CIRCULATING COPY

FILE COPY Document of TO BE RETURNED TO REPORTS DESS" ~~~~~~~~Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. P-1762-MA

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO

MALAYSIA

FOR THE KUALA LUMPUR

SEWERAGE PROJECT

February 12, 1976

This document has a restricted distribution and may be used by recipients only In the performance oftheir official duties. Its contents may not otherwise be disclosed without World Dank authorization.

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KUALA LUMFUR SEWERAGE PROJIET

CURRENCY EQUIVALENTS

Currency Unit = Malaysian Dollar (M$)M$ 1.00 = 100 centsUS$1.00 = M$ 2.50 a/M$ 1.00 = us$o.40M$ 1 million = US$400,000

MEASURES AND EQUIVALENTS

1 mm = 1 millimeter = 0.o4 inches (in)1 m = 1 meter = 3.28 feet (ft)1 km - 1 kilometer = 0.62 miles (mi)mg/l milligram per liter1 kg 1 kilogram = 2.2 pounds (lbs)1 ha = 1 hectare = 2.47 acres (ac)1 Ig = 1 Imperial gallon = 1.2 US gallons or 4.55 litersIgd = Imperial gallon per dayIMg m millimi Imperial gallonIMgd = million Imperial gallon per daysec = second

FISCAL YELR

January 1 -December 31

a/ From June 1973, the Malaysian dollar has floated inrelation to the US dollar. The rate shown is the rateof July 1975 and has been used throughout this report.

FOR OFFICIAL USE ONLY

REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN

TO MALAYSIAFOR THE KUALA LUMPUR SEWERAGE PROJECT

1. I submit the following report and recommendation on a proposed loanto Malaysia for the equivalent of USS21.5 million to help finanee a sewerageproject for the City of Kuala Lumpur. The loan will have a term of 21 years,including a grace period of 6 years, with interest at 8-1/2 percent per annum.The proceeds of the loan will be relent to the City of Kuala Lumpur on thesame termso

PART I - THE ECONOMY

2. The latest economic report (No. 653-MA) was circulated to theExecutive Directors in March 1975. The population of Malaysia in 1974was about 12 million, growing at a rate of 2.7 percent per annum. Detailedcountry data are shown in Annex I.

3. With a per capita GNP of US$490 (1973), Malaysia is one of themost prosperous developing countries in Southeast Asia. The economy hasmaintained fairly high rates of real growth, with the GNP growing at anaverage of about 6 percent a year during the last decade. However, GNPreal growth was only abotit 1 percent in 1975 as a result of the worlddepression and falling commodity prices. Because of changes in the termsof trade, real national Lncome growth slowed down even more or became nega-tive in 1975 after having achieved 6 percent in 1974 and an exceptionallyhigh rate of 17 percent :Ln 1973. The balance of payments still showed asurplus in 1975, with the value of both exports and imports at a lower level.Malaysia's external reserves were about US$1.49 billion at the end ofSeptember 1975, which equals about five months of net imports at presentlevels.

4. Rubber continues to be the main pillar of the Malaysian economy,contributing almost 30 percent of export earnings and about 15 percent of GDP,but continuous progress Ls being made in reducing the dependence on rubberexports through diversifLcation of exports to timber, tin, palm oil andpetroleum products. In 1973 Malaysia's production of crude petroleum wasabout 90,000 barrels per day. In a few years, production is expected toincrease about four-fold. In 1973 Malaysia became a net exporter of petroleumproducts and, as productlon increases, petroleum will soon become an importantforeign exchange earner. Substantial reserves of natural gas are also avail-able and by the early 19130's Malaysia is expected to start exporting significantquantities of liquefied natural gas, further strengthening the country'sbalance of payments position.

5. Malaysia's conservative fiscal and monetary management has consid-erably enhanced the country's financial standing. Public sector revenueshave been growing rapidly, mainly as a result of vigorous taxation efforts,and the ratio of total government revenue to GNP is now about 24 percent.Conservative financial policies are also reflected in the relatively lowlevel of external public debt and the very low ratio of debt service pay-ments to exports.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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6. Recently, inflation has been a concern. After a decade of remark-able price stability (with consumer prices rising on an average of only 1 per-

cent per annum), domestic prices began to show a noticeable upward trend in1973. Average consumer prices in 1972 were 3.2 percent higher than in 1971but they increased 10.5 percent in 1973. In 1974 prices rose another 18percent, but price rises slowed down in 1975 to about 6 percent. Price pres-sures have been the result principally of movements in world prices. How-ever, Malaysia has not been adversely affected by the higher price of petro-leum. On the contrary, Malaysia should benefit from it in the long term.

7. During the last several years, the Government's long-term planninghas concentrated on reducing the economic disparity between the Malays, whoaccount for a little over half the population, and non-Malays of whom about70 percent are Chinese. Over the next 20 years the Government aims to eradi-cate poverty and to restructure society so that the present identification ofrace with economic activity will be eliminated. The basic outlines of theNew Economic Policy, announced in June 1971, allow for continued growth foreach of the principal ethnic groups while enlarging economic opportunitiesfor Malays.

8. Both the Second Malaysia Plan (1971-75) and the Third MalaysiaPlan (1976-80), which is expected to be reviewed by Parliament in April 1976,follow closely New Economic Policy objectives and indicate the Government'sdetermination to step up the development effort in the public sector. Duringthe Second Malaysia Plan, total public sector development expenditures amountedto about US$3.9 billion of which 50 percent was financed by net domesticborrowing and 16 percent by net foreign borrowing. The balance was financedlargely by public savings. The Bank has provided about 32 percent of foreignproject loan commitments; loans from the Asian Development Bank and bilateralaid, mainly from the United Kingdom, other Commonwealth countries, the FederalRepublic of Germany and Japan, provided the rest. For the next five yearsdisbursements of over US$1.5 billion of medium- and long-term loans fromabroad are likely to be required to permit the level of public investment planned.

9. To support this inflow, new foreign loan commitments of approxi-mately US$2.7 billion will be required over the five year period. Projectloans from multilateral sources, IBRD and ADB, are not expected to decrease;bilateral assistance from sources such as Japan and market borrowing arelikely to be higher. The Government has also made initial contacts with anumber of OPEC member countries and the first aid commitments have alreadybeen obtained.

10. Malaysia's development program will continue to require resourcesin excess of the foreign capital which will become available for financingthe import component of foreign financed development projects. The Bankplans, therefore, to cover a portion of local costs in agriculture and inother sectors where the foreign exchange component of projects is small.

