PDAM Subang - Pamanukan WTP Pre FS by ESP Indonesia

PDAM KABUPATEN SUBANG PAMANUKAN WATER TREATMENT PLANT PRE FEASIBILITY STUDY

PDAM Tirta Rangga

Fees

Service Equity Shareholders

Legal

Tax Advisor

Pamanukan Project Company

International & Local Banks

Insurance Companies

Engineer

Construction Contractor

NOVEMBER 2006 This publication was produced by Development Alternatives, Inc. for the United States Agency for International Development under Contract No. 497-M-00-05-00005-00

Ilustration credit: ESP Jakarta Structure of a Typical Build- Operate-Transfer (BOT) Project.

PDAM KABUPATEN SUBANG PAMANUKAN WATER TREATMENT PLANT PRE FEASIBILITY STUDY

Title:

Program, activity, or project number: Strategic objective number: Sponsoring USAID office and contract number:

PDAM Kabupaten Subang Pamanukan Water Treatment Plant Pre Feasibility Study Environmental Services Program, DAI Project Number: 5300201. SO No. 2, Higher Quality Basic Human Services Utilized (BHS). USAID/Indonesia, Contract number: 497-M-00-05-00005-00.

Contractor name:

DAI.

Date of publication:

November 2006

TABLE OF CONTENTS LIST OF FIGURES.....................................................................................................................III LIST OF TABLE ........................................................................................................................IV EXECUTIVE SUMMARY...........................................................................................................V 1.

INTRODUCTION .............................................................................................................. 1 1.1. 1.2.

SUMMARY OF EXISTING DEMAND AND SUPPLY ................................................... 2 2.1. 2.2. 2.3. 2.4.

BACKGROUND ..........................................................................................................................................1 REVISED PROJECT.......................................................................................................................................1 POPULATION FORECAST ...........................................................................................................................2 WATER DEMAND ......................................................................................................................................2 WATER SUPPLY-QUANTITY AND QUALITY ............................................................................................3 RAW WATER QUALITY ANALYSIS AND DISCUSSION ............................................................................5

PROJECT FORMULATION .............................................................................................. 6 3.1. WATER TREATMENT PLANT PRELIMINARY DESIGN ...............................................................................6 3.2. DISPOSAL OF RESIDUALS ...........................................................................................................................6 3.3. METHOD OF CONTRACTING ...................................................................................................................9 3.3.1. Traditional Project Procurement (Design-Bid-Build) ..............................................................................9 3.3.2. Applicability of Traditional Approach to the Pamanukan Project......................................................9 3.3.3. Alternate Project Procurement Approaches and Benefits....................................................................9

COST ANALYSIS AND IMPLEMENTATION OF THE PROJECT ........................... 13 4.1. CAPITAL COSTS ...................................................................................................................................... 13 4.2. PROJECT FINANCE ASSUMPTIONS ......................................................................................................... 13 4.3. O & M COSTS ........................................................................................................................................ 14 4.4. FINANCIAL MODEL KEY ASSUMPTIONS AND RESULTS........................................................................ 18 4.4.1. Key Assumptions.......................................................................................................................................... 18 4.4.2. Results of Financial Modeling................................................................................................................... 18 4.4.3. Conclusions and Recommendations ....................................................................................................... 18

LIST OF FIGURES FIGURE 2-1: WITHDRAWALS FROM THE TARUM TIMUR CANAL BY SEASON VS. CANAL FLOW. ..........................4 FIGURE 3-1: STRUCTURE OF A TYPICAL BOT PROJECT. ........................................................................................ 11

LIST OF TABLE TABLE 2-1: SUMMARY OF 2017 PAMANUKAN SERVICE AREA WATER DEMAND....................................................2 TABLE 2-2: SUMMARY OF KEY RAW WATER QUALITY PARAMETERS FROM TARUM TIMUR CANAL. ...................3 TABLE 3-1: RESIDUALS FROM WATER TREATMENT. ..................................................................................................6 TABLE 3-2: PRELIMINARY WATER TREATMENT DESIGN AND MATERIALS BALANCE..............................................7 TABLE 4-1: SUMMARY OF CAPITAL COSTS AND IMPLEMENTATION SCHEDULE. .................................................. 13 TABLE 4-2: PROJECT FINANCE ASSUMPTIONS. ........................................................................................................ 14 TABLE 4-3: ESTIMATE OF WATER STAFFING, LABOR AND BENEFIT COSTS .......................................................... 14 TABLE 4-4: ESTIMATED WATER TREATMENT ELECTRICAL COSTS. ....................................................................... 16 TABLE 4-5: ESTIMATED ANNUAL WATER TREATMENT CHEMICAL COSTS. ......................................................... 17 TABLE 4-6: TOTAL WATER O & M COSTS. ............................................................................................................ 17 TABLE 4-7: CASH FLOWS AND UNIT COSTS FOR THE WATER TREATMENT PLANT........................................... 20 TABLE 4-8: PROJECT PRO FORMA INCOME STATEMENT AND CASH FLOWS. ...................................................... 21

EXECUTIVE SUMMARY PDAM Tirta Rangga, Kabupaten Subang, is located in West Java. PDAM Tirta Rangga is planning to build a completely new water treatment system in sub-district (Kecamatan) of Pamanukan. The proposed system, originally designed to have a capacity of around 125 liters per second, is intended to serve approximately 15,000 new connections, providing service to a population of 57,000 dispersed in several areas of Pamanukan, Legon Kulon, Binong, and Pusakanagara. The total cost of the new system, as originally envisaged, would be about Rp 58 billion (around $6 million). The need to reshape the project stems from the receipt (since the feasibility study was done) of a grant by PDAM Tirta Rangga from the West Java Provincial Government to build and operate a 50 liters/ second water treatment supply facility in the Pamanukan area. This grant project has now been commissioned and is operational. Hence, the new feasibility study (to be provided by ESP) covers the financial and technical viability of an additional 100 liters per second water treatment facility in the same area, to be designed, built and operated by a private proponent in the same area at an investment cost of around US$ 3.6 million. The two facilities, combined, would give the region a total water production capacity of around 150 l/s. Raw water would be provided from the Tarum Timur Canal which is of acceptable quality and sufficient capacity to provide water to the revised project. As the PDAM wishes to procure the project through the private sector, a variety of privatesector procurement strategies were evaluated, and the Build-Operate-Transfer (BOT) method was selected as most suitable for the current situation. Under this method, the private-sector contractor would design, construct, and operate the facilities for a 25-year contract period, at a pre-agreed price. A financial model was prepared for the project, with construction estimated at approximately Rp 35.5 billion. At a typical domestic tariff of Rp 2,500 per cubic meter, the project appears to be financially feasible. At this tariff, the average monthly water bill is estimated at Rp 39,420. A sensitivity analysis showed these results still were valid with a construction cost 20% higher than estimated. A recommendation was made to proceed with a further, more detailed feasibility study to verify assumptions made, to clarify the facilities required, and to further refine the construction and operating costs used in the model.

