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World Bank Document Document of The World Bank Public Disclosure Authorized ReportNo. 13028-PA STAFF APPRAISAL REPORT Public Disclosure Authorized PARAGUAY ASUNCION SEWERAGE PROJECT Public Disclosure Authorized JANUARY 17, 1995 Public Disclosure Authorized Environmpnt and Urban Development Operations Division Country Department I Latin America and the Caribbean Regional Office CURRENCY EQUIVALENTS C.-IC11cy U nit: Guarani (G$) EXCTIANGE RATE as of December 1, 1994) tiS$l.00 = G$1,915 WN'F,flIM VS AND MEASURES Metric System I ISCAL YEAR Jain;nirv I to December 31 \ BBRREIV'ITONS AND ACRONYMS BO)D Bio. henricl' (txxven Demand BOTiBOO Build Oipite- I ransfer'Build-Operate-Own CANC Cornniimttvcot I naccounted-for Water (Com,i t(dcd.4 !u oVoContabilizada) CGN Corrptirll clkrCeeral of the Nation Ina (;eueral de la Vaciin) CORPOSANA C'orpovn i"n I anitarv Works tfl)w;J,;t,l ,d ()brax .SSnritarias) DO Dissolked ()X\ ocui EIB TFurapeaC 1e\ttlnentIr\ Bank FC FKICcIl 1 11ftvs GNP Gruss N'ali l al Product ICB Intet lltwi I i('petitive Bidding IDB Inter-Americani l)evelopment Bank IDTA Institutiomal Development Technical Assistance IFRR Internal Financial Rate of Return IPS Institute of Social Security (In.stituto (le Prev'isi6n Social) LCB ILocai (2 mpentive Bidding MOF Millistp\ otri i'ice OED ()perat iars l; aluation Department OPACI Parauuavaji O)r,lmnization of InterTnunicipal Cooperation (Organi-cribn /araguaya de Cooperacion Intermunicipal) PAHO Pan-AmevifHa I lealti Organization PAU ProjULt Admll,li.4,trativeUnit PO Plannin (O)ficc PPF Project Pr.eparrinaiimFacility SENASA National I'nvirontmiental Sanitation Services (Sner tico l Sfaneamiento Ambientul) SOE StatemenE at ELxpenditures UFW Unac1cunurted h.lr Water UNICEF United N'atioris Children's Fund PARAGUAY ASUNCION SEWERAGE PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. LOAN AND PROJECT SUMMARY .................. i THE WATER SECTOR The Economy and the Sector ................... 1 Population and Service Levels .................. 2 Water Resources and Water-Related Diseases ... ...... 3 Sector Organization and Performance .... .......... 3 Sector Investments and Financing ................ 7 Bank Involvement in the Sector .................. 8 Lessons from Past Experience ................... 9 2. THE PROJECT Project Origin ........................... 10 Project Scope ............................ 11 Project Objectives ......................... 12 Project Description ........................ 12 Status of Project Preparation .................. 13 Project Cost . ............................ 14 Financing Plan ........................... 15 Project Implementation Arrangements .... ......... 15 Procurement ............................ 17 Disbursement, Special Account and Auditing ... ..... 19 Monitoring and Supervision ..... .............. 20 Project Implementation Agency - CORPOSANA ... ... 21 3. PROJECT JUSTIFICATION Environmental Impact .30 International Waterways Issues .32 Project Benefits .......................... 33 Economic Evaluation .34 Risks and Safeguards .34 4. AGREEMENTS REACHED & RECOMM:ENDATION . 35 This report is based on the findings of an appraisal mission that visited Paraguay in June 1994. The mission consisted of Messrs./Mmes. Luis Chang, (Senior Water Engineer and Task Manager), Carlos Moreno-Pineda (FinancialAnalyst), and MargaritaRam6n (Consultant). BemardoG6mez (SeniorFinancial Analyst) and Augusta Dianderas(Senior Municipal Engineer) served as Peer Reviewers. AlfonsoSanchez was the DivisionChief during projectpreparation. The sector DivisionChief, ProjectsAdviser and DepartmentDirector are respectivelyAsif Faiz, Orville Grimes and Gobind T. Nankani. Page No. ANNEXES A. Water Supply and Sewerage Levels in Latin America . 41 B. Comparative Social Indicators in Selected Countries ... 42 C. Water and Sanitation Coverage by Communities ..... 43 D. Privatization and Regulation .. 44 E. Lessons Learned .. 51 F. Institutional Development Technical Assistance Program . 57 G. Description of Physical Works . .77 H. Project Cost Details .. 80 I. Paraguayan and Bank Procurement Practices . .81 J. Estimated Schedule of Loan Disbursement . .86 K. Implementation Schedule . .87 L. Monitoring Indicators .. 89 M. Organization of CORPOSANA . .90 N. CORPOSANA's Finances . .93 0. Environmental Assessment . .109 P. Financial Rate of Return . .116 Q. Documents and Data Available in the Project File .. 