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 It may not be published, quoted or cited without Bank Group authorization.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 be deposited and expendituresmet by WD.

1.04 The project has been prepared by Binnie & Partners ('.alaysia), who also designed the first stage works. Appraisal of the project was carried out by a mission composed of Mtessrs.V. Rajagopalan and L. V. Smith who visited Malaysia in October-November1972. -2-

II. THE SECTOR

General

2.01 .ialaysia,with a population of about 11.0 million, is a federation of 13 states occupying two distinct regions separated by about 400 miles of South China Sea. West Malaysia, with a population of about 9.3 million, consists of 11 states on thleMalay peninsula and East Malaysia comprises mne States of Sarawak and Sabah on the Northwest coast of the Island of Borneo. Each state is divided into a number of districts for administrative purposes. Piped water supply services in Malaysia have been steadily extended in the last decade to serve about 50% of the total population.

Sector Development

2.02 Water supply systems in West Malaysia are not generally restricted to serving one community,city, or town. The system serves an area comprising mainly urban population but also benefits the populations in the adjoining rural areas. Most of the water supply systemswithin a State, and in some instanceswater supply systems in adjacent States, have been inter- connected to facilitate supply. This approach has brought the benefits of piped water supply to rural communitiesenroute which would normally be unable to support separate piped water systems on their own. It is estimated that in West M1'laysiapiped water supply is accessibleto a popu- lation of about 5.12 million or about 57.5% of the total populationas compared with about 39%Oin 1960. These water supply systems serve almost all of the urban areas and the adjoining villages. Metered house service connectionshave been provided in most instances and public standpipes form an insignificantpercent of the total number of connections. The Second Malaysia Plan (1971-75)includes water supply projects to meet the growing demand of the principal urban areas of the country, to provide water supply facilitiesto tliesettlers under the Federal Land Development Authority schemes and to continue the process of providing safe water supplies to an increasing segment of the total population by constructing new projects and expansionof service from existing systems. It is estimated that an additionalpopulation of at least 1.0 million would be benefittedby these projects. This would mean that about 65% of the pop- ulation would be served by water supply systems.

2.03 Constructionof sewerage and sewage disposal systems have not made much progress in West Malaysia. Sewerage systems exist only in Kuala Lumpur and Georgetownin Penang State. With the increase in the provisioniof water supply systems and expansionof the areas where piped water supply services are made available, the waste water disposal problem is rapidly increasing. Pollution of the water sources is already occurring in iany instances. The incidenceof cholera ;was reported in a few states during 1972. Preliminary studiesmade _n the Dast for sewerage schemes in some urban areas have not resulted tn the c3nstructionof systems. A com- prehensive sewerage study is being undertaken for the Kuala Lumpur area and __ is expected to help stimnulatedevelopment of future sewerage projects. Under the Second Malaysia Plan, extensionsand improvementsto existing sewerage systems are expected to be done in Kuala Lumpur and Georgetownand a new sewerage project is to be constructedin Ipoh.

2.04 In East Malaysia, the developmentof urban water supplies has been making good progress especiallyin Sabah where the emphasis has been on meeting the needs of cities and towns for water and sewerage facilities. The basic groundwork has been done for ensuring that these services keep pace with the development. In Sarawak,where some 80% of the populationlives in small scatteredcommunities with poor communicationsbetween them, a rural water supply pilot program for providingpiped water supply has been developedby the Medical and Health Departmentwith the assistanceof WHO/UNICEF. A pilot project consistingof 126 small water supply systems serving about 30,000 people has been completed. The experienceand data available from this project should be helpful in planning for a realistic water supply program for the rural populationin all the States.

2.05 The funds for investmentsin water supplies are derived from Federal Governmentloans and budget allocationsand State and local resources; internationalloans are sought only for the larger projects. Under the Second Malaysia Plan which includes a provisionof about US$80.0 million for this sector, the State Governmentsthat can afford to have been encouraged to use mainly their own resourcesfor the water supply projects. Since a basic water supply system exists in almost all urban areas, future investmentsin urban areas are needed mainly to expand these systems as required to meet growth in demand. Apart from the Bank loan for the Kuala Lumpur water supply project (Loan 561-MA), the Asian DevelopmentBank is assisting in the financingof urban water supply projects in the States of Malacca, Penang and Perak.

Sector Organizationand Management

2.06 The responsibilityfor providingsafe water supply lies with each State Government. The State Public Works Department (PWD) is generally responsible for the design, construction,administration, operation and maintenanceof all public water supplies and public works within the State. Main exceptionsare Malacca and Penang States which have recently set up water boards to manage their water supply systems. Some small rural water supply systems in the States of Pahang and Kelantan are operated and maintained by local councils. Urban water supplies in Sarawak are controlled either by PWD or individualwater boards and the Medical and Health Departmentoperates and maintains all small water supply systems.

2.07 Sewerage projects are generallythe responsibilityof the munici- palities concerned. But in Sabah, the PWD also maintains some of the sewer- age systems on behalf of town boards.

2.08 At t'nenational level, the water supply branch of the Federal PWD is expected to provide technicaladvice to the Federal Governmentand State PWDs in West Malaysia on all water supply matters. Its responsibili- ties include collectionof statisticaldata on water supplies in West -4

Malaysia, examination of proposals for water supply schemes for which Federal loans are requested and assistance in design of certain projects and procurementof equipment and materials. However, these functions are not being carried out effectivelydue to lack of adequate staff. There is no technicalagency at the Federal level responsible for the review and coordi- nation of sewerage and sewage disposal projects.

2.09 The Ministry of Health at the federal level is organizing a Public Health Engineering Division to deal with environmentalsanitation and water pollution control activities.

2.10 Tiheconcept of beneficiariespaying for service through an adequate water rate is well-establishedin lIalaysiaand the water rates in most cases are sufficient to meet operating costs, debt service and yield a small surplus. Water revenues have steadily increased in all states. Well-establishedbilling and collection proceduresare in operation and collectionsare generally good.

2.11 Witlhthe size of the water supply operations increasing in each State, improvementsin accountingprocedures are being introduced for better financial control and management. However, there is a general shortage of accountantsand engineers. The staff at the operating level is weak in many organizationsand the full compliment of staff sanctioned is not in position in some cases.

Water Supply Sector - Selangor State

2.12 in terms of percentage of total population served, quantity of water produced and sold, number of service connections,water revenues billed and collected,profits made and overall performance,the water supplies of Selangor State rank first among the states of West Malaysia although there has been over investment due to poor planning in some of the smaller systems. Existing water supply systems in the State are shown in Map IBRD 10287.

2.13 Selangor with a population of about 1.6 million is the most developed state in MIalaysiawith Kuala Lumpur as the federal and state capital, the main center of business, education and Government in West Malaysia. Klang port in this state is the busiest port in West Malaysia and it is being expanded to accommodatethe rapid growth that has been taking place. It is well connectedby rail and road with Kuala Lumpur. In recent years t'neKlang valley linking Kuala Lumpur with Klang port has seen a steady increase in population and considerablegrowth in industries.

2.14 The developmentof the Klang valley region comprisingKuala Lumpur and KClangdistricts and some adjacent areas is presentlybeing studied by consultantsfinanced under a UNDP project, with the Bank as the executing agency. The water requirementsof the region have been identi- fied by the consultants. Constructionis already underway to develop a new city at ShiahAlam located between Kuala Lumpur and Klang cities, which would function as the future capital of Selangor State. The provision of - 5- a reliablewater source, new water treatmentfacilities, trunk mains and distributionsystem extensions to meet the demand in the Klang valley region are proposed in this appraisal report.

III. THE PROJECT

3.01 The project is the second stage of the long-rangedevelopment plan for water supply to the Klang valley region prepared by consultantsto the Selangor State Government. The river intake, water treatmentplant and distributionfacilities being constructedunder Loan 561-MA form the first stage of this developmentplan, intended to meet the demand in the Kuala Lumpur metropolitanarea of the region and when they are completedin June 1973, it will be necessary to begin constructionof this project to meet the demand in the region. Details of existing water supply and sewerage installationsin the region, including the first stage work now under construc- tion under Loan 561-MA are described in Annex 1.

Description

3.02 The main componentsof the project are as follows;

(a) An earth dam, about 175 ft high, on the Langat river at Mile 24, northeast of Kuala Lumpur. The reservoir formed by the dam will help to regulate the river flow to permit a reliable supply of 85 IMgd to be abstracted at the existing river intake works at Mile 10, after allowing 30 IMgd for downstream use. At present the supply in the dry season averages only about 50 IMgd at Mile 10.

(b) A draw-off tower with control gates, valves, and accessories to let water from the reservoir into the river to be picked up at the existing intake works.

(c) Two 15 IMgd raw water pumps and two 15 IMgd treated water pumps and associated electrical plant to be located in existing pumphouse.

(d) A new treatment plant with a capacity of about 28 IMgd.

(e) 14 service reservoirs in the distributionsystem with capacities ranging from 0.15 IMg to 5 IMg and a 2 DMgd booster pumping station in the distributionsystem.

(f) Steel mains 27 in. to 49 in. diameter, connecting the treatment plant with the balancing reservoir (5,000 ft), and the balancing reservoir with two main service reser- voirs (53,500ft). - 6 -

(g) Extension of the distribution system with 8 in. to 45 in. diameter pipes for a total length of 224,000 ft:-56,000 ft in northern areas; 14,000 ft in central areas; 50,000 ft in southern areas; 8,000 ft in western areas; 49,000 ft to serve Shah Alam, the new State capital of Selangor; and 47,000 ft in Klang area; and the provision of new meters.

A full description of the project is given in Annex 2, and locations of the works are shown in Map IBRD 10288.

