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Document of The World Bank Public Disclosure Authorized Report No. 15346-PH STAFF APPRAISAL REPORT REPUBLIC OF THE PHILIPPINES Public Disclosure Authorized MANILA SECOND SEWERAGEPROJECT Public Disclosure Authorized APRIL 12, 1996 Infrastructure Public Disclosure Authorized Operations Division Country Department I East Asia and Pacific Region CURRENCY EQUIVALENT (as of January 1, 1996) Currency Unit = Peso (P) 1.0 Peso = US$0.04 US$1.0 = P 25.0 WEIGHTS AND MEASURES 1 meter (m) = 39.37 inches 1 kilometer (km) = 1,000 meters or 0.62 miles 1 square meter (m2) = 10.8 square feet 1 square kilometer (km2) = 0.38 square miles 1 hectare (ha) = 10,000 square meters or 2.47 acres 1 cubic meter (m3) = 1,000 liters or 264 US gallons 1 liter (1) = 0.26 US gallons 1 liter/capita/day (lcd) = 0.26 US gallons/capita/day 1 million liters/day (Mld) = 1,000 cubic meters/day 1 metric ton (t) = 1,000 kilograms or 2,205 pounds ABBREVIATIONS AND ACRONYMS BOD = Biochemical Oxygen Demand CORPLAN = Corporate Planning Department, MWSS DPWH = Department of Public Works and Highways ECC = Environmental Compliance Certificate EIA = Environmental Impact Assessment EIS = Environmental Impact Statement EMB = Environmental Management Bureau EMP = Environmental Management Plan Government = Republic of the Philippines MM = Metro Manila MMDA = Metro Manila Development Authority MWSS = Metropolitan Waterworks and Sewerage System NCR = National Capital Region NEDA = National Economic Development Authority NGO = Non-governmental Organization NRW = Non-revenue Water PCG = Philippine Coast Guard SSD = Sewerage System Department MWSS FINANCIAL YEAR January 1 - December 31 PHILIPPINES MANILA SECOND SEWERAGE PROJECT Contents Page No. Loan and Project Summary.............................. iv I. BACKGROUND Metro Manila..................... 1 Wastewater ...................... 1 Water pollution...................... 1 Institutions ...................... 1 Development targets .. 2...................2 Previous Bank lending .. 2...................2 Rationale for Bank involvement..................... 3 II. THE PROJECT AREA AND SERVICES Project area ............................... 4 Water supply service ... 4............................4 Drainage, sewerage and solid waste disposal ............................... 4 Water pollution control ... 5............................5 Operation and maintenance................................ 5 Demand for the project ... 6............................6 HI. THE PROJECT Project origin.................. 7 Objectives .................. 7 Description.................. 7 Status of preparation .................. 8 Cost estimate .................. 8 Financing plan .................. 9 Implementation................. 10 Land lease and acquisition ................. 10 Procurement.................. 1 I Disbursement ................. 12 Environmental impact ................. 13 Supervision ................. 15 This report was preparedby Messrs. AnjumAltaf, JaroslavKozel, Albert Wright, John Nicholsonand Ms. Manida Unkulvasapaulwho appraised the project in July 1995. Ms. Martha Ochieng and Ms. Kajal Jagatsing helped prepare the report. The project was reviewedby peers Messrs. EdouardMotte and RajagopalIyer, and cleared by Mr. J. Shivakumar,Chief, EAlIN, and Ms. PamelaCox, Acting Director,EAI. (ii) IV. THE IMPLEMENTINGAGENCY Implementingorganization ................................. 16 MetropolitanWaterworks and SewerageSystem ................................. 16 Organizationalstructure ................................. 16 Staffingand training................................. 16 Performanceand management................................. 17 Developmentprograms ................................. 17 Institutionalissues ................................. 17 Private sector involvement................................. 18 Project implementation................................. 18 V. FINANCIALANALYSIS Planningand budgeting.................... 19 Rate structureand revenues................... 19 Accountingand auditing................... 20 Billingand collection................... 20 MWSS financialperformance ................... 21 SSD financialperformance ................... 21 Project financing................... 22 Monitoringand evaluation................... 23 VI. PROJECTJUSTIFICATION Project benefits............... 24 Rate of return ............... 25 Least-costsolution ............... 26 Data base establishment............... 28 Projectrisks ............... 28 VII. AGREEMENTSREACHED AND RECOMMENDATION Agreements.30 Recommendation.31 ANNEXES 1. Servicesin the projectarea .32 2. Projectdescription .40 3. Project cost estimate.44 4. Implementationschedule .49 5. Summaryof projectimplementation action plan .50 6. Estimatedschedule of loan disbursement. 