1. INTRODUCTION 1.1. BACKGROUND PDAM Tirta Rangga, Kabupaten Subang, is located in West Java. PDAM Tirta Rangga is planning to build a completely new water treatment system in sub-district (Kecamatan) of Pamanukan. The proposed system, originally designed to have a capacity of around 125 liters per second, is intended to serve approximately 15,000 new connections, providing service to a population of 57,000 dispersed in several areas of Pamanukan, Legon Kulon, Binong, and Pusakanagara. The total cost of the new system, as originally envisaged, would be about Rp 58 billion (around $6 million). Initially, it was thought that this new facility in Pamanukan could be done on DBL (Design, Build, Lease) basis, funded through the World Bank WSSP and the related feasibility study was commissioned by the Bank on this basis. The study suggested that the Local Government (PEMDA) of Kabupaten Subang would bear a 20% proportion of the project cost in the form of equity, and the MOF, through the loan facility provided by Bank under the aforementioned program, would provide the balance of the total cost. The Regional Government rejected the 20% share of the project cost, and DBL financing this approach would limit its ability to borrow for other purposes, PDAM management has asked for assistance from ESP to reshape the project and provide a new feasibility study for building the facility on BOT (Build, Operate, and Transfer) basis.

1.2. REVISED PROJECT The need to reshape the project stems from the receipt (since the feasibility study was done) of a grant by PDAM Tirta Rangga from the West Java Provincial Government to build and operate a 50 liters/ second water treatment supply facility in the Pamanukan area. This grant project has now been commissioned and is operational. Hence, the new BOT feasibility study (to be provided by ESP) should cover the financial and technical viability of an additional 100 liters per second water treatment facility in the same area, to be designed, built and operated by a private proponent in the same area at an investment cost of around US$ 3.6 million. The two facilities, combined, would give the region a total water production capacity of around 150 l/s.

PDAM KABUPATEN SUBANG - PAMANUKAN WATER TREATMENT PLANT PRE FEASIBILITY STUDY

2. SUMMARY OF EXISTING DEMAND AND SUPPLY 2.1. POPULATION FORECAST The population forecast from the 2003 World Bank-funded Rapid Feasibility Study for the Pamanukan Service Area projected a served population of 56,556 people, or 14,139 connections. This is the year 2011 projection, representing approximately 70% of the projected population in the Service Area. In updating the study, a design year of 2017 has been selected, or an eight-year design. Projected population in 2017 is 90,000. At 80% coverage, this results in a served population of 72,000. In addition to residential consumption, 400 non domestic connections were assumed.

2.2. WATER DEMAND Table 2-1 is a summary of 2017 water demand by category projected from the 2003 study. Table 2-1: Summary of 2017 Pamanukan Service Area Water Demand. Consumption, Category Number l/connection/day Total Population in 2017 90,000 Served Population @ 80% Coverage 72,000 Domestic 18,000 480 (@ 4 connections/household) Non Domestic Connections 400 1,113 Total Usage 12,760 1,593 Allowance for Nonrevenue Water (@ 20% of ADD) Total Average Daily Demand (ADD) Maximum Day Demand (MDD) (@ 120% of ADD) Intake Capacity (@ 106% of MDD to account for losses)

Demand, lps

100 5.15 105.15 26.29 131.44 157.73 167.19

Since the study was completed, PDAM Tirta Rangga has completed a 50 lps water treatment plant to address a portion of this demand, and wishes to construct a second 100 lps plant and associated transmission and distribution system to address this demand.

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PDAM KABUPATEN SUBANG - PAMANUKAN WATER TREATMENT PLANT PRE FEASIBILITY STUDY

2.3. WATER SUPPLY-QUANTITY AND QUALITY The raw water source for both treatment plants is the Tarum Timur Canal. The “Master Plan of Water Supply and Usage During the Planting Season 2002/2003” projected the supply from the Curug Weir to the Tarum Timur Canal at 62.5 cu m/sec. The existing withdrawals from the canal include water are for irrigation, commercial and industrial uses, private water suppliers, and the PDAM water system. The withdrawal demand is seasonal. Figure 3-1 shows the seasonal withdrawal flows from the Tarum Timur Canal, versus the flow in the canal. While the withdrawals vary significantly, it is clear that the addition of another water demand of 0.10 cu m/sec (100 lps) will not create supply problems in the canal. Table 2-2 is a summary of raw water quality data summarized in the 2003 World Bank report, along with updated raw water quality provided to the Consultant by PDAM Tirta Rangga. Table 2-2: Summary of Key Raw Water Quality Parameters from Tarum Timur Canal. Aug 20-25, Raw Water Parameter Feb 5, 2003 2003 Standard 1 pH, units

7.15

6.5-8.5

Turbidity, NTU

49.9

183

Total Dissolved Solids, mg/L

208

105

1,500

Color, TCU

150

Iron, mg/L

1.10

3.195

1.0

Manganese, mg/L

0.10

0.09

0.50

Alkalinity, mg/L

92.95

500

Sulfate, mg/L

2.90

44.96

400

Ammonia, mg/L

0.75

Nitrate, mg/L

0.537

Organics, mg/L

10.44

MEN KES RI 416.IX/1990

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PDAM KABUPATEN SUBANG - PAMANUKAN WATER TREATMENT PLANT PRE FEASIBILITY STUDY

