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 The report may not be published nor may it be quoted as representing their views.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. The proposed project,-however, has been realistically phased and the existing organization, with some additional staff, would be capable of operating and maintaining the project satisfactorily.

2.07 The possibilities of setting up a separate water supply authority for the Kuala Lumpur area, or one authority for the State, which would include the Kuala Lumpur area were examined and found impracticable. There is at present a shortage of technical personnel in Malaysia and a division of the PWD into one authority for water and another for other works would increase the demand for skills thus creating serious personnel difficulties particularly in the category of supervisory staff. There would be increased operating costs and, for the early years, a drop in operating efficiency.

2.08 The water supply systems in the State have been satisfactorily managed and at this stage the PWD - Water Division should continue to be responsible for the systems in the State subject to arrangements referred to in paragr2ph 2.11.

Accounts and Audit 2.09 The PWD, including the Water Supply Dlvision, operates under the Government accounting system on a cash basis. All expenditures are met from annual budget appropriations and all cash receipts are passed into the State Treasury. The PWD maintains accounts for expenditures incurred on all public works, including water works in the State. While it is possible to identify capital expenditures incurred for water supply systems it is not possible to separate and allocate administrative costs, including salaries and other emoluments, for the water supply division of the PWD. 2.10 Revenue from water supply operations in the State is accounted for separately under a centralized accounting system for water revenue, introduced in 1958. This function is carried out by the PWD Central Accounts Office for water supply under the direction of a qualified Chartered Accountant who reports to the Superintending Engineer - Water. Since the establishment of the Central Accounts Office, consumer accounts have increased threefold to over 82,000 accounts by the end of 1967. This rapid expansion has brought in its wake administrative and account- ing problems such as shortage of qualified staff and inadequate account- ing equipment. Plans are underway to recruit additional staff and orders have been placed for additional equipment.

2.11 The present system of accounting does not provide adequate financial data for efficient management or information for the financial evaluation of the undertaking. The State Government recognizes the deficiencies in the present organization and has agreed to reorganize and thereafter maintain the Water Supply Division as a financially separate unit responsible for construction, operation and maintenance of all water supply systems in the State of Selangor with its own system of accounting and financial management. In order to carry out these changes the State Government will engage management consultants, acceptable to the Bank, to study and make recommendations for the re- organization of the Water Supply Division and the changeover to the new system of accounting. The terms of reference to the management con- sultants upon which the Bank has commented include valuation of assets and preparation of opening financial statements. The State Government has further agreed that all revenues from the supply of water by the Water Supply Division shall be made available to the Water Supply Division to the extent necessary for the conduct of its operations.

2.12 The accounts of the NWD, including the Water Supply Division, are audited by the Auditor General, Malaysia. As the Water Supply Division will continue as a part of PWD the annual audit will continue to be undertaken by the Auditor General or by an independent auditor, acceptable to the Bank, appointed by the Auditor General.

Financial Position and Earnings

2.13 Since the accounts of the Water Supply Division are kept on a cash basis, an atteznpt has been made to recast them for the years 1962- 1967 to approximate the results which would have been reported if the accounts had been kept on a commercial basis. Pending the valuation of assets and preparation of opening financial statements referred to previously, pro forma income statemenia shown in Annex 2 covering the period 1962-1967 and a summary of a notional balance sheet as at December 31, 1967 were prepared for purposes of this report. The summary of the balance sheet was used as a starting point for the pro forma balance sheets projected for 1968-1974. The pro forma income statements for 1962-1967 and the summary of the notional balance sheet as at December 31, 1967 should be considered merely as a general indication of the Water Supply Division's financial position since the records from which they were derived may not be complete. Present Financial Position

2.14 A summary of the notional balance sheet for the Selangor State PID Water Division as at December 31, 1967 follows:

Malaysian Dollars US$ equivalent - ---- __-- EI i000- -- ASSETS

Gross Plant in Service 106,684 35,561

Less: Accumulated Depreciation 11,807 -3236

Net Plant in Service 94,877 31,625

Work in Progress 8,935 2,979

Current Assets 3.000 1,000

Total Assets 106,812

LIABILIrIES

State Government Participation 74,056 24,685

Federal Government Loans 29,328 9,776

Current Liabilities 1,428 476

Customers Deposits 2,000 667

Total Liabilities 106,812 35,604

The value of gross plant in service represents the original book value and is based on available records of capital expenditure and does not include cost of land. The current assets include inventories at book value and accounts receivable. Accounts receivable are small because billings and collections are unusually prompt (see paragraph 2.25). No cash balances are included under current assets since the W4ater Supply Division does not retain control over its own cash funds. Current liabilities consist of accounts payable, which have been estimated at the equivalent of two months operating costs excluding depreciation and the current portion of long-term debt.

2.15 Capital expenditures have been financed by State Goverrnaent budget appropriations and Federal Government loans to the State for specific water supply projects. In the pro forma balance sheets the equity is represented by State Government participations. -6-

Past Earnings

2.16 The income statements 1964-1967 summarized below were compiled from the available records of collection, salaries and administrative expenses. Notional straight-line depreciation, at 2-1/2% of estimated gross plant in service, and indirect overhead charges, at 40% of salaries and administration expenses, were added. Separate statements were prepared for the Kuala Lumpur area, which accounts for about 77% of revenues of the Water Supply Division's operations in the State (see Annex 3).

Fiscal Year Ending December 31,

___ 3LMSL__ 165 1266 _1967 State* K.* S L** State*$ K.L*_* State*__ L*

(In '000 MfalaysianDollariF --

Total Revenues 9,401 7,,451 7,334 5,295 lo,566 8,o95 11,866 9,109

Operating cost:

Operation and Maintenance 5,009 2,477 5,154 2,347 5,808 2,741 6,211 3,134 Depreciation 1,683 993 2,094 1,122 2,426 1,259 2,667 1,402 Total Operating Cost 6,692 7 248 3,469 8,234 4o000 8,878 4,536 Net Income from Operations 2,709 3,981 86 1,826 2,332 4,095 2,988 4,573 Average net plant in service 91,392 47,318 Return on average net plant in service % 3.3 9.7

The above statement. indicates that the Kuala Lumpur area has been making a satisfactory level of earnings while the other systems within the State have been operating at a loss. The present water charges are estimated to yield a return of about 9.5% on the net fixed assets in service in the Kuala Lumpur area which is satisfactory. Outside the Kuala Lumpur area losses have been incurred because the water supply systems are small, widely scattered and utilized at 15% to 50% of their capacities. (see paragraph 2.19).

* State includes the Kuala Lumpur area. ** K.L: Kuala Lumpur area. -7-

Water Charges

2.17 Water service connections, except public standpipes and fire hydrants are metered and charged for on the basis of measured monthly consumption. Some of the public standpipes are metered but are not read. No charges are levied for water drawn from the fire hydrants, for fire driUs, fire fighting and street cleaning. The State Government has agreed to the principle of a charge for water supplied through public standpipes, to impose a charge on the local authority for the water con- sumed and to transfer the amount involved to the water supply account. The actual charge will be decided after the study of water charges referred to in paragraph 2.19 is completed but in calculating revenues for financial projections commencing July 1, 1969, a charge of M$0.50 per 1,000 gallons of water supplied through public standpipes has been assumed which is similar to charges for concessionary supplies to chari- table institutions which are adequate to cover the cost of production and supply of water. 2.18 Uniform water charges are adopted for both the urban and rural water supplies in the State, and prior to 1965 payment for water was based either on metered consumption or on flat rates for unmetered con- nections. At the end of 1964 flat rates for unmetered supplies were abolished and revised water charges, based only on metered consumption, were introduced effective January 1, 1966. See Annex 4 for schedule of water charges. 2.19 The uniform water charges adopted by the State Government are not based on the cost of service provided in each individual area but are determined with a view to earning sufficient revenues to make the water supply operations in the State as a whole financially remunerative. Increases in water charges, and changes in the rate structure, have been carried out periodically and the present water charges are at about the same level as the charges for similar services in other States in Malaysia and in Singapore. It is estimated on the basis of information presently available that the existing water charges are sufficient to provide for 1968 and subsequent years a return of over 8% on the average net fixed assets in operation in the Kuala Lumpur area, which is con- sidered satisfactory (see Annex 3). However, on a statewide basis when all the water supply systems are considered, although it would be desirable to aim for an 8% return the present charges would produce returns of about 3.5% (see Annex 25. In the outlying areas the present charges do not cover full costs because of the nature of the systems as described in paragraph 2.16. It is believed however that higher water charges in these areas might slow the pace of utilization of the existing facilities and would not result in significant increases in revenue. Furthermore, the adoption of different water charges based on cost of service for each of the small water supply systems would create administrative problems and increase costs which would not be commensurate with possible increase in revenues. The adoption of uniform charges which in this case leads to subsidizing the water supply to the population in the outlying areas is, therefore, considered to be a practical solution which should be accepted as the - 8 -

