World Bank Document · 2016. 7. 12. · FAD FBS FM GDP GoN GPI hh IBRD IC ICB IDA IDB IFC IFR INAA INIDE INIDE IRF ISDS ISR JCOP JICA CurrencyUnit = SDR SDR0.67112 = US$1 US$1.49004

Document o f The World Bank

FOR OFFICIAL USE ONLY

Report No: 44880-NI

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED CREDIT IN THE AMOUNT OF SDR 13.5 MILLION (US$20 MILLION EQUIVALENT)

AND A

PROPOSED GRANT IN THE AMOUNT OF SDR 13.5 MILLION (US$20 MILLION EQUIVALENT)

TO THE

REPUBLIC OF NICARAGUA

FOR A

GREATER MANAGUA WATER AND SANITATION PROJECT (PRASMA)

November 14,2008

Sustainable Development Department Central America Country Management Unit Latin America and the Caribbean Region

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without World Rank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective October 3 lSt, 2008)

ANA CD CMU CONAPAS

CPC CQS CSP cv DO DPSP DL EA EIRR EMP ENACAL

FAD FBS FM GDP GoN GPI hh IBRD I C ICB IDA IDB IFC IFR INAA INIDE INIDE IRF ISDS ISR JCOP JICA

CurrencyUnit = SDR SDR0.67112 = US$1 US$1.49004 = SDR 1

FISCAL YEAR January 1 - December31

ABBREVIATIONS AND ACRONYMS

National Water Authority Communications Directorate Community Management Unit Comisidn Nacional de Agua Potable y Alcantarillado Sanitario (National Water and Sanitation Commission) Consejos de Poder Ciudadano Selection Based on the Consultant’s Qualifications Comitb de Seguimiento de Proyecto (Project Monitoring Committees) Curriculum Vitae Development Objective Departamento de Presupuesto y Supervision de Proyectos Disbursement Letter Environmental Assessment Economic Internal Rate of Return Environmental Management Plan Empresa Nicaragiiense de Acueductos y Alcantarillados (Nicaraguan Water and Sewerage Enterprise) Spanish Fund for Development Assistance Selection Under Fixed Budget Financial Management Gross Domestic Product Government of Nicaragua Gerencia de Proyectos e Inversiones Household International Bank for Reconstruction and Development (World Bank) Individual Consultant International Competitive Bidding International Development Association (World Bank) Inter-American Development Bank International Finance Corporation Interim Financial Report Instituto Nacional de Acueductos y Alcantarillados (Nicaraguan Water and Sewerage Institute) Instituto Nacional de Informacidn de Desarrollo (National Statistic Institute) National Information and Statistics Institute Involuntary Resettlement Framework Integrated Safeguards Datasheet Implementation Status Report Community Boards for Works in Progress Japanese International Cooperation Agency

FOR OFFICIAL USE ONLY

JMP KfW LCS L S M S M&E MDGs NBI NCB NGO O&M PCN PCU PDO PHRD PIC PID PMU PND PRASMA QBS QCBS R M S SBDs SDR SEPA SIA S IL SOE SRfP ss S WAp TORS UASB UNDP UNICEF W&S WSP wss WWTP

Joint Monitoring Program (of the World Health OrganizatiodUNICEF) German Development Bank Least-Cost Selection Living Standards Measurement Survey Monitoring and Evaluation Millennium Development Goals Unsatisfied Basic Needs Index National Competitive Bidding Nongovernmental Organization Operation and Maintenance Project Concept Note Project Coordination Unit Project Development Objective Policy and Human Resources Development Fund (Japanese Trust Fund) Public Information Center Project Information Document Project Management Unit Plan Nacional de Desarrollo (National Development Plan) Greater Managua Water and Sanitation Project Quality-Based Selection Quality and Cost Based Selection Results Management System Standard Bidding Documents Special Drawing Rights Procurement Plan Execution System Nicaragua’s Financial Management Information System Specific Investment Loan Statement o f Expenditures Standard Request for Proposals Sole Source Sector-Wide Approach Terms o f Reference Upflow Anaerobic Sludge Blanket United Nations Development Program United Nations Children’s Fund Water and Sanitation Water and Sanitation Program Water Supply and Sanitation Waste Water Treatment Plant

Vice President: Pamela Cox Country Director: Laura Frigenti

Sector Director Laura Tuck Sector Manager: Guang Zhe Chen

Task Team Leaders: Maria Angelica Sotomayor / David Michaud

This document has a restricted distribution and may be used by recipients only in the performance o f their off icial duties. I t s contents may not be otherwise disclosed without Wor ld Bank authorization.

NICARAGUA Greater Managua Water and Sanitation Project

CONTENTS

Page

STRATEGIC CONTEXT AND RATIONALE .................................................................. 1 I . A . B . C .

I 1 . A . B . C . D . E .

I11 . A . B . C . D . E . F .

I V . A . B . C . D . E . F . G .

Country and sector issues .................................................................................................... 1 Rationale for Bank involvement. ......................................................................................... 3

Higher level objectives to which the project contributes .................................................... 5

Lending instrument, financing arrangements and other approaches ................................... 5

Project development objective and key indicators .............................................................. 5

Project components .............................................................................................................. 6

Alternatives considered and reasons for rejection ............................................................ -12

Partnership arrangements .................................................................................................. 13

Institutional and implementation arrangements ................................................................ 14

Monitoring and evaluation o f outcomes/results ............................................................... -15

Sustainability ..................................................................................................................... 15

Critical risks and possible controversial aspects .............................................................. -17 Granucredit conditions and covenants ............................................................................. -20

PROJECT DESCRIPTION .............................................................................................. 5

Lessons learned and reflected in the project design .......................................................... 11

IMPLEMENTATION ..................................................................................................... 13

APPRAISAL SUMMARY .............................................................................................. 20 Economic and financial analyses ...................................................................................... -20

Technical ........................................................................................................................... 22

Fiduciary ............................................................................................................................ 23

Social ................................................................................................................................. 24

Environment ...................................................................................................................... 26 Safeguard policies ............................................................................................................. -26

Policy Exceptions and Readiness ...................................................................................... 27

Annex 1: Country and Sector o r Program Background .......................................................... 28

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies .................. 40

Annex 3: Results Framework and Monitoring ......................................................................... 45

Annex 4: Detailed Project Description ...................................................................................... 50

Annex 5: Project Costs ................................................................................................................ 58

Annex 6: Implementation Arrangements .................................................................................. 59

Annex 7: Financial Management and Disbursement Arrangements ..................................... 62

Annex 8: Procurement Arrangements ....................................................................................... 66

Annex 9: Economic and Financial Analysis .............................................................................. 71

Annex 10: Safeguard Policy Issues ............................................................................................. 88

Annex 11: Project Preparation and Supervision .................................................................... 106

Annex 12: Documents in the Project File ................................................................................ 108

Annex 13: Statement o f Loans and Credits ............................................................................. 110

Annex 14: Country at a Glance ................................................................................................ 111

Annex 15: Map IBRD No . 36597 .............................................................................................. 113

N ICARAGUA

Source Local Foreign BORROWEWRECIPIENT 0.0 0.0 International Development Association 12.0 8.0

GREATER MANAGUA WATER AND SANITATION PROJECT

Total 0.0

20.0

PROJECT APPRAISAL DOCUMENT

(IDA) Credit IDA Grant Total:

LATIN AMERICA AND CARIBBEAN

12.0 8.0 20.0 24.0 16.0 40.0

LCSUW

Date: November 14,2008

Country Director: Laura Frigenti

Sector Manager: Guang Zhe Chen Themes: Urban services and infrastructure

Project ID: P 1 10092

Lending Instrument, Financing Arrangements and Other Approaches: Specific Investment Loan

Team Leaders: Maria Angelica Sotomayor and David Michaud Sectors: Water supply (50%); Sanitation

Sector Director: Laura Tuck (5 0%)

(P); Environmental screening category: B Partial Assessment

_ -

[ ]Loan [XI Credit [XI Grant [ ]Guarantee [ ]Other:

Borrower: Republic o f Nicaragua

Responsible Agency: Empresa Nicaragoense de Acueductos y Alcantarillados (Nicaraguan Water and Sewerage Enterprise) Km. 5 Carretera Sur, Managua, Nicaragua Tel: (505) 265 - 1882 Fax: (505) 266 - 7895

i

*

F Y Annual Cumulative

09 10 11 12 13 14 1 5 8 10 10 6 1 6 14 24 34 40

evaluation activities required by the project. Which safeguard policies are triggered, if any? Re$ PAD M E , Technical Annex I O . The Projecttriggers the Environmental Assessment Policy (OP/BP 4.0 1) and has been qualified as “Category B.” The Project also triggers the Physical Cultural Resources Policy (OP/BP 4.1 l), the Natural Habitats Policy (OP/BP 4.04) and the Involuntary Resettlement Policy (OP/BP 4.12). Significant, non-standard conditions, if any, for: Re$ PAD IIIJ’. Board presentation: None other than the standard presentation to the Board. Gradcredit effectiveness:

’ Reliable water i s defined as piped potable water with adequate pressure and continuity o f at least 16 hours per day. Greater Managua i s defined as the Metropolitan area o f Managua and adjacent municipalities.

.. 11

Signature o f a subsidiary agreement between the Recipient and E N A C A L r Covenants applicable to project implementation:

0 B y June 30, 2009: signature o f a coordination and information exchange agreement with the Municipality o f Managua.

iii

I. STRATEGIC CONTEXT AND RATIONALE

A. Country and sector issues

1. Nicaragua, with 5.5 mi l l ion inhabitants, i s the second-poorest country in Latin America and the Caribbean, with an estimated per capita income o f US$957 in 2006 and a population growth rate o f 1.3 percent per year. According to the 2005 Census, 56 percent o f the total population lives in urban locations and this number i s gradually increasing3. By 2015, the urban population i s projected to reach 4.4 mi l l ion people, or 63 percent o f the total population. As o f 2005, 48 percent o f the total population l ived below the poverty l ine and 17 percent were extremely poor. Poverty i s high even in urban areas, where 31 percent o f the population i s considered poor and 7 percent extremely poor. Access to basic services i s a challenge and as in many other urban areas, the poor have inequitable access to services. Only 26.5 percent o f households living in extreme poverty have access to a piped water supply; only 1.2 percent have access to a toilet in their home; 72.5 percent have latrines; and 26.3 percent do not have access to any sanitation services.

2. Managua, Nicaragua’s capital i s the main urban, economic, and industrial center of the country. I t s metropolitan region currently has a population o f 1.8 million. Between 1995 and 2000, the population growth rate o f Managua was estimated at 2.1 percent, but i s expected to decrease to 1.0 percent for the 2005-2010 period. After the 1972 earthquake in Nicaragua, high levels o f random migration to the capital city took place giving rise to problems with land tenure and provision o f public services, including water, sanitation, and electricity. Managua’s growth continues to be fueled by high rates of rural to urban migration, which i s accompanied by the development o f informal settlements and an increased demand for basic services, especially water and sanitation. Managua’s Gross Domestic Product (GDP) represents 35.6 percent o f the National GDP. However, 15.7 percent or 190,000 inhabitants in the municipality o f Managua are considered extremely poor, and the incidence o f extreme poverty i s even higher (29.2 percent) in the satellite city o f Tipitapa.

3. The Nicaraguan Water and Sewerage Enterprise (ENACAL) i s the public utility responsible for provision of water and sanitation services to most urban areas in the country and i s the primary service provider for the Managua metropolitan area. I t administers 147 independent systems and provides services to more than 60 percent o f a l l water users in the country. As o f 2004 E N A C A L had a total o f 410,000 registered users, 50 percent o f which were located in Managua.

4. ENACAL’s role in the sector has recently expanded and it i s now the main provider o f urban water and sanitation services in Nicaragua. In 1999, the Inter-American Development Bank (IDB) approved a project with the goal o f restructuring the sector to include private sector participation, and transforming E N A C A L into a publicly traded company. This project included provisions for decentralization, with local water management in the municipalities o f Leon and Chinandega and an international management contract. Protests against privatization put a halt to these reforms and in 2003 the Nicaraguan Legislature passed L a w 440 which suspended

Please see the Annexes for all source citations.

1

awarding concessions to the private sector for operation o f ENACAL’s facilities and assets. Soon after, the Nicaraguan Legislature also changed ENACAL’s status from a “state-owned business” to a “state-owned public utility”. The Ortega administration, elected in 2006, has restructured the project financed by the IDB, eliminating al l private sector development and canceling a large technical assistance contract. In parallel, it has appointed a new dynamic general manager who remains committed to improving i t s overall performance and achieving the same efficiency results as those o f the original management contract, only without private sector participation.

5. Water and sanitation services in the Managua metropolitan area are characterized by (a) poor water service quality; (b) l o w sanitation coverage; and (c) ENACAL’s operational and financial constraints and urgent needs for additional investments.

Poor water service quality. Based on data from the 2005 Census, 93 percent o f the population in Managua i s covered with potable water service - a number E N A C A L considers exaggerated because it reflects the percentage o f houses with a physical connection rather than with actual access to water service provision. I t i s estimated that effective coverage i s less than 60 percent due to insufficient and unreliable service. As in most metropolitan areas in the region, poor settlements suffer the most from severe water shortages and l o w coverage levels.

Poor quality and efficiency o f water service provision are major areas o f concern in the greater Managua region. At least 100,000 households are requesting new connections or improvements to their service. The existing water supply in Managua cannot meet current demand due to high rates o f leakage and wastage, which account for 55 percent o f the total water produced and distributed by the system. Interruptions in service provision are common, with some households receiving service for less than 2 hours per day. Water i s scarcer during the summer months, between February and May. Intermittent supply will continue to worsen as the urban population increases in the absence o f new investments. Distribution networks are not divided into macro sectors (district metering areas) which makes management o f the system more difficult. Only 42 percent o f connections have meters operating in good condition. Only 2 percent o f users in low-income settlements are serviced by metered connections. A large number o f water users are unregistered and have illegal connections. More than 60 percent o f those living in low-income neighborhoods have extended the service network and piping system without technical assistance from ENACAL.

Low sanitation coverage. The 2005 Census reported that 63 percent o f households have toilet systems which discharge into wastewater pipes in Managua, with 30 percent o f the population using pit latrines in settlements, and the remainder using septic tanks managed by five private companies. E N A C A L itself reports that i t s sewer system provides only 38 percent o f users in priority neighborhoods with sewerage service, the difference probably stemming from self-constructed networks or illegal connections to rainwater systems. At the moment there i s no wastewater treatment system in the City o f Managua and wastewater i s discharged directly into Lake Managua, which represents a growing problem, particularly in the Veracruz and Jaguitas zones. Improper disposal o f wastewater i s also contaminating the aquifer in several areas around the city. In 1996 a Sanitation Master Plan for the City o f Managua was completed, and later finalized in 2002. Based on this study, E N A C A L i s currently overseeing the construction o f a

2

wastewater treatment plant and collection system which i s expected to be completed by December, 2008.

ENACAL ’s operational and financial constraints. The water service in the area of greater Managua i s not operated on a financially viable basis. Since ENACAL’s inception in 1998, there have been several attempts from previous governments to privatize the utility due to i t s critical financial situation. The new administration has rejected the privatization option and i s committed to proving that publicly owned uti l i t ies can be efficient. Results have proved to be favorable. Several IDB sponsored investments have focused on improving ENACAL’s business and financial management, strengthening their ability to make sound investments, and making E N A C A L a more efficient public utility (see Annex 2 for more information on the IDB’s work in the sector). The new management has shown a strong commitment to improving ENACAL’s financial and operational situation. Labor costs have decreased by 16 percent in real terms in 2007. O & M costs have also lowered, and E N A C A L i s implementing an energy-saving strategy to face rising energy prices. Billed revenues have increased by 3 percent in 2007 despite constant tariffs since 2001. In February 2008 the regulator approved an increase in tariffs by 42 percent for the city o f Managua. E N A C A L has prepared a new Institutional Development Plan with the objective o f consolidating and furthering ENACAL ’ s improvements. Nevertheless, ENACAL’s financial situation remains critical after having been pushed to the brink o f bankruptcy as previous governments’ policies have supported tariffs that remain far below rising production costs. Only 70 percent o f water users currently pay their bills which highlights the need for continued improvements in tari f f collection. Further, a large portion o f water revenues generated in Managua i s used to subsidize the cost o f services in other regions o f Nicaragua. With a deficit (currently at US$1.7 mi l l ion per month), E N A C A L has not been able to finance adequate maintenance o f the existing system, nor have they been able to meet the growing demand for new connections in the Managua metropolitan area. Deficiencies in service provision lower both public confidence in the utility and willingness to pay for the service, furthering the well-known vicious cycle o f poor quality o f service resulting in poor revenues.

B. Rationale for Bank involvement

6. The Bank has been asked to take a leading role in supporting the Government of Nicaragua (GoN) in the water sector. The new administration has a strong interest in both additional resources being directed to the water and sanitation sector, and in taking a fresh look at the sector strategy and policies. Due to i t s extensive lending in Latin America and other regions, the Bank has wide-ranging experience working with water ut i l i t ies in improving sustainability and quality o f service provision in urban areas and increasing the poor’s access to services. This experience allows the Bank - which had not been engaged in the water and sanitation sector in Nicaragua for some time - to offer a flexible yet comprehensive and well- articulated menu o f investments and technical assistance to ENACAL. Capitalizing on this expertise, the Ministry o f Finance and Public Credit has asked the World Bank to provide substantial support in the sector, and to take the leading role among donors through three new water and sanitation projects and a more active role in supporting the development o f sector policy. Specifically, i t hopes that the World Bank will be able to assist the Government to

3

Issues / Donors IDB Institutional 1049/SF-NI Issues Operational Issues L o w service 1049/SF-N1 quality 1787/SF-NI

NI-L 1029 L o w sanitation NI-L1029 coverage L o w wastewater treatment Financial Issues 1049/SF-NI

................................................................................................... 975/SF-NI

8. The IDB has previously been the lead donor for E N A C A L and will remain predominant in the urban sector. The Bank i s coordinating closely with the IDB and the FAD, which currently have similar projects in different geographical areas o f Managua with E N A C A L (see map in Annex 15 and description in Annex 2). The IDB and Bank management have agreed to support coordination efforts, including joint missions, so that both project teams fol low the same approach and all resources are leveraged in an effort to increase efficiency and expand services in E N A C A L through complementary interventions.

PRASMA Component 3

FAD KfW Nordic Fund

................................................................................................................................................................................................................................................................M� WASSER Components

Project 1 & 2 ................................................................................................................................................................................................................................................................Œ�

Component 1 ......................................................................................................................................................................... ...........................................................................

Lake Managua Lake Managua I

Components 1, 2, & 3

Sanitation Sanitation

4

C. Higher level objectives to which the project contributes

9. This project responds directly to objectives that have been explicitly laid out in the CPS and the National Development Plan (PND). The Greater Managua Water and Sanitation Project (PRASMA) supports the following strategic objectives o f the Bank’s 2008-2012 CPS for Nicaragua: (a) infrastructure and sustainable development, and (b) human capital development- improving social equity and opportunity. This project also responds directly to the Government’s development objectives. The Sectoral Strategy Area I11 o f the National Development Plan, Plan Nacional de Desarrollo (PND)-Productive and Social Public Infrastructure-aims to increase coverage and quality o f infrastructure to support economic growth and achieve the Millennium Development Goal targets, and highlights water and sanitation as one o f four specific areas o f emphasis under the social infrastructure component. The plan outlines the Government’s intention to promote the sustainability o f water and sanitation infrastructure and service expansion in urban areas by strengthening and modernizing E N A C A L , and maintaining i t s public operation. The latest Bank CPS i s supportive o f the Government’s PND and has highlighted this water operation, acknowledging i t s overall importance as one o f the largest investments to be supported by the Bank in the next five years.

10. In addition, the third pillar in the Bank’s Poverty Reduction Strategy Program i s Institutional Strengthening. The Bank’s ability to share i t s broad regional and global experience in the form o f capacity building and improved efficiency for E N A C A L clearly supports this pillar, as does the financing o f a series o f institutional strengthening activities in the operation.

11. PROJECT DESCRIPTION

A. Lending instrument, financing arrangements and other approaches

1 1. The Bank’s overall reengagement strategy in the sector i s to work both at the policy level, providing assistance in the preparation o f a new Sector Strategy and providing TA directly and through WSP, and at project level to finance concrete coverage and service quality improvements and gain credibility with the most important actors in the sector. This operation i s therefore an important part of the Bank’s reengagement strategy.

12. The proposed grant / credit in the amount o f US$40 mi l l ion i s designed as a Specific Investment Loan (SIL), combining investment and technical assistance financing. It will be the second water and sanitation project to be recently financed by the Bank - the first being a rural water and sanitation operation for US$20 mi l l ion combination o f grant and credit approved by the Board in June 2008. This project will be followed by a third operation for US$15 mi l l ion that i s currently planned for fiscal year 2010 and i t s specific objective will depend on sector developments and the priorities o f the GoN.

B. Project development objective and key indicators

13. The project’s higher level objective i s to contribute to the improvement o f the quality o f l i f e o f the population living in the greater Managua region, by providing access to reliable water supply and sewerage services.

5

14. services to the population o f the greater Managua region4.

15.

The Project Development Objective i s to increase access to reliable water and sanitation

The success o f the project will be measured using the following set o f indicators:

Number o f additional beneficiaries with access to reliable water supply in the targeted neighborhoods in the greater Managua region (defined as piped potable water with adequate pressure and continuity o f at least 16 hours per day); Number o f additional beneficiaries with access to improved sanitation services in the targeted neighborhoods in the greater Managua region (defined as septic system, connection to public sewer system); Increase in ENACAL’s cost recovery ratio (defined as collected revenue over operating expenses (administration, operation and maintenance)).

C. Project components

16. The proposed operation would assist the Government o f Nicaragua (GoN) in improving access to water and sanitation services (WSS) in the capital’s metropolitan area. As outlined in Annex 1, over the past few years, E N A C A L has embarked on an ambitious plan to address the severe deficiencies o f service both in water supply and sanitation, supported by various donors. This effort i s largely based on three key planning instruments.

17. In 2005, JICA financed the preparation o f a water supply master plan, which outlines four main areas o f action:

1. Rehabilitation o f existing and development o f new urban water sources 2. Increase in efficiency 3. Reduction in losses, and 4. Coverage improvements and extensions in low-income neighborhoods.

18. and FAD.

The JICA plan i s currently being implemented with projects financed by JICA, the IDB,

19. In addition, a sanitation master plan was also prepared in 1996 and revised in 2002, with a vision o f increasing wastewater collection and treatment and alleviating the current pollution o f Lake Managua and the risk o f pollution o f the aquifers serving the city. The master plan i s currently under implementation with a project financed by KfW, the Nordic Fund, IDB, the Central Government, and ENACAL, and includes the construction o f primary collectors and the wastewater treatment plant.

20. Finally an Institutional Development Plan for E N A C A L has been under preparation and i s currently being finalized. This plan, which targets the period 2008-2012, includes an ambitious set o f goals and supporting activities, together with a monitoring framework, with year to year tracking o f improvements in performance indicators.

Greater Managua i s defined as the Metropolitan area o f Managua and adjacent municipalities.

6

21. This project would support the implementation o f the vision developed in these three instruments and complement other donors’ work. For this purpose, the proposed project would finance coverage extensions in low-income neighborhoods (Component 1) as well as improved supply and efficiency in specific areas (Component 2). Component 3 would support institutional strengthening activities as well as the project’s management and monitoring activities.

22. The following section provides further details on the project’s components and subcomponents. Amounts show total component costs with grant / credit proceeds in brackets. All components will be implemented directly by ENACAL.

Component 1: Coveraee Extension and Improvement for WSS in Low-Income Neighborhoods - Cost US$20 million (IDA US$20 million)

23. As discussed earlier, one of the main challenges E N A C A L faces in the greater Managua region i s the poor quality o f service. This results in part from fairly high losses in the network and the fact that most o f the network extension in low-income neighborhoods was constructed in an ad-hoc manner by the communities themselves, without proper design and supervision. As a consequence, many o f those small-scale networks are poorly and/or under-designed, consisting, in many cases, o f simple plastic hoses installed at shallow depths, and their condition i s also often poor. E N A C A L estimates that as much as 60 percent of the city’s neighborhoods are covered by artisanal networks.

24. On the sanitation side, most o f these areas do not have any type o f network infrastructure for wastewater evacuation. Rather, houses often have latrines and discharge the grey water to the street, creating a health and safety hazard with poor quality o f l i f e impacts. A very large project, financed by the KfW, the IDB and others, has sought to construct major collectors, pumping stations and a wastewater treatment plant’ for the City o f Managua, but the collection networks do not cover the entire urban area. E N A C A L has been monitoring the situation with concern, particularly because many o f these newly populated areas overlay the main aquifers providing water supply to Managua.

25. Therefore and in alignment with the fourth axis o f the JICA master plan, this component will finance all studies and works related to the following activities:

Water Supply Construction o f new primary, secondary and tertiary networks Replacement or rehabilitation o f primary, secondary and tertiary networks Supporting infrastructure (valve chambers, macro-meters, etc.)

Sanitation Construction o f new primary, secondary and tertiary networks Minor replacement or rehabilitation o f existing networks as needed N e w network extension to connect to existing primary collectors

The wastewater treatment plant i s nearing completion and should be operational by early 2009, while some o f the 5

pumping stations are still under bidding.

7

26. This component will only include neighborhoods that either have their water sources and supply infrastructure financed under Component 2, or for which such infrastructure already exists. After the intervention, al l inhabitants in the targeted neighborhoods should have access to a continuous or nearly continuous supply o f drinking water, as well as adequate sewers. All connections will include metering.

27. E N A C A L has stated that it intends to involve users heavily in the design and implementation o f the sub-projects. It i s expected that existing neighborhood organizations, among others, will be the main points o f contact at the community level during project development. Annexes 4 and 10 contain more details on the social interventions planned in those neighborhoods and the project cycle based on the results o f the social assessment and consultations with ENACAL.

28. Designs are currently being financed for about 60 neighborhoods through a PHRD grant. The designs follow a more simple social intervention methodology than the one developed later for the project, but some o f the social intervention will be retrofitted prior to the beginning o f the construction. The rest o f the neighborhoods’ designs and implementation will be financed during project implementation, using the grandcredit’s proceeds (see map in Annex 15). The use o f alternative technologies to conventional sewers wil l be explored together with the users during the project’s design, and the Bank will provide technical assistance on small bore, condominia1 and other simplified sewers, for which a few pilots exist in Nicaragua.

29. Coordination will be sought with the Municipality o f Managua through the signature o f a coordination and information exchange agreement. The Municipality o f Managua has only limited funds with which to accompany the WSS investments with other similar urban improvement measures that depend on the Municipality (rainwater collection, public lighting, paving o f secondary streets, solid waste collection). Nonetheless, surveys carried out during the social evaluation have shown that even simple information exchange mechanisms could greatly improve the project’s design.

30. Finally this component will also finance similar activities in Managua’s satellite cities, among others Tipitapa and Ciudad Sandino, which suffer from similar challenges. Some investments in rehabilitation or repair o f existing wastewater treatment systems may be included based on the studies to be prepared during implementation.

Component 2: Improvement o f Water Supply and Efficiency in Selected Areas- Cost US$15 million (IDA US%15 million)

31. An important assumption o f the JICA master plan’s water balance study i s that the technical efficiency o f the network can be quite dramatically improved until 2015, thereby liberating water for the additional connections needed to increase effective coverage. In fact, according to the master plan, physical and commercial losses in the system need to be reduced from today’s estimated 55 percent to 25 percent, a goal that E N A C A L i t s e l f does not consider realistic ( i ts Institutional Development Plan foresees a decrease to about 48 percent by 2012).

32. However, the JICA plan also calls for the segmentation o f the network system into 18 different macrosectores (equivalent to district metering areas and pressure zones). Each macrosector would have i t s own sources, storage capacity and distribution network with only minimal interconnections with other macrosectors. Rather than tackling the issue o f efficiency in

8

the entire system, E N A C A L has decided to prioritize a number o f those macrosectores and ensure that a proper balance o f supply (including losses) and demand i s reestablished in each o f these, hence improving service quality.

33. E N A C A L i s already working in some o f the macrosectores in the lower elevation zone of the city, the Zona Baja, with financing from the Spanish FAD, where water supply i s already continuous or nearly continuous, but physical losses are high and metering i s limited. E N A C A L has asked the Bank to finance a component to replicate and extend these types o f activities to another six macrosectores in the southwestern part o f the city, along with two satellite cities, Tipitapa and Ciudad Sandino, while a parallel IDB project would tackle six more macrosectores in the southeast. At the moment, the new macrosectores suffer from low service quality (discontinuous service) and the intervention would therefore have to tackle water supply as much as water demand and efficiency.

34. Within each o f these macrosectores, the project will finance an initial diagnostic to evaluate current supply and demand, losses and unmet demand, and establish which combination o f additional sources and efficiency improvements are technically and financially most efficient. The diagnostic will also verify possible additional sources that have been pre-identified by ENACAL. The diagnostic will also recommend a set o f measures aimed at improving not only the technical but also the commercial efficiency o f E N A C A L within the targeted areas.

35. As a result, this component may finance al l studies and works related to activities such as :

Supply side Rehabilitation and capacity extension for water sources (mostly boreholes) Increase in adduction and storage capacity (pumping stations, water storage tanks) Increase in wastewater collector capacity Rehabilitation and extension o f low-technology wastewater treatment systems6

Efficiency

Leak reduction campaigns Registration o f illegal connections

Creation o f District Metering Areas through the installation o f macro-meters and the installation o f valves creating separate and independent supply zones Optimization o f energy consumption in pumping systems through better system management

Demand side Metering at a household level Updating the user registry (cadastro de usuarios) Improvement o f billing and collection practices targeted to low-income households

No activity leading this project to be a category A (for example, construction o f new, mechanized wastewater 6

treatment plants, or extension o f wastewater treatment plants in sensitive areas), i s expected to be necessary. These activities will be excluded from financing through this project.

9

36. The initial diagnostic and design for major works has already been contracted for the f i rst three macrosectores under the PHRD grant; the contract does not include, however, any activity on the efficiency and demand-side. The Bank has suggested that, in complement and for the next three macrosectores, E N A C A L may consider extending invitations to regional water ut i l i t ies to participate, which would intervene not as operators but as technical and management consultants. Additional contracts will also be signed to cover the efficiency and demand side-measures in the three macrosectores for which the supply-side activities are already contracted.

ComDonent 3: Institutional Strengthening and Project Monitoring and Evaluation - Cost US$5 million (IDA US$5 million)

SubComponent 3A: Institutional Strengthening - Cost US$3 million (IDA US$3 million)

37. E N A C A L has prepared an Institutional Development Plan 2008-2012 that includes a hard set o f performance indicators with year-to-year goals and corresponding actions (see Annex 1). This plan identifies five main challenges that the institution i s currently facing:

e

e

e

0

e

38.

Operational income does not cover operational costs Rising energy costs mean progress in other areas i s canceled High non-revenue water needlessly increases operational costs Current commercial and management systems do not support strategic decision-making The institution suffers from organizational weaknesses that impair i t s ability to fulfill i t s mission

While components 1 and 2 attempt to respond to the first three issues, this component will support, joint ly with an on-going iDB-financed project, a range o f activities aimed at tackling the last two issues. E N A C A L has already initiated work on both7, but will continue to require support over the next five years. The plan includes a number o f institutional strengthening activities, which will be largely financed by an on-going IDB project (commercial system, improved monitoring). However, E N A C A L and the Bank have agreed on including some supporting activities in the present project to complement the IDB project.

