Document ofThe World Bank

Report No: 18987 DO

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LEARNING AND INNOVATION LOAN

IN THE AMOUNT OF US$5 MILLION

TO THE

DOMINICAN REPUBLIC

FOR A

WASTEWATER DISPOSAL IN TOURISM CENTERS PROJECT

April 18, 2000

Finance, Private Sector, and Infrastructure DepartmentCaribbean Country Management UnitLatin America and the Caribbean Regional Office

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CURRENCY EQUIVALENTS

(Exchange Rate Effective July 15, 1999)

Currency Unit = PesoPeso = US$0.063

US$1.00 = 15.85 Pesos

FISCAL YEARJanuary 1 - December 31

ABBREVIATIONS AND ACRONYMS

ADCP Acoustic Doppler Current ProfilerASONAHORES Asociaci6n Nacional de Hoteles y Restaurantes (National Association of

Hotels and Restaurants)BOD Biochemical Oxygen DemandCAASD Compania de Acueducto y Alcantarillado de Santo Domingo (Santo

Domingo Water and Sewerage Company)CAS Country Assistance StrategyCCC Contract Control CommitteeCORAASAN Corporacicn de Acueductos y Alcantarillados de Santiago (Santiago

Water and Sewerage Corporation)EMP Environmental Management PlanPCU Project Coordination UnitFMS Financial Management SystemHDPE High Density Poly EthylenelOP Initial Operating StageINAPA Instituto Nacional de Agua Potable y Alcantarillado (National Drinking

Water and Sewerage Institute)LIL Learning and Innovation LoanLMD Liga Municipal Dominicana (Dominican League of Municipalities)NOP Normal operating StagePMR Project Management ReportsPSP Private Sector ParticipationSDT Salinity Temperature and DepthSIL Sector Investment LoanUASB Upflow Anaerobic Sludge Blanket reactor

Vice President: David De FerrantiCountry Management Unit Director: Orsalia KalantzopoulosSector Management Unit Director: Danny LeipzigerTask Managers: Menahem Libhaber / Oscar Alvarado

Dominican RepublicWastewater Disposal in Tourism Centers Project

CONTENTS

Page number

A: PROJECT DEVELOPMENT OBJECTIVE . ........................................................................ I

1. Project development objectives (See Annex 1) .......................................................................... 12. Key performance indicators (See Annex 1A) ......................................................................... 1

B: STRATEGIC CONTEXT ........................................................................ lI

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (See Annex 1) ....... I2. Main sector issues and Goverwnent strategy ......................................................................... 13. Learning and development issues to be addressed by the project ......................... 4............................44. Learning and innovation expectations ......................................................................... 4

C: PROJECT DESCRIPTION SUMMARY .......................................................................... 6

1. Project components ........................................................................ 62. Key policy and institutional reforms supported by the project ................................. 8........................83. Benefits and target population ......................................................................... 94. Institutional and implementation arrangements..........1.........0.....- ............................................. l0

D: PROJECT RATIONALE ........................................................................ 11

1. Project alternatives considered and reasons for rejection .................................................. 1..............I 12. Major related projects financed by the Bank and/or otlier development agencies .133. Lessons learned and reflected in the project design ........................................ 144. Indications of borrower commitment and ownership ......................................... 145. Value added of Bank support in this project ........................................ 15

E: SUMMARY PROJECT ANALYSIS ........................................ 15

1. Economic analysis (See Annex 4) ........................................ 152. Financial assessment (See Annex 5) ........................................ 163. Technical analysis ........................................ 174. Institutional arrangements ........................................ 195. Social assessment ........................................ 196. Environmental assessment ......................................... 207. Participatory approach ......................................... 2 1

F: SUSTAINABILITY AND RISKS ......................................... 22

1. Sustainability ......................................... 222. Citical Risks ......................................... 223. Possible Controversial Aspects. ......................................... 24

G: MAIN LOAN CONDITIONS ........................................ 25

1. Negotiations conditions ......................................... 252. Effectiveness conditions ......................................... 253. Other conditions ........................................ 25

H. READINESS FOR IMPLEMENTATION .......................................... 25

I. COMPLIANCE WITH BANK POLICIES ........................................ 26

AnnexesPage number

ANNEX I PROJECT DESIGN SUMMARY 27

ANNEX IA KEY PERFORMANCE INDICATORS 31

ANNEX 2 PROJECT DESCRIPTION 32

ANNEX 3 ESTIMATED PROJECT COSTS 39

ANNEX 3A PROJECT IMPLEMENTATION SCHEDULE 41

ANNEX 4 COST-BENEFIT ANALYSIS 42

ANNEX 5 FINANCIAL ASSESSMENT OF THE FUTURE PSP COMPANY 46

ANNEX 6 PROCUREMENT AND FINANCIAL MANAGEMENT ARRANGEMENTS 56

ANNEX 7 PROJECT PROCESSING BUDGET AND SCHEDULE 63

ANNEX 8 ENVIRONMENTAL ASSESSMENT SUMMARY 64

ANNEX 9 TECHNICAL NOTES ON THE MARINE OUTFALL 71

ANNEX 10 AN OPTION FOR CONTROLLING/SUPERVISING THE PSP CONTRACT 82

ANNEX 11 DOCUMENTS IN THE PROJECT FILE 85

ANNEX 12 STATEMENT OF LOANS AND CREDITS 86

ANNEX 13 DOMINICAN REPUBLIC AT A GLANCE 88

MAP OF PROJECT AREA 89

Dominican RepublicWastewater Disposal in Tourism Centers Project

Project Appraisal Document

Latin America and the Caribbean Regional OfficeCaribbean Country Management Unit

Date: October 26, 1999 Task Managers: Menahem Libhaber / Oscar AlvaradoCountry Manager / Director: Orsalia Kalantzopoulos Sector Manager / Director: Danny LeipzigerProject ID: DO-PE- Sector: Water Supply & Program Objective Category: Economic Management59510 SanitationLending Instrument: Learning and Innovation Loan Program of Targeted Intervention: [ ] Yes [ ] No

Project Financing Data [X] Loan [] Credit [ Guarantee [] Other[Specify]

For Loans:

Amount (US$m): 5.00Proposed terms: [] Multicurrency [X] Single currency, specify US Dollars

Grace period (years): 4 [] Standard Variable [] Fixed [X] LIBOR-basedYears to maturity: 17Commitment fee: 0.75%

Service charge: N/AFront-end Fee 1 %

Financing plan (US$m):Source Local Foreign Total

Government 2.55 2.55Cofinanciers - - -

IBRD including Front end fee of 1% 0.89 4.11 5.00Total 3.44 4.11 7.55

Borrower: Dominican RepublicGuarantor: N/AResponsible agencies: Technical Secretariat of the Presidency

Estimated disbursements (Bank FY/US$M): 2000 2001 2002 2003Annual 0.50 2.00 2.00 0.50

Cumulative 0.50 2.50 4.50 5.00

Project implementation period: 4 years

Expected effectiveness date: August 31, 2000 Expected closing date: June 30, 2003

Page 1

A: Project Development Objective

1. Project development objectives (See Annex 1)

The project development objectives of this Learning and Innovation Loan (LIL) are to: (i) apply and testan innovative technology for environmentally sound disposal of treated wastewater of small and medium-size coastal towns through small-diameter cost-effective submarine outfalls; and (ii) prepare andimplement, for the first time in the Dominican Republic, an innovative model for incorporating theprivate sector in the provision of water supply and sewerage services in tourism centers; both objectivesbeing piloted in the region of Puerto Plata, Sosua and Cabarete. Both the wastewater disposal technologyand the institutional model could consequently be used, with the incorporation of lessons learned duringthe LIL, to prepare and implement a follow up operation in other tourism centers.

2. Key performance indicators (See Annex IA)

The key performance indicators for the project development objective include: (i) pathogenic coliformsdischarged through the outfall diffuser do not reach bathing areas in the sea and; (ii) success in hiring aprivate operator to provide the water and sewerage services in the Puerto Plata, Sosua and Cabareteregion. Public health indicators are not included as performance indicators since it would be difficult tofollow up on such indicators in the limited time and resources available. Nevertheless, the measurementof the pathogenic coliforms gives an indication on public health patterns.

B: Strategic Context

1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (See Annex I)

CAS document number: 19393-DO Date of latest CAS discussion: July 6, 1999

The CAS highlights several goals which the project will support, including by order of importance for thisproject: (i) promote environmental policies for sustainable development and arrest the deterioration ofcoastal areas caused by poor waste and development management which threatens the tourism industry,which currently comprises 13% of GDP and contributes 29% of total export earnings; (ii) improveincentives for private sector participation in economic activity by increasing private participation in waterand sanitation systems management; (iii) address water and sanitation needs of tourism areas and theiradjacent populations; and (iv) contribute to poverty alleviation, increase the poor access to the benefits ofgrowth and contribute to improving public health, through the appropriate provision of safe drinkingwater and disposal of wastewater.

2. Main sector issues and Government strategy

Main water sector issuesThe water and sewerage services in the Dominican Republic are characterized by: (i) low coverage rates(41% of the urban population is connected to a potable water distribution network and only 11% to asewage collection network); (ii) institutional weakness of the existing water and sewerage utilities; (iii)low investment in the sector and long construction delays due to lack of funds; (iv) inadequate operationand low maintenance of water and sewerage systems; (v) minimal cost recovery; (vi) high levels ofunaccounted-for water; (vii) pollution of surface water, groundwater, and the coastal environment causedby inadequate discharge of untreated wastewater; (viii) pollution of surface and groundwater caused byinadequate dumping of solid waste; (ix) sea water intrusion to groundwater in some coastal areas; and (x)potential water scarcity in certain parts of the country.

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Water and sewerage services in the Dominican Republic are provided by three public companies,CAASD (Compania de Acueducto y Alcantarillado de Santo Domingo) the water company of SantoDomingo, serving a population of about 3 million inhabitants, CORAASAN (Corporaci6n de Acueductosy Alcantarillados de Santiago) the water company of Santiago, serving a population of about I millioninhabitants, and INAPA (Instituto Nacional de Agua Potable y Alcantarillado) the water companyserving the rest of the country and most of the national territory, with a population of about 3 millioninhabitants. Recently, a fourth small company, CORAAMOCA, has been established for the small townof Moca.

These companies suffer from inadequate funding, low cost-recovery and deficient operation andmaintenance. The IDB has recently approved a project for modemizing the water sector, includingpreparation of a new regulatory framework and a conceptual vision for sector improvement. The Bankshares the proposed vision for sector transformation which includes at the operational level: (i)decentralizing INAPA by transferring all the large and medium size cities to the private sector whilemaintaining INAPA basically as a rural water provider; and (ii) incorporating the private sector in themanagement of CAASD and CORAASAN for the purpose of improving the performance of thesecompanies.

Main environment and tourism sector issues

The tourism industry is one of the most important economic activities of the country. It completelydepends on the quality of the coastal environment. The number of hotel rooms in the nine most importanttourism centers is projected to increase from the 1998 level of 33,000 to about 40,000 in 2000, and about60,000 in 2010. However, the tourism industry is threatened by the deficiency of the water and sewerageservices and the environmental pollution caused by inadequate management and disposal of sewage andsolid waste. In some cases, untreated wastewater is discharged to creeks and beaches; in others, theexisting wastewater treatment systems are inadequate or inoperative, and the effluent is either dischargedclose to the seashore or used for irrigation of parks and green areas within hotel resorts, while the effluentquality is inadequate for such disposal methods. The current wastewater disposal practices pose healthrisks, which could deter foreigners from visiting the Dominican Republic. Last year, the number oftourists from the U.K. has dropped significantly due to a report in the British press on beach pollution andhealth risks in the Dominican Republic.

Government strategy

A major goal of the Government is to reverse the trends of environmental degradation in tourism centers.To achieve this goal, the Government has initiated the implementation of a National EnvironmentalPolicy Reform Project. The Government strategy to support the growth of the tourism industry is toprovide the necessary infrastructure and public services. As part of this strategy, the Government hasrequested Bank's support to implement a water and sanitation project in tourism centers (in a form of aSIL operation), which would be preceded by two small (pilot) LIL projects, one for wastewater disposalin tourism centers and the other for solid wastes management in tourism centers, to test innovativetechnical and institutional approaches for wastewater disposal and solid waste management, respectively.The lessons of the LIL projects could be used in a larger SIL operation investment program for providingsimilar services in other tourism centers and adjacent residential areas, should such an operation follow.

The Government agrees with the Bank's position that the institutional weakness of the public companiesin charge of water and sewerage services does not allow these companies to solve the urgentenvironmental problems that threaten the tourism industry and the residential areas adjacent to the hotelresorts (safe water supply, adequate wastewater disposal and appropriate solid waste management), whichpose health risks to the general population and to the visiting tourists. Therefore, the Government and theBank have agreed that the participation of the private sector in the provision of water, sewerage and solidwaste services is the appropriate strategy to attend to the sector needs.

Page 3

The region selected for implementing the wastewater disposal LIL and the solid wastes management LILis the Puerto Plata/Sosua/Cabarete region, since it is the largest tourism region in the country and itsuffers from severe problems of wastewater and solid wastes management.

As far as water and sewerage services are concerned, the public utility in charge of providing water andsewerage services in the project area, INAPA, has agreed to delegate responsibility for the provision ofthe water and sewerage services to the private sector. ASONAHORES, the national hotel and restaurantassociation, fully supports the Government's strategy.

Project strategic choices

The process of incorporating the private sector in the provision of the water and sewerage services in thePuerto Plata/Sosua/Cabarete region will be carried out in the framework of the proposed wastewaterdisposal in tourism centers LIL project. The preparation of the PSP process has already been initiated aspart of the preparation of the project and a team of individual consultants has been hired for that purpose.In parallel to the PSP in the provision of water and sewerage services, a process of implementation of PSPin the provision of solid wastes services in the Puerto Plata/Sosua/Cabarete region will be carried out inthe framework of the proposed solid wastes management in tourism centers LIL project.

In regard to water and sewerage, an agreement has been reached that the PSP model would be a servicecontract signed with a private operator, under which the water and sanitation services in the project sitewould be managed by the operator. The PSP contract will define the obligation and rights of the operatorand impose conditions similar to those of a concession.

The office of reform and modernization of the water and sanitation sector is currently working, with thesupport of the IDB, on developing a new legal framework for PSP (the Framework Law). Until the newlaw is enacted, the PSP contract prepared under the project will define its legal framework and controlarrangements. It is understood that the new law will contain transition provisions which will allow thearrangements taken in the context of the LIL project to remain valid. When such a framework is enacted,the PSP contract might be adjusted to it, if both sides agree to do it, or may remain controlled under thePSP contract. Therefore, it is not necessary nor advisable to wait for enacting the new regulatoryframework before being able to go ahead with the LIL project since it might take a while before the newframework is approved by the congress. In addition, the PSP model proposed under the LIL is inaccordance with the main stipulations of the draft regulatory framework, and this draft framework will beknown to the potential private operators before submitting their bids.

The Government is preparing a proposal for defining the mechanism of control and supervision of thecontract (See Annex 10). If necessary, technical assistance will be provided to it. Consultants or aconsulting firm might be hired to assist in performing the contract control and supervision duties and inevaluating the performance of the operator.

The preparation of the PSP process under the LIL would benefit the Governnent by making the staff of theTechnical Secretariat of the Presidency familiar with preparing PSP processes in the water sector. The know-how gained by Government officials in PSP will help them in preparing similar processes in other tourismcenters and will decrease the risks of subsequent projects, including the potential SIL should the latter begranted.

Page 4

The detailed conditions and structure envisaged for the PSP contract are currently under preparation and arestill being discussed with the Government. As a result, they are still subject to changes and the ideaspresented in this report should be considered as indicative only. They will be developed in detail during theexecution of the proposed LIL. However, substantial progress in preparing the contracts with the operatorand the bidding documents has already been achieved during project preparation.

It is envisaged that the operator could initiate an initial operating phase (IOP) in which he would operatebasically under a management contract and limit his activities to improving performance in the provisionof the water and sewerage services utilizing existing water and sewerage infrastructure, without investingin expansion. There is a lot that the operator can do to improve the existing systems and performancebefore starting to invest in expansion, including installing better commercial and financial systems andimproving tariff collection and the revenue base. After a period of a few years to be determined, theoperator would proceed to the normal operating phase (NOP) during which he would have to providefinancing for the investment program. The project would adopt specific targets for providing services ataffordable rates to the poorest and most vulnerable segments of the population in the area. Since eachprivate operator would have to carry out significant investments under the water and sewerage contract,the contract period is envisaged to be at least 20 years, so as to allow time for the recovery of investments.

3. Learning and development issues to be addressed by the project

The project would address primarily two specific sector issues where innovative solutions will be tested.First, the use of appropriate, low-cost technology to dispose wastewater in a coastal environment thatsustains a growing tourism center, with the goal of reducing the existing negative impacts of pollution onsurface water, groundwater and the bathing areas in the sea caused by inadequate discharge of untreatedsewage. Second, the use of a new institutional model in the Dominican Republic in which water andsewerage services are managed by the private sector.

4. Learning and innovation expectations

1- I Economic [ ] Financial [X] Technical [X] Institutional[ Social [ ] Participation [ ] Other t ] Environmental

Technical innovation

The technical innovative strategic choice for this project is the use of small-diameter submarine outfallsas part of a system for safe and economic disposal of wastewater. This approach takes advantage of theocean as the most adequate receptor body of wastewater in coastal cities of small and medium size in theDominican Republic. Furthermore, the coastal configuration in the Dominican Republic is such thatdepths larger than 200 ft. can be found close to the shores. These depths, combined with the prevailingtemperature-salinity profiles in the pilot area, confirm that the choice of outfalls is the most adequate.However, small-diameter outfalls have not been used in small and medium-size tourism centers orpractically anywhere in the Dominican Republic. Small diameter outfalls (of up to 1 meter in diameter)constructed of high density polyethylene (HDPE), which is the material proposed for construction of thesubmarine outfall under the proposed LIL, represents an innovative approach in construction ofsubmarine outfalls for effluent disposal. HDPE pipes are relatively new in the market. Their use inconstruction of submarine outfalls is recent and not very widespread. In the developing world they havebeen used mainly in Chile. The use of HDPE for small diameter outfalls changes the concept of design,the construction method and the cost of the outfall. The HDPE small diameter outfall is a low cost, lowoperation and maintenance, appropriate technology for small communities. Since HDPE is a light andeasy to handle material, an outfall made of this material can be prepared and constructed by thecommunity itself. HDPE outfalls can also be installed within a very short period of time, i.e., from one toseveral days, compared to periods of months required for installing other types of outfalls. When sewageflows outgrow the conveyance capacity of an installed HDPE outfall, the outfall can be re-floated andused in another site.

Page 5

Design and installation methods of small HDPE outfalls have not yet been documented. As part of theinnovative approach of this LIL, a design manual for the use of that type of outfalls in developingcountries will be prepared in cooperation with PAHO under the proposed LIL project, and the experienceof the design and implementation of the outfall under the LIL will be disseminated in the DominicanRepublic so as to facilitate the use of this technology in other tourism centers and in other coastal cities inthe country.

The town of Sosua has been selected as the pilot area for the application of the small diameter outfalltechnology. An important factor for the selection of Sosua as a pilot case was the high potential forsuccess and positive impact on the coastal environment. This is due to the fact that construction of thesewage collection system in Sosua is almost complete and the network covers 70% of the town, but it isnot operational because a significant portion of the sewage conveyance pipe that connects the networkand the treatment plant has not been constructed yet.

Institutional innovation

The institutional strategic choice for this project is the use, for the first time in tourism centers orelsewhere in the Dominican Republic, of the private sector for the management of water and sewerageservices. Given the conditions in the Dominican Republic, the Government and the Bank agreed that onlythe private sector would be able to provide the management capacity and cost-recovery approach neededfor the provision of a high level and sustainable water and sewerage services.

The Private Sector Participation model, for water and sewerage services, is the innovative institutionalaspect of the LIL project since such a model has not yet been used in tourism areas in the DominicanRepublic or anywhere else in the Caribbean.

The area selected for the pilot case to test the design and implementation of the PSP model is PuertoPlata/Sosua/Cabarete. This area was selected as a pilot case for the following reasons: (i) this areaincludes the pilot site selected for implementation of the technically innovating outfall; (ii) this region hasthe largest population (including communities surrounding the hotels) of all tourism centers in thecountry, and would, therefore, be the most attractive region for the private sector, with the highestperspectives of success, (iii) there are strong partnerships and cooperation in the region between localinstitutions, such as the community, local development associations, hotel owners, and the Chamber ofCommerce, who strongly support the Government's initiative and are committed to cooperate, which willfacilitate the success of involving the private sector in the provision of the services; and (iv) the regionhas abundant water resources, making the potential for conflicts among water users minimal, and ensuringreliable water supply, which is a basic requirement for the involvement of the private sector. Ifsuccessful, the model can serve as the basis for similar institutional management of water and sewerageservices in other tourism centers in the country.

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C: Project Description Summary

1. Project components

See Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown.

Component Category Cost Incl. % of Bank- % ofContingencie Total financing Bank-

s (US$M) (US$M) financing

1 Construction of the wastewater Physical 4.28 56.7 1.99 46conveyance system, treatmentinstallations and submarineoutfall for Sosua

2. Preparation and implementation Institutional 0.46 6.1 0.46 100of the PSP model for the Buildingprovision of water supply andsewerage services in the PuertoPlatalSosualCabarete region

3. Monitoring of the coastal Institutional 0.56 7.4 0.56 100environment before and after Buildingthe construction of the outfall

4. Training and dissemination of Institutional 0.21 2.8 0.21 100the technology of small- Buildingdiameter outfalls for wastewaterdisposal (in partnership withPAHO) and of PSP processesdevelopment experience

5. Establishment and support to Institutional 0.11 1.4 0.11 100the mechanism for control and Buildingsupervision of the operationcontract

6. Proj'ect management and design Project 1.62 21.5 1.62 100Management

Taxes 0.26 3.5 0.00 0

Front-end Fee 0.05 0.6 0.05 100Total 7.55 100.0 5.00 66

Project Component I - Construction of the wastewater conveyance system, treatment installations andsubmarine outfall for Sosua

This pilot component in the northern coast includes: (i) the connection of the existing sewage collectionnetwork to the treatment plant (including the construction of the necessary pumping stations along theconnection line); (ii) addition of preliminary treatment installations upfront of the Upflow AnaerobicSludge Blanket (UASB) wastewater treatment plant which is under the final stage of construction byINAPA, with a bypass arrangement which would permit bypassing the USAB plant when operationproblems occur; and (iii) the construction of a submarine outfall of 24" diameter, about 600 meters long,with a diffuser submerged at a water depth of 140 meters, for disposal of the effluent to the ocean.INAPA will finance and construct the remaining 25% of civil works needed for completion of the USABplant. However, some equipment required for operation of the plant will be financed under the project.

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Project Component 2 - Preparation and implementation of the PSP process for the provision of watersupply and sewerage services in the Puerto Plata!Sosua/Cabarete region.

This component includes: (i) the preparation of bidding documents and draft contract for the selection andcontracting of private operators to manage the water and sewerage services in the pilot region; (ii)technical support to the Government during the proposals evaluation and the operator selection process,contract negotiation and signing; (iii) technical support during the design of control and auditingmechanisms to regulate the contracts; and (iv) monitoring and evaluation of the PSP preparation andimplementation process to identify lessons that could be used in similar processes in other tourismcenters. The preparation of this component has been initiated during project preparation and will becompleted during implementation. To enable its completion, the Government has agreed to hire aconsulting firm which would assist in carrying out the pre-qualification and bidding processes forselecting the operator, evaluating the proposals and negotiating the contract.

Project Component 3 - Monitoring of the coastal environment before and after the construction of theoutfall

This component would provide information to test the effectiveness of the small-diameter submarineoutfall. The objective of this component would be to monitor key indicator variables of the coastalenvironment and their effect on disposed wastewater (mixing, diffusion, dilution, bacteria decay, waterquality, analysis of sea bottom sediments at the vicinity of the outfall diffuser) to ensure that pathogeniccoliforms discharged through the outfall diffuser do not reach bathing areas, and to measure theenvironmental benefits related to the use of this technology in the pilot site. It is important to note thatoutfalls often result in generating less negative environmental impact than predicted because of theconservative assumptions used in the modeling of complex hydrodynamic coastal systems.

Project Component 4 - Training and dissemination of the technology of small-diameter outfalls forwastewater disposalThis component would include activities to disseminate lessons learned through the implementation ofthis LIL project. The objective of this component, to be implemented in partnership with PAHO, is to usethe pilot area as a case study for dissemination of the small-diameter outfalls as a viable technology forsmall and medium-size coastal tourism centers. The dissemination activities would include thepreparation of a small-diameter outfall manual, under the sponsorship of PAHO and the World Bank,which is expected to have ample distribution worldwide. Additionally, the experiences learned in thepilot area would be disseminated through two workshops. The first workshop would present the outfalltechnology to government officials, local authorities, the local consulting engineers community,representatives of the hotel and tourism sector, environmental NGOs, and community organizations,especially from other tourism centers. The second workshop would take place during construction of theoutfall in Sosua to illustrate construction techniques and transfer of technology to interested parties in thecountry and participants from other countries in the region interested in small-diameter outfalls. PAHOwould participate in the coordination of the two workshops and the transfer of technology. PAHO willalso be invited to participate in the review of the design of the outfall, and provide input and comments,as well as to participate in the preparation and implementation of the monitoring program.