Cost Estimates

3.03 The estimated costs of the project are detailed in Annex 3 and summarized below.

Cost Estimates

M$ Millions ------US$ Millions----- Local Foreign Total Local Foreign Total

Investigation and Survey 0.38 0.11 0.49 0.15 0.04 0.19 Land and Compensation 0.94 - 0.94 0.37 - 0.37 Dam and Ancillary Works 11.73 9.92 21.65 4.62 3.91 8.53 Intake and Pumping Plants 0.07 0.63 0.70 0.03 0.25 0.28 Treatment Plant 1.92 2.49 4.41 0.76 0.98 1.74 Pipelines 4.35 11.13 15.48 1.71 4.38 6.09 Reservoirs and Pumping Stations 2.57 2.09 4.66 1.01 0.82 1.83 Meters 0.36 0.84 1.20 0.14 0.33 0.47 Sub-total 22.32 27.21 49.53 8.79 10.71 19.50

Consulting Services 4.13 0.72 4.85 1.62 0.28 1.90 Contingencies: Physical 2.13 2.47 4.60 0.84 0.97 1.81 Price 3.73 3.89 7.62 1.47 1.54 3.01 Total 32.31 34.29 66.60 12.72 13.50 26.22

3.04 Construction costs are consultants' estimates and are based on preliminary design of the project and on recent tenders awarded for materials, equipment and civil works under the first stage project (Loan 561-MA) and similar recent works in Malaysia and Singapore. The cost of consultants' services included in the estimate is for detailed design of project, preparation of tender documents, evaluation of tenders and construction supervision. An overall provision of about 10% on all items for physical contingencies has been added and is considered adequate. An annual price contingency of about 4% on local and foreign costs has been allowed through the period of construction for possible price increases. Price increases during tihe construction of the first stage project were well within this limit and the contingency provisions included should be adequate. The foreign exchange componenthas been estimated on the assumption that pumps, motors, valves, and treatmentplant equipmentwill be imported;steel pipes will be fabricatedlocally with imported steel and other pipes and materials will be locally procured; and that all civil works contractswill be won by local contractorsas has happened under Loan 561-IA.

Amount of Proposed Loan

3.05 A Bank loan of US$13.5 million, equal to about 51% of the total project cost of US$26.2 million, is proposed to finance the estimated foreign exchange costs of the project and the consultants'fees.

Design, Constructionand Supervisionof Construction

3.06 Project implementationfrom design through commissioningof treatment plants and completionof constructionof the dam, distribution system and all other project elements is expected to be carried out during 1973-77. The constructionschedule is shown in Annex 4.

3.07 Binnie & Partners (Malaysia)who had prepared the preliminary design for the project have been engaged as consultantsfor carrying out the detailed designs, preparationof bidding documents and construction supervision. This arrangementis satisfactory. It is proposed that the Bank reimburse the foreign exchange cost of consultingservices which are paid after January 1, 1973. The retroactivefinancing involved would not exceed US$120,000.

3.08 The Water Division of the Selangor State Governmentwould be responsible for overall project administration. Performance of WD under the first stage project has been good. The State Governmentwill take adequate steps for proper maintenanceof the Langat Dam after construction, and systematiccollection of hydrologicaldata in the Langat river basin will be continued.

Procurement

3.09 All constructionand supply contractswill .be awarded on the basis of internationalcompetitive bidding, following the Bank's guidelinesfor procurement. Local contractorsare expected to win all constructioncontracts. Local manufacturersare expected to compete successfullyfor the supply of pipes for the transmissionmains and the distributionsystem and water meters. A margin of preferenceto local manufacturersof 15% or customs duty, which- ever is less, has been requestedand was agreed during negotiations. There are no preferentialtariffs applicable in respect of the goods likely to be imported for this project.

Disbursement

3.10 It is proposed that the loan be disbursed against the c.i.f. cost of all direct imports, the estimated foreign exchange componentof locally procured goods and civil works contracts,ex-factory costs of - 8 - locally manufacturedgoods and the foreign costs of consultants'services. An estimateddisbursement schedule is in Annex 5.

3.11 Should there be savings in the foreign exchange costs, it is proposed, after the Bank's approval, to use the balance of the loan amount for further extensionsand improvementsof the distributionsystem and/or further consultingservices, which are shown to be needed during the period of construction.

CatchmentArea and Land Acquisition

3.12 The reservoir to be formed by the new dam will inundate about a square mile, most of which is State Government'sland and forest reserves. No difficultiesare foreseen in acquiring the land for the reservoir. Access will be through existing roads used by the Forestry Department for logging in the area and additional land acquisitionfor this purpose is not needed. The catchmentarea for the reservoiris about 16 square miles and there is virtually no cash-crop cultivationin it except for some timber plantations belongingto the Forestry Department. There is no tin mining in the area. The State Governmentdoes not foresee any problem in resettling the few aborigine families living in the reservoirarea. The forest reservewill be declared as a water catchmentarea and future logging and mining operations will be controlledby the State Government. icologicalAspects

3.13 None of the rivers in Selangor State is at present in a "natural" state because of discharge of tin mining wastes into the river. Due to lack of sewerage facilitiesliquid wastes from inhabitedareas and industries also find their way into the streams and rivers. In the circumstances,the effect of abstractinga significantpercentage of the flow of a river on the river regime downstream is difficult to predict. However, the Langat river, the project source, will have sufficient flow, due to the comparatively lower state of developmentin the lower reaches of the river. At the intake at least 30 IMgd will be allowed to pass at all times for downstreamusers. In addition,other tributariesjoin the river downstreamof the intake.

3.14 The constructionof the dam and the use of the reservoir for river regulationwill help to improve the quality of the river water during the dry season. There is no fresh water fish culture in the river at present and the salt and estuarinewater fisherieswould not be significantlyaffected by upstream development.

3.15 The increase in the quantitiesof water supplied to the urban area whten the project has been completedwill add to the sewage disposal problem. To solve this, the sewerage system in Kuala Lumpur is steadily being expanded and a comprehensivesewerage plan for the Kuala Lumpur metro- politan area is being prepared and is expected to be ready for implementation in two years. Local sewage disposal arrangementsare being planned for other areas. Assurances have been obtained from the Selangor State Government that the discharge of sewage effluents from inhabited areas and industriesinto the Langat river would be controlled. -9-

IV. JUSTIFICATION

Project Objectives and Demand Forecast

4.01 The constructionof the project as scheduled is an essential stage in the developmentprogram to meet the water needs of the Klang valley region during the next 20 years. The objective of the project is to extend the supply to the newly developingurban areas and provide piped water supply to an increasingpercentage of the people living in the rural areas in the region. The existingwater works serving the Klang valley are now operating at their installed capacitiesand at times have been stretched beyond these to meet the requirementsof the region. The additional treat- ment capacity provided for Kuala Lumpur under the first project (Loan 561-MA) will be fully utilized in the region by early 1976. Without the project, water supply to the new housing estates and industries that are being constructed in the region will become intermittent. If this is allowed to happen, these areas would become vulnerable to the spread of waterborne diseases, especially cholera which is now sporadicallypresent.

4.02 Kuala Lumpur, Petaling Jaya, Shah Alam, Klang town and Port Klang, the major population centers in the Klang valley, are economically and geographicallyaffiliated and their water supplies are already intercon- nected. The only practicablemethod of planning the future water supply is on an integrated basis as proposed under the project.

4.03 During the past decade in which a number of water works were commissionedin the region, the demand for water has grown at an average rate of 7.2% per annum reaching about 8.8% during the past three years. This rate of growth, which is higher than the population growth of about 4.2% per annum for the region, is attributableto increase in percentage of population served and increase in per capita consumption. These trends are expected to continue. It is estimated that about 77% of the total population of about 1.1 million is being served by piped water supply systems. Per capita consumptionis at present about 50 gpd on the average in the developed areas where modern waterborne sanitary facilitiesare in general use and about 30 gpd in the less developed areas. In forecasting future demand it has been assumed that growth in consumptionwill average about 6.5% per annum to allow for an increase in the percentage of rural population served each year and increases in per capita consumptionand industrial demand.

4.04 Gradual reduction in the percentageof water unaccountedfor is expected from the present level of 20% to a desirable level of about 15% by 1981 as a result of leakage survey and detection by the Water Division. The demand projections are based on the above assumptionswhich correspond with recent past experience. It is unlikely that demand will increase less rapidly than projected but should demand increase more rapidly than projected, the Water Division will be able to meet it by temporary overloadingof the water treatment facilities under the project and advancing the construction of additional treatment facilities. Annex 6 shows the population and water production statistics and projections. - 10 -

Least Cost Solution

4.05 The main component of the project is a dam for regulatingthe flow in the Langat river to enable continuous abstractionof up to 85.0 IMgd from it and the constructionof additional treatment units at the existing intake works. The project is the least cost method of providing the addi- tional supply to meet the demand in the Klang valley region. The further developmentof other sources in the Klang valley is not possible. Already most of the water works supplying the Klang valley region have installed capacities in excess of reliable yields of their respectivesources. These sources obtain their supply of water from tributariesof the Klang river, the main drainage waterway for the region. The Klang river is already heavily polluted as it flows through the urban areas of Kuala Lumpur and Petaling Jaya and its flaw must be maintained in order to keep the pollution of the river down to an accepted limit. The Klang river, the nearest source, cannot thereforebe used. Alternative sources of supply from adjacent valleys have been consideredand rejected as they were more expensive.

4.06 The sizes of the project componentswere selected on the basis of the present worth analyses of alternativesusing discount rates of 8, 10 and 12%. The present worth of the costs of the alternativeselected was the lowest under all the discount rates used.

Return on Investment

4.07 The economic return on the project would be at least 8.6% measuring benefits by revenues without reference to public health, flood control and related benefits (Annex 7). But this estimate is no measure of the justificationof a project for which the only alternativewould be to plan for a deterioratingstandard of public health and environment and to limit housing and industrialdevelopment in the Klang valley.

V. THE BORROWER AND THE BENEFICIARY

The Borrower

5.01 As in the case of the loan for the first stage project, the Governmentof Malaysia would be the borrower, and would relend the proceeds of the loan to the Selangor State Governmenton the same terms as the Bank loan (paragraph6.08).

The Beneficiary

5.02 The Water Division (WD) of Selangor State Government, the beneficiary,will be responsiblefor the project. Management consultants (W. D. Scott and Co. of Australia) financed under Loan 561-MA for the first stage project, have assisted in the reorganization,management and accountingof WD. At the time of ,he appraisal of the first stage project in No-ember 1967, WD was part of the State Public Works Department (PWD) and the accounts of the water supply operationswere kept on a cash basis and the system did not provide adequate informationfor efficient management and financial evaluation. However, the State Governmentagreed under the first project (Loan 561-MA) to reorganize and maintain WD as a financially separate unit responsible for construction,operation and maintenanceof all water supply systems in the State with its own system of accounting and financialmanagement. The State Government also agreed to make available all revenues from the supply of water for the use of WD to the extent necessary for the conduct of its operations. WD was reorganizedon the basis of management consultants'recommendations in 1970. A chart showing the present organizationof WD is in Annex 8.

