World Bank Documentdocuments.worldbank.org/curated/en/757961468170365942/pdf/multi-page.pdf · document of the world bank for official use only 64a /d-/ - a", report no. 6995-ydr

Document of

The World Bank

FOR OFFICIAL USE ONLY

64A /d-/ - A",Report No. 6995-YDR

STAFF APPRAISAL REPORT

PEOPLE'S DEMOCRATIC REPUBLIC OF YEMEN

AL MUKALLA WATER SUPPLY PROJECT

June 22, 1988

Infrastructure Operations DivisionCountry Department IIIEurope, Middle East and North Africa Regional Office

This document bas a restricted distribution and may be used by recipients only In the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorikatlon.

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CURRENCY EQUiVALENTS

(As of May, 198e)

Currency Unit - Yemeni Dinar (YD) = 1,000 FilsYD 1.0 U US$2.9US$1.0 YD 0.345YD 1,000,000 - US$2,9009000SDR 1.0' US$1.379

ABBREVIATIOiS

km - kilometer m * meterkma * square kilometer m * millimeter1/c/d = litres per.capita per day m3 cubic meters1/8 * litres per second Mm3 - million cubic metersUS.cm = micro Siemens per centimeter mg/l a milligrams per litre

MEASURS AlND EQUIVALENTS

Kilometer (km) 5 0.62 mile (mi)Nectare (ha) - 2.47 acres (a)Meter (m) - 3.28 feet (ft)Cubic meter m 3) 220 imperial gallons (ig)Cubic meter (mi) - 264 US gallons (g)Million cubic meters/year (Mm3 /year) 5 0.72 million US gallons per day

(mgd)Litre (1) * 0.220 imperial gallons (ig)Litre (1) - 0.264 US gallons (g)Litres per second (1/a) = 22,800 gallons per day (gd)Kilogram/cma 0.981 Bar

GLOSARY OF ACRONYNS

DLG - Directorate of Local-GovernmentFAO Food and Agriculture OrganizationAMAA Mini-try of Agriculture and Agrarian Reform

PDRY 8 People's Democratic Republic of YemenPVC Public Water CorporationSDR = Special Drawing Rights

FISCAL YEAR

January 1 - December 31

FOR OMLLtAL USE ONLY



STAFF APPRIAIAL REPORT

Table of Contents

Pag,e No.

CREDIT AIND PROJECT SUMMARY ........................ i - ii

L THE WATER SUPPLY AND SEWERAGE SECTOR

Country Background ................................... . 1Water Resources ....................... 1Sector Development ............. 2

Sector Organizatinn ................., 3Service Lvl ......................... 4Cost Recovery ............... * 4Previous IDA Involvement in the Sector .................. 5Rationale for IDA Involvement ........................... 5

IL PROJECT AREA. SECTOR SERVICES AND DEMAND

Background ............ .0 .. ............................ 40.0. 6Project Ae ......................... 6Existing Facilities ............................ 6Present Population and Water Consumption ................ 7Projected Population and Consumption ..... 8

MII. THE PROJECT

Project Origin ................................................ 8

Project Objectives................ ...................... 9Project Description.............................. ....... 9Status of Preparation .................... ............... 10Project Cost ........................ 10

Project Financing Plan and Financing Arrangements ....... 12Onlending Arrangements ........................ 13

Project Implementation. ... ......... ......... ... .. .O 13

Procurement ............................................. 14Disbursement ..................... ........ 15Land Requirements ............................... ........ 16

n. THE BENEFICIARY

Background$ a $ ***a0 0. O............ * 16Organization and Management... ..... ................... .. 16Staff .................................... ........ ...... 17Staff Triig......,18

This document has a restictd distibution nd may bo used by recipients only in the perfomeof their oflicial duties. Its contents may not otherwise be disclosed without World Bank authoization.

Table of Contents (Continued) Page No.

Operating Efficiency Improvement...o.................... 18Billing and ............................................ 19Accounting Practices and Procedures...................... .. 19A..it.... .......... ........ ........ ............. ......... 19Insurance ........................................ 20Taxes .................................................... 20

V. FINANCIAL ANALYSIS

Past Performance and Present Positir ................... 20Tariffs ...... ..................... 21PWC's Financing Plan ....................... .. ........... 22Future Financial Performance................. ........ 23Monitoring System .......... .. 24

VI PROJECT BENEFlTS AND IMPACTS

Project Benefits .. ................ . 24Environmeutal Impact ...... o .......... .................. -25Iand Requirements and Resettlement..................... 25Affordability .......... e .. . .... .............. 25Least Cost Solution ............ .. ........... 26Adequacy of Tariffs .................... ................. 26Poverty Impact.. .. .......... 26Economic Rate of Return (ERR). E R R).................... 26

oisks ~~~~~~~~~~~~~26

VIL REEMENT REACHED AND RECOMNENDATIONS._....... 27

NNES

1. Water Supply Sector Investment Program2. Historical/Projected Population, Water Consumption,

Production and Related Indicators3. Production and Sales Versus Capacity of Sources4. Detailed Cost Estimate5. Implementation Schedule6. Procurement Packages7. Credit Disbursement Schedule8. Annual Project Cost by Component Including Contingencies9. PWC - Organization Chart - 198710. PVC - Consolidated Income Statements11. PVC r Sources and Applications of Funds12. PVC - Consolidated Balance Sheets13. Assumptions for Financial Projections14. PWC's Production, Consumption and Connections by Branches15. Public Water Corporation Tariff Structure16. Monitoring Indicators for PWC17. Selected Documents and Data Available in the

Project File

MAP No. E3RD 19947


AL MUKALLA WA MER SUPPLY PROJECT

Credit & Priest Su r

Borrower: The People's Democratic Republic of Yemen (PDRY)

Beneficiary: Public W8cer Corporation (PWC)

Creit Amount: SDR's 8.7 million (US$12.0 million equivalent)

Terms: Standard IDA terms with a 40-year maturity

Re1egd4ng Terms: Twenty-five years including a five-year period of graceat an interest rate of 8% per annum

Project Desription: The objectives of the proposed project are to v2etfuture water demands in Al Mukalla, the second largestcity of the Peoples Democratic Republic of Yemen, up tothe year §.00O and to strengthen the capacity of thePublic Water Corporation to operate and maintain thewater supply system. The project will include (i) theconstruction of a new borefield at An Naga'ah; (ii) a50 km transmission pipeline to the town; (iil)re-equipping and upgrading of the existing Wadi Buwayshborefield; (iv) improvement of about 20 km of the waterdistribution system; (v) the supply of water meters andoperational and office equipment; (vi) construction andrehabilitation of distribution reservoirs; and (vii)technical assistance to PWC for constructionsupervision, detection and control of water losses,system analysis and operation, selection anddevelopment of a computerized accounting system,analysis of PWC's training needs and development of atraining program, and a study to improve PWC's overallfinancial performance.

Benef'its and Risks: The project would provide a safe and uninterruptedwater supply service to all of the inhabitants of AlMukalla, estimated to reach 10G,000 people by 1996,including about 28,000 poor people. It will provide anecessary pre-requisite for improving public health byproviding sufficient water for personal cleanliness andhygiene, and improve the living conditions of women whobear most of the responsibility for these aspects offamily well-being. The project will create conditionswhereby the town c&n more rapidly develop as a certreof economic activity in the region, and reduce the2 highoperating costs of the present system. There are nospecial risks associated with execution of the project.

- (ii) -

Estimated Project Costs Local Foreign Total… - - - - (US$ million) - - - -

An Naga'ah Borefield 0.37 4.61 4.98Pipeline to Al Mukalla 1.25 14.00 15.25Wadi Buwaysh Borefield Upgrading 0.17 1.78 1.95Improvements to Distribution System 0.67 2.90 3.57Additional Storage Reservoirs 0.12 1.15 1.27Training and Technical Assistance 0.09 0.96 1.05Supply of Operational Equipment 0.03 0.44 0.47Construction Supervision 0.03 1.33 1.36

Total Base Cost (January 1988 Prices) 2.73 27.17 29.90

Physical Contingencies 0.27 2.59 2.86Price Contingencies 0.30 1.64 1.94

Total Project Costs

Financina Plan:Local Foreign Total- - (USs million) - - --

PWC 3.3 - 3.3

Arab Fund for Economic and Social Dev. - 9.7 9.7

Kuwait Fund for Arab Economic Dev. - 9.7 9.7

IDA 12.0 12.0

Total Financing 3.J hIA

Estimated IDA Disbursements

IDA Fiscal Year

1989-' 1990 1991 1992 1993 1994 1995 1996----------- (Us million) --------

Annual 0.83 1.54 2.41 2.41 1.96 1.43 1.01 0.41Cumulative 0.83 2.37 4.78 7.19 9.15 10.58 11.59 12.00

Economic Rate of Return: 6.5% using current tariffs as a proxy forbenefits.

MAP IBRD No. 19947

1/ Includes an initial deposit of US$0.52 million to a Special Account.

PEOPLE'S DEMOCRATIC REPUBUC OF YEMEN


STAFF APPRAISAL REPORT

L THE WATER SUPPLY AND SEWERAGE SECTOR

CountyB

1.01 The People's Democratic Republic of Yemen (PDRY) is located in thewestern corner of the Arabian Peninsula. It occupies an area of 333,000 km2

and extends nearly 1,400 km along the Gulf of Aden. It is a semi-arid land ofrugged configuration, with sparse vegetation and few natural resources. Themajority of the population lives in the narrow coastal plain. Further inlandto the north, the country becomes very mountainous, with ground elevationsexceeding 2,000 meters. Beyond the mountains, the land flattens again to formthe high plateaux and the Northern Desert, which extend into the Yemen ArabRepublic and Saudi Arabia.

1.02 Overall, the climate of PDRY is harsh and dry, though it is milder inthe interior plateaux. In general, temperatures in the coastal areas are moreuniform and humid throughout the year than in the interior. The hottestmonths are May through September; temperatures higher than 430C have beenrecorded in June. Rainfall in the coastal areas is irregular but morefrequent during the winter months; the mean annual rainfall in the coastalplain is about 50 mm. In the mountains, it is more regular and occurs in -thesummer months with an average annual rainfall of about 500 mm. The rate ofevaporation is high and runoff is limited.

1.03 Administratively, PDRY is divided into six Governorates. EachGovernorate is administered by a Governor arad a Local People's Council.One-third of the estimated total population of 2.2 million (mid-1986) can beconsidered urban. Almost half of the urban population or 0.33 million isconcentrated in Greater Aden, the nation's capital and largest city. Thesecond largest town is Al Mukalla with a population of 76,000. There arethree other smaller towns, Seiyun, Abyan and Ghaida Ataq with populationsranging from 10,000 to 30,000. The remaining urban population is distributedin towns with less than 10,000 people. About 102 of the total population isnomadic. The country has very limited natural resources. rn the mid 1980's,PDRY's development effort began to face considerable financial constraints asa result of the economic slowdown in neighboring oil-producing countries.Foreign aid was reduced and workers remittances declined. In addition toexternal factors, production growth slowed down, the floods of 1982 causedconsiderable damage, while the drought (1983-1986) hampered agriculturalproduction. GNP per capita was estimated at about $480 in 1986.

W Re

1.04 PDRY relies essentially on underground water resources for itssupply, as few perennial water streams exist in the country. There are seven

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major catchment areas which drain into wadis of which the most important arethe Hadramaut with a drainage area of 90,000 km2, the Rana with 9,600 km2

and the Tuban with 5,0OO km . Since 1970, various studies of the majorgroundwater aquifers have been made by the Food and Agriculture Organization(FAO). IDA also assisted in this area by financing water resources studies inWadi BadramautL' and Wadi Tubanl'.

1.05 With the exception of Wadi Radramaut, where large groundwaterresources are still available, adequate water supply sources are scarcethroughout the country. Several of the aquifers slong the coast have for sometime been overexploited. As a result, seawater has sterted to intrude intothese aquifers, causing in some cases permanent deterioration of the qualityof the waters. Water demands for urban and agricultural uses in the Aden areahave already excieded the available groundwater resources of Wadi Tuban, andwater must be br4ught in from the adjacent Wadi Bana.

l

1.06 Water resources are also scarce in the Al Mukalla area where for theproposed project, potential resources were investigated in an area extendingfrom 12 km west o.. Al Mukalla to 50 km east of the city. Some of the smallvillages located on the plateaux depend on deep wells drilled by theDirectorate of Local Government (DLG) or on the collection of rainfall inmostly unsanitary open ditches.

Sector Development

1.07 The Government's current sector objectives are to develop the urbanwater supply systems to meet the reasonable demand of a population projectedto grow at about 2.6% per year through the year 2000 and to improve access towater for the rural and nomadic populations. The great scarcity of water andthe need to increase agricultural production may be expected to pose difficultwater allocation issues in the future. For this reason the management ofwater resources should receive particular attention.

1.08 In 1986, the Government requested IDA to undertake a water supply andsewerage sector study to assist the Government to review the organizationalstructure of the sector and to develop criteria for the allocation of waterresources and the establishment of investment priorities. The terms ofreference have been agreed with the Government, and the collection of thebasic data has already started. The study is tentatively scheduled to beginin March 1989.

1.09 The development of the sector has been hampered by water scarcity,remoteness of urban centers from major aquifers, the country's rugged

Credit 615-YDR, Report No. 847a-YDR, Appraisal of Wadi HadramautAgricultural Project, January 12, 1976.

2/ Credit 788-YDR, Report No. 1727-YDR, Appraisal of Wadi TubanAgricultural Development Project, January 25, 1978.

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topography, and the scarcity of financing. In the rural area, development hasalso bsen constrained by a shortage of trained personnel to effectivelyoperate and maintain existing systems. The United Nations DevelopmentProgram, in association with the Danish Development Agency, is preparing aproject to address the rural system maintenance issue.