State Government agreed during negouiations to maintain the uniform charges at a level which would be sufficient to provide revenues representing a return of not less than 8% per annum on the average net fixed assets in operation for the Kuala Lumpur area. In this connection the accounting system to be established on the basis of the management consultant's recommendations will provide for the identification of assets, revenues and costs of the Kuala Lumpur area separate from the rest of the State. Manage- ment consultants will also review the existing water charges and make appropriate recommendations and any increase found necessary will be put into effect by the State Government.

2.20 With gradual urbanization and population growth in the outlying areas, the need for the larger system subsidizing the operations of the smaller ones would diminish and the overall return should increase from 3.5% per annum ultimately reaching the same level as for Kuala Lumpur. However, to ensure that the overall return improves steadily, periodic reviews of water charges should be made and effective control should be exercised over future capital expenditures in connection with water supply schemes in the State. Towards attaining these objectives the State Government agreed during negotiations that it would review with the Bank periodically its investment program for water supply projects in Selangor State.

2.21 Changes in water charges are initiated by the PO in the form of recommendations made to the State Secretary who then presents them to the Executive Council. On approval by the Council , the document containing the revised charges is signed by the Sultan and published in the Govern- ment Gazette. Three to twelve months are required to effect a rate change.

2.22 In addition to the water charges, customers pay the cost of the water service connection excluding the cost of the meter which is provided and maintained by RPD. The connection charge ranges from M$20 to M$40 depending on the size of the connection. Customers are also required to deposit an amount equivalent to the estimated cost of two months' supply of water.

2.23 In the case of large housing colonies the developers pay the installation costs for the water mains and hydrants. Fire hydrants within municipal limits are installed and maintained at the expense of the Municipality while those outside the municipal lirmits are installed and maintained by PWD.

Billings and Collections

2.24 Prior to 1958 Local Authorities such as I$uicipalities, Town Councils, etc., were responsible for the collection of water revenues in the State. The question of establishing a suitable organization for the - 9 - collection of water revenues was examined by a committee appointed by the State Government in 1956. This resulted in a revision of the accounting and billing procedures and the creation of a consumer accounts section within the PWD responsible for billings, collections and accounting. Upon the request of the Kuala Lumpur Municipality that it be relieved of its responsibilities for the collection of water revenues in the Kuala Lumpur area, Government decided that the PWD should take over these functions. In other areas Local Authorities continue to collect on a commission basis.

2,25 Billings and collections have been efficiently carried out and the amount of unpaid accounts is insignificant. Trade and government institutions are billed on a monthly basis, and other categories of con- sumers bimonthly, The bills are normally presented at the premises by meter readers. If bills are not settled within 21 days a reminrLder is issued. Failure to pay a bill within seven days thereafter results in disconnection of the supply, Cn the average 2O,400 service connections are cut off each year although almost all discontinued services are reconnected within a short tine when the dues, including the cost of reconnection, are paid.

Present Water Services and Use

2.26 There are 21 water stupply systems in Selangor State of which the Kuala Lumpur system is the largest. They provide piped water to both the urban and rural population, The Kuala Lumpur public water supply system originated in 1892 with the construction of the Ampang impounding reservoir. During the intervening 75 years the system has expanded steadily and has endeavoured to provide for the city's increasing water requirements. The main water works in the State are shown in Map 1.

2.27 The Kuala Lumpur system derives its supply from three sources - two reservoirs and a stream, with total capacity of 42 IMgd during normal years, and about 35 IMgd during dry years. The water from the main source is treated by clarification, fifltration, and chlorination and supplies from other sources are chlorinated before entering the distribution system. The system includes a total of about 620 miles of transmission and distribution mains, serving the Kuala Lumpur municipality, Petaling Jaya township and adjacent rural areas. A detailed description of the water supply systems is given in Annex 5. Map 2 indicates the sources and the principal transmission mains.

2.28 In the Klang Vplley, in addition to the Kuala Lumpur water supply, two other systems having treatment facilities have been installed at Damansara and North Hummock, with a total capacity of about 16 DMgd. The full capacity of the Damansara supply will not be utilized until about 1971. It is therefore planned to divert part of this supply to Kuala Lumpur to meet the demand until the proposed project comes into operation. - 10 -

2.29 Almost 90% of the water produced by the public water supplies in Selangor State during 1967 was provided by the Kuala Lumpur and Klang Valley water supply schemes. This position is not expected to change appreciably in the next 5 to 7 years.

2.30 In 1967, some 70% of the total population of about 1,400,000 was served from the public water supply systems In the State. In the Greater Kuala Lumpur area which covers approximately 114 square miles and which includes the Kuala Lumpur municipality, Petaling Jaya township and surrounding urban and rural communities, the population served was estimated at approximately 610,000. Several mines, rubber estates and manufacturing firms have private supplies both for manufacturing processes and domestic consumption. Where necessary, substantial quantities are also drawn from the public mains to supplement their private supplies. Small villages situated at mining and agriculture areas obtain water from natural water courses which are often polluted. Reliable figures in regard to actual consumption by private water supplies are not known. However, the available data indicates that it is a small percentage of the total water consumed in the State.

2.31 Although quantitative data on use of water by different cate- gories of consumers are not available, based on monthly collections it is estimated that about 65% of tlho total is consumed by domestic users with house service connections, 20% by commercial and industrial users, 10% by public standpipes and 5% by religious and charitable institutions including concessionary supplies to low-cost government housing schemes. Information available for the years 1962 to 1967 indicates that the average per capita consumption in the State increased from 33 to 39 ged, and from 37 to ged in Kuala Lumpur. 2.32 As of December 31, 1967, there were 88,662 water service con- nections in the State, including 2 ,257 public standpipes and 4I,263 fire hydrants as follows: Kuala Lumpur Other System Systems Total Domestic 42,580 ) )

Trade 9,212 ) 30,,141) 82,136 ) ) Religious and Charitable ) ) Institutions 203 ) )

Low cost housing developments 6 - 6

Public standpipes 626 1,631 2,257

Fire hydrants 3,o84 1,179 4,263

55,711 32,951 88,662 - 11 -

2.33 Public standpipes are provided as a temporary measure at Government's direction in squatter areas in order to reduce the health hazard to the population. They are also provided in rural areas where house service connections would be too costly at present for the inhabi- tants. Water Quality

2.34 Water distributed by the various systems in Selangor is safe bacteriologically and of good chemical quality. In some parts of the State, the presence of excessive iron is characteristic of the raw water. The chemical and bacteriological characteristics of the water before and after treatment are determined regularly as a basis for the control of the water treatment processes. Samples of water taken from various points in the distribution system are analyzed and tested regularly to determine chlorine residuals and evidence of contamination and deterioration in the quality of water in the distribution system, and the water division has taken precautionary measures to assure the safety of the supply by in- creasing the chlorine residuals where necessary. Health statistics for Selangor indicate a low incidence of diseases normally attributed to inadequate or deficient water supply systems. 2. 35 Water pressures in the distribution system are generally adequate and service is continuous.

