Document of

The World Bank

FOIR OMCIAL USE ONLY

Report No. 12398

PROJECT COMPLETION REPORT

KENYA

NAIROBI THIRD WATER SUPPLY ENGINEERING PROJECT(CREDIT 1566-KE)

OCTOBER 13, 1993

MICROGRAPHICS

Report No: 12398Type: PCR

Infrastructure Operations DivisionEastern Africa DepartmentAfrica Regional Office

This document bas a restricted distribution and may be used bv recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bankl authorization.

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A,CR=Q S AND ABBflRE Q

GOK Government of KenyaMmG Ministry of Local GoventmentNCC Nairobi City Commission (1983 - 1993)

Nairobi City Council (Pre-1983 and Post-1993)PW Ptoject Implementation UnitWSD Water and Sewerage Department

FOR OFFICIAL USE ONLY

THE WORLD BANKWashington, D.C. 20433

U.S.A.

Office of Dlxrctow-0aeralOperatieoo Evaluatlo-

October 13, 1993

MEPORANDUM TO THE EXECUTIVE DIRECTORS AND TEE PRESMDENT

SUBjECTs Project Completion Report on KenyaNairobi Third Water Supply Engineering Project(Credit 1566-RE)

Attached is the "Project Completion Report on Kenya - Nairobi ThirdWater Supply Engineering Project (Credit 1566-KE)" prepared by the InfrastructureOperations Division, Country Department II of the Africa Regional Office withPart II contributed by the Borrower.

The project aims at providing technical asoistance in the preparationof long-torm plans for the development of Nairobi' e water supply system aud itsresource and demand management and designing the next (third) Implementationphase for possible Bank funding. The project also included capacity buildingwithin the Water and Sewerage Department of the Nairobi City Council.

The project achieved its principal objective, preparation of a'futureproject that is now under implementation. Other important achievements were thecomprehensive training program and the carrying out of oparation, smagement andfinance studies. The follow-on implementation of these efforts was not totallysuccessful, e.g. the decision on tariff increase was substantially delayed, andthe improvements identified for City's Council computer center had to be deferredto the subsequent investment project.

Overall, the project outcome is rated as satisfactory. Itsinstitutional achievements are rated as partial and the sustainability of itsbenefits as likely, mostly on account'of the project's successful implementationof the training program.

The PCR is of good quality and provides an accurAte account ofproject's achievements. The project is scheduled to be audited as part of acluster of two water projects in Nairobi.

This docummnt has a restricted distribution and may be used by rmMpien s onty in the performwc of|their official duties. Its contents may not otherwise be disclosec 4ithiut World Bank suthorijatlon.

FOR OMCIL USE ONLY

TABLE 0E MUNDET

PapNumbZ

PrefXice ............................................ iEvaluation Summary ......................................... ii

PART I - PROJECT REVIEW FROM THE BANKIS PERSPECTIVEA. Project Identkty 1.............. .B. Background ........... ........................... 1C. Project Objectives and Description 2D. Project Design and Organization 2E. Project Implemedtation . . . 3F. Project Results. . . 4G. Project Sustainkabity . . .5 H. Bank and Borrower Performance ...... ............... . 6I. Project Relationship ........ .................. . 6J. Performance of Consultant ...... ................. . 6K. ProJect Documentation and Data ......................... 6L. Findings and Lessons Learned ...... ................ . 6

PART 1 - PROJECT REVEW FROM THE BORROWER'S PERSPECTIVEA. Comments ............ 8B. Project Review from the Borrower's Perspective .... ........... 8

PART m - STATISTCAL INFORMATIONA. Related Bank Loans and Credits ..... ................... . 9B. Project Timetable ........................... 1....... 11C. Credit Disbursements .... 11D. Project Costs and Financing .. .......................... 12E. Water and Sewerage Department Financial S _tents

for th1e Project Period...... 13F. Stats of Credit Covenants .15G. Use of Bank Resources ... 19

This'document ha a rostricted distribution and may be used by rcipients only in te performaneof their officia duts Its contents may not otherwse be dislosed witbout World Bak authorition.

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PROJEC!r COAMPElO lOR

NAIROB nHWA,T SU1PPLY ENGINEERN EROE.g

This is a Project Completion Report (PCP) for the Nairobi Third Water SupplyEngineering Project, for which Credit No. 1S66-KE in the amount of SDR 6,20 million (UJS$6.00 million equivalent) was approved on March 26, 1985. The Credit was closed on June 30,1991, three years behind schedule. The last disbursement was on October 1, 1991, and theundisbursed balance of SDR 0.04 million (US$ 0.06 million) was cancelled.

The PCR was prepared by the Infrascture Operations Division of the Eastern AfricaDepartment (Preface, Evaluation Summary, Parts I and Ill). Part II was prepared on behaf of theBorrower, the Nairobi City Council (NCC) by its Water and Sewerage Department (WSD).

Preparation of this PCR was carried out in March/April 1993, and is based ih alh onthe Staff Appraisal Report, the Development Credit and Project Agreements, supervision reports,correspondence between the Bank and the Borrower and interni Bank memoranda. Parts I andMI were sent to the Borrower on April 15, 1993, and Part II was received on June 25, 1993.

lPROECr COMPL=ET10N RRBE

SAIROB THIRD WA RSUPPLY ENGINEERING PRJEC=

15i-

EVAWATTONY

Backgrolnf and Epject pein

1. Development of the water supply system of Nairobi bad genealy kept pace with thegrowing demand. Ihe last major expansion, substatlSly completed in 1983, was made withfinancial assisance from the bank (Second Nairobi Waw Supply Project, Loan 1520-KE). Thisproject incrsed the water supply capacity to about 230,000 mlday, which was expected to meetthe demands up to 1987. The Government requested the Bank in mid-1983 to support thepreparation of the next, third phase expansion of the Nairobi sysem. A PPF advance of US$ 1.0million was provided in July 1984, for financing the early phase of the consutancy worL

2. Isiuonally, Nairobi's waer system was managed by the Water and SewerageDepartmet (WSD) of the Nakobi City Commission (NCC). WSD had shown a declingperformance during the implementation of the second phase project, maiy due to shortag ofexperienced staff. However, WSD's financial position, in contrast with NCC's overall financialposition was strong and efforts were made to recruit new staff, to mainain and Improve WSD'soperational and project implementon capacity.