1.10 Until about ten years ago the Government gave comparatively littlepriority to the sector. For instance, in the period 1969 to 1978, a total ofonly about US$12.5 million equivalent, representing less than 2% of thenational capital budget, was invested in the sector. However, in the early1980s, the Government began to give the sector greater priority. This isreflected in the ensuing Government Plans. During the second Five-Year Plan1981-85, sector investments totalled US$58.0 million (in 1980 prices), or 6.5%of total investments, while the third Five-Year Plan 1986-90 (Annex 1)foresees sector investments of US$126 million (in 1986 prices), or about 8.5%of the total investment budget.

1.11 In the urban areas, emphasis was first given to meeting the needs ofAden, the capital city, where groundwater resources had become contaminated byseawater infiltration as a result of overpumping. However, other cities havenow received or are receiving attention, most notably Seiyun, Al Mukalla,Laboos, Rami, Atay, etc. In the rural areas, many villages are served bypiped water systems, and a program of well construction is underway toeliminate unsanitary sources and improve access to potable water.

Sector Ormaiatlan

1.12 The National Water Committee consisting of representatives of theMinistry of Agriculture and Agrarian Reform (MAAR), the Ministry of Planningand the Public Water Corporation (PWC) was established in 1981 to determinedevelopment priorities and allocate water resources. The Water ResourceSection of the Department of Irrigation within MAAR is responsible formanaging water resources. Lack of control and inadequate coordination betweenthe various authorities, however. have resulted in haphazard drilling ofwells, overpumping of aquifers , duplization of studies and a less thanoptimal use of resources. The sector study which is expected to get underwayiu March 1989 (para. 1.08) would assis'+ the Government to address these issues.

1.13 PWC was established in 1970 (para. 4.01). It is responsible for theplanning, design and construction of potable water supply systems and for theoperation and maintenance of these systems in the major urban centers. Italso provides te:bnical assistance to the Local People's Councils and DLG inthe design and construction of water supply facilities.

1.14 The Local People's Councils and local cooperatives operate the smallpiped water systems which serve small towns and villages, while the DLG'srural program constructs wells in rurals areas.

1.15 DLG and the Local People's Councils share the responsibility forsewerage. DLG is responsible for the planning and construction of sewersystems and the Local People's Council for operating and maintaining them.

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DLG employs consultants to carry out technical studies to identify and preparesewerage projects in urban centers and contractors to implement theseprojects. A 1983 study financed by the Arab Fund for Economic and SocialDevelopment recoimended the establishment of a sewerage development unitwithin DLG as an interim step in the development of a public corporation forsewerage. No decision has yet been made.

Service Levels

1.16 It is estimated that about two-thirds of the total population of PDRYor about 1,500,000 inhabitants can be reached by piped water supply systemsand the remaining third, consisting of nomads and small communities, willcontinue to rely on individual wells. Of the population which can be reachedby piped systems, about 732 is already served. Water supply systems operatedby PWC in six towns: Aden, Al Mukalla, Howtah, Dhala, Ghail Bawazir and Shihirand by systems which PWC is constructing in the Seiyun region serve about 441of the population and the other 292 are served by systems operated by theLocal People's Councils or local cooperatives. Given the very limitedresources of the country and the high cost of development, this level ofservice compares favorably with other countries in the region.

1.17 Over 95% of the households in the cities served by PWC have houseconnections. The other 51, located mainly in outlying areas, depend on publicstaMdpipes. Al Mukalla has 1001 house connections. The systems operated bythe Local People's Councils serve about 401 - 451 of the houses with directconnections. Standpipes are provided for the other households. Nomads livingin the hills depend on small dams, dykes and a number of deep wells for waterfor domestic consumption and livestock. Nomads on the plains depend 'aboreholes maintained by the Local Peoples Council.

1.18 Most of the densely populated areas of Aden are sewered. Parts ofthe older syatems are inadequate and discharge directly to the habor or opensea through short outfalls. However, a substantial part of the city issewered by a new system connected to stabilization ponds. In Al Mhukalla, anew sewer system to serve about two thirds of the population is underconstruction. There are sewer lines in the de3sely populated areas of a fewother towns, but in the vast majority of the towns and villages individualsystems such as cesspools, dry pits and septic tanks are used for wastedisposal. As water consumption increaes, leaks from cesspits and septictanks in some densely populated areas saturate the surrounding ground,creating unsanitary conditions and weakening foundations of mud brickbuildings. This affects particularly some of the historic towns on the oldincense route through the Wadi Radramaut. Introduction of appropriatewastewater disposal is becoming urgent in these areas. The Third Five-YearPlan provides for an investment of YD 8.7 million (US$25.0 million) forwastewater collection and disposal, the major part for Al Mukalla.

Ct Reer

1.19 The cost recovery policy of the Government for urban water supplyallows PWC to recover its operation and maintenance costs, working capital,

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and debt service and to finance a portioni of its investments (para. 5.02).Households not connected to the supply network pay a flat charge for the useof public standpipes. Financing for the water supply systems of small townsand villages is provided for the most part by multilateral and bilateral aidagencies and Government grants. At present, no direct charges are levied forsewerage services. Firtincing is also generally secured from aid agencies,whila operating expenses are met from the municipalities' general revenues andGovernment subventions.

FPevious DDA Involvement In the Sector

1.20 IDA has played an active role in the sector since 1978 and hascontributed substantially to the development of PWC particularly instrengthening its technical capacity and improving its financial position. In1973, IDA undertook a study of the water supply and sewerage sector in PDRY.The study recommended that, because of the severe shortage of funding,priority should be given to investment in water supply facilities. A WaterSupply Engineering Credit (S-21-YDR) was made in 1978 to undertake feasibilitystudies for Aden, Al Mukalla and Laboos. To date, IDA has financed four watersupply projects; two in Aden (1038-YDR and 1739-YDR)1', one in Al Mukalla(1159-YDR)-' and one in Seiyun (1418-YDR)"'. The total costs of theseprojects is estimated at about US$90.0 toward which IDA provided US$29.0million and five other agencies contributed coflinanclng of about US$50.0million. After initial delays due to failure to find adequate water at thepropcsed borefield, the first Aden project was completed at the end of 1987.Thi- project has shown the importance of carrying out very thoroughinvestigation to locate and assees the sustainable yield of groundwaterresources prior to project appraisal. The Al Mukalla rehabilitation projectwas completed in June 1987 and the Seiyun project is progressing extremelyvell and should be completed on schedule by mid-1988. Some delays have beenexperienced in getting the second Aden project underway. PWC's performanceunder IDA credits has been satisfactory.

Rationae for IDA Involvement

1.21 IDA's role in the water supply sector follows closely its overallstrategy for lending to PDRY which includes inter alia the provision offoreign exchange on concessional terms, the mobilization of cofinancing,technical aseistance and institutional building. This strategy supportsseveral of the Government's major objectives. Adequate water supply in urban

1 Report No. 2910a-YDR, Appraisal of Greater Aden Water Supply Project,May 7, 1980. Report No. 5858a-YDR Staff Appraisal Report, GreaterAden Second Water Supply Projectp October 3, 1986.

X/ Report No. 3361a-YDR, Staff Appraisal Report, Al Mukalla Water SupplyRehabilitation Project, April 24, 1984.

Report No. 4357a-YDR, Staff Appraisal Report - Seiyun Regional WaterSupply Project, October 13, 1983.

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areas is an essential element of industrial development. In addition, themanpower training and institutional development of PWC contribute to theefficient management of the sector which is essential to minimize theconstraints of scarce water resources on the economic development of thecountry. For these reasons this project has first priority in theGovernment's sector development program.

DL PROJECr AREA. SECTOR SERVICES AND DEMAND

2.01 Al Mukalla is located on the northern shore of the Gulf of Aden aboutmidway between the Red Sea and the Oman border. It is the capital of theHadramaut Province which contains about 452 of the country's land mass andabout 30% of its population. The population is concentrated in the historicvalley of the Wadi Hadramaut and along the coastline. The remainder of theprovince consists mainly of barren mountainous land with some isolatedcultivated areas.

2.02 Al Mukalla owes its existence to the rich fishing grounds off itscoast and the cape of Ras Al Mukalla which provides one of the few deep andsafe harbors of the region during the winter monsoon (IBRD Map No. 19947). Upto 1915, when the town became the capital of the Qu'aiti Sultanate, Al Mukallawas mainly a fishing village with an estimated population of 6,000. Duringthe ne,xt fifty years it developed slowly as an administrative and distributioncenter for the area. By the time of PDRY's independence in 1967, Al Mukalla'spopulation had reached about 36,000 inhabitants. Since then majordevelopments have taken place. In the transport sector, highways and pavedroads linking Al Mukalla with Aden and towns in the Wadi Radramaut have beenconstructed. An international airport has been established and a majorexpansion of the port undertaken. In the industrial sector a fish canningfactory, industrial zone and transit area have been established. The watersupply, sewerage and electricity systems have been expanded into most areasand modern health and educational, facilities established. The population iscurrently about 76,000.

Project Area

2.03 The older areas of Al Mukalla, known as Old Town and Al Omal, arelocated on a narrow strip of land between the sea and the nearby steep rockyoutcrops. Recent urban development has proceeded along the wadi which runsthrough the October district and in less constrained areas to the east andwest, including the Fuwwah area about 11 km to the west.- Most buildings aremulti-story, four to six levels, constructed of stone blocks in thetraditional style. Density is high, with only narrow walkways betweenbuildings, particularly in the old town where all useable land is developed.

Exiding Faciities

2.04 The existing water supply of Al Mukalla includes three water sourcesand a distribution system. The original source, the Bagrain spring, has a

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capacity of 0.25 MMm3 /yr (8 lls). It provides water of poor quality causing

rapid encrustation of pipes and blockage of water meters. This water cannotbe economically treated and the source will be abandoned on completion of theproposed project. The Wadi Buwaysh borefield located about 12 km northeast ofthe town, has provided most of the town supply since 1965. Its maximum safeyield has recently been estimated at 1.25 Mm3/yr (40 lls). A new borefieldin Wadi Khirba, with a long-term capacity of about 0.31 Mm3/yr (10 /ls)serves the newly developed suburb of Fuwwah. A pipeline has just beencompleted to transmit excess water from Fuwwah to Al Mukalla. Total safeyield of the two viable sources is about 1.56 Mm3/yr (50 l/s). However,because of current acute shortages Wadi Buwaysh is at present providing up to1.83Mm3/yr (58 l/s) and Wadi Khirba up to 0.7 Mm3/yr (23 lls). The staticlevel of the water table is, therefore, falling about one and a half metersper year. Continued pumping at this rate would cause complete failure of theborefield in the long-term.

2.05 The water distribution system serves the entire population throughhouse connections. Service is also provided to several villages to the northand east of the town. Connections are all metered. There is essentially asingle pressure zone. Only one small area requires that pressure be boostedto give adequate service.

2.06 Overall water quality is inadequate, with total salinity, hardness,sulphates and fluoride exceeding the World Health Organization's standards.Electrical conductivity often exceeds 2,500 uS.cm-f indicating cxcessivesalinity. There is considerable scaling of pipes and meters. Water isuntreated except for chlorination. Service is provided for only 6 to 12 hoursper day at a time to different parts of the town. Such intermittent operationcreates a serious health hazard as contsmi4nated water could be drawn into thesystem. It also causes unreliable meter readings and other operationaldifficulties due to air entering pipelines.

Present Population and Water Consmpton

2.07 Al Mukalla's population, according to the last census carried out inJune 1983, was 65,602. At the previous census of June 1973 it was 44,626.Thus for the ten years 1973-83 population increased at e.a average of 3.92 peryear. These figures include the Fuwwah' area and other nearby villages whichwould be served by the proposed water skxpply scheme. The population growthrate of the country as a whole is about 2.6X.

2.08 Metered domestic water consumption in 1986 was a little over 40litres per capita per day (l/c/d). This may be compared with consumption nf62 l/c/d in 1978. Even at that time, demand was suppressed because ofinadequate supply, although less so than at present. Consumption bycommercial, administration and industrial consurtrs brings the overall 1986average consumption to 58 l/c/d. Unaccounted-for water in 1986 was 292, downfrom 342 in 1985 and 391 in 1984. Some of this reduction was due to lowerwater pressure and the shorter period of the day during which supply wasavailable. Unaccounted-for water is expected to exceed 30% during the earlyyears of the project, but to gradually drop as a result of thie proposed

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technical assistance to improve system operation (para. 3.07) to about 2A by1996 and to remain at that level afterwards. This performance has beenachieved by PWC in other areas. There were 12,300 water supply connections atthe end of 1986, including 1,650 non-domestic connections.

Proeoed Poltio and Cpti

2.09 Based on the 1983 census and the population growth pattern specificto the Al Mukalla region, population is conservatively projected to grow at anaverage of 3.32 per year during the 1987-1993 period and 3% thereafter. Thetotal population in the project area is thus expected to reach 100,000 in1996. Detailed projections are presented in Annex 2.

2.10 Due to the current shortage of water, the per capita consumption canonly vary marginally until the proposed project comes into operation at theend of 1992. Consumption is then expected to rise rapidly and reach 80 l/c/dby the year 2000. Such a per capita water consumption is low for the level ofdevelopment of Al Mhukalla. However, it reflects the high water tariffresulting from the scarcity of suitable water resources. Average domesticrevenues in Al Mukalla is obout 662 higher than in Aden, where consumptionreached 140 l/c/d in 1985. Beyond 2000, the per capita consumption isexpected to increase only marginally.

2.11. Water consumption for commercial, government and industrial users isalso projected to increase, from a present level of 0.5 Mms/yr to 1.4Mm3/yr in the year 2000. This projection is based on an examination ofplans for industrial development in the area, particularly the second harborextension due for completion in 1989, and related industry. Projects for fishprocessing, poultry processing and soft drink manufacture are presently beingdeveloped. Construction of a new district hospital is almost completed and aninternational hotel is planned.

