DRINKING WATER SYSTEM IMPROVEMENTS IN …...CERTIFICATION AND FINANCING PROPOSAL MAGDALENA, SONORA 1 NOVEMBER 1, 2019 EXECUTIVE SUMMARY DRINKING WATER SYSTEM IMPROVEMENTS IN MAGDALENA,

BOARD DOCUMENT BD 2019-16

CERTIFICATION AND FINANCING PROPOSAL

DRINKING WATER SYSTEM IMPROVEMENTS IN MAGDALENA, SONORA

Revised: November 1, 2019

BOARD DOCUMENT BD 2019-16 CERTIFICATION AND FINANCING PROPOSAL MAGDALENA, SONORA

CONTENTS

EXECUTIVE SUMMARY .................................................................................................................... 1

1. PROJECT OBJECTIVE AND EXPECTED OUTCOMES ................................................................. 3

2. ELIGIBILITY .............................................................................................................................. 3

2.1. Project Type ................................................................................................................... 3

2.2. Project Location ............................................................................................................. 3

2.3. Project Sponsor and Legal Authority ............................................................................. 4

3. CERTIFICATION CRITERIA ........................................................................................................ 4

3.1. Technical Criteria ........................................................................................................... 4

3.1.1. General Community Profile ................................................................................. 4

3.1.2. Project Scope ....................................................................................................... 7

3.1.3. Technical Feasibility ........................................................................................... 10

3.1.4. Land Acquisition and Right-of-way Requirements ............................................ 11

3.1.5. Project Milestones ............................................................................................. 11

3.1.6. Management and Operation ............................................................................. 11

3.2. Environmental Criteria ................................................................................................ 12

3.2.1. Environmental and Health Effects/Impacts ...................................................... 12

A. Existing Conditions ......................................................................................... 12

B. Project Impacts ............................................................................................... 12

C. Transboundary Impacts .................................................................................. 13

3.2.2. Compliance with Applicable Environmental Laws and Regulations .................. 13

A. Environmental Clearance ............................................................................... 13

B. Mitigation Measures ...................................................................................... 13

C. Pending Environmental Tasks and Authorizations ......................................... 13

3.3 Financial Criteria .......................................................................................................... 14

4. PUBLIC ACCESS TO INFORMATION ...................................................................................... 15

4.1 Public Consultation ...................................................................................................... 15

4.2 Outreach Activities ...................................................................................................... 15

5. RECOMMENDATION ............................................................................................................. 15

ANNEX A: RESULTS MATRIX ........................................................................................................ 18

ANNEX B: PROPOSED GRANT TERMS AND CONDITIONS ............................................................ 20

BOARD DOCUMENT BD 2019-16 CERTIFICATION AND FINANCING PROPOSAL

MAGDALENA, SONORA

1 NOVEMBER 1, 2019

EXECUTIVE SUMMARY


1 Based on the number of residential connections (3,207) multiplied by the number persons (3.8) per household according to the 2010 INEGI Census. 2 Unless otherwise indicated, all U.S. dollar figures are quoted at an exchange rate of $18.0 pesos to the dollar, based on the average exchange rate set by Banco de Mexico to pay obligations entered into in U.S. dollars payable in México (FIX) for the last two years.

Project: The proposed project consists of improvements to the drinking water system by establishing three hydrometric sectors in the city of Magdalena de Kino, Sonora (the “Project”), which will include the replacement of obsolete distribution infrastructure; construction of new transmission lines from the wells to existing storage tanks, installation of macrometers, telemetry and residential meters; various improvements at the well sites; and the acquisition of equipment for system operations.

Objective: The purpose of the Project is to improve access to sustainable drinking water service by assuring adequate water supply, service reliability and system redundancy, which will help reduce the health risks associated with waterborne diseases.

Expected Outcomes: The Project is expected to generate environmental and human health benefits related to the following Project outcomes:

• Improve access to reliable and sustainable drinking water services for 3,207 existing residential connections.

• Improve water resource management by limiting water losses within each of the three sectors to no more than 20%.

• Achieve water savings of approximately 1 million cubic meters (264 million gallons) per year from the three sectors combined.

Population Benefitted: 12,187 residents in three areas of Magdalena de Kino, Sonora.1

Sponsor: The local water utility, Organismo Operador de Agua Potable Alcantarillado y Saneamiento de Magdalena, Sonora (OOMAPAS).

Project Cost: $57,669,195 pesos (US$3,203,844).2

NADB Grant: Up to US$500,000 from the Community Assistance Program (CAP).


