Docamentof The WorldBank FOR OMCIAL USE ONLY Public Disclosure Authorized Riwpt ig.5659-MA Public Disclosure Authorized STAFF APPRAISAL REPORT MALAYSIA JOHOR WATERSUPPLY PROJECT Public Disclosure Authorized January 10, 1986 Public Disclosure Authorized Regional ProjectDepartment East Asia and Pacific Regional Office their .id. duds. lb nm um not oihwiwsebe dkrdmed wi&mm Wedi Bak udbwgz.tiem.I CURRENCY AND EQUIVALENTS Currency Units = Ringgit M$ = 100 sen Average 1984 November 1985 US$1 = M$2.34 US$1 = M$2.43 M$1 = US$.43 M$l = US$0.41 FISCAL YEAR January 1 to December 31 UNITS OF MEASREMENTS cm = centimeter (1 cm = 0.39 inches) m = meter (1 m = 3.28 feet) 32 square meter (1 m 2 = 10.76 square feet) m3 = cubic meter (1 m 3 = 35.3 cu. ft. = 264.2 US gallons) km kilometer (1 km = 0.62 mil s) ha = hectare (1 ha = 10,000 m' = 2.47 acres) Lcd = liters per capita _ per day (1 lcd = 0.001 36 MLd = Megaliters per day (1 Mld = 1,000 m/d = 0.264 MGD) Ml = Megaliter (1 Ml = 1,000 m 3) ABBREVIATIONSAND ACRONYMS ADB - Asian Development Bank AGD - Accountant General's Department EPU - Economic Planning Unit F-JKR - Federal Department of Public Works GOM - Federal Government of Malaysia ICB - International Competitive Bidding JB - Johor Bahru JS - Johor State JS-JKR - Johor State Department of Public Works MHLG - Federal Ministry of Housing and Local Government PIU - Project Implementation Unit PSD - Public Service Department PUB - Public Utilities Board of Singapore SG State Government S-JKR - State Department of Public Works UNDP - United Nations Development Program WD - Water Department FOR OMCIAL USEONLY MALAYSIA JOHOR WATER SUPPLY PROJECT Table of Contents Page No. LOAN AND PROJECT SU.--ARY .... .. ........ iii I. WATER SUPPLY AND SANITATION SECTOR. ..... 1............-o. Introduction .................. 1...0.... Sector Organizationgi.................. .z. 1 Sector Financing and Tariffs....... ..... 2 Service Levels................................................ 2 Sector Developments ......................................... 3 Sector Issues and Qonstraints................................. 4 Experiencewith Past Lending and Bank Objectives in the Sector. II. THE PROJECT AREA.. 6 Location and Development Context. 6 Population Projections................... ...... ...... 6 Supply and Service Conditions in the Project Areas . 7 Demand Projections . ................. ............ ..... 9 III. THEPROJECT. .................... ....................... 10 Project Origin and Formlulation............................... 10 Project Objectives and Rationale for Bank Support.11 Project Desitin... r...................... 11 Project Costs.14 Project Financing Plan and Lending Arrangements 15 Implementationand Status of Project Preparation .15 Procure t.. .. .. 16 Disbursements ... 18 Environmental Aspectsp................ .... .... *.... ..... 18 rV. THE BENEFICIARY-JOHORSTATE WATER DEPARTMENT...... o......... 19 Current Organization of JS-K-o.... J....... K 00B 19 Approved Reorganizationo...... 19 Manpower and Recruitment of Staffe...-f......... .... 20 Accounts and Accounting System....... 21 This report is based on the findings of an appraisal mission consistingof Messrs. E. H. Motte (Engineer),T. Pereira and D. C. Jones (Financial Analysts)and H. W. Barker (TrainingSpecialist) who visited Malaysia between November 22 and December 12, 1984. This documenthas a restictddsubution and may be ud byreipints only in the pufonmnce of theioffid duts Itscontents may not otherm bedscoad witout WaddBnk _autrzain - ii - Page No. Billing and CGllection .......................................................22 Operations and Naintenance .................................... 23 Audit ....................................................... 23 Training.- __................................._--- 24 Reporting 0............................................... 25 V. FINANCIAL . YSIS... ............................ .... 25 Past and Present Financial Performance....................... 25 ooo.ooo_ ....oo........ ...26 Fncanial Obje..tives..... ....................... 28 Future Financial P erm.ance. ......... .... 29 Financing PLan for Water Supply............................... 30 VIo ECONOKIC AND SOCIAL ANALYSISoooo. .. ooooo..... ... 31 Benefits and . ............ .... 31 Least Cost ................. 31 Consumer Ability to Pay........... o.......o. .............. .. .... 32 Rate of Btr 32 .................................. AverageIncremental Cost...................... .......... ...... 33 Impact on the Poverty Group................................... 34 ERisks .................................... 34 VIIo AGREEDENTSREACMED AND RECOMMEDIION..ooo....o..o........ 34 ANNEXES 1. Detailed Project Cost Estimates (Tab1es)ooooo.o.o............ 36-37 2. ImplementationSceue . o. 38-39 3 * Disbursement Sceue... ............. .. ..... 