The Sewerage System 2. 36 Because of its interrelation with the water supply system, the Kuala Lumpur sewerage and sewage disposal arrangements have been reviewed to determine the immediate problems which might be created as a result of the construction of the water project.

2. 37 Sewerage and waste disposal in Kuala Lumpur are managed by the Municipality. Loans from the Federal Government have provided for the construction cost of sewers for Kuala Iumpur and maintenance, operation and administration expenditures are met from general property taxes. Records indicate that although the Kuala Lumpur Municipality has been steadily extending the sewerage system since 1960, it has satisfied the needs of only a small percentage of the population. The system serves an approximate population of 130,000 concentrated in the heart of the city. There are no other public sewerage systems or sewage disposal arrangements in the State. 2. 38 The proposed water supply project may be expected to create some problems of waste water disposal as the sewerage system does not cater to the entire area. The Government is aware of the deficiencies in the existing sewerage system and has approached the UNDP for assistance in preparing a Master Plan for sewerage in the Kuala Lumpur area. In the meantime, expansion of the sewerage system in the Kuala Lumpur area is being continued by the municipality. - 12 -

3. THE PROJECT

3.01 Description of the Project Works

The proposed project would comprise the first stage of a long- range program to develop the water resources of the L'.n-;ct river as a major source of water supply to Kuala Lumpur and the Klang Valley. It is proposed that eventually the Lanoat river would be developed to yield about 85 IMgd. The project now under consideration would have an overall capacity of about 14 Ilgd. Certain elements, however, would be constructed with a capacity of 28 IfKgd to accommodate the second stage works antici- pated during 1978 to 1981. A more detailed description of the project is given in Annex 6, while Map 2 shows the location of the proposed works.

3.02 The project would include intake works on the river, raw water pumping station and pumps and a raw water pumping main to the treatment plant site. These items, except the pumps, would be sized to accommodate the second stage works. The raw water would be treated by clarification, utilizing chemical coagulants, rapid sand filtration and chlorination. Following treatment, the water would be pumped through a short pumping main to a balancing reservoir. From the balancing reservoir, water would flow by gravity through a seven mile long transmission main to a 4-1/2 million gallon terminal storage reservoir. On route, the transmission main would be tapped to feed another terminal storage reservoir of 2-1/2 million gallon capacity. The terminal storage reservoirs would be sited at strategic locations, and additional distribution mains would be laid to strengthen the existing distribution system, extend the areas of supply and balance supplies from different sources. The various structures at the treatment plant and storage reservoir sites, which are based on the results of studies by Messrs. Binnie and Partners, engineering consultants, are appropriately phased to meet the water requirements of the area, and would be designed and constructed to accommodate future additions.

3.03 Other Works

During the construction period other major water supply works already in progress in the State would continue. According to present plans, these works would be substantially completed by 1971, but routine expansion and improvements of the distribution systems would continue at a somewhat higher rate than during the past few years.

3.04 Cost Estimates

The total cost of the project is estimated to be about M$23.0 million (equivalent to about US$7.7 million), including interest on the proposed Bank loan during construction. The proposed Bank loan would coverthe foreign exchange costs of those items of supply and equipment for the construction program procured on the basis of international competitive bidding, as wrell as the foreign exchange cost of engineering and management - 13 - services. The cost estimate is summarized below and given in detail in Annex 7 which also gives the estimated expenditures year by year.

in M$ in US$ Local Foreign Total Local Foreign Total ------thousand ------

Intake and treatment works, pumping stations and reservoirs 5,010 1,380 6,390 1,670 460 2,130

Electrical and mechani- cal equipment and pumps 370 2,510 2,880 123 837 960

Raw water and trans- mission mains 1,080 1,330 2,1410 360 443 803 Distribution mains 2,000 2,000 44,ooo 667 667 1,334

Land acquisition surveys and studies 750 - 750 250 - 250 Sub-total 9,210 7,220 16,430 3,070 2,407 5,1477

Contingencies 1,270 1085 2,355 423 362 785

Total construction cost 10,480 8,305 18,785 3,493 2,769 6,262

Consulting services 1,020 530 1,550 340 177 517

Provision for price escalation 665 485 1,150 222 161 383

Interest during con- struction - 1,522 1,522 - 507 507 Total 12,165 10,842 23,007 4,055 3,614 7669

3.05 Construction costs are derived from estimates by the consultants and the Water Supply Division. They are based on preliminary designs for the project, results of recent bids for similar works in Malaysia and Singapore, and on current quotations for equipment and materials. The estimates include 3% per annum for price increases and 15% for contingencies. The estimated costs of consulting services include detailed engineering, supervision of construction, and management consultants' fees. The cost estimates for the proposed project and assumptions on which they are based are reasonable. The project is expected to be completed by October 1971. A construction schedule is shown in Annex 8. - 14 -

Planning, Design and Supervision of Construction

3.06 The engineering and economic feasibility studies on which this project is based were carried out by the consultants who will also be retained by the PWD to prepare detailed designs and tender documents as necessary for the construction of the project as well as to supervise construction. This arrangement is satisfactory. A considerable amount of survey, investigation and preliminary design work has already been done.

3.07 The PWD would be responsible for the construction of the proposed project. Additional staff comprising a senior executive engineer and supporting staff would be appointed and a new engineering unit under the Superintending Engineer - Water, would be created for implementing the project.

Procurement and Disbursement

3.08 The items to be financed by the Bank loan will be procured through international competitive bidding except for consulting services. Disbursements would be against the actual foreign exchange costs of imported goods and against percentages of the costs of locally procured goods and services. These percentages, which represent the foreign exchange components of such costs, will be determined by agreement between the borrower and the Bank following a study of each contract. The local contracting industry is reasonably wen established and should be able to compete for most of the contracts.

3.09 During negotiations it was agreed that a margin of preference of 15% or the amount of customs duty whichever is lower will be allowed for local manufacturers. 3.10 In the event of there being any savings in the foreign exchange costs, it is intended that the unused balance of the loan would be cancelled. 4. JUSTIFICATION

4.0l The proposed project is included in the water supply and sewerage program of the First Malaysia Plan (1966-70) which has been reviewed by the Bank and found generally acceptable. The project is intended to meet the growing water needs of an area which has considerable economic signifi- cance to-the country. Kuala Lumpur is not only the Federal Capital of Malaysia, but also the Capital of Selangor State and the main center of population, commerce and industry in the Malay Peninsula. According to recent statistics, approximately 40% of the net output of manufacturing industries in West Malaysia was from Selangor State. Most of these industries in Selangor are situated in and around Kuala Lumpur in the Klang Valley.

4.02 The Rlang Valley is potentially an important industrial and com- tercial region, Construction of a highway from Port Swettenham to Kuala Lumpur, the development of Petaling Jaya township, the establishment of the International Airport Complex, the location of the proposed new capital of Selangor State at Sangei Rengam, and the setting up of a nlew industrial estate at Batu Tiga, adjacent to the proposed-new capital, are contributing to the rapid urbanization of the Klang Valley. Construction work has begun at the new capital and at the industrial estate sites.

4.03 An assessment of the future water needs of the Klang Valley indicates that in the Greater Kuala Lumpur area, water demand would exceed reliable capacity of the present sources by 1970. This is based on the assumption that the per capita supply would remain constant at the present level but that increases would be due to population growth during this period. Indeed, the Water Division is already unable to assure supplies to meet all the requirements of a number of housing and industrial develop- ments in the area. Additional supply, treatment and transmission facilities are now required (see paragraph 3.02), The possibility of temporarily diverting supplies from other water supply systems in the region has been considered, and it is prcposed to link the Damansara system with the Kuala Lumpur system in 1968, in order to meet the normal increases in demand until the proposed project comes into operation. Upon completion of the proposed project the supply to the Greater Kuala Lumpur area would be increased by about 14 DMgd. This additional capacity is estimated to be fully utilized between 1978 and 1981 according to the assumptions made in paragraph 4.05.

4.04 Future demand for water may be estimated realistically on a regional basis only, as the supply can be met from different sources in the region and the interconnected systems allow flexibility in operation and optimum use of the sources.