2.12 A comparison of projected production and sales with the productioncapacity appears at Annex 3.

M. tRE PROJECT

3.01 In the early 1970s, Al Mukalla was already facing serious watersupply shortages, the sector study carried out by IDA in 1973 had recommendedinter alia the preparation of feasibility studies to rehabilitate the watersupply system and to increase water production for Al Mukalla. However, itwas not until 1978 that, with the approval of IDA Credit S-21-YDR, thesestudies began.

3.02 The feasibility studies concluded that only some relatively minorimprovements to the existing distribution system were required, but that theavailable water resources should be incre&sed to meet the current and

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projected demand. Immediate work to improve infiltration in the wadis nearthe town was recommended to increase supply. It was decided, however, toproceed first with a rehabilitation project which included improvements to theexisting borefield and further investigation of infiltration works. Thisdecision was based partly on concerns regarding the feasibility and cost ofworks to increase infiltration but also on the prevailing sanitary situationwhich required substantial improvement before significantly increasing watersupply.

3.03 The rehabilitation project financed by IDA under Credit 1159-YDR,included strengthening and extension of the distribution system, improvementand rehabilitation of the existing water sources, a health educationcomponent, water resource studies including feasibility studies of theproposed infiltration works and design of the proposed project. However, itproved impossible to increase the capacity of the existing borefield to theextent expected. In addition, it was concluded that increasing the amount ofinfiltration into the existing aquifers was not viable. Additional studieswere therefore undertaken to identify other suitable groundwater resources.These studies, which identified an adequate source of supply, were completedin April 1987.

3.04 The water resource inv stigations mentioned above included theconstruction and testing of 29 boreholes over a wide area, covering allpotential aquifers from Wadi Khirba, 12 km west of Al Mukalla to the GhailBawazir area, 50 km to the east. Reconnaissance further to the west indicatedno other potential aquifers. A resource adequate for needs to the year 2002and with capacity to meet later increases in demand has now been proven at AnNaga'¶h about 50 km east of Al Mukalla. This thorough investigation of waterresources was undertaken in view of the experience under the first haden WaterSupply Project (para 1.20).

Project Objectives

3.05 The main objectives of the proposed project are to increase waterproduction for Al Mukalla to the level required to meet effective demand tothe year 2002 and to strengthen and expand the existing primary and secondarydistribution systems. The other objectives are to enhance the operational andmanagement capacity of the Public Water Corporation (PWC), reduceunaccounted-for water, increase productivity and improve constructionsupervision and system management.

Project dscito

3.06 The major elements of the project are shown on Map No. IBRD 19947.It consists of the following components, which are indicated in more detail inAnnex 4:

(i) drilling and equipping of a borefield at An Naga'ah togetherwith associated works;

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(ii) a transmission pipeline of about 50 km from the borefield to AlMukalla;

(iii) re-equipping and upgrading of the Wadi Buwaysh borefield;

(iv) improvement and strengthening of primary and secondary waterdistribution networks;

(v) supply of water meters, tools and operational and officeequipment;

(vi) construction and rehabilitation of reservoirs to meet daily peakdemand; and

(vii) provision of technical assistance to PWC including detection andcontrol of water losses, system analysis and operation,construction supervision, financial performance, selection anddevelopment of a computerized accounting system and training.

3.07 Technical assistance under this project will be dIrected particularlytowards improving the efficiency of operation of the Al Mukhilla system.Consultants will be appointed to assist PWC make necessary measurements of theoperation of the system, analyze results, and propose necessary remedialworks. On-the-job training of operators will also be included. Terms ofreference for this technical assistance were agreed at negotiations.Consultant assistance to define PWC's entire training needs is also includedin the project (para 4.08), and provision has been made for funding a limitednumber of overseas fellowships for PWC staff. Furthermore, PWC's overallfinancial performance will be reviewed under terms of reference agreed upoL atnegotiations.

Status of Preparation

3.08 PWC's consultants have prepared final designs and tender documentsfor all of the project componients except for minor works to be carried outunder force account by PWC. Minor modifications only were required to satisfyproject packaging requirements of the cofinanciers. A project manager hasalready been appointed by PWC.

Projet Cost

3.09 Total project cost, net of taxes and duties, is estimated at US$34.7million, of which foreign exchange requirements are estimated at US$31.4million. It includes an estimated US$0.75 million of taxes on services whichamount to 52 of the cost of civil works and engineering services; customsduties are not levied on imported equipment for development projects in PDRY.The estimated project cost by component is summarized in Table 3.1. A moredetailed cost estimate is presented in Annex 4.

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Table 3.1:Sun of Projeet Cost Estimate

ForeignLocal Foreign Total Local Foreign Total as X of

Base January 1988 -- YD Million - - US$ Million - Total

1. An Naga'ah 0.12 1.60 1.72 0.35 4.64 4.99 93Borefield

2. Pipeline to 0.39 4.87 5.26 1.14 14.11 15.25 93Al Mukalla

3. Wadi Buwaysh 0.06 0.61 0.67 0.17 1.78 1.95 91BorefieldUpgrading

4. Improvements 0.23 1.00 1.23 0.67 2.90 3.57 81to DistributionSystem

5. Additional Storage 0.04 0.40 0.44 0.12 1.15 1.27 91Reservoirs

6. Supply of 0.01 0.15 0.16 0.03 0.44 0.47 94OperationalEquipment

7. Training and 0.03 0.33 0.36 0.09 0.96 1.05 91TechnicalAssistance

Construction 0.06 0.41 0.47 0.16 1.20 1.36 88Supervision - - - -

Total Base Cost Q9% LU Z^U ZZel8 292

PhysicalContingencies 0.09 0.89 0.98 0.27 2.59 2.86 91

Allowance for Price 0.11 0.56 0.67 0.30 1.64 1.94Increase

Total Project Cost 1 1IJ8 1L.2A Q 4L 4&7J 2k

The base costs are expressed in January 1988 prices. They have beencalculated on the basis of cost estimates prepared by consultaQts and updatedon the basis of recent international tenders for similar works in PDRY. Civilworks and pipelaying estimates are in line with current construction prices in

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PDRY. Physical contingencies are about 102 of base cost; local pricecontingencies are about 10%, and foreign price contingencies about 61 of therespective base cost plus physical contingencies. Price contingencies havebeen calculated on the basis of 3% per year increase in local costs, and 12per year in 1988-1990 and 3.52 per year thereafter for foreign costs.Completion of construction of bore fields and trunk mains is expected by June1993 and remaining parts of the project by June 1995 (Annex 5).

3.10 The project provides for 150 man months of consulting services forconstruction supervision and 70 man months for other technical assistance.

Pro, Fiancig Plan and Financing Ariements

3.11 Of the foreign exchange requirement of US$31.4 million, US$12 millionwould be financed by the Association, leaving US$19.4 million to be financedby other sources. The Arab Fund for Economic and Social Development and theKuwait Fund for Arab Economic Development have confirmed their interest inproviding financial assistance to the project. The financing plan for theproject, as discussed and agreed at negotiations, is as follows:

Table 3.2: Project Financing Plan

Requirements Local Foreitn Total Percent-(US$ Millions)--

Proposed Investment 3.30 31.41 34.70 100.0

Financed byIDA - 12.00 12.00 34.5Arab Fund - 9.70 9.70 28.0Kuwait Fund - 9.70 9.70 28.0PWC 3.30 - 3.30 9 5

3.30 31.40 34.70 100.0s=-

3.12 The proposed parallel financing of the foreign exchange component isas follows:

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Table 3.3: Financing of Foreig Exchange of Proiect Components

Arab KuwaitIDA Fund Fund- - - - US Pillion ----

1. Sspply of material and constructionof boreholes 1.21 - -

2. Supply of pipes, valves and fittings 0.72 5.87 5.88

3. Supply and install mechanicaland electrical equipment 3.30 - -

4. Civil Works 4.51 3.51 3.51

5. Supply of Operational Equipment 0.50 - -

6. Training & Technical Assistance 1.13 - -

7. Construction Supervision 0.63 0.32 0.31

Total 12.00 9.70 9.708s= ==

Onlending Arneet

3.13 The proposed credit would be made to the People's Democratic Republicof Yemen at the standard IDA terms. The Government would onlend it to PWC ata fixed interest rate of 81 for a term of 25 years including a five-year graceperiod. The loans of the Arab Fund for Economic and Social Development andthe Kuwait Fund for Arab Economic Development are expected to be made to theGovernment at an interest rate of 42 with a repayment period of 20 yearsincluding five years of grace. These loans are expected to be passed by theGovernment to PWC as equity contributions. The foreign exchange risk on theIDA credit would be borne by the Government. The execution of a subsidiaryloan agreement between the Government ar4 the PWC on terms and conditionssattsfactory to IDA would be a condition of effectiveness of the proposed IDAcredit. The signing of the Arab Fund and the Kuwait Fund loans to theGovernment would also be a condition of effectiveness.

ProJet Imiemetatlon

3.14 PWC will be responsible for project implementation, through a ProjectManager located in Al Mukalla. He will be assisted by consulting engineersfor construction supervision, training in system operation and management andleak detection. During negotiations, PWC agreed that the selection of theconsultant for the supervision of the project would be a condition ofeffectiveness and that this consultant would be employed by February 28,1989. PWC also agreed the consultants for studies other than the

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computerization of accounts would be employed by July 1, 1989 and that for thecomputerization of accounts by December 31, 1989 (pata. 3.07). Furthermore,PWC agreed to provide IDA, for its review and comments, with the findings aLdrecommendation of each of the studies included in the project and to arrangefor the implementation of such recommendations, taking into account IDA'scomments.

Proeurement

3.15 Details of proposed procurement packages to be included in theproject are listed in Annex 6, together with their sources of financing. Theprocurement arrangements for the project are shown in Table 3.4.

Table 3.4: Procurement Arrangement

Project Element Procurement Method TotalICB LIB LCB Other F.A. Cost- - - (US$ million) -- -

Supply of borehole casing and equipment 0.10 - - - - 0.10(V.09) (0.09)

Construction of boreholes 1.21 - - - - 1.21(1.12) (1.12)

Supply and construction of 29.52 0.26 - - 0.40 30.18pipelines, reservoirs, pumps etc. (8.28) (0.25) (8.53)Operational equipment - 0.54 - - - 0.54

(0.50) (0.50)Training and technical assistance - - 2.67 - 2.67

(1.76) (1.76)

TOTAL 30.83 0.80 0.0 2.67 0.40 34.70(9.49) (0.75) (1.76) (12.00)

Note: Figures in parenthesis are the respective amounts financed by IDA."Other" covers procurement of services in accordance with IDAguidelines, and FA covers work by PWC force account on distributionsystem upgrading.

3.16 Civil works will be packaged into tbzee contracts, one for drillingof boreholes (US$1.2 million), the second (US$9.1 million) for supply andinstallation of equipment and materials and civil works and the third for themain transmission line to the town (US$20.4 million). The first two contractswill be awarded under international competitive bidding (ICB) in accordancewith IDA guidelines. The third contract will be entirely financed by thecofinanciers and their procurement guidelines will apply.

3.17 Goods and works financed in whole or in part by IDA would be procuredin accordance with IDA's Guidelines for Procurement. Operational and officeequipment, and goods required'under the program of assistance in systemoperation, costing less than US$100,000 per contract, and aggregating not more

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than US$850,000 would be procured by Limited International Bidding (LIB) afterseeking quotations from at least four suppliers, in accordance withguidelines. With the exception of sand and aggregate for concrete, all goodsand equipment for the project would be imported, and consequently, the 15%preference for domestic manufacturers would not apply. Employment ofconsultants will be in accordance with IDA's Guidelines. Due to the limitedcapacity of local general civil contractors, the major civil works contractare expected to be won under ICB by foreign contractors; borehole drillingunder ICB could be won by a foreign or local contractor. Distribution systemimprovements will be financed by PWC and carried out by force account in orderto avoid disturbances in day-to-day operations. Documents for all contractsexpected to cost more than US$100,000 will be reviewed by IDA prior toinviting tenders. PDRY's law requires that all tenderers take out tendersecurity with the National Bank of Yemen. During negotiations, agreement wasagreed that tenderers will be able to take out tender security with theNational Bank of Yemen or with a foreign bank which is acceptable to PWC.

Disbursement

3.18 The proposed IDA credit would be disbursed against the cost ofproject components as shown in Table 3.5.

Table 3.5: Disbursement Schedule

Amount Percent of ExpenditureCategory (US$ million) to be Financed

1. Construction of boreholes, 9.10 1002 of foreign expenditurepipelines and reservoirs,supply and installation ofmechanical and electricalequipment, and the supply ofoperational and office equipment,bore casings and screens anddistribution pipes and fittings.

2. Q2erational a6sistance program, 1.10 1002 of foreign expendituretraining and consultants forfinancial and computer studies

3. Construction supervision 0.60 50% of foreign expenditure

4. Unallocated 1.20

TOTAL 12.00

3.19 Estimated quarterly disbursements of the IDA credit based on standarddisbursement profiles of projects in PDRY are given in Annex 7. Disbursementrecords of previous water supply projects have been good. Estimated annual

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project costs based on the anticipated construction schedule are given inAnnex 8. The closing date of the proposed credit would be December 31, 1995.

3.20 In order to enable PWC to effectively implement the project and tomake prcmpt payments to contractors and consultants, IDA will advance funds asneeded to a special account open at the National Bank of Yemen for a maximumamount of SDR 375,000 (US$520,000) which is expected to cover IDA's share ofeligible expenditures over a period of four months. The Fund will bedenominated in US dollars and replenished against withdrawal applications ofat least US$ 100,000 equivalent. Applications with appropriate supportingdocumentation should be submitted when approximately half of the maximumallowed amount of the Fund has been spent. All disbursements under theproject will be made against standard documentation except for contracts belowUS$20,000 equivalent to be claimed under Statements of Expenditures for whichrelated documentation will be retained for review by IDA missions and auditedby independent auditors acceptable to IDA. Agreement was reached tLat theSpecial Account will be audited annually by the Central Organization forControl and Audit, an independent auditor acceptable to IDA.