Tarum Timur Flow 60

Flow Cu M/Sec

Abstraction By Month 40

0 Jan

Feb

Mar

Apr

May

June

July

Aug

Sept

Oct

Nov

Dec

M th Timur Canal by Season vs. Canal Flow. Figure 2-1: Withdrawals from the Tarum

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PDAM KABUPATEN SUBANG - PAMANUKAN WATER TREATMENT PLANT PRE FEASIBILITY STUDY

2.4. RAW WATER QUALITY ANALYSIS AND DISCUSSION An analysis of the data in Table 3-2 indicates that the raw water is highly colored and turbid, with high levels of iron and manganese. Organic carbon levels are elevated, but typical for raw water in Indonesia. Levels of nitrate are low, meaning that agricultural activities in the watershed are not contributing significantly to the canal. Besides the data shown on Table 3-2, the 2003 World Bank Executive Summary indicates that iron concentrations in the canal range from 0-6 mg/L. Manganese is approximately 0.1 mg/L. The Indonesian Standard for finished water for iron and manganese are 1.0 mg/L and 0.1 mg/L, respectively. In fact, lower values are desired in finished water to reduce taste and odor problems, as well as staining problems. The current Safe Water Drinking Act in the United States recommends iron and manganese levels in finished water of 0.3 mg/L for iron and 0.05 mg/L for manganese. Conventional methods for treating iron and manganese are: 1. Preaeration and settling of iron and manganese. Raw water is normally introduced into a cascade or other aeration structure. The cascade effect converts ferrous iron (Fe+2) to ferric iron (Fe+3). Ferric iron is readily precipitated as ferric hydroxide at normal water treatment pH values, where it is settled or filtered. 2. Chemical oxidation and settling of iron and manganese. Raw water is dosed with an oxidizing chemical such as chlorine, potassium permanganate, ozone, chlorine dioxide, and hydrogen peroxide. pH adjustment has also been used for iron and manganese removal. Chemicals add to the cost of treatment, and in the case of chlorine, can create trihalomethanes, which are carcinogenic at high concentrations. 3. Filtration using special greensand media. Manganese greensand is a special type of sand that removes both iron and manganese through ion exchange. Normally, the water must be aerated or chemically oxidized prior to filtration. Also, the greensand must be regenerated using potassium permanganate or chlorine. Because of the cost of importing such sand and regeneration costs, greensand filters will not be considered further.

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PDAM KABUPATEN SUBANG - PAMANUKAN WATER TREATMENT PLANT PRE FEASIBILITY STUDY

3. PROJECT FORMULATION 3.1. WATER TREATMENT PLANT PRELIMINARY DESIGN Under the proposed project, a 100 lps conventional water treatment plant would be constructed on the site of the recently-constructed 50 lps plant. New and existing raw water pumps would be configured to discharge into a common preaeration cascade structure, designed to handle flow to both plants. Iron would be oxidized by the cascade, as well by chlorine via a new line run to the structure. The plant would tie in to the existing plant and use similar processes for ease of maintenance. Space for future expansion will be provided or acquired by the PDAM, when and if such an expansion is necessary. The new facilities would typically include: 1. Raw Water Intake and Pumping 2. Preaeration Cascade/Flow Splitter Structure 3. Chemical Addition Facilities (Aluminum sulfate, polymer, & chlorine) 4. Tube-Settler Clarifiers 5. Dual-Media Filters (anthracite and sand) 6. Finished Water Disinfection and Storage 7. Treated Water Pumping and Metering A materials balance and typical plant design are shown in Table 4-2 on the next page. This preliminary design will be further developed in subsequent reports should the project prove feasible.

3.2. DISPOSAL OF RESIDUALS The water treatment plant will produce residuals that will be returned to the river. Table 3-1 summarizes the residuals from the water treatment plant which require disposal: Table 3-1: Residuals from Water Treatment. Residual

Flow, Cu M/Day

Mass, Kgs/Day

Alum sludge from the sedimentation tanks

518

Filter backwash from the multi-media filters

212

Total to the river

277

520

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PDAM KABUPATEN SUBANG - PAMANUKAN WATER TREATMENT PLANT PRE FEASIBILITY STUDY

Table 3-2: Preliminary Water Treatment Design and Materials Balance. 8-Jul-06 PAMENUKAN WATER PLANT ADDITION PRELIMINARY PROCESS DESIGN COMMENT PROCESS/UNITS PLANT FLOWS Average Raw Water Feed Rate Average Raw Water Feed Rate Maximum Hourly Rate (1.25 * Average Daily Rate) Maximum Raw Water Pumping (Max Rate + 6% for Losses) FLASH MIX / AERATOR Method Number of Tanks Unit Length Unit Width Unit Depth Total Volume Minimum Mixing Detention Time FLOCCULATION Method Number of Tanks Unit Length Unit Width Unit Depth Total Volume Minimum Flocculation Detention Time SEDIMENTATION BASINS Type Number of Units Unit Length Unit Width Unit Depth Unit Effective Settling Area Total Effective Settling Area, Maximum Surface Loading Rate @ Firm Capacity Est. Sludge Prodct. @ 0.075 kgs dry solids/M3 Avg Day Flow Sludge Production @ 1% Dry Solids CHEMICAL ADDITION--ALUM Number of Dosing Pumps Dosing Pump Capacity Firm Capacity (One Unit Out of Service) Maximum Feed Rate @ 10% Solution Maximum Dosage Rate @ Maximum Day Storage at Maximum Dosing Rate CHEMICAL ADDITION--POLYELECTROLYTE Number of Dosing Pumps Dosing Pump Capacity Firm Capacity (One Unit Out of Service) Maximum Feed Rate @ 1% Solution Maximum Maximum Dosage Rate @ Maximum Day Storage at Maximum Dosing Rate FILTERS Type of Filter Rate Control Number of Units Unit Length Unit Width Unit Area Total Area Media Depth Anthracite Sand Media Characteristics--Anthracite Effective Size Uniformity Coefficient Media Characteristics--Sand Effective Size Uniformity Coefficient

