pdam subang - pamanukan wtp pre fs

PDAM KABUPATEN SUBANG PAMANUKAN WATER TREATMENT PLANT PRE FEASIBILITY STUDY

Pamanukan Project

Company

PDAM Tirta Rangga

Service

International & Local Banks

Insurance Companies

Construction Contractor

Engineer

Tax Advisor

Legal Equity Shareholders

Fees

NOVEMBER 2006 This publication was produced by Development Alternatives, Inc. for the United States Agency for International Development under Contract No. 497-M-00-05-00005-00

Ilustration credit: ESP Jakarta Structure of a Typical Build- Operate-Transfer (BOT) Project.

PDAM KABUPATEN SUBANG PAMANUKAN WATER TREATMENT PLANT PRE FEASIBILITY STUDY Title: PDAM Kabupaten Subang -

Pamanukan Water Treatment Plant Pre Feasibility Study

Program, activity, or project number: Environmental Services Program,

DAI Project Number: 5300201.

Strategic objective number: SO No. 2, Higher Quality Basic Human Services Utilized (BHS).

Sponsoring USAID office and contract number: USAID/Indonesia,

Contract number: 497-M-00-05-00005-00.

Contractor name: DAI. Date of publication: November 2006

TABLE OF CONTENTS

LIST OF FIGURES.....................................................................................................................III LIST OF TABLE ........................................................................................................................IV EXECUTIVE SUMMARY...........................................................................................................V 1. INTRODUCTION .............................................................................................................. 1

1.1. BACKGROUND ..........................................................................................................................................1 1.2. REVISED PROJECT.......................................................................................................................................1

2. SUMMARY OF EXISTING DEMAND AND SUPPLY ................................................... 2 2.1. POPULATION FORECAST...........................................................................................................................2 2.2. WATER DEMAND......................................................................................................................................2 2.3. WATER SUPPLY-QUANTITY AND QUALITY............................................................................................3 2.4. RAW WATER QUALITY ANALYSIS AND DISCUSSION ............................................................................5

3. PROJECT FORMULATION.............................................................................................. 6 3.1. WATER TREATMENT PLANT PRELIMINARY DESIGN ...............................................................................6 3.2. DISPOSAL OF RESIDUALS...........................................................................................................................6 3.3. METHOD OF CONTRACTING...................................................................................................................9

3.3.1. Traditional Project Procurement (Design-Bid-Build) ..............................................................................9 3.3.2. Applicability of Traditional Approach to the Pamanukan Project......................................................9 3.3.3. Alternate Project Procurement Approaches and Benefits....................................................................9

4. COST ANALYSIS AND IMPLEMENTATION OF THE PROJECT ........................... 13 4.1. CAPITAL COSTS...................................................................................................................................... 13 4.2. PROJECT FINANCE ASSUMPTIONS......................................................................................................... 13 4.3. O & M COSTS ........................................................................................................................................ 14 4.4. FINANCIAL MODEL KEY ASSUMPTIONS AND RESULTS........................................................................ 18

4.4.1. Key Assumptions.......................................................................................................................................... 18 4.4.2. Results of Financial Modeling................................................................................................................... 18 4.4.3. Conclusions and Recommendations ....................................................................................................... 18

LIST OF FIGURES FIGURE 2-1: WITHDRAWALS FROM THE TARUM TIMUR CANAL BY SEASON VS. CANAL FLOW. ..........................4 FIGURE 3-1: STRUCTURE OF A TYPICAL BOT PROJECT. ........................................................................................ 11

LIST OF TABLE TABLE 2-1: SUMMARY OF 2017 PAMANUKAN SERVICE AREA WATER DEMAND....................................................2 TABLE 2-2: SUMMARY OF KEY RAW WATER QUALITY PARAMETERS FROM TARUM TIMUR CANAL. ...................3 TABLE 3-1: RESIDUALS FROM WATER TREATMENT. ..................................................................................................6 TABLE 3-2: PRELIMINARY WATER TREATMENT DESIGN AND MATERIALS BALANCE..............................................7 TABLE 4-1: SUMMARY OF CAPITAL COSTS AND IMPLEMENTATION SCHEDULE. .................................................. 13 TABLE 4-2: PROJECT FINANCE ASSUMPTIONS. ........................................................................................................ 14 TABLE 4-3: ESTIMATE OF WATER STAFFING, LABOR AND BENEFIT COSTS.......................................................... 14 TABLE 4-4: ESTIMATED WATER TREATMENT ELECTRICAL COSTS. ....................................................................... 16 TABLE 4-5: ESTIMATED ANNUAL WATER TREATMENT CHEMICAL COSTS. ......................................................... 17 TABLE 4-6: TOTAL WATER O & M COSTS. ............................................................................................................ 17 TABLE 4-7: CASH FLOWS AND UNIT COSTS FOR THE WATER TREATMENT PLANT........................................... 20 TABLE 4-8: PROJECT PRO FORMA INCOME STATEMENT AND CASH FLOWS. ...................................................... 21

