international bank for reconstruction and...
TRANSCRIPT
RESTRICTED
Report No. PU-100
~~V6-1'64~o S
This report is for official use only by the Bank Group and specifically authorized organizationsor persons. It may not be pubLished, quoted or cited without Bank Group authorization. TheBank Group does not accept responsibility for the accuracy or completeness of the report.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
INTERNATIONAL DEVELOPMENT ASSOCIATION
APPRAISAL OF
THE MEDIUM SIZE CITIES WATER SUPPLY AND SEWERAGE PROJECTS
COLOMBIA
(in two volumes)
VOLUME I
THE MAIN REPORT
July 31, 1972
Public Utilities Projects Department
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OUURE! EQUIVALENT
Currcy Unit - Col.bium Peo (Col$)US$1.00 - Col$20 (see paragraph 4.15)Col$1.00 - US*0.05Col$1,000,000 - US$50,000
ME&SMMZS AND nOtJIA=KNS
kilameter (km) - 0.62 omlesliter (1) - 0.26 US gallonsotor (a) - 3.28 feet
cubtc mter (W3) - 35.3 cubic feetgallon (gal) - 3.785 litersliter per second (/ec)- 0.023 million US gallons per day or
15.8 US gallons per minuteliter per oapita per day (l/c/d) - 0.26 US gallons per capita per daymilligrams per liter (wg/l) - 0.058 Grains per US gallon
PRIIINIPAL AB BRIATZIONS AND ACRBONM USED
INFPMAL - Inatituto Nacional de Famento MunicipalFONADE - Fondo Nacional de Desarrollo RconowicoFAHO - Pan Amrican Heath OrganiationINRES - Inatituto Nacional pan Programs Zepeciales do SaludDMND - Departamnto Adminiatrscion Nacioral do Estadiatrica
Jan. 1 - Dec. 31
COLOMBIA
MEDIUM SIZE CITIES WATER SUPPLY AND SEWERAGE PROJECTS
VOLUME ONE: THE MAIN REPORT
TABLE OF CONTENTS
Page No.
SUMMARY AND CONCLUSIONS .............................. i-ii
I. INTRODUCTION ......................................... 1
II. THE SECTOR ........................................... 2
Urban Development ............................... 2Past Investment ................................ 3Development of the Sector ..... .................. 4
III. THE BORROWER AND THE BENEFICIARIES ................... 5
The Borrower .......... ........ 5Organization for Administration of Bank Funds ... 6The Beneficiaries ...... ......................... 7Management Assistance .................. 9
IV. THE SEVEN PROJECTS ................................... 9
Background ................................ 9The Seven Projects ............. .. ............... 10Cost Estimates .................................. 12Amount of Proposed Loan .......... .. ............. 13Procurement ....... ........... ................... 14Disbursement .................................... 14Execution of the Projects ....................... 14INSFOPAL's Costs .............. .. ................ 15
V. JUSTIFICATION ........................................ 16
Investment Objectives ........................... 16Least-Cost Solutions ............ .. .............. 16Economic Return .............. .. ................. 16Environmental Aspects ........... .. .............. 17Institution Building ............ .. .............. 17
This report was prepared by Messrs. Morse, Costa and Kalbermatten.
Table of Contents (Continued)
Page No.
VI. FINANCES ............................................ 18
Past Finances ............. ...................... 18Financing Plan ............ ...................... 19Tariffs ......................................... 21Future Finances ........... ...................... 22Risks ........................................... 23
VII. AGREEMENTS REACHED AND RECOMMENDATION ..... ........... 25
LIST OF ANNEXES
1. Bank Loans Made to Colombian Cities for Water Supply and Sewerage
2. Projects Cost and Annual Project Investments (2 pages)
3. Disbursements and Components of the Seven Loans (2 pages)
4. INSFOPAL External Credit Office Cash Flow Statements and Calculationof the Net Internal Cash Generation (2 pages)
5. Population Served and Water Used
6. Past Financial Indicators
7. Distribution of Revenues by Services in 1971
8. Financing Plan (1972-1976)
9. Water Supply and Sewerage Tariff Increases
10. Power, Telephones and Other Services Tariff Increases and FinancialTargets
11. Consolidated Future Finances
12. Method of Calculating Rates of Return
13. Evaluation of Risks
Chart 6599 INSFOPAL Organization Chart
Map 3916 Projects Location
COLOMBIA
APPRAISAL OF THE MEDIUM SIZE CITIES
WATER SUPPLY AND SEWERAGE PROJECTS
SUMMARY AND CONCLUSIONS
i. This report (Volumes 1 & 2) appraises water supply and sewerageprojects for seven medium-sized cities in Colombia, for which a Bank loan ofUS$9.1 million equivalent is proposed. The needs of the larger cities(Bogota, Cali and Medellin) for water supply and sewerage are being met byloans from the Bank and the Inter-American Development Bank. The policy ofthe Government is to improve services in medium-sized cities in order toencourage a more balanced urban development and divert migration to them.This "package" of projects directs itself to the requirement of seven medium-sized cities in Colombia with populations from 80,000 to 300,000: Armenia,Manizales, Neiva, Pereira, Tulua, Buenaventura and Santa Marta.
ii. The borrower would be Instituto Nacional de Fomento Municipal(INSFOPAL), the national water supply agency, and the proceeds of the loanwould be relent to seven beneficiaries under subsidiary loan agreements ac-ceptable to the Bank between INSFOPAL and the individual beneficiaries. Fiveof the beneficiaries are municipal corporations (empresas) which supply waterand sewage services and in some cases power, telephones and other servicesincluding markets, slaughterhouses, street cleaning, etc. Two of the bene-ficiaries are subsidiary organizations of INSFOPAL itself. In addition toconditions of effectiveness for the loan agreement as a whole, each sub-sidiary loan agreement would have its own conditions of effectiveness.
iii. The report supports a policy of strengthening INSFOPAL as the na-tional agency to provide assistance in planning, administration and financein the sector. INSFOPAL would administer international and national loanfunds in the sector, would become increasingly responsible for effectiveproject preparation and supervision of project execution, and would organizemanagerial and technical assistance to individual cities.
iv. Substantial tariff increases for water supply and sewerage are pro-jected over 1971 levels. In some cases, increases have already been insti-tuted but further ones will be required. Increases in telephone and powertariffs and in charges for some of the other services provided by the muni-cipal empresas will be necessary to ensure the financial viability of thebeneficiaries. Although the projected tariff increases are within the rangesof increases made in other cities and within the guidelines of the NationalPublic Services Tariff Board, some public resistance can be expected.
v. The beneficiaries' managements vary from poor to very good. Con-siderable managerial assistance will be needed and it is expected that thePan-American Health Organization and local consultants will assist in provid-ing it, in collaboration with INSFOPAL.
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vi. The total cost of the seven projects, plus the costs allocated toINSFOPAL for managerial assistance, is US$15.5 million equivalent. The pro-posed loan would cover half the cost of constructing the seven projects(US$7.4 million equivalent), the cost of managerial assistance (US$0.5 mil-lion equivalent), and financial charges on the Bank loan during construction(US$1.2 million equivalent). Expenditure in local currency for constructionwould be financed by the loan to the extent of an estimated US$5.2 millionequivalent. The foreign exchange component is estimated to be approximately17% of the total cost of construction.
vii. Contracts would be awarded on the basis of international competi-tive bidding. Foreign bidders would be primarily attracted to the treatmentplant equipment and the larger valves and accessories, amounting to about10% of project costs.
viii. The populations of the seven cities are growing at rates from 5.0%to 6.4% annually, and they will have a combined population of 1.8 millionby 1980. These projects would ensure that a population of 1.6 million wouldbe served with an adequate supply of wholesome water--that is, about doublethe population which has a supply at present. Sanitary conditions in thecities would also be substantially improved. The minimum economic rates ofreturn for the individual projects vary from 9X for Tulua to 17% for Armenia.
ix. The seven projects are suitable for a Bank loan of US$9.1 millionequivalent for a term of 25 years including a grace period of four years,provided that the general conditions stated in Chapter VII and the conditionsspecific to each beneficiary listed in the seven "Recommendations" chaptersof Volume 2 are met.
COLOMBIA
APPRAISAL OF THE MEDIUM SIZE CITIES
WATER SUPPLY AND SEWERAGE PROJECTS
I. INTRODUCTION
1.01 Instituto Nacional de Fomento Municipal (INSFOPAL), the agencywith overall responsibility for water supply and sewerage in Colombia, hasapplied for a Bank loan to help finance water supply and sewerage projectsin the seven cities of Armenia, Manizales, Neiva, Pereira, Tulua, Buenaven-tura and Santa Marta. These projects have an estimated total cost of US$15.5million equivalent. A Bank loan of US$9.1 million equivalent is proposed,which INSFOPAL would relend to five independent municipal companies and totwo utilities which it owns.
1.02 The Bank has made four loans for water supply and sewerage to largecities in Colombia, details of which are given in Annex 1. An attempt isbeing made to foster better-balanced urban growth by developing medium-sizedcities and the loan now proposed would help to finance such development incities with populations in the range 80,000 to 300,000. This involves theappraisal of smaller and more numerous projects than are usual in the Bank'swork, and which would be administratively onerous for both the Bank and theColombian Government if the usual methods were followed. A group of projectshas therefore been selected to form the basis of a single loan to be admin-istered by INSFOPAL. There are further advantages in this approach. Loansto individual utilities can be kept prudently small and can be made in seriesso that the utility can demonstrate that it is improving and so that the nextloan in the series gives it an incentive to continue to do so. Institution-building can also be fostered by assisting INSFOPAL to improve its own opera-tions as the responsible agency for developing the sector, as explained laterin this report.
1.03 Volume 1 of this report is an evaluation of the External CreditOffice of INSFOPAL, the borrower, and contains outline data on the sevenprojects and their respective utilities. It concludes with a set of generalconditions applicable to INSFOPAL or the seven projects as a whole. Volume2 consists of seven separate appraisals of each of the seven projects and itscorresponding utility. These seven utilities to whom INSFOPAL would relendthe loan are termed the beneficiaries. Each of the seven appraisals inVolume 2 contains specific conditions applicable to that particular utilityonly.
1.04 Five of the municipal utilities are multi-service, operating suchservices as power and telephones, in addition to water supply and sewerage,as well as various other miscellaneous services, such as markets, slaughter-house, etc. Because the several services are integrated in one company, ithas been necessary to review each service for each company and establishfinancial criteria which would enable the service to be reasonably self-supporting and able to contribute to its requirements for operating costs,debt service, and a portion of future investment of the utility as a whole.
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1.04 The appraisal was undertaken from mid-October to mid-November 1971by three appraisal teams composed of Alberto Domenge and John Kalbermatten(Bank staff), Roberto Dominguez, Domingo Ruiz and Adolfo Yanes (consultants),and Guillermo Roviralta (Pan-American Health Organization, PAHO). Their workwas supervised by Charles Morse and Rene Costa of the Bank. Members ofINSFOPAL and the National Planning Department also took part in the appraisals.
II. THE SECTOR
Urban Development
2.01 Colombia has been experiencing rapid and uneven growth of the popu-lations of its principal cities, where urban services of all kinds have be-come inadequate. The Government intends to promote better-balanced urbangrowth by encouraging migration to the medium-sized cities, thus reducingpressures on the large cities of Bogota, Medellin, Cali, and Barranquilla.If this policy is to succeed, adequate public services will have to be pro-vided to make the medium-sized cities attractive to rural migrants.