3. The need for a third extension phase of Nairobi's water supply as part of the Nairobi citylong term development plan was clearly identified during the appraisal of the previous project.The project design therefore provided for (a) preparation of a long term program to manage watresources (and demands) on a regional basis; (b) detadled desIgns for the third phase extensiou;and (c) substantial assistace and taing program for WSD's manpower developmet.

ImpemenSion Expriec

4. The project start-up and early progress was satisory and the project coept ("projectdefinition") was presented by the Consultants in October 1985, and after some addionalrefinement was agreed to in January 1986. Progress on the detailed engineering design, however,was slower than expected and by late 1987, it became clear that even If the follow-on projectcould be appraised in 1988, its implemention could only commence in 1989 at the earliest, andcompletion would take at least 4 -5 yeas. It was proposed, therore, to change the planninghorizon from 1995 to 2000 - 2005. The subsequent redesigp of some part of the fure Project(notably to increase the capacity of the treatment works and the transmission mains) sted Inearly 1988, together with the reassessment of the enviroental impact of dhe project and thepreparation of the Environmental Action Program. The design modifications were ready by end-March 1988, and the future project was appraised in June 1988.

5. The Operation, Maintenance and Fiac (OMF) Study was caried out simultaneouslywith the ft phase of engineering consultacy, and provided a usel base for WSD's

reorganizaon, preparation of a suitable training program and for the redesign of the structure ofwater and sewerage tariffs. Specialist consultants were also appointed to review and assess theneeds for upgrading NCC's computer center.

Pa)iect Resuts

6. Overall, the Project was successfl in meeting Its principal objective, i.e., the preparationof the future project. The train component of the Project has been successful and helped toovercome the chronic staffig problem of the organizatun with intensive training on all levels andundoubtedly Improved WSD's operational effick:icy. Less successful was the improvement ofNCC's computer facilities (shared with WSD) which was finally deferred to the main Investmentproject.

7. WSD's financial performance was satisfactory during the project period, and it was ableto build up sufficient reserves to contribute over US$ 100 million equivalent to the maininvestment project. By mid-1986, NCC reduced its liabilities to the Water Fund (resulted fromNCC's unuthorized use of war and sewerage revenues for other purposes) to KSI 50 milion,and the tariffs were increased by an average of 40% in FY87/88. NCC, however, began to drainagai substantial amounts from the Water Fund in FY88/89 and its condtued use of this sourceled i=Ab6 to the suspension of disbursements under the Tlird Nairobi Water Supply Ptoject(October 1992).

ftWect Sutialj

S. WSD had a commendable record in maintning and opeaing Nairobi's water supply andsewerage systems, even in periods of financial difficulties and manpower shoraes. However,without a solid financial and institutional base, sustainiity of water supply and sewerageservices could be in danger. The major risks in this regard are:

(a) delay in introducing tariff increases as and when required - a 35% taiff increaewas introduced in 1984, and another 40% in 1987 - however, this has not beenfollowed by any futher increase to date J1;

(b) contumed use of the Water fund to finance NCC's operations other than water andsewerage services - NCC's liabilties to the Water Fund were reduced to KSh 50million by 1988 (apprisal of the follow-on investnt project). The unauthrizeduse of these Funds, however, has continued periodically thereafte which resultedIn insufficient zasb flow for WSD to finance its contribution to the project costs;and

(c) inefficient billing and collection - at the time of the appraisal of this project, thearrears amounted to about 120 days of billing; these increased to about 250 daysby 1989. It is estiated that about 60% of the unpaid bills belong to ministriesand other government institutions. Efforts have been made to improve the billing

1/ At end-March 1993, when this PCR report was prepared, a tariff increase had beenapproved but not yet put Into effect.

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cycle, but sufficient Improvement In collection of revenues was not achieved bythe closing date of this project.

L<essons ne

9. The main technical. objective of the engineering project, L.e., the preparation ofpreinvestment studies and detailed engineering designs for a future investment project was met,although the project scope (design horizon) had to be extended in mid-ream, which resulted insome delays in the actual start-up of the main project.

10. The "institutional" objective of the project was only partially met. The trainingcomponent was successful and WSD's institutional capacity improved. Because of theinstitutional and financial wealness of NCC, which was not adequately addressed in theEngineering Credit, NCC remained to a great extent dependent financially on the revenues fromwater and sewerage operations: hence its repeated unauthorized use of the Water Fund.

II. Project implemenion, from start to substni completion took 6 years (verus the 3year program as originally enisaged), although project funds in the las 2 yeanr were utilizedmanly for training.

12. In summary the main lessons leared are:

(a) Training of the Borrower's staff in procurement procedures and thorough reviewof procurement documents are essential to avoid delays in project implemeion

(b) The risks amsociated with the performance of the Borrower (NCC) wereunderestimaed compared to its principal project implementig arm (WSD). TheBank should have been more decisive in exercising its remedies for non-compliance with the credit covenants. Although implementation of the investmentproject itself has been good, disbursements under the follow-on main project(Ihird Nairobi Water Supply Project, Cr. 2060-KE, which became effctive inMarch 1990) were suspended in October 1992, because of govemment faiure toraise tariffs, continued NCC borrowing from the Water Fund, and continuedproblems with arrears to WSD.

(c) It is clear that the Nairobi Water and Sewerage Department should be anindependent public (or private) entity, if it ever is to be allowed to become afinancially self-sustning organzation.

HAD=I THIRX NAME SUM JLMNGEEESN2 PROlE=CRDI 1566-KE

PrOJECT COmPLEoN REEPR

PART I: PROJECT RE;W FR NK'S PERSPECTI

A. Proje Idi1

Name: Nairobi Third Water Supply Engineering ProjectCredit Number: 1566-KERVP Unit: Af.ica RegionCountry: KenyaSector: Water Supply and SanitationSubsector: Urban Water Supply and Sanitation

B. BakgMrun

1. Kenya's economy In the early 1980's was adversely affected by the droughts in 1979/80and 1983/84. Although industrial growth was still at a reasonable level of 3.5% per annum,naricultural output stagnated. Migration to urban areas increased; overall urban growth wan-about7% per annum, increasing the need for urban services.

2. Development of the water supply system of Nairobi had generally kept pace with thegrowing demand. The last major expansion, subsnially completed in 1983 was made withfincial sistance from the Bank (Second Nairobi Water Supply Project, Loan 1520-KE). Thisproject increased the water supply capacity to Nairobi to about 230,000 m3lday, which wasexpected to meet the demands up to 1987.

