RRP:FIJ 32200

ASIAN DEVELOPMENT BANK

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

BOARD OF DIRECTORS

ON A

PROPOSED LOAN

AND TECHNICAL ASSISTANCE GRANT

TO THE

REPUBLIC OF THE FIJI ISLANDS

FOR

THE SUVA–NAUSORI WATER SUPPLY AND SEWERAGE PROJECT

November 2003
 CURRENCY EQUIVALENTS
(as of 14 November 2003)
Currency Unit – Fiji dollar (F$)
F$1.00 = US$0.55
US$1.00 = F$1.81
For the purpose of calculation in this report, a rate of US$1.00 = F$2.00, which was current at
the time of loan appraisal, has been used.

ABBREVIATIONS

ADB – Asian Development Bank

COEP – code of environmental practice
EIRR – economic internal rate of return
EMP – environmental management plan
FIRR – financial internal rate of return
IA – implementing agency
I&I – inflows and infiltration
ICB – international competitive bidding
IEE – initial environmental examination
IRAP – institutional reform action plan
LCB – local competitive bidding
LIBOR – London interbank offered rate
lpcd – liters per capita per day
Ml(/d) – megaliters (per day)
MOF – Ministry of Finance
MWE – Ministry of Works and Energy
NWQL – National Water Quality Laboratory
PMU – project management unit
PSC – project steering committee
PWD – Public Works Department
TA – technical assistance
UFW – unaccounted-for water
WSC – Water and Sewerage Corporation
WSD – Water and Sewerage Department

This report was prepared by N. Convard (team leader), R. Clendon, and J. Stubbs.
 CONTENTS

Page

LOAN AND PROJECT SUMMARY iii

MAP ix
I. THE PROPOSAL 1
II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES 1
A. Performance Indicators and Analysis 1
B. Analysis of Key Problems and Opportunities 2
III. THE PROPOSED PROJECT 4
A. Objective 4
B. Components and Outputs 4
C. Special Features 6
D. Cost Estimates 6
E. Financing Plan 7
F. Implementation Arrangements 8
IV. TECHNICAL ASSISTANCE 11
V. PROJECT BENEFITS, IMPACTS, AND RISKS 12
A. Benefits 12
B. Social and Environmental Impacts 15
C. Risks 16
D. Overall Assessment 17
VI. ASSURANCES 17
A. Specific Assurances 17
B. Conditions for Loan Effectiveness 20
VII. RECOMMENDATION 20

APPENDIXES
1. Summary Sector/Subsector Analysis 21
2. External Assistance 22
3. Project Framework 23
4. Institutional Reform Action Plan 28
5. Financial Action Plan 30
6. Detailed Cost Estimates and Financing Plan 32
7. Implementation Schedule 35
8. Indicative Procurement Packages 36
9. Summary Responsibilities for Consulting Services 38
10. Summary Land Acquisition and Resettlement Plan 41
11. Outline Terms of Reference and Costs for Technical Assistance Consultants 44
12. Summary Economic and Financial Analyses 47
13. Summary Poverty Reduction and Social Strategy 56
14. Conclusions and Recommendations of the Initial Environmental Examination 57
ii

SUPPLEMENTARY APPENDIXES (available upon request)

A. Demand Assessment
B. Sector Road Map
C. Organizational Structure of the Proposed Water and Sewerage Department
D. Organization of Project Management Units
E. Procurement Summary
F. Summary Terms of Reference for Consulting Services
G. Land Acquisition and Resettlement Plan
H. Project Performance Monitoring System
I. Technical Assistance Framework
J. Detailed Economic and Financial Analyses
K. Poverty Impact Assessment
L. Detailed Financial Projections for Water Supply and Sewerage
M. Summary Initial Environmental Examination
 iii

LOAN AND PROJECT SUMMARY

Borrower Republic of the Fiji Islands

Classification Primary: Poverty Intervention

Secondary: Human Development, Environmental Protection

Environment Category B
Assessment An initial environmental examination was undertaken, and a
summary of its conclusions and recommendations is attached as
Appendix 14.

Project Description The Project will (i) increase the delivery of safe water supply and
sewerage services in the Suva–Nausori urban area, and (ii)
enhance the sustainability of water supply and sewerage services
throughout the Fiji Islands by means of appropriate institutional
reforms. The Project will support improved water supply and
sewerage management and operations, improved environmental
monitoring related to water supply and sewerage operations,
development and implementation of trade waste policies and
procedures, conduct of public awareness campaigns, and a tariff
study. It will also provide support for the creation of a water and
sewerage department (WSD) followed by the creation of a water
and sewerage corporation (WSC) with arrangements for
governance similar to those of a commercial water and sewerage
agency.

Rationale The Fiji Island’s principal urban areas suffer from deficiencies in
their water supply and sewerage systems, to the extent that their
economic and social development is being hindered and their
environments are being adversely affected. Water shortages in
the Suva–Nausori urban area are having an increasingly harmful
effect on the local economy. No new connections are being given,
which has effectively halted new land development. Many
localities are not served by a piped sewerage system. Local land
zoning regulations place restrictions on the density of
development in unsewered urban areas. Lack of sewerage is
holding back development and causing gross pollution in several
localities.

The Fiji Island’s water supply and sewerage services —currently

provided by the Public Works Department (PWD), which is
responsible also for roads, buildings, and mechanical and
electrical services —are suffering from ineffective management, a
lack of maintenance, and shortages of funds. Water losses
between production and consumption average 55%, and tariff
collections average only 60% of billings. The Government of the
Republic of the Fiji Islands has provided financial support, but it is
now inadequate to carry out needed repairs and replacements.
There is a need to establish a department focused on water and
sewerage operations, with the potential to be converted into a
iv

commercial corporation, based on the principles of a strong client

orientation, an awareness of the value of water and sewerage
services, an ability to collect and retain revenues fully covering the
cost of the services provided, and transparency and accountability
in its operations.

Objectives and Scope The Project will address the need for improved water supply and
sanitation services in the Suva–Nausori area. It will improve
environmental conditions throughout the area, including in low
cost and squatter housing areas. The Project will also help
enhance the long-term sustainability of water supply and
sewerage services through supporting implementation of more
effective policies and institutional arrangements as well as
providing investment for the development of these services.
The Project’s physical works comprise the most urgent and
immediate investment needs, as identified in master plans for
water supply and sewerage development in the Suva–Nausori
area.

Project outputs will include: (i) improvement of the coverage and

quality of water supply and sewerage services in the Suva–
Nausori area; (ii) improvement of the adverse environmental
conditions that have been caused by inadequate sewerage
services; and (iii) establishment of WSD/WSC for provision of
water supply and sewerage services in the country’s metered
water supply areas, with arrangements for autonomy,
transparency, and accountability similar to those of a commercial
water and sewerage corporation.

Project activities will include: (i) rehabilitation and augmentation of

water supply networks, water treatment, and water storage
facilities; (ii) rehabilitation and augmentation of sewerage
networks and sewage treatment facilities; (iii) development of a
new source of water supply; (iv) establishment of stronger
environmental management procedures; and institutional
development of the proposed WSD/WSC, particularly in the fields
of management, accounting and financial operations, operation
and maintenance of water supply and sewerage facilities,
environmental management, and customer relations.

Cost Estimates The total cost of the Project is estimated at US$72.4 million
equivalent, of which foreign exchange costs amount to US$48.0
million equivalent (66% including US$4.7 million for commitment
charges, front-end fee, and interest during construction).

Financing Plan The Asian Development Bank (ADB) will provide US$47.0 million
for the Project. The Government will finance the balance of the
costs.

Loan Amount and Terms A loan of US$47.0 million from ADB’s ordinary capital resources
will be provided under ADB’s London interbank offered rate
 v

(LIBOR)-based lending facility. The loan will have a 25-year term

including a grace period of 5 years, an interest rate determined in
accordance with ADB’s LIBOR-based lending facility, a
commitment charge of 0.75% per annum, a front-end fee of 0.5%
and such other terms and conditions set forth in the draft Loan
Agreement.

Period of Utilization Until 30 June 2009

Estimated Project 31 December 2008

Completion Date

Implementation The Executing Agency will establish a project management unit

Arrangements (PMU) for works and a PMU for reforms. The Government will
create a project steering committee as a subcommittee of the
existing capital works committee.

Executing Agency The Ministry of Works and Energy will be the Executing Agency
and WSD/WSC will be the Implementing Agency for the Project.

Procurement Procurement of goods and services will be in accordance with

ADB’s Guidelines for Procurement under Asian Development
Bank Loans. The principal civil works, equipment, and materials
contracts will be awarded through ADB’s international competitive
bidding procedures. At present, nine international competitive
bidding procurement packages are proposed, but this number
may be reduced, depending upon considerations of economy and
efficiency. Small contracts not exceeding US$2.0 million for
construction and rehabilitation of pipelines in built-up areas and
for minor construction works will be awarded through local
competitive bidding procedures acceptable to ADB. International
shopping will be used for procurement of equipment and materials
in small contracts of less than US$500,000. Some small works
(such as for replacement of consumer water meters, installation of
small service pipes, and leakage detection and repairs) may be
carried out under force account procedures acceptable to ADB.

Consulting Services Consulting services will be provided in several packages for (i)
project management-works; (ii) project management-reforms; (iii)
water loss reduction, wastewater inflow/infiltration assessment,
mapping, environmental monitoring and computerization; and (iv)
detailed design and construction supervision. Packages (ii) and
(iii) will be funded by ADB and packages (i) and (iv) will be funded
by the Government. The consultants for package (i) will be
selected as individuals, and the consultants for packages (ii), (iii),
and (iv) will be selected as firms. For packages (ii) and (iii),
consultants will be selected as firms by the Executing Agency
using the quality- and cost-based process in accordance with the
Guidelines on the Use of Consultants by the Asian Development
Bank and its Borrowers. For package (i), it has been agreed that
international consultants will be selected in a process in
vi

accordance with the Guidelines on the Use of Consultants by the

Asian Development Bank and its Borrowers. Package (iv)
recruitment is under way. Suitably qualified and experienced
consultants are being selected by the Executing Agency through a
process of international quality- and cost-based selection,
acceptable to ADB. A total of 825 person-months of consulting
services will be required, comprising 615 person-months of
international consulting services and 210 person-months of
domestic consulting services.

Advance Action and Advance action financing will be provided for recruitment of
Retroactive Financing urgently needed consultants and for procurement of civil works
and supply of equipment and materials of urgent water loss
reduction activities begun after 1 January 2004 in an amount not
exceeding US$1.0 million equivalent. Retroactive financing for
water loss reduction activities require prior approval of ADB.
Advance action for civil works, equipment and materials for other
urgently needed water system rehabilitation and augmentation
works will also be provided.

Project Benefits and There are high socioeconomic, economic, and environmental
Beneficiaries benefits associated with the Project. The beneficiaries of the
Project’s institutional development components will comprise the
450,000 inhabitants of the country’s metered water supply areas.
The beneficiaries of the Project’s physical components will be the
more than 262,000 residents of the Suva–Nausori area, more
than 27% of whom live on or below the poverty line, and industries
and commercial enterprises within the Suva–Nausori area.

Within the Suva–Nausori area, the rehabilitation and

augmentation of water supply facilities will eliminate the acute
water shortages that have been experienced in recent years, and
will remove a major constraint to economic growth.

The sewerage components of the Project will alleviate serious

pollution of streams, drains, and coastal waters, and alleviate
unhealthy conditions in low income and squatter areas.

Nationally, benefits will accrue from the establishment of an

efficient, autonomous water supply and sewerage agency that will
provide effective and sustainable services for the future.

Cost recovery will be improved through a commercial approach to

management, and costs will be reduced through water loss/inflow
and infiltration reduction. Methods of increasing tariff revenues
have been discussed, and a tariff study is provided under the
associated technical assistance (TA) to assess alternatives and
prepare detailed proposals. It has been agreed that WSD/WSC
will recover, by 2006, the costs of operations, maintenance and
debt service and by 2012, the costs of operation, maintenance,
depreciation, and interest. To achieve the 2006 target will require
 vii

only a modest tariff increase of about 25%. However, to achieve

the 2012 target will require further tariff increases of about 70%. It
is understood that tariff increases will be undertaken as services
improve, and will be designed to ensure that the services provided
remain affordable for all population groups.

Risks and Assumptions The main risk is that the institutional reforms, including the
restructuring of PWD’s water and sewerage services into a
department, and the subsequent establishment of a commercially
operated water and sewerage corporation, will be delayed or
ineffective, and not result in the expected improvements in water
and sewerage operations. A related risk is that cost recovery will
be insufficient to ensure the sustainable provision of water and
sewerage services. Another risk is that environmental conditions
may not improve, despite the investments made in the Project,
due to continued discharge of sewage by those without
connections. However, the Government is strongly committed to
the Project, which will be implemented in accordance with
operational output targets reflected in assurances, and they will be
closely monitored during project implementation.

Technical Assistance The Government has requested an associated TA for capacity

building in the provision of water supply, sewerage, and
environmental services. The cost of the TA is estimated at
US$978,000 comprising a foreign exchange cost of US$661,000
and a local currency cost of US$317,000. ADB, through its TA
funding program, will finance US$783,000 on a grant basis. The
objectives of the TA are to (i) build capacity in the fields of trade
waste management, environmental management, health and
safety procedures, community education and awareness; and to
(ii) enhance cost recovery from customers through a tariff study
that will identify the costs of various water supply and sewerage
services and identify efficient, effective, and affordable changes in
the tariff structure. The TA will complement capacity-building
measures that are to be financed through the loan. Consultants
engaged under the TA will be selected in accordance with
Guidelines on the Use of Consultants by the Asian Development
Bank and its Borrowers.
 I. THE PROPOSAL

1. I submit for your approval the following report and recommendation on a proposed loan
to the Republic of the Fiji Islands for the Suva-Nausori Water Supply and Sewerage Project.
The report also describes proposed technical assistance (TA) for Capacity Building in the
Provision of Water Supply and Sewerage Services, and if the Board approves the loan, I, acting
under the authority delegated to me by the Board, will approve the TA.

II. RATIONALE: SECTOR PERFORMANCE, PROBLEMS, AND OPPORTUNITIES

A. Performance Indicators and Analysis

2. The urban water supply and sewerage systems of the Fiji Islands, which were well
developed in the 1970s and 1980s, have not kept pace with demand and have suffered from
deferred maintenance. Despite an ambitious capital investment program carried out over the
last several years, deficiencies are widespread. Table 1 illustrates the extent and causes of
deficiencies in the water supply and sewerage services in the Suva–Nausori area.

Table 1: Analysis of Water Supply and Sewerage Services Performance

Indicator Current Situation and Performance
Poverty
Urban poverty Current estimates indicate that more than 27% of the 262,000 people who live in the
Suva–Nausori urban area subsist below the poverty line.
Water Supply Indicators
Service About 243,000 persons, or 93% of the population of the Suva–Nausori area, have
direct connections to piped water supplies.a Although the water supplied is in most
cases potable, disruptions of service are frequent, and cause considerable hardship.
Water users who lack connections either get their water from a neighbor’s tap or
depend upon wells and streams. While some wells are of good quality, many are
badly polluted, particularly in low-lying areas.
Supply disruptions and During the early 1990s, disruptions occurred during “drought” years. By the mid-
deficiencies 1990s, disruptions occurred during the drier periods of each year. Now, they occur
during all periods of the year. Provision of water by tank truck, with storage in plastic
tanks, which is very expensive, has become common.
Unaccounted-for water Unaccounted-for waterb has increased from about 30% of water supplied in the early
1990s to about 55% of water supplied in 2003. It comprises losses of water recorded
as delivered to consumers due to physical leakages, or inaccurate or missing meters.

Leakages Leakages occur in house connections, distribution system, reservoirs, pumping

stations, and transmission mains. An ongoing leak detection survey shows
considerable losses throughout the system, including in transmission mains , many of
which are old and in need of replacement.
Gastroenteric disease During 1995-2000, 10,000 cases of diarrhea were reported in the Suva–Nausori area,
most among infants and in areas where piped water is not available or the quality of
piped water is compromised.
Sewerage Indicators
Sewerage coverage About 71,000 persons, or about 27% of the population of the Suva–Nausori area,
have access to a sewerage system. Most of the remainder are connected to septic
tanks and some lack sewerage altogether. Sewage effluent flows to streams and
coastal waters. High-density development is banned in areas without sewers, causing
development to spread out, and increasing the demand for water.
Pollution of natural waters Levels of indicator bacteria in streams and coastal waters demonstrate that many
waters are unsuitable for contact activities. As these waters are used for fishing and
shellfish gathering, they are a potential health risk.
2

Indicator Current Situation and Performance

Overflows from the Most of Suva’s 71 pumping stations overflow frequently, due to inflow of groundwater
sewerage system to sewers, together with blocked sewers, broken exposed mains, and sewage pump
breakdowns.
Institutional Indicators
Organization and Urban water supply and sewerage systems are developed and managed by the
management Water Supply and Sewerage Section of the Public Works Department (PWD) of the
Ministry of Works and Energy. Management of the section is not substantially
concerned with water losses or cost recovery. Response times to problems are long.
Outside the Suva–Nausori area, even maintenance is shared with other sections of
PWD.
Human resources PWD has a shortage of personnel with appropriate managerial, financial, and
technical qualifications and experience.
Financial Indicators
Flow of funds PWD is responsible for billing and collection. Revenues are turned over to the
Government’s consolidated fund and PWD is in turn financed through government
budgetary allocation. There is little incentive for PWD to improve its financial
efficiency.
Revenues Revenues are presently insufficient to meet even cash operating costs.
Billing and collection Collections efficiency is about 60% of potential revenues.
Accounts receivable are currently about 300 days of sales.
a
Based upon a household size of 4.6 persons per connection. Some sources put the proportion of the population
with direct connections as low as 86%. Although the 2002 household income and expenditure survey of urban
households put the proportion of the population in the Suva–Nausori region with som e form of access to piped
water supply at 97%, it may have underestimated the rural population in the water supply system service area.
b
Defined here as the difference between water used in production as measured by meters at the treatment plant
outlet and water provided to consumers as measured by meters at the point of consumption.

B. Analysis of Key Problems and Opportunities

1. Problems and Opportunities

3. The Suva–Nausori water supply distribution system, on which the physical works of the
Project are centered, requires improvements from the source to the consumer tap. Consumers
throughout the service area, particularly those living at high elevations, in locations distant from
the treatment plants, and in slum and squatter areas, are suffering from frequent service
interruptions. Substantial leakages are occurring throughout the system, including in
transmission lines, distribution lines, and reticulation systems. Administrative losses result from
under-registration of meters and unauthorized connections. Physical losses can be reduced
through rehabilitation works and both types of losses, physical and administrative, can be
reduced through better management. The existing water intake at Waila on the Rewa River is
subject to saltwater intrusion during the dry season. The two water treatment plants require
rehabilitation to achieve optimal treatment levels, particularly in the areas of backwash facilities,
instrumentation, and chemical dosing. There is also the potential to increase water production
through process improvements. The water transmission and distribution systems require
optimization to better distribute the produced water to service areas in relation to relative
demand. There is a need to decrease the loading on the Tamavua water treatment plant, which
is currently operating at twice its design capacity, and to increase the loading on the Waila water
treatment plant, which has recently been augmented and is operating substantially under its
design capacity. Elimination of leakages in the distribution system will enable better services to
be provided to the present and future population of the area and help minimize increases in
treatment plant capacity. Illegal connections are substantial and should be eliminated. Improved
 3

metering of consumers, of supply areas, and of water intakes will help in leakage reduction.
Enhanced and expanded system instrumentation will enable better coordination and
management of supplies, particularly during times of shortages. There is a need to enhance
water supplies to better service both existing and new consumers.1

4. The wastewater collection and treatment system faces similar needs. The Kinoya
sewage treatment plant currently has nearly 40% excess capacity for dry weather flows when
inflows and infiltration (I&I) are at reasonable levels; however, even high tide results in higher
flow and salinity levels, which reduce treatment efficiency. In the central Suva area, anecdotal
evidence suggests I&I as high as 90% in wet weather. I&I also means exfiltration, that is,
substantial raw sewage is discharged to the environment. This together with frequent overflows
from deteriorated pump stations, and blocked and broken sewer mains, has resulted in serious
pollution of the urban water environment. Rehabilitation of these facilities will allow the current
system to achieve its desired environmental and public health benefits and allow connection of
a larger percentage of the population, further improving the environment and taking advantage
of the capacity of the Kinoya sewage treatment plant. The Kinoya sewage treatment plant,
which includes an older trickling filter system for secondary treatment as well as a new
sequencing batch reactor, generally operates effectively and achieves international wastewater
discharge quality standards, but its capacity is limited by the inlet works. Odor control problems
also occur. Sludge treatment and disposal facilities are inadequate. Improved instrumentation of
the sewage treatment plant will allow overall treatment efficiency improvements and efficient
balancing between the trickling filter and sequencing batch reactor plant.