2.02 Inadequacy of public services has been especially marked in thesupply of potable water and the removal of water borne wastes. The tradi-tionally low tariffs for water supply and sewerage have made it impossibleto rise the large capital sums needed for new works, and there have alsobeen difficulties in attracting competent personnel. Inflation and localpolitical opposition to tariff increases have aggravated the situation, anda vicious circle has been created where deteriorating service makes it moredifficult to convince the public of the necessity for tariff increases. TheGovernment favors tariff increases and the National Public Services TariffBoard, created in 1968, advocates realistic tariffs which will cover cashoperating costs and generate funds for future investments.
2.03 The country's water supply and sewerage systems can be classifiedmainly into three main groups:
(a) Twenty-one cities with populations ranging (in 1970) from20,000 to 2.5 million have their own municipal companies(empresas) that provide such public services as water supply,sewerage, electricity distribution, telecommunications,garbage collection, and markets. These cities have a com-bined population of some 7.5 million, or a third of the totalpopulation of Colombia. With a few exceptions, from 70% to 90%of this population is connected to the empresas' water supplies.Sewerage is not so universal, and connections to sewers varyfrom 80% to less than 50%. The empresas have a board ofdirectors mainly appointed by the municipal councils, butthey operate with substantial autonomy and are comparativelywell run. They finance expansion with internal funds, bankloans, and suppliers' credits.
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(b) The majority of the remaining water supply systems, servingsome 750 towns with more than 2,500 inhabitants, are ad-ministered by the national water supply agency, InstitutoNacional de Fomento Municipal (INSFOPAL), under the Ministryof Health. Departmentally (Colombia is divided into 22departments) and locally, INSFOPAL operates through a varietyof institutions, such as departmental water supply corporationscalled acuas, departmental offices called direcciones seccionales,or local systems. The two former types are run regionally on acooperative basis, the cash profits of the few profitableentities partly covering the operating deficits of themajority and Government grants making up the difference.The total population under INSFOPAL's administration issome 5.5 million, or around a fourth of Colombia's popu-lation. On average, some 70% of the urban inhabitants inthis group have a supply of water, but only 50% have sewer-age. The quality of the services is poorer than in thecase of the empresas described above in (a), administrativecompetence is usually less, and funds for investments areGovernment grants.
(c) The rural water systems, generally defined as those servingcommunities with less than 2,500 inhabitants, are organizedunder the Instituto Nacional para Programas Especiales deSalud (INPES). Some 9 million inhabitants or 40% of thepopulation are under INPES. Of these, only an estimated 30%have water supply and sewerage. These communities are toopoor to afford adequate services and depend primarily uponGovernment funds for investments, although direct chargesare intended to cover operating costs and some depreciation.
Past Investment
2.04 Annual investment in the water supply and sewerage sector increasedfrom US$21.6 million in 1965 to US$42.4 million in 1969 and the total for theperiod was US$156 million. Of this, 74% went to the empresas, 22% to INSFOPAL,and only 4% to INPES communities. About 30% of total investment was financedby the national budget, 20% by external sources, and the remaining 50% byinternally-generated funds and domestic credit.
2.05 External assistance for Colombia's water supply and seweragesector began to be given about ten years ago, and a sum equivalent to someUS$180 million was committed from 1961 to 1971. The Bank's share was roughly70% and that of the Inter-American Development Bank 25%; the remainder wasfrom US AID, Eximbank, and the German Kreditanstalt. In addition, US AIDmade a sector loan of US$29.0 million in June 1971 for urban development.
2.06 The Inter-American Development Bank has been active in the sectorsince 1961 and has made 10 loans totalling US$43.4 million. It made twoloans to INSFOPAL in 1962 for US$10.6 million for a large number of INSFOPAL's
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systems; these loans were disbursed very slowly, partly because of poor plan-ning. Repayment by the individual systems has been generally poor and INSFOPALhas assumed the debt service to the Inter-American Development Bank.
2.07 Previous Bank loans have all been to empresas (Annex 1). Experi-ence from the Bogota loans is good, but it is still too early to assess theCali and Palmira loans. All three have suffered variously from Governmentfailure to provide its funds promptly.
Development of the Sector
2.08 The National Planning Department recently concluded a nationalsurvey of the sector to determine the total investment that would be neces-sary to make up deficiencies in the two services and keep abreast of popu-lation growth. The survey assumed that by 1980 certain minimum standardswould be reached for the percentage of population served, per capita consump-tion, and quality of water. Annual investment requirements through 1980,which are indicative only due to the quality of the data, were then estimatedas follows: Col$1,000 million (US$50 million) for the empresas, Col$630 mil-lion (US$31 million) for INSFOPAL, and Col$550 million (US$27 million) forINPES.
2.09 The difficulty of raising such large sums indicates that goalswill have to be reduced considerably and that the mobilization of internalresources through increased tariffs is of vital importance.
2.10 Institution building probably has the greatest chance of successwith the municipal empresas, because of their size, managerial competenceand concentration of population, and are the Bank's most likely potentialborrowers. The five empresas which would be beneficiaries of the proposedloan are all in need of general assistance in operations, administrationand finance in varying degrees, but INSFOPAL's two utilities need suchassistance even more.
2.11 The strategy of the proposed loan, therefore, is to make use ofINSFOPAL to assess and organize such assistance. INSFOPAL has establishedan External Credit Office 1/ for this purpose which will assist the sevenbeneficiaries and will handle applications to the Bank for procurement andother administrative matters relating to the Loan, as set out in detail inChapter III.
2.12 Establishment of the External Credit Office of INSFOPAL as a com-petent national center to provide assistance in planning, administrationand finance to the empresas and to the sector generally is seen as one ofthe major objectives of the proposed loan. The loan would therefore includeassistance to INSFOPAL towards the costs of consultants who will advise that
1/ Subdireccion de Financiamiento y Credito Externo.
office initially and INSFOPAL itself (para. 4.23). The financing plan dis-cussed in Chapter VI includes in its sources budgetary funds from theColombian Government. The External Credit Office would lend these govern-ment funds and in later years, after it had received repayments, would re-lend them again in the sector. A role of increasing importance and author-ity in guiding the sector towards greater efficiency and full development istherefore envisaged for INSFOPAL and its External Credit Office.
III. THE BORROWER AND THE BENEFICIARIES
The Borrower
3.01 The Borrower would be the Instituto Nacional de Fomento Municipal(INSFOPAL), the national agency responsible for water supply and sewerage inColombia. INSFOPAL was created in 1936 under the Ministry of Public Works.In 1968 under Decree 2561 of October 7 and 3178 of December 26, it was placedunder the Ministry of Health.
3.02 The principal functions of INSFOPAL can be summarized as:
(i) to prepare public investment programs in the water supplyand sewerage sector;
(ii) to construct water supply and sewerage projects for com-munities with more than 2,500 inhabitants; 1/
(iii) to supervise construction of projects financed by govern-ment funds;
(iv) to establish standards of construction and operation;
(v) to submit applications for tariff increases to theNational Public Services Tariff Board for those systemsunder its jurisdiction;
(vi) to operate and maintain those systems.
3.03 The Minister of Health is president of INSFOPAL's board of direc-tors; the directors comprise one representative each of the National PlanningDepartment, the Colombian Society of Engineers, INPES, the Colombian Associa-tion of Municipalities, the Colombian Association of Agriculturists, and theNational Federation of Coffee Growers.
1/ The empresas of the larger municipalities, including the five includedherein, are excluded in practice, although the decree makes no mentionof them.
3.04 The management of INSFOPAL has been uneven over the years and itsadministration is generally poor. INSFOPAL has therefore made an agreementwith PAHO for large-scale general managerial assistance and reorganizationin accordance with the objectives of the National Planning office which areto transform INSFOPAL into the financial institution for the sector. Fundsfor this program would be included in the proposed loan, and its implementa-tion will be reviewed with the Bank from time to time.
3.05 INSFOPAL is presently divided into three departments--technical,operational, and administrative--and operates regionally as noted in paragraph2.03(b) (see organizational Chart 6599). It has recently created a new de-partment, "Subdireccion de Financiamiento y Credito Externo" (the ExternalCredit Office), to handle national and foreign lending in the sector. Thehead of the External Credit Office reports directly to the general managerof INSFOPAL and the office has eight professionals, including engineers andfinancial analysts.
3.06 The functions assigned to its External Credit Office, in summary,are to:
(i) assist the empresas in the preparation of projects forforeign and national financing;
(ii) assist the Bank in the appraisal of projects;
(iii) assist the empresas in the preparation of periodicalreports;
(iv) review and approve bidding documents and bid evaluation;
(v) assist the empresas in the preparation of disbursementrequests;
(vi) oversee loan conditions;
(vii) establish uniform administrative procedures for certainmatters, such as programs of construction and costaccounting;
(viii) coordinate and promote training programs; and
(ix) coordinate, when feasible, joint purchases.
Organization for Administration of Bank Funds
3.07 INSFOPAL would relend the proceeds of the proposed loan to theseven beneficiaries, under subsidiary loan agreements acceptable to theBank. In addition to general conditions in the proposed loan agreementapplicable to all beneficiaries (including the conditions of effectiveness),each beneficiary would have to comply with specific conditions included inits subsidiary loan agreement (with its own conditions of effectiveness).
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3.08 The intention is that the External Credit Office would carry outthe responsibilities of INSFOPAL under the proposed loan, including super-vision of project execution, bidding review, centralization of information,and disbursement applications. It is expected that future projects wouldbe prepared under the supervision of the External Credit Office and appraisedby it for presentation to the foreign lending institutions. As the officedevelops and proves its competence, the Bank would progressively delegatesupervisory and appraisal responsibilities to it. Nevertheless considerableproject supervision by Bank staff will be necessary in the early years. Ifsuccessful, this office would be an important institution-building achieve-ment of the proposed loan.
3.09 The success of the proposed "package" approach to lending in thewater supply and sewerage sector in Colombia will depend upon the effective-ness of the External Credit Office. There is an appreciable risk, however,which is both a question of staff competence and institutional ability. Thechief of the office is an experienced financial manager from the EmpresasMunicipales de Cali, and the staff, although of limited experience, seemsto have the necessary potential.
3.10 It will be necessary to have the External Credit Office assistedby experienced consultants for a period of one to three years. INSFOPAL hascontracted with a consortium of Colombian firms to provide an engineer, afinancial analyst and an administrative expert. The assistance will have animportant training function. Assurances were obtained during negotiationsthat assistance in a satisfactory form will be continued as long as the Bankdeems it necessary. Funds for this assistance have been included in the es-timates. INSFOPAL has also concluded a contractfor training assistance withthe Empresas de Acueducto y Alcantarillado de Bogota.
The Beneficiaries
3.11 The following is a list of the seven cities and the services theyprovide:
Services in addition toCity Organization water supply and sewerage
Armenia Municipal Empresas Power, telephones, other
Manizales " " Telephones, other
Neiva Is it Other
Pereira " " Power, telephones, other
Tulua " " Telephones, other
Buenaventura INSFOPAL Acuavalle None (no sewerage)
Santa Marta INSFOPAL Acuadelma None
Note: "Other" includes street cleaning, markets, slaughterhouses andgarbage collection.
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3.12 Each municipal empresa (with the exception of Pereira, which hasbeen established by a national law) has been created by a decree of itsmunicipal council and is governed by a board of directors, numbering fiveto seven, appointed by the municipal council. To ensure independent andbusinesslike administration, the decrees have required councils to appointa majority of the directors from lists proposed by local banking and profes-sional organizations. However, this requirement has been recently removedin most municipalities so that all appointments are made directly by, andsolely at the pleasure of, municipal council. This leads to some concern,on the basis of Cali's experience, that boards exclusively appointed bymunicipal councils may lead to excessive interference in the daily affairsof the empresas and to deterioration of management as experienced peopleleave and new staff without the same competence or experience are broughtin. This is a risk it is necessary to take.
