Metropolitan Cebu Water Supply Project (Loans 1056-PHI[SF] &1057-PHI)

7/31/2019 Metropolitan Cebu Water Supply Project (Loans 1056-PHI[SF] &1057-PHI)

1/51

ASIAN DEVELOPMENT BANK PPA: PHI 22274

PROJECT PERFORMANCE AUDIT REPORT

ON THE

METROPOLITAN CEBU WATER SUPPLY PROJECT(Loans 1056-PHI[SF]/1057-PHI)

IN THE

PHILIPPINES


2/51

PHILIPPINES

CURRENCY EQUIVALENTS

Currency Unit peso (P)

At Appraisal At Project Completion At Operations Evaluation(October 1990) (March 1999) (September 2002)P1.00 = $0.0388 $0.0257 $0.0191$1.00 = P25.75 P38.97 P52.45

ABBREVIATIONS

ADB Asian Development BankADF Asian Development Fund

BME

benefit monitoring and evaluationCWA communal water associationDENR Department of Environment and Natural ResourcesEIRR economic internal rate of returnFIRR financial internal rate of returnLWUA Local Water Utilities Administrationm3 cubic meterMCWD Metropolitan Cebu Water District

NGO

nongovernment organizationNRW nonrevenue waterNWRB National Water Resources BoardO&M operation and maintenance


3/51

CONTENTS

Page

BASIC DATA iii

EXECUTIVE SUMMARY iv

MAP vii

I. BACKGROUND 1

A. Rationale 1B. Formulation 1C. Purpose and Outputs 2D. Cost, Financing, and Executing Arrangements 2E. Completion and Self-Evaluation 2F. Operations Evaluation 3

II. PLANNING AND IMPLEMENTATION PERFORMANCE 3

A. Formulation and Design 3B. Achievement of Outputs 4C. Cost and Scheduling 5D. Procurement and Construction 6E. Organization and Management 6

III. ACHIEVEMENT OF PROJECT PURPOSE 8

A. Operational Performance 8B. Performance of the Operating Entity 11C. Financial and Economic Reevaluation 12


4/51

ii

VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS 17

A. Key Issues for the Future 17B. Lessons Identified 18C. Follow-Up Actions 18

APPENDIXES

1. ADB Assistance to the Philippines Water Supply and Sanitation Sector 202. Diagram of the Project 21

3. Photographs of the Project 224. Cost Breakdown by Project Component 275. MCWD Organization Chart 286. Assessment of Social Aspects 297. Compliance with Loan Covenants 328. Project Output Data 349. Tariff Structure for Individual Connections 3510. MCWD Financial Statements 36

11. Financial and Economic Internal Rates of Return 39


5/51

BASIC DATALoans 1056-PHI(SF) and 1057-PHI: Metropolitan Cebu Water Supply Project

Project Preparation/Institution BuildingLoan No. Project Name Amount ($ million) Approval Date545-PHI Water Supply Sector Project1 46.0 25 Nov 1981

As per ADBKey Project Data ($ million) Loan Documents ActualTotal Project Cost 33.0 24.4Foreign Exchange Cost 14.2 12.1

ADB Loan Amount/Utilization 22.0 16.9ADB Loan Amount/Cancellation 5.1

Key Dates Expected ActualFact-Finding 819 Jan 1990Appraisal 610 Jun 1990Loan Negotiations 25 Oct7 Nov 1990Board Approval 29 Nov 1990Loan Agreement 4 Jun 1991

Loan Effectiveness 2 Sep 1991 31 Oct 1991First Disbursement 22 Aug 1994Project Completion 31 Dec 1993 Oct 19972Loan Closing 30 Jun 1994 5 Aug 1998Months (effectiveness to completion) 28 72

Economic and Financial Internal Ratesof Return (%)

Appraisal PCR PPAR

Financial Internal Rate of Return 13.9 4.3 5.7Economic Internal Rate of Return 15.0 14.3

Borrower Republic of the Philippines


6/51

EXECUTIVE SUMMARY

In the late 1980s, the Philippine Government gave high priority to providing an adequatesupply of potable water to urban and rural communities and to improving public healthconditions by controlling pollution and reducing waterborne diseases. In the Metropolitan Cebuarea, the second largest urban center in the Philippines with a population of 1.1 million in 1990,piped water supply coverage was very low, reaching only 18% of the people. A study financedby the Asian Development Bank (ADB) under a previous loan had identified the Manangariverbed as the best location for extracting water. The Government gave high priority to theProject that consisted of a diversion weir, a settling basin, an infiltration basin, 19 deep wells,two storage reservoirs, a chlorination building, transmission and distribution mains, and other

accessories and equipment for maintenance.

The estimated project cost was $33 million, of which 43% was to be in foreign exchange.In November 1990, ADB approved a blend loan to the Government comprising $16 millionequivalent from its Asian Development Fund (ADF) resources and $6 million from ordinarycapital resources. The ADF loan was lent under standard ADF terms, and the ordinary capitalresources loan was given at 10% interest for 24 years including a grace period of 4 years. TheGovernment relent the loan proceeds to the Local Water Utilities Administration (LWUA), the

Executing Agency, at 10% interest for 24 years, and LWUA onlent them to the ImplementingAgency, Metropolitan Cebu Water District (MCWD), at 12.5% for the same period.

The Project aimed at augmenting the water supply in the MCWD area by 33,000 cubicmeters per day and reducing nonrevenue water (NRW) levels from 38% in 1990 to 30% by1993. About 100,000 people were expected to benefit from new connections, of whom 30,000would be the urban poor reached through communal faucets and individual connections. Giventhe high number of the urban poor among the expected beneficiaries, the use of ADF wasconsidered justified.

To expedite implementation, ADB approved direct selection of consultants andretroactive financing of their services. Despite that, project completion originally scheduled forend-1993, was delayed by almost 4 years due to various administrative reasons, among them


7/51

v

The well field has been operational for more than 5 years using natural infiltration and

has produced an average of 23,000 cubic meters per day. About 17,000 new connections and42 new communal faucets can be attributed to the Project. The numbers will increase to24,000 connections and 60 communal faucets when full capacity is reached in 2003, benefitingabout 122,000 residential and 13,500 communal water users. As such, the Project willsignificantly exceed the appraisal target for the overall number of beneficiaries (100,000) but notthat for the urban poor (30,000).

The project design did not include a mechanism or plan to specifically target the urbanpoor. It relied on continued expansion of the communal water association (CWA) program

where costs would be recovered through the barangay associations collecting set fees from theusers. The subsidized tariff for the CWA program is approximately 65% of the regular tariff.Where they have been established, CWAs appear to be a sustainable and effective way ofreaching the urban poor until they are able to access individual connections. If reaching them isto be one of the objectives of the Government and MCWD, there should be a more proactiveattempt to publicize and promote the CWA program, with specific targets developed and theirimplementation monitored. Eventually, the objective should be to provide individual connectionsto the poor.

The major benefits from the Project have been better access to safe water byconsumers, longer hours of service, and enhanced sanitation conditions that lead to improvedhealth. These benefits have had several positive social impacts. First, the longer hours ofcoverage not only make water easily accessible, but also prevent contamination by maintainingpressure in the pipes. Second, for those who switched from private wells and other surfacewater sources such as rivers and creeks, sanitation and health impacts have been notablypositive. Third, the convenience of access has removed the burden of fetching water, especiallyfrom women, and allowed them to use time for more productive tasks. Fourth, the cost of water

has decreased significantly for those who used to buy drinking water from vendors.

MCWDs collection efficiency increased from 73% in 1995 to 94% in 2002. Improvingcollection efficiency and replacing older distribution pipes and older meters contributed to some


8/51

vi

maintenance plan for annually removing the accumulated sediments in the riverbed as well as inthe settlement and infiltration areas. The plan should cover desiltation procedures and prohibit

activities that contaminate the water source and cause pollution.

The initiative of LWUA and MCWD to develop an infiltration scheme to produce andconserve water is innovative and provides valuable lessons to water service providers in thePhilippines. Better access to water has generated positive social impacts and projectconstruction had no lasting negative environmental impacts. Overall, the Project has beenhighly relevant, less efficacious, and efficient, and has had significant institutional and otherimpacts. Its sustainability is likely. Consequently, the Project is rated successful.

The Project highlights the importance for MCWD and other sector agencies of(i) promoting the CWA program as an interim measure to reach the urban poor until individualconnections to them are possible, (ii) preventing groundwater polluting activities near the watersupply source, (iii) managing wastewater collection and treatment, (iv) regulating waterextraction, and (v) protecting the watershed. The lessons identified show (i) the potential of theinfiltration basin technology in areas where water is scarce, (ii) the importance of quality- andcost-based contract evaluation to avoid undue delays and excessive costs, (iii) the willingnessof consumers to pay higher tariffs for reliable service and good quality of water, (iv) the need to

have a clear strategy for reaching the targeted poor beneficiaries and to monitor data to verifythe impact, and (v) the advantage of proper public consultation in accessing water supplysources. Follow-up actions are needed to maintain the infiltration basin and achieve the NRWtarget.


9/51


10/51

I. BACKGROUND

A. Rationale

1. In 1987, an interagency task force of the Government of the Philippines (theGovernment) prepared a national master plan for water supply, sewerage, and sanitation thatcontained sector policies, programs, and institutional arrangements. High priority was given toproviding an adequate supply of potable water to urban and rural communities and to improvingpublic health conditions by controlling pollution and reducing waterborne diseases. The countryoperational strategy of the Asian Development Bank (ADB), which was formulated in 1988, setforth three main development objectives: (i) reducing poverty and generating employment,

particularly in the rural areas; (ii) reducing income disparities and quality-of-life differencesbetween regions; and (iii) rehabilitating existing infrastructure and improving its efficiency. TheMetropolitan Cebu Water Supply Project (the Project) was in line with the strategies of both theGovernment and ADB.