5. The underlying problems of delivery of water supply and sewerage are often described
as shortages of water in reservoirs and lack of finance. These problems exist, but they are not
the fundamental problems. Water resources in the area are abundant, and the Government has
poured substantial financial resources into capital works. Nevertheless, the works have not
helped improve services as expected because of operational shortcomings.

6. Under the present institutional arrangements, senior staff of the Public Works
Department (PWD) are responsible not only for water supply and sewerage but also roads,
buildings, and mechanical and electrical works; management information systems are more
focused on capital works than on operations or finances; and operations are bound up in
bureaucracy. High unaccounted-for water (UFW) in the water supply system and high I&I in the
sewerage system lead to unnecessarily high treatment plant, distribution, and collection system
costs. The practice of permitting nonpaying customers, to remain connected reduces revenues,
and the gap between costs and revenues prevents the mobilization of the financial resources
needed for better asset management. Shortages of senior staff lead to substantial use of
consultants in line positions and result in management deficiencies.

7. Achievement of the urgently needed service delivery improvements and the

sustainability of these improvements require concurrent management and institutional reforms.
The Government’s Strategic Plan 2003-2005 and PWD’s Corporate Plan for 2002 lay out a
framework for moving ahead. The Strategic Plan provides for corporatization of water and
sewerage services by 2005. Within this framework, PWD’s Corporate Plan points out the need
for creating an entity separate from other public works responsibilities to provide for better
management and improved delivery of water supply and sewerage services. It proposes the
reorganization of the water and sewerage section of PWD into an autonomous water and

1
Supplementary Appendix A includes a demand assessment for water supply and the sewerage collection and
treatment system.
4

sewerage corporation (WSC). The Government and staff of the Ministry of Works and Energy
(MWE) have underlined the need to plan carefully for the transition. Underlying concerns include
the need to maintain the present high level of accessibility to services, to avoid any harmful
impacts on the poor, to retrain and redeploy staff rather than make them redundant, and to
avoid substantial tariff increases until services can be improved. To minimize unexpected
impacts, the transition from a water and sewerage department (WSD) to a WSC is being
phased.

8. It is clear that the overall institutional framework for the water supply and sewerage
sector needs improvement. Steps are being taken to create a water policy, and to strengthen
controls over wastewater discharges through a public health and pollution control bill and a
sustainable development bill. However, both bills have been under consideration for some time.
No matter how strong the bills, administrative capacity to monitor water quality and control
harmful waste discharges will continue to be limited. Nevertheless, it is important for the welfare
of the country’s urban population and the sustainability of its natural environment that the bills
be finalized and passed as soon as possible. A sector road map, which has been discussed and
agreed upon in principle with the Government, is in Supplementary Appendix B. Appendix 1
summary sector analysis links sector issues and project to ADB country strategy, ADB’s water
policy, and Government development goals.

2. Lessons Learned

9. The main lessons learned in similar projects in the Fiji Islands and throughout the Pacific
include the need to (i) address institutional reforms including broad sector reforms as a part of
the project, to ensure achievement of project service delivery objectives; (ii) provide for careful
design and sequencing of institutional and financial arrangements; and (iii) plan for and mitigate
undesirable outcomes; clearly identify arrangements for procurement, in particular for
contracting versus force account works, to avoid ambiguity during implementation; and ensure
adequate counterpart funding to carry out the project on schedule. Generally, counterpart staff
have been suitably experienced and qualified for their assignments. Appendix 2 lists recent and
current external assistance in this sector to the Fiji Islands.

III. THE PROPOSED PROJECT

A. Objective

10. The Project will contribute to the long-term goal of improving the delivery of urban water
supply and sewerage services in the Fiji Islands. The objectives of the Project are to (i) increase
delivery of safe water supply and sewerage services in the Suva–Nausori area through physical
and institutional improvements, and (ii) enhance the sustainability of water supply and sewerage
services throughout the Fiji Islands by means of appropriate institutional reforms.

B. Components and Outputs

11. The Project’s outputs will include: (i) increased supply, delivery, and potable water
reliability in the Suva–Nausori area; (ii) reduction in UFW; (iii) rehabilitated wastewater collection
and treatment system; (iv) improvement in the adverse environmental conditions that have been
caused by inadequate sewerage services; (v) strengthened institutions and legislative
frameworks for wastewater management and environmental management; and (vi)
establishment of an entity dedicated to provision of water supply and sewerage services in
metered water supply areas, operated in manner similar to those of a commercial water supply
 5

and sewerage agency. The Project works are part of a water and sewerage master plan
developed through ADB assistance.2 The Project Framework (Appendix 3) includes specific
targets for the outputs.

12. The Project is divided into two parts, one for construction of water supply and sewerage
facilities and one for institutional reforms and development. The first component (Part A) is
divided into Part A1 (water supply) and Part A2 (sewerage works). The second component (Part
B) is the institutional reform program that provides assistance for the transition of the water and
sewerage division of PWD to an effective independent utility agency.
1. Component A: Water Supply and Sewerage

13. The water supply component of the Project includes: (i) implementation of a program for
water loss reduction comprising leak detection, replacement of about 50 kilometers (km) of
leaking distribution mains, replacement of about 15,000 leaking service pipes and 27,000
malfunctioning meters, rehabilitation of the Tamavua main storage reservoirs and the Upper
Waimanu pumping station, and a demand management program; (ii) optimization and
augmentation of the distribution system comprising installation and upgrading of pumping
stations in four locations, construction of additional service, storage, and balance reservoirs with
a capacity of about 29 megaliters (ml), construction of about 40 km of additional mains, and
installation of about 13,000 new house connections; (iii) augmentation of water sources,
including construction of a new water supply intake and pumping station on the Rewa River, and
construction of about 11 km of new source and rising mains and related pump station
improvements; (iv) augmentation of existing water treatment plants, including rehabilitation of
mechanical facilities in the Tamavua treatment plant, construction of a new clear water reservoir
at Waila, upgrading and installation of instrumentation systems, construction and upgrading of
sludge and backwash facilities at Waila and Tamavua, and upgrading laboratory facilities; and
(v) detailed design and construction supervision. Emphasis is placed on distribution network
rehabilitation and development and implementation of a strong UFW reduction program.
Components such as meter testing, meter replacement, service pipe replacement are included
in the Project, even though they involve numerous small works, because they are essential to
the UFW reduction program.

14. The sewerage and sewage treatment component of the Project includes: (i) rehabilitation
and upgrading of existing collection networks, including I&I rehabilitation works, comprising
rehabilitation and replacement of about 8 km of trunk mains, gravity mains, rising mains, and
pump stations; (ii) improvement of the Kinoya sewage treatment plant, including inlet works,
odor control and sludge treatment, dewatering and disposal systems; (iii) construction of about
15 km of new trunk sewer mains, collectors and reticulation, with related pumping stations;
installation of about 6,300 new sewerage connections in backlog areas and in presently
unserved areas; (iv) design and implementation of a trade wastewater program; (v) upgrading of
maintenance facilities and the existing national water quality laboratory at Kinoya; (vi)
development and implementation of improved management systems, including mapping and
geographic information systems, receiving water quality monitoring, and infiltration assessment
and related design; and (vii) detailed design and construction supervision. Emphasis is placed
on rehabilitation works, addressing I&I issues as well as the trade wastewater management
program. New service connections are included in the Project because they are essential to the
delivery of the Project’s outputs. As with the water supply component, installation of a

2
ADB. 1998. Suva-Nausori Water Supply and Sewerage Project. Manila.
6

supervisory data control and data acquisition system is already underway and so it is excluded
from the project.

2. Component B: Institutional Reform and Development

15. The institutional reform and development component of the Project, includes (i)
implementation of an institutional reform action plan (IRAP) (Appendix 4) and a financial action
plan (Appendix 5) aimed at creating a WSC by 2005; (ii) implementation of a management
information reporting system facilitating well-integrated, effective and efficient water supply and
sanitation operations; (iii) implementation of an accounting system for WSD that provides data
on costs and revenues, by district, by month, and for WSC that provides data as required for
commercial operations; (iv) implementation of agreed recommendations from the tariff study
completed under the TA associated with the loan; (v) improvement of operations, including
provision of consumer services and metering, adoption of water loss reduction and I&I reduction
programs, and mechanizing water and sewage treatment operations; (vi) upgrading of human
resource management systems; (vii) strengthening of environmental monitoring and
environmental management systems; (viii) upgrading of computerized information systems
through the provision of new hardware and software; (ix) conduct of a water awareness
program; and (x) training of WSD/WSC staff.

16. An accompanying TA will provide support for development of a trade waste program,
health and safety procedures, environmental legislation and regulations, a community education
and awareness program, and a tariff study.

C. Special Features

17. The proposed IRAP which resulted from extensive dialogue between ADB and the
Government provides an appropriately incremental approach to necessary institutional reforms.
It is agreed that the development of the WSC requires careful planning and dialogue among
stakeholders, including those in civil society. The guiding principles are that it be dedicated
solely to the delivery of water supply and sewerage services, well governed, autonomous of
government red tape, and able to mobilize the staff and financial resources necessary to
provide water supply and sewerage services sufficient to meet demand effectively and
efficiently. To avoid monopoly issues, it should be a partly or wholly government-owned
corporation operating with a clearly defined social purpose, under strict regulatory control. In
order to avoid unintended negative impacts, the creation of the corporation should be preceded
by creation of a WSD dedicated to the provision of water and sewerage services, with support
services including, but not limited to, administration, personnel, finance, and planning. 3

18. The IRAP will be implemented in stages, allowing the process to carefully consider each
step and gain the necessary stakeholder support. In this way, broad ownership should be
achieved that will improve the sustainability of the reforms, physical improvements completed
under the project and improvements in operation and maintenance management.

D. Cost Estimates

19. The cost of the Project is estimated at US$72.4 million, of which the foreign exchange
cost is US$48.0 million (67%) including US$4.7 million in interest during construction, the
commitment charge, and the front-end fee on the loan; the local currency cost is US$24.4

3
Currently proposed structure of proposed water and sewerage department is shown in Supplementary Appendix C.
 7

million (33%). The cost of the physical components includes the cost of land; equipment and
materials; civil works; and consultants for surveys, preparation of detailed designs, and
construction supervision. The cost of the institutional development component and the project
management component includes the cost of equipment and materials and consultants. Table 2
gives summary of estimated costs of the Project. Cost estimate details are in Appendix 6.

Table 2: Summary of Estimated Costs

(US$ million)
Foreign Local Total
Item Exchange Currency Cost
A. Base Costs
1. Water Supply Rehabilitation and Expansion 20.2 5.7 25.9
2. Sewerage Rehabilitation and Expansion 14.2 5.8 20.0
3. Management – Works 1.2 1.3 2.5
4. Management – Institutional Development 1.6 0.4 2.0
Subtotal A 37.2 13.0 50.4
B. Taxes, Duties, and Contingencies
1. Taxes and Duties 0.0 8.6 8.6
2. Physical Contingencies 4.0 1.5 5.5
3. Price Contingencies 2.1 1.1 3.2
Subtotal B 6.1 11.2 17.3
C. Interest During Construction, Commitment
Charge,a and Front-End Fee 4.7 0.0 4.7

Total Project Costs 48.0 (67%) 24.4 (33%) 72.4 (100%)

Note: Project costs include value-added tax at 12.5%, resulting in total taxes and duties of 14.5%.
a
Interest during construction and commitment charge assume an Asian Development Bank loan at a fixed rate
of 3.89% for 5 years (based upon a London interbank offered swap rate of 3.29% as of 4 May 2003).
Source: Appraisal mission estimates, based upon the feasibility study, suitably updated.

E. Financing Plan

20. The Government requested a loan of US$47 million, about 65% of total project cost, to
finance about 96% of the foreign exchange costs, including all of the foreign exchange costs of
civil works, equipment and materials, part of the foreign exchange costs of consultants and the
cost of interest during construction, and part of the local currency costs of consultants.4 The
Government will finance the foreign exchange cost of consulting services for detailed design
and construction supervision, and the other local currency costs of the Project, including the
costs of land, the costs of duties and taxes, and part of the costs of civil works, equipment and
materials, and consultants. The Government prefers to provide all the funding for the
consultants for detailed design and construction supervision, in order to simplify project financial
administration. The proposed financing plan is in Table 3 and detailed in Appendix 6.

Table 3: Financing Plan

(US$ million)
Foreign Local
Source of Financing
Exchange Currency Total %
Asian Development Bank Loan 45.9 1.1 47.0 65%
Government 2.1 23.3 25.4 35%
Total 48.0 24.4 72.4 100%
Source: Appraisal mission estimates.

4
The loan of $47 million would be 65.0% of the cost of the Project excluding the cost of the TA. Under ADB’s cost-
sharing policy, Fiji is a group C country, and therefore eligible for 65% of the project cost.
8

21. The loan will be from ADB’s ordinary capital resources, under ADB’s London interbank
offered rate (LIBOR)-based lending facility. The loan will have a 25-year term, including a grace
period of 5 years; an interest rate determined in accordance with ADB’s LIBOR-based lending
facility, 5 a commitment charge of 0.75% on undisbursed loan balances; and a front-end fee of
0.5%. 6 The Government has stated that its decision to borrow under ADB’s LIBOR-based
lending facility on the basis of these terms and conditions was its own independent decision and
was not made in reliance on any communication or advice of ADB.

F. Implementation Arrangements

1. Project Management

22. The Ministry of Works and Energy (MWE) will be the Executing Agency, and its
WSD/WSC will be the Implementing Agency (IA) for the Project. Two project management units
(PMUs) will be established within WSD/WSC, one for Part A of the Project and one for Part B
(Supplementary Appendix D). Although the two PMUs will operate independently, they will meet
on a quarterly basis to review progress and identify any areas needing common action. The
PMU for Part A will report to the head of the IA and will be responsible for implementation
programming, selection and engagement of consultants, procurement of goods and services,
management of construction, maintenance of project records, progress reporting, financial
management, identification of problems and issues that may arise during implementation, staff
training, and preparation of recommendations for adjustments in the Project, if any. The PMU
for Part A will be headed by a project manager with suitable expertise, and experience in similar
projects. There will also be two assistant project managers, one for water and one for sewerage,
as well as a senior valuer, a land acquisition officer, a community relations officer, an
accountant, and support staff. Design and supervision consultants will report to the project
manager. The PMU for Part B will report to the head of MWE and will be responsible for
implementation programming, selection and engagement of consultants, procurement of goods
and services, supervision of consultants, maintenance of records, progress reporting,
identification of problems and issues that may arise during implementation, staff training, and
preparation of recommendations for adjustments in the Project, if any. The PMU for Part B will
be headed by an institutional development specialist with relevant expertise and experience in
similar operations. In addition, it will have an assistant institutional development manager, short-
term advisors, and support staff. WSD/WSC will provide the two PMUs with secretarial and
other support services. WSD/WSC will operate and maintain the project facilities on completion.
The establishment of the PMU-Works and the PMU-Reform, and the designation of each of their
heads —acceptable to ADB— will be conditions of loan effectiveness. A consultative process
will be established under which WSD/WSC will keep members of community groups (including
members of squatter settlements and indigenous peoples settlements) informed about the
Project, and seek their support in matters such as location of facilities, land acquisition, and
identification of sewage overflows.

23. A project steering committee (PSC) will be constituted from among the members of the
capital works committee, which was established during the preparation of the master plan for
the development of water and sewerage service in the Suva–Nausori area, and for the feasibility
study for the Project. The PSC will comprise, but not be limited to, representatives of the
5
Following standard ADB practice a 5-year LIBOR swap rate (3.3% plus 0.6%) has been assumed in the financial
analysis.
6
The front-end fee of 0.5% is a reduced rate approved by ADB’s Board of Directors. In the event the loan is not
approved in 2003, the front-end fee will revert to the standard rate for OCR loans as determined by the Board of
Directors.
 9

Ministry of Finance and National Planning, MWE, and the Lands and Survey Department. The
PSC’s prime roles are high-level coordination, particularly among government departments, and
identification and rectification of any issues that may arise during project implementation.
2. Implementation Period

24. The Project will be implemented over a 5-year period approximately from April 2004 to
April 2009. The implementation schedule is given in Appendix 7.

3. Procurement

25. Civil works contracts greater than US$2.0 million in value, and equipment and materials
supply contracts greater than US$500,000 in value, will be tendered through international
competitive bidding (ICB) procedures, in accordance with ADB’s Guidelines for Procurement
dated January 2001. Civil works contracts smaller than US$2.0 million will be undertaken under
local competitive bidding (LCB) procedures acceptable to ADB. Equipment contracts of
US$500,000 or less may be awarded through international shopping procedures acceptable to
ADB. Prequalification of contractors will be carried out in accordance with procedures
acceptable to ADB. Some small and moderate-sized works such as UFW detection and repairs;
pump and motor replacement; and replacement and installation of new water and sewerage
service pipes, house connections, and meters will be carried out through force account works,
acceptable to ADB, which in aggregate will have a value of not more than US$5 million. The
force account works would be too small and scattered to be of interest to contractors, and the IA
has adequate facilities and the capability to undertake the works expeditiously and at
reasonable cost. Vehicles, computers, and other equipment with a value of less than
US$100,000 per item may be purchased under off-the-shelf or direct purchase procedures, the
latter to ensure compatibility with existing equipment. Vehicles and equipment purchased under
the Project for use by PMU staff and consultants will be handed over to the IA at the end of
project implementation. Detailed designs for each physical component of the Project shall be
submitted to ADB for approval prior to issuance of bidding documents. Indicative procurement
packages are in Appendix 8 and a procurement summary is in Supplementary Appendix E.

4. Advance Procurement Action and Retroactive Financing

26. The Government has requested that advance procurement action be provided for (i) the
recruitment of urgently needed consultants for the PMU-Reform; (ii) urgent water loss reduction
activities undertaken with prior approval of ADB; and (iii) other civil works, equipment and
materials for the water supply system rehabilitation and augmentation incurred under the Project
prior to the loan effective date. The Government also requested that retroactive financing be
provided for items (i) and (ii) procured after 1 January 2004. The retroactive financing will
facilitate project implementation. To be eligible for ADB financing, such recruitment and
procurement will follow ADB’s Guidelines for Procurement dated January 2001. Retroactive
financing will be considered for such recruitment and procurement in an amount not exceeding
US$1.0 million. The Government has been advised that ADB’s approval of the advance action
and retroactive financing does not commit ADB to provide funding for the Project. MWE’s
capacity to carry out advance action has been found adequate.