Project Component 5 - Establishment and provision of technical and financial support to the mechanismfor control and supervision operation contractSince a regulation entity does not exist yet in the Dominican Republic, a specific mechanism forsupervision and control of the operation contract needs to be developed. During negotiations, it wasagreed that the Government would submit a proposal regarding the control and supervision mechanismwhich would be under the responsibility of INAPA (see Annex 10). Technical and financial supportwould be provided under the project to carry out the detailed design and make it operational and active.The control and supervision activity would also include control of the required environmental aspects,i.e., environmental supervision and inspection of the operator, after he takes over.

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Project Component 6 - Project management and designThis component would support project management activities carried out by the Project CoordinationUnit (PCU) in the Technical Secretariat of the Presidency (see page 10). These activities include: hiringof all consulting services to carry out the studies required for preparation and design of the project;preparation of bidding documents for purchase of goods and equipment and implementation of works;coordination of work implementation with INAPA; coordination of the project Advisory Committee thatwill be consulted about various aspects of the PSP model (see page 10), and financial management of theproject. A series of studies will be included under this component such as oceanographic studies, detaileddesign of the submarine outfall and additional system components (collectors, pumping stations andpreliminary treatment installations), supervision of works, etc. To enable the PCU to cope with all itstasks, the Government has agreed that it will receive the support of a consulting firm which would behired to help in managing and implementing the project, including the preparation, management andcarrying out of all the procurement processes and handling the financial management of the project.

2. Key policy and institutional reforms supported by the project

The project would support, on a pilot basis, three key policy and institutional reforms: (i) private sectorparticipation in the provision of water and sewerage services in the Puerto PlatalSosua/Cabarete region;(ii) change of INAPA's functions and responsibilities in water and sewerage services; and (iii) change ofthe role of the Government in infrastructure development and public service provision in the pilot tourismcenters. These pilot institutional reforms could form the basis for wider sector reforms.

Private sector participation in water and sewerage services

The Government and the sector agencies have agreed on a reform process for the water and sanitationsector that includes, among other changes, the participation of the private sector in the management ofwater and sewerage services. Currently, a Technical Cooperation program is being developed withsupport from IDB and the Spanish Government, to propose an institutional and regulatory framework forthe water and sanitation sector including provisions to allow PSP, along with modifications to thecorporate structure of INAPA, CAASD, and CORAASAN. A similar reform has been proposed by theDominican League of Municipalities (Liga Municipal Dominicana - LMD) for the solid waste sector.Given the implementation program for this wastewater disposal in tourism centers project, it is expectedthat the contract for private sector participation in the pilot area will be signed before the Framework Lawfor the regulatory and institutional reform is approved by the Congress. The learning and innovationprocess from the pilot area in Puerto Plata/SosualCabarete will provide lessons that could be incorporatedin the national framework aimed at promoting private sector participation in the provision of water andsewerage services. It provides, in effect, the first step in defining the reform of the water sector in thecountry. This reform is based on removing from the authority of INAPA all the towns which arepotentially self-sufficient and transferring the responsibility for provision of services in these towns to theprivate sector. INAPA will continue to function mainly in the rural sector and non tourist areas whichcannot achieve self-sufficiency and need government subsidy to ensure viability.

Change of INAPA's functions and responsibilities in water and sewerage services

Currently, INAPA has the responsibility to manage and operate water and sanitation facilities in theDominican Republic, with the exception of Santo Domingo and Santiago metropolitan areas. As part ofthis project, INAPA would transfer the management and operation responsibilities to a private sectoroperator in the pilot area. The role of INAPA would change to that of inspection, control andenforcement of the contract signed with the private operator. Therefore, the institutional component ofthe project constitutes the first step towards a reform in the water and sewerage sector in the country.

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Change of the role of the Government in infrastructure development and public service provision in thepilot tourism centers

The low level in the provision of service in the water, sewerage and solid waste services has prompted theprivate sector in the tourism industry to make their own investments and set up private mechanisms toensure better services. The Government intends to reverse this trend of independent and sub-optimalsolutions caused by deficient municipal services. The Government strategy is to test an institutionalreform in the pilot area that allows broader and more cost-effective solutions and includes not only thehotels but also the surrounding communities in tourism centers. The LIL project would provide importantlessons needed to define the necessary infrastructure and the adequate institutional reforms to support theneeds of the growing tourism industry and communities surrounding the resorts.

3. Benefits and target population

The major direct benefits of this project would be: (i) learning and demonstrating that feasible technicaland institutional approaches can be defined to reduce urban pollution caused by inadequate provision ofwater and sewerage services, and to reverse environmental degradation in the coastal environment; (ii)reducing public health threats to residents and tourists; and (iii) developing a PSP model for the first timein the water sector in the Dominican Republic. One important indirect benefit of this project would be astrong signal to the private sector of the commitment of the Government to provide the necessaryinfrastructure and institutional framework to support the growth of the tourism industry, while at the sametime protecting the natural resources that sustain this industry. It could also be a signal of theGovernment's approach to support private sector involvement in the management of public services.

The private participation would have a positive effect on the poor population residing in the area coveredby the PSP contract, which at present receives deficient services. Indeed, the target population that wouldreceive the main benefits are the urban poor living in the tourism centers selected for the pilot case. Thecenter selected for the technical innovation is Sosua (population: about 20,000 in 1998 and 35,000projected in 2010). The beneficiaries in the short-term would include the part ofthe population that hasnot been connected to the existing sewage network, even if they live in an area covered by the network,because of the lack of an adequate disposal mechanism. The region selected for the institutionalinnovation of the project is Puerto Plata/Sosua/Cabarete (total population: about 178,000 in 1998 and240,000 projected in 2010). The transfer of management of the water and sewerage services to a privateoperator is expected to bring significant benefits to this region, defined by specific expansion targets andschedule which would be incorporated in the contract.

A study will be prepared within the framework of the PSP model with two purposes: (i) to increaseservice provision to the poor population and to include service coverage to the poor as performancetargets; and (ii) to assess the extent and size of subsidies to be included in the tariff systems to address theissue of the capacity of the poor to pay for water (either Government subsidies through financing part ofthe infrastructure, or cross subsidies, mainly subsidies from the hotel sector to the poor population).

Another beneficiary group of this project would be the hotels located in the project area and the visitingtourists. Without this goverDment-led program, some hotels have already, and most will eventually, beforced to find individual (and in most cases sub-optimal) solutions to their service needs. This LILproject would support the reforms to reverse this trend. If successful, the technical and institutionalinnovations of this project would provide the support to reduce environmental degradation and to providethe necessary services to the growing tourism industry. The Puerto Plata/SosualCabarete region hascurrently about 15,200 hotel rooms and is projected to have 23,500 rooms in 2010.

In summary, the project would benefit the fixed and floating population of Puerto PlatalSosualCabarete,with a current total of about 220,000 inhabitants and a projection of 360,000 inhabitants in 2010.

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4. Institutional and implementation arrangements

Implementation period

FYOO - FY 03 (3 years)

Project Administration and CoordinationThe Borrower is the Government of the Dominican Republic. The PCU in the Technical Secretariat ofthe Presidency will be responsible for project coordination and implementation. Project components Iand 2 will be implemented in consultation with and collaboration of INAPA. The final design, based onthe feasibility studies which were prepared by foreign consultants hired by the PCU, and the supervisionof works would be implemented in close cooperation with INAPA while financed by the LIL project (theincentive structure that promotes construction of new projects has made INAPA a good executing agencyfor works, even if its track record for operation and maintenance is weak). According to theimplementation plan, the private sector operator would be selected before the completion of projectcomponent I (construction of the outfall). However, if the private operator had already been hired whenthe implementation of works took place, the operator would be involved in the supervision of all the on-shore works (main conveyance system, pumping stations, treatment installations), while the supervisionof the outfall works (on-shore and off-shore) would be awarded to a specialized consulting firm.

The preparation of component 2 (PSP process) has already been initiated during project preparation andwill be completed during implementation. To enable the PCU to cope with all its tasks, the Governmenthas agreed that it will receive the support of a consulting firm which will be hired to help in managing andimplementing the project, including the preparation, nmnagement and carrying out of all the procurementprocesses and handling the financial management of the project, and a consulting firm, possibly the same,to assist in carrying out the pre-qualification and bidding processes for selecting the operator, evaluatingthe proposals and negotiating the contract.

An Advisory Committee, with representatives from the Technical Secretariat of the Presidency, INAPAand other potential stakeholders, with functions and representations satisfactory to the Bank, will be setup and consulted to provide its opinion at various stages of the bidding process. The Bank project teamconsiders that the PCU and the committee need support in coordinating the PSP process. For that purposethe Government needs to (i) nominate a director for the PSP process and (ii) hire a consulting firm toassist the process of contracting the private operator as mentioned above.

If unexpected delays were experienced in the selection and take over of responsibility by the privatesector, tNAPA would continue to operate the facilities in the transition period. This arrangement wouldallow to reduce pollution of the coastal environment once the outfall is completed, even if theimplementation of the new institutional arrangement is delayed

Project component 5, related to the mechanism of control and supervision of the operator's contract, willbe proposed and developed jointly with the Government.

Procurement

Works wholly or partly funded by IBRD will be procured in accordance with the Bank's Guidelines forProcurement under IBRD Loans and 11A Credits (published in January 1995; revised in September 1997and January 1999). Consulting services wholly or partly financed by IBRD will be procured inaccordance with the Bank's Guidelines for Selection and Employment of Consultants by World BankBorrowers (published in January 1997, revised in September 1997 and January 1999). The PCU will useStandard Bidding Documents published by the Bank for preparation of bidding documents for works andgoods to be procured under International Competitive Bidding (ICB), and for Requests for Proposals andconsulting services contracts. Detailed project procurement arrangements are given in Annex 6.

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To strengthen the capacity of the PCU to manage the project and handle procurement, a specializedconsulting firm will be hired, as mentioned above. This firm would have expertise in the implementationof water and sewerage projects and in the Bank's procurement procedures and it would provide: (i)assistance in all the stages of procurement cycles which will be implemented under the project; (ii)training in procurement; (iii) supervision and quality assurance; and (iv) procurement capacity building.

For the preparation of the PSP model in the Puerto Plata/Sosua/Cabarete region, the PCU has hired, aspart of project preparation activities, a multi-disciplinary group of international consultants to preparetechnical analyses and specifications, bidding documents and a draft PSP contract. The related activitiesand the carrying out of the process of selecting the operator will be completed during projectimplementation, with the help of the above-mentioned consulting firm which will be hired for thatpurpose. The Government agreed that procedures for selecting the private operator will be undertakenaccording to Bank guidelines. In addition, the Government does not accept that the operator will use hisown procurement procedure for the construction of the installations specified in his contract and insists onuse of public bidding procedure according to the Bank procurement guidelines for works financed by theBank.

Project financial management and auditing

A project financial management assessment was carried out by a Financial Management Specialist fromLCOAA. As part of this exercise, an action plan to establish a Financial Management (FM) system,including capability to produce quarterly Project Management Reports (PMR) was agreed upon. Afollow-up mission in October 1999 concluded that, with the help of a specialized consulting firm, most ofthe key elements of the Action Plan had been met by this date. The FM system was considered to meetminimum Bank requirements; however, the computerized system still needs to be fed with relevant inputsand finalized, the audit firm was yet to be contracted, and a new Special Account (as opposed to thoseused for PHRD and PPF funds) would have to be opened prior to loan effectiveness. Once fullyoperational, the computerized system will enable the preparation of PMRs and thus - assuming that otherkey elements remain in place - the project will be able to disburse via PMRs (the PCU Director agreed toavail the project to PMR-based disbursements.) The consulting firm which will be hired to help in projectmnanagement, will also provide assistance to the PCU on financial management as necessary. Prior to orshortly after effectiveness, an independent accounting firm would be engaged to carry out the covenantedyearly audit, in accordance with terms of reference approved by the Bank.

D: Project Rationale

1. Project alternatives considered and reasons for rejection

Technical alternativesThe technical innovative aspect of this project is the use of outfalls for cost-effective, environmentallysafe disposal of wastewater. When compared to conventional treatment plants in the pilot area selectedfor this LIL project, the outfall presents clear advantages(l): (i) smaller costs for similar levels ofenvironmental protection because depths greater than 200 ft can be found close to the shore and theoceanographic conditions are optimal for outfalls; (ii) the initial 1:100 dilution usually obtained with thediffusers of submarine outfalls is much greater than typical reductions of nutrients and organic matterobtained with conventional secondary treatment; (iii) the mortality rates of bacteria after the initialdilution in outfalls can reduce the pathogens to levels similar, or lower, than those obtained withchlorinating effluents from secondary treatment plants; (iv) outfalls are more flexible than treatment

' Emisarios Submarinos: Altemativa Viable para la Disposici6n de Aguas Negras de Ciudades Costeras en AmericaLatina y el Caibe. CEPIS, Pan-American Health Organization, 1994.

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plants to manage the highly seasonal flows typical of tourism centers; (v) the operation and maintenanceof outfalls is much simpler and less costly than those of conventional secondary treatment plants, whichare usually inadequately operated in Dominican Republic and, consequently, result in polluting theenvironment despite expensive investments; and (vi) if the environmental monitoring program of projectcomponent 3 indicates that the beaches are being polluted by the outfall discharges, despite modelpredictions used in the outfall design, additional sewage treatment installations can be incorporated in thesystem prior to effluent discharge through the outfall. This approach constitutes a cost-effective strategy,minimizing investments to achieve the project's environmental and health objectives.

Institutional alternativesThe Government and the water sector institution INAPA agreed with the Bank's position that onlv theparticipation of the private sector in the provision of the sanitation services can effectively prevent theenvironmental crisis in tourism centers and the potential negative effect on the tourism industry. Thealternative of a strengthening program for INAPA was analyzed but it was considered that the timerequired to achieve efficient operation, implement cost-recovery mechanisms, and reach the requiredinvestment levels would not be compatible with the urgent needs of a growing tourism sector.

This wastewater disposal LIL project is closely related to a solid waste management in tourism centersLIL. Both of these LIL projects would support the design and implementation of an adequate PSP model.Three possible approaches were considered for the provision of water, sewerage and solid waste services:(i) completely separated private sector operators for water/sewerage and solid waste; (ii) separateoperators for water/sewerage and solid waste with an agreement between them to organize a commonbilling process; and (iii) a single private operator for all three services.

Although having a single operator would offer the obvious advantages of (i) having only one biddingprocess to organize, and (ii) allowing a simultaneous billing and revenue collection process for all threeservices where the single operator can use the leverage given by the possibility of water servicedisconnection to increase the percentage of bill payment for the three services, the Governmentconsidered that it was not the best alternative for the following reasons: (i) it does not lend itself to thelocal situation where the mayors have indicated their willingness to support some sort of PSP for thecollection of solid waste, but whose participation in the process and internal decision making process arelikely to require a different timetable and arrangements than for the water and sewerage services, forwhich the PSP process could be launched earlier; (ii) it would lengthen and complicate the biddingprocess since the PSP contracts would most probably have a different duration, and (iii) it would decreasecompetition in each process.

The alternative of contracting separate operators for water/sewerage and solid waste services, but using asingle bill for all three services to be charged through the water company, will be discussed with thefuture operators. However, in the past, INAPA was asked to charge for solid waste services handled bythe municipalities and found that bill payments were significantly reduced in response to increases insolid waste rates since users refused to pay the combined bill. On the other hand, a private operatorshould be in a better position to implement the commercial operation and the tariff increase strategy andjustify it by the improved quality of service. Nevertheless, for the reason above, this solution will not beimposed but will be discussed with the private water and sewerage operator.

Therefore, the institutional arrangement selected is to launch two separate PSP processes for themanagement of water and sewerage services on the one hand, and for solid waste services on the otherhand by private operators in the pilot Puerto Plata/Sosua/Cabarete region, while leaving open thepossibility to establish contractual arrangements between the operators to organize a common billingprocess. Naturally, bidders to the water and sewerage process, including the selected operator, will beallowed to participate to the solid waste process.

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2. Major related projects financed by the Bank and/or other development agencies(completed, ongoing and planned)

Sector issue Project Latest Supervision (Form 590)Ratings

(Bank-financed rojects only)Implementation Development

Progress (IP) Objective (DO)Bank-financedTourism Development DO-PE-6982: Puerto Plata S S

Tourism Completed in1979

Tourism Development DO-PE-6986: Tourism II S SCompleted in

1984Environmental Protection DO-PE-35733: National S S

Environmental Policy ReformProject

Watershed Management DO-PE-7020: Irrigated land and S Swatershed project

Water, Sanitation and Solid DO-PE-54221: Water and In preparationWaste Management sanitation in tourism centers

project

Solid Waste Management DO-PE-595 11: Solid waste In preparationmanagement in tourism centersLIL project

Other developrzent agenciesIDB Consolidation of the reform and Beginning

modernization in potable water implementationand sanitation

UNDP GEF/Coastal Zone management Implementation

UNDP GEF/Bio-diversity protection Implementation

EC Sanitation of poor neighborhoods In preparationin the North of Santo Domingo

French Agency for Installation of pressure reducing In preparationDevelopment valves in the Santo Domingo water

distribution network

JICA Environmental Sanitation of the In preparationprincipal nine municipalities of thesouthern region of the DominicanRepublic (solid waste managementequipment) _

Ell,T)() Ratinigs: HS (Highly Satisfactory), S (Satisfactory), tJ (Unsatisfactory), HIJ (Hghly Unsatisfactory)

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3. Lessons learned and reflected in the project design

The project design reflects lessons that have been learned from the execution of a variety ofBank-supported projects in the water and sanitation sector and projects in the Dominican Republic, aswell as preliminary lessons from LIL projects. The lessons on LIL project design include: (i) thepreparation and results of the piloting LIL effort should be synchronized with the rest of the subsequentfollow-up programs; (ii) the investments included in the LIL should be small, discrete and able to beimplemented in a short period of time; (iii) supervision in a LIL project needs to be intense; (iv)dissemination of results and broad participation should be a key consideration of LIL projects.

Lessons learned in the Dominican Republic indicate that successful implementation is closely associatedwith: (i) obtaining strong government commitment; (ii) designing simple projects with focused andmodest objectives; (iii) close and periodic evaluation of the project to allow adjustments to be made to theproject design and its implementation arrangements; (iv) because of usual time delays in getting approvalfrom the Congress, it is important to have ownership and commitment from different stakeholders in theGovernment, the hotel sector, and the communities; (v) maintaining an open and productive dialogue withthe Borrower to ensure close collaboration with the project executing agency, to facilitate findingsolutions to problems that emerge during project implementation, and to incorporate lessons in the designof the follow-up program; and (vi) maintaining intensive technical, procurement and managerial Banksupervision during project implementation.

4. Indications of borrower commitment and ownership

As part of the overall strategy at the national level to protect natural resources and the coastalenvironment, the Government has signed and is implementing a National Environmental Policy ReformProject with Bank support.

The Government has created and staffed the PCU in the Technical Secretariat of the Presidency forproject implementation and agreed to hire a specialized consulting firm to help it manage and implementthe project. Additionally, it has signed a PH-RD and a PPF for the preparation of the two LILs and thepotential SIL, and to ensure incorporation of lessons learned and replicable aspects of the innovativeapproaches taken, into subsequent operations. The borrower has underlined its strong level of interest topursue this LIL project, if successful, with further Bank support through a potential Sector InvestmentLoan (SIL) operation in the water and sanitation sector, if the Bank agreed to do so.

The innovative institutional aspect of this project has the full support of the Government in general and ofINAPA in particular. First, INAPA has already signed a letter of commitment to transfer to the privatesector the management of water supply and sewerage services in the selected area. Second, theGovernment confirmed during negotiations its agreement to transfer the management of water andsanitation services in the region to a private operator and the legal opinion received from the ConsultoriaJuridica to the Executive Power confirmed that the Government is authorized to do so. Third, the Mayorsof Puerto Plata and Sosua have expressed their support to the PSP approach in the water and seweragesector. Fourth, ASONAHORES has reiterated its interest in prompt preparation and implementation ofthis project and has offered its support to promote in the Congress fast loan approval. Finally, allGovernment agencies are providing full support to the team of international consultants hired by the PCUto prepare the project.

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5. Value added of Bank support in this project

The value added of Bank support in this project lies in: (i) worldwide experience in the preparation andimplementation of PSP in the provision of municipal services; (ii) role as an independent broker amongdifferent Government agencies (from the Technical Secretariat of the Presidency and national water andsanitation institutions to the Mayors) to promote private sector participation as an effective approach towater, sewerage and solid wastes service provision in the Dominican Republic; (iii) strong technicalsupport for an environmentally safe and cost-effective strategy for wastewater treatment and disposal; (iv)partnership with PAHO to disseminate the lessons learned from the LIL project in the DominicanRepublic and other countries with similar conditions in the region; (v) experience in environmentalprotection and coastal zone management; and (vi) support in project management and implementationarrangements, as well as procurement and disbursement procedures which would ensure successfulimplementation of the project. Supervision missions would be tailored to provide Bank know-how onthese and other relevant topics as appropriate.

E: Summary Project Analysis

1. Economic analysis (See Annex 4)

A simplified cost-benefit analysis was carried out to determine the economic viability of the proposedwastewater disposal investment in Sosua. In view of the limited economic information available and ofthe pilot character of the Learning and Innovation Loan, the cost-benefit analysis focuses on the two mainbeneficiaries of the project: (i) the local population which will benefit from improved sewerage servicesand (ii) the tourism industry which will benefit from the better quality and cleanliness of coastal areas.

A comprehensive economic model was developed which also included the financial assessment (seebelow), adjusting financial flows of costs and benefits for the impact of taxes, subsidy and managementfee. In addition, while the financial assessment determines the viability of the reform program asproposed by the Government, the economic analysis estimates the net economic benefits generated by thewastewater disposal project on an incremental basis, comparing the costs and benefits of a "with project"scenario to the costs and benefits of a "without project" scenario. In the "with project" scenario, thewastewater disposal investment is implemented, which requires the construction and maintenance of thewastewater conveyance system, treatment installation, submarine outfall and connecting network to thecollection pipes in Sosua. In the "without project" scenario, the sewerage investment in Sosua is notmade, so that coastal degradation is allowed to continue in the area.

The main benefits of the project considered in the analysis include: (i) provision of sewerage services inSosua, and (ii) improvement in the local coastal environment, which should avoid losses in tourismrevenues generated in the region. Although the improved hygienic conditions that result from theprovision of sewerage services and the learning and demonstration effect that a low cost technology isfeasible to reverse environmental degradation along the coast are clearly benefits, they have not beenquantified in the analysis.

To measure the economic benefits resulting from the provision of sewerage services in Sosua,willingness-to-pay estimates derived from a consultant's study carried out in July 1999 were used. Thebenefits to the local tourism industry were proxied by estimates of the expected loss in tourism revenuesif coastal degradation was allowed to continue. They also took into account the savings that hotels wouldmake as they will be released from having to provide their own collection and treatment facilities.Finally, the increased tourists' satisfaction was measured by their willingness to pay for an improvedcoastal environment as estimated by the same consultant's study.

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The analysis highlights that the wastewater disposal unit, providing sewerage services in Sosua andavoiding further coastal degradation, creates substantial economic value-added. An independent analysisconducted by a consultant to the Government of the Dominican Republic arrived to a similar conclusion.

2. Financial assessment (See Annex 5)

Objectives

A financial assessment of the future water and sewerage private operations was carried out in order to (i)assess the financial feasibility of the future private operations under the conditions proposed in the draftbidding documents, (ii) assess the debt service capacity of the private operations and (iii) determine themain risk factors and the sensitivity to these factors of the overall feasibility of the PSP process.The debt service capacity of the private operations has been analyzed although the private operator is notthe direct beneficiary of the Bank's loan extended to the Government. Such analysis is however part ofthe general assessment of the financial strength of the private operator and is also justified by the fact thatthe latter could receive a Government loan originated in the future Bank SIL loan in the case the latterwas granted.

Methodology

The financial assessment determines the viability of the PSP program as proposed by the Government inthe draft bidding documents and after construction of the proposed wastewater disposal system in Sosua("with project" scenario only). The private operation company is considered financially viable when (i)the Net Present Value (NPV) of the utility's free cash flows is positive, (ii) the net returns to privateinvestors are sufficient and (iii) the main financial indicators of the utility (debt to equity ratio, currentratio, debt service ratio) are expected to remain sound throughout the PSP contract.

A comprehensive financial model was built which projects the private operating company's cash flowsover the expected PSP period. As the PSP process has not taken place yet, financial projections wereprepared based on the physical and operational targets, financial conditions, tariff structure, etc set forthin the draft bidding contract, on the basis of detailed analyses by individual consultants.

Results of the financial analysis

The financial analysis shows that the future private operations are financially viable under the terms setforth by the Government. The Government intents to award the PSP contract on the basis of the weightedsum of (i) the amount of investment subsidy the private operator could require from the Government and(ii) the amount of World Bank loan the private operator could request to be on-lent to the PSP companyfrom the Government. As a result of the high investment costs made necessary to reach the expansiontargets set forth in the draft bidding document, it cannot be excluded that bidders will require some sort ofsubsidy from the Government in order to achieve a sufficient return on investment while carrying out allthe required network investments. The analysis indicates that their operations can be viable withoutsubsidy from the Government, but under the strict conditions that collection rates improve drastically andrapidly (from less than 50% today to about 90% in a few years) and that tariffs can be increasedsufficiently (as described in Annex 5).

Consultants provided reassurance that (i) if collection rates are so low at present it is because people arenot charged for the water they consume rather than because they do not pay their water bill and (ii) thewillingness to pay for water services will improve strongly as the quality of service improves under themanagement of the private operator. Nevertheless, the required increase in collection rate is substantial.

