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increase in revenue collection and reduction in operating expenditures. The implementation of the capacity building component would be monitored with clearly defined target indicators. These components would also have a long-term positive effect on the municipal services and on the supply of water and sewerage provision, expansion and sustainability, and would facilitate the implementation of the rehabilitation and expansion of the urban systems to be carried out under the project. Also included in this component are studies to improve the water supply of the town of Dodoma, future project preparation studies and Dar es Salaam community infrastructure upgrading. These studies would provide the basis for future Bank assistance in the sector. The Dar es Salaam community infrastructure upgrading would apply a "demand driven" approach which would benefit the population of selected infrastructure deficient communities in Dar es Salaam, serving as pilot and learning experience to be applied later in other towns.

4.35 The Sanitation, Water Supply and Sewerage components of the project will all contribute to control of water and sanitation related diseases. In addition, better management of human waste will result in an enhancement of the quality of environment, and reduction of groundwater and receiving water contamination.

# **Cost-Benefit Analysis of the Urban Roads and Storm Drainage Component**

4.36 The estimated economic rate of return (ERR) of the urban roads and storm drainage component is 23.9 percent _(Annex E,_ Page 1). The net present value (NPV) of this component at a 12 percent discount rate, 5 years of implementation and 15 years of project operation is US$ 12.9 million. The benefit/cost ratio is 1.48. Project investment and operating costs are based on engineering studies carried out by consultants during project preparation in accordance with agreed design standards and using recently awarded contract costs. Project investment and operating costs are expressed in constant 1995 prices and include physical contingencies. Given the liberalization of the Tanzanian economy, financial prices are close to economic prices, in particular with reference to the exchange rate, interest rate and tradable commodities' prices, reflecting minimal overall distortion of the economy. Therefore, shadow prices were not calculated and prices have been converted into economic costs by removing taxes and duties.

4.37 The quantifiable benefits of the project component are the savings in vehicle O&M costs as a result of the project-assisted rehabilitation investments and improved road maintenance plan. These benefit estimates are on the low side since they do not include congestion savings, passenger time savings, improved road safety and the impact on economic activity and the environment of improved roads. It does not include the health benefits of improved drainage either. The vehicle operating cost savings due to the project have been estimated using an average of US$ 0.24 per vehicle-km for light and medium vehicles, US$ 0.40 for heavy vehicles, and the average daily traffic per class of vehicle on each of the roads to be rehabilitated. These vehicle operating cost savings are due to project-induced changes in road surface conditions (from poor to good) and are based on actual figures from the Tanzania Sixth Highway Rehabilitation Project (Cr.