NOVEMBER 1, 2019 2

Uses and Sources of Funds: (US$)

Uses Amount %

Construction* $ 3,101,211 97.0

Equipment: Backhoe 102,633 3.0

TOTAL $ 3,203,844 100.0

Sources Amount %

Federal grant $ 1,351,922 42.0

State grant 1,351,922 42.0

NADB CAP grant 500,000 16.0

TOTAL $ 3,203,844 100.0

* Includes construction, applicable taxes and contingencies. Construction management will be provided by the Sonora State Water Commission (CEA).

Project Status: Key Milestones Status

Final design Completed in January 2017

Technical approval from CONAGUA Obtained on June 25, 2018

Procurement – Other funds Initiated in August 2019

Procurement – CAP funds Anticipated in first quarter of 2020

Construction period Estimated period of 18 months

Mexican National Water Commission (CONAGUA)


MAGDALENA, SONORA

3 NOVEMBER 1, 2019

CERTIFICATION AND FINANCING PROPOSAL


1. PROJECT OBJECTIVE AND EXPECTED OUTCOMES

The proposed project consists of improvements to the drinking water system by establishing three hydrometric sectors in the city of Magdalena de Kino, Sonora (the “Project), including the replacement of obsolete distribution infrastructure, construction of new transmission lines from the wells to existing storage tanks, installation of macrometers, telemetry and residential meters, various improvements at the well sites and the acquisition of equipment for system operations. The purpose of the Project is to improve access to sustainable drinking water service for 3,207 existing connections by assuring adequate water supply, improving service reliability and introducing system redundancy. These improvements are expected to reduce water losses to no more than 20% in each sector, saving approximately 1 million cubic meters (264 million gallons) per year, as well as prevent incidents of low pressure and service interruptions, which will help reduce health risks associated with waterborne diseases.

2. ELIGIBILITY

2.1. Project Type The Project falls within the eligible category of drinking water.

2.2. Project Location The Project will be implemented in the community of Magdalena de Kino, the seat of the municipality of Magdalena in the northern region of the state of Sonora. It is located approximately 80 km (50 miles) south of Nogales, Arizona and the U.S.-Mexico border, at the geographical coordinates: 30° 37' 37" N -110° 58' 03" W. Figure 1 shows the approximate location of the Project.


NOVEMBER 1, 2019 4

Figure 1 PROJECT LOCATION MAP

2.3. Project Sponsor and Legal Authority The Project sponsor is the local water utility, Organismo Operador Municipal de Agua Potable, Alcantarillado y Saneamiento de Magdalena, Sonora (OOMAPAS or the “Utility"). The Sonora state congress authorized the creation of OOMAPAS by decree published on August 22, 1994, in issue 15, section 1, of Volume CLIV of the official state bulletin. OOMAPAS is authorized, among other activities, to operate and maintain water treatment, storage and distribution infrastructure in the municipality of Magdalena, Sonora. OOMAPAS is overseen by a Board of Governors, which is presided over by the mayor of Magdalena and includes a representative from the Mexican National Water Commission (CONAGUA), a representative from the Sonora State Water Commission (CEA) and the president of the local Advisory Council, among others.

3. CERTIFICATION CRITERIA

3.1. Technical Criteria

3.1.1. General Community Profile According to the 2010 Census conducted by the Mexican National Institute of Statistics and Geography (INEGI), Magdalena de Kino had a population of 29,707 residents, and based on population projections prepared by the Mexican National Population Council (CONAPO), in 2019, the population in Magdalena was estimated to be 30,652. In 2018, an estimated 41% of the population was living below poverty level, which is higher than the state average of 39%.


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5 NOVEMBER 1, 2019

The following table summarizes the status of public services and infrastructure in Magdalena de Kino.

Table 1 BASIC PUBLIC SERVICES AND INFRASTRUCTURE IN MAGDALENA DE KINO

Water

Coverage: 96%

Water supply source: 7 wells (6 active and 1 reserve)

Number of hookups: 9,827 (9,285 residential; 505 commercial and 37 industrial)

Wastewater Collection

Coverage: 90%

Number of residential connections: 8,838

Wastewater Treatment

Coverage: 100% of the wastewater collected

Treatment facilities: San Lorenzo Wastewater Treatment Plant, using oxidation ponds

Solid Waste

Solid waste collection: 100%

Final disposal: Landfill Km 5 Carretera a Cucurpe

Source: Municipality of Magdalena

Local Drinking Water System Profile

According to a system improvement plan completed in 2017, OOMAPAS currently serves about 9,827 active water accounts.3 The six active wells supply an estimated average flow of 222 liters per second (3,522 gallons per minute).4 OOMAPAS extracts 7 million cubic meters (m3) of water a year from the wells, while the volume billed is only 3 million m3/year, which means that utility has an estimated 4 million m3/year of non-revenue water, equivalent to 58% of the annual volume supplied. The drinking water system was built 50 years ago and does not have any supply and transmission lines. Water is currently disinfected at the well sites with automatic chlorine dosing systems and must be pumped through the distribution system to fill the existing storage tanks. The pipe diameters are undersized, the household connections are inefficient, and the system lacks waterline looping, which creates conditions that allow water to become stagnant, leading to potential bacteria growth or high levels of residual chlorine, which may compromise water quality for human consumption.