4.05 Census and estimates of population available for West Malaysia indicate that the population of Selangor State had almost doubled from 710,788 in 19h7 to an estimated 1,400,000 in 1967. The growth in the State betweenl1947 and 1957 was at 4.3% per annum. The last census was taken in 1957. During the last 10 years the average rate of population - 16 - increase in the State has been estimated at about 3.3% per annum, whereas in the Greater Kuala Lumpur area the rate of increase has averaged 3.9% per annum. For the purpose of this report, future population increases of 3% per annum for the State and 3.5% per annum for the Greater Kuala Lumpur area are assumed. Based upon these assumptions the proposed project is estimated to cover water requirements in the area up to 1981. Should population growth continue at the high rate of 3.9% per annum, the project capacity would be fully utilized by 1978-1979. Population and water consumption projections are given in Annex 9.

4.06 The population picture in Selangor differs from the national pattern reflecting the greater degree of urbanization of the State. In 1957 the proportion of population living in 'urban' units of over 1,000 persons was 42% for the Federation of Malaya, and 60% for Selangor State. The population growth and extensive housing development programs have also contributed to the spread of the population from Kuala Lumpur to the outlying areas. As a result, the supply mains, distribution storage and water pressures in the outlying areas have become inadequate. Improvements to the distribution netwiork are needed and necessary provisions have been included in the proposed project. In addition, the provision of satisfactory water supply services in the area is an essential pre-requisite for pro- viding water borne sewerage.

4.07 The proposed project has been selected after a careful technical economic and financial evaluation of the alternatives available to meet the water demand. There are seven river basins within practicable dis- tances from the area of demand and the yield from any one of these sources exceeds foreseeable future requirements of water. Consultants' study of these sources indicates that the development of any one of these sources would be feasible. However, as poUution problems are associated with two of the rivers the choice of the source was made from five alternatives. As each of the schemes could be developed in different ways, the most economical development of each was first determined on the basis of present worth of costs involved using a discount rate of 10% which is estimated to be above the average level of return generally obtainable in the country. The alternative schemes were then compared, using the same discount rate, and the proposed project has the minimum capital and operating costs. h.08 The project would permit water to be available at reasonable charges and still provide a satisfactory financial return on investment. - 17 -

5. FUTURE FINANCING

Financing Plan

5.01 A forecast of sources and application of funds for the years 1968 through 1974 is attached at Annex 11. This financial statement is notional, as are the other financial forecasts in this report. They would become meaningful only after the conditions set out in paragraph 6 .03(a) relating to accounting practices are carried out. The financing plan proposed during the loan disbursement period, 1968-1972 is sum- marized below: M$ US$ Equivalent 7In Millions)

Application of Funds

Proposed project construction costs 19.9 6.7 Engineering and management services 1.6 0.5 Interest during construction (IBRD Loan) 1.5 0.5 Other projects under construction 23.0 7.7 Working capital 5.5 1.8 51.5 17.2

= = Sources of Funds

Proposed IBRD loan 10.8 3.6

Internal cash generation 35.6 Less: Debt service 14.8

Net internal cash generation 20.8 6.9

Balance of Government loans and State Government participation 19.9 6.7

5.02 Internal cash generation during 1968-1972, net of debt service, would amount to M$20.8 million and would cover the equivalent of the estimated local currency costs of the project. For purposes of the financial projections, the proposed Bank loan of US$3.6 million is assumed to carry interest at 6-1/2% per annum for a period of 20 years, including a grace period of four years. - 18 -

5.03 The Government of Malaysia has agreed to relend the proceeds of the loan to the Selangor State Government on terms and conditions similar to the Bank loan. The government also agreed to provide funds required to complete the project if, during the period covered by the loan, available funds were insufficient. Funds required to complete other water supply systems in the State, presently under construction, would be made available from the unutilized portions of the existing Federal Government loans.

Financial Projections

5.04 The financial projections for the water supply division are based on existing water charges, the proposed charge for water supplied through public standpipes, and on estimated water consumptions.

5.05 Pro formaincome statements and balance sheets for 1968-1974 for the entire operation are given in Annexes 2 and 10. The statement showing the sources and applications of funds is in Annex 11. For purposes of comparison a pro forma income statement, 1968 through 1974, for the Kuala Lumpur area is given in Annex 3. Financial assumptions underlying the above mentioned statements are described in Annex 12.

5.06 A comparison of the pro forma financial statements of the State and of the Kuala Lumpur area shows that the Kuala Lumpur area operations may be expected to continue to subsidize the other water supply systems of the State for reasons described in paragraphs 2.16 and 2.19. The rate of subsidy would, however, decrease in the future as the utilization of the water facilities in the outlying areas increase as a result of urbanization and population growth. On the assumption that the proposed project would be executed on schedule, the following overall financial situation may be expected:

a) The forecasts indicate an accumulation of cash from about M$2.0 million in 1971 to about M$10.0 million in 1974 (Annex 10). Those funds in excess of the amounts required for the normal operation of the Water Supply Division could be used for future major expansions, to accelerate repayment of Federal Government loans and/or to make a contribution to State Government in lieu of taxes or as a return on their equity participation.

b) The operating ratio, including depreciation would remain at about 75% after construction of the project (Annex 2).

c) The return on average net plant in operation in 1973 would be 3.4% for all water supply schemes in the State, increasing to 3.6% in 1974 with annual improvements thereafter, whereas for the Kuala Lumpur area the return would be 8.5% and 9.2% respectively which would be satisfactory (Annexes 2 and 3).

d) Debt service coverage between 1972-1974 would be satisfactory at 2.1:1 (Annex 11). 19

6* CCCLUSIONS AND REOENDATINS 6,Ol The proposed project is part of a technically sound long-term program of works to improve and expand the water supply facilities in the Kuala Lumpur areao The project would yield an additional supply of 14 3Mgd, strengthen the distribution system and provide for the reorga- nization of the Water Supply Division of the Selangor State FWD.

6,o2 Cost estimates and financing plans are reasonable, and the schedule for implementation is realistic. With the proposed reorgani- zation of the accounting system, (paragraph 2..1), the Water Supply Division would have adequate financial controls and could follow proper accounting principles during the construction and operation of the project.

6.o3 During negotiations of the proposed Bank loan agreements were reached on the following:

a) The State Government would engage management consultants accept- able to the Bank, to assist the FWD in the reorganization of the water supply division as a financially separate unit with its own system of accounting and financial management, and in the - valuation of assets and preparation of opening financial state- ments, All revenues from the supply of water by the Water Supply Division would be made available to the Water Supply Division to the extent necessary for the conduct of its operations (Paragraph 2.11).

(b) The accounts of the water supply division will be audited by the Auditor General or by an independent auditor acceptable to the Bank, appointed by the Auditor General (Paragraph 2.l2). (c) The State Government would take steps to measure the quantity of water supplied through public standpipes by appropriate metering, impose a charge on the local authority for the water consumed and transfer the amounts involved to the water supply account (Paragraph 2.17). d) The management consultants would undertake a study of the water charges presently enforced and submit recommendations on the adequacy of rates (Paragraph 2.19).

e) The State Government would maintain water charges sufficient to provide revenues representing a return of not less than 8% per annum on the average net fixed assets in operation for the Kuala Lumpur area (Paragraph 2.19). - 20 -

f) The State Govermnent would review with the Bank periodically its investment program for water supply projects in Selangor State (Paragraph 2.20).

