As shown above, consumption per capita fromdirect connections is higher than from stand posts and the latter is higher thanper capita consumption for the population without connection. The evidence isoverwhelming with respect to the high cost of water to the urban poor when they donot have a direct connection. In the case of Dhaka this could be as much as eighttimes the average tariff.

9. The implication of these arguments is that, under the particularcircumstances of the Dhaka water supply system - especially in the absence of therationing effect of an adequate tariff, population and service coverage become byfar the main factors affecting any changes in water requirements in the nearfuture. That is, the level of consumption (consumption per capita) is not afunction of price and income but of available supply; therefore, projected demanddepends on assumed consumption per capita since for all realistic prices, currentlyand in the near future, there will be excess demand.

Annex 1.1Page 4 of 8

10. If per capita consumption is approximately 156 lpd currently5 and isexpected to increase by 1% in the coming years due to the effect of increasedcoverage and higher incomes, demand would be as shown in Table 2. These estimatesshould be interpreted with caution because, in economic terms, at current lowtariffs, demand is substantially higher than consumption. Therefore, for allprobable increases in the water tariff, available increments in supply will bequickly exhausted. At current prices, demand is almost twice as the current levelof consumption. If deficits shown in Table 2 are not met, per capita consumptionwill have to decline due to the high rate of population increase. In Table 2, itis assumed that per capita consumption stops increasing at 166 lpd in 1999; thisis to reflect rationing either through increased tariffs, scheduled cut-offs, orjust lack of water as growing per capita consumption cannot be sustained due to themassive investments that it would require.

Table 2: Dhaka. Water Supply and Demand Proiections 1994-2020

Per capita Projected Available Currenticar PopuLation Consumption Demand ------> Deficit <------ SuppLy Losses Production Capacity

Lpd m3/yr m3/yr m3/s m3/yr rn/yr m3/yr m3/s

1994 5,427,513 150 297,156,329 (43,287,864) (1.37) 253,868,465 130,780,724 384,649,189 13.231995 5,647,991 153 315,412,077 (41,582,683) (1.32) 273,829,394 141,063,627 414,893,021 14.271996 5.857.872 156 333.675.526 (41.922.009) (1.33) 291.753.517 143.699.493 435,453.010 14.971997 6,075,552 159 352,996,491 (56,888,445) (1.80) 296,108,047 139,344,963 435,453,010 14.971998 6,301,321 162 373,436,208 (72,973,631) (2.31) 300,462,577 134,990,433 435,453,010 14.971999 6,535,480 166 395,059,455 (90,242,348) (2.86) 304,817,107 130,635,903 435,453,010 14.972000 6,778,340 166 409,739,963 (96,213,796) (3.05) 313,526,167 121,926,843 435,453,010 14.972001 6,993,243 166 422,730,543 (100,495,316) (3.19) 322,235,227 113,217,783 435,453,010 14.972002 7,214,960 166 436,132,982 (105,188,695) (3.34) 330,944,287 104,508,722 435,453,010 14.972003 7,443,707 166 449,960,338 (110,306,991) (3.50) 339,653,348 95,799,662 435,453,010 14.972004 7,679,705 166 464,226,084 (115,863,676) (3.67) 348,362,408 87,090,602 435,453,010 14.972005 7,923,186 166 478,944,116 (130,581,708) (4.14) 348,362,408 87,090,602 435,453,010 14.972010 9,261,394 166 559,836,695 (211,474,287) (6.71) 348,362,408 87,090,602 435,453,010 14.972015 10,810,211 166 653,460,221 (305,097,813) (9.67) 348,362,408 87,090,602 435,453,010 14.972020 12,618,042 166 762,740,750 (414,378,342) (13.14) 348,362,408 87,090,602 435,453,010 14.97

Capacity and Production

11. More than 95Z of DWASA's installed capacity is comprised of DeepTubewells (DTW). In recent years, DWASA has been improving this system throughrehabilitation and replacement of DTWs; capacity has also been increasedsignificantly since the BCEOM Study was completed (1992). The main problem,however, is the status of the distribution network. The BCEOM Study surveyed thedifferent components of the network and found that in general the network isinadequate for the size of the system and is in precarious condition; physicallosses between 30 and 50 percent were found depending on location, age of thenetwork, maintenance, and water pressure. According to DWASA officials, somesegments of the network are in such poor condition that they are no longermaintained; instead they must wait to be replaced when they break downcompletely. The Leak Detection and Waste Prevention Programme investigated two

5 Per capita consumption from the system is 66% of production, or 90.05 lpd;59 additional lpd are consumed from non-WASA sources, for a total of 149.05 lpdcurrently.

Annex 1.1Page 5 of 8

small segments of the system and found numerous problems associated withmaterials and installation of pipes and fittings throughout the network.

Table 3: Dhaka, Water SuppLy InstaLled Capacity

Deep TubeweLLs Chandnighat Narayanganj Private DTWs TotalYear

No. m3/s m3/s m3 /s m3/s m3/s

1991 140 7.280 .208 .139 7.627

1992-93 166' 8.632 .208 .139 8.979

1993-94 190b 9,880 .208 .139 3.0 13.227

1995 210b 10.920 .208 .139 3.0 14.267

1996 210 10.920 .527 .527 3.0 14.974

* DWASA, Annual Report 1992-93 ; b DWASA PLanning Division; C Wasa's estimate is 8.974 (June 1994 MIR).

12. Table 3 shows the system's capacity changes since 1991 up to 1996.Currently, there are 190 DTWs in operation and 20 under construction which,together with the surface water treatment plants at Chandnighat and Narayanganjand an estimated 3.0 m /s from private DTWs, amount to a total available capacityof 14.267 m3/s (271 IMGD).6 for 1995. Expansion of the Chandnighat andNarayanganj plants increased capacity to 14.974 m3/s in 1996.7

13. DWASA reported production was 8.25 m3/s during 1993-94 of which 51.5%was billed. This production can only be expanded marginally due to limitationsin the distribution system; and increased supply to the current network willincrease losses significantly. According to the Leak Detection pilotinvestigation, at very low pressures, physical losses are already at more than25%.

14. Private Tubewells. The BCEOM Study did not take into account theexisting capacity of private tubewells as source of water supply in the studyarea. Private tubewells are licensed by DWASA when it is demonstrated that DWASAis unable to meet the applicant's supply requirements. According to DWASA'srecords, 284 deep tubewells have been licensed. However, the Consumer Survey1992-93 found 358 private tubewells. Normally they are between 2 and 8 inchesin diameter, compared to 8 inches for all DWASA DTWs, and their operating timeis also less. Assuming that, on average, each private DTW produces 20Z of theaverage DWASA DTW, the 358 private DTWs could add as much as 117 million m3 tothe city's water supply annually. The environmental impact assessment report forthe project estimated a volume of 76 million m3 annually as "privateabstraction." An assessment by the ADB estimates 250 DTWs producing 50 millionm3. It must be noted that the supply from these sources is not readily availableto the distribution network; it is illegal to supply water from private DTWa

6 1.0 m3/s - 19 (approx.) IMGD (Imperial million gallons per day).

7 Capacity of DWASA's DTWs has been estimated assuming 52 l/s (4500 m3/day)per DTW which is the rated capacity. DWASA's estimate is slightly less (47.23 l/s).

Annex 1.1Page 6 of 8

outside the applicant's requirements but this is clearly not enforced. For thepurposes of measuring total available capacity, private DTWs are estimated to add94.6 million m3/year or 3.0 m3/s.

15. It is difficult to accurately determine the volume of privateproduction since many DTWs have not been registered with DWASA and operators areunwilling to provide information. There are probably more DTWs than thosereported in the Consumer Survey; during the survey, there was considerableresistance to provide information. Their estimated capacity (3 m /8) is anapproximated average of the first two estimates mentioned above. Private DTWsare also highly underutilized but their capacity is not available to the network,and it is unknown whether it is technically feasible to increase their capacitysignificantly due to possible drawdown problems.

16. Losses. Physical losses are estimated at 34% currently. This levelmay be higher but the data on Unaccounted For Water (UFW) is not reliable sincethe method of estimating non-metered consumption does 8not have anything to dowith water consumption but with property rental values. Estimates of UFW rangefrom 30% to 56%. In order to estimate physical losses, given the lack ofreliable data, the following assumptions were made: only 40% of water producedis delivered to water connections (the BCEOM survey found between 30 and 50percent losses due to leaks)9; of this volume 8% is consumed by the industrial,commercial and government sectors (from water billing); an estimated 300,000people consume 18.63 mld from stand posts or street hydrants. The remainingpopulation not directly connected to the network "recovers" 10% of total WASAproduction through legal and illegal connections, purchases, etc. Estimatedlosses are 251.91 Mld, equivalent to 46.39 lpd. This is 34% of DWASA production.

Deficits

17. Assuming that water production is maintained at the current levelof 86% of capacity, and losses are reduced gradually from 34% to 20% in 10 years,production is projected as shown in Table 2. Based on projected demand, waterdeficits are then estimated. The current deficit is 1.37 m3/s assuming percapita consumption of 150 lpd. However, private production is not readilyavailable to the network but only to the consumers who own the private DTWs.With current capacity, by 1998 the water deficit will be approximately equal tothe net capacity of the Saidabad I Surface Water Treatment Plant (2.63 m3/s).The additional supply will be consumed immediately, even if tariffs are increasedsignificantly (or for any realistic tariff increase).

18. Despite recent expansion of the number of DWASA DTWs, and the numberof private tubewells, it has been difficult to reduce water shortages; thisrequires significant increments in capacity; therefore, a deficit remains everyyear which is simply met by not providing full coverage, not meeting residentialdemand and not addressing the non-residential demand question. Some of this

8 Water consumption for non-metered connections is estimated by dividing thewater bill (22.62% of the property's rental value) by the tariff.

9 The Leak Detection Programme pilot study found at least 25% losses throughpipes and service connections based on a survey of 2 small areas of the city withvery low pressures. It did not take into account losses in main lines feeding thespecific areas.

Annex 1.1Page 7 of 8

deficit would be covered by non-WASA sources. Moreover, it is unlikely thatthese deficits could be covered by increasing the number of DTWs. Considerablediscussion has taken place recently on the capacity of the aquifer to sustaingrowing abstraction. Further development of ground sources will have to begradual and after careful study of location and existing DTWs. A study of groundwater management has been included in the proposed project.

Suzmmary

19. DWASA's total water production capacity is currently estimated at192 IMGD. About 95% of this capacity is from groundwater through 190 tubewells,which have a total capacity of 780 MLD (173 IMGD). The remaining capacity(19 IMGD) is from the Narayanganj Treatment Plant (9 IMGD) and the ChandnigatTreatment Plant (10 IMGD). Projections of increases in DWASA's productioncapacity are shown below with investment assumptions.

20. Even with the capacity above, DWASA's current production issubstantially below capacity. Current production is estimated at about 166 IMGD(i.e. 86% of capacity). Although actual water billed is approximately half ofthis production, the level of consumption is higher due to illegal connections,underbilling and other "administrative losses". In addition, the actual levelof production is not known, and DWASA has normally estimated on the basis of non-revenue water and billed consumption. In calculating the level of watershortages, it is assumed that DWASA will operate tubewells at 95% of capacity andtreatment plants at full capacity. Based on these assumptions, the expectedwater shortages are shown below.

Annex 1.1Page 8 of 8

Table 4: Total Water Requirement. Capacity and Deficit Proiections

Total Water Requirements

Current 2000 2010 2020

m3/day 1,192,178 1,370,745 1,762,428 2,480,522IMGD 262 302 388 546MGY 95,630 110,230 141,620 199,210

Production Capacity Prolections(IMGD)

Current 2000 2010 2020

Groundwater10/ 173 197 217 234Chandnigat 10 10 10 10Narayanganj 9 9 9 9Phase 1 Treatment Plant - 50 50 50Phase 2 Treatment - - 100 100PlantllIPhase 3 Treatment - - - 100Plant1 2'

TOTAL 192 266 386 503

Projected Water Shortages(IMGD)

Current 2000 2010 2020

Total DWASA 189 266 386 503CapacityProduction 166 256 375 491Total Requirements 262 302 388 546Water Shortage 96 46 13 55

10 Assumed gradual implementation of groundwater schemes to relieve localshortages and increase water by about 57 IMGD over the period.

11 Second Phase of the Saidabad Surface Water Treatment Plant.

12 First phase of the Friendship Bridge Surface Water Treatment Plant.

Annex 1.2BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

Proiected Deficits. Planned Capacity Increase and Investment Program

Planned Investment ProgramCurrent Increased Surplus* Cost

Year Deficit Capacity (Deficit) US$ M Component/ActivityM3/S M3/S MN/S

1994 (1.37)1995 (1.32) 28.2 Technical assistance, including leak

detection, training; Saidabad IConstruction.

1996 (1.33) 29.9 Rehabilitation of secondary distribution;metering program; technical assistance;Saidabad I construction.

1997 (1.80) 52.8 Saidabad I construction; technicalassistance; secondary distribution (60 km);water & sewerage connection and meteringprogram; primary distribution (38 km).

1998 (2.31) 2.63 0.32 38.8 Saidabad I starts operation; technicalassistance.

1999 (2.86) 2.63 (0.23) 17.6 Technical assistance; improvement andrehabilitation of sewerage system;

2000 (3.05) 2.63 (0.42) 5.3 Technical assistance.2001 (3.19) 2.63 (0.56) 2.3 Technical assistance; end of IDA project.

2002 (3.34) 2.63 (0.71) 127.0 DND-1 DTW field construction (5.0); primarydistribution (122,0).

2003 (3.50) 2.63 (0.87) 14.2 DND-1 DTW field construction (6.7);technical assistance (7.5).

2004 (3.67) 3.03 (0.65) 273.4 Sewerage expansion; DND-1 field startsoperation

2005 (4.14) 3.03 (1.12) 64.0 Saidabad II construction.2006 (4.62) 3.03 (1.60) 36.8 Primary distribution.2007 (5.12) 3.03 (2.09)2008 (5.63) 5.66 (0.02) Saidabad II starts operation.2009 (6.16) 5.66 (0.51) 489.3 Sewerage system expansion.2010 (6.71) 5.66 (1.05) 8.0 Technical assistance2011 (7.26) 5.66 (1.61)2012 (7.84) 5.66 (2.18) 125.0 Friendship Br. I construction2013 (8.43) 5.66 (2.78)2014 (9.04) 5.66 (3.39)2015 (9.67) 5.66 (4.02)2016 (10.33) 10.92 0.59 Friendship Br. I starts operation2017 (11.00) 10.92 (0.08)2018 (11.69) 10.92 (0.77) 762.0 Third phase of Long term Program: water

(Saidabad III, Siddirganj) and seweragesystems expansion, primary distribution,Leak detection and technical assistance.To be scheduled beyond 2020.

2019 (12.40) 10.92 (1.49)2020 (13.14) 10.92 (2.22)

* Part of this deficit will be met by additional DTW construction. Figures showndo not include losses; therefore deficits vill be between 20 and 34x higher.

Annex 2.1

Page 1 of 5

BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

The Institutional Reform Program

BACKGROUND

1. The Government of Bangladesh (GOB) has been trying to satisfy theincreasing demand for water arising from the rapid population expansion,particularly in the urban areas of Dhaka and Chittagong. Since 1963, IDA hasfinanced five water supply projects in Dhaka and Chittagong, totalling US$108million. IDA's fundamental objective in the sector has been to support GOB inproviding equitable and improved access to basic water supply and sanitationservices. To address these concerns IDA has focused on three areas ofpotential improvements: (a) to support the development of effective sectorinstitutions through the establishment of the Dhaka and Chittagong WaterSupply and Sewerage Authorities (WASAs); (b) to promote long term planning ofcapital investments through the identification of needs for expansion and theconstraints on capital investments; and (c) to strengthen financial disciplineand lessen the sector's reliance on limited public resources through thedirect recovery of most or all of the costs through user charges.Notwithstanding IDA's emphasis on institutional strengthening, the watersupply network in Dhaka remains grossly inadequate and the performance of thewater sector entity (DWASA) remains very poor. There is an urgent need toincrease access to basic water supply and sanitation services, and improveDWASA's capacity to operate efficiently and generate adequate revenues tocover all costs of operations, including debt service. Currently, watersupply coverage in Dhaka is between 50-60%.

2. The poor performance of DWASA is due to: (a) GOB's inadequatemanagement of the sector and excessive control on DWASA's operations asevidenced by the increasing interference in the day-to-day operations; and (b)the poor institutional capabilities of DWASA to effectively manage and operateits facilities including a lack of capable management, trained manpower andclear operating objectives, resulting in poor cost recovery, a high level ofsystem losses and inadequate billing and revenue collection practices.

3. Sector Management: Overall management of the water supply sectoris characterized by excessive government control and interference, and toomuch dependence by DWASA on the Government budget for its capital operatingexpenditures. While the WASA Ordinance empowers DWASA to formulate, executeand maintain water supply and sanitation schemes, impose rates and charges onusers, management decisions, including tariff setting, staffing and investmentplanning are controlled by the Government. On the other hand, there areneither defined government policy guideline for sectoral development normandates for sector entities. The current DWASA Board is staffed byrepresentatives of Government agencies, and there are no incentives orinitiatives by DWASA staff to operate efficiently. Water tariffs, regulatedby the Government, neither reflect cost structures nor meet financialrequirements of the operating entities, and adjustments have been irregular inthe past. While DWASA is able to fully cover its operating costs, it isunable to fully cover interest charges on three IDA loans. The most recenttariffs increases were 10% in FY91, 15% in FY93, and another 10% in FY94.

Annex 2.1Page 2 of 5

Even these were not adequate to cover DWASA's costs during a time when DWASA'sits systems losses were about 50%. As a result, DWASA has been unable to keepup a full program of regular maintenance and leak detection, leading to afurther deterioration of its system and services. In addition, DWASA isunable to make the relatively modest investments in institutional improvementsin areas like accounting and billing, collection without the financial supportof multilateral donors.

4. DWASA's Capability: DWASA's operations suffer from a lack ofcommercial orientation and accountability, poor management systems andshortage of trained and motivated staff. Operational performance is weak inmany respects. The level of system losses was as high as 532 in 1991, andaccounts receivables arrears average about 6.5 months of billings. Of thesystem losses, it is estimated that 20% is attributable to administrative orcommercial losses, e.g. under-billing as a result of unmetered service,illegal connections and inaccurate and tampered meters, an incomplete customerdata base, wrong meter reading and rent seeking activities of meter inspectorsaimed at reduction water bills. Despite revenue improvements DWASA could notfully service its interest obligations in recent years, and was in default onsome covenants for the Second and Third IDA credits.

5. Many of these issues have been continuous and pervasive. In thepast there has been ad hoc attempts to address them, through DWASA activitiesfinanced through IDA credits. While this has brought some improvements fromtime to time, the lack of a comprehensive approach to deal with the issueshave affected the sustainability of the programs. In addition, the lack of aneffective dialogue between GOB and IDA on the need and the approach to sectorreforms have affected their implementation. The reforms prepared under thisproject have been formulated after a sustained policy dialogue with theGovernment and represents an attempt to deal with issues affecting DWASA in acomprehensive manner.

THE PROPOSED REFORM PROGRAM

6. The proposed objectives of the reform program is to commence aprocess of actions and policy changes that would improve DWASA's institutionaland financial efficiency and performance to enable it to operate as a moreautonomous and commercially managed water supply institution. The programwould seek to:

(a) provide DWASA with operating conditions that would approximatethose of commercial organizations established under the CompaniesAct, and obtain greater autonomy from GOB by strengthening andstreamlining DWASA's existing Board, revising its Ordinance andproviding it with operating policies which would define itsresponsibilities as a water utility in areas like staffing,financial policy decisions and tariff setting, and those of theGovernment as a share-holder;

(b) seek internal changes in DWASA's operations, financial managementand performance; and

(c) establish and enforce management accountability by requiring DWASAto meet agreed operational and financial performance targets.

Annex 2.1Page 3 of 5

7. The actions required to meet each of these objectives aredescribed below:

(a) Increase in DWASA Autonomy: Within the -context of the existingregulatory framework, revisions have been made to the WASAOrdinance with the objective of establishing DWASA as a commercialutility along the lines of utilities in developed countries,streamlining its Board membership to seven, the majority of whomwould be non-government, with renewable fixed tenures. The Boardwould be appointed by the Government, under very clear guidelinesagreed with IDA. The Ministries of Local Government (MLG) andFinance (MOF) would each nominate a Board member to represent theGovernment and DWASA's interests on the Board. The other non-governmental members would include a consumer interest grouprepresentative. The Government would appoint the Chairman of theBoard from amongst the Board members, also under clear guidelines.The Board would select and recruit the Managing Director of DWASA,from the private sector with final ratification by the Ministry ofLocal Government, also based on very clear guidelines andcriteria, agreed with IDA. This Managing Director would be an exofficio and non-voting member of the Board.

To reinforce the separation of responsibilities and DWASA'sautonomy, a Policy Statement has been agreed that would define theGovernment, Board and Management's role in DWASA's operations. Inbroad terms, the Government's role would be to establish thepolicy framework for the sector and for DWASA; the Board's rolewould be to implement the policy within the framework agreed, andthe DWASA management's role would be the day-to-day management andachievement of agreed operational, financial and institutionalperformance objectives. A system of performance evaluation forthe Board and management would be established to enablesupervision and management by results rather than processes, andto clarify the perception of managers and GOB about DWASA'scorporate objectives.

(b) Internal changes in DWASA's performance: To address the problemsof DWASA's weak capability to provide its services the followingactions would be taken:

(i) establishment of a-Twinning Arrangement with a waterutility management consultant under technical assistanceto help DWASA to build managerial, financial andtechnical capabilities essential for efficient managementand operation of a commercial oriented water utility.This technical assistance, renewable every year for fouryears, would seek to improve operations and maintenance,management information systems, by implementing amodernized and efficient billing and collection system, animproved accounting system, technical improvements toDWASA to reduce water losses, and training to DWASA staffto improve their capabilities to manage the utility;

(ii) re-organization of DWASA's structure to create profit/costcenters designed to introduce transparency and

Annex 2.1Page 4 of 5

accountability into operations, by separating distributionand water production and introduction of a transfer pricebetween the two units. This would be undertaken by theTwinning Program described in (i) above;

(iii) implementation of a Crash Meter Installation Program toreduce unmetered connections to less than 5% within threeyears. This program would be contracted to a privatesector contractor and would include district/zone meteringto properly monitor water consumption in different zonesto set the stage for private participation in DWASAactivities in future. This program, will utilizeinformation from a consumer survey completed in July 1993financed under the Third Dhaka Water Supply Project (Cr1734-BD), and would commence by Board presentation of theproject, under a retroactive financing arrangement;

(iv) implementation of a Leak Detection and RehabilitationProgram throughout DWASA's distribution system to reducephysical water losses. This program would utilize a pilotprogram initiated in two consumer zones under the ThirdDWASA Project;

(v) contracting out DWASA services to local contractors toreduce system losses and improve billing and collectionefficiency. The services to be contracted out willinclude meter reading, billing, collections, and follow-upon payments and disconnection in case of default. Theprogram will initially start in two zones and theexperience in these zones will be used to plan futureactivities; and

(vi) implementation of a graduated or block tariff structure toproperly reflect the cost of providing service anddiscourage excessive water consumption, to be implementedgradually over two years. Tariff increases would still berequired in the interim period to ensure that DWASArevenues continue to improve and it achieves financialsufficiency within four years. A Tariff Studyrecommending the revised structure was completed duringpreparation.

(c) Establishment and enforcement of Management Accountability: Thiswould include actions requiring DWASA to meet agreed operationaland financial performance objectives, which would be defined in aPerformance Agreement between the Government and DWASA. The mostcritical of these targets would include:

(i) achievement of agreed operating ratios/(revenue/cost)levels every year through tariff increases and costreductions to ensure that DWASA covers all costs ofoperations, including debt service charges within fouryears;

Annex 2.1Page 5 of 5

(ii) reduction in unaccounted-for-water (systems losses) toabout 30X within seven years;

(iii) implementation of agreed annual targets of the meteringprogram discussed above;

(iv) reduction of accounts receivables to agreed levels eachyear (including an initial ageing analysis and writing offof uncollectible arrears), with the objective of achievinga receivable to billing ratio of 3 months within threeyears; and

(v) implementation of an acceptable consumer connectionprogram, subject to the availability of water. Targetsfor this will be defined on an annual basis, based on anestimate of the availability of water.

8. The Performance Agreement will also address issues like reportingprocedures, the financing of DWASA investments, and performance objectivefollow-up procedures and plans for payment of water supply and seweragearrears from Government departments and public corporations. Some of themonitoring indicators to be used to measure DWASA's performance are shown atAnnex 12. These include physical, technical and financial indicators.

9. In addition to these activities, a strategy study would be carriedout under the project to investigate privatization alternatives, and develop along term strategy for mobilizing finance and increasing efficiency in DWASA.The study will assist in demonstrating the need for fundamental reform inorder to attract required finance from the private sector for DWASA'sinvestment program, as well as assess the steps required for reformimplementation, including the development of a regulatory framework.

Table 1: SUMMARY OF INSTrUlTIONAL REFORM COMPONENTS

Objectjve Descipi T

Amendment of the WASA Ordine Provide DWASA with operaing conditi mlar Revision of Ordnce to provide DWASA with Ratificatiaa of Ordance by GOB before Boardto thoe in conunestial ogankzatiens. greater autonomy by str_ngting DWASA Board, Prsntatio of the Prect

inoductio of ommial rgltos sad limitngGOB functions

2. Establisment of Policy Stement To create policies that would define responsibilities Policy Statement would create specific Poicy Staement to be canpleted by Boardof DWASA, its Bord and the Ooveansnt. respensibtlie for DWASA as a utiLity in areas Presetao and ratified by Bord.

lie saffing, financial poicy and tariff, the Boardas impxantng uit of DWASA policits, andGOB as shardelder.

3. Perforane Agoeonmct To establish anual perfmance objectives by Perfomace Agrment weuld covcr trgets in Perfornance Agcest to be finlized at Board.which DWASA would be held accotable. revenue, cot lveba, water lo, billing and Agreemen to be raviewed annually betwen

coleics, red tagets of service provision. DWASA and GOB to chdck compliaoce withtargets.

4. Appoinmt of MWAging Director To improve _mnat of DWASA. Mawning Director with appropriate skills ad AppoiiCst or desipatie to be completed byexpeience to be ppointed from the private ector negots . Appoinmmt is for four years, adon a contact basis under the project. renewablt.

5. Twinning Program To help DWASA build manaia, fineaial and Twinng arrangemt with an efficiemt wat Program would be for four years. Phae Itchnial capabili esen t for efficiency utility to help impr opeoanad mns scc, (diagostic) for four mtinls and Phae 1 for 31/2managant and operatio of a conmercial fnacial managemen, nmangemet informatio year.or ed water utilty. sydms and training to DWASA to help inprove

staff capabthes.

6. Meter Inallao Pgnm Icreas biled water by reducing unmetred A crah mdeer isll pror to reduce Threeyea.cacons. unmetred connctio font 22X to about 51 in

two yea. Program would be conctcd out to aprivate sector coactor.

7. Leak Ddecon and Rehabilitation Prgr Reduce physica losss and isrea mrevnu. A program to cover tDe DWASA ervice area to Phaes I to cce in Noveabr 1994. Phas H1reduce physial les ad undeta repar and to onmene afler Phase I in approximately 20J reabiJitbati, to be implemitd in three phas. nths later. Phas m t commence sfkcr four

year.

S. Tariff Study To recomnd a rvised cad inproved tariff A study to recommed and impkment a gradud Tariff study in progirss, to be complted bystructwu. tariff structre which proerb rdects the coat of Navember 1994.

providing th services and discourage exsivewater consumption.

C Obie*nctDeivri_ T_m

9. Contacting out DWASA Services. To improve billing amd collcti efficiency and Contracting out billn, cdletn, meter repis Frst two z7o wil be tsted over twelve montns;reduce nmm-cbhnical systm losses. and readings and disconnection to private setor, to resulb will be used to plan addion activities.

initially tart in two mums of DWASA'a servicearea.

10. Reosgniztio of DWASA's fictions io To inmtoduce acntabily between diffeet Sepati of disriution and water production to To be undeake unde the Twinnig Programprotlcost cente. functiona. allow belter monn of inputs and mach thea Consultancy.

with outus.

11. Strategy Study for Private Sctor To introduce futher privat participation throu To s the private ector optims available to Study will tnt immediately after projectParticipation, a dedicated utility operstor. improve DWASA's efficiency and reconomed the effectiveness, and be implented over a year.

most feasble option. Folow-up diaogue with the Overnm nt.

Annex 2.2Page 1 of 10

BANGLADESH

DHAKA WATER SUPPLY AND SEWERAGE AUTHORITY

General Operating and Financial Policy Statement

I. PREAMBLE

1. The Dhaka Water Supply and Sewerage Authority (DWASA) wasestablished under the Water Supply and Sewerage Ordinance of 1963, and amendedby the Water Supply and Sewerage Authority-(Amendment) Ordinance of 1984.DWASA's objectives are to provide for the construction, improvement,expansion, operation and maintenance of water supply and sewerage facilitiesin Dhaka.

2. DWASA is a public authority under the Ministry of LocalGovernment, Rural Development and Cooperatives. In recognizing the importantrole that DWASA plays in the urban development of Dhaka and in meeting basicwater supply needs, the Government has placed high priority in improvingDWASA's operational and financial performance. The Government also recognizesthat DWASA's performance could be improved by providing clearly definedguidelines and mandates relative to the organizational, functional, managerialand financial aspects of DWASA and the Government's own role in supervisionand monitoring DWASA's operations.

3. The objective of this policy statement is to establish clearguidelines for DWASA operations, and provide the required level of autonomyfor the efficient delivery of its services. This policy statement alsodefines the roles and responsibilities of the Government and its Ministries inmonitoring and supervising DWASA's performance to ensure that it operatesefficiently.

II. GENERAL CORPORATE POWER AND FUNCTIONS

4. DWASA shall have the following general power and functions amongothers:

(a) transact the business for which it has lawfully been organized,and exercise such powers and perform such acts as are directly orindirectly necessary to the attainment of its purposes andobjectives;

(b) provide water and sanitation services in the City of Dhaka asefficiently as possible, recover fully all of the costs of servicedelivery, and expand coverage, improve water and sanitationservices to the extent possible, and with the resources available;

(c) own, lease, mortgage, encumber or otherwise dispose of real andpersonal property as the attainment of its purposes and objectivesmay reasonably permit and the transaction of its lawful businessmay necessarily require;

Annex 2.2Page 2 of 10

(d) enter into any obligation or contract (financial or otherwise) tothe proper administration of its affairs, the transaction of itsbusiness or the accomplishment of its purposes and objectives;

(e) sue and be sued in its name before any court or tribunal;

(f) formulate policies and promulgate regulations necessary for theattainment of its purposes and objectives, which are not contraryto law, or the WASA Ordinance, morals, public interest, and amendor repeat the same where necessary; and

(g) generally, exercise all the powers of a utility under the amendedWASA Ordinance of 1995 consistent with the provision of the policystatement.

III. BOARD

5. Under Section 6 of the WASA Ordinance, DWASA shall be governed bya Board or equivalent body composed of a Chairman and six members, to beappointed by the Government of Bangladesh. The Board will consist of:

(a) a representative of the Ministry of Local Government;(b) a representative of the Ministry of Finance;(c) a representative of DWASA water users;(d) a member of the Dhaka Chamber of Commerce and Industry(e) a member of the Institute of Chartered Accountants;(f) a member of the Institute of Engineers Bangladesh; and(g) an additional non-governmental member.

6. The Managing Director of DWASA will be an additional ex-officiobut non-voting member of the Board. The number of Board members required toconstitute a quorum for transacting the business of the corporation shall befour.

7. The representatives from the Ministry of Finance and the Ministryof Local Government will be senior officials of a rank no less than that of aJoint Secretary.

8. The appointed members of the Board or equivalent body shall servefor a fixed renewable term, and shall be eligible for reappointment.

9. Members of the Board shall remain in office until their successorsshall have been appointed and qualified. In case of a vacancy on the Board,the same shall be filled by the Government for the unexpired term.

10. No person shall be appointed member of the Board unless he is acitizen of Bangladesh, of established integrity, and has the specificqualifications required to transact DWASA business.

11. - The Chairman of the Board shall be appointed by the Government ofBangladesh from amongst the members of the Board. The Board will electamongst themselves a Vice-Chairman of the Board. The Chairman, or in hisabsence the Vice-Chairman, shall act as the presiding officer of the Board.