3 Source: Proyecto para el Mejoramiento del Sistema Integral de Agua Potable, Alcantarillado y Saneamiento de la Ciudad de Magdalena de Kino, Sonora de enero de 2017 [Project for Improving the Comprehensive Water and Wastewater System in the City of Magdalena de Kino, Sonora, January 2017], funded by NADB through its Technical Assistance Program (TAP). 4 Only five of the six active wells currently have flow meters.


NOVEMBER 1, 2019 6

Figure 2 shows the location of OOMAPAS water infrastructure, including waterlines, wells, tanks and booster stations.

Figure 2 MAGDALENA DE KINO WATER SYSTEM INFRASTRUCTURE

Wastewater Collection and Treatment Systems

The wastewater collection system in Magdalena de Kino, similar to the drinking water infrastructure, dates back to 1945 and is comprised of 8-inch laterals that discharge to larger sewer mains and trunk lines with diameters ranging from 10 to 24 inches. Wastewater flows southwest to a pumping station that conveys it to the treatment facility that uses oxidation ponds, located west of the city. Currently, 100% of the wastewater collected is conveyed to the treatment plant. Since the proposed Project consists of rehabilitating and improving the existing water system, no increase in wastewater flows to the lagoons is expected.


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It is important to note that the existing wastewater collection system only conveys wastewater. Storm water runs through the streets, then through creeks located within the city that empty into the Magdalena River located on the northwest edge of the city.

3.1.2. Project Scope Based on the 2017 final design, water losses were estimated at nearly 60%. The utility has established a goal of reducing these losses to no more than 20% by 2029. The final design identifies the actions necessary to reduce the high level of water losses in the system and meet this goal. The recommended actions include:

1) Establish seven hydrometric sectors (districting or sectorization), three of which will be addressed by the proposed Project.

2) Replace obsolete water system components, which includes installing larger diameter pipes to increase distribution capacity and reinforcing existing infrastructure.

3) Replace household connections using cross-linked polyethylene (PEX) pipe and install residential meters.

4) Improve well sites (control booth, discharge manifold, perimeter fence, etc.)

5) Install a telemetry system.

6) Acquire one backhoe for operation and maintenance. Hydrometric sectors are formed by separating drinking water distribution system into discrete areas of similar size (sectors) to increase water distribution efficiency and facilitate the detection of problems. Sectors usually include a pressure management component, a macrometer, air release devices and bypasses to maintain consistent water pressure and flow across the service area. By metering the flows into the sector and identifying the aggregate user consumption, the utility can pinpoint water losses and reduce water leaks more efficiently. Figure 3 shows the seven hydrometric sectors resulting from the 2017 sectorization study, including the three sectors to be addressed with this proposed Project, which are shown in green: San Isidro, Fatima and El Polvorin.


NOVEMBER 1, 2019 8

Figure 3 DRINKING WATER SYSTEM SECTORIZATION OF MAGDALENA DE KINO, SONORA

Table 2 lists the improvements that will be made to establish the hydrometric sectors, as identified above.


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9 NOVEMBER 1, 2019

Table 2 COMPONENTS OF THE HYDROMETRIC SECTORS

San Isidro Sector Quantity Source of Funds

Construct transmission line from well to storage tank

1,357 linear meters (4,452 linear ft)

CONAGUA/CEA

Replace obsolete pipe 3,900 linear meters (12,795 linear ft)

CONAGUA/CEA

Replace residential connections 928 connections CONAGUA/CEA

Install residential meters 928 NADB CAP

Install macrometer, telemetry, well site improvements

NADB CAP

Polvorin Sector


640 linear meters (2,100 linear ft)

CONAGUA/CEA

Replace obsolete pipe 7,100 linear meters (23,294 ft)

CONAGUA/CEA

Replace residential connections 1,187 connections CONAGUA/CEA

Install residential meters 1,187 NADB CAP

Install macrometer, telemetry, well site improvements

NADB CAP

Fatima Sector


1,200 linear meters (3,937 linear ft)

CONAGUA/CEA

Replace obsolete pipe 12,900 linear meters (42,323 linear ft)