EXECUTIVE SUMMARY PDAM Tirta Rangga, Kabupaten Subang, is located in West Java. PDAM Tirta Rangga is planning to build a completely new water treatment system in sub-district (Kecamatan) of Pamanukan. The proposed system, originally designed to have a capacity of around 125 liters per second, is intended to serve approximately 15,000 new connections, providing service to a population of 57,000 dispersed in several areas of Pamanukan, Legon Kulon, Binong, and Pusakanagara. The total cost of the new system, as originally envisaged, would be about Rp 58 billion (around $6 million). The need to reshape the project stems from the receipt (since the feasibility study was done) of a grant by PDAM Tirta Rangga from the West Java Provincial Government to build and operate a 50 liters/ second water treatment supply facility in the Pamanukan area. This grant project has now been commissioned and is operational. Hence, the new feasibility study (to be provided by ESP) covers the financial and technical viability of an additional 100 liters per second water treatment facility in the same area, to be designed, built and operated by a private proponent in the same area at an investment cost of around US$ 3.6 million. The two facilities, combined, would give the region a total water production capacity of around 150 l/s. Raw water would be provided from the Tarum Timur Canal which is of acceptable quality and sufficient capacity to provide water to the revised project. As the PDAM wishes to procure the project through the private sector, a variety of private-sector procurement strategies were evaluated, and the Build-Operate-Transfer (BOT) method was selected as most suitable for the current situation. Under this method, the private-sector contractor would design, construct, and operate the facilities for a 25-year contract period, at a pre-agreed price. A financial model was prepared for the project, with construction estimated at approximately Rp 35.5 billion. At a typical domestic tariff of Rp 2,500 per cubic meter, the project appears to be financially feasible. At this tariff, the average monthly water bill is estimated at Rp 39,420. A sensitivity analysis showed these results still were valid with a construction cost 20% higher than estimated. A recommendation was made to proceed with a further, more detailed feasibility study to verify assumptions made, to clarify the facilities required, and to further refine the construction and operating costs used in the model.

1. INTRODUCTION

1.1. BACKGROUND PDAM Tirta Rangga, Kabupaten Subang, is located in West Java. PDAM Tirta Rangga is planning to build a completely new water treatment system in sub-district (Kecamatan) of Pamanukan. The proposed system, originally designed to have a capacity of around 125 liters per second, is intended to serve approximately 15,000 new connections, providing service to a population of 57,000 dispersed in several areas of Pamanukan, Legon Kulon, Binong, and Pusakanagara. The total cost of the new system, as originally envisaged, would be about Rp 58 billion (around $6 million). Initially, it was thought that this new facility in Pamanukan could be done on DBL (Design, Build, Lease) basis, funded through the World Bank WSSP and the related feasibility study was commissioned by the Bank on this basis. The study suggested that the Local Government (PEMDA) of Kabupaten Subang would bear a 20% proportion of the project cost in the form of equity, and the MOF, through the loan facility provided by Bank under the aforementioned program, would provide the balance of the total cost. The Regional Government rejected the 20% share of the project cost, and DBL financing this approach would limit its ability to borrow for other purposes, PDAM management has asked for assistance from ESP to reshape the project and provide a new feasibility study for building the facility on BOT (Build, Operate, and Transfer) basis.

1.2. REVISED PROJECT The need to reshape the project stems from the receipt (since the feasibility study was done) of a grant by PDAM Tirta Rangga from the West Java Provincial Government to build and operate a 50 liters/ second water treatment supply facility in the Pamanukan area. This grant project has now been commissioned and is operational. Hence, the new BOT feasibility study (to be provided by ESP) should cover the financial and technical viability of an additional 100 liters per second water treatment facility in the same area, to be designed, built and operated by a private proponent in the same area at an investment cost of around US$ 3.6 million. The two facilities, combined, would give the region a total water production capacity of around 150 l/s.

PDAM KABUPATEN SUBANG - PAMANUKAN WATER TREATMENT PLANT PRE FEASIBILITY STUDY

2. SUMMARY OF EXISTING DEMAND AND SUPPLY

2.1. POPULATION FORECAST The population forecast from the 2003 World Bank-funded Rapid Feasibility Study for the Pamanukan Service Area projected a served population of 56,556 people, or 14,139 connections. This is the year 2011 projection, representing approximately 70% of the projected population in the Service Area. In updating the study, a design year of 2017 has been selected, or an eight-year design. Projected population in 2017 is 90,000. At 80% coverage, this results in a served population of 72,000. In addition to residential consumption, 400 non domestic connections were assumed.

2.2. WATER DEMAND Table 2-1 is a summary of 2017 water demand by category projected from the 2003 study. Table 2-1: Summary of 2017 Pamanukan Service Area Water Demand.

Category Number Consumption, l/connection/day

Demand, lps

Total Population in 2017 90,000 Served Population @ 80% Coverage 72,000 Domestic (@ 4 connections/household) 18,000 480 100

Non Domestic Connections 400 1,113 5.15 Total Usage 12,760 1,593 105.15 Allowance for Nonrevenue Water (@ 20% of ADD)

26.29

Total Average Daily Demand (ADD) 131.44 Maximum Day Demand (MDD) (@ 120% of ADD)

157.73

Intake Capacity (@ 106% of MDD to account for losses)

167.19

Since the study was completed, PDAM Tirta Rangga has completed a 50 lps water treatment plant to address a portion of this demand, and wishes to construct a second 100 lps plant and associated transmission and distribution system to address this demand.

ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID 2

PDAM KABUPATE

ENVI

N SUBANG - PAMANUKAN WATER TREATMENT PLANT PRE FEASIBILITY STUDY

RONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID 3

2.3. WATER SUPPLY-QUANTITY AND QUALITY

The raw water source for both treatment plants is the Tarum Timur Canal. The “Master Plan of Water Supply and Usage During the Planting Season 2002/2003” projected the supply from the Curug Weir to the Tarum Timur Canal at 62.5 cu m/sec. The existing withdrawals from the canal include water are for irrigation, commercial and industrial uses, private water suppliers, and the PDAM water system. The withdrawal demand is seasonal. Figure 3-1 shows the seasonal withdrawal flows from the Tarum Timur Canal, versus the flow in the canal. While the withdrawals vary significantly, it is clear that the addition of another water demand of 0.10 cu m/sec (100 lps) will not create supply problems in the canal. Table 2-2 is a summary of raw water quality data summarized in the 2003 World Bank report, along with updated raw water quality provided to the Consultant by PDAM Tirta Rangga. Table 2-2: Summary of Key Raw Water Quality Parameters from Tarum Timur Canal.