11. Debt service obligations at present are about 2.5 percent ofexports of goods and norn-factor services and are estimated to rise to over5 percent during the late 1970s. This level is still well within Malaysia'sdebt servicing capacity. The Bank's share in Malaysia's debt service pay-ments is 22 percent and is expected to be about 23 percent by the end of1978.

PART II - BANK GROUP OPERATIONS IN MALAYSIA

12. The Bank has made 30 loans to Malaysia for projects in education,population, agriculture, forestry, industrial finance, power, water supply,telecommunications, ports, railways, roads and urban transport. Althoughin a few cases disbursements were slow, the execution of these projectshas generally been satisfactory. As of December 31, 1975, the loans toMalaysia held by the Ban,k amounted to US$557.0 million. In addition, theBank made a loan in 1965 to the Public Utilities Board, Singapore (Loan405-MA), guaranteed by Malaysia, to finance the Johore River Project. Theamount held by the Bank under that loan as of December 31, 1975 was US$4.6million. Eleven loans are fully disbursed. Annex II contains a summarystatement of Bank loans and IFC investments, and notes on the execution ofon-going projects.

13. Bank assistance to Malaysia is in line with the country's NewEconomic Policy, which aims at eliminating imbalances in income distribu-tion. The Bank will therefore continue to support Malaysia's agriculturalprograms, including land development and settlement, and improvement ofproduction and employment in existing low income farming areas, which areeffective means to reduce unemployment and income imbalances. The Bankwill continue also to assist in the financing of infrastructure development,including urban development and housing for the urban poor. The Bank hashelped the Government to prepare projects either in the course of its lend-ing operations or through its sector work. The Bank has also helped tostrengthen public agencies responsible for carrying out important parts ofMalaysia's investment program. The Bank will continue this-policy, whichwill be reflected in the loans to be presented to the Executive Directorsin the next year or so. These loans would be for projects involving agri-cultural extension, irrigation and rural development, including assistanceto rubber smallholders and new land settlement, development finance companies,education, highway transport and other infrastructure development.

14. At present the Bank is also assisting in the preparation of theThird Malaysia Plan (1976-80), both in the preparation of sector programsand in the review of overall economic objectives and policies.

15. IFC has been active in Malaysia since 1963 and has made fiveinvestments totalling US$8.69 million (Annex II). The total commitmentsunder those investments held by IFC as of December 31, 1975, amounted toUS$1.8 million. IFC is at present considering an investment in a textileproject.

PART III - MALAYSIA'S WATER SUPPLY AND SEWERAGE SECTOR

16. Over 50 percent of the population of Malaysia is served with pipedwater supply. In West Malaysia and in Sabah State, water systems generallyprovide service on a regional basis rather than to just a single community.These systems, which serve almost all urban areas and adjacent towns andvillages, have enabled rural communities to benefit from water systems theyotherwise would be unable to support. Metered deliveries generally are pro-vided to individual dwelling units, and public standposts represent a rela-tively small proportion of the total number of connections. In Sarawak State,where some 80 percent of the population live in small communities with poorcommunications, water supply systems serve individual communities.

17. The revised Second Malaysia Plan (1971-75) included M$334 millionfor water supply projects to meet the growing demands of principal urbanareas, to provide water to settlers under its land settlement schemes, andto serve a larger portion of the population. Financing for water supplyprojects has come from Federal Government loans and budgetary allocationsand, for the more developed areas, from state and local sources. Interna-tional financing has been used only for large-scale projects: two Bankloans for the Kuala Lumpur Water Supply Projects (Loans 561-MA and 908-MA)and four Asian Development Bank loans for urbar water supply projects inboth Peninsular and East Malaysia.

18. Few satisfactory sewer systems exist in Malaysia. According tothe 1970 Census, only 20.6 percent of the population was provided with flushsystems discharging either to communal or municipal sewers or, alternatively,to individual disposal systems. Remaining population was served by bucket(night soil) collection, pit latrines or open drains. In the urban areas onlythe cities of Kuala Lumpur and Georgetown (Penang State) have sewers; a totalof 350,000 people, or 9 percent of the 1970 urban population (3.7 million)benefited from this service. The Second Malaysia Plan allocated M$23 millionto sewer systems, or only 7 percent of the water supply allocation. Waste-water flows have increased with the increase in piped water supply systemsbut facilities for collection, treatment and safe disposal have not kept pace.Because of this lag, a team of experts under the IBRD/World Health Organi-zation Cooperative Program will survey the country in early 1976 with theobjective of identifying constraints and promoting development in theurban waste water subsector.

19. Many of Malaysia's principal streams are polluted, although condi-tions are mitigated by frequent and substantial rainfall. Domestic wastesrepresent only part of the problem; land development, industry and miningoperations are also major contributors to water pollution. At present,water pollution cortrol is handled on an ad hoc basis with solutions attemptedonly after a problem has arisen and been recognized as a nuisance or hazard.Long range planning and policies in this field have not been formulated,though the Environmental Quality Act of 1974 is an important first step.That Act provides general powers to control pollution of Malaysia's land, air

and water resources. The urban waste water survey, referred to above, wouldalso examine environmental, technical, institutional and financial problemsassociated with liquid waste.

20. The concept of beneficiaries paying for water service through anadequate tariff is well established in Malaysia, and water tariffs generallyare sufficient to meet operating costs and debt service and yield a smallsurplus. Billing and collection procedures are generally good. Expendituresfor sewerage service are met principally from general tax assessments oflocal governments.

Sector Organization

21. Water supply is the responsibility of the individual state govern-ments and is usually handled by the public works departments (PWD) of thestate. The Water Supply Branch of the Federal PWD provides technical adviceand support to the statesi on a limited scale. The Rural Environmental Sani-tation Program of the Federal Government advises on water supply and wastedisposal in rmral areas and is managed by the Environmental Health Engineer-ing Unit (EHE) of the Ministry of Health.

22. There are two principal organizations at the national level respon-sible for environmental sanitation and water pollution control. The Depart-ment of the Environment (DOE) of the Ministry of Local Government and Environ-ment administers and enforces the Environmental Quality Act of 1974 and helpslocal agencies in sewerage, drainage, solid waste management and housingdevelopment. The EHE Un:Lt of the Ministry of Health is responsible foridentifying urban sewerage, drainage and solid waste disposal needs, monitor-ing environmental quality, and providing technical support to DOE and statewater pollution control boards. EHE prompted formulation of the EnvironmentalQuality Act and promoted studies for sewerage in Kuala Lumpur and eight otherurban areas.