CONAGUA/CEA

Replace residential connections 1,092 connections CONAGUA/CEA

Install residential meters 1,092 NADB CAP

Install macrometer and telemetry NADB CAP

Operational Equipment

Acquire backhoe NADB CAP

Mexican National Water Commission (CONAGUA); Sonora State Water Commission (CEA); Community Assistance Program (CAP) The construction activities led by CEA have been divided into two phases for each sector based on the availability of funds in 2019 and the funds requested from CONAGUA for 2020. Phase 1 includes approximately a third of the infrastructure to be built or 7,800 linear meters (25,591 ft) out of 23,900 linear meters (78,412 ft) total and 1,198 of the 3,207 residential meters. Nearly half of the total investment will be completed in Phase 1. An initial procurement process for Phase 1 components was conducted by CEA in August 2019, and the corresponding construction activities began in early September 2019. An additional procurement process for the remaining components financed with Mexican funds is expected to be carried out during the second quarter of 2020, with the requirement that construction be completed by the end of 2020.


NOVEMBER 1, 2019 10

Procurement for system improvements supported by CAP funds is anticipated to initiate during the first quarter of 2020.

3.1.3. Technical Feasibility NADB provided technical assistance to the Project Sponsor to develop a comprehensive water and wastewater system improvement plan, which identified priority infrastructure needs in the water distribution, wastewater collection and wastewater treatment systems serving the community. Because of the findings related to high water losses, improvements to the drinking water system were prioritized for implementation. During the final design process, multiple alternatives were considered for increasing water system reliability and efficiency, while meeting local, state and federal health and safety regulations. The no-action alternative was not considered viable for the Project, since lack of access to safe and reliable drinking water could result in significant health and safety hazards for the public. Also, the reduction of water losses will increase the efficiency and financial sustainability of the OOAMPAS. The first recommendation in the plan was to delineate hydrometric sectors based on geographical areas that could be isolated by the location and availability of an independent water supply and elevated storage tank. A total of seven sectors were identified. Each sector must comply with the required flow rates and pressure levels to assure continuous service within the entire sector, which will be accomplished by installing new transmission and distribution lines, pressure management equipment, macrometers, telemetry equipment and residential meters. To identify the most appropriate solution for achieving water loss goals and system compliance within each sector, the technical alternatives related to pipe materials, control valves and metering were evaluated based on the following factors:

• Capital costs;

• Operation and maintenance costs; and

• Reliability of the materials and equipment. Pipe diameters were calculated using suitable pressure and strength ranges. The analysis also considered various pipe materials that meet the specifications established in current standards and regulations. High-density polyethylene (HDPE), PVC and asbestos cement pipes were assessed, taking into consideration their characteristics and suitability for the soil type in the Project area. PVC was selected as the best material for the transmission and distribution lines and cross-linked polyethylene (PEX) pipes for the household connections. Operational equipment—such as control valves, macrometers, residential meters and the backhoe—will be procured with performance specifications that reflect the best available technology and regulatory compliance.


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11 NOVEMBER 1, 2019

The final design was prepared pursuant to CONAGUA guidelines and the provisions of Mexican standards NOM-001-SEDE-2012 and NOM-127-SSA1-1994 and its 2000 amendment. Technical validation of the final design was issued on June 26, 2018, by the CONAGUA Northwest Watershed Agency in Hermosillo, Sonora.

3.1.4. Land Acquisition and Right-of-way Requirements Construction will be completed within existing property and public rights-of-way. No additional land or easement is required to implement the Project.

3.1.5. Project Milestones Once the notice to proceed is issued, construction is expected take approximately 18 months to complete. Table 3 provides a summary of critical Project milestones and their respective status.

Table 3 PROJECT MILESTONES

Key Milestones Status

Final design Completed in January 2017

Technical validation Obtained on June 26, 2018

Procurement – Other funds Initiated in August 2019

Procurement – CAP funds Anticipated in the first quarter of 2020

Construction period Estimated period of 18 months

3.1.6. Management and Operation Management and operation of the proposed Project will be the responsibility of OOMAPAS, which currently serves 9,817 water connections and is organized in several departments, including operations, finance and administration. The Project may generate an increase in operation and maintenance (O&M) costs related to the new infrastructure and equipment; however, the reduction in water losses and corresponding reduction in pumping requirements should also produce significant savings. Better regulated and more consistent system pressure could also lead to additional savings deriving from less frequent maintenance requirements. Consequently, the Project is expected to result in an overall reduction in O&M costs. Based on the budget history of OOMAPAS, revenue generation from existing customers is sufficient to support projected O&M costs. An adjustment in user fees is not required as a result of Project implementation. Additionally, OOMAPAS will ensure that the drinking water distributed by the Project complies with Mexican standard NOM-127SSA1-1994, which establishes quality standards for drinking water.