6.04 Wlith the above agreements the proposed project provides a suitable basis for a Bank loan of US$3.6 million equivalent for a period of 20 years including a 4-year period of grace. MALAYSIA: KUALA LUMPUR WATER SUPPLY PROJECT - SELANGOR STATE ORGANIZATION CHART OF THE SELANGOR STATE P.W.D. WATER SUPPLY DIVISION

| GOVERNMENT OF SELANGOR

|CHIEF MINISTER

| STATE SECRETARY STATE FINANCE OFFICER

| STATE ENGINEER P.W:D. DEPUTY STATENGER

SUPERINTENDING ENGINEER SUPERINTENDING ENGINEER SENIOR MECHANICAL ENGINEER (WORKS AND BUILDINGS) (WATER SUPPLIES)

Headquarters Staff Central Accounts Office Senior E.ecutive I District Engineers (7) Financiol Assistant E.ecutine Officer Engineer IKL.I) I in chorge of Water Supply, and and I Works and Buildings Clerical Staff Clerical Staff Engineers 2 Accountont I Engineers 2 Chemist I Financial Assistant I Engineering Assistants 2 Technical Assistants 3 Assistants 37 Technical Assistants 9 … Office Staff 8 Meter Readers 37 Chief Clerk I Cierical Stoff 18 and KLANG DISTRICT OTHER DISTRICTS (6) Supporting Staff for Treatment Plants, Engineer I Technical Assistants 6 Distribution System, Iwater Supply) Water Supply) Maintenonce and and and Workshop 83 Supporting Stoft Supporting Staff

WATER SUPPLY DIVISION STATE GOVERNMENT OF SELANGOR (P.W.D.) …--~--TECHNICAL CONTROL BY SUPERINTENDING ENGINEER (WATER SUPPLIES) D z

December, 1967 (3R) IBRD-3639 >x ANNEX I Page 2 of 3 pages

1. The Sultan, or the Ruler in Council, is the Head of the State. The State Executive Council, which corresponds to the Cabinet at the Federal level, consists of no more than eight and no less than four elected legislators together with three ex-officio members. The ex- officio members are the State Secretary, the State Financial Officer and the State Legal Adviser. The State Executive Council is presided over by the Chief Minister (Mentri Besar) who is an elected member of the State Legislative Assembly, and the political Head of the State. The State Secretary, who is a civil servant, is in charge of administration.

2. The PWD comes under the direction of the State Engineer who is assisted by two superintending engineers, one senior mechanical engineer and a deputy State Engineer. The PWD is responsible for the design, construction, administration, operation and maintenance of all public water supplies and public works in the State.

3. The Superintending Engineer - Water is responsible for the con- struction, operation and maintenance of all water supply systems in the State. District engineers are in charge of all public works including water supplies at the district level. In matters concerning water supplies in the district, the Superintending Engineer - Water deals directly with the district engineers.

4. There are seven districts in Selangor - Kuala Lumpur, Klang, Kuala Langat, Ulu Langat, Ulu Selangor, Kuala Selangor and Sabak Bernam. (See Map 1).

5. In the Kuala Lumpur district all water works come under the direct control of a senior executive engineer who has the necessary technical, financial and administrative supporting staff to take care of the water supply systems in the district. This officer deals only with water supplies and is not responsible for other PWD activities such as roads and buildings.

6. In the Klang district an engineer deals full time with water supply activities, utilizing the supporting facilities provided by the district engineerst office. In the remaining districts, where the water supply systems are small, technical assistants and supporting staff are employed full time on water supply activities under the general super- vision of the district engineers.

7. The Superintending Engineer - Water at the State level functions as the technical head for the water supply operations in the State and provides the necessary guidance and control over the operations.

8. Maintenance of all water works pumps, engines and other mechanical equipment comes under the direction of the Senior Mechanical Engineer (S.M.E.) Spares for the equipment are maintained by the S.M.E. whereas stocks of chemicals are maintained at the various water works depots. ANNEX 1 Page 3 of 3 pages

9. Facilities and staff for the repair, calibration and testing of water meters are available in the workshop under the charge of the Senior Executive Engineer (Water Works) - Kuala Lumpur. A new meter workshop with a capacity to test and repair 200 meters a day is under construction. It is expected to be completed early in 1968 and placed under the charge of S.M.E. to ensure satisfactory operation and control.

10. The following billings and collection procedures are in operation. Blank bills in triplicate suitably addressed are prepared in the Central Accounts Office and supplied to the meter readers. The meter readers record on the bills the quantity of water consumed during the billing period and the amounts due, furnish one copy to the customer, one to the Central Accounts Office and retain a copy. Spot checks on meter readers are carried out periodically by supervisory staff, who also handle complaints and check upon abrupt fluctuations in water consumption. There are various collection agencies in the State who receive a commission of 2-1/2% to 5% of collections as agency fees. The bulk of the collections (about 50%) however, is made at the Central Accounts Office, where no agency fee is involved. MALAYSIA - KUALA LUMPUPR iATSR SU?PLY PROJECT - SELANGOR STATE

?':iD 'ATiER 3UP'LY DTJISTJN

PRO FORMA INCOME STATEMENTS 1962 THROUGH 1974

(In '000 Malaysian Dollars) Adjusted Actual Fiscal Year Ending December Forecast 31 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 Total water produced (treated) (D1g) 11,126 11,528 13,239 14,.11 15,620 17,060 17,655 Water unaccounted 18,275 1,915 19,575 20,555 21,585 22,665 for ([Mg) 1,669 1,729 1,986 2,177 2,344 2,560 2,650 2,70 2,840 2,935 3,085 3,20 3,400 Total water consumed (IMg) 9,457 9,799 11,253 12,'33h 13,280 14,500 15,005 15,535 16,075 16,640 17,070 Pooulation in area served ('000) 790 809 18,345 19,265 851 901 950 1,015 1,050 1,085 1,125 Average daily metered suDoly (Dl4gd) 1,165 1,210 1,255 1,305 23.3 24.0 27.3 30.1 32.1 35.2 36.3 37.4 public standpipes and others 38.3 39.6 41.9 40.3 46.8 (IMgd) 2.6 2.8 3.4 3.7 4.3 4.5 0.03 5.2 5.7 6.o 6.o 6.0 6.0 Operating Revenues Water revenue 7,477 8,337 9.092 7,081 10,310 11,618 13,728 10,603 15,512 16,058 16,859 17,703 18,591 Miscellaneous (installation etc.) 217 272 309 253 252 2u3 ?55 260 260 265 265 270 270 Total Revenues 7,694 8,609 9,001 7,33' 1(),566 6 Io 13,953 19,863 15,772 16,323 17,124 17,973 1l,861 Operating Costs ?ower, chemicals, maintenance 2,898 3,163 3,819 3,761 4,257 0,377 0,640 4,920 5,215 5,530 5,860 Salaries, administration 795 795 850 6,210 6,585 995 1,108 1,310 1,440 1,5'5 1,745 1,920 2,110 Contingencies 318 318 30n 2,320 2,550 398 u43 520 575 635 700 770 845 930 Depreciation 1,400 1,537 1,683 2,094 2,026 1,020 2,667 2,890 3,101 3,350 3.415 3,982 40041 4.091 Total Expenditures 5,411 5,813 h,692 7,20i 83,234 5,57d 9 54 10,281 11,010 11,635 12,797 13,501 14,246 Operating Income (before interest) 2,283 2,796 2,709 86 2,332 2,986 0,0438 4,582 0,762 4,688 4,327 4,072 4,615 Interest Federal Government Loans 5 25 4008 1,217 1,609 1,670 IBRD Loan 1,996 2,375 2,480 2,433 2,397 2,362 2,321 - - - - 14 Less: Capitalized interest 160 387 560 660 684 660 (-) ------(14) (160) (387) (560) (001) - Interest charged to operations 5 25 008 1,217 1,609 1,670 1,99) 2 , 2,050 2,433 2,656o 3,016 2,951 NET INCOME (LOSS) 2,278 2,771 2,301 (1,131) 723 1,318 2,002 2,2O'. 2,282 2,255 1,671 1,426 1,634 Ratio of operating costs to total revenue (%)- - - - 78 75 68 69 70 71 75 75 6 Times interest covered - - - - 1.0 1.8 2.2 1.9 1.9 1.9 1.6 1.5 1.5 r Return on average net Dlant in service (%) - - - - - 3.3 4.5 40. 4.3 4,2 3.6 3.4 3.6 Note: * The rate structure was changed in 1960, but the new rates were notnmade effective umtil January ], 1966, resullting in and consequent losses in 1965 revenues. difficulties in collections