Annex 2.2Page 3 of 10

12. The Chairman and members of the Board, (except the ManagingDirector as ex-officio member) may have alternates who shall be appointed orelected in the same manner and for the same term of office as the members towhom they are alternate. The alternative member shall be duly authorized tosit temporarily in the member's stead, whenever they are unable to attend anyBoard meeting.

13. An alternate member may participate in meetings but may vote onlywhen he is acting in place of and in the absence of the member to whom he isan alternate.

14. While the office of a member is vacant, the alternative of theformer member shall exercise the powers of that member.

IV. POWERS AND FUNCTIONS OF THE BOARD

15. The Board or equivalent body shall have the following powers andfunctions:

(a) formulate policies necessary for the attainment of the purposesand objectives for which DWASA was established;

(b) proclaim regulations governing the manner in which the generalbusiness of DWASA is to be transacted, including financialregulations; and amend, repeal or alter such regulations as itconsiders necessary or appropriate to further the objectives andfunctions of DWASA;

(c) recommend for ratification by the Governmei.t of Bangladesh,appointment of the Managing Director of DWASA;

(d) determine the organizational structure of DWASA, and in accordancewith the provisions in clause , create such positions as maybe necessary for the economical, effective and efficient dischargeof its functions and responsibilities in accordance with an agreedmanning plan;

(e) appoint the Deputy Managing Director(s) of DWASA, if necessary,provided that these will have different functionalresponsibilities like finance and administration, technical andplanning and development and the like;

(f) pass upon and approve, in accordance with the provisions of clause51, the annual and supplemental budgets, audit report, corporateplans and annual and medium-term investment plans submitted to itby the Managing Director of DWASA in accordance with theprovisions and targets in the Performance Agreement;

(g) pass upon and approve self financed investments of DWASA andincluding the financial arrangements for such investments providedthat DWASA makes such investments after meeting its normal annualliabilities, and the investment plans are consistent with thePerformance Agreement;

Annex 2.2Page 4 of 10

(h) pass upon and approve, in accordance with the provisions in clause50, management contracts and proposals, including procurementarrangements for self-financed investments;

(i) pass upon and approve, in accordance with the provisions in clause49, DWASA's proposals for adjustment of tariffs and charges forits services based on an agreed annual inflation index;

(j) present annual reports, including any other special reports as maybe required to the Government of Bangladesh;

(k) submit to the Ministry of Local Government, fiscal plans andstatements of financial condition at such time and in such form asmay be prescribed, for-the purpose of incorporating in the fiscalbudget plans of the Government;

(1) submit to the Ministry of Local Government for Government approvalall investments requiring Government financing or guarantees;

(m) adopt rules and procedures and fix the time and place for holdingBoard meetings;

(n) appoint DWASA's auditors annually, and fix the remuneration forthe auditors; and

(o) exercise such other powers and perform such other functions as maybe required by law.

V. BOARD MEETINGS

16. The Board shall convene as frequently as possible (preferablyevery two months), or as is necessary to discharge its responsibilitiesproperly.

17. The members of the Board (except the Managing Director of DWASA,as ex-officio member) shall receive such per diem as may be authorized by theMinistry of Local Government for every meeting attended.

18. Meetings of the Board shall be convened by the Chairman, or in hisabsence, by the Vice Chairman. Meetings other than regular meetings shall beso convened:

(a) whenever the Chairman or, in his absence, the Vice Chairman deemsit necessary or desirable;

(b) whenever the Managing Director so requests; and

(c) whenever a majority of the members of the Board so requests.

19. If a quorum is not present within 30 minutes of the appointed timefor the Board meeting, the meeting shall be adjourned to the next day, at the

same time and place, or if that day is a public holiday, to the nextsucceeding day which is not a public holiday at the same time and the same

Annex 2.2Page 5 of 10

place; if a quorum is not present at such adjourned meeting, the memberspresent shall constitute a quorum and may transact the business for which the

meeting was called.

20. The Board may, by regulation, establish a procedure whereby adecision in writing signed by all the members of the Board shall be as valid

and effectual as if it had been made at a meeting of the Members of the Board.

21. All matters brought before the Board shall be decided by a simple

majority vote.

VI. CHIEF EXECUTIVE OFFICER OF DWASA

22. DWASA shall have a full time Managing Director as its Chief

Executive Officer. He shall be appointed by the Board, with finalratification by the Government of Bangladesh, for a fixed term unless sooner

removed by the Board for cause or by reason of incapacity. The ManagingDirector shall be of good moral character, of unquestionable integrity and

responsibility and shall be of recognized competence in managing of publicutilities or other corporations.

23. The Managing Director shall be the legal representative of DWASA.

24. The salary of the Managing Director shall be fixed by the Board,and shall reflect the experience, competence and qualification of the

individual and his expected responsibilities. The Board may authorize payment

of allowances and other emoluments to the Managing Director, includingincentive bonuses depending on performance.

25. The Managing Director shall be assisted by such other officers as

may be necessary for the efficient operation of DWASA.

26. The Managing Director shall not perform any functions outside

DWASA which in the opinion of the Board are incompatible with his office inDWASA.

27. The Managing Director shall vacate his office if the Board so

decides, and the Government ratifies the decision. Such ratification shall be

granted within twenty-one days, failing which the Board shall proceed with the

removal of the Managing Director.

28. The Managing Director shall have the following powers andfunctions:-

(a) execute, administer and implement policies and measures, includingfinancial and operational objectives approved by the Board;

(b) direct and manage the affairs and business of DWASA in afinancially and administratively sound manner, and in compliancewith the rules, regulations, provisions of the ordinance or othercontracts approved by the Board;

Annex 2.2Page 6 of 10

(c) submit, within three months after the close of the calendar year,a draft annual report to the Board and such other reports as maybe required;

(d) submit to the Board three months before the end of the fiscal yearan annual budget for the following fiscal year and suchsupplemental budgets as may be necessary for its consideration andapproval;

(e) represent DWASA in all dealings with other offices, agencies anddepartments of the Government and with all persons and otherpublic or private, domestic and foreign entities;

(f) appoint, with the approval of the Board, and discipline for causein accordance with civil service law, rules and regulations, thesubordinate officers and personnel of DWASA;

(g) transfer officers and personnel within DWASA as the nature of theservice may require without need of prior approval by the Board;

(h) delegate authority, in whole or in part, to subordinate officersand personnel of DWASA, provided such delegation has the priorapproval of the Board;

(i) recommend to the Board, adjustments to DWASA's tariffs andcharges, based on an evaluation of expected performance in thefollowing fiscal year;

(j) perform such other duties as may be assigned to him by the Board;

(k) set DWASA's performance targets relative to the implementation itscorporate plans and programs, subject to approval of the GOBtaking into account the capabilities and resources of thecorporation, the agreed performance evaluation criteria for DWASAand the sectoral policies of GOB; and

(1) formulate operational policies and internal work systems for theconduct of its day-to-day affairs including performance incentivesfor staff, toward the attainment of the coordinated corporate andgovernment sectoral policies and objectives. Such policies shallrequire approval of the Board before becoming effective.

29. The Managing Director shall be held accountable for DWASA'sperformance and will be responsible for meeting agreed performance targets,and ensuring that adequate resources are available for meeting those targets.

VII. MINISTRY OF LOCAL GOVERNMENT

30. The Ministry of Local Government, Rural Development andCooperatives (MLGRDC) shall accord the greatest possible degree of autonomy toDWASA in decision-making at the operational level.

Annex 2.2Page 7 of 10

31. MLGRDC may establish, within its organizational structure, aspecific unit of competent personnel who shall be charged with the functionand responsibility of assisting the Ministry in the discharge of its functionsof monitoring DWASA's performance. Such a unit shall be headed by an officialnot lower than the Joint Secretary level in rank. The mix of skills and typesof staff needed for this purpose shall be determined by the MLGRDC.

32. MLGRDC will review agreed performance targets of DWASA relative tothe implementation of the corporate plans, programs, and performanceagreement, taking into account the resources of DWASA, the agreed performanceevaluation criteria, established beforehand with DWASA.

33. MLGRDC will provide through DWASA's Board, the overall frameworkto guide DWASA's operational policies and internal work systems.

34. MLGRDC shall monitor and evaluate periodically the physical andfinancial performance of DWASA for the purpose of ensuring that both objectiveand execution of the corporate plans and programs are being effectivelypursued and implemented in accordance with the approved performance targets.For this purpose, MLGRDC shall, among others, require DWASA through its Boardto render periodic reports on the progress of plans and programs, includingthe conduct of appropriate financial and other audits and examinations ofaudited annual financial statements of DWASA as appropriate.

35. The role of MLGRDC in decision-making shall be:

(a) ensuring that DWASA's corporate plans, programs and budgets arecongruent with its own sectoral objectives and priorities;

(b) determining the implications of such plans and programs on thoseof other public corporation or utilities attached to the ministry;

(c) reviewing the assumptions given and calculation made in justifyingthe viability of such proposed plans and programs;

(d) reviewing the targets proposed to be achieved and monitoring thephysical and financial performance of DWASA on a periodic basis toensure that such agreed targets are being faithfully pursued; and

(e) discussing and giving guidance to the Board as appropriate withrespect to the operations of DWASA and any matters which the Boardmay refLer to it.

36. MLGRDC shall nominate an appropriate senior official of MLGRDC toDWASA's Board. It shall be among the functions and responsibilities of therepresenting official to provide a two-way flow of timely, relevant andaccurate information between MLGRDC and the Board on all matters necessary foreffectively coordinating the plans and programs of the corporation with thepolicies and objectives of the Government.

Annex 2.2Page 8 of 10

37. It shall be mandatory for MLGRDC to:

(a) enforce a closer ministerial overview of operations of DWASA in

the case of continuing incurring of deficits by DWASA, orinability to meet performance targets, through the examination,review and approval of DWASA's operating and capital expenditures,and more frequent reports as may be necessary;

(b) conduct management audits of DWASA if it is reasonably believed to

have been mismanaged, upon prima facie evidence of suchmismanagement, and take such action as may be appropriate underthe circumstances;

(c) see to it that inputs of corporate operations in which theDirectorate of Audit has qualified audit opinions are improved;and

(d) dismiss a member or members of the Board in case of misconduct orfailure to undertake their duties and responsibilities as providedin this policy statement.

38. Nothing in this policy statement shall be construed as reducing orabsolving DWASA, or its Board of the responsibility to ensure the efficiency,effectiveness and viability of DWASA operations, nor MLGRDC of theresponsibility to take such remedial actions as may be necessary under thepremise to improve DWASA's performance.

39. MLGRDC shall, in consultation with the Board, be responsible fordeveloping indicators, criteria, standards and other measures of performancerelevant to corporate monitoring, including the identification of problemareas, measures for relevant follow-up action and designing a performanceevaluation system that will include a comprehensive review of DWASA'sperformance on an annual basis.

VIII. THE MINISTRY OF FINANCE

40. The Ministry of Finance (MOF) will provide technical support toMLGRDC in the monitoring and evaluation of the financial performance of DWASA,as well as in the analysis of the financial implication of DWASA's developmentplans submitted to the MLGRDC including the requirement for funding supportfrom other sources, foreign and domestic borrowing, and foreign exchangerequirements, in terms of the medium term public investment program, and theAnnual Development Program, where necessary.

41. MOF shall provide support in monitoring disbursement or releasesto DWASA, as well as the implications of government guarantees required byDWASA for loans incurred by DWASA.

IX. FINANCIAL AND INVESTMENT POLICY

42. DWASA will operate in a commercially oriented and financial mannerwith the objective of generating adequate revenue to cover all cost of

Annex 2.2Page 9 of 10

operations, including depreciation, provision of doubtful debts, financialcharges, plus a profit on invested capital on an accrual basis.

43. The Managing Director will present to the Board for approval, itsproposed investment/expansion, with all the justification for the investment,and demonstrable evidence of positive contribution to the water supply andsanitation sector, and the technical, financial and economic viability of theinvestment.

44. In selecting investments or expansion, DWASA shall always beguided by the need to pursue the objectives set forth in Section 2 of thisPolicy Statement and Section of the revised WASA Ordinance.

45. DWASA shall so conduct its operations as to earn a reasonablereturn on its capital, as agreed annually with the Government, and reflectedin its Performance Agreement.

46. Subject to Board approval, DWASA will incur loans (whetherdomestic or foreign) to carry out the investments or development projects.The Board will specify to the Government the purpose for which the proposeddebts is to be incurred, and the terms and conditions as it shall deemappropriate for the accomplishment of the said purpose. The rate of DWASA'sborrowing to the total of borrowing and shareholders funds should not exceed60Z, with borrowing defined as current and long term interest bearing debt,and excluding trade creditors and other accounts payable. Shareholders fundsshall be defined as share equity, revaluation reserves, government and foreigngrants, and accumulated earnings/(shares).

47. DWASA will maintain adequate accounting systems incorporatingvarious internal controls to the extent possible, and appropriate to itsnature and size of its operation.

48. Subject to Board approval, the Managing Director will appoint thestaff of DWASA, based on an agreed staffing formula that will limit excessiveemployment. DWASA shall always ensure that its staff costs do not exceed 25%of its total operating costs in any given fiscal year.

49. In recommending annual tariff increases to the Board, DWASA shallalways ensure that proposed increases do not exceed the average of theinflation index for the previous year and estimated index for the currentyear.

50. The Board shall establish the approval limits for Board and DWASAManagement for procurement and other contracts.

51. The Board will present to the Government DWASA's budget, for itsexamination and inclusion into the annual development program and PerformanceAgreement after discussing and approving it in its Board meeting.

Annex 2.2Page 10 of 10

52. The Managing Director shall, within three months from the end ofthe fiscal year, provide to the Board annual reports and audited reports forthe fiscal year ended. These reports shall include the appropriate narrative,statistical information and financial statements describing the activities ofDWASA during the fiscal year. The reports shall also describe and justify anysubstantial deviation from the annual plan, budget and specific performancetargets agreed beforehand.

Annex 2.3Page 1 of 8

BANGLADESH

Performance Aareement Between

The Government of Bangladesh

and

Dhaka Water Supply and Sewerage Authoritv

AGREEMENT

1. This Performance Agreement (hereinafter called the Agreement) isbetween the Government of Bangladesh (GOB) represented by the Ministry ofLocal Government, Rural Development and Cooperatives (MLGRDC) and the DhakaWater Supply and Sewerage Authority (DWASA).

2. The rationale for this Agreement arises from the mutual interestof both DWASA and GOB to:

(a) improve the performance and growth of DWASA as an autonomouspublic utility capable of exercising its powers to maximize thebenefits from DWASA's assets;

(b) to increase the level and quality of water and sanitation servicesin the City of Dhaka;

(c) to improve investment and financial planning and reduce the levelof financial losses in DWASA; and

(d) to contribute towards the economic and social development ofBangladesh by increasing DWASA's capabilities in the areas of itsfunctions as identified by the amended WASA Ordinance of 1963, asamended by the WASA (Amendment) Ordinance of 1996.

3. Based on this mutual interest, both DWASA and GOB have agreed to

undertake the obligations set forth in this Agreement toward the fulfillmentof their respective commitments as described in the following paragraphs.

4. GOB and DWASA shall be bound by the provisions of this Agreementand shall assist each other in the fulfillment of their respective obligationsas laid down in this Agreement.

5. This Performance Agreement shall consist of this Agreement and itsAnnexes, as incorporated herein.

OBJECTIVES

6. The Government recognizes the urgent need for improvement in watersupply and sanitation in Dhaka and other urban areas in Bangladesh. The mainsector objective being pursued by the Government is to improve human healthand productivity through the development of water supply services which areaffordable and sustainable to as many people as possible.

7. In this context, GOB established DWASA under the Water Supply andSewerage (WASA) Ordinance of 1963 to formulate, execute, and maintain water

Annex 2.3Page 2 of 8

supply and sanitation schemes and impose rates and charges on consumers forthese services. According to this Ordinance, DWASA is supposed to be anautonomous entity; however, the Ordinance also stipulates that DWASA shall beguided, on questions of policy, by such directives as the Government may, fromtime to time give, and the Government shall be the sole judge as to whether adirection given to DWASA is or is not a question of policy.

8. An essential goal for DWASA is to ensure that it operates moreefficiently as a truly autonomous and commercially managed water supplyutility by implementing actions that would give it more autonomy in itsoperations to provide its customers with an adequate and reliable water sourceefficiently. To meet the growing demand for water supply in Dhaka, GOBsupport is required to ensure that DWASA achieves this goal. This willinvolve DWASA adopting clear strategies addressing its financial, operationaland institutional performance.

9. The main objective of this Agreement is, therefore, to developDWASA into an efficient and financially autonomous organization, capable ofmeeting consumer needs, without recourse to GOB financial and budgetarysupport. With donor assistance, DWASA is committed to improve the watersupply and sanitation situation in support of overall Government sectorobjectives.

10. The Agreement defines, for the period stipulated:

(a) the objectives and obligations of DWASA under the Agreement;

(b) the rights and obligations of GOB and DWASA under the Agreement;and

(c) the procedures for performance evaluation and monitoring under theAgreement.

11. The targets and provisions in this Agreement will be incorporatedinto a Corporate Plan that will form the basis for DWASA's operations and willbe revised annually.

GENERAL PROVISIONS

1. Period of Agreement

This Agreement covers a period of five years from thedate of its signature to 200_. The parametersfor this Agreement shall be reviewed annually between the partiesinvolved.

2. Review and Modification of Agreement

Notwithstanding the provisions made in the paragraph above, thisAgreement shall be subject to review and/or modification orextension by the agreeing parties during the period of thisAgreement.

Annex 2.3Page 3 of 8

3. Limitation of Agreement

This Agreement shall in no way supersede, amend or modify theprovision of the WASA Ordinance, including its amendments, andshall, in all respects, be subject to the provisions of theOrdinance. In case of a conflict between the provisions of thisAgreement and those of the Ordinance, the provisions of theOrdinance will prevail.

OBJECTIVES AND OBLIGATIONS OF DWASA IN THE PERFORMANCE AGREEMENT

4. Supply Obiectives

4.1 DWASA will commit itself to provide at all times the bestconditions of service within the means at its disposal and willachieve the water supply coverage levels shown in the Annex toachieve a 70% coverage level in FY2000.

4.2 To meet the targeted water supply coverage levels, DWASA shallundertake an expansion of its water supply capacity byimplementing the Fourth Dhaka Water Supply Project, withefficiency and efficacy.

5. Technical Operational Objectives

DWASA will make every effort to improve the technical qualities ofits services. The objectives of such efforts should cover thefollowing areas:

5.1 DWASA will undertake to improve its distribution system byintroducing a preventative maintenance program for all plants anddistribution network. This program will be reviewed annually by acommittee consisting of DWASA and MLGRDC officials to ensure thatit meets stated objectives.

5.2 DWASA will undertake to implement the Crash Meter Installationprogram and to achieve the targets in the Annex to increasemetered connections to about 95% of total connections by June 1998DWASA will use all resources available, internally or externally,including the option of contracting the implementation of thisprogram to the private sector.

5.3 DWASA will undertake to implement a leak detection and controlprogram, and actions to reduce commercial and administrativesystem losses to reduce system losses according to targets in theAnnex and achieve a level of unaccounted for water of 36% from thecurrent level by 1999.

5.4 DWASA will undertake to implement a consumer connection program,to achieve the targets in the Annex and increase the level ofconnections to 199,485 by FY99.

5.5 DWASA will undertake to implement a well monitoring andregeneration program to improve productivity of its tubewells, andachieve increase average productivity per well to 4.0 million lpdby 1998.

Annex 2.3Page 4 of 8

6. Commercial and Operational Obiectives

DWASA will make every effort to improve the quality of its serviceand commercial operations. The objectives of such efforts are:

6.1 DWASA will improve the level of its revenue collection to attainthe targeted levels of receivables to monthly billings shown in

the Annex and achieve a ratio of 3 months by FY98.

6.2 DWASA will implement a meter repair program by FY97 to ensure thatfaulty meters are reported and repaired within thirty days.

6.3 DWASA commits itself to improve its billing practices to ensurethat by FY98, all customers receive their bills on a monthlybasis.

6.4 DWASA will implement a billing policy to ensure that by FY98, allbills are paid within three months from the receipt of the bill.

7. Investment Oblectives

DWASA commits itself towards the effective implementation of itsinvestments under the Fourth DWASA Project to sustain the growth

-. and capability required to meet the forecasted production capacityof 101,300 million gallons per year by the year 2001.

8. Consumer Relations Obiectives

DWASA commits itself to improving the quality of its commercialmanagement and interaction with its consumers. The commitments ofDWASA under this objective is to introduce policies that would:

8.1 improve commercial relations with consumers along with prompthandling of queries and service complaints. DWASA commits itselfto respond to a service complaint within 10 days;

8.2 provide information to consumers beforehand on expected watershortages, and reasons and estimated duration of the shortages,and explanation afterwards on sudden and unexpected watershortages;

8.3 implement a media campaign to warn consumers on the legalimplications on the pilferage and theft of water;

8.4 implement a media campaign to bring awareness in consumers of thebenefits of the conservation of water resources.

9. Human Resource Management Obiectives

DWASA commits itself to improve the efficiency of its staff inrelation to its services. The commitment of DWASA under thisobjective would be:

9.1 achieve the staffing targets set in the Annex and improve itsstaff productivity index to 14 staff per 1,000 connections by the

Annex 2.3Page 5 of 8

year 2,000, and maintain its staff costs to no more than 25Z oftotal costs.

9.2 take appropriate action, to improve staff productivity measuresthrough strict recruitment policies, natural attrition, incentivesfor greater motivation and productivity and comprehensive trainingprogram.

10. Finance, Accounting and Audit Obiectives

DWASA commits itself to strengthen its financial performance,accounting systems, audits and control and improve its financialmanagement and operational efficiency. The commitments of DWASAunder this objective would be:

10.1 to take adequate financial and regulatory measures to improverevenue to a level such that gradually, and by FY99, internalrevenue generation shall be sufficient to cover cash operatingexpenses; debt service resulting from all debt incurred underthree IDA credits, two ADB loans, and debt to be incurred underthe proposed Fourth DWASA project in percentages shown in theAnnex and contribute to the self-financing of the InvestmentProgram in percentages shown in the Annex;

10.2 to review and improve the accounting system, with assistance oftechnical assistance under the project, to establish an efficientcomputerized accounting system with updated accounting manuals byFY98.

10.3 to review and update the financial status of DWASA, includingreview of accounts receivables to establish a realizable value,perform an ageing analysis of all receivables, perform areconciliation of all balance sheet items, including stores toidentify obsolete and slow moving stores, establish more reliableestimates of work-in-progress, current liabilities and fixedassets, by March 1997 and sell all mismatched obsolete and slowmoving stocks; and write off uncollectible arrears by December1997;

10.4 to review and update budget procedures, and issue manual ofprocedures and guidelines;

10.5 improve financial management of DWASA, in respect of cashmanagement, account and ledger reconciliations and providetraining to accounting staff to improve their efficiency;

10.6 review and establish effective systems of internal controlthroughout DWASA, including strengthening of the Internal AuditSystem.

11. Tariff Policy Objectives

11.1 DWASA will adopt a revised tariff structure by June 1997. Therevised tariff structure shall be aimed to fulfill the followingfunctions:

Annex 2.3Page 6 of 8

11.1.1 to meet DWASA's financial requirements as outlined in Section10.1;

11.1.2 to adapt a tariff structure leading towards the long-run marginalcost methodology;

11.1.3 to address appropriately the issue of cost recovery for otherservices, e.g. drainage, sewerage;

11.1.4 to provide an appropriate guidance to the charges to be applied tolarge, medium, small, commercial and domestic consumers.

11.2 DWASA will take actions to adjust its tariffs annually asrequired, based on an agreed inflation index, and to meet itsfinancial objectives for the period FY97 to FY01, to enable it toachieve the performance targets in the Annex.

RIGHTS AND OBLIGATIONS OF GOB AND DWASA

12. Arrears from Government Departments for Water Supplied

GOB commits to cause Government departments to settle outstandingarrears to DWASA including setting up a mechanism to ensure thatreceivables from Government Departments are no more than 90 daysof billings, and by making the appropriate annual budgetsallocation for these arrears.

13. DWASA Interest and Principle Arrears

DWASA commits to prepare by March each year, repayment schedulefor arrears of interest and principle obligations under the threeIDA credits onlent to it by GOB.

14. Recovery of Current Accounts From Government Departments

GOB shall ensure that all government departments, Ministries andparastatals who use DWASA water do so as consumers of DWASA andthat they will respect the terms and conditions of supply,including timely payment of water charges. GOB ensure that suchdepartments settle water charges within three months of receipt ofbills.

15. Disconnection of Water Supplv

DWASA shall disconnect water supply to any government, parastatalor private consumer with more than three months of unpaid bills.Resuming water supply shall be subject to resettlement of the sumdue, plus payment of any reconnection charges and penalties.

16. Compensation due to Obligations imposed by GOB

Whereby, for general public welfare, GOB directs DWASA toundertake any special obligations or works which increases itsoperating costs, or reduces its revenues, (e.g. maintain DhakaCity's drainage system), GOB will compensate DWASA to the extent

Annex 2.3Page 7 of 8

of such costs and losses within six months of the receipt offinancial records confirming such costs.

17. Audit of Accounts and Statements of Expenses

No later than two months after the end of each year, DWASA musthave its accounts for the year audited by independent auditors.Such an audit would include authentification of DWASA's financialstatements, Project Accounts covering investments under the DWASAIV Project, and Statement of Expenses, also under the project.

18. Submission of Annual Reports

Each year after completion of the audit, DWASA will submit to GOBan Annual Report, along with the final Audit Report within threemonths of the final Audit report submitted by auditors.

19. Financial Statements to be produced by DWASA

DWASA agrees to prepare monthly financial statements consisting-ofincome statement, balance sheet and sources, and uses of funds onan ongoing basis. DWASA also agrees to submit to GOB through itsBoard, three months before the end of each fiscal year:

19.1 a detailed budget for the next fiscal year;

19.2 detailed financial forecasts (income statements, balance sheet,and sources and uses of funds statement) for three fiscal years,updated annually, with a summary of the investments to be -

undertaken and their costs.

20. Legal and Regulatory Aspects

20.1 GOB and DWASA will prepare and publish regulations which will makethe theft of water a punishable offence;

20.2 GOB will take the required legal and administrative actions tosupport DWASA to implement the program, this contract, PerformanceAgreement and other policies, including the required legalamendments to existing legislation.

PERFORMANCE AGREEMENT MANAGEMENT

21. Performance Evaluation

DWASA shall install by FY98 a system of effective performanceevaluation to steer its performance in the desired direction. Theevaluation system shall be based on the principle that DWASA'sperformance should be assessed against pre-determined targets.The evaluation system shall have three basic elements-

21.1 A performance information system to measure actual performance;

21.2 A performance evaluation system to specify desirable performance;

Annex 2.3Page 8 of 8

21.3 An incentive system to link desirable performance with a set ofmonetary and non-monetary incentives.

22. Performance Indicators

22.1 To measure the achievements under this agreement, DWASA shallissue, along with the annual budgets, the indicators to beachieved each year; which will be submitted to MLGRDC. Withinthree months after the end of the fiscal year, DWASA will issueupdated values of the indicators, stating the actual valuesachieved during the previous year and justification for suchupdates, if any.

22.2 GOB commits to provide satisfactory autonomy to DWASA to achievethe given targets.

23. Performance Monitoring

23.1 To follow-up the execution of this Agreement and the indicators, areview committee shall be established consisting of DWASA andMLGRDC representatives. The committee will monitor progress on aquarterly basis, and will provide interim review reports aftereach quarter, and an annual review report at the end of the fiscalyear.

23.2 GOB will evaluate performance based on the annual review report,which will form the basis for performance incentives against apre-determined formula.

23.3 The annual review report for each year will include an update ofthe objectives for the ensuing fiscal year and forecasts for thefollowing three years.

23.4 In case of continued non-compliance with the provisions of thisPerformance Agreement and agreed performance targets, GOB willtake action, through the Board, for the immediate dismissal andreplacement of the concerned individuals in DWASA responsible forDWASA's performance within six month(s).

23.5 GOB in conjunction with the Board, may prescribe other penaltiesas they see fit for non-compliance with the provisions of thisAgreement.

24. Effective Date:

This Agreement is effective from the date of signature thereof byboth the parties.

25. Subscription:

This Agreement will be signed by the Managing Director on behalfof DWASA and an official of the Ministry of Local Government of arank no less than a Joint Secretary on behalf of the Government ofBangladesh.

Annex 2.4Page 1 of 4

BANGLADESH

FOURTH DHAKA WATER SUPPLY AND SANITATION PROJECT

Contractinx Out of DWASA Services

INTRODUCTION

1. As part of an efficiency drive, Dhaka Water Supply and SewerageAuthority (DWASA) proposes to "Contract-out", on a trial basis, two of itsoperational activities in two zonal supply areas. The operations are meterreading including installation or replacement and repair of defective consumermeters billing and collection. This approach has become necessary because ofincreasing water and revenue losses due to (i) non-working meters; (ii) absenceof meter reader incentives and integrity control; (iii) delays in replacingdefective meters; and (iv) physical and administrative losses in thesecondary/tertiary distribution system.

2. There are some firms in Dhaka with the resources and the understandingof the work to be done as envisaged under this contract. Accordingly, offers arebeing invited from these firms for evaluation together with any other companiesor agencies with experience or knowledge in operating water supply systems andbilling procedures. Some of the companies in question have already worked withDWASA on analyzing system operations and measures to combat losses. However, itis intended that this task will generate a degree of competition between bidderswith a proper understanding of the work to be done and the ability to mobilizethe resources required. In addition, it has been agreed that one zone would becontracted out to DWASA's workers' union along the same terms as those applicableto the commercial operators. This will foster competition initially, and bothcontracts would be reviewed after a year, to assess the success of each, andprovide a basis for renewal, cancellation of either or both contracts.

Type of Contract:

3. The contracti (or contracts) to be drawn-up, would give someincentive to increase the numbers of meters read and replaced and the level ofbilling and collections. Additionally, it would include a control element toensure that reliable meter readings are obtained, on which DWASA's customers canbe billed. The contract will include a payment schedule for replacing nonworking meters with new or refurbished meters from DWASA Stores and may alsoallow access by the contractor to DWASA's meter repair workshop to carry outrepairs and recalibrate meters. However, these facilities are limited and thecontractor may well decide to establish his own repair facilities or make otherarrangements.

4. The contract will be written to encourage the conversion of non-meteredconnections to ones with working meters. Meter removal, repair, recalibrationand reinstallation will be carried out by the contractor. The contractor willalso prepare DWASA bills for customers still being charged on the basis of

1 Outline attached.

Annex 2.4Page 2 of 4

property values.

5. The successful bidders would be provided with computer equipmentpurchased by DWASA for use in zonal billing, using the present billing proforma.The billing, therefore, would be designed with an interface compatible withDWASA's billing computer which is to be incrementally strengthened under theproject. In this regard, there must be full co-ordination between DWASA and thefirm that installed DWASA's software.

6. As part of the meter reading work and billing process the contractorwill report system leaks. The repair of these leaks may be the subject of aseparate priced contract either with the meter reading contractor or anotherprocured by DWASA. Such repairs may also include necessary pipe replacement.It is already the practice for DWASA to execute such works as individual smallscale contracts.

Monitoring & Evaluation

7. To assess the effectiveness of "contract out program", DWASA will startby costing the "in house" part of this operation, in the pilot zones, associatedwith the current stream of revenues. This information will be compared withimprovements, if any, in metering and billing resulting from the "contractingout" process. The trial period will run for not less than 12 months and will beextended to two additional zones after the first twelve months. It is expectedthat by FY99, all zones will be covered under the program.

Timetable for Preparation/Execution by DWASA

- Preparation of suitable bid document --- May 15, 1996

- Receipt of expressions interest from --- June 15, 1996

- Issue and receive bids --- September 24, 1996

- Evaluate bids, award contract and commence work--- November 30, 1996

- Evaluate performance of contractor within 9 months of commencement andnegotiate contract extension or prepare for further bidding.

Annex 2.4Page 3 of 4

METER READING AND REPLACEMENT

CONTRACT OUTLINE

The principal items to be included and developed by DWASA into asuitable contract bidding document which can be used for engaging a contractorto read revenue meters and carry out necessary replacements are given in thisoutline. This work would be carried out on a "trial basis" as an alternative tothe present "in-house" system where a number of inefficiencies have beenidentified.