3. It was against this background that Government requested the Bank in mid-1983 tosupport the preparation of the next, third phase expansion of the Nairobi system. A PPF advanceof US$ 1.0 million was provided (request date: May 18, 1984, approval date: July 5, 1984) forfinancing the early phase of the consultancy work.

4. Institutionally, Nairobi's water system was managed by the Water and SewerageDepartment (WSD) of the Nairobi City Commission (NCC). WSD had shown a decliningperformance during the implementation of the second phase project, mainiy due to shortage ofexperienced staff. However, WSD's financial position was strong, in contrast with NCC's overallfinancial situation which had rapidly declined since 1974/75. NCC, in order to meet its financialobligations made unauthorized use of the revenues generated by water supply and sewerageservices (Water Fund) until 1983/84. After the dismissal of the Nairobi City Council in 1983, theappointed City Commission made considerable efforts to repay its liabilities to the Water Fund,and the water and sewerage tariffs were raised by 35% on the average to enable WSD tocontribute to the preparation of a future project.

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C. Pect Objectives and Descr:ton

5. The main objectives of the Engineering Project were to:

(a) prepare a project which would meet Nairobi's rapidly expanding water demandsup to the mid-1990's;

(O) strengthen the operations and financial management of WSD to undertake the thirdphase Investment;

(c) assist NCC in improving the performance of its Financial Department and itscomputer facilities;

(d) assist in the preparation of a long-term program to manage water resources on aregional basis;

(e) assess Nairobi's sewerage and sanitation requirements.

Project Descipution

6. The main components of the Project were:

(a) consultancy services for

(i) feasibility studies;

(1i) detailed engineering designs (including contract packagig and prepaationof bid documents);

(iii) associated studies for environmental assessment and preparation of anEAP; and

(iv) dam expert panel.

(b) technical assistance and training for NCC and WSD, including:

(i) institutional (operational, management and financial studies);

0i) improvement to NCC's computer center;

(ii) manpower development through long- and short-term training.

D. ftoij Design- gand iatign

7. The need for a third expansion phase of Nairobi's water supply as part of the Nairobi Citylong-term water development plan, was clearly identified during the appraisal of the Second

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Nairobi Water Supply Project in 1977 1/. At that time, it proved economical to deferconstruction of an expensive dam and storage reservoir for at least seven years to a later phase, tobe prepared under thbis engineering credit. The feasibility study phase of the Project was designedto rewiew and supplement the previous studies ("project definition") together with the grepaationof a long term prog= , MA watr resources rand demands) on a regional basis. Detaileddesigm were to be prepared In Xt following phase.

8. The project also provided for (a) an independent dam expert panel, and (b) anenvironmental impact assessment study.

9. Due to a two-year delay in final commissioning of the previous project, changes in theCity's administrative structure, and senior personnel changes in the policy making levels of theparent Ministry of Local Government (MLG), the forward planning for the third expansion phasefell behind schedule. In order to speed implementation, a high level interministerial committeewas established. NCC with government support appointed consultants to carry out thepreinvestment studies and subsequent detailed engineering. To assist the Government and NCCrecover project momentum, the Bank approved in July 1984 a PPF advance of US$ 1.0 millionto help finance the early phase of the consultancy 2/.

10. The Borrower was the Republic of Kenya. The credit amount was on-lent to the NairobiCity Commission, and direct responsibility for the project implementation lay with its Water andSewerage Department. Prior to appraisal, the Project Implementation Unit (PIU) within WSDwas strengthened with additional staff and detailed job descriptions were prepared for themembers of the unit. In order to ensure project sustainability, special emphasis was given in theproject design to the Operation, Management and Finance (OMF) Study (carried out by specialistsubconsultants), and to the training component. To ensure WSD's finncial viability, a 35% tariffincrease was approved (see also para. 4) and NCC gradually reduced Its outstanding obligation tothe Water Fund.

13. Projec Implementaion

11. The Project was appraised in late 1984, approved by the Board on March 26, 1985 l/,and became effective on August 21, 1985. The engineering consultants had started work alreadyin mid-1984 financed partially through the PPF advance (see also para. 9). The early progresswas satisfactory and the project concept ("project definition") was first presented by theConsultants in October 1985, and after some additional refinement was agreed to in January 1986.Progress on the detailed engineering designs, however, was slower than expected and by late 1987it became clear that, even if the follow on project could be appraised in 1988, its implementationcould only commence in 1989 at the earliest, and (substantial) completion would take at least 4 -5years. WSD, therefore, proposed to change the planning horizon from 1995 to 2000 - 2005. TeBank (and the cofinanciers) agreed to the proposal, and the work to redesign some parts of thefuture Project (notably to increase the capacity of the treaunent works and the transmission mains)

1/ Loan 1520-KE.

Z/ PPP No: P-295-KE.

3/ President's.Report No. P-3943-KE. No Staff Appraisal Report was prepared.

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started in early 1988, together with the reassessment of the environmental impact of the projectand the preparation of the EAP. The design modifications were ready by end-March 1988, andthe future project was appraised in June 1988 4/.

12. The OMP Study, carried out by specialist subconsultants, was completed by end-1986.The findings and recommendatiow; provided a useful base for VWSD's reorganization, preparationof a suitable training program and for the redesign of the structure of water and sewerage tariffs.However, the recommendations in regard to institutional restructuring - particularly the split ofwater supply and sewerage were not realistic and the training proposal did not explore localopportunities.

13. NCC/WSD also appointed consultants to review and assess the needs for upgradingNCC's computer center. This consultancy resulted in some improvement but did not achieve itsultimate objective of upgrading and extending the computer facilities to adequately cope with bothNCC and WSD's needs. An independent computer center for WSD is now being set-up, underthe main investment project; however, the existing arrangement of sharing the capacity of thecomputer facilities has had an adverse effect on WSD's billing and revenue collection operations.

14. In order to reduce losses in the system (which were as high as 35% to 40% after thecompletion of the second phase project) WSD on its own also hired consultants for leak detectionand control. his proved to be very useful in reducing the losses and improving WSD'soperational efficiency, and was later incorporated in the Engineering Project E/.

15. The training component of the Project has been successful. A special training program,tailored to the needs of WSD, was provided by IRCU f/, mostly for mid-and lower-level staff.About 20 professional staff were sponsored to participate in 12 to 18 month diploma and/orM.Sc. courses, and 13 other staff attended relevant short courses (I to 3 months). This trainingprogram helped to overcome the chronic staffing problem of the organization, and undoubtedlyimproved WSD's operational efficiency.