Parameter Aug 20-25, 2003 Feb 5, 2003 Raw Water

Standard1

pH, units -- 7.15 6.5-8.5

Turbidity, NTU 49.9 183 25

Total Dissolved Solids, mg/L 208 105 1,500

Color, TCU 150 15 50

Iron, mg/L 1.10 3.195 1.0

Manganese, mg/L 0.10 0.09 0.50

Alkalinity, mg/L 92.95 75 500

Sulfate, mg/L 2.90 44.96 400

Ammonia, mg/L 0.75 -- --

Nitrate, mg/L -- 0.537 10

Organics, mg/L -- 10.44 --

1 MEN KES RI 416.IX/1990


ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

4

0

10

20

30

40

50

60

70

Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec

M th

Flow

Cu

M/S

ecTarum Timur Flow

Abstraction By Month

Figure 2-1: Withdrawals from the Tarum Timur Canal by Season vs. Canal Flow.


2.4. RAW WATER QUALITY ANALYSIS AND DISCUSSION

An analysis of the data in Table 3-2 indicates that the raw water is highly colored and turbid, with high levels of iron and manganese. Organic carbon levels are elevated, but typical for raw water in Indonesia. Levels of nitrate are low, meaning that agricultural activities in the watershed are not contributing significantly to the canal. Besides the data shown on Table 3-2, the 2003 World Bank Executive Summary indicates that iron concentrations in the canal range from 0-6 mg/L. Manganese is approximately 0.1 mg/L. The Indonesian Standard for finished water for iron and manganese are 1.0 mg/L and 0.1 mg/L, respectively. In fact, lower values are desired in finished water to reduce taste and odor problems, as well as staining problems. The current Safe Water Drinking Act in the United States recommends iron and manganese levels in finished water of 0.3 mg/L for iron and 0.05 mg/L for manganese. Conventional methods for treating iron and manganese are:

1. Preaeration and settling of iron and manganese. Raw water is normally introduced into a cascade or other aeration structure. The cascade effect converts ferrous iron (Fe+2) to ferric iron (Fe+3). Ferric iron is readily precipitated as ferric hydroxide at normal water treatment pH values, where it is settled or filtered.

2. Chemical oxidation and settling of iron and manganese. Raw water is dosed with an oxidizing chemical such as chlorine, potassium permanganate, ozone, chlorine dioxide, and hydrogen peroxide. pH adjustment has also been used for iron and manganese removal. Chemicals add to the cost of treatment, and in the case of chlorine, can create trihalomethanes, which are carcinogenic at high concentrations.

3. Filtration using special greensand media. Manganese greensand is a special type of sand that removes both iron and manganese through ion exchange. Normally, the water must be aerated or chemically oxidized prior to filtration. Also, the greensand must be regenerated using potassium permanganate or chlorine. Because of the cost of importing such sand and regeneration costs, greensand filters will not be considered further.


5


3. PROJECT FORMULATION

3.1. WATER TREATMENT PLANT PRELIMINARY DESIGN

Under the proposed project, a 100 lps conventional water treatment plant would be constructed on the site of the recently-constructed 50 lps plant. New and existing raw water pumps would be configured to discharge into a common preaeration cascade structure, designed to handle flow to both plants. Iron would be oxidized by the cascade, as well by chlorine via a new line run to the structure. The plant would tie in to the existing plant and use similar processes for ease of maintenance. Space for future expansion will be provided or acquired by the PDAM, when and if such an expansion is necessary. The new facilities would typically include:

1. Raw Water Intake and Pumping 2. Preaeration Cascade/Flow Splitter Structure 3. Chemical Addition Facilities (Aluminum sulfate, polymer, & chlorine) 4. Tube-Settler Clarifiers 5. Dual-Media Filters (anthracite and sand) 6. Finished Water Disinfection and Storage 7. Treated Water Pumping and Metering

A materials balance and typical plant design are shown in Table 4-2 on the next page. This preliminary design will be further developed in subsequent reports should the project prove feasible.

3.2. DISPOSAL OF RESIDUALS The water treatment plant will produce residuals that will be returned to the river. Table 3-1 summarizes the residuals from the water treatment plant which require disposal: Table 3-1: Residuals from Water Treatment.

Residual Flow, Cu M/Day Mass, Kgs/Day

Alum sludge from the sedimentation tanks 65 518

Filter backwash from the multi-media filters 212 2

Total to the river 277 520



Table 3-2: Preliminary Water Treatment Design and Materials Balance. 8-Jul-06PAMENUKAN WATER PLANT ADDITIONPRELIMINARY PROCESS DESIGN

COMMENTPROCESS/UNITS UNITS 2008

PLANT FLOWSAverage Raw Water Feed Rate l/s 100 Average Raw Water Feed Rate M3/s 0.100Maximum Hourly Rate (1.25 * Average Daily Rate) M3/s 0.125 Select Maximum ValueMaximum Raw Water Pumping (Max Rate + 6% for Losses) M3/s 0.133FLASH MIX / AERATORMethod CascadeNumber of Tanks No 1Unit Length M 2Unit Width M 2Unit Depth M 5Total Volume Cu M 20.0 Minimum Mixing Detention Time Mins 2.5FLOCCULATIONMethod HydraulicNumber of Tanks No 2Unit Length M 7Unit Width M 3.5Unit Depth M 3Total Volume Cu M 147Minimum Flocculation Detention Time Mins 18.5SEDIMENTATION BASINSType Tube settlersNumber of Units No 8Unit Length M 3Unit Width M 2Unit Depth M 3Unit Effective Settling Area Sq M 95Total Effective Settling Area, Sq M 760 Maximum Surface Loading Rate @ Firm Capacity L/min/sq m 10.5 Est. Sludge Prodct. @ 0.075 kgs dry solids/M3 Avg Day Flow Kgs/Day 648 Sludge Production @ 1% Dry Solids Cu M/Day 65 CHEMICAL ADDITION--ALUMNumber of Dosing Pumps No 3Dosing Pump Capacity l/s 0.030Firm Capacity (One Unit Out of Service) l/s 0.060Maximum Feed Rate @ 10% Solution kg/day 518 Maximum Dosage Rate @ Maximum Day mg/L 48Storage at Maximum Dosing Rate Days 30CHEMICAL ADDITION--POLYELECTROLYTENumber of Dosing Pumps No 3Dosing Pump Capacity l/s 0.005Firm Capacity (One Unit Out of Service) l/s 0.0100Maximum Feed Rate @ 1% Solution Maximum kg/day 9 Maximum Dosage Rate @ Maximum Day mg/L 0.8Storage at Maximum Dosing Rate Days 30FILTERSType of Filter Rate Control Declining-RateNumber of Units No 6Unit Length M 7Unit Width M 3.5Unit Area Sq M 25 Total Area Sq M 147 Media Depth Anthracite M 0.5 Sand M 0.3Media Characteristics--Anthracite Effective Size mm 1.0 Uniformity Coefficient 1.3Media Characteristics--Sand Effective Size mm 0.5 Uniformity Coefficient 1.3