Given the history of low collection rates in the area in spite of the low level of current tariffs, it is unlikelythat bidders will not want to make the bet that collection rates will improve substantially and rapidlydespite the required increase in tariffs, without negotiating some additional financial comfort from theGovernment to protect their revenues from the risk that collection rates do not improve sufficiently.

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Analyses show that there is room to provide such comfort by allowing the operator to maximize operatingefficiency. However, it cannot be excluded that the local circumstances prevent such higher performanceto be achieved, in which case the operator would most probably request a direct subsidy from theGovernment, possibly tied to the implementation of required investments or conditional on achievedcollection rates. If such comfort was not granted to the operator one way or the other, the risk could notbe excluded that he would not be in a position to finance all required investments.

The analysis underlines the importance of educating the population to the necessity of paying for thefuture improved water and sewerage services. It also underlines the necessity to provide adequateprotection for the poorest and most vulnerable segments of the population in order to make sure that thenew tariffs remain affordable to them. If necessary, cross- or direct subsidies would be used.

The sensitivity and risk analyses confirm that the viability of the private operations depends naturally onthe rate of return expected by investors and is dependent on other critical assumptions including (i) futurerevenue collection rates, (ii) future personnel productivity, (iii) operation and maintenance costs, (iv)investment costs (v) exchange rate fluctuations and (vi) terms of financing available for investments.

3. Technical analysis

The Sosua sewerage network covers about 70% of the city, but it is not operational because the mainconveyance system that connects the network to the treatment plant has not been constructed. As aconsequence, houses are not connected to the sewerage network and raw sewage flows to the Sosua bayor infiltrates into the soil and contaminates the groundwater. A treatment plant with a capacity ofattending the current flows for the Sosua wastewater, is currently under construction by INAPA and 80%of the works have already been completed. According to the current plans the effluent is to be dischargedon the shoreline at a distance of about 2-km from the Sosua bay. This plant has the capacity of removingabout 50% of the BOD of the incoming sewage, but it cannot remove pathogenic organisms.Consequently, the usefulness of the plant would be limited and the adopted method of effluent dischargeon the beach is inadequate and may result in continued pollution of the Sosua bay.

An analysis of options for adequate discharge of the effluent revealed that discharge to the sea through asubmarine outfall is the most cost-effective solution in this case. Injection to the local aquifer is not agood option because groundwater is a water supply source for the region. There is no demand foragricultural or other type of effluent rPCUse in the area, so only the sea can serve as the receiving waterbody for the effluent, which would be discharged to it through a submarine outfall.

The strategy adopted under the project is to provide the minimal level of treatment to the wastewater andat the same time to provide a long enough outfall which would ensure that contamination will not reachbathing beaches and would have a minimal negative environmental impact. The validity of the strategywould be tested by employing a monitoring program prior and after the construction of the outfall. If theoutfall performance would not conform to the planned environmental standards, additional treatmentcapacity would be added prior to the wastewater discharge through the outfall. This strategy will preventcarrying out unnecessary investment in costly treatment installations. The monitoring program may alsoprovide information to prioritize future investments. For example, if the pre-treatment for wastewater tobe discharged through the outfall is sufficient, as planned, and the beach continues to be polluted bydischarges from surface water discharges, it may be more cost-effective and protective of the environmentto extend the wastewater collection network, rather than to provide additional wastewater treatment priorto outfall discharge.

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At the PCD stage it was estimated, based on existing data which were available before carrying outoceanographic studies, that the sea water depth at a distance of 800 meters from the shore at the locationof the UASB treatment plant (denominated the original outfall alignment) was 40 meters, which is anadequate depth for locating the submerged outfall diffuser and for achieving high physical dilution of theeffluent and sufficient pathogenic organisms die off so as to ensure that pathogenic contamination wouldnot reach the beaches of Sosua.

Oceanographic measurements carried out during project preparation showed that the bottom topographyat the original outfall alignment is much steeper than originally thought. Discharge of effluent at therequired depth resulted to close to shore would result in pollution of local beaches. On the other hand,construction of a longer outfall at the original alignment, would entail high construction risks sincedischarge depths rarely exceed 70 meters, and working in water deeper than that requires specialequipment.

After studying several alternatives for treatment, including location of the outfall the altemative ofdischarging the above-mentioned plant effluent (after adding to this plant pretreatment installations) to thesea via a deeply submerged diffuser. As mentioned, this would entail high construction risks, especiallyfor a small diameter outfall, but it was considered that the risk over weights the disadvantages of thealternative solutions and is well worth taking, especially since it is a LIL project in which innovativesolution are worth piloting.

The proposed outfall is therefore about 600 meters long, i.e., shorter than the one proposed at the PCDstage. Nevertheless, its cost will be higher than previously estimated because it would have to withholdhigher pressures. The hydraulic design is based on sewage peak flows for the year 2010, with appropriatesafety coefficients. The required outfall diameter would be 635 mm and it is proposed to use HDPE as thepipe material (a 24-inch nominal pipe). The specific wall thickness and required pipe class would bedetermined during detailed design. Due to the high submergence depth of the diffuser, it might benecessary to use for it (and perhaps also for a portion of the end of the pipe, next to the diffuser) a steelpipe.

Because of the relative frequent visitation by tropical storms and hurricanes in the Caribbean and theresulting wave heights, this outfall should receive special protection. Additional soundings to determinethe exact sea bed profile along the outfall, bottom conditions, classification of the material(s) that the seabed is comprised of, and more specific information on the wave height and period are necessary todetermine how much and what kind of protection is appropriate for Sosua. This along with detailedmeasurements of density profiles and current velocity and direction will enable a final design to be made.

During detailed design, alternative methods for the outfall construction might be explored, such as the useof trenchless technologies (boring or guided drilling). Usually such methods are more expensive, but theymight result attractive in this case, because of the risk associated with pipe laying on a deep-sea bed.

A long-term ocean monitoring program would be implemented before the outfall construction iscompleted in order to have baseline data and continued after the construction of the outfall to provideinformation on the outfall performance. In the unlikely case that the outfall performance does not meetthe design expectations, additional treatment stages would be added to the preliminary treatmentinstallations, as required. The land in the vicinity of the UASB treatment plant is Government property.Securing the land for possible future use for treatment would be discussed during appraisal andnegotiations.

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Since the UASB treatment plant is almost complete and INAPA is committed to finishing the facilities(the construction contract is in effect) it was decided to incorporate the plant in the wastewatermanagement scheme. Nevertheless, the outfall design is based on the assumption that only preliminarytreatment is provided. The operation requirements of a UASB plant and the poor operational record ofINAPA does not provide enough assurances that the plant would function properly. The performance ofthe outfall with the preliminary treatment component (which is very easy to operate) would achieve theenvironmental design standards. As wastewater flows increase with time, the preliminary treatmentcomponent would be upgraded to handle them. It is not planned to upgrade the UASB plant as flowsincrease, since it does not provide a meaningful additional level of treatment prior to discharge to the sea.

The proposed disposal of the wastewater of Sosua is a cost-effective, simple and reliable disposal option,which would ensure adequate solution of the current wastewater contamination problem of the city. Toensure full effectiveness of the proposed or any other disposal method, the majority of the population hasto get connected to the sewerage network. This will not happen overnight, and will require due effort onthe part of the private operator. It seems, however, that most of the population, especially the hotelowners, are eagerly awaiting to get connected to the sewerage network, once it is put into operation.

4. Institutional arrangements

As explained earlier, the innovative institutional aspect of the wastewater disposal LIL project is thedesign and implementation of the PSP model for the provision of water and sewerage services. Theoverall project management and coordination would be the responsibility of the PCU in the TechnicalSecretariat of the Presidency, which would be assisted by a consulting firm specialized in projectmanagement, procurement and FM and which will follow guidelines described in an Operational Manualsatisfactory to the Bank. In addition, a consulting firm specialized in PSP would be hired to help theGovemment in carrying out the biding process and selecting the private operator. Also, as described onpage 10, an Advisory Committee, with representatives from the Technical Secretariat of the Presidency,INAPA and other project stakeholders will be set up and consulted at various stages of the biddingprocess.

The implementation of project component I in Sosua will be done in close cooperation with INAPA. Thestrength of INAPA in project management and construction, along with the experience of the consultingfirm would ensure successful implementation of this component.

5. Social assessment

The effects of a growing tourism industry on the coastal environment can have significant andlong-lasting social repercussions. This project would test innovative technical and institutional solutionsto reduce social and health impacts directly related to the inadequate management, treatment, and disposalof wastewater and the resulting pollution on the coastal environment. Nevertheless, based on the initialfindings of the social assessment a social development strategy will be tested during the LIL to ensure totarget poor population and promote community participation. This strategy will include:

Targeting the poor: a study will be prepared within the framnework of the PSP model with two purposes:(i) to increase service provision to the poor population and to include service coverage to the poor asperformance targets; and (ii) to assess the extent and size of subsidies to be included in the tariff systemsto address the issue of the capacity of the poor to pay for water (either Government subsidies throughfinancing part of the infrastructure, or cross subsidies, mainly subsidies from the hotel sector to the poorpopulation).

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Promoting willingness to pay: better payment mechanisms will be set up to promote willingness to payincluding a simplified billing system, incentives for community organizations to promote payment amongtheir members and education campaigns.

1'romoting community participation: a Community Service Unit will be established as part of theoperator's management structure to promote community participation including in improving the service,incorporating best maintenance practices and managing conflicts with actual and potential clients.

Community Ownership: complementary programs to promote ownership among beneficiaries will beimplemented through community organizations such as on adequate use of water and sanitation services,health and payment for the services. Women, who have proved to play a critical role in sanitary projects,will be a specific target of these programs.

Participatory Monitoring System: a participatory monitoring system will be established to ensure qualityin delivering services based on standards agreed with the communities. This process will be designed topromote compliance on the side of the operator and commitment to pay for the services on the side of thecommunities.

Best practices dissemination: an information and dissemination system about the results and effectivenessof the small-diameter submarine outfall will be implemented. This system, based on the coastalenvironmental monitoring, will promote this innovative technique and address any actual or perceivedrisks on the side of the communities.

6. Environmental assessment

Environmental Categorv A

[XIA[]B []C

The proposed project is expected to have significant beneficial environmental and health impacts in Sosuaand its surroundings as it will extend and improve the sewage collection network and will provide a safewastewater treatment and disposal method that will protect important coastal ecosystems in the area.Nonetheless, the construction of the main sewage conveyance system, wastewater treatment and otherancillary facilities, as well as disposal of treated wastewater through a marine outfall has the potential tocause negative environmental impacts if proper mitigation steps are not taken. For this reason, the projecthas been classified as environmental assessment (EA) Category A. A full EA was commissioned underterms of reference agreed upon with the Bank. Formal Bank review of the final report was carried outbefore appraisal and it was found to conform fully to Bank policy guidelines regarding environmental andsocial issues. The EA confirmed that no involuntary resettlement will be required under the project.

The environmental assessment process was based on an analysis of alternatives for wastewater treatmentand disposal and assessment of current and dispersion parameters in the disposal site. The water depth atthe selected outfall site and the added pretreatment facilities to an existing wastewater treatment plant,ensure minimum environmental risks. The EA report has been made available in the Public InformationCenter of the World Bank in Washington. A summary of the environmental assessment report is includedin Annex 8.

Status of Category A Assessment

EA start-up date: December 1998Date of first EA draft: April, 1999Current status: Completed and reviewed by the Bank

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Proposed actions

The EA report recommends the implementation of an Environmental Management Plan (EMP). TheEMP proposes a number of measures to mitigate environmental impacts during the construction andimplementation phases and establishes an organizational structure, set of procedures and a budget toimplement activities under the EMP. The consulting project management firm which will be hired toassist the PCU to implement the project will be in charge of implementing the activities detailed in theEMP related to the construction phase. This phase will also include the implementation of anenvironmental baseline program to monitor oceanographic, biological and ecological indicators. Afterconstruction, this program will be converted to a long-term monitoring program.

Final engineering designs would include the preparation of detailed measures to deal with contingencyplans (power black outs), additional site-specific environmental guidelines for construction, specialconstruction practices for reef crossing and ocean approach, demarcation of mix zone, under surface seaconstruction process and right of way restoration and management. These measures will be included inthe bidding documents and contracts.

Local groups and NGOs consulted

Asociaci6n de Desarrollo de Sosua, Asociaci6n de Hoteleros.

ResettlementNo involuntary resettlement is expected to take place as a result of the construction of any component ofthe facilities to be financed by the project.

Borrower permission to release EA

[X] Yes [I No [ ] N/A

7. Participatory approach

The innovative technical and institutional aspects of the project have been discussed with the maininstitutional stakeholders in the Dominican Republic, including the Technical Secretariat of thePresidency, the Secretariat of Tourism, [NAPA, Banco Central, LMD, local authorities (Mayors of PuertoPlata and Sosua), as well as hotel owners, ASONAHORES, and local development associations andchambers of commerce. The innovative approach and the location of the pilot case have been supportedby these stakeholders.

Moreover, community consultation was carried out through workshops executed in Puerto Plata, Sosua-Cabarete and Boca Chica. Community organizations participating in these workshops agreed with thepriority of the project and expressed their willingness to participate. An initial analysis of the capacity ofthese organizations indicates that these organizations can play an important role promoting ownership ofthe project and carry out complementary programs to ensure the projects success, such as: better sanitarypractices, adequate use of infrastructure and a responsible attitude to promote willingness to pay andsustainability. To ensure a participatory approach, a social development strategy to promote communityparticipation will be tested along the LIL implementation and further developed through complementaryanalysis and consultation during preparation of the social assessment of a follow-up SIL. In addition, anAdvisory Committee, with representatives from the Technical Secretariat of the Presidency and INAPAbut also potential representatives of other stakeholders, will be set up and consulted to provide its opinionat various stages of the bidding process. Social goals such as coverage of poor population and tariffslevels will be factors to be taken into account in the bidding process.

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F: Sustainability and Risks

1. Sustainability

The sustainability of project benefits would be achieved through: (i) use of an innovative technologywhich is appropriate for the local conditions and protective of the coastal environment; (ii) Government'scommitment to private sector participation; and (iii) involvement of private operators in providing thewater and sewerage services through contracts which specify performance targets and tariff structureguidelines. The lessons learned during project design and implementation would be incorporated in thepreparation of any follow-up operation, thereby enhancing the sustainability of the larger initiative at thenational level, if such an initiative is undertaken.

2. Critical Risks

The risks identified below reflect assumptions in the fourth column of Annex 1.

Risk Risk Risk Minimnization MeasureRating

Annex 1, cell "from Outputs to Objective"

If delays occur in signing the contract with the private M A letter of commitment for operation duringoperator, INAPA does not operate the systems the transition period has been received fromconstructed under the LIL during the transition period INAPA as a condition of negotiations

(Subsidiary Agreement will follow)

An agreement is not reached with the Govermnent S Technical assistance and advisory services willregarding the mechanism for control and supervision be provided to the Government to ensure theof the contract with the private operator development of an adequate mechanism

Annex 1, cell "from Components to Outputs"

The next Government does not honor the agreement S Dialogue with the Government, presenting theto deliver the management of water and sewerage rationaleservices provision to a private operator

The private sector does not response positively to the M Draft contracts will be distributed to potentiallyproposed PSP contract interested private operators for comments and

assessment of their response to the bidding. Ifwarranted, comments will be incorporated inthe final version of the bidding documents

The Government does not comply with its agreement S The Govermuent comunitted to PSP duringto transfer the management of water anid sewerage negotiations and a policy letter of theservices to the private sector Government on the principles of privatization

for water and sewerage services was receivedprior to negotiations.The legal opinion received from theConsultoria Juridica to the Executive Powerconfirmed that the Govermuaent is authorized totransfer the management of water andsanitation services to a private operator.

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An agreement on water and sewerage services tariff S As part of a complete tariff study, discussionsstructure and level is not reached with INAPA and the will be held with INAPA regarding theother local players proposed tariff level and structure.

ASONAHORES, NGOs and coninunityorganizations will participate in thediscussions. The Advisory Committee will beinvolved in the discussions

INAPA and the new private operator cannot manage S Specific targets would be included in servicesuccessfully the process of house and hotel contract; the operator would design tariffcoinections to the Sosua sewerage system structure and community information programs

to achieve targets

Government is not successful in purchasing the land M Land titles will be requiredfor building the pumping stations

Installation of the submarine outfall at a water depth M Top level consultants will be hired to assist inof 140 meters encounters difficulties, the outfall pipe the outfall design and installation. If outfalldoes not resist water pressure and suffers from pipe laying on the sea bottom would not behurricanes/stonns possible, pipe boring methods will be explored.

An appropriate pipe wall thickness will bechosen to ensure resistance to water pressure.The outfall pipe will be buried in the sea bedup to a water depth of 40 meters as a practiceagainst storm impact

Annex 1, cell "from Components to Outputs"Cont'd

The PCU is not staffed with competent professionals S Bank management will ensure that adequateTORs are used, explain to Govemnmentofficials the importance of nominatingcompetent staff to the PCU and ensure thatqualified personnel is selected

Government does not comply with its agreement to M Signing the contract with the consulting finnhire a consulting firm specialized in implementation will be a condition of effectivenessof water and sewerage project, in the Bank'sprocurement procedures and in financial managementto assist it in project management and implementation

Overall Risk Rating S

Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk)

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3. Possible ControversialAspects

Technical aspectsThe use of a submarine outfall as part of a wastewater treatment and disposal system for the first time intourism centers in the Dominican Republic may cause some controversy due to lack of understanding ofthe technology. The purpose of this LIL project is to illustrate the effectiveness and level ofenvironmental protection provided by this technical innovation. As part of the project, an extensiveenvironmental monitoring program will compare environmental conditions in the coastal areas of theproject before and after operation of the outfall and its preliminary treatment system and will determinewhether pathogenic coliforms discharged through the outfall diffuser reach bathing beaches. The resultsof the monitoring program would be used in the training and dissemination component of the project, tobe implemented in partnership with PAHO, for the purpose of illustrating the benefits of the outfallapproach in tourism centers of the Dominican Republic.

The use of outfalls for wastewater management in developed countries require, in some countries,secondary treatment of sewage prior to final disposal in the ocean, regardless of coastal conditions andassimilative capacity of the ocean environment. Given the conditions of the pilot site selected for thetechnical innovation in this LIL project, the use of secondary treatment prior to outfall disposal would notachieve a significantly higher level of environmental protection, provided the location and depth of theoutfall diffuser are carefully selected to promote plume submergence and minimize wastefield travel toshore in order to meet shoreline bacterial standards.

Furthermore, the levels of toxic substances and heavy metals in the pilot area are very small due to thelack of an important industrial sector, fuirther reducing the need for any treatment beyond preliminary.The use of secondary wastewater treatment in addition to the preliminary treatment proposed in thisproject would make the technical solution unfeasible due to very high costs. Only if the monitoringprogram indicates that a significant portion of the pathogenic coliforms discharged through the outfalldiffuser are reaching bathing beaches, or that any other environmental problem emerges as a result of theeffluent discharge, additional treatment options would be considered and subsequently implemented.Appropriate provisions to reserve land for future enhancements of treatment installations will beconsidered during project design.

Institutional aspects

The potentially most controversial aspect of the LIL project would be the tariff charges. The publicinstitutions in charge of water and sewerage services have very inefficient or non-existent tariff collectionsystems and a large segment of the population is not used to paying for these services and perceives themas free goods that the Government is obliged to provide. An important component of the learningactivities of this project would be the design and consultation process to establish a tariff structure thatmakes the project financially viable and sustainable while remaining affordable to all. This tariffstructure would be based on the growing tourism industry and the willingness to pay of communitiessurrounding tourism centers. It will provide adequate protection for the poorest and most vulnerablesegments of the population to make sure that the new tariffs remain affordable to them. If necessary,cross- or direct subsidies would be used.

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G: Main Loan Conditions

1. Negotiations conditions

* Policy letter of Government on principles of privatization for water and sewerage services.* Letter of commitment from INAPA to: (a) transfer the management of water and sewerage services in

Puerto Plata/Sosua/Cabarete to the private sector operator; (b) operate maintain (and later transfer) thenew facilities during the transition period if the private operator is not able to initiate the managementactivities in the area prior to the completion of works; and (c) complete the civil works of the existingUASB wastewater treatment plant in Sosua.

2. Effectiveness conditions

* A consulting firm has been hired which will support the Government in managing and implementingthe project, including the preparation, management and carrying out of all the procurement processesand the financial management.

* A Subsidiary Agreement has been signed between INAPA and the Government providing for, interalia: (i) that INAPA, through the Special Supervisory Committee, shall control and supervise theprovision of water and sewerage services in the Project Area by the selected Private Operator; (ii) thatINAPA shall operate and maintain, the required equipment and facilities under this Project, until thePrivate Operator shall have been selected and become operational; (iii) that INAPA shall execute theworks necessary to finalize the UASB; and (iv) that the Borrower shall take or cause to be taken allaction, including the provision of funds, facilities, services and other resources required orappropriate to enable INAPA to carry out its obligations under the Subsidiary Agreement, and shallnot take or permit to be taken any action which would prevent or interfere with the objectives of theProject.

* The Government has opened a special account for counterpart's funds in a local bank acceptable tothe Bank, and has deposited in it an amount equivalent to US$ 1,000,000 to be used to finance theGovernment's part of the project costs.

3. Other conditions

i Recruiting the consulting firm to assist the PPCU during the bidding process by July 31, 2000.* Initiating the bidding process for selecting the private operator before August 31, 2000.

H. Readiness for Implementation

[] The engineering design documents for the first year's activities are complete and ready for the start ofproject implementation (prior to Board presentation). [X] Not applicable to a LIL project.[] The procurement documents for the first year's activities are complete and ready for the start ofproject implementation. [X] Not applicable to a LIL project.[X] The Project Implementation Plan has been appraised and found to be realistic and of satisfactoryquality.[] The following items are lacking and are discussed under loan conditions (Section G): N/A

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.I. Compliance with Bank Policies

[X] This project complies with all applicable Bank policies.[ ] [The following exceptions to Bank policies are recommended for approval. The project complies

with all other applicable Bank policies.]

Task Team Leader/Task Manager: O r a

Sector Manager/Director: Dann ei iger

Country Manager/Director: Orsalia Kalantzopoulos

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Annex 1 Project Design SummaryDominican Republic, Wastewater disposal in tourism centers project

Narrative Summary _ Key Performance Indicators Monitoring and Evaluation Critical AssumptionsSector-related CAS Goal: (Goal to Bank Mission)1. Address water and 1. Increase in quality and * Ex-post evaluationsanitation needs of tourism coverage of water supplyareas and their adjacent and sanitation servicespopulation 2. Creation of mechanisms2. Improve incentives for to facilitate private sectorprivate sector participation participation in thein economic activity and provision of urban publicincrease private servicesparticipation in water and 3. Control of coastalsanitation systems environment degradationmanagement3. Promote environmentalpolicies for sustainabledevelopment4. Arrest environmentaldeterioration of coastalzones5. Contribute to povertyalleviation, increase accessof the poor to the benefits ofgrowth and contribute toimproving public health

Project Development (Objective to Goal)Objective:1. Apply and test an 1.1 Pathogenic coliforms * Reports of monitoringinnovative technology for discharged through the programs of waterenvironmentally sound outfall diffuser reach quality in coastaldisposal of treated bathing beaches in environment based onwastewater of small and concentrations lower than laboratory analysismedium-size coastal towns the prevailing coastal waters results of water samplesthrough small-diameter quality standards for bathing * Periodic reports of thecost-effective submarine beaches operator and the auditoroutfalls regarding achievement2. Prepare and implement, 2.1 PSP contract targets for of contract targetsfor the first time in the the first two years are * Customer satisfactionDominican Republic, an achieved surveys regarding waterinnovative model for 2.2 Increased satisfaction of and sewerage servicesincorporating the private users (residential and hotels)sector in the provision of with the water supply andwater supply and sewerage sewerage servicesservices in tourism centers

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Narrative Summa Key Performance Indicators Monitoring and Evaluation Critical AssumptionsOutputs: (Outputs to Objective)1. Sosua's main wastewater 1.1 Sosua's main * The PCU will prepare * If delays occur incollection, treatment and wastewater collection, periodic project output signing the water anddisposal system is treatment and disposal and implementation sewerage contractoperational system is completed reports with the private

Monitoring during operator, INAPA2. Water supply and 2.1 Model, bidding supervision missions, operates the systemssewerage services in Puerto documents, and draft including monitoring of constructed underPlata/Sosua/Cabarete are contracts for the PSP the performance of the the LIL during themanaged by a private process are completed control committee transition periodoperator 2.2 Water/sewerage bidding * An agreement is

process is completed reached with the2.3 The contract with the Govermmentprivate water and sewerage regarding theoperator is signed mechanism for

control and3. Monitoring of coastal 3.1 A background supervision of theenvironment is implemented monitoring program is contracts with thebefore and after the outfall completed private operatorsconstruction 3.2 A first annual

monitoring program iscompleted

4. Training workshops are 4.1 Training workshops arecompleted completed; training

participants include:Government officials, localauthorities, representativesof hotel and tourism sector,environmental NGOs, andcommunity organizations

5. PSP contracts control and 5.1 The committee conductssupervision committee regular meeting at leastoperative and performing twice a month and produces

quarterly reports and anannual performanceevaluation report

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Narrative Summary Key Performance Indicators Monitoring and Evaluation Critical AssumptionsProject Components/Sub- Inputs: (budget for each (Components to Outputs)components: (see Annex 2 component)for project description)

1. Construction of the 1. US$4.28 M * The PCU will prepare * The nextwastewater conveyance periodically detailed Government honorssystem, treatment project implementation the agreement toinstallations and submarine reports and will provide deliver theoutfall for Sosua annual audited financial responsibility of water

statements of the project and sewerage services2. Preparation and 2. US$0.46 M * Bank supervision provision to a privateimplementation of the missions will visit the operatormodel for incorporating the Dominican Republic * The private sectorprivate sector in the two or three times a responses positively toprovision of water supply year depending on the the proposed serviceand sewerage services in the volume of works and contract and sufficientPuerto Plata/Sosua/Cabarete unforeseen bids are submittedregion circumstances * The Government

complies with its3. Monitoring of the coastal 3. US$0.56 M agreement to transferenvironment before and management of waterafter the construction of the and sewerage servicesoutfall to the private sector

* An agreement is4. Training and 4. US$0.21 M reached in tariffsdissemination of the between the operator,technology of small- fNAPA and the otherdiameter outfalls for local playerswastewater disposal (in * INAPA successfullycooperation with PAHO) manages the process ofand of PSP process house and hoteldevelopment experience connections to the

5. Establishment and 5. US$0.11 Sosua seweragefhnl and ~~~~~~~~~~~~~~systemprovision of technical and* Installation of thefinancial support to the submarine outfall at amechanism for control and water depth of 140supervision operation meters is completed

successfully without

6. Project management and 6. US$1.62 M obstacles, the outfalldesign pipe is resistant towater pressure and

hurricanes/storms* The PCU is staffed

with competentprofessionals andsucceeds to implementthe project

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Narrative Summary Key Performance Indicators Monitoring and Evaluation Critical AssumptionsGovemment

complies with itsagreement to hire aconsulting firmspecialized inimplementation ofwater and sewerageproject, in the Bank'sprocurementprocedures and infinancial managementto assist it in projectmanagement and

.______________________ .________________________________ implementation.