.5.03 WD is under the charge of a Senior SuperintendingEngineer who is its chief executive officer. It is organizedon a functionalbasis under four sections. It has a production and distributionsection responsible for the operationand maintenanceof all water supply systems in the State; a planning and constructionsection; an accountingsection responsible for financialmanagement, accounting, budgeting and revenue collection; and an administrationsection charged with office administration,personnel matters and record-keeping. The project agreementwith the Selangor State Governmentwould recognizeWD's responsibilityfor the project (paragraph 5.02). WD's financialposition is sound and it is generallywell-managed. It is carrying out successfullythe first stage project which the Bank has helped to finance. The State Government agreed during negotiationsthat any material modificationin the structure of WD's organization,operations and accounting system would be made in consultationwith the Bank.

-Manaementand Staff

5.04 WD's management has steadily improved despite shortage of staff and frequent changes at the middle management level. The present Superintend- ing Engineer who functionsas the general manager of WD is competent and has managed the division well. Although a new commercial accountingsystem and a management performancesystem were introduced in July 1970 on the basis of management consultants'recommendations, these are not yet fully operative because of the frequent changes in key staff. The present head of the finance section is a chartered accountantwho joined WD in mid-1972. His two immediateassistants are also new to their jobs. Until recently, there were a number of vacancies in this section from time to time causing delays in day-to-daywork. Improvementin financial managementhas therefore been spasmodic.

5.05 The position has been even more difficult in the case of the engineeringsections. Due to a nation-wide slhortageof engineers and tech- nical assistants,a number of positions in the engineeringsections have remained vacant. The existing staff is used mainly for operation and main- tenance of the systems and minor constructionsupervision. For most of the project preparationand constructionsupervision of major works, consul- tants are employed. Operations and maintenanceexcept at large installations such as the Kuala Lumpur system tends to be poor due to lack of trained operating staff. Recognizingthe shortcomings,training courses in water treatment plant operationhave been held. - 12 -

5.06 In 1972 IWDhad 1,331 approved staff positions comprising393 regular technicaland non-technicalstaff and 938 skilled and semi-skilled laborers. About 14% of the total positions -- 40 regular staff including 5 engineersand some 30 techniciansand 159 in the labor categories-- are vacant. Wherever possible, experiencedskilled laborers are being used to overcome the shortage of professionallytrained personnel. The shortage of technicalstaff is expected to continue for the next two to three years until graduates from the new training institutionsbecome available.

ManagementSystems

5.07 Procedureshave been developed by WD and are in regular use for collectingand reporting technicaland commercialinformation. W4Dfurnishes the Bank regular reports of its operations. Procedures for collectionand reportingof financialinformation developed by the management consultants (paragraph5.02) were in operation until October 1970. Since then, due to inadequatestaff at times and frequent changes in supervisorypersonnel (paragraph5.04), financialreporting has not functionedsatisfactorily. iWDrecognizes the value of the reporting system and plans to revive it in early 1973 as soon as the present accounting delays mentioned in paragraph 5.08 are overcome.

5.08 A public utility accountingsystem was developed for WD in 1970 by the managementconsultants and financialstatements were prepared for WD. The system provides for the identificationof assets, revenues and costs of water supplies in each district of the state. Since then, although the system is in use, WiDhas also continued to maintain financial records on a cash basis in compliance with its original requirements as a government department. This was due to the hesitancy of the State Governmentin setting up WD as a financiallyseparate unit with its own system of accountingand financialmanagement as required under the loan agreement (Loan 561-MA) in connectionwith the first stage project. Several alternativeproposals such as a separate bank account for WD, an imprest account, and creation of a trust fund were consideredby the State Governmentin order to meet the objective of the loan agreement and finally in August 1972 the creation of the Water Division as a self-accountingdepartment was approved. These changes in procedures togetherwith the lack of personnel and staff changes referred to in paragraph 5.07 have led to considerabledelays in finalizing the accounts for 1970 and 1971 which were completed only towards the end of 1972. With the past accounting arrears taken care of and the uncertainties regardingWD's status having been resolved, it is expected that WD's accounts will be kept on a more timely basis in future. The covenant under Loan 561-MA requiring the establishmentand maintenanceof WD as a financially separate unit would be extended to the proposed loan and necessary assurances regarding this were obtained during negotiations.

5.09 From January 1, 1973 WD has been functioningas a self-accounting departmentwith its own bank account. This is a revolvingaccount of M$ 2.0 million to which all water revenues are credited and from which all expenditures are met; any amount in excess of M$ 2.0 million in the account is subject to withdrawal by the State Government. Any shortfallbetween the income and the - 13 - operating and capital expendituresof WD is met by the State Government. The creation of WD as a self-accountingdepartment will help to speed up the full implementationof the commercialaccounting system, preparationof financial statementsand provide the informationfor sound financialmanagement.

5.10 Billings and revenue collection continue to be efficient and bad debts are insignificant. There are already some 140,000 accounts and new ones are being added rapidly. To cope with the increasingload efficiently,WD is consideringthe use of more modern machines. Billing and collectionprocedures are described in Annex 8.

Audit

5.11 ED's accounts are audited by the Auditor General of Malaysia. The quality of this audit is satisfactoryand the continuationof this arrange- ment is thereforeproposed. Because of the delay in the finalizationof FY 1970 and 1971 accounts (paragraph5.08) the audited statementswere received only in December 1972 and May 1973.

5.12 Under Loan 561-MA, the Selangor State Government had agreed to have the accounts of the Water Division audited annually by the Auditor General of Malaysia or by an independentauditor acceptable to the Bank and to transmit annually to the Bank the audited statementsof accounts not later than five months following the close of the financial year of Selangor State Government. The Auditor General has since pointed out that due to the delay in the completion of inter-departmentalaccounts and the audit thereof, the audit of WD's accounts cannot be completedin less than nine months after the close of the financial year. In view of this practical problem, it was agreed during negotiationsthat the audited statement of WD's accounts will be received with- in nine months from the close of the financialyear.

VI. FINANCE

General

6.01 The reorganizationof the Water Division, introductionof a commercialsystem of accounting,changes in procedures and establishment of the division as a self-accountingdepartment, all of which were measures undertakenas part of the first project (Loan 561-MA), have contributed towards the improvementof the financialmanagement and operationsof WD. Operating results have steadily improved since 1968 when the first project was appraised.

Past Performance and Present FinancialPosition

6.02 Between FY 1968 and FY 1971, WD's water revenues increased from about M$ 13.5 million to about M$ 19.7 million due to growth in water sales. Operating income more than doubled from about M$ 2.7 million to M$ 5.6 million. However, the 1971 and 1972 balance sheets do not show any cash - 14 - figures because prior to the reorganizationof WD as a self-accounting department (paragraph5.09), all water revenues were paid into the State Treasury and expenditureswere met from governmentbudget allocations. The financialposition of WD is sound; about 44% of its long-termcapitalization is debt and 56% equity in the form of governmentparticipation and accumulated surplus.

6.03 The water supply systems in the Kuala Lumpur area continued to be the most profitable in the State because of their size, location and utilization. These, togetherwith the smaller water supply systems that serve Klang district,form the existing supplies in the proposed project area. In 1971, they produced about 20.0 billion gallons and accountedfor about 85% of the total revenues of WD. The other water supply systems operated by WD are relativelysmall and widely scattered. In 1971 these small systems were used to produce only about 4.0 billion gallons as against their total installedcapacity of about 7.3 billion gallons. Revenues from these small systems cover operatingcosts excludingdepreciation. These systems were built prior to the first project (Loan 561-MA) under which the Selangor State Government had agreed that it would review with the Bank annually or at such other intervalsas the Bank shall request its investment program for water supply projects as a means to ensure more effective control over future capital expenditureson water supplies in the State. WD has since reviewed with the Bank annually its investmentprograms and the overall planning has improved. Assuranceswere obtained during negotiations that this agreementwill be extended to the proposed loan.

6.04 The project discussedin this report is the largest in WD's investmentprogram for the near future. Capital requirementsfor water supply schemes in other areas of the State have been estimatedby WD and are included in the financingplan and financialprojections.

6.05 The financingplan for WD's constructionprogram is in paragraph 6.06. For WD's operationsduring 1971-81the income statements are in Annex 9, the estimatedsources and applicationof funds in Annex 11, and the estimated balance sheets in Annex 12. Income statements for operations in the project area alone are shown in Annex 10 for purposes of comparisonwith the state- wide water supply operations. The assumptionsmade for the financialprojec- tions are given in Annex 13.

Financing Plan

6.06 The financingplan for WD's developmentprogram includingthe project, during 1973-77 is summarizedbelow: - 15 -

M$ US$ Percentage ----- 000's----- Applicationof Funds

Capital Expenditures Completionof First Stage Project 5,000 1,969 5.4 Proposed Second Stage Project 66,600 26,220 71.8 Other Constructionby WD 19,100 7,520 20.6 Increase in Working Capital 2,000 787 2.2

92,700 36,496 100.0

Sources of Funds

Internal Cash Generation 60,557 23,841 Less: Debt Service Requirements 26,690 10,508 NietCash Generated 33,867 13,333 36.5 First IBRD Loan 3,800 1,496 4.1 Proposed IBRD Loan 34,290 13,500 37.0 State GovernmentContributed Capital 20,743 8,167 22.4

92,700 36,496 100.0

6.07 The proposed loan of US$13.5 million equivalentwould cover about 37% of WD's developmentprogram for 1973-77,self-generated funds would cover about 37%, the first Bank loan about 4%, and the balance will be provided by the State Government. The funds provided by the State Governmentwould be for expendituresor, schemes outside the project area. The proposed financing plan is satisfactory. Assuranceswere obtained during negotiationsthat the State Governmentof Selangorwill provide all funds required for completion of the project and other water supply constructionundertaken by WD during the project constructionperiod.

6.08 It is proposed that the Bank loan would be for a period of 20 years including a grace period of 5 years. The Malaysian Governmentwould relend the proceeds of the loan to Selangor State Governmenton the same terms as the Bank loan.