23. Water supply to Kuala Lumpur is provided by the Water Division ofSelangor State, the State which encircles the city. The water system servesabout 1,000,000 persons in the Federal Territory and adjacent State areasthrough 100,000 connections, all of which are metered. Bank loans 561-MA(1968) and 908-MA (1973) are helping finance the expansion of this systemand it is expected that when the second project is complete the system willserve some 1.5 million persons. The performance of the Water Division inoperations and in project implementation has been good. The State, throughits Development Corporation, Public Works Department and local town boards,also administers some-rudimentary wastewater systems. But the major sewersystem in the region serves and is owned by the City of Kuala Lumpur.

24. The City's sanitary sewerage system dates back to 1953 and providesservice to approximately 200,000 persons or 25 percent of the population. Itserves the central city and two smaller outlying areas. Facilities consistof about 80 miles of sewers, a raw sewerage lift station, three treatmentplants and gravity outfalls to the Klang river system. In addition, the

City provides service to about 5,000 persons in low income areas adjacentto the Federal Territory through small communal facilities. The EngineeringDepartment of the City has been responsible for these works and has operatedand maintained the system well. However, due to staff shortages it must relyupon engineering consultants to plan, design and supervise the constructionof major projects. Because of limited revenues and inadequate capital funding,the City has not expanded its sewerage system to match the rate of urbandevelopment.

25. In 1975 the consulting association of D. Balfour & Sons (UK) andMalaysian International Consultants, completed a Sewerage Master Planfinanced by the UK that identifies a staged program of sewerage developmentthrough the year 2005 to meet the needs of Kuala Lumpur and environs. Thestudy area included the Federal Territory plus substantial adjacent portionsof Selangor State (see map 11643). The Master Plan recognized that a singlesewerage authority ultimately should have jurisdiction over the study area.Because of possible administrative and political difficulties, it wasdecided that the City and the various State agencies should continue toprovide sewerage service within their respective boundaries, though aregional sewerage authority remains an objective.

PART IV - THE PROJECT

26. The project is the first stage of a long-range sewerage developmentplan for Kuala Lumpur and environs. It would be carried out by a newlycreated Sewerage Department (SD) of the City. Construction is scheduled forthe period 1976-80.

Project Descr rition

27. In addition to expanding facilities in the existing sewerage zone,the project would provide service to three newly created zones. Physicalwork consists of:

(i) about 52 miles of lateral sewers varying in size from 9to 15 inches;

(ii) about 16 miles of trunk sewers ranging in size from 15to 60 inches;

(iii) improvements to an existing sewage treatment plant;

(iv) construction of four new pumping stations; and

(v) construction of three new sewage treatment facilities.

The treatment units, consisting of sewage lagoons, can be readily and inex-pensively upgraded to handle future increases in biologic and hydraulic load-ing resulting from population and industrial growth. An additional 15 miles

of lateral sewers would be added to the City's system by land developers butthese are not included in the project.

Implementation

28. As mentioned in paragraph 24, the Engineering Department of theCity of Kuala Lumpur has been responsible for the sewerage system. In addition,there is the Urban Services Department of the City administration, which hasand will continue to have the responsibility of collecting night soil. Whilethe Engineering Department has had considerable experience over the past 20years in operating a sewerage system, its goal of extending the service tothe entire City has bee3n constrained. There have been shortages of funds forextension of the system, as well as problems of staffing, primarily becauseof shortages of engineers and technicians. The sewerage system of KualaLumpur has now expanded to such an extent that the establishment of aseparate department is well justified. The Department will be responsible,inter alia, for the implementation of the proposed project.

29. SD will assu1ne responsibility for all aspects of sewerage design,construction and operation within the Federal Territory. Its principalresponsibilities will be (a) participation in the planning of urban develop-ment as related to sewerage facilities; (b) development of sewerage projectsfor financing and construction; (c) design of sewerage systems by departmentalstaff or consultants; (d) construction of sewerage systems by force accountor contract; (e) operation and maintenance of the sewerage systems; and (f)the administration of matters relating to effluent disposal, including thecontrol of industrial wastewaters, the servicing of septic tanks and the dis-posal of night soil.

30. SD will be under the general direction of the Mayor, who will beassisted by the City's Director General and the Chief Engineer of SD informulating the general policies for development and operation of SD. TheMayor has appointed the Chief Engineer who, as the head of SD, will be res-ponsible for formulation and implementation of policies and for day-to-daycontrol of operations. SD will be restricted to sewerage, but will do a smallamount of drainage work until a separate drainage unit is established, inabout two years. SD's staffing plan is satisfactory. SD will formulate andinitiate a training program for staff not later than January 1, 1977 (Section3.05 (a) of the draft Project Agreement).

31. It is anticipated that up to 600 families would have to beresettled from lands required for severage purposes under the Master Plan.Provision has been made under the proposed Second Kuala Lumpur Urban Trans-port Project to provide financial and technical assistance to develop sitesand services, and housing, for displaced families. The City will relocatepersons occupying land, either as squatters or owners, in a socially accept-able manner and in adetquate time to avoid delays in project implementation(Section 2.08 of the draft Project Agreement).

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Project Costs and Financing

32. Total cost of the project is estimated at about US$60.5 millionequivalent, with a foreign exchange component of about US$11.8 millionequivalent, less than 20Z of total cost. The estimated costs include aphysical contingency of 10 percent on all items, excluding land, and pricecontingencies ranging between 14 percent in 1976 and 10 percent in 1980 forcivil works and between 10 percent in 1976 and 7 percent in 1980 for equip-ment.

33. The proposed loan of US$21.5 million accounts for about 36 percentof the total project cost. It would finance the total estimated foreignexchange cost of US$11.8 million and US$9.7 million of local cost. Bankfinancing of some local cost is justified in Malaysia, as noted in paragraph10. The balance of project costs would be covered through loans from theGovernment (repayable in 36 years, including 6 years of grace, with interestat 6 percent) and from SD's cash generation.

Procurement and Disbursement

34. All construction and supply contracts will be awarded after inter-national competitive bidding in accordance with the Bank's guidelines. Localcontractors are expected to win all construction contracts, and local manu-facturers are expected to furnish most, if not all, of the sewer pipes requiredin the project. Major mechanical and electrical equipment required for thepumping station and the treatment plant are not manufactured locally and willbe procured from abroad. Local manufacturers would be allowed a 15 percentmargin of preference or the customs duty, whichever is less.

35. Disbursements from the proposed loan would be made against 42percent of project expenditures, excluding land. If there are any costsavings, the unused balance would be disbursed against continued expansionof the sewerage system in the Federal Territory, subject, however, to ade-quate justification. Since some expenditures for consultants' services arelikely to occur before the proposed loan is signed, retroactive financingfor these services of up to about US$30,000 is proposed.

