Appraisal of the - World Bank Documents

Report No. 384a-EC CIRCUIATMNG COPY

Appraisal of the - mIBE RETURNED TO REPORTS DESK

Water'Supply Project for RETURN TO

Guayaquil and Guayas Provinc REPORTS DESK

Ecuador ONE WEEK

June 13, 1974 FILE COPYRegional Projects DepartmentLatin America and the Caribbean Regional Office

Not for Public Use

Document of the International Bank for Reconstruction and DevelopmentInternational Development Association

This report was prepared for official use only by the Bank Group. It may not be published,quoted or cited without Bank Group authorization. The Bank Group does not accept responsibilityfor the accuracy or completeness of the report.

CURRE:ICY AMD ZQUIVALT

Courrey Unit S Scre (SI.)US$1.00 'S.25S/.1.00 ' US$O.O4S1.1 millicm Us$40,0OOO

ABEVIATICNS AND MASUa

1 m - millimeter - 0.0 4 inches1 cm centimeter - 0.39 inches1 a= moeter = 3.28 feet1 km - kilometer 0.62 miles1 1 - liter - 0.26 US gallons1m 3 - 1 cubic meter - 264 US gallons1 m3/sec - 1 cubic meter - 86.4 thousand cubic moters

per secend per day2x2.8 millian US gallons

kg/cm2 - 1 kilogram per - per day inchsquare centimeter

ABBUVMTIWIS AND ACR(NDL

P 5 EhIresa Municipal de Aguas Potable do aaaquilKA,G ba bpreaa Municipal de Alcastarillado de Guayaquil

IEOS - Inatituto EcuatriaD de Obras SanitariasIOB InterAmerican Developmt BmkWEO a World Health OrganizationllNDP - United Nationa Developmt ProgramPAHO - Pan Amrican Health OrganizationUNCHBP - United Nations Center for Housing, Bilding and Planing

FISCAL YER

January 1 - December 31

ECUADOR

APPRAISAL OF

WATER SUPPLY PROJECT FOR GUAYAQUIL AND GUAYAS PROVINCE

EMPRESA MUNICIPAL DE AGUA POTABLE DE GUAYAQUIL

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS . .. . . . . . . i

1. INTRODUCTION . . . . . . . . . . . . . . . . . . 1

2o THE SECTOR 2 * 0 0 * * * 0 0 0 0 0 0 0 0 * * 0 2

3. EXISTING WATER SUPPLY OF GUAYAQUIL . a . . . .* . 5

Existing Water Supply Facilities . * * * . . . . . 5Sewerage System . . . .0 . a . . * a . a . . , 6

Urban Development Plan . . 0. . . . . 0Q . . . 6

Waterworks Under Construction * a a o . o o 7

4. THE PROJECT 9 . . . . . a 0 0 0 0 0 0 9

Amount of Proposed Loan . .. ... . . . .a 12

Procurement . . . . . . . . 0 o o 0 0 o . 12

Disbursement . . o . . . o a o o . . . 0 . . . . 13

Project Supervision and Administration 0. * a * . 13Environmental Aspects . . . . .0 . .e . . .0 . 13

Urban Development Considerations o .* . * . . . 13

5. JUSTIFICATION . ....... . o . . . . . . 16

Project Selection . .. .. . . . . . . . . . . . 17

Incremental Rate of Return on Investments . . .0 17

6. THE BORROWER . 0 . 0 . o 0 . 0 0 a 0 0 0 0 0 18

Staff . 0 0 0 . o o o o 0 0 . o a 0 . . o 0 18

Billing, Accounting and RevenueEffectiveness Index (REI) . .* 0 .0 . . 19

Auditing . . . . . 0 a . . . 0 0 0 0 0 * 9 . * . 0 20

EMAPts Merger with the Sewerage Company 0 0 . . 0 21

The appraisal mission, composed of Messrs. Alfonso Zavala, Lars Jeurlingand Claudio Fernandez (consultant) visited Ecuador in October 1973.

TABLE OF CONTENTS (Cont'd)

7. FINANCES . . . . . . . . . . . . . . .e . .v a 22

Introduction . . . . . . . . . . . . . . . . . . 22Tariffs . . . . . . . . . . . . . . . . . . . . . 23Financing Plan . . . .. .. .& . . . . . . .. .. 24Future Finances . . . . . . . . . . . . . . . . . 25Financial Rate of Return. . .. .. . . . . . . 26Debt Service Coverage Ratio . ......... 26

8. RECOMMATIONS .A .............. . . 27

TABLE OF CCNTENTS (Contd)

ANNEXES

1. The Project

2. Project Cost Estimate

3. Cumulative Quarterly Disbursements

4. a. Total Population and Population Served with Water(Thousands of Inhabitants)

b. La Toma Water Treatment Plant Water Productionand Consumption (Guayaquil, Daule and Santa Elena Peninsula)

c. Lolita Water Treatment Plant Water Productionand Consumption (Rural Area)

d. Number of House Connections

5. Project Rate of Return

6. Water Pricing Considerations

7. Assumptions for Financial Projections

80 Consolidated Income Statement

9. Cash Flow Statement

10 Balance Statement

11. Existing Tariff

12. EMAPts Asset Revaluation and Depreciation

13. Urban Studies

TABLE OF CONTENTS (Cont'd)

LIST OF CHARTS

Chart No.

Organization Chart of EMAP 8370

Population Growth and Population servedin Guayaquil, Daule, Sta. Elena Peninsulaand Rural Area 8496

I-Jater Demand from Guayaquil, Daule andSta. Elena Peninsula 8495

Construction Activity Schedule 8630

LIST OF MAPS

Map No.

Project Location 10863

ECUADOR

APPRAISAL OF

SUMMARY AND CONCLUSIONS

i. This report covers the appraisal of a US$38.3 million equivalentwater supply project for Guayaquil and part of Guayas Province in Ecuador,a region with a population of about 1.2 million people. One million ofthem live in Guayaquil, the largest city of Ecuador, its major commercialand industrial center and most important port. A Bank loan of US$23.2million is proposed, covering the estimated foreign exchange cost ofthe Project.

ii. Guayaquil's population is increasing at the rate of 5.6%annually. The water system serves approximately 500,000 people; thebalance of the cityts population, most of which live in the low-incomearea, is not served by the municipal water supply. Of the 128,000"rural" population, about 35% receive water service. The quality ofservice is deficient because of excessive losses and inadequate capacityof the water supply system. Water service will deteriorate furtherunless facilities are expanded.

iii. The Project consists of improvements to the water treatment,transmission and distribution facilities for Guayaquil, and the con-struction of transmission and distribution facilities for the SantaElena Peninsula, whose 76,000 mostly rural low-income inhabitantsdo not receive water service now, and for the 14,000 inhabitants ofDaule. Construction, engineering and administration are estimated tocost US$38.3 million. The Bank loan would cover 61%, the balancewould be financed through municipal and national grants (20%) andinternal cash generation (19%).

iv. All of the materials and services to be financed out of theproceeds of the loan would be procured in accordance with the Bank'sguidelines. Because of a need to use suppliers' credits to financeinvestments, EMAP in the past did not separate supply and civil workscontracts. As a consequence, most contracts were won by foreigncontractors. The Bank loan will permit increased participation bylocal contractors who are expected to win about 50% of the civil workscontracts. Most of the contracts for equipment supply, valves andaccessories, valued at about 40% of the total project cost, willprobably be won by foreign firms.

v. The Borrower will be the Empresa de Agua Potable deGuayaquil (EMAP), an autonomous municipal entity.

vi. The Project is the least-cost altermative, at any discountrate, for providing the project area with an adequate supply of water.

- ii -

vii. Provided the conditions listed in Chapter 8 are met, theProject is suitable for a Bank loan of US$23.2 million equivalent fora term of 25 years, including a four-year grace period.

ECUADOR

APPRAISAL OF

1. INTRODUCTION

1.01 The Government of Ecuador has requested a Bank loan to helpfinance the first stage of a long-range water supply program for thecity of Guayaquil, the largest of the country and its major port.This would be the first project in the water supply sector in Ecuadorto be financed by the Bank. The Borrower would be the Empresa Municipalde Agua Potable de Guayaquil (EMAP), an autonomous municipal entitysumolying water to Guayaquil and other towns in the Province of Guayas.The US$23.2 million proposed loan, which represents 61% of the estimatedproject cost of US$38.3 million, would cover 100% of the foreign exchangecomponent and would be for a period of 25 years including 4 years ofgrace and would be guaranteed by the Republic of Ecuador.

1.02 The Project would permit EMAP to increase water supply ser-vices from 50% to 80% of the population of the city of Guayaquil by1977, serving an incremental population of residents in Guayaquil,the city of Daule, expand the service in the city of Daran, and alsoserve the permanent and seasonal population of the major communitiesof the Santa Elena Peninsula, a summer resort for Guayaquil and thecountry, now without public water supply. The Project would improvewater service for 452,000 people and serve an additional 102,000 popu-lation in the project area by 1977.

1.03 In July 1973, a preappraisal mission visited Guayaquil toevaluate the status of the preparation of the Project and EMAPtscapacity to execute it. Additional information and studies wererequested from EMAP and, following the receipt of this data, a missioncomposed of Messrs. Alfonso Zavala, Lars Jeurling and Claudio Fernandez(consultant) appraised the Project in Guayaquil in October 1973. Mr.Jeffrey Balkind from the Transportation and Urban Projects Departmentalso participated in the mission to evaluate the urban developmentaspects of the Project and supervise the work of two urban consultants.

1004 Following review by the mission, project components weredefined, construction programs rescheduled and cost estimates revisedand updated by the engineering staff of EMAP and consultants. Thisreport is based upon this information and the findings and studies ofthe mission.

2. THE SECTOR

2,01 The development of the sanitation sector in Ecuador has beenadversely affected by inadequate institutions and a lack of organization,both at the central and local levels, and a lack of financial resources.The Ecuadorian Institute for Sanitary Works (IEOS) estimates that in1973, out of a total population of 6.8 million, 65% of the urban popu-lation and 10% of the rural population had access to public water supply,and some 60% of the urban population was served by sewerage, Sewerageis almost nonexistent in rural areas. The existing deficiencies inwater and sewer facilities result in a high incidence of water-bornediseases and high-infant mortality rates, according to IEOS (statisticsnot available).

2.02 The present urban population of about 3,000,000 inhabitantsis expected to increase to over 4,000,000 in 1980, with consequent largeinvestment needs in the urban sanitation sector. The rural populationis defined to consist of the population living outside of the capitalof the canton (mostly communities with less than 2,000 inhabitants andscattered population).

2.03 In the seven large cities - Guayaquil, Quito, Cuenca, Ibarra,Ambato, Esmeraldas and Loja, water supply and sewerage is the responsi-bility of autonomous municipal entities, "Empresas". Municipal councils,under the supervision of IEOS, are responsible for water services inthe other urban communities. In rural areas, water supply and sewerageare handled by local councils supervised by the Ministry of Health.

2.04 IEOS and the National Planning Board are responsible forsector planning. IEOS is responsible for financing, project prep-aration and construction of water supply and sewerage systems incommunities of 2,000 inhabitants or larger. For the seven citiesmentioned, its activities are limited to approving feasibilitystudies. The Institute also provides technical assistance to themunicipalities. In the past, the activities of the IEOS havebeen seriously hampered by a lack of financial resources fromcentral government contributions 1/. IEOS has now an earmarkedshare of the oil royalties, (with the present price and production,it is estimated that this source of funds would provide S/80 milliona year), which alleviate its financial problems.

2.05 The first national sanitation program (1966-1972) preparedby IEOS concentrated on the urban centers over 2,000 inhabitants.Out of the total planned investments of about S/1.5 billion, 77% was

1/ Out of S/85 million budgeted for capital investments in 1966-1972,only 500,000 have been available because the Government has preferredto channel the funds available for the sector outside IEOS andlimited the functions of the latter to technical assistance.

actually invested. International loans, mainly from IDB, accounted for

almost 40% of the total financing and local government financing for about

40h Central government contributions (IEOS included) were about 20%.IEbS built facilities that accounted for about 15% of the total invest-

ments, and the "sempresas" facilities for the remaining 85%.

20o6 The objective of the second program (1973-1977), now beingimplemented by IEOS, is to serve 50% of the total population with water

(80% in urban areas, 25% in rural areas) and 40h% writh sewerage (70% inurban areas, 14% in rural areas). S/2.2 billion (US$88 million)

are to be invested over the 5-year period (some 95% in urban areas),Local government contributions and international loans are each planned

to finance slightly over 40% of the program; central government contri-

butions, less than 15% and internal cash generation, less than 5%.

2.07 In order to carry out this program, a revolving fund forurban and rural sanitation has recently been created. The fund

is administered by IEOSo The fund, through which most of the development

program for the sector will be financed, will be funded from central

and local government contributions, petroleum royalties and inter-

national loans.

2.08 Until now, IDB and supplierst credits have been the main inter-

national source of finance for the sector. IDB loans were made for idater

supply in Quito (US$7 million in 1963 and US$18.8 million in 1972) and

sewerage in Guayaquil (US$7.6 million). A US$11 million IDB loan for

water supply and sewerage for small and medium-sized cities hasrecently been made effective.

2.09 The major problEns of the sector are:

(i) Revenues generated within the sector cover operationand mai_tenance of the systems but, as a whole, areinadequate to cover depreciation; even less earn a

rate of return on net fixed assets;

(ii) IEOS has little demonstrated capacity to prepare andexecute projects and would need to be substantiallystrengthened to carry out the ambitious national sani-tation plan. Most local institutions are also weak;

(iii) The existing training program is inadequate to meetthe needs of the national plan; and

(iv) Domestic consulting firms, contractors and industryhave limited capacity to design and execute projectsand supply the materials necessary to carry out theplan.

A WHO-Bank technical assistance mission will visit Ecuador

later this year to review sector needs and assist IEOS to make insti-

tutional improvements, establish training programs, etc.

2.10 The proposed project would be the vehicle for institutionalimprovements in the Guayaquil area, and would permit the establishmentof a financially self-sufficient water operatian without need for govern-ment subsidies through earmarked taxes or direct budgetary contributions,resources that could be used to finance social projects such as ruralwater supply programs.

3. EXISTING WATER SUPPLY OF GUAYAQUIL

Existing Water Supply Facilities

3.01 EMAP is the water supplier for the entire Guayas Province andits capital, Guayaquil. It supplies about 50% of the population (476,ooo)of Guayaquil, and about 48% (62,000) of the population of the "rural"towns of Naranjito, Milagro, Ingenio San Carlos, Yaguachi and Duran(Eloy Alfaro).

3.02 The source of water for Guayaquil is the Daule River. Theminimum dry weather flow observed during the last 50 years is13.3 m3/sec, well above the expected demand for the year 2000for Guayaquil and the Santa Elena Peninsula. Five brooks, 95 kmeast of Guayaquil, yielding over 0.4 m3/sec, are sufficient to providewater supply demands for the other towns up to 1985.

3.03 Water distributed in auayaquil is treated in the La Tomawater treatment plant, located 23 km north of the city, through aconventional sedimentation and rapid sand filtration system producing140,000 mn /day, and a solid contact reactor and rapid sand filtrationsystem with a capacity oL 80,000 rin/day. The rural towns are servedfrom the Lolita water treatment plant, a plain sedimentation and slowsand filtration facility located 54 kcn east of the Guayas River.

3.o4 The water distribution system in Guayaquil is unsatisfactory;extensive leakage in the downtown network and other sections of the cityare causing high losses and low pressure service (6 to 10 psi) in mostof the distribution network. The great amount of unaccounted-for water,due to excessive consumption by unmetered customers and leakage in thedistribution system is illustrated in the following tabulation:

m3 /d %

Production 196,000 100

Residential consumption(unmetered consumption estimatedon the basis of average meteredconsumption) 79,000 4o

Commercial and industrial consumption 25,000 13

Unaccounted-for water 92,000 47

Of the 92,000 m3/d unaccounted-for water, three quarters (36% ofproduction) are estimated to be lost through leaks in the system,21,000 m3/d (11% of production), through waste by unmeteredconsumers.

3.o5 Existing reservoir capacity in Guayaquil is 94,000 m3 andrepresents 31% of the average daily production required by 1980. Thisis considered adequate because the city is served by a separate watersupply for fire protection and the system is connected to the treatmentplant by two parallel transmission mains.

3.06 Operation and maintenance of the water production facilitiesis good, and failures in the distribution system are quickly repaired.

3.07. Water meter maintenance and repair is inadequate: 12% of theexisting meters are known to be defective, are not being repaired andshould be replaced. The meter maintenance shop has a limited capacityfor calibration and repairs, although personnel is well-trained. BEAPis now in the process of purchasing two-meter testing and repair benchesand intends to establish a meter maintenance program. Assurances wereobtained during negotiations that such a program be established byDecember 31, 197h.

Sewerage System

3.08 Sewerage services for the city of Guayaquil are provided bythe Municipality (Concejo Cantonal de Guayaquil), through the MunicipalSewerage Company of Guayaquil (EMAG), an autonomous entity, presentlyonly acting as the executive administrative agency for a US$7.6 millionloan from IDB, in a first sewerage project with a total cost of US$13.1million.

3.09 Maintenance and operation of the sewerage systems servingGuayaquil and other towns, are legally EMAG's responsibility, and arebeing carried out by the Municipality without any charge to the usersfor the services provided,

3.10 The sanitary sewerage system of Guayaquil serves only 200,000inhabitants (about 4&% of the population served with water supply). Afterthe IDB financed project is completed in 1975, an additional 200,000 peoplewould be served.

3.11 EMAG is presently preparing a second loan application to IDBto finance a project of S/800 million (US$32 million) for a second stageof the sanitary sewerage system, the first stage of a storm drainage system,a suburbio earthfill project, and the paving of certain primary roads(Estructura Vial Basica).