40 4. Manpower and ........................ Tr ainin 41-50 5. Assumption for Financial Forecasts..o.......................... 51-52 6. Financial Forecasts...... .... ... ...... .... ...... .... 53-55 7. Reporting Requirements/MonitoringIndicatorso....... .. ... ..56 8. Documents and Data Available in the Project File.............. 57 CHARTS 1. Projection of Water Demand and Staging of Developmentsfor the 58 Project Districts 2. Proposed Organization Structure and Staffing Levels of Johor 59 State Water Bepartment MAPS Project Works in Johor Bahru District (IBRD Map 18823) Project Works in Batu Pahat and Kluang Districts (IBRD Map 18824) - iii - MALAYSIA JOHOR WATER SUPPLY PROJECT Loan and Project Summary Borrower: Malaysia Beneficiaries: Johor State Amount: US62.0 milLion equivalent Terms: Repayable in 15 years, including 3 years of grace, at the standard variable interest rate RelendingTerms: The Federal Government of Malaysia would onlend US$61.7 million of the loan proceeds to the Johor State Government correspondingto che foreign exchange requirement of the project, for 25 years including5 years of grace, 55Z of this amount at an interest rate of 7.5Z per annum, and the remainder at 4Z per annum. US$0.3 million would be retained for training activities. The Federal Government would bear the foreign exchange risk on the loan. Project Description: The project would expand water supply infrastructure systems in three of the eight districts of the State of Johor. Water services would be improved for about one million persons and expanded to serve 370,000 additional persons by 1990, thus increasingthe service level to, on average, 86Z of the population in the three districts. The project would provide for: (a) the expansion of source works serving the Johor Bahru district, which would result in an additional supply of water of 90 Hld, and the strengtheningof the distributionsystems; (b) the constructionof intake, pumping, transmissionand distri- bution works to provide an additional capacity of 60 Hld to the Batu Pahat district; (c) the constructionof intake, wells, treatment, transmissionand storage works to yield an additional 90 mld to the Kluang district; (d) establish- ment of continuing in-house training capabilitiesat the Federal and Johor State levels; and (e) technical assis- tance and consulting services for improving the Water Department'stechnical operations, constructionsupervi- sion, and block mapping surveys and detailed engineeringof the distributionnetworks. The primary risk is that the new Water Department may not effectivelyfunction without the recruitmentof the proposed large number of staff and the introductionof a - iv - commercial accounting system. Furthermore, in the past, the sector has had difficulty in attracting and retaining qualified and experienced staff. The project, the-efore, includes institutional support and staff training in order to minimize these risks. Project Costs: Local Foreign Total - (US$ milLion) - Water Supply Civil works 23.7 15.1 38.8 Equipment . 18.0 29.0 47.0 Training 0.2 1.0 1.2 Engineering 3.2 2.1 5.3 Land Acquisition 4.8 - 4.8 Base Cost 50.0 47.2 97.1 Physical contingencies 5.0 4.7 9.7 Price contingencies 7.7 10.1 17.9 Total Project Cost /a 62.7 62.0 124.7 Financing PLan: IBRD - 62.0 62.0 Federal Loan to Johor State 62.7 - 62.7 Total Financing 62.7 62.0 124.7 Estimated Disbursements: Bank FY 1986 1987 1988 1989 1990 1991 1992 (US$ milll7;6T Annual 2.0 4.1 8.7 12.9 12.9 12.8 8.6 Cumulative 2.0 6.1 14.8 27.7 40.6 53.4 62.0 Rate of Return: 7.7S /a Including duties and taxes estimated at US$8.0 million equivalent. MALAYSIA JOHOR WATER SUPPLY PROJECT I. WATER SUPPLY AND SANITATION SECTOR Introduction 1.01 In 1983, Malaysia had an estimated population of 14.6 million and a population density of 43 persons/sq km. Per capita GNP was then US$1,870. Some 70Z of the country's land area is composed of hilLs and mountains which are covered for the most part by tropical rainforests and agricultural developments. Average rainfall for Peninsular Maiaysia at 3,000 to 4,000 mm comes in two distinct seasons, provides ample water resources to the peninsula, but often causes widespread flooding on the East Coast States. Most ma,or towns and population growth centers are situated in the agricultur- al lowlands along the coastal strip and along rivers and estuaries. Of the total population, 35Z live in commiunities of 10,000 or more and are classified as urban population while the rest is classified as rural. Urbanization has been rapid and, by the end of the century, the urban population is expected to increase to about 50Z of the total projected population of 21 million. This rapid urbanization has stretched all urban