UNITS l/s M3/s M3/s M3/s

2008 100 0.100 0.125 Select Maximum Value 0.133 Cascade

No M M M Cu M Mins

1 2 2 5 20.0 2.5 Hydraulic

No M M M Cu M Mins

2 7 3.5 3 147 18.5 Tube settlers

No M M M Sq M Sq M L/min/sq m Kgs/Day Cu M/Day

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8 3 2 3 95 760 10.5 648 65

No l/s l/s kg/day mg/L Days

3 0.030 0.060 518 48 30

No l/s l/s kg/day mg/L Days

3 0.005 0.0100 9 0.8 30 Declining-Rate

No M M Sq M Sq M

6 7 3.5 25 147

M M

0.5 0.3

1.0 1.3

0.5 1.3

PDAM KABUPATEN SUBANG - PAMANUKAN WATER TREATMENT PLANT PRE FEASIBILITY STUDY

Table 3-2: Continued. Preliminary Water Treatment Design and Materials Balance. Maximum Filter Loading Rate @ Firm Capacity--All Units Maximum Filter Loading Rate, 1 Out of Service Estimated Filter Run Time Backwash Method Backwash Source Backwash Pumps Type Unit Capacity No.of Units Unit Power (estimated) Backwash Loading Rate @ Firm Capacity Typical Backwash Duration Total Backwash Volume Total Backwash Volume, % of Average Day Raw Water DISINFECTION Type No of Chlorination Units, Pre and Post Unit Capacity, Pre and Post Total Capacity Dosage, Pre and Post Chlorine Contact Chamber (in Clearwell) Number Length Width Depth Contact Time @ Maximum Day Cylinder Storage Provided (100 kg Cylinders) Storage @ Average Flow & Dosage of 3 mg/L CLEARWELL Type Number of Units Unit Length Unit Width Unit Depth Total Volume Minimum Detention Time, Baffling Factor of 0.1 Typical Free Chlorine Concentration CT Value @ 1.5 log Reduction (pH 7.5, 25 deg C) Average Day Finished Water (After Backwash & Sludge) Average Day Finished Water (After Backwash & Sludge) Maximum Day Finished Water (After Backwash & Sludge) Maximum Day Finished Water (After Backwash & Sludge) FINISHED WATER PUMPS Number of Units

M/hr M/hr Hrs

3.1 3.7 24 Air Scour Clearwell

l/s Ea kw M/hr Mins Cu M/Day %

Vertical Turbine 100 2 6 15 10 356 4.1% Chlorine Gas

No Kgs/Day Kgs/Day mg/L

2 100 200 9.3

NO M M M Mins Ea Days

1 6 2 3.5 11 5 19 Baffled

No M M M Cu M Mins mg/L mg/L-Mins M3/s Cu M/Day M3/s Cu M/Day

Unit Capacity (estimated) Required Firm Capacity (1 Unit Out of Service ) Total Dynamic Head (estimated) Total Dynamic Head (estimated) Unit Power (estimated) MAIN TRANSMISSION LINE TO DISTRIBUTION SYSTEM Pipe Material Number of Pipes Diameter Velocity @ max-day flow Velocity Head Estimated Total Dynamic Head Calculation Fittings (K = 5) Friction loss at say, 5000 m C = 100 Minor loss, say System Head @ Distribution System Estimated Total Dynamic Head

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2 30 25 6 9,000 124.9 Baffling Condition Factor of 0.5 1.0 124.9 0.095 8,219 0.120 10,379

l/s l/s

50 100

M kPa kw

190 1,798 106 Ductile Iron

mm M/s M

1 250 2.04 0.21

M M M M M

1.1 128 1.0 60 190

PDAM KABUPATEN SUBANG - PAMANUKAN WATER TREATMENT PLANT PRE FEASIBILITY STUDY

3.3. METHOD OF CONTRACTING This section will define and contrast traditional project procurement methods and alternate Private-Sector Procurement (PSP) methods that may be applicable to the Pamanukan Project.

3.3.1.

TRADITIONAL PROJECT PROCUREMENT (DESIGN-BID-BUILD)

The traditional project procurement model typically used by municipalities is referred to as Design-Bid-Build (DBB). Under the traditional DBB approach, there are separate contractual relationships between the PDAM, the Design Engineer, and a Construction Contractor. Any operations and maintenance services are performed by the PDAM, or subcontracted under a separate contract. Most infrastructure projects such as roads, bridges, pipelines (water, wastewater and gas) are procured using the Design-Bid-Build approach. Local consultants or in-house engineering team prepare a detailed design, tender the project to experienced contractors, and oversee the work. The contractor receives progress payments from the PDAM, which finance the project from their capital budget.

3.3.2.

APPLICABILITY OF TRADITIONAL APPROACH TO THE PAMANUKAN PROJECT

The design, construction and operation of a water facility is more complex than many infrastructure projects, and requires more specialized experience and expertise than is available to the PDAM. While the DBB contract structure is well understood by the PDAM, and provides them with a high level of control and involvement, the PDAM has decided to finance the capital for the project via the private sector.

3.3.3.

ALTERNATE PROJECT PROCUREMENT APPROACHES AND BENEFITS

A traditional project delivery approach involves discrete and sequential project components and contractual relationships between the PDAM and designers, contractors, and occasionally with operators. This can result in significant project management time by PDAM staff, an unclear delineation of responsibility and liability between design engineer, contractor, and operator for construction schedule and ultimate performance of the Pamanukan facility. Alternative project delivery models change the traditional roles and responsibilities of project participants by reducing the number of private-sector contractual relationships with the PDAM, while increasing the roles, responsibilities, and liabilities in those relationships.