Water Charges

6.09 Details of existingwater charges are in Annex 14. All service connectionsare metered. The schedule of charges includes a fixed minimum monthly charge and a rate per thousandgallons, both of which are different for domestic (US$0.39per 1,000 gallons) and non-domesticconsumers. These water charges,which have been in force since January 1966, are uniform throughout the State and are at about the same level as the charges for 16 - similar services in other states in Malaysia and in Singapore. In addition to the water cnarges WD collects from all non-governmentconsumers a deposit sufficient to cover the estimated cost of two months' supply of water. From January 1972 public standpipes are also metered and a charge at the domestic rate is raised against the State Governmentfor the water consumed.

6.10 The water charges have been establishedwith a view to earn sufficientrevenues to make the water supply operations in the state as a whole profitable. The present water charges do not cover the full costs of the systems in the outlying areas because of the nature of these systems as described in paragraph 6.03. The use of uniform charges means that the project area systems subsidize the water supply to the population in the outlying areas to some extent but it representsa practical solution for the better utilizationof existing facilities. Recognizingthis, the Government of Selangor had decided to maintain uniform water charges through- out the State and agreed under Loan 561-MA not to lower charges outside the project area. Assuranceswere obtained during negotiationsthat water charges will be the same throughout the State.

6.11 The State Governmentencourages the people in the outlying areas to nave house service connectionswherever feasible. To facilitate this, the State Government initiatedin 1970 an "installmentplan" under which WD provides the house service connectionand recovers the cost from the householder in not more than 36 monthly installments. The maximum distance from the main is generallykept under 300 ft and the average cost per connectionwhich includes one tap in the house comes to about M$ 180 and the minimum monthly installmentis fixed at M$ 5. The plan is intended to help particularly the poorer people and is applicableonly for domestic connectionswhere the mnonthlyfamily income does not exceed M$ 300. This scheme has been enthusias- tically received by the people and it has resulted in an increase of house service connections(about 6,000 up to October 1972) and reduction of public standpipes in the outlying areas. The scheme has also helped to improve the quality of servicewithout additionalcost to WD.

6.12 Under the existing loan, 561-NA, the Selangor State Governmenthas agreed to establishand maintain charges for water supply by WD throughout Selangor,wihich will provide revenues sufficient to cover the operatingex- penses of the Water Division, includingadequate maintenanceand depreciation and specificallyto produce out of the revenues from the supply of water in the Kuala Lumpur area an annual return of not less than 8% on the net fixed assets in service in that area. With the existing water rates, the above rate covenant is being met and returns in excess of 8% have been achieved during the past years in the Kuala Lumpur area.

6.13 In tileproposed project area (Kuala Lumpur and Klang districts) if the present water rates are not changed projectionsindicate that the returns would be generally in excess of 8% except for FY 1978 and FY 1979 (Annex 10). Lower returns of about 6.3% in FY 1978 and 7.1% in FY 1979 are accepta- ble because of the substantialincrease in the asset base followingcomple- tion of the second stage project at the end of 1977. For all water supply operations in the State the returns would vary from about 5% to 7% during - 17 -

FY 1970 to 1981 except for 1978 when the return would be about 4.6% (Annex 9). The returns on a state-widebasis are lower than that in the project area because of the small, widely scatteredwater supply systems, some of which have excess capacitieswhich will not be fully utilized for many years (paragraphs6.03 and 6.10). These returns provide sufficient cash for oper- ating expenses and debt service. On the basis of existing water charges, internal cash generationwill be sufficient to meet all the local currency needs of the project and interest and other chargeson the Bank loan during construction. No change in the water charges is therefore proposed. During negotiationsagreement was reached that water chargeswill be maintained at such a level to produce out of the revenues from the supply of water in the project area an annual return of not less than 8% on the net fixed assets in service in that area except for FY 1978 and FY 1979 when the returnswill be not less than 6%.

Future Finances

6.14 The projectionsshow that water revenueswould nearly double from about M$ 19.7 million in 1971 to about M$ 36.6 million in 1981 and that net income would more than double during this period (Annex 9). Debt as a percentageof long-termcapitalization would be satisfactorythroughout the period, ranging between 38% and 44% (Annex 12). Debt service coverage ranging from 1.92 to 2.86 is very good for all the years covered by the projections (Annex 11). Cash is shown remaining at M$ 2.0 million from 1973 to 1981 (Annex 12) for the reasons explained in paragraph 5.09. From 1971 to 1977 the State Governmentwould provide about M4$26.0 million towards capital works outside the project area totallingto nearly M$ 30.0 million, but from 1978 onwards Governmentwould start receiving some of this money back from WD's surpluses. The projectionsindicate that between 1978 and 1981, WD would be able to finance capital expendituresof about M$ 22.0 million from its own resources.

VII. AGREEMIENTSREACHED AND RECOMMENDATION

7.01 During loan negotiationsagreement was reached on the following principal points:

(a) Adequate steps will be taken for proper maintenance of the Langat dam after construction,and the systematic collectionof hydrologicaldata for the Langat river basin will be continued (paragraph3.08);

(b) The Selangor State Governmentwill take steps to control the discharge.ofsewage effluents from inhabitedareas and industries into the Langat river (paragraph3.15);

(c) The Water Division will be maintained as financially separate unit (paragraph5.08); and -18-

(d) Selangor State Government will maintain water charges sufficient to provide revenues representinga return of not less than 8% per annum on the net fixed assets in operation in the project area except for FY 1978 and FY 1979 when the returns will be not less than 6% (paragraph 6.13).

7.02 The project is suitable for a Bank loan of US$13.5 million equivalentfor a term of 20 years includinga grace period of five years.

May 2, 1973 ANNEX 1 Page 1

MALAYSIA

KUALA LUMPUR WATER SUPPLY PROJECT - SECOND STAGE

ExistingWater Supply and Sewerage in Klang Valley Region

1. The locationsof existing water supply works serving the Klang valley region are shown in Map IBRD 10288.

Bukit Nanas Works

2. The treatmentworks is located in the hills of Bukit Nanas and draws its raw water from the Klang Gates impoundingreservoir with a capa- city of 4300 IMg. The Klang Gates Dam, a reinforcedconcrete structure constructedin 1955 on the upper reaches of the Sungei Klang (Klang river) just north of Kuala Lumpur, commands a catchmentarea of 29 square miles of forest reserve. The reliable yield of the reservoir is 32 IMgd.

3. The intake arrangementspermit water to be drawn from the reser- voir at various levels and pH correctionwith lime is done at the intake. Two interconnectedconcrete lined steel mains of 45 in. and 46 in. diameter respectivelyconvey raw water by gravity from Klang gates reservoir to Bukit Nanas treatmentplant.

4. The treatmentprocess consists of aeration,chemical coagulation followed by clarification,rapid sand filtration,pH control and cholorina- tion. The works include a chemical and bacteriologicallaboratory for carrying out routine tests on the quality of water. The treatmentplant has a capacity of 38 IMgd but is normally operated at 33 to 34 IMgd.

5. Storage for the treatedwater is provided at Bukit Nanas in two reinforcedconcrete reservoirsof 8 IMg total capacity. Water from the Bukit Nanas works is delivered to Kuala Lumpur by gravity.

Gombak Works

6. The treatmentworks constructedin 1970 draws its raw water from an intake on the Gombak river at mile 13 which commands a catchment area of 17 sq. miles of forest reserve. The reliable yield of the source is 6 IMgd but the capacity of the treatmentworks is 4 IMgd.

7. The treatmentprocess consists of chemical coagulation,followed by clarification,rapid sand filtration,pH control and cholorination. ANNEX 1 Page 2

Kepong Headworks

8. The works constructedbefore 1940, draws raw water from an intake on the Sungei Keroh with a catchmentarea of 0.4 sq. miles. A cholorinated supply of about 0.5 IMgd is provided from this source.

Ampang ImpoundingReservoir

9. A 40 DMg reservoir constructedin 1892 provides a supply of about 0.5 IMgd. The reservoir is filled by a pipeline from the upper reaches of Ampang river commanding a catchment area of 2 sq. miles in the Ampang forest reserve. Water is generally clear and it requires only cholorination before distribution.

Ampang Intake

10. A weir across the Ampang river constructedin 1902 commands a catchmentarea of about 7 sq. miles. The treatmentworks has a capacity of 3.5 IMgd and provides for chemical coagulation,clarification and chlo- rinationbefore the water is distributed.

Subang Airport Works

11. The treatmentworks consisting of conventionalrapid gravity filters, draws water from an intake pumping installationon the Sungei Buloh (Buloh river) commandinga catchmentarea of 24 sq. miles. The works constructedin 1964 has a capacity of 1.44 IMgd. It was originally intended to supply the Subang InternationalAirport. As the water con- sumption at the airport is only a small percentage of the works capacity, the supply has now been extended to include the Sungei Buloh and Subang villages. From one of the tributariesof the Sungei Buloh, about 0.35 DMgd is also drawn and treated at the Sungei Buloh works which were constructed before 1940.

DamansaraWorks

12. This source between Subang and Batu Tiga draws water from the Damansara river. Water is pumped from the Damansarariver through an intake pumping station to an impoundingreservoir from which it is again pumped to a treatmentplant. The cost of production is thereforehigh. The catch- ment area of about 48 sq. miles consists of forest reserve, rubber and oil palm estates, tin mines and inhabitedareas. The Damansaraworks were constructedin 1965 with a capacity of 10 IMgd but tin mining operations in the catchmentarea dischargea heavy silt load in the river which gives problems at the intake. The yield from the river has on occasions dropped to 6.5 IMgd. At present the normal capacity of the works is about 9.0 DMgd.

13. The treatmentprocess consists of chemical coagulation,clarifica- tion, rapid gravity filtration,pH correctionand chlorination. ANNEX 1 Page 3

North Hummock Works

14. This plant provides a gravity supply to Klang town and surrounding areas. It was constructedin 1950 and the treatmentplant draws water from the Subang impoundingreservoir with a storage capacity of 760 lMg located in the hills north of Klang. The treatmentcapacity of about 6.0 IMgd is in excess of the reliable yield of the reservoir and water has to be pumped from the River Buloh to the reservoir to make up the difference.

15. The treatmentworks consist of conventionalrapid gravity filter units. The raw water quality is uneven due to algal growths and care is needed in the operationof the treatmentplant to producewater of uniform quality.