Table 3-2: Continued. Preliminary Water Treatment Design and Materials Balance. Maximum Filter Loading Rate @ Firm Capacity--All Units M/hr 3.1 Maximum Filter Loading Rate, 1 Out of Service M/hr 3.7 Estimated Filter Run Time Hrs 24Backwash Method Air ScourBackwash Source ClearwellBackwash Pumps Type Vertical Turbine Unit Capacity l/s 100 No.of Units Ea 2 Unit Power (estimated) kw 6 Backwash Loading Rate @ Firm Capacity M/hr 15Typical Backwash Duration Mins 10Total Backwash Volume Cu M/Day 356 Total Backwash Volume, % of Average Day Raw Water % 4.1%DISINFECTIONType Chlorine GasNo of Chlorination Units, Pre and Post No 2Unit Capacity, Pre and Post Kgs/Day 100Total Capacity Kgs/Day 200 Dosage, Pre and Post mg/L 9.3Chlorine Contact Chamber (in Clearwell)Number NO 1Length M 6Width M 2Depth M 3.5Contact Time @ Maximum Day Mins 11Cylinder Storage Provided (100 kg Cylinders) Ea 5Storage @ Average Flow & Dosage of 3 mg/L Days 19CLEARWELL Type BaffledNumber of Units No 2Unit Length M 30Unit Width M 25Unit Depth M 6Total Volume Cu M 9,000 Minimum Detention Time, Baffling Factor of 0.1 Mins 124.9 Baffling Condition Factor of 0.5Typical Free Chlorine Concentration mg/L 1.0CT Value @ 1.5 log Reduction (pH 7.5, 25 deg C) mg/L-Mins 124.9Average Day Finished Water (After Backwash & Sludge) M3/s 0.095Average Day Finished Water (After Backwash & Sludge) Cu M/Day 8,219 Maximum Day Finished Water (After Backwash & Sludge) M3/s 0.120Maximum Day Finished Water (After Backwash & Sludge) Cu M/Day 10,379 FINISHED WATER PUMPSNumber of Units Ea 3Unit Capacity (estimated) l/s 50Required Firm Capacity (1 Unit Out of Service ) l/s 100 Total Dynamic Head (estimated) M 190Total Dynamic Head (estimated) kPa 1,798 Unit Power (estimated) kw 106MAIN TRANSMISSION LINE TO DISTRIBUTION SYSTEMPipe Material Ductile IronNumber of Pipes 1Diameter mm 250 Velocity @ max-day flow M/s 2.04 Velocity Head M 0.21Estimated Total Dynamic Head CalculationFittings (K = 5) M 1.1Friction loss at say, 5000 m C = 100 M 128Minor loss, say M 1.0System Head @ Distribution System M 60Estimated Total Dynamic Head M 190



3.3. METHOD OF CONTRACTING This section will define and contrast traditional project procurement methods and alternate Private-Sector Procurement (PSP) methods that may be applicable to the Pamanukan Project.

3.3.1. TRADITIONAL PROJECT PROCUREMENT (DESIGN-BID-BUILD) The traditional project procurement model typically used by municipalities is referred to as Design-Bid-Build (DBB). Under the traditional DBB approach, there are separate contractual relationships between the PDAM, the Design Engineer, and a Construction Contractor. Any operations and maintenance services are performed by the PDAM, or subcontracted under a separate contract. Most infrastructure projects such as roads, bridges, pipelines (water, wastewater and gas) are procured using the Design-Bid-Build approach. Local consultants or in-house engineering team prepare a detailed design, tender the project to experienced contractors, and oversee the work. The contractor receives progress payments from the PDAM, which finance the project from their capital budget.

3.3.2. APPLICABILITY OF TRADITIONAL APPROACH TO THE PAMANUKAN PROJECT

The design, construction and operation of a water facility is more complex than many infrastructure projects, and requires more specialized experience and expertise than is available to the PDAM. While the DBB contract structure is well understood by the PDAM, and provides them with a high level of control and involvement, the PDAM has decided to finance the capital for the project via the private sector.

3.3.3. ALTERNATE PROJECT PROCUREMENT APPROACHES AND BENEFITS

A traditional project delivery approach involves discrete and sequential project components and contractual relationships between the PDAM and designers, contractors, and occasionally with operators. This can result in significant project management time by PDAM staff, an unclear delineation of responsibility and liability between design engineer, contractor, and operator for construction schedule and ultimate performance of the Pamanukan facility. Alternative project delivery models change the traditional roles and responsibilities of project participants by reducing the number of private-sector contractual relationships with the PDAM, while increasing the roles, responsibilities, and liabilities in those relationships.