16. In mid-1986, because of the rapid depreciation of the US$ versus the £Stg (the currencyof payment of foreign costs under the consultancy contract), to ensure availability of funds forforeign cost payments, agreement was reached that NCCJWSD would not seek the reimbursementof 50% of local expenditures which were to be financed by the Credit. In addition, for the samereason, WSD did not use project funds for the local (IRCU) training component.

F. rject ReBslts

17. Overall, the Project was successful in meeting its principal objective i.e., the preparationof the future project, and providing adequate training to ease WSD's long-lasting staffingproblems. Less successful was the improvement of NCC's computer facilities (shared with WSD))which was finally deferred to the main investment project.

4/ Third Nairobi Water Supply Project, Cr. 2060-KE.

S/ Also continued under the follow-on Third Nairobi Water Supply Project.

fi/ Industrial Research and Consultancy Unit of the University of Nairobi.

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18. WSD's financial performance was satisfactory during the project period, and it was ableto build up sufficient reserves to contribute over US$ 100 million equivalent to the follow-onmain investment project 21. By mid-1986, NCC reduced its liabilities to the Water Fund toKSH 50 million, and the water and sewerage tariffs were increased by an average 40% in FY87/88. NCC, however, began to drain again substantial amounts from the Water Fund inFY88/89 and its continued use of this source led inter alia, to the suspension of disbursementsunder the Third Nairobi Water Supply Project (October 1992).

19. The Closing of the Credit was extended by 3 years and the Credit actually closed on June30, 1991. 85% of the funds were disbursed by June 1989. The remaining 15% was utilizedmostly for the T.A. and training component.

20. No economic rate of return was calculated for the engineering project.

G. Project Sustainability

21. WSD had a commendable record in maintaining and operating Nairobi's water supply andsewerage systems, even in periods of financial difficulties and manpower shortages. However,without a solid financial and institutional base sustainability of water supply and sewerage servicescould be in danger. The major risks in i - regard are:

(a) delay in introducing tariff increases as and when required - a 35% tariff increasewas introduced in 1984, and another 40% in 1987 - however, this has not beenfollowed by any further increase to date I/;

(b) continued use of the Water fund to finance NCC's operations other than water andsewerage services - NCC's liabilities to the Water Fund were reduced to KSh 50million by 1988 (appraisal of the follow-on investment project). The unauthorizeduse of these Funds, however, has continued periodically thereafter which resultedin insufficient cash flow for WSD to finance its contribution to the project costs;and

(c) inefficient billing and collection - at the time of the appraisal of this project, thearrears amounted to about 120 days of billing; these increased to about 250 daysby 1989. It is estimated that about 60% of the unpaid bills belong to ministriesand other government institutions. Efforts have been made to improve the billingcycle, but sufficient improvement in collection of revenues was not achieved bythe closing date of this project.

22. Non-compliance with the financial covenants in regard of above, led to the suspension ofdisbursements under the Third Nairobi Water Supply Project. In the period of October 1992 toMarch 1993, although considerable efforts were made to improve WSD's financial position,

2/ WSD's financial data (balance sheets and income statements) for the project period,included in Part III, Clause E, demonstrate WSD's underlying finacial viability.

I/ At end-March 1993, when this PCR report was prepared, a tariff increase had beenapproved but not yet put into effect.

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introduction of overdue tariff increase, sufficient repayments to the Water Fund, and reduction ofarrears to 150 days by mid-1993, are still awaited.

H. Bank akin rroe ernane

23. The performance of both the Bank and the Borrower was satsfactory during thepreparation and early (feasibility) phase of the project. WSD's performance in the technic&'preparation and extension of the design horizon was excellent.

24. During the detailed engineering design phase more attention and assistance to WSD by theBank staff in the preparation of bids and contract documents might have helped to avoid delays inprocurement. Project supervision was generally satisfactory.

25. WSD's financial (cash flow) problems are related more to the follow-on investmentproject, which ran simultaneously with the engineering project in the period 1989-91. WSD'sunderlying financial strength was demonstrated by the fact that reimbursement request for localcost was substantially reduced to save IDA funds for foreign payments. Revenue collectionperformance was WSD's weakest spot; it stemmed partially from the inefficient computerfaciities (biling problems), but also to a large degree from political interference, and weakfinancial management.

I. Proiect Relationsbir,

26. Tne relationship between the Bank and NCC/WSD was generally cooperative and candidduring the project cycle.

J. mancem of Conultnt

27. The engineering consultant performance was mediocre. lle major problems were (a)timely review/revision of the project scope as a result of extended design horizon; (b)underemated costs of certain contracts; and (c) inadequate quality of bid documents andhandling of procurement matters on behalf of NCCIWSD.

K.

K. ProjectDocmentatiionandDiata

28. No staff appraisal report was prepared for this project. The President's Report (No. P-3943-KE) was however, sufficiently detailed for the purpose of the engineering project.

29. Record keeping by WSD and its Project hnplementation Unit (PIU) was satisfactory, afteran initial period. The quality of project accounts has also been generally satisfactory.

L. Findings and Lessons Leared

30. The main -technical' objective of the engineering project, i.e., the preparation ofpreinvestment studies and detailed engineering designs for a future investment project was met,although the project scope (design horizon) had to be extended in mid-stream, which resulted insome delays in the actual start-up of the main project.

31. The "institutional- objective of the project was only partially met. The trainingcomponent was successful and WSD's institutional capacity improved. Because of the

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institutional and financial weakness of NCC, which was not adequately addressed in theEngineering Credit, NCC remained to a great extent dependent financially on the revenues fromwater and sewerage operations: hence its repeated unauthorized use of the Water Fund.

32. Project implementation, from start to substantial completion took 6 years (versus the 3year program as originally envisaged), although project funds in the last 2 years were utilizedmainly for training.

33. In summary the main lessons learned are:

(a) Training of the Borrower's staff in procurement procedures and thorough reviewof procurement documents are essential to avoid delays in project implementation;

(b) The risks associated with the performance of the Borrower (NCC) wereunderestimated compared to its principal project implementing arm (WSD). TheBank should have been more decisive in exercising its remedies for non-compliance with the credit covenants. Although implementation of the investmentproject itself has been good, disbursements under the follow-on main project(Third Nairobi Water Supply Project, Cr. 2060-KE, which became effective inMarch 1990) were suspended in October 1992, because of government failure toraise tariffs, continued NCC borrowing from the Water Fund, and condnuedproblems with arrears to WSD.