Accounting

36. Accounts for sewerage services have not been thus far separated fromthe City's general accounts and, like other Government accounts, they havebeen kept on a cash receipts and disbursements basis. This system does notprovide adequate information for determining the costs of the services orfor financial evaluation and control of the operations. Agreement wastherefore reached that SD will operate as a self-accounting department witha commercial accounting system and with a separate bank account into whichits revenues will be deposited and from which its expenditures will be paid.This will permit the preparation of separate financial statements for SDand will provide the basis for effective evaluation and sound financialplanning and management (Section 3.01 of the draft Project Agreement).

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Billing and Collection

37. Sewerage servi.ces have so far been solely dependent on allocationsfrom the City's area tax assessments. Therefore, there has been no separatebilling system for these services. However, the Government has now decidedthat the City should raise a substantial part of its expenditures for sewer-age through fees to be collected as a surcharge on water bills. The billingand collection services will be provided by the Water Division (WD) of theState of Selangor for a fee (Section 4.06 of the draft Loan Agreement).WD has an effective billing and collection system for water supply, and itsdelinquent accounts are insignificant.

Financial Position

38. The City will introduce sewage fees and allocate to SD a portionof the Federal TerritoryP area tax, which together will provide net internalcash generation sufficient to cover annual debt service at least 1.2 times,and by 1979 will produce a reasonable annual return on the value of netfixed assets in service. Government and the City will complete a study, inconsultation with the Bank, before the end of 1978 to determine the appro-priate rate of return and any further revision of sewage fees or the areatax allocation required to achieve it. The annual rate of return should, inany event, be not less than 7 percent. The initial area tax assessment willaverage at least two percent of annual value, and the initial seweragecharges will average at least M$0.60 per 1,000 Ig of water consumed (Section4.04 of the draft Project Agreement). The tax assessment and seweragecharges have accrued to the benefit of SD from January 1, 1976.

Environmental Aspects

39. By extending sewerage service to populations now relying upon nightsoil collection and sullage drains, the project will reduce health hazardsand improve the urban environment. The project will also help keep organicpollution of the Klang River and its tributaries from exceeding present levelsdespite steadily increasing quantities of domestic and industrial wastes.Although downstream use of the Klang as a water source is limited, the pro-ject would reduce downstream water treatment problems and costs and wouldimprove the overall aesthetics of the river and the recipient environment.To help ensure the compatibility of construction programs and the uniformityof pollution abatement measures, an intra-governmental coordinating committeecomprising sewerage and pollution control agencies has been established(Section 4.03 of the draft Loan Agreement).

40. Pollution by industry, land development and mining operations, bothwithin and outside the Federal Territory, is a continuing problem in theKlang Valley. Present pollution control laws are adequate but their enforce-ment needs to be strengthened. In order to promote equitable and economicuse of the project facilities and the surface waters which will receive thetreated wastes, the Government will prepare by July 1, 1977, a program

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for the enforcement of pollution control legislation as they relate to thequality of surface and ground waters in the Klang Valley (Section 4.02 ofthe draft Loan Agreement).

Future Development

41. A program that would provide for continued expansion of seweragesystems within the Federal Territory and also provide for the extension ofpublic sewers to adjacent developed areas of Selangor State has been identi-fied by the consultants as part of the sewerage Master Plan for Kuala Lumpurand environs. Construction of Stage 2 facilities is planned for the period1981-85 and later improvements for the period 1986-2005.

42. Although investments in excess of M$200 million are proposed byvarious Governmental agencies in the near term for sewerage, drainage, roadsand transport in the Kuala Lumpur area, spatial development planning is in-complete and zoning regulations are only partly enforced. The Governmenthas initiated a review of the planning issues in Kuala Lumpur with theassistance of a consultant, financed by UNDP. A program to continue thiswork and to prepare development plans for the Federal Territory was adopted(Section 4.05 of the draft Loan Agreement). It includes the following mainsteps:

(a) The Government will, together with the City G nvermseut, byJuly 1, 1976 establish an inter-governmental task force tocarry out development policy analysis, broad spatial plan-ning, capital programming and project reviews in the FederalTerritory. The task force will be provided with the neces-sary technical staff, and with technical assistance, whichthe Government is expected to obtain through M1DP;

(b) The Government will by September 1, 1976, in consultationwith the Bank, prepare a detailed two-year work programfor the task force, including terms of reference for thetechnical assistance;

(c) The Government will prepare recommendations on an insti-tutional framework and processes suitable over the longerterm for the continuation of the task force's work andfor decision-making. One proposal which will be furtherinvestigated is to transform the task force into a per-manent technical unit attached to the Land ExecutiveCommittee and to expand the powers of the Committee toinclude policy making, broad spatial planning, capitalprogramming and project sanctioning; and

(d) The task force, or the long-term institutional frameworkreferred to in (c), will by January 1, 1978 prepare aten-year spatial development plan and a five-year capitalbudget for the Federal Territory.

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In implementing the above program, particular attention will be paid to theneed to integrate the work with that of a strengthened City administration.There would, however, be a shift away from the present emphasis on staticand restrictive land use planning, or zoning, towards a more comprehensiveand continuous planning process that would focus on development policies,socio-economic objectives, and resource constraints. The development planswould be closely linked to the national five-year plans, and the firstdevelopment plan would be prepared in time for the Government's Mid-termReview of The Third Malaysia Plan, in mid-1978.

Justification

43. The population of Kuala Lumpur, currently 780,000, is growing at arate of 3.7 percent annually compared with the national growth rate of 2.7percent. The average monthly household income was about US$395 in 1975,about 20 percent above the average urban income and about 90 percent abovethe national average.

44. Water consumiption and liquid waste production are increasing atabout double the population rate. Water production capacity for the KualaLumpur region is being enlarged under two Bank-financed water supply projects(referred to earlier) to meet water supply needs through 1981. However,the volume of liquid waste in the areas to be served under the project hasreached levels which are clearly beyond the handling capacity of rudimentaryseptic tank or night tioil systems.

45. The project is a logical continuation of the sewerage constructionprogram undertaken by the City and financed by Government since 1953. As aresult of the project,, the population provided with sewerage service woulddouble from about 200,000 in 1975 to 400,000 in 1981 and the percentageof the whole population of the Federal Territory receiving sewerage servicewould increase from the present 25 percent to about 45 percent in 1981. Theproject represents the least cost piped sewage collection and disposalsystem for the areas i:o be served, and would (i) maximize the use of theexisting sewerage sysl:em; (ii) reduce dependency upon night soil collectionand septic tanks in developed areas; (iii) eliminate the need for ownerconstructed septic tauks and other disposal methods in areas presently underdevelopment; and (iv) help stabilize the level of pollution in receivingwater-courses through simple, effective sewage treatment processes.