Land RuMirementes

3.21 PVC has the right of way for its systems. The land for the borefieldis owned by the Government and will be to transferred to PWC at no cost.

IV. THE BENEFICIARY

4.01 The beneficiary of the proposed credit will be the Public WaterCorporation (PWC). PWC was established by Law No. 19 of 1970 to take over theoperations of the former Aden Water Authority. PWC is also subject to theprovisions of the "Law Organizing Public Corporations"1' which details theprinciples governing the organization, responsibilities and authority ofpublic corporations in PDRY. PWC is responsible at the national level todevelop and operate urban potable water schemes in PDRY and to providetechnical assistance to other agencies for the development of potable waterschemes in the rural and desert areas of the country. PWC presently provideswater supply services to the major population centers in the country(para 1.16). As a public corporation, PWC is required to pursue its economicactivities and establish prices in such a manner as to ensure that incomecovers expenses and generates a reasonable surplus (para. 5.02).

OrXization and Management

4.02 PWC is a semi-autonomous organization responsible to the Minister ofEnergy and Minerals. The General Manager of PWC is also Chairman of the Boardof Directors. He is appointed by Decree of the Prime Minister on therecommendation of the Minister of Energy and Minerals. The other members of

1'111 Law No. 13 of 1979.

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the Board are all employees of PWC appointed by the Minister of Energy andMinerals on the recommendation of the General Manager. The present eightmembers, in addition to the General Manager, include the Planning Director,the Chief Engineer, the Financial Manager, the Personnel Director, theOperations Director, the Secretary of the Union and the representative of theExecutive Br; ich of the Government in PWC. The Board is responsible forpreparing the corporation's five-year investment program and annual budgetsand accounts for submission to the Government for approval. The GeneralManager is responsible for implementing the Board's decisions and for theday-to-day operations of the corporation.

4.03 PWC's equity is owned by the Government which exercises control overthe corporation's activities. In addition to the appointment of the GeneralManager and Directors, the Government must approve PWC's operational budget,investment programs, tariff adjustments and borrowings. Furthermore, thereare major limitations on PWC's powers to award contracts. All contract awardsexceeding YD30,000 (US$87,000) must be approved by the Government's HigherTender Board Coraitte, which consists of the Minister of Planning, Minister ofConstruction and the Minister of Finance.

4.04 Under IDA's engineering project (Credit S-21-YDR), a study of PWCorganization was undertaken and recommendations were made to improve thestructure. The new organization structure, together with job descriptions forthe management positions, was implemented by Ministerial Decision No. 10 of1981. The organization chart is in Annex 9. The organization is nowfunctioning satisfactorily. However, recent changes in personnel in theGovernment and PWC and the introduction of new Government regulations, haveresulted in delays in decision making particularly in the procurement area.This was taken into account in preparing the project timetable and.disbursemen' schedule.

4.05 Salaries paid by PWC are in line with those offered by other publiccorporations so there is no major constraint in recruiting. As of December1986, PWC had a total management and operating staff of about 960 of which 29were engineers, 14 college graduates and 30 technicians. In addition, PWC has6 engineers, 4 graduates and 62 labourers engaged in design of new works andconstruction programs. This is a substantial improvement over its position in1980 when PWC had only five young graduate engineers and no graduate in theadministrative and finance 4epartments. PWC now has a nucleus of qualifiedand experienced engineers but the majority of the professional staff stilllack experience. PWC continues to employ the engineering and accountingexperts recruited under the first Greater Aden Water Supply Project (Credit1038-YDR). In addition, the Hungarian Government, through its bilateralassistance program, has provided technical assistance to PWC during the pastfive years. At present, three expatriate engineers are mainly involved in thedesign of village and rural water suply systems. The United NationsChildren's Fund (UNICEF) has also provided PWC with an engineer to assist inthe implementation of rural water projects.

4.06 The current staffing is equivalent to about 12.6 staff per 1,000connections which is high compared to a ratio of 8 normally found in water

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utilities of similar sixe and organizational structure in developingcountries. PWC's management agrees that this ratio is too high and has beengradually reducing it through attrition from 14.9 in 1983 to the current 12.6.

4.07 Lack of suitably qualified candidates has been a serious constraintto PWC's staff development program. Under the first Greater Aden Water SupplyProject, which became effective in early 1981, PWC's training activities wereconsiderably stepped up. A program consisting of (i) seminars on generalmanagement techniques and on the operation of water supply systems;(ii) in-service training by consultants; and (iii) participation in selectedspecialixed courses was instituted. These seminars cover operation controland leak detection in water distribution systems, water metering, maintenanceof water production facilities and distribution networks, chemicals andbacteriological requirements of potable water, and administration, accountingand finance of water utilities. In addition, special courses in plumbing workhave been organized and engineers have been sent abroad to specialize insanitary engineering. The Seiyun Regional Water Supply Project and the secondGreater Aden Water Supply Project provided further support for the extensionof the ongoing training activities.

4.08 That PWC's training efforts have been successful is evidenced by thefact that the overall capacity of its staff has improved markedly in recentyears. PWC intends to continue giving emphasis to training. In thisconnection, in April 1987 its Board authorized the establishment of a TrainingSection within the Personnel Department, and a training officer has beenappointed. The Government has requested WHO to help finance the cost of aconsultant to assist PWC to analyze its future training needs and develop aprogram aimed at meeting these needs for the next five years. However, shouldthe WHO financing for the training needs study not materilize, PWC agreedduring negotiations that it would request IDA to reallocate some of the Creditproceeds for this purpose.

Operating E"miien" Improvement

4.09 The proposed project will include a component aimed specifically atimproving the operacing efficiency of the Al Mukalla water supply system.Consultants to be contracted under terms-of-reference satisfactory to IDA,will assist PWC to analyse its system and its operation, and to make proposalsto enable PWC's engineers and technicians to monitor adequately the operationof the system in the future (para. 3.07). These consultants will also traintecbuicians in proper system operation and maintenance through formal andon-the-job training. During negotiations, the terms of reference for theseconsultants were discussed and agreed with PWC (para. 3.14).

4.10 Over the years, PWC has had no difficulty to meet its financialtargets. Uutil recently, this was due mainly to a combination of Governmentequity contributions and regular tariff adjustments. PWC now wishes toimprove its overall financial performance by improving its operatingefficiency not only in its technical but also in its administrative and

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cosmercial op-Frations, in particular by improving its administrative andcommercial systems, procedures and practices. For this purpose, a study willbe carried out to establish alternative investment scenarios and financialforecasts for the period through 1998 and to propose action plans based on ananalysis of the productivity gains which could be effected in the metering,meter reading, billing, and collection of water revenues for water consumed aswell as in the management and control of inventories and payables. The studywould also review the adequacy of water tariffs, the ability of waterconsumers to pay and the effect of price on overall water consumption. Duringnegotiations, the terms of reference for this study were discussed and agreedwith PWC. It was also agreed that the consultants who would carry out thisstudy would be employed by July 1, 1989.

BUling and Collection

4.11 PWC bills its customers every two months for water consumed plus afixed charge for meter rental and maintenance. Billing at all branches isup-to-date. In Aden, it is processed on electronic accounting machines whichare now obsolete, while at Al Mukalla and other branches, it is undertakenmanually. Provision is made in the project for the purchase of a new computerfor the Aden office, and for a consultant to assist PWC in the selection andinstallation of this computer. During negotiations, the terms of reference ofthis consultant were reviewed and agreed with PWC (para. 3.14).

4.12 As of June 30, 1987 PWC's accounts receivable from Government wereequivalent to about 4.3 months of billing and domestic and other accounts toabout 3.6 months of billing. Arrears are mainly a problem of the Aden areaand result from the events of January 1986, and the major increase in tariffsimplemented in July 1986 (43.7%). PWC's recent collection efforts, includingthe more rapid disconnecting of unpaid services, have succeeded in reducingthe private sector arrears from 4.8 months of sales in September 1986 to thepresent 3.6 months. PWC is discussing with the Government, measures tofurther reduce the receivables from Government agencies.

Accounting Prcies and Procedures

4.13 PWC prepares annual budgets which must be approved by its Board andthe Government. Accounts are maintained on an accrual basis and in accordancewith standard public utility practicea. However, recently some capitalinvestments were not booked until payment was made. PWC is taking steps toresolve this matter. In Aden, the customer billing and stock control systemsare mechanized but all other accounting functions are undertaken manually.Most of the accounting functions in Aden and all those of the branches,including Al Mukalla, are undertaken manually. The accounting advisor(para 4.05) is gradually improving the quality of the management informationsystem. Gradual computerization of the accounting systems is contemplated,starting with the Aden headquarters (para. 4.11).

Auit

4.14 The latest Project Agreement (Credit 1739-YDR) provides for thesubmission by PWC of the Corporation's annual financial statements within six

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months after the end of a fiscal year, followed by an auditor's report on theaccounts which should be submitted to IDA not later than nine months after theend of a fiscal year. Past audits have been carried out in a timely manner bythe Central Organization for Control and Audit, a state agency acceptable toIDA. During negotiation, agreement was reached on maintaining existingauditing requirements.

Insurance

4.15 PWC carries insurance covering fire damage, motor vehicles, workman'scompensation and third party liability. All civil works contractors for theproject will be required to insure against accidents, civil liability, fireand property damage. Government policy requires that all other insuranceincluding marine insurance be effected through the National InsuranceCompany. During negotiation, agreement was reached with the Government topermit all insurance for the project to be obtained in accordance with theBank's Procurement Guidelines.

Tame

4.16 All corporations in PDRY are required to pay to the Government 852 oftheir surplus, after meeting operating expenses, including depreciation andinterest. The rate is not excessive in view of the substantial annual capitalcontributions which the Government is making towards PWC's investment program(para 5.02).

V. FINANCIAL ANALYSIS

Past Performance and Present Position

5.01 PWC's income statements, balance sheets and cash flow statementsshowing the actual results for the three years 1984-86 and projected resultsfor the nine years 1987-95 appear at Annexes 10 through 12. The assumptionsused in preparing the financial projections are given at Annex 13, and theactual and forecast water production and consumption volumes of PWC's Branchesat Annetx 14.

5.02 Article 58 of the "Law Organizing Public Corporations" (para. 4.01)requires these entities to pursue their economic activities in a manner whichwill ensure that their income will cover expenses and generate a reasonablesurplus. PWC achieved this objective in each of the three years 1984-86. Inthis period, PWC's net internal cash generation averaged about 152 of itainvestments, while its operating ratio improved from 791 in 1984 to 722 in1986, and its rate of return on average net fixed assets in operation exceeded121 in all three years. At the end of December 1986, PWC had a current ratioof 2:3 and a debt/equity ratio of 36:64. This favorable financial positionwas due to good control over operating expenses, the substanti £l tariffincrease of July 1986, sizeable Government equity contributions, and the factthat service of the debt incurred to carry out its major ongoing expansion didnot begin until 1987.

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Tariffs

5.03 Each of PWC's Branches has its own tariff schedule so as to reflectthe local cost of water production and distribution. As of the end of 1986,about 902 of PWC's water produced and roughly 912 of its water sold wasconcentrated in Greater Aden and Al Mukalla. The current tariffs for GreaterAden and Al Mukalla which became effective on June 16, 1986 appear atAnnex 15. PWC's domestic tariffs are progressive in the sense that unitprices per m3 increases with the quantity consumed so as to promcte waterconservation while ensuring affordability to the poor.

5.04 The long-run incremental costsl' of the water sold in Greater Adenand Al Mukalla have been estimated at YD 0.224/m' (US$0.65/m3) and YD0.238/m3 (US$0.69/m3) respectively. A comparison of these costs with thehigher block rates of existing tariffs shows that the tariff structure andlevels are adequate at both Branches for all categories of consumers with theexception of the domestic tariffs for Greater Aden whose highest block rate isonly YD 0.142/m3 (US$0.41/m3 ). For all other categories, the tariffsexceed the long-run incremental cost.

5.05 In the past, tariffs have been adjusted regularly in line withcosts. These have been increasing rapidly due to the great scarcity of waterand the consequent need to develop sources increasingly distant from theconsumption centers. Indeed, the last adjustment of 1986 increased tariffsseverely, on the order of 401. The measure was not well received by theaffected population, many of whom stopped paying their bills (para. 4.12). Asa result of the events of early 1986, when project implementation came to avirtual standstill, a situation of severe bunching of investments hasdeveloped with a peak expected around 1989-90. While the anticipated level ofactivity is feasible, the unexpectedly high level of investment makes it verydifficult in the short- to medium-term for PWC to generate enough funds tomeet its existing financial covenant which calls for net internal cashgeneration equivalent to 122 of its average investments over a three-yearrolling period. This is particularly so because PWC is subject to an 852 taxon its income. For these reasons, PWC's contribution to investments in 1987was slightly below the covenanted level. With increased sales, the currenttariff level would yield sufficient revenues to cover operating andmaintenance expenses, service debt, and contribute the equivalent of 101 ofthe average investments on a rolling three-year basis through the end of1988. A tariff increase of about 161 in 1989 would then be required to ensurecontinued contributions to inBestments of at least 101 through 1991 afterwhich the investment peak would begin to subside, and the additionalproduction capacity for the Greater Aden area would come on stream. Thisadjustment would also give PWC an opportunity to improve its domestic tariffstructure. Further adjustments could be made later should the Government wishto increase PWC's surplus under Article 58 of the "Law Organizing PublicCorporations" (para 3.02). This scenario is both feasible and realistic.