(c) It is clear that the Nairobi Water and Sewerage Departnent should be anindependent public (or private) entity, if it ever is to be allowed to become afinancially self-sustaining organization.

PART II: PROJECT REVIEW FROM BORROWER'S PERSPECTIVE

A. Comments

1. The Bank's (Part 1) of the project review is considered to be reasonably accurate anddescribes the project design and implementation stages adequately. However, there are somecomments andlor clarifications on-Part I that need to be stated here.

2. The tariff increase was made in May 1993 of 37%.

3. The arrears build-up resulted from a combination of errors in billing, increase in quantityof water sold and increase in tariff. This made the arrears due from the 60% who were notpaying bills, to increase.

4. The delays in procurement could have been reduced if the Bank's response and/orcomments on contract documents were made quickly and on time. In some cases, the Bank;sresponse took very long to be received and this could have been speeded up. However, NairobiCity CouncilJWater and Sewerage Department received a lot of professional advice from the TaskManger and this helped to minimize delays.

5. The relationship between Nairobi City Council/Water Sewerage Department and the Bankwas cooperative and candid during the project.

6. The technical objective of the project was achieved and detailed designs of the projectscope became available for the project's implementation.

7. The development of the Water and Sewerage Department institutional set up commencedand with a vigorous staff development through training, it continues to be stronger and more ableto manage the tasks assigned to Water and Sewerage Department.

8. The financial viability of the Water and Sewerage Department will depend upon its beingable to produce and market water and sewerage services at least cost, irrespective of whether it isan independent public or private entity.

9. The data in Part m are noted. It is, however, not clear whether the report should havecovered the period to end of engineering credit closing date or not. This is because some of theevents relate to periods beyond the closing date of engineering credit 30th June, 1991.

B. Review from Borrower's Perslective

10. The project was successful in preparing the designs and procurement documents for theproject and these have since been used in the physical implementation of the project The designperiod for the project was changed to a longer period in 1987, since the project would generategreater benefits. This also has assured the future Water Supply Plans for Nairobi beyond the year2005 - 2010. The training element was very successful and contributed effectively to themanagement of the Water and Sewerage Department in particular and Nairobi City Council ingeneral. The issues that were the subject of the October 1992 suspension have been addressed,and it is expected the suspension will be lifted during the third quarter of 1993.

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PART III: ffA]MCAlcAJJNEQMAIIQN

A. Related Bank Loans

Table 1: RELATED BANK LOANS AND CREDITS

Title of Credit Purpose Approved Status- -Amount

(US$ m)Nairobi Water (A) Increase the water supply to 1970 8.3 CompletedSupply Project Nairobi by constructing (a) a satisfactorily inLn. 714-KE weir and river intake on the 1979

Chania river; (b) a raw waterpumping station andtransmission; (c) water treatmentplant at Ngethu; (d) treatedwater transmission main fromthe water treatment plant toNairobi and a terminal reservoir;and (e) extension of thedistribution system.(b) Provision of T.A. to thenewly formed 'Water andSewerage Department of theNairobi City Council

Mombasa and (A) Increase the water supply to 1975 35.0 Completed in 1982Coastal Water Mombasa, expand distributionSupply Project into new locations along theLn. 1167-KE coast, (B) provide T.A. to the

Coast Province Water Branchand the Ministry of WaterDevelopment, and facilitate thepreparation of a rural watersupply project.

Rural Water (A) Provide safe water to a rural 1978 20.0 The Project wasSupply Project population of about half a terminated, and the

million by implementing 33 new loan was closed onschemes; (B) Strengthen the June 30, 1985, asorganization of the Ministry of (a) progress wasWater Development to plan unsatisfactory; andexpansion programs, and to (b) GOK decidedoperate and maintain rural water that only grantsupply schemes. funds should be

used in the futurefor rural watersupply development.

- 10-

Table 1: RELATED BANK LOANS AND CREDITS (con't.)

Title of Credit Purpose Approved statusIYau AmQunt

(US$ m)Second (A) Increase the Water Supply to 1987 30.0 CompletedNairobi Water Nairobi from 130,000 m'lday to satisfactorily inSupply Project 230,000 m3/day, and to improve 1984.Ln. 1520-KE and expand the existing

distribution network;(B) Provide training andassistance with the design andimplementation of improvementsto the accounting andmanagement information systemsfor the water and SewerageDepartment (WSD)

Third Nairobi (A) Increase the Water Supply to 1989 64.8 Presently underWater Supply Nairobi from 230,000 m3/day to implemenmtion.Project about 450,000 m'/day, and to CompletionCr. 2060-KE improve and expand the existing expected In 1995 I/

distribution system;(B) Rehabilitate and extend theDandore Sewage TreatmentPlant to about 90,000 m'/daydry weather flow;(C) Improve water supply andsanitation services in the lowincome residential areas; and(D) Provide T.A. and trainingfor WSD and NCC to (J)improve operational efficiency,(ii) assist WSD inimplementation of 'self-accounting" system, and (iii)implement the envirornmentalaction program.

Second (A) Provide Institutional Support 1991 43.2 Presently underMombasa and to the implementing agency implementation.Coastal Water (National Water Conservation CompletionSupply and Pipeline Corporation); expected in 1996Engineering (B) Prepare pre-investmentand studies and detailed engineeringRehabilitation designs for the extension of theProject Mombasa and Coastal WaterCr. 2333-KE Supply System and for related

waste water disposal andsanitation systems; and(C) assist in the design andimplementation of therehabilitation/augmentation ofthe existing water supply, forshort term improvement.

1/ Due to non-compliance with financial covenants, disbursements were suspended inOctober 1992.

- 11.-

Tale 2: PLANNED, REVISED AND ACTUAL DATES OF PROJECT TIMETABLE

Item Date Planned Date Revised Date Actual

Preparation 01-09/1984 - 01-09/1984Appraisal Mission 10/1984 - 10/1984Post-appraisal - 02/1985Credit Negotiations 02/1985 - 02/26-27/1985Board Approval 03/1985 - 03/26/1985Credit Signature 04/1985 - 04/15/1985Credit Effectiveness 07/1985 08/1985 08/21/1985Credit Closing 06/30/1988 06/30/1989

06/30/199006/30/1991 06/3011991

Project Completion 12/1987 06/1991 06/1991

C. Credit Msbursements

Table 3: CUMULATIVE ESTIMATED AND ACTUAL DISBURSEMENTS (US$ MILLON)

FY86 FY87 FY88 FY89 FY90 FY91 FY92

AppaisalEtime 1.60 4.80 6.00

Actual 2.79 3.67 4.17 4.89 6.34 7.41 7.43

Actual as % of Esimat 174,4 765 69.5 81.5 105.7 123.5 123.8

Date of Last Disbursemet I/ October 1, 1991

.1/ Disbursement figures are given n historical US$ equivalent. Total disbursement m SDR termswas 6.16 million, i.e. 99.4% of the total credit of SDR 6.20 million. The remaining amount of SDR 0.04million (equivalent to US$ 0.06 million) was canceled.