46. Measurable benefits of sewerage projects are difficult to quantifybecause the supporting assumptions are necessarily speculative, hence thejustification for this project is essentially qualitative. Nevertheless,it is known that the project will effect cost savings in terms of (i) reducedexpenditures for construction and maintenance of septic tanks and for nightsoil collection; and (ii) reduced medical costs and reduced loss of incomedue to sickness related to poor sanitary facilities. Furthermore, the impacton aesthetics and consumer convenience is far superior to the alternativeof septic tanks. Benefits will also arise from the development of a satis-factory institution to operate the facilities provided by the project andto carry out its objectives.

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PART V - LEGAL INSTRUMENTS AND AUTHORITY

47. The draft Loan Agreement between Malaysia and the Bank, the draftProject Agreement between the Bank and the City of Kuala Lumpur, the Reportof the Committee provided for in Article III, Section 4(iii) of the Articlesof Agreement and the text of a resolution approving the proposed loan arebeing distributed to the Executive Directors separately.

48. Features of special interest in the Loan and Project Agreementsare described in paragraphs 30, 31, 36, 37, 38, 39, 40 and 42 of this report.

49. I am satisfied that the proposed loan would comply with theArticles of Agreement of the Bank.

PART VI - RECOM*ENDATION

50. I recommend that the Executive Directors approve the proposedloan.

Robert S. McNamaraPresident

Washington, D.C.February 12, 1976

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ECONOMIC INDICATORS

GROSS NATIONAL PRODUCT IN 1974 ANNUAL RATE OF GROWTR (%. constant prices)

US$ mxin. % 196D-65 1965 -70 1974

ON? at Market Prices 8,151 100.0 6.9 5.6 6.3Gross Domestic Investment 1,661 20.3 9.4 7.7 3.4Gross National Saving 1,223 1.'0' L1.8 7.9 5.4Current Account Balance -438 -5.4Exports of Ooods, NFS 4,329 53.1 4.1 6.5 2.0Imports of Goods, NFS 4,662 57.2 3.3 5.7 7.0

OUTPUT, LABOR FORCE ANDPRODUCTIVITY IN 1970

Value Added Labor Force V. A. Per Worker

Agriculture 823 29.7 1.5 46.9 549 54.4Industry 760 27.5 0.5 15.6 1,520 149.5Services 1,184 42.8 1.0 31.3 1,184 16.4Unallocated

Total/Average . ._.._2,767 ioo.o 3TI7 100.0

OVER T FINANCE--Genral G mw m cnt Central Government

kwt &Cn.J OfDIP MP X1D-J S of -GDLM1 V^ 1 &7 1972-74 I 174 _y 1974 19fc7

Current Receipts 5,159 30.3 29.9 4,402 25.9 25.0Current Expenditure 4.4 1 6 -26.2 27 7 a 2 7Current Surplus 7743 4.4 2.2 6614 3.9 1.3Capital Expenditures 1,803 10.6 10.8 1,578 9.3 9.2External Assistance (net) 271 1.6 1.4 10 0.0 1.5

MOT,Y CREDIT and PRICBSS6 196 mu 15P 19 21hC I I R S61 n outstanding end period

Money and Quasi Money 3,724 4,130 4,666 5,771 7,574 8,729Bank credit to Public Sector 909 833 1,045 1,186 1,375 1,746Bank Credit to Private Sector 1,841 2,246 2,572 3,014 4,586 5,278

(Percentagps or Index Numbers)

Money and Quasi Noney as % of GD? 33.1 35.0 37.8 43.7 46.1 43.2Oeneral Price Index (1963 - 100) 92.3 100.0 101.6 104.8 115.9 136.0

Annual percentage changes in*General Price Index -0.4 1.9 1.6 3.2 +10.5 17.3Bank credit to Public Sector 6.4 -8.4 25.5 13.5 15.9 27.0Bank credit to Private Sector 9.0 21.9 14.6 17.2 52.2 15.1

NOTE: All conversions to dollars in this table are at tne average exohange rate prevailing during the periodcovered.

_V Total labor force; uneaployed are allocated to sector of their normal occupation. 'Unallocated" cornistsmainly of unemployed morkerwaseeking their first job.

a/ Latest estimate .. not availablenxot applicable

February 2, 1976

ANNEX IPage 3 of 3 pages

TRWAB PADMSNt AND CAPITAL FLDlB

BALANCE OF PAYMENTS MERCHANDISE EXPORTS CAVERAGE 1972-7h1)

19 197a/ 1974a/ US $ Mln %(}lillions 'Us)

Exports of Goods, NFS 1,816 3,178 4,476Imports of Goods, NFS 1. 8 8L 2,604 4.L 12Resource Gap (deficit G) -7:L 574 U3 Rubber 898 31.2

Tin )428 1)4.8Interest Payments (net) -2.3 -35) Timber 491 17.0Workers' Remittances *- .. ) -250 palm Oil 749 8.6Other Factor Payments (net) -87 -234) patroleum 168 5.8Net Transfers .-6 k4 All other commodities ;R) (RBalance on Current Account -231 2Lf2 -3°0 Total 2,882 100,0

Direct Foreign Investment 64 85 375 EXTERNAL DEBT. DECEMBER 31. 1971jNet MLT Borrowing

Disbursements 13S LL7 149Amortization 2i 6 } S$ lSubtotal It Ai 1 Public Debt, incl. guaranteed 733.3

Capital Grants 23 12 15 Non-Guaranteed Private DebtOther Capital (net) Total outstanding 6 DisbursedOther items n.e.i 92) -15) TbIncrease in Reserves (+) 55 208 188 DEBT SERVICE RATIO for 1974-'

Gross Reserves (end year) 1,029 1,388 1,624 ZNet Reserves (end year) 1,027 1,383 1,622 Public Debt. incl. guaranteed 2.3

Non-Guaranteed Private DebtFuel and Related Materials Total outstanding 6 Disbursed

Imports 1,717 2,498of which: Petrolenn 162 llL

Exports 1,6 46 3,034 4,244of which: Petrolerm 1e5 LLO 281 IBRD/IDA LENDING. December 11. 1975 (MILLION U,$)1

RATE OF EXCHANGIE IBRD IDA

Throueh 1971 June 21, 1973 - ay 31, 1941 Outatending & Disbursed 270.7US$1.00 = M$3.06 US o.0O0 M$2.40 tti8bureed2

M$1.00 - US$0.33 M$1.00 GUS$0.42 Outstanding incl. Undisbursed 557.0

1972-Fe~bru8 13. 1973 June, 1, 1971 - JuL 31, I5U M22 M $2.82 .oo0 - $2.30

M$1.00 = US$0.35 M$1.oo - Us$0.43

February 13 - June 21. 1973 A $2 50US$1.00 - M$2.54 US 00 - M .

