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.4 8 - )s (>0 Z(1 '- /// ilocument ot The World Bank FOR JFtICIAI L'SE ONLVh Public Disclosure Authorized Report No. 12357-AL STAFF APPRAISAL REPORT DEMOCRPTIC AN) POPULAR REPUBLIC OF ALGERIA Public Disclosure Authorized WATER SUPPLY AND SEWERAGE REHABILITATION PROJECT MAY 5, 1994 Public Disclosure Authorized Public Disclosure Authorized Infrastructure Operations Division Maghreb and Iran Department Middle East and North Africa Regional Office This document has a restricted distribution and may be used by recipients orly in the performance of their official duties. Its contents may not otherwise be disclosed without A arld Bank authorization. EXCHANGE RATE Currency Unit: Algerian Dinar (DA) - 100 Centiies Eguivalency of 1 US5 in DA since 1985 1985 5.03 1986 4.70 19878 4.85 1988 5.92 1989 7.46 1-990 8. (10 1991 17.35 199? 22.49 1993 22.00 1994 (APRIL 12) 36.00 ABBREVIATIONS bbl/d : barrels per day mm : millimecer ha : hectare MM3 : million of cubic meters Km kilometer MMT : million of metric tons lcpd : liters per capita per day m3 / : cubic meters per second GLOSSARY OF ACRONYMS AGEP : Agence Nationale de 1'Eatt Potable et Industrielle et de 1'Assainissement AGID : Agence Nationale de Rdalisation et de Gestion des Infrastructures Hydrauliques pour Irrigation et le Drainage ANB : Agence Nationale des Barrages ANID : Agence Nationale d'Irrigation et de Drainage ANRH : Agence Nationale des Ressources Hydrauliques DGAIH : Direction des Grands Amenagements et Infrastructures Hydrauliques DHW : Direction de l'Hydraulique de la Wilaya DRFUE : Direction de la Reglementation, de la Protection et de l'Usage de 1'Eau EPA : Entreprise Publique Administrative EPDEMIA : Etablissement Public de Gestion e; de Distribution des Eaux Kdnageres et Industrielles et de l'Assainissement EPE : Entreprise de Production d'Eau EPEA : Entreprise de Production, de Gestion et de Distribution d'Eau d'Annaba EPEOR : Entreprise de Production, de Gestion et de Distribution d'Eau d'Oran EPIC : Entreprise Publique, Industrielle et Commerciale GOA : Government of Algeria MA : Ministere de l'Agriculture ME : Ministere de 1'Equipement SEDAL : Socift6 des Eaux de l'Agglomeration d'Alger WILAYA(TE) : Province(s) FOR OFFCIAL USE ONLY DEMOCRATICAND POPULAR REPUBLIC OF ALGERIA VATER SUPPLY AND SEWERAGE REHABILITATION PROJECT Table of Contents LOAN AND PROJECT SUMARY . .. .. .. I. INTRODUCTION. II. THE URBAN WATER SUPPLY AND SEWERAGE SECTOR. 3 General Features . 3 Population Distribution . , 3 Water Resources. 4 Service Levels. 4 Institutional Arrangements . 5 Investments in the Sector . 6 Industrial Water Demand . 6 Finances . 7 Staffing and Management.8 The Bank Experience in the Sector . 8 Environmental Aspects . 9 III. THE PROPOSED PROJECT. 9 Project Genesis and Concept . 9 Objectives of the Project . 10 Project Description . 11 Institutional Reforms . 12 Cost Estimates . 13 Project Execution . 14 Project Financing . 15 Cost Recovery . 15 Procurement . 15 Disbursement . 17 IV. PROJECT IMPLEMENTATIONAND OPERATION. 18 Executing Agency . 18 Operation and Maintenance . 19 Technical Assistance . 19 Reporting . 20 Project Accounts and Audit . 20 V. WATER SUPPLY MANAGEMENT . 20 Background . 20 Sector Structure . 21 Concessionary Arrangements . 22 Organizationand Management . 23 Staffing . 23 Commercial Operations .................... 23 Accotnting System . 24 Other Management Procedures . 24 This report was prepared and written by Mr. Fritz Rodriguez (MNIIN); Mr. Charles Sterling (MNIIN); and Mr. Alain F. Thys (Consultant). Thisdocumt hasa rstricted distrbutionand maybe usedby cpient oy in*te pefrmm of their officil dutes Itscontents may not otherwiebe hdislosedwihout World D *nautoizaton Table of Contents (continued) VI. FINANCIALANALYSIS . 24 Overview . I . 24 Past and Present FinancialPerformsnce . 25 Revenues and Costs . 25 Financing Plan . 27 Future FinancialPerformance . 27 Monitoring System . 28 VII. ECONOMIC JUSTIFICATION . 28 Project Benefits . 28 Least-Cost Alternative . 29 Economic Return . 29 Economic Efficiency . 29 EnvironmentalImpact . 30 InstitutionBuilding . 30 Risks . 31 VIII. AGREEMENTS REACHED AND RECOMMENDATION . 