The supply areas to be covered by this proposal would be DWASA's Zone4 & 5 containing about 19,000 connections each. Zone 5 is almost completelymetered but there is no up-to-date of how many meters are actually working. Zone4 is more representative of the undermetering problem and is selected because,as well as tackling billing and collection, it will enable the meter coverage tobe increased significantly. It is proposed that the entire zones should becovered with the possibility of an extension to other areas.

Contract Information to be Provided by DWASA

(a) Customers billing record, including postal addresses

(b) Number of revenue meters and sizes

(c) Number of unmetered connections and pipe sizes

(d) The number and sizes of new meters which could be released fromDWASA's stores

(e) DWASA Unit Cost for repairing and rehabilitating meters of varioussizes

(f) Delivery time for DWASA repaired meters; i.e. in and out of workshop.

(g) A route walking map of the area covered by the contract

(h) Detailed drawing of a meter box/chamber installation andspecification.

(i) Meter specification with stated plus and minus accuracy.

Work Description

The contract would, as fully as possible, describe the work to becarried out. This calls for reading meters every 2 months, preparing anddelivering bills and monitoring collections. The contractor who would also beresponsible for following up defaulters; for this to be done DWASA would keep thecontractor informed on collection deficiencies.

At the same time as submitting meter readings the contractor wouldprovide the zonal office with a list of unmetered connections recommended for

Annex 2.4Page 4 of 4

conversions. The contractor would obtain approval for a planned conversionprogram with new meters, available in DWASA stores, or repaired units. Toexpedite this work the contractor may make his own arrangements for obtainingmeters that comply with DWASA's own specifications.

The contractor would undertake the following:

(i) for each meter reader collect at least 750 meter readings permonth;

(ii) arrange a cost effective system for delivering bills;

(iii) assess meter accuracy in relation to size of buildings/numberof apartments/occupants and make checks where underbilling issuspected due to faulty or tampered meters;

(iv) investigate and report illegal connections and by-passes;

(v) establish a rolling program for meter testing and replacement;

(vi) computerize the consumer record and submit to DWASA's computercenter every month; and

(vii) submit reports on billing, collection, meter testing andrepairs.

Payment Schedule (Bill of Quantities)

Payment for meter reading preparation and delivery of bills would beon a simple unit price based on 6 readings per calendar year for each property.Payment would be on a performance basis, i.e. bills delivered and collectionsreceived by DWASA The billing for un-metered customers would be based on DWASA'sproperty value formula.

Where new meters are installed or replaced a unit price would alsoapply. One price would be for replacement, the other would be for a completeinstallation, including the meter box, if any. A separate unit price would begiven where the contractor supplied the meter.

Supervision

DWASA's zonal supervisors would be responsible for overseeing thecontract and certifying payments under the contract. Currently, in zone 3 thereare 4 DWASA meter/connection supervisors and 40 inspectors (meter readers).

Evaluation of Bids

DWASA will evaluate bids submitted both on price and the contractors'understanding of the work to be done and the contractors' ability to mobilizeresources. Accordingly, as well as a priced bid, contractors will be asked tosubmit an adequate work plan.

Annex 3.1Page 1 of 3

BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

Detailed Description of Proposed Water Treatment Plant

1. The proposed treatment plant will include the construction of thefollowing subcomponents:

A. Pumping Station, Intake Works and Twin Culvert.

i) Intake Structure: The location of the intake structure will beabout 400 meters down stream of Demra Ghat at Sarulia village.A conventional intake with bar racks to provide screening ofraw water will be constructed off-shore in the river bed. Theintake will have a capacity of 275 IMGD of water to enter thenew raw water pumping station. The intake structure isdesigned to operate over a wide variety of river levels so thatduring the wet season, it will not be necessary to pump waterfrom the river into the canal.

ii) Raw Water Pumping Station: A raw water pumping station at theriver front will be constructed to pump water into the DNDCanal. The pump station will accommodate pumps needed for 125IMGD raw water with a provision of another 150 IMGD in future.The initial electro-mechanical works will be limited to 60 IMGD(50 IMGD for treatment and 10 IMGD for canal logging). Waterwill be pumped in the dry season when the water levels in thedry season fall under a certain levels.

iii) Twin Culvert: Water will be carried from the raw water pumpingstation to the DND canal at Karim Jute Mills by a twin RCCculvert with a capacity of 275 IMGD. A control structureequipped with penstocks and stop logs will be constructed onthe culvert to regulate the flow, to clean the culvert i.e. bysending the flow in one direction, and to close the flow incase of emergency.

B. Rehabilitation of the DND Canal.

The DND canal was built by the Bangladesh Water Development Board(BWDB) for irrigation purposes. In March 1993, an agreement wassigned between BWDB and the Dhaka Water Supply and Sewerage Authority(DWASA) for the joint use of a part of the main canal for the purposeof the Fourth Dhaka Water Supply Project. DWASA will use the part ofthe canal located from Sarulia to Kajla to convey raw water from theLakhya river to the site of the water treatment plant at Saidabad.The length of the canal to be used by DWASA is 4.6 km with an averagewidth of about 40 meters. To secure this canal from potentialpollution and to introduce overflow structures for maintaining thecanal operation level at 5.00 meters about PWD levels, rehabilitationworks will be undertaken. This will include: (a) repair ofembankments on both sides of the canal and removal of trees and

Annex 3.1Page 2 of 3

stand wall with intermediate gullies in turn draining under the roadto the north; (d) security overflow weirs connected with the existingdrainage system of the DND irrigation project; (e) an isolatingembankment (cross dam) at the head of the canal to isolate thesouthern part to be used by BWDB for irrigation purposes; and (f)rehabilitation of temporary pedestrian crossings over the canal andprovision of alternative water supplies (handpumps) to residents whocurrently use the canal for washing.

C. Culvert from DND Canal to Treatment Plant Site. The DND canalterminates at a point 1.6 km from the Saidabad Treatment Plant Site.To link the canal to the water pumping station within the treatmentplant site, a second twin box culvert will be constructed with theultimate capacity of 200 IMGD. An intake structure at the canal andcontrol structure on the culvert will also be constructed.

D. Development of the Treatment Plant Site. The present site is ataverage ground level of 2-3 meters, and is, in consequence, prone toflooding every wet season. To make the site suitable forconstruction, DWASA will require special foundation (piles/rafts) inorder to construct the works. The site development will raise theplatform level to 8.00 meters suitable for construction of the plantand subsequent operation and maintenance. Backfill will involveabout 500,000 m3 of earth work, followed by 90Z compaction ofstandard proctor test.

E. Saidabad Treatment Plant. A conventional surface water treatmentplant with a capacity of 50 mgd will be constructed. The electro-mechanical equipment will be manufactured, delivered, installed andcommissioned under turnkey arrangement, with limited competitivebidding. The scope of work for the plant will include:

i) Raw water pumping station and distribution arrangements withcivil works of 200 IMGD capacity, but electro-mechanical andequipment limited to 52.5 IMGD;

ii) Mixing tanks and flow distribution arrangements;Clarifiers and filter batteries;

iii) Chlorine control tank and-treated water reservoir;

iv) Treated water pumping station;

v) Main power switchboard and transformer buildings;

vi) Chemical storage building, chemical mixing tanks, andchlorination building;

vii) Sludge recovery facilities; and

viii) Standby power generation and miscellaneous works.

F. Ancillary Structures at Treatment Plant. This will comprise of thefollowing:

Annex 3.1Page 3 of 3

i) Administration building and laboratory;

ii) Maintenance Workshop;

iii) Site clearing, fencing, road drainage and site lighting;

iv) Pavement of access road after completion of construction activities;and

v) Provision of gas, electricity and telephone facilities.

G. TransmissionlPrimary Distribution Mains. About 20 km of transmissionand primary mains will be constructed. The procurement andimplementation of primary distribution mains will be on a "supply andlay" basis. Pipe will be in the diameter range 1,000 mm to 1,500 mm.Dual pipelines will be laid along the routes where there is no majortraffic congestion.

H. Secondary Distribution System. Approximately 18.5 km of secondarymains will be constructed. New distribution pipelines, diameterrange 300 mm to 600 mm will be laid in those areas of the citywhether new treated water sources will be available to improve thelocal hydraulic capacity for supply to existing and new consumers ineach sub-zone. In addition, new areas will be supplied with waterfor the first time by DWASA and the new secondary distributionpipelines will be laid in each sub-zone.

2. Water Treatment Method. Raw water transmitted to the treatment plantwould initially receive chemical mixing before passing to the clarifiers. Theprocess treatment steps would be chemical injection, rapid mixing, flocculationand clarification. Chemicals added at this point would include alum forcoagulation purposes and chlorine, if necessary, for the control of aquaticgrowths within the clarifiers and filters. From the rapid mixing tanks, waterwould flow to clarification tanks. Clarified water would then flow by gravity tothe filter influent head channels. Filtered water would flow by gravity into theclearwell which would be pumped into the treated water reservoir. The storagereservoir is 8% of the plant's rated capacity.

Annex 3.2Page 1 of 3

BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

Detailed Description of Institutional Strengthening,

Loss Reduction and Technical Assistance Components

1. Distribution and Production Svstem Rehabilitation

i) Leak Detection Program: A leak detection program will beimplemented in the DWASA service area as a follow up to the pilotprogram undertaken in a DWASA zone under the Third DWASA Project(Cr.1734-BD. The program will be undertaken in three phases; PhaseI will revisit the two pilot areas under the Third Project; Phase IIwill cover about 70,000 connections, while the Third Phase willcover about 80,000 connections.

ii) System Rehabilitation: Based on the Leak Detection program in (i)above, a program for system rehabilitation for the entire servicearea will be implemented. This program will consist of replacementand repair of broken or worn pipes, defective or unsuitable metersand fittings, valves, and preparation and implementation of apreventive maintenance program for the whole distribution system.

iii) Tubewell Regeneration: A tubewell regeneration program will beprepared and implemented to improve the production efficiency ofDWASA's tubewells. The program will seek to replace or reset wellsthat are non-operative due to sand clogging or whose yields havedeteriorated. A preventive maintenance program will also beprepared and implemented.

2. Expansion of Service Connections

i) Tertiary Distribution and House Connections: This will includeextension of the existing connections to provide water to areas ofDhaka that are currently not connected to DWASA services. About50,000 new connections will be installed by the year 2001.

ii) Crash Meter Installation Program: The objective of this program isto install meters to connections that are currently not metered, toreduce the level of unbilled water and thereby increase revenue.The program will reduce unmetered connections from the current 32%to 5% within two years. The program will be contracted out to theprivate sector.

3. Development of Improved Sanitation/Sewerage Services

i) Evaluation Stud_y: This study will: a) review the existing situationto determine the key problems and issues in sanitation andcollection of waste water and sewerage from domestic, industrial andcommercial sources in the city; and b) estimate the demand forvarious sanitation options and determine the investment options

Annex 3.2Page 2 of 3

available, including detailed preparation of priority investments tobe implemented under the project.

ii) Physical Works/Sewerage and Latrines: Based on the evaluation studyabove, priority investments will be undertaken in rehabilitation ofselected sections of the sewerage system, and a low cost sanitationprogram to be implemented under the project. The program will alsoprovide limited expansion of sewerage services to unserviced areasof the city.

4. Institutional Development Technical Assistance

i) Water Resources Management Study: The objectives of this two yearstudy are to obtain adequate knowledge of the water resources (bothground and surface water) in the Dhaka region to facilitate themonitoring of quality and quantity of resources and allow effectivedemand management to conserve and utilize available water moreefficiently.

ii) Management and Operations Support (Twinning) Program: To help DWASAimprove efficiency, a twinning program from an efficient utilitywill be sought for a period of four and half years. The programwill address problems and issues in operations and maintenance;financial and operational management, personnel management andtraining; management information systems and computerization.

iii) Program to Contract Out DWASA Services: To improve operationalefficiency, DWASA will commence a program to contract out some ofits services to local contractors. The contracts call for the

reading of meters, preparation of bills, delivery of bills, follow-up of defaulters in case of non-payment, meter repair andreplacements. The program will start in two zones of DWASA servicearea and experience in these zones will be used for planningadditional contracting services.

iv) Training: Training will be provided to DWASA staff to improveskills in financial, operational and technical operation of theutility. Training would be based on a manpower and organizationalstudy to be undertaken under the Twinning Program. Training will beprovided on the job, through the DWASA Training Institute, andabroad to enable DWASA staff and management gain specific skillsrequired for utility operation. Training will also includesecondment of DWASA staff to the utility of the twinning partner tofacilitate appropriate technology transfer.

v) Management Support (Contract Staff): An experienced andappropriately skilled managing director, and three deputy managingdirectors will be appointed under the project and provided withappropriate financial incentives commensurate with their skills. Toattract staff with necessary skills, these positions will be filledby local contract staff, to be initially financed under the project,with the objective of gradually transferring financialresponsibility to DWASA. The initial contracts will be over aperiod of four years.

Annex 3.2Page 3 of 3

vi) Strateav Study for Private Sector Participation: To assist indeveloping a long term strategy for mobilizing finance andincreasing efficiency, DWASA will retain consultants to determinethe broad levels of finance required, and the sum available fromdifferent Government concessional and commercial sources. The studywill assist in demonstrating the need for fundamental reform inorder to attract the required finance. It will also assess thesteps required for reform implementation, including the developmentof a regulatory framework, and will outline the possible contractualand financial structure for major private sector participation, forexample, through a long term concession. The study findings areexpected in early 1986. Action taken in response to the study willbe covered in the mid-term review.

5. Prolect Preparation and Implementation Support Technical Assistance

i) Project Preparation: Two consultants to be financed retroactivelyhave been appointed to prepare two remaining components of theproject: a) revision of the WASA Ordinance to create legislationthat will allow DWASA to operate as a commercial entity; and b)detailed design and preparation of bid documents for ancillaryworks.

ii) Construction Supervision and Network Analysis: The project willrequire two construction supervision contracts: a) constructionsupervision of the treatment plant; and b) construction supervisionof the primary, secondary and tertiary distribution system and theintake. The second contract will include a network analysis of thedistribution system to identify areas of the distribution systemthat need strengthening and extending, using a computer analysis ofthe network (WATNET), with a planning horizon of 2010.

iii) Equipment: Miscellaneous equipment, including motor vehicles,computers and 50,000 meters will be procured under the project.

iv) Implementation of Tariff Study: A local consultant will beappointed to help DWASA implement a revised tariff structure basedon the results of the Tariff Study completed recently by theGovernment.

Annex 3.3Page 1 of 8

Bangladesh

Fourth Dhaka Water SuPPlY Proiect

Strategv to Mobilize Finance and Increase Efficiency in the Dhaka Water Supplyand Sewerage Sector

Draft Terms of Reference

I BACKGROUND

1. The Dhaka Water Supply and Sewerage Authority (DWASA) provides drinkingwater to 3.8 million people in Dhaka and sewerage services to around 1.14million people. It is owned by the Government of Bangladesh, and responsible tothe Ministry of Local Government, Rural Development and Co-operatives.

2. DWASA is inefficient. There are high levels of unaccounted for water,which have exceeded 50% in recent years. Staff numbers are excessive, at around22 staff per thousand connections. Tariffs are high, with residential consumerspaying Taka 15.84 per 1,000 gallons (equivalent to US$0.09 per cubic meter).Industrial and commercial consumers pay much higher levels, and many choose tomake their own arrangements for water supply. Although DWASA has had access toconcessional lending and grants, its financial performance has been poor.

3. The coverage of drinking water and sewerage is low. Only 50% of Dhaka'spopulation is provided with drinking water, and 15% with water-borne sewerageservices. Actual numbers are likely to be above this, since some unaccounted forwater is for illegal connections.

4. The proposed Fourth Dhaka Water Supply Project will provide drinking waterto a further 500,000 people, and reduce levels of unaccounted for water.However, given the population growth over the period this will still leave majorinvestment requirements. Rough estimates of the investment required to providedrinking water to all Dhaka's population and sewerage to 60% by 2010 suggest thatas much as $1.5-2 billion might be required over the next fifteen years.

II OBJECTIVES

5. A strategy is required to raise this finance, and to increase theefficiency of water and sewerage provision. To date water and sewerage has beensupplied by a public enterprise drawing heavily on concessional lending.However, the sums now required greatly exceed the finance available fromconcessional lenders. In its current form DWASA would not have access to thisscale of finance from commercial sources.

6. The objective of the study is to prepare a strategy that will enable theGovernment of Bangladesh to raise the finance required for an acceleratedinvestment programme and to increase the efficiency with which investments areimplemented and operated. In preparing that strategy the consultants should:

Annex 3.3Page 2 of 8

* agree a set of options to be considered for the future structure of thesector, and for responsibilities for investment and operations;

* prepare an estimate of investment costs for an accelerated investmentprogramme;

* amend existing forecasts of operating costs and revenues to be consistentwith the accelerated investment programme, and with the expectedefficiency of operations under different options; and

* review the scale of funds available from different sources and the termsattached to them, to determine the feasibility and cost of financing theaccelerated investment programme under different options.

7. The objective of the study is to assist the Government of Bangladesh inunderstanding, and selecting between, options for financing and managing futurewater and sewerage provision. The consultants will be required to work closelywith Government throughout ths- study. A Steering Committee will be convened byGovernment to guide the consultants, and to monitor and respond to the keydeliverables described below. The consultants will arrange for key officials tohave exposure to private sector operators, and to visit cities where greaterprivate sector participation is being introduced in the water sector.

II SCOPE OF WORK

Overall approach

8. The consultants should review a broad range of options for ownership,operation and industry structure. These should include continued publicenterprise reform, and differing forms of private sector participation. Theprofitability of DWASA (or any successor body), and its access to the requiredfinance should be estimated for each option. Options which are not capable ofraising the required finance should be rejected, but should be included in thereport with detailed anaysis.

9. There are likely to be a number of different options under which DWASAwould be capable of financing the proposed increase in service provision. Thecosts associated with these options should be modelled. The final tariff impactshould be assessed for different options, as well as the transitional costs (suchas demanning) associated with them. The consultants should also review theregulatory and legal requirements associated with each option.

10. Detailed analysis should be presented for each option capable of financingthe required expansion. The consultants should also indicate the preferredoption.

Options for-consideration

11. The consultants should prepare options for ownership of the assets,responsibility for operation and industry structure. These should include oneor more options for public enterprise reform from continued public ownership withdiffering forms of private sector participation up to full privatization.

Annex 3.3Page 3 of 8

12. The option for continued public enterprise reform would continue DWASA'sownership and operation responsibility. However, it should incorporate theinstitutional changes agreed in preparation of the Fourth Dhaka Water Supplyproject. These include steps to organise DWASA along more commercial lines;creation of internal profit centres; contracting out of billing, collections andmeter repair; and support through a twinning programme, training and other

technical--assistance.

13. The consultants will need to form a realistic and soundly based assessmentof the likely impact of these reforms on DWASA's efficiency, profitability andaccess to finance. This will require an understanding of the success of suchreform measures elsewhere, and in particular in other sectors in Bangladesh.

14. The consultants should also review possible forms of private sectorparticipation. These should include:

* further contracting out of specified services, in addition to that alreadyproposed, or modification to existing contracts;

* contracting out of new investment through BOO or BOT financing;

* a management contract;

* private sector responsibility for operations, including working capital,combined with public sector responsibility for major investments;

* _ a long term concession, with private sector responsibility for allinvestments over the life of the concession; and

* privatization.

15. The consultants should cover the options described above. However, theycan also propose alternative forms of private sector participation or publicenterprise reform for inclusion within the study.

16. At present DWASA is an integrated utility. The consultants should considerthe scope for vertical or horizontal separation, where this would provide greatertransparency in operational performance and stronger incentives for efficiency.However, the dominant objective is to assist in the mobilization of finance.Where unbundling would increase risk to an unacceptable degree and so hinderfinancing this should be stated.

17. The deliverables from this work will be a set of options for detailedconsideration. The development of these options will be reviewed and commentedupon by the Steering Committee.

Financial Projections

18. Financial projections have been made in preparation for the Fourth WaterSupply project. These financial projections will need to be updated. They willalso need to be amended to allow for achievable efficiency gains and increasedfinancing requirements.

Annex 3.3Page 4 of 8

19. The financial projections should be prepared to allow for fully meeting thedemand for water and meeting the 60% of the demand for sewerage. Costs andrevenues should be projected for meeting this level of coverage by 2010 and 2020.Demand forecasts should be based on those prepared by BCEOM, but DWASA's viewsshould also be taken into consideration.

Operating costs

20. DWASA incurs very high electricity costs for water pumping, and theseaccount for 60X of operating costs. Direct wages and salaries account for afurther 15%. Repairs and maintenance account for only 6% of direct expenses, andthis inadequate funding is leading to deterioration of the network. Theconsultants should assess operating costs; determine what these might befollowing implementation of the proposed reforms to DWASA; and determine howoperating costs might change as service provision increases.

21. The Fourth Water Supply project will achieve significant changes in DWASA'sstatus and structure, strengthen DWASA's management, and provide technicalassistance to increase management capability and DWASA's efficiency. It will beimportant to have a realistic view of what efficiency gains can be achievedthrough public enterprise reform in the operating environment faced by DWASA, andto incorporate these in the revised financial projections. The consultantsshould review the reform experience of other utilities in Bangladesh, and drawon experience of water utility reform in other developing countries, inparticular South and South/East Asia.

22. Significant private sector participation is likely to change fixed andvariable operating costs. The consultants should prepare estimates of whatfurther changes in operating efficiency could be achieved under differentoptions. Where significant transitional costs are incurred these should beincorporated in the analysis. For example, it is possible that a private sectoroperator would achieve greater reductions in fixed labour costs, but would incura transitional cost for redundancy payments/redeployment.

Investment costs

23. Investment needs to 2020 have already been assessed in a study carried outby BCEOM. The consultants should review this work, and prepare outline estimatesof the costs of an accelerated investment programme. Two accelerated programmesshould be prepared, to allow for 100% drinking water provision and 60% provisionof water-borne sewerage by 2010 and by 2020.

24. It is not envisaged that the study recommendations will be sensitive to thelevel of investment costs, and if necessary the financial analysis can be amendedat a later date once the findings of other studies emerge (such as theFeasibility Study for Improved Sanitation Services). Cost estimates should onlybe approximate. Where possible they should be based on the BCEOM study. Wherenew investment costs need to be estimated, these should be based on simple unitcost estimates.

25. The scale of investment required will vary according to the efficiency ofoperations. Investment costs should be adjusted to allow for the variations inoperating efficiency discussed above, and in particular the variations in levels

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of unaccounted for water.

Costs of Capital

26. Over recent years, DWASA has made a net loss. However, it has had accessto low cost capital from bilateral and multilateral sources. Capital investmentshave been financed through substantial levels of grant, and through foreignexchange loans with 25 years repayment, 5 years grace, and interest rates rangingfrom 3-12.5Z. The consultants should review DWASA's financing costs over recent

years to determine the historic costs of capital.

27. The financial projections should allow for the expected future costs ofcapital. Under the public enterprise reform option, possible sources offinancing will include:

* a higher level of self-financing, due to greater profitability;

* continued concessional lending. The consultants should review the scaleof funds and the likely terms for future concessional lending from theIBRD, ADB and bilateral concessional sources. Discussion with the Ministryof Finance will be required to assess the on-lending terms to be attachedto any finance from concessional sources;

* Government grants or loans. The consultants should agree with theMinistry of Finance the scale of funds and terms for Government finance;and

* lending from commercial sources. The consultants should review the scaleand terms of commercial lending to DWASA under credible public enterprisereforms.

28. The expected return on equity and costs of debt for private sectorparticipation in major investments, through BOO/BOT financing or a long termconcession, should be assessed to determine the cost of capital associated withprivate sector participation.

29. The consultants should determine the possible scale and cost of privatesector finance-through discussion with possible operators and review of privatesector participation elsewhere in Asia. The level of risk which the privatesector is willing to accept should be assessed and conclusions drawn on therequirements for guarantees against specific risks.

Revenues

30. Revisions to the tariff structure and levels have been agreed during thepreparation of the Fourth Water Supply project. The consultants should preparerevenue projections associated with the accelerated investment programme,allowing for any variations in estimated commercial performance and collectionunder different options.

31. This analysis should be used to prepare revised financial forecasts forDWASA. These forecasts would be used to assess the feasibility and cost offinancing accelerated investment under different scenarios for public enterprise

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reform and private sector participation; the effect of achievable efficiencygains; and the impact on tariffs.

32. The deliverables from this work would be a set of outline financialforecasts associated with each of the options described above. These forecastswould be presented to the Steering Committee and amended in the light of comments

received.

Preferred option

33. The analysis described above would start with a wide range of options. Itis expected that some of these options would not be capable of raising therequired finance, or could only do so at a very high cost of capital. Theconsultants would reject these options/giving justification for such rejection.

34. Options that enabled the required finance to be raised would be examined in

greater detail.

35. For options with greater private sector participation the consultantsshould describe:

* the proposed contractual structure; and

* the allocation of risk between the parties, including any guarantors.

36. Greater private sector participation will require development of anappropriate legal framework and of regulation. For each option the consultantsshould propose an appropriate form of regulation. Where this requires anautonomous regulatory body, the consultant should describe the scope of work ofthe regulatory body, its legislative underpinning, its financing, and ways inwhich regulatory autonomy can be ensured.

37. For each feasible alternative, the consultants will assess the step6required for implementation. Any requirements for legislative change would bedescribed. A timetable for implementation of each feasible option should begiven.

38. The consultants should assess the political and other costs associated withgreater private sector participation. This will include the possible impact onemployment and tariffs.

39. Where there is likely to be substantial demanning, they should proposesolutions that would make the social cost acceptable, and they should assess thecosts of redundancy payments or other interventions.

40. Where tariff increases are required, the consultants should assess thesocial impact. If tariff increases have an unacceptable impact on low-incomegroups, offsetting measures should be proposed and costed.

41. The consultants should clearly and concisely summarise the feasibility offinancing an accelerated investment programme under different forms of publicenterprise reform and private sector participation. The consultant should

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recommend the option which meets the objectives of heightened efficiency andresource mobilisation most effectively. The main selection criteria should bethe impact on consumer tariffs. However, the consultants should also proposealternative selection criteria (such as ease of implementation) if appropriate.

42. The deliverables from this work will be detailed analysis of feasibleoptions, a recommended option for mobilising finance and a timetable forImplementation. This will form the basis of a policy dialogue between the WorldBank and the Government of Bangladesh on the way forward.

Capacity buildina

43. The purpose of this study is to assist the Government of Bangladesh inproviding drinking water and sewerage services. It is likely that this willrequire a higher degree of private sector participation. A key element ofsuccess will therefore be the ability to develop an understanding of therationale for private sector participation, and the different forms of privateparticipation open to Bangladesh.

44. The consultants should work closely with officials of DWASA, the Ministryof Local Government and the Ministry of Finance throughout the study. Inaddition, the study should allow for visits by key Government and utilityofficials to developing countries that are successfully developing greaterprivate sector participation, as well as exposure to possible private sectoroperators.

45. The deliverables from this work will be a deeper understanding of thereasons for and process of private sector participation in the Government ofBangladesh.

III Study Organisation and Inputs

46. The study will address fundamental issues in the approach to financinginfrastructure provision in Bangladesh. It may recommend major policy shifts.A Steering Committee will be convened to ensure that the study effectivelyresponds to the concerns of the Government of Bangladesh. The Steering Committeewill include representatives from the Ministry of Local Government, RuralDevelopment and Cooperatives, the Ministry of Finance and the Economic RelationsDepartment. The Steering Committee will be chaired by the Secretary for LocalGovernment, Rural Development and Cooperatives.

47. DWASA will be work closely with the study team. Two counterparts withinDWASA will be nominated to work with the study team on cost analysis andpreparation of the financial forecasts.

48. DWASA will provide the consultants with access to all available data andinternal documents. DWASA will also arrange access to facilities as required,and to key officials within government. Office space, telephone and faxfacilities will be provided at DWASA's office.

49. The study will be undertaken over an elapsed time of five months.Reporting requirements will be as shown below.

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Table 1: Reporting Requirements

Report Number of copies Timing in weeks fromstart date

Reform Options 10 4

Revised financial 10 15forecast

Analysis and 10 1 20recommendation l

50. The study is expected to require around twelve man-months consultancyinput.

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BANGLADESH

PROPOSED FOURTH DHAKA WATER SUPPLY AND SANITATION PROJECT

Feasibility Study for Improved Sanitation Services

Draft Outline Terms of Reference

I. INTRODUCTION

1. The Fourth Dhaka Water Supply Project includes a technical assistancecomponent for the preparation of a comprehensive plan to address the sanitationand sewerage problems of the city. It also includes financial resources for theimplementation of a modest sanitation/sewerage component to be identified as thefirst stage of a longer term program for which future funding will be sought.

2. The study will be conducted in two parts: (i) a comprehensiveevaluation of the current problem including a projection of demand covering theperiod 1995-2010; and (ii) the identification of an agreed component for whichdetailed design and bidding documents will be prepared.

II. BACKGROUND

3. The Fourth Dhaka Water Supply Project has institutional and physicalinvestment components. The institutional component is aimed at reforms that

would enable Dhaka WASA to operate more efficiently. The physical component is

intended to augment the water supply by about 50 IMGD1 as the first phase of adevelopment program aimed at increasing Dhaka's water supply by about 250 IMGDover a period of 20 years. Up to now, the water supply of Dhaka has beenobtained mainly from deep tube wells distributed over the city. The proposedproject would change this; in addition to the existing multi-point ground watersupply system, the project envisages a surface water intake structure, togetherwith a new treatment plant with associated transmission lines and civil works.

4. The change from a multi-point ground water supply system to a singlepoint surface water source could have implications for the distribution systemsizes and pressures; it would also have a number of possible environmentalimpacts. Augmentation of the supply would result in the generation of additionalwaste water flow and inadequate disposal of the additional wastewater may createa risk of pollution of ground and surface water sources. One of the technicaloptions for addressing this problem may be to use a combined sewerage system forthe collection and disposal of sewage and storm water. However, the

1 IMGD equals one million imperial gallons per day. It is equivalentto 4.546 MI/d or 4,546 m'/d.

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effectiveness of the solid waste collection and disposal system might affect theefficacy and sustainability of such a solution; therefore, the sanitation studyshould also include an assessment of the adequacy of solid waste and stormdrainage services in Dhaka to determine the reciprocal impact of these elements.

5. A variety of sanitation2 technologies are used in the city. Anestimated 15 percent of the population is served through conventional sewerage;about 30 percent use septic tanks; others use pit latrines, pour flush toilets,or no formal sanitation facilities. The first sewerage system for Dhaka datesback to 1923. Since then there has been a number of expansions to the system tocope with the growing population. The existing sewerage system covers thecentral developed area of Dhaka. It comprises three trunk interceptor sewers,one central pumping station, 12 small lift stations, and one sewage treatmentplant at Pagla. The system is now aged and deteriorated and portions have becomebroken or clogged.

6. A number of studies have been undertaken to identify remedial measures;these will be reviewed and used as source material in preparing this study. Thelatest were completed in February of 1990 by Messrs CDM and McDonald & Partners.Under a recent grant from the Japanese International Cooperation Agency (JICA),the sewage treatment plant at Pagla which had become overloaded has beenrehabilitated and upgraded; in addition, inoperative pumping and lift stationshave been rehabilitated. There has also been some extension and upgrading ofparts of the system under the Third Dhaka Water Supply Project funded through an

IDA Credit (Credit 1734-BD). However, no comprehensive city-wide evaluation ofthe hydraulic and structural condition of the sewerage system has beenundertaken. The need for such an evaluation has become even more pressing as aresult of population growth, the expanding geographical size of the Dhaka WASAarea, and the impact of the additional water production soon to be provided.

7. On the institutional side, the primary agencies with responsibility forthis component are the Dhaka Water Supply and Sewerage Authority (DWASA), and theDhaka City Corporation (DCC). DWASA was established in 1963 as a semi-autonomousauthority for the provision of water supply and sanitation services for the Cityof Dhaka. It is responsible for sewerage and drainage. Services that entail theuse of low-cost and on-site sanitation systems are the responsibility of DCCwhere a low-cost sanitation unit has recently been established. The DCC is alsoresponsible for solid waste disposal.