5. Consulting Services

27. Consulting services under the loan will be provided in several packages: (i) project
management-works; (ii) project management-reform; (iii) water loss reduction, infiltration
assessment, mapping, environmental monitoring and computerization; and (iv) detailed design
10

and construction supervision (multiple contracts). All of the consultants except those for project
management-works and detailed design and construction supervision would be funded under
the loan. The consultants for package (i) will be selected as individuals and the consultants for
packages (ii), (iii), and (iv) will be selected as firms. For packages (ii) and (iii), it has been
agreed that consultants will be selected by MWE in accordance with ADB’s Guidelines on the
Use of Consultants using quality- and cost-based procedures. Package (iv) recruitment is under
way; consultants are being selected by MWE through a process of international quality and
cost-based selection, similar to that of ADB except that shortlisting was not used. For package
(i) and (iv), ADB and the Government will agree on the terms of reference prior to consultant
recruitment. For package (iv), the invitation materials, the draft contract, the results of the
evaluation and the proposals of the first-ranked consultants will be provided to ADB for review
before contract signing. For package (i), a list of the candidates, their qualifications, the
evaluation of their qualifications, and the draft contract will be furnished to ADB for review
before contract negotiations, and ADB will be provided with a copy of the signed contract.
Appendix 9 gives the summary res ponsibilities for consultants and summary terms of reference
are in Supplementary Appendix F.
6. Land Acquisition and Resettlement

28. Although project land acquisition and resettlement requirements are not considered to
be significant by the standards of ADB’s Policy on Involuntary Resettlement, there is still enough
uncertainty in land acquisition requirements, particularly for sewerage, that land acquisition and
resettlement needs must be monitored carefully. Preliminary sites have been selected for water
supply reservoirs and pumping stations, and PWD has made preliminary enquiries with the
Lands and Survey Department to ascertain land status and availability. About 20 hectares (ha)
of land will be permanently required for the construction of access roads, water supply pumping
stations, service reservoirs, and intake works, and about 4 ha of land will be temporarily
required for the construction of a main water supply pipeline from the proposed Rewa pumping
station to the Waila water treatment plant. For the water supply component, permanent
resettlement of approximately five households (about 30 persons) will be required. For the
sewage component, which is less extensive, but more focused on densely built-up areas,
resettlement of about the same number of households and persons could be expected.

29. The Government’s procedures for acquiring land, compensating landowners, and
dealing with resettlement issues are described in a Land Acquisition and Resettlement Plan
(RP), presented in Supplementary Appendix G and summarized in Appendix 10. It was agreed
that the Government will ensure that all land and rights-of-way required by the Project will be
made available in a timely manner and that the provisions of the RP, including compensation
and entitlements for affected persons, will be implemented in accordance with all applicable
laws and regulations, and with ADB’s Policy on Involuntary Resettlement, following procedures
acceptable to ADB. A community relations officer in the PMU will assist in community liaison,
land acquisition, and resettlement. The Government will ensure timely provision of sufficient
counterpart funds for land acquisition and resettlement activities and meet any obligations in
excess of the RP’s budget estimate. The Government will ensure that resettled persons will be
at least as well off as they would have been in the absence of the Project. Adequate staff and
resources will be committed to supervision and monitoring of the implementation of the
resettlement plan. The plan will be updated regularly to reflect any significant material changes
of the project scope or other causes, and such changes will be subject to ADB approval.

7. Disbursement Arrangements

30. Disbursements for contracts awarded under ICB and LCB procedures, as well as for
 11

contracts for consulting services, will be by ADB’s direct payment or reimbursement procedures.
All disbursements will be in accordance with ADB’s Loan Disbursement Handbook dated 2001
and detailed arrangements agreed upon by the Government and ADB. ADB will not provide
funding for civil works unless consultants acceptable to ADB are recruited or unless staff
acceptable to ADB are designated to provide for construction supervision.

8. Accounting, Auditing, and Reporting

31. MWE will maintain separate records and accounts for the Project, and will have the
project accounts and financial statements, audited annually by independent private auditors
acceptable to ADB. The project accountant, engaged under the PMU-Works, will have
experience in ADB’s requirements for project accounting and audit procedures. MWE will
provide ADB with copies of the audited project accounts and financial statements no later than 9
months after the end of the fiscal year to which they relate. MWE will provide ADB with quarterly
progress reports on project implementation. Within 3 months of the physical completion of the
Project, MWE will provide ADB with a project completion report. Progress reports will be
compiled by the two PMUs, and consolidated by the PMU-Works.

9. Project Performance Monitoring and Evaluation

32. In consultation with ADB, the two PMUs will establish and maintain a project
performance monitoring system expanding on the project framework. Project performance
reports will be included in both PMUs’ regular project reporting procedures, and will indicate the
progress made in meeting national institutional performance targets, as well as physical targets
for the project area. Performance indicators will include but not limited to, populations served,
availability of water supplies, UFW, billing and collection efficiency, degree of completion of
detailed design work, award of contracts, disbursements and cost recovery. The proposed
project performance monitoring system is described in Supplementary Appendix H.

10. Project Review

33. ADB will carry out regular reviews of the progress of the Project in conjunction with the
PMUs, at least twice per year. Reviews will include progress of policy and institutional reforms,
as well as of physical works. Reviews will particularly focus on project performance indicators.
The Government and ADB will carry out a comprehensive midterm review approximately 2.5
years after project implementation begins. The midterm review will include a review of progress
toward achieving the Project’s policy and institutional objectives, as well as progress in physical
components, procurement arrangements, disbursement arrangements, the performance of the
PMUs, and the performance of project consultants.

IV. TECHNICAL ASSISTANCE

34. ADB will provide an associated TA for institutional development and capacity building in
WSD/WSC. The TA will enhance water and sewerage management by improvements in trade
waste management, tariffs, environmental management, health and safety, and community
awareness of water issues. It will produce the following outputs: (i) water sewerage tariffs study;
(ii) a trade waste program; (iii) a health and safety system for WSD/WSC; (iv) environmental
legislation and/or regulations recommendations; and (v) a community awareness and education
program, with training products and course materials for incorporation in school and community
education curricula. A TA framework is in Supplementary Appendix I.
12

35. The trade waste program will include an assessment of the source, quality, and quantity
of trade wastes; development of legislation and regulations; and preparation of
recommendations for an action plan to effectively control and manage trade wastes.
Environmental legislation advice and recommendations will support the finalization of the
Sustainable Development Bill, the Public Health and Pollution Control Bill, and for preparation of
ambient and discharge standards and implementing regulations. The health and safety system
will be comprehensive. The development of community education and awareness materials will
include subjects such as water conservation, water handling, sanitation, water-related diseases,
civic awareness, and other related topics. Although the TA will be community-wide, the
community awareness component will have a subcomponent focused on slum and squatter
settlements. The tariff study will identify tariff needs for acceptable levels of cost recovery, cost
recovery mechanisms, tariff structures, and implementation mechanisms, as required to achieve
commercial operations and meet debt servicing requirements for the Nadi–Lautoka and Suva–
Nausori systems. The tariff study will ensure that any proposals are affordable and consistent
with current government policies. MWE will be the Executing Agency for the TA, which will be
carried out over a 1-year period starting in July 2004 and finishing at end of July 2005.
Consulting services will comprise 26 person-months of international consulting services and 27
person-months of domestic consulting services. The consultants will be recruited as a firm
through a process of quality- and cost-based selection in accordance with ADB’s Guidelines on
the Use of Consultants. The following specialists will be required: tariff specialist, community
education specialist, environmental legislation advisor, trade waste specialist, public relations
specialist, health and safety specialist, environmental management specialist, and
environmental engineer. Reporting will include a brief inception report that focuses on any
necessary changes to the scope of work or work program, and interim, draft final, and final
reports. In addition, each consultant will be required to produce draft final reports relevant to
their inputs for discussion with the Government, ADB, and other stakeholders, with the final
report to be submitted within 1 month of receipt of comments from ADB and the Government.
Consultants will also prepare briefing papers for periodic consultation workshops.

36. The cost of the TA is estimated at US$978,000 comprising a foreign exchange cost of
US$661,000 and a local currency cost of US$317,000. ADB, through its TA funding program,
will finance US$783,000, on a grant basis, for the entire foreign costs of US$661,000 and
US$122,000 equivalent of local currency costs. The consultants’ summary terms of reference
and detailed cost estimates are given in Appendix 11.

V. PROJECT BENEFITS, IM PACTS, AND RISKS

A. Benefits

37. The project area extends for about 25 km from industrial areas around Lami to the west
Suva, to rural areas around Nausori in the east. It is home to over 262,000 people or about one-
third of the country’s total population and almost 60% of its urban population. With in-migration
from other areas of the country, the population is expected to increase at about 3% per annum.

38. There are high socioeconomic benefits associated with the Project. The benefits from
the investments made in water include meeting suppressed demand of existing domestic and
commercial customers, avoiding further deterioration of the system, avoiding tankering of water
and conserving water through better demand management. The benefits from the investments
in sewerage include smaller housing plot sizes for residential development under Suva town
planning codes, increased economies of land use and avoidance of the costs of constructing
and maintaining septic tanks. The discharge of raw sewage, has damaged the environment to
 13

the detriment of all residents and visitors. This degradation has negative effects on residents’
ability to continue to enjoy the use of the rivers and harbor areas, and it could detract further
from Suva’s tourist potential. The development of improved water supply and sewerage services
will contribute to reducing health risks, especially for the poor households in informal squatter
settlements. Increases in water and sewerage tariffs will be held in check through efficiency
improvements in water and sewerage operations. The poor will benefit more than others
because they will be protected by maintaining a lifeline block for basic water needs.

1. Economic Internal Rate of Return

39. The economic internal rate of return (EIRR) for water was calculated for the Project and
for the master plan with and without tariff increases. Quantified benefits included the value of
meeting suppressed demand and the demand of new customers, saved cost of water tankering,
saved cost of small systems absorbed into the larger area, the value of incremental UFW
actually supplied to consumers, and the value of connection revenues. Replacement and
rehabilitation of assets was provided at 2.5% of total capital costs every 5 years. The resulting
EIRR was 26.2% for the Project, 24.9% for the master plan without a tariff increase, and 21.4%
for the master plan with a tariff increase, which results in decreased consumption.

40. An EIRR for sewerage was calculated for the master plan. Since I&I has not been
quantified, and the benefits of I&I reduction would pertain more to the Project than to the master
plan, this could be expected to yield a conservative result lower than that for the Project.
Quantified benefits included land value, value increases in areas provided with sewerage, plus
the avoided cost of constructing and deluding septic tanks. Replacement of rehabilitation of
assets was provided at 2.5% of capital costs every 5 years. The resulting EIRR for the master
plan was 9.8%, which is reasonable given that because of lack of data it was not possible to
calculate either the value of improved receiving water and environmental quality in areas
affected by water and environmental quality changes or the cost savings due to decreased I&I.
The EIRR for the water and sewerage master plans combined, assuming a water tariff increase
that would decrease consumption, was 18.5%; this result provides a strong economic
justification for the Project. Details can be found in Appendix 12 and Supplementary Appendix J.

2. Poverty

41. A detailed poverty assessment carried out in parallel with project processing has
confirmed that in 2002 more than 27% of the population of the project area are poor, meaning
that their incomes are insufficient to meet basic needs. Such households may have enough to
eat but be unable to provide schooling for their children or health care for their sick. Urban Indo-
Fijians suffer from a slightly higher amount of poverty (31%) although ethnic Fijians are close
behind (27%). The incidence of urban poverty has increased since the mid-1990s, due to the
slowdown of the sugar economy and lack of urban job creation; unemployment increased by
122% between 1996 and 2002. Although some urban poor may live in small formal housing,
about half of them live in informal and squatter settlements.7 Although many informal and
squatter settlements have piped water available to them, it is often available to only a few of the
residents and the others must share. Few informal and squatter settlements have sewerage
facilities, and suffer from poor sanitation as well as create pollution for others. Pit latrines, water
seal toilets, and some flush toilets to septic tanks are the main types of toilets in such areas. A

7
An informal settlement is one in which occupation rights have been given by the landowner but the rights of the
occupant have not been recorded. A squatter settlement is one in which occupation rights have not been given.
Most squatter settlements are on marginal and/or state-owned land.
14

participatory hardship assessment carried out in 2002 revealed that people in such areas gave
water supplies a high priority. Even those with taps experienced frequent service interruptions
and those without taps were anxious to be connected. Where shared connections were used,
people were often paying significantly more for their water taps since the stepped tariff
discriminates against large users. Many people in such areas rely on surface and well water for
nondrinking purposes, that is frequently contaminated, raising the risk of illness. Lack of
sewerage is a serious problem, particularly in the low-lying informal and squatter communities.

42. Although the Government has a policy of providing metered water supply connections to
individual dwellings in informal settlement areas, such connections require the landowner’s
permission, which often takes time or is difficult to secure. The Government also has a program
for regularizing squatter settlements, but it depends upon assessments of the suitability of
regularizing each settlement. In cases where the settlement has not been regularized or will not
be regularized, a few occupants will usually succeed in getting a water connection but they do
so despite lacking the required documentation (an occupancy permit and a building permit). To
address these problems, the IA will prepare a program to improve the provision of water and
sewerage in poor communities and submit it to ADB for review.

43. The Project’s water supply component will help reduce health risks, such as infantile
diarrhea, that are due to the lack of water and contamination of water arising from low pressure
in the piped system. It will also provide water for cooking, washing, and bathing, and reduce the
cost of boiling water. Improvements to sewage disposal to prevent contamination of waterways
will benefit the poorest that live in swampy, low-lying, poorly draining areas near the coast such
as in Vatuwaqa and the Samabula River. These communities use these waterways for fishing
and supplementing their food sources. The environmental benefits of the Project’s sewerage
component will improve the quality of life for the poorest people.

44. A quantitative assessment was carried out of the Project’s net benefit distribution.
Several stakeholder groups were identified, of which the poor were one, and the Project’s net
economic benefits to them were estimated, as calculated in the economic analysis described in
paragraphs 39 and 40, less any changes in the cost to the poor of the improved services. In
aggregate, the water and sewerage components of the Project generate total net economic
benefits of about US$40 million, of which it is estimated that about US$14 million will accrue to
the poor. This gives a combined project poverty impact ratio of 35%, which is above the
proportion of poor households and substantially above the proportion of poor household income
in the project area. The sewerage component yields more than half the net benefits, underlining
the importance of implementing sewerage improvements as well as water supply improvements
in such communities. A summary poverty reduction and social strategy is in Appendix 13 and a
poverty impact assessment is in Supplementary Appendix K.

3. Financial Aspects

45. The financial internal rate of return (FIRR) of the water supply part of the project is 4.0%
with present tariffs. Since the effects of the short-term sewerage investment cannot be
separately identified, it is not possible to provide an estimate for the FIRR of the combined water
and sewerage project. The net financial flows for the water supply and sewerage master plans
were combined to provide an FIRR for the overall master plan. The master plan FIRR is 3.1%
with present tariffs and 5.6% with a 60% tariff increase in 2006 required to set the overall FIRR
equal to the weighted average cost of capital. Corporatization requires a reasonable prospect of
such a tariff increase, and will require an explicit subsidy payment from the Government until
profitability is achieved. For long-term sustainability of the master plan, as well as from the
 15

standpoint of long term sustainability of water and sewerage operations it will be necessary to
double the water tariff and triple the sewerage tariff. 8

46. Several options are available to allow such tariff increases without causing affordability
problems. In the case of water, the present tariff for nondomestic customers is only about half of
full costs and could be increased without causing economic distortion. The size of the first
lifeline domestic supply block could be reduced provided that arrangements are made to ensure
that needy households sharing a water connection are not unduly penalized. In the case of
sewerage, the tariff should be restructured to be similar to the water tariff. Such changes could
generate the increase in revenues required for commercial operations without creating hardship
for existing consumers. For a population already spending substantial amounts for bottled and
tankered water, it can be expected that willingness to pay will exist provided the services
provided are of suitable quality. Tariffs at the levels proposed are affordable for both average
and low-income households. In 2008, the expected tariffs represent a water and sewerage bill
equivalent to 2.6% of the income of an average household, a moderate increase as compared
with the current level of 1.4%. For a low-income household, when the basic needs covered by
the lifeline block (equivalent to consumption of about 60 liters per capita per day) are met, the
water and sewerage charges will amount to 1.5% of income in 2008, as compared to 0.9% in
2001. An internationally acceptable level of affordability for water and sewerage is regarded as
3–5% of monthly household income, indicating that the proposed tariffs are affordable.

B. Social and Environmental Impacts

1. Social

47. The Project will have a positive social impact. The risk of waterborne disease outbreaks
will be decreased. More reliable and improved water supplies will be provided to almost all
residents and industries; the latter will lead to improved production and economic stability. The
trade waste policy, industrial discharge connections, and sewerage system upgrading will result
in cleaner waterways and an improved quality of life. Communities will be better informed about
water and sanitation issues, and improved operational performance will result from such
awareness. There will be improved public confidence in the provision of water supply and
sewerage services. Although there will be increased tariff charges for average water and
sewerage users, the poor will be protected through maintaining a small lifeline block, and
increased tariff charges will be offset by reduced taxes.

2. Environment

48. The Project will have a positive benefit to the environment through (i) substantial
reduction of sewage entering the groundwater, streams, and the sea due to inadequate
treatment in septic tanks; (ii) substantial reduction of sewage pump station failures and
consequent overflows, which often seriously affect low-lying communities near coastal waters;
and (iii) provision of sludge treatment facilities at the two project WTP. Altogether, these
improvements will help to alleviate serious pollution of streams, drains, and coastal waters in the
project area. Improvements in coastal water quality are closely linked to the extension of the
sewage outfall that is being funded by the European Union, and assurances have been included
to ensure reporting on the progress of outfall completion. Sustainable improvements in stream,
ground, and marine water quality will be supported through assurances for the enactment of key
environmental legislation, including the Sustainable Development Bill and the Public Health and

8
Detailed financial projections are included in Supplementary Appendix L.
16

Pollution Control Bill, or other legal measures that will help clarify and strengthen the basis for
regulation and control of waste discharges. The strengthening of PWD’s water quality laboratory
and improvement of PWD’s environmental guidelines will help ensure the monitoring of project
impacts and benefits, including the sustainability of water quality benefits.

49. The initial environmental examination (IEE) completed under the feasibility study and the
updated assessment during appraisal, the recommendations of which are summarized in
Appendix 14, concluded that the Project would have these environmental benefits but also
noted potential negative impacts may be experienced due to increased water withdrawals from
the Rewa River. However, it is expected that these impacts would be minor, however, since the
data used in the modeling and assessment was very limited, this issue will require further
assessment during detailed design. Negative impacts, such as erosion and sedimentation, are
possible during construction works, but can be mitigated through standard engineering and
environmental control practices. An updated environmental assessment will be prepared for all
components during detailed design to confirm the conclusions of the IEE and develop
environmental management plans (EMPs), satisfactory to ADB, for each project component and
the overall Project. Particular attention will be given to the Rewa River intake works and the
sludge treatment and disposal facilities at the two WTP. Disbursement of funds for these
components will require detailed environmental examinations and EMPs acceptable to ADB.
Project environment monitoring will be provided by MWE through its own staff, civil works
supervision consultants, and an environmental monitoring consultancy. MWE will ensure that
the Project is implemented in an environmentally sound manner, in accordance with the
recommendations of the summary IEE, updated EMPs and all applicable laws of the Fiji Islands,
ADB’s Environmental Policy, and ADB’s Environmental Assessment Guidelines from 2003. The
full summary IEE is in Supplementary Appendix M.
3. Gender

50. Lack of water places an extra burden on women and children by adding to their workload
in the collection and storage of water. Women are most inconvenienced by intermittent cuts in
water supply. In both indigenous Fijian and Indo-Fijian cultures, women are at the center of the
domestic sphere with prime responsibility for water and sanitation at home. They are principal
carers for children and have control over food preparation, bathing, toileting, and hygiene of
these children. Thus, the Project will have a profound effect on women in terms of improving
environmental conditions, improving water supply, and improving their and their children’s
health conditions. The community education and awareness program also targets women.
C. Risks

51. Institutional reforms are necessary in order to provide the quality and quantity of water
and sewerage services proposed and to sustain the project facilities. However, many of the
reforms to be implemented under the Project have been under discussion for at least 5 years,
and the corporatization of water supply and sewerage services, actually begun in 1998, was first
postponed by the government in power in mid-1999, and then halted by the present government
in late 2001. Since then, the Government has put the corporatization of water supply and
sewerage into its strategic plan for 2003-2005, while also expressing a strong desire to maintain
accessibility to water and sewerage services, avoid tariff increases until services are improved,
and avoid redundancies. The success of the Project will depend upon the thoroughness with
which institutional reforms are prepared and Government commitment to the reforms.