See details on monitoring indicators in Annex IA.

The PCU will provide the Bank with regular reports detailing the status of project implementation and the evolution ofkey performance and monitoring indicators.

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Annex 1A Key Performance IndicatorsDominican Republic, Wastewater disposal in tourism centers project

The key performance indicators for the project development objective include:

(a) The concentration of coliforms resulting from the submarine outfall within a distance ofhundred meters (100 m) from the beach, should be less than 100 MPN x 100 ml, where 100 MPNmeans a hundred most probable numbers, and 100 ml means hundred milliliters; and

(b) The PSP Model is implemented successfully with the hiring of the Private Operator to providewater and sewerage services in the Project Area, and the initiation of the operations by the PrivateOperator.

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Annex 2 Project DescriptionDominican Republic, Wastewater disposal in tourism centers project

Project component I - US$ 4,28 million - Construction of the wastewater conveyance system, treatmentinstallations and submarine outfallfor Sosua

This component includes:

1. Construction of six sections of main collectors for: (a) connecting the existing sewerage networks ofSosua with the pumping stations; (b) enhancing the capacity of existing collectors sections ofinsufficient capacity; (c) conveying the wastewater to the treatment plant; and (d) for connecting theexisting Upflow Anaerobic Sludge Blanket Reactor (UASB) treatment plant to the submarine outfall.These six section are: (i) a PVC collector of 350 mm diameter and 800 m length to connect thenetwork of the East Batey neighborhood to pumping station EB2; (ii) a PVC collector of 200 mmdiameter and 650 m length to connect the low part of the San Antonio (Charamicos) neighborhood topumping station EB 1; (iii) a section of a PVC of 600 mm diameter collector to be installed in parallelto collector CRC-CRP between manholes CR578 and CR578', with a length of 104 m, to obtain theflow capacity required; (iv) a section of a PVC collector of 350 mm diameter to be installed inparallel to the gravity collector which connects manholes CRC and CRP, with a length of 106 m, toobtain the flow capacity required; (vi) a PVC collector of 450 mm diameter and 180 m length toconnect manhole CRP, located at the entrance to the treatment plant site, with the INAPA UASBtreatment plant, including connection to the by-pass; and (vi) a HDPE collector of 350 mm diameterand 305 m length to connect the existing USAB treatment plant to the submarine outfall.

2. Construction of four pumping stations, three of which connect various neighborhoods of Sosua to themain pumping station (EB 1), which in turn pumps the wastewater to the treatment plant site. Thesestations would occupy small areas in the range of 180-2060 m2 each (180 m2 for stations 4, 450 m2 forstations 2 and 3, and 2060 m2 for station 1). The characteristics of the pumping stations are:

Pumping Required Pumping E uipmentforYear-2010Stationb Number of Flow per TDH HP perNaune Pumps Pumnp (m) pump

Station 4 2+1 10 4.8 1.5

Station 2 2+1 60 26.2 35.0

Station 3 2+1 35 24.0 20.0

Station 1 2+1 110 37.6 90.0

TDH: Total Dynamic Head

3. Construction of the preliminary treatment component recommended for the outfall discharge system.This component would be located upfront of the new treatment plant currently under construction byINAPA. The project would finance the preliminary treatment installations which consists of a finescreening installation of 6-10 mm, an aerated grit chamber for removal of grit and grease and amicroscreening installation with an opening of I mm, which includes also washing and compacting ofthe screened material. This preliminary treatment component would have the capacity to removeflotables and grit, as well as oil and grease (expected percentage removals: reduction of suspendedparticles with diameter larger than 0.75 mm by 100% which corresponds to the effect of primary

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treatment in a settling tank, reduction of other undissolved materials by 80-90%, reduction of BOD by10-20%). The project would also finance the installations for the appropriate handling of the separatesolids (screening and grit). INAPA would finance and construct the remaining 20% of the civil worksneeded for completion of the overall treatment plant. However, part of the equipment required tocomplete the plant would be financed by the project, including: power connection, emergency powergenerator and a water quality laboratory. This plant is an upflow anaerobic sludge blanket (UASB)wastewater treatment plant with a capacity of 100 Us. This UASB plant has the capacity of removingabout 50% of the BOD of the incoming sewage, but it cannot remove pathogenic organisms. Asemphasized earlier, BOD is not a critical parameter in the outfall system, so the usefulness of theUASB plant is limited. However, since the plant is almost complete and INAPA is committed tofinishing the facilities (the construction contract is nearing completion) it was decided to incorporatethe plant in the wastewater management scheme. Nevertheless, the outfall design is based on theassumption that only preliminary treatment is provided. The complex operation of the UASB plantand the poor operational record of INAPA does not provide enough assurances that the plant wouldfunction properly. The performance of the outfall with the preliminary treatment component (whichis very easy to operate) would achieve the environmental design standards. As wastewater peakflows increase with time, the preliminary treatment component would be upgraded to handle them. Itis not planned to upgrade the UASB plant, as it does not provide a level of treatment which ismeaningful prior to discharge to the sea.

4. Construction of the submarine outfall for pre-treated wastewater discharge. The outfall would beconstructed of an HDPE pipe with inside diameter of 0.635 meter (nominal diameter 24"). Theoutfall length would be 600 m and the discharge point (diffuser area) would be submerged at a depthof 140 meter. The diffuser would have a length of 70 meter, with 16 orifices of 0.105 meter diameterspaced every 4.3 meters. The total required pumping head for peak flow conditions would mostprobably be achieved by gravity without the need for additional pumping, since the treatment plantsite is located at a sufficiently elevated site. The spacing between the concrete ballasts on the outfallwould be 3 m and 200 ballasts would be installed on the outfall, each weighing 1650 kg. The spacingbetween the concrete ballasts on the diffuser would be 7 m and 10 ballasts would be installed on thediffuser. The above design conditions would ensure that environmental protection standards areachieved, as described in Annex 9. The Pan-American Health Organization (PAHO) will be invitedto participate in the review of the design of the outfall, and provide input and comments.

Project component 2 - US$ 0.46 million -Preparation and implementation of the Private SectorParticipation (PSP) modelfor the provision of water supply and sewerage services in the PuertoPlata/Sosua/Cabarete region

This component, partially financed under the project, includes:

1. The preparation of bidding documents and draft contracts for the selection and contracting of aprivate operator to manage the water and sewerage services in the pilot region;

2. Technical support to the Govemment during the proposals evaluation and selection process, contractnegotiation and signing;

3. Technical support during the design of control and auditing mechanisms to regulate the contract; and

4. Monitoring and evaluation of the PSP preparation and implementation process to identify lessons thatcould be used in similar processes in other tourism centers in the country.

The Govemment has agreed to hire a consulting firm which would assist in carrying out the pre-qualification and bidding processes for selecting the private operator.

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Project component 3 - US$ 0. 56 million - Monitoring of the coastal environment before and after theconstruction of the outfall

This component would include activities to gather and analyze the necessary environmental informationto test the effectiveness of the small-diameter outfalls for safe disposal of treated wastewater of small andmedium-size towns in the northern and southern coasts of the Dominican Republic. The monitoringprogram would start before the construction of the outfall in order to collect baseline information of thecoastal environment. The pre-construction environmental conditions would be compared with the resultsof the monitoring phase after the outfall enter into operation.

The monitoring program would be designed based on similar programs developed for outfall systems.The sampling points would be chosen to provide sufficient information to determine the fate and transportof the treated wastewater discharged through the outfall diffusers. Generally, sampling points are chosenaround the discharge zone at various depths, as well as along the coastline, the initial dilution zone,sensitive receptors, and restricted areas. The monitoring program will also include sampling and analysesof sediments at the sea bottom in the vicinity of the outfall diffuser.

The parameters to be monitored include microbiological, physics, chemical and biological, such as:temperature, salinity, total and fecal coliforms, fecal streptococci, dissolved oxygen, suspended solids,grease and oil, and benthic samples, among others.

The results of the monitoring program should indicate whether the treatment processes in the ocean areworking according to the outfall design criteria. It is important to note that outfalls often result ingenerating less negative environmental impacts that predicted by the models because of the conservativeassumptions used in the modeling of complex hydrodynamic coastal systems. In the unlikely case thatthe outfall performance does not conform to the planned environmental standards, additional treatmentcapacity would be added prior to outfall discharge. The monitoring program may also provideinformation to prioritize future investments. For example, if the pre-treatment for wastewater to bedischarged through the outfall is sufficient, as planned, and the beach continues to be polluted bydischarges from surface water discharges, it may be more cost-effective and protective of the environmentto extend the wastewater collection network than to provide additional wastewater treatment prior tooutfall discharge. This component would also include the purchase of monitoring equipment.

PAHO will be invited to participate in the preparation and implementation of the monitoring program.

Project component 4 - US$ 0.21 million - Training and dissemination of the technology of small-diameter outfalls for wastewater disposal and of the experience of the PSP processes development

In order to ensure that the lessons learned through the implementation of this LIL project are disseminatedand used in other tourism areas, as well as other small and medium-size coastal cities in the Caribbeanand Latin American, this project component would include training and dissemination activities. Theobjective of this component, to be implemented in partnership with PAHO, is to use the pilot area as acase study for dissemination of the small-diameter outfalls as a viable technology for small and medium-size coastal tourism centers. In addition, the objective of this component is to disseminate the experienceaccumulated during the preparation and implementation of the PSP processes.

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This component would include the following activities:

1 Preparation of a small-diameter outfall manual under the sponsorship of PAHO and the World Bank.The manual would present the technology of small-diameter outfalls and its use as an appropriatewastewater disposal alternative. The manual would be tailored to small and medium-size coastalcities in developing countries, as opposed to the previous World Bank's Technical Paper "WastewaterManagement/for (C7oastal Cities" [2] which focused on large-diameter outfalls. The manual to beprepared under this component of the project is expected to have ample distribution worldwide.

2. A workshop to present the small-diameter outfall technology to government officials, localauthorities, the local consulting engineers community, representatives of hotel and tourism sector,environmental NGOs, and community organizations, especially from other tourism centers.

3. A second workshop that would take place during construction of the outfall in Sosua to illustrateconstruction techniques and transfer of technology to interested parties from other tourism centers,consulting engineers and participants from other countries in the region interested in small-diameteroutfalls. PAHO would participate in the coordination of the two workshops and the transfer oftechnology.

4. A third workshop which would take place after the transfer of the services management responsibilityto the private sector, to disseminate the experience gained during the development of the PSPprocesses to interested parties from the other tourism centers (Mayors and local governmentrepresentatives), all interested Government agencies, community leaders, hotel industryorganizations, NGOs, consulting engineers and participants from other countries in the region.

Project component 5 - US$ 0.11 million - Establishment and support to the mechanism for control andsupervision of the operation contract

At present there are no legal and regulatory framework in the Dominican Republic which promote PSP in thewater sector. Activities for preparation of an adequate legal and regulatory framework are under preparationwith support of the IDB. Until the new law is enacted, the PSP contract which would be prepared under theproject will define its legal framework and control arrangements. A specific mechanism for supervision andcontrol of the operation contract needs to be developed (see Annex 10). During appraisal it was agreedthat the Government would submit a proposal regarding the control and supervision mechanism whichwould be used under the project. Technical and financial support would be provided under the project tomake it operational and active. The control and supervision activity would also include control of therequired environmental aspects, i.e., environmental supervision and inspection of the operator, after hetakes over.

The contract control and supervision mechanism should also include supervision of the environmentalmitigation plan and the oversight of the monitoring program of the coastal environment before and afterthe construction of the outfall. This work will include ensuring, during the design period that all therequired environmental aspects are taken in account, as well as environmental supervision and inspectionof the operator, after he takes over.

2 Gunnerson, C.G. and J.A. French. (1988) "Wastewater Managementfor Coastal Cities", Technical Paper 77, TheWorld Bank, Washington, D.C.

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Project component 6 - US$ 1.62 million - Project management and design

This component would support project management activities carried out by the Executing Unit in theTechnical Secretariat of the Presidency. These activities include: hiring of all consulting services to carryout the studies required for preparation and design of the project; preparation of bidding documentsincluding environmental requirements for purchase of goods and equipment and implementation ofworks, coordination of work implementation with INAPA; coordination of the project AdvisoryCommittee which will be consulted at various stages of the PSP process; and financial management of theproject.

A series of studies will be included under this component such as oceanographic studies, detailed designof the submarine outfall and additional system components (collectors, pumping stations and preliminarytreatment installations), supervision of works, .etc. In addition, training programs will be carried out aswell as environmental awareness campaigns.

To enable the PCU to cope with all its tasks, the Government has agreed that it will receive the support ofa consulting firm which would be hired to help in managing and implementing the project, including thepreparation, management and carrying out of all the procurement processes and handling the financialmanagement of the project.

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|Fig 1: Layout of the main wastewater collection,|-: treatment, and disposal svstems for Sosua (Final Stacie)::

PS: Pumping StationPressure line (pumping)

Z Gravity lineRoad

CRC: Manhole (change from pressure to ,gravity)CRP: Manhole at entrance to the treatment / - LAplant /7 \

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.............. ... >PressureFlows correspond to hourly peak for theyear 2010 p- Gravity| Fig. 2: Operational Scheme of the Sosua Sewerage Network (Final Stage) |

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Annex 3 Estimated Project CostsDominican Republic, Wastewater disposal in tourism centers project

Estimated project costs by component, US$ millions

Project Component Local Foreign Total

Sosua Wastewater System 1.31 2.23 3.54PSP Model Implementation 0.12 0.28 0.40Coastal Waters Monitoring 0.50 0.00 0.50Training and Technology Dissemination 0.05 0.15 0.20PSP Contract Control and Supervision 0.05 0.05 0.10Project Management and Detailed Design 0.51 0.93 1.44

Total Baseline Cost 2.54 3.64 6.18

Physical Contingencies 0.25 0.36 0.61Price Contingencies 0.15 0.06 0.21

Land Acquisition 0.27 0.27Taxes 0.23 0.23Front-end Fee 0.05 0.05

Total Proiect Cost 3.44 4.11 7.55

Estimated Project Timetable, US$ million, based on country 'sfiscal year

Project Component Total 2000 2001 2002

A. Sosua Wastewater System 3.54 1.35 2.19

B. PSP Model Implementation 0.40 0.40

C. Coastal Waters Monitoring 0.50 0.18 0.12 0.20

D. Training & Technology Dissemination 0.20 0.10 0.10E. PSP Contract Control and SupervisionCommittee 0.10 0.04 0.06

F. Project Management and Detailed Design 1 .43 0.88 0.43 0.12

Subtotal 1 (Project Base Cost) 6.17 2.95 2.90 0.32

Physical Contingencies (10%) 0.62 0.30 0.29 0.03

Price Contingencies 0.21 0.10 0.10 0.01

Subtotal 2 7.00 3.35 3.29 0.36

Land Aquisition 0.27 0.27

Taxes 0.23 0.23

Front-End Fee 0.05 0.05

Total Project Cost 7.55 3.67 3.52 0.36

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Detailed estimated project cost, US$ thousand

Materials & %BaseProject Component Equipment Works Studies Total Cost Local Foreign %Foreign Cost

A. Sosua Wastewater System 1782.24 1757.50 3539.74 1308.26 2231.48 63 57.4

Al. Collectors in Sosua 193.08 246.20 439.28 439.28 0.00 0 7.1

A2. Pumping Stations 820.57 347.64 1168.21 560.74 607.47 52 18.9

A3. Preliminary Treatmant 235.20 156.80 392.00 156.80 235.20 60 6.4

A4. UASB Treatment Plant 133.39 36.87 170.26 36.37 133.89 79 2.8

A5. Submarine Outfall 400.00 970.00 1370.00 115.08 1254.92 92 22.2

B. PSP Model Implementation 400.00 400.00 120.00 280.00 70 6.5

C. Coastal Waters Monitoring 500.00 500.00 500.00 0.00 0 8.1D. Training & TechnologyDissemination 200.00 200.00 50.00 150.00 75 3.2

E. Establishment and initialsupport to the mechanism ofcontrol and supervsion of thecontract with the private operator 100.00 100.00 50.00 50.00 50 1.6

F. Project Management andDetailed Design 1430.00 1430.00 505.00 925.00 50 23.2

Fl. Geophysical Studies 100.00 100.00 0.00 100.00 100 1.6

F2. Oceanographic Studies 50.00 50.00 50.00 0.00 0 0.8F3. Preliminary Design andSupervision of Outfallconstruction 300.00 300.00 0.00 300.00 100 4.9

F4. Detailed Design ofCollectors, Pumping andPretreatment, and Supervisionof Works 300.00 300.00 300.00 0.00 0 4.9

F5. Management andImplementation Firm 400.00 400.00 0.00 400.00 100 6.5

F6. Procurement Audits 30.00 30.00 30.00 0.00 0 0.5

F7. EU Personnel Expenses 250.00 250.00 125.00 125.00 50 4.1

Total Base Cost 1782.24 1767.50 2630.00 6169.74 2533.26 3636.48 59 100.0

Physical Contingencies 178.22 175.75 263.00 616.97 253.33 363.65 59 10.0Price Contingencies 213.07 150.52 62.55 29 3.5

Total Project Cost 6999.79 2937.11 4062.67 58 113.5

Land Acquisition 269.20 269.20 0.00 0 4.4Duties and Taxes 226.83 226.83 0.00 0 3.7

Front-end Fee 50.00 0.00 50.00 100 0.8

Total Investment 7545.82 3433.15 4112.67 55 122.3

S iU

HLE -E -ul~. & 0

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Annex 4 Cost-Benefit AnalysisDominican Republic, Wastewater disposal in tourism centers project

The proposed Learning and Innovation Loan supports two main objectives: (i) improve environmentalconditions, specifically the deterioration of coastal areas caused by poor waste management, by theconstruction of a wastewater disposal system in Sosua and (ii) prepare an innovative pilot model toincrease private sector participation (PSP) as a way to provide a better service than currently offered bythe state water companies.

In view of these two objectives respectively, two separate analyses have been conducted: (i) an economiccost-benefit analysis of the proposed wastewater disposal investment, summarized in this Annex 4 and (ii)a financial assessment of the future private operations as they are envisaged by the Government,summarized in Annex 5.

1. Objective

The cost-benefit analysis presented below aims at determining whether the proposed wastewater disposalinvestment in Sosua is economically viable. We conducted a simplified cost-benefit analysis, in view ofthe limited economic information available and of the pilot character of the Learning and InnovationLoan. It focuses on the two main beneficiaries of the project: (i) the local population which will benefitfrom improved sewerage services and (ii) the tourism industry which will benefit from the better qualityand cleanliness of coastal areas.

Although the prime objective of the analysis is to assess the economic viability of the wastewater disposalsystem in Sosua as such, it focuses more generally on the costs and benefits of providing sewerageservices in the region. Indeed, while the construction of the sewerage collection system in Sosua is nearlycomplete, it is not operational because the last portion of the sewerage pipes that connects the networkand treatment plant has not been constructed yet. The LIL project includes the cost of connecting theexisting sewerage networks in Sosua to the new pumping facilities and enhances the capacity of Sosua'sexisting collectors. Therefore, the economic cost-benefit analysis does not differentiate the costs andbenefits of the disposal system from those of providing sewerage services to customers.

Note that a similar cost-benefit analysis has been conducted in parallel by an independent consultant tothe Government of the Dominican Republic, whose results confirm ours and are summarized below.

2. Methodology

To assess the economic viability of providing sewerage services in Sosua, we used the comprehensivemodel we developed to assess the financial viability of the future private operations and which isdescribed in details in Annex 5. The financial flows of costs and benefits were adjusted for the impact oftaxes, subsidy and management fee.

The model estimates the net economic benefits generated by the wastewater disposal project on anincremental basis, comparing the costs and benefits of a "with project" scenario to the costs and benefitsof a "without project" scenario. In the "with project" scenario, the wastewater disposal investment isimplemented, which requires the construction of the wastewater conveyance system, treatmentinstallation and submarine outfall and of the connecting network to Sosua and the maintenance of theseinstallations. In the "without project" scenario, the sewerage investment in Sosua is not made, whichtriggers a loss in tourism revenues as a result of the pursuit of coastal degradation in the area. The costsand benefits resulting from all other forecast investments, notably related to water services in Sosua andto water and sewerage services in Puerto Plata and Cabarete, are included in both scenarios.

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The main benefits of the project considered in the analysis include: (i) the provision of sewerage servicesin Sosua, (ii) an improvement in the local coastal environment, which should avoid losses in tourismrevenues in the region and would increase tourists' satisfaction. Although the improved hygienicconditions that result from the provision of sewerage services and the learning and demonstration effectthat a low cost technology is feasible to reverse environmental degradation along the coast are clearlybenefits, they have not been quantified in the analysis.

To measure the economic benefits resulting from the provision of sewerage services in Sosua, we usedwillingness-to-pay estimates derived from a consultant's study carried out in July 1999. To measure thebenefits to the local tourism industry, we considered that they could be proxied by estimates of theexpected loss in tourism revenues if coastal degradation was allowed to continue. We also took intoaccount the savings that hotels would make as they will be released from having to provide their owncollection and treatment facilities. Finally, we measured the increased tourists' satisfaction by theirwillingness to pay for an improved coastal environment as estimated by the same consultant's study.

Two economic indicators have been used to assess the economic viability of the project: the Net PresentValue (NPV) and the Internal Rate of Return (IRR) of the incremental economic flows generated by theproject. To compute their NPV, these flows were discounted using a 12% discount rate which is assumedto be a proxy of the Dominican Republic's opportunity cost of capital.

The independent consultant's analysis was based on similar principles, but using a simplified cash flowmodel.

3. Assumptions

The primnary source of data was reports prepared by privatization consultants, under the supervision of thePCU, as they were used to establish the financial projections described in Annex 5.

Investment costs include, in the "with project" scenario, the construction costs related to the wastewatersystem works and the cost of connecting customers to the new system, including contingencies. Theytotal US$ 6.4 millions and are entirely spent in 2000. To these costs we have added the costs for theworks some families will have to mnake inside their house to connect to the new system. These costs havebeen estimated at US$ 360 per house and apply to 20% of local households.

In the '-without project" scenario, only the costs of expansion investments in water or in Puerto Plata andCabarete have been included.

The cost of constructing the nearly complete sewerage collection system in Sosua has been included inboth scenarios given that it is a sunk cost, independent of this project.

Operational & maintenance costs (O&M) include the costs of labor, power, chemicals, start up,maintenance, other costs and contingencies attributable to the provision of sewerage services in Sosua. Inthe "without project" scenario, only O&M costs attributable to water operations in Sosua or to operationsin Puerto Plata and Cabarete have been included.

Revenues are made, in the "without project" scenario, of water revenues generated in Sosua plus waterand sewerage revenues generated in Puerto Plata and Cabarete. In the "with project" scenario, revenuesinclude in addition the benefits resulting from the provision of sewerage services in Sosua and the tourismbenefits resulting from reduced coastal degradation to tourists and to hotels.

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Sewerage benefits in Sosua have been estimated by multiplying the willingness-to-pay estimates for thatservice (US$12.96 per family-month) by the target connection rates specified in the draft biddingdocuments.

Tourism benefits have been proxied by an estimate of the loss in tourism revenues which could beexpected if the environmental degradation was allowed to continue. We estimated it to represent aconservative 0.5% of the local tourism industry revenues. The latter have been calculated on the basis ofan-average revenue of US$95 per occupied hotel room per day (i.e. US$ 50 for the room plus US$ 15 pertourist). Revenues generated by occasional tourists have not been taken into account. Residual watercollection and treatment investment costs saved by the hotels that were not collected to the network andwill be after completion of the project have been estimated by an independent consultant to represent US$0.4 and US$ 0.3 per cubic meter respectively. We have assumed that only 25% of these costs were paidto foreign firms and would therefore represent a benefit for the local economy.

Benefits to tourists from benefiting from a cleaner coastal environment have been estimated on the basisof their willingness to pay for an improved environment. The latter has been estimated by an independentconsultant at $8.12 per visit to the Dominican Republic. We have not included short-term occasionaltourists in the calculation.