8. DWASA and DCC come under the Local Government Division (LGD) of theMinistry of Local Government, Rural Development and Cooperatives. The LGDregulates the activities of DWASA and DCC; it reviews their project proposals,

2 The term "sanitation" is defined here as a service: (a) for thecollection and disposal of excreta and wastewater from domestic, commercial andindustrial sources and (b) for the abatement of environmental pollution from suchwastes. The provision of this service entails the construction, operation andmaintenance of a range of physical infrastructure, such as conventional sewerage,intermediate sewerage and various types of on-site sanitation systems.

Annex 4.1Page 3 of 8

and monitors their performance in project implementation. Matters relating to

the environment are the responsibility of the Department of Environment (DOE).

III. SCOPE OF WORK

PART l

9. In carrying out this part of the study the consultant will be given

access by DWASA to all previous studies and be provided with such relevant

information it has at its disposal. The output expected is a prioritized series

of project components aimed at solving the most critical identified sanitation/

sewerage problems of Dhaka.

10. The output will be in the form of reports, diagrams and maps and also

consist of an Executive Summary.

11. During the preparation of this part of the study the consultant will

liaise with DWASA (and any other concerned agencies), at regular intervals, to

report interim findings and conclusions to ensure that the final recommendations

identify a costed acceptable sanitation/sewerage component that can be

implemented under the Fourth Dhaka Water Supply Project.

12. In the following summary suggested activities have been grouped

together for reasons of clarity, but the Consultant shall ensure full cross-

referencing between the tasks described.

Review of Existing Situation

13. A review of the existing situation is required for defining the key

problems and issues in the collection and disposal of exereta and liquid wastes

from domestic, industrial and commercial sources in the city. The review is also

required to enable the Consultant to identify and estimate the costs of feasible

technical measures to address these issues. To this end, the task of the

Consultants shall include, but shall not necessarily be limited to, the review

of:

(a) previous studies carried out during the past 15 years in sanitation

services for Dhaka, including recently completed and on-going

projects;

(b) trends in demographic and housing patterns, and in industrial and

commercial development patterns;

(c) existing status and future plans for water supply, sanitation,

industrial and solid waste management, and storm water drainage;

(d) the extent, hydraulic capacity, structural condition, and technical

performance of existing sewerage systems in Dhaka;

(e) existing service levels and deficiencies in sanitation coverage and

operational performance in different parts of the city and in

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different income groups;

(f) neighborhood environmental conditions, and city-wideenvironmental/water quality conditions, including the extent and riskof pollution of surface and ground water resources;

(g) financing and cost-recovery policies and achievements;

(h) policy and institutional framework for service provision, includingthe share of public and private sector involvement in sanitationservice provision, and the legal and regulatory framework for serviceprovision;

(i) existing informal organizations in the city (NGOs, voluntary serviceorganizations and community-based organizations) -- the roles theyhave played in the past, and the potential roles they can play in theprovision of improved waste management services; and

(j) water quality standards and pollution control regulations.

14. Based on this review and on their own investigations, the Consultantsshall prepare a report on existing conditions. The report shall include, butshall not necessarily be limited to the following:

(a) summary of existing conditions with respect to: (i) coverage anddeficiencies in services at zonal or neighborhood level, (ii)neighborhood or zonal level environmental quality conditions, and(iii) the wider environmental/water quality conditions;

(b) existing cost-recovery policies and mechanisms for sewerage andsanitation services, and the ratio of revenues to investment costs insewerage and sanitation services;

(c) issues constraining sector development in the past, andrecommendations for addressing these issues;

(d) informal organizations in Dhaka City, their past and potential futureroles in waste management;

(e) feasible solutions to the problems identified in each of the threesub-sectors of waste management; and

(f) cost estimates for each feasible technical solution, calculated on azonal or neighborhood basis, or on such other basis as the Consultantsdeem appropriate.

Demand Estimation and Choice of Investment Options

15. A demand estimation is required to establish a basis for theConsultants to elicit from households which types of investments they preferredand willingness to pay. This information would then be used, along with other

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information, to help make choices from options in technologies cost-

recovery/financing arrangements.

16. To this end, the Consultant shall perform, but shall not necessarily

be limited to the following tasks:

(a) household willingness-to-pay studies, using a sampling method whichpermits investment decisions to be made on a zonal or neighborhoodbasis; this should include an assessment of household knowledge,attitudes and practices with regard to sanitation, solid waste andstorm drainage services;

(b) community-level dialogue -- where appropriate -- to discuss andconfirm demand; ascertain extent of in-kind contributions, if any; andidentify additional measures communities would be willing to undertaketo ensure effective cost-recovery, and sustainability of the flow ofbenefits from proposed investments;

(c) matching the willingness-to-pay with each of the sub-sectors in wastemanagement, and with the technological options within sub-sectors;

(d) rank ordering the different sub-sectors and the technological optionswithin sub-sectors, using the following performance criteria:

(i) cost-recovery per unit cost of investment;(ii) coverage per unit investment cost;(iii) benefits per unit cost of investment; and(iv) analyzing the trade-offs between the different criteria.

17. The relevant revenues that should be used in ratio of cost-recovery perunit investment cost are (a) direct user charges (estimated on the basis of thedemand information) and (b) local government levies on the beneficiaries of theinvestments. This is consistent with the general principle of cost-recoverywhich states that local and regional residents should finance, through usercharges or locally borne taxes, the costs of designing, building, operating, andmaintaining facilities to the extent that they receive the benefits.

18. Based on the tasks identified in paragraph 16 and on the Consultant'sown investigations, the Consultant shall make recommendations on:

(a) where there should be investments in sanitation infrastructure underthe Fourth Dhaka Water Supply Project;

(b) how the sanitation investments should be prioritized within the city:and

(c) what should be the choice of technological facilities in differentlocations in the city.

Annex 4.1Page 6 of 8

Choice of Investment Options

19. On the basis of these tasks and on own investigations, the Consultantshould prepare a demand-based sustainable sanitation plan for implementation inthe city during the period 1995-2010 in three 5-year periods, and based thereon,identify priority investments for implementation during the Fourth Dhaka WaterSupply Project.

20. The plan should be prepared at feasibility level. It should includea clear definition of the criteria used for investment decisions and for theprioritization of investments in different parts of the city. It should identifythe pressing problems facing the city in the sanitation sub-sector, theinvestment choices for addressing the problems, and the justification for theConsultant's recommendations. It should make recommendations for financing andcost-recovery arrangements to ensure financial sustainability of proposedinvestments. In addition, it should include institutional arrangements necessaryto ensure that the expected flow of benefits can be sustained over the usefullife of the physical infrastructure to be built. The proposed plan should besufficiently flexible and adaptive.

PART 2

21. Based on an agreed project component, identified in the overall studyin Part 1, the consultant will prepare detailed engineering drawings and biddocuments for works to be executed in accordance with Local Competitive Bidding(LCB) procedures approved by the World Bank.

22. The specifications for the work to be executed will be in accordancewith best engineering practice and take into account local contractor competence.

Time Schedule and Reporting Requirements

23. The consultants shall mobilize their team in Dhaka within one week ofthe starting date. They should provide a core team of professionals, local andexpatriate, as appropriate, for the assignment. In performing their duties, theconsultants shall prepare reports in English and submit them to DWASA and IDAwithin the time periods specified in Table 1 below, and in the number of copiesspecified therein.

IV. DATA, SERVICE.S AND FACILITIES AVAILABLE FROM DWASA

A. Data, Maps and References

24. DWASA shall provide the Consultants with access to all available data,information maps, drawings and internal documents relevant to the consultingservices. All reference materials will be loaned to the Consultants and shallbe returned on the completion of the consultancy, or as may be requested.Exceptions to this principle may be granted on special request.

Annex 4.1Page 7 of 8

25. DWASA will arrange for access by the Consultants to all sewerage,

sanitation and drainage facilities to be studied, and also to key officials in

DCC and other government agencies concerned with subjects related to the

consultancy.

B. Services

26. During the stay of the Consultants in Dhaka, DWASA will provide theConsultants with the following services provided by their own or hired staff:

(a) topographic surveys of sites and pipelines required for preparation ofvarious designs; physical, chemical, and bacteriological analyses and

tests of water and wastewater; arrangements for soil investigations at

project sites and related laboratory tests;

(b) unlimited local telephone service within Dhaka, long distance servicewithin Bangladesh, and telefax and international mail service, asrequired for the services; and

(c) local transportation within Dhaka limited to site visits andinvestigations, official meetings at various government agencies, and

messenger services.

C Personnel

27. DWASA intends to support the Consultants with counterpart staff --engineers, technicians, and administrative staff of full-time basis (subject to

time-off for normal leave) to the maximum extent to be agreed during contract

negotiation. The consultants will therefore, include in its project team the

DWASA counterpart staff; where such staff are professional staff, they would have

about five years of relevant professional experience.

D Office Accommodation

28. DWASA will furnish the Conjultants with office space in its buildingsin Dhaka. The space will be air conditioned, open (without partitions) andfurnished with desks, chairs, book shelves and filing cabinets or cupboards. The

space will be available to the Consultants for the duration of the consultancy.

Annex 4.1Page 8 of 8

Table 1: Reportin, Requirements

Report Number of Copies Timing in Weeksfrom Starting Date

Inception Report 25 4

Review of Existing Situation 25 16

Progress Reports 10 Every two months

Willingness-to-Pay Survey Reports 15 28

Draft Feasibility Report 15 40

Final Feasibility Report 25 Within four weeksof receivingcomments on draft

l____________________ report

Preparation of Design on Bid 30 52Documents or 8 weeks after

approval of Finall_________________________________ ____________________ Feasibility Report

Annex 5.1Page 1 of 7

BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

Dhaka Water Resource Management Study

Draft Terms of Reference

Background

1. The city of Dhaka is seriously short of safe domestic water; about 50percent of the population is served by the city's domestic water supply system

which is operated by the Dhaka Water and Sewage Authority (DWASA). Ninety-five percent of the total amount of the supplied water has always come fromground water, which is less expensive and hygienically safer compared tosurface water. Due to the limited availability of ground water, particularlyin the most densely populated area of Dhaka, surface water is now beingconsidered as an alternative source for domestic water supply.

2. The total amount of ground water abstraction by private and DWASA tubewells is estimated to be 274 x 106 M3 per year, of which DWASA is responsiblefor about 81 percent of the total or about 223 x 10 6M per year of water asof 1992. At this rate of abstraction, despite favorable natural recharge, ithas experienced a drawdown "cone" to develop, with a maximum fall inpiezometric level of over 20 meters.

3. Under the proposed project, Dhaka is seeking the use of surface water tosatisfy the city's ever-growing demand of water supply and to alleviateexisting excessive burden on the ground water source. The beneficiary of theproject will mainly be people of the old part of the City.

4. The proposed project will provide additional water to alleviate, to acertain extent, the existing drinking water shortage problem of Dhaka. Due tocompeting use of water of the various sectors and the ever growing problem ofpollution from both domestic and industrial sources a water resourcemanagement study addressing both the water quantity and water quality issuesis needed in order to guide the future of water resource management anddevelopment for Dhaka.

5. The primary targets of the Water Resource Management Study (WRMS), areamong other things: (i) to recover the ground water level in the affectedareas, and (ii) to protect the new surface water intake point from competingusers and pollution. The scope of the WRMS should include the greater Dhakaarea as the city is expanding rapidly although the affected area is centeredat Dhaka city proper. This is also required for the protection of the Demraintake point on the Lakhya River.

6. Urban environmental sanitation and domestic waste management isgenerally an integral part of most of the WRMS. Under the proposed projectalready there is a technical assistance component for a strategic sanitation

Annex 5.1Page 2 of 7

plan for Dhaka for the period 1995-2020 to address sanitation and sewerageproblems in Dhaka. It is critical that the two studies be well coordinated.

Objectives

7. The WRMS will try to address the questions of water resourcesmanagement, competing sector uses, and quality and quantity of sources,including allocation and pricing. The specific objectives of the study willinclude, but not necessarily be limited to:

a. documenting the existing urban/industrial development and thefuture development plan of the Greater Dhaka and the project-related areas;

b. documenting the existing water resources abstraction information,including surface water and ground water, and project future waterdemand and abstraction plan;

c. documenting existing environmental water pollution problems,including domestic and industrial sources, and project futurepollution problems;

d. addressing the principal issues of water resource developmentincluding the control of water (flood control, storm waterdrainage, sewerage conveyance); the use of water (municipal,industrial, irrigation and navigation); and the management ofwater quality (pollution control);

e. assessment of the ways to manage water demand between competingusers, including water allocation and pricing for irrigation,domestic and industrial uses;

f. establishment of water rights and improvement of deliveryefficiency (quantity and timing) and effective water useparticipation;

g. co-ordination and control of water abstraction from both groundand surface water sources to maximize available water resources;

h. preparation of measures for improved water quality/quantitymanagement and urban/industrial drainage control, includingmunicipal and industrial waste abatement;

i. implementation of institutional and organizational arrangementsfor better coordination of water users and agencies managing andallocating water; and

j. implementation of legislation for developing and managing waterresources, including pollution control and water rightsregulations.

Annex 5.1Page 3 of 7

Approach

8. Quite often in the developing countries environmental protection getsmore publicity than real problems solved primarily due to lack of financialresources. Financial assistance acquired from abroad only represents a verysmall fraction of the actual needs of the country. The real need of financialresource for environmental protection is significant. Foreign assistance mustbe used in the most prudent manner in order to maximize benefit. Projectsuccess must be measured by the project component's viability orsustainability whether it is institutional or hardware investment. For theWRMS to maximize its benefit, it is important that its design observes certainguidelines, as follows:

a. close coordination with other related local and internationalstudies, such as ongoing works by ADB, JICA;

b. integration into the other components of the project particularlythe sanitation strategy planning under the technical assistancecomponent;

C. building on the existing institutional capability rather thancreating new ones;

d. recommendations for actions should be in line with existingregulations and standards;

e. adopting as much assistance-oriented measures as possible ratherthan the command-and-control means in achieving environmentalobjectives, particularly for industrial pollution control; and

f. adequate resource for the WRMS must be made available for theimplementation of certain key components that can create tangible

results.

Scope of Work

Part I: Institutional Strengthening

9. The ambient environmental quality standards and the standard values forindustrial effluent were drafted by the Department of Environment in 1991;however, there are no rules and procedures directing the implementation. Inthe previous studies it was indicated that present water and environmentalrelated institutions are weak and their coordination unstructured withoutspecific details. The study should be able to identify certain basicinstitutional issues that can be studied at the beginning, and more issues areto be identified and studied as the WRMS is in progress. The study willinclude:

a. comprehensive assessment of the capacity of existing waterresource management-related institutions including staffing,facilities, management tools, database, previous performance,ongoing program and any future development plans;

Annex 5.1Page 4 of 7

b. identification/initiation of an institutional coordination plan,including both local and donor agencies, to bring water resourcesmanagement of Dhaka under an umbrella organization;

c. identification of the respective roles of the local agencies underthe umbrella organization for the WRMS;

d. identification of major areas of capacity building needed for thelocal agencies under the umbrella organization;

e. formulation of training programs;

f. providing assistance in drafting the necessary rules andprocedures to supplement for the draft environmental legislationof 1994 and for the implementation of the ambient water qualitystandards and industrial effluent standards;

g. estimation of resources needed for the various activities ofcapacity building, and

h. formulation of implementation approach, program and time table.

Part II: Water Resources Management

10. It is expected that the results of the institutional strengthening studywill provide a streamlined organizational setting for water resourcemanagement for the City of Dhaka. Some specific objectives of this componentare listed under items (d) to (g) of the objectives of the WRMS. However, theultimate objective would be to develop a water resource management master plan(WRMMP) for the City of Dhaka, including both water quantity and quality andit will be coordinated with a proposed study of updating the national waterresource planning. The parties involved are agencies related to floodcontrol, storm water drainage, sewerage conveyance; water consumption and/oruse by municipality, industry, agriculture and navigation. This componentbasically compose of two parts: (i) data collection and the monitoring system,and (ii) water resource management planning. The works of part (i) will beclosely coordinated with other ongoing donor-supported program particularlyADB and JICA. This component will include:

Part A: Data collection and the monitoring system

a. consolidation of existing water resource and pollution informationand formation of a data management system;

b. assessment of data quality and creating a data quality controlsystem;

c. identification of data gap under the current water resource datacollection program and establishing a coordinated data collectionsystem supported by a sound QA/QC program;

Annex 5.1Page 5 of 7

d. survey of existing water resource monitoring laboratories andstations and the strengthening of a Dhaka water resourcemonitoring system including laboratory and field station needs,arrangement of control samples from abroad for data qualitycontrol and data management computer system.

Part B: Water resource management planning

e. A study on the principal issues of the development of waterresource, the uses of water resources, including an evaluation ofthe current competing uses of water resource, and the impact tothe environment;

f. development of a ground water abstraction planning and actionplan, particularly for the most seriously affected area in the oldpart of the city;

g. development of a surface water allocation planning and actionplan, particularly for ensuring adequate quality water for thesurface water treatment plants;

h. inclusion of a demand management plan as an important part of theabove water resource development planning;

i. development of economic incentives and control measures includinga water rights system to assist the implementation of both theground water and surface water action plans, including waterpricing;

j. designing of water abstraction and delivery system program forboth ground water and surface water between competing users underthe above mentioned action plans.

Part III: Clean Technology for Industrial Pollution Control

11. This component will approach industrial pollution control through wasteminimization/clean technology, which helps industry to improve productionefficiency and reduce the costs for pollution control; it is different fromthe more costly traditional end-of-pipe (EOP) approach of pollution control.It will comprise of studies on the economic incentives for industrialrelocation, planning for common and joint treatment facilities in theindustrial areas, and promotion of waste minimization and clean technologies.Specifically, the studies will include:

a. information gathering and documentation of the existing industrialpollution situation in and around Dhaka area including existingand potential industrial development above the surface waterintake points, and assessment of any planning related toindustrial development including the Dhaka MetropolitanDevelopment Planning (DMDP);

b. following the DMDP, study the economics and the economicincentives of various options for industrial pollution control for

Annex 5.1Page 6 of 7

existing industrial clusters including waste minimization/cleantechnology, and joint and common treatment facilities forindustrial pollution control; and

c. develop preliminary plan for joint and common waste treatmentfacilities for selected industrial clusters such as tannerycluster and a mixed industrial cluster.

12. For the promotion of waste minimization/clean technology part, it willinclude:

a. enhancement of awareness for industrial waste minimization/cleantechnology for, but not-limited to, people from industrialassociations, large and small industries, environmental agencies,industrial agencies, other concerned government administration,NGOs and public media;

b. creating a waste minimization/clean technology training programwith interested groups such as university, industrial associationand local consulting business in developing local capacity forconducting pollution audits;

c. conducting a series of pollution audits for selected industries inDhaka with a specially formed group comprised of people of sector-specific experts from abroad and local technical people andenvironmental staff from the government;

d. the provision of funding for the implementation of low-costoptions for industrial pollution abatement based on therecommendations of pollution audit results; and

e. With the experience gained from the various activities under thiscomponent and knowledge of other countries, propose incentivemeasures into present environmental regulations and standards topromote advanced concept in dealing with industrial pollutioncontrol.

Prolect Organization

13. To organize a project team for the study it is necessary to involve themain parties responsible for setting policy and regulations and implementationof water resource activities in the greater Dhaka area. DWASA, DOE and theMinistry of Irrigation are key players in this area and their support areessential for the success of the study. The Water Resource PlanningOrganization, under the Ministry of Irrigation, had been a coordinating groupfor the national water resource planning in the past and whether its roleshould be restored is something be discussed with the Ministry of Irrigation.

14. Coordination with other water resource related study teams and donoragencies is also important, particularly the ADB, JICA and UNDP.

Annex 5.1Page 7 of 7

Proiect Timetable

15. After the time of contract awarded to selected consulting firm the wholestudy will take 30 months, divided into two phases: the main study phase, 18months; and implementation and supervision phase, 12 months.

ActivitV Month

Mobilization and information gathering 1-3Inception Report 4Main Parts of the Study Work 5-15Finalization 16-18Implementation, Training and Supervision 19-30

Staffing

16. The total staffing will consist of a core team consisting of 25manmonths of international consulting inputs and 40 manmonths of local inputs.In addition, short-term national and international consulting inputs,totalling about 30 staff months will be provided in specific areas of thestudy.

Annex 6.1

BangbdeshDhaka Water Supply and Sanitation IV

Project Components by Year - Totals Incluiding Contingencies(LSS Million)

Totals Including Contingencies19965 1996 1997 1898 1866 2000 2001 2002 Total

A. Land Acquisition1. Land Purchase

Intake Culvert 0.1 0.1Culvert, DND Canal 0.7 0.7Treatment Plant Sde 23.8 - - - - - - - 23.8

Subtotal Land Acquisition 24.5 - - - - - - - 24.5E. Treatment Plant & Associated Works

1. Intake SarulilaPumping Plant - 0.6 0.5 0.4 - 1.6Intake CMI Works - 0.4 0.8 0.8 0.1 - - 2.1

Subtotal Intake Sarulia 1.0 1.4 1.1 0.1 3.72. Canal RehabilItation and Site Development

Renovation of DND Canal 0.3 0.3 0.1 - - - 0.7Backfill of Trt. Pt. Ste 0.9 0.9 0.5 - - - - 2.2

Subtotal Canal Rehabilitation and SlIte Development 1.2 1.2 0.6 - - - - - 3.03. Culvert from DND Canal to Site

Culvert - - 1.3 1.2 1.3 - - - 3.84. Treatment Plant

Treatment Plant Mechanical & Electrical - 21.5 18.8 13.4 - - 53.7Treatment Plant Civil Works - - 4.5 9.2 8.2 1.2 - - 23.0

Subtotal Treatment Plant - 26.0 28.0 21.6 1.2 76.86. Ancillary Structures

Office and Administration Buildings - 0.5 1.0 0.9 0.1 - - 2.6Subtotal Treatment Plant & Associated Works 1.2 1.2 29.4 31.6 25.0 1.4 - - 89.7C. New Pipelines

1. Primary Transmission MainsPrimary Main - - 4.1 4.2 4.2 4.3 4.4 - 21.1

2. Secondary Tranmission MainsSecondary Main - 1.1 1.1 1.1 1.1 1.1 - 5.4

Subtotal New Pipelines - - 5.2 5.2 5.3 5.4 5.5 - 26.60. Distribution System Rehabilitation

1. Leak Detection Program 0.1 0.1 0.3 0.4 0.3 - - 1.32. System Rehabilitation - 1.3 1.3 1.3 1.3 1.4 1.4 8.03. Tubewell Regeneration - 0.2 0.2 0.2 0.2 0.2 - 1.0

Subtotal Distribution System Rehabilitation 0.1 0.1 1.8 1.9 1.8 1.5 1.6 1.4 10.2E. Expansion of Service Connections

1. Tertiary Distribution and House Connections - - 0.4 0.4 0.4 0.4 0.4 - 1.92. Crash Meter Installation Program - 0.3 0.3 0.3 _ 1.0

Subtotal Expansion of Service Connections - - 0.7 0.7 0.7 0.4 0.4 - 2.8F. Development of Sewerage/Sanitation

1. Feasibility Study 0.2 0.3 0.3 - - - - 0.82. Physical Works/Sewerage Rehab and Latrines - - 0.5 1.6 2.2 - - 4.3

Subtotal Development of Sewerage/Sanitation 0.2 0.3 0.8 1.6 2.2 - - 5.00. Institutional Development TA

1. Water Resources Management Study - - 0.2 0.6 0.4 0.1 - 1.32. Management Support (Twinning) Program - - 0.8 0.8 0.8 0.8 0.8 - 4.03. Contracting out DWASA Services - - 0.2 0.2 0.2 0.2 - - 0.84. Training (DWASA) - - 0.2 0.2 0.2 0.2 0.2 0.2 1.15. Management Support (Senior Contract Staff) - 0.2 0.3 0.3 0.2 - - 0.96. Preparatory Work for Private Sector Participation - - 0.3 0.3 0.3 - - 0.8

Subtotal Institutional Development TA - 1.8 2.3 2.1 1.5 1.0 0.2 8.9H. Project Prep/lmplemenation Support

1. Equipment 0.4 0.4 0.4 0.4 - - 1.72. Project Preparation (Ordinance and Ancillary Works) - 0.1 - - - - - 0.13. Construction Supervision & Network Analysis - - 0.5 0.5 1.1 2.1 1.9 - 6.24. Implementation of Tariff Study - 0.1 - - - 0.1

Subtotal Project Prep/lImplemenation Support 0.1 1.0 1.0 1.5 2.6 1.9 - 8.1Total PROJECT COSTS 26.0 1.7 40.5 44.2 38.6 12.8 10.4 1.6 175.8

Annex 6.2

BangladeshDhaka Water Suppty and Sanitation IVComponents Project Cost Summary

(Local Million) (USS Million)% % Total % % Total

Foreign Base Foreign BaseLocal Foreign Total Exchang Costs Local Foreign Total Exchang Costs

A. Land Acquisition1. Land Purchase

Intake Culvert 2.2 - 2.2 - 0.1 - 0.1Culvert, DND Canal 25.4 25.4 0.B - 0.6Treatment Plant Site 936.0 936.0 - 14 22.2 22.2 14

Subtotal Land AcquIsition 963.6 - 963.6 15 22.8 - 22.8 - 15B. Treatment Plant & Associated Works

1. Intake SarulilaPumping Plant 27.6 29.0 56.5 51 1 0.7 0.7 1.3 51 1Intake Civil Works 27.7 43.6 71.3 61 1 0.7 1.0 1.7 61 1

Subtotal Intake Sarulla 55.3 72.5 127.8 57 2 1.3 1.7 3.0 57 22. Canal Rehabilitation and Site Development

Renovation of DND Canal 26.2 - 26.2 - 0.6 - 0.6Backrill of Tn. PR. Site 82.0 - 82.0 - 1 1.9 - 1.9 1

Subtotal Canal Rehabilitation and Site Development 108.2 - 108.2 - 2 2.6 2.6 - 23. Culvert from DND Canal to Site

Culvert 123.2 1.7 124.9 1 2 2.9 0.0 3.0 1 24. Treatment Plant

Treatment Plant Mechanical & Electrical 945.0 1,321.5 2,266.5 58 34 22.4 31.3 53.7 58 34Treatment Plant Civil Works 302.6 475.6 778.2 61 12 7.2 11.3 18.4 61 12

Subtotal Treatment Plant 1,247.6 1,797.1 3,044.6 59 46 29.6 42.6 72.2 59 46S. Ancillary Structures

Office and Administration Buildings 79.9 4.6 84.5 5 1 1.9 0.1 2.0 5 1Subtotal Treatment Plant & Associated Works 1,614.2 1,875.9 3,490.1 54 53 38.3 44.5 82.7 54 53C. New Pipelines

1. Primary Transmisslon MainsPrimary Main 312.4 426.4 738.8 58 it 7.4 10.1 17.5 58 11

2. Secondary Tranmission MainsSecondary Main 69.7 122.3 192.0 64 3 1.7 2.9 4.6 64 3

Subtotal New Pipelines 382.1 548.6 930.7 59 14 9.1 13.0 22.1 59 140. Distribution System Rehabilitation

1. Leak Detection Program 16.5 28.9 45.3 64 1 0.4 0.7 1.1 64 12. System Rehabilitation 101.3 177.7 279.0 64 4 2.4 4.2 6.6 64 43. Tubewell Regeneration 12.7 22.2 34.9 64 1 0.3 0.5 0.8 64 1

Subtotal Distribution System Rehabilitation 130.4 228.8 359.2 64 5 3.1 5.4 8.5 64 5E. Expansion of Service Connectlons

1. Tertiary Distribution and House Connectlons 23.7 37.9 61.6 62 1 0.6 0.9 1.5 62 12. Crash Meter Installation Program 12.7 22.2 34.9 64 1 0.3 0.5 0.8 64 1

Subtotal Expansion of Service Connections 36.4 60.1 96.5 62 1 0.9 1.4 2.3 62 1F. Development of Sewerage/Sanitation

1. Feasibility Study 11.5 16.2 27.7 59 - 0.3 0.4 0.7 592. Physical Works/Sewerage Rehab and Latrines 58.0 85.3 143.3 60 2 1.4 2.0 3.4 60 2

Subtotal Development of Sewerage/Sanitation 69.5 101.5 171.0 59 3 1.6 2.4 4.1 59 3G. Institutional Development TA

1. Water Resources Management Study 15.0 28.3 43.3 65 1 0.4 0.7 1.0 65 12. Management Support (Twinning) Program 60.0 73.4 133.4 55 2 1.4 1.7 3.2 55 23. Contracting out DWASA Services 8.0 18.9 26.9 70 - 0.2 0.4 0.6 70 -

4. Training (DWASA) 12.0 23.1 35.1 66 1 0.3 0.5 0.8 66 15. Management Support (Senior Contract Stall) 9.0 19.9 28.9 69 - 0.2 0.5 0.7 69 -6. Preparatory Work for Private Sector Participation 9.0 19.9 28.9 69 - 0.2 0.5 0.7 69 -

Subtotal Institutional Development TA 113.0 183.4 296.4 62 5 2.7 4.3 7.0 62 5H. Project Prepilmplemenation Support

1. Equipment 20.0 41.9 61.9 68 1 0.5 1.0 1.5 68 12. Project Preparation (Ordinance and Ancillary Works) - 2.1 2.1 100 - - 0.1 0.1 100 -3. Construction Supervision & Network Analysis - 206.6 206.6 100 3 - 4.9 4.9 100 34. Implementation of Tariff Study- 2.1 2.1 100 - 0.1 0.1 100

Subtotal Project Prep/Implemenation Support 20.0 252.7 272.7 93 4 0.5 6.0 6.5 93 4Total BASELINE COSTS 3,329.1 3,251.1 6,580.3 49 100 78.9 77.1 156.0 49 100

Physical Contingencies 138.0 193.0 331.0 58 5 3.3 4.6 7.8 58 5Price Contingencies 201.4 336.3 537.7 63 8 5.5 6.5 12.0 54 8

Total PROJECT COSTS 3,668.6 3,780.4 7,449.0 51 113 87.7 88.1 175.8 50 113

Annex 7.1Page 1 of 5

BANGLADESH

PROPOSED FOURTH DHAKA WATER SUPPLY PROJECT

LEAK DETECTION AND LOSS REDUCTION PROGRAM

TERMS OF REFERENCE FOR THE SECOND AND THIRD PHASE PROGRAM

Introduction

1. The Dhaka Water Supply and Sewerage Authority (DWASA) is committedto making a major effort to reduce unaccounted for water (UFW) in its currentoperations and deal with any potential increase due to higher system pressureswhich will result from the introduction of the new surface water treatment plantunder the Fourth Dhaka Water Supply Project. In this regard, DWASA isundertaking a leak detection and loss control program in its service area. Theprogram is aimed at transferring of appropriate technology, including modernspecialized equipment to facilitate the implementation of a systematic controlprogram of non revenue water. The program will also provide for training ofDWASA staff in new methodologies, for monitoring and evaluating effects of theprogram and for assisting DWASA in repair and rehabilitation works identifiedduring the program. The program will also provide incentives for DWASA staff forimproved performance to bring about sustainable operating practices.

Program Obiective

2. The primary objective of the program is to prepare and implement acomprehensive menu of reforms to reorganize the leak detection division, provideincentives for UFW control teams, strengthen workers training programs and updateand enforce bylaws for the reduction of unaccounted for water by about 12percentage points during the program period and for the implementation of longterm sustainable and improved system operation and maintenance practices withinDWASA. The program will also assist in physical rehabilitation of the waterdistribution network and in reviewing the policies and practices of the DWASArelated to UFW. The program will comprise implementation of works in threeoverlapping phases and will be geared to dealing with the expected high pressureswhen the Saidabad Water Treatment Plant starts operating in 1998. These TORdescribe the scope of work for the second and third phase of the program.

Background

3. A limited pilot area was the subject of a leak detection programundertaken in 1991 by foreign consultants (GKW) in association with a localpartner (BETS). The program developed a methodology and an approach for tacklingthe leak problem and this knowledge is available (in the form of reports) fortransfer from the local consultant (BETS). Accordingly, DWASA prepared Terms ofReference (reviewed during pre-appraisal) for the same consultant to revisit thepilot area and extend into two new areas as part of an immediate action program.The consultants were sole sourced in the interest of efficiency and economy.This first phase program started in November 1994. The scope of work of thefirst phase consists of: (a) training of DWASA staff to repair, replace, infill

Annex 7.1Page 2 of 5

and extend pipework in the pilot area zones to updating of the calculation ofunaccounted for water and implement the loss control program identified in thepilot program; (b) selection of two additional cells of about 500 to 1000 serviceconnections, and prepare designs and tender documents, and supervise theinstallation of border valves, bulk and waste detection meters, includinglocalized consumer surveys to identify administrative losses; and (c) updatingof the distribution network drawings and preparation of detailed reports on tasksperformed. The first phase program will last eighteen months.