3.13 The boards of directors have considerable authority, includingauthority to fix tariffs and select and dismiss the general managers. De-tailed administration is delegated in practice to the general managers, allof whom at present are competent and experienced.
3.14 The technical operations of the empresas vary from poor to good.Lack of revenue and a shortage of qualified technicians are the principalobstacles to improvement. The first should be remedied, and the secondshould be improved under the proposed loan.
3.15 Financial management varies from poor to very good. Pereira isan outstanding examDle of good financial management; it has detailed five-year investment plans for all its services and a financial management thatis knowledgeable and efficient. The other empresas have moderate financialskill; the basic elements are present but more knowledgeable and imaginativeapplication is required.
3.16 The two INSFOPAL systems considered in this report both belong toacuas. An acua is a kind of incorporated cooperative, its shares beingheld by INSFOPAL, the department, and the municipalities it serves in theamount that each shareholder has subscribed in money or physical assets. Gov-ernment budget appropriations are usually converted by INSFOPAL into additionalshares so that INSFOPAL is almost always a majority stockholder. The cashearnings (in no case is a profit earned after adequate depreciation) of themore profitable municipal systems are used to cover the cash operating de-ficits of the others. The short-term goal of the Colombian Government isthat the water revenues of any acua should cover at least operating costs.
3.17 These two systems present an unattractive picture. Buenaventurahas been badly operated for a number of years. With the retirement of itsmanager, INSFOPAL merged the Bulenaventura system into Acuavalle (one of thebetter run acuas) which has a dynamic and competent manager, and its staffhave addressed themselves to correcting its grosser deficiencies. The illsthere of fraudulent connections, losses of water, uncollected bills and thelike are formidable but the prognosis is good.
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3.18 Acuadelma, which includes Santa Marta, has had poor management. Anew manager who has promise has been assigned to Santa Marta, but the presentmanagement of Acuadelma itself is unimpressive. The difference from Buena-ventura lies in the absence of a strong organization to which Santa Martacould be attached. It will, therefore, be necessary to supervise closely thedevelopment of this system to encourage improvement. Santa Marta will be re-moved from Acuadelma and become an empresa.
Management Assistance
3.19 The seven beneficiaries require varying degrees of management as-sistance in administrative and financial aspects and technical assistance inthe operation of their water supply and sewerage systems. The provision ofmanagement and technical assistance and training is a major objective of theproposed loan. A principal activity of the External Credit Office would beto send missions to review all the operations of the beneficiaries and pre-pare terms of reference for management consultants to assist them. Theirother services must also require technical assistance, but neither the ap-praisal mission nor INSFOPAL has competence in this matter.
3.20 The beneficiaries would then be free to make contracts for thisassistance with Colombian firms, with PAHO directly or through the ExternalCredit Office, or by any other means the External Credit Office and the Bankconsidered satisfactory. The External Credit Office could recruit specialistsitself or in cooperation with the Colombia Water Supply and Sewerage Associa-tion. The beneficiaries would bear the cost of this assistance and fundshave been provided in the project cost estipnates. Assurances were obtainedduring negotiations that a management assistance program satisfactory to theBank will be carried out and a program with target dates has been establishedfor its implementation. The subsidiary loan agreements will stipulate thatthe beneficiaries will employ competent consultants as required by INSFOPAL'sreviews.
IV. THE SEVEN PROJECTS
Background
4.01 US AID and the Fondo Nacional de Desarrollo Economico (FONADE)financed the feasibility studies for the projects of the five empresasserving the cities of Armenia, Manizales, Pereira, Neiva and Tulua. Thesefeasibility studies were prepared by Colombian consulting engineering firmswith minor collaboration in some cases with US consulting firms. The proj-ects for the two INSFOPAL systems serving Buenaventura and Santa Marta wereprepared by Colombian consultants under contract to INSFOPAL and then wereupdated for this appraisal by a Colombian consulting firm under contract toINSFOPAL and financed by FONADE.
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4.02 The appraisal included a water supply project for the Empresas ofCartagena. This company's pipeline is duplicated by a pipeline built fora government-owned industrial plant. The most efficient joint use of thesetwo pipelines must first be agreed upon before a project for further expan-sion of municipal water supply and distribution can be designed. This problemis receiving the attention of the Colombian Government.
4.03 A project for the Empresas of Villavicencio was also appraisedbut it has been postponed while the company reviews the size of the projectit can afford and establishes its financial viability.
4.04 The appraisal also reviewed projects for two INSFOPAL-administeredwater supply systems and a proposed INSFOPAL sewerage system. One watersupply project in Riohacha was dropped because it was not the least-costsolution by a substantial margin, and another in Popayan because the projectwas not adequately defined. A sewerage project in Tumaco was dropped becauseit is not justified at the present time.
The Seven Projects
4.05 The table below lists some principal statistics for the seven proj-ects. Full details are in the seven reports in Volume 2, and Map 3916 at theend of this report shows the seven cities. The figures for output of watergiven in the table do not correspond with the project costs since rehabilita-tion, distribution system and relief of overloaded plants are important insome cases. Brief descriptive notes follow the table.
The Seven Projects
Percentageof Capacity
Estimated P?opulation forCost Now Served Water Supply
of Project by: Before AfterPopula- Depart- Col$ Water Sewerage Project Project
City Served tion ment Million X __ 1/sec 1/sec
Armenia 170,000 Quindio 44 79 70 500 800
Manizales 300,000 Caldas 100 80 80 1,070 1,400
Neiva 130,000 Huila 47 73 80 400 700
Pereira 240,000 Riseralda 92 80 70 440 1,460
Tulua 80,000 Valle 51 74 75 229 400
Buenaventura 100,000 Valle 23 50 small 350 350
Santa Marta 140,000 Magdalena 18 72 47 410 510
Note: The first five projects are for water supply and sewerage. Thelast two (INSFOPAL's systems) are for water supply only.
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4.06 Armenia. Water is abstracted from the Quindio River; operationand maintenance of the system are poor, and 50% of its water is unaccountedfor. The project would increase the capacity of the treatment plant, in-crease storage capacity, improve the distribution system, augment transmis-sion and distribution mains add some service, and purchase equipment formaintenance. It would be the first phase of a larger expansion program.
4.07 lManizales. A number of small streams supply water to an old treat-ment plant of 400 l/sec capacity (overloaded at present to 750 1/sec) and anew treatment plant of 670 1/sec capacity. The distribution system is limitedin capacity and coverage. The project would involve increasing the capacityof the new plant to 1000 1/sec, adding storage capacity, and improving thedistribution network. The sewerage system would be extended to dischargeinto streams away from populated areas (which in turn discharge into theManizales River) and to reduce erosion of the steep slopes on which consider-able areas of low-income housing are built.
4.08 Neiva. Water from Las Ceibas River is treated at a new plant witha capacity of 400 1/sec. The distribution system is inadequate. The projectwould consist of improving the intake and main to the treatment plant, in-creasing the capacity of the plant to 700 1/sec, and augmenting storage andpiping in the distribution network. Some sewers and drains would be con-structed. Operation and maintenance of both water supply and sewerage needto be improved.
4.09 Pereira. Water is taken from the Otun River. Two old treatmentplants have a joint capacity of 370 1/sec; an additional 70 1/sec are sup-plied by bypassing the plants. The distribution network is inadequate andhas many small and corroded pipes. The project would consist of enlargingthe two treatment plants, building a new treatment plant of 560 1/sec capa-city, adding new storage and extending the distribution network. A new in-tercepting sewer would be built to improve the existing sewerage system, andequipment for operation and maintenance would be purchased. The operationsof this empresas are generally very good.
4.10 Tulua. The Tulua River feeds a treatment plant of 75 1/sec capa-city, and two wells supply a total of 154 1/sec. The distribution networkis adequate. The project would provide a total capacity of 400 1/sec. Threenew wells and improvement of the two existing wells would be undertaken, andthe existing treatment plant would be abandoned. Additional storage and anextension of the distribution system would be included. Operation and mainte-nance of the sewerage system are poor; additional sewers and drainage worksare included in the project. Sewage drains into the Tulua and Morales Rivers;pollution is approaching their capacity to absorb it and therefore sewagetreatment will have to be considered in due course.
4.11 Buenaventura. This city's source of water is the Escalerete River.The water needs no treatment, but a treatment plant has been built. Theservice is poor, maintenance and operation are inadequate, and losses are upto 73%. A new administration is attempting to remedy the situation. The
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project would be the first stage of a larger program; it would improve dis-tribution and storage, reduce losses and connect about 2,000 new customers.There is little sewerage or storm drainage in the city, which presentsserious problems, but this matter is the responsibility of a regional de-velopment corporation and the project concerns water supply only.
4.12 Santa Marta. Water is abstracted from the Manzanares River andtreated at a plant with an output of 300 1/sec; two wells each supply 551/sec. The service is poor. There are 11,800 registered connections andan estimated 2,800 illegal connections. At present the water source compo-nent of the project has not been fully defined. It will be either a modifi-cation of the existing treatment plant, to increase its capacity by 100 1/s,or more wells. A ground water and an economic study will be performed to de-cide between the two alternatives. In either case transmission and distribu-tion mains would be constructed. Sewerage is not included in the project,but may be financed by a US AID loan. The city has a limited sewerage systemand storm drainage is not a great problem.
Cost Estimates
4.13 The total cost of each project is given below; details are inAnnex 2. Costs include all contingencies.
Col$ (million) US$ (million)Local Foreign Total Local Foreign Total
Armenia 36.8 6.8 43.6 1.6 0.2 1.8
Manizales 93.4 6.3 99.7 3.6 0.3 3.9
Neiva 41.8 4.9 46.7 1.70 0.2 1.9
Pereira 66.8 24.7 91.5 2.6 1.0 3.6
Tulua 43.3 7.7 51.0 1.7 0.3 2.04
Buenaventura 20.6 2.1 22.7 0.90 0.1 0.99
Santa Marta 14.8 3.3 18.1 0.6 0.2 0.8
INSFOPAL's Costs - 11.4 11.4 - 0.5 0.5
TOTAL COST OF THEPROJECTS 317.5 67.2 384.7 12.7 2.8 15.5
Interest on Bank Loanduring Construction - 31.1 - - 1.2 -
Total Foreign Exchange - 98.3 - - 4.00
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4.14 The estlmates are based on the feasibility studies (updated andmodified as necessary for those studies done before 1971) and costs of worksrecently executed by INSFOPAL. Technical contingencies have been analyzedproject by project and range from 10% for imported equipment in some projectsto 30% for the construction cost of sewerage in others; technical contingen-cies as a whole amount to 12.5% of the estimated total cost of the seven proj-ects. Engineering design and administration of construction were generallyestimated at 10% of the net construction cost and amounts to 6.8% of thetotal cost of the seven projects.
4.15 All project costs are based on 1971 prices, to which were addedprice contingencies of 10% per annum for local currency costs and 5% perannum for foreign currency costs. Price contingencies amount to 21.5% ofthe total estimated cost of the seven projects. The 1971 rate of exchangeaveraged Col$20 to US$1 and this rate of exchange has been assumed to in-crease by 9% annually throughout the construction period.
Amount of Proposed Loan
4.16 A loan for US$9.10 million is proposed, equal to the sum of -
(a) about 50% of the cost of US$15.05 million of the sevenprojects;
(b) 100% of INSFOPAL's cost of managerial assistance of US$0.48million (paragraph 4.23); and
(c) US$1.19 million of interest and committed charges payableon the proposed Bank loan during construction.
4.17 The loan would cover the following:
(a) US$2.75 million, or 30% of the loan, for the estimatedtotal foreign exchange cost of the projects;
(b) US$1.19 million for the interest and commitment chargeson the Bank loan during construction; and
(c) US$5.16 million, or 57% of the loan, for local currencyexpenditures.