Cheras Works

16. Raw water for the Cheras works is taken from the Langat river downstreamof the Kuala Lumpur first stage project intake. The works con- sist of conventionalrapid gravity treatmentplant with a capacity of about 6 IMgd. Only 0.5 IMgd from this treatmentplant is supplied to the Klang valley region.

DistributionSystem

17. The bulk of the water supply is at present drawn from the Bukit Nanas works which supplies the whole of Kuala Lumpur and most of Petaling Jaya. The balance of the Petaling Jaya supply comes by gravity from Damansara works which also makes up the balance of the demand required by Klang and Port Klang which cannot be provided from North Hummock works. The remaining sources supply water to their immediateenvironment.

18. The existing distributionsystem is served mainly by a gravity supply from the various sources discussedabove. These sources are located in hilly areas outside the area of demand except Bukit Nanas treatmentplant which is located on top of a hill in the center of Kuala Lumpur. Where gravity supply is not feasible pumping is done locally to serve the high level areas.

19. The practice so far has been to use asbestos cement pipes for distributionmains up to 24 in. diameter and to use steel pipes for the larger mains. The length of all mains larger than 2 in. diameter laid in the water supply systems of Selangor State was about 2314 miles at the end of June 30, 1972 of which 1356 miles were in the Klang valley region.

Project under Construction(Loan 561-MA)

20. The project consists of constructionof a weir across the Langat river near Mile 10 on the Ulu Langat road, a pumping station to house raw and treated water pumps, a treatmentplant of 14 DMgd capacity,chemical house, laboratory,stores, office and houses for operatingstaff, ANNEX 1 Page 4

21. The project also includes the laying of a 48 in. diameter 3000 ft long treated water pumping main to a 2 million gallon prestressedconcrete reservoir from which water will flow by gravity to two terminal reservoirs at 4-1/2 million and 2-1/2 million gallons capacity respectively. The transmissionmain from the balancing reservoir to the terminal reservoir is 33 in. diameter steel pipes for about 37,000 ft. Extension of the distributionsystem in the Kuala Lumpur area by some 65,000 ft of 15 in. to 36 in. diameter pipes and purchase of some 20,000 water meters are also included in the project.

22. The intake works, treatment plant, pumping station, balancing reservoir, and connectingpipelines, have all been completedexcept for minor works and a partial supply of about 3.0 IMgd is being made from the works since September 1972. The two prestressedconcrete terminal reservoirs and some of the distributionsystems are yet to be completed.

January 17, 1973 ANNEX2 Page 1

MALAYSIA

KUALALUNPUR WATER SUPPLY PROJECT - SECONDSTAGE

Description of the Project

1. The project includes the constructionof a dam on the Langat river at mile 24 northeast of Kuala Lumpur, provision of additional raw and treated water pumps and treatment facilitiesof 28 IMgd capacity at the existing Langat river intake works at mile 10, constructionof addi- tional service reservoirs and distributionmains in the Klang valley region (project area).

2. The project forms a part of the long-range developmentplan for water supply to the Klang valley region prepared by Binnie & Partners, con- sultants engaged by the Selangor State Government. The study indicated that the water demand in the project area would increase by about 120 IMgd in the next 20 years. Alternativemeans of meeting the demand were exa- mined and the developmentof the Langat river in stages, of which the pro- ject forms the second stage, was selected as the most feasible and economic. The reservoir formed by the proposed dam would be developed as a regulating reservoir to augment the yield in the Langat river at the mile 10 intake works in order that a reliable supply of 85 IMgd would be obtained. The treatment plant will be expanded in stages to 85 IMgd total capacity and bulk terminal storage reservoirs for treated water would be located at Sungei Midah, Jalan Kuchai, Castlefield and Petaling hills to serve as focal points for distribution. The remaining 35 IMgd would be obtained at the lower Langat site by direct abstraction. The proposed developmentsare shown in Map IBRID10288.

Langat Dam

3. The proposed dam referred to as the mile 24 dam will have a maximum height of 175 feet. At the dam site the Langat river drains a catchment area of 16 sq. miles comprising mainly forest reserves. The reservoir formed by the dam will have a gross storage capacity of 10,000 11g and a surface area of about 650 acres.

4. The boreholes along the center line of the proposed dam show bed rock at reasonable depth. Site investigationshave indicated that suitable material is available nearby to construct an earth dam. A con- crete cut-off will be required across the valley bottom. Two saddle dams are also necessary, one on each flank, and because of the steepnessof the natural ground in the vicinity of the saddle dams, ground treatmentwill be required in the form of extra filling at the abutments and trimming of existing slopes. A stream entering the reservoir near the right abutment will need to be diverted to clear the upstream toe of the dam. ANNEX 2 Page 2

5. During detailed design of the dam, use of concrete for the main and saddle dams would be consideredand adopted if cost savings are likely. Details of the arrangementsto let water into the river would also be decided then.

Intake Works

6. The existing intake works and pumping station do not require any extensions. Two 15 IMgd raw water pumps and two 15 IMgd treated water pumps and the associatedelectrical plant will be installed under the project.

Treatment Plant

7. A new treatment plant will be built adjacent to the existing treat- ment works. The treatment process will consist of coagulationwith aluminum sulphate, clarification,filtration, pH adjustmentand chlorination. The new plant will have about 28 IMgd capacity sedimentationtanks and 28 IMgd capacity filter units. The detailed design of the sedimentationand fil- tration units will be based on a study of the performanceof the recently built first stage treatment plant. Existing chemical stores, administration building and laboratoryare adequate and no extensionsare proposed under the project.

Service Reservoirs

8. Two bulk storage reservoirsof 5 IMg capacity at Petaling hill and 4 IMg capacity at Castlefieldestate will be built. In addition, a dozen smaller service reservoirswill be built at different locations for effective distribution.

Pumping and TransmissionMains

9. The existing pumping main is adequate for raw water conveyance to the treatmentplant and a 46 in. diameter 5000 ft long steel main will be laid for pumping the treated water to the existing balancing reservoir. A 49 in. diameter steel main 12,000 ft long will deliver the additionalquan- tity of water from the balancing reservoir to the Sungei Midah terminal reservoirs. From the terminal reservoirsa 46 in. diameter 10,500 ft long steel main will deliver water to the Castlefieldestate reservoir through a 38 in. diameter 14,500 ft long steel main and to the Petaling hill reservoir through a 27 in. diameter 16,500 ft long steel main. The sizes of these mains will be reviewed further during detailed design.

DistributionSystem

10. The project will include laying some 224,000 ft of 8 in. to 45 in. diameter distributionmains to improve and extend the supply in the project area. Water meters will be installed as needed and the cost of some 40,000 meters is included in the estimates.

January 17, 1973 MALAYSIA

KUALA LUMFPUWATER SUPPLY PROJECT - SECOND STAGE

Project Cost Estimates

------Local Costs ------Foreign Costs ------Sub Sub Year ending December 31 1973 1974 1975 1976 1977 Total 1973 1974 1975 1976 1977 Total TOTAL ------M$ Millions ------______Investigation& Survey 0.26 0.11 - 0.01 - 0.38 0.11 0.11 o.49

Land & Compensation - 0.58 0.35 0.01 - o.94 ------0.94

Dam including Control Gate valves etc. - 0.49 3.90 3.92 3.42 11.73 - 0.39 3.28 3.46 2.79 9.92 21.65

Intake and pumping plant - 0.05 0.02 - - 0.07 - o.48 0.15 - - o.63 0.70

Treatment plant - 1.25 0.57 0.10 - 1.92 - 1.72 o.68 0.09 - 2.49 4.41

Transmission and Distribution pipelines) - 1.93 1.76 0.63 0.03 4.35 - 4.52 4.06 2.50 0.05 11.13 15.48

Distribution reservoirs) and pumping station ) - 1.13 0.96 0.44 0.04 2.57 - 0.92 0.79 0.35 0.03 2.09 4.66

Water meters - 0.12 0.12 0.12 - 0.36 - 0.28 0.28 0.28 - o.84 1.20 Sub Total: 0.26 5.66 7-.8 .23 3 22.32 0 .11 8.31 2. 27.21

Consulting Services 1.18 1.64 0.61 0.45 0.25 4.13 0.21 0.29 0.11 0.08 0.03 0.72 4.85

Contingencies: Physical - 0.52 0.7 4 0.54 0.33 2.13 - 0.72 o.88 0.60 0.27 2.47 4.60 Price 0.06 o.63 1.08 1.11 o.85 3.73 0.01 0.75 1.23 1.20 0.70 3.89 7.62

TOTAL 1.50 8.45 10.11 7.33 4.92 32.31 0.33 10.07 11.46 8.56 3.87 34.29 66.60

December 18, 1972

MALAYSIA KUALA LUMPUR WATER SUPPLY PROJECT - SECOND STAGE ConstructionSchedule

YEAR| 1973 1974 1975 1976 1977 TIME IN MONTHS 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60

1. Lend acquisition

2. Topogeaphrcaisurvey

3. Site investigationDam & reservoirs 4. Supplyof transmissionpipes, specials, valves and firt ngs 5. Pumpingplant ......