Changes in working capital have also been adjusted in the "with project" scenario to include, in additionto the working capital required for water operations and for Puerto Plata and Cabarete, the workingcapital necessary to support the sewerage operations in Sosua.

4. Results of the cost-benefit analysis

The results of the cost-benefit analysis show that the wastewater disposal investment is an economicallyprofitable operation with a positive NPV of US$ 4.3 millions and an IRR of 23%.

Base caseNPV (d, 12% US$ 4,319,000IRR 23%

The results from the cost-benefit analysis conducted by the independent consultant, which also includedbenefits to society in general, confirm the economic value added by the project, with a NPV of US$ 42millions at a discount rate of 12% and an IRR of 39%.

5. Sensitivity and risk analyses

The economic viability of the investment largely depends on the critical assumption that some tourismrevenues would be lost if the degradation in coastal environment was allowed to continue. Our base caseassumption in that regard is particularly conservative, assuming that only 0.5% of the region's tourismrevenues would be lost and that an average tourist farnily only spends US$95 per day in the country.With more optimistic assumptions, the economic viability of the project increases substantially.

Project NPV % of local tourism revenues lostUS$ niillions 0.5% 1.0% 1.5%Average revenue per hotel room

US$95 (US$ 50 per room plus 15 per tourist per day) 4.3 9.1 13.8US$1 10 (US$ 50 per room plus 20 per tourist per day) 5.1 10.1 16.0US$ 140 (US$ 50 per room plus 30 per tourist per day) 6.6 13.6 20.5

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IRR............ .- .. ... ......I........... ............ ..... ...........-...... .................... ............................ .................... ................ . - .1 ........

Average revenue per hotel roomUS$95 (US$ 50 per room plus 15 per tourist per day) 23% 38% 56%US$1 10 (US$ 50 per room plus 20 per tourist per day) 26% 43% 66%US$ 140 (US$ 50 prropls3petoitprda)30% 55% 92%

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Annex 5 Financial Assessment of the Future PSP CompanyDominican Republic, Wastewater disposal in tourism centers project

1. Objectives

The analysis which follows is aimed at (i) assessing the global feasibility of the pilot model envisaged bythe Government of the Dominican Republic to establish a PSP for the provision of water and sewerageservices in the pilot region of Puerto Plata, Sosua and Cabarete and the expected return to shareholders,(ii) assessing the debt service capacity of the future private operations and (iii) determining the main riskfactors and the sensitivity to these factors of the overall feasibility of the PSP.

The debt service capacity of the private operations has been analyzed even though the operator is not thedirect beneficiary of the Bank's LIL extended to the Government. Such analysis is however part of thegeneral assessment of the financial strength of the private operations. It is further justified by the fact thatthe private operator could receive a Government loan originated in the potential SIL loan would the Bankchoose to grant it to the Government following implementation of the LIL(s). We have assumed in ourbase case scenario that the Bank would indeed extend a SIL to the Government to finance futureinvestments in the sector, but we have conducted a sensitivity in case the operator had to recourse to othersources of financing.

2. Methodology

Based on reports prepared by privatization consultants, we constructed a comprehensive spreadsheetmodel. The model consisted in population and tourism forecasts, water and sewerage connection andmetering targets, investment programs, production and treatment capacity, personnel, operating costs andfinancing assumptions, which all fed into the cost-benefit analysis presented in Annex 4, the financialassessment summarized below and the risk and sensitivity analyses.

Unlike the cost-benefit analysis which calculates the net benefits generated by the wastewater disposalproject on an incremental basis ("with project" and "without project" scenarios), the financial assessmentdetermines the viability of the PSP program as proposed by the Government and after construction of theproposed wastewater disposal investments ("with project" scenario only).

The financial viability of the future private operations was determined by the following indicators:i) The net present value (NPV) of free cash flows (FCF) from operations, to verify if the PSP structure

as proposed by the Government in the draft bidding documents is financially viable or not (overallvalue of business);

ii) The internal rate of return (IRR) of future cash flows available to private shareholders (dividendsminus capital injections), to verify if the PSP structure is attractive to foreign and domestic investors(value to investors);

iii) The debt to equity ratio of the utility, to verify if the PSP structure allows the utility to maintain ahealthy balance sheet structure;

iv) The debt service ratio of the utility, to verify if it will have the financial capacity to serve its loans;v) The current ratio of the utility, to verify if the utility will remain sufficiently liquid.

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3. Assumptions

Proposed PSP structure

PS'P award criteria

In the draft bidding documents, the Government proposes to award the PSP contract on the basis of thesum of the present values of (i) the amount of water and sewerage investments the operator will require tobe financed by the Government (investment subsidy) and (ii) the amount of World Bank loan that theprivate operator will require to be on-lent by the Government to the PSP company.As a result of the high investment costs made necessary to reach the expansion targets set forth in thedraft bidding document, it cannot be excluded indeed that bidders will tie their realizing the requiredinvestments to their receiving some sort of subsidy from the Government (see detailed analysis below).

,S'tarting assets and liabilities

Under the PSP scheme, INAPA's activities in the region will be contracted out to private investors via thecreation of a special purpose PSP company with a minimum level of capital specified in the draft biddingcontracts. We assumed that none of the assets and liabilities of the existing public utilities would betransferred to the newly created private company. The operator will be required to employ a specificnumber of INAPA's employees, to be negotiated with the Government.

E'ST operations

As detailed earlier, during the Initial Operating Phase (IOP), which we assumed would last 2 years, theoperator will not be required to carry out expansion investments. He will then focus his activities onimproving performance, on the basis of the existing infrastructure (including the wastewater disposalsystem in Sosua). Improved performance would come from an improved revenue collection and a moreefficient commercial and financial management. In 2002, the Bank's SIL loan may be granted to theGovernment so that the operator has finance available to start the expansion program. A sensitivity is ranto assess the impact of the operator having to find alternative financing should the SIL not be granted.This is the start of the Normal Operating Phase (NOP).

New tariff regime

As of the beginning of the NOP, the draft bidding documents allow the operator to revise tariffs annuallyunder certain specific conditions and limits. The draft regulatory framework being discussed with theIDB is based on a similar principal but only allows tariff reviews every five years or in the case ofexceptional events, provided they are approved by the future regulator. It is intended that the provisionsof the bidding documents remain valid after the regulatory framework is in place, so that annual changesin tariffs should be allowed, but it cannot be excluded that the regulatory framework prevails and tariffscan only be revised every 5 years.

Time horizon of PSP contract

The take over of responsibility by the operator is assumed to take place at the beginning of 2000. Sincethe private operators will be required to carry out large investments under the bidding contract, the latterspecifies that the Normal Operating Phase will be 20 years, so as to allow time for the recovery ofinvestments. The terminal value of flows generated after that period has been assumed to be zero asinvested assets will be fully depreciated.

Basic operational assumptions

The main assumptions were based on: (i) the operational performance, customer base and physicalcapacity of the existing water utilities in the region, (ii) the expected efficiency gain from privateoperations, (iii) the operational and physical targets specified in the draft bidding documents, (iv) the

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financial requirements set forth in the draft PSP contract and (v) the constraints imposed by the localenvironment. Most assumptions were defined in detailed reports from privatization consultants.Obviously, the conditions imposed in the bidding documents and PSP contract are still subject to changes.

Items Operational assumptions, I~~~~~~~~........... ....................................................................................................... . ............................ ........ .............. ... ....Population * Local population growth based on official census and projections;

* Tourism growth derived from permit requests for new hotels;* Resulting total population growth decreases progressively from 3.1 % p.a. to

2.6% p.a.('onnection rates Based on targets specified in draft PSP document. The global water connection

rate increases from 86% today to 95% in 2020. The global sewerageconnection rate increases from 28% today to 76%.

Meterin_g rates Increases from 5 % today to 1 00%, based on targets-in draft bidding documentsPer capita consumption Based on statistics provided by the region's public water utilities. Assumed to

remain constant over time.Tariffs We assumed that tariffs will be revised in 2002 at the start of the NOP and that

the operator will be allowed 5-yearly tariff revisions to correct for the DR$depreciation against the US$. Two alternative initial tariff structures have beenused, which lead to similar results. Altemative 1 includes:* For the local population, tariffs are set at US$ 6.6 per family-month (about

US$ 0.65 per cubic meter) for both water and sewerage (US$ 13.2 in total),well below their willingness-to-pay levels estimated by a consultant at US$14.21 per family-month for water and US$ 12.96 for sewerage. However,this tariff represents a high 100% increase over the current average tariff;

* Tariffs to small commercial and industrial users, which are already quitehigh, are increased by only 25% to US$ 0.75 per cubic meter;

* For hotels, the current tariff is extremely low because their waterconsumption is strongly underestimated by INAPA. They could thereforebe increased (by about 200%), while remaining low, at US$ 25 per cubicmeter effectively consumed. The increased cost for hotels will becompensated by savings in building their own water collection andtreatment systems.

Altemative 2 would be to maintain the tariffs paid by the local population andthe small commercial and industrial users unchanged and to increase the tariffpaid by hotels to US$ 0.36 per cubic meter.

A detailed tariff study is under preparation to define the most appropriate tariff_ structure given local conditions and willingness-to-pay.

Revenue collection rates For the local population, assumed to improve drastically under the newoperator, from 50% today to 85% in 2005, with a slower improvement in 2002when the new higher tariffs are put in place (so that net bills in local currencyincrease at an acceptable rate). For hotels and commercial users, assumed toimprove from about 50% today to 95% and 93% in 2005 respectively.

Unaccounted-for water Estimated to gradually decrease from 40% of water consumption today to 24%.Power and chemical Based on the quantity of electricity and chemicals consumed per cubic meter ofoperating costs water produced in each stage of operations, times the real cost of powver and

chemicals, assumed constant. Note that the electricity cost is much higher(0.18$/kwh) than on the international market because of the small diesel powerplants in the region.

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Items 0perational assumptions, IIEmployees The bidding documents envisage that, at the start of the P SP, a number of

employees from INAPA will be transferred to the new private company.Consultants have estimated that a minimum of 234 employees would beneeded, which corresponds to a low productivity of 7.2 employees perconnection and results from the large number of small pumping stations. Theoperator is assumed to maintain the number of employees constant until itfinally reaches 4 employees per 1000 connections, considered as a long term_efficient level.

Labor cost The operator is assumed to raise salaries to a private company level during the__________________two first years of the PSP (+25% p.a.). Then, they follow inflation (±2% p.a.).

Other operating costs Defined as a percentage of power, chemical and labor costs, including a 3%___________________supervision cost to be paid to the future regulator.

Management fee A "management fee" is assumed to be paid to the new management team equalto 5% of operating income.

Capital expenditures Estimated on the basis of consultant reports in order to achieve the physicaltargets set forth in the draft bidding documents, plus a 15% contingency cost.A total of US$26bn is invested in water and US$39bn in sewerage over the 20I ear period.

Financial assumptions

Items Financial assumptionsTaxes 30% of income before tax.Exchange rate Assumed to depreciate by 2% in real terms per annum in pursuit of the trend

observed over the last 5 years.Discount rate 12%, a proxy for the Dominican Republic's opportunity cost of capital.Accounts receivable Defined as 50 days of uncollected revenues.Accounts payable Defined as a constant percentage of capex and operating costs.Inventory Defined as a constant percentage of chemical costs.,S'hort-term debt Issued annually in the context of working capital lines of credit, in an amount

equal to 10% of operating costs. Bears a 15% real interest rate.Long-term debt Issued annually in an amount equal to the shortage of liquidity if any. Long-term

debt issued from 2002 to 2006 is assumed to be originated in the Bank SIL to theGovernment. It bears a 6.25% real interest rate, has a 5 year grace period and a 17year maturity. Long-term debt issued after 2006 bears a 8.5% real interest rate, hasa 3 year grace period and a 10 year maturity. In the base case scenario, US$4million long-term debt is necessary; this amount can reach US$10 milliondepending on the assumptions.

Equity financing Based on the minimum US$4bn capital required in the draft bidding documents.Legal reserve 5% of net income is distributed every year to the legal reserve until the latter

reaches 10% of social capital, as required in the new legal framework for limitedcompanies.

Dividend pay-out Includes a minimum dividend, except in three circumstances when no dividend ispolicy paid: (i) in years of capital injections, (ii) when net income is negative and (iii)

when cash flows after debt servicing are negative. If cash flows lead to an excess_of liquidity, the surplus is entirely distributed in additional dividends

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4. Results of thefinancial assessment

Based on the assumptions used in the base-case projections, the PSP appears financially viable asspecified in the draft bidding documents. It could in fact be viable without subsidy from the Government,but under the strict conditions that collection rates improve drastically and rapidly and that tariffs can beincreased to our base case levels.

If collection rates did not improve substantially and rapidly from their current level or if tariffs could notbe raised to sufficiently high level, bidders would have to significantly slow down or reduce networkinvestments to maintain a sufficient return. In order to protect themselves against such possibility, theyare likely to negotiate some additional financial comfort from the Government, be it under the form of asubsidy or otherwise (see below).

Note that, even with a drastic increase in revenue collection rates, our projections indicate that the privateoperations would likely be loss-making as long as the current tariff structure would be maintained as itdoes not allow to recover costs, especially if the private operator increases salaries to private sector levels.It is only when tariffs can be increased, that the company is profit-making. This confirms that tariffswould have to be raised independently of the PSP process.

The new tariff will however have to be defined with a lot of caution given the low current collection rateand the low income of the local population. To that respect, our second tariff structure altemative, wherethe tariff increase is entirely born by the hotels, presents substantial implementation advantages.

Our base case assumptions translate into a return on equity to investors of 23.3% and an overall returnfrom operations of 26.1 %.

Base case FCF from operations Cash flows to investorsNPV (c 12% US$ 4,545,000 US$ 4,263,000IRR 26.1% 23.3%

Under those assumptions, the private company would be able to maintain adequate financial ratiosthroughout the NOP, except for the current ratio, which remains very low during the entire PSP period asdebtors' accounts are reduced drastically while suppliers' accounts remain high as a result of the highprojected investments.

Min. debt Max. LT debt to Min. current ratioservice coverage equity ratio

Key financial ratios, 2002-2021 7.0 0.3 0.1

5. Sensitivity and risk analyses

Clearly, if our base case scenario shows that the private operations can be profitable under certaincircumstances without subsidy from the Government, it also highlights the drastic efforts the operator willhave to make to improve revenue collection despite the necessary sharp rise in tariffs. With the currentculture where most people are not charged and therefore do not pay for the water they consume, this is abet the operator will probably make only if he can secure some financial cushion to protect its returnagainst the cost of a slower improvement.

Such financial cushion could take the form of:* Achieving a higher personnel productivity;* Negotiating a lower energy cost;

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* Requiring a direct subsidy from the Government, possibly tied to the implementation of investmentsor to the level of collection rates.

We have conducted several sensitivity analyses highlighting the respective impact of such measures.

We have also analyzed the impact of changes in other key assumptions influencing the financial viabilityof the operations:* Exchange rate depreciation,* Investment cost overrun.

Finally, we conducted a sensitivity analysis on the terms of long term debt in order to highlight the impactof the Bank's SIL on the financial sustainability of the PSP program.

Slower improvements in revenue collection ratesOur base case scenario assumes that the average revenue collection rate will improve from less than 50%today to nearly 90% in 2006.

Average revenue collection rate 1999 2000 2001 2002 2003 2004 2005 2006 and afterTotal population 44% 54% 63% 63% 72% 79% 85% 89%

These higher collection rates will need to be achieved while the new tariff structure, implemented in2002, is put in place and leads to sharp tariff increases.

A reduction in residential revenue collection rates from our base case assumptions, or a reduction intariffs below our base case levels, would have a drastic impact on the overall financial viability of theprivate operations and on the return to investors.

Decrease in annual residential revenue collection rates below base case0% (base case) to 85% in 2005 -10% to 75% in 2005 -20% to 65% in 2005

IRR of operations 26.1% 16.3% 10.8%IRR to investors 23.3% 17.4% 12.2%

Given the difficulty to assess the real success of the operator to increase collection rates, we looked at hiscapacity to secure some financial comfort to protect its return against potentially lower collection rates.This comfort could take various forms.

Higher personnel productivity

The number of employees in the base case (234) has been assessed by consultants, taking into account thelarge number of pumping stations in different locations. It translates into an average productivity levelwell below best practice standards at 7.2 employees per 1000 connections. The private sector operatorcould be in a position to improve productivity above our base case scenario and negotiate that a lowernumber of employees from INAPA are transferred to the private company. The table below highlightsthat the viability of the private company could improve substantially if the operator managed and wasallowed to do so. In our most optimistic sensitivity with only 174 employees, his return increases to 28%while productivity remains below often achieved levels.

Number of employees in 2000234 (base case) 204 174

Employees per 1000 connections 7.2 6.2 5.4IRR to investors 23.3% 24.7% 27.7%

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This could compensate somewhat for a lower revenue collection rate as described in the table below.

IRR to investors With residential collection rate 10% With residential collection rate 20%below base case (75% in 2006) below base case (65% in 2006)

234 employees 17.4% 12.2%174 employees 21.2% 15.8%

Alternatively, it could allow lower tariffs to be applied (tariff increase of 150% for hotels instead of 200%for instance).

Reduced energy cost

Our base case scenario assumes that the operator would pay US$0.18/kwh, which is clearly above theaverage international energy price (US$ 0.09 to 0.12/kwh) and results from the low performing dieselpower plants of the country. However, the Govermnent is preparing the privatization of the energy sectorwhich should lead to more efficiency, or alternatively the private operator could negotiate bettercommercial terms or the possibility to use other power sources. The sensitivity of the private company tothe price of power is substantial as demonstrated in the table below.

.........- ------- ................... .,,,,....... ,,,,... .,, .. ........ . .. ,,,,,,,,,...........,. .... ,........... .. ,............ ,.,,, ......... ............ ..................... ..................................................

Energy cost US$0.18/kwh (base case) US$ 0.165/kwh US$ 0.15/kwhIRR to investors 23.3% 26.7% 30.2%

Again, this would nicely compensate for lower collection rates.

IRR to investors With residential collection rate 10% With residential collection rate 20%below base case (75% in 2006) below base case (65% in 2006)

Energy cost =US$0.165/kwh 17.4% 12.2%US$0.15/kwh 20.4% 18.3%

While the sensitivities above shown that some improvement in the operating performance or in theoperating costs of the private company might compensate for lower collection rates, they may not beachievable in the local context, where pumping stations are largely scattered and where the cost of energyremains above international standards. In that case, it is very likely that the future operator will negotiatea subsidy from the Government. Such subsidy could be tied to the implementation of some of therequired investments or could be conditional upon collection rates not improving sufficiently.

Subsidy from Government

The size of subsidy required would naturally depend on the rate of return expected by the future operatorand needs to be compared with the subsidy currently paid by the Government to the local public waterutilities (US$58 millions in 1998, of which US$41 millions for INAPA).

IRR to investors With residential collection rate With residential collection rate10% below base case 20% below base case

No subsidy 17.4% 12.2%Subsidy of US$ 2 mm 22.3% 16.3%Subsidy of US$ 4 nmm 29.6% 22.2%

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Exchange rate depreciation

The volatility of exchange rate depreciation has been relatively large in the past, so that we conducted asensitivity on the annual depreciation of the local currency. Our sensitivity shows that the privateoperations are highly sensitive to a depreciation if tariffs cannot be adjusted at all (because most networkinvestments are in US$). However, according to the draft bidding contract, the operator would beallowed to revise tariffs annually (or every five years if the draft regulatory framework prevails) as longas they do not exceed a ceiling defined in US$. Therefore, in case of a Peso depreciation, he would beallowed to increase tariffs so as to maintain them constant in US$. This mechanism provides an adequateprotection against a depreciation as illustrated in the table below.

IRR to investors Annual exchange rate real depreciation-2% -5% -7.5%

Without tariff revisions 15.0% 7.3% -3.8%With 5-yearly tariff revisions 23.3% (base case) 22.9% 22.4%

However, it is likely that, if tariffs are increased, the company will suffer from a fall in collection rates, ascustomers maintain their payments more or less constant in Dominican Pesos. Even in that case, theproject appears relatively robust to an exchange rate movement if tariffs can be revised every 5 years.

With water bills +/- Annual exchange rate real depreciationconstant in Pesos -2% (base case) -5% -7.5%IRRofFCF 26.1% 21.2% 17.1%IRR to investors 23.3% 20.8% 18.1%

Investment cost overrun

Although our base case scenario already includes a 15% contingency over cost estimates produced byconsultants, we conducted a sensitivity analysis on the effect of an additional cost overrun, to which theproject appears relatively robust.

Increase in annual capex above base case0% (base case) 5% 10%

IRR of FCF 26.1% 23.0% 20.3%IRR to investors 23.3% 21.9% 20.5%

Terms of long term debt

If the SIL did not materialize, the private operator would have to find some alternative commercial long-term financing in order to finance the required investments. Depending on his financial soundness andmarket reach, the terms of the debt may vary. We conducted two sensitivities, one using the same interestrate for all long term debts (8.5%), assuming the operator has no difficulty to raise additional financing atthat commercial rate. In the second sensitivity, we imagined the operator could only raise additionalfinance at a higher cost of 15%. This sensitivity highlights the importance of benefiting from the SIL forsome potential operators who may not enjoy an easy access to capital market or bank financing,especially if collection rates do not improve as required.

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Interest rate on LT debt to be originated in SIL-IRR to investors 6.25% (base case) 8.5% 15%Base case scenario 23.3% 23.0% 22.5%With residential collection rate 10% lower 17.4% 17.2% 15.8%With residential collection rate 20% lower 12.2% 11.9% 8.8%

ConclusionAlthough the PSP company appears viable under the conditions set forth in the draft bidding documentswithout Government subsidy, it is likely that the future private operator will negotiate some additionalfinancial comfort to protect his revenues from the risk that collection rates do not improve sufficiently,especially following the sharp required tariff increase. Such comfort could take the form of a betteroperating performance if the operator is able to operate with a lower number of employees, or to negotiatebetter commercial terms for the purchase of energy or can find more efficient power sources,...However, it cannot be excluded that the local circumstances prevent such higher performance to beachieved, in which case the operator would most probably request a direct subsidy from the Government,possibly tied to the implementation of required investments or conditional on achieved collection rates. Ifsuch comfort was not granted to the operator one way or the other, the risk could not be excluded that hewould not be in a position to finance all required investments.

The analysis above also underlines the importance of educating the population to the necessity of payingfor the future improved water and sewerage services. As regards the latter, we received reassurance that(i) if collection rates are so low at present it is because people are not charged for the water they consumerather than because they do not pay their water bill and (ii) the willingness to pay for water services willimprove strongly as the quality of service improves under the management of the private operator.

Finally, the analysis underlines the necessity to provide protection for the poor in order to ascertain thatthe new tariffs remain affordable to them. Cross- or direct subsidizes may have to be used for instance,along the lines of our second altemative tariff structure.

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Table 5A: Future Water and Sewerage Company, key financials

Future water and sewerage private company, Puerto Plata, Sosua and Cabarete2000 2001 2002 2003 2004 2005 2010 2015 2020 2021

Income statement items

Total revenues 3,230 3,882 6,560 7,832 9,783 10,851 13,443 14,984 17,641 17,630

Total operating costs (3,956) (4,440) (4,934) (5,437) (6,077) (6,635) (7,421) (8,169) (9,063) (9,189)

Operating income (727) (557) 1,626 2,395 3,706 4,216 6,022 6,815 8,577 8,441

Net interest income (55) 31 43 (12) (74) (128) (325) (235) (135) (122)

Depreciation 0 0 (76) (152) (225) (378) (1,093) (1,745) (1,984) (1,995)

Pre-tax income (781) (527) 1,593 2,231 3,407 3,710 4,603 4,835 6,458 6,324

Taxes 0 0 (478) (669) (1,022) (1,113) (1,381) (1,450) (1,937) (1,897)

Netincome (781) (527) 1,115 1,562 2,385 2,597 3,222 3,384 4,521 4,427

Main balance sheetitems

Net fixed assets 0 0 1,936 3,796 5,583 9,384 24,283 32,874 31,369 30,470

Current assets 2,028 2,644 2,904 129 132 135 146 158 171 174

Total assets 2,028 2,644 4,840 3,925 5,715 9,519 24,429 33,032 31,541 30,644

Total equity 1,219 1,692 3,807 2,594 4,235 6,352 19,024 29,158 29,170 28,436

LT debt 0 0 0 0 0 1,533 3,379 1,779 294 83

Total liabilities 810 952 1,033 1,330 1,479 3,166 5,404 3,874 2,371 2,208

Total liabilities and 2,028 2,644 4,840 3,925 5,715 9,519 24,429 33,032 31,541 30,644equity

Key financial ratios

Exchange rate 15.6 15.9 16.2 16.6 16.9 17.2 19.0 21.0 23.2 23.7

Long term debt / capital 0 0 0 0 0 0.2 0.2 0.1 0.0 0.0

Total liabilities I capital 0.7 0.6 0.3 0.5 0.3 0.5 0.3 0.1 0.1 0.1

Current ratio 2.5 2.8 2.8 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Debt service ratio NA NA 18.2 25.6 36.4 24.2 8.2 8.4 17.3 19.6

Discount rate 12%

IRR of business 26.1%

NPV of business 4,545

ROI to investors 23.3%

NPV to investors 4,263

Key operational ratios

Employees per 1000connections 6.83 6.53 6.25 5.98 5.72 5.53 5.25 5.02 4.84 4.80

Revenues / employees 13.8 16.6 28.0 33.5 41.8 46.4 57.4 64.0 75.4 75.3

Operating costs/ 122% 114% 75% 69% 62% 61% 55% 55% 51% 52%revenues

Operating costs growth 0% 12% 11% 10% 12% 9% 2% 2% 3% 1%

Personnel costs / 32% 34% 31% 28% 25% 23% 23% 23% 23% 23%operating costs

Unaccounted for water 40% 39% 37% 36% 34% 33% 24% 24% 24% 24%

Average collection rate 54% 63% 63% 72% 79% 85% 89% 88% 88% 88%

Metering rate 16% 24% 32% 40% 48% 56% 96% 100% 100% 100%

Average connection 88% 89% 90% 91 % 93% 93% 94% 95% 95% 95%rate, water

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Average connection 35% 42% 49% 56% 63% 66% 70% 75% 76% 76%rate, sewerage

Annex 6 Procurement and Financial Management ArrangementsDominican Republic, Wastewater disposal in tourism centers project

Procurement

This loan provides funds to the Government of the Dominican Republic to: (i) construct an innovativesmall diameter submarine outfall for disposal of the wastewater of Sosua and the supporting systems toconnect the outfall to the Sosua sewerage network, and (ii) implement an innovative institutional modelbased on PSP in provision of the water supply and wastewater services in the Puerto Plata/Sosua/Cabareteregion. The PCU is located in the Technical Secretariat of the Presidency, which is not an executingagency and does not have experience and tradition in procurement. To strengthen the capacity of thePCU to manage the project and handle procurement, a specialized consulting firm will be hired, asmentioned earlier. This firm would have expertise in implementation of water and sewerage projects andin the Bank's procurement procedures and it would provide: (i) assistance in all the stages of procurementcycles which will be implemented under the project; (ii) training in procurement; (iii) supervision andquality assurance; and (iv) procurement capacity building.