B. Formulation

2. The Metropolitan Cebu area, the second largest urban center in the Philippines, had a

population of 1.1 million in 1990. The rapid growth in urban migration had resulted in a lowcoverage18%1with safe piped water supply. In December 1989, during the ADB CountryProgramming Mission, the Government requested ADB financing for the Project, indicated that ithad the highest priority, and suggested that it be accelerated, given the scarcity of piped waterin Metropolitan Cebu. ADB had previously assisted the water supply and sanitation sector in thecountry with 12 technical assistance projects amounting to $4.9 million and 10 loans amountingto $449.6 million (Appendix 1). A study financed under a previous project2 examined the waterresources potential of Cebu in the early 1980s and proposed the Lusaran Dam as a solution toCebus water supply problems. The study was later expanded to look at other sources because

the cost ($291 million) of the Lusaran Dam was beyond the financing capacity of the sector atthe time. In 1986, a two-phased scheme on the Mananga River was proposed and detaileddesign was prepared for it as part of the study.


11/51

2

C. Purpose and Outputs

4. The Project aimed at augmenting the water supply in the MCWD area by 33,000 cubicmeters (m3) per day and reducing nonrevenue water (NRW)4 levels from 38% in 1990 to 30% by1993 through an Operation and Maintenance Assistance Program (OMAP). The Project wasexpected to benefit about 100,000 people with safe water supply. Among these, 30,000 wereexpected to be the urban poor who were to benefit through communal faucets and individualconnections. To achieve the objectives, the following components were to be constructed orprovided (Appendix 2): (i) a diversion weir with a sluice gate across the Mananga River; (ii) aninfiltration basin and a settling basin; (iii) 19 deep wells, well pumps, and pump houses; (iv) twostorage reservoirs; (v) a chlorination building with chlorination equipment; (vi) collector,

transmission, and distribution mains; (vii) pipes, fittings, valves, and equipment for OMAP;(viii) service connections and water meters; and (ix) consulting services for projectimplementation.

D. Cost, Financing, and Executing Arrangements

5. The total project cost was estimated at $33.0 million equivalent, of which $14.2 million(43%) was to be in foreign exchange. The ADB blend loan of $22 million was to finance 67% of

the total cost including the entire foreign exchange cost and $7.8 million equivalent of the localcurrency cost. The ADF loan of $16 million was provided under standard ADF terms (35 yearswith a grace period of 10 years at 1% service charge), while the ordinary capital resources loan of$6 million bore a 10% interest, with a repayment period of 24 years including a grace period of4 years. The Local Water Utilities Administration (LWUA), an autonomous public utility responsiblefor developing all water districts in cities and municipalities except Metro Manila, was to be theExecuting Agency. The proceeds of both loans were to be relent to LWUA at 10% interest for24 years under a relending agreement, and these funds were to be onlent to MCWD at 12.5% forthe same period under a subsidiary loan agreement. The foreign exchange risk was to be borne

by the Government. LWUA was expected to work in close coordination with MCWD, theImplementing Agency. LWUAs project implementation office was to be responsible for all aspectsof planning, design, modification, construction, and commissioning of the Project. Projectimplementation was envisaged to take about 3 years and a project management office was


12/51

3

basin. The PCR was comprehensive and objective in its conclusions and describedimplementation problems in detail. However, the Operations Evaluation Mission (OEM) does not

agree with the PCR estimate of the number of low-income beneficiaries, as it attributes thebenefits from all existing communal faucets to the Project.7

F. Operations Evaluation

7. This project performance audit report (PPAR) is based on a review of project documentsand relevant studies, discussions with ADB staff, and information obtained by the OEM thatvisited the project site, relevant government and MCWD offices, private sector, andnongovernment organizations (NGOs). The OEM held focus group interviews and key informant

interviews in areas covered by MCWD and also in those not covered. The PPAR assesses therelevance, efficacy, efficiency, sustainability, and the institutional development and otherimpacts of the Project to identify lessons and follow-up actions for future ADB operations. TheOEM also focuses on other aspects including reaching the poor, water quality monitoring,wastewater management, and watershed management. The views of the concerned ADBdepartments and offices and those of the Government, MCWD, and the Executing Agency wereconsidered in finalizing this PPAR.

II. PLANNING AND IMPLEMENTATION PERFORMANCE

A. Formulation and Design

8. During project formulation, several issues were raised. The first was the implementationdelays that had occurred due to excessive time taken to award contracts under some previousloans to the sector. It was hoped that consultants who designed Mananga phase 1 could bedirectly hired to avoid front-end implementation delays in the Project. Second, it was expectedthat the onlending and relending arrangements from the Government to MCWD through LWUA

were clear and agreed to by all parties and would not cause undue delays. Third, although theuse of ADF was a concern, a blend loan was considered justified, as 30% of the expectedbeneficiaries were to be from the urban poor. Fourth, it was expected that the wastewatertreatment for Metropolitan Cebu would be addressed by a proposed World Bank project. In


13/51

4

coastal area, (ii) preliminary design of the infiltration basin and diversion weir, and (iii) a study ofsediment transport and river channel improvements.

10. The feasibility study did anticipate the high sedimentation load of the river andrecommended collection of data on sedimentation levels.9 By appraisal, extensive quarryingupstream and a severe storm had significantly changed the topography of the Manangariverbed compared with the conditions prevailing during the feasibility study. Thus, the Projectprovided for redesigning and adjusting the weir, settling and infiltration facilities, well locations,pumping stations, and access and maintenance roads. The redesign, carried out in 1991, didnot adequately anticipate the extent of sedimentation of the river. Continued constructionactivities and deforestation in the upper watershed had aggravated erosion and increased

siltation problems that now affect the Project. The technical and practical difficulties of producingthe sand and constructing the infiltration basin also were not anticipated. The design of theinfiltration basin specified a fine-quality sand, but the consultants had not considered theavailability of this material or means of producing it within a reasonable hauling distance.

11. As required by the prevailing national environmental regulations, the environmentalcompliance certificate for the Project was obtained from the Department of Environment andNatural Resources (DENR). The certificate listed general monitoring conditions with respect to

watershed management, drinking water standards, and mitigation of construction impacts.Although DENRs capacity to monitor full compliance was known to be limited, the projectdesign did not include specific arrangements or strategies for implementing or enforcing thecompliance certificate. Had this been planned, the earth-moving activities in the upperwatershed could have been monitored and curtailed to reduce the impact of sedimentation.

12. Although bringing benefits to the urban poor was not a specific main objective, theproject documents stressed it, given that about half of the total project costs were funded by theADF. It was anticipated that 30% of the beneficiaries would be the urban poor, with 20%

reached via communal faucets and another 10% through new individual connections. However,the project design did not include a mechanism or plan to specifically target these beneficiaries.It relied on expanding the communal faucet scheme, while indicating that cost recovery wouldbe emphasized. Cost recovery was to take the form of the barangay10 associations collecting


14/51

5

14. Due to problems with the construction of the infiltration basin (para. 21), the Projectbegan operation in October 1997 at less than full capacity.11 At appraisal, the wells were

estimated to have a total natural yield of 10,000 m

3

per day. The stored groundwater was to beextracted through a well field designed for an average capacity of 33,000 m3 per day. Only15 out of the planned 19 wells were constructed due to the unexpectedly high yields of the wellsunder natural conditions. At present, the natural yield without the infiltration basin averages23,000 m3 per day. The raw water is transported through a 6 km main to the Lagtang reservoirin Talisay City and distributed in the MCWD network. During project implementation, twostorage reservoirs (Mananga: 2,000 m3 and Tisa: 5,000 m3) and the chlorination building werecancelled, as storage capacity was sufficient. The cancellations were justified because theprevailing demand continuously exceeded the available supply; therefore, there was no need to

store water.

15. MCWD has now built the infiltration basin, as specified in the design documents. Due tounexpectedly high sediment loads, MCWD decided to convert a temporary dike separating thesettling area and the infiltration basin into a permanent dike to enhance settling capacity and toavoid clogging of the infiltration basin. The dike was being renovated during the OEM. Theinfiltration basin is expected to be operating by January 2003, when the dike is completed.

16. The distribution systems for Talisay (28 km) and Consolacion and Compostela (16 km)were intended to transmit water from MCWDs existing service reservoirs at Casili, Consolacion,and distribute it to the network of those municipalities for consumption. The design was,however, modified during constructionapproximately 4 km of 150-millimeter and 200-millimeter-diameter pipelines were not implemented in Compostela due to the refusal of thelocal government officials to issue the excavation and business permits to the contractor12 (para.25). The pipes were diverted to the municipality of Liloan.

17. Under the OMAP component, the Project rehabilitated service connections and meters

and provided various pipes, valves, fitting, tools, and equipment. No significant reduction ofNRW (38% at appraisal) was achieved during project implementation. After the PCRpreparation, however, NRW was reduced to 34% in 200113 when the older distribution pipes andolder meters were replaced.