Urban Development Plan

3.12 Because of the lack of municipal urban planning and ineffectivedevelopment controls, public utility service expansion in Guayaquil hasnot followed a rational plan. EMAP has been extending services toresidential and industrial areas under political pressures and"de facto" situations, especially in the northern part of

the city. The low-income population migrating to the city has been con-

centrating in the western zone of Guayaquil (El Suburbio), an area whichnow has an estimated population of 400,000 inhabitants, and where basicsanitation services are deficient because tidal swamplands cover largeareas. In October 1973, the Municipality and UNDP signed a contract forthe preparation of an Urban Development Plan for Guayaquil. EMAP intendsto participate in the preparation of this plan and will use it as a basisfor the Project's proposed water supply master plan to year 2000. Urbanplanning is further discussed under para. 4.16.

Waterworks Under Construction

3.13 EMAP has contracted some important waterworks, now under con-struction, to satisfy existing needs of the low-income population. Thesefacilities are not part of the Bank project and are financed by EMAP(see paragraph 3.14). The objectives of these works are:

(i) to construct by March 1975 water supply facilities and30,000 house connections (not including meters) in the"suburbio" for an estimated population of 300,000 in-habitants scattered over an area of 1,200 hectares.(The supply and installation of meters for these con-nections are to be financed from the proposed Bankloan - see para. 4.04);

(ii) to serve the southern part of Guayaquil up to PuertoMaritimo, including potential urban development of theEl Guasmo area, and housing projects of the EcuadorianInstitute of Social Security and the Housing Bank;

(iii) to increase from 220,000 to 320,000 m3 /day the capacityof the La Toma water treaument plant by modification tothe sedimentation basins and construction of other im-provements to permit a future increase in the filtrationrate (expansion of the filtration facilities is includedin the Bank project);

(iv) to increase the raw water pumping capacity from the DauleRiver to the La Toma treatment plant from 220,000 to320,000 m3 /day;

(v) to install 25,000 water meters through the end of 1974to eliminate the existing unmetered house connections inthe central area of the city.

Assurances were obtained during negotiations that all theseworks be executed and completed as planned.

3.14 The financing of these waterworks has been provided as follows:

(i) the construction of a transmission main up to PuertoMaritimo, distribution system for the "suburbio" andhouse connections, through a suppliers' credit fromSOCEA-HALBERGERHUTTE, a french-german joint venture,for S/195,000,000 (US$7.8 million), of which 25% is tobe paid during the construction period (September 1971 -

March 1975) and 75% in five more years, up to 1980, atan interest rate of 8%;

(ii) the increase of the sedimentation capacity of La Tomatreatment plant, contracted at S/16.25 million (US$o.65million), using current funds from EMAP's 1973 and1974 budget; and

(iii) the purchase and installation of new pumping equipmentand water meters from EMAP's current funds, to bedisbursed in 1973 and 1974, for a total of S/43.8million (US$1.75 million).

4. THE PROJECT

4.01 The Project is the first stage of a long-range program. Itwould be carried out in three and a half years, 1974-1977, and wouldhave the objectives of:

(i) providing water supply to 80% (960,000 inhabitants)of Guayaquilts 1977 population, concentrating primarilyon extending service to low-income families in the"suburbio";

(ii) serving the towns of Duran and Daule where, by 1977,an additional population of 35,000 inhabitants wouldbenefit from the Project; and

(iii) supplying water to the Santa Elena Peninsula towns,including some small villages (rural population)located along the road from Guayaquil to SantaElena, serving about 60% of. a 1977 resident popu-lation of 43,000 and 100% of a tourist populationof 24,000 of the same year.

The second stage would start in 1978 to cover the needs ofGuayaquil and other Guayas Province cities up to the year 2000. Forthis purpose, a master plan for the year 2000 and a feasibility studyto cover the needs up to 1985 would be prepared during the first stageof the Project (see para. 4.16).

4.02 Four hundred thousand people live in the "suburbio" area ofGuayaquil without adequate water supply. Three hundred thousand livein an area where a distribution system is now under construction (seepara. 3.13). One hundred thousand live in the Suburbio West, forwhich the Bank project will provide facilities. This is a squatterarea west of the city, prone to flooding. The settlement has beenpartially upgraded and further improvements are in progress. Theinhabitants of this area will be the major beneficiaries of the Bankproject.

4.03 The towns of the Santa Elena Peninsula, Playas (GeneralVillamil), Salinas, Santa Elena, La Libertad and Ballenita (seemap), are attractive to tourists during the warm season fromJanuary to April because of the beauty of its beaches. Theirpermanent population of 76,000 inhabitants (and another 24,000temporary residents) obtains water mqstly from water tank trucksat a very high cost, often at S/60/mJ (US$2040/m

3), that is, 24times the average cost of residential users in Guayaquil. This wateris contaminated and comes from shallow, unprotected wells 30 to 50 k1maway,

4.04 The principal elements of the Project are detailed in Annex 1,and summarized below:

(i) interconnection of the force-main system of 16"', 42'1and 50"V diameter pipelines to convey an average of320,000 m3 /day raw water to La Toma water treatmentplant;

(ii) increase the La Toma filtration rate to 320,000m3/day;

(iii) purchase and installation of 15,000 im of a 72t1 diametertransmission main between La Toma and Tres CerritosReservoir, to increase the capacity of the transmissionsystem (with existing 42"' and 50"s transmission mains)to 320,000 m3 /day;

(iv) pipe replacement and distribution ne-twork improvementsin downtown Guayaquil, Urdesa and other sections whereexisting pipes have been corroded;

(v) expansion of the distribution system in Eloy Alfaro(Duran), Santa Ana, Mapasingue and the Suburbio West,to serve low-income population, new low-cost housingprojects of the Ecuadorian Institute of SocialSecurity and the Housing Bank, and other new urbandevelopments to relocate people living in substandardareas in Guayaquil;

(vi) installation of a water supply service to the nearbytown of Daule for a design population of 24,000 in-habitants;

(vii) construction of a water system for the Santa ElenaPeninsula, with a total capacity of 25,000 m3/day(see Annex 1);

(viii) purchase and installation of 30,000 water meters inthe "suburbiott area, where a water distribution systemis now being installed (see para. 3.13);

(ix) water supply Master Plan for Guayaquil and other areasserved to year 2000 and a feasibility study to theyear 1985.

4.05 The communities to be served on the Santa Elena Peninsulaare located from 50 to 120 km from Guayaquil. Available studies anda preliminary review of desalination costs indicate that neitherdesalination nor groundwater are feasible. However, contrary to con-clusions presented in earlier reports, EMAP is now successfully ab-stracting limited amounts of groundwater in the peninsula. If sufficientgroundwater could be found to serve the-town of Playas, the Projectcould be reduced by about US$2.0 million. In the less likely eventthat the towns of Salinas, Libertad, Ballenita and Santa Elena could

also be served with groundwater, the cost saving could be as much asUS$5.0 million. Consequently, EMAP's consultants are now conductinggroundwater and desalination studies which would be retroactivelyfinanced by the Bank to determine whether these two methods couldassist in solving the peninsula's water supply problem. Assuranceswere obtained during negotiations that no construction will be under-taken on the Santa Elena Peninsula water supply project componentfor which designs, specifications and tender documents have beenprepared, until EMAP's consultants finish the studies and satis-factorily demonstrate to the Bank that the most economical solutionhas been selected. The presently proposed solution would be modified,if necessary, to reflect the results of these studies.

4.06 Unaccounted-for water in the rural area served from theLolita water treatment plant is estimated at 79% (see Annex 4). Itis caused by excessive leakage, lack of meters (only 22% of houseconnections metered) and clandestine installations, During the rainyseason, the slow sand filtration plant cannot properly treat the rawwater high turbidity. The master plan would include studies for the

area served by the Lolita plant and recommend improvements to theplant, transmission and distribution facilities.

4.07 The estimated cost of the Project is detailed in Annex 1,and summarized below. The corresponding investment schedule is shownin Annex 2.

PROJECT COST ESTIMATE

------S/ million- -US$ million-Local Foregn Total Local Foreign Total

Water Production .50 8.00 8.50 .02 .32 o34Transmission Main 45.75 11050 156.25 1Q83 4.42 6.25Distribution SystemExpansion and Im-provements inGuayaquil and Duran 47-50 46.25 93275 1.90 1.85 3.75

Water Supply for Daule 8.00 13.75 21.75 .32 .55 .87Water Supply for SantaElena 125.00 241.25 366.25 5.00 9.65 14.65

Water Meters for the"suburbiol? 15.00 12.00 27-00 960 .48 1.08

Construction Subtotal 241.75 43l.753 267 17.27 26-M

Land 2.50 _ 2.50 .10 - o10

Master Plan andFeasibility Study 5900 10900 15900 .20 040 o6o

Engineering and Adminis-tration (10%) 44o90 22.45 67-35 1.79 .90 2.69Contingencies: Physical (15%) 36.25 64.80 101.05 1.44 2.59 4.03

Price 47o90 50.70 98.60 1.90 20o4 3.94

Total Project Cost 378.30 579.70 958-00 15.10 23.20 38.30

Total to be Financed 9

4.08 The estimates are based on designs prepared by EKAP and itsconsultants, cost estimates updated during the appraisal, and suppliers'cost quotations of equipment and material. Local and foreign exchangecomponents were established on the basis of current works being carriedout by EMAP contractors in water distribution, reservoirs, transmissionmains and treatment plant improvements. Based on this information, theforeign exchange component of the Project is estimated to be 60% of theof the total cost (65% for physical works and studies, 33% for engineeringand administration). All costs have been adjusted for 1974 prices.Physical contingencies of 15% on directly imported equipment and civilworks reflect potential additional costs which may arise during detaileddesign and construction of some of the project components. Price con-tingencies of 10% per annum for local cost and 6% per annum for theforeign exchange component of the Project have been allowed, reflectinglocal inflation and estimated inflation in suppliers' countries.Should price contingencies rise more than estimated, the distributioncomponent of the Project would be reduced by the amount of such contin-gency increase.

Amount of Proposed Loan

4.09 A loan for US$23.2 million, equal to 61% of the total projectcost of US$38.3 million, is proposed in order to finance 100% of theforeign exchange component of the Project. interest during constructionon the loan, amounting to US$3.15 million, local costs, and engineeringand administrative costs, equivalent to US$18,5 million, would be financedby EMAP.

Procurement

4.10 All material, equipment, civil works and services to be financedout of the proceeds of the proposed loan would be procured after inter-national competitive bidding in accordance with the Bank's guidelines.For purposes of bid comparison, the Bank's preferential rules wouldapplicable to local and regional suppliers. Ecuadorian suppliers ofequipment and material will be eligible for preference equal to theamount of customs duties and other import taxes which a non-exemptimporter would have to pay for the importation subject to a ceiling of15%. The Bank loan will permit competitive bidding without a requirementthat the successful bidder finance the cost through suppliers' credits,and will thus encourage and enable the competent local contractors toparticipate in the construction of the works.

Disbursement

4.11 The Bank would disburse the loan against the CIF costs of

all direct imports, the foreign exchange cost of the consultants'

services, and up to 25% of the civil works. The cost of thewater resources studies on the Santa Elena Peninsula and finaldesigns of the Project being done by consultants would be reimbursedretroactively from the loan account up to a maximum of US$100,000

for expenses incurred after December 1, 1973.

Project Supervision and Administration

4.12 Detailed design, cost estimates and tender documents forthe construction contracts are being prepared by the technical staff

of EMAP and the consulting engineers, Buck, Seifert and Jost, fromUSA, a firm acceptable to the Bank. Contract administration andconstruction supervision would be done by EMAP with the assistanceof qualified consulting engineers. During negotiations, agreementwas reached with EMAP that, prior to the award of contracts, they

should engage consulting engineers, satisfactory to the Bank,for the supervision of the construction contracts for the treatment

plant improvements, and the transmission main from La Toma to

Guayaquil.

Environmental Aspects

4.13 The Project would increase water supply in the metropolitanarea of Guayaquil, improving service to the poorer areas of the city,

presently without an adequate supply and would eliminate or substantially

reduce the need to purchase contaminated water from tank trucks.

Similar improvements would be achieved in Duran, Daule, and especially

the Santa Elena Peninsula.

4.14 1Parallel to the Project, the Municipality of Guayaquil,through EMAG, would be providing sanitary and storm water sewers to

the city, improving the cityts environment0

Urban Development Considerations and Studies

4.15 Comprehensive urban planning and specific urban programs

are lacking in Guayaquil, impeding the identification of areas where

the water supply and sewerage systems should be extended. For this

reason, it has not yet been possible to specify in the Project, at

the present time, as much of a water distribution component as desirable

to fulfill the social and economic objectives of serving as many low-

income people as possible. This refers in particular to the "suburbio"

and other low-income areas, where the alternative of preventing new

settlements or relocating the existing population to more suitable

living areas should be investigated, befcre a decision to extend the

distribution system can be made. Thus, there is an immediate need

for studies to establish how and where the city should grow.

4.16 UNDP plans to make a grant of Us$600,000 to the Municipalityof Guayaquil for a comprehensive urban development study of the metro-politan area. So far, US$90,000 have been committed for preliminarywork by UNCHBP, leading to a definition of the scope of the work tobe undertaken and terms of reference for consultants to be selectedthereafter to execute the study. Meanwhile, the Bank is discussingthe scope and orientation of the study with the UNCHBP. Annex 13outlines the major areas which the Bank considers should be coveredby this study.

4.17 EMAP will base its long-range water supply master plan andfeasibility studies for the 7-year program of works beginning in 1978on the UNDP urban master plan. In addition, the UNDP study will bethe basis for EMAP decisions on the expansion of water distributionfacilities representing about 15% of the Bank project. In view of thelong lead time necessary for urban development plans to have a signi-ficant impact on population growth and settling patterns, it isunlikely that more than about a third of the proposed distributionsystem expansion (5% of project cost) would be modified by these studies.Because the scope and terms of reference for the UNDP master planstudy are not yet defined, the Bank project includes funds to enableEMAP to undertake, in addition to the water supply master plan andfeasibility studies, urban studies necessary to provide the infor-mation EMAP requires as a basis for its master plan and distributionsystem studies. The studies which should be part of the UNDP masterplan study, but which might have to be done by EMAP, are the following:

(i) a study of the costs and benefits of upgradingsquatter areas (including expansion of existingareas), especially in the "suburbio"l and Mapazingue(another low-income area);

(ii) as an alternative to further "suburbio'" extension,feasibility studies for the extension of infra-structure facilities to other areas of the city,which could be utilized for low-income housing,such as El Guasmo, Mapazingue, Urdesa in the north,and in Duran in the east across the Guayas River; and

(iii) a socioeconomic study to establish consumers' capacityto pay public utilities and land tenure in low-incomeareas.

4.18 The studies to be carried out by EMAP would be the evaluationof alternate sources of supply for the Santa Elena Peninsula describedin paragraph 4.05 and the water supply master plan. The latter shouldbe based on the development of Guayaquil foreseen in the UNDP urbanmaster plan and would:

(i) Review population growth and urban development anddetermine water demand in EMAP's service area;

(ii) Evaluate water resources, in particular the adequacyof supply from the Daule River. Demand for irrigationwater from the Daule River could reduce the amount ofwater available for Guayaquil and potential conflictsshould be resolved and/or other sources of waterevaluated;

(iii) Establish a long-range water supply program to the year2000 and a 7-year investment plan, beginning in 1978,including feasibility studies for the works proposedin the 7-year investment program;

(iv) Establish the feasibility of distribution systemcomponents of this project in areas which could beutilized for low-income housing in Duran and Guayaquil'sdistricts of El Guasmo, Mapazingue and Urdesa.(Fifteen percent of the project funds are allocatedto this distribution system component.);

(v) Recommend improvements to the Lolita treatment plantand the transmission and distribution systems servedby the plant; and

(vi) Review long-range sewage disposal plans of EMAG andrecommend solutions to possible corflicts betweenEMAP and EMAG long-range programs.

The funds included in the Project, US$600,000, are sufficientfor the studies discussed above and in paragraph 4.05. Should theUNDP master plan include the studies discussed in paragraph 4.17 (i),(ii) and (iii), the funds not required would be used for additionaldistribution system expansion.

4.19 The lack of urban planning in Guayaquil is caused by theweakness and lack of coordination among municipal institutionsresponsible for planning, project execution and operation. Inparticular, the office of Municipal Planning (Planeamiento) is notexecuting its planning role and appears to have lost the confidenceof the Mayor. Although reform of institutions involved in the urbandevelopment of Guayaquil is not within the scope of the presentproject, EMAP should contribute towards a workable urban developmentprogram. The Bank should closely follow the execution of the UNDPstudy and the implementation of its recommendations to assure thatinstitutional improvements will be recommended and implemented.In particular, the UNDP-financed urban study should make recom-mendations on how to strengthen the overall planning and executionof urban investments in Guayaquil.

5. JUSTIFICATION

5O01 The Project is necessary to cover the immediate and inter-mediate water supply needs of the cities of Guayaquil, Daule, Duran,and those on the Santa Elena Peninsula. In addition, portions ofthe distribution network in central Guayaquil and Urdesa are badlycorroded and need replacements to eliminate excessive leakage; almost50% of the water produced is lost in leakage through pipes and houseconiections, which is reflected in the low revenue effectivenessindex (REI) of 33% for 1973 (see para. 6.08). Pressure in the distri-bution system is kept as low as 5-6 psi to reduce leakage and serviceis reduced nightly to some areas to replenish reservoirs.

5.02 EMAP is now constructing major extensions of the distributionnetwork in the "suburbio", one of the poorest sections of Guayaquil(see para. 3.13). The Project will supply water to this area byreducing waste of water and increasing treatment plant and transmissioncapacity. The Project will also finance the purchase and installationof water meters for customers served by this extension and the con-struction of distribution facilities for additional consumers in the"suburbio", namely the "suburbio west". Additional water main extensions,also serving the low-income population, will be built as part of theProject once the plans for the development of Guayaquil are betterdefined (see para. 4.17).