39. The Bank will also use this component as an important window to continue and strengthen discussions at the policy and utility levels. During project preparation, a delicate but promising dialogue was initiated on topics such as internal and international benchmarking, innovative approaches in low-income neighborhoods, and accountability mechanisms, in particular with the citizedusers. ENACAL’s management has demonstrated a strong commitment to improving the utility’s performance and implementing the Institutional Development Plan, but has requested the Bank to refrain from identifying a positive l i s t of technical assistance activities given the fact that a large part o f the plan can be currently financed from an existing IDB project.

A new commercial system i s currently under bidding with financing from the IDB. The company has decentralized 7

decision making to the different regional directorates. Annex 1 and 2 provide more details.

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40.

0

0

0

0

Component Component 1 : Coverage Extension and Improvement for WSS in Low-Income Neighborhoods Component 2: Improved Water Supply and Efficiency in Selected Areas Component 3 : Institutional Strengthening and Project Monitoring and Evaluation Total

As a result this component will finance, among others, complementary activities such as:

Technical assistance, as well as goods and services aimed at implementing the key activities identified in the Institutional Development Plan. Development o f tari f f studies and appropriate payment mechanisms for low-income neighborhoods where E N A C A L i s seeking to increase tari f f collection. Participation in trainings and study tours in countries with similar conditions, seeking to establish contacts and learn lessons from other public utilities that have managed a successful turn-around. Other activities as deemed necessary to continue successfully strengthening the utility during the course o f the project.

IDA TOTAL US$20.0M U S $ 2 0 . 0 M

US$lS.OM U S % l S . O M

US$S.OM US$S.OM

US$40.0M US$40.0 M

Subcomponent 3B: Project Management and Monitoring - Cost US$2 million (IDA US$2 million)

41. This Component will finance the incremental costs o f non-staff salary, travel, and the general operating costs o f the personnel working on the project’s implementation within ENACAL. In addition, this component will also finance M&E activities, including the collection o f information and development o f reports for continued evaluation throughout the project cycle by both project management and the Bank’s supervision team. I t will also cover audits and other project management activities required for the proper implementation o f the project.

Estimates o f Project Costs, by Component (US$ m)

D. Lessons learned and reflected in the project design

42. This project represents a new engagement for the Bank in the urban water and sanitation sector in Nicaragua and follows shortly after another water and sanitation project for rural areas. The project design therefore incorporates lessons learned horizontally, f rom other similar projects in Latin American countries, and vertically. from earlier Bank financed projects and projects from other donors in Nicaragua.

43. Importance o f coordinating investment activities with relevant actors. The project will include major investments in networks and additional connections in order to provide improved access to WSS services to low-income neighborhoods. Experience in other countries - in particular Brazil, but also, for example, neighboring Honduras - has shown that major improvements in resident’s quality o f l i f e could be achieved with limited marginal costs if investments for different types o f public services, such as public lighting, street coverage or

11

storm water evacuation are coordinated with the WSS network extensions. In Managua, those services are provided by the municipality which has no administrative relationship with ENACAL. Nonetheless, E N A C A L and the municipality have shown interest in seeking to schedule their activities in a coordinated way in order to lower investment costs and maximize impact, and a specific collaboration and information exchange agreement will be signed for the implementation o f this project.

44, Importance of an integrated approach to service provision to increase impacts. Recent research has consistently shown that the construction o f water and sanitation systems alone does not necessarily lead to the expected impact (such as the reduction in water- or excreta-related diseases or appropriate use o f these systems). Inappropriate hygiene practices will continue even after a new water sanitation system i s built, constraining the expected public health impact. E N A C A L has recognized this challenge and i s currently putting a strong emphasis on the social and communication aspects o f service provision. This project wil l continue to use an integrated approach where investments in water and sanitation are executed hand in hand with local community organizations and beneficiaries, and complemented by strong hygiene promotion and outreach programs. These programs will be coordinated with the National Handwashing Campaign under preparation with support from the Bank’s Water and Sanitation Program (WSP) as part o f the Forum on Potable Water and Sanitation for Central America and the Dominican Republic (FOCARD-APS), a regional forum created in 2004 o f which Nicaragua i s a member country, represented by the Ministry o f Health.

45. Working with low-income, informal neighborhoods. A significant portion o f the project’s investment will go towards low-income neighborhoods, which in many cases are informal or semi-formal. Although recent municipal administrations have been providing land rights to new settlers, infrastructure interventions have been modest or non existent. Most o f the neighborhoods are the results o f unplanned settlements; inhabitants have low financial capacity but often strong community sense. The Bank has been financing projects in similar neighborhoods throughout the region for many years. Recent examples can be found in Peru, Brazil and Honduras. The design o f the social intervention within this project has sought to use the experience gained from, among others, involving the beneficiaries early on in the project preparation and building on their willingness to contribute to the design and construction. Techniques such as simplified or condominia1 sewers - for which there are pilots in Nicaragua - will be explored.

E. Alternatives considered and reasons for rejection

46. Water and Sanitation SWAp. Under the previous administration, sector institutions had been actively preparing a SWAP for the water sector. However, the arrival o f the Ortega administration brought major changes to the sector, including a different institutional framework and a rejection o f the previously adopted sector strategy. As a consequence the team considered that the basic requirements for a SWAP do not exist at the moment and did not pursue this option further. Given the fact that E N A C A L will probably be the main and practically only service provider for urban WSS, other instruments exist to ensure better donor coordination and country ownership.

47. Co-financing with the IDB. The IDB i s currently preparing a similar urban WSS project with E N A C A L with a total financing o f US$35 mi l l ion and a focus on Managua. Both teams

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have been in contact and there have been discussions o f formally merging both projects through a co- or parallel financing mechanism. E N A C A L has rejected this option, however, as they wish to have separate projects funded by separate donors. Therefore, the Bank project will focus on coverage and extension improvements related to infrastructure, and the IDB will remain the primary donor focusing on the institutional strengthening o f ENACAL.

48. Stronger Focus on Utility Reform. The project team had originally presented a project with a greater scope to ENACAL, one which included a stronger utility strengthening component (Component 3), which would have complemented the ongoing efforts by the IDB and KfW in that regard. Instead, E N A C A L chose to focus Bank investments mainly on infrastructure. Given the past and on-going investments for commercial strengthening o f E N A C A L led by the IDB (see Annex 2), and in an attempt to avoid duplication o f work, this project wil l primarily focus on extending and improving water and sanitation service. However, the project will continue to work toward a process o f institutional strengthening o f E N A C A L through coordination with the IDB, as they will be preparing a second phase to their ongoing operation. Both the IDB and Bank management have agreed to support coordination efforts, so that both project teams fol low the same unified strategy to ensure that all resources are leveraged in an effort to increase efficiency and expand services in E N A C A L through complementary interventions.

49. Different geographical scope. During the preparation o f the project, E N A C A L proposed different geographical scenarios. One possibility would have been to include all o f the Department o f Managua’s urban centers (which administratively all depend on the same operating unit). Another would have been to extend the project to other regions o f the country as well. However, after a careful analysis o f the needs outlined in the JICA master plan, it became clear that the investment needs in Managua are large and the low service quality warrants a significant action. Implementing a smaller fraction o f the master plan would have meant potentially having to choose between extending the network or rehabilitating and extending water resources, neither o f which would have by itself led to improved coverage or service levels.

111. IMPLEMENTATION

A. Partnership arrangements

50. During project preparation, the team met with several o f the donors involved in Managua, in particular with the IDB, KfW and JICA to explore possible partnerships. However, E N A C A L indicated that it did not favor a co-financing and wanted to coordinate the different on-going projects itself. As a result, this project does not include formal partnership arrangements, although the Bank team will seek to maintain close coordination with other donors, especially with the IDB, in order to coordinate as opposed to duplicate work being done in Managua. In that regard, the IDB and the Bank have agreed to share aide memoires and other relevant information and to invite colleagues in the Managua office to participate in missions. More importantly, given the complementary nature o f the two investments, the IDB has agreed to fol low the same strategy for their expansion component in Managua and to share with the Bank the institutional strengthening component.

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B. Institutional and implementation arrangements

51. The Republic o f Nicaragua will be the borrower o f the proposed grant and credit. The implementation agency for this project i s the National Water and Sewerage Company (ENACAL). ENACAL has the legal mandate to build, operate and maintain water and sanitation systems in the greater Managua region as well as in most urban centers o f the country, and i s implementing several such projects financed by other donors such as the IDB, the KfW, the Nordic Fund, the FAD, and JICA. ENACAL has not implemented a World Bank funded project in recent years; however i t i s currently implementing a PHRD grant.

52. ENACAL i s not part o f the Nicaraguan government, but i s instead a decentralized public organism with legal personality, autonomous structure and budget. As ENACAL i s a company, and not an entity, it i s not considered in the annual budget o f the country, therefore, a subsidiary agreement will have to be signed between the central government (Ministry o f Finance) and ENACAL prior to project effectiveness. According to the Recipient’s law 477, the proceeds o f the granvcredit have to be passed on to ENACAL on the same financial terms as they were received from the Bank. Nevertheless, the Ministry o f Finance and Public Credit wi l l advise the President o f the Republic to seek the National Assembly’s approval to pass the financing on to ENACAL entirely on a grant basis.

53. ENACAL has suggested, and the Bank team has agreed to, the following implementing arrangements. The sole implementing agency for this financing will be ENACAL. Within ENACAL, the following role distribution i s envisioned:

Overall project coordination and engineering matters wi l l be handled by a new unit consisting o f a dedicated team o f mostly consultants hosted within the Projects and Investment Division (Gerencia de Proyectos e Inversiones). This division already hosts several other similar un i t s in charge o f other bilateral or multilateral projects. Environmental aspects wi l l be handled by the Environmental Division (Gerencia de Gestidn Ambiental). Strengthening o f both staff and the working environment wi l l be required, as this was identified as a priority during the preparation o f the Environmental Framework o f the project. Social aspects wi l l be handled by the Community Management Department within the National Commercial Division (Departamento Especial de Gestidn Comunitaria / Gerencia Commercial Nacional). Strengthening o f both staff and the working environment wi l l be required, as this was identified as a priority during the social analysis conducted during project preparation. The Financial Management o f the project wi l l be handled by the Finances unit within the Project and Investment Division o f ENACAL (Gerencia de Proyectos e Inversiones / Departamento de Presupuesto y Supervisidn de Proyectos). Strengthening o f both staff and the working environment wi l l be required. Annex 7 has more details on this aspect. The Procurement o f the project will be handled by the Procurement Department o f ENACAL (Departamento de Compras y Adquisiciones). The unit does not require additional staff at the moment, but additional equipment may be needed. Annex 8 has more details on this aspect.

0

0

0

14

54. A Project Committee (Comite‘ de Proyecto) will be created to supervise the progress of the project and make general decisions. This committee will include a high-level representative o f each o f the different divisions involved in the project, and will be chaired by the Director o f Projects and Investments.

55. A fiduciary assessment o f this arrangement, which is similar to the set-up used by other donors working with E N A C A L including the IDB, has been completed and the results are presented in annexes 7 (financial management) and 8 (procurement).

56. Under the proposed arrangement, the Bank’s grant and credit would finance various improvements o f the physical environment o f the participating units, many o f which are either poorly equipped at the moment, or do not have sufficient resources to attend to the additional workload generated by the project. Similarly, i t i s planned that E N A C A L will use project funding to finance the additional staff made necessary by this project in the respective units. However, these additional staff will not be dedicated exclusively to the project, will continue to report to their respective managers and not to the project coordinator, and will be contracted, whenever possible, using similar processes to those for regular E N A C A L staff.

C. Monitoring and evaluation o f outcomes/results

57. The project-level monitoring and evaluation framework will allow for the tracking o f progress in implementation, measuring intermediate outcomes, and evaluating project impacts. The framework outlines key performance indicators, data collection methods, a timetable for collection, and responsible agencies. A baseline survey has been given to 1,200 households in the project area; this survey i s the basis for monitoring progress and evaluating the results o f the project in achieving the projects’ development objective*. This framework will be used to supervise and monitor the implementation o f the project. A complementary ex-post survey will be given before project completion in order to assess the project’s success in achieving the project development objective. E N A C A L has monitoring and evaluation facilities and can assume this coordinating role. ENACAL ’ s Institutional Development Plan for 2008-20 12 will also encourage tracking improvements in utility performance and service coverage and quality through the indicators developed as a part o f this plan.

58. Progress Reports will be produced by ENACAL’s monitoring and evaluation systems to describe the main achievements o f the project on a quarterly basis. They will include complete information on contracts, procurements, disbursements, detailed information on the project’s financial status, inputs, number o f beneficiaries and other outputs, and a range o f additional operational output and outcome indicators to track project status. These reports will be produced by E N A C A L and will be used by the utility and the World Bank. Details are presented in Annex 3.

D. Sustainability

59. ENACAL ’s Financial Capacity to Operate and Maintain the Improved Water System. The focus o f Component 1 on rehabilitating the existing network and extending service

The baseline survey was conducted during the first two weeks o f September. Results o f the survey are expected to be available by mid October.

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coverage, along with an improved metering system and an increased revenue collection efficiency rate which are the focus o f Component 2, will work toward increasing ENACAL’s collected revenues, reduce operational costs, and improve the bi l l ing processes, allowing E N A C A L to charge customers according to actual water usage. These savings could reduce ENACAL’s expenses, increase i t s ability to pay current expenses, and bring in revenues to support continued operation and maintenance o f the system. However, the overall financial sustainability o f the company can only be achieved if E N A C A L also addresses issues that are beyond the scope o f the PRASMA project. In that regard, Annexes 1 and 9 present an overall assessment o f the utility’s situation, while Annex 2 lists activities by other donors supporting ENACAL. A strong instrument to achieve overall sustainability i s the draft Institutional Development Plan (see Annex 1). This plan can be largely funded by projects currently under implementation or preparation and - if implemented properly - yields the potential to substantially improve ENACAL’s financial, institutional and operational situation. At the moment, ENACAL’s management are committed to the implementation o f this plan.

60. Sufficient Water Resources for Future and Increased Demand. The JICA Master Plan demonstrates that with reductions in losses, the water supply in Managua will be balanced with demand through the year 2015. I t i s assumed that while total water demand from consumers will continue to grow (currently at least 100,000 households are requesting new connections or improvements to their existing service), total water needed in the Managua region will decline due to reductions in leakage and wastage from 55 percent to 25 percent by the year 2015. E N A C A L does not consider this a realistic goal and i t s Institutional Development Plan foresees a decrease to about 48 percent by 2012. Component 2 o f the project will support E N A C A L in reducing losses in the distribution system in order to increase the available water supply in the sectors targeted by the project. The project will only finance connections or network extensions where the balance o f supply (including losses) and demand i s already established or can be established through the project.

61. Capacity of the Sanitation System to Meet Future and Increased Demand. The Sanitation Master Plan has been designed to meet the sanitation needs o f 76 percent o f the most urban population in the City o f Managua with an average f low rate o f 235,000 m3/day by the year 2025. Collectors have already been constructed in each o f the macrosectors which are supported by Component 2 o f the project. The more rural areas o f the city, such as Tipitapa and Sandino, will benefit from studies and works related to Component 1 which will expand on existing sewerage networks and extend service coverage in these low-income neighborhoods.

62. Community Participation in the Project. Component 1 calls for E N A C A L to involve users through neighborhood organizations and seek their guidance and approval on the design and implementation o f sub-projects. The project will include social interventions focusing on community participation in the selection o f service levels, design schemes, and operation and maintenance o f the systems (as needed), and hygiene education. During these campaigns emphasis will be placed on the need to pay for water based on actual use, communication between communities and ENACAL, appropriate methods o f reporting service problems or the need for system repairs, and conservation o f water. These campaigns, along with the improved service as a result o f Components 1 and 2 o f the project will lead to greater customer satisfaction and participation in the sector.

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E. Critical risks and possible controversial aspects

Overall Risk Rating: S (Substantial)

investments: ENACAL has been reluctant to engage with the Bank on technical issues, including the utility’s strengthening, the use of alternative approaches to work in low-income neighborhoods or the inclusion o f specific communication activities in the project’s design.

Water supply availability: There i s a risk that not enough water i s available to meet increased demand in the project area.

Sustainability of investments: ENACAL has historically provided poor water and sanitation services and the infrastructure has received inadequate operation and maintenance.

The Utility i s currently not financially viable and depends on transfers from the national government not only for investments, but also for some operational activities.

Risk Mitigation Measures

By engaging in the project, ENACAL staff will continue to build a relationship o f trust with the Bank team. Additionally, Component 3 includes participation in trainings and study tours to visit water and sanitation programs in countries with similar conditions that use, inter alia, condominia1 sewerage technologies and innovative social intervention methodologies, in order to establish contacts and learn lessons from other public-sector utilities that have successfully worked with the Bank using alternative technologies.

According to the JICA funded master plan, reductions in technical and commercial losses in the system should provide sufficient water to meet demand up until 20 15. Components 1 and 2 o f the project, as well as investments financed by other donors, are supporting ENACAL to increase water availability in the system. In addition, the project will only finance coverage extensions in neighborhoods for which the supply and demand i s either balanced, or can be balanced through the project’s intervention.

The financial stability o f ENACAL and its ability to cut losses and begin collecting fees will largely determine the sustainability o f these investments. components 2 and 3, and a US$35 million IDB project will support ENACAL in improving its financial performance. The IDB and the Bank will work together to coordinate these investments, including sharing aide memoires and other relevant information and participating on missions together. The IDB has agreed to follow the same strategy for their expansion component in Managua (Component 2) and to share with the Bank the institutional strengthening component (Component 3).

The project includes a number o f activities that should improve the financial situation of the utility, as demonstrated by the financial analysis. Those activities have strong support by ENACAL’s management and by the Ministry o f Finance.

The project will also encourage the elaboration o f a

Risk Rating w/Mitiga tion

S

S

S

S

Risks

The project relies partly on externally appointed consultants for its implementation, who are likely to be dismissed once the project i s completed.

The IDB-funded project, working in particular on institutional strengthening o f ENACAL, could be stalled or cancelled for political reasons.

Utility performance: ENACAL’s recent gains in efficiency and performance, while minor, are a major reason why the Bank considers it appropriate to engage in a substantially risky project. However, much o f this progress i s the result o f the presence of a very dynamic executive director who could be removed from the position, leading the company to move backwards on some of the reforms.

Low implementation capacity: ENACAL has not recently implemented WB operations and demonstrated slowness in executing the PHRD grant; they have chosen implementation arrangements which require increased coordination.


pro-poor tariff structure which will make it easier to discuss the overall issue o f balancing cost recovery and service to the poor.

Project preparation and implementation has and will Zontinue to involve the departments within the Utility. Except for the technical coordination of the project, all functions (social, environmental, fiduciary) are assumed by ENACAL’s departments. A project committee involving high-level representatives from a l l relevant units will lead the project.

The IDB project has just been renegotiated by the current administration and therefore i s not expected to stall.

The project’s design i s flexible, so that most o f the key institutional reforms needed could be financed by the project . There i s commitment to improve the utility that extends beyond ENACAL itself, to the Presidency and the Ministry o f Finance.

The project has been prepared in a very inclusive manner, involving several o f the members of the utility’s senior management, as well as members o f the board, al l o f which seem committed to improving ENACAL’s performance and implementing the project.

ENACAL i s dedicated to improving its performance through project implementation. By implementing the project, specifically Component 3, ENACAL’s management capacity will be strengthened. The Bank’s team will provide training and support to ENACAL’s staff according to the chosen implementation arrangements.

ENACAL has a history of implementing IDB, KfW and other projects with external funding, although with relative delays in execution, including several projects to strengthen their managerial and implementation capacity.

Risk Rating wMitigation

M

M

18

Risks

I Fiduciary risks: ENACAL has not recently executed any Bank-financed projects and may have difficulties carrying out its fiduciary responsibilities, according to Bank’s policies.

Financial management: The main financial management risk i s related to ENACAL’s capacity given the relative size o f the proposed operation (See Annex 7).

Procurement; The main risk i s related to the overall size o f the project and the procurement activities that will have to be carried out in order to achieve a timely implementation of the project (See Annex 8).


Through the execution o f the PHRD grant, ENACAL staff have become familiar with the use o f Bank procurement guidelines and financial management procedures. Furthermore, ENACAL staff will receive procurement and financial management training to ensure that they are prepared to implement the project following the Bank’s policies and guidelines. ENACAL staff has experience managing funds from other donors, which have similar procurement policies, but their implementation performance needs (See Annexes 7 and 8).

As part o f Component 1’s implementation, a Project Supervision Committee (Comite‘ de Seguimiento a1 Proyecto/CSP) will be formed in each participating neighborhood. Among others, one o f the responsibilities of these committees will be to suppoi the work supervision.

During supervision, the Bank’s team will make frequent site visits to the targeted neighborhoods. This will be facilitated by the fact that al l o f the investments will take place within the Department of Managua.

The project’s financial management will be conducted through the national public sector financial system (Sistema Integrado de Gestibn, Administrativa, Financiera y de Auditoria - SIGFAPRO). Financial Management experienced staff will manage the funds.

A specialized company wil l be contracted to carry out annual audits o f procurement processes under the credivgrant. This audit will include physical verification o f a sample o f the works financed by the project. The terms o f reference o f this audit will be agreed with the Bank prior to project effectiveness.

The project will benefit from the development o f the SEPA initiative in the country. A l l procurement processes will be published in the government’s procurement website (www.nicaraguacompra.gob.ni) in addition to the regular publication required by the Bank’s rules.

Risk Rating wIMitigation

S

M

S

19

Risks

Social and environmental safeguards: This project triggers environmental, social, and involuntary resettlement safeguards.

Risk Mitigation Measures Risk Rating wmitigation

Bank safeguards specialists have been engaged in the preparation process and have worked closely with ENACAL to develop social, environmental, and involuntary resettlement plans which comply with Bank policies.

Total residual risk

M

S I F. Grant/credit conditions and covenants

63. Grant/credit effectiveness:

Signature o f a subsidiary agreement between the Recipient and ENACAL.

64. Dated covenants:

By June 30, 2009: signature o f a coordination and information exchange agreement with the Municipality o f Managua.

IV. APPRAISAL SUMMARY

A. Economic and financial analyses

65. Economic analysis. A detailed economic assessment o f the project was undertaken. To determine the net incremental costs and benefits, "with" and "without" project scenarios were constructed. On the basis o f these scenarios, the net incremental financial costs o f the proposed investment programs were assessed, and were then adjusted for the impact o f taxes, subsidies, and externalities in order to arrive at the economic flow o f costs. Economic benefits were estimated using a hedonic price fbnction that was constructed for the greater Managua region.

66. The economic analysis was based on a sample o f 17 neighborhoods from Managua and Tipitapa using a randomized survey o f 1,685 potential beneficiaries; four o f these neighborhoods were selected as counterfactual and results in those areas were used to build a "with" project scenario. E N A C A L has already started working on project designs in some o f these neighborhoods. All project components were included in the analysis, including the infrastructure works in water and sewerage and the efficiency improvements. The costs included complementary actions (such as household connections to the sewerage network). All associated investment costs in terms o f institutional development, community participation and education were included, they were considered the basis for service sustainability and are ultimately expressed in improved access to urban services in the greater Managua region, since the aim of the project i s to manage and deliver urban services more efficiently and effectively.

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67. The water and sewerage components were analyzed separately and then aggregated to provide an indication o f the overall economic viability o f the project. The results o f the analysis show that the project generates a net benefit to the economy o f US$21.1 million (in present value), an overall economic internal rate o f return (EIRR) o f 24.7 percent and a benefit cost ratio o f 1.5. All o f these results indicate that the proposed operation clearly has a positive net effect on the economy. When analyzed independently, all o f the individual components are also economically viable with an EIRR ranging from 17.2 to 26 percent. A sensitivity analysis was conducted which demonstrated the robustness o f the results.

68. Financial analysis o f the project. The financial analysis o f the project examined two scenarios, one under which investment costs are fully considered with the purpose o f determining the financial viability o f this project per $e, and a second scenario under which the actual IDA gradcredit financing conditions are considered, with the purpose o f determining the real financial impact o f the project on the utility’s financial situation. Under the first scenario, the water component i s financially feasible with returns higher than 16 percent; profits are equal to US$225,000. The water component has better results under the second scenario, with an IRR o f 155 percent and net profits equal to US$930,000. The sewerage component, on the other hand, i s not financially viable in either scenario. The tari f f covers only 60 percent o f operating costs, and efficiency gains do not fully compensate for the loss. If the results are considered together the project i s not financially viable with a total loss o f US$1,280,000 under the f i rst scenario. In this case, sewerage losses are not compensated for by water gains. O n the other hand, in the second scenario, the project i s viable with an IRR o f 40 percent and a NPV o f US$110,000.

69. Financial analysis o f ENACAL and institutional analysis. As a revenue earning entity, the objective o f this analysis was to assess ENACAL’s financial structure, operational efficiency, long-term viability, and financial capacity to repay the credit portion o f the operation, and maintain and operate the proposed project. This was done based on audited historical and pro forma financial statements, using financial ratio analyses and measurements against relevant industry comparators.

70. The results o f this analysis reveal that E N A C A L i s currently facing a difficult financial situation. Tariffs were frozen from 2002 to February 2008, and they have not covered operating costs. E N A C A L i s highly dependent on imported o i l fuel and energy costs have more than doubled in the last four years. Ninety percent o f al l water produced by E N A C A L for distribution i s pumped by electricity-powered wells. In 2007 net losses were equivalent to six months o f billing. Debt indicators demonstrate the same critical situation, as liabilities were 3.6 times equity, and long term debt was 2.3 times billed revenue.

71. To assess ENACAL’s financial situation in relation to the project, a financial model was built which included the project and i t s associated targets. This analysis concluded that tariffs need to be permanently adjusted to annual inflation rates in order to keep them in real terms. Additionally, the full 40 percent tariff increase approved by INAA needs to be applied by the end o f 2008, along with an 8 percent increase in 2009 and 201 0, and 5 percent in 20 1 1. For sewerage, tariffs need a real adjustment o f at least 12 percent in 2008 and 8 percent in 2009, in addition to the application o f the approved tari f f for the new sewerage treatment plant in Managua. Under the assumptions o f efficiency improvements, adjustments in tariffs, and subsidies for investment, E N A C A L appears financially viable and able to maintain and operate the proposed project.

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72. More information on the economic and financial analyses can be found in Annex 9.

B. Technical

73. Most of the works considered under this project form part o f a larger vision. In recent years, E N A C A L has developed a water master plan (2005), a sanitation master plan (revised, 2002) and an institutional development plan (2008). Between them, these documents include the vast majority o f the works proposed and ensure that each individual activity has been designed to fit into the overall concept, rather than planned individually.

74. All technologies considered for water supply and sanitation are well established. The type o f works and technologies proposed include conventional and non-conventional water and sewerage network components and will not differ substantially from typical ones used in similar contexts (low-income neighborhoods) in other Bank-funded projects. These will include traditional pipe laying, connections, storage tanks, leak detection and reduction and so forth. Condominia1 or other types o f low-cost technologies may be used in situations where deemed appropriate. The Bank has already initiated technical support, based on i t s experience in Brazil, where experience with such technologies has been the longest running and most successful. N o new wastewater treatment installations will be financed by the project as the areas where sanitation coverage will be increased will be connected to a main network and a wastewater treatment plant i s already under construction with financing from other donors. Some rehabilitation o f existing abandoned low-technology treatment plants in Tipitapa may be included following the appropriate technical and environmental studies provided for by the project EMP and framework.

75. The water supply for the substantial number of connections that will be added exists in theory. As part o f the 2005 JICA-funded master plan, a comprehensive water balance was established for the City o f Managua. This balance shows that - assuming E N A C A L i s able to reduce technical and commercial losses from a current 55 percent to 25 percent by 2015, the current water sources for the city should be sufficient to cover the peak demand until the year 2015 at least (see details in Annex 1). The team has reviewed this very ambitious figure and considers it unlikely that it will be fully met. It has therefore been agreed that only neighborhoods for which adequate supply already exists or i s financed through the project’s component 2, will be included in component 1. Even so, the current poor service in many parts o f Managua seems to stem more from the network’s structure and operation than from insufficient resources. From that standpoint, Component 2 and other donors’ projects will have an important role to play in improving the network’s performance.

76. Wastewater collection and treatment facilities for the additional connections under construction. A large WWTP i s currently under construction for Managua which will install two new principle interceptors to collect wastewater throughout the city and carry it, using both gravity and pumping stations, to a treatment plant near Lake Managua. The system has a planned capacity o f 235,000 m3/day by the year 2025, providing coverage to 76 percent o f the population o f Managua. The current gravity driven sewerage system discharges 120,000 m3/day o f untreated wastewater directly into Lake Managua. Therefore, the spare capacity exists to add the estimated 30,000 new connections that will be financed by this project.

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C. Fiduciary

Procurement 77. All procurement activities will be carried out by ENACAL’s Procurement and Imports Department. Although E N A C A L has not executed any Bank-financed projects in recent years, they are, and have been, engaged in a number o f projects financed by the IDB; since Bank’s procurement Guidelines are fully harmonized with the IDB’s Procurement Policies, they have developed (through a number o f specialized capacity building activities and direct exposure to International Competitive Bidding (ICB) and National Competitive Bidding (NCB) processes) a strong capacity on Bank’s procurement procedures.

78. An assessment o f ENACAL’s capacity to implement procurement actions for the project was carried out by the Bank’s procurement specialist for Nicaragua on July 9, 2008. The assessment reviewed the organizational structure for implementing the project; the quantity and capacity o f relevant staff responsible for procurement; the relationship between the procurement office and the technical, administrative, and financial offices; the administrative and operating manuals and standard procurement documents used, and the filing capacity and the support systems used for supervising and controlling the whole procurement cycle. The assessment concluded that ENACAL’s Procurement and Imports Department has an overall installed capacity suitable to successfully carry out the procurement function for the project.

79. The main risk identified has to do with the overall size o f the project, and the related increment o f procurement activities that will have to be carried out in order to achieve a timely implementation o f the project. To mitigate said risk, a range o f measures have been agreed upon and are described in detail in Annex 8.

80. ENACAL’s Capacity Assessment can be found in the project files (see Annex 12).

Financial Management 81. A financial management (FM) assessment was carried out to determine FM implementation risk and to help establish adequate FM arrangements for the proposed Grant and Credit. Based on the assessment, recommendations and complementary actions have been provided to ensure that the project i s implemented within a sound fiduciary environment in compliance with Bank requirements.

82. ENACAL, through the Departamento de Presupuesto y Supervision de Proyectos (DPSP) from the Gerencia de Proyectos e Inversiones (GPI), will implement all project components, and i s in charge o f al l the financial arrangements for this operation.

83. E N A C A L has specific World Bank experience managing the PHRD grant, TF 90645, related with this Grant and Credit which i s under execution. ENACAL’s FM performance implementing the PHRD has been relatively good; in the beginning they had some internal problems initiating the execution of the grant. The execution has now disbursed approximately 50 percent o f the funds. The Grant has an experienced FM Specialist. Nevertheless, the FM assessment determined an Action Plan agreed with ENACAL’s GPI in order to help strengthen i t s financial management capacity. This plan has been partially complied with, mainly because of

The overall project risk for procurement was assessed as Average, and a detailed report o f

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a delay in training al l the institutional staff in the SIGFAPRO system. I t i s expected that the staff will be fully trained by the end o f next month.