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PDAM KABUPATEN SUBANG - PAMANUKAN WATER TREATMENT PLANT PRE FEASIBILITY STUDY

A number of private-sector participation structures have been used to procure infrastructure facilities in the developing world. Other possible PSP procurement structures for the proposed facility are: 1. Design-Build-Operate 2. Build-Operate-Transfer 3. Management Contract for Operation and Maintenance. These PSP structures are discussed below. Design-Build-Operate (DBO). A DBO project involves a single contractual relationship between the PDAM and a DBO service provider or contractor. The DBO contract streamlines the project delivery schedule and reduces costs by eliminating separate selection processes for engineering, construction, procurement, and operating services. DBOs are often used on projects where project performance and the value of the service to be provided are more important than the details of what happens with the various procurement steps along the way. DBOs are particularly popular for fast-track projects, as well as complex projects that include relatively new technology and/or specialized O&M expertise. The complexity of the water project involves project development, engineering, construction, and operations and would require the PDAM’s management support team to include a Procurement Advisor, Design Engineer, Attorney, and Financial Advisor. PDAM Tirta Rangga may grant the DBO contractor wide latitude in the treatment technologies used, and the ways in which they are applied. The DBO project team often includes a technology provider for whom the process treatment technology is a core-competency. Therefore, the team may be willing to accept the risk of employing new and innovative solutions to lower production costs and improve operability. Companies specializing in process technology also have ready-access to new technologies. With a vested interest in controlling operating expenses, DBO contractors have a greater tendency to value-engineer plant designs and incorporate more expensive state-of-the-art technology. These projects often are driven by life-cycle costs because a single entity is responsible for design, construction, and O&M. One of the DBO participants will be the project guarantor and provide the PDAM with cost, schedule, and performance guarantees assuring that the project will perform as required, and that the equipment will be maintained, repaired, and replaced according to reasonable and measurable standards. Under the DBO method, the PDAM would be required to provide all financing of the project. Because it does not contain financing risk, the term of a DBO contract can vary according to the PDAM’s desire. It is estimated that the time to design and construct the water treatment facility is 1-2 years. The operations contract could run an additional 5 –10 years after construction, at the option of the PDAM.

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PDAM KABUPATEN SUBANG - PAMANUKAN WATER TREATMENT PLANT PRE FEASIBILITY STUDY

Build- Operate-Transfer (BOT). Build-Operate-Transfer (BOT) projects are an expansion of the DBO concept, in which the BOT Contractor also finances the project through a combination of debt and equity. The BOT contract for the water treatment plant often serves as collateral to secure commercial private financing. An illustrative diagram of a typical BOT contract for the Pamanukan Project is shown in Figure 4-1.

PDAM Tirta Rangga

Fees

Service Equity Shareholders

Legal

Tax Advisor

Pamanukan Project Company

International & Local Banks

Insurance Companies

Engineer

Construction Contractor

Figure 3-1: Structure of a Typical BOT Project.

PDAM Tirta Rangga, supported by financial, legal, technical, and environmental advisors, selects the successful BOT Contractor from other prequalified consortiums based on a conceptual design, operating plan, and guaranteed treatment cost. The contract defines all aspects of the service delivery agreement including the contract term, production requirements, cost of service, financing arrangements, guarantees/ warranties, and all remedies. BOT contracts contain provisions to transfer ownership of the asset from the Project Company to the PDAM. The transfer is usually accomplished at the 'fair market value' of the enterprise or the amount of remaining indebtedness. It may take place at the end of the contract term, or at a mutually agreeable date prior to the contract's expiration. The primary benefit of a BOT project delivery is that the vendor/technology provider assumes both the technical risk and commercial risk, including the risk of development, permitting, and financing. PDAM Tirta Rangga is relieved of the financial burden of the project and wellinsulated from its liabilities and risks; the PDAM pays only for water treatment for which they have contracted. One key element in the structuring of a BOT contract is the relative contributions of debt and equity to financing the project. Equity is represented by private sector contributions to the project, and represents one of the major risks assumed by the private sector in a BOT transaction. ENVIRONMENTAL SERVICES PROGRAM WWW.ESP.OR.ID

PDAM KABUPATEN SUBANG - PAMANUKAN WATER TREATMENT PLANT PRE FEASIBILITY STUDY

Typical BOT projects have historically used debt: equity ratios of 70%-30% to 80%-20%. Minimum equity requirements are typically prescribed in the tender documents. As a general matter, most lenders to the sector would require a minimum equity contribution of 20%. Equity in BOT projects is largely repaid later in the project life, as debt is retired and as project revenues begin to outpace project costs. As a result, equity requires a higher return than debt, often in the range of 18-23% return on equity. Thus, while higher equity contributions can lower initial project finance costs and any tariff increases, overall financing cost over the project life will be higher. In addition, higher equity ratios may dictate that a longer BOT contract term to recover an acceptable payback on equity. A BOT structure would allow PDAM Tirta Rangga the flexibility to finance a portion of the project, or none at all, while assigning technical and most or all technical, contractual and financial risk to the private sector. A BOT structure would permit a fast track project and would require a minimum of technical ability and commitment from the PDAM staff. A number of BOT variations are possible, given the PDAM’s interest in possibly financing a portion of the project. These variations have been evaluated in the financial model and are presented in more detail in the next section of the report. Management Contracts for Operations and Maintenance. A management contract for operations and maintenance (O&M) is a contract to operate and maintain a facility, usually at a fixed price for a specified term. The term of the contract can vary, but is typically 5 years. The contractor usually indemnifies the industry against fines for violations of performance standards. O&M contracts are increasingly utilized for complex projects, for large projects requiring large numbers of new staff, or where operating costs are perceived to be high. The principal benefits of the O&M contract are: No need to hire additional operating staff A fixed price contract, often less than in-house operation. Guaranteed performance Indemnification against additional costs and fines A management contract could be utilized to operate both the new plant and the recently constructed plant.