A number of private-sector participation structures have been used to procure infrastructure facilities in the developing world. Other possible PSP procurement structures for the proposed facility are:

1. Design-Build-Operate 2. Build-Operate-Transfer 3. Management Contract for Operation and Maintenance.

These PSP structures are discussed below. Design-Build-Operate (DBO). A DBO project involves a single contractual relationship between the PDAM and a DBO service provider or contractor. The DBO contract streamlines the project delivery schedule and reduces costs by eliminating separate selection processes for engineering, construction, procurement, and operating services. DBOs are often used on projects where project performance and the value of the service to be provided are more important than the details of what happens with the various procurement steps along the way. DBOs are particularly popular for fast-track projects, as well as complex projects that include relatively new technology and/or specialized O&M expertise. The complexity of the water project involves project development, engineering, construction, and operations and would require the PDAM’s management support team to include a Procurement Advisor, Design Engineer, Attorney, and Financial Advisor. PDAM Tirta Rangga may grant the DBO contractor wide latitude in the treatment technologies used, and the ways in which they are applied. The DBO project team often includes a technology provider for whom the process treatment technology is a core-competency. Therefore, the team may be willing to accept the risk of employing new and innovative solutions to lower production costs and improve operability. Companies specializing in process technology also have ready-access to new technologies. With a vested interest in controlling operating expenses, DBO contractors have a greater tendency to value-engineer plant designs and incorporate more expensive state-of-the-art technology. These projects often are driven by life-cycle costs because a single entity is responsible for design, construction, and O&M. One of the DBO participants will be the project guarantor and provide the PDAM with cost, schedule, and performance guarantees assuring that the project will perform as required, and that the equipment will be maintained, repaired, and replaced according to reasonable and measurable standards. Under the DBO method, the PDAM would be required to provide all financing of the project. Because it does not contain financing risk, the term of a DBO contract can vary according to the PDAM’s desire. It is estimated that the time to design and construct the water treatment facility is 1-2 years. The operations contract could run an additional 5 –10 years after construction, at the option of the PDAM.



Build- Operate-Transfer (BOT). Build-Operate-Transfer (BOT) projects are an expansion of the DBO concept, in which the BOT Contractor also finances the project through a combination of debt and equity. The BOT contract for the water treatment plant often serves as collateral to secure commercial private financing. An illustrative diagram of a typical BOT contract for the Pamanukan Project is shown in Figure 4-1.

Pamanukan Project

Company

PDAM Tirta Rangga

Service

International & Local Banks

Insurance Companies

Construction Contractor

Engineer

Tax Advisor

Legal Equity Shareholders

Fees

Figure 3-1: Structure of a Typical BOT Project. PDAM Tirta Rangga, supported by financial, legal, technical, and environmental advisors, selects the successful BOT Contractor from other prequalified consortiums based on a conceptual design, operating plan, and guaranteed treatment cost. The contract defines all aspects of the service delivery agreement including the contract term, production requirements, cost of service, financing arrangements, guarantees/ warranties, and all remedies. BOT contracts contain provisions to transfer ownership of the asset from the Project Company to the PDAM. The transfer is usually accomplished at the 'fair market value' of the enterprise or the amount of remaining indebtedness. It may take place at the end of the contract term, or at a mutually agreeable date prior to the contract's expiration. The primary benefit of a BOT project delivery is that the vendor/technology provider assumes both the technical risk and commercial risk, including the risk of development, permitting, and financing. PDAM Tirta Rangga is relieved of the financial burden of the project and well-insulated from its liabilities and risks; the PDAM pays only for water treatment for which they have contracted. One key element in the structuring of a BOT contract is the relative contributions of debt and equity to financing the project. Equity is represented by private sector contributions to the project, and represents one of the major risks assumed by the private sector in a BOT transaction.



Typical BOT projects have historically used debt: equity ratios of 70%-30% to 80%-20%. Minimum equity requirements are typically prescribed in the tender documents. As a general matter, most lenders to the sector would require a minimum equity contribution of 20%. Equity in BOT projects is largely repaid later in the project life, as debt is retired and as project revenues begin to outpace project costs. As a result, equity requires a higher return than debt, often in the range of 18-23% return on equity. Thus, while higher equity contributions can lower initial project finance costs and any tariff increases, overall financing cost over the project life will be higher. In addition, higher equity ratios may dictate that a longer BOT contract term to recover an acceptable payback on equity. A BOT structure would allow PDAM Tirta Rangga the flexibility to finance a portion of the project, or none at all, while assigning technical and most or all technical, contractual and financial risk to the private sector. A BOT structure would permit a fast track project and would require a minimum of technical ability and commitment from the PDAM staff. A number of BOT variations are possible, given the PDAM’s interest in possibly financing a portion of the project. These variations have been evaluated in the financial model and are presented in more detail in the next section of the report. Management Contracts for Operations and Maintenance. A management contract for operations and maintenance (O&M) is a contract to operate and maintain a facility, usually at a fixed price for a specified term. The term of the contract can vary, but is typically 5 years. The contractor usually indemnifies the industry against fines for violations of performance standards. O&M contracts are increasingly utilized for complex projects, for large projects requiring large numbers of new staff, or where operating costs are perceived to be high. The principal benefits of the O&M contract are:

No need to hire additional operating staff A fixed price contract, often less than in-house operation. Guaranteed performance Indemnification against additional costs and fines

A management contract could be utilized to operate both the new plant and the recently constructed plant.



4. COST ANALYSIS AND IMPLEMENTATION OF THE PROJECT

4.1. CAPITAL COSTS An estimate of the capital costs was made in the 2003 World Bank Rapid Feasibility Study Report, and updated for this report, assuming an annual inflation rate of 10%. It has been assumed that the existing raw water intake is sufficient for the total design flow. An allowance of Rp 10 billion has been included for transmission and distribution lines. This figure should be verified prior to the commencement of the design. The estimated capital cost for the proposed water treatment plant addition is shown in Table 4-1. Table 4-1: Summary of Capital Costs and Implementation Schedule.