15/51

6

consulting services were not used as a consortium had been formed, with all consultantsapparently paid in foreign exchange. The infiltration basin has now been completed at a cost of

$1.2 million financed from MCWDs own resources.19. Because the Project was urgent, LWUA and MCWD started some construction activityusing local funding prior to loan approval. ADB agreed to direct selection of the consultants, whohad prepared the feasibility study and detailed design, as well as to retroactive financing of theconsultants expenditure incurred prior to loan approval in November 1990. Despite thesemeasures to expedite implementation, project completion scheduled for end-1993 was delayedby 3 years and 9 months. The loans became effective in October 1991 when the relendingagreement between the Department of Finance and LWUA was finalized. Due to administrative

problems, the consultants were engaged only in July 1993, 2 years and 8 months behindschedule. In July 1994, the ADB Portfolio Review Mission seriously considered cancelling theProject, as physical activities had not yet started. In view of the acute shortage of water inMetropolitan Cebu and the high priority given to it by the Government, the Project was extendedsubject to completing a time-bound action plan. Further delays occurred because of problems inacquiring land, and the construction of the infiltration basin had to be temporarily suspended bythe time the loan was closed in August 1998 after three extensions. The Project beganoperating at partial capacity in October 1997.

D. Procurement and Construction

20. For most of the contracts, international competitive bidding was used in line with ADBsGuidelines for Procurement. For smaller contracts (especially for distribution pipelines), whichwere not attractive to international contractors, local competitive bidding was used. MCWDfound the contract packages appropriate and reported no major problems in procurement. Directappointment procedures in accordance with ADBs Guidelines on the Use of Consultantswereused to engage the consultants with previous experience in the Project to expedite

implementation. For bureaucratic reasons, however, the engagement was delayed substantially.It appears that LWUA was weak in project management planning. The consultants may havebeen retained without additional work until the proper documentation was completed. Given thesubsequent delays in implementation, consultant inputs had to be extended substantially, from


16/51

7

surrounding towns and cities (footnote 3). Its current 654 regular staff are distributed in sixgroups: general managers office, administrative group, finance group, operations group,

technical services group, and pipelines maintenance group (Appendix 5). The general manageralso heads one group comprising internal audit, legal, corporate planning, and managementinformation systems departments, and is assisted by five assistant general managers in chargeof each of the other groups. The board of directors comprise the chairperson and four othermembers from different segments of society (business, education, women, and civil society)nominated by the mayor of Cebu City. Despite being a corporation, MCWD has from thebeginning been a self-sustaining company that has not received any subsidy from the local orthe national government.

23. It was agreed at appraisal that executing arrangements would be carried out by LWUAand the project management office would be headed by a resident engineer from LWUA;however, an MCWD engineer was appointed to manage the project management office. Thischange somewhat duplicated the role of LWUA in project implementation and could haveexacerbated implementation delays. In terms of technical capacity, MCWD staff have skillssimilar to those of the LWUA staff and, therefore, do not depend on the latter for technicalexpertise. As such, it may have been better to appoint MCWD as the executing agency, but thiswas not possible within the prevailing regulatory environment.

24. During the period 19921997 when project implementation was delayed, MCWD tappedother sources of water from a northern well field. 15 In addition, MCWD initiated the completion ofthe infiltration basin on its own. MCWD continued its existing program for the communal waterassociations (CWAs), and the water supply from the Project allowed it to establish 42 newCWAs from 1998 to 2002. From 2003, with full capacity, the Project will have led to theestablishment of 60 CWAs.16 CWAs are managed by barangay associations on a cost-sharingbasis (Appendix 6).

25. MCWD also tried to access water from the 15 wells built in Compostela in 1988 underLoan 545-PHI (footnote 2). The attempt was unsuccessful due to resistance from Compostelaresidents and the local government. The issue is still in court because MCWD has appealed thedecision of the court, which ruled in favor of Compostela on technical grounds.17 It is in the best


17/51

8

III. ACHIEVEMENT OF PROJECT PURPOSE

A. Operational Performance

1. Production and Coverage

27. Despite the unfinished infiltration basin, the well field has been operational for more than5 years and has produced an average of 8.4 million m3 per year or 23,000 m3 per day (Table 1).About 17,000 new connections and 42 new communal faucets can be attributed to the Project.The figures will increase to about 24,000 connections and 60 communal faucets in 2003. The

estimates of residential and communal beneficiaries are 122,000 and 13,500, respectively. Atfull capacity, the Project will thus significantly exceed the target for the overall number ofbeneficiaries (100,000). However, it has been less successful in reaching out to the poorcommunities (para. 52). It is difficult to assess the location of the new connections, as specificexpansion areas were not identified in the project design. Instead, services were provided tounconnected (poor or nonpoor) customers in the existing service areas. The two main areaswhere transmission and distribution pipes were constructed are Talisay in the south andConsolacion/Liloan in the north.

Table 1: Project Capacity

Item 1990 1998 2002 2003a

Total Production of MCWDb

(m3) 29,565,000 46,732,410 50,954,692 54,604,692

Production from the Project (m3) 8,395,000 8,395,000 12,045,000

Contribution to Total Production (%) 18 16 22

Project Capacity Utilization (%) 70 70 100

m3

= cubic meter, MCWD = Metropolitan Cebu Water District.aEstimated.

bIncludes the development of the northern well field and other existing sources.

Source: MCWD.


18/51

9

29. The major benefits from the Project have been the easier access to safe water byconsumers, longer hours of availability, and improved sanitation conditions. Between 1990 and

2002, MCWD water production increased by 72% due partly to the Project and partly to thedevelopment of the northern well field. Despite the absence of the infiltration basin, the naturalrecharge helped MCWD substantially achieve its output targets. The increased water supplypermitted to gradually increase the population served by piped water. However, even now, thereported coverage is low compared with that in other urban areas in the Philippines. Whilekeeping pace with the population expansion of Metropolitan Cebu (about 2% a year), thecoverage of population served increased from 18% in 1990 to 30% in 1998 and can reach33% in 2003 when the Project reaches full capacity (Figure 1). The volume of water supplied asa percentage of total demand for domestic and industrial use also increased, from 28% in 1995

to 31% in 1998, and will increase further to 35% in 2003.

Figure 1: Estimated MCWD Demand and Production

m3

= cubic meter, MCWD = Metropolitan Cebu Water District, NRW = nonrevenue water.

0

50,000

100,000

150,000

200,000

250,000

300,000

1990 1995 1998 2003

Quantity(m3/day)

0%

5%

10%

15%

20%

25%

30%

35%

40%

DemandandPopulation

Cove

rage(%)

Total estimated daily demand for piped water supply in Metro Cebu (m3/day)

Total average daily MCWD water production (m3/day)

Provision of piped water supply (minus NRW) as percentage of total demand

Reported coverage (percent of served population)

(m3/day)

(m /day)

Reported coverage as percentage of total population


19/51

10

31. Developing new sources of water is still a crucial task for MCWD. The unsatisfieddemand for piped water supply, saltwater infiltration, and the growing population make that taska priority. Since project completion, MCWD has received and discussed a few unsolicited build-operate-transfer projects, but they have not been viable. The latest build-operate-transferscheme being discussed is the bulk water supply from the municipality of Carmen, 45 km northof Metropolitan Cebu. The projections indicate surface water supply of about 40,00060,000 m3/day to MCWD. Learning from the previous experience with Compostela (para. 25),public consultations are being held and environmental assessments are being initiated. Otherpossible water sources that have been considered (Mananga phase II, Lusaran Dam, and bulksupply from Bohol) will be major technical and financial challenges for MCWD to undertake onits own.

2. Maintenance

32. The operation of the well field and of the transmission and distribution network issustainable with the expertise available at MCWD. The operation and maintenance (O&M) costsfor operating the wells and the distribution system are part of the regular operations of MCWDand are included in the annual budget. The O&M of the infiltration facilities is and will remain amajor challenge to MCWD. A pragmatic maintenance plan must be prepared to be able tomaintain the infiltration basin, in particular removing sediments in the riverbed and settlingbasin, and cleaning the large quantities of filter media. During the recent work on the infiltrationbasin, the extent of the actual sedimentation became apparent. An estimated 400,000 m3 ofsediments has already accumulated in the riverbed (including the settling basin) during the last5 years. The sediments diminish the efficiency of the weir and the settling basin and create theadditional risk of flooding the infiltration basin. Although plans to annually remove the sedimentsare being discussed, no final arrangements have yet been made. MCWD claims that sedimentmaterial has economic value and can be removed using private contractors under its guidanceat little or no cost to MCWD. While the OEM accepts that such a program is possible, its cost-

effectiveness has yet to be demonstrated.

33. The redesign studies did not foresee the extent of the very high infiltration capacity of theriverbed. Any spill of pollutants20 in the dry season is likely to contaminate the aquifer and the


20/51

11

3. Nonrevenue Water

34. According to MCWD, its collection efficiency increased from 73% in 1995 to 94% in2002 (Figure 4). The PCR noted only an insignificant reduction of NRW, from 38% in 1990 to37% in 1998, during project implementation. In 2002, NRW declined to 34% (Figure 5).Improving collection efficiency and replacing older distribution pipes and older meterscontributed to this improvement. A long-term action plan for pipe rehabilitation will bedeveloped after completing the district-metering program, which will identify priority areas forrehabilitation.22 Further reducing the current NRW level should be a priority by MCWD,23especially because every percentage point reduction saves 1,400 m3 per day, which is more

than the total volume of water used by all communal faucets.