4.18 If costs are greater than estimated, the beneficiaries would be ex-pected to meet the overruns, but assurances have been obtained from theColombian Government that it will promptly provide the necessary funds if thebeneficiaries cannot do so. Should any of the projects cost less than es-timated, the Bank would consider applying savings toward 50% of the cost ofadditional related water supply or sewerage works.
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Procurement
4.19 All contracts would be let on the basis of international competitivebidding. Foreign suppliers are expected to win contracts for treatment plantequipment, larger valves and piping accessories, meters and certain operation-al equipment amounting to perhaps US$1.3 million. Colombian bidders are ex-pected to win all civil engineering contracts and supply contracts for pipesand smaller valves and fittings. For the purpose of evaluating bids, a 15%preference (customs duties are substantially greater) would be allowed forequipment manufactured in Colombia except for pipes, where no preference hasbeen requested by Government as Colombian suppliers have a very substantiallocal advantage and are able to compete effectively without a preference.The amount of equipment procured locally is expected to be small. Thebeneficiaries are not liable for import duties. As in previous loans, noregional preference is contemplated.
4.20 Contracts for management service to INSFOPAL by PAHO and limitedengineering consultant service to Armenia and Pereira have been signed andretroactive financing of payments under the contracts is recommended. Thiswould amount to less than $150,000 equivalent for payments made after May 31,1972. The Board has already been informed.
Disbursement
4.21 Applications for all disbursement would be made by the ExternalCredit Office. The loan would be disbursed against the full CIF cost ofall direct imports, the full cost of foreign consulting services, and apercentage (about 43%) of the cost of all supplies, civil engineering worksand services procured locally. The exact percentage would be calculated ineach case so that the Bank would finance half of each project's cost. InAnnex 3 is a disbursement schedule showing estimated disbursements for eachproject and consolidated for the loan as a whole. Also in Annex 3 is a tablelisting the percentages of foreign exchange costs, local currency costs, andinterest charges during construction, financed by each project loan.
Execution of the Projects
4.22 The projects would be executed in the years 1972 through 1975. Inthe cases of Buenaventura and Santa Marta the work is expected to be completedin 1973, and in the case of Neiva and Armenia in 1974. Each of the empresashas retained a Colombian consulting firm for final design and supervision ofconstruction; these firms are satisfactory to the Bank. Assurances were ob-tained that the subsidiary loan agreements will contain provision that satis-factory consultants will continue to be employed, and that arrangements satis-factory to the Bank for final design and supervision of construction willalso be made for the Buenaventura and Santa Marta projects, using eitherINSFOPAL's staff or consultants.
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INSFOPAL's Costs
4.23 INSFOPAL's responsibilities under the proposed loan would behandled by its External Credit Office. The costs which the proposed loanwould help to finance would include the cost of general managerial assis-tance to INSFOPAL given by PAHO and to the External Credit Office given bylocal consultants (paragraphs 3.04 and 3.10). An estimate of these costsfor 1972-1976 and the costs of running the External Credit Office is sum-marized below, and a cash flow forecast is given in Annex 4.
Col$ million US$ millionLocal Foreign Total Local Foreign Total
Operating cost ofExternal Credit Office 18.2 - 18.2 0.70 - 0.70
Management Assistance toExternal Credit Office 5.7 5.7 0.24 0.24
Management Assistance toINSPOPAL - 5.7 5.7 - 0.24 0.24
Total Cost 23.9 5.7 29.6 0.94 0.24 1.18
Interest duringConstruction - 2.0 - - 0.06 -
Total Foreign Exchange - 7.7 - - 0.30 -
4.24 The expenses of the External Credit Office in 1972 have been esti-mated at Col$2.9 million (US$0.13 million), consisting largely of personnelcosts. The budget is forecast to increase by about 10% a year to reflectassumed general price level increases. The amount of US$0.54 million is in-cluded in the loan to cover management assistance to INSFOPAL and to the Ex-ternal Credit Office plus interest during construction.
4.25 It is assumed that 40% of the interest collected by INSPOPAL onnational (Colombian Government) loans to the beneficiaries amounting toCol$13.4 million will be used to meet the expenses of the External Credit Of-fice from 1972 to 1976. The balance of the interest collected and the amountscorresponding to amortization of national loans would be used by INSFOPAL forfurther lending in the sector. Debt service on the loan amount correspondingto managerial assistance to the External Credit Office would be met out of theinterest on the national loans. INSFOPAL would finance from its own budgetthe debt service on the amount of the Bank loan for the PAHO's assistance toINSFOPAL itself.
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V. JUSTIFICATION
Investment Objectives
5.01 The objective of the investment is to meet the near future demandfor water at price levels which are financially adequate and within the levelsin effect for other Bank financed water projects. Recent censuses in the sevenproject cities show annual rates of population growth ranging from 5.0% to 6.4+%.These growth rates are expected to continue, thus increasing the seven cities'population from 1.1 million at present to 1.8 million by 1980. The percentageof this population with a supply of water is now around 75%, with the exceptionof Buenaventura where it is only 40%; by 1980 it should increase from 75%7 inBuenaventura to 90% in other cities. A population of 1.6 million --doublethat now supplied--would then be supplied with adequate quantities of waterof reliable quality.
5.02 Gross consumption (including losses and commercial and industrialconsumption) of 250 l/c/d to 290 l/c/d is projected in the seven citiesaround 1980. Net daily consumption per capita will remain unchanged becauseadditional connections will probably be in poorer areas where the averageconsumption will be lower. Losses should drop from 55% in some cities toaround 25%. These estimates are necessarily speculative, since data onwater consumption are poor. Consumption by type of customer, the propor-tion of people served and the amount of unaccounted for water can only beestimated approximately. The figures discussed above are tabulated inAnnex 5.
Least-Cost Solutions
5.03 The projects have been pared by the postponement of works to thefinancial capacity of the beneficiaries, yet meet the most urgent needs;they are the least-cost solutions in this context. Where comparisons ofalternatives were appropriate (e.g., choice of water source for Tulua andsizing of transmission mains) discount rates of 10% to 12% were used by theconsultants. In some cases existing plants could be upgraded permittingnew plants to be reduced in size or deferred (Pereira, Armenia). In others,sub-optimal supply works had already been constructed (Manizales, Neiva).
5.04 The standards of service for which the projects have been designedwere reviewed by the missions and generally agreed by them. In a few in-stances there were reductions during appraisal, such as reducing storage,reducing the number of pressure zones, etc.
Economic Return
5.05 The minimum estimate of the economic return for the individualprojects are as follows:
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Armenia 17%Manizales 11Neiva 10Pereira 13Tulua 9Buenaventura 14Santa Marta 13
5.06 The calculations were made using 1972 prices and are presented inAppendix 3 of the reports for the individual projects in Volume 2. Benefitswere measured by the additional quantities of water provided, valued at theproposed combined water supply and sewerage tariff, after deducting incre-mental operating costs due to the project. The costs were those of theproject and subsequent investments necessary to utilize it fully. Variationsin the rates of return are explained by differences in topography, hydrology,existing facilities, investment phasing and tariff levels.
5.07 Not all benefits are captured by this method, which equates revenuesfrom sales with economic benefits. Consumers do not generally have to payas much as water is worth to them, and the consumers' surplus is thought tobe substantial. Health benefits, both direct and indirect (through a generalimprovement in the health of the whole community), and improvement in the com-munities' environment are examples of benefits which may be understated orcompletely omitted by this analysis.
Environmental Aspects
5.08 Sanitary conditions should be substantially improved in the urbanareas through the provision of improved and expanded water supply serviceand sewage collection. The discharge of untreated sewage into watercourseswill, of course, increase by the provision of better water service and moreuse of the sewerage system by urban inhabitants. However, in all cases thereceiving waters are currently able to handle the immediate pollutionalload without untoward effect. Pollution of streams in built-up areas willbe reduced. The improved water supply and sewerage services will be pro-vided predominately in areas inhabited by lower income groups.
5.09 There will be a need for sewage treatment in due course for Tulua,and at Santa Marta the same problem will need to be reviewed in a few years.
Institution Building
5.09 The establishment of an effective mechanism in INSFOPAL to prepareprojects and channel loan funds in the sector, as well as take over loansupervision from the Bank progressively, is an important objective. Themanagement assistance to be provided to the seven beneficiaries should havea substantial spillover effect on other municipal empresas and institutionsin Colombia, in addition to the improvement in operations of the beneficiariesthemselves.
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VI. FINANCES
Past Finances
6.01 The consolidated financial positions of the five municipal empresasthat are beneficiaries are acceptable, but the positions of the INSFOPAL ben-eficiaries are precarious. Annex 6 shows consolidated financial indicatorsof the seven beneficiaries for 1969-71.
6.02 The largest revenues earned by the empresas are from their powerand/or telephone services, followed by the other services such as, slaughter-houses., markets and street cleaning. Water supply and sewerage generallyproduce the smallest portion of revenues (Annex 7).
6.03 The finances of water and sewerage have been characterized byoperating losses and cash shortages which have precluded substantial invest-ment. The cash shortages are largely due to low tariffs, less than Col$0.80/m3(US$0.15/1000 gallons) and to high percentages of unaccounted for water(from 26% in Manizales to 73% in Buenaventura). The Government has madecapital grants to Manizales, Neiva and Buenaventura because of urgent problemsin those cities.
6.04 The municipal empresas, except Neiva, have telephone services.These services have been profitable; adequate internal cash generation andsuppliers' credits have enabled the empresas to provide five telephones per100 inhabitants, a ratio above the national average.
6.05 Only the Pereira and Armenia empresas have electricity services.The two cities operate their own distribution systems and generating stationsand also purchase power in bulk from Central Hidroelectrica de Caldas. Thefinancial position of the electrical power division in Pereira is fair; inArmenia it is poor. Neither city has recently invested in new plant norprovided adequate maintenance; as a result, losses average 25% to 30%.Tariffs are too low to support any substantial investment program, and arecent increase in the bulk price of power has not been passed on toconsumers.
6.06 The slaughterhouse, market and street cleaning services of themunicipal empresas are labor-intensive. Operating costs often exceedrevenues and cash generated by slaughterhouse and market services is gen-erally used to offset losses incurred by street cleaning.
6.07 About all that can be said about the INSFOPAL systems (Buenaven-tura and Santa Marta) is that the future should be better than the past.The financial results of Santa Marta seem to have improved from very badto poor and the system has, in effect, defaulted on its debt to INSFOPAL.Buenaventura has before its transfer to Amadelena been little better.
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6.08 The use of independent accountants for audit has been unknown.In anticipation of loan requirements, steps have been taken by some empresasto employ them, but only Pereira and Tulua have independent auditors. Thesubsidiary loan agreements will stipulate the employment of satisfactoryauditors. The accounts of INSFOPAL's External Credit Office will be auditedsimilarly.
Financing Plan
6.09 The financing plans for water supply and sewerage during the variousconstruction periods are summarized below. Annex 8 gives the financing planby project and detailed past finances are given for each beneficiary and byservices in Volume 2.