M$1.00 = US$0.39 M$1U.= = US$.I4O

a/ Exchange rates used: 1972, US$1.00 - N$2,82; 1973, US$1.00 - M$2.43; 1974, US$1.00 = M$2.40

/ Ratio of Debt Service to Exports of Goods and Non-Factor Services

not available

not applicable

February 2, 1976

ANNER IIPage l..of 8

THE STATUS OF BANK GROUP OPERATIONS IN MALAYSIk

A. STATMMST OF BANK WANS (AS OF DECEMBER 31. 1975)

US$ MillionLoan Amount (Less Cancellations)Number Year Borrower Praose Bank Undisbursed

Eleven Loans fully disbursed 209.2599 1969 Malaysia Education 8.8 3.7672 1970 Malaysia Land Settlement 13.0 2.0700 1970 National Electricity

Board Power (V) 20.0 2.6753. 1971 Malaysia Telecommunications 18.7 5.7774 1971 Sabah Ports Authority Ports 16.1 3.9799 1972 Malayan Railway

Adcinistration Railroad 16.0 3.0810 1972 Malaysia Education 15.5 13.2851 1972 Malaysia Urban Transport 16.0 5.6880 1973 Malaysia Population 5.0 4.8885 1973 Malaysia Land Settlement 25.0 18.8908 1973 Malaysia Water Supply 13.5 5.5931 1973 Malaysia Highway 19.5 13.4967 1974 Malaysia Land Settlement 40.0 36.3973 1974 Malaysia Agricultural

Development 45.0 44.6974 1974 Malaysia Education 19.0 18.9

1031 1974 National ElectricityBoard Power (VI) 45.0 40.5

1044 1974 Malaysia Land Settlement 36.0 35.31115 1975 Malaysia Agricultural Research

and Extension 28.5 28.5

Total commitment 609.8of Which has been repaid 52.8

Total now outstanding. 557.0

Amount sold 18.0of which has been repaid 10.8 7.2

Total now held by Bank 5h9.8

Total undisbursed 2dfil

a In addition, Malaysia is Guarantor for Loan 405-MA of February 26, 1965, to thePublic Utilities Board in Singapore (amount being held by the Bank as of October 31,1975 - US$4.6 million).

/b Loan 1178-MA, Power VII, US$35.0 million was signed on December 17, 1975, but isnot yet effective.

ANNEX II

Page 2 of 8

B. STATEIENT OF IFC INVESTMENTS (AS OF DECEMBER 31 1975)

Type of Amount in US$ MillionYear Business Loan Equity Total

1964 Malaysian InduistrialDevelopment Finance DevelopmentLtd. (MIDF) Financing - 1.94 1.94

1966 Tasek Cement Ltd. Cement 1.28 0.28 1.56

1968 Malayawata Steel Ltd. Steel 2.45 1.01 3.46

1969 Malayawata Steel Ltd. Steel - 0.23 0.23

1970 India-MalaysiaTextiles Ltd. Textiles 1.25 0.25 1.50

Total gross commitments 4.98 3.71 8.69

Less: repayments, sales, cancellation,terminations and write-offs 3142 3.46 6.88

Total investmetnts now held by IFC 1.56 0.25 1.81

Total undisbursed - -

ANNEX IIPage 8O

C. PROJECTS IN EXECUTION

Loan No. 672 Second Jengka Triangle Land Settlement Project; US$13.0Million Loan of May 20, 1970; Effective Date: August 201970; Closing Date: May 31, 1977

Loan No. 885 Third Jengka Triangle Land Settlement Project;US25.O Million Loan of March 30, 1973; Effective Date:June 22, 1973; Closing Date: December 31, 1981

The projects, and a first project already completed, consistof the clearing of forest, the planting of 62,000 acres of oil palms and35,000 acres of rubber and the settlement of 10,000 families in the JengkaTriangle (State of Pahang). The Federal Land Development Authority (FELDA),responsible for the execution of the project, operates efficiently, keepinghigh standards of planting and maintenance. Under Jengka II village develop-ment community facilities and housing is proceeding satisfactorily althoughslightly behind appraisal schedule. 2,718 housing units have been comp'leted(target 2,965). 2,036 are now occupied by settlers and 20,360 acres havebeen allocated to settlers. Completion of Scheme 9 mill has been delayedbecause of prolonged tender procedures and delays in delivery of equipment.The mill is now expected to become operational in early 1976. Resultantinsufficient mill capacity has caused temporary harvest cut-backs andreduced earnings to settlers. FELDA is diverting ffb wherever alternativecapacity is available. Under Jengka III feeling and clearing has beencompleted and planting is progressing satisfactorily. Infrastructure andvillage development are behind schedule and settler intake will also bedelayed. Standards of agricultural development are satisfactory, except forclearing and planting problems encountered in scheme 17 and drainage problemsin scheme 23. FELDA is preparing revised cost estimates for both projects,taking into account recent fluctuations in the rate of exchange.

Loan No. 967 Johore Land Settlement Project; US$40.0 MillionLoan of February 27, 1974; Effective Date: May 16,1974; Closing Date: June 30, 1982

The project, implemented by FELDA, consists of the planting of65,000 acres of oil palm, and settlement of 4,400 families in the State ofJohore. The agricultural development progresses satisfactorily in line withappraisal estimates. In order to speed up settler intake, construction ofaccess roads and village road networks will be done under contract. Gamedamage in the planted areas, mainly by elephants and wild boar, is increasing,and measures to reduce further damage are being considered. FELDA is preparingrevised cost estimates, taking into account recent fluctuations in the rateof exchange.

ANNEX IIPage 4 of 8

Loan No. l144 Keratong Land Settlement Project; US$36.0 MillionLoan of October 3, 1974; Effective Date: January 9,197T; Closing Date: June 30, 1983

The project, implemented by FELDA, consists of the planting of55,000 acres of oil palm, the settlement of 3,400 families, the constructionof two palm oil mills and the establishment of two urban settlements. Agri-cultural development is progressing satisfactorily.. However, the PahangTenggara Development Authority still is understaffed, resulting in implementa-tion delays of the settlements. FELDA has requested construction of threepalm oil mills with smaller capacities instead of two larger mills asenvisaged in the appraisal report. The feasibility of this proposal iscurrently under consideration.