NOVEMBER 1, 2019 12

3.2. Environmental Criteria

3.2.1. Environmental and Health Effects/Impacts A. Existing Conditions

The water supply and distribution system in Magdalena de Kino was built 50 years ago using asbestos cement pipes and is now obsolete. More than 80% of the distribution lines are also undersized. Because of the poor condition of the pipes and aging joints, water losses are extremely high from leaks that may go undetected for years. Line breaks and leaks increase the risks of cross-contamination and backflows in the city distribution system, creating a health risk that can impact the entire community. As a reference for existing health statistics in the area, Table 4 shows reported cases of waterborne disease for the municipality Magdalena, Sonora.

Table 4 WATERBORNE DISEASE STATISTICS FOR THE MUNICIPALITY OF MAGDALENA, SONORA

Disease Number of Cases / Year

2014 2015 2016 2017 2018 June 2019

Amebiasis 1 2 1 2 1

Giardiasis 2 1

Salmonellosis 1 1

Typhoid Fever 4

Other organisms 315 242 359 579 352 333

Source: General Office of Epidemiology, Sonora State Ministry of Health.

Additionally, the distribution system is failing to comply with the standards necessary to meet service demand. Insufficient redundancy in the system and the current practice of filling the storage tanks by pumping water through the smaller lines of the distribution system is inefficient and makes the system more vulnerable to service interruptions. During the last six months, OOMAPAS received 752 customer complaints concerning water leaks and low pressure. These problems, along with a lack of system looping, increase the potential for stagnant water and risks related to bacteria growth or high levels of residual chlorine, which may compromise water quality for human consumption. B. Project Impacts

The Project will help conserve water and assure an adequate water supply for the city by eliminating leaks in the distribution system, as well as improve service reliability by regulating system pressure and introducing system redundancy. These measures will help prevent the risk of cross-contamination from leaks and stagnant water in the lines and will thus improve health conditions for residents in the Project area.


MAGDALENA, SONORA

13 NOVEMBER 1, 2019

Specifically, the Project is expected to generate environmental and human health benefits related to the following Project outcomes:

• Improve access to reliable and sustainable drinking water services for 3,207 existing residential connections.

• Improve water resource management by limiting water losses within each of the three sectors to no more than 20%.

• Achieve water savings of approximately 1 million cubic meters per year (264 million gallons per year) from the three sectors combined.

C. Transboundary Impacts

No negative transboundary impacts are anticipated.

3.2.2. Compliance with Applicable Environmental Laws and Regulations The Project complies with Official Mexican Standard NOM-127SSA1-1994, which establishes quality standards for drinking water. It was also designed to comply with all the guidelines for water systems established by CONAGUA and with NOM-001-SEDE-2012 for all electromechanical installations. The project has been reviewed and validated by CONAGUA. A. Environmental Clearance

The Project will be constructed within previously disturbed areas, including existing rights of way. The Project will not require an Environmental Impact Statement from the Mexican Ministry of Environment and Natural Resources (SEMARNAT), as confirmed by Official Letter No. DOP-US-57/2018-21 issued by the Office of Infrastructure, Urban Development, Public Works and Municipal Ecology of Magdalena, Sonora. B. Mitigation Measures

Only minor environmental impacts are anticipated during construction of the Project, provided that the tasks are implemented in accordance with best management practices. Typical mitigation measures to be practiced include:

• Application of water to reduce fugitive dust emissions;

• Vehicle tune-ups to reduce emissions; and

• Placement of warning signs to prevent potentially hazardous situations. By following best management practices, the temporary impacts due to construction will be minimized. In addition, final designs include the implementation of green building practices, such as using high-efficiency equipment and local materials, reducing excavation processes, etc. C. Pending Environmental Tasks and Authorizations

There are no environmental authorizations pending.


NOVEMBER 1, 2019 14

3.3 Financial Criteria The total estimated cost of the Project is $57,669,195 pesos (US$3,203,844), which includes construction and the acquisition of a backhoe for operations and maintenance. The Sponsor requested a US$500,000 grant from NADB though its Community Assistance Program (CAP) to support implementation of the Project. Table 5 presents a breakdown of total Project costs, as well as the sources of funding.

Table 5 USES AND SOURCES OF FUNDS

(US $)

Uses Amount (US$) %

Construction* $ 3,101,211 97

Equipment: Backhoe 102,633 3

TOTAL $ 3,203,844 100.0

Sources Amount (US$) %

Federal grant (CONAGUA) $ 1,351,922 42

State grant (CEA) 1,351,922 42

NADB CAP grant 500,000 16

TOTAL $ 3,203,844 100.0

* Estimated costs include construction, applicable taxes and contingencies.