5.03 The Housing Bank and the Instituto Ecuatoriano de SeguridadSocial are building new developments for the low-income population inthe district of Eloy Alfaro (Duran), and an extension of the distri-bution system there will be necessary in the immediate future. TheBank loan includes funds for this extension (US$2.5 million), whichwould be disbursed once the appropriate studies have been made andapproved by- the Bank.

5.0o Demand and population forecasts will be made as a part ofthe long-range water plan included in the Project and the Urban MasterPlan for Guayaquil. However, the population growth and the immediatewater demands up to 1980 have been estimated as shown in the tablebelow (see Annex 4). These estimates are based on existing populationgrowth trends and settling patterns which are unlikely to change sig-nificantly during this short period, and are thus considered reliable.Estimates of the population served are conservative.

Santa Elena Peninsula RuralGuayaquil and Daule (Perm. & Seas. Residents) (Duran included)Pop. % Demand Pop. % Demand Pop. % Demand

Year ('000) Served ('OOO)m3/d ('000) Served ('OOO)m3/d ('000) Served ('O0O)m3/d

1973 l,0OL 47 196.0 95 0 3.2 128 48 33.0

1980 1,386 85 306.0 136 66 12.0 168 56 25.5

ProJect Selection

5.05 The Project is the least-cost solution to satisfy the ex-pected 1980 water demand. Feasibility studies for distributionsystem extensions, which represent about 15% of project investments,would be prepared by EMAP's consultants and submitted to the Bankfor review. The project elements were selected to achieve maximumimmediate impact in water supply service improvements for unsatis-factorily served population, including the low-income population ofthe "suburbio". Major components to satisfy future demands will beidentified and evaluated in the master plan and constructed in 1978and thereafter.

Incremental Rate of Return on Investments

5.o6 The incremental financial rate of return on total investmentsis about 12%. Because the rate of return calculation is based on theconsumers' willingness to pay only as reflected in the water tariff.this rate does not reflect the social benefits (such as health benefits)

of providing an adequate supply of safe water to a large segment ofthe urban poor at tariffs set in accordance with their ability to pay.

5.07 Specifically, the following benefits, which are only marginallyincluded in the revenues collected as a result of the Project, can bementioned:

(i) Health benefits deriving from an increased per capitaconsumption of safe, treated water piped into thecustomers' premises;

(ii) Improvements in water service. Saf'e water at asatisfactory pressure will be available continuously.In low-income areas, water is now purchased from thetank trucks at S/20/m3, but under the proposed projectit will be available on the user's premises at S/2/m3.

(iii) Increase in the land values, as a consequence of theinstallation of water supply axid sewerage services,This increase will be most pronounced in the SantaElena Peninsula and in the ! suburbio" area.

5.08 If water sales would be 10% less than projected, the incre-mental rate of return would only drop to 11%.

5.09 The Santa Elena Peninsula part of the Project will providebenefits to a poor resident population and high-income seasonal popu-lation. The water tariff will be designed to ensure that the seasonalpopulation pays the full cost of providing the high peak seasonal waterdemand service (see Annex 6)~ Assurances were obtained duringnegotiations that the tariff for the Santa Elena Peninsula will accom-plish this goal,

6. THE BORROWER

6.01 The "Empresa Municipal de Agua Potable de Guayaquil" (EMAP)will be the borrower of the proposed loan. It is an administrativelyindependent municipal entity, reorganized by a municipal Ordinanceof August 23, 1972, as an autonomous agency with the purpose of supplyingpotable water to the city of Guayaquil and the districts (cantones) ofthe Guayas province; it owns its assets, prepares its budgets, generatesits own funds (water services and bond issues) and is authorized toreceive other funds for financial assistance (assigned taxes, municipaland government contributions and loans). The August 23, 1972 ordinancesupersedes another ordinance creating the Empresa Municipal de AguaPotable de Guayaquil in September 1970 By Supreme Decree No. 692,dated May 11, 1971, the National Government authorized EMAP to supplypotable water to the districts (cantones) of Salinas and Santa Elena,both in the province of Guayas.

6.02 EMAP is governed by a Board of Directors of five memberschaired by the Mayor of Guayaquil. The other members are: the Presidentof the Water Affairs Committee of the Municipal Council, another memberof the municipal council, a member of the local professional associationof engineers, and a member of the "Camara de Propiedad Urbana (Charterof TJrban Property O-nners). The manager and internal auditor are appointedby t-he municipal council for an indefinite period.

6.03 The Board meets weekly, and makes major decisions includingthe approval of the annual budget. The Board is responsible for prep-aration of tariffs and their submittal to the Municipality of Guayaquil.The municipality obtains approval of these tariffs from the JuntaNacional de Planificacion y Coordinacion Economica and the Ministryof Finances. The deputy manager, the legal advisor, the treasurer,and the heads of the Technical, Administrative, Financial and OperationsDepartments are appointed by the Board of Directors.

6.o)L In November 1973, the Board of Directors approved a neworganization for the Empresa which has been reviewed and found ac-ceptable by the Bank. The Manager is responsible to the Board ofDirectors for the administration of EMAP, and is assisted by adeputy manager (subgerente) and four Department Chiefs (Finance,Technical, Operations and Administrative), who report directly tothe Manager's office (see Chart 8370).

6.O' The present manager of the Empresa, the former commercialmanager of Guayaquil's private electric power company (EMELEC), hasbeen in charge since September 1972. He is a very capable and dynamicadministrator. The position of deputy manager is now vacant becausethe position has been created under the latest reorganization, butefforts are being made to find a suitable candidate. The staff is

adequate in number and in quality, the new organization functional.During negotiations, assurances were obtained that EMAP will affordthe Bank an opportunity to comment prior to any important change inEMAP,s organization.

6.o6 EMAP has sent several engineers to be trained overseas onspecific subjects, such as: design, operation, meter maintenance,etc. Personnel in the finance department will require training toadminister the new accounting and computerized billing systems nowbeing installed (see para. 6.10). During negotiations, assuranceswere obtained for the establishment of a local training programfor financial personnel. The program could be administered throughlocal universities assisted by PAHO and/or management consultants(see para. 6.10).

6.07 The Empresa has a staff of 80 professional employees anda total of 287 employees, an average of 1 employee per 1,700 personsserved. This ratio is relatively low for a utility supplying wateronly, (Bogota Water and Sewerage Company serves 2,400 persons peremployee), but it is expected to improve in the course of the projectdevelopment, as the population served will nearly double without majorstaff increase. Salaries paid are adequate and are considered com-petitive for similar requirements in qualifications and responsi-bilities in private activities, except for the position of manager.The salary of the latter will be gradually increased to the levelpaid in the private sector.

Billing, Accounting and Revenue Effectiveness Index (REI)

6o08 The billing system is good and fully computerized, and customersare billed monthly. However, because of EMAPts backlog in installingmeters and a 3 to 4-month delay in incorporating the readings of thenewly installed meters in the billing cycle, EMAPts revenues arenegatively affected.

The Revenue Effectiveness Index (REI) 1/ shows the effectwater wastage, leaks and slow conversion of unmetered to meteredaccounts have on EMAP's financial situation. A well-operated companywith 100% metering should have an REI of about 75% to 80%,

Actual - Projected------------1973 1976 1978 1980

Revenues/m3 Produced 1.06 2.22 2.86 3.44

Sucres/m3 Metered 3.22 3.35 3.78 h452

REI 33% 66% 75% 76%

1/ Total revenue: Total m3 water producedaverage rate per metered m3

Assurances have been obtained during negotiations that:

(i) Readings of new meters should be reflected onbilling following 30 days of the installation;

(ii) A system of payments through commercial banksshould be established by December 1974 becauseEMAP's own cashiers' facilities are deficient;

(iii) The REI be increased in accordance with thetargets shown above.

6.09 The Tariff Service Regulation Ordinance provides for thefollowing:

(i) The Municipality of Guayaquil is exempted frompayment for the water service;

(ii) All house connections must be metered, and the sub-scribers must pay a progressive tariff based on waterconsumption and consumer categories, and a monthlymeter maintenance charge;

(iii) New consumers must also pay a "twater right fee"(Derecho de Abastecimiento) proportional to theassessed value of the property, and a "houseconnection fee" which includes the value of thewater meter.

6.10 The accounting system presently employed by EMAP is notefficient nor practical, but is being replaced with a new systemrecommended by PAHO, which is satisfactory to the Bank. Duringnegotiations, assurances were obtained from EMAP that the PAHOsystem will be in operation not later than December 1974, and thatconsultants will be contracted not later than September 1974 tosupervise its implenentation and coordination with an efficientuse of EMAP's computer. This accounting system includes fixedasset accounts and will replace the present unsatisfactory fixedasset classification system.

Auditing

6.11 There is an internal auditing office reporting to themanager, to ensure that EMAP's accounting conforms with nationallaws and the Empresals regulations. This office performs itsfunction adequately. However, EMAP does not employ externalauditors. Assurances were obtained during negotiations that theproposed borrower will engage external commercial auditors toreview EMAPts financial statements and recommend on internalpolicies, procedures and controls, with 1974 being the first yearof audit, and that the auditors' reports will be sent to the Bankwithin four months of the year audited.

EMAPts Merger with the Sewerage Company

6.12 Sanitary sewerage and storm water drainage for Guayaquil arethe responsibility of the municipality, through the Empresa Municipalde Alcantarillado de Guayaquil (EMAG). A comprehensive long-rangeprogram has been undertaken with a first stage project financed withan IDB loan, but users are not being charged for this service. TheMunicipality of Guayaquil has proposed a merger of EMAP and EMAG.The Bank agrees with this prospective merger (EMAP's organizationchart shows future sewerage-related activities), but assurances wereobtained during negotiations that the eventual merger of the twocompanies should take place under terms and conditions satisfactoryto the Bank.

7. FINANCES

Introduction

7.01 The large investment program (S/258 million or US$10.3 millionequivalent), started by EMAP in 1971 (see paragraph 3.13, 3.14 and Annex 1),is being financed by supplierst credits (US$8.5 million, representing 83%of total program cost) and EMAP's net internal cash generation (US$1.8million). In 1970, EMAP's management foresaw that revenues from thewater services would be inadequate to cover its participation in thisprogram. A government decision to assign taxes and municipal contri-butions to the company helped EMAP to cover its participation in thefinancing of the investment program. As a consequence, EMAP's revenuesfrom water service during the period 1970-73, although increased by70% due to revenues from 100,000 additional consumers, have been coveringits operating costs and depreciation only (and thereby producing anegative rate of return), while earmarked taxes and contributions haveaccounted for 80% of the Empresa's internal cash generation. Thus,EMAP was able to maintain a satisfactory financial position: as ofDecember 31, 1973, its short-term solvency (current ratio 1.6) and long-term solvency (long-term debt represented 26% of capitalization) wereadequate. A summary of EMAP's past finances is given below:

-__ _ _ _ S/ million---1970 1971 1972 1973

Revenues from Water 57 53 67 95Operating Costs (36) (45) (50) (76)Depreciation (11) (19) (19) (25)Income before Interest 10 (11) (2) (6)Rate Base 363 545 587 633Rate of Return 2.8 neg. neg. neg.Taxes and Contributions 44 43 61 64Gross Internal Cash

Generation 65 51 78 83

7.02 Revenues from earmarked taxes are pledged as guarantees ofEMAPts supplierst credits. Therefore, they will be maintained duringthe execution of the Project. However, provisions have been made toincrease EMAP's revenues from water (see para. 7.05) so that thesetaxes can be progressively phased out from the Empresa's total incomeand used to finance social projects such as rural water supply pro-grams, housing, etc. for the low-income population. After 1980,EMAP will obtain all its revenues from the sale of water and willno longer require earmarked taxes. At that time, the consumer willpay for the service he receives without the help of grants or sub-sidies, a principle EMAP accepts and plans to implement. Assuranceswere obtained during negotiations that EMAP will grant the Bank alien on earmarked taxes and other revenues, equal to those grantedto EMAP suppliers.

Tariffs

7.03 Present water tariffs in Guayaquil were approved in June 1972and implemented in 1973. The tariff structure is progressive and basedon consumption. The minimum charge of S/28 per month buys 20 m3, and isthe same for all categories (residential, commercial and industrial).The charge for consumption over the minimum varies from S/1.60/m3(lowest residential excess consumption) to S/5060/m3 (highest industrialexcess consumption). This tariff structure is reasonable, although areduction of the 20 m3 minimum consumption allowance should be consideredat the time of the next tariff increase, and is shown in Annex ll 0Municipal bodies receive water free, although their consumption ismetered.

7.04 The average revenue per cubic meter of water sold is S/1.77.The average price for metered water at the time of appraisal was S/3.80per m3, the average price for nonmetered water (based on estimated con-sumption) was S/0.70 per m30 At that time, about half of 40,000 con-nections serving 450,000 inhabitants were metered. The average pricefor metered water is among the highest in Latin America and will decreaseas service is extended to lower income groups (connections will double,metered connections quadruple by 1980), but will remain very high.

7.05 Charges for installation and connection are reviewed by EMAPevery six months and are established according to assessed propertyvalue, diameter of connection, and classification as commercial, resi-dential or industrial. Connection charges are paid over a period ofsix months. The massive meter installation in the "suburbio" would bemore successful if the payment period for connection charges were in-creased to at least five years. EMAP plans to incorporate such anextended payment plan in its tariff. All metered consumers pay fromS/5 for a ;1t meter to S/300 per month for a 6" meter as the maintenancecharge for the meters, according to size.

7.06 Present tariff levels would be sufficient to cover EMAP'sfinancial needs in 1974 and 1975, based on a reasonable annual increaseof 1.4% in per capita consumption, the conversion of existing non-metered to metered connections, and the installation of about 20,000new metered connections, which would allow the Empresa to reduce itsunaccounted-for water from 47% in 1973 to 31% in 1975. However,tariffs should be raised in 1976 to increase EMAP's revenues by 15%to provide the Empresa with the additional funds niecessary to main-tain its participation in the program of works. Subsequently, anannual tariff adjustment of 5% will be necessary topartially compensatefor inflation.

7.07 EMAP will design a differential tariff structure for theseasonal and permanent population of the Santa Elena Peninsula(see para. 5.09 and Annex 6). For financial projection purposes,it has been assumed that all connections in the peninsula will bemetered, that the permanent population will have an average con-sumption of 20 m3 /month at S/6 per m3 , and that the seasonaltourist population will have an average consumption of 50 m3 /monthduring the tourist season (10 m3 /montb during the rest of the year)at S/24 per m3. During the season (January-April), the permanentand seasonal tourist population would consume 56% and 44% of totalwater sold, respectively.

Financing Plan

7.08 The financial plan for the period 1974-77 is summarizedbelow. Annex 7 describes the financial assumptions used in thefinancial projections.

FINANCING PLAN

PERIOD 197M-1977

_/ us$ %------ million------

CAPITAL INVESTM1NTS

IBRD Project 958.0 38.3 83Existing Projects 87.9 3.5 8Interest during Construction 108.9 4.4 9

Total Capital Invest;ments 1b1 54.d 462 100=====s =3= ===1

FINANCED BY

Net Internal Cash GenerationInternal Sources of Funds 630.7 25.2 55Less: Increase in Working Capital (34-0) (1.4) (3)Less: Debt Service (284.2) (11.3) (25)Funds Available for Capital Investments 312.5 12.5 27

Long-Term FinancingIBRD Loan 580.0 23.2 50Suppliers' Credits 67.2 2.7 6Total Borrowings 647.2 7Government Contribution 195.1 7.8 17Total Long-Term Financing Z 33 7 _

7.09 The plan is based upon:

(i) IBRD financing of S/580 million (US$23.2 million). TheBank loan is assumed to have a term of 25 years, in-cluding four years of grace, and to carry interestat 7 and a commitment fee of 3/4 of one percent;

(ii) suppliers' credits of S/67 million (US$2.7 million)for the financing of EMAPts ongoing projects, repre-senting 6% of total investment for the period underconsideration. These credits bear an interest rateof 8% and will be amortized in five years beginning1975 (see para. 3.14);

(iii) Government contribution of S/195 million (US$7.8 million)for the financing of 50% of the Santa Elena part ofthe Project; and

(iv) EMAP's net internal resources for S/313 million(US$12.5 million), for financing 27% of the investment.

If costs are greater than estimated, the Borrower would beexpected to meet overruns, but assurances were obtained duringnegotiations from the Ecuadorian Government that it will promptly pro-vide the necessary funds if the Borrower cannot do so, and to makeavailable the contribution foreseen in the financing plan.

Future Finances

7.10 EMAP's forecast income statements are summarized below.Detailed forecast financial statements are in Annex 8.

1974 l.76 M98 1980

Operating Revenues 125.9 215.3 294.3 411.lOperating Costs 84.8 100.3 119.3 142.7Depreciation 1/ 25.9 47.3 70.8 93.3Income before Interest 15.2 67.7 104.2 175.2Operating Ratio 67.3 46.6 140.5 34.7Rate of Return 1/ 2.0 6.0 / 6.0 8.0

EMAP's financial performance would continue to be satis-factory after the completion of the Project in 1977, providing thenecessary annual tariff increases are made. Assurances wereobtained from EMAP during negotiations that EMAP will adjust tariffsto produce revenues from the sale of water sufficient to providethe company with the annual financial rates of return given below:

1/ On revalued fixed assets; see Annex 12.

2/ Based on a 15% tariff increase.

1974/75 1976 to 1979 1980 and Thereafter

2.0 6.0 8.0

After project completion in 1977, EMAP would generate suf-ficient income to finance around 40% of the construction investmentrequired up to the year 1985.