84.

Special Attention to Mitigation o f Fiduciary Risks and Enhancing Transparency 85. infrastructure project in the following manner:

The overall residual project risk for FM was assessed as Moderate.

In addition, the team intends to deal with the challenge o f supervising a large

The Bank i s implementing the SEPA initiative in Nicaragua and al l project processes will be published and available for follow-up through the SEPA website. Additionally, all procurement processes will be published in the government’s procurement website (www.nicaraguacompra,gob.ni) in addition to the regular publication required by the Bank’s rules. The thresholds for shopping have been set low for the project and can only be used for goods, not for works, meaning most processes will actually use National Competitive Bidding or International Competitive Bidding processes. These methods offer more transparency and control than shopping processes. Regardless, the Bank’s fiduciary staff will be watching for potential corruption red flags. The designated account ceiling for advances for both the grant and credit have been set low, at U S $ l mi l l ion for each, in order to reflect a more realistic disbursement situation. Reporting for eligible expenditures from the designated account will be done on a quarterly basis. The project’s financial management will be conducted through the national public sector financial system (Sistema Integrado de Gestidn, Administrativa, Financiera y de Auditoria - SIGFAPRO). As part o f Component 1’s implementation, a Project Supervision Committee (Comite‘ de Seguimiento a1 Proyecto/CSP) will be formed in each participating neighborhood. Among others, one o f the responsibilities o f these committees will be to support the work supervision. During supervision, the Bank’s team will make frequent site v is i ts to the targeted neighborhoods. This will be facilitated by the fact that al l o f the investments wil l take place within the Managua Metropolitan Area. Finally, a specialized company will be contracted to carry out annual audits, during each calendar year, o f procurement processes under the creditlgrant. This audit will include physical verification o f a sample o f the works financed by the project. The terms o f reference o f this audit wil l be agreed on with the Bank prior to project effectiveness. These measures correspond to current practices o f the Recipient or are consistent with the

design o f the project.

D. Social

87. After the 1972 earthquake in Nicaragua, high levels o f random migration to the capital city took place giving r ise to problems with land tenure and provision o f water, sanitation, electricity and other services. In the 1980s, Government programs such as the Housing Improvement Program, and the Urban Development and Progressive Urbanizations Programs

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included land legalization and urban development plans. Spontaneous settlements continued to form in the 1990s and are now established in the poor neighborhoods o f Managua and i t s surroundings, where E N A C A L has been rendering services as the main urban water and sanitation provider. At present, Managua i s home to more than one quarter o f the Nicaraguan population, with a density o f 364 people per km2.

88. Although involuntary resettlement appears to be uncommon in neighborhoods where E N A C A L has intervened in the past, and large resettlements are not foreseen under the PRASMA, the O.P. 4.12 i s triggered by the present project, and an Involuntary Resettlement Framework (IRF) has been prepared by the borrower on the basis o f Nicaraguan laws and the WB O.P. 4.12, with technical assistance from the Bank. In the possible case o f resettlement, informed consultations and involuntary resettlement plans based on the present framework will be submitted to the Bank for approval. As agreed with the borrower, subprojects that may require a resettlement o f more than 60 people are not eligible for financing under the present Project.

89. A social assessment and consultations were carried out by an independent interdisciplinary team within E N A C A L and in six participating neighborhoods with the purpose o f systematizing technical, social and financial processes and procedures presently being used. Lessons learned have informed the project design. Moreover, a methodology for social support for the project in participating neighborhoods targeted by the project was developed and i s being agreed on with ENACAL.

90. Approximately 130 low-income neighborhoods and settlements will benefit from water, sanitation and sewerage connections under the project where at least 50 percent o f beneficiary social units are in the two poorest quintiles o f the population. These expected social impacts include:

e

e

e

e

e

91.

Improvements of the health o f the neighborhoods and increased awareness o f the social impacts o f consumption o f contaminated water. Community ownership o f the water, sanitation and sewerage systems and instilled social responsibility o f stakeholders to monitor and ensure a satisfactory operation o f the systems. Social capital o f the neighborhood will be improved through the institutional strengthening o f ENACAL's Community Management Unit (CMU) and the creation and/or strengthening o f local Water and Sanitation Monitoring Commitees (Cornite's de Seguimiento or CSP). Promote the leading role o f women in the neighborhoods. Improvement o f the institutional capacity o f the neighborhood to manage water assets and resources properly, including installations o f water meters, pipes, cleaning drains, and so on. Fair compensation for land acquisition and resettlement o f social units.

See Annex 10 for more detailed information on the social impacts o f the project and the methodology for social support.

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E. Environment

92. Environmental Assessment (OP 4.01 ), The project i s classified as Category B, requiring an Environmental Assessment (EA) study. An EA has been prepared for the project covering the City o f Managua investments and the Tipitapa and Sandino (within the Department o f Managua) satellite cities. The project i s focused largely on improving environmental conditions, protection o f underground and superficial water resources and human health through improved sanitation, expansion in the provision o f potable water, and improving efficiency in the use o f freshwater resources. Impacts, therefore, are expected to be positive or neutral. However, given the potential for limited or localized impacts, an environmental management plan (EMP) was prepared during the EA process which includes a framework for those works and activities that will be designed and carried-out during project implementation. In addition, an exclusion l i s t will be included in the EMP, sub-project environmental assessment framework, and legal agreement to ensure that project activities conform to the safeguards guidelines. These findings are summarized in Annex 10.

93, Natural Habitats (OP 4.04). The implications o f the proposed project activities have been analyzed in light o f the natural habitats within the project area o f influence in the urban Managua component with particular focus on Lake Managua. The draft EA indicates no negative impacts to critical or important natural habitats, while the overall investments should assist in improving the water quality o f the lake, lakefront, and tributary river and stream habitats. Recommendations are included in the EMP for specific measures to avoid, mitigate, or compensate for any impacts to natural habitats from investments, and an exclusionary l i s t will preclude investments that could negatively affect natural habitats based on Bank safeguards guidelines.

94. Physical Cultural Resources (OP/BP 4.11). The EA for the Managua investments has reviewed potential impacts to physical cultural resources and no physical cultural resources are expected in the proposed sites. The proposed E M P includes measures in case o f “chance findings” or other types o f measures necessary to protect any resources identified.

F. Safeguard policies

Safeguard Policies Triggered by the Project Yes N o Environmental Assessment (OP/BP 4.0 1) [XI [ I Natural Habitats (OP/BP 4.04) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.1 1) InGoluntary Resettlement (OP/BP 4.12) [XI [I Indigenous Peoples (OP/BP 4.10) [I [XI Forests (OP/BP 4.36) [I [XI Safety o f Dams (OP/BP 4.37) [I [XI Projects in Disputed Areas (OP/BP 7.60)* [I [XI Projects on International Waterways (OP/BP 7.50) [I [XI

* By supporting theproposedproject, the Bank does not intend to prejudice thefinal determination ofthe parties’ claims on the disputed areas

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G. Policy Exceptions and Readiness

95. There are no policy exceptions.

96. The design for the first 64 neighborhoods and three macrosectores has been contracted under the PHRD grant that ENACAL i s using to prepare the project and i s under execution. The first designs and accompanying bidding documents are expected to be available in January 2009, well ahead o f the project effectiveness. ENACAL will probably start the bidding processes on some o f these neighborhoods as soon as the bidding documents become available, in order to have them ready to sign the contract by effectiveness.

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Annex 1: Country and Sector or Program Background

NICARAGUA: Greater Managua Water and Sanitation Project

Country Background 1. Nicaragua, with 5.5 mi l l ion inhabitants, i s the second-poorest country in Latin America and the Caribbean, with an estimated per capita income o f US$957 in 2006 and a population growth rate o f 1.3 percent per year. According to the 2005 Census, 56 percent o f the total population lives in urban locations and this number i s gradually increasingg. By 2015, the urban population i s projected to reach 4.4 million people”, or 63 percent o f the total population. As o f 2005, 48 percent o f the total population lived below the poverty line and 17 percent were extremely poor”. Poverty i s high even in urban areas, where 3 1 percent o f the population i s considered poor and 7 percent extremely poor. Access to basic services i s a challenge and as in many other urban areas, the poor have inequitable access to services. Only 26.5 percent o f households l iving in extreme poverty have access to a piped water supply; only 1.2 percent have access to a toilet in their home; 72.5 percent have latrines; and 26.3 percent do not have access to any sanitation services.

2. Managua, Nicaragua’s capital i s the main urban, economic, and industrial center o f the country. I t s metropolitan region currently has a population o f 1.8 million. Between 1995 and 2000, the population growth rate o f Managua was estimated at 2.1 percent, but i s expected to decrease to 1.0 percent for the 2005-2010 period12. After the 1972 earthquake in Nicaragua, high levels o f random migration to the capital city took place giving rise to problems with land tenure and provision o f public services, including water, sanitation, and electricity. Managua’s growth continues to be fueled by high rates o f rural to urban migration, which i s accompanied by the development o f informal settlements and an increased demand for basic services, especially water and sanitation. Managua’s Gross Domestic Product (GDP) represents 35.6 percent o f the National GDPI3. However, 15.7 percent or 190,000 inhabitants in the municipality o f Managua are considered extremely poor, and the incidence o f extreme poverty i s even higher (29.2 percent) in the satellite city o f TipitapaI4.

Sector Background

Coverage

3. The WHOLJNICEF Joint Monitoring Program (JMP) has estimated access to water and sanitation services in Nicaragua for 2004 based on surveys conducted in earlier years. The resulting levels are presented in Table A l , 1. The last census was conducted in 2005; it does not, however, use the same definition as the JMP, making comparisons difficult, particularly on sanitation levels, where the census accepts any latrine and the JMP excludes those not in working

National Institute o f Information for Development (INIDE), National Census Results, Nicaragua, 2005. Human Development Report, United Nations Development Programme (UNDP), 2004. I O

I’ “Perfil y Caracterizacibn de 10s Pobres en Nicaragua 2005”, INIDE, Nicaragua. I2 “Estimaciones y proyecciones de populacion nacional, departamental y municipal. Revision 2007” INIDE, Nicaragua, November 2007. l3 “Informe Final: Plan Alcantarillado de Managua 2002.” Proctor & Redfern International Limited, March 2002.

Information for Development (INIDE), Nicaragua, 2005. “Mapa de Pobreza Extrema Municipal por e l MCtodo de Necesidades Btisicas Insatisfechas,” National Institute of 14

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order or without proper superstructure. National data presented i s based on information from the JMP and data for Managua i s taken from the 2005 Census results.

Table A1.1: Access Levels in 2004 According to the JMP and 2005 Census data

Institutions

4. Until recently, the water and sanitation sector was defined by the 1998 Water and Sanitation Services Law and the laws that created the institutions o f the sector. This law defines three main public sector institutions: (a) the Comisibn Nacional de Agua Potable y Alcantarillado Sanitario (National Water and Sanitation Commission, CONAPAS), the governing entity (ente rector) led by a committee chaired by the Presidency Secretariat. Theoretically, CONAPAS has the responsibility o f strategic planning for the sector; (b) the Nicaraguan Water and Sewerage Institute (INAA), which i s the regulatory agency responsible for regulating tariffs, promoting efficient and adequate service quality, and defending users; and (c) the Nicaraguan Water and Sewerage Enterprise (ENACAL), which i s the national service provider and de facto strongest institution o f the sector.

5. In 1999, ENACAL, with financial support from the Inter-American Development Bank (IDB), accepted an international management contract with the goal o f restructuring the sector to include private sector participation and transforming E N A C A L into a publicly traded company. This project included provisions for decentralization, with private and local water management in the municipalities o f Leon and Chinandega. Protests against privatization put a halt to these reforms and in 2003 the Nicaraguan Legislature passed Law 440 which suspended awarding concessions to the private sector for operation o f ENACAL’s facilities and assets. Soon after, the Nicaraguan Legislature also changed ENACAL’s status from a “state-owned business” to a “state-owned public utility”’ 5 . The new Ortega administration, which took office in January 2007, has restructured the project financed by the IDB, eliminating al l private sector development and canceling a large technical assistance contract. In parallel, it has named a new dynamic general manager who remains committed to improving i t s overall performance and achieving the same efficiency results as those o f the original management contract, only without private sector participation.

Is “Nicaragua Water Supply and Sanitation Investment Program Loan Proposal.” Inter-American Development Bank, Report No. NI-L1017,2006.

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6. A new Water Law was passed in 2007 and i s being implemented16. However, i t s implication for institutional responsibilities i s not yet clear. Although CONAPAS was created to govern the sector, in practice it has lost i t s relevance during recent years under the current administration, reflecting a change in the government’s approach to the development o f the sector. As privatization and decentralization are no longer a goal o f the sector, INAA’s regulatory roles have weakened and this institution has not assumed an influential role in the sector. Today, E N A C A L i s the main supplier o f water and sewerage services in Nicaragua, administering 147 separate urban and rural systems and providing more than 60 percent o f al l water users in the country with serviceI7. As o f 2004 E N A C A L had a total o f 410,000 registered users, o f which Managua represents 50 percent18. E N A C A L i s the primary water and sanitation service provider for the city o f Managua. According to the 2007 Water Law, E N A C A L i s also responsible for supervision and control o f service provision in rural areas. A strategy for the entire sector i s under preparation by ENACAL-rather than CONAPAS-and should shed some light on the institutional roles in the sector.

ENACAL

Institutional Aspects

7. According to the current legal framework, al l service providers, whether public or private, should sign a concession agreement with the regulator (INAA). Accordingly, E N A C A L has signed a concession agreement with INAA a number o f years ago. The agreement was revised with the most recent IDB project and now includes a hard set o f performance indicators monitored by an external technical audit. However, so far E N A C A L has been unable to fulfill a number o f the targets, in part because energy costs have risen tremendously since the performance targets were calculated in 2005.

8. The regulatory agency, INAA, approves tariff changes. Given the fact that the head o f INAA i s also appointed by the President o f the Republic, the executive holds an important and direct role in the management and performance o f ENACAL. The latest tari f f revision was approved in early 2008, however it had not been changed since 2002.

9. E N A C A L i s governed by a 7-member Board which i s chaired by the Executive President. All Board Members are directly appointed by the President o f the Republic; at the moment, the Board includes representatives o f three national institutions, the Finance Ministry (two representatives), the Environment Ministry, and the Geographic Studies Institute, as well as two sector professionals who do not represent any specific institution.

10. The organizational chart o f ENACAL, as seen below, shows in detail the various departments and their responsibilities within the organization.

l6 The law i s meant as a water resources management instrument but actually covers a number o f water supply and sanitation aspects as well. ” “Nicaragua Water Supply and Sanitation Investment Program Loan Proposal.” Inter-American Development Bank, Report No. NI-L1017,2006. ’* “The Study on Improvement o f Water Supply System in Managua in the Republic o f Nicaragua.” Japan International Cooperation Agency (JICA), Empresa Nicaraguense de Acueductos y Alcantarillados Sanitarios (ENACAL), Nihon Suido Consultants Co., Ltd., Asia Air Survey Co., Ltd., March 2005.

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n

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11. Despite the strong potential influence o f the executive in ENACAL’s management, the utility has been relatively insulated from non-technical decision making over the last 18 months, in part thanks to i t s outspoken Executive Director. A large share o f the technical staff has remained in place despite the transition to a new administration; tariffs have been raised; and E N A C A L has followed a policy o f decentralizing decision-making at a time when many other institutions were re-centralizing.

12. Finally, the new management has placed a particular emphasis on the need to connect better with i t s clients. Among the innovations put in place are:

The improvement o f ENACAL’s complaint system, with a central, simple phone number (“127”) staffed 24/7 with live operators, and perspectives for a complaint tracking system. The institution o f mandatory advocacy and outreach activities for ENACAL’s employees, targeting schools and universities. Numerous leaflets and brochures have been prepared by the Utility over the last 18 months, covering topics as diverse as water savings, ENACAL’s financial situation or the new wastewater treatment plant and system. The creation o f mobile units to collect bills in low-income neighborhoods, making it easier for users to pay for the service.

Financing

13. E N A C A L receives 97 percent o f i t s investment funding from transfers from the National Government along with external donations and loans, while less than 3 percent o f investments come from the organization’s own fundslg. Thirty-one percent o f ENACAL’s investments go toward supporting services in the greater Managua region.

14. As o f 2007, E N A C A L had liabilities o f 2.8 bi l l ion cordobas (US$149 million) which i s continuously growing as their expenses exceed their earnings every month by US$ 1.7 million. Operating income has been higher than one, deteriorating from 1.09 in 2003 to 1.3 1 in 2007 (see Annex 9). One o f ENACAL’s major financial restraints i s that tariffs are politically controlled and therefore E N A C A L cannot set tariffs according to distribution and production costs2’. Although INAA has recently approved an increase in tariffs (see Annex 9), further tari f f increases are needed in order to match distribution and production costs and to ensure continued maintenance and operation o f the system. Only 70 percent o f water users in low-income settlements currently pay their bills, which highlights the need for improvement in tariff collection as well.

15. The financial constraints o f E N A C A L have led to l ow maintenance o f the system, insufficient revenues to cover service production and distribution, leading E N A C A L to depend upon external resources for financing and increasing debt.

l 9 “Memoria de Gestion 2007.” ENACAL, Edicion Especial, ENACAL, Departamento de Comunicacion, Nicaragua, Nov-Dic 2007. 2o “Does Increasing Access to Infrastructure Services Improve the Targeting Performance o f Water Subsidies?” Angel-Urdinola, Diego F., and Quentin Wodon, World Bank, Washington D.C., 2007.

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Water and Sanitation in Managua

Water Supply and Demand in Managua

16. The water in Managua i s distributed over 2,000 kilometers o f piping and comes from five principal sources: Laguna de Asososca which provides approximately 5 percent o f supply; Las Mercedes well field, Managua I well field, and Managua I1 well field which together supply approximately 70 percent o f water to the city; and an additional 70 wells which provide 25 percent o f the total water supply. Based on data from the 2005 Census, E N A C A L reports to provide “nominal coverage” o f potable water service to 93 percent o f the population in Managua. It i s estimated, however, that actual coverage i s less than 60 percent due to insufficient and unreliable service2’. Coverage levels are not equally distributed, as many poor settlements suffer from severe water shortages.

17. The existing water supply in Managua cannot meet current demand due to high rates o f leakage and wastage, which occur in service connection pipes, and account for 55 percent o f total water produced and distributed by the system22. Based on a study undertaken by the Japan International Development Agency (JICA), the daily water demand in Managua was estimated to be approximately 400,000 m3/day by the year 2015, while the total sustainable yield will be 403,000 m3/day, with water produced from both wells and Lake Asososca. It i s assumed that while total water demand from consumers will continue to grow (currently at least 100,000 households are requesting new connections or improvements in their existing service23), total water demand in the greater Managua region will decline due to reductions in leakage and wastage from 55 percent to 25 percent by the year 2015 (see graph below). These reductions in leakage and wastage will allow for the implementation o f a plan to reduce water supplied by Lake Asososca from 57,000 m3/day to 30,000 m3/day by the year 2015. In the meantime, the water abstracted from Managua Wel l Fields I and I1 should be increased to their design production capacities, from 53,000 m3/day to 71,000 m3/day and 44,000 m3/day to 56,000 m3/day respectively, in order to continue to meet growing demands. The JICA study also recommended that 10 wells which are not functioning in good condition be replaced or repaired in order to further enhance the production capacity o f the entire system24.

21 “Revision de alcances de inversiones del PRASMA”, Carta de Albert0 Guevara Obregon, Ministro de Hacienda y Credit0 Publico, ENACAL, Managua, 2008. 22 “Plan de Desarrollo de Sistemas de Agua Potable y Alcantarillado Sanitario de la Ciudad de Managua 2008- 201 5.” ENACAL, Direccion de Planificacion, Managua, 2008. 23 “Memoria de Gestion 2007.” ENACAL, Edicion Especial, ENACAL, Departamento de Comunicacion, Nicaragua, Nov-Dic 2007. 24 “The Study on Improvement o f Water Supply System in Managua in the Republic o f Nicaragua.” Japan Internataional Cooperation Agency (JICA), Empresa Nicaragliense de Acueductos y Alcantarillados Sanitarios (ENACAL), Nihon Suido Consultants Co., Ltd., Asia Air Survey Co., Ltd., March 2005.

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2004 2005 2006 2007 2008 2009 1010 2011 2012 2013 1014 2015 Year

Poor quality and efficiency of water service in Managua

18. Poor quality and efficiency o f water service provision are major areas o f concern in Managua. Interruptions in service provision are common, with some households receiving service for less than 2 hours per day. Water i s scarcer during the summer months, between February and May, and will continue to worsen as the urban population increases25. Distribution networks are not divided into macro sectors (district metering areas) which makes management o f the system more difficult. Metering deficiencies are common, with only 42 percent o f connections having meters operating in good condition. Only 2 percent o f users in low-income settlements are serviced by metered connections26. A large number o f water users are unregistered and have connected to water service illegally. More than 60 percent o f those living in low-income neighborhoods have extended the service network and piping system without technical assistance from ENACAL2’.

25 “Plan de Desarrollo de Sistemas de Agua Potable y Alcantarillado Sanitario de la Ciudad de Managua 2008- 20 15.” ENACAL, Direccion de Planificacion, Managua, 2008.

“The Study on Improvement o f Water Supply System in Managua in the Republic o f Nicaragua.” Japan Internataional Cooperation Agency (JICA), Empresa Nicaraguense de Acueductos y Alcantarillados Sanitarios (ENACAL), Nihon Suido Consultants Co., Ltd., Asia Air Survey Co., Ltd., March 2005. 27 “Revisi6n de alcances de inversiones del PRASMA”, Carta de Albert0 Guevara Obregon, Ministro de Hacienda y Credit0 Publico, ENACAL, Managua, 2008.

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Low sanitation coverage in Managua

19. The 2005 Census reported that 63 percent o f households have toilet systems which discharge into wastewater pipes, with 30 percent o f the population using pit latrines in settlements, and the remainder using septic tanks managed by five private companies2*. However, ENACAL’s AS400 Sewer System provides only 38 percent o f users in priority neighborhoods with sewerage service, the difference probably stemming from self-constructed networks or illegal connections to rainwater systems.

20. A study for the 1996 Sanitation Master Plan for the City o f Managua, which i s detailed I below, found that the existing, gravity driven sewerage system discharged 120,000 m3/day of

untreated wastewater directly into Lake Managua. Wastewater disposal i s a growing problem, particularly in the Veracruz and Jaguitas zones o f Managua. Improper disposal o f wastewater i s contaminating the aquifer in several areas around the city.

Water supply and sanitation limitations in Tipitapa

2 1. The water supply and sanitation problems which plague Managua extend to i t s satellite cit ies as well. The water system in Tipitapa, a city 17 kilometers outside o f Managua, which i s also managed by ENACAL, serves 63,000 people with 10,000 connections. Approximately 14 percent o f households lack potable water service. Metering i s also a problem in Tipitapa with only 18 percent o f connections being properly metered.

22. As o f 2007, five wells were producing water at a rate o f approximately 11,000 m3/day. The system experiences losses o f 65 percent o f total production. Due to rapid population growth, demand i s higher than system output with a demand o f 12,000 m3/day in 2007, which i s expected to increase to 23,000 m3/day by 2020. Despite expected reductions in water losses and improvements in the system through the replacement o f old pipes and the introduction of additional piping, production will s t i l l not be able to meet demand in years to come.

23. Sewerage connections are also a problem in Tipitapa as the network serves only 21.8 percent o f the population. The southern section o f the city lacks these services entirely, causing serious health problems in the area. Wastewater i s collected in pipes and released into small treatment ponds located next to Lake Managua. Due to the low elevation o f Tipitapa, the untreated wastewater from the entire Managua region causes contamination o f the water and environment in Tipitapa.

Water supply and sanitation limitations in Ciudad Sandino

24. Another neighboring city, Ciudad Sandino, also faces water supply and sanitation challenges. The city i s located 12 km to the west o f Managua, with a population o f 83,000; 44 E N A C A L employees service 15,365 water connections in Ciudad Sandino. Water i s extracted

“The Study on Improvement o f Water Supply System in Managua in the Republic o f Nicaragua.” Japan Intemataional Cooperation Agency (JICA), Empresa Nicaragiiense de Acueductos y Alcantarillados Sanitarios (ENACAL), Nihon Suido Consultants Co., Ltd., Asia Air Survey Co., Ltd., March 2005.

28

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from 11 wells which produce 26,000 m3/day. Although 97.9 percent o f households have some form o f access to potable water, 57.6 percent o f users are not metered. Due to losses in the pipes and illegal connections, 45.5 percent o f water produced i s unaccounted for. Additionally, water supplies risk contamination from inappropriate trash disposal, industrial runoff, and increased sedimentation due to erosion. E N A C A L would l ike to increase the capacity o f the system and better treat the water, as two wells cannot be used due to pollution; they would l ike to better control losses in the system; register water users; install meters to go along with connections; and increase the technical and administrative capacity o f those maintaining and operating the system.

25. Ciudad Sandino has a wastewater treatment plant that services 39,000 people with 7,000 connections. Those not served by the treatment plant use latrines or connect their sanitation systems illegally to storm water drains. The wastewater system utilizes an Upf low Anaerobic Sludge Blanket (UASB) treatment and can handle a volume o f 6,000 m3/day o f wastewater. The treatment system i s in need o f repair, as one operating line i s not working and the system capacity should be upgraded to prepare for increased demand as the population i s growing and E N A C A L hopes to connect more users in the near future. There are problems with the UASB treatment system and measures should be taken to ensure that wastewater i s properly treated. The piping system also needs to be reinforced as storm water i s infiltrating the system, making collection and treatment more difficult.

The 2004 JICA funded water master plan

26. In 2004, JICA financed a study on “Improvement o f Water Supply System in Managua in the Republic o f Nicaragua” with the goal o f creating a long-term improvement plan for the water system o f Managua until the year 20 15 and identifying projects to be implemented in the short and medium terms. The report identified four major areas o f concern: 1) Rehabilitation and Relocation o f Wells and Wel l Pumps; 2) Increasing Efficiency in Water Transmission and Distribution Systems; 3) Reduction o f Leakage and Wastage; and 4) Water Supply Improvements and Protection o f Sanitary Environments in Low-Income Settlements. The report detailed specific actions to be taken in order to improve the deficiencies in water service provision which are mentioned above. The study assumed that the majority o f these projects would be financed by donors, with the remaining funding coming from E N A C A L i t se l f (see graph below) 29.

27. With the support o f donations and loans, E N A C A L has already begun working toward implementing the projects recommended by the JICA study. E N A C A L has increased the number o f potable water and sanitation service connections and improved coverage through routine maintenance o f wells and the introduction o f 130 km o f new pipes in Managua3’. They have increased the number o f new and registered clients in Managua from 2,000 in 2006 to 8,000 in 2007. E N A C A L i s using mobile boxes in various locations o f Managua to collect monthly water payments in a more direct and accessible way for end-users in settlements. Collecting monthly

29 “The Study on Improvement o f Water Supply System in Managua in the Republic o f Nicaragua.” Japan Internataional Cooperation Agency (JICA), Empresa Nicaraguense de Acueductos y Alcantarillados Sanitarios (ENACAL), Nihon Suido Consultants Co., Ltd., Asia Air Survey Co., Ltd., March 2005. 30 “Memoria de Gesti6n 2007.” ENACAL, Edicibn Especial, ENACAL, Departamento de Comunicacion, Nicaragua, Nov-Dic 2007.

36

fees, however, remains a serious concern for ENACAL’s financial sustainability. Much work remains to be done to improve service coverage and reliability, as well as ENACAL’s management and financial capacities.

First Stage

Table A1.2: Summary o f Costs for the Implementation of the JICA Proposed Long-Term Improvement Plan (US%lOOO)

Second Stage I Total I Prioriiy Project Components

1 IRehabilitation & Relocation of Wells &Well Pumr

Increasing Efficiency in Water Transmisssion &

2005-2010 2011-2015 2005-2015 I

Donor I ENACALl Total I Donor IENACALI Total I Donor I ENACALl Total

ISett emrntc

* Svb-iota1 Renaoi ta t on &

3,3301 7,9271 11,257i 01 5,202i 5,2021 3,3301 13,1301 16,461

10,442 10,743 21,185 3,641 12,033 15,674 14,083 22,776 36,859

2,229 3,238 5,467 1,875 2,002 2,356 5,113 7,469

I I I I I I 37,578 21,909 59,487 20,710 19,110 39,821 58,289 41,019 99,308

21,5771 01 21,5771 16,9431 01 16,9431 38,5201 01 38,5201

Facilities 5 Engineering Fees(D/D & C/S) 1,120 1,534 2,654 264 1,338 1,601 1,384 2,871 4,255

6 Physical Contingency 1,935 1,172 3,107 1,049 1,022 2,071 2,984 2,195 5,178

7 Price Contingency 5,664 3,117 8,782 6,716 7,773 14,489 12,380 10,890 23,271

8 Proiect Administration Cost 0 1.851 1,851 0 1,450 1,450 0 3.300 3,300

Total

1 - I I I I I I I I I

’ ’ Sub-total ’ ‘ ’ I 8,7191 7,6741 16,3931 8,0281 11,5831 19,6111 16,7481 19,2571 36,OO

46,2981 29,5831 75,881 28,7391 30,6931 59,4321 75,0361 60,2761 1 3 5 3 2

Sanitation Master Plan

28. ENACAL, with the assistance o f Procter and Redfem International Ltd., completed a study for the Sanitation Master Plan for the City o f Managua (PMASM) in 1996. The study, which was updated again in 1998 after Hurricane Mi tch and once more in 2002, proposed a plan to improve the sewerage system in Managua by repairing pipes and collection stations, installing two new principle interceptors to collect wastewater throughout the city and carry it, using both gravity and pumping stations, to a new treatment plant to be located near Lake Managua. The project aims to eliminate contamination o f Lake Managua and the city’s aquifers, to create a healthier environment for the people living in the capital, and to reduce the incidence o f disease. The US$80 mi l l ion project i s being joint ly funded by the IDB, KfW, the Nordic Fund, the Central Government, and E N A C A L and i s expected to be completed by December o f 2008.

29. The study assessed the demand for the new sewerage system to be 150 l i ters of wastewater per capita per day, including domestic, industrial, and commercial uses. The new system, which takes into account the population growth rate, has been designed to cover 64 percent o f the sewerage needs for the population o f Managua by the year 2010. By 2025 the system will provide coverage to 76 percent o f the population and will handle an average flow rate o f 235,000 m3/day (see graph below). The sewerage system will not cover the entire population o f the City o f Managua because it i s focused on the more urban areas o f the city and

37

does not include the semi-rural populations. Tipitapa, for example, will not benefit from the new sewerage system. E N A C A L plans to meet the sewerage needs o f the remaining population with household or neighborhood solutions including septic systems, wells, and latrines.