Col$ US$ %--- million---
Applications of funds
Capital Investment:Expenditure on projects 384.6 15.53 66.4Interest charged to construction 65.9 2.47 10.6Other works 77.1 2.98 12.7
Total investment 527.6 20.98 89.7
Increase in working capital 64.8 2.41 10.3
Total applications 592.4 23.39 100.0
Sources of funds
Internal Sources:Internal cash generation 274.8 10.48 44.8Less: debt service 87.0 3.36 14.4
net internal sources 187.8 7.12 30.4Government grant 9.2 0.42 1.8
Borrowings:IBRD loan 230.5 9.10 38.9Foreign loan 10.4 0.37 1.6National loan I 131.7 5.41 23.2National loan II 17.5 0.73 3.1Local loans 5.3 0.24 1.0
Total borrowings 395.4 15.85 67.8
Total sources 592.4 23.39 100.0
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6.10 The sources of funds would be:
(a) a Bank loan of US$9.1 million equivalent at an assumedinterest rate of 7.25%, with amortization over 21 yearsafter a four-year grace period. The Bank loan would coverinterest and other charges on the loan during construction;
(b) national (government) loans for Col$ 131.7 1/ million (US$5.41million equivalent) at an interest rate of 12% 2/, repaid inequal semi-annual payments over 11 years after a four-yeargrace period. This would also cover interest and othercharges to be paid during construction;
(c) various local bank loans for a total of Col$5.3 millionat various terms;
(d) internal cash generation of the beneficiaries of Col$188million; and
(e) two government grants already made, one to Buenaventurafor Col$7.2 million, and one to Santa Marta for Col$ 2.0million;
(f) the foreign loan and the national loan II are for a subse-quent project in Armenia which would begin in 1975.
6.11 Although this financing plan has been established on the basis ofcompletely independent projects, the consolidation was necessary to determine:
(i) the total Bank loan amount and disbursement to INSFOPAL,including the financing of PAHO's and local managementassistance;
(ii) the amounts and disbursements of the national (government)loan.
6.12 National (Colombian Government) loans which were included in thefinancing plans drawn up for Bank Loans 638-CO (Cali Water Supply andSewerage Project) and 738-CO (Palmira Water Supply and Sewerage Project)have not been provided promptly as required under the Guarantee Agreements.This has placed both projects in financial difficulties although recentsteps should resolve the delays in the future. Other Bank projects inColombia have suffered similarly. To ensure efficient and prompt executionof the seven projects, assurances were obtained from the Colombian Govern-ment during negotiations that the national loan funds for 1972 will be madeavailable and for 1973 will be included in the budget as a condition of loaneffectiveness. A schedule of specific amounts and dates when funds would bepassed to INSFOPAL has been established for 1973 and subsequent years' funds.
1/ Not including Col$1.0 million that will be disbursed in 1972, before theconstruction period.
2/ Assumed to be 14% for AID loan in Santa Marta.
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Tariffs
6.13 The financial requirements for water supply and sewerage have been
projected in some detail and the financial needs of the other services ofthe beneficiaries have been estimated as well. If these financial require-ments change, the required revenues and the necessary tariffs by these other
services would change also. The revenues necessary to meet the projectedfinancial requirements have been calculated either as rates of return oroperating ratios (for "other services" and the Santa Marta water supply) and
will be included as targets in the subsidiary loan agreements, which alsoprovide for their annual review and prompt tariff application and implementa-tion as required. The required tariffs were estimated on the basis of therevenues necessary to meet operating expenses, service debt and generatesome 20% to 40% of total project costs and an initial increase would be acondition of effectiveness for the subsidiary loan agreements. Theprojects were reduced in varying amounts so that the resulting tariffs forwater supply and sewerage would not be out of line with those of the otherbeneficiaries and Bogota and Cali. The tariffs are discussed in detail inVolume 2, and compared in Annexes 9 and 10.
6.14 Except for Pereira, no beneficiary had prepared any long-rangeinvestment programs. The programs assumed in the projections are the bestestimates of the appraisal missions but are quite conjectural. A conditionof effectiveness for each subsidiary loan agreement will be that each bene-ficiary has prepared a five-year investment plan for each service, which willbe revised annually. Supervision missions would assist in improving theseplans progressively.
6.15 Tariff applications must be made by the empresas themselves to theNational Public Services Tariff Board but implementation is the sole respon-sibility of the empresas. INSFOPAL initiates tariff requests for its systems;implementation is the responsibility of the local managers. Assurances wereobtained that INSFOPAL will make appropriate tariff applications on behalf ofBuenaventura and Santa Marta. Their implementation by local managers will berequired by the tariff requirements in the subsidiary loan agreements.
6.16 It is the policy of the Colombian Government that public servicesshould charge tariffs to earn conventional rates of return, although these
may vary by size of locality. In the size of cities represented by the ben-eficiaries, these rates are in the range proposed by this report. The Na-tional Public Services Tariff Board is responsible for the review and ap-
proval of public utilities' tariff applications for all the services dis-
cussed in this report. It has already approved some tariff increases for
the beneficiaries. Assurances were obtained that the Government will
promptly approve tariff requests made to meet the targets set for the pro-
posed loan. The Board has acted promptly and effectively in the past, both
for systems in general and for Bank-financed projects.
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6.17 Average tariffs for water supply and sewerage vary from city tocity and are highest in Santa Marta (Col$1.40/m3 or US$0.27/1,000 gal);none of the other cities has been charging nmre than Col$0.80/m3 (US$0.15/1,000 gal). Some of these tariffs have not been increased for a number ofyears. Sewerage services are charged as a fixed percentage of water billsand this percentage also varies from city to city (Annex 9).
6.18 The estimated tariffs and annual increases necessary for theempresas to meet the financial requirements of the water supply and sewerageinvestment program are given in Annex 9. The tariffs are about the same asin Palmira, and less than in Bogota and Cali, and are within the generalrange considered acceptable by the National Public Services Tariff Board.Nevertheless, some public resistance can be expected, and it may well occurthat the effectiveness of individual subsidiary loan agreements will be de-layed. Except for Santa Marta, large increases from 80% to 120% over 1971are projected for 1972 when the construction work begins; during constructionsome further increases will be necessary to compensate for price increasesestimated at 10% annually. The projections assume no increases after thefinal year of construction (1975).
6.19 Increases in telephone tariffs would also be required to compen-sate for past annual inflation. They would vary annually from 6% to 29% onaverage for telephones in 1972 and 1973 and should be easy to obtain (Annex 10).
6.20 Tariff increases would also be necessary for power services (seepara. 6.05). They would vary annually from 5% to 76% on average per kWhin 1972 and 1973 (Annex 10).
6.21 There is no uniform tariff structure for slaughterhouse, marketand street-cleaning services. Slaughterhouse revenues depend on the numberof animals killed, market revenues are generated by rents, and street-clean-ing revenues are generally collected through a municipal tax. Some adjust-ments should be implemented; they would vary by city and by individual serv-ice.
Future Finances
6.22 The financial performance of the beneficiaries' water supply andsewerage services would improve during and after construction of the projectsbecause of larger sales of water, increased tariffs and reduced losses ofwater. The subsidiary loan agreements will stipulate that funds generatedby these services should be reserved exclusively for them during the cons-truction period.
6.23 Annex 11 gives a stmmary of principal consolidated financial datafor the empresas. Operating ratios would decrease progressively from as highas 88% to about 50% by 1979 and internal cash generation should cover debtservice comfortably. Fixed assets have been revalued in some cities asrecommended by the National Planning Office, and in others according to
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replacement value calculated by management consultants. Therefore, the fi-nancial rates of return are not readily comparable. Valuations should bereviewed at least annually and tariffs adjusted promptly as necessary. Assetswhich have not been properly revalued by the empresas will be revalued withinsix months of signing the subsidiary loan; valuations should also be reviewedannually and will appear in the Balance Sheets. Provision for both measureswill be included in the subsidiary loan agreements. Annex 12 gives themethod of calculating rates of return and the operating ratio.
6.24 Telephone services would continue to provide the empresas witha high level of income, enabling them to maintain a minimum average of fivetelephones per 100 inhabitants, and in Pereira and Armenia to meet theirtarget ratio of seven.
6.25 Armenia and Pereira will not make new investments in generatingstations since additional power demands will be met by purchasing in bulk.Investments in new and improved distribution systems will be substantial,however, and should enable the empresas to reduce the present high losses.
6.26 The slaughterhouse, market and street-cleaning services wouldhave operating ratios of about 80% by 1979. However, it is not expectedthat these services will ever be managed at a high level of profitability.
Risks
6.27 The probability that each of the projects will achieve its institu-tional, financial, and operational objectives has been determined on a sub-jective basis by assessing the risks associated with general, financial, andoperational management; public resistance to tariff increases; and the presentfinancial position. These assessments were made in the context of the proj-ect themselves and the Bank's experience in earlier water supply projects inColombia. The probability of successful completion of all objectives wasthen concluded from a review of the individual parameters (Annex 13). Asillustration, this method would have rated the probability of achievement ofall project objectives in Bogota as high, in Palmira as medium, and in Calias low. (In the case of Cali, a political change in the municipal councilhas resulted in a new board and new managers whose administration of thatempresas is causing the Bank concern.) It is noted that achievement of onlysome objectives (higher tariffs, improved operations, etc.) would still be asignificant advance and would justify the investment even in the higher riskprojects.
6.28 Armenia. The Empresas Publicas de Armenia's organization is inade-quate for its responsibilities. Mereover, low power revenues have jeopar-dized its overall financial position. A tenacious general manager never-theless succeeded in 1971 in getting important tariff increases of 100% forwater supply and sewerage, and has hired qualified management consultantsfor a complete reorganization. Substantial increases in the power tariffwould be necessary for the financial viability of the company (paragraph 6.19).The probability of achievement of all objectives of the project is medium.
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6.29 Manizales. The Empresas Publicas de Manizales has a competentgeneral manager and its financial position is good. Some improvements arenecessary in its management information system, particularly in cost andgeneral accountancy, and a financial manager should be appointed. Providedthat the recommendations of the management consultants are implemented andthe proposed tariff increases are applied, the Empresas should be able tomeet its managerial and financial obligations. The probability of achieve-ment of all objectives of the project is medium.
6.30 Neiva. The Empresas Publicas de Neiva requires higher tariffs forwater supply and sewerage, and some administrative reorganization. It has agood general manager and an adequate financial assistant. No major financialproblems are expected, provided the Empresas' debt service to INSFOPAL(Col$16 million) is postponed until 1975 and the debt to the municipality(Col$1.8 million) cancelled. The probability of achievement cf all objectivesof the project is medium.
6.31 Pereira. The Empresas Publicas de Pereira has a young, competentgeneral manager and a highly qualified financial manager. The empresas hasrecently been reorganized to adapt to its well-studied and well-establishedexpansion program. The financial position of the Empresas is sound. Althoughtariff increases will be necessary in all the services in 1972 or 1973, nomajor financial problems are likely to develop in the future. The probabi-lity of achievement of all objectives of the project is high.
6.32 Tulua. The financial soundness of the Empresas Municipales deTulua has been maintained by its telephone revenues and adequate management.The poor financial results of water and sewerage services will improve whenthe tariff increases approved in August 1971 become fully effective. Never-theless, their progressive application and the increases required subsequentlyare expected to be resisted strongly by the city's population. The proba-bility of achievement of all project objectives is medium.
6.33 Buenaventura. The Acuavalle which has taken over the water systemof Buenaventura is directed by a capable manager, who has recently appointedqualified staff for Buenaventura. The present unsatisfactory financialposition of Buenaventura, the difficulties of administering and financingthe 31 small water systems which Acuavalle operates, the large number ofillegal connections in the city, and the strong resistance to tariff in-creases expected from customers, all make the probability of achievement ofall project objectives very low.
6.34 Santa Marta. The financial and technical operations of bothSanta Marta and Acuadelma have been unsatisfactory. There is some hopethat the new manager of Santa Marta and the stimulus of the proposed loanwill achieve an adequate financial basis for further expansion.
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VII. AGREEMENTS REACHED AND RECOMMENDATION
7.01 Assurances were obtained during negotiations that:
(i) Implementation of the general management assistanceto INSFOPAL will be reviewed periodically with theBank (3.04).