Financial Rate of Return

7.11 The financial rate of return was calculated on the netrevalued assets tentatively estimated by the mission. The rate ofreturn should improve during the Project from -0.8% in 1973 to 8.0%by 1980.

The main reasons for this improvement are:

(i) the increase of subscribers at a rate of 14.2% perannum;

(ii) the change of 23,000 unmetered to metered connectionsby the end of 1974;

(iii) a 15% increase in water rates, effective January 1976;

(iv) decrease of unaccounted-for water from its high presentlevel of 47% to 20% in 1980.

7.12 The system of revaluation and depreciation of assets is detailedin Annex 12. The existing system is deficient and assurances were obtainedduring negotiations that a method of revaluation and depreciation satis-factory to the Bank be established by December 31, 1974.

Debt Service Coverage Ratio

7.13 This ratio has been satisfactory during 1972 and 1973 (2.5and 2.0). The projected values up to 1980 would have a maximum of3.0 by 1980 and a minimum of 1.6 in 1975, which are also acceptablefigures. However, in order to prevent the Empresa to undertake uneco-nomical investments, or to assure existing loans (such as IDB loanif EMAG would be absorbed by EMAP; see para. 6.12) without sufficientguarantee of repayment, assurances were obtained during negotiationsthat EMAP will not incur long-term debts without the Bank's consentunless net income before interest and depreciation is at least 1.5,the maximum debt service in any future year.

8. AGREEMENTS REACHED AND RECOMMENDATIONS

8.01 During negotiations, the following assurances were obtained:

a) From the Borrower:

(i) A meter maintenance program acceptable to the Bankwill be instituted by December 31, 1974 (para. 3.07);

(ii) The ongoing construction program will be carriedout by March 1975 and the meters' installationcompleted by December 31, 1974 (para. 3.13);

(iii) Prior to commencement of the construction of thewater transmission main for the Santa Elena Penin-sula, a study of alternate sources of water forthe peninsula will be carried out by EMAP'sconsultants (para. 4.05);

(iv) Competent consultant engineers satisfactory to theBank will continue to be employed for studies,design and construction supervision (paras. 4.12and 4.16);

(v) The Santa Elena Peninsula water tariff will bedesigned to ensure that the seasonal populationpays the full cost of water provided for theirpeak seasonal water demand service (para. 5.09);

(vi) EMAP will afford the Bank an opportunity to commentprior to any important change in EMAP's organization(para. 6.05);

(vii) Incorporation of new meterd accounts into billingcycle will be improved, payment of bills by customerswill be facilitated, and improvements of the REI willbe achieved in accordance with the following targets:

Year 1973 1976 1978 1980

REI (%) 33 66 75 76(para. 6.08)

(viii) A satisfactory commercial and cost accountingsystem, including the classification of fixedassets, will be installed not later thanDecember 31, 1974, and consultants satisfactoryto the Bank will be retained to assist and trainpersonnel in its implementation (para. 6.10);

(ix) External commercial auditors will be employedto audit EMAPts accounts annually and their re-ports will be submitted to the Bank within fourmonths of the end of the year audited (para. 6.1.);

(x) Any future merger of EMAP and EMAG will takeplace under conditions satisfactory to the Bank(para. 6.12);

(xi) EMAP will grant the Bank a lien on earmarkedtaxes and other income equal to those grantedto EMAP suppliers (para. 7.02);

(xii) Water tariffs will be reviewed annually andadjusted, if necessary, to produce revenuesfrom the sale of water sufficient to achieverates of return not less than the following:

1.980 andYear 197j/75 1976 to 1979 Thereafter

Rate of return 2.0 6.0 8.0(para. 7.10)

(xiii) Fixed assets on which a rate of return is requiredwill be revalued annually, in a manner acceptableto the Bank (para. 7.12);

(Xiv) A debt service coverage ratio of not less than 15will be maintained (para. 7013);

b) From the Ecuadorian Government:

(i) that it will make available the contribution foreseenin the financing plan (para. 7.09);

(ii) that it will promptly provide the necessary fundsto complete the Project (if the Borrower cannotdo so), if costs are greater than estimated (para. 7.09).

8.02 With assurances indicated above, the Project constitutes a suitablebasis for a Bank loan of US$23.2 million for a term of 25 years,including a four-year grace period.

ANNEX 1Page 1 of 11 pages

ECUADOR

THE PROJECT

I. EXISTING WATER SUPPLY FACILITIES

Area Served

1. The city of Guayaquil is located on the coast of Ecuador and liesin a low marshy plain the west bank of the Guayas River, at 20111 southlatitude and 79053' west of the Greenwich meridian. It is the capital ofthe Guayas Province and with a population of 1,000,000 people, is the largestcity in the country. It is in a tropical area with temperatures varyingfrom 220 to 330 centigrades with two main seasons: rainy warmer season(January through May) called "winter", and a dry season called "summer"',with lower temperatures and scarce precipitation, from June to December.

2. The population in Guayaquil presently served with water supplyis estimated at 475,000 inhabitants. West of the city, a large concen-tration of 400,000 low-income squatters live in a flood-prone area calledthe "Suburbio" without basic sanitation facilities. These people get waterfrom tank-trucks and 30 public fountains, obviously of low quality andinsufficient in quantity.

3. On the east side of the Guayas River, EMAP provides water supplyservice to 62,000 so-called "rural" population in the towns of Duran (EloyAlfaro), Yaguachi, Ingenio San Carlos, Milagro and Naranjito. These townshave an estimated total population of 128,000 inhabitants.

4. In 1970 the Empresa was given the responsibility of supplyingwater to the entire Guayas Province, including rural and urban population.The Santa Elena Peninsula, which is formed by the Guayaquil, Salinas andSanta Elena districts (cantones) is under the jurisdiction of EKAP. Thepeninsula has a permanent population of about 76,000 inhabitants (estimatedat the end of 1973) and a seasonal populatian attracted by its beaches toreside in the main towns of Playas (General Villamil), Santa Elena,La Libertad, Ballenita and Salinas. These visitors are mainly the 3% ofthe higher income population of the city of Guayaquil -nd will amount toan estimated 24,000 persons during the warm season of 1974 (January throughApril).

5. Outside of 80 house connections in La Libertad wlich receivean average of 17 m3 /month fram a small surface water source, there is nopublic water supply in the peninsula. Water is obtained from shallowunprotected wells and sold to the users through water tank-trucks(tanqueros), at a cost of $.15 to 0.60 per cubic meter.

Sources of Water

6. There are two main water sources for the city of Guayaquil andthe rural area:

(a) The Daule River, a tributary of the Guayas Riverpwith a maximum recorded flow of 1806 m3 /sec onMarch 7, 1972, and a minimum dry weather flow of13.3 m3 /sec, said to be the lowest in 50 years, ayield well above the expected supply requiremret.,sof Guayaquil through the end of the century; thiswater is biologically, physically and chemicallysuitable for treatment and subsequent humanconsumption;

(b) The rural area is supplied with water originatingon the western slope of the Andean Mountai_ns in a zonecalled Bacay, from five impounded streams yielding aminimum of 0.4 m3 /sec., sufficient to serve the townsmentioned up to 1985. Other future water sources have beenpreliminarily selected such as the Milagro aquifer,Chacuayacu and Padul rivers and Santa Lucia streams.

Water Treatment

7. Raw water for Guayaquil is pumped from an intake on the DauleRiver to La Toma treatment plant, by 7 diesel engines driven pumpingunits with a maximum rate of 220,000 m3 /day, through two force mains, oneof 42"* 4 (prestressed concrete) and the otheS 50" $ (ste.el) with a lengthof 1,700 meters, and a capacity of 320,000 m /day at a TDH of 90 meters.A third 16" 4 pipeline is kept as a standby force main.

8. Water treatment is provided in two plants. One of them, La Tomaa,23 kms. north of Guayaquil, has a capacity of 200,000 m3 /day, but productionhas been increased to a sustained yield of 220,000 m3/day without affectingthe quality of the finished water. The plant has two different systems;the first one built in 1950 is conventional, with chemical coagulation,sedimentation and rapid sand filters and a capacity of 120,000 to 140,000m3 /day; the other built in 1971, consists of a so id contact reactor andrapid sand filters, with a production of 80,000 m'/day. Both systems havepH correction with lime, chlorine disinfection, and produce water with aquality that is satisfactory and ccmnplies with WHO Standards for PublicWater Supply.

9. The other, the Lolita treatment plant, located 54 kms. east ofGuayaquil, has an installed capacity of 36,000 m3 /day, and was used to

supply water to Guayaquil up to 1972. The water entered the city through

4 underwater pipes across Guayas River, which were difficult to maintainand are now damaged and out of service. This plant, built in the beginning

of the century, purifies water by plain sedimentation and slow sand fil-

tration, followed by disinfection with chlorine.

10. The Lolita plant production is presently consumed in coamunitieson the left side of the Guayas River, such as Naranjito, Ingenio San Carlos,

Milagro, Yaguachi and Duran (Eloy Alfaro), served by two 55 kilometers long

transmission lines of 11" and 22" diameter. An estimated 79% of the 32,000

m3/day presently produced is unaccounted for. There are 6,070 registered

house connectimis of which only 1,320 have water meters in these towns and

an additional estimated 1,000 clandestine connections along the transmission

lines and in the city of Milagro.

Water Transmission

11. Two transmission mains, a 421" diameter pretensioned steel cylinder

concrete pipes and a 50" diameter steel pipe, both with cathodic protection,

and with a length of 21,500 meters, provide a carrying capacity of 220,000

m3/day from the La Tora treatment plant to the West Reservoir. Both

lines are in good condition, but the concrete pipe has been tapped at the

air and drainage valves in 19 places to serve new residential and industrial

developments at a rate of 18,000 m3 /day. It is recommended that the use of

the 4211 pipe to feed these new and future developments, be regulated.

Water Distribution

12. The distribution network consists of 1,200 km of pipe ranging from

42" to 3" in diameter over an area of 30 square kilometers. In downtownGuayaquil, the distribution pipes (some 50 years old) are in poor condition

and corroded; a high percentage of breakage is registered, and water losses

due to leaking pipes are also high. A similar situation exists in Urdesa

Urbanization due to the corrosion of unprotected cast iron and galvanized

iron pipe.

13. Reservoir capacity in Guayaquil is provided through seven water

tanks with a volume of 94,000 m3, which amounts to 48% of the average 1973

daily production, including the presently high estimated losses and wastages

in the system. This reservoir capacity is satisfactory.

14. There is an independent raw water fire protection distribution

network in an area of 400 hectares in the older part of the city of Guayaquil,

with a water intake on the Guayas River, pumping station and storage tanks

located on El Carmen hill, northeast of the city.

15. Service pressure in the distribution system is low; the closestpoint to the Santa Ana Reservoir, the beginning of the Salado waterfrontnetwork has cnly 20 lbs/sq. in. of pressure during the day, downtownGuayaquil, 10 lbs/sq. in. and the farthest part, the Unidad Vecinal Sur,a social security fund development, 6 km. to the south, only 6 lbs/sq. in.The high leakage rate in the network seems to be the main cause of thissituation.

16. The Empresa conducts bacteriological analyses of the water dis-tributed, through 10 to 12 daily samples. Tests are made for MPN Coli andTotal Bacteria counts and residual chlorine. Due to the condition of thedistribution network and the lack of pressure, some contamination of thewater has been observed in the third quarter of 1973.

17. There were 41,500 house connections in Guayaquil by the end of1973, of which only 29,000 have water meters. This is one of the maincauses for high unaccounted-for water and wastage, since unmetered consumersare charged the tariff corresponding to the minimum consumption, encouragingthe waste of water. An EMAP program, now underway, has the target of meteringall connections by the end of 1974.

Present Water Consumption

18. Present consumption in Guayaquil and the "rural" area was assessedon the basis of information collected from EMAP's billing offices and asurvey of the first one to three months'consumption in houses where unmeteredhouse connections were changed to metered ones. A major factor in the highnumber of persons served per connection, is that apartment buildings andhouses have only one house connectian per building. For Guayaquil, thefollowing figures were obtained in 1973:

Category Consumption Production

Thousand m3 /day lpcd Thousand m3/day

Residential 100 210

Industrial and Commercial 25

Total 125 196

A consumption of 305 lpcd was assumed in the residential non-meteredconnections, likely to be reduced when meters are installed. As a result,the per capita water production in 1973 has been calculated in 411 lped,with 36% of water produced as losses in the system, and around 47% totalunaccounted-for water.

II. WATERWORKS UNDER CONSTRUCTION

1971 - Contract with SOCEA-Halbergerhutte (September 1971 - March 1975)

The main purpose of this contract is to serve the "SSuburbio"lor West Water Supply System, benefitting an estimated 3CO,000 low-incomeinhabitants. It includes:

(i) 5,600 ml of 1,250 mm # pipe, transaission main fromthe West Reservoir, 800 mm 0 transmission lineto Puerto Maritimo with 11,3b0 ml, and Reservoir Oestewith 22,000 r 3 capacity, including 2 passes over EsteroSalado;

(ii) mains and distribution network, 162 km of pipe withdiameters varying from 88 mm to 800 mm; and

(iii) installation of 30,000 house connections without includingmeters.

Contracted Cost: US$7.80 million

Total progress through December 1973 is around 60%, and has beenthe main investment activity this year. The investment distribution is:1971 - 7.5%; 1972 - 22.5%; 1973 - 30%; 1974 - 30%; 1975 - 10%.

1973 - Contract with ZURN-INAEC -(Augst 1973 - December 1974)

(i) Transformation of two presedimentation tanks intosettling tanks, with coagulation and flocculationunits in the old plant, and addition of pipelinesto adapt the plant to increase treated waterproduction in 120,000 m3 /day;

(ii) Coastructi3n of a elevated steel tank with a capacityof 1,000 m and installation of two electric pumps forfilter washing.

Contracted cost: us$0.65 million

Investment: 1973 - 30%; 1974 - 70%.

1973 - EMAP Meter Program and Others

(i) To buy and install 25,000 meters in direct houseconnections (guias directas) as follows:

1973 - 7,000 units

1974 - 18,000 units

Cost: US$1.00 million

(ii) Various small investments according to Budget 1973.

1973 - New Pumping Units to be Installed in the Intake on the Daule Riverby EA

(i) Two new units (1 diesel and 1 electric driven) and twonew electric motors for two new Worthington pumps.

This equipment has been bought and will be installed by EMAP,in the first quarter of 1974, to bring the total raw water pumpingcapacity to 320,000 m3 /day, including a standby.

III. PROJECT DESCRIPTION

The Problem

1. The EMAP's jurisdiction covers the Guayas Province. Withregard to present and future water services, the area may be divided intothree parts: (a) towns located at the left bank of the Guayas River:Eloy Alfaro (Duran), Milagro, Yaguachi, Ingenio San Carlos and Naranjito;(b) the city of Guayaquil and the town of Daule, on the right bank of theGuayas River; (c) towns located on the Santa Elena Peninsula, includingPlayas, Salinas, La Libertad, Ballenita and Santa Elena, and a numberof small villages (Porsorja, Progreso, San Antonio, Cerecita, Changon).

2. These areas all are poorly served with water, the pressure islow and the losses from leakage and wastage are excessive. The populationis growing more than 5% per year and to meet these needs a long-rangewater suply program is required. Several constraints force us to dividethe long-range program in two stages: immediate needs up to 1977, and asecond project or Master Plan up to year 2000. These characteristics are:

(a) lack of an urban development master plan for the cityof Guayaquil as well as for the region that includesthe districts (cantones) of Guayaquil, Milagro,Naranjito, Yaguachi, Daule, Santa Elena and Salinas.

(b) the urgent needs of the squatter population of the"Suburbio" in the western section of Guayaquil, settledon low, often flooded land that has been costly andpainfully partially earth-filled; the "Suburbio"population amounts to 400,000 inhabitants around 40%of the total in the city;

(c) a comprehensive feasibility study of water supply forthe city of Guayaquil and the Guayas Province is notavailable; instead, individual designs for additionsand improvements of the raw water pumping stations,La Toma water treatment plant and the transmissionmains, for extensions of the distribution system forDaule and the Santa Elena Peninsula water supply weremade available to the mission.

Nevertheless, a project, to satisfy the immediate needs, has been definedand cost estimates brought up to date with the participation of EMAP'sconsulting engineers and technical staff. Final designs of the projectare being prepared now by the technical department of the Eupresa, withthe assistance of their consulting engineers, and should be sent to theBank for review prior to the completion of negotiations.

Description of the Project

Water Intake, Pumping Station and Force Mains

3. The Empresa is adding 120,000 m3 /day pumping capacity to theraw water intake system located 24 km. north of the city of Guayaquiland by the time the project is started, the new pumps should be installed.This will bring the total capacity to 320,000 m3 /day which appears to besufficient until 1980, when water demand will exceed this capacity. Theproject also includes interconnection of the force mains of 42" and 50"diameter with a 16" diameter standby line to bring the total carryingcapacity of the force mains system to 320,000 m3/day with a TDH (TotalDynamic Head) of 90 meters.

La Toma Water Treatment Plant

4. The La Toma water treatment plant is now being improved to doublethe coagulation and settling yield of the old sedimentation units to produceup to 320,000 m3 /day of settled water, but the rapid sand filters do nothave the ability to treat this water. The project proposes to increasethe filtration rate of the first plant 80 to 16Q lts/min/m 2 by changingthe sand filtration media to dual sand-anthracite media, and adapting therate-of-flow controllers and operating tables to this increased capacity,and thus raise the overall plant output to 320,000 m3 /day.