Administrative Actions

4. To assist in the implementation of the program, DWASA has madeadministrative changes in its organizational structure to upgrade the WastePrevention Division into a System Monitoring and Waste Control Circle with aSuperintending Engineer as the head of the circle. The Superintending Engineerwill act as the Project Director in addition to his normal duties until a revisedorganizational set-up is approved. The immediate procurement of equipment, toolsand training materials would be achieved through retroactive financing under theproposed IDA Credit. The immediate activities and procurement actions areexpected to take about one and a half years, during which period the selectionand appointment of the consultants for the next phase of the work would takeplace.

5. Included in the administrative actions are specific pay incentivesover basic wages, for staff engaged in the leak detection program complying withperformance criteria devised by the consultant. This reimbursable expense hasbeen included in the consultancy contract.

Scope of Work

6. For the second and third phase, it is expected that DWASA willappoint a joint venture consisting of a local consulting and foreign consultingfirm. Because of the experience gained by DWASA in the pilot program and thefirst phase of the current program, the local consulting firm would be the leadfirm, and would direct and supervise implementation and rehabilitationactivities. The foreign firm would have wide experience in leak detection andcontrol program design, survey and implementation, and would provide backup andtechnical support. The consultants shall provide the following services:

(a) Prolect Management: Assist the project management unit of DWASA inpreparation of specifications and bidding documents for material andequipments for the operation of leak detection and pipeline repairwork, including hand tools, repair clamps, etc.;

(b) Analysis and Improvement: Assist DWASA staff in review and analysisof current polices, procedures and practices related to causes ofUFW, including, but not limited to, new water service connectionapplication and works, customer water service repair, customer metertesting, repair and replacement, illegal connections, mainextensions, and make recommendations to improve existing systems;

(c) Leak Survey and Rehabilitation: Assist DWASA staff with all aspects

Annex 7.1Page 3 of 5

of leak detection and control, especially for the selection ofrehabilitation districts, operation of detection equipment, fieldsurveys and preparation of a rehabilitation program;

(d) Technical Standards Assessment: Assist DWASA in reviewing varioustechnical standards which have an impact on UFW, including metertesting and installation standards, leak repair methods;construction inspection;

(e) Staff Training Assistance: Assess staff training needs andpreparation of training programs for leak detection, UFW anddistribution system maintenance/rehabilitation.

The detailed scope of work for each of the two phases is provided in theparagraphs below:

Implementation of Program - Phase 2

7. Based on the results of the first phase, the consultants will firstprepare a list and detailed specifications of leak detection equipment andmaterials needed for the initial period of the phase. This phase is expected tolast three years. Detailed scope of work will be to:

(a) assist DWASA in selecting suitable zones to cover about 70,000connections within the distribution network for the purposes ofdetecting and reducing water wastage as well as assessing thevarious components of UFW. DWASA maintains maps and records ofdistribution networks and house connections. However, if gaps areidentified in such maps and records, the consultants shall assistDWASA staff in obtaining and updating information required fordesign and implementation for the program;

(b) prepare a detailed program of leak detection surveys and compilerecords aimed at identifying major leakage areas within each sub-network, defective or unsuitable meters and other fittings, etc.This activity will also detect unauthorized connections and reducepreventable waste within consumer premises. It would also includedesign of suitable public education program to mobilize cooperationof consumers and educate them to appreciate the objective of thisexercise;

(c) review with DWASA staff facilities available for meter testing,repairs and maintenance of valves and other fittings within thesystem and assisting consumers to remedy faulty internal systems,etc. The consultants will also make practicable recommendations toimprove or expand facilities and for setting up new facilitiesrequired for the successful implementation of this program. Theconsultants shall review and recommend the technical procedures formains installation and approval of the new service connections;

(d) select key DWASA personnel to work with the consultants and receivefurther training in particular areas of expertise required to

Annex 7.1Page 4 of 5

implement the program;

(e) prepare additional training materials as needed suitable for usewith skilled and unskilled workers, including audio visual materialsspecially designed for the purpose;

(f) assess the linkage available and coordination between DWASA fieldoperational staff, and the accounting and records section, and makerecommendations where appropriate to achieve closer coordination torealize the goals of this program;

(g) prepare, in consultation with DWASA staff, monitoring indicators anda reporting system designed to provide clear information on physicalaccomplishments and overall progress on a regular reporting basis(monthly) for this phase and phase 3 of the program;

(h) assist DWASA management to forecast resource requirements (staff,equipment and budgets) as well as the organization structure neededto implement Phase 3 of the program in terms of repairs andreplacement of faulty fittings, major leaks and rehabilitation ofobsolete pipes;

(i) assess the availability of pipes, valves and meters (if possible,locally) for replacement of defective equipment required to bringabout early reduction of UFW and better monitoring of leakage; and

(j) review and recommend the most economic reduction level of UFW,taking into account the costs of leak detection and repaircampaigns.

Implementation of Program - Phase 3

8. This phase is expected to be an on-going activity within DWASA andwill draw on the examples of the first two phases to cover the remaining zones(over 80,000 connections). The responsibility of the consultants in this phasewill be minimal and it is expected that only a few foreign and some localsupervision consultants will be required, on a short term or need basis. Thetime frame for this phase will be determined by DWASA itself based on theremaining work to be done. However, it is expected that the input of theconsultants will be no more than a year, after which DWASA staff will continueactivities on their own. The scope of work in this phase will be to:

(a) execute actual leak detection surveys, based on experience gained inthe previous phases. DWASA staff will be responsible for allrepairs of leaks on a continuous basis on the remaining pipelinesand connections;

(b) continue with and pursue intensive on the job training of key DWASAstaff in leak detection as well as operation and maintenance ofspecialized equipment;

(c) continue the assistance to DWASA staff in increasing consumer

Annex 7.1Page 5 of 5

awareness of the need for waste prevention, and carry out publiceducation campaigns and assistance in eliminating waste;

(d) assists DWASA teams engaged on the program to ensure conformity withdesigned methodologies, accuracy and consistency of reporting; and

(e) assist DWASA to modify designed programs, techniques and scope ofwork to suit site conditions and circumstances, and transferexperience from other utilities involved in similar programs.

Implementation Cooperation

9. The consultants will be expected to work in very close cooperationand consultation with DWASA. DWASA will provide counterpart staff to work withthe consultants and field staff to implement the program. DWASA will alsoprovide access to the consultants of its facilities including available data,maps, drawings and internal documents and suitable office space to house the

consultants and their counterparts.

10. The consultants shall motivate and train DWASA staff to achieve the

program objectives working closely with DWASA management, and providerecommendations to improve staff motivation toward the leak reduction program.

Reports

11. The consultants will provide to DWASA and the Ministry of LocalGovernment Rural Development and Cooperatives (MLGRDC) an inception report within3 months from the commencement of Phase 2, with a detailed schedule for theimplementation of the balance of Phase 2 and Phase 3 of the program.

12. About three months before the end of Phase 2, the consultants shallprepare a Phase 2 completion report based on an agreed format. The Phase 2report shall be reviewed by IDA, DWASA and MLGRDC and approval given to the

consultants to proceed to Phase 3 of the program.

13. The consultants shall also prepare monthly progress reports,beginning after the inception report and through the completion of Phase 3.

14. At the conclusion of Phase 3 activities, the consultant shall preparea final completion report for the program as a whole, based on an agreed format.The report shall provide details of all data gathered, accomplishments andrecommendations for a rolling program DWASA to continue with leak detectionactivities on an on-going basis.

15. The consultants shall also prepare the relevant operational manualsfor use by field staff involved in leak detection and rehabilitation.

16. All reports should be presented in English, and DWASA shall translatethe relevant sections of the reports and operational manuals into Bengali, as

necessary, for field staff.

Annex 8.1Page 1 of 12

BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

Management and Operational Support (Twinning) Program

Draft Terms of Reference

INTRODUCTION

1. The Dhaka Water Supply and Sewerage Authority (DWASA) recognizesthe need to improve its ability to efficiently operate and maintain itsfacilities, manage scarce water supply resources in an optimal way, and toprovide its services in the least-cost manner possible. DWASA institutionalperformance however, has remained weak. The main factors contributing to thispoor performance include poor institutional capability to effectively manageand operate its facilities, a lack of capable management and trained manpower,poor management information system and a general lack of commercialorientation in its operations. DWASA is aware of these short comings and thedifficulties involved in transforming its operations into a commercially-oriented entity. To this extent, a major program of assistance is proposed toassist DWASA to improve its ability to efficiently operate and maintain itsfacilities, plan for the future and bring about changes in the attitude ofutility staff in the need to adopt commercially oriented practices inoperations. These terms of reference describe the arrangements for a twinningprogram between the twinning partner (hereinafter called the Partner) and theclient (DWASA); the services which the partner will provide to DWASA tostrengthen its operating efficiency, improve financial management and thecapacity of its staff to manage and operate its facilities and provide watersupply and sanitation services more efficiently; and the obligations of DWASAunder the twinning arrangement.

OVERALL OBJECTIVES

2. The overall objective of the proposed technical assistance is todevelop the management, planning, operation and maintenance capabilities ofDWASA and to ensure that it is operated in the most efficient, cost effectivemanner possible. To develop these capabilities, DWASA intends to enter into atwinning arrangement with an experienced water utility company, using expertsin the management, commercial and financial administration, and operation andmaintenance of water supply utilities in developed countries. The proposedtwinning arrangement will be characterized by a closer involvement between thetwo parties than is generally obtained in a standard client-consultantrelationship. It is aimed at direct transfer of managerial and technicalskills and systems that involve the various functional aspects of DWASA.

3. The key objectives of the twinning arrangement would be:

(a) to provide sustained technical and managerial support aimed atbuilding up DWASA's capability to the point where, within four

Annex 8.1Page 2 of 12

years, it can independently and efficiently operate all aspects ofits operations;

(b) to assist in the development and implementation of organizationalstructure, systems, procedures and practices required by a

commercial water utility;

(c) to provide back-up support in carrying out the day-to-dayoperations.

4. DWASA has already commenced a pilot program of leak detection andrepair in two zones, and has finalized a Consumer Survey, whose objectiveswere to identify and properly record all water and sewer connected holdings,including those not registered with DWASA, identify potential customers andestablish a correct computer data-base for revenue operations. The proposedtwinning program will build upon the relevant parts of the work undertaken in

these programs.

GENERAL STRUCTURE OF THE TWINNING PROGRAM

The Relationship of the Client and Partner

5. The essential requirements for a successful twinning arrangement isto create an environment in which the transfer of technology can be optimized.The Partner as supplier of technical expertise must be able to respond to thechanging needs of the client. For its part the client organization shouldalso be prepared to improve its performance with the introduction of proposedchanges. Ideally, the partner should be able to offer experience andexpertise over a wide range of activities, embracing state-of-the-art methodsof planning and implementation. The guiding principle of the contract wouldaim at risk sharing between the partner and the client through remunerationthat is tied to meeting agreed targets and improvements in performance. It isexpected that for this twinning arrangement expertise and experience will beoffered primarily in managerial technical assistance with emphasis on: (a)management and finance; and (b) operations and maintenance. Assistance wouldbe provided through the secondment of experienced personnel primarily from thePartners own organization (not recruited for the purpose of the twinningcontract) into parallel positions in DWASA. It will be the responsibility ofthe Partner to organize its activities to suit the requirement of the client.In entering into the twinning agreement with the Partner, DWASA as the clientwill take on certain obligations to present sufficient and suitable staff fortraining and to provide the physical environment and facilities for thePartner to carry out his services according to the TOR.

6. In addition, IDA and the Government are involved in a dialogue tointroduce further private sector participation in DWASA through a dedicatedwater utility operator on a long-term basis. A strategy study has beenincluded in the project to help DWASA define options and recommend the bestway forward. It is expected that the Partner will help DWASA facilitate thetransition and preparation for such an arrangement. This will includecollection of information and other data, analysis, and preparation of otherrequired background material for the recommended option.

Annex 8.1Page 3 of 12

Obligations of DWASA

7. With this twinning arrangement, the obligation of the client are toprovide:

(a) access to the Partner to all the client's water supply, seweragesanitation and drainage facilities;

(b) available data, information maps, drawings, internal documents,including billing, collection and accounting records;

(c) counterpart staff;

(d) suitable office space to house the experts and their counterparts;

(e) sufficient equipment and tools necessary to perform their duties asappropriate; and

(f) sufficient operational funds to enable smooth operation of DWASA.

8. It is a requirement of these TOR that each specialist from thePartner's organization will work alongside DWASA counterparts, preferably inthe same office. In certain cases, the counterpart will also retain hisoffice. Allowance must be made in the contract for the refurbishment ofcertain offices and the provision of furniture and office equipment inaddition to the technical and training equipment to be provided.

9. It will be the responsibility of DWASA to make adequate provisionin its budget to ensure that local funds are in place to support the twinningarrangement. Such costs are expected to include transport costs for its ownstaff, out-of station allowances, and the provision of consumables.

ObliRations of the Partner and Inputs

10. It is anticipated that three full time senior advisers (operationsand maintenance, technical and engineering, and finance and accounting) willbe needed to strengthen DWASA. These will be complemented by short-termexperts in specialized areas with appropriate expertise and experience inthose areas. One of the full time senior advisers will be the Team Leader.The advisers and the short-term experts will serve in operational capacitiesand will, together with DWASA's senior management, have joint responsibilityfor overseeing day-to-day operations and implementation of systems, proceduresand practices. The Partner will also provide back up services from itsheadquarters for the strengthening DWASA's structure, systems and services asrequired, and technical specialist input, if needed for other tasks that willhelp improve efficiency. In addition, the Partner shall act as advisor toDWASA in its dealings with third parties. A detailed scope of work isprovided below.

11. As indicated above, an important aspect of the twinning program isthe systematic and comprehensive transfer of knowledge and skills from thePartner to DWASA, in particular to the counterpart staff working with thePartner's advisors and experts. This will include transfer of training skills

Annex 8.1Page 4 of 12

and training materials on DWASA's operations, to enable DWASA staff to carryover the training of officers after the end of the program.

12. During the course of this arrangement, DWASA will be undertakingother initiatives to improve its operational and financial performance. Theseinclude the Leak Detection and Rehabilitation Program, and the Crash MeterInstallation Program. The Partner will liaise with the consultantsundertaking these programs and assist DWASA in implementation of the resultsof these programs.

Outputs and Goals

13. To have some measure of the performance of the twinningarrangement, it is important that the Partner and the Client agree on a listof outputs and goals at the outset of the services. These could be in form ofcertain performance objectives and indicators, (financial, operational,institutional), including a time-frame for transferring of theresponsibilities of specific activities to DWASA counterparts. It will benecessary that DWASA and the partner specify and use performance variables andtargets to the extent possible. During contract negotiations, both partieswill define the specific baseline values for the performance variablesselected. Baseline values represent the specific values of the performancevariables that most closely represent present operational trends. Fixedpayment for the services rendered by the Partner will be independent of theachievement or non-achievement of the baseline values. However, to providethe partner with some upside incentives, DWASA and GOB will agree to incentivepayments for superior performance beyond the initial base-line values. Thisfeature will provide the right incentive to the selected partner andrepresents a sharing of benefits between DWASA and the partner. An example ofthe performance variables that could be used include: total water sold as apercentage of water produced; average water production from tubewells;variable cost of water per unit; and persons trained per year.

14. To ensure that the program objectives are being met, the Ministryof the Local Government will set up a Program Review Committee, headed by oneMinistry official (probably a Joint Secretary) and consisting of one DWASAsenior official and the Team Leader of the Twinning Program. This committeewill monitor the achievement of the performance variables selected, and otherissues relating to the program.

Time-frame

15. The program will be carried out in two phases with a period ofreporting and review between them. The first phase will be for a period ofthree months followed by a month for the preparation of an ImplementationProposal. This first phase will be a quick diagnostic review to identifypriority areas on which significant and rapid improvement could be made toDWASA's operations,identify the outputs and goals to be achieved, and developthe methodology to be used in implementation. In addition, the ImplementationProposal will prepare detailed TOR for the short-term specialists and a timeschedule for their activities and input, including the identification of theircounterparts in DWASA. The Implementation Proposal will be presented in draftform at the end of the fourth month and will be reviewed by DWASA, GOB and

Annex 8.1Page 5 of 12

IDA. The second phase of the consultancy will follow approval of the finalreview of the Implementation Proposal, for a period of four years but thecontract will be renewed on an annual basis. This is necessary to enable thecontract to be terminated, once arrangements are in place to introduce inDWASA private sector operators on a long-term basis. The contract between thepartner and the client will therefore include a termination clause to allowtermination of the contract based on a mutual understanding of both parties

that early termination is in both their interest.

SCOPE OF WORK

16. The proposed program will consist of development and theimplementation of the organization structure, systems, procedures, in thefollowing broad areas: (a) Operations and Maintenance; (b) Management and

Finance; (c) Management Information System; (d) Personnel Management andTraining; and (e) Computerization. Detailed scope of work in each of these

areas will be as follows:

(a) Operations and Maintenance

The scope of the work will include, but not necessarily limited to

the following:

(i) provision of specialist operational support, advice anddirection in all aspects of water treatment and distribution,particular attention being given to operational processes,technology, distribution control practices and leakagestrategy and implementation;

(ii) provision of specialized operational processes, support,advice and direction in all aspects of sewage treatment andsludge disposal, preparation of action plans, programs ofwork, policies and operating systems to improve theoperational performance of the sewage treatment works, andsystematic mapplng and updating of the collection and sewersystem records;

(iii) inventory of all water resources connected to the system(including the proposed surface water under this project), anddetermining the cost of producing water from each source,assessment of means to reduce these costs, and development ofoperating rules to optimize use of water and minimizeoperating costs. This should include particularly a review ofall uses of power, fuel and chemicals and recommendations formaximizing the efficiency of their use;

(iv) analysis of distribution system and recommendation of adistrict metering system, and overall crash metering program,and provide advice and assistance to metering programconsultants on the necessary meters, procurement andinstallation, inciuding a meter repair program;

Annex 8.1Page 6 of 12

(v) review the achievements of previous programs of leak detectionand wastage control, and co-ordinate with leak detectionconsultants under the project, and recommend a program offurther loss reduction, including both technical and non-technical losses, and leakage repair program to be carried outas part of the Proposed Fourth DWASA Project;

(vi) assess surface water sources used by DWASA and makerecommendations for a program to monitor water quality,including control in the use of biocides and fertilizers;

(vii) advise and recommend the maintenance and rehabilitation ofwater supply lines, including prevention againstcontamination, rehabilitation of old sewer lines, desilting ofsewer lines, and prepare a routine preventive maintenanceprogram for water supply distribution system and sewernetwork, treatment plants, and deep tubewells, includingsafety inspection for all facilities;

(viii) prepare an inventory of all stores, provide advice andassistance on stores, stores procedures and procurementarrangements, establish necessary holdings of spare parts andchemicals, and location of stores facilities and recommendstores maintenance procedures;

(ix) recommend methods of treatment of tubewells suitable toaquifer conditions and materials used in construction oftubewells, and prepare guidelines and a program forregeneration or maintenance of tubewells;

(x) develop a program to increase the awareness of the importanceof efficient water use, which includes water quality, waterdistribution, material standards and maintenance practices,continuous monitoring of water losses and unaccounted forwater, plumbing standards for interior plumbing and waterefficient equipment;

(xi) recommend equipment, tools, vehicles, etc., necessary forDWASA to carry out its duties, including the rehabilitation ofthe existing meter repair workshop, and possible advice andassistance on a maintenance program for such equipment andtools;

(xii) determine suitable monitoring indicators for use by DWASA toassist in its duties and in general quality control, and inestablishing a management information system utilizing theseindicators; and

(xiii) determine the need for laboratory facilities and preparespecifications and assist with the procurement of laboratoryequipment and supplies.

Annex 8.1Page 7 of 12

(b) Management and Finance

The scope of work under this area will include, but not necessarilylimited to:

(i) introduction of appropriate systems of cost managementaccounting to be used for budgeting management and improvedproductivity;

(ii) review of DWASA's financial management systems and proceduresand prepare a work program of improvements, including improvedcommercial financial accounting system for DWASA,and itsplanning and budgeting procedures;

(iii) provide assistance in management accounting such as projectcost accounting, stores accounting, assets accounting andevaluation, including recording, depreciation, etc.;

(iv) provide advice on improvements in financial control andinternal audit systems to assist DWASA in financialmanagement;

(v) provide assistance with the preparation of current costaccounts as supplements to audited historical accounts;

(vi) prepare financial performance measurement indicators, to beused by DWASA in defining performance objectives and targets;

(vii) assist in improvement of revenue generation, tariffmanagement, including the implementation of a revised tariffstructure and the mechanism for regular tariff reviews, andadjustments;

(viii) development of improved billing, customer accounting andcollection procedures, and the management and recovery ofarrears, by reviewing existing commercial practices andsystems, billing frequency, meter reading routes, collectionpractices, connection/disconnection procedure and recommendimprovements;

(ix) assist in strengthening and streamlining procedures for meterreading, revenue collection, and implementation of moreefficient and economic procedures for bill preparations,revenue collections and arrears monitoring; and

(x) develop and implement new computer based financial and control andadministrative system, including general ledger, accounts payable,payroll, inventory management, purchasing, personnel records andcustomer billing, and the production and implementation of new operatingmanuals.

Annex 8.1Page 8 of 12

(c) Mana&ement Information Systems

The objective in this area is to establish a management informationsystem to assist DWASA in financial and operational decision-making. In addition, as discussed before, the Partner will alsoassist in collection of information required to facilitate theintroduction of a private sector operator in DWASA's operations.Activities in this area will include:

(i) Assist in data collection, information generation, surveys andanalysis to provide statistics and reports that determineexisting conditions within the Dhaka metropolitan arearegarding population distribution, projected growth, incomedistribution, etc., to assist in water demand management;

(ii) Advise on preparation of master plans and data/records, maps,plans for water supply sewerage and drainage systems for thecity of Dhaka together with any available city topographicalbase maps using GIS;

(iii) Assist in preparation of hydrological data, soilcharacteristics, development densities and topography of thecatchment areas of the city;

(iv) Co-ordinate a program of field surveys to verify data and mapson a regular basis, and update existing data maps, etc;

(v) Assist in preparing technical information on DWASA operationsincluding macrometering of water produced; micrometeringconsumption patterns for key consumer categories; networkcondition including size, material, age and description of thesystem by sector in the city; the condition of utility pumpstation reservoirs, treatment plants and other civil works ofelectromechnical equipment, its age, capacity, performance andmaintenance records including major breakdowns;

(vi) Provide assistance in the preparation of information and dataneeded for the decision of annual operation, maintenance andinvestment programs, including past records of breakdowns andprevious maintenance and operating plans;

(vii) assist in the preparation of commercial, financial andinstitutional information, including a cadaster of users,collection records, accounting practices, criteria forvaluation of assets, financial policies, payroll informationand personnel histories, inventory of non-operationalfacilities, e.g., buildings, furniture, vehicles, etc.;

(viii) Review information needs for the preparation of financialtechnical and operational reports and determine the frequencyof reporting with management;

Annex 8.1Page 9 of 12

(ix) Determine sources of information and how best to record andreport the information; and

(x) Develop a management information reporting package at variousorganization and management levels with recommended frequencyof reporting.

(d) Personnel Management and Training

The objective in this area would be to review the present personnelmanagement system and recommend improvement to the existing system.Particularly important is the undertaking of a comprehensivemanpower and organizational study, and provision of assistance insetting up a training program and design of curricular for staff tocomplement the improvements in DWASA financial, operational andtechnical performance including preparation of performance basedincentives for all staff. Specific actions may include, but notnecessarily limited to:

(i) undertaking a manpower and organizational study to identifythe features essential to the development of an effectiveorganization and the preparation of an organization structureto enhance DWASA's efficiency;

(ii) determining the roles of current postholders and requirements(including shortfalls) for the recommended organizationstructure, develop appropriate skills for the positions,including a program of staff rationalization;

(iii) advising on planning and organization of training programs andeffective use of the DWASA training center;

(iv) provision of facilities for study visits by DWASA staff toother utilities for the acquisition of specific skills inaccordance with a well-prepared training program;

(v) provision for the exchange and dissemination of usefulprofessional and technical journals and other information;

(vi) establishing a program for operational training, including jobclassification and certification, and incentives for watersystem operators revenue officers and billing staff to advanceto higher levels of skills and responsibilities;

(vii) advising on possibilities for retraining and reassignment ofsurplus staff to other responsibilities;

(viii) providing advice on leadership training and select a smallgroup of people to work in an overseas utility to learnadvanced skills of utility management to enable them to trainother staff and managers;

Annex 8.1Page 10 of 12

(ix) providing assistance in enhancement of customer relationsfacilities, including the development of a public educationprogram to increase public awareness of the need for economic

water use practices; and

(x) preparing criteria and a program for performance objectivemeasurement for staff and management, and assist in itsestablishment to allow for employee performance incentives toimprove staff efficiency.

(e) Computerization

The computerization of DWASA's financial, billing and revenuecollection activities will form an important part of the task.DWASA has already embarked on a computerization program under theThird Dhaka Water Supply Project, and the consultants will assistDWASA to expand this program. Tasks under this area will include,but may not necessarily be limited to the following:

(i) the definition and analysis of existing procedures, codes,manuals and reports used by DWASA in reporting, and financialmanagement revenue billing and collection systems and userrequirements, and make recommendations on the general

requirements for computerizing the general ledger, accountsreceivable and payable, payroll, inventory and fixed assetsystems, and all other periodic reports to be produced byDWASA;

(ii) advice on systems and program specifications, and availableaccounting software;

(iii) assistance in the selection of hardware, based onconsiderations of available software, facilities for obtainingservicing in Bangladesh, and potential for future expansion ofcapacity;

(iv) assistance in the preparation of bid documents and technicalspecifications for both the hardware and software; and

(v) assistance with testing and acceptance trials, systemimplementation and post-implementation review.

IMPLEMENTATION AND REPORTING

Implementation

17. It is expected that the consultancy will consist of a core teamconsisting of people in the following areas: (a) technical and engineering;(b) operations and maintenance; and (c) finance and accounting. This coreteam would work with DWASA throughout the period of the consultancy. Thesewill be supported by short-term specialists in specific areas as required.The need for the short-term expertise will be identified in the ImplementationProposal, and TORs will be provided.

Annex 8.1Page 11 of 12

18. After the first three months, an implementation proposal will beproduced in draft form (within a month). This proposal will: (a) establishpriorities in the actions to be taken; (b) identify the outputs to beachieved; and (c) identify the methodology to be used. The proposal will alsoinclude proposals for formal training, study tours, equipment required and anyadministrative arrangements to be established to facilitate implementation,and proposals to improve accountability, responsibility, incentives, andsanctions for staff.

19. During the Implementation Phase, DWASA will produce tenderdocuments for any work planned for the phase. The consultants will assist

DWASA in the preparation of these documents.

Operational Manuals

20. Apart from the normal progress reports detailed below, it isrequired that operational manuals be prepared and left with DWASA for everyaspect of DWASA's activities that the Partner will be involved in, for use in

day-to-day work and for use by DWASA's trainers. Manuals should be inEnglish, and simple and easy to understand, to facilitate translation intoBengali, if necessary.

Reporting Requirements

21. The following types of reports will be produced by the Partnerduring the course of the Twinning Program:

(a) Implementation Proposal: This will be based on the results of thediagnostic assessment of DWASA to be undertaken in the first phaseof the project. (para. 15);

(b) Routine Progress Reports: A bi-monthly report will be produceddescribing progress being achieved in the respected activities foreach reporting period, and the expected activities for the comingreporting period, and a description of the current problems andrecommendations on possible solutions;

(c) Milestone Report: At the beginning of each activity, a shortinception report will be prepared summarizing the objectives of theactivity, the time frame of the activity and the expected output.This will be based on the diagnostic report prepared in the firstphase of the program. At the end of each activity, a second reportwill be prepared outlining the achievements of the activity, thetasks accomplished and follow-up steps to be undertaken.

(d) Evaluation Report: An evaluation will be undertaken every year bythe Partner, in conjunction with DWASA staff of the institutionaldevelopment directly attributable to the program, and a reportprepared. Experts from the Partner's institution not related tothe activities under evaluation will assist in the evaluation toensure a critical assessment. This report will be discussed withthe Program Review Committee to check real progress on the program

Annex 8.1Page 12 of 12

and to ensure that planned activities are still in tune withGovernment and DWASA objectives and priorities;

(e) Final Report: On completion of the assignment, a final completionreport will be prepared summarizing the effectiveness of the wholeprogram, the achievements and the lessons learned, including thefollow-up required from both DWASA and the Partner to ensuresustainability of the program. The report will also makerecommendations for future assistance.

Annex 9.1Page 1 of 3

BANGLADESH

FOURTH DHAKA WATER SUPPLY AND SEWERAGE PROJECT

LAND ACQUISITION AND RESETTLEMENT

LAND ACQUISITION

1. Land required for the physical investment aspects of the projectconsist of the following:

(a) land required on the foreshore of the Sitalakya River for the Pumpstation and the intake, amounting to 0.91 acres;

(b) land required for the right-of-way (ROW) for the culvert from theRiver to the DND Canal amounting to 1.45 acres;

(c) land required for the ROW for the culvert from the end of the DNDcanal to the treatment plant site amounting to 3.64 acres; and

(d) land at the treatment plant site amounting to 54.4 acres. Of thisland, 13.6 acres will be used for the proposed project.

2. Total land acquired now by DWASA for the project amounts to 6acres, consisting of the parcels under a, b, and c above. The assessed valueof this land is US$0.8 million, which is 0.5Z of the total project cost. Thisland acquisition has been approved by the Ministry of Land and is nowcomplete. About 37 private plots are affected.

3. Land for the treatment plant (54.4 acres) was acquired by DWASA in1963 under the First Dhaka Water Supply Project, in preparation for the SecondDWASA project, which was expected to be a surface water option. Duringpreparation of the second project the scope and size was significantly reducedand groundwater was used instead. DWASA retained control of the land for usein a follow-up project. The proposed project is the first surface watersupply project, and 13.6 acres of the 54 acres will be developed for theplant. The assessed value of the total land is US$23.8 million. This is onlya nominal value as there is not going to be any transfer of funds involved.

RESETTLEMENT

4. Acquisition of the six acres involves the following resettlementissues:

(a) at the Sarulia intake point, (item a above), there will be loss offoreshore, and acquisition involves removal of households on theforeshore, estimated to be around twenty.

(b) on the conveyance from the intake to the DND canal (item b above),there are two fish ponds that will be affected by the culvert.

Annex 9.1Page 2 of 3

The culvert will also pass through the grounds of a school. Nobuildings will be affected.

(c) on the culvert from the DND canal to the treatment plant site,there are six squatter shacks that will have to be removed. Therest of the culvert will be built on agricultural land (involvingcompensation, but no relocation); and

(d) at the treatment plant site, the land is currently free ofsettlements because it usually water-logged. The project includesland development and filling at the site to raise the level andmake the site flood free.

5. The total provision for the land to be acquired under the project

is US$0.8 million. This includes cost of the land of 0.45 million and

compensation for any loss of land along the ROW and for shacks along the DND

canal. This is discussed below.

6. Based on the level of the relocation under these components a full

socio-economic survey and resettlement action plan was not warranted.However, DWASA agreed to comply with IDA's resettlement guidelines, which

require that:

(a) compensation for loss of properties is paid at the real marketvalue.

(b) assistance to people who have to relocate homes or enterprises is

given, in terms of securing an alternative site for relocation orcompensation for relocation costs;

(c) compensation for temporary or permanent loss of incomes is paid,through a nominal lump-sum payment;

(d) payment of compensation is completed in full before eviction; and

(e) social services/public amenities that are affected are replaced.

Compensation payable for loss of temporary or permanent property was agreedbetween DWASA and the project affected people (PAP). DWASA was asked by IDAto confirm that arrangements for payment of compensation meet these criteria.

The confirmation was received from DWASA. In addition, DWASA retained a localconsultant to assist in resettlement activities, and in payment ofcompensation.