August 16, 1968 MALAYSIA - KUALA LUMPUR WIATER SUPPLY PROJECT - KUALA L-dFNUR AREA

0IDWATER .3PPLY DOVISIDN

PRO FORMA INCOME STATEMENTS 1962 THROUGH 1974

(In '000 Malaysiar. Dollars)

Adjusted Actual Forecast Fiscal Year Ending December 31 1962 1963 1964 1965 1966 1967 19?68 1969 1970 1971 1972 1973 19T4

Total water produced (treated) (LMg) 8,178 8,292 9,790 10,572 11,175 11,6'5 12,060 12,480 12,915 13,365 14,035 14,735 15,470 Water unaccounted for (D4g) 1,227 1,244 1,468 1,586 1,676 1,7~50 1,810 1,870 1,935 2,005 2,105 2,210 2,320 Total water consumed (IMg) 6,951 7,0148 3,322 8,900 9,499 9,905 10,250 10,610 10,980 11,360 11,930 12,525 13,150 Population in area served ('000) 508 511 546 567 598 610 610 662 683 706 731 757 783 Average daily metered supply (IMgd) 18.1 18.1 22.0 21.0 24.9 25.8 2'.6 27.4 28.2 29.1 30.7 32.3 34.0 Public standDipes and others (IMgd.) 0.9 0.9 1.0 1.0 1.1 1.3 1.5 1.7 1.9 2.0 2.0 2.0 2.0

Revenues 1/ Water revenue 5,756 6,456 7,203 5,129- 7,917 8,917 9,379 ),973 11,147 11,528 12,125 12,750 13,406 Other (installation, miscellaneous) 153 198 243 166 178 192 20( 205 210 215 215 215 215

Total Revenues 5,909 6,654 7,451 5,295 R,O9r 9,109 9,571 10,178 11,357 11,743 12,340 12,965 13,621 Operating Costs Pwr, cThEemicals, maintenance 1,380 1,674 1,833 1,675 1,?57 2,105 2,230 2,365 2,505 2,655 ',815 2,985 3,165 Salaries and administration 450 450 1460 10 60 7jj 810 890 980 1,080 1,190 1,310 1,440 Contingencies 180 180 184 192 22h 29h 324 356 392 432 476 524 576 Depreciation - 885 937 993 1,122 1,25'9 1,h02 1,1422 1,535 1,560 1,585 2,142 2,161 2,161

Total 2,895 3,241 3,L'70 3,469 14,000 1,536 1,796 5,1 h6 5,b137 5,752 6,623 6,980 7,342

NET INCOME BEFORE INTEREST 3,014 3,413 3,981 1,526 4,095 L,573 1,793 5,032 5.920 5,991 5,717 5,985 6,279

Interest Federal Government Loans 5 25 140o81,014 I ,1)-0 1,45I 1,5_LA 1 ,59 16141 1,606 1,581 IBRD Loan - - - I-11L 16o 387 560 o 4 ooO Less: Capitalized interest (-) ------(11) (160) (387) (560) (401) - -

Interest charged to operations 5 25 408 1,044 1, Xn3 i ,1 1 1,515 1,5965 1,6141 1,606 1,840 2,214 2,192

NhT INCCME 3,(09 3,308 3,573 732 2,637 3 24,3853,277 3,1J24279 3.877 3,742 4.087

Ratio of operating costs to total revenue ('%) 4 49 u? 66 49 50 50 51 54 54 , 6954

Estimated net plant in service ;:9,666 52,379 51,861 51,304 50,719 70,838 69,423 67,262

Return on average net Dlant in service (9) 9.7 .9.4 ?.7 11.5 11.7 9.1 8.5 9.2

Note: 1/ The rate structure was changed in 19618, out the new rates were not made effective intil Jenuary 1, 1966, resulting inidifficulties in collections and consequent losses in^the 1965 revenues.

August 16, 1968 ANNEX 4

MALAYSIA - KUALA LUMPUR WATER SUPPLY PROJECT - SELANGOR STATE

Schedule of Current Water Charges

Effective 1.1.1966 water charges in Selangor State, including the Kuala Lumpur area, are as follows:

(a) Concessionary supplies (Mosques, M$0.50/1000 gallons religious and other approved minimum charge M$2 charitable institutions). per month.

(b) Domestic supplies including M$1.00/1000 gallons government premises, schools, minimum charge M$2 swimming pools and clubs. per month. (c) Trade (including supplies to M$1.20/1000 gallons Public Restaurants, Hotels, minimum charge M$3 Markets, etc.) per month.

(d) Part Trade/Part Domestic (i.e., M$1.20/1OOO gallons where part or all of any premises minimum charge M$2 connected to the supply is used per month. for purposes of trade or business but water consumed therein is not used for the purposes of the trade or business carried on in the premises but only for the purpose of sanitation and hygiene).

(e) Supplies to ships. M$3.00/1000 gallons (f) Concessionary supplies (low cost M$0.60/1000 gallons housing projects undertaken and minimum charge M$2 maintained by the Federal Capital per month. Commission, State, Quasi State Government bodies or the Federal Government).

Charges for connection to Public Mains: (1) Up to 1" diameter M$20.00

(2) From 1¼" to 2" diameter VI$25. O

(3) From 241" to 3" diameter M$30.00

(4) Exceeding 3" diameter M$40.00 ANNEX 5 Page lof 2 pages

MALAYSIA - KUALA LUMPUR WATER SUPPLY PROJECT - SELANGOR STATE

Existing Water Supply Systems in Kuala Lumpur

General

The water supply to Kuala Lumpur area is derived from three sources - Ampang Impounding Reservoir, Ampang Intake and Klang Gates Reservoir. The Ampang sources are at a higher level than the Klang Gates reservoir and are mainly utilized to serve the high level areas in Kuala Lumpur.

Ampang Impounding Reservoir

The reservoir was constructed in 1892 and it has a safe yield of about 0.5 IMlgd. Certain upland streams in the area feed the reservoir and the quality of water is generally such as to require no treatment. The water drawn from the reservoir is chlorinated and conveyed to Kuala Lumpur for distribution.

Ampang Intake

The Ampang Intake comprises a weir across the Ampang river, con- structed in 1902. A few springs in the area are also tapped, and the total safe yield from these sources is 3.5 INgd. The raw water passes through coagulation and settling tanks and is conveyed to the city after disinfection with chlorine. The water does not undergo filtration.

Klang Gates Reservoir

Klang Gates reservoir, wvith a capacity of 4,300 IMg has been formed by the construction of a reinforced concrete dam across the Klang river. The reservoir supplies raw water by gravity to the water treatment works at Bukit Nanas in Kuala Lumpur city. The Klang Gates reservoir is the main source of supply to Kuala Lumpur area. The safe yield from the reservoir has been the subject of study for a number of years. The design of the scheme was based on the assumption that the safe yield was 32 IMgd. The first phase to supply 20 IMgd to Kuala Lumpur was completed in 1956 and when the second phase was considered in 1962 the consultants estimated the safe yield at 39 IMgd. Accordingly the second phase works were taken up and completed by 1966. Further studies have shown that the safe yield might be only 32 INgd. The existing facilities are as follows:

Draw Off Arrangements

The draw off arrangements at the Klang Gates dam originally consisted of twin 46 inch diameter pipes protected by screens at a fixed level. Recently a variable level draw off arrangement has been provided and it is now possible to draw water of uniform quality from the reservoir. ANNEX 5 Page 2 of 2 pages

Raw Water Mains

Two interconnected concrete lined stee'l mains of 45 inch and 46 inch diameter respectively convey raw water by gravity from Knang Gates reservoir to Bukit Nanas treatment plant. The mains are about seven miles long and have a total carrying capacity of about 37 IMgd.