Source: Staff Appraisal Report of Greater Aden Water Supply Projectof October 3, 1986, Report No. 5858a-YDR; Al Mukalla - para 6.09.

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Accordingly, the existing agreement would be amended to temporarily setcontributions at 101 in the period 1988-1991, maintaining the 12% covenantedlevel for the years thereafter (para 5.06).

5.06 During negotiations, agreement was reached with PWC that it will takeany action necessary, including adjustments to its tariffs, to ensure thateach year, in the period 1988 through 1991, its revenues will be sufficient tocover its expenses (other than depreciation, non-cash charges and interest),net working capital increases other than cash, debt service, and theequivalent of no less than 10% of the average of its investments for thecurrent year and the two years next following, and 121 of the average of suchinvestments for the year 1992 and all years thereafter. Agreement was alsoreached with PWC that before November 30 of each year it will, on the basis ofreasanable forecasts, review the adequacy of its tariffs and take appropriatemeasures including adjustments to its tariffs, in order to generate the fundsrequired during the following year, and provide IDA with a copy of such reviewand description of measures taken or to be taken. Finally, agreement wasreached with the Government that it will authorize PWC to implement the tariffadjustments which would be required to meet its obligations under the project.

PWCts FInaci. Plan

5.07 PWC's Financing Plan for the period 1988-95 is shown in Table 5.1.In addition to the proposed project, investments include the ongoing secondAden Water Supply Project, some locally financed -slatively minor projects andfuture expansion expected to be carried out after 1992. Net internal cashgeneration amounts to about YD 6.5 million representing some 181 of totalfinancing requirements after estimated payments of over YD4.6 million inincome tax to the Government. Borrowings consist of some YD 6.8 million fromIDA for the proposed and ongoing projects, which will be onlent to PWC, and anamount of YD 6.7 million from each of the Arab Fund for Economic and SocialDevelopment and the Kuwait Fund for Arab Economic Development which will beloaned on soft terms to the Government and passed on to PWC as equity.

Table 5.1: PWC's FinanlCi Plan 1988-95

US$ MillionFinancial Requirements YD Million Equivalent 2

Proposed Project 12.0 34.8 33Other Investments 22.8 66.1 62Capitalized Interests 1.7 4.9 4Net Increase in Working Capital .3 .8 1

Total 36.8 106.6 100

SourcesInternal Cash Generation 19.7 57.1 54Less: Debt Service 13.2 38.3 36Net Internal Cash Generation 6.5 18.8 18

Borrowings: Proposed IDA Credit 4.1 11.9 11Existing IDA Credits 2.7 -7.8 7

Government Contributions"' 23.5 68.1 64Vit.al 36.8 106.7 100

Future Financial Performance

5.08 The financial projections are based on reasonable implementationschedules, taking into account some gains in operating efficiency, and reflectthe financial discipline described in paragraph 5.06 above. In the period1987-95, PWC's volume of water sold would increase by about 522, whileunaccounted-for water would remain at the same level, i.e. about 26X of waterproduced. Average revenues would move up by about 291 and total revenueswould more than double from YD 4.0 million to YD 9.1 million. Expenses wouldalso double. The operating ratio, although somewhat higlher than in the past,would remain acceptable at about 801, while the rate of return on average netfixed assets in operation would drop as relatively massive new investments areplaced in service, reflecting the ever increasing cost of new water sources.In the forecast period, fixed assets will more than double from about YD 24.4million to YD 53.8 million. The debt/equity ratio would remain very low,reflecting Government contributions to finance investments. The current ratiowould not go below 1.6 and the debt service coverage ratio would be in thesame range. Overall, PWC's financial performance would remain satisfactory.During aegotiations, agreement was reached with PWC that it will not, withoutprior consultation with IDA, incur debt other than for carrying out theproject or other ongoing projects unless its projected net revenues, before

1' Includes the loans from the Arab Fund and the Kuwait Fund.

-24-

depreciation and interest but after taxes, are at least 1.2 times the annualdebt service on the proposed and existing debt.

5.09 The proposed technical and financial indicators which will be used tomonitor progress during project implementation are shown in Annex 16. Theseindicators were discussed and agreed upon during negetiations. Agreement wasalso reached with PWC that it will report the evolution of the project and theindicators to IDA on a quarterly and annual basis respectively and take allnecessary measures to improve PWC's performance as measured by such indicators.

5.10 Within six months following the closing date of the credit, PWC willprepare and submit to IDA a completion report on the execution and initialoperation of the project, its cost and the benefits derived or to be derivedfrom it, the performance and fulfillment by the Government, IDA and PWC oftheir respective obligations under the Development Credit Agreement and thePronect Agreement, and the accomplishment of the objectives described in IDA'sDevelopment Credit Agreement.

VI PROJECT BENEFrT AND IMPAC

Project Benefits

6.01 The Project will provide piped water supply to 90,000 people in AlMukalla when it commences operation in 1993 and will meet projected waterdemand to the year 2002. It will improve supply from an intermittent serviceproviding limited quantities of water of marginal quality, to a continuousservice providing adequate quantity and pressure for normal domestic needs.Quality will be considerably improved and safe for consumption. Continuouspressure will eliminate the present danger of back syphoning contaminatedwater. The project will provide a necessary pre-requisite for improvingpublic health by providing sufficient water for personal cleanliness andhygiene.

6.02 Water will also be provided to meet projected demand of commercialand industrial users, removing a major obstacle to development in thesesectors, and creating conditions whereby Al Mukalla can more rapidly developas a regional center of economic activity. This development has beenseriously hindered in recent years by the inadequacy of the water supplysystem.

6.03 The project will reduce operating costs, eliminate seriousoperational problems and decrease water losses by improving the pumpingefficiency at Wadi Buwaysh, eliminating as a source the Bagrain spring whichis causing deterioration of existing water mains and meters (para. 2.04), andundertaking a leak reduction program to reduce water losses in the system.The capability of PWC to operate the system efficiently will be considerablyenhanced, and this, together with the training activities proposed under the

25 -

project will strengthen PWC as an efficient and effective authority. PWC'sbilling and accounting system will also be upgraded.

Emnneuta Impct

6.04 No significant detrimental environmental impact is foreseen as aresult of the implementation of the pboject. Indeed, in addition to theimprovement to the health apd general living conditions of the populationlocated in the Al Mukalla area already noted above, some beneficial effectsare expected to accrue. The project will provide the additional water flowwithout which the sewerage system under construction could not operatesatisfactorily. The system being built was designed to cope with the quantityof wastewater that will be produced when the proposed project is completed,including the wastewater from the October district, a recently developed areanot included in the sewerage network currently under construction.

6.05 The October district is located along the banks of a wadi where atpresent its wastewater are evacuated. Although there is no record ofassociated health hazards, the district's effluents create pools of stagnantwater which cause undesirable odors. By providing more water to the Octoberdistrict, the proposed project will improve the flow of effluent in the wadiand reduce the risks of disease. The Government will also clear the wadi bedto allow it to drain freely in order to abate water stagnation. Thissituation, however, is temporary since the Government has every intentions ofsewering up the district as soon as it can put together the necessaryfinancing. Detailed designs have already been prepared, and the Government isseeking funding of some US$14 million for its construction. IDA is discussingwith the Government the potential financing of this work under a futureproject. The particular siting of Al Mukalla does not allow the economicreuse of this wastewater.

land Ruixrements and Resettlement

6.06 All pipelines and other structures involved in the project will belocated in existing road easements or unused public land. No resettlement oracquisition of land will be required.

6.07 The poverty level in Al Mukalla is estimated at about US$200equivalent per capita per annum or US$1,200 per household. Monthly householdwater consumption for the poor is projected at about 10 m3. At presenttariffs this would cost US$38 per year and represent about 3.21 of currentfamily income and so is affordable. The tariff for this income group will notincrease in real terms. The average family income is projected at aboutOS$2,500 equivalent per annum and average family water consumption isprojected at 14.5 m3 per month in the year 2000. This consumption isestimated to cost about US$73 per annum or 31 of family income which isreasonable.

Least Cost Solution

6.08 The proposed project represents the least cost solution for meetingAl Mukalla's water supply needs. It is a minimum first stage component of along term program to exploit available water resources. The scope, capacity,and complexity of technology used in the project have all been maintained atthe lowest viable level to ensure that cost is minimized and the projectremains affordable as indicated above. Examination of alternatives forlong-term development of the water resource involving booster pumping, variouspipe sizes, and materials showed that the proposed project is the least costsolution.

Adeauacv of Tariffs

6.09 The average incremental cost of water to be produced from the newborefield at An Naga'ah is estimated at about 238 fils per m3 . This cost issubstantially less than the highest step of the present domestic tariff of 440fils rer m and the commercial and construction Larliis wnichi reach uuO f;,aiper m (Annex 15). These high tariffs are justified to conserve water giventhe limited resources available in the area.

Poverty impact

6.10 It is estimated that about 28% of the population are at the povertylevel. As all households will be served by the proiject about 28,000 poor areestimated to benefit from the project by 1996. Project expenditure to provideservice to the poor is estimated at US$7.0 million, or 20% of project cost.

Economic Rate of Return (ERR)

6.11 A rate of return was calculated using the incremental water sales atcurrent tariffs plus the estimated reduction in pumping cost for a 50-yearperiod as a proxy for benefits. Costs included the project expenditure,replacement costs for mechanical and electrical equipment and incrementaloperating costs. The resulting ERR was 6.51. This rate is a minimumindication of the benefits since quantification of the environmental andhealth benefits is not possible. The ERR is sensitive to a 10% increase incosts or a 102 reduction in benefits by about 0.62. A combined 101 increasein cost and iOZ reducLioni iu vbuCSiaI would result- in an E"R Of 5.1R.

Rlks

6.12 The risks normally associated with the implementation of a projectsuch as the Al Mukalla Water Supply project are essentially linked to (i) thecapacity of the implementing agency to execute the project, (ii) its abilityto operate the facilities once constructed, and (iii) the availability offunds. This is the fourth major project to be undertaken by PWC. Itsperformance under the first three projects is satisfactory, and with theproposed technical assistance, it should have no difficulty in implementingthe proposed project. Likewise, with its experience in running its existingsystems, and with the ongoing and proposed training, PWC will have the

- 27 -

capacity to efficiently operate the newly built Al Mukalla facilities whenthey are placed in service. Finally, slightly over 90S of the financing needsof the project are being provided by IDA and the Arab and the Kuwait Funds,the remainder by the Government and PWC. As explained in the FinancialAnalysis Chapter of this report, PWC's overall net internal cash generation isexpected to be above that required for Al Mukalla and should pose no risksince only few and moderate tariff adjustments are foreseen to achieve thisresult.

VS. AGREEMENTS REACHED AND RECObMMNDATIONS

7.01 Agreements having been reached on the issues referred to in ChaptersIII through V of this report, and subject to the conditions of effectivenessset forth in paragraphs 3.13 and 3.14, the project is suitable for an IDArvaMI- n^f Q1W R7 mi-l4on eqln4valent tn the Covernpment of the Peonl#'ADemocratic Republic of Yemen, which would onlend the proceeds of the Credit toPWC for a term of 25 years including 5 years of grace.

-28 - MNEX I

PEOPLE'S DEMOCRATIC REPUBLIC Ot YEMEN

AL NUKALLA WATER SUPPLY PROJECT

Third Five-Year Plan 1986-90Water Sunel Sector Investment Proraqm

. _ . ; 1986 | 1987 | 129 I ISBN I 1990 I TOTAL-TO__ ___ .-_~__------- YD Thousand ---------

1. Greater Aden Project No. I 2,331 2,106 404 _ _ 4,8412. Seiyun Project 2.639 2,113 196 _ _ 4.9483. Farsha 40 84 - _ _ 1244. ShWbra 15 10 _ _ _ 25S. Seihut 7S 45 - _ 1206. G.ShaJ~ft '(Si^.' --- ?I- _ _ 1567. WMdi Amol 34 10 _ _ _ 448. A'l Ruda Sharkiya 76 - - - _ 769. Ate Sura-an Wadih 126 56 _ _ _ 18210. Deradm (Stage 11) 143 - _ _ _ 14311. 14%nwah 40 100 _ _ _ 14012, Gwiri 35 31 _ _ - 6613. Greater Aden Project No. 1I 338 1,422 3,031 2.546 4.563 11,90014. Dala 78 142 _ - - 22015. Gabel Harri 23 _- - 2316. Hami 180 95 - _ - 27517. Atay 231 149 _- - 38018. Al Mukalla - 567 1,635 1,407 500 4,10919. Laboos - 629 1,900 2,671 2.040 7,24020. Al Hasarah _ 67 186 93 - 34621. Shagah _ 50 20 - - 7022. Kesaire _ 29 S2 - - 8123. Jehin - 82 44 - 12624. Habil Araida - - - 48 18 6625. Laba Ah j - 123 - - 12326. Hoda _ - 106 54 24 18427. Al Hosn _- - 62 55 11728. Bartes - - 62 41 10329. Ja'ar _ - 226 200 54 48030. Beihar -_ 81 14 - 9531. Hareda _ - 116 67 39 22232. Hukairas _- - 87 38 12533. Hoswin _ - 193 109 71 37334. Hora _- - 114 380 49435. Al Talah _- - 135 83 27836. Other Rural Water Projects 79 1.69 1.608 L. _620 .. 144

TOTAL 6,556 9,48S 9,981 8,833 8,526 43.381

outstanding Comintmmnts onPrevious Projects 518 _ .