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PDAM KABUPATEN SUBANG - PAMANUKAN WATER TREATMENT PLANT PRE FEASIBILITY STUDY

4. COST ANALYSIS AND IMPLEMENTATION OF THE PROJECT 4.1. CAPITAL COSTS An estimate of the capital costs was made in the 2003 World Bank Rapid Feasibility Study Report, and updated for this report, assuming an annual inflation rate of 10%. It has been assumed that the existing raw water intake is sufficient for the total design flow. An allowance of Rp 10 billion has been included for transmission and distribution lines. This figure should be verified prior to the commencement of the design. The estimated capital cost for the proposed water treatment plant addition is shown in Table 4-1. Table 4-1: Summary of Capital Costs and Implementation Schedule. Item

Cost, Rp (000)

Treatment Plant Addition

15,000,000

Reservoir Addition & Distribution Pumps

4,500,000

Transmission and Distribution System Improvements, Allowance

10,000,000

Contingency @ 20%

6,000,000

Total Capital Cost

35,500,000

Construction of the additional treatment facilities have been assumed to commence in 2008, with a one-year construction period. The facilities have been assumed to be on-line in 2009. In the start of the program, a 1-year period has been assumed for procurement of the contractor(s), including the following steps: 1. Notification and prequalification of prospective tenderers; 2. Solicitation of bids from prequalified tenderers; 3. Evaluation and award to the lowest cost, most responsive tenderer; 4. Finalize contract negotiations; 5. Mobilization by the contractor

4.2. PROJECT FINANCE ASSUMPTIONS For purposes of financing the capital costs, short-term loans were assumed to cover the period of construction, with longer term financing used once the facilities are on-line. It has been assumed that the private sector will finance the entire project. Equity financing of 30% of the total capital cost has been assumed.

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Table 5-2 contains the assumptions used in developing the project finance assumptions. These assumptions are used in developing the average project costs per cubic meter of water treated. Table 4-2: Project Finance Assumptions. Cost

Rate

Term

Construction Financing

10%

Length of Construction

Long-Term Financing

15%

13 Years

Equity Financing (ROE)

25%

25 years

4.3. O & M COSTS The annual operation and maintenance costs for the water treatment plant fall into five general categories: 1. Labor and benefits 2. Electricity 3. Chemicals 4. Maintenance and repair 5. Supplies Labor and Benefits. Table 4-3 is an estimate of plant staffing, labor cost and benefits for the new water treatment facility. The plant staffing represents a 3-shift operation of 8 hours each, with the second and third shift operating at a reduced level. Salary and benefit costs are estimated. Table 4-3: Estimate of Water Staffing, Labor and Benefit Costs Number of Workers

Individual Salary, Rp/Month

Individual Benefits, Rp/Month

Monthly Labor Cost, Rp/Month

Annual Labor Cost, Rp/Year

Civil Engineer

1,800,000

270,000

2,070,000

24,840,000

Laboratory Manager

1,400,000

210,000

1,610,000

19,320,000

Mechanic

1,000,000

150,000

1,150,000

13,800,000

Electrician

1,000,000

150,000

1,150,000

13,800,000

Operator

1,000,000

150,000

6,900,000

82,800,000

Maintenance

1,000,000

150,000

2,300,000

27,600,000

Laborer

800,000

120,000

1,840,000

22,080,000

Driver

1,000,000

150,000

1,150,000

13,800,000

Total

18,170,000

218,040,000

Position

Electrical. Table 4-4 is an estimate of the electrical usage and costs for operating the various pumps for the water treatment plant. An electrical tariff of Rp 450 per kilowatthour was used to estimate the annual electrical cost. These costs have been assumed to be variable with water demand.

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Chemical Costs. Chemical costs have been estimated, assuming alum, polymer, and chlorine will be used. Table 5-5 shows the annual estimated chemical usage and costs for the water treatment plant. These costs have been assumed to be variable with water demand. Other Costs. The annual costs of maintenance and repair and supplies have been estimated from plants of similar size and type. Total O & M Costs. The total annual operation and maintenance costs for the water treatment plant are shown in Table 5-6.

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Table 4-4: Estimated Water Treatment Electrical Costs. PROJECTED TREATMENT PLANT ELECTRICAL ENERGY USAGE--100 lps Water OUTPUT

INPUT

NO OF UNITS

HRS/DAY

KW-HRS/

INSTALLED

OPN

DAY

YEAR

Backwash Pumps

6.0

6.5

9,522

Alum Metering Pumps

0.8

7,237

Polymer Metering Pumps

0.8

7,237

Chlorination Water Pumps

10.9

261

95,217

106.0

115.2

5,530

293

MOTOR

Finished Water Pumps Miscellaneous @ 5 % used TOTAL ELECTRICAL USAGE

124

134

TOTAL ELECTRICAL COST @

450

Rp PER KW-HOUR

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6150

2,018,609 106,891 2,244,712 1,010,120,361

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Table 4-5: Estimated Annual Water Treatment Chemical Costs. Flow, Cu M/Day

8,640

@ 100 lps

Alum Concentration

mg/l

Weight

kg/day

216

Weight

kg/year

78,840

Rp/kg

5,000

Price Alum Cost

Rp/year

Estimate

@ Rp5,000,000/1000 kgs

394,200,000

Polymer Concentration

mg/l

Weight

kg/day

Weight

kg/year

9,461

Rp/kg

1,400

Price Polymer Cost

Rp/year

Estimate

@ Rp1,400,000 /1000 kgs

13,245,120

Chlorine Concentration

mg/l

Weight

kg/day

Weight

kg/year

6,307

Price

$/kg

9,500

Cost

$/year

Estimate

@ Rp 9,500,000/1000 kgs

59,918,400

Total Chemical Cost

467,363,520

Total Chemical Cost

Rp/Cu M

Table 4-6: Total Water O & M Costs. Cost Category

Annual Cost, Rp.

Labor and Benefits

218,040,000

Electricity

1,010,120,361

Chemicals

270,263,520

Maintenance and Repair

50,000,000

Supplies

15,000,000

Total O & M Cost

1,563,423,881

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4.4. FINANCIAL MODEL KEY ASSUMPTIONS AND RESULTS Tables 5-7 and 5-8 show the recommended investment program schedule, the amortized capital costs, annual operation and maintenance costs, and the resulting unit treatment costs.