Loan No. 973 Western Johore Agricultural Development Project;USW2.O Million Loan of April 5. 1974: Effective Date:August 14, 1974; Closing Date: June 30, 1980

The project includes main and feeder drains, coastal embankmentsand tidal gates to improve drainage in an area of 134,000 ha (330,000 a2C)in southwest Peninsular Malaysia, as well as an integrated agriculturaldevelopment program with changes in cropping patterns to improve farmincomes, intercropping, opening up of 24,000 ha of new land, Farmers'Development Centers and improvements in research, extension and cropprocessing. A Project Division has been set up to direct and coordinatethe various agencies involved in project execution, to monitor andevaluate project progress and to prepare a feasibility study for a secondstage project. Because of the need to re-evaluate some of the designcriteria and delays in survey contracts, and also because of delays inappointing engineering staff, construction is about one and a half yearsbehind schedule.

Loan No. 700 Fifth Power Project; US$20.0 Million Loan ofJul 1 . 1970; Effective Date: September 29, 1970;Closing Date: January 31, 1977

The project (the third stage extension of Port Dickson ThermalPower Station consisting of 3 x 120 MW units) was about 60 percent completeat the end of December 1975. The Government of Malaysia allowed the NationalElectricity Board to a]oply the fuel surcharge to commercial and industrialconsumers from March 15, 1975. &nergy sales increased by 11.3 percent inFY74. Rate of return was 10.2 percent and self-financing of constructionwas 70 percent. NEB's sound financial position was maintained in FY74. Arate of return of 8.3 poercent is anticipated for FY75. Rates of return greaterthan 8 percent (8.2 - 13.6 percent) are predicted for FY76 through FY80.

ANNEX IIPage 5 of 8

Loan No. 1031 Sixth Power Project; US$45.0 Million Loan ofJuly 25, 1974; Effective Date: October 22, 1974;Closing Date: June 30, 1980

The project consists of transmission lines required for theTemengor hydroelectric power station. So far implementation is onschedule.

Loan No. 753 Second Telecommunications Project; US$18.7 MillionLoan of June 21, 1971; Effective Date: August 18, 1971;Closing Date: June 30, 1976

After initial delays in procurement, obtaining sites and erectingbuildings, the Teleemmunications Department of Malaysia (TDB) has made goodprogress in carrying out the project. The original project targets forDecember 31, 1975, in respect of expansion of the local telephone, telex andlong-distance services were generally met with two exceptions, first, thenumber of additional connections will only reach the target of 80,000 linesin April, 1976, or a delay of four months and secondly, due to delays insite acquisition and buildings, two of the microwave routes will be completedonly in mid-1977. An extension of the Closing Date will therefore berequired. The reorganization of TDM has been completed and is operatingsatisfactorily. TDM's financial results for the 1971-73 period are verysatisfactory with rates of return of about 16 percent as compared with theappraisal estimates of about 10 percent and the loan covenant of 8 percent.The operating ratio has been good, between 60-64 percent, and TDM's self-financing has been high.

Loan No. 908 Second Kuala Lumpur Water Supply Project; US$13.5 MillionLoan of June 14, 1973; Effective Date: August 27, 1973;Closing Date: June 30, 1978

The project consists of the expansion of facilities to provide pipedwater supply to parts of Kuala Lumpur and Klang Valley. The facilities willinclude an earth dam on the Langat River to form a resevoir to regulate theriver flow. khen field surveys were made for the detailed design, theconsultant found that the 175 feet height of the dam originally planned hadto be raised by 9 feet. The completion of the dam, but not the othercomponents of the project, is expected to be delayed by about one year tolate 1978. The project cost is presently estimated at about 45 percent morethan the appraisal estimate due to the increased cost of the dam andadoption of a higher allowance for inflation. No difficulties are foreseenin raising the additional funds required.

Loan No. 774 Sabah Ports Project; US$16.1 Million Loan ofJune 30, 1971; Effective Date: August 24, 1971;Closing Date: March 31, 1976

Except for a new headquarters building in Kota Kinabalu and theport administration building at Sandakan, all civil works were expected to

ANNEX IIPage 6 of 8

be completed by end 1975. Total cost of the project will be about US$38.0million, compared to the) appraisal estimate of US$22.1 million. SPA'sfinancial position is satisfactory and tariff increases have been proposed;the management of the Authority and operational procedures in the portsare satisfactory. Studies of proposed additional port works at Tawau andSapangar Bay are expected to be available for review in June 1976.

Loan No. 799 Railwar Project; US$16.0 Million Loan of February 11,1972; iffective Date: April 17, 1972; Closing Date:December 31, 1975

Initial delays in procurement have been overcome. The overall costof revised investment p:Lan (1971-1975) (about M$93.0 million) is less thanthe forecast of M$128.0 million due to deletion and deferment of two items.With the delay in procurement, work on track renewal, worhshops and rollingstock will be carried over into the first year of the next five year plan.Mahagement lacks effectLveness largely due to many vacancies in key technicalposts and to imminent retirement of several senior officers. Operations havenot improved to the extent forecast at appraisal. Passenger traffic continuesto rise faster than anticipated. Freight traffic remains relatively stagnant,but considerable improvement is expected next year, due largely to increasedcement traffic. With increasing costs, there were operating losses in 1973,1974 and 1975. Even if the MR's request for a 10 percent raise in passangerfares is granted prompt'Ly, there will be further losses in 1976. New invest-ment proposed by the MR for the Third Five Year Plan (1976-1980), to bereviewed by Parliament in April 1976, totals M$393.0 million; adoption of sucha plan will depend on t'he Government's decision on the future status of therailway, particularly in view of the rapid expansion of highways and highwaytransport. To assist in making a decision on the future of the Railway, andon further investment needed, the Government has decided to update the GeneralTransport Survey of 1969.

Loan No. 851 Kuala Lumpur Urban Transport Project; US$16.0 MillionLoan of July 20, 1972; Effective Date: September 20,1972: Closing Date: April 30. 1977

The project is designed to improve the transport facilities betweenKuala Lumpur and the adjacent town of Petaling Jaya. It consists of improve-ment of about 6 miles of Federal Route 2, including detailed engineering,widening of the road, construction of interchanges and cycle tracks, andrelocation of services. Civil works are 4-6 months behind schedule, due toshortcomings in the contractor's project-management and due to difficultiesin obtaining steel and cement. But the major problems have now been over-come. The project also includes a transport study for metropolitan KualaLumpur, a national road. maintenance study and detailed engineering of about137 miles of Federal Route 1; all these studies have been completed.

ANNEX IIPage 7 of 8

Loan No. 931 Second Highway Project; US$19.5 Million Loan ofAugust 22, 1973; Effective Date: October 25, 1973;Closing Date: August 31, 1977

Construction delays were encountered due to weak management ofsome contractors, late delivery of construction equipment, late acquisi-tion of land and approval by the Government of import licenses and workpermits for the contractors' expatriate staff. However, measures have beentaken to overcome most of these deficiencies, and work, including supervisionby consultants, is proceeding satisfactorily, except for one road sectionfor which contractor management has to be strengthened. Due to the latestart of the fifth and last road section, project completion may be delayedby up to 20 months. Construction costs have escalated sharply and it islikely that they will exceed original estimates (including contingencies) byalmost US$17.0 million, or over 50 percent. Urban studies as well as high-way feasibility and detailed engineering studies financed under the loanhave been completed.