1932W

- 29 -ANNEX 2

FM EoTIC Swc F AL SII amU 1MY PUlP

HISIUMJUET FOWTUI NATO (UWP0IU PUWI U RATED ND11U

1l U15 1907b193? 193919919 1992m199199

Yr J pqnd latim OI . 70.9 73.4 74.0 707 91.3 840 94. 39.4 91 949PeplAtimn dep ll* 33 2.4 2.4 2.6 2.4 7 2 2.7 2.7 2 2.7 2.8Popuatlm a iwp 3.9 38 3.7 3.4 3.5 3.4 3.3 3.2 3.1 L 3.0Yw ad cmutom 0lCE3 11.1 11.9 12.3 12. 13.2 13.4 14.1 14.5 15.0 1. 159NWcamciuafN 400 790 410 443 446 44 4 451 451 4 43Dh c ct/CC1 CtiMu Id/lh) 5.9 4.6 7.4 3 8.8 8.9 9.4 9L 7.9 10.3 13C uiupton pw m Il/ed) 37.1 33 41.7 4.8 4 49.0 4 44.9 3.6 5L1 6aoTotal dmle cmmpm 1IOE) 0.9 0.9 1.1 1.2 1.4 1.4 1.4 1.4 1.4 1.9 2.3Totl enu tim /0Ei) 1.1 1.3 1.4 1.8 1.9 1.9 1.9 1.9 1.M 2.S 3.1Prictlm 1E(O 1.8 2.0 2.2 2.4 2.3 2.8 2.2. 2.9 3.4 4.2bMaa o for uatsw 3a.9 =9 2B.5 3.0 33.0 31.0 31.0 31.0 31.0 29.0 27.0

Avupdt d c utiml/s) 2 29 35 0 4 45 4 4 4 60 74Avwrp nu-H.m ticcumq ilh.) 10 12 14 14 16 16 17 17 17 21 24kwq.Inr ate fl/U) 22 21 2 27 29 28 3 A 2 .3 34Totd averap pd t Il/l) 57 2 71 80 9 89 89 9 113 134

. day prodctnribte fl/t) 138 164An Nq'ah dnip flov Ills) 8 114CltIofdmrap Immh 1.4 1.5 1.5 1 1.8 2.5

195 1% 1997 19 199 2000 2M05 2010 2015

Tw ed p pAat 10 97.7 10.4 1i.4 104.9 110.0 113.3 131.3 IS2.2 1745hplatdim dcp h 11fIU3 2.9 2.9 L0 l 3.2 3.3 3.0 4.4 5.1P atmcldp_ 3. O 3.0 3O 3.0 3.0 3.0 3.0 3.0 3.0Tr ad cUctim; (101) 1. 149 17.4 17.9 18. 19.0 22.0 25.5 29.4Nb cancuu M 477. 491 521 7 5443 641 743 2Dhmetic c.cawrict l ) 13.3 13.9 14.1 14.2 14.4 14.5 14.9 15.2 15.6*NmUt pw Im (l/d) 731 74. 77.5 703 79.1 79.9 81.9 9.0 3I1TobldoUtc u tmmo l 2.4 2.8 2.9 3.0 3.1 S3 3.9 4. 5.5otal cmqtUm (3/104) 4 LI 4.0 4.2 4.4 4.7 5.4 4 7.9Ptim 1(1"Om - 4.4 4.9 5.2 L5 5.9 .1 7.3 8.7 10.2Ih,xca.tdfvf D o.0 2S0 20 2L 23. 20 3 2 .L0 23.0 2L0 23.0 230

AvwapdomtiU miqt mfIllu) 81 0 92 95 99 103 123 144 173Aw map nw d.tl ewa t .l/,) 23 31 35 5 42 45 55 64 7l qaploumrab fl/i) 34 36 40 42 * 3 3 75Totl awqpprdumtl U/a) 145 155 14 173 183 192 231 215 3P u day ruictim rib (l/i) 178 19 20 210 21 233 279 3 32 2bmNiduuh d pflu (l/d) 13 139 15 140 1 183 229 282 312CutbIfaquaeam 2.O8 30 3.0 .0 3O 30 2.9 2.8 2.7

Metm *II_ Pt ucKUl is diniUtlc mptio WP dmlic CoKtion. N itqtlmptiufvdlSonclU f1 idmlu dlmw forFinuioF *lU0aThauaad

0.11 cmmptiolu ad L5 pro ctio.hmetlm ions liudud2 *129m * IlUmllim

- 30 -

ANNEX 3

PEOPLE DEMOCRATIC REPUBLIC OF YEMENAL MUKALLA WATER SUPPLY PROJECT

PROOUCION Production and Sales Venus CopciVof SourcesANDSALES

380-3W0

AN NAGAMA PROO4JCIIN NMML STAE CAPA.04

WA WAA65MA&I4MA LOW4EMW PRODUCTION CAPACI1

MS8 1995 200 20 2010

yea

Atl ~ ~ ~ aN9

- 31 -

ANNEX 4Page 1 of 2

PEOPLES DEMOCRATIC REPUBLIC OF YEMENAL MUKALLA WATER SUPPLY PROJECT

DETAILED COST ESTIMATEYD. Thousands $US.Thousands

Local Foreign Total Local Foreign TotalA.AN NA8AAH BOREFIELDSupply of bore casings and screens 1 23 24 3 b8 71Construction of 12 boreholes 21 308 329 60 893 953Supply & install 11 pumps & motors 10 217 228 30 430 660Power station & borefield buildings 30 266 294 87 77r, 859Electrical installation 19 390 408 54 11d9 1183Supply of pipes valves & fittings tO 104 114 30 302 331Lay 3.1km of 400mm collector mains 22 218 240 63 633 695Collector tank 400 cu.m. capacity 8 72 81 24 210 234

Sub total A 121 1599 1720 349 4636 4995

3.TRANSMISSION PIPELINESupply of pipes valves & fittings 289 3135 3425 839 9088 9927Lay 45.6km of 600mm DI pipeline 92 1602 1694 264 4645 4910Huwairah reservoir 400cu.m. cap. 12 130 142 36 375 411

Sub total 8 393 4967 5261 1140 14109 15249

CO WADI BUWAYSH DOREFIELDSupply of bore casings & screens 1 5 6 3 15 18Construction of 3 boreholes 6 31 37 18 89 107Supply & install 9 pumps & motors 10 153 163 30 443 473Supply & install forwarding pumps 10 92 102 30 266 296Electrical installation 2 110 112 6 319 325Collector tank 400 cu. . capacity 8 72 81 24 210 234Supply of pipes valves & fittings 4 41 45 12 118 130Lay 2.1km of 300mm pipeline 5 48 53 15 139 154Chlorination plant & building 10 61 72 30 177 207

Sub total C 58 613 671 167 1777 1944

D. STORAGE AND DISTRIBUTIONAl Sedad reservoir 1200 cu.*. cap. 18 161 179 51 467 S18Al Bedad chlorinator installation 6 63 69 18 183 201Upper-Al-Omal reservoir 2000cu.s. 25 235 259 72 680 752Refurbishment of existing tanks 21 20 41 60 59 119Supply of pipes valves & fittingsDI 600mm O.1km 1 6 7 3 18 21

500mm 3.3km 16 160 177 48 464 512400am 3.5km 10 108 119 30 313 343300am 4.0km 6 78 94 18 225 243100mm 2.3km plus hydrants 4 49 53 12 142 154

Laying of above & misc. connections 48 431 490 140 1251 1391Supply of pipes valves & fittingsAC or DI 200mm 2.0km 1 23 24 3 68 71

150am 4.0km 1 27 28 3 77 80100.. 4.0km 0 20 20 0 59 59

Laying of above I 1II 0 111 322 0 322Bowser filling stations 5 15 20 15 44 59

Sub total D 274 1397 1671 794 4050 4845

-32 -

ANNEX 4Page 2 of 2

E. TECHNICAL AS9ISTANCE TO PWCImproved operation of Al Mukallaand financial study of PWC 21 293 313 60 849 908Supply of operational equipment 10 153 163 30 443 473Staff Training 10 39 49 30 112 142

Sub total E 41 485 526 119 1404 1524Total A to E 887 8962 9849 2571 25976 28547

Physical contingencies lOX 89 896 985 257 2598 2855Construction Supervision 5X 54 413 46b 155 1196 1351

Brand total 1029 10271 11300 2983 29770 32753

Financial Contingency 104 563 667 300 1633 1933

TOTAL PROJECT COST 1133 10834 11967 3283 31403 34684

PEOPLES DENOCRATIC REPUBLIC OF YEMENAL NUKALLA VATER SUPPLY PROJECT

11PLEMENTATION SCHEDULE

----------------------------------------------------------------------------------------------------------------IPROJECT CONPONENT t 1988 1 1989 1 1990 t 1991 1 1992 1 1993 1 1994 1 1995 1S_------------------------------------ --- I -------- I -------- I -------- I-------- I--------I-------- I--------I--------I

ISupply of bore casings and screens I I TTTTITTSSSS I t I I I

SConstruction of borsholes - An Naga'ah I I TTTITTTCCCCCICCCC I I I I II - Duwaysh I I TTTITTT I CCCC I I I I II I I I I I I I IISupply & install pumps, motors & I 1 I I I I I II electrical equipment - An Naga'ah I I TTTtTTTCCCCCICCCCCCCCICCCCCCCCI I I II - Buwaysh I I TTTITTT I CCCCICCCCCCCCiCCCC I I I

$Supply of pipes valves and fittings I I TTTTITTTSbBSSSS9SSSSSISSSS I t

ICivil works - tI I I S2 Transmission pipeline I I TTTtTTTCCCCCICCCCCCCCICCCCCCCCI I I II An Naga'ah and Buwaysh collectors I I TTTITTTCCCCCIC I CCCC2CC I I II Distribution system I I TTTITTTCCCCCICCCCCCCCICCCCCCCCI I I I

tSupply of operational equipment I SSSSSSSSSStSSSSSSSSI I I I I

ITechnical Assistance - I 2 2 I JI I I Improved operation I ITTTTAAAAIAAAAAAAAIAAAAAAAAIAAAAAAAAIAAAAkAAI , II Computerization of accounts I I TTTTIAAAAAAAAIAA I I I I II Financial performance study I ITTTTAAAAIAA I I I I I II Staff training I I AAAAIAAAAAAAAIAAAAAAAAIAAAAAAAAIAAAAAAAktAAAAAAAAIAA II Construction supervision t TTTT2TAAAAAAAIAAAAAAAAIAAAAAAAAIAAAAAAAAIAAAAAAAAIAwAAAAAAI II : I a I I I a

TTTTTT tendering periodSSSSSS supply periodCCCCCC construction periodAAAAAA technical assistance

- 34 - ANNEX 6

PEOPLE'S DEMOCRATIC REPUBLIC OF YEMAL MUKALLA WATER SUPPLY PROJECT

PROCUREMdENT PACKAGES

Procurement Package Procurement FinanceMethod US$ Million

1. Supply of borehole casings, screens ICB IDA 0.09and miscellaneous equipment. PDRY 0.01

2. Construction of boreholes ICB IDA 1.12PDRY 0.09

3. Borefield collectors, reservwirs, and ICB IDA 8.29supply and Installation of mechanical PDRY 0.83and electrical equipment

4. Supply and installation of DI trans- ICB A&K Fundsl/ 18.77mission pipelines PDRY 1.64

5. Supply of DI or AC pipes and ICB/LIB IDA 0.24fittings for distribution PDRY 0.01system expansion and upgrading

6. Consultant for construction Guidelines IDA 0.63supervision A&K Fundsl/ 0.63

PDRY 0.17

7. Assistance with improvement Guidelines IDA 0.74of operation PDRY 0.07

8. Assistance with computerisation Guidelines IDA 0.16

9. Supply of operational LIB/ IDA 0.50equipment (several contracts) International PDRY 0.04

Shopping

10. Laying of of DI or AC PNC Force PDRY 0.39pipe for distribution system Accountupgrading plus miscellaneousconnections

11. Staff Training IDA 0.13PDRY 0.04

12. Financial Study Consultant Guidelines IDA 0.10

1/ A&K Funds - The Arzb Fund and the Kunwait Fund

- 35 -ANNEX 7Page 1 of 2

PEOPLE'S DEMOCRATIC REPUBLIC OF YEMAL MUKALLA WATER SUPPLY PROJECT

CREDIT DISBURE N SCHEDULE 2

Bank Fiscal Year Quarterly Cummulative Disbursement& Quarter Ending Disbursement US$ Million X of Total

FY 1988

June 30, 1988 0 0 0

FY 1989

September 30, 1988 0 0 0December 31, 1988 0.48 .48 4.0March 31, 1989 0.17 .65 5.4June 30, 1989 0.18 .83 6.9

FY 1990

September 30, 1989 0.38 1.21 10.1December 31, 1989 0.38 1.59 13.3March 31, 1990 0.39 1.98 16.5June 30, 1990 0.39 2.37 19.8

FY 1991

September 30, 1990 0.60 2.97 24.8-December 31, 1990 0.60 3.57 29.8March 31, 1991 0.60 4.17 34.8June 30, 1991 0.61 4.78 39.8

FY 1992


1' Based on disbursement profile for general investment loans in PDRY,modified to take into account the establisbment of the special fund.

- 36 - ANNEX 7

Page 2 of 2

Bank Fiscal Year Quarterly Cummulative Disbursement& Quarter Ending Disbursement US$ Million S of Total

FY 193


FY 1994


FY 1995

September 30, 1994 0.26 10.84 90.3Decervber 31, 1994 0.25 11.09 92.0March 31, 1995 0.25 11.34 94.5June 30, 1995 0.25 11.59 96.6

FY 1996

September 30. 1995 0.21 11.80 98.3December 31, 1995 0.20 12.00 100.0

RE OENEOTIC EUIOF W AbWL o nx NMOY "A

PROWECT COST B C OI ICWIN CINTItIEIICIES1,'...