Figure 4: Collection Efficiency Figure 5: Nonrevenue Water

B. Performance of the Operating Entity

35. Theoretically, MCWD tariffs can be increased as much as 60% per adjustment.24Substantial increases in tariffs were applied in the first half of the 1990s (Figure 6). Currently,the consumption charge for a monthly consumption of 2130 m3 is P14 per m3 compared with

3 3

0%

20%40%

60%

80%

100%

1990 1995 1997 1998 2002Collection

Efficiency(%)

20%

25%

30%

35%

40%

1990 1995 1997 1998 2002Nonreven

ueWater(%)

Source: Metropolitan Cebu Water District data. Source: Metropolitan Cebu Water District data.


21/51


22/51

13

replacing them was taken into account in the O&M costs. On this basis, the recalculated FIRR is5.7% (Appendix 11), much lower than the appraisal estimate (Table 3). The large difference isattributable to the major implementation delay. However, the FIRR is higher than both the PCRestimate (as a result of the improved performance in terms of NRW since 1998) and the realaverage weighted cost of capital of 3.0%.

Table 3: Summary of Financial and Economic Reevaluation (%)

Item Appraisal PCR PPAR

FIRR 13.9 4.3 5.7EIRR 15.0 14.3

= not calculated, EIRR = economic internal rate of return, FIRR = financial internal rateof return, PCR = project completion report, PPAR = project performance audit report.Source: Asian Development Bank.

38. Financial costs were converted to economic costs by excluding interest and taxes andapplying the domestic price numeraire. Economic benefits were derived from time savings, costsavings, and estimates of willingness to pay. Both incremental and nonincremental water usagewas considered. In valuing the benefits from nonincremental usage, the time savings in fetching

water and the cost savings due to switching from alternative sources were considered.Incremental water usage was valued using willingness to pay by type of consumer. As to theNRW, 25% was assumed to be actually used by the individual connections and 75% to betechnical leakages. Health data was not reported in any benefit monitoring reports and,therefore, was not available for the economic reevaluation, but health benefits may be partlycaptured in the willingness to pay. The recalculated economic internal rate of return (EIRR) is14.3% (Appendix 11), slightly lower than the PCR estimate.25 A 5% reduction in productioncapacity would reduce the EIRR to 13.7% and the FIRR to 4.6%.

D. Sustainability

39. The Project is physically sustainable. The major civil works and equipment appear to be


23/51

14

IV. ACHIEVEMENTS OF OTHER DEVELOPMENT IMPACTS

A. Socioeconomic and Sociocultural Impacts

40. According to the rapid assessments done by the OEM, the socioeconomic impacts of theProject have been very positive although not fully quantifiable due to lack of baseline data andsubsequent monitoring. Expanding MCWDs coverage in terms of number of consumers andnumber of hours of service has yielded social benefits to the communities in Metropolitan Cebu(Appendix 6). In addition to making water easily accessible, the longer hours of coverage haveprevented contamination by keeping running water in the pipes. The result is better water

quality. Those who switched from private wells and other surface water sources such as riversand creeks observed notably positive impacts on health. This observation was repeatedlymentioned during the OEM focus group interviews and individual discussions. The convenienceof having piped water or communal faucets has eased the burden of fetching water, especiallyfor women, allowing them to use time for more productive tasks.26 Sanitation has also improved,as more water is easily accessible for household use. The cost of water has declined to about athird of the price the residents were paying to vendors for drinking water before. However, theimpact on income has not been significant, as most people used the private wells of neighborsor rivers for nondrinking purposes.

41. CWAs are operating efficiently in serving the poor and their cost recovery is well-managed and sustainable (para. 52). At P13 per m3, the average subsidized tariff for CWAs isapproximately 65% of the regular tariff. The tariff is subsidized at each quantity bracket andthere is a broad quantity bracket of 31172 m3. CWAs pay for the construction of a communalfaucet. For individual connections, installation charges are P3,500 per connection of a 1/2-inchpipe plus the pipe cost from the meter to the house. In some cases, the cost of pipes issubstantial due to distance. Although they may be paid in installments, the installation and

connection charges are a significant burden on the poor who seek individual connections.MCWD recently began installing water meters along the roads to reduce the cost and preventtampering. Some are grouped together and are attached to one stub (Appendix 3).


24/51

15

43. The Loan Agreement lacked specific environmental covenants and monitoringrequirements, especially regarding water quality and watershed management. The BMEcovenant called for collecting environmental and health data, but this was not done and no BMEreports were prepared. For watershed management, MCWD supports a small number of guards(less than five) from DENR at checkpoints to monitor logging and quarrying activities in the6,000-hectare project watershed. In addition, MCWD has a small joint reforestation programwith DENR in the water facilities area. Beyond this, there is no effective watershed managementprogram (para. 55). MCWD and the Water Resources Center of the San Carlos University (anNGO) extensively monitor groundwater and surface water resources. The data of the WaterResources Center is published regularly. The data available to MCWD on the local impacts of

groundwater extractions should, therefore, be accurate.

C. Impact on Institutions and Policy

44. No specific training component or technical assistance was attached to the loans;therefore, the Project did not lead directly to institutional development of LWUA or MCWD.However, there was on-the-job technology transfer during project implementation and theexperiences gained, as well as those from project operation, have been valuable, especially toMCWD. The innovative technology to conserve freshwater resources through inducedrecharging of water resources using the infiltration basin is the first of its kind beingimplemented in the Philippines. Experiences gained from the Project are valuable for MCWD, inparticular, to understand environmental conditions in watersheds outside of the coastal plain. IfMCWD can demonstrate that the facilities can be operated successfully, the infiltration schememay be a feasible option in the Philippines for other water providers to adopt in areas wherewater is scarce.

V. OVERALL ASSESSMENT

A. Relevance

45. The Project is assessed as highly relevant. It conformed with the Governments sector


25/51

16

C. Efficiency

47. The protracted implementation delayed for several years benefits to water users andrevenues from water sales to MCWD. Nevertheless, the recalculated FIRR of 5.7% and EIRR of14.3% are satisfactory, provided the full capacity is reached in 2003. The Project is assessed asefficient.

D. Sustainability

48. The Project is likely to be sustainable, given the good quality of construction of the water

source facilities and the distribution network, and the financial viability of MCWD. At present, therevenues from water sales are at acceptable levels to recover cost even from the communalfaucets. Past record gives confidence that tariff adjustments will be made if necessary. Althoughregular maintenance of the infiltration basin will be a major effort for MCWD, the commitment tosuch maintenance is high. The technology used in the Project fits the existing expertise inMCWD.

E. Institutional Development and Other Impacts

49. Although the Project provided no structured training, there was on-the-job technologytransfer during its implementation. The initiative of LWUA and MCWD to develop an infiltrationscheme to produce and conserve water is innovative and provides valuable lessons to MCWDand other water service providers in the Philippines. Better access to water has generatedsocial benefits by improving health and sanitation conditions, as well as reducing costs and timeneeded to fetch water. Project construction has had no lasting negative environmental impacts.Overall, institutional development and other impacts are assessed as significant.

F. Overall Project Rating

50. The Project has been highly relevant, less efficacious, efficient, and has had significantinstitutional and other impacts. Its sustainability is likely. On balance, the Project is rated


26/51

17

duplicated efforts in supervising implementation. Decisive action was not taken quickly on thecontractors problems with the infiltration basin. Nonetheless, MCWD went ahead to constructthe infiltration basin using its own funds, even after the loan was closed.

VI. ISSUES, LESSONS, AND FOLLOW-UP ACTIONS

A. Key Issues for the Future

52. Social Impacts and Reaching the Poor. At appraisal, it was anticipated that 30% of theadditional 100,000 beneficiaries would be the urban poor: the Project aimed to install publicfaucets for 20,000 consumers and individual connections for 10,000 consumers in poor urban

areas. So far, only about 50% of the communal faucet target has been achieved.29

There wereno clear guidelines for covering the low-income water users through CWA or identifying specificgeographic areas. Although targeting the poor figured prominently in the conceptual stage, itwas not adequately translated into a specific strategy. For instance, no active promotion of theCWA program was planned. The OEMs fieldwork indicates that, where CWAs had beenestablished, they appear to be a sustainable and effective way to reach the urban poor until thelatter are able to access individual connections (Appendix 6). If reaching the urban poor is to beone of the objectives of the Government and MCWD, there should be a more proactive attemptto publicize and promote the CWA program, with specific targets developed and theirimplementation monitored. Eventually, the objective should be to provide individual connectionsto the poor. At present, individual installation charges of P3,500 for meters plus pipe costs up toa motorized road are all passed on to consumers. The installation charges make it difficult forthe poor to access piped water. The availability of an installment payment scheme, designed toreduce the immediate burden, has not been a sufficient incentive for the poor to obtain anindividual connection. Perhaps, MCWD could consider bringing the meters closer to the housesin poor neighborhoods, rather than passing on the cost of pipes to those consumers.

53. Water Quality Monitoring. Proper protection of the water supply and water qualitymonitoring need to be priorities for MCWD and the local government. The older (nonproject)well fields are threatened by increased salinity and pollution by infiltration of untreatedwastewater. The project well fields could also be prone to a high risk of groundwater


27/51

18

stagnant water and increase health risks, especially in flat areas with poor drainage along thecoast. Consequently, proper disposal of wastewater should be a priority for MCWD and the localgovernment. In addition, regulatory controls in place currently are limited to ensure properextraction of water from non-MCWD sources. Although the National Water Resources Board(NWRB) is responsible for monitoring groundwater extractions, experience in the MetropolitanCebu coastal area indicates that enforcing regulations on groundwater extraction and protectionis currently not effective. Private wells can be established in the area with little supervision ormonitoring of the quality of water to be extracted. Enforcement of regulations on where the wellsshould be located and how far they should be from a potentially polluting source should bestrengthened.