Item Cost,

Rp (000)

Treatment Plant Addition 15,000,000

Reservoir Addition & Distribution Pumps 4,500,000

Transmission and Distribution System Improvements, Allowance 10,000,000

Contingency @ 20% 6,000,000

Total Capital Cost 35,500,000

Construction of the additional treatment facilities have been assumed to commence in 2008, with a one-year construction period. The facilities have been assumed to be on-line in 2009. In the start of the program, a 1-year period has been assumed for procurement of the contractor(s), including the following steps:

1. Notification and prequalification of prospective tenderers; 2. Solicitation of bids from prequalified tenderers; 3. Evaluation and award to the lowest cost, most responsive tenderer; 4. Finalize contract negotiations; 5. Mobilization by the contractor

4.2. PROJECT FINANCE ASSUMPTIONS For purposes of financing the capital costs, short-term loans were assumed to cover the period of construction, with longer term financing used once the facilities are on-line. It has been assumed that the private sector will finance the entire project. Equity financing of 30% of the total capital cost has been assumed.



Table 5-2 contains the assumptions used in developing the project finance assumptions. These assumptions are used in developing the average project costs per cubic meter of water treated. Table 4-2: Project Finance Assumptions.

Cost Rate Term

Construction Financing 10% Length of Construction

Long-Term Financing 15% 13 Years

Equity Financing (ROE) 25% 25 years

4.3. O & M COSTS The annual operation and maintenance costs for the water treatment plant fall into five general categories:

1. Labor and benefits 2. Electricity 3. Chemicals 4. Maintenance and repair 5. Supplies

Labor and Benefits. Table 4-3 is an estimate of plant staffing, labor cost and benefits for the new water treatment facility. The plant staffing represents a 3-shift operation of 8 hours each, with the second and third shift operating at a reduced level. Salary and benefit costs are estimated. Table 4-3: Estimate of Water Staffing, Labor and Benefit Costs

Position Number of Workers

Individual Salary,

Rp/Month

Individual Benefits, Rp/Month

Monthly Labor Cost, Rp/Month

Annual Labor Cost,

Rp/Year

Civil Engineer 1 1,800,000 270,000 2,070,000 24,840,000

Laboratory Manager 1 1,400,000 210,000 1,610,000 19,320,000

Mechanic 1 1,000,000 150,000 1,150,000 13,800,000

Electrician 1 1,000,000 150,000 1,150,000 13,800,000

Operator 6 1,000,000 150,000 6,900,000 82,800,000

Maintenance 2 1,000,000 150,000 2,300,000 27,600,000

Laborer 2 800,000 120,000 1,840,000 22,080,000

Driver 1 1,000,000 150,000 1,150,000 13,800,000

Total 15 18,170,000 218,040,000

Electrical. Table 4-4 is an estimate of the electrical usage and costs for operating the various pumps for the water treatment plant. An electrical tariff of Rp 450 per kilowatt-hour was used to estimate the annual electrical cost. These costs have been assumed to be variable with water demand.


PDAM KABUPATE

ENVI



Chemical Costs. Chemical costs have been estimated, assuming alum, polymer, and chlorine will be used. Table 5-5 shows the annual estimated chemical usage and costs for the water treatment plant. These costs have been assumed to be variable with water demand. Other Costs. The annual costs of maintenance and repair and supplies have been estimated from plants of similar size and type. Total O & M Costs. The total annual operation and maintenance costs for the water treatment plant are shown in Table 5-6.



16

Table 4-4: Estimated Water Treatment Electrical Costs. PROJECTED TREATMENT PLANT ELECTRICAL ENERGY USAGE--100 lps Water

OUTPUT INPUT NO OF UNITS

NO OF UNITS HRS/DAY KW-HRS/ KW-HRS/

MOTOR KW KW INSTALLED OPN OPN DAY YEAR

Backwash Pumps 6.0 6.5 2 1 4 26 9,522

Alum Metering Pumps 0.8 0.8 2 1 24 20 7,237

Polymer Metering Pumps 0.8 0.8 2 1 24 20 7,237

Chlorination Water Pumps 10 10.9 2 1 24 261 95,217

Finished Water Pumps 106.0 115.2 3 2 24 5,530 2,018,609

Miscellaneous @ 5 % used 1 24 293 106,891

TOTAL ELECTRICAL USAGE 124 134 6150 2,244,712

TOTAL ELECTRICAL COST @ 450 Rp PER KW-HOUR 1,010,120,361


Table 4-5: Estimated Annual Water Treatment Chemical Costs.

Flow, Cu M/Day 8,640 @ 100 lps

Alum

Concentration mg/l 25 Estimate

Weight kg/day 216

Weight kg/year 78,840

Price Rp/kg 5,000 @ Rp5,000,000/1000 kgs

Alum Cost Rp/year 394,200,000

Polymer


Weight kg/day 26


Price Rp/kg 1,400 @ Rp1,400,000 /1000 kgs

Polymer Cost Rp/year 13,245,120

Chlorine


Weight kg/day 17


Price $/kg 9,500 @ Rp 9,500,000/1000 kgs

Cost $/year 59,918,400

Total Chemical Cost 467,363,520

Total Chemical Cost 86 Rp/Cu M

Table 4-6: Total Water O & M Costs.

Cost Category Annual Cost, Rp.

Labor and Benefits 218,040,000

Electricity 1,010,120,361

Chemicals 270,263,520

Maintenance and Repair 50,000,000

Supplies 15,000,000

Total O & M Cost 1,563,423,881



4.4. FINANCIAL MODEL KEY ASSUMPTIONS AND RESULTS

Tables 5-7 and 5-8 show the recommended investment program schedule, the amortized capital costs, annual operation and maintenance costs, and the resulting unit treatment costs.