Y 0oow9 ON 1990 I91 1992 93 19 1t9 TotalLocal Foreip Loal Foredp Local Foreip Local Foipg Local Foredn Local Fordip Loca Forip Local Foripgn Local ForipS1ly of borcasigs &screns 0 0 0 0 2 29 0 3 0 0 0 0 0 0 9 0 2 32CotnUcti of bornholug O 0 0 0 13 152 19 233 0 0 0 0 0 0 a 0 32 365Sply& in.tall pop tors 0 0 0 0 4 52 1t 159 1t 165 6 114 4 59 0 0 38 5s8letrical Iustallatilu 0 0 0 0 2 56 7 172 8 178 S 123 3 64 0 0 25 593

Sli tr itio pipeline 0 0 0 O t18 t121 157 16w9 72 745 0 0 0 0 0 0 347 359SuPPlotbor pipus.tc 0 0 0 0 22 242 30 31B 14 146 0 0 0 0 0 0 65 706Civilwk 0 0 0 0 98 762 152 1161 13 1412 54 417 28 21 0 0 5, 377IWro,Dio atiobo& fiaun stuI 0 0 0 0 7 n 5 67 5 70 a 108 0 0 0 0 21 343sulp of ou atimlhqd pot 0 0 1 17 5 77 5 70 1 9 0 0 0 0 0 0 12 174hff traling 0 0 1 4 2 9 2 9 3 9 1 5 1 5 I 5 13 46Construction.periuo 0 0 8 63 14 105 12 86 15 111 6 46 3 24 0 05 435Total 0 * 11 P 281 2914 4003 310 284 82 12 39 30 1 5 113310 I

TOt II6711s$ 1000

lst 0016 1989 "9O 191 m 1993 1994 5 TotalLocal Ferip Loca FOrin LoKl FOrn Local Fwrin Local Forign Locd Forign Local Forign Loel Forign LKol ForipSuIr of Lor, eclsp&acrban 0 0 0 0 6 6 1 9 0 0 0 9 0 0 0 0 7 93Cmmstrigtiof bu ols 0 0 0 0 36 441 56 676 0 0 0 0 0 0 0 0 92 1116

upply & Isslluq uapI tors 9 0 0 9 10 150 32 461 33 477 23 329 12 170 0 0 111 159Elctricl installain 0 0 0 0 7 163 22 49 22 516 15 356 8 14 0 0 74 1710S y tranuisai pipeline 0 0 0 0 343 5 454 4692 206 2159 0 0 0 0 0 0 1004 10421

ply o3 pir pesett 0 0 0 0 65 701 86 922 39424 0 0 0 0 0 0 189 2048Civil otos 0 0 0 0 285 2209 440 3389 529 4094 156 1210 0 626 0 0 14l 1152l opro operatioa I ftace study 0 0 0 0 21 286 14 195 15 202 23 313 0 0 0 0 73 95SpplY of opuratond quipmnt 0 0 3 49 16 224 14 204 2 26 0 0 0 0 0 0 35 503Staff tralning 0 0 3 12 7 25 7 26 7 27 4 14 4 14 4 15 37 133Construction uupwviuito 0 0 24 181 41 305 34 250 4 323 18 134 9 69 0 0 170 126Total 0 0 31 243 837 8156 1160 11321 900 8249 238 2355 113 1064 4 15 32 31403

Total 3U46

IPX >4

10O i:

PEI TICTIC IEPU IC IF WIIMIL IuI"L "ITER UPPLY JCTAI FRBECT COST B1 CMPIlT IKlEDSm l COIUTINUICIES

aD'OO V0000 to uB 000 U'000193 1WR 1O 99 t IM 1 13 19 I"S T1 I1 Tint) 1 196 19 19 99 19 19 IM Total

olof bore ci p I cr $ 0 0 31 4 0 0 0 0 35 0 0 90 10 0 0 0 0 100Co,tra tlimof br*lgg 0 0 164 252 0 0 0 0 417 0 0 477 732 0 0 0 0 1206Supply lustall pool & ntorm 0 0 55 170 It 121 6 0 S5 0 0 161 493 511 5 132 0 169Elutrical inIst tllim 0 0 179 186 123 66 0 i1l 0 0 170 520 539 371 192 0 1791W tppytraat.nJwopip,lin 0 0 135 1775 317 0 0 0 3942 0 0 3912 5146 2367 0 0 0 11425

Sbpply othw pipuustc 0 0 264 343 160 0 0 0 m7 0 0 766 1004 463 0 0 0 2237Citvil orks 0 0 6 11321 15S 471 244 0 491 0 0 2494 3 429 623135 706 0 13018IWr°nd. pwatinnIftnbac.study 0 0 106 72 75 116 0 0 361 0 0 307 209 216 336 0 0 1068Supply of npational quipment 0 18 83 75 10 0 0 0 16 0 53 240 218 23 0 0 0 533Staff training 0 5 11 11 12 6 6 6 59 0 16 32 33 34 18 13 19 170Custrugti umprwvision 0 71119 93 127 52 27 0 494 0 205 346 283 367 152 73 0 1432

Total 0 94 103 4306 3156 5 406 6 1196 0 274 993 12481 914 2593 177 193468

ao

I

10

1%

PEOPfLE IDOCRAIC RIWUCOFYMENGREAW ADEN SECOND WASUPLYPRIOECT

PubWCVftCmaraln - W0r-An Ch -1905

r~ I~ A&AI

L'I

I I {X3 oe Imwm

- Sam ' .m R. C

SA=Omola

Revg 1~~~~~~~~~adtfH 1~~~~~~~~~"Pl

FWIE|| IIWTI PC P?p3 - itU TI WS

Filea Vw bel l 31 1994 1o5 19 1 190 13 190 t 9992 1 1M 195- - - - - - ~ ~ ~ ~ ~ ~ ~ ~ ~~ ~~~~~~~----r o - ----- ---

utar fru 14 N3 2819 291.4 2w5 30.4 33.4 35.16 3.27 37 33 0.45 424 44.35bacautaifmbtu,nt " 29.4 25. 24.0 2.4.0 2.3 24.3 2l2 2.0 25.6 25.4 25.5 25.Eat bids 14 19.39 22.3 21.92 22.5 24.44 25. 2675 27.51 23.1 30.09 31.45 31.03lasep TaI4if 111.3 0L13 0.15 0.140 0.19$ LI 0.194225 O.m o 0.60L240 U.N6 0.3

6 o mI*co Umu 49,1 73,030 74,225 79,200 a 900 "lip0 94s0o7 100,70 103,90 107,300 110,7*

- E **************************************************************** Ill 1biuiT aad.................... .................................. , _......

NtW 11n. 2,441 3,010 3,59 4,31 4,784 5,030 4,019 4,14 4,424 7,2 I',59ht nwhs & blatamaac 31 49 148 15 1to 195 234 21 233 24 27noshauctlus 47 is 53 51 14d 52 5a 52 43 45 497blinri lapauulu 451 24 33 410 3no 320 350 340 370 330 390Itb I a - - _35 U 3 33 41 47 52 57

WIL 0 3,0W 3,595 4,042 s,0o 5,57 4,475 4,436 4,838 7,121 ,952 9,34 9*0

PW*auiuf Tra kt-iw - 24 31 449 - - -MP., hI a & hstl 0 82 9 47 1,042 1,15 8,17 1,217 1,24 1,314 M42 ,

baqv,Ft l S uculs 419 714 7K 144 99 ,0 1K13 1,235 179 I, 1K IF IIluvimuns I Ualatusmca ~141 20 204 323 459 3140 41 301,3haun bAdlulutratlus lapsmses 233 25 213 215 304 W 400 441 523 597 An94Frluiusfw hi Idt It 13 Is 20 23 24 a 30 33 36 39 4

lUKE Im I l ii con90 2,104 2,117 2,464 3,142 3,411 3,5 ,21 4,239 4,53 4,90 5,172lawcius blus qncatum 1,209 I,4m I,sm 1,3 2,435 2,94 1 2j65 3,419 3,442 3,s9lunuatu 444 440 7 447 91_ _ to ____ 1_ 1,70 1974 2,1

luccos 144,. Iutwut 433 1,941 1,132 I,=1 1,517 I'm 1,161 to3 1,312 I'M5 1,434 1,0133lu,anist . o o o12 567 I0 we lb 1,201 1,144knells hFW Tn fus 2 1,041 13 1,274 930 "14 it 529 512 77 21 MR9luciu To. (U pm ms) SR9 942 1,005 191 704 4a 435 457 242 594

NTII am 154 170 191 in 13V 15 19 7? 11 43 103

lounttq ut. 0.9 0.71 0.72 0.42 0.3 0.74 0.74 0.92 0L92 0.79 0.32 0.3

bbtoadure 11 u wilpbt 12.0 17.2 12.3 13.5 .6 L5 5.4 L 3.4 .I 3.0 LIFilm buts, ucut

I-

FUW IIUIIC PII I 11

FIKl VW Eailq bha_ 31 194 1915 193 19 19 139 19o 19 199 199 199 199

M5F5 P FIltlS

Pr-mud PIujict - - - - - 93 ~~~~~~~~~~~~~~~~~~~ ~~~31100 4,306 3,151 1 409 100*6w Inaistaust, ~~~4,94 4,913 3,157 5,476 2,345 5,8 4,674 1,461 671 1,774 2,300 3,200

-~ ~ ~ ~~~~ -

w"~~~~~~~~~~~ - 48 to 1<3'4 210 " 3 105 246 § . 4 " 310

O.L fl tEIS 5,239 5.373 3,33B 5,410 2,563 5,s15 I,0 6,171 4,397 2,974 3,209 3,210

tuitt - - - 81 57 74 70 70 600 1 1,201 I,14_urtluatlum - - - 484 so0 63 us 702 770 43 1,102 1,15S

TOTAL 3137 swim1 - - - 1,094 1,092 1,419 1,415 1,411 1,7S0 1,729 2,303 2,300

USERS CAPITAL 1 cm 212142) MI01) 97 (237) 1253) 1361 1363) 9 29 418 310 466

MAL UI8 F PM 3,097 4,972 4,314 6,4 3,402 7,263 9,072 7,9t1 6,266 5,121 S,ew2 5,974

540 597 393 1,450 1,644 2,0 2,015 2,171 2,447 2,762 3,220 3,S01

I r CrUSt - - - - - 407 71 760 ill 445 334L J frUIts 1,42 I,4 1,23 1,297 751 1,026 69 1 61 - .

6*6w 639~~~~~~~b 1,041 303

11 _h 2,111 2,33 1,545 1,297 751 1,433 1,354 1,03 841 411 445 334

GIVnt CBdtl 2,%5 2,317 1,8 2,0 1,3t7 3,69S 4,9r) 4,453 39254 1,419 2,137

TIM MM5 F FS 5,616 56 4,27m 5,53 39765 7,203 6,361 7,6 6,542 4,M 5,302 S,i

ET 1U4311(UCE) IN cSn 2,519 923 (39) 1910) 363 (6 fi11) 66 276 (9 (20) (107

III MC 0 2,519 3,44t 3,405 2,492 2,M5 2,7"0 2,079 2,14 2,421 2,092 2,072

CLUW am tAEM 2,519 3,47 3,408 2,492 2,355 2,790 2,079 2,145 2,421 2,092 2,072 1,965

MM 69CE COIe_ 0.0 0.0 0.0 2.3 2.2 2.0 2.0 1.9 1. 2.0 1.5 1.7

MIT3 1M NIFB TU 0.0 0.0 0.0 1.3 1.5 1.5 1.5 1.5 1.6 1.1 1.4 1.4

PIDPW DEHcRI REILC IF 111

PiEC - CUIISOLI3AIE AAC 11

Fiad VOW Euiiht Ibc_ 31 1St t94 19 196 19 199 199 190 1991 m2 1M 14 19

f ktul --- S66115 -A tua

Orm Visas huts 12,325 12,40 19,537 23,217 37,943 39,50 40,462 51,706 52,949 64,359 47,32 4,5Lou ke latue hepviatio (,1122) 46,23 17,215) (7,92) 13,550) (10,012) (11,212) (12,595) (1411) (15,92) (17 ) 119,90)

lbt Vised huts in Opuatio 420 5,96 1,5 15,345 29,09 29,494 29250 39,113 33,71 49434 4941 4,992

lbc& is Prophss 10,47 15,94 11,674 14,046 1,943 4,245 13,329 9,254 11,410 2,974 3,20 3,800

TOTAL FI1 A19 14,60 21,613 2,429 29,391 31,036 35,759 42,579 47,347 50,14 51,408 52,641 53,792

lIwvstorlg 631 753 2,09 1,700 1,400 1,200 1,145 1,200 1,234 1,473 1,1 1,750 I

kgmmts hKeiVablss 1256 1340 16 47 1595 161 1 90 139 1655 153 17 t0o 2172 2 330

Lu SWd hit 1115) 1120) 1141) 1147) 1190) 1216 1244) 12741 137 1343) 1343) 1343)Cahb & Euiva1t 2,519 3,447 3,406 2,492 2,15 2,7 2,0n7 2,145 2,421 2,092 2,072 1,945

TOTAL CWlt ASSETS 4,41 5,414 7,226 5,60 5,746 5,62 4,6 4,926 5,203 5,192 5,412 5,702

TOTAL A11E 21,371 27,217 31,454 35,011 6,72 4,41 7,42 52,29 55,397 5,4 ,053 59,494iumnmm mama ammum - am m SamMa am aaa-mm Sim aa

ESAT! & LIAtIUTItE

capital 1,294 1,294 1,296 1,294 1,294 1,294 1,294 1 294 1,2 1,294 1,29% 1,294

buuxoruu Cuntribution 11,770 14,67 15,924 16,7 20,102 23,6 21 33,7 34,424 37,3 3,90 42,bvdluaUu vaes 319 319 319 519 319 Si9 319i1 319 319 319 319

Datuind Eurnlup 504 640 630 1,02 1,140 1,297 to 1,42 150 157 1,494 1,737 1,0

Tta Eqdtit 13,639 14,342 16,371 21,366 22,877 24,6499 1,754 36,34b 39,417 41,152 43,332 45,644

tomn credbilt -21 -- - 40 1,1I9 1,m 2,750 3,341 3,597 3,725Esuin 10credits 4,1a,54 723 6343 6,j24 9,44 ,47 9,59 991 6, 311 7,415 4,94

Elt1502 2,54 21,i 2,415 2,7 2,141 1,l9S 1, 1,430 1,9 956 719

ttd LugTar hit 5,713 0,600 10,14 10,956 11,204 12,004 12,495 13,14U 13,097 12,965 12,266 :1,36W

custuarsl Itip 219 253 275 346 373 400 43 454 484 522 54244

hunts Payle 1,503 2,012 2,64 1,216 I,O t1,323 1,36 1,062 m 64 6

PEEl.Fi 47 - - ---

District Dtatislu 6 14 425 3051 67 440 240 1to 41

Curut Naturitin _ _ - 505 633 6 702 770 so3 1P102 1,154 1,210

Total Carrt Uuilititn 1,76 2,265 3,140 2,665 2,701 2,n8 3,023 2,991 2,463 2,513 2,513 2,44

OTIAL ES!1T & LAItLITIES 21,371 27,22 31,6S 35,011 36,712 41,441 47,472 52,293 S,397 6,00 5,053 59,4

casreat htlm 2.5 2.4 2.3 2.1 2.1 2.1 1.6 1.7 1.9 2.0 2.2 2.3

dut Eqhty Atlo 29 t71 34S 4 36 64 34 46 33 167 3149 29 :71 26 44 25 s75 24,76 22:73 20.60

'-

- 43 -

ANNEX 13Page 1 of 2



Assumptions for Financial Proetions

Water Projection and Sales

1. Details of the projected production and sales in Al Mukalla for theperiod 1987-95 appear in paragraphs 2.10 through 2.12 of the SAR and at Annex2. Projections of production and sales in other towns served by PWC, updatedto take account of the ongoing capital projects, appear at Annex 15.