Table A1.3: Projected Coverage of the Sewerage Treatment Plant for the City o f Managua

Institutional Development Plan 2008-2012

30. Following the policy changes in the water and sanitation sector, and the new role o f E N A C A L as the main, public provider o f water and sanitation services in urban areas, E N A C A L has taken the initiative to develop an Institutional Development Plan for 2008 to 2012; a draft o f this plan has been shared with the Bank. The strategic objectives o f the plan include:

0

0

0

Achieve the financial, technical, environmental and social sustainability o f ENACAL; Create a new culture o f water to protect and preserve hydrological resources; Increase investments and extend national coverage levels to 85 percent for potable water and 50 percent for sanitation; Reduce losses to the water system by 15 percent; Invest wisely in the sector and increase the knowledge and technical capacity o f professionals working in the sector ;

31. For each o f the strategic objectives, the plan l ists a number o f priority measures. Although many o f them evolve around investments in infrastructures, a number also have to do with institutional, financial and organizational aspects. For example, the company i s seeking to strengthen i t s decentralized operation in the different departments and has used internal benchmarking to hold the departmental units accountable. I t i s evaluating whether to introduce staff performance evaluation systems. I t i s putting a strong emphasis on reduction o f illegal connections and proper consumption metering. I t i s seeking to improve i t s bi l l ing and collection processes. New billing and commercial systems will be acquired in order to enable better decision-making.

32. In parallel, the new management o f E N A C A L has already begun making improvements:

At the institutional level, where it has recently raised tariffs and has taken steps to decentralize some budget management decisions, i t has also merged its operational and commercial activities in the regions and improved i t s procurement processes, and At an operational level, by rehabilitating water systems, constructing new wells, increasing efficiency and coverage, and improving their investments.

33. The Institutional Development Plan evaluates these improvements using baseline data collected in 2006 during an audit done by an independent company, the Halcrow Group Limited,

38

along with information obtained during the IDB's Modernization Program (Loan 1049, see Annex 2). The data so far indicates positive improvements (see table below). In order to continue making progress in these areas, E N A C A L has developed policies, operational objectives, concrete activities, and financial projections which correspond to these indicators.

Table A1.4: Comparison of Indicators, 2006-2007

Baseline 2006 Yea 2007 I Real 2007

vrs Halcrow

2006

Data from Halcrow

~ornpany~ '

INDICATORS

1. Applied Tariffs CID

Real

80% 80.0% 0.00%

4.30% 83% 87.3% income) 3. Rate o f Micro metering (%) (read) 44.4% 3.20% I 4. Unaccounted for Water

registered (C$)

51.1%

2 3 1 1.13

-2.10%

-241.87

53.2%

2,753.00

7.5 7.04 -0.46 I 6. No. Employees / 1,000 connections 7. Consumption KWH / M3 produced 8. Coverage o f Costs (collected/administrative, operations and maintenance costs) 9. ENACAL's own investments in coverage expansion to poor areas (C$/year) 10. Maintenance as a % o f active costs

0.862 0.671 0.19

0.03 0.79 0.82

~ 0.20%

0 0

1.35% 1.55%

Independent auditing company contracted by the IDB to evaluate Loan 1049, 3 1

39

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies NICARAGUA: Greater Managua Water and Sanitation Project

Main Issues

1. The Managua Water Supply and Sanitation Project has been carefully coordinated with the most relevant donors in the sector. Other donors have already begun planning or implementing projects with ENACAL, both at the institutional and infrastructure levels. These existing and planned projects have helped to shape the World Bank’s PRASMA project in that the project complements, as opposed to duplicates, activities being carried out by other donors.

2. The table below details the main issues with regards to the project and the on-going activities from other donors, as well as how PRASMA would complement these. The text below the table provides further information on each donor’s on-going or planned activities. Finally, annex 14 also lays out the geographical complementarity o f this project with the on-going FAD- hnded network optimization project, and the new IDB project under preparation.

Current activities On-going support PRASMA’s from other donors contribution

Table A2.1. Overview of Issues and On-going Support to ENACAL

Institutional Issues Absence of institutional accountability mechanisms

Weaknesses in organizational structure

Obsolete commercial and management systems

This issue i s not being directly tackled given the current uncertainty in sector policies. Although ENACAL’s performance i s regulated through a Concession Agreement with INAA, this has not been enforced. For the complementary IDB project, the Halcrow Group Limited i s doing independent technical audits and their 2006 baseline study was used in ENACAL’s Institutional Development Plan. The current General Director and the Board o f the Company i s directly appointed by the President of the Republic, and has been a strong advocate o f better service and social accountability so far.

Operational and commercial divisions have been merged at the regional level.

0 Budget management responsibility has been transferred to the regions.

The utility i s bidding out a new commercial system.

The IDB has financed a technical assistance contract (now canceled upon ENACAL’s request) that laid the ground for several o f those measures. The IDB has also organized a study tour for ENACAL management to visit a best practice regional operator. IDB i s financing the new systems.

Within the project, social auditing mechanisms wil l be created at the community level in those neighborhoods affected by the project. The project will also use many o f the same indicators as the IDB project to maintain consistency in evaluating ENACAL’s institutional improvements. Build upon the on- going exchange with best practice operators in the region, in particular in Brazil.

None expected

Operational Issues Low service quality I 0 The utility i s working I IDB and FAD (Spain) I Component 1 includes

40

Main Issues

High non-revenue water

coverage are limited.

Current activities

to decrease NRW, renovate distribution networks and increase / rehabilitate water sources.

The utility i s implementing a set o f measures identified in the JICA-funded masterplan (DMA, increased metering etc.).

Financial Issues Operational income below operational costs

Rising energy costs

Inappropriate tariff A general tariff structure and payment increase has just mechanisms for low- been approved and income neighborhoods i s being ’-- im lemented.

0 A tariff increase has just been approved and i s being implemented.

0 Lay-offs have decreased ENACAL’s labour costs.

measures are being taken.

0 NRW i s being reduced.

0 The utility i s implementing an energy efficiency plan.

0 Energy efficiency

On-going support from other donors are financing network optimization activities in areas complementary to PRASMA.

FAD (Spain) i s financing NRW reduction in the central area o f the City. IDB’s new project will finance NRW reduction in six macrosectors complementary to PRASMA. IDB will be financing sanitation coverage extension in areas complementary to PRASMA. IDB, KfW and the Nordic Fund are financing all of these activities.

IDB has made cost recovery a disbursement condition on its last credit, with a 0.93 ratio linked to disbursement o f the first 50% o f funds for component 3 and a 1.06 ratio linked to the disbursement of the second 50%. The project includes numerous TA activities. IDB financed the energy efficiency plan and i s financing i t s implementation.

The IDB has financed a study on tariffs and subsidies.

PRASMA’s contribution major network rehabilitation and extension activities. Component 2 finances supply and efficiency improvements. Component 2 will specifically target non- revenue water in six selected macrosectors (see annex 15 for details).

Component 1 includes construction o f primary, secondary and tertiary sewer networks in selected neighborhoods. As part o f Component 2, limited rehabilitation of existing plants could be financed.

Component 2 will finance a number o f activities aimed at reducing NRW and improving bill collection. Component 3 will finance improvements to cost recovery, following the same indicators as the IDB project.

Component 2 will finance those activities o f the energy efficiency plan that are relevant for the project’s selected macrosectors. Component 3 includes a specific study with regards to this aspect to complement the work by the IDB.

41

A. JICA: In the early 1990s JICA conducted a study entitled “The Study on Water Supply Project in Managua” with the goal o f developing new water supply sources for the city in order to mitigate water shortages due to population growth. Based on the study’s recommendations, JICA developed two well fields (Managua I well field and Managua I1 well field) and water transmission systems in the southeastern part o f the city as a part o f a grant aid project. The two new well fields which were completed in 1997 and 2000 now supply one-third o f the city’s total water supply.

B. FADWASSER: The Spanish government through FAD i s financing the €8.5 million (US$13.5 million) “Proyecto de Optimizacibn del Sistema de Abastecimiento, Mejora de 10s Indices de Macro y Micromedicion, Planificacibn y Mej oramiento Ambiental,” which aims to undertake the micro-sectoring o f a distribution network o f approximately 1000 km in the northern zone o f Managua. The project includes locating and repairing losses to the water system and metering for each micro-sector. The project i s expected to be completed at the end o f 2008.

C. IDB (Loan 975/SF-NI Lake and City of Managua Environment Improvement; Loan 1060/SF- NI Implementation Sanitation Measures Lake Managua) I KfW I Nordic Fund: Following the development o f a master plan for the sewerage system in Managua in 1996, the IDB (US$30 million), KfW (US$28 million), and the Nordic Fund (US$lO million) joined together to finance a US$SO mi l l ion project, with the GoN contributing U S $ I O million, for a wastewater treatment system in the city o f Managua. The project includes construction o f a coastal collector, pumping stations, and a wastewater treatment plant in order to prevent contamination o f Lake Managua. The project i s expected to be completed by December 2008.

D. IDB i s financing several other projects in the water sector in Managua.

The Modernization of the Management of Water and Sewerage Services Program (Loan 1049- SFN) for US$13.9 mi l l ion from the IDB and US$5 million from OPEC was approved in 1999. I t s principle objective was to reform the sector by modernizing ENACAL, with two original sub- programs, to improve ENACAL’s operational efficiency and to improve and expand WSS in low-income settlements. In December 2005, E N A C A L entered into a three-year, U S $ l OM service contract with a consortium led by an operator with international experience, which included, among others, advising and technical assistance for E N A C A L on integrated accounting, financial, and business management systems, investment planning, operation o f WSS, programs to reduce non-revenue water, and business activities such as tariff collection; as well as creation o f a user registry; new communications and office equipment such as computers; improving the transparency o f E N A C A L through increased communication and information sharing, and building public and client relationships; supporting the creation o f ENACAL ’ s Institutional Development Plan; a study on tariffs and subsidies; improving ENACAL’s human resources department; and a revision o f the 2004 Concession Agreement between E N A C A L and the regulatory agency INAA, based on the organizational and development plans o f ENACAL.

As it took E N A C A L over six years to begin implementing the Modernization Program, ENACAL’s situation actually worsened and the IDB approved an additional loan in 2006, the Potable Water and Sanitation Investment Program (Loan 1787/SF-N1) for US$30.6 million, with co-financing from SECO/Swiss for US$9 million, to further support the institutional

42

strengthening o f ENACAL. The project aims to finance the actions, recommendations, and investments identified in the service contract from the Modernization Program. The project also seeks to develop a program to improve ENACAL’s indicators, with monitoring by the regulator INAA through the 2004 Concession Agreement between E N A C A L and INAA which defines performance targets for ENACAL, and independent auditors, including the Halcrow Group Limited which prepared a technical audit o f E N A C A L in 2006 (these findings can be found in Annex 1).

The Project attempts to enforce the performance indicators through the use o f disbursement conditions; to access the f i rst 50% o f the investment component, E N A C A L must increase i t s cost coverage ratio so that it i s equal to or greater than 0.93 (as verified by an independent technical auditor); for the remaining 50 percent o f financing, the coverage ratio must be equal to or greater than 1.06.

In 2007, E N A C A L - in agreement with the IDB - decided to cancel the service contract after it presented an initial diagnostic, arguing it was able to carry out the recommendations directly.

In part because o f steeply rising energy prices, E N A C A L has yet to meet the disbursement conditions for the investment component o f the project, and has solicited a modification o f these indicators from the IDB. It has also asked that the disbursement condition be dropped and the indicators be used only for monitoring purpose. The project’ technical auditor (Halcrow) i s currently assessing the possibility for revised goals and will continue monitoring the project’s impact on the utility’s performance.

Potable Water and Sanitation Investment Program (Loan 1 787/SF-NI) for US$30.6 million was approved in 2006, with co-financing from SECO/Swiss for US$9 million. The project supports Loan 1049/SF and aims to improve the technical, operational, commercial and financial management o f ENACAL. The project includes three components: an emergency plan; strengthening ENACAL ’ s business management, including enhancing ENACAL ’ s information management systems, the purchase o f approximately 400 new computers, and staff training and capacity building; and rehabilitating and optimizing the water and sewage systems throughout Nicaragua. The project will be completed in 201 1.

Public Utilities Reform Program (Loan 933/SF-NI) was a project for US$114 mi l l ion which financed the creation o f CONAPAS, INAA, and E N A C A L and was completed in 1999.

Institutional Strengthening for INAA (ATN/MT-7187-NI) was a technical-cooperation project for US$0.75 mi l l ion which assisted in the development and adoption o f the sector’s current regulatory framework and the institutional strengthening o f INAA. The project was completed in 2006.

Institutional Support to the Coordination and Strategy Secretariat (Loan 1545/SF-NI) was a project for US$7 million approved in 2004 whose overarching objective was to improve government capacity and strengthen i t s ability to make sound investments. Within this loan i s a US$1.38 mi l l ion pre-investment study with E N A C A L to design studies for potable water and sanitation projects within Managua, including the regions o f Rivas, Masaya, Chontales, and

43

Boaca. The study will develop a pipe l ine o f projects for future investment and strengthen ENACAL’s ability to make investment decisions. The studies and project designs are to be completed by December o f 2008.

Water Project in Managua (NIL1029) i s a project currently being developed and i t s design i s supported by the studies done under Loan 1545. The project plans to coordinate closely with the Bank funded project in Managua and will also take an al l inclusive approach to water and sanitation services in the city, while focusing on different geographical areas including the macro sectors o f San Judas, Las Jaguitas, Esquipulas, Veracruz, Schick, Nindiri, Ticuantepe, and Sierra Maestra. The project plans to: develop new and repair existing water sources, including rehabilitating 26 wells and Managua I and I1 well fields; repair and install networks for water and sanitation provision; improve sewerage collection stations; and support the improvement o f ENACAL’s management. The project will invest US$35 mi l l ion in the sector and the projected date for board approval i s April, 2009.

44

Annex 3: Results Framework and Monitoring


Results Framework 1. The project-level monitoring and evaluation framework will allow for tracking o f progress in implementation, measuring intermediate outcomes, and evaluating project impacts. The framework outlines key performance indicators, data collection methods, a timetable for collection, and responsible agencies. A baseline survey was applied to 1,200 households in the project area. The same questionnaire will be used to monitor progress towards obtaining the project’s development objective. This framework will be used to supervise and monitor the implementation o f the project. A complementary ex-post survey will be given before project completion in order to assess the project’s success in achieving the project development objective. The Empresa Nicaraguense de Acueductos y Alcantarillados (Nicaraguan Water and Sewerage Enterprise, ENACAL) has monitoring and evaluation facilities and can assume this coordinating role. ENACAL’s Institutional Development Plan for 2008-20 12 will also encourage tracking improvements in utility performance and service coverage and quality through the indicators developed as a part o f this plan.

2. Progress Reports will be produced by ENACAL’s monitoring and evaluation systems to describe the main achievements o f the project on a quarterly basis. They will include complete information on contracts, procurements, disbursements, detailed information on the project’s financial status, inputs, number o f beneficiaries and other outputs, and a range o f additional operational indicators to track project status. These reports will be produced by E N A C A L and will be used by the utility and the World Bank to monitor project progress.

Monitoring the Progress toward Millennium Development Goals (MDGs) and National Sector Goals

3. Since Nicaragua i s an International Development Association (IDA) country and this i s a water and sanitation operation, the project will comply with the IDA15 Results Management System (RMS), and wil l therefore include indicators based on WHO/UNICEF Joint Monitoring Program (JMP) definitions o f improved drinking water32 and improved sanitation services33. It should be noted however that current national practices are not aligned with the JMP or even among institutions. Besides the information obtained from the 2005 Census, each institution in the sector (ENACAL, CONAPAS, and INAA) uses different indicators and definitions and reports different coverage.

4. The project will only achieve limited improvements on the water MDG indicator due to the fact that i t s definition does not consider service quality, which i s one o f the major issues that this project seeks to address in the participating neighborhoods. The baseline survey has shown that 90 percent o f potential project beneficiaries are already connected to the public network,

32 Piped water into dwelling, plot, or yard; public taphtandpipe; tube well/borehole; protected dug well, protected spring, rainwater collection. 33 Flush or pour-flush to: piped sewer system, septic tank, pit latrine; ventilated improved pit latrine, pit latrine with slab, composting toilet. In the context o f this project, improved sanitation i s defined more restrictively as piped sewer system, septic tank only.

45

with an additional 8 percent connected to self-constructed networks. This high amount i s consistent with census data that places current coverage in Managua at 93 percent (2005). Average service per day i s only 11 hours however, with 20 percent o f the beneficiaries having water for less than 3 hours per day. The project will achieve important improvements on the sanitation MDG when excluding latrines. In the same survey, only 45 percent o f the potential beneficiaries are already connected to a sewer system. The total number o f new connections for this project, estimated at 30,000, would represent an 8 percent coverage increase for the greater Managua region and a 5 percent urban coverage increase at the country level. A direct comparison with MDG goals i s delicate due to the different definition used.

5. The Government o f Nicaragua i s committed to improving i t s monitoring and evaluation systems to help strengthen transparency and accountability, and has requested donor support for this effort, which i s being coordinated by the UNDP. The Bank, through WSP, wil l continue to be an active participant in these efforts by supporting discussions among the various sector institutions and the National Information and Statistics Institute (INIDE) to reach common definitions.

Project Outcome Indicators

Number o f additional beneficiaries with access to reliable water supply in the targeted neighborhoods;

beneficiaries with access to improved3’ sanitation services in the targeted neighborhoods;

recoverv ratio36.

Number o f additional

Increased ENACAL’s cost

6. The matrix that follows provides a results framework for measuring project outcomes.

-Use o f Project Outcome Information

To inform ex-post decisions regarding preparation o f possible follow-up projects.

To track progress towards MDGs.

To track progress towards ENACAL,s Institutional Development Plan Indicators.

Results Framework

Intermediate Outcome Indicators

PDO

Use of Intermediate Outcome Monitoring

The Project’s Development Objective i s to increase access to reliable34 water and sanitation services to the population o f the greater Managua region

Intermediate Outcomes

Component 1: Rehabilitation and coverage extension in low-income neighborhoods

Number of additional new or rehabilitated water connections in the targeted neighborhoods 37

Number of additional new or rehabilitated sewer connections in the targeted neighborhoods Percentage o f beneficiaries in low-income settlements3’

To monitor progress towards achieving the project’s objectives.

To take corrective actions during the mid-term review should i t be necessary.

34 Reliable water i s defined as piped potable water with adequate pressure and continuity o f at least 16 hours per day, 7 days per week. 35 Improved sanitation i s defmed as either connection to public sewer system or septic tank system.

(administration, operation and maintenance). Cost recovery ratio i s defined, in consisteqce with the IDB project, as collected revenue over operating expenses 36

46

Component 2: Technical efficiency improvements in the operation and administration of the water system

Number of connections in targeted neighborhoods with at least 16 hours o f daily service

micro-metering in the targeted neighborhoods

tariff collection in the targeted neighborhoods The number o f illegal connections registered in the targeted neighborhoods

Increase in percentage o f

Increasing the percentage of

To monitor progress towards achieving the project’s objectives.

Component 3: Institutional Development and Project Management and Monitoring

To take corrective actions during the mid-term review should it be necessary.

Progress in the execution o f the different components o f PRASMA and its impact on ENACAL’s Institutional Development Plan

To monitor the impact of the activities carried out and iteratively improve the content o f the components.

Timely presentation of progress reports

To monitor project implementation and provide an early warning about implementation capacity.

37 As o f 2007 ENACAL reported to have 222,847 connections in the greater Managua region representing 43% o f all o f ENACAL’s connections in Nicaragua. 38 Low-income settlements are defined as settlements in the lowest 2 income quintiles, according to the unsatisfied basic needs index (NBI).

47

> 1 3 5

x - E 6

0 0

8 W

g In

5 3 i Z

> 0 > 15-

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+

0 0

d 8

3 3 ? 3-

> 0

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+ B *

3 3 ? 5

> 0

? /I 8 s vl N

z N

0 0 1s

s 8 N

I

0 0

8 N 1s s 3 w *

I 3

I

~ m W

I

3 3

8 +

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-

0

Annex 4: Detailed Project Description


1. The project’s higher level objective i s to contribute to the improvement of the quality o f l i f e o f the population living in the greater Managua region, by providing access to reliable water supply and sewerage services.

2, The Project Development Objective i s to increase access to reliable41 water and sanitation services to the population o f the greater Managua region42.

3. The success o f the project will be measured using the following set o f indicators:

Number o f additional beneficiaries with access to reliable water supply in the targeted neighborhoods in the greater Managua region; Number o f additional beneficiaries with access to improved43 sanitation services in the targeted neighborhoods in the greater Managua region; Increase in ENACAL’S cost recovery ratio44. 0

Project components 4. The proposed operation would assist the Government o f Nicaragua (GoN) in improving the situation with regards to water and sanitation services (WSS) in the capital’s metropolitan area. As outlined in Annex 1, over the past few years, E N A C A L has embarked on an ambitious plan to address the severe deficiencies o f service both in water supply and sanitation, supported by various donors. This effort i s largely based on three key planning instruments.

5. In 2005, JICA financed the preparation o f a water supply master plan, which outlines four main areas o f action:

0

Increase in efficiency Reduction in losses, and

Rehabilitation o f existing and development o f new urban water sources

Coverage improvements and extensions in low-income neighborhoods.

6. The JICA plan i s currently being implemented with projects financed by JICA, the IDB, and FAD.

7. In addition, a sanitation master plan was also prepared in 1996 and revised in 2002, with a vision o f increasing wastewater collection and treatment and alleviating the

4 1 Reliable water i s defined as piped potable water with adequate pressure and continuity o f at least 16 hours per day. 42 Greater Managua i s defined as the Metropolitan area of Managua and adjacent municipalities. 43 Improved sanitation i s defined for this project as any o f the following technologies: septic system, connection to public sewer system. 44 Cost recovery ratio i s defined, in consistence with the IDB project, as collected revenue over operating expenses (administration, operation and maintenance).

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current pollution o f Lake Managua and the risk o f pollution o f the aquifers serving the city. The master plan i s currently under implementation with a project financed by KfW, the Nordic Fund, IDB, the Central Government, and ENACAL, and includes the construction o f primary collectors and the wastewater treatment plant.

8. Finally an Institutional Development Plan for E N A C A L has been under preparation and i s currently being finalized. This plan, which targets the period 2008- 2012, includes an ambitious set o f goals and supporting activities, together with a monitoring framework, with year to year tracking o f improvements in performance indicators.

9. This project would support the implementation o f the vision developed in these three instruments and complement other donors’ work. For this purpose, the proposed project would finance coverage extensions in low-income neighborhoods (Component 1) as well as improved supply and efficiency in specific areas (Component 2). Component 3 would support institutional strengthening activities as well as the project’s management and monitoring activities.

10. The following section provides further details on the project’s components and subcomponents. Amounts show total component costs with grant / credit proceeds in brackets. All components will be implemented directly by ENACAL.

ComDonent 1: Coverage Extension and Improvement for WSS in Low-Income Neighborhoods - Cost US$20 million (IDA US$20 million)

11. As discussed earlier, one o f the main challenges E N A C A L faces in the greater Managua region is the poor quality o f service. This results in part from fairly high losses in the network and the fact that most o f the network extension in low-income neighborhoods was constructed in an ad-hoc manner by the communities themselves, without proper design and supervision. As a consequence, many o f those small-scale networks are poorly and/or under-designed, consisting, in many cases, o f simple plastic hoses installed at shallow depths, and their condition i s also often poor. E N A C A L estimates that as much as 60 percent o f the city’s neighborhoods are covered by artisanal networks.

12. On the sanitation side, most o f these areas do not have any type o f network infrastructure for wastewater evacuation. Rather, houses often have latrines and discharge the grey water to the street, creating a health and safety hazard with poor quality o f l i f e impacts. A very large project, financed by the KfW, the IDB and others, has sought to construct major collectors, pumping stations and a wastewater treatment plant45 for the City o f Managua, but the collection networks do not cover the entire urban area. E N A C A L has been monitoring the situation with concern, particularly because many o f these newly populated areas overlay the main aquifers providing water supply to Managua.

45 The wastewater treatment plant i s nearing completion and should be operational by early 2009, while some o f the pumping stations are s t i l l under bidding.

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13. component will finance al l studies and works related to the following activities:

Therefore and in alignment with the fourth axis o f the JICA master plan, this

Water Supply 0

0

0

Construction o f new primary, secondary and tertiary networks Replacement or rehabilitation o f primary, secondary and tertiary networks Supporting infrastructure (valve chambers, macro-meters, etc)

Sanitation Construction o f new primary, secondary and tertiary networks Minor replacement or rehabilitation o f existing networks as needed New network extension to connect to existing primary collectors

14. This component will only include neighborhoods that either have their water sources and supply infrastructure financed under Component 2, or for which such infrastructure already exists. After the intervention, al l inhabitants in the targeted neighborhoods should have access to a continuous or nearly continuous supply of drinking water, as well as adequate sewers. All connections will include metering.

15. E N A C A L has stated that it intends to involve users heavily in the design and implementation o f the sub-projects. I t i s expected that existing neighborhood organizations, among others, will be the main points o f contact at the community level during project development. Annexes 4 and 10 contain more details on the social interventions planned in those neighborhoods and the project cycle.

16. Designs are currently being financed for about 60 neighborhoods through a PHRD grant. The designs fol low a more simple social intervention methodology than the one developed later for the project, but some o f the social intervention will be retrofitted prior to the beginning o f the construction. The rest o f the neighborhoods’ designs and implementation will be financed during project implementation, using the grantlcredit’s proceeds (see map in Annex 15). The use o f alternative technologies to conventional sewers will be explored together with the users during the project’s design, and the Bank will provide technical assistance on small bore, condominia1 and other simplified sewers, for which a few pilots exist in Nicaragua.

17. Coordination will be sought with the Municipality o f Managua through the signature o f a coordination and information exchange agreement. The Municipality o f Managua has only limited funds with which to accompany the WSS investments with other similar urban improvement measures that depend on the Municipality (rainwater collection, public lighting, paving o f secondary streets, solid waste collection). Nonetheless, surveys carried out during the social evaluation have shown that even simple information exchange mechanisms could greatly improve the project’s design.

18. Finally this component will also finance similar activities in Managua’s satellite cities, among others Tipitapa and Ciudad Sandino, which suffer from similar challenges. Some investments in rehabilitation or repair o f existing wastewater treatment systems may be included based on the studies to be prepared during implementation.

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19. Investments in the neighborhoods will follow an established project cycle to allow for strong community participation and coordination between technical and social interventions. The bulk o f the interventions will be conducted by consulting companies, possibly in consortium with NGOs, under the supervision o f the relevant divisions o f ENACAL (mostly the Projects and Investments division and the Community Management unit). The following table summarizes the main steps o f the project cycle, which results from the social assessment and has been largely consulted within ENACAL. More details are available in Annex 10 under the Social Assessment.

Initial Coordination with Municipality of Managua

Diagnostic

Feasibility studies, community strengthening

Validation and design

Bidding and contracting

Main a( Social

.Discussion o f social structure o f the neighborhood, participative methodology

.Project coordination mechanisms with the municipality

.Presentation o f project, community diagnostic (economic situation, community structure)

.Election o f the Project Supervision Committee (CSP - Comite' de Supervisidn del Proyecto)

.Discussion o f community participation mechanisms

possible resettlement needs

.Identification of

.Discussion and validation o f general design with community

Start o f community discussions on water conservation, hygiene practices, cost o f service

.Training o f the CSP on the project's scope

ivities Technical

.Revision of municipal plans and data for the neighborhood

.Household survey to generate baseline (when necessary)

.Evaluation o f

.Feasibility study

.Validation with

technical alternatives

ENACAL

.Final designs, preparation o f bidding documents

.Bidding and contracting o f works

Expected Duration 1 month

1 month

2 months

2 months

3 -4 months

Main actors

ENACAL management, Municipality o f Managua

ENACAL, socio- technical consultants, community ENACAL, socio- technical consultants, community

ENACAL, socio- technical consultants, community ENACAL, socio- technical consultants

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Step

Construction

Reception

Operation and Maintenance

Main ac Social

(for social auditing) Social auditing of the works by CSP

.Continuation o f community training

.Monitoring o f community participation

.Identification by community o f possible problems with the system

.Ex-post evaluation *Long-terms information campaigns on hygiene, water conservation etc.

ivities Technical

Local customization of tertiary network design with community and contractor

.Project construction

.Technical supervision

.Provisory reception of the works

.Final reception o f the works

.Preparation of as- built drawings

.User register prepared for ENACAL

.Operation and maintenance o f the system

Expected Duration

3 -4 months

6 months

Long-term

Main actors

ENACAL, socio- technical consultants, contractors, community

ENACAL, socio- technical consultants, community

ENACAL, community

Component 2: Immovement of Water Supply and Efficiencv in Selected Areas- Cost US%15 million (IDA US$15 million)

20. An important assumption o f the JICA master plan’s water balance study i s that the technical efficiency o f the network can be quite dramatically improved until 2015, thereby liberating water for the additional connections needed to increase effective coverage. In fact, according to the master plan, physical and commercial losses in the system need to be reduced from today’s estimated 55 percent to 25 percent, a goal that E N A C A L i t se l f does not consider realistic (its institutional development plan foresees a decrease to about 48 percent by 2012).

21. However, the JICA plan also calls for the segmentation o f the network system into 1 8 different macrosectores (equivalent to district metering areas and pressure zones). Each macrosector would have i t s own sources, storage capacity and distribution network with only minimal interconnections with other macrosectors. Rather than tackling the issue o f efficiency in the entire system, E N A C A L has decided to prioritize a number o f those macrosectores and ensure that a proper balance o f supply (including losses) and demand i s reestablished in each o f these, hence improving service quality.

22. ENACAL i s already working in some o f the macrosectores in the lower elevation zone o f the city, the Zona Baja, with financing from the Spanish FAD, where water supply i s already continuous or nearly continuous, but physical losses are high and

54

metering i s limited. E N A C A L has asked the Bank to finance a component to replicate and extend these types o f activities to another six macrosectores in the southwestern part o f the city, along with two satellite cities, Tipitapa and Ciudad Sandino, while a parallel IDB project would tackle six more macrosectores in the southeast. At the moment, the new macrosectores suffer from low service quality (discontinuous service) and the intervention would therefore have to tackle water supply as much as water demand and efficiency.

23. Within each o f these macrosectores, the project will finance an initial diagnostic to evaluate current supply and demand, losses and unmet demand, and establish which combination o f additional sources and efficiency improvement is technically and financially most efficient. The diagnostic will also verify possible additional sources that have been pre-identified by ENACAL. The diagnostic will also recommend a set o f measures aiming at improving not only the technical but also the commercial efficiency o f E N A C A L within the targeted areas.

24.

Supply side

As a result, this component may finance activities such as:

Rehabilitation and capacity extension for water sources (mostly boreholes) Increase in adduction and storage capacity (pumping stations, water storage tanks) Increase in wastewater collector capacity Rehabilitation and extension o f low-technology wastewater treatment systems46

Efficiency Creation o f District Metering Areas through the installation o f macro-meters and the installation o f valves creating separate and independent supply zones Optimization o f energy consumption in pumping systems through better system management

0

Leak reduction campaigns Registration o f illegal connections

Demand side

Improvement o f billing and collection practices targeted to low-income

Metering at a household level Updating the user registry (cadastro de usuarios)

households

25. The initial diagnostic and design for major works has already been contracted for the first three macrosectores under the PHRD grant; the contract does not include, however, any activity on the efficiency and demand-side. The Bank has suggested that, in

No activity leading this project to be a category A (for example, construction o f new, mechanized 46

wastewater treatment plants, or extension o f wastewater treatment plants in sensitive areas), i s expected to be necessary. These activities wil l be excluded from financing through this project.