DND CANAL

7. Raw water from the intake to the treatment plant will flow throughthe DND canal owned by the Bangladesh Water Development Board (BWDB). Thiscanal was built in the 1970's for irrigation purposes, but is now being usedless for irrigation, because of the expansion of the city, which has resultedin agricultural land being converted to urban land. The canal is still owned

Annex 9.1Page 3 of 3

by BWDB, but DWASA has signed an agreement with BWDB to use the canal toconvey raw water to the treatment plant site. There were about 180 temporarywooden and tin shacks (built on stilts) along the canal, mainly traders,illegally sited on BWDB land. On the banks of the canal, there were about 90washing sites, also illegally built on BWDB land. During appraisal, a quicksurvey showed that half of the shacks were empty.

8. To protect the quality of the raw water and prevent pollution,these shacks were removed and a fence was built on both sides of the canal.This did not result in permanent loss of income for the traders since theyhave relocated to a market nearby recently built by Dhaka City Corporation.However, provision was made in the project for assistance with thisrelocation, and compensation for temporary loss of income for the traders.This was paid through a nominal lump-sum amount.

9. The fence along the canal has resulted in loss of access to thewashing sites and present unauthorized extraction for domestic and in somecases, commercial use. Included in the project is a provision of theconstruction of new washing points away from the canal, using groundwater(i.e. handpumps). This is being done with consultation with localcommunities, and DWASA has been asked to prepare a plan involving thesecommunities, on the location of these handpumps. The impact will be positivein that the communities will have access to cleaner water.

10. Based on this position, no full resettlement action plan iswarranted for these reasons:

(a) no loss of land is involved along the DND canal since the land isowned by BWDB and the traders are on the land illegally;

(b) the relocation will be in the same community, and will involveshifting the shacks some yards away;

Prior to negotiations DWASA confirmed arrangements for the monetarycompensation to be paid to the evicted traders, the modalities, and the basisfor the compensation.

Annex 9.2Page 1 of 2

BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

Procurement ArranRements

Procurement Method

Proiect Works ICB NCB Other NBF Total

Civil Works

a. Intake Civil Works 2.1 - - - 2.1

(2.1) - - - (2.1)b. DND Canal Rehab _ _ 0.7 - 0.7

c. Treatment Plant Site Rehab - - 2.3 - 2.3

d. Culvert from DND to Site 3.8 - - - 3.8(3.8) - - - (3.8)

e. Treatment Plant 23.0 - - - 23.0(23.0) - - - (23.0)

f. Ancillary Structures 2.6 - - - 2.6(2.6) _- - (2.6)

g. Primary Transmission 21.1 - - - 21.1

(14.8) - - - (14.8)h. Secondary Transmmission 5.4 - - - 5.4

(3.6) - - - (3.6)i. Distribution Sys Rehab 10.2 - - - 10.2

(6.8) _- - (6.8)J. Exp of Service Conn - 2.8 - - 2.8

- (2.5) - - (2.5)k. Dev of Sewerage/San - 5.0 - - 5.0

- (5.0) - - (5.0)

Goods and Equipment

a. Intake and Pump equip 1.6 - - - 1.6

(0.9) - - - (0.9)b. Electro-mechanical - - - 53.7 53.7

c. Miscellaneous Equipment 1.5 0.2 - - 1.7

(1.0) (0.2) _ - (1.2)

Annex 9.2Page 2 of 2

Procurement Method

Proiect Works ICB NCB Other NBF Total

Consultancy Services

a. Water Resources Management - - - 1.3 1.3Study - - - -

b. Management Operational - - 4.0 - 4.0(Twinning) Program - (4.0) - (4.0)

c. Contracting out of DWASA - - 0.8 - 0.8Services - (0.8) - (0.8)

d. Training - - 1.1 - 1.1- (1.1) _ (1.1)

e. Management Support - - 0.9 _ 0.9(Senior Contract Staff) - (0.9) - (0.9)

f. Project Preparation - - 0.1 - 0.1- (o0.1) - (0.1)

g. Construction Supervision - - 6.2 - 6.2- (6.2) - (6.2)

h. Tariff Implementation - - 0.1 - 0.1_ (0.1) - (0.1)

i. Preparation for Concession - - 0.8 - 0.8(0.8) - (0.8)

Other

Land Acquisition - - - 24.5 24.5

Total 71.3 8.0 17.0 79.5 175.8(58.6) (7.7) (14.0) (0.0) (80.3)

Fourth Dhaka Water Supply ProjectProject Implementation Schedule

1995 1 1996 1 1997 1998 1999 2000 1ID TaskName Q1|Q2|Q3 Q4| Q1IQ2IQ3|Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 |Q1 02 Q3 Q4 Q1 Q2|Q3|Q4|QI Land Purchase

2 Culvert, DND Canal

3 Treatment Plant & Associated Works I;

4 Intake Sarulia O'

5 Preparation of Bid Documents

6 IDA Review and Approval I

7 Preparation of Prequalification Docume I

8 IDA Approval of Prequalification

9 Invitation of Prequalification

10 Prequalification Evaluation

11 Issue Bid Documents

12 Submission of Bids .

13 Evaluation

14 Award of Contract

15 Start of Task 6/16

16 Implementation - _

17 Canal Rehabilitation and Site Development

18 Culvert from DND Canal .

19 Prepare Bid Documents

20 IDA Review and Approval

21 Prequalification

P 1Task _Summary _Rolled Up Progress >

Project FOURTH DWASA PROJECT ~xDate: Mon 11/iB/96 Progqress Rolled Up Tasko.

Milestone *Rolled Up Milestone 0 s

Page 1

Fourth Dhaka Water Supply ProjectProject Implementation Schedule

1995 1996 1997 1998 1999 2000ID TaskName Q1|Q20Q3 Q4OQ1IQ2Q3Q4 QQ2Q3IQ4Q1|Q2|Q3|Q4|Q10Q2|Q3|O41Q1|Q2|Q3|4O4Q122 IDA Approval of Prequalification

23 Invitation of Prequalification

24 Prequalification Evaluation

25 Invitation of Bids

26 Bid Evaluation

27 Award of Contract

28 Start of Task 6/25

29 Execution and ImplementationExecu

30 Treatment Plant

31 Evaluation of EM Bids

32 Award of EM contract

33 Preparation of CW Designs

34 Preparation of CW Bid documents

35 Prequalification Documents - I36 IDA Review and Approval I

37 Invitation of Prequalification*

38 Prequalification Evaluation

39 Invitation to Bid

40 Bid Evaluation

41 Award of Contract :

42 Start of Task * 10/16

m XxTask Summary Rolled Up Progress 1'0

Project: FOURTH DWASA PROJECT o .oDate: Mon 11/18/96 Progress Rolled UpTask

Milestone *Rolled Up Milestone 0 v

Page 2

Fourth Dhaka Water Suppiy ProjectProject Implementation Schedule

1995 1996 1997 1998 1999 2000ID Task Name Q31 | Q32 I Q3 I Q4 Q1| Q2 0Q3 Q4 1 Q2 0 03 | Q4 01 I Q2 0 Q3 Q4 Q1 Q2 Q3 |Q4 ~Q143 Implementation

44 Ancillary Structures i_

45 Appointment of consultant I

46 Preparation of Bidding Documents

47 Preparation of Preq. Documents

48 IDA Review of PQ and Bid Documents :

49 Invitation of Prequalification

50 Prequalification Evaluation

51 Invitation of Bids

52 Bid Evaluation

53 Award of contract :

54 Start of Task 6/27

55 Implementation .i_

56 Primary and Secondary Transmission O

57 Preparation of Bid Documents

58 Preparation of Preq. Documents

59 IDA Review of Preq and Bid Documents

60 Invitation of Prequalification

61 Prequalification Evaluation

62 Invitation of Bids

63 Award of Contract m

Task Summary Rolled Up Progress_ o_ _ _0*

Project: FOURTH DWASA PROJECT ProgresswRolled Upag3Date: Mon 11/18196PrgesRldUpTk

Milestone *Rolled Up Milestone

Page 3

Fourth Dhaka Water Supply ProjectProject Implementation Schedule

1995 1996 1 1997 1998 1999 2000ID TaskName 01 02 Q3 04 Q1 Q2 Q3 Q4 Q1 02 Q3 Q4 Q1 Q2 Q3 Q4 01 02 03 Q4 Q1 Q2 Q3 0Q4 0 164 Start of Task 8/29

65 Implementation __.

66 Distribution System Rehabilitation

67 Leak Detection Program

68 Start of Task

69 Implementation of First Phase Program

70 Second & Third Phase Program

71 Preparation of TORtLOI for 2nd & 3

72 Preparation of Draft Contract & Sh

73 Invitation of Bids

74 Award of Contract

75 Start of Task 3/25

76 Implementation of 2nd & 3rd Phase

77 System Rehabilitation

78 Start of Task

79 Implementation of First Year Program

80 Implementation of Second Year Progra -81 Implementation of Third Year Program -82 Implementation of Fourth Year Programm -83 Implementation of Fifth Year Program

84 Tubewell Regeneration _

Task Summary _ Rolled Up Progress _ xProject: FOURTH DWASA PROJECT o.Date Mon 11118t96 Progress Rolled Up Task -w

Milestone Rolled Up Milestone

Page 4

Fourth Dhaka Water Supply ProjectProject Implementation Schedule

1995 | 1996 1997 1998 I 999 | 2000ID Task Name Q10Q20Q3 Q4IQl |Q2Q030 Q4|01 |Q2 Q3 0Q4 Q1|Q2 030Q4 Q1Q2 Q3 Q4Q Q2 3Q4Q185 Preparation of Four Year Program .

86 Start of Program | * 1/24

87 Implementation

88 Expansion of Service Connections

89 Tertiary distribution & House connections

90 Implementation of First Year Program -91 Implementation of Second Year Progra

92 Implementation of Third Year Program -93 Implementation of Fourth Year Program

94 Crash Meter Installation Program

96 Preparation of Service Contract

96 Invitation of Offers

97 Award of Contract

98 Start of Program

99 Implementation

100 Development of Sewerage /Sanitation

101 Feasibility Study _________

102 Preparation of TORILOI

103 Preparation of Draft ContracUShortlist

104 Invitation to Bid

105 Evaluation of Bids

Task Summary Rolkd Up Progress_Project: FOURTH DWASA PROJECT vDate: Mon 11118/96 Progress Rollbd Up Taskc.

Milestone *Rolled Up Milestone 0 t

Page 5

Fourth Dhaka Water Supply ProjectProject Implementation Schedule

1995 JI 9o 1997 1998 [ 1999 2000ID TaskName 01 0Q2 0 Q3 04 | Q1 I Q2 I Q3 04 Q1 0 Q2 0 Q3 0 Q4 0 1 02 03 04[ 01 0 02 0 Q3 1 Q01 Q2 03 Q4 01

106 Award of Contract i

107 Start of Study

108 Implementation of Study

109 Physdcal Works/Sewerage Rehab/Latrlnes -

110 Start of Works *7/1

111 Implbmentatlon U112 Institutional Strengthening L I _ I

113 Water Resources Management study y |

114 Preparation of TOR/LOI0

115 Preparation of Draft Contract/Shortlist

116 Invitation to Bid

117 Evaluation of Bids

118 Award of Contract

119 Start of Study

120 Implementation I I

121 Management Support(Twlnning) Program

122 Preparation of TOR/LO.1

123 Preparation of Draft Contract/Shortlist i

124 Invitation to Bid

126 Evaluation of Bids

126 Award of Contract

Task Sumr Role Up Prgrs XProject FOURTH DWASA PROJECT vDate: Mon 11/18/96 Progress Rolled Up Tasko.

Milestone *Rolled Up Milestone

Page 6

Fourth Dhaka Water Supply ProjectProject Implementation Schedule

1995 1996 1997 1998 1999 2000ID Task Name Q1 |0Q2 0 Q3 |0Q4 Q1 LQ2 | Q3 Q4j Q1 0 Q2 |0Q3 0 Q4 Q1 0 Q2 Q3 Q4 Q03 Q2 | Q3 Q4 Q1 Q2 Q3 Q4 Ql127 Implementation Diagnostic Phase

128 Start of Program * 1/1

129 Implementation: 2nd Phase ._._|

130 Contracting out DWASA Services . . . - -

131 Preparation of Service Contract

132 Invitation of Offers

133 Award of contract

134 Start of Program * 12127

135 Implementation .H

136 Training . . i I .

137 Preparation of Program

138 Implementation I '

139 Management Support (Snr. Contract Staff : I .

140 Preparation of Incentives Program

141 Appointment of Senior Staff

142 Implementation of Incentive System

143 Technical Assistance

144 Equipment

145 Needs Assessment

146 Procurement

147 Project Preparation (Ancilary Works, Ordi

Proect FORT DWSA ROJCT Task Summary _Rolled Up Progress 0

Date: Mon 11/18/96 Progress Rolled Up Taskage 7Milestone *Rolled Up Milestone ot

Page 7

Fourth Dhaka Water Supply ProjectProject Implementation Schedule

1995 1996 1 1997 I 9§8 I 999 2000ID Task Name Q1 Q2 Q3 | Q4 |Q1Q2|Q31Q4 I Ql I Q2 I Q3 I Q4 I Q1 Q2 I Q3 I Q4 I Q1 Q2 Q3 Q4 Q1 Q2 I Q3 I Q4 |Q1148 Ordinance Preparation

149 Design of Ancillary Works

150 Construction Supervision & Network Ana

161 Preparation of TOR/LOI

152 Preparation of Draft Contrac/Shortlist

153 Invitation to bid

154 Evaluation of Bids

155 Award of Contract

156 Start of Supervision 3/20

157 Implementation __:

158 Strategy Study for Private participation _. .~~~~~~~~~~~~~~~~~~Y

159 Terms of reference

160 Invitations to Tender

161 Award of contact

162 Commencement of Study 5/27

163 Strategy Study -164 Implementation .

165 Implementation of Tariff Study -166 Project Processing

167 Negotiations

168 Board Presentation _

Task Summary _Rolled Up Progress OD XProject: FOURTH DWASA PROJECT o voDate: Mon 11/18/96 Progress Rolled Up Task geh W

Milestone *Rolled Up Milestone 0 ~Page 8

Fourth Dhaka Water Supply PrjectProject Implenentation Schedule

1995 1996 1997 1998 1999 2000ID TaskName Q1 02 03 [04 0Q1 2Q30401 Q2 I Q3 04 Qi Q2 Q3 Q4 Q1 02 03 0Q4 Qi 02 Q3 04il169 Effectiveness *3/19 l

* X

Project: FOURTH DWASA PROJECT %0 Date: Mon 11118/96 Progress Rolled Up Task 9 o

Milestone *Rolled Up Milestone gx

Page 9

Annex 9.4

BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

Estimated Disbursement Schedule

IDA Fiscal Disbursement Cumulative BankYear Per Period Disbursement Profile

US$ Million US$ Million Z Z

FY97December 31, 1996 - - -

June 30, 1997 1.5 1.5 2 3

FY98December 31, 1997 7.7 9.2 11 3June 30, 1998 7.7 16.9 21 6

FY99December 31, 1998 10.8 27.7 34 10June 30, 1999 10.6 38.3 48 18

FYOODecember 31, 1999 11.7 50.0 62 26June 30, 2000 10.5 60.5 75 38

FY01December 31, 2000 8.2 68.7 86 46June 30, 2001 5.4 74.1 92 58

FY02December 31, 2001 4.5 78.6 98 70June 30, 2002 1.7 80.3 100 78

FY03December 31, 2002 - - - 86June 30, 2003 - - - 94

FY04December 31, 2003 - - - 96June 30, 2004 - - - 98

FY05December 31, 2004 - - - 100

Annex 9.5Page 1 of 2

BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

Indicative Supervision Mission Schedule

1. Bank Input to Key Activities

Bank input to supervision is expected to require about 95 staff weeks.Supervision by IDA would be co-ordinated with the French Trade Commission,and will involve review of implementation progress, procurement actions,achievement of agreed institutional reform targets, and progress reports.

2. Borrower's Contribution to Supervision

DWASA will be responsible for project monitoring, implementation and co-ordination of activities. The Project Implementation Unit (headed by aProject Director) will oversee all contracts, will be the focal liaisonunit of supervision missions and will be responsible for providinginformation required by all mi.iiions. The Project Director will attendall briefing and supervision mission wrap-up meetings.

3. Supervision Input

The indicative staff supervision input to key activities is given in thetable below:

Approximate Skills Staff Input

Date Activity Required (Staff Weeksi

1. 01/97 Project Launch Workshop TM, SE, PS, ES, 12Start of Project P0, RS

2. 05/97 Initial Review of Progress TM, SE, ES, IS, 10in Implementation

3. 10/97 Project Supervision with TM, SE, ES, IS, 8focus on Sanitation P0Program, Water ResourcesStudy, and Twinning Program

4. 03/98 Project Supervision TM, SE, PS 8

5. 09/98 Mid-Term Review of all TM, SE, IS, PS, ES, 12Project Components TRG, P0

Annex 9.5Page 2 of 2

6. 02/99 Project Supervision TM, SE, PS, PO 6

7. 07/99 Project Supervision TM, SE, PS, PO 6

8. 01/00 Project Supervision TM, SE, PO 6

9. 07/00 Project Supervision TM, SE, PO 6

10. 01/01 Project Supervision TM, SE, PO, WS 6

11. 06/01 Project Supervision TM, SE, PO 6

12. 12/01 Project Supervision and TM, SE, PO, ES 6ICR

TM - Task Manager (Financial Analyst)SE - Sanitary EngineerPS - Procurement SpecialistES - Environmental SpecialistPO - Program Officer (Resident Mission)RS - Resettlement SpecialistIS - Institutional SpecialistTRG - Training SpecialistWS - Urban Water Supply Engineer

Annex 9.6Page 1 of 3

BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

Benchmarks for Assessing Progress at Mid-term Review

INTRODUCTION

1. A mid-term review of the project would be undertaken mid-way throughproject implementation, but in any case, no later than December 1998 to assessproject management, implementation status, progress against agreed performanceindicators, including privatization activities. The following benchmarks willbe used to assess progress at the mid-term review:-

PROJECT IMPLEMENTATION

2. Treatment Plant and Associated Works: The following targets shouldhave been achieved:

a. at least 40% of the construction of the treatment plant, includingthe culvert from the DND canal to the treatment plant site;

b. at least 50Z of the construction of the intake and pump station atthe Lakhya River;

C. completion of ancillary works for the treatment plant; and

d. at least 40Z of the implementation of the five year work program forthe primary and secondary transmission mains installation.

3. Leak Detection and System Rehabilitation ProRrams: The followingtargets should have been achieved:

a. completion of the first phase of the Leak Detection Program andcommencement of the second phase;

b. completion of the first second year program and completion of atleast 60% of the second year programs for the system rehabilitationprogram; and

c. completion of at least 30% of the tubewell regeneration program

4. Service Connections. Meter Installations and Sanitation: Thefollowing targets should have been achieved:

a. completion of the first year program, and at least 40% of the secondyear program for the tertiary distribution and house connection;

b. completion of the Crash Meter Installation program; and

Annex 9.6Page 2 of 3

c. completion of the feasibility study and master plan for sewerage and

sanitation, and commencement of the physical work program;

5. Institutional Development Technical Assistance: The following

targets and objectives should have been achieved:

a. at least 50% of the work program on the Water Resources ManagementStudy should have been completed;

b. the diagnostic phase of the Twinning Program should have beencompleted, and the second phase should have started; and

c'.> the strategy study should be complete, and the implementation ofrecommended actions for the sector reform and mobilization of

private finance should have started.

6. Other Technical Assistance: The following targets should have been

achieved:

a. completion of implementation of the revised tariff structure; and

b. preparation of a training needs assessment and incentive system forDWASA staff.

OPERATIONAL AND FINANCIAL PERFORMANCE

7. Op,erational Tartets and Indicators: The following operational

targets and indicators will be achieved:

a. achievement of a meter coverage level of about 95Z;

b. reduction of unaccounted for water to at most 39Z;

c. increase the number of connections to at least 187,000;

d. enhance the staff productivity level to about 17 staff per 1000

connections; and

e. improve the average well productivity to about 4.0 million liters

per day.

8. Financial Ratios and Leverage Indicators: The following rations and

indicators will be achieved:

a. a working ratio and operating ratio of 0.6 and 0.8 respectively;

b. a receivables to monthly billing ratio of about three months;

c. a contribution to investment of about 27Z;

d. a revenue to collection efficiency of above 100Z;

Annex 9.6Page 3 of 3

e. debt service coverage of about 0.&;

f. a debt to equity ratio of about 32%; and

g. a current ratio of no more than 6.6.

9. These benchmarks have been based on the agreed implementationschedule and the performance and efficiency targets which are part of DWASA'sPerformance Agreement with the Government. These benchmarks will also be thebasis of the terms of reference for IDA's mid-term review mission.

BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

OWASA - Current Organization

CHAIRMAN

Member Mem ber MemberlAdministration JEngireerhll Flnance

Secreaay Chlof Engineer Commercial Manager |

Deputy Deputy ~~~~Superintending SuperintendnSudtndg ExecutiveSecrutarynSecretarErEglnesr Suelntending Engilneer (GtiIf Chief E ngeerPecroneltammo Construcon Plnig&Engineer Plant/ Revenue Accounts a PerBoaned Servacen & MODS EtpfetOfficer Officer Preveton

Board Sefvlces ~Development einMilraiePeeto

sads/w51853a

o oli -

BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

OWASA - Proposed Organization

I oard of Dirct

I .Managng Direcbor

comWv SecretS4

DWrmManv De taneging D gpna ManageraFlnm & Adminlerallon Tachion Pkrpentl & Develpment

Maienanc. '\~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-

r l l . .cer

m m

sad&w51653b o

Annex 11.1Page 1 of 4

BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

Assumptions to the Financial Proiections

1. Basic Data and Assumptions

(i) Population Growth Rate: The current estimated population growthrate of Dhaka City is about 4.0Z. It is assumed that thisgrowth rate will continue for some time, but will decline to

about 3.7% from 1997 to the year 2,001.

(ii) New Connections: In FY95, Dhaka WASA provided nearly 11,107 newconnections. Because of current limitations in water supplyavailability, it is not expected that this will increasesignificantly until after the new treatment plant is completed.It has therefore been assumed that the number of new connectionswill increase by 2Z between FY96 to FY98, and will increase by5% annually from FY98 to FYOO, and 3% by the year 2001, at whichthe new capacity would be almost fully utilized.

(iii) New Hydrants: The number of new hydrants per annum is expectedto increase by the population growth rate through the projectperiod. Hydrants will continue to be installed in slum and lowincome areas.

(iv) Sewerage Connections: Currently, DWASA has about 45,466connections. In the absence of a sewerage development programin the project, it is assumed that the growth in sewerageconnections will be similar to the population growth rate.

(v) Total Population Supplied with Piped Water: This is assumed togrow from the current 65% of the population in the DWASA servicearea to about 76% by the year 2001. This growth is a factor ofcombination in the growth of the population and installation ofnew connections. -

(vi) Total Population Supplied through Hydrants: Currently, it isestimated that about 3.8% of the population is supplied throughhydrants. This is expected to grow to 4.1% by the year 2001.

(vii) Consumption per capita per day (lpcd): This is an estimate,based on past consumption patterns, as assessed in previousstudies, and the feasibility study of the project. It isassumed that this will grow by 1% between FY97 up to FY99, andwill remain constant after 1999, due to rationing and lack ofwater as growing per capita consumption cannot be fullysustained.

Annex 11.1Page 2 of 4

(viii) Production Capacity: The current production capacity is 192IMGD, equivalent to 70,080 million gallons per year (MGY). to101,313 MGY (277 IMGD) in FY99, when the new treatment plant iscompleted.

(ix) Actual Production: Based on previous performance, this isassumed to increase by 3% up to 1998. Production increases by15% in FY99 and 10% in the Year 2000 and 3% in the Year 2001.This increase in production would utilize available productioncapacity by the year 2001.

(x) Unaccounted for Water: Currently, the level of unaccounted forwater is estimated to be about 49Z. It is assumed that thiswill decline by about 3% annually to about 30% by the year 2001due to the leak detection and control program, and the crashmeter installation program to be implemented under the project.

(xi) Available Sales: This represents the amount of water actuallybilled, i.e. DWASA's production less unaccounted-for-water. Thequantity of water billed is less than the actual consumption,because of commercial and administrative losses, or water thatis used but not billed.

(xii) Tariff Increases: Between FY96 to FY00, the tariff increasesreflect required tariff levels to meet agreed revenue andoperating ratios targets, to cover all costs of operations anddebt service charges within four years.

2. Actual and Proiected Income Statements

(i) Consumption: Based on past experience, it is assumed that 88%of the water is consumed by domestic users, while 12% is usedcommercially. Revenue from commercial consumers is, howeverhigher(about 30%) because of the higher tariffs for commercialconsumers. These assumptions are maintained in the projections.

(ii) Sewerage Revenue: Sewerage is charged at 100% of the waterbill. In the past, sewerage revenue has been about 51% of waterrevenue. This assumption is maintained in the projections.

(iii) Other operating revenue: This includes revenues like metercharges, connection fees, etc.

(iv) Power: Based on increases in power costs already experienced inFY95, it is expected that power costs in FY96 and FY97 willincrease by about 7%. Power costs will continue to increasebecause of increased abstraction costs as a result of thelowering of the ground table. Total cost increases Vill be 32%once the new treatment plant has been installed.' This isexpected to level off to about 15% per annum by FY2000 (seetable 5).

Annex 11.1Page 3 of 4

(v) Chemicals: Assumed to increase by 7% from FY96 and thereafter.These costs are assumed to increase by 23% in FY98 to reflectthe increased chemical costs of the new treatment plant.

(vi) Repairs and Maintenance: These are assumed to increase by 15%beginning in FY96.

(vii) Salaries and WaRes: These are assumed to increase by 15%beginning FY96.

(viii) Other Expenses: These are assumed to increase by 8% beginningin FY96.

(ix) Insurance: These are assumed to increase by 3% beginning inFY96.

(x) Provision for Doubtful Debt: This is assumed to be 5% of totaloperating revenue.

(xi) Depreciation: The depreciation rates for the new assets areassumed to be: 2% for Intake, Pump Station, Culvert and theWater Treatment Plant; 5% for ancillary structures; 3% for thePrimary and Secondary Distribution Systems Network and 20% formotor vehicles.

(xii) Interest: Has been calculated on the following basis. 3% forthe First IDA Credit, 7.0% for the Second IDA Credit, 11.5% forthe Third IDA Credit, and 7.5% for the Fourth IDA Credit. Inaddition, DWASA has incurred two ADB loans whose interestcharges are 7.0% and 12.5%. The French Assistance will bepassed on to DWASA at the same terms as the IDA credit.

(xiii) Payment to the Exchequer: A mandatory payment to theGovernment by all public corporation. It is assumed that thiswill be maintained at Taka 1 million. This payment representdividends for the Government's equity investment in DWASA.

3. Source and Uses of Funds -

(i) Government Equity and Foreign Grants: It is assumed that GOB'scontribution (equivalent to 35.8% of the total project cost)will be passed on to DWASA as equity.

(ii) Other grants: These represent GOB budget allocations to financeDWASA's other project expenditures in flood drainage services.Based on the agreement between DWASA and GOB, it is assumed thatGOB would allocate about 75% of the cost of these expenditures.

(iii) Japanese Grant: This will finance the Water ResourcesManagement Study.

Annex 11.1Page 4 of 4

(iv) IDA Loans (Third Proiect): These represent amounts disbursed inFY93 and FY94. The project closed in June 1994.

(v) IDA Loans (Fourth Project): These represent disbursements forthe project expenditure, equivalent to about 46% of the totalproject cost.

(vi) Other Loans (Foreign): These represent disbursement of ADBloans under the First Drainage and Flood Protection Projects.

(vii) Debt Repayment: It is assumed that IDA and ADB and the FrenchGovernment loans are repaid in twenty five years from the dateof disbursement, including five years of grace.

(viii) Other Capital Expenditures: This represents capitalexpenditures for works financed by DWASA, the Government, andbilateral donors, and includes drainage works, sewerage andselected plant rehabilitation, and other fixed assets.

(ix) Investments: No new investments in fixed deposits areanticipated during the project period. It is expected thatthere will be a reduction of existing investments, as funds areused to meet debt service arrears under the First, Second andThird IDA credits. This is reflected in a reduction inaccumulated cash position, whose balances include investments infixed deposits.

4. Balance Sheet

(i) Gross Fixed Assets: It is assumed that 70% of the fixed assetsinvestments in any year are treated as capital works-in-progressand then transferred to fixed assets in the next year. 30% istransferred to fixed assets in the same year.

(ii) Intangible Assets: These represent goodwill and otherintangible assets.

(iii) Net Accounts Receivables: This has been assumed to graduallydecline to three months of total operating revenue by 1998.

(iv) Stores and Inventory: It is assumed that there will be areduction in stores and inventory between FY96 and FY97 becauseof the sale and disposal of obsolete and unused stores. FromFY98, stores and inventories are assumed to increase by 3% perannum.

(v) Other current Assets: Assumed to increase by 1% per annum.

(vi) Accounts Payable: Assumed to be three months of power andchemical costs.

Annex 11.2Table I

DANOLADEWHFOURTH DHAKA WATER SUPPLY PROJECT

BASIC DATA AND ASSUMPTIONS

yer endingJune 0 low low 1964 1NS IBM 1667 1166 1s6 2000 2D00

I - I I Prli- d I

POPULATION(OO) 0.991.1 7,206.6 7,64. 7,077.9 8,3060 68,646 6,96.4 9,297.2 69,41.2 9,691111

DWASA ServIc Aea 6,0160 6,21L. 1,427.6 S664.0 6,673.6 6,67.1 6,62.7 6,6666 6,760.2 7,060.11

Populatlon Growth PAN 4.62 4.6% 4.5% 4.1% 4.1% 3% 2.% &% 67% sr rv

PIPED WATER SUPPLYNew Conneotr 664 1067 10,0 11,107 11,=o 11,66s 11,767 12.677 12.661 1.36111

Total Connectins 119,763 160.486 141223 162,436 16376 176,321 167,108 160.466 212,410 226,61

Supplied with pipd WeJfrPercentage SuppNed 66.3% 61.7% 66.6% 64.6% 67.6% 61.1% 71.2% 73.0% 74.7% 76*14

Total Population ('0O) 2,674.2 6,217.8 6,461,6 3,716.1 3,976.6 4,237.3 4,604.2 4,7637 6,076.1 6377

HYDRANT SUPPEYNew Hydrants 0 0 20 21 22 22 23 24 26 201

Total Hydrants 1,60 I,' 1,66 1,660 1,701 1,724 1,747 1,771 1,737 1,62f

Supplied through Hydra-tfPercentage SuppIed .7% 3.7% 3.6% .38% .09% .6% 4.0% 4.0% 4.1% 4.1%1

Total Population (000) 261.3 2760 26.8 604.4 621.0 337.2 664.4 372.6 301.9 412.11

Population per oonnect_n 24.63 24.67 24.62 24.S9 24.27 24.17 24.07 2066 2AU. 26.6

Population per Hydrant 169.4 16 174.1 161.2 166.6 166.6 202.6 210.4 216.1 226.;!

SEWERAGE CONNECTIONS 66,66 39,412 41,601 43,608 41,408 47,612 49,680 61,666 4,216 36s,66

CONSUMPTIONPiped WalerConsumption per eaptdap (iped) 90.9 01.6 2.7 66.7 66.L 69.4 102.6 106.4 1066 107.1i

Total Consumption O) 50.4 *4.9 70.6 78L6 64.6 62S 101.S 110.8 116.8 127.'

Hydrants:Consumption per cepiteldsy (Ipod) 7rh6 76J 77.3 71.0 00.4 62.6 66.6 87.8 88.7 U9JI

Total Coneumpton (MCQ) 4.6 4.0 4.0 5.2 6.7 .1 6.6 7.2 7.6 S.

TOTAL WATER CONSUMPFION (AY)Piped Water 21,607.6 26017.6 26,773.6 27,1S1.L 60,762.0 33,77.3 66,073.0 40,410.3 43,356.6 46,362Z0

Hydrants 1,A7.6 1,676. 1,790.0 1,90.7 2,009.7 2,23S.0 2,424.8 2,826.7 2,780.0 2,1904I

TOTAL ANNUAL CONSMLAPTION (May) 2,276. 26,76.0 27,56.7 20,89.2 32 S1.7 36,016.2 39,402.7 43,0791t 46,142.6 49,34.4

AVERAGE PER CAPITA .O) 6.7 *0.6 01.6 62. 9LS 90.1 101.1 104.1 1062 106,4J

PRODUCTIONProduction CapAt (M(OY) 60,156.0 62,217.1 06,676.7 70,060.0 71,06t.0 71,065.0 71,06L.0 101,61&3 101,313,3 101,316.1

Actual ProducoIn ("Y) 4",2u.6 64,100.1 67,260.0 66,046 60,716.3 62,66. 64,412.9 74,074.8 79,260.0 61,667.1.