(ii) Consultants acceptable to the Bank will continue to beemployed to advise the External Credit Office (3.10);
(iii) The program of management assistance and the provision ofassistance to the beneficiaries will be carried out by theExternal Credit Office in an adequate manner (3.20);
(iv) The accounts of the External Credit Office will be auditedby independent accountants (6.08);
(v) INSFOPAL will take all action to apply for or supportthe water supply and sewerage tariff applications of theSanta Marta and Buenaventura beneficiaries (6.15).
7.02 In addition to specific conditions set out in the Recommendationsin each of the reports in Volume 2, it was agreed during negotiations thateach subsidiary loan agreement will provide for the following:
(i) employment of competent consultants in administration,finance, and engineering as required by INSFOPAL (3.20);
(ii) employment of competent engineers for design, biddingand supervision of construction (4.22);
(iii) employment of independent accountants for audit (6.08);
(iv) initial tariff increases as a condition of effectivenessof the subsidiary loan agreement and the maintenance ofadequate tariffs to meet specified rates of return oroperating ratios and an annual review of water supply andsewerage, telephone and electricity tariffs and prompttariff applications and implementation as required (6.13);
(v) each beneficiary will prepare a five-year investment planfor each of its services as a condition of effectivenessof the subsidiary loan agreement, and will agree to revisethat plan at least annually (6.14);
(vi) reservation of funds generated by water supply and sewerageservices, for the exclusive use of those services duringconstruction of the project (6.22); valuation within 6months of signing the subsidiary loan agreement of improperlyreached assets on which a rate of return applies; and
- 26 -
(vii) revaluation annually, in a manner acceptable to the Bank,of fixed assets on which a rate of return is required(6.23).
7.03 During negotiations, the Government gave the following assurances:
(i) National loan funds will be made available in accordancewith an acceptable schedule and additional funds will bemade available as required should the beneficiaries beunable to do so (4.18 and 6.12);
(ii) All tariff applications made in conformance with theLoan Agreement will be approved promptly (6.16).
7.04 A condition of effectiveness of the proposed loan is the provisionof national funds to INSFOPAL for 1972 and inclusion of the amounts for 1973in the budget for that year (6.12).
7.05 With the assurances indicated above, and those indicated in theRecommendations in the report on each project in Volume 2, the seven projectsconstitute a suitable basis for a Bank loan of US$9.1 million for a term of25 years including a 4-year grace period.
July 31, 1972
ANNEX 1
COLOMBIA
MEDIUM SIZE CITIES WATER SUPPLY AND SEWERAGE PROJECTS
BANK LOANS MADE TO COLOMBIAN
CITIES FOR WATER SUPPLY AND SEWERAGE
Amount of Population ofLoan City Served
US$ Million by BorrowerLoan Number Equivalent Date of Loan Borrower - Millions
536-CO 14 1968 Empresa de Acueducto 2.5y Alcantarillado
de Bogota
741-Co 88 1971 Ditto Ditto
682-CO 18.5 1970 Establecimiento 0.92Publico Empresas (1970)Municipales de Cali
738-C0 2 1971 Empresas Publicas 0.16Municipales de
Palmira
COLHBIA
ME01U1 SIZE CITIES WATm SUPPLY AND SESmRAOE PROJEETS
PIRJECTS COSTS
lAightConstruction Technical Ehgineering Price Total of Each City
Sub-Total Gontinganci- ad Adlnitatio Conting Tnoias Cost in Total CoatLocal Foreign ~ToUta Local Freign Total Local Foreign Total Lo0cal Foreign Total Local Foreign Tfotal
ARMENIAIn Cnl$ million 23.6 L.1 27.7 5.s o.5 5.1, 2.3 0.7 3.0 6.o 1.5 7.5 36.8 6.8 43.6 (In US$ million 1.2 0.2 1.4 0.3 - 0.3 0.1 - 0.1 - ' 1.6 0.2 1.8 ( 11.8%% Local - Foreign 85.2 14.8 100.0 90.? c.3 100.0 76.7 23.3 100.0 80 20 100.0 84.4 15.6 100.0
MANIZALESIn Col$ million 52.1 3.4 55.5 13.2 0.R 14.1 6.3 - 6.3 21.8 2.0 23.8 93.4 6.3 99.7In US$ million 2.5 0.2 2.7 0.7 0.1 o.8 0.3 - 0.3 0.1 - 0.1 3.6 0.3 3.9 ( 26.2%% Local - Foreign c3.c 6.1 100.0 93.6 6.11 100.0 100.0 - 100.0 91.6 8.5 100.0 93.7 6.3 100.0
NEIVAIn Gol$ million 25.7 3.3 20.0 5.5 0.7 6.2 2.8 - 2.8 7.7 0.9 8.6 41.7 4.9 46.6In US$ million 1.2 0.2 1.)a 0.1 - 0.3 0.1 - 0.1 0.1 - 0.1 1.7 o.2 1.9 ( 12.6%8 Local - Foreign 88.6 11.4 100.0 88.7 11.' 100.0 100.0 - 100.0 89.5 10.5 100.0 89.5 1O.5 100.0
PEREIRAIn Col$ million 37.8 1L.8 52.6 7.6 1.7 9.3 6.1 1.0 7.1 15.3 7.2 22.5 66.8 24.7 91.5In US$ million 1.9 0.7 2.6 0.4 0.1 0.5 0.3 0.1 0.4 - 0.1 0.1 2.6 1.0 3.6 ( 24.6%% Local - Foreign 71.c 28.1 lOO.0 81.7 18.3 100.0 85.9 15.1 100.0 68.o 32.0 100.0 73.0 27.0 100.0
TUDJAIn Col$ million 26.0 1.5 30.5 5.1 o.c 6.2 2.6 0.2 2.8 9.5 2.1 l.5 43.3 7.7 51.0In US$ million 1.2 0.3 1.5 ., - 0.3 0.1 - 0.1 0.1 - 0.1 1 7 0. 2.0 ( 13.8%% Local - Foreign 85.r 15.o l00.r 85.5 14.5 100.0 52.9 7.1 100.0 81.7 18.3 100.0 84.9 15.1 100.0
BU 97AV aTURAIn Coll million 13. 1.5 1L.' 2.7 0.2 2.e 1.5 - 1.5 3.0 0.4 3.4 20.6 2.1 22.7In 5S$ million U.7 (.1 0.3 0.1 - 0.1 0.1 - 0.1 - - - 0.9 0.1 1.0 ( 6.2%% Local - Foreign 89.9 10.1 101.0 3.1 i.e 100.0 100.0 - 100.0 88.2 11.8 100.0 90.7 9.3 100.0
SANTA MARTAIn Col$ million 5.4 2.2 11.6 1.0 0.2 2.1 1.1 0.1 1.2 2.4 o.8 3.2 15.8 3.3 18.1In US$ million 0.5 0,2 o.6 0.1 - 0.1 0.1 - 0.1 - - - 0.6 0.2 o.8 ( 4.8% Local - Foreign 81.0 19.0 100.0 90.5 9.5 100.0 91.7 8.3 100.0 75.0 25.0 100.0 81.8 18.2 100.0 (
In Col$ million 188.c 33.8 221.8 51.1 5.1 46.2 22.7 2.0 24.7 65.6 14.9 80.5 317.5 55.8 373.2 (In US$ million 9.1 1.9 11.0 2.2 0.2 2.h 1.1 0.1 1.2 0.3 0.1 0.4 12.7 2.3 15.0 1 ioo.o%% Local - Foreign 84.8 15.2 100.0 80.3 11.0 100.0 91.9 8.1 100.0 81.5 18.5 0l.o 85.0 15.o 100.0
COIftIA
MEDIUM SIZE CITIES WATER SUPPLY AND SlERAOGE PROJECTS
ANNUAL PROJECT INVEEThWS
(Col$ million)
ARMENIA MANIZALES NEIVA PEREIRA TULUA BUENAVENTURA SANTA MARTA 7OTAL %SUBTC TAL CONSTRUCTION
1S72 5.2 5.3 4.2 6.o - 5.o 3.8 29.51973 10.0 18.2 17.9 14.3 16.2 9.9 3.8 90.31974 12.5 16.6 6.9 23.9 10.5 - 4.0 714.41975 T 15.4 - 8.4 3.8 27.6
Total ~77 555 9. 52.6 Thr ___ 5Percent of the Total Sub-Project Cost 63.5 55.7 62.0 57.5 59.8 65.5 64.1
TEINICAL CONTINCENCTES1972 0.9 1.3 0.7 0.9 - 0.9 0.8 5.51973 2.0 4.6 4.2 3.1 3.0 2.0 0.8 19.71974 2.5 4.3 1.3 3.8 2.4 - 0.5 14.81975 Tt3.l - 1.5 0.8 - 6.2
Total 3l1T629362 29_2.75Percent of the Total Sub-Project Cost 12.4 14.1 13.2 10.2 12.2 12.8 11.6
ENGINEERING AND ADhINISTRATTON1972 0.7 0.6 0.3 0.6 - 0.5 0.5 3.21973 1.3 2.0 1.8 2.7 1.4 1.0 0.5 10.71974 1.0 1.8 0.7 3.2 1.0 - 0.2 7.91975 - 1.9 - o.6 0.4 - - 2.9
Total T6. -- -_ - 1.2 2 2.7 ___
Percent of the Total Sib-Project Cost 6.9 6.3 6.0 7.8 5.5 6.6 6.6
PRCCE CONTINYGENCIE1972 1.0 0.7 0.7 0.9 - 1.1 0.8 5.21973 2.5 5.4 4.9 4.2 4.3 2.3 1.1 24.71974 4.0 7.7 3.0 12.2 4.8 - 1.3 33.01975 - 10.0 - 5.2 2.4 - - 17.6
Total 23. 5.6 25 !1;3 73.4 32 1 .Percent of the Total Sub-Project Cost 17.2 23.9 18.8 24.5 22.5 15.1 17.7
1972 7.8 7.9 5.9 8.4 - 7.5 c,9 43.5 11.6 A1973 15.8 30.2 28.8 24.3 24.9 15.2 6.2 145.2 39.01974 20.0 30.4 11.9 43.1 18.7 - 6.a 130.2 34.9 o1975 _ 31.2 - 15.7 7.4 - - 54.3 14.
Total .69.7 46.6 91.5 510 _ 71. 373.2 _100 rTotal Percent of the Total Sub-Project 100.0 100.0 100.0 100.0 100.0 100.0 100.0 a
- - ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~cs
COLOMBIA
MEDt UM SIZE CITIFM WATIR SUPPLY AND SEWERAM3 PROJECT'S
ESTIMETED CUMUIATIVE QULRTIRLY M1SBURSED(TS AND PERCENTAGE OF PROJECT 0OSTI/
FD&N CED BY IRD(US$ 000 equivalent)
IBRD FISCAL YEAR SANTA SUB-
AND QUARTER ARMENIA MANIZAIES NEIVA PEREIRA IULUA BUEN VENTIJRA MARTA TOTAL TNSFOPAL TOTAL
---------------------------------------- -dmulative disbursement at end of quuretre---------r------------------- --
1972/732nd quarter 130 130 - 203 - 86 100 649 - 649
3rd quarter 230 21,0 143 260 - 185 188 1246 130 1376
4th quarter 330 390 301 355 188 281 238 2083 130 2213
1973/741st quarter W30 540 461 445 356 379 288 2899 270 3169
2nd quarter 540 690 621 550 460 512 331 3704 330 4034
3rd quarter 650 840 803 720 566 534 371 4484 490 4974
4th quarter 760 1000 1067 1340 669 534 411 5781 490 6271
1974/751st quarter 870 1180 1067 1460 772 534 431 6314 510 6824
2nd quarter 980 1360 1067 1580 877 534 431 6829 510 7339
3rd quarter 1010 1540 1067 1710 982 5324 431 7274 5240 7814
4th quarter 1010 1720 1067 1800 1035 534 431 7597 540 8137 ,
1975/761st quarter 1010 1870 1067 1930 1089 534 431 7931 540 8471 °
2nd quarter 1010 2010 1067 2060 1157 534 431 8269 540 8809
3rd quarter 1010 2220 1067 2137jV 1161 534 431 8560 540 9100
l/ Assuming the subsidiary loan agreements are effective by September 30, 1972.