Transmission Main Capacity Increase

5. The present 21,500 m. long tpansmissian mains of 422" and 50"diameter, have a capacity of 213,000 m'/day, at a loss of head of 1.08 mts.per 1,000 mts. Additional capacity will be required by 1976, and theproject provides for th$ construction of a 72" i transmission main witha capacity of 345,500 m'/day. The combined capacity of these mains willbe adequate for the ultimate capacity of the La Toma treatment plant.This new 72" F transmission main will be 15,000 m long, interconnectedwith the other 4 12" and 50" diameter mains. Another 7,500 meter sectionof the 72" # main should be installed during the second stage of thelong-range program between 1977 and 1980.

Extensions and Improvements of the Distribution Network

6. EMAP engineers in charge of the operation of the distributionsystem have expressed their concern for the frequent pipe breakages indowntown Guayaquil, Urdesa and other residential areas; sample exavationsshow that old, unprotected steel and cast iron pipes are corroded and needto be replaced. A high percentage of losses and unaccounted-for water iscaused by leaky pipes in these areas.

7. Nearly 60% of the population of Guayaquil has a low income (lessthan 2,000 Sucres month/family) and most of them live without basic sanitationservices in the "Suburbio". The municipality has been trying to organizethis squatter population by land upgrading and laying out blocks and streetsin a flood-exposed area of about 1,200 hectares west of Guayaquil, a verycostly and time-consmning work; this area does not have basic sanitationservices and some of its inhabitants have to be relocated in places not yetwell-defined. A water distribution network is now under construction forthe main upgraded part of this "Suburbio" sections but not the #Suburbio" west.

8. To improve this situation, the project includes thefollowing distribution system works:

(i) The replacement of parts of the distribution networkin downtown Guayaquil, Urdesa and other residentialareas, of the corroded and broken pipes detected asdetermined by the hydrometric and leaks-detectionstudy now being carried out by EMAP and its consultingengineers;

(ii) Distribution network expansion for the less developedand poorer sections of the city of Guayaquil, andlow-income population housing development program

areas such as Eloy Alfaro (Duran), Mapasingue, Santa Ana,San Pedro, "Suburbiohl west, and some other municipalurbanizations resulting from the relocation of low-incemedwellers from nonconsolidated areas, according to studiesbeing carried out now and during the project's execution.

Water Supply Service for the City of Daule

9. The city of Daule, in the district of the same name, is located34 kn. north of Guayaquil amid a rich and productive agriculture and cattlezone; it has a population of 12,000 inhabitants distributed over an areaof 110 hectares. Presently a small part of the people of Daule get low-quality water with a high chloride cmtent from wells, through a provisinaldistributim network and an elevated tank; nevertheless, the objectionabletaste of this water cmpels many people to buy water produced in the La Tomatreatment plant and transported by water-tank trucks (tanqueros).

10. A new water supply for the city of Daule has been considered inthe project to serve an estimated population of 25,000 inhabitants by theyear 1990, for an average water consumption of 43 lts/sec (5,750 m3 /day),representing 230 liters per capita per day, and an hourly peak of 78 lts/sec.Water will be conducted from La Toma water treatment plant by a 17 kmi, 12" d

pipeline.

Water Supply System for the Santa Elena Peninsula

11. According to a National Government Supreme Decree dated May 14,1971, EMAP was given the responsibility of supplying water services to themain to-wns located in the districts (cantones) of Guayaquil, Salinas and

Santa Elena, in the Santa Elena Peninsula, one of the most beautifulsumer resorts in Ecuador.

12. It has been estimated that by 1977, at the end of the project4sfirst stage, 67,000 persons in Playas (General Villamil), La Libertad,Ballenita, Santa Eleaa, Salinas and the villages of Progreso, Posorja,

San Antonio, Chongon, and Cerecita will be benefitting from a water supplyservice, including the seasonal populaticn (January through April), whenan estimated 2% of the Guayaquil higher-income population move to thebeaches as residents.

13. Estimates made by EKAP and local municipalities indicate thatat the end of 1973, the total permanent population was around 76,000inhabitants, including the small villages mentioned, and that the expectedseasonal addition or transient population would be near 22,000 persons.In this figure beach visitors are not included during the weekends whichmay amount to 60,000 persons in one day.

14. Assuming that conveying water from Guayaquil to the town inthe Santa Elena Peninsula is the least-cost solution (seawater desali-nation and groundwater abstraction are under study), the Project con-templates supplying the water needs of the permanent and touristpopulation at the peak seasonal demand (January-April) up to year 1990for an estimated 170,000 inhabitants.

15. Twenty-five thousand m3/day of water would be conveyed fromthe West Reservoir in Guayaquil to Santa Elena Reservoir in SantaElena, through a 24" diameter transmission main (58.4 km - firstsection) and a 20" diameter pipe (64.0 km - second section); at theend of the first section in Las Monas Reservoir, a branch line 16"diameter 30 km long would carry the water to the beach town ofPlayas (General Villamil). The water for Salinas, La Libertad,Ballenita and Santa Elena would be distributed from the Santa ElenaReservoir. The city of Salinas is farthest from the reservoir,15.3 km away, and represents the maximum transmission main lengthof 138 km from Guayaquil to Salinas. Two pumping stations with atotal head of 100 meters each have been included in the firstsection of the transmission main.

Installation of Water Meters in the "Suburbio West"

16. A water distribution network is actually under constructionin the upgraded part of the "Suburbio" west. This network includesdomestic water connections for about 30,000 low-income families.Water meters were not included in the construction contract.

17. According to legal requirements, all house connections mustbe provided with water meters. Water wastage in unmetered connectionsof dwellers of similar socioeconomic conditions is very high, accordingto field observations made by EMAP's distribution system operationengineers, and the high consumption of previously nonmetered consumersregistered in the first month after meter installation.

18. The purchase and installation of 30,000 water meters for theprospective consumers of the "Suburbion west has been included in theProject; this program should be initiated by the end of 1974, andcompleted throughout the development of the Project, and should becarried out with the participation of specialists to educate thepopulation in this poor section of the city on the benefits of wateruse.

Feasibility Study and Water SUpply Master Plan for Year 2000

19. Long-range planning programs to provide an adequate watersupply for the fast-growing city of Guayaquil are required. It hasnot been possible for EMAP, until now, to prepare such a future-looking

scheme, due to the lack of a sound urban development master plan and theneed to examine on a broad basis, and with regional criteria, the futurewater supply requirements of the other towns and villages located in theGuayas Province.

20. Guayaquil has been growing at 5.6% per annum during the lastdecade half of which is due to immigration. This rapid growth highlightsthe urgent need to plan for commercial, industrial and residential areas,transportation services, markets, public utilities, and recreation areas.An evaluation of such projects from a socioeconomic viewpoint should bea major concern of the UNDP Urban Study. This will in turn affect EMAP'splans for future water supply services.

21. Considering that urban development planning is a municipalresponsibility and that the UNDP is assisting the Municipality in thisendeavor, the following activities have been included in the project:

(i) A feasibility study and long-range water supplymaster plan for Guayaquil and towns under EMAP'sjurisdiction, with the eventual development of asewerage master plan if merger with the seweragecompany should take place. The study should becoordinated with the municipality's urbandevelopment study;

(ii) Study of the costs and benefits of upgradingsquatter areas, (including expansion of existingareas), especially in the "Suburbio"2, Mapasingue,El Guasmo, and other similar low-income areas;

(iii) Feasibility studies for the extension of the waterdistribution network and sewer system (if mergertakes place), to areas suitable for urbanization;funds have been included in the project forconstruction of distribution systems of these newurban developments into which low-income populationis relocated. The disbursement of this part of theBank loan will be contingent upon the completion ofthese studies and their subsequent approval by theBank; and

(iv) A socioeconomic study to establish capacity to payfor housing, public utilities, transportation, anddetermine land tenure in low-income areas.

March 8, 1974

ANNEX 2Page 1 of 2 Pages

ECUADOR

WAUTR SUPPLY PROJECT FOR GUAIAQUIL AND GIAYAS PROVINCE

_MSRESA MWIICIPAL DE AGUA POTAEL DE rUAYAQUIL

Proj3ect Cost Estimate

Local Foreign Local Foreign

Cost Cost Total Cost Cost Total

-=---Sucres (S/-000) -- US$(1OOO) …

.-. :at4 ~1e Nn laterconnection

0Bi- WcrkB 100 - 100 4 - 4

,-; t ama YLt-,7aria.. - 1,000 1,000 - 40 40

La Toms. Water Teateent Plant Improvements

CB" N1 vorks 400 - 4oo 16 - 16

Equipment and Material - 7,0OC 7,000 -

t e r~~~~~~~~~~~~~~~~~~~~~,0

7,00g y0

72' Dt&teter Transmission Main

Be.,';een _a Tona and Tres Cerritos

iiJl1 Works 21,250 12,500 33,750 850 500 '1,350

7quipnient and Material 245500 98,(00 122,500 980 3,920 4,900

Distribution Network Improvements

and Pipe Renlacemerit in Guayaquil

* 1 41 WfocWks 10,125 1,375 12,000 405 75 480

I4'4UJ pX .d aQ at'a 4 -87 14,375 19,250 195 575 770

in Guai'qal ard Duran (Zloy Alfaro)

C' el. -4 rks 23,50' 3,750 27,250 940 150 1,090

and eata"aa1 9,000 26,250 35,250 360 1,050 1,410

wo erks 1,3C 5 8,105 272 52 324

E-VemtO WE8-11,^12,445 13,6'-5- 48 498 546

~a!.a 3a.entas

EqY4- ratan4 S{ater 83,000 21,975 104,975 3,320 879 4,199

klsaipre and Nateria' 42,000 219,275 261,275 1,680 8,771 10,451

Purchasean Inst+allatici of 3O0,00

Water Meters inte sbuba

C3i.Al dWorks 15,000 - 15,000 600 - 600

Equipment and Material - 12.000 - 480 480

Cjn9t'-,~ti~' ~a~ts - trbtotaD. 241.750 43175 673.500 9.670 1 7 ,270 26.940

Lard 2,500 - 2,500 100 _ 100

Feasibil Study to Year 2000

an~ Cons~2~tant2 Seryics 5 000 10,000 15,000 200 400 600

Engineern and Adm in_tration 44,90C 22,450 67,350 1,796 898 2,694

':r'rRwzBes F lix7ys!!al (75%) 38,125 62,900 101,025 1,450 2,591 4,041

47,900 50,675 98-575 1.916 2,027 3.943

r,s 65. 15Z. ., 13-2 23_186 38,318

March 8. 1,974

ECUADOR

EMPRESA DE AGUA POTABLE DE GUAYAQUIL

Investment Schedule

1976 21971__ _ _ _ _US$(,000)-=-----

Raw water force main interconnection 22 22

La Toma Water Treatment Plant Improvements 1h6 150 - -

15,000 la 72" 0 transmission mainbetween La Toma and Tres Cerritos - 2,000 2,000 2,250

Distribution network improvementand pipe replacement 350 300 300 300

Distribution network expansionin Guayaquil and Duran (Eloy Alfaro) 600 600 600 700

Water supply service for Daule 170 300 400 -

Water supply system for the Peninsulaof Santa Elena - 4,800 4,850 5,000

30,000 water meters for the "suburbio" 280 400 400 -

Land 25 25 25 25

Feasibility Study and Consultants 150 150 150 150

Engineering and Administration (10%) 300 798 798 798

Contingencies: Physical (15%) 450 1,197 1,197 1,197 M

Price - 633 1.321 1,989 g

Total Project Cost 2.493 PI1012.409March 8, 1974

ANNEX 3

ECUADOR

Cumulative QuarterlY Disbursements

Cumulative Total InvestmentsAt End of Quarter Cumulative Disbursement-- 00---000--------- At End of Quarter

1974/1975 Ecu. S/ Sucres or US(US$'o)

September 30, 1974 20,775 831 461

December 31, 1974 62,325 2,493 1,382

March 31, 1975 133,400 5,336 3,154

June 30, 1975 204,500 8,180 4,927

1975/1976

September 30, 1975 275,600 11,024 6,699

December 31, 1975 346,700 13,868 8,473

March 31, 1976 421,950 16,878 10,302

June 30, 1976 497,200 19,888 12,131

1976/1977

September 30, 1976 572,450 22,898 13,962

December 31, 1976 647,725 25,909 15,792

March 31, 1977 751,150 30,o46 18,261

June 30, 1977 854,550 34,182 20,729

1977/1978

September 30, 1977 906,250 36,250 21,965

December 31, 1977 957,950 38,318 23,200

March 8, 1974

ECUADOR

TOTAL POPUIATION AND POPULATION SERVED WITH WATER(Thousands of Inhabitants)

GUAYAQUIL AND DAULE STA ELENA PENINSULA 2/ RURAL AREAS 3/ OTAL 4YEAR PoDulation Population Populati,on Population Population Population Population Ponulation

Served % Served _ S"rved 1 Served %

1973 1,004 476 47.4 95 _ _ 128 62 48.2 1,227 537 h3.8

1974 1,043 555 53.2 99 _ _ 133 65 48.8 1,275 620 48.6

1975 1,095 689 62.5 109 _ _ 138 70 50.6 1,337 754 56.4

1976 1,150 820 71.3 110 13 47.8 144 75 52.3 1,404 948 67.5

1977 1,207 946 78.3 116 67 57.7 10 79 ¢3.0 1,473 1,0c)2 74.1

1978 1,267 1,063 83.9 122 71 <8. 6 8at 5h.7 1, 5h6 1,220 78.)

1979 1,321 1,121 8h.8 129 81 62.5 162 90 55.4 1,612 1,291 80.0

1980 1,386 1,182 85.O 136 90 66.0 168 94 56.o .1,691 1,366 80.8

1/ Out of which 72% represents the permanent population.

2/ From January to April

3/ Towns served: Naranjito - 3,000 inh., Milagro - 80,000 inh., Ingenio San Carlos - 16,000 inh.,Yaguachi - 4,000 inh., Eloy Alfaro (Duran) - 25,000 inh., Total - 128,000 inhabitants (lQ73

It/ The seasonal population in Santa Elena (20,000 to hO,000 nersons) is mainly from Guayaquil. In the totalresults, this population is added because it is requiring services in both narts, Guayaquil and Sta. Elena during the warm season. _

March 8, 1974

"LA TOMA" WATER TREATMENT PLANT WATER PRODUCTION AND CONSUMPTION

(GUAYAQUIL, DAULE AND SANTA ELENA PENINSULA)

GUAYAQUIL AND DAULE SANTA ELENA PENINSULA TOTALWATER CONSUMPTION a /

Industrial WATER WATERRESIDENTIAL & Commercial Total Losses PRODUCTION PRODUCTION Additional

YF.AR Thousands TLousands:1 % Th ueands WATER CONSUMFTION 3/ Producti9 CONSUMPTION PRODUCTIONa udan trp od m§/m f ec) aya/umy MSMdav liters/person/day- Th5usands liters/ m

3/month Losses Re uired!L/ Thousands Thousands

(1) (2) (3) (L) (5) (6) (7) (8) m /day person/day connection % mr/day m3/daY m3/day>5 1-, (117 (12) (13 -M (1s)

(5)+(9) (7 + (13)

1973 100 210 77 25 1 2n 36.0% 196 411 - - - - 125 196

1974 92 166 60 27 119 34.4 183 329 - _ _ _ - 119 183

1975 107 155 55 30 137 30.3 196 284 - - - - 137 196

1976 121 147 53 35 156 26.4 212 259 5 95 20 13.8% 5 161 217

1977 134 142 51 43 177 22.8 229 242 9 128 27 14.5 8 181 237

1978 152 1143 51 51 20t 21.6 259 244 10 137 29 15.3 9 213 268

1979 162 1h5 52 61 223 20.3 280 250 - 11 140 30 16.0 10 234 290

1980 175 148 53 73 248 19.0 306 259 12 142 30 16.7 11 260 317

1/ Apartment buildings, hotels and industries, etc. have only one connection each. The 12 persons per connection observed in Guayaquil have been kept for demand projections.

2/ It has been estimated that the seasonal population movirg from Guayaquil to the Peninsula consume in Guayaquil 50% of their daily average. Consequently, the additionalwater production required for this populationwould be 50% more than average, diirig season.

3/ Peak water consumption during season (January-April) and 7 persons per connection assumed.

March 8, 1974

AMT'WX 1,

of 4 Pages

"LOLITA" WATER TREATMENT PLANT

WATER PRODUCTION AND CONSUMPTION (RURAL AREA)

UnaccountedYEAR Water consumed for Water roduced Water produced

L3 day liters/person/day / water W &/dat 2 liters/person/

1973 6,907 111 79% 32,962 536

1974 8,021 123 75 31,652 487

1975 9,933 142 66 29,5?5 431

1976 11,953 159 56 1-7,205 365

1977 14,113 177 43 24,951 315

1978 15,983 188 33 23,737 284

1979 16,959 188 31 24,605 277

1980 17,811 189 30 25,500 273

]/ Assuming that the unmetered connections have the right to use only theminimum consumption of 20 m3/month.

2/ The decrease is due to the change from unmIetered to Tmetered connections andto the progressive implementation of the full Cluayaquilts tariff0

March 8, 1974

ECUADOR

WATER SUPPLY PROJECT FOR GUAYAQ-UIL AND GUAYAS PROVINCE

EMPRESA DE AGUA POTABLE DE GUAYAQUIL

NUMBER OF HOUSE CONNECTIONS

M e t e r e d C o n n e c t i o n s U n m e t e r e d C o n n e c t i o n s T o t a 1 C o n n e c t i o n sSta. Number of % of Number of % of Sta.