52. Improved cost recovery and improved operations and maintenance are closely linked to
the institutional reforms. It is important that the management of WSD/WSC receive the political
 17

support and the autonomy necessary to operate more efficaciously. Operations and
maintenance improvements are essential to reducing UFW, the high level of which contributes
to financial inefficiency. Tariff increases are necessary to sustainably operate and maintain the
system. A tariff study is included in the Project to reduce the risk that the Government will not
raise tariffs by providing recommendations that address all aspects of tariff systems, including
necessary cost recovery levels, cost recovery systems and mechanisms to implement them, as
well as systems for the Government to meet social obligations for affordable water and
sewerage services where these otherwise may not be commercially viable.

53. Improved environmental management is necessary to effectively manage sewage and

other pollution sources and improve environmental quality. The public awareness program,
environmental legislation assistance, and trade waste study included under the Project will
mitigate risk of Government reducing its current efforts to promulgate the Sustainable
Development and Public Health and Pollution Control Bills. The awareness programs and the
environmental monitoring program together with the further environmental requirements
included in the detailed design and construction phases will prevent or mitigate potential risks
associated with the water intake and water treatment plant sludge disposal system.

54. The Government’s limited familiarity with ADB’s procedures for quality- cost-based
selection procedures and PWD water and sewerage division’s lack of recent experience with
ADB’s procurement procedures could result in delays in the early phases of implementation.
This risk has been mitigated through relevant discussions during Appraisal and provision of
guidelines. A project implementation seminar in the Fiji Islands for the EA is also planned.

D. Overall Assessment

55. While there are substantial risks associated with the Project, resources have been built
into the project to avoid them. Political commitment will be a key component in risk reduction,
and this depends on a clear and consistent presentation of the rationale and sequencing of
project reforms. From the available evidence the Project benefits will outweigh the costs and the
Project sufficient robust to be beneficial under the likelihood of various risk occurring. The
Project contributes to ADB’s strategy for the Fiji Islands and its development goals.
VI. ASSURANCES

A. Specific Assurances

56. In addition to the standard assurances, the Government has given the following specific
assurances which are incorporated into the Loan Agreement:

(i) The Government will comply with, or cause PWD/WSD/WSC to comply with, the
IRAP, as endorsed by Government’s Cabinet of Ministries on 5 November 2003,
in particular,

(a) by 30 June 2004, the Government will have appointed WSD’s advisory
board;
(b) By 1 July 2004, WSD will have developed a staffing plan for WSD with
position descriptions for senior staff, resourcing strategies, position
evaluations and redeployment plans; and, by 1 July 2004, WSD and the
Borrower’s Public Service Commission will have entered into a senior
18

officer’s employment agreement, based on key performance indicators, with

every senior WSD officer.
(c) by 30 September 2004, the Government will have completed the separation
of those units, staff, assets, and records currently within PWD that will
make up the new WSD;
(d) by 30 June 2005, the Government will have submitted to Cabinet a
memorandum reviewing the progress of reorganization to that date, and
outlining the further steps to corporatization; and
(e) by 30 September 2005, the Government will have submitted to Cabinet a
memorandum presenting for approval the charter, organization plan,
staffing plan, outline chart of accounts, management information reporting
system, and the financing and regulatory arrangements for WSC. The
Government will cause Cabinet consideration of this cabinet memorandum
to take place not later than 31 December 2005.
(ii) To ensure transparency and accountability, WSD/WSC will make available to the
public its annual corporate plan within 3 months after the commencement of each
year, and its annual report and financial statements within 6 months after
completion of each year. The results of the tariff study will also be made public,
so that the community is prepared for these increases.

(iii) The following operational improvements will be under taken:

(a) The Government will cause WSD/WSC to establish client services units in
each major service area, with the objective of responding to all customer
complaints. WSD/WSC will respond to any such complaints involving
interruptions of services, leaks, or blockage of sewage within 48 hours, and
complaints involving errors in bills and similar matters within 30 days.
WSD/WSC will establish the client services unit in the Suva-Nausori area
by not later than 31 December 2004.
(b) By 1 July 2004 and continuing thereafter, WSD/WSC will undertake a
program of community awareness of water issues, including water demand
management, water handling, waterborne disease, and sanitation.
(c) WSD/WSC will undertake a program for provision of water supply and
sewerage services in poor urban and rural communities, including squatter
settlements. The program will aim at universal access to water and
sewerage services at cost levels affordable and acceptable to the poor. The
program will be provided to ADB for review by 31 December 2004.
(d) By 31 January 2004, PWD/WSD will have adopted a water loss reduction
program satisfactory to ADB, providing for reduction of UFW in the Suva–
Nausori area to not more than 30% by 31 December 2007.
(e) The Government will ensure (a) by 31 December 2005, the implementation
of a sewer rehabilitation program designed to reduce inflows and infiltration;
and (b) by 31 December 2006, the implementation of a trade waste
program with a discharge permit system to cover all non-domestic
discharges to wastewater system with adequate standards, appropriate
treatment requirements, and monitoring and enforcement provisions.
(f) The Government will develop and implement a long-term program for
 19

monitoring the quality of receiving waters and the aquatic biological

environment affected by the Project.
(g) The Government will, through its regular quarterly reports, keep ADB
apprised of progress on the extension of the Kinoya sewage outfall, and
inform ADB of any delays, changes, or problems that could affect the
performance of the Project.

(iv) The following financial management improvements will be undertaken:

(a) The Government will cause WSD to set up an accounting system, following
existing government accounting procedures, which will provide data on
costs and revenues by district by month. Overhead costs will be reported
separately and allocated in the management information reporting system
to be set up under the Project.
(b) The Government will cause WSD/WSC to conduct a tariff study that will
consider and agree appropriate levels of cost recovery and mechanisms for
cost recovery systems, including means for the Borrower to meet social
obligations for affordable water supply and sewerage, consider and agree
appropriate tariffs to ensure that poor families sharing a connection are not
penalized by high block rates, and review and discuss existing demand
forecasts. The Borrower will ensure this report is released to the public.
(c) Beginning from 1 January 2004, PWD/WSD will establish a debt collection
unit to enforce a disconnection policy with the objective of reducing the
outstanding debts to 90 days by 31 December 2004, and to 60 days by 31
December 2005. Disconnections will be initiated when a water or sewerage
bill is more than 30 days in arrears, and will be carried out within 30 days of
being ordered, in line with prevailing government regulations.
(d) By 30 April 2005, WSD will establish an accounting system able to produce
an income statement, balance sheet, and cash flow/flow-of-funds
statements following accrual accounting procedures and other generally
accepted accounting policies.
(e) By 31 December 2007, taking into account the results and
recommendations of the tariff study, the Government will cause WSD/WSC
through improvements in operations and financial management to achieve
recovery of the costs of operations, maintenance and debt service.
(f) WSC, once established, will operate in a financially sustainable manner,
within a social policy and regulatory framework established by the
Government. To the extent that WSD agrees to undertake social services,
and these require subsidies, these will be subsidized by the Government.
(v) The Government will ensure, and will cause MWE, WSD and/or WSC as the
case may be to ensure, that the Project facilities are designed, constructed,
operated, maintained and monitored in strict conformity with: (a) all applicable
government laws, regulations, permits and approvals, including national and local
environmental protection, social development, health, labor, child protection, and
occupational safety regulations and standards; (b) all mitigation and monitoring
measures detailed in the various environmental assessments and plans relating
to the Project, e.g., the initial environmental examination (IEE), and all relevant
20

environmental assessments (EAs) and environmental management plans

(EMPs); and (c) ADB’s Environment Policy and ADB’s Environmental
Assessment Guidelines, 2003.
(vi) Without limiting the generality of the foregoing: (a) the Government will ensure
that during the detailed design stage of the Project, EAs and EMPs, all
satisfactory to ADB, are completed for each phase of the Project; (b) the
Government will ensure that environmental mitigation measures identified as a
result of the IEE, EAs or EMPs are incorporated as relevant into the various
design and bidding documents, and later into each contract of works under the
Project; (c) with regard to the water and environmental monitoring referred to
above, the Government will cause the water and environmental monitoring
program to be undertaken under the guidance and supervision of the
Environment Department and the Health Department and will ensure monitoring
information is included in project progress reports submitted to ADB; and
(vii) The Government will complete passage of the Public Health and Pollution
Control Bill and the Sustainable Development Bill by 30 June 2005 or effect other
legal measures needed to achieve the sewage system connection, trade waste
management, watershed protection, water quality standards, and environmental
monitoring programs required under the Project.
(viii) The Government will ensure that all land and rights-of-way required for the
Project will be made available in a timely manner, and that the provisions of a
land acquisition and resettlement plan, including compensation and entitlements
for affected persons, will be implemented in accordance with all applicable laws
and regulations, and to the satisfaction of ADB. The plan will be revised and
updated based on detailed designs and submitted to ADB for review and
approval before implementation of the related physical works.

B. Conditions for Loan Effectiveness

57. Approval of the organization and staffing plan for WSD acceptable to ADB by the Public
Service Commission; designation of the head of WSD, who will be suitably qualified and
experienced for the position; the establishment of a PMU-Works and a PMU-Reform, with in
each case a designated head acceptable to ADB; and appointment of the change manager to
oversee the reform process within PWD/WSD will be conditions of loan effectiveness.

VII. RECOMMENDATION

58. I am satisfied that the proposed loan would comply with the Articles of Agreement of
ADB a+nd recommend that the Board approve the loan of US$47,000,000 to the Republic of the
Fiji Islands for the Suva–Nausori Water Supply and Sewerage Project from ADB’s ordinary
capital resources with interest to be determined in accordance with ADB’s LIBOR-based lending
facility; a term of 25 years, including a grace period of 5 years; and such other terms and
conditions as are substantially in accordance with those set forth in the draft Loan Agreement
presented to the Board.

Tadao Chino
President

20 November 2003
 Appendix 1 21

SUMMARY SECTOR/SUBSECTOR ANALYSIS

A. Introduction and Scope

1. The relevant sub-sectors in the analysis included water supply and urban wastewater
management. This appendix briefly summarizes the status of the subsectors, including (i)
relevance to ADB’s Water Policy and country strategy; (ii) indicators, such as environmental quality
and access to sanitation; and, (iii) institutional framework. Appendix 4, Institutional Reform Action
Plan, Supplementary Appendix A, Demand Assessment, and Supplementary Appendix B, Sector
Roadmap provide the relevant details for indicators and necessary institutional, legislative, policies
technical, planning needs, and action plans.
B. ADB Sector Focus and Country Strategy and Program
2. ADB's Water Policy supports integrated water resource management improved and
expanded delivery of water services, foster cooperation and awareness, promote regional
cooperation, facilitate the exchange information and improve governance. It further emphasizes the
need for autonomous management of water utilities, cost recovery and private sector participation
while ensuring access and equitable service to the poor and vulnerable. The Country Strategy and
Program for Fiji aims at promoting economic growth and improve the quality of life, especially for
those left behind or vulnerable to external shocks or natural disasters. The strategy is consistent
with the Government’s strategic development plan for 2003-2005. ADB will focus on public
investment in physical infrastructure in key sectors, strengthen associated policy institutional and
regulatory framework frameworks, and promote private sector participation in public enterprises.
The CSP update is well aligned with the millennium development goals. The project supports
ADB’s strategy for the Fiji Islands and the ADB Water Policy through (i) fostering good water and
environment governance; (ii) improving living conditions and, (iii) at promoting private sector growth
improved environmental infrastructure.
C. Indicators
3. A large majority of the population (50%) have access to potable water. And 75% has
access to safe sanitation, In Suva-Nausori approximately 93% have access to safe water and
about 27% are served by the wastewater collection system and most of the remainder by septic
tanks, though some have no facilities (specific data are not available). Marine and urban stream
water quality in the Suva-Nausori area has been significantly degraded as a result of the
inadequate sanitation and poor condition of the sewer system. Water quality monitoring data
shows definitive evidence of sewage contamination.
C. Institutional Framework
4. Present institutional arrangements for water supply and sewerage and environmental
management are weak. Water and sewerage operations are managed from a division within the
public works department, which leads it to compete for human and financial resources, resulting in
management deficiencies. The Government’s strategic development plan for 2003-2005
recognizes the need for institutional reform to achieve acceptable operations and maintenance and
cost recovery levels and thus calls for corporatization of water supply and sewerage service by end
of 2005. Environmental legislation is limited, which also has constrained development of
appropriate management system; however, the Government is in the process of promulgating a
sustainable development bill and public health and pollution control bill.
D. Need for the Project

5. Rehabilitation, optimization and expansion of the water supply and sewerage systems are
urgently needed. Institutional reforms included in the Project that will in turn result in improved
operations and maintenance and cost recovery ensure sustainability of Project outputs.
22 Appendix 2

EXTERNAL ASSISTANCE

Source and Description Amount

Year (US$ million)

Asian
Development
Bank
1996 Technical Assistance No. 2621-FIJ: Corporatization of the Water 0.6
and Sewerage Section of the Ministry of Public Works,
Infrastructure, and Transport
1998 TA No. 3055-FIJ: Suva-Nausori Water Supply and Sewerage 0.8
Project
1999 TA No. 3170-FIJ: Implementation of Corporatization of Water 0.1
Supply and Sewerage Services

Australia
1977 – 1982 Suva Water Supply Augmentation (design and supply of 1.0
equipment for the Waila water treatment plant)
1980 - 1987 Small Grant Scheme. – supply of pipes and equipment; 0.4
preparation of Coral Coast Master Plan
1981 Suva Water Supply Augmentation – supply of pipes and 0.5
equipment
1981 Suva Sewerage Scheme – construction of tunnel 0.5
1982 Suva Sewerage Scheme – supply of pipes, equipment and plant 0.6
1982 Lautoka Sewerage Scheme – outfall pipeline 0.8
1983 – 84 Preparation of Suva Water Supply Master Plan 0.2
1984 Suva Sewerage Scheme – supply of laboratory equipment 0.2
1988 Suva Water Supply – supply of pipes and pumps 0.4
1989 – 1991 Suva Water Supply – supply of pipes, pumps, and consulting 2.5
services

European Union
2000 Kinoya sewage treatment plant – outfall pipeline 3.8

Japan
1999 -2003 Nadi – Lautoka Water Supply Project 15.0

Source: Appraisal Mission data.

 Appendix 3 23

PROJECT FRAMEWORK
Monitoring Assumptions and
Design Summary Performance Indicators/Targets
Mechanisms Risks
Goal
§ Enhanced human § Enhanced consumer satisfaction with piped water § News media, § Improved water
development supplies § Consumer supplies will result
particularly for the § Reduced inconvenience and cost due to surveys in increased
urban poor purchasing water from tank trucks and having to § Health statistics consumer
filter and boil it for drinking § Environmental satisfaction
§ Reduced illness and death due to waterborne surveys built § Services to the poor
diseases, particularly among children into the Project will improve
§ Infertile diarrhea reduced from 10,000 cases per § Absence of tank § Improved water
annum during 1995–2000 trucks and supplies will result
§ Gastroenteritis, infectious hepatitis, and typhoid consumer water in better health
also reduced filtering and § Health statistics are
§ Increased consumer usage of stream and boiling activities accurate
foreshore waters § Socioeconomic § Reduced sewage
§ Restoration of plant and animal life in streams surveys flows achieved
and foreshore waters § Progress under the Project
reports will not be offset by
§ Review continued
missions unserviced growth
Outputs
§ Increased § Increased delivery of potable water in the Suva- § Operational
coverage and Nausori area without significant service performance is
§ Consumer
quality of water interruptions, for a population of 288,000 persons actually improved,
surveys
supply in the (95% of the population) served in 2008 as § Internal incentives
Suva-Nausori compared to 243,000 (93%) served in 2003 § National Water
Quality are in place to
area. § Reduction in unaccounted for water from 55% of make operational
Laboratory tests
water produced to 30% changes.
§ Water loss
§ Increase in water production capacity from 145 § Squatter settlement
monitoring data
megaliters per day (Ml/d) to 160 Ml/d access issues are
§ Utility statistics resolved.
§ Saltwater intrusion into source waters prevented
§ Progress
§ Water supplied 24 hours a day, 7 days a week to reports
entire system
§ Review
§ Water quality meets World Health Organization missions
standards
§ Increased § Increased coverage of sewerage service with § Consumer § Operational
coverage and 121,000 persons (42% of the population) served surveys performance is
effectiveness of in 2008 as compared to 71,000 (27%) served in improved.
§ Review
wastewater 2003 § Legal provision for
missions
collection and § Reductions in discharges of raw sewage from the sewerage
treatment § Water loss
collection system that have resulted from pipe connection enacted
services provided monitoring data
breakages and pump s tation failures and enforced.
in the Suva- § Inflows and
Nausori area. infiltration (I&I) § I&I study-identified
rehabilitation
monitoring data
requirements are
implemented.
§ Reductions (by 50%) in I&Is that currently § Utility water
increase sewage flows and overload the sewage quality
treatment plant monitoring
§ Utility statistics
§ Progress
reports
24 Appendix 2

Monitoring Assumptions and

Design Summary Performance Indicators/Targets
Mechanisms Risks
· Improved quality § Establishment of a trade wastewater § Review § Improved sewage
of the water in the management system missions collection and
streams and § Improvement in the adverse environmental § Monitoring treatment will result
foreshore waters in improved stream
conditions that have been caused by inadequate program
of the Suva- developed and coastal water
sewerage services
Nausori region under the quality
§ Improved environmental quality monitoring and
regulatory framework for environmental Project § Improved
§ Progress institutions, laws,
management
and regulations will
reports
result in more
§ Review effective systems of
missions incentives and
§ Institutions controls
developed, laws
and regulations
developed
under the
Project

§ Capacity to § Establishment of an entity dedicated to provision § Cabinet papers, § An autonomous

deliver water and of water supply and sewerage services in the Fiji laws, and agency will deliver
sewerage Island’s metered water supply areas, with regulations services in
services in arrangements for autonomy, transparency, and accordance with
§ Agency reports
accordance with accountability similar to those of a commercial demand and
demand and water supply and sewerage agency § Progress mandated services.
mandated levels reports
§ A suitable
of service § Review governance,
missions regulatory and
financial framework
can be developed
and will work as
planned.
§ Government can
mobilize
stakeholder and
public support for
change.
§ Entrenched
interests resistance
to change will not
derail the process.
Outputs and
Activities
§ Rehabilitated § Implementation of a program for water loss § Project progress § Adequate project
water supply reduction comprising leak detection, replacement reports management units
system, increased of 50 kilometers (km) of distribution mains, § Project review (PMU) and utility
water source replacement of about 15,000 leaking service staffing
missions
supply, increased pipes and 27,000 malfunctioning meters; § Adequate
water production rehabilitation of the Tamavua main storage counterpart funding
capacity, and reservoirs and the upper Waimanu pumping
extended service station, and a demand management program
area
 Appendix 3 25

Monitoring Assumptions and

Design Summary Performance Indicators/Targets
Mechanisms Risks
§ Optimization and augmentation of the distribution
system comprising installation and upgrading of
pumping stations in 4 locations, construction of
additional service, storage, and balance
reservoirs with a capacity of about 29 megaliters,
construction of about 40 km of additional mains,
and installation of about 13,000 new house
connections