7/ Arbitrarily recdaced by $3,000 to recognize total of $9,100,000.
COLCMBTh
MEDIUM SIZE CITIES WATER SUPPLY AND SENWES3E PROJECTS
BANIK LOAN COMPONENTS
- Disbursemeat of Bank Loan----------------1 Interest & Percentage
Estimated Foreign Local commitment of localCost of Amount of exchange currency charges during currency costProject Bank loan costs costs construction of project fi-US$ million US$ million US$ million L US$ million % US$ million % nanced by Bank
Anmenia 1.80 1.01 0.26 28 0.63 62 0.12 12 41
Manizales 3.90 2.22 0.27 12 1.65 74 0.30 14 45
Neiva 1.94 1.07 0.21 20 0.77 72 0.09 8 44
Pereira 3.62 2.14 0.99 46 o.81 38 0.34 16 31
Tulua 2.03 1.16 0.28 24 0.71 61 0.17 15 40
Bienaventura 0.99 0.53 0.09 17 0.39 74 0.05 9 43
Santa Marta 0.77 0.43 0.17 40 0.20 47 0o.6 14 33
INSFOPAL 0.48 0.54 0.48 89 - - 0.06 11 -b
TOTAL 15.53 9.10 275 5.16 1.19 v
Ca
j Before interest dcuring construction.
COLOHBIA
IEDIDM SIZE CITIES WATER SUPPLY AND SE1A0E PROJECTS
INSTIrfO DE FOlNCNrO NNIOIIAL
EXTERNAL CREDIT OFFICE
CASH FMW STATEhNTS
Total1972 19 1974 1975 1976 1972-1976
Rate of Exchange Ga ,[. ) Co 38 A ) (al) CU bl (S 0)G$
(million) (million) (million) (million) (million) (million) (million) (million) (million) (million) (million) (million) %
APPLICATIONS
Expenditure on Project (Consultants):Assistance to External Credit Office 1.5 0.07 2.0 0.08 2.2 0.09 - - 5.7 0.24 24General Assistance to ITSFOIAL 1.2 o.06 2.4 0.10 1.8 0.07 0.3 0.01 - - 5.7 0.24 24Interest during Construction 0.2 - 0.5 0.02 o.6 0.02 0.7 0.02 - - 2,0 0.06 7Total .7 0 _ 13.
Increase (decrease) in Working Capital 0.2 0.01 2.2 0.09 4.3 0.15 3-9 0.13 2.0 0.07 12.6 0.45 145TOTAL APPLICATIONS 3.1 0.14 7.1 0.29 8.9 0.33 14.9 0.16 2.0 0._7 26.0 0.99 1O0
SOllRES
Capital Contributionsi/ 2.0 0.13 3.2 0.13 3.6 01. 4 °4. 0.14 4.5 0.16 18.2 0.70 70Internal Cash Generation:Interest on National Loans (100") 0.l 0.02 5.c 0.22 10.7 0.40 9.7 0.33 7.0 0.24 33.4 1.21 122Less: Externa Credit Offie running cost(2.') (0-13) (3.2) (0.13) (3.6) (O.1) (4.0) (-14) (4-5) (0.16) (18.2) (0.70) (70)Less: External Credit office running cost _____
Total Internal Cash Generation O.F T 0r.7 0.40 07 33.4 122Less: Debt Service
Interest on National Loans l60%) 0,3 0.01 3.3 0.13 6.4 0.25 5.8 0.20 4.2 0.14 20.0 0.73 74Interest on I.B.R.D. Loan
2' - - - - - - - o.6 0.02 o.6 0.02 2
Amortization I.B R.D. LoanV -2 - - - - - 0.2 0.01 0.2 0.01 1Total Debt Service 0.3 1 3.3 0.13 6.4 0.25 5- 0.20 5-° 0.17 0.7
Net Internal Cash Generation F.2 00 .09 5 0.13 W0.07 2 0.45
BorrowingsI.B.R.D. Loan 2,9 0.13 4.9 0.20 4.6 0.18 1.0 0.03 13.4 0.54 55
TOTAL SOURCES 3.1 o.14 7.1 0.29 8.9 0.33 4.9 0.16 2.0 0.07 26.o 0.99 loo
1/ From INUFOPAL budget,equIvalmt to External Credit Office running costs.
2/ ECO potion of I.B.R.D. loan,remaining pcrtion covered directly out of INSFOPAL's Budget
ANNEX 4Page 2 of 2 pages
COLCKBIA
MEDIUM SIZE CITIES WATER SUPPLY AND SEWERAGE PROJECTS
CALCULATION OF NET INTERNAL
CASH GENERATION OF
INSFOPALIS
EXTERNAL CREDIT OFFICE
1. Net internal cash generation would be the difference betweentotal internal cash generation and debt service.
2. Total internal cash generation would be the total interest onnational loans paid by the beneficiaries to INSFOPAL, plus a portion ofINSFOPAL's budget consisting of
(i) during construction, the interest on that portionof the Bank loan financing managerial assistanceto INSFOPAL,
(ii) after construction, the debt service of the sameportion of the Bank loan, less the running costsof the External Credit Office.
3. Debt service would include 60% of the interest on nationalloans paid by the beneficiaries to INSFOPAL, which would go into a fundfor further relending in the sector, and the debt service on INSFOPAL'sportion of the Bank loan which would be covered by the remaining 40% ofthe interest on national loans.
ANNX 5
COIOMBIA
MEDIUM SIZE CITIES WATER SUPPLY AND SEW.ERAGE PROJECTS
POPULATION SERVED AND 1WLATER USED
Percentage of po- rjross---- Population----------- pulation served by consumption Unaccounted fo:
water supply 1/c/d water %1972 1980 Growth % 1972 1980 1980 1972 198(
Armenia 170,000 260,000 5 79 88 290 46 25
Manizales 300,000 480,000 6 80 90 25C0 45 20
Neiva 130,000 210,000 6 73 90 250 34 20
Pereira 240,00 350,000 5 80 90 o( 30 25
Tulua 80,000 130,000 5 74 90 250 30 20
%uena-ventura 100,000 1140,00 5 50 75 290 52 25
Santa-Marta 140,000 210,000 5 72 87 250 53 no
COLOMBIA
M" ,AX .Zs A WA&T 8 iPLY AID BOUARG FROJECTS
PAST FINAYCIAL INDICATOS (CONSOLIDATED)
INTERNAL DEBT SERVICEOPERATING RATIO TET INCOME CASH GENERATION COVERAGE DEBT AS % OF- CURREET ACCUMULATED CASH
(8fF) (Col$ million) (Col million) (%) CAPITALIZATION RATIO AT END OF YEAR199 1970 1971 1 9 1970 1971 1979 1970 1971 1969 1970 1971 1969 1970 1971 1969 1970 1971 1969 1970 1971
ARMENIA 84 84 86 2.9 3.2 4.o 3.6 4.2 4.8 4.0 2.8 2.1 12 10 6 0.6 o.8 0.9 0.5 o.6 1.6
MANIZALES 72 80 67 0.4 (0.8) (1.1) 7.2 5.8 11.2 1.0 1.2 1.1 37 27 17 2.1 1.0 0.6 6.9 3.8 3.7
NEIVA 76 75 70 1.7 1.9 1.3 2.1 2.4 3.2 2.1 1.9 2.5 10 4 27 0.3 0.3 0.5 0.0 0.4 1.3
PEREIRA (0 68 78 8.4 11.9 3.2 11.3 15.1 11.3 4.7 4.6 3.3 7 5 8 3.3 3.3 2.2 4.0 7.2 1.4
TlLlA 72 80 77 o.6 0.3 0.0 1.2 1.0 1.6 2.0 2.0 1.8 - 3 3 2.8 9.6 3.5 0.4 1.0 1.4
P,UENAVENI73RA - 111 133 - 0.2 (0.3) - (0-1) (0.3) 2/ ,/ ;/ _ _ _ i/ i/ i/ / o.4 o0o
SARiTA MARTA 125 102 89 (2.0) (1.3) (1.5) (0.3) 0.4 0.7 i/ / i/ - - - i/ i/ / (3.5) (0.3) 1.0
i/ No debt service requirements or debt service absorbed by ACUASNot available
COLOMBIA
MEDIUM SIZE CITIES WATER SUPPLY AND SEWERAGE PROJECTS
DISTRIBUTION OF REVENUES BY SERVICES IN 1971
Water SupplyAnd Sewerage Telephones Power Other Total
ARMENIA 20%o 26% 32%, 22% 0oo%
MANIZALES 36% 47% 17% 100%
NEIVA 50% 50% - lOo%
PEREIRA 18% 1 to 46% 17% 100%
TUIUA 35% 27% - 38% 100%
~~~~~~ ~~~~~MNZL N91 PmoKIRA 80L DUA003171A SAMOA 1458A MICK4 0ITI0
APPLOCATIONO 07, FM~
CoPito1 0)
E"ndiOoO!20p. -t.. On9o.ot h 3.6 1.87 53..3 99,7 3.00 71.3 3.6.6 1. , 78.5 '1.1 1.62 6,, 11 31 2. .K 666 11.1 0.77 42.2 1673.2 16.05 65.9 .l.4 0.48 43.8 38.6 15.53 63..0TNt.r.t h,-god to CO.E-t-tl. 0. .2) 6.8 i1.3. 1.73 13.9 I..7 1.17 7.1 17.0 '1.63 12.1 .7 '1.36 014.2 2.0 0.716 5.9 . 0.24 13.16 63.9 9.3.1 .1 2.0 0.06 7.7 65.9 2.4.7 u.s
7th.. Oork. ~~~~~~~~21.0 '1.7. 262A, .. 90 661. 14.7 1' 1'1. - 0' .21 20. 15.'1 7.63 J1..0 77.1 6.98 M - 77.1 2.98Ot. 7k0.1Tvtet2.l 26. 6 0.46 9.0 67.887.3 7t7 93. I.." T- S1' 06 91. al 7
(d. ~ W-i~g -iW 1.2 .3j 127 I. 2, .71. 17.0 '1.0 1.1 .0 32 12,7 2.1 7.17 0.0 .9 '.16 9.0 2. 1. 96 9.2 12.6 8.. 617. 2.41 0
700A1 APPLOCO7IONO 1OO230 _71___ I I- = 7.0 7 ET T02MOIE. 7.90 1 ~ J
2s*72 0F FUND2
I66.r.. 7.ah 0...t-tio 31.6 1.22 30.3 03.2 3.15 59.5 16.0 7.66 27.0 67.6 2.59 416.1 24.1. 0.91 30.7 0.5 0.33 24.9 9.9 0.4.0 23.0 241.3. 9.27 42.6 33.4 1.21. 128.5 214.8 10.lJ8 46.3.
00610)t 00.6- . - - -- 7.2 0.33 2.9i" 0.09 4.7 9.2 0.42 1.6 - .- 9.2 0.42 I 76
7002 to. 24.8 1.0 30.9 516.0 2.22 4.1.57 26.6 1.07 46.6 55.3 2.14. 30.3 21.6 1.16 4.2.4 12.4. '.53 36.4, 1.0.6 0.43 94.5 217.1 16.56 36.3 13.4. 0.53. 51.6 230.5 9.10 38.9
r-p..Ooo. 110.4 0.37 13. -- - - - - -- . - - 10.4 0.7 1.8 . - 10.4 0 :
IIatilo. La.. 7 1. 0.2 160. 37.5 1.67 26. 15.7 0.68 26.6 30.9 1.23 22.0 20 ,2k' '1.80 26.0 6. 0.30 20-2 7.0/ 131.7 - 131. 22.21 ... 1 6 010 0- -- - . - - 3O 7.8 3 M77. 0.73 .1.17.6 0.73 3.0
X 9ro.tg - 100 1916-12. 27lo. .. 2 56 100 98 2.1 13._0.0 4. 1.80 100. 6. _ _ -9. .