Year Guayaquil Rural Elena Connections Total Guayaquil Rural Connections Total Guayaquil Rural Elena Total

1973 28,915 1,321 - 30,236 63.6 12,587 4,750 17,337 36.4 41,502 6,071 - 47,573

1974 48,535 2,632 - 51,167 92.8 - 3,950 3,950 7.2 48,535 6,582 - 55,117

1975 59,752 3,994 - 63,746 95.6 - 2,950 2,950 4.4 59,752 6,944 - 66,696

1976 71,673 5,573 7,520 84,766 100.0 - 1,750 1,750 - 71,672 7,323 7,520 86,516

1977 82,819 7,169 9,570 99,558 100.0 - 550 550 - 82,819 7,719 9,570 101,108

1978 86,619 8,133 10,151 104,903 100.0 - - - - 86,618 8,133 10,151 104,903

1979 90,701 8,567 10,764 110,032 100.0 - _ _ - 90,701 8,567 10,764 110,032

1980 95,101 9,021 11,411 115,533 100.0 - _ _ - 95,101 9,021 11,411 115,533

iiarch 8, 1974 U

ECUADOR

EMPRESA MUNICIPAL DE AGUA POTAELE DE GUAYAQUIL

RATE OF RETURN

PROJECT RATE OF RETURN

The Overall Project (Guayaquil and rural areas and peninsula projects)

1. The incremental rate of return of the Project has beencalculated as the discount rate equalizing the stream of benefits(incremental water revenues) and costs (capital and operating cost)over the life of the Project (40 years).

(In 1974 prices)

------------------S/million --------------- _--1974 1975 1976 1977 1978 1979 1980 1981-2014

Incremental Revenues 1/ - - 57 88 110 136 162 162

Capital Cost 62 285 300 310 - - - -

Operating Cost - - 8 14 20 26 31 31

Net Benefits -62 -285 -251 -236 90 110 131 33 x 131

The incremental rate of return is about 12%o With water sales 10% lessthan projected, the rate of return would only drop to 11%.

The Santa Elena Peninsula Project

2. The Project fulfills a social objective in supplying water tothe permanent population amounting to some 76,000 people, who now onlyconsume very limited quantities of unsafe water. Bringing water to thepeninsula will undoubtedly give a great impetus to its tourism industryand thereby to the economic development of the area. A groundwater studyand an evaluation of water desalination costs are now being undertakenby EMAP consultants to verify that the proposed project is the least-cost solution to supply the projected demand. Demand has been projectedconsidering the restraining effect on consumption of the high cost ofwater.

1/ The incremental revenues include increased collection of revenuesas a result of the installation of meters (financed through theproposed loan) and other measures to improve collection efficiently.Tariffs will not be increased in real terms up to 1980 and the incre-mental revenues do therefore not include additional revenues fromconsumption not attributable to the Project.

3. The income distribution effects of the Project need to becarefully examined. The seasonal residents benefitting from the Projectare within the highest 5% income bracket in Ecuador. However, by usinga differential tariff for seasonal and permanent consumers, a directsubsidy to this high income group will be avoided, although they willstill be the main beneficiaries of the land value increase that takesplace as a result of the Project. Some of these land-plus valuescould benefit the public sector through the reassessment of land valueand an increase of the special betterment tax. The Bank should recommendto the Ecuadorian Government that such measures be taken. Part of theproceeds from this tax will be needed to finance infrastructure, suchas swerage, in the peninsula.

4. The incremental rate of return of the Santa Elena part of theProject is around 10%. An estimate of the proceeds from the bettermenttax has been included in the benefits as a minimum expression of landvalue increases and of consumer willingness to pay for the Project abovethe revenues to be collected through water sales. With 10% lower watersales than projected, the Santa Elena part of the Project would earn arate of return of 9%.

ECUADOR

WATER PRICING CONSIDERATICNS

GuayacUil

1. The tariff policy adopted by EMAP is to subsidize low-incomeconsumers by charging higher prices to high-income consumers with highper capita consumption. EMAP should continue to charge for wateraccording to a progressive tariff structure. Special credit facilitiesshould be made available to the low-income population in specific areasto finance the cost of house connections over a period of 5-8 years,with an interest rate (in US dollar equivalents) not exceeding theinterest rate of the Bank loan. The monthly meter charge to the low-income population should cover only the capital and operating cost ofmaintaining such meters.

2. Considering that the low-income population of Guayaquil willface a series of additional expenditures for basic infrastructure suchas water, sewerage, landfill, etc., a study is required (see para. 4.16)which should:

(i) establish the capacity to pay of the low-income popu-lation and define the areas where special concessionsshould be granted for payment of public services;

(ii) establish land tenure in squatter areas to determinebeneficiaries of infrastructure investments; and

(iii) recommend design of infrastructure projects and pricingpolicies compatible with the capacity to pay.

Santa Elena Peninsula

3. When determining the water price and the tariff structure forthe Santa Elena Peninsula, the following points should be considered:

(i) the high cost of supplying water to the peninsula;

(ii) the existence of two distinctive groups of consumers,high-income seasonal residents and permanent low-incomeresidents.

4. The high cost of the water resulting from the investmentrequired to build a long transmission main makes it difficult to settariffs to make thti project financially viable, although the seasonalpopulation has a high payment capacity and has in the past demonstrateda willingness to pay high prices for limited quantities of water. Asubsidy to the permanent population could, however, be justified onincome distribution grounds.

a-NEX 6Page 2 of 2 pages

5, EMAP should design a differential tariff s-tructuue for theseasonal and permanent population of the peninsula. To distinguishbetween these two groups, the classification used by the electricalcompany or any other classification acceptable by the Bank, devisedby EMAP, may be used.

6. The average per connection charge to the seasonal populationshould reflect the unsubsidized cost of watero The average per con-nection charge to the permanent population should reflecet their capacityto pay,

7. The unsubsidized price for water is defined as the pricewhich produces at least an internal rate of return on the part of theProject corresponding to the seasonal population of at least 10,%The permanent population's capacity to pay has been estimated to amaximum of S/140 per connection and month in 1973.

B. When calculating the tariff, the fixed capacity cost ofthe Project has been allocated between the seasonal and permanentpopulation on the basis of their respective use of the peak volumeproduced during the year of full utilization of the installed capacity(in 1980, 44% seasonal population, 56% permanent population). On thisbasis, the average monthly connection charge for the seasonal populationwill be S/785, and for the permanent population, S/230, in 1980.

9. The demand projections take into account that water consumptionin the peninsula will be restrained because of the high cost of water.However, not to unduly restrain consumption (for instance, below theminimum required for hygienic reasons), the tariff structuire should bedesigned to charge a major portion of the cost as a fixed consumptioncharge. This pricing policy is justified on economic ,rounds becausethe marginal cost of supplying water to the peninsula (the operatingcosts and the incremental capacity cost) is lower than the averagecost. This is so because the fixed investment necessary to suapplyeven a minimum quantity of water to the peninsula represents a largeshare of the cost of the project proposed for financing. The fixedmonthly charge should (for both seasonal and permanent conswners) beset to correspond to the fixed capacity cost of the system, whereasthe m3 charge should reflect the operating cost and the incrementalcapacity cost. The fixed consumption charge should be progressivelyrelated to the assessed property values, the variable charge to thevolume of water consumed0

10, In order to discriminate between seasonal and permanentconsumers for the purpose of charging a differential tariff, theclassification of seasonal and permanent consumers used by theelectrical company could be used. In addition, it is suggested thatthe variable charge be increased in the peak season.

ECUADOR

WATER SUPPLY PROJECT FCR GUAYAQUIL AND GUAYAS PROVINCE

EMPRE5A MUNICIPAL DE AGUA POTABLE DE GUAYAQUIL

ASSUMPTIONS FOR FINANCIAL PRO JECTIONS

1. Introduction

All financial projections have been made by computer. Becauseno comprehensive feasibility study for the Project was available,the projections are particularly detailed.

2. Sucre Devaluation and Inflation in Ecuador

No devaluation of the Ecuadorian currency (1 US$=S/.25) has beenmade for the years of Project construction. Subsequently to Projectcompletion, a devaluation of 20% has been assumed, although the Ecuadorianbalance of payment should improve in the future with oil exports.

An internal inflation of 10% a year has been assumed. This figurewas obtained by regressive analysis of the Ecuadorian cost of living madeon the basis of reliable statistics provided by the University of Guayaquil.

3. EMAP's Revenues

EMAP's revenues from water sales and connected charges have beenprojected for each of the three areas where water services are provided,that is the city of Guayaquil, the rural towns and the Santa Elena Penin-sula. The following assumptions have been made in the financial projections:

(a) per capital demand increases 1% a year;

(b) average water tariff per m3 increases 1.4% a year to reflectthe increase in per capita consumption;

(c) average water tariff per m3 increases by 15% in 1976 and 5%a year thereafter to reflect internal inflation;

(d) all connections will be progressively metered;

(e) consumption and revenues are as follows:

Guayaquil: - Monthly revenues from unmetered connections: S/80 (Residential)- Monthly consumption and revenues from metered connections(residential): 61m3 and S/125

- Monthly consumption and revenues from metered connections:Commercial : 194 m3 and S/630Industrial : 650 m3 and S/3,173Official : 425 m3 and s/464

-Commercial and industrial number of connections increase18% a year and the proportion between these connectionsremains at 1 industrial for 3 commercial

-Water sold to water trunks: 77 m,3 a month or S/460-Water sold to the port authority: 2,700 m3 a month orS/150,000 increasing 5% a year

-Water losses are assumed to decrease from 47% of totalproduction in 1974 to 24% in 1980

-Each individual meter is assumed to have a cost of S/343and to be sold at 5/629

-Each new metered connection is assumed to have a cost ofS/485 and to be invoiced at S/993

-Connection fees vary from S/300 to S/1,200 (suburban andnon-suburban)

-Meter maintenance is assumed to provide EMAP with S/6a month per meter

Rural Towns (Milagros, Naranjito, Eloy Alfaro, Yaguachi, and Bucay):-Consumption by unmetered connection 50 m3 /month (18%below Guayaquil). An annual increase of 1% is assumed.Average monthly billing: S/26.

-10% of connections presently metered, 4,750 new meterswill be installed between 1974 and 1978

-The number of new connections is assumed to bq 158/semester-Commercial and industrial connections: 433 m- /month orS/198

-Losses would decrease from 42% of total production in 1974to 28% in 1978

-Other revenues: same as in Guayaquil

Santa Elena Peninsula (Salinas, Playas, Santa Elena, La Libertad, Ballenitas,and some small villages):

For the permanent low-income population:-Average water consumption of 20m3/month and 95 liters

per peso per day, with all house connections metered,increasing 2% per year, starting 1976.

-Unit price of water assumed is Sucres S/6.02 per cubicmeter for an average monthly water bill of S/120 in 1973;presently they pay about 3/195 per month for 5-6 m3 of waterper month.

-Water consumption in the season (January-April) would be56% of total.

-Water sold to water tank trucks would be 246,000 m3/year,increasing at a rate of 1% per year, for dispersed ruralpopulation.

-8% per year increase in the earnings per meter for tariffincrease and more water consumption.

For the seasonal tourist population:

(A consumer would be classified as non-permanent or tourist, ifhis water consumption during off-season (May-December) is lower

than 50% of his average monthly seasonal consumption, andif water services are regularly used for 8 months/year orless).

- Average water consumption of 50 m3/month during 4-5 months(season January-Ap5il). The rest of the year a 20% consumptionequivalent of 10 m /month is assumed. Consumption wouldincrease 2% per year.

- Unit price of water assumed is S/24.00 per cubic meter, withan average yearly water bill of S/5,570 (or S/464 per month)at 1973 prices. Presently they pay S/6,0o0 per year (4 monthsconsumption) for 200 m3 of water.

- Water consumption during season would be 44% of total. Penin-sula consumption, and house connections represent 27% of thetotal. Water pricing is based upon payment of full cost ofproviding water services in this peak seasonal demand.

- 8% per year increase in the earnings from water sales fortariff increase and added water consumption.

- A fixed charge or minimum payment of S/200/month throughoutthe year.

4. EMAP's Operating Costs

Production's Salaries

EMAP's Financial Department assumes an average yearly increase of8% due to the following reasons:

(i) A salary increase of 10% for workers, according to the increasein the cost of living;

(ii) Salary increase of 5% to technical and administrativepersonnel; and

(iii) No major increase in personnel.

An average increase of 10% is assumed due to the small numberof technical personnel and because the expansion to Sta. Elena requirefew additional personnel.

Production Expenses

The amount of electricity, cholorine, other chemicals, etc. isproportional to the water produced. The production expenses for 1970,1971, 972 and the first six months of 1973 were 0.08, 0.105, 0.14 and0.17 m . These production expenses include a fixed cost of 3/700,000for maintenance of vehicles and S/200,000 for laboratory supplies.

A more detailed cost relation is shown in the following table,based on 1973 data:

3TATISTICS OF MATERIALS USED IN THE PRODUCTION OF WATER

Diesel WaterYear Lime Alumina Chlorine oil Total Produced

Units p o u n d s- mi---on ------ 1---3

I Value(Millions) S/O.50 1 S/3.82 s/0.894 s/4.63 S/9g845

1972 Units/mr 3 0.022 0.0614 0.0082 0.022 - 71.58

Cost/m 3 S/0.007 S/o.0534 S/0.125 s/o.0646 3/0.138

1973 Value(up (Millions) S/1.171 S/3.519 S/0.302 s/0.869 S/6.b4toJune) Unit

Value S/0.37i- S/3.06 S/0.459 S/2455 37.89

Units/T3 0.031 0.093 0.008 0.023

Cost/T 3 S/0.OlO S/0.08 3/0.12 j S/0.067 S/0.17

It is assumed that the cost of production of water will beS/0.17/ni 3 of water produced plus S/900,000 (fixed cost).

A yearly increase of 7% in the cost of materials is assumed forprojections. The increase is small because the change in pumps from dieselto electricity will reduce cost, although at the same time some increasewill occur due to the pumping of water to Salinas.

Plant Maintenance

The average increase during the last two years was 6%. The maincost are workers' salaries. A 10% annual increase in cost is foreseen.(see "Production")

Distribution Salaries

As EMAP personnel is not making newws.termain installations, theestimated increase in cost is low, 9%.

Distribution Expenses

A yearly 5% increase is assumed because major purchases have beenmade during the last two years and further expansion will be minor.

Distribution Maintenance

The increase during the last two years was excessive (32%), but itwill be much lower, because the deficient mains are being replaced. A 6%increase is assumed.

Technical Administration

There are no plans or needs for any substantial increase in thenumber of personnel and the salary increase will only be about 5%. Con-sequently, a 6% increase is used in the projections.

Social Services

This amount is based on personnel costs. A 9% yearly increase isassumed.

Financial Administration

Some additional personnel will be required to handle meter reading,billing and collection from new subscribers. Therefore, a 10% increaseis assumed for 1974 followed by a 6% annual increase thereafter.

General Administration

A 6o0 yearly increase is used.

Contingencies (and Taxes)

0.5% of the direct earnings are given to the municipality. 1h.5%more, for a total of 5%, is left for contingencies.

Real Estate Sales Tax ("Alcabalas")

This is a tax on the sale or exchange of property and depends onthe value of the property and the number of transactions. The tax hasbeen increasing slowly (3.1%) but shouadincrease more due to the inflationand also to the increase in real estate transactionis after an additional 40%or more houses obtain water and sewage through the project. A moderate increaseof 3.8% is assumed.

Public Cars

The value assigned to public buses and the corresponding taxeswere previously determined by EMAP. Now the government is appraising thevalue of public vehicles, which should increase with inflation; a 7% in-crease is assumed from the present low value of S/4OO,000.

Telephone Tax

All telephone calls in Ecuador pay L/0.05 for the water supplyin Guayaquil to compensate for a previous "non-increase" in tariff. This

tax is already partially committed to repay S9CEA. Of the approximate110,000 telephones in Ecuador, about 45,000 are in Guayaquil. The in-crease of this tax depends on:

(i) The increase on the number of calls.

(ii) The increase in telephone installations. Up to now the increasehas been very high (about 32% during the last two years). Forthe comingyearx, a moderate increase of 5% is assumed, whichis smaller than the population increase in the large cities ofEcuador.

Aliquet National Participation Fund

This is a part of the national sales tax from which 5% is given toEkAP. The distributed part of this tax was increasing 8% per year, butrecently the government has increased it only every two years, resulting ina 4% annual increase.

Contribution of the "Tugurios" Rehabilitation Department

A national contribution which is used for payment of worksperformed in suburbs. Allocation is made according to government plan.