Consulting services, goods and works for IBRD-financed activities would be procured respectively inaccordance with the provisions of the World Bank Guidelines for Selection and Employment ofConsultants by World Bank borrowers published in January 1997 and revised in September 1997 andJanuary 1999, and the Guidelines for Procurement under IBRD Loans and IDA Credits, published inJanuary 1995 and revised in September 1997 and January 1999. The procurement arrangements for theproject components are described below and summarized in the Tables A and B.

The activities expected to be implemented and financed under the project are the following:G Geophysical studies;

- Oceanographic studies,- Preliminary design of the submarine outfall;- Preliminary design of the wastewater pretreatment installations;- Detailed design of collectors, pumping stations and pretreatment installations;* Supervision of on-shore works;* Supervision of outfall construction, including environmental supervision;* Supply of pumping equipment and of equipment for the UASB plant;* Supply of equipment for pretreatment of wastewater;* Supply of pipes;* Construction of the submarine outfall under a turn key contract, including detailed design;* Construction of the collectors, pumping stations, preliminary treatment and UASB plant;* Preparation of the PSP process;* Carrying out a program of coastal waters monitoring before and after the construction of the

outfall;* Preparation of two seminars for training and dissemination of technology and PSP

development experience;* Preparation of "small diameter outfall design manual";* Hiring of a specialized consulting firm to assist in project management, implementation,

procurement, environmental control and financial management;* Hiring consulting services for carrying out an annual procurement audit;* Hiring of a consulting firm to assist in hiring the private operator;

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* Environmental awareness program;Preparation and implementation of environmental training programs;

* Consulting services for assisting in establishing the control and supervision mechanism of thePSP contract.

Works

Only two work contracts are envisaged under the project: (i) construction of the submarine outfall; and(ii) construction of all other systems including installation of the main sewage collectors, pumpingstations, and wastewater treatment installations. Contract (i) will be a turn key contract and will includepreparation of detailed design by the contractor, supply of all the materials and execution of all works.This contract, estimated to cost about US$ 1.56 million, will be procured through InternationalCompetitive Bidding (ICB) procedures since there is no expertise in the country to undertake such acontract. Contract (ii) with an estimated value of about US$ 1.0 million, which includes simple works ofinstallation of sewerage pipes, small pumping station and small wastewater treatment equipment, will beprocured through ICB as well. Both contracts will be procured under a single bidding process, withprovisions to award the two packages to one bidder or two.

Goods

The project would finance the purchase of goods such as pipes, pumping equipment, wastewatertreatment equipment, standby power generators, chemical and bacteriological laboratory equipment,transformers for connecting installations to the power network, computers, office equipment, instrumentsfor oceanographic measurements and vehicles. Goods estimated to cost more than US$ 250,000 would beprocured through ICB procedures. Goods estimated to cost less than US$250,000 and more thanUS$50,000 would be procured following National competitive Bidding (NCB) procedures, using biddingdocuments which would be approved by the Bank. Goods purchased in packages estimated to cost lessthan US$50,000 each would be procured through international or national shopping.

Consultant services/studies/technology dissemination and trainingThe project would finance: (i) implementation of oceanographic studies; (ii) geophysical study of the seabed to define the alignment of the submarine outfall; (iii) preliminary design of the outfall; (iv)preliminary design of treatment installations (v) detailed design of collectors, pumping stations andtreatment installation, (vi) supervision of on-shore works, (vii) supervision of the submarine outfallconstruction; (viii) hiring of top-level experts recommended by PAHO to review the outfall design andconstruction, prepare a design manual of small diameter outfalls and provide training services; (ix)monitoring of coastal waters quality (including sampling and laboratory analyses activities); (x)consulting services for preparation of the process of PSP in the provision of services, (xi) consultingservices for management and implementation of the entire project, including procurement and financialmanagement, (xii) consulting services of an environmental specialist; and (xiii) consulting services forperforming an annual procurement audit; (xiv) the fixed term consultants in the PCU; (xv) consultingservices for an environmental training and awareness program and (xvi) consulting services for assistingin establishing the control and supervision of the PSP contract.

The proposed procurement packages for the consulting services are the following:* Services of oceanographic and geophysical studies would be awarded to one consulting firm

and will be procured utilizing QCBS procedures (i and ii above);* Preliminary designs of the outfall would be awarded to an individual consultant as per Bank

Guidelines 5.1 through 5.3 (iii above);

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* Preliminary design of the treatment installations and detailed design of collectors, pumpingstations and treatment installations, and supervision of on-shore works, as well as supervisionof the construction of the outfall would be awarded to one consulting firm and will beprocured utilizing QCBS procedures (iv, v, vi and vii above);

* The hiring of the top-level experts recommended by PAHO to review the outfall design andconstruction, prepare the small outfalls design manual and provide training services would bedone on a single source basis. This is justified, in agreement with paragraph 3.9 of theBank's guidelines, by the fact that PAHO's experts have experience of exceptional worth forthe assignment as a result of its unique experience in the region and sector (viii above);

* The activities of monitoring of the coastal water quality would be awarded to one consultingfirm on the basis of QCBS procedures (ix above);

* Assistance in carrying out the pre-qualification and bidding processes for selecting the privateoperator will be provided by a consulting firm which will be hired utilizing QCBS procedures(x above),

* The hiring of consulting services for management and implementation of the entire project,including procurement and financial management, as well as of consulting services of anenvironmental specialist would be awarded to one consulting firm and will be procuredutilizing QCBS procedures (xi and xii above)

- The consulting services for performing an annual procurement audit will be awarded to aconsulting firm utilizing the fixed budget selection procedure (xiii above);

- The PCU staff will be hired under individual consultants' procedures as per Bank Guidelines5.1 through 5.3 (xiv above);

- The hiring of consultants for the environmental training and awareness program will be doneas per Bank Guidelines 5.1 through 5.3 (xv above);

* The hiring of consultants to help establish the mechanism for control and supervision of thePSP contract will be done as per Bank Guidelines 5.1 through 5.3.

Procurement costs by procurement arrangements are presented in Table A on page 60.

Bank prior reviewTable B on page 62 summarizes the thresholds for procurement methods and prior Bank review. Thesearrangement would result in prior review by the Bank of practically all the Bank financed contracts.

Procurement AuditsAn independent annual procurement audit will be carried out for the first two years of the project, toreview procurement methods.

Financial Management

Disbursement

It is expected that the proposed IBRD loan would be disbursed based on Project Management Reports(PMRs). However, until the project is considered capable of producing PMRs in a timely and effectivemanner, disbursements will be based on the traditional disbursement method. The loan closing datewould be June 30, 2003. The allocation of loan proceeds is provided in Table C on page 60. The loanwill be disbursed against (i) civil works at a rate of 100% for foreign expenditures and 30% of localexpenditures; (ii) purchase of goods at a rate of 30%; and (iii) consulting services at a rate of 100% for allstudies, designs, engineering, technical assistance and training.

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Special Account

A Special Account in US dollars will be established, on terms and conditions satisfactory to the Bank, atthe Central Bank of the Dominican Republic authorized to maintain an account in US$. Total advances atany given time would not be allowed to exceed the authorized allocation of US$ 1 million, representing20% of the amount of the loan, once disbursing via PMRs, or $500,000 under traditional disbursements.Replenishments of the Special Account, under the traditional disbursement method would be fullydocumented except for the following contracts which may be disbursed on the basis of Statements ofExpenditures (SOEs):* Goods costing less than $ 50,000 equivalent,* Works costing less than US$ 250,000;* Consulting services (firms) costing less than $ 50,000;* Consulting services (individuals) costing less than $ 30,000;* Training and workshops (all contracts).

Under PMR-based disbursements, the Special Account would be replenished at least quarterly, based onthe budget presented in the (PMRs), to assure liquidity of funds, and all replenishment applications wouldbe accompanied by reconciled statements from the bank in which the account is maintained, showing alltransactions in the Special Account. Supporting documentation would be maintained by the PCU for atleast one fiscal year after the year in which the last disbursement from the loan took place, and would beavailable for Bank staff and independent auditors review.

Reportinn

From the year 2000, the PCU would prepare and forward to the Bank quarterly PMRs (respectively byJanuary 31, April 31, July 31 and October 31 of each year) on the status of implementation of the project.The content of the PMR would be discussed and finalized by the date of effectiveness. The consultingfirm that installed the financial management system, or another qualified consultant, will also assist indesigning the report. By July 31 of each year, beginning in 2000, the PCU would prepare and forward tothe Bank an annual implementation plan detailing project activities contemplated for the subsequentcalendar year, and outlining counterpart funding requirements. These estimates of counterpart fundingrequirements would form the basis for budgetary requests by the respective agencies during the annualformulation of the national budget.

Not later than six months prior to project completion, the Bank and the PCU would collaborate inproducing: (i) an Operational Plan, indicating how project impact would be sustained; and (ii) anImplementation Completion Report (ICR) to assess project effectiveness and its contribution to theimprovement of sanitation services and environmental management in the Puerto PlatalSosua/Cabareteregion.

Financial Management. Accounting and Auditing

Bank specialists from LCOAA and LOAEL were heavily involved in project preparation and appraisal,including participation in a number of missions. During this time, an Action Plan was agreed upon withthe Borrower. It was agreed, consistent with the need for swift project startup and in recognition of therelative unfamiliarity by the staff of the Technical Secretariat of the Presidency with the Bank's operatingprocedures and financial management standards, that the PCU. with the assistance of a financialconsulting firm would establish an adequate financial management system. The system is now in place,but needs to be fed with relevant inputs and to be finalized.

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The PCU will maintain separate project accounts in accordance with accounting principles and practicessatisfactory to the Bank. Supporting documentation will be kept by the PCU for at least one year after thefinal disbursement of funds for the project. Project accounts maintained by the PCU would be auditedannually by independent chartered auditors acceptable to the Bank. No later than six months after the endof each fiscal year, the PCU would submit to the Bank copies of audit reports containing separateauditors' opinions on project accounts, PMRs and the Special Account. Detailed terms of reference forthe auditors will be prepared following the guidelines included in the World Bank's Financial AccountingReporting and Auditing Handbook.

Annex 6, Table A: Project Costs by Procurement Arrangements

In US$ million equivalentExpenditure Category Procurement Method Total Cost

(includingcontingencies)

ICB NCB Other N.B.F1. Works- Sosua Wastewater System 2.58 2.58works (sewerage, (1.56)' (1.56)wastewater treatment anddisposal)

2. Goods- Pipes, pumping equipment 1.93 1.93and wastewater treatment (0.47) (0.47)equipment

3. Services- Studies, designs, PSP 2.532 2.53preparation, Coastal waters (2.53) (2.53)monitoring

4. Miscellaneous

- PCU operating costs (staff) 0.283 0.28(0.28) (0.28)

-PSP contract control and 0.114 0.11

supervision (0. 11) (0.11)

- Training 0.055 0.05(0.05) (0.05)

Total4.51 2.97 7.496

(2.03) (2.97) (5.00)Notes: 1. Figures in parenthesis are the amounts to be financed by the Bank loan,

2. Various selection methods will be used including QCBS, selection of individualconsultants and single source contracting,

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3. Financing of the PCU staff, which will be selected under individual consultantsprocedures;4. The hiring of consultants to help establish the mechanism for control and supervision ofthe PSP contract will be done as per Bank Guidelines 5.1 through 5.3;5. Preparation of two seminars for dissemination of technology, and training expenses forselected staff to participate in other training courses (travel, subsistence and fees);6. Excluding front-end fee.

Annex 6, Table Al, Consultant Selection Arrangements

In US$ million equivalent

Selection Method Total CostConsultant Services (including

Expenditure Category contingencies)QCBS QBS SFB LCS CQ Other N.B.F.

A. Firms 2.29 0.05 2.34(2.29) (0.05 (2.34)

B. Individuals 0.58 0.58(0.58) (0.58)

Total 2.34 0.58 2.98(2.34) (0.58) (2.98)

Note: QCBS = Quality- and Cost-Based SelectionQBS = Quality-based SelectionSFB = Selection under a Fixed BudgetLCS = Least-Cost SelectionCQ = Selection Based on Consultants' QualificationsOther = Selection of individual consultants (per Section V of ConsultantsGuidelines), single source selection.N.B.F. = Not Bank-financed.Figures in parenthesis are the amounts to be financed by the Bank loan.

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Annex 6, Table B: Thresholdsfor Procurement Methods and Prior Review

Expenditure Contract Value Procurement Contracts Subject toCategory (Threshold) Method Prior Review / Estimated Total

Value Subject to Prior ReviewUS $ thousands US $ millions

1. WorksSubmarine outfall ICB All/2.58

contract>3,000 ICB A11/0

250-3,000 NCB All/0<250 Quotations (at least 3) First contract/0

2. Goods>250 ICB . All/1.78

50-250 NCB All/0. 15<50 International and National First contract/0.05

Shopping

3. Services

(a) Consulting Firms >200 QCBS All/2.3450-200 QCBS/Fixed Budget/Single All/0

source<50 Consultant Qualification Review of TORs only

(b) Individual >30 According to section V of All/0.58*Consultants Consultants' Guidelines

<30 According to section V of Review of TORs onlyConsultants' Guidelines

Total value of contracts subject to prior review: 7.43* Specific contracts such as those of the top-level experts hired to prepare the small diameter outfalls design manual and of theCCC members will be awarded on a single source basis.

Annex 6, Table C: Allocation of Loan Proceeds........ . .. ., , .... , . .. _..... ..... ... .. . ..... . .......- ----....... -------------------------.............................. .............- - ......... ._._ -- - - - ------- ---------------------.... .. .. ........ ....._.

Expenditure Category Amount in US$ Financing Percentagemillion

Civil Works 1.80 100% of foreign expenditures30% of local expenditures

Goods 0.50 30%

Consulting Services 2.44 100%Training 0.21 100%

Front-end Fee 0.05 100% payable to the Bank uponeffectiveness

Total 5.00

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Annex 7 Project Processing Budget and ScheduleDominican Republic, Wastewater disposal in tourism centers project

A. Project Budget (US$000) Planned Actual(At final PCD stage)

$50,000 47,500

B. Project Schedule Planned Actual(At final PCD stage)

Time taken to prepare the project (months)First Bank mission (identification) 07/21/1998 07/21/1998Appraisal mission departure 05/02/1999 08/22/1999Negotiations 05/10/1999 11/01/1999Planned Date of Effectiveness /J/19 _/_/19

Prepared by: Secretaria Tecnico de la Presidencia

Preparation assistance: Japanese Trust Funds

Bank staff who worked on the project included:Name Specialty

Menahem Libhaber Task Manager, Sr. Water and Sanitation EngineerOscar Alvarado Co-Task Manager, Sr. Water EngineerEde Ijjasz Environment and Water Resources SpecialistJuan Quintero EA, Sr. Environmental SpecialistMaria Elena Castro Social SpecialistSophie Sirtaine Financial AnalystPhilip Gray Private Sector Development SpecialistIssam Abousleiman Financial Management SpecialistDaniel Boyce Financial Management SpecialistVladimir Jadrijevic Sr. Procurement SpecialistMaria Victoria Lister Quality Assurance OfficerMichael Fowler Disbursement SpecialistLucia Villalobos Disbursement OfficerDaria Goldstein CounselKlas Ringskog Peer reviewerJordan Schwartz Peer reviewer

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Annex 8 Environmental Assessment SummaryDominican Republic, Wastewater disposal in tourism centers project

Introduction

To assist the Government of the Dominican Republic in addressing the problems related to waterpollution in the Puerto Plata, Sosua and Cabarete tourist area, the project will develop a cost-effectiveapproach to comprehensive wastewater management and water pollution control. The region of PuertoPlata, Sosua and Cabarete is one of the most important tourist destinations in the Dominican Republic.Known as the North Coast, this area has been largely developed by private investors and presentlycontains 197 hotels with a total of 14,698 rooms available. Sosua comprises 38% of the regions hotelcapacity or 4,425 rooms. The project will include investments for the collection, treatment and finaldisposal of domestic sewage.

Wastewater management needs for the Sosua area have reached critical levels. Water and sanitationinfrastructure for both the hotel investment community and the population in general is urgently needed toreverse the continuing trends in local resource degradation. To address the problem, the Government ofThe Dominican Republic has constructed a wastewater treatment plant in the vicinity of the InternationalAirport of Sosua. To connect this system with the Sosua sewerage network and provide for the ultimatedischarge of waste from the plant, the Government of the Dominican Republic is seeking a Learning andInnovation Loan (LIL) from the World Bank. The purpose of this loan is to connect the Sosuacommunity to the wastewater treatment system and construct a small diameter submarine discharge fromthe treatment plant to adjacent marine waters at a depth of 140 meters. This discharge is designed toprovide for ultimate disposal of Sosua wastewater in a safe and cost effective manner with minimumassociated environmental impacts. Innovations in institutional improvements will also be piloted in theLIL, by involving the private sector in the provision of the water, sewerage and solid wastes services inthe region.

When completed, the proposed LIL would: (i) improve water sewerage and drainage services in theregion by connecting the existing sewerage system to the treatment and disposal facilities; (ii) contributeto environmental cleanup and protection of the coastal area by providing installations for controllingpollution of sensitive beaches and aquatic ecosystems; (iii) support the application of new institutionalarrangements with private sector participation; and (iv) provided local officials with a learning experiencein the siting, design, construction and operation of small diameter, deep submarine discharges. Theexperience gained in this LIL operation might be used to assist in resolving similar environmentalproblems in other tourism centers in the Dominican Republic under a follow up Sector Investment Loan(SIL) operation.

Because of the potential for significant environmental impacts, this project was classified as Category Aunder the World Bank environmental classification system and a full Environmental Assessment (EA)was carried out following terms of reference agreed with the Bank. The environmental impact study wasundertaken by a team of local and international consultants contracted by he Project Coordination Unit(PCU) of the Technical Secretariat of the Presidency (Unidad Coordinadora del Programa, SecretariaT6cnico de la Presidencia). This report was submitted to the PCU for detailed review and is available inthe PCU's offices and other offices in the Technical Secretariat. Formal Bank review of the final reportswas carried out before appraisal and they conform fully to Bank policy guidelines regardingenvironmental and social issues. The report has been made available in the Public Information Center ofthe World Bank in Washington.

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Legal Framework

The most environmentally and socially sensitive component of the proposed project will be theconstruction and operation of an ocean outfall discharging into the Caribbean Sea. The DominicanRepublic does not have water quality standards for domestic sewage discharges through ocean outfalls.The most stringent water quality standards for total and fecal coliforms in surface waters with potentialrecreational uses were adopted for this project. These standards are shown in Table 1 and were adoptedas conditions to be met in all recreational beaches under outfall operation at the end of the design period.

Table 1Bacterial Standards for Recreational Water Use

(NMP/100 ml)Parameter Primary Contact Secondary

ContactTotal Coliforms 1000 | 5000Fecal Coliforms 200 1000

Existing Sanitation Conditions

The development of the Sosua tourism industry began in the 1970's with the majority of investmentoccurring after 1980. Waste management systems are largely private and local to the individual hotelsites. As a result public, community services are virtually non- existent. Wastewater managementtechnologies employed in Sosua reflect older (pre 1970) technologies. Wastewater management for themajority of the hotels consists of septic systems discharging to local infiltration ditches. Depending onthe proximity to the coast and the size of the hotel, discharges often overwhelm the assimilative capacityof the soils. In many cases, sanitary wastes surface to the topsoil with the rising tide, often saturating thesurface in the area of the leaching field.

Induced development or secondary development in Sosua has followed the hotel industry. Shops,restaurants, housing and other commercial developments have sprung up, usually without benefit ofplanning or supporting infrastructure. In these cases, wastewater management largely consists ofunderground discharges, with or without benefit of septic systems, or surface discharges to river or oceanreceiving waters. In Sosua, these systems serve an estimated population of 32,000 inhabitants.

Environmental Setting

The project location is in the area of Sosua, Dominican Republic. As part of the North Coast tourismzone, the area has been a popular tourist destination for over 30 years. Over this time, the level of tourisminvestment has grown and the population of the region has increased as a result of secondarydevelopment. As part of the North Coast system, Sosua represents approximately 30% of the region'stourism investment.

Physical EnvironmentPhysically, the region is a coastal zone composed of a rough, rocky coast with a series of beach baysdistributed between the coastal cliffs that dominate the area. This structure proceeds westward fromSosua toward Cabarete where the landscape changes in character from cliff coast to beaches bordered bysand dunes. South of the project area the terrain is initially composed of a flat, coastal plain forapproximately 10 Km where it encounters a karstic ridge system which rises abruptly from the plain. Ingeneral, the area from the mountains to the coast is composed of a series of wetlands sustained by thefreshwater discharge from the mountainous limestone formations. A coastal highway heading east - westis generally located in the area of a coastal dune system, which generally serves to maintain the wetlands

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to the south. Development in the area is largely distributed in a narrow belt between the highway and thecoast due to the proximity of the beaches. Land use to the south of the road is largely agricultural withthe majority of agriculture in the form of sugar cane.

In the vicinity of the coast, soils vary in depth lying on a substrate of limestone. Groundwater levels areclose to the surface and occur in sandy soils with high transmission rates. Sea level influence ongroundwater levels is strong and groundwater rises and falls with the tide. As waters approach the coast,saltwater contamination rises rendering these waters unsuitable for consumption. Winds arepredominantly from the northwest and rainfall in the area averages 1,446 mm per year.

Biological Environment

Biologically, the project area is heavily disturbed as human has converted most areas. There are remnantpatches of local plant communities located in the vicinity of the airport and along stream drainage in thearea. These remaining plant communities are also heavily disturbed. Bordering the project area to thesouth, between the mountains and the coastal highway are a series of interconnected wetlands. This areais largely composed of sedges, rushes, and grasses, which grow on a thin soil over lying the ancient beacharea. These wetlands are subject to periodic flooding after heavy rains and from the tidal cycle. Freshgroundwater occurs below the surface and rises and falls with the tide.

The near shore coast is composed of rocky cliffs dotted with occasional beaches. The marine systemsnear-shore are a mixture of patch reefs and rocky coast communities depending on local conditions.Development and human intervention has greatly damaged the existing reef systems in the region. Onenotable exception is the reef located north of the International Airport. This system covers approximately4 Km. and occurs from a depth of approximately 3-m to 30 m. This reef is one of the two systemsimportant to the SCUBA industry of the region. Endangered species in the area are limited to sea turtles,which are infrequently found in the project area.

Socioeconomic EnvironmentEconomically, the project area is dominated by the tourism industry. This is the principal source ofincome for local inhabitants and provides a significant source of revenue for the Dominican Republic ingeneral. Other industries in the region include associated commercial development and sugar caneagriculture. By far, the majority of inhabitants derive their living, either directly or indirectly from thetourism sector within the project area. Public health is generally good and the local citizens experience arelatively comfortable standard of living. Invasion of land and lack of suitable waste managementinfrastructure (solid waste and sanitary wastes) continue to present a threat to local environmental quality.This is expected to increase with the expansion of the tourism investment in the region.

Analysis ofAlternatives

Wastewater Collection

Alternatives for the main collection system were not considered under this study as the collection systemis to be connected with the existing sewerage network and the pumping stations and location of newconnections is dictated entirely by engineering requirements. Aside from the usual impacts associatedwith construction, such as noise, dust etc. no significant impacts associated with the collection of wasteswere identified.

Wastewater TreatmentSeveral alternatives were examined for the design of the pre-treatment plant to be constructed under this

project. Plant siting was dictated by the location of the existing treatment plant and alternate sites werenot considered. Technology to be employed in the pre-treatment of wastes was examined from the

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perspective of: (i) engineering feasibility and costs, (ii) maintenance, operation and sustainability, and(iii) the ability to achieve acceptable discharge standards from both health and environmentalperspectives. Of the technologies evaluated, consideration was given to advanced technologies andtechnologies requiring chemical treatments. These were eliminated form further consideration based oncosts and realities associated with local operation and maintenance of such systems.