§ Augmentation of water sources, including

construction: of a new water supply intake and
pumping station on the Rewa River, and
construction of about 7 km of new source and
rising mains and related pump station
improvements
§ Augmentation of existing water treatment plants,
including rehabilitation of mechanical facilities in
the Tamavua treatment plant, construction of a
new clear water reservoir at Waila, upgrading and
installation of instrumentation systems,
construction and upgrading of sludge and
backwash facilities at Waila and Tamavua, and
upgrading laboratory facilities
§ Rehabilitated § Project progress § Adequate PMU and
§ Rehabilitation and upgrading of existing sewerage
sewerage system, reports. utility staffing
collection networks, including rehabilitation works
upgraded § Project review § Adequate
wastewater identified by the I&I study, comprising
rehabilitation and replacement of about 8 km of missions counterpart funding
treatment plant,
trunk mains, gravity mains, rising mains, and
and extended
pump stations
sewerage system
§ Improvement of the Kinoya sewage treatment
plant, including inlet works, odor control and
sludge treatment, dewatering and disposal
systems

§ Construction of about 15 km of new trunk sewer

mains, collectors and reticulation, with related
pumping stations; installation of about 6,300 new
sewerage connections in backlog areas and in
presently unserved areas
§ Design and implementation of a trade wastewater
program
§ Upgrading of maintenance facilities; and the
existing national water quality laboratory at Kinoya
§ Development and implementation of improved
management systems, including mapping and
geographic information systems, receiving water
quality monitoring, and infiltration assessment and
related design
26 Appendix 2

Monitoring Assumptions and

Design Summary Performance Indicators/Targets
Mechanisms Risks

§ Institutional § Implementation of an institutional reform action § Consultants § Continued high

Reform and plan aimed at creating a water and sewerage reports level support for
Development department (WSD) during 2004 and a water and reforms
sewerage corporation (WSC) by 2005 § Cabinet papers
§ Adequate PMU
§ Implementation of a management information § Legislation and staffing
reporting system facilitating well-integrated, regulations
§ Consultants
effective, and efficient water supply and sanitation produce the
§ Utility reports
operations required outputs
§ Project progress
§ Improvement of operations, including provision of § Adequate agency
consumer service units and metering, adoption of reports staffing
water loss reduction and I&I reduction programs, § Review
and mechanizing water and sewerage operations missions
§ Upgrading of human resource management
systems

§ Strengthening of environmental monitoring and

management systems

§ Upgrading of computerized information systems

through the provision of new hardware and
software

§ Conduct of a water awareness program

§ Training of WSD/WSC staff

§ Development of a trade waste program, improved

health and safety procedures, environmental
legislation and regulations, a community
education and awareness program, with a
component focused on slum and squatter
communities, and a tariff study
§ WSD/WSC § Willingness to
§ Implementation of § Implementation of an accounting system for WSD
a financial action that provides data on costs and revenues, by reports restructure and
plan including district by month, and on overhead costs, and for § Progress increase the tariff to
recommendations WSC that provides data as required for reports the extent required.
from the tariff commercial operations § Review § Willingness to
study completed implement an
§ Revision of the sewerage act to provide for cutting missions
under the arrears reduction
off water services for failure to pay the sewerage
technical policy
bill
assistance (TA)
associated with § Update an earlier valuation of assets to enable
the loan introduction of commercial accounting under § Willingness to
WSC implement an
§ Recovery of cost of operation and maintenance effective metering
and debt service by 31 December 2006 program
§ Recovery of cost of operation and maintenance
and debt service and 25% of capital expenditures,
or operation and maintenance interest and
depreciation, whichever is greater, by 31
December 2012
§ Arrears reduced to 60 days by 31 December 2005
§ Average age of consumer meters reduced from
20 years to 7 years
 Appendix 3 27

Monitoring Assumptions and

Design Summary Performance Indicators/Targets
Mechanisms Risks
§ Affordable access § Government subsidy/community service § Project progress § Government
program obligation identified and implemented reports. commitment
§ Public informed of program § Project review
missions.
§ Improved urban § Water quality meets adopted standards 60% of § Utility § Government
coastal area and the time. monitoring data enactment and
stream water § Progress enforcement of
quality environmental
reports
legislation and
§ Review standards
missions
§ European Union -
funded outfall
extension
constructed
Inputs
§ Government Under the loan:
staffing § 1,005 government and consultant professional § Project progress § Counterpart staff
Investment loan person-month inputs (government 180, reports. are available
Design consultants 825) § Project review § Counterpart budget
consultants § Consultants for (i) project management-works, (ii) missions. is a vailable on a
project management-reforms, (iii) leak reduction, timely basis.
Civil works § Utility records
I&I surveys, trade waste reduction and mapping § Civil works
contracting
and (iv) detailed design and construction contractors
Institutional supervision supervised carefully
consultants
§ Total budget of US$72.4 million with US$47.0 to ensure quality
Project million Asian Development Bank (ADB) loan performance
management
assistance Under the TA: § Associated TA
grant approved at
consultants § Consultant inputs of 53 person-months, 26
indicated funding
Environmental international and 27 local
level
monitoring § Total budget of US$978,000 with US$783,000
consultants ADB grant
Equipment and
software
Associated grant
TA
28 Appendix 4

INSTITUTIONAL REFORM ACTION PLAN

(October 2003, Adjusted to Reflect Loan Technical Discussions)

Stage 1 – Internal Reorganization - Preliminaries

1.1 Cabinet decision endorsing the creation of a Water and Sewerage Desirable 30 Jun 2003
Department (WSD) and the reform timetable contained in this Actual Aug 2003
institutional reform action plan.
1.2 Appoint change manager/s to oversee reform process. Desirable 15 May 2003
Present Target Oct 2003
1.3 Engage organizational development support consultancya Desirable 15 May 2003
Actual Jul 2003 (Complete)
1.4 Develop and agree initial reorganization plan and targets. Desirable 30 Sep 2003
· Plan prepared Actual Aug 2003
· Plan adopted by PWD Present Target Nov 2003
Present Target Mar 2004
· Plan approved by PSC
1.5 Develop staffing plan with position descriptions for senior staff, Desirable 31 Oct 2003
resourcing strategies, position evaluations and redeployment plans. Present Target Jul 2004
1.6 Briefing / training of staff including consultation with unions. Original 30 Nov 2003
Present Target 31 Mar 2004
1.7 Develop WSD chart of accounts, production areas, budgets, funding Original 31 Oct 2003
mechanisms and delegations. Present Target 31 Dec 2003
· Outline chart of accounts Present Target Jun 2004
· Budgets, funding mechanisms and delegations
1.8 Develop outline Management Information Reporting (MIR) system by Original 31 October 2003
district and monthly, for initial operation of WSD. Present Target 31 October 2003
· Preliminary Design Present Target Mar 2004
· Detailed Design
1.9 Upgrade rates collection database to suit WSD production areas, Upgrade 31 Dec 2003
MIR and water loss reduction program requirements and undertake
validation of customer records. Validate records 30 June 2004
1.10Test run WSD accounts and MIR in parallel with existing accounts. Original 30 Nov 2003
Present Target July 2004
1.11Designate Department Head, and finalize a Senior Officers Desirable 31 Dec 2003
Employment Agreement based on key performance indicators as per Present Target 31 Mar 2004
PSC Regulations. Completed Jul 2004
Stage 2 – Internal Reorganization – Implementation.
2.1 Appoint WSD Advisory Board Original target 31 Mar 2004
Present target 30 June 2004
2.2 Implement separation of units including staff, assets and records.
· Commencement Original target 31 Dec 2003
Present target 1 Jan 2004
Original target 30 Jun 2004
· Completion
Present target 30 Sep 2003 (ties with
Schedule 6)
2.3 Establish service agreements with Public Works Department and Start 31 Dec 2003
performance agreements with Public Service Commission and Completion 30 Jun 2004
Ministry of Finance and National Planning for senior management Comment Dependent on outcome of
SES negotiations/trials
2.4 Prepare a Corporate Plan for WSD setting out performance targets Original 28 Feb 2004
and development goals. Present target Jul 2004
2.5 WSD accounts, funding and MIR activated. Original 31 Jan 2004
Start 31 Jul 2004
Fully underway Jan 2005
a
ADB TA funded.
 Appendix 4 29

2.6 Appoint senior positions and commence progressive implementation

of staffing plan. Original 31 Jan 2004
· Commencement (Existing staff) Present Jul 2004 (existing staff)
Original 31 Jul 2004
· Completion (New Staff) Present Jan 2005 (New Staff)
2.7 Implement institutional development in management, community Original From 31 Jan 2004
relations, health & safety, environment, trade waste management, Present start 31 Jul 2004
water loss reduction, training, planning and operation of treatment, Continuing 1 Jan 2005
distribution and collection systems.
2.8 Increase revenue collection through development of policy, staffing 65% 30 Jun 2004
and community education and awareness. 70% 30 Jun 2005
Stage 3 – Water & Sewerage Corporation (WSC) – Preparatory Phase
3.1 Conceptual design of WSC considering major urban, minor urban, Complete 1 Jan 2005
peri-urban and rural service areas.
3.2 Inventory and value water supply and sewerage assets Complete 1 Jan 2005
3.3 Undertake tariff study to meet commercial, social and demand Complete 1 Jan 2005
management objectives of government, define costs and establish
financial performance indicators of WSC.
3.4 Design WSC double entry accounting system, following accrual Complete 1 Jan 2005
accounting procedures and other generally accepted accounting
policies.
3.5 Determine the level of cost recovery required by each cost center, Complete 30 Jun 2005
need for subsidies, arrangements, and a detailed financing plan.
3.6 Address issues of degree of autonomy, staff recruitment and Complete 30 Jun 2005
remuneration policies, outsourcing, cost recovery, and sources of
funds.
3.7 Conceptual design of WSC organisation plan, staffing plan, Complete 30 Jun 2005
investment plan and financial plan
3.8 Develop a governance and regulatory framework for WSC pursuant Complete 30 Jun 2005
to the Public Enterprise Act of 1996.
3.9 Conduct a review of WSD to determine the progress of Original 31 Mar 2005
reorganization, the performance improvements achieved through Present 30 Jun 2005
creation of a department focused on water supply and sewerage and
further steps to be taken.
3.10Submit to Cabinet a proposal for consideration by Cabinet for Original 30 Jun 2005
creation of a WSC, backed up by an appropriate implementation Present 30 Sep 2005
plan.
3.11Cabinet consideration of WSC formation Original 30 Sep 2005
Present 31 Dec 2005
30 Appendix 5

FINANCIAL ACTION PLAN

· The Water and Sewerage Department (WSD), and its corporatized successor the Water and
Sewerage Corporation (WSC), will operate in a financially sustainable manner, within a
social policy and regulatory framework established by the Government. It will seek to
generate the funding necessary to maintain its facilities and to contribute substantially to the
cost of new facilities through user charges.

· The WSD will set up an accounting system, following existing government accounting
procedures, which will provide data on costs and revenues by district by month. Overhead
costs should be reported separately and consideration should be given to allocating them in
the management information system to be set up.

· Revenues collected by the WSD through the Water Rates Office will continue to be
transferred to the Government’s consolidated fund.

· The WSD and the Ministry of Finance (MOF) will oversee the tariff study planned under the
loan to ensure that (I) alternative definitions of full cost recovery are defined and discussed;
(ii) appropriate levels of cost recovery for different types of system and for the operation as a
whole are discussed and agreed upon; (iii) consideration is given to the possibility of varying
tariffs by system; (iv) means are set up to ensure that poor families sharing a connection are
not penalized by high block rates; (v) consideration is given to lowering the size of the first
domestic block (band); and (vi) existing demand forecasts are reviewed, discussed,
amended as necessary, and a system for continuous review and updating is set up.

· WSD will review and update an earlier valuation of water and sewerage assets and liabilities
and prepare financial statements to enable them to be transferred to the WSC on its
creation (not later than 31 December 2005).

· The WSC will assume the assets and liabilities of the water and sewerage systems for which
it becomes responsible.

· The WSC will use a double entry accounting system and will follow accrual accounting
procedures and other generally accepted accounting policies.

· The WSC will continue the procedure set up by WSD to provide monthly data on costs and
revenues by district. Consideration will be given on the appropriateness of the district as
cost center.

· In conjunction with MOF, the WSC will determine the level of cost recovery required by each
cost center. If these agreed levels imply the need for subsidies, arrangements will be made
for them to be recorded in the WSC books. MOF might wish to fund these subsidies directly.
If not, they should be used to increase government equity. They should be allowed for in any
required cost recovery for the WSC as a whole.

· The act or other legislation setting up the WSC will enable the board to retain relevant
revenues collected by the Water Rates Office.

· MOF will pass on to the WSC, in Fiji dollars, any international and local loans taken out to
finance its operations and expansion so that they appear on the entity’s books of account.
 Appendix 5 31

· The WSC will be charged with paying debt service on those loans to MOF.

· If tariff revenues are not sufficient to make full loan payments, the residual will, after
negotiations, be used to increase government equity in the WSC.

· The Government will clarify the tariff basis (monthly or quarterly), strengthen meter reading,
billing and collection procedures, and enforce a well-publicized disconnection policy for
nonpayment, with the objective of reducing the outstanding debtors from the presently
estimated 300 days to 90 days by 31 December 2004, and to 60 days by 31 December
2005.

· Customers whose water or sewerage bill is more than 30 days in arrears will be informed
that if they do not pay within 30 days they will be disconnected. Following disconnection, the
service will not be restored until the debt and a reconnection charge are paid.

· To the extent that the WSD/WSC agrees to provide water or sewerage to social services,
and that these require subsidies, the latter will be provided by the Government. WSD will
obtain the repeal of the ordinance that provides rebates to customers for water losses after
their meter.

· Not later than 31 December 2004 the Government will submit to Parliament a bill to amend
the Sewerage Act to provide for disconnection of water services in the event of nonpayment
of the sewerage bill.

· The WSC will through improvements in operations and financial management achieve the
following levels of cost recovery: (i) operation, maintenance, and debt interest, not later than
31 December 2006; and (ii) operation, maintenance, and the higher of (a) debt service and
25% of capital costs or (b) depreciation plus interest, not later than 31 December 2012.

· The Government will monitor the financial situation of WSD/WSC and, in the event the
above targets are not expected to be met, take action to enable their achievement, including
further improvements in operational efficiency, tariff adjustments, or tariff increases.
32 Appendix 6

DETAILED COST ESTIMATES AND FINANCING PLAN

Table A6.1: Cost Estimate

Foreign Local Total

Item Exchange Currency Cost
(US$‘000) (US$’000) (US$’000)

A. Water Supply Rehabilitation and Augmentation

Works and Equipment
1. Water Loss Reduction Program 5,543 1,937 7,480
2. Other Rehabilitation 1,106 129 1,235
3. System Optimization 2,656 467 3,123
4. Distribution Pipe Network Augmentation 2,562 798 3,360
5. Distribution Pumps Augmentation 124 4 128
6. Service Reservoirs Augmentation 581 48 629
7. Water Sources Augmentation 5,450 854 6,304
8. Water Treatment Plants Augmentation 1,258 66 1,324
9. Land Acquisition 0 400 400
10. Water Loss Consulting Services 270 0 270
11. Design and Supervision Consulting Services 680 1,020 1,700
Subtotal A 20,230 5,723 25,953

B. Sewerage Rehabilitation and Augmentation

Works and Equipment
1. Network Rehabilitation and Replacement 4,398 1,063 5,461
2. Existing Pump Station and Mains Upgrading 636 134 770
3. Distribution Network Expansion 2,093 409 2,502
4. Distribution Network Infill 2,164 854 3,018
5. Sewerage Treatment Plant Augmentation 2,529 373 2,902
6. Workshop and Laboratory Facilities Upgrading 507 35 542
7. Trade Waste Management 208 67 275
8. Land Acquisition 0 600 600
9. Infiltration Assessment and Related Design 200 300 500
10. Mapping and GIS 180 120 300
11. Environmental Monitoring 240 360 600
10. Design and Supervision 1,000 1,500 2,500
Subtotal B 14,155 5,815 19,970

C. Sewerage Rehabilitation and Augmentation

C1. Project Management -Works
1. Project Manager/Senior Engineer 480 0 480
2. Senior Engineers (2) 672 0 672
3. Engineers (2) 0 252 252
4. Senior Valuer, Accountants (2) 0 480 480
 Appendix 6 33

Foreign Local Total

Item Exchange Currency Cost
(US$ ‘000) (US$’000) (US$’ 000)
5. Senior Assistants (5) 0 480 480
6. Assistant (4) 0 0 0
7. Equipment 18 0 0
8. Reports 0 19 19
9. Housing and Per Diem 0 132 132
10. Domestic Transportation 0 96 96
11. International Transportation 22 0 22
Subtotal C1 1,192 1,267 2,459

C2. Project Management -Reforms

Project Manager Senior/Institutional Development
1. Specialist 450 0 450
2. Institutional Development Specialist 270 0 270
3. Financial Management Specialist 240 0 240
4. Short-Term Specialists 300 0 240
5. Senior Technical Assistant 0 108 108
6. Support Staff (3) 0 81 81
7. Equipment 18 0 18
8. Reports 0 19 19
9. Housing and Per Diem 0 99 99
10. Domestic Transportation 0 72 72
11. International Transportation 24 0 24
Subtotal C2 1,302 379 1,681
C3. Computerization
1. Works and Equipment 275 0 275
2. Consultants 38 0 38
Subtotal C3 313 0 313

Total Base Cost 37,192 13,184 50,376

D. Taxes, Contingencies, and Charges
1. Physical Contingencies 4,055 1,450 5,505
2. Price Contingencies 2,062 1,170 3,232
a
3. Taxes and Duties 0 8,571 8,571
4. IDC, Commitment Fee, Front-End Fee 4,691 0 4,691
Subtotal D 10,808 11,191 22,000

Total Project Cost 48,000 24,375 72,376

IDC= interest during construction.

a
Project costs including value-added tax at 12.5% resulting in total taxes and duties of 14.5%.
b
IDC and commitment fee assumes Asian Development Bank loan at a 5-year London interbank offered rate
swap rate of 3.29%
Source: Appraisal Mission estimates.
34 Appendix 6

Table A6.2: Financing Plan

Funded by
Item ADB Government Total
(US$’000) (US$’000) (US$’000)

A. Water Supply Rehabilitation and Augmentation

1. Works and Equipment 20,356 3,227 23,583
2. Land 0 400 400
3. Consulting Services 0 0 0
a. Water Loss 270 0 270
b. Design and Supervision 0 1,700 1,700
Subtotal A 20,626 5,327 25,953

B. Sewerage Rehabilitation and Augmentation

1. Works and Equipment 13,269 2,201 15,470
2. Land 0 600 600
3. Consulting Services 0 0 0
a. Infiltration, Mapping, Environmental Monitoring 815 585 1,400
b. Design and Supervision 0 2,500 2,500
Subtotal B 14,084 5,886 19,970

C. Project Management and Institutional Development

C1. Project Management -Works
1. Consultants 0 1,343 1,343
2. Staff 0 1,116 1,116
Subtotal C1 0 2,459 2,459

C2. Project Management -Reforms

1. Consultants 1,332 89 1,420
2. Staff 0 261 261
Subtotal C2 1,332 350 1,681

C3. Computerization 313 0 313

Total 36,354 14,022 50,376

D. Taxes, Contingencies, and Charges

1. Physical Contingencies 3,920 1,581 5,505
2. Price Contingencies 2,014 1,222 3,232
3. Taxes and Duties 0 8,571 8,571
4. IDC, Commitment Fee, Front-End Fee 4,691 0 4,691
Subtotal D 10,625 11,375 22,000

Total Project Financing 46,979 25,397 72,376

ADB = Asian Development Bank, IDC= interest during construction.