55

complement and for the next three macrosectores, E N A C A L may consider extending invitations to regional water ut i l i t ies to participate, which would intervene not as operators but as technical and management consultants. Additional contracts will also be signed to cover the efficiency and demand side-measures in the three macrosectores for which the supply-side activities are already contracted.

Component 3: Institutional Strengthening and Project Monitoring and Evaluation - Cost US$5 million (IDA US5 million)

SubComponent 3A: Institutional Strengthening - Cost US$3 million (IDA US$3 million)

26. E N A C A L has prepared an Institutional Development Plan 2008-2012 that includes a hard set o f performance indicators with year-to-year goals and corresponding actions (see Annex 1). This plan identifies five main challenges that the institution i s currently facing:

0

0

Operational income does not cover operational costs Rising energy costs mean progress in other areas i s canceled High non-revenue water needlessly increases operational costs Current commercial and management systems do not support strategic decision- making The institution suffers from organizational weaknesses that impair i t s ability to fulfill i t s mission

27. While components 1 and 2 attempt to respond to the first three issues, this component will support, jointly with an on-going IDB-financed project, a range o f activities aimed at tackling the last two issues. E N A C A L has already initiated work on both47, but will continue to require support over the next five years. The plan includes a number o f institutional strengthening activities, which will be largely financed by an on- going IDB project (commercial system, improved monitoring). However, E N A C A L and the Bank have agreed on including some supporting activities in the present project to complement the IDB project.

28. The Bank will also use this component as an important window to continue and strengthen discussions at the policy and utility levels. During project preparation, a delicate but promising dialogue was initiated on topics such as internal and international benchmarking, innovative approaches in low-income neighborhoods or accountability mechanisms, in particular with the citizedusers. ENACAL’s management has shown strong commitment to improving the utility performance and implementing the institutional strengthening plan, but has requested the Bank to refrain from identifying a

47 A new commercial system i s currently under bidding with financing from the IDB. The company has decentralized decision making to the different regional directorates. Annex 1 and 2 provide more details.

56

positive l i s t o f technical assistance activities upfront given the fact that a large part o f the plan can be currently financed from an existing IDB project.

29. As a result this component will finance, among others, activities such as:

Technical assistance, as well as goods and services aimed at implementing the key activities identified in the Institutional Development Plan. Development o f tariff studies and appropriate payment mechanisms for low- income neighborhoods where E N A C A L i s seeking to increase tari f f collection. Participation in trainings and study tours in countries with similar conditions, seeking to establish contacts and learn lessons from other public uti l i t ies that have managed a successful turn-around. Other activities as deemed necessary to continue successfully strengthening the utility during the course o f the project.

0

Component

SubComponent 3B: Project Management and Monitoring - Cost US%2 million (IDA US%2 million)

IDA I TOTAL

30. This Component will finance the incremental costs o f non-staff salary, travel, and the general operating costs o f the personnel working on the project’s implementation within ENACAL. In addition, this component will also finance M&E activities, including the collection o f information and development o f reports for continued evaluation throughout the project cycle by both project management and the Bank’s supervision team. I t will also cover audits and other project management activities required for the proper implementation o f the project.

Estimates o f Project Costs, by Component (US% m)

Imprbvement for W S S in Low-Income Neighborhoods Component 2: Improvement in Water Supply and Efficiency in Selected Areas Component 3 : Institutional Strengthening and Project Monitoring and Evaluation Total

US$15.OM US$lS.OM

US$S.OM US$S.OM

US$40.0M US$40.0 M

57

Annex 5: Project Costs


Local Foreign Total U S $million U S $million U S $million Project Cost By Component and/or Activity

Improvement Component 2: Improved Supply and Efficiency 8.9 6.1 15.0 Component 3: Institutional Strengthening and 3.3 1.7 5.0 Project Management Of which, Sub-Component 3A (Inst. Strength.) 1.7 1.3 3.0

Component 1 : Coverage Extension and 11.8 8.2 20.0

Of which, Sub-Component 3B (Project Manag') 1.6 0.4 2.0

Total Baseline Cost 24.0 16.0 40.0 Physical Contingencies Price Contingencies

Total Project Costs' 24.0 16.0 40.0 Interest during construction

Front-end Fee Total Financing Required 24.0 16.0 40.0

' The project will be exempted from taxes by the Government o f Nicaragua; since the project i s based on a framework approach, price and physical contingencies are included in the costs by component.

58

Annex 6: Implementation Arrangements


1. The Republic o f Nicaragua will be the borrower o f the proposed grant and credit. The implementation agency for this project i s the National Water and Sewerage Company (ENACAL). ENACAL has the legal mandate to build, operate and maintain water and sanitation systems in the Greater Managua region as well as in most urban centers o f the Country, and i s implementing several such projects financed by other donors such as the IDB, the KfW, the Nordic Fund and JICA. ENACAL has not implemented a World Bank funded project in recent years. However, they have been implementing a PHRD grant in preparation for this project.

2. ENACAL i s not part o f the Nicaraguan government, but i s instead a decentralized public organism with legal personality, autonomous structure and budget. As ENACAL i s a company, and not an entity, i t i s not considered in the annual budget o f the country, therefore, a subsidiary agreement will have to be signed between the central government (Ministry o f Finance) and ENACAL prior to project effectiveness. According to the Recipient’s law 477, the proceeds o f the grant/credit have to be passed on to ENACAL on the same financial terms as they were received from the Bank. Nevertheless, the Ministry o f Finance and Public Credit will advise the President o f the Republic to seek the National Assembly’s approval to pass the financing on to ENACAL entirely on a grant basis.

3. ENACAL has suggested, and the Bank team has agreed to, the following implementing arrangements. The sole implementing agency for this financing will be ENACAL. Within ENACAL, the following role distribution i s envisioned:

Overall project coordination and engineering matters will be handled by a new unit consisting o f a dedicated team o f mostly consultants hosted within the Projects and Investment Division (Gerencia de Proyectos e Inversiones). This division already hosts several other similar units in charge o f other bilateral or multilateral projects. Environmental aspects will be handled by the Environmental Division (Gerencia de Gestion Ambiental). Strengthening o f both staff and the working environment will be required, as this was identified as a priority during the preparation o f the Environmental Framework o f the project. Social aspects will be handled by the Community Management Department within the National Commercial Division (Departamento especial de Gestion Comunitaria / Gerencia Commercial Nacional). Strengthening o f both staff and the working environment will be required, as this was identified as a priority during the social analysis conducted during project preparation. The Financial Management o f the project will be handled by the Finances unit within the Project and Investment Division o f ENACAL (Gerencia de Proyectos e Inversiones / Departamento de Presupuesto y Supervisidn de Proyectos). Strengthening o f both staff and the working environment will be required. Annex 7 has more details on this aspect.

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The Procurement o f the project will be handled by the Procurement Department o f the company (Departamento de Compras y Adquisiciones). The unit does not require additional staff at the moment, but additional equipment may be needed. Annex 8 has more details on this aspect.

4. A Project Committee (Comite‘ de Proyecto) will be created to supervise the progress o f the project and make general decisions. This committee will include a high- level representative o f each o f the different divisions involved in the project, and be chaired by the Director o f Projects and Investments.

5 . A fiduciary assessment o f this arrangement, which i s similar to the set-up used by other donors working with E N A C A L including the IDB, has been completed and the results are presented in annexes 7 (financial management) and 8 (procurement).

6. Under the proposed arrangement, the Bank’s grant and credit will finance various improvements o f the physical environment o f the participating units, many o f which are either poorly equipped at the moment, or do not have sufficient resources to attend to the additional workload generated by the project. Similarly, i t i s planned that E N A C A L will use counterpart funding to finance the additional staff made necessary by this project in the respective units. However, these additional staff will not be dedicated exclusively to the project, and will continue to report to their respective managers and not to the project coordinator, and will be contracted, whenever possible, using similar processes to those for regular E N A C A L staff.

Rationale o f using a hybrid Project Coordination Unit / Institutional system

7. The proposed arrangement has been suggested and requested by E N A C A L and the Bank’s assessment has found i t feasible. Broadly similar arrangements have been followed during project preparation and for the implementation o f the PHRD grant, leading to some delays in preparation, but improving the institutionalization o f the project design.

8. All o f the externally funded projects recently implemented by E N A C A L are carried out by Project Coordination Units (PCU), o f which there are currently six. Most o f these units are currently coordinating IDB projects and use similar hybrid arrangements.

9. At the moment E N A C A L does not have a self-standing, independently staffed unit in charge o f investments; rather, the investment division i s only an umbrella for the various existing PCUs. During project preparation, additional technical staff had to be contracted under the PHRD grant to manage the process.

10. Although some o f the additional personnel contracted to process the additional workload generated by this project may not remain beyond the l i f e o f the project, the opportunity to work - during implementation - with ENACAL’s different units on fiduciary and safeguards aspects, rather than with a Project Management Unit (PMU), means that process improvements and best practices developed during the project can and

60

may be replicated on other investment projects, making the impact o f the project more sustainable.

11. The Bank team will monitor the project’s implementation carefully and will raise issues o f any apparent bottleneck in ENACAL’s management stemming from the need to coordinate different units for project implementation. In addition, at mid-term review, those implementation arrangements will be re-examined and a decision will be made as to whether they should be maintained or changed to either a more PMU-like setting, or a fully institutionalized system.

‘

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Annex 7: Financial Management and Disbursement Arrangements

NICARAGUA: Greater Managua Water Supply and Sanitation Project

1. A financial management (FM) assessment was carried out to determine F M implementation risk and to establish adequate F M arrangements for the proposed Grant and Credit. Based on the assessment, recommendations and complementary actions have been provided to ensure that the project i s implemented within a sound fiduciary environment in compliance with Bank requirements.

2. The Empresa Nacional de Agua y Alcantarillados (ENACAL) through the Departamento de Presupuesto y Supervision de Proyectos (DPSP) from under the Gerencia de Proyectos e ’ Inversiones (GPI) wi l l be in charge o f all the financial arrangements for this operation.

3. ENACAL has specific World Bank experience managing the PHRD grant, TF 90645, related with this Grant / Credit which i s under execution. ENACAL’s F M performance implementing the PHRD has been relatively good; at the beginning they had some internal problems initiating the execution o f the grant. The execution has now disbursed approximately 50 percent o f the funds. The Grant has an experienced F M Specialist. Nevertheless, the F M assessment determined an Action Plan agreed with ENACAL’s GPI in order to help strengthen its financial management capacity. This plan has been partially complied with mainly because o f a delay in training al l the institutional staff in the SIGFAPRO system. It i s expected that the staff wi l l be fully trained by the end o f next month.

4. from other donors including the IDB, KFW, Spain and Luxemburg.

Organizational Structure and Staffing 5. Currently, the Departamento de Presupuesto y Supervision de Proyectos (DPSP) i s responsible for four areas: Projects Follow Up - 1 Manager and 1 Analyst; Accounting - 1 Manager, 3 Accountants and 1 Analyst; Treasury - 1 Manager and 1 Analyst; and Project Administration - 1 Manager and 2 Analysts.

6. The staff has direct experience managing externally financed funds (IDB, KfW, COSUDE, OPEC) and i s familiar with the general procedures o f external funds. Before effectiveness and for strengthening purposes, ENACAL’s GPI wil l contract additional financial staff (a Financial Specialist and an Accountant Assistant).

7 . ENACAL’s GPI wi l l use the SIGFAPRO Financial Management Information System and wil l report based on a cash basis. It includes modules for planning, budgeting, treasury, accounting, and reporting. The system complies with the Bank’s minimum requirements.

Project Financial Reporting 8. On a quarterly basis, ENACAL’s GPI will prepare and submit to the Bank Interim Financial Reports (IFRs) containing: (a) a Statement o f Sources and Uses o f Funds (with expenditures classified by disbursement category) and Cash Balances; and (b) a

I t should also be mentioned that ENACAL GPI has experience managing funds

62

Statement o f Budget Execution (with expenditures classified by subcomponents); along with the reconciliation o f the Designated Account with the Central Bank Statements and the reconciliation o f the amount o f budget executed (SIGFA) with own projects records (SIAF systems). The IFRs will be submitted to the Bank no later than 45 days after the end o f each quarter. Although the reporting o f eligible expenditures paid from the Designated Account will be done on a quarterly basis, this does not prevent the project from reporting expenditures on a more frequent basis. This review will enhance FM supervision, enabling periodic control over project accounts that will complement the planned supervisions, thus helping to mitigate fiduciary risk.

External Audit 9. ENACAL’s financial statements as well as those for the Project will be audited by an external, independent, private firm acceptable to the Bank, that will be contracted not later than six months after Grant / Credit effectiveness to cover al l the components of the Grant / Credit execution. The reports will cover the calendar year. The audited financial statements shall be presented to the Bank no later than six months after the end o f the fiscal period that coincides with the calendar year.

Internal Control 10. E N A C A L i s subject to the control o f the Internal Audit (IA) Department and the Country’s General Comptroller (Contraloria General de la Reptiblica). Under international standards, it i s expected that the IA Unit will include a revision o f the financial documentation o f this project in the internal audit plan.

Audit Report (1) Project Financial Statements (2) Special Opinions

Summary Reports (SOEs)

(used for disbursement purposes)

Designated Account (Special Account)

Due Date December 3 1 December 3 1 December 3 1

December 3 1

Flow o f Funds 11. The Credit will use a Designated Account and the Grant a separated DA, both in dollars. There i s a proposed ceiling o f US$1 mi l l ion for each one. Any increase or decrease will be processed via amendment to the Disbursement Letter. Both Designated Accounts will be located at the Central Bank o f Nicaragua under the control o f the Treasury, from which the finds will be transferred to E N A C A L GPI’s operative accounts (Fondo Rotatorio) to finance expenditures made or to be made within 30 days. The limit for this advance i s 5 percent o f the given annual budget. There are two types o f Direct payments, one through the Treasury (considered “pago directo” by the MHCP) and also ENACAL’s GPI has an option o f payments to suppliers from the DAY this last one according to Bank procedures.

1-2. Under the Loan, the following disbursement methods may be used:

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Reimbursement Advances Direct payment.

Risk Risk Rating

13. ENACAL’s GPI will be responsible for sending al l withdrawal applications. Partial advances may be made from each one o f the Designated Accounts as long as the aggregate amount advanced does not exceed the ceiling established in the disbursement letter (DL). This ceiling will be revised according to project needs and as informed by the Bank in an amendment to the Disbursement Letter. Supporting documentation for project expenditures under advancement and reimbursement methods will be records evidencing eligible expenditures (copies o f receipts, invoices for payments), and for consulting services and Non Consulting Services against contracts valid at US$50,000 or more for Firms, or for payments o f goods and works against contracts at a value o f US$150,000 or more. For all other expenditures below these thresholds, supporting documentation for project expenditures will be SOEs. All consolidated SOE documentation will be maintained for post review and audit purposes for up to one year after the final withdrawal from the Designated Accounts.

14. Deposits into the Designated Account and replenishments up to ceilings established in the DL will be made on the basis o f withdrawal applications in an acceptable form, in compliance with procurement procedures and accompanied by acceptable supporting documents. All original supporting documentation will be maintained in ENACAL’s GPI. All supporting documentation and reports will be available at any time for the Bank’s supervision and for auditing purposes.

15.

Risk Assessment and Mitigation 16. Risk Rating. Overall FM risk i s rated as Moderate. The FM design, which includes a series o f additional measures, responds to the identified risk and proposes a suitable supervision strategy. The adequacy o f FM arrangements would be continuously monitored during project supervision, and adjustments made when necessary to ensure fiduciary compliance. The risk at entry i s Substantial, but once we have evidence that the mitigating measures are working, we can consider lowering the risk to Moderate. Table A7.2 presents the risk assessment and mitigating measures incorporated into project design and the FM implementation arrangements.

The Operations Manual should be revised and cleared by FM.

Risk Mitigating Measures

Country Level Entity Level

M to S S

In execution WB TF 90645 with an Action Plan agreed with ENACAL’s GPI to help strengthen i t s financial management capacity, partially complied.

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Project Level

Budgeting, Accounting, Internal Control Flow o f Funds

S

0 Continuing SIGFAPRO and SIAF.

0 The Project will use two single treasury accounts, one for the credit and one for the grant and payment to suppliers, contractors and consultants will be made through SIGFAPRO.

M

M

Contract a Financial Specialist and an Accountant Analyst. Prepare chapter on FM procedures to be included in the Operations Manual. SIGFAPRO system installed but staff still needs training to use it.

Relevant staff to attend specific FM and disbursement training.

Contract external audit for the entire implementation period o f the project.

Financial Reporting, Auditing Quarterly Reports. M

FM Risk

Annual Audit Financial Statements.

M

Financial Management Action Plan 17. An Act ion Plan has been agreed with ENACAL’s GPI to ensure that adequate FM systems are in place before implementation begins. The detailed activities are presented in Table A7.3.

Action Responsible Entity 1. Contract a Financial Specialist and an Accountant ENACAL GPI

Table A7.3: Action Plan for ENACAL’s GPI

Completion Datea Nov 2008

Analyst. 2. Finalize the modifications to the FM section of the Operations Manual. 3. SIGFAPRO installed and staff trained and enabled to use it. 3. Finalize draft TORS for External Audit. 4. Contract external auditors, based on a short-list satisfactory to the Bank, for the entire implementation period of the project. 5 , Provide specific training in FM and disbursements for project FM staff.

ENACAL GPI Nov 2008

ENACAL GPI Dec 2008

ENACAL GPI Dec 2008 ENACAL GPI Dec 2008

World Bank Dec 2008

18. World Bank FM Supervision Plan. A Wor ld Bank FM Specialist should perform a supervision mission prior to effectiveness to verify the implementation o f the unit and the FM system. After effectiveness, the FM Specialist must review the annual audit report, should review the financial sections o f the quarterly IFRs, and should perform at least one supervision mission per year.

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Annex 8: Procurement Arrangements


General Provisions

1. Procurement for the proposed project will be carried out in accordance with the World Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits,” dated May 2004, revised October 2006; and “Guidelines: Selection and Employment o f Consultants by World Bank Borrowers,” dated May 2004, revised October 2006; and the provisions stipulated in the Legal Agreement. The various items under different expenditure categories are described in general below. For each contract to be financed by the Grant and Credit, the different procurement methods, or consultant selection methods, the need for prequalification, estimated costs, prior review requirements, and time frame are agreed between the Borrower and the Bank in the Procurement Plan. The Procurement Plan will be updated at least annually or as required to reflect actual project implementation needs and improvements in institutional capacity.

2. Procurement of Works. Works to be procured under this project will include the rehabilitation and extension o f primary, secondary and tertiary water and sewerage networks that will include rehabilitation and capacity extension for water sources (mostly boreholes), increase in adduction and storage capacity (pumping stations, water storage tanks), increase in wastewater collector capacity, rehabilitation and extension o f low- technology wastewater treatment systems, installation o f macro-meters, valves and micro-meters at a household level. The procurement o f works will be done using the Bank’s Standard Bidding Documents (SBD) for all International Competitive Bidding processes, and National SBD agreed with or satisfactory to the Bank, which will be included in the Project’s Operational Manual. N o other methods for procurement o f works are expected to be used in the project.

3. Procurement of Goods. Goods procured under this project will include vehicles, office and laboratory equipment and furniture under the institutional strengthening component. The procurement will be done using the Bank’s SBDs for al l International Competitive Bidding processes; and SBDs and simplified formats agreed with or satisfactory to the Bank will be used for National Competitive Bidding (NCB), Shopping procedures, and Direct Contracting procedures, respectively. Said SBDs and simplified formats will be part o f the Project’s Operational Manual.

4. Procurement o f Nonconsulting Services. Logistics for capacity-building events, printing o f training materials, media campaigns, and related services for social and institutional strengthening components will be procured under this project. The procurement will be done using SBDs and simplified formats agreed with or satisfactory to the Bank for International or National Competitive Bidding, Shopping procedures, and Direct Contracting procedures, respectively. Said SBDs and simplified formats will be part o f the Project’s Operational Manual.

5. Selection of Consultants. Engineering designs, works supervision, and post- construction technical assistance, as well as social follow-up and capacity-building

66

activities for the subprojects, will be contracted with consulting f i r m s when applicable. It i s also expected that consulting f i r m s will be contracted to carry out monitoring and evaluation (M&E) activities and financial and technical audits when needed. Individual Consultants may be contracted to support technical and fiduciary teams that wil l implement the project. Short-lists o f consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines. Training activities related to the institutional strengthening component may require engaging private or state universities; where applicable, competitive methods for selecting and contracting consultants will be used. Regardless o f the method used or the estimated cost o f the contract, selection and contracting o f consultant f i r m s will be done using the Bank’s Standard Request for Proposals (SRP). Selection and contracting o f Individual Consultants will be done using a simplified request for curriculum vitae (CVs) and a contract model agreed with or acceptable to the Bank. Such documents shall be part o f the Project’s Operational Manual.

6. Operating Costs. Operating costs refer to reasonable recurrent expenditures that would not have been incurred by E N A C A L in the absence o f the project. They may include operation and maintenance o f office equipment purchased under the project, as well as nondurable/consumable office materials, as needed for the implementation o f the project. All these activities would be procured using ENACAL ’ s administrative procedures, which were reviewed and found acceptable to the Bank.

7. The procurement procedures, SBDs, SRfP, simplified request for quotations, and CVs to be used for each procurement method, as well as model contracts for works, goods, non-consulting services, and consulting services to be procured, will be included and presented in the Project’s Operational Manual.

Assessment o f the Agency’s Capacity to Implement Procurement

8. All procurement activities will be carried out by ENACAL’s Procurement and Importing Department. Although E N A C A L has not executed any Bank-financed projects in the last years, they are, and have been, engaged in a number o f projects financed with Inter-American Development Bank (IDB) resources, and, since the Bank’s procurement Guidelines are fully harmonized with the IDB’s Procurement Policies, they have developed (through a number o f specialized capacity building activities and direct exposure to International Competitive Bidding (ICB) and N C B processes) a strong capacity for the Bank’s procurement procedures.

9. An assessment o f ENACAL’s capacity to implement procurement actions for the project was carried out by the Bank’s procurement specialist for Nicaragua on July 9, 2008. The assessment reviewed the organizational structure for implementing the project, the quantity and capacity o f relevant staff responsible for procurement, the relationship between the procurement office and the technical, administrative, and financial offices, the administrative and operating manuals and standard procurement documents used, and the filing capacity and the support systems used for supervising and controlling the entire procurement cycle, and concluded that ENACAL’ s Procurement and Imports Department

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has an overall installed capacity suitable to successfully carry out the procurement function for the project.

10. The main risk identified has to do wjth the overall size o f the project, and the related increment o f procurement activities that will have to be carried out in order to achieve a timely implementation o f the project. To mitigate said risk, i t has been agreed with E N A C A L to hire a Procurement Specialist that will work inside i t s Procurement and Imports Department, but will prioritize the Project’s procurement processes. Such consultant will be selected under ToRs acceptable to and previously agreed upon with the Bank, and following a competitive selection process.

11. Other actions that were identified as needed to improve overall E N A C A L capacity to implement procurement, and that should be accomplished before negotiations o f the Grant / Credit Agreement, were: (a) to develop a dedicated Procurement chapter inside the Project’s Operational Manual that includes general procurement procedures, as well as detailed procedures for every method o f procurement o f goods and works, and for the selection and employment o f consultants; (b) to develop acceptable standard bidding documents, instruments and simplified formats for procurement o f works, goods and non- consulting services using N C B and Shopping procedures, and for the selection and employment o f individual consultants; (c) to develop formal guidelines for record- keeping and filing; (d) to implement the Bank’s Procurement Plan Execution System (SEPA) as soon as it is available; and ( f ) to have an independent firm contracted to perform annual procurement audits under ToRs previously agreed upon with the Bank. The Bank will organize and carry out procurement workshops to strengthen ENACAL’s procurement staff capacity in specialized issues (works and non-consulting services).

12. The overall project risk for procurement was assessed as AVERAGE, and a detailed report o f ENACAL’s Capacity Assessment can be found in the project files.

Procurement Plan

13. E N A C A L has developed a detailed Procurement Plan for the first 18 months o f project implementation that provides the basis for the use o f different procurement methods. This plan was agreed upon by the Recipient and the Project Team on November 6, 2008 and will be available at SISCAE’s portal and ENACAL’s institutional web page. I t will also be available in the project’s database and on the Bank’s external website. The Procurement Plan will be updated in agreement with the Project Team annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

Frequency o f Procurement Supervision

14. In addition to the prior review supervision to be carried out from Bank offices, the capacity assessment o f the Implementing Agency has recommended annual supervision missions to visit the field to carry out post-review o f procurement actions. One out o f every 10 contracts should be post-reviewed when applicable.

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Details o f the Procurement Arrangements Involving International Competition

I Package2

15. Thresholds for the use o f the different procurement methods and recommended thresholds for Bank prior review are given in Table A8.1.

16. The Procurement plan will define the Contracts that are subject to prior Bank review based on the recommended thresholds given in Table A8.1. Such recommended thresholds could be revised at every update o f the Procurement Plan.

17. The following i s the l i s t o f contract packages identified to date to be procured following I C B procedures:

4

I Package 1 No I Prior I June 2009 2 I Water and Sanitation- I 2,366,431.54 I ICB I

Package 3 Water and Sanitation - 2,028,323.60 ICB No Prior August 2009 Package 4

4 Designs - Package V I Works Supervision 351,737.17 QCBS Prior June 2009

18. selected with short-lists composed o f international f i r m s :

The following i s the l i s t o f Consultant services identified to date that will be

I Designs -Package I V I 2 I Studies and Final I 550,000.00 I QCBS I Prior I August 2009

I Designs -Package V I 3 I Studies and Final I 450,000.00 1 QCBS I Prior I September 2009

19. Short l is ts composed entirely o f national consultants: Short l i s ts o f consultants for services estimated to cost less than US$200,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines.

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Table A8.1: Thresholds for Procurement Methods and for Recommended Bank Review

Works:

>=US$1,500,000

<US$1,500,00 = US$l50,000

Goods and Non-consulting Services:

>=US$150,000

<US$150,00 > = US$lO,OOO

<us$lo,ooo

ConsultinP Firms:

Any Estimated Cost

>=us$200,000

Individual Consultants:

Any Estimated Cost

>=US$50,000

<US$50,000

CB = International Competitive Bidding. SS = Sole Source. QCS = Quality-Based Selection LCS = Least-Cost Selection IC = Individual Consultant

ICB

NCB

ICB

NCB

Shopping

Direct Contracting

ss QCBS, QBS, FBS, LCS, CQS

QCBS, QBS, FBS, LCS, CQS

ss IC

IC

NCB = Nationi

A l l

First Two

A l l

First Two

First Two

A l l

A l l

A l l

First Two

Al l

A l l

First Two

Competitive Bidding. QCBS = Quality- and-Cost-Based Seiection FBS = Selection under Fixed Budget CQS = Selection Based on the Consultant’s qualifications

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Annex 9: Economic and Financial Analysis


A. Economic and Financial Analysis o f the Project 1. A detailed economic and financial assessment o f the proposed project was undertaken during preparation. The results from the economic analysis show that the project i s economically feasible. From a financial point o f view, results show that the water activities o f the Greater Managua Water and Sanitation Project are financially viable. However, the sewerage investments are not financially feasible without an adjustment in tariffs. Finally, and given the attractive financing conditions offered on this grant/credit, the project i t se l f will have a positive financial impact on ENACAL’s situation.

Objective 2. The objective o f this project i s to increase access to reliable water and sanitation services to the population o f the Greater Managua area, through three activities: (i) rehabilitation o f the existing water and sewerage network; (ii) increasing water and sewerage coverage; and (iii) increasing efficiency o f delivering and managing the services. On the basis o f this objective, a cost benefit analysis was used to determine the economic and financial viability o f all infrastructure works and complementary actions.

Methodology 3. The cost benefit analysis for the project included the following activities: (i) improvement and expansion o f water services; (ii) improvement and expansion o f sewerage services; and (iii) improved efficiency and resource savings at the utility level. All complementary actions required for improving delivery and managing the services were included in the first two components. This analysis was done from two perspectives: financial and economic. From a financial perspective, each activity was appraised measuring i t s costs and benefits at market prices. From an economic perspective, the project was evaluated by converting financial cash flows into economic cash flows through the use o f conversion factors to estimate economic or “shadow” prices to reflect the opportunity cost to the economy o f the use o f the resources needed to develop the project, and to eliminate market distortions.

4. The cost benefit analysis calculates the net benefits generated by each component on an incremental basis. The benefits o f the project are equal to the difference between the incremental benefits and the incremental costs o f two scenarios: “with” and “without” the project. The “with” project scenario considers the proposed investment program and i t s associated targets. The “without” project scenario considers the service would continue unchanged; i.e. current coverage, hours o f service, unaccounted for water, and commercial performance would remain the same during the project’s expected l i f e . The activities were appraised measuring their f low o f costs and benefits for the l i fet ime o f the project, estimated at 30 years. Costs and benefits were expressed in constant prices as o f

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June 200748. The discount rate used was 12 percent, estimated as the opportunity cost o f capital for Nicaragua.

5. Economic benefits expected from the project include: (i) resource savings for households that will no longer need to buy water from other, more expensive, sources; (ii) the benefits o f access to water services, estimated through the increase in property values (leasing) associated with the water connection, using a hedonic price function; (iii) improvement o f environmental and sanitary conditions in the project area due to the expansion o f the sewerage network, that were assessed using contingent valuation; (iv) resource savings associated with the cleaning o f septic tanks and latrines in some areas o f the project; (v) benefits associated with efficiency gains in service provision such as reduction o f water losses; and (vi) benefits to users for having a continuous water supply, estimated through contingent valuation. Financial benefits were estimated based on: (i) the number o f customers billed for water and sewerage; (ii) volume o f water and sewerage billed and current tariffs; (iii) savings in ENACAL’s operating costs; (iv) and improvement in collection o f revenues.

6. The estimation o f economic benefits was based on the information gathered from a survey applied to a representative sample o f 1,659 households randomly selected from 1 7 neighborhoods: 12 neighborhoods were randomly selected in Managua from those identified by E N A C A L to benefit from the PRASMA project, four more were used as counterfactual o f the “with” project situation, selected by E N A C A L among those that were already benefiting from similar projects financed by IDB, and another one from Tipitapa, selected among those that will be potential beneficiaries from PRASMA.

7. E N A C A L had initially identified 160 barrios in the greater Managua area as potential beneficiaries o f the project. At the time o f this evaluation, E N A C A L was hiring a consulting firm to do the designs and cost estimates o f the required investments in some o f these barrios. Hence no specific information on investment costs in those barrios was available for this evaluation. Therefore, it was decided to work with projects o f a similar nature that had been previously undertaken by E N A C A L financed by an IDB loan. These projects have already been implemented and are operating; customers in these barrios were already registered in the billing system and information about coverage, billing, collection rates, and metered consumption were available. Figures obtained from these projects were used for the financial evaluation as representative o f the “with” project scenario. In the case o f the financial analysis, the characterization o f the “without” project scenario, was based on information provided by E N A C A L on a sample o f ten barrios among the 160 identified.