The proposed Project complies with all CAP criteria. It is located within the U.S.-Mexico border region served by NADB, is being sponsored by a public-sector entity and is in an environmental sector eligible for NADB financing. Additionally, as a water project, it is considered a priority under the CAP program. As shown in the above table, the Project Sponsor, CONAGUA and CEA have agreed to cover approximately 84% of the Project costs, which is above the 10% minimum required under the program. Additionally, CEA is providing construction management services for the entire Project. Completion of the final design and procurement documents was supported by a grant from the NADB Technical Assistance Program (TAP). Additionally, all necessary pre-procurement permits, and authorizations have been obtained, and the Project Sponsor is ready to initiate bidding for construction once funding has been approved.


MAGDALENA, SONORA

15 NOVEMBER 1, 2019

4. PUBLIC ACCESS TO INFORMATION

4.1 Public Consultation NADB published the draft certification and financing proposal for a 14-day public comment period beginning October 17, 2019. The following Project documents are available upon request:

• Project for Improving the Comprehensive Water and Wastewater System in the City of Magdalena de Kino, Sonora, January 2017

• Approval to construct water facilities from the Municipality of Magdalena, issued through official letter No. SIN-112/19, dated May 7, 2019;

• Technical validation from CONAGUA, issued through official letter No. BOO.803.06.03-0199 dated June 26, 2018; and

• Official Letter No. DOP-US-57/2018-21 issued by the Office of Infrastructure, Urban Development, Public Works and Municipal Ecology of Magdalena, Sonora, dated May 2, 2019.

The 14-day public comment period ended on October 31, 2019, with no comments received.

4.2 Outreach Activities The Sponsor promoted the Project at several of its monthly board meetings to keep Board members up to date on Project progress. The meetings were open to the general public, and meeting agendas were made available beforehand. NADB also conducted a media search to identify potential public opinion about the Project; however, no specific articles or references to the Project were found. No public opposition to the Project has been detected.

5. RECOMMENDATION

Certification Criteria Compliance

The Project falls within the eligible sector of drinking water and is located within the border region, as required under the NADB Charter. The 14-day public comment period ended on October 31, 2019, with no comments received. The project review performed by the NADB Chief Environmental Officer confirms that the Project complies with all the certification requirements, and there are no pending activities required for compliance.


NOVEMBER 1, 2019 16

Funding Criteria Compliance

The Project Sponsor requested a grant from NADB through its Community Assistance Program (CAP) to complete the financing of the Project. The project complies with all CAP eligibility criteria; therefore, NADB proposes providing a CAP grant for up to US$500,000 to OOMAPAS, in accordance with the terms and conditions proposed in Annex B. Accordingly, based on the foregoing conclusions as supported and presented in detail in this certification and financing proposal, NADB hereby recommends certification of the project and approval of the proposed CAP grant.


MAGDALENA, SONORA

17 NOVEMBER 1, 2019

ANNEXES



MAGDALENA, SONORA

18 NOVEMBER 1, 2019

ANNEX A: RESULTS MATRIX

DRINKING WATER SYSTEM IMPROVEMENTS IN

MAGDALENA, SONORA

Project Objective:

Indicators and Targets Baseline Value Measurement Methodology

[2019]

1 Population benefitted # Residents

(Target ~ 12,187 residents or

population benefited)

29,707 residents Reviewed by NADB at completion of

construction as well as at project close-out.

Measurement supported by available

information provided by project sponsor.

2 Increase access to clean and

sustainable water

# Improved Connections to the water

distribution system

(Target = 3,207 improved residential

connections)

9,285 existing

residential

connections

3 Improved management of water

resources

Water losses eliminated.

(Target ≥ 264 million gallons/year)

(Target ≤ 20% water loss)

4.1 million m3/year(1.1 million

gallons/year)

Unaccounted Water

~ 58% water loss

4 Strengthen institutional capacity Full compliance with all applicable

laws, rules, and regulations.

(Target = 100% compliance)

In compliance Reviewed by NADB at project closeout.

Measurement supported by available

information by project sponsor of regulatory

compliance.