31 LIST OF ANNEXES 1. Land and Water Resources 2. Cost of Water Supply Services in 1992 3. ProjectedCost of Water Supply Services in 1994 4. Contract Model for OptimizingWater SttpplyOperations 5. Selection Criteria for Sewage Plant Rehabilitation 6. List of Studies and Operational.Equipment to be Procured 7. Program for UpgradingMeteorological Recording Operations 8. Terms of Referencefor Management Studies of Surface Water and Groundwaterin Soummam Valley 9. Detailed Cost Estima.es 10. Price E&calationCalculation 11. Project ImplementationSchedule 12. List of Contractsto be Placed for the Project 13. Estimated Schedule of Disbursements 14. AGEP's OrganizationalChart - 1993 15. Terms of Reference for TechnicalAssistance to AGEP 16. Water S-pply Operationsin the ProjectArea 17. ConcesssionaryArrangements for Managing Urban Water Supply Services 18. Contract de Gestion pour l'Exploitationdes Services Publics d'Alimentationen Eau Potable 19. Lettre Traitant des Politiquesde D6veloppementdu Secteurde l'Eau 20. EPEA's OrgantzationalChart - 1992 21. EPEOR's OrganizationalChart - 1992 22. Proposed OrganizationalChart for Regional Water Utilities 23. Terms of Reference for Setting out CommercialOperations of Water Utilities 24. EPEA - Income, Balance Sheet, and Cash Flow Statements 25. EPEOR - Income, Balance Sheet, and Cash Flow Statements 26. Assumptionsfor FinancialProjections 27. Monitoring Indicators 28. Assumptionsfor Economic Evaluationof the Project 29. Selected Documentsand Data Available in the Project File Man-No. IBRD 25235 DEMOMRATICAM POPUIARREPUBLIC OF ALGERI WATE SUPPLY AND SW AG U ITATIOX PQJECT LOANAND RJT S Y Borrowei: : Democraticand Popular Republic of Algeria Not applicable. hmwunit : US$110 million equivalent Zeama : Repayable in 17 years including5 years of grace, at the standardvariable interest rate. Poverty Cateorv: Not applicable. Proiect Descrltion : The project seeks to restructurethe urben water supply sector by contracting out a number of its operations, such as leak detection and repair, optimizationof meter readingand billing, and network recalibrationand mapping,with privateentrepreneurs. It advocates the creation of self-financingwater utilities that would operate under concession agreements with the Government. To promote water conservation, the report recommends chrArging the true economic cost of the services to consumers. Until now, a national tariff structure has been applied for water services, with no provision for capital consumption and expansion. The project proposes changing this policy by levying regional tariffs that would cover both operating and maintenance costs, and the concession fees. The Government would use these fees to finance asset renewal and expansion. As large volumes of water produced are now unaccounted for, the project includes a network rehabilitation program aiming at reducing water losses. Most wastewater treatment plants in Algeria are currently inoperative. As a result, water pollution is spreading around the large urban agglomerations, damaging the natural environment. To mitigate these damages, the project proposes the rehabilitation of a number of existing wastewater treatment plants. Under the project, institutional development assistance would be provided to three specialized agencies of the Ministry of Equipment: AGEP, ANB, and ANRH. This assistance would aim at improving project evaluation procedures in these agencies. Project benefits would encompass the recovery of 32 Mm3 of annual water production that is now lost, and substantial improvement of water quality in the country. Project execution faces some risks relating to the Government not living up to its obligations under the concession agreements. Other - ii1 risks r late to the extent and cost of the rehabilitation works, which cannot be determined accurately, and to possible slow pace of their execution. These risks are inherentto the nature of that type of works. To minimize the first risks, Bank review and approval of the concession agreements is proposed, to be followed by a mid-term review in the summer of 1997. To diminishthe second ones, a number of seminars are - scheduled to take place at project inception, to discuss strategies for quick project implementation. Fstimated Cost Cal Foreign Total -US$ Million- Water System Rehabilitation 24.5 46.0 70.5 Sewage Plant Rehabilitation -. 5 ..7.8 L Subtotal 30.0 53.8 83.8 Physical Contingencies 3.0 5.4 8.4 Project Impiementation 1.8 3.2 5.0 Project Preparation 1.5 10.0 11.5 OperationalEquipment 0.8 8.7 9.5 InstitutionalDevelopment 9.O 112 Total Base Cost (Mid-1993prices) 39.3 90.1 129.4 Price Escalation 2L2. 19.9 40.6 TOTAL PROJECT COST1 60. 11.0. FinancimgPlan ConcessionFees 54.1 -- 54.1 Government 5.9 . 5.9 IBRD - 110.0 Total Sources 60.0 110.0 170.0 Zstmated Disbsementg BkE* 1995 199£ 1222211222 21 2 Annual 7.3 15.4 19.2 18.9 17.6 15.6 11.3 4.7 Cumulative 7.3 22.7 41.9 60.8 78.4 94.0 105.3 110.0 Economic Rate of Return About 17 percent on the aggregate investments, excluding those for reaabilitating existing wastewater treatment plants, accounting for about 12 percent of the total project cost. Staff AnRraisalLenoOt : 12357-AL IBRD 25235 I/ Inoclud,, 55816.S mllion .quvalemt in taes maddutlsa. DEMOCRATICAnE POPULAR REPUBLIC OF ALGERI WATER SUPPLY AND SEWERAGEREHABILITATION PR.OJECT STAFF APPRAISAL REPQRT I. INTRODUCTION 1.01 This report appraisesa work programfor