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DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION NotFor Public Use Public Disclosure Authorized FILEcOPY ReportNo. 68a-MA APPRAISAL OF THE KUALA LUMPURWATER SUPPLY PROJECT - SECOND STAGE Public Disclosure Authorized MALAYSIA May 2, 1973 Public Disclosure Authorized Public Disclosure Authorized Asia Projects Department Public Utilities Division | This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. CURRENCYEQUIVALENTS Currency Unit = Malaysian Dollar (M$) M$ 1.00 = 100 cents US$1.00 = M$ 2.54 US$1 million M$ 2.54 million M$ 1.00 - US$0.39 M$ 1 million US$393,700 MEASURESAND EQUIVALENTS gallon = Imperial gallon (1 Imperial gallon = 1.2 U.S. gallons or 4.5461 liters) gpd 5 Imperial gallons per day _Mg = million Imperial gallons IMgd = million Imperial gallons per day (1 IMgd = 4,546 cubic meters per day) PRINCIPAL ABBREVIATIONS AND ACRONYMS USED PWD Public Works Department UNDP 5 United Nations Development Program UNICEF - United Nations InternationalChildren's Emergency Fund WD 5 Water Division WHO World Health Organization FISCAL YEAR January 1 - December 31 MALAYSIA APPRAISAL OF THE KUALA LUMPURWATER SUPPLY PROJECT - SECOND STAGE Table of Contents Page No. SUMMARYAND CONCLUSIONS .. i-ii I. INTRODUCTION .. .............. 1 II. THE SECTOR ............................................. 2 General ........................................... 2 Sector Development . 2 Sector Organization and Management . 3 Water Supply Sector - Selangor State . 4 III. THE PROJECT ............................................ 5 Description . 5 Cost Estimates ...... ...................... 6 Amount of Proposed Loan . 7 Design, Construction and Supervision of Construction 7 Procurement ....................................... 7 Disbursement .................................... .7 Catchment Area and Land Acquisition . 8 Ecological Aspects . 8 IV. JUSTIFICATION .......................................... 9 Project Objectives and Demand Forecast . 9 Least Cost Solution . 10 Return on Investment .............................. 10 V. THE BORROWER AND THE BENEFICIARY ....................... 10 The Borrower . 10 The Beneficiary . 10 Management and Staff . 11 Management Systems ................................ 12 Audit ............................................. 13 VI. FINANCE ................................................ 13 This report is based on the findings of a Bank mission consisting of Messrs. V. Rajagopalan and L. V. Smith which visited Malaysia in October-November 1972. -2- Page No. General................................. 13 Past Performance and Present Financial Position. 13 FinancingPlan .................................. 14 Water Charges................................... 15 Future Finances................................. 17 VII. AGREEMENTS REACHED AND RECOMENDATION ..... ..........17 LIST OF ANNEXES Annex 1. Existing Water Supply and Sewerage in Klang Valley Region 2. Descriptionof the Project 3. Project Cost Estimate 4. ConstructionSchedule 5. Estimated Schedule of Disbursements 6. Populationand Water Production Statisticsand Projections 7. Rate of Return 8. OrganizationChart of Selangor Water Division 9. Income Statements for Selangor Water Division 1971 - 1981 10. Income Statementsfor Klang Valley Region (Project Area) 1971-1981 11. Cash Flow Projections for Selangor Water Division 1971-1981 12. Balance Sheets for Selangor Water Division 1971-1981 13. Assumptions for FinancialProjections 14. Schedule of Water Rates MAPS IBRD 10287 - Existing Water Supplies and Proposed Project IBRD 10288 - General Layout of Project MALAYSIA APPItAISALOF MlE ULALALUMPUR WATER SUPPLY PROJECT - SECOND STAGE SUMMARYAND CONCLUSIONS i. This report covers the appraisal of a project to increase water supply to tne urban and rural communities in the Klang Valley region of Selangor State in Malaysia for which a loan of US$13.5 million is proposed. The project is the second stage of a long-rangeplan for water supply to the region which includes Kuala Lumpur, the Federal and State capital, Shah Alam, tne future capital of Selangor State, and Klang port, the busiest port in West lialaysia. ii. The Government of ialaysia will be the borrower and the State Governmentof Selangor will be the beneficiaryand its Water Division (WD) will be responsiblefor carrying out the project. The proposed loan will be the second such loan to Selangor State. Tihefirst loan (561-14IA)made in August 1968 was for financing the foreign exchange costs of a new water treatment plant and transmissionand distributionpipelines to increase water supply to the Kuala Lumpur area. The new treatmentplant has been in use since September 1972 