55. Watershed Management. The Projects environmental compliance certificate listsgeneral monitoring requirements with respect to watershed management, drinking waterstandards, and mitigation of construction-related impacts. Managing construction-relatedactivities in the watershed is important to control sedimentation in the Mananga River. DENRscapacity to monitor compliance is admittedly limited. For long-term plans for proactivewatershed management, MCWD should seek further cooperation and support from NWRB andNGOs. The OEM learned that NWRB is establishing a special Task Force on Cebu WaterResources Management. It is timely for MCWD to get the required attention and support of thevarious national government agencies in managing the watershed and developing future watersources.

B. Lessons Identified

56. Successful operation of the infiltration basin will demonstrate that it is a technology thatcan be used to supplement the natural recharge of the aquifer.

57. Despite the higher than average tariffs in Metropolitan Cebu than in the rest of the

country, the residents are willing to pay for good-quality water and a reliable service.

58. The project delays due to problems with producing the filter media for the infiltrationbasin show the importance of procedures for evaluating consultants and contractors. Had


28/51

19

activities that are prohibited near the project water source, and indicate related enforcementmeasures.

62. Implementing the district metering program to identify the main sources of NRW andthen preparing a rehabilitation action plan should also be completed by June 2003.


29/51

Appendix 120

ADB ASSISTANCE TO THE PHILIPPINES WATER SUPPLY AND SANITATION SECTOR

Table A1.1: Loans

Loan No. Project ApprovalDate

Amount($ million)

Date ofPCR

1. 0190 Manila Water Supply Aug 1974 51.3 Oct 19882. 0251 Provincial Cities Water Supply Dec 1975 16.8 Oct 19833. 0351 Second Manila Water Supply Sep 1978 49.0 Oct 19884. 0457 Manila Sewerage Jun 1980 42.8 Jul 19905. 0545 Water Supply Sector Nov 1981 46.0 Oct 19946. 0645 Manila Water Supply Rehabilitation Oct 1983 39.3 Nov 19937. 0812 Island Provinces Rural Water Supply Sector Dec 1986 24.0 Nov 19938. 0947 Second Manila Water Supply Rehabilitation Jan 1989 26.4 Dec 19959. 0986 Angat Water Supply Optimization Nov 1989 130.0 Ongoing10. 1052 Second Islands Provinces Rural Water Supply Nov 1990 24.0 Dec 1997

Subtotal before the Project 449.611. 1056 Metropolitan Cebu Water Supply Nov 1990 16.0 Jul 199912. 1057 Metropolitan Cebu Water Supply Nov 1990 6.0 Jul 199913. 1150 Manila South Water Distribution Dec 1991 31.4 Ongoing14. 1217 Umiray-Angat Transbasin Technical Assistance Dec 1992 2.6 Ongoing15. 1269 Municipal Water Supply Nov 1993 43.2 Ongoing16. 1379 Umiray-Angat Transbasin Sep 1995 92.0 Ongoing17. 1440 Rural Water Supply and Sanitation Sector Jun 1996 18.5 Ongoing18. 1441 Rural Water Supply and Sanitation Sector Jun 1996 18.5 Ongoing19. 1472 Small Towns Water Supply Sector Sep 1996 50.0 Ongoing

Total 727.8

ADB = Asian Development Bank, PCR = project completion report.

Table A1.2: Technical Assistance

TA No. Project ApprovalDate

Amount($000)

1. 0072 Laguna de Bay Water Resources Development Study Aug 1972 1,284.32. 0087 Manila Water Supply May 1973 49.23. 0433 Bulacan Bulk Water Supply Scheme Nov 1981 150.0

4. 0737 Island Provinces Water Supply Sector Dec 1985 75.05. 0779 Water Supply and Sanitation Jun 1986 50.06. 1039 Angat Water Supply Optimization Sep 1988 100.07. 1057 Manila Metropolitan Region Environmental Improvement Study Nov 1988 551.08 1219 Angat Water Supply Optimization Nov 1989 300 0


30/51

Infiltration Area45,000 m2EL 33.033.5 MASL

Settling Area90,000 m2EL 32.0 MASL

Legend

Weir CrestEL 35.0 MASL

EL = elevation, m = square meter, MASL = meter above sea level.a Out of the planned 19 wells, only 15 were constructed due to the

unexpectedly high yields of the wells under natural conditions.

Added separation dike

Existing Exploratory Wells

New Wellsa

Raw Water Mains

Embankment

DIAGRAMO

FTHEPROJECT

Appendix2

21


31/51

Appendix 322

PHOTOGRAPHS OF THE PROJECT

Photo A3.1: Mananga weir dam open during dike rehabilitation


32/51

Appendix 3 23

Photo A3.3: Siltation and settling basin upstream of the weir


33/51

Appendix 324

Photo A3.5: Mananga groundwater well houses


34/51

Appendix 3 25

Photo A3.7: The dike protects the infiltration basin from these sediments


35/51

Appendix 326

Photo A3.9: Water vendor in Lapu-Lapu City area


36/51


37/51

MCWD ORGANIZATION CHART

GENERAL MANAGER

BOARD OF DIRECTORS

CORPORATESECRETARY

CHAIRMANMEMBERMEMBER MEMBER

ADMINISTRATIVE

GROUP

TECHNICAL

SERVICES GROUP

FINANCE

GROUP

PIPELINESMAINTENANCE

GROUP

INTERNAL AUDITDEPARTMENT

OPERATIONS

GROUP

BILLING

DEPARTMENT

PUBLIC AFFAIRS

DEPARTMENT

PROD & DISTRIBUTION

DEPARTMENT

MATERIALS & EQPT

QLTY CONTROL DIVPIPELINES MAINT.

DEPT-SOUTH AREA

TECHNICAL AUDITDIVISION

METER READING & BILLDISTRIBUTION DIVISION

CORPORATECOMMUNICATION DIVISION

PRODUCTIONDIVISION ENGINEERING

DEPARTMENT

PIPELINES REPAIRDIVISION

PLANNINGDIVISION

FINANCIAL AUDITDIVISION

BILLING RECORDSDIVISION

LEGALDEPARTMENT

INVESTIGATION ANDLITIGATION DIVISION

PROCUREMENTDIVISION

DISTRIBUTIONDIVISION S/C REHABILITATION

DIVISION

ACCOUN TINGDEPARTMENT

MATERIALSMANAGEMENT DEPT

WATER QUALITYCONTROL DIVISION

SECURITY, CONTRACT

ROW, SITE ACQUISITION DIV

GENERALACCOUN TING DIV

PAYROLLDIVISION

UTILITYDIVISION

INVENTORY ANDWAREHOUSE DIVISION

SERVICE CONNECTION& INSTALLATION DEPT

WATER SERVICE PROC &INSPECTION DIVISION

CONSTRUCTIONDEPARTMENT

PIPELINES MAINT.DEPT-NORTH AREA

MAINLINES REHABDIVISION

LEAK REPAIRDIVISION

MAINLINES EXPANSION/CIVILWORKS DIV

PROJECTMANAGEMENT DEPT

INSTALLATION ANDDISCONNECTION DIV

MAINT SUPPORTSERVICES DEPT

GENERAL SERVICESDEPARTMENT

FINANCIALMANAGEMENT DEPT

MGT INFORMATIONSERVICE DEPT

PLANNING ANDMONITORINGD IV

FINL PLANNING ANDCONTROL DIV

PUBLIC AFFAIRSDIVISION

TREASURYDIVISION

CORPORATEPLANNING DEPT

TRANSPORT SERVICESAND EQPT MAINT DIV

FABRICATIONDIVISION

TECHNICALDIVISION

RESTORATIONDIVISION

DESIGNDIVISION

S/C REHABILITATIONDIVISION

RESTORATIONDIVISION

ADMINISTRATIONDIVISION

ELECTRO-MECHLFACILITIES MAINT DIV

METERMAINTENANCE DIV

ENVT & WATERRESOURCES DEPT

GROUNDWATERDIVISION

SURFACE WATERDIVISION

ENVIRONMENTDIVISION

HUMAN RESOURCESDEPARTMENT

RECRUITMENT ANDTRAINING DIVISION

PERSONNEL SERVICESDIVISION

MEDICAL SERVICESDIVISION

BRANCHCOLLECTION DIVSYSTEMS ANALYSIS AND

COMP APPLN DIV

COMPUTEROPERATIONSDIVISION

5 Groups20 Departments

47 DivisionsMCWD = Metropolitan Cebu Water District.

28

Appendix5


38/51

Appendix 6 29ASSESSMENT OF SOCIAL ASPECTS

A. Introduction

1. It was expected that providing safe water through the Project would reduce mortality andmorbidity caused by waterborne diseases, particularly among young children. The availability ofa potable and reliable water supply for nondomestic uses by hospitals, schools, and foodprocessing enterprises was also expected to contribute to the overall improvement of publichealth. The urban poor were to be targeted by installing public faucets and individualconnections in the service area of the Metropolitan Cebu Water District (MCWD). According tothe target, 10,000 were to be slum dwellers who were to get individual connections whileanother 20,000 were expected to be reached through communal faucets. Costs of communal

faucets were to be recovered through block tariff structures, with a subsidized rate for the first10 cubic meters (m3), and by working with the barangay associations to collect fees from usersof communal faucets.