8. As table 1 shows in the barrios where the project has been implemented the situation i s very different from those that have not received the project: those in the “with” project scenario have adequate metering, high connection rates, good continuity o f service, and low accounts receivable; while the barrios currently in the “without” project scenario are characterized by poor service quality.

48 Exchange rate used Cbrdoba’s $ 18.34: IUS$.

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Table A9.1. Sample o f barrios in the “without” and “with” project situation

Current situation 11 de Mayo 18 de Mayo

Anexo Camilo Chamorro

Arnold0 Alemdn Che Guevara

Francisco Salazar

Hugo Chavez Milagro de Dios Naciones unidas

Santa Ana Total

Israel Galeano Comandante

Aureliano Nueva Sabana

Lomas de Guadalupe

Total

“With ”project

Population

1,256 5,136

10,087 9,077 891

4,136 7,702 4,594 3,606 8,268

54,751

5,836

1,424 2,399

5,927 15,585

Wafer Coverage

68% 92%

5 yo 55% 80%

89% 61% 32% 83% 31% 59%

85%

90% 92%

82% 85%

% of metered-

customers

5% 4%

1 % 6 Yo 17%

1 Yo

1% 4% 3% 4%

100%

100% 100%

98% 99%

3 yo

Hours

service per day

6 12

6 6 7

6 24 4 6 6 8

20

18 19

22 20

o f Billed

revenue per month &

10,363 59,787

5,580 63,033 7,174

39,858 74,136 17,594 37,467 32,684

347,676

44,537

10,869 18,305

45,232 118,943

Accounts receivable (a)

486,874 276,15 1

249,382 1,335,763 3 16,208

2,050,721 1,852,035 5 18,726

1,900,O 17 1,041,908

I O , 028,385

1 17,399

37,699 49,942

42,962 248,001

Months of account

receivable

47 5

45 21 44

51 25 29 51 32 29

2.64

3.47 2.73

0.95 2.09

9. The assumptions for the financial evaluation were based on the indicators obtained from this sample. In the without project scenario, the following assumptions were used: metering 4 percent; collection efficiency rate 30 percent; consumption at 100 lpd; billed consumption at 26 m3/hh/month (about 200 lpd); and unaccounted for water 54 percent. Billed consumption i s higher than actual consumption due to the current tariff structure which estimates consumption at 26 m3 per month for non-metered customers. In the “with” project scenario, the following assumptions were used: metering 100 percent; collection efficiency rate 85 percent; unaccounted for water 48 percent; consumption 180 lpd, which corresponds to a monthly consumption o f 20 m3/hh/month; and water coverage increased to 85 percent. I t i s useful to note that under the with project scenario, the water bill per connection will decrease from 26 m3 per hh currently being charged to actual metered-consumption, which i s estimated at 20 m3 according to commercial information from the customers in the areas where similar projects have been implemented. For the sewerage component, the same efficiency gains were assumed, along with a service expansion o f 50 percent.

10. Tariffs to be charged to the project population correspond to the category o f subsidized customers, which i s significantly lower than the tari f f charged to other customers. Table 2 shows tariffs to be applied to customers under the project. For the water project, the current average tariff i s C$2.2/m3 (US$0.1/m3), For sewerage, the tariff for sewerage treatment was also included, given that al l beneficiaries are located in the greater Managua region which will be serviced by the wastewater treatment plant at Lake

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Managua; the average tari f f for the sewerage network i s C$ 0.77/m3, plus the tariff for sewerage treatment, for a total tariff o f C$ l .20/m3 (US$0.06/m3).

US%% h

269

1 1 3 105 217 29 1

Table A9.2. Tariffs to be applied to beneficiaries of the project

C$/hh

4,930

3,987 5,345

Cordobas $ Monthly fixed charge (C$/conn/month)

Consumption charge (C$/m3)

21-30 m3 31-40 m3 41-50 m3

Higher 50 m3

Monthly fixed charge (US$/conn/month) Consumption charge (US$/m3)

0-20 m3 21-30 m3 31-40 m3 41-50 m3

Higher 5 0 m 3

us 8

Water

1.06

Water

2.68 3.13 3.25 3.38

0.05

0.10 0.14 0.16 0.17 0.17

Network

Sewerage

Network 0.99 0.99 0.99 0.99

0.04 0.05 0.05 0.05 0.05

Sewerage Sewage

treatment

Sewage treatment

0.56 0.56 0.56 0.56

0.02 '0.03 0.03 0.03 0.03

Total

Total 1.55 1.55 1.55 1.55

0.06 0.08 0.08 0.08 0.08

11. For investment costs in the water component, the actual cost o f 22 projects implemented by E N A C A L during the period from June 2007 to June 2008 was used. For sewerage investment costs, two projects were used as a reference. Table 3 presents these costs, as well as the in-house adjustment costs.

Table A9.3. Investment costs

Water

Isolated works per barrio

Integrated works for several barrios (macro sector) Wells, primary and secondary pipes

Wells and primary pipes Secondary network

Total well, main and secondary pipes Sewerage

Sewerage network

12. the sewerage component the sewerage treatment cost was included.

13.

Operating costs were estimated based on current unitary costs in ENACAL. For

Taxes consist o f a value-added tax o f 16 percent.

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14. Investment Subsidies were examined under two scenarios. Under the “Project scenario”, there are no investment subsidies as this scenario seeks to determine whether the project i s financially viable by itself. Under the “Utility scenario”, the actual IDA grant/credit conditions are used as this scenario examines whether the project will have a negative or positive financial impact on the utility.

15. Operation Subsidies; E N A C A L will be in charge o f operating the project, and hence all operating costs were included with no subsidy.

Results of the Cost Benefit Analysis

Investment Component

Water Component Sewerage Component Water and sewerage

Economic Results 16. Table 4 shows the results for the economic analysis. The water and sewerage activities were analyzed separately and then aggregated to produce an indication o f the overall economic viability o f the service expansion activities. These results were then further analyzed together with benefits associated to the improvements in service delivery to have an overall economic result for the project viability. With an economic internal rate o f return (EIRR) o f 24.7 percent, a net present value o f US$21.1 million, and a benefit cost ratio o f 1.5, the results indicate that the proposed operation clearly has a positive net effect on the economy. When analyzed independently, al l o f the individual components are also economically viable with an EIRR ranging from 17 to 26 percent.

Economic Benefit

of Return (99)

3.0 17.2 I .3 6.5 21.3 1.54

14.2 24.2 1.43

Net Present Internal Rate Cost

Ratio Value

(M US$)

Improved service quality and eflcienqi

Total

6.8 26.0 1.67

21.1 24.7 1.5

Financial Results 17. Table 5 shows the results for the financial analysis. Under the “Project scenario”, the water component i s financially feasible with returns higher than 16 percent; profits are equal to US$225,000. Two factors negatively affect the project situation: (i) a lower bill per household when the project i s implemented, given that metered-consumption i s lower than that estimated by ENACAL; and (ii) tariffs are lower than operating costs; the average tari f f for this category o f beneficiaries i s about C$2/m3 (US$0.1/m3), while the operating cost i s 3.5 times as much (C$7/m3, or US$0.35/m3). The reasons for positive returns are the important efficiency gains, especially in reduction o f operating costs (due to rationalization o f consumption, reduction o f unaccounted for water) and improvement o f collection efficiency rates. The water component yields even higher returns under the “Utility scenario”, with an IRR o f 155 percent and net profits equal to US$930,000.

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18. The sewerage component, on the other hand, i s not financially viable in either scenario. The tariff covers only 60 percent o f operating costs, and efficiency gains do not fully compensate for the loss.

19. If the results are considered together the project i s not financially viable with a total loss o f US$1,280,000 under the “Project scenario”. In this case sewerage losses are not compensated for by water gains. O n the other hand, under the “Utility scenario”, the project i s viable with an IRR o f 40 percent and a NPV o f US$1 10,000.

Investment component

(Q Assumingfull investment costs (“Project scenario’?

Water Component Sewerage Component

Total (ii) Assuming actual I D A jnanc ing conditions (“Util i ty scenario’?

Water Component Sewerage Component

Total

Table A9.5. Results of the Financial Analysis

Net Present Value (Thousand US$) Internal Rate Benefits Costs Net benefit of Return (%)

1,067 84 1 226 16% 569 2,075 (1,507) n.a

1,636 2,917 (1,281) n.a

1,067 133 934 155% 569 1,392 (823) n.a

1,636 1,525 110 40%

20. ENACAL’s administration i s aware o f the importance o f setting the right tariffs for the project population, in particular with regards to the sewerage service. Current tariffs were not designed with a proper social policy in mind, nor with the required incentive for rational water use. I t i s important that the tariffs that will be charged to the subsidized category are reviewed as a complementary action for the success o f the project, and specific technical assistance on this issue i s included in the project’s Component 3 A.

Sensitivity Analysis 21. The results obtained in the analysis done so far assume that al l variables are certain. The sensitivity analysis measures the impact on the results when assumed values change. The sensitivity analysis measures the outcome if one o f the variables changes while all others remain fixed. In terms o f the economic analysis the variables conveying the major risks are: (i) investment cost overruns, (ii) operating cost overruns, and (iii) reduction o f the estimated economic benefits associated with each subcomponent and their main targets. The results show the robustness o f the analysis: (i) the investment cost overrun poses a l ow risk to the project, as the project would require a 53 percent increase in investment costs in order to become inviable; (ii) operating cost overruns are less risky, as the project would s t i l l be economically feasible even with a 100 percent cost increase; (iii) in terms o f the economic benefits for increased access to water services, only a loss o f more than 80 percent would make the project unfeasible; (iv) in the case o f access to a sewerage connections, a loss o f more than 70 percent would compromise the viability o f the project; (v) a loss o f more than 90 percent o f the benefits associated with the service component would still not pose a risk to the project; (vi) a 50 percent reduction in the target for unaccounted for water would s t i l l yield a positive economic

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result for the project. In terms o f the project start date, a two-year delay in implementation would reduce the economic results.

22. Given the results o f the financial analysis, i t will be important during project implementation to closely fol low some risk factors that may affect the already l ow levels o f financial return. Among them are controlling investment and operating costs to avoid any overruns, and monitoring the unaccounted for water and collection efficiency targets, all o f which are critical to ensuring that financial results are maintained within the same level.

B. Financial Analysis of ENACAL

Objective 23. The objective o f this analysis i s to assess ENACAL’s financial structure, operational efficiency, long-term viability, and financial capacity to repay the loan as well as to maintain and operate the proposed project. This i s done based on audited historical and pro forma financial statements, using financial ratio analyses and measurements against relevant industry comparators. This analysis also discusses the appropriateness o f tariffs in relation to financial requirements, as well as the financial impact o f the project. Finally, a sensitivity analysis i s carried out to evaluate the financial impact if assumed targets are not achieved.

Methodology 24. The financial analysis was based on ENACAL’s audited financial statements for the period 2003-2005; non-audited financial statements for 2006 and 2007; and budget for 2008. The financial situation was projected for 10 years, including the project implementation period and some years o f operation.

25. ENACAL’s performance and viability was assessed based on the following indicators:

Cost recovery, through comparisons between billed revenues and operating costs, such as: (i) operating indicator; (ii) working ratio; and (iii) percentage o f investment financed by own resources. Commercial efficiency, through revenue collection rates. Operational eflciency, through: (i) personnel productivity (employees per 1000 water connections); and (ii) unaccounted for water. Debt Structure. The following indicators were used to measure the weight o f debt: (i) long-term debt to equity ratio; (ii) total debt to equity ratio; (iii) current liabilities to total revenues; (iv) debt stock to billed revenue ratio; and (iv) current ratio.

0

ENACAL’s Financial Situation for the 2003-2007 period 26. To better understand ENACAL’s financial situation, i t i s important to understand some facts about the Nicaraguan economy. Nicaragua i s one o f the poorest countries in the Latin American region, and faces issues such as unemployment, l ow per capita income, and high foreign debt. While Nicaragua has progressed toward macroeconomic

77

stability in the past few years, and i t s GDP has grown from 0.8 percent in 2002 to 3.8 percent in 2007, the annual growth rate has been far too low to meet the country’s needs. In 2007 the GDP growth rate was at 3.8 percent while the inflation rate on consumer prices was at 8 percent. Nicaragua has relied on international economic assistance to meet fiscal and debt financing obligations. At the beginning o f 2004, Nicaragua received US$4.5 billion in foreign debt reduction under the Heavily Indebted Poor Countries (HIPC) initiative. In March 2007 the Government o f Poland forgave US$30.6 mi l l ion in debt contracted by Nicaragua in the 1980s. Nicaragua’s debt, however, s t i l l remains high. In October 2007, the IMF approved a new poverty reduction and growth facility (PRGF) program that should create fiscal space for social spending and investment. Despite concerns by the private sector, the continuity o f a relationship with the IMF reinforces donor confidence. The US-Central America Free Trade Agreement (CAFTA) has been in effect since April 2006 and has expanded export opportunities for many agricultural and manufactured goods. Energy shortages fueled by high oi l prices, however, are a serious bottleneck to growth.

27. After many attempts from previous governments to privatize ENACAL, the current administration has expressed i t s opposition to market oriented practices and i s against privatization. Since the new administration came to power in January 2007, they have been committed to proving that publicly owned utilities can be efficient. So far, results have been successful.

28. Since i t s creation, E N A C A L has been a utility from which all stakeholders have used for their own benefit: (i) the Government has used it for political reasons; (ii) labor forces have used it as a stronghold for privileges (currently, there are about 40 labor- unions inside the utility which has approximately 3,200 employees); (iii) customers have been irrational with water consumption and have not paid for water usage; and (iv) previous administrations have abused the power the utility has given them. This situation i s clearly seen in the operational and financial results o f the analysis o f ENACAL.

29. Water tariffs remained constant from August 2002 to February 2008, not even adjustment for inflation occurred. Yet, billed revenue increased by 26 percent during this period due to coverage expansion and a higher volume o f billed water. This increase compensated for the 10 percent increase in operating expenses during the same period. As a result, losses before depreciation (EBITDA) decreased slightly from 23 percent o f billed revenue in 2003 to 8 percent in 2007. However, when depreciation and other non- operating revenue and costs are included, losses (EBIT) increased from 5 percent o f revenue to 26 percent (see Table 6. Income Statement). Operating losses have existed in E N A C A L throughout the entire period, as billed revenues have never been higher than operating expenses (including depreciation). In other words, tariffs do not cover operating costs. Operating income has been higher than one, deteriorating from 1.09 in 2003 to 1.31 in 2007. When depreciation i s not included, the relationship between operating costs and billed revenue has always been close to 1 (Table 6. Income Statement).

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Table A9.6. Income Statement 2003-2007 (Thousand C6rdobas$)

Billed Revenue Water and Sewerage Operating Costs

Labor Energy

Other Total Operating costs

Depreciation and Provisions

Other non operating income Other non operating expenses

Interest Other financial expenses Total Financial expenses

EBITDA

Operating Income

EBZT

Earning before income taxes Taxes Net Income Financial Indicators

Billed Revenuelop costs (with dep) Billed Revenue/Op costs (w/o dep)

Operating ratio Working ratio

Net Income/Billed revenue

2,003 651,496

2,003 248,400 242,348 3 1 1,246 801,994 (I 50,498) (90,568) (59,930) 28,463 3,245

(3 4,7 12) 2,500

134,937 137,437

(I 72,150)

(1 72,150)

92 % 81% 1.09 1.23

-26.4%

2,004 700,026

2,004 267,607 263,733 177,966 709,306 (9,280) 541,101

(550,382) 97,969

(452,4 13) 5,000

120,887 125,887

(5 78,300)

(5 78,300)

56% 99% 1.79 1.01

-82,6%

2,005 75 I, 829

2,005 309,515 288,744 131,049 729,308 22,521

224,919 (202,398)

6 1,923

(140,475) 4,400 75,101 79,501

(2 19,976)

(2 19,976)

79 % 103% 1.27 0.97

-29.3%

2,006 800,133

2,006 3 17,865 349,162 153,5 I O 820,53 7 (20,404) 396,810

(41 7,214) 96,013

423 (32 1,624)

94,093 94,093

(415,718)

(415,718)

66% 98% I 5 2 1.03

-52.0%

2,OO 7 82 I , 301

2,007 294,283 450,568 138,839 883,690 (62,390) 192,939

(255,329) 44,743

(210,586) 27,147 192,089 219,236

(429,822)

(429,822)

76% 93 % 1.31 1.08

-52.3%

30. The cost o f energy has increased more than any other cost in ENACAL. In 2007 i t s value was twice that o f the value in 2003. I t s share in total costs increased to 51 percent from 30 percent. In 2007 energy costs accounted for 50 percent o f billed revenue, which was about equivalent to losses before interest and taxes. The high energy costs are explained for by: (i) ENACAL’s elevated dependency on energy to produce water. Ninety percent o f water produced comes from wells and has to be pumped out for distribution; (ii) Nicaragua’s high dependency on o i l to generate electricity. Seventy-five percent o f Nicaragua’s power generation comes from imported oil-based fuels; and (iii) an increase in imported o i l fue l prices, even though some o f the oi l comes with a generous subsidy from Venezuela. The price charged for energy used for pumping increased by 92 percent during this period49. Water production i s made even more difficult, given that electricity i s a serious problem in the country. There i s a chronic electricity shortage, and network distribution i s also a difficulty.

3 1. well as to increase billed and collected revenue. Their main achievements include:

ENACAL’s current administration has made major efforts to curb rising costs, as

Cost reductions: (a) as table 1 shows, labor costs increased at a rate o f 9 percent per year between 2003 and 2006; however in 2007 labor costs decreased by 9

49 Banco Central de Nicaragua. Indicadores Econdmicos 2007. Managua, Septiembre 2007

79

percent, which i s an actual reduction o f about 16 percent given that the inflation rate reached 8.6 percent. This achievement i s even more significant when one takes into account that E N A C A L has about 40 labor unions and the administration has to explain or negotiate many o f i t s actions with them. The current administration i s making good quality service the mission o f each worker and dismissing those who do not comply with this policy. As a result, labor productivity increased from 7.5 employees per 1,000 water connections in 2006 to 7.04 in 2007; (b) in 2007, other operating and administrative costs decreased by 10 percent, while in 2006 they had increased by 17 percent. The decrease was the result o f different measures taken by this administration aimed to reduce costs and promote efficiency; (c) electricity price increases have been compensated for by energy efficiency measures. Under this administration, a Canadian Firm, ECONOLER, was hired to study ways E N A C A L could reduce electricity in i t s operation. As a result o f the study, part o f the electricity demand has been switched from peak to non-peak hours, lowering the demand charge. Bi l led and collected revenue increases: (a) Even though tariffs remained constant at 2002 prices, billed revenue increased by 3 percent in 2007. By April 20OS5O, the increase was at 11.6 percent in comparison to January 2007 figures. This achievement was the result o f improvements in the commercial database; expansion o f micro-metering (from 4 1 percent to 44 percent); and identification o f customers previously un-billed (about 30,000 illegal users, or 7 percent o f the total customers, were incorporated into the billing system); (b) increasing collected revenue has been a goal o f the new administration, with important results: in 2006 collected revenue was 83 percent o f billed revenue; in 2007 and the f i rst months o f 2008 it increased to an average o f 87 percent; and (c) through expanding coverage. In 2007 about 1 1,000 new customers were connected and billed in the system. In 2007 investments increased by 16 percent from 2006. The investment amount o f US$43 million was the highest in the last six years. Additional1 , maintenance costs increased from 1.35 percent o f assets to 1.55 percent in 2007 . 5 7

32. Even though the present administration has taken measures to improve efficiency and has designed strategies to address major problems, ENACAL’s financial situation remains critical. The balance sheet reflects this as well. In 2007, liabilities were 3.6 times equity, and 80 percent o f assets. Long-term debt was 2.3 years o f billed revenue, and current liabilities equaled 1.2 times billed revenues and 30 percent o f total liabilities.

33. Suppliers, especially energy providers, have put up with ENACAL’s inability to f i l l y pay for i t s operating costs. Current liabilities have more than doubled in the past five years: in 2003 they equaled 8 months o f billing revenue; by 2007, they were higher than one year o f billing revenue. The current ratio has been decreasing and reached a l o w in 2007 o f 0.32, which highlights ENACAL’s inability to pay i t s current obligations from i t s current assets.

Before tariff increase was applied. 50

5 1 ENACAL. op cit.

80

Table A9.7. Balance Sheet (thousand Cordobas $)

Current Assets Net Fixed Assets

Other Assets Total Assets

Current Liabilities Long Term Debt

Equity Total Liabilities

Total Liabilities and Equity

Financial Indicators: Current Ratio

Total L iab ilities/Total Assets Total L iabi l i t idBi l led Revenues

Current LiabilitiedBilled Revenues

2,003 3 72,665

2,696,972

3,069,63 7

444,389 l 2 100,948 I , 545,336 1,524,301 3,069,63 7

0.84 0.50 2.37 0.68

2,004 5 70,309

2,484,302

3,054,61 I

523,875 1 ~ 445,482 I , 969,356 1,085,254 3,054,610

1.09 0.64 2.81 0.75

2,005 552,686

2,760,087 69

3,312,842

63 0,03 0 I , 4 7 7,624 2,107,654 I , 205,187 3,312,841

0.88 0.64 2.80 0.84

2,006 31 4,3 70

2,988,812 69

3,303,251

795,465 1,458,290 2,253,755 I , 049,495 3,303,251

0.40 0.68 2.82 0.99

2,OO 7 3 12,483

3,296,869 69

3,609,421

977,349 1,844,527 2,821,8 76 78 7,545

3,609,421

0.32 0.78 3.44 1.19

34. Long-term debt, however, has to be adjusted according to 2004 foreign debt reduction under the Heavily Indebted Poor Countries (HIPC) initiative and other debts which were forgiven by some countries. ENACAL’s debt to the IDB o f about US$80 million and OPEC o f US$8 million was written o f f to the Nicaraguan Government under the HIPC initiative. Additionally, the German and Norwegian Governments pardoned about US$10 million in debt. The debts were pardoned to the Nicaraguan Government but have not been taken off o f ENACAL’s financial statements. The National Government has to issue a statement indicating where ENACAL’s debt has been forgiven. Due to this delay, the external auditors have not yet approved ENACAL’s 2006 and 2007 financial statements. If the debts are written of f from ENACAL’s balance sheet, the long-term debt would be about 24 percent o f the registered figure. However, even without those debts in the financial statements, debt indicators would s t i l l not present sound figures: current liability would remain 20 percent higher than billed revenue; total liability would be 1.8 times billed revenue; and total liability would be almost twice equity.

35. ENACAL’s financial situation was one o f the issues addressed by the IMF and National Government in their agreement for the 2007-2009 period. The National Government has committed to increase ENACAL’s revenue by 60 percent by 2009 (40 percent in 2008 and 14 percent in 2009). In response to this agreement, in February 2008, the National Regulatory Agency, INAA, issued a Resolution52 approving a 42 percent increase in ta r i f f s in Managua and a 44 percent increase in the rest o f the department^^^. In May 2008 ENACAL applied a gradual increase in tariffs which wi l l increase i t s billed revenue by approximately 16 percent.

5 2 Resolucih INAA CD-RE-037-2008. 53 The raise resulted o f adjusting the cost o f providing the service with inflation during the period February 2002 to June 2006.

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36. Tarfls. Nicaragua has an elaborate regulatory framework for water and sewerage tariffs which was set in 1998 by INAAs4. The tari f f structure i s based on long-term marginal costs for an expansion period o f 15 years, designed with economic and social efficiency criteria. The formula for calculating tariffs i s defined for each service, water and sewerage, separately. Among them, there i s a differentiation for each stage o f the service; that is: in water for production and distribution; in sewerage, for sewage collection and treatment. It also allows tariff differentiation according to seasonal periods, Additionally, it establishes that the resulting tari f f has to cover al l financial needs required for efficient service provision.

37. Almost 10 years have passed since tari f f legislation has been put in place; yet, INAA has not issued any resolution to implement this framework. The tariffs set by INAA are based on financial and political criteria rather than economic efficiency. Current tariffs do not respond to an expansion plan or to financial requirements. They do not follow efficiency criteria or social policy. Tariffs are not based on the cost o f providing the service, nor do they induce rational water use, or contribute to poverty alleviation. INAA has issued five resolutions to date, and none o f them follows the regulatory framework: (i) In April 200155, tariffs were set for the period between 2001 and 2005. At the time, tari f f calculations did not respond to an investment expansion plan, but rather to short-term financial cash-flow. Tarif f levels fel l short o f financial requirements; (ii) In January 2003, a tari f f increase equivalent to change in inflation for the period 200 1-2002 was approved. Hence, the lag between costs and tar i f fs remained; (iii) In July 2007, there was a modification in sewerage tariffs for the City o f Managua. The new charge allows sewerage treatment costs to be partially covered. This change i s to be applied as soon as the sewerage treatment plant at Lake Managua begins operation, which i s expected to occur by the end o f 2008; (v) In February 2008, a tari f f increase was approved to cover the change in inflation between 2002 and 2006. This increase i s to be applied gradually beginning in May 2008, with an average increase o f about 16 percent. E N A C A L i s expected to issue future increases in order to achieve the total increase approved by INAA.

38. meant a 27 percent decrease in real terms during the period (Table 8).

From January 2003 through February 2008 tariffs remained constant, which

Table A9.8. Water and Sewerage average tariff

5.81 0.35

1.96 0.12

6.40 0.38

Water Average billed tariff Cordoba$/ m3

Average billed tariff US$/ m3

Average billed tariff Cordoba$/ m3 Average billed tariffUS$/ m3

Sewerage

5.97 5.97 0.34 0.33

1.96 1.93 0.11 0.11

6.57 6.56 0.37 0.36

W&S average (per meter’ ofwater billed) Average billed tariffCordoba$/m3 r Avera e billed tari US$/ m3

0.10

6.09 0.39 0.38

2005 I 2006 1 2007

54 Decreto INAA No 45-98 Junio 1998. Resolucidn CD-RE-0 1 1-0 1 55

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39. Given that tariffs have not been able to cover operating costs, E N A C A L has depended on the National Government to maintain and operate the service. Required transfers have been on average US$20 mi l l ion per year to compensate for net losses. Investment, as a consequence, has been funded by the National Government, and from external donations and loans. As table 9 shows, investment levels have been relatively high, with an average o f US$30 mi l l ion per year or 20 percent o f fixed assets. Through the years, the dependency on the Government for financing investment has increased from 12 percent in 2002 to 65 percent in 2007 (including both transfers and loans, which are eventually paid for by the Government). E N A C A L has participated with less than 3 percent, and donations from other Governments have decreased from 85 percent in 2002 to 34 percent in 2007.

Table A9.9. Investment and Financing Sources. 2002-2007 (Thousand US$)

Investment Financing

ENACAL National Government Transfers

Loans Other Government Donation

Total

2,002 2,003 25,828 20,119

2% 3 yo 4% 6% 8% 11%

85% 80% 100% 100%

2,004 27,086

2 Yo 7%

31% 60% 100%

2,005 24,342

3 yo 3 yo

48% 4 7% 100%

2,006 2,007 37,079 43,338

1 % 2 Yo 2% 8 Yo

33% 57% 63% 34% 100% 100%

Financial Projections for the 2008-2013 period 40. Projections for 2008 were based on ENACAL's budget; from 2009 and on, assumptions were made based on ENACAL's investment plan and i t s associated targets. ENACAL's master plan for the period 2008-2012 aims to improve and expand water and sanitation services. The total investment amount planned for the period i s US$338 million, or US$68 mi l l ion per year. The financing plan i s similar to the one that has been implemented during previous years, with 3 percent coming from ENACAL ' s own resources, a similar percentage from the National Government's donations, about 60 percent from loans (some o f them to be taken by the National Government and some others by ENACAL), and 30 percent from donations from other governments.

2008 Investments 63,643 Financing plan

ENACAL 3 yo Transfersfrom Ntl Gvt 4%

Loans 54% Donations 40%

Total 100%

2009 2010 201 1 2012 Total 77,767 77,671 84,486 34,979 338,546

1 Yo 1% 3% 1 Yo 2% 2% 3% 1 Yo 3 yo 3 yo 68% 68% 68% 57% 64% 29% 27% 28% 3 9% 31% 100% 100% 100% 100% 100%

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41. In addition to the investment plan, E N A C A L has some other projects that they have begun implementing and will be incorporated as complementary investments for US$128 million. The entire master plan covers investments o f US$467 million56. The equivalent annual investment i s US$93 million, more than twice the 2007 investment level.

42. The objective o f this master plan i s to attain the following targets57: (i) 85 percent coverage for water service; (ii) 50 percent coverage for sewerage service; (iii) 95 percent sewerage treatment in the greater Managua region by 201 3; (iv) revenue collection rate o f 92 percent; (v) unaccounted for water o f 48 percent.

Table A9.11. Targets

36% 38%

:) 1 30% 20%

87% 88% 54% 52%

47% 50%

I 2008 I 2009 1 2010 I 2011 I 2012 I 2013 National Water coverage 1 72% 1 75% I 78% I 80% I 83% 1 85% National Sewerage Coverage

Sewerage coverage Managua % sewage collected & treated Managua

% treatment/capacitj treatment plant Revenue Collection rate Unaccountedfor water

53% 69% 95% 75% 92% 48%

43. Other assumptions for the projections. Other assumptions were made for tariffs, operating costs, macroeconomic indicators, population growth, etc. Regarding water tariffs, it i s assumed that by the end o f 2008, the full increase approved by INAA will be applied, i.e., 42 percent in Managua and 44 percent in other regions. In May 2008, the water tari f f was increased by 24.5 percent in Managua and by 12.3 percent in other Departments. The remaining 14 percent in Managua and 28 percent in other Departments i s assumed to be applied in October, 2008. The annual average increase in water tariffs in 2008 would be about 18 percent.

44. Collection o f tar i f fs for sewerage treatment i s assumed to begin in the City o f Managua in 2009 when the treatment plant starts operation. This tariff, approved by INAA in 2007, includes a charge for domestic sewerage discharge, as well as a charge for polluted industrial wastewater. The domestic charge i s based on water consumption and the customer’s category; the industrial charge i s based on ODB and suspended solids discharged. The resulting average tari f f for a domestic discharge is about US$0.05/m3 discharged. Billed revenue for treated sewerage i s projected based on the average tari f f o f sewerage treatment and the volume o f domestic treated sewerage in the City o f Managua. The percentage o f treatment o f wastewater collected in Managua i s estimated at 30 percent in 2009, 50 percent in 20 10, 75 percent in 20 12, and 95 percent in 20 13.

45. Wastewater treatment costs include: (i) energy costs at pumping stations; (ii) maintenance and personnel costs incurred when operating pumping stations; (iii) maintenance costs o f sewerage main pipes; and (iv) treatment plant operating costs. E N A C A L signed a contract with KfW for the operation o f the treatment plant for five

s6 ENACAL, op cit. 57 ENACAL. ibid.

84

years, including energy, personnel, operation and maintenance, o f both the plant and the main sewerage pipes. The total estimated cost o f the contract i s about C$47 million (US$2.4 milli~n)~', which i s approximately US$0.06/m3.