Source: Appraisal Mission estimates.
 Appendix 7 35

IMPLEMENTATION SCHEDULE

Activity 2003 2004 2005 2006 2007 2008

A. Institutional Reform
Water Loss Program Development
Asset Management Plan
Information System Development
Environmental System Development
Financial System Development
Operations Development & Training
Implementation

B. Water Supply
Land Acquisition
Detailed Design
Tendering
Construction

C. Sewerage
Land Acquisition
Detailed Design
Tendering
Construction

D. Support Activities
Environmental Monitoring
Community Education and Awareness
Inflows and Infiltration Study

Associated Technical Assistance

Source: Appraisal Mission estimates.
36 Appendix 8

INDICATIVE PROCUREMENT PACKAGES

Estimated
Package
Method Description Cost
Number
(US$ million)

W-1 ICB Construction of a new water intake and pumping station on the
Rewa River. Construction of a 760 millimeter (mm) diameter rising 5.92
to the Waila water treatment plant.

W-2 ICB Rehabilitation and refurbishment of the Waila and the Tamavua
water treatment plants. Duplication of the DN600 raw water main
8.55
from the Savura balance tank to the Tamavua water treatment
plant. (Possibly 3 contracts)

W-3 LCB Construction of backwash treatment and sludge disposal facilities

at the Waila and the Tamavua water treatment plants. (Minimum 3 1.89
contracts)

W-4 LCB Rehabilitation and replacement of trunk water supply pipelines,

and construction of water distribution pipelines, pumping stations,
4.51
water supply service reservoirs, and associated works. (Minimum
6 packages)
LCB Duplication of raw water mains from the sources in Savura Creek
W-5.
to Tamavua water treatment plant and repair of the main service 1.89
reservoir.
W-6 ICB Construct Wainibuku/Navitoka reservoir system and Nausori Rewa
2.67
Delta system.

W-6a LCB New service connections and reticulation to new HA subdivisions. 2.19

W-7a LCB Network leak detection and repair program (water loss program).
2.36
(Minimum 3 packages)

W-7b Force Network leak detection and repair program- minor repairs (multiple
Account activities/packages over the project period) and meter repair and 2.64
replacement program. Replacement of dilapidated service pipes.

W-8 LCB Commercial and domestic water meter replacement program. (3

0.84
packages)

W-9 LCB Expansion of the Suva/Nausori telemetry system 0.13

W-10 ICB Construction of a new main pumping station, inlet works, odor
control, sludge digesters, and sludge dewatering and disposal
2.83
facilities; installation of instrumentation and controls at the Kinoya
sewage treatment plant.

W-11 LCB Rehabilitation and replacement of existing sewers, pumping

stations, and sewage rising mains, and construction of trunk 2.47
sewers, sewerage reticulation, pumping stations, and rising mains.

W-11a ICB Inflows and infiltration rehabilitation works. 2.65

W-11b Force Rehabilitation of minor sewage pump stations.

0.89
Account

W-12 LCB Construction of trunk sewers, sewerage reticulation, sewage

pumping stations, sewage rising mains, and house connections in 3.17
developed areas (“backlog sewerage” works). (4 packages)
 Appendix 8 37

Estimated
Package
Method Description Cost
Number
(US$ million)

W-13 LCB Construction of new trunk mains, rising mains, and pump stations
2.62
to new HA subdivisions (Minimum 2 contracts)

W-14 LCB Construction of a new workshop and store, and upgrading of the
0.26
existing National Water Quality Laboratory at Kinoya

W-15 LCB Asset register and GIS development. 0.26

E-1 IS Water pipes force account works. 0.925

E-2 IS Supply of sewerage maintenance tools and equipment; supply

0.31
equipment to laboratory. (2 packages)

E-4 IS Supply of equipment for National Water Quality Laboratory. 0.09

E-5 IS Computers 0.275

Total 50.34
E=equipment and materials, ICB=international competitive bidding, IS=international shopping, LCB=local competitive
bidding, W=civil, mechanical, and electrical works.
a
Costs shown are base costs.
b
Consideration will be given to combining small contracts to make them attractive to international contractors.
Source: Asian Development Bank estimates based on Public Works Department estimates of contract package costs.
38 Appendix 9

SUMMARY RESPONSIBILITIES FOR CONSULTING SERVICES

A. Project Management-Works

1. Engineer

1. The project manager and two senior engineers will provide for the overall coordination of
the Project and its subcomponents and undertake day-to-day operations. This includes
management, design supervision, construction supervision, budgeting, procurement and
tendering, quality control, and reporting. The engineering team will ensure that all aspects of the
Project including subproject management, design, and supervision consultants and contractors
comply with the administrative, technical, environmental, economic, and social requirements of
the Government and the Asian Development Bank (ADB). It will ensure that the time, cost, and
quality objectives of the Project are met and that notices of noncompliance and corrective
actions are prepared and enforced. It will also facilitate the hand-over of project facilities to the
Water and Sewerage Department (WSD)/Water and Sewerage Corporation (WSC).

1. Accountant

2. The project accountant will be respondible for the financial management of the Project
including (i) maintaince of the official project accounts comprising all financial transactions of the
Project in compliance with the prescribed accounting procedures of the Government, the auditor
general, the Fiji Institute of Accountants, the Fiji Islands Revenue and Customs Authority, the
VAT Unit, and ADB; (ii) prepare all financial transactions, including payments for processing and
loan withdrawal applications for the Project; and (iii) all financial reporting. Reporting will include,
but is not limited to, monthly, quarterly, and annual expenditure reports of project activities,
financial statements, and audited financial accounts that conform to the requirements of the
Executing Agency and ADB.

2. Senior Valuer

3. The senior valuer will facilitate the acquisition of land required for the Project including
any related resettlement in consultation with landowners, lessees, and other stakeholders. This
will include all aspects from valuation of properties and assets to consultation and liaison with
stakeholders. All activities will be conducted in accordance with the Government’s and ADB’s
land acquisition and resettlement policies. Reports on all activities and progress of land
acquisition will be provided to the project manager for inclusion with regular reports to ADB and
the Executing Agency.

B. Project Management-Reforms

1. Institutional Development

4. The project manager and an institutional development specialist will coordinate the
implementation of the institutional reform action plan, financial action plan, and operational
improvement activities. These tasks will encompass institutional organization issues, financial
management, personnel management systems, and legal and legislative requirements. they will
require regular review of the effectiveness and appropriateness of all systems associated with
the mandate of the water supply and sewerage operations of the Public Works Department
(PWD) and its successors: WSD and WSC. The institutional development team will prepare
inputs to the quarterly project reports and the project completion report.
 Appendix 9 39

2. Financial Management

5. The financial management specialist will assess the financial information systems and
procedures of the PWD and WSD/WSC and direct the development of an appropriate financial
management system for WSC. This will include systems for day-to-day financial management
as well as financing of capital projects, auditing systems, and budgeting, and implementation of
the recommendations from the tariff study completed under the technical assistance associated
with the Project. The team will also provide training in basic accounting and financial
management report in skills throughout the organization.

3. Management Information and Operations

6. The specialists will (i) review the management information systems in place and make
recommendations on system improvements, including integration of performance
benchmarking, and help implement the approved system; (ii) review asset management
procedures currently being undertaken by WSD and integrate them into a planned maintenance
program; (iii) investigate and where appropriate implement improvements to asset
management; (iv) develop a planned maintenance program including recommendations on
hardware and software requirements; (v) review present operational approaches to water and
sewerage treatment and to system management in different parts of the Fiji Islands; and identify
possible operational improvements for consideration; (vi) prepare recommendations for
improvements, with justification; (vii) prepare detailed recommendations for implementation of
the proposed improvements, including those recommended under the related technical
assistance, including for trade waste management, health and safety procedures, and
community education and awareness; (viii) assist in implementation of selected improvements;
(ix) in consultation with WSD, develop benchmarking performance parameters for technical,
financial, and administrative operations; and (x) train staff in the systems developed.

4. Information Technology

7. The specialist will work with the Executing Agency to define specifications and
appropriate software and hardware for standard accounting systems and management
information systems. The specialist will also complete procurement and tendering for the
identified systems and supervise their installation. An information technology strategy to guide
future system development and configuration in both the short and medium term will also be
developed.

5. Training

8. The training specialist will identify training needs and develop a training program with
specific targets for technical, managerial, supervisory, customer relations, and financial and
skills. The specialist will arrange and monitor training, including international secondments.

6. Subproject Management, Design, and Supervision

9. The consultants will review and verify the findings and recommendations of the previous
reports prepared under the ADB-funded feasibility study in light of the current status of the water
supply and sewerage system and complete detailed design of each assigned works package in
accordance with the policies and guidelines of the Government and ADB. These services will be
comprehensive and will include environmental assessments, preparation of environmental
management plans, detailed identification of land acquisition and resettlement, social
40 Appendix 9

assessments as well as technical water system and sewerage system design and engineering
services. Environmental and resettlement and land acquisition assessments and
implementation of related programs must be in compliance with all applicable ADB policies and
guidelines. The consultant will prepare preliminary or concept drawings, cost estimates, and
construction schedules, and will assist the project management unit of the PWD with all
tendering activities, supervision of construction, and quality control on works. The consultant will
also assist in establishing long-term maintenance procedures for all works, oversee the
preparation of as-built drawings, and prepare subproject reports for inclusion in all regular
reporting and the project completion report in accordance with Government and ADB
procedures.

C. Water Loss Reduction

10. The consultant will devise and implement a comprehensive water loss reduction program
in association with existing leak detection and meter replacement projects being undertaken by
PWD. The program will encompass physical losses, metering problems, illegal connections and
other nonrevenue water use, and communication and awareness programs.

D. Inflow and Infiltration

11. The consultant will devise and implement a strategy for the detailed investigation of
inflow/infiltration with approval of PWD. This will include identification of data needs, priority
subcatchment identification, data collection and analysis, modelling, quality assurance/quality
control, and reporting. The consultants will use the results of the study to develop a program
and estimated budget for a rehabilitation program and assist PWD in the development of
tendering documents for the detailed design and civil works for the rehabilitation program.

E. Environmental Monitoring

12. The consultant will review the feasibility study, schedule of works, and initial
environmental examination (IEE) and develop a detailed environmental monitoring program for
the Project and all operations of the PWD/WSC/WSD. Project environmental monitoring will
comply with the recommendations of the IEE and the summary IEE, ADB’s environment policy,
and ADB’s Environmental Assessment Guidelines from 2003. The program will cover pollution
sources; surface, ground, and foreshore water quality, including sampling locations; parameters,
sample schedule; quality assurance/quality control; reporting format; and budget. The
consultant will implement the program and contribute to the regular Government and ADB
reports. The consultant will assist the WSC/WSD in disseminating this information and
incorporating its results into public relations and community awareness programs. The
consultant will identify and work with nongovernment organizations in an appropriate capacity.

F. Mapping and Geographic Information Systems

13. The consultant will review the maps, aerial photographs, and other information presently
available for the Suva-Nausori region, and identify a cost-effective and sustainable approach to
development of maps and geographic information systems to be used in design of this Project
and thereafter. It will involve recommending systems and assis ting with procurement,
installation, and institutionalization of geographic information systems into the operations of
WSD/WSC.
 Appendix 10 41

SUMMARY LAND ACQUISITION AND RESETTLEMENT PLAN

A. Introduction
1. This summary resettlement and land acquisition plan, prepared in accordance with the
Government of the Republic of Fiji's laws and regulations and the related policy of the Asian
Development Bank (ADB), provides a framework of compensation for the Suva-Nausori Water
Supply and Sewerage Project. As detailed design confirms land needs, the Government will
update and revise the plan in accordance with ADB’s resettlement guidelines with assistance
from the design consultants, particularly to ensure that the sewerage component’s land needs
are clearly identified.

B. Land Acquisition and Resettlement

2. About 20 hectares (ha) of land will be permanently acquired and another 4 ha

temporarily acquired for water supply system improvements. Three categories of land
acquisition and resettlement have been identified: (i) permanent acquisition of approximately 5
ha and resettlement of approximately five households to acquire additional land adjacent to
existing pump stations; (ii) permanent acquisition of approximately 15 ha of uninhabited native
land for access roads, pump station sites, storage reservoirs, and intake works; and (iii)
temporary acquisition of native and freehold land belonging to about 5 native landowners, 5
freehold owners, and a maximum of 10 lessees without resettlement as easement and
associated access for the laying of 6.3 kilometers of main water supply pipeline, temporary
access routes, construction areas, stockpiles, and storage areas. Most water supply pipelines
will use existing main road reserves. Project land acquisition and resettlement requirements are
not considered to be “significant” according to ADB policy; the landowners are unlikely to be
considered to be poor and no more than 50 indigenous persons will be affected.

C. Government Policy, Legal, and Institutional Framework

3. In the Fiji Islands there are three types of land: native land, freehold land, and state land.
The majority of land is classified as native and is under the administration of the Native Land
Trust Board. Such land is very important to native landowners as a link to their ancestral past
and identity. The Department of Lands and the Public Works Department (PWD) have a written
procedure on land acquisition based on the Crown Acquisitions of Lands law. The law, however,
does not provide for resettlement, only cash compensation. In practice, aside from cash, PWD
provides ”goodwill” compensation to landowners such as employment opportunities,
playgrounds, water supply systems, and footpaths. Under the current legal framework, the PWD
has the right to enter land and construct easements, access roads, or pipelines for the public
good. Under the Sewerage Act, it can enact compulsory acquisition of land, but this right has
not been claimed in the last 20 years. Negotiation with the landowners is the preferred
operational procedure, which involves forwarding the application to the Department of Lands
and either purchasing the land outright or leasing it for up to 99 years. In practice, land is usually
leased rather than purchased. The Native Land Trust Board is involved in negotiations when
native land is involved. The Department of Lands makes acquisition payments directly to
landowners, except in the case of native land, where the money is channeled to the trust board
for distribution to landowners.

D. Resettlement and Land Acquisition Principles

4. Adverse impacts on existing human settlements, land, buildings, and other assets and
42 Appendix 10

livelihoods will be minimized if not avoided to the greatest extent possible. In the case of any
adverse impact, persons so affected will be compensated at replacement cost and offered
assistance to maintain, if not improve, their standard of living, access to basic services,
production levels, and income-earning capacity.

E. Entitlements

5. The Lands Acquisition Compensation Act also provides for loss of rents and profits.
Under the current system for crop compensation, PWD staff pay compensation directly to
farmers according to a comprehensive schedule published by the Department of Primary
Industries and updated annually. The schedule covers mature and immature plants by type of
plant. There are three types of people eligible for compensation: landowners, lessees, and
sublessees. Table A8.1 shows the compensation entitlement scheme.

Table A10.1: Entitlement Matrix

Type of Loss Entitled Persons Compensation and Implementation Issues
Rehabilitation Measures
1. Loss of Land
A. Temporarily Affected Legal owners or Cash compensation for loss of
Agricultural, occupants identified income, standing crops, and trees
Residential, or during the census and the cost of soil restoration and
Commercial Land damaged infrastructure during
construction.
B. Permanently Affected Legal owners or Cash compensation for affected Valuation may be required
Agricultural, occupants identified houses and structures at by independent registered
replacement cost without deduction valuer to determine
Residential, or during the census
for depreciation or salvageable appropriate value of land.
Commercial Land materials. Crop value is to be
Cash compensation for crops and determined with staff input.
trees at current market values.
2. Loss of Houses and Other Structures
Affected Houses and Owners identified As a priority, the tenants and Competitive bidding must be
Structures during the census owners will be provided adequate use to appoint builders for
notice to relocate their buildings, relocation assistance.
with transportation and/or Registered quantity surveyor
Tenants renting dismantling/reconstruction help must provide valuation of
houses/structures provided. Local builders could be
building and materials.
contracted for this exercise.
If above is unsuccessful, for
permanent houses and structures,
cash compensation equivalent to
replacement cost without
depreciation or salvageable
materials is offered.
3. Loss of Crops and Trees
Crops and Trees Owner or person with Cash compensation is offered Appropriate staff assist in
customary usage for full replacement cost at determining market value.
rights current market value.

F. Consultation and Grievance Procedures

6. To acquire native land, PWD and the Department of Lands meet with members of
respective clans in their own villages and any lessees individually to explain their intent, answer
questions, and get consensus from landowners. On freehold lands, the department’s Valuation
 Appendix 10 43

Section prepares a sale and purchase agreement and approaches the landowner to explain and
execute the document after the landowner’s agreement. PWD and the Department of Lands
start consultations and approach landowners at least 6 months prior to project implementation.
In the case of a dispute, landowners can take the Government to court to obtain an injunction
and stop the land acquisition, a rare but well-established procedure. For compulsory acquisition,
PWD applies to the Solicitor General’s Office for approval. The Project will ensure that there is
no disturbance to sacred sites such as burial grounds or the house sites of ancestors.
Consultation with landowners is essential to ensure there is no conflict about the location of
water and sewerage infrastructure. Several meetings with landowners will be required.

G. Resources, Financing, and Implementation Arrangements

7. Funds for land acquisition (purchase or leasing), compensation, and resettlement are
appropriated in the annual budget of the Ministry of Works and Energy. Contingencies are
provided in accordance with annual budgetary appropriations. The principal institutions
concerned in the process are all well established as is the process itself. The Department of
Lands prepares a schedule to monitor negotiations, payment, survey, and other arrangements.
Table A8.2 summarizes the anticipated funding and implementation arrangements. The
Government has committed itself to funding any necessary resettlement and land acquisition.

Table A10.2: Financing and Implementation Schedule

(F$)
Activity Total 2004 2005 2006

Resettlement of Squatters 450,000 200,000 150,000 100,000

Permanent Land Acquisition 725,000 300,000 22,500,000 200,000
Temporary Easement Acquisition 325,000 150,000 100,000 75,000
Source: Government estimates.

H. Monitoring and Evaluation

8. The project management unit, with the assistance of project consultants, will monitor the
implementation of the resettlement and compensation plan and report to the Government and
the ADB on a quarterly basis.
44 Appendix 11

OUTLINE TERMS OF REFERENCE AND COSTS FOR

TECHNICAL ASSISTANCE CONSULTANTS

A. Objectives and Scope

1. The technical assistance (TA) will help enhance water and sewerage services
management by improvements in health and safety, community understanding of water issues,
trade waste management, environmental management, and tariffs. It will also help build
capacity for improved service delivery and environmental management. It will produce the
following outputs: (i) a trade waste program; (ii) a community awareness and education
program; (iii) a health and safety system for the public works department (PWD) and its
successor, the water and sewerage department/water and sewerage corporation;1 (iv)
recommendations on environmental legislation and regulations; (v) water and sewerage tariffs
recommendations; and (vi) enhanced capacity of staff. For all these areas the consultants will
provide on-the-job training to counterpart staff. The consultants associated with the TA will
perform the tasks outlined in this appendix and described in greater detail in Supplementary
Appendix F.

B. Terms of Reference

1. Trade Waste Program

2. In discussion with the Government and industry, develop a trade waste management
(industrial wastewater) program; (ii) take inventory of industrial discharges to the wastewater
system, analyze these discharges, and assess the pre-treatment being provided if any; (iii)
determine appropriate pollutant loadings and pre-treatment requirements for discharge to the
municipal system; (iv) develop a proposed trade waste discharge program, including monitoring
and enforcement systems, costs, and an implementation system; (v) assess the impacts, costs,
and benefits of the program recommended; and (vi) determine appropriate discharge fees

2. Health and Safety Procedures

3. Review existing health and safety procedures in PWD and prepare comprehensive
procedures covering operational and construction safety issues appropriate to a water and
wastewater utility, including the (i) operation of water and sewerage treatment works (laboratory,
electrical and mechanical, toxic chemicals, confined spaces, infectious diseases); (ii) water
supply and sewerage networks (traffic management, excavations, materials handling, avoidance
of services); and (iii) engineering workshops.