Given the construction of the existing plant, treatment alternatives focused on 3 basic options. Thesewere: Alternative 1: use the existing Upflow Anaerobic Sludge Blanket (UASB) reactor plant and installsolids and grease removal systems in the form of a pretreatment facility; Alternative 2: modify theexisting plant to include solids and grease removal capability; and Alternative 3: provide treatment forsolids and grease and discharge effluents directly, bypassing the existing UASB plant.

Alternative 1 was selected as the most cost effective and, because of the improved treatment of wastesprior to discharge, represented the most desirable option in terms of reductions in discharge contaminants.Additionally, the no-action alternative was evaluated and found to be unsuitable based on the currentconditions and anticipated future growth for the region. The socioeconomic impacts of a no-actionalternative were considered major and unacceptable.

Final Disposal

Options for final discharge of treated wastewater included the following: (i) groundwater injection; (ii)discharge to surface receiving waters; (iii) rPCUse of wastewater for irrigation; and (iv) submarinedischarge. Local geology and physical characteristics of the area eliminated options I and 2 fromconsideration. Groundwater injection is limited to discharge to subsurface soils. Bedrock limestoneoccurs close to the surface and the local soil/groundwater regime does not have sufficient capacity toaccept the projected discharge loads. RPCUse of wastewater for irrigation is an appealing alternative,however there is no regional demand for such a system. As a result, submarine discharge became theoption of choice both from a cost and management perspective.

Based on the above findings, the environmental analysis focused on the submarine discharge. Using theoriginal engineering recommendations as the basis for the evaluation, a review of the proposed dischargesite revealed the presence of an important coral reef system in the project area. After discussion with theproject engineers, four alternative locations for the submarine discharge were developed. The criteriaemployed were to identify locations which: (i) protected waters likely to be used by citizens and touristsfrom excess bacterial contamination; (ii) protected beach and coastal areas from excess contamination;(iii) protect the reef from excess nitrogen and phosphate discharges; (iv) minimized or eliminatedconstruction and operation impacts to the reef system; and (v) minimized construction costs. Fourcandidate locations for submarine discharge were identified within the project area. These were:

Alternative 1: Directly north of the treatment plant, to a water depth of 140 meters.

Alternative 2: From a point at the eastern end of the airport and north to a depth of 40 meters.

Alternative 3: From Punta Sosua north to a depth of 40 meters (west of point 2).

Alternative 4: A point at the western end of the airport north to a depth of 40 meters (Calet6n).

In the evaluation of these alternative locations, alternative 3 was eliminated as it crossed the diving reefand presented possible significant economic and biological impacts. Alternative 4 was eliminated basedon greatly increased costs. Alternative 2 was environmentally acceptable but presented constructiondifficulties and slight risks to the reef system. Alternative I was considered best based on costs and

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biological considerations. Key to the selection of this alternative was the depth proposed for thedischarge. At below 100 meters, this discharge falls in an area where long-shore ocean currents provide astrong potential for rapid lateral dispersion of discharged materials. Furthermore, at the depth proposed,the discharge lies below a density gradient and thermocline restricting the discharge distribution to watersbelow 100 meters. In summary, the proposed location (alternative 1) was selected based on thefollowing: (i) contaminants restricted to below the thermnocline and density gradient, i.e., below 100meters; (ii) deep currents carry contaminants away from coastal areas; (iii) dilution takes place veryrapidly and contaminants likely to affect only the area immediately adjacent to the discharge site; and (iv)no significant biological communities exist in the proposed location.

Recommended Alternative

Based on the evaluation of environmental impacts and engineering constraints, the recommendedalternative for sanitary waste management for Sosua is shown in the following box.

Wastewater Management for SosuaThe design and construction of the main waste conveyance system from the serviced community to the treatmentplant site. Gravity drainage systeins will be employed where possible and the entire system will include the installationof 5 punping stations. Service will be connected to the Sosua Airport, The community of La Uni6n, and the coimnunityof Sosua. Population projections for the service area by the year 2020 are estimated at about 48,000 local year roundresidents and a population of approximately 17,000 tourists. This results in a projected population of about 65,000. Thecollection network will serve approximately 83% of the community.

Improvements to the existing treatment plant to remove grease, oils and solids. This treatment plant will beimproved with the addition of a pre-treatment system to include the removal of large solids, installation ofmicro-strainers for fine solids removal and a system for the removal of floating solids and grease. Solids collected fromthe pre-treatment system will be deposited in the regional solid waste landfill proposed under a different LIL. Thedesign of the pre-treatment unit will include the installation of an emergency by-pass system to be used, if necessary,during system maintenance operations. The pre-treatment system is to be located within the area of the existing plantand will discharge through this plant to the submarine disposal system.

The construction of a submarine outfall for disposal of the treatment plant effluent. The final part of the wastewatertreatment system proposed in this project consists of a small diaineter submarine outfall designed to transmit wastes fromthe treatment plant to a location due north of the plant at a depth of 140 meters. In the development of the criteria forthis discharge, a series of four scenarios were considered in the design and location of this discharge. The submarineoutfall planned for this project became the principal focus of this enviromnental assessment, as this is the one componentof the project with potential significant negative environmental impacts. During the development of this study, thepreviously proposed location for the discharge was found unsatisfactory as the impacts of its construction and operationwould have affected one of the two important coral reef systems in the region.

Environmental Impacts

Based on the implementation of the proposed alternative, the environmental impacts anticipated areconsidered minor. Project feasibility and environmental studies identified water quality as perhaps themost important concern for the installation of an ocean outfall in the region. Field studies and subsequentdispersion modeling efforts indicate that the selected outfall site and depth meets proposed bacteriologicalstandards. Toxic materials and heavy metals in the area's wastewater are practically non-existent giventhe tourism vocation of the area. There are no heavy polluting industry located in the area. Regardless ofthe low risk from toxic materials and heavy metals in sewage, the establishment of new industries withinthe city limits should be closely monitored and existing industrial and commercial facilities connected tothe sewerage network should reduce or eliminate hannful substances.

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Principal concerns initially raised on the project's impact on bio-diversity resources in the area are relatedto the impacts on the coral reef Water quality and ocean dispersion models proved beyond any doubtthat solids or nutrients from the outfall discharge would not adversely affect the reef. The depth of thedischarge point greatly eliminates marine biological impacts except in the immediate vicinity of thedischarge area, while the rapid dispersion and dilution of the discharge further limits this impact.

The project will include preliminary treatment facilities to remove objectionable solids and floatingmaterials, in addition to the UASB treatment plant. Therefore, sedimentation of organic materials isexpected to be of low magnitude and importance. The depth of the discharge point together with the lowcontent of toxic materials and heavy metals in the effluent discharge further reduce the risk ofaccumulation of toxic materials or the risk of biological assimilation.

Other minor environmental impacts identified are largely associated with the impacts of construction,some minor disturbance of the coastal vegetation and alteration of the submarine community in theimmediate vicinity of the submarine discharge pipe. Construction, operation and maintenance of thewastewater treatment system represent the principal sources of potential negative environmental impactsresulting form the project. Poor construction promoting leakage of transmission lines, failure of theoperator to properly dispose of solids collected from the system and failure to maintain the submarinedischarge in good working order are the principal risks from the project.

Mitigation of Impacts and Costs

The mitigation of the environmental impacts associated with this project are largely related to ensuringthat the design and construction is adequately implemented, personnel is adequately trained and that theoperation of the facility complies with the project requirements over the life of the project. Based on theimplementation of the recommended altemative, the design and operation of the system, as conceived, arerelatively simple. If constructed adequately, the project will likely present a minimum of maintenancecosts to the operator. The need for preventative maintenance activities is largely limited to servicingpumps, periodic pipe inspection, and the operation of the treatment plant. All environmentalrequirements will be included in operator's bidding documents and contracts.

The summary of environmental management costs is presented in the following table. The total costs forthe environmental component are estimated at $313,000 to be expended over the life of the project. Costsand activities are divided among the Planning and Design Phase of the project and the operational phase.A Technical Advisory Committee (different from the Advisory Committee) will supervise technical andenvironmental aspects of the project.

SUMMARY OF ENVIRONMENTAL MITIGATION COSTS

Phase kMitigation Responsible Costs |Supervision PeriodPLANNING Develop environmental Consultants 5,000 PCU* 2 weeksAND requirements and environmentalDESIGN contract clauses for the project

bidding documents and contractsEnvironmental evaluation of Consultants 2,000 PCU 1 weekcontract proposalsEnvironmental supervision and Teclnical Budgeted Life of thecompliance inspection over the Advisory under projectlife of the project Committee project

operation

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Phase Mitigation Responsible Costs Supervision PeriodTraining and strengthening of Consultants 15,000 PCU 3 monthsthe Technical AdvisoryCommitteeEquipment, laboratory Technical 60,000 PCU 6 monthsagreements and inspection Advisorysupport facilities CommitteePublic education campaign and Asociaci6n de 36,000 PCU 12 monthspublic participation program Desarrollo de

SosuaTraining of local staff Consultants 55,000 PCU 12 monthis

OPERATION Enviromnental supervision and Technical 140,000compliance inspection over the Advisorylife of the project Committee .

TOTAL (JS$) 313,000* PCU - Unidad Ejecutora del proyecto (Project Implementation Unit)

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Annex 9 Technical notes on the marine outfallDominican Republic, Wastewater disposal in tourism centers project

This annex presents two technical notes on the marine outfall: (i) an explanation and justification of theselection of the outfall as the altemative for wastewater disposal, and (ii) the results of a model for theeffluent discharged to the sea bed through the outfall.

1. Marine outfalls as an appropriate wastewater disposal alternative

The technical innovative strategic choice for this project is the use of small-diameter submarine outfallsas part of a system for safe and economic disposal of wastewater. Because marine wastewater disposalthrough sea outfalls is not a topic of general familiarity, this introductory section presents a generalreview of the processes and mechanisms at work in outfall systems, where dilution by mixing with largesea water volumes and degradation of pathogenic bacteria in the hostile marine environment are oftensufficient to achieve adequate water quality standards [3].

The availability of a highly developed wastewater treatment technology has in most parts of the worldobscured the fact that open bodies of sea water have a natural capacity to handle enormous quantities oforganic load. Many of the opponents of sea disposal appear to assume that sewage remains unchanged incoastal waters. However, treatment occurs in the natural environment and when wastewater is dischargedinto the sea after undergoing preliminary treatment, a number of changes in its quality take place, whichare equivalent to exposing the wastewater to a very high level of treatment [4]. This section presents adescription of these changes.

Section 1.2 describes the wastewater treatment processes (dilution, dispersion, and bacterial decay) thatoccur in the ocean after outfall discharge. Section 1.3 compares traditional wastewater treatment optionsand outfalls taking into account local conditions in the pilot area of the project. Section 1.4 compareswastewater treatment options prior to outfall discharge and presents recommendations on the preferredlevel of treatment. Section 1.5 presents design criteria for a small-diameter outfall in the pilot area.Finally, Section 1.6 gives some general conclusions on depths and performance of outfall in the pilot area.

General considerations

Extensive experience has shown that domestic sewage can be safely discharged to coastal waters throughlong outfalls equipped with efficient diffusers, as presented in the report of the U.S. Water Science andTechnology Board to the National Research Council [5]. Mathematical modeling and monitoring ofoperating outfalls generally shows that the effects of coastal outfalls are limited to a small area around thedischarges. This is true even for discharges of essentially untreated sewage, for example, the Ipanemaoutfall in Rio de Janeiro [6]. A typical ocean outfall discharge system is sketched in Figure 1. Sewage iscollected and transported to a treatment plant near the shore, from where wastewater is dischargedthrough a multiport diffuser.

3 Roberts, P.J.W. (1998). "Report on Proposed Sea Outfalls for the Dominican Republic". Report submitted toWorld Bank Project Team. Atlanta, Georgia.4 Uslu, 0. (1985). "Marine Outfalls as a Wastewater Treatment and Disposal Altemative in Developing Countries",In: ('uri, K, (ed.) Appropriate Waste Management for Developing (.`ountries. New York, Plenum Press.5National Research Council (1993). "Managing Wastewater in Coastal Urban Areas". Washington, D.C., NationalAcademy Press." Britto, E. R., Jordao, E. P., Semeraro, J., and Castro, W. M. (1986). "Ten Years of Operation of Rio de Janeiro'sIpanema Submarine Outfall." R. G. Ludwig and S. A. S. Almeida, Eds., pp. 177-187, Rio de Janeiro, 25-27August, 1986.

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The wastewater treatment performance of an outfall disposal system, in terms of its capacity to reduceorganic and bacteriological contamination, depends on three processes: (i) initial mixing and dilution; (ii)waste dispersion; and (iii) waste decay [7, 81

Initial mixing and dilution

When wastewater is discharged from a multiple port diff-user into a receiving water of greater density, thewaste is diluted by turbulent jet mixing. The multiple port diffuser is a series of orifices in the finalsection of the outfall that spread the wastewater discharge over a large distance, thereby avoiding asingle-point discharge and promoting mixing and dilution. Because sewage is very buoyant in seawater,the jets ejected from the diffuser become plumes that rise towards the surface. The turbulence generatedby these plumes causes energetic mixing in a region called the "near-field" or "hydrodynamic mixingzone." The velocity gradient between the edge of the plume and the surrounding water causes aturbulence and resultant mixing action as the plume rises toward the surface due to its buoyancy (seeFigure 1). Well-designed diffusers should result in an initial (near field) dilution of 100:1, which is wellbeyond what can be achieved, in terms of nutrients and organic matter, with a conventional secondarytreatment. This is an important difference between discharges in water bodies such as inland rivers andthe open ocean; in an inland river one of the key indicators of pollution is the depletion of the oxygencontent, but in the ocean there are few places, except in the immediate vicinity of the difffuser discharge,where oxygen depletion can be measured. The 100:1 design criterion suffices to meet toxic requirementsbeyond the near field and prevent excessive solids deposition in the vicinity of the discharge.

Figure 1Schematic Depiction of Ocean Outfall Wastewater Disposal System

Horizontal dispersion

Depending on the oceanic density stratification the plumes may reach a "trapping level" where they stoprising and begin to spread laterally. Near field mixing can continue in this spreading layer, but it

Burclhett, M.E., G. Tchobanaglous, and A.J. Burdoing. (1967). "A Practical Approach to Submnarine OutfallCalculations". Public Works, May, 1967.8 Leppe, A. anid D. Gonzalez. (1997). "El Emnisario Submarino como Sistemna de Tratarfiento de Aguas Servidas",In: Emisario Submarino. Empresa de Servicios Sanitarios del Bio-Bio, Chile.

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eventually ceases, forming a layer called the established wastefield. If the stratification is weak, theestablished wastefield surfaces. Whether the wastefield surfaces or not, it then drifts with the oceancurrent and is diffused by oceanic turbulence in a region sometimes called the "far-field." The rate ofmixing in the far field is much slower than in the near field but it further decreases the wasteconcentration already reduced significantly by the initial mixing and dilution. The horizontal dispersiondepends on factors such as the current velocity and the distance from the diffusers.

Waste decay

An important factor that serves to reduce the bacteriological concentration of the discharged wastewater isbacterial decay. This decay results from a variety of factors, the principal ones being mortality,flocculation, sedimentation. Other factors include osmotic shock (due to the turbulent mixing in theinitial dilution), sunlight effects, and presence of bacteria killing organisms. Bacterial decay from allcauses, with the exception of dispersion, is usually modeled as an exponential decay function with time:

Sb = IToT9l

Where Sb is coliform dilution, T is travel time, and Tgo is the time needed for a 90 percent reduction inbacterial population. Table 1 presents typical values of Tgo measured in outfalls around the world. Forexample, in Mayaguez, Puerto Rico, every 0.7 hours, the bacterial population is reduced by 90%.

Table 1Measured Bacterial Decay onstant ["I

Location TXo

Honolulu, Hawaii 0.75 orless

Mayaguez Bay, Puerto 0.7Rico

Rio de Janeiro, Brazil 1.0Nice, France 1.1Accra, Ghana 1.3Montevideo, Uruguay 1.5Santos, Brazil 0.8-1.7

The three processes described above are complex hydrodynamic processes. In the near field, the flow isturbulent and strongly modified by buoyancy effects. In the far field, the plume wanders and ages and issubject to a cascade of processes that result in efficient mixing and dispersion. If the plume is submerged,it is very unlikely to impact the shoreline. If it surfaces, the combination of near and far field dilution andbacterial mortality quickly reduces bacterial concentrations to low levels [1']. The level of bacteria thatmay reach the shore depends on the local currents and the travel time to shore. However, onshorecurrents are rare, and mathematical modeling is employed to ensure that shoreline bacterial standards aremet, which is another design criterion for the location, depth and other characteristics of the outfall.

9 Salas, H.J. (1994) 'Emisarios Submarinos". Centro Parainericano de Ingenieria Ambiental y Ciencias delAmbiente, Regional Office of the World Health Organization.10 Roberts, P.J.W. (1998) "Dispersion from Ocean Outfalls". Water Quality International, May/June 1998, pp. 43-48.

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Because of the complexity of the hydrodynamic processes, overly conservative assumptions aresometimes made to model these processes. For example, beach impacts are presumed to result fromdirect onshore transport of the plume combined with the lowest initial dilution and bacterial decay rates.Such "worst case" approaches may never occur in combination, however, or occur so infrequently as tobe unimportant. They may lead to overly pessimistic predictions of water quality impacts and possibly anunnecessarily advanced and costly level of sewage treatment. More realistic predictions are nowbecoming possible due to recent improvements in oceanographic instrumentation. The new modelingtechniques would be used in the design of the outfalls in Dominican Republic to present a realistic pictureof the statistical nature of wastewater plume evolution with time.

Conventional wastewater treatment and outfalls

When compared to conventional treatment plants in the pilot area selected for this LIL project in theDominican Republic, the outfall present clear advantages [9]: (i) smaller costs for similar levels ofenvironmental protection because sea water depths greater than 200 ft can be found close to the shore andthe oceanographic conditions are optimal for outfalls; (ii) the initial 1:100 dilution usually obtained withthe diffusers of submarine outfalls is much greater than typical reductions of nutrients and organic matterobtained with well-maintained and operated conventional secondary treatment; (iii) the mortality rates ofbacteria after the initial dilution in outfalls can reduce the pathogens to levels similar, or even lower, thanthose obtained with chlorinating effluents from secondary treatment plants; (iv) outfalls are more flexiblethan treatment plants to manage the highly seasonal flows typical of tourism centers; (v) the operation andmaintenance of outfalls is much simpler and less costly than those of conventional secondary treatmentplants, which are usually inadequately operated in Dominican Republic and, consequently, result inpolluting the environment despite expensive investments; and (vi) if the environmental monitoringprogram of the project indicates that the beaches are being polluted by the outfall discharges, despitemodel predictions used in the outfall design, additional sewage treatment installations can be incorporatedin the system prior to effluent discharge through the outfall. This approach constitutes a cost-effectivestrategy that minimizes investments to achieve the environmental and health objectives of the project.

Wastewater treatment prior to outfall discharge

Depending on oceanographic, bathymetric, coastal, and environmental conditions, the outfall systemrequires different levels of treatment prior to discharge. There is a variety of physical, chemical, andbiological processes available for wastewater treatment. The typical ones are sumnmarized in Table 2 inincreasing order of sophistication. Also shown are relative costs and removal efficiencies for variouswastewater constituents.

The first level of treatment is milliscreening. This consists of passing the coarse-screened wastewaterthrough a fine screen with mesh sizes usually 0.5 to 5 mm for marine discharges. The typical suspendedsolids removal is 15 to 30 percent when used alone. Milliscreening is relatively inexpensive and has lowmaintenance requirements. An additional advantage for marine discharge is that it can also removesubstantial amounts (around 50 percent) of the grease, floating grease, and virtually all of the floatingparticles [l, 2]. Another advantage of milliscreening is that it can be done with small area requirementsin a completely enclosed area with odor control. It can therefore be put in a residential area[l'31.

Balnatyne. A. N., and Speir, J. (1986). 'Milliscreening: A Pretreatment Option for Marine Disposal." R. G.Ladwig aind S. A. S. Almeida, Eds., pp. 71-81, Rio de Janeiro, 25-27 August, 1986.12 Agudo, E. G., Amaral, A., and Berzin, G. (1986). "Evaluation of the Efficiency of Santos/SaoVicente Preconditioning Station for Oceanic Submarine Outfall." Marine Disposal Seminar, R.G. Ludwig and S. A. S. Almeida, Eds., pp. 83-92, Rio de Janeiro, 25-27 August, 1986.3 Agudo, E.G., and R.G. Ludwig. (1992). "Militamices como Sistema de Pre-tratariento". CEPIS (Regional

Office of the World Health Organization) and CETESB.

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Primary treatment requires much more land and is of the order of three times as expensive asmilliscreening. Conventional primary treatment consists essentially of gravity separation of settable andfloatable solids. It removes about 55 percent of total suspended solids (TSS) and 20 percent ofbiochemical oxygen demand (BOD) and also removes some pollutants associated with the solidsincluding organic matter, nutrients, heavy metals and toxic materials.

Chemically enhanced primary treatment (CEPT), or advanced primary treatment (APT), is a relativelyrecent development. In this process, FeCI3 and a polymer are added to the effluent to promote particulateflocculation and sedimentation. The removal of TSS is typically 80 to 85 percent. A substantial amountof BOD, typically 50 to 55 percent, is also removed. The addition of flocculation basins can increasethese removals to over 90 percent TSS, 75 percent BOD, and 95 percent phosphorus. For a discussion ofthese treatments, see [5,14, 15].

Table 2Typical Treatment Processes and Percent Removal Capabilities 151

Parameter Treatment ProcessPercent Removal Capabilities2

Milli- Conve Chemically Biological Biological Nutrientscreenin nt- Enhanced Secondary Secondary Removalg ional Primary Preceded Preceded Preceded by

Primar (CEPT) by by CEPT Biologicaly Convent- Secondary and

ional Convent- ionalPrimary Primary

Low HighDose Dose

Suspended 71solids' 22 7 55 ±14 ±11 92 ±6 93 ±4 93 ±5 94BOD 20 ±11 55 78 92 ±6 95 ±4 94

_ _ _ _ _ _ _ _ _ _ _ _ _ ± 10 ± 11 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

NutrientsAs mg/l TN 15 ±13 37 NA 32 ±32 NA 84 ±4

As mg/ TP 38 +19 63 93 ±3 38 ±28 87±4 97 ±2_ _ _ _ _ _ ± 19 _ _ _ _ _ _ _ _ _ _ _ _

Cost ($/MG) 150 500 600 700 | 1100 1200 1400lasmg/l TSS2Ranges represent one standard deviation on either side of the mean as detennined from two national surveys in the IJ. S.

14 Shao, Y., A. Liu, et al. (1996). "Advanced primary treatment: An alternative to biologicalsecondary treatment. The City of Los Angeles Hyperion treatment plant experience." WaterScience and Technology, 34(3-4 pt 2).

l- Harlemnan, D.R.F., and S. Murcott (1998). "The role of Physical-Chemical Wastewater Treatmnent in the Mega-Cities of the Developing World" Conference of tLe lintemationial Association of Water Quality, Milano, Italy.

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The next level of treatment is known as secondary treatment, which utilizes both biological and physicalprocesses. The most common form of secondary treatment is activated sludge preceded by eitherconventional primary or CEPT. In this biological process, oxygen is added to the effluent.Microorganisms feed on the organic matter, using the oxygen to create more microorganisms, carbondioxide, and water. These solids, including living and dead microorganisms, are then settled out. Theresulting solid material is called sludge. The main purpose of secondary treatment is to remove BOD andTSS, but other constituents are also removed. Removal efficiencies are typically greater than 90 percentfor TSS and BOD, but the removal of pathogenic organisms is limited to low levels of not higher than oneorder of magnitude, which is not a meaningful removal when considering that the concentration of fecalindicator organisms in the raw wastewater is 107 to 101. MPN/IOOml.

The final level of treatment is usually called tertiary treatment. This includes a wide array of physical,biological, and chemical processes whose major purpose is the removal of nutrients including nitrogenand phosphorus. There are no known cases of tertiary treatment for ocean disposal.

The costs of treatment shown in Table 2 increase rapidly with increasing levels of TSS and BOD removal.It should also be kept in mind that increasing levels of treatment also generates increasing amounts ofsolids or sludge that are removed in the treatment processes, which must also be treated and disposed ofIncorrect disposal of these solids and sludge may produce significant environmental impacts inland.

There are two important factors to be taken into consideration when deciding on the most appropriatelevel of treatment prior to the outfall discharge. First, the local conditions in the pilot area of the project.Second, the standards to be used as design criteria. The following considerations apply to pollutants ofconcern in the pilot area of the project:

1. It is important to note that nutrients are often not of concern for discharges to coastal waters withgood flushing like those in the pilot area. They are of more concern in enclosed water bodies such aslakes, bays, or estuaries, where PCUtrophication may occur due to limited exchange.

2. Pathogens are microorganisms that can cause disease in humans. They include bacteria, and areassumed to be controlled if the level of bacteria is below some specified standard. If an outfall islocated and designed in an area where transport to bathing contact areas, such as beaches, is veryinfrequent, then the goal of environmental and health protection is achieved. Under these conditions,chlorinating the effluent is then generally not required. The World Health Organization standardswould be used as design criteria for the outfall.

3. Toxic organic chemicals and trace metals can cause adverse effects in aquatic organisms and humans.For regular domestic sewage, the control of the effect of toxic organisms and trace elements canusually be accomplished by initial dilution alone. If there are industrial discharges, source controlmay be needed. However, in the tourism center included in the project, industrial discharges arepractically non-existent.