-12-

1). ProLect Costs and Finacncuw

Tabl4: PROJECr COSTS (USS million)

Amwasl Estimatoech 1/

Item Description Loca Forei Totd Lol Foeig Total

1. FeasibiW stdy, detailed 2.2 2.6 4.8 2.0 5.0 7.0engineeing andassociated studies

2. Panel of expets 0.1 0.2 0.3 - 0.3 0.3

3. Techal Assstance and 0.4 O.J 0.9 0.2 1.1 1.3

Tnuning

Continnies:Physicd 0.3 0.3 0.6Price 22 0.4

Total Project Cost 3.5 4.0 7.5 2.2 6.4 8.6(including taxes) Z/

1/ Including contngencies.ai Estimated at about US$ 0.3 million equivaleat

l 5: PROJECr FINANCING (USS million)

A>ptaii EsdmatoLocal Foreign Total Local Foeign Total

IDA 2.0 4.0 6.0 1.0 6.4 7.4

NCC I/

Total (mIc. taxes) 3.5 4.0 7.5 2.2 6.4 8.6

1i/ Financed by WSDs internally ated funds.

- 13 -

E. WSD Financl Statments for the Ptoiect Period

Wbe 6: Consolidated OperationsBalance Sheets

(Current Kenya Pound '000)

Exchange Rates (ae) US$1.00 - Ksh 16.042 16.515 18.599 21.601 24.084 28.074ExchangeR Rates (t) US$1.00 - Ksh 16.226. 16.454 17.747 20.572 22.91S 27.508CPI (1986 = 100) 20.0% 100.0 107.7 119.7 135.2 156.3 187.3

FY ending June 30: FY1986 FY1987 FY1988 FY198i FY1990 FY1991(18 months)

ASSETS - (Audited) -- -(Int)-

Fixed Assets:Plat in Operation CPI 94,699 100,12S 108,402 112,871 119,249 124,661Less: Accumulated Depreiation 16,509 19,505 31,169 36,598 39,397 47,802

Net Plant in Opeation 78,190 80,620 77,233 76,273 79,852 76,859Work.in-Progress 0 0 0 S,502 17,551 66,184

Totd fixed AssMs 78,190 80,620 77,233 81,775 97,403 143,043

Current Assets.Cash and Banks 113 0 144 S1 603 1investments 3,100 5,968 3,22S 2,844 1,463 4,750Account Receivable-Billings(day 150 13,737 18,836 29,142 34,381 12,822 46,409Less: Provision for Bad Debts 1,151 1,256 1,516 2,027 3,045 3,745

-Net Account Receivable - Billings 12,586 17,580 27,626 32,354 9,777 42,664Accounts Receivable - Trmeury 0 0 0 4,620. 6,877 5S091Inventories CPI 1,928 1,639 1,528 1,356 1,492 7,954

Tota Current Assets 17,727 25,187 32,S23 41,225 20,212 60,460

Deferred Cages SALES 5,019 6,159 6,294 2,094 3,164 2,47Loan to NCC Gener Fund 7,712 4,929 2,772 10,817 12,306 10,008

TOTAL ASSETS 108,648 116,895 118,822 135,911 133,085 216,358=, = = = _ = = == = === == ==

RESERVES AND LIABDLrTES

Retined Earnings and Reserves 58,052 66,926 66,502 75,037 88,147 94,773

Long-Term Debts 48,082 47,419 39,535 43,314 50,622 99,587

Current LiabilitiesAccoudts Payable.Suppliers(m/s) 18 1,037 686 1,520 1,362 2,518 2S,442Accounts Payable - Treaury 0 O 9,301 13,962 16,293 04ustomers' Deposit SALES 1,477 1,728 1,964 2,236 2,349 2,543Bank Oveidraft 0 136 0 0 0 0

Totd Current Liailities 2,514 2,550 12,785 17,560 21,160 27,985

TOTAL RESERVE AND LIABILITIES 108,648 116,895 118,822 135,911 159,929 222,345

- 14-

Table t Consolidated OperationsIncome Statements

(Curet Kenya Pound '000)

Exchange Rates (ae) US$1.00 Kwh 16.042 16.515 18.599 21.601 24.084 28.074Exchange Rates (rf) US$1.00 Ksh 16.226 16.454 17.747 20.572 22.915 27.508CPI (1986 = 100) 20.0% 100.0 107.7 119.7 135.2 156.3 187.3

FY ending June 30: FY1986 FY1987 FY1988 FY1989 FY1990 FY1991(18 months)

Water Supply: I -- (Audited) - --- I I -(It)|-Available Water Supply (m3/day) 194,200 194,200 220,000 194,200 240,000 240,000Est. Unaccounted for Water 30.0% 30.0% 30.0% 30.0% 30.0% 29.0%Available Sales Volume (m3day) 135,940 135,940 154,000 135,940 168,000 170,400Water Demand (m3/day) 160,000 165,000 168,60 170,000 180,600 193,400Sales Volume (m3/day) 135,940 135,940 154,00u 135,940 168,000 170,400Annual Sales Volume (m3 '000) 49,618 49,618 56,210 49,618 61,320 62,196Avenge Tadff (Kshlm3) 6.99 5.59 6.81 8.03 7.42 6.09

Sewerg: 37,214 37,214 42,158 37,214 45,990 46,647Anual Volume Billed(m3 '000) 3.14 2.62 2.62 3.86 3.33 4.00Average Tariff (Ksh/m3)

Opeaing Revenue:Water Sales and Seweage 23,174 18,727 24,656 27,112 30,423 31,818Other Income 687 651 876 564 776 662