March 21, 1974

E C U A D 0 R

EMPRESA MUNICIPAL DE AGUA POTA8LE LE GUAYAQUIL

CONSOLIDATED ICOME STATEMENT

- - - Realized - - - - - - - - - - - - - - - - - - - - Forecast - - - - - - - - - - - - - - - - - - - -

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980

- - - - - - - - - - - - - - - - -… - - - - - - - - - - - - - - S./million - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Number of Consumers-Thousands 35,327.00 37,704.00 39,455.00 47,776.00 55,117.00 66,696.00 86,516.00 101,109.00 104,903.00 110,023.00 115,553.00Volume Sold (M3 Millions) 32.60 36.31 42.23 49.50 48.53 54.41 62.93 71.59 78.08 85.22 93.21Volume Produced (M3 Millions) 56.17 62.60 71.58 82.48 74.96 79.31 86.46 93.39 100.08 109.48 116.65Revenues

Revenue from Billing 52.13 48.73 62.98 87.73 109.62 137.68 191.77 240.63 285.96 338.97 401.59Other Revenues 4.49 4.26 4.33 7.32 16.27 13.17 23.52 16.41 8.35 8.76 9.52Total Revenues 56.62 52.99 67.31 95.05 125.89 150.85 215.29 257.04 294.31 347.73 411.12operating Costs

Production Costs -14.47 -15.15 -15.49 -26.49 -28.50 -31.69 -35.80 -40.29 -45.20 -51.32 -57.48Distribution Coats -9.24 -15.57 -17.01 -23.44 -25.23 -27.17 -29.27 -31.54 -33.99 -36.64 -39.51Technical Administration -0.25 -0.22 -0.30 -1.27 -1.35 -1.43 -1.52 -1.61 -1.71 -1.81 -1.92Social Services -0.72 -0.98 -1.35 -1.98 -2.16 -2.35 -2.56 -2.79 -3.05 -3.32 -3.62Operation and Maint. Coats -24.68 -31.92 -34.15 -53.18 -57.24 -62.65 -69.16 -76.24 -83.95 -93.09 -102.52Administrative Costs -11.35 -13.16 -15.30 -21.54 -23.50 -24.91 -26.40 -27.99 -29.67 -31.45 -33.34Contingencies -0.00 -0.00 -0.00 -0.82 -4.04 -4.38 -4.78 -5.21 -5.68 -6.23 -6.79Total Operating Costs -36.03 -45.08 -49.45 -75.55 -84.78 -91.94 -100.34 -109.44 -119.30 -130.76 -142.65Income Before Depreciation 20.59 7.91 17.85 19.50 41.11 58.91 114.95 147.60 175.01 216.97 268.47Depreciationl -11.17 -18.53 -18.52 -24.45 -25.92 -37.45 -47.26 -61.46 -70.80 -86.11 -93.27

Income Before Interest 9.42 -10.63 -0.67 -4.95 15.19 21.45 67.69 86.14 104.21 130.85 175.20Interest -0.00 -00 -0.00 -0.00 -0.0 -31.45 -28.96 -24.48 -61.56 -55.17 47.97Operating Income 9.42 -10.63 -0.67 -4.95 15.19 -9.99 38.73 61.66 42.65 75.68 127.23Income Nonutility Operation 41.56 40.15 56.70 60.95 63.24 65.83 68.54 66.98 69.54 72.64 75.87Total Miscellaneous Income 2.33 2.34 4.18 3.08 2.39 2.39 2.40 2.41 2.14 4.67 0.63Total Other Income 43.89 42.50 60.88 64.03 65.62 68.22 70.94 69.38 71.68 77.30 76.50Net Income 53.30 31.87 60.22 59.08 80.81 58.23 109.67 131.04 114.33 152.98 203.73

Average Rate Base 363.39 545.41 586.85 633.54 685.81 879.56 1,149.92 1,431.83 1,772.66 2,062.46 2,236.37Finarcial Ratios

Operating Ratio 63.64 85.08 73.47 79.48 67.34 60.95 46.61 42.58 40.53 37.60 34.70Rate of Return 0/0 2.59 -1.95 -0.11 -0.78 2.22 2.44 5.89 6.02 5.88 6.34 7.83Population Served-Thousands 424.00 452.00 473.00 537.00 620.00 754.00 948.00 1,090.00 1,220.00 1,292.00 1,366,00Per Capita Consumption 362.94 379.42 414.60 420.82 331.26 288.18 249.87 234.73 224.75 232.15 233.96Average Tariff/N3 Sold 1.60 1.34 1.49 1.77 2.26 2.53 3.05 3.36 3.66 3.98 4.31Operat.Cost/Connec.Thousand 1.02 1.20 1.25 1.58 1.54 1.38 1.16 1.08 1.14 1.19 1.23Water Losses 0/0 41.96 41.99 41.00 39.99 35.26 31.39 27.22 23.34 21.98 22.16 20.10Ooerating CostIM3 Produced 0.64 0.72 0.69 0.92 1.13 1.16 1,16 1.17 1.19 1.19 1.22

April 1, 1974

ANNEX 9

A',:PFS 'tPrL'.' PBCJE 'I -0B _. A 'AQUIL 13!1 ' JAYAw ARCVJNC1

EMP'E'.A T`PI 1 rR . 3T.ABLE IF Ar YAZQI1,

CASIE FI-CW STT!ATRT;T

- - Realized - - - - - - - - - - - - - - - - - - Forecast - - - - - - - - - - - - - - - - - - -

1972 1973 1974 1975 1976 1977 1978 1979 1980

- -- - - - - - - - - - - - - - - - - - S./million - - - - - - - - - - - … - - - - - - - - - - -

Internal Sources of Funds

Income before interest -0.67 -4.95 15.19 21.45 67.69 86.14 104.21 130.84 175.20

Depreciation 18.52 24.45 25.92 31.45 47.26 61.46 70.80 86.11 93.27Non-operaticg Income (Net) 60.88 64.03 65.62 68.22 70.94 69.38 71.68 77.30 76.50

Total Internal Sources 78.74 83.53 106.73 121.13 185.89 216.98 246.69 294.25 344.97

S1et Imcrease working capital -0.29 -0.33 -3.54 -4.31 -19.77 -16.67 -11.03 -3.63 2.78

Debt Service

Wells Fargo -O.OO -0.00 -0.00 -20.00 -19.50 -17.25 -14.50 -11.25 -7.25Sscea -0.00 -0.00 -0.00 -11.45 -9.46 -7.23 -5.01 -2.78 -0.56IBRD -0.00 -0.00 -0.00 -0.00 -0.00 -0.00 -42.05 -41.14 -41.16

Total Interest 1.0 0.00 0.00 -31.45 -28.96 -24.48 -61.56 -55.17 -49.97

IBRD amortization -0.00 -0.00 -0.00 -0.00 -0.00 -0.00 -12.56 -13.47 -14.45Wells Fargo -O.O0 -0.00 -0.00 -10.00 -22.69 -27.44 -32.19 -36.94 -44.31

Lurgi -0.00 -9.70 -5.66 -0.00 -0.00 -0.00 -0.00 -0.00 -0.00Socea -0.00 -23.79 -23.25 -34.13 -34.78 -32.39 -32.39 -32.39 -16.19

Others -31.65 -7.80 -6.60 -1.00 -1.00 -1.00 -1.00 -1.00 -1.00

Total Amortization -31.65 -41.28 -34.90 -45.13 -58.46 -60.82 -78.14 -83.80 -75.95

Total Debt Service -31.65 -41.28 -34.90 -76.58 -87.42 -85.30 -139.70 -138.97 -124.92

Total Operational Requirements -31.94 -41.61 -38.44 -80.88 -107.19 -101.97 -150.73 -142.60 -122.14

Internal Funds for Investment 46.80 41.92 68.30 40.24 78.70 115.01 95.96 151.65 228.83

Capital Toveatment

Proposed IBRD projeet -0.00 -0.00 -62.32 -284.38 -301.03 -310.22 -0.00 -0.00 -0.00Other Works -31.68 -182.77 -60.81 -16.42 -5.29 -5.42 -142.61 -115.78 -112.97Interest during construction -0.00 -14.43 -33.31 -10.38 -22.68 -42.50 -0.00 -0.00 -0.00

Total Capital Investment -31.68 -197.20 -136.44 -311.18 -329.00 -358.14 -142.61 -115.78 -112.97

Balance to be Financed 15.12 -155.28 -88.14 -270.94 -250.30 -243.13 -46.65 35.87 109.86

Financed By

Proposed Bank Loan -0.00 -0.00 34.55 177.28 182.98 185.20 -0.00 -0.00 -0.00Socea Loan -O.00 169.91 52.64 11.28 -0.00 -0.00 -0.00 -0.00 -0.00Other Loans -0.00 8.00 3.17 -0.00 -0.00 -0.00 -0.00 -0.00 -0.00Total Borrowings 0.00 177.91 90.36 188.56 182.98 185.20 0.00 0.00 0.00Consejo De Daule -0.00 -0.00 2.00 1.75 1.75 1.75 1.75 1.75 1.75Consejo Guayas (Daute) -O.OO -0.00 0.70 0.70 0.70 0.70 0.70 0.70 0.70Consejo De Guayas (Sta Elena) -0.00 -0.00 6.86 13.71 13.71 13.71 9.00 9.00 9.00Central Goverssent -0.00 -0.00 5.00 44.00 44.00 44.00 25.00 25.00 -0.00Total Government Grants 0.00 0.00 14.56 60.17 60.17 60.17 36.45 36.45 11.45

Total Funding o.oo 177.91 104.92 248.73 243.15 245.35 36.45 36.45 11.45

Cash Increase for Year 15.12 22.63 16.78 -22.21 -7.15 2.22 -10.20 73.32 121.31_ _== -

Cash at end of Year 25.84 48.47 65.25 43.04 35.89 38.11 27.91 100.23 221.54

Gross Fixed Assets 552.47 581.86 593.70 984.62 1,218.81 1,617.15 1,935.36 2,076.41 2,134.46

Internal Cash Ratio 8.47 7.20 11.50 4.09 6.46 7.11 5.35 7.67 10.84

April 1, 1974

E C U A D O R

WA7ER SUPPLY PROJECT FOR GUAYAQUIL ANET GUAYAS PPOMINCE

EWEIU?RA MUITNICIPAL DE AUCA POTA3LE DE OUAYAjQTIL

3AI'ACE STATE3tENT

- -- - Realized - - - - - - - - - - - - - - - - - - - - Forecast - - - - - - - - - - - - - - - - -

1971 1972 1973 1974 1975 1976 1977 1978 1979 1980

-- - - - - - - - - - _ _ _ _ _ _ _ _,-S./million --- - - - - - - - -

iixet Assets

Cross Assets (Book Value) 541.00 552.47 582.40 606.51 981.07 1,216.35 1,623.71 1,941.92 2,082.47 2,140.52Total Depreciation (Book) -73.93 -98.32 -123.63 -150.20 -185.76 -234.92 -298.18 -377.43 -466.92 -560.84Total Net Assets (Book Value) 467.07 454.15 458.78 456.31 795.31 981.43 1,325.53 1,564.49 1,615.55 1,573.68Revalued Fixed Assets 693.32 756.27 846.88 931.42 1,321.46 1,589.58 2,044.39 2,460.89 2,840.90 3,064.85fetal Depreciation -126.07 -150.01 -186.06 -223.37 -277.26 -341.08 -426.29 -521.71 -643.69 -778.34Net Assets 567.45 606.26 660.82 708.05 1,044.18 1,248.50 1,618.10 1,939.18 2,197.21 2,286.51To,tal Work in Progress 39.45 57.53 224.80 357.13 293.75 387.47 338.25 162.65 137.38 192.30Total Fixed Assets 606.90 663.79 885.62 065.18 1,337.83 1,635.97 1.956.35 2,101.83 2.334.59 2,478.81Cash 10.72 25.84 48.47 65.25 43.04 35.89 38.11 27.91 100.22 221.53Other Currene Assets _60.80 59.10 59.43 62.96 67.27 87.05 104.71 121.04 129.68 131.90iotal Current Assets 71.52 84.94 107.90 128.21 110.31 122.94 142.82 148.95 229.90 353.43Total Assets 678.42 748.73 993.51 1,193.39 1,448.24 1,758.91 2,099.17 2,250.78 2,564.49 2,832.24

couitv and Liabilities ==…

Capital 331.28 331.28 331.28 331.28 331.28 331.28 331.28 331.28 331.28 331.28Retained Earnings 33.88 94.10 153.18 233.99 292.22 401.90 532.94 647.27 800.25 1,003.98Revalued Surplus 100.38 152.11 202.04 251.76 248.90 267.08 292.60 374.71 581.67 706.85Government Grants 0.00 0.00 0.00 14.56 74.73 134.90 195.07 231.52 267.97 279.42Total Equity 465.54 577.49 686.50 831.59 947.13 1,135.16 1,351.89 1 7 .1.17 2,321,53IBRD Loau 0.00 0.00 0.00 34.55 211.83 394.81 580.01 567.45 553.98 539.53Other Loans 174.93 143.28 279.91 300.82 266.97 208.51 147.69 82.11 11.79 -49.72Current Part of Loans -31.65 -41.28 -34.90 -45.13 -58.46 -60.81 -78.14 83.80 75.95 -36.00Total Borrowrings 143.28 102.00 245.01 290.24 420.34 542.51 649.56 565.76 489.82 453.81Current Liabilities 69.60 69.24 62.00 71.56 80.77 81.24 197.72 100.24 93.50 56.90Equity and Liabilities 678.42 748.73 993.51 1,193.39 1,448.24 1,758.91 2,099.17 2,250.78 2,564.49 2,832.24

Debt Ratio 0.31 0.18 0.36 0.34 0.40 0.41 0.40 0.29 0.20 0.16Acid Ratio 0.21 0.37 0.78 1.09 0.62 0.47 0.46 0.45 1.30 4.48Current Ratio 1.00 1.23 1.74 1.97 1.45 1.54 1.55 1.62 2.63 6.78

April L, 1974

ANNEX 11

ECUADOR

EKPRESA MUNICIPAL DE AGUA POTABLE DE GUAYAQUIL

EXISTING TARIFF

Residential CategoryMonthly Additional

Consumption for each m3(m3) Basic in excess

Up to 20 m3 SI. 28.00From 20 to 30 m3 28.00 S/. 1.60" 30 " 50 44.00 1.80" 50 " 70 80.00 2.00It 70 100 120.00 2.20

100 " 200 186.00 2.40n 200 tt 300 426.00 2.60

" 300 and over 686.00 2.80

Commercial Category

Up to 20 m3 SV. 40.00From 20 to 30 m3 400.0 SI. 2.20

It 30 T" 50 62.00 2.40

" 50 " 70 110.00 2.60

It 70 " 100 162.00 2.80i 100 n 200 246.00 3.00

i 200 " 300 546.00 3.20

i 300 400 866.00 3.4o

4 400 I 500 1,206.00 3.60

" 500 "]PO0 1,566.00 3.80

T 1,000 and over 3,466o00 4.00

Industrial Category

Up to 20 m3 S/. 60.00

From 20 to 30 m3 60.00 S/. 3.20

" 3°"0 50 92.00 3.40

"I 50 I 70 160.00 3.60

II 50 " 100 232.00 3.80

"I 100 " 200 346.00 4.00

"I 200 " 300 746.00 4.20

"I 300 4 400 1,166.00 4. 40" h400 500 1,606.00 4.6011 500 n 1,000 2,066.00 4.80

T 1,000 T 2,000 4,466.O0 5.00" 2,000 " 5,000 9,466000 5.20TI 5,000 tt 10,000 25,066.00 50ho

" 10,000 and over 52,066.00 5.60

March 8, 1974

ECUADOR

WATER SUPPLY PROJECT FOR GUAYAQUIL AND GWAYAS PROVINCE

EMPRESA MUNICIPAL DE AGUA POTABLE DE GUAYAQUILJ

EMAPIS ASSET REVALUATION AND DEPRECIATION

1. Revaluation Index

The assets should be revalued in order to compensate forinflation and to obtain a true rate of return.

Devaluation cannot be used in Ecuador as an index becauseit does not reflect the true increase in cost. Furthermore, in thepast, devaluation was calculated at intervals of 5-6 years.

The "Index of Consumer Price", calculated by the GuayaquilUniversity with a base of 100 in 1951, would be a better index moreclosely related to local inflation. Nevertheless, even the "ConsumerIndex" does not accurately measure the price increase for civil engi-neering works or for materials and equipment which are imported.The "machinery prices" index would be better (multiplied by the ex-change rate from dollars to sucres) to revalue imported items suchas the distribution main pipes, treatment plant equipment, machines,tools and vehicles. The "cost of living" index could be used forland, buildings, furniture, small distribution pipes, etc.

However, to simplify appraisal, only the index of "cost ofliving" in Guayaquil is used for all assets. Using several linearand non-linear regressions by computer for the cost of living data,it was found that the inflation in Guayaquil is as follows:

Average Cost ofPeriod Living Growth (%)

1967 to July 1973 7.3

Jan. 1970 to July 1973 9.6

Similar increases can be expected in the forthcoming years.The yearly increase used in the projections is 9.6%. Data used forthe period 1973 to 1980 are based on projections of works to be executed

during the period and are shown in Tables 1 and 2. Depreciation andnet assets are shown in Table 3.

2. Asset Classification and Depreciation

The life of the assets has been estimated as shown below.

Estimated Income Used InBy SNJRECA Tax Law Projections

Buildings and Plants 30 20 20

Mains 50 _ 50

Machinery 15 10 10

Furniture 8 - 8

Vehicles 5 5 5

D(AP does not include in its assets the value of assets donatedby urbanizations or paid by users (meters and installations). Theseassets are shown in the projections as "donations". They are depreciated,but not included in the rate base.