3. Community Education and Awareness Program

4. Assist the Government in preparing and implementing a program to raise public

awareness of the following issues (i) water conservation, (ii) urban water systems and their
needs and costs; (ii) hygiene education, health, and environmental effects of pollution; and (iii)
consumer responsibilities in water and wastewater management. Assist the water utility in the
development of a proactive public relations program that will identify and respond to potential
community concerns in a timely manner. The tasks include (i) carrying out a needs assessment
to identify target audiences, action required, content of the message, and approach for the

1
PWD and the water and sewerage department/corporation are used interchangeably and the activities described in
these terms of reference apply to all forms of the water supply and sewerage organization.
 Appendix 11 45

identified area and in refining baseline data for the project performance management system;
(ii) developing a detailed schedule for promotional activities, which will occur regularly during the
project implementation period; (iii) developing education and awareness materials including
posters, brochures, issues papers, facts sheets, teaching aids, and television promotions in
English, Hindi, and Fijian languages as appropriate; (iv) helping to implement planned
community awareness activities in a variety of settings over a 3-year period, and assisting in
community consultation, information meetings, and preparation of news media releases
concerning the Project; (v) consulting with Government, nongovernment organizations, and
private sector and involve these stakeholders in awareness activity preparation and
implementation; (vi) coordinating activities with the project management unit of the overall
Project; and (vii) evaluate the outcome of the Project and the community education and
awareness program and prepare a report on the results.

4. Environmental Legislation

5. Review existing and proposed legislation and regulations, including the Municipal Act,
Town Planning Act, Public Health Bill, and Sustainable Development Bill; (ii) assess the
effectiveness of present and proposed legislation and regulations, (iii) provide advice and
assistance in improving and promulgating the legislation.

C. Tariff Study

6. In discussion with the Government, develop cost recovery objectives and targets for the
water supply and sanitation sector, and in particular for major systems and for minor systems;
(ii) identify the average incremental costs (for the Nadi–Lautoka and Suva–Nausori systems,
and for four smaller representative systems where adequate cost data is available; (iii)
determine average financial tariffs necessary to meet operation and maintenance costs, debt
service, and full cost recovery on the selected water supply systems; (iv) assess the affordability
of average tariffs, and develop tariff structures that ensure affordability of water and sanitation
services to the low-income sector of the community; (v) consider development of separate tariff
structures for different size of systems, level of service, and affordability; (vi) update financial
projections for the sector and assess ability of tariffs to meet cost recovery objectives; (vii)
identify subsidies as necessary to ensure the continued provision of services to the poor; and
(viii) help develop a public awareness campaign for the introduction of the new tariff.

6. Resourcing

7. The consultants’ inputs are estimated as 26 person-months of international consultants

with the following expertise areas: tariff systems, community awareness, environmental
legislation, trade waste (environmental engineering), public relations, and health and safety; and
27 person-months of domestic consultants in the areas of community education/awareness,
public relations, environmental management, and environmental engineering. The following
table shows the cost estimate and financing plan for consulting services related to this TA.
 46 Appendix 11

Table A11: Cost Estimates and Financing Plan

($'000)
Foreign Local Total
Item Exchange Currency Cost
A. Asian Development Bank Financinga
1. Consultants
a. Remuneration and Per Diem
i. International Consultants 475.0 0.0 475.0
ii. Domestic Consultants 0.0 115.0 115.0
b. International and Domestic Travel 30.0 0.0 30.0
c. Reports and Communications b 18.0 0.0 18.0
2. Equipmentc 10.0 0.0 10.0
3. Training, Seminars, and Conferences d
a. Facilitators 0.0 0.0 0.0
b. Training Program 10.0 0.0 10.0
4. Surveys 0.0 0.0 0.0
5. Miscellaneous Administration and 0.0 0.0 0.0
Support Costs
6. Contingencies 118.0 7.0 125.0
Subtotal (A) 661.0 122.0 783.0

B. Government Financing
1. Office Accommodation and Transport 0.0 50.0 50.0
2. Remuneration and Per Diem 0.0 125.0 125.0
of Counterpart Staff
3. Others 0.0 20.0 20.0
Subtotal (B) 0.0 195.0 195.0
Total 661.0 317.0 978.0
a
Financed by the Asian Development Bank’s TA funding program.
b
Includes production of community awareness materials.
c
Includes desktop computer, color printer, copier, fax machine, projector, materials include disposable materials as
necessary for technical assistance operation and administration.
d
Estimated at seminars or workshops. This will be confirmed during the technical assistance inception stage
Source: Asian Development Bank estimates.
 Appendix 12 47

SUMMARY ECONOMIC AND FINANCIAL ANALYSES

A. Methodology and Assumptions

1. The economic and financial analyses were carried out for both the initial 5-year program,
to be financed by the Asian Development Bank (ADB) loan being appraised, and for the entire
water supply and sewerage 20-year master plan. As is to be expected, the benefits of the
immediate project are higher than those of the master plan since major parts of the early
benefits will be water loss reduction, requiring comparatively little investment, and increases in
collection efficiency. Decisions regarding options for the master plan were evaluated using
economic least-cost analysis. The following general assumptions have been adopted:

(i) Prices in general are adjusted to 2003 constant prices from the 2002 prices used
previously. By agreement with the Ministry of National Planning, the local inflation
rate was taken at 2.5%.
(ii) The least-cost analyses carried out in the 1999 master plan used 1999 constant
prices; it is unnecessary to update them since the options have not changed and
price adjustments will affect all equally.
(iii) Each project component is assumed to have a useful economic life of 40 years
after construction for civil works and 15 years for electrical and mechanical
components. For the ADB-funded project, replacements have been included at
2.5% of previous investment once every 5 years.
(iv) The period of the master plan investment program is 20 years. An allowance is
made in year 30, equivalent to 5% of project capital costs, to provide for the
replacement of mechanical and electrical equipment and vehicles over the
balance of the evaluation period, years 21 to 40. No residual values are assumed
in year 40.
(v) Financial flows are discounted at the estimated weighted average cost of capital
of 4%. This is a minimum to be applied when the calculated weighted average
cost of capital is lower.1
(vi) The economic opportunity cost of capital employed in the economic analysis is
assumed to be the standard 12% per annum.
(vii) The average household size is 5.5 persons. Based on 2002 water consumption
data, they consumed 187 litres per capita per day (lpcd). Supplies are assumed
to have constrained demand, which is estimated to be 190 lpcd with present
incomes and present tariffs.
(viii) Incomes have been allowed for in the demand forecasts by assuming per capita
income growth of 2% per annum and an income elasticity of 0.60.
(ix) The effects of tariff increases have been estimated using price elasticities of –
0.20 for domestic and –0.05 for nondomestic. These figures are based on
international rather than the Fiji Islands data. They are low as a result of the
present low level of tariffs.
(x) Wastewater generation is estimated at 85% of water consumption.
(xi) Capital costs include physical contingencies (10% for water and 12% for
sewerage) but exclude price contingencies and interest during construction.
(xii) All economic costs, in particular of imported tradeable inputs, are net of duties
and taxes. Financial costs include (a) duties and taxes at 2.0% of total base
costs, based on taxes and duties on imported items of 10% for pumping and

1
ADB. 2002.Guidelines for the Financial Governance and Management of Investment Projects. Manila.
48 Appendix 12

electrical equipment and 27% for building materials such as reinforcing steel; and
(b) value-added tax at 12.5% on all purchases (an increase over 10% in 2002).
(xiii) The economic opportunity cost of raw water provided to the project is assumed to
be zero. There are no competing uses of the raw water such as irrigation in the
Suva-Nausori area.
(xiv) The average official exchange rate of F$2.00 per US$1.00 (as of April 2003) has
been employed in converting foreign exchange costs to their local currency
equivalent.
(xv) In economic pricing, domestic price numeraire in local currency unit (F$) was
used. Based on 1999 imports and customs revenue data, weighted average tariff
rate = 14.1% percent, therefore a shadow exchange rate factor is approximated
by 1.141 (this is equivalent to a standard conversion factor of 1/(1+WATR) =
0.88).
(xvi) It is assumed that there are no significant distortions in the wage rates for skilled
labor. In the case of unskilled labor, underemployment exists in the Fiji Islands
economy resulting in the opportunity cost of unskilled labor being less than the
minimum wage. In the third Fiji Road Upgrading Project2 a shadow wage rate of
0.860 was calculated. This factor has also been adopted for the current project.

B. Least-Cost Analysis

2. The least-cost analysis has been carried out in economic prices. It is used to determine
which development option (or combined options) is preferred economically where a number of
viable technical alternatives exist. Four components were subjected to the least-cost analysis.

3. Development of a New Water Source. Three options to supply Suva-Nausori water

demands for the next 20 years were considered: Rewa run-of-river, Waldina run-of-river, and
storage dams on the upper Waimanu and Sovi rivers, with and without hydroelectric generation
capacity. The least-cost option was found to be developing a new intake and pumping station on
the Rewa River, and continuing to take water from the existing Waila intake. Water from both
sources would be treated at Waila. Least-cost analysis was also used to evaluate the proposed
Rewa River rising main diameter.

4. Transfer of Treated Water to Suva City. The demand for treated water from the
existing Waila water treatment plant is expected to double during the next 20 years.
Accordingly, it will be necessary to increase the transfer of water from the Waila treatment plant,
through pipelines in King’s Road, to lower and medium pressure water distribution zones in
central Suva. Three options were considered: duplication of the trunk main from Wainibuku to
Mead Road, booster pumping from one of the trunk mains at Wainibuku reservoir, and reduced
pumping from Wainibuku and construction of a new section of trunk through the high point in
King’s Road. The least-cost option was found to be duplicating a trunk water supply pipeline
from Wainimbuku to Mead Road, with sufficient capacity to overcome the low pressures in
King’s Road.

5. Augmentation of Water Treatment Plants. Three options for augmenting the water
treatment to meet maximum day demands from year 5 to year 20 were considered. They
included maintaining the existing Tamavua water treatment plant capacity and providing 20
megaliters per day (Ml/d) capacity increase at Waila in 2002 and 2011; increasing the capacity
of Tamavua by 9 Ml/d and providing 20 Ml/d capacity increases at Waila in 2003 and 2015; and

2
ADB. 1997. Third Road Upgrading (Sector). Manila.
 Appendix 12 49

increasing Tamavua by 16 Ml/d and providing 20 Ml/d capacity increases at Waila in 2010 and
2019. The least-cost option was found to be increasing the output of the Tamavua water
treatment plant during droughts to by 16 Ml/d by duplication of the Upper Waimanu rising main
and using three pumps, and providing 20 Ml/d additional capacity at Waila in 2010 and 2019.

6. Sewerage and Sewage Treatment. Two broad options have been identified for future
treatment and disposal of Suva’s sewerage: (i) a “centralized” strategy, which assumes that all
sewage, except sewage from Nausori, will be diverted to and treated at the existing plant in
Kinoya; and (ii) a “localized” strategy, which envisages utilizing the existing plant at Kinoya,
together with new plants to be located in growth areas at the extremities of Suva’s sewerage
system, at Waila and Lami. The centralized strategy was found to be least cost.

C. Economic Analysis

1. Water Supply

7. Capital and operating costs were forecast for 2 years for the ADB Project and for 20
years for the master plan. After these periods, operating costs are held constant with an
allowance made for replacement and rehabilitation at 2.5% of project capital costs every 5
years. No residual values are assumed at the end of 40 years. Operating costs used in the
master plan and feasibility study analyses included only direct operation and maintenance and
did not include salaries and wages or overheads. The latter have been added at rates derived
from the analysis of the likely costs of a Fiji Water Authority, given in the feasibility study. They
were obtained from Ministry of Works costs and add 57% and 15%, respectively. The inclusion
of these costs does mean that both the costs and benefits of corporatization have been
included.

8. The physical project will provide water for sale, mainly through decreased physical and
financial losses. The assumptions made for total losses are: 2003, 56% (2002 actual); 2004,
50%; 2005, 45%; 2006, 40%; 2007, 35%; 2008 plus, 30%. The effect of not decreasing losses
below 40% is included in the sensitivity analysis. The present share of financial losses is
assumed to be 12% of production.

9. Nonincremental benefits include the following: (i) meeting the demand of new customers
at present satisfied demand levels; (ii) saved cost of water tankering in drought conditions, (iii)
cost savings from absorbing small systems into the greater Suva-Nausori network. Incremental
benefits include the following: (i) meeting suppressed domestic and commercial demands, (ii)
non-evenue water consumed under the Project; (iii) the cost of new connections, assumed
equal to willingness to pay. Valuation of these items is summarized in Table A10.1. Note,
however, that the incremental benefit differentiation is less relevant when the Project is not
replacing water from an alternative, normally traditional, source.3

3
Nonincremental costs to the user are then higher than incremental and the downward sloping demand curve can
be used to value the latter. In this study, as in others when water is being replaced by water of higher quality and/or
reliability, expressed willingness to pay for the incremental is higher than actual payments for the nonincremental. If
taken simplistically, this would imply an upward sloping demand curve. That is the reason why the survey-based
willingness to pay value has been used for both incremental and nonincremental sales.
50 Appendix 12

Table A12.1: Economic Benefit Values for Water

Benefit Numerator Value Comment
A. Nonincremental
Domestic F$/cumulative 0.85 Willingness to pay based on survey data
Nondomestic F$/cumulative 8.00 Based on costs paid for tanker water
Water Tanker Costs Saved F$ per annum 582,000 10% rising to 100% of 2002 actual
Cost Savings Two Small Systems F$ per annum 15,000 Estimated (2008 and 2014)
B. Incremental
Suppressed Domestic Demand F$/cumulative 0.85 Willingness to pay based on survey data
Suppressed Non-omestic Demand F$/cumulative 8.00 Based on costs paid for tanker water
Incremental Nonrevenue Water F$/cumulative 0.85 Willingnes to pay based on survey data
Connection Revenues F$/connection 230 At cost
Source: Appraisal Mission estimates.

10. The estimated base case economic internal rate of return (EIRR) for the water supply
component of the ADB-funded 5-year project is 26.2%. For the 20-year master plan it is 24.8%.
With tariff increases to provide the required financial return, sales would be less and the EIRR
would fall to 21.4%.
59. Sensitivity analyses indicate that the economic viability is robust to adverse changes,
especially to cost increases. Benefits are a combination of unit benefits, as shown in Table A10.1,
and m3 sales and so the range in possible results is larger. The number of items involved is large
(volumes and values for each of the items in Table A10.1) and to show the sensitivity to each would
be confusing. Therefore, the sensitivity to a relatively large fall in total benefits is shown in Table
A10.2. As can be seen, benefits associated with the overall growth in satisfied water demand,
particularly to the non-domestic sector, are the largest item in these benefit flows and so would
account for much of the variation shown. This is the result particularly of the assumed additional unit
benefit to the non-domestic sector, at least in terms of willingness to pay.
Table A12.2: Economic Sensitivity Analysis for Water
ADB Project Master Plan Master Plan
No
Increase Tariff Increase
Item Tariff
Change EIRR SV EIRR SV EIRR SV
Base Case 26.2% 24.9% 21.4%
A. Capital Costs + 20% 22.3% 36.5% 20.9% 32.6% 18.1% 28.8%
B. Operating Costs + 20% 25.6% 243.7% 24.3% 232.0% 20.9% 184.0%
C. Total Benefits - 20% 20.9% 27.1% 19.6% 24.4% 17.0% 21.3%
A+B+C 17.4% 16.2% 16.1% 14.7% 14.0% 12.7%
D. Minimum Losses 40% 25.8% 358.6% 24.4% 285.1% 20.9% 212.4%
E. Maximum Collection Efficiency 75% 26.2% 24.9% 21.4%
EIRR=economic internal rate of return, SV=switching value.
Source: Appraisal Mission estimates.
 Appendix 12 51

2. Sewerage

11. The time frame of the analysis is the same as that of the water supply ADB and master
plan projects. Operating costs are held constant with an allowance for replacement and
rehabilitation at 2.5% of project capital costs every 5 years. Salaries, wages, and overheads
have been added to direct operation and maintenance. No residual values are assumed at the
end of 40 years.

60. There are two main ways to evaluate a sewerage program economically. These are: (a)
standard benefit cost analysis (BCA); (b) measure the project’s output against relevant standards, on
the assumption that those standards have been set to reflect costs and benefits4. The latter
approach is difficult for the Project since there are no accepted river water quality standards in the
Fiji Islands and the water whose pollution is being controlled goes all but directly into the ocean.

61. Standard BCA requires a means to estimate peoples’ willingness to pay (wtp) for the project
benefits. The various alternative methods to do this can be summarised as (a) contingent valuation
surveys, (b) estimation of direct costs such as health and environment, (c) estimates of land value
increases; (d) avoided costs of installing own septic tanks and/or replacing septic tanks on new and
existing properties and dislodging costs. Data is not available for the first two of these. For land
values it is possible to use building densities allowed by the planners for properties in areas where a
sewage connection is possible. This is a potential benefit based upon ability to subdivide and has
been measured separately from the actual connection. Therefore it can be assumed to be additional
to the direct avoided cost benefits. The assumptions used to measure these two benefits are given
in Table A10.3. These benefits do not include health and amenity benefits to people living along
polluted rivers or using the ocean into which they discharge.

Table A12.3: Economic Benefit Values for Sewerage

Benefit per New Connection Unit Value Rationale
Increased Land Use Values
New Housing Authority Plots F$/conn. or 400 m 2 plot 3000 Increased plot value
2
New (Small) Private Plots F$/conn. or 600 m plot 5000 Increased plot value
Backlog Sewerage Connections F$/conn. or plot 10,000 Increased plot value
Avoided Costs of Septic Tanks
Avoided Initial Capital Cost or F$2,000 per 15 year life
F$/conn. per annum 239
Replacement tank
Avoided Cost of Desludging F$/conn. per annum 40 F$120 per 3 year trip
m2=square meters, conn=connection.
Source: Appraisal Mission estimates.

12. The sewerage program is long term and it is all but impossible to separately identify the
benefits that would accrue from the ADB-funded 5-year project. If it were to be assumed that
there would be no further investment and so no additional sewerage connections, economic
benefits would be less than costs in all future years. This is not a reasonable assumption,
however, so the economic analysis of the sewerage component is based on the investments
and benefits identified in the master plan. The former have been adjusted to allow for the
presently expected costs of the project. It can also be noted that a major benefit of the project

4
Economic Issues in the Design and Analysis of a Wastewater Treatment Project, Technical Note 4, ERD, ADB, July
2002.
52 Appendix 12

will be returning the system to its design efficiency, but that will provide economic and financial
benefits that are difficult to estimate.

13. Making connections in areas already served (the backlog) would be the result of
institutional rather than physical project change. Therefore results have been obtained for both
the physical project and for that project plus institutional change (which would ensure that
places that could connect actually do so). With these assumptions the estimated base case
physical project EIRR is –6.3%. The EIRR of the total project, including institutional change to
ensure use, is 9.8%.

62. Due to the low base level, sensitivity tests indicate that the economic viability is not
particularly robust to adverse changes, as shown in Table A10.4. The difference between the
EIRRs with and without backlog connections indicates how important it will be to ensure that all who
could use the system do.

63. It is probable that these comparatively low levels are because not all the environmental etc
benefits are captured by the assumed land value increases. This will apply particularly to users of
presently polluted streams and coastal areas, all of whom would have some willingness to pay to be
able to use unpolluted waters.

Table A12. 4: Economic Sensitivity Analysis for Sewerage Master Plan

Item Change EIRR Switching Value
A. Base Case, Including Backlog 9.8%
B. Capital Costs Increase 20% 3.7% -3.5%
C. Operating Costs Increase 20% 4.6% -4.1%
D. Total Benefits Decrease -20% negative not calc.
B+C+D negative not calc.
E. Base Case, Excluding Backlog -6.3% -6.3%
EIRR=economic internal rate of return.
Source: Appraisal Mission estimates.