Total Revenue 23,861 19,378 25,532 27,676 31,199 32,480

Operating Expenses:Salaries 881 729 818 969 1,009 1,602Administration 981 697 1,053 1,153 1,757 2,154Power and fuel 352 243 374 429 379 42Chemicals 513 362 158 594 651 658Labor 692 520 844 998 740 1,261Supplies 639 530 476 467 1,273 582Meter maintenance 67 52 85 97 135 164Cost of collectin 1,143 833 1,067 957 1,331 1,868Connectionandwork 32 1 85 2 5 6Provision for bad debts 415 105 260 511 1,018 700Project ewintenace 0 0 0 0 0 0

Total Operatiang Expenses 5,715 4,072 5.220 6,177 8,298 9,037

Net Operating Income beforeDepreciation and Interest 18,146 15,306 20,312 21,499 22,901 23,443

Depreciation 4,487 3,149 11,664 5,428 8,175 4,138Interest 2,983 3,199 3,695 4,233 2,799 6,101Foreign Exchange Losses (Gains) 1,020 229 3,625 4,344 2,736 7,124Amortization of Deferred Charges 218 0 153 231 0 0Capital Receipt

Net Income 9,438 8,729 1,175 7,263 9,191 2,061= == =- ========== = =- -- = ==X====.= =

- 15

F. Status ofCeit Covenat

kle 8: COMPLIANCE WITH CREDIT COVENANTS

Section Status Description of Covenants Comments(Project Agr.)

2.01 O.K. NCC shall carry out theProject with due diligenceand efficiency.

2.02 O.K. NCC shall employengineering and otherconsultants... satisfactory tothe Bank.

2.03 Partially Met NCC shall continue to PIU's performance becamemaintain PIU within satisfactory after mid-1990 whenWSD... satisfactory to the the PIl was finally fully staffed.Association.

2.04 O.K. NCC shall consult withthe Association prior toappointing the new generalmanager for WSD.

2.06 O.K. NCC shall carry out theobligations... relating toinsurance, use of goods andservices, records andreports, maintenance andland acquisition.. .in respectof the Project Agreement.

2.07 (a) O.K. NCC shall, at the request ofthe Association, exchangeviews with the Associationwith regard to the progressof the Project.

- 16

Table 8: COMPLIANCE WITH CREDIT COVENANTS (con't.)

Section Status Description of Covenants Comments(Project Agr.)

2.07 (b) Partially met NCC shall prompdy inform NCC's repeated use of the Waterthe Association of any Fund in early 1991 (aftercondition which interferes negotiations for the Third Nairobi... .witi the progress of the WIS Project (Cr. 2060-KE) wasProject...or the performance concealed not only from the Bankby NCC of its obligations but also from MLG.under this Agreement andunder the Subsidiary LoanAgreement.

3.01 Partily met NCC shall carry out its Adequate staffing of WSD wasoperations ... in accordance reached only late 1990.with sound ..,practices underthe supervision of qualifiedand experiencedmanagement assisted bycompetent staff in adequatenumbers.

3.02 OK. NCC shall;. ..operate and Conditions sadsfactorily met Inmaintain Its plant, regard of WSD's operations.equipment and otherproperty ...in accordanceWith sound engineering andfinancial practices.

3.03 O.K. NCC shall takeout. .insurance ... .consistentwith appropriate practices.

3.04 O.K. NCC shall (J) within 3 Implementon of the newmonths of receipt, submit organizatonal structur of WSDfor review the was completed in late 1990.recommendations of t!'study on the institutior.Adevelopment of WSD; and(ii) carry out such,recommendations.

- 17 -

Tale l: COMPLIANCE WITH CREDIT COVENANTS (con't.)

Section Status Description of Covenants Comments

4.01 (a) O.K. NCC shall maintain reportsand separate accounts.. .toreflect ...its operations andfinancial condition.

4.01 (D) Partially met NCC shall (i) have its Audit requirements were first fullyaccounts and financial met by end-1989. However,statements for each fiscal compliance with these covenantsyear audited by independent deteriorated again in 1991/92.auditors acceptable to theAssociation; (ii) firnishsuch audited financialstatements and the interimaudit report to theAssociation not later than 6months after the end of thefiscal year; (iii) furnishcertified copies of auditedfinancial statements and theaudit report to theAssociation not later than10 months after the end ofthe fiscal year; and (iv)furnish such. otherinformation concerning itsaccounts, financialstatements and the auditthereof as the Associationshall reasonably request.

4.02 O.K. NCC to take all necessary Water and Sewerage tariffs, on themeasures (including average, were increased in 1984adjustments of the structure, (35%) and again in 1988 (40%), asor levels of its rates for a condition of negotiations for thewater supply and sewerage Third Nairobi Water Supplyservices) required to Project. These tariffs weregenerate for WSD revenues adequate only until mid-1991. Thesufficient to produce an lack of additional tariff increaseannual rate of return not contributed to the suspension ofless than 7,5% disbursement under Cr. 2060-KE

(in mid-October, 1992).

-1l8-

ale 8: COMPLIANCE WITH CREDIT COVENANTS (con't.)

Section Status Description of Covenants Comments(Project Agr.)

4.03 O.K. NCC shall not incur any debt onaccount of Its water supply andsewerage services, unless the netrevenues shall be at least 1.5 timesthe maximum debt servicerequirement.

4.04 Not Revenues from water and sewerage This covenant (which was firstmet operations will be placed In a introduced under the Second

separate account and will be used Nairobi Water Supply Project) hassolely for the operation, maintenance been in violation in various degreesand development of the water supply throughout the project. Atservices of Nairobi. Such revenues appraisal, NCC's liabilities to themay be applied to other operations of Water Fund were at about KSh 240NCC in a total amount not in excess million. Although the covenant hasof KSh 8.0 million outstanding at any not defined any repaymenttime and for periods of not more than schedule, during implementation ofsix months. the engineering credit, it was

reduced to KSh 50 million by June1988 (i.e. appraisal of the follow-onThird Nairobi WIS Project), underwhich a repayment schedule wasestablished. This repaymentschedule has not been mo and afurther KSh 100 million wasdiverted from the Water Fund bythe final closing of this Ptoject.The Water Fund Irreguaritiescontributed to the suspension ofdisbursements under Cr. 2060-KEin October 1992.

4.05 O.K. NCC shall () within 3 months of WSI's new organizational structurereceipt thereof, consult with the (formally approved by MLG inBorrower, and the Association on the May, 1990) has been satisfactorilyrecommendations of the study of introduced.WSD's existing financial recordingand control system; and (ii) carry outsuch recommendations as shall beapproved by the Borrower and theAssociation.

-19-

G.U of Bank

Data not available.

