-40-

1688-TA), and estimates for other African countries. Road traffic is assumed to grow at 5% per year.

# **Cost-Benefit Analysis of the Urban Water Supply and Sewerage Component**

4.38 The estimated ERR of the water supply and sewerage component is 12.4 percent _(Annex E,_ Page 2). This is a modest return which does not include substantial nonquantified benefits, including health and consumers' saving from not buying water from other sources, such as water vendors (para. 4.39). The project stream was calculated for 4 implementation years and 20 years of project operation. The net present value of this component at a 12 percent discount rate is US$0.7 million. The benefit/cost ratio is 1.02. Project investment and operating costs are based on the 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. Given the liberalization of the Tanzanian economy, as explained above for the roads and drainage component, shadow prices were not calculated and prices have been converted into economic costs by removing taxes and duties.

4.39 The quantifiable benefits of the project component are the additional volumes of water distributed to the final beneficiaries as a result of the project-assisted rehabilitation and minor expansion investments. These additional volumes of water include water saved due to reduction of unaccounted-for water from about 40 or 50% of gross production to 25% by the year 2001. The benefits have been estimated using an average tariff of US$0.25/m3 by 1997. This average tariff reflects the beneficiaries' willingness to pay as expressed in the surveys undertaken by the consultants and the current average tariff in the pilot town of Tanga, which is already at US$0.24/m3. Current tariffs in the other towns are still at an average low US$0.09, and subsidies mostly go to the wealthy (see poverty analysis below). In all cases, however, tariffs for standpipes are projected to remain unchanged at US$ 0.04 / m3 so as not to increase the financial burden on the poor. This analysis has followed a conservative approach since it has not included in the calculation the cost savings derived by substituting previous water sources (e.g., water sold by vendors) and health benefits, which are difficult to quantify.<sup>12</sup> Demand projections are based on the consultants' estimates by class of beneficiary (i.e., standpipe, domestic, commercial, institutional and industrial).

# **Poverty Analysis and Impact on Women**

4.40 The project would have an overall positive impact on the populations in urban and periurban areas. The poor are likely to be major beneficiaries of the services provided by the project investment as well as of employment generated by these investments. Many of the civil works of the project components are labor-intensive and would provide

> 12 The incremental benefits of the project include the benefits from sewerage for the towns in which there would be sewerage rehabilitation/expansion. For these towns a sewerage surcharge was included in the water tariff, and the incremental investment and 0 & M costs include the sewerage component.