Loan No. 599 Education Project; US$8.8 Million Loan of May 23, 1969;Effective Date: September 16, 1969; Closing Date:June 30, 1976

Construction has been completed at 20 of 21 project institutions,and the quality of the completed buildings is satisfactory. Project imple-mentation is about two and one-half years behind schedule because an alter-nate site had to be selected for one agricultural school. This school isnow expected to be completed in late 1976. A further extension of theClosing Date by six months to December 31, 1976, is therefore necessary.Deliveries of furniture and equipment to the project schools are nearcompletion expect for one agricultural school. All the 20 project schools arenow in operation and are functioning satisfactorily. Although no finalevaluation has yet been made, the schools appear to have achieved low drop-out rates and high pass rates. The estimated financing under the loan isexpected to be about US$1.7 million lower than originally estimated.US$700,000 of this amount has been transferred to the second educationproject, and proposals have been requested from the Government on use of theremaining surplus funds.

Loan No. 810 Second Education Project: US$15.5 Million Loan ofApril 5, 1972; Effective Date: July 7, 1972;Closing Date: December 31. 1977

Project implementation has improved and is now about ten monthsbehind schedule mainly due to delays in the appointment of consultant archi-techts for the Penang University, late approval of the campus plan by theUniversity and slowness of the Public Works Department in preparation ofdocuments. Of eight secondary vocational and technical schools, seven areunder construction. Tender has been opened for all the facilities of theUniversity and the recommended awards are acceptable. Contracts have beenawarded for one-third of the facilities and construction is scheduled to be

ANNEX IIPagfe I o 8

completed by mid-1977. Total project cost remains to be about 40 percentabove the original estimate. Progress on equipment procurement is sat-isfactory. Disbursements have slightly improved.

Loan No. 974 Third Education Project; US$19.0 Million Loan ofApril l, 1974; Effective Date: June 26, l97k;Closin Date: December 31, 1980

Project implementation is about three months behind schedule dueto delays in selection of sites for the Teachei Training Colleges (TTCs) butall sites have now been acquired, Tenders have been opened for seven of thethirteen project institutions and all sketch plans have been approved. Con-struction for seven schools should start in early 1976. Progress on civilworks is satisfactory. Equipment procurement for Kuantan Polytechnic isslightly behind schedule, but master lists should be ready before March 1976.Estimated total project cost remains the same as the appraisal estimate.Disbursement is about one year behind schedule partly due to delays inequipment procurement but should improve in 1976 when civil works construc-tion starts. The Project Unit is functioning satisfactorily.

Loan No. 880 Population Project; US$5.0 Million Loan ofFebruary 9. 1973; Effective Date: June 21, 1973;Closing Date: September 30, 1978

The progress on the civil works component has been very good in1975. Four buildings were completed and 129 were under construction. TheSenior Research Advisor has joined the National Family Planning Ebard (NFPB).NFPB is taking action to set up a computerized management information system.The program performance improved in 1975 with the number of new acceptorsbeing higher than in any of the previous five years. The Prime Ministerurged NFPB to intensify its efforts, particularly in urban squatter areas.

ANNEX IIIPage 1 of 3

MALAYSIA

KtAL LUMPUR SEWERAGE PROJECT

Loan and Project Summary

Borrower: Malaysia

Beneficiary: The City of Kuala Lumpur

Amount: US$21.5 million equivalent

Terms: Amortization in 21 years, including 6 yearsof grace, with interest at 8-1/2 percent perannum.

Project Description: The project consists of:

(i) about 52 miles of lateral sewers varyingin size from 9 to 15 inches;

(ii) about 16 miles of trunk sewers ranging insize from 15 to 60 inches;

(iii) improvements to an existing sewage treat-ment plant;

(iv) construction of four new pumping stations;

(v) construction of three new sewage treatmentfacilities; and

(vi) consulting services.

ANNEX IIIPage 2 of 3

Estimated Cost: US$ millionLocal Foreign Total

Sewers 14.2 2.9 17.1Pumping Plant 2.0 1.4 3.4Treatment Plant 6.9 2.4 9.3General Plant - 0.2 0.2Land 9.0 -

SUB-TOTAL 32.1 6.9 39.0

Consulting Services 2.0 0.5 2.5Contingencies:

Physical 2.5 0.8 3.3Price 12.1 3.6 15.7

1'OTAL 48.7 11.8 60.5

Financing Plan: US$ million Percentage

Captial Expenditures: 6Project 60.11/ 72.2Stage 2 12.0 1]4.3Other Capital Works 0.3 0.4Interest during Construction 9.2 11.0

TOTAL 81.9 97.9

Working Capital: 1.7 2.1

TOTAL APPLICATIONS 83.6 100.0

Sources: US$ million Percentage

Borrowings:IBRD loan 21.5 25.7Government, loan for Proposed Project_2/ 35.1 41.9Loans for Stage 2 Project 10.5 12.6

'OTAL BORROWINGS 67.1 80.2

Cit- ,ontr_ bution 0.3 o.L

Interral Cash GerLeration Applied toSewerage Program 16.2 19.4

'LTOTAL SOURCES: 83.6 100.0

1/ Excludes US$O.1 milion management consulting fees charged to operations.

2/ Amortization in 36 years including 6 years of grace, with interest at6 percent per annun

ANNEX IIIPage 3 of 3

Estimated Disbursements: US$ million

Bank FY 1977 1978 1979 1980 1981

Annual 0.6 2.7 6.2 7.0 5.0Cumulative 0o6 3.3 9.5 16.5 215

Procurement: All construction and supply contracts willbe awarded on the basis of internationalcompetitive bidding in accordance with theBank's guidelines. Local contractors areexpected to win al construction contracts,and local manufacturers are expected tofurnish most, if not all, of the sewer piperequired in the project. Major mechanicaland electrical equipment required for thepumping plant and treatment plant are not.manufactured locally and will be procuredfrom abroad, A margin of preference tolocal manufacturers of 15 percent or thecustom duty, whichever is less, is proposedto be allowed.

Rate of Return: Not applicable.

Consultants: About 400 man-months of consulting servicesfor detailed design and supervision ofconstruction. About 16 man-months ofconsulting services for establishing SD'scommercial accounting system.

Appraisal Report: Report No. 890a-MA, dated February 2, 1976.

IBED 11643

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