Outputs: Goods and services that the project will deliver

Technical:*

Implementation of hydrometric sectors 3

San Isidro Sector

Replace obsolete pipe 3,900 linear meters

Replace residential connections 928 connections

Install residential micrometers 928

Construct transmission line to storage

tank 1,357 linear meters

Polvorin Sector

Replace obsolete pipe 7,100 linear meters

Replace residential connections 1,187 connections

Install residential micrometers 1,187


tank 640 linear meters

Fatima Sector

Replace obsolete pipe 12900 linear meters

Replace residential connections 1,092 connections

Install residential micrometers 1,092


tank 1,200 linear meters

Well site improvements - San Isidro and

Plovorin well sites

Install a macrometering and telemetry

Acquire backhoe 1

Outcomes: Access to, use of, and satisfaction with goods and services provided, building evidence of the achievement of the project

objective. These should be directly attributable to the project and should describe an improvement in existing conditions related,

whenever possible, to environmental and human health, financial, and sustainable development.

Results Measurement

The purpose of the project is to increase access to sustainable drinking water service by assuring adequate water supply,

service reliability and system redundancy, as well as reduce incidents of low pressure and/or service interruption, which will help

reduce health risks associated with waterborne diseases.

Facility improvements (Control booth, perimeter fence, associated pumping appurtenances, etc)


NOVEMBER 1, 2019 19

Financial:

Net cash flow ≥MX$0

Inputs and Activities:

Technical:

NADB Implementation Activities

Procurement process - Other funds August 2019

Procurement process - CAP FIrst quarter 2020

Construction 18 months from notice to proceed (NTP)

Project Financial close-out One year after construction completion

Project close-out One year after construction completion

Financial:

Inputs

NADB construction assistance (CAP)** US$ 500,000

OOMAPAS-Magdalena (CEA,

CONAGUA) US$ 2,703,844

US$ 3,203,844

Activities

Execution of grant agreement NADB /

OOMAPAS Magdalena

Compliance with disbursement NADB auditing - covenants compliance

review

Implementation


MAGDALENA, SONORA

20 NOVEMBER 1, 2019

ANNEX B: PROPOSED GRANT TERMS AND CONDITIONS

DRINKING WATER SYSTEM IMPROVEMENTS IN

MAGDALENA, SONORA

Project: Drinking Water System Improvements in Magdalena, Sonora.

Sponsor: The local water utility, Organismo Operador de Agua Potable Alcantarillado y Saneamiento de Magdalena, Sonora (OOMAPAS).

Grant Recipient: OOMAPAS.

Grant Source:

North American Development Bank (NADB) through the Community Assistance Program (CAP).

Project Cost: $57,669,195 pesos (US$3,203,844).

GRANT TERMS

Grant Amount: US$500,000 (the “Grant”).

Grant Uses: Grant proceeds can be applied to the construction and related costs of the drinking water system improvements.

Currency: U.S. dollars.

Grant Proceeds Flow:

Disbursements of the CAP Grant will be made directly to contractors and consultants designated by Recipient against invoices, receipts or other written documentation certified by Recipient’s Project Manager and Construction Supervisor, as applicable in each case.

Grant Disbursements:

In accordance with NADB disbursement policies and procedures.

Disbursement Period:

In accordance with the disbursement schedule to be agreed upon with the Recipient.

CAP Project Time Period:

The CAP Project time period shall be from the date of signature of the Grant agreement to the date of one year following the date of the last disbursement of the Grant.


NOVEMBER 1, 2019 21

GRANT CONDITIONS

Procurement: All contracts funded from the CAP Grant shall be awarded in accordance with NADB procurement policies and procedures.

Disbursement: Prior to the first disbursement of the CAP Grant:

a) Recipient must provide, in terms satisfactory to NADB, the procurement, construction and disbursement schedules.

b) The contract(s) relating to the first disbursement shall be in place, must have been bid according to NADB procurement policies and procedures; and its/their award must have been submitted for the no-objection of NADB.

c) The following documents must have been submitted to NADB, in form and substance satisfactory to NADB:

1. An executed legal opinion from Recipient’s chief legal

officer indicating that the Grant Agreement has come into full force and effect and is valid and binding on Recipient;

2. A copy of documents indicating that the Project

complies with environmental review requirements; 3. A letter of authorized signatories for submission of

disbursement requests and any other Project authorizations;

4. Copies of all permits and licenses necessary for the

construction and operation of the Project; and

5. Documents providing NADB with confirmation of the Project’s funding from Recipient.

Change Orders: In the case of all change orders for any individual Project component

or contract, NADB assumes no commitment to fund such change orders from the CAP Grant. However, Recipient may submit them to NADB for approval, so that the corresponding payment may be made, if applicable. In the event that NADB does not approve payment of the change orders, Recipient agrees to fund them from its own resources.


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COVENANTS

Continued Provision of Service:

Recipient shall continue to construct, develop, own, operate, maintain, repair and improve the Project.

Project Completion: Recipient shall cover any cost, exceeding the CAP Grant, to guarantee completion of the Project.