5 1 7. Environmentalassessment .52 8. Project supervisionplan .62 9. SSD financialstatements .65 10. Assumptionsfor financialprojections .68 11. Project performancemonitoring .70 12. Rate of return . 76 13. Documentsand data availablein the projectfile .82 ORGANIZATIONCHARTS I1. Organizationof MWSS.............................. 83 2. Organizationof SewerageSystem Department ..............................84 3. Organizationof Project Inplementation.............................. 85 MAP IBRD No 27244: Locationof the project I (iv) PHILIPPINES MANILA SECOND SEWERAGE PROJECT Loan and ProiectSummary Borrower: MetropolitanWaterworks and SewerageSystem. Guarantor: Republicof the Philippines. Implmentin Agency: MetropolitanWaterworks and SewerageSystem. Beneficiarv: Not applicable. Poverty: Not applicable. Amount: US$57.0million equivalent. Terms: 20 years, including5 years of grace, at the Bank'sstandard variable interest rate. Commitment 0.75% on undisbursedloan balances,beginning 60 days after Fee: signing,less any waiver. Financing Plan: Seepara. 3.10 Net Present Not applicable. Value: Map: IBRD No. 27244 Project ID No: 4611 I 1. BACKGROUND Metro Manila 1.1 Metro Manila (MM), the National Capital Region, covers about 636 km2 along the eastern shore of Manila Bay. MM is the Philippines' primary administrative center, with a concentration of commerce, industry and services. Its eight cities and nine municipalities had a 1995 population of 8.9 million, about 30% of whom - mainly migrants from rural areas - live in about 600 slums. Population pressures, ineffective control of industrial growth, and an absence of development planning have overloaded the region's infrastructure and caused rapid environmental deterioration. Wastewater 1.2 About 18% of MM wastewater is collected by a sewer network and discharged untreated into Manila Bay. The remainder is discharged into the public drainage system either directly or through approximately 1 million household septic tanks constructed under the Sanitation Code. Most of the septic tanks do not have on-site soil absorption systems and are rarely desludged. Water Pollution 1.3 Most of the pollution generated from domestic, industrial, and commercial activities in MM eventually ends up in the three primary water bodies: the rivers and canal system, Laguna de Bay, and Manila Bay - a large shallow coastal water supporting thousands of fishing families. As a result, the river system in MM is biologically dead, Laguna de Bay increasingly turbid, and the eastern shoreline of Manila Bay is unsuitable for recreation. The daily water pollution load generated in 1995 was estimated at about 980 tons of biochemical oxygen demand (BOD), of which 40% was from residential wastewater, 38% from industries and 22% from solid waste dumped in rivers. Institutions 1.4 Water supply and sewerage services in MM are provided by a government corporation, the Metropolitan Waterworks and Sewerage System (MWSS), which also provides water supply and sanitation services to one city and 19 municipalities in neighboring Rizal and the northern part of Cavite provinces. Responsibility for drainage is divided between the Department of Public Works and Highways (DPWH), which develops and operates the main flood-control system, and the cities and municipalities, which build and maintain street drains. 1.5 The responsibility for planning and coordinating several metro-wide services - transport and traffic management, solid waste management, pollution control, flood control, drainage, sewerage, land use planning, and zoning - was recently vested in the Metropolitan Manila Development Authority (MMDA) established in March 1995. Its policy-making and governing body is a council composed of all MM mayors. The chairman of the council has the rank of a cabinet member and is appointed by the President. 1.6 Other agencies involved in sector activities are DPWH, which oversees MWSS, the Department of Health, which monitors drinking water quality, the National Water Resources 2 Board, which coordinates water resources development and management, and the Environmental Management Bureau (EMB) of the Department of Environment and Natural Resources (DENR), which plans environmental management, including enforcement of regulations. EMB is also responsible for studies and programs aimed at reducing industrial pollution, and safe disposal of toxic and hazardous waste. The National Economic and Development Authority (NEDA) is the central agency for national development planning and coordinates programs, projects and policies initiated by other government agencies. Development Targets 1.7 Among the Government's key development objectives is economic development without environmental degradation. This is reflected in'the 1993-98 Medium-Term