Siioaim (ih data

Tab 9: MISSIONS (IN STAFF DAYS)

Stage of MoWth/ No. of Days in Specialization Performance Type ofProject Cycle Year Persona Field Represented Rating Status Ises

Prepaton 03/84 3 18 Sr. Sanitary EngineerSanitUy EngineerFinancial Analyst

Appraisal 10/84 4 65 Fi ancial AnalystSanitary EngineerTning SpeCialiStComputer Advisor

Postapprsal 02/85 2 10 Financial AnalystSanitary Engineer

Supvision 07/8S 1 6 Financial Analyst 1 jAwanad: Detailed TOR bave bean pepdfor the PIU to improve its efficiecy.Fincia: lpaymenat of NCC's liabilties tothe Water Fund has beg Gov'L and MLGar positively considering increase of rates toimpove NCC's fnancia position.

08/8S 1 4 Trainig Specialist (BTO reportonly)

10/85 2 18 Financial Analyst 1Sanitary Engineer

02/86 1 10 Financial Analyst 2 Managerid: Slow euitmet to fill seniorstaff vacancies including stengthening of Pm.Financial: No GOK support for tariff revision.

06/86 1 2 Financial Analyst (BTO report Fjn.nian: Because of the rapid depreciation ofonly) the USS vs. £Stg, ageemet was eached that

NCC/WSD will not seek the rimbement of50% of locd expeditur to ensure avaa-bility of funds for foreinp cost paymes.

10/86 1 13 Sanitary Enginee 3 F;Qmja: No improvment sinoe Febuary1986.Mmanawenal: 1 addition to recutmenproblems (see 02/86 rport), NCC is notcoopative with regad to impwoventprogram of cmputer operations.TecIhni: Completion of engineering projectis now estimated 1 year lo.

-20-

:p~: MSON (IN STAFF DAYS) (con't:)

StaUg of Mooth/ No. of Days in Specialization Peormac Type ofPtrect Cycle Year Pes Field Rersnted Rating Stas Issues

12/86 2 12 Sr Sanitary Engineer icui: Prpaation of min project(Division Chief) accelerated.

Sanitary Engineer MPlU, compliance with rporting requirmentsdecined. Imprvenat of coput facilitiesis stating.

07/87 2 30 Fi*ncia Analyst 2 Appointment of nw GenerlSanitary Eagie Mear for WSD rprnts impovaeent.

Finuciu: 40% tariff incr was appovedby Govemtent.Technic: Decision was made to includeDandore Sewage Tretm Plat exeion inthe in ptojecL Extenive review of proectscope will be undertken

Supervision of 12/87 5 SO Fin l Analyst 2 I uhniul: Minor delys causd by Ene g Cedit . Sanitary Enginer . minet w m. iaitiated by WSD'sad Prepration of cGeonol Maiser. Alw. a _t wsfolow-on PrIojct Sociologist reaced an t environmental isse and

Ecologist preparation of EAP. Estmated Autoe projectcost is now USS 200 mIllion.Mmggzja: Filling of Snior fiaclmanagers' posts is stiM awaited. Thefore tofacilitte pect prepration, agemet wasreached to appoint consultants to updateWSD's finai rods and prjetonsAreement was rah radng tainingapproach.and RCUs rang proposl wasapproved.

03/88 3 12 Satary Eigineer (BTO rport Te*ca / : Little poessm on* EomontiaXi Clly) improvig NCC's computw system.Finnd Analyst j/ Consultan prgress is slow. Also,

Mangr has not been appointed. DGefea1 Manage (Coummec) has been

Supetvision of 06/88 90 Sanitay Enger 2 FbancialabageriS Audit eprts (ceptEngineering . Economist . NCC's FY6Ia7)a upto-date. NCC'sPtoject and Fianal Analyst oblgations to the Watr Fund ha beenAppial of reduced to KSh SOm. salu0 mageifollow-on Prqject . posts in WSD hab filled.

;,1/ CDC's financi analyst. Mr. Wiliam, acted also an besf of thoe ank in reviewing NCCAWSD's fian stus.

-21 -

Talge 9 MISSION (IN STAFF DAYS) (coo't.)

Sta of Montb/ No. of Days in Specializ*don Peformanc Type ofProject Cycle Yer Potsons Field Resetod 1Rats Stats tues

Superviion of 09189 1 6 Sanitary Eogineer (BTO repo The Credit Agreeet for the Third Naiobtiboth Cr. 1566K only) WIS Prjwect (Cr. 2060-XE) was signed onand Cr. 2060-KE July 25, 1989. Ageemn was red fr

.xtending the Closing Date of the EgneeringCredit (i.e. the two prjcts will rUMsimultneously, utilizing Cr. 1s66-KE fundsfor T.A., taining, and to party coverConsulnts' procurement aotivitis

Supevion of 01190 2 8 Sanitary Enginesr Iehnicl: Consultanb commencedboth Cr. 1566-K coonstruction suprision. Three m4jorand Cr. 2060C-KB construcdon contrac have been awded.

njgigi: NCC's borrwing from the WaterFund sinc negotiations has insed fromKSh S0m to KSh 200m. Also, revenmecoection pform e deteriorated.Agreement was rcd that: (a) NCC willrepay at least 113 of its liability to the WaterFund prior to offectiveness of Cr, 2060WKE;(b) NCC will prepa mrvid budget; (c) NCC(including WSD) will start aggressve revecollection campaign. Audit renortine is now

Superion of 10/90 2 14 Sanitary Enginw 2 M : PIU is now fully stafed and itsboth Cr. 1566-fl Financial Analyst F cto ty. WSD'snowand Cc. 2060-K orniainal sucture was formaly apprved

by MG in May 1990, and its iinplem.ntatioris in prgress. Ageemet ws reachergardig the traning program (IRCU andoveses) to be financed from romaing fundson Cr. 1566-KE.

4J91 2 14 Sanitay Egineer 3 Manrail: Agreement was eached thatFinancial Aalyst NCC/WSD will seek lans agreemet to

extend Closing Date to 06/30/91, to utilizeremaing funds for ongomg trainnactivities.Finucial: NCC's use of the Waser Fundincreased agin (tota liablities in order ofKSh 100 millio Agmet was reahedthat this will be reduced to KSh 2S million byJune 30, 1992 (extended fina cldosing date).This did not happen, and NCC's use of theWater Funds intr alia led to the suspnionof disbursemts under Cr. 2060-KE inOctober, 1992.