Unaccounted dor Wr &L0% 6ta0% 41.1% 41.0% 46.0% 42.0% 36.0% 66.0% 260% 60.0'14

Avalable or Sale 21,266.6 26,431.6 29,414.2 60,662.4 33,3664 36,271.3 36,291.0 47,407.0 66,104.2 67,146.1.

TAFMFFSDonestic (per 1000 al 12.62 14.40 166 18.64 16.4 16.69 18.96 16.96 18.96 18.60

Commercial (per 1000 9a 40.70 46o.o 61.4 11.48 61.48 66.00 1.70 61.70 61.70 61.70

Tariff Increase 0.0% 15.0% 10.0% 0.0% 0.0% 7.0% 120% 0.0% 0.0% 0.04b

Annox 1 1.

Table

BANGLADESlH

FOURTH CIIAKAWATER SUPPLY PROJECTCTUAL AND POJECTED INCOME STATEMENTS

yew ondlngJune30 1902 196 1994 196 19" 1907 1W6 19w 2000 2001

Production Capa le(Mhy o0,166s. 621267.1 1 6,97,s7 70,080.0 71,O68.O 71,06O. 71,065.0 101,313.1 101,213.3 101.t13.3

Actual P.oduotb nMVY 48,23e.0 14,109.1 57,230.0 68,241.9 60,718.3 62,33.6 64,4129 74,074.8 79,260.0 81,637.8

Unaccounted for lar e.0* 660* 41.6* 41.0* 48.0* 42.0* 29.0* 36.0* 33.0* 10.0%

Available for Bab (MG3Y) 31,26.6 21,431.3 23,416.2 30,U624 33,393.4 36,271.3 32,291.9 47,407.9 83,104.2 57,146.5

Domosric Consumptbon (6IQ) 19,864.6 23,770.3 27,U6.2 286974.1 29,368.2 31,918.6 34,876.6 41,718.9 46,731.7 60,2u6.9Commercial Consumptin (MOY) 1,679.2 1660.9 1,331.1 3,676.1 4,007.2 4,362.6 4,716.0 5681.9 6,372.5 0,867.0

RWiENUE ('000)Dou.netIc 24t,076 322,157 421,616 427,210 406,413 840,910 656,26o 791,626 se1,96 964 414Cb.nrmrcla 64,267 73,172 76,239 169,364 206,2961 239,763 290,896 360,92 8930,186 423 063

310,641 s9329 498,604 tt61678 671,711 760,67 947,166 1,142,60 1,260,126 1,377,667

8awvrejmi ReVenue 183,061 222265 297,640 341,648 377,643 438.902 a2,eo 642,4W9 719,99 774,482

Other Operating Rewnue 186,26 41,439 37,226 29,6e0 32,366 36,270 36,444 41,904 4,6,761 49,787

TOTAl. OPEFATIN REVENUE 470,060 669024 821,676 112,906 1,061,711 1,264,644 1,816,116 1,827,213 2,046.800 2,201,636

DIFiECT EXPENSES 0ooo)toer 196,113 266810 26.6689 634,688 366,901 406,392 426,404 617,193 68,1t76 641,U4

Chemicals 10,416 11,944 14,226 18,863 16,633 16,227 36,839 51,644 60,517 67,144RepaMs and Malntiarnc 61,252 26,961 60,A26 38,262 41,049 47,798 90,601 119,047 140,266 163.jwDireci Salarle and sM 44",16 48,111 72840 63,421 91,934 110,324 126,873 146,904 167,769 12D,67Other E.pen.we 49,966 8e,681 7e,116 6,72 90,426 97,660 106,472 113,911 123,024 132,10

Total Direct Expenroo 330,772 403,099 401.739 662,677 61J,169 e60,396 781,090 947,690 1,078,770 11,1196,20

ADMINISTRATION EXPENSESSaries 36.267 47,067 70,967 61,612 1,1616 107,#91 124,121 142,739 164,160 ¶68,72

Other Expenses 7,206 8,420 12,740 14,014 16,136 16,346 17,664 19,06 20,692 22,:i39

Insurance 6e 96 12s 126 130 134 136 142 141 161Provision for Doubtful Debt 2t,170 30,879 39,717 49,648 64,066 62,742 76,906 91,361 102,276 110,112

Total Administrative Expenses 66,740 66,661 123,647 148,396 163,206 187,164 217,619 263,306 267,183 321,:!64

Total Workfng Expenee 397,812 489,760 618,266 696275 776,374 687,662 1,006,909 1,2oo,90 1,368,934 1,620,c74

Income before Depreciation 61,516 166,284 206,293 264,631 308,327 387,292 612,207 e2e,306 679,666 1 6e1,72

Depreciation 118,701 117,927 14O,669 128,303 162,145 167,604 223,003 22,878 22,710 236,c64

Operati,r; Profit (24,163 51,337 86,644 16,362 166,190 196,69 269,204 403,426 462,1686 448,696

Add: Other Income 74,414 67,641 32,666 6,219 W8e84 34,661 36,263 326,98i6 66,677 t7,410

Incom befor Interest 40,281 116s,68 66,192 201,647 187,076 234,260 324,467 439,368 488,613 413,1 8

Interest 6,706 107,794 166,114 164,140 164,913 230,160 327,187 404,196 426,961 442,8FS

Met Profit 4,676 11,091 (7,923) 6 7,407 23164 (9300) (2,700) 38,190 6t3,6;72 40,810

Payment to the Exchequer 0 0 1,000 1,00 1,000 1,000 1,000 1,000 1,000 1,0J10

Net Earnings 4,876 11,091 ("6,922) 6407 21,164 (6,900) (3,700) 64,190 6211672 39,Zt0

Ann*x 11.2

Tabbe3

BANGLADESHFOURTH DHAKA WATER SUPPLY PROJECT

ACTUAL AND PPRJECTED SOURCES AND USES OF FUNDS STATEMENTS

yer endingJune 30 1992 1993 1964 1366 1998 1967 1@66 1960 2000 2001

t~~~~~~~~ Foete^ 1-d --

SOURCES OF FUNDS p000)

Inoorn/Loes) trorn Operadtion 4,676 11,0@1 ([8,92) 386407 21,164 (660 (3,700) 34,190 e2,M2 S9,M

Depreciation 115,701 106,336 140,Ng 128,303 162,146 187,604 223,003 222,078 228,710 236,1614

AdMuetmrntn 0 11,861 0 0 0 0 0 0 0 0

Interes Expense 0 0 0 0 0 0 0 0 0 0

Total Funds from Operations 120,276 129,018 71,748 160,710 173,30t 180,874 219,302 267,088 28@,282 276,294

EQUITY AND GRANTSGovornment(IDAProIt) 169,200 *0.360 0 144,707 8,4086 6t,807 364,867 116,032 103,686 26,383

Governmont(Other) 0 0 860,406 861,364 471,221 430,406 387,368 426.101 611,321 6614, ?1

Japanese Grant 0 0 0 0 9,476 12,672 11,607 9,963 6,917 1,574

Other Granla (ADS) 1,260,280 174,264 301,400 447,700 6,000 0 0 0 0 0

Total Equity/Grants 1,44,480 114,814 J@1,806 1,123,771 1,107,10@ 841,868 744,829 862,067 022,104 691,474

LONG TERM DEST

Government 2h,976 0 0 0 0 0 0 0 0 0

IDALoane(ThirdProJeot) 1t7,919 200,841 228,102 0 0 0 0 0 0 0

IDA Loans (Fourth Project) 0 0 0 36,044 701,067 843,866 768,736 332,986 294,462 64,43

French Loan 0 0 0 7,410 360,662 406,336 336,086 64,004 31,941 0

Other (Foreign: AD) 168,9S6 27,700 49,400 44,600 14,000 0 0 0 0 0

Total Long-Term Debt 373,629 226,641 278,002 67,964 1,076,806 1,24@,224 1,121,667 666,662 S26,3S9 i4,443

Tota Inflow of Funds 1,943,646 1,022,176 1,241,666 1,674,464 2,36CM 2,271,4 2,0U,528 1,196,147 1,267,776 1,021,412

APPLICATION OF FUNDS

infras. Improvement Proj.(AD8) 17,600 44,200 70,800 44,200 0 0 0 0 0 0

Intagr. Flood Proj. (ADO) 0 112,000 260,000 446,000 210,000 0 0 0 0 0

Other Capital Expenditure 1,047,664 a60,632 821,470 86ii,331 603,396 453,066 407,7U2 448,627 636,263 3 ,, oS

Fourth IDA Project 0 0 0 186,800 1,424,300 1,684,600 1,468,600 816,000 436,300 61,400

Third IDA Project 276,741 66,048 0 0 0 0 0 0 0 0

Debt Repayment 46,000 41,000 63,6 60,307 80,060 74.161 77,336 79,860 64,204 137,1170

Interest Payment 18,000 21,000 0 0 0 0 0 0 0 0

Inveetmenta 101,162 0 0 0 0 0 0 0 0 0

Other 30,464 l6,102 0 0 0 0 0 0 0 0

Working Capital Chanee (82,610) (1,946) (126,720) (32,366) (76,161) (80,369) 37,196 26,218 (36,364) (86,(40)

Total Uses of Funds 1,461,161 1,066,966 1,170,446 1,270,261 2,660,84 2,122,740 1,691,667 1.071,661 1,028,373 8e3,c42

Not Cash Positon 462,4a4 (43,76) 62,106 104,163 116,032 146,743 96,941 124,666 211,406 1t6,t70

Aocumulated Cah Positon 674,968 631,194 66,W302 1,067,48i6 1,218,4il7 1,401,229 1,486,171 1,619,768 1,831,172 1,068,841

Annex 11.2

Table 4

BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

ACTUAL AND PROJECTED BALANCE SHEETS

yar ending

June30 1902 1003 1904 1996 1066 1907 1066 1906 2000 2001

I Actud 1 -I Projected

Gross Fixd Assets 3,606,428 3,894,t48 4,984,618 6,047,760 7,715,789 9,643,490 11,367,314 12,576,806 13,390,964 14,066,820

lose: Depreciation 1,159,666 1,266,001 1,400,670 1,632,973 1,686,118 1,872,721 2,096,724 2,318,602 2,646,312 2,751,376

Net Fixed Assets 2,448,76M 2,826,647 3,677,948 4,614,787 6,030,671 7,670,776 9,271,600 10,268,203 10,546,t42 11,276,444

Intan gible Assets 2,394,916 2,750,493 2,750,493 2,750,493 2,750,493 2,760,493 2,750,493 2,750,493 2,760,483 2,760,893

Work-in-Progres 66,438 434,479 316,787 483,977 1,033,644 1,313,893 1,367,131 1,121,167 1,284,561 1,300,i88

Deferred Expenses 263,813 302,487 302,4e7 302,487 302,447 302,467 302,467 302,487 302,4t7 302, 87

Investments 0 0 0 0 0 0 0 0 0 0

TOTAL LONG-TERM ASSETS 5,190,920 5,116,088 6,947,89t 8,061,724 10,117,271 12,037,631 13,801,861 14,432,330 15,183,163 16,726,192

CURHENT ASSETS

Net Accounts Receivables 278,414 379,643 365,398 404,662 348,287 304,883 369,918 448,327 490,066 538,1112

Stores and Inventories 424,604 226,023 213,772 192,396 196,167 204,112 210,236 216,542 223,036 229,'29

Advances for Material 136,570 152,501 154,789 157,110 150,447 161,888 164,267 168,761 169,262 171,,91

Other Current Assets 32,687 59,386 59,948 60,548 61,154 61,766 62,383 83,007 63,637 64, i73

Cash Balance 974,066 931,194 903,302 1,097,445 1,262,487 1,401,220 1,496,171 1,619,766 1,831,172 1,989,141

Total Current Assets 1,547,431 1,747,716 1,787,209 1,912,060 2,017,5680 2,133,858 2,301,903 2,512,393 2,787,088 2,993,147

TOTAL ASSETS 7,038,360 7,863,802 8,734,906 9,973,764 12,134,837 14,171,490 15,093,874 16,944,723 17,970,208 16,721,f39

ECUITY AND LIABILmESGovernment Equity 1,320,916 1,411,286 2,001,671 2,877,742 3,500,375 4,338,287 6,071,209 5,613,342 6,228,530 8,918,e30

Reserves 261,610 296,816 296,815 2906,816 290,816 206,816 296,816 296,816 296,616 296,116

Other Grants and Funds 3,286,273 3,659,637 4,160,937 4,04,637 4,884,113 4,806,76 4,908,393 4,918,348 4,926,263 4,926,e37

Asset Revaluation RFscrve 427,020 427,020 427,020 427,020 427,020 427,020 427,020 427,020 427,020 427,020

Accumulated (Deftlit/Proflt 681 11,772 (67,151) (20,744) 420 (6,510) (10,210) 23,980 86,562 126,782

Total Not Worth 5,266,600 6,006,410 6,620,292 7,989,470 9,117,743 9,902,396 10,603,228 11,279,503 11,964.179 12.606,083

LONG TERM LOANS

Government 0 0 0 0 0 0 0 0 0 0

IDA Loans 1,698,768 1,727,666 1,622,314 1,06t,061 2,226,949 2,900,124 3,709,346 3,906,823 4,183,961 4,126,903

Other Loans (ADB) 0 27,700 77,100 121,600 138,600 136,160 133,338 129,040 122,120 116,330

OtherLoans(French) 0 0 0 7,410 386,9062 772,300 1,108,284 1,162,266 1,193,839 1,175,471

Total Long-Term Loans 1,696,788 1,765,298 1,690,414 1,725,081 2,731,510 3,908,584 4,950,946 5,268,131 6,500,320 6,416,7T4

CURRENT LIABILITIES

Current Portion of L-T Debt 0 0 62,307 609,060 74,181 77,336 79,806 54,204 137,979 200,410

Accounte Payable 89,446 69,413 78,190 116,464 127,301 140,124 153,431 187,683 213,738 234,0 t6

Other Current Lisbiet 8,666 42,961 c65,60 74,641 84,132 06,048 116,266 136,202 163,902 176,116

Total Current LiablIie 156,102 102,004 20tt,199 250,263 285,584 312,608 348,602 407,089 606,709 609,6e2

TOTAL EOUITYILABILITIES 7,036,360 7,683,602 6,734,905 9,973,764 12,134,837 14,171,480 16,993,674 16,944,723 17,070,208 18,721,529

DEBTIEOUITY RATIO 23.20% 22.61% 19.93% 17.76% 23.05% 26.19% 31.66% 31.79% 31.48% 29.91%

AnneK 11.2

Tabe 6

BANGLADESH

FOURTH DHAKIA WATER SUPPLY PROJECT

SCHEDULE OF OPERATING COSTS

1992 1993 1904 1996 1996 1997 1996 1990 2000 2001

QUANTITY OF WATER PRODUCED 48,250 64,109 67,230 66,947 60,715 62,637 64,413 74,075 79,280 81,638

of which: Tubewoel 46,326 81,946 64,941 66,689 68,287 60,036 61,630 6,111667 80,841 50,004

NarayanganjTreatment Plant 966 1,082 1,148 1,179 1,214 1,261 1,127 1,296 1,387 1,420

ChandnigatTrgatmentPlant 966 1,0S2 1,146 1,179 1,214 1,261 1,127 1,296 1,367 1,429

Saidabad Treatment Piant 0 0 0 0 0 0 1o,s26 14,618 1,846 18,777

UNIT COSTS OF WATER PRODUCED

TUBEWELLS

Electricity (raka/oOO al 4.10 4.86 8.30 8.7? 6.16 6.61 7.07 7.87 8.10 8.87

Chemicals (Taka/ooo gal) 0.16 0.18 0.17 0.19 0.20 0.21 0.22 0.23 0.24 0.25

Maintenance 0.18 0.18 0.21 0.24 0.27 0.31 0.36 0.42 0.44 0.66

NARAYANGA4J TREATMENT PLANT

Electricity (rakOWo gal 242 2.66 2.88t 3.00 3.16 3.31 3.47 3.6 3.83 4.02

Chemicals (TaklOoo gal) 1.94 1.94 2.18 2.29 2.41 2.63 2.66 2.79 2.93 3.07

Maintenance 0.36 0.36 0.41 0.48 0.88 0.63 0.72 0.83 0.96 1.10

CHANDNIGAT TREATMENT PLANT

Electricity (Taka/000 gal) 3.14 330 3.70 3.88 4.07 4.26 4.4t 4.72 4.96 6.20

Chemical (Tak.j0V0 gl) 1.68 1.66 1.87 1.96 2.06 2.16 2.27 2.39 2.61 2.63

Maintenance 0.24 0.24 0.28 0.32 0.37 0.42 0.48 0.66 0.64 0.73

SAIDABAC TREATMENT PLANT

Eleciriity (Taka000 gl) 0.00 3.90 4.10 4.30 4.51 4.74 4.90 S.23 6.4C 6.76

Chemicals (Taka/000 ga 0.00 1.61 1.99 1.78 1.U6 1.96 2.06 2.16 2.27 2.38

Maintenanoe 0.00 2.U1 3.02 3118 3.33 3.80 3.68 3a. 4.08 4.26

OPERATING COSTS

TUHEWELLSElectricity 189,747 262,179 291,060 326,773 360,136 396,906 364,825 428,924 484,686 819,990

Chemicals 6,949 8,048 9,68e 10,68 11,426 12,367 11,137 12,889 14,268 16,012

Maintenanco 8,330 9,360 11,373 13,471 16,986 18,900 18,666 23,803 28,682 13,040

NARAYANGAII TREATMENT PLANT

Electriity 2,336 2,760 3,2t0 3,136 3,634 4,136 3,913 4,726 8,300 5,741

Chemicals 1,874 2,000 2,601 2,704 2,926 3,163 2,903 3,614 4,061 4,302

Maintenance 347 390 474 661 S66 788 816 1,079 1,328 1,673

CHANDNIGAT TREATMENT PLANT

Eloctricity 3,031 3,671 4,230 4,675 4,948 5,361 8064 6,118 6,870 7,430

Chemicals 1t,3 1,796 2,140 2,314 2,603 2,707 2,6S1 3,093 3,476 3,766

Maintenance 232 260 316 374 443 628 644 720 8U 1,049

SAIDABAD TREATMENT PLANT

Electricity (raka/ooo gal) 0 0 0 0 0 0 62,901 77,429 91,340 11t8,1t3

Chemicals (TakIoo galQ 0 0 0 0 0 0 21,848 31,977 37,723 '4,663

Maintenanco 0 0 0 0 0 0 30,068 67,178 67,461 11,86

TOTAL OPERATING COSTS

ELECTPIJCTY 196,113 288,510 290,880 334,S13 368,90e 406,392 426,404 517,103 868,176 61,364

CHEMICALS 10,416 11,944 14,226 1,Ui3 16,A8I3 18,227 36,6830 81,644 60,617 t7,tt44MAINTENANCE 8,016 9,990 12,143 14,407 17,068 20,213 86,062 82,670 9.,317 1t1,668

OTHER REPAIRS & MAINTENANCE 22,344 15,964 18,136 20,866 23,964 27,682 31,719 3S,477 411,48 48,241

Annex 11.3Page 1 of 2

BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

Water and Sewer Tariffs

(Rates effective as of October 1994)

Current Tariffs Structure

1. Category Wise Water Tariff

Cateaorv Unit Taka per Unit

Residential and Community (Metered) '000 Gallons 15.84'000 Liters 3.49

Commercial and Office (Metered) '000 Gallons 51.48'000 Liters 11.35

Industrial (Metered) '000 Gallons 51.48'000 Liters 11.35

2. Non-metered Connections

(a) Residential and Community: 22.62% annual valuation ofholding/annum.

(b) Commercial and Office: 22.62% of annual valuation ofholding/annum.

(c) Industrial: 22.62% of annual valuation of holding/annum.

Note: Sewer rate is equal to water rate for all water/sewer connectedholdings.

3. Non-Connected Holdings

Sewer not connected but sewer line within 30 meter of holding: 5.85% ofannual valuation of holding per annum.

4. Construction Period Rates (Taka per month)

These rates apply to buildings that are still under construction.

Connection Size Domestic Rate Commercial Rate

0.75" 442.75 1,265.001" 759.00 2,277.001.5" 1,518.00 4,554.002" 3,162.50 9,487.00

Note: Minimum rate for both water/sewer connections: Tk 16.45/month

Annex 11.3Page 2 of 2

5. Service Connection Fee

Water Sewer

Diameter Meter Fee Connection Fee Diameter Residential Commercial

0.75" 968.00 300.00 4" 200.00 250.001" 2,150.00 1,000.00 6" 500.00 500.00

1.5" 6,350.00 3,500.00 8" 1000.00 1000.002" 6,350.00 3,500.00

ProDosed Tariff Structure

- From 0 to 17.5 m 3 per month Taka 3.00 per '000 liters- Additional consumption between17.5m3 to 27.5m3 per month Taka 5.00 per '000 liters

- Additional consumption between27.5m3 to 37.5m3 per month Taka 7.00 per '000 liters

- Additional consumption above37.Sm3 Taka 9.00 per '000 liters

- Industrial and commercial consumption Taka 11.00 per '000 liters

Annex 12.1Page 1 of 3

BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

Performance Indicators

1. A set of quantifiable and measurable Performance Indicators forDWASA will be used to monitor the achievements of the agreed targets. Thesetargets will be defined in the Performance Agreement to be signed betweenDWASA and GOB. The objective of these indicators would be: (a) to supervisethe management of DWASA by results, and on the basis of clearly defined andpre-established criteria rather than by sporadic intervention; (b) to clarifythe perception of managers and GOB/MLG about DWASA objectives; and (c) tomotivate DWASA managers by linking the relationship between actual and desiredperformance to a set of monetary and non-monetary incentives.

2. The targets include physical, technical and financial indicatorsand targets, and definitions are given below.

Main Definitions used for the Performance Indicators

I. Operational Indicators:

(a) Service Coverage Level: This is the percentage of the populationthat is supplied with water either through house connections orstandposts. DWASA will achieve the minimum agreed each year.

(b) Meter Coverage Level: This is the percentage of the connectionsthat are metered, to the total connections in DWASA's servicearea. DWASA will achieve the minimum percentage agreed each year.

(c) Unaccounted for Water: This is the percentage of water lost inthe system during production and distribution, to total waterproduced. This includes technical and non technical losses.DWASA will achieve the agreed level of lower.

(d) No. of End-Year Connections: This is the absolute number ofconnections that DWASA would achieve each year. The number wouldbe agreed annually, based on an assessment of water available.

(e) Consumption (Liter/Capita/day): This measures service quality andprovides information on adequacy of water production and abilityto provide water on demand. Consumption levels will be agreed onthe basis of water available. DWASA will achieve the minimumlevel agreed.

(f) Average Hours of Service/Per Day: This will be reported on amonthly basis to determine service reliability. This will beagreed depending on the expected amount of water available, andDWASA will attempt to achieve 24 hour service.

Annex 12.1Page 2 of 3

(g) Production Capacity: Total amount of water produced as apercentage of installed capacity. DWASA will achieve the agreedcapacity levels subject to capability od distribution network.

II. Efficiency Indicators

(a) Staff Productivity Index: The ratio measures the efficiency ofDWASA as a utility by relating the number of staff with the numberof connections. The ratio is calculated as staff per '000connections.

(b) Personnel Costs/Operational Costs Index: This measures the ratioof personnel costs to operational costs. This ratio will bereviewed simultaneously with the SPI above. DWASA will achieve aratio of 22Z or less.

(c) Unit Operational Cost: This is the unit operational cost percubic meter (M3 ) of water produced. This includes only directcosts, e.g., electricity, chemicals maintenance. This ratio willbe measured separately for deep tubewells and treatment plantcosts. DWASA will achieve agreed unit costs or less.

(d) Tube well Productivity: This will measure the productivity ofDWASA tubewells, to be measured in million liters per day. DWASAwill achieve agreed levels or more.

III. Financial Indicators

(a) Working Ratio: The ratio of operating costs to operatingrevenues. Operating costs exclude depreciation and interestpayments. Operating revenues include revenues from water andsewerage connection fees, well licensing and reconnection fees.The ratio should be below.

(b) Operating Ratio: The ratio of operating costs to operatingrevenues. Operating costs is the ratio includes all expenses,together with depreciation.

(c) Accounts Receivables/Monthly Billing: Expressed in monthequivalent of sales, this is the ratio between the year-endaccounts receivables and operating revenues, multiplied by 12.DWASA will achieve a receivables/monthly billing ratio of threemonths by FY97.

(d) Percentage Contribution to Investment: The proportion of capitalexpenditures financed by the net internal cash generation. Netinternal cash generation is defined as operating profit plusdepreciation. DWASA will maintain the ratios agreed annually,andcontribute no less than 25Z to its investment program by FY98.

Annex 12.1Page 3 of 3

(e) Collection/Revenue/Efficiencv: This is the percentage ofcollections to total billed revenue. DWASA will achieve a minimumof 90x.

IV. Leverage Indicators

(a) Debt Service Coverage Ratio: This measures the extent to whichinternal cash generation covers total debt service. It is totalinternal cash generation (operating profit plus depreciation)divided by total debt service (interest and principal). DWASAwill achieve the minimum or above the debt service coverage agreedwith the Government annually.

(b) Debt Equity Ratio: This is the total long term debt divided bythe total long term debt and equity. DWASA will achieve agreedlevels of D/E ratio or below.

(c) Current Ratio: The level of current assets to currentliabilities. DWASA will achieve agreed current ratio levels, orhigher.

Annex 12. 1FOURT OIHA WATER SUPLY PROJECT Table 1PEFFORMANO ANM M TOWR NI;t INIATOR8

yew ending* Junoao 10 194 196 tt 1907 1tt6 1W 2X0C 2(001

OPERATIONAL TARGETS

Mtter Coverage Level 71.8% 73.0% 80.0% $5,0% 90.0% $LO% 36.0% 95.0% 6L.%

Unnaccounted for Waler 33% 40% 43% 4% 42% 33% 30% 30% 30%

End-Year Connocton 13t0,439 141,32 162,436 163.736 176,321 187,10t 133.418 212430 226,831

OPERATKONAL INDICATOFS

Water Service Coverage Lewi 664% 67.0% 69.0% 71.5% 734% 76.2% 77.0% 78.7% 0.4%

Consumption (titrslcaplWday) 31 92 #2 96 s6 101 104 106 106

Average houre of ervboeldey a a 10 13 1i 17 is 1s 1d

Productlon Cepctiry 67% U 3% 34% 11% U% 31% 73% 76% 01%

EFFICIENCY INDICATORS

Staff Productivity Inedx (stff/000 oonn) 23 21 20 la 17 10 16 14 13

PersonneVOprating Cot Index 11.7% 13.0% 20.0% 20.4% 20.7% 20.4% 20.3% 20.8% S1.7%

UnitOperatingCoeVDTW(Tk1m3) 6L13 5.4i .20 6."6 7.13 7.06 8L21 3.32 3.47

Unit Operating CoeVtSWTP CI/m3) 6.70 7.U5 7.t6 8.40 6.00 9.40 9.96 10.64 11.17

Avrg Welt Produ*lty (m eday) 2La 2.7 2.0 a8 4.0 4.0 4.0 4.0 4.0

FINANCIAL RATIOS

Working Ratio 0.7 0.7 0.7 0.7 0.7 0.0 0.6 0.7 0.7

Operating Ratio 0.8 0.9 0.0 0.8 0.8 0.6 0.6 0.8 0.8

Pceivabtle Monthtly iNng 7.4 6.5 6.0 4.0 o 3.0 ao 6o 6.0

Contribution to Inveement 21.6% 33.2% 30.4% 156.% 10.4% 27.3% 36.0% 33.6% 117.3%

Collction/fevenue Effalency IQ04% 6.0% 36.0% 36.0% 100.0% 100.0% 100.0% 100.0% 1111t.0%

Tariff Incrare 16% 10% 0% 0% 7% 12A 0% 0% 0%

LEVERAGE INDICATOF8

Debt Service Coveae 0.8 0.2 0.8 0.1 0.7 0.6 0.0 1.0 0.8

DebtlEqulty Ratio (%) 22.61% 10.33% 17.70% 23.06% 26.10% 31.86% 31.73% 31.40% 23.91%

Current Ratio 17.1 6.7 7.4 7.1 0.6 6.6 6.2 6.6 4.9

Annex 13.1Page 1 of 10

BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

Economic Analysis

The economic analysis of the project was undertaken by considering themarginal costs of deep tubewells (DTW) and the surface water treatment plant(SWTP), to arrive at the economic least cost solution for the investment

program. The paragraphs below describe the methodology used, and theunderlying assumptions. The first section discusses the long run marginal costand the least cost solution, while the second section discusses the costs andbenefits of the recommended program. The analysis is based on a review of thefeasibility study, complemented with information collected by IDA missionsduring appraisal.

Marginal Cost and Least-Cost Solution

1. Given the nature of the proposed expansion program and the currentconditions of water supply in Dhaka, it is necessary to analyze the comparativecosts of water supplied by DTWs and SWTPs. According to the BCEOM Study, thecost of a DTW field (15 tubewells) producing 395 l/s (7.5 IMGD) is US$ 11.74million, including land acquisition. Its maintenance cost is US$ 184,400 peryear; and its operation cost (electricity, chlorine, labor) is US$ 378,500 peryear.1 It produces up to 12.45 million m per year. However, its rate ofproduction may decline due to the aggregate effect of ground water abstraction,or because it may affect the production of other DTWs, or because thedevelopment of other tubewells may affect it. According to DWASA officials,pumping costs for DTWs have increased due to lower water levels, andunscheduled repairs have also increased. In order to estimate unit costs,maintenance costs have been increased by 10% to reflect possible unscheduledrepairs which have become frequent, and total output has been decreased by 10%to account for probable losses during repairs. The basic cost per m3 (i.e.,without decline in production) is Tk 7.11 (Table 1).

2. These costs may be eompared with the cost per m3 of the proposed plant atSaidabad since all of its output will be taken up by the system once it-startsoperating. According to the updated cost provided by DWASA and BCEOM, thecapital cost of the Saidabad plant producing 2.63 m3 /s is Tk 7.65 per m 3; itsoperation and maintenance cost is Tk 2.34 per m3 for a total of Tk 9.99 (US$

30.2498) per m

3. The above costs are based on estimated prices to be paid by DWASA forconstruction and operation of DTWs and the Saidabad SWTP. When these costs areadjusted for taxes and other transfers to reflect economic values, theydecrease slightly to 6.12 Tk/m3 for water produced by DTWs without taking into

1 The original costs (BCEOM Study, Annex L) have been adjusted using aninflation rate of 5.22% for 1992-94 (from Consumer Price Index) and an exchangerate of 40 Tk/US$.

Annex 13.1Page 2 of 10

account the risks discussed below. The cost of the Saidabad SWTP decreases to9.09 Tk/m3. These adjustments do not affect the comparison between these twoalternatives.2

4. In order to properly compare these two alternatives, however, it -i-.necessary to take into consideration the probable decline in production givenexisting conditions of water levels. The probability of obtaining a reducedproduction increases as the water table declines. It has been observed that,for the study area, the rate of decline of the water table has been 0.8 m peryear.3 This has resulted in an increase in the required depth of the upperwell casings from 30 to 60 meters. Water level depths, which outside the cityare adequate for the use of hand pumps (8 m), are now more than 20 m in thecentral areas of Dhaka (Motijheel, Old Dhaka, Gulshan). In some areas they havedeclined almost 20 m since 1965. According to an ADB report, furtherdevelopment of groundwater will require that: (1) most of the existing DWASADTWs (200) and private (350) be reconstructed and reset at deeper pumpsettings; (2) adequate sites be found to construct additional DTWs. Theseeffects would increase unit costs significantly.

5. Table 2 estimates unit costs for DTWs under different rates of decline.The cost per m3 of water produced by the SWTP (Tk 10) is equivalent to theproduction cost of DTWs at a 5% annual decline rate. This may be consideredthe marginal cost of potable water service in Dhaka, since DTWs cannot be builtat the required rate in the short run and their expected decline rate may behigher than 5%. In fact, according to the Environmental Impact Assessment,further abstraction could be limited in some areas: "water supply can beprovided from the present underground resources only until 1994/95 ... for arestricted area around Dhaka."4 Fifty additional DTWs would have to be builtjust to replace the proposed Saidabad I plant; construction of these tubewellsin the short run could cause serious damage to the current system. It couldrequire the replacement of most existing DTWs, both public and private. Thatis, an attempt to expand ground water production rapidly could result inmassive expenditures to replace most tubewells.