6 Plectrivalplant

7. T-eatmnent plant

8 Cvil engineering-nacks Trnatmentworks and resatnoirs ______mi sioninnCom of ttvtm n wowork 9. Transmissionplpe laying _ f -

10 Dam andancilary workst 11. Modelanalysis :------...... r

12. Hydrologicalstudies r. .

13. Supplyof pipes,specials, calves and fittings and distributionsystem

14. Ttunk mainslaying

15 Civil engineer-lgssnrks. service reservoirs and pumpingstation and distribctnn system _i _ 1

LEGEND

5P M.nuf--ul

i .;.L. 1 u trve7 Land arnutiltion World Bank-7233(2Ri

ANNEX 5

MALAYSIA

KUALALUMPUR WATER SUPPLY PROJECT - SECOND STAGE

Estimated Schedule of Disbursements

IBRD Cumulative Disbursements Fiscal Year at end of Quarter and Quarter US$ 000's Percentage

1974 Second 130 1.0 Third 1,120 8.3 Fourth 2,110 15.6

1975 First 3,105 23.0 Second 4,095 30.3 Third 5,220 38.7 Fourth 6,350 47.0

1976 First 7,480 55.4 Second 8,605 63.7 Third 9,450 70.0 Fourth 10,290 76.2

1977 First 11,135 82.5 Second 11,975 88.7 Third 12,355 91.5 Fourth 12,740 94.4

1978 First 13,120 97.2 Second 13,500 100.0

April 25, 1973

MALAYSIA - KUALA LUMPUR WATER SUPPLY PROJECT- SECOND STAGE

PROJECTAREA POPULATION AND WATER PRODUCTION STATISTICS AND PROJECTIONS

40 -

35 1

30

000

Z 0 __ 0I

1900

200 ~~~~~ExistingWornsOutput 20.1 Billion Gallons ______F- l) .ciz ~ - ~ - ~ ~ ~ ~ Iz <~~~~~~~~~~~~ 1500

< 15 ______1300 2

F- 1100

1 0~~~~~~~~~~~~~~~~~~~~~~~~~~

700

Projnctnd- ~~~~~~~300

1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981

World Bank - 7338

MALAYSIA

KUALA LUMPUR WATER SUPPLY PROJECT - SECOND STAGE

Internal Financial Rate of Return

1t,88to Year Ending December 31 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1997

Incremental Anniual Water Seles IMg - - - 1,048 2,R94 3,787 5,302 6,899 8,687 10,394 12,100 13,961 15,8'3 17,840 19,856 21,873

------____M$ OOO's------______

Incremental Water Revenue - - - 1,100 2,514 3,976 5,567 7,244 9,121 10,914 12,705 14,659 16,614 18,732 20,849 2:,967

Incremental Operating Costs - _ _490- 1,120 1,750 2,2450 3,150 3,920 4,690 5,460 6,300 7,140 8,050 8,960 9,870

Incremental Cash Flow _ - - 610 1,394 2,226 3,117 4,o94 5,201 6,224 7,245 8,359 9,474 10,682 11,889 13,097

Project Cost 1,760 17,140 19,260 13,580 7,240 - 3,000 3,000 4,000 2,000 500 500 500 500 - -

Internal Financial Rate of Return is Approximately 8.6'

NOTE: Incremental water sales do not include increases due to reduction in unaccnunted-fo-w w_'er from existing supplies. Incremental water sales

.' in hi a -s SL- t l .' ",re - ller than those shown in Annex 10.

December 8, 1972

5' a3 HZ> ANNEX 7 Page 2

Assumptions for Estimating the Internal Financial Rate of Return

1. The rate of return calculationtakes as benefits the incremental revenues earned by the project and takes as costs the project costs and the incrementaloperating costs net of depreciation. All revenues and costs are at 1972 price levels and do not include taxes.

2. The following assumptionshave been made for the calculations shown on page 1 of this Annex.

Incrementalwater sales are derived as follows:

(i) In 1976 the first 3.5 IMg per day is utilized as the Stage One project supplies sufficient water to this point.

(ii) The following quantities are utilized in the years as shown making up the total water produced by the Stage Two Project of 28.0 IMg in 1981.

1977 - 1978 4.5 IMg per day 1979 - 1980 5.0 IMg per day 1981 5.5 IMg per day

(iii) The following quantities are then estimated to be utilized in the years as shown to make full use of the potential of the dam to the total of 85 IMg.

1982 - 1983 5.5 IMg 1984 - 1985 6.0 IMg 1986 - 1988 6.5 IMg

(iv) The proportionof water produced taken into account for calculatingincremental water revenue is 82% in 1976, rising to 85% in 1981 and remainingat that point until the end of the 25-year calculationperiod.

(v) The rate of charge per 1,000 gallons used in cal- culating the incrementalwater revenue is M$1.05 which is the average rate of billing in the Kuala Lumpur and Klang area in 1970-1971. No change in this rate is anticipated.

(vi) The incrementaloperating costs are calculatedon the basis of the estimatedoperating costs of producing 1 IMg of water per day in 1972 of M$140,000 per annum. This tends to overstate the operating cost. ANNEX 7 Page 3

(vii) The estimatedadditional investmentrequired in order to fully use the 85 IMgd are shown as project costs through to 1986.

3. The return on the basis of the above assumptions is about 8.6%. The return is sensitive to variations in project cost and operating cost. A 10% increase in the project cost or operating cost would reduce the return to about 7.8% and a 10% decrease in the project cost or operating cost would increase the return to about 9.5%.

January 17, 1973

MALAYSIA

KUALA LUMPUR WATER SUPPLY PROJECT - SECOND STAGE ORGANIZATION CHART OF SELANGOR STATE WATER DIVISION

CHIEF MINISTER (MENTRI BESAR) I EXECUTIVE STATE COUNCIL I |STATE SECRETARY |

|STATE FINANCIAL OFFICER|

SELANGOR WATER DIVISION SUPERINTENDING ENGINEER

Planning& Construction Production & Distribution Accounting Section Administration Section Section Section

Senior Engineer Senior Executive Engineer Chief Accountant Chief Clerk

DevelopmentPlanning Production & Treatment * Accounting * Administration

Designof Projects Distribution * Budget * Personnel

Construction Supervision Maintenance& Stores * Purchasing * Correspondence i

Waste Detection Billing, Collections Filing & Record (D D 5 Units & Payments Keeping 1 OD *Consumer Services * Internal Audit

* Meter Reading 3 Units

* Quality Control

7Units . World Bank - 7232(R)

ANNEX8 Page 2

Notes on the Organizationof the Water Division

1. The Selangor Public Works Water Division (WD) was originally organized on the basis of recommendationsmade by W.D. Scott & Co., an Australian firm of Management Consultantsfinanced under Loan 561-MA. The consultantshad recommendedthe establishmentof a ManagementBoard with the State Engineer as Chairman and the State Financial Officer, the Super- intendingEngineer (Water)and two non-officialsas members. The intention was that the Management Committeewould be responsiblefor supervisingday- to-day operations and assist in formulatingpolicy for Government'sappro- val. The Committee has not been establishedso far but WD has been given the status of a separate departmentunder the direct control of the State Secretary who is the Chief Executive Officer for the State Government. The SuperintendingEngineer (Water) functionsas the General 'Managerof the Water Division and is its Chief Executive Officer. The present orga- nization chart is shown on page 1 of this annex.

2. The Water Supply Division is organized on a functionalbasis under four sections. The largest among these is the production and distribution section under the charge of a Senior Executive Engineer who also functions as the Chief of the Water Supply Division in the absence of the Superintend- ing Engineer. The production and distributionsection is responsiblefor water treatment and operation and maintenanceof all water supply systems in the State. It is also responsiblefor quality control, meter reading, consumer services, waste detection,maintenance of facilitiesand stores. Seven different units under the section deal with these functions. Of these, three are to be under the Charge of Engineers, three under technical assistants and one under a chemist. The three engineeringpositions are vacant at present.

3. The planning and constructionsection under the charge of a senior engineer is responsible for developmentplanning, design of projects and constructionsupervision. The senior Engineer's position is at present vacant. The organizationalchart includes five units under this section, four under the charge of engineers and one under a technicalassistant. One of the engineeringpositions is vacant. The constructionunits operate in close liaison with district engineers of the State PWD who assist in overseeing the constructionand certify payments for works constructed. The water supply division's technical assistants also supervise construction directly wherever posible. When the two engineeringvacancies in the section are filled, it is proposed that all water supply activities in the districtswill be taken over entirely by the Water Division's staff. Additional clerical staff will be assigned to the districts to assist in the taking over of the administrativeand financialwork from the PWD dis- trict engineers.

4. The accounting section is under the charge of a chartered accountant. He is assisted by three units under him, and is responsiblefor all accounting functions of the Water Division, budget control, billings, collections,handling and accounting of cash, salaries administrationand preparation of budget and periodical financial statements. He advises the I ANNEX 8 Page 3

SuperintendingEngineer (Water)on all financialmatters relating to the division.

5. The administrationsection under the charge of a chief clerk assists the SuperintendingEngineer in the overall administrationof the division and on personnelmatters. It also handlet all correspondence, filing and record-keepingfor thg Water Division.

6. The electricaland mechanical equipment used in the water supply systems and the transportvehicles are being maintainedby the Senior Mechanical Engineer of the State PWD. He also supervises the Water Divi- sion's meter workshops. In order to take over these functions the Water Division has recruited a technical assistant (electrical)and is in the process of recruiting a technical assistant (mechanical). To begin with, the new staff will work under the supervisionof the mechanical engineer but eventually the Water Division will have its own workshops and staff for carrying out these functions. At present the water meters store is also under the mechanical engineer. The water meters, spare parts, etc. are purchased however from the Water Division's funds and expenditures for maintenanceworks, purchase of chemical, etc. are authorizedby the Senior Executive Engineer in charge of production and distributionof water.

7. The Water Division does not have a separate central store for its materials and equipment. There is a main store for Kuala Lumpur district and one in Petaling Jaya under the charge of storekeepers. In each of the other districts the general PWD stores include water supply stores which are physically separatelymaintained and accounted for. In most treatmentplants a stock of chemicals and other stores required for each plant are kept in a small store under the direct control of the Plant Superintendent. Inventory levels are decided by the SuperintendingEngineer and the Senior Executive Engineer. Since the chemicals and most items are readily available in the country, the inventory levels are generally low. In the case of pipes, however, the inventory tends to be large at times due to the purchase at the end of the financial year with a view to utilizing the budget allocationsfully. Under the existing government regulations (Treasury instructions)two officers of the Water Division are required to make a spot check of all Water Division's stores every quarter and make a detailed check once a year. In future, a half-yearly inventory report will also be received by the SuperintendingEngineer.