46. Other assumptions for projections are shown in table 12.

Table A9.12. Assumptions for Financial Projections Item

Operational Assumptions Population

Average water tariff Average sewerage tariff

Personnel Productivity

Other Operating costs

Capital expenditures

Financial Assumptions Exchange Rate

CPI

National Government subsidy

Long term debt

Assumptions

Assumed to grow by 2.03% per year. I t i s adjusted with inflation every year. I t increases according to requirements. It i s adjusted with inflation every year. I t increases according to financial requirements. I t i s also includes tariff for sewage treatment in the city o f Managua from 2009 and on. I t i s calculated as the number o f employees divided by the number o f water connections with service.

They are projected base on current unitary costs, which are annually adjusted with inflation rates. Consist o f investment costs estimated at US$93 million per year during the period 2008-2012. From 2013 and on, US$45 million per year.

Exchange rates from 2008 and on are assumed to depreciate at a rate o f 8% per year following the projected internal inflation. Inflation rates from 2008 and on are assumed at 8% per year.

For projections it i s assumed to improve by 10%. Salaries are annually adjusted with inflation.

I t i s assumed that tariffs wil l cover operating costs. A subsidy from the Government wil l be required only in the first few years. Transfers to fund 3% investment. Additionally, i t i s assumed that 57% of loans wil l be paid for by the Government.

All the loans except US$20 million from the World Bank credit, wi l l be paid by the National Government and hence minimal financial charges are to be taken by ENACAL. The financial conditions o f the WB credit consist o f a 10 year grace period and 40 years of maturity; US$20 million o f the US40 million loan wil l be assumed by ENACAL and the other US$20 million i s an IDA grant. Current long term debt i s not adjusted according to the HIPC agreements, given that the GoN has not yet given the approval for reducing ENACAL's debt from US$129 to US$31 million.

Results o f the Financial Projections 47. E N A C A L appears to be financially viable and able to repay the US$20 million credit, as well as to maintain and operate the proposed project, if expected improvements are achieved, tariffs are adjusted, and subsidies from other countries and the GoN are

58 According to ENACAL, assumptions for cost calculations are as follows: There wil l be six pumping stations: (stations N, G, A, AA, and S), and the main station at the entrance o f the treatment plant. (i) Energy costs are estimated for a l l pumping stations except for the main station at the entrance which i s included in the KfW contract. For these five stations, the energy consumption o f 1.2 G w h per year and an energy charge o f US$0.13/kwh i s assumed; (ii) Personnel costs at pumping stations are estimated at C$ 1.2 mi l l ion per year; maintenance costs at pumping stations are estimated at (30.6 mi l l ion per year; (iii) Maintenance costs o f sewerage main pipes are assumed at 5 percent o f the investment cost, which results in a cost o f US$O.8 million; (iv) Operating costs o f the treatment plant, including energy costs o f the main pumping station at the entrance o f the plant, are U S $ l . 1 mill ion, according to the contract signed between E N A C A L and KfW.

85

obtained. Tariffs need to be permanently adjusted with annual inflation in order to keep their real terms. Additionally, the full 40 percent increase approved by INAA needs to be applied by the end o f 2008, as well as an additional 8 percent increase in 2009 and 2010, and 5 percent in 201 1. In terms o f sewerage, tariffs need a real adjustment o f at least 12 percent in 2008 and 8 percent in 2009, as well as the application o f the approved tari f f for sewerage treatment in Managua once the treatment plant i s operating.

48. Under these assumptions, financial indicators show that E N A C A L i s financially viable in the long-term and has financial capacity to repay the loan and guarantee the sustainability o f the proposed project. The net margin gradually increases to reach 10 percent in 20 13; after 201 0 tariffs cover operating costs, including depreciation. Debt indicators also show a sound financial situation and give assurance o f the financial sustainability during and after implementation o f the project. (Tables 13 and 14).

Table A9.13. Income Statement 2008-2013 (Thousand CbrdobasS)

Billed Revenue Water & Sewerage Operating costs EBITDA

EBIT Financial expenses

Net Income Financial Indicators Billed Revenue/Op cost (with dep) Billed Revenue/Op costs (w/o dep)

Operating ratio Working ratio

Net margin (net Income/Revenue)

2,008

993,363 1,076,3 14 (82,951)

993,363 1,076,314

75%

1.33 1.08

(497,474)

92%

-50%

2,009

I , 31 0,357 1,154,267 156,090

(248,256) 1,310,357 1,154,267

93% 114% 1.08 0.88 - 19%

2,010

1,681,298 1,301,426 3 79,871

(203,368) 1,681,298 1,301,426

104% 129% 0.96 0.77 - 12%

2,011

2,133, I49 1,493,187 639,962 52, I66

2,133,149 1,493,187

113% 143% 0.89 0.70 2%

Table A9.14. Balance Statement 2008-2013 (thousand Cbrdobas$)

Current Assets Net Fixed Assets

Current Liabilities Long Term Debt

Equity

Total Assets

Total Liabilities

Total Liabilities & Equity

Financial Indicators: Current Ratio

Liabilities/ Assets Liabilities/Billed Revenue

Current Liabilities/ Rev

2,008 426,892

4,820,808 5,247,700 741,943

2,540,472 3,282,415 1,965,286 5,247,700

0.58 0.63 3.30 0.75

2,009 467,527

6,785,060 7,252,587 648,465

2,791,914 3,440,379 3,812,208 7,252,588

0.72 0.47 2.63 0.49

2,010 539,660

8,872,897 9,412,557 592,702

2,950,324 3,543,026 5,869,532 9,4/2,558

0.91 0.38 2.11 0.35

2,Ol I 570,276

I 1,258,343 11,828,6/ 9

671,231 2,942,242 3,613,474 8,215,145 11,828,619

0.85 0.3 1 1.69 0.3 1

2,012

2,656,02 7 1,715,206 940,821 186,085

2,656,02 7 1,715,206

122% 155% 0.82 0.65 7%

2,012 758,118

12,529, I29 13,287,247

611,732 2,910,026 3,521,758 9,765,489 13,287,247

I .24 0.27 1.33 0.23

2013

3, I 11,460 1,966,389 I , 145,071 350,045

3,111,460 1,966,389

126% 158% 0.79 0.63 11%

2013 655,745

13,457,491 14,113,236

630,880 3,366,822 3,997,702 IO, ] 15,534 14,113,236

I .o 0.28 1.28 0.20

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49. If the Government o f Nicaragua allows E N A C A L to wr i te o f f the long-term debt that was forgiven under the HIPC initiative, the burden o f financial expenses would be significantly reduced and therefore the required increases in tar i f fs would be lower. Under this situation, real increases in tar i f fs after 2010 would not be needed, only increases that correspond to adjustments for inflation would be necessary.

Sensitivity Analysis 50. A sensitivity analysis was done to evaluate the financial impact if some key variables changed in the projection period. The financial projections were made assuming some performance improvements would be attained with the implementation o f ENACAL’s investment plan. There i s ample room for additional gains given that even if targets are reached, some indicators would s t i l l be below industry standards, such as unaccounted for water, labor productivity, and commercial efficiency. The sensitivity analysis will show that financial strength could improve if additional gains are reached, and also that financial viability could be at risk if expected performance improvements are not attained.

2013 levels Net Income in 2013

(US$ 000) UFW:48%

5 1. The sensitivity analysis was conducted with the following critical assumptions: (i) unaccounted for water; (ii) collection revenue rates; (iii) labor productivity; and (iv) percentage o f households accepting the connection to sewerage. If unaccounted for water remains at current levels, there would be a negative cash f low from operation o f US$3.4 mi l l ion between 2008 and 2013; however if i t improves by an additional 5 percent, there would be a positive cash f low o f US$28 million. If collection efficiency rates do not improve, there would be a negative cash f low o f US$2 million. If labor productivity improves by an additional 10 percent there would be a positive cash f low o f U S $ l 1 million. On the contrary, if the acceptance rate for sewerage connections i s only 80 percent, there would be associated losses o f US$3 million.

Cumulative Cash Jow from

operationUS$000

Unaccountedfor water at 2013 Unaccounted for water at 2013

Collection Efficiency Rate Labor productivity improves 10% Response to sewerage connection

I Collection efficiency:92% I 11,333 I 6,294 1 1 Labor productivity 7.4 emp/1000conn Base case scenario

Response to sewerage connection 100% 54% 7,740 (3,405) 40% 19,602 27,757 87% (28) (1,864)

6.7 employeesil000 conn 12,748 10,924 80% 6,466 (3.181)

87

Annex 10: Safeguard Policy Issues NICARAGUA: Greater Managua Water and Sanitation Project

Environmental safeguards

1. The project is classified as Category B, requiring an Environmental Assessment (EA) study. An EA has been prepared for the project covering the City o f Managua investments and the satellite towns o f Tipitapa and Ciudad Sandino (within the Department o f Managua). The project i s focused largely on improving environmental conditions, protection o f underground and superficial water resources and human health through improved sanitation, expansion in the provision o f potable water, and improving efficiency in the use o f freshwater resources. Impacts therefore are expected to be positive or neutral; however, given the potential for limited or localized impacts, environmental management plans are being prepared based on the EA findings. These findings are summarized below:

Expected Environmental Impacts 2. The project seeks to “increase access to and sustainability o f water and sanitation services in the greater Managua area”. It i s expected, therefore, that environmental impacts will be positive through a series o f different activities and investments under four components that have been designed in this regard. Following are details o f the components and expected impacts:

3. Component 1: Coverage Extension and Improvement for WSS in Low-Income Neighborhoods - This component will finance primary, secondary and tertiary network rehabilitation and extension in 133 selected neighborhoods identified as priority in the master plan. These neighborhoods either lack services or have strongly deficient service. Most o f these areas do not have any type o f network infrastructure for wastewater evacuation. Rather, houses often have latrines and discharge the grey water to the street, creating a health and safety hazard while posing a threat to groundwater supplies that serve Managua and feed into the Lake. In the adjacent town o f Tipitapa that i s also a focus o f this component; the sanitation situation i s similar to the City o f Managua with the added problem o f being in a low-lying area and having a high water table, Sewage i s currently sent directly to Lake Managua and the Tipitapa River with l i t t le or no treatment, degrading water quality and generating human health hazards throughout the town. Rehabilitation o f the existing abandoned wastewater treatment plant may be considered based on technical studies during implementation. Ciudad Sandino activities are to focus on quality and provision o f services under component 2, but possibly may also consider rehabilitation o f the current treatment plant.

4. Impacts from these investments are expected to be positive or neutral from an environmental standpoint. In order to avoid minor impacts that could result from construction activities, an Environmental Management Plan (EMP) has been prepared that outlines standard operating procedures and mitigation activities. A framework has been prepared as part o f this EMP in order to evaluate those investments that are not yet designed or require studies during implementation. Monitoring programs, institutional

88

strengthening, capacity building and public education will also strengthen environmental aspects related to this component. An exclusionary l i s t o f activities i s being incorporated into the EMP in order to ensure that activities with broader potential impacts as set forth in Bank safeguard guidelines will not be carried-out under the project, including new treatment plants.

5. Component 2: Improvement o f Water Supply and Efficiency in Selected Area - Impacts are also expected to be positive as a result o f the investments that provide for reduction in loss o f water throughout the Managua potable water system. The improved efficiency should reduce or slow the pressure to increase groundwater extraction in aquifers in the greater Managua region.

6. Component 3 : Institutional Strengthening and Project Monitoring and Evaluation - Impacts will be positive or neutral from an environmental standpoint. The component seeks improved institutional capacities for management as wel l as increased public participation and education through campaigns that should lead to reduced waste and greater awareness as regards to human health and the environmental sanitation.

7. The detailed safeguard policy studies will be made available in the project files. In accordance with the Bank’s Information Disclosure Policy (BP 17.50), copies o f the Environmental Analysis report in Spanish will be available for public view at the Bank’s Public Information Centers in Nicaragua and on relevant websites including ENACAL ’ s. A copy o f all final documents will also be forwarded to the World Bank’s InfoShop.

8. The sections below briefly consider each o f the safeguard policies that are triggered by the project.

Environmental Assessment (OP 4.01) 9. Environmental impacts o f the proposed project are expected to be positive or neutral. It i s expected that improved collection and delivery o f wastewater to the new sewerage treatment plant under construction will generate positive environmental benefits to the quality o f Lake Xolotlan (Managua) and surrounding habitat, protection o f groundwater recharge areas, as well as provide a healthier environment and improved sanitation services to the urban population. Rehabilitation o f the small existing treatment plants located in Tipitapa and Ciudad Sandino may be incorporated based on the results o f technical and planning studies.

10. An Environmental Assessment has been prepared based on the Category B classification o f the project. Baseline studies and impact assessments cover Managua and i t s satellite cities o f Tipitapa and Ciudad Sandino. Tipitapa i s a smaller satellite city o f Managua with poor sewerage coverage and i s located in a relatively low-lying area near Lake Managua. Currently sewerage treatment i s limited to stabilization ponds at two locations in the city. Ciudad Sandino has a small treatment plant o f relatively recent construction that requires improvements to provide optimal performance.

11. The draft Managua EA includes: i) potential project impacts including direct, indirect, and cumulative impacts as well as the aspects related to overall water use and supplies (surface and groundwater), and linkages to the wastewater collection system,

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treatment plant (completion expected late 2008), and potential impacts to Lake Managua. It also reviewed baseline environmental and social aspects o f the project area. ii) The legal and institutional framework has been analyzed as pertains to the requirements under the MARENA EIA requirements and licensing as well as municipal authorization. iii) Institutional capacities have been evaluated regarding aspects needed for project EMP implementation and for overall strengthening o f the institutional environmental procedures with potential for mainstreaming within the E N A C A L Environmental Management Unit; and iv) An Environmental Management Plan has been prepared for those works and activities that are under design. A framework i s being finalized for those works and activities that are not designed prior to appraisal or will be designed during project implementation.

12. The EMP includes aspects covered in OP 4.01 Annex C including criteria for identifying sensitive areas, a framework for the review o f sub-projects (including field procedures and processing aspects), and staffing and institutional responsibilities regarding environmental management. E N A C A L has a specific department dedicated to environmental management. The office has technically qualified staff to provide for environmental review o f project activities as well as monitoring and evaluation. In addition, there are laboratories for water quality control and for industrial discharge issues within this department. The department, however, requires support to improve i t s capacity, including staffing and procedures, which have been included in the EMP.

13. Best-management practices are incorporated in the EMP to guide design and construction phases for specific sub-project types to minimize negative impacts associated with project infrastructure investments. Included among the practices are those needed to reduce noise and localized air pollution from dust and particulates generated during construction, minimization o f soil erosion and runoff from digging, impacts in traffic and circulation, and health and safety o f workers and local population around the construction sites, among others.

14. Monitoring and evaluation measures have been proposed and included with associated costs to adequately follow the implementation and support supervision. An exclusionary l i s t o f activities i s being incorporated into the EMP in order to ensure that projects with potential broader negative impacts are not financed under the project. In addition, the EMP indicates the procedures necessary to comply with the national environmental assessment laws and with municipal regulations. A specific environmental consultation also took place in Managua in July 2008 with the participation o f several sector institutions, the Managua municipal government, and civ i l society representatives. The project scope, a draft EA, and Environmental Framework were presented at the consultation and feedback was documented.

15. The activities in the EMP are to be mainstreamed into the project management. The plan seeks to ensure positive impacts and reduce negative impacts by increasing capacities in the institutional environmental management, but also by improving mechanisms for public participation, coordination with local government, and promoting environmental awareness, protection, and restoration in the area o f influence o f the project. The activities o f the EMP follow a five-year action plan o f environmental support and strengthening. These activities include: i) strengthening institutional environmental

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management (US$2 15,550), including increased staffing and equipment for supervision and overall monitoring; ii) capacity building and training for institutional and other stakeholders (US$10,600); iii) environmental education and citizen participation (US$57,000) to generate positive support for the project, improved efficiency in the use and increased conservation o f water; iv) conservation and restoration o f ecosystems (US$40,000) to increase protection o f important watersheds within the project area; v) specific technical assistance for community training in household wastewater and storm water management (US$lO,OOO). Total costs allocated to the implementation o f the EMP activities outlined (in addition to the other mainstreamed supervision functions o f ENACAL’s environmental unit) are budgeted at US$333,150 and are included in the project costs.

Natural Habitats (OP 4.04) 16. The implications o f the proposed project activities have been analyzed in light o f the natural habitats within the project area o f influence in the urban Managua component with particular focus on Lake Managua. The draft EA indicates no negative impacts to critical or important natural habitats, while the overall investments should assist in improving the water quality o f the lake, lakefront, and tributary river and stream habitats.

17. The Tipitapa and Ciudad Sandino components and investments have not been completely defined and require further technical studies and design prior to implementation. The baseline conditions have been reviewed separately for each town, especially in light o f the potential investments in wastewater collection and treatment having identified degraded areas and no critical habitats in the immediate areas considered for the project. The EA reports that existing environmental conditions are poor in and around Tipitapa and impacts to fisheries from sewerage discharge and infiltration into Lake Managua and Tipitapa River are evident. The Tipitapa River flows into the Tisma Lagoon (an Important Bird Area) some 15 km southeast o f the city, therefore no expansion o f the smaller treatment plant should occur under the project while sub-components should be designed to ensure no impact or increases in discharges occur in this direction. Recommendations are included in the EMP for specific measures to avoid, mitigate, or compensate for any impacts to natural habitats from investments, and an exclusionary l i s t will preclude investments that could negatively affect natural habitats based on Bank safeguards guidelines. No new treatment plants are considered, however rehabilitation or optimization o f existing plants may be considered which should improve conditions for natural habitats around Lake Managua and tributary rivers and streams.

Physical Cultural Resources (OP/BP 4.11) 18. The EA for the Managua investments has reviewed potential impacts to physical cultural resources and no physical cultural resources are expected in the proposed sites. The proposed EMP includes measures in case o f “chance findings” or other types o f measures necessary to protect any resources identified.

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Social Safeguards

19. According to the 2008 Nicaragua Poverty Assessment, the incidence o f extreme poverty has decreased in the period 1995 - 2005 in most departments o f Nicaragua; however, it has increased in Managua, from 3.6 percent to 4.2 percent. More than 30 percent o f Managua’s population l ives in settlements that result from random migration since the 1980s. Many have benefited from land legalization schemes and demand more and better quality services such as water, sanitation, sewerage, and schools. The present government i s committed to responding to these demands. This project targets approximately 13 0 low-income urban and peri-urban settlements stressed with high unemployment, l ow levels o f education, and high incidence o f water-borne diseases such as diarrhea, malaria, dengue, and leishmaniasis. A subsidized tari f f (C$5 5.60) i s effective for poor families without meters. However, in the absence o f water meters, i t i s difficult to control water wastage. In 2000, ENACAL’s field surveys indicated that an average household in these settlements was consuming as much as 55 m3 o f water per month. Moreover, according to the 2005 Census, 62 percent o f households in Managua (mostly settlements) are not connected to a sewage network. In settlements similar to the project area, 26 percent o f sanitation consists o f untreated latrines, 12 percent are treated, but 3 percent o f the population has no sanitation service at all.

20. The social assessment carried out by an interdisciplinary local team included consultations with six neighborhoods where E N A C A L has worked during the past three years (La Zacatera, Lomas de Guadalupe, Healiah, Carlos Fonseca, Golfo Persico and Israel Galeano), as well as with E N A C A L management and staff. The results have been presented to and discussed with management and staff and agreements are being made with regard to the adjustments needed for an effective intervention o f PRASMA.

Expected Social ImDacts 21. Approximately 130 low-income neighborhoods and settlements will benefit from water, sanitation and sewerage connections under the project where at least 50 percent o f beneficiary social units are in the two poorest quintiles o f the population.

22. Improvement o f the health o f the neighborhood and increased awareness o f the social impacts o f consumption o f contaminated water. PRASMA will aim to provide potable drinking water suitable for cooking and human consumption. Clean water, as opposed to piped water, i s proven to significantly improve the health o f the family, decreasing morbidity particularly in children less than 6 years o f age. I t will also improve environmental conditions related to mosquito breeding (Le. poor drainage, stagnant waters) which affects pregnant women and can lead to malnutrition o f the fetus. Diarrhea (often caused by poor hygiene and contaminated water) i s one o f the leading causes o f child morbidity and mortality. Malnutrition and disease i s often caused by poor sanitation. Malnutrition in turn causes underweight (weight for age) and stunting (height for age) and affects children’s cognitive functions, school enrollment, grade repetition, school dropout rates and future income earning potential. Leishmaniasis, other skin diseases, and parasitic infections are also caused my contaminated water and lack o f hygiene. According to the 2005 Liv ing Standards Measurement Survey (LSMS), due to

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economic limitations, children in quintiles 1 and 2 tend to visit health facilities less often for diarrhea, increasing the mortality risks. On average, each household in Managua spends C$171.30 per year on account o f diarrhea. PRASMA will expand ENACAL’s on- going sensitivity training to educate people at schools and health posts on proper utilization and storage o f water, and hand washing with soap, in coordination with WSP’s Hand Washing Campaign.

23. Community ownership o f the water, sanitation and sewerage systems and instilled social responsibility of stakeholders to monitor and ensure satisfactory operation of the systems. At the moment, E N A C A L operates under a “push model” without prior community consultation or approval, causing reactionary rather than supportive responses. A Methodology for Social and Technical Support to PRASMA within the Project Cycle has been developed to ensure prior informed consultation o f the neighborhoods in three different stages: (a) Ex-ante assessment and verification o f the demand, undertaken separately with the municipality (phase # 1 ) and the neighborhoods (phase #2); (b) Community discussion and approval o f the general subproject design, agreements on co-financing, and community organization for social monitoring o f c iv i l works including water meter installation; and (c) possible customization o f water and sanitation services, to include customer preferences as much as possible. The expected intermediate outcome i s community ownership o f installations and o f the personalized interventions (i.e. sanitation) resulting in increased tariff payments, better maintenance o f their own systems, and higher demand for quality services.

24. Social capital o f the neighborhood will be improved through the institutional strengthening o f ENACAL’s Community Management Unit (CMU) and the creation and/or strengthening of local Water and Sanitation Monitoring Committees (Cornitis de Seguimiento o r CSP). ENACAL’s C M U i s weak and understaffed at the moment, however, i t wil l be reorganized and properly staffed with social workers or social scientists and a larger number o f promoters for PRASMA implementation. Likewise, CSPs will be democratically elected and/or strengthened to oversee project activities (phases 2 through 7) until at least 6 months into subproject operation. Existing committees will be favored over creating new ones. Inter-agency coordination and social accountability and collaboration will be emphasized during the workshops/assemblies with ENACAL, contractors, and community participants, planned under the project.

25. Promote the leading role of women in the neighborhoods. In settlements where water i s s t i l l fetched or stored in containers, it i s women and girls who are often responsible for this task. With PRASMA, the social capital o f women will increase by giving them more time to focus on education, health, work, or leisure. At present, about hal f o f the members o f the water committees are women. The project wil l support the selection o f women for higher positions in the CSP, ensuring that no gender discrimination takes place. O f the three representatives for each CSP in the neighborhoods, at least one should be a woman.

26. Improvement of the institutional capacity o f the neighborhood to manage water assets and resources properly, including installation o f water meters, pipes, cleaning drains, and so on. At present, neighborhoods in which the project wil l

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intervene exhibit poor drainage and stagnant water which contribute to mosquito breeding, thus increasing the incidence o f malaria, dengue and other water-borne diseases. The social assessment found that nearly every household stores water in old metallic or plastic containers and often without a cover. Through the Social and Technical Support, training workshops (phases 1-4) will be used to prepare the neighborhood for better water resource management practices.

27. Fair compensation for land acquisition and resettlement of social units. Social units whose land i s affected by project construction wil l be compensated through a formal acquisition o f their land and proper assistance for resettlement within or outside the neighborhood. At the moment, land acquisition issues are dealt with by E N A C A L on a case by case basis, but there are no established procedures for this or for resettlement o f affected units. Under the Involuntary Resettlement Framework (IRF), prepared by a local team o f consultants and the legal department o f E N A C A L with technical assistance from the Bank, impacts caused by the involuntary displacement o f social units wil l be mitigated and compensated for. As opposed to present practice, monetary compensation for land acquisition will only be acceptable when the latter suffices for reposition o f assets at market value. Moreover, assistance will be provided to all inhabitants in the sites affected by subprojects, independently from rights over land. The IRF i s summarized in this annex. The Involuntary Resettlement Framework wiIl be adopted by E N A C A L for other investment interventions.

SOCIAL AND TECHNICAL SUPPORT FOR PRASMA

28. The social and technical interventions are integrated and articulated in the pre- investment stages, during implementation, and after the c iv i l works are concluded. The technical and civ i l works should not be carried out until the ground work o f community preparation has taken place. The following methodology i s in the process o f being agreed upon with ENACAL.

During Preparation and Pre-investment

29. Phase 1: Initial Contact with the Municipality of Managua, to consult the municipal urban plans, promote the project concepts and methodology, and request information on urban development for the neighborhood. An expected output of the above meetings i s a signed Collaboration Agreement between E N A C A L and the municipality.

30. Phase 2: Diagnosis and Demand Verification. The social specialists of the contracted firm carry out an initial consultation with the neighborhood to assess interest in participating in the project, carry out a diagnosis and verify demand, establish neighborhood boundaries, carry out a household survey and collect the baseline in a sample o f households. The Project technical unit supervises.

3 1. Phase 3: Feasibility analysis and community preparation/ organization for participation. E N A C A L (Project Management and Operations, UGC and Communications Units) invites neighbors and authorities, including the Municipal

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Planning office, to an assembly. The technical and social specialists o f the contracted firm elaborate project alternatives and the feasibility o f a preferred option. The preliminary design i s validated with ENACAL. A democratic election o f the Water and Sanitation Project Committee (CSP) takes place, consisting o f representatives o f different groups or sectors o f the neighborhood. E N A C A L and the neighborhood discuss participation/ collaboration plans and social accountability before, during and after c iv i l works are concluded and sign an agreement reflected in Acta de Asamblea. Workshop No. 1: The trainees return to their sections o f the various neighborhoods and share training with others to prepare them for participation in the project.

32. Phase 4: Design and Validation. The proposed design based on recommendations from the previous phase i s presented by the contracted firm to the CSP and neighborhood for validation. The community i s trained to participate. Co-financing agreements in cash and/or in kind are agreed on in Workshop No. 2. The firm elaborates the designs and prepares blue prints based on discussions with the neighborhood. ENACAL’s Project Management, Operations, UGC and Communications Units participate. The neighborhood agrees to project commitments for co-financing and Operation and Maintenance (O&M). Acta de Asamblea.

33. Phase 5: Bidding and Contracting: While the bidding and contracting process takes place, the social consultants present the final design o f the project to the CSP and train them in social auditing techniques. In addition, the training o f the community on water conservation, hygiene and value o f water begins.

During Implementation o f the Investment

34. Phase 6: Project Implementation: The CSP and neighborhoods are trained by social and technical specialists o f the firm on: (a) technical aspects o f project and social monitoring o f the works; and (b) behavior changes and modification regarding water management culture, instilling hygiene habits, managing wastewater, etc. The community organizes for monitoring, and discusses reporting and grievance procedures. The neighbors are consulted block by block on preferences and local adjustments are made to the design. Contractors carry out c iv i l works while the community monitors progress. The contracting firm wri tes a Maintenance Manual for the installed systems with instructions for preventing damages and for dealing with specific issues. The UGC and Communications Units supervise the activities. Community organizations exercise social control and monitoring. Workshop No. 3: Contracting f i r m s and CSP agree on collaboration during implementation. Acta de Asamblea.

During Post-works Operation and Maintenance

35. Phase 7: Formal reception o f public works. The firm makes a preliminary and formal transfer o f the systems to ENACAL, with active involvement o f the community. The preliminary reception o f the works includes the finished civ i l works in fully satisfactory operation. The final reception occurs after six months o f operation. E N A C A L shares the l i s t o f users registered in the cadastre with the CSP to organize

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social auditing during the f i rst six months o f operation. Operation and Maintenance agreements are signed by the neighborhood, if relevant.

36. Phase 8: Ex-post evaluation. Operation and Maintenance Manual. An ex-post evaluation o f each neighborhood i s carried out. It may reflect the evaluation o f land acquisition and resettlement if applicable. The U G C continues to oversee the community organizations that are monitoring the operation o f the systems, and continues to provide training for hygiene behavior, water management culture, etc. The neighborhood continues to collaborate with E N A C A L for optimal supply o f water, adequate sewerage operation, and reliable metering and tariff collection.

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I I

I ! I

3

F

Involuntary Resettlement Framework (IRF, OP 4.12)

37. Although no resettlement i s expected, c iv i l works including water tanks and water treatment facilities located in the selected neighborhoods may prompt the need to acquire land, resettle social units or economic activities located on said lands. In the possible case o f resettlement, informed consultations and involuntary resettlement plans based on the present framework will be submitted by the technical project coordination unit to the Bank for approval. As agreed with the borrower, neighborhoods that may require a resettlement o f more than 60 people who either reside on the premises or whose livelihood depends on said land, are not eligible for participation in the Project.

3 8. Principles. Population displacement will be minimized. Restoration o f socio-economic conditions i s obligatory. Monetary recognition i s acceptable when the latter suffices to access the real estate market for restoration o f socio-economic conditions o f the affected people. Assistance must be provided to all inhabitants in the sites affected by subprojects, independently from rights over land. In the event that the landowner decides to donate the area required by PRASMA and does not claim resettlement, the latter donation must be properly documented.

39. Typology o f PRASMA subprojects that may trigger resettlement: water tanks, wells, pumping stations, access to water and sewerage installations.

40. Legal Framework. Nicaragua does not have norms for the formulation and execution o f “resettlement” operations, however, there are constitutional and international norms that serve as a basis for these activities. The IRF provides the framework for resettlement activities based on the Constitution and agreed upon with the borrower. I t takes into account Law No. 309 on Regulation, Planning and Titling o f Human Settlements; the Expropriation Law No. 229 and the procedures for ‘fair compensation’; L a w No. 323 on National Procurement, Art. 66; Law No. 5 14 on National Cadastre; and finally, the International Norms.

41. Methodology for Asset Valuation. Municipalities are granted the right to carry out valuation o f assets based on municipal cadastre. ENACAL’s common practice i s that asset valuation i s determined by a negotiated value between the asset owner and ENACAL. For the purpose o f this Resettlement Framework, asset valuation will be carried out by an experienced asset valuator based on “market value”, using the cadastre value as a reference. However, the final value will result from a negotiation between the asset owner and E N A C A L based on the assessed value.

Preparation o f the Resettlement Plan

42. The borrower identifies the need for resettlement at the diagnostic stage o f the subproject and activates the IRF. PRASMA proceeds to hire a Resettlement Consulting Team who prepares a Resettlement Plan. Each subproject will require a separate Resettlement Plan. The PRASMA Unit will submit the IR Plan to the Bank for approval.

43, The Resettlement Consulting Team (see institutional arrangements) below. This team will work closely with the Technical Resettlement Committee. But, in the event that IR involves only one or two social units, E N A C A L reserves the right to either entrust all aspects o f involuntary

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resettlement (asset valuation, elaboration and implementation o f IR plans) to the Technical Resettlement Committee, or contract a Resettlement Consulting Team.

44. Disclosure and Social Communication Strategy: Before initiating any civ i l works, a Disclosure and Social Communications Strategy will be launched. The Resettlement Program will be targeted to two different groups: to those who will continue residing in the intervened area, and to those who will be displaced by the subproject.