TABLE 1

ASSETS ADDED DURING 1973-1980: IBRD PROJECT

Assets 1975 1976 1977 1978 Total

Land - US$ - 5° 25 25 100

Total in Sucres with Contingencies,Administration and Engineering (36.8) _ 1.771 886 886 3,543

TRANSMISSION AND DISTRIBUTION MAINS

Raw Water Main Interconnections 22 22 - - 44

Transmission Main - - 4,000 2,250 6,250

Network Improvement 350 300 300 300 1,250

Network Expansion 600 60o 600 700 2,500

Daule - 870 - 870

Santa Elena _ 4,800 4,850 5,000 14,650

Total in US Dollars 92 10.620 8,250 25.564

Total in Sucres with Contingencies,Administration and Engineering 34,435 202,714 376,236 292,274 905,659

PRODUCTION EQUIPMENT C t4

Plant Improvement - 296 - 296 0

Meters 280 400 400 - 1,080

Total in US Dollars 280 696 400 - 1,376

Total in Sucres with Contingencies,Administration and Engineering 9,919 24,657 14,170 - 48,747

Total IBRD Project (Sucres) 44,354 229,142 391L292 293,160 957.949

March 8, 1974

TABLE 2

ASSETS ADDED DURING 1974-1980 (Thousands of Sucres): NO IBRD PROJECT

Assets 1974 1975 1976 1977 1978 1979 1980

Land 700 - - - - 15,000 -

Buildings 250 - - - - 1,000 -

Distribution Network 2,000 265,895 - - - 100,000 51,000

Production Equipment - 75,621 - - 20,000 20,000 -

Machines 1,166 - - 2,000 - - 2,000

Furniture 1,975 300 300 300 300 300 300

Vehicles 756 750 750 750 750 750 750

Donations 5,000 4,000 4,000 4,000 4,000 4,000 4,000

Subtotal 11,841 346,566 5,050 7.00 25,050 141,050 58,050

Total Assets Added 11,841 390,920 234,192 398,342 318,210 141,050 58,o50

Government Donations - 34,555 66,165 66,165 66,165 36,450 97,479

March 8, 1974

Table 3

COMPUTER RESULTS ON REVALUATION AND DEPRECIATION OF FIXED ASSETS

(Millions of Sucres)

YEAR ADDITION OF ASSETS DONATIONS COST OF TOTAL REVALUED DEPRECIATION AVERAGE ACCUMULATED NET AVERAGE(WITH DONATIONS) AND LIVING ASSETS OF DEPRECIATION DEPRECIATION REVALUED NET ASSETS

CONTRIBUTIONS INDEX 1/ WITHOUT DONATIONS PERIOD RATE % WITIH DONATIONS M/ ASSETS FOR YEAR

1964 25.28 25.28 86.50 V 223.85 6.26 2.80 37.27 186.58 -

1965 10.15 4.295 91.70 243.16 7.35 3.02 46.28 196.87 192

1966 4.14 0.69 94.70 254.56 7.56 2.97 54.41 200.15 201

1967 1.7 1.26 100.00 269.25 8.28 3.07 64.91 204.34 202

1968 1.89 1.54 102.10 275.26 8.30 3.02 73.50 201.75 203

1969 0°3 0.11 106.90 288.40 8,99 3.12 84.98 203.41 203

1970 326.07 8.06 112.90 622.58 11.17 1.79 99.21 523.37 363

1971 21.27 11.54 124.00 693.52 18.54 2.67 126.07 567-44 545

1972 27.52 16.22 133.20 756.27 18.52 2.45 150.01 602.26 587

1973 35.93 6.0o 146.00 / 846.88 24.45 2.89 186.06 660.82 634

1974 10.84 4.00 159.87 934.17 25.92 2.78 223.37 710.80 686

1975 375.77 38.56 175.06 1,325.57 37.45 2.83 277.26 1,048.31 880

1976 277.44 70.17 191.69 1,592.60 47.26 2.97 341.08 1,251.52 1,149

1977 430.86 70.17 209.90 2,038.42 61.46 3.00 426.29 1,612.13 1,432

1978 359.17 70.17 229.84 2,454.9 70.80 2.88 521.71 1,933.19 1,77[

1979 224.2 40,45 251.67 2,835.42 86.11 3.03 643.69 2,191.73 2,062

1980 153.53 101.48 275,58 3,059.35 92.27 3.02 778.34 2,281.G1 2,236

Index of consumer prices, University of Guayaquil, 1972. 0

j The revaluation index from 1959 to 1964 is 1.102.

_/ Estimated for 1973 an increase of 9.7% and 9.5% there on.

Calculated over the revalued gross assets. During 1970 the large addition of asse's at the end of the year variesthe calculated average rate.

March 8, 1974

ECUADOR

EMPRESA MIThICIPAL DE AGUA POTABLE DE GUAYAQUIL

URBAN STUDIES

1. In October 1973, the UNDP approved a technical assistancegrant of US$500,000 for a study of "TUrban Development of Guayaquil".The terms of reference for the study will be formulated by a preparatorytechnical assistance team to be sent down by the MN Center for Housing,

Building and Planning (UNCHBP) within the next few months. An addi-tional amount of US$90,000 has been approved for this preparatoryassistance. The UNCHBP has encountered difficulty in finding suitablepersons for the preparatory assistance which will involve an urbanplanner, a physical planner and an urban sociologist.

2. The objectives and approach of the UNDP study are stated

in the basic document submitted by Government (the Junta Nacionalde Planificacion's Urban and Regional Department based in Quito)

to the UNDP. The objectives of the UNDP study are in the long-term:

(i) to plan the development of Guayaquil and its area ofinfluence;

(ii) raise the administrative capacity cC the Guayaquilmunicipality;

(iii) fulfill the objectives of the urban sector plan of

the national plan in terms of the structure andfunctions of the Guayaquil urban subsystem.

In the short run the purpose of the study is:

(i) to prepare a development plan for Guayaquil and its

area. of influence;

(ii) to prepare a program of action to tackle the social,economic and physical problems of Guayaquil and preparea package of projects consistent with the development plan.

3. The document lists specific studies to be undertaken overthe 2h-month study duration, but suffers from the attempt to be toocomprehensive. It lacks a specific project focus and provides forlittle economic/fiscal resource analyses. Most "urban master plans"completed in cities around the world have tried to be too comprehensive,resulting in volumes of reports which have seldom gone beyond the pointof generality to the detailed project level. The other major weaknessof the proposed UNDP study is theinstitutional vacuum in which it isconceived. The Municipality's Urban Planning Department (Departa-mento de Planeamiento Urbano) is designated by the agency responsiblefor executing the Project. However, this department appears to havelost the confidence of the Mayor, in addition to the difficulties italways had in planning and coordinating the investment programs oflocal public agencies such as EMAP. and EMAG.

4. The Governor of Guayas Province and the Mayor have contractedthe international consulting firm, AITEC, to carry out detailed studiesof housing/community development problems in the suburbios. Thesestudies are still in their early stage, but should provide useful inputsto the UNDF study. A consultant who participated in the BarLk appraisalmission prepared a detailed report on the urban problems of Guayaquilwith special reference to the UNDP study. The Bank has expressed specialinterest in the UNDP study and will discuss the guidelines outlinedin paras. 5-7 of this annex as well as the consultant's report withUNDP, with the purpose of including them as part of the terms ofreference for the study.

5. In order to ensure a significant impact, the planning studyshould have very specific objectives. One way to achieve a specificand practical orientation of the study would be to center it (throughspecific projects) around the solution of a selected number of urbanproblems identified as the most serious bottlenecks for the develop-ment of the city such as:

(i) The generation of emplovment. In 1971, Guayaquil had anunemployment rate of 9.6 percent, the highest in the country.

(ii) The identification of future probable locations for theextension of urban development.

(iii) Urban reform legislation. Various initiatives have beentaken in Ecuador toward the development of new land tenurepolicies. They have not been very successful, however.

(iv) Intra-city transportation. Urban transport has been aneglected area in Guayaquil up to the present time.

(v) TJrban planning and implementation institutions. Currenturban policy activities in Guayaquil suggest special needfor a strong institution to undertake urban planning andpreside over its implementation.

(vi) Financing of urban projects for Guayaguil. In the past,uncertain financing has often hampered the developmentof urban projects.

Topics for Study

A. Demography

(i) Examine past and projected population growth;

(ii) Project population by income level.

B. Income and Employment Changes

(i) Consider economic growth trends in Ecuador in terms ofits probable impact on Guayaquil (including the petroleumindustry);

(ii) Examine past and projected economic growth in Guayaquil,new impulses, and its sensitivity to obstacles andattractions;

(iii) Consider the income distribution pattern likely to resultfrom projected changes in the income levels of the popu-lation. Compare this with projected population change inthe corresponding income levels;

(iv) Determine real income levels and family expenditure patternin the suburbio and other low-income areas with the purposeof establishing capacity to pay for extension of publicservices, such as water, electricity, roads, landfill, etc.;

(v) Examine the type of industries and commercial activitieswhich should be developed to stimulate employment and growthand their possible locations; and

(vi) Devise program of employment development.

ANNEX1Page 4 of 6 Pages

C. Landholding Capacity and Development Costs

(i) Consider availability and development costs of land withinthe reach of urbanization in Guayaquil, including the costsand benefits of upgrading existing squatter areas;

(ii) Consider the suitability of the above-mentioned land withrespect to access to employment and services (by incomelevel);

(iii) Consider land to be needed for urbanization in view ofpopulation growth;

(iv) Devise a sequence of preferred land acquisition. Publishresults to persuade developers. Prepare regulations andprepare institutions to implement the regulations.

D. Low-Income Housing Studies

(i) Prepare (or collect previous) surveys of substandard housingconditions;

(ii) Consider per unit costs of housing improvements (e.g.in the suburbios) and house-building programs. Compareprogram costs by technique and locality;

(iii) Devise a program of housing construction and improvementfor the city with special emphasis on the low-incomepopulation.

E. Tenure Surveys - Since much urban land in Guayaquil, especiallyoccupied by low-income dwellings, is in uncertain tenure status, itis important to complete studies of this kind as a prelude to under-standing the canEequences of particular urban reform measures, anddetermine who is benefitting from land value increases resulting frompublic investments.

F. Urban Reform Studies - Investigate legislative options whichhave been proposed for urban reform in Ecuador and relate them toparticular consequences for the welfare of families in Guayaquil.

G. Urban Transportation

(i) Determine the implications for travel demand of optionstaken in land occupancy;

(ii) Plan the removal of certain key bottlenecks in thetransportation network (such as the high tolls for thebridge to Duran);

ANNEX 13Page5 of 6 Pages

(iii) Study the mass transit industry in terms of solvency,access to equipment loans, efficiency of routing andscheduling, etc.;

F. The Costs of Utility Extensions

(i) Find standard costs of utility and urban service extensionsas functions of local fixed-cost thresholds, urban densities,geological conditions, etc.;

(ii) Describe extension costs by zone of the metropolitanarea;

(iii) Devise programs for utility extensions.

I. Project Finance Studies - Consider sources of financingfbrparticular kinds of urban projects in order to determine theirfeasibility, in particular, an examination of the resources of theMunicipalidad and related entities (EMAP, EMAG, etc.), consideringmeans to improve the collection of local taxes and utility charges.Also, the possibility of introducing betterment levies for specificprojects. These studies should be undertaken early in the planningprocess.

J. The Institutionalization of Planning - A special effort should bemade by the UNDP study to provide on-the-job training to young counter-part planners in Guayaquil in order to insure a cadre of professionals-who will continue the work after the termination of the Project. Inaddition to this, care should be given to the structuring of a plan-ning office, which would encompass the specific high priority problemsof the city and maintain all the necessary personnel components forproblem analysis and plan formation in the years to come.

The Study Process

At the beginning of the UNDP study, there should be aprecise agreement between the sponsor and the Government of Guayaquilas to which specific problems will be treated and what counterparta,ency and personnel will be assigned to the study. While a variationof objectives during the course of study may be the outcome of morethoughtful intention to problem priorities, it is not desirable thatall elements of concern of the government be treated. For purposesof budgeting and accounting the allocation of man-m3nths, time shouldspecifically be assigned to particular solution topics.

MAEN 13Page 6 of 6 Pages

Staffing of the Study

7. The existing terms of reference call for twelve man-yearsin three years, approxu,imately four permanent persons for three years.Proper execution of all the relevant assignments will reouire specialistsfrom tine to time whose identity will become clarified as a completestudy program is developed. The basic skills required, however, wouldbe the following:

(i) a specialist in project evaluation (economist or engineer);

(ii) a land-use planner;

(iii) a specialist in public administration;

(iv) a specialist in the analysis of urban services.

Specialists recuired for shorter-term assignmentsto thePro1ect would include:

(i) a housing specialist;(ii) a lawyer specializing in problems of tenure and urban

reform; and

(iii) a specialist in urban transportation.

ECUADORWATER SUPPLY PROJECT FOR GUAYAQUIL AND

GUAYAS PROVINCEEMPRESA MUNICIPAL DE AGUA POTABLE

DE GUAYAQUILORGANIZATION CHART

ADMINISTRATIVE TECHNICAL ODERATIONS El~~~~~~~~~~~~~D-1AT.

ADFARRDENT SDPARTSEESCS DAPGRTMDNr DEPAMSMEENT~~~~~~~~~~~~~

PERAGELGEERL LAMSAN PANIN AD TUIR AD SNTDDTCP DNTRUTIN ROUCIO WTE AATL EWRAE DMAEDIPOALEATEN SEAADRADOUTIA ILIE.ACLEO.U

ISTAMArIN PSSSAUING SSIG AIVSION SUPEVISIN DIISIO DICDIONEATIM DIINIO DIVSIONDIVIION ND PISTOOIN

... ERAL -AlCDTBAAICIETIMSA CNUMR

YSOSEPAOTADIAL SEWERS TTR-EOT...MRNTDOUVAIOL D0 PLANING TOROOUFOY ODXBADMIMSTRATYN DMS DLNS AN N--TEN-T lA

TRAIINGAND

-1. A.. .- RU-I -T I I D" "LOLTA MSDD OLLTTID-CEREACALE-ETE

DRAWING OND WOODS BY CAUSE CCM- ~~~1:INTERCEP.TORS- SEIAENPRGAUNCDYSABSCCNIGRAIG

FEASIBILIOT DINHR MOODS TREATBENT j~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.CCILD EAW OINBSNESAA ATSRPT DMMSRTISPASSSIM _USA NALS ECE IL

OAAFTCMLMAERDSINAN WRS TTOEAET EERMINEN SUE..NET..FSM INSTCE-AUDCOLCTO

ECUADOR

WATER SUPPLY PROJECT FOR GUAYAQUIL & GUAYAS PROVINCE

POPULATION GROWTH & POPULATION SERVED

GUAYAQUIL, DAULE, STA. ELENA PENINSULA & RURAL AREA

-TOTAL POPULATION

1500 ________-_ KL~~~~0

_-0 POPULATION OF

_0 _ ~ _ _ ~ _ _GUAY QUIL

1000_ ; 4

I .- \

to ..- TOTAL POPULATION SERVEDZ . WITH WATER SUPPLY

. ..5.

STA ELENA & RURAL POPULATION

_______~~~~~~~ -____ ,___ -____ ,____ -___ - -- - --- - --

100 = I

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980

World Bank-8496(R)

ECUADOR

WATER SUPPLY PROJECT FOR GUAYAQUIL & GUAYAS PROVINCE

WATER DEMAND FROM GUAYAQUIL-DAULE &

THE SANTA ELENA PENINSULA

WATER SUPPLY

TO SANTA ELENA

WATER TREATMENT PENINSULA IS

PLANT IMPROVEMENTS STARTED.

AND RAW WATER PUMP-

ING CAPACITY INCREASE.LA TOMA TREATMENT PLANT CAPACITY

ALL HOUSE _

< CONNECTIONSMETERE D

HYDROIMETRIC STUDIES 450

2J LOSSES DETECTED AND

E DISTRIBUTION SYSTEM g

2 REPAIR STARTED

20U - 1 -- ~~~~~~~~~~~~~~~~~fL 5

,_,~~~~~~~~'~~~E _- INRES

- - .. ~~~~~~~~~~~~~~~~~~~~~~p2- .' ~~~~~~~~~~~~~~~~~~250 Z)

-~~~~~~~~~ ~~~~0

ISIS TARIPP

INCREASE

DEC. 1970 1971 1972 1973 1974 1975 l976 1977 1 78 1979 DEC. 1E80

World Eank-84951R)

ECUADORWATER SUPPLY PROJECT FOR GUAYAQUIL AND GUAYAS PROVINCE

EMPRESA MUNICIPAL DE AGUA POTABLE DE GUAYAQUILACTIVITY SCHEDULE

1974 1975 1976 1977

ITEM QUARTER QUARTER QUARTER QUARTER

1 2 1 3 1 4_ 1 2 3 4 1 -- 2 3 4 1 2

Concurrently

1.- RAW WATER FORCE MAINS AND LA TOMA Co-crrerrt"lyTREATMENT PLANT IMPROVEMENTS

2 - 72" DIAMETER TRANSMISSION MAIN m em3. 1 m mmml,,.

sologl1 "||| llll Y.||| ..... || .... ....... lll sa llll|l ellelll litiolis fllalll 1111121 1611.191 6111.113.- DISTRIBUTION NETWORK IMPROVEMENT Concurrently

AND EXPANSION

....... E.m m m( .m I, ..,...... 1 ,mmmm D ...... mm,..., m,,, *mmI

4.- WATER SUPPLY SERVICE FOR DAULE _

m- 6 I -1 I

S-WATER SUPPY SYSTEM FOR THE lmgmm,m, E m mem Is m,mmmm,mm,l lmmmmm lmglmmmm OD m m

SANTA ELENA PENINSULA _o-l_ - | C -_

Concurrently] ~ 7_

E.- WATER METERS INSTALLATION INTHE SUBURBIO - - m - -

7.- MASTER PLAN YEAR 2000 AND m m mm m mm m mmimm mm m lm mFEASIBILITY STUDY TO 1985 Tt

111111 EQUIPMENT SUPPY ENGINEERING

CIVIL WORKS,INSTALLATION BID

_MM _M STUDIES DELIVERY

(i) CONSTRUCTION World B-nk-86301RI

to Canto LOLITA WATER TREATMENT PLANT P O ECT FOR 2

Yg-hDAREASERVEDL A PR id WORKS

DAULE r2'tD 7- -17-4

IR -722 transmissionmain improvementsorst 1ANTA G U A 'Y 4 A, network*S,ra, -Wae UtO ELENA A" SIAR

-UA rtonsmissnn me 0 t Reservo rsG- Kcn >1i

Lb ~~~~~~~~~~ECUADOR

WATER SUPPLY PROJECT FOR GUAYAQUILAND GUAYAS PROVINCE

Empresa de Agua Potable de GuayaquilPROPOSED PROJECT WORKS

{ t 1 W ~~~~~~~~~ i Dl~ense,blnn imrvmnets,ork isalto fdrtbto ewr

MILES~~ ~ ~ ~ ~ ~ ~~~~~~~~~ ~ ~ ~~~~~~~~~~~~ J = zt -f'.,, ets k

'kA TOMVA" eeorP. Pumping stations

WATER WORKS IN CONSTRUCTION OR UNDER CONTRACT (1972-1975)

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Appraisal of the - World Bank Documents

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