ZAIVA &d/-8f4 FL -C p FILE COPY R EESTRICTEDS Report No. TO-636a Public Disclosure Authorized This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized APPRAISAL OF THE KUALA LUMPUR WATER SUPPLY PROJECT - SELANGOR STATE MALAYSIA Public Disclosure Authorized August 20, 1968 Public Disclosure Authorized Projects Department CURRENCY EQUIVALENTS US$1. 00 M$3. 00 M$1. 00 US$o. 33 M$, 000, 000 = US$333,333 ABBREVIATIONS gallon = imperial gallon - 1.20 U. S. gallons IMgd = million Imperial gallons per day gcd _ gallons per capita per day FISCAL YEAR January 1 December 31 APPRAISAL OF THE KUALA LUMPUR WJATER SUPPLY PROJECT - SELANGOR STATE MALAYSIA TABLE OF CONTENTS Page No. SUMMARY 1. INTRODUCTION 1 2. THE PROPOSED BORROWER AND BENEFICIARY 2 A. The Borrower 2 B. The Beneficiary 2 Organization and Management 2 Accounts and Audit 3 Financial Position and Earnings 4 Present Financial Position 5 Past Earnings 6 Water Charges 7 Billings and Collections 8 Present Water Services and Use 9 Water Quality 11 The Sewerage System 11 3. THE PROJECT Description of the Project Works 12 Other Works 12 Cost Estimates 12 Planning, Design and Supervision of Construction 14 Procurement and Disbursement 114 4. JUSTIFICATION 15 5. FUTURE FINANCING 17 Financing Plan 17 Financial Projections 18 6. CONCLUSIONS AND RECOMMENDATIONS 19 This report is based on the findings of a Bank mission consisting of Messrs. V. Rajagopalan and G.A. Apcar which visited Kuala Lumpur in October/November 1967. LIST OF ANMEXES ANNEX 1 Organization Chart of the Selangor State PWD Water Supply Division 2 Pro Forma Income Statements Selangor State 1962-1974 3 Pro Forma Income Statements, Kuala Lumpur area 1962-1974 4 Schedule of Current Water Charges 5 Existing Water Supply Systems in Kuala Lumpur 6 Technical Description of Proposed Project 7 Cost Estimates of Proposed Project 8 Construction Schedule 9 Population and Water Consumption Graphs 10 Pro Forma Balance Sheets Selangor State December 31, 1968-1974 11 Sources and Application of Funds Selangor State 1968-1974 12 Assumptions for Financial Projections MAPS 1 Water works in Selangor State 2 Proposed Project APPRAISAL OF THE KUALA LUNPUR WATER SUPPLY PROJECT - SELANGOR STATE MALAYSIA SUMlMRY i. The Government of Malaysia has requested a Bank loan to assist in financing a project to improve and expand the water supply facilities in the Kuala Lumpur area. This report covers the appraisal of the pro- posed project. ii. The total cost of the project is estimated to be US$7.7 million of which the foreign exchange portion, presently estimated at USI3.6 million, would be covered by the proposed Bank loan. iii. The borrower would be the Government of Malaysia and the pro- posed loan would be relent to the Selangor State Government for use by its Public WTorks Department (PRnD), which will be responsible for the project. The Bank would enter into a project agreement with the State Government. iv. The Water Supply Division of the PWD operates all public water supply systems in the State and the water works are reasonably well maintained. v. The project is technically sound, estimated costs are reasonable and the PWD is capable of carrying out the work and operating the system. The project is essential to meet the water demand in the area. vi. New water charges put into effect in January 1966 have resulted in substantial net revenues. However, the present system of accounting does not provide adequate financial data for a complete financial evaluation of the water supply operations in the State. Management consult- ants are tobe engaged to assist in the changeover to a commercial system of accounting. The financial forecasts show that the internal cash generation from operations, net of debt service, would more than cover the estimated local currency costs of the proposed project during the construction period. vii. The project is suitable for a Bank loan of US$3.6 million for a period of 20 years, including a 4 year grace period. APPRAISAL OF THE KUALA LUMPUR WATER SUPPLY PROJECT - SELANGOR STATE MALAYSIA 1. INTRODUCTION 1.01 The Government of Malaysia has applied for a loan from the International Bank for Reconstruction and Development to help finance a project to improve and expand the water supply facilities in the Kuala Lumpur area. The loan would amount to US$3.6 million to cover the foreign exchange costs, comprising about 47% of the total project expenditures including contingencies, provision for price increases, the cost of consulting services and interest during construction. Local currency costs for this project would be financed by funds generated from internal operations. 