4. Plastics and other floatables should be removed by screening. Other floatables, especially grease andoil, may be of more concern since they may contain pathogens and may be blown onshore by winds(See Figure 1). Milliscreening can remove substantial amounts of this type of floatable material.

5. BOD is generally not of concern for ocean discharges. This is because the high initial dilution andlarge surface area available for re-aeration result in little dissolved oxygen depletion. Solids are alsonot of major concern due to the ability to control them with preliminary treatment and the high initialmixing and dilution.

Given the above considerations, the advanced levels of treatment are not necessary for the proposedoutfall. Coarse screening would be used to remove large material, which could threaten the integrity ofthe outfall. Beyond this, milliscreening is desirable as it can remove substantial amounts of solids andfloatables at reasonable cost. Conventional primary and beyond removes substantially more suspended

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solids, but is considerably more expensive. It also generates more sludge that must be disposed ofTreatment beyond milliscreening is not recommended at this time.

It should be noted that in many cases, other sources, especially stormwater overflows and wastewaterflows from residential areas that are not connected to the sewage collection network and discharge tonearby creeks and rivers, are bigger contributors to beach pollution than outfalls. It is essential thatadditional investments are directed to solving these pollution problems, rather than overspendingresources on unnecessary levels of treatment which would make little or no improvement in local waterquality.

The outfall and treatment should be thought of as a system for safe marine wastewater discharge. Thelevel of treatment should be appropriate for the outfall and the receiving waters dispersion capability, andsuitable levels of treatment and outfall design can control the pollutants associated with domesticwastewater.

The strategy adopted under the project is to provide the minimal level of treatment to the wastewater andat the same time to provide a long enough outfall which would ensure that contamination will not reachbathing beaches and would have a minimal negative environmental impact. The validity of the strategywould be tested by employing a monitoring program prior and after the construction of the outfall. Theresults of the monitoring program should indicate whether the treatment processes in the ocean areworking according to the outfall design criteria. If the outfall performance would not conform to theplanned environmental standards, additional treatment capacity would be added prior to the wastewaterdischarge via the outfall. This strategy will prevent carrying out unnecessary investment in costlytreatment installations.

The monitoring program may also provide information to prioritize future investments. For example, ifthe pre-treatment for wastewater to be discharged through the outfall is sufficient, as planned, and thebeach continues to be polluted by discharges from surface water discharges, it may be more cost-effectiveand protective of the environment to extend the wastewater collection network, rather than to provideadditional wastewater treatment prior to outfall discharge.

The outfall in the pilot area will, therefore, be designed based on the assumption that only preliminarytreatment is provided. This assumption would imply a longer and deeper outfall to ensure adequatedilution and bacteria die-off. However, bathymetric conditions in the pilot area make it less expensive toextend the outfall than to build a high-level treatment plant. A long-term ocean monitoring programwould be implemented before outfall construction is completed in order to have baseline data andcontinued after the construction of the outfall to provide information on the outfall performance. In theunlikely case that the outfall performance does not meet the design expectations, additional treatmentstages would be added to the to the preliminary treatnent installations, as required.

Design criteria for outfalls

Environmental

Design criteria for ocean outfalls have been discussed in many publications, including [16, 17]. The mainobjective of ocean sewer outfalls is to prevent detrimental effects to the receiving water. This requires thatconcentrations of bacteria, toxins, and other contaminants are reduced to safe levels; that ecosystemproducts of the effluent (organic carbon, nutrients, etc.) and dissolved oxygen concentrations are kept within

16 Fischer, H. B., List, E. J., Koh, R. C. Y., Imberger, J., and Brooks, N. H. (1979). "Mixing in Inland and CoastalWaters," Academic Press, New York.17 Roberts, P. J. W., Snyder, W. H., and Baumgartner, D. J. (1989). "Ocean Outfalls." Journal of HydraulicEngineering, ASCE., 115(1), 1-70.

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allowable limits, and that local particulate deposition is not excessive. These can be accomplished if thediffuser causes rapid dilution and dispersion of the effluent and is positioned so that wastefield transport tocritical areas (especially the shoreline and environmentally sensitive areas) is minimized. Any effects of thedischarge are then limited to a small area.

It is recommended that the outfall in the pilot area be designed to meet two environmental criteria, forinitial dilution, and bacteria, as follows:

1. The diffuser should result in an initial (near field) dilution of 100: 1. This will suffice to meet toxinsrequirements beyond the near field and prevent excessive solids deposition in the vicinity of thedischarge.

2. The discharge should meet bacterial standards at the shoreline. It is recommended that the recentWorld Health Organization bathing water standards under final review [18] apply at the shoreline, orthe California Ocean Plan 1191.

These criteria can probably be satisfied with a suitably designed outfall and diffuser discharging intowater at a depth greater than about 40 m, and a distance from shore greater than about 700 m.

Hydraulic

Equipping the outfall with a long diffuser, which discharges from many ports, can effect high initialdilution. The details of the hydraulic design of such diffusers have been discussed thoroughly in [16], andare only summarized here. Once the outfall is flowing, seawater intrusion into the ports should beavoided. This can be achieved by maintaining a total port area less than the outfall pipe cross-sectionalarea and the densimetric Froude numbers of each individual port Fj:

greater than unity, where uj is the jet exit velocity, g' the modified acceleration due to gravity, and d the

nozzle diameter. The best ratio of total port area to pipe area lies between about 1/3 and 2/3, dependingon bottom slope. The velocity in the pipe should be between about 0.5 and 1.0 ni/s at peak flow to scourand prevent deposition of particles. The total headloss in the outfall should be kept small to minimizeheadloss and therefore pumping costs. There should be a uniform division of flow between the ports atall flows, this can be accomplished by gradually increasing the port diameter in the offshore direction.The computation of flow distribution and headloss along the diffuser is a standard problem in manifoldhydraulics. The maximum pipe velocity should be below the maximum velocity at which abrasion dtogrit occurs.

,Structural

The outfall must be designed to prevent failure due to the actions of waves and hurricanes.

Materials

For small-diameter outfalls, like that proposed in the pilot area of the project, the most adequate materialfor the outfall pipe is high-density polyethylene (HDPE), for the following reasons [20]: (i) low weight

l Salas, H.J. (1998). "History and Application of Microbiological Water Quality Standards in the MarineEnvironment - Draft". CEPIS, Regional Office of the World Health Organization.' SWRCB. (1990). "Water Quality Control Plan, Ocean Waters of California." State Water Resources ControlBoard, California.20) Reiff, F. (1986). "Emisarios Submarinos de Pequeio Diametro de Polietileno de Alta Densidad (HDPE)".

Page 79

that requires no specialized equipment as it can be handled manually, (ii) easy assemblage near the shoreby fusing the HDPE tubes; (iii) correctly fused joints are stronger than the HDPE pipe segments, therebyavoiding leaks due to sedimentation or movement; (iv) flexibility that allows placement along routesdesigned to avoid removal of submerged rocks or corals; (v) easy installation (a 700-m outfall can beinstalled in two or three days); (vi) small boats can be used for installation given its low weight; and (vii)HDPE is essentially immune to corrosive effects of sea water.

2. Modeling of the Fate of the Effluent Discharged to a Sea Water Depth of 140 meters in Front of theExisting Sosua Wastewater Treatment Plant

The fate of the effluent discharged to a sea water depth of 140 meters in front of the existing Sosuawastewater treatment plant was modeled by a well known expert, as part of project preparation. Themodeling was based on oceanographic data measured in the sea, at the location of the proposed outfall,and its results are summarized in the following memo.

CEPIS, Regional Office of the World Health Organization.

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Memorandum

To: Dr. Menahem LibhaberMr. Oscar Chalas

From: Dr. P. J. W. Roberts

Re: Sosua Marine Wastewater Disposal Options

Oceanographic data have now been collected along two possible Sosua outfall alignments. Bathymetricdata at the alignment originally proposed, in Sosua Bay, showed the bottom topography to be muchsteeper than initially thought. The depth at 800 meters from shore is in excess of 190 meters and thedepth of the proposed diffuser, 40 meters, was reached only 235 meters from shore. Discharge this closeto shore would probably result in transport of the waste field to the local beaches. As a result, onlypreliminary Acoustic Doppler Current Profiler (ADCP) data were obtained at this site, and attention wasmoved to an alternate alignment, about 2 km to the West. This alignment runs from Point Sosua near theLA Airport. Twenty-five days of current meter data were obtained from an ADCP moored at 49 metersdepth 978 meters offshore along this alignment. Modeling of the fate and transport of effluent were thendone using this oceanographic data. The results are given in Roberts (1999).

The cost of the onshore portion of the wastewater conveyance scheme to Point Sosua was subsequentlyfound quite high, however, and so the original alignment was reconsidered.

Density profiles were obtained along the original alignment at four stations (see Figure 3 of Roberts,1999). The deepest station, labeled 2.00, is 785 meters offshore in 190 meters water depth. Six STD(Salinity, Temperature, and Depth) profiles were obtained at this station over a period of about ten hourson January 13, 1999. The density profiles computed from these measurements are shown in Figure 1.It can be seen that a sharp density change occurs at depths that vary between about 80 to 120 meters. Thisis caused by the deeper water being both colder and more saline than the surface waters. The densitydifference across this sudden change is as much as I 6-unit (1 kg/m3). The location of the density jumpmoves slowly up and down, possibly due to internal waves. Such a strong density change would trapsewage discharged beneath it, and vertical mixing across the jump would be very small.

To test the behavior of sewage discharged below this density jump, preliminary simulations were madewith the mathematical model NRFIELD. The diffuser was assumed to be 70 meters long and th-averageflow rate equal to 0.43 m3/s. These are the same as assumed in Roberts (1999). Because we have no dataon currents at these depths, current speeds were taken to be zero. Actual currents would increasedilutions over those simulated here. The results for a discharge at 140 meters depth are shown in Table 1.

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Table 1. Simulated Plume Behavior for Sewage Discharge at 140 meters Depth

Time of profile Near field dilution Plume submergence (m)

0642 102 121

0828 195 104

1027 288 92

1223 195 104

1427 375 81

1628 347 84

It can be seen that all profiles result in high dilution and deep plume submergence. For theseassumptions, the minimum depth of discharge to achieve an initial dilution of 100:1 is about 138 meters.Because of the strong stratification, the plume will not mix upwards to the surface nor will it impact thelocal beaches. In the unlikely event that the stratification is too weak to maintain plume submergence, thedilution at the surface will be very high, in excess of 1000:1.

Recommendations

Discharge of wastewater along the originally proposed alignment would appear to be an excellentenvironmental option. Discharge into water about 140 meters deep would result in high dilution and deepplume submergence. No impact on the local beaches or surface waters would be anticipated. A depth of140 meters occurs about 570 meters offshore.

This site should therefore be considered further. Additional oceanographic data should be collected toconfirm these preliminary findings. This would include further STD profiling and ADCP measurementsat about 600 meters offshore along the original alignment.

References

Roberts, P. J. W. (1999). "Report on Mathematical Modeling of Proposed Sea Outfall for Sosua,Dominican Republic," March 6, 1999.

Sosua Density Profiles 13 Jan 1999

Density

23 23.5 24 24.5 25 25.5 26

0 ~ ~ ~ ~ . ~~~~ ~~~ s..> ~~~~~~~~ *~642

2 60 8 " X1628

140~~~~~~~~~~~~~~~~~~~~~~~12t 80 XX1gfi|XX

I100 i g

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Annex 10 An Option for Controlling/Supervising the PSP ContractDominican Republic, Wastewater disposal in tourism centers project

This annex presents an option for controlling and supervising the private operation contract which hasbeen initially discussed with the Government, but has not been finalized yet. The Government iscurrently studying the proposed mechanism and others, and will submit a proposal to the Bank for furtherdiscussion. The control and supervision mechanism will be finalized before the PSP process is launched.

Introduction

The private sector participation strategy for the Puerto Plata region contemplates the signing of fourdifferent contracts, which will be bid in two rounds, starting with the water and sewerage contract andcontinuing with the solid waste and sanitary landfill contracts. They could be awarded to differentoperators or to a single operator. The conditions and specific models of control for each contract will bedefined in the respective contracts.

The Dominican State and the selected operator(s) will sign two of the contracts (operation of the waterand sewerage systems and operation of the sanitary landfill). The other two contracts, (collection of solidwastes in: (i) Puerto Plata, and (ii) Sosua/Cabarete) will be signed by the municipalities and theoperator(s), respectively.

The system of control of the contracts has a special importance during the first stage of operation. Giventhat there may not be a unique operator for all services, it may be envisaged to have separate controlsystems for each of them. If the water and sewerage operator was selected to also be the solid wasteoperator in the two regions, a joint control of the two contracts signed by the State (water / sewerage andsanitary landfill) could be envisaged. On the other hand, the contracts for solid waste collection signed bythe municipalities could have a separate municipal control for each one, or could be jointly controlledwith the other two contracts.

Since a country-wide regulation mechanism does not yet exist in the Dominican Republic, the controlmechanism of the operation contracts signed under the project should be defined in the contracts. Duringappraisal it was agreed that the Government would submit a proposal for the contract control mechanism.An option for undertaking such control is the establishment of a committee which would be in charge ofthis task. This committee could be established within INAPA or delegated by INAPA, so that it couldinclude members representing the region, in addition to INAPA personnel. If such an approach is acceptable,it could be developed in the framework of the project, the committee could be established and its memberscould be trained to perform their duties. The duties for controlling water and sanitation services would befinanced under the wastewater disposal LIL, while the duties for controlling the solid waste managementservices would be financed under the solid wastes management LIL. The committee might hire technicalconsultants or consulting firms to assist its members in performing their duties and in evaluating theperformance of the operator. After the training period of the committee, which could be undertaken under theproject, the regular activities ofthe committee, i.e., the control and supervision ofthe operator's performance,with assistance of consultants, if necessary, could be financed under the LIL project during the entire periodof its implementation.

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The philosophy of the contracts control

The operation of the services refers to a region denominated "Tourism Center of Puerto Plata, Sosua andCabarete". which is a special area not only because of its geographic location but also because of theeconomic interests of a tourism zone, which are very different from those of a classic urban zone. Thetourism industry, which is of a vital importance for the Dominican Republic, is the main consumer of theproject, although the residential population, which provides a fundamental support to the tourismindustry, is also of great importance in the project. The control of operation cannot, therefore, bealienated neither from the region not from the fundamental interest of tourism. A centralize control,localized far away from the region and from operative aspects does not seem to be inadequate.

The mechanism of contract control committee, which could be established by the State to supervise theoperator's performance, has to include local representatives such as representatives of communityorganizations and of the tourism industry. This participation needs to take into account also functionalityand economic aspects. The control committee has to be a technical body of application of the contractsand not a body which deals with abstract considerations or politics.

To define the responsibilities and activities of the control committee, it is necessary to consider itsprincipal functions:

* Apply penalties to the operator for non-compliance of functions, which are defined in the contract aspenalties triggering. One of the non-compliance of the operator is the lack of response to clients.Consequently, to a certain degree, the control committee also acts as a second-tier clients' complaintsoffice.

* Negotiate and approve annual plans of works and investments proposed by the operator. These plansare derived from those proposed by the operator in his proposal, which need only to be updatedaccording to the circumstances at each point of time.

These two tasks are eminently technical, so the control committee needs to be alienated from politicaldiscussions or partisan interests. It is recommended that the control committee members will be oftechnical character even if they represent political institutions. The decision power of the controlcommittee in regard to penalties, has to be restricted to a limit defined in the contract. It could beenvisaged that penalties above this limit or penalties of severe consequences, such as suspension orcancellation of the contract, would only be recommended by the control committee to the transferringagency, which will have the decision power.

It is, however, impossible to require that the control committee members have a high expertise level,since this would impose on them a high economic load, not justified for this type of expertise. The controlcommittee members should be regular technical employees of the institutions they represent, residents ofthe region and work partial time in the control committee. The control committee may hire a consultingfirm or individual consultants, to assist in important or complicated technical work, such as the analysisof annual plans and investments submitted by the operator. These consultants may also be hired toevaluate the operator's performance (it is estimated that a total of 60 working days per year of an expertwill be sufficient for that purpose).

Proposal on Composition of the control committee

A proposal regarding the proposed composition of the control committee, referred to in the LoanAgreement as the Special Supervisory Committee (SSC), will be sent to the Bank by the Governmentprior to launching the PSP process.

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Mode offunctioning andfinancing

The mode of functioning of the SSC (frequency of meetings, venue and administration) will beestablished by the members after their nomination. It is foreseen that the operation contract will include adirect tax, as a fixed percentage of tariffs, to finance the activity of the SSC.

Training of the SSC members

It is important that the SSC members will be nominated immediately, so that they could follow theprocess of hiring of the operator and assist in all the stages of the process, providing the Project ExecutingUnit (PCU) some collaborators in the project region. They can constitute an important local informationservice for the PCU and for potential proponents which will contact the SSC during their visits in theregion.

The contact of the SSC members with interested operators can be an important information and formationsource for the SSC members.

The financing of the SSC prior to signing of the operation contract can not be realized through thecontracts. This financing of its first year of operation, will therefore be included in the LIL project, sothat the LIL will contribute to the formation of the SSC members. This correlates well with the learningaspect of the LIL.

Supervision of the environmental mitigation plan

The SSC could also be in charge of supervision of the environmental mitigation plan and the oversight ofthe monitoring program of the coastal environment before and after the construction of the outfall. Thiswork would include ensuring, during the design period that all the required environmental aspects aretaken in account, as well as environmental supervision and inspection of the operator, after he takes over.

Page 85

Annex 11 Documents in the Project FileDominican Republic, Wastewater disposal in tourism centers project

-Country Assistance Strategy for the Dominican republic, June 9, 1999, Report No. 19393 DO;

-Dominican Republic Environmental Issues Paper, July 13, 1993, Report No. 1813-DO, FinalVersion;

-Aide Memoire of the high level delegation of the Dominican Republic which visited Washingtonduring June 4-5, 1998 and requested the project;

-BTO and Aide Memoire of the identification mission which visited the Dominican Republicduring July 9-21, 1998;

-Feasibility study of the on-shore Sosua wastewater LIL works (Informe de Factibilidad Tecnicapara el Proyecto LIL Alcantarillado Sanitario para la ciudad de Sosua, DocumentoPASCT-033/LIL Sosua, by Herbert Farrerr et al, 15 Oct 98;

-Report on proposed sea outfalls for the Dominican Republic, by Philip Roberts; July 24, 1998

-Feasibility report of submarine outfalls for nine tourism centers in the Dominican Republic, byFred Reiff, August 21, 1998;

-Proyecto de Agua y Saneamiento en Centros Turisticos, Tratamiento y Disposici6n Final deAguas Residuales, by Haim Weinberg, Marcelo Juanico, Eran Friedler, Junio i 999;

-Report on Mathematical Modeling of Proposed Sea Outfall for Sosua, Dominican Republic, byPhilip Roberts, March 6, 1999;

-Estudio de Impacto Ambiental del Proyecto de Recolecci6n, Tratamiento y Disposici6n de aguasresiduales para la ciudad de Sosua, Jerald Miers et al, 6 de junio de 1999.

-Oceanographic Studies for the Design of Submarine Outfalls, Report No. 2, Sosua and SosuaAlternate Alignments, Ocean Surveys Inc., OSI report No. 98ES 109.2, February 8, 1999.

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Annex 12 Statement of Loans and Credits

Status of Bank Group Operations in Dominican Republic, Operations PortfolioAs of 12-July-1999

Dlfferencebetween expectedand actual

rojit Fiscal Oriainal Amount in US$ Millions disbursements a/ID Year BorroNver Purpose IBRD IDA Cancellations Undisbursed Grip Fnrn Rev'd

Number of Closed Proiects: 23Active Projects

DO-PE-63201 1999 GOVERNMENT OF THE EMERGENCY 111.11 0.00 0.00 88.00 26.89 0.00DOMINIC OPERATIONSDO-PE-35733 1998 GOVERNMENT ENVIRONMENT POLICY 3.00 0.00 0.00 2.90 .45 0.00DO-PE-7015 1998 PROV.HEALTIHI SERV.PRJ 30.00 0.00 0.00 23.41 -4.97 0.00DO-PE-35722 1997 GOV'T. OF DOM. REP. NATIONAL HWY. PROJ. 75.00 0.00 0.00 65.13 29,13 7.13DO-PE-35494 1996 GOV'T OF DOMINICAN R BASIC EDUCATION 37.00 0.00 0.00 33.54 22.54 13.54DO-PE-7020 1995 GOVERNMENTOFDR IRRIGLAND&WATERSH 28.00 0.00 0.00 25.57 11.61 . 2.12

Total 284.11 0.00 0.00 238.55 85.65 22.79

Active Projects Closed Projects TotalTotal Disbursed (JBRD and IDA) : 45.56 545.91 591.47

of which has been repaid: 0.00 344.15 344.15Total now held byRBRDand IDA : 284.11 201.85 485.96Amount sold 0.00 0.00 000;of wyhich repaid : 0.00 0.00 0 00\Total Undisbursed : 238.55 .08 238.63

a. Actual disbursements to date minus intended disbursements to date as projected at appraisal.Note:Disbursement data is updated at the end of the first Nweek of the month and is currently as of 30-Jun-99.Generated by the Operations Information System (OIS)

Page 87

STATEMENT OF IFC'sHeld and Disbursed Portfolio

As of 3 1-May-99In Millions US Dollars

-----------Held---------- Disbursed-----------

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

1991/94 DTC 4.23 0.00 0.00 0.00 4.23 0.00 0.00 0.001993 Hotel Flamenco 3.57 0.00 0.00 0.00 3.57 0.00 0.00 0.001995/96 Smith-Enron 21.96 0.00 5.65 34.49 21.96 0.00 5.65 34.491998 Flamenco Bavaro 14.00 0.00 0.00 21.70 11.08 0.00 0.00 11.63

Total Portfolio: 43.76 0.00 5.65 56.19 40.84 0.00 5.65 46.12

Approvals PendingCommitnent

Loan Equity Quasi Partic

Total Pending Comrnitment: 0.00 0.00 0.00 0.00

Page 88

Annex 13 Dominican Republic at a Glance

Dominican Republic at a glance 10/1/98

Latin Lower-POVERTY and SOCIAL Dominican America middle-

Republic & Carib. income Developm ent diamond*1997Population, mid-year (millions) 8 1 494 2,285 Life expectancyGNP per capita (Atlas method, USS) 1,670 3,880 1.230GNP (Atlas method, US$ billons) 13 5 1,917 2,818 T

Average annual growth, 1991-97

Population (% 1 8 1 7 1 2 GNGrsLabor force (%) 2`87 23 1. Gp Gross

per priaryMost recent estimate (latest year available, 1991-97) capita enrollment

Poverty (% of population below nationaJ poverty line) 21Urban population (% oftotal population) 63 74 42Life expectancy at birth (years) 71 70 69Infant mortality (per 1,000 live births) 38 32 36Child malnutrition (% of children under 5) 6 Access to safe waterAccess tosafe water (% ofpopulation) 71 73 84 1Illiteracy (% of population age 15+) 18 13 19 |Grossprimarvenrollment (%of'school-agepopulation) 103 111 111 -" Dominican Republic

Male 103 116 Lower-middle-income groupFemale 104 113

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1976 1986 1996 1997Economic ratios'

GDP (US$ billions) 4 0 6 1 13 2 14 7Gross domestic investment/GDP 22.5 211 27.5 28.8 TradExports of qoods and services/GDP 20.9 23 0 29.1 30.4 eGross domestic savinos/GDP 15.2 17 3 19 0 20.8 TGross national savinqs/GDP 18 3 17 8 25.7 27.3

Current account balance/GDP -3.3 -3 4 -1.8 -1.5 Domestic IInterest payments/GDP 0.9 3.0 1.2 1.2 Savings InvestmentTotal debtVGDP 20.6 60 2 32 7 28.4Total debt service/exports 11 2 24 7 11.2Present value of debtVGDP . . 29.3Present value of debt/exports . 96.8

Indebtedness1976-86 1987-97 1996 1997 1998-02

(average annual growth)GDP 3.3 3 4 7.3 8.2 5.2 -- Dominican RepublicGNP per capita 0.3 1 7 5 7 3.6 3 6 Lower-middle-income groupExports of qoods and services 9 2 7 6 13.3 8 6 5.9

STRUCTURE of the ECONOMY1976 1986 1996 1997 Growth rates of output and investm ent (% I

(% of GDP)A,qriculture 19.0 17 4 12 9 13.0 00Industry 31.3 23 7 31.6 32.4 20

Manufacturing 20 6 12.7 17.0 17 0 10; - T -

Services 49 6 59 0 55.4 54 S2 93 949

Private consumption 80.9 72 4 74 8 67 3 -20 IGeneral government consumption 3.8 10.2 62 119 _ 0GD01 ""O'GDPImports of noods and services 28.2 26.7 37 6 38 1

1976-86 1987-97 1996 1997 Growth rates of exports and imports (%)(average annual growth)

Aqriculture 2.6 1.9 95S 3 4 30Industry 2 2 3.6 7.0 10 6 2D

Manufacturing 2.3 3.0 4 1 79 .1<Services 4.1 3.7 7.0 7.9 no X '.

Private consumotion 2 6 4.0 6 8 5.9 o '.

General.government consumption 14.3 00 32 19 1 I 92 93 94 96 97Gross domestic investment 0.9 2.4 8 5 4.3 -10Im ports of qoods and services 7.5 4.8 9 8 7.8 -Exports -- *--ImportsGross national product 2.6 3 7 7.6 5.5

Note 1997 data are preliminary estimates

'The diamonds show four kev indicators in the countrv tin bold) comoared with its income-aroup average If data are missing the diamond willbe incomplete.

MAP SECTION

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