45. Coordination between Resettlement Activities and Civil Works: In order to ensure the availability o f land before construction starts in the neighborhood, and to ensure there i s enough time to implement the IR Plan, resettlement and civ i l works activities should be coordinated, as outlined below:

Table A10.2: Relation between Resettlement Activities and Civil Works

Planning and construction of civil works Preliminary Design Final Designs

Contracting

Construction

Operation

Planning and implementation of the resettlement opera tion

Preliminary studies Topographic surveys Study o f tit les Estimates Socioeconomic diagnosis Identification and assessment o f impacts

0 Analysis o f solution alternatives e Formulation o f the Resettlement Plan 0 Consultation and validation o f the Plan with the

Approval o f the Plan Implementation o f the Plan Monitoring and Evaluation Execution o f the Plan Monitoring and Evaluation Execution o f the Plan

0 Monitoring and Evaluation 0 Ex-post evaluation

beneficiaries

46. Identification o f Impacts: During this stage the team will identify and analyze the impacts affecting the owners and residents o f the properties required by the subproject, in order to define mitigation measures based on the severity o f the impacts. The different impacts and corresponding mitigation alternatives are described in the Resettlement Framework document.

47. Eligibility Criteria: The census will identify those affected and those eligible for resettlement; i t wil l also discourage the arrival o f opportunistic individuals who seek to benefit from the resettlement. Those eligible for resettlement are:

Those who have, or can acquire, formal legal rights to land (including possession rights recognized under Nicaraguan Laws). They would receive compensation for the land in addition to assistance for resettlement. Those who have no recognizable right or claim to the land they are occupying. They would receive resettlement assistance in place o f compensation for the land. Assistance

e

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may consist o f other land, other assets, cash compensation, resources for mobilization, employment, training opportunities, etc.

48. The cut-off date for the eligibility o f beneficiaries will be the same date o f the census. Announcements through the local newspapers or radio stations will inform the public about the project and the resettlement scheme. This announcement will contain the names o f the heads o f the social units eligible for resettlement and the identification number assigned to them.

49. Content o f the Resettlement Plan: The Resettlement Plan should include a brief description o f the subproject and o f the subproject component that triggered a resettlement, as well as the alternatives considered to minimize resettlement. The findings o f socioeconomic studies, in particular the results o f a census o f the affected area should also be included, along with descriptions o f the land tenure systems prevailing in the area, the patterns o f social interactions and the infrastructure and social services that will be affected by resettlement.

Each Resettlement Plan should include the following:

A description o f the subproject and the area where it will be developed. Location o f the properties required by the subproject. Results o f the diagnostic (topographic information o f the assets, land t i t les and socioeconomic studies). Identification and analysis o f impacts for the displaced population. Alternatives o f solutions based on the type o f impacts and the characteristics of the population. Eligibility criteria. Description o f the Disclosure and Information Program. Land Acquisition Program. Program for housing replacement. Program for the reestablishment o f social and economic conditions. Institutional framework. Required human resources. Budget. Schedule. Monitoring and evaluation mechanisms.

Monitoring: Verification o f the reestablishment o f living conditions o f the resettled population will be-monitored by the borrower, through mechanisms established to monitor the following indicators: (a) for families: housing, public services, access to education, access to health services and income; (b) for industries, businesses, and services: sales and net income. The borrower will conduct audits to ensure efficiency and transparency o f the land acquisition and the resettlement processes.

52. Ex-post Evaluation. Once each resettlement i s completed, the borrower i s responsible for conducting an ex-post evaluation, to determine the effectiveness and efficiency o f the

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implementation o f each Resettlement Plan. This evaluation will focus on the reestablishment o f the l iving conditions o f the affected population.

53. Grievance and Redress Mechanism. The IRF document describes the procedure for accessing information, filing claims, and complaints. The PRASMA Unit will offer a desuwindow for that purpose. Responses will be granted eight days after submission.

Institutional Arrangements

54. The need for land acquisition or involuntary resettlement o f social units will be detected at the diagnostic stage o f the project by ENACAL, at which point a Resettlement Consulting Team will be hired by PRASMA to prepare and execute the corresponding resettlement in the terms agreed under the Involuntary Resettlement Framework. A valuation firm will be hired to carry out asset valuation based on market value and using the municipal cadastre as a reference. Based on the assessed value, E N A C A L will negotiate with the asset owner a ‘fair compensation’. PRASMA will hire a Resettlement Consulting Team to carry out the resettlement in the terms outlined in the IRF. The PRASMA Unit will supervise all o f the above, and keep E N A C A L and the World Bank Team informed.

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56. ENACAL, as borrower, bears the overall responsibility o f preparation and implementation o f the Involuntary Resettlement Plans under the terms o f the present framework. E N A C A L will: (a) Select for intervention subprojects which require no resettlement or resettlement o f less than 60 people. (b) Identify and finance the acquisition o f non-eligible assets (land, real estate) for financing by PRASMA, in or outside the neighborhood, following the IRF guidelines. (c) Negotiate a ‘fair compensation’ for the land and/or assets E N A C A L will acquire in the project area. (d) The E N A C A L team assisting in the process should include social and environmental specialists.

57. Moreover, E N A C A L will create a Technical Resettlement Committee chaired by the technical coordinator o f the project, and representatives o f the following E N A C A L Units: (a) Community Management, Communications, Legal, Projects Management, Environment, and a c iv i l society representative o f the corresponding District to where the subproject will take place. (b) This Committee will: oversee and make decisions regarding all aspects o f IR in the project area. (c) Advise the Presidency o f E N A C A L and the Task Team Leaders o f the Bank on issues pertaining to involuntary resettlement o f social units in the project area caused by subprojects financed by the World Bank. (d) In the event that IR involves only one or two social units, E N A C A L reserves the right to either entrust al l aspects o f involuntary resettlement (asset valuation, elaboration and implementation o f IR plans) to the Technical Resettlement Committee, or contract a Resettlement Consulting Team.

58. The PRASMA Unit, within ENACAL, will bear the following responsibilities: (a) Supervision o f involuntary resettlement activities (consultations, diagnostic, census, topography, impact valuation, analysis and selection o f resettlement alternatives, identification o f those to be resettled and the land acquisition needs) and al l decision-making regarding resettlement and those affected by the resettlement process, to ensure fair compensation procedures as described in the IRF. (b) Contract, accompany and supervise the Resettlement Consulting team that will

The parties responsible for the resettlement operation are:

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prepare and implement the involuntary resettlement plans. (c) Submit to the World Bank for approval, an involuntary resettlement plan for each case o f resettlement (and land acquisition) as a condition for financing urban water and sanitation subprojects. (d) Supervise compliance with the IRF agreed for the project. (e) Carry out an ex-post evaluation for each resettlement case. ( f ) Pay all the transaction costs and taxes resulting from the land and/or asset acquisition in the project area and host community. (g) The PRASMA project will finance only the construction of infrastructure considered part o f the Greater Managua Water and Sanitation Project. (h) Contract the valuation specialist or firm that will carry out the asset valuation. (i) Include the Social Communication Plan for the IRF.

Activities Responsible Parties Social diagnostic, census, baseline

implementation of resettlement plans

IR consulting team PRASMA Contracting Resettlement Consulting Team for preparation and

Contracting Asset Valuation specialists PRASMA Costs related to the implementation of the IR Plans PRASMA (administration, contracts o f specialists), mobilization costs of

59. The Resettlement Consulting Team, consisting o f at most three professionals (i.e. technical, legal and social specialists). It i s responsible for: (a) Preparing and implementing an involuntary resettlement plan as described in the Involuntary Resettlement Framework for every resettlement case, including the diagnostic, baseline and census. (b) Accompany PRASMA and E N A C A L in the negotiation activities for land acquisition. (c) Maintain communication between PRASMA and affected social units, particularly to respond to claims and grievances.

60. The Community Management and the Environmental Units o f ENACAL will: (a) Accompany E N A C A L teams in the identification o f social and environmental risks caused by the project interventions, and make the necessary recommendations to E N A C A L authorities and the PRASMA Unit to prevent and mitigate damage. (b) Accompany and supervise the Resettlement Consulting Team throughout the preparation and implementation o f the Involuntary Resettlement Plans. (c) Participate in the ex-post evaluation o f the resettlement plans to ensure satisfaction o f social units that were affected.

Financing PRASMA PRASMA

PRASMA PRASMA

61, Financing o f the Involuntary Resettlement Plans

affected social units Contracting o f technical and legal assistance for social units Land acquisition idoutside the neighborhood Real Estate acquisition idoutside the neighborhood A l l taxes and costs related to landheal estate acquisition Land titling Construction o f replacement infrastructure (not housing) inside

PRASMA PRASMA PRASMA-ENACAL ENACAL PRASMA-ENACAL ENACAL PRASMA-ENACAL PRASMA PRASMA PRASMA PRASMA-ENACAL ENACAL

the neighborhood Supervision o f consulting teams Ex-post evaluation of each IR Plan ENACAL Technical Resettlement Committee

PRASMA PRASMA PIU of PRASMA PRASMA ENACAL ENACAL

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62. Each Involuntary Resettlement Plan submitted for approval must include a detailed budget, and sources o f financing. The following costs are not eligible for financing with resources from the Grant / Credit: cash compensations, land acquisition, real estate acquisition.

SOCIAL ASSESSMENT AND CONSULTATIONS FOR PRASMA

63. The social assessment was carried out by an independent team o f professionals. The objectives o f the assessment were: (a) to systematize the social, technical and financial processes used by E N A C A L during the project cycle (before, during and after project completion); (b) to assess community willingness to organize, participate and pay tariffs; (c) to assess past needs o f involuntary resettlement, and perceptions o f the compensation procedures used.

64. There i s a general perception in most neighborhoods that E N A C A L i s committed to expanding coverage o f water and sanitation services to as many people as possible. However, services are often over-extended or insufficient to satisfy users’ demands. Despite that, all communities are grateful for the services provided which have improved their living conditions.

Technical results are:

From the 5,619 water connections in the six neighborhoods consulted, 26 percent are connected to the sewerage system. Only 48 percent have water meters instaIled. Cumulative unpaid bills amount to C$6.1 million. Neither environmental assessments nor mitigation procedures were carried out for the water and sewerage system installations in the neighborhoods visited. MARENA legislation demands an EA only for settlements with 100+ households, thus allowing construction despite environmental risks, such as in the L a Zacatera neighborhood. The lack o f coordination between E N A C A L and the Municipality o f Managua and MARENA results in problems o f unfinished public works (broken streets, lack o f rain water drainage, and so on) where finger pointing i s common, but accountability i s not. Thirty percent o f neighborhoods visited complain that E N A C A L supervision i s weak, i .e. the contractor did not fol low technical specifications for finishing ditches and placement o f pipes which resulted in deteriorated streets, uneven ditches and broken pipes. At the moment, E N A C A L i s viewed as a tari f f collector, rather than a water company. The major problems identified with the sewerage systems are the obstruction o f pipes with trash and sand. Problems with water installations include broken pressure valves, broken pipes that were left exposed when ditches were not fully finished. Three projects built with OPEP fwnds were integrated (W&S), had an average cost o f US$512/connection, but did not install water meters. Three other projects funded by the IDB only included water installation, at a cost o f US$347/connection, including water meters.

103

66. Social Development Results include:

67.

b

The Community Management Unit o f E N A C A L i s weak. Some current key tasks are limited to: (i) responding to repairs and service calls, (ii) door-to-door water bil l collection. E N A C A L promoters are often called ‘cashiers’. Payment collection in neighborhoods with installed water meters i s easier than collecting the basic tariff in neighborhoods without water meters. In the past, there has not been a systematic, social promotion plan for E N A C A L in the neighborhoods assessed. At present, ENACAL’s approach i s limited to sensitivity training on the implementation o f services, cost structure, and care for water meters during c iv i l works. Most people claim that they did not participate in the projects because they learned about the project when the contractors began civ i l works. Community participation may have been limited to: (i) surveillance o f tools and equipment while c iv i l works are being executed; (ii) physical labor to excavate ditches. Some use the latter as an excuse to not pay water bills. Supervision by E N A C A L i s weak. In the six neighborhoods visited, neighbors complained that access to roads where W&S civ i l works took place were left broken and unattended by contractors, leaving the responsibility o f repair to the municipality. Existing community organizations willing to be involved in the W&S project are: Consejos de Poder Ciudadano (CPC); Water and Sanitation Committees, Community Boards for Works in Progress (JCOP), Movimiento Comunal, Health Brigades. The deficient service levels are used as an excuse to not pay water bills. Neighborhoods refuse to collect water at odd hours o f the night.

General Recommendations:

E N A C A L should operate with a clear participatory plan to involve the users o f the W&S systems, which should involve the community, i t s organizations and authorities, i t s institutions, schools, health posts. E N A C A L should benefit from the social capital, human resources, local knowledge and other community assets. The Community Management Unit should be under the Projects Directorate o f ENACAL, not under the Commercial Department. Moreover, the social functions o f water and sanitation (promoters) should be dealt with separately from the commercial (collectors). The Community Management Unit o f E N A C A L should be strengthened in order to be effective. Provide sensitivity training to E N A C A L staff in key departments (Projects, Operations) to change the culture o f assistance to one o f working with the client. Community training should be provided to the entire community, not only to the leaders. It i s essential that E N A C A L coordinate efforts with the municipality o f Managua, and make use o f existing municipal urban plans; and with MARENA to identify environmental risks. A better socio-economic baseline i s needed in order to identify the extreme poor.

104

0 Contractors and E N A C A L supervisors should be trained to interact with neighborhood organizations and neighbors. People recommend that: (i) a participation plan should be included in the contracts; (ii) f i r m s should contract community labor instead o f using outside labor (proximity principle); (iii) a W&S facilities maintenance plan i s needed to avoid dependence on E N A C A L for minor repairs. Communities demand more and better presence o f E N A C A L in neighborhoods to provide education to communities to use water rationally, to care for infrastructure and water meters and to pay tariffs. That is, E N A C A L should involve communities from the identification stage o f a project to the maintenance stage. For example, communities need to know the cost implications. to the country, and the importance o f cost recovery to maintain the systems. Nomination o f Water Committees should be democratic, and it should consider existing structures first. E N A C A L projects would be much more successful if they took into account the community ‘local’ knowledge, human resources and social capital, and they made the community responsible for caring for their infrastructure.

0

105

Annex 11: Project Preparation and Supervision


Planned Actual PCN review 01/07/2008 Initial PID to PIC Initial ISDS to PIC Appraisal Negotiations Board/RVP approval 12/16/2008 Planned date o f effectiveness 03/01/2009 Planned date o f mid-term review 09/ 1 0/20 1 1

06/27/2008 05/08/2008 10/24/2008 11/06/2008

Planned closing date 02/28/2014

Key institutions responsible for preparation o f the project:

E N A C A L Ministry o f Finance o f Nicaragua

Bank staff and consultants who worked on the project included:

Name Title Unit

David Michaud Martin Gambrill Alvaro Larrea Enrique Antonio Roman Alejandro Alcala Gerez August0 Garcia Nelson Antonio Medina Ximena Traa-Valarezo Francis Fragano Luz Maria Gonzalez Juan Manual Garcia Francisco Carranza Sarah Martiny Silvia Delgado Mina Lacayo Rosa Bellido Alexander E. Bakalian Meike van Ginneken

Maria Angelica Sotomayor Senior Economist, Co-Task Team Leader LCSUW Water and Sanitation Specialist, Co-Task Team Leader Senior Water Engineer Procurement Specialist Financial Management Specialist Counsel Consultant (SDN coordinator in country office) Consultant (country coordinator WSP) Consultant (social expert) Consultant (environmental specialist) Consultant (financial analysis) Consultant (economic analysis) Consultant (water and sanitation specialist, WSP) Consultant Team Assistant Team Assistant Team Assistant Lead Water Resources Specialist, Peer reviewer Sr. Water and Sanitation Specialist, Peer reviewer

LCSUW LCSUW LCSPT LCSFM LEGLA LCSSD ETWAN LCSUW LCSUW LCSUW LCSUW ETWAN LCSUW LCSUW ETWAN LCSUW M N S S D ETWWA

Gustavo Saltiel Sector Leader, Peer reviewer LCSSD

106

Bank funds expended to date on project preparation: 1. Bank resources: 92,000 USD 2. Trust funds: NA 3. Total: 92,000 USD

Estimated Approval and Supervision costs: 1. Remaining costs to approval: 35,000 USD 2. Estimated annual supervision cost: 100,000 USD

107

1.

a

a

a

a

2.

a

a

a

3.

a

a

4.

a

a

a

Annex 12: Documents in the Project File NICARAGUA: Greater Managua Water and Sanitation Project

Project Preparation Documents

Project Concept Note. Project Information Document (Concept Stage), Report No. AB3543,2007. “Documento Borrador Marco Ambiental PRASMA.” Empresa Nicaraguense de Acueductos y Alcantarillado (ENACAL/PRASMA), 2008. “Revision de alcances de inversiones del PRASMA”, Carta de Albert0 Guevara Obregon, Ministro de Hacienda y CrCdito Publico, ENACAL, Managua, 2008.

Other Bank Documents

Country Partnership Strategy for the Republic o f Nicaragua, Report No. 39637-NI, 2007. The Republic o f Nicaragua Poverty Reduction Strategy and Joint World Bank-IMF Staff Advisory Note, Report No. 34727-NI, World Bank, 2006. Project Appraisal Document on a Proposed Credit in the Amount o f SDR 0.2 Mi l l ion (US$0.3 Mi l l ion Equivalent) and a Proposed Grant in the Amount o f SDR 12.0 Million (US$19.7 Mi l l ion Equivalent) to the Republic o f Nicaragua for a Rural Water Supply and Sanitation Project, Report No. 42908-NI, World Bank, 2008.

Studies

“The Study on Improvement o f Water Supply System in Managua in the Republic o f Nicaragua.” Japan Internataional Cooperation Agency (JICA), Empresa Nicaraguense de Acueductos y Alcantarillados Sanitarios (ENACAL), Nihon Suido Consultants Co., Ltd., Asia Air Survey Co., Ltd., March 2005. “Nicaragua Water Supply and Sanitation Investment Program Loan Proposal.” Inter- American Development Bank, Report No. NI-L 10 1 7,2006. “Does Increasing Access to Infrastructure Services Improve the Targeting Performance o f Water Subsidies?” Angel-Urdinola, Diego F., and Quentin Wodon, World Bank, Washington D.C., 2007. “Nicaragua Programa de Inversion Social Municipal Propuesta de Prestamo.” Banco Interamericano de Desarrollo, Numero de Documento NI-L 1008,2005, Human Development Report, United Nations Development Programme (UNDP), 2004. “Informe Final: Plan Alcantarillado de Managua 2002.” Proctor & Redfern International Limited, March 2002.

Government Documents

Estrategia Sectorial de Agua Potable y Saneamiento (2005-201 5), CONAPAS, BID, Gobierno de Nicaragua, 2005. National Institute o f Information for Development (INIDE), National Census Results, Nicaragua, 2005. “ABC sobre e l Recurso Agua y su Situacion en Nicaragua.” ENACAL, Nicaragua, 2007.

108

rn

rn

rn

5.

rn

rn

“Plan de Desarrollo de Sistemas de Agua Potable y Alcantarillado Sanitario de la Ciudad de Managua 2008-201 5.” ENACAL, Direccion de Planificacion, Managua, 2008. “Perfil de Proyecto para la preparation del Programa de Inversiones en Agua y Saneamiento en Nicaragua a ser financiado por e l Banco Mundial.” ENACAL, Direction de Planificacibn, Managua, 2007. “Memoria de Gestion 2007.” ENACAL, Edicion Especial, ENACAL, Departamento de Comunicacion, Nicaragua, Nov-Dic 2007. “Plan de Desarrollo 2008-20 12.” ENACAL, Nicaragua, September 30, 2008. “Perfil y Caracterizacibn de 10s Pobres en Nicaragua 2005”, INIDE, Nicaragua. “Mapa de Pobreza Extrema Municipal por e l Metodo de Necesidades Basicas Insatisfechas,” National Institute o f Information for Development (INIDE), Nicaragua, 2005 Banco Central de Nicaragua. hdicadores Economicos 2007. Managua, Septiembre 2007

Laws and Regulations

Ley General de Aguas Nacionales, Ley No. 620, Republica de Nicaragua, Noviembre, 2007. Ley de Modificacibn a la Ley Anual de Presupuesto General de la Republica 2007, Ley No. 639, Republica de Nicaragua, 2007. Ley 440, Ley de Suspensibn de Concesiones de U s 0 de Aguas, 2003. Resolution INAA CD-RE-037-2008. Decreto INAA N o 45-98 Junio 1998. Resolucion CD-RE-0 1 1-0 1.

109

Annex 13: Statement o f Loans and Credits NICARAGUA: Greater Managua Water and Sanitation Project

Difference between expected and actual

disbursements Original Amount in US$ Millions

Project ID FY Pumose IBRD I D A SF GEF Cancel. Undisb. Orig. F r m Rev’d

P106283 2008 NI Rural Water Supply and Sanitation 0.00 20.0 0.00 0.00 0.00 20.0 0.00 0.00

P108974 2008 N1 Hurricane Felix Emergency Recovery 0.00 17.00 0.00 0.00 0.00 17.23 0.00 0.00

PO89989 2006 NI Rural Telecom 0.00 7.00 0.00 0.00 0.00 7.13 2.48 0.00

PO87046 2006 NI 2nd Agricultural Technology Project 0.00 12.00 0.00 0.00 0.00 6.66 -0.97 0.00

PO83952 2006 N1 (CRL) Roads Rehab & Maintenance IV 0.00 60.00 0.00 0.00 0.00 55.19 15.32 0.00 PO78991 2005 NI - (APL2)HEALTH SECTOR I1 0.00 11.00 0.00 0.00 0.00 3.84 0.94 0.00

PO78990 2005 NI - EDUCATION 0.00 15.00 0.00 0.00 0.00 8.35 6.76 0.00

PO78891 2004 N1 PUBLIC SECTOR T A 0.00 23.50 0.00 0.00 0.00 2.99 2.65 0.00 PO77826 2004 NI Broad-Based Access to Finan Services 0.00 7.00 0.00 0.00 0.00 6.30 4.20 0.76

PO73246 2003 NI Offgrid Rural Electrification (PERZA) 0.00 12.00 0.00 0.00 0.00 5.19 3.33 2.73

PO56018 2002 NI LAND ADMINISTRATION PROJECT 0.00 32.60 0.00 0.00 0.00 16.39 7.16 -4.58

PO64916 2001 NI Natural Disaster Vulnerability Reduc 0.00 13.50 0.00 0.00 0.00 1.27 -0.62 -0.62

Total: 0.00 230.60 0.00 0.00 0.00 150.54 41.25 - 1.71

NICARAGUA STATEMENT OF IFC’s

Held and Disbursed Portfolio In Millions o f US Dollars

Committed Disbursed

IFC IFC FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

2004 Confia

2006 FINDESA 3.50 0.00 0.00 0.00 3.50 0.00 0.00 0.00 2.00 0.00 3.00 0.00 0.00 0.00 0.00 0.00

International. 10.00 0.00 0.00 0.00 10.00 0.00 0.00 0.00

1999 SEF Dicegsa 0.08 0.00 0.00 0.00 0.08 0.00 0.00 0.00

Total portfolio: 15.58 0.00 3.00 0.00 13.58 0.00 0.00 0.00

110

Annex 14: Country at a Glance NICARAGUA: Greater Managua Water and Sanitation Project

POVERTY and SOCIAL

5 0 0 6 Population, mid-year (millions) GNIpercapita (Atlas method, US$) GNI (Atlas method, US$ billions)

Ave rage annual growth, 2000-06

Population (%) Laborforce (%)

La t i n Lower - Amer i ca mlddle-

Nlcaracrua 8 Carib. i n c o m e

5.2 980

5.1

11 2.3

M o s t recent es t ima te ( l a tes t year avai lable, 2000-06)

Poverty (%of populatio n below national PO veityline) Urban population (%of totalpopulation) Life expectancyat birth (pars) Infant mortality (per 1000 live births) Child malnutrition (%of children under5) Access to an improvedwater source (Omofpopulation) Literacy(%ofpopulation age f5c) Gross primaryenro llment (%of school-age population)

Male Female

59 70 30 0

79 77 112 10 1x)

KEY ECONOMIC RATIOS and LONG-TERM T R E N D S

' 1986 1996

GDP (US$ billions) 2 9 3 3 Gross capital formation1GDP '69 258 Exports Of goods and SeNiCeSIGDP 126 200 Gross domestic savingslGDP 6 6 6 5 Gross national savingslGDP 6 6 13

Current account balancelGDP Interest paynentslGDP Total debtlGDP Total debt servicelexports Present value of debtlGDP Present value of debtlexports

-24.5 -24.9 0.7 2.2

2346 179.5 14.3 26.4

556 2,276 4,767 2,037 2,650 4,635

1.3 0.9 2.1 14

78 47 73 71 26 31

0 91 81 90 89 118 10 120 117 1'6 1%

2 0 0 5 ' 2006

4.9 5.3 29.6 29.4 29.1 31.1 -0.1 -0.5 14.3 0.3

-15.4 -5.1 0.9

05.9 6.7

413 77.5

1986-96 1996-06 ZOOS ' 2006 2006-10 (average annuaigrovdh) GDP 0 8 3 7 4 3 37 4 5 GDP per capita -16 2 3 3 8 17 14 Exports of goods and sewices 2 4 8 7 9 5 x)5 7 6

Deve lopmen t d iamond'

Life expectancy

T

GN I Gross --- primary

per capita +-p enrollment

Access to improvedwatersource

._"_.-" Nicaragua Lo Mer-middle-income group

E c o n o m l c ra t i os '

I Trade

1

Indebtedness

-Nicaragua Lover-middle-income o r o u ~

~~

STRUCTURE o f the ECONOMY

(%of GDP) Agriculture Industry

Sewices

Household final consumption expenditure General gov't final consumption expenditure Imports of goods and sewices

Manufacturing

(average annualgrovdh) Agriculture Industry

Services

H o useho Id final consumption expenditure General gov't final consumption expenditure Gross capital formation imports o f goods andservices

Manufacturing

' 1986 1996

266 250 429 271 354 180 564 505

82 9 912 0 6 208 392

1986.96 1996-06

-03 3 8 -24 4 5 -38 4 7 0 8 4 1

6 6 4 1 -151 2 0

12 0 8 17 5 2

2005 ' 2006

191 197 299 295 187 185 56 1 563

689 886 112 11 9

588 610

2005 ' 2006

3 9 42 57 25 6 5 5 3 37 46

3 5 3 5 10 5 7

5 6 -05 6 2 6 1

Growth o f cap i ta l and G D P (Oh)

-20

--GCF -GDP

Growth o f expor t s and i m p o r t s ( O h )

2o T

Note 2006data are preliminaryestimates This table was producedfrom the Development Economics LDB database 'Thediamonds showfourkeyindicators inthecountry(in bo1d)comparedwithits income-groupaverage Ifdataaremissing,thediamondwill

be incomplete

111

PRICES and GOVERNMENTFINACE

Domestic rnces f% c h a m ) Consrmr mces lmplict GDP debtor

Government finance (% Bf GCP, !ncludes current grants) Current revenue Current bwklet bdance Ovemll surduddeficit

TRADE

(m$mdhMS) Tdd exports(fob)

coffee Shrim, and ldxtw Manufactures

T d d inpats(ufl bd Fuel andenerw CaCltd occds

Export WIG? index (2000=100) lrnwrt once ndex (2000.100) Terms d t M e (2000.100)

BALANCE d PAYMENTS

(us$ rnJlIcnS) Expwtsdgccdsandserwces Imwrts of wak and serwces R e s w m balarce

Net n m e Net ament trwsfea

Current acccunt batarce

F imcno i tms (net) Charms in net reserves

Meno: Reserves indudnaqdd (US$m//ions) Conwrsion rate (DEC, lccdAJS$)

EXTERNAL DEET and RESOUiCE FLOWS

us$ rnil/ons) Tdd debt o ~ & ~ & r g and dsbuaed

IBRD IDA

Tdd debt servlce IBRD IDA

offud grints ORud creditas Prhrate credtas Fcreon direct investment (net inflows) Porffolo equity (net Inflows)

Wwld Bank program Cmmtmmts Debuaemnts Prncpd remments Net flows Interest pynents Net transfers

C m w a t i m d net resourceflows

1986

MM.0 281.5

1986

248 110

9 33

756 98

I27 218

0 0

136

1986

277 836

-559

-1 49 0

-7 08

505 203

3 . E - 8

1986

6,771 200

60

40 0 0

61 766

6 0 0

0 0 0 0 0 0

1996

11 6 9 6

17.2 3.8

-2.4

1996

467 116 75

137 1,154

24 1 176 29 0

72 65

110

1996

72 3 1.375 -652

-324 150

-826

87 9 -53

197 8 4

1996

5.961 44

335

21 9 22

4

61 9 105

-4 120

0

61 69 18 51

8 43

2005

9.4 9.4

18.1 4.4 5 . 2

2005

864 126 86

423 2,623

640 544 50 9

137 156 87

2005

1,960 3,404

-1.444

-127 824

-747

79 3 -46

727 16.7

2005

5,144 0

1.136

172 0 7

468 164 17

24 1 0

11 63

0 63

7 56

2006

10.6

18.8 3.4

-3.9

2006

1,027 201

86 490

2,988 7 35 681 550

1 52 176

86

2006

2,319 3.905

-1.586

-1 24 856

-855

986 -1 32

922 17.6

2006

0 256

0 10

0 52 5

47 5

42

' '"'""GDPdeilatm -CR

jExportandimpori levels (US$nill.) I I

7 Cutrentaccountbalanceto GDP ( O h )

:omposition of 2005 debt (US$ mill.)

G 538

\ - ! B F C E - Blate E-IDA D-Otherrmltilatad F-RNal

G - Sbrt

Note Ths tatiewas praiuced f r m the Dwdopn-ent E a m i c s DBditabase 9/28/07

112

CIUDADSANDINO

ASOSOSCA ZONA BAJA

ASOSOSCA ZONA ALTA

SAN CRISTOBAL

ALTAMIRAVILLA AUSTRIA

UNAN

KM 8 PUMPING

ESQUIPULAS

NINDIRI

TICUANTEPE

C.V.L.SAN JUDAS

LAS JAGÜITAS

SABANA GRANDE

LAS MERCEDES

TIPITAPA

RPTO.SHICK

KM 8GRAVITY

SIERRA MAESTRAASOSOSCA ZONAALTA SUPERIOR

LAGO DE MANAGUA(LAGO XOLOTLAN)

NICARAGUAGREATER MANAGUA WATER AND SANITATION PROJECT

PROJECT COMPONENT 1: NEIGHBORHOODS SELECTED UNDER THE PHRD GRANT

PROJECT COMPONENT 2: MACROSECTORS

MACROSECTOR BOUNDARIES

WASSER PROJECT BOUNDARIES

BOREHOLES OWNED BY ENACAL:

UNDER OPERATION

OUT OF SERVICE

SOURCE: Empresa Nicaraguense de Acueductos y Alcantarillados Sanitarios (ENACAL), Department of Digital Cartography.

IBRD 36597

NOVEMBER 2008

MANAGUAArea of Main Map

EL SALVADOR

HONDURAS

N I C A R A G U A

COSTA RICA

PACIFIC OCEAN

LakeNicaragua

CaribbeanSea

LakeManagua

NICARAGUA