Bukit Nanas Treatment Plant

The treatment plant provides facilities for aeration, clarification, filtration and disinfection of water. Under the first phase completed in 1956, four Paterson accelators and 12 rapid gravity filters using high velocity up- wash were installed. Four more accelators and 12 additional filters were provided under the second phase completed in 1966. The second phase also included the remodeling of the filters provided earlier, introduction of air scour in the place of high velocity up-wash, improvements to the old accelators and changes in the chemical treatment of water. The capacity of the treatment plant is 38 IMgd.

Treated Water Storage

At Bukit Nanas treatment plant, two reinforced concrete storage reservoirs with a total capacity of 8 IMg are available. In addition, storage reservoirs are located at various points in the area and a total storage capacity equivalent to a day's supply is available.

Distribution System

Approximately 620 miles of water mains (three inch diameter and above) have been laid in the Kuala Lumpur area. A minimum residual pressure of 30 feet is maintained in the distribution system, and supply is continuous. A large section of the distribution area is supplied by gravity from the storage reservoirs. There are three major and six auxiliary booster instal- lations in Kuala Lumpur and Petaling Jaya and two more are under construction. ANNEX 6 Page lof 2 pages

MALAYSIA - KUALA LUMPUR WATER SUPPLY PROJECT - SELANGOR STATE

Technical Description of Proposed Project

Alternatives Considered

The proposed project has been selected on the basis of analyses of the available alternatives in the area. There are seven river basins within practicable distance of the area of demand. Of these, six rivers - Kerling, Selangor, Gombak, Batu, Klang and Langat - lie within Selangor State whereas the Kenaboi is in an adjacent State. The yield from any one of these sources exceeds the foreseeable future requirements. The method of development suitable for each source has been examined and the most economical project is that based on the Langat river.

River Intake Works

The intake works would be situated near Mile 10 on Ulu Langat road and would comprise a weir structure across the river, impounding water to a depth of about six feet. Provision would be made to flush silt at regular intervals and a side channel would be included in the weir structure to pass a proportion of the river flow downstream as compensation water. Water drawn from the weir would be pumped after the removal of heavy silt and floating matter to a treatment works situated adjacent to the Ulu Langat road. The arrangement of the works would be such that they could be constructed in three stages with a capacity of about 28 IMgd each.

Treatment Works

The treatment of the water from Langat river is not expected to differ greatly from that required elsewhere in the State, and a normal process of aeration, flocculation, sedimentation, filtration and disinfection has been proposed. The filters would be designed for a rate of 120-160 gallons/sq.ft/hour. The works would be kept as simple as possible, and automatic and remote control provided only where it would result in greater efficiency of operation with minimum maintenance problems.

A plant control laboratory, offices, workshop and stores would also be provided at the treatment site. A clear water storage reservoir sufficient for about one hour's supply would also be provided. The treated water would be pumped to a balancing reservoir located on high ground near the treatment plant from which the supply would be gravitated to the terminal storage reservoirs.

Pumping Stations

The raw water pumping station would house pump-sets with a total capacity of about 14 IMgd with 50% standby.

A similar arrangement would be adopted in the high lift pumping station where pumps would lift the treated water to a balancing tank. The total static lift involved would be about 210 feet. ANNEX 6 Page 2 of 2 pages

Pipelines

The pumping mains for raw water and treated water would be of 4811 diameter steel pipelines. The raw water main would be about 1000 feet and the treated water main about 3000 feet. Each main would have a carrying capacity of about 28 IMgd. The treated water gravity main from the balancing reservoir to the terminal storage reservoirs would be about 37,000 feet. The pipeline would be of steel, with a diameter of 33 inches.

Balancing Reservoir

A two-million gallon capacity reinforced concrete reservoir would be constructed.

Terminal Storage

Two reinforced concrete reservoirs of 2½ million gallons and 4h million gallons capacity respectively would be provided at the Cheras Road site and Castle Field Estate. These two reservoirs would be at sufficient elevation to meet normal demand in the areas of supply.

Distribution System

Some 65,000 feet of distribution mains, ranging in diameter from 15" to 36" are proposed to be laid to strengthen the distribution system in the area. In addition, bulk water meters would be provided at cardinal points in the distribution system to measure the consumption in different areas. Some 20,000 consumer meters would also be provided. MALAYSIA - KUALA LUMPUR WATER SUPPLY PROJECT - SELP.GO)R STATE

PWD ;'AT2jR .-U??L'f OTI131N

COST ESTIMATES OF PROPOSED PROJECT

Local Currenc Exoenditures Foreign Exchange 000 _M$1 (M$1,000) 1968 1969 1970 1971 1972 Total 1968 1969 1970 1971 1972 Total Total Cost

Civil Engineering VWork

Site investigation, river intake' and weir, pumping stations' and treatment works ' 75 "2090 1,220 105 3,490 140 530 330 1,000 4490

Reservoir and terminial storLage 430 1,000 4S 45 1,520 120 260 380 1,900

Pipelines 320 640 60 60 1,080 420 910 1,330 2,410

Plant and Equipment

Raw water intake and weir equipment 30 30 60 175 275 25 25 500 560

Pumps and electrical equipment 12 38 20 70 120 350 135 35 690 760

Treatment Plant 50 125 65 240 280 690 275 75 1,320 1,560

Distribution System

Distribution mains, bulk meters and service meters 10 280 810 900 2,000 180 h00 1,020 2,000 4,000

Miscellaneous Cost

consulting services for engineering, supervision and management 65 325 340 290 1,020 1l0 220 100 60 530 1J55Q

Land acquisition 250 250 250

Survey and studies 75 200 125 100 500 500

Contingencies and provision for price escalation 10 375 1,023 530 1,935 10 315 795 450 1,570 3,5%

SUB-TOTAL 160 2,347 6,218 3,230 210 12,165 160 1,V70 4,710 2,385 135 9,320 21,485

Interest and other charges during construction ------lit 18o 387 560 401 1,522 1,522

TOTAL 160 2,347 6,219 3,230 210 12,165 174 2,130 5,097 2,905 536 10,842 23,007

August 16, 1968 MALAYSIA: KUALA LUMPUR WATER SUPPLY PROJECT- SELANGOR STATE CONSTRUCTION SCHEDULE

1T68 1969 1970 1971 D DEC JUL DEC JUL DEC JUL DEC

SURVEYS LAND REQUIREMENT PLANS ACQUISITION OF LAND TREATMENT PLANT - DESIGN AND CONTRACT - MANUFACTURE, DELIVERY B ERECT _ _ PUMPING PLANT - DESIGN AND CONTRACT

- MANUFACTURE, DELIVERY a ERECT - WEIR GATES - DESIGN AND CONTRACT

- MANUFACTURE, DELIVERY a ERECT

CONSTRUCTION OF CIVIL ENGINEERING WORKS AT MILE 10 - WEIR AND RIVER INTAKE, TREATMENT WORKS, PUMPING STATION

- DESIGN AND CONTRACT -

- CONSTRUCTION PIPELINES PIPES - CONTRACT - MANUFACTURE AND DELIVERY _ VALVES - CONTRACT

- MANUFACTURE AND DELIVERY - PIPELAYING

- DESIGN AND CONTRACT - CONSTRUCTION RESERVOIR AND DEINADCTRT TERMINAL STORAGE -DESIGN AND CONTRACT -CONSTRUCTION _ - m IBRD-3648(2R) MONTHS FROM COMMENCEMENT OF PROJECT 0 3 9 15 2 1 27 33 39 ANNEX 9 MALAYSIA: KUALA LUMPUR WATER SUPPLY PROJECT- SELANGOR STATE AVERAGE DAILY WATER CONSUMPTION PER HEAD (IMPERIAL GALLONS) 50 fl I I I F 50