4.4.1. KEY ASSUMPTIONS The following are key assumptions in the financial modeling of the Pamanukan project:

1. The project would be a BOT project financed by 70% debt and 30% equity contributions.

2. Interest on debt = 15%. Term of debt = 13 years. Required minimum return on equity = 25%.

3. Debt service repayment would begin after 2 years. 4. The water tariff for domestic consumption was Rp 2,500 / Cu M. The tariff for

water for non-domestic consumption was Rp 4,500 / Cu M. 5. The tariff collection rate for domestic billing was 80%, and 90% for non-domestic

bills. 6. The number of existing connections is approximately 7,600 at 4 persons per

connection. The rate of new domestic connections is as follows: 2008-2012 15% per year 2013-2017 10% per year 2018-2028 2% per year

4.4.2. RESULTS OF FINANCIAL MODELING The results of the financial modeling show that the project appears to be feasible at the costs and financial structure assumed for the project. Key outputs showing that the project is financially feasible are:

1. The assumed water tariff level of Rp 2,500 appears reasonable, given other tariff levels in the area. The average monthly water bill would be approximately Rp 39,420.

2. Debt service coverage ratio (DSCR) averages well above 1.40 throughout the project, considered a minimum value for lenders. A high DSCR shows that cash flow from operations is available to service debt.

3. Return on equity (ROE) is 35% over the 25-year contract period. A minimum of 20-25% ROE is considered acceptable by a PPP contractor.

4. A sensitivity analysis for increased capital costs of 20% show that acceptable values for DSCR and ROE are still within the acceptable range at the same assumed tariff.

4.4.3. CONCLUSIONS AND RECOMMENDATIONS The conclusion of this study is that the proposed 100 lps water treatment plant and associated facilities are financially feasible, and can be procured via the private sector through a BOT model.


PDAM KABUPATE

ENVI



It is recommended that a further, more detailed feasibility study be prepared to develop the project in more detail. In particular, the following data must be developed and/or refined further through site visits and review of existing construction drawings:

1. More detailed project description of necessary facilities including: a. The capacity of the existing raw water intake; b. The layout of existing water treatment facilities on the existing site, and a

layout of the proposed facilities on the same site; c. The capacity of existing primary transmission lines and the possible need for

additional capacity; d. A layout of the secondary distribution system in the proposed project area.

2. More detailed construction costs based upon the results from the additional technical data and design information.

3. Updated operation and maintenance costs for the revised facilities. 4. Incorporation of the existing 50 lps facilities into the financial projections,

particularly the labor costs.


Table 4-7: Cash Flows and Unit Costs for the Water Treatment Plant.

Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Capital Cost--Water Treatment Plant (000) 35,500,000 17,750,000 17,750,000

Interest During Construction @ 10% 3,550,000 1,775,000 1,775,000

Total Capital 39,050,000 19,525,000 19,525,000

Total Financed @ 70/30 Debt Equity (000) 27,335,000

Equity @ 30% of Capital 11,715,000 (5,857,500) (5,857,500)

Amortized Water Treatment Investment (000) @ 15% (4,895,984) (4,895,984) (4,895,984) (4,895,984) (4,895,984) (4,895,984) (4,895,984) (4,895,984) (4,895,984) (4,895,984) (4,895,984) (4,895,984) (4,895,984)

Operation & Maintenance Costs Rp (000)

Labor (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040)

Electricity (77,248) (164,130) (255,588) (356,534) (434,686) (520,328) (614,208) (717,151) (830,063) (855,489) (881,398) (907,799) (934,702) (962,117) (990,054) (1,018,524) (1,047,537) (1,077,104) (1,107,237) (1,137,947)

Chemicals (20,668) (43,914) (68,384) (95,393) (116,303) (139,217) (164,335) (191,878) (222,088) (228,891) (235,823) (242,887) (250,085) (257,420) (264,895) (272,512) (280,275) (288,185) (296,248) (304,464)

Maintenance and Repair (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000)

Supplies (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000)

Raw Water Extraction (Rp 45 / Cu M) (10,853) (23,059) (35,908) (50,090) (61,069) (73,101) (86,290) (100,753) (116,616) (120,188) (123,828) (127,537) (131,316) (135,168) (139,093) (143,093) (147,169) (151,323) (155,556) (159,870)

Total O & M Costs Rp (000) (380,956) (491,084) (607,012) (734,967) (834,029) (942,584) (1,061,583) (1,192,069) (1,335,191) (1,367,420) (1,400,261) (1,433,726) (1,467,826) (1,502,576) (1,537,988) (1,574,075) (1,610,851) (1,648,330) (1,686,525) (1,725,451)

Total Annual Cost Incl Debt Service, Rp (000) (5,857,500) (5,857,500) (380,956) (491,084) (5,502,996) (5,630,952) (5,730,013) (5,838,569) (5,957,567) (6,088,053) (6,231,176) (6,263,405) (6,296,245) (6,329,710) (6,363,811) (6,398,561) (6,433,973) (1,574,075) (1,610,851) (1,648,330) (1,686,525) (1,725,451)

Flow, Cu M/Year 241,167 512,416 797,946 1,113,102 1,357,092 1,624,465 1,917,560 2,238,948 2,591,460 2,670,841 2,751,728 2,834,152 2,918,143 3,003,732 3,090,952 3,179,835 3,270,414 3,362,724 3,456,799 3,552,674

Total Cost, Rp Per Cu M 1,580 958 6,896 5,059 4,222 3,594 3,107 2,719 2,405 2,345 2,288 2,233 2,181 2,130 2,082 495 493 490 488 486


20



21

Table 4-8: Project Pro Forma Income Statement and Cash Flows.