4.4.1.

KEY ASSUMPTIONS

The following are key assumptions in the financial modeling of the Pamanukan project: 1. The project would be a BOT project financed by 70% debt and 30% equity contributions. 2. Interest on debt = 15%. Term of debt = 13 years. Required minimum return on equity = 25%. 3. Debt service repayment would begin after 2 years. 4. The water tariff for domestic consumption was Rp 2,500 / Cu M. The tariff for water for non-domestic consumption was Rp 4,500 / Cu M. 5. The tariff collection rate for domestic billing was 80%, and 90% for non-domestic bills. 6. The number of existing connections is approximately 7,600 at 4 persons per connection. The rate of new domestic connections is as follows: 2008-2012 15% per year 2013-2017 10% per year 2018-2028 2% per year

4.4.2.

RESULTS OF FINANCIAL MODELING

The results of the financial modeling show that the project appears to be feasible at the costs and financial structure assumed for the project. Key outputs showing that the project is financially feasible are: 1. The assumed water tariff level of Rp 2,500 appears reasonable, given other tariff levels in the area. The average monthly water bill would be approximately Rp 39,420. 2. Debt service coverage ratio (DSCR) averages well above 1.40 throughout the project, considered a minimum value for lenders. A high DSCR shows that cash flow from operations is available to service debt. 3. Return on equity (ROE) is 35% over the 25-year contract period. A minimum of 2025% ROE is considered acceptable by a PPP contractor. 4. A sensitivity analysis for increased capital costs of 20% show that acceptable values for DSCR and ROE are still within the acceptable range at the same assumed tariff.

4.4.3.

CONCLUSIONS AND RECOMMENDATIONS

The conclusion of this study is that the proposed 100 lps water treatment plant and associated facilities are financially feasible, and can be procured via the private sector through a BOT model.

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It is recommended that a further, more detailed feasibility study be prepared to develop the project in more detail. In particular, the following data must be developed and/or refined further through site visits and review of existing construction drawings: 1. More detailed project description of necessary facilities including: a. The capacity of the existing raw water intake; b. The layout of existing water treatment facilities on the existing site, and a layout of the proposed facilities on the same site; c. The capacity of existing primary transmission lines and the possible need for additional capacity; d. A layout of the secondary distribution system in the proposed project area. 2. More detailed construction costs based upon the results from the additional technical data and design information. 3. Updated operation and maintenance costs for the revised facilities. 4. Incorporation of the existing 50 lps facilities into the financial projections, particularly the labor costs.

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Table 4-7: Cash Flows and Unit Costs for the Water Treatment Plant. Year Capital Cost--Water Treatment Plant (000)

2006

2007

2008

35,500,000

17,750,000

Interest During Construction @ 10%

3,550,000

1,775,000

Total Capital

39,050,000

19,525,000

Total Financed @ 70/30 Debt Equity (000)

27,335,000

Equity @ 30% of Capital

11,715,000

Amortized Water Treatment Investment (000) @

15%

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

(4,895,984)

2024

2025

2026

2027

2028

(5,857,500) (5,857,500)

(4,895,984) (4,895,984) (4,895,984) (4,895,984)

Operation & Maintenance Costs Rp (000) Labor

(218,040) (218,040)

(218,040)

Electricity

(77,248) (164,130)

(255,588)

(356,534)

(434,686)

(520,328)

(614,208)

(717,151)

(830,063)

(855,489)

(881,398)

(907,799)

(934,702)

(962,117)

(990,054)

(1,018,524)

(1,047,537)

(1,077,104)

(1,107,237)

(1,137,947)

Chemicals

(20,668)

(43,914)

(68,384)

(95,393)

(116,303)

(139,217)

(164,335)

(191,878)

(222,088)

(228,891)

(235,823)

(242,887)

(250,085)

(257,420)

(264,895)

(272,512)

(280,275)

(288,185)

(296,248)

(304,464)

Maintenance and Repair

(50,000)

Supplies

(15,000)

(10,853)

(23,059)

(35,908)

(50,090)

(61,069)

(73,101)

(86,290)

(100,753)

(116,616)

(120,188)

(123,828)

(127,537)

(131,316)

(135,168)

(139,093)

(143,093)

(147,169)

(151,323)

(155,556)

(159,870)

(380,956) (491,084) (607,012) (734,967) (834,029) (942,584) (1,061,583) (1,192,069) (1,335,191) (1,367,420) (1,400,261) (1,433,726) (1,467,826) (1,502,576) (1,537,988) (1,574,075) (1,610,851) (1,648,330) (1,686,525)

(1,725,451)

Raw Water Extraction (Rp 45 / Cu M) Total O & M Costs Rp (000)

Total Annual Cost Incl Debt Service, Rp (000)

Flow, Cu M/Year

Total Cost, Rp Per Cu M

(5,857,500) (5,857,500) (380,956) (491,084) (5,502,996) (5,630,952) (5,730,013) (5,838,569) (5,957,567) (6,088,053) (6,231,176) (6,263,405) (6,296,245) (6,329,710)

241,167

1,580

512,416

958

797,946

6,896

1,113,102

1,357,092

5,059

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4,222

1,624,465

3,594

1,917,560

3,107

2,238,948

2,719

2,591,460

2,405

2,670,841

2,345

2,751,728

2,288

2,834,152

2,233

(6,363,811)

2,918,143

2,181

(6,398,561)

3,003,732

2,130

(6,433,973)

3,090,952

2,082

(1,574,075)

3,179,835

495

(1,610,851)

3,270,414

493

(1,648,330)

3,362,724

490

(1,686,525)

3,456,799

(1,725,451)

3,552,674

488

486

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Table 4-8: Project Pro Forma Income Statement and Cash Flows. Year

2006

2007

2008

Pro Forma Income Statement Number of New Domestic Customers Average Household Use, Cu M/Year