8. Water bills are prepared for all consumers at the Water Division's main office in Kuala Lumpur, indicating consumer'sname, address, account number, details of any amounts outstanding,etc. and are sent to the districts for completion. The meter readers calculate the amount due on the basis of consumptionrecorded and hand over one copy of the bill to the consumer and send another to the Water Division's headquartersfor verifi- cation and posting into the consumer's accounts. Domestic consumers are billed once in two months and others every month. The payment of bills is mostly done through the collection offices maintained by the Water Division. In the outlying areas, local authorities collect on behalf of the Water Division for a small fee. January 17, 1973

MALAYSIA

KUALA LUMP[JR WATER SUPPLY PROJECT - SECONI) STAGE

Selangor Water Division

Income Statements 1971-1981

Year ending December 31 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 Actual Probable _____------Estimate ------Water Produced (fl'g) 23,573 24,250 26,060 27,850 29,640 31,460 33,250 35,080 37,080 39,090 41,320 Water Sold (DIg) 18,329 19,000 20,460 22,150 23,600 25,340 26,820 28,630 30,300 32,310 34,540 t Water Sold to Water Produced 77.8 78.3 78.5 79.5 79.6 80.5 80.7 81.6 81.7 82.7 83.6 ------______------M$ 000 's ------_ ------_------__ ------____-_----_-_-_- __-_-_-_-

REVENUES

Water Sales 18,979 19,683 21,204 22,982 24,544 26,364 27,907 29,829 31,579 33,723 36,059 Connection Fees and Charges 698 469 369 384 399 415 431 449 467 487 508 Other Fees 35 37 39 41 43 45 48 51 54 57 60 Total Billings 19,712 20,189 21,612 23,1407 226,824 28,8 30,329 32,100 7 36,627 Less: Provision for Bad Debts - 20 10 10 10 10 10 10 10 10 10 Net Billings 19,712 20,169 21,602 23,397 21,976 26,814 28,376 30,319 32,090 34,257 36,617 Other Income 37 35 35 35 35 35 35 35 35 35 35

Total Revenues 19,749 20,204 21,637 23,432 25,011 26,849 28,411 30,354 32,125 34,292 36,652

OPERATING COSTS

Personnel 4,814 5,079 5,358 5,653 5,964 6,292 6,638 7,003 7,388 7,794 8,223 Electricity 1,352 1,437 1,653 1,870 2,087 2,308 2,525 2,746 2,989 3,232 3,502 Chemicals 1,203 1,263 1,384 1,508 1,637 1,773 1,875 2,017 2,175 2,294 2,473 Fuel 57 60 66 71 78 84 91 97 105 113 122 Repairs and Maintenance 1,469 1,555 1,635 1,725 1,820 1,920 2,026 2,137 2,254 2,378 2,509 Connections 738 422 332 346 359 374 388 404 420 438 457 Administration 199 210 221 234 247 260 274 289 305 322 340 Other 614 648 683 721 761 802 847 893 942 994 1,049 Depreciation 3,657 3,774 4,314 4,617 4,699 4,792 4,817 6,582 6,657 6,657 6,832

Total Operating Costs 14,103 14,448 15,646 16,745 17,652 18,605 19,481 22,168 23,235 24,222 25,507

Income before Interest 5,646 5,756 5,991 6,687 7,359 8,244 8,930 8,186 8,890 10,070 11,145 Interest 2,467 2,436 2,527 3,396 3,994 4,601 4,976 5,102 4,905 4,695 4___,479

NET INCCOE 3,179 3,320 3,464 3,291 3,365 3,643 3,954 3,084 3,985 5,375 6,666

Average Net Fixed Assets In Service 92,862 102,292 115,100 118,434 117,276 115,781 146,776 176,877 173,757 170,600 166,856

Percentage Return on Average Net Fixed Assets in Service 6.1 5.6 5.2 5.6 6.3 7.1 6.1 4.6 5.1 5.9 6.7

NOTE: Average water charge per 1,000 gallons = M$1.04 MALAYSIA

KUALA LUMPUR WATER SUPPLY PROJECT - SECOND STAGE

Klang Valley Region (Project Area)

Income Statements 1971-1981

Year ending December 31 Actual Probable Estimate 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981

Water Produced (IMg) 19,509 20,080 21,720 23,360 25,000 26,640 28,290 29,930 31,760 33,580 35,590 Water Sales (IMg) 15,536 16,060 17,374 18,922 20,252 21,849 23,195 24,842 26,357 28,207 30,249 * Water Sold to Water Produced 79.6 80.0 80.0 81.0 81.0 82.0 82.0 83.0 83.0 84.0 85.0

------__------_----_ M$ 000 s -- __ - - - -- _ - _- - _- __------_ _ ------__

NWter salgs 16,311 16,863 18,243 l,868 21,265 22,941 24,355 26,084 27,675 29,617 31,761 ConanctiQP Fees and Charges 414 326 269 280 291 3O02 314 327 340 354 369 Okher Fees 3 41 4 45 47 50 5 IligTaTotal ailiimnge 16,757 17,2Z2 7os54 -2471f _dI 28,062 3,8 ,A Less: Provisiom for Bad Debts - 20 .1 10 1D 10 10 10 10 10 10 Net Billings 16,757 8X 37c 2b, 30,Cn 173 Otber Revemas3 35 35 35 35 35

Total Revenues 17,237 18,572 20,210 0 23,309 4,737 28,087 30,046 -32.?0

OPERATING CoSTS

Personnel 3,708 3,832 4,043 4,265 4,500 4,747 5,008 5,284 5,574 5,881 6,204 Electricity 919 993 1,205 1,417 1,630 1,842 2,055 2,268 2,505 2,740 3,000 Chemicals 1,035 1,044 1,152 1,264 1,379 1,499 1,624 1,752 1,896 2,045 2,211 Fuel 16 49 54 59 64 70 76 82 89 96 103 Repairs and Maintenance 1,073 1,163 1,227 1,294 1,366 1,441 1,520 1,604 1,692 1,785 1,883 Connections 496 293 242 252 261 272 283 294 306 319 332 Administration 159 168 177 187 197 208 219 231 244 257 272 Other 473 499 526 555 586 618 652 688 726 766 808 Depreciation 2 2,755 3,295 3,582 3,537 3,500 3,427 5,337 5,305 5,183 5,224

Total Operat;ing Costs 110,796 11,921 12,875 13,520 14,197 14864 8,337 19,072 20,037

Income before Interest 6,233 6,441 6,651 7,335 8,100 9,112 9,873 8,941 9,750 10,974 12,171 Interest 1,666 1 1,754 2,636 3,251 3,874 4,268 _L412 4,234 4,045 3,852

Net Income 4,567 4,793 4,897 4,699 4,849 5,238 5,605 4,529 5,516 6,929 8,319

Average Net Fixed Assets in Service 67,964 76,557 88,626 90,536 86,976 83,458 113,294 142,212 136,891 131,647 126,444

Percentage Return on Net Fixed Assets in Service 9.2 8.4 7.5 8.1 9.3 10.9 8.7 6.3 (.1 8.3 9.6

NOTE: Average water charge per 1,000 gallons = M$ 1:05

April 25, 1973 MALAYSIA- KUAIA LUMPURWATER SUPPLY PROJECT - SECOND STAGE

SELANGORWATER DIVISION

Cash Fl.ov Projections 1971-1981

…------__ _------…M$ 000s------Year ending December 31 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981

SOURCES OF CASH Internal Cash Generation Net Income before Interest 5,646 5,756 5,991 6,687 7,359 8,244 8,930 8,186 8,890 10,070 11,145 Depreciation 3,657 3,774 4,314 4,617 4,699 4,792 4,817 6,582 6,657 6,657 6,832 Accounts Payable 78 82 87 91 96 102 107 114 119 126 133 Deposits - 277 292 307 325 343 362 381 402 425 448 473 Total Internal Cash Generation 9,657 9,9D4 1069 11,720. 12'97 13,500 14,235 15284 1 17,301 15 53

Loans First IBRD 1,052 3,700 3,800 - - - Proposed IBRD - - 330 10,070 11,460 8,560 3,870 _ _ Federal 200 200 ------Total Loans 1,252 3,900 4,130 10,070 111w 5,560 3,370 0 -- - State Contribution 2 752 2 543 4 271 5,552 6 802 3 410 708 ( 4 333) ( 1 510) ( 2 642)( 2,854) TOTAL SOURCES OF CASH =410 _ 2 30,759 25470 1 13 19_31 15729

APPLICATIONS OF CASH Capital Expenditure First Project 3,054 6,500 5,000 Proposed Project - - 1,830 18,520 21,570 15,890 8,790 - 3,000 3,000 4,000 Other 14,685 6,074 6,100 3,503,5 50D 3,000 3,000 3,000 3,000 3,000 3,000 Total Capital Expenditure 9,739 12,930 22,020 25,070 11,790 32,743,000 6 6 7,000

Debt Interest - First IBRD Loan - _ - 608 580 551 520 487 452 415 374 - Proposed IBRD Loan _ _ 128 439 1,118 1,810 2,276 2,500 2,400 2,300 2,200 -" Federal Loans 2 467 2436 2,439 2,349 2296 2240 2 180 2115 2053 1 980 1 905 Total Interest 4,5272 t 3 t0765 4,96013,994 V t;

Principal - First IBRD Loan - 180 390 420 450 480 510 540 570 615 675 - Proposed IBRD Loan _- -_- _ _ _50 1,400 1,500 1,600 - Federal Loans 784 831 883 933 986 1io42 1 102 1 167 1,229 1 302 1 377 Total Principal 1.011 127 3 1 , 436 15 , 6 3 199 3 417 Total Debt Service 1 3, 7 8 0 0 5 307 W 8 -915-3;i6 87135 Accounts Receivable 800 176 214 409 87 276 244 291 266 325 354 Increase in Inventories 131 138 146 154 162 171 181 191 201 212 224 Increase in amounts due from Collection Agencies (259) 12 10 10 10 10 10 10 10 10 10 TOTAL APPLICATIONS OF CASH 13 W717, 100 30,759 13 1 51 1 5915,729

Increase (Decrease) in Cash _ _ 2,000 - - Cash at Beginning - - - 2,000 2,000 2,000 2,000 2*000 2,000 2,000 2,000 Cash at End - - 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000

Debt Service Coverage 2.86 2.76 2.71 2.38 2.22 2.13 2.09 1.98 1.92 2.06 2.21

April 25, 1973 MALAYSIA - KUALA LUMPURWATER SUPPLY PROJECT - SECOND STAGE SELANGORWATER DIVISION

Balance Sheets 1971-1961

------M$ OOO's------______As At December 31 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980

ASSETS Fixed Assets 253,165 256,165 259,165 Buildings Plant and Equipment 133,860 155,465 167,565 171,065 174,565 177,565 246,165 249,165 74 80 736 87,393 94,225 Less: Accumulated Depreciation 40o484 44,258 48 572 53 189 57,888 62,680 67 497 079 172,429 168,772 164,940 Net Assets 93,376 1 07 18, 99 116,677 114,oo5 175 66 175506r 3 000 6 000 10 000 Construction in Progress 10 031 1 000 1,830 20 350 41,920 57,810 1B000 1 000 175,429 174,772 174,940 Total Fixed Assets 103, 112,207 120,623 138,226 15B,597 172,695 179,668 176,066