Year 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Pro Forma Income Statement Number of New Domestic Customers 4,579 9,844 15,899 22,863 28,201 34,074 40,534 47,639 55,456 57,175 58,929 60,718 62,543 64,405 66,303 68,240 70,215 72,230 74,285 76,381 Average Household Use, Cu M/Year 175 175 175 175 175 175 175 175 175 175 175 175 175 175 175 175 175 175 175 175

Sample Tariff, Rp/Cu M 1,800 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700 2,700 Total Potential Revenue, Rp/Year (000) 2,165,861 4,656,601 7,520,952 10,814,956 13,340,359 16,118,302 19,174,039 22,535,351 26,232,793 27,046,230 27,875,936 28,722,237 29,585,463 30,465,954 31,364,054 32,280,117 33,214,500 34,167,572 35,139,705 36,131,280

% Collected 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% 80% Total Domestic Revenue Actually Collected, Rp/Year (000) 1,732,689 3,725,281 6,016,762 8,651,965 10,672,287 12,894,642 15,339,232 18,028,281 20,986,234 21,636,984 22,300,749 22,977,789 23,668,370 24,372,763 25,091,243 25,824,093 26,571,600 27,334,057 28,111,764 28,905,024 Number of New Nondomestic Customers 100 200 250 275 300 325 350 375 400 410 420 430 440 450 460 470 480 490 500 510 Average Nondomestic Use, Cu M/Year 406 406 406 406 406 406 406 406 406 406 406 406 406 406 406 406 406 406 406 406

Sample Tariff, Rp/Cu M 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 4,500 Total Potential Revenue, Rp/Year 182,810 365,621 457,026 502,728 548,431 594,133 639,836 685,538 731,241 749,522 767,803 786,084 804,365 822,646 840,927 859,208 877,489 895,770 914,051 932,332

% Collected 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% 90% Total Revenue Actually Collected, Rp/Year (000) 164,529 329,058 411,323 452,455 493,588 534,720 575,852 616,985 658,117 674,570 691,023 707,476 723,929 740,382 756,834 773,287 789,740 806,193 822,646 839,099

Total Revenue Collected, Rp/Year (000) 1,897,218 4,054,339 6,428,085 9,104,420 11,165,875 13,429,362 15,915,084 18,645,265 21,644,351 22,311,554 22,991,772 23,685,265 24,392,299 25,113,144 25,848,078 26,597,381 27,361,341 28,140,251 28,934,410 29,744,123

Operating Costs, (000) Rp

Labor (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) (218,040) 0

Electricity (164,130) (255,588) (356,534) (434,686) (520,328) (614,208) (717,151) (830,063) (855,489) (881,398) (907,799) (934,702) (962,117) (990,054) (1,018,524) (1,047,537) (1,077,104) (1,107,237) (1,137,947) 0

Chemicals (43,914) (68,384) (95,393) (116,303) (139,217) (164,335) (191,878) (222,088) (228,891) (235,823) (242,887) (250,085) (257,420) (264,895) (272,512) (280,275) (288,185) (296,248) (304,464) 0

Maintenance and Repair (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) (50,000) 0

Supplies (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) (15,000) 0 Raw Water Extraction (45

Rp/Cu M) (10,853) (23,059) (35,908) (50,090) (61,069) (73,101) (86,290) (100,753) (116,616) (120,188) (123,828) (127,537) (131,316) (135,168) (139,093) (143,093) (147,169) (151,323) (155,556) (159,870)

Total O & M Costs (000) (491,084) (607,012) (734,967) (834,029) (942,584) (1,061,583) (1,192,069) (1,335,191) (1,367,420) (1,400,261) (1,433,726) (1,467,826) (1,502,576) (1,537,988) (1,574,075) (1,610,851) (1,648,330) (1,686,525) (1,725,451) 0

Operating Profit (Deficit) 1,406,134 3,447,328 5,693,117 8,270,391 10,223,290 12,367,779 14,723,015 17,310,074 20,276,931 20,911,293 21,558,046 22,217,438 22,889,722 23,575,156 24,274,002 24,986,529 25,713,011 26,453,726 27,208,959 29,744,123

Debt Service Coverage Ratio 2.86 0.63 1.01 1.44 1.75 2.08 2.42 2.78 3.24 3.32 3.41 3.49 3.58 3.66 15.42 15.51 15.60 15.69 15.77 #DIV/0!

Less Debt Service 491,084 5,502,996 5,630,952 5,730,013 5,838,569 5,957,567 6,088,053 6,231,176 6,263,405 6,296,245 6,329,710 6,363,811 6,398,561 6,433,973 1,574,075 1,610,851 1,648,330 1,686,525 1,725,451 0

Less Depreciation 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 0

Profit Before Taxes (646,951) (3,617,668) (1,499,834) 978,378 2,822,722 4,848,212 7,072,962 9,516,898 12,451,526 13,053,048 13,666,336 14,291,628 14,929,162 15,579,183 21,137,927 21,813,678 22,502,681 23,205,201 23,921,509 29,744,123

Add Back Depreciation 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 1,562,000 0

IRR 13,772,436 Cash Flow From Operations, Rp (000) 37.0% 0 0 915,049 (2,055,668) 62,166 2,540,378 4,384,722 6,410,212 8,634,962 11,078,898 14,013,526 14,615,048 15,228,336 15,853,628 16,491,162 17,141,183 22,699,927 23,375,678 24,064,681 24,767,201 25,483,509 29,744,123

Avg Cash Flow Margin, % (Cash Flow / Revenue) 53% -55% 1% 29% 41% 50% 56% 61% 67% 68% 68% 69% 70% 70% 90% 91% 91% 91% 91% 103%

Net Cash Flow, Rp (000) 0 (5,857,500) (5,857,500) (4,942,451) (6,998,119) (6,935,953) (4,395,575) (10,854) 6,399,358 15,034,320 26,113,218 40,126,745 54,741,792 69,970,129 85,823,756 102,314,918 119,456,101 142,156,028 165,531,706 189,596,387 214,363,589 239,847,097 269,591,220

Return on Equity, % 35%

Average Monthly Bill, Rp - - - 39,420 39,420 39,420 39,420 39,420 39,420 39,420 39,420 39,420 39,420 39,420 39,420 39,420 39,420 39,420 39,420 39,420 39,420 39,420 39,420

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Indonesia

Tel. +62-21-720-9594 Fax. +62-21-720-4546

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