Technical Assistance Consultant’s Report Project Number: 7106 May 2011 India: Preparing the Bihar Urban Development Project—Final Subproject Appraisal Report for Bhagalpur Water Supply (Tranche 1) Prepared by: GHK Consulting Limited, UKG, in association with STUP Consultants P. Ltd., IND, and Castalia Strategic Advisors, USA For Urban Development and Housing Department, Government of Bihar This consultant’s report does not necessarily reflect the views of ADB or the Government concerned, and ADB and the Government cannot be held liable for its contents. (For project preparatory technical assistance: All the views expressed herein may not be incorporated into the proposed project’s design. Bihar Urban Development Investment Program (BUDIP) Subproject Appraisal Report Bhagalpur Water Supply (Tranche 1) FINAL May 2011 3333 Urban Development & Housing GHK, UK Department in association with Government of Bihar Castalia STUP Consultants Asian Development Bank (ADB) Bihar Urban Development Investment Program DISCLAIMER The contents of the reports are the recommendation of the consultants engaged under the project preparatory technical assistance (PPTA) by the Asian Development Bank (ADB). ADB missions subsequent to the PPTA will conduct due diligence and may modify the scope, implementation arrangements, safeguard measures and analysis. Therefore, the subsequent ADB’s official documents (such as the legal documents, the framework financing agreement, the report and recommendations of the president, the facility administration manual, the aide memoires) will supersede the contents of the reports, in case there are conflicts. Bihar Urban Development Investment Program Acknowledgements “Any city however small, is in fact divided into two, one the city of the poor, the other of the rich. These are at war with one another.” Plato (BC 427-BC 347) During the tenure of this assignment, help, co-operation and assistance have been obtained from a large number of individuals, government departments, local bodies, para-statal agencies, social workers, representatives of NGOs and CBOs. They have provided their valuable time and suggestions to members of the PPTA team to assist in this study. It is rather difficult to thank them individually. We express our sincere thanks to all those people collectively. Their support, encouragement and insights into the social, economic, environmental and infrastructure problems of the study area and the sector as a whole have provided an essential input into the proposals in the report. More often than not, these suggestions triggered useful discussions in shaping various projects in project towns of Bhagalpur, Darbhanga, Gaya and Muzzaffarpur for infrastructure improvement. In addition to the obviously critical technical support by the Asian Development Bank, preparation of this Report was made possible through the enthusiastic support and guidance of Shri Girish Shankar, Principal Secretary (up to February 2011) and Shri D K Shukla, Special Secretary of the Urban Development and Housing Department, Government of Bihar and the Mayors, Municipal Commissioners and their enthusiastic staff in the preparation of this PPTA report. At the very pragmatic level, Mr. Hiroyuki Ikemoto, the ADB Urban Development Economist, continues the challenge of supporting the consulting team and their enormous requests. Our thanks are also due to Shri Shashi Shekhar Sharma who guided the completion of this final report upon taking over as Principal Secretary from February 2011. Unknown to them, but the daily observation of all residents, their situations and their needs contributes the most to the exercise, and will be thanked by successfully contributing this project's results to their future. Consultants Team S Bhattacharyya, Project Management Specialist /Team Leader John R Block, Water Sector Specialist John R Bowers, Urban Planner Vijay Tandon, Project Economist/Project Director Krishnan Padmanabhan, Financial Management & Accounting Specialist Archana S Hinduja, Urban Planner Parthajit Patra, Water Supply Specialist Tapan Banerjee, Institutional Specialist Sandeepan Choudhury, Sewerage Specialist Ardhendu Mitra , Environment Specialist Saswati Ghosh Belliappa, Social & Community Development Specialist Naval Paswan, Economist Rajeev Singh, Statistician Suresh Gupta, Procurement Specialist Sunil Kumar Goyal, Municipal Engineer Arkaja Singh, PPP Specialist P N Bhattacharya, Municipal Engineer Bihar Urban Development Investment Program Main Report - Sub-Project Appraisal Report Contents 1 Subproject 1 ..................................................................................................... 10 2 Introduction and Rationale ............................................................................. 10 2.1 Background ............................................................................................................................ 10 2.2 Need of Project ....................................................................................................................... 11 2.3 Actions by Government .......................................................................................................... 13 2.4 Sub-Project Rationale............................................................................................................. 15 3 Description ....................................................................................................... 16 3.1 Sub-Project Area .................................................................................................................... 16 3.2 Assessment of Existing Situation ........................................................................................... 17 3.3 Objective of Sub-Project ......................................................................................................... 21 3.4 Sub-Project Component ......................................................................................................... 22 3.5 Right of Way Clearances ........................................................................................................ 27 3.6 Risk and Assumption .............................................................................................................. 27 4 Design Features ............................................................................................... 28 4.1 Design Year ............................................................................................................................ 28 4.2 Design Basis ........................................................................................................................... 28 5 Project Cost ...................................................................................................... 30 5.1 Base Cost ............................................................................................................................... 30 5.2 Contingencies ......................................................................................................................... 31 6 Implementation Period .................................................................................... 31 6.1 Implementation Period............................................................................................................ 31 6.2 Procurement Method .............................................................................................................. 32 7 Implementation Arrangement ........................................................................ 32 7.1 Implementation Arrangements ............................................................................................... 32 8 Procurement and Consultant Selection........................................................... 32 9 Operation and Maintenance ............................................................................ 32 9.1 Asset Ownership .................................................................................................................... 32 9.2 Operation and Maintenance Cost ........................................................................................... 32 10 Financial Analysis ............................................................................................ 33 10.1 Cost Recovery Policy ............................................................................................................. 33 10.2 Water Demand Projections .................................................................................................... 33 10.3 Costs and Revenue Projections ............................................................................................. 33 10.4 Cost benefit analysis .............................................................................................................. 35 10.5 Financial Performance............................................................................................................ 37 10.6 Conclusion .............................................................................................................................. 39 11 Economic Analysis ........................................................................................... 40 11.1 Introduction ............................................................................................................................. 40 11.2 Project Background and Rationale ......................................................................................... 40 11.3 Option Assessment and Least Cost Analysis