Current Assets 2,000 2,000 2,000 Cash - - 2,000 2,000 2,000 2,000 2,000 2,000 4,805 5,130 5,484 Net Accounts.Receivable 2,842 3,018 3,232 3,641 3,728 4,004 4,248 4,539 270 280 300 Net Cash Due From Collection Agencies 188 200 210 220 230 240 250 260 4,069 4,293 Inventories 2,513 2,651 2,797 2,951 3,113 3,284 3,465 3,656 3,857 18 18 18 Other 18 18 18 18 18 18 18 18 497 12,095 Total Current Assets 5 561 5 8 8 T97827 9_546 9981 10 473 10 950 11 1989,64 16,3559 1837 17,035 Total Assets 9 110_ 129,O 0 W -5 6 1

LIABILITIES Goveriment Participation and Equity 69,035 66,393 63,539 Vontributed Capital 51,302 53,845 58,i16 63,668 70,470 74,170 74,878 70,545 33 650 39 025 45,691 Accumulated Surplus 5 544 8 864 12 328 15 619 18,984 22 627 26 581 29,665 109,230 Total Equity 56,846 62,709 70,444 7927 9,454 96,797 101!45 100,210 102,685 105v418

Debt 31,950 Federal Government Loan 42,602 41,971 41,088 40,155 39,169 38,127 37,025 35,858 34,629 33,327 5,390 First IBRD Loan 2,720 6,240 9,650 9,230 8,780 8,300 7,790 7,250 6,680 6,065 30 450 28 850 Proposed IBRD Loan - - 330 10,1400 21,860 30,130 34,000 33,350 31,950 145,322 14i,211 51,065 59,785 69,809 76,557 78,815 76,458 73,259 6 2 66T19 Less Current Maturities 1,011 1,273 1,353 1 436 1 522 1X612 2,357 3,199 3 1417 3 652 3,832 42 66.190 62.358 Total Debt 44,311 46,938 49!715 58!349 68_287 74,945 763458 73.259 69 171,508 Total Equity and Debt 101,157 109,647 120,159 137,636 157,741 171,7[42 757 17349 727 171,b8

Current Liabilities 2,417 2,550 Accounts Payable 1,493 1,575 1,662 1,753 1,849 1,951 2,058 2,172 2,291 8,144 8,592 9,o65 Deposits 5,307 5,599 5,906 6,231 6,574 6,936 7,317 7,719 1,011 11273 1 353 1,436 1,522 1 612 2,357 3,199 3 417 3 652 3X832 Current Debt Maturities 9945 T 9 11,732 13 090 142,661 15447 Total Current Liabilities 7811 847 8,92 9,4?0 99 11I9 12 ,0WI0 14705 167,68i67,269 121, 189,649 1b6,379 18,3 Total Liabilities I 5 9 2 ______5 , 6 5 , 3 ______~ T>F_ _ .~

Gross Debt as a percentage of Total r 42 40 38 Fixed Aasets 44 43 42 43 44 44 44 43

April 25, 1973 ANNEX 13 Page 1

MALAYSIA

KUALALUMPUR WATER SUPPLY PROJECT - SECONDSTAGE

Assumptions for Financial Projections

1. The financial statementsin this report cover all water supply operationsin Selangor State at Annexes 9, 11 and 12. A separate income statement is shown in respect of the operationsin the project area (Kuala Lumpur and Klang districts) at Annex 10. The figures for 1971 are based on draft financialstatements. Audited financialstatements for 1971 were only received in May 1973.

Income Statements

2. Water revenues are based on the assumptionsdescribed in para- graphs 3 to 8. FY 1971 is used as a base year for costs.

3. Water production in the project area is projected to increase at an average annual rate of 4.5 IMgd during the years 1973 to 1978, at 5.0 IMgd in 1979 and 1980 and 5.5 IMgd thereafter. Water productionin the outlying areas is projected to increase at an average annual rate of 0.5 IMgd throughout the period covered by the projections.

4. Unaccounted-for water is projected to decrease from the present level of about 21.5% to 16.5% in 1981. In the project area, unaccounted- for water is expected to decrease from about 20% in 1972 to 15% in 1981.

5. No increase in the present level of water charges is assumed during the period covered by the projections.

6. Connection fees are projectedon the basis that new connections will increase from about 12,000 in 1972 to about 20,000 in 1981. About 1,000 connectionseach year are assumed to be made under the installment scheme (paragraph6.11 of the appraisal report). The remainderwill be pro- vided by the consumersand most of these are assumed to be 1 in. or smaller connections (fees vary from M$20 for connectionsup to 1 in. to M$40 for connections larger than 3 in.).

7. Other fees from disconnectionsand reconnectionsare projected to increase in proportionto the increase in number of connections. Other income which is mainly the overheads charged on work done for con- sumers has no fixed pattern and is maintainedat the conservativefigure of M$35,000 per year. ANNEX13 Page 2

8. Bad debts are insignificant. A provision of M$20,000 in 1972 and M$10,000 in each of the following years is provided for write-offs.

9. Operat:.ngcosts have risen fairly consistentlyin proportion to water productionover several years and are projected forward from 1971 at an annual increase of 5.5%. The exceptions to this are chemicals and fuel which are projected in proportionto increased water production plus a 2% price escalation.

10. Depreciationis calculatedin respect of the totals at the beginning of each year at 2.8% on the original cost of assets at January 1, 1970 and at 2.5% on all assets acquired after that date. The reason for the lower rate on the new assets is that most of these are buildings in the form of treatment works and a dam and an annual depreciationrate of 2.5% is considered adequate.

Balance Sheets

11. No cash is shown in the balance sheets until 1973 and then it is shown as M$2 million each year. The reason for this is that up until 1973 all monies received were deposited in the State Government'sbank account. During 1972 the WD had its own bank account for payments only and this was replenished as required by the State Gorernment. On January 1, 1973 the State Governmentgave WD M$2 million to open a bank account to which all monies received would be paid and from which all expenditureswould be met. During the project constructionperiod expenditureson operating costs and the project will far exceed the revenues from water billings and these additionalmonies will be provided by the State Governmentto the WD. Part of these additionalmonies will be from the Bank loan but the remainder will be from the State Government's own resources and this is reflected in the balance sheet under Liabilities- Contributed Capital,which in- creases each year during the period to 1977.

12. WD's bank account is not allowed to exceed M$ 2 million and any amount in excess of M$ 2 million is liable to be used by the State Government. This position arises after 1977 when the revenues from water billings start to exceed operating costs and other capital expenditureand the surplus monies are assumed to be used by the State Government. This is reflected in the balance sheet under Liabilities - Contributed Capital which decreases each year from 1978 to 1981 as these monies are assumed to be repaid to the State Government. It will be necessary for a future supervisionmission to work out suitable arrangementswith the WD and State Governmentfor the proper control of the repayment of surplus monies from 1978 onwards (para- graph 5.09 in the appraisal report).

13. Net accounts receivablefor 1971 are approximately15% of the year's billings. This is consideredto be a reasonablefigure in relation to the Water Division's billing program and has been used as the basis for projecting the accounts receivable figure. ANNEX 13 Page 3

14. The terms of the borrowing are as follows:

Interest Grace Period Rate Period Term of Loan ( (Years) (Years) (Years)

Federal Government loans 5 to 6-1/2 Nil 25 to 35 1964-1999

First IBRD loan 6-1/2 4 16-1/2 1972-1988

Proposed IBRD loan 7-1/4 5 15 1978-1993

April 26, 1973

ANNEX 14 Page 1

MALAYSIA

KUALA LUMPUR WATER SUPPLY PROJECT - SECOND STAGE

Schedule of Water Charges

1. The followingwater charges are in force from January 1966 for all urban and rural areas in Selangor State:

Water Charges

A. Categoriesof Consumers Water Charge

1. Domestic consumers,government ) M$1.00 per 1,000 gallonswith buildings,institutions and ) a minimum charge of M$2.00 schools ) per month

2. Part-trade and part-domestic ) M$1.20 per 1,000 gallons with consumers (where the trade is ) a minimum charge of M$2.00 not dependenton water, e.g. ) per month grocery shop, dispensaries,etc.))

3. Commercialand industrial ) M$1.20 per 1,000 gallonswith consumers a minimum charge of M$3.00 per month

4. Concessionary supplies - ) (a) religious and charitable ) M$0.50 per 1,000 gallons with institutions ) a minimum charge of M$2.00 per month. (b) low-cost housing projects ) M$0.60 per 1,000 gallons with a minimum charge of M$2.00 per month.

5. Supplies to Ships ) M$3.00 per 1,000 gallons

B. Standpipes

With effect from January 1, 1972, public standpipeshave been metered and a charge at the rate of M$1.00 per 1,000 gallons is raised against the Government.

C. Others

Under a special arrangementwith the Federal Government,Water Supply to the Sungei Besi Federal Military College is charged at M$0.30 per 1,000 gallons up to a maximum of 1.5 IMgd. ANNEX 14 Page 2

For building construction,water charges are levied at the commercial and industrial rate if the supply is metered. If the supply is not metered a flat charge of 1% of the estimated cost of the building is levied for the water consumed for construction purposes. This charge came into effect from April 1972. Prior to that it was only 1/2%.

D. Deposits

A deposit sufficient to cover not more than the estimated cost of two months' supply of water is collected from all non-Govermnent consumers. The amount is adjusted periodically on the basis of actual consumption.

E. Payment of Water Charges

Water charges are payable within seven days of the issuance of the bills. In practice,however, a grace period up to three weeks is given for payment. In the event of default in the payment of water charges the supply is cut off and is reconnectedonly after settlement of all dues and payment of a reconnectionfee of M$4.00. (The M$4.00 reconnectionfee is presently sufficientto meet the costs involved). In cases where reconnectionsare not made within a reasonable period the amount due is adjusted from the deposit held.

January 17, 1973 IBRD 10287

102'W

P -E R A K ew coo-

'67. ma. SA BA A' BERIVA M

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