Income Statement - Revenues

2. Water sales revenues for 1987 are the product of forecasted salesvolumes multiplied by the average revenues per ms obtained during the firstsix months of 1987 and are based on the latest tariffs which became effectivein June 1986 (Annex 16). A tariff increase which would yield a 162 increasein average revenues is foreseen for 1989 in order for PWC to meet its proposedfinancial discipline. Although not mandatory, other small increases have beenintroduced in 1993 and 1995 for the purpose of maintaining a certain level of"surplus" under Article 58 of the Organization of Public Corporations.

3. Other revenues, covering meter rental and maintenance, newconnections, network expansion, and sundry have been estimated on the basis ofthe anticipated volume of activies, adjusted for local inflation which in theforecast period is expected to be around 31.

bcome Statement - EDpenses

4. Wages, salaries and associated benefits have been forecast takinginto account PWC's ongoing endeavor to increase labor productivity. It hasthus been assumed that additional staff would be engaged for the new Seiyunbranch; otherwise staff would stay at the same level throughout the projectperiod, thus reducing the number of employees per 1,000 customers. Costs werealso increased for the expected inflation and for minor job enhancement costs.

5. Energy, fuel and chemicals costs are based on anticipated volume ofactivities, including the additional costs which will accrue when the newproduction capacity of Aden comes on stream in 1992. Inflation was also takeninto account.

6. Operation and maintenance costs as well as general administrativeexpenses have been estimated on the basis of the average value of gross fixedassets in operation at 1.5S and 1.0X, respectively.

- 44 -ANNEX 13Page 2 of 2

7. Depreciation was calculated at the average rate of 32 on the averagevalue of gross fixed assets in operation.

8. Interest charges were derived from existing and proposed credits.

9. As a Public Corporation, PWC's profits are subject to an 85X tax.

Sources and Appliation of vumds

10. Capital investments comprise mainly the proposed project, the GreaterAden first and second water supply projects and the Seiyun project.

11. The debt service is based on the existing and proposed IDA creditswhich are onlent to PWC.

12. Borrowings include only IDA credits, the loans from the Arab andKuwait Funds being passed on to PWC as equity.

13. The bulk of Government contributions consists of the loans from theArab and Kuwait Funds. The funds provided by lenders other than IDA for theGreater Aden first and second water supply, the Al Mukalla Rehabilitation, andthe Seiyun projects have likewise been contributed by the Government to PWC asequity. Such contributions are justified taking into account the very highcosts of providing additional water, the low income of a large segment of thepopulation and the high tariffs which already prevail.

Balance Sheet

14. Fixed assets are carried at historical cost on PWC's books. Ongoingprojects which will be transferred to fixed assets in service during theforecast period comprise the Greater Aden first water supply which isscheduled to go on stream partly in November 1987 and fully in March 1988; theSeiyun project which is expected to commence operation in April 1988 and to befully operative by March 1989; and the Greater Aden second water supplyproject which is scheauled for completion in early 1993. The cost of theseprojects were updated in line with the latest outlook and constructionschedules.

15. Receivables, which had increased to about 5.8 month sales equivalentin the wake of the 1986 events and the substantial tariff increase of June1986 (average revenues increased over 40%), are expected to decrease to aboutthree months as a result of PWC's collection efforts which, inter-aliaincludes service disconnection.

16. Other items, such as customers' deposits, payables, pension fund andcontract retensions have all been factored on the basis of related activities.

POLEI UEITICREPUNIC F 9AL 911*WTE UPY PROIEC

P1aC8 PUUTIN, C ON_TIU1 M COUUECTWIS SY 010

Facal Yer EndingDecK r 31 1984 1995 196 1987 1911 1989 1909 11 1992 193 1994 t9S

---- Actual rjIts.

A. IATER PRDWUCT1IU1, a3lymr

- reatwr Aden 23.31 24.85 23.70 24.70 26.50 27.40 28.20 21.90 29.60 30.10 31.31 0Q0- "^.ll. 2.11W 1.97 2.23 2.62 2.90 2.81 2.91 Lei 2.81 3.55 4.22 4.u5

- hail/Shibir 0.93 1.04 1.02 1.05 1.11 1.16 1.22 1.29 1.34 1.41 1.41 1.SGreater Seiyon 0.00 0.0 0.00 0.0 1.11 1.56 1.72 1.93 1.97 2.19 2.44 2.72

- N.etahI/hmaI 1.7° 1.88 1.90 2.12 2.11 2.23 2.32 2.3J 244 2.25 255 2L.DTotal Prodtzction 21.19 29.74 2W.9 30.49 33.68 35.16 36.27 37.17 39.36 40.45 4L29 U.35

B. WATER SALES, ll3lyer

- retet Aden 17.09 19.30 19.57 18.94 19.0 20.69 21.30 21.15 22.69 23.30 23.97 24.66-Niakalla 1.41 1.27 1.48 1.75 1.8 1.9" 1.94 I."4 1.94 2.52 3. 3.44

- 6hail/Shibir 0.53 0.66 0.74 0.77 0.91 0.85 0.89 O.9 0.9 1.03 1.00 1.13- Greater Seiym 0.00 0.00 0.00 0.00 0.81 1.11 1.24 1.34 1.46 1.64 1.86 2.06- Hawtablhala 0.86 1.07 1.13 1.20 1.26 1.32 1.39 1.44 1.52 1.6 5.6 1.76

Total S ln 19.89 22.0 21.92 22.56 24.66 2.91 26.75 27.51 2E.S 30.09 3i. 5 35L.8

C. M IF SWICE LINES

- beter Aden 45,853 46,874 48,259 50,300 51,700 53,300 54,900 56,200 57,900 59,70 61,S 00 3,- hIaela 11,262 11,6 12,078 12,700 13,00 13,60 14,100 1s,30 I5,000 15,0 15, 1h,6S a- 6AathuIrhir 7,408 7,760 7,914 3,100 1,00 2 9,70to10 99,10

- Sweeter lelyu. 9 ~ ~ ~ 0 0 0 740 7I0 8,0 9,00 9,60 10t0o090 1- Nautab/lhala 5,227 6,702 7,974 1,100 9,300 9,500 1,700 I,901 9,100 9,300 9,0 ,0

Total ub"r 09,750 73,030 76,225 79,200 8,900 91,1100 ",m 97,50 100,700 103,90 107,380 110,7- Adittio during the Ye 4,114 3,29 3,195 2,975 9,700 2,900 3,000 2,700 3,200 3,201 3,400 3.,

I. UliCCOITE FOR VlATER - 1 21.4 25.0 24.0 26.0 26.9 26.3 2.2 26.0 2L 25.6 25L 25.

II

- 46 -ANNEX 15

PEOPLE'S DEMOCRATIC REPUBLIC OF YEMENAL MUKALLA WATER SUPPLY PROJECT

Public Water Corporation Tariff Structure as of July 31, 1987

Aden

Domesticup to 30 m3 per 2 months - 66 fils per m3over 30 m3 per 2 months - 142 fils per m3

Industryall conuumption - 231 fils per m3

Governmentall consumption - 293 fils per m3

Commercialall consumption - 349 fils per m3

Embassies and Foreign Residentsall consumption - 374 fils per m3

Al Mukalla

Domesticup to 20 m3 per 2 months - 110 fils per m3over 20 m3 less than 50 m3 per - 220 fils per m3

2 monthsover 50 m3 per 2 months - 440 fils per m3

Industry and Governmentall consumption - 330 fils per m3

Commercialup to 50 m3 per 2 months - 440 fils per m3over 50 m3 per 2 months - 660 fils per m3

Constructionall consumption - 660 fils per m3



MONITORING INDICATORS FOR PWC

Indicator 1988 1989 1990 1991 1992 1993 1994 1995

I. STAFFING

Number of Employees+' 1020 1040 1050 1070 1090 1105 1120 1135

Staff per 1000 Connections 11.5 11.3 11.1 11.0 10.8 10.6 10.4 10.3

II. SYSTEM OPERATION

Water Sold 106m3/year 24.7 25.9 26.8 27.5 28.6 30.1 31.7 33.0

Water Produced 106m9/Year 33.7 35.2 36.3 37.2 38.4 40.5 42.5 44.4

Unaccounted for Water, 2 26.8 26.3 26.2 26.0 25.6 25.6 25.5 25.5

Number of Service Connections 88900 91800 94800 97500 100700 103900 107300 110700

III. MANAGEMENT AND FINANCE

Operating Ratio, X 73 80 81 83 79 78 80 81

Rate of Return S 7.0 4.1 4.3 3.5 4.1 4.2 3.5 3.7

Current Ratio 2.0 1.6 1.1 1.2 1.5 1.7 2.3 3.2

Debt: Equity Ratio 34:66 32:68 30:70 28:72 26:74 26:74 24:76 22:78

Debt Service Coverage 2.3 1.7 1.8 1.9 2.1 2.2 1.7 1.7

Average Tariff, YD/m 3 0.202 0.210 0.218 0.227 0.236 0.245 0.255 0.265

Self-financing Ratio S 12.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0

1' Excluding those engaged in capital works.

- 48- ANNEX 17



Selected Documents and Data Available in the Proiect File

B1. Assessment of Water Resources etc Study by Sogreab, March 1980, 3Volumes.

B2. Mukalla Master Plan by Arab Institute for Design and Studies,November 1982.

B3. Al Mukalla Water Supply Rehabilitation Project Interim Report by JohnTaylor & Sons, May 1986, 2 Volumes.

B4. Al Mukalla Water Supply Project, Project Design, Final Report by JohnTaylor & Sons, August 1987.

B5. Mukalla Sewerage Feasibility Study by John Taylor & Sons, 1977, 2Volumes.

B6. Al Mukalla Sewerage and Sanitation, letter from John Taylor & Sons toPWC, July 1987.

B7. Mukalla Sewerage, Marine Survey Report for Sea Outfall by John Taylor& Sons, September 1980.

Cl. Detailed water consumption projections and project description.

C2. Draft Terms of Reference for Water/Sewerage Sector Study.

C3. Draft Terms of Reference for Training Needs Assessment.

C4. Draft Terms of Reference for Consulting Services for Computerization.

C5. Draft Terms of Reference for Improving the Operational Efficiency ofAl Mukalla Water Supply System.

C6. Draft Terms of Reference for a Financial Study of the Public WaterCorporation.

Tci Nod,oci,wl ~~~~~~~IBRD 19947I T. Hbdron?clBf

N~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~N

\ P < / E ( - . ttOREFI tDw~~-

Rn, cii Mukoula~ ~ ~ ~ ~~ ~~ ~~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~RIF

PEOPLE'S DEORAI REUBI O'\ YEMEN SAUI ARABIA

w ! ll ' /. OF

0 P~~ciphig ototloos - Rood, ~ C YEMEN

W. bod. ThU .UWAYSH ») * \ RW)

Sed ! -, *e ;3 H

Z~~~~~ ~ ~ ~ ~~~ ~ ~~~ ~ ~~~~~~ O//APCIoA ,AP - sX -- t7

,~ ~ ~ ~ ~ ~ ~ ~~~~pod r~

*E ALMUtAL

R 1~~~~~~~~~~~~COBRlS

vFUwwsh @ l /~~~~~~~~~~~~~~~BbLs

., g Y, t t-.e ! / 7- , }~AtMUKA

PEOPLE'S DEMOCRATIC REPUBLIC OF YEMEN /SUIAA1

AL MUKALLA WATER SUPPLY PROJECT 't 4a SAD ARABIA

P>ROJECr, EMISTt M 4 6. ?-

1;3 Roln 1 1 Reserrxdn I la~~~~~~~~~~~~~~~~~~~~~ILotAETERS YEMEIN k/PEOPLE S t?ENt

Q) PilrpBg owtin R-d, ARAB REP . OFMF

b-dWold I 0^ ds on

_ 14°~~~~~~~~~A30LNx ETHO. SOMAUJA