117 MAP IBRD No. 26073 PARAGUAY ASUNCION SEWERAGE PROJECT LOAN AND PROJECT SUMMARY Borrower: Republic of Paraguay. Implementing Agency: Corporation for Sanitary Works (CORPOSANA). Beneficiaries: About 250,000 residents of Asunci6n and 3,000 residents of Encarnaci6n. Poverty: Not applicable. Loan Amount: US$46.5 million equivalent. Terms: Repayment in 17 years, including 5 years of grace, at the Bank's standard variable interest rate. Commitment Fee: 0.75 percent on undisbursed loan balances, beginning 60 days after signing. On-lending Terms: The proceeds of the loan will be on-lent by the Borrower to CORPOSANA on the same terms and conditions as those of the Loan. CORPOSANA will assume the foreign exchange risk. Financing Plan: European Investment Bank US$20.0 million CORPOSANA US$5.7 million IBRD US$46.5 million Total US$72.2 million Project Objectives: The objectives of the proposed project are to: (a) help the Borrower improve the provision of urban water and sewerage services in the country by decentralizing activities, facilitating private sector participation, and strengthening CORPOSANA's planning capacity; and (b) improve the health and quality of life of about 250,000 lower-income residents of Greater Asunci6n by increasing coverage of sewerage services and mitigating the environmental impact of sewage disposal in the Paraguay River. Project Description: The project consists of: (a) an Institutional Development Technical Assistance Program to: (i) develop proposals to decentralize sector activities and to establish a financial and regulatory agency for the sector; (ii) study the future role of CORPOSANA (iii) strengthening CORPOSANA's corporate planning capacity, as well as its commercial and financial activities; (iv) establish mechanisms for private sector participation; and (b) Asunci6n sewerage expansion and a small basic infrastructure component in Encarnacion by (i) provision of approximately 50,000 new house connections; (ii) construction of about 550 km of sewage collectors; (iii) installation of 24 km of sewage interceptors; (iv) construction of a 3.2 km tunnel; (v) construction of preliminary treatment facilities and a sewage outfall; (vi) rehabilitation of three sewage outfalls in the existing sewerage system of Asunci6n; (vii) establishment of a supervision and monitoring system for sewage disposal into the Paraguay River; (viii) water supply, sewerage and related infrastructure works in Encarnaci6n; and (ix) consulting services for sewerage works supervision. Beneflts: The project would seek to achieve sound water and sewerage sector policies and institutional arrangements to improve services to the urban population. It would yield important economic, financial, environmental and health benefits. The proposed project will also improve the living and health conditions of the population in Greater Asunci6n by increasing sewerage service levels from 38 percent to about 60 percent of the city's population. Economic Rate of Return: 11 percent, for 77 percent of total project cost. Risks and Safeguards: The project faces the following risks: (a) a weakening in the Borrower's commitment to sector reform that could affect decentralization and the implementation of the regulatory framework for private sector participation. To reduce this risk, annual and mid-term project reviews for project implementation would be undertaken with sector authorities. Since the IDB is also financing other water and sewerage projects, the Bank is maintaining a close dialogue with the IDB to coordinate the reforms on sectoral policies; (b) Borrower's delays in approving tariff increases would limit CORPOSANA's generation of counterpart Hi - funds for project implementation. Moreover, low tariffs would further jeopardize private sector participation. To minimize this risk, agreement was reached that prior to loan effectiveness the Borrower will authorize and cause CORPOSANA to increase tariff rates by 5 percent over the official inflation rate of 1994 and follow-up, during the period of 1996 through 1999, with increases as per the recommendations of the tariff study. If these recommendations are not implemented, the Borrower agreed to cause CORPOSANA to increase the yearly water tariffs by 5 percent over the official inflation rate of the previous year; and (c) the capacity of CORPOSANA to carry out adequately and in a timely manner a sewerage project of this size along with other investment programs. Despite CORPOSANA's proven record of good performance in project implementation, the proposed project will be an important undertaking for CORPOSANA, which would require the strengthening of all the company's systems. This will be met by the comprehensive reorganization, already underway, and the proposed Institutional Development Technical Assistance Program to improve CORPOSANA's corporate planning, operational and administrative efficiency, and by hiring a project management firm to administer and supervise the physical execution of the project. - iv - Financial Estimates: EstimatedProject Costs (in US$ million as of June 1994) Component Local Foreign Total % Technical Assistance Program 0.4 0.8
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