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DOCUMENT OF The World Bank Public Disclosure Authorized Report No. 15432-TUN STAFF APPRAISAL REPORT Public Disclosure Authorized REPUBLIC OF TUNISIA GREATER TUNIS SEWERAGE AND REUSE PROJECT Public Disclosure Authorized May 6, 1997 Private Sector Development, Finance and Infrastructure Operations Division Maghreb and Iran Department Middle East and North Africa Region Public Disclosure Authorized CURRENCY EQUIVALENTS (April 1997) Tunisian Dinar, TD 1,000 millimes TD I = US$0 9367 US$1 = TD 1.0676 TD I= FRF 5.305 FRF I TD 0.1885 ABBREVIATIONS ft = foot m = meter ha hectare mm = millimeter 3 km = kilometer Mm = million of cubic meters 3 inh = inhabitant m /sec = cubic meters per second lcpd = liters per capita per day min = minute MEASURES AND EQUIVALENTS Metric System U.K. Svstem Kilometer (km) = 0.62 mile (mi) Meter (m) = 3.28 feet (ft) Cubic meter (m3) = 220 gallons (g) Million cubic meters/year (Mm3/year) 0.603 million gallons/day (Mgd) Liter (1) = 0.220 gallon (g) Liters per second (1/sec) = 19,000 gallons per day (gd) Vice President Kemal Dervi§ Director : Daniel Ritchie Division Chief Amir AI-Khafaji Task Manager Mohammed Benouahi GLOSSARY OF ACRONYMS ANPE Agence Nationale pour la Protection de l'Environnement BOT = Build Operate and Transfer CRDA = Commissariat RKgional au Developpement Agricole DGR = Direction Generale du Genie Rural ERR Economic Rate of Return FODEP Fonds de Depollution FRF French Franc ICB International Competitive Bidding IBRD International Bank for Reconstruction and Development KfW Kreditanstaltfur Wiederaujbau LRAIC Long Run Average Incremental Cost LRMC Long Run Marginal Cost MoA Ministry of Agriculture NCB National Competitive Bidding OED Operations Evaluation Department ONAS Office National de l'Assainissement PSA Project Specific Assessment PSP Private Sector Participation RWB Receiving Water Body SA Special Account SEA Sector Environmental Assessment SOE Statement of Expenditures SONEDE Societe Nationale d'Exploitation et de Distribution des Eaux WHO World Health Organization WTP Willingness To Pay WWTP = Waste Water Treatrnent Plant FISCAL YEAR January 1 - December 31 REPUBLIC OF TUNISIA GREATER TUNIS SEWERAGE AND REUSE PROJECT STAFF APPRAISAL REPORT TABLE OF CONTENTS LOAN AND PROJECT SUMMARY .......................................................... i L THE WATER SUPPLY AND SANITATION SECTOR .........................................................1I Background, Water Resources, and Sector Organization ....................................................1 Water Resource and Sewerage Sector Strategy .......................................................... 2 Impact of the Sector on the Environment ......................................................... 3 Reuse of Treated Waste Water ......................................................... 4 Industrial Pollution......................................................... 5 Private Sector Participation (PSP).......................................................... 6 Bank Involvement in the Sector ......................................................... 7 II. THE PROJECT .................................................... 8 The Sewerage Investment Program .................................................... 8 Project Objectives .................................................... 8 Project Description .................................................... 8 Project Cost Estimates ................................................... 10 Project Financing ................................................... 11 International Cooperation ................................................... 11 Procurement and Contract Review................................................... 12 Disbursements ................................................... 14 Special Account (SA)................................................... 15 Audits, Accounting, and Insurance ................................................... 16 Project Implementation and Monitoring ................................................... 16 IIL FINANCIAL ANALYSIS........................................................ 17 Past and Current Financial Performance of ONAS........................................................ 17 Future Financial Performance of ONAS ........................................................ 18 IV. SOCIOECONOMIC ANALYSIS AND ENVIRONMENTAL IMPACT ............................19 Economic Analysis........................................................ 19 Demand Analysis......................................................... 19 Long-Run Average Incremental Costs........................................................ 20 Tariff Structure and Subsidies........................................................ 