TOUSMOS61_ 06038 __ __ 230160 36.0 9__ 3.39106.
1972-I971 for 5r-±, 3451,.. 3..a'.tb-, Sf.ot )45ta1973-1975 fo. Nlo
21 706. l0 o 9.0 1lijo V.Mo gi-. th-4o..g A-od.1- Wo C0101.0 .011ion .. otftb.16.1o by -b-. d.-.lp.-.
3/ Th. '1.153.0 661l1o 710ID 10 .0t pnybl.i. Co1.6i"a po.. tho. it 0.. t-.td5 A oa t.63001 1-.n
j/ Not i-oldlog So13I.0 6611li. tht1 M11 b. di.b-.d in 1972. befor hI. oo0r0t~p-i.t
ANNEX 9
COLC4BIA
MEDIUM SIZE CITIES WATER SUPPLY AND SWERAGE PRO JECTS
WATER SUPPLY AND SNERAGE
TARIFF INCREASES
(Average tariffs give price per cubic meter)
PROPORTION1971 1972 1973 1974 1975 1976 FOR SEWERAGE
ARMENIA
Average tariffs (Col.$) 0.72 1.30 1.40 1.50 1.60 1.60
Annual Increase(%) - 81 8 7 7 - 50%
MANIZALES
Average tariffs (Col.$) 0.72 1.13 1.53 1.65 1.65 1.65
Annual Increase (%) - 57 35 8 - - 30%
NEIVA
Average tariffs (Col.$) 0.73 1.23 1.40 1.50 1.50 1.50
Annual Increase (%) - 68 14 7 - - 30%
PEREIRA
Average tariffs (Col.$) 0.75 1.30 1.45 1.60 1.60 1.60
Annual Increase (,) - 73 12 10 - - 25%
TULUA
Average tariffs (Col.$) 0.46 1.00 1.30 1.43 1.57 1.57
Annual Increase (M) - 117 30 10 10 - 40,
BUENA VENTURA
Average tariffs (Col.$) 0.59 1.20 1.40 1.50 1.60 1.60
Annual Increase (A) - 103 8 7 7 - -
SANTA MARTA
Average tariffs (Col.$) 1.10 1.32 1.45 1.45 1.45 1.45
Annual Increase (.) - 20 10 - - - 50%
_/ Average tariffs includes sewerage2/ Average tariffs do not include sewerage (which is not operated by the Enpresas)/ Average tariffs do pot include sewerage (which is operated by the Empresas)
COLOMBIA
MEDIUM SIZE CITIlES WATER SUPPLY AND SEWERAGE PROJECTS
POWER - TELEPHONES AND OTHER SERVICES
TARIFF INCREASES AND FINANCIAL TARGETS
1971 1972 1973 1974 1975 1976-__-__----_-______--------Percentages - --- ____________
ARMENIA
Power: Annual Tariff Increase - - 76 14 5
Financial Rate of Return - - 6 11 11 11
Telephones: Annual Tariff Increase - - 17 2 6 -
Financial Rate of Return 20 12 12 12 10 10
Other Services: Operating Ratio 90 94 84 78 73 73
IANIZALES
Telephones: Annual Tariff Increase - 6 4 - 10 5
Financial Rate of Return 13 6 12 9 9 10
Other Services: Operating Ratio 117 106 86 85 85 85
NEIVA
Other Services: Operating Ratio (% 62 69 68 67 65 65
PEREIRA
Pow,,er: Annual Tariff Increase - 5 15 15 20 7
Financial Rate of Return 6 - - 4 9 9Telephones: Annual Tariff Increase - - 29 7 8 -
Financial Rate of Return 6 2 6 6 6 6
Other Services: Operating Ratio 95 96 86 87 84 83
TJLUA
Telephones: Annual Rate Increase - 11 - 40 - -
Financial Rate of Return 22 10 11 22 17 13
Other Services: Operating Ratio 80 79 79 76 77 78
Notes: Annual tariff increase in power is per kwh sold.
Annual tariff increaoe in *elepthones is per telephone installed.
Financial Rate of I'eturn: Income before depreciation divided by average rate base
(fixed assets are revalued each year).
Opera'ing Ratio : Income before depreciation divided by total revenues.
COIOE4BIA
MEDIUM8 SIZE CITIBS WATfER SUPPLY AXED SfDHAQE PRIJiETS
oONSOLIkTED FUnME FINANCECS
INETERNEAL CASD.OPERATING RATIO NE7 INCOME GINERATION OEBT AS PERCENT OF CAPI- ACCUCLAMUTE) CASE~~ ~~~ma11,on (laiR mIllion> ~~~~~~~~~~~~~~~~~~~~DEBT S87{VIOE COVERAGE TALIZATION CURARENT RATIO AT DM OF TUB
1_12 1___ T97IeF158t7 197 1(1 396_27 1972 19714 1976 1979 1972 1974.17 99 AI fj 96 17
AIRIA4IA 88 61 58 56 (1.)) 1K,.2 16.8 23.2 I_? 2t.1 36.1 1.6_6 1.6 3.2 2.3 2.6 7 27 26 18 0.7 1.9 2.0 2.8 o.5 5.5 n1.4. 13.1
IWIA211L10S 68 50 52) 06 0.6 i5.5 13.2 22./ 12.3 32.8 03.1 58.1. 0.6 0.1 3.1 3.0 18 25 28 19 o.6 2.1 3.0 4..7 1.1 9.8 26.2 55.5
SfV6 68 56 5 5 e8 3.6 (0.2) 3.8 .. 2 9.7 12.3 16.3 3.0 2.1 1.7 2.1 32 014 i0 33 o.6 2.2 2.4. 2.7 I.8 7.7 11.0 15.1
PEREIA 76 62 59 59 (0.1.) iL.6 18.0 24.6 15.2 38.3 51.7 60.4. 3.0 2.C 3.4. 5.o 10 23 21 16 1.7 2.2 3.5 4..7 1.4. 5.4. 23.5 37.1 IJ3711A '2 52 1.9 17 92 . .6 0/ 2.6 8.C 11.7 1 7. 5 2.0 8.1 2.2 1.6 12 41 U. 37 7.2 10.3 5.5 5.5 4.2 9.0 21.5 26.8
BU004AV 4NTURA 87 5~ 01 / (o.') (0.2) (D. P) 1.2 o. ( 1.2 5.7 '.5 - ~ .7 2.6 3.0 6 21. 22 26 - - 7.3 6.0 o.14 0.7 o.6 o.6
00170 91ARTA 77 67 98 55 ~ 1)7) 1.3 4.1 7.0C 1.1 5.8 7.6 11.1 - - 2.1 3.3 V/ I/ 1 1/ 1 I I i' 1.7 3.8 5.2 9.9
I/Noavial
ANNEX 12
COLCQ4BIA
MEDIUM SIZE CITIES WATER SUPPLY AND SEWERAGE PROJECTS
METHOD OF CALCULATING RATES OF RETURN
AND THE OPERATING RATIO
1. The annual rates of return will be calculated for each serviceof water supply and sewerage, electrical power, and telephones on December31 of each year with respect to the 12-month period immediately beforeand after said date. For this purpose, the rate of return will be cal-culated by dividing the net income of each service for the 12-month periodconsidered by the net average value of the fixed assets in service for thesame period.
2. The net average value of fixed assets means half the sum of
(i) the net value of the fixed assets at the beginning ofthe 12-month period, and
(ii) the net value of the fixed assets at the end of thesame period.
3. The net value of the fixed assets means the gross value (reval-ued historical costs) of such assets utilized by the respective serviceminus accumulated depreciation, both revalued by the application of thecost of living index for workers in the city or the department preparedby the Departamento Administrativo Nacional de Estadistica, or otherequivalent index acceptable to INSFOPAL and the Bank.
4. Net income is defined as the difference between:
(i) total operating income of each service (excludingdeposits and contributions for investments), and
(ii) the total of general and maintenance operating costs(but excluding interest and other charges on debts),a reasonable provision for doubtful accounts, theindirect cost of connections and reconnections, taxeswhere applicable, a provision for free services givento the municipality as applicable, and adequate pro-vision for annual depreciation, calculated on astraight line basis on revalued and depreciable fixedassets.
5. The annual depreciation will be calculated on the averagegross value of the revalued fixed assets at the beginning and the end ofthe period under consideration, with average minirmm annual rates of 3Z
- 2 -
for the water supply and sewerage service, 4% for the electrical energyservice, and 5% for the telephone service and various other services,with a mdnimuia however of 2% for any single class of fixed assets.
6. The revaluation of the fixed assets, depreciation and externaldebt will be accu-lated and included in the general balance sheet ofthe kpresas.
7. The operating ratio is understood to mean the annual total ofoperating costs in paragraph 2(ii) above divided by the annual total ofoperating income in paragraph 2(i) above, but excluding from costs theprovision for annual depreciation.
OOLOMEEA
MEDIUM SIZE CITIES WATER SUPPLY AND SEWEiRE PROJECTS
EVALJATION OF RISK
General Financial Management of Probable Pub- Present Probability ofManagement Management Operations Ca- lic Acceptance to Financial AchievmInt ofCapability Capability pability Rate Increases Strengh all Objectives
ARMENIA Medium Low Medium Medium Medium Medium
MANIZALFS High Medium Medium Medium Medium Medium
NEIVA Medium Medium Low Medium Medium Medium
PEREIRA High High High Medium High High
TULUA Medium Medium Medium Low Medium Medium
BUENAVENTURA Medium Low Low Low Low Low
SANTA MARTA Low Low Low High Low Low
COLOMBIAMEDIUM SIZE CITIES WATER AND SUPPLY PROJECTS
INSTITUTO NACIONAL DE FOMENTO MUNICIPAL
ORGANIZATION CHART
National Ministry of Ministry of
Planning Office Health Finances
U Board of National Account
3<; - -Ditors - Centrol Office
LegalOffice
U ~~~~~Office ofEducatieo eral Planning
Promotion Manager Office
Secretary
Physical
| g S 7 ~~~~~~~~~~~~~~~~~~~~~~~~~~~Planning3 ~~~~~GeneralSeices Financial
l _ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Planning
I \ j ~~~~~~~~~~~~~~~~~~~~~~~~~~~~Organizationg {(Consultant5\
7 ~~~~~~~~~~~~~~~~~& Methods
l _ ........ _ 1 ~~~~~~~~~~~~~~~~~~~~~Budget |
_ E.ternal ManagerX Technical Administrative
Credit Manager |of Operations | |Manager Manager
Consultativ
Committee | ProJects l | ~~~~~Operations &| ; Projects | Personnel
i l l | ~~~~~~~~~~Maintenance 1
l i Planning l j ~~~~~~~~Administration | & Contracts | 4 Finance
i -| F n~~~~I'ancial Tariffs l I - osrcin|- netr
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COLOMBIA xvt. r
Medcium Size Cities Water Supply a Sewerage Proes A M A Z O N A S $
PROJECT LOCATIONS I
Monizeles Proleet Citiesiu
Lu Elevations obove 1400nce1ers-.
Doportmtent, lntendencio $& Comnisor(G boundortes p E R U .MaitlQn rivgers |
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7tB° ~~ ~~ ~~~~75P 7T5 To.I 31
LAPRIL 1972IBD31