GOVERNMENT OF THE KINGDOM OF LESOTHO Water and Sewerage Company (WASCO) Greater Maseru Water Supply Feasibility Study & Preliminary Design Results of Financial Analysis January, 2016

Capital Investment (CAPEX) and Operations Costs (OPEX) of the Project The project costs include the initial investment costs, fixed costs such as maintenance and depreciations, interest on equity capital debt services etc. The operational costs include the costs of energy, chemical, utilities, transportation, direct labor wages and administration salaries and benefits

Initial Investments costs, CAPEX The investment cost includes (a) expenditures on water resource development, (b) water network and distribution system (c), the cost of site infrastructure, (d) storage and reservoirs, pumps and accessories, boosting pump, and auxiliary equipment. The engineering services are estimated at 3% of the cost of construction To cover physical contingency during the construction and installation phase is estimated with 5% of the total investment costs, machinery, buildings and construction cost. The price contingency is estimated to be 5% Import duty and taxes are for imported investment items, The average duty rate of 14% for imported components of the project such as boosting pumps and pipes

The Working Capital The working capital in such type of project is estimated as a percentage of salaries, and cost of utilities. The estimation based on a sufficient fund that should be available to the need of utilities, energy, salaries, and spare parts. Therefore, for the first year of full operation, The working capital is estimated at 50% of the total operational cost. The working capital is increasing annually due to the increase in operational costs and cost of utilities and energy

Operational Costs for the Project The operational cost includes the cost of wages of laborers, maintenance and chemicals, energy, administration and overhead costs, cost of utilities (electricity, and fuel) and other costs associated with the production and distribution process of water. The total operational costs are a function of the project size and expansion of services provided to consumers. The additional costs of direct labor involved in the production, distribution and collection of wastewater is estimated with M2.15 per kiloliters

Total Fixed Costs Maintenance Cost Fixed Assets Depreciation Debt Service Return to Equity Capital Administration Costs The administration cost includes the salaries as well as administration allowances of the managers, in addition to allowance for administration task such as, book keeping, utilities for labor such as catering, transportation costs to site etc

By location and Options Total Initial Investment (in US$) Working Capital (in US$) Re-Investment Costs in 2030 (US$) Custom Duties (US$) Total Investment Cost, CAPEX (US$) Whole Project 12,950,044241,3952,568,0101,617,28614,567,330 Package 1 (South) 2,474,47833,630433,793280,6272,755,104 Ha Makhoathi 884,9709,510140,76786,096971,066 Ha Bosofo 339,7404,47261,59447,564387,304 Mazenod Haluka 551,0308,56967,44249,144600,174 Ha `Masana 698,73811,078163,98997,823796,561 Package 2 ( South West): 3,256,924104,936870,094380,3693,637,293 Ha Tsautse 124,3743,44614,50117,412141,786 Qoaling Option 1 2,581,13093,403700,279285,7582,866,888 Qoaling Option 2 2,811,43093,403791,479306,8003,118,230 Ha Ts`iame 406,9502,453113,31656,973463,923 Ha Lesia 144,4705,63541,99820,226164,696 Package 3 (North East): 7,218,643161,6761,264,123956,2908,174,932 Ha Mabote Option 1 1,582,49023,534267,672193,5491,776,039 Ha Mabote Option 2 1,502,49037,431176,472182,3491,684,839 Ha Mabote Option 3 1,854,09023,534176,472259,5732,113,663 Ts`enola 1,531,39057,611413,410214,3951,745,785 Foso/ Marabeng/ Berea, Option1 4,649,02342,666856,642543,3435,192,366 Foso/ Marabeng/ Berea, Option2 4,184,76366,634674,242559,5474,744,309

Financial Benefits of the Project Financial Benefits of the Project 1. Additional Water Delivered to Customers The main financial benefit of the project is the additional water will be sold to customers. The water bills for household and non-household are determined by the assumption of incremental water pricing tariff using block consumption 2. Water Monthly Standing Charges Fees The monthly fixed standing charges are also included in the financial benefits, since the connection charges are paid by the inhabitant at monthly basis 3. Installation Connection Fees since the connection fees are paid by the inhabitant at the time of connection. Only new connections are required to pay, the existing connections are excluded from the analysis, since they already pay to other project

Other Financial Benefits of the Project 4. Land Value and Salvage Value at the end of project The land ownership and property right is unclear in the project area. However, it might necessary to include the costs of land for infrastructure, storage dam and reservoirs in the capital costs 5. Working Capital at the End of Project The working capital is considered a frozen capital during the project lifespan. Therefore, it is added to the investment cost at the beginning of the project and added to total cash inflows at the end of the project lifespan