2. A provision in the Loan Agreement stipulated that a project benefit monitoring andevaluation (BME) report was to be submitted annually beginning 1 year after loan effectivenessdate and continue until 5 years after project completion. The BME reports were to containrelevant financial and technical information in the form of benchmark indicators and evaluation

ratios, and to also identify beneficiaries by income level. Such BME reports were not prepared.

3. The Operations Evaluation Mission engaged a research assistant to obtain informationon the current water supply situation in the low-income communities in Metropolitan Cebu. InMCWD records, lists of communal water associations (CWAs) by barangay were not available;therefore, it was not possible to find what depressed barangays in Metropolitan Cebu wereadequately covered. Information and other data used for this assessment were obtainedthrough review of existing documents from the Asian Development Bank, MCWD, and theprovincial government of Cebu. Meetings and interviews with MCWD and officials and staff of

the provincial government were held to validate the information obtained. A series of communitymeetings and individual interviews were conducted in areas serviced and not serviced byMCWD.


39/51

30 Appendix 6Utilities Administration. The progress reports do not contain the socioeconomic data required inBME. They contain the following information: (i) service connection data, (ii) present water rates,(iii) billing and collection data, (iv) financial data, (v) water production data, (vi) miscellaneous

data, and (vii) status of various development projects. Service connection data available atMCWD gives the following information: (i) total service connections, (ii) total active serviceconnections, (iii) total metered, (iv) total billed, (v) population served (number only),(vi) reconnection and disconnection, and (vii) number of customers in arrears classified intoactive and inactive.

6. The socioeconomic status of the consumers served is not determined before they areconnected. This may have been one of the reasons why BME was not done. Admittedly,properly monitoring indicators for the BME targets would take substantial resources. Case

studies indicate that a typical poor CWA member-household spends roughly P10P20 per dayfor water, and its monthly water bill is estimated to be 5.511.5% of the household monthlyincome.1 According to the project completion report, the monthly expenditure for the low- andmiddle-income groups was about 1.4% and 1.2%, respectively.2 This difference may beexplained partly by the proportionately higher increases in tariffs since the project completionreport, as well as consumers increasing awareness that good water quality is a necessity.Instead of relying on groundwater wells, even the poor now prefer to buy water, at least fordrinking and cooking, from vendors or neighbors who have connections. Consequently, their

proportional expenditure for water could have increased.

7. Communal Water Associations. The formation of CWAs is intended to meet waterrequirements of poor families while teaching them self-reliance, group unity, and communitydevelopment. Each CWA is an organized group of at least 30, but not more than 60 families,who are direct communal beneficiaries. A CWA has its own elected set of officers and enlistedmembers. It charges a subsidized rate for water. A member is one without an individual waterservice connection and whose main source of water is the communal faucet system. In a 10-year period, about 238 CWAs were organized and corresponding communal faucets were

installed. Of the CWAs, 60 can be attributed to the Project based on prorata calculation of theadditional water supplied by the Project. Assuming there are five members to a household, thetotal number of beneficiaries from the CWA program at full capacity of the Project may beestimated:


40/51

Appendix 6 31nongovernment organizations to strengthen CWAs. The members organized into CWAs haveengaged in other community development pursuits such as health assistance to members,distribution of rebates from water retailing, and physical improvements of common spaces.

Those who have access to communal taps have the convenience of potable water nearer theirhomes. Women members have benefited most, as they are in charge of fetching and storingwater for household. Having a water source nearby significantly reduces time to fetch water anddo household chores that require water use. Previously, some walked long distances to theirtraditional water source (the women of the upland CWA in Barangay Lagting, Talisay City,walked the farthest distance of about 1.5 km to Mananga River to do laundry and other chores).Now they walk a few meters. Some even install hoses to the tap stand during their waterschedule and now store water right in their own homes. Though the claim is not supported bystatistical health data, the women say they have less body aches and pains associated with

carrying heavy loads. Households have better access to clean water. The health and sanitationconditions of women and children have improved with sufficient water for their daily needs.Those who have no access to MCWD water tap a variety of sources: using private wells forwashing and bathing, going to surface water sources nearby, and buying drinking water fromneighbors or vendors.

10. CWAs were also organized among informal settlers in the urbanized areas ofMetropolitan Cebu. For this group, MCWD relaxed its requirement that proof of domicile be

presented. A lot owners formal consent is needed for installing a communal faucet on his/herproperty. If the lot owner issues an eviction notice to CWA members, water service through thecommunal faucet will be cut off. The strength of the CWA program lies in its striking a balancebetween providing for the water needs of the informal settlers who are also among the urbanpoor sector of Metropolitan Cebu and recognizing the rights of the private lot owners whoseproperty is occupied by the informal settlers.

11. MCWD estimates that water generation and distribution cost about P8 per m3. Throughits tariff structure for individual connections, MCWD roughly earns P2 per m3 for the first 10 m3

consumed. For the communal faucets, MCWD subsidizes the cost of water for the first 20 m3consumed (at a meter size of 1/2-inch). It only begins to earn a margin (or breaks even at least)from 2130 m3 of water consumed from a communal tap. In meetings with CWAs, three of foursaid that their monthly bills average P2 000 which means that CWA consumes more than


41/51

Appendix 732

COMPLIANCE WITH LOAN COVENANTS

Covenant Status

No rights or obligations under the Relending Agreement will beassigned, amended, abrogated, or waived without the priorconcurrence of the Asian Development Bank (ADB).

Complied with.

Local Water Utilities Administration (LWUA) will ensure thatMetropolitan Cebu Water District (MCWD) does not incur new

debt unless its internal cash generation projected during the termof the debt is at least 1.5 times the projected debt-servicerequirement in such year.

Complied with.

MCWD will carry out annual reviews of level and structures of itswater tariffs and other charges and submit results of such reviewto ADB 1 month after completion of such review for comment.

Complied with.

LWUA will cause MCWD to take all necessary steps to ensurethat MCWDs gross accounts receivable, including provision forbad debts, do not exceed the equivalent of 2 months billing.

Complied with.

LWUA will cause MCWD to take, on a timely basis, all necessarysteps to acquire land and rights to land and water required tocarry out project implementation expeditiously.

Complied with, but not on atimely basis.

LWUA will cause MCWD to take all necessary steps for timely

issuance by appropriate authorities of excavation permits, and forrestoration of public access routes upon completion of works.

Complied with.

LWUA will cause MCWD to increase water supply to those in the Partly complied with.


42/51

Appendix 7 33

Covenant Status

LWUA and MCWD will advise ADB of any proposed change inthe organization of MCWD, including any change that may affectproject implementation and MCWDs operation.

Complied with.

The Borrower will make available to LWUA, as needed, funds,facilities, services, land, and other resources required in additionto the proceeds of the loan, for carrying out the Project.

Complied with.

LWUA will cause MCWD to operate and maintain the projectfacilities upon completion of the Project and will ensure thatMCWD has sufficient technical resources for such purpose.

Complied with.

Beginning 1 year after effective date and continuing until 5 yearsafter project completion, LWUA will submit to ADB annually aproject benefit monitoring and evaluation report.

Project benefit monitoringand evaluation report wasnot prepared. Progressreports include sometechnical and financial

data.

LWUA will cause MCWD to reduce, by 31 December 1993,nonrevenue water to a level of 30% of MCWDs total watersupply.

Nonrevenue wateraccounted for 37% at thetime of the projectcompletion report in 1999and is currently at about34%.


43/51

Appendix 834

PROJECT OUTPUT DATA

1. The project well field has been operating for 5 years and has experienced two dry

periods (including the El Nio in 1998). The Metropolitan Cebu Water District records dailygroundwater extraction, water levels, and rainfall. The graph shows that the water level in theaquifer always recovers quickly after a period of increased rainfall. The conclusion is that thesafe natural yield of the well field is currently at least 23,000 cubic meters (m 3)/day. TheOperations Evaluation Mission is confident that the well field can supply the total dailyproduction of 33,000 m3/day if the infiltration scheme is operational and properly maintained.The infiltration scheme was designed to provide an additional average 20,000 m3/day, but sincethe current sustainable extraction rate is already 23,000 m3/day, the aquifer needs to berecharged by only an average of 10,000 m3/day.

Figure A8: Water Levels and Total Pumping of the Mananga Well Field

10

20

30

40

50

60

70

80

90

100

Rainfall(mm/day)andWaterLevel(MA

SL)

-40,000

-30,000

-20,000

-10,000

0

10,000

20,000

30,000

40,000

50,000

GroundwaterExtrac

tion(m/day)

Groundwater Extraction (m/day)

Average Water Level (MASL)


44/51

Appendix 9 35TARIFF STRUCTURE FOR INDIVIDUAL CONNECTIONS

(P)

Category Appraisal(1990)

MidtermReview(1996)

MCWD(1998)

PCR(1999)

Current Status(2002)

A. Service Charge (P/month) in function of meter size1/2 37.5 86 95 99 1093/4 140 154 161 1761 274 302 314 345

1-1/2 700 772 803 8802 1,738 1,917 1,993 2,1853 3,127 3,585 3,9304 6,353 7,170 7,8606 9,374 10,748 11,7828 15,698

B. Consumption Charge (P/m3) in function of monthly consumption (m

3/month)

010a

1120 4.05 9.52 10.50 10.92 11.97

2130 4.00 11.20 12.35 12.84 14.073140 5.65 30.72 33.87 35.22 38.6141 up 6.65 same same same same

m3 = cubic meter, MCWD = Metropolitan Cebu Water District, PCR = project completion report.a

First 10 m3/month are provided free when the consumer pays a service charge.