21 Economic Analysis of the Greater Tunis Project ......................................................... 22 Poverty Alleviation and Affordability ........................................................ 24 Environmental Assessment........................................................ 24 V. AGREEMENTS REACHED AND RECOMMENDATIONS ................................................25 TABLES Table 2.1: Project Cost Estimates........................... 10 Table 2.2: FinancingPlan ........................... 11 Table 2.3: ProcurementMethod ........................... 13 Table 2.4: Bank Loan Disbursement Categories ........................... 14 Table 2.5: Estimated Schedule of Disbursements ........................... 15 LIST OF ANNEXES 1. ONAS Organization .................................................. 30 2. Detailed Project Description .................................................. 31 3. Cost Estimates .................................................. 36 4. Estimated Schedule of Disbursement.................................................. 46 5. Sewerage Tariffs.................................................. 48 6. Performance Indicators .................................................. 49 7. Role of the Private Sector .................................................. 51 8. Assumptions of ONAS' Past Financial Performance and Projections ..................................55 9. Socioeconomic Evaluation and Economic Analysis of Subprojects ......................................89 10. Environmental Assessment and Mitigation Plan.109 I1. Implementation Schedule.125 12. Supervision Plan. 126 13. List of Contracts and Procurement Methods . 127 14. The Reuse of Treated Waste Water in Agriculture .129 15. Contrat-Programne between the Government and ONAS. 140 16. Selected Documents in Project File. 176 MAPS: IBRD Nos. 27729 and 27730 Vice President: Kemal Dervi~ Director: Daniel Ritchie DivisionChief: Amir Al-Khafaji Task Manager: Mohammed Benouahi This reportwas preparedand writtenby MohammedBenouahi (Senior Financial Analyst,Task Manager), Laura Raimondo(Economnist), Dalila Tadjerouni(Urban and EnvironmentalSpecialist), and Johan Van Beuzekom (SanitaryEngineer, Consultant). It is basedon the findingsof an appraisal missionto Tunisia in December1996. Vincent Gouamneand David Hanrahan were the peer reviewers. The RegionalVice President is Mr. Kemal Dervi~;the Director,Mr. Daniel Ritchie (MNIDR);and the responsibleDivision Chief,Mr. Amir Al-Khafaji (MNIPI). -i- REPUBLIC OF TUNISIA GREATER TUNIS SEWERAGEAND REUSE PROJECT LOANS AND PROJECT SUMMARY Borrowers Republic of Tunisia and Office National de l'Assainissement (ONAS), with the Guarantee of the Republic of Tunisia. Beneficiaries The Ministryof Agriculture(MoA) and ONAS. Poverty Categor: NA Amounts : Republicof Tunisia: FRF 57 million(US$10 millionequivalent) ONAS: FRF 283 million(US$50 millionequivalent) Terms : Fixed rate single currency, repayablein 15 years, including3 years of grace, with an expected disbursementperiod of six years. CommitmentFee Standard. FinancingPlan See para. 2.8 Economic Rate of Return 24 percent using the consumer surplus analysisto estimate benefits (lower case scenario) Staff AppraisalReport : 15432-TUN Maps No. : IBRD 27729 and IBRD 27730 Project Identification : 5731 REPUBLIC OF TUNISIA GREATER TUNIS SEWERAGEAND REUSE PROJECT STAFF APPRAISAL REPORT L THE WATER SUPPLY AND SANITATIONSECTOR Back2round,Water Resources, and Sector Organization 1.1 Background. Tunisia is a middle-incomecountry located on the southem rim of the MediterraneanSea with a populationof approximately8.8 millionthat is growing at 1.9 percent a year. It occupies an area of 160,000 km2 that has few natural resources. The Atlas Mountains, which run from west to east about 280 km south of the northern coastline,separate the country into two distinct regions. To the north of the Atlas Mountains is a semi-aridarea where the majority of the population lives; this is where most of the fresh surface water and arable land is found. The majority of industrial and other economic activitiesare concentratedin the northern coastal areas. To the south of the Atlas Mountainsis the Sahara Desert, which has scant population, water, and industrial activity. Per capita availablewater resources in the country are 531 m3 a year. The mean annual rainfall is approximately 0.6 m in the northern region and approximately0.1 m in the southern region. 1.2 The Tunisianeconomy is a captive of both the weather and tourism. Economic growth averaged 4.5 percent a year between 1987 and 1994, 2.4 for 1995 and 6.9 projected for 1996. Tunisia has experienced three serious draughts in the last twelve years, each causing poor harvest and a concurrent drop in domestic consumption. Although there was a 24 percent reduction in agricultural output as