and all the works are expected to be completedby June 1973, about twentyonemonths behind schedule but with no significant increase in costs. An objective of the first loan was to help in the re- organizationand developmentof WD as a financiallyseparate unit with its own system of accounting and financialmanagement. Financial statements indicate that WD's operating income more than doubled between 1968 and 1972 and that the water supply systems in the State as a whole continue to be financiallyself-supporting. iii. The objective of tne proposed second stage project is to provide piped water supply to parts of the project area which do not have a public water supply, and provide facilitiesto ensure a continuous water supply and meet increasingwater demand in the project area. Present water demand is already in excess of the combined capacitiesof the existing systems in the region. The first stage project will help to meet the demand in the Kuala Lumpur area for a few years but unless the second stage project is constructed,serious shortageswill occur in the region with associated public health problems. iv. The project consists of the constructionof a dam on the Langat river, some 14 miles northeastof Kuala Lumpur, additionaltreatment works, transmissionand distributionmains and service reservoirs. These facilities, together with the existing ones and the first stage project, will serve 1.6 million people in the Klang Valley region. V. The project is estimated to cost about US$26.2 million (M$ 66.6 million). The proposed loan of US$13.5 million will cover about 51% of the total project costs which is the estimated foreign exchange component. The balance would be financed from internal cash generation. All contractswill be awarded on the basis of internationalcompetitive bidding. Most of the - ii - equipment needed for the project will be imported,but some items such as asbestos cement pipes and steel pipes locally fabricatedusing imported steel plates are likely to be supplied by local manufacturerswho vill receive a preference of 15% or the prevailing tariff, whichever is less. There are at present no preferentialtariffs applicable in respect of the goods likely to be imported for this project. vii. The project is suitable for a Bank loan of US$13.5 million equivalent for a term of 20 years including a grace period of 5 years. The Government of Malaysia will relend the proceeds of the loan to the State Government of Selangor on the same terms as those of the Bank loan. MALAYSIA APPRAISAL OF ILEKUALA LUMPUR WATER SUPPLY PROJECT - SECONDSTAGE I. INTRODUCTION 1.01 The Government of Mlalaysiahas requested a loan of US$13.5 million to help finance the foreign exchange costs of a project to increase the water supply to the Klang valley region in the State of Selangor,which includes the Kuala Lumpur metropolitanarea. The project will be carried out by the Water Division of the Selangor State Governmentwhich is responsiblefor water supply in the State of Selangor. The project is estimated to cost US$26.2 million equivalent. 1.02 The project is part of a long-termplan for water supply for the Klang valley region involving the developmentQf the Sungei Langat (Langat river) in stages to meet the future needs. In August 1968, the Bank provided a loan of US$3.6 million equivalent (Loan 561-'qA)to cover the foreign exchange costs of the earlier works in this plan --- the first stage project -- consisting of river intake works, water treatment plant, transmissionmains, service reservoirs and distributionsystem extensions. About 3 million gallons a day have been supplied from the new treatment plant since September 1972 and the entire works are expected to be completed by June 1973. The main civil works contractshad to be retendered in the middle of constructionof the project due to the abandonmentof works following the death of the contractor, and this had led to the postponement of completion by about twentyone months but the costs are within the original estimates. 1.03 The management of water supply systems in SelangQr State received special impetus as a result of the Bank's involvementin the Kuala Lumpur water supply project. Considerableimprovement in organiza- tion, accounting and project preparationhas taken place. The Water Division of the Selangor State Government (WD) has been reorganized and a commercial accounting system has been introduced following recommenda- tions made by management consultantsunder a study financed as part of the first stage project. The State Governmenthas recently approved the setting up of WD as a self-accountingdepartment and has authorized the establishmentof a revolving fund into which water revenues will