YearUnit A. Revenues of Water Selling-DomesticMaloti/ year2,901,5624,890,1845,411,430 B. Revenues of Standing Charge-DomesticMaloti/ year123,464267,408289,587 C. Revenues from first time Installation Fees-DomesticMaloti/ year1,267,5501,474,364220,228 D. Revenues from Water Selling-Non-DomesticMaloti/ year40,62787,99295,291 E. Revenues from Standing Charge-Non-domesticMaloti/ year106,204230,026249,105 F. Revenues from First Time Installation-Non-DomesticMaloti/ year138,638161,25924,087 Total Annual RevenuesMaloti/ year4,578,0457,111,2336,289,729 Total Annual Revenues in US Dollar US$/ year360,908560,611495,848

Year Whole Project 1,056,556968,084 1,620,9881,383,8071,447,271 Package 1 (South): 147,920146, ,860225,065234,643 Ha Makhoathi 41,74442,832 79,57869,08471,892 Ha Bosofo 19,42118,594 34,54629,99131,210 Mazenod Haluka 38,13034,782 54,04045,51947,799 Ha `Masana 48,62549,893 92,69680,47283,743 Package 2 (South West): 460,365405, ,684531,332557,916 Ha Tsautse 15,20812,775 17,51614,38615,224 Qoaling 409,929360, ,611472,188495,848 Ha Ts`iame 10,65010,197 18,94516,44717,115 Ha Lesia 24,57721,638 33,61228,31129,730 Package 3 (North East): 448,271416, ,444627,410654,712 Ha Mabote 314,387284, ,590345,287364,234 Ts`enola 159,713148, ,619222,324232,036 Foso/Marabeng/Berea 185,274177, ,566286,106297,735

Financial Evaluation of the Project The Internal Rate of Return (IRR): The Benefit/Cost Ratio (B/C ratio): The Net Present Value (NPV): Profitability Index (PI): The Payback Period: Average Incremental Cost (AIC): It simply involves dividing the present value (PV) of project cash outflows (costs measured in monetary unit) by the PV of the project benefits measured in a physical unit throughput stream to produce an average cost per unit such as the average cost of kiloliters of water produced

Financial Results Indicators IRR 6% 6% Payback Period Profitabilit y Index AIC-Full Cost Recovery Unit PercentRatio000,US$YearsRatioMaloti/m 3 Package 1 (South) -3.8% > Ha Makhoathi -5.9% > Ha Bosofo -4.4% > Mazenod Haluka -5.6% > Ha `Masana 0.3% > Package 1 (South)

Financial Results Indicators IRR 6% 6% Paybac k Period Profitabilit y Index AIC-Full Cost Recovery Unit PercentRatio000,US$YearsRatioMaloti/m 3 Package 2 ( South West): 9.7% Ha Tsautse 3.3% Qoaling Option 1 * 4.6% Qoaling Option 2 2.9% > Ha Ts`iame < -15% > Ha Lesia 20.2% Package 2 ( South West):

Financial Results Indicators IRR 6% 6% Payback Period Profitability Index AIC-Full Cost Recovery Unit PercentRatio000,US$YearsRatioMaloti/m 3 Package 3 (North East): -5.7% ,060> Ha Mabote Option % > Ha Mabote Option 2 * -7.6% > Ha Mabote Option % > Ts`enola 2.7% > Foso/Marabeng/Berea, Option1 < -15% ,373> Foso/Marabeng/Berea, Option2 * -12.6% ,797> Package 3 (North East)

Summary of Financial Results Indicators IRR 6% 6% Payback Period Profitability Index AIC-Full Cost Recovery Unit PercentRatio000,US$YearsRatioMaloti/m 3 Whole Project -4.5% ,562> Package 1 (South) -3.8% > Package 2 ( South West): 9.7% Package 3 (North East): -5.7% ,060> Whole Project & Packages

Financial Viability of Water Supply Project with Exemption of Custom Duties 6% Payback Period Profitabili ty Index AIC-Full Cost Recovery UnitPercentRatio 000,US$ YearsRatioMaloti/m 3 Whole Project -1.7%0.89-3,068> Package 1 (South) -1.6% > Ha Makhoathi -4.2% > Ha Bosofo -1.7% > Mazenod Haluka -3.5% > Ha `Masana 3.1% > Package 2 ( South West): 15.7% Ha Tsautse 10.0% Qoaling Option 1 * 7.1% Qoaling Option 2 5.1% Ha Ts`iame < -15% > Ha Lesia 32.1% Package 3 (North East): -3.1%0.84-2,177> Ha Mabote Option % > Ha Mabote Option 2 * -4.8% > Ha Mabote Option % > Ts`enola 6.3% Foso/Marabeng/Berea, Option %0.68-2,872> Foso/Marabeng/Berea, Option2 * -10.1%0.71-2,280>

Conclusions In general, implementing the project is financially infeasible. However, the project has other indirect benefits including economic and social benefits as well as positive environmental impact However, the financial analysis shows that some location of the project sites is financially infeasible, which is expected in water supply and distribution projects over the entire world