2 Adjustments were made for taxes, which could be as high as 48% for someimported items, and the Standard Conversion Factor of 0.90 provided by the Bank.No adjustments were made for labor because, although abundant, most processes(especially in construction) are as labor intensive as possible and wages areconsiderably low, with the minimum wage at the equivalent of US$ 1.00 per day.

3 Seminar on Water Supply for Dhaka, July 1994.

4 BCEOM and EPC, Dhaka WASA IV and Saidabad Surface Water Treatment Plant,Environmental Impact Assessment, Draft Final Report. April 1994.

Annex 13.1Page 3 of 10

Table 1 - Dhaka Water SuppLy, Comparative costs of DTWs and the Saidabad I SWTP

DTWs (1) 5Saidabad SWTP (1)_

Year Production | Costs tTk million) Production Costs (Tk million)_(mittion m3P) l(million m3)l

Investment 0 & M Investment1 I M

1 149.33 207.342 149.33 2438.283 11.52 40.62 2438.284 11.52 40.62 82.94 193.745 11.52 40.62 82.94 193.746 11.52 40.62 82.94 193.747 11.52 40.62 82.94 193.748 11.52 20.05 40.62 82.94 193.749 11.52 40.62 82.94 193.7410 11.52 40.62 82.94 193.7411 11.52 40.62 82.94 193.7412 11.52 40.62 82.94 193.7413 11.52 40.62 82.94 193.7414 11.52 40.62 82.94 193.7415 11.52 20.05 40.62 82.94 193.7416 11.52 40.62 82.94 193.7417 11.52 213.57 40.62 82.94 193.7418 11.52 40.62 82.94 193.7419 11.52 40.62 82.94 193.7420 11.52 40.62 82.94 193.7421 11.52 8.16 40.62 82.94 193.7422 11.52 20.05 40.62 82.94 193.7423 11.52 40.62 82.94 193.7424 11.52 40.62 82.94 193.7425 11.52 40.62 82.94 193.7426 11.52 40.62 82.94 193.7427 11.52 40.62 82.94 193.7428 11.52 40.62 82.94 193.7429 11.52 20.05 40.62 82.94 193.7430 11.52 40.62 82.94 193.7431 11.52 -15.86 40.62 82.94 193.74

Present values 81.07 290.52 285.92 527.21 4035.52 1231.52

Marginal cost Tk/m3 3.58 3.53 7.65 - 2.34Total marginal cost Tk/m3 7.11 9.99Total marginal cost USS/m3 0.1778 0.2498

Sources: (1) Annex R.

6. Under these circumstances, a reasonable strategy is to build the proposedSWTP and meet remaining deficits with a cautious DTW expansion plan. Theremaining question is whether the cost per m3 for surface water has been

minimized. From the history of the attempts to develop surface water sourcesin Dhaka, it seems that considerable work has been done over the past 30 yearsto develop and evaluate alternatives which have been now narrowed down to theproposed plant. Any alternative previously studied has been considerably moreexpensive. At this time, the Saidabad plant is the only technically viablealternative whose costs can compete with those of DTWs.

Annex 13.1Page 4 of 10

Table 2 - DTWs marginal cost of production byrate of decline

Annual rate of Cost Costdecline (%) Tk/m3 US$/m3

0 7.11 0.18

1.0 7.70 0.19

2.0 8.29 0.21

3.0 8.88 0.22

4.0 9.46 0.24

-- 5-.0 -10.04 0.25

6.0 10.62 0.27

7.0 11.19 0.28

8.0 11.75 0.29

9.0 12.31 0.31

10.0 12.86 0.32

Source: Table 5.

Benefit Cost Analysis

7. In the previous section, it was shown that the best available alternativefor expansion of the water supply capacity for the study area is a combinationof the Saidabad plant and DTWs provided that the latter are developed takinginto consideration possible water abstraction problems. The Saidabad plantshould be started immediately due to the size of the projected deficit in theshort run and the impossibility to fully substitute it by DTWs. In thissection, the benefits and costs of this solution, included in the investmentprogram, are calculated. The project is defined as all the activities in thefirst ?hase of the investment program required to increase gross capacity by2.63 m Is and reduce losses from 34% to 20% in the next 10 years. Therefore,the project not only includes the construction of Saidabad I but theconstruction and rehabilitation of primary and secondary distribution lines andthe improvement of DWASA's operating performance through technical assistance,including a leak detection program.

8. Benefits. The benefits of potable water consumption are measured by itsvalue to consumers. This value is measured by the area under the demand curve.In the absence of demand studies for the particular case of Dhaka, the demandcurve may be estimated by consumers willingness to pay as revealed by themaximum amount that consumers are willing to pay for water. As mentioned

Annex 13.1Page 5 of 10

previously, this is nearly 27 Tk/m3 or nearly 8 times the domestic tariff, notincluding time spent on procuring it. This is based on purchases ofapproximately 4 gallons for Tk 0.50. This is consistent with observations inmany other countries where this figure may be as much as 50 times the averagetariff. If consumers are willing to pay Tk 27 per m 3 for consumption at thelevel of 30 lpd, average annual consumption would be 59.45 million mi3. On theother extreme, if the price were close to zero, per capita consumption would beonly limited by the amount of appliances and other uses by households,and itcould be near 300 lpd. To many consumers with a household connection, themarginal cost of water is zero since many of them do not have meteredconnections or meters do not function. For these and other consumers for whomthe water bill is a very small fraction of their income,5 consumption is onlylimited by the amount of requirements in their households. This "maximum"consumption was estimated at 595 million m 3 per year. Given these two points,the rest of the demand curve may be determined as long as its elasticity alongits different segments is "reasonable." The demand curve, estimated under theseconditions, is given by the following equation:

Q - 595 - 19.835 P

where Q measures demand in millions i 3 per year and P is the price per m3. Thisfunction is described in Table 3. It should be noted that the equilibriumcondition, Price - Marginal Cost, is achieved at Tk 10 per m3 , where demand is200 lpd and elasticity -0.50. The corresponding capacity would be available in1998.

9. Annual gross benefits are measured by the area under the demand curveshowing the increased supply from the Saidabad I plant and the reduction inlosses made possible by the rehabilitation and improved operation of thenetwork. As expected, for the current level of supply, consumers would -bewilling to pay as much as Tk 15 per m3. The current domestic tariff is Tk 3.49

3per mi. At this tariff, consumers demand as much as 265 lpd, almost threetimes their current consumption (Table 3). Estimated benefits are shown inTable 4 and 5.

s For example, consumers with an income of Tk 20,000 (US$ 500) per month whoconsume 60 m3 per month pay less than 1Z (Tk 197 or US$ 4.92) of their monthlyincome for water.

Annex 13.1Page 6 of 10

Table 3 - Dhaka, Description of the estimated demand function for water (Q=a+bP)

Quantity Intercept SLope Price Consumption Price Required RequiredQ a b P Lpd Elasticity SuRply Capacity

m`/yr Tk/m3 mn/s m3'/s

59.45 595 19.835 27 30.00 9.01 1.89 2.5379.29 595 19.835 26 40.01 6.50 2.51 3.3799.12 595 19.835 25 50.01 5.00 3.14 4.21118.96 595 19.835 24 60.02 4.00 3.77 5.05138.80 595 19.835 23 70.03 3.29 4.40 5.90158.63 595 19.835 22 80.04 2.75 5.03 6.74178.46 595 19.835 21 90.05 2.33 5.66 7.58198.30 595 19.835 20 100.05 2.00 6.29 8.43218.14 595 19.835 19 110.06 1.73 6.92 9.27237.97 595 19.835 18 120.07 1.50 7.55 10.11257.81 595 19.835 17 130.08 1.31 8.17 10.95277.64 595 19.835 16 140.08 1.14 8.80 11.80297.47 595 19.835 15 150.09 1.00 9.43 12.64 **317.31 595 19.835 14 160.10 0.88 10.06 13.48337.15 595 19.835 13 170.11 0.76 10.69 14.33356.98 595 19.835 12 180.12 0.67 11.32 15.17376.82 595 19.835 11 190.12 0.58 11.95 16.01396.65 595 19.835 10 200.13 0.50 12.58 16.85 *416.49 595 19.835 9 210.14 0.43 13.21 17.70436.32 595 19.835 8 220.15 0.36 13.84 18.54456.16 595 19.835 7 230.15 0.30 14.46 19.38475.99 595 19.835 6 240.16 0.25 15.09 20.23495.83 595 19.835 5 250.17 0.20 15.72 21.07515.66 595 19.835 4 260.18 0.15 16.35 21.91525.78 595 19.835 3.49 265.28 0.13 16.67 22.34535.50 595 19.835 3 270.19 0.11 16.98 22.75555.33 595 19.835 2 280.19 0.07 17.61 23.60575.17 595 19.835 1 290.20 0.03 18.24 24.44595.00 595 19.835 0 300.21 0.00 18.87 25.28

** Aprox. current consumption; * equilibrimn Level (Price = MarginaL Cost)

10. With the project, the volume of water supplied and demanded will be theequivalent of 12.58 m3Is and the equilibrium price would be Tk 10 per m3.

Benefits are shown in Table 4 as the sum of "value of net capacity" (increasein consumption times price), since all production will be consumed whenavailable, and consumer's surplus. These are then the gross benefits of theproject per year; discounted at a 10% rate of return over 30 years, theyamount to Tk 11,855.41 million (US$ 296.39 million).

11. Costs. Project costs include the construction, operation andmaintenance of the Saidabad plant and the cost of improving the distributionnetwork, including technical assistance, without which the benefits of theplant would not be fully realized. Investment costs are distributed over aseven year period. Annual costs include operation and maintenance. Thepresent value of costs, at a 12% discount rate, is Tk 5995.63 million (US$149.89 million). For purposes of estimating economic costs, the value of theland for the Saidabad site was taken as 50% of its estimated price since theland is a vacant lot owned by DWASA most of which remains under water duringthe monsoon and no alternative use has been planned. Gross taxes on specificitems were deducted from total costs and the Standard Conversion Factor of0.90 was used to adjust local costs.

Annex 13.1Page 7 of 10

12. Economic Returns. Given the above costs and benefits, net benefits ofthe project amount to Tk 5859.78 million (US$ 146.49 million). The economicrate of return is 22.26%. As shown in Table 9, net benefits are almost equalto total costs which means that even if costs are increased by close to -100%,the project would still be economically feasible at a 12% discount rate.Moreover, if only 50% of the estimated benefits are obtained, the project isstill feasible.

13. The main factor affecting project feasibility is the value of water but,as mentioned previously, the willingness to pay is substantial and theestimate used may be conservative given the water supply situation in Dhakaand its probable development in the coming years. It must be noted thatpopulation growth estimates may also be conservative. In sum, estimatedbenefits are substantial as expected in a large and growing city with a largefraction of low income population, low coverage and relatively low consumptiondue to supply restrictions.

14. It must be noted that the benefits come from both the increased-2ap*ityand the loss reduction activities. Capacity expansion by itself - that is,without reduction of losses - would be an economically marginal investmentgiven the high value of water. Its net present value would be US$ 16.3million (at a 12% discount rate) and its IRR, 16%. Although loss reductionactivities by themselves are highly profitable in economic terms, with a netpresent value of US$ 38.47 and an IRR of 29.3% (see Table 5), by themselvesthey do not resolve the problem of rapidly growing deficits in any significantmanner. Furthermore, even though the IRR is higher for the loss reductionprogram, the net present value (the first order condition in this case) of theoverall project is more than six times greater.

Annex 13.1Page 8 of 10

TabLe 4 - Dhaka, Economic Costs and Benefits of the Water SuppLy Expansion Program

Saidabad Increased VaLue of Consumer's Gross NetYear Capacity Losses net Price net surplus Benefits Costs Benefits

M m3 (M) capacity Tk/m3 capacity M Tk N Tk M Tk M TkMm ?N Tk

1996 0 0.34 0.00 0 0.00 0.00 0.00 0 01997 0 0.34 4.15 16.99 70.48 0.43 70.92 2012.83 -1941.911998 0 0.33 8.71 16.76 145.96 1.91 147.87 1287.17 -1139.301999 0 0.32 13.07 16.54 216.07 4.30 220.37 1006.70 -786.332000 83 0.31 74.69 13.43 1003.18 140.63 1143.81 516.63 627.182001 83 0.30 79.88 13.17 1051.95 160.83 1212.77 306.27 906.502002 83 0.28 90.25 12.65 1141.34 205.30 1346.63 306.27 1040.362003 83 0.26 100.62 12.12 1219.88 255.19 1475.07 306.27 1168.802004 83 0.24 110.99 11.60 1287.59 310.50 1598.09 306.27 1291.822005 83 0.22 121.36 11.08 1344.45 371.24 1715.69 306.27 1409.422006 83 0.20 127.37 10.78 1372.46 408.95 1781.41 306.27 1475.142007 83 0.20 127.37 10.78 1372.46 408.95 1781.41 306.27- 1475.142008 83 0.20 127.37 10.78 1372.46 408.95 1781.41 306.27 1475.142009 83 0.20 127.37 10.78 1372.46 408.95 1781.41 306.27 1475.142010 83 0.20 127.37 10.78 1372.46 408.95 1781.41 306.27 1475.142011 83 0.20 127.37 10.78 1372.46 408.95 1781.41 306.27 1475.142012 83 0.20 127.37 10.78 1372.46 408.95 1781.41 306.27 1475.14

to

2032 83 0.20 127.37 10.78 1372.46 408.95 1781.41 306.27 1475.14

Present VaLues (12X discount rate) Million Tk N 11855.41 5995.63- - 5859.78Present VaLues (12% discount rate) MiLLion USS 296.39 149.89 146.49

Internal Rate of return 22.26

N = miltion

Annex 13.1Page 9 of 10

Table 5 - Dhaka, Economic Costs and Benefits of Loss Reduction Activities

Saidabad Increased Value of consumer's Gross NetYear Capacity Losses net Price net surplus Benefits Costs Benefits

M mu (X) capacity Tk/m3 capacity N Tk M Tk N Tk N TkMm Nf MTk

1996 0 0.34 0.00 0 0.00 0.00 0.00 0 0)1997 0 0.34 0.00 10.32 0.00 0.00 0.00 27.29 -27.291998 0 0.33 4.36 10.19 44.36 15.27 59.63 342.61 -282.981999 0 0.32 8.71 10.05 87.58 31.10 118.68 436.43 -317.7i2000 0 0.31 13.07 9.92 129.64 47.52 177.16 348.53 -171.3i'2001 0 0.30 17.42 9.79 170.56 64.50 235.07 350.50 -115.4';2002 0 0.28 26.13 9.53 248.96 100.20 349.16 253.09 96.07'2003 0 0.26 34.84 9.26 322.77 138.19 460.95 144.45 316.5C2004 0 0.24 43.55 9.00 391.98 178.47 570.45 65.33 505.132005 0 0.22 52.26 8.74 456.61 221.05 677.66 78.39 599.27'2006 0 0.20 60.97 8.47 516.65 265.92 782.57 91.46 691.122007 0 0.20 60.97 8.47 516.65 265.92 782.57 91.46 691.122008 0 0.20 60.97 8.47 516.65 265.92 782.57 91.46 691.122009 0 0.20 60.97 8.47 516.65 265.92 782.57 91.46 691.122010 0 0.20 60.97 8.47 516.65 265.92 782.57 91.46- 691.1Z2011 0 0.20 60.97 8.47 516.65 265.92 782.57 91.46 691.122012 0 0.20 60.97 8.47 516.65 265.92 782.57 91.46 691.12a2032 0 0.20 60.97 8.47 516.65 265.92 782.57 91.46 691.12

Present value (12% discount rate) Tk N 3479.56 1538.67 1940.89Present value USS 86.99 38.47 48.52

IRR 29.28%

M = million

Tariffs and Affordability

15. As shown above, the marginal cost of water is nearly 9 Tk/m3 (US$ 0.22per m3), not including the cost of sewerage. The industrial and commercial

3tariff is already at Tk 11 per m . It is possible to design a tariffstructure which would increase the tariff for those income groups which caneasily afford an increase. The current tariff is almost 5% of monthly incomefor the lowest income level (Taka 1,440.00 per month) for a householdconsuming 20 m3 per month. However, family units at this income level wouldnot have water service; instead, they make daily purchases in small amountsand pay up to Tk 0.50 for a four-gallon container. The feasibility studyshowed that low income families use on average 30 litres per capita per day,i.e., 6 m3 per month for a household with 6.5 members, or 1% of the minimumincome. If the tariff is increased to 10 Tk/m3, the water bill would be 4% orless of income for all but those with an income under Tk 5000 per month.

16. Although in 1993-94 DWASA showed a surplus in its financial accounts,its allocation to maintenance and rehabilitation are in sharp contrast to itsneeds. Of the total Tk 854.3 million reported in revenue, only Tk 39.5million were allocated to maintenance - mainly for emergency repairs - andpractically nothing to rehabilitation. If adequate amounts were allocated forthese activities, financial losses would be significant. Therefore, even if

Annex 13.1Page 10 of 10

tariffs are not increased substantially in the short run, as required by themarginal cost criterion, they will have to include more realistic levels ofcosts to finance adequate maintenance and rehabilitation.

Conclusions

17. Dhaka's public water supply is relatively low; it provides only 136 lpdand, with estimated losses of 34%, average consumption from the DWASA systemis only 90 lpd. Coverage is about 65% of the population, but there are morethan 25 persons per connection. DWASA provides only a fraction of therequirements of the industrial, commercial and government sectors. Privateoperators supply most of their own requirements. DWASA's performance inproduction and demand management needs considerable improvement. Thedistribution network is in poor condition, and the quantity and quality of theservice are deficient. Capacity will have to be expanded substantially in thenear future to cope with a fast growing population, economic growth and arelatively low consumption currently.

18. One of the first priorities for the Government is to reorganize thewater supply sector. This requires an adequate regulatory framework for DWASAas well as for private sector producers. It also requires an adequate demandmanagement program for DWASA as the main supplier for residential users. Theactivities planned under the proposed Fourth Dhaka Water Supply Project,namely the construction of additional capacity, the rehabilitation of thedistribution network and the improvement of DWASA's management will addressthe sector's basic problems. The economic analysis shows that investment inthese activities will generate substantial returns, as expected in a situationwhere a large fraction of the population lack adequate water service and pay ahigh price for small volumes of water to satisfy their basic needs. Theproject as a whole has an internal rate of return of 22%.

Annex-14.1Page 1 of 8

BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

Summary of Prolect Environmental Impact Assessment

Introduction

1. The Environmental Impact Assessment (EIA) of the Fourth DhakaWater Supply Project presents the findings of an investigation undertaken onbehalf of Dhaka Water Supply and Sewerage Authority (DWASA). The level ofanalysis performed was on the basis of the project being designated asCategory B, as defined by the World Bank's Operational Manual 4.01. Thiscategory requires a lesser level of environmental investigation than forprojects that are designated Category A, which requires full environmentalassessments.

2. The assessment focused on the potential positive and negativeimpact of the proposed surface water treatment plant and related components onthe environment and surrounding areas, and the likelihood of the existingenvironment affecting the operation of the proposed works. The purpose of theassessment was to ensure that the proposed project is environmentally sound,and to identify and determine mitigation measures that may be necessary tominimize or avoid negative environmental impact, and suggest modifications tothe proposed project components that may be advisable to maximizeenvironmental benefits.

Organi z at ion

3. Although the project was determined to be in Category B, theassessment is organized in the format outlined for a full Category A EIA.This included an overview of the environment and current legislation, anassessment of potential impact, an analysis of the environmental impact ofalternatives to the proposed project, development of a management action planto mitigate negative impacts, and identification of institutional needs toimplement environmental assessment recommendations.

Findings

4. The Fourth DWASA Project marks the start of a major surface waterdevelopment program for DWASA. By the year 2020, the intention is to have acapability of 200 IMGD. The EIA has focused in the first phase of thisdevelopment program. A major long-term benefit of the project will be theprovision of treated water to supplement groundwater abstraction and helpreduce drawdown of the latter. However, the major long-term benefits arethose connected with water quality; firstly, the chemical and other treatmentswill produce potable water in comparatively large volumes and, secondly,distribution of the treated water in the new water mains implemented duringthe project will make treated water available for the first time to about500,000 consumers, with great amenity and public health benefits. Thepositive impacts will be strengthened by the concurrent program of leak

Annex 14.1Page 2 of 8

detection and rehabilitation which will enable greater water pressures to bemaintained in the system and help prevent contamination from external sources.

5. The third benefit is that in taking steps to preserve the qualityof its raw water supplies, DWASA will be improving the physical environmentalong the DND Canal (for the Saidabad Development) and in the rivers providingthe raw water. This automatically implies measures to protect rivercatchments from pollution, and the EIA makes clear recommendations for inter-agency co-operation and the development of legal and other controls for waterprotection

6. This development of controls is essential, since maintenance ofraw water quality cannot be guaranteed in the future: what few planningregulations exit can be easily flouted, monitoring and compliance checking areminimal or non-existent, and there is no effective legislation under whichpersistent offenders can be prosecuted for environmental pollution. Thepassing of the 1994 Environmental Pollution legislation and supportingEnvironmental Quality Standards is vital, and DWASA should press strongly foradoption. Strengthening of the planning procedures is also urgently neededand, as a first step, compulsory notification of the Department of Environment(DOE) is recommended for all new industries or other developments likely tomake harmful discharges. This_ should be a mandatory part of new industryregistration (where tax and other concessions are incentives to register) andthe DOE, in consultation with DWASA and planning authorities, such as RAJUK,should ensure that harmful discharges are banned from rivers and relatedcatchment areas used as surface water treatment plant raw water sources.

7. This vulnerability of the river waters to major urban, industrial,and agricultural development is the major negative impact of externalenvironmental influence on the project; minor effects can also be expectedfrom small developments along rivers.

8. The project itself is expected to have five specially negativeimpacts:

(a) the production of increased volumes of wastewater concomitant withthe extra supply of water;

(b) the restriction of certain urban and industrial enterprises inlocations which have otherwise favorable developmentcharacteristics, such as communication, etc.; and

(c) three specific effects of the Saidabad development on the DNDCanal and at the SWTP site:

(i) the removal and relocation of washing points;

(ii) the removal and relocation of shacks at present used forsmall businesses; and

(iii) the production of large volumes of sludge.

Annex 14.1Page 3 of 8

9. In parts of Dhaka City, notably the Old City and in the west ofthe area to be supplied by DWASA IV, the sewerage system is in poor condition,inadequate or non-existent. Mitigation measures will be a part of theforthcoming Sanitation and Sewerage Study under the project. Siting ofindustries is already a part of the zoning policies of the RAJUK which is inthe process of preparing the Dhaka Metropolitan Development Plan; DWASA needsto liaise closely with this planning process. For the actions on the DNDCanal, a specific mitigation plan is proposed, to be undertaken by thedevelopment contractor to fence the area along the DND Canal, in consultationwith DWASA.

10. Mitigation of the possible impacts of sludge production will beachieved by the use of settling lagoons and the periodic disposal of thesludge in sanitary landfill operations.

11. Minor impacts, such as possible accidental spillage of chemicals,will be mitigated by normal operating and safety procedures.

12. Finally, the investment in major surface water developmentsautomatically means that DWASA must take a broader view of environmentaldevelopments for a wide area around Dhaka. It is recommended that DWASA setup an Environmental Cell, developed from its existing Quantity ControlDepartment, to be a focus of environmental expertise and training within theAuthority and to undertake the necessary environmental monitoring actions.

Summary: Key Recommendations

DWASA must take the initiatives above, and the following actions:

Immediate Actions

1. Send an outline of the proposed surface water treatment plandevelopments to the main planning organizations, and restrictions required onthe rivers to be used as raw water sources, especially Lakhya/Balu River.

2. Press for the rapid passing of the new environmental legislation,already within the Parliamentary system and the Gazetting of EnvironmentalQuality Standards.

Short-Term Actions

3. DWASA needs to put into place a short-term monitoring programunder an overall Environmental Monitoring Plan, with the establishment of anEnvironmental Advisory Panel to advise on environmental problems. The DWASAwater laboratory should be rehabilitated and upgraded to start a major programof water quality monitoring.

Long-Term Actions

4. Formulation of an overall water resources development policy tocover both surface and groundwater developments.

Annex 14.]1Page 4 of 8

5. Continuing monitoring of groundwater and surface water quality and

quantity and the effects on the environment.

6. Preparation of integrated plans for protection of raw water

quality.

Annex 14. 1Page 5 of 8

T4bje A: Sumnary of Environmental Impacts of Construction and Operation ofSurface Water Treatment Plant and Associated Works

Components Positive Impact Negative Impact

(A) Sarulia Intake, Road access to replace footpath to M.A. Satter School, Loss of small areas of foul ponds and of fish/washing

pump site and local settlement and river foreshore. ponds.culven to DNDCanal. No housing land acquisition needed. Need to provide alternative system for 3 house drain

outfalls.

Loss of small foreshore area.

Short-term disruption from construction activities.

(B) DND Canal

(i) Fencing Protection of water quality for both the SWTP Social impacts:beneficiaries and users of DND Canal water.

- Removal of about 180 shacks.

Assistance with security of fish stocks. - Removal of 93 washing points (65 pucca, 37katcha).

Upgrading of pedestrian and vehicle crossings. - Closure of unauthorized water offtakes.

Prevention of unauthorized water abstractions. Canal maintenance (removal of sludge and weed)slightly more difficult.

Fence and canal maintenance and security costs.Minor inconvenience during construction.

(ii) Canal Improved water flow and water quality; constant level. Deposition of river sediments; cleaning every 5 to 10upgrading and years.operation Regular canal maintenance.

(iii) Replacement Improved pedestrian and vehicular access from Area I Increased incentive for urbanization in Area I:of river to Dhaka-Demra-Narayanganj Road. deteriorating drainage/irrigation systems.

crossing

Clv) Cut-off drain Pollution from road prevented form entering canal.along road

(v) Land Land belongs to BWDB; agreement signed for DWASAacquisition management.

(vi) Cross dam Prevention of pollution form southern portion of canal. Penstock opening will allow pollution to pass fromsouthern portion of canal.

Cessation of water flow in southern section of canal:increased pollution risk.

(C) Culvert from DND No additional land acquisition. Short-term disruption in Kajla during construction.Canal to Saidabad

No relocation of existing structures needed.

(D) Saidabad SWIP No land acquisition needed; no relocation of Minor compensation for part loss of fish ponds.and access road compensation for present housing.construction Short-term disruption form construction activities:

Infill of septic ponds along access road.(i) Significant short-term noise and dust produced by

transportation of machinery and materials(especially infill) to site, and construction activitiesfor SWTP and access road.

(ii) Increased congestion from construction traffic onlocal roads and Saidabad.

Ciii) Loss of cultivation activities by DWASA staff atSWTP site.

Annex 14. 1Page 6 of 8

Components Positive Impact Negative Impact

(E) Saidabad SWTP Production of treated water for large numbers of Minor increase in local road traffic (chemical supplyOperation consumers in Dhaka. etc.).

Disposal of sludge.

Occasional noise of stand-by generator and (Stage 11onwards) noise of mechanical de-watering machinery.

Possible spills/discharges of chemicals (notablychlorine) and oils (e.g., stand-by generator andtransformer oil).

Possibility of other accidents during routine operationand maintenance (e.g., drowning, electrocution).

(F) Water Distribution Distribution of treated water to water-short areas of Short-term disruption while mains are installed alongSystem Dhaka City. city streets: noise, dust and increased traffic

congestion.Increased flow in sewers may reduce septic conditionand H,S generation. Increased volumes of waste water needing disposal;

reduced septic conditions in sewers may allow growthHigher pressures will help to reduce contamination. of pathogenic organisms.

Table B: Summary of Mitigation Proposals for Main Negative Impacts ofConstruction and Operation of Surface Water Treatment Plant and Associated Works

Site and Impact Proposed Mitigation Possible Alternative to Avoid/Reduce Impact

(A) Sarulia Intake, pump site and culvert to DND Canal

(i) Loss of fish pond area Compensation. I

(ii) Construction noise, dust and traffic Contractor to minimize by appropriate work program.

(B) DND Canal

(i) Removal of shacks Combination of relocation and compensation. Pipeline transmission of water to Saidabad: too costly.

(ii) Removal of washing points Provision of alternative pump-fed washing areas, with suitabledrainage measures. Leave on canal: raw water contamination.

(iii) Closure of unauthorized water offtakes Leave on canal: reduced water volumes; demands from otherusers.

(iv) Pollution from, and in, canal south of checkdam

(v) Extra wastewater in Area I Control volume by use of existing BWDB Katchpur pumps. Controlled land development: encroachment too rapid forIn long-term, new facilities when DWASA takes over area. Rajuk/DCC to control.

(vi) Sediment deposits and weed growth Regular de-silting and weed clearance. Dewatering basins at Saidabad: extra construction cost -desilting still needed.

(C) Treatment and access road construction

Ci) Removal of shacks along access road Relocation on adjacent empty ground and compensation. Alternative access road: too costly.

(ii) Construction noise and dust Contractor to minimize by appropriate working methods.

(iii) Traffic congestion during construction Contractor to restrict main trips on roads to off-peak periods.Alternative access: too costly.

(D) Treatment Plant Operation

(D (i) Increased road traffic No special measures _

0 -Cii) Sludge disposal Dewatering and use in sanitary landfill Disposal to Khal: environmentally unacceptable. O-h 4-

(iii) Noise Containment of machinery in buildings; muffling of stand-bygeneator

Site and Impact Proposed Mitigation Possible Alternative to Avoid/Reduce Impact

(iv) Chemical spills and discharges Safe transport, handling and storage procedures. Concretepads and containment barriers for storage tanks, to limit liquidand solid spills. Ventilators to disperse chlorine. Standardhealth and safety procedures during operation.

(E) Water Distribution System

(i) Increased waste watcr volumes Review and improvement of sewerage and sanitationprovisions in Dhaka under DWASA IV studies and TA

(ii) Increased traffic congestion and social Routes selected to minimize difficulties; contractor to adopt Alternative routes: increased costs, similar problems.disruption duiring construction appropriate working practices.

rDcoN

O H~

Annex 15.1Page 1 of 2

BANGLADESH

FOURTH DHAKA WATER SUPPLY PROJECT

Selected Documents and Data Available in the Project File

1. Acqua Consultants. Consumer Survey 1992-93, Final Report. December1993.

2. ADB. Managing Water Resources to meet Mega City needs. A case studyfor Dhaka City.

3. Acqua Consultants. Consumer Survey 1992-93. List of Non-DWASA Deeptubewells.

4. Bangladesh Project Management Institute. DWASA Productivity Study.1991.

5. BCEOM Consultants. Environmental Impact Assessment of the Fourth DWASAProject. April 1994.

6. BCEOM Consultants. Feasibility Study of the Fourth DWASA Project (3volumes). May 1992.

7. BCEOM Consultants. Distribution System Analysis, May 1994.

8. CDM & EPC. Saidabad Site Feasibility Study. February 1992.

9. CDM, MMD, EPC. Water Treatment Plant at Demra and Other Works. 1990.

10. DWASA, BCEOM & EPC. Proceedings on Seminar on Water Supply for Dhakaand Saidabad Water Treatment Plant. July 7, 1994.

11. Fierro, Marco. Economic Analysis, September 1994.

12. EPC, MMD, CDM. Dhaka Region Groundwater and Subsidence Study. May1991.

13. GKW Consultant. Leak Detection and Waste Prevention Program, 1992 (2volumes).

14. Government of Bangladesh. Water Supply and Sewerage Ordinance 1963 andAmendments.

15. S.F. Ahmed & Co. Final Report on Verification of Consumer Survey 1992-93. December 1993.

16. Solomon & Chidley. Analysis of Lakhya River Water/Benthos Samples atProposed Demra Water Treatment Plant Site. May 1986.

17. UNICEF. The Status of Water and Sanitation Access in Urban Slums andFringes in Bangladesh, Volume 1, Situation Analysis.

Annex 15.1Page 2 of 2

18. Assessment of Proposed Program for a Surface Water Supply Source for theCity of Dhaka. August 1986.

19. Deep Aquifer Exploration Project, Bengal Basin, Bangladesh.

20. Dhaka Water Supply and Sewerage Authority Management InformationReports.

21. Van der Eb, Tariff Study for DWASA. December 1994.

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