45/51

Item

Production (m3) 39,155,829 40,183,807 43,965,516 46,732,410 48,150,827 50,471,311 50,954,692Nonrevenue Water (%) 36.90 36.90 37.44 38.27 37.46 35.48 33.95

Nonrevenue Water (m3) 14,448,501 14,827,825 16,460,689 17,830,025 18,038,346 17,905,340 17,299,250

Total Water Consumed (m3) 24,707,328 25,355,982 27,504,827 28,902,385 30,112,481 32,565,971 33,655,442Total Water Sold 24,490,980 25,147,005 27,241,417 28,816,220 30,023,003 32,371,750 33,502,065Free Water 216,348 216,348 216,348 86,165 89,478 194,221 153,377

Cost of Production (P) 6.24 6.75 7.32 8.45 8.29 9.00 9.23Average Price of Water (P) 17.49 18.23 19.21 20.17 20.05 20.86 21.55Collection Efficiency (%) 72.75 70.83 94.50 94.01 95.00 95.00 94.00

Operating Revenue (P)

Water Sales 412,053,915 442,950,142 506,176,969 547,876,962 582,449,131 654,792,913 700,977,514Other Operating Revenues 5,756,631 8,131,557 11,181,129 13,125,450 14,576,840 14,562,564 15,183,864

Total 417,810,546 451,081,699 517,358,098 561,002,412 597,025,971 669,355,477 716,161,378

Operating Expenses (P)Operation 147,952,856 161,309,041 213,490,704 234,010,716 234,122,775 258,029,710 277,966,680Maintenance 38,660,590 41,630,974 49,416,874 55,407,651 63,378,099 92,710,917 92,634,398Depreciation 62,241,492 66,169,392 63,106,221 114,302,821 115,743,930 117,087,145 116,035,446

Total 248,854,938 269,109,407 326,013,799 403,721,188 413,244,804 467,827,772 486,636,524

Operating Income (P) 168,955,608 181,972,292 191,344,299 157,281,224 183,781,167 201,527,705 229,524,854

Other Income/(expenses) (P)Miscellaneous Nonoperating (net) 3,636,902 7,567,505 (9,254,064) 21,307,396 18,219,323 20,883,116 24,861,037

Income Before Interest Charges (P) 172,592,510 189,539,797 182,090,235 178,588,620 202,000,490 222,410,821 254,385,891

Interest Charges (P) 114,143,158 133,463,179 157,918,977 184,178,443 178,361,543 177,992,259 180,818,843Net Income/(loss) (P) 58,449,352 56,076,618 24,171,258 (5,589,823) 23,638,947 44,418,562 73,567,048

m3 = cubic meter, MCWD = Metropolitan Cebu Water District.

Source: Metropolitan Cebu Water District financial reports.

36

Appendix10

MCWD FINANCIAL STATEMENTS

Table A10.1: Income Statement

1995 1996 1997 1998 1999 2000 2001


46/51

Item

Cash Inflow

Revenue Collection fromWater S ales 397,403,261 436,043,715 492,663,351 537,516,637 600,202,231 651,159,416 685,695,056

Other Revenues 8,837,950 14,408,655 23,079,194 25,008,722 27,458,424 32,916,858 33,114,020Total 406,241,211 450,452,370 515,742,545 562,525,359 627,660,655 684,076,274 718,809,076

Other Cash Receipts 20,573,836 15,924,097 22,674,704 18,806,914 20,695,546 24,022,148 27,659,942Total Cash Inflow 426,815,047 466,376,467 538,417,249 581,332,273 648,356,201 708,098,422 746,469,018

Cash OutflowOperating Cost

Personne l Cos t 118,424,433 139,473,638 161,974,224 188,057,414 190,288,584 215,480,128 225,039,135Chemicals 1,585,084 1,713,544 1,706,386 2,280,731 3,072,800 3,409,241 3,892,612Power for Production 41,776,431 42,314,451 45,030,888 52,727,640 51,001,630 56,875,243 58,838,601Water Cost

Fuel for Maintenance 2,050,849 1,918,306 2,977,465 2,850,974 2,525,080 3,682,070 3,928,952Maintenance Materials 13,606,145 11,093,395 10,746,801 15,593,483 16,333,134 15,744,451 15,131,612

Office Supplies 1,546,511 1,181,461 1,690,438 1,770,256 1,209,347 1,805,635 1,737,359Trainings 352,451 524,143 884,863 1,084,224 1,805,763 1,117,209 2,340,227Other O perating Expens 11,280,142 13,447,679 18,195,522 22,397,787 37,731,246 49,231,884 75,334,218Total 190,622,046 211,666,617 243,206,587 286,762,509 303,967,584 347,345,861 386,242,716

Debt ServiceInterest 113,615,448 137,423,255 160,816,208 189,068,542 179,133,649 185,573,884 180,818,843Principal 5,885,974 6,523,106 6,600,168 12,510,565 15,437,614 19,771,281 25,498,308Total 119,501,422 143,946,361 167,416,376 201,579,107 194,571,263 205,345,165 206,317,151

Balance Before Capital Outlay 116,691,579 110,763,489 127,794,286 92,990,657 149,817,354 155,407,396 153,909,151

Capital OutlayProjects and Equipment 40,554,959 45,725,654 38,943,506 39,566,019 27,452,768 95,158,503 183,272,741Equity 19,653,715 11,247,776 13,790,496 9,294,495

Other Cash Disbursements 6,329,942 43,406,282 35,039,423 28,644,470 10,357,327 54,535,916 28,150,692

Cash I nflow ( Outflow) 50,152,963 10,383,777 40,020,861 15,485,673 112,007,259 5,712,977 (57,514,282)

Cash Balance (Beginning) 8,349,494 58,502,457 68,886,234 108,907,095 124,392,768 236,400,027 242,113,004Cash Balance (End) 58,502,457 68,886,234 108,907,095 124,392,768 236,400,027 242,113,004 184,598,722

Source: Metropolitan Cebu Water District financial reports.

Appendix10

37

Actual

Table A10.2: Cash Flow Statement

1999 2000 20011995 1996 1997 1998

(P)


47/51

Assets

Utility Plant in Service

U ti li ty P lan t i n S er vi ce 1,030, 437,029 1,051,989,401 1,096, 579,204 1,801,055,097 2,049, 951,789 2,103,407,819 2,156, 865,889

Accumulated Pro vision for Depreciation (339,221,251) (403,901,134) (465,699,376) (591,197,267) (706,104,044) (821,286,463) (936,421,516)

To ta l Uti lit y Plan t in S er vi ce 691,215,778 648,088,267 630,879,828 1,209,857,830 1,343, 847,745 1,282,121,356 1,220, 444,373

Land 223,451,296 232,470,162 257,141,940 261,158,541 92,089,554 96,121,520 98,698,722Construction Work in Progress 602,677,384 874,714,567 1,034,586,823 498,414,337 463,083,281 517,384,267 677,445,992

Net Ut il ity P lant in Serv ice 1 ,517,344,458 1 ,755 ,272 ,996 1 ,922,608,591 1 ,969 ,430 ,708 1 ,899,020,580 1 ,895 ,627 ,143 1 ,996,589,087

Current Assets

Cash 58,502,457 68,886,234 108,907,095 143,506,569 216,168,034 243,102,503 187,007,538

Sinking Fund, Total Various Projects 20,046,716 30,718,939 33,875,247 18,773,347 23,537,241 24,912,216

Fund Reserved 0 18,356,895 18,568,140 20,464,938 22,175,480 0 0

Other Cash Items 339,465 192,047 983,325 194,875 15,000 15,000 15,000

Accounts R eceivable-C ustomers 65,759,504 73,932,349 87,770,783 100,295,325 84,841,463 87,377,481 101,723,812

Allowance for B ad Debts (1,315,190) (1,478,647) (1,755,868) (2,008,497) (1,696,614) (1,747,550) (2,034,476)

Materials and Supplies 22,308,248 20,853,815 12,520,017 25,261,044 26,683,113 32,051,567 24,612,187

Interest Receivable 196,396 1,409,442 740,277 895,204 1,079,756 881,309 551,821

Total 165,837,596 212,871,074 261,609,016 307,382,805 349,266,232 385,217,551 336,788,098

Other Debits and Deferred Charges

Special Deposits 10,283,201 14,596,687 14,925,328 13,722,283 13,069,668 11,411,094 10,374,370

Prepayments 0 0 0 0 0 0 2,971,766Accounts Rece ivable-Employees 2,593,775 2,284,818 12,931,888 1,846,312 7,594,860 4,859,297 3,641,074

Accounts Rec eivable-Others 12,255,897 11,209,897 11,783,413 12,131,961 12,186,406 19,083,814 9,768,277

Other Assets and Deferred Charges 3,450,099 3,182,104 2,817,441 3,742,720 3,069,650 3,057,366 2,871,272

Total 28,582,972 31,273,506 42,458,070 31,443,276 35,920,584 38,411,571 29,626,759

Total Assets 1,711,765,026 1,999,417,576 2,226,675,677 2,308,256,789 2,284,207,396 2,319,256,265 2,363,003,944

Capitalization and Liabilities

Capitalization

MCWD Equity 37,579,843 37,579,843 37,579,843 37,579,843 37,579,843 37,579,843 37,579,843

Retained Earnings 7,992,548 60,644,578 80,731,971 46,699,697 84,345,950 135,164,885 188,486,963

Revaluation Increment in Property 575,535,327 575,535,327 575,535,327 575,535,327 575,535,327 575,535,327 575,535,327