1.02 The future solurces of water supply to meet the demands of Kuala Lumpur have been studied by Binnie and Partners, a British firm of engineering consultants, retained by the Water Supply Division of Selangor State Public Works Department (PWD) to make an economic and technical appraisal of existing and planned water supply works. The consultants' studies indicated that the requirements of Kuala Lumpur and the Klang Valley should be considered together, (see Map 1) and that the development of the Langat River (Sungei Langat) in stages would be the most economical means to meet the requirements of the region. The proposed project is based on the first phase of development of the Langat River, (See Map 2). 1.03 The proposed project would entail the reorganization of the exist- ing Water Supply Division of the PWD into a financially self-contained unit with an independent accounting system. The main items of works would include the provision of an additional source of water supply of about 14 3]4gd and the strengthening of the existing distribution system. 1.04 The appraisal of this project is based on information submitted to the Bank by the Water Supply Division of the Public Works Department of Selangor State in Malaysia, consultants' reports, and on field investigations by a Bank appraisal mission to Kuala Lumpur in October! November 1967 by Messrs. Rajagopalan and Apcar. - 2 - 2. THE PROPOSED BORRCWER AND BENEFICIARY A. The Borrower 2.01 The borrower would be the Government of Malaysia which would relend the proceeds of the loan to the Selangor State Government for use by its Public Works Department (PND). The project would be carried out and operated by the PND Water Supply Division. The Bank would enter into a project agreement with the State Government. B. The Beneficiary Organization and Management 2.02 Although Kuala Lumpur is the Federal Capital of Malaysia, the water supply system is owned, operated and maintained by the Selangor State Government along with other water supply systems in the State. The supply to the public is governed by the Water Supply Enactment of the Federated Malay States and the Water Supply (Selangor) Rules made under the Enactment from time to time. The Rules cover various aspects of water supply admin- istration in the State, including specifications, plumbing standards, metering and water charges, The State PWD is responsible for the design, construction, administration, operation and maintenance of all public water supplies and public works in the State, such as buildings and roads. Matters relating to policy and finance are subject to approval by the State Executive Council, which corresponds to the Cabinet at the Federal level. It consists of no more than eight and no less than four elected legislators, together with three ex-officio members. 2.03 The PWD comes under the direction of the State Engineer who is assisted by two superintending engineers for water and other public works respectively, one senior mechanical engineer and a Deputy State Engineer. Public water supplies in the State come under the direction of the Super- intending Engineer - Water who coordinates the water supply activities in the State and provides the necessary guidance and control over the opera- tions. Water supply systems in the Kuala Lumpur area are under the charge of a senior executive engineer. The Superintending Engineer - Water and the Executive Engineer for the Kuala Lumpur Water Supply systems are ex- perienced and qualified engineers. 2.04 The appointments of engineers are regulated by a system of selection based upon technical qualifications and experience, adminis- tered by the Federal Public Services Commission. Technical assistants and lower categories of personnel are recruited through the State Public Services Commission. The employees of the FWD are State Government servants. An organizational chart of the PWD, including the Water Supply Division and a more detailed description of the present water supply organization are given in Annex 1. 2.O5 The PWD utilizes the services of consultants for engineering design and supervision of construction of major water works in the State. Distribu- tion system expansion and improvements and routine operation and - 3 - maintenance are carried out by department staff. The water supply systems have been maintained satisfactorily. 2.06 However the existing organization suffers at the operating level due to lack of adequate training and experience of its staff. A beginning has already been made to remedy this situation with the recent appointment of a qualified chemist to ensure proper control over the treatment processes. Training programs for the operating personnel are also under consideration. Stocksof chemicals are maintained at various water works depots but inventory controls are inadequate. Another weakness in the organization arises from deficiencies in past planning which have resulted in the construction of facilities far ahead of requirements in the outlying areas of the State.