Construction Supervision:

Recipient shall hire a Project Supervisor to review the implementation of the Project during the construction phase. The tasks to be performed by the Supervisor will be consistent with NADB’s project supervision policy including an obligation to communicate directly with the NADB Project Manager through required reports, site visits, or other means. If NADB, based on its own or through the Supervisor’s review, determines that the Grant proceeds have been disbursed for ineligible expenditures, or actions have been taken that are not in accordance with the terms of the CAP Grant Agreement, NADB will suspend future disbursements of its funds until the situation has been remedied.

Compliance with Laws and Regulations:

Recipient must operate the Project in compliance with all the laws, rules, regulations, orders and directives applicable to the Project or Recipient, enacted by any legislative, executive, administrative or judicial body having lawful jurisdiction (whether federal, state or local).

Sale, Lease or Encumbrance:

Recipient may not sell, lease or encumber all or any part of the Project without the prior written authorization of NADB.

Operation Reports: 1. Recipient, on its own or through its Supervisor, will deliver to NADB:

a) Quarterly Project construction performance reports within

fifteen (15) days of the reporting period, detailing the status of construction as compared with the Project construction schedule. The final performance report shall be due ninety (90) days after completion of the Project.

b) Promptly upon the occurrence of an event that is material to the financial condition or operating effectiveness of the Project, notice of such event and its expected impact on the Project.

c) Notice of any litigation or proceeding filed against the Recipient as well as any anomaly or circumstance which may compromise the operation of the Project.


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2. Recipient is required to report deviations from Project budget

plans and request prior approvals from NADB for budget plan revisions.

3. Recipient shall request prior written approval from NADB for the

following:

a) Any change in the scope or the objective of the Project (even if there is no associated budget revision requiring prior written approval).

b) Budget revisions that result from changes in the scope or the objective of the Project.

c) Any change of key Project-related personnel specified in the Agreement.

Audits of Project Operations:

Recipient shall deliver copies of all required audits to NADB. NADB reserves the right to conduct spot financial and technical audits of the Project.

EVENTS OF GRANT SUSPENSION AND REMEDIES

Events of Suspension: The following situations shall constitute events of suspension:

a) Any representation or warranty made by the Recipient in the Grant Agreement between the NADB and the Recipient proves to have been incorrect or false in any material respect; or

b) The validity of the Grant Agreement, or any material provision

of the Agreement, is contested by Recipient, the State of Sonora or any governmental authority thereof, or any of the Grant Agreement is, for any reason, deemed invalid, ineffective or unenforceable; or

c) Failure of Recipient to perform any of its obligations under this

Agreement, which failure remains unremedied for a period of thirty (30) days from the date Recipient receives notice of such failure; or

d) Significant adverse changes in the legal and financial position of

the Recipient that endanger its capacity to fulfill its obligations under the Grant Agreement; or


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24 NOVEMBER 1, 2019

e) Any change in the charter or bylaws of Recipient that could prevent it from performing its obligations as agreed under the Grant Agreement.

Remedies: Upon occurrence and continuance of an event of suspension, the

NADB may exercise any or all of the following remedies:

a) Refuse to advance any funds to Recipient.

b) Terminate the Grant.

c) Exercise such other rights and remedies as may be available at law or equity.

Waiver of an Event of Suspension:

NADB may waive any event of suspension, and such waiver will not release the Recipient from any of its obligations under the terms of the Grant Agreement.

Costs Incurred after Suspension or Termination:

Costs to Recipient resulting from obligations incurred by Recipient during a suspension of disbursements or after termination of the Grant Agreement are not allowable unless NADB expressly authorizes them in the notice of suspension or termination or subsequently. Other costs during suspension or after termination that are necessary and not reasonably avoidable are allowable if paragraphs a) and b) apply:

a) the costs result from obligations that were properly incurred by Recipient before the effective date of suspension or termination, are not in anticipation of it, and, in the case of a termination, are non-cancellable; and

b) the costs would be allowable if the award were not suspended

or expired normally at the end of the funding period in which the termination takes effect.

Applicable Law: To the extent not inconsistent with public international law applicable

to NADB, this Agreement shall be governed by, and construed in accordance with the laws of the State of Sonora, Mexico.

Jurisdiction: Recipient and NADB will submit to the jurisdiction of the competent federal courts in the State of Sonora, Mexico, for any action or proceeding arising out of, or relating to, the Grant, hereby waiving any other jurisdiction to which they may be entitled by reason of their present or future address.


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EFFECTIVE DATE OF THE PROPOSAL

Effective Date: The terms and conditions of this Grant proposal will be valid upon approval by the Board of Directors of NADB.