GREATER KUALA LUMPUR AREA __-

40 40

y ~~SELANGOR STATE

30 1 j 30

1947 1962 1965 1970 1974

TOTAL POPULATION AND POPULATION SERVED (MILLIONS OF PERSONS) 2.0 1 1 1 1 1 1 1 1 1 2.0

1.5 1.5

TOTAL POPULATION o

1.0 .0

_~~~~~~~~~~~TE ARI EARE

.5 5 POPULATINSERVED :.:GREAT ER KUALA LUMP UR AREA

0 1947 1957 1962 1965 1970 1974

(R)IBRD-3640 ANNEX 10

MALAYSIA - KIJALA LUMPUR WATER SUPPLY PROJECT - SELAN'GCR STATE

PWD WATER SUPPLY DIVISION

PRO FORMA BALANCE SHEETS 1968 THROUGH 1974

(In '000 Malaysian Dollars)

Fiscal Year Ending December 31 1968 1969 1970 1971 1972 1973 1974

ASSETS TFed Assets 1/ Gross plant in service - 1 115,619 125,659 133,999 136,609 159,310 161,656 163,656 Less: Accumulated depreciation- 14,697 17,838 21,188 24,603 28J585 32,626 36,717 Net Plant in Service 2/ 100,922 107,o21 112,b11 112,006 130,725 129,030 126,939

Work in Progress 10,374 13,151 18,736 22,701 2,346 2,000 2,000

Current Assets Cash 3i/ - L21 586 2,046 5,037 7,407 9,968 Accounts receivable 2,288 2,434 2,586 2,676 2,810 2,950 3,099 Inventories 1,350 1,400 1,450 1,500 1,600 1,700 1,800 Total Current Assets 3,638 4,255 4,622 6,222 9,447 12,057 14,7v

TOTAL ASSETS 114 934 125,227 136,169 140,929 142,518 143,087 143,806

LIABILITIES Capital and Reserves State Government oarticipation 1/ 70,007 73,007 75,007 75,007 75,007 75,007 75,007 Surplus 2,442 b,649 6,931 9,186 10,857 12,283 13,917 Total 72,4h9 77,656 51,930 b4,193 b5,b6L 57,290 55,92h

Long Term Debt Federal Government Loans / 38,528 bl,225 42,560 41,923 41,248 LO,537 39,786 ProDosed IBRD Loan 174 2,30L 7,40l 10,126 10,272 9,852 941402 Total Long Term Debt 35,702 h3,529 49,961 52,049 51,520 50,3b9 L9,155 Current Liabilities Accounts payable 1,110 1,190 1,277 1,370 1,L69 1,577 1,693 Current portion of long term debt a) Federal Government 473 552 593 637 675 711 751 b) Proposed IBRD Loan - - - 180 390 h20 450 Total Current Liabilities 1,583 1,7142 1,570 2,157 2,534 2,705 2,597

Custaoers' Deposits 2,200 2,300 2,400 2,500 2,600 2,700 2,800

TOTAL LIABILITIES 114,934 125,227 136,169 140,929 142,518 143,087 143,806

Current Assets/Current Liabilities (excluding cash) 2.3 2.2 2.2 1.9 1.7 1.7 1.7

Note: 1/ The amounts are notional and subject to evaluation by management consultants.

2/ Net plant in service for Kuala Lumpur area 52,399 51,864 51,304 50,719 70,838 69,L23 67,262

3/ The cash position commencing 1969 is notional. With the establishment of the Water Supply Fund in 1969/70 working capital requirements only will be retained as cash by the Water Supply Division.

4/ The amounts shown for the Federal Government loans have been provided by the PWD Water Division.

August 16, 1968 ANNEX 11

MALAYSIA - KUALA LUMPUR WATER SUPPLY PROJECT - SELANGOR STATE

PWD VWAThR SUPPLY D7TISION

SOURCES AND APPLICATION OF FUNDS 196B THROUGH 1974

(In '000 Malaysian Dollars)

Fiscal Year Ending December 31 1968 1969 1970 1971 1972 1973 197h

Sources of Funds Internal Cash GeneratiDn Net income before interest 4,438 4,582 4,762 4,688 4,327 4,472 4,615 Depreciation 2,890 3,1141 3,350 3,415 3,932 L,01l 4,9)91 Total Cash Generation 7,32b 7,723 d,112 6,103 .,309 6,513 0,70O

Increase in Accounts Payable 75 80 87 93 99 108 116

Customers' Deposits 200 100 100 1.00 100 100 100

State Government Participation - 3,000 2,000 - -

Borrowings Federal Government loans for projects under construction 9,673 3,2)49 1,92.9 - - - - Proposed IBRD loan 174 2,130 _ S097 2,90. 536 - Total loans 9,7 5,379 536 - -

TOTAL SOURCES 17,150 16,282 17,32)4 11,201 9,104L 8,721 8,922

Application of Funds Addition to Plant Projects under construc!tion 6,250 7,100 1,400 100 _ _ _ Proposed project - foreign costs 160 1,970 1,710 2,3)45 135 - local costs 160 2,3L47 6,218 3,230 210 - Other imDrovements 3,790 1,2b0 1,210 340 1L600 2,000 2,000 Total 10,360 12,657 13,536 6,015 l,9LI5 2,000 2,000

Interest 2,010 2,535 2,867 2,993 3,057 3,046 2,981 Amortization 393 473 552 593 817 1,065 1,131 Increase in inventories 50 -50 50 50 100 100 100 Increase in accounts receivable 588- 146 152 90 134 140 119 Total -3,041 3,?04 3,621 3,726 4,10c 4,351 4,361

TOTAL .APPLICATIONS .1.3,401`-" _15,861- 17,159 9,741 6,053 6,351 6,361

Annual Surplus -4,049- 421 165 1,160 2,991 2,370 2,561 Cumulative Snrplus : 1/ 421 586 2,046 5,037 7,107 9,968 Times Annual Debt Service is c-overed- by Cash Generation 3.0 2.6 2.4 2.3 2.1 2.1 2.1

Note: 1/ The surplus.for-.1-96 h ' ot been .carried'o6rward as -'it will not be separated from general State funds until the change ill the.ic5unting-system b-ecomes effective.

August 16, 1968 ANNEX 12

MAIAYSIA - KUAIA LUMPUR WATER SUPPLY PROJECT - SEIANGOR STATE

ASSUMPTIONS FOR FINANCIAL PROJECTIONS

1. Total water produced (treated). An increase in production has been estimated at 3-1/2 per annum through 1971 and at 5% per annum thereafter.

2. Unaccounted for water includes system losses, scouring of mains, fire- fighting, etc.,1 and is taken at 15% of total water produced.

3. The increase in population served has been assumed at 35,000 in 1968 and 1969; 40,0OO in 1970 and 1971; 45,000 in 1972 and 1973; and 50,000 in 1974.

4. The number of public standpipes is not expected to increase after 1971. There are presently some 626 public standpipes in the Kuala Lumpur area, which commencing 1972 would be gradually reduced. However, the overall number of public standpipes in the State would not change appreciably, since government would continue to provide water through public fountains in the outlying communities for some years to come. Commencing July 1, 1969, a charge of 100.50 per 1,000 gallons of water supplied through public standpipes, has been assumed for the purpose of income statements.

5. Power, chemicals and maintenance costs from 1968 have been estimated to increase at 6% per annum, which is considered reasonable for Malaysia at present.

6. Wages and salaries. Provision has been made for an increase in staff in 196i. Wages and salaries are estimated to increase at 10% per annum, commencing 1968. This takes into account expected increments in salaries and increases in staff.

7. Contingencies include an allowance of 40% of salaries and administration to cover expenditures for overtime, retirement funds, hospitalization, bad debts, etc.

8. Depreciation is not provided for under the government accounting system. In preparing the pro forma statements, 1962 through 1974, 2-1/2% per annum notional depreciation on plant in service has been provided.

9. Accounts receivable commencing 1968 have been estimated to represent the equivalent of two months of the estimated water revenues.

10. Accounts payable have been estimated to represent the equivalent of two months of the estimated operating costs, excluding depreciation.

11. The proposed Bank Loan of US$3.6 million (equivalent to 1$10.8 million) would be made available to the Selangor State Public Works Department through the State Government of Selangor for a term of 20 years, including a grace period of h years, at an interest rate of 6-1/2% per annum. MAP I

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