2009

4,579

2010

9,844

2011

2012

15,899

22,863

2013

28,201

2014

34,074

2015

40,534

2016

47,639

2017

55,456

2018

57,175

2019

58,929

2020

60,718

2021

2022

62,543

2023

64,405

2024

66,303

2025

68,240

2026

70,215

2027

72,230

2028

74,285

76,381

175

2,700

2,165,861

4,656,601

7,520,952 10,814,956 13,340,359 16,118,302 19,174,039 22,535,351 26,232,793 27,046,230 27,875,936 28,722,237

29,585,463

30,465,954

31,364,054

32,280,117

33,214,500

34,167,572

35,139,705

36,131,280

80%

1,732,689

3,725,281

6,016,762

8,651,965 10,672,287 12,894,642 15,339,232 18,028,281 20,986,234 21,636,984 22,300,749 22,977,789

23,668,370

24,372,763

25,091,243

25,824,093

26,571,600

27,334,057

28,111,764

28,905,024

100

200

250

275

300

325

350

375

400

410

420

430

440

450

460

470

480

490

500

510

406

4,500

182,810

365,621

457,026

502,728

548,431

594,133

639,836

685,538

731,241

749,522

767,803

786,084

804,365

822,646

840,927

859,208

877,489

895,770

914,051

932,332

90%

164,529

329,058

411,323

452,455

493,588

534,720

575,852

616,985

658,117

674,570

691,023

707,476

723,929

740,382

756,834

773,287

789,740

806,193

822,646

839,099

1,897,218

4,054,339

6,428,085

9,104,420 11,165,875 13,429,362 15,915,084 18,645,265 21,644,351 22,311,554 22,991,772 23,685,265

24,392,299

25,113,144

25,848,078

26,597,381

27,361,341

28,140,251

28,934,410

29,744,123

Labor

(218,040)

Electricity

(164,130)

(255,588)

(356,534)

(434,686)

(520,328)

(614,208)

(717,151)

(830,063)

(855,489)

(881,398)

(907,799)

(934,702)

(962,117)

(990,054)

(1,018,524)

(1,047,537)

(1,077,104)

(1,107,237)

(1,137,947)

Chemicals

(43,914)

(68,384)

(95,393)

(116,303)

(139,217)

(164,335)

(191,878)

(222,088)

(228,891)

(235,823)

(242,887)

(250,085)

(257,420)

(264,895)

(272,512)

(280,275)

(288,185)

(296,248)

(304,464)

Maintenance and Repair

(50,000)

Supplies Raw Water Extraction (45 Rp/Cu M)

(15,000)

(10,853)

(23,059)

(35,908)

(50,090)

(61,069)

(73,101)

(86,290)

(100,753)

(116,616)

(120,188)

(123,828)

(127,537)

(131,316)

(135,168)

(139,093)

(143,093)

(147,169)

(151,323)

(155,556)

(159,870)

Total O & M Costs (000)

(491,084)

(607,012)

(734,967)

(834,029)

(942,584) (1,061,583) (1,192,069) (1,335,191) (1,367,420) (1,400,261) (1,433,726)

(1,467,826)

(1,502,576)

(1,537,988)

(1,574,075)

(1,610,851)

(1,648,330)

(1,686,525)

(1,725,451)

Operating Profit (Deficit)

1,406,134

3,447,328

5,693,117

8,270,391 10,223,290 12,367,779 14,723,015 17,310,074 20,276,931 20,911,293 21,558,046 22,217,438

22,889,722

23,575,156

24,274,002

24,986,529

25,713,011

26,453,726

27,208,959

29,744,123

2.86

0.63

1.01

1.44

1.75

2.08

2.42

2.78

3.24

3.32

3.41

3.49

3.58

3.66

15.42

15.51

15.60

15.69

15.77

Less Debt Service

491,084

5,502,996

5,630,952

5,730,013

5,838,569

5,957,567

6,088,053

6,231,176

6,263,405

6,296,245

6,329,710

6,363,811

6,398,561

6,433,973

1,574,075

1,610,851

1,648,330

1,686,525

1,725,451

Less Depreciation

1,562,000

Sample Tariff, Rp/Cu M Total Potential Revenue, Rp/Year (000)

1,800

% Collected Total Domestic Revenue Actually Collected, Rp/Year (000) Number of New Nondomestic Customers Average Nondomestic Use, Cu M/Year Sample Tariff, Rp/Cu M Total Potential Revenue, Rp/Year % Collected Total Revenue Actually Collected, Rp/Year (000) Total Revenue Collected, Rp/Year (000)

80%

Operating Costs, (000) Rp

Debt Service Coverage Ratio

Profit Before Taxes

(646,951) (3,617,668) (1,499,834)

Add Back Depreciation

1,562,000 IRR

Cash Flow From Operations, Rp (000)

#DIV/0!

978,378

2,822,722

4,848,212

7,072,962

9,516,898 12,451,526 13,053,048 13,666,336 14,291,628

14,929,162

15,579,183

21,137,927

21,813,678

22,502,681

23,205,201

23,921,509

29,744,123

1,562,000

915,049 (2,055,668)

62,166

2,540,378

4,384,722

6,410,212

8,634,962 11,078,898 14,013,526 14,615,048 15,228,336 15,853,628

16,491,162

17,141,183

22,699,927

23,375,678

24,064,681

24,767,201

25,483,509

29,744,123

29%

41%

50%

70%

90%

91%

103%

0 (5,857,500) (5,857,500) (4,942,451) (6,998,119) (6,935,953) (4,395,575)

(10,854)

1,562,000

13,772,436

37.0%

Avg Cash Flow Margin, % (Cash Flow / Revenue)

53%

Net Cash Flow, Rp (000)

Return on Equity, %

Average Monthly Bill, Rp

-55%

56%

61%

67%

68%

69%

6,399,358 15,034,320 26,113,218 40,126,745 54,741,792 69,970,129 85,823,756 102,314,918 119,456,101 142,156,028 165,531,706 189,596,387 214,363,589 239,847,097 269,591,220

35%

39,420

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39,420

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