3. Water Supply and Sewerage Combined

14. Since the effects of the short-term sewerage investment cannot be separately identified,
it is not possible to provide an estimate for the economic viability of the combined water and
sewerage ADB-funded investment. The net economic flows for the water supply and sewerage
master plans were combined to provide an EIRR for the overall project. The estimated EIRR is
15.8%, including allowance for decreased sales due to tariff increases and the benefits of
institutional reform. Sensitivity tests for the combined project show that the economic viability of
the combined master plan, although low, is reasonably robust to adverse changes in various
assumptions (Table A10.5).
Table A12.5: Economic Sensitivity Analysis for Water and Sewerage
Item Change EIRR Switching Value
A. Base Case 18.5%
B. Capital Costs Increase 20% 14.9% 18.0%
C. Operating Costs Increase 20% 17.6% 66.8%
D. Total Benefits Decrease -20% 13.2% 12.3%
B+C+D 9.7% 7.4%
EIRR=economic internal rate of return
Source: Appraisal Mission estimates.
 Appendix 12 53

D. Financial Analysis

1. Water Supply

15. The water supply financial analysis has been conducted for both the physical project and
the institutional project. The latter will increase the efficiency of revenue collection and so will
provide benefits to both project and nonproject cash flow. Agreement was reached during the
appraisal mission that consideration could be given to tariff increases once the benefits of the
project start to become obvious to customers, and this point has been reached. The criterion
used was to set the FIRR above the 4% weighted average cost of capital. This would ensure the
long-term viability of the project but would not ensure that cash flows are available at all times to
meet capital, operating, and debt service requirements on an annual basis. This would require
analysis of the cash flows of the enterprise as a whole. That in turn would require decisions as
to the nature of the enterprise and the extent to which it would be charged with meeting debt
payments.

16. In addition to revenues from decreased losses provided by the physical project, the
institutional part of the project will provide revenues from increased revenue collection
efficiency. The assumptions made for the latter are: 2003, 57% (2002 actual); 2004, 60%; 2005,
70%; 2006, 75%; 2007, 80%; 2008, 85%; 2009, 90%; 2010 plus, 95%. The effect of not
increasing losses above 75% is included in the sensitivity analysis.

17. The capital and operating cost streams are those used in the economic analysis, before
shadow pricing. Financial benefits are summarized in Table A10.6.
Table A12.6: Financial Benefits for Water Supply
Benefit Numerator Value Comment
A. Nonincremental
1. Domestic F$/cumulative 0.361 Present average domestic rate
2. Nondomestic F$/cumulative 0.529 Commercial rate
3. Water Tanker Costs Saved F$ per annum 582,000 10% rising to 100% of 2002 actual
4. Cost Savings Two Small Systems F$ per annum 15,000 Estimated (2008 and 2014)
B. Incremental
1. Suppressed Domestic Demand F$/cumulative 0.439 Middle domestic rate
2. Suppressed Nondomestic Demand F$/cumulative 0.529 Commercial rate
3. Connection Fees, Domestic F$/connection 22 Present fee
4. Connection Fees, Non-domestic F$/connection 101 Present fee
Source: Appraisal Mission estimates.

18. The application of four efficiency levels, applied both with and without nonproject sales,
gives the eight possible FIRRs per project and per tariff level. They are shown in Table A10.7
for the 5-year ADB project and the master plan. For the latter, they are shown at present tariff
levels and for the master plan with a 60% tariff increase in 2006, sufficient to provide an FIRR
for the combined water and sewerage project of 4% (the weighted average cost of capital).
Table A12.7: Effects of Collection Efficiency on the Water Supply FIRR
ADB Project Master Plan Master Plan
Tariff
Item Existing Tariffs Existing Tariffs 60% Increase in 2006
Plus Non Plus Non Plus
Collection Project Project Project Project Project NonProject
Alternative Efficiency Sales Revenues Sales Revenues Sales Revenues
Present 64% negative negative -9.4% -9.4% -1.4% -1.4%
Department 85% -4.9% 2.2% -3.0% 1.3% 1.7% 4.3%
Corporate 96% -2.4% 5.5% -1.2% 4.2% 2.9% 6.7%
Assumed rising to 95% in 2010 -2.7% 4.0% -1.4% 3.1% 2.6% 5.6%
Source: Appraisal Mission estimates.
54 Appendix 12

19. Conceptually, it might be argued that the true project FIRR should not include the effects
of increased collection efficiency on nonproject revenues. If this is the case, the FIRR for the
ADB project would be negative with present efficiency and minus 2.7% with assumed efficiency.
The FIRR for the master plan would be minus 1.4% with assumed efficiency and minus 9.4%
with present efficiency. The tariff increase in 2006 required to raise the water and sewerage
master plan FIRR to 4.0% would be 60% with assumed efficiency and around 100% with
present efficiency. It would give a water supply FIRR of 5.6%.

20. These required increases demonstrate the importance of efficiency change. They also
imply that without them, the physical project will simply not succeed. For this reason alone, it is
better to think of the project as including institutional change. In this case the ADB project FIRR
is 4.0% with present tariffs. The master plan project is 3.1% with present tariffs and 5.6% with
the 60% tariff increase in 2006 required to set the overall FIRR equal to the weighted average
cost of capital.

21. Standard sensitivity analyses indicates that the financial viability with the assumed
collection efficiency, albeit low, is robust to adverse change, especially to cost increase. The
major single item is the benefit associated with increased efficiency in the collection of
revenues, as shown in Table A10.8.
Table A12.8: Financial Sensitivity Analysis for Water
ADB Project Master Plan Master Plan
Water Sensitivity Tests Existing Tariffs Existing Tariffs Increased Tariffs
Financial Change FIRR SV FIRR SV FIRR SV
A. Base Case 4.0% 3.1% 5.6%
B. Capital Costs 20% 2.9% 0.1% 1.9% -7.4% 4.3% 12.8%
C. Operating Costs 20% 2.7% 0.1% 2.1% -8.5% 4.9% 22.9%
D. Total Benefits -20% 1.1% 0.0% 0.4% -3.3% 3.3% 6.9%
B+C+D -2.0% 0.0% -2.1% -1.7% 1.3% 3.7%
E. Minimum Losses 40% 2.6% 0.1% 1.6% -5.8% 4.1% 10.6%
F. Maximum
Collection Efficiency 80% -2.4% -2.1% 1.8%
ADB=Asian Development Bank, SV=switching value.
Source: Appraisal Mission estimates.

2. Sewerage

22. The capital and operating cost streams include taxes and duties. Unit financial benefits
are based on the present tariff which is F$0.198 and F$0.225 per cubic meter m3 of water
consumed for domestic and commercial customers, respectively. These rates are applied to
customers identified as being connected to the sewer system. Identification and collection are
both poor and at present only some 32% of the estimated revenue potential is collected. It is
assumed that the tariff collection efficiency will improve only marginally to 40% in 2005, when
corporatization should occur. It is then assumed to increase more rapidly to 95% in 2009. In
order to maintain consistency between the sectors the same 60% tariff increase in 2006
assumed for water is also assumed for sewerage.

23. The sewerage program is long term and it is all but impossible to separately identify the
revenues that would accrue from the ADB-funded 5-year project. If it were to be assumed that
there was no further investment and so no additional sewerage connections, financial benefits
would be less than costs in all future years. This applies even with the 60% tariff increase in
 Appendix 12 55

2006 calculated as necessary to give overall master plan project financial viability. This is not a
reasonable assumption, however, so the financial analysis of the sewerage component is based
on the investments and benefits identified in the master plan. The investments have been
adjusted to allow for the presently expected costs of the immediate 5-year project.

24. In spite of the assumed efficiency increases, the estimated base case FIRR is not
calculable since revenues would never be more than costs. This means that for any form of
financial viability tariffs would have to be increased. No increase would be required to cover
direct operation and maintenance; 135% increase would be needed to cover operation and
maintenance plus salaries and wages; and a factor of 18 increase would be needed for full cost
recovery.

3. Water Supply and Sewerage Combined

25. Since the effects of the short-term sewerage investment cannot be separately identified, it is
not possible to provide an estimate for the financial viability of the combined water and sewerage
ADB funded investment. The net financial flows for the water supply and sewerage master plans
were combined to provide an FIRR for the overall master plan. To raise the FIRR to the required
weighted average cost of capital level of 4% would require a tariff increase of 60% in 2006.
56 Appendix 13

SUMMARY POVERTY REDUCTION AND SOCIAL STRATEGY

A. Linkages to the Country Poverty Analysis

Sector identified as a national priority in country poverty Sector identified as a national priority in country poverty
analysis? Yes partnership agreement? No
(Country Poverty Assessment prepared in draft) (country poverty partnership agreement pending)
Contribution of the sector/subsector to reduce poverty in the Fiji Islands:
Poor persons in the Suva-Nausori area, who number about 71,700, suffer from poor quality of water supplies, lack of
sanitation and pollution of the streams and underground water. Infantile diarrhea is fairly common, and such household
is often forced to boil their drinking water to purify it, which is costly. The project will help provide reliable potable water
service to poor households in the project area. It will also make sewage collection available, although with a lower
coverage than water, to a substantial number of poor households and it will help improve the quality of water in the
streams and coastal areas along which many poor people live. The project will very substantially benefit the poor, by
improving the quality of their water supply, improving their sanitation, reducing pollution and eliminating the need for
boiling drinking water for those with pipes/water connections. Since the cost of water and sewerage to the poor will
decrease, the net benefit flows will be substantial.
B. Poverty Analysis Proposed Classification
Beneficiaries will comprise all urban households, including the Thematic: Human Development,
poor and those in informal and squatters settlements; industries, Environmental Protection
hotels, restaurants, schools, health facilities. Poverty Classification: Poverty Intervention
C. Participation Process
Stakeholder analysis completed Done during project processing. The project is designed through
gradual development of water and sewerage institutions to
minimize negative impacts on stakeholders

Participation strategy: Yes The EA will implement the project through a consultative process
under which all stakeholders will be consulted and kept informed
about the project. An advisory board will be established, as well as
client service units.

D. Gender and Development

Strategy to maximize impacts on women: The project will significantly benefit women, who will be consulted as
implementation proceeds.

Gender plan prepared? No

E. Social Safeguards and other Social Risksa
Significant/ Plan
Nonsignificant/ Requireda
None Strategy to Address Issues
Resettlementb Not significant Land acquisition and resettlement plan prepared, to be Short
updated during project implementation. Resettlement
Plant
Indigenous Peoples Not significant Indigenous peoples, including those in traditional villages, will No
be consulted and benefit from the project.
Labor Not significant A carefully sequenced institutional reform action plan will be No
so designed as to avoid redundancies.
Affordability Not significant The project will increase water and sewerage charges, as No
services are improved and public awareness of the need for
cost recovery grows but these have been shown to be
affordable (see financial analysis in Appendix 12).
Other Risks/ Not significant It will be important for the Government to undertake a public
Vulnerabilities awareness campaign designed to sustain public support for
the reforms proposed and develop an understanding of need
for consumer-oriented commercial operation utility.
a
A plan is required if any of the potential issues are found significant.
b
Significant involuntary resettlement requires a full resettlement plan; not significant requires a short resettlement
plan
 Appendix 14 57

CONCLUSIONS AND RECOMMENDATIONS OF THE

INITIAL ENVIRONMENTAL EXAMINATION

1. The initial environmental examination (IEE) was prepared as part of the feasibility study 1
that was completed in 1998. Due to the length of time since the IEE was prepared and the
addition and deletion of some components from the Project, the Project was reassessed during
the Appraisal Mission2 and the summary IEE (Supplementary Appendix M) reflects the
appraisal’s conclusions and recommendations as well those of the IEE. This appendix
summarizes the findings of both the IEE and the summary IEE.

A. Institutional Requirements

2. Environmental legislation and control in the Fiji Islands are in their infancy. There is no
national water quality policy or management strategy, and no water or land resource
management legislation, environmental impact assessment (EIA), or management legislation. In
some instances , sectoral legislation incorporates environmental management components, e.g.,
EIAs are called for through the Town and Country Planning Act 1946; however, it is not legally
binding, and the development of in-house or corporate environmental management strategies
and codes of environmental practice (COEPs) is becoming increasingly common. Two key
items of environmental legislation are under development: the Sustainable Development Bill and
the Public Health Pollution Control Bill. The former addresses overall environmental
management and policies, including EIA, and the latter addresses waste management, pollutant
discharges, and monitoring.

3. The Public Works Department (PWD) has adopted in-house standards for water quality
and sewerage effluent. These standards are well founded and useful as an interim measure, but
there is little or no incentive to achieve compliance. Also, PWD) lacks the capacity to supervise
compliance.

4. The Project includes several activities to improve, the environmental performance of

PWD and its successors, including (i) introduction of an appropriate environmental management
framework, through the promulgation of its own COEP; (ii) establishing an environmental
section; and (iii) upgrading of the National Water Quality Laboratory (NWQL).

B. Water Quality Monitoring Program

5. A water quality monitoring program, related mainly to the chemical and microbiological
quality of water supplies, is maintained by the NWQL, which is managed by the Water and
Sewerage Department. This program is frustrated by lack of equipment, training, and resources.
It will be improved by increasing and making routine the monitoring of water treatment plant
sludge and backwash water; sewage sludge; and pesticides, Giardia, and Cryptosporidium. A
“noncompliance procedure” and a quality assurance program also will be developed.

6. Water quality monitoring will be undertaken early in the Project to establish solid
baseline data provide for monitoring of project effects, e.g., urban streams near failing pump
stations and sewers, near the Kinoya treatment plant outfall, near water treatment plant outfalls.
The monitoring program will be designed to be an integral part of the water and sewerage
utilities and Ministry of Health or Department of Environment’s monitoring program. Water

1
ADB. 1998. Suva Nausori Water Supply and Sewerage. Final Feasibility Study. Manila.
2
1 April to 16 April 2003.
58 Appendix 14

quality monitoring will also be undertaken during construction to ensure that erosion and
sedimentation mitigation measures are effective and that construction does not result sewage
spills or overflows. Water quality and effluent data will be made available to the Department of
Environment and to the general public.

C. Public Consultation and Disclosure

7. Public consultations during the feasibility study focused on the issues of land availability
and social impact assessment of the various project components. In particular, the feasibility
study team met with village leaders and a group of women fisherfolk in the Rewa River area.
Such consultation with the affected communities will be an ongoing process under the Project.

D. Findings and Recommendations of the IEE

8. The findings of the IEE of the proposed Project are as follows:

(i) The current water supply system provides water of adequate quality. However, the
system is failing to provide a reliable supply and is not meeting the demand for new
connections.
(ii) A new raw water source is needed based on the feasibility study, and the Rewa
water intake is the most suitable location, but additional modelling and environmental
assessment should be undertaken during detailed design to confirm safe yields and
identify the most appropriate environmental controls as well as to continue public
consultations.
(iii) The condition of the sewerage infrastructure is poor and there is a serious and
increasing public health risk from wide-scale leakage of raw and partly treated
sewage. Continued and increasing levels of sewage containing high levels of
nutrients and industrial contaminants are leaked to creeks, waterways, and the
inshore environment with serious impacts on the aquatic ecology.
(iv) The Project has the potential to make a major beneficial impact in reducing public
health hazards and improving the aquatic biology of creeks and the inshore
environment.
(v) Water quality monitoring must be undertaken early in the Project to establish solid
baseline data with specific attention to project-affected areas, i.e., urban streams
near failing sewers and pump stations and near the Kinoya wastewater treatment
plant outfall. The monitoring program should be designed to be an integral part of the
water and sewerage utilities and Ministry of Health or Department of Environment
monitoring program.
(vi) PWD’s current environmental management capability is inadequate.
(vii) Environmental controls during construction and operation of the river water intake will
be important to protecting the Kai (fresh water mussels) fisheries and the
communities that depend on them.

9. The following recommendations of the IEE and summary IEE will be implemented:

(i) In line with its existing environmental management approach, and with the draft
Sustainable Development Bill, PWD will draw up a COEP, based on the International
Standards Organisation 14000 series.
(ii) An environmental management plan (EMP) for the entire Project will be prepared
during detailed design. The EMP will include identification of potential impacts,
 Appendix 14 59

specific mitigation measures, monitoring program for during and postconstruction,

budgets for environmental measures and monitoring, and a public consultation and
reporting program. EMP implementation will be a specific and performance-
evaluation element of all civil works contracts.
(iii) A detailed environmental assessment will be undertaken, with particular attention to
the Rewa water intake, to support the development of the EMP, confirm preliminary
designs, and identify the most appropriate environmental controls as well as continue
public consultations. Funds will not be disbursed for the Rewa water intake
component until an EMP satisfactory to the Government and the Asian Development
Bank (ADB) has been prepared.
(iv) The Project will provide a technical specialist to help PWD to prepare the COEP and
provide training to its staff.
(v) Adequate residual flow for aquatic ecology needs to be left in the Waimanu River
during very low flows. A policy for the quantum of residual flows will be a component
of the COEP. To ensure that adequate flows can be left, the system will have the
capacity to transfer off-take to the Rewa River source during very low flows in the
Waimanu River.
(vi) A rigorous ongoing monitoring program will be implemented for pollutants in streams
used as water sources, and this information will be available to the public.
(vii) The current use of copper sulphate during water treatment to minimize algae growth
will be phased out as soon as possible.
(viii) The sludge deposition site at the Waila water treatment plant will be chemically
characterized and rehabilitated if it is contaminated.
(ix) Effluent (backwash water) from the Tamavua and Waila water treatment plants will
be collected and disposed of in an environmentally safe manner.
(x) A rigorous regular (monthly or quarterly) monitoring program will be developed for
water quality in the streams in the project area, and for Laucala Bay receiving
waters, including Suva and Walu bays, and this information will be available to the
public. At a minimum, the water quality monitoring program will include typical
sewage contaminants such as biochemical oxygen demand, total and fecal
coliforms, suspended solids, dissolved oxygen, nitrogen, and phosphorous,
(xi) PWD will upgrade its attitude and ability to respond to sewage overflows.
(xii) NWQL will be upgraded and several changes will be made to its monitoring
program.
(xiii) Sewage sludge from the Kinoya sewage treatment plant will be stored on a prepared
site at Kinoya according to the sludge management strategy. Sludge disposal will be
a component of PWD’s COEP, and the sludge will be analyzed on at least a monthly
basis. Odor complaints from the plant’s neighbours will be recorded and, if found to
be excessive, the disposal strategy will be reviewed.
(xiv) The Sewerage Act will be amended to ensure connection by industry and house
owners to sewer lines when they are put in place.
(xv) The Sustainable Development Bill and the Public Health and Pollution Control Bill or
other legal measures will be finalized and submitted to Parliament.
60 Appendix 14

E. Conclusions

10. The Project will have a positive benefit to the environment through substantial reduction
of sewage presently entering the groundwater, steams, and the sea due to inadequate
treatment in septic tanks, pump station and pipeline failures, and lack of water treatment plant
sludge disposal facilities. The improvements in coastal water quality possible through the
sewerage components of this Project are closely linked to the extension of the sewage outfall
that is being funded by the European Union.

11. Sustainable improvements in stream, ground, and marine water quality will be supported
through project works and the enactment of key environmental legislation, including the
Sustainable Development Bill and the Public Health and Pollution Control Bill, or other legal
measures, which will help clarify and strengthen the basis for regulation and control of waste
discharges. The strengthening of the PWD’s water quality laboratory and improvement of
PWD’s environmental guidelines will help ensure the monitoring of project impacts and benefits,
and the sustainability of the Projects’ water quality benefits. The Project will upgrade PWD’s
environmental management capacity, and will establish a sound operating policy and
implementation framework.

12. The IEE has been thoroughly carried out, environmental issues have been identified,
and mitigation strategies have been included in the Project. It is not considered that an ADB EIA
needs to be conducted. However, environmental assessments acceptable to ADB and the
Government should be carried out as a basis for EMPs, acceptable to ADB, for all project
components with particular attention given to the Rewa River water intake.