Total 621,107,718 673,759,748 693,847,141 659,814,867 697,461,120 748,280,055 801,602,133

Long-Term Debts 940,289,404 1,153,396,720 1,316,196,556 1,423,390,640 1,402,652,258 1,376,386,129 1,352,258,421

Current and Accrued Liabilities

Customer's Deposits 39,896,311 46,842,173 52,074,960 58,102,797 64,122,435 69,418,343 75,177,866Vouchers Payable 6,184,595 14,722,305 6,381,959 51,805,238 1,715,509 719,789 1,652,465

Other Payables 0 0 0 0 14,338,300 13,576,245 14,753,502

Current Portion on Long-Term Debts 6,524,591 6,600,732 7,426,795 12,253,773 13,892,573 21,488,344 23,168,083

Interest Payable 10,378,699 6,543,605 6,662,653 6,573,422 5,630,140 0 0

Accrued Light and Power 4,188,771 4,369,558 4,962,490 5,915,327 5,758,558 8,008,236 8,016,893

Other Current and Accrued Liabilities 47,162,181 49,378,643 92,223,352 63,431,180 52,203,737 63,599,714 68,595,171

Total 114,335,148 128,457,016 169,732,209 198,081,737 157,661,251 176,810,671 191,363,980

Reserves and Other Credits

Revolving Fund from Gas 22,391,639 30,162,975 13,014,767 1,763,302

Reserves 13,641,117 13,641,117 33,885,004 25,206,243 26,432,767 17,779,410 17,779,410

Total 36,032,756 43,804,092 46,899,771 26,969,545 26,432,767 17,779,410 17,779,410

Total Capital ization and Liabili ties 1,711,765,026 1,999,417,576 2,226,675,677 2,308,256,789 2,284,207,396 2,319,256,265 2,363,003,944

MCWD = Metropolitan Cebu Water District.

Source: MCWD financial reports.

2000

38

Appendix10

(P)

2001Item

Table A10.3: Balance Sheet

Actual

1995 1996 1997 1998 1999


48/51

Appendix 11 39FINANCIAL AND ECONOMIC INTERNAL RATES OF RETURN

A. Financial Reevaluation

1. As at appraisal, it was assumed that the life of the Project including implementation andoperation would be 40 years. The water production volumes were based on actual dataavailable for the Project up to September 2002.1 From 2003, the Project was assumed toachieve full capacity (33,000 cubic meters per day) as it is reasonable to expect that the dikethat is currently being constructed will be completed and the infiltration basin can be operationalfrom January 2003. The cost of constructing the infiltration basin was added to the capital cost.The regular operation and maintenance (O&M) costs were obtained from the Metropolitan Cebu

Water District (MCWD) data, which takes into account periodic replacement of pipes. ExtraO&M costs were added for maintaining the infiltration basin. A further 1% increase was added tothe O&M in real terms to cover efforts to reduce nonrevenue water (NRW). It was assumed thatNRW would decline to 30% by 2007. Current prices were converted to constant 2002 pricesusing the consumer price index for the Philippines. Two types of water users were considered:individual connections with higher average tariffs, and communal water associations with lowertariffs. The volume of water used by these consumers was obtained from MCWD data. Tariffrates were held constant in real terms from 2002. The cash-flow analysis shows that thereevaluated financial internal rate of return is 5.7% (Table A11.1), exceeding the weighted

average cost of capital of 3.0 %.


49/51

Year

1992 31.89 31.89 (31.89)

1993 1.75 1.75 (1.75)

1994 38.51 38.51 (38.51)

1995 163.42 163.42 (163.42)

1996 316.11 316.11 (316.11)1997 220.08 66.11 286.19 2.12 0.80 1.30 0.02 19.10 13.08 31.53 (254.66)

1998 82.95 68.60 151.55 6.84 2.61 4.16 0.07 20.17 13.17 100.50 (51.05)

1999 70.19 67.30 137.49 8.59 3.15 5.34 0.10 20.05 13.26 122.63 (14.86)2000 21.86 76.66 98.52 8.65 3.15 5.40 0.10 20.86 13.36 124.48 25.96

2001 20.75 76.90 97.65 9.39 3.28 5.99 0.12 21.55 13.45 135.70 38.05

2002 22.00 87.26 109.26 8.40 2.84 5.44 0.11 22.20 13.54 122.29 13.03

2003 100.35 100.35 12.05 3.99 7.90 0.16 22.20 13.54 177.42 77.07

2004 101.35 101.35 12.05 3.90 7.99 0.16 22.20 13.54 179.49 78.132005 102.37 102.37 12.05 3.81 8.08 0.16 22.20 13.54 181.49 79.12

2006 103.39 103.39 12.05 3.72 8.17 0.16 22.20 13.54 183.49 80.10

2007 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.50 81.08

2008 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.50 81.082009 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.08

2010 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082011 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.08

2012 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082013 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.08

2014 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.08

2015 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.08

2016 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.08

2017 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082018 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.08

2019 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.08

2020 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.08

2021 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082022 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.08

2023 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082024 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.08

2025 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082026 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.08

2027 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.08

2028 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.08

2029 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.082030 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.08

2031 104.42 104.42 12.05 3.63 8.26 0.16 22.20 13.54 185.51 81.08

Total 989.51 3,460.87 4,450.38 393.29 121.92 266.34 5.04 5,996.66 1,546.27

FIRR 5.67%

CWA = communal water association, FIRR = financial internal rate of return, m3

= cubic meter, NRW = nonrevenue water, O&M = operation and maintenance.

Source: Operations Evaluation Mission calculations based on the Metropolitan Cebu Water District data.

40

Appendix11

Water Consumption

Connections CWA

(P million)

O&M

Cost

(P million)

Capital

Cost

(P million)

Incremental

Production

(million m3)

Total

Cost CWA

(P/m3)

NRW

(million m3) (million m

3) (million m

3) (P million)

Net

Cash Flow

Table A11.1: Financial Internal Rate of Return

Average Water Tariff Total

Revenue

(P million)

Connections

(P/m3)


50/51

Appendix 11 41

B. Economic Reevaluation

2. Economic costs and benefits were estimated in constant 2002 prices, and the domesticprice numeraire was used. The financial costs were converted to economic costs, excludingtaxes and duties and using shadow prices for unskilled labor and tradables. Water consumptionwas separated into three categories: nonincremental usage, incremental usage, and NRWusage.2 While NRW information was obtained from MCWD data, nonincremental usage wasassumed to be 20 liters per day per person who does not have a connection or access to acommunal faucet. Incremental consumption was estimated deducting the nonincremental fromMCWDs estimate of average consumption per person with an individual connection (180 liters

per day).The Operations Evaluation Mission did a rapid assessment survey to get informationabout the cost of alternative sources and value of benefits. The nonincremental water usagebenefits were calculated by considering four types of sources used previously. It was assumedthat 10% of the customers had obtained water from far away sources and the time saving fromswitching to MCWD was valued at the rate of wages for unskilled labor. Fifteen percent wereassumed to have replaced quantities previously bought from vendors and the associated costsavings were considered. A majority of 50% were assumed to have switched from the use ofprivate wells of their own or that belonging to their neighbors, and the cost of using the privatewells was considered. The rest of 25% were assumed to have bought water from neighbors,

and the cost savings of switching from the neighbors to MCWD were considered. Incrementalwater usage was valued at willingness to pay based on the differential between current tariff andwhat the neighbors would charge. For individual connections, 25% of the differential was addedto the existing tariff to obtain the willingness to pay. For the communal water associations,20% of the differential was added to the existing tariff. It was assumed that 25% of NRW wasconsumed and was valued as the same rate as the individual connections, while the other 75%was assumed wasted due to leakages. Since health data was not collected for projectmonitoring, health benefits were not considered. Part of these benefits may be captured in the

data on willingness to pay. On those assumptions, the recalculated economic internal rate ofreturn is 14.3%. The detailed calculations are in Table A11.2.


51/51

Year

1992 28.91 28.91 (28.91)1993 1.58 1.58 (1.58)

1994 34.91 34.91 (34.91)1995 148.14 148.14 (148.14)1996 286.56 286.56 (286.56)1997 199.51 59.50 259.00 0.00 0.80 0.14 0.02 1.16 0.01 0.20 3.70 37.20 40.90 (218.11)

1998 75.20 61.74 136.94 6.84 2.61 0.45 0.05 3.70 0.02 0.65 11.34 126.22 137.56 0.621999 63.63 60.57 124.20 8.59 3.15 0.58 0.07 4.76 0.03 0.79 14.74 158.76 173.50 49.302000 19.82 68.99 88.81 8.65 3.15 0.60 0.07 4.80 0.03 0.79 14.71 166.14 180.85 92.042001 18.81 69.21 88.02 9.39 3.28 0.67 0.08 5.33 0.04 0.82 15.98 187.76 203.74 115.72

2002 19.94 78.53 98.48 8.40 2.84 0.60 0.07 4.84 0.04 0.71 14.13 173.70 187.83 89.352003 90.31 90.31 12.05 3.99 0.88 0.10 7.02 0.05 1.00 20.44 250.21 270.65 180.332004 91.22 91.22 12.05 3.90 0.88 0.10 7.11 0.05 0.97 20.44 251.49 271.93 180.722005 92.13 92.13 12.05 3.81 0.88 0.10 7.20 0.05 0.95 20.44 252.74 273.18 181.05

2006 93.05 93.05 12.05 3.72 0.88 0.10 7.29 0.05 0.93 20.4